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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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COMMISSION FILE NUMBER 0-16760
MGM GRAND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 88-0215232
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3799 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(702) 891-3333
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -----------------------
Common Stock, $.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [_]
The aggregate market value of Registrant's Common Stock held by non-
affiliates (based on the closing price on the New York Stock Exchange-
Composite Transactions on March 13, 1997) was approximately $737 million. As
of March 13, 1997, 57,863,526 shares of Registrant's Common Stock, $.01 par
value, were outstanding.
Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1996 are incorporated by reference into Part II of this
Form 10-K. Portions of the Registrant's Proxy Statement dated March 28, 1997 are
incorporated by reference into Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
GENERAL
MGM Grand, Inc. (the "Company") was organized as a Delaware corporation on
January 29, 1986.
Through its wholly-owned subsidiary, MGM Grand Hotel, Inc., the Company owns
and operates the MGM Grand Hotel and Casino ("MGM Grand Las Vegas"), a
hotel/casino entertainment complex offering a full range of destination resort
amenities. The resort is located on approximately 113 acres at the northeast
corner of Las Vegas Boulevard South (the "Strip") and Tropicana Avenue, the
"New Four Corners," in Las Vegas, Nevada, across the street from New York-New
York Hotel and Casino. MGM Grand Hotel Finance Corp. ("MGM Finance"), a
wholly-owned subsidiary of the Company, was formed to issue First Mortgage
Notes to the public, to incur bank debt, and to lend the aggregate proceeds
thereof to MGM Grand Hotel, Inc. to finance the construction and opening of
MGM Grand Las Vegas. The MGM Finance First Mortgage Notes were defeased on
July 3, 1996 in accordance with the terms of the bond indenture, and on
October 29, 1996, all Company asset liens related thereto were released and
the defeasance was finalized.
Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the
Company owns and operates the MGM Grand Diamond Beach Hotel and Casino ("MGM
Grand Australia"), a hotel/casino resort in Darwin, Australia. MGM Grand
Australia is located on 18 acres of beachfront property on the north central
coast of Australia. The resort includes a public and private casino, 96 rooms
and suites, restaurants, and other facilities.
The Company and Primadonna Resorts, Inc. ("Primadonna") each own 50% of New
York-New York Hotel and Casino, LLC. ("NYNY LLC"), which completed development
of the $460 million architecturally distinctive themed destination resort
called New York-New York Hotel and Casino ("NYNY") in December 1996, and which
opened on January 3, 1997. NYNY is located on approximately 20 acres at the
northwest corner of Tropicana Avenue and the Strip, across from MGM Grand Las
Vegas. NYNY features a 2,033-room hotel, an 84,000 square foot casino, themed
entertainment attractions, restaurants, and retail outlets.
Through its wholly-owned subsidiary MGM Grand Atlantic City, Inc., the
Company intends to construct and operate a destination resort hotel/casino,
entertainment and retail facility in Atlantic City. On July 9, 1996, the
Company entered into an agreement with FC Atlantic City Associates, L. P. (an
affiliate of the Forest City Ratner Company) to develop approximately 35 acres
of land on the Atlantic City Boardwalk. Construction of the project is subject
to the receipt of various governmental approvals. The plans for the hotel and
casino resort include, among other features, approximately 335,000 square feet
of entertainment and retail facilities. On July 24, 1996, the Company was
found suitable for licensing by the New Jersey Casino Control Commission.
On July 30, 1996, the Company entered into an agreement with Tsogo Sun
Holdings (Pty) Limited ("Tsogo Sun"), a joint venture company formed by the
Southern Sun Group and Tsogo Investment Holding Company (Pty) Limited, to act
as the exclusive casino project developer and manager for the joint venture
company, which contemplates applying for approximately 15 casino licenses in
the Republic of South Africa. Under the agreement, the Company will earn fees
for the development and management of all casino operations of Tsogo Sun.
Tsogo Sun will provide or procure all of the financing necessary for the
hotel/casino projects. The National Gambling Act was approved and assented to
by the president of the government of South Africa on June 27, 1996. On
January 7, 1997, Tsogo Sun was named the preferred finalist for two of the
three gaming licenses in Mpumalanga Province of the Republic of South Africa.
The Mpumalanga Gaming Board is anticipated to grant licenses before the end of
April 1997.
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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.
For certain information about the Company's industry segments, see Note 19
to the Company's Consolidated Financial Statements.
The Company's principal executive offices are located at 3799 Las Vegas
Boulevard South, Las Vegas, Nevada 89109. The Company's telephone number is
(702) 891-3333.
HOTELS AND GAMING
MGM Grand Las Vegas
MGM Grand Las Vegas, the Company's flagship property, is a multi-themed
destination resort, located on approximately 113 acres, which management
believes is a "must see" attraction for visitors to Las Vegas. The resort
opened on December 18, 1993, and has over 350 feet of frontage on the Strip
and 1,450 feet on Tropicana Avenue. The complex is easily accessible from
McCarran International Airport and from Interstate 15 via Tropicana Avenue.
MGM Grand Las Vegas creates an exciting and unique gaming and entertainment
experience which is intended to appeal to all segments of the Las Vegas
market.
The casino is approximately 171,500 square feet in size, and is one of the
largest casinos in the world. The casino has 3,708 slot machines and 163 table
games, a state of the art baccarat room, including private premium play
facilities, a poker room, a race and sports book, and a keno lounge. The
casino features four separate themed areas: Emerald City, Hollywood, Monte
Carlo, and Sports which enhance the entertainment experience of the casino
patron.
The hotel/casino, which management believes is the largest in the world, has
5,005 rooms, including approximately 4,254 typical guest rooms decorated in
five different themes: Deep South, Hollywood, Monte Carlo, Emerald, and
Casablanca. The hotel also has 751 luxury suites, which management believes is
more than any other Las Vegas hotel. These suites range in size from 650 to
6,000 square feet. The hotel provides guests with a state of the art health
spa, a swimming pool, and four lighted tennis courts.
Other entertainment facilities include: a theme park including thrill rides
and the new 250 foot high Sky Screamer Skycoaster; an 11,700 square foot
arcade containing carnival games of skill and an extensive video arcade
including virtual reality simulators; a 660 seat showroom providing celebrity
entertainment; a 1,774 seat showroom specifically designed for the EFX!
production show, the Company's original grand spectacle special effects stage
production; nine restaurants and a food court; 51 retail shopping outlets,
including 25 owned and 26 leased facilities; and a special events center,
which seats a maximum of 16,766 patrons, providing mega entertainment such as
Barbra Streisand, Bette Midler, the Rolling Stones, Rod Stewart, Neil Diamond,
Phil Collins, and Luther Vandross, as well as Mike Tyson and Evander Holyfield
boxing and various other sporting events.
In an effort to continue a legacy of providing exceptional entertainment
through the leveraging of its highly recognizable brand name, the Company has
embarked on an extensive transformation of MGM Grand Las Vegas into "The City
of Entertainment." The $250 million, 30-month Master Plan program is designed
to enhance the quality of the entertainment experience, and features a series
of substantive improvements and additions throughout its 113 acre destination
resort. Such enhancements will include an expansion of entertainment,
restaurant and retail shopping areas, a new convention center consisting of
approximately 300,000 square feet which will occupy approximately 15 of the
current 33 acres in the theme park, a significant enhancement to the major
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entrances and exteriors of the facility, and an upgrade of certain of the
property's luxury suites. The renovation and expansion began in June 1996 and
will be substantially complete by the end of 1998. The project has commenced
in phases in order to minimize disruption of operations. Additionally, the
lion entry will be substantially remodeled with exterior enhancements which
will create theatrical multimedia projection and light shows designed to
increase customer foot traffic at the property. As part of the enhancement
program, the Company anticipates introducing a new Entertainment Casino area
with dramatic live entertainment, themed restaurants, a nightclub and an
increase in the number of gaming positions by approximately 500.
MGM Grand Las Vegas uses the unique characteristics of the property to
target the following segments of the Las Vegas market: (i) free and
independent travelers; (ii) tour and travel; (iii) special events/conventions;
(iv) high-end gaming; and (v) local.
Las Vegas Market
MGM Grand Las Vegas operates in the Las Vegas market and is located on the
Strip. Las Vegas is the largest city in Nevada, with a metropolitan area
population in excess of one million and is one of the largest resort
destinations in the world.
Gaming has continued to be a strong and growing business in Las Vegas. Las
Vegas Strip gaming revenues have increased at a compound annual growth rate of
8.4% from $1.6 billion in 1986 to $3.6 billion in 1996.
The hotel/casino industry in Las Vegas is highly competitive. Several new
hotel/casinos opened during 1996 including Monte Carlo, Orleans and
Stratosphere. Additionally, several new resorts are under construction and
several other existing resorts are undergoing major expansion and renovation.
The Company's MGM Grand Las Vegas, Luxor, Caesars and others are in various
stages of expansion or remodeling. While some of the large themed resorts pose
direct competition with MGM Grand Las Vegas, the Las Vegas Convention and
Visitors Authority ("LVCVA") statistics show that tourism growth is increasing
at a rate which appears to be sufficient to absorb the increased room
capacity, as visitor volume for 1996 increased 2.2% over 1995. Total visitors
for 1996 exceeded 29.6 million.
The Company's 50% joint venture NYNY LLC completed construction of NYNY in
December 1996, and opened NYNY on January 3, 1997. The 47-story destination
resort replicates many of Manhattan's landmark buildings and icons, including
the Statue of Liberty, the Empire State Building, Central Park, the Brooklyn
Bridge, and a Coney Island-style roller coaster. Management believes that the
$460 million, 2,033 room and suite resort is architecturally the most
distinctive property ever built in Las Vegas. The 84,000 square foot casino
offers approximately 2,400 slot machines and 71 table games. NYNY is located
on the Strip at the "New Four Corners" directly across from MGM Grand Las
Vegas. NYNY has substantially increased foot traffic at the MGM Grand Las
Vegas since the two facilities became connected by an extension of the
existing elevated pedestrian walkway. The elevated pedestrian walkway, which
enters MGM Grand Las Vegas at the site of the old Emerald City, will, upon
completion of the Master Plan Project, lead into a dramatic new multimedia
mezzanine level overlooking the atrium of the new Entertainment Casino at MGM
Grand Las Vegas.
MGM Grand Las Vegas competes with gaming and resort facilities in Las Vegas
as well as gaming and resort facilities elsewhere in the world. To some
extent, state lotteries and state-authorized and locally approved card rooms,
such as those operating in California compete with the casino/hotel.
Gambling, with various limitations and conditions, is currently legal in
numerous locations throughout the United States. The proliferation of such
gaming facilities on riverboats and elsewhere is increasing. Also, as a result
of certain legislative and court decisions, casino-type operations are being
established at various Native American reservations throughout the country.
The development
3
of full service casinos in California would likely have a negative effect on
MGM Grand Las Vegas and NYNY operations in Nevada. Furthermore, pursuant to a
recent California State Assembly Legislative report, it is estimated that
12,000 slot machines are operating in various jurisdictions in California, the
legality of which is the subject of dispute between the State of California
and various Native American tribes. See "Competition."
Insurance
MGM Grand Las Vegas carries insurance of the type customary in the hotel and
casino industry and in amounts deemed adequate by management to protect the
properties. The policies provide business and commercial coverages, including
workers' compensation, third party liability, property damage, boiler and
machinery, and business interruption.
Nevada Government Regulation
The ownership and operation of casino gaming facilities in Clark County,
Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations
promulgated thereunder (collectively, the "Nevada Act"); and (ii) various
local regulations. The Company's gaming operations are subject to the
licensing and regulatory control of the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada State Gaming Control Board (the "Nevada Board"), and
the Clark County Liquor and Gaming Licensing Board (the "CCLGLB"). The Nevada
Commission, the Nevada Board, and the CCLGLB are collectively referred to as
the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices of licensees, including the establishment of minimum procedures for
internal fiscal affairs and the safeguarding of assets and revenues; (iii)
providing reliable record keeping and requiring the filing of periodic reports
with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Any change in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.
MGM Grand Las Vegas operates a casino and is required to be licensed by the
Nevada Gaming Authorities. The gaming license requires the periodic payment of
fees and taxes and is not transferable. MGM Grand Las Vegas is also licensed
as a manufacturer and distributor of gaming devices, as the operator of the
racebook and sportspool at NYNY, and as one of the two managers of NYNY. The
Company is also required to be registered by the Nevada Commission as a
publicly traded corporation ("Registered Corporation") and as such, it is
required periodically to submit detailed financial and operating reports to
the Nevada Commission and furnish any other information that the Nevada
Commission may require. No person may become a stockholder of, or receive any
percentage of profits from, MGM Grand Las Vegas or NYNY without first
obtaining licenses and approvals from the Nevada Gaming Authorities. The
Company, MGM Grand Las Vegas and NYNY have obtained from the Nevada Gaming
Authorities the various registrations, approvals permits and licenses required
in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, MGM Grand
Las Vegas or NYNY to determine whether such individual is suitable or should
be licensed as a business associate of a gaming licensee. Officers, directors
and certain key employees of MGM Grand Las Vegas and NYNY must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers,
directors and key employees of the Company who are
4
actively and directly involved in the gaming activities of MGM Grand Las Vegas
or NYNY may be required to be licensed or found suitable by the Nevada Gaming
Authorities. The Nevada Gaming Authorities may deny an application for
licensing for any cause they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. The applicant for
licensing or a finding of suitability, or the gaming licensee by whom the
applicant is employed or for whom the applicant serves, must pay all the costs
of the investigation. Changes in licensed positions must be reported to the
Nevada Gaming Authorities, and in addition to their authority to deny an
application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, MGM Grand Las Vegas or NYNY, such company or
companies would have to sever all relationships with such person. In addition,
the Nevada Commission may require the Company, MGM Grand Las Vegas or NYNY to
terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
The Company, MGM Grand Las Vegas and NYNY are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales or securities and similar financing transactions
by the Company, MGM Grand Las Vegas and NYNY must be reported to or approved
by the Nevada Commission.
If it were determined that the Nevada Act was violated by MGM Grand Las
Vegas or NYNY, the gaming licenses they hold could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, MGM Grand Las Vegas, NYNY, the Company and
the persons involved could be subject to substantial fines for each separate
violation of the Nevada Act at the discretion of the Nevada Commission.
Further, a supervisor could be appointed by the Nevada Commission to operate
the Company's gaming properties and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the reasonable
rental value of the gaming properties) could be forfeited to the State of
Nevada. Limitation, conditioning or suspension of any gaming license or the
appointment of a supervisor could (and revocation of any gaming license would)
materially adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be
investigated, and have their suitability as a beneficial holder of the
Company's voting securities determined if the Nevada Commission has reason to
believe that such ownership would otherwise be inconsistent with the declared
policies of the State of Nevada. The applicant must pay all costs of
investigation incurred by the Nevada Gaming Authorities in conducting any such
investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of
the Company's voting securities apply to the Nevada Commission for a finding
of suitability within thirty days after the Chairman of the Nevada Board mails
the written notice requiring such filing. Under certain circumstances, an
"institutional investor" as defined in the Nevada Act, which acquires more
than 10% but not more than 15% of the Company's voting securities, may apply
to the Nevada Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes
only. An institutional investor shall not be deemed to hold voting securities
for investment purposes unless the voting securities were acquired and are
held in the ordinary course of business as an institutional investor and not
for the purpose of causing, directly or indirectly, the election of a majority
of the members of the board of directors of the Company, any change in the
Company's corporate charter, bylaws, management, policies or
5
operations of the Company or any of its gaming affiliates, or any other action
which the Nevada Commission finds to be inconsistent with holding the
Company's voting securities for investment purposes only. Activities that are
not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders;
(ii) making financial and other inquiries of management of the type normally
made by securities analysts for informational purposes and not to cause a
change in its management, policies or operations; and (iii) such other
activities as the Nevada Commission may determine to be consistent with such
investment intent. If the beneficial holder of voting securities who must be
found suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and
who holds, directly or indirectly, any beneficial ownership of the common
stock of a Registered Corporation beyond such period of time as may be
prescribed by the Nevada Commission may be guilty of a criminal offense. The
Company is subject to disciplinary action if, after it receives notice that a
person is unsuitable to be a stockholder or to have any other relationship
with the Company, MGM Grand Las Vegas or NYNY, and subsequently the Company,
MGM Grand Las Vegas or NYNY (i) pays that person any dividend or interest upon
voting securities of the Company; (ii) allows that person to exercise,
directly or indirectly, any voting right conferred through securities held by
that person; (iii) pays remuneration in any form to that person for services
rendered or otherwise; or (iv) fails to pursue all lawful efforts to require
such unsuitable person to relinquish his voting securities for cash at fair
market value. Additionally, the CCLGLB has taken the position that it has the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file an application, be investigated
and be found suitable to own the debt security of a Registered Corporation. If
the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered Corporation can be
sanctioned, including through the loss of its approvals, if without the prior
approval of the Nevada Commission, it: (i) pays to the unsuitable person any
dividend, interest, or any distribution whatsoever; (ii) recognizes any voting
right by such unsuitable person in connection with such securities; (iii) pays
the unsuitable person remuneration in any form; or (iv) makes any payment to
the unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada that
may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. The Company is also required to disclose
the identity of the beneficial owner to the Nevada Gaming Authorities. A
failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company is also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has
the power to require the Company's stock certificates to bear a legend
indicating that such securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on the Company.
The Company may not make offerings of any securities without the prior
approval of the Nevada Commission if the securities or the proceeds therefrom
are intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. Such
approval, if given, does not constitute a finding, recommendation or approval
by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of
the prospectus or the investment merits of the securities. Any representation
to the contrary is unlawful.
6
On July 25, 1996, the Nevada Commission granted the Company prior approval
to make public offerings for a period of one year, subject to certain
conditions (the "Shelf Approval"). However, the Shelf Approval may be
rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board. The Shelf
Approval does not constitute a finding, recommendation or approval by the
Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities offered. Any
representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by any person whereby he or she obtains control, may not occur without the
prior approval of the Nevada Commission. Entities seeking to acquire control
of a Registered Corporation must satisfy the Nevada Board and the Nevada
Commission concerning a variety of stringent standards prior to assuming
control of such Registered Corporation. The Nevada Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process of
the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevadas gaming industry and to further Nevadas policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before the Company can make exceptional repurchases of
voting securities above the current market price thereof and before a
corporate acquisition opposed by management can be consummated.
The Nevada Act also requires prior approval of a plan of recapitalization
proposed by the Company's board of directors in response to a tender offer
made directly to the Registered Corporation's stockholders for the purposes of
acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to Clark
County, Nevada. Depending upon the particular fee or tax involved, these fees
and taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
main devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by MGM Grand Las Vegas and NYNY where certain
entertainment is provided in a cabaret, nightclub, cocktail lounge or casino
showroom in connection with the serving or selling of food, refreshments, or
merchandise. Casino entertainment tax is also paid for admission, food and
refreshments at a bar located adjacent to a cabaret nightclub, cocktail lounge
or casino showroom if portions of the bar can clearly see and hear the
entertainment, or at a location adjacent to those venues if such locations'
primary purpose is to provide refreshment to patrons viewing entertainment in
the cabaret, nightclub, cocktail lounge or casino showroom. Nevada licensees
that hold a license as a manufacturer or a distributor, such as MGM Grand Las
Vegas and NYNY, also pay certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside
of Nevada, is required to deposit with the Nevada Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the expenses of
investigation of the Nevada Board of their participation in such foreign
gaming. The revolving fund is subject to
7
increase or decrease at the discretion of the Nevada Commission. Thereafter,
Licensees are also required to comply with certain reporting requirements
imposed by the Nevada Act. Licensees are also subject to disciplinary action
by the Nevada Commission if they knowingly violate any laws of the foreign
jurisdiction pertaining to foreign gaming operation, fail to conduct the
foreign gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engage in activities that are
harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ a person in a foreign operation who has been denied a license
or a finding of suitability in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages by MGM Grand Las Vegas is subject to
licensing, control and regulation by the applicable local authorities. All
licenses are revocable and are not transferable. The agencies involved have
full power to limit, condition, suspend or revoke any such license, and any
such disciplinary action could (and revocation would) have a material adverse
effect upon the Company's operations.
Pursuant to a 1985 agreement between the State of Nevada and the United
States Department of the Treasury (the "Treasury"), the Nevada Commission and
the Nevada Board have authority, under Regulation 6A of the Nevada Act, to
enforce their own cash transaction reporting laws applicable to casinos which
substantially parallel the federal Bank Secrecy Act. Under the Money
Laundering Suppression Act of 1994 which was passed by Congress, the Secretary
of the Treasury retained the ability to permit states, including Nevada, to
continue to enforce their own cash transaction reporting laws applicable to
casinos. The Nevada Act requires gaming licensees to file reports related to
cash purchases of chips, cash wagers, cash deposits or cash payment of gaming
debts, if any such transactions aggregate more than $10,000 in a 24-hour
period. Casinos are required to monitor receipts and disbursements of currency
in excess of $10,000 and report them to the Nevada Board, which in turn
reports them to the Treasury. Although it is not possible to quantify the full
impact of these requirements on the Company's business, the changes are
believed to have had some adverse effect on results of operations since
inception.
On November 28, 1994, the Treasury enacted amendments (effective December 1,
1994) to the federal regulations under the Bank Secrecy Act. The amendments
require casinos subject to the Bank Secrecy Act to implement written programs
no later than June 1, 1995 to assure and monitor compliance with the Bank
Secrecy Act. Although Nevada casinos are exempt from Title 31, the Treasury
has requested the Nevada Commission to enact amendments to the Nevada Act that
will parallel in many respects the amendments to the Bank Secrecy Act. These
amendments to the Nevada Act will require suspicious activity reporting and
both MGM Grand Las Vegas and NYNY will, in the future, be required to
implement programs of this type.
Regulation and Taxes
As stated above, the Company is subject to extensive regulation by the
Nevada Gaming Authorities. The Company will also be subject to regulation,
which may or may not be similar to that in Nevada, by the appropriate
authorities in any other jurisdiction where the Company may conduct gaming
activities in the future. Changes in applicable laws or regulations could have
an adverse effect on the Company.
The gaming industry represents a significant source of tax revenues to the
State of Nevada and Clark County. From time to time, federal and state
legislators and officials have proposed changes in tax law, or in the
administration of such law, affecting the gaming industry. Recent proposals
have included a federal gaming tax and increases in state or local gaming
taxes. They have also included limitations on the federal income tax
deductibility of the cost of furnishing certain complimentary promotional
items to customers, as well as various measures which would require tax
withholding on
8
amounts won by customers. It is not possible to determine with certainty the
likelihood of possible changes in tax law or in the administration of such
law. Such changes, if adopted, could have a material adverse effect on the
Company's financial results.
Competition
The hotel industry is highly competitive. Hotels located on or near the
strip ("Strip Hotels") compete primarily with other Strip Hotels and with a
few major hotels in downtown Las Vegas. Strip Hotels offering similar prices
compete with each other primarily on the basis of quality of rooms,
restaurants and facilities, entertainment offered, complimentary goods and
services given, credit limits and quality of personal attention offered to
guests and casino customers. The Company's hotel/casino operations also
compete with a large number of hotels and motels, and gaming facilities not
related to hotels or motels, located in and near Las Vegas. Some of the
Company's competitors may have greater resources.
According to the LVCVA, as of December 31, 1996, there were approximately
101,000 hotel and motel rooms in the Las Vegas area (including the Company's
NYNY which was completed prior to December 31, 1996 and which opened on
January 3, 1997). In addition, the LVCVA reports projects under construction
and/or proposed for future development of approximately 25,500 more hotel and
motel rooms, including one themed hotel/casino property currently under
construction on the Strip between Tropicana and Flamingo Avenues.
Additionally, Circus-Circus has publicized its intent to commence additional
projects which will add additional themed hotel/casino facilities south of
Luxor. The Company cannot make any prediction as to how many additional rooms
will be constructed in Las Vegas. The Company's future operating results could
be adversely affected by excess Las Vegas rooms and gaming capacity.
In addition to competing with hotel/casino facilities elsewhere in Nevada
(i.e., the Reno/Lake Tahoe areas and the Laughlin area) and in Atlantic City,
the Company competes with hotel/casino facilities elsewhere in the world and
with state lotteries. Certain states are currently considering legalizing
casino gaming in specific geographic areas, and several other states have
recently legalized casino gaming. This growth has been driven by the expansion
of traditional land-based casino destinations and the continued development of
new riverboat and Native American reservation casinos throughout the United
States. Currently, casinos are operating or are approved in 26 states.
Elsewhere in North America, nearly all of the Canadian provinces and
territories offer some form of casino gaming. Legalized casino gaming in other
states could adversely affect the Company's activities in Las Vegas,
particularly if such legalization were to occur in areas close to Nevada, such
as California. Additionally, certain gaming operations are conducted or have
been proposed on federal Native American reservations, including those located
in the primary market to be served by MGM Grand Las Vegas. In addition, with
respect to group bookings, the Company's hotel/casino facilities in Las Vegas
also compete with hotels and resorts, which do not include casinos, throughout
the United States. See "Las Vegas Market."
MGM GRAND AUSTRALIA
On September 7, 1995, the Company, through its wholly-owned subsidiary, MGM
Grand Australia Pty Ltd., completed the acquisition of the MGM Grand Australia
in Darwin, Northern Territory, Australia. MGM Grand Australia is located on 18
acres of beachfront property next to the Arafura Sea on the north central
coast. The resort includes a public and private casino, 96 rooms, restaurants
and other facilities. Casino operations include table games, slots ("poker
machines") and keno.
The success of MGM Grand Australia is based in part upon its strategic
location to the South East Asian gaming market. The Darwin International
Airport is an average of 5.5 hours away from the major Asian cities. However,
frequency of scheduled air service is a limiting factor.
9
There exist 14 casinos in Australia competing for the Far East Market.
Australian casinos operate under exclusive arrangements, which create a
regional monopoly for a fixed term. As such, Australian casinos do not compete
among themselves for the regional middle to low end players. However, Far East
premium players have become an increasingly important source of revenues;
consequently, this market has become very competitive. Competition for the Far
East premium player is increasing, as evidenced by the gaming activity in
Kuala Lumpur and Macau, the recent growth in the number of casinos operating
in Australia, and an increase in the number of casino cruise ships. Due to the
increasing competition and the limitations on scheduled air service, the
desired mixture of premium players has not been attained at MGM Grand
Australia. As a result, the operating margins have been negatively impacted
and future operating results could be adversely affected if this trend
continues. In an effort to attract premium players, MGM Grand Australia
completed a $15 million capital improvement program in June 1996. Casino
operations include approximately 35 table games, 405 slots and a keno lounge.
The capital improvement program included renovation of all 96 rooms (including
16 suites), enhanced casino facilities, and additional dining, entertainment
and retail amenities. The Company has positioned MGM Grand Australia as a
multi-faceted gaming/ entertainment facility for the local market and as an
exclusive destination resort targeting premium international table game
customers.
Two casinos operate in the Northern Territory, including MGM Grand Australia
in Darwin on the northern coast, and a small casino in Alice Springs in the
southern part of the Territory. Unlike the U.S., Australia has granted, for
the most part, regional casino monopolies in its provinces. Gaming machines
(i.e., slots or "poker machines") were installed in clubs and hotels in 1996,
and MGM Grand Australia will effectively receive 22.0% of the revenues from
these machines through 2005 in the form of a tax rebate. Keno machines ("NT
Keno") are also being installed in pubs, hotels and clubs in the Northern
Territory. NT Keno is a territory-wide keno game that the Northern Territory
Government has licensed to MGM Grand Australia, whereby keno tickets are sold
in pubs, hotels and clubs throughout the Northern Territory. The pubs, hotels
and clubs act as agents on behalf of MGM Grand Australia and sell keno tickets
in return for a commission paid by MGM Grand Australia. NT Keno operations
commenced on October 30, 1996.
Australia Government Regulation
The Northern Territory of Australia, like Nevada, has comprehensive laws and
regulations governing the conduct of gaming. MGM Grand Australia's operations
are subject to the Gaming Control Act of 1993 and regulations promulgated
thereunder (the "Northern Territory Law") and to the licensing and general
control of the Minister for Racing and Gaming (the "Minister"). MGM Grand
Australia Pty. Ltd. has entered into a Casino Operator's Agreement with the
Minister pursuant to which MGM Grand Australia was granted a license (the
"License") to conduct casino gaming on an exclusive basis through June 30,
2005 in the northern half of the Northern Territory (which includes Darwin,
its largest city, where MGM Grand Australia is located). The License provides
for good faith negotiations to reach agreement on an extension of the License.
The License provides for a tax payable to the Northern Territory Government on
gross profits derived from gaming, including gaming devices. The License is
not exclusive with respect to gaming devices, and the Minister may permit such
devices to be placed in limited numbers in locations not operated by MGM Grand
Australia. However, under the License, a portion of the operators' win on such
gaming devices is to be offset against gaming tax otherwise payable by MGM
Grand Australia.
The License may be terminated if MGM Grand Australia breaches the Casino
Operator's Agreement or the Northern Territory Law or fails to operate in
accordance with the requirements of the License. The Northern Territory
authorities have the right under the Northern Territory Law, the Casino
Operator's Agreement and the License to monitor and approve virtually all
aspects of the conduct of gaming by MGM Grand Australia.
10
Additionally, under the terms of the License, the Minister has the right to
approve the directors and corporate secretary of the Company and its
subsidiaries which own or operate MGM Grand Australia, as well as changes in
the ownership or corporate structure of such subsidiaries. The Company is
required to file with the Northern Territory authorities copies of all
documents required to be filed by the Company or any of its subsidiaries with
the Nevada Gaming Authorities. In the event of any person becoming the
beneficial owner of 10% or more of the outstanding stock of the Company, the
Minister must be so notified and may investigate the suitability of such
person. If the Minister determines such person to be unsuitable and following
such determination such person remains the beneficial owner of 10% or more of
the Company's stock, that would constitute a default under the License.
MGM GRAND ATLANTIC CITY
The Company, through its wholly-owned subsidiary, MGM Grand Atlantic City,
Inc., intends to create a destination resort hotel/casino in Atlantic City
("MGM Grand Atlantic City") that will be larger and more elaborate than any
other facility currently in existence in that market. The Company expects to
use its entertainment themes at MGM Grand Atlantic City, and plans to offer a
wide array of gaming and non-gaming amenities to its prospective customers.
The Company's plans for MGM Grand Atlantic City also include the development
of retail and food and beverage facilities. The Company believes that the
acquisition and/or development of MGM Grand Atlantic City could cost in excess
of $700 million and that the development could take up to three years. The
Company has entered into an agreement with FC Atlantic City Associates, L.P.
(an affiliate of the Forest City Ratner Company) to develop approximately 35
acres of land on the Atlantic City Boardwalk. The plans for the hotel and
casino resort include, among other features, approximately 335,000 square feet
of entertainment and retail facilities. The design, budget and schedule for
development of the project are at a preliminary stage, and will be subject to
the risks attendant to large-scale projects and may be subject to additional
costs and delays beyond preliminary estimates. No assurance can be given that
the Company will develop a hotel/casino in Atlantic City, or if it does, as to
its ultimate size, configuration or cost. Any development or operation in
Atlantic City will be subject to the receipt of regulatory approvals. On
July 24, 1996, the Company was found suitable for licensing by the New Jersey
Casino Control Commission.
Atlantic City Market
Atlantic City is, after Las Vegas, the second largest gaming destination in
the United States. The Company believes that it has the potential to
successfully expand its domestic base through developing and operating a
destination resort in Atlantic City. Management believes that Atlantic City
represents an attractive market for additional development due to its
proximity to areas with favorable demographics, including a large population
base with a high level of disposable income. The Atlantic City market
currently consists of 12 hotel/casinos which as of December 31, 1996 had
10,533 rooms, 988,702 square feet of casino space, 32,786 slot machines and
1,484 table games. According to the Atlantic City Department of Planning and
Development (the "ACDPD"), more than 58 million people (approximately 23.5% of
the United States population) live within 300 miles of Atlantic City, and more
than 17.8 million people live within 100 miles. Most of the Atlantic City
visitors are "day-trippers," but there are a substantial number of overnight
visitors, who are believed to have a higher gaming budget. The Company
believes that the overnight visitor component will increase substantially as
destination resorts and "must see" attractions such as the proposed MGM Grand
Atlantic City make Atlantic City a more exciting and appealing attraction for
the middle and high-end gaming customer.
The Atlantic City gaming market has demonstrated continued growth despite
the recent proliferation of new gaming venues across the country. The 12
hotel/casinos in Atlantic City generated approximately $3.81 billion in gaming
revenues in 1996, a 1.6% increase over 1995 gaming revenues of approximately
$3.75 billion. From 1990 to 1996, total gaming revenues in Atlantic City
increased 29.5%, while hotel rooms increased only approximately 19.3% during
this period.
11
The regulatory environment in Atlantic City has improved significantly over
the last several years. New games, such as poker and keno, have been approved,
24-hour gaming has been permitted, registration of certain employees has been
eliminated, license terms have been extended, and various operational
requirements have been relaxed. These regulatory changes have resulted in
reduced costs for the operators and created a more varied and attractive
environment for the gaming customer. Management believes that the reforms will
serve to permit future reductions in operating expenses of casinos in Atlantic
City and to increase the funds available for additional infrastructure
development through the New Jersey Casino Redevelopment Authority ("CRDA").
Due principally to an improved regulatory environment, general improvements of
economic conditions from 1993 through 1995 and high occupancy rates, all 12 of
the Atlantic City hotel/casinos have recently expanded, are in the process of
expanding or have announced plans to expand their facilities. In late 1996,
Hilton Hotels Corporation entered the Atlantic City market by acquiring two
hotel/casino facilities and Sun International Limited acquired a hotel/casino
facility. In addition, Mirage Resorts has entered into an agreement with
Atlantic City for the development of the "H-Tract," a 170-acre site in the
Atlantic City Marina, and plans to construct a 2,000 room hotel/casino with
100,000 square feet of casino space, and Circus Circus and Boyd have each
announced intentions to enter the Atlantic City market. Management believes
that these increases in hotel/casino capacity, together with infrastructure
improvements, and community revitalization programs, will be instrumental in
stimulating future revenue growth in the Atlantic City market and increasing
its appeal as a destination resort.
In addition to the planned casino expansions, major infrastructure
improvements have been proposed or have begun. These include, among other
projects, new housing and retail development, a tunnel connecting the Atlantic
City Expressway to the Marina and construction of a new $254 million
Convention Center. The CRDA is currently overseeing the development of the
"tourist corridor" that will link the Convention Center with the Boardwalk and
will, when completed, feature approximately 500,000 square feet of exhibit and
pre-function space, meeting rooms, food-service facilities and a 1,600 car
underground parking garage. The new convention center will be the largest
exhibition space between New York and Washington D.C. The tourist corridor is
scheduled to be completed in conjunction with the completion of the new
convention center, planned to open in May 1997.
New Jersey Government Regulation
The ownership and operation of hotel/casino facilities and gaming activities
in Atlantic City, New Jersey are subject to extensive state regulation under
the New Jersey Casino Control Act (the "New Jersey Act") and the regulations
("Regulations") of the New Jersey Casino Control Commission (the "New Jersey
Commission") and other applicable laws. In general, the New Jersey Act and
Regulations arguably provide for more extensive controls over a broader scope
of gaming-related activities than does the Nevada regulatory system. In order
to operate a hotel/casino facility in New Jersey, MGM Grand Atlantic City must
be licensed by the New Jersey Commission and obtain numerous other licenses,
permits or approvals from other state as well as local governmental
authorities.
The New Jersey Act and Regulations concern primarily the good character,
honesty, integrity and financial stability of casino licensees, their
intermediary and holding companies, their employees, their security holders
and others financially interested in casino operations, the nature of hotel
and casino facilities and a wide range of gaming and non-gaming related
operations. The New Jersey Act and Regulations include detailed provisions
concerning, among other things: the granting of casino licenses, including the
qualification of natural persons and entities related to a casino license
applicant, the suitability of the hotel/casino facility, and the amount of
authorized casino space and gaming units permitted in a hotel/casino facility;
financial and accounting practices used in connection with casino operations;
residence and equal employment opportunities for employees of casino
operators, contractors for casino facilities and others; rules of games,
levels of supervision of games and methods of selling and redeeming chips;
manner of granting credit, duration of credit and enforceability of
12
gaming debts; manufacture, distribution and sale of gaming equipment; security
standards, management control procedures, accounting and cash control methods
and reports to gaming authorities; advertising of casinos and standards for
entertainment; and distribution of alcoholic beverages in casinos. A number of
these provisions require practices which are different from those in Nevada
and some of them result in casino operating costs being higher than those in
comparable facilities in Nevada.
The New Jersey Act also established the New Jersey Division of Gaming
Enforcement (the "New Jersey Division") to investigate all license
applications, enforce the provisions of the New Jersey Act and Regulations and
prosecute all proceedings for violations of the New Jersey Act and Regulations
before the New Jersey Commission. The New Jersey Division also conducts audits
and continuing reviews of all casino operations.
The Company's wholly owned subsidiary MGM Grand Atlantic City, Inc. has
applied to be licensed by the New Jersey Commission to operate a casino, and
the Company has applied to be approved as a qualified holding company. On July
24, 1996, the Company and MGM Grand Atlantic City and their officers,
directors, and 5% or greater shareholders were found suitable for licensing by
the New Jersey Commission. Employees who will work at the hotel/casino
facilities to be operated by MGM Grand Atlantic City, Inc. must also be
approved or licensed. In addition, all contracts affecting the facilities must
be approved, and all enterprises that conduct business with MGM Grand Atlantic
City, Inc. will be required to register with the New Jersey Commission and
those enterprises that conduct gaming-related businesses or that conduct
business on a regular and continuing basis, as defined by the Regulations,
must be licensed by the New Jersey Commission.
The New Jersey Commission has broad discretion regarding the issuance,
renewal, revocation and suspension of casino licenses. Casino licenses are not
transferable. A hotel/casino facility must also continually satisfy certain
requirements concerning, among other things, the number of qualifying sleeping
units and the relationship between the number of qualifying sleeping units and
the square footage of casino space.
The New Jersey Act further provides that each person who directly or
indirectly holds any beneficial interest or ownership of the securities issued
by a casino licensee or any of its intermediary or holding companies, those
persons who, in the opinion of the New Jersey Commission, have the ability to
control the casino licensee or its intermediary or holding companies or elect
a majority of the board of directors of said companies, other than a banking
or other licensed lending institution which makes a loan or holds a mortgage
or other lien acquired in the ordinary course of business, lenders and
underwriters of said companies may be required to seek qualification from the
New Jersey Commission. However, because the Company intends to qualify as a
publicly traded holding company, in accordance with the provisions of the New
Jersey Act, a waiver of qualification may be granted by the New Jersey
Commission, with the concurrence of the Director of the New Jersey Division,
if it is determined that said persons or entities are not significantly
involved in the activities of MGM Grand Atlantic City and, in the case of
security holders, do not have the ability to control the Company or elect one
or more of its directors. There exists a rebuttable presumption that any
person holding 5% or more of the equity securities of a casino licensee's
intermediary or holding company or a person having the ability to elect one or
more of the directors of such a company has the ability to control the company
and thus must obtain qualification from the New Jersey Commission.
Notwithstanding this presumption of control, the New Jersey Act provides for
a waiver of qualification for passive "institutional investors," as defined by
the New Jersey Act, if the institutional investor purchased the securities for
investment purposes only and where such securities constitute (i) less than
10% of the equity securities of a casino licensee's holding or intermediary
company or (ii) debt securities of a casino licensee's holding or intermediary
company representing a percentage of the outstanding debt of such company not
exceeding 20% or a percentage of any issue of the
13
outstanding debt of such company not exceeding 50%. The waiver of
qualification is subject to certain conditions including, upon request of the
New Jersey Commission, filing a certified statement that the institutional
investor has no intention of influencing or affecting the affairs of the
issuer, except that an institutional investor holding voting securities shall
be permitted to vote on matters put to a vote of the holders of outstanding
voting securities. Additionally, a waiver of qualification may also be granted
to institutional investors holding a higher percentage of securities of a
casino licensee's holding or intermediary company upon a showing of good
cause.
If an institutional investor that has been granted a waiver subsequently
changes its investment intent, or if the New Jersey Commission finds
reasonable cause to believe that the institutional investor may be found
unqualified, no action other than divestiture shall be taken by the investor
with respect to the security holdings until there has been compliance with the
provisions of the New Jersey Act concerning interim casino authorization. The
provisions of the New Jersey Act concerning interim casino authorization
provide that whenever a security holder of either equity or debt is required
to qualify pursuant to the New Jersey Act, the security holder shall, within
30 days after the New Jersey Commission determines that qualification is
required or declines to waive qualification, (i) file a completed application
for qualification, along with an executed and approved trust agreement,
wherein all securities of the holding or intermediary company held by that
security holder are placed in trust pending qualification, or (ii) file a
notice of intent to divest itself of such securities as the New Jersey
Commission may require so as to remove the need for qualification, which
securities must be divested within 120 days from the date such determination
was made.
The New Jersey Act further requires that corporate licensees and their
subsidiaries, intermediaries and holding companies adopt certain provisions in
their certificates of incorporation that require certain remedial action in
the event that an individual owner of any security of such company is found
disqualified under the New Jersey Act. The required certificate of
incorporation provisions vary depending on whether the stock of the company
subject to the requirements of the New Jersey Act is publicly or privately
traded. Pursuant to the New Jersey Act, the certificate of incorporation of a
publicly held company must provide that any securities of such corporation are
held subject to the condition that if a holder is found to be disqualified by
the New Jersey Commission pursuant to the New Jersey Act, such holder shall
dispose of his interest in such company. The certificate of incorporation of a
privately held company must create the absolute right of the company to
repurchase at the market price or purchase price, whichever is the lesser, any
security, share or other interest in the company in the event the New Jersey
Commission disapproves a transfer in accordance with the provisions of the New
Jersey Act.
The Company is a publicly held company and, accordingly, the Company intends
to amend its Certificate of Incorporation to provide that a holder of the
Company's securities must dispose of such securities if the holder is found
disqualified under the New Jersey Act. In addition, the Company intends to
amend its certificate of Incorporation to provide that the Company may redeem
the stock of any holder found to be disqualified.
If the New Jersey Commission should find a security holder to be unqualified
to be a holder of securities of a casino licensee or holding company, not only
must the disqualified holder dispose of such securities but, in addition,
commencing on the date the New Jersey Commission serves notice upon the
Company of the determination of disqualification, it shall be unlawful for the
disqualified holder (1) to receive any dividends or interest upon any such
securities, (2) to exercise, directly or through any trustee or nominee, any
right conferred by such securities, or (3) to receive any remuneration in any
form from the licensee for services rendered or otherwise. If the New Jersey
Commission should find a security holder to be unqualified to be a holder of
securities of a casino licensee or holding company, the New Jersey Commission
shall take any necessary action to protect the public interest including the
suspension or revocation of the casino license except that if the disqualified
person is the holder of securities of a publicly traded holding company, the
New Jersey
14
Commission shall not take action against the casino license if (1) the holding
company has the corporate charter provisions concerning divestiture of
securities by disqualified owners required by the New Jersey Act, (2) the
holding company has made good faith efforts including the pursuit of legal
remedies to comply with any order of the New Jersey Commission, and (3) the
disqualified holder does not have the ability to control the company or elect
one or more members of the Company's board of directors.
If, at any time, it is determined that MGM Grand Atlantic City, Inc. has
violated the New Jersey Act or Regulations, or if any security holder of the
Company or MGM Grand Atlantic City, Inc. who is required to be qualified under
the New Jersey Act is found to be disqualified but does not dispose of the
securities, MGM Grand Atlantic City, Inc. could be subject to fines or its
license could be suspended or revoked. If MGM Grand Atlantic City, Inc.'s
license is revoked, the New Jersey Commission could appoint a conservator to
operate and to dispose of any hotel/casino facilities of MGM Grand Atlantic
City, Inc. Net proceeds of a sale by a conservator and net profits of
operations by a conservator (at least up to an amount equal to a fair return
on MGM Grand Atlantic City, Inc.'s investment which is reasonable for casinos
or hotels) would be paid to the Company.
In addition to compliance with the New Jersey Act and Regulations relating
to gaming, any facility built in Atlantic City by MGM Grand Atlantic City,
Inc. or any other subsidiary of the Company must comply with the New Jersey
and Atlantic City laws and regulations relating to, among other things, the
Coastal Area Facilities Review Act, construction of buildings, environmental
considerations, operation of hotels and the sale of alcoholic beverages.
The New Jersey Commission is authorized to establish fees for the issuance
or renewal of casino licenses and casino hotel alcoholic beverage licenses.
There is also an annual license fee on each slot machine. The New Jersey
Commission is also authorized by regulation to establish annual fees for the
issuance and renewal of licenses other than casino licenses.
The New Jersey Act imposes an annual tax of eight percent on gross revenues
(as defined in the New Jersey Act). In addition, casino licensees are required
to invest one and one-quarter percent of gross revenues for the purchase of
bonds to be issued by the CRDA or make other approved investments equal to
that amount. In the event the investment requirement is not met, the casino
licensee is subject to a tax in the amount of two and one-half percent on
gross revenues.
EMPLOYEES
As of December 31, 1996, the Company and its subsidiaries employed
approximately 6,200 full time equivalent employees at the MGM Grand Las Vegas
and its corporate offices. Effective December 1, 1996, the Company and the
International Union of Operating Engineers, Local 501 finalized a collective
bargaining agreement, running through December 1, 2001, covering approximately
90 facilities and maintenance employees. On November 15, 1996, the Company
voluntarily recognized the Local Joint Executive Board of Las Vegas, on behalf
of the Hotel Employees Restaurant Employee International Union, Local 226 and
the Bartenders Union, Local 165 as the exclusive bargaining representative of
approximately 2,800 employees, and has commenced negotiations.
As of December 31, 1996, MGM Grand Australia employed approximately 400 full
time equivalent employees. Hourly employees are covered by collective
bargaining agreements.
As of December 31, 1996, NYNY employed approximately 1,777 full time
equivalent employees; operations of NYNY commenced on January 3, 1997. As of
December 31, 1996, none of NYNY's employees were covered by collective
bargaining agreements. NYNY has voluntarily recognized the Local Joint
Executive Board of Las Vegas, on behalf of the Hotel Employees Restaurant
Employee International Union, Local 226 and the Bartenders Union, Local 165 as
the exclusive bargaining
15
representative of approximately 820 employees. The Company anticipates
completing negotiations during the first quarter of 1997.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 3799 Las Vegas
Boulevard South, Las Vegas, Nevada 89109, where it rents approximately 8,800
square feet from MGM Grand Las Vegas.
MGM Grand Las Vegas' principal executive offices are also located at 3799
Las Vegas Boulevard South, Las Vegas, Nevada, 89109. Certain other office and
warehouse space is leased by MGM Grand Las Vegas consisting of approximately
132,000 square feet located in Las Vegas, Nevada, for an annual rent of
approximately $504,000. Approximately 5,800 square feet of the leased space
was subleased to NYNY LLC, for an annual rent of approximately $55,500; NYNY
LLC terminated the lease and relocated their offices to NYNY on December 31,
1996, and no further lease revenues are anticipated.
MGM Grand Las Vegas is located on approximately 113 acres on the Strip in
Las Vegas, Nevada. The property is subject to a first priority deed of trust
securing bank financing of up to $600,000,000, on which there are no amounts
outstanding, which bears interest based on LIBOR or the bank reference rate,
and which is due December 2001.
In January 1995, the Company contributed an 18-acre site, located at the
intersection of the Strip and Tropicana Avenue, to NYNY LLC. (See Item 1.
Business.) This property, together with an adjacent two-acre parcel, is
subject to a first priority deed of trust securing bank financing of up of
$285,000,000, of which the full amount has been drawn down, and which bears
interest based on the bank prime rate, federal funds rate or LIBOR rate, and
is due December 2001.
MGM Grand Australia's principal executive offices are located at Gilruth
Avenue, Mindil Beach, Darwin, Northern Territory 0801, Australia. In September
1995, the Company acquired MGM Grand Australia which is located on an 18-acre
beach front site on the north central coast of Australia. (See Item 1.
Business.) This property is subject to a first priority deed of trust securing
bank financing of up to approximately $83,391,000, which bears interest based
on the Australian bank bill rate and is due December 2000.
ITEM 3. 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 MGM Grand Las Vegas which fronts the
Strip. Plaintiffs claim the alleged oral agreement was formed on essentially
the terms set forth in an earlier letter which provided it could not be relied
upon for any reason, and that no binding agreement would exist until an
Operating Agreement had been duly executed by the Company. They are suing for
$350,000 in costs advanced in anticipation of the project being constructed,
as well as damages of approximately $100 million from lost profits that would
have resulted upon completion, and damage to their reputations. Management
believes that the claims are wholly without merit and does not expect that the
lawsuit will have a material adverse effect on the Company's financial
condition or results of operations. On July 8, 1996, the jurisdiction of the
lawsuit was transferred to the U.S. District Court for the District of Nevada.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
EXECUTIVE OFFICERS OF THE REGISTRANT
J. TERRENCE LANNI (age 54) has served as Chairman of the Company since July
1995, and as a Director, Chairman of the Executive Committee and Chief
Executive Officer of the Company since June 1995. He also served as President
of the Company from June 1995 to July 1995. Prior thereto, he was President
and Chief Operating Officer of Caesars World, Inc. from April 1981 to February
1995.
ALEX YEMENIDJIAN (age 41) has served as a Director of the Company since
December 1989, as President of the Company since July 1995, as Chief Operating
Officer of the Company since June 1995, and as Chief Financial Officer of the
Company since May 1994. He also served as Executive Vice President of the
Company from June 1992 to July 1995, as Chairman of the Executive Committee
from January 1991 to June 1992, and as President and Chief Operating Officer
of the Company from March 1990 to January 1991. He also served as an executive
of Tracinda from January 1990 to January 1997.
FRED BENNINGER (age 80) has served as a Director of the Company since
February 1986, and as Vice Chairman of the Board since April 1995. He was
Chairman of the Board from August 1987 to April 1995. He also served as Chief
Executive Officer of the Company from August 1987 to January 1991, and as
President of the Company from August 1987 to March 1990.
SCOTT LANGSNER (age 43) has served as Secretary/Treasurer of the Company
since July 1987.
KENNETH A. ROSEVEAR (age 47) served as Senior Vice President-Development of
the Company from November 1995 to October 1996, when he relinquished his
position in favor of the position of President and Chief Operating Officer of
MGM Grand Development, Inc., a wholly-owned subsidiary of the Company. From
November 1993 to November 1995, he served as President of Caesars World Gaming
Development Corporation. For more than five years prior thereto, he served as
Chief Executive of Sun International Group in South Africa.
EDWARD J. JENKINS (age 52) has served as Vice President of the Company since
October 1995. From July 1992 to October 1995, he served as Vice President,
Security, for Caesars World, Inc. He previously was a 30-year veteran of the
FBI, holding various management positions at Bureau offices throughout the
United States.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange. For
price information with respect to such Common Stock, see page 48 of the
Company's 1996 Annual Report to Stockholders, which information is
incorporated herein by this reference.
As of March 13, 1997, there were approximately 57,863,526 record holders of
the Company's Common Stock.
The Company has not paid any dividends to date on the Common Stock. The
declaration of dividends (which is within the discretion of the Company's
Board of Directors) will depend on the earnings, financial position and
capital requirements of the Company and other relevant factors existing at the
time.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth on page 2 of the Company's 1996 Annual Report to
Stockholders is incorporated herein by this reference.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth on pages 23 to 27 of the Company's 1996 Annual
Report to Stockholders is incorporated herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets as of December 31, 1996 and 1995 and the
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996 with the
Report of Independent Public Accountants contained on pages 28 to 45 of the
Company's 1996 Annual Report to Stockholders are incorporated herein by
reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by PART III (Items 10, 11, 12, and 13) has been
omitted, as the Company intends to file with the Securities and Exchange
Commission not later than 120 days after the end of its fiscal year, a
definitive Proxy Statement pursuant to regulation 14A, except that the
information regarding the Company's executive officers called for by Item 10
of PART III has been included in PART I of this Form 10-K under the heading
"Executive Officers of the Registrant."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The financial statements and schedule listed in the accompanying Index
to Financial Statements at Page 21 herein are filed as part of this Form 10-K.
(b) Exhibits
The exhibits listed in the accompanying Exhibit Index on Pages 24 to 25 are
filed as part of this Form 10-K.
18
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
By: /s/ J. Terrence Lanni
_____________________________________
J. Terrence Lanni
Chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Alex Yemenidjian
_____________________________________
Alex Yemenidjian
President, Chief Operating Officer
and Chief Financial Officer
Dated: March 10, 1997
19
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ J. Terrence Lanni Chairman of the Board and March 10, 1997
____________________________________ Chief Executive Officer
J. Terrence Lanni
/s/ Alex Yemenidjian President, Chief Operating March 10, 1997
____________________________________ Officer, Chief Financial
Alex Yemenidjian Officer and Director
/s/ Fred Benninger Vice-Chairman of the Board March 10, 1997
____________________________________
Fred Benninger
/s/ James D. Aljian Director March 10, 1997
____________________________________
James D. Aljian
/s/ Terry N. Christensen Director March 10, 1997
____________________________________
Terry N. Christensen
Director March , 1997
____________________________________
Glenn A. Cramer
Director March , 1997
____________________________________
Willie D. Davis
Director March , 1997
____________________________________
Alexander M. Haig, Jr.
Director March , 1997
____________________________________
Kirk Kerkorian
/s/ Walter M. Sharp Director March 10, 1997
____________________________________
Walter M. Sharp
/s/ Jerome B. York Director March 10, 1997
____________________________________
Jerome B. York
20
INDEX TO FINANCIAL STATEMENTS
(ITEM 14(A))
Annual
Report to Form
Stockholders 10-K
Page Page
------------ ----
Report of Independent Public Accountants..................... 45
Consolidated Statements of Operations--For the years ended
December 31, 1996, 1995, 1994............................... 28
Consolidated Balance Sheets as of December 31, 1996 and 1995. 29
Consolidated Statements of Cash Flows--For the years ended
December 31, 1996, 1995, 1994............................... 30
Consolidated Statements of Stockholders' Equity--For the
years ended December 31, 1996, 1995, and 1994............... 31
Notes to Consolidated Financial Statements................... 32
Selected Quarterly Financial Results (unaudited)............. 46
Report of Independent Public Accountants on Supplemental 22
Schedule....................................................
Schedule II--Valuation and Qualifying Accounts............... 23
All other schedules have been omitted either as inapplicable or not required
under the instructions contained in Regulation S-X, or because the information
is included in the financial statements or the notes thereto.
21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To MGM Grand, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in MGM Grand, Inc.'s Annual
Report to stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 30, 1997. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The
supplemental Schedule II as shown on page 22 is the responsibility of the
Company's management, is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 30, 1997
22
MGM GRAND, INC. AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands)
ADDITIONS
BALANCE AT CHARGED TO AMOUNTS BALANCE
BEGINNING COSTS AND WRITTEN AT END OF
DESCRIPTION OF PERIOD EXPENSES OFF PERIOD
----------- ---------- ---------- ------- ---------
FOR THE YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts and
discounts........................... $33,072 $38,635 $36,275 $35,432
======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts and
discounts........................... $17,624 $57,683 $42,235 $33,072
======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts and
discounts........................... $ 4,733 $44,181 $31,290 $17,624
======= ======= ======= =======
23
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3(1) Certificate of Incorporation of Company, as amended (incorporated by
reference to Exhibit 3(1) to Registration Statement No. 33-3305).
3(2) Bylaws of Company, as amended (incorporated by reference to Exhibit
3(2) to Registration Statement No. 33-30337).
4 Indenture, dated as of May 1, 1992, among MGM Grand Hotel Finance
Corp. ("MGM Finance"), as issuer, the Company, as guarantor, MGM Grand
Hotel, Inc. ("MGM Grand Hotel"), as obligor with respect to certain
covenants, and U.S. Trust Company of California, N.A., a national
banking corporation validly organized and existing under the laws of
the United States, as Trustee (the "Trustee"), relating to First
Mortgage Notes, including forms of First Mortgage Notes (incorporated
by reference to Exhibit (A) (IV) of the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1992).
4(1) Irrevocable Security Agreement of MGM Grand, Inc. Regarding Defeasance
and Redemption, together with Certificate of Defeasance.
4(2) Irrevocable Security Agreement of MGM Grand Hotel Finance Corp.
Regarding Defeasance and Redemption, together with Certificate of
Defeasance.
4(3) Certificate of Defeasance dated as of October 29, 1996.
10(1) MGM Grand, Inc. Nonqualified Stock Option Plan.
10(2) MGM Grand, Inc. Incentive Stock Option Plan.
10(3) Bank of America Senior Secured $600,000,000 Reducing Revolving Credit
Facility dated as of July 1, 1996, and Amendment No. 1(incorporated by
reference to Exhibit (A) to the Company's Quarterly Report on Form 10-
Q for the quarterly period ended September 30, 1996).
10(4) Letter Agreements, dated January 3, 1991 and February 9, 1993, between
the Company and Alex Yemenidjian (incorporated by reference to Exhibit
10(19) of the Company's 1992 10-K).
10(5) Letter Agreement, dated February 9, 1993, between the Company and Fred
Benninger (incorporated by reference to Exhibit 10(20) of the
Company's 1992 10-K).
10(6) Operating Agreement of New York-New York Hotel, LLC by and between MGM
Grand, Inc. and PRMA Las Vegas, Inc. dated as of December 26, 1994
(incorporated by reference to Exhibit 10(16) to the Company's 1994
Form 10-K).
10(7) Contribution Agreement with Joint Escrow instructions by and among
PRMA Las Vegas, Inc. and the Company and New York-New York Hotel, LLC
dated as of December 26, 1994 (incorporated by reference to the
Company's 1994 Form 10-K).
10(8) Construction/Revolving Loan Agreement dated as of September 15, 1995
among New York-New York Hotel, LLC and the banks named therein
(incorporated by reference to Exhibit 10(18) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 (the
1995 10-K).
10(9) Completion Guaranty dated as of September 15, 1995 by the Company and
Primadonna Resorts, Inc. (incorporated by reference to Exhibit 10(19)
to the 1995 10-K).
10(10) Keep Well Agreement dated as of September 15, 1995 by the Company and
Primadonna Resorts, Inc. (incorporated by reference to Exhibit 10(20)
to the 1995 10-K), as amended.
10(11) Agreement for Purchase of Shares between MGM Grand Australia PTY LTD
("MGM Grand Australia"), the Company and the Vendors (as defined
therein) dated as of June 30, 1995 (incorporated by reference to
Exhibit 10(21) to the 1995 10-K).
10(12) Loan Agreement between MGM Grand Australia and the banks named therein
dated September 6, 1995 (incorporated by reference to Exhibit 10(22)
to the 1995 10-K).
24
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10(13) MGM Grand, Inc. Continuing Guaranty dated as of September 1, 1995
(incorporated by reference to Exhibit 10(23) to the 1995 10-K).
10(14) Option Deed dated as of June 30, 1995 between the Shareholders named
therein, the Company and the persons named therein (incorporated by
reference to Exhibit 10(24) to the 1995 10-K).
10(26) Letter Agreement dated April 13, 1995 between the Company and J.
Terrence Lanni (incorporated by reference to Exhibit 10(26) to the
1995 10-K).
10(27) Letter Agreement dated October 10, 1995 between the Company and Edward
Jenkins.
10(28) Letter Agreement dated October 10, 1995 between the Company and Ken
Rosevear.
10(29) Letter Agreement dated September 25, 1995 between the Company and
T. Patrick Smith.
10(30) Annual Performance Based Incentive Plan For Executive Officers.
13* The Company's 1996 Annual Report to Stockholders.
21 List of Subsidiaries.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule.
- --------
* Except for those portions which are expressly incorporated herein by
reference, such Annual Report is furnished for the information of the
Securities and Exchange Commission and is not to be deemed "filed" as part of
the Report.
25