Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 1999, for MGM Grand, Inc. (now MGM Resorts International). The Company operates major casino and hotel properties in Las Vegas (MGM Grand, New York-New York, Primm Valley), Darwin, Australia, and South Africa. A significant event during the period was the March 1, 1999, merger with Primadonna Resorts, Inc., which consolidated New York-New York and Primm properties, and the July 29, 1999, opening of the MGM Grand Detroit Casino.
Key Financial Metrics
| Metric (in thousands) | Q3 1999 | Q3 1998 | 9M 1999 | 9M 1998 |
|---|---|---|---|---|
| Net Revenues | $400,335 | $193,707 | $970,762 | $558,919 |
| Operating Income | $38,626 | $34,182 | $126,759 | $89,443 |
| Net Income | $12,605 | $17,052 | $46,136 | $47,713 |
| Diluted EPS | $0.21 | $0.31 | $0.76 | $0.83 |
| Cash from Operations (9M) | $173,805 | $104,241 | ||
| Total Debt (Long-term + Current) | $1,345,700 (Sep 30, 1999) | |||
| Cash and Equivalents | $107,753 (Sep 30, 1999) |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 106.7% in Q3 1999 and 73.7% for the nine-month period compared to 1998. This growth is primarily attributed to the acquisition of Primadonna Resorts (adding NYNY and Primm properties) and the opening of MGM Grand Detroit.
- Profitability: While operating income increased significantly, Net Income for the nine months ended September 30, 1999, decreased slightly to $46.1 million from $47.7 million in the prior year. This was due to non-recurring charges and accounting changes.
- Debt Levels: Long-term debt increased substantially from $534.8 million at year-end 1998 to $1.335 billion at September 30, 1999. This reflects the assumption of $389 million in debt from the Primadonna merger and new borrowings for the Detroit project.
- Accounting Change: The Company adopted SOP 98-5, requiring start-up costs to be expensed as incurred rather than capitalized. This resulted in a cumulative effect charge of $8.2 million (net of tax) reducing 9M 1999 net income.
Guidance, Outlook, and Risks
- Capital Expenditures: Anticipated remaining capital expenditures for 1999 are approximately $113.6 million, focused on the MGM Grand Las Vegas Master Plan, NYNY, Primm, and Detroit construction.
- Stock Repurchases: The Company completed a 12 million share repurchase program and announced a new 5 million share program in August 1999.
- Year 2000 Readiness: The Company is actively remediating Year 2000 issues. Costs incurred were $1.6 million for the nine months, with an additional $2.4 million anticipated for the full year. Management does not expect a material financial impact.
- Risks: Key risks include dependence on existing management, high leverage and debt service sensitivity to interest rates, regulatory changes in gaming laws, and potential disruptions from third-party Year 2000 failures.
Investor Verification Checklist
- Debt Covenants: Verify compliance with restrictive covenants on the $1.25 billion Senior Reducing Revolving Credit Facility and Senior Collateralized Notes.
- Detroit Project Status: Confirm the operational performance and cost trajectory of the newly opened MGM Grand Detroit Casino.
- Preopening Costs: Review the impact of SOP 98-5 on future earnings as new projects (e.g., Atlantic City) move through development phases.
- Year 2000 Contingencies: Assess the adequacy of contingency plans for third-party system failures.
- Share Count: Monitor the impact of the ongoing 5 million share repurchase program on earnings per share.