MGM

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 1993, for MGM Grand, Inc. (the "Company"). The Company is a Delaware corporation organized in 1986. The reporting period marks a pivotal transition as the Company commenced operations of the MGM Grand Hotel and Theme Park on December 18, 1993, three months ahead of schedule. The resort is a large-scale integrated complex located on the Las Vegas Strip, featuring 5,005 rooms, a 171,500-square-foot casino, and a 33-acre theme park. The Company also operates MGM Grand Air, a charter airline, which discontinued its scheduled New York-Los Angeles service in 1992 to focus on the upscale charter market.

Key Financial Metrics

The filing incorporates the Company's 1993 Annual Report to Stockholders by reference for detailed financial statements (Revenue, Net Income, Cash Flow, and Balance Sheet totals). However, specific operational data for the airline subsidiary and significant asset adjustments are disclosed within the text:

• Airline Operating Loss (Q4 1993): MGM Grand Air reported an operating loss of $70,891,000 for the fourth quarter of 1993. This figure includes a non-cash aircraft carrying value adjustment of $68,948,000.
• Airline Operating Revenues (Q4 1993): $6,395,000.
• Property, Plant, and Equipment (Dec 31, 1993): Total cost basis was $953,796,000, with a significant reclassification of $294,757,000 from "Development and construction costs" to "Buildings and building improvements" upon the hotel's completion.
• Accumulated Depreciation (Dec 31, 1993): Total accumulated depreciation was $86,512,000, including the $68.9 million aircraft write-down.
• Market Capitalization: As of March 14, 1994, the aggregate market value of non-affiliate common stock was approximately $1.575 billion.
• Dividends: The Company has not paid any dividends to date.

Note: Consolidated revenue, net profit, total debt, and liquidity figures for the full year are not explicitly stated in the provided text but are referenced as being in the Annual Report to Stockholders.

Material Changes vs. Prior Period

• Asset Completion: The most significant change was the completion of the MGM Grand Hotel and Theme Park in December 1993, moving $294.8 million from construction in progress to fixed assets.
• Airline Strategy Shift: MGM Grand Air ceased scheduled airline service in 1992 to focus on charter operations. In Q4 1993, the airline recorded a massive impairment charge ($68.9 million) reducing the carrying value of its aircraft.
• Asset Dispositions: In the prior period (1991), the Company sold the Desert Inn for $130 million, realizing a net gain of $11.8 million. In 1993, no major asset sales were reported in the text, though the focus shifted to the new resort's operations.
• Legal Resolution: In October 1992, the Company won a lawsuit against Walt Disney Co. regarding the use of the "MGM" name for the theme park; Disney did not appeal, finalizing the victory.

Guidance, Outlook, Risks, and Contingencies

Outlook and Management Commentary: Management views the MGM Grand Hotel as a "must see" attraction targeting free travelers, tour groups, conventions, high-end gaming, and locals. The airline strategy focuses on premium service for sports teams and entertainers.

Key Risks and Contingencies:

• Regulatory Risk (Nevada Gaming): Operations are heavily regulated by the Nevada Gaming Control Board and Commission. Violations can lead to license revocation, fines, or the appointment of a supervisor. Strict suitability requirements apply to officers, directors, and stockholders owning more than 5% or 10% of voting securities.
• Competition: The Las Vegas market is highly competitive. In 1993, the Luxor and Treasure Island opened, increasing room and gaming capacity. The Company notes that tourism growth (16% increase in visitors) offset this capacity increase in 1993, but future excess capacity remains a risk.
• Legislative Risk (Bank Secrecy Act): Proposed federal amendments to lower the cash transaction reporting threshold from $10,000 to $3,000 could increase operating costs and potentially reduce high-level gaming income. Implementation was delayed until at least December 1, 1994.
• Fuel Costs: Jet fuel is a significant cost for MGM Grand Air. Price increases or supply shortages could materially adversely affect operations.
• Foreign Gaming: Expansion of casino gaming in other states (e.g., California) or on Native American reservations could negatively impact Nevada operations.

Investor Verification Checklist

• Full Financial Statements: Verify the consolidated revenue, net income, and total debt figures in the referenced 1993 Annual Report to Stockholders, as they are not explicitly detailed in this text.
• Aircraft Valuation: Confirm the methodology and justification for the $68.9 million impairment charge on MGM Grand Air's aircraft in Q4 1993.
• Debt Covenants: Review the "First Mortgage Notes" and "Bank Loan" agreements (referenced in Exhibits) to understand leverage ratios and liquidity constraints post-opening.
• Regulatory Compliance: Verify the status of all Nevada Gaming licenses and the suitability of major stockholders and officers.
• Occupancy and Revenue Per Available Room (RevPAR): Assess the initial performance metrics of the MGM Grand Hotel against the competitive landscape (Luxor, Treasure Island) for the post-opening period.