UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------- -------------------
Commission File No. 1-11324
GNS FINANCE CORP.
THE MIRAGE CASINO-HOTEL
- ------------------------------------------------------------------------
(Exact name of each Registrant as specified in its charter)
88-0235356
Nevada 88-0224157
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Nos.)
incorporation or organization)
3400 Las Vegas Boulevard South, Las Vegas, Nevada 89109
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(Address of principal executive offices - Zip Code)
(702) 791-7111
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(Registrants' telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrants (1) have 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 Registrants were required to file such
reports), and (2) have been subject to such filing requirements for
the past 90 days. YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
GNS FINANCE CORP. Common Stock, no par value - 200 shares outstanding
as of August 14, 1996.
THE MIRAGE CASINO-HOTEL Common Stock, no par value - 100 shares
outstanding as of August 14, 1996.
The Registrants meet the conditions set forth in General Instructions
H(1)(a) and (b) of Form 10-Q and, accordingly, are filing this Form
10-Q with the reduced disclosure format provided in General
Instruction H(2).
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed combined financial information as of June 30,
1996 and for the three-month and six-month periods ended June 30,
1996 and 1995 included in this report was reviewed by Arthur
Andersen LLP, independent public accountants, in accordance with the
professional standards and procedures established for such reviews by
the American Institute of Certified Public Accountants.
<PAGE>
REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------------
To the Directors and Stockholder
of THE MIRAGE CASINO-HOTEL and Subsidiaries
and GNS FINANCE CORP.
We have reviewed the accompanying condensed combined balance
sheet of THE MIRAGE CASINO-HOTEL and subsidiaries and GNS FINANCE
CORP. (collectively, the "Company") as of June 30, 1996, and the
related condensed combined statements of income for the three-
month and six-month periods ended June 30, 1996 and 1995 and the
related condensed combined statements of cash flows for the six-
month periods ended June 30, 1996 and 1995. These combined
financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the combined balance sheet of THE MIRAGE
CASINO-HOTEL and subsidiaries and GNS FINANCE CORP. and
subsidiary as of December 31, 1995, and the related combined
statements of operations and retained earnings (accumulated
deficit) and cash flows for the year then ended (not presented
herein), and, in our report dated February 9, 1996, we expressed
an unqualified opinion on those combined financial statements.
In our opinion, the information set forth in the accompanying
condensed combined balance sheet of THE MIRAGE CASINO-HOTEL and
subsidiaries and GNS FINANCE CORP. and subsidiary as of December
31, 1995, is fairly stated, in all material respects, in relation
to the combined balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
August 7, 1996
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<PAGE>
<TABLE>
<CAPTION>
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
CONDENSED COMBINED BALANCE SHEETS
(IN THOUSANDS)
June 30, December 31,
1996 1995
---------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 30,648 $ 36,516
Receivables, net of allowance for doubtful accounts
of $53,996 and $44,862 71,320 73,070
Deferred income taxes 31,559 26,709
Other current assets 28,707 30,519
---------- ----------
Total current assets 162,234 166,814
Property and equipment, net of accumulated depreciation of
$321,509 and $289,329 1,008,805 1,021,985
Other assets, net 9,876 9,401
---------- ----------
$1,180,915 $1,198,200
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 48,443 $ 72,186
Accrued expenses 61,161 61,121
Amounts payable to Mirage Resorts, Incorporated and affiliates 59,734 87,365
Current maturities of long-term debt - 41,882
---------- ----------
Total current liabilities 169,338 262,554
Long-term debt, net of current maturities 210,537 204,700
Other liabilities, including deferred income taxes of $76,551
and $69,215 77,625 70,321
---------- ----------
Total liabilities 457,500 537,575
---------- ----------
Commitments and contingencies
Stockholder's equity
Common stock 518,945 518,945
Additional paid-in capital 107,142 107,142
Retained earnings 97,328 34,538
---------- ----------
Total stockholder's equity 723,415 660,625
---------- ----------
$1,180,915 $1,198,200
========== ==========
</TABLE>
- ----------
See note to condensed combined financial statements.
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<PAGE>
<TABLE>
<CAPTION>
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
For the Three-Month For the Six-Month
Period Ended Period Ended
June 30, June 30,
-------- -------- -------- --------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gross revenues $278,760 $263,216 $611,007 $577,030
Less-promotional allowances (24,363) (21,938) (52,164) (46,161)
-------- -------- -------- --------
254,397 241,278 558,843 530,869
-------- -------- -------- --------
Costs and expenses
Casino-hotel operations 150,858 145,322 320,778 308,018
General and administrative 27,699 28,709 55,854 57,552
Mirage Resorts, Incorporated management fee 14,169 13,262 31,038 29,293
Depreciation 17,725 16,811 35,400 33,335
Corporate development 1 752 2 1,585
-------- -------- -------- --------
210,452 204,856 443,072 429,783
-------- -------- -------- --------
Operating income 43,945 36,422 115,771 101,086
-------- -------- -------- --------
Other income and (expense)
Interest expense
Notes payable to non-affiliates (5,375) (7,270) (11,002) (15,443)
Notes payable to Mirage Resorts, Incorporated - (1,424) - (14,235)
Other 181 76 326 227
-------- -------- -------- --------
(5,194) (8,618) (10,676) (29,451)
-------- -------- -------- --------
Income before income taxes and extraordinary item 38,751 27,804 105,095 71,635
Provision for income taxes (15,740) (11,658) (42,305) (29,841)
-------- -------- -------- --------
Income before extraordinary item 23,011 16,146 62,790 41,794
Extraordinary item-loss on early retirement of debt - - - (10,439)
-------- -------- -------- --------
Net income $ 23,011 $ 16,146 $ 62,790 $ 31,355
======== ======== ======== ========
</TABLE>
- ----------
See note to condensed combined financial statements.
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<PAGE>
<TABLE>
<CAPTION>
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
For the Six-Month
Period Ended
June 30,
-----------------------
1996 1995
-------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 62,790 $ 31,355
Adjustments to reconcile net income to net cash provided by operating activities
Provision for losses on receivables 9,791 11,290
Depreciation of property and equipment 35,400 33,335
Amortization of debt discount and issuance costs 6,014 5,529
Loss on early retirement of debt - 10,439
Deferred income taxes 2,486 2,082
Changes in assets and liabilities
Increase in receivables and other operating assets (6,921) (3,271)
Decrease in trade accounts payable and accrued expenses (23,703) (11,216)
Other 212 (1,840)
-------- ---------
Net cash provided by operating activities 86,069 77,703
-------- ---------
Cash flows from investing activities
Capital expenditures (23,255) (43,201)
Other 831 971
-------- ---------
Net cash used for investing activities (22,424) (42,230)
-------- ---------
Cash flows from financing activities
Decrease in management fee obligations to Mirage Resorts, Incorporated (1,422) (114,534)
Advances from (to) Mirage Resorts, Incorporated and affiliates (24,649) 17,849
Decrease in income taxes payable to Mirage Resorts, Incorporated (1,560) (48,574)
Repayment of notes payable to Mirage Resorts, Incorporated - (353,022)
Net increase (decrease) in bank credit facility and commercial paper borrowings (41,882) 72,700
Early retirement of debt - (134,180)
Issuance of common stock to Mirage Resorts, Incorporated - 518,943
-------- ---------
Net cash used for financing activities (69,513) (40,818)
-------- ---------
Cash and cash equivalents
Decrease for the period (5,868) (5,345)
Balance, beginning of period 36,516 28,511
-------- ---------
Balance, end of period $ 30,648 $ 23,166
======== =========
Supplemental cash flow disclosures
Interest paid (including $16,309 to Mirage Resorts, Incorporated in
1995), net of amounts capitalized $ 5,063 $ 29,116
Income taxes paid to Mirage Resorts, Incorporated 41,349 76,333
</TABLE>
- ----------
See note to condensed combined financial statements.
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<PAGE>
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
NOTE TO CONDENSED COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The condensed combined financial statements include the
consolidated accounts of THE MIRAGE CASINO-HOTEL ("MCH") and its
wholly owned subsidiaries, Treasure Island Corp. ("TI") and MH,
INC., combined with the consolidated accounts of GNS FINANCE
CORP. ("Finance") and, until its dissolution in June 1996,
Treasure Island Finance Corp. ("TI Finance") (collectively, the
"Company"). All significant intercompany balances and
transactions have been eliminated in consolidation or
combination, as appropriate.
MCH and Finance are wholly owned Nevada subsidiaries of Mirage
Resorts, Incorporated ("MRI"). The condensed combined financial
statements include various transactions between the Company and
MRI and its other wholly owned subsidiaries.
The condensed combined financial statements have been prepared in
accordance with the accounting policies described in the
Company's 1995 Annual Report on Form 10-K and should be read in
conjunction with the Notes to Combined Financial Statements which
appear in that report. The Condensed Combined Balance Sheet at
December 31, 1995 contained herein was derived from audited
financial statements, but does not include all disclosures
contained in the Form 10-K and applicable under generally
accepted accounting principles.
In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation
of the results for the interim periods have been included. The
interim results reflected in the condensed combined financial
statements are not necessarily indicative of expected results for
the full year.
Certain amounts in the 1995 condensed combined financial
statements have been reclassified to conform with the 1996
presentation. These reclassifications had no effect on the
Company's net income.
-6-
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS (COMPARISON OF OPERATING
RESULTS FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995)
RESULTS OF OPERATIONS
Company-wide operating income rose 15% over the 1995 six-month
period despite a decline in the table games win percentage. The
Company-wide win percentage was 19.6%, versus 21.2% in the 1995
period. During the 1996 six-month period, the Company-wide
average standard guest room rate rose 14.8%.
The Mirage achieved increases of 6% in net revenues and 13% in
operating income, despite being particularly impacted by the
lower table games win percentage. The increases are primarily
attributable to the guest room enhancement program which caused
a large number of out-of-service guest rooms in the 1995 period.
This $50 million program was completed in August 1995 and
substantially upgraded the quality of The Mirage's standard
guest rooms. The enhancement program resulted in 14% more
available room nights and enabled The Mirage to achieve a
significant increase in the average standard room rate. Even
with the additional room inventory, occupancy of standard guest
rooms remained at near 100%. Taken together, these factors
resulted in a $12.2 million, or 26%, increase in net room
revenues. Food and beverage, entertainment and retail revenues
also experienced solid increases. In total, net non-casino
revenues were up $20.1 million, or 15%, over the 1995 period.
The Mirage's casino also benefited from the completion of the
room enhancement program. Slot revenues were up 6% and table
games activity grew by 5%. The increase in table games activity,
however, was offset by the lower win percentage, resulting in a
small decline in total casino revenues.
Treasure Island also achieved increases in net revenues and
operating income during the 1996 period. Net revenues rose 5%
and operating income before corporate development expense
increased 11%. These increases primarily reflect an $8.1
million, or 8%, improvement in net non-casino revenues. Net
non-casino revenues showed improvement in virtually every
category. In particular, room revenues grew by $5.1 million,
or 13%, and entertainment revenues were up $1.3 million, or 7%.
The growth in room revenues principally reflects an increase in
the average standard room rate. Standard guest room occupancy
was near 100% during both the 1996 and 1995 periods. Increases
in both occupancy and the average ticket price for the Mystere
show primarily account for the increase in entertainment
revenues. Casino revenues were relatively flat compared with
the 1995 period.
-7-
<PAGE>
OTHER INCOME AND EXPENSE
Interest expense related to notes payable to non-affiliates
declined by $4.4 million, or 29%. This decline primarily
reflects the retirement of the remaining $126.0 million principal
amount of TI Finance's 9 7/8% first mortgage notes which were
called for redemption in March 1995.
During the 1995 period, the Company incurred $14.2 million of
interest expense related to the long-term notes payable to MRI.
Such notes were repaid in April 1995.
INCOME TAXES
MRI and its subsidiaries file federal income tax returns on a
consolidated basis. MRI has tax allocation agreements (which are
not binding on the Internal Revenue Service) with each of its key
subsidiaries, including MCH, TI, Finance and, until its
dissolution, TI Finance, which require each of them to reimburse
MRI for the amount of tax they would pay on a stand-alone basis.
This includes reimbursement for any additional taxes and
interest thereon resulting from Internal Revenue Service audit
adjustments. Under the Internal Revenue Code, MRI's consolidated
subsidiaries are jointly and severally liable for all income tax
liabilities.
As a result of the tax allocation agreements, the tax provision
is not calculated on the combined income or loss of MCH, TI,
Finance and TI Finance. Instead, it reflects the sum of their
respective tax provisions and benefits. This resulted in a
combined provision in the 1996 and 1995 periods at a rate above
the federal income tax statutory rate.
EXTRAORDINARY ITEM
As noted previously, in March 1995, the Company called for
redemption the remaining $126.0 million principal amount of the
9 7/8% first mortgage notes. Although this early retirement was
financially advantageous to the Company, the call premium and the
write-off of the related unamortized debt issuance costs resulted
in an extraordinary charge of $10.4 million.
-8-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10 Amendment No. 7, dated as of June 14, 1996, to Reducing
Revolving Loan Agreement, dated as of May 25, 1994, among
MRI, MCH, TI, MR Realty, MH, INC., each bank party
thereto, Bank of America National Trust and Savings
Association, Bankers Trust Company, The Long-Term Credit
Bank of Japan, Ltd., Los Angeles Agency and Societe
Generale, as Co-Agents, and Bank of America National
Trust and Savings Association, as Administrative Co-Agent
(without exhibits). Incorporated by reference to Exhibit
10.5 to the Quarterly Report on Form 10-Q of MRI
(Commission File No. 1-6697) for the quarter ended June
30, 1996.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
The Registrants filed no reports on Form 8-K during the
three-month period ended June 30, 1996.
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrants have duly caused this report to be
signed on their behalf by the undersigned thereunto duly
authorized.
GNS FINANCE CORP.
August 14, 1996 by: DANIEL R. LEE
- --------------- --------------------------------
Date DANIEL R. LEE
Treasurer
(Principal Financial Officer)
THE MIRAGE CASINO-HOTEL
August 14, 1996 by: DOUGLAS G. POOL
- --------------- --------------------------------
Date DOUGLAS G. POOL
Senior Vice President, Treasurer
and Chief Financial Officer
(Principal Financial Officer)
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS' CONDENSED COMBINED BALANCE SHEET AS OF JUNE 30, 1996 AND THE
RELATED CONDENSED COMBINED STATEMENTS OF INCOME AND CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 30,648
<SECURITIES> 0
<RECEIVABLES> 125,316
<ALLOWANCES> 53,996
<INVENTORY> 0
<CURRENT-ASSETS> 162,234
<PP&E> 1,330,314
<DEPRECIATION> 321,509
<TOTAL-ASSETS> 1,180,915
<CURRENT-LIABILITIES> 169,338
<BONDS> 210,537
0
0
<COMMON> 518,945
<OTHER-SE> 204,470
<TOTAL-LIABILITY-AND-EQUITY> 1,180,915
<SALES> 0
<TOTAL-REVENUES> 558,843
<CGS> 0
<TOTAL-COSTS> 310,987
<OTHER-EXPENSES> 35,400
<LOSS-PROVISION> 9,791
<INTEREST-EXPENSE> 11,002
<INCOME-PRETAX> 105,095
<INCOME-TAX> 42,305
<INCOME-CONTINUING> 62,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,790
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
