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 September 30, 1997
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
- --------------------------------------------------------------------------
(Address of principal executive offices - Zip Code)
(702) 791-7111
- --------------------------------------------------------------------------
(Registrants' telephone number, including area code)
- --------------------------------------------------------------------------
(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 November 13, 1997.
THE MIRAGE CASINO-HOTEL Common Stock, no par value - 100 shares
outstanding as of November 13, 1997.
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 September 30,
1997 and for the three-month and nine-month periods ended September 30,
1997 and 1996 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 September 30, 1997, and the related condensed
combined statements of income for the three-month and nine-month periods
ended September 30, 1997 and 1996 and the related condensed combined
statements of cash flows for the nine-month periods ended September 30,
1997 and 1996. These condensed combined financial statements are the
responsibility of the Company's management.
We conducted our reviews 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 reviews, 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. as of December 31, 1996, and the
related combined statements of income and retained earnings and cash flows
for the year then ended (not presented herein), and, in our report dated
March 7, 1997, 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. as of December 31, 1996, 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
November 13, 1997
2
<PAGE>
<TABLE>
<CAPTION>
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
CONDENSED COMBINED BALANCE SHEETS
(In thousands)
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 28,481 $ 57,664
Receivables, net of allowance for doubtful accounts
of $46,881 and $36,558 72,358 66,805
Deferred income taxes 26,842 22,969
Other current assets 31,186 31,042
Advances to Mirage Resorts, Incorporated and affiliates 126,593 -
---------- ----------
Total current assets 285,460 178,480
Property and equipment, net of accumulated depreciation
of $394,409 and $348,678 977,678 988,811
Advances to Mirage Resorts, Incorporated and affiliates 88,658 70,353
Other assets, net 13,904 11,717
---------- ----------
$1,365,700 $1,249,361
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 56,907 $ 80,149
Accrued expenses 63,558 60,980
Income taxes payable to Mirage Resorts, Incorporated 23,137 9,901
Management fees payable to Mirage Resorts, Incorporated 16,677 15,056
Current maturities of long-term debt 126,593 -
---------- ----------
Total current liabilities 286,872 166,086
Long-term debt, net of current maturities 100,000 216,699
Other liabilities, including deferred income taxes of
$91,477 and $80,205 92,678 81,246
---------- ----------
Total liabilities 479,550 464,031
---------- ----------
Commitments and contingencies
Stockholder's equity
Common stock 518,945 518,945
Additional paid-in capital 107,142 107,142
Retained earnings 260,063 159,243
---------- ----------
Total stockholder's equity 886,150 785,330
---------- ----------
$1,365,700 $1,249,361
========== ==========
</TABLE>
- ---------------
See notes to condensed combined financial statements.
3
<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 Nine-Month
Period Ended Period Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gross revenues $329,919 $297,848 $948,284 $908,855
Less - promotional allowances (24,759) (25,951) (73,681) (78,115)
-------- -------- -------- --------
305,160 271,897 874,603 830,740
-------- -------- -------- --------
Costs and expenses
Casino-hotel operations 171,589 156,800 499,639 477,578
General and administrative 31,715 29,209 90,966 85,065
Mirage Resorts, Incorporated
management fee 16,677 15,138 47,797 46,176
Depreciation 17,623 17,739 51,322 53,139
-------- -------- -------- --------
237,604 218,886 689,724 661,958
-------- -------- -------- --------
Operating income 67,556 53,011 184,879 168,782
-------- -------- -------- --------
Other income (expense)
Interest expense (5,807) (5,456) (17,147) (16,458)
Other, including interest income 226 141 581 467
-------- -------- -------- --------
(5,581) (5,315) (16,566) (15,991)
-------- -------- -------- --------
Income before income taxes 61,975 47,696 168,313 152,791
Provision for income taxes 24,732 18,294 67,493 60,599
-------- -------- -------- --------
Net income $ 37,243 $ 29,402 $100,820 $ 92,192
======== ======== ======== ========
</TABLE>
- ---------------
See notes to condensed combined financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
For the Nine-Month
Period Ended
September 30,
-----------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 100,820 $ 92,192
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for losses on receivables 12,894 14,159
Depreciation of property and equipment 51,322 53,139
Amortization of debt discount and issuance costs 10,159 9,141
Deferred income taxes 7,399 6,363
Changes in working capital pertaining to operating activities
Increase in receivables and other current assets (18,591) (6,187)
Decrease in accounts payable and accrued expenses (20,664) (21,088)
Increase (decrease) in management fees and income taxes
payable to Mirage Resorts, Incorporated 14,857 (2,826)
Other (795) (2,305)
--------- ---------
Net cash provided by operating activities 157,401 142,588
--------- ---------
Cash flows from investing activities
Capital expenditures (47,071) (33,484)
Advances to Mirage Resorts, Incorporated and affiliates (144,898) (77,642)
Other 5,385 971
--------- ---------
Net cash used for investing activities (186,584) (110,155)
--------- ---------
Cash flows used for financing activities
Decrease in bank credit facility and commercial paper borrowings - (41,882)
--------- ---------
Cash and cash equivalents
Decrease for the period (29,183) (9,449)
Balance, beginning of period 57,664 36,516
--------- ---------
Balance, end of period $ 28,481 $ 27,067
========= =========
</TABLE>
- ---------------
See notes to condensed combined financial statements.
5
<PAGE>
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - 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. and MH, INC., combined with the
accounts of GNS FINANCE CORP. ("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 accompanying condensed combined financial statements have been
prepared in accordance with the accounting policies described in the
Company's 1996 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, 1996
contained herein was derived from audited financial statements, but does
not include all disclosures included 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 results for the 1997
interim periods are not necessarily indicative of expected results for the
full year.
Certain amounts in the 1996 condensed combined financial statements have
been reclassified to conform with the 1997 presentation. These
reclassifications had no effect on the Company's net income.
NOTE 2 - BANK CREDIT FACILITY AMENDMENT
On March 7, 1997, MRI's $1 billion revolving bank credit facility was
amended to, among other things, increase the total availability to $1.75
billion and extend the maturity to March 2002. Pursuant to the amendment,
the Company is no longer liable for or a guarantor of any borrowings,
which are uncollateralized.
NOTE 3 - ADVANCES TO MRI AND AFFILIATES
At September 30, 1997, current maturities of long-term debt represent the
accreted value of Finance's Zero Coupon First Mortgage Notes Due March 15,
1998. The funds necessary to retire the $133 million face amount of the
notes upon maturity are anticipated to be provided by MRI (using
borrowings under MRI's $1.75 billion bank credit facility) through the
repayment of advances made to MRI and affiliates by the Company. As a
result, advances to MRI and affiliates in an amount equal to the accreted
value of the notes have been classified as a current asset at September
30, 1997.
6
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS (COMPARISON OF OPERATING RESULTS FOR
THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996)
The Company's operating results for the 1997 nine-month period represent
the highest ever achieved in any comparable nine-month period in the
Company's history. Revenues, operating income and net income each
surpassed previous records set in the 1996 nine-month period.
The Company-wide table games win percentage was 22.9%, versus 19.7% in the
1996 nine-month period. Despite an increase in competition, the Company's
standard guest room occupancy remained high at 99.5%, versus 99.7% in
the 1996 period, with a small increase in the average standard room rate.
The earnings growth was attributable to the Company's flagship resort, The
Mirage, which achieved net revenues of $597.7 million and operating
income of $139.6 million. These strong results reflect increases of
$53.6 million, or 10%, and $25.3 million, or 22%, over the 1996 period.
Total casino revenues increased by $46.8 million, or 15%, reflecting
an increase in the table games win percentage and increases in activity
at both table games and slots. Occupancy of The Mirage's standard guest
rooms was above 99% during both nine-month periods, with the 1997 period
posting a 2% increase in the average standard room rate.
Treasure Island was adversely affected during the 1997 nine-month
period by construction disruptions and additional competition from new
resorts on the Las Vegas Strip. Net revenues at the facility totaled
$276.9 million and operating income was $45.3 million. This compares to
$286.6 million and $54.5 million reported in the 1996 period. Treasure
Island's luxurious new hotel lobby was completed in early August and a
new retail outlet opened in September. A new Italian restaurant and
additional casino space are currently under construction and scheduled
for completion later this year. The construction temporarily resulted
in a reduction in the number of slot machines at Treasure Island. This,
together with the competitive market conditions, resulted in an 11%
decline in slot revenues, which primarily accounted for the decrease
in revenues and operating income. Treasure Island's net non-casino
revenues increased slightly over the 1996 period, reflecting the continued
success of the highly acclaimed Mystere production by Cirque du Soleil.
Standard guest room occupancy at Treasure Island was also in excess of
99% during both nine-month periods at a substantially equal average daily
rate.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
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 September 30, 1997.
7
<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.
November 13, 1997 by: DANIEL R. LEE
- ----------------- ------------------------------
Date Daniel R. Lee
Treasurer
(Principal Financial Officer)
THE MIRAGE CASINO-HOTEL
November 13, 1997 by: CHRISTOPHER W. NORDLING
- ----------------- ------------------------------
Date Christopher W. Nordling
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS' CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND
THE RELATED CONDENSED COMBINED STATEMENT OF INCOME AND CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 28,481
<SECURITIES> 0
<RECEIVABLES> 119,239
<ALLOWANCES> 46,881
<INVENTORY> 0
<CURRENT-ASSETS> 285,460
<PP&E> 1,372,087
<DEPRECIATION> 394,409
<TOTAL-ASSETS> 1,365,700
<CURRENT-LIABILITIES> 286,872
<BONDS> 100,000
0
0
<COMMON> 518,945
<OTHER-SE> 367,205
<TOTAL-LIABILITY-AND-EQUITY> 1,365,700
<SALES> 0
<TOTAL-REVENUES> 874,603
<CGS> 0
<TOTAL-COSTS> 486,745
<OTHER-EXPENSES> 51,322
<LOSS-PROVISION> 12,894
<INTEREST-EXPENSE> 17,147
<INCOME-PRETAX> 168,313
<INCOME-TAX> 67,493
<INCOME-CONTINUING> 100,820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,820
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
