<PAGE>
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[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
-------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
----------- ----------
Commission File Number: 1-11124
----------------
MGM GRAND HOTEL FINANCE CORP.
-----------------------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0276650
--------------- --------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(702) 891-1111
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Securities registered pursuant to Section 12(b) of the Act.
Name of each exchange
Title of each class on which registered
------------------- -------------------
$220,000,000 11-3/4% First Mortgage New York Stock Exchange
Notes due 1999
$253,000,000 12% First Mortgage Notes due 2002 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registant (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 [X] Yes [No]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 12, 1996
-------------------- ------------------------------
Common Stock, $1.00 par value 100 shares
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
MGM GRAND HOTEL FINANCE CORP. AND
MGM GRAND HOTEL, INC. COMBINED:
Condensed Combined Statements of Operations for the Three
months and the Six months ended June 30, 1996 and June 30, 1995 1
Condensed Combined Balance Sheets at June 30, 1996
and December 31, 1995 2
Condensed Combined Statements of Cash Flows for
the Six months ended June 30, 1996 and June 30, 1995 3
Notes to Condensed Combined Financial Statements 4-8
MGM GRAND HOTEL FINANCE CORP.:
Condensed Statements of Operations for the Three months and
the Six months ended June 30, 1996 and June 30, 1995 9
Condensed Balance Sheets at June 30, 1996 and
December 31, 1995 10
Condensed Statements of Cash Flows for the Six
months ended June 30, 1996 and June 30, 1995 11
Notes to Condensed Financial Statements 12-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-17
Part II. OTHER INFORMATION 18
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ----------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues:
Casino......................................... $100,070 $ 85,879 $222,817 $177,205
Room........................................... 43,070 40,589 86,593 79,507
Food and beverage.............................. 17,828 24,122 36,695 46,938
Entertainment, retail and other................ 32,967 32,383 62,286 55,060
-------- -------- -------- --------
193,935 182,973 408,391 358,710
Less: promotional allowances................... 12,025 14,415 25,702 28,191
-------- -------- -------- --------
181,910 168,558 382,689 330,519
-------- -------- -------- --------
Expenses:
Casino......................................... 44,277 47,296 94,821 97,028
Room........................................... 12,587 11,658 24,034 22,482
Food and beverage.............................. 10,930 15,386 21,789 30,098
Entertainment, retail and other................ 20,698 25,183 43,322 44,192
Provision for doubtful accounts and discounts.. 4,541 19,070 20,167 27,245
General and administrative..................... 22,987 24,608 45,932 49,212
Depreciation and amortization.................. 14,280 13,939 28,468 26,510
-------- -------- -------- --------
130,300 157,140 278,533 296,767
-------- -------- -------- --------
Operating Income.................................. 51,610 11,418 104,156 33,752
-------- -------- -------- --------
Other Income (Expense):
Interest income................................ 1,389 12 2,548 116
Interest expense, net of amounts capitalized... (13,937) (15,784) (27,915) (31,114)
Management fee................................. (4,035) (2,317) (8,289) (4,957)
Other, net..................................... 19 - (258) -
-------- -------- -------- --------
(16,564) (18,089) (33,914) (35,955)
-------- -------- -------- --------
Income (Loss) Before Provision for Income Taxes... 35,046 (6,671) 70,242 (2,203)
Provision (Benefit) for Income Taxes.............. 12,366 (893) 24,289 -
-------- -------- -------- --------
Net Income (Loss)........................... $ 22,680 $ (5,778) $ 45,953 $ (2,203)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined condensed
financial statements.
1
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
CONDENSED COMBINED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents....................... $ 172,230 $ 77,715
Accounts receivable, net........................ 44,798 77,912
Intercompany receivables, net................... 3,862 -
Prepaid expenses................................ 14,169 12,455
Inventories..................................... 9,153 9,879
------------ ------------
Total current assets........................ 244,212 177,961
------------ ------------
Property And Equipment, net....................... 861,910 874,731
------------ ------------
Other Assets:
Due from parent................................ 1,509 1,509
Deposits....................................... 15,249 16,281
Other assets, net.............................. 48,424 52,580
------------ ------------
Total other assets......................... 65,182 70,370
------------ ------------
$ 1,171,304 $ 1,123,062
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable............................... $ 7,538 $ 17,903
Taxes payable to parent........................ 25,923 13,460
Intercompany payables, net..................... - 6,583
Current obligation, capital leases............. 2,666 2,162
Accrued interest on long term debt............. 9,368 9,368
Other accrued liabilities...................... 75,869 78,520
------------ ------------
Total current liabilities................. 121,364 127,996
------------ ------------
Deferred Revenues................................. 8,800 8,568
Deferred Income Taxes............................. 16,437 6,171
Long Term Obligation, Capital Leases.............. 8,835 10,412
Long Term Debt.................................... 473,000 473,000
Commitments And Contingencies
Stockholder's Equity:
MGM Finance Corp. Common Stock, (no par value,
1,000 shares authorized; 100 shares issued)... - -
MGM Grand Hotel Common Stock, ($1.00 value,
1,000 shares authorized; 100 shares issued)... - -
Capital in excess of par value................. 455,246 455,246
Retained earnings.............................. 87,622 41,669
------------ ------------
Total stockholder's equity.................... 542,868 496,915
------------ ------------
$ 1,171,304 $ 1,123,062
============ ============
The accompanying notes are an integral part of these combined
condensed financial statements.
</TABLE>
2
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-------------------
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income.............................................. $ 45,953 $ (2,203)
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization....................... 28,468 26,509
Amortization of debt offering costs................. 1,292 1,660
Provision for doubtful accounts and discounts....... 20,167 27,245
Change in assets and liabilities:
Accounts receivable............................... 12,947 (2,625)
Prepaid expenses.................................. (1,714) (170)
Inventories....................................... 490 580
Accrued interest payable.......................... - -
Accounts payable, accrued liabilities, and other.. (13,060) (26,013)
Intercompany payable, net......................... (10,445) 1,490
Taxes payable to parent........................... 12,463 (5,000)
Deferred income taxes............................. 10,266 -
-------- --------
Net cash from operating activities.................. 106,827 21,473
-------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment..................... (13,365) (14,903)
Disposition of property and equipment, net.............. 277 135
Deposits and other assets............................... 776 (27,263)
-------- --------
Net cash from investing activities.................. (12,312) (42,031)
-------- --------
Cash Flows From Financing Activities:
Borrowings under bank line of credit.................... - 15,000
Repayments of bank line of credit....................... - -
-------- --------
Net cash from financing activities.................. - 15,000
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents...... 94,515 (5,558)
Cash and Cash Equivalents at Beginning of Period.......... 77,715 29,421
-------- --------
Cash and Cash Equivalents at End of Period................ $172,230 $ 23,863
======== ========
</TABLE>
The accompanying notes are an integral part of these combined
condensed financial statements.
3
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
MGM Grand Hotel, Inc. ("MGM Grand Hotel") is a Nevada corporation
incorporated on December 21, 1989, which owns the MGM Grand Hotel (MGM Grand Las
Vegas), a fully integrated hotel/casino and entertainment complex, situated on
approximately 112 acres of land fronting both the Las Vegas Strip and
Tropicana Avenue. MGM Grand Hotel is a wholly-owned subsidiary of MGM Grand,
Inc. ("MGM Grand"), a Delaware corporation.
MGM Grand Hotel Finance Corp. ("MGM Finance"), a wholly-owned subsidiary
of MGM Grand, was incorporated in Nevada on October 4, 1991 with the intention
that it function solely as a financing corporation to issue debt securities and
to obtain loan commitments from one or more banks and enter into a bank loan in
connection therewith. MGM Finance has no other business operations.
These condensed combined financial statements include the accounts and
transactions of the MGM Grand Hotel and subsidiaries and MGM Finance
(collectively the "Combined Companies"). All significant intercompany
transactions and accounts have been eliminated.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed combined financial
statements should be read in conjunction with the combined financial statements
and notes thereto included in the MGM Grand Hotel Finance Corp. Annual Report on
Form 10-K for the year ended December 31, 1995.
In the opinion of MGM Grand Hotel and MGM Finance, the accompanying
unaudited condensed combined financial statements contain all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position as of June 30, 1996, the results of operations for the three
month and the six month periods ended June 30, 1996 and 1995 and cash flows for
the six month periods ended June 30, 1996 and 1995. The results of operations
for such period are not necessarily indicative of the results to be expected
for a full year.
4
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
Note 2. SIGNIFICANT ACCOUNTING POLICY
Promotional Allowances
The estimated retail value of promotional allowances such as
accommodations, food, beverage and other services furnished to customers without
charge is included in gross revenue and then deducted as promotional allowances.
The estimated cost of providing such promotional allowances was included in
casino expenses as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- ---------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Rooms............... $1,864 $2,089 $ 4,039 $ 4,113
Food and beverage... 4,722 6,109 10,001 11,915
Other............... 596 1,135 1,194 2,294
------ ------ ------- -------
$7,182 $9,333 $15,234 $18,322
====== ====== ======= =======
</TABLE>
Note 3. Statements of Cash Flows
The following supplemental disclosures are provided for the Condensed
Combined Statements of Cash Flows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
--------------------
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Cash Payments for:
Interest, net of amounts capitalized... $28,806 $29,464
======= =======
</TABLE>
5
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
Note 4. Long Term Debt and Note Payable
Long term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
11-3/4% First Mortgage Notes due May 1, 1999 $220,000 $220,000
12% First Mortgage Notes due May 1, 2002 253,000 253,000
-------- --------
$473,000 $473,000
======== ========
</TABLE>
Total interest incurred for the first six months of 1996 and 1995 was
$30,148,000 and $31,114,000, respectively, of which $2,233,000 was capitalized
in the 1996 period, related to the construction project New York-New York. No
interest was capitalized in the first six months of 1995.
The Company has a $60,000,000 revolving credit line with several banks. No
amounts were outstanding under the line of credit as of June 30, 1996, and
$15,000,000 was outstanding as of June 30, 1995.
Note 5. Income Taxes
The Company accounts for income taxes according to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires the recognition of deferred tax assets, net of applicable reserves,
related to net operating loss carryforwards and certain temporary differences.
The standard requires recognition of a future tax benefit to the extent that
realization of such benefit is more likely than not. Otherwise, a valuation
allowance is applied.
6
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
Note 5. Income Taxes - continued
The Combined Companies are included in the consolidated MGM Grand federal
income tax return. Federal income taxes are provided and become payable on a
separate return basis in accordance with an intercompany tax sharing agreement.
Net operating losses are allocated to the Combined Companies in the year the
loss is utilized in the MGM Grand consolidated federal return. The Combined
Companies' provision does not purport to be a proportionate share of the
consolidated tax.
The provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Current......... $ 4,989 $(1,276) $12,463 $ -
Deferred........ 7,377 383 11,826 -
------- ------- ------- -------
Total........... $12,366 $ (893) $24,289 $ -
======= ======= ======= =======
</TABLE>
The reconciliation of the federal income tax rate and the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- -------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Federal income tax rate... 35% (35.0)% 35 % 35 %
Other..................... 1.5% - 1.5 % -
Net Operating loss - no
benefit recognized...... - 15 % - (35)%
Reduction in valuation
allowance............... - - (2.0)% -
---- ----- ---- ---
Effective tax rate........ 36.5% (20.0)% 34.5 % -
==== ===== ==== ===
</TABLE>
As of June 30, 1996 and December 31, 1995, after having given effect to
SFAS 109, the major tax effected components of the Combined Companies' net
deferred tax liability are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Deferred Tax Assets........... $ 53,004 $ 58,649
Less: Valuation allowance... - (4,486)
-------- --------
Net deferred tax asset.... 53,004 54,163
Deferred Tax Liabilities...... (69,441) (60,334)
-------- --------
Net Deferred Tax Liability.... $(16,437) $ (6,171)
======== ========
</TABLE>
7
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (Continued)
Note 6. Transactions with MGM Grand and its Subsidiaries
The Combined Companies participated in several transactions with MGM Grand
and its subsidiaries during the periods presented in the accompanying condensed
combined financial statements.
MGM Grand provides MGM Grand Hotel with certain administrative and project
management services. Pursuant to the management agreement such services are
provided at an annual rate of an amount equal to one percent (1%) of the
Combined Companies' gross operating revenues before promotional allowances plus
four percent (4%) of its operating income. Management fees for the three and six
month periods ended June 30, 1996 were $4,035,000 and $8,289,000, respectively,
compared with the three and six month periods ended June 30, 1995, which were
$2,317,000 and $4,957,000 respectively.
The capital in excess of par value in the accompanying condensed combined
balance sheets represent capital contributions to MGM Grand Hotel for property
and equipment purchases, including design, procurement and pre-construction
costs, capitalized interest and working capital.
8
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- --------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Intercompany interest income....................... $ 13,679 $ 15,762 $ 27,364 $ 30,318
Intercompany charge to MGM Grand Hotel-
capitalized interest and facility expenses........ (733) - (1,260) -
Interest expense................................... (12,946) (15,762) (26,104) (30,318)
--------- --------- --------- ---------
Income before provision for
income taxes..................................... - - - -
Provision for income taxes......................... - - - -
--------- --------- --------- ---------
Net Income......................................... $ - $ - $ - $ -
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
9
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- ---------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................ $ - $ -
------------- ---------------
Total current assets............................... - -
------------- ---------------
Other Assets:
Debt offering costs, net............................. 7,993 9,274
Intercompany receivable from MGM Grand
Hotel - note........................................ 394,604 394,604
Intercompany receivable from MGM Grand
Hotel - note interest............................... 21,805 21,805
Intercompany receivable from MGM Grand
Hotel - other....................................... 10,639 9,358
Intercompany receivable from MGM Grand
Hotel - capitalized interest and
facility expenses................................... 53,855 53,855
------------- ---------------
Total other assets............................... 488,896 488,896
------------- ---------------
$ 488,896 $ 488,896
============= ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accrued interest payable............................. $ 9,368 $ 9,368
Note payable......................................... - -
------------- ---------------
Total current liabilities.......................... 9,368 9,368
------------- ---------------
Long Term Debt......................................... 473,000 473,000
------------- ---------------
Stockholder's Equity:
Common stock, no par value: 1,000
shares authorized; 100 shares, issued............... - -
Capital in excess of par value....................... 6,528 6,528
Retained earnings.................................... - -
------------- ---------------
Total stockholder's equity...................... 6,528 6,528
------------- ---------------
$ 488,896 $ 488,896
============= ===============
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
10
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
------------------------
June 30, June 30,
1996 1995
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income....................................... $ - $ -
Adjustments to reconcile net income to
net cash from operating activities:
Amortization of debt offering costs........... 1,281 1,296
Change in assets and liabilities:
Intercompany receivable - note interest..... (28,105) (28,105)
Intercompany receivable - other............. (1,281) (1,296)
Accrued interest payable.................... 28,105 28,105
---------- ----------
Net cash from operating activities........ $ - $ -
========== ==========
Cash Flows from Investing Activities............... - -
Cash Flows from Financing Activities:
Borrowings under bank line of credit............. 15,000
Intercompany loan................................ (15,000)
---------- ----------
Net cash from financing activities............. - -
Net Increase (Decrease) in Cash and Cash
Equivalents....................................... - -
Cash and Cash Equivalents at Beginning of
Period............................................ - -
---------- ----------
Cash and Cash Equivalents at End of Period......... $ - $ -
========== ==========
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
11
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1. Organization
MGM Grand Hotel Finance Corp. ("MGM Finance"), a wholly-owned subsidiary of
MGM Grand, Inc. ("MGM Grand"), was incorporated in Nevada on October 4, 1991,
with the intention that it function solely as a financing corporation to issue
debt securities and to obtain loan commitments from one or more banks and enter
into a bank loan in connection therewith. The proceeds of financing are loaned
to MGM Grand Hotel, Inc. ("MGM Grand Hotel") a wholly-owned subsidiary of MGM
Grand, pursuant to a disbursement agreement. MGM Grand Hotel (MGM Grand Las
Vegas) is a fully integrated hotel/casino and entertainment complex on
approximately 112 acres of prime real estate (owned by MGM Grand Hotel) in Las
Vegas, Nevada. MGM Finance has no other business operations.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the MGM Grand Hotel Finance Corp. Annual Report on Form 10-K for the year ended
December 31, 1995.
In the opinion of MGM Finance, the accompanying condensed financial
statements contain all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position as of June 30,
1996, the results of operations for the three and six months ended June 30,
1996, and June 30, 1995 and cash flows for the six month periods ended June 30,
1996 and June 30, 1995. The results of operations for such periods are not
necessarily indicative of the results to be expected for a full year.
Note 2. Statements of Cash Flows
The following supplemental disclosures are provided for the Condensed
Statements of Cash Flows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
--------------------
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Cash Payments for:
Interest............. $ 28,105 $ 28,105
-------- --------
</TABLE>
12
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
Note 3. Long Term Debt and Note Payable
Long term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
11-3/4% First Mortgage Notes due May 1, 1999 $ 220,000 $ 220,000
12% First Mortgage Notes due May 1, 2002 253,000 253,000
------------ ------------
$ 473,000 $ 473,000
============ ============
</TABLE>
The Company has a $60,000,000 revolving credit line with several banks. No
amounts were outstanding under the line as of June 30, 1996, and $15,000,000 was
outstanding as of June 30, 1995.
During the quarter ended June 30, 1995 MGM Finance had loaned to MGM Grand
Hotel $409,604,000 pursuant to the MGM Grand Hotel loan agreement. The loaned
funds were used by MGM Grand Hotel for the construction and for working capital.
The receivable from MGM Grand Hotel - capitalized interest, represents
intercompany charges by MGM Finance to MGM Grand Hotel equivalent to interest
costs capitalized with respect to development and construction costs of MGM
Grand Hotel.
The receivable from MGM Grand Hotel - facility expenses, represents
intercompany charges by MGM Finance to MGM Grand Hotel equivalent to the excess
of both interest expense (net of amounts capitalized), and general and
administrative expense over interest income.
Note 4. Income Taxes
MGM Finance is included in the consolidated MGM Grand federal income tax
return. Federal income taxes are provided and become payable on a separate
return basis in accordance with an intercompany tax sharing agreement. Net
operating losses are allocated to MGM Finance in the year the loss is utilized
in the MGM Grand consolidated federal return. The MGM Finance provision does not
purport to be a proportionate share of the consolidated tax.
There was no provision for income taxes for the three month and six month
periods ended June 30, 1996 and 1995.
As of June 30, 1996, after having given effect to SFAS 109, there were no
net deferred tax assets or liabilities.
13
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion and analysis pertains to the condensed combined financial
statements of MGM Grand Hotel and MGM Finance.
This form 10-Q contains forward-looking statements within the meaning of
section 27A of Securities Act of 1933, as amended. Actual results could differ
materially from those projected in the forward-looking statements.
Quarter versus Quarter
MGM Grand Las Vegas ("the Company") reported net revenues for the three months
ended June 30, 1996 of $181,910,000, an increase of $13,352,000 (7.9%), compared
with $168,558,000 for the same period in 1995. The overall improvement in the
revenues for the current year's period over the prior year reflects the
Company's stronger casino revenue and higher average daily room rates and
occupancy resulting from the focus on building a higher quality customer mix
while continuing to reduce revenue volatility.
Casino revenues for the second quarter of 1996 were $100,070,000, an increase of
$14,191,000 (16.5%), compared with $85,879,000 for the same period in 1995. The
increase was primarily fueled by better hold percentages during the 1996 period.
Room revenues for the second quarter of 1996 were $43,070,000, an increase of
$2,481,000 (6.1%), when compared with $40,589,000 in the same period of the
prior year. The increase was driven by improved occupancy rate of 99.5% and
average room rate of $97 in the second quarter of 1996, compared with 97.6% and
$92, respectively, in the same period of the prior year.
Food and beverage revenues were $17,828,000 in the second quarter of 1996,
representing a decrease of $6,294,000 (26.1%), compared with $24,122,000 in the
same quarter of the prior year. The decrease was due to the outsourcing of three
restaurants to independent operators during the third and fourth quarters of
1995.
Entertainment, retail and other venues were $32,967,000 for the second quarter
of 1996, representing an increase of $584,000 (1.8%), when compared with
$32,383,000 for the same period of the prior year. The increases in revenues
were attributable to increased rental income as a result of the addition of
leased food and beverage outlets and the Star Lane Shops mall which opened
during the third and fourth quarters of 1995, coupled with increased revenues
from EFX, when compared to the prior year period. These revenue increases were
offset by reductions in Theme Park revenues, resulting from lower attendance,
and lower revenue in the MGM Grand Garden Arena where fewer events were held
during the 1996 period when compared with 1995.
Operating expenses were $130,300,000 in the second quarter of 1996, representing
a decrease of $26,840,000 (17.1%) when compared with $157,140,000 in the prior
year period. The overall improvement in expenses was attributable to operating
efficiencies, lower food and beverage expenses due to the conversion of certain
restaurants to tenancies, and lower MGM Grand Garden Arena expenses which
reflect fewer entertainment events held. Additionally, the provision for
doubtful accounts and discounts was significantly reduced, reflecting the
adequacy of the balance in the reserves, as well as the receipt of payments on
fully reserved casino receivables.
14
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Operating income was $51,610,000 for the quarter ended June 30, 1996 an increase
of $40,192,000 (352.0%) when compared with $11,418,000 for the same period in
1995.
Interest income of $1,389,000 for the quarter ended June 30, 1996, increased
$1,377,000 from $12,000 in the second quarter of 1995. The increase was
attributable to higher invested cash balances during the second quarter of 1996,
reflecting the strong operating activity and increased collections on casino
receivables, when compared with the lower cash balances in the prior year.
Interest expense for the second quarter of 1996 was $13,937,000 (net of
capitalized interest) which decreased when compared with $15,784,000 in the
second quarter of 1995. The decrease is a result of the capitalized interest for
the second quarter of 1996 in the amount of $1,117,000 compared with no
capitalized interest in the prior year period. Also, the 1995 second quarter
contained additional interest expense as a result of the $15,000,000 outstanding
balance on the bank line of credit.
Management fee and other expenses of $4,016,000 for the quarter ended June 30,
1996, increased $1,699,000 from $2,317,000 for the same period in 1995. The
increase in management fees is due to significant improvements in operating
revenues.
Income tax provision of $12,366,000 for the quarter ended June 30, 1996,
increased $13,259,000 over the prior year benefit of $893,000. The income tax
provision for the 1996 period was higher due to the significant improvements in
operating activity and a higher effective tax rate, as compared with the prior
year period benefit due to the net operating loss carryforward.
Six Months versus Six Months
Net revenues for the six months ended June 30, 1996 were $382,689,000, an
increase of $52,170,000 (15.8%), compared with $330,519,000 for the same period
in 1995. The overall improvement in the revenues for the current year's period
over the prior year reflects the Company's stronger casino revenue and higher
hotel occupancy and average daily room rates resulting from the focus on
building a higher quality customer mix while continuing to reduce revenue
volatility.
Casino revenues for the period were $222,817,000, an increase of $45,612,000
(25.7%), compared with $177,205,000 for the same period in 1995. The increase in
casino revenues was attributable to the improved win in both table games and
slots over the prior year period.
Room revenues for the period were $86,593,000, an increase of $7,086,000 (8.9%),
when compared with $79,507,000 in the same period of the prior year. The
increase was driven by improved occupancy rate of 96.4% and average room rate of
$99 in the 1996 period, compared with 92.5% and $95, respectively, in the same
period of the prior year.
Food and beverage revenues were $36,695,000 for the 1996 period, representing a
decrease of $10,243,000 (21.8%), compared with $46,938,000 in the same period of
the prior year. The decrease was due to the outsourcing of three restaurants to
independent operators during the third and fourth quarters of 1995.
15
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Entertainment, retail and other revenues were $62,286,000 for the 1996 period,
representing an increase of $7,226,000 (13.1%), when compared with $55,060,000
for the same period of the prior year. The increases in revenues were
attributable to increased rental income as a result of the addition of leased
food and beverage outlets and the Star Lane Shops mall which opened during the
third and fourth quarters of 1995, coupled with increased revenues from EFX,
when compared to the prior year period. These revenue increases were offset by
reductions in Theme Park revenues, resulting from lower attendance, and lower
revenues in the MGM Grand Garden Arena fewer events were held during the 1996
period when compared with the 1995 period.
Operating expenses were $278,533,000 in the 1996 period, representing a decrease
of $18,234,000 (6.1%) when compared with $296,767,000 in the prior year period.
The component reductions were attributable to operating efficiencies for casino
expenses, where complimentary costs declined due to reduced volume in baccarat,
food, and beverage expenses due to the conversion of certain restaurants to
tenancies, and lower general and administrative expenses due to reduced
advertising costs. Additionally, the provision for doubtful accounts and
discounts was significantly reduced, reflecting the adequacy of the balance in
the reserves, as well as the receipt of payments on fully reserved casino
receivables. Such decreases were partially offset by increased room expenses,
reflecting higher occupancy, entertainment, retail and other expenses due to the
Star Lane Shops mall which commenced operations during the third quarter of the
prior period, and depreciation and amortization for property and equipment
placed in service during the third and fourth quarters of 1995.
Operating income was $104,156,000 for the period ended June 30, 1996 an increase
of $70,404,000 (208.6%) when compared with $33,752,000 for the same period in
1995.
Interest income of $2,548,000 for the period ended June 30, 1996, increased
$2,432,000 from $116,000 in the 1995 period. The increase was attributable to
higher invested cash balances during the 1996 period reflecting the strong
operating activity and increased collections on casino receivables, when
compared with the lower cash balances in the prior year.
Interest expense for the 1996 period was $27,915,000 (net of capitalized
interest) which decreased when compared with $31,114,000 in the prior year
period. The decrease is a result of the capitalized interest for the 1996 period
in the amount of $2,233,000 compared with no capitalized interest prior year
period. Also, the 1995 period contained additional interest expense as a result
of the $15,000,000 outstanding balance on the bank line of credit.
Management fee and other expenses of $8,547,000 for the period ended June
30, 1996, increased $3,590,000 from $4,957,000 for the same period in 1995. The
increase in management fees is due to significant improvements in operating
revenues.
Income tax provision for the 1996 period was $24,289,000 due to the significant
improvements in operating activity and a higher effective tax rate, when
compared with no provision in the prior year period due to the net operating
loss carryforward.
16
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources
As of June 30, 1996 and December 31, 1995, the Company held cash and cash
equivalents of $172,230,000 and $77,715,000 respectively. Cash provided by
operating activities for the first six months of 1996 was $106,827,000 versus
$21,473,000 for the first six months of 1995.
Capital expenditures during the first six months of 1996 were $13,365,000,
consisting primarily of general property improvements (including $1,720,000 for
the Master Plan project). The total capital expenditures remaining for 1996
associated with general property improvements and renovations (excluding the
Master Plan), is approximately $36,723,000.
On May 6, 1996, MGM Grand Las Vegas announced details of a 30-month,
$250,000,000 Master Plan designed to transform the facility into "The City of
Entertainment" thus creating additional exciting food, beverage, entertainment
and retail venues. The Plan features a series of substantive improvements and
additions throughout its 112-acre destination resort property, including
refurbishment of the lion entry, the porte cochere, casino areas, luxury suites,
parking facilities and the theme park. In addition, new facilities include a
convention center, entertainment/retail complex, and a second porte cochere
entrance. The Company is evaluating the alternative use and/or disposition of
certain existing assets, which could be affected by the implementation of the
Master Plan. Although the specific assets to be redeployed, or disposed of, in
conjunction with the Master Plan have not yet been determined, the write-down of
the carrying value of such assets is not currently expected to exceed
$50,000,000. Approximately $40,000,000 is expected to be expended in the 1996
period related to the Master Plan, of which $1,720,000 has been expended to
date.
On July 1, 1996, MGM Grand arranged a new $500,000,000 senior reducing
revolving credit facility from BA Securities, an affiliate of Bank of America NT
& SA ("B of A"). Additionally, on July 2, 1996, MGM Grand completed the
refinancing program by consummating the public offering of 8,625,000 shares of
common stock (including Underwriter's option to purchase 1,125,000 shares of
common stock) in a underwritten public offering. Based upon the offering price
of $39.50 per share, and other estimated offering costs, the net proceeds of the
offering were approximately $328,000,000.
On July 3, 1996, MGM Grand drew down $40,000,000 on the B of A facility,
used the net proceeds of approximately $328,000,000 from the offering and cash
on hand of approximately $161,000,000 to fund the defeasance of the MGM Grand
Hotel Finance Corp. First Mortgage Notes (see Note 4). The funds totaling
approximately $529,000,000 were deposited ("Defeasance Deposit") with the
Trustee in the form of U.S. Government securities. The Defeasance Deposit will
be used to fund the redemption and call premiums on the First Mortgage Notes
through May 1, 1997, as well as the interest payments and related expenses
through that date. The defeasance will result in an extraordinary charge of
approximately $31,000,000, in the quarter ended September 30, 1996, net of tax
benefits, to reflect the extinguishment of the First Mortgage Notes and the
expenses related thereto.
17
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
PART II. OTHER INFORMATION
None of the items 1 through 6 of Part II are applicable.
SIGNATURES
Pursuant to the requirements 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 HOTEL FINANCE CORP.
-----------------------------
(Registrant)
Date: August 12, 1996 /s/ DANIEL H. SCOTT
-------------------------
Daniel H. Scott
Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
Date: August 12, 1996 /s/ SCOTT LANGSNER
-------------------------
Scott Langsner
Secretary
18
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 172,230
<SECURITIES> 0
<RECEIVABLES> 83,505
<ALLOWANCES> (34,845)
<INVENTORY> 9,153
<CURRENT-ASSETS> 244,212
<PP&E> 979,485
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<TOTAL-ASSETS> 1,171,304
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0
0
<COMMON> 0
<OTHER-SE> 542,868
<TOTAL-LIABILITY-AND-EQUITY> 1,171,304
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