<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 September 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
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 Notes due 1999 New York Stock Exchange
$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 Registrant (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 November 12, 1996
----------------------------- --------------------------------
Common Stock, $1.00 par value 100 shares
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
FORM 10-Q
INDEX
Page No.
--------
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 Nine months ended September
30, 1996 and September 30, 1995 1
Condensed Combined Balance Sheets at September 30,
1996 and December 31, 1995 2
Condensed Combined Statements of Cash Flows for
the Nine months ended September 30, 1996 and
September 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 Nine months ended September 30, 1996
and September 30, 1995 9
Condensed Balance Sheets at September 30, 1996 and
December 31, 1995 10
Condensed Statements of Cash Flows for the Nine
months ended September 30, 1996 and September 30,
1995 11
Notes to Condensed Financial Statements 12-15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16-19
Part II. OTHER INFORMATION 20
<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 Nine Months Ended
------------------------------------- --------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Casino........................................ $ 111,755 $ 110,504 $ 334,572 $ 287,709
Rooms......................................... 42,754 40,838 129,347 120,345
Food and beverage............................. 17,426 22,539 54,120 69,477
Entertainment, retail and other............... 31,572 36,493 93,858 91,553
--------- --------- --------- ---------
203,507 210,374 611,897 569,084
Less: promotional allowances.................. 14,297 14,105 39,999 42,296
--------- --------- --------- ---------
189,210 196,269 571,898 526,788
--------- --------- --------- ---------
Expenses:
Casino........................................ 51,748 50,442 146,569 147,470
Rooms......................................... 11,701 10,605 35,735 33,087
Food and beverage............................. 10,151 14,116 31,941 44,214
Entertainment, retail and other............... 21,858 26,084 65,180 70,276
Provision for doubtful accounts and discounts.. 9,035 17,240 29,202 44,485
Restructuring costs........................... - 5,942 - 5,942
General and administrative.................... 25,245 25,104 71,176 74,316
Depreciation and amortization.................. 14,499 14,141 42,967 40,650
--------- --------- --------- ---------
144,237 163,674 422,770 460,440
--------- --------- --------- ---------
Operating Profit Before Master Plan Asset
Disposition.................................... 44,973 32,595 149,128 66,348
Master Plan Asset Disposition................... (49,401) - (49,401) -
--------- --------- --------- ---------
Operating Income (Loss)......................... (4,428) 32,595 99,727 66,348
--------- --------- --------- ---------
Other Income (Expenses)
Interest income............................... 307 15 2,855 131
Interest expense, net of capitalized
interest..................................... (608) (12,954) (28,524) (44,068)
Management fee................................ (3,361) (3,417) (11,648) (8,375)
Other, net.................................... 23 - (235) -
--------- --------- --------- ---------
(3,639) (16,356) (37,552) (52,312)
--------- --------- --------- ---------
Income (Loss) Before Income Taxes and
Extraordinary Item............................. (8,067) 16,239 62,175 14,036
Benefit (Provision) for Income Taxes............ 2,903 - (21,386) -
--------- --------- --------- ---------
Income (Loss) Before Extraordinary Item......... (5,164) 16,239 40,789 14,036
--------- --------- --------- ---------
EXTRAORDINARY ITEM:
Loss on defeasance of debt, net of
income tax benefit of $17,710................ (30,811) - (30,811) -
--------- --------- --------- ---------
Net Income (Loss)...................... $ (35,975) $ 16,239 $ 9,978 $ 14,036
========= ========= ========= =========
</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)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................... $ 55,918 $ 77,715
Accounts receivable, net ..................... 80,218 77,912
Prepaid expenses ............................. 12,186 12,455
Inventories .................................. 9,681 9,879
------------ ------------
Total current assets ................... 158,003 177,961
------------ ------------
Property And Equipment, Net .................... 811,412 874,731
------------ ------------
Other Assets:
Due from parent .............................. 1,509 1,509
Deposits ..................................... 15,446 16,281
Other assets, net ............................ 38,772 52,580
Deferred tax asset ........................... 7,532 -
------------ ------------
Total other assets ..................... 63,259 70,370
------------ ------------
$ 1,032,674 $ 1,123,062
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable ............................. $ 10,094 $ 17,903
Accrued liabilities .......................... 74,917 78,520
Taxes payable to parent ...................... 30,838 13,460
Intercompany payables, net .................... - 6,583
Current obligation, capital leases ........... 2,678 2,162
Accrued interest on long term debt ........... - 9,368
------------ ------------
Total current liabilities .............. 118,527 127,996
------------ ------------
Deferred Revenue ............................... 7,754 8,568
Deferred Income Taxes .......................... - 6,171
Long Term Obligation, Capital Leases ........... 8,269 10,412
Long Term Debt ................................. - 473,000
------------ ------------
Total long term liabilities ............ 16,023 498,151
------------ ------------
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 ................ 846,477 455,246
Retained earnings ............................. 51,647 41,669
------------ ------------
Total stockholder's equity ............. 898,124 496,915
------------ ------------
$ 1,032,674 $ 1,123,062
============ ============
</TABLE>
The accompanying notes are an integral part of these combined
condensed financial statements.
2
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income .......................................... $ 9,978 $ 14,036
Adjustments to reconcile net income to
net cash from operating activities:
Master Plan asset disposition ...................... 49,401 -
Loss on defeasance of debt ......................... 48,521 -
Depreciation and amortization ...................... 42,967 40,650
Amortization of debt offering costs ................ 1,292 2,532
Provisions for doubtful accounts and discounts ..... 29,202 44,485
Change in assets and liabilities:
Accounts receivable ............................. 3,086 (19,262)
Prepaid expenses ................................. 269 (1,484)
Inventories ...................................... 198 778
Accounts payable, accrued liabilities, and other.. (13,439) 14,437
Intercompany (receivable)/payable ................ (41,177) 109
Taxes payable to parent .......................... 17,379 (1,712)
Deferred income taxes ............................ (13,703) (3,288)
------------- ------------
Net cash from operating activities ................ 133,974 91,281
------------- ------------
Cash Flows from Investing Activities:
Purchases of property and equipment ................. (24,713) (24,657)
Disposition of property and equipment ............... 277 181
Deposits and other assets ........................... 665 (28,005)
------------- ------------
Net cash from investing activities ................ (23,771) (52,481)
------------- ------------
Cash Flows from Financing Activities:
Borrowings under bank line of credit ................ - 15,000
Repayments of bank line of credit ................... - (15,000)
Investments from MGM Grand, Inc. .................... 391,231 -
Defeasance of First Mortgage Notes .................. (523,231) -
------------- ------------
Net cash from financing activities ................ (132,000) -
------------- ------------
Net Increase (Decrease) in Cash and Cash Equivalents.. (21,797) 38,800
Cash and Cash Equivalents at Beginning of Period ..... 77,715 29,421
------------- ------------
Cash and Cash Equivalents at End of Period ........... $ 55,918 $ 68,221
============= ============
</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 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 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 September 30, 1996, the results of operations for the
three month and the nine month periods ended September 30, 1996 and September
30, 1995 and cash flows for the nine month periods ended September 30, 1996 and
September 30, 1995. The results of operations for such periods 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 NINE MONTHS ENDED
------------------------------ -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Rooms ....................... $ 2,447 $ 2,166 $ 6,486 $ 6,279
Food and beverage ........... 5,786 6,010 15,786 17,925
Other ....................... 643 826 1,837 3,120
------- ------- ------- -------
$ 8,876 $ 9,002 $24,109 $27,324
======= ======= ======= =======
</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>
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash Payments for:
Interest, net of amounts capitalized $ 38,818 $ 29,763
======== ========
</TABLE>
NOTE 4. MASTER PLAN ASSET DISPOSITION
During September 1996, MGM Grand Hotel determined to write off various
assets with a net book value of $49,401,000 (pre-tax) as a result of the MGM
Grand Las Vegas property construction enhancements associated with the
transformation of the facility into "The City of Entertainment". The affected
areas include the MGM Grand Theme Park with a write-off of approximately
$39,564,000 to make way for a major entertainment/retail complex and convention
center, and approximately $8,580,000 related to the removal of the lion entrance
and Emerald City to be replaced with a new mezzanine entry, a themed restaurant,
and a remodeled casino among other attractions. In addition, the Company wrote-
off approximately $1,257,000 representing certain food court and Midway/Arcade
areas to be converted into Studio Walk, a replica of a Hollywood sound stage
featuring Hollywood landmarks.
5
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
NOTES 5. LONG TERM DEBT AND NOTE PAYABLE
Long term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
11-3/4% First Mortgage Notes due May 1, 1999 $ - $ 220,000
12% First Mortgage Notes due May 1, 2002 - 253,000
----- ---------
$ - $ 473,000
===== =========
</TABLE>
On July 3, 1996, the Company deposited $523,231,000 (the "Defeasance
Deposit") with the Trustee, U.S. Trust of California, to fund the defeasance of
MGM Grand Hotel Finance Corp. First Mortgage Notes ("FMN's") in accordance with
the terms of the bond indenture. The Defeasance Deposit was made in the form of
U.S. Government securities and will be used to fund interest payments on the
FMN's through May 1, 1997, the call as of such date of the 11-3/4% FMN's at
101.958% of the outstanding principal, the call as of such date of the 12% FMN's
at 105.333% of the outstanding principal, and related expenses. On October 29,
1996, the liens on the assets of MGM Grand Hotel, Inc. and MGM Grand Finance,
Inc. were released and accordingly, the Defeasance was finalized. The early
extinguishment of the FMN's resulted in an extraordinary loss of approximately
$30,811,000, net of tax benefits.
Total interest incurred for the nine months of 1996 and 1995 was
$30,757,000 and $44,068,000, respectively, of which $2,233,000 and $2,263,000
was capitalized in the 1996 and 1995 periods respectively. The capitalization of
interest arises from the Company's transformation into "The City of
Entertainment", and the construction project New York-New York.
The Company had a $60,000,000 revolving credit line with several banks
which terminated on October 29, 1996. During the nine month period of 1995 the
Company borrowed $15,000,000 under the credit line which was repaid in the 1995
third quarter. Additionally, no amounts were outstanding under the line of
credit for the nine months ended September 30, 1996.
6
<PAGE>
MGM GRAND FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
NOTE 6. 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. As of September 30, 1996 and
December 31, 1995, the Combined Companies determined that $0 and $4,486,000,
respectively, of deferred tax assets did not satisfy the recognition criteria
set forth in the standard.
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 (benefit) for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1996 1995 1996 1995
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current .............. $ 4,916 $ 3,288 $ 17,379 $ 3,288
Deferred ............. (25,529) (3,288) (13,703) (3,288)
-------- ------- -------- -------
Total ................ $(20,613) $ - $ 3,676 $ -
======== ======= ======== =======
</TABLE>
The reconciliation of the federal income tax rate and the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ----------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Federal income tax rate (35.0%) 35.0% 35.0% 35.0%
Other (1.0%) - 1.5% -
Net Operating loss - no benefit recognized - - - -
Reduction in valuation allowance - (35.0%) (2.1%) (35.0%)
------ ------ ----- ------
Effective tax rate (36.0%) - 34.4% -
====== ====== ===== ======
</TABLE>
7
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (Continued)
NOTE 6. INCOME TAXES - continued
As of September 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 asset (liability) are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Deferred Tax Assets $ 61,062 $ 58,649
Less: Valuation allowance - (4,486)
-------- --------
Total deferred tax asset 61,062 54,163
Deferred Tax Liabilities (53,530) (60,334)
-------- --------
Net Deferred Tax Asset (Liability) $ 7,532 $ (6,171)
======== ========
</TABLE>
NOTE 7. 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
nine month periods ended September 30, 1996 were $3,361,000 and $11,648,000,
respectively, compared with the three and nine month periods ended September 30,
1995, which were $3,417,000 and $8,375,000, respectively.
As of September 30, 1995, MGM Finance had loaned MGM Grand Hotel
$394,604,000 pursuant to the MGM Grand Hotel loan agreement. The loaned funds
were used by MGM Grand Hotel for construction and working capital. Such loan
and related interest were repaid on July 3, 1996 pursuant to the Defeasance of
the First Mortgage Notes.
The capital in excess of par value in the accompanying condensed
combined balance sheets represents capital contributions to MGM Grand Hotel for
property and equipment purchases, including design, procurement and
pre-construction costs, capitalized interest and working capital. Additionally,
a capital contribution was made by MGM Grand, for the third quarter ended
September 30, 1996, of $391,231,000 related to the Defeasance of the First
Mortgage Notes (see note 5).
8
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------- --------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Intercompany interest income ..................... $ - $ 12,092 $ 27,366 $ 42,410
Intercompany charge to MGM Grand Hotel -
capitalized interest and facility expenses ...... (335) - (1,597) -
Interest expense ................................. - (12,092) (26,104) (42,410)
Other expenses, net .............................. - - - -
--------- --------- --------- ---------
Loss before provision for
income taxes and extraordinary item ............. (335) - (335) -
Provision for income taxes ....................... - - - -
--------- --------- --------- ---------
Loss Before Extraordinary Item .................. (335) - (335) -
--------- --------- --------- ---------
EXTRAORDINARY ITEM:
Loss on defeasance of debt, net of
income tax benefit of $17,710 .................... (30,811) - (30,811) -
--------- --------- --------- ---------
Net Loss ......................................... $(31,146) $ - $(31,146) $ -
========= ========= ========= =========
</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)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents...................... $ - $ -
-------- ---------
Total current assets.......................... - -
-------- ---------
Other Assets:
Debt offering costs, net....................... - 9,274
Intercompany receivable from MGM Grand
Hotel - note.................................. - 394,604
Intercompany receivable from MGM Grand
Hotel - note interest.......................... - 21,805
Intercompany receivable from MGM Grand
Hotel - other................................. - 9,358
Deferred tax asset............................ 17,710 -
Intercompany receivable from MGM Grand
Hotel - capitalized interest and
facility expenses............................. - 53,855
-------- ---------
Total other assets........................... 17,710 488,986
-------- ---------
$ 17,710 $ 488,896
======== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accrued interest payable....................... $ - $ 9,368
Note payable................................... - -
-------- ---------
Total current liabilities..................... - 9,368
-------- ---------
Long Term Debt.................................. - 473,000
-------- ---------
Stockholder's Equity:
Common stock, no par value: 1,000
shares authorized; 100 shares issued.......... - -
Capital in excess of par value................. 48,856 6,528
Retained (deficit)............................. (31,146) -
-------- ---------
Total stockholder's equity................... 17,710 6,528
-------- ---------
$ 17,710 $ 488,896
======== =========
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
10
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss ........................................... $ (31,146) $ -
Adjustments to reconcile net income to
net cash from operating activities:
Amortization of debt offering costs .............. 1,378 2,078
Loss of defeasance of First Mortgage Notes ....... 48,521 -
Change in assets and liabilities:
Intercompany receivable - note
interest ....................................... - (14,127)
Intercompany receivable - capitalized
interest and facility expenses ................. - -
Accrued interest payable ........................ (9,368) 14,052
Deferred tax asset .............................. (17,710) -
Intercompany Receivables - Other .................... - (2,003)
Intercompany payable to MGM Grand ................... - -
Intercompany payable to MGM Grand Hotel ............. - -
Other ............................................... 332 -
------------ -------------
Net cash from operating activities ............ (7,993) -
------------ -------------
Cash Flows from Investing Activities: ............... - -
Cash Flows from Financing Activities:
Intercompany Receivable - Other .................... 72,487 -
Intercompany Receivable - Note Interest ............ 21,805 -
Intercompany Receivable - Note ..................... 394,604 -
Investment from MGM Grand Inc. .................... 42,328 -
Defeasance of First Mortgage Notes ................. (523,231) -
------------ -------------
Net cash from financing activities ........... 7,993 -
------------ -------------
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 September
30, 1996, the results of operations for the three and nine months ended
September 30, 1996 and September 30, 1995 and cash flows for the nine month
periods ended September 30, 1996 and September 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>
Nine Months Ended
September 30
---------------------
1996 1995
---------- --------
<S> <C> <C>
Cash Payments for:
Interest............... $ 38,085 $ 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>
September 30, September 30,
1996 1995
------------- ------------
<S> <C> <C>
11-3/4% First Mortgage Notes due May 1, 1999 $ - $220,000
12% First Mortgage Notes due May 1, 2002 - 253,000
------- --------
$ - $473,000
======= ========
</TABLE>
On July 3, 1996, the Company deposited $523,231,000 (the "Defeasance
Deposit") with the Trustee, U.S. Trust of California, to fund the defeasance of
MGM Grand Hotel Finance Corp. First Mortgage Notes ("FMN's") in accordance with
the terms of the bond indenture. The Defeasance Deposit was made in the form of
U.S. Government Securities and will be used to fund interest payments on the
FMN's through May 1, 1997, the call as of such date of the 11-3/4% FMN's at
101.958% of the outstanding principal, the call as of such date of the 12% FMN's
at 105.333% of the outstanding principal, and related expenses. On October 29,
1996, the liens on the assets of MGM Grand Hotel, Inc. and MGM Grand Finance,
Inc. were released and accordingly, the Defeasance was finalized. The early
extinguishment of the FMN's resulted in an extraordinary loss of approximately
$30,811,000, net of tax benefits.
The Company had a $60,000,000 revolving credit line during all of 1995
and throughout the third quarter of 1996. During 1995 the Company borrowed
$15,000,000 under the credit line which was repaid in the 1995 third quarter.
Additionally, no amounts were outstanding under the line of credit for the nine
months ended September 30, 1996.
During the quarter ended September 30, 1995 MGM Finance had loaned to
MGM Grand Hotel $394,604,000 pursuant to the MGM Grand Hotel loan agreement.
The loaned funds were used by MGM Grand Hotel for the construction and for
working capital. Such loan was repaid on July 3, 1996 pursuant to the
Defeasance of the First Mortgage Notes.
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.
13
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
NOTE 4. INCOME TAXES
MGM Finance 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.
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.
As of September 30, 1996 and December 31, 1995, after having given
effect to SFAS 109, the major tax effected components of MGM Finance's net
deferred tax asset is as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Deferred Tax Assets $17,710 $ --
Less: Valuation allowance -- --
------------- ------------
Total deferred tax asset $17,710 --
Deferred Tax Liabilities -- --
------------- ------------
Net Deferred Tax Asset $17,710 $ --
============= ============
</TABLE>
14
<PAGE>
The benefit for income taxes for the three months and nine months ended
September 30, 1996 and 1995, is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Current ......................... $ -- $ -- $ -- $ --
Deferred ........................ (17,710) -- (17,710) --
-------- -------- -------- -------
Total ........................... $(17,710) $ -- $(17,710) $ --
======== ======== ======== =======
</TABLE>
The reconciliation of the federal income tax rate and the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- -------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Federal income tax rate (35.0%) --% (35.0%) --%
Other (1.5%) -- (1.5%) --
--------- --------- --------- ---------
Effective tax rate (36.5%) --% (36.5%) --%
========= ========= ========= =========
</TABLE>
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
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 the 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 September 30, 1996 of $189,210,000 a decrease of $7,059,000 (3.6%),
compared with $196,269,000 for the same period in 1995.
Casino revenues for the third quarter of 1996 were $111,755,000, an increase of
$1,251,000 (1.1%), compared with $110,504,000 for the same period in 1995. The
increase was primarily fueled by an increased baccarat hold percentage.
Room revenues for the third quarter of 1996 were $42,754,000, an increase of
$1,916,000 (4.7%), when compared with $40,838,000 in the same period of the
prior year. The increase was driven by an improved occupancy rate of 97.6% in
the third quarter of 1996, compared with 93.4% in the same period of the prior
year.
Food and beverage revenues were $17,426,000 in the third quarter of 1996,
representing a decrease of $5,114,000 (22.7%), compared with $22,540,000 in the
same quarter of the prior year. The decrease was due to the outsourcing of
three restaurants to independent operators completed during the third and fourth
quarters of 1995.
Entertainment, retail and other revenues were $31,572,000 for the third quarter
of 1996, representing a decrease of $4,921,000 (13.5%), when compared with
$36,493,000 for the same period of the prior year. The decreases in revenues
were attributable to fewer EFX performances and lower occupancy due to the
absence of a star performer, and lower Theme Park revenues due to reduced
wristband sales despite increased overall attendance. Retail revenue was below
the prior year period, which was partially offset by increased rental revenues
related to the conversion of three restaurants to tenancies and the effect of a
full quarter of lease revenues from the Star Lane Mall during the current
period.
Operating expenses were $144,237,000 in the third quarter of 1996, representing
a decrease of $19,436,000 (11.9%) when compared with $163,673,000 in the prior
year's period. The reduced expenses resulted from lower food and beverage
expenses due to the outsourcing of restaurants, and lower provision for doubtful
accounts due to changes in anticipated collectibility. Additionally, lower
entertainment, retail and other cost reflect fewer and less costly Grand Garden
events held during the 1996 quarter, and lower EFX operating costs resulting
from the reduced performance schedule. In addition, a one-time restructuring
charge of $5,942,000 was recorded during the third quarter of 1995.
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)
Operating income (before Master Plan asset disposition) was $44,973,000 for the
quarter ended September 30, 1996 an increase of $12,377,000 (38.0%) when
compared with $32,596,000 for the same period in 1995. The increase resulted
from revenue enhancement programs and continued cost containment efforts.
Master Plan asset disposition relates to the transformation of MGM Grand Hotel
into the "The City of Entertainment", which resulted in a one-time charge to
earnings of $49,401,000 (pre-tax) in the 1996 period (see Note 4).
Interest income of $307,000 for the quarter ended September 30, 1996, increased
$293,000 from $14,000 in the third quarter of 1995. The increase was
attributable to higher invested cash balances during the third quarter of 1996
when compared with the prior year period.
Interest expense for the third quarter of 1996 was $608,000 (net of capitalized
interest) which decreased when compared with $12,954,000 in the third quarter of
1995. The decrease was primarily due to the significant reduction of the debt
balance attributable to the defeasance of the First Mortgage Notes
which occurred in the third quarter of 1996 (see Note 5).
Management fee of $3,361,000 for the quarter ended September 30, 1996, decreased
$56,000 from $3,417,000 for the same period in 1995. The decrease in management
fee was due to lower operating revenue.
Income tax benefit of $2,903,000 was recorded at a rate of 36.0% for the three
month period ended September 30, 1996, compared with the prior year when there
was no provision due the benefit resulting from the valuation allowance.
Extraordinary loss of $30,811,000, net of income tax benefit of $17,710,000,
reflects the loss on defeasance of the First Mortgage Notes (see Note 3).
NINE MONTHS VERSUS NINE MONTHS
Net revenues for the nine months ended September 30, 1996 were $571,898,000, an
increase of $45,110,000 (8.6%), compared with $526,788,000 for the same period
in 1995. The overall improvement in the revenues reflects the Company's
stronger casino wins, 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 $334,572,000, an increase of $46,863,000
(16.3%), compared with $287,709,000 for the same period in 1995. The increase
in casino revenues was attributable to the improved win and win percentages in
table games, Baccarat and slots.
Room revenues for the period were $129,347,000, an increase of $9,002,000
(7.5%), when compared with $120,345,000 in the same period of the prior year.
The increase was driven by an improved occupancy rate of 96.8% and average room
rate of $98 in the 1996 period, compared with 92.8% and $96, respectively, in
the same period of the prior year.
Food and beverage revenues were $54,120,000 for the 1996 period, representing a
decrease of $15,357,000 (22.1%), compared with $69,477,000 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.
17
<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 $93,858,000 for the 1996 period,
representing an increase of $2,305,000 (2.5%), when compared with $91,553,000
for the same period of the prior year. The increases in revenues were
attributable to increased revenue from EFX which had 124 more shows than the
same period in 1995 and increased rental income as a result of increased
restaurant tenancies and a full nine months of Star Lane mall operations
compared with a half month during the third quarter of 1995. This revenue
increase was offset by reductions in Theme Park revenue, due to lower
attendance, and Grand Garden revenue where fewer events were held during the
1996 period when compared with 1995.
Operating expenses were $422,770,000 in the 1996 period, representing a decrease
of $37,670,000 (8.2%) when compared with $460,440,000 in the prior year period.
The reduction in expenses resulted from outsourcing of certain restaurants to
tenancies, lower Grand Garden Arena expenses as a result of fewer events held
during the 1996 period, decreased Theme Park expenses due to lower attendance,
and a lower provision for doubtful accounts. These decreases were partially
offset by higher casino taxes based on improved revenues, increases in room
expenses due to increased payroll costs for improved occupancy levels and an
increase in depreciation and amortization.
Operating income (before Master Plan asset disposition) was $149,128,000 for the
period ended September 30, 1996 an increase of $82,780,000 (124.8%) when
compared with $66,348,000 for the same period in 1995.
Master Plan asset disposition relates to the transformation of MGM Grand Hotel
into "The City of Entertainment", which resulted in a one-time charge to
earnings of $49,401,000 (pre-tax) in the 1996 period (see Note 4).
Interest income of $2,855,000 for the period ended September 30, 1996, increased
$2,724,000 from $131,000 in the 1995 period. The increase was attributable to
higher invested cash balances during the 1996 period reflecting the higher
operating income when compared with the prior year period.
Interest expense for the 1996 period was $28,524,000 (net of capitalized
interest) which decreased when compared with $44,068,000 in the prior year's
period. The decrease was primarily due to the significant reduction of the debt
balance attributable to the defeasance of the First Mortgage Notes during the
current year period (see Note 5).
Management fee of $11,648,000 for the period ended September 30, 1996, increased
$3,273,000 from $8,375,000 for the same period in 1995. The increase in
management fees is due to improvements in operating revenues.
Income tax provision of $21,386,000 was recorded at a rate of 34.4% for the nine
month period ended September 30, 1996, compared with the prior year period when
there was no provision due to the benefit resulting from the reduction of the
valuation allowance.
Extraordinary loss of $30,811,000, net of income tax benefit of $17,710,000,
reflects the loss on defeasance of the First Mortgage Notes (see Note 3).
18
<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 September 30, 1996 and December 31, 1995, the Company held cash
and cash equivalents of $55,918,000 and $77,715,000, respectively. Cash provided
by operating activities for the first nine months of 1996 was $133,974,000
versus $91,281,000 for the first nine months of 1995.
Capital expenditures during the first nine months of 1996 were
$24,713,000, consisting primarily of general property improvements and the
commencement of the "City of Entertainment". The total capital expenditures
remaining for 1996 associated with general property improvements and renovations
is approximately $31,656,000.
On May 6, 1996, MGM Grand Hotel announced details of a 30-month,
$250,000,000 Master Plan designed to transform the facility into "The City of
Entertainment". The Master 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 and entertainment/retail complex, and a second porte cochere
entrance. Approximately $20,000,000 is expected to be expended during 1996
related to the Master Plan, of which $4,965,000 has been expended to date.
During September 1996, the MGM Grand Hotel wrote off $49,401,000 (pre-tax) of
asset as a result of the implementation of the Master Plan (see note 4).
19
<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: November 12, 1996 /s/ Daniel H. Scott
-------------------
DANIEL H. SCOTT
Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
Date: November 12, 1996 /s/ Scott Langsner
-------------------
SCOTT LANGSNER
Secretary
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 55,918
<SECURITIES> 0
<RECEIVABLES> 117,510
<ALLOWANCES> 37,292
<INVENTORY> 9,681
<CURRENT-ASSETS> 12,186
<PP&E> 811,412
<DEPRECIATION> 42,967
<TOTAL-ASSETS> 1,032,674
<CURRENT-LIABILITIES> 118,527
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 898,124
<TOTAL-LIABILITY-AND-EQUITY> 898,124
<SALES> 611,897
<TOTAL-REVENUES> 571,898
<CGS> 0
<TOTAL-COSTS> 472,171
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 29,202
<INTEREST-EXPENSE> 28,524
<INCOME-PRETAX> 62,175
<INCOME-TAX> 21,386
<INCOME-CONTINUING> 40,789
<DISCONTINUED> 0
<EXTRAORDINARY> 30,811
<CHANGES> 0
<NET-INCOME> 9,978
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
