<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 MARCH 31, 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
Indicated 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 May 14, 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 ended March 31, 1996
and March 31, 1995 1
Condensed Combined Balance Sheets at March 31, 1996
and December 31, 1995 2
Condensed Combined Statements of Cash Flows for
the Three months ended March 31, 1996 and March 31, 1995 3
Notes to Condensed Combined Financial Statements 4-8
MGM GRAND HOTEL FINANCE CORP.:
Condensed Statements of Operations for the Three months
ended March 31, 1996 and March 31, 1995 9
Condensed Balance Sheets at March 31, 1996 and
December 31, 1995 10
Condensed Statements of Cash Flows for the Three
months ended March 31, 1996 and March 31, 1995 11
Notes to Condensed Financial Statements 12-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-15
PART II. OTHER INFORMATION 16
</TABLE>
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Revenues:
Casino.......................................... $122,747 $ 91,326
Room............................................ 43,523 38,918
Food and beverage............................... 18,867 22,815
Entertainment, retail and other................. 29,322 22,678
-------- --------
214,459 175,737
Less: promotional allowances.................... 13,677 13,776
-------- --------
200,782 161,961
-------- --------
Expenses:
Casino.......................................... 50,549 49,732
Room............................................ 11,447 10,825
Food and beverage............................... 10,859 14,712
Entertainment, retail and other................. 22,623 19,009
Provision for doubtful accounts and discounts... 15,626 8,176
General and administrative...................... 22,944 24,603
Depreciation and amortization................... 14,188 12,571
-------- --------
148,236 139,628
-------- --------
Operating Income.................................. 52,546 22,333
-------- --------
Other Income (Expense):
Interest income................................. 1,159 105
Interest expense, net of amounts capitalized.... (13,978) (15,329)
Management fee.................................. (4,253) (2,640)
Other, net...................................... (277) --
-------- --------
(17,349) (17,864)
-------- --------
Income Before Provision for Income Taxes.......... 35,197 4,469
Provision for Income Taxes........................ 11,923 894
-------- --------
Net Income................................... $ 23,274 $ 3,575
========= ========
</TABLE>
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
CONDENSED COMBINED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents....................... $ 148,203 $ 77,715
Accounts receivable, net ....................... 51,972 77,912
Prepaid expenses ............................... 15,962 12,455
Inventories .................................... 9,758 9,879
Intercompany receivables, net................... 2,999 -
------------ ------------
Total current assets ....................... 228,894 177,961
------------ ------------
Property And Equipment, net ...................... 869,151 874,731
------------ ------------
Other Assets:
Due from parent ................................ 1,509 1,509
Deposits ....................................... 15,349 16,281
Other assets, net .............................. 50,964 52,580
------------ -----------
Total other assets ......................... 67,822 70,370
------------ -----------
$ 1,165,867 $ 1,123,062
============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable ............................... $ 20,019 $ 17,903
Taxes payable to parent ........................ 20,934 13,460
Intercompany payables, net...................... - 6,583
Current obligation, capital leases.............. 2,669 2,162
Accrued interest on long term debt.............. 23,421 9,368
Other accrued liabilitites 75,844 78,520
----------- ----------
Total current liabilities................... 142,887 127,996
----------- ----------
Deferred Revenue .................................. 9,783 8,568
Deferred Income Taxes ............................. 10,620 6,171
Long Term Obligation Capital Leases ............... 9,388 10,412
Long Term Debt .................................... 473,000 473,000
Commitments and Contingents
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 .............................. 64,943 41,669
----------- ----------
Total stockholder's equity ................. 520,189 496,915
----------- ----------
$ 1,165,867 $ 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>
Three Months Ended
------------------------
March 31, March 31,
1996 1995
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income ........................................... $ 23,274 $ 3,575
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization ...................... 14,188 12,571
Amortization of debt offering costs................. 754 400
Provision for doubtful accounts and discounts....... 15,626 8,176
Change in assets and liabilities:
Accounts receivable............................... 10,313 (3,122)
Prepaid expenses.................................. (3,506) (3,280)
Inventories....................................... 31 545
Accrued interest payable.......................... 14,052 14,052
Accounts payable, accrued liabilities, and other.. (282) (23,684)
Intercompany payable, net......................... (9,582) (868)
Taxes payable to parent........................... 7,474 (3,724)
Deferred revenue.................................. 1,215 1,037
Deferred income taxes............................. 4,449 (383)
---------- ----------
Net cash from operating activities................... 78,006 5,295
---------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment................... (8,029) (8,977)
Disposition of property and equipment, net............ 277 135
Deposits and other assets............................. 234 (26,460)
---------- ----------
Net cash from investing activities................... (7,518) (35,302)
---------- ----------
Cash Flows from Financing Activities:
Borrowings under bank line of credit.................. - 8,000
Repayments of bank line of credit .................... - (513)
---------- ----------
Net cash from financing activities................... - 7,487
---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents.... 70,488 (22,520)
Cash and Cash Equivalents at Beginning of Period........ 77,715 29,421
---------- ----------
Cash and Cash Equivalents at End of Period.............. $ 148,203 $ 6,901
========== ==========
</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"), is 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
condensed combined financial statements contain all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position as of March 31, 1996, the results of operations and cash flows for the
three month periods ended March 31, 1996 and March 31, 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
-------------------------
March 31, March 31,
1996 1995
----------- -----------
<S> <C> <C>
Rooms..................... $ 2,175 $ 2,023
Food and beverage......... 5,279 5,806
Other..................... 597 1,160
----------- -----------
$ 8,051 $ 8,989
=========== ===========
</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>
Three Months Ended
-------------------------
March 31, March 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash Payments For:
Interest, net of amounts
capitalized ................... $ 293 $ 529
=========== ===========
</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>
MARCH 31, 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 three months of 1996 and 1995 was
$15,095,000 and $15,329,000, respectively, of which $1,117,000 was capitalized
in the 1996 period, related to the construction project New York-New York. No
interest was capitalized in the first three months of 1995.
The Company has a $60,000,000 revolving credit line with several banks.
During the period ended March 31, 1995 the Company borrowed $8,000,000 under the
credit line which was repaid during the third quarter of 1995. As of March 31,
1996, no amounts were outstanding under the credit line.
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. As of March 31, 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
because of the Combined Companies' short operating history. Accordingly, a
valuation allowance was recorded to reserve the applicable deferred tax assets.
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
MARCH 31,
------------------
1996 1995
-------- -------
<S> <C> <C>
Current.......................... $ 7,474 $ 1,276
Deferred......................... 4,449 (382)
-------- -------
Total............................ $ 11,923 $ 894
======== =======
</TABLE>
Reconciliation of the federal income tax rate and the effective tax rate is
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1996 1995
-------- -------
<S> <C> <C>
Federal income tax rate.......... 35% 35%
Other............................ 1.5% -
Net Operating loss - no benefit
recognized...................... - (15%)
Reduction in valuation allowance. (2.5%) _
-------- -------
Effective tax rate............... 34% 20%
======== =======
</TABLE>
As of March 31, 1996 and March 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>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Deferred Tax Assets............. $ 56,114 $ 58,649
Less: Valuation allowance..... - (4,486)
--------- ------------
Total deferred tax asset.... 56,114 54,163
Deferred Tax Liabilities........ (66,734) (60,334)
--------- ------------
Net Deferred Tax Liability...... $ (10,620) $ (6,171)
========= ============
</TABLE>
<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 month
periods ended March 31, 1996 and March 31, 1995 were $4,253,000 and $2,640,000,
respectively.
The capital in excess or 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.
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
March 31, March 31,
1996 1995
------------ -----------
<S> <C> <C>
Intercompany interest income .......... $ 13,685 $ 12,306
Intercompany charge to MGM Grand
Hotel - capitalized interest and
facility expenses .................... (527) 2,146
Interest expense ...................... (13,158) (14,452)
--------- --------
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>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................... $ - $ -
--------- ---------
Total current assets...................... - -
--------- ---------
Other Assets:
Debt offering costs, net.................... 8,525 9,274
Intercompany receivable from MGM Grand
Hotel - note............................... 394,604 394,604
Intercompany receivable from MGM Grand
Hotel - note interest...................... 35,858 21,805
Intercompany receivable from MGM Grand
Hotel - other.............................. 10,107 9,358
Intercompany receivable from MGM Grand
Hotel - capitalized interest and
facility expenses.......................... 53,855 53,855
--------- ---------
Total other assets........................ 502,949 488,896
--------- ---------
$ 502,949 $ 488,896
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accrued interest payable.................... $ 23,421 $ 9,368
Note payable................................ - -
--------- ---------
Total current liabilities................. 23,421 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
--------- ---------
$ 502,949 $ 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>
Three Months Ended
--------------------
March 31, March 31,
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 ............. 749 400
Change in assets and liabilities:
Intercompany receivable -- note interest ....... (14,053) (12,306)
Intercompany receivable -- other ............... (749) (2,146)
Accrued interest payable ....................... 14,053 14,052
------- -------
Net cash from operating activities ............ $ - $ -
======= =======
Cash Flows from Investing Activities ............... - -
Cash Flows 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.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 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 March 31,
1996 the results of operations for the three months ended March 31, 1996 and
March 31, 1995 and cash flows for the three month periods ended March 31, 1996
and March 31, 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>
Three Months Ended
-------------------------
March 31, March 31,
1996 1995
-------- --------
<S> <C> <C>
Cash Payments for:
Interest ..................... $ - $ -
======== ========
</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>
March 31, 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.
During the quarter ended March 31, 1995 the Company borrowed $8,000,000 under
the credit line which was repaid in the third quarter. As of March 31, 1996, no
amounts are outstanding under the credit line.
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 periods ended
March 31, 1996 and 1995.
As of March 31, 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") net revenues for the three months ended
March 31, 1996 were $200,782,000, an increase of $38,821,000 (24%), compared
with $161,961,000 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 emphasis on developing a stronger national customer base, and
augmenting customer mix while reducing revenue volatility.
Casino revenues for the period was $122,747,000, compared with $91,326,000
for the same period in 1995. The increase of $31,421,000 (34.4%), in Casino
revenues was principally due to improved volume and hold in table games
(excluding baccarat) and slots in the current period when compared with the
prior year. Baccarat revenue decreased for the 1996 period due to a reduction in
volume, partially offset by a stronger hold, when compared with 1995.
Room revenue for the period was $43,523,000, an increase of $4,605,000
(11.8%), on an occupancy rate of 93.3% versus $38,918,000 on an occupancy rate
of 87.5% for the first quarter of 1995. Additionally, the average room rate
increased $4 to $103 in 1996 from $99 in 1995. The improved occupancy and higher
average room rate both contributed to the increased revenues for the 1996 period
over the prior year.
Food and beverage revenues of $18,867,000, decreased $3,948,000 (17.3%)
from $22,815,000 in the 1995 period. The decrease in the current year is due to
the conversion of three previously owned restaurants to tenancies as a result of
the Company restructuring plan which was effective August 1995.
Entertainment, retail and other revenues of $29,322,000, increased
$6,644,000 (29.3%) from $22,678,000 in the prior year. The increase was
primarily attributable to EFX which was operational for an abbreviated period in
1995 (116 shows in 1996 versus 11 shows in 1995), and the Star Lane Shops Mall
which was not operational in the 1995 period, partially offset by the reduction
of the Grand Garden events which included three events in the current period,
compared with eight in the prior year's period. Additionally, lease income
increased in the current period as a result of the outsourcing of three
restaurants in the third and fourth quarters of 1995.
Operating expenses of $148,236,000 represented an increase in the current
period of $8,607,000 (6.2%), over the prior year of $139,628,000. The overall
increase was primarily attributable to higher costs related to improved
revenues, and a significant increase in the provision for doubtful accounts and
discounts of $7,450,000. Additionally, depreciation and amortization increased
in the current quarter due to EFX equipment, and the Star Lane Shops Mall, as
well as other asset additions fully depreciated in the current quarter's period,
which were not in service in the 1995 period. Such increases were partially
offset by the effects of the restructuring plan, coupled with the benefits of
the continuing cost containment efforts. In addition, general and administrative
costs decreased largely as a result of reduced advertising costs for EFX in the
1996 period when compared with 1995.
Operating income for the three months ended March 31, 1996 was $52,546,000,
an increase of $30,213,000 (135%), compared with $22,333,000 for the same
period in 1995.
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)
Interest income of $1,159,000 for the period ended March 31, 1996,
increased by $1,054,000 from $105,000 in the first quarter of 1995. The increase
was primarily attributable to higher invested cash balances during the current
year's quarter reflecting strong operating activity, and increased collections
on casino receivables when compared with lower cash balances in the prior year's
period.
Interest expense in the first quarter of 1996 of $13,978,000 (net
capitalized interest) decreased by $1,351,000 (8.5%) when compared with
$15,329,000 in the prior year's period. The decrease in the current year
included capitalized interest of $1,117,000 related to the New York-New York
construction project. Additional interest expense was incurred in the first
quarter of 1995 as a result of $8,000,000 outstanding on the bank line of credit
which had been repaid by the third quarter of 1995.
Management fee and other of $4,530,000 for the period ended March 31,
1996, increased by $1,890,000 from $2,640,000 in the first quarter of 1995. The
increase in management fees is due to significant improvements in operating
revenues.
The income tax provision of $11,923,000 for the quarter ended March 31,
1996, increased $11,029,000 over the prior period of $894,000. The income tax
provision for the current period was higher due to the significant improvements
in operating income and a higher effective tax rate due to extinguishment of the
NOL carryforward.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996 and December 31, 1995, the Combined Companies held
cash and cash equivalents of $148,202,000 and $77,715,000, respectively. Cash
provided by operating activities was $78,006,000 and $5,295,000 in the first
quarter of 1996 and 1995, respectively. The Combined Companies expect to finance
operations and capital expenditures through cash on hand, cash flows from
operations, and the bank line of credit.
Capital expenditures during the first three months of 1996 were
$8,029,000 primarily for general property improvements.
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. The Master Plan
will unfold in four phases, and is scheduled to begin in June 1996. Details of
the extensive renovation include 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 connection with the Master Plan has not yet
been determined, the write-down of the carrying value of such assets is not
currently expected to exceed $20,000,000.
In order to significantly lower MGM Grand's cost of capital, enhance
financial flexibility and position MGM Grand to finance its anticipated future
growth, MGM Grand has arranged for a new $500 million bank credit facility to
replace MGM Finance's existing high cost public debt. In May 1996, MGM Grand
received a commitment from BA Securities, Inc., an affiliate of Bank of America
N.T. & S.A. ("B of A"), to arrange for a new $500 million senior reducing
revolving credit facility as well as a commitment from B of A for a $125 million
interim facility. MGM Grand plans to sell approximately 7,500,000 shares of
Common Stock (excluding Underwriter's option to purchase 1,125,000 shares of
common stock) in an underwritten public offering (the "Offering"). Based upon
the closing price ($41.00) of the common stock, as reported by the New York
Stock Exchange on May 13, 1996 it is anticipated that the net proceeds of the
Offering will be approximately $295.0 million ($339.4 million if the
Underwriters' over-allotment option is exercised in full). The bank facilities
will be used, together with cash on hand, and proceeds from the Offering, to
defease the outstanding secured debt obligations of MGM Finance. It is
anticipated that the defeasance will result in an extraordinary charge of
approximately $37 million.
<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: May 14, 1996 /s/ DANIEL H. SCOTT
--------------------------------------------
Daniel H. Scott
Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
Date: May 14, 1996 /s/ SCOTT LANGSNER
-------------------------------------------
Scott Langsner
Secretary
16
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<PERIOD-START> JAN-01-1996
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