UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File No. 1-11324
GNS FINANCE CORP.
THE MIRAGE CASINO-HOTEL
_______________________________________________________________________
(Exact name of each Registrant as specified in its charter)
88-0235356
Nevada 88-0224157
_______________________________ _______________________________
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Nos.)
3400 Las Vegas Boulevard South, Las Vegas, Nevada 89109
_______________________________________________________________________
(Address of principal executive offices - Zip Code)
(702) 791-7111
_______________________________________________________________________
(Registrants' telephone number, including area code)
_______________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrants were required to file such
reports), and (2) have been subject to such filing requirements for
the past 90 days. YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
GNS FINANCE CORP. Common Stock, no par value - 200 shares outstanding
as of November 12, 1996.
THE MIRAGE CASINO-HOTEL Common Stock, no par value - 100 shares
outstanding as of November 12, 1996.
The Registrants meet the conditions set forth in General Instructions
H(1)(a) and (b) of Form 10-Q and, accordingly, are filing this Form
10-Q with the reduced disclosure format provided in General
Instruction H(2).
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed combined financial information as of
September 30, 1996 and for the three-month and nine-month periods
ended September 30, 1996 and 1995 included in this report was
reviewed by Arthur Andersen LLP, independent public accountants,
in accordance with the professional standards and procedures
established for such reviews by the American Institute of
Certified Public Accountants.
REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
_______________________________________________
To the Directors and Stockholder
of THE MIRAGE CASINO-HOTEL and Subsidiaries
and GNS FINANCE CORP.
We have reviewed the accompanying condensed combined balance
sheet of THE MIRAGE CASINO-HOTEL and subsidiaries and GNS FINANCE
CORP. (collectively, the "Company") as of September 30, 1996, and
the related condensed combined statements of income for the
three-month and nine-month periods ended September 30, 1996 and
1995 and the related condensed combined statements of cash flows
for the nine-month periods ended September 30, 1996 and 1995.
These combined financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the combined balance sheet of THE MIRAGE
CASINO-HOTEL and subsidiaries and GNS FINANCE CORP. and
subsidiary as of December 31, 1995, and the related combined
statements of operations and retained earnings (accumulated
deficit) and cash flows for the year then ended (not presented
herein), and, in our report dated February 9, 1996, we expressed
an unqualified opinion on those combined financial statements.
In our opinion, the information set forth in the accompanying
condensed combined balance sheet of THE MIRAGE CASINO-HOTEL and
subsidiaries and GNS FINANCE CORP. and subsidiary as of December
31, 1995, is fairly stated, in all material respects, in relation
to the combined balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
November 11, 1996
-2-
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
CONDENSED COMBINED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
1996 1995
------------ -----------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 27,067 $ 36,516
Receivables, net of allowance for doubtful accounts
of $58,320 and $44,862 62,479 73,070
Deferred income taxes 32,457 26,709
Other current assets 33,138 30,519
---------- ----------
Total current assets 155,141 166,814
Property and equipment, net of accumulated depreciation
of $334,247 and $289,329 1,000,919 1,021,985
Other assets, net 11,823 9,401
---------- ----------
$1,167,883 $1,198,200
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 54,432 $ 72,186
Accrued expenses 57,787 61,121
Amounts payable to Mirage Resorts, Incorporated and affiliates 6,897 87,365
Current maturities of long-term debt - 41,882
---------- ----------
Total current liabilities 119,116 262,554
Long-term debt, net of current maturities 213,576 204,700
Other liabilities, including deferred income taxes
of $81,326 and $69,215 82,374 70,321
---------- ----------
Total liabilities 415,066 537,575
---------- ----------
Commitments and contingencies
Stockholder's equity
Common stock 518,945 518,945
Additional paid-in capital 107,142 107,142
Retained earnings 126,730 34,538
---------- ----------
Total stockholder's equity 752,817 660,625
---------- ----------
$1,167,883 $1,198,200
========== ==========
- ----------
See note to condensed combined financial statements.
-3-
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
For the Three-Month For the Nine-Month
Period Ended Period Ended
September 30, September 30,
-------- -------- -------- ---------
1996 1995 1996 1995
-------- -------- -------- ---------
Gross revenues $297,848 $300,900 $908,855 $877,930
Less-promotional allowances (25,951) (24,955) (78,115) (71,116)
-------- -------- -------- --------
271,897 275,945 830,740 806,814
-------- -------- -------- --------
Costs and expenses
Casino-hotel operations 156,800 156,881 477,578 464,899
General and administrative 29,209 27,589 85,063 85,141
Mirage Resorts, Incorporated management fee 15,138 15,279 46,176 44,572
Depreciation 17,739 17,799 53,139 51,134
Corporate development - 686 2 2,271
-------- -------- -------- --------
218,886 218,234 661,958 648,017
-------- -------- -------- --------
Operating income 53,011 57,711 168,782 158,797
-------- -------- -------- --------
Other income and (expense)
Interest expense
Notes payable to non-affiliates (5,456) (6,476) (16,458) (21,919)
Notes payable to Mirage Resorts, Incorporated - - - (14,235)
Other 141 106 467 333
-------- -------- -------- --------
(5,315) (6,370) (15,991) (35,821)
-------- -------- -------- --------
Income before income taxes and extraordinary item 47,696 51,341 152,791 122,976
Provision for income taxes (18,294) (19,231) (60,599) (49,072)
-------- -------- -------- --------
Income before extraordinary item 29,402 32,110 92,192 73,904
Extraordinary item-loss on early retirement of debt - - - (10,439)
-------- -------- -------- --------
Net income $ 29,402 $ 32,110 $ 92,192 $ 63,465
======== ======== ======== ========
- ----------
See note to condensed combined financial statements.
-4-
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
For the Nine-Month
Period Ended
September 30,
-----------------------
1996 1995
-------- ---------
Cash flows from operating activities
Net income $ 92,192 $ 63,465
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for losses on receivables 14,159 17,147
Depreciation of property and equipment 53,139 51,134
Amortization of debt discount and issuance costs 9,141 8,343
Loss on early retirement of debt - 10,439
Deferred income taxes 6,363 3,472
Changes in assets and liabilities
Increase in receivables and other operating assets (8,934) (27,319)
Decrease in trade accounts payable and accrued expenses (21,088) (8,407)
Other 442 (1,288)
-------- ---------
Net cash provided by operating activities 145,414 116,986
-------- ---------
Cash flows from investing activities
Capital expenditures (33,484) (67,316)
Other 971 985
-------- ---------
Net cash used for investing activities (32,513) (66,331)
-------- ---------
Cash flows from financing activities
Decrease in management fee obligations to Mirage Resorts,
Incorporated (453) (112,517)
Advances from (to) Mirage Resorts, Incorporated and affiliates (77,642) 27,856
Decrease in income taxes payable to Mirage Resorts, Incorporated (2,373) (40,212)
Repayment of notes payable to Mirage Resorts, Incorporated - (353,022)
Net increase (decrease) in bank credit facility and commercial
paper borrowings (41,882) 35,000
Early retirement of debt - (134,180)
Issuance of common stock to Mirage Resorts, Incorporated - 518,943
-------- ---------
Net cash used for financing activities (122,350) (58,132)
-------- ---------
Cash and cash equivalents
Decrease for the period (9,449) (7,477)
Balance, beginning of period 36,516 28,511
-------- ---------
Balance, end of period $ 27,067 $ 21,034
======== =========
Supplemental cash flow disclosures
Interest paid (including $16,309 to Mirage Resorts, Incorporated
in 1995), net of amounts capitalized $ 9,703 $ 35,244
Income taxes paid to Mirage Resorts, Incorporated 56,579 85,823
- ----------
See note to condensed combined financial statements.
-5-
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
NOTE TO CONDENSED COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The condensed combined financial statements include the
consolidated accounts of THE MIRAGE CASINO-HOTEL ("MCH") and its
wholly owned subsidiaries, Treasure Island Corp. ("TI") and MH,
INC., combined with the consolidated accounts of GNS FINANCE
CORP. ("Finance") and, until its dissolution in June 1996,
Treasure Island Finance Corp. ("TI Finance") (collectively, the
"Company"). All significant intercompany balances and
transactions have been eliminated in consolidation or
combination, as appropriate.
MCH and Finance are wholly owned Nevada subsidiaries of Mirage
Resorts, Incorporated ("MRI"). The condensed combined financial
statements include various transactions between the Company and
MRI and its other wholly owned subsidiaries.
The condensed combined financial statements have been prepared in
accordance with the accounting policies described in the
Company's 1995 Annual Report on Form 10-K and should be read in
conjunction with the Notes to Combined Financial Statements which
appear in that report. The Condensed Combined Balance Sheet at
December 31, 1995 contained herein was derived from audited
financial statements, but does not include all disclosures
contained in the Form 10-K and applicable under generally
accepted accounting principles.
In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation
of the results for the interim periods have been included. The
interim results reflected in the condensed combined financial
statements are not necessarily indicative of expected results for
the full year.
Certain amounts in the 1995 condensed combined financial
statements have been reclassified to conform with the 1996
presentation. These reclassifications had no effect on the
Company's net income.
-6-
MANAGEMENT'S ANALYSIS OF OPERATIONS (COMPARISON OF OPERATING
RESULTS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND
1995)
RESULTS OF OPERATIONS
The Mirage's net revenues and operating income both increased by
2%. The Mirage's net non-casino revenues rose $27.3 million, or
13%, over the 1995 nine-month period. This increase principally
reflects the August 1995 completion of a $50 million program to
substantially upgrade the quality of The Mirage's standard guest
rooms. Completion of the program resulted in approximately
12% more available room nights during the 1996 nine-month period
than in the 1995 period and allowed the resort to achieve a 13%
increase in the average standard room rate, despite the increase
in available room nights. As a result, net room revenues grew by
$15.8 million, or 22%. Net food and beverage and entertainment
revenues also posted solid increases of 11% and 8%, respectively.
The Mirage's casino revenues decreased by $15.8 million, or 5%.
Slot and table games play at The Mirage increased over the 1995
period. The increase in slot play produced a $2.6 million, or
3%, increase in revenues. Table games revenues, excluding
baccarat, increased $11.0 million, or 9%, due to increases in the
level of play and the win percentage. This increase, however, was
more than offset by a decline in baccarat revenue.
Treasure Island's operating results also showed strong
improvement over the 1995 period. Net revenues increased by
$12.4 million, or 5%, and operating profit before corporate
development expense was up $5.6 million, or 11%. Such increases
were achieved in spite of the new competition from MRI's 50%-
owned Monte Carlo, which opened on June 21, 1996, and the
Stratosphere Casino Hotel, which opened on April 30, 1996. Both
Monte Carlo and Stratosphere target a similar customer base as
Treasure Island. The increase in Treasure Island's operating
results for the 1996 period was driven by its non-casino
revenues. Reflecting increases in virtually every category,
net non-casino revenues grew by $11.3 million, or 7%. Treasure
Island's casino revenues were also up slightly compared to the
1995 period, resulting mainly from a 4% increase in the level of
table games play.
-7-
OTHER INCOME AND EXPENSE
Interest expense related to notes payable to non-affiliates
declined by $5.5 million, or 25%. This decline reflects the
retirement of the remaining $126.0 million principal amount of TI
Finance's 9 7/8% first mortgage notes, which were called for
redemption in March 1995, and the repayment of bank credit
facility and commercial paper borrowings in February 1996.
During the 1995 period, the Company incurred $14.2 million of
interest expense related to the long-term notes payable to MRI.
Such notes were repaid in April 1995.
INCOME TAXES
MRI and its subsidiaries file federal income tax returns on a
consolidated basis. MRI has tax allocation agreements (which are
not binding on the Internal Revenue Service) with each of its key
subsidiaries, including MCH, TI, Finance and, until its
dissolution, TI Finance, which require each of them to reimburse
MRI for the amount of tax they would pay on a stand-alone basis.
This includes reimbursement for any additional taxes and
interest thereon resulting from Internal Revenue Service audits.
Under the Internal Revenue Code, MRI's consolidated subsidiaries
are jointly and severally liable for all income tax liabilities.
As a result of the tax allocation agreements, the tax provision
is not calculated on the combined income or loss of MCH, TI,
Finance and TI Finance. Instead, it reflects the sum of their
respective tax provisions and benefits. This resulted in a
combined provision in the 1996 and 1995 periods at a rate above
the federal income tax statutory rate.
EXTRAORDINARY ITEM
As noted previously, in March 1995, the Company called for
redemption the remaining $126.0 million principal amount of the
9 7/8% first mortgage notes. Although this early retirement was
financially advantageous to the Company, the call premium and the
write-off of the related unamortized debt issuance costs resulted
in an extraordinary charge of $10.4 million.
-8-
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
The Registrants filed no reports on Form 8-K during the three-
month period ended September 30, 1996.
-9-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrants have duly caused this report to be signed on their
behalf by the undersigned thereunto duly authorized.
GNS FINANCE CORP.
November 12, 1996 by: DANIEL R. LEE
_________________ ___________________________________
Date DANIEL R. LEE
Treasurer
(Principal Financial Officer)
THE MIRAGE CASINO-HOTEL
November 12, 1996 by: DOUGLAS G. POOL
_________________ ___________________________________
Date DOUGLAS G. POOL
Senior Vice President, Treasurer
and Chief Financial Officer
(Principal Financial Officer)
-10-