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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
-------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBERS)
3400 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANTS' TELEPHONE NUMBER, INCLUDING AREA CODE: (702) 791-7111
-------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- -------------------------------------- -----------------------
9 1/4% Series B Senior Subordinated
Notes Due March 15, 2003 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrants' knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K: X
---
GNS FINANCE CORP.'s Common Stock, no par value, outstanding at March
28, 1997 was 200 shares, none of which was held by non-affiliates.
THE MIRAGE CASINO-HOTEL's Common Stock, no par value, outstanding
at March 28, 1997 was 100 shares, none of which was held by non-affiliates.
The Registrants meet the conditions set forth in General Instructions
I(1)(a) and (b) of Form 10-K and, accordingly, are filing this Form 10-K
with the reduced disclosure format provided in General Instruction I(2).
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PART I
ITEM 1. BUSINESS
GENERAL
GNS FINANCE CORP. ("Finance") was incorporated in Nevada in
March 1988 as a wholly owned subsidiary of Mirage Resorts,
Incorporated ("MRI"), a Nevada corporation whose common stock is
traded on the New York Stock Exchange under the symbol "MIR."
THE MIRAGE CASINO-HOTEL ("MCH") was incorporated in Nevada in
September 1986 as a wholly owned subsidiary of MRI. MCH owns and
operates The Mirage, a hotel-casino and destination resort which
opened in 1989. The Mirage shares with the Treasure Island
hotel-casino, as discussed below, approximately 120 acres near
the center of the Las Vegas Strip. Finance functions solely as a
financing corporation to raise funds for the benefit of MCH and
has no other operations. Treasure Island Corp. ("TI"), a wholly
owned subsidiary of MCH, was incorporated in Nevada in December
1991. In 1993, TI opened Treasure Island at The Mirage
("Treasure Island"), a hotel-casino resort located adjacent to
The Mirage. Until its dissolution in June 1996, Treasure Island
Finance Corp. ("TI Finance") was a wholly owned subsidiary of
Finance that functioned solely as a financing corporation to
raise funds for the benefit of TI. Finance, MCH, TI and TI
Finance are collectively referred to herein as the "Company."
THE MIRAGE
The Mirage is a luxurious, tropically themed destination
resort containing approximately 3.1 million square feet in a 29-
story Y-shaped hotel tower and an expansive low-rise complex.
The Mirage features a 95,900-square foot casino, 3,044 hotel
rooms (including 265 suites and 14 villa and lanai suites),
approximately 71,000 square feet of meeting, convention and
banquet space, a 1,503-seat showroom showcasing the world-
famous illusionists Siegfried & Roy, five gourmet restaurants,
a California-style pizza restaurant, a coffee shop, a buffet,
four bars (two featuring live entertainment), two snack
bars, an ice cream parlor, a health spa and beauty salon, a
swimming pool and cabana area, a white tiger display and exten-
sive retail facilities.
The exterior of the resort is landscaped with palm trees,
abundant foliage and more than four acres of lagoons and other
water features centered around a 54-foot simulated volcano and
waterfall. Each evening, the volcano erupts at regular
intervals, spectacularly illuminating the front of the resort.
Inside the front entrance is an atrium with a tropical garden and
additional water features capped by a 100-foot-high glass dome.
The atrium has an advanced environmental control system and
creative lighting and other special effects designed to replicate
the sights, sounds and fragrances of the South Seas. Located at
the rear of the hotel, adjacent to the swimming pool area, is a
dolphin habitat with eight Atlantic bottlenose dolphins, and the
"Secret Garden of Siegfried & Roy," a recently opened exhibit
that allows guests to view the beautiful exotic animals of
Siegfried & Roy.
As of March 1, 1997, The Mirage's casino offered 121 table
games, keno, poker, a race and sports book and approximately
2,220 slot machines or similar coin-operated devices.
TREASURE ISLAND
Treasure Island is a pirate-themed hotel-casino resort located
on the same site as The Mirage. Treasure Island features an
82,000-square foot casino, 2,891 hotel rooms (including 212
suites), three gourmet restaurants, an Italian specialties grill,
a coffee shop, a buffet, two snack bars, an ice cream parlor,
five bars (two featuring live entertainment), a 1,525-seat
showroom featuring "Mystere" (a production developed by the
creators of the world-renowned Cirque du Soleil) and an 18,000-
square foot amusement arcade. Treasure Island also offers
extensive retail facilities, approximately 16,000 square feet of
meeting and banquet space, two wedding chapels and a swimming
pool. The front of Treasure Island, facing the Las Vegas
Strip, is an elaborate pirate village in which full-scale
replicas of a pirate ship and a British frigate regularly engage
in a pyrotechnic and special effects sea battle, culminating with
the sinking of the frigate.
As of March 1, 1997, Treasure Island's casino offered 83 table
games, keno, a race and sports book and approximately 2,200 slot
machines or similar coin-operated devices.
SHADOW CREEK
MCH's wholly owned subsidiary, MH, INC. ("MH"), owns
approximately 305 acres of real property located approximately 10
miles north of The Mirage and Treasure Island. The Company has
developed an exclusive world-class golf course and related
facilities known as "Shadow Creek" on approximately 240 acres of
such property. In connection with its marketing activities, the
Company makes the course and related facilities available for
use, by invitation only, by high-level-wagerer patrons.
-2-
COMPETITION
The Mirage and Treasure Island compete with a number of other
hotel-casinos in Las Vegas. Currently, there are approximately
28 major hotel-casinos located on or near the Las Vegas Strip,
11 major hotel-casinos located in the downtown area and several
major facilities located elsewhere in the Las Vegas area. As of
March 1, 1997, there were approximately 97,800 hotel and motel
rooms in Las Vegas, compared to 86,500 at March 1, 1996.
Currently, a number of major hotel-casinos have been proposed
in Las Vegas, some of which are likely to be built. In addition,
several expansion projects at existing Las Vegas hotel-casinos
are currently under construction and several other expansion
projects have been proposed.
Management believes that The Mirage primarily competes with
other large hotel-casinos located on or near the Strip that offer
amenities and marketing programs appealing to the upper-middle
and higher-income strata of the gaming populace. The Mirage
competes on the basis of the elegance and excitement offered by
the facility, the desirability of its location, the quality of
its hotel rooms and restaurants, its entertainment and special
attractions, customer service, its balanced marketing strategy
and special marketing and promotional programs.
Management believes that Treasure Island primarily competes
with the other large hotel-casinos located on or near the Strip
that offer amenities and marketing programs that appeal to the
middle- to upper-middle-income strata of the gaming populace.
Treasure Island competes on the basis of the excitement offered
by the facility, the desirability of its location (including its
proximity to The Mirage), the quality of its hotel rooms, the
variety, quality and attractive pricing of its food and beverage
outlets, its unique entertainment offerings, customer service and
its marketing and promotional programs.
The Mirage and Treasure Island also compete for gaming
customers with hotel-casino operations located in other areas of
Nevada, Atlantic City and other parts of the world, and for
vacationers with non-gaming tourist destinations such as Hawaii
and Florida. The Mirage and Treasure Island compete to a lesser
extent with state-sponsored lotteries, off-track wagering, card
parlors, riverboat and Indian gaming facilities and other forms
of legalized gaming in the United States, as well as with gaming
on cruise ships. In recent years, certain states have legalized,
and several other states have considered legalizing, casino
gaming. Management does not believe that such legalization of
casino gaming in those jurisdictions would have a material
adverse impact on the Company's operations. However, management
believes that the legalization of large-scale land-based casino
gaming in or near certain major metropolitan areas, particularly
in California, could have a material adverse effect on the Las
Vegas market.
-3-
REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in
Nevada are subject to extensive state and local regulation. The
Company's gaming operations are subject to the licensing and
regulatory control of the Nevada Gaming Commission, the Nevada
State Gaming Control Board and the Clark County Liquor and Gaming
Licensing Board. For a more detailed description of such matters,
reference is made to the section entitled "Regulation and
Licensing-Nevada" in Item 1 of Part I of MRI's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, a copy of
which section is filed as Exhibit 99 to this Form 10-K and is
hereby incorporated by reference.
MANAGEMENT'S ANALYSIS OF OPERATIONS (1996 COMPARED TO 1995)
RESULTS OF OPERATIONS
Revenues net of promotional allowances grew by $15.1 million
over 1995. Net non-casino revenues increased by 10%, reflecting
growth in revenue contribution from all departments. Net non-
casino revenues accounted for 47% of the Company's total net
revenues, versus 44% in 1995. Net room revenues increased by
14% in 1996. A $50 million program was completed in August 1995
to substantially upgrade the quality of The Mirage's guest
rooms. Completion of this project added approximately 4%
in available room nights in 1996 and allowed the Company to
achieve an 11% increase in the average standard room rate.
Company-wide occupancy of available standard guest rooms re-
mained steady at approximately 99%. The increase in the
average room rate has helped the Company achieve an increase in
the gross margin on room revenues.
The Company is planning to refurbish 138 suites at The Mirage
that were not refurbished as part of the 1995 program. The re-
furbishment project is scheduled for the summer of 1997 at a
cost of approximately $9 million.
SIEGFRIED & ROY at The Mirage and MYSTERE at Treasure Island
continue to be two of the most successful theatrical experiences
in history. During 1996, both shows again played to near
full capacity, at a combined average ticket price 7% higher than
in 1995. Principally due to the success of these two productions,
net entertainment revenues grew by $6.1 million, or 8%, over
1995. The increase in the average ticket price resulted in an
improvement in gross margins and profitability. Net food and
beverage and retail revenues were also solid contributors,
increasing 8% and 5%, respectively.
-4-
The increase in operating results in 1996 was achieved despite
an 8% decline in table games revenues caused by a reduction in
both activity and the win percentage for baccarat. The Company-
wide table games win percentage was 19.9%, versus 21.1% in 1995.
Excluding baccarat, table games revenues in 1996 increased by 4%
over 1995. Slot revenues also increased slightly over 1995.
The provision for losses on receivables declined by $8.6
million in 1996. This decline reflects favorable collection
experience, as well as a reduction in the level of table games
credit play.
In November 1996, the Company began construction on a series
of improvements at Treasure Island. These include a luxurious
new hotel lobby, a new Italian restaurant, additional retail
space and a modest amount of additional casino space. The
enhancements are expected to cost approximately $25 million and
be completed in mid-1997. The construction had little impact on
operating results during 1996, but general and administrative
expense includes a $5.4 million charge related to the abandon-
ment of property associated with the new construction. During
1995, various smaller projects resulted in a similar charge of
$3.5 million.
OTHER INCOME AND EXPENSE
Interest expense related to notes payable to non-affiliates
declined by $5.9 million, or 21%. This decline reflects the
retirement of the remaining $126.0 million principal amount of TI
Finance's 9-7/8% first mortgage notes called for redemption in
March 1995 and the repayment of bank credit facility and
commercial paper borrowings in February 1996.
In April 1995, the $518.9 million outstanding principal
balance of notes payable to MRI was repaid using the proceeds
from the sale to MRI of 100 shares of Finance's common stock.
Interest expense related to such notes totaled $14.2 million in
1995.
INCOME TAXES
MRI files its 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.
-5-
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
provision in 1996 and 1995 at a rate above the federal income
tax statutory rate.
EXTRAORDINARY ITEM
As noted previously, the remaining $126.0 million principal
amount of the 9-7/8% first mortgage notes were redeemed in 1995.
Although this early retirement was financially advantageous, the
call premium and the write-off of the related unamortized debt
issuance costs resulted in an extraordinary charge of $10.4
million. There were no such charges in 1996.
ITEM 2. PROPERTIES
The Mirage and Treasure Island share an approximately 120-acre
site owned by MCH. At March 1, 1997, both The Mirage and
Treasure Island were subject to an encumbrance of approximately
$118.9 million, representing the accreted value of Finance's zero
coupon first mortgage notes.
MCH, through MH, also owns approximately 305 acres of land in
North Las Vegas, including approximately 240 acres occupied by
Shadow Creek.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits, most of which
relate to routine matters incidental to its business. Management
does not believe that the outcome of such pending litigation, in
the aggregate, will have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted in accordance with General Instruction I(2) of Form
10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no public trading market for the Common Stock of MCH
or Finance.
ITEM 6. SELECTED FINANCIAL DATA
Omitted in accordance with General Instruction I(2) of Form
10-K.
-6-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Omitted in accordance with General Instruction I(2) of Form
10-K. See "Management's Analysis of Operations (1996 Compared to
1995)" in Item 1 of Part I of this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Combined Financial Statements and Notes to Combined
Financial Statements of THE MIRAGE CASINO-HOTEL and Subsidiaries
and GNS FINANCE CORP., referred to in Item 14(a)(1) of this Form
10-K, are included at pages 13 to 26.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted in accordance with General Instruction I(2) of Form
10-K.
ITEM 11. EXECUTIVE COMPENSATION
Omitted in accordance with General Instruction I(2) of Form
10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Omitted in accordance with General Instruction I(2) of Form
10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted in accordance with General Instruction I(2) of Form
10-K.
-7-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1). FINANCIAL STATEMENTS.
Included in Part II of this Report:
Report of Independent Public Accountants
Combined Balance Sheets - December 31, 1996 and 1995
Years ended December 31, 1996, 1995 and 1994
Combined Statements of Income and Retained Earnings
(Accumulated Deficit)
Combined Statements of Cash Flows
Notes to Combined Financial Statements
(a)(2). FINANCIAL STATEMENT SCHEDULES.
Included in Part IV of this Report:
Years ended December 31, 1996, 1995 and 1994
Schedule II - Valuation and Qualifying Accounts
Schedules other than that listed above are omitted because
they are not required or are not applicable, or the required
information is shown in the financial statements or notes to
the financial statements.
(a)(3). EXHIBITS.
3(i)(a) Articles of Incorporation of Finance. Incor-
porated by reference to Exhibit 3(a) to the
Registration Statement filed by MCH and
Finance on Form S-1 under the Securities Act
of 1933 (No. 33-22369) (the "Form S-1").
3(i)(b) Amendment to Articles of Incorporation of
Finance, filed May 27, 1988. Incorporated
by reference to Exhibit 3(b) to the Annual
Report on Form 10-K of MCH and Finance for
the fiscal year ended December 31, 1988 (the
"1988 Form 10-K").
3(i)(c) Articles of Incorporation of MCH, filed
September 30, 1986, and amendments, filed
April 28, 1987, May 18, 1987, August 25, 1987
and February 23, 1988. Incorporated by
reference to Exhibit 3(c) to the Form S-1.
-8-
3(i)(d) Amendment to Articles of Incorporation of MCH,
filed April 25, 1989. Incorporated by refer-
ence to Exhibit 3(e) to Post-Effective Amend-
ment No. 1 to the Registration Statement filed
by MCH and Finance on Form S-1 under the
Securities Act of 1933 (No. 33-23701) (the
"Second Form S-1").
3(i)(e) Amendment to Articles of Incorporation of MCH,
filed May 31, 1989. Incorporated by reference
to Exhibit 3(f) to Post-Effective Amendment
No. 2 to the Second Form S-1.
3(ii)(a) Bylaws of Finance. Incorporated by reference
to Exhibit 3(c) to the 1988 Form 10-K.
3(ii)(b) Bylaws of MCH. Incorporated by reference to
Exhibit 3(d) to the Form S-1.
4(a) Indenture, dated as of March 15, 1988, with
respect to Finance's Zero Coupon First Mort-
gage Notes Due March 15, 1998, together with
exhibits (the "Zero Coupon Notes Indenture").
Incorporated by reference to Exhibit 4(c) to
the Form S-1.
4(b) First Supplemental Indenture, dated as of
August 1, 1988, to the Zero Coupon Notes
Indenture. Incorporated by reference to
Exhibit 4(f) to Amendment No. 1 to the Form
S-1.
4(c) Second Supplemental Indenture, dated as of
January 15, 1990, to the Zero Coupon
Notes Indenture. Incorporated by reference
to Exhibit 4(l) to the Annual Report on Form
10-K of Finance for the fiscal year ended
December 31, 1989.
4(d) Third Supplemental Indenture, dated as of
October 15, 1990, to the Zero Coupon
Notes Indenture. Incorporated by reference to
Exhibit 4(r) to Amendment No. 1 to the Annual
Report on Form 10-K of Finance for the
fiscal year ended December 31, 1990.
4(e) Fourth Supplemental Indenture, dated as of
June 15, 1992, to the Zero Coupon Notes
Indenture. Incorporated by reference to
Exhibit 19.4 to the Quarterly Report on Form
10-Q of MRI (Commission File No. 1-6697) for
the fiscal quarter ended June 30, 1992.
-9-
4(f) Indenture, dated as of March 31, 1993, with
respect to Finance's 9-1/4% Senior Sub-
ordinated Notes Due March 15, 2003, together
with exhibits. Incorporated by reference to
Exhibit 4 to the Current Report on Form 8-K
of MRI dated March 31, 1993.
10(a) Deed of Trust, Assignment of Rents and
Security Agreement, dated as of March 23,
1988, from MCH in favor of First Interstate
Bank of Nevada, N.A. ("FIBN"), as trustee.
Incorporated by reference to Exhibit 10(xx)
to the Annual Report on Form 10-K of MRI for
the fiscal year ended December 31, 1987.
10(b) Tax Allocation Agreement, dated as of March 9,
1988, between Finance and MRI. Incorporated
by reference to Exhibit 10(g) to the Form S-1.
10(c) Tax Allocation Agreement, dated as of
January 1, 1988, between MCH and MRI. Incor-
porated by reference to Exhibit 10(h) to the
Form S-1.
10(d) Management Agreement, dated as of January 1,
1988, between MCH and MRI. Incorporated by
reference to Exhibit 10(i) to the Form S-1.
10(e) Amendment Agreement, dated as of October 4,
1990, between MCH, as trustor, and FIBN, as
beneficiary. Incorporated by reference to
Exhibit 4.12 to the Current Report on Form
8-K of MRI dated October 4, 1990.
10(f) Management Agreement, dated as of January 1,
1992, between MRI and TI. Incorporated by
reference to Exhibit 10(oo) to Amendment No.
2 to the Registration Statement filed by TI
Finance, TI and MCH on Form S-1 under the
Securities Act of 1933 (No. 33-45415) (the
"TI Form S-1").
10(g) Easement, dated December 28, 1990, from MH
in favor of Stephen A. Wynn. Incorporated
by reference to Exhibit 10(ll) to Amendment
No. 1 to the Registration Statement filed by
MCH and Finance on Form S-1 under the Secur-
ities Act of 1933 (No. 33-38496).
10(h) Second Amendment to Deed of Trust, dated
as of February 21, 1992, between MCH, as
trustor, and FIBN, as beneficiary. Incorpor-
ated by reference to Exhibit 10(z) to the
Annual Report on Form 10-K of Finance for the
fiscal year ended December 31, 1991 (the
"1991 Form 10-K").
-10-
10(i) Leasehold Deed of Trust, Assignment of Rents
and Security Agreement, dated as of March 25,
1992, from TI in favor of FIBN, as trustee.
Incorporated by reference to Exhibit 10(cc) to
the 1991 Form 10-K.
10(j) Ground Lease, dated as of March 1, 1992,
between MCH and TI. Incorporated by refer-
ence to Exhibit 10(nn) to Amendment No. 2 to
the TI Form S-1.
10(k) Tax Allocation Agreement, dated as of January
1, 1992, between MRI and TI. Incorporated by
reference to Exhibit 10(pp) to Amendment No. 2
to the TI Form S-1.
10(l) Amendment Agreement, dated as of November 24,
1992, between MCH, as trustor, and FIBN, as
beneficiary. Incorporated by reference to
Exhibit 10(ddd) to the Annual Report on Form
10-K of MRI for the fiscal year ended December
31, 1992 (the "MRI 1992 Form 10-K").
10(m) First Amendment to Ground Lease, dated as of
March 1, 1993, between MCH and TI. Incor-
porated by reference to exhibit 10(ggg) to the
MRI 1992 Form 10-K.
10(n) Second Amendment to Ground Lease, dated as of
October 26, 1993, between MCH and TI.
Incorporated by reference to Exhibit 10(bbb)
to the Annual Report on Form 10-K of MRI for
the fiscal year ended December 31, 1993.
10(o) Land Sales Contract, dated March 26, 1993,
between MH and Stephen A. Wynn, together
with exhibits. Incorporated by reference to
Exhibit 10(yy) to the Registration Statement
filed by Finance and MCH on Form S-4 under
the Securities Act of 1933 (No. 33-62514).
10(p) Issuing and Paying Agency Agreement, dated
November 13, 1995, between MRI, MCH, TI,
Bellagio, GNLV, CORP. and MH, as issuers, and
BankAmerica National Trust Company, as issuing
and paying agent (without exhibit). Incor-
porated by reference to Exhibit 4.1 to the
Current Report on Form 8-K of MRI dated
November 20, 1995 (the "MRI Form 8-K").
10(q) Form of Commercial Paper Note of MRI, MCH,
TI, Bellagio, GNLV, CORP. and MH. Incorpor-
ated by reference to Exhibit 4.2 to the MRI
Form 8-K.
-11-
10(r) Termination Agreement, dated as of March 7,
1997, among MRI, MCH, TI, GNLV, CORP., MH,
Bellagio and Bank of America National Trust
and Savings Association, as Administrative
Co-Agent.
27 Financial Data Schedule.
99 Section entitled "Regulation and Licensing-
Nevada" in Item 1 of Part I of the Annual
Report on Form 10-K of MRI for the fiscal year
ended December 31, 1996.
(b). REPORTS ON FORM 8-K.
The Registrants filed no reports on Form 8-K during
the three-month period ended December 31, 1996.
-12-
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Stockholder of
THE MIRAGE CASINO-HOTEL and Subsidiaries
and GNS FINANCE CORP.
We have audited the accompanying combined balance sheets of
THE MIRAGE CASINO-HOTEL and subsidiaries and GNS FINANCE CORP.
(collectively, the "Company") as of December 31, 1996 and
1995, and the related combined statements of income and
retained earnings (accumulated deficit) and cash flows for the
years ended December 31, 1996, 1995 and 1994. These combined
financial statements and the schedule referred to below are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the combined
financial position of THE MIRAGE CASINO-HOTEL and subsidiaries
and GNS FINANCE CORP. as of December 31, 1996 and 1995, and
the combined results of their operations and their cash flows
for the years ended December 31, 1996, 1995 and 1994 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The
financial statement schedule for the years ended December 31,
1996, 1995 and 1994 listed in Item 14(a)(2) is presented for
purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic
financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth
therein in relation to the basic financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 7, 1997
-13-
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
AT DECEMBER 31
-------------------------
1996 1995
---------- ----------
CURRENT ASSETS
Cash and cash equivalents ................................................................ $ 57,664 $ 36,516
Receivables, net of allowance for doubtful accounts of $36,558 and $44,862................ 66,805 73,070
Inventories .............................................................................. 23,918 22,163
Deferred income taxes .................................................................... 22,969 26,709
Prepaid expenses and other ............................................................... 7,124 8,356
---------- ----------
Total current assets ............................................................... 178,480 166,814
Property and equipment, net ................................................................ 988,811 1,021,985
Advances to Mirage Resorts, Incorporated and affiliates..................................... 70,353 -
Other assets, net .......................................................................... 11,717 9,401
---------- ----------
$1,249,361 $1,198,200
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable ......................................................................... $ 80,149 $ 72,186
Accrued payroll .......................................................................... 30,315 29,231
Other accrued expenses ................................................................... 30,665 31,890
Income taxes payable to Mirage Resorts, Incorporated...................................... 9,901 16,791
Management fees payable to Mirage Resorts, Incorporated................................... 15,056 15,591
Advances from Mirage Resorts, Incorporated and affiliates................................. - 54,983
Current maturities of long-term debt...................................................... - 41,882
---------- ----------
Total current liabilities .......................................................... 166,086 262,554
Long-term debt, net of current maturities .................................................. 216,699 204,700
Other liabilities, including deferred income taxes of $80,205 and $69,215................... 81,246 70,321
---------- ----------
Total liabilities .................................................................. 464,031 537,575
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, no par value: THE MIRAGE CASINO-HOTEL - authorized 1,000
shares, issued and outstanding 100 shares; GNS FINANCE CORP. -
authorized 2,500 shares, issued and outstanding 200 shares............................... 518,945 518,945
Additional paid-in capital .................................................................. 107,142 107,142
Retained earnings ........................................................................... 159,243 34,538
---------- ----------
Total stockholder's equity .......................................................... 785,330 660,625
---------- ----------
$1,249,361 $1,198,200
========== ==========
The accompanying notes are an integral part of these combined financial statements.
-14-
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
COMBINED STATEMENTS OF INCOME AND
RETAINED EARNINGS (ACCUMULATED DEFICIT)
(IN THOUSANDS)
YEAR ENDED DECEMBER 31
----------------------------------------
1996 1995 1994
---------- ---------- ----------
REVENUES
Casino....................................................................... $ 581,431 $ 613,509 $ 554,411
Rooms........................................................................ 251,712 224,042 213,193
Food and beverage............................................................ 179,725 166,936 163,691
Entertainment................................................................ 91,177 84,719 69,580
Retail....................................................................... 59,367 56,780 60,516
Other........................................................................ 41,849 38,805 37,930
---------- ---------- ----------
1,205,261 1,184,791 1,099,321
Less - promotional allowances................................................ (103,170) (97,768) (92,010)
---------- ---------- ----------
1,102,091 1,087,023 1,007,311
---------- ---------- ----------
COSTS AND EXPENSES
Casino....................................................................... 300,999 303,108 275,145
Rooms........................................................................ 67,474 63,009 61,793
Food and beverage............................................................ 108,919 105,657 106,441
Entertainment................................................................ 72,211 69,894 61,127
Retail....................................................................... 38,392 36,230 38,254
Other........................................................................ 23,082 22,461 23,296
Provision for losses on receivables.......................................... 14,309 22,895 20,185
General and administrative................................................... 121,682 118,602 118,684
Mirage Resorts, Incorporated management fee.................................. 61,233 60,163 55,247
Depreciation................................................................. 68,916 68,541 75,509
Corporate development........................................................ 5 2,700 1,899
--------- ---------- ----------
877,222 873,260 837,580
---------- ---------- ----------
OPERATING INCOME............................................................... 224,869 213,763 169,731
---------- ---------- ----------
OTHER INCOME AND (EXPENSE)
Interest expense
Notes payable to non-affiliates............................................ (21,993) (27,897) (47,913)
Notes payable to Mirage Resorts, Incorporated.............................. - (14,235) (35,729)
Other, including interest income............................................. 697 438 409
---------- ---------- ----------
(21,296) (41,694) (83,233)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM.............................. 203,573 172,069 86,498
Provision for income taxes................................................... (78,868) (71,059) (45,326)
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM............................................... 124,705 101,010 41,172
Extraordinary item - loss on early retirements of debt, net of
applicable income tax benefit in 1994...................................... - (10,439) (14,975)
---------- ---------- ----------
NET INCOME..................................................................... $ 124,705 $ 90,571 $ 26,197
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance, beginning of year................................................... 34,538 (56,033) (82,230)
---------- ---------- ----------
Balance, end of year......................................................... $ 159,243 $ 34,538 $ (56,033)
========== ========== ==========
The accompanying notes are an integral part of these combined financial statements.
-15-
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31
---------------------------------------
1996 1995 1994
--------- --------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................... $ 124,705 $ 90,571 $ 26,197
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for losses on receivables...................................... 14,309 22,895 20,185
Depreciation of property and equipment................................... 68,916 68,541 75,509
Loss on disposal and abandonment of property and equipment............... 5,997 3,155 11,953
Amortization of debt discount and issuance costs......................... 12,352 11,234 12,451
Loss on early retirements of debt........................................ - 10,439 16,024
Deferred income taxes.................................................... 14,730 8,657 3,902
Changes in assets and liabilities
Increase in receivables and other operating assets..................... (11,318) (39,112) (19,597)
Increase (decrease) in trade accounts payable and accrued expenses..... 7,822 17,763 (9,099)
Other.................................................................... 17 (2,065) (569)
--------- --------- ----------
Net cash provided by operating activities.......................... 237,530 192,078 136,956
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures......................................................... (43,039) (79,494) (35,322)
Other........................................................................ 1,300 1,068 317
--------- --------- ----------
Net cash used for investing activities............................. (41,739) (78,426) (35,005)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in income taxes payable to Mirage
Resorts, Incorporated...................................................... (6,890) (41,272) 4,869
Increase (decrease) in management fee obligations to Mirage
Resorts, Incorporated...................................................... (535) (112,205) 55,247
Advances from (to) Mirage Resorts, Incorporated and affiliates............... (125,336) (5,793) 44,077
Repayments of notes payable to Mirage Resorts, Incorporated
(excluding notes related to management fees and income taxes).............. - (353,022) -
Net increase (decrease) in bank credit facility and commercial
paper borrowings........................................................... (41,882) 21,882 3,000
Early retirements of public debt............................................. - (134,180) (193,990)
Other principal payments on debt............................................. - - (27,074)
Issuance of common stock to Mirage Resorts, Incorporated..................... - 518,943 -
Other........................................................................ - - (245)
--------- --------- ----------
Net cash used for financing activities............................. (174,643) (105,647) (114,116)
--------- --------- ----------
CASH AND CASH EQUIVALENTS
Increase (decrease) for the year............................................. 21,148 8,005 (12,165)
Balance, beginning of year................................................... 36,516 28,511 40,676
--------- --------- ----------
Balance, end of year......................................................... $ 57,664 $ 36,516 $ 28,511
========= ========= ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid (including $16,309 in 1995 and $36,289 in 1994 to
Mirage Resorts, Incorporated), net of amounts capitalized.................. $ 9,714 $ 36,114 $ 76,160
Income taxes paid to Mirage Resorts, Incorporated (including
amounts represented by a note payable)..................................... 70,998 103,674 35,506
The accompanying notes are an integral part of these combined financial statements.
-16-
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND BACKGROUND INFORMATION. The
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. ("MH"),
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"). MCH owns and operates The Mirage,
a hotel-casino and destination resort located near the center of
the Las Vegas Strip. TI owns and operates Treasure Island, a
pirate-themed hotel-casino resort located adjacent to The Mirage.
MH owns and operates an exclusive world-class golf course and
related facilities known as Shadow Creek, located approximately
10 miles from The Mirage and Treasure Island. Finance functions
solely as a financing corporation to raise funds for the benefit
of MCH. TI Finance acted solely as a financing corporation to
raise funds for the benefit of TI.
MRI, through other wholly owned Nevada subsidiaries, also owns
and operates the Golden Nugget, a hotel-casino in downtown Las
Vegas, and the Golden Nugget-Laughlin, a hotel-casino in
Laughlin, Nevada. Additionally, MRI, through another wholly
owned subsidiary, is a 50% partner in a joint venture that owns
and operates the new Monte Carlo Resort & Casino ("Monte Carlo")
on the Las Vegas Strip. MRI, through other wholly owned
subsidiaries, is currently constructing two additional hotel-
casino resorts. The more ambitious of these is Bellagio, an
elegant 3,005-guest room luxury resort scheduled to be completed
in the third quarter of 1998 on approximately 120 acres adjacent
to Monte Carlo. Beau Rivage, a luxurious 1,777-guest room
beachfront resort in Biloxi, Mississippi, is scheduled to be
completed in the fourth quarter of 1998. The combined financial
statements include various transactions between the Company and
MRI and its wholly owned subsidiaries (see Note 2).
-17-
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASINO REVENUES AND PROMOTIONAL ALLOWANCES. The Company
recognizes as casino revenues the net win from gaming activities,
which is the difference between gaming wins and losses. Revenues
include the estimated retail value of rooms, food and beverage
and other goods and services provided to customers on a
complimentary basis as follows:
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
-------- ------- -------
Rooms.......................... $ 45,671 $43,535 $41,357
Food and beverage.............. 52,205 49,332 46,802
Other.......................... 5,294 4,901 3,851
-------- ------- -------
$103,170 $97,768 $92,010
======== ======= =======
Such amounts are then deducted as promotional allowances. The
estimated costs of providing these promotional allowances,
totaling $65.0 million in 1996, $63.2 million in 1995 and $60.6
million in 1994, have been classified primarily as casino costs
and expenses.
CASH AND CASH EQUIVALENTS. The Company classifies as cash
equivalents all highly liquid debt instruments with a maturity of
three months or less when purchased. Cash equivalents are
carried at cost which approximates fair value.
CONCENTRATIONS OF CREDIT RISK. Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of short-term investments and receivables.
The Company's short-term investments typically consist of U.S.
Government-backed repurchase agreements with maturities of 30
days or less. Such investments are made with financial
institutions having a high credit quality and the Company limits
the amount of its credit exposure to any one financial
institution. Due to the short-term nature of the instruments,
the Company does not take possession of the securities, which are
instead held in a custodial account.
The Company extends credit to a limited number of casino
patrons, but only following background checks and investigations
of creditworthiness. At December 31, 1996, a substantial portion
of the receivables was due from foreign customers. The
collectibility of these receivables could be affected by future
business or economic trends or other significant events in the
countries in which such customers reside.
The Company maintains an allowance for doubtful accounts to
reduce its receivables to their carrying amount, which
approximates fair value. Management believes that as of December
31, 1996, no significant concentrations of credit risk existed
for which an allowance had not already been determined and
recorded.
-18-
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES. Inventories are stated at the lower of cost or
market value. Cost is determined by the first-in, first-out and
specific identification methods.
PROPERTY AND EQUIPMENT. Property and equipment are stated at
cost. Depreciation is provided over the estimated useful lives
of the assets using the straight-line method for financial
reporting purposes and accelerated methods for income tax
purposes.
The costs of significant improvements are capitalized. Costs
of normal repairs are charged to expense as incurred. The cost
and accumulated depreciation of property and equipment retired or
otherwise disposed of are eliminated from the respective accounts
and any resulting gain or loss is included in income.
DEBT DISCOUNT AND ISSUANCE COSTS. Debt discount and issuance
costs are capitalized and amortized to expense based on the terms
of the related debt agreements using the effective interest
method or a method which approximates the effective interest
method.
RECLASSIFICATIONS. Certain amounts in the 1995 and 1994
combined financial statements have been reclassified to conform
with the 1996 presentation. These reclassifications had no
effect on the Company's net income.
USE OF ESTIMATES. The combined financial statements have been
prepared in conformity with generally accepted accounting
principles. Those principles require management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from such estimates.
NOTE 2 - TRANSACTIONS WITH MRI AND AFFILIATES
Pursuant to separate management agreements with MRI, MCH and
TI is each charged a management fee equal to 5% of revenues
(before deduction of promotional allowances) primarily for
executive assistance and administrative support. The services
provided include financial and business planning, insurance
policy evaluation and procurement and legal and accounting
services.
The Company also reimburses MRI and its subsidiaries for the
cost of various services not covered by the management
agreements. The more significant of these transactions include
the use of MRI's corporate aircraft and computer software, and
marketing and advertising services provided by certain MRI
subsidiaries. The Company was charged $13.9 million in 1996 and
$13.6 million in both 1995 and 1994 for such services. These
transactions with MRI and its subsidiaries represent non-
interest-bearing advances to or from the Company.
-19-
NOTE 2 - TRANSACTIONS WITH MRI AND AFFILIATES (CONTINUED)
In 1993, MCH and TI converted amounts due to MRI to long-term
notes aggregating $473.7 million. These notes bore interest
at the six-month London Interbank Offered Rate plus 3%. Amounts
that became due under the management agreements and tax
allocation agreements were added to the principal balance of the
notes. In April 1995, the $518.9 million outstanding principal
balance of the long-term notes was repaid by the Company using
the proceeds from the sale to MRI of 100 shares of Finance's
common stock.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
AT DECEMBER 31
-----------------------
1996 1995
---------- ----------
Land................................ $ 107,495 $ 102,857
Land improvements................... 111,655 110,163
Buildings........................... 688,595 669,391
Furniture, fixtures and equipment... 420,138 408,006
Construction in progress............ 9,606 20,897
--------- ----------
1,337,489 1,311,314
Less accumulated depreciation....... (348,678) (289,329)
---------- ----------
$ 988,811 $1,021,985
========== ==========
NOTE 4 - LONG-TERM DEBT
Long-term debt consisted of the following:
AT DECEMBER 31
-----------------------
1996 1995
---------- ----------
Zero coupon first mortgage notes
(effective interest rate of 11%),
due March 1998..................... $ 116,699 $ 104,700
9-1/4% senior subordinated notes,
due March 2003..................... 100,000 100,000
Revolving bank credit facility and
commercial paper borrowings........ - 41,882
---------- ----------
216,699 246,582
Less current maturities............. - (41,882)
---------- ----------
$ 216,699 $ 204,700
========== ==========
-20-
NOTE 4 - LONG-TERM DEBT (CONTINUED)
The zero coupon first mortgage notes were issued by Finance in
March 1988. The notes are collateralized by first liens on The
Mirage and Treasure Island and are guaranteed by MCH. The notes
are shown in the above table at their accreted value rather than
their face amount, as the holders of the notes are not entitled
to the face amount upon default or other accelerated maturity,
but only to the accreted value. The unamortized debt discount
was $16.3 million and $28.3 million at December 31, 1996 and
1995, respectively. At December 31, 1996, the only maturity of
the Company's long-term debt during the next five years is the
March 1998 maturity of the $133.0 million face amount of the
notes.
The 9-1/4% senior subordinated notes were issued by Finance in
March 1993. The notes are guaranteed by MCH and are redeemable
at the option of Finance, in whole or in part, on or after March
15, 1998 at prices set forth in the indenture.
The indenture governing the 9-1/4% senior subordinated notes
generally limits dividend payments and capital stock repurchases
to the proceeds received by MCH and Finance from the sale of
their equity securities plus 50% of the Company's cumulative net
income (or minus 100% of cumulative net loss) since October 1,
1989. The indenture governing the zero coupon first mortgage
notes has similar provisions, but the restrictions apply only to
MCH and its subsidiaries. Finance's net income (loss) and
proceeds from the sale of its equity securities are excluded from
the calculation of permitted payments. This indenture does not
restrict Finance from paying dividends on or repurchasing its
capital stock.
On March 7, 1997, MRI's $1 billion revolving bank credit
facility was amended to, among other things, increase the total
availability to $1.75 billion and extend the maturity to March
2002. Pursuant to the amendment, the Company is no longer liable
for or a guarantor of any borrowings, which are uncollateralized.
-21-
NOTE 4 - LONG-TERM DEBT (CONTINUED)
During the years ended December 31, 1995 and 1994, the Company
retired, prior to scheduled maturities, certain publicly held
debt securities issued by Finance and TI Finance. The debt
securities and respective principal amounts retired, and the
resulting aggregate extraordinary losses, were as follows:
YEAR ENDED DECEMBER 31
-----------------------
1995 1994
---------- ----------
9-7/8% first mortgage notes......... $ 125,991 $ 174,009
Zero coupon first mortgage
notes(a).......................... - 10,320
---------- ----------
$ 125,991 $ 184,329
========== ==========
Extraordinary loss.................. $ 10,439 $ 13,028
========== ==========
---------------
(a) Represents the accreted value of the notes on the
date of retirement. The face amount of the notes
retired was $15.0 million.
In addition, during 1994 MCH incurred an extraordinary loss of
$1.9 million, net of applicable income tax benefit of $1.0
million, in connection with the write-off of the unamortized
costs associated with a previous bank credit facility.
The estimated fair value of the Company's long-term debt at
December 31, 1996 was approximately $230 million, versus its book
value of approximately $217 million. At December 31, 1995, the
estimated fair value of the Company's long-term debt was
approximately $266 million, versus its book value of
approximately $247 million. The estimated fair value amounts
were based on quoted market prices on or about December 31, 1996
and 1995 for the Company's debt securities that are traded. For
the debt securities that are not traded, fair value was based on
estimated discounted cash flows using current rates offered to
the Company for debt securities having the same remaining
maturities.
NOTE 5 - INCOME TAXES
MRI files its federal income tax returns on a consolidated
basis. MRI has tax allocation agreements 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.
-22-
NOTE 5 - INCOME TAXES (CONTINUED)
Accordingly, the Company's federal 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. MCH and TI had income in all three
years and accrued taxes at a rate approximating the federal
income tax statutory rate. Finance and TI Finance incurred
losses in the three-year period and have not recognized a tax
benefit from such losses. Tax benefits of net operating loss
carryforwards are not recognized for financial reporting purposes
until it is more likely than not that such benefits will be
realized. Upon dissolution of TI Finance, all of its net
operating loss carryforwards were transferred to Finance.
However, realization of any tax benefit by Finance from net
operating loss carryforwards is unlikely, as it has no operations
and is unlikely to have future taxable income.
The sum of these individual tax provisions and benefits
resulted in a provision in 1996, 1995 and 1994 at a rate above
the statutory rate.
The provision for income taxes for financial reporting
purposes consisted of the following:
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
Income from continuing operations.... $78,868 $71,059 $45,326
Tax benefit from extraordinary loss
on early retirement of debt........ - - (1,049)
------- ------- -------
$78,868 $71,059 $44,277
======= ======= =======
The provision for income taxes attributable to income from
continuing operations consisted of the following:
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
CURRENT
Federal........................... $64,108 $62,402 $41,424
State............................. 30 - -
------- ------- -------
64,138 62,402 41,424
DEFERRED
Federal........................... 14,730 8,657 3,902
------- ------- -------
$78,868 $71,059 $45,326
======= ======= =======
-23-
NOTE 5 - INCOME TAXES (CONTINUED)
The provision for income taxes attributable to income from
continuing operations differs from the amount computed at the
federal income tax statutory rate as a result of the following:
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
Amount at statutory rate.......... $71,251 $60,224 $30,274
Unutilized net operating
loss carryforwards............... 7,562 8,370 15,605
Other............................. 55 2,465 (553)
------- ------- -------
$78,868 $71,059 $45,326
======= ======= =======
The Internal Revenue Service has completed examinations of
MRI's federal income tax returns for the years 1991 and 1992 and
an examination of the years 1993 and 1994 is currently in
process. A number of adjustments have been proposed but no
settlement has been reached. In the opinion of management, any
tax liability arising from these examinations will not have a
material adverse effect on the Company's financial position or
results of operations.
The components of the deferred tax liability consisted of the
following:
AT DECEMBER 31
--------------------
1996 1995
--------- ---------
DEFERRED TAX LIABILITIES
Temporary differences related to property
and equipment.......................... $ 83,081 $ 80,764
Other temporary differences.............. 6,683 6,222
--------- ---------
Gross deferred tax liabilities...... 89,764 86,986
--------- ---------
DEFERRED TAX ASSETS
Provision for losses on receivables...... 12,795 15,702
Alternative minimum tax credit(a)........ 10,236 15,811
Accrued vacation pay..................... 4,110 3,748
Preopening expense, net of amortization.. 2,700 4,243
Other temporary differences.............. 2,687 4,518
Loss carryforwards....................... 162,879 156,738
Valuation allowance...................... (162,879) (156,280)
--------- ---------
Net deferred tax assets.............. 32,528 44,480
--------- ---------
$ 57,236 $ 42,506
========= ==========
-24-
NOTE 5 - INCOME TAXES (CONTINUED)
---------------
(a) The excess of the alternative minimum tax over the
regular federal income tax is a tax credit which can
be carried forward indefinitely to reduce future
federal income tax liabilities.
At December 31, 1996, the Company had net operating and
capital loss carryforwards totaling $465.4 million which expire
at various dates through 2011. A valuation allowance has been
established to eliminate the tax benefits associated with these
carryforwards because management believes the Company will not
obtain any tax benefits from these deferred tax assets.
NOTE 6 - EMPLOYEE BENEFIT PLANS
Employees of the Company who are members of various unions are
covered by union-sponsored, collectively bargained, multi-
employer health and welfare and defined benefit pension plans.
The Company recorded an expense of $20.3 million in 1996, $22.6
million in 1995 and $20.6 million in 1994 under such plans.
Sufficient information is not available from the plans' sponsors
to permit the Company to determine its share of unfunded vested
benefits, if any.
The Company's non-union employees are covered by MRI's
retirement savings plan under Section 401(k) of the Internal
Revenue Code. The plan allows employees to defer up to the
lesser of the Internal Revenue Code-prescribed maximum amount or
15% of their income on a pre-tax basis through contributions to
the plan. The Company matches, within prescribed limits, 50% of
eligible employees' contributions up to 4% of their individual
earnings. The Company recorded charges for matching
contributions of $3.0 million in 1996, $2.7 million in 1995 and
$2.0 million in 1994.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
ENTERTAINMENT SERVICES. The Company has entered into two
agreements for major productions appearing in the showrooms at
The Mirage and Treasure Island. These agreements expire in 2001
and 2004, respectively. Under the terms of the agreements, the
Company is required to pay the producers of the shows a total of
approximately $28 million per year and a percentage of show
revenues in excess of a specified amount or a percentage of show
profits. Such payments are contingent upon the actual
performance of shows and under certain conditions, including
failure of the respective show to achieve specified financial
results, the Company may terminate the agreements without
material financial obligation. The producers are responsible for
paying the talent and most other costs of presenting the shows.
The Company made payments pursuant to the agreements totaling
approximately $49.6 million in 1996, $46.7 million in 1995 and
$46.8 million in 1994.
-25-
LITIGATION. The Company is a party to various legal
proceedings, most of which relate to routine matters incidental
to its business. Management does not believe that the outcome of
such proceedings will have a material adverse effect on the
Company's financial position or results of operations.
NOTE 8 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- -------- ----------
1996
Gross revenues.................................... $332,247 $278,760 $297,848 $296,406 $1,205,261
Promotional allowances............................ (27,801) (24,363) (25,951) (25,055) (103,170)
Net revenues...................................... 304,446 254,397 271,897 271,351 1,102,091
Operating income.................................. 71,826 43,945 53,011 56,087 224,869
Other expense, net................................ (5,482) (5,194) (5,315) (5,305) (21,296)
Net income........................................ 39,779 23,011 29,402 32,513 124,705
1995
Gross revenues.................................... $313,814 $263,216 $300,900 $306,861 $1,184,791
Promotional allowances............................ (24,223) (21,938) (24,955) (26,652) (97,768)
Net revenues...................................... 289,591 241,278 275,945 280,209 1,087,023
Operating income.................................. 64,664 36,422 57,711 54,966 213,763
Other expense, net................................ (20,833) (8,618) (6,370) (5,873) (41,694)
Income before extraordinary item.................. 25,648 16,146 32,110 27,106 101,010
Extraordinary loss on early retirement of debt.... (10,439) - - - (10,439)
Net income........................................ 15,209 16,146 32,110 27,106 90,571
-26-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GNS FINANCE CORP.
By: STEPHEN A. WYNN
--------------------------
Stephen A. Wynn, Chairman
of the Board and President
Dated: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
STEPHEN A. WYNN Chairman of the Board and President March 31, 1997
- ---------------- (Principal Executive Officer)
Stephen A. Wynn
DANIEL R. LEE Treasurer and Director (Principal March 31, 1997
- ---------------- Financial and Accounting Officer)
Daniel R. Lee
BRUCE A. LEVIN Director March 31, 1997
----------------
Bruce A. Levin
-27-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE MIRAGE CASINO-HOTEL
By: ROBERT H. BALDWIN
--------------------------
Robert H. Baldwin,
President and Chief
Executive Officer
Dated: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
STEPHEN A. WYNN Chairman of the Board March 31, 1997
- -----------------------
Stephen A. Wynn
ROBERT H. BALDWIN President and Chief Executive March 31, 1997
- ----------------------- Officer (Principal Executive
Robert H. Baldwin Officer)
CHRISTOPHER W. NORDLING Vice President, Treasurer March 31, 1997
- ----------------------- and Chief Financial Officer
Christopher W. Nordling (Principal Financial and
Accounting Officer)
ELAINE P. WYNN Director March 31, 1997
- -----------------------
Elaine P. Wynn
GEORGE J. MASON Director March 31, 1997
- -----------------------
George J. Mason
MELVIN B. WOLZINGER Director March 31, 1997
- -----------------------
Melvin B. Wolzinger
RONALD M. POPEIL Director March 31, 1997
- -----------------------
Ronald M. Popeil
Director March , 1997
- -----------------------
Daniel B. Wayson
RICHARD D. BRONSON Director March 31, 1997
- -----------------------
Richard D. Bronson
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SCHEDULE II
THE MIRAGE CASINO-HOTEL AND SUBSIDIARIES
AND
GNS FINANCE CORP.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- ----------- ---------- ---------- ----------- ------------ --------
Receivables
Allowance for doubtful accounts
Year Ended December 31, 1996.......... $ 44,862 $14,309 $ 1,398 (a) $24,011 (b) $ 36,558
Year Ended December 31, 1995.......... $ 34,990 $22,895 $ 1,150 (a) $14,173 (b) $ 44,862
Year Ended December 31, 1994.......... $ 23,224 $20,185 $ 833 (a) $ 9,252 (b) $ 34,990
Federal income taxes
Valuation allowance
Year Ended December 31, 1996.......... $156,280 $ - $ 7,562 (c) $ 963 (d) $162,879
Year Ended December 31, 1995.......... $144,257 $ - $12,023 (c) $ - $156,280
Year Ended December 31, 1994.......... $124,185 $ - $20,165 (c) $ 93 (d) $144,257
- ---------------
(a) Recoveries of accounts previously charged off.
(b) Accounts charged off.
(c) A valuation allowance has been established to eliminate the tax
benefits associated with certain loss carryforwards because
management believes the combined companies will not obtain any
tax benefits from these deferred tax assets.
(d) Elimination of valuation allowance associated with the deferred
tax assets that were written off.
S-1