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 June 30, 1999
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. 01-6697
Mirage Resorts, Incorporated
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(Exact name of Registrant as specified in its charter)
Nevada 88-0058016
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
3600 Las Vegas Boulevard South, Las Vegas, Nevada 89109
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(Address of principal executive offices - Zip Code)
(702) 693-7111
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. 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. Common
stock, $0.004 par value, 198,943,912 shares outstanding as of August 4,
1999.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed consolidated financial information as of June
30, 1999 and for the three-month and six-month periods ended June 30,
1999 and 1998 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.
<PAGE>
REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------------
To the Directors and Stockholders
of Mirage Resorts, Incorporated
We have reviewed the accompanying condensed consolidated balance sheet
of Mirage Resorts, Incorporated (a Nevada corporation) and subsidiaries
(the "Company") as of June 30, 1999, and the related condensed
consolidated statements of income for the three-month and six-month
periods ended June 30, 1999 and 1998 and the related condensed
consolidated statements of cash flows for the six-month periods ended
June 30, 1999 and 1998. These condensed consolidated 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 consolidated balance sheet of Mirage Resorts,
Incorporated and subsidiaries as of December 31, 1998, and the related
consolidated statements of income, stockholders' equity and cash flows
for the year then ended (not presented herein), and, in our report dated
February 22, 1999, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet of Mirage
Resorts, Incorporated and subsidiaries as of December 31, 1998, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
August 4, 1999
-2-
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED MIRAGE RESORTS, INCORPORATED
BALANCE SHEETS
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At June 30, At December 31,
1999 1998
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(In thousands) (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 85,906 $ 74,814
Trade receivables, net of allowance for doubtful
accounts of $47,198 and $40,480 118,220 118,125
Inventories 94,140 74,195
Preopening costs - 24,718
Deferred income taxes 25,775 23,180
Prepaid expenses and other 83,485 83,445
- -----------------------------------------------------------------------------------------
Total current assets 407,526 398,477
Property and equipment, net of accumulated
depreciation of $814,472 and $733,032 3,897,612 3,290,189
Construction in progress 109,880 539,530
Other assets, net 258,465 302,006
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$4,673,483 $4,530,202
=========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 105,821 $ 129,592
Construction payables 28,767 42,859
Accrued expenses 176,355 155,675
Current maturities of long-term debt 280 404
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Total current liabilities 311,223 328,530
Long-term debt, net of current maturities 2,085,174 2,378,507
Other liabilities, including deferred income taxes
of $199,950 and $207,063 214,852 221,328
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Total liabilities 2,611,249 2,928,365
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Commitments and contingencies
Stockholders' equity
Common stock: 198,812 and 180,120 shares outstanding 940 940
Additional paid-in capital 1,083,089 738,665
Retained earnings 1,165,452 1,145,497
Treasury stock, at cost: 36,336 and 55,028 shares (187,247) (283,265)
- -----------------------------------------------------------------------------------------
Total stockholders' equity 2,062,234 1,601,837
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$4,673,483 $4,530,202
=========================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-3-
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED MIRAGE RESORTS, INCORPORATED
STATEMENTS OF INCOME (UNAUDITED)
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Three Months Six Months
--------------------- -----------------------
For the periods ended June 30 1999 1998 1999 1998
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(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues
Casino $277,813 $162,369 $ 591,788 $354,190
Rooms 134,752 74,707 258,274 146,548
Food and beverage 116,085 54,605 221,874 110,136
Entertainment 44,564 21,586 90,157 46,580
Retail 36,529 16,194 67,615 31,329
Other 24,288 17,349 43,528 28,520
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634,031 346,810 1,273,236 717,303
Less - promotional allowances (58,862) (31,222) (117,354) (66,550)
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575,169 315,588 1,155,882 650,753
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Operating costs and expenses
Casino-hotel operations 372,345 198,818 726,877 404,573
General and administrative 84,380 39,474 157,745 79,346
Depreciation and amortization 52,357 22,472 96,189 45,056
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509,082 260,764 980,811 528,975
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Operating profit 66,087 54,824 175,071 121,778
Corporate expense (11,852) (9,607) (23,110) (18,092)
Preopening and related promotional expense (4,120) - (35,575) -
Equity in earnings of Monte Carlo 7,722 7,347 16,580 14,786
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Income from operations 57,837 52,564 132,966 118,472
Interest cost (36,852) (29,076) (75,154) (58,243)
Interest capitalized 5,759 25,803 17,481 49,628
Other, including interest income 1,823 3,703 2,913 8,560
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Income before income taxes, extraordinary item
and cumulative effect of change in accounting
principle 28,567 52,994 78,206 118,417
Provision for income taxes (10,105) (19,375) (27,674) (43,198)
- -----------------------------------------------------------------------------------------------------------------
Income before extraordinary item and cumulative
effect of change in accounting principle 18,462 33,619 50,532 75,219
Extraordinary item - loss on early retirement of debt,
net of applicable income tax benefit of $1,897 - - - (3,521)
Cumulative effect (to January 1, 1999) of change in
method of accounting for preopening costs, net of
applicable income tax benefit of $16,390 - - (30,577) -
- -----------------------------------------------------------------------------------------------------------------
Net income $ 18,462 $ 33,619 $ 19,955 $ 71,698
=================================================================================================================
Income per share before extraordinary item and
cumulative effect of change in accounting principle
Basic $ 0.10 $ 0.19 $ 0.27 $ 0.42
Diluted 0.09 0.18 0.25 0.39
Net income per share
Basic $ 0.10 $ 0.19 $ 0.11 $ 0.40
Diluted 0.09 0.18 0.10 0.37
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-4-
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED MIRAGE RESORTS, INCORPORATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------------------------------
Six months ended June 30 1999 1998
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(In thousands)
<S> <C> <C>
Cash flows from operating activities
Net income $ 19,955 $ 71,698
Adjustments to reconcile net income to net cash provided by operating
activities
Provision for losses on receivables 11,808 10,403
Depreciation and amortization of property and equipment, including
amounts reported as corporate expense 103,514 51,390
Expensed preopening and related promotional costs 35,575 -
Equity in earnings of Monte Carlo (16,580) (14,786)
Distributions from Monte Carlo 19,000 9,500
Non-recurring charges, before related income tax benefit
Loss on early retirement of debt - 5,418
Cumulative effect of change in method of accounting for pre-
opening costs 46,967 -
Deferred income taxes (9,708) 6,234
Changes in components of working capital pertaining to operating
activities
(Increase) decrease in trade receivables and other current assets (29,988) 17,776
Decrease in trade accounts payable and accrued expenses (7,273) (29,689)
Other adjustments (1,902) 218
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Net cash provided by operating activities 171,368 128,162
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Cash flows from investing activities
Preopening and related promotional costs (35,575) (29,064)
Capital expenditures (285,579) (489,166)
Increase (decrease) in preopening and construction payables (9,329) 5,610
Proceeds from sales of property and equipment 14,569 58,624
Boardwalk acquisition costs, net of cash acquired - (55,562)
Other investing activities 8,706 (28,485)
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Net cash used for investing activities (307,208) (538,043)
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Cash flows from financing activities
Net increase (decrease) in bank credit facility and commercial
paper borrowings (293,271) 301,231
Issuance of long-term debt - 394,728
Retirement of long-term debt - (237,110)
Issuance of common stock 415,562 -
Exercise of common stock options, including related income tax benefit 24,946 2,178
Other financing activities (305) (4,652)
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Net cash provided by financing activities 146,932 456,375
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Cash and cash equivalents
Increase for the period 11,092 46,494
Balance, beginning of period 74,814 99,337
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Balance, end of period $ 85,906 $ 145,831
=======================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-5-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED MIRAGE RESORTS, INCORPORATED
FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 1 - COMPANY DESCRIPTION AND BASIS OF PRESENTATION
Mirage Resorts, Incorporated (the "Company"), a Nevada corporation,
through wholly owned subsidiaries, owns and operates some of the world's
most successful casino-based entertainment resorts. These resorts
include Bellagio (which opened on October 15, 1998), The Mirage and
Treasure Island, all located on the Las Vegas Strip. The Company also
owns the Golden Nugget, located in downtown Las Vegas, and the Golden
Nugget-Laughlin, located along the Colorado River in Laughlin, Nevada.
On June 30, 1998, the Company acquired the Holiday Inn - Registered
Trademark - Casino Boardwalk ("Boardwalk") on the Las Vegas Strip. The
Company's newest resort, Beau Rivage, opened on March 16, 1999. Beau
Rivage is a luxurious 1,780-guestroom beachfront resort located on an
approximately 36-acre site where Interstate 110 meets the Gulf Coast in
Biloxi, Mississippi.
The Company is also a 50% partner in a joint venture that owns and
operates the Monte Carlo Resort & Casino on the Las Vegas Strip ("Monte
Carlo").
The accompanying condensed consolidated financial statements have been
prepared in accordance with the accounting policies described in the
Company's 1998 Annual Report on Form 10-K (the "1998 Annual Report") and
should be read in conjunction with the Notes to Consolidated Financial
Statements which appear in that report. The Condensed Consolidated
Balance Sheet at December 31, 1998 contained herein was derived from
audited financial statements, but does not include all disclosures
included in the 1998 Annual Report 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 results for the 1999
interim periods are not necessarily indicative of expected results for
the full year.
Certain amounts in the 1998 condensed consolidated financial statements
have been reclassified to conform with the 1999 presentation. These
reclassifications had no effect on the Company's net income.
NOTE 2 - ISSUANCE OF COMMON STOCK
On May 11, 1999, the Company completed an underwritten public offering
of 16,633,663 shares of common stock at $25.00 per share. The net
proceeds from the offering of approximately $415.6 million were used to
reduce the Company's outstanding bank credit facility and commercial
paper borrowings.
NOTE 3 - ACCOUNTING CHANGE
Effective January 1, 1999, the Company adopted Statement of Position No.
98-5 - Reporting on the Costs of Start-Up Activities ("SOP 98-5"). The
provisions of SOP 98-5 are effective for fiscal years beginning after
-6-
<PAGE>
December 15, 1998 and require the costs associated with start-up
activities (including preopening costs of casinos) to be expensed as
incurred. The Company previously capitalized preopening costs and
amortized them to expense over the 60-day period following opening of
the related facility. As required by SOP 98-5, the Company wrote off all
capitalized preopening costs as of January 1, 1999 associated with Beau
Rivage and its development activities in Atlantic City, New Jersey. The
write-off resulted in a charge during the 1999 six-month period, net of
income tax benefit, of $30.6 million ($0.16 per share basic and
$0.15 per share diluted).
During the three- and six-month periods ended June 30, 1999, the Company
also incurred and expensed additional preopening and related promotional
costs associated with these projects as follows:
<TABLE>
<CAPTION>
Three Six
For the periods ended June 30, 1999 Months Months
- ------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
Preopening and related promotional expense $ 4,120 $ 35,575
Income tax benefit (1,442) (12,277)
- ------------------------------------------------------------------------
$ 2,678 $ 23,298
========================================================================
Per share amount, net of income tax benefit
Basic $ 0.01 $ 0.13
Diluted $ 0.01 $ 0.12
- ------------------------------------------------------------------------
</TABLE>
Under the Company's previous accounting method, there would have been no
cumulative effect adjustment, and Beau Rivage's preopening and related
promotional costs would have been amortized to expense as follows:
<TABLE>
<CAPTION>
Three Six
For the periods ended June 30, 1999 Months Months
- ------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
Preopening and related promotional expense $ 40,251 $ 54,489
Income tax benefit (13,946) (18,877)
- ------------------------------------------------------------------------
$ 26,305 $ 35,612
========================================================================
Per share amount, net of income tax benefit
Basic $ 0.14 $ 0.19
Diluted $ 0.13 $ 0.18
- ------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
NOTE 4 - INCOME PER SHARE OF COMMON STOCK
The weighted-average number of common and common equivalent shares used
in the calculation of basic and diluted earnings per share consisted of
the following:
<TABLE>
<CAPTION>
Three Months Six Months
------------------------- --------------------------
For the periods ended June 30 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted-average common shares
outstanding (used in the
calculation of basic
earnings per share) 191,239,483 179,541,427 185,882,896 179,492,245
Potential dilution from
the assumed exercise
of common stock options 12,696,487 12,463,474 11,808,379 12,866,460
- ------------------------------------------------------------------------------------------
Weighted-average common and
common equivalent shares
(used in the calculation
of diluted earnings per share) 203,935,970 192,004,901 197,691,275 192,358,705
==========================================================================================
</TABLE>
Stock options with an exercise price higher than the average market
price of the common stock during the period are excluded from the
calculation of diluted earnings per share. As a result, a weighted-
average of approximately 2,607,000 and 1,905,000 stock options was
excluded from the calculation during the 1998 three- and six-month
period, respectively. The number of stock options excluded from the
calculation during the 1999 periods was not material.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Our two new resorts had a major impact on our operating results during
the 1999 periods. Bellagio opened on the Las Vegas Strip on October
15, 1998. The 1999 second quarter was also the first full quarter of
operation for our Beau Rivage resort in Biloxi, Mississippi, which
opened on March 16, 1999.
Including the contribution from these two new resorts, our total
revenues for the 1999 second quarter and six-month period increased by
83% and 78%, respectively, over the prior-year period. Company-wide
table games revenues increased by $51.8 million, or 69%, for the
quarter and $124.3 million, or 72%, for the year-to-date period.
Table games drop (which approximates the amount of money exchanged by
customers for gaming chips) for each of these periods rose by 70%.
The Company-wide table games win percentage during both periods in
1998 and 1999 was below our historical average. The win percentage
during each of the second quarters was 16.8%, sharply below our
historical average. For the six-month periods, our Company-wide table
games win percentage was 18.6% in 1999 and 18.4% in 1998. Based on
historical results for the past three calendar years and the mix of
table games business at our new resorts, we estimate that the Company-
wide table games win percentage in the 1999 second quarter should have
been approximately 20%. We estimate that the 3.2-percentage point
differential between the 1999 second quarter's win percentage and the
expected norm reduced our earnings during that period by some $0.06
per share.
Our slot win also increased substantially over the 1998 periods.
Company-wide slot win grew by $60.1 million, or 75%, for the quarter
and $102.5 million, or 62%, for the six-month period.
Non-casino revenues during the 1999 periods totaled $356.2 million for
the quarter and $681.4 million for the six-month period. Such amounts
represent increases of 93% and 88% over the respective 1998 totals.
Company-wide occupancy of available standard guestrooms during the
second quarter averaged 96.5% in 1999 and 99.3% in 1998. The
comparable occupancy percentages for the six-month periods were 97.2%
and 98.7%, respectively. Our Company-wide average daily standard room
rate increased by 16% for the quarter and 19% for the six-month
period, principally reflecting Bellagio's room rates, which are
generally higher that those of our other resorts.
In addition to the low table games win percentage, our operating
margin was impacted by several other factors during the 1999 periods.
As noted previously, the 1999 second quarter was the first full
quarter of operations for Beau Rivage. As is common for many new
resort hotels, guestroom occupancy started low and increased
gradually. Occupancy of Beau Rivage's standard guestrooms was 75.6%
in April, 81.0% in May and 93.8% in June. The average daily room rate
at this property also increased gradually. The earnings contribution
-9-
<PAGE>
from Beau Rivage was also constrained in the period since opening by
additional payroll, advertising and other costs related to our efforts
to establish this resort's long-term position as the leader in the
Gulf Coast market.
As part of our effort to increase tourism to the Mississippi Gulf
Coast, we entered into an agreement in the first quarter with AirTran
Airways to provide additional air service to the region. Similar to
Beau Rivage's room occupancy, the popularity of the new air service
increased each month. The overall load factors on the flights
averaged 38% in April, 52% in May and 53% in June.
In Las Vegas, we are refurbishing all of the guestrooms and suites at
Treasure Island. This $70 million program began in February and is
scheduled for completion in October. When completed, Treasure Island
will have 33 additional suites (replacing 65 of its standard
guestrooms) and the furnishings of its remaining 2,614 standard
guestrooms will be considerably higher in quality than they were
previously. Due to the refurbishment program, there were
approximately 9% fewer available room nights at Treasure Island during
the second quarter and 8% fewer during the six-month period as
compared with the same periods in 1998.
A more competitive market environment has also impacted our Las Vegas
resorts during 1999. A major new competing resort opened on March 2
at the southern end of the Las Vegas Strip and another major new
resort has been opening in stages directly across the Strip from
Treasure Island and The Mirage. We are continuing to develop and
implement strategies to enhance our competitive position in Las Vegas.
Some of these strategies include introducing new restaurants and
entertainment attractions, refurbishing our guestrooms and introducing
new advertising and marketing programs. We believe that some of our
greatest strengths for dealing with the new competition are the
superior design, condition and locations of our resorts and the
friendliness and professionalism of our employees.
With Bellagio and Beau Rivage now open, our depreciation expense has
increased significantly. Our depreciation expense, when compared
with the prior year, increased by $29.9 million, or 133%, in the
second quarter and $51.1 million, or 113%, in the 1999 six-month
period. The substantial growth in the size of our Company has also
resulted in higher corporate expense. This additional expense
primarily reflects increased payroll and professional fees together
with the costs associated with our expanded activities in pursuit of
entertainment attractions for our resorts.
Our jointly owned Monte Carlo resort has performed well during 1999
amidst the additional competition on the Las Vegas Strip. Its
revenues, operating profit and net income all increased slightly in
both the first and second quarters over the respective 1998 periods.
Higher room revenues account for most of the increase in the resort's
operating results, which we attribute largely to the opening of the
adjacent Bellagio and connection of the two resorts by a monorail.
-10-
<PAGE>
The 1999 periods were impacted by a recently issued accounting
statement that requires start-up costs, including preopening costs of
new hotel-casinos, to be expensed as incurred. We previously
capitalized these costs and amortized them to expense over the 60-day
period following opening of the related facility, which is our
estimate of the period of economic benefit associated with these
costs.
Although we disagree with the logic of this new accounting statement,
we had no choice but to adopt its provisions effective January 1,
1999. As a result, we wrote off all $47.0 million of previously
capitalized preopening costs, including $24.7 million related to Beau
Rivage and $22.3 million related to our development in Atlantic City.
After deducting the related income tax benefit, the write-off resulted
in a cumulative effect charge of $30.6 million. We also incurred and
expensed an additional $4.1 million of preopening costs during the
1999 second quarter, principally relating to our development
activities in Atlantic City. Preopening costs incurred and expensed
during the 1999 six-month period totaled $35.6 million and largely
represent the costs associated with hiring and training Beau Rivage's
workforce.
The following table presents the impact of these charges on our net
income for the three- and six-month periods ended June 30, 1999. All
adjustment amounts are shown net of applicable income tax benefit.
<TABLE>
<CAPTION>
Three Months Six Months
-------------------------- --------------------------
Per Share Per Share
---------------- ----------------
For the periods ended June 30, 1999 Amount Basic Diluted Amount Basic Diluted
- --------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Net income, as reported $18,462 $0.10 $0.09 $19,955 $0.11 $0.10
Cumulative effect (to January 1, 1999)
of accounting change - - - 30,577 0.16 0.15
Preopening and related promotional
costs incurred and expensed 2,678 0.01 0.01 23,298 0.13 0.12
- -------------------------------------------------------------------------------------------------
Income before charges for preopening
and related promotional costs $21,140 $0.11 $0.10 $73,830 $0.40 $0.37
=================================================================================================
</TABLE>
Reflecting our investment in Bellagio and Beau Rivage, our debt levels
and associated interest cost have risen significantly. With these new
resorts now complete, we are capitalizing very little of our interest
cost, resulting in a much higher charge for interest expense. This
higher interest expense will be reduced in part by the use of the
-11-
<PAGE>
$415.6 million net proceeds from our May 11, 1999 stock offering to
repay outstanding debt. The category "Other, including interest
income" during the 1998 periods includes interest earned on certain of
Boardwalk's previously issued debt securities that we acquired as part
of the acquisition. The category also includes interest earned on an
escrow account that we established in October 1997 to fund our portion
of the cost of road improvements in the Marina area of Atlantic City,
New Jersey.
The $3.5 million ($0.02 per share basic and diluted) extraordinary
loss in the 1998 six-month period reflects the early repayment in
March of all $100 million of our 9 1/4% senior subordinated notes. It
was economically advantageous for us to repay the notes using funds
from lower cost borrowings, even after considering the prepayment
penalty that accounted for most of the extraordinary charge. We
incurred no similar charge during the 1999 periods.
CAPITAL RESOURCES, CAPITAL SPENDING AND LIQUIDITY
During the first half of 1999, we principally used our operating cash
flow together with borrowings under our bank credit facility and
commercial paper program for the completion of Beau Rivage. Net cash
provided by operating activities (as shown in the Condensed
Consolidated Statements of Cash Flows) totaled $171.4 million during
the first six months of 1999, versus $128.2 million during the same
1998 period. This increase principally reflects the additional
contribution from Bellagio and Beau Rivage. The 1999 period also
includes additional cash distributions from Monte Carlo of $9.5
million.
Principally relating to the completion of Beau Rivage, capital
expenditures during the 1999 six-month period totaled $285.6 million
and preopening and related promotional costs amounted to $35.6
million. Including land, capitalized interest and preopening costs,
Beau Rivage was completed at a total cost of approximately $685
million. Capital expenditures during the first half of 1999 also
include $35.1 million associated with the guestroom and suite
refurbishment program at Treasure Island. Completion of the project
is scheduled for October at an estimated total cost of approximately
$70 million. At June 30, 1999, we had incurred $36.5 million of this
amount.
During the 1998 six-month period, capital expenditures and preopening
and related promotional costs totaled $489.2 million and $29.1
million, respectively. In addition to amounts associated with Beau
Rivage, the 1998 expenditures also included amounts expended for
development of Bellagio.
-12-
<PAGE>
Proceeds from sales of property and equipment totaled $14.6 million
during the 1999 six-month period, principally representing sales of
various pieces of fine artwork previously held for display and resale
in the Bellagio Gallery of Fine Art. During this same period, we also
acquired $12.6 million of fine art for display and resale. During the
1998 period, we received proceeds from sales of property and equipment
of $58.6 million. This amount also included proceeds from sales of
fine artwork, as well as $23.5 million received from the sale of 16
acres of land in Las Vegas.
We completed the purchase of the Boardwalk hotel-casino and related
assets on June 30, 1998. The purchase required total cash outlays of
approximately $112.0 million. We spent approximately $51.9 million of
this amount in 1997, primarily to acquire certain of Boardwalk's
previously issued debt securities. The Boardwalk acquisition,
together with $118.8 million we incurred in September 1998 and $27.6
million we spent in 1997 to acquire adjacent land on the Las Vegas
Strip, completed the assemblage of an approximately 23-acre site at a
total cost of $258.4 million. Combined with other land we purchased
in 1993, we now own approximately 55 acres for future development with
over 1,200 feet of frontage on the Strip between Bellagio and Monte
Carlo.
We are in the very early design phase for a potential new hotel-casino
resort we expect to develop on this site. The design, timing and cost
of the new resort are still highly uncertain and will depend on
several factors. Among these factors is the market's absorption of
Bellagio and the other new resorts on the Las Vegas Strip. Because we
acquired the Boardwalk and adjacent land for development of a new
resort, interest cost is being capitalized on the funds used for such
purchases. In the interim, Boardwalk is being accounted for as an
incidental operation. Under this method, Boardwalk's operations are
excluded from our consolidated operating results and its net income,
as well as rental income from the adjacent land, is recorded as a
reduction in the carrying value of the land.
We are progressing with the design phase for our resort development in
the Marina area of Atlantic City and construction is continuing on the
previously funded joint venture road improvement project with the
state. Our current plans call for the development of a wholly owned
hotel-casino resort and, as described below, construction of a second
resort on a 25-acre portion of our 120-acre site in partnership with
Boyd Gaming Corporation. A budget and construction schedule for our
wholly owned hotel-casino have not yet been finalized.
In July 1998, we entered into an amended joint venture agreement with
Boyd for the development of a $750 million entertainment resort with
at least 1,200 guestrooms that will be connected to our planned wholly
owned hotel-casino. We will design and develop the master plan for
the Marina site and Boyd will oversee the design and construction of
the joint venture resort. Boyd will also operate the joint venture
resort upon completion. Under the agreement, we will contribute the
25 acres of land and $60 million in cash, of which approximately $5
-13-
<PAGE>
million had been contributed at June 30, 1999. Boyd will contribute
$150 million in cash. The joint venture will attempt to obtain
acceptable financing for the remaining cost of the project that is non-
recourse to both our Company and Boyd. If the necessary permits and
financing are obtained, construction of the joint venture resort could
begin by early next year.
Both our Company and the joint venture must apply for and receive
numerous governmental permits and satisfy other conditions before
construction of either hotel-casino can begin. Additionally, a
current Atlantic City hotel-casino operator and others have filed
various lawsuits challenging the validity of our previous agreement
with the City of Atlantic City to acquire the land and seeking to stop
the construction of the road improvements. Our Company has prevailed
in all of these lawsuits that have been adjudicated to date, but a
number of lawsuits are still pending in various stages and others
could be filed in the future. As a result of these factors, we cannot
be certain of the ultimate development or timing of construction of
the hotel-casinos planned for the Marina site.
We used the $415.6 million net proceeds received from the May 11, 1999
issuance of 16,633,663 shares of our common stock to reduce
outstanding bank credit facility and commercial paper borrowings. As
a result, we achieved a $293.3 million net decrease in these
borrowings during the first half of 1999. At July 31, 1999, these
borrowings totaled $1.17 billion, leaving $580 million combined
availability under our $1.75 billion revolving bank credit facility
and commercial paper program.
During the 1998 six-month period, net borrowings under our bank credit
facility and commercial paper program increased by $301.2 million. We
also received net proceeds of $394.7 million from the issuance in
February 1998 of $400 million total principal amount of unsecured
debt. This debt consisted of $200 million of 6 5/8% notes due in 2005
and an equal amount of 6 3/4% notes due in 2008. Approximately $237.1
million of the proceeds from the issuance were effectively used in
March 1998 to repay our $133 million zero coupon first mortgage notes
upon maturity and to retire early all $100 million of our 9 1/4% senior
subordinated notes. The balance of the incremental borrowing during
the 1998 period was primarily used to fund construction of our two new
resorts and the acquisition of Boardwalk.
We believe our existing cash balances, future operating cash flow and
available borrowing capacity will provide us with sufficient resources
to meet our existing debt obligations and foreseeable capital
expenditure requirements.
-14-
<PAGE>
YEAR 2000 READINESS DISCLOSURE
BACKGROUND
In the past, many computer software programs were written using two
digits rather than four to define the applicable year. As a result,
date-sensitive computer software may recognize a date using "00" as the
year 1900 rather than the year 2000. This is generally referred to as
the "Year 2000 issue." If this situation occurs, the potential exists
for computer system failures or miscalculations by computer programs,
which could disrupt operations.
RISK FACTORS
We are in many ways engaged in a low-technology business. Our casino
employees, for example, do not require computers to deal blackjack or
spin a roulette wheel. Likewise, our chefs do not require computers to
prepare a meal and our housekeepers do not require computers to clean
and prepare a guestroom. Slot machines are a type of computer, but
there is no date embodied in their basic operation of choosing a random
sequence and determining the appropriate payout.
Nevertheless, we do use computers extensively to assist our employees in
providing good service to our guests and to assist us in monitoring our
operations. The front desks at our hotels, for example, are highly
computerized in order to expedite the check-in and check-out of guests.
Similarly, we use computers in the back-of-the-house to facilitate
purchasing and maintain inventory records. Our shows and free
entertainment attractions also use computers extensively. In our
casinos, computers are used to monitor gaming activity and maintain
customer records, such as credit availability and points earned by
members of our slot clubs.
Computers on occasion fail, irrespective of the Year 2000 issue. For
this reason, where appropriate, we maintain paper and magnetic tape back-
ups and our employees are trained in the use of manual procedures. When
the front desk computer fails, for example, our employees continue to
check guests in and out using manual methods. Many of these incidents
occur each year and generally these failures are unnoticed by our
guests.
This is not to imply that there is no risk to us from the Year 2000
issue. The risks could be substantial. Most of our guestrooms, for
example, are easily accessed only by elevator, and most elevators
incorporate some computer technology. Likewise, our heating,
ventilation, life safety and air conditioning systems are highly
computerized and, of course, critical to our operations. While some
-15-
<PAGE>
attractions, such as the Bellagio Gallery of Fine Art and The Secret
Garden of Siegfried & Roy, would be relatively unaffected by failure of
computer technology, other attractions, such as the O, Siegfried & Roy
and Mystere shows, could not function without computers. We are also
exposed to the risk that one or more of our vendors or suppliers could
experience Year 2000 problems that may impact their ability to provide
us with goods and services. With respect to the suppliers of many of
our goods, we generally have alternative suppliers. However, the
disruption of certain services, in particular utilities and financial
services, could, depending upon the extent of the disruption, have a
material adverse impact on our operations.
External effects of the Year 2000 issue, such as disruptions in airline
service or other domestic or international economic disruptions
affecting our customers, could also adversely affect our business. Most
of our customers travel in excess of 100 miles to reach our resorts and
many of them travel by air. If there is a breakdown of the Federal
Aviation Administration's ("FAA") air traffic control system, or if fear
of a breakdown discourages customers from traveling, it could impact our
operations. Of course, we anticipate that the arrival of the new
millennium will result in a great deal of celebration and activity in
our hotel-casinos. A minor breakdown or fear of a breakdown in air
travel immediately following the New Year's Eve holiday could also
result in extended stays by patrons at our facilities. We are not in a
position to determine the readiness of the FAA and the airlines with
respect to the Year 2000 issue or the impact that this would have on our
business.
STRATEGY
We have an extensive Year 2000 compliance program and have substantially
completed an inventory of our various systems that may be sensitive to
the Year 2000 issue. We are prioritizing the importance of these
systems to our operations and have formed teams and assigned
responsibilities to ensure Year 2000 compliance of all critical systems.
Where important to our business and inquiry seems reasonable, we are
also contacting third parties to ascertain their Year 2000 readiness.
We are developing alternatives, if available, for those third parties
where we perceive there could be a problem.
As of July 31, 1999, about 70% of our systems had been tested by our
personnel or vendor personnel and found to be Year 2000 compliant. We
do not yet know precisely how many of the remaining systems are Year
2000 compliant. Our goal is to have most internally developed systems
Year 2000 compliant by August 1999 and all systems compliant by year-
end 1999. We have not developed a comprehensive contingency plan. As
previously mentioned, however, a number of our critical hotel and casino
systems are currently backed up by manual procedures that we use during
times of system malfunctions. We will continue to assess the need for
a comprehensive contingency plan as we implement our corrective action
plan.
-16-
<PAGE>
COSTS
It is difficult to calculate the cost of ensuring that our systems are
Year 2000 compliant, in part because there are many different solutions
to various Year 2000 situations. In the case of our elevators, for
example, we have requested that the third parties with whom we contract
for our elevator maintenance inspect each elevator system, as part of
its normal maintenance, for any Year 2000 issues. As another example,
we have contracted with a third-party consultant to make our proprietary
casino tracking system Year 2000 compliant. At the same time, however,
and under the same contract, the consultant is also incorporating
several other enhancements to the system.
During the period from 1997 through 1999, we have installed and will be
installing new slot accounting, hotel management and financial
accounting systems. Each of these new systems is Year 2000 compliant
and also has numerous enhancements over our prior systems. The total
cost of installing these new systems is approximately $18 million, of
which we had incurred approximately $12 million through July 31, 1999.
We believe that only a small portion of this cost relates directly to
the Year 2000 issue. We also believe that we would have installed
these systems within this time frame irrespective of the Year 2000
issue. The cost of addressing the Year 2000 issue has not been and is
not expected to be material to our financial condition or results of
operations.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains some forward-looking statements. Forward-looking
statements give our current expectations or forecasts of future events.
You can identify these statements by the fact that they do not relate
strictly to historical or current facts. They contain words such as
"anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe," "may," "could," "might" and other words or phrases of similar
meaning in connection with any discussion of future operating or
financial performance. These forward-looking statements involve
important risks and uncertainties that could significantly affect our
anticipated future results and, therefore, our actual results may differ
materially from those described in any forward-looking statement. These
risks and uncertainties include those relating to competition,
development and construction activities, dependence on existing
management, leverage and debt service (including sensitivity to
fluctuations in interest rates), domestic or international economic
conditions, pending or future legal proceedings, the effects of the Year
2000 issue, changes in federal or state tax laws or the administration
of such laws and changes in gaming laws or regulations (including the
legalization of gaming in certain jurisdictions). Additional
information concerning potential factors that we think could cause our
actual results to differ materially from expected and historical results
is included under the caption "Factors that May Affect Our Future
Results" in Item 1 of the 1998 Annual Report. This statement is
provided as permitted by the Private Securities Litigation Reform Act of
1995.
-17-
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's 1999 Annual Meeting of Stockholders (the
"Meeting") was held on June 9, 1999.
(c) At the Meeting, Elaine P. Wynn and Richard D. Bronson were re-
elected to serve three-year terms as members of the Board of
Directors. The results of the voting were as follows:
<TABLE>
<CAPTION>
Shares
-------------------------
For Withheld
----------- ----------
<S> <C> <C>
Mrs. Wynn 163,623,642 10,430,883
Mr. Bronson 163,664,087 10,390,438
</TABLE>
At the Meeting, the stockholders also approved the Company's
1999 Cash Bonus Plan and ratified the appointment of Arthur
Andersen LLP as the Company's independent accountants for 1999.
The results of the voting were as follows:
<TABLE>
<CAPTION>
Shares
------------------------------------
In Favor Opposed Abstaining
----------- ---------- ----------
<S> <C> <C> <C>
1999 Cash Bonus Plan 160,354,145 12,537,362 1,163,018
Arthur Andersen LLP 173,023,548 269,924 761,053
</TABLE>
Additionally, at the Meeting the stockholders approved an
amendment to the Company's Articles of Incorporation in order
to add a provision required by the New Jersey Casino Control
Act. The vote on the amendment was 136,861,085 shares in favor
and 1,097,344 shares opposed, with 3,432,720 shares abstaining
and 32,663,376 broker non-votes.
-18-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.1 Certificate of Amendment of Articles of Incorporation of
the Company, filed June 28, 1999.
10.1 Employment Agreement, dated as of May 20, 1999, among the
Company, GNLV, CORP. and Barry A. Shier.
10.2 Letter agreement, dated May 19, 1999, between Bellagio and
Stephen A. Wynn.
10.3 Letter agreement, dated June 16, 1999, between Bellagio and
Stephen A. Wynn.
10.4 Letter agreement, dated June 29, 1999, between Bellagio and
Stephen A. Wynn.
10.5 Amendment No. 4 to Amended and Restated Loan Agreement,
dated as of June 29, 1999, among the Company, the Banks,
Co-Arrangers, Co-Agents and Documentation Agent referred
to therein and Bank of America National Trust and Savings
Association, as Administrative Agent.
10.6 Letter agreement, dated December 31, 1998, between Bellagio
and Stephen A. Wynn (with exhibit).
15 Letter from independent public accountants acknowledging
awareness of the use of their report dated August 4, 1999
in the Company's registration statements.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
On May 10, 1999, the Company filed a Current Report on Form 8-K
dated May 6, 1999 in which it filed, under Items 5 and 7, an
Underwriting Agreement and related Pricing Agreement with Goldman,
Sachs & Co. relating to a public offering of the Company's common
stock.
-19-
<PAGE>
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.
Mirage Resorts, Incorporated
August 5, 1999 by: DANIEL R. LEE
- -------------- --------------------------------
Date Daniel R. Lee
Senior Vice President - Finance
and Development, Chief Financial
Officer and Treasurer (Principal
Financial Officer)
-20-
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JUN 28 1999
NO. C508-49
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE
OF
AMENDMENT OF
ARTICLES OF INCORPORATION
OF
Mirage Resorts, Incorporated
THE UNDERSIGNED HEREBY CERTIFY that on the 17th day of February,
1999, at a duly held Meeting of the Board of Directors of Mirage
Resorts, Incorporated, a Nevada corporation (the "Corporation"), at
which meeting a quorum was present throughout, the following resolution
was duly adopted:
RESOLVED: That this Corporation's Articles of Incorporation be
amended (the "Proposed Amendment") to add a new ARTICLE SIXTEENTH,
to read in its entirety as follows:
"SIXTEENTH: Except as is otherwise expressly provided in instru-
ments containing the terms of this corporation's securities, which
instruments have been approved by the New Jersey Casino Control
Commission (the "New Jersey Commission"), so long as the corpor-
ation is a "publicly traded holding company" as defined in the New
Jersey Casino Control Act (the "New Jersey Act"), all securities of
the corporation shall be held subject to the condition that if a
holder thereof is found to be disqualified pursuant to the New
Jersey Act by the New Jersey Commission, such holder shall dispose
of his interest in the corporation within 120 days following the
corporation's receipt of notice (the "Notice Date") of the
holder's disqualification. Promptly following the Notice Date, the
corporation shall either deliver such written notice personally to
the disqualified holder or shall mail it to such holder at the
address shown on the corporation's records, or use any other
reasonable means to provide notice. Failure of the corporation to
provide notice to a disqualified holder after making reasonable
efforts to do so shall not preclude the corporation from exercising
its rights. If any disqualified holder fails to dispose of his
securities within 120 days following the Notice Date, the
corporation, by action of the Board of Directors, may redeem such
Exhibit 3.1
<PAGE>
securities at the lesser of (i) the lowest closing sale price of
such securities between the Notice Date and the date 120 days after
the Notice Date or (ii) such holder's original purchase price for
such securities.
So long as the corporation is a "publicly traded holding company"
as defined in the New Jersey Act, commencing on the Notice Date,
it shall be unlawful for the disqualified holder to: (i) receive
any dividends or interest upon any securities of the corporation
held by such holder; (ii) exercise, directly or through any
trustee or nominee, any right conferred by such securities;
or (iii) receive any remuneration in any form, for services
rendered or otherwise, from the corporation or any subsidiary of
the corporation that holds a casino license."
The undersigned further hereby certify that the holders of a majority
of the voting power of the Corporation, voting in person or by proxy,
approved the proposed Amendment as provided in the foregoing resolution
at the Corporation's Annual Meeting of Stockholders duly held on the 9th
day of June, 1999.
DATED this 9th day of June, 1999.
STEPHEN A. WYNN
----------------------------------
Stephen A. Wynn, President
BRUCE A. LEVIN
----------------------------------
Bruce A. Levin, Secretary
STATE OF NEVADA )
)ss:
COUNTY OF CLARK )
This instrument was acknowledged before me on June 9, 1999 by Stephen
A. Wynn as President of Mirage Resorts, Incorporated.
[NOTARY SEAL] SUSAN M. WALKER
----------------------------------
Susan M. Walker, Notary Public
STATE OF NEVADA
Secretary of State
I hereby certify that this is a
true and complete copy of the
document as filed in this office.
JUN 28 '99
DEAN HELLER
Secretary of State
By D. Farmer
-2-
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of May 20,
1999 (the "Effective Date"), by and among Mirage Resorts, Incorporated,
a Nevada corporation ("MRI"), GNLV, CORP., a Nevada corporation
("Employer") and Barry A. Shier ("Employee").
1. Employer and MRI hereby employ Employee initially as the Chairman
and Chief Executive Officer of Employer, with primary responsi-
bility to oversee the operations of Beau Rivage, and as MRI's
Executive Vice President-Marketing and Hotel Operations. Employee
shall report directly to, and be subject to the authority of,
Employer's Board of Directors and MRI's Chairman. Employee shall
perform such executive, supervisory and managerial duties for
Employer, MRI, and MRI's other affiliated and subsidiary corpor-
ations and entities (collectively, "Affiliates") as MRI or
Employer may specify from time to time, which shall be comparable
with his initial responsibilities and duties hereunder. Employer
or MRI may, at any time and from time to time, change any of
Employee's titles specified herein. Employee shall devote his full
business time and efforts in good faith to the performance of his
duties hereunder. Employee's permanent residence shall be in Las
Vegas, Nevada. Employee acknowledges that he will be required to
travel extensively outside Clark County in performing his duties
hereunder and shall be entitled to the use of a corporate aircraft
at Employer's or MRI's expense.
2. The term of this Agreement shall commence on the Effective Date
and terminate on the third anniversary of the Effective Date (the
"Employment Period"), except as earlier terminated pursuant to the
terms of this Agreement. As used in this Agreement, the term
"year" shall mean each successive 12-month period ending on each
anniversary of the Effective Date.
3. (a) Employee shall receive an annual gross base salary of
$1,000,000 (before deduction of employment taxes and other amounts
required by law to be withheld) and such merit bonuses as
Employer's Board of Directors may determine in its sole
discretion. Employee's annual gross salary may be increased by
the Board of Directors of Employer in its sole discretion, and any
higher annual base salary shall thereafter be deemed to be the
annual base salary for purposes of this Agreement. Employee's base
salary shall be payable in equal installments in accordance with
Employer's regular payroll practices during the Employment Period.
EXHIBIT 10.1
<PAGE>
(b) Employee and his dependents shall be provided with coverage
under MRI's executive medical and life insurance plans, paid
vacation and such other plans and benefits as MRI and its subsid-
iaries from time to time make available to their executives of
similar stature.
(c) Employer shall provide Employee with office accommodations,
including furniture and furnishings, secretarial and other assis-
tance, commensurate with Employee's stature and position.
Employer shall reimburse Employee for all reasonable business
expenses incurred by Employee in performing his duties hereunder
which are supported by appropriate documentation in accordance
with Employer's policies.
(d) MRI shall amend the vesting date of Employee's stock options
granted on August 16, 1995 to May 16, 2004.
4. Employee acknowledges and agrees that the laws of Nevada and other
jurisdictions in which Employer or Affiliates may engage or
propose to engage in business activities during the term hereof
may require that Employee be investigated for suitability and
licensing. Employee shall cooperate with the appropriate govern-
mental authorities in order that Employer and Affiliates and he
may obtain all certificates, permits and licenses which are
required in connection with his employment hereunder or Employer's
and Affiliates' conduct of business during the term hereof.
Employee further acknowledges and agrees that in the event he
fails to so cooperate or he or Employer or Affiliates, for any
reason attributable to Employee, fails to obtain, within the time
specified by Nevada Gaming Commission and all other governmental
authorities having jurisdiction, or, for any reason attributable
to Employee, fails to thereafter maintain, in good standing and in
full force and effect, during the term hereof, all required cer-
tificates, permits and licenses in connection with his employment
hereunder or Employer's or Affiliates' conduct of business, or
Employee is convicted of or pleads nolo contendere to any criminal
act which could reasonably be expected to result in the suspension
or revocation of any such certificate, permit or license, such
shall constitute Good Cause for Employer to terminate this Agree-
ment as provided in Paragraph 6 hereof.
5. Employee covenants and agrees that during the stated Employment
Period, Employee shall not directly or indirectly be employed by,
render services for, engage in, participate in, consult for or
otherwise be connected in any way (other than on behalf of
-2-
<PAGE>
Employer or Affiliates) with any individual, firm, corporation or
other entity engaged in the gaming or hotel/hospitality industry.
The restriction on Employee's activities set forth in the immedi-
ately preceding sentence shall not apply following termination of
this Agreement as provided in Paragraph 7 hereof (whether by
Employer or Employee). Employee acknowledges and agrees that the
restrictions on his activities set forth in this Paragraph 5 are
reasonable, that Employee has been adequately compensated under
this Agreement for the future financial hardship that compliance
with such provisions might otherwise have created and that
Employee has available other suitable employment opportunities
which eliminate the need for employment which would violate such
provisions. In addition to all other rights and remedies provided
to Employer hereunder, if Employee materially breaches any of the
obligations contained in this Paragraph 5, Employer shall have the
right to terminate this Agreement in accordance with Paragraph
6(b) hereof, but any such termination shall in no event be deemed
an election of remedies and Employer expressly reserves all other
legal and equitable remedies. Employee further covenants and
agrees that he shall not at any time during the term of this
Agreement or thereafter, without Employer's prior written consent,
disclose to other individuals or entities any trade secrets or
other confidential information concerning Employer or Affiliates,
including without limitation, their customers, casino, hotel,
marketing or entertainment practices or procedures, management
policies or non-public financial information, or utilize any such
trade secrets or confidential information in any way or communi-
cate with or contact any such customers, other than in connection
with his employment hereunder. For purposes of this Agreement,
"trade secrets and confidential information" shall not include
information which is: (i) generally known in the gaming or hotel/
hospitality industry; (ii) in the public domain; or (iii) indepen-
dently obtained by Employee from third parties under no obligation
of confidentiality to Employer or Affiliates or to any third
party. Employee hereby confirms that such trade secrets and con-
fidential information constitute Employer's exclusive property,
that all of the restrictions on his activities contained in this
Agreement are required for Employer's reasonable protection and
that in the event of any breach of this Paragraph 5 by him,
Employer will be entitled, if it so elects, to institute and
prosecute proceedings at law or in equity to obtain damages with
respect to such breach, to seek to enforce the specific perfor-
mance of this Paragraph 5 or to seek to enjoin Employee from
engaging in any activity in violation hereof.
-3-
<PAGE>
6. This Agreement may be terminated by Employer at any time during
the Employment Period for "Good Cause" (as defined below) and upon
any such termination, Employer shall have no further liability or
obligation whatsoever to Employee hereunder except that Employee
(or his estate) shall be promptly paid any unpaid portion of
Employee's base salary, any unpaid perquisites earned hereunder
and any unreimbursed business expenses, in each case through the
date of termination. "Good Cause" shall mean and be limited to:
(a) Employee's death or "Disability" ("Disability" is hereby
defined to mean Employee's physical or mental incapacity certified
to by a licensed physician designated by Employer which precludes
the performance of his duties hereunder for a substantially con-
secutive period of four (4) months or more); and
(b) Employee's dishonesty in his relationship with Employer,
willful insubordination, conviction of or plea of nolo contendere
to any felony or a misdemeanor involving moral turpitude, willful
failure to substantially perform his duties diligently in good
faith and to the best of his ability, the occurrence of an event
specified in the last sentence of Paragraph 4 hereof or any other
material breach of this Agreement by Employee, any or all of
which, if curable, is not cured by Employee within a reasonable
time after his receipt of written notice thereof from Employer
describing in reasonable detail the material facts and circum-
stances supporting such termination.
7. (a) Employee shall have the right to terminate his employment
hereunder in the event of a "Material Breach" (as defined below)
of this Agreement by Employer which, if curable, is not cured
within a reasonable time after Employer's receipt of written
notice thereof from Employee describing in reasonable detail the
material facts and circumstances supporting such termination. If
Employer terminates Employee's employment hereunder other than
pursuant to Paragraph 6(a) or 6(b) of this Agreement, or if
Employee resigns as a result of a Material Breach of this Agree-
ment by Employer which, if curable, is not cured by Employer
within a reasonable time after receipt of written notice thereof
from Employee, Employee shall, subject to Employee's continuing
duty to mitigate damages, (A) continue to be paid his annual base
salary and other benefits through the end of the stated
-4-
<PAGE>
Employment Period, as and when such salary and other benefits
would have been payable pursuant to Paragraphs 3(a) and 3(b)
hereof and (B) promptly be paid any unpaid perquisites earned
hereunder and any unreimbursed business expenses though the date
of termination. The foregoing shall constitute Employee's sole
and exclusive remedy for or relating to Employer's breach of this
Agreement or any other claim Employee may have or assert arising
out of the employment relationship between Employer and Employee,
whether such claim arises in contract, tort, pursuant to statute
or otherwise.
(b) For purposes of this Agreement, a "Material Breach" of this
Agreement shall mean and be limited to: (i) Employer's failure to
pay Employee any sum which Employee establishes is due to Employee
hereunder within fifteen (15) days after receiving written notice
from Employee that such sum is due but unpaid; or (ii) a material
breach of a material provision of this Agreement by Employer, in
each case subject to the notice and cure provisions set forth
above.
8. Employee represents, warrants and covenants to Employer that
Employee is not a party or otherwise subject to any agreement or
restriction which would be breached or violated by Employee's
execution of this Agreement or his employment hereunder.
9. If any provision of this Agreement is held to be unenforceable or
invalid for any reason whatsoever, such fact shall not affect the
remaining provisions hereof. If any of the provisions of this
Agreement which impose restrictions on Employee are, with respect
to such restrictions, determined by a final judgment of any court
of competent jurisdiction to be unenforceable or invalid because
of the geographic scope or time duration of such restrictions,
such provisions shall be deemed retroactively limited to provide
for the maximum geographic scope and time duration which would
make such provisions enforceable and valid. However, no such
retroactive modification of such restrictive provisions shall
affect any of Employer's rights hereunder arising out of the
breach of any such restrictive provisions, including without
limitation, Employer's right to terminate this Agreement.
10. No failure or delay on the part of Employer or Employee in
exercising any right, power or remedy hereunder shall operate as a
waiver thereof nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further
-5-
<PAGE>
exercise thereof or the exercise of any other right, power or
remedy hereunder. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
11. No amendment, modification, termination or waiver of any provision
of this Agreement nor consent to any departure by Employee or
Employer therefrom shall in any event be effective unless the same
shall be in writing and signed by a duly authorized officer of
Employer and by Employee. Any such waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given.
12. Except as provided in Paragraph 5 hereof, in the event of any
dispute arising out of the interpretation, enforcement or appli-
cation of any of the provisions of this Agreement, or any other
controversy or claim arising out of, relating to or in connection
with this Agreement or Employee's employment with Employer,
Employee and Employer agree to waive all rights to a jury trial
and to submit such dispute to exclusive arbitration before a
single arbitrator in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. Such arbitration
shall occur in Las Vegas, Nevada. The arbitrator shall be
selected by the mutual agreement of the parties, or failing such
agreement within ten (10) days after the receipt of written notice
from one party proposing to the other one or more possible
arbitrators, such other person as shall be appointed by the appli-
cation of any of the parties to the American Arbitration
Association. The arbitrator shall not be empowered to vary from
any of the express terms or provisions of this Agreement, and his
decision shall be final and binding upon the parties hereto.
Judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. The prevailing party
shall be entitled to recover its reasonable attorneys' fees and
expenses, and the fees and expenses of the arbitrator shall be
paid by the non-prevailing party. The prevailing party shall be
determined by the arbitrator. The provisions of this Paragraph 12
shall survive any termination of this Agreement.
13. This Agreement sets forth the entire agreement of the parties with
respect to the subject matter hereof and supersedes any and all
prior negotiations, agreements or understandings, whether oral or
written.
14. This Agreement shall be controlled, construed and enforced in
accordance with the laws of the State of Nevada, excluding its
conflict or choice of laws principles. Except as provided in
Paragraph 12 hereof, any legal action in any way relating to or
arising out of this Agreement or Employee's employment relation-
ship with Employer shall be instituted and maintained in federal
or state court in Las Vegas, Nevada, and the parties hereby
consent to the exclusive jurisdiction of such courts.
-6-
<PAGE>
15. Any and all notices required or permitted to be given hereunder
shall be in writing and sent by personal delivery or registered or
certified mail to Employee's last known Las Vegas, Nevada
residence (as reflected in Employee's personnel file), in the case
of Employee, or to Employer's principal office in Las Vegas,
Nevada (with a copy to MRI's General Counsel at MRI's principal
office), in the case of Employer.
16. This Agreement shall be binding on, and shall inure to the benefit
of, the parties hereto and their respective legal representatives,
successors and permitted assigns (including, without limitation,
Employee's estate and heirs). This Agreement (and all rights and
obligations hereunder) shall not be assignable by Employee.
Employer shall have the right to assign this Agreement to any of
Affiliates or Employer's successors.
IN WITNESS WHEREOF, Employer and Employee have entered into this
Agreement in Las Vegas, Nevada, as of the Effective Date first above
written.
Mirage Resorts, Incorporated
By: STEPHEN A. WYNN
------------------------------------
STEPHEN A. WYNN
Chairman and Chief Executive Officer
GNLV, CORP.
By: BRUCE A. LEVIN
------------------------------------
BRUCE A. LEVIN
Assistant Secretary
BARRY A. SHIER
------------------------------------
BARRY A. SHIER
-7-
Robert H. Baldwin
PRESIDENT
B E L L A G I O
May 19, 1999
Mr. Stephen A. Wynn
Chairman of the Board and
Chief Executive Officer
Mirage Resorts, Incorporated
3600 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Re: Amendment No. 1 to Fine Art Rental Agreement
Dear Steve:
Pursuant to Paragraph 3 of the letter agreement dated December 31, 1998
between Bellagio and you (the "Rental Agreement"), this letter confirms
our agreement that, effective this date, the following works of fine art
shall be added to Exhibit A to the Rental Agreement for the following
monthly rent:
<TABLE>
<CAPTION>
Work Monthly Rent
------------------------------------- ------------
<S> <C>
"Landscape, Island of la Grand-Jaffe" $120,908
by Georges Seurat (1884, oil on canvas,
25-5/8 x 31-1/8 inches)
"Red, Yellow, Orange and Pink on Yellow" $ 18,891
by Mark Rothko (1954, oil on canvas,
90-1/2 x 54-1/2 inches)
</TABLE>
P.O. BOX 7700, LAS VEGAS, NEVADA 89177-7700
EXHIBIT 10.2
<PAGE>
Mr. Stephen A. Wynn
May 19, 1999
Page 2
Please sign below to confirm your agreement to the foregoing. My
signature below confirms Bellagio's agreement thereto.
Very truly yours,
BELLAGIO
By: ROBERT H. BALDWIN
-------------------------------------
ROBERT H. BALDWIN
President and Chief Executive Officer
I hereby agree to the foregoing.
STEPHEN A. WYNN
-------------------------------------
STEPHEN A. WYNN
cc: Bruce A. Levin
Peter C. Walsh
James E. Pettis
George J. Panek
Robert H. Baldwin
President B E L L A G I O
June 16, 1999
Mr. Stephen A. Wynn
Chairman of the Board and
Chief Executive Officer
Mirage Resorts, Incorporated
3600 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Re: Amendment No. 2 to Fine Art Rental Agreement
Dear Steve:
Pursuant to Paragraph 3 of the letter agreement dated December 31, 1998
between Bellagio and you (the "Rental Agreement"), this letter confirms
our agreement that, effective this date, the following work of fine art
shall be added to Exhibit A to the Rental Agreement for the following
monthly rent:
<TABLE>
<CAPTION>
Work Monthly Rent
---------------------------------- ------------
<S> <C>
"Composition with Head" by $8,587
Arshile Gorky (1936-1937, oil
on canvas, 76-1/2 x 60-1/2 inches)
</TABLE>
Please sign below to confirm your agreement to the foregoing. My
signature below confirms Bellagio's agreement thereto.
Very truly yours,
BELLAGIO
By: ROBERT H. BALDWIN
-------------------------------------
ROBERT H. BALDWIN
President and Chief Executive Officer
I hereby agree to the foregoing.
STEPHEN A. WYNN
-------------------------------------
STEPHEN A. WYNN
cc: Bruce A. Levin
Peter C. Walsh
James E. Pettis
George J. Panek
P.O. BOX 7700, LAS VEGAS, NEVADA 89177-7700
EXHIBIT 10.3
Robert H. Baldwin
President B E L L A G I O
June 29, 1999
Mr. Stephen A. Wynn
Chairman of the Board and
Chief Executive Officer
Mirage Resorts, Incorporated
3600 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Re: Amendment No. 3 to Fine Art Rental Agreement
Dear Steve:
This letter confirms our agreement that, effective this date, Bellagio
will sell to you, and you will purchase from Bellagio, the work of fine
art entitled "Portrait of Dora Maar" by Pablo Picasso (1942, oil on
panel, 36-1/2 x 28-3/4 inches) (the "Work") for the purchase price of
$10,000,000 in cash. Pursuant to Paragraph 3 of the letter agreement
dated December 31, 1998 between Bellagio and you (the "Rental
Agreement"), this letter further confirms our agreement that, effective
this date, the Work shall be added to Exhibit A to the Rental Agreement
for the monthly rent of $24,042.
Please sign below to confirm your agreement to the foregoing. My
signature below confirms Bellagio's agreement thereto.
Very truly yours,
BELLAGIO
By: ROBERT H. BALDWIN
-------------------------------------
ROBERT H. BALDWIN
President and Chief Executive Officer
I hereby agree to the foregoing.
STEPHEN A. WYNN
-------------------------------------
STEPHEN A. WYNN
cc: Bruce A. Levin
Peter C. Walsh
James E. Pettis
George J. Panek
P.O. BOX 7700, LAS VEGAS, NEVADA 89177-7700
EXHIBIT 10.4
AMENDMENT NO. 4 TO AMENDED AND RESTATED LOAN AGREEMENT
This Amendment No. 4 (this "Amendment") to Amended and Restated
Loan Agreement, dated as of June 29, 1999 is entered into with reference
to the Amended and Restated Loan Agreement dated as of March 7, 1997
(as heretofore amended by an Amendment No. 1 dated as of September 19,
1997, an Amendment No. 2 dated as of June 19, 1998, and an Amendment No.
3 dated as of December 17, 1998, the "Loan Agreement") among Mirage
Resorts, Incorporated, a Nevada corporation ("Borrower"), the Banks, Co-
Arrangers, Co-Agents and Documentation Agent referred to therein, and
Bank of America National Trust and Savings Association, as Administra-
tive Agent. Capitalized terms used herein are used with the meanings set
forth for those terms in the Loan Agreement. Borrower and the
Administrative Agent (acting with the consent of the Requisite Banks)
agree as follows:
1. Calculation of Leverage Ratio for Fiscal Quarter Ending June 30,
1999. It is agreed that for the purposes of calculating the
Leverage Ratio as of June 30, 1999 only, the definition of Leverage
Ratio shall be as follows (deleting the requirement, in respect of
that Fiscal Quarter only, that the numerator be the average of
Total Debt as of the last day of each of the three calendar months
comprising the Fiscal Quarter then ending):
"'Leverage Ratio' means, as of the last day of each Fiscal
Quarter, the ratio of (a) Total Debt to (b) Annualized Adjusted
EBITDA, as such ratio is set forth in the most recent Compliance
Certificate delivered by Borrower pursuant to Section 7.2."
2. Condition Precedent. The effectiveness of this Amendment shall
be conditioned upon the receipt by the Administrative Agent of
written consents hereto executed by the Requisite Banks.
3. Representations and Warranties. Borrower represents and warrants
to the Administrative Agent and the Banks that, as of the date of
this Amendment, no Default or Event of Default has occurred and
remains continuing.
4. Agreement Regarding Incremental Margin. Borrower agrees that the
applicability (or non-applicability) of the Incremental Margin
shall be determined on the basis of the Leverage Ratio (and its
component definitions) as set forth in the Loan Agreement prior to
and without giving effect to the amendment thereto set forth in
this Amendment.
-1-
EXHIBIT 10.5
<PAGE>
5. Confirmation. In all other respects, the terms of the Loan
Agreement and the other Loan Documents are hereby confirmed.
IN WITNESS WHEREOF, Borrower and the Administrative Agent have
executed this Amendment as of the date first written above by their duly
authorized representatives.
MIRAGE RESORTS, INCORPORATED
By: DANIEL R. LEE
--------------------------------------
Daniel R. Lee,
Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative
Agent
By: JANICE HAMMOND
--------------------------------------
Janice Hammond, Vice President
-2-
Robert H. Baldwin
President
B E L L A G I O
December 31, 1998
Mr. Stephen A. Wynn
Chairman of the Board and
Chief Executive Officer
Mirage Resorts, Incorporated
3600 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Re: Rental of Fine Art
Dear Steve:
This letter sets forth the agreement between Bellagio and you effective
this date with respect to the rental of the works of fine art identified
on Exhibit A hereto (individually, a "Work" and collectively, the
"Works"), and supersedes and amends in their entirety the letter agree-
ments between Bellagio and you dated January 14, 1998, March 12, 1998,
April 21, 1998, July 31, 1998 and September 1, 1998.
1. You hereby rent each of the Works to Bellagio for exhibition in
any hotel-casino operated by Bellagio or any other wholly owned
subsidiary of Mirage Resorts, Incorporated. The Works shall be
maintained on public display and shall be available for
educational purposes in one or more of such hotel-casinos in
conformity with the requirements of NRS 361.068(k) and NRS 374 and
any regulations validly promulgated thereunder.
2. Bellagio shall pay you monthly rent for each of the Works in the
respective amounts set forth on Exhibit A. The rent for each
month, commencing January 1999, shall be payable in advance not
later than the fifth calendar day of such month. In the event that
the rental with respect to one or more Works is in effect for less
than a full calendar month, the rent for such month shall be pro-
rated based on the actual number of days during which the rental
was in effect and a month consisting of 30 days. Any such
reduction shall be credited against Bellagio's next monthly rent
payment.
3. Bellagio and you shall each have the option to terminate the
rental as to one or more of the Works on 30 days' notice to the
other party. Bellagio and you may also mutually agree to include
P.O. BOX 7700, LAS VEGAS, NEVADA 89177-7700
EXHIBIT 10.6
<PAGE>
Mr. Stephen A. Wynn
Mirage Resorts, Incorporated
December 31, 1998
Page Two
additional works of fine art in this rental agreement, in which
event the parties shall execute an amendment to Exhibit A setting
forth the additional works of fine art and the monthly rent for
such works.
4. Bellagio shall be responsible for insuring and maintaining the
security of the Works subject to this rental, and for any Nevada
sales, use or personal property taxes applicable to this rental.
Please sign below to confirm your agreement to the foregoing. My
signature below confirms Bellagio's agreement thereto.
Very truly yours,
BELLAGIO
By: ROBERT H. BALDWIN
-------------------------------------
ROBERT H. BALDWIN
President and Chief Executive Officer
I hereby agree to the foregoing.
STEPHEN A. WYNN
-------------------------------------
STEPHEN A. WYNN
cc: Bruce A. Levin
Peter C. Walsh
James E. Pettis
George J. Panek
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
Work Monthly Rent
-------------------------------------------- ------------
<S> <C>
"Girl with Straw Hat, Sitting in the Wheat," $163,145
also known as "Portrait of a Peasant Girl
in a Straw Hat" by Vincent van Gogh (1890,
oil on canvas, 36-1/4 x 28-3/4 inches)
"Dancer, Taking her Bow" by Edgar Degas 41,215
(1878, pastel on paper, 33-1/2 x 27 inches)
"Highway" by Jasper Johns (1959, encaustic 32,018
and collage on canvas, 33-1/2 x 27 inches)
"Police Gazette" by Willem de Kooning (1955, 40,750
mixed media on canvas, 42-7/8 x 39-5/8
inches)
"Frieze" by Jackson Pollock (1953-1955, oil, 32,018
enamel and aluminum paint on canvas,
26-1/8 x 85-7/8 inches)
"Femme Assise" by Pablo Picasso (1949, oil 8,587
on canvas, 51-1/4 x 38-1/4 inches)
"Seated Woman" by Pablo Picasso (1949, oil 9,445
on canvas, 51 x 38-1/4 inches)
"Magritte II" by Escobar Marisol (1998, 190
wood, oil paint, plaster, charcoal, cloth,
58 x 30 x 14 inches)
"Untitled XXXII" by Willem de Kooning 2,835
(1977, oil on canvas, 54 x 60 inches)
</TABLE>
EXHIBIT 15
August 4, 1999
To Mirage Resorts, Incorporated
We are aware that Mirage Resorts, Incorporated has incorporated by
reference in its Registration Statements on Form S-8 (File No.
33-16037), on Form S-8 (File No. 33-48394), on Form S-8 (File No.
33-63804), on Form S-8 (File No. 33-60183), on Form S-8 (File No.
333-59455), on Form S-3 (File No. 333-39029) and on Form S-3 (File No.
333-77973) its Form 10-Q for the quarter ended June 30, 1999 which
includes our report dated August 4, 1999 covering the unaudited interim
financial information contained therein. Pursuant to Regulation C of
the Securities Act of 1933, that report is not considered a part of
these registration statements or a report prepared or certified by
our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE REGISTRANT'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30,
1999 AND THE RELATED CONDENSED CONSOLIDATED STATEMENT OF INCOME AND CASH
FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 85,906
<SECURITIES> 0
<RECEIVABLES> 165,418
<ALLOWANCES> 47,198
<INVENTORY> 94,140
<CURRENT-ASSETS> 407,526
<PP&E> 4,821,964
<DEPRECIATION> 814,472
<TOTAL-ASSETS> 4,673,483
<CURRENT-LIABILITIES> 311,223
<BONDS> 2,085,174
0
0
<COMMON> 940
<OTHER-SE> 2,061,294
<TOTAL-LIABILITY-AND-EQUITY> 4,673,483
<SALES> 0
<TOTAL-REVENUES> 1,155,882
<CGS> 0
<TOTAL-COSTS> 715,069
<OTHER-EXPENSES> 96,189
<LOSS-PROVISION> 11,808
<INTEREST-EXPENSE> 57,673
<INCOME-PRETAX> 78,206
<INCOME-TAX> 27,674
<INCOME-CONTINUING> 50,532
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (30,577)
<NET-INCOME> 19,955
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.10
</TABLE>
