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 March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 01-6697
Mirage Resorts, Incorporated
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(Exact name of Registrant as specified in its charter)
Nevada 88-0058016
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(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, 198,797,551 shares outstanding as of May 13,
1999.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed consolidated financial information as of March
31, 1999 and for the three-month periods ended March 31, 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
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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 March 31, 1999, and the related
condensed consolidated statements of income and cash flows for the
three-month periods ended March 31, 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
May 14, 1999
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<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED MIRAGE RESORTS, INCORPORATED
BALANCE SHEETS
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At March 31, At December 31,
1999 1998
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(In thousands) (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 118,323 $ 74,814
Trade receivables, net of allowance for doubtful
accounts of $47,153 and $40,480 135,093 118,125
Inventories 88,474 74,195
Preopening costs - 24,718
Deferred income taxes 28,062 23,180
Prepaid expenses and other 71,930 83,445
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Total current assets 441,882 398,477
Property and equipment, net of accumulated
depreciation of $767,606 and $733,032 3,852,238 3,290,189
Construction in progress 89,989 539,530
Other assets, net 268,899 302,006
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$4,653,008 $4,530,202
==========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 119,069 $ 129,592
Construction payables 31,578 42,859
Accrued expenses 179,721 155,675
Current maturities of long-term debt 326 404
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Total current liabilities 330,694 328,530
Long-term debt, net of current maturities 2,493,110 2,378,507
Other liabilities, including deferred income taxes
of $195,149 and $207,063 209,738 221,328
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Total liabilities 3,033,542 2,928,365
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Commitments and contingencies
Stockholders' equity
Common stock: 181,456 and 180,120 shares outstanding 940 940
Additional paid-in capital 747,950 738,665
Retained earnings 1,146,990 1,145,497
Treasury stock, at cost: 53,692 and 55,028 shares (276,414) (283,265)
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Total stockholders' equity 1,619,466 1,601,837
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$4,653,008 $4,530,202
==========================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED MIRAGE RESORTS, INCORPORATED
STATEMENTS OF INCOME (UNAUDITED)
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Three months ended March 31 1999 1998
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(In thousands, except per share amounts)
<S> <C> <C>
REVENUES
Casino $ 313,975 $ 191,821
Rooms 123,522 71,841
Food and beverage 105,789 55,531
Entertainment 45,593 24,994
Retail 31,086 15,135
Other 19,240 11,171
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639,205 370,493
Less - promotional allowances (58,492) (35,328)
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580,713 335,165
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OPERATING COSTS AND EXPENSES
Casino-hotel operations 354,532 205,646
General and administrative 73,365 39,981
Depreciation and amortization 43,832 22,584
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471,729 268,211
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OPERATING PROFIT 108,984 66,954
Corporate expense (11,258) (8,485)
Preopening and related promotional expense (31,455) -
Equity in earnings of Monte Carlo 8,858 7,439
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INCOME FROM OPERATIONS 75,129 65,908
Interest cost (38,302) (29,167)
Interest capitalized 11,722 23,825
Other, including interest income 1,090 4,857
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INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 49,639 65,423
Provision for income taxes (17,569) (23,823)
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INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 32,070 41,600
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) -
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NET INCOME $ 1,493 $ 38,079
==========================================================================================
INCOME PER SHARE BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE
Basic $ 0.18 $ 0.23
Diluted 0.17 0.22
NET INCOME PER SHARE
Basic $ 0.01 $ 0.21
Diluted 0.01 0.20
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED MIRAGE RESORTS, INCORPORATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
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Three months ended March 31 1999 1998
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(In thousands)
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,493 $ 38,079
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for losses on receivables 6,402 4,638
Depreciation and amortization of property and equipment,
including amounts reported as corporate expense 47,576 25,853
Expensed preopening and related promotional costs 31,455 -
Equity in earnings of Monte Carlo (8,858) (7,439)
Distributions from Monte Carlo 11,500 -
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 preopening costs 46,967 -
Deferred income taxes (16,796) 1,068
Changes in components of working capital pertaining to
operating activities
(Increase) decrease in trade receivables and other
current assets (23,891) 22,294
Increase (decrease) in trade accounts payable and
accrued expenses 7,114 (21,308)
Other adjustments (399) 3,073
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Net cash provided by operating activities 102,563 71,676
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Cash flows from investing activities
Preopening and related promotional costs (31,455) (12,525)
Capital expenditures (158,869) (232,282)
Decrease in preopening and construction payables (4,872) (1,213)
Proceeds from sales of property and equipment 1,919 26,490
Other investing activities 3,640 (17,837)
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Net cash used for investing activities (189,637) (237,367)
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Cash flows from financing activities
Net bank credit facility and commercial paper borrowings 114,718 47,647
Issuance of long-term debt - 394,728
Retirement of long-term debt - (237,110)
Exercise of common stock options, including related income
tax benefit 16,154 779
Other financing activities (289) (184)
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Net cash provided by financing activities 130,583 205,860
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Cash and cash equivalents
Increase for the period 43,509 40,169
Balance, beginning of period 74,814 99,337
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Balance, end of period $ 118,323 $ 139,506
==========================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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<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 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 period 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 - 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 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, net of income tax benefit,
of $30.6 million ($0.17 per share basic and $0.16 per share diluted).
During the three months ended March 31, 1999, the Company also
incurred and expensed an additional $31.5 million ($20.6 million,
$0.11 per share basic and diluted, net of income tax benefit) of pre-
opening and related promotional costs associated with these projects.
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<PAGE>
Under the Company's previous accounting method, approximately $14.2
million ($9.3 million, $0.05 per share basic and diluted, net of
income tax benefit) of Beau Rivage's preopening and related
promotional costs would have been amortized to expense during the
three months ended March 31, 1999. There would have been no cumulative
effect adjustment.
NOTE 3 - 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 ended March 31 1999 1998
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<S> <C> <C>
Weighted-average common shares out-
standing (used in the calculation
of basic earnings per share) 180,526,308 179,443,062
Potential dilution from the assumed
exercise of common stock options 10,920,271 13,269,447
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Weighted-average common and common
equivalent shares (used in the
calculation of diluted earnings
per share) 191,446,579 192,712,509
========================================================================
</TABLE>
Stock options having an exercise price greater than the average market
price of the underlying common stock during the period are excluded
from the calculation of diluted earnings per share. As a result, a
weighted average of approximately 1,202,000 stock options was excluded
from the calculation during the three months ended March 31, 1998.
The number of stock options excluded from the calculation during the
1999 three-month period was not material.
NOTE 4 - 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 Company
intends to use the net proceeds from the offering of approximately
$415.7 million temporarily to reduce its outstanding bank credit
facility and commercial paper borrowings.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE THREE-MONTH PERIODS ENDED MARCH
31, 1999 AND 1998
Our 1999 first quarter earnings of $0.28 per share before charges
associated with preopening and related promotional costs represent a 27%
increase over the $0.22 per share before an extraordinary charge in the
prior-year quarter. Our total revenues rose by 73%, while our operating
profit increased by 63%.
According to the Nevada State Gaming Control Board, gaming revenues on
the Las Vegas Strip in the first three months of 1999 increased by 21%
over same period in the prior year. Our wholly owned Strip resorts
accounted for 58% of the increase. Our overall gaming revenues
increased by 64% in the recent quarter and our total non-gaming revenues
grew by 82%. On a Company-wide basis, total table games revenues
increased by $72.5 million, or 73%, and total slot win grew by $42.4
million, or 50%.
The growth in revenues and operating profit was attributable primarily
to our spectacular new Bellagio resort, which opened on October 15, 1998
and generated $282.0 million of total revenues in the first quarter. We
believe this to be the highest quarterly revenues of any casino in
Nevada history. Bellagio's total non-gaming revenues were particularly
strong at $145.1 million, representing over half of its total revenues.
Beau Rivage, our luxurious new resort located on the Mississippi Gulf
Coast, opened successfully on March 16, 1999 and contributed to the
increase in revenues during its initial 16 days of operation during the
quarter.
Results were also strong at our other resorts. Same-store operating
profit, excluding our new resorts, increased by 2% in the face of the
new competition and despite an ongoing room refurbishment project at
Treasure Island. The room refurbishment project, which is being
completed in phases and scheduled for final completion in early October,
primarily accounts for a 3% decline in our same-store total available
room nights (excluding Bellagio and Beau Rivage) during the 1999 first
quarter. Same-store occupancy of available standard guestrooms
increased slightly, from 98.1% to 98.4%, and the average daily room rate
increased by 4%. Including the new resorts, standard guestroom
occupancy was 98.1% and the average daily rate increased from $89 to
$110. Bellagio's higher room rates account for most of the increase in
the average daily rate.
Including the new resorts, our Company-wide table games win percentage
was 20.2%, versus 19.8% in the 1998 first quarter. Both win percentages
are relatively normal. Over the past three calendar years, our Company-
wide table games win percentage averaged 20.0%.
The increase in our operating costs and expenses during the 1999 first
quarter is attributable principally to the opening of Bellagio and Beau
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<PAGE>
Rivage. The combined operating margin improved slightly for our resorts
that were open during the first quarter of both years.
Our jointly owned Monte Carlo resort likewise had an excellent 1999
first quarter. Its total revenues grew by 7% and its operating profit
increased by 16%. Room revenues grew by $3.0 million, or 15%, chiefly
accounting for the increase in its operating results. The average daily
room rate at Monte Carlo was up 15% over the prior-year quarter with a
slight increase in occupancy. We attribute these increases largely to
the opening of adjacent Bellagio and connection of the two resorts by a
monorail. After deducting net interest expense, our 50% share of Monte
Carlo's net income during the 1999 first quarter was $8.9 million,
versus $7.4 million in the prior-year period.
We recorded substantial charges relating to preopening and related
promotional costs during the 1999 first quarter. A recently issued
accounting statement requires that, although the interest costs related
to new projects shall continue to be capitalized, the other costs
associated with preopening activities (including the costs of hiring and
training employees, operating sales and reservations offices and various
other costs incurred prior to opening) must be expensed as incurred. We
previously capitalized these costs and amortized them 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 $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 in the 1999 first quarter of $30.6 million. We
also incurred and expensed $31.5 million of additional preopening and
related promotional costs during the quarter, largely associated with
hiring and training Beau Rivage's workforce. The following table
presents the impact of these charges on our 1999 first quarter net
income. All adjustment amounts are shown net of applicable income tax
benefit.
<TABLE>
<CAPTION>
Per share
--------------
Three months ended March 31, 1999 Basic Diluted
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(In thousands, except per share amounts)
<S> <C> <C> <C>
Net income, as reported $ 1,493 $0.01 $0.01
Cumulative effect (to January 1, 1999) of
accounting change 30,577 0.17 0.16
Preopening and related promotional costs
incurred and expensed 20,620 0.11 0.11
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Income before charges for preopening and
related promotional costs $ 52,690 $0.29 $0.28
========================================================================
</TABLE>
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<PAGE>
Principally due to additional payroll and other costs associated with
the substantial growth in the size of our Company, corporate expense
increased by $2.8 million, or 33%, over the 1998 first quarter.
Reflecting our investment in Bellagio and Beau Rivage, our debt levels
and associated interest cost have risen substantially. With these new
resorts now open, a much smaller portion of our interest cost is being
capitalized, resulting in a significantly higher charge for interest
expense.
The $3.5 million ($0.02 per share basic and diluted) extraordinary loss
recorded in the 1998 first quarter is associated with the early
redemption 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 extraordinary charge in the 1999 first quarter.
CAPITAL RESOURCES, CAPITAL SPENDING AND LIQUIDITY
During the 1999 first quarter, we used our operating cash flow together
with borrowings under our bank credit facility and commercial paper
program principally for the completion of Beau Rivage.
Net cash provided by operating activities during the quarter totaled
$102.6 million, versus $71.7 million in the prior-year period. This
increase principally reflects the opening of Bellagio and cash
distributions from Monte Carlo of $11.5 million. During the 1998 second
quarter, the Monte Carlo joint venture achieved a favorable pricing tier
under its bank credit facility and began distributing available cash to
the partners. Prior to this, the joint venture had been using Monte
Carlo's cash flow to reduce its outstanding debt.
Capital expenditures in the 1999 first quarter totaled $158.9 million,
principally relating to the construction of Beau Rivage. In addition to
amounts associated with Beau Rivage, capital expenditures during the
1998 first quarter, which totaled $232.3 million, include amounts
expended for construction of Bellagio. As part of the successful
opening of these two new resorts and our development activities in
Atlantic City, we incurred preopening and related promotional costs of
$31.5 million and $12.5 million in the first quarter of 1999 and 1998,
respectively. Including land, capitalized interest and preopening
costs, Beau Rivage was completed at a total cost of approximately $685
million.
Capital expenditures in the first quarter of 1999 also include $12.6
million associated with the guestroom refurbishment project at Treasure
Island. Completion of the project is scheduled for early October at an
estimated total cost of approximately $60 million. At March 31, 1999,
we had incurred $14.1 million of this amount. Proceeds from sales of
property and equipment in the 1998 first quarter principally reflect
$25.6 million we received from the sale to our Chairman of four works of
fine art acquired for Bellagio. The sale price was equal to the amount
we paid for the artwork in the fourth quarter of 1997.
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<PAGE>
We are progressing with the design and planning phase for our resort
development in the Marina area of Atlantic City. Remediation work is
ongoing on our 120-developable-acre site and construction is continuing
on the previously funded joint road improvement project with the State.
Our current plans call for the development of a wholly owned hotel-
casino resort and, as described further below, construction of a second
resort on a 25-acre portion of the site in partnership with Boyd Gaming
Corporation.
We are still in the design phase of our planned wholly owned hotel-
casino on the Marina site and a budget and construction schedule for the
project 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
approximately 1,500 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. Boyd will contribute $150
million in cash. The joint venture will attempt to obtain acceptable
financing for the remaining development 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 late this year or 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. 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.
Borrowings under our bank credit facility and commercial paper program,
net of repayments, totaled $114.7 million during the 1999 first quarter.
At April 30, 1999, these outstanding borrowings totaled approximately
$1.59 billion, leaving $163.7 million combined availability under our
$1.75 billion revolving bank credit facility and commercial paper
program.
During the 1998 first quarter, our net bank credit facility and
commercial paper borrowings totaled $47.6 million. We also received net
proceeds of $394.7 million in February 1998 from the issuance of $400
million total principal amount of unsecured debt. The 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.
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<PAGE>
On May 11, 1999, we completed an underwritten public offering of
16,633,663 shares of our common stock at $25.00 per share. We intend to
use the net proceeds from the offering of approximately $415.7 million
temporarily to reduce our outstanding bank credit facility and
commercial paper borrowings.
We believe that 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.
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.
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<PAGE>
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
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 April 30, 1999, about half 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 all internally developed systems
Year 2000 compliant by August 1999 and all vendor-supplied systems
compliant by year-end 1999. We have not developed a comprehensive
contingency plan. As previously mentioned, however, a number of our
-13-
<PAGE>
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
continue to implement our corrective action plan.
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. Two of these new systems are Year 2000 compliant
and the third is expected to be compliant after an upgrade to be
supplied by the vendor at no charge. Each of these new systems 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 April 30, 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. Our actual results may
differ materially from those described in any forward-looking
statement. 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.
-14-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
15 Letter from independent public accountants acknowledging
awareness of the use of their report dated May 14, 1999 in
the Company's registration statements.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
The Company filed no Current Reports on Form 8-K during the
three-month period ended March 31, 1999.
-15-
<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
May 17, 1999 by: DANIEL R. LEE
- ------------ ----------------------------------
Date Daniel R. Lee
Senior Vice President - Finance
and Development, Chief Financial
Officer and Treasurer (Principal
Financial Officer)
-16-
EXHIBIT 15
May 14, 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 March 31, 1999
which includes our report dated May 14, 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 MARCH 31, 1999
AND THE RELATED CONDENSED CONSOLIDATED STATEMENT OF INCOME AND CASH
FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 118,323
<SECURITIES> 0
<RECEIVABLES> 182,246
<ALLOWANCES> 47,153
<INVENTORY> 88,474
<CURRENT-ASSETS> 441,882
<PP&E> 4,709,833
<DEPRECIATION> 767,606
<TOTAL-ASSETS> 4,653,008
<CURRENT-LIABILITIES> 330,694
<BONDS> 2,493,110
0
0
<COMMON> 940
<OTHER-SE> 1,618,526
<TOTAL-LIABILITY-AND-EQUITY> 4,653,008
<SALES> 0
<TOTAL-REVENUES> 580,713
<CGS> 0
<TOTAL-COSTS> 348,130
<OTHER-EXPENSES> 43,832
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<INTEREST-EXPENSE> 26,580
<INCOME-PRETAX> 49,639
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