<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
MIRAGE RESORTS, INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
MIRAGE RESORTS, INCORPORATED
Notice of
Annual Meeting of Stockholders
Proxy Statement
1999 Annual Financial Statements
and
Review of Operations
<PAGE>
MIRAGE RESORTS, INCORPORATED
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on March 23, 2000
----------------
To Our Stockholders:
The Annual Meeting of Stockholders of Mirage Resorts, Incorporated will be
held at Bellagio, 3600 Las Vegas Boulevard South, Las Vegas, Nevada on
Thursday, March 23, 2000, at 1:00 P.M. At the Annual Meeting, we will discuss
and vote on the following items of business:
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1. The election of three directors for a term of three years;
2. The ratification of the appointment of Arthur Andersen LLP as the
Company's independent accountants for 2000; and
3. Such other matters as may properly come before the Annual Meeting.
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The Board of Directors has fixed February 16, 2000 as the record date for
the determination of stockholders entitled to notice of and to vote at the
Annual Meeting or any adjournment.
Whether or not you expect to attend the Annual Meeting in person, please
date and sign the accompanying Proxy card and return it promptly in the
envelope enclosed for that purpose. Alternatively, you may vote via toll-free
telephone call or the Internet by following the instructions on the back of
the Proxy card.
We look forward to seeing you at the Annual Meeting. On behalf of the
management and directors of Mirage Resorts, I want to thank you for your
continued support and confidence in 2000.
KENNETH R. WYNN
Secretary
Las Vegas, Nevada
February 16, 2000
<PAGE>
MIRAGE RESORTS, INCORPORATED
3600 Las Vegas Boulevard South
Las Vegas, Nevada 89109
February 16, 2000
----------------
PROXY STATEMENT
The Board of Directors of Mirage Resorts, Incorporated is soliciting the
accompanying Proxy for use only at the Company's Annual Meeting of
Stockholders to be held on March 23, 2000, and at any adjournment of the
Annual Meeting. Unless you have previously revoked the Proxy or indicated
otherwise on the Proxy, the shares represented by the Proxy will be voted at
the Annual Meeting for the nominees for election as directors named below, for
ratification of the appointment of Arthur Andersen LLP as the Company's
independent accountants for 2000 and, with discretion, on all other matters
that may properly come before the Annual Meeting. You may revoke the Proxy at
any time prior to the voting of shares by voting in person at the Annual
Meeting or by delivering to the Secretary of the Company a signed Proxy with a
later date or a written notice revoking the Proxy. The Company will pay all
costs of soliciting Proxies.
In addition to soliciting Proxies by mail, the Company's officers, directors
and other regular employees, without additional compensation, may solicit
Proxies personally or by other appropriate means. Banks, brokerage firms,
fiduciaries and other custodians and nominees will forward Proxy soliciting
material to their principals and the Company will reimburse their out-of-
pocket expenses.
We expect that this Proxy Statement and Proxy will be mailed to stockholders
beginning on or about March 1, 2000.
VOTING OF SHARES
Holders of the Company's Common Stock of record at the close of business on
February 16, 2000 will be entitled to one vote for each share held on all
matters presented to the Annual Meeting. On December 31, 1999, we had
189,994,297 shares of Common Stock outstanding. A majority of the outstanding
shares of Common Stock represented either in person or by proxy will
constitute a quorum for the transaction of business at the Annual Meeting.
Abstentions and broker non-votes will be counted as shares present for
purposes of determining the presence of a quorum. "Broker non-votes" are
shares held of record by brokerage firms which are prohibited from exercising
discretionary authority for their customers who have not furnished voting
instructions. There will be no cumulative voting for members of the Board of
Directors. The three nominees who receive the greatest number of votes cast
will be elected to the Board of Directors. Ratification of the appointment of
the independent accountants requires the affirmative vote of the holders of a
majority of the shares represented at the Annual Meeting and actually voting
on the matter (without giving effect to abstentions or broker non-votes).
Under the rules of the New York Stock Exchange, the election of directors and
ratification of the appointment of the independent accountants are considered
to be "routine" items upon which brokerage firms may vote in their discretion
for their customers if the customers have not furnished voting instructions
within a specified time prior to the Annual Meeting.
<PAGE>
STOCK OWNERSHIP OF MAJOR STOCKHOLDERS AND MANAGEMENT
The following table provides information as of December 31, 1999 regarding
the "beneficial" ownership, as that term is defined in the rules of the
Securities and Exchange Commission ("SEC"), of our Common Stock by (i) each
person who, to our knowledge, beneficially owned more than 5% of the
outstanding Common Stock, (ii) each director, (iii) the Chief Executive
Officer and the four other highest compensated executive officers during 1999
(we refer to these individuals in this Proxy Statement as the "Named
Officers") and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Approximate
Percentage of
Number of Outstanding
Name Shares Common Stock
---- ---------- -------------
<S> <C> <C>
Stephen A. Wynn
P.O. Box 7700
Las Vegas, NV 89177 23,877,987(1) 11.8%
The TCW Group, Inc.
865 South Figueroa Street
Los Angeles, CA 90017 14,971,586(2) 7.9%
FMR Corp.
82 Devonshire Street
Boston, MA 02109 12,253,670(3) 6.4%
Capital Growth Management
Limited Partnership
One International Place
Boston, MA 02110 11,503,500(4) 6.1%
Baron Capital Group, Inc.
767 Fifth Avenue
New York, NY 10153 9,908,850(5) 5.2%
Melvin B. Wolzinger 3,168,901(6) 1.7%
Daniel B. Wayson 533,873(7) *
Elaine P. Wynn 260,123(8) *
George J. Mason 193,623(9) *
Richard D. Bronson 1,100,000(10) *
Ronald M. Popeil 82,464(11) *
Robert H. Baldwin 1,286,645(12) *
Barry A. Shier 1,506,290(13) *
Bruce A. Levin 67,500(14) *
Kenneth R. Wynn 1,176,956(15) *
All directors and executive officers
as a group (15 persons) 33,733,833(16) 16.2%
</TABLE>
- ---------------------
* Less than 1%.
(1) Includes 13,215,823 shares subject to options which are currently
exercisable or become exercisable by February 29, 2000. Does not include
shares beneficially owned by Elaine P. Wynn, Mr. Wynn's wife, as separate
property, as to which shares Mr. Wynn disclaims beneficial ownership.
(2) Based on a Schedule 13G, dated February 11, 2000, filed with the SEC. The
Schedule 13G states that certain subsidiaries and affiliates of The TCW
Group, Inc. have shared dispositive and voting power as to all of these
shares.
(3) Based on a Schedule 13G, dated February 14, 2000, filed with the SEC. The
Schedule 13G states that FMR Corp. and certain related persons have sole
dispositive power as to all of these shares and sole voting power as to
337,270 of these shares.
2
<PAGE>
(4) Based on a Schedule 13G, dated February 10, 2000, filed with the SEC.
The Schedule 13G states that Capital Growth Management Limited
Partnership has shared dispositive and sole voting power as to all of
these shares.
(5) Based on a Schedule 13G, dated January 26, 2000, filed with the SEC. The
Schedule 13G states that Baron Capital Group, Inc. and its controlling
stockholder and subsidiaries have sole dispositive and voting power as to
229,000 of these shares and shared dispositive and voting power as to
9,679,850 of these shares.
(6) Includes 2,599,084 shares held by a family trust of which Mr. Wolzinger
and his wife serve as trustees and 476,664 shares held by limited
partnerships of which the trust is the general partner and a limited
partner. Mr. Wolzinger disclaims beneficial ownership of the shares held
by the limited partnerships except to the extent of his pecuniary
interest in the shares. Also includes 38,030 shares held by a trust of
which Mr. Wolzinger serves as a trustee but does not have any pecuniary
interest, as to which shares Mr. Wolzinger disclaims beneficial
ownership. Also includes 55,123 shares subject to options which are
currently exercisable or become exercisable by February 29, 2000.
(7) Includes 55,123 shares subject to options which are currently exercisable
or become exercisable by February 29, 2000.
(8) Includes 55,123 shares subject to options which are currently exercisable
or become exercisable by February 29, 2000. Does not include shares
reported as beneficially owned by Stephen A. Wynn, Mrs. Wynn's husband.
(9) Includes 71,000 shares held by a family trust of which Mr. Mason and his
wife serve as trustees and 55,123 shares subject to options which are
currently exercisable or become exercisable by February 29, 2000.
(10) Represents shares subject to options which are currently exercisable or
become exercisable by February 29, 2000.
(11) Includes 550 shares held by Mr. Popeil's wife as separate property and
4,791 shares held by Mr. Popeil as custodian for his minor daughter and
grandchildren who do not share his household. Mr. Popeil disclaims
beneficial ownership of the shares held by his wife and as custodian.
Also includes 25,123 shares subject to options which are currently
exercisable or become exercisable by February 29, 2000.
(12) Includes 11,600 shares held by Mr. Baldwin as custodian for his minor son
and 24,970 shares held by a revocable trust of which Mr. Baldwin serves
as trustee. Also includes 1,250,000 shares subject to options which are
currently exercisable or become exercisable by February 29, 2000.
(13) Includes 1,500,000 shares subject to options which are currently
exercisable or become exercisable by February 29, 2000 and 240 shares
held by Mr. Shier as custodian for his minor children.
(14) Includes 37,500 shares subject to options which are currently exercisable
or become exercisable by February 29, 2000.
(15) Includes 10,500 shares held by trusts of which Mr. Wynn serves as trustee
and 366,456 shares subject to options which are currently exercisable or
become exercisable by February 29, 2000. Mr. Wynn disclaims beneficial
ownership of the shares held by the trusts.
(16) Includes 18,183,595 shares subject to options which are currently
exercisable or become exercisable by February 29, 2000.
3
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Our Articles of Incorporation and Bylaws provide for from three to 11
directors, the precise number to be determined from time to time by the Board
of Directors. Currently, the size of the Board is fixed at seven members. All
of the existing directors have been previously elected by the stockholders.
The three directors to be elected at the Annual Meeting are to be elected to
hold office for three years and until the election of their successors. All
Proxies received by the Board of Directors will be voted for the election of
the nominees listed below unless you direct otherwise. If any nominee is
unable or declines to serve, which we do not anticipate, the Proxies will be
voted for the election of any other nominee whom the Board of Directors may
designate.
The following is information about our nominees to the Board, directors
whose terms of office will continue after the Annual Meeting and executive
officers who are not directors.
Information Concerning Nominees for Election as Directors(1)
<TABLE>
<CAPTION>
Name Year First Elected
- ---- ------------------
<S> <C>
Melvin B. Wolzinger, 79 1973
Director and Member of Audit, Stock Option and Bonus
Committees
Mr. Wolzinger is, and has been for many years, a general
partner in W.W. Investment Co., a real estate holding
company in Las Vegas, Nevada. He has been a principal owner
of various restaurants and casino gaming establishments in
Las Vegas for many years and a stockholder of the Company
for approximately 40 years.
Daniel B. Wayson, 47 1988;
Director Appointed
Mr. Wayson is, and has been for many years, a principal of March 19,
Wayson Properties, Inc., a real estate development and 1987
holding company, and other real estate and business
ventures. He served as President and Chief Executive
Officer of our former New Jersey gaming subsidiary from
December 1984 through February 1987.
George J. Mason, 69 1973
Director and Member of Audit, Stock Option and Bonus
Committees
Mr. Mason is a Senior Managing Director of Bear, Stearns &
Co. Inc., Los Angeles, California, an investment banking
and brokerage firm, and has been employed by that firm
since 1973.
</TABLE>
Information Concerning Directors Whose Terms of Office Will Continue After the
Annual Meeting(1)
<TABLE>
<CAPTION>
Expiration of
Term as
Name Year First Elected Director
- ---- ------------------ -------------
<S> <C> <C>
Stephen A. Wynn, 58(2) 1973 2001
Chairman of the Board of Directors, President
and Chief Executive Officer
Mr. Wynn has held his present positions since
1973. Mr. Wynn is a Trustee of the University
of Pennsylvania.
Ronald M. Popeil, 64 1980; 2001
Director and Member of Audit, Stock Option
and Bonus Committees Appointed
Mr. Popeil has been the President of RONCO, September 19,
Inc., the principal business of 1979
which is inventing, marketing and producing
consumer products, since he co-founded that
company in May 1984. He is recognized as a
pioneer in the field of direct response
television marketing.
Elaine P. Wynn, 57(2) 1977 2002
Director
Mrs. Wynn has been active in civic and
philanthropic affairs in Las Vegas for many
years and has received numerous honors for
her charitable and community work. She is Co-
Chairperson of the Greater Las Vegas Inner-
City Games and a member of the National Board
of the Inner-City Games Foundation. Mrs. Wynn
is also Secretary, Treasurer and a Trustee of
Golden Nugget Scholarship Fund, Inc.
</TABLE>
4
<PAGE>
Information Concerning Directors Whose Terms of Office Will Continue After the
Annual Meeting(1) (Continued)
<TABLE>
<CAPTION>
Expiration of
Term as
Name Year First Elected Director
- ---- ------------------ -------------
<S> <C> <C>
Richard D. Bronson, 55 1993; 2002
Director Appointed
Mr. Bronson has been President of New City August 3,
Development, a division of the Company which 1992
is responsible for most of our corporate
development activities outside of Nevada, or
its predecessor, New City Development, Inc.,
since February 1992.
</TABLE>
Information Concerning Executive Officers Other than Directors(3)
<TABLE>
<CAPTION>
Year Hired
Name by Company
- ---- ----------
<S> <C>
Robert H. Baldwin, 49, Chief Financial Officer and Treasurer 1982
Mr. Baldwin was appointed to his present corporate positions on an
interim basis in September 1999. He has also been President and
Chief Executive Officer of our Bellagio subsidiary since June
1996. Prior to that, he was President and Chief Executive Officer
of our Mirage subsidiary from August 1987 to April 1997.
Barry A. Shier, 44, Executive Vice President-- Marketing and Hotel 1984
Operations
Mr. Shier joined the Company as Executive Vice President -- Hotel
Operations in September 1984 and was appointed to his present
corporate position in August 1987. He is also the Chairman and
Chief Executive Officer of our subsidiaries which own and operate
the Golden Nugget hotel-casino in Las Vegas and the Beau Rivage
hotel-casino in Biloxi, Mississippi.
Bruce A. Levin, 60, Vice President, General Counsel and Assistant 1979
Secretary
Mr. Levin has been Vice President and General Counsel since
joining the Company in August 1979 and has also served as
Secretary or Assistant Secretary since that date.
Kenneth R. Wynn, 47, Vice President -- Design and Construction and 1973
Secretary(2)
Mr. Wynn has held his present corporate positions since joining
the Company in August 1973, except for the periods August 1993
through July 1994 and March 1997 through June 1999. He has also
been President of our construction supervision, architecture,
design and purchasing subsidiary since 1979.
Frank P. Visconti, 46, President -- Retail Division 1992
Mr. Visconti joined the Company as Senior Vice President -- Retail
Operations in September 1992 and was appointed to his present
position in September 1997.
Thomas L. Sheer, 62, Senior Vice President -- Government and 1996
External Affairs
Mr. Sheer was appointed to his present position in January 1996.
From November 1990 to December 1995, he was Assistant to the
President of W. R. Grace & Co., a diversified chemicals company,
and he also served as Director of Business Intelligence of that
company from July 1993 to December 1995. Prior to that, Mr. Sheer
was employed by the Federal Bureau of Investigation for 25 years,
rising to the position of an Assistant Director.
James E. Pettis, 48, Vice President -- Risk Management 1980
Mr. Pettis was appointed to his present position in November 1984.
He has been employed by the Company since May 1980 with
responsibility for various corporate risk management, safety and
employee benefit matters.
</TABLE>
5
<PAGE>
Information Concerning Executive Officers Other than Directors(3) (Continued)
<TABLE>
<CAPTION>
Year Hired
Name by Company
- ---- ----------
<S> <C>
Heidemarie E. Geier, 40, Vice President -- Advertising 1997
Ms. Geier joined the Company in January 1997 and was appointed to
her present position in September 1999. From February 1993
through December 1996, she was Senior Vice President, Sales and
New Business Development of Universal Studios Hollywood, a
subsidiary of MCA/Universal, a major entertainment company.
</TABLE>
- ---------------------
(1) Only directorships of companies with securities registered under Section
12 of the Securities Exchange Act of 1934, or subject to Section 15(d) of
that Act, or of investment companies registered under the Investment
Company Act of 1940, are listed in the table.
(2) Stephen A. Wynn and Elaine P. Wynn are husband and wife and Kenneth R.
Wynn is Stephen A. Wynn's brother.
(3) Officers serve at the pleasure of the Board of Directors.
EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------------- ---------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary($) Bonus($) Compensation($)(1) Options/SARs(#) Compensation($)(2)
------------------ ---- ---------- ---------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Wynn 1999 $2,500,000 $1,250,000 $ 0 0 $ 4,370
Chairman of the Board, 1998 2,596,154 1,250,000 0 1,832,278(5) 4,160
President and Chief 1997 2,500,000 1,250,000 0 0 4,160
Executive Officer
Robert H. Baldwin(3) 1999 $1,000,000 $1,350,000 $ 0 1,000,000 $ 4,370
Chief Financial Officer 1998 -- -- -- -- --
and Treasurer 1997 -- -- -- -- --
Barry A. Shier 1999 $1,000,000 $ 500,000 $ 0 0 $15,076
Executive Vice 1998 1,038,462 500,000 0 1,832,278(5) 14,780
President -- 1997 1,000,000 500,000 0 0 5,744
Marketing and Hotel
Operations
Bruce A. Levin 1999 $ 731,769 $ 350,000 $ 0 0 $ 4,198
Vice President, General 1998 723,346 350,000 0 108,935(5) 4,160
Counsel and Assistant 1997 656,000 200,000 0 0 4,160
Secretary
Kenneth R. Wynn(4) 1999 $ 409,600 $ 200,000 $ 0 0 $ 3,860
Vice President -- 1998 -- -- -- -- --
Design and 1997 409,600 175,000 0 0 3,808
Construction and
Secretary
</TABLE>
- ---------------------
(1) The Company provides various perquisites and other personal benefits to
some or all of the Named Officers, including (i) reimbursement for medical
expenses, including related travel expenses, (ii) personal use of Company
vehicles and aircraft, (iii) complimentary rooms, food, beverages and
entertainment (including privileges at the Company's health spas and golf
course) and (iv) use of Company employees to furnish personal services.
Our unreimbursed incremental cost of providing perquisites and other
personal benefits did not exceed $50,000 as to any Named Officer for any
year and is therefore omitted from the table.
(2) Represents (i) Company-paid premiums for term life insurance on each of
the Named Officers, as follows: Stephen A. Wynn -- 1999: $1,170, 1998:
$960, 1997: $960; Robert H. Baldwin -- 1999: $1,170; Barry A. Shier --
1999: $1,170, 1998: $960, 1997: $960; Bruce A. Levin -- 1999: $998, 1998:
$960, 1997: $960; and Kenneth R. Wynn -- 1999: $660, 1997: $608, (ii)
matching contributions made by the Company for
6
<PAGE>
the Named Officers under our retirement savings (Section 401(k)) plan, which
amount to $3,200 for each of the Named Officers for each year and (iii)
above-market earnings (as defined in the rules of the SEC) on compensation
deferred under our Non-Qualified Deferred Compensation Plan, as follows: Mr.
Shier -- 1999: $10,706, 1998: $10,620, 1997: $1,584.
(3) Mr. Baldwin became an executive officer of the Company in September 1999.
(4) Mr. Wynn was not an executive officer of the Company in 1998.
(5) Represents stock options repriced during 1998.
Option Grants in 1999
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Number of % of Total
Securities Options Grant-Date
Underlying Granted to Present
Options Employees Exercise Expiration Value
Name Granted(#)(1) in 1999 Price($/Sh)(2) Date(3) ($)(4)
---- ------------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Stephen A. Wynn 0 -- % $ -- -- $ --
Robert H.
Baldwin 1,000,000 22.8 13.1875 11/18/09 5,679,068
Barry A. Shier 0 -- -- -- --
Bruce A. Levin 0 -- -- -- --
Kenneth R. Wynn 0 -- -- -- --
</TABLE>
- --------------------
(1) The options granted to Mr. Baldwin become exercisable as to 200,000 shares
annually beginning November 18, 2000. Exercisability of the options may be
accelerated upon the occurrence of specified fundamental corporate changes
or at the discretion of the Stock Option Committee.
(2) Under the terms of our Stock Option and Stock Appreciation Rights Plans,
the Stock Option Committee retains discretion, subject to plan
limitations, to modify the terms of outstanding options and to reprice
options. The exercise price of the options may be paid in cash, by
delivery of shares of Common Stock or by offset of the underlying shares,
subject to specified conditions.
(3) The options are subject to early termination in the event of termination
of employment.
(4) Determined using a variation of the Black-Scholes option pricing model.
The assumed expected volatility of the Common Stock, risk-free rate of
return and Common Stock dividend yield are 37.67%, 6.11% and 0,
respectively. The assumed time of exercise is five years after the date of
grant.
Aggregated Option Exercises in 1999 and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at Fiscal in-the-Money Options
Acquired on Value Year-End(#) at Fiscal Year-End($)
Name Exercise(#) Realized($)(1) Exercisable/Unexercisable Exercisable/Unexercisable(2)
- ---- ----------- -------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Stephen A. Wynn 0 $ -- 13,215,823/366,455 $110,418,117/$274,841
Robert H. Baldwin 0 -- 0/4,082,278 0/16,592,959
Barry A. Shier 0 -- 750,000/2,582,278 6,881,250/9,342,959
Bruce A. Levin 110,000 2,285,250 37,500/108,935 390,000/81,701
Kenneth R. Wynn 0 -- 366,456/91,614 274,842/68,711
</TABLE>
- --------------------
(1) Represents the difference between the closing sale price of our Common
Stock on the New York Stock Exchange Composite Tape on each exercise date
and the exercise price of the options.
(2) Represents the difference between the closing sale price of our Common
Stock on the New York Stock Exchange Composite Tape on December 31, 1999
and the exercise price of the options.
7
<PAGE>
Employment Agreements
On December 16, 1992, we entered into a 10-year Employment Agreement with
Stephen A. Wynn under which he serves as President and Chief Executive Officer
at an annual salary of $2,500,000. Mr. Wynn is entitled to such bonuses, stock
options and other compensation as may be determined from time to time by the
Board of Directors. Under the Employment Agreement, we also provide Mr. Wynn
with the personal use of an automobile for which we pay all insurance,
gasoline and maintenance expenses, and provide Mr. Wynn and his dependents
with reimbursement for medical expenses and coverage under our life insurance
program.
On May 20, 1999, we entered into a three-year Employment Agreement with Mr.
Shier under which he serves as Executive Vice President--Marketing and Hotel
Operations of the Company and as Chairman and Chief Executive Officer of our
Golden Nugget subsidiary at an annual salary of $1,000,000. Mr. Shier is
entitled to such merit bonuses and salary increases as may be determined from
time to time by the Board of Directors. He is also entitled to reimbursement
for medical expenses and coverage under our life insurance program for himself
and his dependents, as well as the right to participate in such other plans
and benefits as we make available from time to time to our other senior
executives. In accordance with the Employment Agreement, the vesting date of
Mr. Shier's 1,832,278 stock options granted on August 16, 1995 was accelerated
by one year, to May 16, 2004.
Compensation of Directors
Directors who are not employees of the Company or our subsidiaries (Messrs.
Popeil, Mason, Wolzinger and Wayson and Mrs. Wynn) received a monthly retainer
during 1999 of $4,000 for services as a director and continue to receive this
retainer in 2000. Messrs. Popeil, Mason and Wolzinger received an additional
monthly fee of $1,000 for services as members of the Audit and Stock Option
Committees during 1999 and continue to receive this fee in 2000. Directors
also receive reimbursement for medical expenses and coverage under our life
insurance program. Directors who are employed by the Company or our
subsidiaries do not receive compensation for their services as directors.
Pursuant to our 1992 Non-Employee Director Stock Option Plan (which we refer
to in this Proxy Statement as the "Director Plan"), each director who is not
an employee of the Company or our subsidiaries was granted 10,000 stock
options in January 1999 with an exercise price of $14.00 per share. Options
granted under the Director Plan have an exercise price equal to the market
value of our Common Stock on each date of grant and become exercisable three
years after the date of grant. A total of up to 500,000 options may be granted
under the Director Plan, of which 200,000 remain available to be granted. In
January 1999, each non-employee director was also granted 5,000 options under
our 1993 Stock Option Plan with an exercise price of $14.00 per share, the
market value of our Common Stock on the date of grant, which become
exercisable three years from the date of grant. In January 2000 each non-
employee director was, and in January of each succeeding year each non-
employee director will be, granted 15,000 options (10,000 under the Director
Plan and 5,000 under one of our other Stock Option Plans). The options will
have an exercise price equal to the market value of our Common Stock on the
date of grant and become exercisable three years after the date of grant.
Non-employee directors of the Company are eligible to participate in our
Directors' Deferred Fee Plan, a non-qualified unfunded deferred compensation
plan. In 1999, Mrs. Wynn and Mr. Wolzinger each deferred 20% of their Board of
Directors' and committee fees under the Directors' Deferred Fee Plan and will
be credited with earnings on those deferred fees at the rate of 7% per year,
compounded monthly, until those amounts are distributed to them from the
Directors' Deferred Fee Plan in accordance with their binding elections.
8
<PAGE>
COMPARATIVE STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return from
December 31, 1994 to December 31, 1999, assuming reinvestment of dividends, of
our Common Stock, the Standard & Poor's 500 Stock Index ("S&P 500 Index") and
the Media General Industry Group 711 -- Resorts and Casinos ("MG Index"). The
graph assumes an investment of $100 on December 31, 1994 in each of our Common
Stock and the stocks that make up the S&P 500 Index and the MG Index.
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period MIRAGE RESORTS, S&P
(Fiscal Year Covered) INCORPORATED MG INDEX 500 INDEX
- --------------------- --------------- -------- ---------
<S> <C> <C> <C>
Measurement Pt-12/30/1994 $100.00 $100.00 $100.00
FYE 12/29/1995 $168.29 $116.65 $137.58
FYE 12/31/1996 $210.98 $113.15 $169.17
FYE 12/31/1997 $221.95 $130.66 $225.61
FYE 12/31/1998 $145.73 $ 98.50 $290.09
FYE 12/31/1999 $147.56 $134.01 $351.13
</TABLE>
(1) The data points in this graph were calculated by Media General
Financial Services, Inc., Richmond, Virginia.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions concerning executive officer compensation for 1999 were made by
the full Board of Directors and by the Stock Option Committee and the Bonus
Committee. Directors Stephen A. Wynn, Richard D. Bronson and Daniel B. Wayson
are officers or former officers of the Company or our subsidiaries. Director
Elaine P. Wynn is the wife of Stephen A. Wynn.
On January 7, 1999, Stephen A. Wynn sold a work of fine art to our Bellagio
subsidiary for $4,562,812, the amount paid by Mr. Wynn when he purchased the
work from the subsidiary in January 1998. On June 30, 1999, the subsidiary
sold a work of fine art to Mr. Wynn for $10,000,000, the fair market value of
the work as determined by an independent expert in fine art valuation. The
subsidiary's cost for the work when it purchased it from an unaffiliated party
in November 1996 was $7,000,000. On October 3, 1999, Mr. Wynn sold a work of
fine art to the subsidiary for $10,000,000, the amount paid by Mr. Wynn when
he purchased the work from an unaffiliated party in July 1999. On November 2,
1999, Mr. Wynn sold a work of fine art to the subsidiary for $61,425, the
amount paid by Mr. Wynn when he purchased the work from an unaffiliated party
in May 1999.
During 1999 and 2000, the subsidiary rented various works of fine art from
Mr. Wynn for public display at Bellagio or any of our other hotel-casinos. The
rental agreement provides for the payment of monthly rent by the
9
<PAGE>
subsidiary to Mr. Wynn and that either party has the right to terminate the
rental of one or more of the works on 30 days' notice. The subsidiary is
responsible for insuring and maintaining the security of the rented works and
for sales, use and personal property taxes applicable to the rental. The total
rent paid to Mr. Wynn in 1999 (exclusive of sales tax) was $5,231,985. The
total monthly rent in effect at December 31, 1999 was $523,633.
In each case, these transactions were approved or ratified by the Board of
Directors. We expect that additional transactions involving the sale and
rental of fine art between the Company and Mr. Wynn will occur in 2000,
although the amount of these transactions is not currently known. We intend
that each sale transaction will be subject to the receipt of an appropriate
appraisal establishing that the sale is at fair market value.
On August 6, 1999, a trust of which Stephen A. Wynn is beneficiary sold a
Riva speedboat to our Bellagio subsidiary. The speedboat is used at the lake
at Bellagio. The purchase price paid by the subsidiary was $180,000, which was
based on a recent appraisal by a marine surveyor. This transaction was
ratified by the Board of Directors in August 1999.
In August 1998, Mr. Baldwin borrowed $150,000 from our Bellagio subsidiary.
The loan was evidenced by an unsecured demand promissory note which bore
interest at the rate of 5.83% per year. Mr. Baldwin repaid the loan in full in
January 2000. During 1999, the subsidiary also made various non-interest-
bearing salary advances to Mr. Baldwin. The largest amount outstanding at any
time was $70,000. Mr. Baldwin repaid all of the advances in 1999.
REPORT ON EXECUTIVE COMPENSATION
Compensation Policies and Base Salaries
Decisions concerning executive officers' base salaries and the award of
certain cash bonuses for 1999 were made by the full Board of Directors, based
upon the recommendations of the Chief Executive Officer. Decisions concerning
the grant of stock options and the award of cash bonuses under our 1999 Cash
Bonus Plan to executive officers were made by the Stock Option Committee and
the Bonus Committee, respectively, and were similarly based upon the
recommendations of the Chief Executive Officer. We otherwise have no formal
compensation policies applicable to executive officers. The Chief Executive
Officer's recommendations in each case were based on his subjective evaluation
of each officer's (including his own) contribution to the Company and the
level of compensation necessary to adequately motivate and reward the officer.
The composition and amount of each item of executive compensation for 1999
(except for compensation pursuant to the 1999 Cash Bonus Plan discussed below)
did not bear a specific relationship to any particular measure of our
performance.
Stock Options
Our various Stock Option and Stock Appreciation Rights Plans (which we refer
to in this Proxy Statement as the "Stock Option Plans") are an important
component of our compensation program for executive officers and other
employees. The Stock Option Plans are intended to advance our interests and
those of our stockholders by encouraging and enabling executive officers and
other employees, upon whose judgment, initiative and effort we are largely
dependent for the successful conduct of our business, to acquire and retain a
proprietary interest in the Company by ownership of our stock. Through stock
option grants, the long-range interests of management and employees are
aligned with those of stockholders as the stock option recipients accumulate
(through the vesting of stock options) meaningful stakes in the Company. The
Stock Option Plans are administered by the Stock Option Committee, which is
composed of three non-employee members of the Board of Directors. Decisions
concerning the grant of stock options, including the individuals to whom
options were granted and the respective exercise prices and vesting periods,
were made by the Stock Option Committee based upon the recommendations of the
Chief Executive Officer, taking into consideration the recommendations of
other members of senior management. These recommendations and decisions were
made on a subjective basis and did not bear a specific relationship to any
particular measure of our performance. In 1999, stock options were granted to
three executive officers, Messrs. Baldwin and Sheer and Ms. Geier.
Cash Bonuses
In addition to base salary and stock options, the other principal part of
our executive compensation program in 1999 consisted of cash bonuses awarded
under our 1999 Cash Bonus Plan, which was approved by
10
<PAGE>
stockholders at our 1999 Annual Meeting. The 1999 Cash Bonus Plan provides for
an annual bonus pool equal to 5% of our consolidated earnings before
depreciation, interest and taxes in excess of $450,000,000. Out of the bonus
pool, each executive officer is eligible to receive a bonus of up to 50% of
his or her annual base salary in effect at the beginning of the year or when
the officer first became eligible to participate in the 1999 Cash Bonus Plan.
The 1999 Cash Bonus Plan is administered by the Bonus Committee, which is
composed of three non-employee members of the Board of Directors. Decisions
concerning the award of bonuses pursuant to the 1999 Cash Bonus Plan (within
the above-described limitations) were made by the Bonus Committee based upon
the recommendations of the Chief Executive Officer. These recommendations and
decisions were made on a subjective basis and, except as noted above, did not
bear a specific relationship to any particular measure of our performance. The
Board of Directors, in its discretion, may award cash bonuses in addition to
those awarded by the Bonus Committee under the 1999 Cash Bonus Plan. The cash
bonuses so awarded by the Board of Directors to Mr. Baldwin for 1999 outside
the 1999 Cash Bonus Plan, which totaled $850,000, were based upon the
recommendation of the Chief Executive Officer, which was made on a subjective
basis and did not bear a specific relationship to any particular measure of
our performance. For 1999, total bonuses were awarded to each executive
officer in amounts ranging from approximately 18% to 135% of current base
salary. See "Executive Compensation -- Summary Compensation Table" for
information concerning bonuses awarded to the Named Officers.
Other Compensation
We also provide some perquisites and other personal benefits to executive
officers, which constitute a small percentage of their total compensation. See
footnote (1) to "Executive Compensation -- Summary Compensation Table."
Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986 eliminates the federal
income tax deductibility of most compensation exceeding $1,000,000 paid to the
chief executive officer or any of the four highest compensated executive
officers (other than the chief executive officer) of publicly held
corporations. Some types of compensation are not affected by the deduction
limitation, including compensation paid under a binding agreement entered into
on or before February 17, 1993 and compensation paid under a qualifying
performance-based plan such as the 1999 Cash Bonus Plan and the Stock Option
Plans. The 1999 Cash Bonus Plan permits us to continue deducting bonuses paid
to the Chief Executive Officer and other executive officers whose annual
compensation exceeds $1,000,000. In making compensation decisions, the Board
of Directors takes into account the effect of Section 162(m), although in
appropriate circumstances it has determined to award compensation to covered
executive officers which is not fully deductible by virtue of Section 162(m).
The bonuses awarded by the Board of Directors to Mr. Baldwin for 1999 outside
the 1999 Cash Bonus Plan were not deductible as a result of this limitation.
Compensation of Chief Executive Officer
In 1999, the Chief Executive Officer received a salary of $2,500,000 under
his 10-year Employment Agreement approved by the Board of Directors in
December 1992. See "Executive Compensation --Employment Agreements." This
amount was determined by the Board of Directors. The determination was made on
a subjective basis and did not bear a specific relationship to any particular
measure of our performance during 1999 or any prior period. In approving the
Employment Agreement in 1992, the Board of Directors considered a large number
of factors, including (1) the record of leadership and service provided by the
Chief Executive Officer since joining the Company in 1973, (2) the
identification of the Company with the Chief Executive Officer by the
financial community and the general public, and the recognition by the Board
of Directors and others in the gaming industry of the importance of his
leadership, creativity and other personal attributes to our
continued success, (3) the total stockholder return obtained by the Company
during the prior five years, which significantly surpassed that of both the
broad market and our principal industry competitors as a group, (4) the
achievements recorded by the Company since the Chief Executive Officer's
annual salary was last increased in
11
<PAGE>
March 1990, including the successful financial performance of The Mirage, our
flagship hotel-casino, since opening in November 1989, the restructuring of a
significant portion of our long-term debt and the successful completion of
stock offerings in 1991 and 1992, resulting in a reduction of our average cost
of capital, the development and construction of Treasure Island at The Mirage,
our hotel-casino which opened on schedule in October 1993, and the purchase of
the former Dunes Hotel, Casino and Country Club site on the Las Vegas Strip,
on which we constructed our most spectacular hotel-casino resort, Bellagio,
which opened in October 1998, (5) the fact that the Chief Executive Officer
was (and remains) our principal stockholder and holds a significant stake in
our future and (6) the fact that the Chief Executive Officer's annual salary
had not been increased in almost three years, and he had not been awarded a
cash bonus in 1991 or 1992. The Board of Directors did not assign any specific
weight to any particular factor.
In 1999, the Chief Executive Officer was awarded a cash bonus of $1,250,000
(50% of his base salary) under the 1999 Cash Bonus Plan. This amount was
determined by the Bonus Committee based upon the recommendation of the Chief
Executive Officer. This recommendation and determination were made on a
subjective basis, taking into account the Chief Executive Officer's
contributions to the Company and the amount necessary to adequately reward the
Chief Executive Officer, and did not bear a specific relationship to any
particular measure of our performance during 1999.
BY THE BOARD OF DIRECTORS
Stephen A. Wynn, Chairman
Melvin B. Wolzinger
George J. Mason
Ronald M. Popeil
Elaine P. Wynn
Daniel B. Wayson
Richard D. Bronson
BY THE STOCK OPTION COMMITTEE
Ronald M. Popeil
Melvin B. Wolzinger
George J. Mason
BY THE BONUS COMMITTEE
Ronald M. Popeil
Melvin B. Wolzinger
George J. Mason
12
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Our independent accountants for 1999 were Arthur Andersen LLP, whom the
Board of Directors has appointed to serve in the same capacity for the current
year. A representative of Arthur Andersen is expected to be present at the
Annual Meeting with the opportunity to make a statement if he or she so
desires and to respond to appropriate questions.
The Board of Directors recommends that stockholders vote FOR ratification of
the appointment of Arthur Andersen as independent accountants for 2000. If the
appointment of Arthur Andersen is not ratified, the Board of Directors will
take this into account when it considers the appointment of independent
accountants for 2001.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
AND ITS COMMITTEES
The committees of the Board of Directors include the Audit Committee, the
Stock Option Committee and the Bonus Committee. The Board of Directors has not
designated a nominating committee or a compensation committee.
The Audit Committee held seven meetings during 1999. The functions of the
Audit Committee are set forth in a written charter and include reviewing and
making recommendations to the Board of Directors with respect to: the
engagement of an independent accounting firm to audit our financial statements
for the current fiscal year, and the terms of the engagement; our policies and
procedures with respect to maintaining books and records and furnishing any
necessary information to the independent auditors; the procedures to encourage
access to the Audit Committee and to facilitate the timely reporting by
authorized representatives of our independent auditors to the Audit Committee
of their recommendations and advice; the implementation by management of the
auditors' recommendations and advice; the implementation by management of the
recommendations made by the independent auditors in their management letters,
the adequacy and implementation of our internal audit controls and the
adequacy and competency of the related personnel; and such other matters
relating to our financial affairs as the Audit Committee may in its discretion
deem desirable.
The Stock Option Committee took action by written consent on 24 occasions
during 1999. The Stock Option Committee administers our various Stock Option
Plans. Subject to the conditions set forth in the Stock Option Plans, the
Stock Option Committee has full and final authority to determine the number of
stock options or stock appreciation rights to be granted, the individuals to
whom and the time or times at which options or stock appreciation rights shall
be granted and be exercisable, their exercise prices and the terms and
provisions of the agreements to be entered into at the time of grant, which
may vary.
The Bonus Committee did not meet during 1999 but took action by written
consent on January 3, 2000. The Bonus Committee administers our 1999 Cash
Bonus Plan. Subject to the conditions set forth in the 1999 Cash Bonus Plan,
the Bonus Committee has full and final authority to award bonuses under the
1999 Cash Bonus Plan, to construe and interpret the 1999 Cash Bonus Plan and
to make all other determinations and take all other action deemed necessary or
appropriate for the proper administration of the 1999 Cash Bonus Plan.
The Board of Directors held 11 meetings and took action by written consent
on three occasions during 1999. Each director attended at least 75% of the
aggregate number of meetings of the Board of Directors and the committees on
which he or she served.
13
<PAGE>
FUTURE PROPOSALS OF STOCKHOLDERS
Any stockholder intending to submit a proposal for inclusion in the Proxy
Statement and form of Proxy for our 2001 Annual Meeting of Stockholders must
submit the proposal to the attention of our General Counsel at our principal
executive office sufficiently far in advance so that it is received by us not
later than November 2, 2000. Our Bylaws provide that if we do not receive
notice of a stockholder proposal or nomination for director by that date, the
proposal or nomination will not be considered at the 2001 Annual Meeting.
DISCRETIONARY AUTHORITY
While the Notice of Annual Meeting of Stockholders calls for the transaction
of such other business as may properly come before the Annual Meeting, the
Board of Directors does not know of any matters to be presented for action by
the stockholders at the Annual Meeting, other than as set forth in this Proxy
Statement. The enclosed Proxy gives discretionary voting authority, however,
in the event that any additional matters should be presented.
YOU ARE URGED IMMEDIATELY TO MARK, DATE AND SIGN THE ENCLOSED PROXY CARD AND
RETURN IT IN THE ENVELOPE PROVIDED, TO WHICH NO POSTAGE NEED BE AFFIXED IF
MAILED IN THE UNITED STATES. ALTERNATIVELY, YOU MAY VOTE VIA TOLL-FREE
TELEPHONE CALL OR THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE BACK OF
THE PROXY CARD.
By the Board of Directors
KENNETH R. WYNN
Secretary
14
<PAGE>
MIRAGE RESORTS, INCORPORATED
ANNUAL FINANCIAL STATEMENTS AND REVIEW OF OPERATIONS
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------------
1999 (a) 1998 (b) 1997 1996 (c) 1995
-------- -------- -------- -------- --------
(In millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Results (d)
Gross revenues............. $2,649.9 $1,649.7 $1,516.4 $1,487.1 $1,453.7
Promotional allowances..... (247.2) (153.1) (127.4) (128.8) (123.0)
Net revenues............... 2,402.7 1,496.6 1,389.0 1,358.3 1,330.7
Preopening and related
promotional expense....... 42.1 88.3 -- -- --
Operating income........... 305.0 152.1 326.0 312.7 284.1
Income before extraordinary
item and cumulative effect
of change in accounting
principle (e)............. 141.0 85.2 209.8 206.0 169.9
Net income................. 110.4 81.7 207.6 206.0 163.2
Income per share before
extraordinary item and
cumulative effect of
change in accounting
principle (e)
Basic.................... $ 0.74 $ 0.47 $ 1.17 $ 1.13 $ 0.93
Diluted.................. $ 0.70 $ 0.45 $ 1.09 $ 1.05 $ 0.88
Net income per share
Basic.................... $ 0.58 $ 0.45 $ 1.16 $ 1.13 $ 0.89
Diluted.................. $ 0.55 $ 0.43 $ 1.08 $ 1.05 $ 0.85
Other Data
Interest expense, net of
amounts capitalized....... $ 117.5 $ 32.7 $ 7.7 $ 6.8 $ 23.2
Net cash provided by
operating activities...... 429.2 279.9 294.0 331.9 327.0
Capital expenditures....... 509.4 1,158.5 1,058.9 407.3 183.0
Year-end Status
Construction in progress... $ 124.3 $ 539.5 $1,261.1 $ 355.9 $ 84.5
Total assets............... 4,804.3 4,530.2 3,347.4 2,143.5 1,791.7
Long-term debt, net of
current maturities........ 2,210.0 2,378.5 1,396.7 468.1 248.5
Stockholders' equity (f)... 2,023.9 1,601.8 1,512.5 1,290.9 1,209.3
Shares outstanding......... 190.0 180.1 179.4 178.3 183.3
</TABLE>
- --------
(a) Beau Rivage opened on March 16, 1999.
(b) Bellagio opened on October 15, 1998.
(c) Monte Carlo opened on June 21, 1996.
(d) The Boardwalk is being accounted for as an incidental operation. Under
this method, its operating results 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.
(e) Before extraordinary losses on early retirements of debt, and in 1999
before the cumulative effect of a change in method of accounting for
preopening costs.
(f) We paid no dividends during the five-year period ended December 31, 1999.
A-1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Our Operating Results
Company-wide
Our two new resorts had a major impact on our operating results during 1999.
Bellagio opened on October 15, 1998 and Beau Rivage opened on March 16, 1999.
Reflecting the contribution from these two new resorts, our total revenues
grew by $1.00 billion, or 61%, over 1998. Casino revenues increased by $421.7
million, or 51%, and non-casino revenues were up by $578.5 million, or 70%.
Table games revenue increased by $223.9 million, or 53%, and slot revenue rose
by $183.4 million, or 50%. Our Company-wide table games win percentage was
19.8%, compared with 19.4% in 1998. Company-wide occupancy of our available
standard guestrooms was 96% in 1999 at an average daily rate of approximately
$105. This compares with 98% and $93 in 1998. The decline in occupancy
reflects the effect of a substantial increase in room inventory on the Las
Vegas Strip during 1999 and the lower occupancy experienced at Beau Rivage.
The increase in the average daily room rate principally reflects Bellagio's
room rates, which are generally higher than those of our other resorts.
Bellagio
Bellagio generated total revenues of $1.10 billion and an operating profit
of $168.6 million during its first full year of operation in 1999. Bellagio's
depreciation expense for 1999 was $91.6 million. Casino revenues totaled
$507.3 million and non-casino revenues were $589.4 million. Table games
revenue for the year was $354.0 million and slot revenue accounted for $131.4
million. Bellagio's table games win percentage in 1999 averaged 22.6%.
Standard guestroom occupancy was 98% at an average daily rate of approximately
$153.
During its first 77 days of operation in 1998, Bellagio achieved total
revenues of $244.1 million and an operating profit of $34.1 million before
preopening expense. Its depreciation expense for the period was $18.9 million.
Casino revenues were $127.8 million and non-casino revenues totaled $116.3
million. Table games contributed $87.4 million and slots added another $35.3
million. The table games win percentage for this abbreviated period was 21.5%.
Standard guestroom occupancy was 96% at an average daily rate of approximately
$147.
Beau Rivage
During nine and one-half months of operation in 1999, Beau Rivage generated
total revenues of $278.1 million and an operating profit of $16.2 million
before preopening expense. Its depreciation charge for the period was $28.9
million. Casino revenues totaled $146.9 million and non-casino revenues were
$131.2 million. Casino revenues principally include slot revenue of $97.9
million and table games revenue of $47.9 million. Beau Rivage's table games
win percentage for the period was 17.0%. Standard guestroom occupancy was 85%
at an average daily rate of approximately $90. Beau Rivage's operating results
in 1999 include approximately $12.0 million of pre-tax income from the
settlement of a business interruption insurance claim associated with a major
hurricane that struck the Biloxi area in September 1998.
We designed Beau Rivage as a luxurious facility in anticipation of the Gulf
Coast developing into a major destination resort market. Our efforts to
establish Beau Rivage as the long-term leader in the Gulf Coast market
resulted in additional payroll, promotional, advertising and other costs that
have constrained the resort's operating income contribution since opening.
Additionally, high staffing levels and other inefficiencies associated with
the opening periods of new resorts have hindered Beau Rivage's initial
operating results.
The March 16, 1999 opening of Beau Rivage spurred significant growth in
gaming revenues in the Gulf Coast market. For the nine months ended December
31, 1999, gross gaming revenues grew by 31.3% over the
A-2
<PAGE>
same period in 1998. Excluding Beau Rivage's contribution, gross gaming
revenues for the period were up 8.4%. We believe that Beau Rivage's earnings
will improve as we intensify our efforts toward gaining a larger share of the
growing Gulf Coast market and becoming more efficient in our operations.
However, until we are successful in these efforts, Beau Rivage will continue
to have a negative impact on our operating margins.
Same-store (excluding Bellagio and Beau Rivage)
Our same-store revenues totaled $1.27 billion in 1999, versus $1.41 billion
in 1998 and $1.52 billion in 1997. On a same-store basis, our wholly owned
resorts generated an operating profit of $182.9 million in 1999, $228.1
million in 1998 and $325.6 million in 1997. Same-store depreciation expense
was $84.7 million in 1999, versus $86.4 million in 1998 and $88.0 million in
1997. Same-store casino revenues were $589.4 million, compared with $694.2
million in 1998 and $784.5 million in 1997. The decline in both 1999 and 1998
principally reflects lower table games revenue. Same-store table games revenue
was down by 27% in 1999 and 22% in 1998. We attribute these declines to
increased competitive pressures in the Las Vegas market, including from
Bellagio, and economic difficulties experienced by certain Asian countries
affecting our international business. A lower win percentage was also a
factor. Our same-store table games win percentage was 17.3% in 1999, versus
18.9% in 1998 and 21.5% in 1997. Historically, our table games win percentage
has averaged approximately 20%. Following a 2% increase in 1998, same-store
slot revenue was down by 3% in 1999.
Our non-casino revenues have also been impacted by the increased competition
in Las Vegas. Same-store non-casino revenues totaled $685.7 million in 1999,
$711.4 million in 1998 and $731.9 million in 1997. In addition to the opening
of Bellagio in October 1998, three major new competing resorts opened on the
Las Vegas Strip during 1999, adding approximately 9,700 guestrooms to the
market. Despite this additional capacity, our occupancy levels have remained
strong. Same-store occupancy of available standard guestrooms averaged 97% in
1999, versus 98% in both 1998 and 1997. The additional inventory, however, has
put pressure on room rates. Guestroom refurbishment programs at both Treasure
Island and the Golden Nugget in Laughlin also impacted our operating results
during 1999. Both projects were completed by the end of the third quarter and
significantly upgraded the furnishings of the guestrooms. Principally due to
these two projects, we experienced approximately 2% fewer available same-store
room nights during 1999 versus 1998. As a result of these factors, same-store
room revenues were down by approximately 3% in both 1999 and 1998. During
1997, we completed the refurbishment of 1,382 guestrooms at our Golden Nugget
facility in downtown Las Vegas, principally accounting for a 1% reduction in
our Company-wide available room nights for that year.
We continue to develop and implement strategies to enhance our competitive
position in Las Vegas. Some of these strategies include introducing new
entertainment attractions and restaurants, refurbishing our guestrooms,
constructing additional meeting and convention facilities and introducing new
advertising and marketing programs. We believe that some of our greatest
strengths for dealing with new competition are the superior design, condition
and locations of our resorts and the friendliness and professionalism of our
employees.
Same-store operating costs and expenses at our hotel-casinos declined by
$75.9 million, or 7%, in 1999 and $15.6 million, or 1%, in 1998. These
declines generally follow the decline in same-store revenues. The decline in
1998 was partially offset by the costs of additional staffing efforts
necessary to prepare for the opening of Bellagio and Beau Rivage. The opening
of these two new resorts increased our staffing levels from 17,000 to almost
30,000 employees. Many of these new positions were filled through promotion or
transfer of employees from our other resorts. In order to ensure a smooth
transition, we hired replacement employees prior to the departure of
transferring employees. These additional staffing efforts resulted in
considerably higher payroll and training costs in 1998.
Other factors affecting our earnings
Corporate expense was relatively flat in 1999, after increasing
significantly in 1998. The increase in 1998 reflects expenses related to the
potential legalization of gaming in new jurisdictions, the growth in the size
of our Company and expanded activities in pursuit of entertainment attractions
for our resorts. Additionally, corporate expense in 1998 and 1997 was reduced
by gains from the sale of corporate aircraft.
A-3
<PAGE>
On January 1, 1999, we adopted a new accounting standard that requires
preopening and other start-up costs to be expensed as incurred rather than
capitalized and charged to expense subsequent to opening the related facility.
As a result, we recorded an after-tax cumulative effect charge in 1999 of
$30.6 million ($0.16 per share basic and $0.15 per share diluted) for the
write-off of all previously capitalized preopening costs associated with Beau
Rivage and our development activities in Atlantic City, New Jersey. During
1999, we also incurred and expensed additional preopening and related
promotional costs related to these projects of $42.1 million. After tax, these
additional preopening costs reduced our 1999 earnings by $27.6 million, or
$0.14 per share basic and diluted. We expensed all $88.3 million of Bellagio's
previously capitalized preopening costs in the 1998 fourth quarter. After tax,
the write-off reduced our 1998 earnings by $57.5 million, or $0.32 per share
basic and $0.30 per share diluted.
Reflecting our investment in Bellagio and Beau Rivage, our debt levels and
associated interest cost have risen significantly. With these two new resorts
now complete, we are capitalizing a smaller portion of our interest cost,
resulting in a much higher charge for interest expense. Net interest expense
in 1999 totaled $117.5 million, compared with $32.7 million in 1998 and $7.7
million in 1997.
In April 1999, we evaluated the possible acquisition of the gaming
operations of a major competitor. As part of the negotiations, it was agreed
that we would receive a fee as compensation for our efforts should the
operations be sold to another bidder. In late December 1999, a competing
bidder completed the acquisition of the operations and we recorded income of
$24.5 million after deducting the related costs. After tax, this transaction
increased our 1999 earnings by $15.9 million, or $0.08 per share basic and
diluted.
We recorded other non-operating income in 1999 of $6.1 million, compared
with $15.8 million in 1998 and $6.7 million in 1997. The 1998 amount includes
earnings on debt securities we acquired late in 1997 in connection with the
purchase of the Boardwalk hotel-casino. We recorded interest income on the
securities until the purchase was completed on June 30, 1998. The 1998 amount
also reflects additional earnings on an escrow account established late in
1997 to fund our portion of the cost of road improvements in the Marina area
of Atlantic City. Earnings on the account were lower in 1999 as the funds were
being used for construction of the road improvements.
We incurred debt-related extraordinary charges in both 1998 and 1997. The
$3.5 million ($0.02 per share basic and diluted) after-tax charge in 1998 is
associated with the redemption of all $100 million principal amount of our 9
1/4% notes. The notes were scheduled to mature in March 2003 and were redeemed
at 104.11% of the principal amount. It was economically advantageous for us to
repay the notes with less expensive funds borrowed under our bank credit
facility and commercial paper program, even after considering the prepayment
penalty that accounted for most of the extraordinary charge. In 1997, we
incurred an after-tax extraordinary charge of $2.2 million ($0.01 per share
basic and diluted) in connection with amending our bank credit facility to,
among other things, increase its size and extend its maturity. We incurred no
extraordinary charges in 1999.
Our effective income tax rate approximated the 35% statutory rate in both
1999 and 1997. Our effective income tax rate in 1998 was approximately 37%,
mainly due to the non-deductibility of certain expenses related to the
potential legalization of gaming in new jurisdictions.
Our Capital Resources, Capital Spending and Liquidity
Net cash provided by operating activities (as shown in our Consolidated
Statements of Cash Flows) totaled $429.2 million in 1999, versus $279.9
million in 1998 and $294.0 million in 1997. The increase in our operating cash
flow in 1999 principally represents the contribution from Bellagio and Beau
Rivage and additional cash distributions from Monte Carlo of $13.1 million.
The decline in 1998 generally reflects the decline in our operating income,
offset in part by cash distributions from Monte Carlo of $20.9 million. We
received no cash distributions from Monte Carlo prior to 1998, as the joint
venture was using its free cash flow to reduce outstanding debt.
A-4
<PAGE>
The majority of our operating cash flow during the past three years was
effectively used for the completion of Bellagio and Beau Rivage. After giving
effect to the change in associated deposit and payable amounts, capital
expenditures and preopening and related promotional costs required net cash of
$558.8 million in 1999, $1.29 billion in 1998 and $1.17 billion in 1997.
Capital expenditures in 1999 also include expenditures associated with the
room refurbishment programs at Treasure Island and the Golden Nugget-Laughlin.
We completed the purchase of the Boardwalk 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. We also incurred
$118.8 million in 1998 and $27.6 million in 1997 to acquire additional
adjacent land on the Strip. This land, combined with the Boardwalk site and
other land we purchased in 1993, provides us with approximately 55 acres for
future development with over 1,200 feet of frontage on the Las Vegas Strip
between Bellagio and Monte Carlo. We are in the very early design phase for a
new hotel-casino resort we expect to ultimately develop on the site. The
design, timing and cost of any new resort are still highly uncertain and will
depend on several factors. Among these factors is the market's absorption of
the new resorts on the Las Vegas Strip and competition from gaming outside of
Nevada. 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 currently converting existing meeting space at The Mirage into the
new 1,260-seat Danny Gans Theatre. This popular singer/impersonator will begin
performing in the new theatre in April 2000. We are also currently adding
extensive meeting, convention and exhibit space at The Mirage, including a new
90,000-square foot exhibit hall. The meeting and convention space is scheduled
to be completed in June of this year, and the exhibit hall is expected to open
in May 2001. The total cost of these projects is anticipated to be
approximately $100 million. At December 31, 1999, we had incurred
approximately $23 million of this amount. We are also considering the
construction of a 1,500-seat theatre at The Mirage for the presentation of a
new Broadway-style musical. The design, budget and construction schedule for
the new theatre have not yet been finalized.
We are in the early design phase of a proposed expansion project at
Bellagio. The project would consist of a new hotel tower with approximately
1,300 guestrooms, additional meeting and convention facilities and a new
restaurant. If the project proceeds as planned, construction would begin by
the third quarter of this year and take approximately two years to complete at
an estimated total cost of approximately $250 million.
In Atlantic City, we are progressing with the design and budgeting of our
proposed resort development in the Marina area. Current plans for our 120-acre
site call for construction of our own wholly owned hotel-casino resort and a
second 50%-owned resort in partnership with Boyd Gaming Corporation. We are
currently designing and will develop the master plan improvements for the
entire Marina site. We previously filed an application for the major
environmental permit necessary to construct a portion of these improvements,
which is currently pending. As part of our agreement with the City of Atlantic
City to acquire the land, we are required to remediate environmental
contamination at the Marina site, which was a municipal landfill until 1975. A
substantial portion of the remediation work had been completed at February 1,
2000. Also as part of our agreement with the City, we have completed
demolition of the City-owned facilities previously located on the site and are
in the process of relocating on-site public utilities. Construction is also
continuing on the previously funded joint venture road improvement project
with the State of New Jersey to improve access to the Marina area. The road
improvement project is scheduled for completion in May 2001.
The design, budget and construction schedule for our wholly owned hotel-
casino on the Marina site have not yet been finalized. We intend to apply for
the major environmental permit that is required to develop our resort in the
second quarter of this year. Our joint venture agreement with Boyd calls for
the development of a new hotel-casino resort with approximately 1,200
guestrooms on a 25-acre portion of the Marina site. Boyd will oversee the
design and construction of the joint venture hotel-casino to be known as "The
Borgata"
A-5
<PAGE>
and operate the resort upon completion. Under the agreement, subject to the
receipt of acceptable financing as described below, we will contribute the 25
acres of land (valued at $90 million) and $60 million in cash, of which
approximately $5 million had been contributed at February 1, 2000. Boyd will
contribute a minimum of $150 million in cash plus any amounts necessary to
fund project costs in excess of $750 million. The joint venture will attempt
to obtain acceptable financing of approximately $450 million for the remaining
cost of the project that is non-recourse to both our Company and Boyd. The
joint venture has an application currently pending for the required major
environmental permit. If the necessary permits and financing are obtained,
construction of The Borgata could begin by late summer of this year.
Both our Company and the joint venture must apply for and receive numerous
other 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. We
have prevailed in all of these lawsuits that have been finally 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.
In 1998, we received net proceeds of $394.7 million from the issuance of
$200 million principal amount of 6 5/8% notes due in 2005 and an equal
principal amount of 6 3/4% notes due in 2008. We also issued debt securities
in 1997 and received net proceeds of approximately $296.1 million. The debt
securities issued in 1997 consisted of $200 million principal amount of 6 3/4%
notes due in 2007 and $100 million principal amount of 7 1/4% debentures due
in 2017.
During 1998, we repaid the $133 million principal amount of our zero coupon
notes upon maturity and retired early all $100 million principal amount of our
9 1/4% notes due in 2003. These debt retirements required total cash of
approximately $237.1 million, which was provided principally by borrowings
under our bank credit facility and commercial paper program.
On May 11, 1999, we issued 16,633,663 shares of our common stock in a public
offering at $25.00 per share. The $415.6 million net proceeds from the
offering were used to reduce borrowings outstanding under our $1.75 billion
bank credit facility and commercial paper program. During 1999, we also
repurchased a total of 9,020,809 shares of our common stock in the open market
and in a privately negotiated transaction. The total cost of the repurchases
was approximately $130.3 million, or an average of $14.45 per share. In
December 1999, our Board of Directors approved a program to repurchase up to
5,000,000 additional shares of our common stock. At February 1, 2000, no
shares had been repurchased under this program. The timing and amount of
future share repurchases, if any, will depend on various factors, including
market conditions, available alternative investments and our financial
position.
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.
Market Risk
Market risk is the risk of loss arising from adverse changes in market rates
and prices, such as interest rates, foreign currency exchange rates and
commodity prices. Our primary exposure to market risk is interest rate risk
associated with our long-term debt. To date, we have not invested in
derivative- or foreign currency-based financial instruments. We attempt to
limit our exposure to interest rate risk by managing the mix of our long-term
fixed-rate borrowings and short-term borrowings under our revolving bank
credit facility and commercial paper program.
A-6
<PAGE>
The following table provides information about our long-term debt at
December 31, 1999.
<TABLE>
<CAPTION>
Estimated
Maturity Face Fair
Date Amount Carrying Value Value
---------- --------- --------------------- ---------
(Dollars in millions)
<S> <C> <C> <C> <C>
LIBOR-based bank credit
facility borrowings, at a
weighted average interest
rate of approximately Various to
6.68%.................... Feb. 2000 $ 1,155.0 $1,155.0 $1,155.0
Commercial paper notes, at
a weighted average
effective interest rate Various to
of approximately 6.59%... Jan. 2000 107.4 106.6 106.6
6 5/8% notes.............. Feb. 2005 200.0 199.2 183.6
7 1/4% notes.............. Oct. 2006 250.0 249.7 230.2
6 3/4% notes.............. Aug. 2007 200.0 199.3 176.6
6 3/4% notes.............. Feb. 2008 200.0 199.1 174.0
7 1/4% debentures......... Aug. 2017 100.0 99.7 83.5
Other notes, at a weighted
average interest rate of Various to
approximately 8.7%....... Aug. 2010 1.7 1.7 1.7
--------- -------- --------
$ 2,214.1 $2,210.3 $2,111.2
========= ======== ========
</TABLE>
There are no principal payments due on our debt securities prior to their
maturity.
At December 31, 1998, the face amount, carrying value and estimated fair
value of our long-term debt was approximately $2.4 billion. Our fixed-rate
debt at that date consisted of the notes and debentures listed above, and our
bank credit facility borrowings totaled $1.43 billion at a weighted average
interest rate of approximately 5.75%. No borrowings were outstanding under our
commercial paper program.
Borrowings under our $1.75 billion bank credit facility are unsecured and
bear interest, at our option, at the prime rate or at a specified premium over
the one-, two-, three- or six-month London Interbank Offered Rate, a rate that
fluctuates daily. The premium is based on the credit rating of our 7 1/4%
notes due October 2006 and our Leverage Ratio (as defined). At February 1,
2000, the premium was 0.50% per annum. Alternatively, we may request interest
rate bids from the participating banks. Outstanding borrowings under our $500
million commercial paper program count against the availability under our bank
credit facility. Borrowings under our bank credit facility and commercial
paper program are classified as long-term debt because we intend to replace
these borrowings as they come due and to have these borrowings outstanding for
longer than one year. However, the amount of our outstanding borrowings is
expected to fluctuate and may be reduced from time to time. The bank credit
facility matures in March 2002.
Year 2000 Readiness
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.
We completed an extensive program to ensure that our computer systems are
Year 2000 compliant and have experienced no significant problems to date
associated with the Year 2000 issue. Additionally, there are no claims pending
or, to our knowledge, threatened against us arising out of the Year 2000
issue.
A-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Stockholders
of Mirage Resorts, Incorporated
We have audited the accompanying consolidated balance sheets of Mirage
Resorts, Incorporated (a Nevada corporation) and subsidiaries (the "Company")
as of December 31, 1999 and 1998, and the related consolidated statements of
income, stockholders' equity and cash flows for the years ended December 31,
1999, 1998 and 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Mirage
Resorts, Incorporated and subsidiaries as of December 31, 1999 and 1998, and
the consolidated results of their operations and their cash flows for the
years ended December 31, 1999, 1998 and 1997 in conformity with generally
accepted accounting principles.
As explained in Note 2 of the Notes to Consolidated Financial Statements,
effective January 1, 1999, the Company changed its method of accounting for
start-up activities.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 24, 2000
A-8
<PAGE>
MIRAGE RESORTS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
At December 31
---------------------
1999 1998
---------- ----------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents.............................. $ 139,488 $ 74,814
Trade receivables, net of allowance for doubtful
accounts of $46,869 and $40,480....................... 147,445 118,125
Other receivables...................................... 33,912 41,111
Inventories............................................ 94,351 74,195
Preopening costs....................................... -- 24,718
Deferred income taxes.................................. 24,558 23,180
Prepaid expenses and other............................. 35,948 42,334
---------- ----------
Total current assets................................. 475,702 398,477
Property and equipment, net.............................. 3,970,875 3,290,189
Construction in progress................................. 124,342 539,530
Other assets, net........................................ 233,387 302,006
---------- ----------
$4,804,306 $4,530,202
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities
Trade accounts payable............................... $ 39,369 $ 51,220
Construction payables................................ 12,063 42,859
Accrued liabilities.................................. 272,819 234,047
Current maturities of long-term debt................. 246 404
---------- ----------
Total current liabilities.......................... 324,497 328,530
Long-term debt, net of current maturities.............. 2,210,033 2,378,507
Other liabilities, including deferred income taxes of
$232,570 and $207,063................................. 245,874 221,328
---------- ----------
Total liabilities.................................. 2,780,404 2,928,365
---------- ----------
Commitments and contingencies
Stockholders' equity
Common stock, par value $0.004: authorized
1,125,000,000 shares; issued 235,147,650 shares;
outstanding 189,994,297 and 180,119,931 shares...... 940 940
Additional paid-in capital........................... 1,083,459 738,665
Retained earnings.................................... 1,255,888 1,145,497
Treasury stock, at cost: 45,153,353 and 55,027,719
shares.............................................. (316,385) (283,265)
---------- ----------
Total stockholders' equity......................... 2,023,902 1,601,837
---------- ----------
$4,804,306 $4,530,202
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-9
<PAGE>
MIRAGE RESORTS, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Casino................................... $1,243,625 $ 821,964 $ 784,512
Rooms.................................... 522,566 329,873 297,885
Food and beverage........................ 456,811 257,373 218,974
Entertainment............................ 184,355 106,803 97,924
Retail................................... 141,632 76,313 65,703
Other.................................... 100,863 57,391 51,450
---------- ---------- ----------
2,649,852 1,649,717 1,516,448
Less--promotional allowances............. (247,179) (153,167) (127,498)
---------- ---------- ----------
2,402,673 1,496,550 1,388,950
---------- ---------- ----------
Operating costs and expenses
Casino................................... 690,179 453,691 414,482
Rooms.................................... 164,610 105,459 88,705
Food and beverage........................ 314,689 177,696 143,069
Entertainment............................ 146,741 88,739 77,377
Retail................................... 100,604 53,437 44,068
Other.................................... 52,707 30,984 26,487
Provision for losses on receivables...... 31,911 27,677 19,213
General and administrative............... 328,390 191,377 161,960
Depreciation and amortization............ 205,163 105,298 87,956
---------- ---------- ----------
2,034,994 1,234,358 1,063,317
---------- ---------- ----------
Operating profit........................... 367,679 262,192 325,633
Corporate expense.......................... (49,686) (48,953) (29,193)
Preopening and related promotional expense. (42,130) (88,313) --
Equity in earnings of Monte Carlo.......... 29,164 27,179 29,601
---------- ---------- ----------
Income from operations..................... 305,027 152,105 326,041
Interest cost.............................. (147,359) (130,598) (70,350)
Interest capitalized....................... 29,834 97,870 62,673
Income from terminated acquisition effort.. 24,462 -- --
Other, including interest income........... 6,126 15,801 6,715
---------- ---------- ----------
Income before income taxes, extraordinary
item and cumulative effect of change in
accounting principle...................... 218,090 135,178 325,079
Provision for income taxes................. (77,122) (49,953) (115,276)
---------- ---------- ----------
Income before extraordinary item and
cumulative effect of change in accounting
principle................................. 140,968 85,225 209,803
Extraordinary item--loss on early
retirements of debt, net of applicable
income tax benefit........................ -- (3,521) (2,225)
Cumulative effect (to January 1, 1999) of
change in method of accounting for
preopening costs, net of applicable income
tax benefit............................... (30,577) -- --
---------- ---------- ----------
Net income................................. $ 110,391 $ 81,704 $ 207,578
========== ========== ==========
Income per share of common stock
Income before extraordinary item and
cumulative effect of change in
accounting principle
Basic.................................. $ 0.74 $ 0.47 $ 1.17
Diluted................................ 0.70 0.45 1.09
Net income
Basic.................................. $ 0.58 $ 0.45 $ 1.16
Diluted................................ 0.55 0.43 1.08
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-10
<PAGE>
MIRAGE RESORTS, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
------------------ Additional
Shares Par Paid-in Retained Treasury
Outstanding Value Capital Earnings Stock Total
----------- ----- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1997................... 178,335,915 $940 $ 725,240 $ 856,215 $(291,512) $1,290,883
Exercise of common
stock options........ 1,136,888 -- 369 -- 5,842 6,211
Tax benefit from stock
option exercises..... -- -- 6,580 -- -- 6,580
Repurchases of common
stock................ (50,981) -- -- -- (1,126) (1,126)
Other................. -- -- 2,358 -- -- 2,358
Net income............ -- -- -- 207,578 -- 207,578
----------- ---- ---------- ---------- --------- ----------
Balances, December 31,
1997................... 179,421,822 940 734,547 1,063,793 (286,796) 1,512,484
Exercise of common
stock options........ 701,500 -- 629 -- 3,605 4,234
Tax benefit from stock
option exercises..... -- -- 3,258 -- -- 3,258
Repurchases of common
stock................ (3,391) -- -- -- (74) (74)
Other................. -- -- 231 -- -- 231
Net income............ -- -- -- 81,704 -- 81,704
----------- ---- ---------- ---------- --------- ----------
Balances, December 31,
1998................... 180,119,931 940 738,665 1,145,497 (283,265) 1,601,837
Exercise of common
stock options........ 2,261,512 -- 4,120 -- 11,716 15,836
Tax benefit from stock
option exercises..... -- -- 10,602 -- -- 10,602
Issuance of common
stock................ 16,633,663 -- 330,072 -- 85,490 415,562
Repurchases of common
stock................ (9,020,809) -- -- -- (130,326) (130,326)
Net income............ -- -- -- 110,391 -- 110,391
----------- ---- ---------- ---------- --------- ----------
Balances, December 31,
1999................... 189,994,297 $940 $1,083,459 $1,255,888 $(316,385) $2,023,902
=========== ==== ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-11
<PAGE>
MIRAGE RESORTS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
1999 1998 1997
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income............................... $ 110,391 $ 81,704 $ 207,578
Adjustments to reconcile net income to
net cash provided by
operating activities
Provision for losses on receivables... 31,911 27,677 19,213
Depreciation and amortization of
property and equipment, including
amounts reported as corporate
expense.............................. 216,778 118,004 97,533
Expensed preopening and related
promotional costs.................... 42,130 88,313 --
Equity in earnings of Monte Carlo..... (29,164) (27,179) (29,601)
Distributions from Monte Carlo........ 34,000 20,900 --
Non-recurring charges, before related
income tax benefit
Loss on early retirements of debt... -- 5,418 3,422
Cumulative effect of change in
method of accounting for preopening
costs.............................. 46,967 -- --
Deferred income taxes................. 24,129 4,851 15,076
Changes in components of working
capital pertaining to
operating activities
Increase in trade receivables....... (61,231) (43,330) (50,652)
Increase in inventories............. (20,156) (45,016) (1,625)
(Increase) decrease in other current
assets............................. 1,654 (31,680) 4,729
Increase in trade accounts payable
and accrued liabilities............ 33,933 78,163 12,193
Other adjustments..................... (2,176) 2,030 16,091
--------- ----------- -----------
Net cash provided by operating
activities......................... 429,166 279,855 293,957
--------- ----------- -----------
Cash flows from investing activities
Preopening and related promotional costs. (42,130) (102,306) (22,220)
Capital expenditures..................... (509,399) (1,158,497) (1,058,900)
(Increase) decrease in construction
deposits................................ 30,323 (19,375) (111,665)
Increase (decrease) in preopening and
construction payables................... (37,544) (10,608) 26,255
Proceeds from sales of property and
equipment............................... 43,018 99,077 30,825
Boardwalk acquisition costs, net of cash
acquired................................ -- (55,562) (51,917)
Joint venture and other investments...... (6,250) (14,510) (2,490)
Other investing activities............... 14,768 (18,623) (6,309)
--------- ----------- -----------
Net cash used for investing
activities......................... (507,214) (1,280,404) (1,196,421)
--------- ----------- -----------
Cash flows from financing activities
Net increase (decrease) in bank credit
facility and commercial
paper borrowings........................ (168,391) 817,205 612,795
Issuance of long-term debt............... -- 394,728 296,052
Retirement of long-term debt............. -- (237,110) --
Issuance of common stock................. 415,562 -- --
Repurchases of common stock.............. (130,326) (74) (1,126)
Exercise of common stock options,
including related income
tax benefit............................. 26,438 7,492 12,791
Other financing activities............... (561) (6,215) (619)
--------- ----------- -----------
Net cash provided by financing
activities......................... 142,722 976,026 919,893
--------- ----------- -----------
Cash and cash equivalents
Increase (decrease) for the year......... 64,674 (24,523) 17,429
Balance, beginning of year............... 74,814 99,337 81,908
--------- ----------- -----------
Balance, end of year..................... $ 139,488 $ 74,814 $ 99,337
========= =========== ===========
Supplemental cash flow disclosures
Interest paid, net of amounts
capitalized............................. $ 123,211 $ 6,223 $ --
Income taxes paid, net of refunds........ 16,000 41,000 72,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-12
<PAGE>
MIRAGE RESORTS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation. Mirage Resorts, Incorporated (the "Company") was
incorporated in Nevada in 1949 as the successor to a partnership that began
business in 1946. The Company, through wholly owned subsidiaries, owns and
operates casino-based entertainment resorts. These resorts include Bellagio
(which opened on October 15, 1998), The Mirage, Treasure Island and the
Holiday Inn(R) Casino Boardwalk (the "Boardwalk"), all located on the Las
Vegas Strip. See Note 3 for information concerning the Company's June 1998
acquisition of the Boardwalk.
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. The Company's newest resort, Beau Rivage, opened on March 16, 1999.
Beau Rivage is a 1,780-guestroom beachfront resort located on an approximately
41-acre site where Interstate 110 meets the Gulf Coast in Biloxi, Mississippi.
In addition, the Company is a 50% partner in a joint venture that owns and
operates the Monte Carlo Resort & Casino on the Las Vegas Strip ("Monte
Carlo").
Principles of consolidation. The consolidated financial statements include
the accounts of the Company and its subsidiaries. Significant intercompany
balances and transactions have been eliminated. Investments in 50% or less
owned entities over which the Company has the ability to exercise significant
influence, including joint ventures such as Monte Carlo, are accounted for
using the equity method.
Revenues and promotional allowances. Casino revenues represent the net win
from gaming activities, which is the difference between gaming wins and
losses. Non-casino revenues include the estimated retail value of rooms, food
and beverage and other goods and services provided to customers on a
complimentary basis as follows:
<TABLE>
<CAPTION>
Year ended December 31
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Rooms............................................. $105,168 $ 65,399 $ 55,153
Food and beverage................................. 127,167 79,629 64,575
Other............................................. 14,844 8,139 7,770
-------- -------- --------
$247,179 $153,167 $127,498
======== ======== ========
</TABLE>
Such amounts are then deducted as promotional allowances. The estimated
costs of providing these promotional allowances, totaling $178.1 million in
1999, $112.9 million in 1998 and $90.2 million in 1997, have been classified
primarily as casino costs and expenses.
Cash and cash equivalents. The Company classifies as cash equivalents all
highly liquid debt instruments with a maturity of three months or less when
purchased. Cash equivalents are carried at cost, which approximates fair
value.
Concentrations of credit risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
short-term investments and receivables.
The Company's short-term investments typically consist of U.S. Government-
backed repurchase agreements with maturities of 30 days or less. Such
investments are made with financial institutions having a high credit quality
and the Company limits the amount of its credit exposure to any one financial
institution. Due to the short-term nature of the instruments, the Company does
not take possession of the securities, which are instead held in a custodial
account.
The Company extends credit to approved casino customers following background
checks and investigations of creditworthiness. At December 31, 1999, a
substantial portion of the Company's receivables was due from customers
residing in foreign countries. Business or economic conditions or other
significant events in these countries could affect the collectibility of such
receivables.
A-13
<PAGE>
An estimated allowance for doubtful accounts is maintained to reduce the
Company's receivables to their carrying amount, which approximates fair value.
Management believes that as of December 31, 1999, no significant
concentrations of credit risk existed for which an allowance had not already
been determined and recorded.
Inventories. Inventories are stated at the lower of cost or market value.
Cost is determined by the first-in, first-out and specific identification
methods.
Property and equipment. Property and equipment are stated at cost.
Depreciation is provided over the estimated useful lives of the assets using
the straight-line method for financial reporting purposes and accelerated
methods for income tax purposes.
The costs of significant improvements are capitalized. Costs of normal
repairs are charged to expense as incurred. The cost and accumulated
depreciation of property and equipment retired or otherwise disposed of are
eliminated from the respective accounts and any resulting gain or loss is
included in income.
Capitalized interest. The interest cost associated with a major construction
project is capitalized and included in the cost of the project. When no debt
is incurred specifically for a project, interest is capitalized on amounts
expended on the project using the weighted-average cost of the Company's
outstanding borrowings. Capitalization of interest ceases when the project is
substantially complete.
Debt discount and issuance costs. Debt discount and issuance costs are
capitalized and amortized to interest cost using the effective interest
method.
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>
Year ended December 31
-----------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Weighted-average common shares
outstanding (used in the calculation
of basic earnings per share).......... 190,714,631 179,679,123 178,816,348
Potential dilution from the assumed
exercise of common stock options...... 9,524,884 11,285,181 13,719,527
----------- ----------- -----------
Weighted-average common and common
equivalent shares (used in the
calculation of diluted earnings
per share)............................ 200,239,515 190,964,304 192,535,875
=========== =========== ===========
</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, the calculation excluded a weighted
average of 7,391,497 stock options for 1999 and 7,259,547 for 1998. The number
of stock options excluded from the calculation for 1997 was not material.
Reclassifications. Certain amounts in the 1998 and 1997 consolidated
financial statements have been reclassified to conform to the 1999
presentation. These reclassifications had no effect on the Company's net
income.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and notes to consolidated financial statements. Actual results
could differ from those estimates.
A-14
<PAGE>
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 of $30.6 million
($0.16 per share basic and $0.15 per share diluted), net of income tax benefit
of $16.4 million. During 1999, the Company also incurred and expensed an
additional $42.1 million ($27.6 million, $0.14 per share basic and diluted,
net of income tax benefit) of preopening and related promotional costs
associated with these projects.
Under the Company's previous accounting method, all $55.1 million ($36.0
million, $0.19 per share basic and $0.18 per share diluted, net of income tax
benefit) of Beau Rivage's preopening and related promotional costs would have
been amortized to expense during 1999.
NOTE 3 -- ACQUISITION OF BOARDWALK CASINO, INC.
On June 30, 1998, the Company completed the acquisition of Boardwalk Casino,
Inc. (the company that owns and operates the Boardwalk) and certain related
assets for a total purchase price of approximately $112.0 million in cash.
Approximately $51.9 million of this amount was expended in 1997. The
acquisition was accounted for pursuant to the purchase method, with
approximately $145.9 million allocated to the assets acquired and
approximately $33.9 million to the liabilities assumed based upon their
respective estimated fair values.
Combined with adjacent land owned by the Company, the Boardwalk acquisition
provides an approximately 55-acre site for future development with over 1,200
feet of frontage on the Las Vegas Strip between Bellagio and Monte Carlo. The
Company is in the very early design phase for a new hotel-casino resort
expected to be ultimately developed on the site. The design, timing and cost
of any such future development, however, are still highly uncertain. Because
the Boardwalk and adjacent land were acquired for development of a new resort,
interest cost is being capitalized on the funds used for such purchases. In
the interim, the Boardwalk is being accounted for as an incidental operation.
Under this method, the Boardwalk's operations are excluded from the Company's
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.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
At December 31
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Land.............................................. $ 632,330 $ 607,318
Land improvements................................. 252,527 236,441
Buildings......................................... 2,078,147 1,679,262
Furniture, fixtures and equipment................. 1,932,462 1,500,200
---------- ----------
4,895,466 4,023,221
Less accumulated depreciation..................... (924,591) (733,032)
---------- ----------
$3,970,875 $3,290,189
========== ==========
</TABLE>
A-15
<PAGE>
NOTE 5 -- OTHER ASSETS, NET
Other assets, net consisted of the following:
<TABLE>
<CAPTION>
At December 31
-----------------
1999 1998
-------- --------
<S> <C> <C>
Construction and other deposits........................ $ 73,568 $135,390
Joint venture and other investments.................... 118,221 101,613
Other, net............................................. 41,598 65,003
-------- --------
$233,387 $302,006
======== ========
</TABLE>
NOTE 6 -- ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
At December 31
-----------------
1999 1998
-------- --------
<S> <C> <C>
Customer deposits...................................... $ 66,664 $ 46,354
Payroll and related.................................... 61,820 55,200
Outstanding gaming chips and tokens.................... 37,281 32,018
Interest............................................... 32,615 39,842
Other.................................................. 74,439 60,633
-------- --------
$272,819 $234,047
======== ========
</TABLE>
NOTE 7 -- LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
At December 31
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Revolving bank credit facility, at a weighted
average interest rate of 6.68% and 5.75%....... $1,155,000 $1,430,000
Commercial paper notes, at a weighted average
effective interest rate of 6.59%............... 106,609 --
6 5/8% notes, due February 2005, net of
unamortized original issue discount of $817 and
$947........................................... 199,183 199,053
7 1/4% notes, due October 2006, net of
unamortized original issue discount of $247 and
$274........................................... 249,753 249,726
6 3/4% notes, due August 2007, net of
unamortized original issue discount of $739 and
$811........................................... 199,261 199,189
6 3/4% notes, due February 2008, net of
unamortized original issue discount of $909 and
$991........................................... 199,091 199,009
7 1/4% debentures, due August 2017, net of
unamortized original issue discount of $287 and
$295........................................... 99,713 99,705
Other notes..................................... 1,669 2,229
---------- ----------
2,210,279 2,378,911
Less current maturities......................... (246) (404)
---------- ----------
$2,210,033 $2,378,507
========== ==========
</TABLE>
Borrowings under the Company's $1.75 billion revolving bank credit facility
(the "Bank Facility") are uncollateralized and bear interest, at the Company's
option, at the prime rate or at a specified premium over the
A-16
<PAGE>
one-, two-, three- or six-month London Interbank Offered Rate ("LIBOR"). The
premium is based on the credit rating of the 7 1/4% notes due October 2006 and
the Company's Leverage Ratio (as defined). Alternatively, the Company may
request interest rate bids from the participating banks. The Company incurs an
annual commitment fee on the unused portion of the Bank Facility, which is
also based on the rating of the 7 1/4% notes. At December 31, 1999, the
interest rate premium was 0.50% per annum and the commitment fee was 0.15% per
annum.
The loan agreement governing the Bank Facility contains a covenant that the
Company will not permit its Leverage Ratio to exceed a specified amount. The
loan agreement also provides that, with certain limited exceptions, the
Company and its subsidiaries will not further encumber their assets or dispose
of their Core Assets (as defined).
The Company has a commercial paper program that provides for the issuance,
on a revolving basis, of up to $500 million outstanding principal amount of
uncollateralized short-term notes. The Company is required to maintain credit
availability under the Bank Facility equal to the outstanding principal amount
of commercial paper borrowings.
Bank Facility borrowings and commercial paper notes are classified as long-
term debt because management intends to replace such borrowings as they come
due and to have such borrowings outstanding for a period greater than one
year. However, the amount of outstanding borrowings is expected to fluctuate
and may be reduced from time to time.
All of the outstanding notes and debentures issued by the Company are
redeemable, in whole or in part, at the option of the Company at any time at a
redemption price equal to the greater of:
. 100% of the principal amount, or
. The sum of the present values of the remaining scheduled interest and
principal payments discounted to the date of redemption on a semiannual
basis at the Adjusted Treasury Rate (as defined),
plus, in either case, accrued interest to the redemption date.
At December 31, 1999, maturities of the Company's long-term debt during the
next five years totaled $1.3 billion. This amount principally represents
amounts borrowed under or backed by the Bank Facility, which matures in March
2002.
The estimated fair value of the Company's long-term debt at December 31,
1999 was approximately $2,111,000, versus its book value of $2,210,279. At
December 31, 1998, the estimated fair value of the Company's long-term debt
was approximately $2,367,000, versus its book value of $2,378,911. The
estimated fair value of the Company's outstanding Bank Facility borrowings and
commercial paper notes was assumed to approximate book value due to the short-
term nature of the borrowings. The estimated fair value of the Company's debt
securities that are traded was based on quoted market prices on or about
December 31, 1999 and 1998. The fair value of the Company's other debt was
estimated based on discounted cash flows using current rates offered to the
Company for debt securities having similar remaining maturities.
A-17
<PAGE>
NOTE 8 -- INCOME TAXES
The provision for income taxes for financial reporting purposes consisted of
the following:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Income from continuing operations........... $ 77,122 $49,953 $115,276
Tax benefit from cumulative effect of change
in accounting principle.................... (16,390) -- --
Tax benefit from extraordinary losses on
early retirements of debt.................. -- (1,897) (1,198)
-------- ------- --------
$ 60,732 $48,056 $114,078
======== ======= ========
</TABLE>
The provision for income taxes attributable to income from continuing
operations consisted of the following:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Current
Federal................................... $ 36,059 $45,051 $ 90,185
State..................................... 544 51 15
-------- ------- --------
36,603 45,102 90,200
Deferred
Federal................................... 40,519 4,851 25,076
-------- ------- --------
$ 77,122 $49,953 $115,276
======== ======= ========
</TABLE>
The provision for income taxes attributable to income from continuing
operations differs from the amount computed at the 35% federal income tax
statutory rate as a result of the following:
<TABLE>
<CAPTION>
Year ended December 31
--------------------------
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Amount at statutory rate...................... $ 76,332 $47,312 $113,778
Nondeductible contributions................... 383 3,033 76
Other......................................... 407 (392) 1,422
-------- ------- --------
$ 77,122 $49,953 $115,276
======== ======= ========
</TABLE>
The Internal Revenue Service has completed examinations of the Company's
federal income tax returns for the years 1991 and 1992 and an examination of
the years 1993 and 1994 is currently in process. A number of adjustments have
been proposed but no settlement has been reached. In the opinion of
management, any tax liability arising from these examinations will not have a
material adverse effect on the Company's financial position or results of
operations.
A-18
<PAGE>
The components of the deferred tax liability consisted of the following:
<TABLE>
<CAPTION>
At December 31
-----------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax liabilities
Temporary differences related to property and
equipment........................................... $304,575 $220,143
Other temporary differences.......................... 23,949 22,374
-------- --------
Gross deferred tax liabilities..................... 328,524 242,517
-------- --------
Deferred tax assets
Preopening costs..................................... 42,456 25,142
Alternative minimum tax credit....................... 34,784 --
Temporary differences related to receivables......... 22,153 17,625
Other temporary differences.......................... 21,119 15,867
-------- --------
Gross deferred tax assets.......................... 120,512 58,634
-------- --------
Net deferred tax liabilities....................... $208,012 $183,883
======== ========
</TABLE>
NOTE 9 -- EMPLOYEE BENEFIT PLANS
Employees of the Company who are members of various unions are covered by
union-sponsored, collectively bargained, multi-employer health and welfare and
defined benefit pension plans. The Company recorded an expense of $47.1
million in 1999, $33.9 million in 1998 and $29.8 million in 1997 under such
plans. The plans' sponsors have not provided sufficient information to permit
the Company to determine its share of unfunded vested benefits, if any.
The Company has a retirement savings plan under Section 401(k) of the
Internal Revenue Code covering its non-union employees. The plan allows
employees to defer, within prescribed limits, up to 15% of their income on a
pre-tax basis through contributions to the plan. The Company matches, within
prescribed limits, 50% of eligible employees' contributions up to 4% of their
individual earnings. The Company recorded charges for matching contributions
of $5.5 million in 1999, $4.8 million in 1998 and $4.3 million in 1997.
The Company also has deferred compensation and retirement arrangements with
certain of its executives and directors. Benefits payable under the
arrangements represent unfunded and unsecured liabilities of the Company. The
expense for these arrangements was not material for the periods presented. At
December 31, 1999 and 1998, the liability for the arrangements was $12.1
million and $12.9 million, respectively.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
Leases. The Company leases real estate and various equipment under operating
lease arrangements. Certain real estate leases provide for escalation of rent
based upon a specified price index. Future minimum payments for lease
commitments in effect at December 31, 1999 total $95.0 million. Of this
amount, $36.3 million is payable during the five-year period subsequent to
December 31, 1999. Aggregate rent cost was $17.9 million in 1999, $14.4
million in 1998 and $5.6 million in 1997.
Entertainment services. The Company has entered into long-term agreements
for entertainment productions appearing in the showrooms at its major hotel-
casinos. Under the agreements, the producers of the shows generally receive a
percentage of show and related revenues and/or a percentage of show profits.
Producers of certain of the productions also receive a specified payment per
show. The producers are responsible for paying the talent and most other costs
of presenting the shows. Generally, the Company may terminate the agreements
without material financial obligation under certain conditions, including
failure of the respective show to achieve specified financial results.
A-19
<PAGE>
Litigation. The Company is a party to various legal proceedings, most of
which relate to routine matters incidental to its business. Management does
not believe that the outcome of such proceedings will have a material adverse
effect on the Company's financial position or results of operations.
NOTE 11 -- STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Company has various fixed stock option plans under which options are
granted to employees and directors of the Company. Options granted under the
plans typically have an exercise price equal to the market price of the
Company's common stock on the date of grant and a term of 10 years. Certain of
the plans also permit the grant of stock appreciation rights ("SARs"). At
December 31, 1999, no SARs had been granted under the plans.
Summarized information for the stock option plans is as follows:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------------------------------------
1999 1998 1997
-------------------------- --------------------------- --------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
---------- -------------- ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 37,447,206 $ 9.62 36,578,562 $10.66 34,842,950 $ 9.47
Granted................. 4,452,500 13.83 19,895,255 15.91 2,872,500 23.00
Exercised............... (2,261,512) 7.00 (701,500) 6.04 (1,136,888) 5.46
Terminated.............. (3,133,988) 14.53 (18,325,111) 18.65 -- --
---------- ----------- ----------
Outstanding at end of
year................... 36,504,206 9.87 37,447,206 9.62 36,578,562 10.66
========== =========== ==========
Options exercisable at
end of year............ 20,457,404 $ 7.43 21,002,682 $ 6.97 19,218,730 $ 6.44
Options and SARs
available for grant at
end of year............ 2,906,012 4,224,524 794,668
</TABLE>
In December 1998, a total of 18,235,111 outstanding stock options with a
weighted-average exercise price of $18.66 were terminated in exchange for the
grant of 15,592,144 stock options with an exercise price of $14.38, the
closing sale price of the Company's common stock on the date of the exchange.
The options granted in the exchange were intended to have the same theoretical
value to each option holder as the terminated options, determined using an
option-pricing model. Other than the exercise price, the options granted in
the exchange have the same terms as the terminated options, including the
respective vesting dates and remaining contractual lives.
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------- ---------------------------
Weighted-
Average
Remaining Weighted- Weighted-
Range of Number Contractual Average Number Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
--------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.80 to $ 5.98...... 10,568,700 1.8 years $ 4.72 8,568,700 $ 4.77
6.55 to 13.63...... 11,536,000 4.8 8.92 8,816,000 7.60
14.00 to 14.38...... 13,700,506 6.3 14.34 3,034,404 14.38
14.56 to 22.06...... 699,000 9.5 15.94 38,300 16.05
---------- ----------
36,504,206 4.6 9.87 20,457,404 7.43
========== ==========
</TABLE>
A-20
<PAGE>
The accounting standard that applies to stock options provides, among other
things, that stock options granted to employees may be accounted for using
either the fair value or intrinsic value-based method. Under the fair value-
based method, compensation cost is measured at the date of grant based on the
estimated value of the options determined using an option-pricing model. The
model takes into account the stock price at the grant date, the exercise price
and expected life of the option, the volatility of the stock, expected
dividends on the stock and the risk-free interest rate over the expected life
of the option.
The intrinsic value-based method measures compensation cost by the excess,
if any, of the market price of the stock at the date of grant over the
exercise price of the options. Under both methods, compensation cost is
charged to earnings over the period that the options become exercisable. The
Company uses the intrinsic value-based method to account for employee stock
options. Accordingly, no material compensation cost has been recognized.
The following table discloses the Company's pro forma net income and net
income per share assuming compensation cost for employee stock options had
been determined using the fair value-based method. The table also discloses
the weighted-average assumptions used in estimating the fair value of each
option grant on the date of grant and the estimated weighted-average fair
value of the options granted. The option-pricing model used in the
calculations assumes no expected future dividend payments on the Company's
common stock. The model also implicitly assumes that the price of the
Company's stock will appreciate from the price at the time that the options
were granted.
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income before extraordinary item and
cumulative effect of change
in accounting principle
As reported......................... $ 140,968 $ 85,225 $ 209,803
Pro forma........................... 122,275 67,730 197,290
Net income
As reported......................... $ 110,391 $ 81,704 $ 207,578
Pro forma........................... 91,698 64,209 195,065
Income per share before extraordinary
item and cumulative effect of change
in accounting principle
Basic
As reported....................... $ 0.74 $ 0.47 $ 1.17
Pro forma......................... 0.64 0.38 1.10
Diluted
As reported....................... $ 0.70 $ 0.45 $ 1.09
Pro forma......................... 0.63 0.36 1.04
Net income per share
Basic
As reported....................... $ 0.58 $ 0.45 $ 1.16
Pro forma......................... 0.48 0.36 1.09
Diluted
As reported....................... $ 0.55 $ 0.43 $ 1.08
Pro forma......................... 0.47 0.35 1.03
Weighted-average assumptions
Expected stock price volatility..... 37.57% 35.00% 35.14%
Risk-free interest rate............. 5.88% 4.72% 6.49%
Expected option life................ 6.6 years 5.8 years 6.2 years
Estimated fair value of options
granted............................ $ 6.69 $ 6.69 $ 11.05
Weighted-average vesting period of
options granted...................... 4.8 years 4.9 years 5.3 years
</TABLE>
A-21
<PAGE>
NOTE 12 -- CAPITAL STOCK
On May 11, 1999, the Company issued 16,633,663 shares of its common stock in
a public offering 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.
During 1999, the Company repurchased a total of 9,020,809 shares of its
common stock in the open market and in a privately negotiated transaction. The
total cost of the repurchases was approximately $130.3 million, or an average
of $14.45 per share.
In December 1999, the Board of Directors approved a program to repurchase up
to 5,000,000 additional shares of the Company's common stock. At December 31,
1999, no shares had been repurchased pursuant to this program. The timing and
amount of future share repurchases, if any, will depend on various factors,
including market conditions, available alternative investments and the
Company's financial position.
The Company's Articles of Incorporation authorize 5,000,000 shares of
preferred stock, none of which has been issued.
NOTE 13 -- EXTRAORDINARY LOSS AND OTHER NON-RECURRING ITEMS
Business interruption insurance proceeds. The "Other" revenue caption in
1999 includes approximately $12.0 million associated with the settlement of a
business interruption insurance claim at Beau Rivage related to a major
hurricane that struck the Biloxi, Mississippi area in September 1998.
Income from terminated acquisition effort. In April 1999, the Company
evaluated the possible acquisition of the gaming operations of a major
competitor. As part of the negotiations, it was agreed that the Company would
receive a fee as compensation for its evaluation efforts should the operations
be sold to another bidder. In late December 1999, a competing bidder completed
the acquisition of the operations and in early January 2000 the Company
received the agreed-upon fee. After deducting the related costs, the Company
recorded income in 1999 of approximately $24.5 million associated with the
transaction.
Extraordinary loss on early retirements of debt. In March 1998, the Company
redeemed all $100.0 million principal amount of its 9 1/4% senior subordinated
notes. The notes were scheduled to mature in March 2003 and were redeemed at
104.11% of the principal amount. The call premium and write-off of the
unamortized debt issuance costs resulted in an extraordinary loss of $3.5
million ($0.02 per share basic and diluted), net of income tax benefit of $1.9
million.
In March 1997, the Bank Facility was amended to, among other things,
increase the total availability from $1.0 billion to $1.75 billion and extend
the maturity date from May 1999 to March 2002. In connection with the
amendment, the Company wrote off the unamortized up-front costs and fees
associated with the original $1.0 billion facility, resulting in an
extraordinary charge of $2.2 million ($0.01 per share basic and diluted), net
of income tax benefit of $1.2 million.
A-22
<PAGE>
NOTE 14 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth Year
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
1999
Gross revenues............. $639,205 $634,031 $669,984 $706,632 $2,649,852
Promotional allowances..... (58,492) (58,862) (63,502) (66,323) (247,179)
Net revenues............... 580,713 575,169 606,482 640,309 2,402,673
Operating profit........... 108,984 66,087 80,375 112,233 367,679
Preopening and related
promotional expense....... 31,455 4,120 3,415 3,140 42,130
Income from operations..... 75,129 57,837 69,014 103,047 305,027
Income before cumulative
effect of change in
accounting principle...... 32,070 18,462 27,029 63,407 140,968
Cumulative effect of change
in method of accounting
for preopening costs...... (30,577) -- -- -- (30,577)
Net income................. 1,493 18,462 27,029 63,407 110,391
Income per share before
cumulative effect of
change in accounting
principle
Basic.................... $ 0.18 $ 0.10 $ 0.14 $ 0.33 $ 0.74
Diluted.................. 0.17 0.09 0.13 0.32 0.70
Net income per share
Basic.................... $ 0.01 $ 0.10 $ 0.14 $ 0.33 $ 0.58
Diluted.................. 0.01 0.09 0.13 0.32 0.55
1998
Gross revenues............. $370,493 $346,810 $366,625 $565,789 $1,649,717
Promotional allowances..... (35,328) (31,222) (34,031) (52,586) (153,167)
Net revenues............... 335,165 315,588 332,594 513,203 1,496,550
Operating profit........... 66,954 54,824 59,394 81,020 262,192
Preopening and related
promotional expense....... -- -- -- 88,313 88,313
Income (loss) from
operations................ 65,908 52,564 48,225 (14,592) 152,105
Income (loss) before
extraordinary item........ 41,600 33,619 30,104 (20,098) 85,225
Extraordinary loss on early
retirement of debt........ (3,521) -- -- -- (3,521)
Net income (loss).......... 38,079 33,619 30,104 (20,098) 81,704
Income (loss) per share
before extraordinary item
Basic.................... $ 0.23 $ 0.19 $ 0.17 $ (0.11) $ 0.47
Diluted.................. 0.22 0.18 0.16 (0.11) 0.45
Net income (loss) per share
Basic.................... $ 0.21 $ 0.19 $ 0.17 $ (0.11) $ 0.45
Diluted.................. 0.20 0.18 0.16 (0.11) 0.43
</TABLE>
A-23
<PAGE>
CORPORATE INFORMATION
Corporate Headquarters
3600 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Internet: www.mirageresorts.com
Room Reservations
<TABLE>
<S> <C>
Bellagio....................(888) 987-6667
The Mirage..................(800) 374-9000
Treasure Island.............(800) 288-7206
Beau Rivage.................(888) 567-6667
Golden Nugget
-Las Vegas.................(800) 634-3454
-Laughlin..................(800) 950-7700
Monte Carlo.................(800) 311-8999
</TABLE>
Annual Report on Form 10-K
Our Annual Report on Form 10-K filed with the Securities and Exchange
Commission may be obtained upon written request and without charge. Requests
should be directed to Robert H. Baldwin, Chief Financial Officer and
Treasurer, Mirage Resorts, Incorporated, P.O. Box 7700, Las Vegas, Nevada
89177-7700, telephone (702) 693-7111. The Form 10-K is also available via the
Internet at www.sec.gov.
Forward-Looking Statements
This Annual Report contains some forward-looking statements which are
subject to change. Actual results may differ materially from those described
in any forward-looking statement. Additional information concerning potential
factors that could affect our future results is included under the caption
"Factors that May Affect Our Future Results" in Item 1 of our Annual Report on
Form 10-K for the year ended December 31, 1999. This statement is provided as
permitted by the Private Securities Litigation Reform Act of 1995.
Annual Meeting
Our Annual Meeting of Stockholders will be held at 1:00 P.M., Pacific
Standard Time, on March 23, 2000, at Bellagio, 3600 Las Vegas Boulevard South,
Las Vegas, Nevada. February 16, 2000 is the record date for determining the
stockholders entitled to notice of, and to vote at, the Annual Meeting of
Stockholders.
Common Stock
Our common stock is traded on the New York Stock Exchange and the Pacific
Exchange under the symbol "MIR." The following table sets forth, for the
calendar quarters indicated, the high and low sale prices of the common stock
on the New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
1999 1998
---------------- -----------------
Quarter High Low High Low
------- -------- ------- -------- --------
<S> <C> <C> <C> <C>
First........... 22 5/8 13 3/16 26 3/4 20 13/16
Second.......... 26 3/8 16 5/16 25 1/8 20
Third........... 17 3/8 11 3/4 22 1/4 13 3/4
Fourth.......... 15 15/16 11 1/2 18 15/16 13 3/16
</TABLE>
We paid no dividends in 1999 or 1998. There were approximately 12,700 record
holders of our common stock as of January 20, 2000.
Common Stock Transfer Agent and Registrar
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(212) 936-5100
(718) 921-8200
A-24
<PAGE>
ANNUAL MEETING OF STOCKHOLDERS
OF
MIRAGE RESORTS, INCORPORATED
March 23, 2000
---------------------------------
PROXY VOTING INSTRUCTIONS
---------------------------------
TO VOTE BY MAIL
- ---------------
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
- -------------------------------------------
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number and the proxy card available when you call.
TO VOTE BY INTERNET
- -------------------
Please access the web page at "www.voteproxy.com" and follow the on-screen
instructions. Have your control number available when you access the web page.
------------------------------
YOUR CONTROL NUMBER IS --------->
------------------------------
Please Detach and Mail in the Envelope Provided
A [X] Please mark your
votes as in this
example using
dark ink only.
<TABLE>
<S> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of [ ] [ ] Nominees: Melvin B. Wolzinger 2. Proposal to ratify the appointment [ ] [ ] [ ]
Directors George J. Mason of Arthur Andersen LLP as
For, except vote withheld from Daniel B. Wayson independent accountants for 2000.
the following nominee(s):
3. In their discretion, the Proxies are authorized to vote
- ------------------------------- upon such other business as may properly come before the
meeting or any adjournment thereof.
</TABLE>
SIGNATURE(S) DATE
--------------------------------------- ---------------------
Note: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, partnership or other
entity, please sign in full entity name by authorized person.
MIRAGE RESORTS, INCORPORATED
Proxy Solicited on Behalf of the Board of Directors
P
The undersigned appoints Ronald M. Popeil and Kenneth R. Wynn, and each of
R them, as Proxies, each with the power to appoint his substitute, and
authorizes each of them to represent and to vote, as designated on the
O reverse, all the shares of Common Stock of Mirage Resorts, Incorporated
held of record by the undersigned on February 16, 2000, at the Annual
X Meeting of Stockholders to be held on March 23, 2000 or any adjournment
thereof.
Y
(Change of Address/Comments)
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
You are encouraged to specify your choices by marking the appropriate
boxes, SEE REVERSE SIDE, but you need not mark any box if you wish to
vote in accordance with the Board of Directors' recommendations.
