Filed On 3/31/98 · SEC Files 1-06697 (10-K), 1-06697 · Accession Number 42246-98-4
This Filing was Corrected by the SEC on 4/9/98.
As Of Filer Filing On/For/As Docs:Pgs
3/31/98 Mirage Resorts Inc 10-K405® 12/31/97 17:340
Annual Report -- [X] Reg. S-K Item 405 · Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K Annual Report 72 342K
2: EX-4.E Instrument Defining the Rights of Security Holders 55 264K
3: EX-4.F Instrument Defining the Rights of Security Holders 36 161K
4: EX-10.CCC Material Contract 2 14K
5: EX-10.JJJ Material Contract 95± 397K
6: EX-10.KKK Material Contract 14 60K
7: EX-10.LLL Material Contract 25 71K
8: EX-10.MMM Material Contract 1 11K
9: EX-10.NNN Material Contract 14 39K
10: EX-10.OOO Material Contract 4 15K
11: EX-10.PPP Material Contract 4 21K
12: EX-10.QQQ Material Contract 4 19K
13: EX-10.RRR Material Contract 10 49K
14: EX-23 Consent of Experts or Counsel 1 7K
15: EX-27.A Financial Data Schedule 1 11K
16: EX-27.B Financial Data Schedule 1 13K
17: EX-27.C Financial Data Schedule 1 13K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
---------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-6697
MIRAGE RESORTS, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
NEVADA 88-0058016
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3400 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (702) 791-7111
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
---------------------------------------- -----------------------
COMMON STOCK ($.004 PAR VALUE PER SHARE) NEW YORK STOCK EXCHANGE
PACIFIC EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days: YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: X
-----
The aggregate market value of the Registrant's Common Stock
held by non-affiliates (all persons other than executive officers
or directors) of the Registrant on March 27, 1998 (based on the
closing sale price per share on the New York Stock Exchange
Composite Tape on that date) was $3,943,420,236.
The Registrant's Common Stock outstanding at March 27, 1998
was 179,489,247 shares.
Portions of the Registrant's definitive Proxy Statement for
its May 21, 1998 Annual Meeting of Stockholders (which has not
been filed as of the date of this filing) are incorporated by
reference into Part III.
=================================================================
PART I
ITEM 1. BUSINESS
GENERAL
Mirage Resorts, Incorporated (the "Company" or the
"Registrant") 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 (i)
The Mirage, a hotel-casino and destination resort on the Las
Vegas Strip, (ii) Treasure Island at The Mirage ("Treasure
Island"), a hotel-casino resort adjacent to The Mirage, (iii)
the Golden Nugget, a hotel-casino in downtown Las Vegas, and
(iv) the Golden Nugget-Laughlin, a hotel-casino in Laughlin,
Nevada. The Company, through a wholly owned subsidiary,
also owns a 50% interest in a joint venture that owns and
operates the Monte Carlo Resort & Casino, which opened June 21,
1996 on the Las Vegas Strip.
The Company, through wholly owned subsidiaries, is also
currently constructing Bellagio, an elegant hotel-casino and
destination resort on the Las Vegas Strip, and Beau Rivage,
a luxurious hotel-casino and beachfront resort in Biloxi,
Mississippi. Bellagio is believed to be the most expensive
resort hotel ever built. When it opens, Beau Rivage will be
the largest hotel-casino in the United States outside of
Nevada.
OPERATING PROPERTIES
The Mirage opened in 1989 and is located on approximately
100 acres shared with Treasure Island near the center of the
Las Vegas Strip. The Mirage is a luxurious, tropically
themed destination resort. The exterior of the resort is
landscaped with palm trees, abundant foliage and more than
four acres of lagoons and other water features centered
around a 54-foot simulated volcano and waterfall. Each
evening, the volcano erupts at regular intervals, sending
blasts of steam and water 40 feet into the air, with flames
which spectacularly illuminate the front of the resort.
Inside the front entrance is an atrium with a tropical
garden and additional water features capped by a 100-foot-
high glass dome. The atrium has an advanced environmental
control system and creative lighting and other special
effects designed to replicate the sights, sounds and
fragrances of the South Seas. Located at the rear of the
hotel, adjacent to the swimming pool area, is a dolphin
habitat with eight Atlantic bottlenose dolphins, and The
Secret Garden of Siegfried & Roy, a $14 million attraction
that allows guests to view the beautiful exotic animals of
Siegfried & Roy, the world-famous illusionists who perform
at The Mirage.
Treasure Island opened in 1993 adjacent to The Mirage.
Treasure Island is a pirate-themed hotel-casino resort. The
front of Treasure Island, facing the Las Vegas Strip, is an
elaborate pirate village in which full-scale replicas of a
pirate ship and a British frigate regularly engage in a
pyrotechnic and special effects sea battle, culminating with
the sinking of the frigate. The showroom at Treasure Island
features Mystere, a unique choreographic mix of special
effects, comedy and feats of human prowess produced and
performed by the world-famous Cirque du Soleil.
The Golden Nugget, together with its parking facilities,
occupies approximately two and one-half square blocks and is
located approximately five miles north of The Mirage and
Treasure Island in the center of downtown Las Vegas. The
Golden Nugget has received the Mobil Travel Guide's Four
Star Award and the AAA Four Diamond Award for 14 and 21
consecutive years, respectively. It is the largest hotel-
casino and the generally acknowledged leader in the downtown
Las Vegas market and has benefited from the "Fremont Street
Experience," a $70 million entertainment attraction developed
by a coalition of several major downtown Las Vegas hotel-casinos
(including the Golden Nugget) in conjunction with the City of
Las Vegas. This attraction opened in December 1995 and converted
Fremont Street into a four-block-long pedestrian mall, topped
with a 90-foot by 1,400-foot special effects canopy. Within
the canopy are 2.1 million computer-controlled, four-color lights
and a 540,000-watt sound system. The Fremont Street Experience
also includes retail facilities and a 1,432-space parking garage.
The Golden Nugget-Laughlin is located approximately 90
miles south of Las Vegas in Laughlin, Nevada. The hotel-
casino is located on approximately 13 acres with 600 feet of
Colorado River frontage near the center of Laughlin's
tourist district. The Golden Nugget-Laughlin features a
32,000-square foot casino offering 18 table games and
approximately 1,175 slots, 300 hotel rooms (including four
suites), three restaurants, three bars, an entertainment
lounge, a deli, an ice cream parlor and two gift and retail
shops. Other facilities at the Golden Nugget-Laughlin
include a swimming pool, a parking garage with space for
approximately 1,585 vehicles and approximately four and one-
half acres of surface parking for recreational vehicles.
The Company also owns and operates a 78-room motel in
Bullhead City, Arizona, across the Colorado River from Laughlin.
The Company, through a wholly owned subsidiary, is a 50%
partner with Circus Circus Enterprises, Inc. ("Circus") in
Victoria Partners, a joint venture that owns and operates
Monte Carlo. The resort is situated on approximately 46
acres near the center of the Las Vegas Strip. Monte Carlo
has a palatial style reminiscent of the Belle Epoque, the
French Victorian architecture of the late 19th century.
Monte Carlo has amenities such as a microbrewery featuring
live entertainment, a health spa, a beauty salon, a 1,200-
2
seat theater featuring the world-renowned magician Lance
Burton, a large pool area and lighted tennis courts. Monte
Carlo will be connected to Bellagio by a monorail.
CURRENT CONSTRUCTION PROJECTS
BELLAGIO
The Company is currently constructing Bellagio on an
approximately 120-acre site at the corner of the Las Vegas
Strip and Flamingo Road. Bellagio is the Company's most
ambitious destination resort to date. This elegant European-
style resort will overlook a picturesque lake inspired by
Lake Como in Northern Italy. Throughout each day the lake's
1,200 fountains will come alive in a choreographed
performance of water, music and lights which will be highly
visible along the Las Vegas Strip. The resort will also
feature a wide variety of casual and gourmet restaurants in
both indoor and outdoor settings (including a branch of
Manhattan's world-famous Le Cirque), upscale retail
boutiques, including those leased to Armani, Chanel, Fred
Leighton, Gucci, Hermes, Prada and Tiffany & Co., and
extensive meeting, convention and banquet space. Cirque du
Soleil is producing an all-new and unique production to be
performed in a specially designed showroom. Bellagio will
be lushly landscaped with classical gardens (both indoors
and outdoors) and European fountains and pools. The resort
is currently expected to cost approximately $1.6 billion
(including land, capitalized interest and preopening costs)
and is scheduled to open in October 1998. Additionally, as
of March 1, 1998, the Company had acquired a collection of
fine art at a cost of approximately $162 million for display
and resale at Bellagio and was renting additional fine art
for display. The Bellagio art collection rivals in quality
the collections of many of the world's leading art galleries
and museums and is expected to be a major draw for the
resort.
BEAU RIVAGE
The Company is constructing Beau Rivage, a luxurious
beachfront resort in Biloxi, Mississippi, on a 23-acre site
where Interstate 110 meets the Gulf Coast. The Gulf Coast is
one of the largest gaming markets in the United States and
Beau Rivage will be the largest hotel-casino in Mississippi,
with 1,780 guest rooms and an approximately 80,000-square foot
casino. Guests arriving at the resort will be greeted by
lush gardens and stately oaks. Beau Rivage will feature
13 restaurants, upscale retail outlets, a full-service spa and
salon, a state-of-the-art convention center, an elegant atrium
lobby, a beautifully landscaped pool area and a 1,550-seat show-
room that will be home to a new production by Cirque du Soleil.
3
Beau Rivage is currently expected to be completed in the first
quarter of 1999 at an estimated total cost (including land,
capitalized interest and preopening costs) of approximately $600
million. The Company has also expended an additional $6 million
to acquire several other parcels of land in the Biloxi area
for future development, including approximately 508 acres for
the potential development of a world-class 18-hole golf course.
In addition, the Company is planning the construction of a
deluxe marina at Beau Rivage for sportfishing, Gulf excursions
and other water sports, as well as dockage for private yachts of
up to 125 feet.
As with any major construction project, the Bellagio and
Beau Rivage projects involve many risks, including weather
interference, shortages of materials and labor, work stoppages,
labor disputes, unforeseen engineering, environmental or
geological problems and unanticipated cost increases, any of
which could give rise to delays or cost overruns. Con-
struction, equipment or staffing problems or difficulties
in obtaining any of the requisite licenses, permits, allocations
or authorizations from regulatory authorities could increase
the cost or delay the construction or opening of the facilities
or otherwise affect their design and features. It is possible
that the existing budget and construction plans for either
project may be changed for competitive or other reasons.
Accordingly, there can be no assurance that either project will
be completed within the time periods or budgets which are
currently contemplated.
4
The following table sets forth certain data, as of March 1,
1998, regarding the Company's major resorts and certain estimates
regarding the Company's two projects under construction.
· Enlarge/Download Table
Bellagio (a) Beau Rivage (b) The Mirage Treasure Island Golden Nugget Monte Carlo (c)
------------ --------------- --------------- --------------- ------------- ---------------
Project cost................... $1.6 billion $600 million $862 million(d) $485 million(d) (e) $355 million(d)
Opening date................... Oct. 1998 1st Qtr. 1999 Nov. 1989 Oct. 1993 Aug. 1946 June 1996
Total building square footage.. 4,289,000 2,222,000 3,117,000 2,377,000 1,465,000 2,520,000
Casino
Square footage (including
corridors).................. 151,000 80,000 107,200 83,800 38,000 90,000
Number of gaming tables...... 139 90 122 86 56 95
Number of slots.............. 2,637 2,025 2,220 1,952 1,327 2,156
Hotel
Number of guest rooms (in-
cluding suites and villas).. 3,005 1,780 3,044 2,891 1,907 3,002
Square footage of interior
meeting space.............. 99,400 30,000 73,000 16,000 21,000 22,000
Restaurants
Number of outlets............ 16 13 12 10 6 8
Number of seats.............. 2,878 1,564 2,300 1,744 1,006 2,200
Retail
Square footage............... 76,700 25,500 35,000 16,000 4,350 11,300
Showroom
Number of seats.............. 1,800 1,550 1,503 1,525 350 1,200
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(a) The estimated Bellagio project cost does not include the cost
of fine art purchased for display and resale at Bellagio.
(b) The estimated Beau Rivage project cost does not include the cost of
land acquired for future development.
(c) Monte Carlo is 50%-owned by the Company.
(d) Includes capital improvements subsequent to opening, but is not
adjusted for inflation or depreciation.
(e) Not meaningful for comparative purposes.
PENDING ACQUISITION OF BOARDWALK HOTEL-CASINO
On December 22, 1997, the Company entered into agreements
(the "Boardwalk Agreements") to acquire Boardwalk Casino,
Inc. ("BCI") and certain related assets at a total cost
(including assumed and acquired debt) of approximately $112
million. BCI owns and operates the Boardwalk, a hotel-
casino situated on approximately eight acres on the Las
Vegas Strip between Monte Carlo and Bellagio. The Boardwalk
includes 653 hotel rooms and 33,000 square feet of casino
space offering 661 slot machines, 20 table games and a full-
service race and sports book. Other amenities at the
Boardwalk include a coffee shop, a buffet, a snack bar, an
entertainment lounge, two bars, a gift shop, two outdoor
swimming pools and 1,125 garage and surface parking spaces.
The hotel is currently operated under a Holiday Inn-
Registered Trademark- franchise license agreement. Upon consum-
5
mation of the transactions contemplated by the Boardwalk Agree-
ments and combined with adjacent parcels of land previously
acquired by the Company, the Company will own approximately
12 acres with 817 feet of frontage on the Las Vegas Strip at
a total cost of approximately $140 million.
Consummation of the BCI acquisition is subject to
a number of conditions, including approval by the
stockholders of BCI and the receipt of requisite approvals
from gaming regulatory authorities. Pursuant to the
Boardwalk Agreements, the Company holds proxies covering
approximately 53% of BCI's outstanding shares and has agreed
to vote such shares in favor of the acquisition. If such
approvals are obtained, the acquisition is expected to close
in the second quarter of 1998, whereupon BCI would become a
wholly owned subsidiary of the Company. The Company's
acquisition of BCI, together with adjacent land owned by the
Company (including a portion of the Bellagio site not
required for Bellagio) and land the Company has agreed to
acquire in an exchange with Monte Carlo, would afford the
Company a 42-acre site for potential future development on
the Las Vegas Strip, between and contiguous to Bellagio and
Monte Carlo.
FUTURE EXPANSION
ATLANTIC CITY
The Company and the City of Atlantic City, New Jersey have
entered into an agreement (as amended, the "Redevelopment
Agreement") pursuant to which, on January 8, 1998, the City
conveyed a total of approximately 180 acres (125 acres of
which are developable) in the Marina area of the City (the
"Marina Site") to the Company in exchange for the Company
agreeing to develop a hotel-casino (tentatively named "Le
Jardin") on the Marina Site and undertaking certain other
obligations, including remediation of environmental
contamination on the Marina Site. Under the terms of the
Redevelopment Agreement, construction of the planned resort
is subject to the satisfaction of certain conditions. One
such condition is the construction of certain major road
improvements designed to improve access to the Marina area.
The Company has entered into an agreement (the "Road
Development Agreement") with the New Jersey Department of
Transportation (the "State") and the South Jersey
Transportation Authority ("SJTA") with respect to the
construction and joint funding of the road improvements.
Pursuant to the Road Development Agreement, the Company
agreed to fund $110 million of the estimated $330 million
cost of the road improvement project, with the balance to be
funded by the State ($95 million) and SJTA ($125 million).
The Company's and SJTA's portion of the funding has been
deposited in escrow accounts and is restricted for the road
improvement project. Of the Company's $110 million funding
obligation, $55 million will be satisfied by the Company
6
purchasing special revenue bonds which are repayable,
together with interest, solely from certain future tax
revenues generated by the Company's planned hotel-casino on
the Marina Site. The road improvement project is being
undertaken pursuant to a fixed-price design/build contract.
The contractor commenced the design phase of the project in
October 1997 and expects to complete the project in 2001.
Numerous governmental permits required for the Company's
hotel-casino and the road improvement project have not yet
been received. Additionally, an existing Atlantic City
hotel-casino operator and others have filed various lawsuits
which challenge the validity of the Redevelopment Agreement
and seek to prevent construction of the road improvements,
thereby delaying or preventing the Company from developing
its hotel-casino on the Marina Site. The hotel-casino
project is in the early design stage and a project budget
has not yet been developed. As a result of the foregoing
factors, there can be no assurance that the Company will
construct a hotel-casino in Atlantic City or as to the
timing or cost of construction.
In 1996, the Company entered into agreements with Circus
and Boyd Gaming Corporation ("Boyd") pursuant to which the
Company agreed, subject to a number of conditions, to sell a
portion of the Marina Site to Circus as a casino site and to
form a joint venture with Boyd to develop a third hotel-
casino on the Marina Site (in addition to the Company's
wholly owned hotel-casino and the Circus hotel-casino). In
January 1998, the Company notified Circus and Boyd that
their respective agreements with the Company relating to the
Marina Site had terminated. For information concerning
pending litigation with Circus and Boyd arising from such
terminations, see "Legal Proceedings" in Item 3 on page 24 of
this Form 10-K.
OTHER
The Company regularly evaluates potential expansion and
acquisition opportunities in both the domestic and
international markets. Such opportunities may include the
ownership, management and operation of gaming and other
entertainment facilities in states other than Nevada or
outside of the United States, either alone or with joint
venture partners. Development and operation of any gaming
facility in a new jurisdiction are subject to numerous
contingencies, several of which are outside of the Company's
control and may include the enactment of appropriate gaming
legislation, the issuance of requisite permits, licenses and
approvals, the availability of appropriate financing and the
satisfaction of other conditions. There can be no assurance
that the Company will elect or be able to consummate any
such acquisition or expansion opportunity.
7
MARKETING
All of the Company's hotel-casinos operate 24 hours each
day, every day of the year. Management does not consider
the Company's business, taken as a whole, to be particularly
seasonal.
The level of gaming activity at its casinos is the single
largest factor in determining the Company's revenues and
operating income. The Company also receives significant
revenues from lodging, food and beverage, entertainment and
retail operations.
The principal segments of the Nevada gaming market are
tour and travel, leisure travel, high-level wagerers and
conventions (including small meetings and corporate
incentive programs). The Company believes that The Mirage's
hotel occupancy and gaming revenues can be maximized through
a balanced marketing approach aimed at the high end of each
market segment. The marketing strategy for Bellagio and
Beau Rivage will be similar to that for The Mirage. The
Company's marketing strategy for Treasure Island and the
Golden Nugget is aimed at attracting middle- to upper-middle-
income wagerers, largely from the leisure travel and, to a
lesser extent, the tour and travel segments. The Company
believes that the success of its hotel-casinos is also
affected by the level of walk-in customers and, accordingly,
has designed its facilities to maximize their attraction to
guests of other hotels.
The Golden Nugget-Laughlin appeals primarily to patrons
from the middle-income strata of the gaming populace. Many
of the Golden Nugget-Laughlin's customers are retired
individuals who are attracted by lodging, food and beverage
and entertainment prices that are lower than those offered
by the major Las Vegas hotel-casinos. The predominant
portion of the Golden Nugget-Laughlin's casino revenues is
derived from slot machine play.
The Company, through wholly owned subsidiaries, owns
approximately 850 acres of real property located
approximately 10 miles north of The Mirage and Treasure
Island and five miles north of the Golden Nugget. The
Company owns and operates an exclusive world-class golf
course and related facilities known as "Shadow Creek" on
approximately 240 acres of such property. The Company is
currently offering a luxury suite package at its Las Vegas
hotel-casinos which includes golf privileges at Shadow
Creek. In connection with its marketing activities, the
Company also makes the course and related facilities
available for use, by invitation only, by high-level-wagerer
patrons. The Company has contemplated the development of a
second golf course adjacent to Shadow Creek, but has
indefinitely postponed plans for its construction.
8
CREDIT
Credit play represents a significant portion of the table
games volume at The Mirage. The Company's other facilities
do not emphasize credit play to the same extent as The
Mirage, although credit is made available.
The Company maintains strict controls over the issuance of
credit and aggressively pursues collection of its customer
receivables. These collection efforts parallel those
procedures commonly followed by most large corporations,
including the mailing of statements and delinquency notices,
personal and other contacts, the use of outside collection
agencies and civil litigation. Nevada gaming debts
evidenced by credit instruments are enforceable under the
laws of Nevada. All other states are required to enforce a
judgment on a gaming debt entered in Nevada pursuant to the
Full Faith and Credit Clause of the United States
Constitution. Gaming debts are not legally enforceable in
some foreign countries, but the United States assets of
foreign debtors may be reached to satisfy judgments entered
in the United States. A significant portion of the
Company's accounts receivable is owed by high-level-wagerer
customers from the Far East. The collectibility of customer
receivables is affected by a number of factors, including
changes in currency exchange rates and economic conditions
in the customers' home countries.
SUPERVISION OF GAMING ACTIVITIES
In connection with the supervision of gaming activities at
its casinos, the Company maintains stringent controls on the
recording of all receipts and disbursements. These audit and
cash controls include: locked cash boxes; personnel
independent of casino operations to perform the daily cash
and coin counts; floor observation of the gaming area;
observation of gaming and certain other areas through the
use of closed-circuit television; computer tabulation of
receipts and disbursements for each of the slot machines and
table games; and timely analysis of discrepancies or
deviations from normal performance.
COMPETITION
The Mirage, Treasure Island and the Golden Nugget compete
with a number of other hotel-casinos in Las Vegas.
Currently, there are approximately 27 major hotel-casinos
located on or near the Las Vegas Strip, 11 major hotel-
casinos located in the downtown area and several major
facilities located elsewhere in the Las Vegas area. As of
March 1, 1998, there were approximately 102,100 hotel and
motel rooms in Las Vegas, compared to approximately 97,300
at December 31, 1996. In addition to Bellagio, there are
currently three major new hotel-casinos under construction
in Las Vegas. All three are scheduled to open in 1999 and
will add a total of approximately 9,700 rooms to the market.
9
Another hotel-casino with plans for 2,600 guest rooms and a
projected opening date in 2000 recently obtained significant
financing. Other major hotel-casinos have been proposed,
some of which are likely to be built. Expansion projects at
an existing major Las Vegas Strip hotel-casino are also
under construction and several other expansion projects have
been proposed. Management is unable to determine the extent
to which the increased competition will affect the Company's
future operating results.
Management believes that The Mirage primarily competes
with other large hotel-casinos located on or near the Strip
that offer amenities and marketing programs appealing to the
upper-middle and higher-income strata of the gaming
populace. The Mirage competes on the basis of the elegance
and excitement offered by the facility, the desirability of
its location, the quality of its hotel rooms and
restaurants, its entertainment and special attractions,
customer service, its balanced marketing strategy and
special marketing and promotional programs.
Management believes that Treasure Island primarily
competes with the other large hotel-casinos located on or
near the Strip that offer amenities and marketing programs
that appeal to the middle- to upper-middle-income strata of
the gaming populace. Treasure Island competes on the basis
of the excitement offered by the facility, the desirability
of its location (including its proximity to The Mirage), the
quality of its hotel rooms, the variety, quality and
attractive pricing of its food and beverage outlets, its
unique entertainment offerings, customer service and its
marketing and promotional programs.
Management believes that the Golden Nugget primarily
competes with the large hotel-casinos located on or near the
Strip, particularly those offering amenities and marketing
programs that appeal primarily to the middle- and upper-
middle-income strata of the gaming populace. The Golden
Nugget competes for gaming customers primarily on the basis
of the elegance, intimacy and excitement offered by the
facility, the quality and relative value of its hotel rooms
and restaurants, customer service and its marketing and
promotional programs. The Fremont Street Experience
attraction was developed in order for the downtown Las Vegas
hotel-casinos to compete more effectively with the hotel-
casinos located on the Las Vegas Strip. Management believes
that the competitive pressures of additional guest rooms on
the Strip particularly impacted the downtown market in 1997
and will continue to do so during 1998.
10
The Golden Nugget-Laughlin competes with eight nearby
hotel-casinos in Laughlin, as well as with hotel-casinos in
Las Vegas, Jean and Primm, Nevada and casinos on Indian
reservations in Laughlin's regional market, particularly
Southern California and Arizona. In recent years, the
Laughlin market has been adversely affected by increased
competition from the expansion of casino gaming in Las Vegas
and on Indian reservations in Arizona and elsewhere in the
regional market.
The Company's facilities also compete for gaming customers
with hotel-casino operations located in other areas of
Nevada, Atlantic City and other parts of the world, and for
vacationers with non-gaming tourist destinations such as
Hawaii and Florida. The Company's hotel-casinos compete to
a lesser extent with state-sponsored lotteries, off-track
wagering, card parlors, riverboat and Indian gaming
facilities and other forms of legalized gaming in the United
States, as well as with gaming on cruise ships. In recent
years, certain states have legalized, and several other
states have considered legalizing, casino gaming.
Management does not believe that such legalization of casino
gaming in those jurisdictions would have a material adverse
impact on the Company's operations. However, management
believes that the legalization of large-scale land-based
casino gaming in or near certain major metropolitan areas,
particularly in California, could have a material adverse
effect on the Las Vegas market.
EMPLOYEES AND LABOR RELATIONS
As of March 1, 1998, the Company and its subsidiaries had
approximately 14,750 full-time and 2,335 part-time
employees. The Company and unions representing
approximately 7,000 of its Las Vegas employees recently
approved, and the employees ratified, the terms of new
collective bargaining contracts that will expire in May
2002. Management considers its employee relations to be
excellent.
REGULATION AND LICENSING
NEVADA
The ownership and operation of casino gaming facilities in
Nevada are subject to (i) the Nevada Gaming Control Act and the
regulations promulgated thereunder (collectively, the "Nevada
Act") and (ii) various local ordinances and regulations. The
Registrant's Nevada gaming operations are subject to the
licensing and regulatory control of the Nevada Gaming Commission
(the "Nevada Commission"), the Nevada State Gaming Control Board
(the "Nevada Board"), the City of Las Vegas and the Clark County
Liquor and Gaming Licensing Board (the "Clark County Board"). The
Nevada Commission, the Nevada Board, the City of Las Vegas and
the Clark County Board are collectively referred to as the
"Nevada Gaming Authorities."
11
The laws, regulations and supervisory procedures of the
Nevada Gaming Authorities are based upon declarations of public
policy which are concerned with, among other things: (i) the
prevention of unsavory or unsuitable persons from having a
direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible
accounting practices and procedures; (iii) the maintenance of
effective controls over the financial practices of licensees,
including the establishment of minimum procedures for internal
fiscal affairs and the safeguarding of assets and revenues,
providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the
prevention of cheating and fraudulent practices; and (v) pro-
viding a source of state and local revenues through taxation
and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Registrant's
gaming operations.
The Registrant's direct and indirect subsidiaries that con-
duct gaming operations are required to be licensed by the Nevada
Gaming Authorities. The gaming licenses require the periodic
payment of fees and taxes and are not transferable. THE MIRAGE
CASINO-HOTEL ("MCH") is registered as an intermediary company and
has been found suitable to own the stock of Treasure Island Corp.
("TI Corp."). MCH has also been licensed to conduct nonrestricted
gaming operations at The Mirage. TI Corp. has been licensed to
conduct nonrestricted gaming operations at Treasure Island.
GNLV, CORP. ("GNLV") has been registered as an intermediary
company and has been found suitable to own the stock of Golden
Nugget Manufacturing Corp. ("GNMC"), its inactive subsidiary
which is licensed as a manufacturer and distributor of gaming
devices. GNLV has also been licensed to conduct nonrestricted
gaming operations at the Golden Nugget. GNL, CORP. ("GNL") has
been licensed to conduct nonrestricted gaming operations at the
Golden Nugget-Laughlin. Bellagio has been registered as an
intermediary company and has been found suitable to own the stock
of MRGS Corp. ("MRGS"), which has been licensed as a 50% general
partner of Victoria Partners. The Registrant is registered by the
Nevada Commission as a publicly traded corporation (a
"Registered Corporation") and has been found suitable to own the
stock of MCH, GNLV, Bellagio and GNL, each of which, together
with TI Corp., MRGS and GNMC, is a corporate licensee (individ-
ually, a "Gaming Subsidiary" and collectively, the "Gaming
Subsidiaries") under the Nevada Act. Victoria Partners has been
licensed to conduct nonrestricted gaming operations at Monte
Carlo and certain subsidiaries of Circus have been registered or
licensed for their ownership of Victoria Partners. The
acquisition of BCI is subject to the prior approval of the Nevada
Gaming Authorities. Upon receipt of such approval, BCI will
become a Gaming Subsidiary.
12
As a Registered Corporation, the Registrant is required
periodically to submit detailed financial and operating reports
to the Nevada Commission and furnish any other information which
the Nevada Commission may require. No person may become a
stockholder of, or receive any percentage of profits from, the
Gaming Subsidiaries without first obtaining licenses and
approvals from the Nevada Gaming Authorities. The Registrant and
the Gaming Subsidiaries have obtained from the Nevada Gaming
Authorities the various registrations, findings of suitability,
approvals, permits and licenses required in order to engage in
gaming activities in Nevada.
All gaming devices that are manufactured, sold or distri-
buted for use or play in Nevada, or for distribution outside of
Nevada, must be manufactured by licensed manufacturers and
distributed or sold by licensed distributors. All gaming devices
manufactured for use or play in Nevada must be approved by
the Nevada Commission before distribution or exposure for
play. The approval process for gaming devices includes rigorous
testing by the Nevada Board, a field trial and a determination as
to whether the gaming device meets strict technical standards
that are set forth in the regulations of the Nevada Commission.
Associated equipment must be administratively approved by the
Chairman of the Nevada Board before it is distributed for use in
Nevada.
The Nevada Gaming Authorities may investigate any individual
who has a material relationship to, or material involvement with,
the Registrant or the Gaming Subsidiaries in order to determine
whether such individual is suitable or should be licensed as a
business associate of a gaming licensee. Officers, directors and
certain key employees of the Gaming Subsidiaries must file
applications with the Nevada Gaming Authorities and may be
required to be licensed or found suitable by the Nevada Gaming
Authorities. Officers, directors and key employees of the
Registrant who are actively and directly involved in gaming
activities of the Gaming Subsidiaries may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The
Nevada Gaming Authorities may deny an application for licensing
for any cause which they deem reasonable. A finding of
suitability is comparable to licensing, and both require
submission of detailed personal and financial information
followed by a thorough investigation. The applicant for licensing
or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to
the Nevada Gaming Authorities, and in addition to their authority
to deny an application for a finding of suitability or licensure,
the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
13
If the Nevada Gaming Authorities were to find an officer,
director or key employee unsuitable for licensing or unsuitable
to continue having a relationship with the Registrant or the
Gaming Subsidiaries, the companies involved would have to sever
all relationships with such person. In addition, the Nevada
Commission may require the Registrant or the Gaming Subsidiaries
to terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability or of
questions pertaining to licensing are not subject to judicial
review in Nevada.
The Registrant and the Gaming Subsidiaries are required to
submit detailed financial and operating reports to the Nevada
Commission. Substantially all material loans, leases, sales of
securities and similar financing transactions entered into by the
Gaming Subsidiaries must be reported to or approved by the Nevada
Commission.
If it were determined that the Nevada Act was violated by a
Gaming Subsidiary, the licenses it holds could be limited,
conditioned, suspended or revoked, subject to compliance with
certain statutory and regulatory procedures. In addition, the
Registrant, the Gaming Subsidiaries and the persons involved
could be subject to substantial fines for each separate violation
of the Nevada Act at the discretion of the Nevada Commission.
Further, a supervisor could be appointed by the Nevada Commission
to operate The Mirage, Treasure Island, the Golden Nugget, the
Golden Nugget-Laughlin and Monte Carlo and, under certain
circumstances, earnings generated during the supervisor's
appointment (except for the reasonable rental value of the
casino) could be forfeited to the State of Nevada. Limitation,
conditioning or suspension of the gaming license of a Gaming
Subsidiary or the appointment of a supervisor could (and
revocation of any gaming license would) materially adversely
affect the Registrant's gaming operations.
Any beneficial holder of the Registrant's voting securities,
regardless of the number of shares owned, may be required to file
an application, be investigated and have his suitability as a
beneficial holder of the Registrant's voting securities
determined if the Nevada Commission has reason to believe that
such ownership would be inconsistent with the declared policies
of the State of Nevada. The applicant must pay all costs of
investigation incurred by the Nevada Gaming Authorities in
conducting any such investigation.
The Nevada Act requires any person who acquires more than 5%
of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires
that beneficial owners of more than 10% of a Registered
Corporation's voting securities apply to the Nevada Commission
for a finding of suitability within 30 days after the Chairman of
14
the Nevada Board mails a written notice requiring such filing.
Under certain circumstances, an "institutional investor," as
defined in the Nevada Act, which acquires more than 10%, but not
more than 15%, of a Registered Corporation's voting securities
may apply to the Nevada Commission for a waiver of such finding
of suitability requirement if such institutional investor holds
the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting
securities for investment purposes unless the voting securities
were acquired and are held in the ordinary course of business as
an institutional investor and not for the purpose of causing,
directly or indirectly, the election of a majority of the members
of the board of directors of the Registered Corporation, any
change in the corporate charter, bylaws, management, policies or
operations of the Registered Corporation or any of its gaming
affiliates or any other action which the Nevada Commission finds
to be inconsistent with holding the Registered Corporation's
voting securities for investment purposes only. Activities which
are not deemed to be inconsistent with holding voting securities
for investment purposes only include: (i) voting on all matters
voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities
analysts for informational purposes and not to cause a change in
its management, policies or operations; and (iii) such other
activities as the Nevada Commission may determine to be
consistent with such investment intent. The City of Las Vegas
and the Clark County Board have the authority to approve all
persons owning or controlling the stock of any corporation
controlling a gaming licensee. If the beneficial holder of
voting securities who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and
financial information, including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered to do
so by the Nevada Commission or the Chairman of the Nevada Board
may be found unsuitable. The same restrictions apply to a record
owner if the record owner, after request, fails to identify the
beneficial owner. Any stockholder found unsuitable who holds,
directly or indirectly, any beneficial ownership of the voting
securities beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The
Registrant is subject to disciplinary action if, after it
receives notice that a person is unsuitable to be a stockholder
or to have any other relationship with the Registrant or the
Gaming Subsidiaries, the Registrant: (i) pays such person any
dividend or interest upon voting securities of the Registrant;
(ii) allows such person to exercise, directly or indirectly, any
voting right conferred through securities held by that person;
(iii) pays remuneration in any form to such person for services
rendered or otherwise; or (iv) fails to pursue all lawful efforts
to require such person to relinquish his voting securities
including, if necessary, the immediate purchase of the voting
securities for cash at fair market value.
15
The Nevada Commission may, in its discretion, require the
holder of any debt security of a Registered Corporation to file
applications, be investigated and be found suitable to own the
debt security if it has reason to believe that such ownership
would be inconsistent with the declared policies of the State of
Nevada. If the Nevada Commission determines that a person is
unsuitable to own such security, then pursuant to the Nevada Act,
the Registered Corporation can be sanctioned, including the loss
of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend,
interest or any distribution whatsoever; (ii) recognizes any
voting right by such unsuitable person in connection with such
securities; (iii) pays the unsuitable person remuneration in any
form; or (iv) makes any payment to the unsuitable person by way
of principal, redemption, conversion, exchange, liquidation or
similar transaction.
The Registrant is required to maintain a current stock
ledger in Nevada which may be examined by the Nevada Gaming
Authorities at any time. If any securities are held in trust by
an agent or nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. The Registrant
is also required to render maximum assistance in determining the
identity of the beneficial owner. The Nevada Commission has the
power to require the Registrant's stock certificates to bear
a legend indicating that the securities are subject to the Nevada
Act. To date, the Nevada Commission has not imposed such a
requirement on the Registrant.
The Registrant may not make a public offering of its
securities without the prior approval of the Nevada Commission if
the securities or proceeds therefrom are intended to be used to
construct, acquire or finance gaming facilities in Nevada or to
retire or extend obligations incurred for such purposes. On May
22, 1997, the Nevada Commission granted the Registrant prior
approval to make public offerings for a period of two years,
subject to certain conditions (the "Shelf Approval"). However,
the Shelf Approval may be rescinded for good cause without prior
notice upon the issuance of an interlocutory stop order by the
Chairman of the Nevada Board and must be renewed biannually. The
Shelf Approval also applies to any affiliated company wholly
owned by the Registrant (an "Affiliate") which is a publicly
traded corporation or would become a publicly traded corporation
pursuant to a public offering. The Shelf Approval also includes
approval for the Gaming Subsidiaries to guarantee any security
issued by, or to hypothecate their assets to secure the payment
or performance of any obligations issued by, the Registrant or an
Affiliate in a public offering under the Shelf Approval. The
Shelf Approval does not constitute a finding, recommendation or
approval by the Nevada Commission or the Nevada Board as to the
accuracy or adequacy of the prospectus or the investment merits
of the securities offered. Any representation to the contrary is
unlawful.
16
Changes in control of the Registrant through merger,
consolidation, stock or asset acquisitions, management or
consulting agreements or any act or conduct by a person whereby
he obtains control may not occur without the prior approval of
the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada
Commission with respect to a variety of stringent standards prior
to assuming control of such Registered Corporation. The Nevada
Commission may also require controlling stockholders, officers,
directors and other persons having a material relationship or
involvement with the entity proposing to acquire control to be
investigated and licensed as part of the approval process
relating to the transaction.
The Nevada Legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting
securities and corporate defensive tactics affecting Nevada
corporate gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Commission has
established a regulatory scheme to ameliorate the potentially
adverse effects of these business practices upon Nevada's gaming
industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming licensees and their
affiliates; (ii) preserve the beneficial aspects of conducting
business in the corporate form; and (iii) promote a neutral
environment for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional
repurchases of voting securities above the current market price
thereof and before a corporate acquisition opposed by management
can be consummated. The Nevada Act also requires prior approval
of a plan of recapitalization proposed by the Registered
Corporation's board of directors in response to a tender offer
made directly to the Registered Corporation's stockholders for
the purpose of acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending
on the type of gaming or activity involved, are payable to the
State of Nevada and to Clark County and the City of Las Vegas, in
which the Gaming Subsidiaries' respective operations are con-
ducted. Depending upon the particular fee or tax involved, these
fees and taxes are payable monthly, quarterly or annually and
are based upon: (i) a percentage of the gross revenues received;
(ii) the number of gaming devices operated; or (iii) the number
of table games operated. A casino entertainment tax is also paid
by casino operations where entertainment is furnished in
connection with the serving of food or refreshments or the
selling of merchandise. Nevada licensees that hold a manu-
facturer's or distributor's license, such as GNMC, also pay
certain fees to the State of Nevada.
17
Any person who is licensed, required to be licensed,
registered, required to be registered or is under common control
with such persons (collectively, "Licensees"), and who proposes
to become involved in a gaming venture outside of Nevada, is
required to deposit with the Nevada Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of its
participation in such foreign gaming. The revolving fund is
subject to increase or decrease at the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with
certain reporting requirements imposed by the Nevada Act.
Licensees are also subject to disciplinary action by the Nevada
Commission if they knowingly violate any laws of the foreign
jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming
operations, engage in activities that are harmful to the State of
Nevada or its ability to collect gaming taxes and fees or employ
a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal
unsuitability.
The sale of alcoholic beverages at The Mirage, Treasure
Island, the Golden Nugget-Laughlin and Monte Carlo, and the sale
of alcoholic beverages at the Golden Nugget, are subject to
licensing, control and regulation by the Clark County Board and
the City of Las Vegas, respectively. All licenses are revocable
and are not transferable. The agencies involved have full power
to limit, condition, suspend or revoke any such license, and any
such disciplinary action could (and revocation would) have a
material adverse effect on the operations of the Gaming
Subsidiaries.
MISSISSIPPI
The ownership and operation of casino gaming facilities in
Mississippi are subject to the Mississippi Gaming Control Act and
the regulations promulgated thereunder (collectively, the
"Mississippi Act"). The Registrant's Mississippi gaming
operations will be subject to the licensing and regulatory
control of the Mississippi Gaming Commission (the "Mississippi
Commission").
The laws, regulations and supervisory procedures of the
Mississippi Commission are based upon declarations of public
policy which are concerned with, among other things: (i) keeping
gaming free of criminal and corruptive elements and (ii)
maintaining public confidence and trust in gaming by means of
strict regulation of all persons, locations, practices,
associations and activity related to the operation of licensed
gaming establishments and the manufacture or distribution of
gambling devices and equipment. Change in such laws, regulations
and procedures could have an adverse effect on the Registrant's
Mississippi gaming operations.
18
Beau Rivage Resorts, Inc. ("Beau Rivage Resorts"), the
Registrant's indirect subsidiary that will own and operate Beau
Rivage, is required to be licensed by the Mississippi Commission.
The gaming license requires the periodic payment of fees and
taxes and is not transferable. GNLV is registered as an
intermediary company and has been found suitable to own the stock
of Beau Rivage Resorts. The Registrant is registered by the
Mississippi Commission as a publicly traded corporation (a
"Registered Corporation") and has been found suitable to own the
stock of GNLV under the Mississippi Act.
As a Registered Corporation, the Registrant is required
periodically to submit detailed financial and operating reports
to the Mississippi Commission and furnish any other information
which the Mississippi Commission may require. No person may
become a stockholder of, or receive any percentage of profits
from, Beau Rivage Resorts without first obtaining approval from
the Mississippi Commission. The Registrant, GNLV and Beau Rivage
Resorts have obtained from the Mississippi Commission the various
registrations, findings of suitability and licenses required in
order to engage in gaming activities in Mississippi; however,
Beau Rivage is under construction, and the final approvals to
open the casino must be obtained from the Mississippi Commission
as well as other state and local governmental entities. Although
the Registrant expects to obtain such approvals in due course,
failure to receive such approvals would have a material adverse
effect on the Registrant's Mississippi gaming operations.
All gaming devices that are manufactured, sold or distri-
buted for use or play in Mississippi, or for distribution outside
of Mississippi, must be manufactured by licensed manufacturers
and distributed or sold by licensed distributors. All gaming
devices manufactured for use or play in Mississippi must be
approved by the Mississippi Commission before distribution or
exposure for play. The approval process for gaming devices
includes rigorous testing by the staff of the Mississippi
Commission, a field trial and a determination as to whether the
gaming device meets strict technical standards that are set
forth in the regulations of the Mississippi Commission.
Associated equipment must be administratively approved by the
Executive Director of the Mississippi Commission before it is
distributed for use in Mississippi.
The Mississippi Commission may investigate any individual
who has a material relationship to, or material involvement with,
the Registrant, GNLV or Beau Rivage Resorts in order to determine
whether such individual is suitable or should be licensed as a
business associate of a gaming licensee. Officers, directors and
certain key employees of Beau Rivage Resorts must file
applications with the Mississippi Commission and may be required
to be licensed or found suitable. Officers, directors and key
employees of GNLV and the Registrant who are actively and
directly involved in gaming activities of Beau Rivage Resorts may
be required to be licensed or found suitable by the Mississippi
Commission. The Mississippi Commission may deny an application
19
for licensing for any cause which it deems reasonable. A finding
of suitability is comparable to licensing, and both require
submission of detailed personal and financial information
followed by a thorough investigation. The applicant for
licensing or a finding of suitability must pay all the costs of
the investigation. Changes in approval positions must be
reported to the Mississippi Commission, and in addition to its
authority to deny an application for a finding of suitability or
licensure, the Mississippi Commission has jurisdiction to
disapprove a change in a corporate position.
If the Mississippi Commission were to find an officer,
director or key employee unsuitable for licensing or unsuitable
to continue having a relationship with the Registrant, GNLV or
Beau Rivage Resorts, the companies involved would have to sever
all relationships with such person. In addition, the Mississippi
Commission may require the Registrant, GNLV or Beau Rivage
Resorts to terminate the employment of any person who refuses to
file appropriate applications. Determinations of suitability
or of questions pertaining to licensing are not subject to
judicial review in Mississippi.
In addition to the Registrant, GNLV and Beau Rivage Resorts
are required to submit detailed financial and operating reports
to the Mississippi Commission. All material loans, sales of
securities and similar financing transactions entered into by
Beau Rivage Resorts must be reported to or approved by the
Mississippi Commission.
If it were determined that the Mississippi Act was violated
by Beau Rivage Resorts, the license it holds could be limited,
conditioned, suspended or revoked, subject to compliance with
certain statutory and regulatory procedures. In addition, the
Registrant, GNLV, Beau Rivage Resorts and the persons involved
could be subject to substantial fines for each separate violation
of the Mississippi Act at the discretion of the Mississippi
Commission. Limitation, conditioning or suspension of the gaming
license of Beau Rivage Resorts could (and revocation of the
gaming license would) materially adversely affect the
Registrant's Mississippi gaming operations.
Any beneficial holder of the Registrant's voting securities,
regardless of the number of shares owned, may be required to file
an application, be investigated and have his suitability as a
beneficial holder of the Registrant's voting securities
determined if the Mississippi Commission has reason to believe
that such ownership would be inconsistent with the declared
policies of the State of Mississippi. The applicant must pay all
costs of investigation incurred by the Mississippi Commission in
conducting any such investigation.
20
The Mississippi Act requires any person who acquires more
than 5% of a Registered Corporation's voting securities to report
the acquisition to the Mississippi Commission. The Mississippi
Act requires that beneficial owners of more than 10% of a
Registered Corporation's voting securities apply to the
Mississippi Commission for a finding of suitability within 30
days after the Executive Director of the Mississippi Commission
requests such filing.
Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered to do
so by the Mississippi Commission or the Executive Director of the
Mississippi Commission may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after
request, fails to identify the beneficial owner. Any stockholder
found unsuitable who holds, directly or indirectly, any
beneficial ownership of the voting securities beyond such period
of time as may be prescribed by the Mississippi Commission may be
guilty of a criminal offense.
The Mississippi Commission may, in its discretion, require
the holder of any debt security of a Registered Corporation to
file applications, be investigated and be found suitable to own
the debt security if it determines that such requirement is in
the public interest.
The Registrant is required to maintain a current stock
ledger in Mississippi which may be examined by the Mississippi
Commission at any time. If any securities are held in trust by
an agent or nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Mississippi
Commission. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. The Registrant is also
required to render maximum assistance in determining the identity
of the beneficial owner. The Mississippi Commission has the
power to require the Registrant's stock certificates to bear a
legend indicating that the securities are subject to the
Mississippi Act; however, the Mississippi Commission has in the
past routinely waived such requirement.
The Registrant may not make a public offering of its
securities without the prior approval of the Mississippi
Commission if the securities or proceeds therefrom are intended
to be used to construct, acquire or finance gaming facilities in
Mississippi or to retire or extend obligations incurred for such
purposes. On May 29, 1997, the Mississippi Commission granted
the Registrant prior approval to make public offerings for a
period of one year, subject to certain conditions (the
"Mississippi Shelf Approval"). However, the Mississippi Shelf
Approval may be rescinded for good cause without prior notice
upon the issuance of a stop order by the Executive Director of
the Mississippi Commission. The Mississippi Shelf Approval does
not constitute a finding, recommendation or approval by the
Mississippi Commission as to the accuracy or adequacy of the
prospectus or the investment merits of the securities offered.
21
Any representation to the contrary is unlawful. The Registrant
intends to file an application for renewal of the Mississippi
Shelf Approval, which it anticipates will be considered by the
Mississippi Commission in May 1998.
Changes in control of the Registrant through merger,
consolidation, stock or asset acquisitions, management or
consulting agreements or any act or conduct by a person whereby
he obtains control may not occur without the prior approval of
the Mississippi Commission. Entities seeking to acquire control
of a Registered Corporation must satisfy the Mississippi
Commission with respect to a variety of stringent standards prior
to assuming control of such Registered Corporation. The
Mississippi Commission may also require controlling stockholders,
officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire
control to be investigated and licensed as part of the approval
process relating to the transaction.
The Mississippi Legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting
securities and corporate defensive tactics affecting Mississippi
corporate gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Mississippi Commission has
established a regulatory scheme to ameliorate the potentially
adverse effects of these business practices upon Mississippi's
gaming industry and to further Mississippi's policy to: (i)
assure the financial stability of corporate gaming licensees and
their affiliates; (ii) preserve the beneficial aspects of
conducting business in the corporate form; and (iii) promote a
neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required
from the Mississippi Commission before the Registered
Corporation can make exceptional repurchases of voting securities
above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The
Mississippi Act also requires prior approval of a plan of
recapitalization proposed by the Registered Corporation's board
of directors in response to a tender offer made directly to the
Registered Corporation's stockholders for the purpose of
acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending
on the type of gaming or activity involved, are payable to the
State of Mississippi, and to the City of Biloxi, where Beau
Rivage Resorts' operations will be conducted. Depending upon
the particular fee or tax involved, these fees and taxes are
payable monthly, quarterly or annually and are based upon:
(i) a percentage of the gross revenues received; (ii) the number
of gaming devices operated; or (iii) the number of table games
operated.
22
Any person who is licensed, required to be licensed,
registered, required to be registered or is under common control
with such persons (collectively, "Licensees"), and who proposes
to become involved in a gaming venture outside of Mississippi, is
required to receive the approval of the Mississippi Commission
with respect to foreign gaming activities undertaken after
licensure. Licensees are also subject to disciplinary action by
the Mississippi Commission if they knowingly violate any laws of
the foreign jurisdiction pertaining to the foreign gaming
operation, fail to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required
of Mississippi gaming operations, engage in activities that are
harmful to the State of Mississippi or its ability to collect
gaming taxes and fees or employ a person in the foreign operation
who has been denied a license or finding of suitability in
Mississippi on the ground of personal unsuitability.
The sale of alcoholic beverages at Beau Rivage will be sub-
ject to licensing, control and regulation by the Mississippi
State Tax Commission (the "Tax Commission"). All licenses are
revocable and are not transferable. The Tax Commission has full
power to limit, condition, suspend or revoke any such license,
and any such disciplinary action could (and revocation would)
have a material adverse effect on the operations of Beau Rivage
Resorts.
CERTAIN FORWARD-LOOKING STATEMENTS
Certain information included in this Form 10-K and other
materials filed or to be filed by the Company with the Securities
and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the
Company) contains forward-looking statements, within the meaning
of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
Such statements include information relating to plans for future
expansion and other business development activities as well as
other capital spending, financing sources and the effects of
regulation (including gaming and tax regulation) and competition.
Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results
in the future and, accordingly, such results may differ from
those expressed in any forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include,
but are not limited to, those relating to development and
construction activities, dependence on existing management,
leverage and debt service (including sensitivity to fluctuations
in interest rates), domestic or international economic
conditions, pending litigation, changes in federal or state tax
laws or the administration of such laws and changes in gaming
laws or regulations (including the legalization of gaming in
certain jurisdictions).
ITEM 2. PROPERTIES
The Mirage and Treasure Island share an approximately 100-
acre site owned by the Company.
23
The Golden Nugget occupies approximately seven and one-
half acres. The improvements and approximately 90% of the
underlying land are owned by the Company. The remaining
land is held under three separate ground leases that expire
(giving effect to renewal options) on dates ranging from
2025 to 2046.
The Golden Nugget-Laughlin, including approximately two
acres underlying the motel in Bullhead City, Arizona,
occupies an aggregate of approximately 15-1/2 acres. All of
the property is owned by the Company.
The Bellagio site comprises approximately 120 acres, all
of which is owned by the Company except for one acre held
under a ground lease that expires (giving effect to renewal
options) in 2073.
Monte Carlo occupies approximately 46 acres owned by
Victoria Partners. At March 1, 1998, Monte Carlo was
subject to aggregate encumbrances approximating $99.2
million.
The Company owns approximately 850 contiguous acres of
land in North Las Vegas, including 240 acres occupied by
Shadow Creek.
The Beau Rivage site comprises approximately 23 acres in
Biloxi, Mississippi owned by the Company. The Company also
owns several other parcels of land in the Biloxi area,
including approximately 508 acres for the potential
development of a world-class 18-hole golf course.
The Company owns approximately 180 acres (125 acres of
which are developable) in the Marina area of Atlantic City,
New Jersey. The Company is designing a major new hotel-
casino resort which it currently intends to construct on the
Marina Site.
The Company also owns or leases various other improved and
unimproved property in Las Vegas, Atlantic City and other
locations in the United States and certain foreign
countries. The book value of such property at March 1, 1998
was approximately $121 million.
ITEM 3. LEGAL PROCEEDINGS
On February 2, 1998, Boyd filed a complaint against the
Company in Superior Court for Atlantic County, New Jersey. The
complaint alleges that the Company's January 1998 termination of
the May 29, 1996 joint venture agreement between the Company
and Boyd relating to the development, ownership and operation of
a hotel-casino on the Marina Site was improper. The complaint
alleges, among other counts, breach of contract, breach of
fiduciary duty, breach of implied covenant of good faith and
fair dealing, fraud and concealment, and seeks, among other
relief, unspecified compensatory and punitive damages, specific
performance and imposition of a constructive trust for the
benefit of Boyd.
24
On February 4, 1998, the Company filed a complaint for
declaratory relief against Circus in District Court for Clark
County, Nevada (the "Nevada Action"). The complaint seeks a
judgment declaring that the May 30, 1996 agreement between the
Company and Circus relating to the sale of a portion of the
Marina Site to Circus is of no further force and effect. On
February 13, 1998, Circus filed a complaint against the Company
in Superior Court for Atlantic County, New Jersey (the "New
Jersey Action"). The complaint alleges that the Company's ter-
mination of the May 30, 1996 agreement between the Company and
Circus was improper. The complaint alleges, among other counts,
breach of contract, breach of fiduciary duty, breach of express
and implied covenants of good faith and fair dealing, fraud and
misrepresentation and unjust enrichment, and seeks, among
other relief, unspecified compensatory and punitive damages,
specific performance and imposition of a constructive trust for
the benefit of Circus. On March 4, 1998, the Company filed a
motion to dismiss or stay the New Jersey Action and Circus filed
a motion to dismiss or stay the Nevada Action.
The Company has been discussing the terms of possible
new agreements with Boyd and Circus relating to the Marina Site
and termination of the existing litigation, but there can be no
assurance that any such agreement will be reached.
On April 26, 1994, a complaint in a class action lawsuit
was filed in the United States District Court for the Middle
District of Florida against 41 manufacturers, distributors and
casino operators of video poker and electronic slot machines,
including the Company. On May 10, 1994, a complaint in a
class action lawsuit alleging substantially identical claims was
filed by another plaintiff in the same court against 48
defendants, including the Company. On September 26, 1995, a
complaint in a class action lawsuit alleging substantially
identical claims was filed by a third plaintiff in the United
States District Court for the District of Nevada against
45 defendants, including the Company. The three cases have
been consolidated in the United States District Court for the
District of Nevada. The consolidated complaint alleges that
the defendants have engaged in a course of fraudulent and
misleading conduct intended to induce persons to play video
poker and electronic slot machines by collectively misrepresent-
ing how the gaming machines operate, as well as the extent to
which there is an opportunity to win. The complaint alleges
violations of the Racketeer Influenced and Corrupt Organizations
Act, as well as claims of common law fraud, unjust enrichment and
negligent misrepresentation, and seeks unspecified compensatory
and punitive damages. In December 1997, the court granted in
part and denied in part the defendants' motions to dismiss the
complaint for failure to state a claim and ordered the
plaintiffs to file an amended complaint, which was filed in
January 1998. The defendants filed an answer to the amended
complaint in February 1998. Management believes that the claims
against the Company are without merit and intends to continue
to defend the case vigorously.
25
On December 12, 1997, the trustee of the bankruptcy estate
of Ken Mizuno ("Mizuno") filed a complaint against the Company in
the United States Bankruptcy Court for the Central District of
California, which was amended in February 1998. The amended
complaint alleges that Mizuno, a Japanese national and former
casino customer of the Company, repaid various debts to the
Company's casinos prior to the commencement of Mizuno's bank-
ruptcy case in 1992 for which Mizuno was not legally liable and
which were not legally collectible under Japanese law. The
amended complaint alleges that such repayments constituted fraud-
ulent transfers under federal and state law and seeks to require
the Company to pay the value of the transfers, aggregating not
less than $61,418,250, together with interest thereon, to the
bankruptcy trustee. The case is in the early discovery stage.
Management believes that the Company has meritorious defenses to
the claims of the trustee and intends to defend the case
vigorously.
The Company (including its subsidiaries) is also a
defendant in various other lawsuits, most of which relate to
routine matters incidental to its business. Management does not
believe that the outcome of such pending litigation, in the
aggregate, will have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security
holders during the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's 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 indi-
cated, the high and low sale prices of the common stock on the
New York Stock Exchange Composite Tape.
· Download Table
1997 1996
---------------- ----------------
HIGH LOW HIGH LOW
------- ------- ------- -------
First quarter............ $25 7/8 $21 1/8 $24 $16 5/8
Second quarter........... 25 7/8 19 7/8 29 5/8 22
Third quarter............ 30 3/8 23 3/4 27 1/4 18 3/4
Fourth quarter........... 30 1/8 20 1/2 27 1/2 20 3/8
There were approximately 13,100 record holders of the
Company's common stock as of March 27, 1998.
26
The Company paid no dividends in 1997 or 1996. Refer to
Exhibit 10(pp) to this Form 10-K, and Note 4 of Notes to
Consolidated Financial Statements referred to in Item 14(a)(1) of
this Form 10-K, for information concerning a covenant contained
in the Company's bank credit agreement restricting the ability
of the Company to pay cash dividends on its common stock prior
to the opening of Bellagio.
ITEM 6. SELECTED FINANCIAL DATA
· Enlarge/Download Table
YEAR ENDED DECEMBER 31
----------------------------------------------------
1997 1996 (a) 1995 1994 1993 (b)
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
OPERATING RESULTS
Gross revenues................. $1,546.0 $1,496.3 $1,453.7 $1,370.9 $1,053.4
Promotional allowances......... (127.4) (128.8) (123.0) (116.7) (100.1)
Net revenues................... 1,418.6 1,367.5 1,330.7 1,254.2 953.3
Operating income............... 326.0 312.7 284.1 237.8 131.7
Income before extraordinary
item (c)..................... 209.8 206.0 169.9 124.7 48.1
Net income..................... 207.6 206.0 163.2 114.3 29.2
Income per share before
extraordinary item (c)
Basic...................... $ 1.17 $ 1.13 $ 0.93 $ 0.69 $ 0.31
Diluted.................... $ 1.09 $ 1.05 $ 0.88 $ 0.66 $ 0.29
Net income per share
Basic...................... $ 1.16 $ 1.13 $ 0.89 $ 0.63 $ 0.19
Diluted.................... $ 1.08 $ 1.05 $ 0.85 $ 0.60 $ 0.18
OTHER DATA
Interest expense, net of
amounts capitalized.......... $ 7.7 $ 6.8 $ 23.2 $ 44.2 $ 63.5
Net cash provided by
operating activities......... 291.3 331.9 327.0 286.8 208.9
Capital expenditures........... 1,058.9 407.3 183.0 71.9 432.4
YEAR-END STATUS
Construction in progress....... $1,261.1 $ 355.9 $ 84.5 $ 25.3 $ 24.7
Total assets................... 3,347.4 2,143.5 1,791.7 1,641.4 1,705.3
Long-term debt, net of
current maturities........... 1,396.7 468.1 248.5 359.6 535.0
Stockholders' equity (d)....... 1,512.5 1,290.9 1,209.3 1,030.9 910.9
Shares outstanding............. 179.4 178.3 183.3 182.0 181.2
----------
(a) Monte Carlo opened on June 21, 1996.
(b) Treasure Island opened on October 26, 1993.
(c) Before extraordinary losses on early retirements of debt.
(d) The Company paid no dividends during the five-year period
ended December 31, 1997.
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company achieved record earnings in 1997. Income
before extraordinary item of $209.8 million ($1.09 per share)
surpassed the previous records of $206.0 million ($1.05 per
share) and $169.9 million ($0.88 per share) attained in 1996
and 1995, respectively.
Net revenues grew by $51.0 million, or 4%, over 1996.
Casino revenues increased 4%, principally due to a 14% increase
in baccarat play at The Mirage combined with a significantly
higher win percentage. This offset slight declines in slot
revenues and activity at table games other than baccarat, which
management attributes to increases in competition. The Company-
wide table games win percentage was 21.5% in 1997, compared with
19.3% in 1996 and 20.2% in 1995. During 1997, the Company
also benefited from an additional $20.3 million earnings
contribution from Monte Carlo, reflecting that resort's first
full year of operation.
The increase in baccarat play during 1997 was achieved
notwithstanding the economic and currency declines in certain
countries in the Far East, which occurred principally in
the second half of 1997. Baccarat is the game of choice of
V.I.P. customers from the Far East. Baccarat revenues are
traditionally volatile, and short-term swings in the level of
play are common. Nevertheless, management expects the level of
baccarat play during 1998 to be significantly lower than in 1997
due to the Far East declines.
Monte Carlo opened on June 21, 1996, and reported gross
revenues of $262.8 million and operating income of $69.1 million
during 1997, its first full year of operation. During slightly
over six months of operation in 1996, the new resort generated
gross revenues of $147.3 million and operating profit, before a
one-time charge for preopening costs of $11.2 million, of
$38.5 million. After deducting net interest expense, this
unconsolidated joint venture contributed $29.6 million to the
Company's pre-tax earnings in 1997, versus $9.3 million ($14.9
million before preopening costs) for the partial year of
operation during 1996.
Siegfried & Roy at The Mirage and Mystere at Treasure
Island continue to be two of the most successful theatrical
productions in history. During 1997, both productions played
to near full capacity, at a combined average ticket price that
was approximately 7% higher than in 1996. Principally due
to the success of these two productions, net entertainment
revenues grew by $3.4 million, or 4%, over 1996. The Company's
other non-casino revenues were down by a combined 1%, resulting
in a slight decline in total net non-casino revenues. In 1997,
net non-casino revenues accounted for 44% of the Company's total
net revenues, excluding Monte Carlo. This compares with 45% in
1996 and 41% in 1995.
28
The growth in the Company's earnings during 1997 was
achieved despite a significant increase in mid-market competi-
tion. According to the Las Vegas Convention and Visitors
Authority, the number of total available guest room nights in
Las Vegas increased by approximately 11% in 1997 versus 1996,
while total occupied room nights rose by approximately 6%.
As a result, city-wide room occupancy declined to 86.4%,
versus 90.4%.
The Company was less affected during 1997 than much of its
competition. Company-wide standard guest room occupancy
remained high (98.0%, versus 98.8% in 1996 and 98.3% in 1995) and
the average standard room rate at the Company's Las Vegas hotels
rose slightly to $93, compared to $92 in 1996 and $82 in 1995.
However, competition, particularly in the mid-market segment,
remains high. Management anticipates continued pressure on
hotel occupancy and room rates during 1998. The growth in
the number of available guest room nights in 1998, however,
is anticipated to be less than it was in 1997 and less than
it is expected to be in 1999.
Construction disruptions also impacted the Company's
earnings during 1997. At Treasure Island, a luxurious new hotel
lobby was completed in early August, a new retail outlet opened
in September and a new Italian restaurant opened in December.
The Company also completed the refurbishment of 1,382 standard
guest rooms at the Golden Nugget in downtown Las Vegas, resulting
in approximately 3% fewer available room nights at the facility
during 1997 than in 1996. This reduction in available room
inventory and the lower occupancy levels, as partially offset
by slightly higher room rates, resulted in a 2% decline in
Company-wide net room revenues.
During 1996, the Company's net revenues excluding Monte
Carlo grew by $27.5 million over 1995. Non-casino revenues net
of promotional allowances increased by 10%, reflecting growth in
revenue contribution from all departments. Net room revenues
increased by 15% in 1996. A $50 million program was completed
in August 1995 to substantially upgrade the quality of The
Mirage's guest rooms. A smaller guest room refurbishment project
was also completed in 1995 at the Golden Nugget-Las Vegas.
Completion of these two projects resulted in approximately 4%
more available room nights in 1996 than 1995, and the resultant
higher quality of its guest rooms allowed the Company to achieve
a 12% increase in the average standard room rate at its Las Vegas
hotels. The increase in the average room rate, in turn, helped
the Company realize an increase in the gross margin on room
revenues.
29
Net entertainment revenues in 1996 grew by $6.4 million,
or 8%, over 1995. Similar to 1997, the remarkable success of
Siegfried & Roy and Mystere was the major contributor to this
growth. During 1996, both productions played to near full
capacity, at a combined average ticket price that was 7% higher
than in 1995. The increase in the average ticket price resulted
in an improvement in gross margins and profitability. Net
food and beverage and retail revenues were also solid con-
tributors, increasing 9% and 5%, respectively, over 1995.
The growth in operating results in 1996 was achieved
despite a 7% decline in table games revenues caused by a
reduction in both the level of play and the win percentage for
baccarat. Excluding baccarat, table games revenues in 1996
increased by 3% over 1995. Slot revenues increased by 1% over
1995.
OTHER FACTORS AFFECTING EARNINGS
In response to the increased competitive pressures in the
Las Vegas market and in preparation for the opening of Bellagio,
the Company heightened its marketing and promotional efforts
during 1997. The costs associated with these additional efforts
caused the 8% increase in casino costs and expenses and the
small decline in the operating margin at the Company's wholly
owned facilities.
Following an $8.5 million decline in 1996, the Company's
provision for losses on receivables increased by $4.7 million
during 1997. This increase primarily reflects the growth in
table games revenues and in particular the level of table games
credit play. The decline in 1996 is attributable to favorable
collection experience, as well as a reduction in the level of
table games credit play. The provision for losses on receivables
was approximately 5% of total table games revenues in 1997,
compared with approximately 4% in 1996 and 6% in 1995.
The enhancement projects completed during 1997 at Treasure
Island began in November 1996. The construction had little
impact on operating results during 1996, but general and
administrative expense included a $5.4 million charge related
to the abandonment of property associated with the new construc-
tion. The Company recorded a similar charge of $2.7 million
during 1997 associated with the construction of Melange, a new
gourmet restaurant at The Mirage that opened in August, and a
new employee parking garage that was completed in March 1998.
Various projects resulted in a similar charge of $3.6 million
in 1995.
Corporate expense declined by 8% in 1997, principally due
to a gain associated with the sale of one of the Company's
corporate aircraft. The 12% decline in corporate expense in 1996
primarily relates to a reduction in the Company's expansion
efforts in emerging gaming jurisdictions in order to concentrate
on the construction of Bellagio and Beau Rivage and development
of possible future projects in Atlantic City.
30
The Company's growing investment in these new projects
also had a significant impact on the components of interest
expense during 1997. Interest cost and interest capitalized more
than doubled in 1997 versus 1996. The impact on interest
cost was less significant in 1996, as the Company was able to
fund much of the early phases of construction from operating cash
flow.
In February 1996, the Company sold its 50% equity interest
in a small casino located near Iguazu Falls, Argentina for $12.5
million in cash. The sale resulted in a pre-tax gain of $8.0
million, which is included in "Other, including interest income"
in 1996.
In 1995, the Company retired some of its more expensive
debt prior to its scheduled maturity. Although the retirement
was financially advantageous to the Company, the call premium
and the write-off of the related unamortized debt issuance costs
resulted in an extraordinary charge, net of applicable income tax
benefit, of $6.8 million. The Company recorded a similar charge
of $2.2 million in 1997 associated with amending and increasing
the size of its revolving bank credit facility. There were no
such charges in 1996.
CAPITAL RESOURCES, CAPITAL SPENDING AND LIQUIDITY
Net cash provided by operating activities (as shown in the
Consolidated Statements of Cash Flows) was $291.3 million in
1997, versus $331.9 million in 1996 and $327.0 million in 1995.
Although the Company's operating income grew by over 4% in 1997,
the earnings contribution from Monte Carlo (which was $20.3
million greater in 1997 than in 1996) was not distributed to
the Company. Instead, the joint venture is using Monte Carlo's
cash flow to reduce its outstanding debt. From opening to
December 31, 1997, the joint venture repaid nearly half of Monte
Carlo's approximately $210 million original construction debt.
The Company's operating cash flow in 1997 was also impacted
by a significant increase in receivables, a substantial
portion of which occurred near year-end. The associated
revenues are included in the Company's 1997 operating income;
however, due to the normal timing of collections, a large
portion of the receivables remained outstanding at year-end.
Operating cash flow in both 1997 and 1996 was affected by cash
payments for income taxes that represented a higher percentage
of the Company's tax provision than in 1995. These additional
tax payments are principally due to the normal reversal of
temporary book/tax differences relating to the depreciation of
property and equipment and the exhaustion of the Company's
alternative minimum tax credit in 1996.
The Company's capital spending has increased significantly
with the ongoing construction of Bellagio and Beau Rivage.
Capital expenditures totaled approximately $1.1 billion in
1997, versus $407.3 million in 1996 and $183.0 million in
1995. Including land, capitalized interest and preopening costs,
31
but excluding fine art acquired for display and resale at
Bellagio, Bellagio is expected to cost approximately $1.6
billion and Beau Rivage is expected to cost approximately $600
million. Of such amounts, the Company had incurred approxi-
mately $906 million associated with Bellagio and $238 million
associated with Beau Rivage at December 31, 1997. Bellagio is
scheduled to open in October 1998 and Beau Rivage is expected
to open in the first quarter of 1999.
Capital expenditures in 1997 and 1996 include $150.4
million and $39.9 million, respectively, associated with the
purchase of works of fine art for display and resale at
Bellagio. During 1997, the Company sold one of such works
costing approximately $3.0 million for $3.3 million in cash.
In January 1998, the Company also sold four works to its
Chairman for a total sale price of approximately $25.6
million. The sale price was equal to the amount paid by the
Company for the works in the fourth quarter of 1997. Pursuant
to the sales agreement and a subsequent amendment, the Company
is renting from its Chairman, on a month-to-month basis, three
of the four purchased works of art, and eight additional works of
fine art purchased by its Chairman from independent third
parties, for public display at the Company's hotel-casinos.
The monthly rental in effect at March 15, 1998 was $406,320,
which equates to an annual rental of approximately 4% of the
art's $121.4 million aggregate purchase price. This is substan-
tially less than the Company's current cost of borrowing.
In January 1998, the City of Atlantic City conveyed to the
Company a total of approximately 180 acres (125 acres of
which are developable) in the Marina area of the City (the
"Marina Site") in exchange for the Company agreeing to
develop a hotel-casino on the Marina Site. The Company has
also agreed to undertake certain other obligations, including
remediation of environmental contamination on the Marina Site.
Additionally, the Company has entered into an agreement with
the New Jersey Department of Transportation and the South Jersey
Transportation Authority ("SJTA") with respect to the
construction and joint funding of road improvements designed
to improve access to the Marina area. The Company agreed to
fund $110 million of the estimated $330 million total cost of
the road improvements, with the balance to be funded by the
other two parties to the agreement. In October 1997, the
contractor commenced the design phase of the road improvement
project, which is being undertaken pursuant to a fixed-price
design/build contract. Also in October, the Company and
SJTA funded their respective $110 million and $125 million
portions of the cost of the road improvements. Such funds
were deposited in escrow accounts and are restricted for the
construction of the road improvement project.
32
Numerous governmental permits must be received and various
other conditions must be satisfied before construction can
commence on the road improvement project and the Company's
hotel-casino. Accordingly, there can be no assurance that
the Company will construct a hotel-casino in Atlantic City
or as to the timing or cost of construction. The hotel-casino
is in the early design stage and a project budget has not yet
been developed.
On December 22, 1997, the Company entered into agreements
to acquire Boardwalk Casino, Inc. ("BCI") and certain related
assets. This acquisition, combined with adjacent parcels of
land acquired during 1997, will provide the Company with
approximately 12 acres with 817 feet of frontage on the
Las Vegas Strip at a total cost of approximately $140 million.
Of such amount, the Company had expended approximately $75
million at December 31, 1997. The expenditure of most of the
remaining $65 million is expected to occur during the first
half of 1998. The BCI acquisition, together with adjacent
land owned by the Company (including a portion of the Bellagio
site not required for Bellagio) and land the Company has agreed
to acquire in an exchange with Monte Carlo, would afford the
Company a 42-acre site for potential future development on the
Las Vegas Strip, between and contiguous to Bellagio and Monte
Carlo. The design, timing and cost of any such future
development is still highly uncertain.
The Company is funding its capital expenditure requirements
utilizing its operating cash flow, bank credit facility and
commercial paper borrowings and issuances of long-term debt
securities. In March 1997, the availability under the Company's
$1 billion bank credit facility was increased to $1.75
billion and the maturity date was extended from May 1999
to March 2002. The loan agreement governing the bank credit
facility provides that the Company's Leverage Ratio (as defined)
may not exceed 5 to 1 in 1998, except that the maximum
permitted ratio at September 30, 1998 is 5.85 to 1. At December
31, 1997, the Company's Leverage Ratio was 3.37 to 1.
In response to declines in interest rates, as well as to
manage the mix of its fixed and variable rate debt
instruments and lengthen the term of its debt structure,
during the past 12 months the Company has issued $700
million principal amount of the lowest cost fixed-rate debt
in its history. In August 1997, the Company received net
proceeds of approximately $296.1 million from the issuance
of $200 million principal amount of 6 3/4% unsecured notes due
August 2007 and $100 million principal amount of 7 1/4%
unsecured debentures due August 2017. In February 1998, the
Company received net proceeds of approximately $394.7 million
from the issuance of $200 million principal amount of 6 5/8%
unsecured notes due February 2005 and $200 million principal
amount of 6 3/4% unsecured notes due February 2008. The notes
issued in February 1998 were issued pursuant to a shelf
registration statement filed with the Securities and Exchange
Commission in October 1997 that allows the Company to issue a
total of up to $750 million of debt or equity securities or any
combination thereof.
33
Further reducing the cost of its outstanding borrowings,
on March 15, 1998, the Company used bank credit facility and
commercial paper borrowings to fund the maturity of its $133
million principal amount of zero coupon first mortgage notes and
to redeem all $100 million principal amount of its 9 1/4% senior
subordinated notes. The 9 1/4% notes, scheduled to mature
in March 2003, were redeemed at 104.11% of the principal
amount. Although the redemption was financially advantageous to
the Company, the call premium and the write-off of the
unamortized debt issuance costs resulted in an extraordinary
loss of $3.5 million, net of applicable income tax benefit of
$1.9 million, which will be reflected in the Company's 1998 first
quarter operating results. On March 16, 1998, subsequent to
these two transactions, outstanding bank credit facility and
commercial paper borrowings totaled $655.7 million, leaving
approximately $1.1 billion available.
Management believes that existing cash balances, operating
cash flow and available borrowing capacity will provide the
Company with sufficient resources to meet its existing debt
obligations and foreseeable capital expenditure requirements.
REGULATION AND TAXES
The Company is subject to extensive regulation by the
Nevada and Mississippi gaming authorities and will be subject
to regulation, which may or may not be similar to that in Nevada,
by the appropriate authorities in New Jersey and any other
jurisdiction in which it may conduct gaming activities in the
future. Changes in applicable laws or regulations could have a
significant impact on the Company's operations. Pursuant to
legislation enacted in 1996, a federal commission is in the
process of conducting a two-year study of the gaming industry
in the United States and will report its findings and
recommendations to Congress.
The gaming industry represents a significant source of tax
revenues, particularly to the State of Nevada and its
counties and municipalities. From time to time, various
state and federal legislators and officials have proposed changes
in tax law, or in the administration of such law, affecting the
gaming industry. Proposals in recent years that have not been
enacted included a federal gaming tax and increases in state or
local taxes.
Management believes that the Company's recorded tax
balances are adequate. However, it is not possible to determine
with certainty the likelihood of possible changes in tax law or
in the administration of such law. Such changes, if adopted,
could have a material adverse effect on the Company's operating
results.
34
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. The
Company's primary exposure to market risk is interest rate
risk associated with its long-term debt. To date, the Company
has not invested in derivative- or foreign currency-based
financial instruments. The Company attempts to limit its
exposure to interest rate risk by managing the mix of its long-
term fixed-rate borrowings and short-term borrowings under
its revolving bank credit facility (the "Bank Facility") and
commercial paper program.
The following table provides information about the Company's
long-term debt at March 16, 1998.
· Enlarge/Download Table
Maturity Face Carrying Estimated
Date Amount Value Fair Value
---------- -------- -------- ----------
(Dollars in millions)
Bank Facility borrowings, at a weighted
average interest rate of approximately Various to
5.82% ................................... May 1998 $ 280.0 $ 280.0 $ 280.0
Commercial paper notes, at a weighted
average effective interest rate of Various to
approximately 5.77%...................... June 1998 380.0 375.7 375.7
6 5/8% notes .............................. Feb. 2005 200.0 199.0 197.9
7 1/4% notes .............................. Oct. 2006 250.0 249.7 256.6
6 3/4% notes .............................. Aug. 2007 200.0 199.1 198.1
6 3/4% notes .............................. Feb. 2008 200.0 198.9 197.4
7 1/4% debentures ......................... Aug. 2017 100.0 99.7 99.1
Other notes, at a weighted average Various to
interest rate of approximately 6.8%...... Sept. 2007 6.2 6.2 6.2
-------- -------- --------
$1,616.2 $1,608.3 $1,611.0
======== ======== ========
Borrowings under the Bank Facility bear interest, at the
Company's option, at the prime rate or at a specified premium
over the one-, two-, three- or six-month London Interbank Offered
Rate ("LIBOR"). Alternatively, the Company may request interest
rate bids from the participating banks. The Company is required
to pay an additional 0.10% per annum on LIBOR-based borrowings
when its Leverage Ratio exceeds 3.5 to 1. At December 31, 1997,
the Company's Leverage Ratio was 3.37 to 1. It is anticipated
that the Company will be subject to this higher rate for
approximately one year beginning June 1, 1998. The Company's
commercial paper notes are backed by the Bank Facility.
Borrowings under the Bank Facility and commercial paper
program are classified as long-term debt because management
intends to replace such borrowings as they come due and to have
35
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. The Bank
Facility matures in March 2002.
RECENTLY ISSUED ACCOUNTING STATEMENTS
In June 1997, the Financial Accounting Standards Board
issued Statements of Financial Accounting Standards No. 130 -
Reporting Comprehensive Income, and No. 131 - Disclosures About
Segments of an Enterprise and Related Information. The Company
will adopt the provisions of these new accounting statements in
1998. Management believes that adoption of these provisions will
not have a material impact on the Company's reported financial
position or results of operations.
YEAR 2000 COMPLIANCE
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 could result in major system failures or miscalculations,
and is generally referred to as the "Year 2000" problem. A
comprehensive review of the Company's computer systems has been
completed and an extensive program is currently in process to
modify or replace those systems that are not Year 2000 compliant.
Management believes that the Company's systems are compliant or
will be compliant by mid-1999. All maintenance and modification
costs are being expensed as incurred, while the cost of new
software, when material, is being capitalized and amortized over
its expected useful life. The cost of the Year 2000 compliance
program has not been and is not anticipated to be material to
the Company's financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
There is incorporated by reference the information appearing
under the caption "Market Risk" in Item 7 of this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to
Consolidated Financial Statements of Mirage Resorts, Incorporated
and Subsidiaries, referred to in Item 14(a)(1) of this Form 10-K,
are included at pages 49 to 69.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated by reference the information appearing
under the caption "Directors and Executive Officers" in the
Company's definitive Proxy Statement for its May 21, 1998
Annual Meeting of Stockholders, to be filed with the Securities
and Exchange Commission (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated by reference the information appearing
under the caption "Executive Compensation" in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
There is incorporated by reference the information appearing
under the caption "Stock Ownership of Major Stockholders and
Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated by reference the information appearing
under the caption "Compensation Committee Interlocks and Insider
Participation" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)(1). FINANCIAL STATEMENTS.
Included in Part II of this Report:
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1997 and
1996
Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
37
(a)(2). FINANCIAL STATEMENT SCHEDULES.
Included in Part IV of this Report:
Years ended December 31, 1997, 1996 and 1995
Schedule II - Valuation and Qualifying Accounts
Schedules other than that listed above are omitted because
they are not required or are not applicable, or the required
information is shown in the financial statements or notes to the
financial statements.
(a)(3). EXHIBITS.
2(a) Agreement and Plan of Merger, dated December
22, 1997, among Registrant, Mirage Acquisition
Sub, Inc. and BCI (without schedules).
Incorporated by reference to Exhibit 2 to the
Schedule 13D, dated December 29, 1997, filed by
Registrant with respect to BCI (the "Schedule
13D").
2(b) Agreement, dated December 22, 1997, among
Registrant, Diversified Opportunities Group
Ltd., Jacobs Entertainment Nevada, Inc. and
Jeffrey P. Jacobs. Incorporated by reference
to Exhibit 5 to the Schedule 13D.
2(c) Agreement, dated December 22, 1997, between
Registrant and Avis P. Jansen, individually, as
executrix ("Executrix") of the Estate of
Norbert W. Jansen and as trustee ("Trustee")
for the Jansen Family Trust under an Agreement
dated July 14, 1993 (the "Jansen Agreement")
(without exhibits). Incorporated by reference
to Exhibit 3 to the Schedule 13D.
2(d) Agreement of Purchase and Sale and Joint Escrow
Instructions, dated as of December 22, 1997,
between Restaurant Ventures of Nevada, Inc. and
Avis Jansen, as Trustee (without exhibits).
Incorporated by reference to Exhibit 4 to the
Schedule 13D.
3(i)(a) Restated Articles of Incorporation of
Registrant. Incorporated by reference to
Exhibit 3(i) to Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended June
30, 1993.
38
3(i)(b) Amended and Restated Certificate of Division of
Shares into Smaller Denominations Pursuant to
N.R.S. Section 78.207 of Registrant, filed
October 14, 1993. Incorporated by reference to
Exhibit 2.2 to Amendment No. 3 to Registrant's
Registration Statement on Form 8-A dated
October 19, 1993.
3(i)(c) Certificate of Division of Shares into Smaller
Denominations Pursuant to N.R.S. Section 78.207
of Registrant, filed June 5, 1996.
Incorporated by reference to Exhibit 1 to
Amendment No. 4 to Registrant's Registration
Statement on Form 8-A dated June 18, 1996.
3(ii) Amended and Restated Bylaws of Registrant.
Incorporated by reference to Exhibit 99 to
Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1994.
4(a) Indenture, dated as of October 15, 1996,
between Registrant and Firstar Bank of
Minnesota, N.A., as trustee (the "1996 Shelf
Indenture"). Incorporated by reference to
Exhibit 4.1 to Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended
September 30, 1996 (the "September 1996 Form
10-Q").
4(b) Supplemental Indenture, dated as of October 15,
1996, to the 1996 Shelf Indenture, with respect
to Registrant's 7.25% Senior Notes Due October
15, 2006. Incorporated by reference to Exhibit
4.2 to the September 1996 Form 10-Q.
4(c) Indenture, dated as of August 1, 1997, between
Registrant and First Security Bank, National
Association, as trustee (the "1997 Shelf
Indenture"). Incorporated by reference to
Exhibit 4.1 to Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30,
1997 (the "June 1997 Form 10-Q").
4(d) Supplemental Indenture, dated as of August 1,
1997, to the 1997 Shelf Indenture, with respect
to Registrant's 6.75% Notes Due August 1, 2007
and 7.25% Debentures Due August 1, 2017.
Incorporated by reference to Exhibit 4.2 to the
June 1997 Form 10-Q.
4(e) Indenture, dated as of February 4, 1998,
between Registrant and PNC Bank, National
Association, as trustee (the "1998 Shelf
Indenture").
39
4(f) Supplemental Indenture, dated as of February 4,
1998, to the 1998 Shelf Indenture, with respect
to Registrant's 6.625% Notes Due February 1,
2005 and 6.75% Notes Due February 1, 2008.
10(a)* Forms of Incentive Stock Option Agreement and
Non-Qualified Stock Option Agreement.
Incorporated by reference to Exhibit 10(b) to
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989.
10(b)* 1983 Stock Option and Stock Appreciation Rights
Plan, as amended. Incorporated by reference to
Exhibit 4.3 to the Registration Statement filed
by Registrant on Form S-8 under the Securities
Act of 1933 (No. 33-16037) (the "Form S-8").
10(c)* 1984 Stock Option and Stock Appreciation Rights
Plan, as amended. Incorporated by reference to
Exhibit 4.2 to the Form S-8.
10(d)* 1986 Stock Option and Stock Appreciation Rights
Plan, as amended. Incorporated by reference to
Exhibit 4.1 to the Form S-8.
10(e)* 1992 Stock Option and Stock Appreciation Rights
Plan. Incorporated by reference to Exhibit
10(n) to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31,
1991.
10(f)* 1993 Stock Option and Stock Appreciation Rights
Plan. Incorporated by reference to Exhibit
10(m) to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31,
1992 (the "1992 Form 10-K").
10(g)* Executive Retirement Plan Agreement, dated as
of December 1, 1986, between Registrant and
James E. Pettis. Incorporated by reference
to Exhibit 10(mm) to Registrant's Annual Report
on Form 10-K for the fiscal year ended December
31, 1986.
10(h)* Amended and Restated 1992 Non-Employee Director
Stock Option Plan. Incorporated by reference
to Exhibit 10.4 to Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter
ended June 30, 1996.
10(i) Easement, dated December 28, 1990, from MH,
INC. in favor of Stephen A. Wynn. Incorporated
by reference to Exhibit 10(ll) to Amendment No.
1 to the Registration Statement filed by GNS
FINANCE CORP. and MCH on Form S-1 under the
Securities Act of 1933 (No. 33-38496).
40
10(j)* Employment Agreement, dated as of August 18,
1992, between Registrant and Frank Visconti.
Incorporated by reference to Exhibit 19.4 to
Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1992.
10(k)* Employment Agreement, dated as of August 16,
1995, between Registrant and James E. Pettis.
Incorporated by reference to Exhibit 10.5 to
Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1995
(the "September 1995 Form 10-Q").
10(l)* Employment Agreement, dated December 16, 1992,
between Registrant and Stephen A. Wynn.
Incorporated by reference to Exhibit 10(zz) to
the 1992 Form 10-K.
10(m) Lease, dated September 4, 1962, and Agreement,
dated March 25, 1975, between the Trustees of
the Fraternal Order of Eagles, Las Vegas Aerie
1213, and Registrant. Incorporated by
reference to Exhibit 10(c) to the Registration
Statement filed by GNLV FINANCE CORP. and GNLV
on Form S-1 under the Securities Act of 1933
(No. 33-5694) (the "GNLV Form S-1").
10(n) Lease Agreement, dated July 1, 1973, and
Amendment to Lease, dated February 27, 1979,
between First National Bank of Nevada, Trustee
under Private Trust No. 87, and Registrant.
Incorporated by reference to Exhibit 10(d) to
the GNLV Form S-1.
10(o) Lease, dated April 30, 1976, between Elizabeth
Properties Trust, Elizabeth Zahn, Trustee, and
Registrant. Incorporated by reference to
Exhibit 10(e) to the GNLV Form S-1.
10(p)* Amended and Restated 1994 Cash Bonus Plan.
Incorporated by reference to Exhibit 10(qq) to
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (the "1994
Form 10-K").
10(q) Joint Venture Agreement of Victoria Partners,
dated as of December 9, 1994, among MRGS Corp.,
Gold Strike L.V. and Registrant (without
exhibit) (the "Joint Venture Agreement").
Incorporated by reference to Exhibit 99.1 to
Registrant's Current Report on Form 8-K dated
December 9, 1994 (the "December 1994 Form
8-K").
41
10(r) Reducing Revolving Loan Agreement, dated as of
December 21, 1994, among Victoria Partners,
each Bank party thereto, The Long-Term Credit
Bank of Japan, Ltd., Los Angeles Agency and
Societe Generale, as Co-Agents, and Bank of
America National Trust and Savings Association,
as Administrative Agent (without schedules or
exhibits) (the "Victoria Partners Loan
Agreement"). Incorporated by reference to
Exhibit 99.2 to Amendment No. 1 to the December
1994 Form 8-K on Form 8-K/A.
10(s) Amendment No. 1 to the Victoria Partners Loan
Agreement, dated as of January 31, 1995.
Incorporated by reference to Exhibit 10(uu) to
the 1994 Form 10-K.
10(t)* 1995 Stock Option and Stock Appreciation Rights
Plan. Incorporated by reference to Exhibit A
to Registrant's definitive Proxy Statement
filed on April 18, 1995 under cover of Schedule
14A.
10(u) Amendment No. 1 to the Joint Venture Agreement,
dated as of April 17, 1995. Incorporated by
reference to Exhibit 10(c) to Registrant's
Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1995 (the "March 1995
Form 10-Q").
10(v) Amended and Restated Lease, dated as of April
26, 1995, between MKB Company and Beau Rivage
(without exhibits). Incorporated by reference
to Exhibit 10(e) to the March 1995 Form 10-Q.
10(w) Amendment No. 2 to the Victoria Partners Loan
Agreement, dated as of June 30, 1995 (without
exhibit). Incorporated by reference to Exhibit
10.1 to Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1995
(the "June 1995 Form 10-Q").
10(x) Amendment No. 3 to the Victoria Partners Loan
Agreement, dated as of July 28, 1995.
Incorporated by reference to Exhibit 10.3 to
the June 1995 Form 10-Q.
10(y) Amendment No. 2 to the Joint Venture Agreement,
dated as of September 25, 1995. Incorporated
by reference to Exhibit 10.4 to the September
1995 Form 10-Q.
42
10(z)* Employment Agreement, dated as of December 29,
1995, between Registrant and Thomas L. Sheer.
Incorporated by reference to Exhibit 10(bbb) to
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 (the "1995
Form 10-K").
10(aa) Amendment No. 4 to the Victoria Partners Loan
Agreement, dated as of October 16, 1995.
Incorporated by reference to Exhibit 10(a) to
the Quarterly Report on Form 10-Q of Circus
(Commission File No. 1-8570) for the fiscal
quarter ended October 31, 1995.
10(bb)* Executive Medical Reimbursement Plan.
Incorporated by reference to Exhibit 10(hhh) to
the 1995 Form 10-K.
10(cc) Amendment No. 3 to the Joint Venture Agreement,
dated as of February 28, 1996. Incorporated by
reference to Exhibit 10(nnn) to the 1995 Form
10-K.
10(dd) Agreement, dated as of March 7, 1995, between
Atlandia Design and Furnishings, Inc.
("Atlandia") and Marnell Corrao Associates
(without schedules). Incorporated by reference
to Exhibit 10(ooo) to the 1995 Form 10-K.
10(ee) An Agreement Between the City of Atlantic City
and Mirage Resorts, Incorporated for the
Development of the Huron North Redevelopment
Area, dated May 3, 1996 (without exhibits).
Incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1996 (the
"March 1996 Form 10-Q").
10(ff) Completion Guaranty by Registrant in favor of
the City of Atlantic City, dated as of May 3,
1996. Incorporated by reference to Exhibit
10.2 to the March 1996 Form 10-Q.
10(gg) Joint Venture Agreement of Stardust A.C., dated
as of May 29, 1996, between MAC, CORP. and
Grand K, Inc. (without exhibit). Incorporated
by reference to Exhibit 10.1 to the Current
Report on Form 8-K of Boyd (Commission File No.
1-12168) dated June 7, 1996.
10(hh) Letter agreement, dated May 30, 1996, between
Registrant and Circus. Incorporated by
reference to Exhibit 10(a) to the Quarterly
Report on Form 10-Q of Circus for the fiscal
quarter ended April 30, 1996 (the "Circus April
1996 Form 10-Q").
43
10(ii) Amendment No. 4 to the Joint Venture Agreement,
dated as of May 29, 1996. Incorporated by
reference to Exhibit 10(b) to the Circus April
1996 Form 10-Q.
10(jj) Amendment No. 5 to the Victoria Partners Loan
Agreement, dated as of August 1, 1996.
Incorporated by reference to Exhibit 10(a) to
the Quarterly Report on Form 10-Q of Circus for
the fiscal quarter ended July 31, 1996.
10(kk) Road Development Agreement, dated as of January
10, 1997, among Registrant, the State and SJTA
(without schedules or exhibits), and Assignment
and Assumption Agreement, dated as of January
10, 1997, between Registrant and Atlandia.
Incorporated by reference to Exhibit 99 to
Registrant's Current Report on Form 8-K dated
January 10, 1997.
10(ll)* Non-Qualified Deferred Compensation Plan, dated
as of February 1, 1997. Incorporated by
reference to Exhibit 10(ccc) to Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the "1996 Form 10-
K").
10(mm)* Directors' Deferred Fee Plan, dated as of
February 1, 1997. Incorporated by reference to
Exhibit 10(ddd) to the 1996 Form 10-K.
10(nn)* First Amendment to Non-Qualified Deferred
Compensation Plan, dated February 28, 1997.
Incorporated by reference to Exhibit 10(eee) to
the 1996 Form 10-K.
10(oo)* First Amendment to Directors' Deferred Fee
Plan, dated February 28, 1997. Incorporated by
reference to Exhibit 10(fff) to the 1996 Form
10-K.
10(pp) Amended and Restated Loan Agreement, dated as
of March 7, 1997, among Registrant, the Banks
named therein, BancAmerica Securities, Inc.,
CIBC Wood Gundy Securities Corp., J.P. Morgan
Securities Inc. and Societe Generale, as Co-
Arrangers, Bankers Trust Company, The Bank of
New York, The Bank of Nova Scotia, Commerzbank
Aktiengesellschaft, Credit Lyonnais, The Long-
Term Credit Bank of Japan, Ltd., Los Angeles
Agency, PNC Bank, National Association and
44
Westdeutsche Landesbank Girozentrale, as Co-
Agents, Bank of America National Trust and
Savings Association, as Administrative Agent,
and Morgan Guaranty Trust Company of New York,
as Documentation Agent (without schedules or
exhibits). Incorporated by reference to
Exhibit 10(ggg) to the 1996 Form 10-K.
10(qq) Amendment No. 6 to the Victoria Partners Loan
Agreement, dated as of April 2, 1997.
Incorporated by reference to Exhibit 10(ccc) to
the Annual Report on Form 10-K of Circus for
the fiscal year ended January 31, 1997.
10(rr) Global Express Aircraft Purchase Agreement,
dated June 24, 1997, between Golden Nugget
Aviation Corp. ("GNAC") and Bombardier Inc.
(without schedules or exhibits). Incorporated
by reference to Exhibit 10.2 to the June 1997
Form 10-Q.
10(ss) Issuing and Paying Agency Agreement, dated July
24, 1997, between Registrant and First Trust of
New York, National Association (without
exhibit). Incorporated by reference to Exhibit
10.1 to Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30,
1997 (the "September 1997 Form 10-Q").
10(tt) Form of Series A Commercial Paper Note of
Registrant. Incorporated by reference to
Exhibit 10.2 to the September 1997 Form 10-Q.
10(uu) Commercial Paper Dealer Agreement, dated July
24, 1997, between Registrant and BancAmerica
Securities, Inc. (without exhibits).
Incorporated by reference to Exhibit 10.3 to
the September 1997 Form 10-Q.
10(vv) Commercial Paper Dealer Agreement, dated July
24, 1997, between Registrant and Credit Suisse
First Boston Corporation (without exhibits).
Incorporated by reference to Exhibit 10.4 to
the September 1997 Form 10-Q.
10(ww) Commercial Paper Dealer Agreement, dated July
24, 1997, between Registrant and Morgan Stanley
& Co. Incorporated (without exhibits).
Incorporated by reference to Exhibit 10.5 to
the September 1997 Form 10-Q.
10(xx) Commercial Paper Dealer Agreement, dated July
24, 1997, between Registrant and Goldman, Sachs
& Co. (without exhibits). Incorporated by
reference to Exhibit 10.6 to the September 1997
Form 10-Q.
45
10(yy) First Amendment to Road Development Agreement,
dated as of July 31, 1997, among the State,
SJTA and Atlandia. Incorporated by reference
to Exhibit 10.7 to the September 1997 Form 10-
Q.
10(zz)* Letter agreement, dated September 16, 1997,
between Registrant and Frank Visconti.
Incorporated by reference to Exhibit 10.8 to
the September 1997 Form 10-Q.
10(aaa) Amendment No. 1 to Amended and Restated Loan
Agreement, dated as of September 19, 1997,
among Registrant, the Banks, Co-Arrangers, Co-
Agents and Documentation Agent referred to
therein, and Bank of America National Trust and
Savings Association, as Administrative Agent.
Incorporated by reference to Exhibit 10.9 to
the September 1997 Form 10-Q.
10(bbb) Second Amendment to Road Development Agreement,
dated as of October 10, 1997, among the State,
SJTA and Atlandia (without schedules or
exhibits). Incorporated by reference to Exhibit
10.10 to the September 1997 Form 10-Q.
10(ccc) Letter agreement, dated March 12, 1998, between
Bellagio and Stephen A. Wynn (with exhibit).
10(ddd) Aircraft Purchase Agreement, dated as of
October 10, 1997, between Ivanhoe Capital
Aviation L.L.C. and GNAC (without exhibits).
Incorporated by reference to Exhibit 10.12 to
the September 1997 Form 10-Q.
10(eee) Design/Build Contract, dated September 8, 1997,
between Atlandia and Yonkers Contracting
Company, Inc./Granite Construction Company, a
Joint Venture (with appendices). Incorporated
by reference to Exhibit 10.13 to the September
1997 Form 10-Q.
10(fff) Escrow Fund Agreement, dated as of October 10,
1997, among CoreStates Bank, N.A., as Escrow
Agent, Atlandia, the State and SJTA (without
schedules). Incorporated by reference to
Exhibit 10.14 to the September 1997 Form 10-Q.
10(ggg) Bond Purchase Agreement, dated October 10,
1997, between Registrant and SJTA (without
exhibit). Incorporated by reference to Exhibit
10.15 to the September 1997 Form 10-Q.
46
10(hhh) Donation Agreement, dated as of October 10,
1997, between the Casino Reinvestment
Development Authority and MAC, CORP. (without
exhibits). Incorporated by reference to Exhibit
10.16 to the September 1997 Form 10-Q.
10(iii) Aircraft Purchase Agreement, dated as of
October 1, 1997, between Rifton Enterprises,
Inc. and GNAC (without exhibits). Incorporated
by reference to Exhibit 10.17 to the September
1997 Form 10-Q.
10(jjj) Agreement, dated as of July 3, 1996, between
Beau Rivage Construction (a Division of Beau
Rivage Resorts, Inc.) and W.G. Yates & Sons
Construction Co. (without schedules).
10(kkk)* Employment Agreement, dated as of July 16,
1997, between Registrant and Daniel R. Lee
(with exhibits).
10(lll) Agreement of Sale, dated as of November 24,
1997, among MCH, TI Corp. and H-S Las Vegas
Associates (without exhibits).
10(mmm) First Amendment to Jansen Agreement, dated as
of January 30, 1998, between Registrant and
Avis P. Jansen, individually, as Executrix and
as Trustee.
10(nnn) An Amendment to the May 3, 1996 Agreement
between the City of Atlantic City and Mirage
Resorts, Incorporated for the Development of
the Huron North Redevelopment Area, dated
January 8, 1998 (without exhibits).
10(ooo) Letter agreement, dated January 14, 1998,
between Bellagio and Stephen A. Wynn (with
exhibits).
10(ppp)* Second Amendment to Non-Qualified Deferred
Compensation Plan, dated as of February 1,
1998.
10(qqq)* Second Amendment to Directors' Deferred Fee
Plan, dated as of February 1, 1998.
10(rrr)* 1998 Stock Option and Stock Appreciation Rights
Plan.
47
21 List of subsidiaries of Registrant.
Incorporated by reference to Exhibit 21 to the
1996 Form 10-K.
23 Consent of Arthur Andersen LLP.
27(a) Financial Data Schedule - Year ended December
31, 1997.
27(b) Restated Financial Data Schedule - Year ended
December 31, 1996 and Periods ended March 31,
1997, June 30, 1997 and September 30, 1997.
27(c) Restated Financial Data Schedule - Year ended
December 31, 1995 and Periods ended March 31,
1996, June 30, 1996 and September 30, 1996.
---------------
*Constitutes a management contract or compensatory plan or
arrangement.
(b). REPORTS ON FORM 8-K.
The Company filed no reports on Form 8-K during the
three-month period ended December 31, 1997.
48
MIRAGE RESORTS, INCORPORATED
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, 1997 and 1996,
and the related consolidated statements of income, stockholders'
equity and cash flows for the years ended December 31, 1997, 1996
and 1995. These consolidated financial statements and the
schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstate-
ment. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial state-
ments. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for
the years ended December 31, 1997, 1996 and 1995 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The financial
statement schedule for the years ended December 31, 1997, 1996
and 1995 listed in Item 14(a)(2) is presented for purposes of
complying with the Securities and Exchange Commission's rules and
is not a required part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data
required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 16, 1998
49
· Enlarge/Download Table
MIRAGE RESORTS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
AT DECEMBER 31
-------------------------
1997 1996
---------- ----------
CURRENT ASSETS
Cash and cash equivalents........................................... $ 99,337 $ 81,908
Receivables, net of allowance for doubtful accounts of $42,477
and $38,674....................................................... 101,635 70,196
Income tax refund receivable........................................ 9,658 18,239
Inventories......................................................... 29,179 27,554
Deferred income taxes............................................... 16,047 18,784
Prepaid expenses and other.......................................... 45,066 19,602
---------- ----------
Total current assets............................................ 300,922 236,283
Property and equipment, net.......................................... 1,455,125 1,427,018
Construction in progress............................................. 1,261,084 355,864
Other assets, net.................................................... 330,219 124,325
---------- ----------
$3,347,350 $2,143,490
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable.............................................. $ 93,052 $ 88,805
Construction payables............................................... 58,941 31,489
Accrued payroll..................................................... 46,800 41,164
Accrued interest.................................................... 17,809 5,867
Other accrued expenses.............................................. 39,858 50,687
Current maturities of long-term debt................................ 927 453
---------- ----------
Total current liabilities....................................... 257,387 218,465
Long-term debt, net of current maturities............................ 1,396,728 468,140
Other liabilities, including deferred income taxes of $167,415
and $155,076....................................................... 180,751 166,002
---------- ----------
Total liabilities............................................... 1,834,866 852,607
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $0.004: authorized 1,125,000,000 shares;
issued 235,147,650 shares; outstanding 179,421,822 and
178,335,915 shares................................................ 940 940
Additional paid-in capital.......................................... 734,547 725,240
Retained earnings................................................... 1,063,793 856,215
Treasury stock, at cost: 55,725,828 and 56,811,735 shares.......... (286,796) (291,512)
---------- ----------
Total stockholders' equity...................................... 1,512,484 1,290,883
---------- ----------
$3,347,350 $2,143,490
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
50
· Enlarge/Download Table
MIRAGE RESORTS, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31
----------------------------------------
1997 1996 1995
---------- ---------- ----------
REVENUES
Casino................................ $ 784,512 $ 752,914 $ 782,812
Rooms................................. 297,885 303,566 268,734
Food and beverage..................... 218,974 224,430 208,943
Entertainment......................... 97,924 94,361 87,478
Retail................................ 65,703 66,187 63,187
Other................................. 51,450 45,626 42,562
Equity in earnings of Monte Carlo..... 29,601 9,273 -
---------- ---------- ----------
1,546,049 1,496,357 1,453,716
Less - promotional allowances......... (127,498) (128,813) (122,972)
---------- ---------- ----------
1,418,551 1,367,544 1,330,744
---------- ---------- ----------
COSTS AND EXPENSES
Casino................................ 414,482 384,301 387,243
Rooms................................. 88,705 88,602 82,863
Food and beverage..................... 143,069 142,549 136,868
Entertainment......................... 77,377 75,507 73,107
Retail................................ 44,068 43,238 40,728
Other................................. 26,487 24,911 24,119
Provision for losses on receivables... 19,213 14,480 23,024
General and administrative............ 161,960 163,045 156,454
Depreciation and amortization......... 87,956 86,661 86,223
Corporate expense..................... 29,193 31,580 36,028
---------- ---------- ----------
1,092,510 1,054,874 1,046,657
---------- ---------- ----------
OPERATING INCOME........................ 326,041 312,670 284,087
---------- ---------- ----------
OTHER INCOME AND (EXPENSE)
Interest cost......................... (70,350) (31,106) (32,799)
Interest capitalized.................. 62,673 24,281 9,616
Other, including interest income...... 6,715 12,563 4,357
---------- ---------- ----------
(962) 5,738 (18,826)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM..................... 325,079 318,408 265,261
Provision for income taxes............ (115,276) (112,363) (95,313)
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM........ 209,803 206,045 169,948
Extraordinary item - loss on early
retirements of debt, net of
applicable income tax benefit........ (2,225) - (6,785)
---------- ---------- ----------
NET INCOME.............................. $ 207,578 $ 206,045 $ 163,163
========== ========== ==========
INCOME PER SHARE OF COMMON STOCK
Income before extraordinary item
Basic................................ $ 1.17 $ 1.13 $ 0.93
Diluted.............................. 1.09 1.05 0.88
Net income
Basic................................ $ 1.16 $ 1.13 $ 0.89
Diluted.............................. 1.08 1.05 0.85
The accompanying notes are an integral part of these consolidated financial statements.
51
· Enlarge/Download Table
MIRAGE RESORTS, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
COMMON STOCK ADDITIONAL
-------------------- PAID-IN
SHARES PAR CAPITAL RETAINED TREASURY
OUTSTANDING VALUE AND OTHER EARNINGS STOCK TOTAL
----------- ----- --------- ---------- --------- ----------
BALANCES, JANUARY 1, 1995................... 181,991,276 $ 940 $699,116 $ 487,007 $(156,141) $1,030,922
Exercise of common stock options.......... 1,146,500 - 1,889 - 3,352 5,241
Tax benefit from stock option exercises... - - 4,217 - - 4,217
Repurchases of common stock............... (31,576) - - - (482) (482)
Other..................................... 235,294 - 5,594 - 688 6,282
Net income................................ - - - 163,163 - 163,163
----------- ----- -------- ---------- --------- ----------
BALANCES, DECEMBER 31, 1995................. 183,341,494 940 710,816 650,170 (152,583) 1,209,343
Exercise of common stock options.......... 1,677,550 - 3,418 - 5,297 8,715
Tax benefit from stock option exercises... - - 10,137 - - 10,137
Repurchases of common stock............... (6,683,129) - - - (144,226) (144,226)
Other..................................... - - 869 - - 869
Net income................................ - - - 206,045 - 206,045
----------- ----- -------- ---------- --------- ----------
BALANCES, DECEMBER 31, 1996................. 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
=========== ===== ======== ========== ========= ==========
The accompanying notes are an integral part of these consolidated financial statements.
52
· Enlarge/Download Table
MIRAGE RESORTS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31
---------------------------------------
1997 1996 1995
----------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................................. $ 207,578 $ 206,045 $ 163,163
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for losses on receivables.................................. 19,213 14,480 23,024
Depreciation and amortization of property and equipment,
including amounts reported as corporate expense.................... 97,533 93,319 90,575
Equity in undistributed earnings of Monte Carlo...................... (29,601) (9,273) -
Amortization of debt discount and issuance costs..................... 14,778 14,514 13,172
Loss on early retirements of debt.................................... 3,422 - 10,439
Deferred income taxes................................................ 15,076 30,230 43,568
Changes in components of working capital pertaining to
operating activities
Increase in receivables and other current assets.................. (49,198) (25,834) (42,794)
Increase in trade accounts payable and accrued expenses........... 10,996 16,665 24,284
Other................................................................ 1,546 (8,266) 1,523
----------- --------- ---------
Net cash provided by operating activities...................... 291,343 331,880 326,954
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................................... (1,058,900) (407,276) (182,993)
Net (increase) decrease in construction deposits........................ (111,665) (5,970) 1,194
Increase in construction payables....................................... 27,452 27,511 1,447
Proceeds from sales of property and equipment........................... 30,825 5,121 2,763
Preopening costs........................................................ (22,220) (8,665) (1,668)
Joint venture and other investments..................................... (52,990) (23,976) (29,084)
Proceeds from sale of joint venture interest and other investments...... - 30,627 8,249
Other................................................................... (6,309) (741) -
----------- --------- ---------
Net cash used for investing activities......................... (1,193,807) (383,369) (200,092)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in bank credit facility and commercial
paper borrowings....................................................... 612,795 (41,882) 21,882
Proceeds from issuance of notes and debentures.......................... 296,052 247,387 -
Early retirements of public debt........................................ - - (134,180)
Other decreases in debt................................................. (453) (264) (21,985)
Repurchases of common stock............................................. (1,126) (144,226) (482)
Exercise of common stock options, including related income
tax benefit............................................................ 12,791 18,852 9,458
Other................................................................... (166) 5,504 (671)
----------- --------- ---------
Net cash provided by (used for) financing activities........... 919,893 85,371 (125,978)
----------- --------- ---------
CASH AND CASH EQUIVALENTS
Increase for the year................................................... 17,429 33,882 884
Balance, beginning of year.............................................. 81,908 48,026 47,142
----------- --------- ---------
Balance, end of year.................................................... $ 99,337 $ 81,908 $ 48,026
=========== ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for
Interest, net of amounts capitalized................................. $ - $ - $ 13,325
Income taxes, net of refunds......................................... 72,000 93,000 37,000
Noncash investing activities
Contribution of land in exchange for partnership interest............ - - 23,170
The accompanying notes are an integral part of these consolidated financial statements.
53
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"), a Nevada corporation, through wholly owned
subsidiaries, owns and operates some of the most successful
casino-based entertainment resorts in the world. These resorts
include The Mirage and Treasure Island on the Las Vegas Strip,
the Golden Nugget in downtown Las Vegas and the Golden Nugget-
Laughlin in Laughlin, Nevada. The Company is also a 50% partner
in a joint venture that owns and operates the Monte Carlo Resort
& Casino ("Monte Carlo"), which opened June 21, 1996 on the Las
Vegas Strip.
The Company is currently constructing two additional wholly
owned hotel-casino resorts. Bellagio, an elegant 3,005-guest
room luxury resort, is being constructed on approximately 90
acres of a 120-acre site on the Las Vegas Strip. Beau Rivage, a
luxurious 1,780-guest room beachfront resort, is being con-
structed on approximately 23 acres in Biloxi, Mississippi.
Bellagio is scheduled to open in October 1998 and Beau Rivage is
expected to open in the first quarter of 1999.
PRINCIPLES OF CONSOLIDATION. The consolidated financial
statements include the accounts of the Company and its
subsidiaries. All 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.
CASINO REVENUES AND PROMOTIONAL ALLOWANCES. The Company
recognizes as casino revenues the net win from gaming activities,
which is the difference between gaming wins and losses. Revenues
include the estimated retail value of rooms, food and beverage
and other goods and services provided to customers on a
complimentary basis as follows:
· Download Table
YEAR ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
Rooms.................... $ 55,153 $ 55,125 $ 52,592
Food and beverage........ 64,575 66,424 63,664
Other.................... 7,770 7,264 6,716
-------- -------- --------
$127,498 $128,813 $122,972
======== ======== ========
54
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
After being included in gross revenues, such amounts are
then deducted as promotional allowances. The estimated costs
of providing these promotional allowances, totaling $90.2 million
in 1997, $88.3 million in 1996 and $87.2 million in 1995, have
been classified primarily as casino costs and expenses.
CASH AND CASH EQUIVALENTS. The Company classifies as cash
equivalents all highly liquid debt instruments with a maturity of
three months or less when purchased. Cash equivalents are
carried at cost which approximates fair value.
CONCENTRATIONS OF CREDIT RISK. Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of short-term investments and receivables.
The Company's short-term investments typically consist of
U.S. Government-backed repurchase agreements with maturities of
30 days or less. Such investments are made with financial
institutions having a high credit quality and the Company limits
the amount of its credit exposure to any one financial
institution. Due to the short-term nature of the instruments,
the Company does not take possession of the securities, which are
instead held in a custodial account.
The Company extends credit to a limited number of casino
patrons, but only following background checks and investigations
of creditworthiness. At December 31, 1997, a substantial portion
of the receivables was due from foreign customers. The
collectibility of these receivables could be affected by future
business or economic trends or other significant events in the
countries in which such customers reside.
The Company maintains an allowance for doubtful accounts to
reduce its receivables to their carrying amount, which
approximates fair value. Management believes that as of December
31, 1997, 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.
55
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED INTEREST. Interest cost associated with major
construction projects is capitalized. Since no debt has been
incurred specifically for the Company's current projects,
interest is capitalized on amounts expended on the projects
using the weighted average cost of the Company's outstanding
borrowings. The amount of interest capitalized in any accounting
period cannot exceed the Company's total interest cost in such
period. Capitalization of interest ceases when the project is
substantially complete.
PREOPENING COSTS. Preopening costs, representing primarily
direct personnel and other costs incurred prior to the opening of
a new hotel-casino, are capitalized as incurred and amortized to
expense over the 60-day period following opening of the related
facility. Capitalized preopening costs associated with new hotel-
casinos scheduled to open within one year from the date of the
financial statements are classified as current assets and
included in "Prepaid expenses and other." For new projects
scheduled to open more than one year from the date of the
financial statements, such costs are included in "Other assets,
net."
DEBT DISCOUNT AND ISSUANCE COSTS. Debt discount and issuance
costs are capitalized and amortized to expense based on the terms
of the related debt agreements using the effective interest
method or a method which approximates the effective interest
method.
CORPORATE EXPENSE. Corporate expense represents unallocated
payroll costs, professional fees, costs associated with operating
and maintaining the Company's aircraft and various other expenses
not directly related to operating the Company's hotel-casinos.
Corporate expense includes the costs associated with the
Company's evaluation and pursuit of new gaming opportunities.
Such costs are expensed as incurred until construction of a
project has become relatively certain.
INCOME PER SHARE OF COMMON STOCK. In 1997, the Company
adopted Statement of Financial Accounting Standards No. 128 -
Earnings Per Share ("SFAS 128"). SFAS 128 replaces previously
reported earnings per share with "basic" earnings per share and
"diluted" earnings per share. Basic earnings per share is
computed by dividing reported earnings by the weighted-average
number of common shares outstanding during the period. Diluted
earnings per share reflects the additional dilution for all
potentially dilutive securities such as stock options. Diluted
earnings per share is similar to earnings per share previously
reported by the Company, but includes the potential dilution for
stock options that become exercisable more than five years from
the date of the financial statements. All previously reported
income per share amounts have been restated herein to reflect the
adoption of SFAS 128.
56
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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:
· Enlarge/Download Table
YEAR ENDED DECEMBER 31
---------------------------------------
1997 1996 1995
----------- ----------- -----------
Weighted-average common shares outstanding (used in
the computation of basic earnings per share)............. 178,816,348 182,988,904 182,496,454
Potential dilution from the assumed exercise of common
stock options............................................ 13,719,527 13,694,408 9,834,960
----------- ----------- -----------
Weighted-average common and common equivalent shares
(used in the computation of diluted earnings
per share)............................................... 192,535,875 196,683,312 192,331,414
=========== =========== ===========
Pursuant to SFAS 128, options having an exercise price
greater than the average market price of the underlying common
stock during the period are excluded from the computation of
diluted earnings per share. Substantially all of the Company's
outstanding stock options were included in the calculations for
the periods presented.
RECLASSIFICATIONS. Certain amounts in the 1996 and 1995
consolidated financial statements have been reclassified to
conform to the 1997 presentation. These reclassifications had no
effect on the Company's net income.
USE OF ESTIMATES. The consolidated financial statements have
been prepared in conformity with generally accepted accounting
principles. Those principles require management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from such estimates.
57
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
· Enlarge/Download Table
AT DECEMBER 31
-----------------------
1997 1996
---------- ----------
Land......................................................... $ 330,015 $ 302,885
Land improvements............................................ 125,523 118,934
Buildings.................................................... 946,464 918,936
Furniture, fixtures and equipment............................ 686,686 638,218
---------- ----------
2,088,688 1,978,973
Less accumulated depreciation................................ (633,563) (551,955)
---------- ----------
$1,455,125 $1,427,018
========== ==========
NOTE 3 - OTHER ASSETS, NET
Other assets, net consisted of the following:
· Enlarge/Download Table
AT DECEMBER 31
-----------------------
1997 1996
---------- ----------
Construction deposits........................................ $ 114,963 $ 6,249
Joint venture and other investments.......................... 145,355 66,703
Other, net................................................... 69,901 51,373
---------- ----------
$ 330,219 $ 124,325
========== ==========
58
NOTE 4 - LONG-TERM DEBT
Long-term debt consisted of the following:
· Enlarge/Download Table
AT DECEMBER 31
-----------------------
1997 1996
---------- ----------
Zero coupon first mortgage notes (effective interest
rate of 11%), repaid March 1998............................ $ 130,074 $ 116,699
9-1/4% senior subordinated notes, redeemed March 1998........ 100,000 100,000
Revolving bank credit facility, at a weighted average
interest rate of 6.22%..................................... 365,000 -
Commercial paper notes, at a weighted average effective
interest rate of 6.03%..................................... 247,795 -
7-1/4% notes, due October 2006, net of unamortized original
issue discount of $299 and $323............................ 249,701 249,677
6-3/4% notes, due August 2007, net of unamortized original
issue discount of $879..................................... 199,121 -
7-1/4% debentures, due August 2017, net of unamortized
original issue discount of $302............................ 99,698 -
Other notes bearing interest at rates between 6% and 12%
at December 31, 1997, maturities to September 2007......... 6,266 2,217
---------- ----------
1,397,655 468,593
Less current maturities...................................... (927) (453)
---------- ----------
$1,396,728 $ 468,140
========== ==========
59
NOTE 4 - LONG-TERM DEBT (CONTINUED)
The zero coupon first mortgage notes were issued in March
1988 by GNS FINANCE CORP. ("Finance"), a wholly owned subsidiary
of the Company. The notes were collateralized by first liens on
The Mirage and Treasure Island and guaranteed by The Mirage
operating subsidiary. The notes are shown in the above table at
their accreted value rather than their face amount, as the
holders of the notes were not entitled to the face amount upon
default or other accelerated maturity, but only to the accreted
value. The unamortized debt discount was $2.9 million and $16.3
million at December 31, 1997 and 1996, respectively. The notes
are classified as long-term debt because the Company used its
revolving bank credit facility and commercial paper borrowings
(classified as long-term debt as discussed below) to fund their
March 15, 1998 maturity.
The 9-1/4% senior subordinated notes were issued by Finance
in March 1993 and guaranteed by The Mirage operating subsidiary.
On March 15, 1998, the Company used its revolving bank credit
facility and commercial paper borrowings to redeem the notes at
104.11% of the principal amount. The notes were scheduled to
mature in March 2003. The redemption premium and the write-off
of the unamortized debt issue costs resulted in an extraordinary
loss of $3.5 million, net of applicable income tax benefit of
$1.9 million, which will be reflected in the Company's 1998
first quarter operating results.
On March 7, 1997, the Company's $1 billion revolving bank
credit facility maturing in May 1999 was amended to increase the
total availability to $1.75 billion and extend the maturity to
March 2002 (as so amended, the "Bank Facility"). Under certain
circumstances, the Bank Facility can be increased to $2 billion.
Borrowings under the Bank Facility are uncollateralized and bear
interest, at the Company's option, at the prime rate or at a
specified premium over the one-, two-, three- or six-month London
Interbank Offered Rate ("LIBOR"). The premium is based on the
credit rating of the Company's 7-1/4% notes due October 2006 and
is currently 0.35% per annum. 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 credit rating of
the 7-1/4% notes. The commitment fee is currently 0.125% per
annum.
The loan agreement governing the Bank Facility contains a
covenant that the Company will not permit its Leverage Ratio (as
defined) to exceed a specified amount. During 1998, the
Company's Leverage Ratio may not exceed 5 to 1, except that the
maximum permitted ratio at September 30, 1998 is 5.85 to 1. The
Company is required to pay an additional 0.10% per annum on
LIBOR-based borrowings when its Leverage Ratio exceeds 3.5 to 1.
At December 31, 1997, the Company's Leverage Ratio was 3.37 to 1.
The loan agreement also contains a covenant that limits the
60
NOTE 4 - LONG-TERM DEBT (CONTINUED)
ability of the Company and its subsidiaries, prior to the opening
of Bellagio, to pay dividends on or repurchase the Company's
capital stock, make capital expenditures (other than mainten-
ance capital expenditures and capital expenditures for the
completion of Bellagio and Beau Rivage) and acquisitions or
invest in less-than-majority-owned new business ventures. At
December 31, 1997, the loan agreement limited such expenditures
to an aggregate of approximately $525 million. Such amount
increases by 50% of the Company's consolidated net income
plus 100% of cash proceeds received from any future issuances of
its capital stock. The loan agreement 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).
In many respects, the amended Bank Facility is tantamount
to a new facility. As a result, the Company wrote off the
unamortized up-front costs and fees associated with the original
$1 billion facility, resulting in an extraordinary charge of $2.2
million ($0.01 per share basic and diluted), net of applicable
income tax benefit of $1.2 million.
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.
The 7-1/4% notes were issued by the Company in October 1996.
The Company issued the 6-3/4% notes and the 7-1/4% debentures in
August 1997.
On February 4, 1998, the Company issued $200 million princi-
pal amount of 6-5/8% notes due February 1, 2005 and $200 million
principal amount of 6-3/4% notes due February 1, 2008. The notes
were issued pursuant to a shelf registration statement filed with
the Securities and Exchange Commission on October 30, 1997 that
allows the Company to issue a total of up to $750 million of debt
or equity securities or any combination thereof. The net
proceeds from the offering of approximately $394.7 million
(after deducting original issue discount and debt issuance costs)
were used to reduce outstanding Bank Facility and commercial
paper borrowings.
61
NOTE 4 - LONG-TERM DEBT (CONTINUED)
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
(i) 100% of the principal amount or (ii) 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.
In 1995, the Company retired, prior to scheduled maturity,
$126.0 million principal amount of 9-7/8% first mortgage notes
issued by a wholly owned subsidiary and associated with The
Mirage and Treasure Island. The retirement resulted in an
extraordinary loss of $6.8 million ($0.04 per share basic and
$0.03 per share diluted), net of applicable income tax benefit of
$3.6 million.
After giving effect to the payment of the zero coupon
first mortgage notes upon maturity as described above, the only
significant debt maturing during the next five years are amounts
borrowed under or backed by the Bank Facility, which matures in
March 2002. Outstanding Bank Facility borrowings and commercial
paper notes backed by the Bank Facility totaled $655.7 million at
March 16, 1998.
The estimated fair value of the Company's long-term debt at
December 31, 1997 was approximately $1,407,000, versus its book
value of $1,397,655. At December 31, 1996, the estimated fair
value of the Company's long-term debt was approximately $485,000,
versus its book value of $468,593. The estimated fair value
amounts were based on quoted market prices on or about December
31, 1997 and 1996 for the Company's debt securities that are
traded. For the debt securities that are not traded, fair value
was based on estimated discounted cash flows using current rates
offered to the Company for debt securities having similar
remaining maturities.
NOTE 5 - INCOME TAXES
The provision for income taxes for financial reporting
purposes consisted of the following:
· Download Table
YEAR ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- -------
Income from continuing operations........... $115,276 $112,363 $95,313
Tax benefit from extraordinary losses
on early retirements of debt.............. (1,198) - (3,654)
-------- -------- -------
$114,078 $112,363 $91,659
======== ======== =======
62
NOTE 5 - INCOME TAXES (CONTINUED)
The provision for income taxes attributable to income from
continuing operations consisted of the following:
· Download Table
YEAR ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- -------
CURRENT
Federal................................... $ 90,185 $ 82,165 $51,564
State..................................... 15 38 (33)
-------- -------- -------
90,200 82,203 51,531
DEFERRED
Federal................................... 25,076 30,160 43,782
-------- -------- -------
$115,276 $112,363 $95,313
======== ======== =======
There were no significant differences between the federal
income tax statutory rate and the Company's effective tax rate
for the years ended December 31, 1997, 1996 and 1995.
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.
63
NOTE 5 - INCOME TAXES (CONTINUED)
The components of the deferred tax liability consisted of
the following:
· Download Table
AT DECEMBER 31
--------------------
1997 1996
-------- --------
DEFERRED TAX LIABILITIES
Temporary differences related to property
and equipment...................................... $161,129 $146,496
Other temporary differences......................... 18,536 20,968
-------- --------
Gross deferred tax liabilities................... 179,665 167,464
-------- --------
DEFERRED TAX ASSETS
Temporary differences related to receivables........ 13,612 13,536
Accrued vacation pay................................ 5,007 5,117
Other temporary differences......................... 9,678 12,519
-------- --------
Gross deferred tax assets........................ 28,297 31,172
-------- --------
Net deferred tax liabilities..................... $151,368 $136,292
======== ========
NOTE 6 - EMPLOYEE BENEFIT PLANS
Employees of the Company who are members of various unions
are covered by union-sponsored, collectively bargained, multi-
employer health and welfare and defined benefit pension plans.
The Company recorded an expense of $29.8 million in 1997, $26.5
million in 1996 and $29.8 million in 1995 under such plans.
Sufficient information is not available from the plans' sponsors
to permit the Company to determine its share of unfunded vested
benefits, if any.
The Company 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 $4.3 million in 1997, $4.0 million in
1996 and $3.5 million in 1995.
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 Company recorded total
expense of $0.9 million in 1997, $1.6 million in 1996 and $2.3
million in 1995 for these arrangements. The total liability
for the arrangements at December 31, 1997 and 1996 was $11.7
million and $10.2 million, respectively.
64
NOTE 7 - 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, 1997 total $37.7 million. Of this amount, $12.1
million is payable during the five-year period subsequent to
December 31, 1997. Aggregate rent expense was $5.6 million in
1997, $4.2 million in 1996 and $3.6 million in 1995.
ENTERTAINMENT SERVICES. The Company has entered into two
agreements for major productions appearing in the showrooms at
The Mirage and Treasure Island. These agreements expire in 2001
and 2004, respectively. Under the terms of the agreements, the
Company is required to pay the producers of the shows a total of
approximately $28 million per year and a percentage of show
revenues in excess of a specified amount or a percentage of show
profits. Such payments are contingent upon the actual
performance of shows and under certain conditions, including
failure of the respective show to achieve specified financial
results, the Company may terminate the agreements without
material financial obligation. The producers are responsible for
paying the talent and most other costs of presenting the shows.
The Company made payments pursuant to the agreements totaling
approximately $51.7 million in 1997, $49.6 million in 1996 and
$46.7 million in 1995.
LITIGATION. The Company is a party to various legal
proceedings, most of which relate to routine matters incidental
to its business. Management does not believe that the outcome of
such proceedings will have a material adverse effect on the
Company's financial position or results of operations.
NOTE 8 - STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
At December 31, 1997, the Company had in effect 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. Options granted under the plans generally
become exercisable either ratably over, or on a single date,
three to five years from the date of grant. In 1995, a total
of seven million options were granted to certain executives of
the Company that become exercisable approximately 10 years from
the date of grant. Certain of the plans also permit the granting
of stock appreciation rights ("SARs"). At December 31, 1997, no
SARs had been granted under the plans.
65
NOTE 8 - STOCK OPTIONS AND STOCK APPRECIATION RIGHTS (CONTINUED)
Summarized information for the stock option plans is as
follows:
· Enlarge/Download Table
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- ----------- ---------- ----------- ---------- ----------
Outstanding at beginning
of year..................... 34,842,950 $ 9.47 35,490,500 $ 8.99 25,258,668 $ 5.70
Granted....................... 2,872,500 23.00 1,130,000 18.73 11,570,000 15.93
Exercised..................... (1,136,888) 5.46 (1,677,550) 5.19 (1,146,500) 4.57
Terminated.................... - (100,000) 16.31 (191,668) 6.59
---------- ---------- ----------
Outstanding at end of year.... 36,578,562 10.66 34,842,950 9.47 35,490,500 8.99
========== ========== ==========
Options exercisable (i.e.,
vested) at end of year...... 19,218,730 $ 6.44 18,564,450 $ 5.98 18,353,500 $ 5.11
Options and SARs available
for grant at end of year.... 794,668 3,667,168 4,712,168
· Enlarge/Download Table
The following table summarizes information about stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------------------- ---------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------ ----------- ------------ --------- ----------- ----------
$ 3.43 to $ 5.98......... 12,182,062 3.9 years $ 4.71 10,157,062 $ 4.75
6.55 to 12.00......... 9,738,000 5.2 7.56 7,783,000 7.06
13.56 to 16.75......... 11,136,000 7.6 16.08 1,264,000 15.93
18.69 to 29.63......... 3,522,500 9.2 22.64 14,668 21.77
---------- ----------
36,578,562 5.9 10.66 19,218,730 6.44
========== ==========
In 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123 - Accounting for Stock-
Based Compensation ("SFAS 123"). SFAS 123 provides, among other
things, that companies may elect to account for employee stock
options using a fair value-based method or continue to apply the
intrinsic value-based method prescribed by Accounting Principal
Board Opinion No. 25 ("APB 25").
66
NOTE 8 - STOCK OPTIONS AND STOCK APPRECIATION RIGHTS (CONTINUED)
Under the fair value-based method prescribed by SFAS 123,
all employee stock option grants are considered compensatory.
Compensation cost is measured at the date of grant based on the
estimated fair 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, the 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. Under APB 25, generally only stock options that have
intrinsic value at the date of grant are considered compensatory.
Intrinsic value represents the excess, if any, of the market
price of the stock at the grant date over the exercise price of
the options. Under both methods, compensation cost is charged to
earnings over the period the options become exercisable.
As permitted by SFAS 123, the Company accounts for employee
stock options using the intrinsic value-based method.
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 prescribed by SFAS 123. The table also discloses
the weighted-average assumptions used in estimating the fair
value of each option grant on the date of grant using the Black-
Scholes option pricing model, and the estimated weighted-average
fair value of the options granted. The model assumes no expected
future dividend payments on the Company's common stock.
67
NOTE 8 - STOCK OPTIONS AND STOCK APPRECIATION RIGHTS (CONTINUED)
· Enlarge/Download Table
YEAR ENDED DECEMBER 31
--------------------------------------
1997 1996 1995
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM
As reported........................................... $ 209,803 $ 206,045 $ 169,948
Pro forma............................................. 197,290 196,428 166,651
NET INCOME
As reported........................................... $ 207,578 $ 206,045 $ 163,163
Pro forma............................................. 195,065 196,428 159,866
INCOME PER SHARE BEFORE EXTRAORDINARY ITEM
Basic
As reported......................................... $ 1.17 $ 1.13 $ 0.93
Pro forma........................................... 1.10 1.07 0.91
Diluted
As reported......................................... $ 1.09 $ 1.05 $ 0.88
Pro forma........................................... 1.04 1.00 0.87
NET INCOME PER SHARE
Basic
As reported......................................... $ 1.16 $ 1.13 $ 0.89
Pro forma........................................... 1.09 1.07 0.88
Diluted
As reported......................................... $ 1.08 $ 1.05 $ 0.85
Pro forma........................................... 1.03 1.00 0.83
WEIGHTED-AVERAGE ASSUMPTIONS
Expected stock price volatility....................... 35.14% 35.90% 41.29%
Risk-free interest rate............................... 6.49% 5.92% 6.64%
Expected option lives................................. 6.2 years 5.1 years 8.6 years
Estimated fair value of options granted............... $ 11.05 $ 8.65 $ 9.57
WEIGHTED-AVERAGE VESTING PERIOD OF OPTIONS GRANTED...... 5.3 years 3.8 years 7.7 years
The accounting method prescribed by SFAS 123 is not
applicable to options granted prior to January 1, 1995. Had the
method been applied to options granted in earlier years, compen-
sation cost reflected in the pro forma amounts shown above would
have been higher to the extent the vesting period for such
options extended into 1995 or beyond.
NOTE 9 - CAPITAL STOCK
In July 1994, the Company's Board of Directors approved a
program to repurchase up to 10,000,000 shares of the Company's
common stock from time to time in the open market. At December
31, 1997, 6,737,900 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.
68
NOTE 10 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
· Enlarge/Download Table
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- -------- ----------
1997
Gross revenues................................... $394,399 $373,757 $400,631 $377,262 $1,546,049
Promotional allowances........................... (32,360) (29,396) (31,478) (34,264) (127,498)
Net revenues..................................... 362,039 344,361 369,153 342,998 1,418,551
Operating income................................. 90,737 76,837 87,453 71,014 326,041
Interest and other income (expense), net......... (3,017) (1,179) (2,380) 5,614 (962)
Income before extraordinary item................. 56,689 48,901 54,899 49,314 209,803
Extraordinary loss on early retirement of debt... (2,225) - - - (2,225)
Net income....................................... 54,464 48,901 54,899 49,314 207,578
Income per share before extraordinary item
Basic.......................................... .32 .27 .31 .28 1.17
Diluted........................................ .30 .25 .28 .26 1.09
Net income per share
Basic.......................................... .31 .27 .31 .28 1.16
Diluted........................................ .28 .25 .28 .26 1.08
1996
Gross revenues................................... $408,668 $343,183 $370,825 $373,681 $1,496,357
Promotional allowances........................... (34,460) (30,531) (32,273) (31,549) (128,813)
Net revenues..................................... 374,208 312,652 338,552 342,132 1,367,544
Operating income................................. 98,124 59,318 75,975 79,253 312,670
Interest and other income (expense), net......... 4,381 3,745 (990) (1,398) 5,738
Net income....................................... 64,587 40,599 48,736 52,123 206,045
Net income per share
Basic.......................................... .35 .22 .27 .29 1.13
Diluted........................................ .33 .20 .25 .27 1.05
In the fourth quarter of 1997, the Company recorded a $3.5
million gain related to the sale of a corporate aircraft. The
1997 fourth quarter also includes a $5.3 million increase in
capitalized interest resulting from a cumulative adjustment to
properly reflect the Company's investment-to-date in its new
projects.
In the fourth quarter of 1996, the Company recorded a $7.0
million reduction in its provision for losses on receivables due
to better than expected collection experience. The fourth
quarter of 1996 also includes a $1.2 million gain on the sale of
another corporate aircraft and a $5.4 million abandonment charge
related to construction of a new hotel lobby and Italian
restaurant at Treasure Island.
Because income per share amounts are calculated using the
weighted average number of common and dilutive common equivalent
shares outstanding during each quarter, the sum of the per share
amounts for the four quarters may not equal the total income per
share amounts for the year.
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MIRAGE RESORTS, INCORPORATED
By: STEPHEN A. WYNN
------------------------------
Stephen A. Wynn, Chairman of
the Board, President and Chief
Executive Officer
Dated: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and
on the dates indicated.
· Download Table
Signature Title Date
---------------------- -------------------------------- --------------
STEPHEN A. WYNN Chairman of the Board, President March 30, 1998
---------------------- and Chief Executive Officer
Stephen A. Wynn (Principal Executive Officer)
DANIEL R. LEE Senior Vice President - Finance March 30, 1998
---------------------- and Development, Chief Financial
Daniel R. Lee Officer and Treasurer (Principal
Financial and Accounting Officer)
ELAINE P. WYNN Director March 30, 1998
----------------------
Elaine P. Wynn
GEORGE J. MASON Director March 30, 1998
----------------------
George J. Mason
MELVIN B. WOLZINGER Director March 30, 1998
----------------------
Melvin B. Wolzinger
RONALD M. POPEIL Director March 30, 1998
----------------------
Ronald M. Popeil
DANIEL B. WAYSON Director March 30, 1998
----------------------
Daniel B. Wayson
RICHARD D. BRONSON Director March 30, 1998
----------------------
Richard D. Bronson
70
· Enlarge/Download Table
SCHEDULE II
MIRAGE RESORTS, INCORPORATED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS (a) (b) OF YEAR
----------- ----------- ---------- ------------ ---------- -------
Allowance for doubtful accounts
Year Ended December 31, 1997.......... $38,674 $19,213 $ 711 $16,121 $42,477
Year Ended December 31, 1996.......... $47,161 $14,480 $1,447 $24,414 $38,674
Year Ended December 31, 1995.......... $37,937 $23,024 $1,423 $15,223 $47,161
---------------
(a) Recoveries of accounts previously charged off.
(b) Accounts charged off.
S-1
Dates Referenced Herein and Documents Incorporated By Reference
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