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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 year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-12168
BOYD GAMING CORPORATION
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(Exact name of registrant as specified in its charter)
NEVADA 88-0242733
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2950 INDUSTRIAL ROAD, LAS VEGAS NV 89109
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(Address of principal executive offices) (Zip Code)
(702) 792-7200
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, Par Value $.01 Per Share New York Stock Exchange
9.25% Senior Notes New York Stock Exchange
9.50% Senior Subordinated Notes New York Stock 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 than 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 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. [ ]
As of February 29, 2000, the aggregate market value of the voting stock
held by non-affiliates of the Registrant, based on the closing price on the New
York Stock Exchange for such date, was approximately $160,383,000. Shares of
Common Stock held by officers, directors and holders of more than 5% of the
outstanding Common Stock have been excluded from this calculation because such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
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As of February 29, 2000, the Registrant had outstanding 62,228,487 shares of
Common Stock.
Documents Incorporated by Reference into Parts I -- III: Portions of the
definitive Proxy Statement for the Registrant's 2000 Annual Meeting of
Stockholders are incorporated by reference into Part III hereof.
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BOYD GAMING CORPORATION
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE NO.
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PART I
Item 1. Business.................................................................................. 4
Item 2. Properties................................................................................ 34
Item 3. Legal Proceedings......................................................................... 34
Item 4. Submission of Matters to a Vote of Security Holders....................................... 34
Item 4A. Executive Officers of the Registrant...................................................... 34
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 36
Item 6. Selected Consolidated Financial Data...................................................... 36
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 38
Item 7A. Quantitative and Qualitative Disclosure about Market Risk................................. 48
Item 8. Financial Statements and Supplementary Data............................................... 49
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 49
PART III
Item 10. Directors and Executive Officers of the Registrant........................................ 50
Item 11. Executive Compensation.................................................................... 50
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 50
Item 13. Certain Relationships and Related Transactions............................................ 50
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K......................... 51
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PART I
ITEM 1. BUSINESS
GENERAL
Boyd Gaming Corporation is a multi-jurisdictional gaming company that
currently owns and operates eleven casino entertainment facilities. The Company
has operated successfully for more than two decades in the highly competitive
Las Vegas market and has entered several other gaming jurisdictions in the past
six years. The Company owns and operates seven facilities in three distinct
markets in Las Vegas, Nevada: the Stardust Resort and Casino (the "Stardust") on
the Las Vegas Strip; Sam's Town Hotel and Gambling Hall ("Sam's Town Las
Vegas"), the Eldorado Casino (the "Eldorado") and the Jokers Wild Casino
("Jokers Wild") on the Boulder Strip; and the California Hotel and Casino (the
"California"), the Fremont Hotel and Casino (the "Fremont") and Main Street
Station Casino, Brewery and Hotel ("Main Street Station") in downtown Las Vegas.
The Company also owns or manages four facilities in other gaming jurisdictions.
The Company owns and operates Sam's Town Hotel and Gambling Hall, a dockside
gaming and entertainment complex in Tunica County, Mississippi ("Sam's Town
Tunica") and the Par-A-Dice Hotel and Casino in East Peoria, Illinois
("Par-A-Dice"). In October 1997, the Company completed the acquisition of
Treasure Chest Casino ("Treasure Chest"), a riverboat casino in Kenner,
Louisiana, which the Company had previously partially owned and managed pursuant
to a management agreement. In November 1999, the Company acquired the Blue Chip
Casino ("Blue Chip"), a riverboat casino in Michigan City, Indiana. Through
January 31, 2000, the Company managed, for the Mississippi Band of Choctaw
Indians, the Silver Star Resort and Casino ("Silver Star"), a land-based gaming
and entertainment complex located near Philadelphia, Mississippi. The Company
also owns and operates Vacations Hawaii, a travel agency that operates for the
benefit of the California, Fremont and Main Street Station. As of December 31,
1999 the Company owned or operated an aggregate of approximately 587,400 square
feet of casino space, containing 17,136 slot machines and 539 table games.
The Company derives the majority of its gross revenues from its casino
operations, which produced over 60% of gross revenues during the last three
fiscal years. Food and beverage revenue, which produced 15% or more of gross
revenues during the last three fiscal years, represents the only other revenue
source that produced more than 10% of gross revenues during this time frame. See
"Properties" and "Item 2 -- Properties."
The Company currently conducts substantially all of its business
through eight wholly-owned subsidiaries: California Hotel and Casino ("CH&C");
Boyd Tunica, Inc. ("Boyd Tunica"); Boyd Kenner, Inc. ("Boyd Kenner"); Boyd
Louisiana L.L.C. ("Boyd Louisiana"); Boyd Mississippi, Inc. ("Boyd
Mississippi"); Par-A-Dice Gaming Corporation ("Par-A-Dice Gaming"), East Peoria
Hotel, Inc. ("EPH") and Boyd Indiana, Inc. ("Boyd Indiana"). CH&C directly owns
and operates Sam's Town Las Vegas and the California and owns and operates the
Stardust, the Fremont, the Eldorado, Jokers Wild and Main Street Station through
wholly-owned subsidiaries. Boyd Tunica owns and operates Sam's Town Tunica; Boyd
Kenner manages Treasure Chest and owns a 15% equity interest in Treasure Chest,
L.L.C., the owner of Treasure Chest; Boyd Louisiana owns the remaining 85%
equity interest in Treasure Chest, L.L.C.; Boyd Mississippi managed Silver Star
through January 31, 2000; Par-A-Dice Gaming owns and operates the Par-A-Dice;
EPH is the general partner and Par-A-Dice Gaming is the limited partner of a
limited partnership that owns the Par-A-Dice Hotel; and Boyd Indiana owns the
full equity interest in Blue Chip Casino, L.L.C.
OPERATING STRATEGY
The Company believes that the following key elements have contributed
to the success of the Company in the past and are central to its future success.
VALUE-ORIENTED CASINO ENTERTAINMENT EXPERIENCE
The Company is committed to providing a high-quality casino
entertainment experience to its primarily middle-income customers at an
affordable price in order to develop and maintain customer loyalty. The Company
delivers value to its customers through providing service in an inviting and
entertaining environment. The Company delivers additional value to its customers
through moderately priced casino entertainment, hotel, restaurant and live
entertainment offerings and regularly reinvests in its existing facilities in an
effort to maintain the quality and competitiveness of its properties.
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LIVELY, FRIENDLY ATMOSPHERE
Each of the Company's facilities is clean and modern and offers
friendly service in an informal and lively atmosphere. The Company's employee
training programs are designed to motivate employees to provide the type of
friendly and attentive service that the Company seeks to provide at its
facilities. The Company has an extensive customer feedback system, ranging from
guest comment cards in its restaurants and hotel rooms, to other consumer
surveys and research. In addition to providing a measure of customer service,
comment cards and consumer research allow the Company to obtain valuable
customer feedback and marketing information for its database.
EMPHASIS ON SLOT PLAY
The Company emphasizes slot machine wagering, the most consistently
profitable segment of the casino entertainment business. Technological advances
in slot products have resulted in sophisticated interactive games, which offer
customers greater variety, more generous payoffs and increased periods of play
for their casino entertainment dollar. The Company continually invests in
upgrading its machines to reflect advances in technology and the development of
proprietary slot games and related equipment at all of its facilities in order
to further enhance the slot customer's experience.
COMPREHENSIVE MARKETING AND PROMOTION
The Company actively promotes its casino entertainment offerings, its
hotels, destination restaurants and live entertainment using a variety of
promotional advertising media including outdoor advertising as well as print,
broadcast and Internet media. The Company develops and maintains an extensive
customer database. The database is expanded daily, adding new casino customers
by obtaining their mailing addresses and other marketing information. To
encourage repeat visitation, the Company employs a direct mail program targeting
its database customers with a variety of product offerings, including incentives
to visit the Company's facilities frequently. During the year ended December 31,
1999, the Company distributed approximately 10 million pieces of mail to its
database customers. The Company also provides complimentary rooms, food and
beverage and other services to valued customers, but maintains limits on such
items consistent with its focus on middle-income patrons.
PROPERTIES
The Company currently owns and operates seven properties in Las Vegas:
the Stardust; Sam's Town Las Vegas; the Eldorado; Jokers Wild; the California;
the Fremont; and Main Street Station. The Company also owns and operates four
properties outside the State of Nevada: Sam's Town Tunica, in Tunica County,
Mississippi; Treasure Chest, in the western suburbs of New Orleans; Par-A-Dice
in East Peoria, Illinois; and Blue Chip in Michigan City, Indiana. The Company
managed the Silver Star, in central Mississippi, from its opening in 1994
through January 31, 2000.
THE STARDUST
The Stardust, situated on 52 acres of land owned and nine acres of land
leased by the Company on the Las Vegas Strip, is a casino hotel complex with
approximately 75,000 square feet of casino space, a conference center containing
approximately 35,000 square feet of meeting space and the Wayne Newton Theatre
which seats up to 981 guests. The casino offers approximately 1,600 slot
machines and 79 table games, including tables featuring "21," craps, roulette,
baccarat, mini-baccarat, Big Six, progressive pai gow poker, Caribbean stud, Let
it Ride and poker, as well as keno. The Stardust also has one of the largest and
best known race and sports books in the United States and is the home of the
Stardust line, a sports line service that is quoted throughout the United States
and abroad. The Stardust features 1,506 guest rooms, 1,331 in its 32-story hotel
tower. The Stardust complex, which is distinguished by dramatic building
lighting, has six restaurants, a shopping arcade, two swimming pools and parking
spaces for approximately 3,400 cars. The occupancy rate and average room rate at
the Stardust were approximately 90% and $55, respectively, during 1999.
The Stardust caters primarily to adult Las Vegas visitors seeking the
classic Las Vegas gaming experience. Using its extensive database, the property
promotes customer loyalty and generates repeat customer business by
communicating with its customers regarding special events, new product offerings
and special incentive promotions at the property. The Company uses a network of
tour operators and wholesalers to reach customers who prefer packaged trips and
print and broadcast media to attract the independent traveler. The Company
attracts proven slot and table game players through direct mail promotions for
tournaments, events and a variety of special offers. With its conference center,
the Stardust also attracts meeting and banquet business. In addition, the
Stardust draws a significant number of walk-in customers. Patrons of the
Stardust come primarily from the western United States, including Southern
California and Arizona, and the Midwest.
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At December 31, 1999, the Stardust had completed a $23 million
renovation project, which included guest rooms, public space and exterior
enhancements, intended to make the property more competitive with other Strip
resorts. In connection with the renovation project, the Stardust demolished all
of its approximately 550 motor inn rooms.
BOULDER STRIP PROPERTIES
Sam's Town Las Vegas is situated on 63 acres of land on the Boulder
Strip, approximately six miles east of the Las Vegas Strip. Sam's Town features
an approximately 118,000-square foot casino and a state-of-the-art 56-lane
bowling center. The gaming facilities include approximately 2,950 slot machines
and 48 table games, including tables featuring blackjack, craps, roulette, pai
gow and Caribbean stud poker, as well as keno, a race and sports book, and
bingo. The property has 648 guest rooms, 12 restaurants, 500 spaces for
recreational vehicles and approximately 4,000 parking spaces, including two
parking garages which together can accommodate up to 2,400 cars. The resort
features a 25,000-square foot atrium that contains extensive foliage and trees,
streams, bridges, and a impressive waterfall with a laser light show. Adjacent
to the atrium there are several restaurants and a large sports bar. Other
features of the property include an outdoor recreation area, as well as banquet
and meeting facilities. The occupancy rate and average room rate at Sam's Town
Las Vegas were approximately 96% and $43, respectively, during 1999.
Sam's Town Las Vegas has a casual western theme. Its informal, friendly
atmosphere appeals to both local residents and visitors alike. Gaming, bowling,
a western dance hall and live entertainment create a social center that attracts
many Las Vegas residents. The property is a major sponsor of the Ladies
Professional Bowling Tour and hosts many bowling events which are televised
throughout the United States and attract participants from around the world.
Additionally, Sam's Town Las Vegas sponsors several NASCAR events at the Las
Vegas Motor Speedway that are televised nationally. The property attracts a mix
of tourists and local market patrons, many of whom are repeat customers, by
offering excellent price/value relationships in its food and beverage
operations, and by slot marketing programs that include generous slot payouts.
The popularity of Sam's Town Las Vegas among local residents allows it to
benefit from the rapid development of the Las Vegas metropolitan area, which has
been one of the fastest growing communities in the United States over the last
decade.
Sam's Town Las Vegas began an $86 million renovation and expansion
program during 1999. The project includes, among other things, an 18 screen
state-of-the-art movie theatre complex, childcare facilities, an arcade,
additional casino space for 500 slot machines, an 11,200 square foot
multi-purpose events center for concerts and meetings, a new 650 seat buffet,
and a reconfigured and remodeled porte cochere and valet parking area to improve
access to the property. The renovation portion of the project is expected to
continue until the summer of 2000, and the expansion is expected to be completed
by December 31, 2000, although there can be no assurance that the renovation and
expansion will be completed on time or within budget.
The Eldorado is situated on four acres of land owned by the Company in
downtown Henderson, Nevada, which is southeast of Las Vegas. The casino has
16,000 square feet of gaming space featuring approximately 600 slot machines and
11 table games, including tables featuring "21," craps, roulette and pai gow, as
well as keno, bingo and a sports book. The facility also offers three
restaurants, a children's arcade and a parking garage for up to 500 cars. The
principal customers at the Eldorado are Henderson residents.
Jokers Wild is situated on 13 acres of land owned by the Company on the
Boulder Strip. The property offers 22,500 square feet of casino space with 635
slot machines and 11 table games, including tables featuring "21," craps and
roulette, as well as keno and a sports book. The facility also offers a 24-hour
restaurant, a buffet, an entertainment lounge, a sports bar, a video arcade and
approximately 800 parking spaces. Jokers Wild serves both local residents and
visitors to the Las Vegas area traveling on the Boulder Highway.
DOWNTOWN PROPERTIES
The California is situated on 13.9 acres of land owned and 1.6 acres of
land leased by the Company in downtown Las Vegas. The California, the Company's
first property, has 36,000 square feet of gaming space, 781 guest rooms, five
restaurants, approximately 5,000 square feet of meeting space, more than 800
parking spaces, including a parking garage for up to 425 cars, and 96-space
recreational vehicle park, the only such facility in the downtown area. The
casino offers approximately 1,100 slot machines and 35 table games, including
tables featuring "21," craps, roulette, pai gow and Caribbean stud, as well as
keno and a sports book. The occupancy rate and average room rate at the
California were approximately 95% and $31, respectively, during 1999.
The Fremont is situated on 1.4 acres of land owned and 0.9 acres of
land leased by the Company on the principal pedestrian thoroughfare in downtown
Las Vegas. The property offers 32,000 square feet of casino space, including
1,114 slot machines and 26
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table games, including tables featuring "21," craps, roulette, pai gow, and
Caribbean stud, as well as keno and a race and sports book. The hotel has 447
guest rooms and five restaurants including the Second Street Grill, an upscale
contemporary restaurant, and the Paradise Buffet, which features tropical-themed
surroundings. The property also has approximately 8,200 square feet of meeting
space and a parking garage for up to 350 cars. The occupancy rate and average
room rate at the Fremont were approximately 94% and $33, respectively, during
1999.
Main Street Station is situated on 15 acres of land owned by the
Company in downtown Las Vegas and was renovated and expanded prior to its
November 1996 opening. The property includes 28,500 square feet of gaming space
with 22 table games and 916 slot machines. The property also includes 406 hotel
rooms, a 475-seat buffet, a 125-seat specialty restaurant, a 200-seat brew pub
and oyster bar and expanded parking to include over 2,000 spaces. The occupancy
rate and average room rate at Main Street Station were approximately 93% and
$37, respectively, during 1999.
The Company coordinates marketing efforts and support functions and has
standardized operating procedures and systems among its three Downtown
Properties with the goal of enhancing revenues and reducing expenses. This
effort includes a consolidated database and marketing program for all Downtown
Properties. The Company believes these efforts have significantly reduced costs
and will continue to provide the Downtown Properties with a competitive
advantage.
While many casinos in downtown Las Vegas compete with other downtown
properties and properties on the Las Vegas Strip for the same customers, the
Company has developed a distinctive niche for its Downtown Properties by
focusing primarily on customers from Hawaii. The Company's marketing strategy
for the Downtown Properties focuses on gaming enthusiasts from Hawaii and tour
and travel agents from Hawaii with whom the Company has cultivated relationships
since it opened the California in 1975. Through the Company's Hawaiian travel
agency, Vacations Hawaii, the Company currently operates seven DC-10 charter
flights from Honolulu to Las Vegas each week, helping to ensure a stable supply
of reasonably priced air seats. This, as well as the Company's strong, informal
relationships with other Hawaiian travel agencies, its affordably priced,
all-inclusive packages and its Hawaiian promotions have allowed the California
and the Fremont to capture a significant share of the Hawaiian tourist trade in
Las Vegas. For more than a decade, the California and Fremont have been the
leading Las Vegas destination for visitors from Hawaii. The Company attributes
this success to the amenities and atmosphere at the California and Fremont,
which are designed to appeal specifically to visitors from Hawaii, and to its
marketing strategy featuring significant promotions in Hawaii and a bi-monthly
newsletter circulated to over 90,000 households, primarily in Hawaii. During the
year ended December 31, 1999, patrons from Hawaii comprised approximately 70% of
the room nights at the California, 56% of the room nights at the Fremont and 47%
of the room nights at Main Street Station.
CENTRAL REGION PROPERTIES
The Company exported its popular Sam's Town western theme and
atmosphere to the Mississippi dockside gaming market by developing Sam's Town
Tunica, which opened in May 1994. Since its opening, Sam's Town Tunica has
undergone two expansions. In December 1994, an $18 million expansion was
completed which included the addition of 308 guest rooms surrounding a swimming
pool and recreational area. During 1996, the Company, seeking to further its
position in both the overnight and drive-in markets in Tunica, expanded Sam's
Town Tunica. The $40 million expansion project included a 350-room hotel tower
and a 1,000-car parking garage. The hotel has a total room count of 843
including 49 suites, and the garage was the first enclosed parking structure at
a Tunica County casino. The complex offers a two-story casino of approximately
75,000 square feet featuring 1,586 slot machines and 65 table games, including
tables featuring "21," craps, roulette, poker, Caribbean stud and pai gow, as
well as the only live keno in Tunica County. The design of the facility
integrates the water-based and land-based components of the facility. Sam's Town
Tunica is located in Tunica County near State Highway 61 approximately 25 miles
south of Memphis, Tennessee. The adult population within a 200-mile radius is
over 3 million and includes the cities of Nashville, Tennessee; Jackson,
Mississippi; and Little Rock, Arkansas. The Company has distinguished itself
from most other operators in the area by developing a major casino entertainment
complex with extensive amenities including a 843-room hotel, an entertainment
lounge featuring regional country-western and top-40 music, five restaurants
including Corky's B-B-Q, featuring the food of that popular Memphis eatery,
bars, specialty shops and the River Palace Arena, a 1,650-seat entertainment
facility featuring a cross-section of national recording artists. Additionally,
Sam's Town Tunica and two other neighboring casino properties are each 1/3
partners in the River Bend Links Golf Course, an 18-hole championship lynx style
golf course. The occupancy rate and average room rate at Sam's Town Tunica were
approximately 83% and $45, respectively, during 1999. In early 2000, Sam's Town
Tunica began a $21 million renovation project to reconfigure and remodel the
casino, redesign and enhance its restaurant product, remodel the atrium, and
build an RV park adjacent to the property. The renovation project is expected to
be completed by December 31, 2000, although there can be no assurances that the
project will be completed on time or within budget.
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In October 1997, the Company completed the acquisition of the remaining
85% interest in Treasure Chest that the Company did not already own. Treasure
Chest, a riverboat casino operation located on Lake Pontchartrain in Kenner,
Louisiana, opened in September 1994 and is located near the New Orleans
International Airport. Treasure Chest primarily serves patrons from Jefferson
Parish, including suburbs on the west side of New Orleans. In January 1996, an
$11 million entertainment complex was added to serve as the main boarding area
and showcase the 140 seat Caribbean Showroom, as well as a 24 hour buffet, a
Steak house, a gift shop and snack bar. The gaming operation features a classic
18th century Victorian-style paddle-wheel riverboat with a total capacity of
1,750 persons, approximately 24,000 square feet of casino space, over 1,000 slot
machines and 47 table games, including tables for "21," craps and roulette. Each
of the riverboat's gaming decks has a different theme, with one featuring
contemporary Las Vegas-style decor, one offering a Caribbean environment and one
providing a festive Mardi Gras setting. Prior to the October 1997 acquisition,
the Company owned a 15% equity interest in Treasure Chest and managed the
property pursuant to a management agreement.
Pursuant to an agreement with the Mississippi Band of Choctaw Indians,
the Company managed the Silver Star located near Philadelphia, Mississippi. The
facility, which opened in July 1994, is located on tribal lands in central
Mississippi. The principal markets served by the facility are central
Mississippi and Alabama, with the Birmingham, Montgomery and Tuscaloosa
metropolitan areas located within approximately 200 miles of the site, as well
as the Atlanta metropolitan area. The property includes a 505-room hotel, a
casino with approximately 90,000 square feet of gaming space, approximately
3,100 slot machines and 102 table games, including tables for "21," craps,
roulette, mini-baccarat and Caribbean stud, a lounge suitable for entertainment
and dancing, a swimming pool, spa, six restaurants, a 28,000-square foot
conference center, more than 2,700 parking spaces, and a 36-hole golf course
owned and operated by the Mississippi Band of Choctaw Indians.
On October 20, 1999, the Company agreed to terminate its management
contract with the Mississippi Band of Choctaw Indians prior to the contract's
expiration date in June 2001 in exchange for a one-time payment of $72 million.
Pursuant to that agreement, the Company ceased management of Silver Star and
received the one-time payment on February 1, 2000.
In December 1996, the Company completed the acquisition of Par-A-Dice,
a riverboat casino operation located along the Illinois River in East Peoria,
Illinois, approximately 170 miles from Chicago. The boat measures 238 feet long
and 66 feet wide and since the completion of an expansion in March 1996,
features 33,000 square feet of gaming space on four levels with approximately
1,100 slot machines and 36 table games, as well as limited food and beverage
services. Located adjacent to Par-A-Dice is the Par-A-Dice Hotel, a 208-room
hotel with food and beverage, banquet and meeting facilities. The occupancy rate
and average room rate at Par-A-Dice were approximately 90% and $57,
respectively, during 1999. Par-A-Dice is the primary casino entertainment
facility serving central Illinois, and is strategically located within 1/8 of a
mile from an exit off of Interstate 74, a major regional east-west interstate
highway. Par-A-Dice is the only casino entertainment facility within
approximately 100 miles of Peoria. There are more than 350,000 people living
within the Peoria metropolitan area and over 1.7 million people over the age of
21 living within 100 miles of Peoria.
On November 10, 1999, the Company acquired Blue Chip, a riverboat
casino operation located 60 miles east of Chicago, Illinois and 40 miles west of
South Bend, Indiana. The vessel, built on-site in 1997, measures 348 feet long
by 80 feet wide, offers over 37,000 square feet of gaming space and can
accommodate up to 3,000 passengers. In June 1998, a third deck accommodating 17
table games was added. The first two decks feature 1,332 slot machines and 40
table games, four bars and a players club. The land-based 87,000 square foot
pavilion facility includes three large meeting rooms, a Grand Ballroom, an
executive board room, entertainment lounge, snack shop, 285-seat buffet and
80-seat gourmet restaurant. In February 2000, the Company completed the
construction of a 188-room hotel and a parking facility that is attached to the
existing casino complex.
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MIRAGE JOINT VENTURE
On May 29, 1996, Mirage Resorts, Incorporated, through a wholly-owned
subsidiary (collectively "Mirage") and the Company, through a wholly-owned
subsidiary, entered into a joint venture agreement to jointly develop and own a
casino hotel entertainment facility in Atlantic City, New Jersey. Certain
aspects of the joint venture agreement were subsequently modified into an
amended and restated joint venture agreement (the "Agreement") on July 14, 1998.
The Agreement provides for a hotel of at least 1,200 rooms and a casino and
related amenities (collectively named "The Borgata") adjacent and connected to
Mirage's planned wholly-owned resort and contemplates a total cost of $750
million. Any project costs exceeding the $750 million budget shall be funded by
the Company without any proportionate increase in the ownership of The Borgata
by the Company. The Agreement provides for each party to make an equity
contribution of $150 million. Under the Agreement, the Company will contribute
$90 million upon Mirage's contribution of the land to the venture, which is
expected in the fall of 2000. The Agreement further provides for the venture to
arrange $450 million in non-recourse financing for the project. There can be no
assurances that The Borgata can be designed or developed for $750 million. In
that regard, the Company has recently had discussions with Mirage regarding a
possible increase in the size of The Borgata and each partner's required capital
contribution and joint venture financing. Funding of the Company's capital
contributions to The Borgata is expected to be derived from cash flow from
operations, availability under the Company's $600 million credit facility (the
"New Bank Credit Facility"), incremental bank financing, or additional debt
offerings. Pursuant to the Agreement, the Company's wholly-owned subsidiary,
Boyd Atlantic City, Inc. ("Boyd AC"), will control the development and operation
of The Borgata. In March 2000, The Borgata obtained final approval of its site
plan application from the City of Atlantic City Planning Board and it received
its CAFRA (Coastal Area Facility Review Act) permit from the New Jersey
Department of Environmental Protection, Land Use Regulation Program. Also in
March 2000, the Atlantic City Planning Board granted final approval for the
onsite roadways and related infrastructure improvements to be constructed by
Mirage that will provide access and site circulation for The Borgata. The
Company believes that certain highway improvements to permit greater access to
the Marina district of Atlantic City will be necessary to support the casino
entertainment development master-planned by Mirage. After environmental
remediation has been completed, (which has commenced as is expected to take at
least six months), financing has been arranged and other requisite approvals are
received, the construction of The Borgata can begin. It is currently expected
that construction would take at least two years, although there can be no
assurance that The Borgata will be completed on time or within budget. The
Borgata, once opened, shall give the Company a presence in Atlantic City, the
primary casino gaming market serving the eastern United States.
On April 27, 1997, Boyd AC filed an application for a casino license
with the New Jersey Casino Control Commission (the "NJCCC"). Boyd AC and Boyd
Gaming Corporation ("Boyd") also sought Statements of Compliance regarding their
satisfaction of certain criteria in connection with Boyd AC's application for a
casino license. On July 8, 1998, at a public meeting, the NJCCC confirmed Boyd
AC's status as an applicant for a casino license. The NJCCC also considered the
petition for Statements of Compliance and declared that, as of the date of the
meeting, Boyd AC and Boyd possessed: (i) the required financial stability,
integrity and responsibility; (ii) the required good character, honesty and
integrity; and (iii) the required business ability and casino experience. The
NJCCC further found that, as of the date thereof, the officers and directors of
Boyd AC and Boyd whose qualifications must be established to receive Statements
of Compliance met the qualifications established under the Casino Control Act.
While the issuance of Statements of Compliance indicate satisfaction of various
criteria as of the date thereof, such issuance is not an assurance of licensure
and the NJCCC retains the right to review the Statements of Compliance based on
changes of circumstances. Furthermore, the Statements of Compliance do not
address many of the items required for casino licensure. Boyd AC, Boyd and The
Borgata will continue to submit additional license application items to the
NJCCC as is required. With a Statement of Compliance for the Company in place,
the investigation by the NJCCC and New Jersey Division of Gaming Enforcement
("NJDGE") in connection with the casino license application will focus on issues
concerning operations, the facility and equal employment and business
opportunities. See "Investment Considerations -- Expansion."
INVESTMENT CONSIDERATIONS
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended.
Forward looking statements may be recognized by the use of words such as
"believes," "expects," "may," "will," "should," "seeks," "anticipates" and
similar expressions, or a general description of these types of statements.
Discussions containing such forward-looking statements may be found in the
material set forth under "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," as well as within the Annual
Report generally. Also, documents subsequently filed by the Company with the
Securities and Exchange Commission contain forward-looking statements. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the investment conditions set forth below and the
matters set forth in the Annual Report generally. The Company cautions the
reader, however, that this list of factors may not be exhaustive, particularly
with respect to future filings. Before making a decision to invest in the
Company's Common Stock or other securities, prospective investors should
carefully consider the following factors.
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COMPETITION
The gaming industry is highly competitive. Gaming activities include:
traditional land-based casinos; riverboat and dockside gaming; casino gaming on
Indian land; state-sponsored lotteries; video poker in restaurants, bars and
hotels; pari-mutuel betting on horse racing, dog racing and jai-alai; sports
bookmaking; card rooms and internet gaming. The casinos owned, managed and being
developed by the Company compete and will in the future compete with all these
forms of gaming and with any new forms of gaming that may be legalized in
existing and additional jurisdictions, as well as with other types of
entertainment. In addition, further expansion of gaming into other jurisdictions
could adversely affect the Company's business by diverting its customers to
competitors in such jurisdictions. In particular, the expansion of casino gaming
in or near any geographic area from which the Company attracts or expects to
attract a significant number of its customers could have a material adverse
effect on the Company's business, financial condition and results of operations.
The California electorate approved Proposition 1A on March 7, 2000. Proposition
1A gives all California Indian tribes the right to operate a limited number of
certain kinds of gaming machines and other forms of casino wagering on
California Indian reservations. Proposition 1A may negatively affect Nevada
gaming markets. Management is unable, however, to assess the magnitude of the
impact to the Company. The Company believes that successful gaming facilities
compete based on the following factors: location; attractions; quality of gaming
facilities; gaming experience and entertainment; quality of food, beverage and
atmosphere; and price. Although the Company believes it competes favorably with
respect to these factors in most of its markets, some of its competitors have
significantly greater financial and other resources than the Company.
The Company's Las Vegas properties compete with a multitude of casino
hotels in the greater Las Vegas Metropolitan area. Currently, there are
approximately 22 major gaming properties located on or near the Las Vegas Strip,
13 located in the downtown area and several located in other areas of Las Vegas.
Las Vegas gaming square footage and room capacity are continuing to increase. On
the Las Vegas Strip, a number of marquee properties have opened in the last
several years, and others are currently under construction or planned, including
2,600-room Aladdin Hotel and Casino. Each of the foregoing facilities has or may
have a theme and attractions that have drawn or may draw significant numbers of
visitors. Moreover, most of these facilities attract or may attract primarily
middle-income patrons, who are the focus of the Company's marketing strategy.
Although the Company believes that these additional facilities will draw more
visitors to Las Vegas, these properties also may divert potential gaming
activity from the Company. Future additions, expansions and enhancements to
existing properties and construction of new properties by the Company's
competitors could divert additional gaming activity from the Company's
facilities. There can be no assurance that the Company will compete successfully
in the Las Vegas market in the future.
Sam's Town Tunica competes primarily with other dockside gaming
operations in Tunica County and, to a lesser extent, with dockside casinos in
Vicksburg, Greenville, Natchez and Coahoma Counties, Mississippi, with dockside
casinos on the Mississippi Gulf Coast as well as land-based operations and with
gaming operations in Louisiana. Gaming has grown rapidly in Tunica County, with
ten dockside casinos now in operation, including the Isle of Capri Casinos'
facility that opened in 1999. In addition, several Tunica-area casinos have
recently added hotel rooms and other enhancements to their properties. Some of
these facilities are operated by certain of the Company's principal Nevada
competitors and may be operated or financed by companies with significantly
greater financial resources than the Company. There can be no assurance that the
Company will compete successfully in the Mississippi market in the future.
There are presently 14 licenses issued and 13 riverboats operating in
the State of Louisiana. Treasure Chest competes primarily with two of those
riverboat operations in the New Orleans metropolitan area as well as the 12
casinos on the Mississippi Gulf Coast, including Beau Rivage which opened in
March 1999 and the new Harrah's land-based casino in downtown New Orleans which
opened in late October 1999. There can be no assurance that Treasure Chest will
compete successfully in the future.
Par-A-Dice competes primarily with other gaming operations in Illinois
and, to a lesser extent, with riverboats and dockside gaming facilities in
Indiana, Iowa and Missouri. The Illinois Riverboat Gambling Act authorizes ten
owner's licenses for riverboat gaming operations. All ten licenses have been
granted and nine riverboat gaming facilities are currently in operation in
Illinois. Some of these riverboats are being operated by companies with greater
experience in the Illinois market and significantly greater financial resources
than the Company. There can be no assurance that Par-A-Dice will compete
successfully in the future.
Blue Chip competes primarily with other gaming operations in Indiana
and Illinois, and, to a lesser extent, with riverboats and dockside gaming
facilities in Iowa and Missouri. The Indiana Riverboat Gambling Act authorized
ten licenses for riverboat gaming operations, nine of which currently operate in
Indiana. Some of these riverboats are being operated with greater experience in
the Indiana market and significantly greater financial resources than the
Company. In addition, the Pokagon Band of Potawatomi Indians (the "Pokagons"), a
federally recognized Indian tribe, has announced its intention to construct a
land-based gaming operation in or near the City of New Buffalo, Michigan, which
is located less than 15 miles from Blue Chip. Although the Pokagons have several
legal and regulatory issues that must be resolved prior to construction of its
proposed gaming facility, if such facility is constructed and operated, it could
have a negative impact on Blue Chip. There can be no assurance that Blue Chip
will compete successfully in the future.
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Failure to compete successfully in any of these markets could have a
material adverse effect on the Company's business, financial condition and
results of operations.
EXPANSION
On May 29, 1996, the Company entered into an agreement with Mirage,
subsequently amended and restated on July 14, 1998, to jointly develop and own a
casino hotel entertainment facility in Atlantic City, New Jersey, named The
Borgata. The construction and opening of the development is subject to a number
of contingencies, including, but not limited to, obtaining adequate financing,
continuing construction of highway improvements necessary to accommodate the
additional traffic that is expected to be generated to and from the Marina
district, approval and licensing by the New Jersey gaming authorities,
environmental remediation, the receipt of state and local land-use permits,
building and zoning permits and liquor licenses. After environmental remediation
has been completed, which has commenced as is expected to take at least six
months, and other requisite approvals are received, the construction of The
Borgata would thereafter take at least two years. The Borgata will be subject to
the many risks inherent in the establishment of a new business enterprise,
including potential unanticipated design, construction, regulatory,
environmental and operating problems, lack of adequate financing and the
significant risks commonly associated with implementing a marketing strategy in
a new market. If The Borgata does not become operational within the time frame
and budget currently contemplated or does not compete successfully in its new
market, it could have a material adverse effect on the Company's business,
financial condition and results of operations.
On January 18, 2000, the Company signed a Memorandum of Understanding
(the "Memorandum") with the Narragansett Indian Tribe (the "Narragansetts") to
assist in the development and operation of the proposed Narragansett Indian
Casino in West Warwick, Rhode Island. The Memorandum provides that the Company's
role in this project may include, without limitation, assisting in lobbying
efforts, assisting in procurement of project financing, assisting in the design
and construction of the project, and potentially participating in the ownership
and management of the project. The Company's participation in the project is
contingent upon a number of factors, including but not limited to, negotiation
of a definitive agreement between the Company and the Narragansetts; approval of
legislation by the Rhode Island Legislature and approval of the project by the
voters of Rhode Island in a state-wide referendum, both of which are necessary
to enable the project to go forward; and negotiation by the Narragansetts of a
definitive settlement of the dispute with Capital Gaming Development, Inc.
("Capital") relating to the termination of the management agreement between the
Narragansetts and Capital. The Company can make no assurances that this project
will go forward or that if the project goes forward that it will be successful.
In January 2000, the Company reached an agreement in principle with
Nevso, L.L.C. to purchase approximately 18 acres of land in western Las Vegas,
Nevada to develop a hotel and casino catering to local market patrons. The
purchase of the land and development of the project is subject to a number of
contingencies, including but not limited to, the parties reaching a definitive
agreement and securing various regulatory and development approvals. The zoning
to allow the construction of the project and its use as a locals resort casino
was reversed upon administrative appeal and is the subject of litigation. The
Company can make no assurances that this project will go forward or that if the
project goes forward that it will be successful.
The Company, as part of its ongoing strategic planning process, is
currently establishing its priorities for future growth. In Nevada, the Company
is expanding its Sam's Town Las Vegas property and is exploring opportunities
for the development of new properties on other sites in the Las Vegas locals
market. Outside of Nevada, the Company continues to monitor acquisition
opportunities in many of the newer gaming markets as the industry continues to
consolidate.
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ADDITIONAL FINANCING REQUIREMENTS
Based upon the extent and scope of the above mentioned expansion plans,
the Company may be able to finance its current and future expansion projects
primarily with cash flow from operations, borrowings from the New Bank Credit
Facility, and additional debt financing. If the Company is unable to finance
such projects through cash flow from operations, borrowings under its New
Bank Credit Facility, and additional debt financing, it will have to adopt one
or more alternatives, such as reducing or delaying planned expansion and capital
expenditures, selling assets, obtaining additional equity financing or joint
venture partners, or modifying the New Bank Credit Facility. No assurance can be
given that the aforementioned sources of funds will be sufficient to finance the
Company's expansion, or that other financing will be available on acceptable
terms, in a timely manner or at all. In addition, each of the Company's
significant long-term debt agreements contain certain restrictions on the
ability of the Company to incur additional indebtedness. If the Company is
unable to secure additional financing, it could be forced to limit or suspend
expansion, development and acquisition projects, which may adversely affect the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
LEVERAGE AND DEBT SERVICE
At December 31, 1999, the Company had total consolidated long-term
debt, less current maturities, of approximately $982 million, which represents
approximately 79% of the total capitalization of the Company as of such date.
Debt service requirements on the Company's New Bank Credit Facility primarily
consists of interest payments on outstanding indebtedness. The New Bank Credit
Facility consists of a $500 million revolver component (the "Revolver") and a
$100 million term loan component (the "Term Loan"), both of which mature in June
2003. Availability under the Revolver will be reduced by $15.6 million on
December 31, 2001 and at the end of each quarter thereafter until March 31,
2003. The Term Loan is being repaid in increments of $0.25 million per quarter
that began on September 30, 1999 and will continue through March 31, 2003. Debt
service requirements under the Company's 9.25% and 9.50% Notes consist of
semi-annual interest payments and repayment of the $200 million and $250 million
of principal on October 1, 2003 and July 15, 2007, respectively. If The Borgata
goes forward, the Company expects to fund its subsidiary's $150 million capital
contribution required by the Agreement with borrowings under the New Bank Credit
Facility, incremental bank financing, or the issuance of subordinated debt to
the extent not funded from cash flow from operations. The Company's ability to
service its debt will be dependent on its future performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond the Company's control. Accordingly, no
assurance can be given that the Company will maintain a level of operating cash
flow that will permit it to service its obligations. If the Company is unable to
generate sufficient cash flow or is unable to refinance or extend outstanding
borrowings, it will have to adopt one or more alternatives, such as reducing or
delaying planned expansion and capital expenditures, selling assets,
restructuring debt, obtaining additional equity or debt financing or joint
venture partners. There can be no assurance that any of these financing
strategies could be effected on satisfactory terms, if at all. In addition,
certain states' laws contain restrictions on the ability of companies engaged in
the gaming business to undertake certain financing transactions. Such
restrictions may prevent the Company from obtaining necessary capital. See "--
Additional Financing Requirements," "-- Governmental Gaming Regulation," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
GOVERNMENTAL GAMING REGULATION
The Company is subject to a variety of regulations in the jurisdictions
in which it operates. If additional gaming regulations are adopted in a
jurisdiction in which the Company operates, such regulations could impose
restrictions or costs that could have a material adverse effect on the Company.
From time to time, various proposals have been introduced in the legislatures of
some of the jurisdictions in which the Company has existing or planned
operations that, if enacted, could adversely affect the tax, regulatory,
operational or other aspects of the gaming industry and the Company. No
assurance can be given that such legislation will not be enacted. The federal
government has also previously considered a federal tax on casino revenues and
may consider such a tax in the future. In addition, gaming companies are
currently subject to significant state and local taxes and fees in addition to
normal federal and state corporate income taxes, and such taxes and fees are
subject to increase at any time. Any material increase in these taxes or fees
could adversely affect the Company.
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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 regulations.
The Company's 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"), and the Clark County Liquor and
Gaming Licensing Board (the "Clark County Board"). The Nevada Commission, the
Nevada Board and the Clark County Board are collectively referred to herein as
the "Nevada Gaming Authorities."
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 establishing 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) the provision of a source of state and local revenues through
taxation and licensing fees. Changes in such laws, regulations and procedures
could have an adverse effect on the Company's gaming operations and the
Company's business, financial condition and results of operations.
Corporations that operate casinos in Nevada are required to be licensed
by the Nevada Gaming Authorities. A gaming license requires the periodic payment
of fees and taxes and is not transferable. The Company is registered by the
Nevada Commission as a publicly traded corporation (a "Registered Corporation")
and as such, it 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. The Company has been found suitable by
the Nevada Commission to own the stock of CH&C. CH&C is licensed by the Nevada
Commission to operate non-restricted gaming activities at the California and
Sam's Town Las Vegas and is additionally registered as a holding corporation and
approved by the Nevada Gaming Authorities to own the stock of Mare Bear, Inc.
("Mare Bear"), the operator of the Stardust, Sam Will, Inc. ("Sam Will"), the
operator of the Fremont and Eldorado, Inc., the operator of the Eldorado and
Jokers Wild, and MSW, Inc. ("MSW"), the operator of Main Street Station. No
person may become a stockholder of, or receive any percentage of profits from,
CH&C or its subsidiaries without first obtaining licenses and approvals from the
Nevada Gaming Authorities. The Company, CH&C, Mare Bear, Sam Will, Eldorado,
Inc. and MSW have obtained from the Nevada Gaming Authorities the various
registrations, approvals, permits and licenses required in order to engage in
gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, CH&C or any
of its licensed 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 CH&C and its licensed
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 Company who are actively and
directly involved in gaming activities of CH&C or its licensed 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.
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 Company, CH&C or any of its licensed subsidiaries, the
companies involved would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Company, CH&C or any of its
licensed 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 Company, CH&C and its licensed 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 by CH&C and its subsidiaries must be reported to, or approved by,
the Nevada Commission.
If it were determined that the Nevada Act was violated by CH&C or any
of its licensed subsidiaries, the gaming licenses they hold could be limited,
conditioned, suspended or revoked, subject to compliance with certain statutory
and regulatory procedures. In
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addition, CH&C, the subsidiary involved, the Company, 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 Company's gaming properties
and, under certain circumstances, earnings generated during the supervisor's
appointment (except for reasonable rental value of the Company's gaming
properties) could be forfeited to the State of Nevada. Limitation, conditioning
or suspension of any gaming license or the appointment of a supervisor could
(and revocation of any gaming license would) materially adversely affect the
Company's gaming operations and the Company's business, financial condition and
results of operations.
Any beneficial holder of the Company'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 Company's
voting securities determined if the Nevada Commission has reason to believe that
such ownership would otherwise 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 the
Company's voting securities to report the acquisition to the Nevada Commission.
The Nevada Act requires that beneficial owners of more than 10% of the Company's
voting securities apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails the 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 the Company's voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability 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 Company, any change in the Company's
corporate charter, bylaws, management, policies or operations of the Company, or
any of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding the Company's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes include only: (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. 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 thirty 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 and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company 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 Company, CH&C or any
of its licensed subsidiaries, the Company (i) pays that person any dividend or
interest upon voting securities of the Company, (ii) allows that person to
exercise, directly or indirectly, any voting right conferred through securities
held by the person, (iii) pays remuneration in any form to that person for
services rendered or otherwise, or (iv) fails to pursue all lawful efforts to
require such unsuitable person to relinquish his voting securities for cash at
fair market value. Additionally, the Clark County Board has taken the position
that it has the authority to approve all persons owning or controlling the stock
of any corporation controlling a gaming license.
The Nevada Commission may, at 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 of a Registered Corporation. 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 Company 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 by a 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 Company is also required to render maximum
assistance in determining the identity of the beneficial
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owner. The Nevada Commission has the power to require the Company's securities
to bear a legend indicating that the securities are subject to the Nevada Act.
However, to date, the Nevada Commission has not imposed such a requirement on
the Company.
The Company may not make a public offering of its securities without
the prior approval of the Nevada Commission if the securities or the 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. Such approval, if given, does not constitute a finding, recommendation
or approval by the Nevada Gaming Authorities as to the accuracy or adequacy of
the prospectus or the investment merits of the securities. Any representation to
the contrary is unlawful. The Nevada Commission granted the Company prior
approval to make public offerings through September 2001, subject to certain
conditions ("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. 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.
Changes in control of the Company 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 Gaming Authorities in 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, repurchase of voting securities and corporate defense
tactics affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those licensees, 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 operators 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 Company 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 Company's
Board of Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes 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, Clark County
and the City of Las Vegas. Depending upon the particular fee or tax involved,
these fees and taxes are payable either monthly, quarterly or annually and are
based upon any of: (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 selling of food or refreshments.
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 of the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or decrease in 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 food or alcoholic beverages at the Company's Nevada casinos
is subject to licensing, control and regulation by the applicable local
authorities. 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 upon the operations of the affected casino or casinos.
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ILLINOIS
The Company is subject to the jurisdiction of the Illinois gaming
authorities as a result of its acquisition of the Par-A-Dice Gaming Corporation
d.b.a., Par-A-Dice Riverboat Casino based in East Peoria, Illinois.
In February 1990, the State of Illinois legalized riverboat gambling.
The Illinois Riverboat Gambling Act (the "Illinois Act") authorizes the
five-member Illinois Gaming Board (the "Illinois Board") to issue up to ten
riverboat gaming owners' licenses on navigable streams within or forming a
boundary of the State of Illinois except for Lake Michigan and any waterway in
Cook County, which includes Chicago. Pursuant to the initial Illinois Act, a
licensed owner who holds greater than a 10% interest in one riverboat operation,
could hold no more than a 10% interest in any other riverboat operation. In
addition, the initial Illinois Act restricted the location of certain of the ten
owners' licenses. Four of the licenses were to be located on the Mississippi
River, one license was to be at a location on the Illinois River south of
Marshall County and one license had to be located on the Des Plaines River in
Will County. The remaining licenses were not restricted as to location.
Currently, nine owner's licenses are in operation in Alton, Aurora, East Peoria,
East St. Louis, Elgin, Metropolis, Rock Island and two licenses in Joliet. The
tenth license, which was initially granted to an operator in East Dubuque, was
not renewed by the Illinois Board and has been the subject of on-going
litigation.
Furthermore, under the initial Illinois Act, no gambling could be
conducted while a riverboat was docked. A gaming excursion could last no more
than four hours, and a gaming excursion was deemed to have started when the
first passenger boarded a riverboat. Gaming could continue during passenger
boarding for a period of up to 30 minutes. Gaming was also allowed for a period
of up to 30 minutes after the gangplank or its equivalent was lowered, thereby
allowing passengers to exit the riverboat. During the 30-minute exit time
period, new passengers were not allowed to board the riverboat. Although
riverboats were mandated to cruise, there were certain exceptions. If a
riverboat captain reasonably determined that either it was unsafe to transport
passengers on the waterway due to inclement weather or the riverboat had been
rendered temporarily inoperable by unforeseeable mechanical or structural
difficulties or river icing, the riverboat could remain dockside or return to
the dock. In those situations, a gaming excursion could commence or continue
while the gangplank or its equivalent was raised and remained raised, in which
event the riverboat was not considered docked. If a gaming excursion had to
begin or continue with the gangplank or its equivalent raised, and the riverboat
did not leave the dock, entry of new patrons on to the riverboat was prohibited
until the completion of the excursion.
In June of 1999, amendments to the Illinois Act (the "Amended Illinois
Act") were passed by the legislature and signed into law by the Governor. The
Amended Illinois Act redefined the conduct of gaming in the state. Pursuant to
the Amended Illinois Act, riverboats can conduct gambling without cruising, and
passengers can enter and leave a riverboat at any time. In addition, riverboats
may now be located upon any water within Illinois, and not just navigable
waterways. There is no longer any prohibition of a riverboat being located in
Cook County. Riverboats are now defined as self-propelled excursion boats or
permanently moored barges. The Amended Illinois Act requires that only three,
rather than four owner's licenses, be located on the Mississippi River. The 10%
ownership prohibition has also been removed. Therefore, subject to certain
Illinois Board rules, individuals or entities could own more than one riverboat
operation.
The Amended Illinois Act also allows for the relocation of a riverboat
home dock. A licensee that was not conducting riverboat gambling on January 1,
1998, may apply to the Illinois Board for renewal and approval of relocation to
a new home dock and the Illinois Board shall grant the application and approval
of the new home dock upon the licensee providing to the Illinois Board
authorization from the new dockside community. Pursuant to the Amended Illinois
Act, the former owner and operator of the East Dubuque riverboat has applied for
renewal of its license and to relocate its operation to Rosemont, Illinois. Any
licensee that relocates in accordance with the provisions of the Amended
Illinois Act, must attain a level of at least 20% minority ownership of such a
gaming operation.
The constitutionality of the Amended Illinois Act has been challenged
and is currently the subject of litigation. There is no assurance that the
Amended Illinois Act will be upheld as constitutional. If the Amended Illinois
Act is deemed unconstitutional, all of the new provisions would no longer be in
effect. Specifically, in that situation, riverboats would have to return to
cruising in order to conduct gaming.
The Illinois Act strictly regulates the facilities, persons,
associations and practices related to gaming operations. The Illinois Act grants
the Illinois Board specific powers and duties, and all other powers necessary
and proper to fully and effectively execute the Illinois Act for the purpose of
administering, regulating and enforcing the system of riverboat gaming. The
Illinois Board has authority over every person, association, corporation,
partnership and trust involved in riverboat gaming operations in the State of
Illinois.
The Illinois Act requires the owner of a riverboat gaming operation to
hold an owner's license issued by the Illinois Board. Each owner's license
permits the holder to own up to two riverboats, however, gaming participants are
limited to 1,200 for any owner's
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license. The number of gaming participants will be determined by the number of
gaming positions available. Gaming positions are counted as follows: electronic
gaming devices positions will be determined as 90% of the total number of
devices available for play; craps tables will be counted as having ten gaming
positions; and games utilizing live gaming devices, except for craps, will be
counted as having five gaming positions.
Each owner's license initially runs for a period of three years.
Thereafter, the license must be renewed annually. Under the Amended Illinois
Act, the Board may renew an owner's license for up to four years. An owner
licensee is eligible for renewal upon payment of the applicable fee and a
determination by the Illinois Board that the licensee continues to meet all of
the requirement of the Illinois Act and Illinois Board rules. The owner's
license for Par-A-Dice Riverboat Casino initially expired in February 1995.
Since that time, the license has been renewed annually, with the most recent
renewal approved by the Illinois Board in March of 2000. An ownership interest
in an owner's license may not be transferred or pledged as collateral without
the prior approval of the Illinois Board.
Pursuant to the Amended Illinois Act, which lifted the 10% ownership
prohibition, the Illinois Board established certain rules to effectuate this
statutory change. In deciding whether to approve direct or indirect ownership or
control of an owner's license, the Illinois Board shall consider the impact of
any economic concentration of the ownership or control. No direct or indirect
ownership or control shall be approved which will result in undue economic
concentration of the ownership of a riverboat gambling operation in Illinois.
Undue economic concentration means that a person or entity would have actual or
potential domination of riverboat gambling in Illinois sufficient to:
substantially impede or suppress competition among holders of owner's licenses;
adversely impact the economic stability of the riverboat casino industry in
Illinois; or negatively impact the purposes of the Illinois Act, including
tourism, economic development, benefits to local communities, and State and
local revenues.
The Illinois Board will consider the following criteria in determining
whether the approval of the issuance, transfer or holding of a license will
create undue economic concentration: the percentage share of the market
presently owned or controlled by the person or entity; the estimated increase in
the market share if the person or entity is approved to hold the owner's
license; the relative position of other persons or entities that own or control
owner's licenses in Illinois; the current and projected financial condition of
the riverboat gaming industry; current market conditions, including proximity
and level of competition, consumer demand, market concentration, and any other
relevant characteristics of the market; whether the license to be approved has
separate organizational structures or other independent obligations; the
potential impact on the projected future growth and development of the riverboat
gambling industry, the local communities in which licenses are located, and the
State of Illinois; the barriers to entry into the riverboat gambling industry
and if the approval of the license will operate as a barrier to new companies
and individuals desiring to enter the market; whether the approval of the
license is likely to result in enhancing the quality and customer appeal of
products and services offered by riverboat casinos in order to maintain or
increase their respective market shares; whether a restriction on the approval
of the additional license is necessary in order to encourage and preserve
competition in casino operations; and any other relevant information.
The Illinois Act does not limit the maximum bet or per patron loss.
Minimum and maximum wagers on games are set by the owner licensee. Wagering may
not be conducted with money or other negotiable currency. No person under the
age of 21 is permitted to wager and wagers may only be received from a person
present on the riverboat. With respect to electronic gaming devices, the payout
percentage may not be less than 80% nor more than 100%.
As admission tax is imposed on the owner of a riverboat operation.
Under the Amended Illinois Act, a $2.00 admission tax is imposed for each
admission to a riverboat casino. Additionally, a wagering tax is imposed on the
adjusted gross receipts, as defined in the Illinois Act, of a riverboat
operation. Currently, the wagering tax is as follows: 15% of adjusted gross
receipts up to and including $25,000,000; 20% of adjusted gross receipts in
excess of $25,000,000 but not exceeding $50,000,000; 25% of adjusted gross
receipts in excess of $50,000,000 but not exceeding $75,000,000; and 30% of
adjusted gross receipts in excess of $75,000,000 but not exceeding $100,000,000;
and 35% of adjusted gross receipts in excess of $100,000,000. The owner licensee
is required, on a daily basis, to wire the wagering tax payment to the Illinois
Board.
In addition to owner's licenses, the Illinois Board also requires
licensing for all vendors of gaming supplies and equipment and for all employees
of a riverboat gaming operation. The Illinois Board is authorized to conduct
investigations into the conduct of gaming and into alleged violations of the
Illinois Act and the Illinois Board rules. Employees and agents of the Illinois
Board have access to and may inspect any facilities relating to the riverboat
gaming operation.
A holder of any license is subject to imposition of fines, suspension
or revocation of such license, or other action for any act or failure to act by
himself or his agents or employees, that is injurious to the public health,
safety, morals, good order and general welfare of the people of the State of
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Illinois, or that would discredit or tend to discredit the Illinois gaming
industry or the State of Illinois. Any riverboat operations not conducted in
compliance with the Illinois Act may constitute an illegal gaming place and
consequently may be subject to criminal penalties, which penalties include
possible seizure, confiscation and destruction of illegal gaming devices and
seizure and sale of riverboats and dock facilities to pay any unsatisfied
judgment that may be recovered and any unsatisfied fine that may be levied. The
Illinois Act also provides for civil penalties, equal to the amount of gross
receipts derived from wagering on the gaming, whether unauthorized or
authorized, conducted on the day of any violation. The Illinois Board may revoke
or suspend licenses, as the Illinois Board may see fit and in compliance with
applicable laws of the State of Illinois regarding administrative procedures and
may suspend an owner's license, without notice or hearing, upon a determination
that the safety or health of patrons or employees is jeopardized by continuing a
riverboat's operation. The suspension may remain in effect until the Illinois
Board determines that the cause for suspension has been abated and it may revoke
the owner's license upon a determination that the owner has not made
satisfactory progress toward abating the hazard.
The Illinois Board requires that a "Key Person" of an owner licensee
submit a Personal Disclosure or Business Entity Form and be investigated and
approved by the Illinois Board. The Illinois Board shall certify for each
applicant for or holder of an owner's license each position, individual or
Business Entity that is to be approved by the Board and maintain suitability as
a Key Person. With respect to an applicant for or the holder of an owner's
license, Key Person shall include: any Business Entity and any individual with
an ownership interest or voting rights of more that 5% in the licensee or
applicant, and the trustee of any trust holding such ownership interest or
voting rights; the directors of the licensee or applicant and its chief
executive officer, president and chief operating officer, or their functional
equivalents; and all other individuals or Business Entities that, upon review of
the applicant's or licensees Table of Organization, Ownership and Control the
Board determines hold a position or a level of ownership, control or influence
this is material to the regulatory concerns and obligations of the Illinois
Board for the specified licensee or applicant.
In order to assist the Gaming Board in its determination of Key
Persons, applicants for or holders of an owner's license shall provide to the
Gaming Board a Table of Organization, Ownership and Control (the "Table"). The
Table shall identify in sufficient detail the hierarchy of individuals and
Business Entities that, through direct or indirect means, manage own or control
the interest and assets of the applicant or licensee holder. If a Business
Entity identified in the Table is a publicly traded company, the following
information must be provided in the Table; the name and percentage of ownership
interest of each individual or Business Entity with ownership of more than 5% of
the voting shares of the entity, to the extent such information is known or
contained in Schedule 13D or 13G of Securities and Exchange Commission filings;
to the extent known, the names and percentage of interest of ownership of
persons who are relatives of one another and who together (as individuals or
through trusts) exercise control over or own more than 10% of the voting shares
of the entity; and any trust holding more than 5% ownership or voting interest
in the Company, to the extent such information is known or contained in Schedule
13D or 13G of Securities and Exchange Commission filings. The Table may be
disclosed under the Freedom of Information Act.
Each owner licensee must provide a means for the economic
disassociation of a Key Person in the event such economic disassociation is
required by an order of the Gaming Board. Based upon findings from an
investigation into the character, reputation, experience, associations, business
probity and financial integrity of a Key Person, the Gaming Board may enter an
order upon the licensee or require the economic disassociation of such Key
Person.
Furthermore, each applicant or owner licensee must disclose the
identity of every person, association, trust or corporation having a greater
than 1% direct or indirect pecuniary interest in an owner licensee or in the
riverboat gaming operation with respect to which the license is sought. The
Illinois Gaming Board may also require an applicant or owner licensee to
disclose any other principal or investor and require the investigation and
approval of such individuals.
The Illinois Gaming Board (unless the investor qualifies as an
Institutional Investor) requires a Personal Disclosure Form from any person or
entity who or which, individually or in association with others, acquires
directly or indirectly, beneficial ownership of more than 5% of any class of
voting securities or non-voting securities convertible into voting securities of
a publicly-traded corporation which holds an ownership interest in the holder of
an owner's license. If the Illinois Gaming Board denies an application for such
a transfer and if no hearing is requested, the applicant for the transfer of
ownership interest must promptly divest those shares in the publicly-traded
parent corporation. The holder of an owner's license would not be able to
distribute profits to a publicly-traded parent corporation until such shares
have been divested. If a hearing is requested, the shares need not be divested
and profits may be distributed to a publicly-held parent corporation pending the
issuance of a final order from the Illinois Gaming Board.
An Institutional Investor that individually or jointly with others,
cumulatively acquires, directly or indirectly, 5% or more of any class of voting
securities of a publicly-traded licensee or a licensee's publicly-traded parent
corporation shall, within no less than ten days after acquiring such securities,
notify the Administrator of the Board of such ownership and shall provide any
additional information as may be required. If an Institutional Investor (as
specified above) acquires 10% or more of any class of voting
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securities of a publicly-traded licensee or a licensee's publicly-traded parent
corporation it shall file an Institutional Investor Disclosure Form within 45
days after acquiring such level of ownership interest. The owner licensee shall
notify the Administrator as soon as possible after it becomes aware that it or
its parent is involved in an ownership acquisition by an Institutional Investor.
The Institutional Investor also has an obligation to notify the Administrator of
its ownership interest.
In addition to Institutional Investor Disclosure Forms, certain other
forms may be required to be submitted to the Illinois Board. An owner-licensee
must submit a Marketing Agent Form to the Illinois Board for each Marketing
Agent with whom it intends to do business. A Marketing Agent is a person or
entity, other than a junketeer or an employee of a riverboat gaming operation,
who is compensated by the riverboat gaming operation in excess of $100 per
patron per trip for identifying and recruiting patrons. Key Persons of
owner-licensees must submit Trust Identification Forms for trusts, excluding
land trusts, for which they are a grantor, trustee or beneficiary each time such
a trust relationship is established, amended or terminated.
Applicants for and holders of an owner's license are required to obtain
formal approval from the Illinois Board for changes in the following areas: (i)
Key Persons; (ii) type of entity; (iii) equity and debt capitalization of the
entity; (iv) investors and/or debt holders; (v) source of funds; (vi)
applicant's economic development plan; (vii) riverboat capacity or significant
design change; (viii) gaming positions, (ix) anticipated economic impact; or (x)
agreements, oral or written, relating to the acquisition or disposition of
property (real or personal) of a value greater than $1 million.
A holder of an owner's license is allowed to make distributions to its
stockholders only to the extent that such distribution would not impair the
financial viability of the gaming operation. Factors to be considered by the
licensee will include but not be limited to the following: (i) cash flow, casino
cash and working capital requirements; (ii) debt service requirements
obligations and covenants associated with financial instrument; (iii)
requirements for repairs and maintenance and capital improvements; and (iv)
employment or economic development requirements of the Act; and (v) a licensee's
financial projections.
The Illinois Board may waive any licensing requirement or procedure
provided by rule if it determines that such waiver is in the best interests of
the public and the gaming industry. Also, the Illinois Board may, from time to
time, amend or change its rules.
From time to time, various proposals have been introduced in the
Illinois legislature that, if enacted, would affect the taxation, regulation,
operation or other aspects of the gaming industry or the Company. Some of this
legislation, if enacted, could adversely affect the gaming industry or the
Company. No assurance can be given whether such or similar legislation will be
enacted.
Uncertainty exists regarding the Illinois gambling regulatory
environment due to limited experience in interpreting the Illinois Act.
NEW JERSEY
On April 27, 1997, Boyd Atlantic City, Inc. ("Boyd AC") filed an
application for a casino license with the New Jersey Casino Control Commission
(the "NJCCC"). Boyd AC and Boyd Gaming Corporation ("Boyd") also sought
Statements of Compliance regarding their satisfaction of certain criteria in
connection with Boyd AC's application for a casino license.
On July 8, 1998, at a public meeting, the NJCCC confirmed Boyd AC's
status as an applicant for a casino license. The NJCCC also considered the
petition for Statements of Compliance and declared that, as of the date of the
meeting, Boyd AC and Boyd possessed: (i) the required financial stability,
integrity and responsibility; (ii) the required good character, honesty and
integrity; and (iii) the required business ability and casino experience. The
NJCCC further found that, as of the date thereof, the officers and directors of
Boyd AC and Boyd whose qualifications must be established to receive Statements
of Compliance met the qualifications established under the Casino Control Act.
On August 8, 1998, Boyd notified the NJCCC that its proposed casino
project will be that of Marina District Development Company ("MDDC"), a joint
venture between Boyd AC and MAC, CORP., a wholly owned subsidiary of Mirage
Resorts, Inc. Subsequently, on October 6, 1998, the general counsel's office of
the NJCCC, by letter, confirmed that the staff of the NJCCC is treating MDDC as
the applicant for the proposed casino hotel project.
While the issuance of Statements of Compliance indicate satisfaction of
various criteria as of the date thereof, such issuance is not an assurance of
licensure and the NJCCC retains the right to review the Statements of Compliance
based on changes of circumstances. Furthermore, the Statements of Compliance do
not address many of the items required for casino licensure. Boyd AC, Boyd and
MDDC will continue to submit additional license application items to the NJCCC
as is required.
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The ownership and operation of casino gaming facilities in New Jersey
are subject to the New Jersey Casino Control Act (the "Casino Control Act"). In
general, the Casino Control Act and the regulations promulgated thereunder
contain detailed provisions concerning, among other things: the granting of
casino licenses; the suitability of the approved hotel facility and the amount
of authorized casino space and gaming units permitted therein; the qualification
of natural persons and entities related to the casino licensee; the licensing
and registration of employees and vendors of casino licensees; rules of the
games; the selling and redeeming of gaming chips; the granting and duration of
credit and the enforceability of gaming debts; management control procedures,
accountability, and cash control methods and reports to gaming agencies;
security standards; the manufacture and distribution of gaming equipment; equal
opportunity for employees and casino operators, contractors of casino
facilities, and others; and advertising, entertainment, and alcoholic beverages.
The NJCCC is empowered under the Casino Control Act to regulate a wide spectrum
of gaming and nongaming related activities and to approve the form of ownership
and financial structure of not only a casino licensee, but also its entity
qualifiers and intermediary and holding companies.
No casino hotel facility may operate unless the appropriate license and
approvals are obtained from the NJCCC, which has broad discretion with regard to
the issuance, renewal, revocation, and suspension of such licenses and
approvals, which are nontransferable. The qualification criteria with respect to
the holder of a casino license include its financial stability, integrity and
responsibility; the integrity and adequacy of its financial resources which bear
any relation to the casino project; its good character, honesty, and integrity;
and the sufficiency of its business ability and casino experience to establish
the likelihood of creation and maintenance of a successful, efficient casino
operation. The NJCCC may reopen licensing hearings at any time and must reopen a
licensing hearing at the request of the New Jersey Division of Gaming
Enforcement (the "NJDGE").
To be considered financially stable, a licensee must demonstrate the
following ability: to pay winning wagers when due; to achieve a gross operating
profit; to pay all local, state, and federal taxes when due; to make necessary
capital and maintenance expenditures to insure that it has a superior
first-class facility; and to pay, exchange, refinance or extend debts which will
mature and become due and payable during the license term.
In the event a licensee fails to demonstrate financial stability, the
NJCCC may take such action as it deems necessary to fulfill the purposes of the
Casino Control Act and protect the public interest, including: issuing
conditional licenses approvals or determinations; establishing an appropriate
cure period; imposing reporting requirements; placing restrictions on the
transfer of cash or the assumption of liability; requiring reasonable reserves
or trust accounts; denying licensure; or appointing a conservator.
Pursuant to the Casino Control Act, NJCCC regulations and precedent, no
entity may hold a casino license unless each officer, director, principal
employee, person who directly or indirectly holds any beneficial interest or
ownership in the licensee, each person who in the opinion of the NJCCC has the
ability to control or elect a majority of the board of directors of the licensee
(other than a banking or other licensed lending institution which makes a loan
or holds a mortgage or other loan acquired in the ordinary course of business),
and any lender, whom the NJCCC may consider appropriate, obtains and maintains
qualification approval from the NJCCC. Qualification approval means
qualification requirements as a casino key employee, as described below.
An entity qualifier or intermediary or holding company is required to
register with the NJCCC and meet the same basic standards for approval as a
casino licensee; provided, however, that the NJCCC, with the concurrence of the
Director of the NJDGE, may waive compliance by a publicly-traded corporate
holding company as to any officer, director, lender, underwriter, agent or
employee thereof, or person directly or indirectly holding a beneficial interest
or ownership of the securities of such company, where the NJCCC and the Director
of the NJDGE are satisfied that such persons are not significantly involved in
the activities of the corporate licensee, and in the case of security holders,
do not have the ability to control the publicly-traded corporation or elect one
or more of its directors.
The NJCCC may require all financial backers, investors, mortgagors,
bond holders and holders of notes or other evidence of indebtedness, either in
effect or proposed, which bears any relation to the casino project,
publicly-traded securities of an entity which holds a casino license or is an
entity qualifier, subsidiary, or holding company of a casino licensee (a
"Regulated Company"), to qualify as financial sources.
An institutional investor ("Institutional Investor") is defined by the
Casino Control Act as any retirement fund administered by a public agency for
the exclusive benefit of federal, state, or local public employees; investment
company registered under the Investment Company Act of 1940; collective
investment trust organized by banks under Part Nine of the Rules of the
Comptroller of the Currency; closed end investment trust; chartered or licensed
life insurance company or property and casualty insurance company; banking and
other chartered or licensed lending institution; investment advisor registered
under the Investment Advisers Act of 1940; and such other persons as the NJCCC
may determine for reasons consistent with the policies of the Casino Control
Act.
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An Institutional Investor is granted a waiver by the NJCCC from
financial source or other qualification requirements applicable to a holder of
publicly-traded securities, in the absence of a prima facie showing by the NJDGE
that there is any cause to believe that the Institutional Investor may be found
unqualified, on the basis of NJCCC findings that: (a) its holdings were
purchased for investment purposes only and, upon request by the NJCCC, it files
a certified statement to the effect that is has no intention of influencing or
affecting the affairs of the issuer, the casino licensee or its holding or
intermediary companies; provided, however, that the Institutional Investor will
be permitted to vote on matters put to the vote of the outstanding security
holders; and (b) if (i) the securities are debt securities of a casino
licensee's holding or intermediary companies or another subsidiary company of
the casino licensee's holding or intermediary companies which is related in any
way to the financing of the casino licensee and represent either (x) 20% or less
of the total outstanding debt of the company, or (y) 50% or less of any issue of
outstanding debt of the company, (ii) the securities are under 10% of the equity
securities of a casino licensee's holding or intermediary companies, or (iii) if
the securities so held exceed such percentages, upon a showing of good cause.
The NJCCC may grant a waiver of qualification to an Institutional Investor
holding a higher percentage of such securities upon a showing of good cause and
if the conditions specified above are met.
Generally, the NJCCC requires each institutional holder seeking waiver
of qualification to execute a certification to the effect that (i) the holder
has reviewed the definition of Institutional Investor under the Casino Control
Act and believes that it meets the definition of Institutional Investor; (ii)
the securities are those of a publicly-traded corporation; (iii) the holder
purchased the securities for investment purposes only and holds them in the
ordinary course of business; (iv) the holder has no involvement in the business
activities of, and no intention of influencing or affecting the affairs of the
issuer, the casino licensee, or any affiliate; and (v) if the holder
subsequently determines to influence or affect the affairs of the issuer, the
casino licensee or any affiliate, will provide not less than 30 days' prior
notice of such intent and will file with the NJCCC an application for
qualification before taking any such action. If an Institutional Investor
changes its investment intent, or if the NJCCC finds reasonable cause to believe
that it may be found unqualified, the Institutional Investor may take no action
with respect to the security holdings, other than to divest itself of such
holdings, until it has applied for interim casino authorization and has executed
a trust agreement pursuant to such an application.
The Casino Control Act imposes certain restrictions upon the issuance,
ownership, and transfer of securities of a Regulated Company, and defines the
term "security" to include instruments which evidence a direct or indirect
beneficial ownership or creditor interest in a Regulated Company including, but
not limited to, mortgages, debentures, security agreements, notes, and warrants.
If the NJCCC finds that a holder of such securities is not qualified
under the Casino Control Act, it has the right to take any remedial action it
may deem appropriate, including the right to force divestiture by such
disqualified holder of such securities. In the event that certain disqualified
holders fail to divest themselves of such securities, the NJCCC has the power to
revoke or suspend the casino license affiliated with the Regulated Company which
issued the securities. If a holder is found unqualified, it is unlawful for the
holder (i) to exercise, directly or through any trustee or nominee, any right
conferred by such securities, or (ii) to receive any dividends or interest upon
any such securities or any remuneration, in any form, from its affiliated casino
licensee for services rendered or otherwise.
With respect to non-publicly-traded securities, the Casino Control Act
and NJCCC regulations require that the corporate charter or partnership
agreement of a Regulated Company establish a right in the NJCCC of prior
approval with regard to transfers of securities, shares and other interests and
an absolute right in the Regulated Company to repurchase at the market price or
the purchase price, whichever is the lesser, any such security, share, or other
interest in the event that the NJCCC disapproves a transfer. With respect to
publicly-traded securities, such corporate charter or partnership agreement is
required to establish that any such securities of the entity are held subject to
the condition that, if a holder thereof is found to be disqualified by the
NJCCC, such holder shall dispose of such securities.
Whenever any person enters into a contract to transfer any property
which relates to an ongoing casino operation, including a security of the casino
licensee or a holding or intermediary company or entity qualifier, under
circumstances which would require that the transferee obtain licensure or be
qualified under the Casino Control Act, and that person is not already licensed
or qualified, the transferee is required to apply for interim authorization.
Furthermore, the closing or settlement date in the contract may not be earlier
than the 121st day after the submission of a complete application for licensure
or qualification together with a fully executed trust agreement in a form
approved by the NJCCC. If, after the report of the NJDGE and a hearing by the
NJCCC, the NJCCC grants interim authorization, the property will be subject to a
trust. If the NJCCC denies interim authorization, the contract may not close or
settle until the NJCCC makes a determination on the qualifications of the
applicant. If the NJCCC denies qualification, the contract will be terminated
for all purposes, and there will be no liability on the part of the transferor.
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If, as the result of a transfer of publicly-traded securities of a
Regulated Company or a financing entity of a Regulated Company, any person is
required to qualify under the Casino Control Act, that person is required to
file an application for licensure or qualification within 30 days after the
NJCCC determines that qualification is required or declines to waive
qualification.
The application must include a fully executed trust agreement in a form
approved by the NJCCC, or in the alternative, within 120 days after the NJCCC
determines that qualification is required, the person whose qualification is
required must divest such securities as the NJCCC may require in order to remove
the need to qualify.
The NJCCC may grant interim casino authorization where it finds by
clear and convincing evidence that: (i) statements of compliance have been
issued pursuant to the Casino Control Act; (ii) the casino hotel is an approved
hotel in accordance with the Casino Control Act; (iii) the trustee satisfies
qualification criteria applicable to casino key employees, except for residency;
and (iv) interim operation will best serve the interests of the public.
When the NJCCC finds the applicant qualified, the trust will terminate.
If the NJCCC denies qualification to a person who has received interim casino
authorization, the trustee is required to endeavor, and is authorized, to sell,
assign, convey, or otherwise dispose of the property subject to the trust to
such persons who are licensed or qualified or shall themselves obtain interim
casino authorization.
Where a holder of publicly-traded securities is required, in applying
for qualification as a financial source or qualifier, to transfer such
securities to a trust in application for interim casino authorization and the
NJCCC thereafter orders that the trust become operative: (i) during the time the
trust is operative, the holder may not participate in the earnings of the casino
hotel or receive any return on its investment or debt security holdings; and
(ii) after disposition, if any, of the securities by the trustee, proceeds
distributed to the unqualified holder may not exceed the lower of their actual
cost to the unqualified holder or their value calculated as if the investment
had been made on the date the trust became operative.
The NJCCC may permit a licensee to increase its casino space if the
licensee agrees to add a prescribed number of qualifying sleeping units within
two years after the commencement of gaming operations in the additional casino
space. However, if the casino licensee does not fulfill such agreement due to
conditions within its control, the licensee will be required to close the
additional casino space, or any portion of thereof that the NJCCC determines
should be closed.
The NJCCC is authorized to establish annual fees for the renewal of
casino licenses. The renewal fee is based upon the cost of maintaining control
and regulatory activities prescribed by the Casino Control Act, and may not be
less than $100,000 for a one-year casino license nor less than $200,000 for a
four-year casino license. Additionally, casino licenses are subject to potential
assessments to fund any annual operating deficits incurred by the NJCCC or the
NJDGE. There is also an annual license fee of $500 for each slot machine
maintained for use or in use in any casino. Additionally, each casino licensee
is also required to pay an annual tax of 8% on its gross casino revenues.
Each party to an agreement for the management of a casino is required
to hold a casino license, and the party who is to manage the casino must own at
least 10% of all the outstanding equity securities of the casino licensee. Such
an agreement shall provide for: (i) the complete management of the casino; (ii)
the sole and unrestricted power to direct the casino operations; and (iii) a
term long enough to ensure the reasonable continuity, stability, independence
and management of the casino.
An investment alternative tax imposed on the gross casino revenues of
each licensee in the amount of 2.5% is due and payable on the last day of April
following the end of the calendar year. A licensee is obligated to pay the
investment alternative tax for a period of 30 years. Estimated payments of the
investment alternative tax obligation must be made quarterly in an amount equal
to 1.25% of estimated gross revenues for the preceding three-month period.
Investment tax credits may be obtained by the Casino Reinvestment Development
Authority ("CRDA"). CRDA bonds have terms as long as 50 years and bear interest
at below market rates, resulting in a value lower than the face value of such
CRDA bonds.
For the first 10 years of its obligation, the licensee is entitled to
an investment tax credit against the investment alternative tax in an amount
equal to twice the purchase price of the bonds issued to the licensee by the
CRDA. Thereafter, the licensee is (i) entitled to an investment tax credit in an
amount equal to twice the purchase price of such bonds or twice the amount of
its investments authorized in lieu of such bond investments made in projects
designated as eligible by the CRDA, and (ii) has the option of entering into a
contract with the CRDA to have its tax credit comprised of direct investments in
approved eligible projects which may not comprise more than 50% of its eligible
tax credit in any one year.
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On each October 31 during the years 1996 through 2003, each casino
licensee must pay into an account established in the CRDA and known as the
Atlantic City Fund, its proportional share of an amount related to the amount by
which annual operating expenses of the NJCCC and the NJDGE are less than a
certain fixed sum. Additionally, a portion of the investment alternative tax
obligation of each casino licensee for the years 1994 through 1998 allocated for
projects in northern New Jersey is required to be paid into and credited to the
Atlantic City Fund. Amounts in the Atlantic City Fund will be expended by the
CRDA for economic development projects of a revenue producing nature that foster
the redevelopment of Atlantic City, other than the construction and renovation
of casino hotels.
As of July 1, 1993, there was established a standard minimum parking
charge of at least $2.00 per day for the use of a parking space for the purpose
of parking, garaging or storing motor vehicles in a parking facility owned or
leased by a casino licensee or by any person on behalf of a casino licensee. Of
the amount collected by the casino licensee, $1.50 is required to be paid to the
New Jersey State Treasurer and paid by the New Jersey State Treasurer into a
special fund established and held by the New Jersey State Treasurer for the
exclusive use of the CRDA.
Amounts in the special fund will be expended by the CRDA for (i)
eligible projects in the corridor region of Atlantic City, which projects are
related to the improvement of roads, infrastructure, traffic regulation, and
public safety, and (ii) funding up to 35% of the cost to casino licensees of
expanding their hotel facilities to provide additional hotel rooms, which hotel
rooms are required to be available upon the opening of the Atlantic City
Convention Center and dedicated to convention events.
On April 15, 1997, the CRDA approved a funding package for the
development of the H-Tract. The funding package consists of the following: (i) a
$65 million dollar allocation from the parking fees referred to above of casinos
being developed in the H-Tract; and (ii) a $55 million allocation from future
CRDA obligations of those casinos.
If, at any time, it is determined that a Regulated Company has violated
the Casino Control Act, or that any such entity cannot meet the qualification
requirements of the Casino Control Act, such entity could be subject to fines or
the suspension or revocation of its license or qualification. If a Regulated
Company's license is suspended for a period in excess of 120 days or revoked, or
upon the failure or refusal to renew a casino license, the NJCCC could appoint a
conservator to operate or dispose of such entity's casino hotel facilities. The
conservator would be required to act under the direct supervision of the NJCCC
and would be charged with the duty of conserving, preserving and, if permitted,
continuing the operation of such casino hotel. During the period of true
conservatorship, a former or suspended casino licensee is entitled to a fair
rate of return out of net earnings, if any, on the property retained by the
conservator. The NJCCC may also discontinue any conservatorship action and
direct the conservator to take such steps as are necessary to effect an orderly
transfer of the property of a former or suspended casino licensee.
Casino employees are subject to more stringent requirements than
non-casino employees and must meet applicable standards pertaining to financial
stability, responsibility, good character, honesty, integrity and New Jersey
residency. These requirements have resulted in significant competition among
Atlantic City casino operators for the services of qualified employees.
Casinos must follow certain procedures which are outlined in the Casino
Control Act when granting gaming credit and recording counter checks which have
been exchanged, redeemed or consolidated. Gaming debts arising in Atlantic City
in accordance with applicable regulations are enforceable in the courts of the
State of New Jersey.
LOUISIANA
The operation and management of riverboat casino facilities in
Louisiana are subject to extensive state regulation. The Louisiana Riverboat
Economic Development and Gaming Control Act (the "Riverboat Act") became
effective on July 19, 1991 and authorized the formation of the Louisiana
Riverboat Gaming Commission (the "Commission") and the Riverboat Gaming
Enforcement Division of the Louisiana State Police (the "Division"). Both the
Commission and the Division promulgated extensive regulations which controlled
riverboat gaming in Louisiana. The Riverboat Act states, among other things,
that certain of the policies of the State of Louisiana are to develop a historic
riverboat industry that will assist in the growth of the tourism market, to
license and supervise the riverboat industry from the period of construction
through the actual operation, to regulate the operators, manufacturers,
suppliers and distributors of gaming devices and to license all entities
involved in the riverboat gaming industry. The Riverboat Act makes it clear,
however, that no holder of a license or permit possesses any vested interest in
such license or permit and that the license or permit may be revoked at any
time. In a special session held in April 1996, the Louisiana legislature passed
the Louisiana Gaming Control Act (the "Gaming Control Act") which dissolved the
Commission and replaced it with the Louisiana Gaming Control Board. Pursuant to
the Gaming Control Act, all of the regulatory authority, control and
jurisdiction of licensing has now been transferred to the Gaming Control Board.
The Gaming Control Board came into existence on May 1, 1996 and is made up of
nine members and two ex-
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officio members (including the Secretary of Revenue and Taxation and the
superintendent of Louisiana State Police). It is domiciled in Baton Rouge and
regulates riverboat gaming, the land-based casino in New Orleans and video
poker. The Attorney General acts as legal counsel to the Gaming Control Board as
he did for the Commission. Any material alteration in the method whereby
riverboat gaming is regulated in the State of Louisiana could have an adverse
effect on the operations of the Treasure Chest.
The Louisiana legislature also passed legislation requiring each parish
(county) where riverboat gaming is currently authorized to hold an election in
order for the voters to decide whether riverboat gaming will remain legal in
that parish. The Treasure Chest is located in Jefferson Parish, Louisiana.
Jefferson Parish approved riverboat gaming at the special election held on
November 6, 1996.
The Riverboat Act approved the conducting of gaming activities on a
riverboat, in accordance with the Riverboat Act, on twelve separate waterways in
Louisiana. The Riverboat Act allows the Gaming Control Board to issue up to 15
licenses to operate riverboat gaming projects within the state, with no more
than six in any one parish. There are presently 14 licenses issued and 13
riverboats operating. Pursuant to the Riverboat Act and the regulations
promulgated thereunder, each applicant which desired to operate a riverboat
casino in Louisiana was required to file a number of separate applications for a
Certificate of Preliminary Approval, all necessary gaming licenses and a
Certificate of Final Approval. No final Certificate was issued without all
necessary and proper certificates from all regulatory agencies including the
U.S. Coast Guard, the U.S. Army Corps of Engineers, local port authorities and
local levee authorities.
The Treasure Chest project application for a Certificate of Preliminary
Approval was filed by Treasure Chest Casino, L.L.C., the owner of Treasure
Chest. Treasure Chest received its Preliminary Certificate in August 1993 and
received its license on May 18, 1994. The license is subject to certain general
operational conditions and is subject to revocation pursuant to applicable laws
and regulations.
The Company and certain of its directors and officers and certain key
personnel were found suitable by the Division. New directors, officers and
certain key employees associated with gaming must also be found suitable by the
Gaming Control Board prior to working in gaming-related areas. These approvals
may be immediately revoked for a number of causes as determined by the Gaming
Control Board. The Gaming Control Board may deny any application for a
certificate, permit or license for any cause found to be reasonable by the
Gaming Control Board. The Gaming Control Board has the authority to require the
Company to sever its relationships with any persons for any cause deemed
reasonable by the Division or for the failure of that person to file necessary
applications with the Gaming Control Board.
The original Louisiana riverboat gaming license of Treasure Chest was
valid for five years and was to expire on May 18, 1999. An application for a one
year renewal was filed and, in March 1999, the renewal was conditionally
approved by the Louisiana Gaming Control Board for an additional one year
period, subject to the completion of the Louisiana State Police's customary
suitability investigation. Treasure Chest will apply for one year renewals each
year hereafter.
In October 1998, a former majority member of the entity that previously
owned an 85% interest in the Treasure Chest pleaded guilty to conspiracy to
commit extortion under the Hobbs Act, 18 U.S.C. 371, in connection with the
granting of the original Louisiana gaming license of Treasure Chest. Although
neither Treasure Chest nor the Company or any of its affiliates or employees
have been implicated in any manner in this investigation or prosecution, the
Louisiana Gaming Control Board has indicated that a full and complete
investigation into the matter will be undertaken. Additionally, two unsuccessful
applicants for riverboat licenses have raised issues concerning the issuance of
the Treasure Chest license.
In November 1998, Astoria Entertainment, Inc. ("Astoria"), an
unsuccessful applicant for a riverboat gaming license in Jefferson Parish,
Louisiana, filed two separate lawsuits (one in state court, one in federal
court) which named Treasure Chest and the Company as defendants. After the
Company filed a motion to dismiss the federal claim, Astoria voluntarily
dismissed all claims against the Company and Treasure Chest in the federal
actions without prejudice to its right to refile the claims at a later date. The
Astoria state court suit is still pending.
Also, Alvin C. Copeland ("Copeland"), the sole shareholder of an
unsuccessful applicant for the original license that was granted to Treasure
Chest, challenged the validity of Treasure Chest's license at a recent Louisiana
Gaming Control Board meeting at which the Company received its renewal.
Copeland's challenges were based upon several allegations, including the Hobbs
Act violation discussed above, alleged licensing process irregularities and
alleged improper conduct by the Company. In addition, in 1993, Copeland objected
to the granting of Treasure Chest's license through an administrative procedure
which was denied by the Louisiana Gaming Control Board. Copeland's appeal of the
decision is presently pending in the Louisiana District Court. In 1999,
Copeland brought an action against Treasure Chest in an effort to have Treasure
Chest's license revoked and transferred to Copeland. The suit is presently
stayed pending the criminal investigation and trial referred to above.
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If any of these matters ultimately result in the Treasure Chest license
not being renewed, it could have a material adverse effect on the business,
financial condition and results of operations of the Company.
At any time, the Gaming Control Board may investigate and require the
finding of suitability of any beneficial shareholder of the Company. The Gaming
Control Board requires all holders of more than a 5% interest in the license
holder to submit to suitability requirements. Additionally, if a shareholder who
must be found suitable is a corporate or partnership entity, then the
shareholders of partners of the entity must also submit to investigation. The
sale or transfer of more than a 5% interest in any riverboat project is subject
to Gaming Control Board approval.
Annual fees are currently charged to each riverboat project as follows:
(i) $50,000 per year for the first year and $100,000 for each year thereafter;
and (ii) 18.5% of the net gaming proceeds. Additionally, each riverboat must pay
to the local government a boarding fee of $2.50 per passenger boarding the
vessel. These fees could be increased by the Gaming Control Board.
Pursuant to the regulations promulgated by the Division and the
Commission (prior to the formation of the Gaming Control Board), all licensees
are required to inform the Commission and the Division of all debt, credit,
financing and loan transactions, including the identity of debt holders. This
practice will be followed with the Gaming Control Board pending the issuance of
conflicting regulations. Although the Company is not presently a license holder,
its subsidiaries, Boyd Kenner, Boyd Louisiana L.L.C. and Treasure Chest Casino,
L.L.C. are licensees and are subject to these regulations. In addition, the
Gaming Control Board, in its sole discretion, may require the holders of such
debt securities to file applications and obtain suitability certificates from
the Gaming Control Board. Although the Riverboat Act does not specifically
require debt holders to be licensed or to be found suitable, the Gaming Control
Board will retain the discretion to investigate and require that any holders of
debt securities be found suitable under the Riverboat Act. Additionally, if the
Gaming Control Board finds that any holder exercises a material influence over
the gaming operations, a suitability certificate will be required. If the Gaming
Control Board determines that a person is unsuitable to own such a security or
to hold such an indebtedness, the Gaming Control Board may propose any action
which it determines proper and necessary to protect the public interest,
including the suspension or revocation of the license. The Gaming Control Board
may also, under the penalty of revocation of license, issue a condition of
disqualification naming the person(s) and declaring that such person(s) may not:
(i) receive dividends or interest in debt or securities; (ii) exercise directly
or through a nominee a right conferred by the securities or indebtedness; (iii)
receive any remuneration from the licensee; (iv) receive any economic benefit
from the licensee; or (v) continue in an ownership or economic interest in a
licensee or remain as a manager, director or partner of a licensee.
Any violation of the Riverboat Act or the rules promulgated by the
Commission, the Division or the Gaming Control Board could result in substantial
fines, penalties (including a revocation of the license) and criminal actions.
Additionally, all licenses and permits issued by the Commission or the Division
are revocable privileges and may be revoked at any time by the Gaming Control
Board.
MISSISSIPPI
The ownership and operation of casino facilities in Mississippi are
subject to extensive state and local regulation, but primarily the licensing and
regulatory control of the Mississippi Gaming Commission (the "Mississippi
Commission") and the Mississippi State Tax Commission.
The Mississippi Gaming Control Act (the "Mississippi Act"), which
legalized dockside casino gaming in Mississippi, was enacted on June 29, 1990.
Although not identical, the Mississippi Act is similar to the Nevada Gaming
Control Act. The Mississippi Commission has adopted regulations which are also
similar in many respects to the Nevada gaming regulations.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Commission seek to: (i) prevent unsavory or unsuitable persons from
having any direct or indirect involvement with gaming at any time or in any
capacity; (ii) establish and maintain responsible accounting practices and
procedures; (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Commission; (iv) prevent cheating and
fraudulent practices; (v) provide a source of state and local revenues through
taxation and licensing fees; and (vi) ensure that gaming licensees, to the
extent practicable, employ Mississippi residents. The regulations are subject to
amendment and interpretation by the Mississippi Commission. Changes in
Mississippi law or regulations may limit or otherwise materially affect the
types of gaming that may be conducted and could have an adverse effect on the
Company and the Company's Mississippi gaming operations.
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The Mississippi Act provides for legalized dockside gaming at the
discretion of the 14 counties that either border the Gulf Coast or the
Mississippi River, but only if the voters in such counties have not voted to
prohibit gaming in that county. Certain amendments to the Mississippi
Constitution have been proposed for adoption through the initiative and
referendum process which, if a sufficient number of signatures are gathered to
place the matter on the ballot and if adopted by the voters of the state, would
prohibit gaming in Mississippi. See "Mississippi Anti-Gaming Initiatives".
As of February 1, 2000, dockside gaming was permissible in nine of the
14 eligible counties in the state and gaming operations had commenced in Adams,
Coahoma, Hancock, Harrison, Tunica, Warren and Washington counties. Under
Mississippi law, gaming vessels must be located on the Mississippi River or on
navigable waters in eligible counties along the Mississippi River, or in the
waters of the State of Mississippi lying south of the state in eligible counties
along the Mississippi Gulf Coast. The Company's Sam's Town Tunica casino is
located on barges situated in a specially constructed basin several hundred feet
inland from the Mississippi River. In the past, whether basins such as the one
in which the Company's barges are located constituted "navigable waters"
suitable for gaming under Mississippi law was a controversial issue. The
Mississippi Attorney General issued an opinion in July 1993 addressing legal
locations for gaming vessels under the Mississippi Act and the Mississippi
Commission later approved the location of the barges on the Sam's Town Tunica
site as legal under the opinion of the Mississippi Attorney General. Although a
competitor requested the Mississippi Commission to review and reconsider its
decision, the Mississippi Commission declined to do so and since that date has
issued or renewed licenses to Sam's Town Tunica on several separate occasions.
The license requires demonstration of compliance with the Mississippi Attorney
General's "navigable waters" opinion, a requirement which has been imposed on
many licenses for Tunica County gaming projects. The Company believes that the
Sam's Town Tunica site is in compliance with the Mississippi Act and the
Mississippi Attorney General's "navigable waters" opinion. However, no assurance
can be given that a court would ultimately conclude that a site constitutes
navigable waters within the meaning of Mississippi law. If the basin in which
the Company's barges are presently located were not deemed navigable waters
within the meaning of Mississippi law, there would be a material adverse effect
on the Company and Sam's Town Tunica's business, financial condition and results
of operations.
The Mississippi Act permits unlimited stakes gaming on permanently
moored vessels on a 24-hour basis and does not restrict the percentage of space
which may be utilized for gaming. The Mississippi Act permits substantially all
traditional casino games and gaming devices.
The Company and its Mississippi licensee are subject to the licensing
and regulatory control of the Mississippi Commission. The Company is registered
under the Mississippi Act as the publicly traded holding company of its
Mississippi licensee. Each 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. If the Company is
unable to continue to satisfy the registration requirements of the Mississippi
Act, the Company and its affiliates cannot own or operate gaming facilities in
Mississippi.
The Company's Mississippi licensee must maintain a gaming license from
the Mississippi Commission to operate a casino in Mississippi. Such licenses are
issued by the Mississippi Commission subject to certain conditions, including
continued compliance with all applicable state laws and regulations. There are
no limitations on the number of gaming licenses which may be issued in
Mississippi. Gaming licenses are not transferable, are issued for a three-year
period and may be continued for two additional three-year periods prior to
renewal. Sam's Town Tunica's current gaming license expires in December of 2001.
No person may become a stockholder of or receive any percentage of profits from
a licensed subsidiary of a holding company without first obtaining licenses and
approvals from the Mississippi Commission. The Company has obtained such
approvals in connection with its registration with the Mississippi Commission as
a holding company.
Certain officers and employees of the Company and the officers,
directors and certain key employees of the Company's licensed Mississippi
subsidiary must be found suitable or be licensed by the Mississippi Commission.
The Company believes it has obtained, applied for or is in the process of
applying for all necessary findings of suitability with respect to such persons,
although the Mississippi Commission, in its discretion, may require additional
persons to file applications for findings of suitability. In addition, any
person having a material relationship or involvement with the Company may be
required to be found suitable, in which case those persons must pay the costs
and fees associated with such investigation. The Mississippi Commission may deny
an application for a finding of suitability for any cause that it deems
reasonable. Changes in certain licensed positions must be reported to the
Mississippi Commission. In addition to its authority to deny an application for
a finding of suitability, the Mississippi Commission has jurisdiction to
disapprove a change in any person's corporate position or title and such changes
must be reported to the Mississippi Commission. The Mississippi Commission has
the power to require the Company and its registered or licensed subsidiaries to
suspend or dismiss officers, directors and other key employees or sever
relationships with other persons who refuse to file appropriate applications or
whom the authorities find unsuitable to act in such capacities.
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Employees associated with gaming must obtain work permits that are
subject to immediate suspension under certain circumstances. The Mississippi
Commission will refuse to issue a work permit to a person convicted of a felony
and it may refuse to issue a work permit to a gaming employee if the employee
has committed certain misdemeanors or knowingly violated the Mississippi Act or
for any other reasonable cause.
At any time, the Mississippi Commission has the power to investigate
and require the finding of suitability of any record or beneficial shareholder
of the Company. Mississippi law requires any person who acquires more than 5% of
the common stock of a publicly traded corporation registered with the
Mississippi Commission to report the acquisition to the Mississippi Commission,
and such person may be required to be found suitable. Also, any person who
becomes a beneficial owner of more than 10% of the common stock of such a
company, as reported to the Securities and Exchange Commission, must apply for a
finding of suitability by the Mississippi Commission and must pay the costs and
fees that the Mississippi Commission incurs in conducting the investigation. The
Mississippi Commission generally has exercised its discretion to require a
finding of suitability of any beneficial owner of more than 5% of a registered
publicly-traded holding company's common stock. However, the Mississippi
Commission has adopted a policy that permits certain institutional investors to
own beneficially up to 15% of a registered public company's common stock without
a finding of suitability. If a stockholder 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.
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 may be found unsuitable. The same restrictions apply to a record
owner, if the record owner, after request, fails to identify the beneficial
owner. Management believes that compliance by the Company with the licensing
procedures and regulatory requirements of the Mississippi Commission will not
affect the marketability of the Company's securities. Any person found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
the securities of the Company beyond such time as the Mississippi Commission
prescribes, may be guilty of a misdemeanor. The Company is subject to
disciplinary action if, after receiving notice that a person is unsuitable to be
a stockholder or to have any other relationship with the Company or its licensed
subsidiary, the Company: (i) pays the unsuitable person any dividend or other
distribution upon the voting securities of the Company; (ii) recognizes the
exercise, directly or indirectly, of any voting rights conferred by securities
held by the unsuitable person; (iii) pays the unsuitable person any remuneration
in any form for services rendered or otherwise, except in certain limited and
specific circumstances; or (iv) fails to pursue all lawful efforts to require
the unsuitable person to divest himself of the securities, including, if
necessary, the immediate purchase of the securities for cash at a fair market
value.
The Company may be required to disclose to the Mississippi Commission,
upon request, the identities of the holders of any debt or other securities. In
addition, under the Mississippi Act the Mississippi Commission may, in its
discretion, (i) require holders of debt securities of registered corporations to
file applications, (ii) investigate such holders, and (iii) require such holders
to be found suitable to own such debt securities or receive distributions
thereon. If the Mississippi Commission determines that a person is unsuitable to
own such security, then the issuer may be sanctioned, including the loss of its
approvals, if without the prior approval of the Mississippi 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. Although the Mississippi Commission generally does not require the
individual holders of obligations such as notes to be investigated and found
suitable, the Mississippi Commission retains the discretion to do so for any
reason, including but not limited to a default, or where the holder of the debt
instrument exercises a material influence over the gaming operations of the
entity in question. Any holder of debt securities required to apply for a
finding of suitability must pay all investigative fees and costs of the
Mississippi Commission in connection with such an investigation.
The Company's Mississippi licensed subsidiary must maintain in
Mississippi a current ledger with respect to the ownership of its equity
securities and the Company must maintain in the offices of the Company's
Mississippi licensed subsidiary a current list of stockholders of the Company
which must reflect the record ownership of each outstanding share of any equity
security issued by the Company. The ledger and stockholder lists must be
available for inspection by the Mississippi Commission at any time. If any
securities of the Company are held in trust by an agent or by a 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 Company must also render maximum
assistance in determining the identify of the beneficial owner.
The Mississippi Act requires that the certificates representing
securities of a registered publicly traded corporation bear a legend to the
general effect that such securities are subject to the Mississippi Act and the
regulations of the Mississippi Commission. The Company has received from the
Mississippi Commission an exemption from this legend requirement. The
Mississippi Commission has the power to impose additional restrictions on the
holders of the Company's securities at any time.
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Substantially all loans, leases, sales of securities and similar
financing transactions by a licensed gaming subsidiary must be reported to or
approved by the Mississippi Commission. A licensed gaming subsidiary may not
make a public offering of its securities, but may pledge or mortgage casino
facilities. The Company may not make a public offering of its securities without
the prior approval of the Mississippi Commission if any part of the proceeds of
the offering is to be used to finance the construction, acquisition or operation
of gaming facilities in Mississippi or to retire or extend obligations incurred
for one or more such purposes. Such approval, if given, does not constitute a
recommendation or approval of the investment merits of the securities subject to
the offering.
Under the regulations of the Mississippi Commission, a gaming licensee
may not guarantee a security issued by an affiliated company pursuant to a
public offering, or pledge its assets to secure payment or performance of the
obligations evidenced by the security issued by the affiliated company, without
the prior approval of the Mississippi Commission. A pledge of the stock of a
gaming licensee and the foreclosure of such a pledge are ineffective without the
prior approval of the Mississippi Commission. Moreover, restrictions on the
transfer of an equity security issued by a Mississippi licensee and agreements
not to encumber such securities are ineffective without the prior approval of
the Mississippi Commission.
Changes in control of the Company through merger, consolidation,
acquisition of assets, management or consulting agreements or any form of
takeover cannot occur without the prior approval of the Mississippi Commission.
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 other
corporate defense tactics that affect corporate gaming licensees in Mississippi
and corporations whose stock is publicly traded that are affiliated with those
licensees, 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 operators 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 Company may make exceptional repurchases of voting
securities in excess of the current market price of its common stock (commonly
called "greenmail") or before a corporate acquisition opposed by management may
be consummated. Mississippi's gaming regulations will also require prior
approval by the Mississippi Commission if the Company adopts a plan of
recapitalization proposed by its board of directors opposing a tender offer made
directly to the stockholders for the purpose of acquiring control of the
Company.
Neither the Company nor any subsidiary may engage in gaming activities
in Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Commission. The Mississippi Commission may
require determinations that, among other things, there are means for the
Mississippi Commission to have access to information concerning the out-of-state
gaming operations of the Company and its affiliates. The Company will be
required to obtain the approval or a waiver of such approval from the
Mississippi Commission prior to engaging in any additional future gaming
operations outside of Mississippi.
If the Mississippi Commission decides that the Company's licensed
gaming subsidiary violated a gaming law or regulation, the Mississippi
Commission could limit, condition, suspend or revoke the license of the
subsidiary, subject to compliance with certain statutory and regulatory
procedures. In addition, the licensed subsidiary, the Company and the persons
involved could be subject to substantial fines for each separate violation.
Because of such a violation, the Mississippi Commission could attempt to appoint
a supervisor to operate the casino facilities. Limitation, conditioning or
suspension of any gaming license or the appointment of a supervisor could (and
revocation of any gaming license would) have a material adverse effect upon the
Company's business, financial condition and results of operations.
License fees and taxes, computed in various ways depending on the type
of gaming involved, are payable to the State of Mississippi and to the counties
and cities in which a licensed gaming subsidiary's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon (i) a
percentage of the gross gaming revenues received by the casino operation, (ii)
the number of slot machines operated by the casino or (iii) the number of table
games operated by the casino. The license fee payable to the State of
Mississippi is based upon "gaming receipts" (generally defined as gross receipts
less payouts to customers as winnings) and equals 4% of gaming receipts of
$50,000 or less per month, 6% of gaming receipts over $50,000 and less than
$134,000 per month, and 8% of gaming receipts over $134,000. The foregoing
license fees are allowed as a credit against the Company's Mississippi income
tax liability for the year paid. The gross
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revenue fee imposed by Tunica County in which the Company's casino operations
are located equals approximately 4% of the gaming receipts.
The Mississippi Commission has adopted a regulation requiring as a
condition of licensure that a new gaming establishment's plan include a 500-car
parking facility in close proximity to the casino complex and infrastructure
facilities which will amount to at least 100% of the casino cost. Recently, the
Mississippi Commission adopted an amendment which would increase the
infrastructure requirement to 100% from the existing 25%; however, the
regulation grandfathers existing licensees and applies only to new casino
projects and casinos that are not operating at the time of acquisition or
purchase. Management of the Company believes that its Mississippi gaming
licensee is in compliance with the previously existing requirement and will not
be subject to the new regulation.
The sale of alcoholic beverages by the Company's licensed subsidiary is
subject to the licensing, control and regulation by both the local jurisdiction
and the Alcoholic Beverage Control Division (the "ABC") of the Mississippi State
Tax Commission. The Company's Mississippi casino is in an area designated as
special resort area, which allows the casinos to serve alcoholic beverages on a
24-hour basis. The ABC has the full power to limit, condition, suspend or revoke
any license for the serving of alcoholic beverages or to place such a licensee
on probation with or without conditions. Any such disciplinary action could (and
revocation would) have a material adverse effect upon the Company's business,
financial condition and results of operations. Certain officers and managers of
the Company's and the casino must be investigated by the ABC in connection with
its liquor permits and changes in certain positions must be approved by the ABC.
In Mississippi, in three separate instances, referenda were proposed
which, if approved, would have amended the Mississippi Constitution to ban
gaming in Mississippi and would have required all currently legal gaming
entities to cease operations within two years of the ban. All three of the
proposed referenda have been ruled illegal by Mississippi state trial court
judges because, among other reasons, each of the proposed referenda failed to
include required information regarding the anticipated effect of such a ban on
government revenues. The proponents of the most recent referendum filed a notice
of appeal of the trial court ruling with the Mississippi Supreme Court,
requesting expedited action on the matter. On March 13, 2000, a panel of the
Mississippi Supreme Court heard oral argument with respect to the matter, but
had not yet ruled on the issue raised in the appeal. Any such referendum must be
approved by the Mississippi Secretary of State and signatures of approximately
98,000 registered voters must be gathered and certified in order for such a
proposal to be included on the statewide ballot for consideration by the voters.
The next election for which the proponents could attempt to place such a
proposal on the ballot would be in November 2002. It is likely at some point
that a revised initiative will be filed which will adequately address the issues
regarding the effect on government revenues of a prohibition of gaming in
Mississippi. However, while it is too early in the process for the Company to
make any predictions with respect to whether such a referendum will appear on a
ballot or the likelihood of such a referendum being approved by the voters, if
such a referendum were passed and gaming were prohibited in Mississippi, it
would have a material adverse effect on the Company and its Mississippi gaming
operations.
INDIANA
The Indiana Riverboat Gaming Act ("Indiana Act") was passed in 1993 and
authorizes the issuance of up to eleven Riverboat Owner's Licenses to be
operated from counties that are contiguous to the Ohio River, Lake Michigan and
Patoka Lake. As of February 2000, nine riverboats were operating, five in
counties contiguous to Lake Michigan and four in counties contiguous to the Ohio
River. A Certificate of Suitability, the precursor to a Riverboat Owner's
License, has been issued to an operator. The tenth riverboat is projected to
commence operations in a county contiguous to the Ohio River in the fall of
2000. The Indiana Gaming Commission, the regulatory body with jurisdiction over
Indiana riverboats, has not considered applications for a Riverboat Owner's
License to be sited in a county contiguous to Patoka Lake since Patoka Lake is a
project of the U.S. Army Corps of Engineers ("Corps") and the Corps has
determined Patoka Lake is unsuitable for a riverboat project.
The Indiana Act and rules promulgated thereunder provide for the strict
regulation of the facilities, persons, associations and practices related to
gaming operations. The Indiana Act vests the seven member Indiana Gaming
Commission with the power and duties of administering, regulating and enforcing
riverboat gaming in Indiana. The Indiana Gaming Commission's jurisdiction
extends to every person, association, corporation, partnership and trust
involved in any riverboat gaming operation located in the State of Indiana.
The Indiana Act requires that the owner of a riverboat gambling
operation hold a Riverboat Owner's License issued by the Indiana Gaming
Commission. The applicants for a Riverboat Owner's License must submit a
comprehensive application and the substantial owners and key persons must submit
personal disclosure forms. The company, substantial owners and key persons must
undergo an exhaustive background investigation prior to the issuance of a
Riverboat Owner's License. A person who owns or will own five
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percent of a Riverboat Owner's License must automatically undergo the background
investigation. The Indiana Gaming Commission may investigate any person with any
level of ownership interest. If the Riverboat Licensee is a publicly-traded
corporation, its Articles of Incorporation must contain language concerning
transfer of ownership, suitability determinations and possible divestiture of
ownership.
A Riverboat Owner's License entitles the licensee to operate one
riverboat. A person licensed to hold more than ten percent of one Indiana
riverboat gambling operation may only hold up to ten percent of a second Indiana
riverboat gambling operation.
All riverboats must comply with applicable federal and state laws
including, but not limited to, U.S. Coast Guard regulations. Each riverboat must
be certified to carry at least five hundred passengers and be at least one
hundred fifty feet in length. Those riverboats located in counties contiguous to
the Ohio River must replicate historic Indiana steamboat passenger vessels of
the nineteenth century. The Indiana Act does not limit the number of gaming
positions allowed on each riverboat. The only limitation on the number of
permissible patrons allowed is established by the U.S. Coast Guard Certificate
of Inspection in the specification of the riverboat's capacity.
The Indiana Gaming Commission, after consultation with the Corps may
determine those navigable waterways located in counties contiguous to Lake
Michigan or the Ohio River, that are suitable for riverboats. If the Corps
rescinds approval for the operation of a riverboat gambling facility, the
Riverboat Owner's License issued by the Indiana Gaming Commission is void and
the Riverboat Licensee may not commence or must cease conducting gambling
operations. Rules promulgated by the Indiana Gaming Commission require that
employees working on a riverboat docked on the waters of Lake Michigan hold a
merchant marine document from the U.S. Coast Guard. Employees whose duties
consist of operating or navigating the riverboat must hold the appropriate
licenses and a merchant marine document from the U.S. Coast Guard.
The initial Riverboat Owner's License runs for a period of five years.
Thereafter, the license is subject to renewal on an annual basis upon a
determination by the Indiana Gaming Commission that it continues to be eligible
to hold a Riverboat Owner's License pursuant to the Indiana Act and rules
promulgated thereunder. After the expiration of the initial license, each
Riverboat Licensee undergoes a complete re-investigation every three years, but
the Indiana Gaming Commission reserves the right to investigate Riverboat
Licensees at any time it deems necessary. The initial license was issued to Blue
Chip Casino, Inc., the predecessor to Blue Chip Casino, LLC, in August of 1997
and will remain valid until August of 2002. Thus, unless otherwise deemed
necessary, Blue Chip Casino, LLC will undergo its first re-investigation in
2002. Riverboat licensees may apply for and hold all other licenses necessary
for the operation of a riverboat gambling operation, including, but not limited
to, alcoholic beverage licenses and food preparation licenses.
The Riverboat Owner's License may not be leased, hypothecated or have
money borrowed or loaned against it. An ownership interest in a Riverboat
Owner's License may only be transferred in accordance with the Indiana Act and
rules promulgated thereunder.
The Indiana Act does not limit the amount a patron may bet or lose.
Minimum and maximum wagers for each game are set by the Riverboat Licensee.
Wagering may not be conducted with money or other negotiable currency. No person
under the age of 21 is permitted to wager on or be present on a riverboat.
Wagers may only be taken from a person present on the riverboat. All electronic
gaming devices must pay out between eighty and one hundred percent of the amount
wagered.
Unless otherwise approved by the Indiana Gaming Commission, gambling
excursions are required to be a minimum of two hours and a maximum of four
hours. A gambling excursion begins when patrons are allowed ingress to the
vessel if gambling is allowed during that period. A gambling excursion continues
during patron disembarkation if gambling is allowed during that period. Patron
embarkation and disembarkation periods each last thirty minutes. During the
patron disembarkation period, new patrons are not allowed to board the
riverboat. Except for the patron embarkation and disembarkation periods,
dockside gambling may not be conducted unless the master of the riverboat
certifies, in writing, that one of the following conditions exists: (1) weather
or water conditions present a danger to the riverboat, its passengers and crew;
(2) the vessel or docking facility is being repaired; (3) traffic conditions
present a danger to the riverboat, its passengers and crew or other vessels; or
(4) cruising would result in a violation of federal law. The riverboat is to
commence cruising once the condition has been corrected. If the vessel remains
dockside due to one of the conditions listed above, patrons are only allowed
access to the riverboat during the thirty-minute embarkation period.
The Indiana Act imposes a 20% wagering tax on adjusted gross receipts
received from gaming. The wagering tax is to be paid by the Riverboat Licensee
to the Indiana Department of Revenue before the close of the business day
following the day the wagers are made.
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The Indiana Act requires that Riverboat Licensees pay a $3.00 admission
tax for each person admitted to a gambling excursion. The Indiana Act provides
for the suspension or revocation of a license whose owner does not timely submit
the admission tax.
Riverboats licensed by the Indiana Gaming Commission are assessed as
real property for property tax purposes and, thus, are taxed at rates determined
by local taxing authorities. All Indiana state excise taxes, use taxes and gross
retail taxes apply to sales made on a riverboat.
The Indiana Gaming Commission is authorized to conduct investigations
into gambling games, the maintenance of equipment, and violations of the Act as
it deems necessary. The Indian Gaming Commission may subject a Riverboat
Licensee to fines, suspension or revocation of its license for any conduct that
violates the Indiana Act, rules promulgated thereunder or that constitutes a
fraudulent act.
A Riverboat licensee must post a bond during the period of the initial
five-year license in an amount the Indiana Gaming Commission deems will reflect
the amount a local community will expend for infrastructure and other facilities
associated with the riverboat gambling operation and that may be used as payment
to the local community, the state and other aggrieved parties. The bond must be
payable to the Indiana Gaming Commission as obligee. The bond may be reduced
during the five-year period of the initial license as the Riverboat Licensee
fulfills its obligations. The Riverboat Licensee must carry insurance in types
and amounts as required by the Indiana Gaming Commission.
A Riverboat Licensee may not enter into or perform any contract or
transaction in which it transfers or receives consideration that is not
commercially reasonable or that does not reflect the fair market value of goods
and services rendered or received. All contracts are subject to disapproval by
the Indiana Gaming Commission and contracts should reflect the potential for
disapproval.
The Indiana Act places special emphasis on minority and women business
enterprise participation in the riverboat industry. Riverboat licensees must
establish goals of expending ten percent of the total dollars spent on goods and
services with minority business enterprises and five percent with women business
enterprises. Riverboat Licensees may be subject to a disciplinary action for
failure to meet the minority and women business enterprise expenditure goals.
A Riverboat Licensee or affiliate may not enter into a debt transaction
without the prior approval of the Indiana Gaming Commission. Debt transaction
means any transaction that will result in the encumbrance of assets. Unless
waived, approval of debt transactions requires consideration by the Indiana
Gaming Commission at two business meetings.
Rules promulgated by the Indiana Gaming Commission require the
reporting of currency transactions to the Indiana Gaming Commission after the
transactions are reported to the federal government. Indiana rules also require
that Riverboat Licensees track and maintain logs of transactions that exceed
$3,000.
The Indiana Gaming Commission has promulgated a rule that prohibits
distributions, excluding distributions for the payment of taxes, by a Riverboat
Licensee to its partners, shareholders, itself or any affiliated entity if the
distribution would impair the financial viability of the riverboat gaming
operation. The Indiana Gaming Commission has also promulgated a rule mandating
Riverboat Licensees to maintain a cash reserve to protect patrons against
defaults in gaming debts. The cash reserve is to be equal to a Riverboat
Licensee's average payout for a three-day period based on the riverboat's
performance the prior calendar year. The cash reserve can consist of cash on
hand, cash maintained in Indiana bank accounts and cash equivalents not
otherwise committed or obligated.
The Indiana Act prohibits contributions to a candidate for a state
legislative or local office or to a candidate's committee or to a regular party
committee by: (1) a person who owns at least one percent of Riverboat Licensee;
(2) a person who is an officer of a Riverboat Licensee; (3) a person who is an
officer of a person that owns at least one percent of a Riverboat Licensee; or
(4) a person who is a political action committee of a Riverboat Licensee. The
prohibition against political contribution extends for three years following a
change in the circumstances that resulted in the prohibition.
Various bills concerning riverboat gaming were introduced during the
current session of the Indiana General Assembly. These bills cover dockside
gaming, an increase in the amounts to be expended with minority and women owned
businesses and allowing ownership of two Riverboat Owner's Licenses and up to
ten percent of a third Riverboat Owner's License.
On October 25, 1996, a lawsuit was filed in Harrison County, Indiana,
by three individuals against the State of Indiana, the 108th Indiana General
Assembly, the Indiana Gaming Commission and the individual members of the
Indiana Gaming Commission. The
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lawsuit challenged the constitutionality of the Indiana Act on the grounds that:
(1) it allegedly created an unequal privilege since numerous city or county
elections may be required to defeat riverboat gambling while only one election
is required to approve riverboat gambling; and (2) it was enacted as a provision
attached to a state budget bill allegedly in violation of an Indiana
constitutional provision that legislative acts be confined to one subject and to
matters properly connected to that subject. The judge in the case dismissed the
lawsuit on June 10, 1999. The plaintiffs have filed an appeal and the matter is
now pending before the Indiana Court of Appeals.
Individuals employed on a riverboat and in certain positions must hold
an occupational license issued by the Indiana Gaming Commission. Suppliers of
gaming equipment and gaming or revenue tracking services must hold a supplier's
license issued by the Indiana Gaming Commission. Riverboat Licensees who employ
non-licensed individuals in positions requiring licensure or who purchase
supplies from a non-licensed entity may be subject to a disciplinary action.
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ENVIRONMENTAL RISKS
The Company is subject to certain federal, state and local
environmental, safety and health laws, regulations and ordinances that apply to
non-gaming businesses generally, such as the Clean Air Act, Clean Water Act,
Occupational Safety and Health Act, Resource Conservation and Recovery Act and
the Comprehensive Environmental Response, Compensation, and Liability Act. The
Company has not made, and does not anticipate making, material expenditures with
respect to such environmental, safety and health laws, regulations and
ordinances. However, the coverage and attendant compliance costs associated with
such laws, regulations and ordinances may result in future additional costs to
the Company's operations. Any significant environmental liability or compliance
costs could have a material adverse effect on the Company's business, financial
condition and results of operations.
REGULATION OF RIVERBOATS
The riverboats operated by the Company must comply with U.S. Coast
Guard requirements as to boat design, on-board facilities, equipment, personnel
and safety. Each of them must hold a Certificate of Seaworthiness or must be
approved by the American Bureau of Shipping ("ABS") for stabilization and
flotation, and may also be subject to local zoning and building codes. The U.S.
Coast Guard requirements establish design standards, set limits on the operation
of the vessels and require individual licensing of all personnel involved with
the operation of the vessels. Loss of a vessel's Certificate of Seaworthiness or
ABS approval would preclude its use as a floating casino. In addition, U.S.
Coast Guard regulations require a hull inspection at a U.S. Coast Guard-approved
dry docking facility for all cruising riverboats at five-year intervals. The
travel to and from such docking facility, as well as the time required for
inspections of the Treasure Chest, Par-A-Dice and Blue Chip riverboats, could be
significant. The loss of a dockside casino or riverboat casino from service for
any period of time could adversely affect the Company's business, financial
condition and results of operations.
CONTROL BY BOYD FAMILY
William S. Boyd, Chairman and Chief Executive Officer of the Company,
together with his immediate family, beneficially owned approximately 50% of the
outstanding shares of Common Stock of the Company as of December 31, 1999. As a
result, the Boyd family has the ability to significantly influence the affairs
of the Company, including the election of all of the directors of the Company
and, except as otherwise provided by law, approving or disapproving other
matters submitted to a vote of the Company's stockholders, including a merger,
consolidation or sale of assets.
RELIANCE ON CERTAIN MARKETS
The California, Fremont and Main Street Station derive a substantial
portion of their customers from the Hawaiian market. During the year ended
December 31, 1999, patrons from Hawaii comprised approximately 70% of the room
nights at the California, 56% at the Fremont and 47% at Main Street Station. An
increase in fuel costs or transportation prices, a decrease in airplane seat
availability or a deterioration of relations with tour and travel agents, as
they affect travel between the Hawaiian market and the Company's facilities,
could adversely affect the Company's business, financial condition and results
of operations. The Company's Las Vegas properties also draw a substantial number
of customers from certain other specific geographic areas, including Southern
California, Arizona, Las Vegas and the Midwest. The California electorate
approved Proposition 1A on March 7, 2000. Proposition 1A gives all California
Indian tribes the right to operate a limited number of certain kinds of gaming
machines and other forms of casino wagering on California Indian reservations.
Proposition 1A may negatively affect Nevada gaming markets. Management is
unable, however, to assess the magnitude of the impact to the Company. Sam's
Town Tunica draws patrons from northern Mississippi, western Tennessee
(principally Memphis) and Arkansas. Treasure Chest appeals primarily to local
market patrons and attracts patrons from the western suburbs of New Orleans.
Par-A-Dice draws customers not only from the greater Peoria area but also from
Chicago, Indiana, Iowa and Missouri. Blue Chip draws patrons primarily from
Indiana, Southern Michigan and the Chicago area. Adverse economic conditions in
any of these markets, or the failure of the Company's facilities to continue to
attract customers from these geographic markets as a result of increased
competition in those markets, could have a material adverse effect on the
Company's business, financial condition and results of operations.
EMPLOYEES
At December 31, 1999, the Company employed approximately 15,400
persons. On such date, the Company had collective bargaining relationships with
eleven unions covering approximately 1,800 employees, substantially all of whom
are employed at the Stardust, the Fremont and Main Street Station. Several
collective bargaining agreements are currently in effect; other agreements have
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expired and are in various stages of negotiation. Employees covered by expired
agreements have continued to work during the negotiations, in some cases under
the terms of the expired agreements and in others under modifications thereof.
ITEM 2. PROPERTIES
The following table sets forth certain information regarding the
properties owned or operated by the Company as of December 31, 1999.
YEAR BUILT CASINO SPACE SLOT TABLE HOTEL LAND
OR ACQUIRED (SQ. FT.) MACHINES GAMES ROOMS RESTAURANTS (ACRES)
----------- ------------ -------- ----- ----- ----------- -------
LAS VEGAS STRIP
Stardust Resort and Casino 1985 75,000 1,623 79 1,506 6 61
BOULDER STRIP
Sam's Town Las Vegas 1979 118,000 2,950 48 648 12 63
Eldorado Casino 1993 16,000 599 11 -- 3 4
Jokers Wild Casino 1993 22,500 635 11 -- 2 13
DOWNTOWN LAS VEGAS
California Hotel and Casino 1975 36,000 1,109 35 781 5 16
Fremont Hotel and Casino 1985 32,000 1,114 26 447 5 2
Main Street Station Casino,
Brewery and Hotel 1993 28,500 916 22 406 3 15
CENTRAL REGION
Sam's Town Tunica 1994 75,000 1,586 65 843 5 150
Silver Star Resort and Casino 1994 90,000 3,136 102 505 6 20
Treasure Chest Casino 1994 24,000 1,045 47 -- 4 --
Par-A-Dice Hotel and Casino 1996 33,000 1,091 36 208 3 19
Blue Chip Casino 1999 37,400 1,332 57 -- 3 32
------- ------ ----- ----- --- ---
Total 587,400 17,136 539 5,344 57 395
======= ====== ===== ===== === ===
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various legal
proceedings arising in the ordinary course of business. Except for the Astoria
and Copeland matters, in the opinion of management, all pending claims in such
matters, if adversely decided, would not have a material adverse effect on the
Company's financial position or results of operations. See "Item 1 -- Investment
Considerations -- Governmental Gaming Regulation -- Louisiana" for a discussion
regarding each of the pending Astoria and Copeland matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the non-director executive officers of
Boyd Gaming Corporation as of February 29, 2000:
NAME AGE POSITION
- ---- --- --------
Ellis Landau................... 56 Executive Vice President, Chief Financial Officer and Treasurer
Keith E. Smith................. 39 Executive Vice President -- Operations
James W. Hippler............... 53 Senior Vice President -- Administration
Brian A. Larson................ 44 Senior Vice President and General Counsel
Charles E. Huff................ 54 Vice President, Secretary and Senior Gaming Counsel
ELLIS LANDAU has been Executive Vice President since January 1997 and
Senior Vice President, Chief Financial Officer and Treasurer of the Company
since August 1990. From April 1990 through July 1990, he served as a consultant
to the Company.
KEITH E. SMITH became Executive Vice President -- Operations in May
1998. Mr. Smith joined the Company in September 1990 serving in various
controllership positions, the last of which was Senior Vice President and
Controller.
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JAMES W. HIPPLER has been Senior Vice President -- Administration of
the Company since April 1990. From 1980 to 1990, Mr. Hippler held various
positions with CH&C, including Director of Risk Management, Director of Internal
Audit and Director of Human Resources.
BRIAN A. LARSON became Senior Vice President and General Counsel in
January 1998. He became Vice President -- Development of the Company in June
1993 and Assistant Secretary in August 1993.
CHARLES E. HUFF has been Vice President and Secretary of the Company
since its inception and became Senior Gaming Counsel in January 1998. He has
served as Vice President and General Counsel of CH&C since July 1986 and
Secretary since January 1988.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange
under the symbol "BYD." Information with respect to sales prices and record
holders of the Company's Common Stock is set forth below:
PRICE RANGE OF COMMON STOCK
The following table sets forth, for the calendar quarters indicated,
the high and low sales prices of the Common Stock as reported on the NYSE
Composite Tape.
HIGH LOW
----- -----
1997
First Quarter............................. 8 5/8 5 3/8
Second Quarter............................ 6 1/8 5 3/8
Third Quarter............................. 9 1/4 5
Fourth Quarter............................ 9 1/4 6 5/8
1998
First Quarter............................. 8 3/8 5 1/2
Second Quarter............................ 7 5/16 5 11/16
Third Quarter............................. 6 7/16 3 1/2
Fourth Quarter............................ 4 1/2 2 1/2
1999
First Quarter............................. 4 13/16 3 1/16
Second Quarter............................ 7 3/8 4 1/8
Third Quarter............................. 7 3/16 4 7/8
Fourth Quarter............................ 7 3/16 5 1/2
2000
First Quarter (through February 29, 2000). 6 4 7/8
On February 29, 2000, the closing sales price of the Common Stock on
the NYSE was $5.19 per share. On that date, the Company had approximately 2,292
holders of record of its Common Stock.
The Company has not paid any cash dividends on its Common Stock to
date. The Company currently anticipates that it will retain future earnings to
fund the development and growth of its business and does not anticipate paying
any cash dividends in the foreseeable future. Restrictions imposed by commercial
lenders and note holders may also limit the ability of the Company to pay cash
dividends.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of December
31, 1999 and 1998 and for the two years in the period ended December 31, 1999,
the six month period ended December 31, 1997 and for the fiscal year ended June
30, 1997, have been derived from the audited consolidated financial statements
contained elsewhere in this Form 10-K. The selected consolidated financial data
presented below as of December 31, 1997, and June 30, 1997 and 1996 and as of
and for the fiscal years ended June 30, 1996 and 1995 have been derived from
audited consolidated financial statements of the Company not contained herein.
Operating results for the periods presented below are not necessarily indicative
of the results that may be expected for future years. Effective July 1, 1997,
the Company changed its fiscal year from a June 30 year end to a December 31
year end.
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SIX MONTH
YEAR ENDED PERIOD FISCAL YEAR ENDED
DECEMBER 31, ENDED JUNE 30,
------------------------- DECEMBER 31, ------------------------------------
1999 1998 1997 1997 1996 1995
----------- ---------- ----------- ----------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Net revenues ................................ $ 987,041 $ 975,096 $ 455,771 $ 819,259 $ 775,857 $660,340
Operating expense(a) ........................ 850,430 851,408 397,625 863,685 675,071 549,770
----------- ---------- ----------- ----------- --------- --------
Operating income (loss) ..................... 136,611 123,688 58,146 (44,426) 100,786 110,570
Interest expense, net(b) .................... 68,977 73,797 37,310 61,022 51,186 46,371
Income (loss) before provision
(benefit) for income taxes,
cumulative effect of a change
in accounting principle and
extraordinary items ....................... 67,634 49,891 20,836 (105,448) 49,600 64,199
Provision (benefit) for income taxes ........ 27,595 21,291 8,736 (34,025) 20,021 27,950
----------- ---------- ----------- ----------- --------- --------
Income (loss) before cumulative
effect of a change in accounting
principle and extraordinary items ......... 40,039 28,600 12,100 (71,423) 29,579 36,249
Cumulative effect of a change in
accounting for start-up activities,
net of tax ................................ (1,738) -- -- -- -- --
----------- ---------- ----------- ----------- --------- --------
Income (loss) before extraordinary
items ..................................... 38,301 28,600 12,100 (71,423) 29,579 36,249
Extraordinary items, net of tax ............. -- -- (7,240) (6,069) (1,435) --
----------- ---------- ----------- ----------- --------- --------
Net income (loss) ........................... $ 38,301 $ 28,600 $ 4,860 $ (77,492) $ 28,144 $ 36,249
=========== ========== =========== =========== ========= ========
PER SHARE DATA
Basic and diluted net income (loss)
per common share:
Income (loss) before cumulative
effect of a change in accounting
principle and extraordinary items ....... $ 0.65 $ 0.46 $ 0.20 $ (1.19) $ 0.52 $ 0.64
Cumulative effect of a change in
accounting for start-up activities,
net of tax .............................. (0.03) -- -- -- -- --
Extraordinary items ....................... -- -- (0.12) (0.10) (0.03) --
----------- ---------- ----------- ----------- --------- --------
Net income (loss) ......................... $ 0.62 $ 0.46 $ 0.08 $ (1.29) $ 0.49 $ 0.64
=========== ========== =========== =========== ========= ========
Dividends on Common Stock ................. -- -- -- -- -- --
Weighted average common shares:
Basic ................................... 62,124 61,749 61,525 60,248 57,058 56,870
Diluted ................................. 62,293 61,850 61,786 60,248 57,058 56,870
OTHER OPERATING DATA
Depreciation and amortization ............... $ 74,118 $ 73,407 $ 35,097 $ 67,242 $ 60,626 $ 54,518
Preopening expense .......................... 1,489 -- -- 3,481 10,004 --
Capital expenditures ........................ 96,888 70,848 17,816 99,207 90,977 183,299
DECEMBER 31, JUNE 30,
--------------------------------------- ------------------------------------
1999 1998 1997 1997 1996 1995
----------- ---------- ----------- ----------- --------- --------
BALANCE SHEET DATA
Total assets ................................ $ 1,443,981 $1,146,256 $ 1,152,415 $ 1,030,185 $ 953,425 $949,513
Long-term debt (excluding current maturities) 982,149 774,890 842,932 739,792 590,808 587,957
Stockholders' equity ........................ 266,979 227,306 197,141 191,316 233,257 202,613
- ----------
(a) Includes $5,925 and $131,339 of impairment and restructuring charges
recorded during the year ended December 31, 1998 and the fiscal year ended
June 30, 1997, respectively. See Note 4 to Notes to Consolidated Financial
Statements.
(b) Net of interest income and amounts capitalized.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operating data for the Company's properties. As used herein, "Boulder Strip
Properties" consist of Sam's Town Las Vegas, the Eldorado and the Jokers Wild;
"Downtown Properties" consist of the California, the Fremont, Main Street
Station (opened November 1996) and Vacations Hawaii, the Company's wholly-owned
travel agency which operates for the benefit of the Downtown casino properties;
and "Central Region Properties" consist of Sam's Town Tunica, Sam's Town Kansas
City (closed in July 1998), Par-A-Dice (acquired December 1996), Blue Chip
(acquired November 1999), management fee income from the Silver Star, and
management fee and joint venture income from the Treasure Chest through October
27, 1997 (at which time the Company acquired the remaining 85% equity interest
in Treasure Chest that it did not already own to make it a wholly-owned
subsidiary). Net revenues displayed in this table and discussed in this section
are net of promotional allowances; as such, references to room revenue and food
and beverage revenue do not agree to the amounts on the Consolidated Statements
of Operations. Operating income from properties for the purpose of this table
excludes corporate expense, including related depreciation and amortization,
preopening expense and impairment and restructuring charges.
TWELVE
MONTH
YEAR ENDED PERIOD SIX MONTHS ENDED
DECEMBER 31, ENDED DECEMBER 31,
------------------- DECEMBER 31, -------------------
1999 1998 1997 1997 1996
-------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
Net revenues
Stardust .................. $148,321 $162,628 $172,723 $ 83,626 $ 91,290
Boulder Strip Properties... 186,354 192,021 189,666 93,419 96,757
Downtown Properties (a).... 218,800 207,510 187,020 96,369 76,679
Central Region Properties.. 433,566 412,937 341,463 182,357 119,432
-------- -------- -------- -------- --------
Total properties.... $987,041 $975,096 $890,872 $455,771 $384,158
======== ======== ======== ======== ========
Operating income
Stardust .................. $ 2,182 $ 10,326 $ 17,725 $ 6,981 $ 8,342
Boulder Strip Properties... 20,631 24,690 25,812 10,464 11,419
Downtown Properties ....... 22,735 13,390 4,715 1,574 5,623(b)
Central Region Properties.. 121,538 102,932(c) 90,496(c) 49,343 21,781
-------- -------- -------- -------- --------
Total properties.... $167,086 $151,338 $138,748 $ 68,362 $ 47,165
======== ======== ======== ======== ========
- ----------------
(a) Includes revenues related to Vacations Hawaii, a Honolulu Travel Agency, of
$37,522, $32,341 and $27,240, respectively, for the years ended December
31, 1999 and 1998 and the twelve month period ended December 31, 1997;
$16,420 and $6,102, respectively, for the six month periods ended December
31, 1997 and 1996; and $16,922 for the fiscal year ended June 30, 1997.
(b) Before preopening expense.
(c) Before impairment and restructuring charges.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
REVENUES
Consolidated net revenues increased 1.2% during the year ended December
31, 1999 compared to the year ended December 31, 1998. Company-wide casino
revenue increased 1.6%, food and beverage revenue declined 2.6% and room revenue
declined 3.6%. Net revenues from the Stardust, Boulder Strip Properties and
Downtown Properties (the "Nevada Region") decreased 1.5% during 1999 compared to
1998 due to a 5.4% increase at the Downtown Properties, offset by declines of
8.8% at the Stardust and 3.0% at the Boulder Strip Properties. The decline in
net revenues at the Stardust is attributable in part to increased competition on
the Las Vegas Strip as well as construction disruption related to its year-long
renovation project that was substantially completed by the end of 1999. The
decline in net revenues at the Boulder Strip Properties is attributable to the
competitive environment on the Boulder Strip as well as construction disruption
experienced at Sam's Town Las Vegas related to its $86 million renovation and
expansion project that began in August 1999. Net revenues in the Central Region
increased 5.0% during the year ended December 31, 1999 compared to the year
ended December 31, 1998. The increase is attributable, in part, to the
acquisition of Blue Chip Casino on November 10, 1999, a 15.6% increase at
Par-A-Dice due to the change to dockside operations which began on June 26,
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1999, and an 18.0% increase from Silver Star due mainly to the July 1, 1999
increase in the management fee percentage from 30% to 40% of operating income.
On January 31, 2000, the management contract for Silver Star was terminated 17
months prior to its originally scheduled expiration date in exchange for a $72
million payment to the Company. See further discussion under "Liquidity and
Capital Resources - Termination of Management Contract." These increases in the
Central Region were partially offset by a decline in net revenues due to the
closure of the Sam's Town Kansas City property on July 15, 1998.
OPERATING INCOME
For the year ended December 31, 1999, consolidated operating income
before preopening expense and impairment and restructuring charges increased by
6.5% to $138 million compared to $130 million in the prior year. Operating
income in the Nevada Region declined 5.9% as the 70% gain experienced at the
Downtown Properties did not overcome the declines experienced at the Stardust
and the Boulder Strip due to increased competition and construction disruption
at the Stardust and Sam's Town Las Vegas. In the Central Region, operating
income increased 18.3% due to the acquisition of Blue Chip Casino, a 37%
increase in operating income at Par-A-Dice due to the change to dockside
operations which began on June 26, 1999 and an 18.5% increase at Silver Star
related to the change in the management fee percentage from 30% to 40% of
operating income. These increases were offset by declines in operating income at
Sam's Town Tunica (24%) and Treasure Chest (18.2%) due to increased competition
in their respective gaming markets.
STARDUST
For the year ended December 31, 1999, net revenues at the Stardust
declined by 8.8% versus the prior year due to increased competition as well as
construction disruption related to the year-long renovation project that was
substantially completed by the end of 1999. Casino revenue declined 8.3% due
primarily to a decline in slot and table game wagering. Room revenue declined
11.0% resulting from a 25% decline in the number of available rooms due to the
April 1999 closure of motor inn rooms and the renovation of guest rooms in both
hotel towers. Operating income declined 79% to $2.2 million during 1999 from
$10.3 million in 1998. Operating income margin declined to 1.5% during 1999 from
6.3% in 1998. These declines in operating income and operating income margin are
a result of the decline in revenues.
BOULDER STRIP PROPERTIES
Net revenues at the Boulder Strip Properties declined 3.0% during the
year ended December 31, 1999 compared to the year ended December 31, 1998 due
mainly to construction disruption related to the ongoing $86 million renovation
and expansion project at Sam's Town Las Vegas, which began during the last half
of 1999. Casino revenue remained virtually unchanged as a slight increase in
slot win percentage offset a 7.5% decline in table game wagering. Non-gaming
revenue declined 14.3% due primarily to the permanent closure of Sam's Town Las
Vegas' Western Emporium in September 1999 as part of the property's renovation
and expansion project. During 1999, operating income decreased 16.4% or $4.1
million compared to 1998. Operating income margin declined to 11.1% for 1999
compared to 12.9% for 1998. The decline in operating income and margin is
attributable to the decline in revenues, an increase in marketing expense for
1999 compared to 1998 and the inventory liquidation of the Western Emporium.
DOWNTOWN PROPERTIES
Net revenues at the Downtown Properties increased 5.4% during 1999
compared to 1998. Casino revenue increased 4.1% due primarily to increased slot
wagering at each of the Downtown casino properties. Non-gaming revenues during
the year ended December 31, 1999 increased 6.3% compared to 1998 due to a 16.0%
increase in revenues related to Vacations Hawaii, the Company's Honolulu travel
agency. (Hawaiian customers comprise a significant portion of the available room
nights at these Downtown casino properties - see "Business Properties.")
Operating income at the Downtown Properties increased $9.3 million or 70% during
1999 compared to 1998, and operating income margin increased to 10.4% during
1999 from 6.5% during 1998. These increases in operating income and operating
income margin are attributable to the increase in net revenues coupled with cost
consolidation and effective marketing at the Downtown casino properties.
CENTRAL REGION
Net revenues from the Central Region increased 5.0% during 1999
compared to 1998. The increase is attributable, in part, to Blue Chip Casino,
which generated $23.3 million in revenue from the November 10, 1999 date of
acquisition through the end of calendar 1999, as well as a 15.6% increase in
revenue at Par-A-Dice and an 18.0% increase in management fees from Silver Star.
The increase at Par-A-Dice is due mainly to the change to dockside operations
which began on June 26, 1999. The increase in revenues
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40
at Silver Star is due mainly to the increase in the management fee percentage
from 30% to 40% of operating income on July 1, 1999 pursuant to the terms of the
management agreement. On January 31, 2000, the management contract was
terminated 17 months prior to its originally scheduled expiration date in
exchange for a $72 million payment to the Company. See further discussion under
"Liquidity and Capital Resources- Termination of Management Contract." Net
revenues at Treasure Chest declined 1.1% and net revenues at Sam's Town Tunica
declined 4.6% due to reductions in slot and table game wagering related to
increased competition in both gaming markets. Operating income for the Central
Region increased to $122 million during 1999 from $103 million during 1998 due
primarily to the acquisition of Blue Chip Casino and the increase in net
revenues at Par-A-Dice and Silver Star, partially offset by declines in
operating income at Sam's Town Tunica and Treasure Chest.
OTHER EXPENSES
Depreciation expense remained virtually unchanged during 1999 compared
to 1998 as an increase in depreciation expense related to the fixed assets of
Blue Chip Casino (acquired on November 10, 1999) was offset by declines related
to fully depreciated fixed assets at certain properties that have been operating
for over five years. Amortization expense of intangible license rights and
acquisition costs increased 10.0% during 1999 compared to 1998 due to the
acquisition of Blue Chip Casino. Preopening expense during 1999 was $1.5 million
and relates primarily to the Company's share of preopening expense in The
Borgata, the Company's Atlantic City joint venture.
OTHER INCOME (EXPENSE)
Other income and expense is primarily comprised of interest expense.
Interest expense decreased by $4.9 million during the year ended December 31,
1999 compared to the prior year. The decline is attributable to lower average
debt levels during the year combined with a decline in interest rates on
floating rate debt. In addition, the Company capitalized $1.8 million in
interest costs during 1999. There were no such costs capitalized during the year
ended December 31, 1998.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR START-UP ACTIVITIES
The Company reported a charge of $1.7 million, net of $0.9 million in
tax benefits, as the cumulative effect of a change in accounting for start-up
activities. The American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" that
required the Company to expense certain previously capitalized costs of start-up
activities as the cumulative effect of a change in accounting principle.
NET INCOME
As a result of these factors, the Company reported net income of $38.3
million and $28.6 million, respectively, during the years ended December 31,
1999 and 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE TWELVE MONTH PERIOD ENDED
DECEMBER 31, 1997
REVENUES
Consolidated net revenues increased 9.5% during the year ended December
31, 1998 compared to the twelve month period ended December 31, 1997.
Company-wide casino revenue increased 14.8%, food and beverage revenue declined
1.8% and room revenue declined 9.2%. Net revenues from the Stardust, Boulder
Strip Properties and Downtown Properties (the "Nevada Region") increased 2.3%
during 1998 compared to the twelve month period ended December 31, 1997 due to
an 11.0% increase in net revenues from the Downtown Properties, partially offset
by a decline of 5.8% in net revenues at the Stardust that is primarily
attributable to the competitive environment on the Las Vegas Strip. Net revenues
on the Boulder Strip for 1998 increased slightly (1.2%) compared to the twelve
month period ended December 31, 1997. Net revenues in the Central Region
increased 21% during the year ended December 31, 1998 compared to the same
period in the prior year. This increase in net revenues is primarily
attributable to the acquisition of Treasure Chest in October 1997 and is
partially offset by a 55% decline in net revenues at Sam's Town Kansas City due
primarily to the closure of the property on July 15, 1998. See further
discussion under Impairment and Restructuring Charges later in this section.
OPERATING INCOME
For the year ended December 31, 1998, consolidated operating income
before impairment and restructuring charges increased by 14.1% to $130 million
compared to $114 million in the twelve month period ended December 31, 1997.
Operating income in the
40
41
Nevada Region remained virtually unchanged as the gains experienced at the
Downtown Properties were nearly offset by reductions in operating income at the
Stardust as a result of the competitive environment on the Las Vegas Strip. In
the Central Region, operating income increased 13.7% due primarily to the
October 1997 acquisition of Treasure Chest and the reduction of operating loss
at Sam's Town Kansas City due to the closure of the property in July 1998. This
operating income increase was partially offset by the decline experienced at
Sam's Town Tunica as a result of the increased competition in the Tunica gaming
market.
STARDUST
For the year ended December 31, 1998, net revenues at the Stardust
declined by 5.8% versus the prior year. Casino revenue declined by 1.7% due
primarily to a decline in slot and table game wagering. Non-gaming revenues
declined 13.0% due to a 10.7% decline in the number of occupied rooms. The
decline in the number of occupied rooms is attributable in part to competitive
factors and in part to a $9 million suite remodel project which reduced the
number of available rooms by 8.1% during 1998. Operating income declined by 42%
or $7.4 million during 1998 compared to the twelve month period ended December
31, 1997. Operating income margin declined to 6.3% during 1998 from 10.3% during
the same period in the prior year. These declines in operating income and
operating income margin are attributable to the reduction in net revenues,
coupled with an increase in marketing expenses due to the competitive
environment on the Las Vegas Strip.
BOULDER STRIP PROPERTIES
Net revenues at the Boulder Strip Properties increased slightly (1.2%)
during the year ended December 31, 1998 compared to the twelve month period
ended December 31, 1997. Casino revenue increased 4.4% due primarily to an
increase in slot win percentage. Food and beverage revenue and room revenue
declined by 7.9% and 9.2%, respectively, from 1997. The decline in room revenue
is primarily attributable to a decrease in average daily room rates at Sam's
Town Las Vegas. During 1998, operating income at the Boulder Strip Properties
declined 4.3% or $1.1 million versus the same period in the prior year.
Operating income margin declined to 12.9% for 1998 compared to 13.6% for the
twelve month period ended December 31, 1997. The decline in operating income and
margin is primarily attributable to an increase in marketing expense for 1998 as
compared to the same period in the prior year.
DOWNTOWN PROPERTIES
Net revenues at the Downtown Properties increased 11.0% during 1998
compared to the twelve month period ended December 31, 1997. Casino revenue
increased 12.2% due primarily to increased slot wagering volumes at each of the
Downtown casino properties. Non-gaming revenues at the Downtown Properties
increased 3.3% during 1998 versus the same period in the prior year due to
increases in both food and beverage revenue and room revenue. Operating income
at the Downtown Properties increased $8.7 million or 184% during 1998 compared
to the twelve month period ended December 31, 1997 because of improvements in
operating income at the California, the Fremont and Vacations Hawaii, as well as
a decrease in the operating loss at Main Street Station. Operating income margin
increased to 6.5% during 1998 versus 2.5% during the twelve month period ended
December 31, 1997. These increases are primarily attributable to the
implementation of various marketing programs to enhance operating volumes, as
well as the coordination of support functions and standardized operating
procedures and systems at the Downtown Properties.
CENTRAL REGION
Net revenues from the Central Region increased 21% during 1998 compared
to the twelve month period ended December 31, 1997. The majority of the increase
is attributable to the acquisition of the remaining interest in Treasure Chest
on October 27, 1997, as well as a 5.7% increase in management fees from Silver
Star. Treasure Chest produced net revenues for the Company of $124 million
during 1998 versus $26 million during the prior year. Prior to the acquisition
of Treasure Chest, the Company accounted for its 15% minority interest under the
equity method. However, since the acquisition of the remaining 85% equity
interest in Treasure Chest, the revenues and expenses generated by that property
are now included in the Company's Consolidated Statements of Operations. The
increases in net revenues were partially offset by a 55% decline in net revenues
at Sam's Town Kansas City due to the closure of the property on July 15, 1998.
See further discussion under Impairment and Restructuring Charges later in this
section. In addition, Sam's Town Tunica experienced a 4.5% decline in net
revenues due to increased competition which came online in the Tunica gaming
market toward the end of the quarter ended March 31, 1998. Net revenues at
Par-A-Dice remained flat for 1998 compared to the prior year. Operating income
for the Central Region increased to $103 million during 1998 from $90 million
during the twelve month period ended December 31, 1997 due primarily to the
acquisition of Treasure Chest and the reduction of operating loss at Sam's Town
Kansas City due to the closure of the property in July 1998. This operating
income increase was partially offset by a decline in operating results at Sam's
Town Tunica.
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IMPAIRMENT AND RESTRUCTURING CHARGES
During the quarter ended March 31, 1997, the Company recorded an
impairment loss of $126 million to adjust the carrying value of its fixed and
intangible assets in the Missouri gaming market to fair value. The impairment
loss was recorded due to a significant change in the competitive environment
with the January 1997 addition of a significantly larger facility in the Kansas
City gaming market and a history of operating losses at the Company's Sam's Town
Kansas City gaming establishment. On June 30, 1998, the Company recorded a $5.9
million restructuring charge in connection with its announcement to cease
operations at Sam's Town Kansas City. During July 1998, the Company closed Sam's
Town Kansas City and sold substantially all of its tangible assets for $12.5
million, which approximated net book value.
During the quarter ended June 30, 1997, the Company recorded a $5.3
million impairment loss related to its 17.4% ownership interest in Fremont
Street Experience, Limited Liability Company ("FSE"), which is the entity that
operates the downtown Las Vegas tourist attraction known as the Fremont Street
Experience. This impairment loss is principally due to the significant levels of
operating loss and operating cash deficiency reported in May 1997 by FSE
relating to its first full year of operations. Management expected this trend to
continue and, therefore, did not expect to recover its investment in this
entity.
OTHER EXPENSES
Depreciation and amortization expense increased by $1.9 million during
1998 compared to the twelve month period ended December 31, 1997 due primarily
to the increase in intangible and fixed assets related to the acquisition of
Treasure Chest in October 1997, offset by the reduction in fixed and intangible
assets related to the impairment loss recorded during the quarter ended March
31, 1997.
OTHER INCOME (EXPENSE)
Other income and expense is primarily comprised of interest expense.
Interest expense increased by $2.0 million during 1998 compared to the twelve
month period ended December 31, 1997. This increase is primarily attributable to
higher levels of debt outstanding due to the October 1997 acquisition of
Treasure Chest, partially offset by a decline in interest rates on certain
floating rate debt.
PROVISION (BENEFIT) FOR INCOME TAXES
The Company's effective tax rates were 43% and (30%), respectively
during 1998 and the twelve month period ended December 31, 1997. The fluctuation
in the rates during 1998 and the prior year is primarily attributable to the
impairment loss recorded during the quarter ended March 31, 1997.
EXTRAORDINARY ITEM
The Company recorded an extraordinary loss of $7.2 million, net of tax,
during the twelve month period ended December 31, 1997 related to the early
redemption of the Company's $185 million, 11% Notes in December 1997. There were
no such items recorded during the year ended December 31, 1998.
NET INCOME (LOSS)
As a result of these factors, the Company reported net income of $28.6
million during 1998 compared to a net loss of $69.4 million during the twelve
month period ended December 31, 1997.
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SIX MONTH PERIOD ENDED DECEMBER 31, 1997 COMPARED TO THE SIX MONTH PERIOD ENDED
DECEMBER 31, 1996
REVENUES
Consolidated net revenues increased 18.6% during the six month period
ended December 31, 1997 compared to the six month period ended December 31,
1996. Company-wide casino revenue increased 20.7%, food and beverage revenue
increased 4.4% and room revenue increased 14.8%. Net revenues from the Nevada
Region increased 3.3% during the six month period ended December 31, 1997
compared to the six month period ended December 31, 1996 primarily as a result
of the opening of Main Street Station in November 1996, and enhanced utilization
of the Company's wholly-owned travel agency, Vacations Hawaii. These increases
were partially offset by declines in net revenues experienced principally at the
Stardust (8.4%), the Fremont (14.2%), and Sam's Town Las Vegas (4.4%). Net
revenues in the Central Region increased 52.7% during the six month period ended
December 31, 1997 compared to the six month period ended December 31, 1996
primarily as a result of the acquisitions of Par-A-Dice in December 1996 and
Treasure Chest in October 1997, as well as a 15.3% increase in net revenues at
Sam's Town Tunica. These increases were partially offset by a 39.9% decline in
net revenues experienced at Sam's Town Kansas City. The decline in net revenues
at those properties which were included as part of the Company's consolidated
operations for the full six months in the periods ended December 1997 and 1996
(excludes Par-A-Dice, Treasure Chest, Main Street Station and Vacations Hawaii)
is attributable, in each case, to increased competition. In addition, the
Fremont was adversely impacted by construction disruption during the six month
period ended December 31, 1997.
OPERATING INCOME
Consolidated operating income before preopening expense increased by
66.3% from $35.0 million during the six month period ended December 31, 1996 to
$58.1 million during the six month period ended December 31, 1997. Operating
income in the Nevada Region declined 25.1% due to declines experienced at the
Stardust, Boulder Strip and Downtown Properties. In the Central Region,
operating income increased 127% due primarily to the acquisitions of Par-A-Dice
in December 1996 and Treasure Chest in October 1997, as well as gains
experienced at each of the other Central Region Properties.
STARDUST
Net revenues at the Stardust declined by 8.4% during the six month
period ended December 31, 1997 compared to the six month period ended December
31, 1996 due to increased competition on the Las Vegas Strip. The majority of
the decline is attributable to a 8.2% reduction in casino revenue, as a result
of a decline in slot and table game wagering. In addition, food and beverage
revenue also declined by approximately 11.2% due to a decline in the number of
food guests. Operating income declined by 16.3% to $7.0 million during the six
month period ended December 31, 1997 compared to the six month period ended
December 31, 1996, and operating income margin declined to 8.3% during the six
month period ended December 31, 1997 from 9.1% during the six month period ended
December 31, 1996. These declines in operating income and operating income
margin are primarily the result of the decline in net revenues.
BOULDER STRIP PROPERTIES
Net revenues at the Boulder Strip Properties decreased 3.4% during the
six month period ended December 31, 1997 compared to the six month period ended
December 31, 1996 due to increased competition on the Boulder Strip. Casino
revenue declined by 1.8% primarily as a result of a decrease in table game
wagering volume. Room revenue and food and beverage revenue decreased 6.9% and
9.2%, respectively, over the prior period levels. The decline in room revenue is
primarily attributable to a decrease in average daily room rates at Sam's Town
Las Vegas. Operating income margin at the Boulder Strip Properties decreased
from 11.8% during the six month period ended December 31, 1996 to 11.2% during
the six month period ended December 31, 1997, due to the decrease in net
revenues.
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44
DOWNTOWN PROPERTIES
Net revenues at the Downtown Properties increased 25.7% during the six
month period ended December 31, 1997 compared to the six month period ended
December 31, 1996. The increase is attributable to the November 1996 opening of
Main Street Station as well as increased revenues from Vacations Hawaii.
(Hawaiian customers comprise a significant portion of the available room nights
at the three downtown casino properties. See "Business -- Properties.") These
increases in net revenues were partially offset by declines in net revenues at
the Fremont and California of 14.2% and 3.5%, respectively. The decline in net
revenues at the Fremont is primarily attributable to a room remodel project
which began in July 1997 and was substantially completed by the end of calendar
1997. Aggregate operating income for the Downtown Properties decreased from $5.6
million (before preopening expense) during the six month period ended December
31, 1996 to $1.6 million during the comparable period in 1997. The decrease is
mainly attributable to the Fremont, which posted operating income of $0.6
million during the six month period ended December 31, 1997 compared to $3.3
million during the six month period ended December 31, 1996 due primarily to the
rooms remodel project discussed above. In addition, Main Street Station's
operating loss (before preopening expense) increased from $0.4 million during
the six month period ended December 31, 1996 to $2.6 million during the six
month period ended December 31, 1997.
CENTRAL REGION
Net revenues from the Central Region increased 52.7% during the six
month period ended December 31, 1997 compared to the six month period ended
December 31, 1996. The majority of the increase is attributable to the
acquisition of Par-A-Dice on December 4, 1996 and the acquisition of the
remaining interest in Treasure Chest on October 27, 1997. Par-A-Dice generated
$54.2 million in net revenues during the six month period ended December 31,
1997 compared to $7.5 million during the six month period ended December 31,
1996, and Treasure Chest produced net revenues of $22.6 million during the six
month period ended December 31, 1997 compared to $3.0 million during the six
month period ended December 31, 1996. Prior to the acquisition of Treasure
Chest, the Company accounted for its 15% minority interest under the equity
method. However, since the acquisition of the remaining 85% equity interest in
Treasure Chest, the operations of that property are now included in the
Company's Consolidated Statement of Operations. In addition, Sam's Town Tunica
experienced a 15.3% increase in net revenues during the six month period ended
December 31, 1997 versus the comparable period in 1996 due to the addition of a
350-room hotel tower and 1,000 space parking garage in December 1996. These
increases in net revenues during the December 31, 1997 period were partially
offset by a 39.9% decline in net revenues at Sam's Town Kansas City due to
increased market competition. Operating income and operating margin for the
Central Region increased to $49.3 million and 27.1%, respectively, during the
six month period ended December 31, 1997 from $21.8 million and 18.2%,
respectively, during the comparable period in 1996. These increases are due to
the acquisitions of Par-A-Dice and Treasure Chest, as well as an increase of
101% in operating income from Sam's Town Tunica and a 44.2% reduction in the
operating loss at Sam's Town Kansas City. In addition, management fee income
from Silver Star increased 7.7% during the six month period ended December 31,
1997 versus the comparable period in 1996. This increase is due to the
completion of a guest room expansion project and a golf course project in July
1997.
OTHER EXPENSES
Depreciation and amortization expense increased by $4.3 million during
the six month period ended December 31, 1997 versus the comparable period in
1996 due to the increased levels of property and equipment in service, as well
as an increase in intangible assets related to the acquisitions of Par-A-Dice in
December 1996 and Treasure Chest in October 1997.
Corporate expenses declined from $10.7 million during the six month
period ended December 31, 1996 to $9.1 million during the comparable period in
1997. The decline is primarily attributable to a reduction in development
related expenses.
During the six month period ended December 31, 1996, the Company
recorded a preopening charge of $3.5 million upon the opening of Main Street
Station. No preopening costs were incurred during the six month period ended
December 31, 1997.
OTHER INCOME (EXPENSE)
Other income and expense is primarily comprised of interest expense,
net of amounts capitalized. Interest expense increased by $10.5 million during
the six month period ended December 31, 1997 compared to the corresponding
period in 1996. The increase is attributable to higher levels of debt
outstanding due to, among other things, the December 1996 acquisition of
Par-A-Dice for approximately $171 million, the October 1997 acquisition of
Treasure Chest for approximately $117 million, the major renovation and
expansion of Main Street Station and the addition of a 350-room hotel tower and
1,000 space parking garage at Sam's Town Tunica. In addition, the Company
capitalized $3.0 million in interest costs during the six month period ended
December 31, 1996
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45
related to the renovation and expansion of Main Street Station and Sam's Town
Tunica. There were no such costs capitalized during the comparable period in
1997.
PROVISION FOR INCOME TAXES
The Company's effective tax rate was 41.9% and 40.0%, respectively, for
the six month periods ended December 31, 1997 and 1996. The fluctuation in the
rates is primarily attributable to state taxes, which have increased due to the
enhanced earnings generated from the Company's Central Region properties. The
Company's Nevada properties are not subject to a state income tax.
EXTRAORDINARY ITEMS
The Company recorded an extraordinary loss of $7.2 million, net of tax,
during the six month period ended December 31, 1997 related to the early
redemption of the Company's $185 million, 11% Notes in December 1997. In
addition, in connection with the early redemption of the Company's $150 million,
10.75% Notes in October 1996, the Company recognized an extraordinary loss of
$6.1 million, net of tax, during the six month period ended December 31, 1996.
NET INCOME
As a result of these factors, the Company reported net income of $4.9
million during the six month period ended December 31, 1997 compared to a net
loss of $3.2 million during the six month period ended December 31, 1996.
Effective July 1, 1997, the Company changed its fiscal year from a June
30 year end to a December 31 year end. As such, fiscal year, as defined in the
following sections for the fiscal years 1997 and 1996 is the period beginning on
July 1 and ending on June 30.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATING ACTIVITIES AND WORKING CAPITAL
The Company's policy is to use operating cash flow in combination with
debt financing to fund renovations and expansion of its business.
During 1999, the Company generated operating cash flow of $158 million
compared to $122 million during 1998. The increase in operating cash flow is
primarily attributable to the Company's enhanced earnings as well as the
realization of a portion of the tax benefits related to the sale of certain
assets of the Sam's Town Kansas City property. (See further discussion regarding
the realization of tax attributes related to the sale of Sam's Town Kansas City
in the following paragraph.) As of December 31, 1999 and 1998, the Company had
balances of cash and cash equivalents of $86 million and $76 million,
respectively, and working capital of $5.7 million at December 31, 1999 compared
to $24 million at December 31, 1998. The Company has historically operated with
minimal levels of working capital in order to minimize borrowings and related
interest costs under its $600 million bank credit facility (the "New Bank Credit
Facility").
In connection with the July 1998 sale of certain tangible assets of
Sam's Town Kansas City for $12.5 million, the Company has been and will be able
to realize the benefit of approximately $35 million in tax attributes. The
realization of these tax attributes, which began in the quarter ended September
30, 1998 and continued to benefit operating cash flow in 1999, generated tax
refunds of approximately $11 million. Current and future federal tax payments on
the Company's taxable income will also be reduced at such time as the remaining
tax attributes are realized. At December 31, 1999, the Company had $16.8 million
in current deferred tax assets.
CASH FLOWS FROM INVESTING ACTIVITIES
The Company is committed to continually maintaining and enhancing its
existing facilities, most notably by upgrading and remodeling its casinos, hotel
rooms, restaurants, and other public spaces and by providing the latest slot
machines for its customers. The Company's capital expenditures primarily related
to these purposes were approximately $92 million and $68 million, respectively,
during 1999 compared to 1998.
On November 10, 1999, the Company acquired the Blue Chip Casino, a
riverboat casino in Michigan City, Indiana for $261 million in net cash, subject
to certain adjustments. Included as part of the acquisition was a partially
constructed hotel and parking
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facility attached to the existing casino complex. The hotel opened in February
2000. The Company funded the acquisition from borrowings under the New Bank
Credit Facility. See "Expansion and Other Projects" for a further discussion on
current and planned investing activities.
The Company received $10.5 million in cash at the time of sale of
certain tangible assets of Sam's Town Kansas City in 1998 and received the
remaining $2.0 million when certain third party consents were received in 1999.
In addition, the Company funded $4.7 million during 1999 to its unconsolidated
subsidiaries, substantially all of which relates to the Atlantic City joint
venture. See further discussion regarding the joint venture under "Expansion and
Other Projects."
CASH FLOWS FROM FINANCING ACTIVITIES
Substantially all of the funding for the Company's acquisitions and
renovation and expansion projects comes from cash flows from existing operations
as well as debt financing. Cash flows provided by financing activities totaled
$208 million during 1999, substantially all of which was borrowed from the
Company's New Bank Credit Facility to partially fund the acquisition of Blue
Chip and other capital expenditures. During 1998, the Company paid down existing
debt with its free cash flows generated from operations and proceeds from the
sale of Sam's Town Kansas City's assets that resulted in cash flows used for
financing activities of $67 million. At December 31, 1999, outstanding
borrowings and unused availability under the New Bank Credit Facility were $526
million and $73.5 million, respectively.
On July 21, 1999, the Company replaced its existing bank credit
facility with a new $600 million bank credit facility. The New Bank Credit
Facility consists of a $500 million revolver component (the "Revolver") and a
$100 million term loan component (the "Term Loan"), both of which mature in June
2003. Availability under the Revolver will be reduced by $15.6 million on
December 31, 2001 and at the end of each quarter thereafter until March 31,
2003. The Term Loan is being repaid in increments of $0.25 million per quarter
which began on September 30, 1999 and will continue through March 31, 2003. The
interest rate on the New Bank Credit Facility is based upon either the agent
bank's quoted base rate or the Eurodollar rate, plus an applicable margin that
is determined by the level of a predefined financial leverage ratio. In
addition, the Company incurs a commitment fee on the unused portion of the
Revolver which ranges from 0.375% to 0.50% per annum. The blended rate on
outstanding borrowings under the New Bank Credit Facility as of December 31,
1999 was 8.1%. The New Bank Credit Facility is secured by substantially all of
the real and personal property of the Company and its subsidiaries, including
eleven casino properties. The obligations of the Company under the New Bank
Credit Facility are guaranteed by the significant subsidiaries of the Company.
The New Bank Credit Facility contains certain financial and other
covenants, including, without limitation, various covenants (i) requiring the
maintenance of a minimum net worth, (ii) requiring the maintenance of a minimum
interest coverage ratio, (iii) establishing a maximum permitted total leverage
ratio and senior secured leverage ratio, (iv) imposing limitations on the
incurrence of additional indebtedness, (v) imposing limitations on the maximum
permitted expansion capital expenditures during the term of the New Bank Credit
Facility, (vi) imposing limits on the maximum permitted maintenance capital
expenditures during each year of the term of the New Bank Credit Facility, and
(vii) imposing restrictions on investments, dividends and certain other
payments. Management believes the Company and its subsidiaries are in compliance
with the New Bank Credit Facility covenants.
The Company's ability to service its debt will be dependent on its
future performance, which will be affected by, among other things, prevailing
economic conditions and financial, business and other factors, certain of which
are beyond the Company's control.
EXPANSION AND OTHER PROJECTS
The Company, as part of its ongoing strategic planning process, is
currently establishing its priorities for the future. In Nevada, the Company is
exploring development opportunities in the Las Vegas locals market. In January
2000, the Company reached an agreement in principle with Nevso, L.L.C. to
purchase approximately 18 acres of land in western Las Vegas, Nevada to develop
a locals hotel and casino. The purchase of the land and development of the
project is subject to a number of contingencies, including but not limited to,
the parties reaching a definitive agreement and securing various regulatory and
development approvals. The zoning to allow the construction of the project and
its use as a locals resort casino was reversed upon administrative appeal and is
the subject of litigation. The Company can make no assurances that this project
will go forward or that if the project goes forward that it will be successful.
In addition, the Company has initiated an $86 million expansion and renovation
project at Sam's Town Las Vegas. The project includes, among other things, an 18
screen state-of-the-art movie theatre complex, childcare facilities, an arcade,
additional casino space for 500 slot machines, an 11,200 square foot
multi-purpose events center for concerts and meetings, a new 650 seat buffet,
and a reconfigured and remodeled porte cochere and valet parking area to improve
access to the property. As of
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47
December 31, 1999, the Company had incurred $22.8 million in costs associated
with the Sam's Town Las Vegas expansion and renovation. The renovation portion
of the project is expected to continue until the summer of 2000 and the
expansion is expected to be completed by December 31, 2000. There can be no
assurances that the Sam's Town Las Vegas renovation and expansion project will
be completed on time or within budget.
The Company has postponed plans to develop a new property on the
Stardust's 61-acre site until the impact of the opening of several new resorts
on the Las Vegas Strip has been determined. Instead, the Company recently
completed a renovation of the Stardust which included guest rooms, public space
and exterior enhancements intended to make the property more competitive with
other Strip resorts. In connection with the renovation project, the Stardust
demolished all of its approximately 550 motor inn rooms. As of December 31,
1999, the Company had incurred $23.0 million in costs associated with the
Stardust renovation, $21.5 million of which was incurred during the year ended
December 31, 1999.
Outside Nevada, the Company is pursuing several other projects. On May
29, 1996, the Company, through a wholly-owned subsidiary, entered into a joint
venture agreement with Mirage Resorts, Incorporated, through a wholly-owned
subsidiary ("Mirage"), to jointly develop and own a casino hotel entertainment
facility in Atlantic City, New Jersey. Certain aspects of the joint venture
agreement were subsequently modified into an amended and restated joint venture
agreement (the "Agreement") on July 14, 1998. The Agreement provides for a hotel
of at least 1,200 rooms and a casino and related amenities (collectively named
"The Borgata") adjacent and connected to Mirage's planned wholly-owned resort
and contemplates a total cost of $750 million. Any project costs exceeding the
$750 million budget shall be funded by the Company without any proportionate
increase in the ownership of the joint venture by the Company. The Agreement
provides for each party to make an equity contribution of $150 million. The
Company will contribute $90 million when Mirage contributes land to the venture,
which is expected in the fall of 2000. The Agreement further provides for the
venture to arrange $450 million in non-recourse financing for the project. There
can be no assurances that The Borgata can be designed or developed for $750
million. In that regard, the Company has recently had discussions with Mirage
regarding a possible increase in the size of The Borgata and each partner's
required capital contributions and joint venture financing. Funding of the
Company's capital contributions to The Borgata is expected to be derived from
cash flow from operations, availability under the Company's New Bank Credit
Facility, incremental bank financing, or additional debt offerings. The Borgata
will be subject to the many risks inherent in the establishment of a new
business enterprise, including potential unanticipated design, construction,
regulatory, environmental and operating problems, increased project costs,
timing delays, lack of adequate financing and the significant risks commonly
associated with implementing a marketing strategy in a new market. Once
construction begins, if The Borgata does not become operational within the time
frame and budget currently contemplated or does not compete successfully in its
new market, it could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company has begun work on the
planning stages of this development which is expected to open in late 2002. As
of December 31, 1999 and 1998, the Company has contributed or advanced funds of
$5.7 million and $1.3 million, respectively, to The Borgata.
In early 2000, the Company began a $21 million renovation project at
Sam's Town Tunica to reconfigure and remodel the casino, redesign and enhance
its restaurant product, remodel the atrium and build an RV park adjacent to the
property. The renovation project is expected to be completed by December 31,
2000, although there can be no assurances that the project will be completed on
time or within budget.
On January 18, 2000, the Company signed a Memorandum of Understanding
(the "Memorandum") with the Narragansett Indian Tribe (the "Narragansetts") to
assist in the development and operation of the proposed Narragansett Indian
Casino in West Warwick, Rhode Island. The Memorandum provides that the Company's
role in this project may include, without limitation, assisting in lobbying
efforts, assisting in procurement of project financing, assisting in the design
and construction of the project, and potentially participating in the ownership
and management of the project. The Company's participation in the project is
contingent upon a number of factors, including but not limited to, negotiation
of a definitive agreement between the Company and the Narragansetts; approval of
legislation by the Rhode Island Legislature and approval of the project by the
voters of Rhode Island in a state-wide referendum, both of which are necessary
to enable the project to go forward; and negotiation by the Narragansetts of a
definitive settlement of the dispute with Capital Gaming Development, Inc.
("Capital") relating to the termination of the management agreement between the
Narragansetts and Capital. The Company can make no assurances that this project
will go forward or that if the project goes forward that it will be successful.
The Company has undertaken a Customer Information System ("CIS")
project that will standardize the Company's customer tracking systems. The
purpose of the CIS project is to link all points of customer contact at a
particular property to enable the Company to better monitor customer activity in
order to enhance and direct marketing efforts. For the year ended December 31,
1999, the Company had incurred $8.7 million in costs associated with the CIS
project, substantially all of which was capitalized. The Company expects to
spend $20 million in 2000 on the next phases of the CIS project. The Company has
never undertaken a technology project of this magnitude and may experience
difficulties in the integration and implementation of this project. In addition,
given the inherent difficulties of a project of this magnitude and the resources
required, the timing and costs involved could
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48
differ materially from those anticipated by the Company. There can be no
assurance that the CIS project will be completed successfully, on schedule, or
within budget.
Substantial funds are required for The Borgata, as well as the other
projects discussed above and would also be required for other future expansion
projects. There are no assurances that any of the above mentioned projects will
go forward on a timely basis, if at all, or ultimately become operational. The
source of funds required to meet the Company's working capital needs (including
maintenance capital expenditures) is expected to be cash flow from operations
and availability under the Company's New Bank Credit Facility. The source of
funds for the Company's expansion projects may come from cash flow from
operations and availability under the Company's New Bank Credit Facility,
incremental bank financing, additional debt or equity offerings, joint venture
partners or other sources. No assurance can be given that additional financing
will be available or that, if available, such financing will be obtainable on
terms favorable to the Company or its stockholders.
TERMINATION OF MANAGEMENT CONTRACT
On October 20, 1999, the Company agreed to terminate its management
contract with the Mississippi Band of Choctaw Indians prior to the contract's
expiration date in June 2001 in exchange for a one-time payment of $72 million.
Pursuant to that agreement, the Company ceased management of Silver Star and
received the one-time payment on February 1, 2000. The Company used the net
proceeds from the termination agreement to reduce its outstanding indebtedness
under the New Bank Credit Facility.
YEAR 2000 PROJECT
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a major system failure or
miscalculations.
The Company recently completed a five-phase process of evaluating and
resolving the problems that might be associated with its internal operating
systems and the Year 2000 issue. The five phases were as follows:
1. Evaluation and development of remediation plans for traditional
information technology ("IT") systems;
2. Evaluation and development of remediation plans for non-IT systems;
3. Implementation and testing of remediation plans;
4. Evaluation of vendor compliance with Year 2000 issues; and
5. Preparation of contingency plans.
During the five phase process, the Company brought all significant
non-compliant systems into compliance. The Company experienced no material
adverse effects related to the Year 2000 transition and believes there are no
material continuing risks or exposures related to the Year 2000 issue. At
December 31, 1999, the Company had incurred approximately $9.8 million in costs
directly related to the Year 2000 project, $6.8 million of which were
capitalized as they related to replacement of systems that were not Year 2000
compliant.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 1 to Notes to Consolidated Financial Statements for a complete
discussion of recently issued accounting standards and their expected impact on
the Company's consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates.
To reduce such risks, the Company selectively uses financial instruments for its
floating rate debt. On December 31, 1997, the Company entered into an interest
rate swap agreement for a notional amount of $100 million. The agreement called
for the Company to swap its variable LIBOR rate for a fixed LIBOR rate of
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5.54%. The variable LIBOR rate readjusted each quarter and the agreement was
canceled in December 1999, per the terms of the agreement as the LIBOR rate
exceeded 5.99%.
The Company also has certain fixed-rate debt which it believes to have
a fair value that approximates its reported amounts. The Company believes that
the market risk arising from these financial instruments is not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this
Form 10-K. See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company is set forth under the
caption "Proposal No. 1 -- Election of Directors" and "Executive Compensation
and Other Information -- Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's definitive Proxy Statement to be filed in
connection with its 2000 Annual Meeting of Stockholders and is incorporated
herein by reference. Information regarding non-director executive officers of
the Company is set forth in Item 4A of Part I of this Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption
"Executive Compensation and Other Information" and "Proposal No. 1 -- Election
of Directors -- Compensation of Directors" in the Company's definitive Proxy
Statement to be filed in connection with its 2000 Annual Meeting of Stockholders
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption
"Stock Ownership of Certain Beneficial Owners and Management" in the Company's
definitive Proxy Statement to be filed in connection with its 2000 Annual
Meeting of Stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the captions
"Executive Compensation and Other Information -- Certain Relationships and
Related Transactions" and "-- Compensation Committee Interlocks and Insider
Participation" in the Company's definitive Proxy Statement to be filed in
connection with its 2000 Annual Meeting of Stockholders and is incorporated
herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
PAGE NO.
--------
1. FINANCIAL STATEMENTS. The following financial statements for the two
years in the period ended December 31, 1999, the six month periods
ended December 31, 1997 and December 31, 1996 (unaudited) and for the
fiscal year ended June 30, 1997 are filed as part of this report:
Independent Auditors' Report.......................................................... 53
Consolidated Balance Sheets at December 31, 1999 and 1998............................. 54
Consolidated Statements of Operations for the Two Years in the Period
Ended December 31, 1999, the Six Month Periods Ended December 31, 1997
and December 31, 1996 (unaudited) and for the Fiscal Year Ended June 30, 1997......... 55
Consolidated Statements of Changes in Stockholders' Equity for the Two
Years in the Period Ended December 31, 1999, the Six Month Period Ended
December 31, 1997 and for the Fiscal Year Ended June 30, 1997......................... 56
Consolidated Statements of Cash Flows for the Two Years in the Period
Ended December 31, 1999, the Six Month Periods Ended December 31, 1997
and December 31, 1996 (unaudited) and for the Fiscal Year Ended June 30, 1997........ 57
Notes to Consolidated Financial Statements............................................ 59
2. REPORTS ON FORM 8-K.
(a) The Company filed a current report on Form 8-K dated July 13, 1999
related to a definitive agreement to acquire 100% of the equity
interests in Blue Chip Casino, L.L.C.
(b) The Company filed a current report on Form 8-K dated January 7,
2000 related to the Acquisition of Blue Chip Casino.
3. EXHIBITS. Refer to (c) on page 78.
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52
BOYD GAMING CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report............................................. 53
Consolidated Financial Statements
Consolidated Balance Sheets.......................................... 54
Consolidated Statements of Operations................................ 55
Consolidated Statements of Changes in Stockholders' Equity........... 56
Consolidated Statements of Cash Flows................................ 57
Notes to Consolidated Financial Statements........................... 59
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53
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Boyd Gaming Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Boyd
Gaming Corporation and Subsidiaries (the "Company") as of December 31, 1999 and
1998, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the two years in the period ended
December 31, 1999, the six month period ended December 31, 1997, and for the
fiscal year ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Boyd Gaming Corporation and
Subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for the two years in the period ended December 31, 1999,
the six month period ended December 31, 1997, and for the fiscal year ended June
30, 1997 in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 23, 2000
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54
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
DECEMBER 31,
------------------------
1999 1998
---------- ----------
Current assets
Cash and cash equivalents ........................ $ 86,192 $ 75,937
Accounts receivable, net ......................... 17,585 21,988
Inventories ...................................... 6,181 9,567
Prepaid expenses and other ....................... 14,718 17,333
Income taxes receivable .......................... 1,108 11,065
Deferred income taxes ............................ 16,835 5,855
---------- ----------
Total current assets ..................... 142,619 141,745
Property and equipment, net ......................... 901,014 763,207
Other assets and deferred charges, net .............. 45,689 38,690
Intangible assets, net .............................. 354,659 202,614
---------- ----------
Total assets ............................. $1,443,981 $1,146,256
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt ............. $ 1,744 $ 1,961
Accounts payable ................................. 36,531 32,065
Construction payables ............................ 8,609 --
Accrued liabilities
Payroll and related .......................... 31,184 29,465
Interest and other ........................... 58,862 54,162
---------- ----------
Total current liabilities ................ 136,930 117,653
Long-term debt, net of current maturities ........... 982,149 774,890
Deferred income taxes and other liabilities ......... 57,923 26,407
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000 shares
authorized ..................................... -- --
Common stock, $.01 par value; 200,000,000 shares
authorized; 62,227,753 and 62,027,514 shares
outstanding .................................... 622 620
Additional paid-in capital ........................ 141,986 140,616
Retained earnings ................................. 124,371 86,070
---------- ----------
Total stockholders' equity ............... 266,979 227,306
---------- ----------
Total liabilities and stockholders' equity $1,443,981 $1,146,256
========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
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55
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL
YEAR ENDED SIX MONTHS ENDED YEAR
DECEMBER 31, DECEMBER 31, ENDED
--------------------------- ----------------------- JUNE 30,
1999 1998 1997 1996 1997
----------- ----------- --------- --------- ---------
UNAUDITED
Revenues
Casino ..................................... $ 733,677 $ 722,124 $ 323,707 $ 268,208 $ 573,782
Food and beverage .......................... 158,982 161,582 78,658 73,387 151,261
Room ....................................... 71,478 74,053 38,330 35,449 74,209
Other ...................................... 69,988 70,903 39,074 26,883 58,311
Management fees and joint venture .......... 47,463 40,206 20,310 20,406 42,747
----------- ----------- --------- --------- ---------
Gross revenues ................................ 1,081,588 1,068,868 500,079 424,333 900,310
Less promotional allowances ................... 94,547 93,772 44,308 40,175 81,051
----------- ----------- --------- --------- ---------
Net revenues ....................... 987,041 975,096 455,771 384,158 819,259
----------- ----------- --------- --------- ---------
Costs and expenses
Casino ..................................... 371,400 366,746 166,776 145,928 298,081
Food and beverage .......................... 103,439 106,195 53,757 50,885 106,729
Room ....................................... 22,532 24,724 12,958 12,044 25,210
Other ...................................... 63,825 65,626 32,793 21,574 50,695
Selling, general and administrative ........ 145,788 147,647 68,461 58,860 120,538
Maintenance and utilities .................. 41,972 41,144 18,652 18,327 36,037
Depreciation ............................... 67,793 67,656 32,964 30,381 65,085
Amortization of intangible license rights
and acquisition costs .................... 6,325 5,751 2,133 453 2,157
Corporate expense .......................... 25,867 19,994 9,131 10,744 24,333
Preopening expense ......................... 1,489 -- -- 3,481 3,481
Impairment and restructuring charges ....... -- 5,925 -- -- 131,339
----------- ----------- --------- --------- ---------
Total .............................. 850,430 851,408 397,625 352,677 863,685
----------- ----------- --------- --------- ---------
Operating income (loss) ....................... 136,611 123,688 58,146 31,481 (44,426)
----------- ----------- --------- --------- ---------
Other income (expense)
Interest income ............................ 253 365 261 342 650
Interest expense, net of amounts capitalized (69,230) (74,162) (37,571) (27,069) (61,672)
----------- ----------- --------- --------- ---------
Total .............................. (68,977) (73,797) (37,310) (26,727) (61,022)
----------- ----------- --------- --------- ---------
Income (loss) before provision (benefit) for
income taxes, cumulative effect and
extraordinary items ....................... 67,634 49,891 20,836 4,754 (105,448)
Provision (benefit) for income taxes .......... 27,595 21,291 8,736 1,902 (34,025)
----------- ----------- --------- --------- ---------
Income (loss) before cumulative effect and
extraordinary items ....................... 40,039 28,600 12,100 2,852 (71,423)
Cumulative effect of a change in accounting
for start-up activities, net of tax
benefit of $936 ............................. (1,738) -- -- -- --
Extraordinary items, net of tax benefit
of $3,899, $3,268 and $3,268, respectively . -- -- (7,240) (6,069) (6,069)
----------- --------- --------- --------- ---------
Net income (loss) ............................. $ 38,301 $ 28,600 $ 4,860 $ (3,217) $ (77,492)
=========== ========= ========= ========= =========
Basic and diluted net income (loss) per
common share:
Income (loss) before cumulative effect and
extraordinary items ..................... $ 0.65 $ 0.46 $ 0.20 $ 0.05 $ (1.19)
Cumulative effect, net of tax .............. (0.03) -- -- -- --
Extraordinary items, net of tax ............ -- -- (0.12) (0.10) (0.10)
----------- --------- --------- --------- ---------
Net income (loss) .......................... $ 0.62 $ 0.46 $ 0.08 $ (0.05) $ (1.29)
=========== ========= ========= ========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
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56
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1999,
THE SIX MONTH PERIOD ENDED DECEMBER 31, 1997,
AND FISCAL YEAR ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL TOTAL
---------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ------ ---------- -------- -------------
Balances, July 1, 1996 ........... 57,213,720 $572 $102,583 $130,102 $233,257
Net loss ......................... -- -- -- (77,492) (77,492)
Issuance of stock, net of expenses 4,000,000 40 33,493 -- 33,533
Stock issued in connection with
employee stock purchase plan ... 310,268 3 2,015 -- 2,018
----------- ---- -------- -------- --------
Balances, June 30, 1997 .......... 61,523,988 615 138,091 52,610 191,316
Net income ....................... -- -- -- 4,860 4,860
Stock issued in connection with
employee stock purchase plan ... 145,640 2 963 -- 965
----------- ---- -------- -------- --------
Balances, December 31, 1997 ...... 61,669,628 617 139,054 57,470 197,141
Net income ....................... -- -- -- 28,600 28,600
Stock issued in connection with
employee stock purchase plan ... 357,886 3 1,562 -- 1,565
----------- ---- -------- -------- --------
Balances, December 31, 1998 ...... 62,027,514 620 140,616 86,070 227,306
Net income ....................... -- -- -- 38,301 38,301
Stock issued in connection with
employee stock purchase plan ... 179,801 2 1,256 -- 1,258
Stock options exercised .......... 20,438 -- 114 -- 114
----------- ---- -------- -------- --------
BALANCES, DECEMBER 31, 1999 ...... 62,227,753 $622 $141,986 $124,371 $266,979
=========== ==== ======== ======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
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BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED SIX MONTHS ENDED FISCAL
DECEMBER 31, DECEMBER 31, ENDED
---------------------- ---------------------- JUNE 30,
1999 1998 1997 1996 1997
--------- --------- --------- --------- ---------
UNAUDITED
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ............................................. $ 38,301 $ 28,600 $ 4,860 $ (3,217) $ (77,492)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ............................ 74,118 73,407 35,097 30,834 67,242
Cumulative effect of a change in accounting principle .... 2,674 -- -- -- --
Loss on early retirement of debt ......................... -- -- 11,139 9,337 9,337
Deferred income taxes .................................... 20,010 26,259 1,975 171 (42,079)
Impairment and restructuring charges ..................... -- 5,925 -- -- 131,339
Other ...................................................... -- -- -- 301 --
Equity loss in unconsolidated subsidiaries ................. 1,356 -- -- -- --
Changes in assets and liabilities:
Accounts receivable, net ................................. 3,055 (616) (2,426) (9,836) (906)
Inventories .............................................. 3,569 339 (1,405) (2,319) (1,970)
Prepaid expenses and other ............................... 366 (574) 516 (3,855) 392
Other assets ............................................. (4,906) (814) (5) (4,902) (4,853)
Other current liabilities ................................ 8,632 (3,350) 11,611 33,016 574
Other liabilities ........................................ 526 851 -- -- --
Income taxes receivable .................................. 9,957 (8,278) (2,787) (7,144) --
Income taxes payable ..................................... -- -- (1,103) (678) 425
--------- --------- --------- --------- ---------
Net cash provided by operating activities ..................... 157,658 121,749 57,472 41,708 82,009
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash paid for acquisition of Blue Chip Casino .......... (261,195) -- -- -- --
Net cash paid for acquisition of Treasure Chest
Casino, L.L.C ............................................ -- -- (103,040) -- --
Net cash paid for acquisition of Par-A-Dice Hotel and Casino -- -- -- (170,725) (170,725)
Investment in and advances to unconsolidated subsidiaries .. (4,717) -- -- -- --
Proceeds from sale of Sam's Town Kansas City's assets ...... 2,000 10,500 -- -- --
Acquisition of property, equipment and other assets ........ (91,719) (68,011) (22,186) (79,132) (99,586)
Proceeds from sale of riverboat ............................ -- -- -- 20,000 20,000
--------- --------- --------- --------- ---------
Net cash used in investing activities ......................... (355,631) (57,511) (125,226) (229,857) (250,311)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt ................... -- 8,000 244,525 200,000 200,148
Payments on long-term debt ................................. (1,958) (2,909) (903) (18,334) (19,354)
Early retirement of long-term debt ......................... -- -- (192,631) (157,500) (157,500)
Net borrowings (payments) under credit agreements .......... 209,000 (73,000) 39,000 150,850 116,000
Proceeds from issuance of common stock ..................... 1,186 1,331 820 34,579 35,248
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities ........... 208,228 (66,578) 90,811 209,595 174,542
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents .......... 10,255 (2,340) 23,057 21,446 6,240
Cash and cash equivalents, beginning of year .................. 75,937 78,277 55,220 48,980 48,980
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of year ........................ $ 86,192 $ 75,937 $ 78,277 $ 70,426 $ 55,220
========= ========= ========= ========= =========
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BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
FISCAL
YEAR
YEAR ENDED SIX MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1999 1998 1997 1996 1997
-------- ------- -------- -------- --------
UNAUDITED
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized .... $ 67,329 $74,080 $ 29,029 $ 29,950 $ 58,556
Cash paid for income taxes ............................ 7,882 5,992 6,815 4,915 7,981
======== ======= ======== ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Property additions acquired on construction and trade
payables which were accrued, but not yet paid ....... $ 10,609 $ 5,440 $ 2,603 $ 7,398 $ 6,973
Receivable from sale of Sam's Town Kansas City's assets -- 2,000 -- -- --
Deferred bond financing costs incurred ................ -- -- 5,475 -- 4,624
Acquisition of Blue Chip Casino
Fair value of non-cash assets acquired .............. $267,074 $ -- $ -- $ -- $ --
Net cash paid to seller ............................. 261,195 -- -- -- --
-------- ------- -------- -------- --------
Liabilities assumed ................................. $ 5,879 $ -- $ -- $ -- $ --
======== ======= ======== ======== ========
Acquisition of Par-A-Dice Hotel and Casino
Fair value of assets acquired ....................... $ -- $ -- $ -- $174,800 $174,800
Cash paid to seller ................................. -- -- -- 170,725 170,725
-------- ------- -------- -------- --------
Liabilities assumed ................................. $ -- $ -- $ -- $ 4,075 $ 4,075
======== ======= ======== ======== ========
Acquisition of Treasure Chest Casino, L.L.C.
Fair value of assets acquired ....................... $ -- $ -- $110,180 $ -- $ --
Cash paid to seller ................................. -- -- 103,040 -- --
-------- ------- -------- -------- --------
Liabilities assumed ................................. $ -- $ -- $ 7,140 $ -- $ --
======== ======= ======== ======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Boyd Gaming Corporation and its wholly-owned subsidiaries, collectively
referred to herein as the "Company." The Company owns and operates eleven casino
entertainment facilities located in Las Vegas, Nevada, Tunica, Mississippi, East
Peoria, Illinois, Kenner, Louisiana, and Michigan City, Indiana as well as a
travel agency located in Honolulu, Hawaii. In addition, the Company managed a
casino entertainment facility in Philadelphia, Mississippi for which it had a
management contract that expired on January 31, 2000 (see Note 3). All material
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with an
original maturity of three months or less. These investments are stated at cost
which approximates fair value.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out and retail inventory methods.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets. Costs of major improvements are capitalized, while
costs of normal repairs and maintenance are charged to expense as incurred.
Gains or losses on disposal of assets are recognized as incurred.
Capitalized Interest
Interest costs associated with major construction projects are
capitalized. When no debt is incurred specifically for a project, interest is
capitalized on amounts expended for the project using the Company's weighted
average cost of borrowing. Capitalization of interest ceases when the project or
discernible portions of the project are substantially complete. Capitalized
interest during the year ended December 31, 1999 and the fiscal year ended June
30, 1997 was $1.8 million and $3.2 million, respectively. There were no such
interest costs capitalized during the year ended December 31, 1998 or the six
month period ended December 31, 1997.
Intangible Assets
The excess of total acquisition costs over the fair market value of net
assets acquired is amortized using the straight-line method over forty years.
Management periodically assesses the recoverability of intangible assets by
comparing its carrying value to the undiscounted cash flows expected to be
generated by the acquired operation during the anticipated period of benefit. As
of December 31, 1999 and 1998, accumulated amortization was $19.4 million and
$13.5 million, respectively.
Debt Issuance Costs
Debt issuance costs incurred in connection with the issuance of
long-term debt are capitalized and amortized to interest expense over the terms
of the related debt agreements.
Revenue and Promotional Allowances
Casino revenue represents 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. Such amounts are then deducted as
promotional allowances. The estimated cost of providing these promotional
allowances is charged to the casino department in the following amounts:
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YEAR ENDED SIX MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
---------------------- DECEMBER 31, JUNE 30,
1999 1998 1997 1997
------- ------- ------------ ------------
(IN THOUSANDS)
Room................. $11,101 $12,190 $ 5,668 $11,704
Food and beverage.... 70,822 71,663 33,397 58,120
Other................ 7,217 5,123 2,638 3,168
------- ------- ------- -------
Total................ $89,140 $88,976 $41,703 $72,992
======= ======= ======= =======
Preopening Expenses
Prior to January 1, 1999, expenses incurred prior to the opening of new
facilities were capitalized as incurred and charged to expense upon commencement
of operations. During the fiscal year ended June 30, 1997, the Company expensed
$3.5 million upon the opening of Main Street Station. There were no preopening
expenses recorded during the year ended December 31, 1998 or the six month
period ended December 31, 1997.
The American Institute of Certified Public Accountants issued Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities," which is
effective for fiscal years beginning after December 15, 1998. The statement
requires businesses to expense certain costs of start-up activities as incurred.
During the year ended December 31, 1999, the Company expensed $1.5 million in
preopening costs that related primarily to the Company's share of preopening
expense in The Borgata, the Company's Atlantic City joint venture (see Note 7).
The initial application of this statement in January 1999 required the Company
to expense certain previously capitalized items as a cumulative effect of a
change in accounting principle. As such, the Company reported a charge of $1.7
million, net of tax, to the consolidated statement of operations during the
three month period ended March 31, 1999 as the cumulative effect of the change
in accounting principle.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
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 the reported amounts of revenues and
expenses during the reporting period. Significant estimates used by the Company
include the estimated useful lives for depreciable and amortizable assets, the
estimated allowance for doubtful accounts receivable, the estimated valuation
allowance for deferred tax assets, and estimated cash flows in assessing the
recoverability of long-lived assets. Actual results could differ from those
estimates.
Reclassifications
Certain prior period amounts in the consolidated financial statements
have been reclassified to conform to the December 31, 1999 presentation. These
reclassifications had no effect on the Company's net income (loss).
Change in Fiscal Year
Effective July 1, 1997, the Company changed its fiscal year from a June
30 year end to a December 31 year end.
Recently Issued Accounting Standards
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments for fiscal years beginning after June 15,
2000. Management has not yet completed an analysis of its existing contracts,
agreements, and other commitments to determine the potential impact that the
adoption of this statement will have on the consolidated financial statements.
NOTE 2. ACQUISITIONS
On November 10, 1999, the Company acquired Blue Chip Casino, L.L.C.
("Blue Chip"), located in Michigan City, Indiana, for approximately $261 million
in net cash, including $10.3 million for a hotel and parking facility that was
under construction and attached to the existing casino complex. Intangible
license rights, representing the excess of the purchase price over the fair
value of the net assets acquired, was approximately $158 million. The purchase
price excludes a contingent purchase price payment of $5.0 million. The
contingent
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purchase price payment will be made to the former owners of Blue Chip Casino,
Inc. in the event that, over a period of 36 months, Blue Chip's aggregated
earnings before interest, taxes, depreciation and amortization and certain other
qualified expenses exceeds a specified amount. Blue Chip Casino opened in August
1997. The Company's pro forma consolidated results of operations, as if the
acquisition had occurred at the time of its opening, are as follows:
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED
-------------------------- DECEMBER 31,
1999 1998 1997
---------- ---------- -----------
Pro forma (in thousands, except per
share data):
Net revenues .............................. $1,131,781 $1,122,853 $497,235
Income before cumulative effect and
extraordinary items .................... $ 60,656 $ 42,994 $ 3,463
Net income ................................ $ 55,635 $ 42,994 $ 3,463
Basic and diluted net income per common share:
Income before cumulative effect and
extraordinary items .................... $ 0.98 $ 0.70 $ 0.06
Net income ................................ $ 0.90 $ 0.70 $ 0.06
On October 27, 1997, the Company acquired the remaining 85% equity
interest in Treasure Chest Casino, L.L.C. ("Treasure Chest") that was not owned
by the Company for approximately $103 million, plus the assumption of debt.
Intangible license rights, representing the excess of the purchase price over
the fair value of the net assets acquired, was approximately $85 million.
Treasure Chest owns the Treasure Chest Casino, a riverboat casino operation on
Lake Pontchartrain in Kenner, Louisiana. The Company has been managing the
Treasure Chest since its opening in September 1994. The Company's pro forma
consolidated results of operations, as if the acquisition had occurred on July
1, 1996, are as follows:
SIX MONTHS ENDED FISCAL
DECEMBER 31, YEAR ENDED
----------------------- JUNE 30,
1997 1996 1997
-------- --------- ----------
Pro forma (in thousands, except per share data):
Net revenues ...................................... $489,715 $ 435,733 $ 923,072
Income (loss) before extraordinary items .......... $ 12,335 $ 3,682 $ (69,275)
Net income (loss) ................................. $ 5,095 $ (2,387) $ (75,344)
Basic and diluted net income (loss) per common share:
Income (loss) before extraordinary items .......... $ 0.20 $ 0.06 $ (1.15)
Net income (loss) ................................. $ 0.08 $ (0.04) $ (1.25)
On December 4, 1996, the Company acquired Par-A-Dice Gaming
Corporation, owner and operator of the Par-A-Dice riverboat casino in East
Peoria, Illinois, and East Peoria Hotel, Inc., the general partner of a
partnership which opened a 208-room hotel adjacent to the Par-A-Dice casino. The
purchase price of the acquisition was approximately $171 million. Intangible
license rights, representing the excess of the purchase price over the fair
value of the net assets acquired, was approximately $116 million. The Company's
pro forma consolidated results of operations, as if the acquisition had occurred
on July 1, 1996, are as follows:
FISCAL
YEAR ENDED
JUNE 30,
1997
----------
Pro forma (in thousands, except per share data):
Net revenues.................................. $861,563
Loss before extraordinary items............... $(66,644)
Net loss...................................... $(72,713)
Basic and diluted net loss per common share:
Loss before extraordinary items............... $ (1.11)
Net loss...................................... $ (1.21)
NOTE 3. TERMINATION OF MANAGEMENT CONTRACT
On October 20, 1999, the Company signed an agreement with the
Mississippi Band of Choctaw Indians (the "Tribe") to terminate the Company's
management of the Silver Star Resort and Casino in Philadelphia Mississippi.
Under the agreement, the Company continued to manage Silver Star under the terms
of the management contract through January 31, 2000, at which time the Tribe
made and the Company recorded a one-time payment of $72 million to the Company.
The agreement with the Tribe terminated the Company's original management
contract 17 months prior to the contract's scheduled maturity date. The one-time
payment will accelerate the utilization of the Company's tax credits and net
operating losses carried forward from prior years. As such, the majority of the
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Company's deferred tax assets are classified as part of current assets on the
accompanying consolidated balance sheet as of December 31, 1999.
NOTE 4. IMPAIRMENT AND RESTRUCTURING CHARGES
During the fiscal year ended June 30, 1997, the Company recorded an
impairment loss of $126 million to adjust the carrying value of its fixed and
intangible assets in the Missouri gaming market to fair value. The impairment
loss was recorded due to a significant change in the competitive environment in
the Kansas City gaming market with the January 1997 addition of a significantly
larger facility and a history of operating losses at the Company's Sam's Town
Kansas City gaming establishment. The fair value of the impaired assets was
primarily determined through a discounted cash flow analysis of the operations
of Sam's Town Kansas City.
On June 30, 1998, the Company recorded a $5.9 million restructuring
charge in connection with its announcement to cease operations at Sam's Town
Kansas City. Termination benefits of approximately $3 million for substantially
all of the property's 646 employees were paid and included as part of the
restructuring charge. Other costs to exit the Kansas City gaming market of
approximately $3 million were included in the restructuring charge and
principally represent the recognition of liabilities for various long-term
commitments which the Company intends to honor. The Company paid approximately
$0.1 million related to the long-term commitments during the year ended December
31, 1999. At December 31, 1999, the $0.1 million current portion and the $0.4
million non-current portion of the remaining restructuring charge liabilities
are included in "Interest and other" and "Deferred income taxes and other
liabilities," respectively, on the accompanying consolidated balance sheet.
During July 1998, the Company closed Sam's Town Kansas City and sold
substantially all of its tangible assets for $12.5 million, which approximated
net book value for those assets. In connection with the sale, the Company
generated a tax loss of approximately $100 million. The net loss, adjusted for
1998 taxable income generated by the Company's other subsidiaries, was carried
back two years. The tax loss not utilized against prior year income will be
carried forward for up to twenty years. The net tax loss carry back created an
income tax receivable of $11.1 million, which was received in 1999.
Additionally, a deferred income tax asset of $5.9 million was created as a
result of the sale. At December 31, 1999, approximately $2.8 million of the
deferred asset has not been utilized and is included in current deferred income
tax assets on the accompanying consolidated balance sheet.
During the fiscal year ended June 30, 1997, the Company recorded a $5.3
million impairment loss related to its 17.4% ownership interest in the Fremont
Street Experience, Limited Liability Company ("FSE"). This impairment loss was
principally due to the significant levels of operating loss and operating cash
deficiency reported in May 1997 by FSE relating to its first full year of
operation. Management expected this trend to continue and, therefore, did not
expect to recover its investment in this entity.
NOTE 5. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
DECEMBER 31,
----------------------
1999 1998
------- -------
(IN THOUSANDS)
Casino ......................... $11,186 $10,614
Hotel .......................... 2,594 2,926
Other .......................... 8,444 12,541
------- -------
Total .......................... 22,224 26,081
Less allowance for doubtful
accounts ..................... 4,639 4,093
------- -------
Accounts receivable, net ....... $17,585 $21,988
======= =======
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NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
ESTIMATED DECEMBER 31,
LIFE -----------------------
(YEARS) 1999 1998
--------- ---------- ----------
(IN THOUSANDS)
Land..................................... -- $ 161,443 $ 124,186
Buildings and leasehold improvements..... 3--40 691,165 634,922
Furniture and equipment.................. 3--30 383,094 376,758
Riverboats and barges.................... 12--40 101,211 64,368
Construction in progress................. -- 46,838 18,756
---------- ----------
Total.................................... 1,383,751 1,218,990
Less accumulated depreciation and
amortization........................... 482,737 455,783
---------- ----------
Property and equipment, net.............. $ 901,014 $ 763,207
========== ==========
NOTE 7. INVESTMENT IN JOINT VENTURE AND OTHER UNCONSOLIDATED SUBSIDIARIES
On May 29, 1996, the Company, through a wholly-owned subsidiary,
entered into a joint venture agreement with Mirage Resorts, Incorporated
("Mirage") to jointly develop and own a casino hotel entertainment facility in
Atlantic City, New Jersey. Certain aspects of the joint venture agreement were
subsequently modified into an amended and restated joint venture agreement (the
"Agreement") on July 14, 1998. The Company holds a 50% interest in the joint
venture and accounts for its share of the joint venture's net income or loss
under the equity method of accounting. The Agreement provides for a hotel of at
least 1,200 rooms and related amenities (collectively named The Borgata)
adjacent and connected to Mirage's planned wholly-owned resort and contemplates
a total cost of $750 million. The Agreement requires capital contributions by
the Company of $150 million, $90 million of which is expected to be contributed
during 2000. Any project costs exceeding the $750 million budget shall be funded
by the Company without any proportionate increase in the ownership in the joint
venture by the Company. At December 31, 1999 and 1998, the Company had net
contributions and advances of $4.2 million and $1.3 million, respectively, to
the joint venture.
The Company has a one-third investment in Tunica Golf Course, L.L.C.
(d.b.a. River Bend Links) located in Tunica, Mississippi which had its grand
opening in April 1999. The Company accounts for its share of the golf course's
net income or loss under the equity method of accounting. At December 31, 1999
and 1998, the Company had net contributions and advances of $2.3 million and
$2.2 million, respectively, to the golf course.
NOTE 8. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
Bank Credit Facilities........ $526,000 $317,000
9.25% Senior Notes............ 200,000 200,000
9.50% Senior Subordinated Notes 250,000 250,000
Other......................... 7,893 9,851
-------- --------
Total long-term debt 983,893 776,851
Less current maturities....... 1,744 1,961
-------- --------
Total............... $982,149 $774,890
======== ========
On July 21, 1999, the Company replaced its existing bank credit
facility with a new $600 million bank credit facility (the "New Bank Credit
Facility"). The New Bank Credit Facility consists of a $500 million revolver
component (the "Revolver") and a $100 million term loan component (the "Term
Loan"), both of which mature in June 2003. Availability under the Revolver will
be reduced by $15.6 million on December 31, 2001 and at the end of each quarter
thereafter until March 31, 2003. The Term Loan will be repaid in increments of
$0.25 million per quarter which began on September 30, 1999 and will continue
through March 31, 2003. As of December 31, 1999, the Company had unused
availability of $73.5 million under the New Bank Credit Facility. The interest
rate on the New Bank Credit Facility is based upon either the agent bank's
quoted base rate or the Eurodollar rate, plus an applicable margin that is
determined by the level of a predefined financial leverage ratio. The blended
interest rate under the New Bank Credit Facility at December 31, 1999 was 8.1%.
In addition, the Company incurs a commitment fee on the unused portion of the
Revolver which ranges from 0.375% to 0.50% per annum. The New Bank Credit
Facility is secured by substantially all of the real and personal property of
the Company and its subsidiaries, including eleven casino properties. The
obligations of the Company under the New Bank Credit Facility are guaranteed by
the significant subsidiaries of the Company.
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The New Bank Credit Facility contains certain financial and other
covenants including, without limitation, various covenants (i) requiring the
maintenance of a minimum net worth, (ii) requiring the maintenance of a minimum
interest coverage ratio, (iii) establishing a maximum permitted total leverage
ratio and senior secured leverage ratio, (iv) imposing limitations on the
incurrence of additional indebtedness, (v) imposing limitations on the maximum
permitted expansion capital expenditures during the term of the New Bank Credit
Facility, (vi) imposing limits on the maximum permitted maintenance capital
expenditures during each year of the term of the New Bank Credit Facility, and
(vii) imposing restrictions on investments, dividends and certain other
payments. Management believes the Company and its subsidiaries are in compliance
with the New Bank Credit Facility covenants.
On October 4, 1996, the Company issued $200 million of 9.25% Senior
Notes (the "9.25% Notes") due October 1, 2003. The 9.25% Notes require
semi-annual interest payments in April and October of each year through October
2003, at which time the entire principal balance becomes due and payable. The
9.25% Notes contain certain restrictive covenants regarding, among other things,
incurrence of debt, sales of assets, mergers and consolidations and limitations
on restricted payments (as defined in the indenture relating to the 9.25%
Notes). In addition, the 9.25% Notes are guaranteed by a majority of the
Company's significant subsidiaries that existed at the time the 9.25% Notes were
issued. The guaranties are full, unconditional, and joint and several. (See Note
16 for a presentation of separate condensed financial statement information on a
combined basis for the parent only, as well as the Company's guarantor
subsidiaries and non-guarantor subsidiaries). The net proceeds from this
offering were used to reduce outstanding indebtedness under the Company's bank
credit facility. Subsequently, the Company used amounts available under its bank
credit facility to redeem $150 million principal amount of 10.75% Senior
Subordinated Notes on November 4, 1996. As a result, the Company recognized an
extraordinary loss of $6.1 million (net of $3.3 million in tax benefits) related
to the early extinguishment of debt.
On July 22, 1997, the Company issued $250 million principal amount of
9.50% Senior Subordinated Notes (the "9.50% Notes") due July 2007. The 9.50%
Notes require semi-annual interest payments in January and July of each year
through July 2007, at which time the entire principal balance becomes due and
payable. The 9.50% Notes contain certain restrictive covenants regarding, among
other things, incurrence of debt, sales of assets, mergers and consolidations
and limitations on restricted payments (as defined in the indenture relating to
the 9.50% Notes). The 9.50% Notes may be redeemed at the Company's option
anytime after July 15, 2002 at redemption prices ranging from 104.75% in 2002 to
100% in 2005 and thereafter. The net proceeds from this offering were used to
reduce outstanding indebtedness under the Company's bank credit facility.
On December 1, 1997, the Company redeemed $185 million principal amount
of 11% Senior Subordinated Notes. In connection with the redemption, the Company
incurred an extraordinary loss on the early extinguishment of debt of $7.2
million (net of $3.9 million in tax benefits). The Company funded the redemption
with borrowings under the bank credit facility.
The estimated fair value of the Company's long-term debt at December
31, 1999 was approximately $976 million, versus its book value of $984 million.
At December 31, 1998, the estimated fair value of the Company's long-term debt
was approximately $788 million, versus its book value of $777 million. The
estimated fair value amounts were based on quoted market prices on or about
December 31, 1999 and 1998 for the Company's debt securities that are traded.
For the debt securities that are not traded, fair value was based on estimated
discounted cash flows using current rates offered to the Company for debt
securities having the same remaining maturities.
Interest rates on the Company's other long-term debt range from 6.9% to
8.1%. Management believes the Company and its subsidiaries are in compliance
with all covenants contained in its long-term debt agreements at December 31,
1999.
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The scheduled maturities of long-term debt for the years ending December 31
are as follows:
(IN THOUSANDS)
--------------
2000........................... $1,744
2001........................... 1,486
2002........................... 1,455
2003........................... 723,487
2004........................... 522
Thereafter..................... 255,199
-------
Total................ $983,893
========
NOTE 9. INTEREST RATE SWAP AGREEMENT
On December 31, 1997, the Company entered into an interest rate swap
agreement for a notional amount of $100 million. The agreement called for the
Company to swap its variable LIBOR rate for a fixed LIBOR rate of 5.54%, which
resulted in an initial gain of approximately $0.1 million which was deferred and
was being amortized over the life of the agreement. The variable LIBOR rate
readjusted each quarter and the agreement was canceled on December 31, 1999, per
the terms of the agreement as the LIBOR rate exceeded 5.99%. Any differential
between the amounts to be paid or received, as a result of this swap agreement,
was recorded as interest expense or an offset to interest expense during the
period of settlement. Net swap settlements during the years ended December 31,
1999 and 1998 had virtually no impact on interest expense.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Future minimum lease payments required under noncancelable operating
leases (principally for land) as of December 31, 1999 are as follows:
(IN THOUSANDS)
--------------
2000.......................... $4,601
2001.......................... 3,376
2002.......................... 2,649
2003.......................... 2,144
2004.......................... 1,860
Thereafter.................... 69,912
-------
Total.................. $84,542
=======
Rent expense for the years ended December 31, 1999 and 1998, the six
month period ended December 31, 1997 and the fiscal year ended June 30, 1997 was
$4.4 million, $3.2 million, $1.8 million and $3.2 million, respectively, and is
included in selling, general and administrative expenses on the consolidated
statements of operations.
The Company is required to pay, to the City of Kenner, Louisiana, a
boarding fee of $2.50 for each passenger boarding the Company's Treasure Chest
riverboat casino during the year. The future minimum payment due in 2000 to the
City of Kenner, based upon a portion of actual passenger counts from the prior
year, is approximately $4.4 million.
The Company is subject to various claims and litigation in the normal
course of business. In the opinion of management, all pending legal matters are
either adequately covered by insurance or, if not insured, will not have a
material adverse impact on the Company's consolidated financial statements.
NOTE 11. EMPLOYEE BENEFIT PLANS
The Company contributes to multi-employer pension plans under various
union agreements. Contributions, based on wages paid to covered employees,
totaled approximately $2.3 million, $2.4 million, $1.2 million and $2.2 million
for the years ended December 31, 1999 and 1998, the six month period ended
December 31, 1997 and for the fiscal year ended June 30, 1997, respectively. The
Company's share of the unfunded liability related to multi-employer plans, if
any, is not determinable.
The Company has retirement savings plans under Section 401(k) of the
Internal Revenue Code covering its non-union employees. The plans allow
employees to defer up to the lesser of the Internal Revenue Code prescribed
maximum amount or 15% of their income on a pre-tax basis through contributions
to the plans. The Company expensed voluntary contributions of $2.8 million, $2.8
million, $1.4 million and $2.6 million for the years ended December 31, 1999 and
1998, the six month period ended December 31, 1997 and for the fiscal year ended
June 30, 1997, respectively, to the Company's 401(k) profit-sharing plans and
trust.
65
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NOTE 12. INCOME TAXES
A summary of the provision (benefit) for income taxes is as follows:
YEAR ENDED SIX MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
-------------------------- DECEMBER 31, JUNE 30,
1999 1998 1997 1997
-------- -------- ------------ -----------
(IN THOUSANDS)
Current
Federal .......... $ 5,845 $ (7,021) $ 5,671 $ 7,009
State ............ 1,740 1,465 1,091 1,045
-------- -------- -------- --------
7,585 (5,556) 6,762 8,054
-------- -------- -------- --------
Deferred
Federal .......... 18,697 25,532 1,833 (43,899)
State ............ 1,313 1,315 141 1,820
-------- -------- -------- --------
20,010 26,847 1,974 (42,079)
-------- -------- -------- --------
Total $ 27,595 $ 21,291 $ 8,736 $(34,025)
======== ======== ======== ========
The following table provides a reconciliation between the federal
statutory rate and the effective income tax rate from continuing operations
where both are expressed as a percentage of income.
DECEMBER 31, JUNE 30,
-------------- -------------
1999 1998 1997 1997
---- ---- ---- ----
Tax provision at statutory rate .......... 35.0% 35.0% 35.0% (35.0)%
Increase/(decrease) resulting from:
State income tax, net of federal benefit 2.9 3.6 3.8 1.7
Licensing expenditures for new
jurisdictions ........................ 0.4 1.1 0.5 0.3
Company provided benefits .............. 0.3 1.9 1.8 0.9
Other, net ............................. 2.2 1.1 0.8 (0.2)
---- ---- ---- ----
Total .......................... 40.8% 42.7% 41.9% (32.3)%
==== ==== ==== ====
The tax items comprising the Company's net deferred tax liability are
as follows:
DECEMBER 31,
-------------------
1999 1998
------- -------
(IN THOUSANDS)
Deferred tax liabilities:
Difference between book and tax basis of property . $44,645 $38,113
Difference between book and tax basis of
amortizable assets ................................ 10,855 9,385
Other ............................................. 4,469 1,469
------- -------
Gross deferred liability .......................... 59,969 48,967
------- -------
Deferred tax assets:
Tax credit carryforward ........................... 12,600 6,407
Net operating loss carryforward ................... 2,774 17,131
Provision for doubtful accounts ................... 1,516 1,376
Reserve differential for gaming activities ........ 982 1,392
Preopening expense amortized for tax purposes ..... 666 1,370
Other ............................................. 1,720 1,590
------- -------
Gross deferred tax asset .......................... 20,258 29,266
------- -------
Net deferred tax liability ................ $39,711 $19,701
======= =======
At December 31, 1999 and 1998, the Company had approximately $8.0
million and $58.0 million, respectively, of federal tax net operating loss
carryforwards which begin to expire in the year 2018. Additionally, $8.0 million
of net operating losses was carried back to the short year ended December 31,
1997 and the fiscal year ended June 30, 1997. The Company also generated
approximately $6.0 million of Illinois state tax net operating loss
carryforwards in 1998 which were fully utilized to offset Illinois state taxable
income in 1999.
66
67
In 1998, the Company charged off a state tax net operating loss
carryforward generated in connection with its operations in Kansas City,
Missouri. The Company is no longer conducting business in Missouri and will not
utilize the carryforward in future years. The carryforward was fully reserved in
prior years and the charge will have no effect on the current or future tax
provisions.
The Internal Revenue Service has completed examinations of the
Company's federal consolidated income tax returns through the fiscal year ended
June 30, 1992. The Company is currently under examination for fiscal years ended
June 30, 1993 and 1994. The Internal Revenue Service has proposed adjustments in
connection with the examination of the 1993 and 1994 returns but no final
determinations have been made. In the opinion of management, any tax liability
arising from these examinations will not have a material adverse impact on the
Company's consolidated financial statements.
NOTE 13. STOCKHOLDERS' EQUITY AND STOCK INCENTIVE PLANS
Employee Stock Purchase Plan
Under the terms of the Company's Employee Stock Purchase Plan (the
"Plan"), eligible employees had been able to purchase the Company's common
stock, semi-annually, through payroll deductions, at 85% of the market price
either on the purchase date or the offering date, whichever price is lower. The
Company canceled the Plan on July 1, 1999.
Stock Options
As of December 31, 1999, the Company had in effect various stock option
plans. Stock options awarded under these plans are granted primarily to
employees and directors of the Company. The maximum number of shares of common
stock available for issuance under these plans is approximately 7.1 million
shares.
Options granted under the plans generally become exercisable ratably
over a three or four year period from the date of grant. Options granted under
the plans have an exercise price equal to the market price of the Company's
common stock on the date of grant and expire no later than ten years after the
date of grant. In May 1997, the Board of Directors of the Company authorized the
repricing of certain options. The effect of the repricing resulted in the
cancellation of 2,274,033 options and the reissuance of 1,277,971 options with a
price equal to the market value of the common stock at the date of repricing.
All repriced options became fully vested and exercisable on December 31, 1998.
Summarized information for the stock options plans is as follows:
OPTION
OPTIONS PRICES
---------- --------------
Options outstanding at July 1, 1996........ 3,904,587 $13.25--$18.50
Options granted............................ 2,841,671 5.50-- 11.50
Options canceled........................... (2,677,087) 13.25-- 17.00
---------- --------------
Options outstanding at June 30, 1997....... 4,069,171 $ 5.50--$18.50
Options granted............................ 706,000 5.75-- 8.25
Options canceled........................... (73,161) 5.75-- 18.50
--------- --------------
Options outstanding at December 31, 1997... 4,702,010 $ 5.50--$17.00
Options granted............................ 1,112,600 4.56-- 7.50
Options canceled........................... (115,400) 4.56-- 13.63
--------- --------------
Options outstanding at December 31, 1998... 5,699,210 $ 4.56--$17.00
Options granted............................ 1,079,000 5.56-- 6.56
Options canceled........................... (317,909) 4.56-- 17.00
Options exercised.......................... (20,438) 4.56-- 5.75
--------- --------------
Options outstanding at December 31, 1999... 6,439,863 $ 4.56--$17.00
========= ==============
Exercisable options at December 31, 1999... 4,469,792
=========
Options available for grant at
December 31, 1999.......................... 637,365
=========
67
68
The following table summarizes the information about stock options
outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ------------------------
WEIGHTED AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------
$ 4.56--$ 5.75 3,863,493 7.50 $ 5.39 1,916,671 $5.54
6.56-- 14.38 1,591,970 6.57 9.37 1,568,721 9.40
17.00-- 17.00 984,400 3.79 17.00 984,400 17.00
--------- ---- ------ --------- -----
6,439,863 6.70 $ 8.15 4,469,792 $9.42
========= ==== ====== ========= =====
During the fiscal year ended June 30, 1997, the Company adopted the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 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
Principle Board Opinion No. 25 ("APB No. 25"). The Company has elected to
continue to account for employee stock options in accordance with APB No. 25.
The following table discloses the Company's pro forma net income (loss)
and net income (loss) per share assuming compensation cost for employee stock
options had been recognized under SFAS No. 123. In addition, the table includes
the excess of the compensation cost under SFAS No. 123 over the cost recognized
related to the Employee Stock Purchase Plan. 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 for the
options granted since July 1, 1995.
YEAR ENDED SIX MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
-------------------- DECEMBER 31, JUNE 30,
1999 1998 1997 1997
------- ------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Income (loss) before cumulative effect
and extraordinary items
As reported ............................ $40,039 $28,600 $12,100 $(71,423)
Pro forma .............................. 38,768 26,694 10,904 (72,555)
Net income (loss)
As reported ............................ $38,301 $28,600 $ 4,860 $(77,492)
Pro forma .............................. 37,030 26,694 3,664 (78,624)
Basic and diluted income (loss) per share
before cumulative effect and
extraordinary items
As reported............................. $ 0.65 $ 0.46 $ 0.20 $ (1.19)
Pro forma .............................. 0.62 0.43 0.18 (1.20)
Basic and diluted net income (loss)
per share
As reported ............................ $ 0.62 $ 0.46 $ 0.08 $ (1.29)
Pro forma .............................. 0.60 0.43 0.06 (1.31)
Weighted-average assumptions
Expected stock price volatility ........ 64.56% 57.16% 38.48% 38.48%
Risk-free interest rate ................ 6.65% 5.02% 6.05% 6.05%
Expected option lives (years) .......... 2.82 3.39 2.02 2.54
Estimated fair value of options granted $ 2.55 $ 1.83 $ 1.79 $ 2.13
Because the accounting method prescribed by SFAS No. 123 is not
applicable to options granted prior to July 1, 1995, the compensation cost
reflected in the pro forma amounts shown above may not be representative of that
to be expected in future years.
NOTE 14. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" for the year ended December 31, 1998. This
statement redefines how operating segments are determined and requires
qualitative disclosure of certain financial and descriptive information about a
company's operating segments.
The Company's management reviews the results of operations, certain
assets, and additions to property and equipment based on four distinct
geographic gaming market segments: the Stardust Resort and Casino on the Las
Vegas Strip, Boulder Strip Properties, Downtown Properties and Central Region
Properties. As used herein, "Boulder Strip Properties" consist of Sam's Town
Hotel and Gambling Hall, the Eldorado Casino, and Jokers Wild Casino; "Downtown
Properties" consist of the California Hotel and Casino, the Fremont Hotel and
Casino, Main Street Station Casino, Brewery and Hotel and Vacations Hawaii;
"Central Region Properties" consist of Sam's Town Hotel and Gambling Hall
located in Tunica, Mississippi, Sam's Town Kansas City (through July 15, 1998),
Par-A-Dice Hotel and Casino, Treasure Chest Casino, Blue Chip Casino (acquired
November 10, 1999), and management fee income from Silver Star Resort and
Casino.
68
69
YEAR ENDED SIX MONTHS FISCAL
DECEMBER 31, ENDED YEAR ENDED
----------------------- DECEMBER 31, JUNE 30,
1999 1998 1997 1997
--------- -------- --------- ---------
(IN THOUSANDS)
Casino Revenue
Stardust ............................... $ 98,926 $107,857 $ 53,974 $ 114,571
Boulder Strip Properties ............... 147,855 147,104 69,188 142,264
Downtown Properties .................... 133,138 127,948 56,812 109,739
--------- -------- --------- ---------
Nevada Region ............................ 379,919 382,909 179,974 366,574
Central Region ........................... 353,758 339,215 143,733 207,208
--------- -------- --------- ---------
Total casino revenue ........... $ 733,677 $722,124 $ 323,707 $ 573,782
========= ======== ========= =========
EBITDA(1)
Stardust ............................... $ 14,403 $ 22,114 $ 14,061 $ 35,028
Boulder Strip Properties ............... 34,517 39,500 17,824 41,717
Downtown Properties .................... 38,649 28,314 8,886 21,067
--------- -------- --------- ---------
Nevada Region ............................ 87,569 89,928 40,771 97,812
Central Region ........................... 150,516 133,086 61,603 84,157
--------- -------- --------- ---------
Property EBITDA ........................ 238,085 223,014 102,374 181,969
--------- -------- --------- ---------
Other Costs and Expenses
Corporate expense ...................... 25,867 19,994 9,131 24,333
Depreciation and amortization .......... 74,118 73,407 35,097 67,242
Impairment and restructuring charges ... -- 5,925 -- 131,339
Preopening expense ..................... 1,489 -- -- 3,481
Other expense, net ..................... 68,977 73,797 37,310 61,022
--------- -------- --------- ---------
Total other costs and expenses . 170,451 173,123 81,538 287,417
--------- -------- --------- ---------
Income (loss) before provision (benefit)
for income taxes and other items ....... 67,634 49,891 20,836 (105,448)
Provision (benefit) for taxes ............ 27,595 21,291 8,736 (34,025)
--------- -------- --------- ---------
Income (loss) before cumulative effect and
extraordinary items .................... 40,039 28,600 12,100 (71,423)
Cumulative effect, net of tax ............ (1,738) -- -- --
Extraordinary items, net of tax .......... -- -- (7,240) (6,069)
--------- -------- --------- ---------
Net income (loss) ........................ $ 38,301 $ 28,600 $ 4,860 $ (77,492)
========= ======== ========= =========
DECEMBER 31,
--------------------------
1999 1998
---------- --------
Assets(2)
Stardust ................. $ 173,727 $160,697
Boulder Strip Properties . 177,401 159,930
Downtown Properties ...... 162,007 166,272
---------- --------
Nevada Region .............. 513,135 486,899
Central Region ............. 687,047 432,566
---------- --------
Total properties' assets . 1,200,182 919,465
Corporate Entities ......... 55,491 46,356
---------- --------
Total assets ..... $1,255,673 $965,821
========== ========
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YEAR ENDED SIX MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
------------------- DECEMBER 31, JUNE 30,
1999 1998 1997 1997
------- ------- ------- -----------
Additions to Property and Equipment
Stardust ........................ $25,960 $14,705 $ 1,418 $ 3,630
Boulder Strip Properties ........ 30,201 16,076 1,806 5,084
Downtown Properties ............. 11,917 7,683 7,432 41,410
------- ------- ------- -------
Nevada Region ..................... 68,078 38,464 10,656 50,124
Central Region .................... 17,834 11,658 6,051 34,820
------- ------- ------- -------
Total properties' additions .. 85,912 50,122 16,707 84,944
Corporate Entities ................ 10,976 20,726 1,109 14,263
------- ------- ------- -------
Total additions to property
and equipment ............. $96,888 $70,848 $17,816 $99,207
======= ======= ======= =======
- ----------
(1) EBITDA is earnings before interest, taxes, depreciation, amortization,
preopening expense and impairment and restructuring charges. The
Company believes that EBITDA is a useful financial measurement for assessing
the operating performances of its properties. EBITDA does not represent net
income or cash flows from operating, investing or financing activities as
defined by accounting principles generally accepted in the United States of
America.
(2) Assets represent property and equipment and intangible assets, net of
accumulated depreciation and amortization.
NOTE 15. EARNINGS PER SHARE
A reconciliation of income and shares for basic and diluted earnings
per share is as follows:
YEAR ENDED SIX MONTHS ENDED FISCAL YEAR
DECEMBER 31, DECEMBER 31, ENDED
------------------- ------------------- JUNE 30,
1999 1998 1997 1996 1997
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Income (loss) before cumulative effect and
extraordinary items ...................... $40,039 $28,600 $12,100 $ 2,852 $(71,423)
======= ======= ======= ======= ========
Weighted average common stock outstanding .. 62,124 61,749 61,525 59,150 60,248
Dilutive effect of stock options outstanding 169 101 261 9 --
------- ------- ------- ------- --------
Weighted average common and potential
outstanding shares outstanding............. 62,293 61,850 61,786 59,159 60,248
======= ======= ======= ======= ========
Basic and dilutive earnings per share ...... $ 0.65 $ 0.46 $ 0.20 $ 0.05 $ (1.19)
Options to purchase approximately 4.8 million, 5.7 million, 2.8
million, 3.7 million, and 2.8 million shares of common stock, respectively, at
December 31, 1999, 1998, 1997, 1996 and June 30, 1997 at prices of $5.56 --
$17.00, $5.56 -- $17.00, $7.75 -- $17.00, $13.63 -- $18.50, and $8.38 -- $18.50,
respectively, were outstanding during the period but not included in the
computation of diluted earnings per share because their exercise price was in
excess of the average market price of the common stock for the period presented.
Options to purchase approximately 18,000 shares of common stock at June 30, 1997
are not included in diluted earnings per share due to the net loss before
extraordinary item that was incurred during that year.
NOTE 16. GUARANTOR INFORMATION
The Company's 9.25% Notes (see Note 8) are guaranteed by a majority of
the Company's wholly-owned existing significant subsidiaries. These guaranties
are full, unconditional, and joint and several. In connection with the October
1997 acquisition of Treasure Chest, the Company created significant subsidiaries
that do not guarantee the 9.25% Notes. Prior to October 1997, the assets,
equity, income and cash flows of the non-guarantor subsidiaries represented less
than 3% of the respective consolidated amounts and were inconsequential,
individually and in the aggregate, to the Company. As such, the following
consolidating schedules present separate condensed financial statement
information on a combined basis for the parent only, as well as the Company's
guarantor subsidiaries and non-guarantor subsidiaries, as of and for the years
ended December 31, 1999 and 1998 and as of and for the six month period ended
December 31, 1997. Comparative financial information for the fiscal year ended
June 30, 1997 is not presented since management believes such information is not
material to investors.
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CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
AS OF DECEMBER 31, 1999
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
---------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
ASSETS
Current assets ............................... $ 17,583 $ 100,696 $ 26,599 $ (2,259)(1) $ 142,619
Property and equipment, net .................. 43,559 708,072 149,383 -- 901,014
Other assets and deferred charges, net ....... 1,163,857 (524,688) 464,362 (1,057,842)(1)(2) 45,689
Intangible assets, net ....................... -- 116,107 238,552 -- 354,659
---------- --------- -------- ----------- ----------
Total assets .............................. $1,224,999 $ 400,187 $878,896 $(1,060,101) $1,443,981
========== ========= ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities .......................... $ 36,470 $ 62,993 $ 39,640 $ (2,173)(1) $ 136,930
Long-term debt, net of current maturities .... 914,028 68,088 33 -- 982,149
Deferred income taxes and other liabilities .. 7,522 49,059 1,342 -- 57,923
Stockholders' equity ......................... 266,979 220,047 837,881 (1,057,928)(2) 266,979
---------- --------- -------- ----------- ----------
Total liabilities and stockholders' equity. $1,224,999 $ 400,187 $878,896 $(1,060,101) $1,443,981
========== ========= ======== =========== ==========
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
AS OF DECEMBER 31, 1998
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
-------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
ASSETS
Current assets ............................... $ 23,193 $ 97,564 $ 22,533 $ (1,545)(1) $ 141,745
Property and equipment, net .................. 36,490 687,740 38,977 -- 763,207
Other assets and deferred charges, net ....... 919,264 (515,630) 153,170 (518,114)(1)(2) 38,690
Intangible assets, net ....................... -- 119,365 83,249 -- 202,614
-------- --------- -------- --------- ----------
Total assets .............................. $978,947 $ 389,039 $297,929 $(519,659) $1,146,256
======== ========= ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities .......................... $ 35,301 $ 69,217 $ 15,575 $ (2,440)(1) $ 117,653
Long-term debt, net of current maturities .... 706,373 68,484 33 -- 774,890
Deferred income taxes and other liabilities .. 9,984 16,382 41 -- 26,407
Stockholders' equity ......................... 227,289 234,956 282,280 (517,219)(2) 227,306
-------- --------- -------- --------- ----------
Total liabilities and stockholders' equity $978,947 $ 389,039 $297,929 $(519,659) $1,146,256
======== ========= ======== ========= ==========
- ----------
Elimination Entries
(1) To eliminate intercompany payables and receivables.
(2) To eliminate investment in subsidiaries and subsidiaries' equity.
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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1999
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
--------- --------- -------- --------- -----------
(IN THOUSANDS)
Revenues
Casino .............................. $ -- $ 592,508 $141,169 $ -- $ 733,677
Food and beverage ................... -- 147,927 11,055 -- 158,982
Room ................................ -- 71,478 -- -- 71,478
Other ............................... 11,380 31,990 40,787 (14,169)(1) 69,988
Management fee ...................... 121,996 53,490 24,172 (152,195)(1) 47,463
--------- --------- -------- --------- -----------
Gross revenues ........................ 133,376 897,393 217,183 (166,364) 1,081,588
Less promotional allowances ........... -- 86,920 7,627 -- 94,547
--------- --------- -------- --------- -----------
Net revenues ................ 133,376 810,473 209,556 (166,364) 987,041
--------- --------- -------- --------- -----------
Costs and expenses
Casino .............................. -- 317,769 53,631 -- 371,400
Food and beverage ................... -- 91,739 11,700 -- 103,439
Room ................................ -- 22,532 -- -- 22,532
Other ............................... -- 72,919 45,603 (54,697)(1) 63,825
Selling, general and administrative . -- 114,949 30,839 -- 145,788
Maintenance and utilities ........... -- 35,164 6,808 -- 41,972
Depreciation and amortization ....... 1,950 61,853 10,315 -- 74,118
Corporate expense ................... 38,226 160 1,649 (14,168)(1) 25,867
Preopening expense .................. 202 -- 1,287 -- 1,489
--------- --------- -------- --------- -----------
Total ....................... 40,378 717,085 161,832 (68,865) 850,430
--------- --------- -------- --------- -----------
Operating income ...................... 92,998 93,388 47,724 (97,499) 136,611
Other income (expense), net ........... (63,898) (6,117) 1,038 -- (68,977)
--------- --------- -------- --------- -----------
Income before income taxes and
cumulative effect .................. 29,100 87,271 48,762 (97,499) 67,634
Provision (benefit) for income taxes .. (10,939) 37,352 1,182 -- 27,595
--------- --------- -------- --------- -----------
Income before cumulative effect ....... 40,039 49,919 47,580 (97,499) 40,039
Cumulative effect, net of taxes ....... (1,738) -- -- -- (1,738)
--------- --------- -------- --------- -----------
Net income ............................ $ 38,301 $ 49,919 $ 47,580 $ (97,499) $ 38,301
========= ========= ======== ========= ===========
- ------------------
Elimination Entries
(1) To eliminate intercompany revenue and expense.
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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
--------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
Revenues
Casino .............................. $ -- $ 601,781 $120,343 $ -- $ 722,124
Food and beverage ................... -- 151,837 9,745 -- 161,582
Room ................................ -- 74,053 -- -- 74,053
Other ............................... 9,517 37,903 35,180 (11,697)(1) 70,903
Management fee ...................... 106,903 47,439 20,174 (134,310)(1) 40,206
--------- --------- -------- --------- -----------
Gross revenues ........................ 116,420 913,013 185,442 (146,007) 1,068,868
Less promotional allowances ........... -- 86,740 7,032 -- 93,772
--------- --------- -------- --------- -----------
Net revenues ................ 116,420 826,273 178,410 (146,007) 975,096
--------- --------- -------- --------- -----------
Costs and expenses
Casino .............................. -- 322,186 44,560 -- 366,746
Food and beverage ................... -- 96,040 10,155 -- 106,195
Room ................................ -- 24,724 -- -- 24,724
Other ............................... -- 77,071 38,424 (49,869)(1) 65,626
Selling, general and administrative . -- 122,759 24,888 -- 147,647
Maintenance and utilities ........... -- 35,625 5,519 -- 41,144
Depreciation and amortization ....... 642 63,718 9,047 -- 73,407
Corporate expense ................... 28,528 1,514 1,649 (11,697)(1) 19,994
Restructuring charge ................ -- 5,925 -- -- 5,925
--------- --------- -------- --------- -----------
Total ....................... 29,170 749,562 134,242 (61,566) 851,408
--------- --------- -------- --------- -----------
Operating income ...................... 87,250 76,711 44,168 (84,441) 123,688
Other income (expense), net ........... (68,204) (6,572) 979 -- (73,797)
--------- --------- -------- --------- -----------
Income before income taxes ............ 19,046 70,139 45,147 (84,441) 49,891
Provision (benefit) for income taxes .. (9,539) 30,825 5 -- 21,291
--------- --------- -------- --------- -----------
Net income ............................ $ 28,585 $ 39,314 $ 45,142 $ (84,441) $ 28,600
========= ========= ======== ========= ===========
- --------------
Elimination Entries
(1) To eliminate intercompany revenue and expense.
73
74
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
--------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
Revenues
Casino ..................................... $ -- $ 303,250 $20,457 $ -- $ 323,707
Food and beverage .......................... -- 77,104 1,554 -- 78,658
Room ....................................... -- 38,330 -- -- 38,330
Other ...................................... 120 22,473 17,444 (963)(1) 39,074
Management fees and joint venture .......... 62,865 21,849 3,729 (68,133)(1) 20,310
-------- --------- ------- -------- ---------
Gross revenues ............................... 62,985 463,006 43,184 (69,096) 500,079
Less promotional allowances .................. -- 43,198 1,110 -- 44,308
-------- --------- ------- -------- ---------
Net revenues .......................... 62,985 419,808 42,074 (69,096) 455,771
-------- --------- ------- -------- ---------
Costs and expenses
Casino ..................................... -- 159,464 7,312 -- 166,776
Food and beverage .......................... -- 52,036 1,721 -- 53,757
Room ....................................... -- 12,958 -- -- 12,958
Other ...................................... -- 38,129 17,057 (22,393)(1) 32,793
Selling, general and administrative ........ -- 63,760 4,701 -- 68,461
Maintenance and utilities .................. -- 18,227 425 -- 18,652
Depreciation and amortization .............. 208 33,276 1,613 -- 35,097
Corporate expense .......................... 3,703 4,668 760 -- 9,131
-------- --------- ------- -------- ---------
Total ................................. 3,911 382,518 33,589 (22,393) 397,625
-------- --------- ------- -------- ---------
Operating income ............................. 59,074 37,290 8,485 (46,703) 58,146
Other expense, net ........................... (24,736) (12,574) -- -- (37,310)
-------- --------- ------- -------- ---------
Income before provision (benefit) for income 34,338 24,716 8,485 (46,703) 20,836
taxes
Provision (benefit) for income taxes ......... (2,258) 10,991 3 -- 8,736
-------- --------- ------- -------- ---------
Income before extraordinary item ............. 36,596 13,725 8,482 (46,703) 12,100
Extraordinary item, net ...................... -- (7,240) -- -- (7,240)
-------- --------- ------- -------- ---------
Net income ................................... $ 36,596 $ 6,485 $ 8,482 $(46,703) $ 4,860
======== ========= ======= ======== =========
- --------------
Elimination Entries
(1) To eliminate intercompany revenue and expense.
74
75
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1999
COMBINED
COMBINED NON-
PARENT GUARANTORS GUARANTORS CONSOLIDATED
--------- --------- --------- ---------
(IN THOUSANDS)
Cash flows from operating activities .................. $(270,556) $ 148,012 $ 280,202 $ 157,658
--------- --------- --------- ---------
Cash flows from investing activities
Proceeds from sale of Sam's Town Kansas City's assets -- 2,000 -- 2,000
Net cash paid for acquisition of Blue Chip Casino ... -- -- (261,195) (261,195)
Investment in and advances to unconsolidated
subsidiaries ...................................... -- (266) (4,451) (4,717)
Acquisition of property, equipment and other assets . (8,892) (80,906) (1,921) (91,719)
--------- --------- --------- ---------
Net cash used in investing activities ................. (8,892) (79,172) (267,567) (355,631)
--------- --------- --------- ---------
Cash flows from financing activities
Payments on long-term debt .......................... (1,550) (408) -- (1,958)
Receipt/(payment) of dividends ...................... 69,896 (61,169) (8,727) --
Net borrowings under credit agreements .............. 209,000 -- -- 209,000
Proceeds from issuance of common stock .............. 1,186 -- -- 1,186
--------- --------- --------- ---------
Net cash provided by (used in) financing activities ... 278,532 (61,577) (8,727) 208,228
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents .. (916) 7,263 3,908 10,255
Cash and cash equivalents, beginning of period ........ 1,054 55,492 19,391 75,937
--------- --------- --------- ---------
Cash and cash equivalents, end of period .............. $ 138 $ 62,755 $ 23,299 $ 86,192
========= ========= ========= =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
COMBINED
COMBINED NON-
PARENT GUARANTORS GUARANTORS CONSOLIDATED
-------- -------- -------- ---------
(IN THOUSANDS)
Cash flows from operating activities .................. $ 64,427 $ 37,873 $ 19,449 $ 121,749
-------- -------- -------- ---------
Cash flows from investing activities
Proceeds from sale of Sam's Town Kansas City's assets -- 10,500 -- 10,500
Acquisition of property, equipment and other assets . (11,514) (54,467) (2,030) (68,011)
-------- -------- -------- ---------
Net cash used in investing activities ................. (11,514) (43,967) (2,030) (57,511)
-------- -------- -------- ---------
Cash flows from financing activities
Proceeds from issuance of long-term debt ............ -- 8,000 -- 8,000
Payments on long-term debt .......................... (2,218) (562) (129) (2,909)
Receipt/(payment) of dividends ...................... 19,196 (4,169) (15,027) --
Net borrowings under credit agreements .............. (73,000) -- -- (73,000)
Proceeds from issuance of common stock .............. 1,331 -- -- 1,331
-------- -------- -------- ---------
Net cash provided by (used in) financing activities ... (54,691) 3,269 (15,156) (66,578)
-------- -------- -------- ---------
Net increase (decrease) in cash and cash equivalents .. (1,778) (2,825) 2,263 (2,340)
Cash and cash equivalents, beginning of period ........ 2,832 58,317 17,128 78,277
-------- -------- -------- ---------
Cash and cash equivalents, end of period .............. $ 1,054 $ 55,492 $ 19,391 $ 75,937
======== ======== ======== =========
75
76
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
--------- --------- --------- ------- ---------
(IN THOUSANDS)
Cash flows from operating activities ................ $(314,554) $ 249,131 $ 115,280 $ 7,615(1) $ 57,472
--------- --------- --------- ------- ---------
Cash flows from investing activities
Net cash paid for Treasure Chest Casino L.L.C ..... -- -- (103,040) -- (103,040)
Acquisition of property, equipment and other assets (1,183) (20,489) (514) -- (22,186)
--------- --------- --------- ------- ---------
Net cash used in investing activities ............... (1,183) (20,489) (103,554) -- (125,226)
--------- --------- --------- ------- ---------
Cash flows from financing activities
Proceeds from issuance of long-term debt .......... 244,525 -- -- -- 244,525
Payments on long-term debt ........................ (346) (462) (95) -- (903)
Early retirement of long-term debt ................ -- (192,631) -- -- (192,631)
Net borrowings (payments) under credit agreements . 73,469 (26,854) -- (7,615)(1) 39,000
Proceeds from issuance of common stock ............ 820 -- -- -- 820
--------- --------- --------- ------- ---------
Net cash provided by (used in) financing activities . 318,468 (219,947) (95) (7,615) 90,811
--------- --------- --------- ------- ---------
Net increase in cash and cash equivalents ........... 2,731 8,695 11,631 -- 23,057
Cash and cash equivalents, beginning of period ...... 101 49,622 5,497 -- 55,220
--------- --------- --------- ------- ---------
Cash and cash equivalents, end of period ............ $ 2,832 $ 58,317 $ 17,128 $-- $ 78,277
========= ========= ========= ======= =========
- -------------
Elimination Entries
(1) To eliminate intercompany payments of debt.
76
77
SELECTED QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues .................................. $ 243,258 $241,936 $239,515 $262,332 $ 987,041
Operating income .............................. 35,419 33,066 33,708 34,418 136,611
Income before income tax and cumulative effect
of a change in accounting principle ......... 18,345 16,450 17,306 15,533 67,634
Cumulative effect of a change in accounting for
start-up activities, net of tax ........... (1,738) -- -- -- (1,738)
Net income .................................... $ 8,902 $ 9,705 $ 10,337 $ 9,357 $ 38,301
--------- -------- -------- -------- ---------
Basic and diluted net income per common share:
Income before cumulative effect ............... $ 0.17 $ 0.16 $ 0.17 $ 0.15 $ 0.65
Cumulative effect, net of tax ................. (0.03) -- -- -- (0.03)
--------- -------- -------- -------- ---------
Net income .................................... $ 0.14 $ 0.16 $ 0.17 $ 0.15 $ 0.62
========= ======== ======== ======== =========
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues .................................. $ 250,042 $245,485 $234,593 $244,976 $ 975,096
Operating income .............................. 35,235 25,733 28,772 33,948 123,688
Net income .................................... $ 9,324 $ 4,034 $ 5,937 $ 9,305 $ 28,600
--------- -------- -------- -------- ---------
Basic and diluted net income per common share:
Net income .................................... $ 0.15 $ 0.07 $ 0.10 $ 0.15 $ 0.46
========= ======== ======== ======== =========
SIX MONTHS ENDED DECEMBER 31, 1997
-------------------------------------
FIRST SECOND TOTAL
-------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues ........................................ $217,748 $ 238,023 $ 455,771
Operating income .................................... 28,011 30,135 58,146
Income before income tax and extraordinary item ..... 9,878 10,958 20,836
Extraordinary item, net of tax ...................... -- (7,240) (7,240)
Net income (loss) ................................... $ 5,876 $ (1,016) $ 4,860
-------- --------- ---------
Basic and diluted net income (loss) per common share:
Income before extraordinary item .................... $ 0.10 $ 0.10 $ 0.20
Extraordinary item, net of tax ...................... -- (0.12) (0.12)
-------- --------- ---------
Net income (loss) ................................... $ 0.10 $ (0.02) $ 0.08
======== ========= =========
FISCAL YEAR ENDED JUNE 30, 1997
-------------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues .......................... $ 185,891 $ 198,267 $ 219,154 $215,947 $ 819,259
Operating income (loss) ............... 11,121 20,360 (98,740) 22,833 (44,426)
Income (loss) before income tax and
extraordinary item .................. (1,960) 6,714 (115,941) 5,739 (105,448)
Extraordinary item, net of tax ........ -- (6,069) -- -- (6,069)
Net income (loss) ..................... $ (1,215) $ (2,002) $ (77,712) $ 3,437 $ (77,492)
--------- --------- --------- -------- ---------
Basic and diluted net income (loss) per
common share:
Income (loss) before extraordinary item $ (0.02) $ 0.07 $ (1.27) $ 0.06 $ (1.19)
Extraordinary item, net of tax ........ -- (0.10) -- -- (0.10)
--------- --------- --------- -------- ---------
Net income (loss) ..................... $ (0.02) $ (0.03) $ (1.27) $ 0.06 $ (1.29)
========= ========= ========= ======== =========
77
78
(C) EXHIBITS.
EXHIBIT
NUMBER DOCUMENT
----------- --------
2.1(5) Stock Purchase Agreement, dated as of April 26, 1996, by and among the Company, Par-A-Dice Gaming
Corporation, East Peoria Hotel, Inc., and the Owners of all the Capital Stock of Par-A-Dice Gaming
Corporation and East Peoria Hotel.
2.2(2) Agreement and Plan of Reorganization dated as of June 25, 1993, by and among Eldorado, Inc., the
Company, CH&C and certain stockholders and noteholders of Eldorado, Inc.
2.4(12) Purchase Agreement, dated as of July 11, 1997, by and among the Company, Boyd Kenner, Inc., Boyd
Louisiana, L.L.C., Treasure Chest Casino, L.L.C., and certain members of Treasure Chest Casino,
L.L.C.
2.5(13) First Amendment to Purchase Agreement, dated as of September 9, 1997 among the Company, Boyd Kenner,
Inc., Boyd Louisiana, L.L.C., Treasure Chest Casino, L.L.C. and the Selling members.
3.1(9) Restated Articles of Incorporation.
3.2(16) Restated Bylaws.
4.1(13) Registration Agreement, dated July 17, 1997, among the Company, Salomon Brothers Inc., UBS
Securities LLC and CIBC Wood Gundy Securities Corp.
4.2(14) Form of Indenture relating to $200,000,000 aggregate principal amount of 9.25% Senior Subordinated
Notes due 2003, including the Form of Note.
4.3(13) Form of Indenture relating to 9.50% Senior Subordinated Notes due 2007, dated as of July 22, 1997,
between the Company and State Street Bank and Trust Company, including the Form of Note.
4.4(13) First Supplemental Indenture, among the Company, as Issuer, certain subsidiaries of the Company, as
Guarantors, and the Bank of New York, as Trustee, dated as of December 31, 1996.
4.5(17) Amended 1993 Directors' Non-Qualified Stock Option Plan
10.1(1) Ninety-Nine Year Lease dated June 30, 1954, by and among Fremont Hotel, Inc., and Charles L. Ronnow
and J.L. Ronnow, and Alice Elizabeth Ronnow.
10.2(1) Lease Agreement dated October 31, 1963, by and between Fremont Hotel, Inc. and Cora Edit Garehime.
10.3(1) Lease Agreement dated December 31, 1963, by and among Fremont Hotel, Inc., Bank of Nevada and Leon
H. Rockwell, Jr.
10.4(1) Lease Agreement dated June 7, 1971, by and among Anthony Antonacci, Margaret Fay Simon and Bank of
Nevada, as Co-Trustees under Peter Albert Simon's Last Will and Testament, and related Assignment of
Lease dated February 25, 1985 to Sam-Will, Inc. and Fremont Hotel, Inc.
10.5(4) Lease Agreement dated July 25, 1973, by and between CH&C and William Peccole, as Trustee of the
Peter Peccole 1970 Trust.
10.6(1) Lease Agreement dated July 1, 1974, by and among Fremont Hotel, Inc. and Bank of Nevada, Leon H.
Rockwell, Jr. and Margorie Rockwell Riley.
10.7(1) Ground Lease Agreement dated July 5, 1978, by and between CH&C, and Irene Elizabeth Carey, as
Trustee of the Carey Survivor's Trust U/A October 18, 1972 and Irene Elizabeth Carey, as Trustee of
the Carey Family Trust U/A October 18, 1972.
10.8(1) Ninety-Nine Year Lease dated December 1, 1978 by and between Matthew Paratore, and George W. Morgan
and LaRue Morgan, and related Lease Assignment dated November 10, 1987 to Sam-Will, Inc., d/b/a/
Fremont Hotel and Casino.
10.9(1) Implemented Proposal dated June 15, 1992, by and between Stardust Hotel and Casino and the Back-End
Teamsters Local Union No. 995.
10.10(1) Implemented Proposal dated June 15, 1992, by and between Fremont Hotel and Casino and the Back-End
Teamsters Local Union No. 995.
10.11(2) Management Agreement dated March 11, 1993, by and between Mississippi Band of Choctaw Indians and
Boyd Mississippi, Inc.
10.12(4) Addendum to Management Agreement dated November 24, 1993, by and between Mississippi Band of Choctaw
Indians and Boyd Mississippi, Inc.
78
79
EXHIBIT
NUMBER DOCUMENT
----------- --------
10.13(2) Casino Management Agreement dated August 30, 1993, by and between Treasure Chest Casino, L.L.C. and
Boyd Kenner, Inc.
10.14(4) Amended and Restated Operating Agreement dated August 5, 1994, by and between Treasure Chest Casino,
L.L.C. and Boyd Kenner, Inc.
10.15(4) Development Agreement dated June 6, 1994, by and among the Company, Boyd Kansas City, Inc. and Port
Authority of Kansas City, Missouri.
10.16(2) Form of Indemnification Agreement.
10.17(2)* 1993 Flexible Stock Incentive Plan and related agreements.
10.18(2)* 1993 Directors Non-Qualified Stock Option Plan and related agreements.
10.19(2)* 1993 Employee Stock Purchase Plan and related agreement.
10.20(1) 401(k) Profit Sharing Plan and Trust.
10.21(6) Joint Venture Agreement of Stardust A.C., dated as of May 29, 1996, by and between MAC, Corp., a New
Jersey Corporation, which is a wholly-owned subsidiary of Mirage Resorts Incorporated, a Nevada
Corporation, and Grand K, Inc., a Nevada Corporation, which is a wholly-owned subsidiary of the
Company. (Certain portions of this exhibit have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential treatment for this
Agreement.)
10.22(3) Amended and Restated Joint Venture Agreement of Stardust A.C.
10.23(7) Credit Agreement dated as of June 19, 1996, by and among the Company and California Hotel and Casino
as the Borrowers, certain commercial lending institutions as the Lenders, Canadian Imperial Bank of
Commerce as the Agent, Bank of America National Trust Savings Association and Wells Fargo Bank N.A.
as Co-Managing Agents and Bankers Trust Company, Credit Lyonnais and Societe Generale as Co-Agents.
10.24(8) Property Purchase Agreement dated as of August 9, 1996, by and between Steamboat Station Company, a
Nevada general partnership, and Boyd Reno, Inc., a Nevada corporation and wholly-owned subsidiary of
the Company.
10.25(10)* Boyd Gaming Corporation 1996 Stock Incentive Plan.
10.26(11) First Amendment to Credit Agreement, dated as of March 28, 1997, among Boyd Gaming Corporation and
California Hotel and Casino, and Wells Fargo Bank, N.A., as Swingline Lender, Canadian Imperial Bank
of Commerce, ("CIBC") as letter of credit issuer, Bank of America National Trust and Savings
Association and Wells Fargo Bank, N.A., as co-managing agents, Bankers Trust Company, Credit
Lyonnais, Los Angeles Branch and Societe Generale as co-agents, and CIBC as administrative agent and
collateral agent.
10.27(13) Second Amendment to Credit Agreement, dated as of June 11, 1997, among the Company and California
Hotel and Casino, and Wells Fargo Bank, N.A., as Swingline Lender, Canadian Imperial Bank of
Commerce, ("CIBC") as letter of credit issuer, Bank of America National Trust and Saving Association
and Wells Fargo Bank, N.A., as co-managing agents, Bankers Trust Company, Credit Lyonnais Los
Angeles Branch and Societe Generale as co-agents, and CIBC as administrative agent and collateral
agent.
10.28(13) Third Amendment to Credit Agreement, dated as of June 24, 1997, among the Company and California
Hotel and Casino, and Wells Fargo Bank, N.A., as Swingline Lender, Canadian Imperial Bank of
Commerce, ("CIBC") as letter of credit issuer, Bank of America National Trust and Saving Association
and Wells Fargo Bank, N.A., as co-managing agents, Bankers Trust Company, Credit Lyonnais Los
Angeles Branch and Societe Generale as co-agents, and CIBC as administrative agent and collateral
agent.
10.29(18) Unit Purchase Agreement among the Company, Boyd Indiana, Inc., Blue Chip Casino, Inc., Blue Chip
Casino, LLC, and certain individuals, dated as of June 27, 1999.
10.30(18) First Amended and Restated Credit Agreement, dated as of June 30, 1999 among the Company as the
Borrower, Certain Commercial Lending Institutions, as the Lenders, Canadian Imperial Bank of
Commerce, as L/C Issuer and Administrative Agent, Wells Fargo Bank N.A., as Swingline Lender and
Syndication Agent, and Bank of America National Trust and Savings Association, as Documentation
Agent.
10.31(19) Termination and Transition Agreement among the Company and the Mississippi Band of Choctaw Indians,
dated as of October 20, 1999.
21.1(15) Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
79
80
EXHIBIT
NUMBER DOCUMENT
----------- --------
24(15) Powers of Attorney.
27 Financial Data Schedule
- ----------
* Management contracts or compensatory plans or arrangements.
(1) Incorporated by reference to the Registration Statement on Form S-1, File
No. 33-51672, of California Hotel and Casino and California Hotel Finance
Corporation, which became effective on November 18, 1992.
(2) Incorporated by reference to the Company's Statement on Form S-1, File No.
33-64006, which became effective on October 15, 1993.
(3) Incorporated by reference to the Company's Current Report on Form 8-K
dated July 14, 1998.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1995.
(5) Incorporated by reference to the Company's Current Report on Form 8-K
dated April 26, 1996.
(6) Incorporated by reference to the Company's Current Report on Form 8-K
dated June 7, 1996.
(7) Incorporated by reference to Exhibit 10.1 of the Company's Current Report
on Form 8-K dated June 19, 1996.
(8) Incorporated by reference to the Company's Exhibit 2.1 of Current Report
on Form 8-K dated August 16, 1996.
(9) Incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1996.
(10) Incorporated by reference to Appendix A of the Company's October 22, 1996
Proxy Statement for the 1996 Annual Meeting of Stockholders.
(11) Incorporated by reference to Exhibit 10.59 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.
(12) Incorporated by reference to Exhibit 2.1 of the Company's Current Report
on Form 8-K dated July 11, 1997.
(13) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1997.
(14) Incorporated by reference to the Company's Registration Statement on Form
S-3, File No. 333-0555.
(15) Incorporated by reference to the Company's Annual Report on Form 10-K for
the transition period from July 1, 1997 to December 31, 1997.
(16) Incorporated by reference to Exhibit 3.2 of the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999.
(17) Incorporated by reference to the Registration Statement on Form S-8, File
No. 333-79895, dated June 3, 1999.
(18) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999.
(19) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999.
- ------------------------
80
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on March 30,
2000.
BOYD GAMING CORPORATION
By: /s/ ELLIS LANDAU
---------------------------------------
Ellis Landau
Executive Vice President,
Chief Financial Officer,
Treasurer (Principal Financial Officer)
81
82
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William S. Boyd and Ellis Landau, and
each of them, his of her attorneys-in-fact, each with the power of substitution,
for him or her in any and all capacities, to sign any amendments to this Report
on Form 10-K and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
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 date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ WILLIAM S. BOYD Chairman of the Board of Directors, March 30, 2000
- ------------------------------------- Chief Executive Officer and Director
William S. Boyd (Principal Executive Officer)
/s/ ELLIS LANDAU Executive Vice President, March 30, 2000
- ------------------------------------- Chief Financial Officer and Treasurer
Ellis Landau (Principal Financial Officer)
/s/ DONALD D. SNYDER President and Director March 30, 2000
- -------------------------------------
Donald D. Snyder
/s/ ROBERT L. BOUGHNER Senior Executive Vice President & March 30, 2000
- ------------------------------------- Chief Operating Officer and Director
Robert L. Boughner
/s/ WILLIAM R. BOYD Vice President and Director March 30, 2000
- -------------------------------------
William R. Boyd
/s/ MARIANNE BOYD JOHNSON Vice President and Director March 30, 2000
- -------------------------------------
Marianne Boyd Johnson
/s/ PERRY B. WHITT Director March 30, 2000
- -------------------------------------
Perry B. Whitt
/s/ WARREN L. NELSON Director March 30, 2000
- -------------------------------------
Warren L. Nelson
/s/ PHILIP J. DION Director March 30, 2000
- -------------------------------------
Philip J. Dion
/s/ MICHAEL O. MAFFIE Director March 30, 2000
- -------------------------------------
Michael O. Maffie
/s/ MAJ. GEN. BILLY G. MCCOY, RET. USAF Director March 30, 2000
- ---------------------------------------
Maj. Gen. Billy G. McCoy, Ret. USAF
82
83
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
----------- --------
2.1(5) Stock Purchase Agreement, dated as of April 26, 1996, by and among the Company, Par-A-Dice Gaming
Corporation, East Peoria Hotel, Inc., and the Owners of all the Capital Stock of Par-A-Dice Gaming
Corporation and East Peoria Hotel.
2.2(2) Agreement and Plan of Reorganization dated as of June 25, 1993, by and among Eldorado, Inc., the
Company, CH&C and certain stockholders and noteholders of Eldorado, Inc.
2.4(12) Purchase Agreement, dated as of July 11, 1997, by and among the Company, Boyd Kenner, Inc., Boyd
Louisiana, L.L.C., Treasure Chest Casino, L.L.C., and certain members of Treasure Chest Casino,
L.L.C.
2.5(13) First Amendment to Purchase Agreement, dated as of September 9, 1997 among the Company, Boyd Kenner,
Inc., Boyd Louisiana, L.L.C., Treasure Chest Casino, L.L.C. and the Selling members.
3.1(9) Restated Articles of Incorporation.
3.2(16) Restated Bylaws.
4.1(13) Registration Agreement, dated July 17, 1997, among the Company, Salomon Brothers Inc., UBS
Securities LLC and CIBC Wood Gundy Securities Corp.
4.2(14) Form of Indenture relating to $200,000,000 aggregate principal amount of 9.25% Senior Subordinated
Notes due 2003, including the Form of Note.
4.3(13) Form of Indenture relating to 9.50% Senior Subordinated Notes due 2007, dated as of July 22, 1997,
between the Company and State Street Bank and Trust Company, including the Form of Note.
4.4(13) First Supplemental Indenture, among the Company, as Issuer, certain subsidiaries of the Company, as
Guarantors, and the Bank of New York, as Trustee, dated as of December 31, 1996.
4.5(17) Amended 1993 Directors' Non-Qualified Stock Option Plan
10.1(1) Ninety-Nine Year Lease dated June 30, 1954, by and among Fremont Hotel, Inc., and Charles L. Ronnow
and J.L. Ronnow, and Alice Elizabeth Ronnow.
10.2(1) Lease Agreement dated October 31, 1963, by and between Fremont Hotel, Inc. and Cora Edit Garehime.
10.3(1) Lease Agreement dated December 31, 1963, by and among Fremont Hotel, Inc., Bank of Nevada and Leon
H. Rockwell, Jr.
10.4(1) Lease Agreement dated June 7, 1971, by and among Anthony Antonacci, Margaret Fay Simon and Bank of
Nevada, as Co-Trustees under Peter Albert Simon's Last Will and Testament, and related Assignment of
Lease dated February 25, 1985 to Sam-Will, Inc. and Fremont Hotel, Inc.
10.5(4) Lease Agreement dated July 25, 1973, by and between CH&C and William Peccole, as Trustee of the
Peter Peccole 1970 Trust.
10.6(1) Lease Agreement dated July 1, 1974, by and among Fremont Hotel, Inc. and Bank of Nevada, Leon H.
Rockwell, Jr. and Margorie Rockwell Riley.
10.7(1) Ground Lease Agreement dated July 5, 1978, by and between CH&C, and Irene Elizabeth Carey, as
Trustee of the Carey Survivor's Trust U/A October 18, 1972 and Irene Elizabeth Carey, as Trustee of
the Carey Family Trust U/A October 18, 1972.
10.8(1) Ninety-Nine Year Lease dated December 1, 1978 by and between Matthew Paratore, and George W. Morgan
and LaRue Morgan, and related Lease Assignment dated November 10, 1987 to Sam-Will, Inc., d/b/a/
Fremont Hotel and Casino.
10.9(1) Implemented Proposal dated June 15, 1992, by and between Stardust Hotel and Casino and the Back-End
Teamsters Local Union No. 995.
10.10(1) Implemented Proposal dated June 15, 1992, by and between Fremont Hotel and Casino and the Back-End
Teamsters Local Union No. 995.
10.11(2) Management Agreement dated March 11, 1993, by and between Mississippi Band of Choctaw Indians and
Boyd Mississippi, Inc.
10.12(4) Addendum to Management Agreement dated November 24, 1993, by and between Mississippi Band of Choctaw
Indians and Boyd Mississippi, Inc.
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10.13(2) Casino Management Agreement dated August 30, 1993, by and between Treasure Chest Casino, L.L.C. and
Boyd Kenner, Inc.
10.14(4) Amended and Restated Operating Agreement dated August 5, 1994, by and between Treasure Chest Casino,
L.L.C. and Boyd Kenner, Inc.
10.15(4) Development Agreement dated June 6, 1994, by and among the Company, Boyd Kansas City, Inc. and Port
Authority of Kansas City, Missouri.
10.16(2) Form of Indemnification Agreement.
10.17(2)* 1993 Flexible Stock Incentive Plan and related agreements.
10.18(2)* 1993 Directors Non-Qualified Stock Option Plan and related agreements.
10.19(2)* 1993 Employee Stock Purchase Plan and related agreement.
10.20(1) 401(k) Profit Sharing Plan and Trust.
10.21(6) Joint Venture Agreement of Stardust A.C., dated as of May 29, 1996, by and between MAC, Corp., a New
Jersey Corporation, which is a wholly-owned subsidiary of Mirage Resorts Incorporated, a Nevada
Corporation, and Grand K, Inc., a Nevada Corporation, which is a wholly-owned subsidiary of the
Company. (Certain portions of this exhibit have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential treatment for this
Agreement.)
10.22(3) Amended and Restated Joint Venture Agreement of Stardust A.C.
10.23(7) Credit Agreement dated as of June 19, 1996, by and among the Company and California Hotel and Casino
as the Borrowers, certain commercial lending institutions as the Lenders, Canadian Imperial Bank of
Commerce as the Agent, Bank of America National Trust Savings Association and Wells Fargo Bank N.A.
as Co-Managing Agents and Bankers Trust Company, Credit Lyonnais and Societe Generale as Co-Agents.
10.24(8) Property Purchase Agreement dated as of August 9, 1996, by and between Steamboat Station Company, a
Nevada general partnership, and Boyd Reno, Inc., a Nevada corporation and wholly-owned subsidiary of
the Company.
10.25(10)* Boyd Gaming Corporation 1996 Stock Incentive Plan.
10.26(11) First Amendment to Credit Agreement, dated as of March 28, 1997, among Boyd Gaming Corporation and
California Hotel and Casino, and Wells Fargo Bank, N.A., as Swingline Lender, Canadian Imperial Bank
of Commerce, ("CIBC") as letter of credit issuer, Bank of America National Trust and Savings
Association and Wells Fargo Bank, N.A., as co-managing agents, Bankers Trust Company, Credit
Lyonnais, Los Angeles Branch and Societe Generale as co-agents, and CIBC as administrative agent and
collateral agent.
10.27(13) Second Amendment to Credit Agreement, dated as of June 11, 1997, among the Company and California
Hotel and Casino, and Wells Fargo Bank, N.A., as Swingline Lender, Canadian Imperial Bank of
Commerce, ("CIBC") as letter of credit issuer, Bank of America National Trust and Saving Association
and Wells Fargo Bank, N.A., as co-managing agents, Bankers Trust Company, Credit Lyonnais Los
Angeles Branch and Societe Generale as co-agents, and CIBC as administrative agent and collateral
agent.
10.28(13) Third Amendment to Credit Agreement, dated as of June 24, 1997, among the Company and California
Hotel and Casino, and Wells Fargo Bank, N.A., as Swingline Lender, Canadian Imperial Bank of
Commerce, ("CIBC") as letter of credit issuer, Bank of America National Trust and Saving Association
and Wells Fargo Bank, N.A., as co-managing agents, Bankers Trust Company, Credit Lyonnais Los
Angeles Branch and Societe Generale as co-agents, and CIBC as administrative agent and collateral
agent.
10.29(18) Unit Purchase Agreement among the Company, Boyd Indiana, Inc., Blue Chip Casino, Inc., Blue Chip
Casino, LLC, and certain individuals, dated as of June 27, 1999.
10.30(18) First Amended and Restated Credit Agreement, dated as of June 30, 1999 among the Company as the
Borrower, Certain Commercial Lending Institutions, as the Lenders, Canadian Imperial Bank of
Commerce, as L/C Issuer and Administrative Agent, Wells Fargo Bank N.A., as Swingline Lender and
Syndication Agent, and Bank of America National Trust and Savings Association, as Documentation
Agent.
10.31(19) Termination and Transition Agreement among the Company and the Mississippi Band of Choctaw Indians,
dated as of October 20, 1999.
21.1(15) Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
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24(15) Powers of Attorney.
27 Financial Data Schedule
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* Management contracts or compensatory plans or arrangements.
(1) Incorporated by reference to the Registration Statement on Form S-1, File
No. 33-51672, of California Hotel and Casino and California Hotel Finance
Corporation, which became effective on November 18, 1992.
(2) Incorporated by reference to the Company's Statement on Form S-1, File No.
33-64006, which became effective on October 15, 1993.
(3) Incorporated by reference to the Company's Current Report on Form 8-K
dated July 14, 1998.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1995.
(5) Incorporated by reference to the Company's Current Report on Form 8-K
dated April 26, 1996.
(6) Incorporated by reference to the Company's Current Report on Form 8-K
dated June 7, 1996.
(7) Incorporated by reference to Exhibit 10.1 of the Company's Current Report
on Form 8-K dated June 19, 1996.
(8) Incorporated by reference to the Company's Exhibit 2.1 of Current Report
on Form 8-K dated August 16, 1996.
(9) Incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1996.
(10) Incorporated by reference to Appendix A of the Company's October 22, 1996
Proxy Statement for the 1996 Annual Meeting of Stockholders.
(11) Incorporated by reference to Exhibit 10.59 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.
(12) Incorporated by reference to Exhibit 2.1 of the Company's Current Report
on Form 8-K dated July 11, 1997.
(13) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1997.
(14) Incorporated by reference to the Company's Registration Statement on Form
S-3, File No. 333-0555.
(15) Incorporated by reference to the Company's Annual Report on Form 10-K for
the transition period from July 1, 1997 to December 31, 1997.
(16) Incorporated by reference to Exhibit 3.2 of the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999.
(17) Incorporated by reference to the Registration Statement on Form S-8, File
No. 333-79895, dated June 3, 1999.
(18) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999.
(19) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999.
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