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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _________ to _________.
Commission file number: 1-12168
BOYD GAMING CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0242733
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2950 SOUTH INDUSTRIAL ROAD, LAS VEGAS NV 89109
(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
------------------- -------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
9.25% SENIOR 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 August 29, 1997, 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 $206,372,000.
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.
As of August 29, 1997, the Registrant had outstanding 61,523,988
shares of Common Stock.
Documents Incorporated by Reference into Parts I-III: Portions of the
definitive Proxy Statement for the Registrant's 1997 Annual Meeting of
Stockholders are incorporated by reference into Part III hereof.
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BOYD GAMING CORPORATION
1997 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Page No.
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Item 1. Business............................................................... 1
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 ........................... 48
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .................................................. 48
PART III
Item 10. Directors and Executive Officers of the Registrant .................... 48
Item 11. Executive Compensation ................................................ 48
Item 12. Security Ownership of Certain Beneficial Owners and Management ........ 48
Item 13. Certain Relationships and Related Transactions ........................ 48
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K ..... 48
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PART I
ITEM 1. BUSINESS
GENERAL
Boyd Gaming Corporation is a multi-jurisdictional gaming company which
currently owns or operates twelve casino entertainment facilities. The Company
has operated successfully for more than two decades in the highly competitive
Las Vegas market and has entered five new gaming jurisdictions in the past three
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 Hotel, Casino
and Brewery ("Main Street Station") in downtown Las Vegas. The Company also owns
or manages five facilities in new gaming jurisdictions, all opened during the
last three years. 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 Sam's Town Kansas City, a riverboat gaming and
entertainment complex in Kansas City, Missouri. In December 1996, the Company
completed the acquisition of the Par-A-Dice riverboat casino and hotel in East
Peoria, Illinois ("Par-A-Dice"). The Company manages and owns a minority
interest in the Treasure Chest Casino (the "Treasure Chest"), a riverboat casino
in Kenner, Louisiana, and manages for the Mississippi Band of Choctaw Indians
the Silver Star Resort and Casino (the "Silver Star"), a land-based gaming and
entertainment complex located near Philadelphia, Mississippi. In addition, the
Company has agreed to purchase the remaining 85% interest in Treasure Chest that
it does not now own (the "Remaining Treasure Chest Interests") and the Company
and Mirage Resorts, Inc. ("Mirage") have announced the signing of a joint
venture agreement (the "Mirage Joint Venture") to jointly develop and own a
casino hotel entertainment facility in Atlantic City, New Jersey (the "Atlantic
City Project"). See "-- Investment Considerations -- Expansion". The Company
currently owns or operates an aggregate of 590,000 square feet of casino space,
containing 16,779 slot machines and 565 table games. As such, the Company
derives the majority of its gross revenues from its casino operations, which
produced approximately 64% of gross revenues during the last three fiscal years.
Food and beverage revenue, which produced approximately 17% of gross revenues
during the last three fiscal years, represents the only other revenue source
which produced more than 10% of gross revenues during this time frame. See
"Properties" and "Business -- Properties."
The Company currently conducts substantially all of its business through
seven wholly-owned subsidiaries: California Hotel and Casino ("CH&C"); Boyd
Tunica, Inc. ("Boyd Tunica"); Boyd Kenner, Inc. ("Boyd Kenner"); Boyd
Mississippi, Inc. ("Boyd Mississippi"); Boyd Kansas City, Inc. ("Boyd Kansas
City"), Par-A-Dice Gaming Corporation ("Par-A-Dice Gaming") and East Peoria
Hotel, Inc. ("EPH"). 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 operates the Treasure
Chest and owns a 15% equity interest in Treasure Chest, L.L.C., the owner of the
Treasure Chest; Boyd Mississippi operates Silver Star; and Boyd Kansas City owns
and operates Sam's Town Kansas City. Par-A-Dice Gaming owns and operates the
Par-A-Dice and EPH is the general partner of a limited partnership that owns the
Par-A-Dice Hotel.
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 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.
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 which 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.
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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 and print and
broadcast 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 fiscal 1997, the Company
distributed approximately 14 million pieces of mail to its database customers.
The Company also provides complimentary rooms, food 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/or operates five
properties outside the State of Nevada: Sam's Town Tunica, in Tunica County,
Mississippi; Sam's Town Kansas City, in Kansas City, Missouri; Treasure Chest,
in the western suburbs of New Orleans; Silver Star, in central Mississippi; and
Par-A-Dice in East Peoria, Illinois.
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 87,000 square feet of casino space, a conference center containing
approximately 35,000 square feet of meeting space and a 900-seat showroom. The
casino offers nearly 2,000 slot machines and 79 table games, including tables
featuring "21," craps, roulette, baccarat, mini-baccarat, pai gow, Caribbean
stud and poker, as well as keno. The Stardust features "Enter the Night," a
production show that includes computerized lighting, lasers and digital surround
sound. 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 racing and
sports line service that is quoted throughout the United States and abroad. The
Stardust features more than 2,300 guest rooms, 1,500 in its 32-story hotel
tower. The Stardust complex, which is distinguished by dramatic building
lighting, has seven restaurants, a shopping arcade, two swimming pools and
parking spaces for approximately 2,900 cars.
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.
The Company is analyzing various alternatives to utilize the 61-acre
Stardust site, including additional hotel rooms and other amenities to more
effectively compete with the new generation of Las Vegas properties.
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Boulder Strip Properties
Sam's Town Las Vegas is situated on 56 acres of land owned and 7 acres of
land leased by the Company on the Boulder Strip, approximately six miles east of
the Las Vegas Strip. Sam's Town features an approximately 118,000-square foot
casino, a 56-lane bowling center and the 25,000-square foot Western Emporium
retail store. The gaming facilities now include 2,840 gaming machines and 54
table games, including tables featuring blackjack, craps, roulette, pai gow,
poker and Caribbean stud, as well as keno, a race and sports book, and bingo.
The property has 650 guest rooms, 16 restaurants, 500 spaces for recreational
vehicles and approximately 3,200 parking spaces, including two parking garages
which together can accommodate up to 2,000 cars. The resort features a
25,000-square foot atrium which contains extensive foliage and trees, streams,
bridges, and a large 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.
Sam's Town Las Vegas has a western theme and features an informal, friendly
atmosphere that appeals to both local residents and visitors. Gaming and bowling
tournaments, paycheck sweepstakes, costume contests and holiday parties 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, the Company attracts 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. However, competition from the recently
opened Sunset Station property may have a negative impact on the future
performance of Sam's Town Las Vegas. In that regard, the Company has developed a
master plan for Sam's Town Las Vegas calling for, among other things, a second
hotel tower. Although the Company has not yet made any decision regarding a
future Sam's Town Las Vegas expansion, it is currently exploring the feasibility
of such a project.
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 over
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 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 over 22,500 square feet of casino space with
over 640 slot machines and 11 table games, including tables featuring "21,"
craps, roulette, pai gow, Caribbean stud and poker, as well as keno and a sports
book. The facility also offers a buffet restaurant, a coffee shop, an
entertainment lounge, 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.
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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 was the
Company's first property and has over 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
an approximately 95-space recreational vehicle park, the only such facility in
the downtown area. The casino offers approximately 1,150 slot machines and 36
table games, including tables featuring "21," craps, roulette, pai gow and
Caribbean stud, as well as keno and a sports book.
The Fremont is situated on 1.4 acres of land owned and 0.9 acres of land
leased by the Company on the principal thoroughfare in downtown Las Vegas. The
property offers 32,000 square feet of casino space including approximately 1,100
slot machines, and 27 table games, including tables featuring "21," craps,
roulette, pai gow, poker and Caribbean stud, as well as keno and a race and
sports book. The hotel has 452 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.
Main Street Station was acquired by the Company in December 1993 and was
used to augment the rooms base for the California and Fremont prior to its
opening as a full service hotel casino in November 1996. 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
a 28,500-square foot, newly-equipped casino with 22 table games and
approximately 865 slot machines. The property also includes 406 renovated hotel
rooms and expanded and renovated food facilities, including a 500-seat buffet, a
130-seat specialty restaurant, a 100-seat cafe, a 200-seat brew pub and oyster
bar and expanded parking to include 2,000 spaces.
The Company coordinates marketing efforts, 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 will include a consolidated database and marketing program for all
Downtown Properties. The Company believes these efforts will significantly
reduce costs and provide it 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 six DC-10 charter
flights from Honolulu to Las Vegas each week, helping to ensure stable,
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 Downtown Properties have been the leading
Las Vegas destination for visitors from Hawaii. The Company attributes this
success to the amenities and atmosphere at the Downtown Properties, 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 84,000 households, primarily in Hawaii. For the year ended
June 30, 1997, patrons from Hawaii comprised approximately 70% of the room
nights at the California, 56% of the room nights at the Fremont and 79% of the
room nights at Main Street Station.
The Company, together with other downtown casino operators and the City of
Las Vegas, developed the downtown attraction known as the Fremont Street
Experience. The attraction features a semi-circular space frame nine stories
above the street, stretching along four city blocks against which a sound and
light spectacle is displayed. As part of the project, vehicular traffic on
portions of Fremont Street has been eliminated, asphalt replaced by a patterned
streetscape and special events brought to the downtown area to entertain
visitors.
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The Company believes that, since its opening in December 1995, the Fremont
Street Experience has significantly enhanced the experience of visiting downtown
Las Vegas and has attracted additional customers to the downtown area. While the
downtown area has experienced increased traffic flow as a result of the Fremont
Street Experience, the increased traffic flow has not translated into increased
gaming revenue for the Company's Downtown Properties. In addition, the entity
which operates the Fremont Street Experience (Fremont Street Experience, Limited
Liability Company or "FSE") has experienced significant levels of operating
loss and cash deficiency during its first full year of operation. Management
expects this trend to continue and, therefore, does not expect to recover its
investment in this entity. For these reasons, the Company recorded a $5.3
million impairment loss in fiscal 1997 to write-off its entire investment in
FSE. See Note 3 of Notes to Consolidated Financial Statements.
Central Region Properties
The Company has exported its popular Sam's Town western theme and
atmosphere to the Mississippi dockside gaming market by developing Sam's
Town Tunica, which opened on May 25, 1994. 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 other operators in the
area by developing a major casino entertainment complex with extensive amenities
including a 857-room hotel, an entertainment lounge featuring country-western
music, six destination 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 country-western
entertainers. In December 1994, an $18 million expansion was completed which
included the addition of 308 guest rooms surrounding a swimming pool and
recreational area. The Company, seeking to further its position in both the
overnight and drive-in markets in Tunica, recently expanded Sam's Town Tunica.
The $40 million expansion project included a 350-room hotel tower and a
1,000-car parking garage. The new hotel tower brings the total room count to
857, and the garage is the first enclosed parking structure at a Tunica County
casino. The complex offers a two-story casino of approximately 75,000 square
feet featuring approximately 1,860 slot machines and 77 table games, including
tables featuring "21," craps, roulette, poker, Caribbean stud and pai gow, as
well as keno. The design of the facility integrates the water-based and
land-based components of the facility.
The Company has extended its popular Sam's Town theme to the Kansas City,
Missouri market with the opening of Sam's Town Kansas City on September 13,
1995. Sam's Town Kansas City was completed at a cost of approximately $145
million, including land, capitalized interest and preopening costs. The
facility, which is situated on 34 acres located on the Missouri River and
Interstate 435, features a continuously docked riverboat housing a 28,000-square
foot casino on three decks with approximately 1,060 slot machines and 54 table
games. The 80,000-square foot land-based facility contains five food facilities,
including a 7,000-square foot sports bar, and ticketing services, all
surrounding a turn-of-the-century Kansas City streetscape. The facility also
features a 1,350-space garage, connected to the main facilities by an enclosed
moving walkway. Including surface parking, the property offers a total of 2,000
parking spaces. The Kansas City metropolitan area has an adult population of
over one million. The Company's facility is located near the Interstate 435
entertainment corridor in Kansas City which provides access to the Worlds of Fun
and Oceans of Fun theme parks, the Kansas City Zoo, and the Kansas City Chiefs'
and Kansas City Royals' Stadiums. In connection with the operation of Sam's Town
Kansas City, the Company will pay the City of Kansas City approximately $250,000
per year for a period of ten years ending in September 2004. The Company intends
to offer 10% of the capital stock of Boyd Kansas City, the entity that owns and
operates Sam's Town Kansas City, to certain persons or entities located in the
Kansas City area. The price to be paid by such persons or entities will be based
on the total cost of the project. During fiscal 1997, the Company recorded a
$126 million impairment loss in accordance with SFAS No. 121 to write down the
carrying value of the Company's Missouri fixed and intangible assets, including
Sam's Town Kansas City, to fair value. See Note 3 of Notes to Consolidated
Financial Statements.
The Company manages and partly owns the Treasure Chest, a riverboat casino
operation located on Lake Pontchartrain in Kenner, Louisiana, which opened in
September 1994. Located near the New Orleans International Airport, the Treasure
Chest primarily serves patrons from Jefferson Parish, including suburbs on the
west side of New Orleans. The gaming operation features a classic paddle-wheel
riverboat with a total capacity of 2,000 persons, approximately 24,000 square
feet of casino space, over 900 slot machines and
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56 table games, including tables for "21," craps, roulette and poker. Each of
the riverboat's three decks has a different theme, with one featuring
contemporary Las Vegas-style decor, one offering a nautical environment and one
providing a festive Mardi Gras setting.
The management agreement between the Company and Treasure Chest L.L.C.,
owner of the Treasure Chest, provides for an initial five-year term expiring
June 1999, extendible at the Company's option for three additional five-year
periods if certain operating results are achieved. The agreement also provides
for a management fee of 10% of the enterprise's net operating profit before
interest, depreciation, income taxes, amortization, extraordinary items and the
management fee. The Company owns a 15% equity interest in Treasure Chest L.L.C.
The Company has agreed to purchase the remaining 85% of Treasure Chest
L.L.C. that is not now owned by the Company for approximately $115 million,
including the assumption of debt. The transaction is subject to obtaining
applicable governmental and regulatory approval. There can be no assurance as to
when, or if, such transaction will be consummated. The Company expects to fund
the acquisition and the repayment of Treasure Chest's debt with borrowings under
its revolving bank credit facility (the "Bank Credit Facility"). If the
acquisition is not consummated, the Company has determined that for a number of
reasons, including to strategically focus the management and financial resources
of the Company, the Company will pursue a sale of its 15% ownership interest in
Treasure Chest L.L.C. Whether or not the Company disposes of its 15% ownership
interest in Treasure Chest L.L.C. or acquires the Remaining Treasure Chest
Interests, the management agreement between the Company and Treasure Chest
L.L.C. will terminate no later than October 31, 1997. See "Investment
Considerations -- Expansion."
Pursuant to an agreement with the Mississippi Band of Choctaw Indians, the
Company operates the Silver Star, the only land-based casino in the State of
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. The
property, which recently completed a major expansion project, includes a
500-room hotel and a casino with approximately 90,000 square feet of gaming
space with over 2,790 slot machines and 96 table games, including tables for
"21," craps, roulette, mini-baccarat and Caribbean stud, as well as a lounge
suitable for entertainment and dancing, a swimming pool, four restaurants, a
55,000-square foot conference center and more than 1,300 parking spaces. The
recently completed expansion project included 400 additional rooms and suites, a
casino expansion and a new restaurant. In addition, an 18-hole golf course and a
full-service spa were recently completed in July 1997.
The management agreement for Silver Star provides for a seven-year term
expiring in July 2001 and a management fee of 30% of the enterprise's operating
income before debt service for the first five years and 40% of its operating
income before debt service for the final two years. Under the agreement, the
Company provided $30.5 million in debt financing for the construction and
start-up of the facility, which amount was repaid during fiscal 1995 from the
enterprise's cash flow. The Company loaned the tribe an additional $10 million
for a casino expansion project which was completed in December 1994. This loan
is scheduled to be repaid over five years.
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On December 5, 1996, the Company completed the acquisition of Par-A-Dice.
Par-A-Dice is a riverboat casino operation located along the Illinois River in
East Peoria, Illinois, approximately 170 miles from Chicago. The Par-A-Dice
Riverboat Casino initially commenced operations in November 1991, operating from
a temporary facility in downtown Peoria. In May 1993, the facility was relocated
across the Illinois River to a newly constructed land-based pavilion, containing
two restaurants, a bar, gift shop, ticketing area and surface parking for 750
cars, located on 19 acres in East Peoria. In May 1994, the original Par-A-Dice
Riverboat Casino replica paddle-wheel riverboat was replaced with a new,
state-of-the-art, twin hull cruise ship. The new boat measures 238 feet long and
66 feet wide and since the recent completion of an expansion in March 1996,
features 33,000 square feet of gaming space on four levels with approximately
1,000 slot machines and 42 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
full-service hotel with food and beverage and banquet and meeting facilities.
The Company believes the newly-constructed hotel will enable the Par-A-Dice to
develop an overnight customer base for the facility and provides much needed
banquet and meeting capabilities. The 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. The 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.
MIRAGE JOINT VENTURE
On May 29, 1996, the Company, through a wholly-owned subsidiary, entered
into a joint venture agreement with a subsidiary of Mirage to jointly develop
and own a casino hotel entertainment facility in Atlantic City, New Jersey. The
Atlantic City Project is planned to be one component of a multi-facility casino
entertainment development, master-planned by Mirage for the Marina District of
Atlantic City. The Atlantic City Project is expected to cost approximately $500
million. The agreement contemplates that the joint venture would fund $300
million of the project cost with non-recourse third-party financing. The
remaining $200 million is expected to be funded equally by capital contributions
from the partners, including, in the case of Mirage, contribution of the land.
Pursuant to the joint venture agreement, the Company will control the
development and operation of the Atlantic City Project. The Atlantic City
Project is expected to include a hotel of at least 1,000 rooms and is expected
to be adjacent and connected to Mirage's planned wholly-owned resort. The
Company believes that certain highway improvements to permit greater access to
the Marina District of Atlantic City will be necessary to support the
multi-facility casino entertainment development master-planned by Mirage. The
State of New Jersey Department of Transportation and Mirage have developed a
mutually satisfactory plan for those improvements. Environmental remediation and
construction of the Atlantic City Project are not expected to begin until after
the necessary highway improvements are assured. Once such improvements are
assured and other requisite approvals are received, the Company estimates that
environmental remediation will take at least six months and construction of the
Atlantic City Project will thereafter take at least two years. Accordingly, the
Company is unable to estimate, when, if at all, the Atlantic City Project will
be completed. The Company has submitted its petition for a statement of
compliance to the New Jersey Casino Control Commission ("NJCCC"). This petition
has been forwarded to the New Jersey Division of Gaming Enforcement ("NJDGE")
for investigation. Recently, such investigations have taken six to nine months
to be completed, but may take significantly longer. Once construction has
commenced, the Company, through a wholly-owned subsidiary, can submit its
application for casino licensure to the NJCCC. With a statement of compliance
for the Company in place, the investigation by the NJCCC and NJDGE in connection
with the casino license application will focus on issues concerning operations,
the facility and equal employment and business opportunity. See "Investment
Considerations -- Expansion." The Atlantic City Project will give the Company a
presence in Atlantic City, the primary casino gaming market serving the eastern
United States.
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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.
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 may 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 and/or Public Debt, prospective investors should
carefully consider the following factors.
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; and card rooms. 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. The
Company also competes with other gaming companies for opportunities to acquire
legal gaming sites in emerging and established gaming jurisdictions and for the
opportunity to manage casinos on Indian land. Such competition in the gaming
industry could adversely affect the Company's ability to compete for new gaming
opportunities as well as its existing operations. In addition, further expansion
of gaming into other jurisdictions could also 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 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 primarily with other casino
hotels on the Las Vegas Strip, on the Boulder Strip and in downtown Las Vegas.
Currently, there are approximately 25 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. A number of marquee properties have opened in the last
several years, and several others are currently under construction or planned
for the Las Vegas Strip, including the 3,000-room Paris Casino-Resort and the
3,000-room Bellagio. Additionally, several properties have recently announced or
begun significant expansion and renovation projects, including MGM Grand
Hotel/Casino, Harrah's - Las Vegas and the Sahara Hotel and Casino. Each of the
foregoing facilities has or may have a theme and attractions which 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. Also, competition from the recently opened Sunset
Station property may have a negative impact on the future performance of Sam's
Town Las Vegas. 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.
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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 County, Mississippi, with dockside casinos on
the Mississippi Gulf Coast and with gaming operations in Louisiana. Gaming has
grown rapidly in Tunica County with nine dockside casinos now in operation. In
addition, several Tunica-area casinos are in the process of adding hotel rooms,
1,200 rooms at Circus Circus-Tunica, 300 rooms at Horseshoe Gaming, and 170
rooms at the Sheraton. 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.
Sam's Town Kansas City competes primarily with four other riverboat gaming
operations in the Kansas City area. Some of these gaming facilities are operated
by companies that have significantly greater financial resources than the
Company, some have been operating for a longer time than the Company's facility
and some may possess more locations. Sam's Town Kansas City reported an
operating loss of $5 million (before the write off of preopening expenses) in
fiscal 1996 and a $11 million operating loss (before impairment loss) in fiscal
1997 as a result of high fixed costs and substantial advertising and
promotional expenses incurred in response to the highly competitive operating
environment. During fiscal 1997, the Company recorded an impairment loss of
approximately $126 million related to the Company's Missouri gaming assets,
including Sam's Town Kansas City. See Note 3 of Notes to the Consolidated
Financial Statements. No assurance can be given that the Company will compete
successfully in the future.
The Treasure Chest competes primarily with other riverboat gaming
operations in the New Orleans metropolitan area. A large land-based casino is
planned for downtown New Orleans but the project is presently in bankruptcy
reorganization. If the land-based project opens, it will compete directly with
the Treasure Chest. There are presently 15 licensed riverboats, 14 of which are
in operation, in the State of Louisiana with four of these projects (including
the Treasure Chest) operating in the New Orleans metropolitan area. Some of
these riverboats are operated by companies with significantly greater financial
resources and some may possess more desirable locations. No assurance can be
given that the 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.
EXPANSION
On May 29, 1996, the Company entered into a joint venture agreement with
Mirage to jointly develop and own a casino hotel entertainment facility in the
Marina District of Atlantic City, New Jersey. The casino hotel project
contemplated by the Mirage Joint Venture is subject to a number of
contingencies, including, but not limited to, approval and funding 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. Once
the necessary highway improvements are assured and other requisite approvals are
received, the Company estimates that environmental remediation will take at
least six months and construction of the Atlantic City Project will thereafter
take at least two years. Accordingly, there can be no assurance that the
Atlantic City Project will be completed according to the terms currently
contemplated, if at all. In addition, the Company has no prior experience in New
Jersey, and no assurance can be given that, if the project is completed, the
Company will be able to successfully compete in this market. See "Business
- -- Mirage Joint Venture."
On July 11, 1997, the Company entered into a definitive agreement to
acquire the remaining 85% of Treasure Chest L.L.C. that is not now owned by the
Company for approximately $115 million, including the assumption of debt.
Closing of the transaction is conditioned upon, among other things, approval by
the Louisiana Gaming Control Board. There can be no assurance as to when, or if,
the acquisition will be consummated. The Company expects to fund the acquisition
and the repayment of Treasure Chest's debt with borrowings under the Bank Credit
Facility. If the acquisition is not consummated, the Company has determined that
for a number of reasons, including to strategically focus the management and
financial resources of the Company, the Company will pursue a sale of its 15%
ownership interest in Treasure Chest L.L.C. Whether or not the Company disposes
of its 15% ownership interest in Treasure Chest L.L.C. or acquires the Remaining
Treasure Chest Interests, the management agreement between the Company and
Treasure Chest L.L.C. will terminate no later than October 31, 1997.
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ADDITIONAL FINANCING REQUIREMENTS
The Company intends to finance its current and future expansion projects
primarily with cash flow from operations and borrowings under its Bank Credit
Facility. If the Company is unable to finance such projects through cash flow
from operations and borrowings under its Bank Credit Facility, it will have to
adopt one or more alternatives, such as reducing or delaying planned expansion
and capital expenditures, selling assets, restructuring debt or obtaining
additional equity or debt financing. 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. Following the Company's July 1997
offering (the "Offering") of $250 million principal amount of 9.50% Senior
Subordinated Notes due 2007 (the "9.50% Notes"), availability under the Bank
Credit Facility was reduced by approximately $193 million and will be
subsequently increased if and to the extent the Company or any subsidiary
purchases or redeems its $185 million principal amount of 11% Senior
Subordinated Notes (the "11% Notes"). 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 June 30, 1997, after giving effect to the Offering of 9.50% Notes and
the application of proceeds therefrom, the Company had total consolidated
long-term debt of approximately $747 million, which represents approximately 80%
of the total capitalization of the Company as of such date (or approximately
$862 million, or 82% of total capitalization, after giving effect to the
anticipated borrowings under the Company's Bank Credit Facility to fund the
purchase by the Company of the Remaining Treasure Chest Interests). The Bank
Credit Facility is a five-year, $500 million reducing revolving credit facility.
Debt service requirements on the Bank Credit Facility consist of interest
expense on outstanding Indebtedness. Beginning in December 1998, the total
principal amount available under the Bank Credit Facility will be reduced by $25
million and reduced by an additional $50 million at the end of each six-month
period thereafter until maturity in June 2001. Following the Offering,
availability under the Bank Credit Facility was reduced by approximately $193
million and will be subsequently increased if and to the extent the Company or
any subsidiary purchases or redeems the 11% Notes. No assurance can be given
that any such purchase or redemption will be consummated. Debt service
requirements on the 11% Notes issued by a financing subsidiary of CH&C consist
of semi-annual interest payments and repayment of the $185 million principal
amount on December 1, 2002. Debt service requirements under the Company's 9.25%
Notes consist of semi-annual interest payments and repayment of the $200 million
principal amount on October 1, 2003. The Company expects to fund the acquisition
of the Remaining Treasure Chest Interests, currently expected to be $115
million, and its subsidiary's required capital contributions to the Mirage Joint
Venture, currently expected to be $100 million, with borrowings under the Bank
Credit Facility 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 or obtaining additional equity
or debt financing. 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."
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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.
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.
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. 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 and Eldorado,
Inc. 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
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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 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.
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.
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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, in its discretion, require the holder of any
debt security of a Registered Corporation to file applications, be investigated
and be found suitable to own the debt security 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 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 21, 1997, 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 Registered Exchange Offer or the
offering under the Shelf Registration Statement will be made pursuant to the
Shelf Approval. The Shelf Approval does not constitute a finding, recommendation
or approval by the Nevada Commission or the Nevada Board as to the accuracy or
adequacy of the prospectus or the investment merits of the securities offered.
Any representation to the contrary is unlawful.
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.
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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.
Indian Lands
Gaming on Indian lands is extensively regulated under federal law,
tribal-state compacts and tribal law. The terms and conditions of management
agreements and the operation of gaming facilities on Indian lands are governed
by the Indian Gaming Regulatory Act of 1988 ("IGRA"), which is administered by
the National Indian Gaming Commission ("NIGC"), and are also subject to the
provisions of statutes relating to contracts with Indian tribes, which are
administered by the Secretary of the Interior (the "Secretary") and the Bureau
of Indian Affairs ("BIA").
The NIGC oversees Class II Indian gaming (essentially bingo and bingo-like
games) and, to a lesser degree, Class III gaming (e.g., slots, casino games and
banking card games). The actual regulation of Class III gaming is determined
pursuant to the terms of tribal-state compacts, which regulate agreements
between individual tribes and states that govern gaming on tribal lands.
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Under IGRA, the NIGC must approve all management agreements between Indian
tribes and managers of tribal gaming facilities. IGRA is subject to
interpretation by the Secretary and the NIGC and may be subject to judicial and
legislative clarification or amendments.
The Company's management contract with the Mississippi Bank of Choctaw
Indians (the "Choctaws") for the Silver Star was approved by the NIGC in
December 1993. The management agreement provides for a seven-year term expiring
in July 2001 and a management fee of 30% of the enterprise's operating income
before debt service for the first five years and 40% of its operating income
before debt service for the final two years. Under the agreement, the Company
provided $30.5 million in debt financing for the construction and start-up of
the facility, which was repaid during fiscal 1995 from the enterprise's cash
flow. Pursuant to NIGC approval dated November 23, 1994, the Company has loaned
to the Choctaws an additional $10 million to expand the property.
The NIGC regulations provide detailed requirements as to certain provisions
which must be included in management agreements, including (i) adequate
accounting procedures and verifiable financial reports, which must be furnished
to the tribe; (ii) tribal access to the daily operations of the gaming
enterprise, including the right to verify daily gross revenues and income; (iii)
minimum guaranteed payments to the tribe, which must have priority over the
retirement of development and construction costs; (iv) a ceiling on the
repayment of such development and construction costs and (v) a term not to
exceed five years except that, upon request of a tribe, a term of seven years
may be allowed by the NIGC Chairman if the Chairman is satisfied that the
capital investment and income projections for the gaming facility require the
additional time. Further, the fee received by the manager of a gaming facility
may not exceed 30% of net revenues except that a fee of 40% of net revenues may
be approved if the NIGC Chairman is satisfied that the capital investment and
income projections for the gaming facility require the additional fee.
Under IGRA, a management company, its directors, persons with management
responsibilities and certain of the company's owners must provide background
information, be investigated by the NIGC and be found suitable to be affiliated
with a gaming operation prior to the NIGC's approval of the management
agreement. The NIGC regulations provide that each of the ten persons who have
the greatest direct or indirect financial interest in a management agreement
must be found suitable in order for the management agreement to be approved by
the NIGC. The NIGC regulations provide that any entity with a financial interest
in a management agreement must be found suitable, as must the directors and ten
largest shareholders of such entities in the case of a corporate entity, or the
ten largest holders of interest in the case of a trust or partnership. The
Chairman of the NIGC may reduce the scope of information to be provided by
institutional investors. At any time, the NIGC has power to investigate and
require the finding of suitability of any person with a direct or indirect
interest in the management agreement, as determined by the NIGC. The management
company must pay all fees associated with background investigations by the NIGC.
The NIGC regulations require that background information as described above
must be submitted for approval within ten days of any proposed change in
financial interest in a management agreement. The NIGC regulations do not
address any specialized procedures for investigations and suitability findings
in the context of publicly held corporations. If, subsequent to the approval of
a management agreement, the NIGC determines that any of its requirements
pertaining to the management agreement have been violated, it may require the
management agreement to be modified or voided, subject to rights of appeal. In
addition, any amendments to the management agreement must be approved by the
NIGC.
In addition to IGRA, tribal-owned gaming facilities on Indian land are
subject to a number of other federal statutes.
Title 25, Section 81 of the United States Code states that "no agreement
shall be made by any person with any tribe of Indians, or individual Indians not
citizens of the United States, for the payment or delivery of any money or other
thing of value . . . in consideration of services for said Indians relative to
their lands . . . unless such contract or agreement be executed and approved" by
the Secretary or his or her designee. An agreement or contract for services
relative to Indian lands which fails to conform with the requirements of Section
81 will be void and unenforceable. All money or other things of value paid to
any person by any Indian or tribe for or on his or their behalf, on account of
such services, in excess of any amount approved by the
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Secretary or his or her authorized representative will be subject to forfeiture.
The Company believes that it has complied with the requirements of Section 81
with respect to its management contract for Silver Star.
The Indian Trader Licensing Act, Title 25, Section 2610-64 of the United
States Code ("ITLA") states that "any person other than an Indian of the full
blood who shall attempt to reside in the Indian country, or on any Indian
reservation, as a trader, or to introduce goods, or to trade therein, without
such license, shall forfeit all merchandise offered for sale to the Indians or
found in his possession, and shall moreover be liable to a penalty of $500. . ."
No such licenses have been issued to the Company to date. The applicability of
ITLA to management contracts is unclear. The Company believes that ITLA is not
applicable to its management contracts under which the Company provides services
rather than goods to Indian tribes. The Company further believes that ITLA has
been superseded by IGRA.
On December 4, 1992, the Choctaws and the State of Mississippi entered into
a tribal-state compact regarding the regulation of gaming on Choctaw lands in
Mississippi. The tribal-state compact has been approved by the BIA. The
tribal-state compact as well as tribal regulations provide for the creation of
the Choctaw Gaming Commission which has regulatory jurisdiction over gaming on
Choctaw lands.
The Choctaw Gaming Commission must perform background checks and
suitability findings on "parties in interest" to a management contract, which
includes the same persons as required by the NIGC regulations discussed above
but also specifically includes direct lenders and persons who hold at least ten
percent of the stock of any corporation which is a party to the management
contract. All investigatory fees of the Choctaw Gaming Commission are to be paid
by the Company. The directors and officers of the Company who are required to
submit background information for Choctaw Gaming Commission investigatory
purposes have done so and the Choctaw Gaming Commission issued the Company a
license in December 1993 (subject to renewal on a yearly basis).
Management officials and key employees of the Company affiliated with
Silver Star, as well as distributors and manufacturers of gaming devices whose
products are used on the reservation, must be licensed by the Choctaw Gaming
Commission. In addition, all employees associated with casino gaming must obtain
work permits issued by the Choctaw Gaming Commission. All holders of casino
gaming licenses and work permits (including the Company's license) are subject
to immediate revocation of such licenses and work permits under certain
circumstances, including (i) the conviction of a felony or any crime of moral
turpitude; (ii) unsuitability to be associated with casino gaming; (iii) the
violation or conspiracy to violate IGRA, the tribal-state compact, or other
tribal or federal laws applicable to casino gaming; or (iv) the violation of
certain tribal conflict of interest laws.
The management agreement provides that, should a person or entity which is
required to undergo a finding of suitability fail to be found suitable in a
final, nonappealable order of the NIGC or the Choctaw Gaming Commission, then
such person or entity must divest its interest in the management agreement
within 72 hours or receipt of such notice.
Illinois
In February 1990, the State of Illinois legalized riverboat gaming. The
Illinois Riverboat Gambling Act (the "Illinois Act") authorizes the issuance by
the five-member Illinois Gaming Board of up to ten riverboat gaming owner's
licenses for 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. The Illinois Act regulates strictly the facilities, persons,
associations and practices related to riverboat gaming operations. The Illinois
Act grants the Illinois Gaming 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 Gaming Board's jurisdiction extends to every
person, association, corporation, partnership and trust involved in riverboat
gaming operations in the State of Illinois. The ownership and operation of a
riverboat gaming operation is subject to extensive regulation. Applicants must
submit comprehensive application and personal disclosure forms and undergo an
exhaustive background investigation prior to the issuance of a license.
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The Illinois Act requires the owner of a riverboat gaming operation to hold
an owner's license issued by the Illinois Gaming Board. The Illinois Act
restricts the granting of certain of the ten owner's licenses by location. Four
are for operators docking at sites on the Mississippi River, one is for an
operator docking at a site on the Illinois River south of Marshall County and
one is for an operator docking at a site on the Des Plaines River in Will
County. The remaining four owner's licenses are not restricted as to location.
Riverboats operating on the Des Plaines River must have a minimum capacity of at
least 400 persons. All riverboats must be accessible to disabled persons, must
be either a replica of a 19th-century Illinois riverboat or be of a casino
cruise ship design and must comply with applicable federal and state laws,
including, but not limited to, U.S. Coast Guard regulations. The Illinois Gaming
Board has currently granted ten licenses, one license to riverboat operations in
each of Alton, East Peoria, Rock Island, East Dubuque, Metropolis, East St.
Louis, Aurora, and Elgin, and two licenses to riverboat operators in Joliet. In
addition to the ten owner's licenses which are authorized under the Illinois
Act, the Illinois Gaming Board may issue special event licenses allowing persons
who are not otherwise licensed to conduct riverboat gaming on a specified date
or series of dates.
Each owner's license initially runs for a period of three years.
Thereafter, the license is subject to renewal on an annual basis upon a
determination by the Illinois Gaming Board that the licensee continues to be
eligible for an owner's license pursuant to the Illinois Act and the Illinois
Gaming Board's rules. The owner's license for Par-A-Dice initially expired in
February 1995. Its license was renewed in February 1996 and in February 1997,
and Par-A-Dice will be required to renew its license each year thereafter. A
licensed owner is authorized to apply to the Illinois Gaming Board for and, if
approved, will receive all licenses necessary for the operation of a riverboat.
These licenses include a liquor license, a license to prepare and serve food and
all other necessary licenses.
Each license granted entitles a licensee to own and operate up to two
riverboats (with a combined maximum of 1,200 gaming participants) as part of the
riverboat gaming operation. No person or entity may be licensed as the owner of
more than one riverboat gaming operation in Illinois, although a licensed owner
of greater than 10% may hold up to a 10% ownership interest in a second
riverboat gaming operation in Illinois.
The Illinois Act does not limit the maximum bet or per patron loss. Minimum
and maximum wagers on games are set by the licensee and 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%. The Illinois Act imposes a 20%
wagering tax on adjusted gross receipts (which is gross gaming revenues minus
winnings paid to patrons). The tax imposed is to be paid by the licensed owner
to the Illinois Gaming Board on the day after the day when the liability was
established. The Illinois Act also requires that licensees pay a $2.00 admission
tax for each person admitted to a gaming cruise. All state use, occupation and
excise taxes which apply to the sale of food and beverages and taxes imposed on
the sale or use of tangible property apply to such sales aboard riverboats.
From time to time, various proposals have been introduced in the Illinois
legislature regarding riverboat gaming. Such proposals include, among other
things, taxes, licensing and conduct of gaming. The Company cannot offer any
opinion of the outcome or effect of any pending or proposed legislation.
Under the Illinois Act, there is a four-hour maximum period during which
gaming may be conducted during a gaming excursion. Gaming is deemed to commence
when the first passenger boards a riverboat for an excursion and may continue
while other passengers are boarding for a period not to exceed 30 minutes. A
gaming excursion is deemed to have started upon the commencement of gaming.
Gaming may continue for a period not to exceed 30 minutes after the gangplank or
its equivalent is lowered. During this 30 minute period of egress, new
passengers may not board a riverboat.
If a riverboat captain reasonably determines that either it is unsafe to
transport passengers on the waterway due to inclement weather or the riverboat
has been rendered temporarily inoperable by river icing or unforeseeable
mechanical or structural difficulties, the riverboat shall either not leave the
dock or immediately return to it. In the case of unforeseeable mechanical or
structural difficulties, the owner licensee shall make all reasonable effort to
promptly remedy the problem. If a riverboat captain reasonably determines for
reasons of
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safety that although seaworthy, the riverboat should not leave the dock or
should return immediately thereto, due to the above conditions, a gaming
excursion may commence or continue while the gangplank or its equivalent is
raised and remains raised, in which event the riverboat is not considered
docked. If, due to the above conditions, a gaming excursion must commence or
continue with the gangplank or its equivalent raised and the riverboat does not
leave the dock, ingress is prohibited until the completion of the excursion.
The Illinois Gaming Board is authorized to conduct investigations into the
conduct of gaming as it may deem necessary and proper and into alleged
violations of the Illinois Act and Illinois Gaming Board Rules. Employees and
agents of the Illinois Gaming Board have access to and may inspect any
facilities relating to the riverboat gaming operations at all times.
A holder of a riverboat gaming license will be subject to the imposition of
fines and suspension or revocation of its license for any act by such holder,
its agents or employees that is injurious to the public health, safety, morals,
good order and general welfare of the people of the State of Illinois, or that
would discredit or tend to discredit the Illinois gaming industry or the State
of Illinois. The following may be grounds for such discipline: (i) failing to
comply with or make provision for compliance with the Illinois Act, the rules
promulgated thereunder, any federal, state or local law or regulation, or the
license holder's internal procedures and administration and accounting controls;
(ii) failing to comply with any rule, order or filing of the Illinois Gaming
Board or its agents pertaining to gaming; (iii) receiving goods or services from
a person or business entity who does not hold a supplier's license but who is
required to hold such license by the rules; (iv) being suspended or ruled
ineligible or having a license revoked or suspended in any other state or gaming
jurisdiction; (v) associating with, either socially or in business affairs, or
employing persons of notorious or unsavory reputation or who have extensive
police records, or who have failed to cooperate with any officially constituted
investigatory or administrative body and would adversely affect public
confidence and trust in gaming; (vi) failing to establish and maintain standards
and procedures designed to prevent ineligible or unsuitable persons from
becoming employed by a licensee, including any person known to have been found
guilty of cheating or using any improper device in connection with any game;
(vii) failing to promulgate an approved Internal Control System and (viii)
aiding and abetting a violation by a Gaming Board member or employee, or other
government official, of ethical requirements established by statute, resolution,
ordinance, personal code or code of conduct.
Licensees are required to obtain formal approval from the Illinois Gaming
Board whenever a change is proposed in the following areas: (i) "Key Persons"
(as defined below); (ii) type of entity; (iii) the equity and debt
capitalization of the entity; (iv) investors and/or debt holders; (v) sources of
funds; (vi) the applicant's economic development plan; (vii) riverboat capacity
or significant design change; (viii) the number of 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. In addition, distributions to shareholders, partners and others
are limited to those which cannot impair the financial viability of the gaming
operation.
The Illinois Gaming Board requires that a Key Person of an owner licensee
must submit a Personal Disclosure Form and be investigated and approved by the
Illinois Gaming Board. For a publicly held Business Entity, a Key Person is any
person directly or indirectly holding a legal or beneficial interest of 5% or
more of an applicant or owner licensee and officers, directors, trustees,
partners, and managing agents of a gaming enterprise, and any person identified
by the Board as a person able to control or exercise significant influence over
the management or operating policies of licensee. 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
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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 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.
A person employed at a riverboat gaming operation must hold an occupational
license from the Illinois Gaming Board. The occupational license permits the
holder to perform only activities included within such holder's level of
occupational license or any lower level of occupational license. A holder of a
riverboat gaming license is required to investigate the background and
qualifications of all persons who apply for employment at its gaming operation.
Suppliers of gaming equipment and supplies and certain other vendors must obtain
a supplier's license from the Illinois Gaming Board prior to selling or leasing
any equipment and supplies as defined in Illinois Gaming Board Rules.
The Illinois Gaming Board may waive any licensing requirement or procedure
provided by rule if it determines that such waiver is in the best interest of
the public and the gaming industry.
New Jersey
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 New Jersey Casino Control Commission (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
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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, mortgagees, 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 Investors") 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.
An Institutional Investor shall be 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.
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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, it shall provide not less than 30 days' prior
notice of such intent and shall 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
conditions 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.
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
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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 and 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 next
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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From the monies made available to the CRDA, the CRDA is required to set
aside $100 million for investment in hotel development projects in Atlantic City
undertaken by a licensee which result in the construction or rehabilitation of
at least 200 hotel rooms by December 31, 1996. These monies will be held to fund
up to 35% of the cost to casino licensees of expanding their hotel facilities to
provide additional hotel rooms, a portion of which will be required to be
available upon the opening of the new Atlantic City convention center and
dedicated to convention events. The CRDA has determined at this time that
eligible casino licensees will receive up to 27% of the cost of additional hotel
rooms out of these monies set aside and may, in the future, increase the
percentage to no greater than 35%.
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.
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,
integrity and responsibility, good character, honesty and 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.
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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, which have since been dissolved, 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 both the Commission and the Division and replaced them 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-officio
members (including 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 Division 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 15 licenses issued and 14 riverboats operating.
No gaming is allowed while a riverboat is docked unless the vessel is docked for
less than 45 minutes between excursions. All cruises are required to be at least
three hours in duration. 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 the Treasure
Chest. The 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.
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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 5% of 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
subsidiary, Boyd Kenner is a licensee and is 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 such 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 remains 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 and the regulatory
control of the Mississippi State Tax Commission (the "Mississippi Gaming
Authorities").
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 Gaming 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 Gaming 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 Gaming 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
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amendment and interpretation by the Mississippi Gaming Commission. Changes in
Mississippi law or regulations or their interpretation 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.
The Mississippi Act provides for legalized dockside gaming at the
discretion of the 14 counties that either border the Mississippi Gulf Coast or
the Mississippi River provided that voters in such counties have not voted to
prohibit gaming in that county. As of June 1, 1997, dockside gaming was
permissible in 9 of the 14 eligible counties in the State and gaming operations
had commenced in Adams, Coshoma, Hancock, Harrison, Tunica, Warren and
Washington counties. The law 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. There are no limitations on the number of
gaming licenses which may be issued in Mississippi.
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 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 recent 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 Gaming Control Act, and the
Mississippi Gaming 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. A competitor subsequently filed a letter with the Mississippi Gaming
Commission requesting a reconsideration with respect to the Mississippi Gaming
Commission's approval of the placement of the barges on the Sam's Town Tunica
site and other prospective gaming operators' sites adjacent thereto. No official
action was ever taken regarding this request. In December 1993, the Mississippi
Gaming Commission voted to issue a license to Boyd Tunica, the entity through
which the Company operates Sam's Town Tunica. 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 barges at the Sam's Town Tunica
site, as well as similarly situated barges belonging to operators whose
facilities have opened and other prospective gaming operators, are located on
navigable waters within the meaning of Mississippi law. However, no assurance
can be given that a court would ultimately conclude that such sites constitute
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 Sam's Town Tunica.
The Company has been registered with the Mississippi Gaming Commission as a
publicly traded holding company for Boyd Tunica. The Company is required
periodically to submit detailed financial and operating reports to the
Mississippi Gaming Commission and furnish any other information which the Gaming
Commission may require. The Company, Boyd Tunica and any other subsidiary of the
Company that operates a casino (other than Silver Star) in Mississippi (such a
subsidiary, including Boyd Tunica, a "Mississippi Gaming Subsidiary"), are
subject to the licensing and regulatory control of the Mississippi Gaming
Authorities. If the Company is unable to continue to satisfy the registration
requirements of the Mississippi Act, the Company and its Mississippi Gaming
Subsidiaries cannot own or operate gaming facilities in Mississippi. Each
Mississippi Gaming Subsidiary must obtain gaming licenses from the Mississippi
Gaming Commission to operate casinos in Mississippi. A gaming license is issued
by the Mississippi Gaming Commission subject to certain conditions, including
continued compliance with all applicable state laws and regulations and physical
inspection of the casinos prior to opening. The Mississippi Gaming Commission
granted a gaming license to Boyd Tunica in December 1993 which was renewed in
November of 1995.
Gaming licenses are non-transferable, are initially issued for a two-year
period and must be renewed periodically thereafter. Boyd Tunica was granted a
renewal of its gaming license by the Mississippi Gaming Commission on November
30, 1995. The gaming license for Boyd Tunica must be renewed in November of
1997. No person may become a stockholder of or receive any percentage of profits
from a gaming licensee
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subsidiary of a holding company without first obtaining approvals from the
Mississippi Gaming Commission. The Company obtained such approvals in connection
with the licensing of Boyd Tunica.
Certain officers and employees of the Company and the officers, directors
and certain key employees of the Company's Gaming Subsidiaries must be found
suitable by the Mississippi Gaming Commission. The Company believes it has
obtained or applied for all necessary findings of suitability with respect to
such persons associated with the Company or Boyd Tunica, although the
Mississippi Gaming Commission, in its discretion, may require additional persons
to file applications for findings of suitability. Employees associated with
gaming must also obtain work permits that are subject to immediate suspension
under certain circumstances. In addition, any person having a material
relationship or involvement with the Company may be required to be found
suitable or licensed, in which case those persons must pay the costs and fees
associated with such investigation. The Mississippi Gaming Commission may deny
an application for a license or finding of suitability for any cause that it
deems reasonable. Changes in licensed positions must be reported to the
Mississippi Gaming Commission. Besides its authority to deny an application for
a license or finding of suitability, the Mississippi Gaming Commission has
jurisdiction to disapprove a change in corporate position. The Mississippi
Gaming Commission has the power to require any Mississippi Gaming Subsidiary and
the Company 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.
Substantially all loans, leases, sales of securities and similar financing
transactions by a Mississippi Gaming Subsidiary must be reported to or approved
by the Mississippi Gaming Commission. A Mississippi Gaming Subsidiary may not
make an issuance or a public offering of its securities, but may pledge or
mortgage casino facilities, if it obtains the prior approval of the Mississippi
Gaming Commission. The Company may not make an issuance or a public offering of
its securities without the prior approval of the Mississippi Gaming 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. Any representation
to the contrary is unlawful.
If the Mississippi Gaming Commission decides that a Mississippi Gaming
Subsidiary violated a gaming law or regulation, the Mississippi Gaming
Commission could limit, condition, suspend or revoke the license of the
Mississippi Gaming Subsidiary. In addition, a Mississippi Gaming Subsidiary, the
Company and the persons involved could be subject to substantial fines for each
separate violation. Because of such a violation, the Mississippi Gaming
Commission could seek 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) materially
adversely affect the Company's and the Gaming Subsidiary's gaming operations.
At any time, the Mississippi Gaming Commission has the power to investigate
and require the finding of suitability of any record or beneficial owner of the
Company's shares. Mississippi law requires any person who acquires more than 5%
of the Company's common stock to report the acquisition to the Mississippi
Gaming 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 Company's
common stock, as reported to the Securities and Exchange Commission, must apply
for a finding of suitability by the Mississippi Gaming Commission and must pay
the costs and fees that the Mississippi Gaming Commission incurs in conducting
the investigation. The Mississippi Gaming Commission has generally exercised its
discretion to require a finding of suitability of any beneficial owner of more
than 5% of a public company's common stock. 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. The
Mississippi Gaming Commission has adopted a policy with respect to certain
institutional investors which may permit such investors to purchase and hold up
to 10% of a public company's common stock without a suitability finding. Such
institutional investors may be required to file certain information with the
Mississippi Gaming Commission under the policy and the Mississippi Gaming
Commission retains discretion to require a finding of suitability at any time.
To date, all stockholders of the Company required to be found suitable by the
Mississippi Gaming Commission have been found suitable.
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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 Gaming
Commission may be found unsuitable. Management believes that compliance by the
Company with the licensing procedures and regulatory requirements of the
Mississippi Gaming Commission will not affect the marketability of its
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 Gaming 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 Mississippi Gaming Subsidiaries, 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 Gaming
Commission, upon request, the identities of the security holders including
holders of debt securities of the Company. In addition, the Mississippi Gaming
Commission under the Mississippi Act may, in its discretion, require holders of
debt securities of registered corporations to file applications, investigate
such holders, and require such holders to be found suitable to own such debt
securities. Although the Mississippi Gaming Commission generally does not
require the individual holders of obligations such as notes to be investigated
and found suitable, the Mississippi Gaming 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 Gaming Commission in connection with such an investigation. If the
Mississippi Gaming Commission determines that a person is unsuitable to own such
security, then it is unlawful for the unsuitable person; (i) to receive any
dividend or interest whatsoever from the Company; (ii) to exercise any voting
right conferred by such securities or interest; or (iii) to receive any
remuneration in any form from the Company.
Boyd Tunica must maintain a current stock ledger in its principal office in
Mississippi and the Company must maintain a current list of stockholders in the
principal offices of the Gaming Subsidiary which must reflect the record
ownership of each outstanding share of any class of equity security issued by
the Company. The stockholder list may thereafter be maintained by adding reports
regarding the ownership of such securities that it receives from the Company's
transfer agent. The ledger and stockholder lists must be available for
inspection by the Mississippi Gaming 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 Gaming Authorities. 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 identity of the beneficial owner.
The Mississippi Gaming Commission has the power to require that the
Company's securities bear a legend to the general effect that such securities
are subject to the Mississippi Act and the regulations of the Mississippi Gaming
Commission. The Mississippi Gaming Commission has the power, through the power
to regulate licensees, to impose additional restrictions on the holders of the
Company's securities at any time. The Company received a waiver from the legend
requirement in connection with the licensing of Boyd Tunica.
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 Gaming 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
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certain circumstances, required from the Mississippi Gaming Commission before
the Company may make exceptional repurchases of voting securities above the
current market price of its common stock or before a corporate acquisition
opposed by management may be consummated. Mississippi's gaming regulations will
also require prior approval by the Mississippi Gaming Commission if the Company
adopts a plan of recapitalization proposed by its Board of Directors opposing a
tender offer made directly to the shareholders 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 Gaming Commission or a waiver of such
approval. The Mississippi Gaming Authorities may require determinations that,
among other things, there are means for the Mississippi Gaming Authorities to
have access to information concerning the out-of-state gaming operations of the
Company and its affiliates. The Company and its affiliates obtained the approval
of the Mississippi Gaming Commission to engage in gaming operations in Nevada,
Louisiana, Illinois and Missouri.
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 Mississippi Gaming Subsidiary's respective operations will be
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, (iii) the number of table
games operated by the casino or (iv) the number of patrons entering the casino.
The license fees payable to the State of Mississippi are based upon "gaming
receipts" (generally defined as gross receipts less payouts to customers as
winnings) and are equal to 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 per month. The foregoing license fees are allowed
as a credit against the Company's Mississippi income tax liability for the year
paid.
In October 1994, the Mississippi Gaming Commission adopted a regulation
which requires as a condition of licensure or license renewal that a 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
25% of the casino cost. Such facilities may include any of the following: a
250-room hotel of at least a two star rating as defined by the current edition
of the Mobil Travel Guide, a theme park, golf courses, marinas, tennis complex,
entertainment facilities, or any other such facility as approved by the
Mississippi Gaming Commission as infrastructure. Parking facilities, roads,
sewage and water systems, or facilities normally provided by cities and/or
counties are excluded. The Commission may in its discretion reduce the number of
rooms required, where it is shown to the Commission's satisfaction that
sufficient rooms are available to accommodate the anticipated visitor load. The
Company believes that Boyd Tunica, with an 850-room hotel and other amenities,
currently satisfies these requirements.
Missouri
Gaming was originally authorized in the State of Missouri in November 1992.
On April 29, 1993, new legislation (the "Missouri Act") was enacted which
replaced the 1992 legislation. Subsequent to adoption, the Missouri Act has been
amended from time to time. There can be no assurances that the Missouri Act will
not be further amended and interpreted in a manner that would limit or otherwise
adversely affect the Company and its Missouri gaming operations. The Missouri
Act provides for the licensing and regulation of riverboat and dockside gaming
operations on the Mississippi and Missouri Rivers in the State of Missouri and
the licensing and regulation of persons who distribute gaming equipment and
supplies to gaming licensees. The Missouri Act limits the loss per individual on
each excursion to $500, but does not otherwise limit the amount which may be
wagered on any bet or the amount of space in the vessel which may be utilized
for gaming. In November 1994, a constitutional amendment was passed which
permits certain games of chance such as traditional slot machines on riverboats
and floating gaming facilities.
The Missouri Act is implemented and enforced by the five-member Missouri
Gaming Commission (the "Missouri Commission"). This Commission is empowered to
issue such number of riverboat gaming licenses
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as it determines to be appropriate. A gaming license cannot be granted to any
gaming operator unless the voters in such operator's "home dock" city or county
have authorized gaming activities on gaming riverboats. On February 2, 1993,
voters in Kansas City, Missouri approved a riverboat gaming ballot measure. On
September 13, 1995, Boyd Kansas City was issued a Missouri gaming license for
its Sam's Town Kansas City facility. Boyd Kansas City's home dock city is Kansas
City, Missouri.
Gaming boats in Missouri must generally resemble boats from Missouri's
riverboat history and must contain nongaming areas, food service and a
Missouri-themed gift shop. The boats must cruise unless the Missouri Commission
approves a petition for continuous docking. On April 25, 1995, the Missouri
Commission approved Boyd Kansas City's petition for continuous docking for its
riverboat at Sam's Town Kansas City. The Missouri Act also imposes a tax of 20%
of adjusted gross receipts from gaming activities and a $2.00 per person per
excursion fee. Annual license fees are set by the Missouri Commission but may
not be less than $25,000. Each licensee also must post a bond or other form of
surety (in an amount determined by the Missouri Commission) to secure
performance of its obligations under the Missouri Act and the regulations of the
Missouri Commission.
On September 1, 1993, the Missouri Commission adopted rules and regulations
(the "Missouri Regulations") governing the licensing, operation and
administration of riverboat gaming in the state of Missouri and the form of
application for such licensure. Subsequent to adoption, the Missouri Regulations
have been amended from time to time. There can be no assurance that the Missouri
Regulations will not be further amended and interpreted in a manner that would
limit or otherwise adversely affect the Company and its Missouri gaming
operations.
Directors and certain officers and key persons of the Company and Boyd
Kansas City must file personal disclosure forms with the gaming license
application and must be found suitable by the Missouri Commission. Owners of 5%
or more of the Company or Boyd Kansas City are considered key persons for
purposes of the gaming application disclosure and finding of suitability.
The Company, Boyd Kansas City and the Port Authority of Kansas City,
Missouri are parties to a development agreement dated April 25, 1995. In the
development agreement, Boyd Kansas City and the Company agreed that, within 6
months after the opening of Sam's Town Kansas City, Boyd Kansas City and the
Company would seek to identify qualified minority and women investors acceptable
to them and to offer such investors an opportunity to purchase up to 10% of the
stock of Boyd Kansas City; 7% of said stock is to be offered to minority
investors and 3% is to be offered to women investors which Boyd Kansas City and
the Company find to be qualified and acceptable. Boyd Kansas City subsequently
requested, and the Port Authority approved, a 6 month extension to complete such
offering. At its regular meeting on August 5, 1996, the Port Authority granted
Boyd Kansas City another extension of time, through September 13, 1997, to
complete such offering. Such offering has not been completed at this time. The
Missouri Commission's staff advised the Company that it will consider all
minority or women investors who are offered the right to purchase the stock of
Boyd Kansas City to be key persons, even if such investor's ownership is less
than 5% of the common stock of Boyd Kansas City.
Further, the Missouri Regulations require that all employees of Boyd Kansas
City who are involved in gaming operations must file applications for and
receive Missouri gaming occupational licenses. Presently, the Missouri
Commission staff has required all employees at Sam's Town Kansas City to obtain
occupational licenses, even if those employees are not involved in gaming
operations.
The Missouri Regulations require disclosure by the Company and Boyd Kansas
City of any person or entity holding any direct or indirect ownership interest
in the Company or Boyd Kansas City. The Company is also required to disclose the
names of the holders of all of the Company's debt, including a description of
the nature and terms of such debt. The Missouri Commission may, in its sole
discretion, request additional information with respect to such holders. The
Company and Boyd Kansas City are required to update the Missouri gaming license
application any time there is a material change in the information submitted on
such license application within seven business days after the date of any such
change. Missouri gaming licenses must be renewed annually during the first two
years of an entity's licensure and every two years thereafter.
30
33
Under Missouri law, gaming licenses are not transferable. The Missouri
Regulations require that the Missouri Commission be notified at least 60 days
prior to the transfer or issuance of any ownership interest in a gaming licensee
which is not a publicly-held entity, such as Boyd Kansas City. Upon receipt of
such 60-day notice, the Missouri Commission may disapprove the transaction or
require the transaction to be delayed pending further investigation. The pledge
or hypothecation of any ownership interest in a gaming licensee which is not a
publicly-held entity is prohibited.
The Missouri Regulations permit a gaming licensee to consummate issuance of
ownership interests in publicly-held gaming licensees or publicly-held holding
companies, such as the Company, and permit a gaming licensee or holding company
to incur debt or publicly issue debt, at any time after 15 days following notice
to the Missouri Commission by the gaming licensee of its intent to consummate
such a transaction. The Missouri Regulations authorize the Missouri Commission
to reopen a license hearing at any time to consider the effect of the
transaction in question on the gaming licensee's suitability.
The Missouri Regulations require that the Missouri Commission be notified
not later than seven days after the consummation of any pledge or hypothecation
of an ownership interest equaling 5% or more of the ownership of a publicly-held
gaming licensee or publicly-held holding company or any transfer or issuance of
ownership interest in a publicly-held gaming licensee or publicly-held holding
company if such transfer or issuance resulted in an entity or group of entities
acting in concert owning, directly or indirectly, a total amount of ownership
interest equaling 5% or more of the ownership of such gaming licensee or holding
company. If any part of such ownership interest is transferred voluntarily or
involuntarily pursuant to such a pledge or hypothecation, separate notice to the
Missouri Commission is required not later than seven days after the consummation
of such transfer. The Missouri Regulations also require that the Missouri
Commission be notified not later than seven days after the consummation of any
transaction that involves or relates to a gaming licensee and has a dollar value
equal to or greater than one million dollars. Further, without the prior
approval of the Missouri Gaming Commission, the Missouri Regulations prohibit
withdrawals of capital, loans, advances or distribution of any assets in excess
of 5% of accumulated earnings by a gaming licensee to anyone with an ownership
interest in the gaming licensee.
The Missouri Regulations specifically provide that any action of the
Missouri Commission shall not indicate or suggest that the Missouri Commission
has considered or passed in any way on the marketability of the applicant or
licensee's securities or on any other matter other than the applicant or
licensee's suitability for licensure under Missouri law. A Missouri gaming
license holder can be disciplined in Missouri for gaming-related acts occurring
in another jurisdiction which results in disciplinary action in such other
jurisdiction.
The Missouri Commission has broad powers to require additional disclosure
by an applicant during the processing of a gaming application, to deny gaming
licensure and to administratively fine or suspend or revoke a gaming license for
failure to comply with or for violation of the Missouri Act or Missouri
Regulations. Under the Missouri Regulations, a licensee is required to provide
all requested information immediately upon request by the Missouri Commission,
and to advise the Missouri Commission of any material changes in the information
submitted by a licensee on its license application within seven business days
after the occurrence of such change. Further, in certain situations, the
Missouri Commission can appoint a supervisor to continue the operations of a
license holder after lapse, suspension or revocation of a gaming license. The
supervisor may operate or sell the facility with earnings or proceeds being paid
to the former owners only after deduction of the costs and expenses of the
supervisorship and establishment of reserves.
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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. For example, in 1990 the U.S. Congress enacted the Oil
Pollution Act to establish a comprehensive federal oil spill response and
liability framework. Pursuant to the Oil Pollution Act, the Department of
Transportation implemented regulations requiring owners and operators of certain
vessels, including the Company, to establish and maintain through the U.S. Coast
Guard evidence of financial responsibility sufficient to meet their potential
liability under both the Oil Pollution Act and the Comprehensive Environmental
Response, Compensation, and Liability Act for discharges or threatened
discharges of oil or hazardous substances. This requirement may be satisfied by
either proof of adequate insurance (including self-insurance) or the posting of
a surety bond or guaranty. 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.
Currently, the closest such facility to Sam's Town Kansas City is located in St.
Louis, Missouri. The travel to and from such docking facility, as well as the
time required for inspections of the Sam's Town Kansas City, Treasure Chest and
Par-A-Dice 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 own approximately 51% of the
outstanding shares of Common Stock of the Company as of June 30, 1997. 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.
32
35
MANAGEMENT AGREEMENTS OF LIMITED DURATION
The management agreement for the Silver Star, which is owned by the
Mississippi Band of Choctaw Indians, expires in July 2001. The Company must
submit any renewal of the management agreement to the NIGC, which has the right
to review management agreements. There can be no assurance that the current
management agreement will be renewed upon expiration or approved by the NIGC
upon any such review. The failure to renew the Company's management agreement
would result in the loss of revenues to the Company derived from the Silver Star
management agreement, which could have a material adverse effect on the Company.
The NIGC also has the authority to reduce the term of a management agreement or
the management fee or otherwise require modification of the agreement, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company manages the Treasure Chest pursuant to a management agreement
with Treasure Chest L.L.C., owner of the Treasure Chest. On July 11, 1997, the
Company entered into a definitive agreement to acquire the Remaining Treasure
Chest Interests for approximately $115 million, including the assumption of
debt. Closing of the transaction is conditioned upon, among other things,
approval by the Louisiana Gaming Control Board. There can be no assurance as to
when, or if, the acquisition will be consummated. The Company expects to fund
the acquisition and the repayment of Treasure Chest's debt with borrowings under
the Bank Credit Facility. If the acquisition is not consummated, the Company has
determined that for a number of reasons, including to strategically focus the
management and financial resources of the Company, the Company will pursue a
sale of its 15% ownership interest in Treasure Chest L.L.C. Whether or not the
Company disposes of its 15% ownership interest in Treasure Chest L.L.C. or
acquires the Remaining Treasure Chest Interests, the management agreement
between the Company and Treasure Chest L.L.C. will terminate no later than
October 31, 1997. See "-- Expansion" and "Business -- Properties -- Central
Region Properties."
RELIANCE ON CERTAIN MARKETS
The California, Fremont and Main Street Station derive a substantial
portion of their customers from the Hawaiian market. For the year ended June 30,
1997, patrons from Hawaii comprised approximately 70% of the room nights at the
California, over 56% at the Fremont and over 79% 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. Sam's Town Tunica draws patrons
from northern Mississippi, western Tennessee (principally Memphis) and Arkansas.
The Treasure Chest appeals primarily to local market patrons and attracts
patrons from the western suburbs of New Orleans. The Silver Star draws customers
from central Mississippi, including the greater Jackson area, and central
Alabama, including Birmingham, Montgomery and Tuscaloosa. Sam's Town Kansas City
draws customers from the greater Kansas City metropolitan area, as well as from
other parts of Missouri and Kansas. The Par-A-Dice draws customers not only from
the greater Peoria area but also from Chicago, Indiana, Iowa and Missouri.
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.
33
36
EMPLOYEES
At June 30, 1997, the Company employed approximately 14,500 persons:
approximately 2,600 at the Stardust; 2,400 at Sam's Town Las Vegas; 300 at the
Eldorado; 340 at Joker's Wild; 1,000 at the California; 975 at the Fremont; 775
at Main Street Station; 1,700 at Sam's Town Tunica; 750 at Sam's Town Kansas
City; 1,050 at Par-A-Dice; and 2,200 at Silver Star. Treasure Chest personnel
are employed by Treasure Chest L.L.C. On such date, the Company had collective
bargaining relationships with eleven unions covering approximately 2,600
employees, substantially all of whom are employed at the Stardust and the
Fremont. Several collective bargaining agreements are currently in effect; other
agreements have 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 June 30, 1997.
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 87,000 1,961 79 2,320 7 61
DOWNTOWN LAS VEGAS
California Hotel and Casino............... 1975 36,000 1,151 36 781 5 16
Fremont Hotel and Casino.................. 1985 32,000 1,088 27 452 5 2
Main Street Station Hotel, Casino and
Brewery................................. 1993 28,500 865 22 406 4 15
BOULDER STRIP
Sam's Town Las Vegas...................... 1979 118,000 2,841 54 650 16 63
Eldorado Casino........................... 1993 16,000 600 11 -- 3 4
Jokers Wild Casino........................ 1993 22,500 641 11 -- 2 13
CENTRAL REGION
Sam's Town Tunica......................... 1994 75,000 1,859 77 857 6 150
Sam's Town Kansas City.................... 1995 28,000 1,060 54 -- 5 34
Par-A-Dice Hotel and Casino............... 1996 33,000 1,009 42 208 3 19
Silver Star Resort and Casino............. 1994 90,000 2,799 96 503 6 20
Treasure Chest Casino..................... 1994 24,000 905 56 -- 4 --
------- ------ --- ----- -- ---
Total............................. 590,000 16,779 565 6,177 66 397
======= ====== === ===== == ===
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are also parties to various other
legal proceedings arising in the ordinary course of business. 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.
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 and executive
officers of Boyd Gaming Corporation as of August 31, 1997:
NAME AGE POSITION
- ---- --- --------
Ellis Landau 53 Executive Vice President, Chief Financial Officer and Treasurer
34
37
James Hippler 50 Senior Vice President-Administration
Keith E. Smith 37 Senior Vice President and Controller
Charles E. Huff 52 Vice President, Secretary and General 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. Prior to joining the Company, Mr. Landau held various management
positions with Ramada, Inc., a gaming and hospitality company whose gaming
operations were transferred to Aztar Corporation, including Vice President and
Treasurer of that company from 1978 to February 1990.
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.
Keith E. Smith became Senior Vice President in January 1997. Mr.
Smith served as Vice President and Controller from June 1993 to January 1997
and, from September 1990 to June 1993, he served as Corporate Controller of the
Company. From May 1989 to September 1990, Mr. Smith was Vice President-Finance
of the Dunes Hotel, Casino and Country Club in Las Vegas. From 1982 to May 1989,
he was employed by Ramada, Inc. in a variety of positions, including Controller
of the Tropicana Resort and Casino in Las Vegas.
Charles E. Huff has been Vice President, Secretary and General
Counsel of the Company since its inception. He has served as Vice President and
General Counsel of CH&C since July 1986 and Secretary since January 1988. Prior
to joining CH&C, Mr. Huff practiced law in Las Vegas for 13 years.
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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
---- ---
1995
First Quarter ............................... 14 1/4 10 1/2
Second Quarter .............................. 18 5/8 13 1/8
Third Quarter ............................... 16 3/4 13 1/2
Fourth Quarter .............................. 15 1/8 10
1996
First Quarter ............................... 12 7/8 10 3/4
Second Quarter .............................. 17 3/8 11 1/8
Third Quarter ............................... 15 1/2 9 3/8
Fourth Quarter .............................. 9 1/4 7 1/8
1997
First Quarter ............................... 8 5/8 5 3/8
Second Quarter .............................. 6 1/8 5 3/8
Third Quarter (through August 29) ........... 9 1/8 5
On August 29, 1997, the closing sales price of the Common Stock
on the NYSE was $8.125 per share. On that date, the Company had approximately
2,496 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.
The Company issued $250 million principal amount of 9.50% Senior
Subordinated Notes due 2007 pursuant to a debenture dated July 22, 1997 between
the Company and State Street Bank and Trust Company. The 9.50% Notes were sold
to Salomon Brothers Inc, UBS Securities and CIBC Wood Gundy Securities Corp.
(the "Initial Purchasers") at 97.810% of their principal amount, resulting in
$244.5 million aggregate proceeds to the Company, before deducting expenses. The
Securities were sold pursuant to an exemption under Rule 144A promulgated under
the Securities Act of 1933, as amended (the "Act") in reliance on the fact that
each of the Initial Purchasers is a "Qualified Institutional Buyer", as defined
in such Act.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of
June 30, 1997 and 1996 and for the fiscal years ended June 30, 1997, 1996 and
1995, 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 June 30, 1995 and as of and for the fiscal years
ended June 30, 1994 and 1993 have been derived from audited consolidated
financial statements of the Company not contained herein. Operating results
for the fiscal years shown below are not necessarily indicative of the results
that may be expected for future fiscal years.
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FISCAL YEAR ENDED JUNE 30,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Net revenues $ 819,259 $ 775,857 $ 660,340 $ 468,219 $ 431,174
Operating expense(b) 863,685 675,071 549,770 413,971 368,255
--------- --------- --------- --------- ---------
Operating income (loss) (44,426) 100,786 110,570 54,248 62,919
Interest expense, net(a) 61,022 51,186 46,371 36,093 32,378
Gain on investment -- -- -- -- (1,062)
--------- --------- --------- --------- ---------
Income (loss) before provision
(benefit) for income taxes,
cumulative effect of a change
in accounting principle
and extraordinary items (105,448) 49,600 64,199 18,155 31,603
Provision (benefit) for income taxes (34,025) 20,021 27,950 7,505 11,469
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect
of a change in accounting principle
and extraordinary items (71,423) 29,579 36,249 10,650 20,134
Cumulative effect of a change in
accounting for income taxes -- -- -- 2,035 --
--------- --------- --------- --------- ---------
Income (loss) before extraordinary items (71,423) 29,579 36,249 12,685 20,134
Extraordinary items, net of tax (6,069) (1,435) -- -- (7,397)
--------- --------- --------- --------- ---------
Net income (loss) (77,492) 28,144 36,249 12,685 12,737
Dividends on preferred stock -- -- -- 467 1,881
--------- --------- --------- --------- ---------
Net income (loss) applicable to
common stock $ (77,492) $ 28,144 $ 36,249 $ 12,218 $ 10,856
========= ========= ========= ========= =========
PER SHARE DATA
Net income (loss) per common share
Income (loss) before cumulative
effect of a change in accounting
principle and extraordinary items $ (1.19) $ 0.52 $ 0.64 $ 0.19 $ 0.37
Cumulative effect of a change
in accounting for income taxes -- -- -- 0.04 --
Extraordinary items (0.10) (0.03) -- -- (0.15)
--------- --------- --------- --------- ---------
Net income (loss) $ (1.29) $ 0.49 $ 0.64 $ 0.23 $ 0.22
========= ========= ========= ========= =========
Dividends on common stock -- -- -- -- --
Weighted average common shares
outstanding 60,248 57,058 56,870 54,297 48,582
OTHER OPERATING DATA
Depreciation and amortization $ 67,242 $ 60,626 $ 54,518 $ 42,136 $ 39,450
Preopening expense 3,481 10,004 -- 4,605 --
Capital expenditures 99,207 90,977 183,299 326,829 24,485
========= ========= ========= ========= =========
JUNE 30,
------------------------------------------------------------
1997 1996 1995 1994 1993
---------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA
Total assets $1,030,185 $953,425 $949,513 $836,297 $500,123
Long-term debt (excluding current
portion) 739,792 590,808 587,957 525,637 364,927
Stockholders' equity 191,316 233,257 202,613 164,405 72,686
- --------------
(a) Net of interest income and amounts capitalized.
(b) Includes $131,339 of impairment loss recorded during the year ended June
30, 1997. See Note 3 to Notes to Consolidated Financial Statements.
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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" consists of the California, the Fremont, and Main Street
Station (opened November 1996) and Vacations Hawaii (acquired October 1995), the
Company's wholly-owned travel agency which operates for the benefit of the
Downtown casino properties; and "Central Region Properties" consists of Sam's
Town Tunica, Sam's Town Kansas City (opened September 1995), Par-A-Dice
(acquired December 1996), management fee income from the Silver Star, and
management fee and joint venture income from the Treasure Chest. Net revenues
displayed in this table and discussed in this section are net of promotional
allowances; as such, references to rooms 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 exclude corporate
expense, including related depreciation and amortization, preopening expense and
impairment loss.
FISCAL YEAR ENDED JUNE 30,
------------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
Net revenues
Stardust $180,387 $194,513 $193,563
Boulder Strip Properties 193,004 189,315 168,036
Downtown Properties 167,330 146,825 135,232
Central Region Properties 278,538 245,204 163,509
-------- -------- --------
Total properties $819,259 $775,857 $660,340
======== ======== ========
Operating income
Stardust $ 19,086 $ 30,748 $ 30,688
Boulder Strip Properties 26,766 23,904 15,551
Downtown Properties 8,763(a) 17,431 22,561
Central Region Properties 62,935(b) 66,683(a) 68,486
-------- -------- --------
Total properties $117,550 $138,766 $137,286
======== ======== ========
- -------------
(a) Before preopening expense.
(b) Before impairment loss.
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FISCAL 1997 COMPARED TO FISCAL 1996
Revenues
- --------
Consolidated net revenues increased 5.6% during fiscal 1997
compared to fiscal 1996. Company-wide casino revenue increased 4.7%, food and
beverage revenue increased 6.2% and rooms revenue increased 5.8%. Net revenues
in the Nevada Region increased 1.9% in fiscal 1997 compared to fiscal 1996
primarily as a result of the opening of Main Street Station in November 1996, as
well as a full year of operations 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
(7.3%) and the California (13.1%). Net revenues in the Central Region increased
13.6% in fiscal 1997 compared to fiscal 1996 primarily as a result of the
acquisition of Par-A-Dice in December 1996, partially offset by declines in net
revenues experienced at Sam's Town Tunica (13.8%) and Sam's Town Kansas City
(12.9%).
The decline in net revenues at those properties which were in
operation for the full 12 months of fiscal 1997 and 1996 (excludes Par-A-Dice,
Main Street Station, Vacations Hawaii and Sam's Town Kansas City) is
attributable, in each case, to increased competition. In addition, Sam's Town
Tunica and the California were each adversely impacted by construction
disruption during the first part of fiscal 1997.
Operating Income (Loss)
- -----------------------
Consolidated operating loss was $44.4 million during fiscal 1997
compared to consolidated operating income of $100.8 million in fiscal 1996. The
majority of the decline in consolidated operating income was the result of $131
million in impairment losses recorded during fiscal 1997, primarily related to
the write-down of certain fixed and intangible assets in the Missouri gaming
market to fair value. See further discussion under "Impairment Losses".
Consolidated operating income before impairment loss and preopening
expense declined by 18.4% from $110.8 million in fiscal 1996 to $90.4 million in
fiscal 1997, while consolidated operating margins declined from 14.3% to 11.0%,
respectively. Operating income in the Nevada Region declined 24.2% due to
declines experienced at the Stardust and Downtown Properties, partially offset
by an increase in operating income at the Boulder Strip Properties. In the
Central Region, operating income declined by 19.6% as a result of declines
experienced at Sam's Town Tunica and Sam's Town Kansas City, offset by
operating income from Par-A-Dice (acquired December 1996). Management fee and
joint venture income from Silver Star and Treasure Chest operating income
increased 2.8% in fiscal 1997 versus fiscal 1996.
Stardust
- --------
Net revenues at the Stardust declined by 7.3% during fiscal 1997
compared to fiscal 1996. The majority of the decline is attributable to a 8.5%
reduction in casino revenues, as a result of a decline in slot wagering and a
lower win percentage in the sports book partially offset by increased wagering.
Revenues from rooms, food and beverage also declined by approximately 6.2%
during the fiscal year due to a decline in the number of occupied rooms and food
covers. Operating income declined by 37.9% to $19.1 million in fiscal 1997
compared to fiscal 1996, and operating income margin declined from 15.8% in
fiscal 1996 to 10.6% in fiscal 1997. These declines in operating income and
operating income margin are primarily the result of the decline in revenues.
Boulder Strip Properties
- ------------------------
Net revenues at the Boulder Strip Properties increased 1.9% during
fiscal 1997 compared to fiscal 1996. The increase is primarily attributable to a
2.2% increase in casino revenue as a result of increased wagering volume in
table games and slots at Sam's Town Las Vegas. Rooms revenues and food and
beverage revenue increased 11.0% and 2.2%, respectively, over the prior fiscal
year's levels. The increase in rooms revenue is primarily attributable to a
24.3% increase in average daily room rates at Sam's Town Las Vegas. Operating
income margin at the Boulder Strip Properties increased from 12.6% in fiscal
1996 to 13.9% in fiscal 1997, due to the increase in net revenues as well as
improved operating margins in the rooms and food and beverage departments at
Sam's Town Las Vegas.
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DOWNTOWN PROPERTIES
- -------------------
Net revenues at the Downtown Properties increased 14.0% during
fiscal 1997 compared to fiscal 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 majority 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 California and Fremont of 13.1% and 5.7%, respectively. These
two properties have been affected by the opening of Main Street Station, which
initially attracted patrons from their customer bases. In addition, each
component of the California's net revenues were adversely impacted by a rooms
remodel project which reduced its room availability by approximately 15% during
the first fiscal quarter of 1997. Aggregate operating income for the Downtown
Properties declined by 50% during fiscal 1997 to $8.8 million, and aggregate
operating income margin for the Downtown Properties decreased from 11.9% in
fiscal 1996 to 5.2% in fiscal 1997. These declines are a result of the
reduction in net revenues at the California and Fremont, as well as the $1.6
million operating loss from Vacations Hawaii. In addition, Main Street Station
posted a $1.9 million operating loss before preopening expense since its
opening in November 1996.
CENTRAL REGION
- --------------
Net revenues from the Central Region increased 13.6% during fiscal
1997 compared to fiscal 1996. The majority of the increase is attributable to
Par-A-Dice, which was acquired on December 5, 1996. Par-A-Dice generated net
revenues of $59.6 million since its acquisition. This increase was partially
offset by declines of 13.8% and 12.9%, respectively, in net revenues at Sam's
Town Tunica and Sam's Town Kansas City. Operating income before preopening
expense and impairment loss declined by 5.6% in fiscal 1997, and operating
income margin declined from 27.2% in fiscal 1996 to 22.6% in fiscal 1997. The
decrease in operating income is due to the decline in net revenues at Sam's Town
Tunica and the increased operating losses at Sam's Town Kansas City, offset by
the operating income from Par-A-Dice. Sam's Town Tunica's operating margin
declined from 21.8% in fiscal 1996 to 14.9% during fiscal 1997 as a result of
increased competition in that market as well as the construction disruption from
the 350-room hotel tower and the additional 1,000 space parking garage which
were completed in December 1996. Sam's Town Kansas City posted a $10.9 million
operating loss (before impairment loss) during fiscal 1997 compared to a $5.0
million operating loss in the prior fiscal year. The increase in operating loss
is attributable to increased market competition. Due to the significant change
in the competitive environment, the Company recorded an impairment loss of
approximately $126 million related to its investment in the Missouri gaming
market. See further discussion below regarding this write-down under Impairment
Loss.
OTHER EXPENSES
- --------------
Depreciation and amortization expense increased by $6.6 million
during fiscal 1997. The increase is primarily attributable to an increase in
fixed and intangible assets related to the opening of Main Street Station in
November 1996, the acquisition of Par-A-Dice in December 1996, and the
completion of the new hotel tower and parking garage at Sam's Town Tunica in
December 1996. As discussed below under Impairment Losses, the write-down of the
fixed and intangible assets related to Sam's Town Kansas City is expected to
reduce future depreciation and amortization expense by approximately $7 million
on an annual basis.
Corporate expenses were $24.3 million for both fiscal 1997 and
fiscal 1996.
During fiscal 1997 and 1996, the Company recorded a preopening
charge of $3.5 million and $10.0 million, respectively, upon the opening of Main
Street Station in November 1996 and Sam's Town Kansas City in September 1995.
IMPAIRMENT LOSSES
- -----------------
During fiscal 1997, the Company, in accordance with SFAS No. 121,
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. In addition, the restrictive nature
of the Missouri gaming regulations with respect to wagering limits and simulated
cruise requirements has not been conducive to profitable operations, and based
upon currently available information, management does not believe that any
significant regulatory relief is forthcoming. The Company continues to operate
Sam's Town Kansas City while focusing on cost control measures and the pursuit
of future legislative and regulatory relief.
In addition, the Company recorded a $5.3 million impairment loss
related to its 17.4% ownership interest in FSE during fiscal 1997. 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 operation. Management expects this trend to continue and,
therefore, does not expect to recover its investment in this entity.
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OTHER INCOME (EXPENSE)
Other income and expense is primarily comprised of interest
expense, net of amounts capitalized. Interest expense increased by $9.3 million
during fiscal 1997 to $61.7 million and is primarily attributable to higher
levels of average debt outstanding due to, among other things, the December
1996 acquisition of Par-A-Dice for approximately $172 million and the major
renovation and expansion projects related to Main Street Station and Sam's Town
Tunica.
PROVISION (BENEFIT) FOR INCOME TAXES
The Company's effective tax rate was (32.3%) and 40.4%,
respectively, for fiscal years ended June 30, 1997 and 1996. The fluctuation in
the rates is primarily attributable to the impairment loss recorded during
fiscal 1997.
EXTRAORDINARY ITEMS
In connection with the 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 fiscal 1997. In addition, the Company recorded
an extraordinary loss of $1.4 million, net of tax, during fiscal 1996 related to
the write-off of unamortized bank loan fees in connection with the completion of
the Company's current Bank Credit Facility in June 1996.
NET INCOME (LOSS)
As a result of these factors, the Company reported a net loss of
$77.5 million for fiscal 1997 compared to net income of $28.1 million in fiscal
1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Consolidated net revenues increased 17.5% for fiscal 1996 compared
to fiscal 1995. The increase in net revenues for fiscal 1996 resulted primarily
from the opening of Sam's Town Kansas City in September 1995, increased revenues
at Sam's Town Las Vegas of 14.9% and increased revenues at Sam's Town Tunica of
8.2%. In the Company's Central Region, revenue increased 50% for fiscal 1996
compared to fiscal 1995 while in the Company's Nevada Region, revenue increased
5.4% for fiscal 1996 compared to fiscal 1995. Revenue growth on a consolidated
basis in fiscal 1996 was achieved in all major revenue categories, with casino
revenue increasing 18.3%, room revenue increasing 5.7%, food and beverage
revenue increasing 12.7% and management fee and joint venture income increasing
16.3% compared to fiscal 1995. Slot revenue, which continued to account for more
than 70% of casino revenue, increased 22% in fiscal 1996 compared to fiscal
1995. The increase in slot revenue was primarily attributable to the opening of
Sam's Town Kansas City in September 1995 and to a 24% increase in slot revenue
at Sam's Town Las Vegas. Table games revenue, the only other significant
component of casino revenue, increased 10.6% in fiscal 1996 compared to fiscal
1995 primarily as a result of the opening of Sam's Town Kansas City.
Company-wide room revenue increased 5.7% in fiscal 1996 compared to fiscal 1995
as a result of a 5.9% increase in occupied rooms and a 6.3% increase in the
average daily room rate. The increase in occupied rooms was attributable to the
openings of the Sam's Town Tunica rooms expansion (300 rooms opened in December
1994) and the California rooms expansion (146 rooms opened in December 1994).
Both of these rooms expansion projects were open for the entire fiscal
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1996 but were only open for the last six months of fiscal 1995. Occupancy
statistics do not include rooms at Main Street Station which the Company used
until the November 1996 opening of Main Street Station to augment the rooms
base at the California and the Fremont. The Main Street Station property was
purchased in December 1993 as a closed casino hotel facility. In November 1996,
the Company completed a major renovation of the facility and opened Main
Street Station for business.
Consolidated operating income declined 8.8% for fiscal 1996 as
compared to fiscal 1995 while consolidated operating income margins declined to
13.0% from 16.7%. This decline in consolidated operating income and consolidated
operating income margins was primarily attributable to the write-off of
preopening expenses related to the opening of Sam's Town Kansas City on
September 13, 1995. This preopening charge, which amounted to $10 million, was
taken in the first quarter of fiscal 1996. Consolidated operating income for
fiscal 1996 before the write-off of preopening expenses increased slightly
compared to fiscal 1995 while consolidated operating income margins was 14.3% in
fiscal 1996 compared to 16.7% in fiscal 1995. In the Company's Nevada Region,
operating income increased 6.2% for fiscal 1996 compared to fiscal 1995 while
consolidated operating income margins increased to 14.0% for fiscal 1996 from
13.8% in fiscal 1995. This increase in operating income and operating income
margins was primarily attributable to increases at Sam's Town Las Vegas of 83%
and 4.3 percentage points, respectively, offset by declines at the Downtown
Properties of 18.2% and 3.5 percentage points, respectively. In the Company's
Central Region, operating income before the write-off of preopening expenses
related to Sam's Town Kansas City decreased 2.6% in fiscal 1996 compared to
fiscal 1995 while operating income margins declined to 27% primarily as a result
of an operating loss at Sam's Town Kansas City and a decline in operating income
margin at Sam's Town Tunica to 21.8% in fiscal 1996.
Net revenues at the Stardust increased 0.5% for fiscal 1996 as
compared to the prior fiscal year. Casino and food and beverage revenues
declined 0.5% and 1.6%, respectively, while rooms revenue increased 3.4% and
showroom revenue increased 9.3% for fiscal 1996 as compared to fiscal 1995. Slot
revenue declined 1.3% in fiscal 1996 with a 2.3% increase in wagering offset by
lower net winnings. Table games revenue declined 4.1% for fiscal 1996 as
compared to fiscal 1995 as a result of an increase of 4.3% in wagering offset by
lower net winnings. Other casino revenues increased 11.9% for fiscal 1996
primarily as a result of a 28% increase in revenue in the sports book. Rooms
revenue at the Stardust increased 3.4% for fiscal 1996 compared to fiscal 1995
with a 1.3% decline in occupied rooms offset by a 7.9% increase in average daily
room rate. Operating income increased slightly in fiscal 1996 compared to fiscal
1995 and operating income margin was 15.8% compared to 15.9%, respectively for
fiscal 1996 versus fiscal 1995. The slight decline in operating income margin
was primarily the result of higher advertising and promotional expenses not
fully offset by increased operating income and operating income margin in the
rooms department.
Net revenues for the Boulder Strip Properties increased 12.7% for
fiscal 1996 versus fiscal 1995 primarily as a result of increased revenues at
Sam's Town Las Vegas. Sam's Town Las Vegas revenue increased 14.9% for fiscal
1996 while revenues increased 6.8% at Jokers Wild and declined slightly at the
Eldorado. Casino revenues at the Boulder Strip Properties increased 16.7% for
fiscal 1996 versus fiscal 1995, while rooms revenue increased 4.7% and food and
beverage revenue increased 4.8%. Operating income at the Boulder Strip
Properties increased 54% for fiscal 1996 compared to fiscal 1995 while operating
income margin increased 3.3 percentage points to 12.6% for fiscal 1996. Sam's
Town Las Vegas posted increases in operating income and operating income margin
of 83% and 4.3 percentage points, respectively for the 1996 fiscal year.
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45
Operating income margins increased 2.5 percentage points at the Eldorado and
declined 2.3 percentage points at Jokers Wild for fiscal 1996 versus fiscal
1995. The increase in operating income margin at the Eldorado was a result of
increased casino revenue while the decline in operating income margin at Jokers
Wild was primarily a result of increased expenses in the food and beverage
department for fiscal 1996 versus fiscal 1995. Management believes that the
significant increases in revenues, operating income and operating income margin
at Sam's Town Las Vegas for fiscal 1996 versus fiscal 1995 were primarily
attributable to the implementation of successful marketing programs creating
increased customer awareness and visitation.
Net revenues at the Downtown Properties increased 3.2% for fiscal
1996 compared to fiscal 1995. Net revenues at the California increased 1.4%
while net revenues at the Fremont increased 5.2%. Casino revenues at the
Downtown Properties were up slightly while food and beverage revenue increased
20% and rooms revenue declined slightly. Operating income and operating income
margins at the Downtown Properties declined 18.2% and 3.5 percentage points,
respectively in fiscal 1996 as compared to fiscal 1995. Operating income at the
California declined 20% while operating income margin at the California declined
3.7 percentage points for fiscal 1996. The decline in operating income and
operating income margin at the California was primarily the result of increased
operating costs in the rooms and food and beverage departments and increased
advertising and promotional costs. Operating income and operating income margin
at the Fremont declined 15.6% and 3.1 percentage points, respectively for fiscal
1996 compared to fiscal 1995 primarily as a result of increased advertising and
promotional costs. Construction of the Fremont Street Experience project, which
was completed and opened to the public in December 1995, negatively impacted the
Downtown Properties for the majority of the first and second fiscal quarter.
Net revenues at the Central Region Properties increased 50% for
fiscal 1996 versus 1995. The opening of Sam's Town Kansas City on September 13,
1995 accounted for the majority of the increase in fiscal 1996. Sam's Town
Tunica revenues increased 8.2% for the 1996 fiscal year versus fiscal 1995 while
management fees and joint venture income related to the Silver Star and the
Treasure Chest operations increased 16.3%. Operating income in the Central
Region (before the write-off of preopening expenses related to Sam's Town Kansas
City) declined 2.6% to $66.7 million for fiscal 1996. The decline in operating
income was primarily a result of a $5 million operating loss at Sam's Town
Kansas City and an 8.0% decline in operating income at Sam's Town Tunica,
partially offset by a 16.3% increase in operating income from management fees
and joint venture income. The operating loss at Sam's Town Kansas City was
primarily attributable to revenues not sufficient to cover the high level of
fixed costs associated with the operation of the facility and higher levels of
advertising and promotional expenses aimed at increasing customer awareness and
revenues. Results from Sam's Town Tunica were weakened due to severe weather
during the third quarter of fiscal 1996, the effects of a new competitor opening
at the beginning of the fourth fiscal quarter and the impact of construction
disruption related to the 350-room hotel expansion project and construction of a
1,000-car parking garage which commenced in the second half of fiscal 1996.
Interest expense, net of amounts capitalized, increased $3.9
million or 8.1% for fiscal 1996 compared to fiscal 1995 primarily as a result of
less capitalized interest related to projects under development. Depreciation
and amortization expense for fiscal 1996 increased $6.1 million or 11.2%
compared to fiscal 1995 primarily as a result of the opening of Sam's Town
Kansas City in September 1995 and a full year of depreciation of the Sam's Town
Las Vegas expansion and the California rooms expansion projects which opened in
December 1994.
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46
The Company's tax rate for fiscal 1996 was 40% compared to 44% in
fiscal 1995. The Company's 1995 tax rate was affected by the increase in certain
non-deductible expenses related to the Company's development efforts during that
year.
The Company recorded an extraordinary loss, net of tax, of $1.4
million in fiscal 1996. This extraordinary loss resulted from the write-off of
unamortized bank loan fees in connection with its recent bank refinancing which
was completed on June 19, 1996.
As a result of these factors, the Company reported net income of
$28.1 million for fiscal 1996 compared to net income of $36.2 million in fiscal
1995.
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47
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow and Working Capital
The Company's policy is to use operating cash flow in combination
with debt and equity financing to fund renovations of its properties and
expansion of its business. During fiscal 1997, the Company completed an
expansion and renovation of Main Street Station, the acquisition of Par-A-Dice
and the addition of a 350-room hotel tower and 1,000 space parking garage at
Sam's Town Tunica. The aggregate cost of these expenditures was approximately
$255 million over the course of fiscal 1997 and 1996. In addition, the Company's
current expansion plans include, among other things, the proposed acquisition of
the remaining 85% of Treasure Chest L.L.C., the owner of the Treasure Chest
riverboat casino in Kenner, Louisiana, for $115 million, including the
assumption of debt, as well as the anticipated $100 million investment in the
Mirage Joint Venture in Atlantic City, New Jersey.
During fiscal 1997, the Company's generated operating cash flows of
$82.0 million compared to $103.9 million in fiscal 1996 and $83.1 million in
fiscal 1995. Operating cash flows in fiscal 1997 were impacted by increased
levels of competition as well as construction disruption at Sam's Town Tunica
and the California. As of June 30, 1997 and 1996, the Company had balances of
cash and cash equivalents of approximately $55 million and $49 million,
respectively, and working capital deficits of $3.5 million and $9.0 million,
respectively. The Company has historically operated with negative working
capital in order to minimize borrowings (and related interest costs) under its
Bank Credit Facility. The working capital deficits are funded through cash
generated from operations as well as borrowings under the Bank Credit Facility.
Capital Expenditures
The Company is committed to continually maintaining and enhancing
its existing facilities, most notably by upgrading and remodeling its casinos,
hotel rooms, restaurants and public space and by providing the latest slot
machines for its customers. The Company's capital expenditures for these
purposes were approximately $38.2 million, $30.1 million and $23.5 million
during the years ended June 30, 1997, 1996 and 1995. In addition, the Fremont is
currently undergoing a rooms remodel project which is expected to cost
approximately $5 million and be completed by the end of calendar 1997.
During fiscal 1997, net cash used in investing activities was
$250.3 million versus $105.7 million in fiscal 1996 and $145.5 million in fiscal
1995. Fiscal 1997 investing activities consisted primarily of the $171 million
acquisition of Par-A-Dice, the expansion and renovation of Main Street Station,
the new 350-room hotel tower and parking garage facility at Sam's Town Tunica,
as well as maintenance capital expenditures at the Company's other properties.
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48
Debt Facilities and Equity Financing
Much of the funding for the Company's renovation and expansion projects
comes from debt and equity financings, as well as cash flows from existing
operations. During fiscal 1997, cash flows from financing activities totalled
$174.5 million, primarily as a result of net borrowings under the Company's Bank
Credit Facility, which originated in June 1996 and matures in June 2001. At June
30, 1997, outstanding borrowings and unused availability under the Bank Credit
Facility were $351 million and $149 million, respectively. However, the unused
availability was subsequently reduced in July 1997 in connection with the
issuance of $250 million principal amount of 9.50% Senior Subordinated Notes
described below. Interest on the Bank Credit Facility is based upon the agent
bank's quoted reference rate or London Interbank Offered Rate, at the discretion
of the Company. The rate under the Bank Credit Facility at June 30, 1997 was
8.1%.
In October 1996, the Company issued $200 million principal amount of
9.25% Senior Notes due October 1, 2003. The net proceeds from this offering were
used to reduce outstanding indebtedness under the Company's Bank Credit
Facility. Subsequently in November 1996, the Company used amounts available
under its Bank Credit Facility to redeem its $150 million principal amount of
10.75% Senior Subordinated Notes prior to their scheduled maturity. Also in
October 1996, the Company completed an offering of 4,000,000 shares of common
stock at $9.00 per share generating net proceeds of approximately $34 million.
The net proceeds from this offering were used to reduce outstanding indebtedness
under the Company's Bank Credit Facility.
In July 1997, Company issued, through a private placement, $250 million
principal amount of 9.50% Senior Subordinated Notes due July 2007. The net
proceeds from this offering were used to reduce outstanding indebtedness under
the Company's Bank Credit Facility. Management expects to eventually use its
availability under the Bank Credit Facility to redeem the Company's $185 million
principal amount of 11% Senior Subordinated Notes (the "11% Notes") prior to
their scheduled maturity. In connection with the issuance of the 9.50% Notes,
availability under the Bank Credit Facility was reduced by approximately $193
million and will subsequently be increased if and to the extent the Company
purchases or redeems the 11% Notes. There can be no assurance that the 11% Notes
will be redeemed and the availability under the Bank Credit Facility restored to
its prior capacity. The Company is obligated to register and have declared
effective the 9.50% Notes or exchange them for identical notes that have been
registered with the Securities and Exchange Commission within certain predefined
time parameters. If the Company does not accomplish such registration within the
required time frame, certain additional interest will accrue at rates ranging
from 0.50% to 1.50% per annum. There can be no assurance that the 9.50% Notes
will be registered and the registration declared effective within the required
time frame.
The Company, through its wholly-owned subsidiary, California Hotel
Finance Company, has $185 million principal amount of 11% Senior Subordinated
Notes due December 2002. The 11% Notes contain certain covenants, including but
not limited to limitations on restricted payments (as defined in the indenture
related to the 11% Notes). As a result of these restrictions, at June 30, 1997
California Hotel and Casino (a wholly-owned subsidiary of the Company) had a
portion of its retained earnings and net assets, in the amounts of $31.9
million and $87.1 million, respectively, that were not available for
distribution as dividends to the Company.
Certain indebtedness of the Company contains restrictive covenants
which, among other things, impose significant restrictions on the Company's
operations and its ability to seek alternative financing means.
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.
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49
New Expansion Projects
The Company, as part of its ongoing strategic planning process, has
recently completed a review of its current growth opportunities. Based on this
review, the Company expects to be focusing its growth efforts in two areas. In
Nevada, the Company has decided to focus its growth efforts on the Stardust.
The Company is analyzing various alternatives to utilize the 61-acre Stardust
site, including additional hotel rooms and other amenities to more effectively
compete with the new generation of Las Vegas properties.
Outside Nevada, the Company is focusing its efforts on its joint
venture with Mirage Resorts, Inc. On May 29, 1996, the Company, through a
wholly-owned subsidiary, executed a joint venture agreement with Mirage for the
Atlantic City Project. The Mirage Joint Venture Agreement provides for $100
million in capital contributions by the Company during the course of the
construction of the Atlantic City Project. The Company plans to fund its Mirage
Joint Venture capital contributions primarily from cash flow from operations
and availability under the Company's Bank Credit Facility.
Also outside Nevada, the Company entered into a definitive agreement on
July 11, 1997 to purchase the remaining 85% interest in Treasure Chest L.L.C.,
the owner of the Treasure Chest riverboat casino in Kenner, Louisiana. The
purchase price is $115 million, including the assumption of debt. The Company
expects to fund the acquisition with borrowings under the Bank Credit Facility.
The transaction is subject to certain regulatory approvals. There can be no
assurance as to when, or if, the acquisition will be consummated.
During the first quarter of fiscal 1997, the Company purchased a casino
hotel site in Reno, Nevada with plans to develop Sam's Town Reno on the site.
The Company has determined that further development of the Stardust site and the
Mirage Joint Venture and the Treasure Chest acquisition should take priority
over the Sam's Town Reno project at this time.
Substantial funds would be required for any of the expansion projects
discussed above. There can be no assurance that any of the above mentioned
projects will go forward or ultimately become operational. The source of funds
required to meet the Company's working capital needs (including maintenance
capital expenditures) and those required to complete the above-mentioned
projects is expected to be cash flow from operations and availability under the
Company's Bank Credit Facility. Based on current plans, the Company does not
anticipate issuing additional equity or obtaining new borrowings in excess of
amounts available under the Bank Credit Facility in the next 12 months.
Thereafter, the Company may require additional funds to support its working
capital requirements or for other purposes and may seek to raise such additional
funds through public or private equity and/or debt financings or from 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. See "Investment Considerations -- Leverage and
Debt Service," "-- Expansion," and "-- Additional Financing Requirements."
The Company continues to pursue and investigate additional expansion
opportunities both in Nevada and in other markets where casino gaming is
currently permitted. Such expansion will be affected and determined by several
key factors, including license selection processes, identification of additional
suitable investment opportunities in current gaming jurisdictions, and
availability of acceptable financing. Additional projects will require the
Company to make substantial investments, which the Company intends to fund
through cash flow from operations and availability under the Bank Credit
Facility. To the extent such sources of funds are not sufficient, the Company
may also seek to raise such additional funds through public or private equity
and/or debt financings or from 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 and its stockholders.
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.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not required of the Company at this time.
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.
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 1997 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 1997 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 1997 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 1997
Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page No.
--------
(a) 1. FINANCIAL STATEMENT SCHEDULES. The following financial statement schedules
for the years ended June 30, 1997, 1996 and 1995 filed as part of this report:
Independent Auditors' Report....................................................... F-2
Consolidated Balance Sheets at June 30, 1997 and 1996.............................. F-3
Consolidated Statements of Operations for the Years Ended
June 30, 1997, 1996 and 1995..................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended June 30, 1997, 1996 and 1995......................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1997, 1996 and 1995..................................................... F-6
Notes to Consolidated Financial Statements......................................... F-7
2. FINANCIAL STATEMENT SCHEDULES. The following financial statement schedules
for the years ended June 30, 1997, 1996 and 1995 are filed as part of this report:
Condensed Financial Information of Registrant...................................... S-1
Schedules not listed above have been omitted because they are either inapplicable
or the required information has been given in the financial statements or notes
thereto
3. EXHIBITS. Refer to (c) below.
(b) Reports on Form 8-K.
1. Current Report on Form 8-K, dated April 24, 1997, relating to a change in fiscal
year.
2. Current Report on Form 8-K, dated June 23, 1997, relating to the issuance of
$250 million principal amount of Senior Subordinated Notes due 2007.
3. Current Report on Form 8-K, dated July 11, 1997, relating to the Treasure Chest
acquisition.
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51
BOYD GAMING CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report F-2
Consolidated Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
52
INDEPENDENT AUDITORS' REPORT
Boyd Gaming Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Boyd
Gaming Corporation and Subsidiaries (the "Company") as of June 30, 1997 and
1996, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Boyd Gaming Corporation and
Subsidiaries at June 30, 1997 and 1996 and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1997
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
August 20, 1997
F-2
53
CONSOLIDATED BALANCE SHEETS Boyd Gaming Corporation and Subsidiaries
June 30,
------------------------
(In thousands, except share data) 1997 1996
---------- --------
ASSETS
Current assets
Cash and cash equivalents $ 55,220 $ 48,980
Accounts receivable, net 16,946 16,040
Inventories 8,501 6,531
Prepaid expenses 14,873 15,265
---------- --------
Total current assets 95,540 86,816
Property and equipment, net 744,038 796,093
Other assets and deferred charges 56,944 59,989
Deferred income taxes 8,533 --
Goodwill and other intangible assets, net 125,130 10,527
---------- --------
Total assets $1,030,185 $953,425
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,841 $ 4,031
Accounts payable 30,760 31,936
Accrued liabilities
Payroll and related 24,648 22,956
Interest and other 40,725 36,213
Income taxes payable 1,103 678
---------- --------
Total current liabilities 99,077 95,814
Long-term debt, net of current maturities 739,792 590,808
Deferred income taxes -- 33,546
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; 61,523,988 and
57,213,720 shares outstanding 615 572
Additional paid-in capital 138,091 102,583
Retained earnings 52,610 130,102
---------- --------
Total stockholders' equity 191,316 233,257
---------- --------
Total liabilities and stockholders' equity $1,030,185 $953,425
========== ========
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
54
CONSOLIDATED STATEMENTS OF OPERATIONS Boyd Gaming Corporation and Subsidiaries
(In thousands, except per share data) For the years ended June 30,
- --------------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------------
Revenues
Casino $573,782 $548,167 $463,179
Food and beverage 151,261 142,420 123,527
Rooms 74,209 69,645 62,300
Other 58,311 49,895 37,563
Management fees and joint venture 42,747 41,576 35,763
----------------------------------
Gross revenues 900,310 851,703 722,332
Less promotional allowances 81,051 75,846 61,992
----------------------------------
Net revenues 819,259 775,857 660,340
----------------------------------
Costs and expenses
Casino 298,081 273,545 221,844
Food and beverage 106,729 99,213 90,670
Rooms 25,210 25,842 24,578
Other 50,695 36,830 25,567
Selling, general and administrative 120,538 114,497 79,785
Maintenance and utilities 36,037 30,171 28,452
Depreciation and amortization 67,242 60,626 54,518
Corporate expense 24,333 24,343 24,356
Preopening expense 3,481 10,004 --
Impairment loss 131,339 -- --
----------------------------------
Total 863,685 675,071 549,770
----------------------------------
Operating income (loss) (44,426) 100,786 110,570
----------------------------------
Other income (expense)
Interest income 650 1,174 2,072
Interest expense, net of amounts capitalized (61,672) (52,360) (48,443)
----------------------------------
Total (61,022) (51,186) (46,371)
----------------------------------
Income (loss) before provision (benefit) for income taxes
and extraordinary item (105,448) 49,600 64,199
Provision (benefit) for income taxes (34,025) 20,021 27,950
----------------------------------
Income (loss) before extraordinary item (71,423) 29,579 36,249
Extraordinary item, net of tax benefit of $3,268 and $889,
respectively 6,069 1,435 --
==================================
Net income (loss) $(77,492) $28,144 $36,249
==================================
Net income (loss) per common share
Income (loss) before extraordinary item $(1.19) $0.52 $0.64
Extraordinary item, net of tax (0.10) (0.03) --
----------------------------------
Net income (loss) $(1.29) $0.49 $0.64
==================================
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
55
CONSOLIDATED STATEMENTS OF Boyd Gaming Corporation and Subsidiaries
CHANGES IN STOCKHOLDERS' EQUITY
For the years ended June 30, 1997, 1996 and 1995
Common Stock Additional Total
-------------------- Paid-In Retained Stockholders'
(In thousands, except share data) Shares Amount Capital Earnings Equity
- -------------------------------------------------------------------------------------------------
Balances, July 1, 1994 56,816,895 $568 $ 98,128 $ 65,709 $164,405
Net income 36,249 36,249
Stock issued in connection with
employee stock purchase plan 182,123 2 1,957 1,959
- -------------------------------------------------------------------------------------------------
Balances, June 30, 1995 56,999,018 570 100,085 101,958 202,613
Net income 28,144 28,144
Stock issued in connection with
employee stock purchase plan 212,368 2 2,466 2,468
Stock options exercised 2,334 -- 32 32
- -------------------------------------------------------------------------------------------------
Balances, June 30, 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
=================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
56
CONSOLIDATED STATEMENTS OF CASH FLOWS Boyd Gaming Corporation and Subsidiaries
For the years ended June 30,
----------------------------------
1997 1996 1995
--------- --------- ---------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (77,492) $ 28,144 $ 36,249
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 67,242 60,626 54,518
Loss on early retirement of debt 9,337 3,759 --
Deferred income taxes (42,079) 3,903 14,148
Impairment loss 131,339 -- --
Other -- 185 84
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net (906) 95 (3,089)
(Increase) decrease in inventories (1,970) 117 (180)
(Increase) decrease in prepaid expenses 392 (1,800) 1,940
Increase in other assets (4,853) (6,736) (2,032)
Increase (decrease) in other current liabilities 574 15,504 (19,146)
Increase in income taxes payable 425 82 596
--------- --------- ---------
Net cash provided by operating activities 82,009 103,879 83,088
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash paid for acquisition of Par-A-Dice Hotel and Casino (170,725) -- --
Acquisition of property, equipment and other assets (99,586) (107,734) (181,212)
Proceeds from loans receivable -- 2,000 30,667
Proceeds from sale of riverboat 20,000 -- --
Decrease in short-term investments -- -- 5,000
--------- --------- ---------
Net cash used in investing activities (250,311) (105,734) (145,545)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 200,148 230,934 86,025
Payments on long-term debt (19,354) (265,149) (22,027)
Early retirement of long-term debt (157,500) -- --
Net borrowings (payments) under credit agreements 116,000 (250) 13,000
Proceeds from issuance of common stock 35,248 2,131 1,664
--------- --------- ---------
Net cash provided by (used in) financing activities 174,542 (32,334) 78,662
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 6,240 (34,189) 16,205
Cash and cash equivalents, beginning of year 48,980 83,169 66,964
--------- --------- ---------
Cash and cash equivalents, end of year $ 55,220 $ 48,980 $ 83,169
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net amounts capitalized $ 58,556 $ 54,342 $ 51,405
Cash paid for income taxes 7,981 15,266 12,607
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Property additions acquired on contracts and trade
payables which were accrued, but not yet paid $ 6,973 $ 7,352 $ 24,109
Deferred bond financing costs incurred 4,624 -- --
Acquisition of Par-A-Dice Hotel and Casino
Fair value of assets acquired $ 174,800 $ -- $ --
Cash paid to seller 170,725 -- --
--------- --------- ---------
Liabilities assumed $ 4,075 $ -- $ --
========= ========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
57
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 ten casino entertainment
facilities located in Las Vegas, Nevada, Tunica, Mississippi, Kansas City,
Missouri and East Peoria, Illinois, as well as a travel agency located in
Honolulu, Hawaii. In addition, the Company manages a casino entertainment
facility in Philadelphia, Mississippi for which it has a seven year management
contract that expires in 2001. The Company is also part owner of and manages a
riverboat gaming operation in Kenner, Louisiana which opened September 1994 for
which it has a five year management contract with certain renewal options. The
Company has recently entered into an agreement to purchase the remaining equity
interests in the entity which owns the Kenner gaming operation (see Note 11).
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 on the project using the Company's weighted average cost of
borrowing. Capitalization of interest ceases when the project is substantially
complete. Capitalized interest during the fiscal years ended June 30, 1997, 1996
and 1995 was $3.2 million, $4.6 million and $7.1 million, respectively.
Goodwill and Other Intangible Assets
The excess of total acquisition costs over the fair market value of assets
acquired is amortized using the straight-line method over forty years.
Management periodically assesses the recoverability of
F-7
58
goodwill and other 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 June 30, 1997 and 1996,
accumulated amortization was $6.1 million and $4.0 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 revenues represent 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:
Year ended June 30,
------------------------------------------
(In thousands) 1997 1996 1995
------- ------- -------
Rooms $11,704 $10,660 $ 8,991
Food and beverage 58,120 59,254 49,674
Other 3,168 3,116 2,422
------- ------- -------
Total $72,992 $73,030 $61,087
======= ======= =======
Preopening Expenses
Expenses incurred prior to the opening of new facilities are capitalized as
incurred and charged to expense upon commencement of operations. During the
years ended June 30, 1997 and 1996, the Company expensed $3.5 million and $10.0
million, respectively, upon the opening of Main Street Station and Sam's Town
Kansas City. There were no preopening expenses recorded during the year ended
June 30, 1995.
Net Income (Loss) Per Common Share
Net income (loss) per common share is based upon the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period, which were 60,247,508, 57,057,550 and 56,870,104 for the years ended
June 30, 1997, 1996 and 1995, respectively. Common stock equivalents, although
not considered during net loss years, consist of outstanding stock options.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the 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 amounts in the 1996 and 1995 consolidated financial statements have
been reclassified to conform to the 1997 presentation. These reclassifications
had no effect on the Company's net income.
F-8
59
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 ("FASB") has issued Statement on
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which is
effective for fiscal years ending after December 15, 1997. This statement
establishes standards for computing and presenting earnings per share. Earlier
adoption of this statement is not permitted and, upon adoption, requires
restatement as applicable of all prior period earnings per share data
presented. The Company will adopt SFAS No. 128 in the stub period ending
December 31, 1997. Management believes the adoption of SFAS No. 128 will not
have a significant impact on the Company's previously reported earnings per
share.
The FASB issued SFAS No. 129, "Disclosure of Information about Capital
Structure", which is effective for fiscal years ending after December 15, 1997.
This statement establishes standards for disclosing information about an
entity's capital structure. Management intends to comply with the disclosure
requirements of this statement in the stub period ending December 31, 1997.
The FASB issued SFAS No. 130, "Reporting Comprehensive Income," which is
effective for fiscal years beginning after December 15, 1997. This statement
requires businesses to disclose comprehensive income and its components in their
financial statements. Management intends to comply with the disclosure
requirements of this statement in the year ending December 31, 1998.
The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which is effective for fiscal years beginning after
December 15, 1997. 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 will
adopt SFAS No. 131 in the year ending December 31, 1998. Management has not yet
completed its analysis of which operating segments it will report on to comply
with SFAS No. 131.
- --------------------------------------------------------------------------------
NOTE 2. - ACQUISITION
On December 5, 1996, the Company completed the acquisition of 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 recently opened a 208-room hotel adjacent to the Par-A-Dice
casino. The purchase price of the acquisition was approximately $173 million.
The purchase price exceeded the fair value of the net assets by approximately
$116 million. The Company's pro-forma consolidated results of operations, as if
the acquisition had occurred on July 1, 1995, are as follows:
Years Ended June 30,
--------------------
1997 1996
--------- ---------
Pro forma (in thousands, except share data)
Net revenues ....................................... $861,563 $869,819
Income (loss) before extraordinary item ............ (66,644) 40,828
Net income (loss) .................................. (72,713) 39,393
-------- --------
Net income (loss) per common share
Net income (loss) before extraordinary item ........ $ (1.11) $ 0.72
Net income (loss) .................................. (1.21) 0.69
-------- --------
F-9
60
- ---------------------------------------------------------------------------
NOTE 3. - IMPAIRMENT LOSS
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.
The Company also 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 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 operation. Management expects this trend to
continue and, therefore, does not expect to recover its investment in this
entity.
- --------------------------------------------------------------------------------
NOTE 4. - ACCOUNTS RECEIVABLE
Components of accounts receivable at June 30 are as follows:
(In thousands) 1997 1996
- -------------- ------- -------
Casino $ 7,428 $ 6,420
Hotel 2,947 3,622
Other 9,875 8,110
------- -------
Total 20,250 18,152
Less allowance for doubtful accounts 3,304 2,112
------- -------
Accounts receivable, net $16,946 $16,040
======= =======
- ---------------------------------------------------------------------------
NOTE 5. - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30,:
Estimated
Life
(In thousands) (Years) 1997 1996
- -------------- --------- ---------- ----------
Land -- $ 115,946 $ 119,057
Buildings and leasehold improvements 3-40 632,829 607,874
Furniture and equipment 3-30 327,445 312,937
Riverboats and barges 15-40 39,728 39,728
Construction in progress -- 5,973 50,854
---------- ----------
Total 1,121,921 1,130,450
Less accumulated depreciation and amortization 377,883 334,357
---------- ----------
Property and equipment, net $ 744,038 $ 796,093
========== ==========
F-10
61
- --------------------------------------------------------------------------------
NOTE 6. - LONG-TERM DEBT
Long-term debt at June 30 consists of the following:
(In thousands) 1997 1996
- -------------- --------- --------
Bank Credit Facility $ 351,000 $235,000
9.25% Senior Notes 200,000 --
11% Senior Subordinated Notes 185,000 185,000
10.75% Senior Subordinated Notes -- 150,000
Other 5,633 24,839
--------- --------
Total long-term debt 741,633 594,839
Less current maturities 1,841 4,031
--------- --------
Total $ 739,792 $590,808
========= ========
The Company has a $500 million five-year reducing, revolving bank credit
facility which matures in June 2001 (the "Bank Credit Facility"). Total
availability under the Bank Credit Facility will be reduced by $25 million at
the end of two and one-half years and reduced by an additional $50 million at
the end of each six-month period thereafter until maturity. As of June 30, 1997,
the Company had unused availability of $149 million under the Bank Credit
Facility. Interest on the Bank Credit Facility is based upon the agent bank's
quoted reference rate or London Interbank Offered Rate, at the discretion of the
Company. The interest rate under the Bank Credit Facility at June 30, 1997 was
8.1%. The Company incurs a commitment fee on the unused portion of the Bank
Credit Facility which ranges from 0.375% to 0.50% per annum, depending upon the
level of a certain predefined ratio. The Bank Credit Facility is collateralized
by the real and personal property comprising eight casino properties owned by
the Company and by related security agreements with assignment of rents. The
Bank Credit Facility contains certain financial covenants, limitations on the
incurrence of debt and limitations on the incurrence of capital expenditure and
investments, all as defined in the Bank Credit Facility. In connection with the
closing of the Bank Credit Facility in June 1996, the Company recorded a $1.4
million extraordinary loss (net of $.9 million in tax benefit) related to the
write-off of unamortized fees. In July 1997, in connection with the issuance of
$250 million principal amount of 9.50% Senior Subordinated Notes, availability
under the Bank Credit Facility was reduced by approximately $193 million.
Availability will subsequently be increased if and to the extent the Company
purchases or redeems the 11% Senior Subordinated Notes (see Note 11).
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. 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 all existing significant subsidiaries of the Company.
The guaranties are full, unconditional, and joint and several. All of the
Company's significant subsidiaries are wholly-owned. Assets, equity, income and
cash flows of all other subsidiaries of the Company that do not guaranty the
9.25% Notes are less than 3% of the respective consolidated amounts and are
inconsequential, individually and in the aggregate, to the Company. The Company
has not included separate financial information of the guarantors since such
information is not material to investors. 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 benefit, related to the early
extinguishment of debt.
F-11
62
The Company, through its wholly-owned subsidiary California Hotel Finance
Company, has $185 million principal amount of 11% Senior Subordinated Notes (the
"11% Notes") due December 2002. The net proceeds were used to refinance certain
indebtedness of the Company and provide for working capital needs and expansion
of the Company's operations. The 11% Notes require semi-annual interest payments
on June 1 and December 1 of each year until December 1, 2002, at which time the
principal balance is due and payable. The 11% Notes may be redeemed at the
Company's option anytime after December 1, 1997 at redemption prices ranging
from 104.125% in 1997 to 100% in 1999 and thereafter. The 11% Notes contain
certain covenants regarding incurrence of debt, sales and disposition of
assets, mergers or consolidations and limitations on restricted payments (as
defined in the indenture relating to the 11% Notes). As a result of these
restrictions, at June 30, 1997, California Hotel and Casino (a wholly-owned
subsidiary of the Company) had a portion of its retained earnings and its net
assets in the amounts of $31.9 million and $87.1 million, respectively, that
were not available for distribution as dividends to the Company.
The estimated fair value of the Company's long-term debt at June 30, 1997 was
approximately $750 million, versus its book value of $742 million. At June 30,
1996, the estimated fair value of the Company's long-term debt was approximately
$608 million, versus its book value of $595 million. The estimated fair value
amounts were based on quoted market prices on or about June 30, 1997 and 1996
for the Company's debt securities that are traded. For the debt securities that
are not traded, fair value was based on estimated discounted cash flows using
current rates offered to the Company for debt securities having the same
remaining maturities.
Interest rates on the Company's other long-term debt range from 5.0% to 16.8%.
Management believes the Company and its subsidiaries are in compliance with all
covenants contained in its long-term debt agreements at June 30, 1997.
The scheduled maturities of long-term debt for the years ending June 30 are as
follows:
(In thousands)
--------------
1998 $ 1,841
1999 1,790
2000 1,340
2001 351,412
2002 250
Thereafter 385,000
---------
Total $ 741,633
=========
F-12
63
- ---------------------------------------------------------------------------
NOTE 7. - COMMITMENTS AND CONTINGENCIES
Future minimum lease payments required under noncancelable operating leases
(principally for land) as of June 30, 1997 are as follows:
(In thousands)
--------------
1998 $ 2,884
1999 2,054
2000 2,040
2001 2,037
2002 2,060
Thereafter 85,518
-------
Total $96,593
=======
Rent expense for the years ended June 30, 1997, 1996 and 1995 was $3.2
million, $2.9 million and $2.8 million, respectively, and is included in
selling, general and administrative expenses on the consolidated statements of
operations.
On May 29, 1996, the Company, through a wholly-owned subsidiary, executed a
joint venture agreement with Mirage Resorts, Inc., to develop and own a casino
hotel entertainment facility in the Marina district of Atlantic City, New Jersey
(The "Atlantic City Project"). The Mirage Joint Venture Agreement provides for
$100 million in capital contributions by the Company during the course of the
construction of the Atlantic City Project. The Company plans to fund its Mirage
Joint Venture capital contributions primarily from cash flow from operations and
availability under the Bank Credit Facility.
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 8. - 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 $2.2 million, $2.2 million and $2.0 million in 1997, 1996 and
1995, respectively. The Company's share of the unfunded liability related to
multi-employer plans, if any, is not determinable.
The Company has a retirement savings plan under Section 401(k) of the Internal
Revenue Code covering its non-union employees. The plan allows employees to
defer 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 plan. On
January 1, 1996 the Company combined its profit sharing plan into the 401(k)
plan. The Company expensed voluntary contributions of $2.6 million, $1.4
million and $1.8 million in 1997, 1996 and 1995 respectively, to the Company's
401(k) profit-sharing plan and trust.
F-13
64
- --------------------------------------------------------------------------
NOTE 9. - INCOME TAXES
A summary of the provision (benefit) for income taxes for the years ended
June 30 is as follows:
(In thousands) 1997 1996 1995
- ------------- -------- ------- -------
Current
Federal $ 7,009 $15,301 $14,165
State 1,045 817 494
-------- ------- -------
8,054 16,118 14,659
-------- ------- -------
Deferred
Federal (43,899) 4,119 12,786
State 1,820 (216) 505
-------- ------- -------
(42,079) 3,903 13,291
-------- ------- -------
Total $(34,025) $20,021 $27,950
======== ======= =======
The following table provides a reconciliation between the federal statutory rate
and the effective income tax rate from continuing operations at June 30 where
both are expressed as a percentage of income.
1997 1996 1995
------ ---- ----
Tax provision at statutory rate (35.0)% 35.0% 35.0%
Increase/(decrease) resulting from:
State income tax, net of federal benefit 1.7 0.8 1.0
Company provided benefits 0.9 2.5 2.7
Licensing expenditures for new jurisdictions 0.3 0.5 3.1
Tax preferred investments -- -- (0.1)
Other, net (0.2) 1.6 1.8
----- ---- ----
Total (32.3)% 40.4% 43.5%
===== ==== ====
The tax items comprising the Company's net deferred tax liability (asset) as of
June 30 are as follows:
(In thousands) 1997 1996 1995
------------ ------- ------- -------
Deferred tax assets:
Alternative minimum tax credit carryforward $ 7,677 $ 5,146 $ 3,944
Preopening expense amortized for tax purposes 3,119 3,498 1,126
Difference between book and tax basis of property 1,991 -- --
Provision for doubtful accounts 1,314 952 832
Separate state loss attributes 5,425 -- --
Other 2,808 2,777 1,107
------- ------- -------
Subtotal 22,334 12,373 7,009
Valuation allowance (5,425) -- --
------- ------- -------
Gross deferred tax asset 16,909 12,373 7,009
------- ------- -------
Deferred tax liabilities:
Difference between book and tax basis of property -- 38,187 33,053
Difference between book and tax basis of
amortizable assets 3,821 2,185 1,513
Reserve differential for gaming activities 1,010 2,027 894
Other 3,545 3,520 1,192
------- ------- -------
Gross deferred liability 8,376 45,919 36,652
------- ------- -------
Net deferred tax liability (asset) $(8,533) $33,546 $29,643
======= ======= =======
At June 30, 1997 the Company has approximately $34 million of state tax net
operating loss carryforwards which begin to expire in the year 2011.
F-14
65
- ---------------------------------------------------------------------------
NOTE 10. - STOCKHOLDERS' EQUITY AND STOCK INCENTIVE PLANS
Equity Offering
In October 1996, the Company completed a public offering of 4,000,000 shares of
common stock at $9.00 per share. Net proceeds for this offering, after deducting
costs paid by the Company, were $33.5 million. The net proceeds from the
offering were used to reduce outstanding indebtedness under the Company's Bank
Credit Facility.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the "Plan") which allows
employees to purchase the Company's common stock, through payroll deductions, at
a price that shall not be less than 85% of fair market value on the first or
last date of the purchase period. The Plan provides for a maximum of 1,500,000
shares to be issued. During 1997, a total of 310,268 shares were issued at
prices of $7.01 and $4.89. During 1996, 212,368 shares were issued at a price of
$9.88. In 1995, 182,123 shares were issued to employees at a price of $9.14. At
June 30, 1997, there were 758,297 shares available for issuance under the Plan.
Stock Options
As of June 30, 1997, 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 are 7,050,000 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 will fully vest and become exercisable on December 31,
1998.
Summarized information for the stock options plans is as follows:
Option
Options Prices
---------- -------------
Options outstanding at July 1, 1994 2,669,700 $17.00-$18.50
Options granted 1,285,600 13.63- 14.00
Options canceled (38,682) 13.63- 17.00
---------- -------------
Options outstanding at June 30, 1995 3,916,618 13.63-$18.50
Options granted 63,000 13.25- 14.38
Options canceled (72,697) 13.63- 17.00
Options exercised (2,334) 13.63
---------- -------------
Options outstanding at June 30, 1996 3,904,587 $13.63-$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
========== =============
Exercisable options at June 30, 1997 1,198,162
==========
Options available for grant at June 30, 1997 2,978,495
==========
F-15
66
The following table summarizes the information about stock options outstanding
at June 30, 1997;
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
---------------- ------------ ---------------- -------------- ------------- --------
$5.50-$8.50 1,319,804 7.05 $ 5.75 -- $ --
8.38 1,366,100 9.47 8.38 -- --
8.63-18.50 1,383,267 6.68 15.81 1,198,162 16.31
--------- ---- ------ --------- ------
4,069,171 7.74 $10.05 1,198,162 $16.31
========= ==== ====== ========= ======
For the fiscal year ended June 30, 1997, the Company adopted the disclosure
provisions of Statement of Financial Accounting Standards 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 Principal 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 in both fiscal 1997 and 1996.
Years ended June 30,
---------------------
(dollars in thousands, except per share data) 1997 1996
- -------------------------------------------------------------------------------
Income (loss) before extraordinary item
As reported $(71,423) $29,579
Pro forma (72,555) 29,561
Net income (loss)
As reported $(77,492) $28,144
Pro forma (78,624) 28,126
Income (loss) per share before extraordinary item
As reported $ (1.19) $ 0.52
Pro forma (1.20) 0.52
Net income (loss) per share
As reported $ (1.29) $ 0.49
Pro forma (1.31) 0.49
Weighted-average assumptions
Expected stock price volatility 38.48% 38.48%
Risk-free interest rate 6.05% 6.20%
Expected option lives (years) 2.54 2.72
Estimated fair value of options granted $ 2.13 $ 4.15
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.
F-16
67
- --------------------------------------------------------------------------------
NOTE 11. - SUBSEQUENT EVENTS
On July 11, 1997, the Company entered into a definitive agreement to acquire the
remaining 85% of Treasure Chest L.L.C. that is not now owned by the Company (the
"Remaining Treasure Chest Interest") for approximately $115 million, including
the assumption of debt. Treasure Chest L.L.C. 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. Closing of the transaction is conditioned upon, among other things,
approval by the Louisiana Gaming Control Board. The Company expects to fund the
acquisition and the repayment of Treasure Chest's debt with borrowings under the
Bank Credit Facility.
On July 22, 1997, the Company issued, through a private placement, $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. Upon consummation of this offering, availability under the Bank
Credit Facility was reduced by approximately $193 million and will subsequently
be increased if and to the extent the Company purchases or redeems the 11% Notes
(see Note 6). The Company is obligated to register and have declared effective
the 9.50% Notes, or exchange them for identical notes that have been registered,
with the Securities and Exchange Commission within certain predefined time
parameters. If the Company does not consummate an effective registration of the
9.50% Notes within the required time frame, certain additional interest will
accrue at rates ranging from 0.50% to 1.50% per annum.
F-17
68
SELECTED QUARTERLY FINANCIAL INFORMATION
(Unaudited)
Boyd Gaming Corporation and Subsidiaries
Fiscal Year ended June 30, 1997
------------------------------------------------------------------------
(In thousands, except per share data) First Second Third Fourth Total
-------- -------- -------- -------- --------
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)
======== ======== ======== ======== ========
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)
======== ======== ======== ======== ========
Fiscal Year ended June 30, 1996
------------------------------------------------------------------------
(In thousands, except per share data) First Second Third Fourth Total
-------- -------- -------- -------- --------
Net revenues $179,060 $200,289 $202,160 $194,348 $775,857
Operating income 18,729 31,280 31,743 19,034 100,786
Income before income tax
and extraordinary item 6,859 17,322 19,236 6,183 49,600
Extraordinary item, net of tax -- -- -- 1,435 1,435
Net income 4,184 10,567 11,351 2,042 28,144
======== ======== ======== ======== ========
Net income per common share:
Income before extraordinary item $ 0.07 $ 0.19 $ 0.20 $ 0.06 $ 0.52
Extraordinary item, net of tax -- -- -- (0.02) (0.03)
-------- -------- -------- -------- --------
Net income $ 0.07 $ 0.19 $ 0.20 $ 0.04 $ 0.49
======== ======== ======== ======== ========
F-18
69
(c) Exhibits.
EXHIBIT
NUMBER DOCUMENT
2.1(5) Stock Purchase Agreement, dated as of April 26, 1996, by and
among Registrant, 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 Registrant, CH&C and certain
stockholders and noteholders of Eldorado, Inc.
2.3(2) Subscription Agreement dated as of August 30, 1993, by and among
Boyd Kenner, Inc., the Registrant and Treasure Chest Casino,
L.L.C.
2.4(12) Purchase Agreement, dated as of July 11, 1997, by and among the
Registrant, Boyd Kenner, Inc., Boyd Louisiana, L.L.C., Treasure
Chest casino, L.L.C., and certain members of Treasure Chest
Casino, L.L.C.
3.1(9) Restated Articles of Incorporation.
3.2(9) Restated Bylaws
4.1 Registration Agreement, dated July 17, 1997, among the
Registrant, Salomon Brothers Inc., UBS Securities LLC and CIBC
Wood Gundy Securities Corp.
4.2(1) Form of Indenture relating to $150,000,000 aggregate principal
amount 11% Senior Subordinated Notes due 2002 of California Hotel
Finance Corporation, including the Form of Note.
4.4 Form of Indenture relating to 9.50% Senior Subordinated Notes
due 2007, dated as of July 22, 1997, between Registrant and State
Street Bank and Trust Company, including the Form of Note.
4.5 First Supplemental Indenture, among Registrant, as Issuer,
certain subsidiaries of Registrant, as Guarantors, and the Bank
of New York, as Trustee, dated as of December 31, 1996.
10.1(2) First Amended and Restated Credit Agreement dated as of September
2, 1993, by and among CH&C, Certain Commercial Lending
Institutions, CIBC Inc., First Interstate Bank of Nevada and
related Exhibits.
10.2(2) Loan Agreement dated March 2, 1989, by and between First
Interstate Bank of Nevada and Eldorado, Inc., including related
Promissory Note, and related Revision Agreement dated October 31,
1989, by and between First Interstate Bank of Nevada, N.A. and
Eldorado, Inc.
10.3(4) Loan Agreement dated August 17, 1994 by and among Boyd Tunica,
Inc., the Registrant, First Interstate Bank of Nevada, Bankers
Trust Company and Bank of America Nevada.
10.4(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.
10.5(1) Lease Agreement dated October 31, 1963, by and between Fremont
Hotel, Inc. and Cora Edit Garehime.
10.6(1) Lease Agreement dated December 31, 1963, by and among Fremont
Hotel, Inc., Bank of Nevada and Leon H. Rockwell, Jr.
49
70
10.7(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.
10.8(4) Lease Agreement dated July 25, 1973, by and between CH&C and
William Peccole, as Trustee of the Peter Peccole 1970 Trust.
10.9(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.
10.10(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.
10.11(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.
10.12(4) Collective Bargaining Agreement effective as of January 17, 1994,
by and between Sam-Will, Inc. d/b/a/ Fremont Hotel and Casino and
the International Union of Operating Engineers, Local No. 501,
AFL-CIO (slot technician unit).
10.13(2) Labor Agreement dated as of January 13, 1993, by and between
Mare-Bear, Inc. d/b/a/ Stardust Hotel & Casino, and the
International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.14(2) Labor Agreement dated as of January 13, 1993, by and between
Sam-Will, Inc., d/b/a/ Fremont Hotel and Casino, and the
International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.15(2) Labor Agreement dated January 13, 1993, by and between CH&C and
the International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.16(2) Agreement dated as of May 1, 1991, by and between Mare-Bear,
Inc., d/b/a/ Stardust Hotel & Casino, and the Local Joint
Executive Board of Las Vegas for and on behalf of the Culinary
Workers' Union, Local No. 226 and Bartenders Union, Local No.
165.
10.17(1) Agreement dated as of May 1, 1991, by and between Sam-Will, Inc.,
d/b/a/ Fremont Hotel and Casino, and the Local Joint Executive
Board of Las Vegas for and on behalf of the Culinary Workers'
Union, Local No. 226 and Bartenders Union, Local No. 165.
10.18(2) Collective Bargaining Agreement dated September 12, 1991, by and
between Eldorado Casino and the Local Joint Executive Board of
Las Vegas for and on behalf of the Culinary Workers Union, Local
No. 226 and Bartenders Union, Local No. 165.
50
71
10.19(1) Collective Bargaining Agreement dated March 14, 1991, by and
between Mare-Bear, Inc., d/b/a/ Stardust Hotel & Casino, and the
Musicians Union of Las Vegas, Local No. 369, American Federation
of Musicians, AFL-CIO.
10.20(1) Labor Agreement dated May 1, 1991, by and between Mare-Bear,
Inc., d/b/a/ Stardust Hotel & Casino, and the International
Alliance of Theatrical Stage Employees and Moving Picture Machine
Operators of the United States and Canada, Local 720, Las Vegas,
Nevada.
10.21(1) Labor Agreement dated May 1, 1991, by and between Mare-Bear,
Inc., d/b/a/ Stardust Hotel & Casino, and the International
Alliance of Theatrical Stage Employees and Moving Picture Machine
Operators of the United States and Canada, Local 720, Las Vegas,
Nevada (Theatrical Wardrobe Employees).
10.22(1) Labor Agreement dated June 14, 1983, by and between Stardust
Hotel & Casino and the International Brotherhood of Painters and
Allied Trades, Local Union No. 159, AFL-CIO.
10.23(1) Labor Agreement dated June 1, 1983, by and between Stardust Hotel
and Casino and the United Brotherhood of Carpenters and Joiners
of America, Local Union No. 1780, Las Vegas, Nevada.
10.24(1) Labor Agreement dated August 1, 1983, by and between Stardust
Hotel and the International Brotherhood of Electrical Workers,
Local Union No. 357, AFL-CIO.
10.25(1) Implemented Proposal dated June 15, 1992, by and between Stardust
Hotel and Casino and the Back-End Teamsters Local Union No. 995.
10.26(1) Implemented Proposal dated June 15, 1992, by and between Fremont
Hotel and Casino and the Back-End Teamsters Local Union No. 995.
10.27(2) Management Agreement dated March 11, 1993, by and between
Mississippi Band of Choctaw Indians and Boyd Mississippi, Inc.
10.28(4) Addendum to Management Agreement dated November 24, 1993, by and
between Mississippi Band of Choctaw Indians and Boyd Mississippi,
Inc.
10.29(2) Casino Management Agreement dated August 30, 1993, by and between
Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
51
72
10.30(4) Amended and Restated Operating Agreement dated August 5, 1994, by
and between Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
10.31(2) Real Estate Contract of Sale dated April 29, 1993, by and among
Boyd Tunica, Inc. and Shea Leatherman, Irwin L. Zanone and
William A. Leatherman, Jr.
10.32(2) Real Estate Contract of Sale dated April 29, 1993, by and between
Eugene H. Beck, Jr. and the Boyd Group.
10.33(2) Real Estate Contract of Sale dated April 30, 1993, by and between
Mid-West Terminal Warehouse Company and the Boyd Group.
10.34(2) Real Estate Contract of Sale dated April 30, 1993, by and between
Hunt Midwest Real Estate Development, Inc. and the Boyd Group.
10.35(2) Amendment to Real Estate Contracts of Sale dated May 26, 1993, by
and among The Boyd Group, Hunt Midwest Real Estate Development,
Inc., Mid-West Terminal Warehouse Company and Eugene H. Beck, Jr.
10.36(2) Real Estate Contract of Sale dated as of April 30, 1993, by and
between Vergie G. Bevan, individually and as trustee of the
Vergie G. Bevan Revocable Trust and the Boyd Group.
10.37(4) Development Agreement dated June 6, 1994, by and among the
Registrant, Boyd Kansas City, Inc. and Port Authority of Kansas
City, Missouri.
10.38(4) Agreement dated January 10, 1994 by and between Boyd Tunica, Inc.
and W.G. Yates & Sons Construction Company.
10.39(4) Building Contract dated July 15, 1993, by and between Marnell
Corrao Associates, Inc. and Sam's Town Hotel and Gambling Hall
for Sam's Town Addition Phase V.
10.40(2) Form of Indemnification Agreement.
10.41(2)* 1993 Flexible Stock Incentive Plan and related agreements.
10.42(2)* 1993 Directors Non-Qualified Stock Option Plan and related
agreements.
10.43(2)* 1993 Employee Stock Purchase Plan and related agreement.
10.44(1) 401(k) Profit Sharing Plan and Trust.
10.45(1) Note dated July 1, 1992, from Samuel A. Boyd Family Trust to the
Boyd Group in the principal sum of $3,000,000.
10.46(3) Promissory Note dated December 30, 1991, from Eldorado, Inc. to
Samuel A. Boyd in the principal sum of $600,000.
52
73
10.47(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 Registrant. (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.)
10.48(7) Credit Agreement dated as of June 19, 1996, by and among the
Registrant 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.
10.49(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.
10.50(8) Buy-Sell Agreement dated as of August 2, 1996, by and between the
Registrant and Casino Magic of Louisiana, Corp., a Louisiana
corporation.
10.51(10)* Boyd Gaming Corporation 1996 Stock Incentive Plan.
10.52(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.
10.53 Second Amendment to Credit Agreement, dated as of June 11, 1997,
among the Registrant 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.
10.54 Third Amendment to Credit Agreement, dated as of June 24, 1997,
among the Registrant 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.
10.55 First Amendment to Purchase Agreement, dated as of September 9,
1997 among the Registrant, Boyd Kenner, Inc., Boyd Louisiana,
L.L.C., Treasure Chest Casino, L.L.C. and the Selling Members.
21.1 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
24 Powers of Attorney (reference is made to page II-2).
27 Financial Data Schedule.
53
74
- --------------------------------------------------------------------------------
* 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 Registrant's Registration
Statement on Form S-1, File No. 33-64006, which became effective
on October 15, 1993.
(3) Incorporated by reference to Registrant's Annual Report on Form
10-K for the year ended June 30, 1994.
(4) Incorporated by reference to Registrant's Annual Report on Form
10-K for the year ended June 30, 1995.
(5) Incorporated by reference to Registrant's Current Report on Form
8-K dated April 26, 1996.
(6) Incorporated by reference to Registrant's Current Report on Form
8-K dated June 7, 1996.
(7) Incorporated by reference to Exhibit 10.1 of Registrant's
Current Report on Form 8-K dated June 19, 1996.
(8) Incorporated by reference to Registrant's Exhibit 2.1 of Current
Report on Form 8-K dated August 16, 1996.
(9) Incorporated by reference to Exhibit 3.1 of Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1996.
(10) Incorporated by reference to Appendix A of Registrant's October
22, 1996 Proxy Statement for the 1996 Annual Meeting of
Stockholders.
(11) Incorporated by reference to Exhibit 10.59 of Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1997.
(12) Incorporated by reference to Exhibit 2.1 of Registrant's Current
Report on Form 8-K dated July 11, 1997.
54
75
BOYD GAMING CORPORATION AND SUBSIDIARIES
INDEX TO REGISTRANT CONDENSED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report S-2
Financial Statements
Condensed Balance Sheets S-3
Condensed Statements of Operations S-4
Condensed Statements of Cash Flows S-5
Notes to Condensed Financial Statements S-6
S-1
76
INDEPENDENT AUDITORS' REPORT
Boyd Gaming Corporation and Subsidiaries:
We have audited the consolidated financial statements of Boyd Gaming Corporation
and subsidiaries (the "Company") as of June 30, 1997 and 1996, and for each of
the three years in the period ended June 30, 1997, and have issued our report
thereon dated August 20, 1997; such consolidated financial statements and report
are included in your 1997 Annual Report to Stockholders and are incorporated
herein by reference. Our audits also included the condensed financial
statement schedule of Boyd Gaming Corporation, listed in Item 14(a). The
condensed financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such condensed financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material aspects the information set forth therein.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
August 20, 1997
S-2
77
SCHEDULE I
BOYD GAMING CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
June 30,
--------------------------
1997 1996
--------- ---------
ASSETS
Current assets
Cash and cash equivalents $ 697 $ 3,192
Accounts receivable, net 8,195 7,624
Prepaid expenses 1,333 685
Deferred income taxes -- 1,892
-------- --------
Total current assets 10,225 13,393
Property and equipment, net 18,250 22,824
Other assets and deferred charges 17,181 2,118
Investments in and advances to
subsidiaries (eliminated in consolidation) 484,305 457,696
-------- --------
Total assets $529,961 $496,031
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long term-debt $ 133 $ 2,437
Accounts payable 4,644 4,964
Accrued liabilities
Payroll and related 2,089 1,081
Interest and other 7,482 6,787
Income taxes payable 2,535 --
-------- --------
Total current liabilities 16,883 15,269
Long-term debt, net of current maturities 300,270 226,800
Deferred income taxes 21,492 20,705
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:
61,523,988 and 57,213,720 shares outstanding 615 572
Additional paid-in capital 138,091 102,583
Retained earnings 52,610 130,102
-------- --------
Total stockholders' equity 191,316 233,257
-------- --------
Total liabilities and stockholders' equity $529,961 $496,031
======== ========
The accompanying notes are an integral part of these financial statements.
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SCHEDULE 1
BOYD GAMING CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
For the year ended June 30,
--------------------------------------
1997 1996 1995
-------- ------- -------
Revenues $ 60,680 $ 51,091 $34,457
--------------------------------------
Costs and expenses
Depreciation and amortization 1,513 1,831 550
Corporate expense 12,767 20,024 19,929
Impairment loss 5,032 -- --
--------------------------------------
Total 19,312 21,855 20,479
--------------------------------------
Operating income 41,368 29,236 13,978
--------------------------------------
Other income (expense)
Interest income 638 2,812 2,033
Interest expense, net of amounts capitalized (28,150) (16,404) (9,951)
--------------------------------------
Total (27,512) (13,592) (7,918)
--------------------------------------
Income before equity in subsidiaries' income
(loss) and provision for income taxes 13,856 15,644 6,060
Equity in subsidiaries' income (loss) (80,065) 19,414 32,825
--------------------------------------
Income (loss) before provision for income taxes (66,209) 35,058 38,885
Provision for income taxes 5,214 6,320 2,636
--------------------------------------
Income (loss) before extraordinary item (71,423) 28,738 36,249
Extraordinary item, net of tax benefit
of $3,268 6,069 594 --
--------------------------------------
Net income (loss) $(77,492) $ 28,144 $36,249
======================================
The accompanying notes are an integral part of these financial statements.
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SCHEDULE I
BOYD GAMING CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the year ended June 30,
-------------------------------------------
1997 1996 1995
-------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (77,492) $ 28,144 $ 36,249
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,513 1,831 550
Deferred income taxes 2,679 19,605 (792)
Extraordinary loss on early retirement of debt 9,337 -- --
Impairment loss 5,032 -- --
Changes in assets and liabilities:
Increase in accounts receivable, net (571) (1,454) (1,030)
(Increase) decrease in prepaid expenses (648) (410) 197
(Increase) decrease in other assets (20,045) 11,707 (467)
Increase in other current liabilities 1,382 3,630 2,582
Increase in taxes payable 2,535 -- --
Increase in investments in and advances to subsidiaries (26,609) (165,299) (42,213)
-------------------------------------------
Net cash used in operating activities (102,887) (102,246) (4,924)
-------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (18,522) (10,764) (5,477)
Proceeds from sale of riverboat 20,000 -- --
Decrease in short-term investments -- -- 5,000
-------------------------------------------
Net cash provided by (used in) financing activities 1,478 (10,764) (477)
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings of long-term debt 63,666 60,737 18,500
Proceeds from issuance of common stock 35,248 2,131 1,664
-------------------------------------------
Net cash provided by financing activities 98,914 62,868 20,164
-------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,495) (50,142) 14,763
Cash and cash equivalents, beginning of year 3,192 53,334 38,571
-------------------------------------------
Cash and cash equivalents, end of year $ 697 $ 3,192 $ 53,334
===========================================
The accompanying notes are an integral part of these financial statements.
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SCHEDULE I
BOYD GAMING CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Organization
Boyd Gaming Corporation (the "Company"), through its wholly-owned subsidiaries,
owns, operates and/or manages twelve casino entertainment facilities located in
Las Vegas, Nevada, Tunica, Mississippi, Kansas City, Missouri, Philadelphia,
Mississippi, Kenner, Louisiana and East Peoria, Illinois, as well as a travel
agency located in Honolulu, Hawaii. These condensed financial statements should
be read in conjunction with the consolidated financial statements of Boyd Gaming
Corporation and Subsidiaries.
Advances to Subsidiaries
Advances to subsidiaries primarily represents cash advances made to various
subsidiaries of the Company and to a lesser extent the value of goods and
services provided by the Company to its subsidiaries.
Income Taxes
The Company and its subsidiaries file a consolidated federal tax return. Taxes
are allocated to individual subsidiaries and to the Company based upon their
operating results.
Management Fee
The Company charges its wholly-owned subsidiaries a management fee for services
provided.
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.
NOTE 2. LEGAL PROCEEDINGS
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.
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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 September
12, 1997.
BOYD GAMING CORPORATION
By: /s/ KEITH E. SMITH
-------------------
Keith E. Smith
Senior Vice President,
Controller
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William S. Boyd, Ellis Landau and Keith
Smith, and each of them, his or 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, Chief September 12, 1997
- ------------------------------------ Executive Officer and Director (Principal
William S. Boyd Executive Officer)
/s/ Ellis Landau Executive Vice President, Chief Financial September 12, 1997
- ------------------------------------ Officer and Treasurer (Principal Financial
Ellis Landau Officer)
/s/ Keith E. Smith Senior Vice President and Controller September 12, 1997
- ------------------------------------ (Principal Accounting Officer)
Keith E. Smith
/s/ Don Snyder President and Director September 12, 1997
- ------------------------------------
Don Snyder
/s/ Robert L. Boughner Executive Vice President & September 12, 1997
- ------------------------------------ Chief Operating Officer and Director
Robert L. Boughner
/s/ William R. Boyd Director September 12, 1997
- ------------------------------------
William R. Boyd
/s/ Marianne Boyd Johnson Director September 12, 1997
- ------------------------------------
Marianne Boyd Johnson
/s/ Perry B. Whitt Director September 12, 1997
- ------------------------------------
Perry B. Whitt
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Signature Title Date
- ------------------------------------ ------------------------------------------ ------------------
Director
- ------------------------------------
Warren L. Nelson
Director
- ------------------------------------
Philip Dion
/s/ Michael O. Maffe Director September 12, 1997
- ------------------------------------
Michael O. Maffe
/s/ Billy G. McCoy Director September 12, 1997
- ------------------------------------
Billy G. McCoy
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
2.1(5) Stock Purchase Agreement, dated as of April 26, 1996, by and
among Registrant, 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 Registrant, CH&C and certain
stockholders and noteholders of Eldorado, Inc.
2.3(2) Subscription Agreement dated as of August 30, 1993, by and among
Boyd Kenner, Inc., the Registrant and Treasure Chest Casino,
L.L.C.
2.4(12) Purchase Agreement, dated as of July 11, 1997, by and among the
Registrant, Boyd Kenner, Inc., Boyd Louisiana, L.L.C., Treasure
Chest casino, L.L.C., and certain members of Treasure Chest
Casino, L.L.C.
3.1(9) Restated Articles of Incorporation.
3.2(9) Restated Bylaws
4.1 Registration Agreement, dated July 17, 1997, among the
Registrant, Salomon Brothers Inc., UBS Securities LLC and CIBC
Wood Gundy Securities Corp.
4.2(1) Form of Indenture relating to $150,000,000 aggregate principal
amount 11% Senior Subordinated Notes due 2002 of California Hotel
Finance Corporation, including the Form of Note.
4.4 Form of Indenture relating to 9.50% Senior Subordinated Notes
due 2007, dated as of July 22, 1997, between Registrant and State
Street Bank and Trust Company, including the Form of Note.
4.5 First Supplemental Indenture, among Registrant, as Issuer,
certain subsidiaries of Registrant, as Guarantors, and the Bank
of New York, as Trustee, dated as of December 31, 1996.
10.1(2) First Amended and Restated Credit Agreement dated as of September
2, 1993, by and among CH&C, Certain Commercial Lending
Institutions, CIBC Inc., First Interstate Bank of Nevada and
related Exhibits.
10.2(2) Loan Agreement dated March 2, 1989, by and between First
Interstate Bank of Nevada and Eldorado, Inc., including related
Promissory Note, and related Revision Agreement dated October 31,
1989, by and between First Interstate Bank of Nevada, N.A. and
Eldorado, Inc.
10.3(4) Loan Agreement dated August 17, 1994 by and among Boyd Tunica,
Inc., the Registrant, First Interstate Bank of Nevada, Bankers
Trust Company and Bank of America Nevada.
10.4(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.
10.5(1) Lease Agreement dated October 31, 1963, by and between Fremont
Hotel, Inc. and Cora Edit Garehime.
10.6(1) Lease Agreement dated December 31, 1963, by and among Fremont
Hotel, Inc., Bank of Nevada and Leon H. Rockwell, Jr.
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10.7(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.
10.8(4) Lease Agreement dated July 25, 1973, by and between CH&C and
William Peccole, as Trustee of the Peter Peccole 1970 Trust.
10.9(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.
10.10(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.
10.11(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.
10.12(4) Collective Bargaining Agreement effective as of January 17, 1994,
by and between Sam-Will, Inc. d/b/a/ Fremont Hotel and Casino and
the International Union of Operating Engineers, Local No. 501,
AFL-CIO (slot technician unit).
10.13(2) Labor Agreement dated as of January 13, 1993, by and between
Mare-Bear, Inc. d/b/a/ Stardust Hotel & Casino, and the
International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.14(2) Labor Agreement dated as of January 13, 1993, by and between
Sam-Will, Inc., d/b/a/ Fremont Hotel and Casino, and the
International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.15(2) Labor Agreement dated January 13, 1993, by and between CH&C and
the International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.16(2) Agreement dated as of May 1, 1991, by and between Mare-Bear,
Inc., d/b/a/ Stardust Hotel & Casino, and the Local Joint
Executive Board of Las Vegas for and on behalf of the Culinary
Workers' Union, Local No. 226 and Bartenders Union, Local No.
165.
10.17(1) Agreement dated as of May 1, 1991, by and between Sam-Will, Inc.,
d/b/a/ Fremont Hotel and Casino, and the Local Joint Executive
Board of Las Vegas for and on behalf of the Culinary Workers'
Union, Local No. 226 and Bartenders Union, Local No. 165.
10.18(2) Collective Bargaining Agreement dated September 12, 1991, by and
between Eldorado Casino and the Local Joint Executive Board of
Las Vegas for and on behalf of the Culinary Workers Union, Local
No. 226 and Bartenders Union, Local No. 165.
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10.19(1) Collective Bargaining Agreement dated March 14, 1991, by and
between Mare-Bear, Inc., d/b/a/ Stardust Hotel & Casino, and the
Musicians Union of Las Vegas, Local No. 369, American Federation
of Musicians, AFL-CIO.
10.20(1) Labor Agreement dated May 1, 1991, by and between Mare-Bear,
Inc., d/b/a/ Stardust Hotel & Casino, and the International
Alliance of Theatrical Stage Employees and Moving Picture Machine
Operators of the United States and Canada, Local 720, Las Vegas,
Nevada.
10.21(1) Labor Agreement dated May 1, 1991, by and between Mare-Bear,
Inc., d/b/a/ Stardust Hotel & Casino, and the International
Alliance of Theatrical Stage Employees and Moving Picture Machine
Operators of the United States and Canada, Local 720, Las Vegas,
Nevada (Theatrical Wardrobe Employees).
10.22(1) Labor Agreement dated June 14, 1983, by and between Stardust
Hotel & Casino and the International Brotherhood of Painters and
Allied Trades, Local Union No. 159, AFL-CIO.
10.23(1) Labor Agreement dated June 1, 1983, by and between Stardust Hotel
and Casino and the United Brotherhood of Carpenters and Joiners
of America, Local Union No. 1780, Las Vegas, Nevada.
10.24(1) Labor Agreement dated August 1, 1983, by and between Stardust
Hotel and the International Brotherhood of Electrical Workers,
Local Union No. 357, AFL-CIO.
10.25(1) Implemented Proposal dated June 15, 1992, by and between Stardust
Hotel and Casino and the Back-End Teamsters Local Union No. 995.
10.26(1) Implemented Proposal dated June 15, 1992, by and between Fremont
Hotel and Casino and the Back-End Teamsters Local Union No. 995.
10.27(2) Management Agreement dated March 11, 1993, by and between
Mississippi Band of Choctaw Indians and Boyd Mississippi, Inc.
10.28(4) Addendum to Management Agreement dated November 24, 1993, by and
between Mississippi Band of Choctaw Indians and Boyd Mississippi,
Inc.
10.29(2) Casino Management Agreement dated August 30, 1993, by and between
Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
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10.30(4) Amended and Restated Operating Agreement dated August 5, 1994, by
and between Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
10.31(2) Real Estate Contract of Sale dated April 29, 1993, by and among
Boyd Tunica, Inc. and Shea Leatherman, Irwin L. Zanone and
William A. Leatherman, Jr.
10.32(2) Real Estate Contract of Sale dated April 29, 1993, by and between
Eugene H. Beck, Jr. and the Boyd Group.
10.33(2) Real Estate Contract of Sale dated April 30, 1993, by and between
Mid-West Terminal Warehouse Company and the Boyd Group.
10.34(2) Real Estate Contract of Sale dated April 30, 1993, by and between
Hunt Midwest Real Estate Development, Inc. and the Boyd Group.
10.35(2) Amendment to Real Estate Contracts of Sale dated May 26, 1993, by
and among The Boyd Group, Hunt Midwest Real Estate Development,
Inc., Mid-West Terminal Warehouse Company and Eugene H. Beck, Jr.
10.36(2) Real Estate Contract of Sale dated as of April 30, 1993, by and
between Vergie G. Bevan, individually and as trustee of the
Vergie G. Bevan Revocable Trust and the Boyd Group.
10.37(4) Development Agreement dated June 6, 1994, by and among the
Registrant, Boyd Kansas City, Inc. and Port Authority of Kansas
City, Missouri.
10.38(4) Agreement dated January 10, 1994 by and between Boyd Tunica, Inc.
and W.G. Yates & Sons Construction Company.
10.39(4) Building Contract dated July 15, 1993, by and between Marnell
Corrao Associates, Inc. and Sam's Town Hotel and Gambling Hall
for Sam's Town Addition Phase V.
10.40(2) Form of Indemnification Agreement.
10.41(2)* 1993 Flexible Stock Incentive Plan and related agreements.
10.42(2)* 1993 Directors Non-Qualified Stock Option Plan and related
agreements.
10.43(2)* 1993 Employee Stock Purchase Plan and related agreement.
10.44(1) 401(k) Profit Sharing Plan and Trust.
10.45(1) Note dated July 1, 1992, from Samuel A. Boyd Family Trust to the
Boyd Group in the principal sum of $3,000,000.
10.46(3) Promissory Note dated December 30, 1991, from Eldorado, Inc. to
Samuel A. Boyd in the principal sum of $600,000.
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88
10.47(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 Registrant. (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.)
10.48(7) Credit Agreement dated as of June 19, 1996, by and among the
Registrant 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.
10.49(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.
10.50(8) Buy-Sell Agreement dated as of August 2, 1996, by and between the
Registrant and Casino Magic of Louisiana, Corp., a Louisiana
corporation.
10.51(10)* Boyd Gaming Corporation 1996 Stock Incentive Plan.
10.52(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.
10.53 Second Amendment to Credit Agreement, dated as of June 11, 1997,
among the Registrant 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.
10.54 Third Amendment to Credit Agreement, dated as of June 24, 1997,
among the Registrant 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.
10.55 First Amendment to Purchase Agreement, dated as of September 9,
1997 among the Registrant, Boyd Kenner, Inc., Boyd Louisiana,
L.L.C., Treasure Chest Casino, L.L.C. and the Selling Members.
21.1 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
24 Powers of Attorney (reference is made to page II-2).
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 Registrant's Registration
Statement on Form S-1, File No. 33-64006, which became effective
on October 15, 1993.
(3) Incorporated by reference to Registrant's Annual Report on Form
10-K for the year ended June 30, 1994.
(4) Incorporated by reference to Registrant's Annual Report on Form
10-K for the year ended June 30, 1995.
(5) Incorporated by reference to Registrant's Current Report on Form
8-K dated April 26, 1996.
(6) Incorporated by reference to Registrant's Current Report on Form
8-K dated June 7, 1996.
(7) Incorporated by reference to Exhibit 10.1 of Registrant's
Current Report on Form 8-K dated June 19, 1996.
(8) Incorporated by reference to Registrant's Exhibit 2.1 of Current
Report on Form 8-K dated August 16, 1996.
(9) Incorporated by reference to Exhibit 3.1 of Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1996.
(10) Incorporated by reference to Appendix A of Registrant's October
22, 1996 Proxy Statement for the 1996 Annual Meeting of
Stockholders.
(11) Incorporated by reference to Exhibit 10.59 of Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1997.
(12) Incorporated by reference to Exhibit 2.1 of Registrant's Current
Report on Form 8-K dated July 11, 1997.
II-9