Back to GetFilings.com
1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-12168
BOYD GAMING CORPORATION
(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 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
9.50% SENIOR SUBORDINATED NOTES NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 28, 2001, 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 $108,198,000. 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 February 28, 2001, the Registrant had outstanding 62,234,954 shares of
Common Stock.
Documents Incorporated by Reference into Parts I -- III: Portions of the
definitive Proxy Statement for the Registrant's 2001 Annual Meeting of
Stockholders are incorporated by reference into Part III hereof.
================================================================================
2
BOYD GAMING CORPORATION
2000 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE NO.
--------
PART I
Item 1. Business................................................................................. 1
Item 2. Properties............................................................................... 31
Item 3. Legal Proceedings........................................................................ 31
Item 4A. Executive Officers of the Registrant..................................................... 31
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................... 32
Item 6. Selected Consolidated Financial Data..................................................... 32
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 34
Item 7A. Quantitative and Qualitative Disclosure about Market Risk................................ 41
Item 8. Financial Statements and Supplementary Data.............................................. 41
PART III
Item 10. Directors and Executive Officers of the Registrant....................................... 42
Item 11. Executive Compensation................................................................... 42
Item 12. Security Ownership of Certain Beneficial Owners and Management........................... 42
Item 13. Certain Relationships and Related Transactions........................................... 42
PART IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K................................... 43
i
3
PART I
ITEM 1. BUSINESS
GENERAL
Boyd Gaming Corporation is a multi-jurisdictional gaming company that
currently owns and operates eleven casino entertainment facilities. The Company
has operated successfully for more than two decades in the highly competitive
Las Vegas market and has entered several other gaming jurisdictions in the past
seven years. The Company owns and operates seven facilities in three distinct
markets in Las Vegas, Nevada: the Stardust Resort and Casino (the "Stardust") on
the Las Vegas Strip; Sam's Town Hotel and Gambling Hall ("Sam's Town Las
Vegas"), the Eldorado Casino (the "Eldorado") and the Jokers Wild Casino
("Jokers Wild") on the Boulder Strip; and the California Hotel and Casino (the
"California"), the Fremont Hotel and Casino (the "Fremont") and Main Street
Station Casino, Brewery and Hotel ("Main Street Station") in downtown Las Vegas.
The Company also owns four facilities in other gaming jurisdictions. The Company
owns and operates Sam's Town Hotel and Gambling Hall, a dockside gaming and
entertainment complex in Tunica County, Mississippi ("Sam's Town Tunica"), the
Par-A-Dice Hotel and Casino in East Peoria, Illinois ("Par-A-Dice") and the
Treasure Chest Casino ("Treasure Chest"), a riverboat casino in Kenner,
Louisiana. In November 1999, the Company acquired the Blue Chip Casino ("Blue
Chip"), a riverboat casino and hotel in Michigan City, Indiana. Through January
31, 2000, the Company managed, for the Mississippi Band of Choctaw Indians, the
Silver Star Resort and Casino ("Silver Star"), a land-based gaming and
entertainment complex located near Philadelphia, Mississippi. The Company also
owns and operates Vacations Hawaii, a travel agency that operates for the
benefit of the California, Fremont and Main Street Station. The Company is also
developing The Borgata, a $1 billion entertainment destination resort in
Atlantic City, through a joint venture with MGM MIRAGE. As of December 31, 2000
the Company owned an aggregate of approximately 512,400 square feet of casino
space, containing 14,366 slot machines and 417 table games. The Company derives
the majority of its on-going gross revenues from its casino operations, which
produced 74%, 68% and 68%, respectively of on-going gross revenues during the
years ended December 31, 2000, 1999 and 1998. Food and beverage revenue, which
produced 13.6%, 14.7%, and 15.1%, respectively of on-going gross revenues during
the years ended December 31, 2000, 1999, and 1998 represents the only other
revenue source that produced more than 10% of on-going gross revenues during
this time frame. See "Properties" and "Item 2 -- 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 Louisiana
L.L.C. ("Boyd Louisiana"); Par-A-Dice Gaming Corporation ("Par-A-Dice Gaming"),
Boyd Indiana, Inc. ("Boyd Indiana") and Boyd Atlantic City, Inc. ("BAC"). CH&C
directly owns and operates Sam's Town Las Vegas and the California and owns and
operates the Stardust, the Fremont, the Eldorado, Jokers Wild and Main Street
Station through wholly-owned subsidiaries. Boyd Tunica owns and operates Sam's
Town Tunica; Boyd Kenner manages Treasure Chest and owns a 15% equity interest
in Treasure Chest, L.L.C., the owner of Treasure Chest; Boyd Louisiana owns the
remaining 85% equity interest in Treasure Chest, L.L.C.; Par-A-Dice Gaming owns
and operates the Par-A-Dice; Boyd Indiana owns the full equity interest in Blue
Chip Casino, L.L.C, and BAC owns a 50% equity interest in Marina District
Development Holding Company, L.L.C., the parent company that is developing The
Borgata.
OPERATING STRATEGY
The Company believes that the following key elements have contributed to the
success of the Company in the past and are central to its future success.
VALUE-ORIENTED CASINO ENTERTAINMENT EXPERIENCE
The Company is committed to providing a high-quality casino entertainment
experience to its primarily middle-income customers at an affordable price in
order to develop and maintain customer loyalty. The Company delivers value to
its customers through providing service in an inviting and entertaining
environment. The Company delivers additional value to its customers through
moderately priced casino entertainment, hotel, restaurant and live entertainment
offerings and regularly reinvests in its existing facilities in an effort to
maintain the quality and competitiveness of its properties.
4
LIVELY, FRIENDLY ATMOSPHERE
Each of the Company's facilities is clean and modern and offers friendly
service in an informal and lively atmosphere. The Company's employee training
programs are designed to motivate employees to provide the type of friendly and
attentive service that the Company seeks to provide at its facilities. The
Company has an extensive customer feedback system, ranging from guest comment
cards in its restaurants and hotel rooms, to other consumer surveys and
research. In addition to providing a measure of customer service, comment cards
and consumer research allow the Company to obtain valuable customer feedback and
marketing information for its database.
EMPHASIS ON SLOT PLAY
The Company emphasizes slot machine wagering, the most consistently
profitable segment of the casino entertainment business. Technological advances
in slot products have resulted in sophisticated interactive games, which offer
customers greater variety, more generous payoffs and increased periods of play
for their casino entertainment dollar. The Company continually invests in
upgrading its machines to reflect advances in technology and the development of
proprietary slot games and related equipment at all of its facilities in order
to further enhance the slot customer's experience.
COMPREHENSIVE MARKETING AND PROMOTION
The Company actively promotes its casino entertainment offerings, its
hotels, destination restaurants and live entertainment using a variety of
promotional advertising media including outdoor advertising as well as print,
broadcast and Internet media. The Company develops and maintains an extensive
customer database. The database is expanded daily, adding new casino customers
by obtaining their mailing addresses and other marketing information. To
encourage repeat visitation, the Company employs a direct mail program targeting
its database customers with a variety of product offerings, including incentives
to visit the Company's facilities frequently. During the year ended December 31,
2000, the Company distributed approximately 9.2 million pieces of mail to its
database customers. The Company also provides complimentary rooms, food and
beverage and other services to valued customers, but maintains limits on such
items consistent with its focus on middle-income patrons.
PROPERTIES
The Company currently owns and operates seven properties in Las Vegas: the
Stardust; Sam's Town Las Vegas; the Eldorado; Jokers Wild; the California; the
Fremont; and Main Street Station. The Company also owns and operates four
properties outside the State of Nevada: Sam's Town Tunica, in Tunica County,
Mississippi; Treasure Chest, in the western suburbs of New Orleans; Par-A-Dice
in East Peoria, Illinois; and Blue Chip in Michigan City, Indiana. The Company
managed the Silver Star, in central Mississippi, from its opening in 1994
through January 31, 2000.
THE STARDUST
The Stardust, situated on 52 acres of land owned and nine acres of land
leased by the Company on the Las Vegas Strip, is a casino hotel complex with
approximately 75,000 square feet of casino space, a conference center containing
approximately 35,000 square feet of meeting space and the Wayne Newton Theatre
which seats up to 981 guests. The casino offers approximately 1,600 slot
machines and 69 table games, including tables featuring "21," craps, roulette,
baccarat, mini-baccarat, Big Six, progressive pai gow poker, Caribbean stud, Let
it Ride and poker, as well as keno. The Stardust also has one of the largest and
best known race and sports books in the United States and is the home of the
Stardust line, a sports line service that is quoted throughout the United States
and abroad. The Stardust features 1,552 guest rooms, 1,316 in its 32-story hotel
tower. The Stardust complex, which is distinguished by dramatic building
lighting, has six restaurants, a shopping arcade, two swimming pools and parking
spaces for approximately 3,400 cars. In 1999, the Stardust completed a $23
million renovation project, which included guest rooms, public space and
exterior enhancements, intended to make the property more competitive with other
Strip resorts. In connection with the renovation project, the Stardust
demolished all of its approximately 550 motor inn rooms. The occupancy rate and
average room rate at the Stardust were approximately 93% and $56, respectively,
during 2000.
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
2
5
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.
BOULDER STRIP PROPERTIES
Sam's Town Las Vegas is situated on 63 acres of land on the Boulder Strip,
approximately six miles east of the Las Vegas Strip. Sam's Town features an
approximately 133,000-square foot casino and a state-of-the-art 56-lane bowling
center. The gaming facilities include approximately 3,300 slot machines and 43
table games, including tables featuring "21", craps, roulette, pai gow and
Caribbean stud poker, as well as keno, a race and sports book, bingo and poker.
The property has 648 guest rooms, 12 restaurants, 500 spaces for recreational
vehicles and approximately 3,800 parking spaces, including three parking garages
which together can accommodate up to 3,000 cars. The resort features a
25,000-square foot atrium that contains extensive foliage and trees, streams,
bridges, and an impressive waterfall with a laser light show. Adjacent to the
atrium there are several restaurants. Other features of the property include an
outdoor recreation area, as well as banquet and meeting facilities. In December
2000, Sam's Town Las Vegas completed an $84 million renovation and expansion
project. The project included, among other things, an 18 screen state-of-the-art
movie theatre complex, childcare facilities, an arcade, additional casino space,
an 11,200 square foot multi-purpose events center for concerts and meetings, a
new 650 seat buffet, a parking garage, and a reconfigured and remodeled porte
cochere and valet parking area to improve access to the property. The occupancy
rate and average room rate at Sam's Town Las Vegas were approximately 91% and
$45, respectively, during 2000.
Sam's Town Las Vegas has a casual western theme. Its informal, friendly
atmosphere appeals to both local residents and visitors alike. Gaming, bowling,
a western dance hall and live entertainment create a social center that attracts
many Las Vegas residents. The property sponsors several NASCAR events at the Las
Vegas Motor Speedway that are televised nationally. The property attracts a mix
of tourists and local market patrons, many of whom are repeat customers, by
offering excellent price/value relationships in its food and beverage
operations, and by slot marketing programs that include generous slot payouts.
The popularity of Sam's Town Las Vegas among local residents allows it to
benefit from the rapid development of the Las Vegas metropolitan area, which has
been one of the fastest growing communities in the United States over the last
decade.
The Eldorado is situated on four acres of land owned by the Company in
downtown Henderson, Nevada, which is southeast of Las Vegas. The casino has
16,000 square feet of gaming space featuring approximately 600 slot machines and
11 table games, including tables featuring "21," craps, roulette and pai gow, as
well as keno, bingo and a sports book. The facility also offers three
restaurants, a children's arcade and a parking garage for up to 500 cars. The
principal customers at the Eldorado are Henderson residents.
Jokers Wild is situated on 13 acres of land owned by the Company on the
Boulder Strip. The property offers 22,500 square feet of casino space with 640
slot machines and 11 table games, including tables featuring "21," craps and
roulette, as well as keno and a sports book. The facility also offers a 24-hour
restaurant, a buffet, an entertainment lounge, a sports bar, a video arcade and
approximately 800 parking spaces. Jokers Wild serves both local residents and
visitors to the Las Vegas area traveling on the Boulder Highway.
DOWNTOWN PROPERTIES
The California is situated on 13.9 acres of land owned and 1.6 acres of land
leased by the Company in downtown Las Vegas. The California, the Company's first
property, has 36,000 square feet of gaming space, 781 guest rooms, five
restaurants, approximately 5,000 square feet of meeting space and more than 800
parking spaces, including a parking garage for up to 425 cars. The casino offers
approximately 1,100 slot machines and 35 table games, including tables featuring
"21," craps, roulette, pai gow and Caribbean stud, as well as keno and a sports
book. The occupancy rate and average room rate at the California were
approximately 95% and $31, respectively, during 2000.
The Fremont is situated on 1.4 acres of land owned and 0.9 acres of land
leased by the Company on the principal pedestrian thoroughfare in downtown Las
Vegas. The property offers 32,000 square feet of casino space, including 1,121
slot machines and 27 table games, including tables featuring "21," craps,
roulette, pai gow, and Caribbean stud, as well as keno and a race and sports
book. The hotel has 447 guest rooms and five restaurants including the Second
Street Grill, an upscale contemporary restaurant, and the Paradise Buffet, which
features tropical-themed surroundings. The property also has approximately 8,200
square feet of meeting space and a parking garage for up to 350 cars. The
occupancy rate and average room rate at the Fremont were approximately 95% and
$33, respectively, during 2000.
3
6
Main Street Station is situated on 15 acres of land owned by the Company in
downtown Las Vegas and was renovated and expanded prior to its November 1996
opening. The property includes 28,500 square feet of gaming space with 20 table
games and 927 slot machines. The property also includes 406 hotel rooms, a
475-seat buffet, a 125-seat specialty restaurant, a 200-seat brew pub and oyster
bar, expanded parking to include over 2,000 spaces and 96-space recreational
vehicle park, the only such facility in the downtown area. The occupancy rate
and average room rate at Main Street Station were approximately 94% and $37,
respectively, during 2000.
The Company coordinates marketing efforts and support functions and has
standardized operating procedures and systems among its three Downtown
Properties with the goal of enhancing revenues and reducing expenses. This
effort includes a consolidated database and marketing program for all Downtown
Properties. The Company believes these efforts have significantly reduced costs
and will continue to allow the Downtown Properties to operate efficiently.
While many casinos in downtown Las Vegas compete with other downtown
properties and properties on the Las Vegas Strip for the same customers, the
Company has developed a distinctive niche for its Downtown Properties by
focusing primarily on customers from Hawaii. The Company's marketing strategy
for the Downtown Properties focuses on gaming enthusiasts from Hawaii and tour
and travel agents from Hawaii with whom the Company has cultivated relationships
since it opened the California in 1975. Through the Company's Hawaiian travel
agency, Vacations Hawaii, the Company currently operates seven DC-10 charter
flights from Honolulu to Las Vegas each week, helping to ensure a stable supply
of reasonably priced air seats. This, as well as the Company's strong, informal
relationships with other Hawaiian travel agencies, its affordably priced,
all-inclusive packages and its Hawaiian promotions have allowed the California,
the Fremont, and Main Street Station to capture a significant share of the
Hawaiian tourist trade in Las Vegas. For more than a decade, the California and
Fremont have been the leading Las Vegas destination for visitors from Hawaii.
The Company attributes this success to the amenities and atmosphere at the
California and Fremont, which are designed to appeal specifically to visitors
from Hawaii, and to its marketing strategy featuring significant promotions in
Hawaii and a bi-monthly newsletter circulated to over 90,000 households,
primarily in Hawaii. During the year ended December 31, 2000, patrons from
Hawaii comprised approximately 67% of the room nights at the California, 57% of
the room nights at the Fremont and 51% of the room nights at Main Street
Station.
CENTRAL REGION PROPERTIES
The Company exported its Sam's Town western theme and atmosphere to the
Mississippi dockside gaming market by developing Sam's Town Tunica, which opened
in May 1994. Sam's Town Tunica features a hotel with 843 rooms including 49
suites, and a 1,000-car parking garage that was the first enclosed parking
structure at a Tunica County casino. The complex offers a two-story casino of
approximately 75,000 square feet featuring 1,600 slot machines and 63 table
games, including tables featuring "21," craps, roulette, poker, Caribbean stud
and pai gow, as well as the only live keno in Tunica County. The design of the
facility integrates the water-based and land-based components of the facility.
In December 2000, a $21 million renovation was completed which reconfigured and
remodeled the casino, redesigned and enhanced the restaurants, remodeled the
atrium and constructed an RV park adjacent to the property. 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 property features extensive amenities including
the hotel, an entertainment lounge featuring regional country-western and top-40
music, five restaurants including Corky's B-B-Q, featuring the food of that
popular Memphis eatery, bars, specialty shops and the River Palace Arena, a
1,650-seat entertainment facility featuring a cross-section of national
recording artists. Additionally, Sam's Town Tunica and two other neighboring
casino properties are each 1/3 partners in the Tunica Golf Course, L.L.C.
(d.b.a. River Bend Links), an 18-hole championship lynx-style golf course. The
occupancy rate and average room rate at Sam's Town Tunica were approximately 81%
and $45, respectively, during 2000.
Treasure Chest, a riverboat casino operation located on Lake Pontchartrain
in Kenner, Louisiana, is located near the New Orleans International Airport.
Treasure Chest primarily serves patrons from Jefferson Parish, including suburbs
on the west side of New Orleans. In January 1996, an $11 million entertainment
complex was added to serve as the main boarding area and showcase the 140 seat
Caribbean Showroom, as well as a 24 hour buffet, a Steak house, a gift shop and
snack bar. The gaming operation features a classic 18th century Victorian-style
paddle-wheel riverboat with a total capacity of 1,750 persons, approximately
24,000 square feet of casino space, 989 slot machines and 47 table games,
including tables for "21," craps, roulette, and live poker. Each of the
riverboat's gaming decks has a different theme, with one featuring contemporary
Las Vegas-style decor, one offering a Caribbean environment and one providing a
festive Mardi Gras setting.
Pursuant to an agreement with the Mississippi Band of Choctaw Indians, the
Company managed the Silver Star located near Philadelphia, Mississippi. On
October 20, 1999, the Company agreed to terminate its management contract with
the Mississippi
4
7
Band of Choctaw Indians prior to the contract's expiration date in June 2001 in
exchange for a one-time payment of $72 million. Pursuant to that agreement, the
Company ceased management of Silver Star and received the one-time payment on
February 1, 2000.
Par-A-Dice is a riverboat casino operation located along the Illinois River
in East Peoria, Illinois, approximately 170 miles from Chicago. The boat
measures 238 feet long and 66 feet wide and features 33,000 square feet of
gaming space on four levels with approximately 1,122 slot machines and 34 table
games, as well as limited food and beverage services. Located adjacent to
Par-A-Dice is the Par-A-Dice Hotel, a 208-room hotel with food and beverage,
banquet and meeting facilities. The occupancy rate and average room rate at
Par-A-Dice were approximately 90% and $57, respectively, during 2000. Par-A-Dice
is the primary casino entertainment facility serving central Illinois, and is
strategically located within 3/4 of a mile from an exit off of Interstate 74, a
major regional east-west interstate highway. Par-A-Dice is the only casino
entertainment facility within approximately 90 miles of Peoria. There are more
than 350,000 people living within the Peoria metropolitan area and over 1.7
million people over the age of 21 living within 100 miles of Peoria.
On November 10, 1999, the Company acquired Blue Chip, a riverboat casino
operation located 60 miles east of Chicago, Illinois and 40 miles west of South
Bend, Indiana. The vessel, built on-site in 1997, measures 348 feet long by 80
feet wide, offers over 37,000 square feet of gaming space and can accommodate up
to 3,000 passengers. In June 1998, a third deck accommodating 17 table games was
added. The first two decks feature 1,400 slot machines and 40 table games, three
bars, a snack bar and a players club. The land-based 87,000 square foot pavilion
facility includes three large meeting rooms, a Grand Ballroom, an executive
board room, entertainment lounge, snack shop, 285-seat buffet and 80-seat
gourmet restaurant. In February 2000, the Company completed the construction of
a 188-room hotel and a parking facility that is attached to the existing casino
complex. The occupancy rate and average room rate at Blue Chip were
approximately 66% and $62, respectively, during 2000.
MGM MIRAGE JOINT VENTURE
The Company, through its subsidiary Boyd Atlantic City, Inc. ("BAC") and
Mirage Resorts Incorporated ("Mirage"), through its subsidiary MAC, Corp.
("MAC"), entered into a certain joint venture agreement ("The Joint Venture
Agreement") and formed a joint venture (the "Joint Venture") for the purpose of
developing and owning a casino hotel entertainment facility in the Marina
District of Atlantic City, New Jersey. The Joint Venture originated on May 29,
1996. In May 2000, Mirage was acquired by MGM Grand, Inc. which subsequently
changed its name to MGM MIRAGE ("MGM").
On December 13, 2000, (a) MAC contributed certain real property as well as
certain tangible and intangible personal property to the Joint Venture, and (b)
BAC contributed $90 million in cash to the Joint Venture. BAC and MAC each
received a credit to their capital accounts in the amount of $90 million upon
making the foregoing contributions.
Following the foregoing contributions, on December 13, 2000, the Joint
Venture was merged with and into Marina District Development Company, LLC
("MDDC, LLC"). The sole member of MDDC, LLC is Marina District Development
Holding Co., LLC ("Holding Co."). Each of BAC and MAC have a 50% interest in
Holding Co. Pursuant to terms of a certain Contribution and Adoption Agreement
made effective December 13, 2000, the members adopted the Joint Venture
Agreement as the Operating Agreement of Holding Co. (the "Operating Agreement").
The Operating Agreement provides for the development and ownership of a
casino/hotel complex to be comprised of at least 2,000 rooms, a casino and
related amenities to be known as The Borgata (the "Project"). The Project will
be constructed on property adjacent to and connected to MGM's planned
wholly-owned resort. The Operating Agreement contemplates a total cost of $1.035
billion for the Project. Project costs, with certain defined exceptions,
exceeding the $1.035 billion budget would be funded by the Company without any
proportionate increase in the ownership of the Project by the Company. The
Operating Agreement provides for BAC and MAC to make equity contributions
aggregating $207 million each and further contemplates $621 million in
non-recourse financing for the Project. Pursuant to the terms of the Operating
Agreement, certain defined project costs exceeding $1.035 billion are permitted
to be added to the amount of Project financing, or, if necessary, be paid by
both BAC and MAC. There can be no assurances that the Project can be designed
and developed for $1.035 billion. Funding of the Company's remaining capital
contributions to the Project is expected to be derived from cash flow from
operations, availability under the Company's bank credit facility (the "Bank
Credit Facility"), incremental bank financing, or additional debt offerings.
Pursuant to the Operating Agreement, the Company caused the formation of
Marina District Development Finance Company, Inc. ("MDFC"), which was formed to
obtain financing for the development of the Project. The sole shareholder of
MDFC is MDDC, LLC. Also pursuant to the Operating Agreement and for the purposes
of financing the construction and development of the Project, MDFC entered into
a Credit Agreement, dated as of December 13, 2000 (the "Credit Agreement"). The
Credit Agreement allows
5
8
MDFC to borrow up to $630 million (the "Loan"). MDDC, LLC joined in the
execution of the Credit Agreement. Except for the completion guaranty, by which
the Company has agreed to guaranty performance of certain obligations to MDDC,
LLC (the "Completion Guaranty"), the Loan is non-recourse to the Company and MGM
subsidiary, and is secured by a first priority perfected security interest in
the real property upon which the Project will be constructed as well as in all
personal property of MDDC, LLC, subject to customary exceptions and as limited
by New Jersey gaming laws. The Loan is also secured by a pledge of Holding Co.'s
interest in MDDC, LLC.
The Joint Venture obtained final approval of its site plan application for
the Project from the City of Atlantic City Planning Board on March 15, 2000 and
received a major amendment to the final site plan approval for the Project from
the Atlantic City Planning Board on July 19, 2000. On March 10, 2000, the Joint
Venture received a CAFRA (Coastal Area Facility Review Act) permit from the New
Jersey Department of Environmental Protection, Land Use Regulation Program,
which CAFRA Permit was modified on August 17, 2000. Also in March 2000, the
Atlantic City Planning Board granted final approval for the onsite roadways and
related infrastructure improvements to be constructed by MGM that will provide
access and site circulation for the Project. The Company believes that certain
highway improvements to permit greater access to the Marina District of Atlantic
City will be necessary to support the casino entertainment development
master-planned by MGM. Such highway improvements are under construction and are
expected to be completed during the summer of 2001. Groundbreaking of the
Project occurred in September 2000. The Project's expected completion date is
during the summer of 2003, although there can be no assurance that the Project
will be completed on time or within budget. Once opened, the Project will give
the Company a presence in Atlantic City, the primary casino gaming market
serving the eastern United States.
On April 27, 1997, BAC filed an application for a casino license with the
New Jersey Casino Control Commission (the "NJCCC"). The Company and BAC also
sought Statements of Compliance regarding their satisfaction of certain criteria
in connection with the application for a casino license. On July 8, 1998, at a
public meeting, the NJCCC confirmed BAC's status as an applicant for a casino
license. The NJCCC also considered the petition for Statements of Compliance and
declared that, as of the date of the meeting, the Company and BAC possessed: (i)
the required financial stability, integrity and responsibility; (ii) the
required good character, honesty and integrity; and (iii) the required business
ability and casino experience. The NJCCC further found that, as of the date
thereof, the officers and directors of the Company and its subsidiary whose
qualifications must be established to receive Statements of Compliance met the
qualifications established under the Casino Control Act. While the issuance of
Statements of Compliance indicate satisfaction of various criteria as of the
date thereof, such issuance is not an assurance of licensure and the NJCCC
retains the right to review the Statements of Compliance based on changes of
circumstances. Furthermore, the Statements of Compliance do not address many of
the items required for casino licensure. The Company, BAC, and the members of
MDDC, LLC will continue to submit additional license application items to the
NJCCC as required. With a Statement of Compliance for the Company in place, the
investigation by the NJCCC and New Jersey Division of Gaming Enforcement
("NJDGE") in connection with the casino license application will focus on issues
concerning operations, the facility and equal employment and business
opportunities. See "Investment Considerations -- Expansion."
INVESTMENT CONSIDERATIONS
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
include statements regarding the Company's expectations, hopes or intentions
regarding the future, including but not limited to statements regarding the
Company's strategy, competition (including the expansion of gaming into
additional markets), expenses, development plans (including anticipated costs,
timing and eventual acceptance of new facilities by the market), financing,
revenue, operations, regulations and compliance with applicable laws.
Forward-looking statements involve certain risks and uncertainties, and actual
results may differ materially from those discussed in any such statement.
Factors that could cause actual results to differ materially from such
forward-looking statements include the risks described in greater detail in the
following paragraphs. All forward-looking statements in this document are made
as of the date hereof, based on information available to the Company as of the
date hereof, and the Company assumes no obligation to update any forward-looking
statement.
COMPETITION
The gaming industry is highly competitive. Gaming activities include:
traditional land-based casinos; riverboat and dockside gaming; casino gaming on
Indian land; state-sponsored lotteries; video poker in restaurants, bars and
hotels; pari-mutuel betting on horse racing, dog racing and jai-alai; sports
bookmaking; card rooms and internet gaming. The casinos owned 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
6
9
legalized in existing and additional jurisdictions, as well as with other types
of entertainment. In addition, further expansion of gaming into other
jurisdictions could adversely affect the Company's business by diverting its
customers to competitors in such jurisdictions. In particular, the expansion of
casino gaming in or near any geographic area from which the Company attracts or
expects to attract a significant number of its customers could have a material
adverse effect on the Company's business, financial condition and results of
operations. The California electorate approved Proposition 1A on March 7, 2000.
Proposition 1A gives all California Indian tribes the right to operate a limited
number of certain kinds of gaming machines and other forms of casino wagering on
California Indian reservations. Proposition 1A may negatively affect Nevada
gaming markets. Management is unable, however, to assess the magnitude of the
impact to the Company. The Company believes that successful gaming facilities
compete based on the following factors: location; attractions; quality of gaming
facilities; gaming experience and entertainment; quality of food, beverage and
atmosphere; and price. Although the Company believes it competes favorably with
respect to these factors in most of its markets, some of its competitors have
significantly greater financial and other resources than the Company.
The Company's Las Vegas properties compete with a multitude of casino hotels
in the greater Las Vegas Metropolitan area. Currently, there are approximately
22 major gaming properties located on or near the Las Vegas Strip, 13 located in
the downtown area and several located in other areas of Las Vegas. Las Vegas
gaming square footage and room capacity are continuing to increase. On the Las
Vegas Strip a number of marquee properties have opened in the last several
years. Each of the foregoing facilities has or may have a theme and attractions
that have drawn or may draw significant numbers of visitors. Moreover, most of
these facilities attract or may attract primarily middle-income patrons, who are
the focus of the Company's marketing strategy. Although the Company believes
that these additional facilities will draw more visitors to Las Vegas, these
properties also may divert potential gaming activity from the Company. Future
additions, expansions and enhancements to existing properties and construction
of new properties by the Company's competitors could divert additional gaming
activity from the Company's facilities. There can be no assurance that the
Company will compete successfully in the Las Vegas market in the future.
Sam's Town Tunica competes primarily with other dockside gaming operations
in Tunica County and, to a lesser extent, with dockside casinos in Vicksburg,
Greenville, Natchez and Coahoma Counties, Mississippi, with dockside casinos on
the Mississippi Gulf Coast as well as land-based operations and with gaming
operations in Louisiana. Gaming has grown rapidly in Tunica County, with ten
dockside casinos now in operation. In addition, several Tunica-area casinos have
recently added hotel rooms and other enhancements to their properties. Some of
these facilities are operated by certain of the Company's principal Nevada
competitors and may be operated or financed by companies with significantly
greater financial resources than the Company. There can be no assurance that the
Company will compete successfully in the Mississippi market in the future.
There are presently 14 licenses issued, all of which are operating in the
State of Louisiana. Treasure Chest competes primarily with two of those
riverboat operations in the New Orleans metropolitan area as well as the 12
casinos on the Mississippi Gulf Coast, including Beau Rivage which opened in
March 1999 and the Harrah's land-based casino in downtown New Orleans which
opened in October 1999. Some of these riverboats are being operated by companies
with greater experience in this market and significantly greater financial
resources than the Company. There can be no assurance that Treasure Chest will
compete successfully in the future.
Par-A-Dice competes with other gaming operations in Illinois and with
riverboats and dockside gaming facilities in Indiana, Iowa and Missouri. The
Illinois Riverboat Gambling Act authorizes ten owner's licenses for riverboat
gaming operations. All ten licenses have been granted and nine riverboat gaming
facilities are currently in operation in Illinois. Some of these riverboats are
being operated by companies with greater experience in the Illinois market and
significantly greater financial resources than the Company. There can be no
assurance that Par-A-Dice will compete successfully in the future.
Blue Chip competes primarily with other gaming operations in Indiana,
Illinois and Michigan, and, to a lesser extent, with riverboats and dockside
gaming facilities in Iowa and Missouri. The Indiana Riverboat Gambling Act
authorized ten licenses for riverboat gaming operations, all of which currently
operate in Indiana. Some of these riverboats are being operated with greater
experience in the Indiana market and significantly greater financial resources
than the Company. In addition, the Pokagon Band of Potawatomi Indians (the
"Pokagons"), a federally recognized Indian tribe, has announced its intention to
construct a land-based gaming operation in or near the City of New Buffalo,
Michigan, which is located less than 15 miles from Blue Chip. Although the
Pokagons have several legal and regulatory issues that must be resolved prior to
construction of its proposed gaming facility, if such facility is constructed
and operated, it could have a negative impact on the operations of Blue Chip.
There can be no assurance that Blue Chip will compete successfully in the
future.
Failure to compete successfully in any of these markets could have a
material adverse effect on the Company's business, financial condition and
results of operations.
7
10
EXPANSION
The Company, through its subsidiary BAC and Mirage Resorts Incorporated,
through its subsidiary MAC, entered into The Joint Venture Agreement and formed
the Joint Venture for the purpose of developing and owning a casino hotel
entertainment facility in the Marina District of Atlantic City, New Jersey. The
Joint Venture originated on May 29, 1996. In May 2000, Mirage was acquired by
MGM.
On December 13, 2000, (a) MAC contributed certain real property as well as
certain tangible and intangible personal property to the Joint Venture, and (b)
BAC contributed $90 million in cash to the Joint Venture. Each of BAC and MAC
received a credit to its capital account in the amount of $90 million upon
making the foregoing contributions.
Following the foregoing contributions, on December 13, 2000, the Joint
Venture was merged with and into MDDC, LLC. The sole member of MDDC, LLC is
Holding Co. Each of BAC and MAC have a 50% interest in Holding Co. Pursuant to
terms of a certain Contribution and Adoption Agreement made effective December
13, 2000, the members adopted the Joint Venture Agreement as the Operating
Agreement of Holding Co.
The Operating Agreement provides for the development and ownership of a
casino/hotel complex to be comprised of at least 2,000 rooms, a casino and
related amenities to be known as The Borgata. The Project will be constructed on
property adjacent to and connected to MGM's planned wholly-owned resort. The
Operating Agreement contemplates a total cost of $1.035 billion for the Project.
Project costs, with certain defined exceptions, exceeding the $1.035 billion
budget would be funded by the Company without any proportionate increase in the
ownership of the Project by the Company. The Operating Agreement provides for
each party to make equity contributions aggregating $207 million each and
further contemplates $621 million in non-recourse financing for the Project.
Pursuant to the terms of the Operating Agreement, certain project costs
exceeding $1.035 billion are permitted to be added to the amount of Project
financing. There can be no assurances that the Project can be designed and
developed for $1.035 billion. Funding of the Company's remaining capital
contributions to the Project is expected to be derived from cash flow from
operations, availability under the Company's Bank Credit Facility, incremental
bank financing, or additional debt offerings.
The construction and opening of the development is subject to a number of
contingencies, including, but not limited to, continuing construction of highway
improvements necessary to accommodate the additional traffic that is expected to
be generated to and from the Marina District, approval and licensing by the New
Jersey gaming authorities, the receipt of state and local land-use permits,
building and zoning permits and liquor licenses.
Groundbreaking of the Project occurred in September 2000. The Project's
expected completion date is during the summer of 2003, although there can be no
assurance that the Project will be completed on time or within budget. The
Project, once opened, shall give the Company a presence in Atlantic City, the
primary casino gaming market serving the eastern United States. The Project will
be subject to the many risks inherent in the establishment of a new business
enterprise, including potential unanticipated design, construction, regulatory,
environmental and operating problems, lack of adequate financing and the
significant risks commonly associated with implementing a marketing strategy in
a new market. If the Project does not become operational within the time frame
and budget currently contemplated or does not compete successfully in its new
market, it could have a material adverse effect on the Company's business,
financial condition and results of operations.
ADDITIONAL FINANCING REQUIREMENTS
Based upon the extent and scope of the above mentioned expansion plan, the
Company may be able to finance its expansion project primarily with cash flow
from operations, borrowings from the Bank Credit Facility, and additional debt
financing. If the Company is unable to finance its expansion project through
cash flow from operations, borrowings under its Bank Credit Facility, and
additional debt financing, it will have to adopt one or more alternatives, such
as reducing or delaying planned expansion and capital expenditures, selling
assets, obtaining additional equity financing or joint venture partners or
modifying the Bank Credit Facility. No assurance can be given that the
aforementioned sources of funds will be sufficient to finance the Company's
expansion, or that other financing will be available on acceptable terms, in a
timely manner or at all. In addition, each of the Company's significant
long-term debt agreements contain certain restrictions on the ability of the
Company to incur additional indebtedness. If the Company is unable to secure
additional financing, it could be forced to limit or suspend expansion,
development and acquisition projects, which may adversely affect the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
8
11
LEVERAGE AND DEBT SERVICE
At December 31, 2000, the Company had total consolidated long-term debt,
less current maturities, of approximately $1.0 billion, which represents
approximately 76% of the total capitalization of the Company as of such date.
Current debt service requirements on the Company's Bank Credit Facility
primarily consist of interest payments on outstanding indebtedness. The Bank
Credit Facility consists of a $500 million revolver component (the "Revolver")
and two $100 million term loan components ("Term Loan B" and "Term Loan C"), all
of which mature in June 2003. Availability under the Revolver will be reduced by
$15.6 million on December 31, 2001 and at the end of each quarter thereafter
until March 31, 2003. Term Loan B is being repaid in increments of $0.25 million
per quarter that began on September 30, 1999 and will continue through March 31,
2003. Term Loan C is being repaid in increments of $0.25 million per quarter
that began on December 31, 2000 and will continue through March 31, 2003. Debt
service requirements under the Company's 9.25% and 9.50% Notes consist of
semi-annual interest payments and repayment of the $200 million and $250 million
of principal on October 1, 2003 and July 15, 2007, respectively. The Company
expects to fund its subsidiary's remaining capital contributions of $100 million
required by the Operating Agreement for its Atlantic City Joint Venture with
borrowings under the Bank Credit Facility, incremental bank financing, or the
issuance of subordinated debt to the extent not funded from cash flow from
operations. The Company's ability to service its debt will be dependent on its
future performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the Company's
control. Accordingly, no assurance can be given that the Company will maintain a
level of operating cash flow that will permit it to service its obligations. If
the Company is unable to generate sufficient cash flow or is unable to refinance
or extend outstanding borrowings, it will have to adopt one or more
alternatives, such as reducing or delaying planned expansion and capital
expenditures, selling assets, restructuring debt, obtaining additional equity or
debt financing or joint venture partners. There can be no assurance that any of
these financing strategies could be effected on satisfactory terms, if at all.
In addition, certain states' laws contain restrictions on the ability of
companies engaged in the gaming business to undertake certain financing
transactions. Such restrictions may prevent the Company from obtaining necessary
capital. See "-- Additional Financing Requirements," "-- Governmental Gaming
Regulation," and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
GOVERNMENTAL GAMING REGULATION
The Company is subject to a variety of regulations in the jurisdictions in
which it operates. If additional gaming regulations are adopted in a
jurisdiction in which the Company operates, such regulations could impose
restrictions or costs that could have a material adverse effect on the Company.
From time to time, various proposals have been introduced in the legislatures of
some of the jurisdictions in which the Company has existing or planned
operations that, if enacted, could adversely affect the tax, regulatory,
operational or other aspects of the gaming industry and the Company. No
assurance can be given that such legislation will not be enacted. The federal
government has also previously considered a federal tax on casino revenues and
may consider such a tax in the future. In addition, gaming companies are
currently subject to significant state and local taxes and fees in addition to
normal federal and state corporate income taxes, and such taxes and fees are
subject to increase at any time. Any material increase in these taxes or fees
could adversely affect the Company.
9
12
NEVADA
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"); and (ii) various local regulations.
The Company's gaming operations are subject to the licensing and regulatory
control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada
State Gaming Control Board (the "Nevada Board"), and the Clark County Liquor and
Gaming Licensing Board (the "Clark County Board"). The Nevada Commission, the
Nevada Board and the Clark County Board are collectively referred to herein as
the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including establishing minimum procedures for
internal fiscal affairs and the safeguarding of assets and revenues, providing
reliable record keeping and requiring the filing of periodic reports with the
Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent
practices; and (v) the provision of a source of state and local revenues through
taxation and licensing fees. Changes in such laws, regulations and procedures
could have an adverse effect on the Company's gaming operations and the
Company's business, financial condition and results of operations.
Corporations that operate casinos in Nevada are required to be licensed by
the Nevada Gaming Authorities. A gaming license requires the periodic payment of
fees and taxes and is not transferable. The Company is registered by the Nevada
Commission as a publicly traded corporation (a "Registered Corporation") and as
such, it is required periodically to submit detailed financial and operating
reports to the Nevada Commission and furnish any other information which the
Nevada Commission may require. The Company has been found suitable by the Nevada
Commission to own the stock of CH&C. CH&C is licensed by the Nevada Commission
to operate non-restricted gaming activities at the California and Sam's Town Las
Vegas and is additionally registered as a holding corporation and approved by
the Nevada Gaming Authorities to own the stock of Mare Bear, Inc. ("Mare Bear"),
the operator of the Stardust, Sam Will, Inc. ("Sam Will"), the operator of the
Fremont and Eldorado, Inc., the operator of the Eldorado and Jokers Wild, and
MSW, Inc. ("MSW"), the operator of Main Street Station. No person may become a
stockholder of, or receive any percentage of profits from, CH&C or its
subsidiaries without first obtaining licenses and approvals from the Nevada
Gaming Authorities. The Company, CH&C, Mare Bear, Sam Will, Eldorado, Inc. and
MSW have obtained from the Nevada Gaming Authorities the various registrations,
approvals, permits and licenses required in order to engage in gaming activities
in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, CH&C or any
of its licensed subsidiaries in order to determine whether such individual is
suitable or should be licensed as a business associate of a gaming licensee.
Officers, directors and certain key employees of CH&C and its licensed
subsidiaries must file applications with the Nevada Gaming Authorities and may
be required to be licensed or found suitable by the Nevada Gaming Authorities.
Officers, directors and key employees of the Company who are actively and
directly involved in gaming activities of CH&C or its licensed subsidiaries may
be required to be licensed or found suitable by the Nevada Gaming Authorities.
The Nevada Gaming Authorities may deny an application for licensing for any
cause which they deem reasonable. A finding of suitability is comparable to
licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. The applicant for licensing or
a finding of suitability must pay all the costs of the investigation. Changes in
licensed positions must be reported to the Nevada Gaming Authorities and, in
addition to their authority to deny an application for a finding of suitability
or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, CH&C or any of its licensed subsidiaries, the
companies involved would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Company, CH&C or any of its
licensed subsidiaries to terminate the employment of any person who refuses to
file appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company, CH&C and its licensed subsidiaries are required to submit
detailed financial and operating reports to the Nevada Commission. Substantially
all material loans, leases, sales of securities and similar financing
transactions by CH&C and its subsidiaries must be reported to, or approved by,
the Nevada Commission.
If it were determined that the Nevada Act was violated by CH&C or any of its
licensed subsidiaries, the gaming licenses they hold could be limited,
conditioned, suspended or revoked, subject to compliance with certain statutory
and regulatory procedures. In
10
13
addition, CH&C, the subsidiary involved, the Company, and the persons involved
could be subject to substantial fines for each separate violation of the Nevada
Act at the discretion of the Nevada Commission. Further, a supervisor could be
appointed by the Nevada Commission to operate the Company's gaming properties
and, under certain circumstances, earnings generated during the supervisor's
appointment (except for reasonable rental value of the Company's gaming
properties) could be forfeited to the State of Nevada. Limitation, conditioning
or suspension of any gaming license or the appointment of a supervisor could
(and revocation of any gaming license would) materially adversely affect the
Company's gaming operations and the Company's business, financial condition and
results of operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of the Company's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
state of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada Commission.
The Nevada Act requires that beneficial owners of more than 10% of the Company's
voting securities apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails the written
notice requiring such filing. Under certain circumstances, an "institutional
investor," as defined in the Nevada Act, which acquires more than 10%, but not
more than 15%, of the Company's voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company's
corporate charter, bylaws, management, policies or operations of the Company, or
any of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding the Company's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes include only: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company, CH&C or any
of its licensed subsidiaries, the Company (i) pays that person any dividend or
interest upon voting securities of the Company, (ii) allows that person to
exercise, directly or indirectly, any voting right conferred through securities
held by the person, (iii) pays remuneration in any form to that person for
services rendered or otherwise, or (iv) fails to pursue all lawful efforts to
require such unsuitable person to relinquish his voting securities for cash at
fair market value. Additionally, the Clark County Board has taken the position
that it has the authority to approve all persons owning or controlling the stock
of any corporation controlling a gaming license.
The Nevada Commission may, at its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial
11
14
owner. The Nevada Commission has the power to require the Company's securities
to bear a legend indicating that the securities are subject to the Nevada Act.
However, to date, the Nevada Commission has not imposed such a requirement on
the Company.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Such approval, if given, does not constitute a finding, recommendation
or approval by the Nevada Gaming Authorities as to the accuracy or adequacy of
the prospectus or the investment merits of the securities. Any representation to
the contrary is unlawful. The Nevada Commission granted the Company prior
approval to make public offerings through September 2001, subject to certain
conditions ("Shelf Approval"). However, the Shelf Approval may be rescinded for
good cause without prior notice upon the issuance of an interlocutory stop order
by the Chairman of the Nevada Board. The Shelf Approval does not constitute a
finding, recommendation or approval by the Nevada Commission or the Nevada Board
as to the accuracy or adequacy of the prospectus or the investment merits of the
securities offered. Any representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he obtains control, may not occur without the prior approval
of the Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Gaming Authorities in a variety of stringent
standards prior to assuming control of such Registered Corporation. The Nevada
Commission may also require controlling stockholders, officers, directors and
other persons having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part of the
approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchase of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those licensees, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes of acquiring control of the
Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada, Clark County
and the City of Las Vegas. Depending upon the particular fee or tax involved,
these fees and taxes are payable either monthly, quarterly or annually and are
based upon any of: (i) a percentage of the gross revenues received; (ii) the
number of gaming devices operated; or (iii) the number of table games operated.
A casino entertainment tax is also paid by casino operations where entertainment
is furnished in connection with the selling of food or refreshments.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
The sale of food or alcoholic beverages at the Company's Nevada casinos is
subject to licensing, control and regulation by the applicable local
authorities. All licenses are revocable and are not transferable. The agencies
involved have full power to limit, condition, suspend or revoke any such
license, and any such disciplinary action could (and revocation would) have a
material adverse effect upon the operations of the affected casino or casinos.
12
15
ILLINOIS
The Company is subject to the jurisdiction of the Illinois gaming
authorities as a result of its acquisition of the Par-A-Dice Gaming Corporation
d.b.a., Par-A-Dice Riverboat Casino based in East Peoria, Illinois.
In February 1990, the State of Illinois legalized riverboat gambling. The
Illinois Riverboat Gambling Act (the "Illinois Act") authorizes the five-member
Illinois Gaming Board (the "Illinois Board") to issue up to ten riverboat gaming
owners' licenses on navigable streams within or forming a boundary of the State
of Illinois except for Lake Michigan and any waterway in Cook County, which
includes Chicago. Pursuant to the initial Illinois Act, a licensed owner who
holds greater than a 10% interest in one riverboat operation, could hold no more
than a 10% interest in any other riverboat operation. In addition, the initial
Illinois Act restricted the location of certain of the ten owners' licenses.
Four of the licenses were to be located on the Mississippi River, one license
was to be at a location on the Illinois River south of Marshall County and one
license had to be located on the Des Plaines River in Will County. The remaining
licenses were not restricted as to location. Currently, nine owner's licenses
are in operation in Alton, Aurora, East Peoria, East St. Louis, Elgin,
Metropolis, Rock Island and two licenses in Joliet. The tenth license, which was
initially granted to an operator in East Dubuque, was not renewed by the
Illinois Board and has been the subject of on-going litigation.
Furthermore, under the initial Illinois Act, no gambling could be conducted
while a riverboat was docked. A gaming excursion could last no more than four
hours, and a gaming excursion was deemed to have started when the first
passenger boarded a riverboat. Gaming could continue during passenger boarding
for a period of up to 30 minutes. Gaming was also allowed for a period of up to
30 minutes after the gangplank or its equivalent was lowered, thereby allowing
passengers to exit the riverboat. During the 30-minute exit time period, new
passengers were not allowed to board the riverboat. Although riverboats were
mandated to cruise, there were certain exceptions. If a riverboat captain
reasonably determined that either it was unsafe to transport passengers on the
waterway due to inclement weather or the riverboat had been rendered temporarily
inoperable by unforeseeable mechanical or structural difficulties or river
icing, the riverboat could remain dockside or return to the dock. In those
situations, a gaming excursion could commence or continue while the gangplank or
its equivalent was raised and remained raised, in which event the riverboat was
not considered docked. If a gaming excursion had to begin or continue with the
gangplank or its equivalent raised, and the riverboat did not leave the dock,
entry of new patrons on to the riverboat was prohibited until the completion of
the excursion.
In June of 1999, amendments to the Illinois Act (the "Amended Illinois Act")
were passed by the legislature and signed into law by the Governor. The Amended
Illinois Act redefined the conduct of gaming in the state. Pursuant to the
Amended Illinois Act, riverboats can conduct gambling without cruising, and
passengers can enter and leave a riverboat at any time. In addition, riverboats
may now be located upon any water within Illinois, and not just navigable
waterways. There is no longer any prohibition of a riverboat being located in
Cook County. Riverboats are now defined as self-propelled excursion boats or
permanently moored barges. The Amended Illinois Act requires that only three,
rather than four owner's licenses, be located on the Mississippi River. The 10%
ownership prohibition has also been removed. Therefore, subject to certain
Illinois Board rules, individuals or entities could own more than one riverboat
operation.
The Amended Illinois Act also allows for the relocation of a riverboat home
dock. A licensee that was not conducting riverboat gambling on January 1, 1998,
may apply to the Illinois Board for renewal and approval of relocation to a new
home dock and the Illinois Board shall grant the application and approval of the
new home dock upon the licensee providing to the Illinois Board authorization
from the new dockside community. Pursuant to the Amended Illinois Act, the
former owner and operator of the East Dubuque riverboat has applied for renewal
of its license and to relocate its operation to Rosemont, Illinois. The Illinois
Board recently voted to deny the renewal application. Pursuant to the Illinois
Board Rules, this entity may file a request for an administrative hearing.
Therefore, this license may be the subject of on-going litigation. Any licensee
that relocates in accordance with the provisions of the Amended Illinois Act,
must attain a level of at least 20% minority ownership of such a gaming
operation.
The constitutionality of the Amended Illinois Act was challenged. That
lawsuit was dismissed because the court determined that the Plaintiff lacked
standing to challenge the Amended Act. It is still unknown whether the Plaintiff
will appeal the circuit court decision. There is no assurance that the circuit
court decision will be affirmed on appeal. If there is on-going litigation,
there is no assurance that the Amended Illinois Act will be upheld as
constitutional. If the Amended Illinois Act is deemed unconstitutional, all of
the new provisions would no longer be in effect. Specifically, in that
situation, riverboats would have to return to cruising in order to conduct
gaming.
The Illinois Act strictly regulates the facilities, persons, associations
and practices related to gaming operations. The Illinois Act grants the Illinois
Board specific powers and duties, and all other powers necessary and proper to
fully and effectively execute the Illinois Act for the purpose of administering,
regulating and enforcing the system of riverboat gaming. The Illinois Board has
authority over every person, association, corporation, partnership and trust
involved in riverboat gaming operations in the State of Illinois.
13
16
The Illinois Act requires the owner of a riverboat gaming operation to hold
an owner's license issued by the Illinois Board. Each owner's license permits
the holder to own up to two riverboats, however, gaming participants are limited
to 1,200 for any owner's license. The number of gaming participants will be
determined by the number of gaming positions available. Gaming positions are
counted as follows: electronic gaming devices positions will be determined as
90% of the total number of devices available for play; craps tables will be
counted as having ten gaming positions; and games utilizing live gaming devices,
except for craps, will be counted as having five gaming positions.
Each owner's license initially runs for a period of three years. Thereafter,
the license must be renewed annually. Under the Amended Illinois Act, the Board
may renew an owner's license for up to four years. An owner licensee is eligible
for renewal upon payment of the applicable fee and a determination by the
Illinois Board that the licensee continues to meet all of the requirement of the
Illinois Act and Illinois Board rules. The owner's license for Par-A-Dice
Riverboat Casino initially expired in February 1995. Since that time, the
license has been renewed annually. The most recent renewal approved by the
Illinois Board in March of 2000 for a term of four years. An ownership interest
in an owner's license may not be transferred or pledged as collateral without
the prior approval of the Illinois Board.
Pursuant to the Amended Illinois Act, which lifted the 10% ownership
prohibition, the Illinois Board established certain rules to effectuate this
statutory change. In deciding whether to approve direct or indirect ownership or
control of an owner's license, the Illinois Board shall consider the impact of
any economic concentration of the ownership or control. No direct or indirect
ownership or control shall be approved which will result in undue economic
concentration of the ownership of a riverboat gambling operation in Illinois.
Undue economic concentration means that a person or entity would have actual or
potential domination of riverboat gambling in Illinois sufficient to:
substantially impede or suppress competition among holders of owner's licenses;
adversely impact the economic stability of the riverboat casino industry in
Illinois; or negatively impact the purposes of the Illinois Act, including
tourism, economic development, benefits to local communities, and State and
local revenues.
The Illinois Board will consider the following criteria in determining
whether the approval of the issuance, transfer or holding of a license will
create undue economic concentration: the percentage share of the market
presently owned or controlled by the person or entity; the estimated increase in
the market share if the person or entity is approved to hold the owner's
license; the relative position of other persons or entities that own or control
owner's licenses in Illinois; the current and projected financial condition of
the riverboat gaming industry; current market conditions, including proximity
and level of competition, consumer demand, market concentration, and any other
relevant characteristics of the market; whether the license to be approved has
separate organizational structures or other independent obligations; the
potential impact on the projected future growth and development of the riverboat
gambling industry, the local communities in which licenses are located, and the
State of Illinois; the barriers to entry into the riverboat gambling industry
and if the approval of the license will operate as a barrier to new companies
and individuals desiring to enter the market; whether the approval of the
license is likely to result in enhancing the quality and customer appeal of
products and services offered by riverboat casinos in order to maintain or
increase their respective market shares; whether a restriction on the approval
of the additional license is necessary in order to encourage and preserve
competition in casino operations; and any other relevant information.
The Illinois Act does not limit the maximum bet or per patron loss. Minimum
and maximum wagers on games are set by the owner licensee. Wagering may not be
conducted with money or other negotiable currency. No person under the age of 21
is permitted to wager and wagers may only be received from a person present on
the riverboat. With respect to electronic gaming devices, the payout percentage
may not be less than 80% nor more than 100%.
As admission tax is imposed on the owner of a riverboat operation. Under the
Amended Illinois Act, a $2.00 admission tax is imposed for each admission to a
riverboat casino. Additionally, a wagering tax is imposed on the adjusted gross
receipts, as defined in the Illinois Act, of a riverboat operation. Currently,
the wagering tax is as follows: 15% of adjusted gross receipts up to and
including $25,000,000; 20% of adjusted gross receipts in excess of $25,000,000
but not exceeding $50,000,000; 25% of adjusted gross receipts in excess of
$50,000,000 but not exceeding $75,000,000; and 30% of adjusted gross receipts in
excess of $75,000,000 but not exceeding $100,000,000; and 35% of adjusted gross
receipts in excess of $100,000,000. The owner licensee is required, on a daily
basis, to wire the wagering tax payment to the Illinois Board.
In addition to owner's licenses, the Illinois Board also requires licensing
for all vendors of gaming supplies and equipment and for all employees of a
riverboat gaming operation. The Illinois Board is authorized to conduct
investigations into the conduct of gaming and into alleged violations of the
Illinois Act and the Illinois Board rules. Employees and agents of the Illinois
Board have access to and may inspect any facilities relating to the riverboat
gaming operation.
14
17
A holder of any license is subject to imposition of fines, suspension or
revocation of such license, or other action for any act or failure to act by
himself or his agents or employees, that is injurious to the public health,
safety, morals, good order and general welfare of the people of the State of
Illinois, or that would discredit or tend to discredit the Illinois gaming
industry or the State of Illinois. Any riverboat operations not conducted in
compliance with the Illinois Act may constitute an illegal gaming place and
consequently may be subject to criminal penalties, which penalties include
possible seizure, confiscation and destruction of illegal gaming devices and
seizure and sale of riverboats and dock facilities to pay any unsatisfied
judgment that may be recovered and any unsatisfied fine that may be levied. The
Illinois Act also provides for civil penalties, equal to the amount of gross
receipts derived from wagering on the gaming, whether unauthorized or
authorized, conducted on the day of any violation. The Illinois Board may revoke
or suspend licenses, as the Illinois Board may see fit and in compliance with
applicable laws of the State of Illinois regarding administrative procedures and
may suspend an owner's license, without notice or hearing, upon a determination
that the safety or health of patrons or employees is jeopardized by continuing a
riverboat's operation. The suspension may remain in effect until the Illinois
Board determines that the cause for suspension has been abated and it may revoke
the owner's license upon a determination that the owner has not made
satisfactory progress toward abating the hazard.
If the Illinois Board has suspended, revoked or refused to renew the license
of an owner or if a riverboat gambling operation is closing and the owner is
voluntarily surrendering its owner's license, the Illinois Board may petition
the local circuit court in which the riverboat is situated for appointment of a
receiver. The circuit court will have sole jurisdiction over any and all issues
pertaining to the appointment of a receiver. The Illinois Board will specify the
specific powers, duties and limitations for the receiver, including but not
limited to the authority to:
(i) hire, fire, promote and discipline personnel and retain outside
employees or consultants;
(ii) take possession of any and all property, including but not limited
to its books, records, papers;
(iii) preserve and/or dispose of any and all property;
(iv) continue and direct the gaming operations under the monitoring of
the Board;
(v) discontinue and dissolve the gaming operation;
(vi) enter into and cancel contracts;
(vii) borrow money and pledge, mortgage or otherwise encumber the
property;
(viii) pay all secured and unsecured obligations;
(ix) institute or define actions by or on behalf of the holder of an
Owner's license; and
(x) distribute earnings derived from gaming operations in the same
manner as admission and wagering taxes are distributed under
Sections 12 and 13 of the Riverboat Gambling Act.
The Illinois Board will submit at least three nominees to the court. The
nominees may be individuals or entities selected from an Illinois Board approved
list of pre-qualified receivers who meet the same criteria for a finding of
preliminary suitability for licensure under Sections 3000.230(c)(2)(B) and (C).
In the event that the Illinois Board seeks the appointment of a receiver on an
emergency basis, the Illinois Board will submit at least two nominees selected
from the Illinois Board approved list of pre-qualified receivers to the court
and will issue a Temporary Operating Permit to the receiver appointed by the
Court. A receiver, upon appointment by the court, will before assuming his or
her duties, execute and post the same bond as an owner's licensee pursuant to
Section 10 of the Riverboat Gambling Act.
The receiver will function as an independent contractor, subject to the
direction of the Court. However, the receiver will also provide to the Illinois
Board regular reports and provide any information deemed necessary for the
Illinois Board to ascertain the receiver's compliance with all applicable rules
and laws. From time to time, the Illinois Board may, at its sole discretion,
report to the Court on the receiver's level of compliance and any other
information deemed appropriate for disclosure to the Court. The term and
compensation of the receiver shall be set by the court. The receiver will
provide to the Court and the Illinois Board at least 30 days written notice of
any intent to withdraw from the appointment or to seek modification of the
appointment. Except as otherwise provided by action to the Illinois Board, the
gaming operation will be deemed a licensed operation subject to all rules of the
Illinois Board during the tenure of any receivership.
The Illinois Board requires that a "Key Person" of an owner licensee submit
a Personal Disclosure or Business Entity Form and be investigated and approved
by the Illinois Board. The Illinois Board shall certify for each applicant for
or holder of an owner's license each position, individual or Business Entity
that is to be approved by the Board and maintain suitability as a Key Person.
With respect to an applicant for or the holder of an owner's license, Key Person
shall include: any Business Entity and any individual with an ownership interest
or voting rights of more than 5% in the licensee or applicant, and the trustee
15
18
of any trust holding such ownership interest or voting rights; the directors of
the licensee or applicant and its chief executive officer, president and chief
operating officer, or their functional equivalents; and all other individuals or
Business Entities that, upon review of the applicant's or licensees Table of
Organization, Ownership and Control, the Board determines hold a position or a
level of ownership, control or influence that is material to the regulatory
concerns and obligations of the Illinois Board for the specified licensee or
applicant.
In order to assist the Gaming Board in its determination of Key Persons,
applicants for or holders of an owner's license shall provide to the Gaming
Board a Table of Organization, Ownership and Control (the "Table"). The Table
will identify in sufficient detail the hierarchy of individuals and Business
Entities that, through direct or indirect means, manage own or control the
interest and assets of the applicant or licensee holder. If a Business Entity
identified in the Table is a publicly traded company, the following information
must be provided in the Table; the name and percentage of ownership interest of
each individual or Business Entity with ownership of more than 5% of the voting
shares of the entity, to the extent such information is known or contained in
Schedule 13D or 13G of Securities and Exchange Commission filings; to the extent
known, the names and percentage of interest of ownership of persons who are
relatives of one another and who together (as individuals or through trusts)
exercise control over or own more than 10% of the voting shares of the entity;
and any trust holding more than 5% ownership or voting interest in the Company,
to the extent such information is known or contained in Schedule 13D or 13G of
Securities and Exchange Commission filings. The Table may be disclosed under the
Freedom of Information Act.
Each owner licensee must provide a means for the economic disassociation of
a Key Person in the event such economic disassociation is required by an order
of the Gaming Board. Based upon findings from an investigation into the
character, reputation, experience, associations, business probity and financial
integrity of a Key Person, the Gaming Board may enter an order upon the licensee
or require the economic disassociation of such Key Person.
Furthermore, each applicant or owner licensee must disclose the identity of
every person, association, trust or corporation having a greater than 1% direct
or indirect pecuniary interest in an owner licensee or in the riverboat gaming
operation with respect to which the license is sought. The Illinois Gaming Board
may also require an applicant or owner licensee to disclose any other principal
or investor and require the investigation and approval of such individuals.
The Illinois Gaming Board (unless the investor qualifies as an Institutional
Investor) requires a Personal Disclosure Form from any person or entity who or
which, individually or in association with others, acquires directly or
indirectly, beneficial ownership of more than 5% of any class of voting
securities or non-voting securities convertible into voting securities of a
publicly-traded corporation which holds an ownership interest in the holder of
an owner's license. If the Illinois Gaming Board denies an application for such
a transfer and if no hearing is requested, the applicant for the transfer of
ownership interest must promptly divest those shares in the publicly-traded
parent corporation. The holder of an owner's license would not be able to
distribute profits to a publicly-traded parent corporation until such shares
have been divested. If a hearing is requested, the shares need not be divested
and profits may be distributed to a publicly-held parent corporation pending the
issuance of a final order from the Illinois Gaming Board.
An Institutional Investor that individually or jointly with others,
cumulatively acquires, directly or indirectly, 5% or more of any class of voting
securities of a publicly-traded licensee or a licensee's publicly-traded parent
corporation shall, within no less than ten days after acquiring such securities,
notify the Administrator of the Board of such ownership and shall provide any
additional information as may be required. If an Institutional Investor (as
specified above) acquires 10% or more of any class of voting securities of a
publicly-traded licensee or a licensee's publicly-traded parent corporation,
then it shall file an Institutional Investor Disclosure Form within 45 days
after acquiring such level of ownership interest. The owner licensee shall
notify the Administrator as soon as possible after it becomes aware that it or
its parent is involved in an ownership acquisition by an Institutional Investor.
The Institutional Investor also has an obligation to notify the Administrator of
its ownership interest.
In addition to Institutional Investor Disclosure Forms, certain other forms
may be required to be submitted to the Illinois Board. An owner-licensee must
submit a Marketing Agent Form to the Illinois Board for each Marketing Agent
with whom it intends to do business. A Marketing Agent is a person or entity,
other than a junketeer or an employee of a riverboat gaming operation, who is
compensated by the riverboat gaming operation in excess of $100 per patron per
trip for identifying and recruiting patrons. Key Persons of owner-licensees must
submit Trust Identification Forms for trusts, excluding land trusts, for which
they are a grantor, trustee or beneficiary each time such a trust relationship
is established, amended or terminated.
Applicants for and holders of an owner's license are required to obtain
formal approval from the Illinois Board for changes in the following areas: (i)
Key Persons; (ii) type of entity; (iii) equity and debt capitalization of the
entity; (iv) investors and/or debt holders; (v) source of funds; (vi)
applicant's economic development plan; (vii) riverboat capacity or significant
design change; (viii) gaming positions, (ix) anticipated economic impact; or (x)
agreements, oral or written, relating to the acquisition or disposition of
property (real or personal) of a value greater than $1 million.
16
19
A holder of an owner's license is allowed to make distributions to its
stockholders only to the extent that such distribution would not impair the
financial viability of the gaming operation. Factors to be considered by the
licensee will include, but not be limited to, the following: (i) cash flow,
casino cash and working capital requirements; (ii) debt service requirements
obligations and covenants associated with financial instrument; (iii)
requirements for repairs and maintenance and capital improvements; and (iv)
employment or economic development requirements of the Act; and (v) a licensee's
financial projections.
The Illinois Board may waive any licensing requirement or procedure provided
by rule if it determines that such waiver is in the best interests of the public
and the gaming industry. Also, the Illinois Board may, from time to time, amend
or change its rules.
From time to time, various proposals have been introduced in the Illinois
legislature that, if enacted, would affect the taxation, regulation, operation
or other aspects of the gaming industry or the Company. Some of this
legislation, if enacted, could adversely affect the gaming industry or the
Company. No assurance can be given whether such legislation or similar
legislation will be enacted.
Uncertainty exists regarding the Illinois gambling regulatory environment
due to limited experience in interpreting the Illinois Act.
NEW JERSEY
On April 27, 1997, Boyd Atlantic City, Inc. ("BAC") filed an application for
a casino license with the New Jersey Casino Control Commission (the "NJCCC").
BAC and Boyd Gaming Corporation ("Boyd") also sought Statements of Compliance
regarding their satisfaction of certain criteria in connection with BAC's
application for a casino license.
On July 8, 1998, at a public meeting, the NJCCC confirmed BAC's status as an
applicant for a casino license. The NJCCC also considered the petition for
Statements of Compliance and declared that, as of the date of the meeting, BAC
and Boyd possessed: (i) the required financial stability, integrity and
responsibility; (ii) the required good character, honesty and integrity; and
(iii) the required business ability and casino experience. The NJCCC further
found that, as of the date thereof, the officers and directors of BAC and Boyd
whose qualifications must be established to receive Statements of Compliance met
the qualifications established under the Casino Control Act.
On August 8, 1998, Boyd notified the NJCCC that its proposed casino project
will be that of Marina District Development Company ("MDDC"), a joint venture
between BAC and MAC, CORP. ("MAC"), a wholly owned subsidiary of Mirage Resorts,
Inc. Subsequently, on October 6, 1998, the general counsel's office of the
NJCCC, by letter, confirmed that the staff of the NJCCC is treating MDDC as the
applicant for the proposed casino hotel project.
While the issuance of Statements of Compliance indicate satisfaction of
various criteria as of the date thereof, such issuance is not an assurance of
licensure and the NJCCC retains the right to review the Statements of Compliance
based on changes of circumstances. Furthermore, the Statements of Compliance do
not address many of the items required for casino licensure.
On December 13, 2000, MDDC was merged into Marina District Development
Company, LLC ("Operating Company"). Immediately following the merger, on the
same date, the membership interests of BAC and MAC in Operating Company were
contributed to Marina District Development Holding Co., LLC ("Holding Company"),
and Operating Company became a wholly-owned subsidiary of Holding Company. Both
MAC and BAC are members of Holding Company and have fifty percent (50%)
ownership interests therein, and BAC is the Managing Member of Holding Company.
Holding Company is the sole member of Operating Company.
BAC, Boyd, Operating Company and Holding Company will continue to submit
additional license application items to the NJCCC as is required.
The ownership and operation of casino gaming facilities in New Jersey are
subject to the New Jersey Casino Control Act (the "Casino Control Act"). In
general, the Casino Control Act and the regulations promulgated thereunder
contain detailed provisions concerning, among other things: the granting of
casino licenses; the suitability of the approved hotel facility and the amount
of authorized casino space and gaming units permitted therein; the qualification
of natural persons and entities related to the casino licensee; the licensing
and registration of employees and vendors of casino licensees; rules of the
games; the selling and redeeming of gaming chips; the granting and duration of
credit and the enforceability of gaming debts; management control procedures,
accountability, and cash control methods and reports to gaming agencies;
security standards; the manufacture and distribution of gaming equipment; equal
opportunity for employees and casino operators, contractors of casino
facilities, and others; and advertising, entertainment, and alcoholic beverages.
The NJCCC is empowered under the Casino Control Act to regulate a wide spectrum
of
17
20
gaming and nongaming related activities and to approve the form of ownership and
financial structure of not only a casino licensee, but also its entity
qualifiers and intermediary and holding companies.
No casino hotel facility may operate unless the appropriate license and
approvals are obtained from the NJCCC, which has broad discretion with regard to
the issuance, renewal, revocation, and suspension of such licenses and
approvals, which are nontransferable. The qualification criteria with respect to
the holder of a casino license include its financial stability, integrity and
responsibility; the integrity and adequacy of its financial resources which bear
any relation to the casino project; its good character, honesty, and integrity;
and the sufficiency of its business ability and casino experience to establish
the likelihood of creation and maintenance of a successful, efficient casino
operation. The NJCCC may reopen licensing hearings at any time and must reopen a
licensing hearing at the request of the New Jersey Division of Gaming
Enforcement (the "NJDGE").
To be considered financially stable, a licensee must demonstrate the
following ability: to pay winning wagers when due; to achieve a gross operating
profit; to pay all local, state, and federal taxes when due; to make necessary
capital and maintenance expenditures to insure that it has a superior
first-class facility; and to pay, exchange, refinance or extend debts which will
mature and become due and payable during the license term.
In the event a licensee fails to demonstrate financial stability, the NJCCC
may take such action as it deems necessary to fulfill the purposes of the Casino
Control Act and protect the public interest, including: issuing conditional
license approvals or determinations; establishing an appropriate cure period;
imposing reporting requirements; placing restrictions on the transfer of cash or
the assumption of liability; requiring reasonable reserves or trust accounts;
denying licensure; or appointing a conservator.
Pursuant to the Casino Control Act, NJCCC regulations and precedent, no
entity may hold a casino license unless each officer, director, principal
employee, person who directly or indirectly holds any beneficial interest or
ownership in the licensee, each person who in the opinion of the NJCCC has the
ability to control or elect a majority of the board of directors of the licensee
(other than a banking or other licensed lending institution which makes a loan
or holds a mortgage or other loan acquired in the ordinary course of business),
and any lender, whom the NJCCC may consider appropriate, obtains and maintains
qualification approval from the NJCCC. Qualification approval means
qualification requirements as a casino key employee, as described below.
An entity qualifier or intermediary or holding company is required to
register with the NJCCC and meet the same basic standards for approval as a
casino licensee; provided, however, that the NJCCC, with the concurrence of the
Director of the NJDGE, may waive compliance by a publicly-traded corporate
holding company as to any officer, director, lender, underwriter, agent or
employee thereof, or person directly or indirectly holding a beneficial interest
or ownership of the securities of such company, where the NJCCC and the Director
of the NJDGE are satisfied that such persons are not significantly involved in
the activities of the corporate licensee, and in the case of security holders,
do not have the ability to control the publicly-traded corporation or elect one
or more of its directors.
The NJCCC may require all financial backers, investors, mortgagors, bond
holders and holders of notes or other evidence of indebtedness, either in effect
or proposed, which bears any relation to the casino project, publicly-traded
securities of an entity which holds a casino license or is an entity qualifier,
subsidiary, or holding company of a casino licensee (a "Regulated Company"), to
qualify as financial sources.
An institutional investor ("Institutional Investor") is defined by the
Casino Control Act as any retirement fund administered by a public agency for
the exclusive benefit of federal, state, or local public employees; investment
company registered under the Investment Company Act of 1940; collective
investment trust organized by banks under Part Nine of the Rules of the
Comptroller of the Currency; closed end investment trust; chartered or licensed
life insurance company or property and casualty insurance company; banking and
other chartered or licensed lending institution; investment advisor registered
under the Investment Advisers Act of 1940; and such other persons as the NJCCC
may determine for reasons consistent with the policies of the Casino Control
Act.
An Institutional Investor is granted a waiver by the NJCCC from financial
source or other qualification requirements applicable to a holder of
publicly-traded securities, in the absence of a prima facie showing by the NJDGE
that there is any cause to believe that the Institutional Investor may be found
unqualified, on the basis of NJCCC findings that: (a) its holdings were
purchased for investment purposes only and, upon request by the NJCCC, it files
a certified statement to the effect that is has no intention of influencing or
affecting the affairs of the issuer, the casino licensee or its holding or
intermediary companies; provided, however, that the Institutional Investor will
be permitted to vote on matters put to the vote of the outstanding security
holders; and (b) if (i) the securities are debt securities of a casino
licensee's holding or intermediary companies or another subsidiary company of
the casino licensee's holding or intermediary companies which is related in any
way to the financing of the casino licensee and represent either
18
21
(x) 20% or less of the total outstanding debt of the company, or (y) 50% or less
of any issue of outstanding debt of the company, (ii) the securities are under
10% of the equity securities of a casino licensee's holding or intermediary
companies, or (iii) if the securities so held exceed such percentages, upon a
showing of good cause. The NJCCC may grant a waiver of qualification to an
Institutional Investor holding a higher percentage of such securities upon a
showing of good cause and if the conditions specified above are met.
Generally, the NJCCC requires each institutional holder seeking waiver of
qualification to execute a certification to the effect that (i) the holder has
reviewed the definition of Institutional Investor under the Casino Control Act
and believes that it meets the definition of Institutional Investor; (ii) the
securities are those of a publicly-traded corporation; (iii) the holder
purchased the securities for investment purposes only and holds them in the
ordinary course of business; (iv) the holder has no involvement in the business
activities of, and no intention of influencing or affecting the affairs of the
issuer, the casino licensee, or any affiliate; and (v) if the holder
subsequently determines to influence or affect the affairs of the issuer, the
casino licensee or any affiliate, will provide not less than 30 days' prior
notice of such intent and will file with the NJCCC an application for
qualification before taking any such action. If an Institutional Investor
changes its investment intent, or if the NJCCC finds reasonable cause to believe
that it may be found unqualified, the Institutional Investor may take no action
with respect to the security holdings, other than to divest itself of such
holdings, until it has applied for interim casino authorization and has executed
a trust agreement pursuant to such an application.
The Casino Control Act imposes certain restrictions upon the issuance,
ownership, and transfer of securities of a Regulated Company, and defines the
term "security" to include instruments which evidence a direct or indirect
beneficial ownership or creditor interest in a Regulated Company including, but
not limited to, mortgages, debentures, security agreements, notes and warrants.
If the NJCCC finds that a holder of such securities is not qualified under
the Casino Control Act, it has the right to take any remedial action it may deem
appropriate, including the right to force divestiture by such disqualified
holder of such securities. In the event that certain disqualified holders fail
to divest themselves of such securities, the NJCCC has the power to revoke or
suspend the casino license affiliated with the Regulated Company which issued
the securities. If a holder is found unqualified, it is unlawful for the holder
(i) to exercise, directly or through any trustee or nominee, any right conferred
by such securities, or (ii) to receive any dividends or interest upon any such
securities or any remuneration, in any form, from its affiliated casino licensee
for services rendered or otherwise.
With respect to non-publicly-traded securities, the Casino Control Act and
NJCCC regulations require that the corporate charter or partnership agreement of
a Regulated Company establish a right in the NJCCC of prior approval with regard
to transfers of securities, shares and other interests and an absolute right in
the Regulated Company to repurchase at the market price or the purchase price,
whichever is the lesser, any such security, share, or other interest in the
event that the NJCCC disapproves a transfer. With respect to publicly-traded
securities, such corporate charter or partnership agreement is required to
establish that any such securities of the entity are held subject to the
condition that, if a holder thereof is found to be disqualified by the NJCCC,
such holder shall dispose of such securities.
Whenever any person enters into a contract to transfer any property which
relates to an ongoing casino operation, including a security of the casino
licensee or a holding or intermediary company or entity qualifier, under
circumstances which would require that the transferee obtain licensure or be
qualified under the Casino Control Act, and that person is not already licensed
or qualified, the transferee is required to apply for interim authorization.
Furthermore, the closing or settlement date in the contract may not be earlier
than the 121st day after the submission of a complete application for licensure
or qualification together with a fully executed trust agreement in a form
approved by the NJCCC. If, after the report of the NJDGE and a hearing by the
NJCCC, the NJCCC grants interim authorization, the property will be subject to a
trust. If the NJCCC denies interim authorization, the contract may not close or
settle until the NJCCC makes a determination on the qualifications of the
applicant. If the NJCCC denies qualification, the contract will be terminated
for all purposes, and there will be no liability on the part of the transferor.
If, as the result of a transfer of publicly-traded securities of a Regulated
Company or a financing entity of a Regulated Company, any person is required to
qualify under the Casino Control Act, that person is required to file an
application for licensure or qualification within 30 days after the NJCCC
determines that qualification is required or declines to waive qualification.
The application must include a fully executed trust agreement in a form
approved by the NJCCC, or in the alternative, within 120 days after the NJCCC
determines that qualification is required, the person whose qualification is
required must divest such securities as the NJCCC may require in order to remove
the need to qualify.
The NJCCC may grant interim casino authorization where it finds by clear and
convincing evidence that: (i) statements of compliance have been issued pursuant
to the Casino Control Act; (ii) the casino hotel is an approved hotel in
accordance with the
19
22
Casino Control Act; (iii) the trustee satisfies qualification criteria
applicable to casino key employees, except for residency; and (iv) interim
operation will best serve the interests of the public.
When the NJCCC finds the applicant qualified, the trust will terminate. If
the NJCCC denies qualification to a person who has received interim casino
authorization, the trustee is required to endeavor, and is authorized, to sell,
assign, convey, or otherwise dispose of the property subject to the trust to
such persons who are licensed or qualified or shall themselves obtain interim
casino authorization.
Where a holder of publicly-traded securities is required, in applying for
qualification as a financial source or qualifier, to transfer such securities to
a trust in application for interim casino authorization and the NJCCC thereafter
orders that the trust become operative: (i) during the time the trust is
operative, the holder may not participate in the earnings of the casino hotel or
receive any return on its investment or debt security holdings; and (ii) after
disposition, if any, of the securities by the trustee, proceeds distributed to
the unqualified holder may not exceed the lower of their actual cost to the
unqualified holder or their value calculated as if the investment had been made
on the date the trust became operative.
The NJCCC may permit a licensee to increase its casino space if the licensee
agrees to add a prescribed number of qualifying sleeping units within two years
after the commencement of gaming operations in the additional casino space.
However, if the casino licensee does not fulfill such agreement due to
conditions within its control, the licensee will be required to close the
additional casino space, or any portion of thereof that the NJCCC determines
should be closed.
The NJCCC is authorized to establish annual fees for the renewal of casino
licenses. The renewal fee is based upon the cost of maintaining control and
regulatory activities prescribed by the Casino Control Act, and may not be less
than $100,000 for a one-year casino license nor less than $200,000 for a
four-year casino license. Additionally, casino licenses are subject to potential
assessments to fund any annual operating deficits incurred by the NJCCC or the
NJDGE. There is also an annual license fee of $500 for each slot machine
maintained for use or in use in any casino. Additionally, each casino licensee
is also required to pay an annual tax of 8% on its gross casino revenues.
Each party to an agreement for the management of a casino is required to
hold a casino license, and the party who is to manage the casino must own at
least 10% of all the outstanding equity securities of the casino licensee. Such
an agreement shall provide for: (i) the complete management of the casino; (ii)
the sole and unrestricted power to direct the casino operations; and (iii) a
term long enough to ensure the reasonable continuity, stability, independence
and management of the casino.
An investment alternative tax imposed on the gross casino revenues of each
licensee in the amount of 2.5% is due and payable on the last day of April
following the end of the calendar year. A licensee is obligated to pay the
investment alternative tax for a period of 30 years. Estimated payments of the
investment alternative tax obligation must be made quarterly in an amount equal
to 1.25% of estimated gross revenues for the preceding three-month period.
Investment tax credits may be obtained by the Casino Reinvestment Development
Authority ("CRDA"). CRDA bonds have terms as long as 50 years and bear interest
at below market rates, resulting in a value lower than the face value of such
CRDA bonds.
For the first 10 years of its obligation, the licensee is entitled to an
investment tax credit against the investment alternative tax in an amount equal
to twice the purchase price of the bonds issued to the licensee by the CRDA.
Thereafter, the licensee is (i) entitled to an investment tax credit in an
amount equal to twice the purchase price of such bonds or twice the amount of
its investments authorized in lieu of such bond investments made in projects
designated as eligible by the CRDA, and (ii) has the option of entering into a
contract with the CRDA to have its tax credit comprised of direct investments in
approved eligible projects which may not comprise more than 50% of its eligible
tax credit in any one year.
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.
20
23
As of July 1, 1993, there was established a standard minimum parking charge
of at least $2.00 per day for the use of a parking space for the purpose of
parking, garaging or storing motor vehicles in a parking facility owned or
leased by a casino licensee or by any person on behalf of a casino licensee. Of
the amount collected by the casino licensee, $1.50 is required to be paid to the
New Jersey State Treasurer and paid by the New Jersey State Treasurer into a
special fund established and held by the New Jersey State Treasurer for the
exclusive use of the CRDA.
Amounts in the special fund will be expended by the CRDA for (i) eligible
projects in the corridor region of Atlantic City, which projects are related to
the improvement of roads, infrastructure, traffic regulation, and public safety,
and (ii) funding up to 35% of the cost to casino licensees of expanding their
hotel facilities to provide additional hotel rooms, which hotel rooms are
required to be available upon the opening of the Atlantic City Convention Center
and dedicated to convention events.
On April 15, 1997, the CRDA approved a funding package for the development
of the H-Tract. The funding package consists of the following: (i) a $65 million
dollar allocation from the parking fees referred to above of casinos being
developed in the H-Tract; and (ii) a $55 million allocation from future CRDA
obligations of those casinos.
If, at any time, it is determined that a Regulated Company has violated the
Casino Control Act, or that any such entity cannot meet the qualification
requirements of the Casino Control Act, such entity could be subject to fines or
the suspension or revocation of its license or qualification. If a Regulated
Company's license is suspended for a period in excess of 120 days or revoked, or
upon the failure or refusal to renew a casino license, the NJCCC could appoint a
conservator to operate or dispose of such entity's casino hotel facilities. The
conservator would be required to act under the direct supervision of the NJCCC
and would be charged with the duty of conserving, preserving and, if permitted,
continuing the operation of such casino hotel. During the period of true
conservatorship, a former or suspended casino licensee is entitled to a fair
rate of return out of net earnings, if any, on the property retained by the
conservator. The NJCCC may also discontinue any conservatorship action and
direct the conservator to take such steps as are necessary to effect an orderly
transfer of the property of a former or suspended casino licensee.
Casino employees are subject to more stringent requirements than non-casino
employees and must meet applicable standards pertaining to financial stability,
responsibility, good character, honesty, integrity and New Jersey residency.
These requirements have resulted in significant competition among Atlantic City
casino operators for the services of qualified employees.
Casinos must follow certain procedures which are outlined in the Casino
Control Act when granting gaming credit and recording counter checks which have
been exchanged, redeemed or consolidated. Gaming debts arising in Atlantic City
in accordance with applicable regulations are enforceable in the courts of the
State of New Jersey.
LOUISIANA
The operation and management of riverboat casino facilities in Louisiana are
subject to extensive state regulation. The Louisiana Riverboat Economic
Development and Gaming Control Act (the "Riverboat Act") became effective on
July 19, 1991 and authorized the formation of the Louisiana Riverboat Gaming
Commission (the "Commission") and the Riverboat Gaming Enforcement Division of
the Louisiana State Police (the "Division"). Both the Commission and the
Division promulgated extensive regulations which controlled riverboat gaming in
Louisiana. The Riverboat Act states, among other things, that certain of the
policies of the State of Louisiana are to develop a historic riverboat industry
that will assist in the growth of the tourism market, to license and supervise
the riverboat industry from the period of construction through the actual
operation, to regulate the operators, manufacturers, suppliers and distributors
of gaming devices and to license all entities involved in the riverboat gaming
industry. The Riverboat Act makes it clear, however, that no holder of a license
or permit possesses any vested interest in such license or permit and that the
license or permit may be revoked at any time. In a special session held in April
1996, the Louisiana legislature passed the Louisiana Gaming Control Act (the
"Gaming Control Act") which dissolved the Commission and replaced it with the
Louisiana Gaming Control Board. Pursuant to the Gaming Control Act, all of the
regulatory authority, control and jurisdiction of licensing has now been
transferred to the Gaming Control Board. The Gaming Control Board came into
existence on May 1, 1996 and is made up of nine members and two ex-officio
members (including the Secretary of Revenue and Taxation and the superintendent
of Louisiana State Police). It is domiciled in Baton Rouge and regulates
riverboat gaming, the land-based casino in New Orleans, race track, slot casinos
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.
21
24
The Louisiana legislature also passed legislation requiring each parish
(county) where riverboat gaming is currently authorized to hold an election in
order for the voters to decide whether riverboat gaming will remain legal in
that parish. The Treasure Chest is located in Jefferson Parish, Louisiana.
Jefferson Parish approved riverboat gaming at the special election held on
November 6, 1996.
The Riverboat Act approved the conducting of gaming activities on a
riverboat, in accordance with the Riverboat Act, on twelve separate waterways in
Louisiana. The Riverboat Act allows the Gaming Control Board to issue up to 15
licenses to operate riverboat gaming projects within the state, with no more
than six in any one parish. There are presently 14 licenses issued and 14
riverboats operating. Pursuant to the Riverboat Act and the regulations
promulgated thereunder, each applicant which desired to operate a riverboat
casino in Louisiana was required to file a number of separate applications for a
Certificate of Preliminary Approval, all necessary gaming licenses and a
Certificate of Final Approval. No final Certificate was issued without all
necessary and proper certificates from all regulatory agencies including the
U.S. Coast Guard, the U.S. Army Corps of Engineers, local port authorities and
local levee authorities.
The Treasure Chest project application for a Certificate of Preliminary
Approval was filed by Treasure Chest Casino, L.L.C., the owner of Treasure
Chest. Treasure Chest received its Preliminary Certificate in August 1993 and
received its license on May 18, 1994. The license is subject to certain general
operational conditions and is subject to revocation pursuant to applicable laws
and regulations.
The Company and certain of its directors and officers and certain key
personnel were found suitable by the Division. New directors, officers and
certain key employees associated with gaming must also be found suitable by the
Gaming Control Board prior to working in gaming-related areas. These approvals
may be immediately revoked for a number of causes as determined by the Gaming
Control Board. The Gaming Control Board may deny any application for a
certificate, permit or license for any cause found to be reasonable by the
Gaming Control Board. The Gaming Control Board has the authority to require the
Company to sever its relationships with any persons for any cause deemed
reasonable by the Division or for the failure of that person to file necessary
applications with the Gaming Control Board.
The original Louisiana riverboat gaming license of Treasure Chest was valid
for five years and was to expire on May 18, 1999. An application for renewal was
filed and, in August 2000, the renewal was approved by the Louisiana Gaming
Control Board for an additional five year period.
In October 1998, a former majority member of the entity that previously
owned an 85% interest in the Treasure Chest pleaded guilty to conspiracy to
commit extortion under the Hobbs Act, 18 U.S.C. 371, in connection with the
granting of the original Louisiana gaming license of Treasure Chest. Although,
neither Treasure Chest nor the Company or any of its affiliates or employees
have been implicated in any manner in this investigation or prosecution, the
Louisiana Gaming Control Board has undertaken a full and complete investigation
into the matter. Additionally, two unsuccessful applicants for riverboat
licenses have raised issues concerning the issuance of the Treasure Chest
license.
In November 1998, Astoria Entertainment, Inc. ("Astoria"), an unsuccessful
applicant for a riverboat gaming license in Jefferson Parish, Louisiana, filed
two separate lawsuits (one in state court, one in federal court) which named
Treasure Chest and the Company as defendants. After the Company filed a motion
to dismiss the federal claim, Astoria voluntarily dismissed all claims against
the Company and Treasure Chest in the federal actions without prejudice to its
right to refile the claims at a later date. Although Astoria has not yet refiled
the claims, the Company believes that Astoria will refile those federal claims.
The Astoria state court suit is still pending.
Also, Alvin C. Copeland ("Copeland"), the sole shareholder of an
unsuccessful applicant for the original license that was granted to Treasure
Chest, challenged the validity of Treasure Chest's license at a recent Louisiana
Gaming Control Board meeting at which the Company received its renewal.
Copeland's challenges were based upon several allegations, including the Hobbs
Act violation discussed above, alleged licensing process irregularities and
alleged improper conduct by the Company. In addition, in 1993, Copeland objected
to the granting of Treasure Chest's license through an administrative procedure
which was denied by the Louisiana Gaming Control Board. Copeland's appeal of the
decision is presently pending in the Louisiana District Court. In 1999, Copeland
brought an action against Treasure Chest in an effort to have Treasure Chest's
license revoked and transferred to Copeland. Motions to dismiss the action have
been filed by all parties. The motions are currently under advisement with the
presiding judge. The presiding judge orally ruled to dismiss the actions, but no
written order has yet been executed. The final written order may allow Copeland
to amend his petition in an effort to state a valid claim against the Company.
22
25
If any of these matters ultimately result in the Treasure Chest license not
being renewed, it could have a material adverse effect on the business,
financial condition and results of operations of the Company.
At any time, the Gaming Control Board may investigate and require the
finding of suitability of any beneficial shareholder of the Company. The Gaming
Control Board requires all holders of more than a 5% interest in the license
holder to submit to suitability requirements. Additionally, if a shareholder who
must be found suitable is a corporate or partnership entity, then the
shareholders of partners of the entity must also submit to investigation. The
sale or transfer of more than a 5% interest in any riverboat project is subject
to Gaming Control Board approval.
Annual fees are currently charged to each riverboat project as follows: (i)
$50,000 per year for the first year and $100,000 for each year thereafter; and
(ii) 18.5% of the net gaming proceeds. Additionally, each riverboat must pay to
the local government a boarding fee of $2.50 per passenger boarding the vessel.
These fees could be increased by the Gaming Control Board.
Pursuant to the regulations promulgated by the Division and the Commission
(prior to the formation of the Gaming Control Board), all licensees are required
to inform the Commission and the Division of all debt, credit, financing and
loan transactions, including the identity of debt holders. This practice will be
followed with the Gaming Control Board pending the issuance of conflicting
regulations. Although the Company is not presently a license holder, its
subsidiaries, Boyd Kenner, Boyd Louisiana L.L.C. and Treasure Chest Casino,
L.L.C. are licensees and are subject to these regulations. In addition, the
Gaming Control Board, in its sole discretion, may require the holders of such
debt securities to file applications and obtain suitability certificates from
the Gaming Control Board. Although the Riverboat Act does not specifically
require debt holders to be licensed or to be found suitable, the Gaming Control
Board will retain the discretion to investigate and require that any holders of
debt securities be found suitable under the Riverboat Act. Additionally, if the
Gaming Control Board finds that any holder exercises a material influence over
the gaming operations, a suitability certificate will be required. If the Gaming
Control Board determines that a person is unsuitable to own such a security or
to hold such an indebtedness, the Gaming Control Board may propose any action
which it determines proper and necessary to protect the public interest,
including the suspension or revocation of the license. The Gaming Control Board
may also, under the penalty of revocation of license, issue a condition of
disqualification naming the person(s) and declaring that such person(s) may not:
(i) receive dividends or interest in debt or securities; (ii) exercise directly
or through a nominee a right conferred by the securities or indebtedness; (iii)
receive any remuneration from the licensee; (iv) receive any economic benefit
from the licensee; or (v) continue in an ownership or economic interest in a
licensee or remain as a manager, director or partner of a licensee.
Any violation of the Riverboat Act or the rules promulgated by the
Commission, the Division or the Gaming Control Board could result in substantial
fines, penalties (including a revocation of the license) and criminal actions.
Additionally, all licenses and permits issued by the Commission or the Division
are revocable privileges and may be revoked at any time by the Gaming Control
Board.
MISSISSIPPI
The ownership and operation of casino gaming facilities in Mississippi are
subject to extensive state and local regulation, but primarily the licensing and
regulatory control of the Mississippi Gaming Commission (the "Mississippi
Commission") and the Mississippi State Tax Commission.
The Mississippi Gaming Control Act (the "Mississippi Act"), is similar to
the Nevada Gaming Control Act. The Mississippi Commission has adopted
regulations which are also similar in many respects to the Nevada gaming
regulations.
The laws, regulations and supervisory procedures of the Mississippi
Commission are based upon declarations of public policy which are concerned
with, among other things, (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing for reliable record keeping and requiring the filing of
periodic reports with the Mississippi Commission; (iv) the prevention of
cheating and fraudulent practices; (v) providing a source of state and local
revenues through taxation and licensing fees; and (vi) ensuring that gaming
licensees, to the extent practicable, employ Mississippi residents. The
regulations are subject to amendment and interpretation by the Mississippi
Commission. Changes in Mississippi laws or regulations may limit or otherwise
materially affect the types of gaming that may be conducted and such changes, if
enacted, could have an adverse effect on us and our business, financial
condition and results of operations.
23
26
The Mississippi Act provides for legalized dockside gaming at the discretion
of the fourteen counties that border the Gulf Coast or the Mississippi River,
but only if the voters in such counties have not voted to prohibit gaming in
that county. As of January 1, 2001, dockside gaming was permissible in nine of
the fourteen eligible counties in the state and gaming operations had commenced
in seven counties. Under Mississippi law, gaming vessels must be located on the
Mississippi River or on navigable waters in eligible counties along the
Mississippi River, or in the waters lying south of the counties along the
Mississippi Gulf Coast.
Our Sam's Town Tunica casino is located on barges situated in a specially
constructed basin several hundred feet inland from the Mississippi River. In the
past, whether basins such as the one in which our casino barges are located
constituted "navigable waters" suitable for gaming under Mississippi law was a
controversial issue. The Mississippi Attorney General issued an opinion in July
1993 addressing legal locations for gaming vessels under the Mississippi Act and
the Mississippi Commission later approved the location of the casino barges on
the Sam's Town Tunica site as legal under the opinion of the Mississippi
Attorney General. Although a competitor requested the Mississippi Commission to
review and reconsider its decision, the Mississippi Commission declined to do so
and since that date has issued or renewed licenses to Sam's Town Tunica on
several separate occasions. Sam's Town Tunica's license requires demonstration
of compliance with the Mississippi Attorney General's "navigable waters"
opinion, a requirement which has been imposed on many Tunica County licensees.
We believe that Sam's Town Tunica is in compliance with the Mississippi Act and
the Mississippi Attorney General's "navigable waters" opinion. However, no
assurance can be given that a court would ultimately conclude that the location
of our casino barges at Sam's Town Tunica are located on navigable waters within
the meaning of Mississippi law. If the basin in which our Sam's Town Tunica
casino barges are presently located were not deemed navigable waters within the
meaning of Mississippi law, such a decision would have a material adverse effect
on us and our business, financial condition and results of operations.
The Mississippi Act permits unlimited stakes gaming on permanently moored
vessels on a 24-hour basis and does not restrict the percentage of space which
may be utilized for gaming. The Mississippi Act permits substantially all
traditional casino games and gaming devices.
We and any subsidiary of ours that operates a casino in Mississippi (a
"Gaming Subsidiary") are subject to the licensing and regulatory control of the
Mississippi Commission. We are registered under the Mississippi Act as a
publicly traded holding company (a "Registered Corporation") of Boyd Tunica,
Inc., the owner and operator of Sam's Town Tunica, a licensee of the Mississippi
Commission. As a Registered Corporation, we are required periodically to submit
detailed financial and operating reports to the Mississippi Commission and
furnish any other information which the Mississippi Commission may require. If
we are unable to continue to satisfy the registration requirements of the
Mississippi Act, we and any Gaming Subsidiary cannot own or operate gaming
facilities in Mississippi.
A Gaming Subsidiary must maintain a gaming license from the Mississippi
Commission to operate a casino in Mississippi. Such licenses are issued by the
Mississippi Commission subject to certain conditions, including continued
compliance with all applicable state laws and regulations. There are no
limitations on the number of gaming licenses which may be issued in Mississippi.
Gaming licenses require the payment of periodic fees and taxes, are not
transferable, are issued for a three-year period and may be continued for two
additional three-year periods prior to renewal. Sam's Town Tunica's current
gaming license expires in December of 2001. No person may become a stockholder
of or receive any percentage of profits from a Gaming Subsidiary without first
obtaining licenses and approvals from the Mississippi Commission. We have
obtained such approvals in connection with our approval as a Registered
Corporation for Sam's Town Tunica.
Certain of our officers, directors and shareholders and the officers,
directors and certain key employees of Sam's Town Tunica must be found suitable
or approved by the Mississippi Commission. We believe that we have obtained,
applied for or are in the process of applying for all necessary findings of
suitability with respect to the Company or Sam's Town Tunica, although the
Mississippi Commission, in its discretion, may require additional persons to
file applications for findings of suitability. In addition, any person having a
material relationship or involvement with us may be required to be found
suitable, in which case those persons must pay the costs and fees associated
with such investigation. The Mississippi Commission may deny an application for
a finding of suitability for any cause that it deems reasonable. Changes in
certain licensed positions must be reported to the Mississippi Commission. In
addition to its authority to deny an application for a finding of suitability,
the Mississippi Commission has jurisdiction to disapprove a change in any
person's corporate position or title and such changes must be reported to the
Mississippi Commission. The Mississippi Commission has the power to require us
and our Mississippi Gaming Subsidiary 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.
24
27
At any time, the Mississippi Commission has the power to investigate and
require the finding of suitability of any record or beneficial shareholder of
the Company. The Mississippi Act requires any person who acquires more than 5%
of any class of voting securities of a Registered Corporation to report the
acquisition to the Mississippi Commission, and such person may be required to be
found suitable. Also, any person who becomes a beneficial owner of more than 10%
of any class of voting securities of a Registered Corporation must apply for a
finding of suitability by the Mississippi Commission and must pay the costs and
fees that the Mississippi Commission incurs in conducting the investigation. The
Mississippi Commission generally has exercised its discretion to require a
finding of suitability of any beneficial owner of more than 5% of a class of a
Registered Corporation's voting securities. However, the Mississippi Commission
has adopted a policy that permits certain institutional investors to own
beneficially up to 15% of a class of a Registered Corporation's voting
securities without a finding of suitability. If a stockholder who must be found
suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Mississippi
Commission may be found unsuitable. The same restrictions apply to a record
owner, if the record owner, after request, fails to identify the beneficial
owner. We believe that our compliance with the licensing procedures and
regulatory requirements of the Mississippi Commission will not affect the
marketability of our securities. Any person found unsuitable and who holds,
directly or indirectly, any beneficial ownership of such securities beyond such
time as the Mississippi Commission prescribes, may be guilty of a misdemeanor.
We may be subject to disciplinary action if, after receiving notice that a
person is unsuitable to be a stockholder or to have any other relationship with
us or any Gaming Subsidiary owned by us, the company involved: (i) pays the
unsuitable person any dividend or other distribution upon such person's voting
securities; (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.
We may be required to disclose to the Mississippi Commission, upon request,
the identities of the holders of our debt or other securities. In addition,
under the Mississippi Act the Mississippi Commission may, in its discretion,
require the holders of any debt security of a Registered Corporation to file
applications, be investigated and be found suitable to own the debt security if
it has reason to believe that the ownership would be inconsistent with the
declared policies of the State. If the Mississippi Commission determines that a
person is unsuitable to own a debt security, then the Registered Corporation can
be sanctioned, including the loss of its approvals, if without the prior
approval of the Mississippi Commission, it: (i) pays to the unsuitable person
any dividend, interest, or any distribution whatsoever; (ii) recognizes any
voting right by the unsuitable person in connection with those securities; (iii)
pays the unsuitable person remuneration in any form; or (iv) makes any payment
to the unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction. Although the Mississippi Commission
generally does not require the individual holders of obligations such as notes
to be investigated and found suitable, the Mississippi Commission retains the
discretion to do so for any reason, including but not limited to a default, or
where the holder of the debt instrument exercises a material influence over the
gaming operations of the entity in question. Any holder of debt securities
required to apply for a finding of suitability must pay all investigative fees
and costs of the Mississippi Commission in connection with such an
investigation.
Each Mississippi Gaming Subsidiary must maintain in Mississippi a current
ledger with respect to the ownership of its equity securities and we must
maintain in Mississippi a current list of our stockholders which must reflect
the record ownership of each outstanding share of our equity securities. The
ledger and stockholder lists must be available for inspection by the Mississippi
Commission 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 Mississippi Commission. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. We must also
render maximum assistance in determining the identify of the beneficial owner.
The Mississippi Act requires that the certificates representing securities
of a Registered Corporation bear a legend indicating that the securities are
subject to the Mississippi Act and the regulations of the Mississippi
Commission. We have received from the Mississippi Commission a waiver from this
legend requirement. The Mississippi Commission has the power to impose
additional restrictions on the holders of our securities at any time.
Substantially all loans, leases, sales of securities and similar financing
transactions by a Registered Corporation or a Gaming Subsidiary must be reported
to or approved by the Mississippi Commission. A Mississippi Gaming Subsidiary
may not make a public offering of its securities, but may pledge or mortgage
casino facilities. A Registered Corporation may not make a public offering of
its securities without the prior approval of the Mississippi Commission if any
part of the proceeds of the offering is to be used to finance the construction,
acquisition or operation of gaming facilities in Mississippi or to retire or
extend obligations incurred for one or more such purposes. Such approval, if
given, does not constitute a recommendation or approval of the investment merits
of the securities
25
28
subject to the offering. We have received a waiver of the prior approval
requirement with respect to public offerings and private placements of
securities, subject to certain conditions.
Under the regulations of the Mississippi Commission, a gaming licensee may
not guarantee a security issued by an affiliated company pursuant to a public
offering, or pledge its assets to secure payment or performance of the
obligations evidenced by the security issued by the affiliated company, without
the prior approval of the Mississippi Commission. A pledge of the stock of a
gaming licensee and the foreclosure of such a pledge are ineffective without the
prior approval of the Mississippi Commission. Moreover, restrictions on the
transfer of an equity security issued by a Mississippi gaming licensee and
agreements not to encumber such securities are ineffective without the prior
approval of the Mississippi Commission. We have obtained approvals from the
Mississippi Gaming Commission for such guarantees, pledges and restrictions in
connection with offerings of securities, subject to certain restrictions.
Changes in control of a Registered Corporation through merger,
consolidation, acquisition of assets, management or consulting agreements or any
act or conduct by a person by which he or she obtains control, may not occur
without the prior approval of the Mississippi Commission. Entities seeking to
acquire control of a Registered Corporation or a Mississippi Gaming Subsidiary
must satisfy the Mississippi Commission in a variety of stringent standards
prior to assuming control of the Registered Corporation. The Mississippi
Commission may also require controlling stockholders, officers, directors, and
other persons having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part of the
approval process relating to the transaction.
The Mississippi legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Mississippi and
Registered Corporations, may be injurious to stable and productive corporate
gaming. The Mississippi Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Mississippi's gaming industry and to further Mississippi's policy to: (i) assure
the financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Mississippi
Commission before a Registered Corporation may make exceptional repurchases of
voting securities (i.e. repurchases which treat holders differently) in excess
of the current market price and before a corporate acquisition opposed by
management can be consummated. Mississippi's gaming regulations also require
prior approval by the Mississippi Commission of a plan of recapitalization
proposed by the Registered Corporation's board of directors in response to a
tender offer made directly to the Registered Corporation's shareholders for the
purpose of acquiring control of the Registered Corporation.
Neither we nor any Gaming Subsidiary may engage in gaming activities in
Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Commission. The Mississippi Commission may
require determinations that, among other things, there are means for the
Mississippi Commission to have access to information concerning the out-of-state
gaming operations of us and our affiliates. We have previously obtained a waiver
of foreign gaming approval from the Mississippi Commission for operations in
other states in which we conduct gaming operations and will be required to
obtain the approval or a waiver of such approval from the Mississippi Commission
prior to engaging in any additional future gaming operations outside of
Mississippi.
If the Mississippi Commission determined that we or Sam's Town Tunica
violated a gaming law or regulation, the Mississippi Commission could limit,
condition, suspend or revoke our approvals and the license of Sam's Town Tunica,
subject to compliance with certain statutory and regulatory procedures. In
addition, we, Sam's Town Tunica and the persons involved could be subject to
substantial fines for each separate violation. Because of such a violation, the
Mississippi Commission could attempt to appoint a supervisor to operate the
casino facilities. Limitation, conditioning or suspension of any gaming license
or approval or the appointment of a supervisor could (and revocation of any
gaming license or approval would), materially adversely affect us and our
business, financial condition and results of operations.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Mississippi and to the
counties and cities in which a company's operations are conducted. Depending
upon the particular fee or tax involved, these fees and taxes are payable either
monthly, quarterly or annually. Gaming taxes are based upon (i) a percentage of
the gross gaming revenues received by the casino operation, (ii) the number of
gaming devices operated by the casino or (iii) the number of table games
operated by the casino. The license fee payable to the State of Mississippi is
based upon "gaming receipts" (generally defined as gross receipts less payouts
to customers as winnings) and the current maximum tax rate imposed is 8% of all
gaming receipts in excess of $134,000. The foregoing license fees paid are
allowed as a credit against our Mississippi income tax liability for
26
29
the year paid. The gross revenue fee imposed by Tunica County in which Sam's
Town Tunica is located equals approximately 4% of the gaming receipts.
The Mississippi Commission has adopted a regulation requiring as a condition
of licensure or license renewal that an existing 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.
The Mississippi Commission later adopted amendments to the regulation that would
increase the infrastructure development requirement from 25% to 100% of the
existing 25%; however, the regulation amendment increasing the infrastructure
requirement grandfathers existing licensees and applies only to new casino
projects and casinos that are not operating at the time of acquisition or
purchase. We believe that Sam's Town Tunica is in compliance with the previously
existing infrastructure requirement and is not subject to the 100%
infrastructure requirement.
The sale of alcoholic beverages by Sam's Town Tunica is subject to
licensing, control and regulation by both the local jurisdiction and the
Alcoholic Beverage Control Division (the "ABC") of the Mississippi State Tax
Commission. Sam's Town Tunica is in an area designated as special resort area,
which allows Sam's Town Tunica to serve alcoholic beverages on a 24-hour basis.
If the ABC laws are violated, the ABC has the full power to limit, condition,
suspend or revoke any license for the serving of alcoholic beverages or to place
such a licensee on probation with or without conditions. Any such disciplinary
action could (and revocation would) have a material adverse effect upon us and
our business, financial condition and results of operations. Certain of our
officers and managers must be investigated by the ABC in connection with our
liquor permits and changes in certain positions must be approved by the ABC.
In Mississippi, in three separate instances, representatives of an
anti-gaming group proposed voter initiatives which, if approved, would have
amended the Mississippi Constitution to ban gaming in Mississippi and would have
required all currently legal gaming entities to cease operations within two
years of the ban. All three of the proposed initiatives were ruled illegal by
Mississippi state trial courts because, among other reasons, each of the
proposed initiatives failed to include required information regarding the
anticipated effect of such a ban on government revenues. The proponents of the
most recent initiative appealed the trial court ruling to the Mississippi
Supreme Court, which affirmed the decision of the trial court prohibiting the
proponents from proceeding with the proposed initiative. Any such initiative
must be approved by the Mississippi Secretary of State and signatures of at
least 91,673 registered voters statewide (with a minimum of 18,335 registered
voters from each of the state's five congressional districts) must be gathered
and certified in order for such a proposal to be included on the statewide
ballot for consideration by the voters. The next election for which the
proponents could attempt to place such a proposal on the ballot would be in
November 2002. It is likely at some point that a revised initiative will be
filed which will adequately address the issues regarding the effect on
government revenues of a prohibition of gaming in Mississippi. However, while it
is too early in the process for us to make any predictions with respect to
whether such an initiative will appear on a ballot or the likelihood of such an
initiative being approved by the voters, if such an initiative were passed and
gaming were prohibited in Mississippi, it would have a material adverse effect
on us and our business, financial condition and results of operations.
INDIANA
The Indiana Riverboat Gaming Act ("Indiana Act") was passed in 1993 and
authorizes the issuance of up to eleven Riverboat Owner's Licenses to be
operated from counties that are contiguous to the Ohio River, Lake Michigan and
Patoka Lake. In October 2000, the tenth riverboat commenced operations in
Indiana. Five of the riverboats are located in counties contiguous to the Ohio
River and five are in counties contiguous to Lake Michigan. The Indiana Gaming
Commission, the regulatory body with jurisdiction over Indiana riverboats, has
not considered applications for a Riverboat Owner's License to be sited in a
county contiguous to Patoka Lake since Patoka Lake is a project of the U.S. Army
Corps of Engineers ("Corps") and the Corps has determined Patoka Lake is
unsuitable for a riverboat project.
The Indiana Act and rules promulgated thereunder provide for the strict
regulation of the facilities, persons, associations and practices related to
gaming operations. The Indiana Act vests the seven member Indiana Gaming
Commission with the power and duties of administering, regulating and enforcing
riverboat gaming in Indiana. The Indiana Gaming Commission's jurisdiction
extends to every person, association, corporation, partnership and trust
involved in any riverboat gaming operation located in the State of Indiana.
The Indiana Act requires that the owner of a riverboat gambling operation
hold a Riverboat Owner's License issued by the Indiana Gaming Commission. The
applicants for a Riverboat Owner's License must submit a comprehensive
application and the substantial owners and key persons must submit personal
disclosure forms. The company, substantial owners and key persons must undergo
an exhaustive background investigation prior to the issuance of a Riverboat
Owner's License. A person who owns or will own five
27
30
percent of a Riverboat Owner's License must automatically undergo the background
investigation. The Indiana Gaming Commission may investigate any person with any
level of ownership interest. If the Riverboat Licensee is a publicly-traded
corporation, its Articles of Incorporation must contain language concerning
transfer of ownership, suitability determinations and possible divestiture of
ownership.
A Riverboat Owner's License entitles the licensee to operate one riverboat.
A person licensed to hold more than ten percent of one Indiana riverboat
gambling operation may only hold up to ten percent of a second Indiana riverboat
gambling operation.
All riverboats must comply with applicable federal and state laws including,
but not limited to, U.S. Coast Guard regulations. Each riverboat must be
certified to carry at least five hundred passengers and be at least one hundred
fifty feet in length. Those riverboats located in counties contiguous to the
Ohio River must replicate historic Indiana steamboat passenger vessels of the
nineteenth century. The Indiana Act does not limit the number of gaming
positions allowed on each riverboat. The only limitation on the number of
permissible patrons allowed is established by the U.S. Coast Guard Certificate
of Inspection in the specification of the riverboat's capacity.
The Indiana Gaming Commission, after consultation with the Corps may
determine those navigable waterways located in counties contiguous to Lake
Michigan or the Ohio River, that are suitable for riverboats. If the Corps
rescinds approval for the operation of a riverboat gambling facility, the
Riverboat Owner's License issued by the Indiana Gaming Commission is void and
the Riverboat Licensee may not commence or must cease conducting gambling
operations. Rules promulgated by the Indiana Gaming Commission require that
employees working on a riverboat docked on the waters of Lake Michigan hold a
merchant marine document from the U.S. Coast Guard. Employees whose duties
consist of operating or navigating the riverboat must hold the appropriate
licenses and a merchant marine document from the U.S. Coast Guard.
The initial Riverboat Owner's License runs for a period of five years.
Thereafter, the license is subject to renewal on an annual basis upon a
determination by the Indiana Gaming Commission that it continues to be eligible
to hold a Riverboat Owner's License pursuant to the Indiana Act and rules
promulgated thereunder. After the expiration of the initial license, each
Riverboat Licensee undergoes a complete re-investigation every three years, but
the Indiana Gaming Commission reserves the right to investigate Riverboat
Licensees at any time it deems necessary. The initial license was issued to Blue
Chip Casino, Inc., the predecessor to Blue Chip Casino, LLC, in August of 1997
and will remain valid until August of 2002. Thus, Blue Chip Casino, LLC will
undergo its first re-investigation in 2002. Riverboat licensees may apply for
and hold all other licenses necessary for the operation of a riverboat gambling
operation, including, but not limited to, alcoholic beverage licenses and food
preparation licenses.
The Riverboat Owner's License may not be leased, hypothecated or have money
borrowed or loaned against it. An ownership interest in a Riverboat Owner's
License may only be transferred in accordance with the Indiana Act and rules
promulgated thereunder.
The Indiana Act does not limit the amount a patron may bet or lose. Minimum
and maximum wagers for each game are set by the Riverboat Licensee. Wagering may
not be conducted with money or other negotiable currency. No person under the
age of 21 is permitted to wager on or be present on a riverboat. Wagers may only
be taken from a person present on the riverboat. All electronic gaming devices
must pay out between eighty and one hundred percent of the amount wagered.
Unless otherwise approved by the Indiana Gaming Commission, gambling
excursions are required to be a minimum of two hours and a maximum of four
hours. A gambling excursion begins when patrons are allowed ingress to the
vessel if gambling is allowed during that period. A gambling excursion continues
during patron disembarkation if gambling is allowed during that period. Patron
embarkation and disembarkation periods each last thirty minutes. During the
patron disembarkation period, new patrons are not allowed to board the
riverboat. Except for the patron embarkation and disembarkation periods,
dockside gambling may not be conducted unless the master of the riverboat
certifies, in writing, that one of the following conditions exists: (1) weather
or water conditions present a danger to the riverboat, its passengers and crew;
(2) the vessel or docking facility is being repaired; (3) traffic conditions
present a danger to the riverboat, its passengers and crew or other vessels; or
(4) cruising would result in a violation of federal law. The riverboat is to
commence cruising once the condition has been corrected. If the vessel remains
dockside due to one of the conditions listed above, patrons are only allowed
access to the riverboat during the thirty-minute embarkation period.
The Indiana Act imposes a 20% wagering tax on adjusted gross receipts
received from gaming. The wagering tax is to be paid by the Riverboat Licensee
to the Indiana Department of Revenue before the close of the business day
following the day the wagers are made.
28
31
The Indiana Act requires that Riverboat Licensees pay a $3.00 admission tax
for each person admitted to a gambling excursion. The Indiana Act provides for
the suspension or revocation of a license whose owner does not timely submit the
admission tax.
Riverboats licensed by the Indiana Gaming Commission are assessed as real
property for property tax purposes and, thus, are taxed at rates determined by
local taxing authorities. All Indiana state excise taxes, use taxes and gross
retail taxes apply to sales made on a riverboat.
The Indiana Gaming Commission is authorized to conduct investigations into
gambling games, the maintenance of equipment, and violations of the Act as it
deems necessary. The Indiana Gaming Commission may subject a Riverboat Licensee
to fines, suspension or revocation of its license for any conduct that violates
the Indiana Act, rules promulgated thereunder or that constitutes a fraudulent
act. Legislation that would allow dockside gaming legislation has been
introduced in the 2001 Indiana General Assembly budgetary session. Supporters of
the legislation will contend the legislation will increase safety and
convenience, level the playing field with other jurisdictions, increase tourism
and economic development, and increase state and local revenue.
A Riverboat licensee must post a bond during the period of the initial
five-year license in an amount the Indiana Gaming Commission deems will reflect
the amount a local community will expend for infrastructure and other facilities
associated with the riverboat gambling operation and that may be used as payment
to the local community, the state and other aggrieved parties. The bond must be
payable to the Indiana Gaming Commission as obligee. The bond may be reduced
during the five-year period of the initial license as the Riverboat Licensee
fulfills its obligations. The Riverboat Licensee must carry insurance in types
and amounts as required by the Indiana Gaming Commission.
A Riverboat Licensee may not enter into or perform any contract or
transaction in which it transfers or receives consideration that is not
commercially reasonable or that does not reflect the fair market value of goods
and services rendered or received. All contracts are subject to disapproval by
the Indiana Gaming Commission and contracts should reflect the potential for
disapproval.
The Indiana Act places special emphasis on minority and women business
enterprise participation in the riverboat industry. Riverboat licensees must
establish goals of expending ten percent of the total dollars spent on goods and
services with minority business enterprises and five percent with women business
enterprises. Riverboat Licensees may be subject to a disciplinary action for
failure to meet the minority and women business enterprise expenditure goals.
A Riverboat Licensee or affiliate may not enter into a debt transaction
without the prior approval of the Indiana Gaming Commission. A debt transaction
is any transaction that will result in the encumbrance of assets. Unless waived,
approval of debt transactions requires consideration by the Indiana Gaming
Commission at two business meetings.
Rules promulgated by the Indiana Gaming Commission require the reporting of
currency transactions to the Indiana Gaming Commission after the transactions
are reported to the federal government. Indiana rules also require that
Riverboat Licensees track and maintain logs of transactions that exceed $3,000.
The Indiana Gaming Commission has promulgated a rule that prohibits
distributions, excluding distributions for the payment of taxes, by a Riverboat
Licensee to its partners, shareholders, itself or any affiliated entity if the
distribution would impair the financial viability of the riverboat gaming
operation. The Indiana Gaming Commission has also promulgated a rule mandating
Riverboat Licensees to maintain a cash reserve to protect patrons against
defaults in gaming debts. The cash reserve is to be equal to a Riverboat
Licensee's average payout for a three-day period based on the riverboat's
performance the prior calendar year. The cash reserve can consist of cash on
hand, cash maintained in Indiana bank accounts and cash equivalents not
otherwise committed or obligated.
The Indiana Act prohibits contributions to a candidate for a state
legislative or local office or to a candidate's committee or to a regular party
committee by: (1) a person who owns at least one percent of Riverboat Licensee;
(2) a person who is an officer of a Riverboat Licensee; (3) a person who is an
officer of a person that owns at least one percent of a Riverboat Licensee; or
(4) a person who is a political action committee of a Riverboat Licensee. The
prohibition against political contribution extends for three years following a
change in the circumstances that resulted in the prohibition.
A lawsuit that was filed in October 1996 challenging the constitutionality
of the Indiana Riverboat Gambling Act was dismissed by the trial court on June
10, 1999. The Indiana Court of Appeals dismissed the plaintiffs' appeal on July
14, 2000, and the Indiana Supreme Court denied transfer of the case on November
22, 2000.
Individuals employed on a riverboat and in certain positions must hold an
occupational license issued by the Indiana Gaming Commission. Suppliers of
gaming equipment and gaming or revenue tracking services must hold a supplier's
license issued by the Indiana Gaming Commission. Riverboat Licensees who employ
non-licensed individuals in positions requiring licensure or who purchase
supplies from a non-licensed entity may be subject to a disciplinary action.
29
32
ENVIRONMENTAL RISKS
The Company is subject to certain federal, state and local environmental,
safety and health laws, regulations and ordinances that apply to non-gaming
businesses generally, such as the Clean Air Act, Clean Water Act, Occupational
Safety and Health Act, Resource Conservation and Recovery Act and the
Comprehensive Environmental Response, Compensation, and Liability Act. The
Company has not made, and does not anticipate making, material expenditures with
respect to such environmental, safety and health laws, regulations and
ordinances. However, the coverage and attendant compliance costs associated with
such laws, regulations and ordinances may result in future additional costs to
the Company's operations. Any significant environmental liability or compliance
costs could have a material adverse effect on the Company's business, financial
condition and results of operations.
REGULATION OF RIVERBOATS
The riverboats operated by the Company must comply with U.S. Coast Guard
("USCG") requirements as to boat design, on-board facilities, equipment,
personnel and safety. Each of them must hold a Certificate of Inspection 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 USCG
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 Inspection or ABS
approval would preclude its use as a floating casino. In addition, the USCG
regulations require a hull inspection for all cruising riverboats at five-year
intervals; provided, however, under certain circumstances, the USCG may grant an
extension of time for such inspections. The USCG may require that such hull
inspections be conducted at a USCG-approved dry docking facility, and if so
required, the travel to and from such docking facility, as well as the time
required for inspections of the Treasure Chest, Par-A-Dice and Blue Chip
riverboats, could be significant. The loss of a dockside casino or riverboat
casino from service for any period of time could adversely affect the Company's
business, financial condition and results of operations.
CONTROL BY BOYD FAMILY
William S. Boyd, Chairman and Chief Executive Officer of the Company,
together with his immediate family, beneficially owned approximately 50% of the
outstanding shares of Common Stock of the Company as of December 31, 2000. As a
result, the Boyd family has the ability to significantly influence the affairs
of the Company, including the election of all of the directors of the Company
and, except as otherwise provided by law, approving or disapproving other
matters submitted to a vote of the Company's stockholders, including a merger,
consolidation or sale of assets.
RELIANCE ON CERTAIN MARKETS
The California, Fremont and Main Street Station derive a substantial portion
of their customers from the Hawaiian market. During the year ended December 31,
2000, patrons from Hawaii comprised approximately 67% of the room nights at the
California, 57% at the Fremont and 51% at Main Street Station. An increase in
fuel costs or transportation prices, a decrease in airplane seat availability or
a deterioration of relations with tour and travel agents, as they affect travel
between the Hawaiian market and the Company's facilities, could adversely affect
the Company's business, financial condition and results of operations. The
Company's Las Vegas properties also draw a substantial number of customers from
certain other specific geographic areas, including Southern California, Arizona,
Las Vegas and the Midwest. The California electorate approved Proposition 1A on
March 7, 2000. Proposition 1A gives all California Indian tribes the right to
operate a limited number of certain kinds of gaming machines and other forms of
casino wagering on California Indian reservations. Proposition 1A may negatively
affect Nevada gaming markets. Management is unable, however, to assess the
magnitude of the impact to the Company. Sam's Town Tunica draws patrons from
northern Mississippi, western Tennessee (principally Memphis) and Arkansas.
Treasure Chest appeals primarily to local market patrons and attracts patrons
from the western suburbs of New Orleans. Par-A-Dice draws customers not only
from the greater Peoria area but also from Chicago, Indiana, Iowa and Missouri.
Blue Chip draws patrons primarily from Indiana, Southern Michigan and the
Chicago area. Adverse economic conditions in any of these markets, or the
failure of the Company's facilities to continue to attract customers from these
geographic markets as a result of increased competition in those markets, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
30
33
EMPLOYEES
At December 31, 2000, the Company employed approximately 14,000 persons. On
such date, the Company had collective bargaining relationships with eight unions
covering approximately 2,511 employees, substantially all of whom are employed
at the Stardust, the Fremont and Main Street Station. Several collective
bargaining agreements are currently in effect; other agreements have 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 by the Company as of December 31, 2000.
YEAR BUILT CASINO SPACE SLOT TABLE HOTEL LAND
OR ACQUIRED (SQ. FT.) MACHINES GAMES ROOMS RESTAURANTS (ACRES)
----------- ------------ -------- ----- ----- ----------- -------
LAS VEGAS STRIP
Stardust Resort and Casino 1985 75,000 1,602 69 1,552 6 61
BOULDER STRIP
Sam's Town Las Vegas ...... 1979 133,000 3,284 43 648 12 63
Eldorado Casino ........... 1993 16,000 583 11 -- 3 4
Jokers Wild Casino ........ 1993 22,500 640 11 -- 2 13
DOWNTOWN LAS VEGAS
California Hotel and Casino 1975 36,000 1,098 35 781 5 16
Fremont Hotel and Casino .. 1985 32,000 1,121 27 447 5 2
Main Street Station Casino,
Brewery and Hotel ........ 1993 28,500 927 20 406 3 15
CENTRAL REGION
Sam's Town Tunica ......... 1994 75,000 1,600 63 843 5 150
Treasure Chest Casino ..... 1994 24,000 989 47 -- 4 --
Par-A-Dice Hotel and Casino 1996 33,000 1,122 34 208 3 19
Blue Chip Casino .......... 1999 37,400 1,400 57 188 3 32
------- ------ ----- ----- --- ---
Total ............. 512,400 14,366 417 5,073 51 375
======= ====== ===== ===== === ===
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various legal proceedings
arising in the ordinary course of business. Except for the Astoria and Copeland
matters, in the opinion of management, all pending claims in such matters, if
adversely decided, would not have a material adverse effect on the Company's
financial position or results of operations. See "Item 1 -- Investment
Considerations -- Governmental Gaming Regulation -- Louisiana" for a discussion
regarding each of the pending Astoria and Copeland matters.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the non-director executive officers of Boyd
Gaming Corporation as of February 28, 2001:
NAME AGE POSITION
- ---- --- --------
Ellis Landau......... 57 Executive Vice President, Chief Financial Officer and Treasurer
Keith E. Smith....... 40 Executive Vice President -- Operations
James W. Hippler..... 54 Senior Vice President -- Administration
Brian A. Larson...... 45 Senior 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.
KEITH E. SMITH became Executive Vice President -- Operations in May 1998.
Mr. Smith joined the Company in September 1990 serving in various controllership
positions, the last of which was Senior Vice President and Controller.
JAMES W. HIPPLER has been Senior Vice President -- Administration of the
Company since April 1990. From 1980 to 1990, Mr. Hippler held various positions
with CH&C, including Director of Risk Management, Director of Internal Audit and
Director of Human Resources.
BRIAN A. LARSON became Secretary in February 2001 and became Senior Vice
President and General Counsel in January 1998. He became Vice President --
Development of the Company in June 1993.
31
34
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "BYD." Information with respect to sales prices and record holders of
the Company's Common Stock is set forth below:
PRICE RANGE OF COMMON STOCK
The following table sets forth, for the calendar quarters indicated, the
high and low sales prices of the Common Stock as reported on the NYSE Composite
Tape.
HIGH LOW
----- -----
1998
First Quarter.............................. $8.38 $5.50
Second Quarter............................. $7.31 $5.69
Third Quarter.............................. $6.44 $3.50
Fourth Quarter............................. $4.50 $2.50
1999
First Quarter.............................. $4.81 $3.06
Second Quarter............................. $7.38 $4.13
Third Quarter.............................. $7.19 $4.88
Fourth Quarter............................. $7.19 $5.50
2000
First Quarter.............................. $6.00 $4.38
Second Quarter............................. $6.13 $4.25
Third Quarter.............................. $5.94 $4.25
Fourth Quarter............................. $4.88 $3.31
2001
First Quarter (through February 28, 2001).. $4.25 $3.25
On February 28, 2001, the closing sales price of the Common Stock on the
NYSE was $3.51 per share. On that date, the Company had approximately 2,178
holders of record of its Common Stock.
The Company has not paid any cash dividends on its Common Stock to date. The
Company currently anticipates that it will retain future earnings to fund the
development and growth of its business and does not anticipate paying any cash
dividends in the foreseeable future. Restrictions imposed by commercial lenders
and note holders may also limit the ability of the Company to pay cash
dividends.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of December 31,
2000 and 1999 and for the three years in the period ended December 31, 2000 have
been derived from the audited consolidated financial statements contained
elsewhere in this Form 10-K. The selected consolidated financial data presented
below as of December 31, 1998 and 1997, and June 30, 1997 and 1996 and for the
six month period ended December 31, 1997 and for the fiscal years ended June 30,
1997 and 1996 have been derived from audited consolidated financial statements
of the Company not contained herein. Operating results for the periods presented
below are not necessarily indicative of the results that may be expected for
future years. Effective July 1, 1997, the Company changed its fiscal year from a
June 30 year end to a December 31 year end.
32
35
SIX MONTH
PERIOD FISCAL YEAR ENDED
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------- DECEMBER 31, ------------------------
2000 1999 1998 1997 1997 1996
---------- ----------- ---------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Net revenues ................................... $1,153,896 $ 987,041 $ 975,096 $ 455,771 $ 819,259 $ 775,857
Operating expense(a) ........................... 974,343 850,430 851,408 397,625 863,685 675,071
---------- ----------- ---------- ----------- ----------- ---------
Operating income (loss) ........................ 179,553 136,611 123,688 58,146 (44,426) 100,786
Interest expense, net(b) ....................... 77,496 68,977 73,797 37,310 61,022 51,186
Income (loss) before provision (benefit) for
income taxes, cumulative effect of a
change in accounting principle and
extraordinary items .......................... 102,057 67,634 49,891 20,836 (105,448) 49,600
Provision (benefit) for income taxes ........... 39,292 27,595 21,291 8,736 (34,025) 20,021
---------- ----------- ---------- ----------- ----------- ---------
Income (loss) before cumulative effect
of a change in accounting principle and
extraordinary items .......................... 62,765 40,039 28,600 12,100 (71,423) 29,579
Cumulative effect of a change in accounting
for start-up activities, net of tax .......... -- (1,738) -- -- -- --
---------- ----------- ---------- ----------- ----------- ---------
Income (loss) before extraordinary items ....... 62,765 38,301 28,600 12,100 (71,423) 29,579
Extraordinary items, net of tax ................ -- -- -- (7,240) (6,069) (1,435)
---------- ----------- ---------- ----------- ----------- ---------
Net income (loss) .............................. $ 62,765 $ 38,301 $ 28,600 $ 4,860 $ (77,492) $ 28,144
========== =========== ========== =========== =========== =========
PER SHARE DATA
Basic and diluted net income (loss) per common
share:
Income (loss) before cumulative effect of a
change in accounting principle and
extraordinary items ........................ $ 1.01 $ 0.65 $ 0.46 $ 0.20 $ (1.19) $ 0.52
Cumulative effect of a change in accounting
for start-up activities, net of tax ........ -- (0.03) -- -- -- --
Extraordinary items .......................... -- -- -- (0.12) (0.10) (0.03)
---------- ----------- ---------- ----------- ----------- ---------
Net income (loss) ............................ $ 1.01 $ 0.62 $ 0.46 $ 0.08 $ (1.29) $ 0.49
========== =========== ========== =========== =========== =========
Dividends on Common Stock .................... -- -- -- -- -- --
Weighted average common shares:
Basic ...................................... 62,232 62,124 61,749 61,525 60,248 57,058
Diluted .................................... 62,278 62,293 61,850 61,786 60,248 57,058
OTHER OPERATING DATA
Depreciation and amortization .................. $ 90,480 $ 74,118 $ 73,407 $ 35,097 $ 67,242 $ 60,626
Preopening expense ............................. 4,894 1,489 -- -- 3,481 10,004
Capital expenditures ........................... 139,281 96,888 70,848 17,816 99,207 90,977
DECEMBER 31, JUNE 30,
---------------------------------------------------- ------------------------
2000 1999 1998 1997 1997 1996
---------- ----------- ---------- ----------- ----------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA
Total assets ................................... $1,577,614 $ 1,443,981 $1,146,256 $ 1,152,415 $ 1,030,185 $ 953,425
Long-term debt (excluding current maturities) .. 1,016,813 982,149 774,890 842,932 739,792 590,808
Stockholders' equity ........................... 329,778 266,979 227,306 197,141 191,316 233,257
- ------------------------
(a) Includes $5,925 and $131,339 of impairment and restructuring charges
recorded during the year ended December 31, 1998 and the fiscal year ended
June 30, 1997, respectively. See Note 4 to Notes to Consolidated Financial
Statements for a discussion on the restructuring charge. The $131,339 of
impairment charges recorded during the fiscal year ended June 30, 1997 are
comprised of $126 million recorded to adjust the carrying value of the
Company's fixed and intangible assets in the Missouri gaming market to fair
value and $5.3 million recorded to adjust the carrying value of the
Company's ownership interest in the Fremont Street Experience due to the
significant levels of operating losses at the Fremont Street Experience.
(b) Net of interest income and amounts capitalized.
33
36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating
data for the Company's properties. As used herein, "Boulder Strip Properties"
consist of Sam's Town Las Vegas, the Eldorado and the Jokers Wild; "Downtown
Properties" consist of the California, the Fremont, Main Street Station and
Vacations Hawaii, the Company's wholly-owned travel agency which operates for
the benefit of the Downtown casino properties; and "Central Region Properties"
consist of Sam's Town Tunica, Sam's Town Kansas City (closed in July 1998),
Par-A-Dice, Treasure Chest, Blue Chip (acquired November 1999), and management
fee income from Silver Star (through January 31, 2000). Net revenues displayed
in this table and discussed in this section are net of promotional allowances;
as such, references to room revenue and food and beverage revenue do not agree
to the amounts on the Consolidated Statements of Operations. Operating income
from properties for the purpose of this table excludes corporate expense,
including related depreciation and amortization, preopening expense and the
termination fee.
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
---------- -------- --------
(IN THOUSANDS)
Net revenues
Stardust ...................... $ 153,599 $148,321 $162,628
Boulder Strip Properties ...... 173,022 186,354 192,021
Downtown Properties (a) ....... 225,311 218,800 207,510
Central Region Properties ..... 530,976 433,566 412,937
---------- -------- --------
Total properties ....... $1,082,908 $987,041 $975,096
========== ======== ========
Operating income
Stardust ...................... $ 1,286 $ 2,182 $ 10,326
Boulder Strip Properties(b) ... 8,126 20,631 24,690
Downtown Properties ........... 25,989 22,735 13,390
Central Region Properties(b) .. 103,455 121,538 102,932(c)
---------- -------- --------
Total properties ....... $ 138,856 $167,086 $151,338
========== ======== ========
- ------------------------
(a) Includes revenues related to Vacations Hawaii, a Honolulu Travel Agency, of
$42,064, $37,522 and $32,341, respectively, for the years ended December 31,
2000, 1999 and 1998.
(b) Before preopening expense.
(c) Before restructuring charge.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
REVENUES
Consolidated net revenues before the termination fee increased 9.7% for the
year ended December 31, 2000 compared to 1999. Company-wide casino revenue
increased 18.4%, while food and beverage revenue and room revenue remained
virtually unchanged. The increase in net revenues is due primarily to the
acquisition of Blue Chip in November 1999. Blue Chip contributed $185 million in
net revenues during 2000 compared to $23 million during 1999. Partially
offsetting the increase related to Blue Chip were declines in net revenues at
Sam's Town Las Vegas, Sam's Town Tunica and Treasure Chest of 8.3%, 15.0% and
13.3%, respectively. The declines in net revenues at both Sam's Town operations
are primarily due to significant construction disruption as well as the
competitive environment in their respective gaming markets. The decline in net
revenues at Treasure Chest is due primarily to intense promotional competition
from its land-based competitor. Also offsetting the increase in net revenues
from Blue Chip is the January 2000 termination of the management contract for
Silver Star which contributed $3.8 million in revenue during 2000 compared to
$47 million during 1999.
OPERATING INCOME
For the year ended December 31, 2000 consolidated operating income before
preopening expense and termination fee decreased 17.8% to $113 million from $138
million during 1999. The acquisition of Blue Chip contributed $62 million of
operating income
34
37
during 2000 and Silver Star (which terminated in January 2000) contributed $3.8
million in operating income during 2000 compared to operating income of $7.8
million from Blue Chip and $46 million from Silver Star during 1999. Offsetting
the effects of Blue Chip and Silver Star were declines in operating income at
Sam's Town Las Vegas, Sam's Town Tunica and Treasure Chest mainly related to
their decline in revenues.
STARDUST
For the year ended December 31, 2000, net revenues at the Stardust increased
3.6% compared to 1999. Casino revenue increased 0.9% due primarily to an
increase in slot wagering. Room revenue declined 1.4% due mainly to a 2.5%
decline in available rooms as a result of the closure of the motor inn rooms in
1999. Operating income declined 41% to $1.3 million during 2000 compared to $2.2
million during 1999 due to the competitive environment on the Las Vegas Strip as
well as an increase in showroom expenses. Operating results during 1999 were
impacted by a renovation project that was completed at the end of 1999.
BOULDER STRIP PROPERTIES
For the year ended December 31, 2000, net revenues at the Boulder Strip
Properties declined 7.2% compared to the year ended December 31, 1999. The
decline is mainly attributable to construction disruption related to the Sam's
Town Las Vegas' renovation and expansion project as well as increased
competition. Sam's Town Las Vegas' renovation and expansion project was
substantially complete at December 31, 2000. The Company is revamping and
enhancing its marketing programs for Sam's Town Las Vegas to build revenues
following the disruptive construction period. Casino revenue at the Boulder
Strip Properties declined 3.9% due to declines in slot and table game wagering
and non-gaming revenue declined 19.7% due mainly to the permanent closure of
Sam's Town Las Vegas' Western Emporium. Operating income at the Boulder Strip
Properties declined 61% during 2000 as compared to 1999. The decline in
operating income is primarily attributable to the decline in net revenues.
DOWNTOWN PROPERTIES
Net revenues at the Downtown Properties increased 3.0% during the year ended
December 31, 2000 compared to 1999. The increase is attributable to a 12.1%
increase in net revenues at Vacations Hawaii. (Hawaiian customers comprise a
significant portion of the available room nights at these Downtown casino
properties -- see "Business -- Properties"). Operating income at the Downtown
Properties increased $3.3 million or 14.3% during 2000 compared to 1999. The
increase in operating income is primarily attributable to cost consolidation
efforts and more effective marketing at the Downtown casino properties.
CENTRAL REGION
During the year ended December 31, 2000, net revenues from the Central
Region increased 22% compared to 1999. The majority of the increase is due to
the November 1999 acquisition of Blue Chip, which contributed $185 million in
net revenues during 2000 as compared to $23 million during 1999. Also
contributing to the increase in net revenues was an 11.1% increase at Par-A-Dice
due mainly to the change to dockside operations in June 1999. Sam's Town Tunica
and Treasure Chest experienced declines in net revenues of 15.0% and 13.3%,
respectively, due to their highly competitive environments as well as
significant construction disruption at Sam's Town Tunica involving its main
entry, casino and restaurant operations. The renovation project at Sam's Town
Tunica was substantially complete at December 31, 2000. The Company is
aggressively marketing all aspects of the Sam's Town Tunica property to build
revenues following the disruptive construction period. Management fees from
Silver Star declined $44 million as the management contract was terminated on
January 31, 2000. Operating income in the Central Region declined 14.9% during
2000 as compared to 1999. The increase in operating income from the acquisition
of Blue Chip as well as the increase in net revenues at Par-A-Dice did not
offset the declines in operating income related to the reduction in net revenues
from Treasure Chest, termination of the management contract and related fee
income from Silver Star or the operating loss of $9.8 million experienced at
Sam's Town Tunica.
TERMINATION FEE
On October 20, 1999, the Company agreed to terminate its management contract
with the Mississippi Band of Choctaw Indians (the "Tribe") prior to the
contract's expiration date in June 2001 in exchange for a one-time payment of
$72 million. Pursuant to that agreement, the Company continued to manage Silver
Star under the terms of the management contract through January 31, 2000, at
which time the Tribe made the one-time termination payment and the Company
recorded the termination fee, net of certain expenses.
35
38
OTHER EXPENSES
Depreciation and amortization expense increased 22% during the year ended
December 31, 2000 compared to 1999, primarily as a result of depreciation and
amortization expense related to the fixed assets, intangible license rights and
deferred acquisition costs of Blue Chip (acquired in November 1999).
Preopening expense increased $3.4 million during the year ended December 31,
2000 compared to 1999 due primarily to an increase in the Company's share of
preopening expense in The Borgata, the Company's Atlantic City joint venture, as
well as a result of unsuccessful efforts to assist in the development and
operation of a Rhode Island Indian casino with the Narragansett Indian Tribe.
OTHER INCOME (EXPENSE)
Other income and expense is primarily comprised of interest expense, net of
capitalized interest. Net interest expense increased by $10.1 million during the
year ended December 31, 2000 compared to 1999. The increase is primarily
attributable to higher average debt levels as a result of the borrowings related
to the November 1999 acquisition of Blue Chip. Net interest expense was
partially offset by $6.3 million in capitalized interest costs during 2000
compared to $1.8 million during 1999.
NET INCOME
As a result of these factors, the Company reported net income of $63 million
and $38 million, respectively, during the years ended December 31, 2000 and
1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
REVENUES
Consolidated net revenues increased 1.2% during the year ended December 31,
1999 compared to the year ended December 31, 1998. Company-wide casino revenue
increased 1.6%, food and beverage revenue declined 2.6% and room revenue
declined 3.6%. Net revenues from the Stardust, Boulder Strip Properties and
Downtown Properties (the "Nevada Region") decreased 1.5% during 1999 compared to
1998 due to a 5.4% increase at the Downtown Properties, offset by declines of
8.8% at the Stardust and 3.0% at the Boulder Strip Properties. The decline in
net revenues at the Stardust is attributable in part to increased competition on
the Las Vegas Strip as well as construction disruption related to its year-long
renovation project that was substantially completed by the end of 1999. The
decline in net revenues at the Boulder Strip Properties is attributable to the
competitive environment on the Boulder Strip as well as construction disruption
experienced at Sam's Town Las Vegas related to its $84 million renovation and
expansion project that began in August 1999. Net revenues in the Central Region
increased 5.0% during the year ended December 31, 1999 compared to the year
ended December 31, 1998. The increase is attributable, in part, to the
acquisition of Blue Chip Casino on November 10, 1999, a 15.6% increase at
Par-A-Dice due to the change to dockside operations which began on June 26,
1999, and an 18.0% increase from Silver Star due mainly to the July 1, 1999
increase in the management fee percentage from 30% to 40% of operating income.
On January 31, 2000, the management contract for Silver Star was terminated 17
months prior to its originally scheduled expiration date in exchange for a $72
million payment to the Company. These increases in the Central Region were
partially offset by a decline in net revenues due to the closure of the Sam's
Town Kansas City property on July 15, 1998.
36
39
OPERATING INCOME
For the year ended December 31, 1999, consolidated operating income before
preopening expense and impairment and restructuring charges increased by 6.5% to
$138 million compared to $130 million in the prior year. Operating income in the
Nevada Region declined 5.9% as the 70% gain experienced at the Downtown
Properties did not overcome the declines experienced at the Stardust and the
Boulder Strip due to increased competition and construction disruption at the
Stardust and Sam's Town Las Vegas. In the Central Region, operating income
increased 18.3% due to the acquisition of Blue Chip Casino, a 37% increase in
operating income at Par-A-Dice due to the change to dockside operations which
began on June 26, 1999 and an 18.5% increase at Silver Star related to the
change in the management fee percentage from 30% to 40% of operating income.
These increases were offset by declines in operating income at Sam's Town Tunica
(24%) and Treasure Chest (18.2%) due to increased competition in their
respective gaming markets.
STARDUST
For the year ended December 31, 1999, net revenues at the Stardust declined
by 8.8% versus the prior year due to increased competition as well as
construction disruption related to the year-long renovation project that was
substantially completed by the end of 1999. Casino revenue declined 8.3% due
primarily to a decline in slot and table game wagering. Room revenue declined
11.0% resulting from a 25% decline in the number of available rooms due to the
April 1999 closure of motor inn rooms and the renovation of guest rooms in both
hotel towers. Operating income declined 79% to $2.2 million during 1999 from
$10.3 million in 1998. Operating income margin declined to 1.5% during 1999 from
6.3% in 1998. These declines in operating income and operating income margin are
a result of the decline in revenues.
BOULDER STRIP PROPERTIES
Net revenues at the Boulder Strip Properties declined 3.0% during the year
ended December 31, 1999 compared to the year ended December 31, 1998 due mainly
to construction disruption related to the ongoing $84 million renovation and
expansion project at Sam's Town Las Vegas, which began during the last half of
1999. Casino revenue remained virtually unchanged as a slight increase in slot
win percentage offset a 7.5% decline in table game wagering. Non-gaming revenue
declined 14.3% due primarily to the permanent closure of Sam's Town Las Vegas'
Western Emporium in September 1999 as part of the property's renovation and
expansion project. During 1999, operating income decreased 16.4% or $4.1 million
compared to 1998. Operating income margin declined to 11.1% for 1999 compared to
12.9% for 1998. The decline in operating income and margin is attributable to
the decline in revenues, an increase in marketing expense for 1999 compared to
1998 and the inventory liquidation of the Western Emporium.
DOWNTOWN PROPERTIES
Net revenues at the Downtown Properties increased 5.4% during 1999 compared
to 1998. Casino revenue increased 4.1% due primarily to increased slot wagering
at each of the Downtown casino properties. Non-gaming revenues during the year
ended December 31, 1999 increased 6.3% compared to 1998 due to a 16.0% increase
in revenues related to Vacations Hawaii, the Company's Honolulu travel agency.
(Hawaiian customers comprise a significant portion of the available room nights
at these Downtown casino properties - see "Business - Properties.") Operating
income at the Downtown Properties increased $9.3 million or 70% during 1999
compared to 1998, and operating income margin increased to 10.4% during 1999
from 6.5% during 1998. These increases in operating income and operating income
margin are attributable to the increase in net revenues coupled with cost
consolidation and effective marketing at the Downtown casino properties.
CENTRAL REGION
Net revenues from the Central Region increased 5.0% during 1999 compared to
1998. The increase is attributable, in part, to Blue Chip Casino, which
generated $23.3 million in revenue from the November 10, 1999 date of
acquisition through the end of calendar 1999, as well as a 15.6% increase in
revenue at Par-A-Dice and an 18.0% increase in management fees from Silver Star.
The increase at Par-A-Dice is due mainly to the change to dockside operations
which began in Illinois on June 26, 1999. The increase in revenues at Silver
Star is due mainly to the increase in the management fee percentage from 30% to
40% of operating income on July 1, 1999 pursuant to the terms of the management
agreement. On January 31, 2000, the management contract was terminated 17 months
prior to its originally scheduled expiration date in exchange for a $72 million
payment to the Company. Net revenues at Treasure Chest declined 1.1% and net
revenues at Sam's Town Tunica declined 4.6% due to reductions in slot and table
game wagering related to increased competition in both gaming markets. Operating
income for the Central Region increased to $122 million during 1999 from $103
million during
37
40
1998 due primarily to the acquisition of Blue Chip Casino and the increase in
net revenues at Par-A-Dice and Silver Star, partially offset by declines in
operating income at Sam's Town Tunica and Treasure Chest.
OTHER EXPENSES
Depreciation expense remained virtually unchanged during 1999 compared to
1998 as an increase in depreciation expense related to the fixed assets of Blue
Chip Casino (acquired on November 10, 1999) was offset by declines related to
fully depreciated fixed assets at certain properties that have been operating
for over five years. Amortization expense of intangible license rights and
acquisition costs increased 10.0% during 1999 compared to 1998 due to the
acquisition of Blue Chip Casino. Preopening expense during 1999 was $1.5 million
and relates primarily to the Company's share of preopening expense in The
Borgata, the Company's Atlantic City joint venture.
OTHER INCOME (EXPENSE)
Other income and expense is primarily comprised of interest expense.
Interest expense decreased by $4.9 million during the year ended December 31,
1999 compared to the prior year. The decline is attributable to lower average
debt levels during the year combined with a decline in interest rates on
floating rate debt. In addition, the Company capitalized $1.8 million in
interest costs during 1999. There were no such costs capitalized during the year
ended December 31, 1998.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR START-UP ACTIVITIES
The Company reported a charge of $1.7 million, net of $0.9 million in tax
benefits, as the cumulative effect of a change in accounting for start-up
activities. The American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" that
required the Company to expense certain previously capitalized costs of start-up
activities as the cumulative effect of a change in accounting principle.
NET INCOME
As a result of these factors, the Company reported net income of $38.3
million and $28.6 million, respectively, during the years ended December 31,
1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATING ACTIVITIES AND WORKING CAPITAL
The Company's policy is to use operating cash flow in combination with debt
financing to fund renovations and expansion of its business.
During 2000, the Company generated operating cash flow of $213 million
compared to $159 million during 1999. The increase in operating cash flow is
primarily attributable to the $72 million termination payment received from
Silver Star as well as the incremental earnings from Blue Chip, which was
acquired in November 1999, partially offset by declines in earnings principally
at Sam's Town Tunica, Treasure Chest and Sam's Town Las Vegas. As of December
31, 2000 and 1999, the Company had balances of cash and cash equivalents of $88
million and $86 million, respectively, and a working capital deficit of $28
million at December 31, 2000 compared to working capital of $5.7 million at
December 31, 1999. The Company has historically operated with minimal or
negative levels of working capital in order to minimize borrowings and related
interest costs under the Bank Credit Facility. Management believes that the
Company's Bank Credit Facility and cash flows from operating activities will be
sufficient to meet the Company's operating and capital expenditure requirements
for the next twelve months. In the longer term, or if the Company experiences a
significant decline in revenue, or in the event of unforeseen circumstances, the
Company may require additional funds and may seek to raise such funds through
public or private equity or debt financing, bank lines of credit, or other
sources. No assurance can be given that additional financing will be available
or, if available, will be on terms favorable to the Company.
CASH FLOWS FROM INVESTING ACTIVITIES
The Company is committed to continually maintaining and enhancing its
existing facilities, most notably by upgrading and remodeling its casinos, hotel
rooms, restaurants, and other public spaces and by providing the latest slot
machines for its customers. The Company's capital expenditures primarily related
to these purposes were approximately $59 million and $60 million, respectively,
during 2000 compared to 1999. The Company also incurred approximately $81
million in capital expenditures during
38
41
2000 for the renovation and expansion of Sam's Town Las Vegas and the renovation
of Sam's Town Tunica. During 1999, the Company incurred approximately $19
million in capital expenditures for the renovation of Stardust and incurred
approximately $13 million in capital expenditures for the renovation and
expansion of Sam's Town Las Vegas.
On November 10, 1999, the Company acquired the Blue Chip Casino, a riverboat
casino in Michigan City, Indiana for $261 million in net cash. Included as part
of the acquisition was a partially constructed hotel and parking facility
attached to the existing casino complex. The hotel opened in February 2000. The
Company funded the acquisition from borrowings under the Bank Credit Facility.
See "Expansion and Other Projects" for a further discussion on current and
planned investing activities.
During 2000, the Company invested $102 million in its unconsolidated
subsidiaries, substantially all of which relates to the Atlantic City joint
venture as compared to $4.7 million during 1999. See further discussion
regarding the Atlantic City joint venture under "Expansion and Other Projects."
CASH FLOWS FROM FINANCING ACTIVITIES
Substantially all of the funding for the Company's acquisitions and
renovation and expansion projects comes from cash flows from operations as well
as debt financing. Cash flows provided by financing activities totaled $35
million during 2000, substantially all of which was borrowed from the Company's
Bank Credit Facility. During 1999, cash flows provided by financing activities
totaled $208 million, substantially all of which was borrowed from the Company's
Bank Credit Facility to partially fund the acquisition of Blue Chip and other
capital expenditures. At December 31, 2000, outstanding borrowings and unused
availability under the Bank Credit Facility were $562 million and $136.1
million, respectively.
Effective July 28, 2000, the Company amended the Bank Credit Facility
primarily to allow for an increase in its investment in The Borgata for an
aggregate investment of $225 million and to reduce and modify the Company's
capital raising requirement for The Borgata. At December 31, 2000, the Bank
Credit Facility consisted of a $500 million revolver component (the "Revolver")
and two term loan components with original principal balances of $100 million
each ("Term Loan B" and "Term Loan C"). The Revolver, Term Loan B and Term Loan
C all mature in June 2003. Availability under the Revolver will be reduced by
$15.6 million on December 31, 2001 and at the end of each quarter thereafter
until March 31, 2003. Term Loan B repayments are in increments of $0.25 million
per quarter which began on September 30, 1999 and will continue through March
31, 2003. Term Loan C repayments are in increments of $0.25 million per quarter
which began on December 31, 2000 and will continue through March 31, 2003. As of
December 31, 2000, the Company had unused availability of $136.1 million under
the Bank Credit Facility. The interest rate on the Bank Credit Facility is based
upon either the agent bank's quoted base rate or the London InterBank Offering
Rate ("LIBOR") rate, plus an applicable margin that is determined by the level
of a predefined financial leverage ratio. The blended interest rate under the
Bank Credit Facility at December 31, 2000 was 8.8%. In addition, the Company
incurs a commitment fee on the unused portion of the Revolver which ranges from
0.375% to 0.50% per annum. The Bank Credit Facility is secured by substantially
all of the real and personal property of the Company and its subsidiaries,
including eleven casino properties. The obligations of the Company under the
Bank Credit Facility are guaranteed by the significant subsidiaries of the
Company.
The Bank Credit Facility contains certain financial and other covenants,
including, without limitation, various covenants (i) requiring the maintenance
of a minimum net worth, (ii) requiring the maintenance of a minimum interest
coverage ratio, (iii) establishing a maximum permitted total leverage ratio and
senior secured leverage ratio, (iv) imposing limitations on the incurrence of
additional indebtedness, (v) imposing limitations on the maximum permitted
expansion capital expenditures during the term of the Bank Credit Facility, (vi)
imposing limits on the maximum permitted maintenance capital expenditures during
each year of the term of the Bank Credit Facility, and (vii) imposing
restrictions on investments, dividends and certain other payments. Management
believes the Company is in compliance with the Bank Credit Facility covenants at
December 31, 2000.
The Company's ability to service its debt will be dependent on its future
performance, which will be affected by, among other things, prevailing economic
conditions and financial, business and other factors, certain of which are
beyond the Company's control.
EXPANSION AND OTHER PROJECTS
During 2000, the Company substantially completed an expansion and renovation
project at Sam's Town Las Vegas. The project included, among other things, an 18
screen state-of-the-art movie theatre complex, childcare facilities, an arcade,
additional casino space, an 11,200 square foot multi-purpose events center for
concerts, meetings and a night club, a new 650 seat buffet, a parking garage,
and a reconfigured and remodeled porte cochere and valet parking area to improve
access to the property. As of December 31, 2000, the Company had incurred $84
million in cumulative costs associated with the Sam's Town Las Vegas expansion
and
39
42
renovation. In addition, in January 2001, the Company terminated its agreement
to purchase approximately 18 acres of land in western Las Vegas, Nevada.
Outside Nevada, the Company's primary focus is the development of an
Atlantic City casino resort. The Company, through its subsidiary Boyd Atlantic
City, Inc. ("BAC") and Mirage Resorts Incorporated ("Mirage"), through its
subsidiary MAC, Corp. ("MAC"), entered into a certain joint venture agreement
("The Joint Venture Agreement") and formed a joint venture (the "Joint Venture")
for the purpose of developing and owning a casino hotel entertainment facility
in the Marina District of Atlantic City, New Jersey. The Joint Venture
originated on May 29, 1996. In May 2000, Mirage was acquired by MGM Grand, Inc.
which subsequently changed its name to MGM MIRAGE ("MGM").
On December 13, 2000, (a) MAC contributed certain real property as well as
certain tangible and intangible personal property to the Joint Venture, and (b)
BAC contributed $90 million in cash to the Joint Venture. BAC and MAC each
received a credit to its capital account in the amount of $90 million upon
making the foregoing contributions.
Following the foregoing contributions, on December 13, 2000, the Joint
Venture was merged with and into Marina District Development Company, LLC
("MDDC, LLC"). MDDC, LLC is the surviving entity of such merger. The sole member
of MDDC, LLC is Marina District Development Holding Co., LLC ("Holding Co.").
BAC and MAC each have a 50% interest in Holding Co. Pursuant to terms of a
certain Contribution and Adoption Agreement made effective December 13, 2000,
the members adopted the Joint Venture Agreement as the Operating Agreement of
Holding Co. (the "Operating Agreement").
The Operating Agreement provides for the development and ownership of a
casino/hotel complex to be comprised of at least 2,000 rooms, a casino and
related amenities to be known as The Borgata (the "Project"). The Project will
be constructed on property adjacent to and connected to MGM's planned
wholly-owned resort. The Operating Agreement contemplates a total cost of $1.035
billion for the Project. Certain project costs exceeding the $1.035 billion
budget would be funded by the Company without any proportionate increase in the
ownership of the Project by the Company. The Operating Agreement provides for
BAC and MAC to make equity contributions aggregating $207 million each and
further contemplates $621 million in non-recourse financing for the Project. On
December 13, 2000, MDDC, LLC entered into a $630 million credit agreement.
Except for a completion guaranty, by which the Company has agreed to guaranty
performance of certain obligations to MDDC, LLC, the credit agreement is
non-recourse to the Company and MGM. Pursuant to the terms of the Operating
Agreement, certain project costs exceeding $1.035 billion are permitted to be
added to the amount of Project financing. There can be no assurances that the
Project can be designed and developed for $1.035 billion. Funding of the
Company's remaining capital contributions to the Project is expected to be
derived from cash flow from operations, availability under the Company's Bank
Credit Facility, incremental bank financing, or additional debt offerings.
The Project is subject to the many risks inherent in the development and
operation of a new business enterprise, including potential unanticipated
design, construction, regulatory, environmental and operating problems,
increased project costs, timing delays, lack of adequate financing and the
significant risks commonly associated with implementing a marketing strategy in
a new market. If the Project does not become operational within the time frame
and budget currently contemplated or does not compete successfully in its new
market, it could have a material adverse effect on the Company's business,
financial condition and results of operations. As of December 31, 2000, the
Company has contributed or advanced total funds of $107 million to the Project.
Construction recently began on the Project and its expected completion date is
during the summer of 2003.
In 2000, the Company substantially completed a renovation project at Sam's
Town Tunica to reconfigure and remodel the casino, redesign and enhance its
restaurant product, remodel the atrium and build an RV park adjacent to the
property. The renovation project was substantially completed by December 31,
2000. As of December 31, 2000, the Company had incurred $21 million in
cumulative costs associated with the renovation project.
The Company has undertaken a Customer Information System ("CIS") project
that will standardize the Company's customer tracking systems. The purpose of
the CIS project is to link all points of customer contact at a particular
property to enable the Company to better monitor customer activity in order to
enhance and direct marketing efforts. For the year ended December 31, 2000, the
Company had incurred $10.9 million in costs associated with the CIS project,
$9.5 million of which was capitalized. The Company had incurred $23 million in
cumulative costs to date through December 31, 2000, $21 million of which was
capitalized. The Company expects to spend approximately $10 million during 2001
on the CIS project. The Company has never undertaken a technology project of
this magnitude and may experience difficulties in the integration and
implementation of this project. In addition, given the inherent difficulties of
a project of this magnitude and the resources required, the timing and costs
involved could differ materially from those anticipated by the Company. There
can be no assurance that the CIS project will be completed successfully, on
schedule, or within budget.
Substantial funds are required for The Borgata and would also be required
for other future expansion projects. There are no assurances that The Borgata or
the CIS project will go forward on a timely basis, if at all, or ultimately
become operational. The
40
43
source of funds required to meet the Company's working capital needs (including
maintenance capital expenditures) is expected to be cash flow from operations
and availability under the Company's Bank Credit Facility. The source of funds
for the Company's expansion projects may come from cash flow from operations and
availability under the Company's Bank Credit Facility, incremental bank
financing, additional debt or equity offerings, joint venture partners or other
sources. No assurance can be given that additional financing will be available
or that, if available, such financing will be obtainable on terms favorable to
the Company or its stockholders.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 1 to Notes to Consolidated Financial Statements for a complete
discussion of recently issued accounting standards and their expected impact on
the Company's consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates
and prices, such as interest rates, foreign currency exchange rates and
commodity prices. The Company's primary exposure to market risk is interest rate
risk associated with its long-term debt. The Company attempts to limit its
exposure to interest rate risk by managing the mix of its long-term fixed-rate
borrowings and short-term borrowings under the Bank Credit Facility. Borrowings
under the Bank Credit Facility bear interest, at the Company's option, at the
agent bank's quoted base rate or at a specified premium over the LIBOR rate.
However, the amount of outstanding borrowings is expected to fluctuate and may
be reduced from time to time. At December 31, 2000, the Company did not utilize
any hedging instruments.
The Company's Joint Venture to develop and own a casino hotel entertainment
facility in the Marina District of Atlantic City, New Jersey entered into a
credit agreement to borrow up to $630 million. Except for a completion guaranty,
the credit agreement is non-recourse to the Company. The credit agreement
requires the Joint Venture to enter into interest rate protection agreements. As
of December 31, 2000, the Joint Venture had not entered into any interest rate
protection agreements.
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.
41
44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company is set forth under the
caption "Proposal No. 1 -- Election of Directors" and "Executive Compensation
and Other Information -- Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's definitive Proxy Statement to be filed in
connection with its 2001 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 2001 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 2001 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 2001 Annual Meeting of Stockholders and is incorporated
herein by reference.
42
45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
PAGE NO.
--------
1. FINANCIAL STATEMENTS. The following financial statements
for the three years in the period ended
December 31, 2000 are filed as part of this report:
Independent Auditors' Report............................................. 45
Consolidated Balance Sheets at December 31, 2000 and 1999................ 46
Consolidated Statements of Operations for the Three Years
in the Period Ended December 31, 2000.................................. 47
Consolidated Statements of Changes in Stockholders' Equity
for the Three Years in the Period Ended December 31, 2000.............. 48
Consolidated Statements of Cash Flows for the Three Years in
the Period Ended December 31, 2000..................................... 49
Notes to Consolidated Financial Statements............................... 50
2. REPORTS ON FORM 8-K.
None.
3. EXHIBITS. Refer to (c) on page 74.
43
46
BOYD GAMING CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report............................................. 45
Consolidated Financial Statements
Consolidated Balance Sheets.......................................... 46
Consolidated Statements of Operations................................ 47
Consolidated Statements of Changes in Stockholders' Equity........... 48
Consolidated Statements of Cash Flows................................ 49
Notes to Consolidated Financial Statements........................... 50
44
47
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Boyd Gaming Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Boyd Gaming
Corporation and Subsidiaries (the "Company") as of December 31, 2000 and 1999,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Boyd Gaming Corporation and
Subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000, in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 14, 2001
45
48
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Current assets
Cash and cash equivalents ........................ $ 88,059 $ 86,192
Accounts receivable, net ......................... 14,260 17,585
Inventories ...................................... 6,200 6,181
Prepaid expenses and other ....................... 11,837 14,718
Income taxes receivable .......................... 66 1,108
Deferred income taxes ............................ 8,149 16,835
---------- ----------
Total current assets ..................... 128,571 142,619
Property and equipment, net ......................... 959,966 901,014
Investment in unconsolidated subsidiaries, net ...... 105,560 5,708
Other assets and deferred charges, net .............. 38,213 39,981
Intangible assets, net .............................. 345,304 354,659
---------- ----------
Total assets ............................. $1,577,614 $1,443,981
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt ............. $ 2,485 $ 1,744
Accounts payable ................................. 38,540 36,531
Construction payables ............................ 9,816 8,609
Accrued liabilities
Payroll and related .......................... 36,115 31,184
Interest and other ........................... 70,061 58,862
---------- ----------
Total current liabilities ................ 157,017 136,930
Long-term debt, net of current maturities ........... 1,016,813 982,149
Deferred income taxes and other liabilities ......... 74,006 57,923
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000 shares
authorized ..................................... -- --
Common stock, $.01 par value; 200,000,000 shares
authorized; 62,234,954 and 62,227,753 shares
outstanding .................................... 622 622
Additional paid-in capital ....................... 142,020 141,986
Retained earnings ................................ 187,136 124,371
---------- ----------
Total stockholders' equity ............... 329,778 266,979
---------- ----------
Total liabilities and stockholders' equity $1,577,614 $1,443,981
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
46
49
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
Revenues
Casino .............................. $ 868,983 $ 733,677 $ 722,124
Food and beverage ................... 160,139 158,982 161,582
Room ................................ 75,114 71,478 74,053
Other ............................... 73,125 69,988 70,903
Management fees and joint venture ... 3,815 47,463 40,206
Termination fee, net ................ 70,988 -- --
----------- ----------- -----------
Gross revenues ......................... 1,252,164 1,081,588 1,068,868
Less promotional allowances ............ 98,268 94,547 93,772
----------- ----------- -----------
Net revenues ................ 1,153,896 987,041 975,096
----------- ----------- -----------
Costs and expenses
Casino .............................. 445,375 371,400 366,746
Food and beverage ................... 103,056 103,439 106,195
Room ................................ 22,292 22,532 24,724
Other ............................... 70,256 63,825 65,626
Selling, general and administrative . 167,678 145,788 147,647
Maintenance and utilities ........... 49,053 41,972 41,144
Depreciation ........................ 80,678 67,793 67,656
Amortization of intangible license
rights and acquisition costs ...... 9,802 6,325 5,751
Corporate expense ................... 21,259 25,867 19,994
Preopening expense .................. 4,894 1,489 --
Restructuring charge ................ -- -- 5,925
----------- ----------- -----------
Total ....................... 974,343 850,430 851,408
----------- ----------- -----------
Operating income ....................... 179,553 136,611 123,688
----------- ----------- -----------
Other income (expense)
Interest income ..................... 1,807 253 365
Interest expense, net of amounts
capitalized ....................... (79,303) (69,230) (74,162)
----------- ----------- -----------
Total ....................... (77,496) (68,977) (73,797)
----------- ----------- -----------
Income before provision for income taxes
and cumulative effect ................ 102,057 67,634 49,891
Provision for income taxes ............. 39,292 27,595 21,291
----------- ----------- -----------
Income before cumulative effect ........ 62,765 40,039 28,600
Cumulative effect of a change in
accounting for start-up activities,
net of tax benefit of $936 ........... -- (1,738) --
----------- ----------- -----------
Net income ............................. $ 62,765 $ 38,301 $ 28,600
=========== =========== ===========
Basic and diluted net income per
common share:
Income before cumulative effect ..... $ 1.01 $ 0.65 $ 0.46
Cumulative effect, net of tax ....... -- (0.03) --
----------- ----------- -----------
Net income .......................... $ 1.01 $ 0.62 $ 0.46
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
47
50
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL TOTAL
---------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ------ ---------- -------- -------------
Balances, January 1, 1998 .............. 61,669,628 $617 $139,054 $ 57,470 $197,141
Net income ............................. -- -- -- 28,600 28,600
Stock issued in connection with employee
stock purchase plan ................. 357,886 3 1,562 -- 1,565
---------- ---- -------- -------- --------
Balances, December 31, 1998 ............ 62,027,514 620 140,616 86,070 227,306
Net income ............................. -- -- -- 38,301 38,301
Stock issued in connection with employee
stock purchase plan ................. 179,801 2 1,256 -- 1,258
Stock options exercised ................ 20,438 -- 114 -- 114
---------- ---- -------- -------- --------
Balances, December 31, 1999 ............ 62,227,753 622 141,986 124,371 266,979
Net income ............................. -- -- -- 62,765 62,765
Stock options exercised ................ 7,201 -- 34 -- 34
---------- ---- -------- -------- --------
BALANCES, DECEMBER 31, 2000 ............ 62,234,954 $622 $142,020 $187,136 $329,778
========== ==== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
48
51
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................... $ 62,765 $ 38,301 $ 28,600
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................... 90,480 74,118 73,407
Cumulative effect of a change in accounting principle ... -- 2,674 --
Deferred income taxes ................................... 24,023 20,010 26,259
Preopening expense ...................................... 4,894 1,489 --
Restructuring charge .................................... -- -- 5,925
Equity loss in unconsolidated subsidiaries .............. 1,942 1,356 --
Changes in assets and liabilities:
Accounts receivable, net ................................ 3,491 3,055 (616)
Inventories ............................................. (19) 3,569 339
Prepaid expenses and other .............................. 2,881 366 (574)
Other assets ............................................ 972 (4,906) (814)
Other current liabilities ............................... 19,910 8,632 (3,350)
Other liabilities ....................................... 746 526 851
Income taxes receivable ................................. 1,042 9,957 (8,278)
--------- --------- ---------
Net cash provided by operating activities .................... 213,127 159,147 121,749
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash paid for acquisition of Blue Chip Casino ......... -- (261,195) --
Investments in and advances to unconsolidated subsidiaries. (101,960) (4,717) --
Proceeds from sale of Sam's Town Kansas City's assets ..... -- 2,000 10,500
Acquisition of property, equipment and other assets ....... (139,845) (91,719) (68,011)
Preopening expense ........................................ (4,894) (1,489) --
--------- --------- ---------
Net cash used in investing activities ........................ (246,699) (357,120) (57,511)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt .................. -- -- 8,000
Payments on long-term debt ................................ (745) (1,958) (2,909)
Net borrowings (payments) under credit agreements ......... 36,150 209,000 (73,000)
Proceeds from issuance of common stock .................... 34 1,186 1,331
--------- --------- ---------
Net cash provided by (used in) financing activities .......... 35,439 208,228 (66,578)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ......... 1,867 10,255 (2,340)
Cash and cash equivalents, beginning of year ................. 86,192 75,937 78,277
--------- --------- ---------
Cash and cash equivalents, end of year ....................... $ 88,059 $ 86,192 $ 75,937
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized ........ $ 72,934 $ 67,329 $ 74,080
Cash paid for income taxes, net of refunds ................ 14,226 7,882 5,992
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Property additions acquired on construction and trade
payables which were accrued, but not yet paid ........... $ 10,045 $ 10,609 $ 5,440
Receivable from sale of Sam's Town Kansas City's assets ... -- -- 2,000
Acquisition of Blue Chip Casino
Fair value of non-cash assets acquired .................. $ -- $ 267,074 $ --
Net cash paid to seller ................................. -- 261,195 --
--------- --------- ---------
Liabilities assumed ..................................... $ -- $ 5,879 $ --
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
49
52
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Boyd Gaming Corporation and its wholly-owned subsidiaries, collectively referred
to herein as the "Company." The Company owns and operates eleven casino
entertainment facilities located in Las Vegas, Nevada, Tunica, Mississippi, East
Peoria, Illinois, Kenner, Louisiana, and Michigan City, Indiana as well as a
travel agency located in Honolulu, Hawaii. In addition, the Company managed a
casino entertainment facility in Philadelphia, Mississippi for which it had a
management contract that terminated on January 31, 2000 (see Note 3). All
material intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with an original
maturity of three months or less. These investments are stated at cost which
approximates fair value.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out and retail inventory methods.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets. Costs of major improvements are capitalized, while costs of normal
repairs and maintenance are charged to expense as incurred. Gains or losses on
disposal of assets are recognized as incurred.
Capitalized Interest
Interest costs associated with major construction projects are capitalized.
When no debt is incurred specifically for a project, interest is capitalized on
amounts expended for the project using the Company's weighted average cost of
borrowing. Capitalization of interest ceases when the project or discernible
portions of the project are substantially complete. Capitalized interest during
the years ended December 31, 2000 and 1999 was $6.3 million and $1.8 million,
respectively. There were no such interest costs capitalized during the year
ended December 31, 1998.
Intangible Assets
The excess of total acquisition costs over the fair market value of net
assets acquired is amortized using the straight-line method over forty years.
Management periodically assesses the recoverability of intangible assets by
comparing its carrying value to the undiscounted cash flows expected to be
generated by the acquired operation during the anticipated period of benefit.
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.
50
53
Revenue and Promotional Allowances
Casino revenue represents the net win from gaming activities, which is the
difference between gaming wins and losses. Revenues include the estimated retail
value of rooms, food and beverage, and other goods and services provided to
customers on a complimentary basis. Such amounts are then deducted as
promotional allowances. The estimated cost of providing these promotional
allowances is charged to the casino department in the following amounts:
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
Room ............................. $12,672 $11,101 $12,190
Food and beverage................. 73,284 70,822 71,663
Other ............................ 7,430 7,217 5,123
------- ------- -------
Total ............................ $93,386 $89,140 $88,976
======= ======= =======
Preopening Expenses
In accordance with Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities," the Company expenses certain costs of start-up activities
as incurred. During the year ended December 31, 2000, the Company expensed $4.9
million in preopening costs, including $1.5 million relating to the Company's
share of preopening expenses in The Borgata, the Company's Atlantic City joint
venture (see Note 7) and $1.5 million relating to the Company's unsuccessful
efforts to assist in the development and operation of a Rhode Island Indian
casino with the Narragansett Indian Tribe. During the year ended December 31,
1999, the Company expensed $1.5 million in preopening costs that related
primarily to the Company's share of preopening expense in The Borgata. The
initial application of this statement in January 1999 required the Company to
expense certain previously capitalized items as a cumulative effect of a change
in accounting principle. As such, the Company reported a charge of $1.7 million,
net of tax, to the consolidated statement of operations during the three month
period ended March 31, 1999 as the cumulative effect of the change in accounting
principle.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates used by the Company
include the estimated useful lives for depreciable and amortizable assets, the
estimated allowance for doubtful accounts receivable, the estimated valuation
allowance for deferred tax assets, and estimated cash flows in assessing the
recoverability of long-lived assets. Actual results could differ from those
estimates.
Reclassifications
Certain prior period amounts in the consolidated financial statements have
been reclassified to conform to the December 31, 2000 presentation. These
reclassifications had no effect on the Company's net income.
Recently Issued Accounting Standards
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133 , "Accounting for Derivative Instruments
and Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities (an amendment of SFAS 133)." These
statements establish accounting and reporting standards for derivative
instruments for fiscal years beginning after June 15, 2000. At December 31,
2000, the Company did not have any significant derivative instruments or hedging
activities, and therefore, management believes that the initial application of
these statements will not have a material impact on the Company's consolidated
financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 clarifies existing accounting principles related to revenue
recognition in financial statements. The Company adopted SAB 101 during the
fourth quarter of 2000 and the adoption did not affect the Company's
consolidated financial statements for the year ended December 31, 2000.
51
54
NOTE 2. ACQUISITIONS
On November 10, 1999, the Company acquired Blue Chip Casino, L.L.C. ("Blue
Chip") for approximately $261 million in net cash, including $10.3 million for a
hotel and parking facility that was under construction and attached to the
existing casino complex. Intangible license rights, representing the excess of
the purchase price over the fair value of the net assets acquired, was
approximately $158 million. The purchase price excludes a contingent purchase
price payment of $5.0 million. The contingent purchase price payment will be
made to the former owners of Blue Chip Casino, Inc. in the event that, over a
period of 36 months, Blue Chip's aggregated earnings before interest, taxes,
depreciation and amortization and certain other qualified expenses exceeds a
specified amount. Blue Chip Casino opened in August 1997. The Company's pro
forma consolidated results of operations, as if the acquisition had occurred on
January 1, 1998, are as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
---------- ----------
Pro forma (in thousands, except per share data):
Net revenues ................................ $1,131,781 $1,122,853
Income before cumulative effect ............. $ 60,656 $ 42,994
Net income .................................. $ 55,635 $ 42,994
Basic and diluted net income per common share:
Income before cumulative effect ............. $ 0.98 $ 0.70
Net income .................................. $ 0.90 $ 0.70
NOTE 3. TERMINATION OF MANAGEMENT CONTRACT
On October 20, 1999, the Company signed an agreement with the Mississippi
Band of Choctaw Indians (the "Tribe") to terminate the Company's management of
the Silver Star Resort and Casino in Philadelphia Mississippi. Under the
agreement, the Company continued to manage Silver Star under the terms of the
management contract through January 31, 2000, at which time the Tribe made and
the Company recorded a one-time payment of $72 million. The agreement with the
Tribe terminated the Company's original management contract 17 months prior to
the contract's scheduled maturity date. The one-time payment accelerated the
utilization of the Company's tax credits and net operating losses carried
forward from prior years.
NOTE 4. RESTRUCTURING CHARGE
On June 30, 1998, the Company recorded a $5.9 million restructuring charge
in connection with its announcement to cease operations at Sam's Town Kansas
City. Termination benefits of approximately $3 million for substantially all of
the property's 646 employees were paid and included as part of the restructuring
charge. Other costs to exit the Kansas City gaming market of approximately $3
million were included in the restructuring charge and principally represent the
recognition of liabilities for various long-term commitments which the Company
intends to honor. The Company paid approximately $0.1 million related to the
long-term commitments during each of the years ended December 31, 2000 and 1999.
At December 31, 2000, the $0.1 million current portion and the $0.3 million
non-current portion of the remaining restructuring charge liabilities are
included in "Interest and other" and "Deferred income taxes and other
liabilities," respectively, on the accompanying consolidated balance sheet.
During July 1998, the Company closed Sam's Town Kansas City and sold
substantially all of its tangible assets for $12.5 million, which approximated
net book value for those assets. In connection with the sale, the Company
generated a tax loss of approximately $100 million. At December 31, 2000, the
federal income tax benefit associated with this loss has been realized.
52
55
NOTE 5. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
DECEMBER 31,
-----------------
2000 1999
------- -------
(IN THOUSANDS)
Casino .................................. $12,883 $11,186
Hotel ................................... 2,935 2,594
Other ................................... 4,733 8,444
------- -------
Total ................................... 20,551 22,224
Less allowance for doubtful accounts .... 6,291 4,639
------- -------
Accounts receivable, net ................ $14,260 $17,585
======= =======
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
ESTIMATED DECEMBER 31,
LIFE -----------------------
(YEARS) 2000 1999
--------- ---------- ----------
(IN THOUSANDS)
Land..................................... -- $ 162,664 $ 161,443
Buildings and leasehold improvements..... 3-40 778,745 691,165
Furniture and equipment.................. 3-10 428,387 383,094
Riverboats and barges.................... 12-40 100,818 101,211
Construction in progress................. -- 37,500 46,838
---------- ----------
Total.................................... 1,508,114 1,383,751
Less accumulated depreciation and
amortization........................... 548,148 482,737
---------- ----------
Property and equipment, net.............. $ 959,966 $ 901,014
========== ==========
NOTE 7. INVESTMENT IN JOINT VENTURE AND OTHER UNCONSOLIDATED SUBSIDIARIES
The Company, through Boyd Atlantic City, Inc. ("BAC") and Mirage Resorts
Incorporated, through its subsidiary's MAC, Corp. ("MAC"), entered into a
certain joint venture agreement ("The Joint Venture Agreement") and formed a
joint venture (the "Joint Venture") for the purpose of developing and owning a
casino hotel entertainment facility in the Marina District of Atlantic City, New
Jersey. The Joint Venture originated on May 29, 1996. In May 2000, Mirage was
acquired by MGM Grand, Inc. which subsequently changed its name to MGM MIRAGE
("MGM").
On December 13, 2000, (a) MAC contributed certain real property as well as
certain tangible and intangible personal property to the Joint Venture, and (b)
BAC contributed $90 million in cash to the Joint Venture. BAC and MAC each
received a credit to its capital account in the amount of $90 million upon
making the foregoing contributions.
Following the foregoing contributions, on December 13, 2000, the Joint
Venture was merged with and into Marina District Development Company, LLC
("MDDC, LLC"). MDDC, LLC is the surviving entity of such merger. The sole member
of MDDC, LLC is Marina District Development Holding Co., LLC ("Holding Co.").
BAC and MAC each have a 50% interest in Holding Co. Pursuant to terms of a
certain Contribution and Adoption Agreement made effective December 13, 2000,
the members adopted the Joint Venture Agreement as the Operating Agreement of
Holding Co. (the "Operating Agreement").
The Operating Agreement provides for the development and ownership of a
casino/hotel complex to be comprised of at least 2,000 rooms, a casino and
related amenities to be known as The Borgata (the "Project"). The Project will
be constructed on property adjacent to and connected to MGM's planned
wholly-owned resort. The Operating Agreement contemplates a total cost of $1.035
billion for the Project. Certain project costs exceeding the $1.035 billion
budget would be funded by the Company without any proportionate increase in the
ownership of the Project by the Company. The Operating Agreement provides for
BAC and MAC to make equity contributions aggregating $207 million each and
further contemplates $621 million in non-recourse financing for the Project. On
December 13, 2000, MDDC, LLC entered into a $630 million credit agreement.
Except for a completion guaranty, by which the Company has agreed to guaranty
performance of certain obligations to MDDC, LLC, the credit agreement is
non-recourse to the Company and MGM. Pursuant to the terms of the Operating
Agreement, certain project costs exceeding $1.035 billion are permitted to be
added to the amount of Project financing. At December 31, 2000 and 1999, the
Company's net equity method investment in and advances to The Borgata was $104
million and $4.2 million, respectively.
53
56
The Company has a one-third investment in Tunica Golf Course, L.L.C. (d.b.a.
River Bend Links) located in Tunica, Mississippi which had its grand opening in
April 1999. The Company accounts for its share of the golf course's net income
or loss under the equity method of accounting. At December 31, 2000 and 1999,
the Company's net investment in and advances to the golf course was $1.7 million
and $2.3 million, respectively.
NOTE 8. INTANGIBLE ASSETS
Intangible assets consists of the following:
DECEMBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
Par-A-Dice license rights ......... $115,999 $115,999
Treasure Chest license rights ..... 84,858 84,858
Blue Chip license rights .......... 158,019 158,019
Other ............................. 15,209 15,209
-------- --------
Total intangible assets ........... 374,085 374,085
Less accumulated amortization ..... 28,781 19,426
-------- --------
Intangible assets, net ......... $345,304 $354,659
======== ========
NOTE 9. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
---------------------
2000 1999
---------- --------
(IN THOUSANDS)
Bank Credit Facility .............. $ 562,150 $526,000
9.25% Senior Notes ................ 200,000 200,000
9.50% Senior Subordinated Notes ... 250,000 250,000
Other ............................. 7,148 7,893
---------- --------
Total long-term debt .............. 1,019,298 983,893
Less current maturities ........... 2,485 1,744
---------- --------
Total ........................... $1,016,813 $982,149
========== ========
Effective July 28, 2000, the Company amended its bank credit facility
("Bank Credit Facility") primarily to allow for an increase in its investment in
The Borgata for an aggregate investment of $225 million and to reduce and modify
the Company's capital raising requirement for The Borgata. At December 31, 2000,
the Bank Credit Facility consisted of a $500 million revolver component (the
"Revolver") and two term loan components with original principal balances of
$100 million each ("Term Loan B" and "Term Loan C"). The Revolver, Term Loan B
and Term Loan C all mature in June 2003. Availability under the Revolver will be
reduced by $15.6 million on December 31, 2001 and at the end of each quarter
thereafter until March 31, 2003. Term Loan B will be repaid in increments of
$0.25 million per quarter which began on September 30, 1999 and will continue
through March 31, 2003. Term Loan C will be repaid in increments of $0.25
million per quarter which began on December 31, 2000 and will continue through
March 31, 2003. As of December 31, 2000, the Company had unused availability of
$136.1 million under the Bank Credit Facility. The interest rate on the Bank
Credit Facility is based upon either the agent bank's quoted base rate or the
LIBOR rate, plus an applicable margin that is determined by the level of a
predefined financial leverage ratio. The blended interest rate under the Bank
Credit Facility at December 31, 2000 was 8.8%. In addition, the Company incurs a
commitment fee on the unused portion of the Revolver which ranges from 0.375% to
0.50% per annum. The Bank Credit Facility is secured by substantially all of the
real and personal property of the Company and its subsidiaries, including eleven
casino properties. The obligations of the Company under the Bank Credit Facility
are guaranteed by the significant subsidiaries of the Company.
The Bank Credit Facility contains certain financial and other covenants
including, without limitation, various covenants (i) requiring the maintenance
of a minimum net worth, (ii) requiring the maintenance of a minimum interest
coverage ratio, (iii) establishing a maximum permitted total leverage ratio and
senior secured leverage ratio, (iv) imposing limitations on the incurrence of
additional indebtedness, (v) imposing limitations on the maximum permitted
expansion capital expenditures during the term of the Bank Credit Facility, (vi)
imposing limits on the maximum permitted maintenance capital expenditures during
each year of the term of the Bank Credit Facility, and (vii) imposing
restrictions on investments, dividends and certain other payments. Management
believes the Company and its subsidiaries are in compliance with the Bank Credit
Facility covenants.
54
57
On October 4, 1996, the Company issued $200 million of 9.25% Senior Notes
(the "9.25% Notes") due October 1, 2003. The 9.25% Notes require semi-annual
interest payments in April and October of each year through October 2003, at
which time the entire principal balance becomes due and payable. The 9.25% Notes
contain certain restrictive covenants regarding, among other things, incurrence
of debt, sales of assets, mergers and consolidations and limitations on
restricted payments (as defined in the indenture relating to the 9.25% Notes).
In addition, the 9.25% Notes are guaranteed by a majority of the Company's
significant subsidiaries that existed at the time the 9.25% Notes were issued.
The guaranties are full, unconditional, and joint and several. (See Note 16 for
a presentation of separate condensed financial statement information on a
combined basis for the parent only, as well as the Company's guarantor
subsidiaries and non-guarantor subsidiaries).
On July 22, 1997, the Company issued $250 million principal amount of 9.50%
Senior Subordinated Notes (the "9.50% Notes") due July 2007. The 9.50% Notes
require semi-annual interest payments in January and July of each year through
July 2007, at which time the entire principal balance becomes due and payable.
The 9.50% Notes contain certain restrictive covenants regarding, among other
things, incurrence of debt, sales of assets, mergers and consolidations and
limitations on restricted payments (as defined in the indenture relating to the
9.50% Notes). The 9.50% Notes may be redeemed at the Company's option anytime
after July 15, 2002 at redemption prices ranging from 104.75% in 2002 to 100% in
2005 and thereafter.
The estimated fair value of the Company's long-term debt at December 31,
2000 was approximately $983 million, versus its book value of $1.0 billion. At
December 31, 1999, the estimated fair value of the Company's long-term debt was
approximately $976 million, versus its book value of $984 million. The estimated
fair value amounts were based on quoted market prices on or about December 31,
2000 and 1999 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 are approximately 7.0%.
Management believes the Company is in compliance with all covenants contained in
its long-term debt agreements at December 31, 2000.
The scheduled maturities of long-term debt for the years ending December 31
are as follows:
(IN THOUSANDS)
2001 .................... $ 2,485
2002 .................... 2,455
2003 .................... 758,637
2004 .................... 522
2005 .................... 560
Thereafter .............. 254,639
----------
Total ............... $1,019,298
==========
55
58
NOTE 10. COMMITMENTS AND CONTINGENCIES
Future minimum lease payments required under noncancelable operating leases
(principally for land) as of December 31, 2000 are as follows:
(IN THOUSANDS)
2001 .................... $ 5,865
2002 .................... 3,748
2003 .................... 2,296
2004 .................... 1,890
2005 .................... 1,889
Thereafter .............. 68,026
-------
Total ............... $83,714
=======
Rent expense for the years ended December 31, 2000, 1999 and 1998 was $5.3
million, $4.4 million and $3.2 million, respectively, and is included in
selling, general and administrative expenses on the consolidated statements of
operations.
The Company is required to pay, to the City of Kenner, Louisiana, a boarding
fee of $2.50 for each passenger boarding the Company's Treasure Chest riverboat
casino during the year. The future minimum payment due in 2001 to the City of
Kenner, based upon a portion of actual passenger counts from the prior year, is
approximately $4.0 million.
The Company is subject to various claims and litigation in the normal course
of business. In the opinion of management, all pending legal matters are either
adequately covered by insurance or, if not insured, will not have a material
adverse impact on the Company's consolidated financial statements.
NOTE 11. EMPLOYEE BENEFIT PLANS
The Company contributes to multi-employer pension plans under various union
agreements. Contributions, based on wages paid to covered employees, totaled
approximately $2.0 million, $2.3 million and $2.4 million for the years ended
December 31, 2000, 1999 and 1998, respectively. The Company's share of the
unfunded liability related to multi-employer plans, if any, is not determinable.
The Company has retirement savings plans under Section 401(k) of the
Internal Revenue Code covering its non-union employees. The plans allow
employees to defer up to the lesser of the Internal Revenue Code prescribed
maximum amount or 15% of their income on a pre-tax basis through contributions
to the plans. The Company expensed voluntary contributions of $4.4 million, $2.8
million and $2.8 million for the years ended December 31, 2000, 1999 and 1998,
respectively, to the Company's 401(k) profit-sharing plans and trusts.
NOTE 12. INCOME TAXES
A summary of the provision for income taxes is as follows:
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
------- -------- --------
(IN THOUSANDS)
Current
Federal ............ $13,579 $ 5,845 $ (7,021)
State .............. 2,053 1,740 1,465
------- -------- --------
15,632 7,585 (5,556)
------- -------- --------
Deferred
Federal ............ 20,820 18,697 25,532
State .............. 2,840 1,313 1,315
------- -------- --------
23,660 20,010 26,847
------- -------- --------
Total .............. $39,292 $ 27,595 $ 21,291
======= ======== ========
56
59
The following table provides a reconciliation between the federal statutory
rate and the effective income tax rate from continuing operations where both are
expressed as a percentage of income.
DECEMBER 31,
------------------------
2000 1999 1998
---- ---- ----
Tax provision at statutory rate ... 35.0% 35.0% 35.0%
Increase resulting from:
State income tax, net of federal
benefit ....................... 3.1 2.9 3.6
Company provided benefits ....... 0.2 0.3 1.9
Other, net ...................... 0.2 2.6 2.2
---- ---- ----
Total ................... 38.5% 40.8% 42.7%
==== ==== ====
The tax items comprising the Company's net deferred tax liability are as
follows:
DECEMBER 31,
-----------------
2000 1999
------- -------
(IN THOUSANDS)
Deferred tax liabilities:
Difference between book and tax basis of property .......... $60,068 $44,645
Difference between book and tax basis of amortizable assets. 13,821 10,855
State tax liability ........................................ 4,170 3,574
Other ...................................................... 2,152 895
------- -------
Gross deferred liability ................................... 80,211 59,969
------- -------
Deferred tax assets:
Tax credit carryforward .................................... 7,324 12,600
Reserve for employee benefits .............................. 3,209 1,249
Net operating loss carryforward ............................ -- 2,774
Provision for doubtful accounts ............................ 1,994 1,516
Reserve differential for gaming activities ................. 1,950 982
Preopening expense amortized for tax purposes .............. 914 666
Other ...................................................... 1,085 471
------- -------
Gross deferred tax asset ................................... 16,476 20,258
------- -------
Net deferred tax liability ......................... $63,735 $39,711
======= =======
At December 31, 1999, the Company had approximately $8.0 million of federal
tax net operating loss carryforwards which were fully utilized during the year
ended December 31, 2000. Additionally, the Company has tax credit carryforwards
that can be utilized to offset its future regular federal income tax liability.
At December 31, 2000 and 1999, the Company had approximately $7.2 million and
$9.4 million, respectively, of federal alternative minimum tax credit
carryforwards which may be carried forward indefinitely. At December 31, 1999,
the Company had approximately $3.2 million of general business credit
carryforwards that were fully utilized during the year ended December 31, 2000.
The Internal Revenue Service has completed examinations of the Company's
federal consolidated income tax returns through the fiscal year ended June 30,
1992. The Company is currently under examination for fiscal years ended June 30,
1993 and 1994. The Internal Revenue Service has proposed adjustments in
connection with the examination of the 1993 and 1994 returns but no final
determinations have been made. The Mississippi State Tax Commission is examining
the Mississippi income tax returns for the years ended December 31, 1997 through
1999. In the opinion of management, any tax liability arising from these
examinations will not have a material adverse impact on the Company's
consolidated financial statements.
NOTE 13. STOCKHOLDERS' EQUITY AND STOCK INCENTIVE PLANS
Employee Stock Purchase Plan
Under the terms of the Company's Employee Stock Purchase Plan (the "Plan"),
eligible employees had been able to purchase the Company's common stock,
semi-annually, through payroll deductions, at 85% of the market price either on
the purchase date or the offering date, whichever price is lower. The Company
canceled the Plan on July 1, 1999.
57
60
Stock Options
As of December 31, 2000, the Company had in effect various stock option
plans. Stock options awarded under these plans are granted primarily to
employees and directors of the Company. The maximum number of shares of common
stock available for issuance under these plans is approximately 9.6 million
shares.
Options granted under the plans generally become exercisable ratably over a
three or four year period from the date of grant. Options granted under the
plans have an exercise price equal to the market price of the Company's common
stock on the date of grant and expire no later than ten years after the date of
grant.
Summarized information for the stock options plans is as follows:
OPTIONS OPTION PRICES
--------- -------------
Options outstanding at January 1, 1998............. 4,702,010 $5.50--$17.00
Options granted.................................... 1,112,600 4.56-- 7.50
Options canceled................................... (115,400) 4.56-- 13.63
-------- -------------
Options outstanding at December 31, 1998........... 5,699,210 $4.56--$17.00
Options granted.................................... 1,079,000 5.56-- 6.56
Options canceled................................... (317,909) 4.56-- 17.00
Options exercised.................................. (20,438) 4.56-- 5.75
-------- -------------
Options outstanding at December 31, 1999........... 6,439,863 $4.56--$17.00
Options granted.................................... 1,490,000 4.50-- 4.69
Options canceled................................... (276,653) 4.56-- 17.00
Options exercised.................................. (7,201) 4.56-- 4.56
-------- -------------
Options outstanding at December 31, 2000........... 7,646,009 $4.50--$17.00
========= =============
Exercisable options at December 31, 2000........... 5,166,328
=========
Options available for grant at December 31, 2000... 1,924,018
=========
The following table summarizes the information about stock options
outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ----------------------
WEIGHTED AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE PRICE
- ---------------- ----------- ---------------- -------------- ----------- --------
$ 4.50 -- $ 5.56 3,446,509 8.85 $4.83 977,911 $4.91
5.75 -- 8.37 2,896,000 5.19 6.80 2,884,917 6.80
11.50 -- 17.00 1,303,500 3.25 16.06 1,303,500 16.06
--------- ---- ----- --------- -----
7,646,009 6.51 $7.49 5,166,328 $8.78
========= ==== ===== ========= =====
The Company accounts for employee stock options in accordance with
Accounting Principle Board Opinion No. 25. The following table discloses the
Company's pro forma net income and net income per share assuming compensation
cost for employee stock options had been recognized under SFAS No. 123,
"Accounting for Stock-Based Compensation." In addition, the table includes the
excess of the compensation cost under SFAS No. 123 over the cost recognized
related to the Employee Stock Purchase Plan. The table also discloses the
weighted-average assumptions used in estimating the fair value of each option
grant on the date of grant using the Black-Scholes option pricing model and the
estimated weighted-average fair value of the options granted. The model assumes
no expected future dividend payments on the Company's common stock for the
options granted since July 1, 1995.
58
61
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Income before cumulative effect
As reported ............................ $62,765 $40,039 $28,600
Pro forma .............................. 61,321 38,768 26,694
Net income
As reported ............................ $62,765 $38,301 $28,600
Pro forma .............................. 61,321 37,030 26,694
Basic and diluted income per share before
cumulative effect
As reported ............................ $ 1.01 $ 0.65 $ 0.46
Pro forma - basic ...................... 0.99 0.62 0.43
Pro forma - diluted .................... 0.98 0.62 0.43
Basic and diluted net income per share
As reported ............................ $ 1.01 $ 0.62 $ 0.46
Pro forma - basic ...................... 0.99 0.60 0.43
Pro forma - diluted .................... 0.98 0.59 0.43
Weighted-average assumptions
Expected stock price volatility ........ 57.58% 64.56% 57.16%
Risk-free interest rate ................ 5.39% 6.65% 5.02%
Expected option lives (years) .......... 3.90 2.82 3.39
Estimated fair value of options granted $ 2.18 $ 2.55 $ 1.83
Because the accounting method prescribed by SFAS No. 123 is not applicable
to options granted prior to July 1, 1995, the compensation cost reflected in the
pro forma amounts shown above may not be representative of that to be expected
in future years.
NOTE 14. SEGMENT INFORMATION
The Company's management reviews the results of operations, certain assets,
and additions to property and equipment based on distinct geographic gaming
market segments: the Stardust Resort and Casino on the Las Vegas Strip; Sam's
Town Hotel and Gambling Hall, the Eldorado Casino and Jokers Wild Casino on the
Boulder Strip; the Downtown Properties; Sam's Town Hotel and Gambling Hall in
Tunica, Mississippi; Par-A-Dice Hotel and Casino in East Peoria, Illinois;
Treasure Chest Casino in Kenner, Louisiana; Blue Chip Casino in Michigan City,
Indiana (acquired November 10, 1999); and management fee income from Silver Star
Resort and Casino located near Philadelphia, Mississippi (through January 31,
2000). As used herein, "Downtown Properties" consist of the California Hotel and
Casino, the Fremont Hotel and Casino, Main Street Station Casino, Brewery and
Hotel and Vacations Hawaii.
59
62
YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
-------- --------- ---------
(IN THOUSANDS)
Casino Revenue
Stardust ...................................... $ 99,798 $ 98,926 $ 107,857
Sam's Town Las Vegas .......................... 112,477 117,673 117,954
Eldorado and Jokers Wild ...................... 29,617 30,182 29,150
Downtown Properties ........................... 134,634 133,138 127,948
Sam's Town Tunica ............................. 85,682 98,644 103,556
Sam's Town Kansas City ........................ -- -- 17,666
Par-A-Dice .................................... 127,951 113,945 97,650
Treasure Chest ................................ 102,168 118,688 120,343
Blue Chip ..................................... 176,656 22,481 --
-------- --------- ---------
Total casino revenue .................. $868,983 $ 733,677 $ 722,124
======== ========= =========
EBITDA(1)
Stardust ...................................... $ 16,325 $ 14,403 $ 22,114
Sam's Town Las Vegas .......................... 18,446 26,891 31,366
Eldorado and Jokers Wild ...................... 6,008 7,626 8,134
Downtown Properties ........................... 42,392 38,649 28,314
Sam's Town Tunica ............................. 35 22,818 27,802
Sam's Town Kansas City ........................ -- -- (2,534)
Par-A-Dice .................................... 47,050 41,965 33,229
Treasure Chest ................................ 16,007 30,597 36,087
Silver Star ................................... 74,803 45,626 38,502
Blue Chip ..................................... 75,120 9,510 --
-------- --------- ---------
Property EBITDA ...................... 296,186 238,085 223,014
-------- --------- ---------
Other Costs and Expenses
Corporate expense ............................. 21,259 25,867 19,994
Depreciation and amortization ................. 90,480 74,118 73,407
Restructuring charge .......................... -- -- 5,925
Preopening expense ............................ 4,894 1,489 --
Other expense, net ............................ 77,496 68,977 73,797
-------- --------- ---------
Total other costs and expenses ........ 194,129 170,451 173,123
-------- --------- ---------
Income before provision for income taxes and
other items ................................... 102,057 67,634 49,891
Provision for taxes ............................. 39,292 27,595 21,291
-------- --------- ---------
Income before cumulative effect ................. 62,765 40,039 28,600
Cumulative effect, net of tax ................... -- (1,738) --
-------- --------- ---------
Net income ...................................... $ 62,765 $ 38,301 $ 28,600
======== ========= =========
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Assets(2)
Stardust ....................... $ 162,096 $ 173,727
Sam's Town Las Vegas ........... 220,594 159,152
Eldorado and Jokers Wild ....... 17,201 18,249
Downtown Properties ............ 154,026 162,007
Sam's Town Tunica .............. 161,060 146,221
Par-A-Dice ..................... 153,701 158,410
Treasure Chest ................. 111,806 113,799
Blue Chip ...................... 263,881 268,617
---------- ----------
Total properties' assets...... 1,244,365 1,200,182
Corporate Entities ............... 60,905 55,491
---------- ----------
Total assets ................. $1,305,270 $1,255,673
========== ==========
60
63
YEAR ENDED DECEMBER 31,
----------------------------
2000 1999 1998
-------- ------- -------
Additions to Property and Equipment
Stardust .......................... $ 3,566 $25,960 $14,705
Sam's Town Las Vegas .............. 75,191 27,740 14,331
Eldorado and Jokers Wild .......... 1,190 2,461 1,745
Downtown Properties ............... 8,317 11,917 7,683
Sam's Town Tunica ................. 24,673 7,578 5,903
Sam's Town Kansas City ............ -- -- 53
Par-A-Dice ........................ 2,840 2,346 4,686
Treasure Chest .................... 5,307 3,090 1,016
Blue Chip ......................... 8,762 4,820 --
-------- ------- -------
Total properties' additions...... 129,846 85,912 50,122
Corporate Entities .................. 9,435 10,976 20,726
-------- ------- -------
Total additions to property
and equipment ................. $139,281 $96,888 $70,848
======== ======= =======
- -----------------
(1) EBITDA is earnings before interest, taxes, depreciation, amortization,
preopening expense and restructuring charge. The Company believes that
EBITDA is a useful financial measurement for assessing the operating
performances of its properties. EBITDA does not represent net income or cash
flows from operating, investing or financing activities as defined by
accounting principles generally accepted in the United States of America.
(2) Assets represent property and equipment and intangible assets, net of
accumulated depreciation and amortization.
NOTE 15. EARNINGS PER SHARE
A reconciliation of income and shares outstanding for basic and diluted
earnings per share is as follows:
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Income before cumulative effect ................ $62,765 $40,039 $28,600
======= ======= =======
Weighted average common stock outstanding ...... 62,232 62,124 61,749
Dilutive effect of stock options outstanding.... 46 169 101
------- ------- -------
Weighted average common and potential shares....
outstanding .................................. 62,278 62,293 61,850
======= ======= =======
Basic and diluted earnings per share ........... $ 1.01 $ 0.65 $ 0.46
======= ======= =======
Options to purchase approximately 5.3 million, 4.8 million and 5.7 million,
shares of common stock, respectively, at December 31, 2000, 1999 and 1998 at
prices of $5.56 -- $17.00, $5.56 -- $17.00 and $5.56 -- $17.00, respectively,
were outstanding during the period but not included in the computation of
diluted earnings per share because their exercise price was in excess of the
average market price of the common stock for the period presented.
NOTE 16. GUARANTOR INFORMATION
The Company's 9.25% Notes (see Note 9) are guaranteed by a majority of the
Company's wholly-owned existing significant subsidiaries. These guaranties are
full, unconditional, and joint and several. The following consolidating
schedules present separate condensed financial statement information on a
combined basis for the parent only, as well as the Company's guarantor
subsidiaries and non-guarantor subsidiaries, as of and for the years ended
December 31, 2000 and 1999 and for the year ended December 31, 1998.
61
64
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
AS OF DECEMBER 31, 2000
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
---------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
ASSETS
Current assets ............................ $ 1,354 $ 96,701 $ 30,285 $ 231(1) $ 128,571
Property and equipment, net ............... 44,493 766,603 148,870 -- 959,966
Investment in unconsolidated subsidiaries,
net ..................................... -- 1,700 103,860 -- 105,560
Other assets and deferred charges, net .... 1,285,373 (459,081) 462,906 (1,250,985)(1)(2) 38,213
Intangible assets, net .................... -- 112,849 232,455 -- 345,304
---------- --------- -------- ----------- ----------
Total assets .................... $1,331,220 $ 518,772 $978,376 $(1,250,754) $1,577,614
========== ========= ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ....................... $ 30,304 $ 86,993 $ 39,516 $ 204(1) $ 157,017
Long-term debt, net of current maturities . 959,150 57,663 -- -- 1,016,813
Deferred income taxes and other liabilities 11,988 55,321 6,697 -- 74,006
Stockholders' equity ...................... 329,778 318,795 932,163 (1,250,958)(2) 329,778
---------- --------- -------- ----------- ----------
Total liabilities and
stockholders' equity .......... $1,331,220 $ 518,772 $978,376 $(1,250,754) $1,577,614
========== ========= ======== =========== ==========
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
AS OF DECEMBER 31, 1999
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
---------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
ASSETS
Current assets ............................ $ 17,583 $ 100,696 $ 26,599 $ (2,259)(1) $ 142,619
Property and equipment, net ............... 43,559 708,072 149,383 -- 901,014
Investment in unconsolidated subsidiaries,
net ..................................... -- 2,098 3,610 -- 5,708
Other assets and deferred charges, net .... 1,163,857 (526,786) 460,752 (1,057,842)(1)(2) 39,981
Intangible assets, net .................... -- 116,107 238,552 -- 354,659
---------- --------- -------- ----------- ----------
Total assets .................... $1,224,999 $ 400,187 $878,896 $(1,060,101) $1,443,981
========== ========= ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ....................... $ 36,470 $ 62,993 $ 39,640 $ (2,173)(1) $ 136,930
Long-term debt, net of current maturities . 914,028 68,088 33 -- 982,149
Deferred income taxes and other liabilities 7,522 49,059 1,342 -- 57,923
Stockholders' equity ...................... 266,979 220,047 837,881 (1,057,928)(2) 266,979
---------- --------- -------- ----------- ----------
Total liabilities and
stockholders' equity .......... $1,224,999 $ 400,187 $878,896 $(1,060,101) $1,443,981
========== ========= ======== =========== ==========
- ------------------------
Elimination Entries
(1) To eliminate intercompany payables and receivables.
(2) To eliminate investment in subsidiaries and subsidiaries' equity.
62
65
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2000
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
--------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
Revenues
Casino ................................ $ -- $ 590,159 $278,824 $ -- $ 868,983
Food and beverage ..................... -- 142,918 17,221 -- 160,139
Room .................................. -- 72,656 2,458 -- 75,114
Other ................................. 11,997 29,338 46,774 (14,984)(1) 73,125
Management fee ........................ 154,880 6,411 67,509 (224,985)(1) 3,815
Termination fee, net .................. -- 70,988 -- -- 70,988
--------- --------- -------- --------- -----------
Gross revenues .......................... 166,877 912,470 412,786 (239,969) 1,252,164
Less promotional allowances ............. -- 88,076 10,192 -- 98,268
--------- --------- -------- --------- -----------
Net revenues .................. 166,877 824,394 402,594 (239,969) 1,153,896
--------- --------- -------- --------- -----------
Costs and expenses
Casino ................................ -- 334,975 110,400 -- 445,375
Food and beverage ..................... -- 83,794 19,262 -- 103,056
Room .................................. -- 21,093 1,199 -- 22,292
Other ................................. -- 84,694 66,441 (80,879)(1) 70,256
Selling, general and administrative ... -- 116,157 51,521 -- 167,678
Maintenance and utilities ............. -- 36,011 13,042 -- 49,053
Depreciation and amortization ......... 2,535 66,556 21,389 -- 90,480
Corporate expense ..................... 34,233 145 1,865 (14,984)(1) 21,259
Preopening expense .................... 1,890 1,362 1,642 -- 4,894
--------- --------- -------- --------- -----------
Total ......................... 38,658 744,787 286,761 (95,863) 974,343
--------- --------- -------- --------- -----------
Operating income ........................ 128,219 79,607 115,833 (144,106) 179,553
Other income (expense), net ............. (73,056) (5,113) 673 -- (77,496)
--------- --------- -------- --------- -----------
Income before income taxes and cumulative
effect ............................... 55,163 74,494 116,506 (144,106) 102,057
Provision (benefit) for income taxes .... (7,602) 37,972 8,922 -- 39,292
--------- --------- -------- --------- -----------
Net income .............................. $ 62,765 $ 36,522 $107,584 $(144,106) $ 62,765
========= ========= ======== ========= ===========
- ------------------------
Elimination Entries
(1) To eliminate intercompany revenue and expense.
63
66
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1999
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
--------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
Revenues
Casino ................................ $ -- $ 592,508 $141,169 $ -- $ 733,677
Food and beverage ..................... -- 147,927 11,055 -- 158,982
Room .................................. -- 71,478 -- -- 71,478
Other ................................. 11,380 31,990 40,787 (14,169)(1) 69,988
Management fee ........................ 121,996 53,490 24,172 (152,195)(1) 47,463
--------- --------- -------- --------- -----------
Gross revenues .......................... 133,376 897,393 217,183 (166,364) 1,081,588
Less promotional allowances ............. -- 86,920 7,627 -- 94,547
--------- --------- -------- --------- -----------
Net revenues .................. 133,376 810,473 209,556 (166,364) 987,041
--------- --------- -------- --------- -----------
Costs and expenses
Casino ................................ -- 317,769 53,631 -- 371,400
Food and beverage ..................... -- 91,739 11,700 -- 103,439
Room .................................. -- 22,532 -- -- 22,532
Other ................................. -- 72,919 45,603 (54,697)(1) 63,825
Selling, general and administrative ... -- 114,949 30,839 -- 145,788
Maintenance and utilities ............. -- 35,164 6,808 -- 41,972
Depreciation and amortization ......... 1,950 61,853 10,315 -- 74,118
Corporate expense ..................... 38,226 160 1,649 (14,168)(1) 25,867
Preopening expense .................... 202 -- 1,287 -- 1,489
--------- --------- -------- --------- -----------
Total ......................... 40,378 717,085 161,832 (68,865) 850,430
--------- --------- -------- --------- -----------
Operating income ........................ 92,998 93,388 47,724 (97,499) 136,611
Other income (expense), net ............. (63,898) (6,117) 1,038 -- (68,977)
--------- --------- -------- --------- -----------
Income before income taxes and cumulative
effect ............................... 29,100 87,271 48,762 (97,499) 67,634
Provision (benefit) for income taxes .... (10,939) 37,352 1,182 -- 27,595
--------- --------- -------- --------- -----------
Income before cumulative effect ......... 40,039 49,919 47,580 (97,499) 40,039
Cumulative effect, net of taxes ......... (1,738) -- -- -- (1,738)
--------- --------- -------- --------- -----------
Net income .............................. $ 38,301 $ 49,919 $ 47,580 $ (97,499) $ 38,301
========= ========= ======== ========= ===========
- ------------------------
Elimination Entries
(1) To eliminate intercompany revenue and expense.
64
67
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
--------- ---------- ---------- ----------- -----------
(IN THOUSANDS)
Revenues
Casino ............................ $ -- $ 601,781 $120,343 $ -- $ 722,124
Food and beverage ................. -- 151,837 9,745 -- 161,582
Room .............................. -- 74,053 -- -- 74,053
Other ............................. 9,517 37,903 35,180 (11,697)(1) 70,903
Management fee .................... 106,903 47,439 20,174 (134,310)(1) 40,206
--------- --------- -------- --------- -----------
Gross revenues ...................... 116,420 913,013 185,442 (146,007) 1,068,868
Less promotional allowances ......... -- 86,740 7,032 -- 93,772
--------- --------- -------- --------- -----------
Net revenues .............. 116,420 826,273 178,410 (146,007) 975,096
--------- --------- -------- --------- -----------
Costs and expenses
Casino ............................ -- 322,186 44,560 -- 366,746
Food and beverage ................. -- 96,040 10,155 -- 106,195
Room .............................. -- 24,724 -- -- 24,724
Other ............................. -- 77,071 38,424 (49,869)(1) 65,626
Selling, general and administrative -- 122,759 24,888 -- 147,647
Maintenance and utilities ......... -- 35,625 5,519 -- 41,144
Depreciation and amortization ..... 642 63,718 9,047 -- 73,407
Corporate expense ................. 28,528 1,514 1,649 (11,697)(1) 19,994
Restructuring charge .............. -- 5,925 -- -- 5,925
--------- --------- -------- --------- -----------
Total ..................... 29,170 749,562 134,242 (61,566) 851,408
--------- --------- -------- --------- -----------
Operating income .................... 87,250 76,711 44,168 (84,441) 123,688
Other income (expense), net ......... (68,204) (6,572) 979 -- (73,797)
--------- --------- -------- --------- -----------
Income before income taxes .......... 19,046 70,139 45,147 (84,441) 49,891
Provision (benefit) for income taxes (9,539) 30,825 5 -- 21,291
--------- --------- -------- --------- -----------
Net income .......................... $ 28,585 $ 39,314 $ 45,142 $ (84,441) $ 28,600
========= ========= ======== ========= ===========
- ------------------------
Elimination Entries
(1) To eliminate intercompany revenue and expense.
65
68
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2000
COMBINED
COMBINED NON-
PARENT GUARANTORS GUARANTORS CONSOLIDATED
--------- ---------- ---------- ------------
(IN THOUSANDS)
Cash flows from operating activities .................. $ (52,915) $ 123,846 $ 142,196 $ 213,127
--------- --------- --------- ---------
Cash flows from investing activities
Investment in and advances to unconsolidated
subsidiaries ..................................... -- -- (101,960) (101,960)
Acquisition of property, equipment and other assets . (9,319) (115,747) (14,779) (139,845)
Preopening expense .................................. (1,890) (1,362) (1,642) (4,894)
--------- --------- --------- ---------
Net cash used in investing activities ................. (11,209) (117,109) (118,381) (246,699)
--------- --------- --------- ---------
Cash flows from financing activities
Receipt/(payments) on long-term debt ................ 9,685 (10,396) (34) (745)
Receipt/(payment) of dividends ...................... 18,475 2,123 (20,598) --
Net borrowings under credit agreements .............. 36,150 -- -- 36,150
Proceeds from issuance of common stock .............. 34 -- -- 34
--------- --------- --------- ---------
Net cash provided by (used in) financing activities ... 64,344 (8,273) (20,632) 35,439
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents .. 220 (1,536) 3,183 1,867
Cash and cash equivalents, beginning of period ........ 138 62,755 23,299 86,192
--------- --------- --------- ---------
Cash and cash equivalents, end of period .............. $ 358 $ 61,219 $ 26,482 $ 88,059
========= ========= ========= =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1999
COMBINED
COMBINED NON-
PARENT GUARANTORS GUARANTORS CONSOLIDATED
--------- ---------- ---------- ------------
(IN THOUSANDS)
Cash flows from operating activities .................. $(270,354) $ 148,012 $ 281,489 $ 159,147
--------- --------- --------- ---------
Cash flows from investing activities
Proceeds from sale of Sam's Town Kansas City's assets -- 2,000 -- 2,000
Net cash paid for acquisition of Blue Chip Casino ... -- -- (261,195) (261,195)
Investment in and advances to unconsolidated
subsidiaries ...................................... -- (266) (4,451) (4,717)
Acquisition of property, equipment and other assets . (8,892) (80,906) (1,921) (91,719)
Preopening expense .................................. (202) -- (1,287) (1,489)
--------- --------- --------- ---------
Net cash used in investing activities ................. (9,094) (79,172) (268,854) (357,120)
--------- --------- --------- ---------
Cash flows from financing activities
Payments on long-term debt .......................... (1,550) (408) -- (1,958)
Receipt/(payment) of dividends ...................... 69,896 (61,169) (8,727) --
Net borrowings under credit agreements .............. 209,000 -- -- 209,000
Proceeds from issuance of common stock .............. 1,186 -- -- 1,186
--------- --------- --------- ---------
Net cash provided by (used in) financing activities ... 278,532 (61,577) (8,727) 208,228
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents .. (916) 7,263 3,908 10,255
Cash and cash equivalents, beginning of period ........ 1,054 55,492 19,391 75,937
--------- --------- --------- ---------
Cash and cash equivalents, end of period .............. $ 138 $ 62,755 $ 23,299 $ 86,192
========= ========= ========= =========
66
69
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
COMBINED
COMBINED NON-
PARENT GUARANTORS GUARANTORS CONSOLIDATED
-------- ---------- ---------- ------------
(IN THOUSANDS)
Cash flows from operating activities .................. $ 64,427 $ 37,873 $ 19,449 $ 121,749
-------- -------- -------- ---------
Cash flows from investing activities
Proceeds from sale of Sam's Town Kansas City's assets -- 10,500 -- 10,500
Acquisition of property, equipment and other assets . (11,514) (54,467) (2,030) (68,011)
-------- -------- -------- ---------
Net cash used in investing activities ................. (11,514) (43,967) (2,030) (57,511)
-------- -------- -------- ---------
Cash flows from financing activities
Proceeds from issuance of long-term debt ............ -- 8,000 -- 8,000
Payments on long-term debt .......................... (2,218) (562) (129) (2,909)
Receipt/(payment) of dividends ...................... 19,196 (4,169) (15,027) --
Net borrowings under credit agreements .............. (73,000) -- -- (73,000)
Proceeds from issuance of common stock .............. 1,331 -- -- 1,331
-------- -------- -------- ---------
Net cash provided by (used in) financing activities ... (54,691) 3,269 (15,156) (66,578)
-------- -------- -------- ---------
Net increase (decrease) in cash and cash equivalents .. (1,778) (2,825) 2,263 (2,340)
Cash and cash equivalents, beginning of period ........ 2,832 58,317 17,128 78,277
-------- -------- -------- ---------
Cash and cash equivalents, end of period .............. $ 1,054 $ 55,492 $ 19,391 $ 75,937
======== ======== ======== =========
67
70
SELECTED QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
YEAR ENDED DECEMBER 31, 2000
-----------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- -------- -------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues ........................................ $ 352,707 $269,719 $270,805 $ 260,665 $ 1,153,896
Operating income .................................... 112,779 29,741 24,102 12,931 179,553
Net income (loss) ................................... $ 57,069 $ 6,653 $ 3,700 $ (4,657) $ 62,765
--------- -------- -------- --------- -----------
Basic and diluted net income (loss) per common share:
Net income (loss) ................................... $ 0.92 $ 0.11 $ 0.06 $ (0.07) $ 1.01
========= ======== ======== ========= ===========
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- -------- -------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues ........................................ $ 243,258 $241,936 $239,515 $ 262,332 $ 987,041
Operating income .................................... 35,419 33,066 33,708 34,418 136,611
Cumulative effect of a change in accounting for
start-up activities, net of tax ................. (1,738) -- -- -- (1,738)
Net income .......................................... $ 8,902 $ 9,705 $ 10,337 $ 9,357 $ 38,301
--------- -------- -------- --------- -----------
Basic and diluted net income per common share:
Income before cumulative effect ..................... $ 0.17 $ 0.16 $ 0.17 $ 0.15 $ 0.65
Cumulative effect, net of tax ....................... (0.03) -- -- -- (0.03)
--------- -------- -------- --------- -----------
Net income .......................................... $ 0.14 $ 0.16 $ 0.17 $ 0.15 $ 0.62
========= ======== ======== ========= ===========
68
71
(C) EXHIBITS.
EXHIBIT
NUMBER DOCUMENT
-------- --------
3.1(7) Restated Articles of Incorporation.
3.2(10) Restated Bylaws.
3.3(14) Certificate of Amendment of Articles of Incorporation
4.1(8) Registration Agreement, dated July 17, 1997, among the
Company, Salomon Brothers Inc., UBS Securities LLC and CIBC
Wood Gundy Securities Corp.
4.2(9) Form of Indenture relating to $200,000,000 aggregate principal
amount of 9.25% Senior Subordinated Notes due 2003, including
the Form of Note.
4.3(8) Form of Indenture relating to 9.50% Senior Subordinated Notes
due 2007, dated as of July 22, 1997, between the Company and
State Street Bank and Trust Company, including the Form of
Note.
4.4(8) First Supplemental Indenture, among the Company, as Issuer,
certain subsidiaries of the Company, as Guarantors, and the
Bank of New York, as Trustee, dated as of December 31, 1996.
10.1(1) Ninety-Nine Year Lease dated June 30, 1954, by and among
Fremont Hotel, Inc., and Charles L. Ronnow and J.L. Ronnow, and
Alice Elizabeth Ronnow.
10.2(1) Lease Agreement dated October 31, 1963, by and between Fremont
Hotel, Inc. and Cora Edit Garehime.
10.3(1) Lease Agreement dated December 31, 1963, by and among Fremont
Hotel, Inc., Bank of Nevada and Leon H. Rockwell, Jr.
10.4(1) Lease Agreement dated June 7, 1971, by and among Anthony
Antonacci, Margaret Fay Simon and Bank of Nevada, as
Co-Trustees under Peter Albert Simon's Last Will and Testament,
and related Assignment of Lease dated February 25, 1985 to
Sam-Will, Inc. and Fremont Hotel, Inc.
10.5(4) Lease Agreement dated July 25, 1973, by and between CH&C and
William Peccole, as Trustee of the Peter Peccole 1970 Trust.
10.6(1) Lease Agreement dated July 1, 1974, by and among Fremont Hotel,
Inc. and Bank of Nevada, Leon H. Rockwell, Jr. and Margorie
Rockwell Riley.
10.7(1) Ground Lease Agreement dated July 5, 1978, by and between CH&C,
and Irene Elizabeth Carey, as Trustee of the Carey Survivor's
Trust U/A October 18, 1972 and Irene Elizabeth Carey, as
Trustee of the Carey Family Trust U/A October 18, 1972.
10.8(1) Ninety-Nine Year Lease dated December 1, 1978 by and between
Matthew Paratore, and George W. Morgan and LaRue Morgan, and
related Lease Assignment dated November 10, 1987 to Sam-Will,
Inc., d/b/a/ Fremont Hotel and Casino.
10.9(1) Implemented Proposal dated June 15, 1992, by and between
Stardust Hotel and Casino and the Back-End Teamsters Local
Union No. 995.
10.10(1) Implemented Proposal dated June 15, 1992, by and between
Fremont Hotel and Casino and the Back-End Teamsters Local Union
No. 995.
10.11(2) Casino Management Agreement dated August 30, 1993, by and
between Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
10.12(4) Amended and Restated Operating Agreement dated August 5, 1994,
by and between Treasure Chest Casino, L.L.C. and Boyd Kenner,
Inc.
10.13(4) Development Agreement dated June 6, 1994, by and among the
Company, Boyd Kansas City, Inc. and Port Authority of Kansas
City, Missouri.
10.14(2) Form of Indemnification Agreement.
10.15(2)* 1993 Flexible Stock Incentive Plan and related agreements.
10.16(2)* 1993 Directors Non-Qualified Stock Option Plan and related
agreements.
10.17(11)* 1993 Employee Stock Purchase Plan and related agreement.
10.18(1) 401(k) Profit Sharing Plan and Trust.
69
72
EXHIBIT
NUMBER DOCUMENT
-------- --------
10.19(5) Joint Venture Agreement of Stardust A.C., dated as of May 29,
1996, by and between MAC, Corp., a New Jersey Corporation,
which is a wholly-owned subsidiary of Mirage Resorts
Incorporated, a Nevada Corporation, and Grand K, Inc., a Nevada
Corporation, which is a wholly-owned subsidiary of the Company.
(Certain portions of this exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant
to a request for confidential treatment for this Agreement.)
10.20(3) Amended and Restated Joint Venture Agreement of Stardust A.C.
10.21(6) 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.
10.22(12) Unit Purchase Agreement among the Company, Boyd Indiana, Inc.,
Blue Chip Casino, Inc., Blue Chip Casino, LLC, and certain
individuals, dated as of June 27, 1999.
10.23(12) First Amended and Restated Credit Agreement, dated as of June
30, 1999 among the Company as the Borrower, Certain Commercial
Lending Institutions, as the Lenders, Canadian Imperial Bank of
Commerce, as L/C Issuer and Administrative Agent, Wells Fargo
Bank N.A., as Swingline Lender and Syndication Agent, and Bank
of America National Trust and Savings Association, as
Documentation Agent.
10.24(13) Termination and Transition Agreement among the Company and the
Mississippi Band of Choctaw Indians, dated as of October 20,
1999.
10.25(14) First Amendment to First Amended and Restated Credit Agreement,
dated as of July 26, 2000, by and among the Company as the
Borrower, Certain Commercial Lending Institutions, as the
Lenders, Canadian Imperial Bank of Commerce, as letter of
credit issuer and administrative Agent, Wells Fargo Bank, N.A.,
as Swingline Lender and Syndication Agent, and Bank of America,
N.A., as Documentation Agent.
10.26(14)* 2000 Executive Management Incentive Plan
10.27(14) Certificate of Amendment of Articles of Incorporation
10.28(14)* 1996 Stock Incentive Plan (as amended on May 25, 2000)
10.29(15) Second Amended and Restated Joint Venture Agreement with Marina
District Development Company dated as of August 31, 2000
10.30 Contribution and Adoption Agreement by and among Marina
District Development Holding Co., LLC, MAC, Corp. and Boyd
Atlantic City, Inc. effective as of December 13, 2000.
10.31 Guaranty of Performance and Completion dated December 13, 2000.
21.1 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
24(16) Power of Attorney.
- ------------------
* Management contracts or compensatory plans or arrangements.
(1) Incorporated by reference to the Registration Statement on Form S-1, File
No. 33-51672, of California Hotel and Casino and California Hotel Finance
Corporation, which became effective on November 18, 1992.
(2) Incorporated by reference to the Company's Statement on Form S-1, File No.
33-64006, which became effective on October 15, 1993.
(3) Incorporated by reference to the Company's Current Report on Form 8-K
dated July 14, 1998.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1995.
(5) Incorporated by reference to the Company's Current Report on Form 8-K
dated June 7, 1996.
(6) Incorporated by reference to the Company's Exhibit 2.1 of Current Report
on Form 8-K dated August 16, 1996.
(7) Incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1996.
70
73
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1997.
(9) Incorporated by reference to the Company's Registration Statement on Form
S-3, File No. 333-0555.
(10) Incorporated by reference to Exhibit 3.2 of the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999.
(11) Incorporated by reference to the Registration Statement on Form S-8, File
No. 333-79895, dated June 3, 1999.
(12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999.
(13) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999.
(14) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000.
(15) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000.
(16) Refer to page 73 in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000.
71
74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 13, 2001.
BOYD GAMING CORPORATION
By: /s/ JEFFREY G. SANTORO
------------------------------------
Jeffrey G. Santoro
Vice President & Controller
(Principal Accounting Officer)
72
75
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 Jeffrey G.
Santoro, and each of them, his of her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ WILLIAM S. BOYD Chairman of the Board of Directors, March 13, 2001
- ------------------------------------------ Chief Executive Officer and Director
William S. Boyd (Principal Executive Officer)
/s/ MARIANNE BOYD JOHNSON Vice Chairman of the Board of Directors, March 13, 2001
- ------------------------------------------ Vice President and Director
Marianne Boyd Johnson
/s/ ELLIS LANDAU Executive Vice President, March 13, 2001
- ------------------------------------------ Chief Financial Officer and Treasurer
Ellis Landau (Principal Financial Officer)
/s/ JEFFREY G. SANTORO Vice President & Controller March 13, 2001
- ------------------------------------------ (Principal Accounting Officer)
Jeffrey G. Santoro
/s/ DONALD D. SNYDER President and Director March 13, 2001
- ------------------------------------------
Donald D. Snyder
/s/ ROBERT L. BOUGHNER Senior Executive Vice President & March 13, 2001
- ------------------------------------------ Chief Operating Officer and Director
Robert L. Boughner
/s/ WILLIAM R. BOYD Vice President and Director March 13, 2001
- ------------------------------------------
William R. Boyd
/s/ PERRY B. WHITT Director March 13, 2001
- ------------------------------------------
Perry B. Whitt
/s/ WARREN L. NELSON Director March 13, 2001
- ------------------------------------------
Warren L. Nelson
/s/ PHILIP J. DION Director March 13, 2001
- ------------------------------------------
Philip J. Dion
/s/ MICHAEL O. MAFFIE Director March 13, 2001
- ------------------------------------------
Michael O. Maffie
/s/ MAJ. GEN. BILLY G. MCCOY, RET. USAF Director March 13, 2001
- ------------------------------------------
Maj. Gen. Billy G. McCoy, Ret. USAF
73
76
(C) EXHIBITS.
EXHIBIT
NUMBER DOCUMENT
-------- --------
3.1(7) Restated Articles of Incorporation.
3.2(10) Restated Bylaws.
3.3(14) Certificate of Amendment of Articles of Incorporation
4.1(8) Registration Agreement, dated July 17, 1997, among the
Company, Salomon Brothers Inc., UBS Securities LLC and CIBC
Wood Gundy Securities Corp.
4.2(9) Form of Indenture relating to $200,000,000 aggregate principal
amount of 9.25% Senior Subordinated Notes due 2003, including
the Form of Note.
4.3(8) Form of Indenture relating to 9.50% Senior Subordinated Notes
due 2007, dated as of July 22, 1997, between the Company and
State Street Bank and Trust Company, including the Form of
Note.
4.4(8) First Supplemental Indenture, among the Company, as Issuer,
certain subsidiaries of the Company, as Guarantors, and the
Bank of New York, as Trustee, dated as of December 31, 1996.
10.1(1) Ninety-Nine Year Lease dated June 30, 1954, by and among
Fremont Hotel, Inc., and Charles L. Ronnow and J.L. Ronnow, and
Alice Elizabeth Ronnow.
10.2(1) Lease Agreement dated October 31, 1963, by and between Fremont
Hotel, Inc. and Cora Edit Garehime.
10.3(1) Lease Agreement dated December 31, 1963, by and among Fremont
Hotel, Inc., Bank of Nevada and Leon H. Rockwell, Jr.
10.4(1) Lease Agreement dated June 7, 1971, by and among Anthony
Antonacci, Margaret Fay Simon and Bank of Nevada, as
Co-Trustees under Peter Albert Simon's Last Will and Testament,
and related Assignment of Lease dated February 25, 1985 to
Sam-Will, Inc. and Fremont Hotel, Inc.
10.5(4) Lease Agreement dated July 25, 1973, by and between CH&C and
William Peccole, as Trustee of the Peter Peccole 1970 Trust.
10.6(1) Lease Agreement dated July 1, 1974, by and among Fremont Hotel,
Inc. and Bank of Nevada, Leon H. Rockwell, Jr. and Margorie
Rockwell Riley.
10.7(1) Ground Lease Agreement dated July 5, 1978, by and between CH&C,
and Irene Elizabeth Carey, as Trustee of the Carey Survivor's
Trust U/A October 18, 1972 and Irene Elizabeth Carey, as
Trustee of the Carey Family Trust U/A October 18, 1972.
10.8(1) Ninety-Nine Year Lease dated December 1, 1978 by and between
Matthew Paratore, and George W. Morgan and LaRue Morgan, and
related Lease Assignment dated November 10, 1987 to Sam-Will,
Inc., d/b/a/ Fremont Hotel and Casino.
10.9(1) Implemented Proposal dated June 15, 1992, by and between
Stardust Hotel and Casino and the Back-End Teamsters Local
Union No. 995.
10.10(1) Implemented Proposal dated June 15, 1992, by and between
Fremont Hotel and Casino and the Back-End Teamsters Local Union
No. 995.
10.11(2) Casino Management Agreement dated August 30, 1993, by and
between Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
10.12(4) Amended and Restated Operating Agreement dated August 5, 1994,
by and between Treasure Chest Casino, L.L.C. and Boyd Kenner,
Inc.
10.13(4) Development Agreement dated June 6, 1994, by and among the
Company, Boyd Kansas City, Inc. and Port Authority of Kansas
City, Missouri.
10.14(2) Form of Indemnification Agreement.
10.15(2)* 1993 Flexible Stock Incentive Plan and related agreements.
10.16(2)* 1993 Directors Non-Qualified Stock Option Plan and related
agreements.
10.17(11)* 1993 Employee Stock Purchase Plan and related agreement.
10.18(1) 401(k) Profit Sharing Plan and Trust.
77
EXHIBIT
NUMBER DOCUMENT
-------- --------
10.19(5) Joint Venture Agreement of Stardust A.C., dated as of May 29,
1996, by and between MAC, Corp., a New Jersey Corporation,
which is a wholly-owned subsidiary of Mirage Resorts
Incorporated, a Nevada Corporation, and Grand K, Inc., a Nevada
Corporation, which is a wholly-owned subsidiary of the Company.
(Certain portions of this exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant
to a request for confidential treatment for this Agreement.)
10.20(3) Amended and Restated Joint Venture Agreement of Stardust A.C.
10.21(6) 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.
10.22(12) Unit Purchase Agreement among the Company, Boyd Indiana, Inc.,
Blue Chip Casino, Inc., Blue Chip Casino, LLC, and certain
individuals, dated as of June 27, 1999.
10.23(12) First Amended and Restated Credit Agreement, dated as of June
30, 1999 among the Company as the Borrower, Certain Commercial
Lending Institutions, as the Lenders, Canadian Imperial Bank of
Commerce, as L/C Issuer and Administrative Agent, Wells Fargo
Bank N.A., as Swingline Lender and Syndication Agent, and Bank
of America National Trust and Savings Association, as
Documentation Agent.
10.24(13) Termination and Transition Agreement among the Company and the
Mississippi Band of Choctaw Indians, dated as of October 20,
1999.
10.25(14) First Amendment to First Amended and Restated Credit Agreement,
dated as of July 26, 2000, by and among the Company as the
Borrower, Certain Commercial Lending Institutions, as the
Lenders, Canadian Imperial Bank of Commerce, as letter of
credit issuer and administrative Agent, Wells Fargo Bank, N.A.,
as Swingline Lender and Syndication Agent, and Bank of America,
N.A., as Documentation Agent.
10.26(14)* 2000 Executive Management Incentive Plan
10.27(14) Certificate of Amendment of Articles of Incorporation
10.28(14)* 1996 Stock Incentive Plan (as amended on May 25, 2000)
10.29(15) Second Amended and Restated Joint Venture Agreement with Marina
District Development Company dated as of August 31, 2000
10.30 Contribution and Adoption Agreement by and among Marina
District Development Holding Co., LLC, MAC, Corp. and Boyd
Atlantic City, Inc. effective as of December 13, 2000.
10.31 Guaranty of Performance and Completion dated December 13, 2000.
21.1 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
24(16) Power of Attorney.
- ------------------
* Management contracts or compensatory plans or arrangements.
(1) Incorporated by reference to the Registration Statement on Form S-1, File
No. 33-51672, of California Hotel and Casino and California Hotel Finance
Corporation, which became effective on November 18, 1992.
(2) Incorporated by reference to the Company's Statement on Form S-1, File No.
33-64006, which became effective on October 15, 1993.
(3) Incorporated by reference to the Company's Current Report on Form 8-K
dated July 14, 1998.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1995.
(5) Incorporated by reference to the Company's Current Report on Form 8-K
dated June 7, 1996.
(6) Incorporated by reference to the Company's Exhibit 2.1 of Current Report
on Form 8-K dated August 16, 1996.
(7) Incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1996.
78
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1997.
(9) Incorporated by reference to the Company's Registration Statement on Form
S-3, File No. 333-0555.
(10) Incorporated by reference to Exhibit 3.2 of the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999.
(11) Incorporated by reference to the Registration Statement on Form S-8, File
No. 333-79895, dated June 3, 1999.
(12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999.
(13) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999.
(14) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000.
(15) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000.
(16) Refer to page 73 in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000.