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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED JANUARY 31, 2000
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-8570
MANDALAY RESORT GROUP
(Exact name of Registrant as specified in its charter)
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NEVADA 88-0121916
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3950 LAS VEGAS BOULEVARD SOUTH, LAS VEGAS, NEVADA 89119
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (702)632-6700
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.01 2/3 Par Value New York Stock Exchange and Pacific Exchange
Common Stock Purchase Rights New York Stock Exchange and Pacific Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock of the Registrant held by
persons other than the Registrant's directors and executive officers as of April
20, 2000 (based upon the last reported sale price on the New York Stock Exchange
on such date) was $1,139,976,346.
The number of shares of Registrant's Common Stock, $.01 2/3 par value,
outstanding at April 20, 2000: 78,008,229.
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DOCUMENTS INCORPORATED BY REFERENCE
PART II--Portions of the Registrant's Annual Report to Stockholders for the
year ended January 31, 2000 are incorporated by reference into Items 7 through
8, inclusive.
PART III--Portions of the Registrant's definitive proxy statement in
connection with the annual meeting of stockholders to be held on June 15, 2000,
are incorporated by reference into Items 10 through 13, inclusive.
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PART I
ITEM 1. BUSINESS.
IN THIS REPORT, WHEN WE USE THE TERMS "WE," "OUR" AND "US," WE ARE REFERRING
TO MANDALAY RESORT GROUP AND ITS SUBSIDIARIES AS A COMBINED ENTITY, EXCEPT WHERE
IT IS CLEAR THAT REFERENCE IS ONLY TO MANDALAY RESORT GROUP. WHEN WE USE THE
TERM "MANDALAY," IT REFERS ONLY TO MANDALAY RESORT GROUP. EXCEPT AS OTHERWISE
INDICATED, CROSS REFERENCES IN THIS REPORT ARE TO SECTIONS IN THIS ITEM 1.
OVERVIEW
We are one of the largest hotel-casino operators in the United States in
terms of guest rooms and casino square footage. We have the largest scaled
hotel-casino resort development in Las Vegas, the world's largest gaming market.
This "masterplan mile" consists of three interconnected megaresorts on 230
acres, including our newest property, Mandalay Bay. We operate 16 properties
with more than 27,000 guest rooms and more than one million square feet of
casino space in Nevada, Mississippi, Illinois and Michigan. Of these properties,
12 are wholly owned and have more than 22,400 guest rooms and more than 800,000
square feet of casino space. In addition, we own a 50% interest in each of three
joint venture casino properties with approximately 4,700 guest rooms and more
than 200,000 square feet of casino space and a 53.5% interest in a fourth joint
venture casino with approximately 75,000 square feet of casino space.
We have provided below information as of January 31, 2000 about our
properties that we wholly own and operate, except as otherwise indicated.
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APPROXIMATE
GUEST CASINO SQUARE GAMING PARKING
LOCATION/PROPERTY ROOMS FOOTAGE SLOTS(1) TABLES(2) SPACES
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LAS VEGAS, NEVADA
Mandalay Bay(3)............................. 3,700 135,000 2,287 130 7,000
Luxor....................................... 4,404 120,000 2,031 107 3,200
Excalibur................................... 4,008 110,000 2,436 80 4,000
Circus Circus............................... 3,744 109,000 2,249 79 4,700
Monte Carlo (50% Owned)..................... 3,002 90,000 2,073 72 4,000
Slots-A-Fun................................. -- 16,700 526 27 --
RENO, NEVADA
Circus Circus............................... 1,572 60,000 1,724 73 3,000
Silver Legacy (50% Owned)................... 1,711 85,000 2,186 79 1,800
LAUGHLIN, NEVADA
Colorado Belle.............................. 1,226 64,000 1,269 41 1,700
Edgewater................................... 1,450 44,000 1,315 37 2,300
JEAN, NEVADA
Gold Strike................................. 812 37,000 1,020 20 2,100
Nevada Landing.............................. 303 36,000 1,020 21 1,400
HENDERSON, NEVADA
Railroad Pass............................... 120 21,000 368 9 600
TUNICA COUNTY, MISSISSIPPI
Gold Strike................................. 1,066 48,000 1,482 50 1,400
DETROIT, MICHIGAN
MotorCity Casino (53.5% Owned)(4)........... -- 75,000 2,600 136 3,450
ELGIN, ILLINOIS
Grand Victoria (50% Owned).................. -- 36,000 994 53 2,000
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Total......................................... 27,118 1,086,700 25,580 1,014 42,650
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(1) Includes slot machines and other coin-operated devices.
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(2) Generally includes blackjack ("21"), craps, pai gow poker, Caribbean stud
poker, wheel of fortune and roulette. Mandalay Bay also offers baccarat.
(3) This property, which opened March 2, 1999, includes a Four Seasons Hotel
with 424 guest rooms that we own and Four Seasons Hotels Limited manages.
(4) This property, which opened December 14, 1999, is being operated pending the
construction of a permanent hotel-casino facility.
NEW PROPERTIES
Mandalay Bay, our newest megaresort, opened on March 2, 1999. The 43-story
South Seas themed hotel-casino resort is located on approximately 60 acres on
the Las Vegas Strip, adjacent to our Luxor and Excalibur properties. Within
Mandalay Bay is a Four Seasons Hotel with 424 guest rooms that provides visitors
with the only luxury "five-diamond" hospitality experience in Las Vegas. The
Four Seasons brand name has allowed us to successfully target premium customers
who are willing to spend more money for a total resort experience. Mandalay
Bay's attractions include an 11-acre tropical lagoon featuring a sand-and-surf
beach and a three-quarter-mile lazy river ride. The property also features 13
restaurants as well as a House of Blues nightclub and restaurant, including its
signature Foundation Room on the resort's top floor. Additional amenities
include a 125,000-square-foot convention facility and a 30,000-square-foot spa.
The property offers multiple entertainment venues that include a 1,700-seat
showroom, the rumjungle nightclub and a 12,000-seat special events arena that
features additional entertainment and sporting events.
Mandalay Bay is the centerpiece of our 230-acre development that we refer to
as our masterplan mile. Mandalay Bay and our other masterplan mile resorts,
Luxor and Excalibur, function as a cluster of interconnected entertainment
destinations with more than 12,000 guest rooms and more than 360,000 square feet
of casino space that have no similarly scaled competition in the United States.
Our masterplan mile, with its approximately one mile of frontage on the Las
Vegas Strip, is a "Strip within the Strip" that offers our guests three
distinctively themed hotel-casinos, complemented by an array of restaurants,
shops and entertainment venues catering to a broad spectrum of Las Vegas
visitors. Mandalay Bay, Luxor and Excalibur are connected by a monorail system
as well as a climate-controlled skyway system. We are also constructing an
aquarium exhibit, the Shark Reef at Mandalay Bay, which is expected to open in
the summer of 2000 and will be cross-marketed to guests at all of the
hotel-casinos within our masterplan mile.
On December 14, 1999, along with our joint venture partner, Atwater Casino
Group, we opened MotorCity Casino, a temporary casino facility in Detroit,
Michigan, which is being operated pending the construction of a permanent
hotel-casino. We currently plan to build a $600 million hotel-casino. We are
committed to contribute 20% of the development costs in the form of equity and
we plan to fund the balance through project-specific debt financing. We chose to
participate in this project due to Detroit's strong demographics and limited
competition and to further diversify our cash flow stream.
PROPERTY DESCRIPTIONS
We are providing below, additional information concerning each of our
markets and our properties within those markets.
LAS VEGAS, NEVADA
Las Vegas has seen positive market trends in 1999, driven by the opening of
four new megaresorts on the Las Vegas Strip, including Mandalay Bay. In 1999,
Las Vegas' visitor volume increased by 10.5% to 33.8 million visitors, average
occupancy increased to 88.0% from 85.8%, and total gaming revenue increased by
14.2% to $5.7 billion in the Las Vegas market.
MANDALAY BAY. This property, which opened March 2, 1999, is the first major
resort on the Las Vegas Strip to greet visitors arriving in Las Vegas on I-15,
the primary thoroughfare between Las Vegas and southern California. The 43-story
South Seas themed hotel-casino resort has approximately 3,700 guest
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rooms (including the 424-room Four Seasons at Mandalay Bay) and a
135,000-square-foot casino which, as of January 31, 2000, featured 2,287 slot
machines and 130 table games. Mandalay Bay's attractions include an 11-acre
tropical lagoon featuring a sand-and-surf beach and a three-quarter-mile lazy
river ride. The property features 13 restaurants, such as Charlie Palmer's
Aureole, Wolfgang Puck's Trattoria Del Lupo, China Grill, rumjungle, Red Square
and Border Grill, as well as a House of Blues nightclub and restaurant,
including its signature Foundation Room (situated on Mandalay Bay's top floor).
Additional features include a 125,000-square-foot convention facility and a
30,000-square-foot spa. Mandalay Bay offers multiple entertainment venues that
include a 1,700-seat showroom, the rumjungle nightclub, and a 12,000-seat
special events arena that features additional entertainment and sporting events.
Mandalay Bay was designed to attract a higher income customer than we have
historically targeted.
LUXOR. This property is an Egyptian-themed hotel and casino complex
situated on 64 acres of our masterplan mile, between Mandalay Bay and Excalibur.
The resort features a 30-story pyramid and two 22-story hotel towers. In total,
the property has 4,404 guest rooms. The resort has a 120,000-square-foot casino
which, as of January 31, 2000, featured 2,031 slot machines and 107 table games.
Luxor offers 20,000 square feet of convention space, a 20,000-square-foot spa, a
1,200-seat showroom that features the off-Broadway show "Blue Man Group" which
opened in March 2000, a nightclub, and food and entertainment venues on three
different levels beneath a soaring hotel atrium. The pyramid's 2,454 guest rooms
can be reached from the four corners of the building by state-of-the-art
"inclinators" which travel at a 39-degree angle. Above the pyramid's casino, the
property offers a special format motion base ride and an IMAX 2D/3D theater.
Luxor's other public areas include a buffet with a seating capacity of
approximately 800, seven restaurants including three gourmet restaurants, as
well as a snack bar, a food court featuring national fast food franchises,
several cocktail lounges and a variety of specialty shops.
EXCALIBUR. This property is a castle-themed hotel and casino complex
situated on a 53-acre site immediately to the north of Luxor. Excalibur has
4,008 hotel rooms and a 110,000-square-foot casino which, as of January 31,
2000, featured 2,436 slot machines and 80 table games. Excalibur's other public
areas include a Renaissance fair, a medieval village, an amphitheater with a
seating capacity of nearly 1,000 where nightly mock jousting tournaments and
costume drama are presented, two dynamic motion theaters, various artisans'
booths and medieval games of skill. In addition, Excalibur has a buffet
restaurant with a seating capacity of approximately 1,300, seven themed
restaurants, as well as several snack bars, cocktail lounges and a variety of
specialty shops.
CIRCUS CIRCUS-LAS VEGAS. This property, which is our original resort, is a
circus-themed hotel and casino complex situated on approximately 69 acres on the
north end of the Las Vegas Strip. The property features 3,744 guest rooms and a
109,000-square-foot casino which, as of January 31, 2000, featured 2,249 slot
machines and 79 table games. From a "Big Top" above the casino, Circus
Circus-Las Vegas offers its guests a variety of circus acts performed daily,
free of charge. A mezzanine area overlooking the casino has a circus midway with
carnival-style games and an arcade that offers a variety of amusements and
electronic games. Three specialty restaurants, a buffet with a seating capacity
of approximately 1,200, two coffee shops, three fast food snack bars, several
cocktail bars and a variety of gift shops and specialty shops are also available
to the guests at Circus Circus-Las Vegas. The Adventuredome, covering
approximately five acres, offers theme park entertainment that includes a
high-speed, double-loop, double-corkscrew roller coaster, a coursing river flume
ride on white-water rapids, an IMAX motion base ride, several rides and
attractions designed for preschool age children, themed carnival-style midway
games, a state-of-the-art arcade, a 65-foot waterfall, animated life-size
dinosaurs, food kiosks and souvenir shops, all in a climate-controlled setting
under a giant space-frame dome. Circus Circus-Las Vegas also offers
accommodations for approximately 384 recreational vehicles at the property's
Circusland Recreational Vehicle Park.
MONTE CARLO (50% OWNED). Through a wholly owned entity, we are a 50%
participant with a subsidiary of Mirage Resorts, Incorporated in a joint venture
which owns and operates Monte Carlo, a hotel and casino resort situated on 46
acres with approximately 600 feet of frontage on the Las Vegas Strip. The
property is situated between Bellagio, a 3,000-room resort owned and operated by
Mirage Resorts and
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connected to Monte Carlo by a monorail, and New York-New York, a 2,000-room
hotel-casino resort owned by MGM Grand, Inc. which has announced plans to
acquire Mirage Resorts. Monte Carlo's casino reflects a palatial style
reminiscent of the BELLE EPOQUE, the French Victorian architecture of the late
19th century. Monte Carlo features 3,002 guest rooms and a 90,000-square-foot
casino which, as of January 31, 2000, featured 2,073 slot machines and 72 table
games. Amenities at Monte Carlo include three specialty restaurants, a buffet, a
coffee shop, a food court, a microbrewery which features live entertainment,
approximately 15,000 square feet of meeting and banquet space and tennis courts.
A 1,200-seat replica of a plush vaudeville theater, including a balcony and
proscenium arch, features an elaborately staged show of illusions with the
world-renowned magician, Lance Burton.
RENO, NEVADA
Reno is located near the California-Nevada state line. The Reno market
caters to locals of the Lake Tahoe-Reno area and tourists primarily from
northern California. In 1999, Reno's total gaming revenue increased 4.1% to
$807.5 million.
CIRCUS CIRCUS-RENO. This property is a circus-themed hotel and casino
complex situated in downtown Reno, Nevada. The property features 1,572 guest
rooms and a 60,000-square-foot casino which, as of January 31, 2000, featured
1,724 slot machines and 73 table games. Like its sister property in Las Vegas,
Circus Circus-Reno offers its guests a variety of circus acts performed daily,
free of charge. A mezzanine area has a circus midway with carnival-style games
and an arcade that offers a variety of amusements and electronic games. The
property also has two specialty restaurants, a buffet with a seating capacity of
approximately 450, a coffee shop, a deli/bakery, a fast food snack bar, cocktail
lounges, a gift shop and specialty shops.
SILVER LEGACY (50% OWNED). Through a wholly owned subsidiary, we are a 50%
participant with Eldorado Limited Liability Company in a joint venture which
owns and operates Silver Legacy, a hotel-casino and entertainment complex
situated on two city blocks in downtown Reno, Nevada. The property is located
between Circus Circus-Reno and the Eldorado Hotel & Casino, which is owned and
operated by an affiliate of our joint venture partner at Silver Legacy. Silver
Legacy's casino and entertainment complex is connected at the mezzanine level
with Circus Circus-Reno and the Eldorado by enclosed climate-controlled skyways
above the streets between the respective properties. The property's exterior is
themed to evoke images of historical Reno. At the main pedestrian entrances to
the casino (located on all four sides of the complex), patrons enter by passing
store fronts reminiscent of turn-of-the-century Reno. Silver Legacy's casino
offers 85,000 square feet of casino space which, as of January 31, 2000,
featured 2,186 slot machines and 79 table games. The hotel offers 1,711 guest
rooms. Silver Legacy's attractions include a 120-foot tall mining rig, which is
situated over a replica of a silver mine and extends up from the center of the
casino floor into a 180-foot diameter dome structure. Silver Legacy also
features four restaurants and several bars, a 25,000-square-foot special events
center, custom retail shops, a health spa and an outdoor pool and sun deck.
LAUGHLIN, NEVADA
Laughlin is situated on the Colorado River at the southern tip of Nevada
approximately 90 miles south of Las Vegas. This market generates revenues
primarily from southern California and Arizona residents who visit Laughlin for
vacation or gambling. Typically, approximately 20% of people who visit Laughlin
are first-time visitors, while 80% are repeat visitors. This market caters to a
more mature population. Currently, this market has ten hotel-casinos with a
total room capacity of 10,912. Between our two Laughlin properties, we have
approximately 25% of the total rooms in the Laughlin market. In 1999, Laughlin's
total gaming revenue increased 8.3% to $532.0 million.
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COLORADO BELLE. This property is situated on a 22-acre site on the bank of
the Colorado River (with nearly 1,080 feet of river frontage) in Laughlin,
Nevada. Colorado Belle, which features a 600-foot replica of a Mississippi
riverboat, includes a 1,226-room hotel and a 64,000-square-foot casino which, as
of January 31, 2000, featured 1,269 slot machines and 41 table games. The
property also includes a 350-seat buffet, a coffee shop, three specialty
restaurants, a microbrewery, fast food snack bars and cocktail lounges, as well
as a gift shop and other specialty shops.
EDGEWATER. This property is situated on a 16-acre site adjacent to Colorado
Belle with nearly 1,640 feet of frontage on the Colorado River. The property has
1,450 guest rooms and a 44,000-square-foot casino which, as of January 31, 2000,
featured 1,315 slot machines and 37 table games. Edgewater's facilities include
a specialty restaurant, a coffee shop, a 735-seat buffet, a snack bar and
cocktail lounges.
JEAN, NEVADA
Jean is located between Las Vegas and southern California, approximately 25
miles south of Las Vegas and 12 miles north of the California-Nevada state line.
The principal highway between Las Vegas and southern California is Interstate-15
which passes directly through Jean, hence, Jean attracts gaming customers almost
entirely from the large number of people traveling between Las Vegas and
southern California.
GOLD STRIKE-JEAN. This property is an "Old West" themed hotel-casino
located on approximately 51 acres of land on the east side of Interstate-15. The
property has 812 guest rooms and a 37,000-square-foot casino which, as of
January 31, 2000, featured 1,020 slot machines and 20 table games. Gold Strike
also includes, among other amenities, a swimming pool and spa, several
restaurants, a banquet center equipped to serve 260 people, a gift shop and an
arcade. The casino has a stage bar with regularly scheduled live entertainment
and a casino bar.
NEVADA LANDING. This property is a turn-of-the-century riverboat themed
hotel-casino located on approximately 55 acres of land across Interstate-15 from
Gold Strike. The property has 303 guest rooms and a 36,000-square-foot casino
which, as of January 31, 2000, featured 1,020 slot machines and 21 table games.
Nevada Landing includes a 72-seat Chinese restaurant, a full-service coffee
shop, a buffet with a seating capacity of 140, a snack bar, a gift shop, a
swimming pool and spa and a 300-guest banquet facility.
HENDERSON, NEVADA
RAILROAD PASS. This property is situated on approximately 56 acres along
US-93, the direct route between Las Vegas and Phoenix, Arizona. The property has
120 guest rooms and a 21,000-square-foot casino which, as of January 31, 2000,
featured 368 slot machines and nine table games. Railroad Pass includes, among
other amenities, two full-service restaurants, a buffet, gift shop, two bars,
swimming pool and a banquet facility that will accommodate approximately 200
guests. In contrast with our other Nevada properties, Railroad Pass caters to
local residents, particularly from Henderson, who may prefer the informal,
friendly atmosphere and easy access of Railroad Pass over the casinos on the Las
Vegas Strip.
TUNICA COUNTY, MISSISSIPPI
Tunica County is located 20 miles south of Memphis, Tennessee on the
Mississippi River. Tunica County attracts customers from Mississippi and
surrounding states, including cities such as Memphis, Tennessee and Little Rock,
Arkansas.
GOLD STRIKE-TUNICA. This property is a dockside casino situated on a
24-acre site along the Mississippi River in Tunica County, approximately three
miles west of Mississippi State Highway 61 (a major north/ south highway
connecting Memphis with Tunica County) and 20 miles south of Memphis. The
property includes a 1,066-guest-room, 31-story hotel tower which was completed
and placed in service during late 1997 and early 1998. The facilities at Gold
Strike-Tunica include a 48,000-square-foot casino which, as of
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January 31, 2000, featured approximately 1,482 slot machines and 50 table games.
The property also features a 800-seat showroom, a coffee shop, a specialty
restaurant, a 500-seat buffet, a snack bar and several cocktail lounges. Gold
Strike-Tunica is part of a three-casino development covering approximately 72
acres. The other two casinos are owned and operated by unaffiliated third
parties. We also own an undivided one-half interest in an additional 388 acres
of land which may be used for future development.
DETROIT, MICHIGAN
MOTORCITY CASINO (53.5% OWNED). On December 14, 1999, along with our joint
venture partner, Atwater Casino Group, we opened MotorCity Casino, a temporary
casino facility in Detroit, Michigan, which is being operated pending the
construction of a permanent hotel-casino. The temporary casino includes
approximately 75,000-square-foot casino which, as of January 31, 2000, featured
approximately 2,600 slot machines and 136 table games. The property also
features plus five restaurants and a 3,450-space parking facility. We currently
plan to build a $600 million hotel-casino. We are committed to contribute 20% of
the development costs in the form of equity and we plan to fund the balance
through project-specific debt financing. We chose to participate in this project
due to Detroit's strong demographics and limited competition and to further
diversify our cash flow stream.
The development agreement for Detroit provides that Mandalay will guarantee
completion of the project and will enter into a keep-well guarantee with the
city, pursuant to which we could be required to contribute additional funds, if
and as needed, to continue operation of the permanent facility for a period of
two years. When the permanent facility is completed and opened, we will manage
the property and will receive a management fee for our services from the Detroit
Joint Venture.
The ability to construct, open and operate the planned permanent facility is
contingent upon the receipt of all necessary gaming approvals and satisfaction
of other conditions. See "Regulation and Licensing--Michigan Gaming Laws."
Our ability to own or operate a gaming facility in Detroit, Michigan is
subject to certain outstanding litigation. See "Detroit Litigation" in Item 3 of
this report.
ELGIN, ILLINOIS
GRAND VICTORIA (50% OWNED). Through a wholly owned subsidiary, we are a 50%
participant with an affiliate of Hyatt Development Corporation in a joint
venture which owns and operates Grand Victoria. Grand Victoria is a Victorian
themed riverboat casino and land-based entertainment complex in Elgin, Illinois,
a suburb approximately 40 miles northwest of downtown Chicago. The two-story
vessel is 420 feet in length and 110 feet in width, and provides a maximum
80,000 square feet of casino space, approximately 36,000 square feet of which
was being used as of January 31, 2000. As of that date, the casino offered 994
slot machines and 53 gaming tables. After gaming legislation was passed earlier
this year, the boat now offers dockside gaming, which means its operation is no
longer restricted by fixed cruising schedules. The property also features a
dockside complex that contains an approximately 83,000-square-foot pavilion with
an approximately 400-seat buffet, a 76-seat fine dining restaurant, a VIP
lounge, two movie theaters and a gift shop. Grand Victoria is strategically
located in Elgin among the residential suburbs of Chicago, with nearby freeway
access and direct train service from downtown Chicago. Grand Victoria is located
approximately 20 miles and 40 miles, respectively, from its nearest competitors
in Aurora, Illinois and Joliet, Illinois, and holds one of only nine riverboat
gaming licenses currently granted state-wide. Recently passed legislation in
Illinois would allow a casino in Rosemont, approximately 16 miles from Grand
Victoria. The legislation is being challenged in court. Repeal of this
legislation would also repeal dockside gaming.
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MARKETING
We have historically followed a marketing and operating philosophy which has
emphasized high-volume business by providing moderately priced hotel rooms, food
and beverage and alternative entertainment in combination with our gaming
operations. Recently at our properties, such as Mandalay Bay, and to a lesser
extent Luxor, we have begun to serve higher income casino customers and to host
conventions. Our philosophy remains one of providing the best value in each of
the market segments where we compete.
MANDALAY BAY. Mandalay Bay, which opened March 2, 1999, contributed 22% of
our revenues in the year ended January 31, 2000. This property offers a level of
entertainment and hotel accommodations which is designed to draw a higher-income
customer than we have historically targeted. Designed with a South Seas theme,
Mandalay Bay offers its guests internationally renowned restaurants which
provide guests a wide variety of dining options. Mandalay Bay's entertainment
attractions include an 11-acre lagoon with a surfing beach and a lazy river
ride, a House of Blues, rumjungle, a 1,700-seat showroom and a special events
arena where brand-name entertainment and sporting events are offered. In
addition, Mandalay Bay's 125,000-square-foot convention facility marks our entry
into competition for the convention and meeting segment of visitors to Las
Vegas.
LUXOR. Luxor contributed 17% of our revenues in the year ended January 31,
2000 (and 24% and 23%, respectively, in the years ended January 31, 1999 and
1998). This property offers a level of entertainment and hotel accommodations
which is designed to attract the top segment of the middle-income stratum of
customers. Designed with an Egyptian theme and highly decorated rooms, Luxor's
30-story pyramid offers its guests a tri-level entertainment area, including an
IMAX theater, dynamic motion rides, a popular nightclub and theatrical revues.
We completed an expansion program at Luxor in 1997 which added 1,950 new hotel
rooms, a new spa, 20,000 square feet of convention space, a 1,200-seat showroom
that features "Blue Man Group," which opened in March 2000, and a nightclub.
EXCALIBUR. Excalibur contributed 14% of our revenues in the year ended
January 31, 2000 (and 19% and 21%, respectively, in the years ended January 31,
1999 and 1998). This property attracts customers by offering guest rooms, food
and entertainment at medium prices. By way of entertainment, the medieval
castle-themed Excalibur offers a medieval village, an amphitheater where mock
tournaments and costume drama are presented, dynamic motion theaters, various
artisans' booths and medieval games of skill.
CIRCUS CIRCUS-LAS VEGAS AND CIRCUS CIRCUS-RENO. Circus Circus-Las Vegas and
Circus Circus-Reno together contributed 18% of our revenues in the year ended
January 31, 2000 (and 24% and 25%, respectively, in the years ended January 31,
1999 and 1998). Each of these properties has a popular buffet, attractive
because of its variety, quality and low price. From a "Big Top" above the
casino, each of these properties offers a variety of circus acts performed free
of charge to the public on a daily basis. A mezzanine area overlooking each
casino has a circus midway with carnival-style games and an arcade that offers a
variety of amusements and electronic games. The Adventuredome, an enclosed and
climate-controlled five-acre structure, offers additional theme park attractions
at Circus Circus-Las Vegas.
COLORADO BELLE AND EDGEWATER. The Colorado Belle and Edgewater together
contributed 8% of our revenues in the year ended January 31, 2000 (and 11% and
12%, respectively, in the years ended January 31, 1999 and 1998). These
properties offer quality rooms, food and entertainment at moderate prices. The
Colorado Belle offers a classic Mississippi riverboat theme, complete with a
60-foot paddle wheel. The Edgewater's southwestern motif provides a relaxing
atmosphere to enjoy that property's casino and other facilities. Connected by a
scenic walkway, the two resorts form an inviting shoreline along the Colorado
River.
GOLD STRIKE AND NEVADA LANDING. Gold Strike and Nevada Landing together
contributed 4% of our revenues in the year ended January 31, 2000 (and 5% and
6%, respectively, in the years ended January 31,
7
<PAGE>
1999 and 1998). These properties are located on opposite sides of I-15, the
primary thoroughfare between Las Vegas and southern California, approximately 25
miles south of Las Vegas and 12 miles north of the California-Nevada border. The
properties are conveniently located at the only highway interchange within 12
miles in either direction and are strategically positioned to attract visitors
from the large number of people traveling to and from Las Vegas.
GOLD STRIKE-TUNICA. Gold Strike-Tunica contributed 6% of our revenues in
the year ended January 31, 2000 (and 7% and 4%, respectively, in the years ended
January 31, 1999 and 1998). Gold Strike-Tunica, which is our first wholly owned
casino outside of Nevada, is part of an integrated three casino development
(Casino Center) that provides patrons with the opportunity to visit any of the
three casinos without driving, an unique experience in the Tunica County market.
In the first quarter of 1998, we completed the opening of a 31-story hotel tower
with 1,066 guest rooms at Gold Strike-Tunica, which previously had no hotel
rooms. This property's original Circus-themed casino and other facilities were
also remodeled and rethemed into a more elegant resort.
We maintain an active media advertising program through radio, television,
billboards and printed publications primarily in Nevada, California and Arizona
for our Nevada properties and in the Memphis area for our Gold Strike-Tunica
property. In addition, we advertise on and allow patrons to make room
reservations via the Internet, where we believe we are in the forefront of our
competition. We also offer complimentary hotel accommodations, meals and drinks
to selected customers.
OPERATIONS AND COST CONTROLS
The primary source of our revenues is casinos, although our hotels,
restaurants, bars, shops, midway games and other entertainment attractions and
other services are an important adjunct to the casinos.
The following table sets forth the contribution to our net revenues on a
dollar and percentage basis of our major activities for each of our three most
recent fiscal years.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2000 1999 1998
--------------------- --------------------- ---------------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues: (1)
Casino(2).......................... $ 951,492 46.4% $ 709,909 48.0% $ 632,122 46.7%
Rooms(3)........................... 534,132 26.0% 355,635 24.0% 330,644 24.4%
Food and beverage(3)............... 346,647 16.9% 246,622 16.7% 215,584 15.9%
Other(3)........................... 251,509 12.3% 170,701 11.5% 142,407 10.5%
Earnings of unconsolidated
affiliates....................... 98,627 4.8% 83,967 5.7% 98,977 7.3%
---------- ----- ---------- ----- ---------- -----
2,182,407 106.4% 1,566,834 105.9% 1,419,734 104.8%
Less:
Complimentary allowances(3)........ 131,509 6.4% 87,054 5.9% 65,247 4.8%
---------- ----- ---------- ----- ---------- -----
Net revenues......................... $2,050,898 100.0% $1,479,780 100.0% $1,354,487 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
- ------------------------
(1) Includes operations of Silver City to October 31, 1999, operations of
Mandalay Bay from March 2, 1999 and MotorCity Casino from December 14, 1999.
(2) Casino revenues are the net difference between the sums received as winnings
and the sums paid as losses.
(3) Rooms, Food and beverage and Other include the retail value of services
which are provided to casino customers and others on a complimentary basis.
Such amounts are then deducted as complimentary allowances to arrive at net
revenue.
8
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We maintain stringent cost controls which historically have been exemplified
by a general policy of offering minimal credit to gaming customers at our
properties. During fiscal 1998, Luxor began to extend credit to gaming customers
on a selective basis in an effort to appeal to a broader segment of the gaming
market. We have also brought this policy to our operations at Mandalay Bay. As a
result, while our other properties continue to offer minimal credit, credit play
now represents a more significant portion of the volume of table games play at
Mandalay Bay, and to a lesser extent, Luxor.
We maintain strict controls over the issuance of credit and aggressively
pursue collection of customer debts. These collection efforts are similar to
those used by most large corporations, including the mailing of statements and
delinquency notices, personal and other contacts, the use of outside collection
agencies and civil litigation. Nevada gaming debts evidenced by written credit
instruments are enforceable under the laws of Nevada. All other states are
required to enforce a judgment on a gaming debt entered in Nevada pursuant to
the Full Faith and Credit Clause of the United States Constitution. Gaming debts
are not legally enforceable in some foreign countries, but the United States
assets of foreign debtors may be reached to satisfy judgments entered in the
United States. While the portion of our accounts receivable that is owed by
foreigners is not currently material, to the extent we hold obligations of
foreign debtors, the collectibility of those debts may be affected by a number
of factors, including changes in currency exchange rates and economic conditions
in the customers' home countries.
Our current operations at each of our casinos are conducted 24 hours a day,
every day of the year, with the exception of Grand Victoria which operates
22 hours a day, every day of the year. We do not consider our business to be
highly seasonal, although our operating income is typically somewhat lower in
the fourth quarter, affected by slower travel leading up to the holiday period.
We emphasize courteous and prompt service to our customers and aspire to a high
standard of excellence in all of our operations.
In connection with our gaming activities, we follow a policy of stringent
controls and cross checks on the recording of all receipts and disbursements.
The audit and cash controls we have developed and utilize include the following:
- locked cash boxes;
- independent counters;
- checkers and observers to perform the daily cash and coin counts;
- floor observation of the gaming areas;
- closed-circuit television observation of certain areas;
- computer tabulation of receipts and disbursements for each of our slot
machines, tables and other games; and
- the rapid analysis and resolution of discrepancies or deviations from
normal performance.
FUTURE EXPANSION ACTIVITIES
Consistent with past practice and the longstanding policy of making
substantial investments in our gaming business at regular intervals, we continue
to actively pursue new projects, either by development or acquisition. New
investments may involve the expansion of existing facilities or the development
of new properties. Projects may be undertaken in Nevada, where all but one of
our wholly owned operating properties are currently located, or in other
jurisdictions within the United States or abroad where gaming has been
legalized. Our new investments may be in properties that are wholly owned and
operated by us, or may be in properties that are developed, owned and/or
operated through joint ventures with one or more other parties.
9
<PAGE>
MASTERPLAN MILE. Our masterplan mile, which is the site of our most
recently-completed resort, Mandalay Bay, as well as our Luxor and Excalibur
properties, includes approximately 60 acres of land which is yet to be
developed. The long-term plan for completion of our masterplan mile presently
includes as many as two additional resorts and additional entertainment
facilities. At this time, we have not determined the timing, scope or design of
any future development on our masterplan mile.
MISSISSIPPI GULF COAST. We have announced that we plan to develop a
hotel-casino resort on the Mississippi Gulf Coast at the north end of the Bay of
St. Louis, near the DeLisle exit on Interstate 10. It is currently anticipated
that the resort will include as many as 1,500 hotel rooms and require an
investment of approximately $225 million. We have received all necessary
approvals to commence development. However, these approvals have been challenged
in federal court, and we anticipate that we will not commence the design and
construction of this resort until there is a satisfactory resolution of all
legal actions. As presently contemplated, we will own 90% of the resort and a
partner will contribute the land in exchange for the remaining 10% interest.
DETROIT, MICHIGAN. For information concerning the planned construction of a
hotel-casino in downtown Detroit, Michigan, see "Property Descriptions--Detroit,
Michigan."
CONSTRUCTION RISKS. Any major construction project that we, or any joint
venture in which we own an interest, may undertake will involve many risks,
including potential shortages of materials and labor, work stoppages, labor
disputes, weather interference, unforeseen engineering, environmental or
geological problems and unanticipated cost increases, any of which could give
rise to delays or cost overruns. Construction, equipment or staffing
requirements or problems or difficulties in obtaining any of the requisite
licenses, permits, allocations or authorizations from regulatory authorities
could increase the cost or delay the construction or opening of the facilities
or otherwise affect the planned design and features. It is possible that any
budget and construction plans developed for a project may be changed for
competitive or other reasons. In addition, construction by our Detroit joint
venture of a proposed hotel-casino in downtown Detroit, Michigan is dependent on
the acquisition of the proposed permanent site and the satisfactory resolution
of pending litigation. See "Detroit Litigation" in Item 3 of this report.
Accordingly, there can be no assurance as to the commencement or successful
completion of any projects that we, or any joint venture in which we are a
participant, may undertake, including the one contemplated by the Detroit joint
venture.
COMPETITION
The hotel and casino industry is very competitive. Our hotel-casino
operations in Las Vegas, which are conducted primarily from properties located
along the Las Vegas Strip, currently compete with numerous other major
hotel-casinos and a number of smaller casinos located on or near the Las Vegas
Strip. Our Las Vegas operations also compete with casinos located in downtown
Las Vegas, in Las Vegas' suburban areas and, to a lesser extent, with casino and
hotel properties in other parts of Nevada, including Laughlin, Reno and along
I-15 (the principal highway between Las Vegas and southern California) near the
California-Nevada state line. Las Vegas casinos, including our own, also compete
with Native American casinos in southern California (the principal source of
business for Las Vegas casinos including our own) and central Arizona and, to a
lesser extent with casinos in other parts of the country.
Casino and guest room capacity has increased significantly in the Las Vegas
market. During the period from October 1998 through September 1999, four major
hotel-casino resorts, including our own Mandalay Bay, opened on the Las Vegas
Strip. As a result of these openings, the number of guest rooms increased by
approximately 12,500, including the 3,700 at Mandalay Bay. While our Las Vegas
operations had previously benefitted from growth in hotel and casino capacity in
the Las Vegas market when we were a significant contributor to the new capacity,
the addition of 1,000 guest rooms at Circus Circus-Las Vegas and an additional
1,950 guest rooms at Luxor in 1997 did not initially contribute to visitor
growth. The impact on our operations of the added hotel and casino capacity
recently completed, and any additional
10
<PAGE>
capacity subsequently opened in Las Vegas, including another hotel-casino
currently under construction, will depend on the ability of the new properties,
including Mandalay Bay, to produce a significant and sustained increase in the
flow of visitors to the Las Vegas market.
Circus Circus-Reno competes with approximately 11 other major hotel-casinos,
including Silver Legacy, a hotel-casino complex with 1,711 guest rooms, which is
50% owned by one of our wholly owned subsidiaries. Circus Circus-Reno and Silver
Legacy also compete with numerous other smaller casinos in the greater Reno area
and, to a lesser extent, with casinos and hotels in Lake Tahoe and other parts
of Nevada and Native American casinos in northern California.
In Laughlin, the Colorado Belle and the Edgewater, which together accounted
for approximately 25% of the rooms in Laughlin as of January 31, 2000, compete
with eight other Laughlin casinos. They also compete with the hotel-casinos in
Las Vegas and those on I-15 (the principal highway between Las Vegas and
southern California) near the California-Nevada state line, as well as a growing
number of Native American casinos in Laughlin's regional market. The expansion
of hotel and casino capacity in Las Vegas in recent years and the growth of
Native American casinos in central Arizona and southern California have had a
negative impact on Laughlin area properties, including the Colorado Belle and
the Edgewater, by drawing visitors from the Laughlin market. This has, in turn,
resulted in increased competition among Laughlin properties for a reduced number
of visitors which contributes to generally lower revenues and profit margins at
Laughlin properties, including the Colorado Belle and the Edgewater.
Our Jean, Nevada properties, Gold Strike and Nevada Landing, are located on
I-15 (the principal highway between Las Vegas and southern California),
approximately 25 miles south of Las Vegas and 12 miles north of the
California-Nevada border. These properties attract their customers almost
entirely from the large number of people traveling between Las Vegas and
southern California. Accordingly, these properties compete with the large
concentration of hotel, casino and other entertainment options available in Las
Vegas as well as three hotel-casinos located at the California-Nevada border.
The growth of Native American casinos in southern California has also drawn
visitors from the Jean, Nevada market.
Gold Strike-Tunica competes with other casinos in Tunica County,
Mississippi, including a hotel-casino which is closer to Memphis, the largest
city in Tunica County's principal market, than any of the other facilities
currently in operation in Tunica County. Gold Strike-Tunica's hotel tower, which
has 1,066 guest rooms, was completed in early 1998 and provides this property
with the second largest number of guest rooms in the Tunica County market.
Grand Victoria is a 50% owned riverboat casino and land-based entertainment
complex in Elgin, Illinois, a suburb approximately 40 miles northwest of
downtown Chicago. Grand Victoria is one of nine licensed gaming riverboats
currently operating in Illinois and is located approximately 20 miles and 40
miles, respectively, from its nearest competitors in Aurora, Illinois and
Joliet, Illinois. Recently passed legislation in Illinois would allow a casino
in Rosemont, approximately 16 miles from Grand Victoria. This legislation is
being challenged in court.
Gaming has expanded dramatically in the United States in recent years. Forms
of gaming include:
- riverboats;
- dockside gaming facilities;
- Native American gaming ventures;
- land-based casinos;
- state-sponsored lotteries;
- off-track wagering;
- Internet gaming; and
- card parlors.
11
<PAGE>
Since 1990, when there were casinos in only three states (excluding casinos
on Native American lands), gaming has spread to a number of additional states.
In addition, other states are currently considering, or may in the future
consider, legalizing casino gaming in specific geographic areas within their
states. Many Native American tribes conduct casino gaming throughout the United
States. Other Native American tribes are either in the process of establishing
or are considering establishing gaming at additional locations, including sites
in California and Arizona. The competitive impact on Nevada gaming
establishments, in general, and our operations, in particular, from the
continued growth of gaming in jurisdictions outside Nevada cannot be determined
at this time. We believe that the expansion of casino gaming in markets close to
Nevada, such as California and Arizona, and the expansion of the types of gaming
permitted in California under the amendment to the California constitution
approved on March 7, 2000, could have an adverse impact on our operations and,
depending on the nature, location and extent of those operations outside of
Nevada, the impact could be material.
REGULATION AND LICENSING
Each of our casinos, including those owned and operated by the joint
ventures in which we participate, is subject to extensive regulation under laws,
rules and supervisory procedures primarily in the jurisdiction where located or
docked. Set forth below is a discussion of the applicable gaming laws and
regulations of each jurisdiction where gaming is conducted by us or by a joint
venture in which we participate.
NEVADA GAMING LAWS
The ownership and operation of casino gaming facilities in the State of
Nevada, such as the Nevada gaming facilities we and the joint ventures in which
we participate own and operate, are subject to the Nevada Gaming Control Act and
the regulations promulgated under this Act and various local regulations. Our
Nevada gaming operations and those of its Nevada joint ventures are subject to
the licensing and regulatory control of the Nevada Gaming Commission, the Nevada
State Gaming Control Board and, depending on the facility's location, the Clark
County Liquor and Gaming Licensing Board or the City of Reno, which we refer to
collectively as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things:
- the prevention of unsavory or unsuitable persons from having a direct or
indirect involvement with gaming at any time or in any capacity;
- the establishment and maintenance of responsible accounting practices and
procedures;
- the maintenance of effective controls over the financial practices of
licensees, including the establishment of minimum procedures for internal
fiscal affairs and the safeguarding of assets and revenues, providing
reliable record keeping and requiring the filing of periodic reports with
the Nevada Gaming Authorities;
- the prevention of cheating and fraudulent practices; and
- providing a source of state and local revenues through taxation and
licensing fees.
Changes in these laws, regulations and procedures could have an adverse
affect on our gaming operations.
Each of Mandalay's subsidiaries that currently operates a casino in Nevada
is required to be licensed by the Nevada Gaming Authorities. The gaming license
requires the periodic payment of fees and taxes and is not transferable.
Mandalay is required to be registered by the Nevada Gaming Commission as a
publicly traded corporation and as such, is required periodically to submit
detailed financial and operating reports to the Nevada Gaming Commission and
furnish any other information that the Nevada Gaming Commission may require. No
person may become a stockholder of, or receive any percentage of profits
12
<PAGE>
from, a licensed casino without first obtaining licenses and approvals from the
Nevada Gaming Authorities. We have obtained from the Nevada Gaming Authorities
the various registrations, findings of suitability, approvals, permits and
licenses required in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, Mandalay or any of its
licensed subsidiaries in order to determine whether the individual is suitable
or should be licensed as a business associate of a gaming licensee. Mandalay and
its licensed subsidiaries' officers, directors and key employees must file
applications with the Nevada Gaming Authorities and 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. An applicant for licensing or an applicant for a finding
of suitability must pay for 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 licensing, the Nevada Gaming Authorities have the 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 Mandalay or any licensed subsidiary, Mandalay and the licensed
subsidiary would have to sever all relationships with that person. In addition,
the Nevada Gaming Commission may require Mandalay or a licensed subsidiary to
terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or questions pertaining to licensing
are not subject to judicial review in Nevada.
Mandalay and all of its licensed subsidiaries are required to submit
detailed financial and operating reports to the Nevada Gaming Commission.
Substantially all of our or a licensed subsidiaries' material loans, leases,
sales of securities and similar financing transactions must be reported to, or
approved by, the Nevada Gaming Commission.
If the Nevada Gaming Commission determined that Mandalay or a licensed
subsidiary violated the Nevada Gaming Control Act, it could limit, condition,
suspend or revoke our gaming licenses. In addition, Mandalay, the licensed
subsidiary, and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Gaming Control Act at the discretion of
the Nevada Gaming Commission. Further, a supervisor could be appointed by the
Nevada Gaming Commission to operate a licensed subsidiary's gaming establishment
and, under specified circumstances, earnings generated during the supervisor's
appointment, except for the reasonable rental value of the premises, could be
forfeited to the State of Nevada. Limitation, conditioning or suspension of any
gaming license of a licensed subsidiary and the appointment of a supervisor
could, or revocation of any gaming license would, have a material adverse effect
on our gaming operations.
Any beneficial holder of our common stock, or any of our other voting
securities, regardless of the number of shares owned, may be required to file an
application, be investigated and have that person's suitability as a beneficial
holder of our voting securities determined if the Nevada Gaming Commission has
reason to believe that the ownership would otherwise be inconsistent with the
declared policies of the State of Nevada. The applicant must pay all costs of
the investigation incurred by the Nevada Gaming Authorities in conducting any
investigation.
The Nevada Gaming Control Act requires any person who acquires a beneficial
ownership of more than 5% of Mandalay's voting securities to report the
acquisition to the Nevada Gaming Commission. The Nevada Gaming Control Act
requires that beneficial owners of more than 10% of Mandalay's voting securities
apply to the Nevada Gaming Commission for a finding of suitability within thirty
days after the Chairman of the Nevada State Gaming Control Board mails the
written notice requiring such filing. An "institutional investor," as defined in
the Nevada Act, which acquires beneficial ownership of more than 10%, but not
more than 15%, of Mandalay's voting securities may apply to the Nevada Gaming
13
<PAGE>
Commission for a waiver of a finding of suitability if the institutional
investor holds Mandalay's voting securities for investment purposes only. An
institutional investor will be deemed to hold Mandalay's voting securities for
investment purposes if it acquired and holds Mandalay's voting securities 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 Mandalay's board of
directors;
- any change in Mandalay's corporate charter, bylaws, management, policies
or operations, or any of its gaming affiliates; or
- any other action which the Nevada Gaming Commission finds to be
inconsistent with holding Mandalay's voting securities for investment
purposes only.
Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes only include:
- voting on all matters voted on by stockholders;
- 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
- other activities as the Nevada Gaming Commission may determine to be
consistent with investment intent.
If the beneficial holder of Mandalay's voting securities who must be found
suitable is a corporation, partnership, limited partnership, limited liability
company or trust, it must submit detailed business and financial information
including a list of beneficial owners. The applicant is required to pay all
costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Gaming
Commission or by the Chairman of the Nevada State Gaming Control 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 Mandalay's voting securities beyond the period of time as may be prescribed
by the Nevada Gaming Commission may be guilty of a criminal offense. Mandalay
will be 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
it or a licensed subsidiary, it:
- pays that person any dividend or interest upon any of Mandalay's voting
securities;
- allows that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person;
- pays remuneration in any form to that person for services rendered or
otherwise; or
- fails to pursue all lawful efforts to require the unsuitable person to
relinquish the voting securities including, if necessary, the immediate
purchase of the voting securities for cash at fair market value.
Additionally, the Clark County Liquor and Gaming Licensing Board has the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming licensee.
The Nevada Gaming Commission may, in its discretion, require the holder of
any debt security of a registered publicly traded corporation, such as the
notes, to file applications, be investigated and be found suitable to own the
debt security of the registered corporation. If the Nevada Gaming Commission
determines that a person is unsuitable to own the security, then under the
Nevada Gaming Control Act, the registered publicly traded corporation can be
sanctioned, including the loss of its approvals, if without the prior approval
of the Nevada Gaming Commission, it:
- pays to the unsuitable person any dividend, interest or any distribution
whatsoever;
14
<PAGE>
- recognizes any voting right by the unsuitable person in connection with
the securities;
- pays the unsuitable person remuneration in any form; or
- makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar transaction.
Mandalay 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 the disclosure may be grounds for finding the record holder
unsuitable. Mandalay is also required to render maximum assistance in
determining the identity of the beneficial owner of any of our voting
securities. The Nevada Gaming Commission has the power to require our stock
certificates to bear a legend indicating that the securities are subject to the
Nevada Gaming Control Act. To date, the Nevada Gaming Commission has not imposed
that requirement on us.
Mandalay may not make a public offering of its securities without the prior
approval of the Nevada Gaming Commission if it intends to use the securities or
the proceeds from the offering to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for those
purposes or for similar transactions. On January 28, 1999, the Nevada Gaming
Commission granted Mandalay prior approval to make public offerings for a period
of two years, subject to some conditions, which we refer to as the "shelf
approval." The shelf approval also applies to any company that Mandalay wholly
owns which is a publicly traded corporation or would become a publicly traded
corporation pursuant to a public offering. The shelf approval also includes
approval for our registered and licensed subsidiaries to guarantee any security
issued by, and to hypothecate their assets to secure the payment or performance
of any obligations evidenced by a security issued by, Mandalay or an affiliate
in a public offering under the shelf registration. The shelf approval also
includes approval to place restrictions upon the transfer of and enter into
agreements not to encumber the equity securities of the licensed subsidiaries,
which we refer to as "stock restrictions." The shelf approval, however, may be
rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada State Gaming Control
Board. The shelf approval does not constitute a finding, recommendation or
approval of the Nevada Gaming Authorities as to the accuracy or adequacy of the
prospectus or other disclosure document by which securities are offered or the
investment merits of such securities.
Mandalay must obtain prior approval of the Nevada Gaming Commission with
respect to a change in control through:
- merger;
- consolidation;
- stock or asset acquisitions;
- management or consulting agreements; or
- any act or conduct by a person whereby the person obtains control of
Mandalay.
Entities seeking to acquire control of a registered publicly-traded
corporation must satisfy the Nevada State Gaming Control Board and Nevada Gaming
Commission in a variety of stringent standards before assuming control of the
registered corporation. The Nevada Gaming Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process
relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licenses, and registered publicly-traded corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Gaming Commission has established a
regulatory scheme
15
<PAGE>
to ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to:
- assure the financial stability of corporate gaming operators and their
affiliates;
- preserve the beneficial aspects of conducting business in the corporate
form; and
- promote a neutral environment for the orderly governance of corporate
affairs.
Approvals may be required from the Nevada Gaming Commission before Mandalay
can make exceptional repurchases of voting securities above their current market
price 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 our board of directors in response to a tender
offer made directly to its stockholders for the purpose of acquiring control of
Mandalay.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the licensed subsidiaries respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either:
- a percentage of the gross revenues received;
- the number of gaming devices operated; or
- 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 or serving of food or
refreshments or the selling of merchandise. Nevada corporate licensees that hold
a license as an operator of a slot machine route, or a manufacturer's or
distributor's license, also pay fees and taxes to the State of Nevada. The
licensed subsidiaries currently pay monthly fees to the Nevada Gaming Commission
equal to a maximum of 6.25% of gross revenues.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with those persons (collectively,
"licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada State Gaming Control Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation of the Nevada State Gaming Control Board of the
licensee's participation in such foreign gaming. The revolving fund is subject
to increase or decrease in the discretion of the Nevada Gaming Commission.
Thereafter, licensees are required to comply with the reporting requirements
imposed by the Nevada Gaming Control Act. A licensee is also subject to
disciplinary action by the Nevada Gaming Commission if it:
- knowingly violates any laws of the foreign jurisdiction pertaining to the
foreign gaming operation;
- fails to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations;
- engages in activities or enters into associations that are harmful to the
State of Nevada or its ability to collect gaming taxes and fees; or
- employs, contracts with or associates with a person in the foreign
operation who has been denied a license or finding of suitability in
Nevada on the ground of personal unsuitability.
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The sale of alcoholic beverages at establishments operated by a licensed
subsidiary is subject to licensing, control and regulation by applicable local
regulatory agencies. All licenses are revocable and are not transferable. The
agencies involved have full power to limit, condition, suspend or revoke any
license, and any disciplinary action could, and revocation would, have a
material adverse affect upon the operations of the licensed subsidiary.
MISSISSIPPI GAMING LAWS
Mandalay conducts its Mississippi gaming operations through a Mississippi
subsidiary, Circus Circus Mississippi, Inc. ("CCMI"), which owns and operates
the Gold Strike-Tunica casino in Tunica County, Mississippi. The ownership and
operation of casino facilities in Mississippi are subject to extensive state and
local regulation, but primarily the licensing and regulatory control of the
Mississippi Gaming Commission and the Mississippi State Tax Commission.
The Mississippi Gaming Control Act, which legalized dockside casino gaming
in Mississippi, was enacted on June 29, 1990. Although not identical, the
Mississippi Gaming Control Act is similar to the Nevada Gaming Control Act.
Effective October 29, 1991, the Mississippi Gaming Commission adopted
regulations in furtherance of the Mississippi Gaming Control Act (the
"regulations") which are also similar in many respects to the Nevada gaming
regulations.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Gaming Commission seek to:
- prevent unsavory or unsuitable persons from having any direct or indirect
involvement with gaming at any time or in any capacity;
- establish and maintain responsible accounting practices and procedures;
- maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs and
safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Gaming Commission;
- prevent cheating and fraudulent practices;
- provide a source of state and local revenues through taxation and
licensing fees; and
- ensure that gaming licensees, to the extent practicable, employ
Mississippi residents.
The regulations are subject to amendment and interpretation by the
Mississippi Gaming Commission. Changes in Mississippi law, the regulations
and/or interpretations of the Mississippi Gaming Control Act and the regulations
by the Mississippi Gaming Commission may limit or otherwise materially affect
the types of gaming that may be conducted and could have a material adverse
affect on Mandalay and CCMI's Mississippi gaming operations.
The Mississippi Gaming Control Act provides for legalized dockside gaming at
the discretion of the 14 counties that either border the Gulf Coast or the
Mississippi River, but only if the voters in these counties have not voted to
prohibit gaming in that county. As of March 1, 2000, dockside gaming was
permissible in nine of the 14 eligible counties in the state and gaming
operations had commenced in Adams, Coahoma, Hancock, Harrison, Tunica, Warren
and Washington counties. Under Mississippi law, gaming vessels must be located
on the Mississippi River or on navigable waters in eligible counties along the
Mississippi River, or in the waters of the State of Mississippi lying south of
the state in eligible counties along the Mississippi Gulf Coast. The law permits
unlimited stakes gaming on permanently moored vessels on a 24-hour basis and
does not restrict the percentage of space which may be utilized for gaming.
There are no limitations on the number of gaming licenses which may be issued in
Mississippi. The legal age for gaming in Mississippi is 21.
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Mandalay and its Mississippi licensee subsidiary CCMI are subject to the
licensing and regulatory control of the Mississippi Gaming Commission. Mandalay
is registered under the Mississippi Gaming Control Act as a publicly-traded
holding company of CCMI and is required periodically to submit detailed
financial, operating and other reports to the Mississippi Gaming Commission and
furnish any other information which the Mississippi Gaming Commission may
require. If we are unable to satisfy the registration requirements of the
Mississippi Gaming Control Act, Mandalay and CCMI cannot own or operate gaming
facilities in Mississippi. CCMI must maintain a gaming license from the
Mississippi Gaming Commission to operate a casino in Mississippi. The
Mississippi Gaming Commission issues the licenses. CCMI also is required
periodically to submit detailed financial, operating and other reports to the
Mississippi Gaming Commission and the Mississippi State Tax Commission and to
furnish any other information required thereby.
Gaming licenses are not transferable, are issued for a maximum term of three
years and must be renewed periodically thereafter. CCMI received its Mississippi
gaming license on August 18, 1994 and renewals on August 19, 1996 and
August 20, 1998. No person may become a stockholder of or receive any percentage
of profits from a licensed subsidiary of a holding company without first
obtaining licenses and approvals from the Mississippi Gaming Commission.
Certain of Mandalay's officers, directors and employees and the officers,
directors and key employees of CCMI who are actively and directly engaged in the
administration or supervision of gaming in Mississippi must be found suitable or
be licensed by the Mississippi Gaming Commission. Mandalay believes it and CCMI
have applied for all necessary findings of suitability with respect to these
persons, although the Mississippi Gaming 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 Mandalay
or CCMI may be required to be found suitable, in which case those persons must
pay the costs and fees associated with the investigation. A finding of
suitability requires submission of detailed personal financial information
followed by a thorough investigation. There can be no assurance that a person
who is subject to a finding of suitability will be found suitable by the
Mississippi Gaming Commission. The Mississippi Gaming Commission may deny an
application for a finding of suitability for any cause that it deems reasonable.
Findings of suitability must be periodically renewed.
Changes in certain licensed positions must be reported to the Mississippi
Gaming Commission. In addition to its authority to deny an application for a
finding of suitability, the Mississippi Gaming Commission has jurisdiction to
disapprove a change in a licensed position. The Mississippi Gaming Commission
has the power to require Mandalay and CCMI 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 their capacities.
Employees associated with gaming must obtain work permits that are subject
to immediate suspension. The Mississippi Gaming Commission will refuse to issue
a work permit to a person convicted of a felony and it may refuse to issue a
work permit to a gaming employee if the employee has committed various
misdemeanors or knowingly violated the Mississippi Gaming Control Act or for any
other reasonable cause.
At any time, the Mississippi Gaming Commission has the power to investigate
and require a finding of suitability of any of Mandalay's record or beneficial
stockholders, regardless of the percentage of ownership. Mississippi law
requires any person who acquires more than 5% of the common stock of a
publicly-traded corporation registered with the Mississippi Gaming Commission to
report the acquisition to the Mississippi Gaming Commission, and that person may
be required to be found suitable. Also, any person who becomes a beneficial
owner of more than 10% of the common stock of such a company, as reported to the
Mississippi Gaming Commission, must apply for a finding of suitability by the
Commission and must pay the costs and fees that the Mississippi Gaming
Commission incurs in conducting the investigation. The Mississippi Gaming
Commission has generally exercised its discretion to require a
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finding of suitability of any beneficial owner of more than 5% of a registered
public company's common stock. However, the Mississippi Gaming Commission has
adopted a policy that may permit institutional investors to own beneficially up
to 15% of a registered public company's common stock without a finding of
suitability. If a stockholder who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and financial information
including a list of beneficial owners. The Mississippi Gaming Commission may at
any time dissolve, suspend, condition, limit or restrict a finding of
suitability to own Mandalay's equity interests for any cause it deems
reasonable.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Mississippi Gaming
Commission may be found unsuitable. Any person found unsuitable and who holds,
directly or indirectly, any beneficial ownership of Mandalay's securities beyond
the time that the Mississippi Gaming Commission prescribes, may be guilty of a
misdemeanor. Mandalay is subject to disciplinary action if, after receiving
notice that a person is unsuitable to be a stockholder or to have any other
relationship with Mandalay or CCMI, Mandalay:
- pays the unsuitable person any dividend or other distribution upon its
voting securities;
- recognizes the exercise, directly or indirectly, of any voting rights
conferred by securities held by the unsuitable person;
- pays the unsuitable person any remuneration in any form for services
rendered or otherwise, except in limited and specific circumstances; or
- 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.
Mandalay may be required to disclose to the Mississippi Gaming Commission
upon request the identities of the holders of any debt or other securities. In
addition, under the Mississippi Gaming Control Act the Mississippi Gaming
Commission may, in its discretion:
- require holders of debt securities of registered corporations to file
applications;
- investigate the holders; and
- require the holders to be found suitable to own the debt securities.
Although the Mississippi Gaming Commission generally does not require the
individual holders of obligations such as notes to be investigated and found
suitable, the Mississippi Gaming Commission retains the discretion to do so for
any reason, including but not limited to a default, or where the holder of the
debt instrument exercises a material influence over the gaming operations of the
entity in question. Any holder of debt or equity securities required to apply
for a finding of suitability must pay all investigative fees and costs of the
Mississippi Gaming Commission in connection with the investigation.
CCMI must maintain in Mississippi a current ledger with respect to the
ownership of its equity securities and Mandalay must maintain in Mississippi a
current list of its stockholders which must reflect the record ownership of each
outstanding share of any equity security issued by Mandalay. The ledger and
stockholder lists must be available for inspection by the Mississippi Gaming
Commission at any time. If any of Mandalay's 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 Gaming Commission. A failure
to make that disclosure may be grounds for finding the record holder unsuitable.
Mandalay must also render maximum assistance in determining the identity of the
beneficial owner.
The Mississippi Gaming Control Act requires that the certificates
representing securities of a registered publicly-traded corporation bear a
legend to the general effect that the securities are subject to the Mississippi
Gaming Control Act and the regulations of the Mississippi Gaming Commission. The
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Mississippi Gaming Commission has granted Mandalay a waiver of this legend
requirement. The Mississippi Gaming Commission has the power to impose
additional restrictions on Mandalay and the holders of its securities at any
time.
Substantially all loans, leases, sales of securities and similar financing
transactions by a licensed gaming subsidiary must be reported to or approved by
the Mississippi Gaming Commission. A licensed gaming subsidiary may not make a
public offering of its securities, but may pledge or mortgage casino facilities
if it obtains the prior approval of the Mississippi Gaming Commission. Mandalay
may not make a public offering of its securities without the prior approval of
the Mississippi Gaming Commission if any part of the proceeds of the offering is
to be used to finance the construction, acquisition or operation of gaming
facilities in Mississippi or to retire or extend obligations incurred for those
purposes. The approval, if given, does not constitute a recommendation or
approval of the accuracy or adequacy of the prospectus or the investment merits
of the securities subject to the offering. On February 17, 2000, the Mississippi
Gaming Commission granted Mandalay a waiver of the prior approval requirement
for its securities offerings for a period of two years, subject to certain
conditions. The waiver may be rescinded for good cause without prior notice upon
the issuance of an interlocutory stop order by the Executive Director of the
Mississippi Gaming Commission.
Under the regulations of the Mississippi Gaming Commission, CCMI may not
guarantee a security issued by Mandalay pursuant to a public offering, or pledge
its assets to secure payment or performance of the obligations evidenced by the
security issued by Mandalay, without the prior approval of the Mississippi
Gaming Commission. Similarly, Mandalay may not pledge the stock or other
ownership interests of CCMI, nor may the pledgee of these ownership interests
foreclose on the pledge, without the prior approval of the Mississippi Gaming
Commission. Moreover, restrictions on the transfer of an equity security issued
by CCMI and agreements not to encumber these securities are ineffective without
the prior approval of the Mississippi Gaming Commission. The waiver of the prior
approval requirement for Mandalay's securities offerings received from the
Mississippi Gaming Commission on February 17, 2000 includes a waiver of the
prior approval requirement for such guarantees, pledges and restrictions of
CCMI, subject to certain conditions.
Mandalay cannot change its control through merger, consolidation,
acquisition of assets, management or consulting agreements or any form of
takeover without the prior approval of the Mississippi Gaming Commission. The
Mississippi Gaming Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the transaction.
The Mississippi Legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Mississippi and
corporations whose stock is publicly-traded that are affiliated with those
licensees, may be injurious to stable and productive corporate gaming. The
Mississippi Gaming Commission has established a regulatory scheme to ameliorate
the potentially adverse effects of these business practices upon Mississippi's
gaming industry and to further Mississippi's policy to:
- assure the financial stability of corporate gaming operators and their
affiliates;
- preserve the beneficial aspects of conducting business in the corporate
form; and
- promote a neutral environment for the orderly governance of corporate
affairs.
Mandalay may be required to obtain approval from the Mississippi Gaming
Commission before it may make exceptional repurchases of voting securities in
excess of the current market price of its common stock (commonly called
"greenmail") or before it may consummate a corporate acquisition opposed by
management. The regulations will also require prior approval by the Mississippi
Gaming Commission if Mandalay adopts a plan of recapitalization proposed by its
board of directors opposing a tender offer made directly to the stockholders for
the purpose of acquiring control of Mandalay.
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Neither Mandalay nor CCMI may engage in gaming activities in Mississippi
while Mandalay, CCMI and/or persons found suitable to be associated with the
gaming license of CCMI conduct gaming operations outside of Mississippi without
approval of the Mississippi Gaming Commission. The Mississippi Gaming Commission
may require determinations that there are means for the Mississippi Gaming
Commission to have access to information concerning Mandalay's and Mandalay's
affiliates' out-of-state gaming operations. Mandalay received waivers of foreign
gaming approval from the Mississippi Gaming Commission for the conduct of gaming
operations in Nevada, Indiana, Louisiana, Illinois, New Jersey, Michigan and
Ontario, Canada, but may be required to obtain the approval or a waiver of such
approval from the Mississippi Gaming Commission before engaging in any
additional future gaming operations outside of Mississippi.
If the Mississippi Gaming Commission decides that a licensed gaming
subsidiary violated a gaming law or regulation, the Mississippi Gaming
Commission could limit, condition, suspend or revoke the license of the
subsidiary. In addition, we, the licensed subsidiary and the persons involved
could be subject to substantial fines for each separate violation. A violation
under any of Mandalay's other operating subsidiaries' gaming licenses may be
deemed a violation of CCMI's gaming license. Because of a violation, the
Mississippi Gaming Commission could attempt to appoint a supervisor to operate
the casino facilities. Limitation, conditioning or suspension of CCMI's gaming
license or Mandalay's registration as a publicly-traded holding company of CCMI,
or the appointment of a supervisor could, and revocation of any gaming license
or registration would, materially adversely affect Mandalay's Mississippi gaming
operations.
A licensed gaming subsidiary must pay license fees and taxes, computed in
various ways depending on the type of gaming involved, to the State of
Mississippi and to the county or city in which the licensed gaming subsidiary
conducts operations. Depending upon the particular fee or tax involved, these
fees and taxes are payable either monthly, quarterly or annually and are based
upon:
- a percentage of the gross gaming revenues received by the casino
operation;
- the number of slot machines operated by the casino; and
- the number of table games operated by the casino.
The license fee payable to the State of Mississippi is based upon "gaming
receipts," generally defined as gross receipts less payouts to customers as
winnings, and equals:
- 4% of gaming receipts of $50,000 or less per month;
- 6% of gaming receipts over $50,000 and less than $134,000 per month; and
- 8% of gaming receipts over $134,000 per month.
These license fees are allowed as a credit against our Mississippi income
tax liability for the year paid. The gross revenue fee imposed by the
Mississippi cities and counties in which casino operations are located is in
addition to the fees payable to the State of Mississippi and equals
approximately 4% of the gaming receipts.
The Mississippi Gaming Commission adopted a regulation in 1994 requiring as
a condition of licensure or license renewal that a gaming establishment's plan
include a 500-car parking facility in close proximity to the casino complex and
infrastructure facilities which will amount to at least 25% of the casino cost.
Infrastructure facilities are defined in the regulation to include a hotel with
at least 250 rooms, theme park, golf course and other similar facilities. With
the opening of its resort hotel and other amenities, we believe CCMI is in
compliance with this requirement. On January 21, 1999, the Mississippi Gaming
Commission adopted an amendment to this regulation which increased the
infrastructure requirement to 100% from the existing 25%; however, the
regulation grandfathers existing licensees and applies only to new casino
projects and casinos that are not operating at the time of acquisition or
purchase, and would therefore not apply to CCMI.
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Both the local jurisdiction and the Alcoholic Beverage Control Division of
the Mississippi State Tax Commission license, control and regulate the sale of
alcoholic beverages by CCMI. The Gold Strike-Tunica casino owned and operated by
CCMI is in an area designated as a special resort area, which allows casinos
located therein to serve alcoholic beverages on a 24-hour basis. The Alcohol
Beverage Control Division has the full power to limit, condition, suspend or
revoke any license for the service of alcoholic beverages or to place a licensee
on probation with or without conditions. Any disciplinary action could, and
revocation would, have a material adverse affect upon the casino's operations.
Mandalay's and CCMI's key officers and managers must be investigated by the
Alcoholic Beverage Control Division in connection with its liquor permits and
changes in key positions must be approved by the Alcoholic Beverage Control
Division.
ILLINOIS GAMING LAWS
We are subject to the jurisdiction of the Illinois gaming authorities as a
result of our 50% interest in Grand Victoria Riverboat Casino based in Elgin,
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 gambling 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 begin 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 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
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Mississippi River. The 10% ownership prohibition has also been removed.
Therefore, subject to certain Illinois Board rules, individuals or entities
could own more than one riverboat operation.
The amended Illinois Act also allows for the relocation of a riverboat home
dock. A licensee that was not conducting riverboat gambling on January 1, 1998,
may apply to the Illinois Board for renewal and approval of relocation to a new
home dock and the Illinois Board shall grant the application and approval of the
new home dock upon the licensee providing to the Illinois Board authorization
from the new dockside community. Pursuant to the amended Illinois Act, the
former owner and operator of the East Dubuque riverboat has applied for renewal
of its license and to relocate its operation to Rosemont, Illinois. Any licensee
that relocates in accordance with the provisions of the amended Illinois Act,
must attain a level of at least 20% minority ownership of such a gaming
operation.
The constitutionality of the amended Illinois Act has been challenged and is
currently the subject of litigation. There is no assurance that the amended
Illinois Act will be upheld as constitutional. If the amended Illinois Act is
deemed unconstitutional, all of the new provisions would no longer be in effect.
Specifically, in that situation, riverboats would have to return to cruising in
order to conduct gaming.
The Illinois Act strictly regulates the facilities, persons, associations
and practices related to gaming operations. The Illinois Act grants the Illinois
Board specific powers and duties, and all other powers necessary and proper to
fully and effectively execute the Illinois Act for the purpose of administering,
regulating and enforcing the system of riverboat gaming. The Illinois Board has
authority over every person, association, corporation, partnership and trust
involved in riverboat gaming operations in the State of Illinois.
The Illinois Act requires the owner of a riverboat gaming operation to hold
an owner's license issued by the Illinois Board. Each owner's license permits
the holder to own up to two riverboats, however, gaming participants are limited
to 1,200 for any owner's 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 requirements of
the Illinois Act and Illinois Board rules. The owner's license for Grand
Victoria Riverboat Casino was issued in October 1994 and was valid for three
years. Since that time, the license has been renewed annually, with the most
recent renewal approved by the Illinois Board in October of 1999 for a one year
period. 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 may 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;
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- 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:
- percentage share of the market presently owned or controlled by the person
or entity;
- estimated increase in the market share if the person or entity is approved
to hold the owner's license;
- relative position of other persons or entities that own or control owner's
licenses in Illinois;
- 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;
- 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;
- 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%.
An 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. As of
January 1, 1998, 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;
- 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.
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In addition to owner's licenses, the Illinois Board also requires licensing
for all vendors of gaming supplies and equipment and for all employees of a
riverboat gaming operation. The Illinois Board is authorized to conduct
investigations into the conduct of gaming and into alleged violations of the
Illinois Act and the Illinois Board rules. Employees and agents of the Illinois
Board have access to and may inspect any facilities relating to the riverboat
gaming operation.
A holder of any license is subject to imposition of fines, suspension or
revocation of such license, or other action for any act or failure to act by
himself or his agents or employees, that is injurious to the public health,
safety, morals, good order and general welfare of the people of the State of
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, including possible seizure,
confiscation and destruction of illegal gaming devices and seizure and sale of
riverboats and dock facilities to pay any unsatisfied judgment that may be
recovered and any unsatisfied fine that may be levied. The Illinois Act also
provides for civil penalties, equal to the amount of gross receipts derived from
wagering on the gaming, whether unauthorized or authorized, conducted on the day
of any violation. The Illinois Board may revoke or suspend licenses, as the
Illinois Board may see fit and in compliance with applicable laws of the State
of Illinois regarding administrative procedures and may suspend an owner's
license, without notice or hearing, upon a determination that the safety or
health of patrons or employees is jeopardized by continuing a riverboat's
operation. The suspension may remain in effect until the Illinois Board
determines that the cause for suspension has been abated and it may revoke the
owner's license upon a determination that the owner has not made satisfactory
progress toward abating the hazard.
The Illinois Board requires that a "Key Person" of an owner licensee submit
a Personal Disclosure or Business Entity Form and be investigated and approved
by the Illinois Board. The Illinois Board shall certify for each applicant for
or holder of an owner's license each position, individual or Business Entity
that is to be approved by the Board and maintain suitability as a Key Person.
With respect to an applicant for or the holder of an owner's license, a 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
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 Illinois Board in its determination of Key Persons,
applicants for or holders of an owner's license must provide to the Illinois
Board a Table of Organization, Ownership and Control (the "Table"). The Table
must 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 this information is known or contained in
Schedule 13D or 13G SEC 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
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- any trust holding more than 5% ownership or voting interest in Mandalay,
to the extent this information is known or contained in Schedule 13D or
13G SEC 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 Illinois Board. Based upon findings from an investigation into the
character, reputation, experience, associations, business probity and financial
integrity of a Key Person, the Illinois Board may enter an order upon the
licensee or require the economic disassociation of the 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 Board may
also require an applicant or owner licensee to disclose any other principal or
investor and require the investigation and approval of these individuals.
The Illinois 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 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 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 these
securities, notify the Administrator of the Board of such ownership and shall
provide any additional information as may be required. If an institutional
investor (as specified above) acquires 10% or more of any class of voting
securities of a publicly-traded licensee or a licensee's publicly-traded parent
corporation it shall file an Institutional Investor Disclosure Form within
45 days after acquiring this 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:
- Key Persons;
- type of entity;
- equity and debt capitalization of the entity;
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- investors and/or debt holders;
- source of funds;
- applicant's economic development plan;
- riverboat capacity or significant design change;
- gaming positions;
- anticipated economic impact; or
- agreements, oral or written, relating to the acquisition or disposition of
property (real or personal) of a value greater than $1 million.
A holder of an owner's license is allowed to make distributions to its
stockholders only to the extent that the 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:
- cash flow, casino cash and working capital requirements;
- debt service requirements, obligations and covenants associated with
financial instruments;
- requirements for repairs and maintenance and capital improvements;
- employment or economic development requirements of the Act; and
- a licensee's financial projections.
The Illinois Board may waive any licensing requirement or procedure provided
by rule if it determines that the 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 Mandalay. Some of this legislation,
if enacted, could adversely affect the gaming industry or Mandalay. No assurance
can be given whether such or similar legislation will be enacted.
Uncertainty exists regarding the Illinois gambling regulatory environment
due to limited experience in interpreting the Illinois Act.
MICHIGAN GAMING LAWS
Mandalay is subject to regulation by the Michigan Gaming Control Board
("Michigan Board") pursuant to the Michigan Gaming Control and Revenue Act
("Michigan Act") as a result of ownership of 53.5% of Detroit Entertainment,
L.L.C., a Michigan limited liability company, which operates MotorCity Casino.
The qualification standards established by the Michigan Act and Rules are
very comprehensive. A burden of proof by "clear and convincing evidence" is
placed upon the applicant. The focus of these standards is suitability as to:
- character;
- reputation;
- integrity;
- business probity;
- experience;
- ability;
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- financial ability and responsibility; and
- any other criteria considered appropriate by the Michigan Board.
MotorCity Casino's casino license is a one-year license. The license will be
renewed by the Michigan Board on an annual basis if the Michigan Board
determines that MotorCity Casino continues to meet all requirements established
by the Michigan Act and Rules.
The Michigan Act permits the licensing and operation of up to three casinos
in any Michigan city that meets certain requirements. At the present time, the
only city in Michigan that meets these requirements is Detroit. To date, two
casino licenses have been issued. An application for the third casino license is
pending before the Michigan Board. It is not certain when the Michigan Board
will issue the third casino license.
The Michigan Board is composed of five persons. It has the authority to:
- enforce the provisions of the Michigan Act;
- license casinos in accordance with the provisions of the Michigan Act; and
- regulate all aspects of the operation of casinos licensed by the Michigan
Board.
The Michigan Board's jurisdiction extends to every person and business
entity involved in casino gaming operations governed by the Michigan Act and
Rules. The Michigan Act and Rules strictly regulate all aspects of the ownership
and operation of casinos licensed under the Michigan Act. This includes
regulation of:
- all related buildings, facilities, bars, restaurants, hotels, cocktail
lounges, retail establishments, arenas and rooms functionally or
physically connected to the casino; and
- any other facility located in the city of Detroit that is under the
control of the casino licensee or an affiliated company.
Collectively, the Michigan Act calls all of these buildings, facilities and
other amenities the "Casino Enterprise."
The Michigan Board, the Michigan Attorney General and the Michigan State
Police have been assigned to investigate and inspect the casinos licensed under
the Michigan Act. These employees have the right to inspect all facilities
relating to the Casino Enterprise.
The Michigan Act and Rules require that "Key Persons" meet the requirements
set forth in the Michigan Act and Rules. Key Persons include:
- officers, directors, trustees, partners and proprietors of a casino
licensee or an affiliate or holding company of a casino licensee that has
control of a casino licensee;
- a person that holds a combined direct, indirect or attributed debt or
equity interest of more than 5% in a person that holds a casino license;
- a person that holds a combined direct, indirect or attributed equity
interest of more than 5% in a person that holds a casino license;
- a managerial employee of an affiliate or holding company that has control
of a person that holds a casino license; and
- various management level employees of the casino licensee.
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The Michigan Act defines "control" of a casino licensee as having greater
than 15% direct or indirect pecuniary interest in the casino licensee. Mandalay
has control of MotorCity Casino.
Key Persons are required to timely file and update qualification information
with the Michigan Board and then be approved by the Michigan Board.
The Michigan Act and Rules require compliance with qualification standards
for obtaining and retaining a direct or indirect ownership interest in a casino
and for transferring an ownership interest in a casino. Owners are required to
timely file and update information required to be submitted to the Michigan
Board.
The Michigan Board can require compliance with the qualification and
approval standards whenever the Michigan Board determines that it is in the best
interests of the Michigan casino regulatory process to do so regardless of the
amount of direct or indirect beneficial ownership interest involved or the
nature of the ownership interest.
The Michigan Act and Rules distinguish between shareholders of a privately
owned company and shareholders of a publicly traded company for qualification
purposes. Shareholders of a privately owned company who directly or indirectly
beneficially own 1% or more of a casino licensee or casino license applicant
must submit qualification information to the Michigan Board and be approved by
the Michigan Board. Shareholders that own more than 5% of a publicly traded
company that owns 1% or more of one of the Detroit casinos must submit and
update qualification information to the Michigan Board. Mandalay owns more than
1% of MotorCity casino and, therefore, each shareholder that owns more than 5%
of the shares of Mandalay is subject to the qualification requirements
established by the Michigan Act and Rules.
There are special rules for an "institutional investor" that has invested in
a publicly traded company that owns 1% or more of a Detroit casino or a Michigan
casino license applicant.
The Michigan Board is currently taking the position that an institutional
investor that individually or, in association with others, directly or
indirectly holds or acquires beneficial ownership of more than 5% of Mandalay
must notify the Michigan Board of its interest in Mandalay within 10 business
days after the institutional investor acquires more than a 5% interest in
Mandalay or files a Form 13-D or 13-G with the SEC. The institutional investor
may be required by the Michigan Board to supply additional information to the
Michigan Board. The Michigan Board may require the institutional investor to be
found suitable.
An institutional investor that individually or, in association with others,
directly or indirectly holds or acquires beneficial ownership of more than a 5%
interest but less than a 10% interest in Mandalay may request from the Michigan
Board a waiver of the eligibility and suitability requirements if the
institutional investor purchased the interest in Mandalay for investment
purposes only and not for the purpose of influencing or affecting the affairs of
Mandalay, MotorCity Casino or its affiliates. In order to obtain the waiver, the
institutional investor must complete and file with the Michigan Board a Michigan
institutional investor Waiver Application (less than 10% interest).
An institutional investor that individually or, in association with others,
directly or indirectly holds or acquires beneficial ownership of more than a 10%
interest but not more than a 15% interest in Mandalay may request from the
Michigan Board a waiver of the eligibility and suitability requirements if the
institutional investor purchased the interest in Mandalay for investment
purposes only and not for the purpose of influencing or affecting the affairs of
Mandalay, MotorCity Casino or its affiliates. The Michigan Rules require that an
institutional investor within these ownership parameters must disclose detailed
information concerning the institutional investor.
An institutional investor that individually or, in association with others,
directly or indirectly holds or acquires beneficial ownership of more than a 15%
interest in Mandalay is required to file qualification information with the
Michigan Board within 45 days after acquiring the interest and is required to
meet qualification and approval standards.
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The Michigan Act and Rules regulate an institutional investor owning debt
securities of a casino licensee's affiliates. An institutional investor may be
required to meet the Michigan Act's qualification standards if the institutional
investor:
- owns or acquires beneficial ownership of 10% or more of debt securities of
a casino licensee's affiliate or affiliated company which are related in
any way to the financing of the casino licensee; or
- owns or acquires beneficial ownership of more than 50% of any issue of the
outstanding debt of the casino licensee's affiliate or affiliated company.
An institutional investor that owns or acquires beneficial ownership of more
than 5% but less than 10% of debt securities of a casino licensee's affiliate or
affiliated company which are in any way related to the financing of the casino
licensee may be granted a waiver of the eligibility and suitability requirements
of the Michigan Act and Michigan Rules if:
- the debt securities do not represent more than 20% of the outstanding debt
of the casino licensee's affiliate or affiliated company; or
- the debt securities represent not more than 50% of any issue of the
outstanding debt of the casino licensee's affiliate or affiliated company;
and
- the debt securities are those of a publicly traded corporation and were
purchased for investment purposes only.
The Michigan Act and Rules regulate the transfer of a direct or indirect
interest in a casino licensee. The Michigan Board must be notified in advance of
any proposed transfer of a direct or indirect interest. If the proposed transfer
involves more than a 1% direct or indirect interest, the proposed transfer may
not be consummated until the transfer has been approved by the Michigan Board.
In all events, the parties proposing to engage in the transfer action should
determine the applicable requirements of the Michigan Act and Rules before
completing the transfer transaction.
Formal notice of certain events must be given to and approval obtained from
the Michigan Board by the casino licensee or applicant and any of their
affiliates or holding companies whenever any of the following events occur:
- a change of a Key Person;
- a change in entity;
- a change in equity or debt capitalization of the entity;
- a change in investors subject to the Michigan Act and Michigan Rules;
- a change in debt holders subject to the Michigan Act and Michigan Rules;
- a change in source of funds; or
- related party transactions exceeding $250,000 in a 12-month period.
The Michigan Act declares that a person or entity that is required to meet
the Michigan Act's suitability standards will not be eligible if any of the
following circumstances exist:
- the applicant has been convicted of a felony anywhere in the United
States;
- the applicant has been convicted of a misdemeanor involving gambling,
theft, fraud or dishonesty;
- the applicant has submitted an application that contains false
information;
- the applicant or affiliate owns more than a 10% ownership interest in any
entity holding a casino license issued under the Michigan Act;
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- the applicant holds any elective office in the United States (with certain
minor exceptions), is an employee of any gaming regulatory body in the
United States or is employed by a governmental unit of the State of
Michigan;
- the Michigan Board concludes that the applicant lacks the requisite
suitability as to integrity, moral character and reputation, personal and
business probity, financial ability and experience, responsibility or
means to develop, construct, operate or maintain the casino; or
- the applicant fails to meet other criteria considered appropriate by the
Michigan Board that are not arbitrary, capricious or contrary to the
provisions of the Michigan Act.
The Michigan Act prohibits casino licensees and applicants and certain
related persons from making contributions to candidates for state or local
office in the State of Michigan and to committees supporting any such candidates
during various periods, including periods prior to licensure. The political
contribution restriction applies to casino license applicants, casino licensees
and all of the following persons and entities:
- any person or entity that holds at least a 1% interest in the casino
licensee or Casino Enterprise;
- any person who is an officer or managerial employee of the casino licensee
or Casino Enterprise;
- any person who is an officer of the person who holds at least a 1%
interest in the casino licensee or Casino Enterprise; and
- any person that is an independent committee of the casino licensee or
Casino Enterprise.
The Michigan Act also applies this restriction to spouses, parents, children
and spouses of children of persons holding an interest in the casino licensee or
Casino Enterprise. However, the portion of the political contribution
restriction relating to spouses, parents, children and spouses of children has
been declared unconstitutional by Attorney General Frank Kelley in Attorney
General Opinion No. 7002 issued on December 17, 1998 in those instances where
the contribution is not a willful attempt to evade the political contribution
restrictions contained in the Michigan Act.
The penalties for violation of the political contribution restriction
includes fines, imprisonment or both.
If a shareholder who is required to submit qualification information to the
Michigan Board is not approved by the Michigan Board, the shareholder must
promptly dispose of all ownership interest in the shares.
If a person who seeks to acquire shares is a person who is required to
submit qualification information to the Michigan Board and the person does not
obtain approval for the acquisition from the Michigan Board, the person may not
acquire the shares and must promptly dispose of all interest in the shares.
If a Key Person who is required to submit qualification information to the
Michigan Board is not approved by the Michigan Board, the Key Person must
promptly cease all involvement in the Michigan Casino Enterprise.
As required under the Michigan Act, MotorCity Casino has a Development
Agreement with the City of Detroit. The Development Agreement is currently in
effect.
MotorCity Casino has constructed a temporary casino in accordance with the
terms of the Development Agreement. This temporary casino opened on
December 14, 1999. Under the terms of the Development Agreement, the temporary
casino is to be operated for no more than 48 months unless otherwise agreed by
the City of Detroit, at which time the temporary casino is to be closed and the
permanent casino opened. Detroit Entertainment, L.L.C. is prepared to begin
construction of the permanent casino in accordance with the Development
Agreement once the permanent casino site designated by the City of Detroit has
been acquired in accordance with procedures developed by the City of Detroit and
the construction site is ready for construction activity. No assurance can be
given regarding
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when the permanent casino site will be available and ready for construction of
the permanent casino or when construction of the permanent casino will be
completed and the permanent casino opened.
The Development Agreement entered into between the City of Detroit and
Detroit Entertainment, L.L.C. has numerous terms and conditions relating to the
following:
- the construction of the temporary and permanent casino;
- the employment of Detroit residents, minorities and women to staff the
operation of the temporary and permanent casinos; and
- the use of Detroit based, minority and woman owned vendors and suppliers.
MotorCity Casino has agreed to exercise its reasonable best efforts to
comply with vendor and supplier use and hiring goals. Failure to comply with the
terms of the Development Agreement could adversely affect its casino license.
Michigan law requires that any person who holds a "Casino Interest" must
file a registration form with the Michigan Secretary of State not later than
5 days after obtaining the Casino Interest. A person who violates this
registration requirement for more than 30 days is subject to being charged with
a misdemeanor and a fine of not more than $1,000. The Casino Interest
registration requirement is completely separate and apart from the eligibility
and qualification requirements established by the Michigan Act and Michigan
Rules. A person holding a Casino Interest includes:
- a person who holds at least a 1% interest in a casino licensee or a Casino
Enterprise;
- a person who is a partner, officer or key or managerial employee of the
casino licensee or Casino Enterprise;
- a person who is an officer of the person who holds at least a 1% interest
in the casino licensee or Casino Enterprise; and
- the spouse or children of any of these persons.
A "person" includes any individual and legal entity.
The Casino Interest Registration Form may be obtained from the Michigan
Secretary of State in Lansing, Michigan.
The Michigan Act and Rules establish extensive requirements and procedures
relating to all of the following:
- operation of casino games;
- ownership records;
- reporting of transactions;
- handling of money;
- extending credit;
- accounting and editing;
- internal control systems; and
- compliance reporting.
The Michigan Act and Rules do not limit the maximum bet or per person loss.
No person under the age of 21 years is permitted to wager in a casino licensed
under the Michigan Act. MotorCity Casino may
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operate 24 hours a day, 7 days a week. MotorCity Casino is subject to regulation
by the Michigan Liquor Control Commission. The Michigan Act subjects MotorCity
Casino to five forms of gaming taxes and fees:
- a nonrefundable license application fee of $50,000;
- a $25,000 casino license fee, which is payable annually;
- a wagering tax equal to 18% of adjusted gross receipts;
- a municipal services fee in an amount equal to the greater of 1.25% of
adjusted gross receipts or $4,000,000; and
- the payment of all regulatory and enforcement costs, including compulsive
gaming programs, casino related programs and activities, casino related
services provided by the Michigan Attorney General and casino related
expenses of the Michigan State Police up to a combined total annual
maximum charge of $25,000,000 in the first year of casino operations for
all casinos licensed under the Michigan Act. This maximum amount is
adjusted annually by the Detroit Consumer Price Index.
No casino licensed under the Michigan Act is liable for the payment of more
than 1/3 of the total annual assessment. This fee is placed into a services fee
fund. This service fee fund is prohibited from exceeding $65,000,000. If this
service fee fund exceeds $65,000,000, any amount in excess of $65,000,000 must
be credited towards the annual payments the casinos licensed under the Michigan
Act are required to make to the service fee fund.
The five forms of fees and taxes listed above are in addition to the taxes,
fees and assessments customarily paid by business entities in the State of
Michigan and the City of Detroit.
The holder of a casino license issued under the Michigan Act is subject to a
variety of penalties for violation of the Michigan Act or Rules. The penalties
include, but are not necessarily limited to, the following:
- monetary fines;
- suspension of the casino license;
- revocation of the casino license;
- civil penalties of up to $10,000 or the amount of daily gross receipts
derived from wagering on gaming on the day of the violation, whichever is
greater;
- criminal penalties;
- seizure and/or destruction of gaming equipment;
- seizure and/or sale of gaming operations;
- imposition of a conservatorship; and
- imposition of restrictions or conditions on gaming operations by the
Michigan Board.
The Michigan Board is required to comply with the Michigan Act, the Michigan
Rules, the Michigan Administrative Procedures Act and other applicable laws and
regulations. The Michigan Board may suspend a casino operator's license, without
notice or hearing, upon a determination that:
- the safety or health of patrons or employees would be threatened by the
continued operation of the casino; or
- the action is necessary for the immediate preservation of the integrity of
casino gaming, public peace, health, safety, morals, good order or general
welfare.
The Michigan Board may waive any licensing requirement or procedures
provided by the Michigan Rules provided that the waiver does not violate the
Michigan Act. Any such waiver must be based upon a
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determination by the Michigan Board that the waiver is in the best interests of
the public and the gaming industry.
The Michigan Board may amend or change the Michigan Rules provided that the
amendment or change complies with the Michigan Act and other applicable Michigan
law.
Uncertainty exists regarding the Michigan gaming regulatory environment due
to the limited experience in interpreting the Michigan Act and the Michigan
Rules. The Michigan Act and Michigan Rules are evolving pursuant to an ongoing
regulatory, legislative and judicial process. Therefore, the Michigan Act and
Michigan Rules are subject to and, in all probability will, change with the
maturation of casino gaming regulated by the Michigan Act.
Various regulatory proposals have been and, in all likelihood, will continue
to be discussed by the Detroit City Council concerning the regulation of casinos
in the City of Detroit. Legislation proposed to or by the Detroit City Council,
if enacted, could adversely affect the gaming industry, Detroit Entertainment,
L.L.C. or Mandalay. No assurance can be given whether additional ordinances will
be enacted and what effect such ordinances could have on the operation of
casinos in the City of Detroit.
From time to time various proposals have been introduced in the Michigan
legislature which related to casino gaming in Detroit. Some of the proposals, if
enacted, would affect the taxation, regulation, operation or other aspects of
the gaming industry, Detroit Entertainment, L.L.C. or Mandalay. No assurance can
be given whether additional legislation will be enacted and what effect such
legislation could have on the operation of casinos in the City of Detroit.
The constitutionality of the Detroit Casino Competitive Selection Process
Ordinance and the Michigan Act has been challenged in separate federal court
proceedings initiated by the Lac Vieux Band of Lake Superior Chippewa Indians
and by Barden Detroit Casino, L.L.C. If it is subsequently determined that
either the Detroit Casino Competitive Selection Process Ordinance or the
Michigan Act is defective and this determination is upheld, this may impact the
validity of the Development Agreement entered into between Detroit
Entertainment, L.L.C. and the City of Detroit or the casino license issued to
Detroit Entertainment, L.L.C., which could have an adverse impact upon us. No
assurance can be given regarding the probable result of either proceeding.
The Lac Vieux Band of Lake Superior Chippewa Indians had also filed an
appeal with the Michigan Court of Appeals for judicial review of the Michigan
Board's grant of a casino license to Detroit Entertainment, L.L.C. The Court of
Appeals has decided that the Lac Vieux Band does not have standing to appeal the
Michigan Board's issuance of the casino license to Detroit Entertainment, L.L.C.
The Lac Vieux Band can seek to appeal this decision. If an appellate court
determines that the Lac Vieux Band has standing to appeal the issuance of the
license, the casino license issued by the Michigan Board to Detroit
Entertainment, L.L.C. could be adversely affected, which could have an adverse
impact upon us. No assurance can be given regarding the probable result of this
litigation.
If it is ultimately determined that either the Michigan Act or the Detroit
ordinance is defective, this could result in the termination of the license to
operate our temporary casino or otherwise adversely impact our ability to
continue to operate that facility and could prevent or otherwise adversely
impact our ability to construct, open or operate our proposed permanent
hotel-casino in downtown Detroit. This may have an impact upon the validity of
the Development Agreement entered into between the City of Detroit and Detroit
Entertainment, L.L.C., and the casino license issued to Detroit Entertainment,
L.L.C.
Litigation challenging the condemnation of real property by the City of
Detroit for the permanent casino construction site has been initiated. As a
result of this litigation, 47 pending land condemnations initiated by the City
of Detroit have been dismissed. The litigation surrounding the condemnation of
land for use in construction of the permanent casinos in the City of Detroit
could substantially delay the construction of the permanent casino by Detroit
Entertainment, L.L.C. No assurance can be given regarding the impact of such a
delay.
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OTHER GAMING JURISDICTIONS
Future expansion of our operations may include gaming operations in
jurisdictions other than those in which our activities and those of the joint
ventures in which we participate are currently conducted. As a result, we and/or
one or more joint ventures in which we participate may become subject to
comprehensive gaming and other regulations in additional jurisdictions. Such
regulations may be similar to, and could be more restrictive than, those
currently applicable to us, our joint ventures and our officers, director,
employees and persons associated with us.
OTHER LAWS AND REGULATIONS
Each of the casino hotels and the riverboat and dockside casinos described
in this report is subject to extensive state and local regulations and, on a
periodic basis, must obtain various licenses and permits, including those
required to sell alcoholic beverages. We believe that we and the joint ventures
in which we participate have obtained all required licenses and permits and our
businesses, including those of our joint ventures, are conducted in substantial
compliance with applicable laws.
THE NATIONAL GAMBLING IMPACT STUDY COMMISSION'S RECOMMENDATIONS
A National Gambling Impact Study Commission has been established by the
United States Congress to conduct a comprehensive study of the social and
economic impact of gaming in the United States. On April 28, 1999, the National
Commission voted to recommend that the expansion of gambling be curtailed. In
June 1999, the National Commission issued a final report of its findings and
conclusions, together with recommendations for legislative and administrative
actions. Below are highlights of some of those recommendations:
- Legal gaming should be restricted to those at least 21 years of age;
- Betting on college and amateur sports should be banned;
- The introduction of casino-style gambling at pari-mutual racing facilities
for the primary purpose of saving the pari-mutual facility financially
should be prohibited;
- Internet gaming should be banned within the United States;
- The types of gaming activities allowed by Indian tribes within a given
state should not be inconsistent with the gaming activities allowed to
other persons in that state; and
- State, local and tribal governments should recognize that casino gaming
provides economic development, particularly for economically depressed
areas. The National Commission differentiated casino gaming from
stand-alone slot machines (e.g., in convenience stores), Internet gaming
and lotteries which the commission stated do not provide the same economic
development.
Any additional regulation of the gaming industry which may result from the
National Commission's report may have an adverse affect on the gaming industry,
including Mandalay.
INTERNAL REVENUE SERVICE REGULATIONS
The Internal Revenue Service requires operators of casinos located in the
United States to file information returns for U.S. citizens, including names and
addresses of winners, for keno and slot machine winnings in excess of stipulated
amounts. The Internal Revenue Service also requires operators to withhold taxes
on some keno, bingo and slot machine winnings of nonresident aliens. We are
unable to predict the extent, to which these requirements, if extended, might
impede or otherwise adversely affect operations of, and/or income from, the
other games.
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Regulations adopted by the Financial Crimes Enforcement Network of the
Treasury Department and the gaming regulatory authorities in some of the
domestic jurisdictions in which we operate casinos, or in which we may apply for
licensing to operate a casino, require the reporting of currency transactions in
excess of $10,000 occurring within a gaming day, including identification of the
patron by name and social security number. This reporting obligation began in
May 1985 and may have resulted in the loss of gaming revenues to jurisdictions
outside the United States which are exempt from the ambit of these regulations.
EMPLOYEES AND LABOR RELATIONS
At March 31, 2000, we and the joint ventures in which we participate
employed approximately 36,000 persons. Approximately 41% of our employees at
January 31, 2000 were employed pursuant to the terms of collective bargaining
agreements. The contracts with two unions, covering approximately 850 employees,
expired on May 31, 1999 and March 31, 2000. New contacts are currently being
negotiated and we do not anticipate any difficulties in renewing our agreements.
We currently have contracts with our other major unions that have remaining
terms ranging from one to four years. We consider our labor relations to be
satisfactory. A work stoppage has not been experienced at a property we or a
joint venture in which we participate own since an industry-wide strike in 1975.
Certain states in which gaming recently has been legalized have established
community commitment and similar laws or requirements which require that a
specified percentage of employees of gaming ventures be residents of the
community or state in which the gaming venture is located or meet certain other
criteria. These laws could affect our ability to attract and retain qualified
employees for gaming operations we or joint ventures in which we participate
conduct outside Nevada.
FACTORS THAT MAY AFFECT OUR FUTURE RESULTS
(Cautionary Statements Under the Private Securities Litigation Reform Act of
1995)
Certain information included in this Report and other materials filed or to
be filed by Mandalay with the Securities and Exchange Commission (as well as
information included in oral statements or other written statements made or to
be made by us) contains or may contain 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. These statements
can be identified by the fact that they do not relate strictly to historical or
current facts. We have based these forward-looking statements on our current
expectations about future events. These forward-looking statements include
statements with respect to our beliefs, plans, objectives, goals, expectations,
anticipations, intentions, financial condition, results of operations, future
performance and business, including:
- statements relating to our business strategy;
- our current and future development plans; and
- statements that include the words "may," "could," "should," "would,"
"believe," "expect," "anticipate," "estimate," "intend," "plan" or similar
expressions.
Such statements include information relating to current construction
activities, plans for future expansion and other business development activities
as well as other capital spending, financing sources and the effects of
regulation (including gaming and tax regulation) and competition. From time to
time, oral or written forward-looking statements are also included in Mandalay's
periodic reports on Forms 10-Q and 8-K, press releases and other materials
released to the public.
Any or all of the forward-looking statements in this report, in Mandalay's
Annual Report to Stockholders for fiscal 2000 and in any other public statements
we make may turn out to be wrong. This can occur as a result of inaccurate
assumptions or as a consequence of known or unknown risks and uncertainties.
Many factors discussed in this report, such as government regulation and the
competitive
36
<PAGE>
environment, will be important in determining our future performance.
Consequently, actual results may differ materially from those that might be
anticipated from forward-looking statements.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
However, any further disclosures made on related subjects in Mandalay's
subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. The
following discussion of risks, uncertainties and possible inaccurate assumptions
relevant to our business includes factors we believe could cause our actual
results to differ materially from expected and historical results. Other factors
beyond those listed below could also adversely affect us. This discussion is
provided as permitted by the Private Securities Litigation Reform Act of 1995.
- As described under "Competition," we and the joint ventures in which we
participate operate in a very competitive environment, particularly in Las
Vegas. The growth in the number of hotel rooms in Las Vegas, which
increased sharply in 1999, and the spread of legalized gaming in other
states and countries, have negatively affected our operating results and
may continue to do so.
- As discussed under "Regulation and Licensing," our gaming operations and
the gaming operations of the joint ventures in which we participate are
highly regulated by governmental authorities in Nevada, Mississippi,
Illinois and Michigan. We will also become subject to regulation in any
other jurisdiction where we or any joint venture in which we participate
conducts gaming in the future. Any regulation in other jurisdictions may
or may not be similar to that in Nevada, Mississippi, Illinois and
Michigan.
- Changes in applicable laws or regulations could have a significant effect
on our operations of the Company and the gaming joint ventures in which we
participate. As a result of federal legislation passed in 1996, the
National Gambling Impact Study Commission conducted a two-year study of
the gaming industry in the United States and reported its findings and
recommendations to Congress in June 1999. It is possible that this report
may result in additional regulation and taxation of the gaming industry.
- Our operations and those of the joint ventures in which we participate are
affected by changes in local and national general economic and market
conditions in the locations where operations are conducted and where
customers live. Our Nevada properties and those of the two Nevada joint
ventures in which we participate are affected by the economic conditions
in California and Mandalay Bay may be susceptible to the effects of
economic conditions in the Far East.
- The interstate highway between Las Vegas and southern California, where a
large number of our customers reside, has experienced long traffic delays
during peak periods. Such delays may affect the number of customers who
visit our facilities in southern Nevada.
- Plans for future construction can be affected by a number of factors,
including time delays in obtaining necessary governmental permits and
approvals and legal challenges. Changes may be made in the scope of a
project, budgets and schedules for competitive, aesthetic or other
reasons, and these changes may also result from circumstances beyond our
control. These circumstances include weather interference, shortages of
materials and labor, work stoppages, labor disputes, unforeseen
engineering, environmental or geological problems and unanticipated cost
increases. Any of these circumstances could give rise to delays in the
completion of any project we or any joint venture in which we participate
may undertake or cost overruns.
- The gaming industry represents a significant source of tax revenues to the
state, county and local jurisdictions in which gaming is conducted. From
time to time, various state and federal legislators and officials have
proposed changes in tax laws, or in the administration of the laws,
affecting the gaming industry. Proposals in recent years that have not
been enacted included a federal gaming tax and increases in state or local
taxes.
37
<PAGE>
- We believe that our recorded tax balances are adequate. However, it is not
possible to determine with certainty the likelihood of possible changes in
the tax laws or their administration. These changes, if adopted, could
have a material negative effect on our operating results and the operating
results of joint ventures in which we participate.
- Our debt has increased in the past several years. The interest rate on a
large portion of our long-term debt is subject to fluctuation based on
changes in short-term interest rates and the ratings which national rating
agencies assign to outstanding debt securities. Interest expense could
increase as a result of these factors.
- Claims have been brought against us in various legal proceedings, and
additional legal and tax claims arise from time to time. It is possible
that our cash flows and results of operations could be affected from time
to time by the resolution of one or more of these contingencies. We
believe that the ultimate disposition of current matters will not have a
material impact on our financial condition or results of operations. See
the further discussion under "Legal Proceedings" in Item 3 of this report.
- There is intense competition to attract and retain management and key
employees in the gaming industry. Our business or the business of the
joint ventures in which we participate could be adversely affected in the
event of the inability to recruit or retain key personnel.
- Legal proceedings are currently pending which challenge the city ordinance
pursuant to which our Detroit joint venture was selected to develop one of
three casinos permitted to be developed in Detroit, Michigan and the
issuance of a casino license to our Detroit joint venture. See "Detroit
Litigation" in Item 3 of this report. Depending on the eventual outcome of
these legal proceedings, our Detroit joint venture's ability to continue
to operate the temporary casino it opened in December 1999 could be
precluded or otherwise adversely impacted and/or its ability to construct,
open and/or operate a permanent Detroit hotel-casino could be delayed,
precluded or otherwise adversely impacted.
- While Mandalay from time to time communicates with securities analysts, it
is against our policy to disclose to them any material non-public
information or other confidential business information. Therefore, it
should not be assumed that we agree with any statement or report issued by
any analyst, irrespective of the content of the statement or report.
Furthermore, we have a policy against publicly issuing financial forecasts
or projections or confirming forecasts or projections issued by others.
Hence, to the extent that reports issued by securities analysts contain
any projections, forecasts or opinions, those reports are not our
responsibility.
ITEM 2. PROPERTIES.
MANDALAY BAY. We own approximately 60 acres of land, with approximately
1,300 feet of frontage, on the Las Vegas Strip and Mandalay Bay which is
situated on the site. For additional information concerning Mandalay Bay, see
"Overview" and "Property Descriptions--Las Vegas, Nevada--Mandalay Bay" in
Item 1 of this report.
LUXOR AND EXCALIBUR. We own a 117-acre parcel on the southwest corner of
the intersection of the Las Vegas Strip and Tropicana Avenue, with approximately
2,400 feet of frontage on the Las Vegas Strip, that includes, Excalibur, which
is situated on the northern portion of the parcel, and Luxor, which is situated
on such site to the south of Excalibur. For additional information concerning
Luxor and Excalibur, see "Overview" and "Property Descriptions--Las Vegas,
Nevada--Luxor" and--Excalibur" in Item 1 of this report.
CIRCUS CIRCUS-LAS VEGAS. We own approximately 69 acres of land, with
approximately 375 feet of frontage on the Las Vegas Strip, and Circus Circus-Las
Vegas which is situated on the site. For additional
38
<PAGE>
information concerning Circus Circus-Las Vegas, see "Overview" and "Property
Descriptions--Las Vegas, Nevada--Circus Circus--Las Vegas" in Item 1 of this
report.
CIRCUS CIRCUS-RENO. Circus Circus-Reno is situated on a three-block area in
downtown Reno, of which approximately 90% is owned by us and the remainder is
held under two separate leases, which expire in 2032 and 2033, respectively. For
additional information concerning Circus Circus-Reno, see "Overview" and
"Property Descriptions--Reno, Nevada--Circus Circus--Reno" in Item 1 of this
report.
COLORADO BELLE. We own approximately 22 acres on the bank of the Colorado
River in Laughlin, Nevada and the Colorado Belle which is situated on the site.
For additional information concerning the Colorado Belle Hotel and Casino, see
"Overview" and "Property Descriptions--Laughlin, Nevada--Colorado Belle" in Item
1 of this report.
EDGEWATER. Adjacent to the site of the Colorado Belle, we own approximately
16 acres on the bank of the Colorado River in Laughlin, Nevada, and the
Edgewater Hotel and Casino which is situated on the site. For additional
information concerning the Edgewater Hotel and Casino, see "Overview" and
"Property Descriptions--Laughlin, Nevada--Edgewater" in Item 1 of this report.
GOLD STRIKE. We own approximately 51 acres and the Gold Strike Hotel &
Gambling Hall, which is situated on the site, located on the east side of I-15
in Jean, Nevada, approximately 12 miles from the California/Nevada border and 25
miles from Las Vegas. For additional information concerning Gold Strike, see
"Overview" and "Property Descriptions--Jean, Nevada--Gold Strike-Jean" in Item 1
of this report.
NEVADA LANDING. We own approximately 55 acres and the Nevada Landing
Hotel & Casino, which is situated on the site, located on the west side of I-15
in Jean, Nevada. For additional information concerning Nevada Landing, see
"Overview" and "Property Descriptions--Jean, Nevada--Nevada Landing" in Item 1
of this report.
RAILROAD PASS. We own approximately 56 acres and the Railroad Pass Hotel &
Casino, which is situated on the site, located on US-93 in Henderson, Nevada.
For additional information concerning Railroad Pass, see "Overview" and
"Property Descriptions--Henderson, Nevada--Railroad Pass" in Item 1 of this
report.
GOLD STRIKE-TUNICA. We own approximately 24 acres in Tunica County,
Mississippi and Gold Strike-Tunica, which is situated on the site. We also own
an undivided 50% interest in an additional 388-acre site which is owned jointly
with another unaffiliated gaming company. For additional information concerning
Gold Strike-Tunica, see "Overview" and "Property Descriptions--Tunica County,
Mississippi--Gold Strike-Tunica" in Item 1 of this report.
OTHER REAL PROPERTY. Slots-A-Fun is situated on a 30,000-square-foot parcel
that we own and has approximately 100 feet of frontage on the Las Vegas Strip.
We own approximately 60 acres of unimproved land located immediately south
of Mandalay Bay and approximately 15 acres of land on the Las Vegas Strip across
from Luxor, which from time to time is utilized as a parking lot for employees
at Luxor and Excalibur.
We own 60 acres of land in Jean, Nevada to the north of Gold Strike and
approximately 89 acres of land in Sloan, Nevada off of I-15. Sloan is located
between Jean and Las Vegas.
We also own or lease, or have options and/or agreements to purchase or
lease, certain other improved and unimproved properties which are not deemed to
be material to us.
As of January 31, 2000, none of the aforementioned properties we own was
subject to any encumbrance securing the repayment of indebtedness.
39
<PAGE>
JOINT VENTURE INTERESTS. Mandalay, either directly or through wholly owned
subsidiaries, owns:
- a 50% interest in the joint venture entity which owns and operates Silver
Legacy, a hotel-casino in Reno, Nevada;
- a 53.5% interest in the joint venture entity which owns and operates
MotorCity Casino, a temporary casino in Detroit, Michigan;
- a 50% interest in the joint venture entity which owns and operates Monte
Carlo, a hotel-casino complex on the Las Vegas Strip; and
- a 50% interest in the Elgin joint venture entity which owns and operates
Grand Victoria, a riverboat casino and land-based entertainment complex in
Elgin, Illinois.
Reference is made to the information concerning these joint venture
properties appearing under the captions "Overview" and "Property Descriptions"
in Item 1 of this report, which information is hereby incorporated in this Item
2 by this reference.
The following table set forth for each of our joint venture properties the
principal amount of indebtedness secured by encumbrances on that property as of
January 31, 2000.
<TABLE>
<CAPTION>
PROPERTY AMOUNT
- -------- -------------
(IN MILLIONS)
<S> <C>
Silver Legacy............................................ $170.0
MotorCity Casino......................................... 150.0
Monte Carlo.............................................. 87.0
Grand Victoria........................................... --
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
SLOT MACHINE LITIGATION
On April 26, 1994, William H. Poulos brought a class action in the U.S.
District Court for the Middle District of Florida, Orlando Division captioned
WILLIAM H. POULOS, ET AL. V. CAESARS WORLD, INC. ET AL., against 41
manufacturers, distributors and casino operators of video poker and electronic
slot machines, including Mandalay. On May 10, 1994, another plaintiff filed a
class action complaint in the United States District Court for the Middle
District of Florida in WILLIAM AHEARN, ET AL. V. CAESARS WORLD, INC. ET AL.
alleging substantially the same allegations against 48 defendants, including
Mandalay. On September 26, 1995, a third action was filed against 45 defendants,
including Mandalay, in the U.S. District Court for the District of Nevada in
LARRY SCHREIER, ET AL. V. CAESARS WORLD, INC. ET AL. The court consolidated the
three cases in the U.S. District Court for the District of Nevada under the case
captioned WILLIAM H. POULOS, ET AL. V. CAESARS WORLD, INC. ET AL.
The consolidated complaints allege that the defendants are involved in a
scheme to induce people to play electronic video poker and slot machines based
on false beliefs regarding how such machines operate and the extent to which a
player is likely to win on any given play. The actions included claims under the
Federal Racketeering Influenced and Corrupt Organizations Act, as well as claims
of common law fraud, unjust enrichment and negligent misrepresentation, and seek
unspecified compensatory and punitive damages. A motion for class certification
was filed in March 1998 but has not been ruled upon by the court. Discovery on
the merits has been stayed pending a ruling on the motion for class
certification.
40
<PAGE>
DETROIT LITIGATION
In LAC VIEUX DESERT BAND OF LAKE SUPERIOR CHIPPEWA INDIANS V. THE MICHIGAN
GAMING CONTROL BOARD ET AL., the Lac Vieux Band of Lake Superior Chippewa
Indians has sought to challenge the validity of the Michigan Gaming Control and
Revenue Act (the "Michigan Act") and the City of Detroit's Casino Development
Competitive Selection Process ordinance (the "Detroit ordinance"). On
October 31, 1997, the United States District Court for the Western District of
Michigan issued an opinion holding that the Lac Vieux Band lacked standing to
challenge the Michigan Act and the Detroit ordinance on First Amendment and
Equal Protection grounds. In a decision issued on April 12, 1999, the United
States Court of Appeals for the Sixth Circuit affirmed the District Court's
determination that the Lac Vieux Band lacked standing to challenge the Michigan
Act. However, the Sixth Circuit reversed the District Court's determination that
(i) the Lac Vieux Band lacked standing to challenge the Detroit ordinance,
(ii) the First Amendment is not implicated in the Detroit ordinance, and
(iii) a rational basis review rather than a strict scrutiny review should be
applied in determining the merits of the Lac Vieux equal protection claim
regarding the Detroit ordinance. The Sixth Circuit remanded the case to the
District Court for further proceedings consistent with the Sixth Circuit's
decision. No assurance can be given regarding the probable result of this
litigation.
In BARDEN DETROIT CASINO, L.L.C. V. THE CITY OF DETROIT, ET AL., Barden
Detroit Casino, L.L.C. sought to challenge the validity of the Michigan Act and
the Detroit ordinance. On July 22, 1999 the United States District Court for the
Eastern District of Michigan entered an Order dismissing this challenge. Barden
Detroit Casino, L.L.C. has appealed the District Court's decision to the United
States Court of Appeals for the Sixth Circuit. The appeal is currently pending
in the Court of Appeals. No assurance can be given regarding the timing or
outcome of further proceedings in this litigation.
If it is ultimately determined that the Michigan Act or the Detroit
ordinance is defective, this could result in the termination of the license to
operate our temporary casino or otherwise adversely impact our ability to
continue to operate that facility and could prevent or otherwise adversely
impact our ability to construct, open or operate our proposed permanent
hotel-casino in downtown Detroit.
In a separate action entitled LAC VIEUX DESERT BAND OF LAKE SUPERIOR
CHIPPEWA INDIANS V. MICHIGAN GAMING CONTROL BOARD, the Lac Vieux Band of Lake
Superior Chippewa Indians sought to appeal in the Michigan Court of Appeals the
Michigan Gaming Control Board's grant of a casino license to our Detroit joint
venture. The Michigan Court of Appeals has decided that the Lac Vieux Band does
not have standing to appeal the issuance of the casino license. The Lac Vieux
Band can seek to appeal this decision. If an appellate court determines that the
Lac Vieux Band has standing to appeal the issuance of the license, then the
Michigan Court of Appeals can review the issuance of the casino license to our
Detroit joint venture based upon standards set forth in the Michigan
Administrative Procedures Act for appeal of an administrative decision. No
assurance can be given regarding the probable result of this litigation.
We are defendants in various other pending lawsuits. In management's
opinion, the ultimate outcome of such lawsuits will not have a material adverse
effect on our results of operations or our financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of Mandalay's security holders during the
fourth quarter of the fiscal year ended January 31, 2000.
41
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Price Range of Common Stock. Mandalay's common stock is listed on the New
York Stock Exchange and on the Pacific Exchange and traded under the symbol MBG.
Until June 18, 1999, when Mandalay changed its corporate name, the common stock
was traded under the symbol CIR. The following table sets forth, for the fiscal
quarters shown, the low and high sale prices for the common stock on the New
York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
FISCAL 2000 LOW HIGH
- ----------- -------- --------
<S> <C> <C>
First Quarter............................................... $12.69 $21.88
Second Quarter.............................................. $16.38 $26.31
Third Quarter............................................... $16.75 $24.00
Fourth Quarter.............................................. $15.00 $24.38
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1999 LOW HIGH
- ----------- -------- --------
<S> <C> <C>
First Quarter............................................... $17.56 $26.50
Second Quarter.............................................. $13.63 $19.25
Third Quarter............................................... $ 7.13 $13.94
Fourth Quarter.............................................. $10.75 $14.13
</TABLE>
On April 20, 2000 there were 3,614 holders of record of Mandalay's common stock.
DIVIDEND POLICY. Mandalay does not currently pay a cash dividend, nor is one
contemplated in the foreseeable future. We believe that currently our
stockholders are best served by reinvestment in new, high-return projects and/or
share repurchase. Mandalay has a policy of periodic share repurchase, as cash
flows, borrowing capacity and market conditions warrant.
42
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:(1)
Revenues (2)....................... $2,050,898 $1,479,780 $1,354,487 $1,334,250 $1,299,596
Income from operations............. 273,736 242,779 236,500 222,169 251,373
Pretax income...................... 103,116 140,815 147,922 163,863 205,759
Net income......................... 42,163 85,198 89,908 100,733 128,898
Basic earnings per share........... $ .47 $ .90 $ .95 $ .99 $ 1.33
Diluted earnings per share......... $ .46 $ .90 $ .94 $ .97 $ 1.30
BALANCE SHEET DATA:
Total assets....................... $4,329,476 $3,869,707 $3,263,548 $2,729,111 $2,213,503
Long-term debt..................... 2,691,292 2,259,149 1,788,818 1,405,897 715,214
Stockholders' equity............... 1,187,780 1,157,628 1,123,749 971,791 1,226,812
</TABLE>
- ------------------------
(1) Gold Strike, Nevada Landing and Railroad Pass were acquired on June 1, 1995.
The Hacienda was acquired on September 1, 1995 and closed on December 1,
1996. Mandalay Bay opened on March 2, 1999 and MotorCity Casino opened on
December 14, 1999. Silver City, a small casino on the Las Vegas Strip, was
operated under a lease which expired October 31, 1999.
(2) Revenues are net of complimentary allowances.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated herein by reference are pages 21 through 34 of Mandalay's
Annual Report to Stockholders for the fiscal year ended January 31, 2000 (the
"2000 Annual Report"), which pages are included as part of Exhibit 13 to this
report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The information in the 2000 Annual Report beginning immediately following
the caption "Market Risk and Derivative Financial Instruments" on page 32
thereof to, but not including, the caption "Year 2000 Readiness Disclosure" on
page 33 thereof is incorporated herein by reference, which information is
included as part of Exhibit 13 to this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated herein by reference are pages 35 through 56 of the 2000 Annual
Report, which pages are included as part of Exhibit 13 to this report.
43
<PAGE>
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 2000
------------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
----------- ----------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue.............................. $471,259 $516,181 $545,202 $518,256 $2,050,898
Income from operations............... 62,499 79,130 89,856 42,251 273,736
Income (loss) before income tax...... 27,427 36,261 46,171 (6,743) 103,116
Net income (loss).................... (4,855) 23,631 28,757 (5,370) 42,163
Basic earnings (loss) per share...... $ (.05) $ .26 $ .32 $ (.06) $ .47
Diluted earnings (loss) per share.... $ (.05) $ .26 $ .31 $ (.06) $ .46
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1999
------------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
----------- ----------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue.............................. $356,962 $384,661 $382,449 $355,708 $1,479,780
Income from operations............... 61,059 66,105 64,257 51,358 242,779
Income before income tax............. 35,794 40,043 39,289 25,689 140,815
Net income........................... 21,607 25,285 23,716 14,590 85,198
Basic earnings per share............. $ .23 $ .27 $ .25 $ .16 $ .90
Diluted earnings per share........... $ .23 $ .27 $ .25 $ .16 $ .90
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
44
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information beginning with the question "What is the background of this
year's nominees?" under the caption "Item I--Election of Directors and Nominee
Biographies" to, but not including, the caption "Compensation of Directors" in
the proxy statement to be filed by Mandalay with the Securities and Exchange
Commission within 120 days after the close of the fiscal year ended January 31,
2000 and forwarded to stockholders prior to Mandalay's 2000 Annual Meeting of
Stockholders (the "2000 Proxy Statement"), is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information in the 2000 Proxy Statement beginning immediately following
the caption "Compensation of Directors" to, but not including, the caption
"Board Committees and Meeting Attendance" and the additional information in the
2000 Proxy Statement beginning immediately following the caption "Executive
Compensation" to, but not including, the caption "Certain Transactions" is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information in the 2000 Proxy Statement beginning immediately following
the caption "Stock Ownership of Certain Beneficial Owners and Management" to,
but not including, the caption "General", is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information in the 2000 Proxy Statement beginning immediately following
the caption "Certain Transactions" to, but not including, the caption "Report of
the Board of Directors and the Compensation Committee on Executive Compensation"
and the additional information in the 2000 Proxy Statement beginning immediately
following the caption "Compensation Committee Interlocks and Insider
Participation" to, but not including, the caption "Comparative Stock Price
Performance Graph "is incorporated herein by reference.
45
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1)Consolidated Financial Statements:
<TABLE>
<CAPTION>
MANDALAY RESORT GROUP AND SUBSIDIARIES PAGE
- -------------------------------------- --------
<S> <C>
Consolidated Balance Sheets as of January 31, 2000 and
1999...................................................... 35*
Consolidated Statements of Income for the three years ended
January 31, 2000.......................................... 36*
Consolidated Statements of Cash Flows for the three years
ended January 31, 2000.................................... 37*
Consolidated Statements of Stockholders' Equity for the
three years ended January 31, 2000........................ 38*
Notes to Consolidated Financial Statements.................. 39*
Report of Independent Public Accountants.................... 56*
</TABLE>
(a)(2)Supplemental Financial Statement Schedules:
None.
- ------------------------
* Refers to page of Mandalay's Annual Report to Stockholders for the year
ended January 31, 2000, the incorporated portions of which are included as
Exhibit 13 to this report.
(a)(3)Exhibits:
The following exhibits are filed as a part of this Report or incorporated
herein by reference:
<TABLE>
<S> <C>
3(i)(a). Restated Articles of Incorporation of the Registrant as of
July 15, 1988 and Certificate of Amendment thereto, dated
June 29, 1989. (Incorporated by reference to Exhibit 3(a) to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1991.)
3(i)(b). Certificate of Division of Shares into Smaller
Denominations, dated June 20, 1991. (Incorporated by
reference to Exhibit 3(b) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 31, 1992.)
3(i)(c). Certificate of Division of Shares into Smaller
Denominations, dated June 22, 1993. (Incorporated by
reference to Exhibit 3(i) to the Registrant's Current Report
on Form 8-K dated July 21, 1993.)
3(i)(d). Certificate of Amendment of Restated Articles of
Incorporation of the Registrant, filed with the Office of
the Secretary of State of Nevada on June 18, 1999.
(Incorporated by reference to Exhibit 3(i) to the
Registrant's Current Report on Form 8-K dated June 18,
1999.)
3(ii). Restated Bylaws of the Registrant dated April 30, 1999.
(Incorporated by reference to Exhibit 3(ii) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1999).
4(a). Rights Agreement dated as of July 14, 1994, between the
Registrant and First Chicago Trust Company of New York.
(Incorporated by reference to Exhibit 4 to the Registrant's
Current Report on Form 8-K dated August 15, 1994.)
4(b). Amendment to Rights Agreement effective as of April 16,
1996, between the Registrant and First Chicago Trust Company
of New York. (Incorporated by reference to Exhibit 4(a) to
the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended July 31, 1996.)
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4(c). Amended and Restated Loan Agreement, dated as of May 23,
1997, by and among the Registrant, the Banks named therein
and Bank of America National Trust and Savings Association,
as administrative agent for the Banks, and the related
Subsidiary Guarantee dated May 23, 1997, of the Registrant's
subsidiaries named therein. (Incorporated by reference to
Exhibit 4(a) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended April 30, 1997.)
4(d). Amendment No. 1 to Amended and Restated Loan Agreement, by
and among the Registrant, the Banks named therein and Bank
of America National Trust and Savings Association, as
administrative agent for the Banks. (Incorporated by
reference to Exhibit 4(a) to the Registrant's Quarterly
Report for the quarterly period ended October 31, 1997.)
4(e). Amendment No. 2 to the Loan Agreement, by and among the
Registrant, the Banks named therein and Bank of America
National Trust and Savings Association, as administrative
agent for the Banks. (Incorporated by reference to
Exhibit 4(a) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended April 30, 1998.)
4(f). Amendment No. 3, dated as of June 22, 1999, to the Amended
and Restated Loan Agreement dated as of May 23, 1997, by and
among the Registrant, the Banks named therein and Bank of
America National Trust and Savings Association, as
administrative agent for the Banks. (Incorporated by
reference to Exhibit 4(a) to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended July 31,
1999.)
4(g). Rate Swap Master Agreement, dated as of October 24, 1986,
and Rate Swap Supplements One through Four. (Incorporated by
reference to Exhibit 4(j) to the Registrant's Current Report
on Form 8-K dated December 29, 1986.)
4(h). Interest Rate Swap Agreement, dated as of October 20, 1989,
by and between the Registrant and Salomon Brothers Holding
Company Inc. (Incorporated by reference to Exhibit 4(q) to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1990.)
4(i). Interest Rate Swap Agreement, dated as of September 27,
1999, by and between the Registrant and Bank of America,
N.A. (Incorporated by reference to Exhibit 4(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended October 31, 1999.)
4(j). Interest Rate Swap Agreement, dated as of September 27,
1999, by and between the Registrant and Bank of America,
N.A. (Incorporated by reference to Exhibit 4(b) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended October 31, 1999.)
4(k). Interest Rate Swap Agreement, dated as of October 13, 1999,
by and between the Registrant and Bank of America, N.A.
(Incorporated by reference to Exhibit 4(c) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended October 31, 1999.)
4(l). Interest Rate Cap Agreement, dated October 20, 1997, between
the Registrant and Morgan Guaranty Trust Company of New
York. (Incorporated by reference to Exhibit 4(f) to the
Registrant's Quarterly Report for the quarterly period ended
October 31, 1997.)
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4(m). Interest Rate Cap Agreement, dated January 13, 1998, between
the Registrant and Morgan Guaranty Trust Company of New
York. (Incorporated by reference to Exhibit 4(h) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998.)
4(n). Grid Promissory Note, dated October 17, 1997, between the
Registrant and Lyon Short Term Funding Corp. (Incorporated
by reference to Exhibit 4(g) to the Registrant's Quarterly
Report for the quarterly period ended October 31, 1997.)
4(o). Commercial Paper Dealer Agreement, dated October 9, 1997,
between the Registrant and Merrill Lynch Money Markets Inc.
(Incorporated by reference to Exhibit 4(b) to the
Registrant's Quarterly Report for the quarterly period ended
October 31, 1997.)
4(p). Commercial Paper Dealer Agreement, dated October 9, 1997,
between the Registrant and BancAmerica Robertson Stephens.
(Incorporated by reference to Exhibit 4(c) to the
Registrant's Quarterly Report for the quarterly period ended
October 31, 1997.)
4(q). Commercial Paper Dealer Agreement, dated October 9, 1997,
between the Registrant and Credit Suisse First Boston
Corporation. (Incorporated by reference to Exhibit 4(d) to
the Registrant's Quarterly Report for the quarterly period
ended October 31, 1997.)
4(r). Issuing and Paying Agency Agreement, dated October 9, 1997,
between the Registrant and The Chase Manhattan Bank.
(Incorporated by reference to Exhibit 4(e) to the
Registrant's Quarterly Report for the quarterly period ended
October 31, 1997.)
4(s). Indenture by and between the Registrant and First Interstate
Bank of Nevada, N.A., as Trustee with respect to the
Registrant's 6 3/4% Senior Subordinated Notes due 2003 and
its 7 5/8% Senior Subordinated Debentures due 2013.
(Incorporated by reference to Exhibit 4(a) to the
Registrant's Current Report on Form 8-K dated July 21,
1993.)
4(t). Indenture, dated February 1, 1996, by and between the
Registrant and First Interstate Bank of Nevada, N.A., as
Trustee. (Incorporated by reference to Exhibit 4(b) to the
Registrant's Current Report on Form 8-K dated January 29,
1996.)
4(u). Supplemental Indenture, dated February 1, 1996, by and
between the Registrant and First Interstate Bank of Nevada,
N.A., as Trustee, with respect to the Registrant's 6.45%
Senior Notes due February 1, 2006. (Incorporated by
reference to Exhibit 4(c) to the Registrant's Current Report
on Form 8-K dated January 29, 1996.)
4(v). 6.45% Senior Notes due February 1, 2006 in the principal
amount of $200,000,000. (Incorporated by reference to
Exhibit 4(d) to the Registrant's Current Report on Form 8-K
dated January 29, 1996.)
4(w). Supplemental Indenture, dated as of November 15, 1996, to an
indenture dated February 1, 1996, by and between the
Registrant and Wells Fargo Bank (Colorado), N.A., as
Trustee, with respect to the Registrant's 6.70% Senior Notes
due November 15, 2096. (Incorporated by reference to
Exhibit 4(c) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1996.)
4(x). 6.70% Senior Notes due February 15, 2096 in the principal
amount of $150,000,000. (Incorporated by reference to
Exhibit 4(d) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1996.)
4(y). Indenture, dated November 15, 1996, by and between the
Registrant and Wells Fargo Bank (Colorado), N.A., as
Trustee. (Incorporated by reference to Exhibit 4(e) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended October 31, 1996.)
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4(z). Supplemental Indenture, dated as of November 15, 1996, to an
indenture dated November 15, 1996, by and between the
Registrant and Wells Fargo Bank (Colorado), N.A., as
Trustee, with respect to the Registrant's 7.0% Senior Notes
due November 15, 2036. (Incorporated by reference to
Exhibit 4(f) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1996.)
4(aa). 7.0% Senior Notes due February 15, 2036, in the principal
amount of $150,000,000. (Incorporated by reference to
Exhibit 4(g) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1996.)
4(bb). Instrument of Joinder, dated May 31, 1998, by Mandalay
Corp., pursuant to the Subsidiary Guaranty dated as of
May 23, 1997, with respect to the Amended and Restated Loan
Agreement, in favor of Bank of America National Trust and
Savings Association, as administrative agent for the Banks.
(Incorporated by reference to Exhibit 4(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended July 31, 1998.)
4(cc). Indenture dated November 20, 1998, by and between the
Registrant and The Bank of New York, as Trustee.
(Incorporated by reference to Exhibit 4(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended October 31, 1998.)
4(dd). Supplemental Indenture, dated November 20, 1998, by and
between the Registrant and The Bank of New York, as Trustee,
with respect to the Registrant's 9 1/4% Senior Subordinated
Notes due December 1, 2005. (Incorporated by reference to
Exhibit 4(b) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1998.)
4(ee). 9 1/4% Senior Subordinated Notes due December 1, 2005 in the
principal amount of $275,000,000. (Incorporated by reference
to Exhibit 4(c) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1998.)
10(a).* 1983 Nonqualified Stock Option Plan of the Registrant.
(Incorporated by reference to Exhibit 10(d) to the
Registrant's Registration Statement (No. 2-85794) on
Form S-1.)
10(b).* 1983 Incentive Stock Option Plan of the Registrant.
(Incorporated by reference to Exhibit 10(e) to the
Registrant's Registration Statement (No. 2-85794) on
Form S-1.)
10(c).* Amendment to 1983 Incentive Stock Option Plan. (Incorporated
by reference to Exhibit 4(a) to the Registrant's
Registration Statement (No. 2-91950) on Form S-8.)
10(d).* Amended and Restated 1989 Stock Option Plan of the
Registrant. (Incorporated by reference to Exhibit 10 to the
Post Effective Amendment No. 4 to the Registrant's
Registration Statement (No. 33-39215) on Form S-8.)
10(e).* Amended and Restated 1991 Stock Incentive Plan of the
Registrant. (Incorporated by reference to Exhibit 10 to the
Post Effective Amendment No. 3 to the Registrant's
Registration Statement (No. 33-56420) on Form S-8.)
10(f).* Amended and Restated 1993 Stock Option Plan of the
Registrant. (Incorporated by reference to Exhibit 10 to the
Post Effective Amendment No. 2 to the Registrant's
Registration Statement (No. 33-53303) on Form S-8.)
10(g).* 1998 Stock Option Plan. (Incorporated by reference to
Exhibit 4(g) to the Registrant's Registration Statement
(No.333-51073) on Form S-8.)
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10(h). 1999 Non-employee Directors Stock Option Plan. (Incorporated
by reference to Exhibit 10(i) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31,
1999).
10(i).* Executive Compensation Insurance Plan. (Incorporated by
reference to Exhibit 10(i) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31,
1992.)
10(j). Lease, dated November 1, 1957, by and between Bethel Palma
and others, as lessor, and the Registrant's predecessor in
interest, as lessee; Amendment of Lease, dated May 6, 1983.
(Incorporated by reference to Exhibit 10(g) to the
Registrant's Registration Statement (No. 2-85794) on
Form S-1.)
10(k). Grant, Bargain and Sale Deed to the Registrant pursuant to
the Lease dated November 1, 1957. (Incorporated by reference
to Exhibit 10(h) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1984.)
10(l). Lease, dated August 3, 1977, by and between B&D
Properties, Inc., as lessor, and the Registrant, as lessee;
Amendment of Lease, dated May 6, 1983. (Incorporated by
reference to Exhibit 10(h) to the Registrant's Registration
Statement (No. 2-85794) on Form S-1.)
10(m). Thirteenth Amendment and Restatement of the Registrant's
Employees' Profit Sharing and Investment Plan. (Incorporated
by reference to Exhibit 4(d) to Post Effective Amendment
No. 11 to the Registrant's Registration Statement
(No. 33-18278) on Form S-8.)
10(n). Ninth Amendment and Restatement to the Registrant's
Employees' Profit Sharing and Investment Trust.
(Incorporated by reference to Exhibit 4(e) to Post Effective
Amendment No. 11 to the Registrant's Registration Statement
(No. 33-18278) on Form S-8.)
10(o). Group Annuity Contract No. GA70867 between Philadelphia Life
(formerly Bankers Life Company) and Trustees of the
Registrant's Employees' Profit Sharing and Investment Plan.
(Incorporated by reference to Exhibit 4(c) to the
Registrant's Registration Statement (No. 33-1459) on
Form S-8.)
10(p). Lease, dated as of November 1, 1981, between Novus Property
Company, as landlord, and the Registrant, as tenant.
(Incorporated by reference to Exhibit 4(h) to the
Registrant's Registration Statement (No. 2-85794) on
Form S-1.)
10(q). First Addendum and First Amendment, each dated as of
June 15, 1983, to Lease dated as of November 1, 1981.
(Incorporated by reference to Exhibit 4(i) to the
Registrant's Annual Report on Form 10-K for the year ended
January 31, 1984.)
10(r). Second Amendment, dated as of April 1, 1984, to Lease dated
as of November l, 1981. (Incorporated by reference to
Exhibit 10(o) to the Registrant's Registration Statement
(No. 33-4475) on Form S-1.)
10(s). Lease by and between Robert Lewis Uccelli, guardian, as
lessor, and Nevada Greens, a limited partnership, William N.
Pennington, as trustee, and William G. Bennett, as trustee,
and related Assignment of Lease. (Incorporated by reference
to Exhibit 10(p) to the Registrant's Registration Statement
(No. 33-4475) on Form S-1.)
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10(t). Agreement of Purchase, dated March 15, 1985, by and between
Denio Brothers Trucking Company, as seller, and the
Registrant, as buyer, and related lease by and between Denio
Brothers Trucking Co., as lessor, and Nevada Greens, a
limited partnership, William N. Pennington, as trustee, and
William G. Bennett, as trustee, and related Assignment of
Lease. (Incorporated by reference to Exhibit 10(q) to the
Registrant's Registration Statement (No. 33-4475) on
Form S-1.)
10(u). Agreement of Joint Venture, dated as of March 1, 1994, by
and among Eldorado Limited Liability Company,
Galleon, Inc., and the Registrant. (Incorporated by
reference to Exhibit 10(y) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 31, 1994.)
10(v). Amended and Restated Credit Agreement, dated November 24,
1997, by and among Circus and Eldorado Joint Venture, the
Banks named therein and Bank of America National Trust and
Savings Association as Administrative Agent, and the related
Note, Amended and Restated Make-Well Agreement and Amended
and Restated Deed of Trust. (Incorporated by reference to
Exhibit 4(h) to the Registrant's Quarterly Report for the
quarterly period ended October 31, 1997.)
10(w). Amendment No. 1 to the Amended and Restated Credit
Agreement, by and among Circus and Eldorado Joint Venture,
the Banks named therein and Bank of America National Trust
and Savings Association as Administrative Agent.
10(x). Agreement and Plan of Merger, dated March 19, 1995, by and
among the Registrant and M.S.E. Investments, Incorporated,
Last Chance Investments, Incorporated, Gold Strike
Investments, Incorporated, Diamond Gold, Inc., Gold Strike
Aviation, Incorporated, Gold Strike Finance Company, Inc.,
Oasis Development Company, Inc., Michael S. Ensign, William
A. Richardson, David R. Belding, Peter A. Simon II and
Robert J. Verchota. (Incorporated by reference to
Exhibit 10(ee) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1995.)
10(y). First Amendment to Agreement and Plan of Merger, dated
May 30, 1995, by and among the Registrant and M.S.E.
Investments, Incorporated, Last Chance Investments,
Incorporated, Goldstrike Investments, Incorporated, Diamond
Gold, Inc., Gold Strike Aviation, Incorporated, Goldstrike
Finance Company, Inc., Oasis Development Company, Inc.,
Michael S. Ensign, William A. Richardson, David R. Belding,
Peter A. Simon II and Robert J. Verchota. (Incorporated by
reference to Exhibit 99.2 of the Schedule 13D of Michael S.
Ensign relating to the Registrant's Common Stock, filed on
June 12, 1995.)
10(z). Exchange Agreement, dated March 19, 1995, by and among the
Registrant and New Way, Inc., a wholly owned subsidiary of
the Registrant, Glenn W. Schaeffer, Gregg H. Solomon,
Antonio C. Alamo, Anthony Korfman and William Ensign.
(Incorporated by reference to Exhibit 10(ff) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1995.)
10(aa). First Amendment to Exchange Agreement, dated May 30, 1995,
by and among the Registrant and New Way, Inc., a wholly
owned subsidiary of the Registrant, Glenn W. Schaeffer,
Gregg H. Solomon, Antonio C. Alamo, Anthony Korfman and
William Ensign. (Incorporated by reference to Exhibit 10(d)
to the Registrant's Current Report on Form 8-K dated
June 1, 1995.)
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10(bb). Registration Rights Agreement, dated as of June 1, 1995, by
and among the Registrant and Michael S. Ensign, William A.
Richardson, David R. Belding, Peter A. Simon II, Glenn W.
Schaeffer, Gregg H. Solomon, Antonio C. Alamo, Anthony
Korfman, William Ensign and Robert J. Verchota.
(Incorporated by reference to Exhibit 99.5 of the
Schedule 13D of Michael S. Ensign, relating to the
Registrant's Common Stock, filed on June 12, 1995.)
10(cc). Standstill Agreement, dated as of June 1, 1995, by and among
the Registrant and Michael S. Ensign, William A. Richardson,
David R. Belding, Peter A. Simon II and Glenn W. Schaeffer.
(Incorporated by reference to Exhibit 99.4 of the
Schedule 13D of Michael S. Ensign, relating to the
Registrant's Common Stock, filed on June 12, 1995.)
10(dd). Amendment No. 1 to Standstill Agreement, effective
April 16, 1996, by and among the Registrant and Michael S.
Ensign, William A. Richardson, David R. Belding, Peter A.
Simon II and Glenn W. Schaeffer. (Incorporated by reference
to Exhibit 99.7 of Amendment No. 2 to the Schedule 13D of
Michael S. Ensign, relating to the Registrant's Common
Stock, filed on September 5, 1996.)
10(ee).* Executive Officer Annual Bonus Plan. (Incorporated by
reference to Exhibit 10(hh) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31,
1995.)
10(ff).* Amendment and Restatement of Employment Agreement dated
November 1, 1997, by and between the Registrant and Clyde
Turner. (Incorporated by reference to Exhibit 10(ee) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998.)
10(gg).* Agreement and Release dated January 17, 1998, by and between
the Registrant and Clyde Turner. (Incorporated by reference
to Exhibit 10(ff) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1998.)
10(hh).* Amendment and Restatement of Employment Agreement dated
November 1, 1997, by and between the Registrant and Michael
S. Ensign. (Incorporated by reference to Exhibit 10(gg) to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1998.)
10(ii).* Amendment and Restatement of Employment Agreement dated
November 1, 1997, by and between the Registrant and Glenn W.
Schaeffer. (Incorporated by reference to Exhibit 10(hh) to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1998.)
10(jj). Amendment and Restatement of Employment Agreement dated
November 1, 1997, by and between the Registrant and William
A. Richardson. (Incorporated by reference to
Exhibit 10(ii) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1998.)
10(kk). Amendment and Restatement of Employment Agreement dated
November 1, 1997, by and between the Registrant and Antonio
C. Alamo. (Incorporated by reference to Exhibit 10(kk) to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1998.)
10(ll). Amendment and Restatement of Employment Agreement dated
November 1, 1997, by and between the Registrant and Gregg H.
Solomon. (Incorporated by reference to Exhibit 10(ll) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998.)
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10(mm). Joint Venture Agreement, dated as of December 18, 1992,
between Nevada Landing Partnership and RBG, L.P.
(Incorporated by reference to Exhibit 10(g) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended July 31, 1995.)
10(nn). Amendment dated July 15, 1993 to the Joint Venture Agreement
between Nevada Landing Partnership and RBG, L.P.
(Incorporated by reference to Exhibit 10(h) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended July 31, 1995.)
10(oo). Amendment dated October 6, 1994 to the Joint Venture
Agreement between Nevada Landing Partnership and RBG, L.P.
(Incorporated by reference to Exhibit 10(i) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended July 31, 1995.)
10(pp). Amendment dated June 1, 1995 to the Joint Venture Agreement
between Nevada Landing Partnership and RBG, J.P.
(Incorporated by reference to Exhibit 10(j) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended July 31, 1995.)
10(qq). Amendment dated February 28, 1996 to the Joint Venture
Agreement between Nevada Landing Partnership and RBG, L.P.
(Incorporated by reference to Exhibit 10(ww) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1996.)
10(rr). Reducing Revolving Loan Agreement, dated as of December 21,
1994, among Victoria Partners, each bank party thereto, The
Long-Term Credit Bank of Japan, Ltd., Los Angeles Agency,
and Societe Generale, as Co-agents, and Bank of America
National Trust and Savings Association, as Administrative
Agent (without Schedules or Exhibits) (the "Victoria
Partners Loan Agreement"). (Incorporated by reference to
Exhibit 99.2 to Amendment No. 1 on Form 8-K/A to the Current
Report on Form 8-K dated December 9, 1994 of Mirage Resorts,
Incorporated. Commission File No. 1-6697.)
10(ss). Amendment No. 1 to the Victoria Partners Loan Agreement,
dated as of January 31, 1995. (Incorporated by reference to
Exhibit 10(uu) to the Annual Report on Form 10-K for the
year ended December 31, 1994 of Mirage Resorts,
Incorporated. Commission File No. 1-6697.)
10(tt). Amendment No. 2 to the Victoria Partners Loan Agreement,
dated as of June 30, 1995. (Incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995 of Mirage Resorts,
Incorporated. Commission File No. 1-6697.)
10(uu). Amendment No. 3 to the Victoria Partners Loan Agreement,
dated as of July 28, 1995. (Incorporated by reference to
Exhibit 10.3 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995 of Mirage Resorts,
Incorporated. Commission File No. 1-6697.)
10(vv). Amendment No. 4 to the Victoria Partners Loan Agreement,
dated as of October 16, 1995. (Incorporated by reference to
Exhibit 10(a) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1995.)
10(ww). Amendment No. 5 to the Victoria Partners Loan Agreement
dated as of August 1, 1996. (Incorporated by reference to
Exhibit 10(a) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended July 31, 1996.)
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10(xx). Amendment No. 6 to the Victoria Partners Loan Agreement,
dated as of April 12, 1997. (Incorporated by reference to
Exhibit 10(ccc) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1997.)
10(yy). Amendment No. 7 to the Victoria Partners Loan Agreement,
dated as of January 12, 1998. (Incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998 of Mirage Resorts,
Incorporated. Commission File No.1-6697.)
10(zz). Joint Venture Agreement, dated as of December 9, 1994,
between MRGS Corp. and Gold Strike L.V. (without Exhibit)
(the "Victoria Partners Venture Agreement"). (Incorporated
by reference to Exhibit 99.1 to the Current Report on
Form 8-K dated December 9, 1994 of Mirage Resorts,
Incorporated. Commission File No. 1-6697.)
10(aaa). Amendment No. 1 to the Victoria Partners Venture Agreement
dated as of April 17, 1995. (Incorporated by reference to
Exhibit 10(c) to the Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1995 of Mirage Resorts,
Incorporated. Commission File No. 1-6697.)
10(bbb). Amendment No. 2 to the Victoria Partners Venture Agreement
dated as of September 25, 1995. (Incorporated by reference
to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1995 of Mirage Resorts,
Incorporated. Commission File No. 1-6697.)
10(ccc). Amendment No. 3 to the Victoria Partners Venture Agreement
dated as of February 28, 1996. (Incorporated by reference
to Exhibit 10(fff) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1996.)
10(ddd). Amendment No. 4 to the Victoria Partners Venture Agreement
dated as of May 29, 1996. (Incorporated by reference to
Exhibit 10(b) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended April 30, 1996.)
10(eee). Consulting Agreement, dated June 1, 1995, between Circus
Circus Casinos, Inc. (a subsidiary of the Registrant) and
Lakeview Company. (Incorporated by reference to
Exhibit 10(ggg) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1996.)
10(fff). Letter agreement between the Registrant and Atwater Casino
Group, L.L.C., and related Executive Summary. (Incorporated
by reference to Exhibit 10(a) to the Registrant's Amendment
on Form 10-Q/A dated August 1, 1997.)
10(ggg). Operating Agreement, dated October 7, 1997, by and between
Circus Circus Michigan, Inc. and Atwater Casino Group,
L.L.C. (Incorporated by reference to Exhibit 10(a) to the
Registrant's Quarterly Report for the quarterly period ended
October 31, 1997.)
10(hhh). First Amendment to Operating Agreement, by and between
Circus Circus Michigan, Inc. and Atwater Casino Group,
L.L.C.
10(iii). Amended First Amendment to Operating Agreement, by and
between Circus Circus Michigan, Inc. and Atwater Casino
Group, L.L.C.
10(jjj). Second Amendment to Operating Agreement, by and between
Circus Circus Michigan, Inc. and Atwater Casino Group,
L.L.C.
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10(kkk). Amended and Restated Development Agreement, dated as of
April 9, 1998, by and among Detroit Entertainment, L.L.C.,
the City of Detroit and the Economic Development Corporation
of the City of Detroit for the City of Detroit Casino
Development Project. (Incorporated by reference to
Exhibit 10(a) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended July 31, 1998.)
10(lll). First Amendment to the Amended and Restated Development
Agreement, dated as of April 9, 1998, by and among Detroit
Entertainment, L.L.C., the City of Detroit and the Economic
Development Corporation of the City of Detroit for the City
of Detroit Casino Development Project. (Incorporated by
reference to Exhibit 10(b) to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended July 31,
1998.)
10(mmm). Second Amendment to the Amended and Restated Development
Agreement, by and among Detroit Entertainment, L.L.C., the
City of Detroit and the Economic Development Corporation of
the City of Detroit for the City of Detroit Casino
Development Project.
10(nnn). Conveyance Agreement, dated April 29, 1999, by and among the
City of Detroit, the Economic Development Corporation of the
City of Detroit and Detroit Entertainment, L.L.C.
(Incorporated by reference to Exhibit 10(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended April 30, 1999.)
10(ooo). Loan Agreement, dated as of June 30, 1999 among Detroit
Entertainment, L.L.C., the Banks named therein and Bank of
America National Trust and Savings Association, as
administrative agent for the Banks. (Incorporated by
reference to Exhibit 10(a) to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended July 31,
1999.)
10(ppp). Hotel Pre-opening Services Agreement, dated as of
January 1, 1997, by and among the Registrant and Four
Seasons Hotels Limited. (Incorporated by reference to
Exhibit 10(kkk) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1998.)
10(qqq). Hotel Management Agreement, dated as of March 10, 1998, by
and among the Registrant, Mandalay Corp. and Four Seasons
Hotel Limited. (Incorporated by reference to
Exhibit 10(lll) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1998.)
10(rrr). Hotel License Agreement, dated as of March 10, 1998, by and
among Mandalay Corp. and Four Seasons Hotel Limited.
(Incorporated by reference to Exhibit 10(mmm) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998.)
10(sss). Lease Intended As Security, dated October 30, 1998, among
Circus Circus Leasing, Inc., as lessee; the Registrant, as
guarantor; First Security Bank, National Association, as
Trustee, the Banks named therein and Bank of America
National Trust and Savings Association, as administrative
agent for the Banks. (Incorporated by reference to
Exhibit 10(a) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1998.)
10(ttt). Guaranty, dated October 30, 1998, by the Registrant in favor
of First Security Bank, National Association, as Trustee,
and the Banks named therein. (Incorporated by reference to
Exhibit 10(b) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1998.)
</TABLE>
55
<PAGE>
<TABLE>
<S> <C>
10(uuu).* Supplemental Executive Retirement Plan. (Incorporated by
reference to Exhibit 10(c) to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended
October 31, 1998.)
13. Portions of the Annual Report to Stockholders for the Year
Ended January 31, 2000 specifically incorporated by
reference as part of this Report.
21. Subsidiaries of the Registrant.
23. Consent of Arthur Andersen LLP.
27. Financial Data Schedule for the year ended January 31, 2000
as required under EDGAR.
</TABLE>
- ------------------------
* This exhibit is a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Report.
Certain instruments with respect to long-term debt have not been filed
hereunder or incorporated by reference herein where the total amount of such
debt thereunder does not exceed 10% of our consolidated total assets. Copies of
such instruments will be furnished to the Securities and Exchange Commission
upon request.
(b) During the fourth quarter of the fiscal year ended January 31, 2000,
Mandalay filed no Current Report on Form 8-K.
(c) The exhibits required by Item 601 of Regulation S-K filed as part of
this report or incorporated herein by reference are listed in Item 14(a)(3)
above, and the exhibits filed herewith are listed on the Index to Exhibits which
accompanies this report.
(d) See Item 14(a)(2) of this report.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
MANDALAY RESORT GROUP
Dated: April 28, 2000 By: /s/ MICHAEL S. ENSIGN
------------------------------------
Michael S. Ensign,
CHAIRMAN OF THE BOARD
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board, Chief
/s/ MICHAEL S. ENSIGN Executive Officer and Chief
------------------------------------------- Operating Officer (Principal April 28, 2000
Michael S. Ensign Executive Officer)
/s/ WILLIAM A. RICHARDSON
------------------------------------------- Vice Chairman of the Board April 28, 2000
William A. Richardson
President, Chief Financial
/s/ GLENN SCHAEFFER Officer, Treasurer and
------------------------------------------- Director (Principal Financial April 28, 2000
Glenn Schaeffer Officer)
/s/ LES MARTIN Vice President and Chief
------------------------------------------- Accounting Officer (Principal April 28, 2000
Les Martin Accounting Officer)
/s/ WILLIAM E. BANNEN
------------------------------------------- Director April 28, 2000
William E. Bannen
/s/ ARTHUR H. BILGER
------------------------------------------- Director April 28, 2000
Arthur H. Bilger
/s/ ROSE MCKINNEY-JAMES
------------------------------------------- Director April 28, 2000
Rose McKinney-James
/s/ MICHAEL D. MCKEE
------------------------------------------- Director April 28, 2000
Michael D. McKee
/s/ DONNA B. MORE
------------------------------------------- Director April 28, 2000
Donna B. More
</TABLE>
57
<PAGE>
INDEX TO EXHIBITS
FORM 10-K
FISCAL YEAR ENDED
JANUARY 31, 2000
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------------------
<C> <S>
10(w). Amendment No. 1 to the Amended and Restated Credit
Agreement, by and among Circus and Eldorado Joint Venture,
the Banks named therein and Bank of America National Trust
and Savings Association as Administrative Agent.
10(hhh). First Amendment to Operating Agreement, by and between
Circus Circus Michigan, Inc. and Atwater Casino Group,
L.L.C.
10(iii). Amended First Amendment to Operating Agreement, by and
between Circus Circus Michigan, Inc. and Atwater Casino
Group, L.L.C.
10(jjj). Second Amendment to Operating Agreement, by and between
Circus Circus Michigan, Inc. and Atwater Casino Group,
L.L.C.
10(mmm). Second Amendment to the Amended and Restated Development
Agreement, by and among Detroit Entertainment, L.L.C., the
City of Detroit and the Economic Development Corporation of
the City of Detroit for the City of Detroit Casino
Development Project.
13. Portions of the Annual Report to Stockholders for the Year
Ended January 31, 2000 specifically incorporated by
reference as part of this Report.
21. Subsidiaries of the Registrant.
23. Consent of Arthur Andersen LLP.
27. Financial Data Schedule for the year ended January 31, 2000
as required under EDGAR.
</TABLE>
58
<PAGE>
EXHIBIT 10(w)
AMENDMENT NO. 1 TO AMENDED AND
RESTATED CREDIT AGREEMENT
This Amendment No. 1 to the Amended and Restated Credit Agreement (this
"Amendment") dated as of July 13, 1998 is entered into with reference to the
Amended and Restated Credit Agreement dated as of November 24, 1997, among
CIRCUS AND ELDORADO JOINT VENTURE, a Nevada general partnership ("Borrower"),
the Lenders referred to therein ("Lenders"), and BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Administrative Agent ("Agent") (as amended the
"Credit Agreement"). Terms defined in the Credit Agreement are used herein with
the same meanings. Borrower and the Agent, acting with the consent of the
Requisite Lenders in accordance with Section 10.6 of the Credit Agreement,
hereby amend the Credit Agreement as follows:
1. REVISED LEVERAGE REQUIREMENTS. Section 7.6 (B) of the Credit
Agreement is hereby amended to read in full as follows:
"7.6 (B) MAXIMUM LEVERAGE RATIO. Borrower shall not permit the Leverage
Ratio as of the last day of any Fiscal Quarter ending during a period
described below to exceed the ratio set forth opposite that period:
Quarters Ending Maximum Leverage Ratio
Closing Date through 4.85:1.00
December 31, 1997
January 1, 1998 through
June 30, 1998 4.50:1.00
September 30, 1998 5.00:1.00
and December 31, 1998
March 31, 1999 and 4.90:1.00
June 30, 1999
September 30, 1999 and 4.80:1.00
December 31, 1999
March 31, 2000 through
December 31, 2000 4.50:1.00
-1-
<PAGE>
March 31, 2001 through
December 31, 2001 4.00:1.00
March 31, 2002 through
December 31, 2002 3.50:1.00
March 31, 2003 and
Thereafter through Termination Date 3.25:1.00
2. WAIVER OF LEVERAGE DEFAULTS. The Lenders hereby waive Borrower's
failure to comply with Section 7.2B as of the last day of the Fiscal Quarters
ended March 31, 1998 and June 30, 1998. This is a one-time waiver only, and
shall not imply an obligation to grant further waivers; Borrower shall fully
comply with this Section in the future.
3. CONDITIONS PRECEDENT. The effectiveness of this Amendment shall be
conditioned upon the receipt by the Agent of the written consent to the
execution, delivery and performance hereof from the Requisite Lenders and from
Circus.
4. REPRESENTATION AND WARRANTY. Borrower represents and warrants to the
Agent and the Lenders that no Default or Event of Default has occurred and
remains continuing.
-2-
<PAGE>
5. CONFIRMATION. In all other respects, the term of the Credit Agreement
and other Loan Documents are hereby confirmed.
IN WITNESS WHEREOF, Borrower and Agent have executed this Amendment as of
the date first written above by their duly authorized representatives.
CIRCUS AND ELDORADO JOINT VENTURE, a
Nevada general partnership
By: GALLEON, INC.
Its: Managing Partner
By: GLENN SCHAEFFER
-----------------------------
Title: President
--------------------------
By: ELDORADO LIMITED LIABILITY
COMPANY
Its: General Partner
By: ELDORADO RESORTS LLC
Its: Manager
By: DONALD CARANO
----------------------
Title: Chief Executive Officer
------------------------
-3-
<PAGE>
By: EXECUTIVE COMMITTEE
By: GARY CARANO
----------------------
Title:
----------------------
By: BRUCE SEXTON
----------------------
Title:
----------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative Agent
By: JANICE HAMMOND
----------------------
Title: Vice President Agency Specialist
-4-
<PAGE>
CONSENT OF LENDER
This Consent of Lender is delivered with reference to the Amended and
Restated Credit Agreement dated as of November 24, 1997, among Circus and
Eldorado Joint Venture, a Nevada general partnership ("Borrower"), the Lenders
referred to therein, ("Lenders"), and Bank of America National Trust and Savings
Association, in its capacity as Administrative Agent for Lenders ("Agent").
Capitalized terms used but not defined herein are used with the meanings set
forth for those terms in the Credit Agreement.
The undersigned Lender hereby consents to the execution, delivery and
performance of the proposed Amendment No. 1 to the Credit Agreement by the
Administrative Agent on behalf of the Lenders, substantially in the form
presented to the undersigned as a draft.
BANK OF AMERICA NT & SA
- --------------------------
[Typed/Printed Name of Lender]
By: SCOTT L. FABER
-----------------------
Vice President
-------------------------
[Typed/Printed Name and Title]
Dated July 7 , 1998
BANK OF SCOTLAND
- ------------------------------
[Typed/Printed Name of Lender]
By: ANNIE CHIN TAT
---------------------------
Senior Vice President
- -------------------------------
[Typed/Printed Name and Title]
Dated July 10 , 1998
-5-
<PAGE>
CIBC OPPENHEIMER CORP., AS AGENT
- ----------------------------------
[Typed/Printed Name of Lender]
By: PAUL J. CHAKMAK
-------------------
Managing Director
---------------------
[Typed/Printed Name and Title]
Dated July , 1998
FIRST SECURITY BANK, N.A.
- ----------------------------
[Typed/Printed Name of Lender]
By: DAVID P. WILLIAMS
Vice President
-------------------------
[Typed/Printed Name and Title]
Dated July 8 , 1998
PNC BANK NATIONAL ASSOCIATION
- -------------------------------
[Typed/Printed Name of Lender]
By: GARY W. FASSELA
--------------------
Vice President
- -------------------------
[Typed/Printed Name and Title]
Dated July 13, 1998
SOCIETE GENERALE
- ----------------------------
[Typed/Printed Name of Lender]
By: ALEX KIM
--------------------------
Vice President
---------------------------
[Typed/Printed Name and Title]
Dated July 13 , 1998
-6-
<PAGE>
U.S. BANK
- -----------------------------
[Typed/Printed Name of Lender]
By: MARK ESNOZ
Assistant Vice President
------------------------------
[Typed/Printed Name and Title]
Dated July 7 , 1998
WELLS FARGO BANK, NATIONAL ASSOCIATION
- ----------------------------------------
[Typed/Printed Name of Lender]
By: SUE FULLER
-------------------------
Vice President
-----------------------------
[Typed/Printed Name and Title]
Dated July , 1998
-7-
<PAGE>
EXHIBIT 10(hhh)
FIRST AMENDMENT TO OPERATING AGREEMENT OF
DETROIT ENTERTAINMENT, L.L.C.
A MICHIGAN LIMITED LIABILITY COMPANY
THIS FIRST AMENDMENT TO OPERATING AGREEMENT (the "First Amendment") is made
and entered into as of the Closing Date, by and between CIRCUS CIRCUS
MICHIGAN, INC. a Michigan corporation ("Circus") and ATWATER CASINO GROUP,
L.L.C., a Michigan limited liability company ("ACG"), with reference to the
following:
A. Pursuant to that certain Operating Agreement of Detroit Entertainment,
L.L.C., dated as of October 7, 1997 (the "Operating Agreement"), Circus and
ACG formed Detroit Entertainment, L.L.C., a Michigan limited liability
company (the "Company").
B . Atwater Entertainment Associates, L.L.C. ("AEA") and ZRX, L.L.C.
("ZRX") are the constituent members of ACG.
C. Circus is a subsidiary of Mandalay Resort Group (formerly known as
Circus Circus Enterprises, Inc.) ("Mandalay").
D. In connection with the initial formation of the Company, Circus
acquired a 45% Membership Interest in the Company.
E. As a consequence of the inability of certain members of AEA (the
"Disqualified Members") to obtain Michigan gaming licenses, ACG, AEA and ZRX
have requested that Circus purchase the membership interests of the
Disqualified Members, with such transaction being structured so that (i) the
ownership interest of AEA in ACG shall be appropriately reduced, (ii) the
Membership Interest of ACG in the Company shall be appropriately reduced and
(iii) the ownership interest of Circus in the Company shall be appropriately
increased.
F. As a consequence of such transactions, it is anticipated that the
total Membership Interest of Circus in the Company will exceed 50%. As a
consequence of the ownership by Circus by more than 50% of the total
Membership Interest in Company, the Company may, for certain purposes, be
deemed to be a subsidiary of Mandalay.
G. Pursuant to certain bond indentures and/or other covenants and
agreements which may now or hereafter from time to time be binding upon
Mandalay and/or its affiliates or subsidiaries, Mandalay and its affiliates
or subsidiaries may be subject to certain restrictions affecting the ability
of such Persons to directly or indirectly enter into certain types of
financial or other transactions (the "Restrictive Covenants").
H. As a material part of the inducement to Circus to purchase the
ownership interests of the Disqualified Members and to increase its
Membership Interest in the Company above 50%, Circus has required, and ACG,
AEA and ZRX have agreed, that the parties shall enter into this First
Amendment.
<PAGE>
NOW, THEREFORE, as a material inducement to Circus to purchase the
ownership interests of the Disqualified Members, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Notwithstanding anything to the Operating Agreement, ACG, AEA and ZRX
agree and acknowledge that Circus is acquiring the ownership interests
Disqualified Members as an accommodation to ACG, AEA and ZRX.
2. Notwithstanding anything to the contrary contained in the Operating
Agreement (including, without limitation, the provisions of Sections 3.1, 3.11,
and 4.04(d) thereof) and notwithstanding anything to the contrary which may now
or hereafter be provided at law or in equity, in no event shall Circus or any
Management Committee members appointed by Circus be obligated to agree or
consent to any action, or to take or permit-to be taken, any action in
connection with the management of the affairs of the Company (including without
limitation, the ownership, operation, financing, refinancing and/or disposition
of any assets of the Company) if, in the opinion of Circus, in its sole
discretion, such action would constitute a violation of any Restrictive Covenant
to which Mandalay or any of its subsidiaries or affiliates are parties, or by
which they are bound, even though such proposed action might otherwise be deemed
beneficial to the Company and/or to the other Member and/or its constituent
members. By way of example and not by way of limitation, if Circus and the
Committee Members appointed by Circus withhold their approval of a proposed
refinancing pursuant to Section 4.04(d) of the Operating Agreement because
Circus has determined that such refinancing would constitute a violation of a
Restrictive Covenant to which Mandalay and/or its subsidiaries are bound, such
disapproval shall not constitute a breach of any express or implied obligation
of Circus (and/or its Affiliates or subsidiaries) to the Company or to the other
Member, its constituent members and/or their constituent members.
3. Except as otherwise expressly set forth herein, any defined term used in
this First Amendment shall have the same meaning as set forth in the Operating
Agreement.
4. Except as amended or modified hereby, the Operating Agreement shall
remain unmodified and in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this First Amendment as the
date first set forth above.
DETROIT ENTERTAINMENT, L.L.C. MANAGEMENT COMMITTEE:
By: THOMAS CELANI
------------------------------------------------
Thomas Celani, appointee of Z.R.X., L.L.C.
By: MARIAN ILITCH
------------------------------------------------
Marian Ilitch, appointee of Z.R.X., L.L.C.
By: Z.L.M. Corporation, appointee of Z.R.X., L.L.C.
By: MARIAN ILITCH
---------------------------------------------
Marian Ilitch, Secretary and Treasurer
Z.L.M. Corporation
By: HERB J. STRATHER
--------------------------------------------
Herb J. Strather, appointee of
Atwater Entertainment Associates, L.L.C.
By: DR. NELLIE VARNER
--------------------------------------------
Dr. Nellie Varner, appointee of
Atwater Entertainment Associates, L.L.C.
By: LAURENCE P. DOSS
--------------------------------------------
Laurence P. Doss, appointee of
Atwater Entertainment Associates, L.L.C.
By: PETER A. SIMON
--------------------------------------------
Peter A. Simon, appointee of
Circus Circus Michigan, Inc.
By: DONALD R. GIVENS
--------------------------------------------
Donald R. Givens, appointee of
Circus Circus Michigan, Inc.
3
<PAGE>
By: YVETTE E. LANDAU
--------------------------------------------
Yvette E. Landau, appointee of
Circus Circus Michigan, Inc.
By: GREGG H. SOLOMON
--------------------------------------------
Gregg H. Solomon, appointee of
Circus Circus Michigan, Inc.
By: DAVID R. BELDING
--------------------------------------------
David R. Belding, appointee of
Circus Circus Michigan, Inc.
By: GLENN W. SCHAEFFER
--------------------------------------------
Glenn W. Schaeffer, appointee of
Circus Circus Michigan, Inc.
JOINDER
-------
ATWATER ENTERTAINMENT ASSOCIATES, L.L.C., a Michigan limited liability company
and ZRX, L.L.C., a Michigan limited liability company, hereby join in the
execution of the foregoing First Amendment, solely for the purposes of
acknowledging that they have read, understand and agree to be bound by, the
terms, covenants and provisions of the foregoing First Amendment.
ATWATER ENTERTAINMENT ASSOCIATES, ENTERTAINMENT ZRX, L.L.C.,
L.L.C., a Michigan limited liability a Michigan limited liability company
company
By: HERBET J. STRATHER By: THOMAS CELANI
------------------------------- ---------------------------
Herbert J. Strather, Chairman Thomas Celani, President
By: NELLIE M. VARNER By: MICHAEL MALIK
------------------------------- ---------------------------
Nellie M. Varner, Manager Michael Malik, Member
By: LAWRENCE P. DOSS By: MARIAN ILITCH
------------------------------- ---------------------------
Lawrence P. Doss, Manager Marian Ilitch, Member
By: THOMAS CELANI
---------------------------
Thomas Celani, Member
4
<PAGE>
EXHIBIT 10(iii)
AMENDED FIRST AMENDMENT TO
OPERATING AGREEMENT OF
DETROIT ENTERTAINMENT, L.L.C.
A MICHIGAN LIMITED LIABILITY COMPANY
THIS AMENDED FIRST AMENDMENT TO OPERATING AGREEMENT (the "First Amendment") is
made and entered into as of the Closing Date, by and between CIRCUS CIRCUS
MICHIGAN, INC. a Michigan corporation ("Circus") and ATWATER CASINO GROUP,
L.L.C., a Michigan limited liability company ("ACG"), with reference to the
following:
A. Pursuant to that certain Operating Agreement of Detroit Entertainment,
L.L.C., dated as of October 7, 1997 (the "Operating Agreement"), Circus and ACG
formed Detroit Entertainment, L.L.C., a Michigan limited liability company (the
"Company").
B . Atwater Entertainment Associates, L.L.C. ("AEA") and ZRX, L.L.C. ("ZRX")
are the constituent members of ACG.
C. Circus is a subsidiary of Mandalay Resort Group (formerly known as Circus
Circus Enterprises, Inc.) ("Mandalay").
D. In connection with the initial formation of the Company, Circus acquired
a 45% Membership Interest in the Company.
E. As a consequence of the inability of certain members of AEA (the "Exiting
Members") to obtain Michigan gaming licenses, ACG, AEA and ZRX have requested
that Circus purchase the membership interests of the Exiting Members, with such
transaction being structured so that (i) the ownership interest of AEA in ACG
shall be appropriately reduced, (ii) the Membership Interest of ACG in the
Company shall be appropriately reduced and (iii) the ownership interest of
Circus in the Company shall be appropriately increased.
F. As a consequence of such transactions, it is anticipated that the total
Membership Interest of Circus in the Company will exceed 50%. As a consequence
of the ownership by Circus by more than 50% of the total Membership Interest in
Company, the Company may, for certain purposes, be deemed to be a subsidiary of
Mandalay.
G. Pursuant to certain bond indentures and/or other covenants and
agreements which may now or hereafter from time to time be binding upon
Mandalay and/or its affiliates or subsidiaries, Mandalay and its affiliates
or subsidiaries may be subject to certain restrictions affecting the ability
of such Persons to directly or indirectly enter into certain types of
financial or other transactions (the "Restrictive Covenants").
H. As a material part of the inducement to Circus to purchase the ownership
interests of the Exiting Members and to increase its Membership Interest in the
Company above 50%, Circus has required, and ACG, AEA and ZRX have agreed, that
the parties shall enter into this First Amendment.
<PAGE>
NOW, THEREFORE, as a material inducement to Circus to purchase the ownership
interests of the Exiting Members, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Notwithstanding anything to the Operating Agreement, ACG, AEA and ZRX
agree and acknowledge that Circus is acquiring the ownership interests Exiting
Members as an accommodation to ACG, AEA and ZRX.
2. Notwithstanding anything to the contrary contained in the Operating
Agreement (including, without limitation, the provisions of Sections 3.10, 3.11,
and 4.04(d) thereof) and notwithstanding anything to the contrary which may now
or hereafter be provided at law or in equity, in no event shall Circus or any
Management Committee members appointed by Circus be obligated to agree or
consent to any action, or to take or permit to be taken, any action in
connection with the management of the affairs of the Company (including without
limitation, the ownership, operation, financing, refinancing and/or disposition
of any assets of the Company) if, in the opinion of Circus, in its sole
discretion, such action would constitute a violation of any Restrictive Covenant
to which Mandalay or any of its subsidiaries or affiliates are parties, or by
which they are bound, even though such proposed action might otherwise be deemed
beneficial to the Company and/or to the other Member and/or its constituent
members. By way of example and not by way of limitation, if Circus and the
Committee Members appointed by Circus withhold their approval of a proposed
refinancing pursuant to Section 4.04(d) of the Operating Agreement because
Circus has determined that such refinancing would constitute a violation of a
Restrictive Covenant to which Mandalay and/or its subsidiaries are bound, such
disapproval shall not constitute a breach of any express or implied obligation
of Circus (and/or its Affiliates or subsidiaries) to the Company or to the other
Member, its constituent members and/or their constituent members.
3. Except as otherwise expressly set forth herein, any defined term used in
this First Amendment shall have the same meaning as set forth in the Operating
Agreement.
4. Except as amended or modified hereby, the Operating Agreement shall
remain unmodified and in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amended First Amendment
as the date first set forth above.
CIRCUS CIRCUS MICHIGAN, INC. ATWATER CASINO GROUP, L.L.C.
a Michigan corporation a Michigan limited liability
company
By: GLENN W. SCHAEFFER By: THOMAS CELANI
-------------------------------- ---------------------------
Glenn W. Schaeffer, President Thomas Celani, President
2
<PAGE>
CONSENTED TO:
ZRX, L.L.C. ATWATER ENTERTAINMENT
ASSOCIATES, L.L.C.
By: MARIAN ILITCH By: VIVIAN CARPENTER
------------------------------ ----------------------------
Marian Ilitch, Member Vivian Carpenter, Member
3
<PAGE>
EXHIBIT 10(jjj)
SECOND AMENDMENT TO OPERATING AGREEMENT OF
DETROIT ENTERTAINMENT, L.L.C.
A MICHIGAN LIMITED LIABILITY COMPANY
THIS SECOND AMENDMENT TO OPERATING AGREEMENT (the "Second Amendment") is made
and entered into as of the Closing Date, by and between CIRCUS CIRCUS MICHIGAN,
INC. a Michigan corporation ("Circus") and ATWATER CASINO GROUP, L.L.C., a
Michigan limited liability company ("ACG"), with reference to the following:
A. Pursuant to that certain Operating Agreement of Detroit Entertainment,
L.L.C., dated as of October 7, 1997 (the "Operating Agreement"), Circus and ACG
formed Detroit Entertainment, L.L.C., a Michigan limited liability company (the
"Company").
B. Atwater Entertainment Associates, L.L.C. ("AEA") and Z.R.X., L.L.C.
("ZRX") are the constituent members of ACG.
C. Circus is a subsidiary of Mandalay Resort Group (formerly known as Circus
Circus Enterprises, Inc.) ("Mandalay").
D. In connection with the initial formation of the Company, Circus acquired
a 45% Membership Interest in the Company.
E. Certain members of AEA, the "Qualifiers With Problems ("QWPs"), have
requested that Circus purchase the membership interests of the QWPs, with such
transaction being structured so that (i) the ownership interest of AEA in ACG
shall be appropriately reduced, (ii) the Membership Interest of ACG in the
Company shall be appropriately reduced and (iii) the ownership interest of
Circus in the Company shall be appropriately increased.
F. As a consequence of such transactions, the parties desire to amend the
Operating Agreement of the Company to reflect the changes, among others, in each
Member's respective Membership Interest.
H. As a material part of the inducement to Circus to purchase the ownership
interests of the Disqualified Members, Circus has required, and ACG, AEA and ZRX
have agreed, that the parties shall enter into this Second Amendment.
NOW, THEREFORE, for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. AMENDMENTS TO OPERATING AGREEMENT . The Operating Agreement shall
be amended as follows:
a. Section 4.05(a) should be amended in its entirety to read as
follows:
<PAGE>
"(a) PREDEVELOPMENT ADVANCES. Any Project Costs incurred
after May 1, 1997 and prior to the Closing Date as defined
in the Agreement dated September 9, 1999, and Approved by
the Management Committee, shall be borne 45% by Circus and
55% by ACG, and thereafter until Initial Licensing such
Project Costs shall be borne 53.5302% by Circus and
46.4698% by ACG. Upon Initial Licensing, all such costs
and expenses Approved by the Management Committee and borne
by the Members shall be included in the Project Budget and
shall be promptly reimbursed to the respective Members;
provided, however, the qualifier investigation fees and all
legal fees incurred by the Selling Members as defined in
the Agreement dated September 9, 1999 between the Selling
Members and Circus Circus Michigan, Inc. shall not be
Project Costs and shall not be directly or indirectly paid
by and/or reimbursed by the Company."
b. Section 6.01 of the Operating Agreement should be amended in
its entirety to read as follows:
"6.01 SHARING RATIOS
The Members shall have the following Sharing Ratios in the
Company as of the Closing Date:
ACG 46.4698%
Circus 53.5302%"
3. DEFINED TERMS . Except as otherwise expressly set forth herein,
any defined term used in this Second Amendment shall have the same meaning as
set forth in the Operating Agreement.
4. ENTIRE AMENDMENT. Except as amended or modified hereby, the
Operating Agreement shall remain unmodified and in full force and effect.
5. CONSENT TO FURTHER AMENDMENTS. The Operating Agreement is being
amended with the sole purpose of accommodating the transfers of interests being
made by certain AEA members in AEA by allowing such sale to be reflected as a
sale as if such persons owned a direct interest in the Company. As a result,
ACG's ownership percentage in the Company is being reduced accordingly but such
reduction is not intended to affect or diminish ZRX's economic or beneficial
rights in the Company. Accordingly, Circus agrees to take such actions that are
reasonably requested by ACG and/or ZRX and/or AEA to protect and preserve ACG's,
ZRX's, and AEA's rights in the Company, if and to the extent such rights are
adversely affected by the subject transaction scheduled to close on the Closing
Date including, but not limited to, agreeing to amend the Company's Operating
Agreement to make any necessary additional adjustments as appropriate to
accomplish this objective.
2
<PAGE>
6. COUNTERPARTS. This Amendment may be executed in counterparts,
each of which when executed and delivered by all parties named as signatories
below, shall have the force and effect of the original, but all such
counterparts shall constitute one and the same instrument.
For purposes hereof, Qualifier Investigation Fees shall not include amounts
billed by the MGCB prior to September 9, 1999. Qualifier Investigation Fees
billed by the MGCB after September 9, 1999 shall include only amounts billed by
the MGCB if (1) such amounts are related to the investigation of a Selling
Member and (2) such amounts are billed to DELLC and are separately identified on
such bills as relating to a Selling Member. In all events, the provisions of
Section 4.03 of the DELLC Operating Agreement shall remain in full force and
effect.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Second Amendment as the
date first set forth above.
DETROIT ENTERTAINMENT, L.L.C. MANAGEMENT COMMITTEE:
By: THOMAS CELANI
---------------------------------------------
Thomas Celani, appointee of Z.R.X., L.L.C.
By: MARIAN ILITCH
---------------------------------------------
Marian Ilitch, appointee of Z.R.X., L.L.C.
By: Z.L.M. Corporation, appointee of Z.RX, L.L.C.
By: MARIAN ILITCH
---------------------------------------------
Marian Ilitch, Secretary and Treasurer
Z.L.M. Corporation
By: HERBERT J. STRATHER
---------------------------------------------
Herb J. Strather, appointee of
Atwater Entertainment Associates, L.L.C.
By: DR. NELLIE VARNER
---------------------------------------------
Dr. Nellie Varner, appointee of
Atwater Entertainment Associates, L.L.C.
By: LAURENCE P. DOSS
---------------------------------------------
Laurence P. Doss, appointee of
Atwater Entertainment Associates, L.L.C.
By: PETER A. SIMON
---------------------------------------------
Peter A. Simon, appointee of
Circus Circus Michigan, Inc.
By: DONALD R. GIVENS
---------------------------------------------
Donald R. Givens, appointee of
Circus Circus Michigan, Inc.
4
<PAGE>
By: YVETTE E. LANDAU
---------------------------------------------
Yvette E. Landau, appointee of
Circus Circus Michigan, Inc.
By: GREGG H. SOLOMON
---------------------------------------------
Gregg H. Solomon, appointee of
Circus Circus Michigan, Inc.
By: DAVID R. BELDING
---------------------------------------------
David R. Belding, appointee of
Circus Circus Michigan, Inc.
By: GLENN W. SCHAEFFER
---------------------------------------------
Glenn W. Schaeffer, appointee of
Circus Circus Michigan, Inc.
JOINDER
ATWATER ENTERTAINMENT ASSOCIATES, L.L.C., a Michigan limited liability company
and Z.R.X., L.L.C., a Michigan limited liability company, hereby join in the
execution of the foregoing Second Amendment, solely for the purposes of
acknowledging that they have read, understand and agree to be bound by, the
terms, covenants and provisions of the foregoing Second Amendment.
ATWATER ENTERTAINMENT ASSOCIATES, Z.R.X, L.L.C.,
ENTERTAINMENT L.L.C., a Michigan limited a Michigan limited
liability company liability company
By: VIVIAN CARPENTER By: THOMAS CELANI
-------------------------------- --------------------------
Vivian Carpenter, Manager Thomas Celani, President
By: MARIAN ILITCH
--------------------------
Marian Ilitch, Member
5
<PAGE>
EXHIBIT 10(mmm)
SECOND AMENDMENT TO THE
AMENDED AND RESTATED DEVELOPMENT AGREEMENT
BY AND AMONG
THE CITY OF DETROIT, THE ECONOMIC DEVELOPMENT CORPORATION
OF THE CITY OF DETROIT AND
DETROIT ENTERTAINMENT, L.L.C.
THIS SECOND AMENDMENT (the "Second Amendment") to that certain Amended
and Restated Development Agreement, dated as of April 9, 1998, as amended by the
First Amendment dated June 25, 1998, by and among the City of Detroit (the
"City"), the Economic Development Corporation of the City of Detroit (the "EDC")
and Detroit Entertainment, L.L.C., a Michigan limited liability company
("Developer") for the City of Detroit Casino Development Project (the
"Development Agreement") is made on this __ day of December, 1999 by and among
the City, the EDC and the Developer.
WHEREAS, the City, EDC and Developer have previously entered into the
Development Agreement; and
WHEREAS, it is the desire of the parties to enter into this Second
Amendment to amend certain provisions of the Development Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants herein contained, the parties agree as follows:
1. All capitalized terms not otherwise defined herein shall have the same
meaning as set forth in the Development Agreement.
2. SECTION 24(d) of the Development Agreement is hereby amended by deleting
the reference to "December 31, 1999" in such section and substituting in
its place "December 31, 2000."
3. To give recognition to the fact that the JEPAB has already been formed,
SECTION 2.6(n)(3) of the Development Agreement is hereby amended so that
the third sentence reads as follows: Developer shall fund the JEPAB
according to the following schedule: an initial payment of One Hundred
Thousand Dollars ($100,000) within thirty (30) days after the later of:
(i) the Temporary Casino Opening Date or (ii) the Amendment Effective
Date (as defined in Paragraph 7 hereof); One Hundred Thousand Dollars
($100,000) within one (1) year of the due date of the initial payment;
Four Hundred Thousand Dollars ($400,000) within six (6) months of the
Closing Date; and Four Hundred Thousand Dollars ($400,000) within twelve
(12) months of the Closing Date.
1
<PAGE>
4. SECTION 2.10(b) of the Development Agreement is hereby amended by
deleting the reference to "Closing Date" in such section and
substituting in its place "Temporary Casino Opening Date."
5. Anything in the Development Agreement to the contrary notwithstanding,
including, but not limited to the reporting requirements set forth in
SECTION 2.19(b) of the Development Agreement, Developer agrees that not
later than thirty (30) days after the and of any calendar quarter,
commencing with the calendar quarter ending December 31, 1999, Developer
shall deliver to City a report in such form and having such statistical
information as may be reasonably prescribed by the City setting forth a
description of Developer's efforts during such calendar quarter with
respect to the following:
a. compliance with SECTION 2.6(e) of the Development Agreement;
b. compliance with SECTION 2.6(i) of the Development Agreement; and
c. compliance with SECTION 2.6(j) of the Development Agreement.
6. Except as amended by this Second Amendment the Development Agreement is
reaffirmed in all respects, and shall remain in full force and effect.
7. This Second Amendment shall become effective on the date (the "Amendment
Effective Date") on which all of the following have been accomplished:
this Second Amendment has been executed by all parties hereto and the
City Council has duly approved the last of the following: (i) this Second
Amendment; and (ii) a second amendment to the amended and reinstated
development agreements of each of the Other Land-Based Casino Developers
containing substantially the same terms and conditions as set forth in
this Second Amendment.
8. This Second Amendment may be executed in counterparts, each of which
shall be deemed to be an original document and together shall constitute
one instrument.
[signature page follows]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and had their
seals affixed on the dates set forth after their respective signatures.
CITY OF DETROIT, a municipal
corporation
By: MAYOR DENNIS ARCHER
-------------------------------
Mayor Dennis Archer
THE ECONOMIC DEVELOPMENT
CORPORATION OF THE CITY
OF DETROIT, a Michigan public body
corporate
By: SIGNATURE UNREADABLE
------------------------------
Authorized Agent
By: C. BETH DUNCOMBE
------------------------------
C. Beth DunCombe, Authorized
Agent
DETROIT ENTERTAINMENT, L.L.C.,
a Michigan liability company
By: Circus Circus Michigan, Inc., a
Michigan corporation, one of its
members
By: GLENN W. SCHAEFFER
-----------------------------
Glenn W. Schaeffer, President
By: Atwater Casino Group, LLC, a
Michigan limited liability company,
one of its members
By: Atwater Management
Corporation, a Delaware
corporation, its manager
By:
------------------------
Its: Chairman of the Board
By: THOMAS CELANI
------------------------
Thomas Celani, President
3
<PAGE>
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL POLICY
A key part of Mandalay's financial policy is a focus on free cash flow, which is
the cash remaining after all expenses, including ordinary (or maintenance)
reinvestment in the business. We believe free cash flow represents true economic
profit. Strong free cash flow provides us with financial flexibility and the
opportunity to pursue a range of options, including sizeable reinvestment in our
business, repayment of indebtedness or cash distributions to shareholders, such
as share repurchases. Strong free cash flow also ensures ready access to capital
markets at comparatively low rates. Mandalay has always been an extraordinary
cash generator, producing nearly $1.2 billion in free cash flow over the past
five years. For fiscal 2000, our free cash flow on a per share basis was $2.72,
two and one-half times higher than our earnings per share (excluding
nonrecurring items).
<TABLE>
<CAPTION>
FREE CASH FLOW ANALYSIS
Year ended January 31,
(in thousands) 2000 1999 1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income from operations* $328,303 $249,279 $247,152 $276,092 $301,753
Operating lease rent 25,994 - - - -
Minority interest (3,591) - - - -
Add noncash expenses
Depreciation and
amortization 178,301 142,141 129,729 103,717 98,380
Depreciation of unconsolidated
affiliates 25,283 24,490 24,357 18,785 6,712
Other (49) (65) (65) (65) (65)
---------------------------------------------------
Cash generated from
operations before income tax 554,241 415,845 401,173 398,529 406,780
Cash income taxes (42,551) (18,770) (37,395) (48,043) (55,995)
Interest, dividends and
other income 6,427 5,852 15,820 11,941 11,539
Proceeds from disposal of assets 697 5,788 8,160 3,056 1,353
----------------------------------------------------
Cash available for repayment
of debt and reinvestment 518,814 408,715 387,758 365,483 363,677
Operating lease rent (25,994) - - - -
Scheduled principal and
interest payments (184,039) (131,468) (99,831) (63,356) (58,018)
Scheduled principal and interest
payments of unconsolidated
affiliates (15,550) (16,087) (25,417) (22,261) (7,076)
Ordinary capital expenditures (43,451) (40,035) (50,979) (50,117) (31,936)
----------------------------------------------------
FREE CASH FLOW $249,780 $221,125 $211,531 $229,749 $266,647
----------------------------------------------------
</TABLE>
* Before nonrecurring items.
21
<PAGE>
Furthermore, excluding joint ventures, we estimate that our annual maintenance
capital spending will be in the range of $40- $60 million over the next three
years, well below the estimated annual depreciation expense of approximately
$180 million. This difference alone, before the impact of positive operating
results, could translate into as much as $1.30 per share in free cash flow.
GRAPH
DESCRIPTION: DEPICTS MANDALAY'S FREE CASH FLOW PER SHARE FOR THE
FISCAL YEARS ENDED JANUARY 31, 2000, 1999 AND 1998.
<TABLE>
<CAPTION>
FREE CASH FLOW
PER SHARE
--------------
<S> <C>
1998 $2.22
1999 2.34
2000 2.72
</TABLE>
Mandalay estimates that its cost of capital, blended for the amounts of debt and
equity used to finance the business, is approximately 9%. Achieving rates of
return on invested capital that trend above this cost is a primary goal when we
evaluate new projects or reinvest in existing resorts. Traditionally, we have
employed leverage as a technique for lowering our overall cost of capital and
raising returns to shareholders (since debt is considerably cheaper than
equity). Currently, Mandalay has no significant mandatory principal repayments
for three years and expects to refinance any then-maturing debt beyond those
dates.
DESCRIPTION: DEPICTS MANDALAY'S EBITDA FOR THE FISCAL YEARS ENDED
JANUARY 31, 2000, 1999 AND 1998.
<TABLE>
<CAPTION>
EBITDA
------
<S> <C>
1998 401.2
1999 415.8
2000 554.2
</TABLE>
EBITDA
Companies frequently refer to operating cash flow, or EBITDA, as a benchmark of
earning power. The following table shows the amounts of EBITDA (earnings before
interest, taxes, depreciation and amortization) for Mandalay's wholly owned
properties and its joint venture properties.
22
<PAGE>
EBITDA by property (in millions):
<TABLE>
<CAPTION>
Year ended January 31,
----------------------
2000 1999
---- ----
<S> <C> <C>
Luxor $104.1 $97.6
Mandalay Bay* 86.3 -
Excalibur 83.8 74.2
Circus Circus-Las Vegas/Slots-A-Fun/Silver City 62.7 55.9
Gold Strike-Tunica 34.6 26.0
Colorado Belle/Edgewater 29.4 29.1
Circus Circus-Reno 25.7 24.3
Gold Strike/Nevada Landing/Railroad Pass 22.6 19.2
Grand Victoria** 104.1 76.9
Monte Carlo** 87.1 83.5
Silver Legacy** 49.5 47.1
MotorCity Casino*** 7.7 -
</TABLE>
(*) Amount excludes operating lease rent of $26.0 million. This
property opened March 2, 1999.
(**) Amount represents 100% of this joint venture property, of which Mandalay
is a 50% owner.
(***) Amount represents 100% of this joint venture property, of which Mandalay
is a 53.5% owner. This property opened December 14, 1999.
FISCAL 2000 COMPARED WITH FISCAL 1999
RESULTS OF OPERATIONS
For the year ended January 31, 2000, we reported net income of $42.2 million, or
$.46 per share, compared to $85.2 million, or $.90 per share, in the prior year.
The results for fiscal 2000 include $83.0 million in preopening expenses
associated with Mandalay Bay, our flagship hotel/casino resort in Las Vegas, and
MotorCity Casino, a 53.5%-owned temporary casino in Detroit. Mandalay Bay opened
March 2, 1999 and MotorCity Casino opened December 14, 1999. Fiscal 2000 results
also include $5.4 million in write-offs related to a proposed timeshare resort
in Las Vegas which we decided not to pursue. Fiscal 1999 results include $6.5
million of political campaign costs associated with Proposition 5, a voter
initiative to approve gaming on Native American lands in California. Excluding
the effects of these nonrecurring items, earnings per share were $1.08 for
fiscal 2000 versus $.94 in the prior year. This increase in earnings reflected
the openings of Mandalay Bay and MotorCity Casino, as well as significantly
improved results at Grand Victoria, offset by increased net interest expense due
to higher average borrowings.
The preopening expenses mentioned above were recorded in two ways. Costs
incurred prior to January 31, 1999 were treated as a cumulative effect of a
change in accounting principle and expensed in the first quarter of fiscal
2000. Costs incurred subsequent to January 31, 1999 were expensed as
incurred. See Note 1 of Notes to Consolidated Financial Statements included
in this annual report.
23
<PAGE>
REVENUES
Revenues for fiscal 2000 increased $571.1 million, or 39%, from the prior year.
All of our wholly owned and joint venture properties posted increases in
revenues, with the overall increase attributable primarily to Mandalay Bay,
which produced revenues of $456.2 million in its initial 11 months of operation.
MotorCity Casino was also a contributor, generating revenues of $39.0 million.
At Gold Strike Casino Resort in Tunica County, Mississippi, revenues rose $20.6
million, or 19%. The addition of 1,100 hotel rooms in early 1998 has enabled
this property to be marketed more effectively and has spurred growth in its
operating results. Grand Victoria, our riverboat casino in Illinois, generated a
$13.4 million, or 40%, increase in its contribution to our revenues. Legislation
permitting dockside gaming was passed in June 1999 and was a significant factor
in this increase. This legislation is, however, being challenged in court.
Meanwhile, revenues at Excalibur rose $10.9 million, or 4%, driven by higher
room and occupancy rates during the year.
We record our share of the operating income of our unconsolidated joint ventures
(Grand Victoria, Monte Carlo and Silver Legacy) as revenue under earnings of
unconsolidated affiliates. Results of MotorCity Casino, however, are
consolidated for financial reporting purposes.
Casino revenues increased $241.6 million, or 34%, during fiscal 2000, due
principally to the openings of Mandalay Bay ($182.6 million in casino revenues)
and MotorCity Casino ($36.1 million in casino revenues). Gold Strike-Tunica,
with a 19% increase to $110.0 million, also contributed to the overall growth in
casino revenues. Hotel revenues, meanwhile, rose $178.5 million, or 50%, due to
the opening of Mandalay Bay combined with higher room and occupancy rates at our
other Las Vegas properties. Revenues in our other revenue centers (principally
food, beverage, amusements, retail and entertainment) rose $180.8 million, or
43%. This increase was due primarily to Mandalay Bay and to increased visitor
counts at our other properties.
On October 31, 1999, the lease pursuant to which Mandalay operated the Silver
City Casino expired and we ceased operation of that facility. Total revenues for
Silver City for the nine months it was open in fiscal 2000 accounted for less
than one-half of one percent of our consolidated revenues for that period.
INCOME FROM OPERATIONS (excluding nonrecurring items)
Income from operations for fiscal 2000 increased $79.0 million, or 32%, from the
prior year. The composite operating margin was 16.0%, compared to 16.8% in
fiscal 1999. While the opening of Mandalay Bay was the main driver of this
growth, all of our wholly owned properties, with the exception of Edgewater,
reported double-digit increases in income from operations. All of the growth
occurred in the first three quarters of the year; fourth quarter results were
unchanged from the prior year due to an unusually soft holiday period in Nevada.
A discussion of operating results by market follows.
24
<PAGE>
Las Vegas
Overall, operating income at our Las Vegas properties increased $54.1 million,
or 31%. Mandalay Bay led the way, generating $26.3 million in its first 11
months. At Luxor, operating income increased $11.5 million, or 21%, while it
rose $8.1 million, or 14%, at Excalibur. Both properties benefitted from higher
room and occupancy rates. Luxor also benefitted from lower advertising and
marketing expenses (a national advertising campaign had been in effect during
the prior year). Meanwhile, operating income at Circus Circus-Las Vegas grew by
$6.1 million, or 20%, due to higher average daily room rates. The 50%-owned
Monte Carlo also benefitted from higher room rates, with its contribution to
operating income rising 3% to $29.4 million.
Reno
In Reno, Circus Circus posted a $2.6 million, or 21%, increase in operating
income over the prior year. Contributing to this strong year-to-year comparison
were gains in occupancy and room rates from the prior year. Meanwhile, the
Company's share of operating income from Silver Legacy grew 3% to $20.4 million
in fiscal 2000. Operating results at both Reno properties improved despite the
absence of a major bowling tournament last year. Reno is the host to national
bowling tournaments two out of every three years, and in fiscal 2000 the city
was without a tournament.
Although Mandalay owns 50% of Silver Legacy, during fiscal 2000 we recorded
approximately two-thirds of Silver Legacy's operating income as a priority
return on our investment. Based upon current projections, we anticipate that
this priority return will be eliminated during fiscal 2001, and we will receive
our normal 50% allocation.
Laughlin
Our two properties in Laughlin -- Colorado Belle and Edgewater -- reported a
combined decrease in operating income of $1.0 million, or 5%, from the prior
year. While both properties reported increases in revenues, health insurance
costs grew as a result of unexpected increases in claims, particularly at
Edgewater.
Other Markets
At Gold Strike, in Tunica County, Mississippi, operating income rose 76% during
fiscal 2000, to $21.2 million. The increase is the result of the addition of an
1,100-room hotel tower and extensive remodeling of the property that was
completed during the first quarter of the prior year.
The 50%-owned Grand Victoria's contribution to income from operations grew by
$13.8 million for the year. As previously noted, the introduction of dockside
gaming was the principal factor in this increase.
25
<PAGE>
DEPRECIATION AND AMORTIZATION
In fiscal 2000, depreciation and amortization expense rose $36.2 million, to
$178.3 million. This increase derived primarily from the addition of Mandalay
Bay and MotorCity Casino. For fiscal 2001, we estimate that our depreciation
expense will be approximately $210 million (including depreciation from
MotorCity, which is consolidated).
Depreciation expense by property (in millions):
<TABLE>
<CAPTION>
Year ended January 31,
----------------------
2000 1999
---- ----
<S> <C> <C>
Luxor $36.8 $41.8
Mandalay Bay 33.9 -
Excalibur 16.6 15.0
Circus Circus-Las Vegas/Slots-A-Fun/Silver City 24.0 24.6
Gold Strike-Tunica 13.4 14.0
Colorado Belle/Edgewater 10.7 9.5
Circus Circus-Reno 10.8 12.0
MotorCity Casino 5.9 -
Other 26.2 25.2
----- -----
$178.3 $142.1
====== ======
</TABLE>
INTEREST EXPENSE
In fiscal 2000, interest incurred (excluding interest expense from
unconsolidated affiliates and before capitalized interest) rose $35.6 million
to $176.7 million. We had higher average debt outstanding ($2.5 billion
versus $2.0 billion in fiscal 1999) that was related principally to the
completion of construction of Mandalay Bay and our core components of
Masterplan Mile. Capitalized interest was $11.0 million in fiscal 2000 versus
$45.5 million in the prior year; the decrease was attributable to the
completion of Mandalay Bay.
We recorded interest expense from unconsolidated affiliates of approximately
$11.1 million in fiscal 2000 versus $12.3 million in fiscal 1999. These
amounts represent our 50% share of Silver Legacy's and Monte Carlo's interest
expense.
TAXES
The effective tax rates for the years ended January 31, 2000 and 1999 were 39.1%
and 39.5%. These rates reflect the federal statutory rate of 35% plus the effect
of various nondeductible expenses, primarily the amortization of goodwill
associated with our 1995 Gold Strike acquisition. For fiscal 2001, we estimate
our effective tax rate will be approximately 37%.
26
<PAGE>
FISCAL 1999 COMPARED WITH FISCAL 1998
RESULTS OF OPERATIONS
Excluding the effect of nonrecurring items, earnings per share for fiscal 1999
were $.94 versus $1.01 in the prior year. During fiscal 1999, we recorded a
charge to corporate expense of $6.5 million for political campaign costs
associated with Proposition 5 in California. In the prior year, we recognized
approximately $8.0 million in costs associated with the resignation of our
chairman and $3.4 million in preopening expenses related to a new 1,100-room
hotel at our remodeled Gold Strike Casino Resort in Tunica County, Mississippi.
Also during fiscal 1998, we recognized a $6.0 million gain on the sale of a
company airplane.
The decrease in earnings per share reflects higher net interest expense due to
higher average borrowings, as well as lower interest income due to a $35.1
million note receivable from Silver Legacy which was redeemed in the prior year.
REVENUES
Revenues for fiscal 1999 increased $125.3 million, or 9%, from fiscal 1998. All
of our wholly owned properties posted increases in revenues, with the exception
of Excalibur, whose revenues declined slightly. The primary contributors to the
increase were Gold Strike-Tunica, Luxor and Circus Circus-Las Vegas. The
completion of an 1,100-room hotel tower at Gold Strike-Tunica in the first
quarter of fiscal 1999 contributed to a 133% increase in revenue at that
property. Luxor achieved a revenue increase of 15% due to a new national
advertising campaign, an increase in the amount of high-budget play in the
casino and the opening of a new 1,200-seat showroom in the third quarter of the
prior year. Revenues at Circus Circus-Las Vegas rose 6%, driven by increased
contributions from the hotel department (rooms were being remodeled in the prior
year) and the food and beverage department (due to selective price increases).
The above revenue increases were partially offset by reduced contributions from
our joint venture properties. Our share of the operating income of joint
ventures declined $15.0 million from fiscal 1998. The decline was due primarily
to Grand Victoria, a 50%-owned riverboat casino in Elgin, Illinois. A January
1998 hike in the maximum tax rate on casino revenues in Illinois to 35% from 20%
was responsible for a 23% decrease in Grand Victoria's contribution.
INCOME FROM OPERATIONS (excluding nonrecurring items)
Income from operations for fiscal 1999 increased $2.1 million, or 1%, from
fiscal 1998. Income from operations for the first quarter decreased $21.6
million from the prior year; then, over the next three quarters, it rose $23.7
million, as we started to reap the benefits of our larger capacity, product
advertising and player marketing efforts.
27
<PAGE>
Operating income at Luxor rose 12% due primarily to a new national advertising
campaign, while at Circus Circus-Las Vegas, operating income also grew 12%
driven by higher contributions from the hotel and food departments. These
increases were largely offset by 10% decreases at Excalibur and the 50%-owned
Monte Carlo. Both properties incurred higher marketing expenses while revenues
remained level. Meanwhile, Circus Circus-Reno posted an 18% increase in
operating income, benefitting from the casino remodeling that was completed in
the prior year and from more favorable weather. In Laughlin, our two properties
posted a 9% increase in operating income, their first year-over-year increase
since 1993. At Gold Strike-Tunica, operating income more than quadrupled to
$12.1 million, as that property benefitted from extensive remodeling and the
addition of an 1,100-room hotel tower which were completed in early 1998.
DEPRECIATION AND AMORTIZATION
In fiscal 1999, depreciation and amortization expense rose $12.4 million, to
$142.1 million. This increase derived primarily from the new hotel tower at Gold
Strike-Tunica, and from a full year's depreciation on the improvements at Circus
Circus-Reno.
INTEREST EXPENSE
In fiscal 1999, interest incurred (excluding interest expense from
unconsolidated affiliates and before capitalized interest) rose $30.2 million to
$141.1 million. This increase was due primarily to higher average debt
outstanding ($2.0 billion versus $1.6 billion in fiscal 1998) which was mainly
related to the construction of Mandalay Bay. The increase in interest incurred
was partially offset by higher capitalized interest ($45.5 million versus $22.0
million in fiscal 1998), also largely associated with the construction of
Mandalay Bay.
Mandalay recorded interest expense from unconsolidated affiliates of
approximately $12.3 million in fiscal 1999 versus $15.6 million in fiscal 1998.
These amounts represent our 50% share of Silver Legacy's and Monte Carlo's
interest expense.
FINANCIAL POSITION AND CAPITAL RESOURCES
Mandalay had cash and cash equivalents of $116.6 million at January 31, 2000,
sufficient for normal daily operating requirements. Our pretax cash flow from
operations (before nonrecurring items) was $554.2 million in fiscal 2000
compared to $415.8 million in fiscal 1999 and $401.2 million in fiscal 1998.
Pretax cash flow from operations is defined as income from operations (before
nonrecurring items) plus noncash operating expenses (primarily depreciation and
amortization). See "Free Cash Flow Analysis" on page 21.
In fiscal 2000, we used our cash flow (in combination with borrowings)
primarily to fund completion of the construction of Mandalay Bay and other
core components of Masterplan Mile (a convention center, arena, monorail and
aquarium exhibit); the renovation of hotel rooms at Excalibur; other
miscellaneous construction projects; and the repurchase of 1.7 million shares
of our common stock. During fiscal 1999, we used our cash flow (in
combination with borrowings) to fund the construction of Mandalay Bay and
28
<PAGE>
other core components of Masterplan Mile; the renovation of hotel rooms at
Excalibur; the completion of the hotel tower at Gold Strike-Tunica; other
miscellaneous construction projects; and the repurchase of 4.5 million shares of
our common stock.
CAPITAL SPENDING
Capital expenditures in fiscal 2000 were $352.1 million compared with $671.5
million in fiscal 1999 and $663.3 million in fiscal 1998. The majority of
capital expenditures in fiscal 2000 related to the construction of Mandalay Bay
($140.6 million), the construction of the convention center and arena at
Mandalay Bay ($46.1 million), the construction of the monorail connecting
Mandalay Bay, Luxor and Excalibur ($26.8 million), the construction of the
aquarium exhibit ($23.6 million) and the renovation of the hotel rooms at
Excalibur ($13.9 million).
Most of the capital expenditures in fiscal 1999 related to the construction of
Mandalay Bay ($431.8 million), the construction of the other core components of
Masterplan Mile ($92.0 million), the completion of construction and remodeling
at Gold Strike-Tunica ($18.8 million) and the renovation of the hotel rooms at
Excalibur($12.3 million).
CREDIT FACILITY
To allow for increased borrowing capacity during the construction of Mandalay
Bay, we amended our unsecured credit facility with our bank group in May 1998 to
provide a more liberal test for total indebtedness during construction and a new
leverage test for senior debt. The facility, which currently permits total
borrowings of $1.8 billion, was amended in June 1999 to provide for a single
leverage test for total indebtedness. As part of our corporate debt program, we
also have a commercial paper program pursuant to which we may utilize up to $1
billion of our borrowing capacity under the credit facility to issue commercial
paper. As of January 31, 2000, we had aggregate borrowings of $1.4 billion
outstanding under the credit facility and an additional $50 million outstanding
under our corporate debt program.
LEASE FACILITY
On October 30, 1998, we entered into an operating lease with a group of
financial institutions (the "Lease Facility") that permits us to lease up to
$200 million of equipment. As of June 30, 1999, we had utilized the entire $200
million Lease Facility to lease equipment at Mandalay Bay. Concurrently, the
commitment under our bank credit facility was permanently reduced by the amount
of the lease financing to the current $1.8 billion level. The base term of the
lease expires June 30, 2001, but the lease provides for up to two successive
one-year renewal terms.
SHELF REGISTRATION
In August 1998, we filed a shelf registration statement relating to $550
million of securities. These securities may be issued from time to time in
the form of additional Mandalay debt securities or preferred
29
<PAGE>
securities of Delaware business trusts formed for the purpose of issuing their
trust securities and investing the proceeds in our debt securities. In November
1998, we issued $275 million principal amount of 9-1/4% Senior Subordinated
Notes due December 1, 2005 under this registration statement. Proceeds from this
offering were used to repay outstanding borrowings under the credit facility.
See Note 3 of Notes to Consolidated Financial Statements included in this annual
report.
SILVER LEGACY
In July 1995, Silver Legacy, a 50/50 joint venture with the Eldorado
Hotel/Casino, opened in downtown Reno, Nevada. As a condition of the joint
venture's $230 million bank credit agreement, Mandalay is obligated under a
make-well agreement to make additional contributions to the joint venture as
may be necessary to maintain a minimum coverage ratio (as defined).
NEW PROJECTS
MANDALAY BAY
On March 2, 1999, we opened Mandalay Bay, a 43-story hotel/casino resort in Las
Vegas, Nevada. The resort includes approximately 3,700 rooms and 135,000 square
feet of casino space and is situated on approximately 60 acres of land just
south of Luxor. Mandalay Bay's attractions include an 11-acre tropical lagoon
featuring a sand-and-surf beach, a three-quarter-mile lazy river ride, a
30,000-square-foot spa and other entertainment attractions. In addition to
internationally renowned restaurants, Mandalay Bay offers a House of Blues
nightclub and restaurant, including its signature Foundation Room sited on
Mandalay Bay's top floor.
Four Seasons operates 424 rooms at Mandalay Bay, providing Las Vegas visitors
with a luxury "five-diamond" hospitality experience. The Four Seasons Hotel,
which is owned by us and managed by Four Seasons, represents the first step in
our cooperative effort with Four Seasons to identify strategic opportunities for
development of hotel and casino properties worldwide. The total cost of Mandalay
Bay, including the Four Seasons Hotel and including leased equipment, but
excluding land, capitalized interest and preopening expenses, was approximately
$1 billion.
During construction, Mandalay Bay's hotel tower experienced settling in excess
of the level contemplated in the building's original design. The settling was
greater in some portions of the structure than in others. We retained
geotechnical, structural engineering and foundation consultants who evaluated
the situation and recommended remedial measures, which were completed prior to
the opening of the property. The evaluation of these remedial measures will
continue over time to determine if any further action will be required.
MASTERPLAN MILE
Masterplan Mile is our development property with approximately one mile of
frontage on the Las Vegas Strip. The property currently contains the Mandalay
Bay, Luxor and Excalibur sites. Our development plan for Masterplan Mile
includes various core components which will be cross-marketed to guests at our
existing and future hotel/casino within this resort development. These
components include a 125,000-square-
30
<PAGE>
foot convention facility (which opened March 12, 1999) and a 12,000-seat arena
(which opened April 10, 1999). The total cost of the convention facility and
arena (excluding land, capitalized interest and preopening expenses) was
approximately $125 million. Additional core components include a monorail system
(which opened April 10, 1999) linking the resorts within our Masterplan Mile, as
well as an aquarium exhibit, the Shark Reef at Mandalay Bay, which is currently
under construction and is expected to open in the summer of 2000. The cost of
the monorail (excluding land, capitalized interest and preopening expenses) was
approximately $40 million. The estimated cost of the aquarium (excluding land,
capitalized interest and preopening expenses) is approximately $45 million, of
which $25.3 million had been incurred as of January 31, 2000. We may add other
core components to our development plan for Masterplan Mile in the future.
DETROIT
We have formed a joint venture with the Detroit-based Atwater Casino Group to
build, own and operate a hotel/casino in Detroit, Michigan. This joint venture
is one of three groups which negotiated development agreements with the city. We
had an initial 45% ownership interest in the joint venture. Effective December
14, 1999, we acquired an additional 8.5% interest at a cost of $38.4 million,
thus increasing our total ownership interest to 53.5%.
Pending the development of a permanent hotel/casino, the joint venture
constructed a temporary casino (MotorCity Casino) in downtown Detroit, which
opened December 14, 1999. MotorCity Casino contains approximately 75,000 square
feet of gaming space, with approximately 2,600 slot machines and 136 table
games, plus five restaurants and a 3,450-space parking facility. The cost of the
temporary casino, including land and capitalized interest but excluding
preopening expenses, was approximately $150 million. This cost was financed
pursuant to the joint venture's $150 million credit facility, which is secured
by the assets associated with the temporary casino. Mandalay has guaranteed this
credit facility subject to the release of the guaranty if certain performance
measures are reached. The joint venture's operation of the temporary casino is
subject to ongoing regulatory oversight, and its ability to proceed with a
permanent hotel/casino facility is contingent upon the receipt of all necessary
gaming approvals and satisfaction of other conditions.
The Detroit joint venture is planning a $600 million permanent hotel/casino
facility. We have committed to contribute 20% of this amount in the form of
equity, and the joint venture will seek project-specific funding for the
balance of the cost. The development agreement provides that we will
guarantee completion of the permanent facility and will enter into a
keep-well guarantee with the city, pursuant to which we could be required to
contribute additional funds, if and as needed, to continue operation of the
project for a period of two years. This keep-well agreement also applies to
the temporary casino. Mandalay has issued letters of credit totaling $50
million for the benefit of Bank of America in order to back letters of credit
issued by Bank of America for the same total amount. The Bank of America
letters of credit were issued to secure payments of principal and interest on
bonds issued by the Economic Development Corporation of the City of Detroit.
The proceeds of the bonds are to be used to finance costs associated with
activities (including acquisition) relating to the land on which the
permanent facility will be built.
31
<PAGE>
Various lawsuits have been filed in the state and federal courts challenging the
constitutionality of the Detroit Casino Competitive Selection Process and the
Michigan Gaming Control and Revenue Act, and seeking to appeal the issuance of a
certificate of suitability to MotorCity Casino. No assurance can be given
regarding the timing and outcome of these proceedings. An adverse ruling in any
of these lawsuits could adversely impact the status of our joint venture's
operation of the temporary facility, as well as its ability to obtain a
certificate of suitability and a casino license for its permanent facility.
MISSISSIPPI GULF COAST
We have announced plans to develop a hotel/casino resort on the Mississippi Gulf
Coast at the north end of the Bay of St. Louis, near the DeLisle exit on
Interstate 10. While we have received all necessary approvals to commence
development, these approvals have been challenged in federal court. We
anticipate that the design and construction of this project will begin only
after satisfactory resolution of all legal actions. Currently, we expect the
resort to include approximately 1,500 rooms and involve an investment of
approximately $225 million. Present plans call for Mandalay to own 90% of the
resort, with a partner contributing land (up to 500 acres) in exchange for the
remaining 10% interest.
LIQUIDITY
Based on our operating cash flows, credit facility and ability to raise
additional funds through debt or equity markets, we believe we have sufficient
capital resources to meet all of our existing cash obligations, fund our capital
commitments on projects under way and strategically repurchase shares of our
common stock. As of January 31, 2000, under our most restrictive loan covenant,
we could issue additional debt of approximately $10 million. Our borrowing
capacity was diminished by the low fourth quarter results, but should increase
substantially in the first quarter of fiscal 2001, and thereafter, as operating
cash flow rebounds to normal quarterly levels. In April 1999, our Board of
Directors authorized the repurchase of up to 15% (or approximately 13.6 million)
of the outstanding shares of common stock, as market conditions and other
factors warrant.
MARKET RISK AND DERIVATIVE FINANCIAL INSTRUMENTS
Mandalay is exposed to market risk in the form of fluctuations in interest rates
and their potential impact upon our variable-rate debt. We manage this market
risk by utilizing derivative financial instruments in accordance with
established policies and procedures. We evaluate our exposure to market risk by
monitoring interest rates in the marketplace. We do not utilize derivative
financial instruments for trading purposes. There were no material quantitative
changes in our market risk exposure, or how such risks are managed, during
fiscal 2000.
Our derivative financial instruments consist exclusively of interest rate
swap agreements. Interest differentials resulting from these agreements are
recorded on an accrual basis as an adjustment to interest expense. Interest
rate swaps related to debt are matched either with specific fixed-rate debt
obligations or with levels of variable-rate borrowings.
32
<PAGE>
To manage our exposure to counterparty credit risk in interest rate swaps, we
enter into agreements with highly rated institutions that can be expected to
fully perform under the terms of such agreements. Frequently, these institutions
are also members of the bank group providing our credit facility, which
management believes further minimizes the risk of nonperformance.
The following table provides information about our financial instruments (both
interest rate swaps and debt obligations) that are sensitive to changes in
interest rates. For debt obligations, the table presents principal cash flows
and related weighted-average interest rates by expected maturity dates. For
interest rate swaps, the table presents notional amounts and weighted-average
interest rates by contractual maturity dates. Notional amounts are used to
calculate the contractual cash flows to be exchanged under the contract.
Weighted-average variable rates are based on implied forward rates in the yield
curve. Implied forward rates should not be considered a predictor of actual
future interest rates.
<TABLE>
<CAPTION>
Year ending January 31,
---------------------------------------
(in millions) 2001 2002 2003 2004 2005 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term debt (including current portion)
Fixed-rate $0.5 $0.3 $0.3 $150.2 $0.3 $927.7 $1,079.3
Average interest
rate 5.6% 6.7% 6.7% 6.7% 6.7% 7.6% 7.5%
Variable-rate $12.5 $52.5 $1,535.0 $25.0 - - $1,625.0
Average interest
rate 6.9% 7.3% 7.3% 7.4% - - 7.3%
Interest rate swaps
Pay fixed $200.0 - $200.0 $200.0 - $150.0 $750.0
Average payable
rate 6.1% - 6.1% 6.4% - 5.9% 6.1%
Average receivable
rate 6.9% - 7.3% 7.4% - 7.7% 7.3%
</TABLE>
YEAR 2000 READINESS DISCLOSURE
In the past, many computer software programs were written using two digits
rather than four to define the applicable year. As a result, information
technology ("IT"), such as date-sensitive computer software, as well as non-IT
systems (such as equipment containing microcontrollers or other embedded
technology) might recognize a date using "00" as the year 1900 rather than the
year 2000. This has generally been referred to as the Year 2000 issue. The
inability to correctly recognize the year 2000 created the potential for
computer system failures or miscalculations by computer programs, which might
have disrupted operations.
We established a task force to coordinate our response to the Year 2000
issue, and established a program for dealing with the issue at our wholly
owned properties and at our joint venture properties. The program is
described in our earlier reports on Form 10-K and Form 10-Q beginning with
our report on Form 10-Q for the quarter ended July 31, 1998.
33
<PAGE>
The program was completed prior to January 31, 2000, and, as of the date of this
report, we have not experienced any significant Year 2000 problems or incurred
any disruption in operations.
We estimate that the total cost of making our systems and those of our joint
venture properties Year-2000 compliant was approximately $6 million. Most of
this cost related to the acquisition of new computer hardware and software to
replace noncompliant personal computers and noncompliant software. These costs
were capitalized, and the equipment and software are being depreciated over
their expected useful lives. To the extent that existing hardware or software
was replaced, we recognized a loss currently for the undepreciated balance. This
loss is included in the above cost estimate. Furthermore, all costs related to
software modification and to the administration of our Year 2000 project were
expensed as incurred and are likewise included in the cost estimate above.
34
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, (in thousands, except share data) 2000 1999
------ ------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 116,617 $ 81,389
Accounts receivable 53,071 26,136
Income tax receivable 9,096 -
Inventories 28,499 24,270
Prepaid expenses 47,807 21,451
Deferred income tax 26,449 8,032
--------- ---------
Total current assets 281,539 161,278
--------- ---------
Property, equipment and leasehold interests,
at cost, net 3,335,071 3,000,822
--------- ---------
Other assets
Excess of purchase price over fair
market value of net assets acquired, net 396,433 367,076
Notes receivable 1,605 10,895
Investments in unconsolidated affiliates 264,995 271,707
Deferred charges and other assets 49,833 57,929
--------- ---------
Total other assets 712,866 707,607
--------- ---------
Total assets $4,329,476 $3,869,707
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 13,022 $ 3,481
Accounts and contracts payable
Trade 40,395 23,745
Construction 33,415 75,030
Accrued liabilities
Salaries, wages and vacations 46,897 40,006
Progressive jackpots 11,417 8,889
Advance room deposits 11,005 8,195
Interest payable 19,395 27,767
Other 69,073 44,460
---------- ---------
Total current liabilities 244,619 231,573
---------- ---------
Long-term debt 2,691,292 2,259,149
---------- ---------
Other liabilities
Deferred income tax 210,689 200,376
Other long-term liabilities 20,192 20,981
--------- ---------
Total other liabilities 230,881 221,357
--------- ---------
Total liabilities 3,166,792 2,712,079
--------- ---------
Commitments and contingent liabilities
--------- ---------
Minority interest (25,096) -
--------- ---------
Stockholders' equity
Common stock $.01-2/3 par value
Authorized -- 450,000,000 shares
Issued -- 113,634,013 and 113,622,508 shares 1,894 1,894
Preferred stock $.01 par value
Authorized -- 75,000,000 shares - -
Additional paid-in capital 565,925 558,935
Retained earnings 1,201,632 1,159,469
Treasury stock (23,764,216 and 22,959,425
shares), at cost (581,671) (562,670)
--------- ---------
Total stockholders' equity 1,187,780 1,157,628
--------- ---------
Total liabilities and stockholders' equity $4,329,476 $3,869,707
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
35
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year ended January 31,
(in thousands, except share data)
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Revenues
Casino $ 951,492 $ 709,909 $ 632,122
Rooms 534,132 355,635 330,644
Food and beverage 346,647 246,622 215,584
Other 251,509 170,701 142,407
Earnings of unconsolidated affiliates 98,627 83,967 98,977
-------- --------- ---------
2,182,407 1,566,834 1,419,734
Less-complimentary allowances (131,509) (87,054) (65,247)
--------- --------- ---------
2,050,898 1,479,780 1,354,487
--------- --------- ---------
Costs and expenses
Casino 510,794 367,449 316,902
Rooms 189,419 128,622 122,934
Food and beverage 276,261 207,663 199,955
Other operating expenses 179,907 113,864 99,460
General and administrative 339,455 253,138 223,263
Depreciation and amortization 169,226 133,801 117,474
Operating lease rent 25,994 - -
Preopening expenses 49,134 - 3,447
Abandonment loss 5,433 - -
--------- --------- ---------
1,745,623 1,204,537 1,083,435
--------- --------- ---------
Operating profit before
corporate expense 305,275 275,243 271,052
Corporate expense 31,539 32,464 34,552
--------- --------- ---------
Income from operations 273,736 242,779 236,500
--------- --------- ---------
Other income (expense)
Interest, dividends and
other income 3,652 2,730 9,779
Interest income and guarantee fees
from unconsolidated affiliate 2,775 3,122 6,041
Interest expense (165,670) (95,541) (88,847)
Interest expense from unconsolidated
affiliates (11,085) (12,275) (15,551)
--------- --------- ---------
(170,328) (101,964) (88,578)
--------- --------- ---------
Minority interest (292) - -
--------- --------- ---------
Income before provision for income tax 103,116 140,815 147,922
Provision for income tax 38,959 55,617 58,014
--------- --------- ---------
Income before cumulative effect of
change in accounting principle 64,157 85,198 89,908
Cumulative effect of change in
accounting principle for pre-
opening expenses, net of tax
benefit of $11,843 (21,994) - -
--------- --------- ---------
Net income $ 42,163 $ 85,198 $ 89,908
========= ========= =========
Basic earnings per share:
Income before cumulative effect of
change in accounting principle $ .71 $ .90 $ .95
Cumulative effect of change in
accounting principle (.24) - -
--------- --------- --------
Net income $ .47 $ .90 $ .95
========= ========= ========
Diluted earnings per share:
Income before cumulative effect of
change in accounting principle $ .70 $ .90 $ .94
Cumulative effect of change in
accounting principle (.24) - -
--------- --------- --------
Net income $ .46 $ .90 $ .94
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
36
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended January 31,
Increase (decrease) in cash 2000 1999 1998
and cash equivalents (in thousands) ------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 42,163 $ 85,198 $ 89,908
------- ------- -------
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 172,407 142,141 129,729
Increase (decrease) in deferred
income tax (8,104) 24,281 24,005
Increase (decrease) in interest
payable (8,372) 9,939 8,824
(Gain) loss on sale of fixed assets 2,903 (1,641) (6,519)
(Increase) decrease in other current
assets (53,797) 4,504 (2,605)
Increase in other current liabilities 42,930 19,906 6,148
(Increase) decrease in other noncurrent
assets 21,217 (35,817) (785)
Decrease in other noncurrent
liabilities (49) (65) (65)
Unconsolidated affiliates' earnings
in excess of distributions (6,419) (10,863) (33,330)
------- ------- -------
Total adjustments 162,716 152,385 125,402
------- ------- -------
Net cash provided by operating
activities 204,879 237,583 215,310
------- ------- -------
Cash flows from investing activities
Capital expenditures (352,133) (671,547) (663,270)
Increase (decrease) in construction
payable (63,474) 34,360 19,526
(Increase) decrease in investments in
unconsolidated affiliates 10,728 (5,865) (8,353)
Net cash paid for additional ownership
interest in joint venture (19,331) - -
(Increase) decrease in notes receivable (24,952) (9,820) 35,368
Proceeds from sale of equipment and other
assets 697 5,788 8,160
------- ------- -------
Net cash used in investing activities (448,465) (647,084) (608,569)
------- ------- -------
Cash flows from financing activities
Proceeds from issuance of senior notes - 275,000 -
Net effect on cash of issuances and
payments of debt with initial maturities
of three months or less 294,990 502,528 474,355
Issuance of debt with initial maturities
in excess of three months - 337,334 201,843
Principal payments of debt with initial
maturities in excess of three months (3,425) (644,241) (290,712)
Exercise of stock options 17,616 310 7,889
Purchase of stock warrants - - (2,000)
Purchases of treasury stock (29,627) (51,634) (1,300)
Other (740) 12,962 (7,701)
------- ------- -------
Net cash provided by financing
activities 278,814 432,259 382,374
------- ------- -------
Net increase (decrease) in cash and cash
equivalents 35,228 22,758 (10,885)
Cash and cash equivalents at beginning
of year 81,389 58,631 69,516
------- ------- -------
Cash and cash equivalents at end of year $116,617 $ 81,389 $ 58,631
======= ======= =======
Supplemental cash flow disclosures
Cash paid during the year for interest
(net of amount capitalized) $170,272 $ 82,879 $ 77,426
Income tax $ 42,551 $ 18,770 $ 37,395
Acquisition of additional ownership
interest in joint venture
Cash paid $(38,386) $ - $ -
Current assets, other than cash (13,462) - -
Property and equipment (146,143) - -
Other assets (14,092) - -
Current liabilities 33,693 - -
Long-term debt 179,180 - -
Stockholders' equity (20,121) - -
------- ------- -------
Net cash paid for acquisition $(19,331) $ - $ -
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
37
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Issued Additional Total
------------------- Paid-in Retained Treasury Stockholders'
Shares Amount Capital Earnings Stock Equity
------ ------ ------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
Balance, January 31, 1997 112,808 $1,880 $498,893 $984,363 $(513,345) $971,791
Net income - - - 89,908 - 89,908
Exercise of stock options 46 - 4,317 - 3,572 7,889
Treasury stock acquired (38 shares),
at cost - - - - (1,300) (1,300)
Conversion of subsidiary preferred stock 755 13 17,618 - - 17,631
Sale/purchase of puts and calls - - 35,536 - - 35,536
Amortization of deferred compensation - - 4,294 - - 4,294
Purchase of warrants - - (2,000) - - (2,000)
------- ----- ------- --------- ------- ---------
Balance, January 31, 1998 113,609 1,893 558,658 1,074,271 (511,073) 1,123,749
Net income - - - 85,198 - 85,198
Exercise of stock options 14 1 272 - 37 310
Treasury stock acquired (4,466 shares),
at cost - - - - (51,634) (51,634)
Other - - 5 - - 5
------- ----- ------- --------- ------- ---------
Balance, January 31, 1999 113,623 1,894 558,935 1,159,469 (562,670) 1,157,628
Net income - - - 42,163 - 42,163
Exercise of stock options 11 - 6,990 - 10,626 17,616
Treasury stock acquired (1,672 shares),
at cost - - - - (29,627) (29,627)
------- ----- ------- --------- ------- ---------
Balance, January 31, 2000 113,634 $1,894 $565,925 $1,201,632 $(581,671) $1,187,780
======= ===== ======= ========= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
38
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
Mandalay Resort Group (the "Company"), which changed its name from Circus
Circus Enterprises, Inc. effective June 18, 1999, was incorporated February
27, 1974. The Company owns and operates hotel and casino facilities in Las
Vegas, Reno, Laughlin, Jean and Henderson, Nevada and a hotel and dockside
casino in Tunica County, Mississippi. In Detroit, Michigan, the Company is
the majority investor in a temporary casino which opened December 14, 1999.
It is also an investor in several unconsolidated affiliates, with operations
that include a riverboat casino in Elgin, Illinois, a hotel/casino in Reno,
Nevada and a hotel/casino on the Las Vegas Strip. (See Note 10 - Investments
in Unconsolidated Affiliates.)
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries and the Detroit joint venture, which is required
to be consolidated. Material intercompany accounts and transactions have been
eliminated. Investments in 50% or less owned affiliated companies are accounted
for under the equity method.
GOODWILL
On December 14, 1999, the Company purchased an additional ownership interest in
a joint venture which operates MotorCity Casino, a temporary casino in Detroit,
Michigan, bringing its total ownership interest to 53.5%. On June 1, 1995, the
Company completed its acquisition of Gold Strike Resorts, in which it acquired
two hotel/casino facilities in Jean, Nevada, one in Henderson, Nevada, a 50%
interest in a joint venture which owns Grand Victoria, a riverboat casino and
land-based entertainment complex in Elgin, Illinois, and a 50% interest in a
joint venture which owns the Monte Carlo, a major hotel/casino on the Las Vegas
Strip. On February 1, 1983, the Company purchased the Edgewater Hotel and Casino
in Laughlin, Nevada and on November 1, 1979, the Company purchased the
Slots-A-Fun Casino in Las Vegas. The excess of the purchase price over the fair
market value of the net assets acquired amounted to $38.4 million for the
purchase of the additional ownership interest in MotorCity Casino, $394.5
million for the purchase of Gold Strike Resorts, $9.7 million for the purchase
of the Edgewater and $4.2 million for the purchase of Slots-A-Fun, and each is
being amortized over a period of 40 years with the exception of the MotorCity
Casino interest which is being amortized over a period of 25 years.
CAPITALIZED INTEREST
The Company capitalizes interest costs associated with debt incurred in
connection with major construction projects. When debt is not specifically
identified as being incurred in connection with a construction project, the
Company capitalizes interest on amounts expended on the project at the
Company's average cost of borrowed money. The amounts capitalized during the
years ended January 31, 2000, 1999 and 1998, were $11.0 million, $45.5
million and $22.0 million, respectively.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out and the average cost methods.
39
<PAGE>
CASH EQUIVALENTS
At January 31, 2000 and 1999, cash equivalents (consisting principally of money
market funds and instruments with initial maturities of three months or less)
had a cost approximately equal to market value.
INTEREST RATE SWAPS
The Company, from time to time, uses interest rate swaps and similar financial
instruments to assist in managing interest incurred on its long-term debt. The
difference between amounts received and amounts paid under such agreements, as
well as any costs or fees, is recorded as a reduction of, or addition to,
interest expense as incurred over the life of the swap or similar financial
instrument.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of property, equipment and leasehold interests are
provided using the straight-line method over the following estimated useful
lives:
- --------------------------------------------------------------------------------
Buildings and improvements 15-45 years
Equipment, furniture and fixtures 3-15 years
Leasehold interests and improvements 5-16 years
- --------------------------------------------------------------------------------
Accumulated amortization of the excess of the purchase price over the fair
market value of the net assets of businesses acquired was $51.7 million and
$41.3 million, as of January 31, 2000 and 1999, respectively.
REVENUES AND EXPENSES
Casino revenues are the net difference between the sums received as winnings and
the sums paid as losses. Revenues include the retail value of rooms, food and
beverage furnished gratuitously to customers. Such amounts are then deducted as
complimentary allowances. The costs of such rooms, food and beverage were
included as casino expenses as follows: $76.5 million, $58.7 million and $45.9
million for the fiscal years ended January 31, 2000, 1999 and 1998,
respectively. For the three years, approximately 80-85% of such costs were for
food and beverage with the balance for rooms.
RECLASSIFICATIONS
The financial statements for prior years reflect certain reclassifications,
which have no effect on net income, to conform with classifications adopted in
the current year.
PREOPENING EXPENSES
Preopening expenses consist principally of direct incremental personnel costs
and advertising and marketing expenses. In accordance with the American
Institute of Certified Public Accountants' Statement of Position 98-5,
preopening expenses incurred prior to January 31, 1999 ($33.8 million), on
projects opening after that date, are reflected, net of income tax benefit of
$11.8 million, as a cumulative effect of a change in accounting principle for
preopening expenses in the consolidated statements of income.
40
<PAGE>
Preopening expenses incurred after January 31, 1999 are expensed as incurred.
Previously, these costs were capitalized prior to the opening of the specific
project and were charged to expense at the commencement of operations.
For the year ended January 31, 2000, preopening expenses of $83.0
million relate primarily to Mandalay Bay, The Four Seasons at Mandalay Bay, and
the Company's joint venture in Detroit. For the year ended January 31, 1998,
preopening expenses amounted to $3.4 million related to the opening of a hotel
tower at Gold Strike Casino Resort in Tunica County, Mississippi.
ABANDONMENT LOSS
During fiscal 2000, the Company wrote off $5.4 million related to a proposed
timeshare resort in Las Vegas which the Company decided not to pursue.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and affect the disclosure
of contingent assets and liabilities at the date of the financial statements.
These estimates and assumptions also affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Note 2. Property, Equipment and Leasehold Interests
Property, equipment and leasehold interests consist of the following:
January 31, (in thousands) 2000 1999
- ----------------------------------------------------------------
Land and land leases $ 364,781 $ 362,661
Buildings and improvements 2,872,900 1,851,511
Equipment, furniture and fixtures 896,435 653,058
Leasehold interests and improvements 11,305 11,192
- ----------------------------------------------------------------
4,145,421 2,878,422
Less - accumulated depreciation
and amortization (893,776) (733,967)
- ----------------------------------------------------------------
3,251,645 2,144,455
Construction in progress 83,426 856,367
- ----------------------------------------------------------------
$3,335,071 $3,000,822
========== ==========
41
<PAGE>
Note 3. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 31, (in thousands) 2000 1999
- ----------------------------------------------------------------
<S> <C> <C>
Amounts due under bank credit agreements
at floating interest rates, weighted
average of 6.8% and 6.0% $1,425,000 $1,130,000
Amounts due under corporate debt program
at floating interest rates, weighted
average of 6.2% and 5.7% 50,000 50,000
Amounts due under majority-owned joint
venture revolving credit facility at
floating interest rates, weighted
average of 7.1% 150,000 -
9-1/4% Senior Subordinated Notes due 2005 275,000 275,000
6.45% Senior Notes due 2006 (net of
unamortized discount of $264 and $308) 199,736 199,692
7-5/8% Senior Subordinated Debentures
due 2013 150,000 150,000
6-3/4% Senior Subordinated Notes due 2003
(net of unamortized discount of $55
and $71) 149,945 149,929
7.0% Debentures due 2036 (net of
unamortized discount of $119 and $133) 149,881 149,867
6.70% Debentures due 2096 (net of
unamortized discount of $183 and $231) 149,817 149,769
Other notes 4,935 8,373
--------- ---------
2,704,314 2,262,630
Less - current portion (13,022) (3,481)
--------- ---------
$2,691,292 $2,259,149
========= =========
</TABLE>
The Company has established a corporate debt program whereby it can issue
commercial paper or similar forms of short-term debt. Although the debt
instruments issued under this program are short term in tenor, they are
classified as long-term debt because (i) they are backed by long-term debt
facilities (see below) and (ii) it is management's intention to continue to
replace such borrowings on a rolling basis as various instruments come due and
to have such borrowings outstanding for longer than one year. To the extent that
the Company incurs debt under this program, it maintains an equivalent amount of
credit available under its bank credit facility, discussed more fully below.
In May 1997, the Company renegotiated its $1.5 billion unsecured credit
facility, dated January 29, 1996. This agreement was replaced by a new $2
billion unsecured credit facility which matures on July 31, 2002 (the
"Facility"). See Note 4 - Leasing Arrangements, for permanent reductions in
the availability under the credit facility due to certain operating lease
transactions. The maturity date may be extended for an unlimited number of
one-year periods with the consent of the bank group. The Facility contains
financial covenants regarding total debt and investments. The Facility is for
general corporate purposes. The Company incurs commitment fees (currently
17.5 basis points) on the unused portion of the Facility. As of January 31,
2000, the Company had $1.4 billion of borrowings under the Facility. At such
date, the Company also had $50 million issued under the corporate debt
program thus reducing, by that amount,
42
<PAGE>
the credit available under the Facility for purposes other than repayment of
such indebtedness. The fair value of the debt issued under the Facility and the
corporate debt program approximates the carrying amount of the debt due to the
short-term maturities of the individual components of the debt.
On December 14, 1999, the Company acquired an additional 8.5% ownership
interest in the joint venture that owns and operates MotorCity Casino in
Detroit, Michigan bringing the total ownership interest to 53.5%. Therefore,
long-term debt of that joint venture is reflected as an obligation of the
Company. In June 1999, the joint venture entered into a $150 million reducing
revolving credit facility (the "Detroit Facility") which matures on June 30,
2003. The Detroit Facility reduces by fixed amounts quarterly, beginning on
December 31, 2000, and contains financial covenants regarding total debt,
capital expenditures and investments. The Detroit Facility was used primarily to
develop and construct the temporary casino facility. The Detroit Facility is
unconditionally guaranteed by the Company, subject to release after one year if
certain performance measures are reached. As of January 31, 2000, the joint
venture had $150 million of borrowings outstanding under the Detroit Facility.
The fair value of the debt issued under the Detroit Facility approximates the
carrying amount of the debt.
In November 1998, the Company issued $275 million principal amount of 9-1/4%
Senior Subordinated Notes due December 2005 (the "9-1/4% Notes"), with interest
payable each June and December. The 9-1/4% Notes are redeemable at the option of
the Company, in whole, at 100% of the principal amount plus a make-whole premium
at any time prior to December 1, 2002. The 9-1/4% Notes are also redeemable at
the option of the Company, in whole or in part, beginning December 1, 2002 at
prices declining annually to 100% on or after December 1, 2004. The Company may
also use the net proceeds of a public offering of equity securities to redeem up
to 35% of the 9-1/4% Notes prior to December 1, 2001. The 9-1/4% Notes are not
subject to any sinking fund requirements. The net proceeds from this offering
were used to repay borrowings under the Company's credit facility. As of January
31, 2000, the estimated fair value of the 9-1/4% Notes was $273.6 million, based
on their trading price.
In November 1996, the Company issued $150 million principal amount of
7.0% Debentures due November 2036 (the "7.0% Debentures"). The 7.0%
Debentures may be redeemed at the option of the holder in November 2008.
Also, in November 1996, the Company issued $150 million principal amount of
6.70% Debentures due November 2096 (the "6.70% Debentures"). The 6.70%
Debentures may be redeemed at the option of the holder in November 2003. Both
the 7.0% Debentures, which were discounted to $149.8 million, and the 6.70%
Debentures, which were discounted to $149.7 million, have interest payable
each May and November, are not redeemable by the Company prior to maturity
and are not subject to any sinking fund requirements. The net proceeds from
these offerings were used primarily to repay borrowings under the Company's
corporate debt program. As of January 31, 2000, the estimated fair value of
the 7.0% Debentures was $131.3 million and the estimated fair value of the
6.70% Debentures was $139.1 million, based on their trading prices.
In February 1996, the Company issued $200 million principal amount of 6.45%
Senior Notes due February 1, 2006 (the "6.45% Notes"), with interest payable
each February and August. The 6.45% Notes, which were discounted to $199.6
million, are not redeemable prior to maturity and are not sub-
43
<PAGE>
ject to any sinking fund requirements. The net proceeds from this offering were
used primarily to repay borrowings under the Company's corporate debt program.
As of January 31, 2000, the estimated fair value of the 6.45% Notes was $177.0
million, based on their trading price.
In July 1993, the Company issued $150 million principal amount of 6-3/4%
Senior Subordinated Notes (the "6-3/4% Notes") due July 2003 and $150 million
principal amount of 7-5/8% Senior Subordinated Debentures (the "7-5/8%
Debentures") due July 2013, with interest payable each July and January. The
6-3/4% Notes, which were discounted to $149.8 million, and the 7-5/8% Debentures
are not redeemable prior to maturity and are not subject to any sinking fund
requirements. The net proceeds from these offerings were used primarily to repay
borrowings under the Company's corporate debt program. As of January 31, 2000,
the estimated fair value of the 6-3/4% Notes was $138.8 million and the
estimated fair value of the 7-5/8% Debentures was $126.0 million, based on their
trading prices.
The Company has a policy aimed at managing interest rate risk associated
with its current and anticipated future borrowings. This policy enables the
Company to use any combination of interest rate swaps, futures, options, caps
and similar instruments. To the extent the Company employs such financial
instruments pursuant to this policy, they are accounted for as hedging
instruments. In order to qualify for hedge accounting, the underlying hedged
item must expose the Company to risks associated with market fluctuations and
the financial instrument used must be designated as a hedge and must reduce the
Company's exposure to market fluctuation throughout the hedge period. If these
criteria are not met, a change in the market value of the financial instrument
is recognized as a gain or loss in the period of change. Otherwise, gains and
losses are not recognized except to the extent that the financial instrument is
disposed of prior to maturity. Net interest paid or received pursuant to the
financial instrument is included as interest expense in the period.
The Company has entered into various interest rate swaps, principally
with its bank group, to manage interest expense, which is subject to
fluctuation due to the variable-rate nature of the debt under the Company's
corporate debt program. The Company has interest rate swap agreements under
which it pays a fixed interest rate (weighted average of approximately 6.1%)
and receives a variable interest rate (weighted average of approximately 6.1%
at January 31, 2000) on $550 million notional amount of "initial" swaps. The
net effect of all such swaps resulted in additional interest expense of $1.7
million for the year. Two of the initial swaps with a combined notional
amount of $150 million provide that the swaps will terminate two business
days after any date on which three-month LIBOR is set at or above 9.0% on or
after October 15, 2000 for $100 million notional amount and on or after
January 15, 2001 for $50 million notional amount. These swaps otherwise
terminate in fiscal 2008. The remaining two initial swaps of $200 million
notional amount each terminate in fiscal 2003 and 2004.
The Company had also entered into a forward interest rate swap with a
notional amount of $200 million which has an effective date of December 31, 1999
and a termination date of March 31, 2000. Under this agreement, the Company paid
a fixed rate of 6.1% and received a variable interest rate based on three-month
LIBOR.
44
<PAGE>
The Company is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate swap agreements. However, the Company
considers the risk of nonperformance by the counterparties to be minimal because
the parties to the swaps are predominantly members of the Company's bank group.
If the Company had terminated all swaps as of January 31, 2000, the Company
would have received a net amount of approximately $11.4 million based on quoted
market values from the various financial institutions holding the swaps.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 - Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). This statement establishes accounting and
reporting standards for derivative financial instruments. The provisions of SFAS
133 require that a company recognize derivatives as either assets or liabilities
on its balance sheet and that the instrument be valued at its fair value. The
statement also defines the criteria and conditions which govern the recognition
of subsequent changes in the fair value of the instrument as either balance
sheet or income statement events. SFAS 133 is effective for fiscal years
beginning after June 15, 2000. The Company does not expect the adoption of this
pronouncement to materially impact its results of operations or financial
position.
As of January 31, 2000, under the Company's most restrictive loan covenant,
the Company was restricted from issuing additional debt in excess of
approximately $10 million.
Required annual principal payments as of January 31, 2000 are as follows:
Year ending January 31, (in thousands)
- ----------------------------------------------------------------
2001 $ 13,022
2002 52,793
2003 1,535,274
2004 175,219
2005 274
Thereafter 927,732
- ----------------------------------------------------------------
$2,704,314
==========
Note 4. Leasing Arrangements
On October 30, 1998, the Company entered into an operating lease agreement
with a group of financial institutions (the "Lease Facility") to permit the
Company to lease up to $200 million of equipment. As of June 30, 1999, the
Company had utilized the entire $200 million Lease Facility to lease equipment
at Mandalay Bay and the commitment under the Company's bank credit facility was
permanently reduced to $1.8 billion. The base term of the lease expires June 30,
2001, but the lease provides for up to two successive one-year renewal terms.
The rent expense related to this lease facility is reported separately on the
consolidated statements of income as operating lease rent.
45
<PAGE>
On October 31, 1999, the lease pursuant to which the Company operated the
Silver City Casino expired and the Company ceased operation of that facility.
The Company also leases various storage facilities and equipment and has
various air space under operating leases expiring individually through 2032. A
portion of the Circus Circus facility in Reno is built on leased land with
various operating leases expiring through 2033. The following is a schedule of
future minimum rental payments required as of January 31, 2000 under those
operating leases that have lease terms in excess of one year:
<TABLE>
<CAPTION>
Year ending January 31, (in thousands)
- ----------------------------------------------------------------
<S> <C>
2001 $40,236
2002 20,789
2003 1,709
2004 1,036
2005 636
Thereafter 6,109
- ----------------------------------------------------------------
$70,515
=======
</TABLE>
Rent expense for all leases accounted for as operating leases was as follows:
<TABLE>
<CAPTION>
Year ended January 31,
(in thousands) 2000 1999 1998
- -----------------------------------------------------------------
<S> <C> <C> <C>
Operating rent expense $27,988 $3,454 $3,211
======= ====== ======
</TABLE>
Note 5. Income Tax
The components of the provision for income tax are as follows:
<TABLE>
<CAPTION>
Year ended January 31,
(in thousands) 2000 1999 1998
- -----------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $38,069 $34,810 $36,980
State 734 510 491
------- ------- -------
38,803 35,320 37,471
------- ------- -------
Deferred
Federal (11,687) 20,297 20,543
------- ------- -------
$27,116 $55,617 $58,014
======= ======= =======
</TABLE>
46
<PAGE>
The Company has recognized a tax benefit of $1.7 million, $38,000 and $0.9
million related to the exercise of stock options for the fiscal years ended
January 31, 2000, 1999 and 1998, respectively. Such amounts reduce the current
portion of taxes payable.
The cumulative balance of the deferred tax liability is due predominantly to
temporary book/tax depreciation differences. The components of deferred income
tax expense are as follows:
<TABLE>
<CAPTION>
Year ended January 31,
(in thousands) 2000 1999 1998
- ----------------------------------------------------------------
<S> <C> <C> <C>
Additional depreciation
resulting from the use of
accelerated methods for tax
purposes and the straight-line
method for financial statement
purposes $10,723 $11,811 $14,089
Effect of writing off preopening
expenses for financial statement
purposes and amortizing over five
years for tax purposes (16,932) 1,062 1,281
Difference between book and
tax basis of assets written off - 497 327
Book reserve for bad debts not
currently deductible for tax purposes (2,715) (872) (462)
Difference between book and tax
basis of investments in uncon-
solidated affiliates (2,294) 3,392 5,730
Outstanding chips and tokens 42 1,501 (150)
Capitalized interest 431 2,993 1,432
Other, net (942) (87) (1,704)
----------------------------
$(11,687) $20,297 $20,543
============================
</TABLE>
The reconciliation of the difference between the federal statutory tax rate
and the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
Year ended January 31, 2000 1999 1998
- -----------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
Nondeductible goodwill 5.3 2.5 2.4
Nondeductible political contributions .8 2.0 .3
Nondeductible compensation - - 2.2
Nondeductible tax credits (1.8) (.6) (.5)
Other, net (.2) .6 (.2)
-----------------------
Effective tax rate 39.1% 39.5% 39.2%
=======================
</TABLE>
47
<PAGE>
The income tax effects of temporary differences between financial and income
tax reporting that gave rise to deferred income tax assets and liabilities at
January 31, 2000 and 1999, under the provisions of Statement of Financial
Accounting Standards No. 109, are as follows:
<TABLE>
<CAPTION>
Year ended January 31,
(in thousands) 2000 1999
- ----------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities
Property and equipment $192,898 $176,592
Investments in unconsolidated
affiliates 17,310 18,697
Other 9,647 13,205
------- -------
Gross deferred tax liabilities 219,855 208,494
Deferred tax assets
Accrued vacation benefits 6,471 5,045
Bad debt reserve 4,832 2,117
Preopening expense, net of amortization 17,451 520
Other 6,861 8,468
------- -------
Gross deferred tax assets 35,615 16,150
------- -------
Net deferred tax liabilities $184,240 $192,344
======= =======
</TABLE>
Note 6. Employee Retirement Plans
Approximately 41% of the Company's employees are covered by union-sponsored,
collectively bargained, multi-employer, defined benefit pension plans. The
Company contributed $12.8 million, $10.2 million and $9.9 million during the
years ended January 31, 2000, 1999 and 1998, respectively, for such plans. These
contributions are determined in accordance with the provisions of negotiated
labor contracts and generally are based on the number of hours worked.
The Company also has a profit sharing and investment plan covering primarily
nonunion employees who are at least 21 years of age and have at least one year
of service. The plan is a voluntary defined contribution plan and is subject to
the provisions of the Employee Retirement Income Security Act of 1974. The plan
allows for investments in the Company's common stock as one of the investment
alternatives. The Company's contributions to this plan are determined based on
employees' years of service and matching of employees' contributions, and were
approximately $4.7 million, $4.5 million and $4.2 million in the years ended
January 31, 2000, 1999 and 1998. Contributions are funded with cash.
On June 18, 1998, the Company adopted a Supplemental Executive Retirement
Plan ("SERP"). The SERP is a defined benefit plan pursuant to which the Company
will pay supplemental pension benefits to certain key employees upon retirement
based upon the employees' years of service, compensation and SERP tier. For the
fiscal year ending January 31, 2000, approximately $2.9 million of benefits were
accrued and expensed. The SERP is being funded through life insurance contracts
on the key employees,
48
<PAGE>
though the plan does not require formal funding. At January 31, 2000, the life
insurance contracts had a value of $10.3 million. The vested benefit obligation
and accumulated benefit obligation were $6.0 million and $11.2 million,
respectively, at January 31, 2000.
Note 7. Stock Options
The Company has various stock option plans for executive, managerial and
supervisory personnel as well as the Company's outside directors and
consultants. The plans permit grants of options, performance shares and
restricted stock awards relating to the Company's common stock. The stock
options are generally exercisable in one or more installments beginning not less
than six months after the grant date.
Summarized information for stock option plans is as follows:
<TABLE>
<CAPTION>
Year ended January 31,
---------------------------------------------------------------
2000 1999 1998
------------------ -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year... 3,872,674 $14.72 5,143,505 $23.94 7,183,560 $25.43
Granted.............. 3,354,666 14.20 3,188,335 12.51 575,000 23.52
Exercised............ (878,914) 18.08 (16,500) 13.29 (341,005) 20.75
Canceled............. (333,467) 19.08 (4,442,666) 23.81 (2,274,050) 29.01
--------- --------- ---------
Outstanding at end
of year............ 6,014,959 $13.70 3,872,674 $14.72 5,143,505 $23.94
========= ========= =========
Options exercisable
at end of year..... 1,937,662 $13.71 1,314,005 $21.19 3,340,498 $22.54
Options available for
grant at end of
year............... 1,927,032 3,973,231 2,026,900
</TABLE>
The following table summarizes information about stock options outstanding at
January 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- -------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Yrs) Price Exercisable Price
------ ----------- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$11.25 to $11.25 2,161,793 5.77 $11.25 1,457,662 $11.25
13.00 to 13.00 2,824,333 9.02 13.00 - -
14.50 to 23.08 780,000 6.25 19.72 480,000 21.18
24.00 to 24.00 248,833 9.30 24.00 - -
--------- ---- ----- --------- -----
6,014,959 7.51 $13.70 1,937,662 $13.71
========= ==== ===== ========= =====
</TABLE>
In December 1998, replacement options to purchase an aggregate of
approximately 2.6 million shares of the Company's common stock were awarded at
an exercise price of $11.25 per share, subject to the surrender for cancellation
of 3.9 million options with an average exercise price of $24.29.
49
<PAGE>
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 is effective for fiscal years beginning
after December 15, 1995 and provides, among other things, that companies may
elect to account for employee stock options using a fair value method or
continue to apply the intrinsic value method prescribed by Accounting Principles
Board Opinion No. 25 ("APB 25").
Under SFAS 123, all employee stock option grants are considered
compensatory. Compensation cost is measured at the date of grant based on the
estimated fair value of the options determined using an option pricing model.
The model takes into account the stock price at the grant date, the exercise
price, the expected life of the option, the volatility of the stock, expected
dividends on the stock and the risk-free interest rate over the expected life of
the option. Under APB 25, generally only stock options that have intrinsic value
at the date of grant are considered compensatory. Intrinsic value represents the
excess, if any, of the market price of the stock at the grant date over the
exercise price of the options. Under both methods, compensation cost is charged
to earnings over the period the options become exercisable.
The Company has elected to continue to account for employee stock options
under APB 25. Accordingly, no compensation cost has been recognized.
The following table discloses the Company's pro forma net income and net
income per share assuming compensation cost for employee stock options had been
determined consistent with SFAS 123. The table also discloses the weighted
average assumptions used in estimating the fair value of each option grant on
the date of grant using the Black-Scholes option pricing model, and the
estimated weighted average fair value of the options granted. The model assumes
no expected future dividend payments on the Company's common stock.
<TABLE>
<CAPTION>
Year ended January 31,
----------------------
(in thousands, except share data) 2000 1999
-------- --------
<S> <C> <C>
Net income
As reported............................. $ 42,163 $ 85,198
Pro forma............................... 31,527 79,722
Net income per share (basic)
As reported............................. $ .47 $ .90
Pro forma............................... .35 .84
Net income per share (diluted)
As reported............................. $ .46 $ .90
Pro forma............................... .34 .84
Weighted average assumptions
Expected stock price volatility......... 45.1% 43.6%
Risk-free interest rate................. 6.4% 5.0%
Expected option lives (years)........... 2.7 2.1
Estimated fair value of options granted. $ 4.79 $ 3.50
</TABLE>
50
<PAGE>
Because the accounting method prescribed by SFAS 123 has not been applied to
options granted prior to January 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 8. Stock Related Matters
On July 14, 1994, the Company declared a dividend of one common stock purchase
right (the "Rights") for each share of common stock outstanding at the close of
business on August 15, 1994. Each Right entitles the holder to purchase from the
Company one share of common stock at an exercise price of $125, subject to
certain antidilution adjustments. The Rights become exercisable ten days after
the earlier of an announcement that an individual or group has acquired 15% or
more of the Company's outstanding common stock or the announcement of
commencement of a tender offer for 15% or more of the Company's common stock.
In the event the Rights become exercisable, each Right (except the Rights
beneficially owned by the acquiring individual or group, which become void)
would entitle the holder to purchase, for the exercise price, a number of shares
of the Company's common stock having an aggregate current market value equal to
two times the exercise price. The Rights expire August 15, 2004, and may be
redeemed by the Company at a price of $.01 per Right any time prior to their
expiration or the acquisition of 15% or more of the Company's common stock. The
Rights should not interfere with any merger or other business combination
approved by the Company's Board of Directors and are intended to cause
substantial dilution to a person or group that attempts to acquire control of
the Company on terms not approved by the Board of Directors.
During the year ended January 31, 2000, the Company repurchased 1.7 million
shares of its common stock at a cost of $29.6 million. In the fiscal years ended
1999 and 1998, the Company repurchased 4.5 million shares of its common stock at
a cost of $51.6 million and 38,486 shares of its common stock at a cost of $1.3
million, respectively.
During the year ended January 31, 1998, the Company elected to settle, for
cash, outstanding put options on 2.0 million shares of its common stock and call
options on 600,000 shares of common stock. The net cost to the Company was $9.4
million. The put and call options were entered into as a complement to the
Company's overall share repurchase program.
In connection with the acquisition of Gold Strike Resorts, New Way, Inc.,
a wholly owned subsidiary of the Company, issued 1,069,926 shares of $10.00
Cumulative Preferred Stock. Of the preferred shares issued, 866,640 were
issued to another wholly owned subsidiary of the Company. During the year
ended January 31, 1997, the Company purchased 9,864 shares of the preferred
stock for $1.3 million. The price paid by the Company was based on the
trading price of the Company's common stock prior to the transaction. On
February 26, 1997, New Way, Inc. merged into another subsidiary of the
Company and, therefore, the remaining preferred stock was converted into
754,666 shares of common stock.
51
<PAGE>
The Company is authorized to issue up to 75 million shares of $.01 par value
preferred stock in one or more series having such respective terms, rights and
preferences as are designated by the Board of Directors. No preferred stock has
yet been issued.
Note 9. Earnings Per Share
Earnings per share is computed and presented in accordance with Statement of
Financial Accounting Standards No. 128 - Earnings Per Share. Basic earnings per
share is computed by dividing net income by the weighted average number of
common shares outstanding during the period, while diluted earnings per share
reflects the additional dilution for all potentially dilutive securities, such
as stock options.
The table below reconciles weighted average shares outstanding used to
calculate basic earnings per share with the weighted average shares outstanding
used to calculate diluted earnings per share. There were no reconciling items
for net income.
<TABLE>
<CAPTION>
Year ended January 31,
(in thousands, except per share data) 2000 1999 1998
- -----------------------------------------------------------------
<S> <C> <C> <C>
Net income $42,163 $85,198 $ 89,908
====== ====== =======
Weighted average shares out-
standing used in computation
of basic earnings per share 90,607 94,601 94,943
Stock options 1,289 70 309
------ ------ ------
Weighted average shares out-
standing used in computation
of diluted earnings per share 91,896 94,671 95,252
====== ====== =======
Basic earnings per share $.47 $.90 $.95
====== ====== =======
Diluted earnings per share $.46 $.90 $.94
====== ====== =======
</TABLE>
52
<PAGE>
Note 10. Investments in Unconsolidated Affiliates
The Company has investments in unconsolidated affiliates that are accounted for
under the equity method. Under the equity method, original investments are
recorded at cost and adjusted by the Company's share of earnings, losses and
distributions of these companies. The investment balance also includes interest
capitalized during construction. Investments in unconsolidated affiliates
consist of the following:
<TABLE>
<CAPTION>
January 31, (in thousands) 2000 1999
- ------------------------------------------------------------------
<S> <C> <C>
Circus and Eldorado Joint Venture (50%)
(Silver Legacy, Reno, Nevada) $ 87,150 $74,871
Elgin Riverboat Resort (50%)
(Grand Victoria, Elgin, Illinois) 40,780 42,461
Victoria Partners (50%)
(Monte Carlo, Las Vegas, Nevada) 137,065 141,658
Detroit Entertainment (see below)
(MotorCity Casino, Detroit, Michigan) - 12,717
------- -------
$264,995 $271,707
======= =======
</TABLE>
Effective December 14, 1999, the Company acquired an additional 8.5%
interest in Detroit Entertainment, bringing its total investment to 53.5%. As a
result of this majority ownership position, the Company is no longer accounting
for its investment under the equity method and is consolidating Detroit
Entertainment results beginning December 14, 1999.
The Company's unconsolidated affiliates operate with fiscal years ending on
December 31. Summarized balance sheet information of the unconsolidated
affiliates as of December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -----------------------------------------------------------------
<S> <C> <C>
Current assets $ 95,602 $ 81,539
Property and other assets, net 698,982 747,790
Current liabilities 71,712 74,177
Long-term debt and other liabilities 261,006 283,006
Equity 461,866 472,146
</TABLE>
53
<PAGE>
Summarized results of operations of the unconsolidated affiliates for the
years ended December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -----------------------------------------------------------------
<S> <C> <C>
Revenues $764,664 $676,268
Expenses 577,193 518,169
Operating income 187,471 158,099
Net income 166,816 134,405
</TABLE>
Note 11. Commitments and Contingent Liabilities.
In July 1995, Silver Legacy, a 50/50 joint venture with the Eldorado
Hotel/Casino, opened in downtown Reno, Nevada. As a condition to the joint
venture's $230 million bank credit agreement, Mandalay is obligated under a
make-well agreement to make additional contributions to the joint venture as may
be necessary to maintain a minimum coverage ratio (as defined).
The Company has formed a joint venture with the Detroit-based Atwater Casino
Group to build, own and operate a hotel/casino in Detroit, Michigan. This joint
venture is one of three groups which negotiated development agreements with the
city. Mandalay had an initial 45% ownership interest in the joint venture.
Effective December 14, 1999, the Company acquired an additional 8.5% interest at
a cost of $38.4 million, thus increasing its total ownership interest to 53.5%.
Pending the development of a permanent hotel/casino, the joint venture
constructed a temporary casino (MotorCity Casino) in downtown Detroit, which
opened December 14, 1999. MotorCity Casino contains approximately 75,000 square
feet of gaming space, with approximately 2,600 slot machines and 136 table
games, plus five restaurants and a 3,450-space parking facility. The cost of the
temporary casino, including land and capitalized interest but excluding
preopening expenses, was approximately $150 million. This cost was financed
pursuant to the joint venture's $150 million credit facility, which is secured
by the assets associated with the temporary casino. Mandalay has guaranteed this
credit facility subject to the release of the guaranty if certain performance
measures are reached. The joint venture's operation of the temporary casino is
subject to ongoing regulatory oversight, and its ability to proceed with a
permanent hotel/casino facility is contingent upon the receipt of all necessary
gaming approvals and satisfaction of other conditions.
The Detroit joint venture is planning a $600 million permanent
hotel/casino facility. The Company has committed to contribute 20% of this
amount in the form of equity, and the joint venture will seek
project-specific funding for the balance of the cost. The development
agreement provides that Mandalay will guarantee completion of the permanent
facility and will enter into a keep-well guarantee with the city, pursuant to
which it could be required to contribute additional funds, if and as needed,
to continue operation of the project for a period of two years. This
keep-well agreement also applies to the temporary casino.
54
<PAGE>
Mandalay has issued letters of credit totaling $50 million for the benefit of
Bank of America in order to back letters of credit issued by Bank of America for
the same total amount. The Bank of America letters of credit were issued to
secure payments of principal and interest on bonds issued by the Economic
Development Corporation of the City of Detroit. The proceeds of the bonds are to
be used to finance costs associated with activities (including acquisition)
relating to the land on which the permanent facility will be built.
Various lawsuits have been filed in the state and federal courts challenging
the constitutionality of the Detroit Casino Competitive Selection Process and
the Michigan Gaming Control and Revenue Act, and seeking to appeal the issuance
of a certificate of suitability to MotorCity Casino. No assurance can be given
regarding the timing and outcome of these proceedings. An adverse ruling in any
of these lawsuits could adversely impact the status of the joint venture's
operation of the temporary facility, as well as its ability to obtain a
certificate of suitability and a casino license for its permanent facility.
The Company is a defendant in various pending litigation. In management's
opinion, the ultimate outcome of such litigation will not have a material effect
on the results of operations or the financial position of the Company.
55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Mandalay Resort
Group:
We have audited the accompanying consolidated balance sheets of Mandalay Resort
Group (a Nevada corporation) and subsidiaries as of January 31, 2000 and 1999
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended January 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. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mandalay Resort Group and
subsidiaries as of January 31, 2000 and 1999 and the results of their operations
and their cash flows for each of the three years in the period ended January 31,
2000, in conformity with accounting principles generally accepted in the United
States.
As discussed in Note 1 of Notes to Consolidated Financial Statements, the
Company changed its method of accounting for preopening expenses effective
February 1, 1999.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 22, 2000
Management's Report on Financial Statements
The Company is responsible for preparing the consolidated financial
statements and related information appearing in this report. Management
believes that the financial statements present fairly its financial position,
results of operations and cash flows in conformity with generally accepted
accounting principles. In preparing its financial statements, the Company is
required to include amounts based on estimates and judgments which management
believes are reasonable under the circumstances.
The Company maintains accounting and other control systems designed to provide
reasonable assurance that financial records are reliable for purposes of
preparing financial statements and that assets are properly accounted for and
safeguarded. Compliance with these systems and controls is reviewed through a
program of audits by an internal audit staff.
The Board of Directors fulfills its responsibility for the Company's financial
statements through its audit committee, which is composed solely of directors
who are not Company officers or employees. The audit committee meets from time
to time with the independent public accountants, management and the internal
auditors. The independent public accountants have direct access to the audit
committee, with or without the presence of management representatives.
56
<PAGE>
EXHIBIT 21
Subsidiaries of the Company
Set forth below is information concerning the Company's (MRG) subsidiaries and
their respective ownership.
JURISDICTION PERCENTAGE
NAME AND FORM OF OWNERSHIP
- -----------------------------------------------------------------------
Circus Circus Casinos, Inc.(1) Nevada corporation 100% MRG
Slots-A-Fun, Inc.(2) Nevada corporation 100% MRG
Edgewater Hotel Corporation(3) Nevada corporation 100% MRG
Colorado Belle Corp.(4) Nevada corporation 100% MRG
New Castle Corp.(5) Nevada corporation 100% MRG
Ramparts, Inc.(6) Nevada corporation 100% MRG
Circus Circus Mississippi, Inc.(7) Mississippi corporation 100% MRG
Mandalay Corp. (8) Nevada corporation 100% MRG
Mandalay Development Nevada corporation 100% MRG
Ramparts International ("RI") Nevada corporation 100% MRG
Galleon, Inc.("GI") Nevada corporation 100% MRG
M.S.E. Investments,
Incorporated ("MSE") Nevada corporation 100% MRG
Last Chance Investments,
Incorporated ("LCI") Nevada corporation 100% MRG
Goldstrike Investments,
Incorporated ("GSI") Nevada corporation 100% MRG
Diamond Gold, Inc. ("DGI") Nevada corporation 100% MRG
Oasis Development Company,
Inc. ("ODC") Nevada corporation 100% MRG
Circus Circus Leasing, Inc. Nevada corporation 78.7% MRG
Circus Circus Michigan, Inc.("CCM")Michigan corporation 100% MRG
Go Vegas Nevada corporation 100% MRG
Mandalay Marketing and Events Nevada corporation 100% MRG
Circus Circus Louisiana, Inc.
("CCLI") Louisiana corporation 100% MRG
Circus Circus New Jersey, Inc. New Jersey corporation 100% MRG
Gold Strike Aviation, Incorporated Nevada corporation 100% MRG
Goldstrike Finance Company, Inc. Nevada corporation 100% MRG
Goldstrike Resorts, Inc. Nevada corporation 100% MRG
Mandalay Vacation Resorts Nevada corporation 100% MRG
New Dirt, Inc. Nevada corporation 100% MRG
Pinkless, Inc. Nevada corporation 100% MRG
Railroad Pass Investment Group
("RPIG")(9) Nevada partnership 70% MSE
20% LCI
10% GSI
Jean Development Company
("JDC")(10) Nevada partnership 40% MSE
40% LCI
20% GSI
<PAGE>
Jean Development West ("JDW")(11) Nevada partnership 40% MSE
40% LCI
12% GSI
8% DGI
Gold Strike Fuel Company Nevada partnership 162/3% MSE
162/3% LCI
162/3% GSI
50% ODC
Jean Fuel Company West Nevada partnership 40% MSE
40% LCI
12% GSI
8% ODC
Nevada Landing Partnership ("NLP") Illinois partnership 40% MSE
40% LSI
5% GSI
15% DGI
Gold Strike L.V. ("GSLV") Nevada partnership 52% MSE
39% LCI
6.5% GSI
2.5% DGI
Jean Development North ("JDN") Nevada partnership 47.5% MSE
38.5% LCI
5% GSI
9% DGI
Lakeview Gaming Partnerships
Joint Venture Nevada partnership 25% RPIG
25% JDC
25% JDN
25% JDW
Pine Hills Development II ("PHDII") Mississippi partnership 58% MSE
32% LCI
7.5% GSI
2.5% DGI
Other Interests:
Circus and Eldorado Joint Venture Nevada partnership 50% GI
Detroit Entertainment, L.L.C. Michigan limited
liability company 53.5% CCM
Victoria Partners Nevada partnership 50% GSLV
Elgin Riverboat Resort Illinois partnership 50% NLP
Pine Hills Development Mississippi partnership 90% PHDII
Ramparts International PTE Ltd. Singapore corporation 100% RI
<PAGE>
(1) Doing business as Circus Circus Hotel & Casino-Las Vegas and
Circus Circus Hotel & Casino-Reno.
(2) Doing business as Slots-A-Fun Casino.
(3) Doing business as Edgewater Hotel & Casino.
(4) Doing business as Colorado Belle Hotel & Casino.
(5) Doing business as Excalibur Hotel & Casino.
(6) Doing business as Luxor Hotel & Casino.
(7) Doing business as Gold Strike Casino Resort.
(8) Doing business as Mandalay Bay Resort & Casino
(9) Doing business as Railroad Pass Hotel & Casino.
(10) Doing business as Gold Strike Hotel and Gambling Hall.
(11) Doing business as Nevada Landing Hotel & Casino.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 22, 2000 included (or incorporated by reference) in
Mandalay Resort Group's Annual Report on Form 10-K for the year ended
January 31, 2000 into Mandalay's previously filed Form S-8 Registration
Statements File Nos. 2-91950, 2-93578, 33-18278, 33-29014, 33-39215, 33-56420,
33-53303, 333-51073, 333-93803, and 333-93805 and to Mandalay's previously filed
Form S-3 Registration Statement File No. 333-60975.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
April 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 116,617
<SECURITIES> 0
<RECEIVABLES> 53,071
<ALLOWANCES> 0
<INVENTORY> 28,499
<CURRENT-ASSETS> 281,539
<PP&E> 4,228,847
<DEPRECIATION> 893,776
<TOTAL-ASSETS> 4,329,476
<CURRENT-LIABILITIES> 244,619
<BONDS> 2,691,292
0
0
<COMMON> 1,894
<OTHER-SE> 1,185,886
<TOTAL-LIABILITY-AND-EQUITY> 4,329,476
<SALES> 2,050,898
<TOTAL-REVENUES> 2,050,898
<CGS> 0
<TOTAL-COSTS> 1,745,623
<OTHER-EXPENSES> 31,539
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170,328
<INCOME-PRETAX> 103,116
<INCOME-TAX> 38,959
<INCOME-CONTINUING> 64,157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 21,994
<NET-INCOME> 42,163
<EPS-BASIC> .47
<EPS-DILUTED> .46
</TABLE>
