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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
X Annual report pursuant to Section 13 or 15(d) of the Securities
---- Exchange Act of 1934 for the fiscal year ended September 30, 1994 or
Transition report pursuant to Section 13 or 15(d) of the Securities
---- Exchange Act of 1934
COMMISSION FILE NUMBER: 1-9481
SAHARA GAMING CORPORATION
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(Exact name of registrant as specified in its Charter)
NEVADA 88-0304348
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2535 LAS VEGAS BLVD. SOUTH, LAS VEGAS, NEVADA 89109
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(Address of principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (702) 737-2111
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
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<S> <C>
Common Stock, par value $.01 per share American Stock Exchange
Exchangeable Redeemable Preferred Stock American Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
----
(Title of Class)
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
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.
The number of shares of common stock outstanding as of December 28, 1994,
was 6,194,433. The market value of the common stock held by nonaffiliates of
the Registrant as of December 28, 1994, was approximately $10,244,043. The
market value was computed by reference to the closing sales price of $3.375
per share of common stock on the American Stock Exchange as of December 28,
1994.
DOCUMENTS INCORPORATED BY REFERENCE:
PART III HEREOF INCORPORATES BY REFERENCE PORTIONS OF THE PROXY STATEMENT FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 17, 1995 (TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS AFTER
SEPTEMBER 30, 1994).
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SAHARA GAMING CORPORATION AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 1994
TABLE OF CONTENTS
PART I
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PAGE
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Item 1. Business........................................................ 2
General......................................................... 2
Hotel and Casino Operations..................................... 2
Other Operations................................................ 7
Regulation and Licensing........................................ 9
Item 2. Properties...................................................... 12
Item 3. Legal Proceedings............................................... 13
Item 4. Submission of Matters to a Vote of Security Holders............. 13
PART II
Item 5. Market for the Registrant's Stock and Related
Security Holder Matters...................................... 14
Item 6. Selected Financial Data......................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company......................... 15
Item 8. Financial Statements and Supplementary Data..................... 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 42
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 42
Item 11. Executive Compensation.......................................... 42
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 42
Item 13. Certain Relationships and Related Transactions.................. 43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 43
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PART I
ITEM 1. BUSINESS
GENERAL
Sahara Gaming Corporation (the "Company"), a Nevada corporation, was formed
in June 1993 for the purpose of being the successor to a combination, effective
September 30, 1993 (the "Reorganization") of two affiliates, Sahara Resorts, a
Nevada corporation, and Sahara Casino Partners, L.P., a Delaware limited
partnership (the "Partnership"). The Company's primary business operations are
conducted through four wholly owned subsidiary corporations, Sahara Nevada
Corp. ("Sahara Nevada"), Hacienda Hotel Inc. ("Hacienda Inc."), Santa Fe Hotel
Inc. ("Santa Fe Inc."), and Pioneer Hotel Inc. ("Pioneer Inc."), each a Nevada
corporation. The subsidiaries in turn own the Sahara Hotel and Casino (the
"Sahara"), the Hacienda Resort Hotel and Casino (the "Hacienda") and the Santa
Fe Hotel and Casino (the "Santa Fe"), each located in Las Vegas, Nevada, and
the Pioneer Hotel & Gambling Hall (the "Pioneer") located in Laughlin, Nevada.
Santa Fe Inc. also owns Sahara Parkville, Inc. ("Parkville Inc."), a Missouri
corporation formed to pursue development of a riverboat casino in Parkville,
Missouri, and a minority equity interest in Treasure Bay Gaming & Resorts, Inc.
("Treasure Bay"), a Delaware corporation which owns and operates two riverboat
casinos in Mississippi. Mr. Paul W. Lowden, Chairman of the Board and Chief
Executive Officer of the Company, owns approximately 51% of the Company's
common stock (the "Common Stock").
Prior to the Reorganization, the Sahara, Hacienda, Santa Fe and Pioneer were
owned by limited partnerships, the sole limited partner of which was the
Partnership and the sole general partner of which was a subsidiary of Sahara
Resorts. Sahara Resorts also owned the general partners of the Partnership and
approximately 62% of the limited partner interests in the Partnership. The
balance of the limited partner interests in the Partnership and approximately
27% of the stock of Sahara Resorts were publicly held and approximately 73% of
the Sahara Resorts stock was owned by Mr. Lowden. In the Reorganization, (i)
the Partnership was merged into the Company, (ii) a subsidiary of the Company
was merged with Sahara Resorts, (iii) the limited partnerships that owned the
four casino hotels were merged into the Operating Companies, (iv) the limited
partner interests in the Partnership were converted into shares of Common Stock
and preferred stock (the "Preferred Stock"), and (v) the Sahara Resorts common
stock was converted into shares of Common Stock.
The principal executive office of the Company is located at 2535 Las Vegas
Boulevard South, Las Vegas, Nevada 89109 and the telephone number is (702) 737-
2111.
HOTEL AND CASINO OPERATIONS
The Company's principal assets at September 30, 1994 were the Sahara,
Hacienda and Santa Fe properties in Las Vegas, Nevada and the Pioneer property
in Laughlin, Nevada.
DESCRIPTION OF THE HOTEL-CASINOS
THE SAHARA. The Sahara is located on an approximately 18-acre site on the
northern end of the Las Vegas Strip at the intersection of Sahara Avenue, one
of the most heavily traveled intersections in Las Vegas. The Sahara is one of
the few hotel-casinos to have frontage on, and direct access from, both the
Strip and Paradise Road, which provides access from the Sahara to the 1.6
million square foot Las Vegas Convention Center and McCarran International
Airport, approximately one-half mile and four miles, respectively, to the
south.
The Sahara currently offers 2,035 rooms and suites in three towers and four
low level buildings in the complex. The casino comprises approximately 50,000
square feet. The hotel includes over 52,000 square feet of meeting space in 18
rooms that can accommodate between 50 and 4,500 persons; there are six
restaurants, an approximately 9,360-square foot showroom seating about 650
people, five bars including one with a lounge area which features live
entertainment, two pools, over 15,000 square feet of retail space with 14
shops, approximately 20,000 square feet of administrative office space, a
three-story engineering building, and two-level parking structure. Additional
parking is available on property leased from an affiliate directly across
Paradise Road from the Sahara.
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THE HACIENDA. The Hacienda occupies approximately 47 acres on the
southernmost part of the Las Vegas Strip. The Hacienda is located just south of
several Las Vegas mega-resorts and is the closest facility to the newly
constructed Russell Road interchange from Interstate 15. Additional
construction is under way which will provide access to and from McCarran
Airport via a tunnel connection to Interstate-15 just south of the Russell Road
interchange.
The Hacienda offers 1,142 hotel rooms in two 11-story towers and 10 two- and
three-story buildings connected to the main casino by covered walkways. The
complex includes an approximately 35,000-square foot casino, 22,000-square feet
of convention and meeting space, three restaurants, two bars, a 604-seat
showroom, 15 shops and a camper and motor home facility known as "Camperland."
Additionally, the property includes parking for approximately 1,600 cars on
paved lots.
THE SANTA FE. The Santa Fe is located on a 36-acre site in the northwest part
of Las Vegas, approximately nine miles from the Strip. The target clientele is
residents of northwest Las Vegas and, to a lesser extent, residents of the
entire Las Vegas valley. In November 1993, the Company acquired a 22-acre tract
of property located adjacent to the Santa Fe, which may be used for future
development opportunities. In May 1994, the Company acquired an additional
four-acre tract adjacent to the Santa Fe, which provides approximately 200
additional parking spaces.
The Santa Fe features 200 standard hotel rooms, a 50,000 square foot casino,
an ice skating arena and a 60-lane bowling center. Additionally, the Santa Fe
includes a coffee shop, buffet, five full service bars and a lounge area that
features live entertainment. In December 1994, the Company completed
construction of an approximately $14.0 million expansion of the Santa Fe,
including the addition of three themed restaurants, additional casino space for
approximately 300 new slot machines, a dedicated bingo room, race book, and
other public areas.
THE PIONEER. The Pioneer is located on approximately 12 acres of land, with
Colorado River frontage of approximately 770 feet, and is situated near the
center of Laughlin's Casino Drive. Approximately 6- 1/2 acres of the 12-acres
are subject to a 99-year ground lease which, by its terms, is scheduled to
terminate in December 2078. One of the three motel buildings together with a
portion of both the Pioneer's casino building and a second motel building, are
located on land subject to the ground lease. The leased land lies between and
separates the two parcels of land that are held in fee.
The Pioneer hotel-casino complex was built in 1982 in a classical western
architectural style. The Pioneer is comprised of four buildings. The casino is
located in the main building, totaling approximately 50,000 square feet of
which approximately 21,500 square feet house the casino. An aggregate of 417
motel rooms are housed in the three remaining buildings. The complex amenities
include a coffee shop/buffet, bar, snack bar, and gift shop. A partial second
floor in the main building houses a gourmet restaurant, administrative offices
and banquet rooms. In December 1994, the Company completed construction of an
expansion of the Pioneer, including the addition of casino space, the addition
of a special events area, and increased administrative and support areas.
REVENUES
The primary source of revenues to each of the Company's hotel-casinos is
gaming, which represented 61.2% in 1994, 61.9% in 1993, and 62.3% in 1992 of
total revenues in the respective fiscal years. The following table sets forth
information regarding the approximate number of licensed games and gaming
devices of the Company's casinos as of September 30, 1994:
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SAHARA HACIENDA PIONEER SANTA FE TOTAL
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Slot Machines 1,100 1,025 874 1,510 4,509
Blackjack ("21") 23 17 11 18 69
Craps 3 2 2 2 9
Roulette 3 2 1 2 8
Poker and Pan 14 4 0 6 24
Race/Sports Book 1 1 0 1 3
Keno 1 1 1 1 4
Bingo 0 0 0 1 1
Other 9 3 1 3 16
</TABLE>
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The Pioneer and the Hacienda have organized slot clubs. The "Round-Up Club"
at the Pioneer and the "Viva Club" at the Hacienda were established to
encourage repeat business from frequent and active slot customers. The slot
clubs offer members points with slot machine play that can be redeemed for
gifts, rooms, food and beverages at the respective hotel-casinos.
Additionally, at the Pioneer, points may be redeemed for cash.
The Company's current operations include, to a limited extent, vacation-
related contract sales operations. The Sahara and the Hacienda currently offer
the right to use timeshare interests in a limited number of rooms at the
respective hotels. Timeshare purchasers acquire the annual right to use rooms
for seven days a year for a set number of years. As of September 30, 1994,
approximately 4,289 and 3,137 contracts relating to 83 and 61 rooms were
outstanding at the Sahara and Hacienda, respectively.
Hacienda Inc. offers memberships, based on availability, to use the
recreational vehicle facility known as "Camperland" located on approximately
14 acres of the Hacienda property. The memberships do not constitute an
interest in any real property. Memberships are purchased in a similar manner
as timeshare hotel rooms.
The Company's timeshare operations are in competition with similar programs
in Las Vegas and other resort locations in a wide variety of other areas.
Management believes that it has been and will continue to remain competitive
in this industry. The Company has no present intention of offering contract
sales at the Pioneer Inc. or the Santa Fe Inc.
MARKETING
The Sahara's marketing personnel schedule convention guests, valued casino
customers and tour groups into the Sahara, with a view toward achieving the
highest average room rate while maximizing occupancy. The Hacienda's marketing
personnel currently seek to maintain room rates and occupancy percentages
through tour and travel programs and retail customers. The Santa Fe's market
is primarily the residents of northwest Las Vegas, visitors to the local area,
local businesses, and hockey and bowling leagues. The Pioneer relies upon
direct-mail advertising to known customers, emphasizing its unique atmosphere
and attractive prices. The occupancy rates of the four hotels are set forth
below for the periods indicated.
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YEAR ENDED SEPTEMBER 30,
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1990 1991 1992 1993 1994
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Sahara(1) 93.4% 83.4% 84.0% 87.2% 93.4%
Hacienda(2) 90.7% 84.1% 87.1% 94.7% 95.6%
Pioneer 94.9% 94.9% 94.6% 91.4% 88.8%
Santa Fe(3) n/a 63.6%(3) 83.2% 91.6% 96.9%
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(1) The occupancy rates for the Sahara are based on 1,485 rooms through March
1991 and 2,035 rooms commencing in April 1991.
(2) The occupancy rates for the Hacienda are based on 803 rooms through June
1991 and 1,142 rooms thereafter.
(3) From February 14, 1991 (date of opening)
The foregoing percentages include occupancy of available rooms by people
receiving complimentary accommodations. The Sahara grants a higher percentage
of complimentary and discounted accommodations to valued casino customers than
the Hacienda, Pioneer and Santa Fe. It is anticipated that the Sahara will
continue this policy in order to maintain its casino customer base.
As a result of additional rooms that became available in 1991 following
expansion projects, the Sahara and Hacienda have recorded successive increases
in the number of occupied room nights in the most recent three fiscal years.
The Sahara reported increases of 45,067 occupied room nights in 1994 over
1993, 43,619 occupied room nights in 1993 over 1992, 72,448 in 1992 over 1991
and 38,403 in 1991 over 1990. Occupied room nights at the Hacienda increased
in 1994, 1993, 1992 and 1991 over the preceding fiscal year by 2,502, 26,302,
99,318 and 5,974, respectively. The Santa Fe, since opening in 1991, has
increased occupied room nights in each of the last three fiscal years. At the
present time, the Hacienda and Santa Fe are at or near capacity, and no
substantial increase in occupied room nights can be expected. The Pioneer has
experienced a decrease in occupied room nights the last two fiscal years as
the result, primarily, of increased availability in room nights from intense
competition in the Laughlin market.
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The Sahara, due to the size of its operations and the amenities offered to
its customers, has historically attracted a higher-income customer base than
the Hacienda, Pioneer and Santa Fe. The Sahara has provided these customers
with a higher level of credit for gaming play than that provided at the
Company's other three properties and thus the extension of credit to the
Sahara's gaming customers has accounted for a more significant portion of its
gaming revenues. The Sahara presently seeks credit customers on an individual
basis, which management believes enables the casino to maintain a high standard
of customer credit worthiness. With this approach, it is anticipated that the
amount of casino credit extended by the Sahara will not materially increase in
the near future. The Company believes that the review of credit requests at the
Hacienda, the Pioneer and the Santa Fe is adequate and it does not anticipate
any change in its basic credit policy. Credit customers are not a material
aspect of the operation of the Hacienda, the Santa Fe or the Pioneer. Under
Nevada law, gaming debts are enforceable.
MANAGEMENT AND PERSONNEL
At September 30, 1994, the Sahara, the Hacienda, the Santa Fe and the Pioneer
employed 1,669, 1,073, 1,085, and 806 persons, respectively. Sahara Gaming
currently employs 36 people.
Collective bargaining agreements with the Teamsters, operating engineers,
culinary workers and bartenders unions cover approximately 60% and 65% of the
employees at the Sahara and Hacienda, respectively. Additionally, collective
bargaining relations exist between the Sahara and Hacienda and unions
representing carpenters, painters and stagehands employed at these properties.
The agreement with the Teamsters expired in April 1994; the agreements with the
operating engineers and culinary and bartenders unions expired in June 1994.
The Sahara and Hacienda are currently engaged in negotiations for successor
agreements with the Teamsters and culinary and bartenders unions. The Sahara
and Hacienda successfully concluded negotiations in July 1994 with the
operating engineers and in August 1994 with the painters and carpenters unions
and entered into new collective bargaining agreements which expire in April
1998 and August 1998 respectively. The agreement with the stagehands union
expired in June 1994. The Sahara and Hacienda are engaged in negotiations for a
successor agreement with the stagehands union and expect to complete those
negotiations early in 1995.
The last collective bargaining agreements between the Sahara and Hacienda and
the musicians union expired in June 1989. Negotiations for a successor
agreement reached an impasse in February 1991 and have not resumed. In July
1993, the musicians union requested resumption of negotiations. The Sahara and
Hacienda denied that request in the belief that the union no longer represents
a majority of musicians employed by the Sahara or Hacienda in appropriate
bargaining units. Following a charge filed by the union with the National Labor
Relations Board (the "NLRB"), a hearing was scheduled before an administrative
law judge to take evidence as to whether these hotels must continue to
recognize and bargain with the musicians union. In March 1994, the union
withdrew its charge, and the Sahara and Hacienda have no obligation to
recognize and bargain with the union.
Pursuant to representation petitions filed with the NLRB by the Teamsters,
operating engineers, culinary and bartenders unions, an election was held at
the Santa Fe on September 30 and October 1, 1993. The unions received 300 of
the votes cast; 241 employees voted against representation by the unions and 31
ballots were challenged. On October 8, 1993, the Santa Fe filed objections to
the conduct of the unions prior to and during the election. Following an
investigation of the objections, the NLRB ordered a hearing to resolve the
substantial issues of fact raised by the objections. Thereafter, on October 29,
1993, the Santa Fe filed unfair labor practice charges with the NLRB, which
allege unlawful interference by Culinary Workers Union Local 226 with
employees' federally protected rights in respect to the question of union
representation. The Santa Fe believes the objections and unfair labor practice
charges have merit and are supported by substantial evidence. A hearing was
conducted before an Administrative Law Judge of the NLRB early in 1994. A
decision from the Administrative Law Judge is pending. Should the objections be
sustained, the results of the election will be set aside. While the NLRB
proceedings are pending, the unions have no legally enforceable right to
represent the Santa Fe employees and the Santa Fe has no legally enforceable
obligation to recognize or bargain with the unions.
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Management does not anticipate labor problems that will have an adverse
effect at any of its facilities. However, should the unions attempt to call a
strike at any facility, operating revenues would be reduced, which in turn
could have a material adverse effect on the Company and on its financial
condition and results of operations.
COMPETITION
In Las Vegas, Nevada, hotels and gambling casinos compete primarily in three
areas: on or near the Las Vegas Strip; within downtown Las Vegas; and in the
emerging locals market.
The Sahara and the Hacienda compete directly with other Las Vegas Strip
hotels and casinos. The Company believes that competition among hotels and
casinos on the Las Vegas Strip has increased with the construction of new
resort properties and as existing hotels, motels and casinos have been upgraded
or enlarged. Management believes that the Las Vegas Strip gaming market is
highly segmented. The market is characterized at one end of the spectrum by
customers who demand gourmet food, luxurious lodging, star entertainment and
other amenities, and who typically prefer to gamble large amounts primarily at
table games. The middle of the market includes hotels that provide similar
services to customers of more modest means or that cater to convention groups
in need of facilities that can economically feed, lodge and entertain large
groups in one central location. The remaining market segment is characterized
by budget tourists who require economic dining and lodging without substantial
amenities or other services and who may play slot machines more than table
games. Additionally, certain mega-resort properties in Las Vegas are focusing a
portion of their marketing programs toward entertainment for the entire family.
The Company believes that this new dimension of Las Vegas facilities offering
amusement parks and other family oriented amenities is opening up a new
customer base on the Las Vegas Strip.
The Sahara caters to conventions and tour and travel customers, featuring
live entertainment, shopping and an array of food service ranging from a coffee
shop to gourmet restaurants. Room rates and casino operations are positioned to
serve the credit players as well as the tour and travel markets. The Hacienda
is marketed primarily to budget travelers, including families with recreational
vehicles and vacationers on bus tours. The Hacienda's casino emphasizes slot
machines but also provides a full array of table games. Room rates and food and
beverage policies are established with an emphasis on the Hacienda's price-
sensitive clientele.
Based on information provided from the registration of hotel guests at the
Sahara and the Hacienda and flight schedules to McCarran Airport from the
surrounding regions, the Company believes that most customers of the Sahara and
the Hacienda come from the western and the southwestern regions of the United
States, primarily from southern California and Arizona. Nevada is the only
state in these regions which has legalized casino gambling. However, casinos
offering restricted forms of gambling have opened on Indian reservations in the
region. Due to uncertainty as to the application of federal and state
regulations regarding the types of gaming that will be allowed on properties
owned by recognized Indian tribes within state boundaries and to pending court
cases, management is unable to ascertain what impact gambling on Indian
reservations in the region will have on the Company's business. Although the
Company has no knowledge of other states in the southwestern region of the
United States which intend to legalize casino gambling, the legalization of
full casino gambling in such areas, including on Indian reservations, could
have a material adverse effect on the Company's business. The Company believes
that, because of the geographic area from which the Sahara and the Hacienda
draw their customers, the legalization of gaming in New Jersey and other states
have not had a material impact on the operations of the Sahara or the Hacienda.
Competition for gaming customers also comes from the Reno/Lake Tahoe area of
Nevada, which has a number of major hotel-casinos, and from hotel-casino
operations in other parts of the world.
The Santa Fe targets and competes for the residents of northwest Las Vegas, a
growing residential community, and, to a lesser extent, the residents of the
entire Las Vegas valley, emphasizing its convenient location, the southwestern
theme and its broad range of facilities. The growth in the number of facilities
in Las Vegas catering to the local population includes new facilities and
upgraded or enlarged facilities surrounding the Las Vegas valley. In December
1994, a new facility opened in North Las Vegas approximately five miles closer
to downtown Las Vegas than the Santa Fe and plans have been announced to build
another facility in North Las Vegas which, if constructed, would compete with
the Santa Fe. In December 1994, the Santa Fe completed construction of an
expansion of the property in anticipation of increased competition from
facilities in North Las Vegas.
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In Laughlin, Nevada, located approximately 90 miles south of Las Vegas,
according to The Nevada Gaming Control Board the gaming market revenues through
September 1994 have remained relatively constant with the prior year. However,
within the three month period July through September 1994 market revenues
decreased approximately 5% compared with the same period last year. A number of
Las Vegas-based entities have entered the gaming market in Laughlin, making
hotel-casino competition in the area intense. In 1994, the Pioneer, experienced
a 8.5% decrease in revenues. Management believes that the decrease is
attributable primarily to increased competition and the lack of growth in the
Laughlin market. In the future, management plans to emphasize the Pioneer's
unique atmosphere, attractive prices and good location, as well as the recently
completed expansion, in an effort to maintain and expand its existing customer
base and implement expense reduction measures.
OTHER OPERATIONS
PARKVILLE
Sahara Parkville Inc., ("Parkville Inc.") a Missouri corporation and a wholly
owned subsidiary of Santa Fe Inc. was formed in 1993 to develop, own and
operate a dockside casino in the City of Parkville, Missouri. Parkville Inc.
has entered into a lease agreement with the City of Parkville for the site of
the proposed development, which is located approximately ten miles from Kansas
City, Kansas and Kansas City, Missouri.
A state constitutional amendment to permit, among other things, games of
chance in Missouri, and a local resolution to permit the licensing of excursion
gambling boats and floating facilities in Parkville were each approved by
voters in November 1994, after previously failing to be approved at the state
level in April 1994 and in local elections in April and August 1994. The delay
in the voter approval has increased project costs and delayed the proposed
development of the Parkville casino.
The development of the Parkville casino is subject to substantial
uncertainties, as discussed below, including the granting of necessary gaming
and other licenses and certain other approvals, commencement and completion of
construction, and the negotiation of additional agreements, as well as the
risks inherent in the establishment of a new business enterprise. In order to
use the vessel purchased for the Parkville casino, Parkville Inc. will be
required to obtain a gaming license permitting a dockside, rather than
"cruising", riverboat gaming. An application has been made for a gaming license
for the casino with the Missouri Gaming Commission. There can be no assurance
as to when or if Parkville Inc. will receive the gaming license necessary for
it to commence dockside gaming operations and the earliest the Missouri Gaming
Commission would commence its investigation of Parkville Inc. would be early
1995. An investigation typically takes at least several months to complete. No
assurance can be given that Parkville Inc. will be chosen for investigation in
early 1995.
In addition, if Parkville Inc. is not licensed or if the construction of the
proposed facility is not complete by June 30, 1995, Parkville Inc. will be
unable to commence operations by that date and Santa Fe Inc. will be required
under the terms of the indenture under which the 11% Notes (as defined below)
were issued to offer to repurchase that principal amount of 11% Notes
purchasable with the funds remaining in the Parkville collateral account and
obtained upon disposition of assets related to the project (unless waivers are
obtained from the holders of the 11% Notes). Based on current development and
construction plans, the Company does not believe the facility can be completed
and operating before June 30, 1995. Therefore, the Company currently intends to
seek approval from the holders of the 11% Notes for among other things, an
extension of the date by which operations of the proposed Parkville casino must
be commenced before Parkville Inc. is required to commence the repurchase
offer. No assurance can be given that if such approval is sought it will be
obtained. In the event Parkville Inc. is required to commence a repurchase
offer, the holders of warrants to acquire additional 11% Notes will be
entitled, for a 30 business day period, to acquire for no additional
consideration up to an additional $11.5 million principal amount of the 11%
Notes.
The estimated total cost of the Parkville project was originally expected to
be approximately $38.5 million. As a result of the delay in commencing
construction of the proposed facility, revisions to the scope of the
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project, and increased construction costs associated with the project, it is
currently estimated that the project will cost approximately $50.0 million. As
of September 30, 1994, Parkville Inc. had capitalized $13.6 million in
connection with the development of the proposed dockside riverboat gaming
facility. Of this amount, approximately $8.0 million was used for the purchase
of the riverboat for the site, approximately $2.8 million was used for
preliminary engineering and development expenses and approximately $2.8 million
represents capitalized interest.
Parkville Inc. borrowed $32.0 million from the proceeds of the Santa Fe Hotel
Inc. 11% first mortgage notes due 2000 (the "11% Notes") offering, which is
restricted for use in connection with the Parkville development. The balance of
the originally budgeted project cost was expected to be financed through
equipment financing and an equity contribution from Santa Fe. As of September
30, 1994, approximately $23.1 million is available from the $32.0 million
dedicated for the Parkville development. Of the amount disbursed, approximately
$6.1 million had been used to purchase a riverboat for the site with respect to
which approximately $1.9 million had been previously deposited, and
approximately $2.8 million had been spent on other expenses in developing the
proposed facility, including approximately $1.7 million in interim interest.
The balance of the anticipated cost of the project in excess of the originally
budgeted amount is expected to be financed to the extent permitted by the
indenture under which the 11% Notes were issued, through equipment financing,
other financing sources and, if necessary, through additional loans or equity
investments from the Company, although no assurance can be given that the
additional necessary funds will be available.
TREASURE BAY
In April 1994, Santa Fe Inc. purchased from Treasure Bay for $10.0 million
approximately 20% of Treasure Bay's common stock and 33 1/3% of Treasure Bay's
preferred stock. Sahara Gaming also unconditionally guaranteed the payment of
$4.5 million of indebtedness of Treasure Bay incurred to finance working
capital in connection with the opening of Treasure Bay's casinos, $3.3 million
of which was outstanding at September 30, 1994. The Company has been advised,
that Treasure Bay's cash position is inadequate to meet its current and planned
expenses including, without limitations, short and long-term debt service and
accumulated construction payables, and Treasure Bay is in violation of its
various financing arrangements. In November 1994, creditors of Treasure Bay
initiated bankruptcy proceedings with respect to Treasure Bay. The Company has
been advised by Treasure Bay that on December 9, 1994, Treasure Bay challenged
the initiation of such proceedings.
In October 1994, the Company received notices from the lender of the Treasure
Bay working capital indebtedness of payment defaults by Treasure Bay with
respect to this indebtedness. In December 1994, Santa Fe Inc. purchased this
indebtedness from the lender. Pending resolution of the Treasure Bay bankruptcy
proceedings, Santa Fe Inc. does not expect to receive current payment on this
indebtedness, and no assurance can be given that this indebtedness will
ultimately be repaid.
In connection with its stock purchase, Santa Fe Inc. entered into a
management agreement with Treasure Bay. Treasure Bay notified the Company on
December 9, 1994 that Treasure Bay was assuming management control of the
Treasure Bay properties and alleged that the Company was in default thereunder
and had mismanaged the Treasure Bay properties. The Company believes that the
allegations are without merit and it intends to pursue its remedies vigorously.
Treasure Bay has defaulted in its payment obligations under the management
agreement for all payments due for the period July 1994 to the present.
In light of Treasure Bay's financial condition, the Company has recorded a
$12.6 million charge against income in the fourth quarter of fiscal 1994 in
connection with its investment in Treasure Bay.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Santa Fe--Treasure Bay". See "Legal Proceedings" for information
regarding litigation between the Company and certain of its officers and
certain current and former officers of Treasure Bay.
HENDERSON, NEVADA PROJECT
On March 31, 1994, a wholly-owned subsidiary of the Company purchased real
property in Henderson, Nevada, located in the southeast Las Vegas valley on
which the Company considered developing a casino entertainment complex. The net
proceeds from a private placement of 15.0 million principal amount of 12%
Convertible First Mortgage Notes (the "12% Notes") were used to acquire the
property. The principal amount
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<PAGE>
of the 12% Notes and all accrued interest is due and payable on March 31, 1995.
The 12% Notes are guarantied by the Company and are secured by, among other
things, a first priority lien on the real property pursuant to the deed of
trust relating thereto. As of September 30, 1994, the Company has incurred
approximately $16.9 million of expenses in development of the project,
representing the land acquisition costs and preliminary engineering and
development costs.
The Company has entered into an agreement to sell the property. The sale is
subject to several contingencies, including satisfactory completion of a due
diligence review and approval of the transaction by the purchaser's Board of
Directors. Proceeds from the sale, if consummated, will be used to repay the
indebtedness incurred to finance the acquisition of the site and for expenses
incurred in the development of the proposed project. Additionally, pursuant to
the agreement to sell the property, the Company's expenses incurred in the
development of the proposed project will be reimbursed over a three-year
period.
If the sale is not consummated, the Company will attempt to negotiate an
extension of the maturity date of the 12% Notes and to sell the property to
another purchaser or, potentially, to obtain financing for the development of
the proposed project. No assurance can be given that, if necessary, the Company
will be successful in obtaining an extension of the maturity date or locating
another purchaser for the property. If the proposed sale is not consummated and
the holders of the 12% Notes were to demand payment at maturity, the Company
would not have sufficient cash resources to repay the 12% Notes and would
default in the payment thereof, which would result in cross-default under
substantially all of the Company's long-term indebtedness.
NEVADA REGULATIONS AND LICENSING
Each of Sahara Gaming Corporation, Sahara Nevada Corp., Hacienda Hotel Inc.,
Pioneer Hotel Inc., Santa Fe Hotel Inc., (collectively, the "Sahara Group") is
subject to extensive state and local regulation by the Nevada Gaming
Authorities.
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities seek (i) to prevent unsavory or unsuitable persons from having any
direct or indirect involvement with gaming at any time or in any capacity, (ii)
to establish and maintain responsible accounting practices and procedures,
(iii) to maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record-keeping, and
making periodic reports to the Nevada Gaming Authorities, (iv) to prevent
cheating and fraudulent practices, and (v) to provide a source of state and
local revenues through taxation and licensing fees. Changes in such laws,
regulations and procedures could have an adverse effect on any or all of the
members of the Sahara Group.
LICENSING AND REGISTRATION. The Operating Companies hold Nevada State gaming
licenses to operate the Sahara, the Hacienda, the Pioneer and the Santa Fe,
respectively. The Company has been approved by the Nevada Gaming Authorities to
own, directly or indirectly, a beneficial interest in the Operating Companies.
The licenses held by members of the Sahara Group are not transferable. Each
issuing agency may at any time revoke, suspend, condition, limit or restrict
licenses or approvals to own a beneficial interest in an Operating Company for
any cause deemed reasonable by such agency. Any failure to retain a valid
license or approval would have a material adverse effect on all members of the
Sahara Group.
If it is determined that the Operating Companies or, when applicable, new
members of the Sahara Group, have violated the Nevada laws or regulations
relating to gaming, the Operating Companies or, when applicable, new members of
the Sahara Group, could, under certain circumstances, be fined and the licenses
of the Operating Companies or, when applicable, new members of the Sahara
Group, could also be limited, conditioned, revoked or suspended. A violation
under any of the licenses held by Sahara Gaming or any of the Operating
Companies or, when applicable, new members of the Sahara Group, may be deemed a
violation of all the other licenses held by Sahara Gaming and each of the
Operating Companies or, when applicable, new members of the Sahara Group. If
the Nevada Gaming Commission does petition for a supervisor to manage the
affected casino and hotel facilities, the suspended or former licensees shall
not receive any earnings of the gaming establishment until approved by the
court, and after deductions for the costs of the supervisor's operation and
expenses and amounts necessary to establish a reserve fund to facilitate
continued operation in light of any pending litigation, disputed claims, taxes,
fees, and other contingencies known to the supervisor which may require
payment. The supervisor is authorized to offer the gaming establishment for
sale if requested by the suspended or former licensee, or without such a
request after six months after the date the license was suspended, revoked, or
not renewed.
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INDIVIDUAL LICENSING. Stockholders, directors, officers and certain key
employees of corporate licensees must be licensed by the Nevada Gaming
Authorities. An application for licensing of an individual may be denied for
any cause deemed reasonable by the issuing agency. Changes in licensed
positions must be reported to the issuing agency. In addition to its authority
to deny an application for an individual license, the Nevada Gaming Authorities
have jurisdiction to disapprove a change in corporate position. If the Nevada
Gaming Authorities were to find any such person unsuitable for licensing or
unsuitable to continue having a relationship with a corporate licensee, such
licensee would have to suspend, dismiss and sever all relationships with such
person. Such corporate licensee would have similar obligations with regard to
any person who refuses to file appropriate applications, who is denied
licensing following the filing of an application or whose license is revoked.
Each gaming employee must obtain a work permit which may be revoked upon the
occurrence of certain specified events.
Any individual who is found to have a material relationship or a material
involvement with a gaming licensee may be required to be investigated in order
to be found suitable or to be licensed. The finding of suitability is
comparable to licensing and requires submission of detailed financial
information and a full investigation. Key employees, controlling persons or
others who exercise significant influence upon the management or affairs of a
gaming licensee may be deemed to have such a relationship or involvement.
Beneficial owners of more than 10% of the voting securities of a corporation
or partner interests of a partnership registered with the Nevada Gaming
Authorities that is "publicly traded" (a "Registered Entity") must be found
suitable by the Nevada Gaming Authorities, and any person who acquires more
than 5% of the voting securities or partner interests, as the case may be, of a
Registered Entity must report the acquisition to the Nevada Gaming Authorities
in a filing similar to the beneficial ownership filings required by the Federal
securities laws. Under certain circumstances an institutional investor, as such
term is defined in the regulations of the Nevada Gaming Commission and Nevada
Gaming Board ("Nevada Gaming Regulations"), that acquires more than 10% of
Sahara Gaming's voting securities may apply to the Nevada Gaming Commission for
a waiver of such finding of suitability requirement. If the stockholder who
must be found suitable is a corporation, partnership or trust, it must submit
detailed business and financial information including a list of beneficial
owners.
Any beneficial owner of equity or debt securities of a Registered Entity
(whether or not a controlling stockholder) may be required to be found suitable
if the relevant Nevada Gaming Authorities have reason to believe that such
ownership would be inconsistent with the declared policy of the State of
Nevada. If the beneficial owner who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and financial
information, including a list of its securities. In addition, the Clark County,
Nevada, Liquor and Gaming Licensing Board has taken the position that it has
the authority to approve all persons owning or controlling more than 2% of the
stock or partner interests of a Registered Entity, including a gaming licensee
or otherwise, or of any corporation, partnership or person controlling such an
entity. The applicant is required to pay all costs of investigation.
Any stockholder found unsuitable and who beneficially owns, directly or
indirectly, any securities or partner interests of a Registered Entity beyond
such period of time as may be prescribed by the Nevada Gaming Authorities may
be guilty of a gross misdemeanor. 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 may be found unsuitable. A Registered Entity is subject to disciplinary
action if, after it receives notice that a person is unsuitable to be a
securityholder or partner, as the case may be, or to have any other
relationship with it, such Registered Entity (a) pays the unsuitable person any
dividends or property upon any voting securities or partner interests or makes
any payments or distributions of any kind whatsoever to such person, (b)
recognizes the exercise, directly or indirectly, of any voting rights in its
securities or partner interests by the unsuitable person, (c) pays the
unsuitable person any remuneration in any form for services rendered or
otherwise, except in certain and specific circumstances or (d) fails to pursue
all lawful efforts to require the unsuitable person to divest himself of his
voting securities, including, if necessary, the immediate purchase of the
voting securities for cash at fair market value.
Registered Entities are required to maintain current stock ledgers, as the
case may be, in the State of Nevada that may be examined by the Nevada Gaming
Authorities at any time. If any securities or partner
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interests are held in trust by an agent or by a nominee, the record holder may
be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for
finding the record owner unsuitable. Record owners are required to conform to
all applicable rules and regulations of the Nevada Gaming Authorities.
Licensees also are required to render maximum assistance in determining the
identity of a beneficial owner.
The Nevada Gaming Authorities have the power to require that certificates
representing voting securities of a corporate licensee bear a legend to the
general effect that such voting securities or partner interests are subject to
the Nevada Gaming Control Act and the regulations thereunder. The Nevada Gaming
Authorities, through the power to regulate licensees, have the power to impose
additional restrictions on the holders of such voting securities at any time.
FINANCIAL RESPONSIBILITY. Each of Sahara Gaming and the Operating Companies
is required to submit detailed financial and operating reports to the Nevada
Gaming Authorities. Substantially all loans, leases, sales of securities and
other financial transactions entered into by Sahara Gaming or the Operating
Companies must be reported to and, in some cases, approved by the Nevada Gaming
Authorities.
CERTAIN TRANSACTIONS. None of the Sahara Group may make a public offering of
its securities without the approval of the Nevada Gaming Commission if the
proceeds therefrom are intended to be used to construct, acquire or finance
gaming facilities in Nevada, or retire or extend obligations incurred for such
purposes. Such approval, if given, will not constitute a recommendation or
approval of the investment merits of the securities offered. The Offering
requires the approval of the Nevada Gaming Commission.
Changes in control of Sahara Gaming through merger, consolidation,
acquisition of assets, management or consulting agreements or any form of
takeover cannot occur without the prior investigation of the Nevada Gaming
Control Board and approval of the Nevada Gaming Commission. The Nevada Gaming
Commission may require controlling stockholders, partners, officers, directors
and other persons having a material relationship or involvement, to be
licensed.
The Nevada 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 Nevada, and corporations
whose securities are publicly traded that are affiliated with those operations,
may be injurious to stable and productive corporate gaming. The Nevada Gaming
Commission has established a regulatory scheme to ameliorate the potentially
adverse effects of these business practices upon Nevada's gaming industry and
to further Nevada's policy to (i) assure the financial stability of corporate
or partnership gaming operators and their affiliates; (ii) preserve the
beneficial aspects of conducting business in the corporate form; and (iii)
promote a neutral environment for the orderly governance of corporate or
partnership affairs. Approvals are, in certain circumstances, required from the
Nevada Gaming Commission before Sahara Gaming can make exceptional repurchases
of voting securities above the current market price thereof (commonly referred
to as "greenmail") and before an acquisition opposed by management can be
consummated. Nevada's gaming regulations also require prior approval by the
Nevada Gaming Commission if Sahara Gaming were to adopt a plan of
recapitalization proposed by Sahara Gaming's Board of Directors in opposition
to a tender offer made directly to the stockholders for the purpose of
acquiring control of Sahara Gaming.
MISCELLANEOUS. Pursuant to recent changes in Nevada law, Sahara Gaming, and
its affiliates, including subsidiaries may engage in gaming activities outside
the State of Nevada without seeking the approval of the Nevada Gaming
Authorities provided that such activities are lawful in the jurisdiction where
they are to be conducted and that certain information regarding the foreign
operation is provided to the Nevada Gaming Board on a periodic basis. Sahara
Gaming and its Nevada-based affiliates may be disciplined by the Nevada Gaming
Commission if any of them 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 that are harmful to the State
of Nevada or its ability to collect gaming taxes and fees, or employs a person
in the foreign operation who had been denied a license or finding of
suitability in Nevada on the ground of personal unsuitability.
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<PAGE>
License fees and taxes, computed in various ways depending on the type of
gaming involved, are payable to the State of Nevada and to the counties and
cities in which Sahara Gaming and the Operating Companies' 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: (i) a percentage of the gross gaming revenues received by
the casino operation; (ii) the number of slot machines operated by the casino;
or (iii) the number of table games operated by the casino. A casino
entertainment tax is also paid by the licensee where entertainment is furnished
in connection with the selling of food or refreshments.
Finally, the Nevada Gaming Authorities may require that lenders to licensees,
including each holder of Notes, be investigated to determine if they are
suitable and, if found unsuitable, may require that they dispose of their loans
(including the Notes).
ITEM 2. PROPERTIES
The Sahara occupies approximately 18 acres on the northern end of the Las
Vegas Strip at the intersection of Sahara Avenue and the Strip, one of the most
heavily traveled intersections in Las Vegas. The Sahara is situated near the
Las Vegas Convention Center approximately four miles north of McCarran Airport
and two miles south of downtown Las Vegas. The Sahara property is subject to a
first deed of trust securing the obligations of Sahara Nevada Corp. under a
secured note ("12 1/8 Notes") and guarantied by the Company in the principal
amount of $115.0 million at September 30, 1994. The parking lot for the Sahara
is leased by Sahara Nevada Corp., the operating company that owns and operates
the Sahara, from Sahara Las Vegas Corp., a wholly owned subsidiary of Sahara
Gaming ("Sahara LV"). Sahara LV has leased to Sahara Nevada Corp. at a fair
rental value 14 acres adjacent to the Sahara which is improved as a parking lot
for a term expiring in 2087. Sahara LV has also granted to Sahara Nevada Corp.
the option to purchase the parking lot at any time during the term of the lease
at fair market value as determined by appraisal. See "Business--Description of
the Hotel-Casinos" for more detailed information regarding the Sahara.
The Hacienda occupies approximately 47 acres in the southernmost part of the
Las Vegas Strip. The Hacienda property, except for the two buildings used for
timeshare operations, is subject to a priority deed of trust which secures a
note payable to the Public Employee Retirement System of Nevada ("PERS") in the
amount of $22.2 million at September 30, 1994. See "Business--Description of
the Hotel-Casinos" for more detailed information regarding the Hacienda.
The Pioneer is located on approximately 12 acres of land, with Colorado river
frontage of approximately 770 feet, and is situated near the center of
Laughlin's Casino Drive. Approximately 6.5 acres of the 12-acre Pioneer site is
leased from an unaffiliated third party pursuant to a lease expiring in 2078.
One of the Pioneer's three motel buildings, a portion of a second motel
building and a portion of the casino building are located on the leased
property. The Pioneer property is subject to a first deed of trust securing
$120.0 million principal amount of 13- 1/2% First Mortgage Bonds due December
1, 1998, issued by Pioneer Finance Corp. and guarantied by the Company. As of
September 30, 1994, $17 million in principal amount of the bonds had been
redeemed. See "Business--Description of the Hotel-Casinos" for more detailed
information regarding the Pioneer.
The Santa Fe was constructed on a 36-acre site in the northwest part of Las
Vegas, approximately nine miles from the Las Vegas Strip. The Santa Fe property
is subject to a first priority deed of trust on the Santa Fe related to a $115
million note offering completed in December 1993. In addition, in May 1994, the
Santa Fe acquired a four-acre parcel for $980,000 which has been improved to
provide additional parking. Santa Fe Inc. acquired an approximately 22-acre
parcel of property across the street from the Santa Fe for a purchase price of
approximately $1.6 million. Santa Fe Hotel Inc. paid approximately $750,000 of
the purchase price in cash and assumed an $850,000 note, secured by a first
deed of trust on the parcel, which note bears interest at 12% per annum and
matures in November 1996. See "Business--Description of the Hotel-Casinos" for
more detailed information regarding the Santa Fe.
In May 1993, Parkville, Inc. entered into an agreement with the City of
Parkville, Missouri, for a site lease allowing the Company to operate a casino
subject to approval by the Missouri Gaming Commission. See "Business--Other"
for more detailed information regarding the Parkville Project.
12
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On March 31, 1994, a wholly-owned subsidiary of the Company purchased real
property in Henderson, Nevada, located in southeast Las Vegas valley where the
Company proposed to develop a casino entertainment complex. The net proceeds
from a private placement of $15.0 million 12% Notes of the wholly-owned
subsidiary of the Company were used to acquire the property. The principal
amount of the 12% Notes and all accrued interest is due and payable on March
31, 1995. The 12% Notes are guarantied by the Company and are secured by, among
other things, a first priority lien on the real property pursuant to the Deed
of Trust relating thereto. The Company has entered into an agreement to sell
the property. See "Business--Other Operations--Henderson, Nevada Project" for
more information regarding the potential sale of the real property.
ITEM 3. LEGAL PROCEEDINGS
The Company and its predecessor, Sahara Casino Partners, L.P. are defendants
in two class action lawsuits filed in the United States District Court of
Florida, Orlando Division, entitled Poulos v. Caesar's World, Inc., et al. and
Ahern v. Caesar's World, Inc., et al. which have been consolidated in a single
action. Also named as defendants in these actions are many, if not most, of the
largest gaming companies in the United States and certain gaming equipment
manufacturers. Each complaint is identical in its material allegations. The
actions allege that the defendants have engaged in fraudulent and misleading
conduct by inducing people to play video poker machines and electronic slot
machines based on false beliefs concerning how the machines operate and the
extent to which there is actually an opportunity to win on a given play. The
complaints allege that the defendants' acts constitute violations of the
Racketeer Influenced and Corrupt Organizations Act ("RICO") and also give rise
to claims for common law fraud and unjust enrichment, and it seeks
compensatory, special consequential, incidental and punitive damages of several
billion dollars.
In response to the complaints, all of the defendants, including the Company
and the Partnership, filed motions attacking the pleadings for failure to state
a claim, seeking to dismiss the complaints for lack of personal jurisdiction
and venue, and seeking to transfer venue of the actions to Las Vegas. The Court
has granted the defendants' motion to transfer venue of the action to Las
Vegas. Plaintiffs have responded to all motions and have also propounded
discovery with respect to each defendant on jurisdiction, venue and class
issues. The Company expects that there will be further briefing on the motions,
and the Court has not indicated when it will rule on these motions. Plaintiffs
have also filed their motion to certify the class. A representative group of
the defendants took the deposition of each plaintiff and also obtained
documents from the plaintiffs. It is not known when the Court will rule on the
class certification motions.
On December 12, 1994, the Company and Santa Fe Inc. filed a lawsuit in the
United States District Court, District of Nevada, naming Treasure Bay officers
A. Clay Rankin III, Joe N. Hendrix and Bernie Burkholder, and former officer
Francis L. Miller as defendants in matters involving violations of Section
10(b) and Rule 10(b)-5 of the Securities Exchange Act, violation of Nevada
state securities laws, fraud and negligent misrepresentation in connection with
the Company's investment of $10 million in exchange for a 20% interest in
Treasure Bay, and the Company's guarantee of $4.5 million of Treasure Bay's
indebtedness. The defendants have not yet responded to the complaint.
On December 15, 1994, Francis L. Miller filed a lawsuit in the Mississippi
Circuit Court, Second Judicial District, against the Company and Santa Fe Inc.
as well as Paul W. Lowden and Suzanne Lowden, alleging, among other things,
that the Company made certain misrepresentations which induced Francis Miller
to entrust the management of his investments in Treasure Bay's two Mississippi
casinos to the Company and Santa Fe Inc. and to sell the Company and Santa Fe
Inc. a 20% ownership interest in Treasure Bay. The Company and Santa Fe Inc.
have not yet responded to the complaint. The Company and Santa Fe Inc. believe
that the suit is without merit and intend to defend themselves vigorously while
pursuing their own lawsuit.
In addition, the Company is subject to various lawsuits relating to routine
matters incidental to its business. The Company does not believe that the
outcome of such litigation, in the aggregate, will have a material adverse
effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1994.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S STOCK AND RELATED SECURITY HOLDERS MATTERS
Since October 1, 1993, the Company's Common Stock has traded on the American
Stock Exchange under the symbol "SGM". The closing sales price of the Common
Stock on December 28, 1994, as reported by the American Stock Exchange was
$3.375 per share. The table below sets forth the high and low closing sales
prices by quarter for the fiscal year ended September 30, 1994 for the Common
Stock.
<TABLE>
<CAPTION>
FISCAL FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------
<S> <C> <C> <C> <C>
High $23- 1/2 $12- 3/8 $10- 7/8 $7
Low $ 9- 1/2 $ 9- 3/4 $ 5 $5
</TABLE>
The Company has never paid cash dividends on its Common Stock, nor does it
anticipate paying such dividends in the foreseeable future. On January 25,
1994, the Company announced a 25% stock dividend on the Common Stock payable
on February 25, 1994, to stockholders of record on February 4, 1994. The
accompanying financial statements have been adjusted to give effect to this
stock dividend as if it has occurred as of the earliest period presented.
There were approximately 6,837 stockholders as of December 23, 1994. The
number of stockholders was computed by including those stockholders whose
stock is beneficially held for them by participants in a clearing agency as of
that date.
Prior to the Reorganization (effective September 30, 1993), the common stock
of Sahara Resorts was traded on the NASDAQ National Market System and the
Partnership Units were traded on the New York Stock Exchange. See "Business--
General" for more detailed information regarding the Reorganization.
ITEM 6. SELECTED FINANCIAL DATA
The table below sets forth a summary of selected financial data of the
Company for the years ended September 30 (dollars in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenues(1) $254,018 $244,765 $219,519 $179,505 $160,898
Net(Loss)(2) $(16,961) $ (1,090) $ (6,476) $ (9,069) $ (1,389)
Net(Loss) Per Common Share(3) (2.74) $ (0.25) (1.52) $ (2.12) $ (.33)
Cash Dividends Per Common Share -- -- -- -- --
Total Assets $478,555 $395,089 $359,624 $377,830 $350,183
Long-Term Debt $379,093 $301,780 $286,764 $309,733 $270,171
Redeemable Preferred Stock $ 16,202 $ 14,980 -- -- --
</TABLE>
- -------------------------------------------------------------------------
(1) Prior year amounts have been restated to conform with current year.
(2) 1994 net loss includes $12.6 million charge to reduce the carrying value
of the Company's investment in Treasure Bay.
(3) Per common share amounts have been restated to reflect common stock
dividend paid in February 1994.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF THE COMPANY
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
FISCAL 1994 COMPARED TO FISCAL 1993
The Company's revenues increased $9.2 million, or 3.8%, to $254.0 million in
fiscal 1994 as compared to $244.8 million in the previous fiscal year. The
increase in revenues is the result of increased casino and hotel revenues in
fiscal 1994. Operating expenses increased $12.9 million, or 6.2%, primarily due
to increased payroll, advertising and promotional costs, professional fees,
increased depreciation associated with the step-up in basis of the depreciable
assets that resulted from the Reorganization and volume related increases in
the casino department. Operating income, accordingly, decreased $3.7 million or
10% to $33.0 million in 1994 from $36.6 million in 1993. The Company's interest
expense increased by $5.4 million to $43.2 million in fiscal 1994 primarily as
a result of the issuance of $115.0 million principal amount of 11% Notes in
December 1993. See "Santa Fe" below. The Company charged $12.6 million against
income in 1994 in connection with its investment in Treasure Bay. See "Santa
Fe--Treasure Bay" below.
As a result of the above, the Company had a net loss before federal income
tax benefit of $22.8 million, an increase of $21.6 million over the net loss of
$1.2 million in 1993. Excluding the charge relating to Treasure Bay, the net
loss before federal income tax benefit would have been $10.2 million, an
increase of $9.0 from a $1.2 million loss in 1993.
SAHARA
Revenues at the Sahara for fiscal 1994 increased 4.3%, or $3.6 million, to
$86.8 million from $83.2 million in fiscal 1993. This increase in revenues is
primarily attributable to increased casino revenues. Casino revenues increased
$1.8 million, or 5.1%, to $37.6 million from $35.7 million in the prior year.
An increase in slot revenue of $2.3 million, or 12.8%, to $20.5 million from
$18.2 million was attributable to an increase of 45,067 occupied room nights
and the ongoing addition of new up-to-date slot machines. The increase in slot
revenue was partially offset by a decrease in table game revenues.
Operating income increased by 2.7%, or $200,000, to $7.2 million from $7.0
million. The $3.6 million increase in revenues was offset by an increase in
operating expenses of $3.4 million, or 4.4%. Selling, general and
administrative expenses increased 13.9%, or $1.5 million, primarily due to
increased payroll costs and promotional expenses.
HACIENDA
Revenues at the Hacienda decreased 0.1%, or $100,000, to $53.8 million from
$53.9 million in fiscal 1993. The opening of two major casinos in close
proximity to the Hacienda in December 1993 has impacted casino revenues
negatively but has had positive results on hotel, food and beverage and
entertainment revenues as tourist volume has increased at the south end of the
Las Vegas Strip. Casino revenues decreased 6.9%, or $2.0 million, to $26.2
million from $28.1 million in the prior year, which was comprised of decreases
in table games of 13.9%, or $900,000, in poker and keno of 17.9%, or $300,000,
and in slots of 3.9%, or $800,000. The impact of competition on slot revenue,
was in part offset by the addition of new up-to-date slot machines and the
continued marketing of the Hacienda slot club. Hotel revenues increased 13.4%,
or $1.3 million, due to an increase of 2,502 occupied room nights and sales
efforts which resulted in an increase in the average room rate. Due to the
increase in occupied room nights, food and beverage revenues increased 7.1%, or
$600,000, and entertainment revenues increased 12.7%, or $300,000 over revenues
reported in the prior year.
Operating income decreased 48.3%, or $2.4 million, to $2.6 million from $5.0
million, due to the decrease in revenues combined with an increase in operating
expenses of $2.3 million, or 4.8%. Selling, general and administrative expenses
increased 12.3%, or $700,000, primarily due to increased advertising and
promotional costs and professional fees. Entertainment expenses increased
54.6%, or $1.0 million, primarily as a result of a new contract with the
production show. The production show is provided through an affiliate of the
Company, LICO.
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The Company has recently changed the management team at the Hacienda and
increased the sales and marketing staff in an effort to increase revenues and
improve operating results.
PIONEER
Revenues at the Pioneer decreased 8.9%, or $4.8 million, to $49.3 million
from $54.1 million in fiscal 1993. Casino revenues decreased 9.3%, or $4.4
million, comprised mostly of a decrease in slot revenue of 9.3%, or $3.8
million. Hotel revenues decreased 17.6%, or $300,000 with 3,821 fewer occupied
rooms. Food and beverage revenues decreased 11.6%, or $400,000. These decreases
in fiscal 1994 are believed to be primarily due to relatively constant gaming
revenues in 1994 versus 1993 in the Laughlin, Nevada gaming market, coupled
with continued aggressive competition. Additionally, construction of the
Pioneer expansion is believed to have had a negative impact on revenues during
the fourth quarter of fiscal 1994.
Operating income decreased by 32.3%, or $4.5 million, to $9.4 million from
$13.9 million. The $4.8 million decrease in revenues was not offset with a
comparable decrease in operating expenses. Casino expenses decreased only 0.3%,
or $60,000, as volume related decreases in expenses were offset by increased
promotional expenses. Hotel and food and beverage had volume related decreases
in expenses of $90,000, or 14.3%, and $770,000, or 13.1%, respectively.
Selling, general and administrative expenses increased 10.0%, or $400,000,
primarily due to increased payroll and advertising costs. Utilities and
property expenses increased 8.3%, or $300,000, primarily due to increased rent
expense associated with land leases and operating costs of the boats to ferry
passengers to the Arizona parking lot.
In the fourth quarter of 1994, revenues decreased $1.8 million or $11.1
million compared to the same period in the 1993 fiscal year. This decrease is
greater than the 7.3% decrease in revenues experienced during the first nine
months of the current year. Additionally, operating income before depreciation
and amortization decreased $1.4 million to $2.4 million or 38% compared to the
same period in the last fiscal year. Management believes the decrease in
revenues and operating results in the fourth quarter compared to the first
three quarters of fiscal 1994 and the fourth quarter of fiscal 1993 are the
result of both the decrease in size of the Laughlin market during the 1994
fourth quarter compared to the fourth quarter of 1993 fiscal year, together
with a negative impact on operations from the construction of the expansion
during this period.
In December 1994, an expansion of the facility was completed, which increased
the slot capacity by approximately 20%, provided a special events area, and
increased administrative and support areas. Additionally, management has
increased marketing and promotional efforts in an effort to increase revenues
and improve the Pioneer's operating results. Expense reduction measures are
also being evaluated and where possible, implemented.
SANTA FE
Santa Fe Hotel and Casino
Revenues at the Santa Fe showed continued growth in fiscal 1994, increasing
20.1%, or $10.7 million, to $64.1 million as compared to $53.4 million in
fiscal 1993. Casino revenues increased 21.3%, or $8.5 million, to $48.5 million
from $40.0 million, with increases in all gaming areas. Management believes
that ongoing marketing to the expanding population of northwest Las Vegas is
responsible for these results. The hotel rooms and food and beverage
departments posted modest increases. The Santa Fe's expansion, which was
completed and opened in December 1994, increases its food and beverage
capacity, as well as the casino area, and was constructed to meet the growing
demand and to better position the Santa Fe to compete with the expanding
competition in the area.
Operating income increased by 28.9%, or $3.3 million, to $14.7 million from
$11.4 million. The $10.7 million increase in revenues was offset by a 17.9%, or
$7.5 million, increase in operating expenses. In addition to volume related
increases in expenses in the revenue-generating departments, expenses increased
in selling, general and administrative, utilities and property and depreciation
by 35.9%, or $2.0 million, 12.5%, or $500,000, and 21.8%, or $1.2 million,
respectively.
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In the fourth quarter of 1994, revenues increased $1.9 million to $16.3
million or 13% compared to the same period in the 1993 fiscal year. This
increase is less than the 22.8% increase in revenues achieved during the first
nine months of the fiscal year. Additionally, operating income before
depreciation and amortization increased $200,000 to $5.2 million, or 4%,
compared to the same period in the prior year. Management believes operations
in the fourth quarter were impacted by the construction of the expansion and,
to a lesser extent, by the opening of a new locals facility and expansion of
another locals facility, both in the southeast section of the Las Vegas valley.
Interest expense increased $7.0 million, or 131.1%, due to the issuance of
the 11% Notes.
Treasure Bay
In the fourth quarter, the Company recorded a provision to reduce the
carrying value of its investment in Treasure Bay by $12.6 million. The
provision includes the equity interest in the net loss of Treasure Bay through
September 30, 1994, a charge against the Company's investment in Treasure Bay
and a provision for the $3.3 million guarantee of outstanding debt obligations
of Treasure Bay, on which Treasure Bay has defaulted.
As a result of the charges associated with Treasure Bay, the Company reported
a net loss before federal income tax of $9.3 million compared to net income
before federal income tax of $6.1 million in the prior year. Excluding the
charge relating to Treasure Bay, the net income before federal income tax would
have been $3.3 million, a decrease of $2.8 million from $6.1 million reported
in 1993. The net income before federal income tax decreased primarily due to
increased depreciation and amortization resulting from the Reorganization and
increased interest expense associated with the 11% Notes.
FISCAL 1993 TO FISCAL 1992
The Company's results for fiscal 1993 showed improvement over the results in
fiscal 1992. Revenues increased $25.2 million, or 11.5% to $244.8 million for
fiscal 1993 when compared to the prior year. Operating income for 1993 was
$36.6 million, a $6.4 million, or 21.2%, increase over fiscal 1992. The
Company's interest expense decreased $1.8 million to $37.8 million during
fiscal 1993 primarily as a result of reductions in long-term debt and lower
interest rates for the year. The loss before federal income tax was reduced
from $9.4 million in fiscal 1992 to $1.2 million in 1993.
The results for the year ended September 30, 1993 compared favorably to the
results for 1992 primarily due to increased room occupancy resulting from the
utilization of the expansions at the Sahara and Hacienda which were completed
during fiscal 1991, through innovative room sales and casino marketing
programs, higher slot play at the Santa Fe resulting from increased awareness
and popularity of the facility, offset in part by less favorable operating
results at the Pioneer.
SAHARA
Revenues at the Sahara for fiscal 1993 increased 13.4%, or $9.8 million, to
$83.2 million from $73.4 million during 1992. Casino revenues increased 10.4%
to $35.7 million from $32.4 million in the prior year. Slot machine revenues
increased $1.8 million, or 11.1% to $18.2 million, and table game revenues
increased $1.4 million, or 11.5%, to $13.7 million. Room revenues increased
18.2% to $24.0 million while food and beverage revenues increased 13.5% to
$13.5 million. The addition of new up-to-date slot machines and an increase of
43,619 occupied room nights contributed to the increase in revenues. Room
occupancy increased to 87.2% from 84.0% for 1992 as a result of room sales
programs and utilization of room additions.
Operating income for fiscal 1993 was $7.0 million, a 97.5% increase over the
$3.6 million realized in the prior year. This increase is primarily a result of
the $9.8 million increase in revenues. Food and beverage expenses increased
$1.9 million, or 15.5%, while selling, general and administrative expenses and
casino expenses remained relatively flat. Special food promotions designed to
attract casino customers are considered to be the primary cause for the
disparities in the increases in the Sahara food and beverage expenses versus
the increases in food and beverage revenues. Hotel expenses increased $1.5
million, or 17.7%, primarily due to the increased occupancy. Entertainment
expenses increased $1.5 million as a result of a change in show policy which
increased the number of shows offered in the Sahara's main showroom. This
increase in entertainment expense was partially offset by an increase of $1.1
million in showroom admission fees, which are included in other income.
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As a result of the above, net loss before the provision for federal income
tax decreased to $3.4 million for fiscal 1993 from a pre-tax net loss of $7.1
million for 1992.
HACIENDA
Revenues increased 15.6%, or $7.3 million, to $53.9 million for fiscal 1993
as compared to the prior year. The increase is primarily the result of
innovative room sales and casino marketing programs which have enabled the
property to utilize more fully the additional rooms and expanded casino area
that were added in late fiscal 1991. Casino revenues increased $4.2 million, or
17.6%, with slot machine revenues increasing $3.4 million, or 19.9%, and table
game revenues increasing by $0.7 million, or 12.2%. Room occupancy increased
from 87.1% in 1992 to 94.7% in the current year. Food and beverage revenues
increased $1.2 million, or 17.2%, over fiscal 1992 due to the increase of
26,302 in occupied room nights and advertised specials designed to attract
casino customers.
Operating income for fiscal 1993 was $5.0 million, a 72.9% increase over the
$2.9 million realized in the comparable prior year period. This increase was
primarily due to the $8.7 million increase in revenues, which was partially
offset by volume related increases in casino expenses of $2.0 million, or
18.3%, and food and beverage expenses of $2.0 million, or 24.3%. Special food
promotions designed to attract casino customers are considered to be the
primary cause for the disparities in the increase in the Hacienda's food and
beverage expense versus the increase in food and beverage revenues.
As a result of the above, the net loss before the provision for federal
income tax decreased from $6.6 million in fiscal 1992 to $4.2 million in fiscal
1993.
PIONEER
Revenues decreased 2.6%, or $1.4 million, to $54.1 million in fiscal 1993
from 1992. The decrease in revenues at the Pioneer is primarily due to
increased competition in the Laughlin market that resulted from a number of
properties completing major expansion and/or renovation projects.
Operating income in fiscal 1993 was $13.9 million as compared to $18.1
million realized in 1992. This decrease was primarily due to the decrease in
revenues and an increase in casino expenses of $2.7 million. Casino expenses
increased by 14.9% to $20.4 million primarily as the result of a change in the
procedures relating to slot club bonus points and increased payroll taxes
associated with the reporting of employees' tips for federal and state
employment tax purposes pursuant to a tip compliance program implemented by the
Internal Revenue Service in mid to late 1992. The procedural change in the slot
club was to allow slot club bonus points earned currently to be redeemed for
cash or prizes whereas previous slot club bonus points accumulated by slot club
members were frozen at certain accumulated amounts and could only be redeemed
for prizes. Selling, general and administrative expenses increased by 13.0%, or
$0.4 million, to $3.3 million in fiscal 1993, with approximately 40% of this
increase being in increased advertising and promotional costs.
As a result of the above, income before federal income tax declined to
$42,000 in fiscal 1993 from $3.9 million in fiscal 1992.
SANTA FE
Revenues increased 20.4% to $53.4 million in fiscal 1993 as compared to $44.3
million in the prior year. Casino revenues increased $8.0 million, or 25.1%,
primarily as a result of a higher slot handle, which is believed to be due to
the growing popularity of the Santa Fe with the residents of Northwest Las
Vegas and the continuing growth of the local population. Room revenues
increased to $2.4 million for the year ended September 30, 1993 from $2.0
million in the prior year. Room occupancy increased from 83.2% during fiscal
1992 to 91.6% during 1993 due to the public's increased awareness of the Santa
Fe.
Operating income for 1993 was $11.4 million, a 90.0% increase over the $6.0
million realized in the prior year. This increase was primarily due to the
20.4% increase in revenues which was partially offset by a $2.2 million, or
17.2%, volume related increase in casino expenses. Selling, general and
administrative expenses increased in fiscal 1993 over fiscal 1992 by $1.4
million, or 35.6%, due primarily to increased advertising and promotion
expenses. Utilities and property expenses increased by $0.5 million, or 14.4%,
as a result of management's focus on providing a clean and comfortable
facility.
As a result of the above, net income before the provision for federal income
tax was $6.1 million in fiscal 1993 as compared to pre-income tax of $0.5
million in the prior year.
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LIQUIDITY AND CAPITAL RESOURCES; TRENDS AND FACTORS RELEVANT TO FUTURE
OPERATIONS
The Company's earnings before interest, taxes, depreciation and amortization
("EBITDA") was $59.7 million for the year ended September 30, 1994 as compared
to $60.0 million for the prior year period. EBITDA is presented to enhance the
understanding of the financial performance of the Company and its ability to
service its indebtedness, but should not be construed as an alternative to
operating income (as determined in accordance with generally accepted
accounting principles) as an indicator of the Company's operating performance,
or to cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) as a measure of liquidity.
The Company has historically generated sufficient cash liquidity from
operations to finance operations, meet existing debt service obligations,
complete capital improvements to maintain existing facilities, and provide
working capital to the parent company. However, the outstanding amount of the
Company's long-term debt in relation to its stockholders equity balance (11:1)
or as a percent of total assets (84%), categorizes the Company as highly
leveraged. The indentures under which the 13 -1/2% Notes and the 11% Notes were
issued contain restrictions on payments to and investments in affiliates by
Pioneer Inc. and Santa Fe Inc., as applicable, including to the Company. As a
result of these restrictions, all or a significant portion of the cash flow
generated by Pioneer Inc. and Santa Fe Inc., as applicable, is not currently
and is not expected in the near future to be available for distribution to the
Company. Approximately $47.6 million of the Company's current assets at
September 30, 1994, including approximately $42.7 million of cash and short
term investment were held by Pioneer Inc. and the Santa Fe Inc., and are
subject to the indenture restrictions described above and are not available for
distribution to the Company. Excluding the working capital of Pioneer Inc. and
Santa Fe Inc., and $15.0 million of indebtedness, together with accrued
interest, maturing in March 1995 (See "Debt Refinancing"), the Company had a
working capital balance of approximately $3.5 million at September 30, 1994.
To the extent cash flow generated by Pioneer Inc. and Santa Fe Inc., is not
available for distribution to the Company, the Company must rely on existing
cash resources and cash flow generated by Sahara Nevada and Hacienda Inc., the
subsidiaries of the Company that own the Sahara and Hacienda, respectively.
Historically, the operating results of Sahara Nevada and Hacienda Inc. have not
generated sufficient cash flow to provide liquidity to the Company. Based on
current operations and available resources, management believes that, barring
unforeseen circumstances, the Company will have sufficient cash resources to
meet its operating requirements through the fiscal year ending September 30,
1995, although no assurance can be given to that effect.
The Company's principal use of funds generated from operations for the last
three fiscal years have been for interest payments on indebtedness and capital
expenditures. Additionally, the Company has incurred indebtedness to finance
capital expenditures. Interest expense for fiscal years 1994, 1993, and 1992
was $43.2 million, $37.8 million and $39.6 million, respectively. Capital
expenditures for fiscal years 1994, 1993 and 1992 were $40.1 million, $3.8
million and $5.5 million, respectively. Excluding $11.6 million and $2.2
million incurred in the first quarter of fiscal 1995 at the Santa Fe Inc. and
Pioneer Inc., respectively, related to expansions of the Santa Fe and the
Pioneer, management believes that future capital expenditures required to
maintain the facilities will be approximately $2.5 million per year. These
expenditures are likely to be used for the acquisition of slot machines and
computer equipment and the refurbishment of casinos, hotel rooms, food and
beverage facilities and public areas and are expected generally to be financed
with cash flow from operations.
CAPITAL EXPENDITURES In May 1994, the Company commenced construction of an
expansion of the Santa Fe, which was completed in December 1994. The expansion
included the addition of three themed restaurants, approximately 300 new slot
machines, a dedicated bingo room, race book, and other public areas, and cost
approximately $14.0 million. As of September 30, 1994, the Company had incurred
approximately $2.4 million in construction costs associated with the expansion.
The expansion was financed through working capital made available through the
issuance of Notes and equipment financing.
The Company commenced construction of an expansion of the Pioneer in July
1994, which was completed in December 1994. The Pioneer expansion included the
addition of casino space, the addition of a special events area and increased
administrative and support areas. The cost of construction and equipment is
$4.1 million. As of September 30, 1994, approximately $1.9 million in
construction costs associated with the expansion had been capitalized. The
expansion was financed through working capital and equipment financing.
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DEBT RE-FINANCING Approximately $15.0 million of debt together with accrued
interest secured by the property acquired for the possible development of a
hotel/casino in Henderson, Nevada matures in March 1995. The Company has
entered into an agreement to sell this property. The sale is subject to several
contingencies, including satisfactory completion of a due diligence review and
approval of the transaction by the purchaser's Board of Directors. Proceeds
from the sale, if consummated, will be used to repay the indebtedness incurred
to finance the acquisition of the site. Additionally, pursuant to the agreement
to sell the property, the Company's expenses incurred in the development of the
proposed project will be reimbursed over a three-year period.
If the sale is not consummated, the Company will attempt to negotiate an
extension of the maturity date of the 12% Notes and to sell the property to
another purchaser or, potentially, to obtain financing for the development of
the proposed project. No assurance can be given that, if necessary, the Company
will be successful in obtaining an extension of the maturity date or locating
another purchaser for the property. If the proposed sale is not consummated and
the holders of the 12% Notes were to demand payment at maturity, the Company
would not have sufficient cash resources to repay the 12% Notes and would
default in the payment thereof, which would result in cross-default under
substantially all of the Company's long-term indebtedness.
Additionally, approximately $150.0 million of long-term debt is scheduled to
mature on or before December 1996 ($22.0 million in December 1995 due on the
PERS note, $115.0 million in August 1996 due on the 12 1/8% Notes, and a $12.75
million sinking fund payment due in December 1996 on the 13 1/2% Notes.
Although management has in the past and is currently exploring refinancing
alternatives, as well as possible dispositions of certain assets, in order to
satisfy long-term debt obligations as they become due, no assurance can be
given that the Company will be able to refinance some or all of its
indebtedness or dispose of any assets. Any such refinancing would be subject to
the Company's future operations and the prevailing market conditions at the
time of such proposed refinancing and would require the approval of the Nevada
Gaming Authorities and potentially other state gaming authorities. Any asset
dispositions would be subject to locating potential purchasers willing to
acquire the assets at acceptable prices, and would in some cases require the
approval of the Nevada Gaming Authorities or other state gaming authorities. If
the Company is ultimately unable to refinance such debt prior to maturity,
and/or obtain sufficient proceeds from asset dispositions to repay the debt,
and if the holders of the various debt instruments were to demand payment upon
the maturity dates, events of default would occur which would lead to cross-
defaults in other material agreements of the Company including, without
limitation, agreements relating to substantially all of the outstanding long-
term debt of the Company and its subsidiaries.
Current operations are providing sufficient cash flow to meet operating
requirements and to fund limited capital improvements and interest expense on
existing indebtedness. No assurance can be given that operations will continue
to provide sufficient cash flow to meet operating requirements and interest
expense.
PARKVILLE
Parkville Inc. was formed in 1993 to develop, own and operate a dockside
casino in the City of Parkville, Missouri. Parkville Inc. has entered into a
lease agreement with the City of Parkville for the site of the proposed
development, which is located approximately ten miles from Kansas City, Kansas
and Kansas City, Missouri.
A state constitutional amendment to permit, among other things, games of
chance in Missouri, and a local resolution to permit the licensing of excursion
gambling boats and floating facilities in Parkville were each approved by
voters in November 1994, after previously failing to be approved at the state
level in April 1994 and in local elections in April and August 1994. The delay
in the voter approval has increased project costs and delayed the proposed
development of the Parkville casino.
The development of the Parkville casino is subject to substantial
uncertainties, as discussed below, including the granting of necessary gaming
and other licenses and certain other approvals, commencement and completion of
construction, and the negotiation of additional agreements, as well as the
risks inherent in the
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establishment of a new business enterprise. In order to use the vessel
purchased for the Parkville casino, Parkville Inc. will be required to obtain a
gaming license permitting a dockside, rather than "cruising", riverboat gaming.
An application has been made for a gaming license for the casino with the
Missouri Gaming Commission. There can be no assurance as to when or if
Parkville Inc. will receive the gaming license necessary for it to commence
dockside gaming operations and the earliest the Missouri Gaming Commission
would commence its investigation of Parkville Inc. would be early 1995. An
investigation typically takes at least several months to complete. No assurance
can be given that Parkville Inc. will be chosen for investigation in early
1995.
In addition, if Parkville Inc. is not licensed or if the construction of the
proposed facility is not complete by June 30, 1995, Parkville Inc. will be
unable to commence operations by that date and Santa Fe Inc. will be required
under the terms of the indenture under which the 11% Notes were issued to offer
to repurchase that principal amount of 11% Notes purchasable with the funds
remaining in the Parkville collateral account and obtained upon disposition of
assets related to the project (unless waivers are obtained from the holders of
the 11% Notes). Based on current development and construction plans, the
Company does not believe the facility can be completed and operating before
June 30, 1995. Therefore, the Company currently intends to seek approval from
the holders of the 11% Notes for, among other things, an extension of the date
by which operations of the proposed Parkville casino must be commenced before
Parkville Inc. is required to commence the repurchase offer. No assurance can
be given that if such approval is sought it will be obtained. In the event
Parkville Inc. is required to commence a repurchase offer, the holders of
warrants to acquire additional 11% Notes will be entitled, for a 30 business
day period, to acquire for no additional consideration up to an additional
$11.5 million principal amount of the 11% Notes.
The estimated total cost of the Parkville project was originally expected to
be approximately $38.5 million. As a result of the delay in commencing
construction of the proposed facility, revisions to the scope of the project,
and increased construction costs associated with the project, it is currently
estimated that the project will cost approximately $50.0 million. As of
September 30, 1994, Parkville Inc. had capitalized $13.6 million in connection
with the development of the proposed dockside riverboat gaming facility. Of
this amount, approximately $8.0 million was used for the purchase of the
riverboat for the site, approximately $2.8 million was used for preliminary
engineering and development expenses and approximately $2.8 million represents
capitalized interest.
Parkville Inc. borrowed $32.0 million from the proceeds of the Offering of
the 11% Notes which is restricted for use in connection with the Parkville
development. The balance of the originally budgeted project cost was expected
to be financed through equipment financing and an equity contribution from
Santa Fe. As of September 30, 1994, approximately $23.1 million is available
from the $32.0 million dedicated for the Parkville development. Of the amount
disbursed, approximately $6.1 million had been used to purchase a riverboat for
the site with respect to which approximately $1.9 million had been previously
deposited, and approximately $2.8 million had been spent on other expenses in
developing the proposed facility, including approximately $1.7 million in
interim interest. The balance of the anticipated cost of the project in excess
of the originally budgeted amount is expected to be financed, to the extent
permitted by the indenture under which the 11% Notes were issued, through
equipment financing, other financing sources and, if necessary, through
additional loans or equity investments from the Company, although no assurance
can be given that the additional necessary funds will be available.
TREASURE BAY
In April 1994, Santa Fe Inc. purchased from Treasure Bay for $10.0 million
approximately 20% of Treasure Bay's common stock and 33 1/3% of Treasure Bay's
preferred stock. Sahara Gaming also unconditionally guaranteed the payment of
$4.5 million of indebtedness of Treasure Bay incurred to finance working
capital in connection with the opening of Treasure Bay's casinos, $3.3 million
of which was outstanding at September 30, 1994. The Company has been advised
that Treasure Bay's cash position is inadequate to meet its current and planned
expenses including, without limitations, short and long-term debt service and
accumulated construction payables, and Treasure Bay is in violation of its
various financing arrangements. In November 1994, creditors of Treasure Bay
initiated bankruptcy proceedings with respect to Treasure Bay. The Company has
been advised by Treasure Bay that on December 9, 1994, Treasure Bay challenged
the initiation of such proceedings.
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In October 1994, the Company received notices from the lender of the Treasure
Bay working capital indebtedness of payment defaults by Treasure Bay with
respect to this indebtedness. In December 1994, Santa Fe Inc. purchased this
indebtedness from the lender. Pending resolution of the Treasure Bay bankruptcy
proceedings, Santa Fe Inc. does not expect to receive current payment on this
indebtedness, and no assurance can be given that it will ultimately be repaid.
In connection with its stock purchase, Santa Fe entered into a management
agreement with Treasure Bay. Treasure Bay notified the Company on December 9,
1994 that Treasure Bay was assuming management control of the Treasure Bay
properties and alleged that the Company was in default thereunder and had
mismanaged the Treasure Bay properties. The Company believes that the
allegations are without merit and it intends to pursue its remedies vigorously.
Treasure Bay has defaulted in its payment obligations under the management
agreement for all payments due for the period July 1994 to the present.
In light of Treasure Bay's financial condition, the Company has recorded a
$12.6 million charge against income in the fourth quarter of fiscal 1994 in
connection with its investment in Treasure Bay. See "Financial Conditions and
Results of Operations of the Company--Fiscal 1994 Compared to Fiscal 1993--
Santa Fe--Treasure Bay."
RELATED PARTIES-LICO, a company wholly-owned by Mr. Lowden, Chairman of the
Board, Chief Executive Officer and 51% stockholder of the Company, had borrowed
$476,000 from Hacienda Inc. pursuant to an unsecured demand loan. The
outstanding balance of the loan including accrued interest was $501,000 as of
September 30, 1994. The demand loan to LICO bears interest at 2% over the prime
rate.
As of September 30 1993, Mr. Lowden had borrowed an aggregate of $1.9 million
from the Company. The unsecured demand loans were evidenced by promissory notes
and accrued interest at a rate equal to 2% over the prime rate. On January 4,
1994, Mr. Lowden repaid the loans from the Company in full, together with
accrued interest.
In November 1993, Mr. Lowden and Bank of America entered into a personal loan
agreement whereby the principal balance (approximately $4.875 million as of
October 31, 1994) of the loan is amortized through quarterly principal payments
through April 1998, with any remaining principal balance due July 31, 1998. The
loan is secured by substantially all of Sahara Gaming's common stock (the
"Pledged Shares") owned by Mr. Lowden. Mr. Lowden's loan agreement provides
that in the event the market value of the Pledged Shares is less than three
times the outstanding loan balance, the bank, at its sole option, may require
either an immediate reduction in the outstanding balance or the pledging of
additional collateral acceptable to the bank such that the value of the pledged
collateral is at least three times the outstanding loan balance. The market
value of the Pledged Shares is less than three times the outstanding loan
balance. Mr. Lowden and the bank are in discussions regarding the collateral
supporting the loan. lf an event of default were to occur under his personal
loan with the bank, and if the bank acquired the Pledged Shares upon
foreclosure, Mr. Lowden's ownership of Sahara Gaming's outstanding common stock
would be reduced to below 50%. If Mr. Lowden ceases to own more than 50% of the
outstanding shares of Sahara Gaming's common stock, an event of default would
be triggered under certain of Sahara Gaming's long-term indebtedness, which
would result in cross-defaults under substantially all of Sahara Gaming's other
long-term indebtedness, including the Notes.
EFFECTS OF INFLATION
The Company has been generally successful in recovering costs associated with
inflation through price adjustments in its hotel and contract sales operations.
Any such increases in costs associated with casino operations and maintenance
of properties may not be completely recovered by the Company.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
For the Years Ended September 30, 1994, 1993, and 1992
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................... 24
Consolidated Balance Sheets as of
September 30, 1994 and 1993............................................. 25
Consolidated Statements of Operations for the Years Ended
September 30, 1994, 1993, and 1992...................................... 26
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1994, 1993, and 1992.......................... 27
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1994, 1993, and 1992................................ 28
Notes to Consolidated Financial Statements................................. 29
Quarterly Results of Operations (Unaudited)................................ 42
</TABLE>
Financial Statement Schedules are omitted because of the absence of
conditions under which they are required or because the information is included
in the financial statements or the notes thereto.
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
SAHARA GAMING CORPORATION:
We have audited the accompanying consolidated balance sheets of Sahara Gaming
Corporation and subsidiaries (the "Corporation") as of September 30, 1994 and
1993, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 1994. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Sahara Gaming Corporation and
subsidiaries as of September 30, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Corporation changed
its method of accounting for income taxes effective October 1, 1993 to conform
with Statement of Financial Accounting Standards No. 109.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
December 16, 1994
24
<PAGE>
SAHARA GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
ASSETS NOTES 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets:
Cash and short-term investments 2,3 $ 55,582,503 $ 29,177,866
Accounts receivable, net 5 7,907,050 7,635,926
Accounts receivable, officer 6 500,525 2,465,532
Inventories 2 2,787,397 3,018,574
Prepaid expenses & other 7,323,786 7,072,279
------------ ------------
Total current assets 74,101,261 49,370,177
Restricted cash--less current portion 4 23,079,791
Property and equipment: 2,7,9,10
Land 80,132,321 51,324,792
Buildings and improvements 236,862,331 235,232,375
Machinery and equipment 103,425,500 98,176,109
Construction in progress 19,325,747 1,457,424
Accumulated depreciation (125,275,533) (104,526,441)
------------ ------------
Property and equipment, net 314,470,366 281,664,259
Goodwill 1,8 48,835,414 50,371,305
Other assets 18,068,605 13,683,355
------------ ------------
Total assets $478,555,437 $395,089,096
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C>
Current liabilities:
Current portion of long-term debt 9,10,16,17,18 $ 23,238,239 $ 12,245,235
Accounts payable 6,790,785 7,601,834
Interest payable 11,589,574 6,343,040
Accrued and other liabilities 15,970,810 13,509,330
------------ ------------
Total current liabilities 57,589,408 39,699,439
Deferred income taxes 2,13 4,945,335 941,733
Long-term debt--less current portion 9,10,16,17,18 379,092,885 301,780,462
Commitments 10,16,17,18
Stockholders' Equity: 1,11,12
Common stock, $.01 par value;
authorized--100,000,000 shares;
issued and outstanding--6,194,433
shares 61,944 61,944
Preferred stock, exchangeable,
redeemable 8% cumulative, stated at
$2.14 liquidation value,
authorized--10,000,000 shares;
issued and outstanding--7,570,895
and 7,000,000 shares, respectively 16,201,715 14,980,000
Additional paid-in capital 51,513,504 51,513,519
Accumulated deficit (30,761,580) (13,800,227)
------------ ------------
Total 37,015,583 52,755,236
Less treasury stock--4,875 shares, at
cost (87,774) (87,774)
------------ ------------
Total stockholders' equity 36,927,809 52,667,462
------------ ------------
Total liabilities and stockholders'
equity $478,555,437 $395,089,096
============ ============
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
25
<PAGE>
SAHARA GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
NOTES 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues: 2
Casino $155,452,433 $151,445,265 $136,738,111
Hotel 39,299,449 37,477,688 32,661,110
Food and beverage 32,240,923 31,565,670 28,997,187
Other 27,024,784 24,276,219 21,122,247
------------ ------------ ------------
Total 254,017,589 244,764,842 219,518,655
------------ ------------ ------------
Operating expenses: 2
Casino 68,989,224 66,158,899 59,051,006
Hotel 18,028,860 17,720,184 15,357,311
Food and beverage 39,085,830 38,369,853 35,831,897
Other 9,865,367 10,335,397 9,519,837
Other expense paid to
affiliate 15 3,549,498 2,975,994 1,140,517
Selling, general and
administrative 30,453,466 26,138,735 24,638,638
Utilities and property
expenses 24,368,048 23,032,492 21,183,393
Depreciation and
amortization 8,10 26,704,563 23,393,465 23,321,851
------------ ------------ ------------
Total 221,044,856 208,125,019 190,044,450
------------ ------------ ------------
Operating Income 32,972,733 36,639,823 29,474,205
Interest expense 9,10 43,191,261 37,832,723 38,827,294
Provision to reduce carrying
value of investment in
Treasure Bay 17 12,579,482
------------ ------------ ------------
Loss before federal income
tax (22,798,010) (1,192,900) (9,353,089)
Federal income tax (benefit) 13 (7,059,000) (103,000) (2,877,000)
------------ ------------ ------------
Net loss (15,739,010) (1,089,900) (6,476,089)
Dividends on preferred
shares 1,222,343
------------ ------------ ------------
Net loss applicable to
common shares $(16,961,353) $ (1,089,900) $ (6,476,089)
============ ============ ============
Average common shares
outstanding 6,189,558 4,276,896 4,272,000
============ ============ ============
Loss per common share $ (2.74) $ (0.25) $ (1.52)
============ ============ ============
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
26
<PAGE>
SAHARA GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PREFERRED PAID-IN ACCUMULATED TREASURY
STOCK STOCK CAPITAL DEFICIT STOCK TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances,
October 1, 1991 $42,938 $30,294,323 $ (6,234,238) $(182,037) $ 23,920,986
Net loss (6,476,089) (6,476,089)
Distributions to
minority
interestholders in
excess of minority
interestholders'
equity (350,000) (350,000)
------- ----------- ----------- ------------ --------- ------------
Balances,
September 30, 1992 42,938 29,944,323 (12,710,327) (182,037) 17,094,897
Net loss (1,089,900) (1,089,900)
Treasury stock
transactions (38,575) 94,263 55,688
Purchase of minority
interest 19,006 14,980,000 21,607,771 36,606,777
------- ----------- ----------- ------------ --------- ------------
Balances,
September 30, 1993 61,944 14,980,000 51,513,519 (13,800,227) (87,774) 52,667,462
Net loss (15,739,010) (15,739,010)
Other (15) (15)
Preferred stock
dividends 1,221,715 (1,222,343) (628)
------- ----------- ----------- ------------ --------- ------------
Balances,
September 30, 1994 $61,944 $16,201,715 $51,513,504 $(30,761,580) $ (87,774) $ 36,927,809
======= =========== =========== ============ ========= ============
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
27
<PAGE>
SAHARA GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(15,739,010) $(1,089,900) $(6,476,089)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 26,704,563 23,393,465 23,321,851
Provision to reduce carrying value of
investment in Treasure Bay 12,579,482
Debt discount amortization 1,668,603 999,695 981,067
Increase (decrease) in accounts
payable (811,050) 1,881,397 (1,475,549)
Decrease (increase) in inventories 231,177 (90,900) (168,872)
Increase in prepaid expenses & other (251,508) (1,676,729) (49,936)
Decrease in deferred income taxes (7,059,000) (103,000) (2,789,898)
Increase (decrease) in interest
payable 5,788,676 (264,714) (145,884)
Increase (decrease) in other current
liabilities 2,461,480 (4,706,055) 18,257
Decrease (increase) in accounts
receivable, net (271,124) 1,449,876 (1,248,346)
Decrease (increase) in due from
officer 1,965,007 (730,541) (1,734,991)
Decrease (increase) in other assets (247,871) (3,257,424) 2,028,524
------------ ----------- -----------
Net cash provided by operating
activities 27,019,425 15,805,170 12,260,134
------------ ----------- -----------
Cash flows from investing activities:
Investment in Treasure Bay (10,000,000)
Decrease (increase) in restricted cash (23,079,791) 2,872,425 3,300,624
Capital expenditures (40,080,972) (3,780,975) (5,535,836)
------------ ----------- -----------
Net cash used in investing activities (73,160,763) (908,550) (2,235,212)
------------ ----------- -----------
Cash flows from financing activities:
Cash proceeds of long-term debt 130,000,000 4,199,190 3,866,923
Cash paid on long-term debt (51,726,226) (12,800,158) (9,614,922)
Loan issue costs (5,727,799)
Distributions to partners (350,000)
------------ ----------- -----------
Net cash provided by (used in) financing
activities 72,545,975 (8,600,968) (6,097,989)
------------ ----------- -----------
Increase in cash and short-term
investments 26,404,637 6,295,652 3,926,923
Cash and short-term investments,
beginning of year 29,177,866 22,882,214 18,955,291
------------ ----------- -----------
Cash and short-term investments,
end of year $ 55,582,503 $29,177,866 $22,882,214
============ =========== ===========
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
28
<PAGE>
SAHARA GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
1. BASIS OF PRESENTATION AND GENERAL INFORMATION
Sahara Gaming Corporation ("Sahara Gaming"), a publicly traded Nevada
corporation, is the successor corporation to a reorganization of Sahara Resorts
and Sahara Casino Partners, L.P., (the "Partnership") as more fully described
below (the "Reorganization"). Sahara Gaming's primary business operations are
conducted through four wholly owned subsidiary corporations, Sahara Nevada
Corporation ("SNC"), Hacienda Hotel Inc., ("HHI"), Santa Fe Hotel Inc.,
("SFHI") and Pioneer Hotel Inc., ("PHI") (the "Operating Companies"). The
Operating Companies in turn own the Sahara Hotel and Casino (the "Sahara"), the
Hacienda Resort Hotel and Casino (the "Hacienda"), and the Santa Fe Hotel and
Casino (the "Santa Fe"), each located in Las Vegas, Nevada, and the Pioneer
Hotel & Gambling Hall (the "Pioneer") in Laughlin, Nevada.
On September 30, 1993, the Partnership and Sahara Resorts consummated a
combination of the two entities through the merger of the Partnership with an
affiliate, Sahara Gaming, and the merger of Sahara Resorts with and into a
wholly-owned subsidiary of Sahara Gaming.
The Sahara Resorts merger into a wholly-owned subsidiary of Sahara Gaming has
been treated as a reorganization of companies under common control and
accounted for similar to a pooling of interests, with the accompanying
financial statements being adjusted to reflect such transaction as of the
earliest period presented, October 1, 1991. (See Note 11) The merger of the
Partnership's minority interest has been accounted for by the purchase method.
(See Notes 7 and 11)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Sahara Gaming and its wholly owned subsidiaries, primarily SNC, HHI, SFHI and
PHI (collectively, the "Company"). Amounts representing the Company's
percentage interest in less than majority-owned companies in which a
significant equity ownership interest is held are accounted for on the equity
method. (See Note 17) All material inter-company accounts and transactions have
been eliminated in consolidation.
Cash and Short-Term Investments
Investments which mature within 90 days from the date of purchase are treated
as cash equivalents and are included in cash and short-term investments.
Inventories
Food, beverage, gift shop and other inventories are stated at first-in,
first-out cost, not in excess of market.
Property and Equipment
Property and equipment are stated at cost. Costs of maintenance and repairs
of property and equipment are expensed as incurred. Costs of major improvements
are capitalized; gains or losses on disposals are recognized.
Depreciation and amortization are computed by the straight-line method over
the shorter of the estimated useful lives or lease terms. The length of
depreciation and amortization periods are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Goodwill 40
Buildings and improvements 7-40
Machinery and equipment 3-15
</TABLE>
29
<PAGE>
Goodwill
Goodwill is being amortized over a 40 year period. Management periodically
analyzes the amount of goodwill reflected on the balance sheet to ascertain
whether the operating profitability supports the unamortized goodwill. (See
Note 8.)
Federal Income Taxes
Deferred income taxes are provided on timing differences between pretax
financial statement income and taxable income resulting from different methods
of depreciation and amortization.
The Company adopted SFAS No. 109, Accounting for Income Taxes, in the quarter
ended December 31, 1993. This Statement supersedes Accounting Principles Board
Opinion No. 11, Accounting for Income Taxes, previously used by the Company.
The cumulative effect of adopting the accounting change did not result in any
material operating adjustments. Certain purchase accounting adjustments were
recorded relative to deferred taxes and property as a result of adopting SFAS
No. 109. (See Note 13)
Revenue Recognition
Casino revenue is recorded as gaming wins less losses. Operating revenues do
not include the retail amount of room, food, beverage and other services
provided gratuitously to customers. The estimated cost of providing these
services has been reported in the accompanying consolidated financial
statements as an expense of each department granting complimentary services.
The casino department has recorded 79%, 81% and 77% of total promotional
allowances in fiscal years ended September 30, 1994, 1993 and 1992,
respectively. The table below summarizes the departments costs of such
services. (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Food & Beverage $16,125 $14,146 $12,904
Hotel 3,933 3,523 4,011
Other 239 486 951
------- ------- -------
Total $20,297 $18,155 $17,866
======= ======= =======
</TABLE>
Indirect Expenses
Certain indirect expenses of operating departments such as utilities and
property expense and depreciation and amortization are shown separately in the
accompanying consolidated statements of operations and are not allocated to
departmental operating costs and expenses.
Reclassifications
Certain balances in the 1993 and 1992 financial statements have been
reclassified to conform with current year classifications.
Earnings Per Share
Net income (loss) per common share is computed by dividing net income (loss)
less the amount applicable to preferred stock, by the weighted average common
shares outstanding during the year. Fully diluted earnings per common and
common equivalent share are not presented since dilution is less than 3%.
30
<PAGE>
3. CASH AND SHORT-TERM INVESTMENTS
At September 30, 1994, approximately $12.2 million of the Company's
consolidated cash and short-term investments was held by PHI and was subject to
certain restrictions, including restrictions on its availability for
distribution to the Company, by the terms of an indenture pursuant to which
indebtedness of Pioneer Finance Corp. was issued, the proceeds of which were
loaned to PHI. PHI distributed $2.6 million in fiscal 1993 to the Company and
its subsidiaries and affiliates pursuant to the terms of the indenture. As of
September 30, 1994, PHI did not meet the conditions precedent to making a
distribution to the Company.
In addition, at September 30, 1994, approximately $30.6 million of the
Company's consolidated cash and short term investments was held by SFHI and was
subject to certain restrictions and limitations on its use, including
restrictions on its availability for distribution to the Company, by the terms
of an indenture pursuant to which indebtedness of SFHI was issued. In fiscal
1994, SFHI distributed $700,000 to the Company. As of September 30, 1994, SFHI
did not meet the conditions precedent to making distribution to the Company.
4. RESTRICTED CASH
Sahara Parkville, Inc., an indirect wholly-owned subsidiary of the Company,
borrowed from SFHI proceeds of $32.0 million from the Offering (see Note 9).
The proceeds are restricted for use in connection with the development and
construction of a proposed dockside riverboat gaming facility in Parkville,
Missouri. As of September 30, 1994, approximately $23.1 million was remaining
from the $32.0 million loan. The $8.9 million of disbursements was utilized as
follows: approximately $6.1 million was used to purchase a riverboat for the
site with respect to which Sahara Gaming had previously deposited approximately
$1.9 million, and approximately $2.8 million was paid for other expenses in
developing the proposed Parkville project, including approximately $1.7 million
in interim interest. (See Note 7).
5. ACCOUNTS RECEIVABLE, NET
Accounts receivable at September 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Casino and hotel $ 8,502,265 $ 8,471,869
Other 2,943,424 2,641,720
----------- -----------
Sub-total 11,445,689 11,113,589
Less allowance for doubtful accounts 3,538,639 3,477,663
----------- -----------
Total $ 7,907,050 $ 7,635,926
=========== ===========
</TABLE>
Changes in the allowance for doubtful accounts for the years ended September
30, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $3,477,663 $ 5,175,229 $ 7,322,791
Provision 348,534 645,095 581,546
Accounts written-off (287,558) (2,342,661) (2,729,108)
---------- ----------- -----------
Balance, end of year $3,538,639 $ 3,477,663 $ 5,175,229
========== =========== ===========
</TABLE>
6. ACCOUNTS RECEIVABLE, OFFICER
As of September 30, 1994 and 1993, included in Accounts Receivable, Officer
is an unsecured demand loan in the principal amount of $476,000, which,
together with accrued interest, totalled $501,000 and $489,000, respectively,
from HHI to LICO, a company wholly-owned by Paul W. Lowden, Chairman of the
Board, Chief Executive Officer and 51% stockholder of the Company. The loan
from HHI to LICO bears interest at the rate equal to 2% over the prime rate.
As of September 30, 1993, included in Accounts Receivable, Officer are a
loans totalling $1.9 million in the aggregate from the Company to Mr. Lowden.
The unsecured demand loans were evidenced by promissory notes and accrued
interest at a rate equal to 2% over the prime rate. On January 4, 1994, Mr.
Lowden repaid in full his loans to the Company, together with accrued interest
in the amount of $148,000.
31
<PAGE>
7. PROPERTY, PLANT AND EQUIPMENT, NET
In the Reorganization, the acquisition through merger of the Partnership's
minority interest was accounted for by the purchase method. Accordingly, the
Company recorded a step-up in the basis of the Partnership assets of $38.5
million, Preferred Stock of $15.0 million, Common Stock of $15,217 and
Additional Paid-In Capital of $21.6. Costs of approximately $.7 million
associated with the transaction were offset against the increase in Additional
Paid-In Capital. The $38.5 step-up in basis has been allocated to land,
machinery and equipment, and buildings and improvements based on appraisals and
managements' assessment of the fair values of the Partnership's assets.
In March 1994, the Company, through a wholly-owned subsidiary, purchased for
approximately $15.1 million a 40-acre parcel of land located in southeast Las
Vegas, for future development of a proposed casino hotel complex. The purchase
was financed with the proceeds from a private placement of $15 million
principal amount of 12% Notes. As of September 30, 1994, the Company had
recorded approximately $1.9 million in preliminary engineering and development
costs and $1.1 million representing capitalized interest. (See Notes 9 and 18)
During the 12-month period ended September 30, 1994, Sahara Parkville, Inc.,
capitalized $13.6 million in connection with the development of the proposed
dockside riverboat gaming facility. Of this amount, approximately $8.0 million
was used to purchase a riverboat for the site, approximately $2.8 million was
used for preliminary engineering and development expense and $2.8 million
represents capitalized interest. (See Notes 4 and 16)
The Company completed construction in December 1994 of an expansion of the
Santa Fe, including the addition of three themed restaurants, approximately 300
new slot machines, a dedicated bingo room, race book, and other public areas.
The cost of construction and equipment is approximately $14.0 million. As of
September 30, 1994, the Company had recorded approximately $2.4 million in
construction costs associated with the expansion. The expansion was financed
through working capital and equipment financing.
In November 1993, the Company acquired a 22-acre tract of property located
next to the Santa Fe. The Company acquired this property for $1.6 million, of
which amount $850,000 is payable pursuant to a note due October 1996. The
balance of the purchase price was paid in cash. In May 1994, the Company
acquired an additional four-acre tract adjacent to the Santa Fe. The entire
purchase price of $980,000 was paid in cash.
The Company completed construction in December 1994 of an expansion of the
Pioneer, including the addition of casino space, the addition of a special
events area and increased administrative and support areas. The cost of
construction and equipment is approximately $4.1 million. As of September 30,
1994, approximately $1.9 million in construction costs associated with the
expansion had been capitalized. The expansion was financed through working
capital and equipment financing.
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill is net of accumulated amortization of $7.8 million and $6.3 million
at September 30, 1994 and 1993, respectively. Amortization was $1.5 million in
1994, $1.4 million in 1993 and $1.4 million in 1992.
32
<PAGE>
9. LONG-TERM DEBT
Long-term debt, net of unamortized discount, at September 30, 1994 and 1993
was as follows:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
13 1/2% First Mortgage Bonds,
("13 1/2% Bonds") due 1998 $102,750,000 $102,750,000
12 1/8% First Mortgage Notes,
("12 1/8% Notes") due 1996 114,974,276 115,275,912
11% First Mortgage Notes,
("11% Notes") due 2000
Effective Rate--12.46% 116,232,141 -0-
11.875% Note payable to the Public Employees'
Retirement System of Nevada ("PERS") due 1995 22,233,416 22,569,015
12% Convertible Mortgage Notes
("12% Notes") due March 1995 15,000,000 -0-
10 1/4% Subordinated Sinking Fund Debentures ("10
1/4% Debentures"),
due 1998
Effective Rate 16.9% 11,593,111 13,246,071
Notes payable to Bank of America, due 1994 plus
interest (retired December, 1993) -0- 41,213,079
Note payable to Sierra Construction Corp., due
1998; interest at prime plus 2% 6,070,277 6,601,909
Other notes payable, collateralized primarily by
equipment 11,049,388 5,473,326
Obligations under capital leases 2,428,515 6,896,385
------------ ------------
$402,331,124 $314,025,697
Less current portion 23,238,239 12,245,235
------------ ------------
Total Long-term Debt $379,092,885 $301,780,462
============ ============
</TABLE>
The scheduled maturities of long-term debt (excluding capital leases) for
the years ending September 30 are as follows:
<TABLE>
<S> <C>
1995 $ 22,016,079
1996 142,167,985
1997 17,650,959
1998 35,755,353
1999 65,069,535
Thereafter 117,242,698
------------
Total $399,902,609
============
</TABLE>
The 13 1/2% Bonds, interest payable semi-annually, require annual sinking
fund payments of $12.75 million and $30.0 million in December 1996 and 1997,
respectively. The remaining principal balance is due December 1998. The 13
1/2% Bonds are secured by a first deed of trust on the Pioneer and were issued
by Pioneer Finance Corp., a wholly-owned subsidiary of the Company, are
guarantied by the Company, and are subject to certain covenants and conditions
including, among others, the following:
. PHI may not incur additional debt secured by assets of the Pioneer unless
certain conditions are met.
. PHI may not provide a loan to or invest in any affiliate nor make any
distribution or dividend unless certain conditions are met.
The 12 1/8% Notes, effective rate of 12 1/4%, have monthly principal and
interest payments of $1,206,440 until September 1, 1996, when the balance is
due. The 12 1/8% Notes are secured by a first deed of trust on the Sahara
Hotel and unsecured affiliates notes totalling $50,000,000 from HHI and SFHI.
The 12 1/8% Notes were
33
<PAGE>
issued by Sahara Finance Corp., a wholly-owned subsidiary of the Company, are
guarantied by the Company, and are subject to certain covenants and conditions,
including the following:
. SNC may not incur additional debt secured by assets of the Sahara Hotel
unless certain conditions are met.
. Require the partial or complete redemption of the 12 1/8% Notes if
certain events occur.
On December 29, 1993, SFHI consummated a public offering (the "Offering") of
11,500 units, with each unit consisting of $10,000 principal of the 11% Notes
and one warrant to acquire, for no additional consideration, an additional
$1,000 principal amount of the 11% Notes upon exercise no later than December
15, 1996. The 11% Notes are guarantied by the Company. Interest is payable
semi-annually on June 15 and December 15, at the rate of 11% per annum.
Assuming all warrants are exercised on December 15, 1996, the total principal
amount of 11% Notes to be paid at maturity will be $126.5 million and the
effective rate of interest per annum for the 11% Notes to maturity will be
12.46%. The 11% Notes are secured by, among other things, a first priority deed
of trust on the Santa Fe, pledge of the capital stock of Sahara Parkville,
Inc., and pledge of SFHI equity interest in Treasure Bay. The 11% Notes are
subject to certain covenants and conditions including the following:
. SFHI may not incur additional debt secured by assets of the Santa Fe
unless certain conditions are satisfied.
. SFHI may not provide a loan to or make any distribution or dividends to
any affiliate of the Company unless certain conditions are met.
. Require the partial or complete redemption of the 11% Notes if certain
events occur.
The PERS debt includes principal and interest of $257,807 payable monthly
through December 1995. Principal payments are based on a 30-year amortization
with renewal options in five year intervals after the initial 15 year term at
the lender's option. The Note is secured by a first deed of trust on the
Hacienda. Under the terms of the PERS loan agreement, HHI cannot incur
additional debt in excess of $3.0 million secured by any form of encumbrance on
the property securing the PERS note without prior approval from PERS.
On March 31, 1994, a wholly-owned subsidiary of the Company consummated a
private placement of $15 million principal amount of the 12% Notes due. The
principal amount of the 12% Notes and all accrued interest is due and payable
on March 31, 1995. The net proceeds of the private placement were used to
purchase real property in southeast Las Vegas, Nevada where the Company
considered the development of a casino entertainment complex. The 12% Notes are
guarantied by the Company and are secured by, among other things, a first
priority lien on the real property pursuant to the Deed of Trust relating
thereto. (See Notes 7 and 8)
The 10 1/4% Debentures have an effective interest rate of 16.9%, payable
semi-annually, and a principal balance of $13.5 million and $15.8 million less
unamortized discount of $1.9 million and $2.6 million on September 30, 1994 and
1993, respectively; the 10 1/4% Debentures have an annual sinking fund payment
obligation of $2.3 million. The 10 1/4% Debentures restrict the payment of cash
dividends on any of the Company's capital stock to the aggregate consolidated
net income of the Company from September 30, 1982 to the end of the most recent
fiscal quarter preceding the date of declaration of the dividend. As of
September 30, 1994, the Company has realized a consolidated net loss of $37.5
million since October 1, 1982. Stock dividends are not so restricted.
The note payable to Sierra Construction Corp. bears interest at prime plus 2%
(9.75% at September 30, 1994); payable interest only through November 1993; and
thereafter in monthly installments of principal and interest of $89,099
commencing December 1993. The balance is due in December 1998.
On December 7, 1994, SFHI borrowed $3 million pursuant to a working capital
loan agreement with Miller & Schroeder Investments Corporation. The loan, which
bears interest at an annual rate of 11%, is guarantied by Sahara Gaming.
Interest only on the loan is payable monthly through March 1995; thereafter,
principal and interest is payable on a monthly basis through December 1, 1996.
34
<PAGE>
10. LEASES
All non-cancelable leases have been classified as capital or operating
leases. At September 30, 1994, the Company had leases for personal and real
property which expire in various years to 2078. Under most leasing
arrangements, the Company pays the taxes, insurance and the operating expenses
related to the leased property.
Equipment leased under capital leases was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------
1994 1993
---------- -----------
<S> <C> <C>
Equipment $6,069,000 $15,339,000
Less accumulated amortization 3,132,000 6,990,000
---------- -----------
Total $2,937,000 $ 8,349,000
========== ===========
</TABLE>
Amortization of assets leased under capital leases is included in
depreciation and amortization expense in the Consolidated Statements of
Operations.
Future minimum lease payments as of September 30, 1994 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
---------- -----------
<S> <C> <C>
1995 $1,445,479 $ 796,390
1996 609,199 730,459
1997 484,860 719,018
1998 323,381 720,741
1999 0 690,196
Thereafter 0 50,486,029
---------- -----------
2,862,919 $54,142,833
---------- ===========
Less amount representing
interest 434,404
----------
Present value of minimum lease
payments $2,428,515
==========
</TABLE>
11. STOCKHOLDERS' EQUITY
In the Reorganization, each of the 3,435,000 outstanding shares of Sahara
Resorts was converted into one share of the Company's Common Stock, and each of
the 7,000,000 outstanding Units of the Partnership was converted into .2174 of
a share of the Company's Common Stock (a 4.6:1 exchange ratio) and one share of
the Company's Exchangeable Redeemable Preferred Stock, $2.14 liquidation
preference per share (the "Preferred Stock"). A subsidiary of Sahara Resorts
received .2174 of a share of the Company's Common Stock for each of its
11,300,000 limited partner interests in the Partnership and 81,189 shares of
the Company's Common Stock for its 2% general partner interest in the
Partnership. The shares of the Company's Common Stock received by the
Subsidiary of Sahara Resorts were ultimately transferred as a dividend to the
Company and have been accounted for as retired.
At the election of the Company, the Preferred Stock is redeemable, in whole
or in part, at any time and from time to time at a redemption price equal to
the per share liquidation preference of $2.14 plus (i) an amount equal to all
accrued but unpaid dividends, whether or not declared, plus, (ii) under certain
circumstances relating to asset dispositions and mergers, an additional amount
determined in accordance with the Certificate of Determination of the Preferred
Stock (the "Liquidation Preference"). Additionally, at the election of the
Company, if any shares of Preferred Stock have not been redeemed on or prior to
the tenth dividend payment date from the issuance of the Preferred Stock, such
shares may be exchanged from time to time for Junior Subordinated Notes of the
Company. The principal amount of the Junior Subordinated Notes, if issued, will
be equal to the liquidation preference of the Preferred Stock for which such
notes are exchanged. The Junior Subordinated Notes will mature on September 30,
2008, and will bear interest at an annual rate of 11%, payable semi-annually.
On January 25, 1994, the Company announced a 25% stock dividend on the Common
Stock payable on February 25, 1994, to stockholders of record on February 4,
1994. The accompanying financial statements have been adjusted to give effect
to this stock dividend as if it has occurred as of the earliest period
presented.
35
<PAGE>
In March and September 1994, the Company declared a semi-annual dividend on
its Preferred Stock, pursuant to the terms of the Certificate of Designation
with respect to the Preferred Stock. Each semi-annual dividend was paid in
shares of Preferred Stock in an amount equal to .04 of a share for each share
of Preferred Stock. Cash was paid in lieu of fractional shares.
12. STOCK OPTION PLAN
The Company has a Key Employee Stock Option Plan (the "Stock Option Plan")
providing for the grant of up to 319,375 shares of its common stock to
consultants, directors and key employees. The Stock Option Plan provides for
both incentive stock options and non-qualified stock options. As of September
30, 1994, there are 61,250 options outstanding under the Stock Option Plan,
including 46,250 options granted under the Sahara Resorts 1983 Key Employee
Stock Option Plan which were converted on a one-for-one basis into options
under the Stock Option Plan in connection with the Reorganization. The
outstanding options have exercise prices ranging from $22.60 to $3.30 per
share.
13. FEDERAL INCOME TAXES
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109. Under SFAS No. 109, deferred income taxes reflect
the net effects of (a) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes, and (b) operating loss and tax credits carryforwards.
The cumulative effect on prior years of this change in accounting principle was
not material. Deferred income taxes of $11.0 million were recorded as of
October 1, 1993 as a result of the purchase accounting associated with the
incorporation of the Company's investment in a publicly traded partnership. The
Company has recognized approximately $18.7 million in federal income tax
benefit for financial reporting purposes based on book losses.
The provision (benefit) for income taxes attributable to income from
continuing operations consisted of:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 1994 1993 1992
----------------------- ------- ----- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current -- -- --
Deferred $(7,059) $(103) $(2,877)
------- ----- -------
Total provision (benefit) $(7,059) $(103) $(2,877)
======= ===== =======
</TABLE>
The provision (benefit) for income taxes attributable to income from
continuing operations differs from the amount computed at the federal income
tax statutory rate as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 1994 1993 1992
----------------------- ------- ----- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Amount at statutory rate $(7,979) $(410) $(3,180)
Goodwill 522 307 303
Lobbying costs 170
Other 228 -- --
------- ----- -------
$(7,059) $(103) $(2,877)
======= ===== =======
</TABLE>
36
<PAGE>
The components of the deferred tax liability consisted of the following:
<TABLE>
<CAPTION>
AT SEPTEMBER 30 1994 1993
--------------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities
Inventories and prepaid expenses $ 738 $ 757
Fixed asset cost, depreciation and
amortization, net 20,176 6,197
Original issue discount -- 585
------- ------
Gross deferred tax liabilities $20,914 $7,539
------- ------
Deferred tax assets
Net operating loss carryforward $11,152 $5,485
Reserves for accounts and contracts
receivable 1,217 1,112
Original issue discount 3,600 --
------- ------
Gross deferred tax assets $15,969 $6,597
------- ------
$ 4,945 $ 942
======= ======
</TABLE>
At September 30, 1994, the Company has a net operating loss carryforward for
regular income tax purposes of approximately $32.0 million, which expires by
the year 2009. The Company has not recorded a valuation allowance to reduce the
carrying value of the deferred tax assets since these assets arose principally
from temporary differences which will reverse within the prescribed
carryforward period or will be recognized in periods corresponding to the
reversal of certain of the deferred tax liabilities.
14. BENEFIT PLANS
The Company contributes to multi-employer pension plans under various union
agreements to which SNC and HHI are a party. Contributions, based on wages paid
to covered employees, were approximately $1.9 million, $1.7 million, and $1.7
million for the years ended September 30, 1994, 1993, and 1992, respectively.
The Company's share of any unfunded liability related to multi-employer plans,
if any, is not determinable.
Effective February 1, 1990, the Company adopted a savings plan (the "Plan")
qualified under Section 401(k) of the Internal Revenue Code of 1986, as
amended. The Plan covers substantially all employees who are not covered by a
collective bargaining unit. The Company's matching contributions paid in 1994,
1993, and 1992, were $89,000, $86,000, and $65,000, respectively.
15. RELATED PARTIES
LICO, a company wholly-owned by Mr. Lowden, Chairman of the Board, Chief
Executive Officer and 51% stockholder of the Company, had borrowed $476,000
from Hacienda Inc., pursuant to an unsecured demand loan. The outstanding
balance of the loan including accrued interest was $501,000 as of September 30,
1994. The demand loan to LICO bears interest at 2% over the prime rate.
LICO provides entertainment services to the Company. Entertainment expense
incurred for services provided by LICO was $3.5 million, $3.0 million and $1.1
million for fiscal years 1994, 1993 and 1992, respectively.
As of September 30, 1993, Mr. Lowden had borrowed an aggregate of $1.9
million from the Company. The unsecured demand loans were evidenced by
promissory notes and accrued interest at a rate equal to 2% over the prime
rate. On January 4, 1994, Mr. Lowden repaid the loans from the Company in full,
together with accrued interest.
In November 1993, Mr. Lowden and Bank of America entered into a personal loan
agreement whereby the principal balance (approximately $4.875 million as of
October 31, 1994) of the loan is amortized through quarterly principal payments
through April 1998, with any remaining principal balance due July 31, 1998. The
loan is secured by substantially all of Sahara Gaming's common stock (the
"Pledged Shares"), owned by Mr. Lowden. Mr. Lowden's loan agreement provides
that in the event the market value of the Pledged Shares is less than three
times the outstanding loan balance, the bank, at its sole option, may require
either an immediate
37
<PAGE>
reduction in the outstanding balance or the pledging of additional collateral
acceptable to the bank such that the value of the pledged collateral is at
least three times the outstanding loan balance. The market value of the Pledged
Shares is less than three times the outstanding loan balance. Mr. Lowden and
the bank are in discussions regarding the collateral supporting the loan. If an
event of default were to occur under his personal loan with the bank, and if
the bank acquired the Pledged Shares upon foreclosure, Mr. Lowden's ownership
of Sahara Gaming's outstanding common stock would be reduced to below 50%. If
Mr. Lowden ceases to own more than 50% of the outstanding shares of Sahara
Gaming's common stock, an event of default would be triggered under certain of
Sahara Gaming's long-term indebtedness, which would result in cross-defaults
under substantially all of Sahara Gaming's other long-term indebtedness,
including the Notes.
16. PARKVILLE DEVELOPMENT
Sahara Parkville Inc., ("Parkville Inc.") a Missouri corporation and a wholly
owned subsidiary of Santa Fe Inc. ("SFHI") was formed in 1993 to develop, own
and operate a dockside casino in the City of Parkville, Missouri. Parkville
Inc. has entered into a lease agreement with the City of Parkville for the site
of the proposed development, which is located approximately ten miles from
Kansas City, Kansas and Kansas City, Missouri.
A state constitutional amendment to permit, among other things, games of
chance in Missouri, and a local resolution to permit the licensing of excursion
gambling boats and floating facilities in Parkville were each approved by
voters in November 1994, after previously failing to be approved at the state
level in April 1994 and in local elections in April and August 1994. The delay
in the voter approval has increased project costs and delayed the proposed
development of the Parkville casino.
The development of the Parkville casino is subject to substantial
uncertainties, as discussed below, including the granting of necessary gaming
and other licenses and certain other approvals, commencement and completion of
construction, and the negotiation of additional agreements, as well as the
risks inherent in the establishment of a new business enterprise. In order to
use the vessel purchased for the Parkville casino, Parkville Inc. will be
required to obtain a gaming license permitting a dockside, rather than
"cruising", riverboat gaming. An application has been made for a gaming license
for the casino with the Missouri Gaming Commission. There can be no assurance
as to when or if Parkville Inc. will receive the gaming license necessary for
it to commence dockside gaming operations and the earliest the Missouri Gaming
Commission would commence its investigation of Parkville Inc. would be early
1995. An investigation typically takes at least several months to complete. No
assurance can be given that Parkville Inc. will be chosen for investigation in
early 1995.
In addition, if Parkville Inc. is not licensed or if the construction of the
proposed facility is not complete by June 30, 1995, Parkville Inc. will be
unable to commence operations by that date and Santa Fe Hotel Inc. will be
required under the terms of the indenture under which the 11% Notes were issued
to offer to repurchase that principal amount of 11% Notes purchasable with the
funds remaining in the Parkville collateral account and obtained upon
disposition of assets related to the project (unless waivers are obtained from
the holders of the 11% Notes). Based on current development and construction
plans, the Company does not believe the facility can be completed and operating
before June 30, 1995. Therefore, the Company currently intends to seek approval
from the holders of the 11% Notes, for among other things, an extension of the
date by which operations of the proposed Parkville casino must be commenced
before Parkville Inc. is required to commence the repurchase offer. No
assurance can be given that if such approval is sought that it will be
obtained. In the event Parkville Inc. is required to commence a repurchase
offer, the holders of warrants to acquire additional 11% Notes will be
entitled, for a 30 business day period, to acquire for no additional
consideration up to an additional $11.5 million principal amount of the 11%
Notes.
The estimated total cost of the Parkville project was originally expected to
be approximately $38.5 million. As a result of the delay in commencing
construction of the proposed facility, revisions to the scope of the project,
and increased construction costs associated with the project, it is currently
estimated that the project will cost approximately $50.0 million. As of
September 30, 1994, Parkville Inc. had capitalized $13.6 million in connection
with the development of the proposed dockside riverboat gaming facility. Of
this amount, approximately $8.0 million was used for the purchase of the
riverboat for the site, approximately $2.8 million was used for preliminary
engineering and development expenses and approximately $2.8 million represents
capitalized interest.
38
<PAGE>
Parkville Inc. borrowed $32.0 million from the proceeds of the offering of
the 11% Notes, which is restricted for use in connection with the Parkville
development. The balance of the originally budgeted project cost was expected
to be financed through equipment financing and an equity contribution from
SFHI. As of September 30, 1994, approximately $23.1 million is available from
the $32.0 million dedicated for the Parkville development. Of the amount
disbursed, approximately $6.1 million had been used to purchase a riverboat for
the site with respect to which approximately $1.9 million had been previously
deposited, and approximately $2.8 million had been spent on other expenses in
developing the proposed facility, including approximately $1.7 million in
interim interest. The balance of the anticipated cost of the project in excess
of the originally budgeted amount is expected to be financed to the extent
permitted by the indenture under which the 11% Notes were issued, through
equipment financing, other financing sources and, if necessary, through
additional loans or equity investments from Sahara Gaming, although no
assurance can be given that the additional necessary funds will be available.
17. TREASURE BAY
In April 1994, SFHI purchased from Treasure Bay Gaming & Resorts, Inc.
("Treasure Bay") for $10.0 million approximately 20% of Treasure Bay's common
stock and 33 1/3% of Treasure Bay's preferred stock. Sahara Gaming also
unconditionally guaranteed the payment of $4.5 million of indebtedness of
Treasure Bay incurred to finance working capital in connection with the opening
of Treasure Bay's casinos, $3.3 million of which was outstanding at September
30, 1994. Sahara Gaming has been advised that Treasure Bay's cash position is
inadequate to meet its current and planned expenses including, without
limitations, short and long-term debt service and accumulated construction
payables, and Treasure Bay is in violation of its various financing
arrangements. In November 1994, creditors of Treasure Bay initiated bankruptcy
proceedings with respect to Treasure Bay. Sahara Gaming has been advised by
Treasure Bay that on December 9, 1994, Treasure Bay challenged the initiation
of such proceedings.
In October 1994, Sahara Gaming received notices from the lender of the
Treasure Bay working capital indebtedness of payment defaults by Treasure Bay
with respect to this indebtedness. In December 1994, SFHI purchased this
indebtedness from the lender. Pending resolution of the Treasure Bay bankruptcy
proceedings, SFHI does not expect to receive current payment on this
indebtedness, and no assurance can be given that it will ultimately be repaid.
In connection with its stock purchase, SFHI entered into a management
agreement with Treasure Bay. Treasure Bay notified the Company on December 9,
1994 that Treasure Bay was assuming management control of the Treasure Bay
properties and alleged that Sahara Gaming was in default thereunder and had
mismanaged the Treasure Bay properties. Sahara Gaming believes that the
allegations are without merit and it intends to pursue its remedies vigorously.
Treasure Bay has defaulted in its payment obligations under the management
agreement for all payments due for the period July 1994 to the present.
In light of Treasure Bay's financial condition, Sahara Gaming has recorded a
$12.6 million charge against income in the fourth quarter of fiscal 1994 in
connection with its investment in Treasure Bay.
18. HENDERSON, NEVADA PROJECT
On March 31, 1994, a wholly-owned subsidiary of Sahara Gaming purchased real
property in Henderson, Nevada, located in the southeast Las Vegas valley on
which the Company considered developing a casino entertainment complex. The net
proceeds from a private placement of $15.0 million principal amount of 12%
Notes were used to acquire the property. The principal amount of the 12% Notes
and all accrued interest is due and payable on March 31, 1995. The 12% Notes
are guarantied by Sahara Gaming and are secured by, among other things, a first
priority lien on the real property pursuant to the deed of trust relating
thereto. As of September 30, 1994, Sahara Gaming has incurred approximately
$16.9 million in development of the project, representing the land acquisition
costs and preliminary engineering and development costs.
Sahara Gaming has entered into an agreement to sell the property. The sale is
subject to several contingencies, including satisfactory completion of a due
diligence review and approval of the transaction by the purchaser's Board of
Directors. Proceeds from the sale, if consummated, will be used to repay the
indebtedness incurred to finance the acquisition of the site. Additionally,
pursuant to the agreement to sell the property, Sahara Gaming's expenses
incurred in the development of the proposed project will be reimbursed over a
three-year period.
39
<PAGE>
If the sale is not consummated, Sahara Gaming will attempt to negotiate an
extension of the maturity date of the 12% Notes and to sell the property to
another purchaser or, potentially, to obtain financing for the development of
the proposed project. No assurance can be given that, if necessary, Sahara
Gaming will be successful in obtaining an extension of the maturity date or
locating another purchaser for the property. If the proposed sale is not
consummated and the holders of the 12% Notes were to demand payment at
maturity, Sahara Gaming would not have sufficient cash resources to repay the
12% Notes and would default in the payment thereof, which would result in
cross-default under substantially all of the Company's long-term indebtedness.
19. CONTINGENCIES
The Company and its predecessor, Sahara Casino Partners, L.P., are defendants
in two class action lawsuits filed in the United States District Court,
District of Florida, Orlando Division, entitled Poulos v. Caesar's World, Inc.,
et al. and Ahern v. Caesar's World, Inc., et al. which have been consolidated
in a single action. Also named as defendants in these actions are many, if not
most, of the largest gaming companies in the United States and certain gaming
equipment manufacturers. Each complaint is identical in its material
allegations. The actions allege that the defendants have engaged in fraudulent
and misleading conduct by inducing people to play video poker machines and
electronic slot machines based on false beliefs concerning how the machines
operate and the extent to which there is actually an opportunity to win on a
given play. The complaints allege that the defendants' acts constitute
violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO")
and also give rise to claims for common law fraud and unjust enrichment, and it
seeks compensatory, special consequential, incidental and punitive damages of
several billion dollars.
In response to the complaints, all of the defendants, including the Company
and the Partnership, filed motions attacking the pleadings for failure to state
a claim, seeking to dismiss the complaints for lack of personal jurisdiction
and venue, and seeking to transfer venue of the actions to Las Vegas. The Court
has granted the defendants' motion to transfer venue of the action to Las
Vegas. Plaintiffs have responded to all motions and have also propounded
discovery with respect to each defendant on jurisdiction, venue and class
issues. The Company expects that there will be further briefing on the motions,
and the Court has not indicated when it will rule on these motions. Plaintiffs
have also filed their motion to certify the class. A representative group of
the defendants took the deposition of each plaintiff and also obtained
documents from the plaintiffs. It is not known when the Court will rule on the
class certification motions.
On December 12, 1994, the Company and Santa Fe Inc. filed a lawsuit in the
United States District Court, District of Nevada, naming Treasure Bay officers
A. Clay Rankin III, Joe N. Hendrix and Bernie Burkholder, and former officer
Francis L. Miller as defendants in matters involving violations of Section
10(b) and Rule 10(b)-5 of the Securities Exchange Act, violation of Nevada
state securities laws, fraud and negligent misrepresentation in connection with
the Company's investment of $10 million in exchange for a 20% interest in
Treasure Bay, and the Company's guarantee of $4.5 million of Treasure Bay's
indebtedness. The defendants have not yet responded to the complaint.
On December 15, 1994, Francis L. Miller filed a lawsuit in the Mississippi
Circuit Court, Second Judicial District, against the Company and Santa Fe Inc.
as well as Paul W. Lowden and Suzanne Lowden, alleging, among other things,
that the Company made certain misrepresentations which induced Francis Miller
to entrust the management of his investments in Treasure Bay's two Mississippi
casinos to the Company and Santa Fe Inc. and to sell the Company and Santa Fe
Inc. a 20% ownership interest in Treasure Bay. The Company and Santa Fe Inc.
have not yet responded to the complaint. The Company and Santa Fe Inc. believe
that the suit is without merit and intend to defend themselves vigorously while
pursuing their own lawsuit.
In addition, the Company is subject to various lawsuits relating to routine
matters incidental to its business. The Company does not believe that the
outcome of such litigation, in the aggregate, will have a material adverse
effect on the Company.
40
<PAGE>
20. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
Supplemental statement of cash flows information is presented below:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Cash paid during the period for
interest, net of amount capitalized
of $1,764,186 for 1994 $38,610,465 $37,138,747 $37,985,456
=========== =========== ===========
Investing and financing activities:
Capital Lease obligations incurred in
connection with the acquisition of
machinery and equipment $ 66,983 $ 708,708 $ 180,000
=========== =========== ===========
Long-term debt incurred in connection
with the acquisition of machinery and
equipment $ 4,019,070 $ 9,674,527
=========== ===========
Preferred stock dividends at
liquidation value $ 1,221,715
===========
Acquisition of minority interest
through the issuance of common and
preferred stock resulting in additions
to property, plant and equipment, and
goodwill $36,606,777
===========
Adjustment to property, plant and
equipment under adoption of SFAS No.
109 $11,062,602
===========
</TABLE>
21. SUPPLEMENTAL STATEMENT OF SUBSIDIARY INFORMATION
The Company's primary operations are in the hotel/casino industry and are
conducted through Sahara Nevada Corp., Hacienda Hotel Inc., Pioneer Hotel Inc.
and Santa Fe Hotel Inc. The operations by subsidiary were as set forth in the
following table (dollars in thousands):
<TABLE>
<CAPTION>
YEAR SNC HHI PHI SFHI OTHER TOTAL
---- -------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues 1994 $ 86,825 $53,826 $ 49,270 $ 64,131 $ (34) $254,018
======== ======= ======== ======== ======= ========
1993 83,251 53,896 53,823 53,305 490 244,765
======== ======= ======== ======== ======= ========
1992 73,406 46,615 55,166 44,300 32 219,519
======== ======= ======== ======== ======= ========
Operating income (loss) 1994 $ 7,215 $ 2,592 $ 9,424 $ 14,697 $ (955) $ 32,973
======== ======= ======== ======== ======= ========
1993 7,022 5,013 13,917 11,403 (715) 36,640
======== ======= ======== ======== ======= ========
1992 3,555 2,900 18,144 6,002 (1,127) 29,474
======== ======= ======== ======== ======= ========
Identifiable Assets 1994 $108,895 $81,143 $105,971 $146,317 $36,229 $478,555
======== ======= ======== ======== ======= ========
1993 111,044 79,015 109,884 75,264 19,882 395,089
======== ======= ======== ======== ======= ========
1992 110,380 64,349 113,701 56,256 14,938 359,624
======== ======= ======== ======== ======= ========
Depreciation and
Amortization 1994 $ 8,211 $ 5,199 $ 5,063 $ 7,574 $ 658 $ 26,705
======== ======= ======== ======== ======= ========
1993 7,490 4,996 4,985 5,542 380 23,393
======== ======= ======== ======== ======= ========
1992 7,258 4,949 4,897 5,918 300 23,322
======== ======= ======== ======== ======= ========
Capital Expenditures 1994 $ 3,559 $ 2,875 $ 1,741 $ 19,598 $16,394 $ 44,167
======== ======= ======== ======== ======= ========
1993 5,412 5,377 1,782 1,015 578 14,164
======== ======= ======== ======== ======= ========
1992 3,875 713 420 323 205 5,536
======== ======= ======== ======== ======= ========
</TABLE>
41
<PAGE>
SAHARA GAMING CORPORATION
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Revenues
First Quarter $ 61,430,877 $ 58,596,283
Second Quarter 64,984,262 62,102,393
Third Quarter 64,268,323 61,879,817
Fourth Quarter 63,334,127 62,186,349
------------ ------------
$254,017,589 $244,764,842
============ ============
Operating Income
First Quarter $ 8,138,561 $ 9,257,281
Second Quarter 9,974,441 10,687,425
Third Quarter 9,723,455 9,545,366
Fourth Quarter 5,136,276 7,149,751
------------ ------------
$ 32,972,733 $ 36,639,823
============ ============
Net Income (Loss)
First Quarter $ (1,201,613) $ (371,217)
Second Quarter (1,411,786) 550,718
Third Quarter (1,308,329) 15,228
Fourth Quarter (11,817,282) (1,284,629)
------------ ------------
$(15,739,010) $ (1,089,900)
============ ============
Net Income (Loss) per Common
Share
First Quarter $ (.24) $ (.08)
Second Quarter (.28) .13
Third Quarter (.26) .00
Fourth Quarter (1.96) (.30)
------------ ------------
$ (2.74) $ (.25)
============ ============
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the directors and executive officers of the Company
to be included in the Company's Proxy Statement for the 1995 Annual Meeting of
Stockholders (the "Proxy Statement") is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding Executive Compensation to be included in the Proxy
Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding Security Ownership to be included in the Proxy
Statement is incorporated herein by reference.
42
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding Certain Relationships and Related Transactions to
be included in the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. AND 2. FINANCIAL STATEMENTS AND SCHEDULES
The financial statements and schedules filed as part of this report
are listed in the Index to Consolidated Financial Statements under
Item 8.
(B) REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF 1994.
The Registrant filed a Current Report on Form 8-K dated September
15, 1994, under Item 5, Other Events, reporting, among other things,
certain information relating to certain recent developments with
respect to Treasure Bay Gaming & Resorts, Inc. and the Company's
proposed casino development in Parkville, Missouri.
(C) EXHIBITS REQUIRED BY SECURITIES AND EXCHANGE COMMISSION REGULATION S-K:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
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<C> <S>
3.1 Articles of Incorporation and Bylaws of the Company (Previously
filed with the Securities and Exchange Commission as an exhibit to
the Company's Registration Statement on Form S-4 (No. 33-67864) and
incorporated herein by reference.)
3.2 Certificate of Designation for Exchangeable Redeemable Preferred
Stock. (Previously filed with the Securities and Exchange Commission
as an exhibit to the Company's Registration Statement on Form S-4
(No. 33-67864) and incorporated herein by reference.)
4.1 Indenture dated as of June 15, 1983 between Hacienda Resorts, Inc.
and Valley Bank of Nevada, as Trustee, with respect to the Company's
10 1/4% Subordinated Sinking Fund Debentures due 1998. (Previously
filed with the Securities and Exchange Commission as an exhibit to
the Registration Statement of Hacienda Resorts, Inc. on Form S-1
(No. 2-82796) and incorporated herein by reference.)
10.1 Form of Indenture (the "Pioneer Indenture") between Pioneer Finance,
the Partnership and Security Pacific National Bank, as Trustee,
relating to the 13 1/2% First Mortgage Bonds Due 1998 of Pioneer
Finance (the "Bonds"). (1)
10.2 Form of Bonds (included as an exhibit to the Pioneer Indenture). (1)
10.3 Form of Purchase Money Note relating to the acquisition of the
Pioneer Hotel and Gambling Hall (the "Pioneer Acquisition")
(included as an exhibit to the Pioneer Indenture). (1)
10.4 Form of Purchase Money Deed of Trust relating to the Bonds (included
as an exhibit to the Pioneer Indenture). (1)
10.5 Form of Guaranty of the Partnership relating to the Bonds (included
in the Pioneer Indenture). (1)
10.6 Form of Assignment Agreement from Pioneer Finance Corp. to the
Trustee relating to the Bonds (included as an exhibit to the Pioneer
Indenture). (1)
10.7 Form of Subordination Provision relating to the Bonds (included as
an Exhibit to the Pioneer Indenture). (1)
10.8 Form of Pari Passu Certificate relating to the Bonds (included as an
exhibit to the Pioneer Indenture). (1)
10.9 Depositary and Transfer Agent Agreement including Form of Depositary
Receipt and Form of Certificate of Limited Partners' Interest. (2)
10.10 Tax Services Agreement between the Partnership and CLR Fast-tax. (4)
10.11 Acquisition Agreement relating to the Pioneer Acquisition. (1)
10.12 Pioneer Ground Lease, as amended. (1)
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.13 Conformed Lessor's Agreement dated as of November 16, 1988 among
Lessor, Lessee and Pioneer Operating Partnership relating to the
Pioneer Acquisition. (1)
10.14 Promissory Note in the amount of $25,300,000.00 dated December 23,
1980 between Casino Properties and the Public Employees Retirement
System of Nevada, along with Deed of Trust and Assignment of Rents,
Guaranty Agreement of Paul W. Lowden, Subordination Agreement of
Valley Bank of Nevada, Security Agreement and Collateral Assignment
of Agreement, each dated on or about December 23, 1980. (3)
10.15 Net Parking Lease by and between Sahara Las Vegas and Sahara
Operating Partnership dated July 30, 1987 and Amendment thereto. (3)
10.16 Standard Form of Agreement between Owner and Contractor by and
between Sahara Operating Partnership and Sierra Construction Corp.(3)
10.17 Amendments dated February 25, 1985 relating, respectively, to the
Promissory Note and Deed of Trust referred to in Exhibit 10.14. (3)
10.18 Notes secured by liens on office building in Las Vegas, Nevada in
the original principal amounts of $301,598.05, $23,337.96 and
$649,063.99 bearing interest at 10%, 11% and 13.5% per annum,
respectively. (3)
10.19 Promissory Note in the amount of $4,500,000 dated September 1, 1987
from Sahara Las Vegas to the Partnership. (2)
10.20 Indenture dated as of August 17, 1989 among Sahara Finance, the
Partnership and U.S. Trust Company of California, N.A., as trustee
(the "Note Trustee"), and related First Supplemental lndenture dated
as of October 5, 1989 relating to Sahara Finance's 12 1/8%
Guarantied First Mortgage Notes Due 1996 (the "First Mortgage
Notes"). (4)
10.21 Form of Sahara Finance's 12 1/8% Guarantied First Mortgage Notes due
1996. (4)
10.22 Secured Promissory Note dated August 17, 1989 in the amount of
$116,200,000 issued by Sahara Operating Partnership in favor of
Sahara Finance. (4)
10.23 Deed of Trust and Security Agreement with Assignment of Rents and
Fixture Filing dated as of August 17, 1989 from Sahara Operating
Partnership to Nevada Title Company. (4)
10.24 Guarantee by the Partnership relating to the First Mortgage Notes
(included in the Indenture referred to in Exhibit 10.20).
10.25 Assignment Agreement dated August 17, 1989 between Sahara Finance,
as Assignor, and the Note Trustee, as Assignee, and acknowledged by
Sahara Operating Partnership. (4)
10.26 Note Purchase Agreement dated August 17, 1989 by and among Sahara
Finance, the Partnership, Sahara Operating Partnership and Solomon
Brothers Realty Corp. (4)
10.27 Disbursement and Escrow Agreement dated as of August 17, 1989 among
Sahara Finance, as Lender, Sahara Operating Partnership, as
Borrower, and Nevada Construction Services, as Agent, Amendment
thereto dated as of August 31, 1989 and Second Amendment thereto
dated as of October 5, 1989. (4)
10.28 Assignment of Leases, Rents and Revenues dated as of August 17, 1989
from Sahara Operating Partnership to Sahara Finance. (4)
10.29 Guarantee of Completion dated as of August 17, 1989 by the
Partnership to Sahara Finance. (4)
10.30 Assignment of Structural Engineer's Agreement dated as of August 17,
1989 by Sahara Operating Partnership to Sahara Finance. (4)
10.31 Assignment of Contracts, Warranties, Licenses, Permits and Plans and
Specifications dated as of August 17, 1989 by Sahara Operating
Partnership to Sahara Finance. (4)
10.32 Assignment of Affiliate Notes and Security Agreements dated as of
August 17, 1989 by Sahara Operating Partnership to Sahara Finance,
and Amendment thereto dated as of October 5, 1989. (4)
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.33 Assignment of General Contractor's Agreement dated as of August 17,
1989 by Sahara Operating Partnership to Sahara Finance. (4)
10.34 Assignment of Airspace Lease and Consent dated as of August 17, 1989
by Sahara Operating Partnership to Sahara Finance. (4)
10.35 Assignment of Architect's Contract dated as of August 17, 1989 by
Sahara Operating Partnership to Sahara Finance. (4)
10.36 Security Agreement dated August 17, 1989 by and between Sahara
Operating Partnership and Santa Fe Operating Partnership, and
Amendment thereto dated as of October 5, 1989. (4)
10.37 Security Agreement dated August 17, 1989 by and between Sahara
Operating Partnership and Hacienda Operating Partnership, and
Amendment thereto dated as of October 5, 1989. (4)
10.38 Security Agreement dated August 17, 1989 by and between Sahara
Finance and Sahara Operating Partnership. (4)
10.39 Amended and Restated Santa Fe Hotel and Casino Note as of August 17,
1989 in the principal amount of $18,181,818 issued by the Santa Fe
Operating Partnership to Sahara Operating Partnership. (4)
10.40 Amended and Restated Hacienda Note dated as of August 17, 1989 in
the principal amount of $32,323,232 by the Hacienda Operating
Partnership to Sahara Operating Partnership. (4)
10.41 Quality Construction Consultant Agreement dated August 17, 1989 by
and among the Trustee, Etc Testing Laboratories, Inc., and Sahara
Operating Partnership. (4)
10.42 Construction Consultant Agreement dated August 17, 1989 by and among
the Trustee, Nevada Construction Services and Sahara Operating
Partnership. (4)
10.43 Third and Fourth Amendments dated, respectively, December 21, 1988
and August 17, 1989 to the Net Parking Lease referred to in Exhibit
10.15. (4)
10.44 Agreement Between Owner and Contractor dated August 11, 1989 between
Sahara Finance and Sierra Construction Corp. relating to the Sahara
Project. (4)
10.45 Structural engineering consulting services agreements dated,
respectively, July 25, 1989 and August 3, 1989 between Sahara
Operating Partnership and Martin Pulsion & Associates, Inc. (4)
10.46 Architect's agreement dated August 10, 1989 between the Partnership
and Fred Dared regarding the Sahara Project. (4)
10.47 Architect's agreement dated August 10, 1989 between the Partnership
and Fred Dared regarding the Hacienda Project. (4)
10.48 Architect's agreement dated August 10, 1989 between the Partnership
and Quadrille Garlic and Associates regarding the Santa Fe Hotel and
Casino construction. (4)
10.49 Agreement Between Owner and Contractor dated August 11, 1989 between
Sahara Finance and Sierra Construction Corp. relating to the Santa
Fe construction. (4)
10.50 Agreement Between Owner and Contractor dated August 11, 1989 between
Sahara Finance and Sierra Construction Corp. relating to the
Hacienda Expansion. (4)
10.51 Environmental Indemnity Agreement dated as of August 17, 1989 among
Sahara Operating Partnership, Sahara Finance and the Partnership.
(4)
10.52 Amendments to Deed of Trust and Promissory Note between Casino
Properties and the Public Employees Retirement System of Nevada
referred to in Exhibit 10.14 hereto. (5)
10.53 Sahara Resorts Key Employee Stock Option Plan. (Previously filed
with the Securities and Exchange Commission as an exhibit to the
Registration Statement of Hacienda Resorts, Inc. on Form S-1 (No.
2-82796) and incorporated herein by reference.)
10.54 Agreement for the sale and purchase of real property and related
documents, assumption of $885,162.11 on three promissory notes in
favor of Dobrusky Family Trust uta, between the Company and
Consolidated Hospitality Services, Inc. (5)
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.55 Form of Second Supplemental Indenture by and among Sahara Finance,
the Partnership and the Trustee, dated February 13, 1990. (7)
10.56 Construction Loan Agreement dated as of December 21, 1989 among
Valley Bank of Nevada and Santa Fe Operating Partnership and the
Partnership as joint and several co-borrowers. (6)
10.57 Construction Deed of Trust, Assignment of Rents and Security
Agreement dated as of December 21, 1989 in favor of Valley Bank of
Nevada and executed by Santa Fe Operating Partnership and the
Partnership. (6)
10.58 Secured Promissory Note dated December 21, 1989 in the original
principal amount of $25,000,000 in favor of Valley Bank of Nevada
and executed by Santa Fe Operating Partnership and the Partnership.
(6)
10.59 Assignment of Leases, Rents, Income and Profits dated December 21,
1989 in favor of Valley Bank of Nevada executed by Santa Fe
Operating Partnership. (6)
10.60 Revolving Credit Agreement dated March 8, 1990 by and among Valley
Bank of Nevada, the Partnership and Hacienda Operating partnership
regarding a $20,000,000 revolving line of credit. (8)
10.61 Deed of Trust, Assignment of Rents and Security Agreement dated
March 8, 1990 by and among Hacienda Partnership, as Trustor, Chicago
Title Insurance Company, as Trustee, and Valley Bank as Beneficiary.
(8)
10.62 Revolving Credit Agreement dated November 22, 1989 by and among
Valley Bank of Nevada and Sahara Operating Limited Partnership
regarding a $2,500,000 revolving line of credit.
10.63 Revolving Credit Agreement dated September 12, 1990 by and among
Valley Bank of Nevada and Sahara Operating Limited Partnership
regarding a $2,000,000 revolving line of credit.
10.64 Equipment Contract dated December 3, 1990, between Paul Lowden and
Beckman Eisenman & Associates regarding purchase of equipment for
Pioneer.
10.65 Agreement dated February 7, 1991, among Sierra Construction Corp.,
the Company, and Sahara Casino Partners, L.P. (9)
10.66 Agreement dated February 10, 1991 among Sierra Construction Corp.,
Sahara Operating Limited Partnership, Hacienda Operating Limited
Partnership and Santa Fe Operating Limited Partnership. (9)
10.67 First Supplemental Indenture to Pioneer Indenture dated as of
December 21, 1990 among Pioneer Finance, and Sahara Casino Partners,
L.P. and Security Pacific National Bank. (9)
10.68 Lease agreement for furniture, fixtures and equipment dated March
20, 1991 between Valley Leasing Company, Inc. and Michigan National
Bank, Lessors, and Santa Fe Operating Limited Partnership, Lessee.
(11)
10.69 Promissory Note in the amount of $2,760,079 dated October 10, 1990
executed by Santa Fe Operating Limited Partnership in favor of
Deutsche Credit Corporation, collateralized by equipment. (11)
10.70 Lease agreement for furniture and equipment dated August 6, 1991
between Valley Leasing Company, Inc. and C.I.T. Leasing, Lessors,
and Santa Fe Operating Limited Partnership, Lessee. (11)
10.71 Lease agreement for furniture and equipment dated August 6, 1991
between Valley Leasing Company, Inc. and C.I.T. Leasing, Lessors,
and Hacienda Operating Limited Partnership, Lessee. (11)
10.72 Lease agreement for signage dated April 29, 1991 between SNET as
Lessor and Santa Fe Operating Limited Partnership as Lessee. (11)
10.73 Lease agreement for computer equipment dated August 6, 1991 between
Valley Leasing Company, Inc. as Lessor and Sahara Casino Partners,
L.P. as Lessee. (11)
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.74 Promissory notes dated February 7, 1992, February 14, 1992, March
10, 1992, April 13, 1992, June 16, 1992, July 20, 1992 and August
11, 1992 by Paul W. Lowden in favor of Sahara Resorts in the
aggregate amount of $1,250,000. (10)
10.75 Promissory notes dated September 14, 1992, October 8, 1992, October
19, 1992 and November 24, 1992 by Paul W. Lowden in favor of Sahara
Resorts in the aggregate amount of $650,000. (10)
10.76 Second Supplemental Indenture dated as of September 30, 1993 between
Sahara Resorts, Sahara Gaming Corporation and Nevada State Bank, as
Trustee, with respect to 10 1/4% Subordinated Sinking Fund
Debentures. (13)
10.77 Sahara Gaming Corporation's 1993 Key Employee Stock Option Plan.(13)
10.78 Agreement Concerning Guaranty dated as of April 20, 1994, by and
among Treasure Bay Corp., Treasure Bay Gaming and Resorts, Inc., and
Sahara Gaming Corporation. (14)
10.79 Form of Guaranty of Sahara Gaming Corporation of an aggregate of
$4.5 million of indebtedness of Treasure Bay Corp. (14)
10.80 Notice, Consent and Acknowledgment of Assignment. (14)
10.81 Form of Credit Agreement by and between Treasure Bay Corp. and
Progressive Distribution Systems, Inc. with respect to equipment
financing indebtedness of Treasure Bay Corp. (the "Credit
Agreements"). (14)
10.82 Form of Commercial Security Agreement with respect to the Credit
Agreements. (14)
10.83 Form of Promissory Note with respect to the Credit Agreements. (14)
10.84 Form of Subordination Agreement by and among Treasure Bay Gaming &
Resorts, Inc., Santa Fe Hotel Inc., First Trust National
Association, and PDS Financial Corporation with respect to the
Credit Agreements. (14)
10.85 Offer to Purchase Real Property, dated March 16, 1994, from Sahara
Gaming Corporation to Marcor Green Valley, Limited Partnership.
10.86 Note Purchase Agreement, dated as of March 31, 1994, between Sahara
Mission Valley Inc. and Sahara Gaming Corporation and each of Muico
& Co., PaineWebber Managed Investment Trust-PaineWebber High Income
Fund, and Cerberus Partners with respect to $15 million principal
amount of 12% Convertible First Mortgage Notes Due 1995, of Sahara
Mission Valley Inc.
10.87 Assignment, dated as of June 14, 1994, between Cerberus Partners,
Equifax, Inc., U. S. Retirement Income Plan Trust, and Sahara
Mission Valley Inc.
10.88 Amendment #1 to Note Purchase Agreement, dated as of November 30,
1994, among Sahara Mission Valley Inc., and Sahara Gaming
Corporation, on the one hand and each of Muico & Co., PaineWebber
Managed Investment Trust-PaineWebber High Income Fund, Equifax, Inc.
U. S. Retirement Income Plan Trust and Sherborne Group Master Trust,
on the other.
10.89 Agreement of Sale and Escrow Instructions, dated November 25, 1994,
by and between Sahara Mission Valley, Inc. and Players
International.
10.90 Working Capital Loan Agreement, by and between Santa Fe Hotel Inc.
and Miller & Schroeder Investments Corporation in connection with
$3.0 million Working Capital Loan, dated December 7, 1994.
10.91 Treasure Bay I, Biloxi Loan Purchase Agreement, dated December 7,
1994, by and between Santa Fe Hotel Inc. and Miller & Schroeder
Investments Corporation.
10.92 Treasure Bay III, Tunica Loan Purchase Agreement, dated December 7,
1994 by and between Santa Fe Hotel Inc. and Miller & Schroeder
Investments Corporation.
10.93 Lease Agreement, dated May 26, 1993, between City of Parkville,
Missouri, and Sahara Casino Partners, L.P. (Previously filed with
the Securities and Exchange Commission as Exhibit 10.86 to the
Company and Santa Fe Hotel Inc.'s Registration Statement on Form S-1
(No. 33-70268) and incorporated herein by reference.)
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.94 Amendment to Lease Agreement, made as of September 7, 1993, by
Sahara Casino Partners, L.P., and the City of Parkville, Missouri.
10.95 Second Amendment to Lease Agreement, made as of December 27, 1993,
by Sahara Parkville, Inc. and the City of Parkville, Missouri.
10.96 Landlord's Consent, Estoppel Certificate and Third Amendment to
Lease Agreement, entered into on December 27, 1993, by and between
the City of Parkville, Missouri, Sahara Parkville, Inc., IBJ
Schroeder Bank & Trust Company, and Santa Fe Hotel, Inc.
10.97 Fourth Amendment to Lease Agreement, made as of January 18, 1994 by
Sahara Parkville, Inc. and the City of Parkville, Missouri.
10.98 Fifth Amendment to Lease Agreement, made as of January 18, 1994, by
Sahara Parkville, Inc. and the City of Parkville, Missouri.
10.99 Development Agreement, made as of December 27, 1993, between Sahara
Parkville, Inc., and the City of Parkville, Missouri.
10.100 Amendment to Development Agreement, dated January 18, 1994, by
Sahara Parkville, Inc. and the City of Parkville, Missouri.
10.101 Second Amendment to Development Agreement, dated October 28, 1994,
by Sahara Parkville, Inc. and the City of Parkville, Missouri.
22. Subsidiaries of the Company. (12)
23.1 Consent of Deloitte & Touche.
27. Financial Data Schedule.
</TABLE>
48
<PAGE>
FOOTNOTES TO EXHIBIT INDEX
(1) Previously filed with the Securities and Exchange Commission as an exhibit
to the Registration Statement on Form S-1 (No. 33-24589) of Pioneer
Finance Corp., the Partnership and Pioneer Operating Partnership and
incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an exhibit
to the Partnership's Annual Report on Form 10-K for the year ended
September 30, 1987 and incorporated herein by reference.
(3) Previously filed with the Securities and Exchange Commission as an exhibit
to the Partnership's Registration Statement on Form S-1 (No. 33-13214) and
incorporated herein by reference.
(4) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Annual Report on Form 10-K for the year ended September
30, 1989, and incorporated herein by reference.
(5) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Annual Report on Form 10-K for the year ended September
30, 1985, and incorporated herein by reference.
(6) Previously filed with the Securities and Exchange Commission as an exhibit
to Amendment No. 1 to the Registration Statement on Form S-1 (No.
33-33031) of Sahara Finance Corp., Sahara Casino Partners, L.P., Sahara
Operating Limited Partnership, Hacienda Operating Limited Partnership,
Santa Fe Operating Limited Partnership as filed on February 12, 1990, and
incorporated herein by reference.
(7) Previously filed with the Securities and Exchange Commission as an exhibit
to Amendment No. 2 to the Registration Statement on Form S-1 (No.
33-33031) of Sahara Finance Corp., Sahara Casino Partners, L.P., Sahara
Operating Limited Partnership, Hacienda Operation Limited Partnership,
Santa Fe Operating Limited Partnership as filed on February 14, 1990, and
incorporated herein by reference.
(8) Previously filed with the Securities and Exchange Commission as an exhibit
to post effective Amendment No. 2 to the Registration Statement on Form
S-1 (No. 33-33031) of Sahara Finance Corp., Sahara Casino Partners, L.P.,
Sahara Operating Limited Partnership, Hacienda Operating Limited
Partnership, Santa Fe Operating Limited Partnership, as filed on August 14,
1990 and incorporated herein by reference.
(9) Previously filed with the Securities and Exchange Commission as an exhibit
to post effective Amendment No. 5 to the Registration Statement on Form
S-1 (No. 33-33031) of Sahara Finance Corp., Sahara Casino Partners, L.P.,
Sahara Operating Limited Partnership, Hacienda Operating Limited
Partnership, Santa Fe Operating Limited Partnership, as filed on April 15,
1991 and incorporated herein by reference.
(10) Previously filed with the Securities and Exchange Commission as an exhibit
to post effective Amendment No. 12 to the Registration Statement on Form
S-1 (No. 33-33031) of Sahara Finance Corp., Sahara Casino Partners, L.P.,
Sahara Operating Limited Partnership, Hacienda Operating Limited
Partnership, Santa Fe Operating Limited Partnership, as filed August 14,
1992.
(11) Previously filed with the Securities and Exchange Commission as an exhibit
to post effective Amendment No. 8 to the Registration Statement on Form
S-1 (No. 33-33031) of Sahara Finance Corp., Sahara Casino Partners, L.P.,
Sahara Operating Limited Partnership, Hacienda Operating Limited
Partnership, Santa Fe Operating Limited Partnership, as filed December 30,
1991.
(12) Previously filed with the Securities and Exchange Commission as an exhibit
to Amendment No. 4 to the Registration Statement on Form S-1 (No.
33-70268) of Sahara Gaming Corporation.
(13) Previously filed with the Securities and Exchange Commission as an exhibit
to Sahara Gaming Corporation's Annual Report on Form 10-K for the year
ended September 30, 1993.
(14) Previously filed with the Securities and Exchange Commission as an exhibit
to Sahara Gaming Corporation's Report on Form 10-Q for the quarter ended
June 30, 1994.
49
<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.
Sahara Gaming Corporation
/s/ Paul W. Lowden
December 29, 1994 By: __________________________________
Paul W. Lowden, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Paul W. Lowden Chairman of the Board, December 29, 1994
____________________________________ President
Paul W. Lowden (Principal Executive
Officer)
/s/ Stephen J. Szapor, Jr. Director December 29, 1994
____________________________________
Stephen J. Szapor, Jr.
/s/ William J. Raggio Director December 29, 1994
____________________________________
William J. Raggio
/s/ James W. Lewis Director December 29, 1994
____________________________________
James W. Lewis
/s/ John K. Campbell Director December 29, 1994
____________________________________
John K. Campbell
/s/ Suzanne Lowden Director December 29, 1994
____________________________________
Suzanne Lowden
/s/ George P. Miller Director December 29, 1994
____________________________________
George P. Miller
/s/ Thomas K. Land Chief Financial Officer December 29, 1994
____________________________________ (Principal Financial and
Thomas K. Land Accounting Officer)
</TABLE>
50
