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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _________ to _________.
Commission file number: 33-51672
CALIFORNIA HOTEL AND CASINO
(Exact name of Registrant as specified in its charter)
NEVADA 88-0121743
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2950 SOUTH INDUSTRIAL ROAD, LAS VEGAS NV 89109
(Address of principal executive offices)(Zip Code)
(702) 792-7200
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of September 25, 1996, none of the voting stock was held by
non-affiliates of the Registrant.
As of September 25, 1996, the registrant had outstanding 1,000 shares
of Common Stock.
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Exhibit Index Located on Page __
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CALIFORNIA HOTEL AND CASINO
(A WHOLLY OWNED SUBSIDIARY OF BOYD GAMING CORPORATION)
1996 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security-Holders . . . . . . . . . . . . 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . 14
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . 21
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . 21
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . 25
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . 25
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PART I
ITEM 1. BUSINESS
GENERAL
California Hotel and Casino (the "Company") is a gaming company with
operations in the State of Nevada and is the only casino operator with
properties in each of the three principal Las Vegas gaming markets: the Las
Vegas Strip; the Boulder Strip in eastern Las Vegas; and downtown Las Vegas. The
Company owns and operates six properties in Las Vegas: the Stardust Resort and
Casino (the "Stardust") located on the Las Vegas Strip; Sam's Town Hotel and
Gambling Hall (Sam's Town Las Vegas"), the Eldorado Casino (the "Eldorado") and
Jokers Wild Casino (the "Jokers Wild") located on or near the Boulder Strip; and
the California Hotel and Casino (the "California") and the Fremont Hotel and
Casino (the "Fremont") located in downtown Las Vegas. In total, the Company
currently owns and operates 311,500 square feet of casino space containing 8,173
slot machines and 224 table games. The Company plans to open Main Street Station
in downtown Las Vegas, by the end of calendar year 1996.
The Company is a wholly owned subsidiary of Boyd Gaming Corporation
("Boyd Gaming"), which owns, operates and develops gaming properties both inside
and outside Nevada. The Company directly owns and operates Sam's Town and the
California and owns and operates the Stardust, the Fremont, the Eldorado and
Jokers Wild through wholly owned subsidiaries. Unless the context otherwise
requires, the "Company" refers to California Hotel and Casino and its
subsidiaries. The Company was incorporated in Nevada in 1973. The executive
offices of the Company are located at 2950 South Industrial Road, Las Vegas,
Nevada 89109, and its telephone number is (702) 792-7200.
OPERATING STRATEGY
The Company believes that the following key elements have contributed
to the success of the Company in the past and are central to its future success.
Value-Oriented Casino Entertainment Experience
The Company is committed to providing a high-quality casino
entertainment experience to its primarily middle-income customers at an
affordable price in order to develop customer loyalty. The Company delivers
value to its customers through providing service in an inviting and entertaining
environment. The Company delivers additional value to its customers through
moderately-priced casino entertainment, hotel, restaurant and live entertainment
offerings and regularly reinvests in its existing facilities in an effort to
maintain the quality and competitiveness of its properties.
Lively, Friendly Atmosphere
Each of the Company's facilities is clean and modern and offers
friendly service in an informal and lively atmosphere. The Company's employee
training programs are designed to motivate employees to provide the type of
friendly and attentive service which the Company seeks to provide at its
facilities. The Company has an extensive customer feedback system, ranging from
guest comment cards in its restaurants and hotel rooms, to other consumer
surveys and research. In addition to providing a measure of customer
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service, comment cards and consumer research allow the Company to obtain
valuable customer feedback and marketing information for its database.
Emphasis on Slot Play
The Company emphasizes slot machine wagering, the most consistently
profitable segment of the casino entertainment business. Technological advances
in slot product have resulted in sophisticated interactive games which offer
customers greater variety, more generous payoffs and increased periods of play
for their casino entertainment dollar. The Company continually invests in
upgrading its machines to reflect advances in technology and the development of
proprietary slot games and related equipment at all of its facilities in order
to further enhance the slot customer's experience.
Comprehensive Marketing and Promotion
The Company actively promotes its casino entertainment offerings, its
hotels, destination restaurants and live entertainment using a variety of
promotional advertising media including outdoor advertising and print and
broadcast media. The Company develops and maintains an extensive customer
database. The database is expanded daily, adding new casino customers by
obtaining their mailing addresses and other marketing information. To encourage
repeat visitation, the Company employs a direct mail program targeting its
database customers with a variety of product offerings, including incentives to
visit the Company's facilities frequently. During fiscal 1996, the Company
distributed over 8 million pieces of mail to its database customers. The Company
also provides complimentary rooms, food and other services to valued customers,
but maintains limits on such items consistent with its focus on middle-income
patrons.
PROPERTIES
The Company currently owns and operates six properties in Las Vegas,
Nevada: the Stardust; Sam's Town Las Vegas; the Eldorado; Jokers Wild; the
California; and the Fremont and is developing Main Street Station.
The Stardust
The Stardust, situated on 52 acres of land owned and nine acres of land
leased by the Company on the Las Vegas Strip, is a casino hotel complex with
approximately 87,000 square feet of casino space, a conference center containing
approximately 35,000 square feet of meeting space and a 900-seat showroom. The
casino offers nearly 2,000 slot machines and 78 table games, including tables
featuring "21," craps, roulette, baccarat, mini-baccarat, pai gow, Caribbean
stud and poker, as well as keno. The Stardust features "Enter the Night," a
production show that includes computerized lighting, lasers and digital surround
sound. The Stardust also has one of the largest and best known race and sports
books in the United States and is the home of the Stardust line, a racing and
sports line service that is quoted throughout the United States and abroad. The
Stardust features more than 2,300 guest rooms, 1,500 in its 32-story hotel
tower. Notwithstanding the increased number of rooms available in Las Vegas, the
Stardust achieved a 97% occupancy rate in fiscal 1995 and a 96% occupancy rate
for fiscal 1996. The Stardust complex, which is distinguished by dramatic
building lighting, has seven restaurants, a shopping arcade, two swimming pools
and parking spaces for approximately 2,900 cars.
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The Stardust caters primarily to adult Las Vegas visitors seeking the
classic Las Vegas gaming experience. Using its extensive database, the property
promotes customer loyalty and generates repeat customer business by
communicating with its customers regarding special events, new product offerings
and special incentive promotions at the property. The Company uses a network of
tour operators and wholesalers to reach customers who prefer packaged trips and
print and broadcast media to attract the independent traveler. The Company
attracts proven slot and table game players through direct mail promotions for
tournaments, events and a variety of special offers. With its conference center,
the Stardust also attracts meeting and banquet business. In addition, the
Stardust draws a significant number of walk-in customers. Patrons of the
Stardust come primarily from the western United States, including Southern
California and Arizona, and the Midwest.
The Company has developed a master plan for the Stardust, calling for,
among other things, as many as two additional hotel towers, and has taken steps
for a future expansion, including incorporating footings for one of the two
proposed additional towers in the existing facility. In addition, the Company
has determined that the 61-acre Stardust site is capable of accommodating the
development of an entirely new casino entertainment facility adjacent to the
existing Stardust and is exploring the feasibility of such a project.
Boulder Strip Properties
Sam's Town Las Vegas is situated on 56 acres of land owned and seven
acres of land leased by the Company on the Boulder Strip, approximately six
miles east of the Las Vegas Strip. Following a $105 million expansion completed
in July 1994, Sam's Town features an approximately 118,000 square foot casino, a
56-lane bowling center and the 25,000 square foot Western Emporium retail store.
The gaming facilities now include nearly 2,800 slot machines and 55 table games,
including tables featuring "21," craps, roulette, pai gow, poker and Caribbean
stud, as well as keno, an expanded race and sports book and a large bingo
parlor. The expanded property has 650 guest rooms, 12 restaurants, approximately
3,200 parking spaces, including two parking garages which together can
accommodate up to 2,000 cars and approximately 500 recreational vehicles. The
expanded Sam's Town facility features a 25,000 square foot atrium enclosing a
Sierra Nevada-style park with extensive foliage and trees, streams, bridges and
water features. Fronting the park are an Italian restaurant, a western
steakhouse and a food court, as well as new retail outlets. Also located at the
property is a 5,400 square foot sports bar featuring interactive activities, an
outdoor recreation complex with a swimming pool and volleyball court and a
conference facility. Sam's Town Las Vegas achieved a 92% occupancy rate in
fiscal 1995 and a 96% occupancy rate in fiscal 1996.
Sam's Town Las Vegas has a western theme and features an informal,
friendly atmosphere that appeals to both local residents and visitors. Gaming
and bowling tournaments, paycheck sweepstakes, costume contests and holiday
parties create a social center that attracts many Las Vegas residents. The
property hosts two of the largest events on the Ladies Professional Bowling
Tour, including the Sam's Town Ladies Professional Bowling Tournament, which
events have been televised on ESPN, and a premier amateur bowling tournament
which attracts participants from throughout the world. Additionally, the Company
attracts local market patrons, many of whom are repeat customers, by offering
excellent price/value relationships in its food and beverage operations, and by
slot marketing programs that include generous slot payouts. The popularity of
Sam's Town Las Vegas among local residents allows it to benefit from the rapid
development of the Las Vegas metropolitan area, which has been one of the
fastest growing communities in the United States over the last decade.
Management believes that the addition of 650 new
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guest rooms, as well as destination restaurants and other amenities, as part of
the expansion has increased the appeal of Sam's Town Las Vegas to visitors.
Since completion of the expansion, overnight visitation to the property has
substantially increased. The Company has developed a master plan for Sam's Town
Las Vegas calling for, among other things, a second hotel tower. Although the
Company has not yet made any decision regarding a future Sam's Town Las Vegas
expansion, it is currently exploring the feasibility of such a project.
The Eldorado is situated on four acres of land owned by the Company in
downtown Henderson, Nevada, which is southeast of Las Vegas. The casino has over
16,000 square feet of gaming space featuring approximately 560 slot machines and
11 table games, including tables featuring "21," craps, roulette and pai gow, as
well as keno, bingo and a sports book. The facility also offers three
restaurants, a live entertainment lounge and a parking garage for up to 500
cars. The principal customers at the Eldorado are Henderson residents.
Jokers Wild is situated on 13 acres of land owned by the Company on the
Boulder Strip. Following a $5.6 million expansion completed in April 1994, the
property offers over 22,500 square feet of casino space with approximately 650
slot machines and 11 table games, including tables featuring "21," craps,
roulette, pai gow, Caribbean stud and poker, as well as keno and a sports book.
The facility also offers a buffet restaurant, a coffee shop, an entertainment
lounge, a video arcade and approximately 800 parking spaces. Jokers Wild serves
both local residents and visitors to the Las Vegas area traveling on the Boulder
Highway.
Downtown Properties
The California is situated on 13.9 acres of land owned and 1.6 acres of
land leased by the Company in downtown Las Vegas. The California was the
Company's first property and has over 36,000 square feet of gaming space, 781
guest rooms, five restaurants, approximately 5,000 square feet of meeting space,
more than 800 parking spaces, including a parking garage for up to 425 cars, and
an approximately 220-space recreational vehicle park, the only such facility in
the downtown area. The casino offers over 1,100 slot machines and 38 table
games, including tables featuring "21," craps, roulette, mini-baccarat, pai gow
and Caribbean stud, as well as keno and a sports book. In December 1994, the
Company completed a $15 million expansion of the California that added 140 new
guest rooms and six suites, as well as other amenities. The California achieved
a 95% occupancy rate in both fiscal 1995 and 1996.
The Fremont is situated on 1.4 acres of land owned and 0.9 acres of
land leased by the Company on the principal thoroughfare in downtown Las Vegas.
The property offers nearly 32,000 square feet of casino space including
approximately 1,100 slot machines, and 31 table games, including tables
featuring "21," craps, roulette, pai gow, poker and Caribbean stud, as well as
keno and a race and sports book. The hotel has 452 guest rooms and five
restaurants including the Second Street Grill, an upscale contemporary
restaurant, and the Paradise Buffet, which features tropical-themed
surroundings. The property also has approximately 8,200 square feet of meeting
space and a parking garage for up to 350 cars. The Fremont achieved a 96%
occupancy rate in both fiscal 1995 and 1996.
While many casinos in downtown Las Vegas compete with other downtown
properties and properties on the Las Vegas Strip for the same customers, the
Company has developed a distinctive niche for its Downtown Properties by
focusing primarily on customers from Hawaii. The Company's marketing
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strategy for the Downtown Properties focuses on gaming enthusiasts from Hawaii
and tour and travel agents from Hawaii with whom the Company has cultivated
relationships since it opened the California in 1975. Through the Company's
recently acquired Hawaiian travel agency, the Company operates two DC-10 charter
flights from Honolulu to Las Vegas each week, helping to ensure stable,
reasonably priced air seats. This, as well as the Company's strong, informal
relationships with other Hawaiian travel agencies, its affordably priced,
all-inclusive packages and its Hawaiian promotions have allowed the California
and the Fremont to capture a significant share of the Hawaiian tourist trade in
Las Vegas. For more than a decade the Downtown Properties have been the leading
Las Vegas destination for visitors from Hawaii. The Company attributes this
success to the amenities and atmosphere at the Downtown Properties, which are
designed to appeal specifically to visitors from Hawaii, and to its marketing
strategy featuring significant promotions in Hawaii and a monthly newsletter
circulated to over 68,000 households, primarily in Hawaii. In fiscal 1996,
patrons from Hawaii comprised over 80% of the room nights at the California and
over 65% of the room nights at the Fremont.
In December 1993, the Company acquired for $16.5 million Main Street
Station, a casino hotel that is not currently in operation located across the
street from the California. The Company has used the facility, where it
previously leased rooms, to provide lodging for additional customers at the
Downtown Properties. The renovation and expansion of Main Street Station is
currently underway. The project includes a 28,500 square foot, newly-equipped
casino with 25 table games and over 900 slot machines. The project also includes
a complete renovation of the property's hotel rooms and an expansion and
renovation of the property's food facilities to include a 500-seat buffet, a
130-seat specialty restaurant, a 100-seat cafe, a 200-seat brew pub and oyster
bar and expanded parking to include 2,000 spaces. The renovation and expansion
of Main Street Station is expected to be completed by the end of calendar year
1996. There can be no assurance that the project will be completed on schedule
due to the many risks and uncertainties inherent in such renovation and
expansion.
In anticipation of the opening of Main Street Station, the Company's
third property in downtown Las Vegas, the Company has begun coordinating
marketing efforts, consolidating support functions and standardizing operating
procedures and systems with the goal of enhancing revenues and reducing
expenses. This effort will include a consolidated database and marketing program
for all Downtown Properties. The Company believes these efforts will provide it
with a competitive advantage.
The Company, together with other downtown casino operators and the City
of Las Vegas, retained a well-known urban design firm to develop a major new
attraction known as the Fremont Street Experience. The attraction was designed
to capitalize on Fremont Street's famous lights and features a semi-circular
space frame nine stories above the street, stretching along four city blocks
against which a sound and light spectacle is displayed. As part of the project,
vehicular traffic on portions of Fremont Street has been eliminated, asphalt
replaced by a patterned streetscape and special events brought to the downtown
area to entertain visitors. The Fremont Street Experience cost approximately $70
million. Of this amount, $22 million was provided by eight downtown casino
operators (including the Company), and the remainder was provided by local bond
issuances. The Company invested approximately $5 million in the project. The
Company believes that, since its opening in December 1995, the Fremont Street
Experience has significantly enhanced the experience of visiting downtown Las
Vegas and has attracted additional customers to the downtown area. However, no
assurance can be given that the Fremont Street Experience will materially
benefit the operating results of the Company's Downtown Properties.
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INVESTMENT CONSIDERATION
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended.
Discussions containing such forward-looking statements may be found in the
material set forth under "Business" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," as well as in the Annual
Report generally. Also, documents subsequently filed by the Company with the
Securities and Exchange Commission may contain forward-looking statements.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the investment conditions set forth
below and the matters set forth in the Annual Report generally. The Company
cautions the reader, however, that this list of factors may not be exhaustive,
particularly with respect to future filings.
COMPETITION
The gaming industry is highly competitive. Gaming activities include:
traditional land-based casinos; riverboat and dockside gaming; casino gaming on
Indian land; state-sponsored lotteries; video poker in restaurants, bars and
hotels; pari-mutuel betting on horse racing, dog racing and jai-alai; sports
bookmaking; and card rooms. The casinos owned and being developed by the Company
compete and will in the future compete with all these forms of gaming and with
any new forms of gaming that may be legalized in existing and additional
jurisdictions, as well as with other types of entertainment. In addition,
further expansion of gaming into other jurisdictions could adversely affect the
Company's business by diverting its customers to competitors in such
jurisdictions. In particular, the expansion of casino gaming in or near any
geographic area from which the Company attracts or expects to attract a
significant number of its customers could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
believes that successful gaming facilities compete based on the following
factors: location; attractions; quality of gaming facilities, gaming experience
and entertainment; quality of food, beverage and atmosphere; and price. Although
the Company believes it competes favorably with respect to these factors in most
of its markets, some of its competitors have significantly greater financial and
other resources than the Company.
The Company's properties compete primarily with other casino hotels on
the Las Vegas Strip, the Boulder Strip and in downtown Las Vegas. Currently,
there are approximately 25 major gaming properties located on or near the Las
Vegas Strip, 11 located in the downtown area and several located in other areas
of Las Vegas. Las Vegas gaming square footage and room capacity are continuing
to increase. A number of marquee properties have opened in the last several
years, and several others are currently under construction or planned for the
Las Vegas Strip, including the 1,500-room Stratosphere Tower, Casino and Hotel,
the 3,000-room Paris Casino-Resort, the 3,000-room Monte Carlo Resort and
Casino, the 2,035-room New York - New York Hotel/Casino, and the 3,000-room
Bellagio. Additionally, several properties have recently announced or begun
significant expansion and renovation projects, including Circus Circus-Las
Vegas, MGM Grand Hotel/Casino, Harrah's-Las Vegas, Rio Suite Hotel and Casino,
Luxor Hotel and Casino, and the Sahara Hotel and Casino. Each of the foregoing
facilities has or may have a theme and attractions which have drawn or may draw
significant numbers of visitors. Moreover, most of
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these facilities attract or may attract primarily middle-income patrons, who are
the focus of the Company's marketing strategy. Although the Company believes
that these additional facilities will draw more visitors to Las Vegas, these
properties also may divert potential gaming activity from the Company. Future
additions, expansions and enhancements to existing properties and construction
of new properties by the Company's competitors could divert additional gaming
activity from the Company's facilities. There can be no assurance that the
Company will compete successfully in the Las Vegas market in the future.
ADDITIONAL FINANCING REQUIREMENTS
The Company intends to finance its current and future expansion
projects primarily with cash flow from operations and borrowings under its $500
million reducing revolving bank credit facility (the "New Bank Credit
Facility"). If the Company is unable to finance such projects through cash flow
from operations and borrowings under its New Bank Credit Facility, it will have
to adopt one or more alternatives, such as reducing or delaying planned
expansion and capital expenditures, selling assets, restructuring debt or
obtaining additional equity or debt financing. No assurance can be given that
the aforementioned sources of funds will be sufficient to finance the Company's
expansion or that other financing will be available on acceptable terms, in a
timely manner or at all. In addition, the Company's 11% Senior Subordinated
Notes due 2002 (the "11% Notes"), and the New Bank Credit Facility contain
certain restrictions on the ability of the Company to incur additional
indebtedness. If the Company is unable to secure additional financing, it could
be forced to limit or suspend expansion, development and acquisition projects,
which may adversely effect the Company's business, financial condition and
results of operations. See "--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
LEVERAGE AND DEBT SERVICE
At June 30, 1996 the Company had total long-term debt of approximately
$366 million. The New Bank Credit Facility is a five-year, $500 million
reducing revolving credit facility. Debt service requirements on the New Bank
Credit Facility consist of interest expense on outstanding indebtedness.
Beginning in December 1998, the total principal amount available under the New
Bank Credit Facility will be reduced by $25 million and reduced by an
additional $50 million at the end of each six-month period thereafter until
maturity in June 2001. Debt service requirements on the 11% Notes (as defined
herein) issued by a financing subsidiary of the Company consist of semi-annual
interest payments and repayment of the $185 million principal amount on
December 1, 2002. The Company expects to fund the $45 million renovation,
expansion and re-equipping of Main Street Station with borrowings under the New
Bank Credit Facility to the extent not funded from cash flow from operations.
The Company's ability to service its debt will be dependent on its future
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the
Company's control. Accordingly, no assurance can be given that the Company
will maintain a level of operating cash flow that will permit it to service its
obligations. If the Company is unable to generate sufficient cash flow or is
unable to refinance or extend outstanding borrowings, it will have to adopt one
or more alternatives, such as reducing or delaying planned expansion and
capital expenditures, selling assets, restructuring debt or obtaining
additional debt financing. There can be no assurance that any of these
financing strategies could be effected on satisfactory terms, if at all. In
addition, certain states' laws contain restrictions on the ability of companies
engaged in the gaming business to undertake certain financing transactions. Such
restrictions may prevent the Company from obtaining necessary capital. See
"--Additional Financing Requirements," "--Governmental Gaming Regulation," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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GOVERNMENTAL REGULATION
Nevada
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"); and (ii) various local regulation.
The Company's gaming operations are subject to the licensing and regulatory
control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada
State Gaming Control Board (the "Nevada Board"), and the Clark County Liquor and
Gaming Licensing Board (the "Clark County Board"). The Nevada Commission, the
Nevada Board, and the Clark County Board are collectively referred to herein as
the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practice of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) the provision of a source of state and local
revenues though taxation and licensing fees. Changes in such laws, regulations
and procedures could have an adverse effect on the Company's gaming operations.
Corporations that operate casinos in Nevada are required to be licensed
by the Nevada Gaming Authorities. A gaming license requires the periodic payment
of fees and taxes and is not transferable. The Company is registered by the
Nevada Commission as a publicly traded corporation (a "Registered Corporation")
and as such, it is required periodically to submit detailed financial and
operating reports to the Nevada Commission and furnish any other information
which the Nevada Commission may require. The Company has been found suitable by
the Nevada Commission to own the stock of CH&C. CH&C is licensed by the Nevada
Commission to operate non-restricted gaming activities at the California and
Sam's Town Las Vegas and is additionally registered as a holding corporation and
approved by the Nevada Gaming Authorities to own the stock of Mare Bear, Inc.
("Mare Bear"), the operator of the Stardust; Sam Will, Inc. ("Sam Will"), the
operator of the Fremont; and Eldorado, Inc., the operator of the Eldorado and
Joker's Wild. No person may become a stockholder of, or receive any percentage
of profits from, CH&C or its subsidiaries without first obtaining licenses and
approvals from the Nevada Gaming Authorities. The Company, CH&C, Mare Bear, Sam
Will and Eldorado, Inc. have obtained from the Nevada Gaming Authorities the
various registrations, approvals, permits and licenses required in order to
engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, or any of
its licensed subsidiaries in order to determine whether such individual is
suitable or should be licensed as a business associate of a gaming licensee.
Officers, directors and certain key employees of the Company and its licensed
subsidiaries must file applications
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with the Nevada Gaming Authorities and may be required to be licensed or found
suitable by the Nevada Gaming Authorities. Officers, directors and key employees
of the Company who are actively and directly involved in gaming activities of
CH&C or its licensed subsidiaries may be required to be licensed or found
suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may
deny an application for licensing for any cause which they deem reasonable. A
finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities and in addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or
key employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or any of its licensed subsidiaries, the
companies involved would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Company, CH&C or any of its
licensed subsidiaries to terminate the employment of any person who refuses to
file appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company and its licensed subsidiaries are required to submit
detailed financial and operating reports to the Nevada Commission. Substantially
all material loans, leases, sales of securities and similar financing
transactions by CH&C and its subsidiaries must be reported to, or approved by,
the Nevada Commission.
If it were determined that the Nevada Act was violated by the Company
or any of its licensed subsidiaries, the gaming licenses they hold could be
limited, conditioned, suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, the Company, the subsidiary
involved, the Company, and the persons involved could be subject to substantial
fines for each separate violation of the Nevada Act at the discretion of the
Nevada Commission. Further, a supervisor could be appointed by the Nevada
Commission to operate the Company's gaming properties and, under certain
circumstances, earnings generated during the supervisor's appointment (except
for reasonable rental value of the Company's gaming properties) could be
forfeited to the State of Nevada. Limitation, conditioning or suspension of any
gaming license or the appointment of a supervisor could (and revocation of any
gaming license would) materially adversely affect the Company's gaming
operations.
Any beneficial holder of the Company's voting securities, regardless of
the number of shares owned, may be required to file an application, be
investigated, and have his suitability as a beneficial holder of the Company's
voting securities determined if the Nevada Commission has reason to believe that
such ownership would otherwise be inconsistent with the declared policies of the
state of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada Commission.
The Nevada Act requires that beneficial owners of more than 10% of the Company's
voting securities apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails the written
notice requiring such filing. Under certain circumstances, an "institutional
investor," as defined in the Nevada Act, which
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<PAGE> 12
acquires more than 10%, but not more than 15%, of the Company's voting
securities may apply to the Nevada Commission for a waiver of such finding of
suitability if such institutional investor holds the voting securities for
investment purposes only. An institutional investor shall not be deemed to hold
voting securities for investment purposes unless the voting securities were
acquired and are held in the ordinary course of business as an institutional
investor and not for the purpose of causing, directly or indirectly, the
election of a majority of the members of the board of directors of the Company,
any change in the Company's corporate charter, bylaws, management, policies or
operations of the Company, or any of its gaming affiliates, or any other action
which the Nevada Commission finds to be inconsistent with holding the Company's
voting securities for investment purposes only. Activities which are not deemed
to be inconsistent with holding voting securities for investment purposes
include only: (i) voting on all matters voted on by stockholders; (ii) making
financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent. If
the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability
or a license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company, CH&C or any
of its licensed subsidiaries, the Company (i) pays that person any dividend or
interest upon voting securities of the Company, (ii) allows that person to
exercise, directly or indirectly, any voting right conferred through securities
held by that person, (iii) pays remuneration in any form to that person for
services rendered or otherwise, or (iv) fails to pursue all lawful efforts to
require such unsuitable person to relinquish his voting securities for cash at
fair market value. Additionally, the Clark County Board has taken the position
that it has the authority to approve all persons owning or controlling the stock
of any corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation to file applications, be investigated
and be found suitable to own the debt security of a Registered Corporation. If
the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered Corporation can be
sanctioned, including the loss of its approvals, if without the prior approval
of the Nevada Commission, it: (i) pays to the unsuitable person any dividend,
interest, or any distribution whatsoever; (ii) recognizes any voting right by
such unsuitable person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada
which may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder may
be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for finding
the record holder unsuitable.
-10-
<PAGE> 13
The Company is also required to render maximum assistance in determining the
identity of the beneficial owner. The Nevada Commission has the power to require
the Company's securities to bear a legend indicating that the securities are
subject to the Nevada Act. However, to date, the Nevada Commission has not
imposed such a requirement on the Company.
The Company may not make a public offering of its securities without
the prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Such approval, if given, does not constitute a finding, recommendation
or approval by the Nevada Gaming Authorities as to the accuracy or adequacy of
the prospectus or the investment merits of the securities. Any representation to
the contrary is unlawful. On September 20, 1996, the Nevada Commission granted
the Company prior approval to make public offerings for a period of one year,
subject to certain conditions ("Shelf Approval"). However, the Shelf Approval
may be rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board. This offering is
made pursuant to the Shelf Approval. The Shelf Approval does not constitute a
finding, recommendation or approval by the Nevada Commission or the Nevada Board
as to the accuracy or adequacy of the prospectus or the investment merits of the
securities offered. Any representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock
or asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Gaming Authorities in a variety
of stringent standards prior to assuming control of such Registered Corporation.
The Nevada Commission may also require controlling stockholders, officers,
directors and other persons having a material relationship or involvement with
the entity proposing to acquire control, to be investigated and licensed as part
of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchase of voting securities and corporate defense
tactics affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those licensees, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes of acquiring control of the
Registered Corporation.
License fees and taxes, computed in various ways depending on the type
of gaming or activity involved, are payable to the State of Nevada, Clark County
and the City of Las Vegas. Depending upon the particular fee or tax involved,
these fees and taxes are payable either monthly, quarterly or annually and are
-11-
<PAGE> 14
based upon any of: (i) a percentage of the gross revenues received; (ii) the
number of gaming devices operated; or (iii) the number of table games operated.
A casino entertainment tax is also paid by casino operations where entertainment
is furnished in connection with the selling of food or refreshments.
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with such persons
(collectively "Licensees"), and who proposes to become involved in a gaming
venture outside of Nevada is required to deposit with the Nevada Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation of the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. Licensees
are also subject to disciplinary action by the Nevada Commission if they
knowingly violate any laws of the foreign jurisdiction pertaining to the foreign
gaming operation, fail to conduct the foreign gaming operation in accordance
with the standards of honesty and integrity required of Nevada gaming
operations, engage in activities that are harmful to the State of Nevada or its
ability to collect gaming taxes and fees, or employ a person in the foreign
operation who has been denied a license or finding of suitability in Nevada on
the ground of personal unsuitability.
The sale of food or alcoholic beverages at the Company's Nevada casinos
is subject to licensing, control and regulation by the applicable local
authorities. All licenses are revocable and are not transferable. The agencies
involved have full power to limit, condition, suspend or revoke any such
license, and any such disciplinary action could (and revocation would) have a
material adverse effect upon the operations of the affected casino or casinos.
ENVIRONMENTAL RISKS
The Company is subject to certain federal, state and local
environmental, safety and health laws, regulations and ordinances that apply to
non-gaming businesses generally, such as the Clean Air Act, Clean Water Act,
Occupational Safety and Health Act, Resource Conservation and Recovery Act and
the Comprehensive Environmental Response, Compensation, and Liability Act. The
Company has not made, and does not anticipate making, material expenditures with
respect to such environmental, safety and health laws, regulations and
ordinances. However, the coverage and attendant compliance costs associated with
such laws, regulations and ordinances may result in future additional costs to
the Company's operations. Any significant environmental liability or compliance
costs could have a material adverse effect on the Company's business, financial
condition and results of operations.
RELIANCE ON CERTAIN MARKETS
The California and the Fremont derive a substantial portion of their
customers from the Hawaiian market. In fiscal 1996, patrons from Hawaii made up
over 80% of the room nights at the California and over 65% at the Fremont. An
increase in fuel costs or transportation prices, a decrease in airplane seat
availability or a deterioration of relations with tour and travel agents, as
they affect travel between the Hawaiian market and the Company's facilities,
could materially adversely affect the Company's business, financial condition
and results of operations. The Company's properties also draw a substantial
number of customers from certain other specific geographic areas, including
Southern California, Arizona, Las Vegas and the Midwest. Adverse economic
conditions in any of these markets, or the failure of the Company's facilities
to continue to attract customers from these geographic market as a result of
increased competition
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<PAGE> 15
in those markets could have a material adverse effect on the Company's business,
financial condition and results of operations.
EMPLOYEES
At August 31, 1996, the Company employed approximately 7,200 persons:
approximately 2,100 at the Stardust; 2,100 at Sam's Town Las Vegas; 275 at the
Eldorado; 300 at Joker's Wild; 1,100 at the California and 950 at the Fremont.
On such date, the Company had collective bargaining relationships with nine
unions covering approximately 1,700 employees, substantially all of whom are
employed at the Stardust and the Fremont. Several collective bargaining
agreements are currently in effect and will expire in 1997. Other agreements
have expired and are in various stages of negotiation. Employees covered by
expired agreements have continued to work during the negotiations, in some
cases under the terms of the expired agreements and in others under
modifications thereof.
ITEM 2. PROPERTIES
Reference is made to the information contained under Item 1. "Business
- - Properties."
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are also parties to various other
legal proceedings arising in the ordinary course of business. In the opinion of
management, all pending claims in such matters, if adversely decided, would not
have a material adverse effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is currently no established public trading market for the
Company's Common Stock. Boyd Gaming is the sole stockholder of the Company.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below at and for the
fiscal years ended June 30, 1996 and 1995 and for the fiscal year ended June 30,
1994, have been derived from the audited consolidated financial statements
contained elsewhere in this Form 10-K. The selected consolidated financial data
presented below as of June 30, 1994 and as of and for the fiscal years ended
June 30, 1993 and 1992 have been derived from audited consolidated financial
statements of the Company not contained herein. Operating results for the fiscal
years shown below are not necessarily indicative of the results that may be
expected for future fiscal years.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net revenues............................................ $523,430 $496,831 $458,712 $431,174 $406,804
Operating expenses...................................... 463,846 439,969 399,778 367,740 359,531
-------- -------- -------- -------- --------
Operating income........................................ 59,584 56,862 58,934 63,434 47,273
Interest expense, net of amounts capitalized............ (33,820) (38,492) (30,354) (33,672) (38,245)
Interest income......................................... -- 40 199 1,449 644
Gain on investment...................................... -- -- -- 1,062 --
-------- -------- -------- -------- --------
Income before provision for income taxes, cumulative
effect of a change in accounting principle and
extraordinary item.................................... 25,764 18,410 28,779 32,273 9,672
Provision for income taxes.............................. 10,675 8,780 10,778 11,469 3,519
-------- -------- -------- -------- --------
Income before cumulative effect of a change in
accounting principle and extraordinary item........... 15,089 9,630 18,001 20,804 6,153
Cumulative effect of a change in accounting for income
taxes................................................. -- -- 2,035 -- --
-------- -------- -------- -------- --------
Net income before extraordinary item.................... 15,089 9,630 20,036 20,804 6,153
Extraordinary item, net of tax benefit.................. 842 -- -- 7,397 --
-------- -------- -------- -------- --------
Net income.............................................. $ 14,247 $ 9,630 $ 20,036 $ 13,407 $ 6,153
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets............................................ $577,520 $578,882 $585,996 $496,167 $463,907
Long-term debt, net of current maturities............... 364,415 369,382 375,637 361,927 314,106
Stockholder's equity.................................... 129,850 104,353 94,723 72,553 63,054
</TABLE>
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<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain Income
Statement Data for the Company's properties. As used herein, "Boulder Strip
Properties" consist of Sam's Town Las Vegas, the Eldorado Casino and the Jokers
Wild Casino; and "Downtown Properties" consist of the California Hotel and
Casino and the Fremont Hotel and Casino.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
INCOME STATEMENT DATA
Net revenues
Stardust . . . . . . . . . . . . $194,513 $193,563 $195,899
Boulder Strip Properties . . . . 189,315 168,036 125,087
Downtown Properties . . . . . . . 139,602 135,232 137,726
-------- -------- --------
Total Properties . . . . . . 523,430 496,831 458,712
Operating income
Stardust . . . . . . . . . . . . 30,748 30,688 26,713
Boulder Strip Properties . . . . 23,904 15,551 20,686
Downtown Properties . . . . . . . 18,444 22,561 23,583
-------- -------- --------
Total Properties . . . . . . 73,096 68,800 70,982
</TABLE>
Fiscal 1996 Compared to Fiscal 1995
Consolidated net revenues increased 5.4% for fiscal 1996 compared to
fiscal 1995. The increase in net revenues for fiscal 1996 resulted primarily
from increased revenues at Sam's Town Las Vegas of 14.9%. Revenue growth on a
consolidated basis in fiscal 1996 was achieved in all major revenue categories,
with casino revenue increasing 5.5%, room revenue increasing 2.6%, food and
beverage revenue increasing 6.0% compared to fiscal 1995. Slot revenue, which
continued to account for more than 70% of casino revenue, increased 8.2% in
fiscal 1996 compared to fiscal 1995. The increase in slot revenue was primarily
attributable to a 24% increase in slot revenue at Sam's Town Las Vegas. Table
games revenue, the only other significant component of casino revenue, decreased
3.6% in fiscal 1996 compared to fiscal 1995. Company-wide room revenue increased
2.6% in fiscal 1996 compared to fiscal 1995 as a result of a 2.1% increase in
occupied rooms and a 6.4% increase in the average daily room rate. The Company's
hotel rooms posted an overall occupancy percentage of 96% in both fiscal 1996
and fiscal 1995 with occupancy at Sam's Town Las Vegas increasing to 96% in
fiscal 1996 compared to 92% in fiscal 1995. The increase in occupied rooms was
attributable to the opening of the California rooms expansion (146 rooms opened
in December 1994). The rooms expansion project was open for the entire fiscal
1996 but was only open for
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<PAGE> 18
the last six months of fiscal 1995. Occupancy statistics do not include rooms at
Main Street Station which the Company uses to augment the rooms base at the
California and the Fremont. The Main Street Station property was purchased in
December 1993 as a closed casino hotel facility and is currently undergoing an
extensive renovation and expansion project. The Company expects to open this
renovated and expanded property in fiscal 1997 as a complete casino hotel
facility.
Consolidated operating income increased 4.8% for fiscal 1996 compared
to fiscal 1995 while consolidated operating income margins remained at 11.4%.
This increase in operating income and operating income margins was primarily
attributable to increases at Sam's Town Las Vegas of 83% and 4.3 percentage
points, respectively, offset by declines at the Downtown Properties of 18.2% and
3.5 percentage points, respectively.
Net revenues at the Stardust increased 0.5% for fiscal 1996 as compared
to the prior fiscal year. Casino and food and beverage revenues declined 0.5%
and 1.6%, respectively, while rooms revenue increased 3.4% and showroom revenue
increased 9.3% for fiscal 1996 as compared to fiscal 1995. Slot revenue declined
1.3% in fiscal 1996 with a 2.3% increase in wagering offset by lower net
winnings. Table games revenue declined 4.1% for fiscal 1996 as compared to
fiscal 1995 as a result of an increase of 4.3% in wagering offset by lower net
winnings. Other casino revenues increased 11.9% for fiscal 1996 primarily as a
result of a 28% increase in revenue in the sports book. Rooms revenue at the
Stardust increased 3.4% for fiscal 1996 compared to fiscal 1995 with a 1.3%
decline in occupied rooms offset by a 7.9% increase in average daily room rate.
The Stardust posted an occupancy rate of 96% in fiscal 1996 versus 97% in the
prior fiscal year. Operating income increased slightly in fiscal 1996 compared
to fiscal 1995 and operating income margin was 15.8% compared to 15.9%,
respectively for fiscal 1996 versus fiscal 1995. The slight decline in operating
income margin was primarily the result of higher advertising and promotional
expenses not fully offset by increased operating income and operating income
margin in the rooms department.
Net revenues for the Boulder Strip Properties increased 12.7% for
fiscal 1996 versus fiscal 1995 primarily as a result of increased revenues at
Sam's Town Las Vegas. Sam's Town Las Vegas revenue increased 14.9% for fiscal
1996 while revenues increased 6.8% at Jokers Wild and declined slightly at the
Eldorado. Casino revenues at the Boulder Strip Properties increased 16.7% for
fiscal 1996 versus fiscal 1995, while rooms revenue increased 4.7% and food and
beverage revenue increased 4.8%. Operating income at the Boulder Strip
Properties increased 54% for fiscal 1996 compared to fiscal 1995 while operating
income margin increased 3.3 percentage points to 12.6% for fiscal 1996. Sam's
Town Las Vegas posted increases in operating income and operating income margin
of 83% and 4.3 percentage points, respectively for the 1996 fiscal year.
Operating income margins increased 2.5 percentage points at the Eldorado and
declined 2.3 percentage points at Jokers Wild for fiscal 1996 versus fiscal
1995. The increase in operating income margin at the Eldorado was a result of
increased casino revenue while the decline in operating income margin at Jokers
Wild was primarily a result of increased expenses in the food and beverage
department for fiscal 1996 versus fiscal 1995. Management believes that the
significant increases in revenues, operating income and operating income margin
at Sam's Town Las Vegas for fiscal 1996 versus fiscal 1995 were primarily
attributable to the implementation of successful marketing programs creating
increased customer awareness and visitation.
Net revenues at the Downtown Properties increased 3.2% for fiscal 1996
compared to fiscal 1995. Net revenues at the California increased 1.4% while net
revenues at the Fremont increased 5.2%. Casino revenues at the Downtown
Properties were up slightly while food and beverage revenue increased 20% and
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<PAGE> 19
rooms revenue declined slightly. Operating income and operating income margins
at the Downtown Properties declined 18.2% and 3.5 percentage points,
respectively in fiscal 1996 as compared to fiscal 1995. Operating income at the
California declined 20% while operating income margin at the California declined
3.7 percentage points for fiscal 1996. The decline in operating income and
operating income margin at the California was primarily the result of increased
operating costs in the rooms and food and beverage departments and increased
advertising and promotional costs. Operating income and operating income margin
at the Fremont declined 15.6% and 3.1 percentage points, respectively for fiscal
1996 compared to fiscal 1995 primarily as a result of increased advertising and
promotional costs. Construction of the Fremont Street Experience project, which
was completed and opened to the public in December 1995, negatively impacted the
Downtown Properties for the majority of the first and second fiscal quarter.
Interest expense, net of amounts capitalized, decreased $4.7 million or
12.1% for fiscal 1996 compared to fiscal 1995 primarily as a result of more
capitalized interest related to projects under development and lower net
borrowings. Depreciation and amortization expense for fiscal 1996 decreased $1.5
million or 3.3% compared to fiscal 1995.
The Company's tax rate for fiscal 1996 was 41% compared to 48% in
fiscal 1995. The Company's 1995 tax rate was affected by the increase in certain
non-deductible Company provided benefits.
The Company recorded an extraordinary loss, net of tax, of $.8 million
in fiscal 1996. This extraordinary loss resulted from the write-off of
unamortized bank loan fees in connection with its recent bank refinancing which
was completed on June 19, 1996.
As a result of these factors, net income before extraordinary item
increased $6.0 million and net income increased $5.1 million for fiscal 1996
compared to fiscal 1995.
Fiscal 1995 Compared to Fiscal 1994
Consolidated net revenues increased 8.3% for fiscal 1995 compared to
fiscal 1994. The increase in net revenues in fiscal 1995 resulted from the
opening of Sam's Town Las Vegas expansion in July 1994 and the opening of the
California Hotel rooms expansion in December 1994. Net revenues at the Boulder
Strip Properties increased 34% and net revenues at the Stardust and Downtown
Properties declined 1.2% and 1.8%, respectively. Net revenues at the Boulder
Strip Properties were enhanced by the opening in July 1994 of the Sam's Town Las
Vegas expansion and by the acquisition of the Eldorado Casino and Jokers Wild
Casino in October 1993. The Company's revenue growth was achieved in all major
revenue categories with casino revenue increasing 5.6%, room revenue increasing
31.3%, food and beverage revenue increasing 8.2% and other revenue increasing
14.9%. Slot revenue, which continues to account for more than two-thirds of
total casino revenue, increased 8.1% in fiscal 1995 compared to fiscal 1994. The
increase in slot revenue is primarily attributable to the opening of the Sam's
town Las Vegas expansion in July 1994. Table games revenue, the only other
significant component of casino revenue, increased 3.6% also as a result of the
opening of the Sam's Town Las Vegas expansion. Company-wide room revenue
increased 31.3% for fiscal 1995 compared to fiscal 1994 primarily as a result of
a 16.1% increase in occupied rooms and a 9.7% increase in average daily room
rate. The increase in occupied rooms is attributable to the openings of the
Sam's Town Las Vegas expansion in July 1994 (650 rooms) and the opening of the
California Hotel and Casino rooms expansion (146 rooms opened in December 1994).
The Company's hotel rooms posted an overall occupancy percentage of 96% in
fiscal 1995 compared to 98% in fiscal 1994. Occupancy statistics do not include
Main Street Station rooms which the Company uses to
-17-
<PAGE> 20
augment the rooms base at the California and Fremont.
Consolidated operating income decreased 3.5% for fiscal 1995 compared
to fiscal 1994 and consolidated operating income margins were 11.4% in fiscal
1995 compared to 12.8% in fiscal 1994. The decline in consolidated operating
income and consolidated operating income margin was primarily the result of
declines at the Boulder Strip Properties and to a lesser extent the Downtown
Properties offset by increases at the Stardust
Net revenues at the Stardust declined 1.2% for fiscal 1995 as compared
to the prior fiscal year. Casino and food and beverage revenues declined 3.8%
and 5.1% respectively, while rooms revenue increased 14.4% and showroom revenue
increased 19.9%. Slot revenue declined 1.8% with a 3.5% increase in wagering
offset by lower net winnings. Table games revenue declined 3.8% as a result of a
decline of 2.2% in wagering combined with slightly lower net winnings. Other
casino revenues declined 15.9% for fiscal 1995 with both the sports book and
keno posting declines in wagering, 17.3% and 17.8% respectively, offset by
slightly higher net winnings. The decline in wagering in the sports book was
primarily attributable to the decline in baseball wagering due to the Major
League Baseball strike. Rooms revenue at the Stardust increased 14.4% for fiscal
1995 compared to fiscal 1994 with a 2.6% decline in occupied rooms offset by a
15.7% increase in average daily room rate. The Stardust posted an occupancy rate
of 97% in fiscal 1995 versus 99% in the prior fiscal year. Operating income
margins increased 2.3 percentage points to 15.9% for fiscal 1995 versus 13.6% in
fiscal 1994. The increase in the operating income margin was the result of
increased operating income in the rooms department and showroom department
combined with slight decreases in payroll and overhead expenses.
Net revenues for the Boulder Strip Properties increased 34% for fiscal
1995 versus fiscal 1994 primarily as a result of the opening of the Sam's Town
Las Vegas expansion in July 1994 and also as a result of the acquisition of the
Eldorado Casino and Jokers Wild Casino in October 1993. Sam's Town Las Vegas
revenue increased 31% as a result of the expansion with casino revenue
increasing 22%, food and beverage revenue increasing 54% and increased rooms
revenue as a result of having a full year of rooms revenue in fiscal 1995. For
most of fiscal 1994 all 200 hotel rooms at Sam's Town Las Vegas were removed as
part of the expansion project. Net revenues at the Eldorado and Jokers Wild
increased 40% and 56% respectively, primarily as a result of their acquisition
in October 1993. The operating income margin for the Boulder Strip Properties
was 9.3% in fiscal 1995 versus 16.5% in fiscal 1994. The decline in the
operating income margin was attributable to a decline in Sam's Town Las Vegas
operating income margin to 7.3% from 15.6% and a decline in operating income
margins at the Eldorado and Jokers Wild to 14.8% and 19.8%, respectively, from
18.3% and 23.7%, respectively. The decline in operating income margins at Sam's
Town Las Vegas was primarily attributable to the growth in revenue which did not
match the growth in expenses associated with the expanded property and increased
competition, primarily the opening of a new property on the Boulder Strip. The
decline in operating income margins at the Eldorado and Jokers Wild resulted
from increased competition on the Boulder Strip.
Net revenues at the Downtown Properties decreased 1.8% for fiscal 1995
as compared to fiscal 1994. Net revenues at the California increased 2.5% in
fiscal 1995 with casino revenue increasing 1.5%, rooms revenue increasing 15.9%
and food and beverage revenue declining 4.2%. Net revenues at the California
were enhanced by the opening in December 1994 of a 146-room expansion project.
At the Fremont, net revenues declined 6.1% with casino revenue declining 4.5%
and rooms and food and beverage revenue declining 3.8% and 14.3%, respectively.
During the third and fourth fiscal quarters, the Fremont
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<PAGE> 21
and to a lesser extent the California were negatively impacted by the
construction of the Fremont Street Experience. The construction of the Fremont
Street Experience, as well as work on several adjacent streets, impeded the free
flow of both vehicular and pedestrian traffic through downtown Las Vegas. The
Company expects to be negatively impacted by this construction until the Fremont
Street Experience is completed which is expected to be December 1995. The
Fremont Street Experience, a cooperative effort between the downtown casino
operators and the City of Las Vegas, is designed to be a nightly high-tech light
and sound extravaganza set against the backdrop of a space frame high above
Fremont Street. Operating income margins at the Downtown Properties were 16.7%
in fiscal 1995 versus 17.1% in fiscal 1994 with operating income margins at the
California of 17.5% in fiscal 1995 versus 18.7% in fiscal 1994 and operating
income margins at the Fremont of 15.7% in fiscal 1995 versus 15.5% in fiscal
1994. The decline in operating income margin at the California is attributable
to increased revenues in lower margin departments and certain inefficiencies
associated with the opening of the new hotel rooms.
Interest expense, net of amounts capitalized, increased $8.1 million or
26.8% for fiscal 1995 versus the prior year as a result of increased borrowings,
higher interest rates and less capitalized interest related to projects under
development. Depreciation expense for fiscal 1995 increased 10.5% primarily as a
result of the openings of the Sam's Town Las Vegas expansion and the California
rooms addition.
The Company's tax rate for fiscal 1995 was 48% as compared to 38% for
fiscal 1994. The increase in the Company's tax rate was primarily as a result of
the increase in certain non-deductible Company provided benefits.
As a result of these factors, net income before the cumulative effect
of a change in accounting principle decreased $8.4 million or 47% for fiscal
1995 as compared to fiscal 1994. Net income decreased $10.4 million or 52%
during fiscal 1995 compared to the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow and Working Capital
The Company's policy is to use operating cash flow and debt financing
to fund renovation of its properties and expansion of its business which
includes the $45 million expansion and renovation of Main Street Station. In
addition, the Company continues to explore new opportunities for growth.
The Company's principal sources of funds for the year ending June 30,
1996 consisted of cash flows from operating activities of $66.5 million. As of
June 30, 1996 the Company had balances of cash and cash equivalents of
approximately $28 million.
The Company's principal sources of funds for the year ending June 30,
1995 consisted of cash flows from operating activities of $39.6 million and
borrowings under its amended senior credit agreement. For the fiscal year ended
June 30, 1994 the Company's principal sources of funds consisted of cash flows
from operating activities of $69.6 million.
-19-
<PAGE> 22
Long Term Debt
In June 1996, the Company and its parent, Boyd Gaming entered into a
$500 million five-year reducing revolving credit facility (the "New Bank Credit
Facility" under which approximately $235 million in borrowings was outstanding
as of June 30, 1996) which replaced the Company's and certain of its
subsidiaries' former bank credit facilities. Availability under the New Bank
Credit Facility will be reduced by $25 million at the end of two and one-half
years and reduced by an additional $50 million at the end of each six-month
period thereafter until maturity in June 2001. Interest on the New Bank Credit
Facility is based upon the agent bank's quoted reference rate or the London
Interbank Offered Rate, at the discretion of the Company. The interest rate
under the New Bank Credit Facility at July 1, 1996 was approximately 7.2%. Boyd
Gaming intends to use the proceeds of the pending debt and equity offerings to
reduce outstanding indebtedness under the New Bank Credit Facility without
reducing the commitment thereunder.
The Company's ability to service its debt will be dependent on its
future performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the Company's
control. Certain indebtedness of the Company contains restrictive covenants
which, among other things, impose significant restrictions on the Company's
operations and its ability to seek alternative financing means.
Capital Expenditures
The Company is committed to continually maintaining and enhancing its
existing facilities, most notably by upgrading and remodeling its casinos, hotel
rooms and restaurants and by providing the latest slot machines for its
customers. The Company's principal uses of funds for the three years ended June
30, 1996 consisted of cash used in investing activities, primarily for the
acquisition of property and equipment, and cash used in financing activities,
primarily cash paid to reduce long-term debt. For the year ended June 30, 1996
cash used in investing activities was $41.2 million primarily for the
acquisition of property and equipment. For the year ended June 30, 1995 cash
used in investing activities was $37.6 million primarily related to the
completion of the Sam's Town Las Vegas expansion (approximately $15 million) and
the acquisition of property and equipment (approximately $22.6 million). For the
year ended June 30, 1994, cash used in investing activities was primarily
related to the $105 million expansion project at Sam's Town.
New Expansion Projects
The Company recently began the renovation and expansion of Main Street
Station. This project, which is expected to cost approximately $45 million,
consists of a redesign of the property's public space, expanded restaurant
facilities, a refurbishment of the property's 400 hotel rooms, acquisition of
new gaming equipment and increased parking. The Company plans to fund the Main
Street Station renovation primarily from cash flow from operations and
availability under the New Bank Credit Facility. In addition, the Company is
exploring the possible expansion of its Stardust and Sam's Town Las Vegas
properties; substantial funds would be required for any such expansion of those
properties. There can be no assurance that any of the above-mentioned projects
will go forward or ultimately become operational. The source of funds required
to meet the Company's working capital needs (including maintenance capital
expenditures) and those required to complete the above-mentioned projects is
expected to be cash flow from operations and availability under the New Bank
Credit Facility. The Company does not currently anticipate obtaining new
borrowings in excess of amounts available under the New Bank Credit Facility in
the next 12 months. Thereafter, the Company may require additional funds to
support its working capital requirements or for other purposes and may seek to
raise such additional funds through public or private debt financings or from
other sources. No assurance can be given that additional financing will be
available or that, if available, such financing will be obtainable on terms
favorable to the Company.
-20-
<PAGE> 23
Pending Debt and Equity Offerings
On September 30, 1996, the Company's parent, Boyd Gaming registration
statements on Form S-3 registering 4,000,000 shares of Common Stock (the "Equity
Offering") and $200,000,000 9.25% Senior Notes due 2003 (the "Debt Offering" and
collectively with the Equity Offering, the "Offerings") were declared effective.
Boyd Gaming intends to use the net proceeds of the Offerings to reduce
indebtedness outstanding under the New Bank Credit Facility without reducing the
commitment thereunder. The Notes will be guaranteed by all existing significant
subsidiaries of Boyd Gaming, including the Company. The guaranties will be full,
unconditional and joint and several. Amounts available under the New Bank Credit
Facility are expected to be used to effect the redemption of the Boyd Gaming's
10.75% Senior Subordinated Notes due 2003 (the "10.75% Notes"), to fund Boyd
Gaming's Acquisition of the Par-A-Dice Riverboat Casino (the "Par-A-Dice
Acquisition"), and for general corporate purposes. Neither the Debt Offering nor
the Equity Offering is conditioned on the consummation of the other. There can
be no assurance when, or if, the Offerings will be consummated.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this
Form 10-K. See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the directors and executive officers of
the Company as of September 25, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C>
William S. Boyd 64 President and Director
Robert L. Boughner 43 Executive Vice President and Chief Operating
Officer and Director
James W. Hippler 49 Senior Vice President - Administration
Ellis Landau 52 Senior Vice President, Chief Financial Officer
and Treasurer
Ralph Purnell 61 Senior Vice President - Director of Operations,
Nevada Region
</TABLE>
-21-
<PAGE> 24
<TABLE>
<S> <C> <C>
Charles L. Ruthe 62 Senior Vice President and Director
Charles E. Huff 51 Vice President, Secretary and General Counsel
Keith E. Smith 36 Vice President and Controller
</TABLE>
William S. Boyd, a co-founder of the Company, has served as a director
and President of the Company since its inception in 1973 and Chairman of the
Board of Directors and Chief Executive Officer from January 1988. Prior to
joining the Company, Mr. Boyd practiced law in Las Vegas for 15 years. Between
1970 and 1974 he also was Secretary and Treasurer and a member of the Board of
Directors of the Union Plaza Hotel and Casino. Mr. Boyd is active in numerous
business and civic organizations in Las Vegas.
Robert L. Boughner has been Executive Vice President and Chief
Operating Officer of the Company since April 1990. From 1985 until April 1990,
he served as Senior Vice President of Administration of CH&C and prior to that
time he held various management positions in the Company. Mr. Boughner is active
in civic and industry affairs, and serves on the Board of Directors of the Las
Vegas Convention and Visitors Authority, the Nevada Hotel and Motel Association
and the Nevada Restaurant Association.
James W. Hippler has been Senior Vice President-Administration of the
Company since April 1990. From 1980 to 1990, Mr. Hippler held various positions
with CH&C, including Director of Risk Management, Director of Internal Audit and
Director of Human Resources.
Ellis Landau has been Senior Vice President Chief Financial Officer and
Treasurer of the Company since August 1990. From April 1990 through July 1990,
he served as a consultant to the Company. Prior to joining the Company, Mr.
Landau held various management positions with Ramada, Inc., a gaming and
hospitality company whose gaming operations were transferred to Aztar
Corporation, including Vice President and Treasurer of that company from 1978 to
February 1990.
Ralph Purnell has been Senior Vice President-Director of Operations,
Nevada Region of the Company since April 1994. From the inception of the Company
until April 1994, Mr. Purnell served as Senior Vice President-Gaming of the
Company. From 1975 to 1988, Mr. Purnell held various positions with CH&C,
including General Manager of the Stardust and the California. Mr. Purnell serves
on the Board of Directors of the Nevada Resort Association.
Charles L. Ruthe has served as a director of the Company since its
inception, President and Chief Operating Officer from September 1988 until
September 1989, Executive Vice President of Administration from September 1985
until 1988 and Senior Vice President from September 1983 until September 1985.
Mr. Ruthe is active in many Las Vegas business and civic organizations. Mr.
Ruthe is a director of Sierra Health Services, Inc., a healthcare company.
Charles E. Huff has been Vice President, Secretary and General Counsel
of the Company since its inception. He has served as Vice President and General
Counsel of CH&C since July 1986 and Secretary since January 1988. Prior to
joining CH&C, Mr. Huff practiced law in Las Vegas for 13 years.
-22-
<PAGE> 25
Keith E. Smith became Vice President and Controller of the Company in
June 1993. From September 1990 to June 1993 he served as Corporate Controller of
the Company. From May 1989 to September 1990, Mr. Smith was Vice
President-Finance of the Dunes Hotel, Casino and Country Club in Las Vegas. From
1982 to May 1989, he was employed by Ramada, Inc., a gaming and hospitality
company, in a variety of positions, including Controller of the Tropicana Resort
and Casino in Las Vegas.
Directors of the Company are elected annually to serve for one year and
until their successors are duly elected and qualified. Officers serve at the
discretion of the Board of Directors.
Each director of the Company is also a director of Boyd Gaming. Each
director who is not an employee of Boyd Gaming or the Company currently receives
an annual fee of $25,000, meeting fees of $1,000 per board meeting attended and
$500 per committee meeting attended and related expenses for services as a
director of both Boyd Gaming and the Company. Employee and non-employee
directors participate in the Directors' Medical Reimbursement Plan, which covers
medical expenses incurred by directors and their spouses that are not covered by
other medical plans. During fiscal 1996, Messrs. William S. Boyd, William R.
Boyd and Ruthe received reimbursement under this Plan totaling $2,509, $6,443,
$11,882, respectively. Boyd Gaming pays the directors fees and provides the
benefits described above.
ITEM 11. EXECUTIVE COMPENSATION
The Company is a wholly owned subsidiary of Boyd Gaming. The following
table sets forth the cash compensation earned for services performed for Boyd
Gaming and the Company during the three fiscal years in the period ended June
30, 1996 by the Company's Chief Executive Officer and each of the other four
most highly compensated executive officers of Boyd Gaming. The Compensation and
Stock Option Committee of Boyd Gaming has been responsible for recommending cash
and other non-stock plan compensation for the named executive officers and the
Board of Directors of the Company and Boyd Gaming and for administration of Boyd
Gaming's stock plans.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------ -------------
OTHER ANNUAL SECURITIES ALL OTHER
FISCAL COMPENSATION UNDERLYING COMPENSATION
NAME AND POSITION(1) YEAR SALARY($) BONUS($) ($)(2) OPTIONS (#) ($)(4)
-------------------- ---- - --------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William S. Boyd........................ 1996 1,000,000 -- -- -- 7,865
Chairman and Chief Executive Officer 1995 1,000,000 574,137 -- 140,000 5,706
1994 1,000,000 181,560 -- 525,000 7,020
Charles L. Ruthe....................... 1996 525,000 31,500 -- -- 6,441
President 1995 425,000 122,910 -- 40,000 8,226
1994 400,000 120,000 52,532(3) 150,000 8,688
Robert L. Boughner..................... 1996 500,000 30,000 -- -- 4,250
Executive Vice President 1995 400,000 115,680 -- 40,000 5,706
and Chief Operating Officer 1994 375,000 112,500 -- 150,000 7,020
Ellis Landau........................... 1996 350,000 21,000 -- -- 4,498
Senior Vice President, Chief Financial 1995 300,000 86,760 -- 30,000 5,445
Officer and Treasurer 1994 275,000 82,500 -- 120,000 6,772
</TABLE>
-23-
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ralph Purnell.......................... 1996 335,000 77,385 -- -- 6,650
Senior Vice President-Director 1995 310,000 89,652 -- 30,000 5,445
of Operations 1994 232,272 69,250 -- 105,000 15,208
Nevada Region
</TABLE>
- -------------
(1) Positions indicated are those currently held with Boyd Gaming.
(2) Except as set forth in the Summary Compensation Table, the incremental
cost to the Company of providing perquisites and other personal
benefits during the last three years did not exceed, as to any
executive officer, the lesser of $50,000 or 10% of the total salary and
bonus paid to such executive officer for any such year and,
accordingly, is omitted from the table.
(3) Represents reimbursement under the Directors' Medical Reimbursement
Plan of expenses incurred by Mr. Ruthe's spouse.
(4) Amounts represent Boyd Gaming's Profit Sharing and 401(k) Plan
contributions, payment of term life insurance premiums and, in the case
of Mr. Ruthe (in each year) payments in connection with split dollar
insurance policies, and in the case of Mr. Purnell (in 1994) payments
of $4,301in connection with a retirement arrangement. In fiscal 1996,
Boyd Gaming's Profit Sharing and 401(k) Plan contributions were $3,000,
$3,000, $3,000 and $3,000 for Messrs. Boyd, Ruthe, Boughner, Purnell
and Landau, respectively. In fiscal 1996, life insurance premium
payments by the Company for Messrs. Boyd, Ruthe (including split dollar
insurance payments), Boughner, Purnell and Landau were $4,865, $6,441,
$1,250, $3,650 and $1,498, respectively.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to the named executive officers by Boyd
Gaming in fiscal 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR-END (#) FISCAL YEAR-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED (11) ($) UNEXERCISABLE UNEXERCISABLE(2)
---- ------------ ----------------- ------------------- -------------------
<S> <C> <C> <C> <C>
William S. Boyd 0 0 396,667/268,333 64,167/128,333
Charles L. Ruthe 0 0 113,334/76,666 18,334/36,666
Robert L. Boughner 0 0 113,334/76,666 18,334/36,666
Ralph Purnell 0 0 80,000/55,000 13,750/27,500
Ellis Landau 0 0 90,000/60,000 13,750/27,500
</TABLE>
- ----------------------
(1) Value realized is based on estimated fair market value of Boyd Gaming
Common Stock on the date of exercise less the exercise price.
(2) Value is based on the closing price of Boyd Gaming Common Stock on the
New York Stock Exchange on June 30, 1996 ($15.00) less the exercise
price.
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Perry B. Whitt, a member of the Compensation and Stock Option Committee
of Boyd Gaming is a former executive officer of the Company.
-24-
<PAGE> 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding shares of stock of the Company are owned by Boyd
Gaming Corporation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. The following financial statements
incorporated herein by reference.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets at June 30, 1996 and 1995 . . . . . . . . . . . . F-3
Consolidated Statements of Income for Years Ended
June 30, 1996, 1995 and 1994 . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Changes in Stockholder's
Equity for the Years Ended June 30, 1996, 1995 and 1994 . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
2. Financial Statement Schedules. None.
3. Exhibits. Refer to (c) below.
(b) Reports on Form 8-K. None.
(c) Exhibits. Reference is made to the Index to Exhibits
immediately preceding the exhibits hereto.
-25-
<PAGE> 28
INDEX TO FINANCIAL STATEMENTS
Page
CALIFORNIA HOTEL AND CASINO AND SUBSIDIARIES
Independent Auditors' Report................................. F-2
Consolidated Balance Sheets.................................. F-3
Consolidated Statements of Income............................ F-4
Consolidated Statements of Changes in Stockholder's Equity... F-5
Consolidated Statements of Cash Flows........................ F-6
Notes to Consolidated Financial Statements................... F-7
F-1
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
California Hotel and Casino and Subsidiaries
(a wholly owned subsidiary of Boyd Gaming Corporation)
We have audited the accompanying balance sheets of California Hotel and
Casino and Subsidiaries (a wholly owned subsidiary of Boyd Gaming Corporation)
as of June 30, 1996 and 1995, and the related consolidated statements of income,
changes in stockholder's equity, and cash flows for each of the three years in
the period ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of California Hotel and Casino
and Subsidiaries at June 30, 1996 and 1995 and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
August 23, 1996
F-2
<PAGE> 30
CONSOLIDATED BALANCE SHEETS California Hotel and Casino and Subsidiaries
(a wholly owned subsidiary of Boyd Gaming Corporation)
<TABLE>
<CAPTION>
June 30,
-------------------
(In thousands, except share data) 1996 1995
- --------------------------------- -------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 28,444 $ 21,798
Accounts receivable, net 7,414 6,875
Inventories 5,822 5,487
Prepaid expenses and other 10,772 10,385
-------- --------
Total current assets 52,452 44,545
Property, equipment and leasehold interests, net 490,675 494,142
Other assets and deferred charges 24,139 29,584
Goodwill, net 10,254 10,611
-------- --------
Total assets $577,520 $578,882
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current maturities of long-term debt $ 1,455 $ 26,421
Accounts payable 29,306 24,785
Accrued liabilities
Payroll and related 18,728 17,295
Interest and other 8,571 12,926
Income taxes payable 1,047 3,653
-------- --------
Total current liabilities 59,107 85,080
Long-term debt, net of current maturities 363,915 369,382
Long-term debt, due to related party 500 --
Deferred income taxes 24,148 20,067
Commitments
Stockholder's equity
Preferred stock, $100 par value, 200,000 shares authorized -- --
Common Stock, no par value; 2,500 shares authorized
1,000 shares issued 22,328 22,328
Additional paid-in capital 32,856 9,606
Retained earnings 74,666 72,419
-------- --------
Total stockholder's equity 129,850 104,353
-------- --------
Total liabilities and stockholder's equity $577,520 $578,882
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 31
CONSOLIDATED STATEMENTS OF INCOME
California Hotel and Casino and Subsidiaries
(a wholly owned subsidiary of Boyd Gaming Corporation)
<TABLE>
<CAPTION>
(In thousands) For the years ended June 30,
- -------------------------------------------------------------- -------------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues
Casino $370,841 $351,348 $332,654
Food and beverage 116,133 108,381 98,148
Rooms 60,811 56,335 44,687
Other 34,975 32,803 28,641
-------- -------- --------
Gross revenues 582,760 548,867 504,130
Less promotional allowances 59,330 52,036 45,418
-------- -------- --------
Net revenues 523,430 496,831 458,712
Costs and expenses
Casino 186,470 174,038 161,349
Food and beverage 83,958 81,637 73,134
Rooms 23,043 22,465 19,539
Other 23,956 22,176 20,520
Selling, general and administrative 65,381 59,631 52,799
Maintenance and utilities 24,915 23,964 20,887
Depreciation and amortization 44,413 45,931 41,557
Corporate expense 11,710 10,127 9,993
-------- ------- -------
Total 463,846 439,969 399,778
-------- ------- -------
Operating income 59,584 56,862 58,934
-------- ------- -------
Other income (expense)
Interest income --- 40 199
Interest expense, net of amounts capitalized (33,820) (38,492) (30,354)
-------- -------- --------
Total (33,820) (38,452) (30,155)
-------- -------- --------
Income before provision for income taxes, cumulative effect of
a change in accounting principle and extraordinary item 25,764 18,410 28,779
Provision for income taxes 10,675 8,780 10,778
-------- -------- --------
Income before cumulative effect of a change in
accounting principle and extraordinary item 15,089 9,630 18,001
Cumulative effect of a change in accounting for income taxes --- --- 2,035
-------- -------- --------
Income before extraordinary item 15,089 9,630 20,036
Extraordinary item, net of tax benefit of $520 842 --- ---
-------- -------- --------
Net income $ 14,247 $ 9,630 $ 20,036
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 32
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDER'S EQUITY
California Hotel and Casino and Subsidiaries
(a wholly owned subsidiary of Boyd Gaming Corporation)
For the years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock Additional Total
(In thousands, ---------------------------- Paid-In Retained Stockholder's
except share data) Shares Amount Capital Earnings Equity
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES, JULY 1, 1993 1,000 $22,328 $ 2,472 $ 47,753 $ 72,553
Net income 20,036 20,036
Cash dividends on common stock (5,000) (5,000)
Equity interest in Eldorado, Inc.,
contributed 7,134 7,134
- -----------------------------------------------------------------------------------------------------------------------
BALANCES, JUNE 30, 1994 1,000 22,328 9,606 62,789 94,723
Net income 9,630 9,630
- -----------------------------------------------------------------------------------------------------------------------
BALANCES, JUNE 30, 1995 1,000 22,328 9,606 72,419 104,353
Contributed capital from parent 23,250 23,250
Dividends (12,000) (12,000)
Net income 14,247 14,247
- -----------------------------------------------------------------------------------------------------------------------
Balances, June 30, 1996 1,000 $22,328 $32,856 $ 74,666 $129,850
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 33
CONSOLIDATED STATEMENTS OF CASH FLOWS
California Hotel and Casino and Subsidiaries
(a wholly owned subsidiary of Boyd Gaming Corporation)
<TABLE>
<CAPTION>
For the years ended June 30,
---------------------------------------------------------
(In thousands) 1996 1995 1994
- -------------- --------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................... $ 14,247 $ 9,630 $ 20,036
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............. 44,413 45,931 41,557
Cumulative effect of a change in
accounting for income taxes............. -- -- (2,035)
Extraordinary item........................ 1,362 --
Deferred income taxes..................... 4,081 -- 2,564
Other..................................... (236) (114) (142)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable, net....................... (539) 1,822 (2,485)
(Increase) decrease in inventories...... (335) 295 (1,205)
(Increase) decrease in prepaid
expenses.............................. (387) 1,766 (2,856)
(Increase) decrease in other assets..... 3,184 (7,589) (6,580)
Increase (decrease) in other
current liabilities................... 3,326 (15,008) 21,317
Increase (decrease) in income
taxes payable......................... (2,606) 2,885 (605)
---------- -------- ---------
Net cash provided by operating activities..... 66,510 39,618 69,566
---------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, equipment
and other assets........................ (41,181) (37,636) (128,828)
Cash acquired in Eldorado, Inc.
acquisition............................. -- -- 1,622
---------- -------- ---------
Net cash used in investing activities......... (41,181) (37,636) (127,206)
---------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.... 146,750 7,850 --
Payments on long-term debt.................. (166,683) (22,027) (10,862)
Net borrowings under credit agreements...... (10,000) 13,000 35,000
Capital contribution from parent............ 23,250 -- --
Dividends paid.............................. (12,000) -- (5,000)
---------- -------- ---------
Net cash provided by (used in)
financing activities........................ (18,683) (1,177) 19,138
---------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................. 6,646 805 (38,502)
Cash and cash equivalents, beginning of year.. 21,798 20,993 59,495
---------- -------- ---------
Cash and cash equivalents, end of year........ $ 28,444 $ 21,798 $ 20,993
========== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest, net of amounts
capitalized............................... [$ 37,826] $ 37,662 $ 29,820
Cash paid for income taxes.................. 7,300 3,250 10,050
========== ======== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Property additions acquired on contracts
and trade payables which were accrued, but
not yet paid............................. $ 3,140 $ 4,867 $ 8,310
Unamortized financing costs written-off..... 1,387 -- --
Acquisition of Eldorado, Inc.
Assets acquired.......................... -- -- 21,796
Liabilities assumed...................... -- -- 14,662
---------- -------- ---------
Net acquisition.......................... $ -- $ -- $ 7,134
========== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS California Hotel and Casino and
Subsidiaries
(a wholly owned subsidiary of Boyd Gaming Corporation)
NOTE 1. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of California Hotel and Casino and its wholly owned subsidiaries, collectively
referred to herein as the "Company". The Company owns and operates six casino
entertainment facilities in Las Vegas, Nevada. All material intercompany
accounts and transactions have been eliminated. The Company is a wholly owned
subsidiary of Boyd Gaming Corporation.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with an
original maturity of three months or less. These investments are stated at cost
which approximates fair value.
Inventories
Inventories are stated at lower of cost or market. Cost is determined
using the first-in, first-out and retail inventory methods.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets. Costs of major improvements including interest
incurred during construction of new facilities and major additions are
capitalized; costs of normal repairs and maintenance are charged to expense as
incurred. Gains or losses on disposal of assets are recognized as incurred.
Fair Value of Financial Instruments
The carrying value of the Company's cash and cash equivalents, trade
receivables and trade payables approximates fair value because of the short
maturity of those instruments. The Company estimates fair value of its long-term
obligations based on quoted market prices or on the current rates offered to the
Company for debt of the same remaining maturities.
Goodwill
The excess of total acquisition costs over the fair value of assets
acquired is amortized using the straight-line method over forty years. As of
June 30, 1996 and 1995, accumulated amortization was $4.0 million and $3.7
million respectively.
F-7
<PAGE> 35
Revenues
Casino revenues represent the net win from gaming wins and losses.
Revenues include the retail value of room, food, beverage and other goods and
services provided to customers without charge. Such amounts are then deducted as
promotional allowances. The estimated costs of providing these promotional
allowances is charged to the casino department in the following amounts:
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------
(In thousands) 1996 1995 1994
- ------------------------ ------- ------- -------
<S> <C> <C> <C>
Rooms $ 9,482 $ 8,408 $ 8,273
Food and Beverage 44,469 40,358 35,057
Other 1,593 1,087 1,324
------- ------- -------
Total $55,544 $49,853 $44,654
======= ======= =======
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Recently Issued Accounting Standard
The FASB issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of, in March 1995. This statement, effective
for the Company's fiscal year beginning July 1, 1996, requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Management believes that adoption of
SFAS No. 121 will not have a significant effect on the financial position or
results of operations of the Company.
Income Taxes
The Company is a wholly owned subsidiary of Boyd Gaming Corporation and
is included in Boyd Gaming Corporation's consolidated tax return. Boyd Gaming
Corporation accounts for income taxes in accordance with the Statement of
Financial Accounting Standard (SFAS) No. 109, Accounting for Income Taxes. SFAS
109 requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred income taxes reflect the net tax effects of
(i) temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes,
and (ii) operating loss and tax credit carryforwards.
F-8
<PAGE> 36
- -------------------------------------------------------------------------------
NOTE 2. - RELATED PARTIES
In connection with the closing of Boyd Gaming Corporation's initial
public offering in October 1993, the Company purchased Eldorado, Inc., owner of
Eldorado Casino and Jokers Wild Casino. The acquisition was accounted for as a
purchase at historical cost. Boyd Gaming Corporation issued 2,723,165 shares of
common stock in exchange for all of the outstanding stock of Eldorado, Inc. and
the assumption of debt and other liabilities. For the year ended June 30, 1994,
revenue and net income on a proforma basis as if Eldorado, Inc., were owned by
the Company for the entire fiscal year were $467 million and $20.6 million
respectively.
- -------------------------------------------------------------------------------
NOTE 3. - ACCOUNTS RECEIVABLE
Accounts receivable at June 30 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- --------------------------------------- ------ ------
<S> <C> <C>
Casino $4,834 $5,057
Hotel 2,988 2,275
Other 1,151 1,109
------ ------
Total 8,973 8,441
Less allowance for doubtful accounts 1,559 1,566
------ ------
Total $7,414 $6,875
====== ======
</TABLE>
- -------------------------------------------------------------------------------
NOTE 4. - PROPERTY, EQUIPMENT AND LEASEHOLD INTEREST
Property, equipment and leasehold interest consist of the following at
June 30:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- ------------------------------------------------ -------- --------
<S> <C> <C>
Land $101,934 $100,863
Buildings and improvements 418,190 410,614
Furniture and equipment 259,583 250,033
Leasehold improvements 4,909 4,599
Construction in progress 16,938 5,504
-------- --------
Total fixed assets 801,554 771,613
Less accumulated depreciation and amortization 310,879 277,471
-------- --------
Net fixed assets $490,675 $494,142
======== ========
</TABLE>
F-9
<PAGE> 37
Depreciation and amortization are computed using the straight-line
method over the following useful lives:
<TABLE>
<CAPTION>
Useful Lives
- -----------------------------------------------
<S> <C>
Buildings and improvements 4 to 40 years
Furniture and equipment 3 to 30 years
Leasehold improvements 3 to 40 years
</TABLE>
Interest costs of $2.0 and $.3 and $2.3 million were capitalized in
1996, 1995 and 1994, respectively during construction of new properties and
major additions.
- ------------------------------------------------------------------------------
NOTE 5. - LONG-TERM DEBT
Long-term debt at June 30 consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- ------------------------------------- -------- ---------
<S> <C> <C>
Notes payable under credit agreements $174,000 $203,000
11% senior subordinated notes 185,000 185,000
Other 6,870 7,803
-------- --------
Total long-term debt 365,870 395,803
Less current maturities 1,455 26,421
-------- --------
Total $364,415 $369,382
======== ========
</TABLE>
On June 19, 1996, the Company and its parent, Boyd Gaming Corporation,
entered into a $500 million five-year reducing, revolving bank credit facility
which matures in June 2001 (the "New Bank Credit Facility"). The New Bank Credit
Facility replaced the Company's amended senior credit agreement and certain of
its parent's loans. Total availability under the New Bank Credit Facility will
be reduced by $25 million at the end of two and one-half years and reduced by an
additional $50 million at the end of each six-month thereafter until maturity.
As of June 30, 1996, the Company and its parent had unused availability of $265
million under the New Bank Credit Facility. Interest on the New Bank Credit
Facility is based upon the agent bank's quoted reference rate or London
Interbank Offered Rate, at the discretion of the Company. The average interest
rate under the New Bank Credit Facility at June 30, 1996 was 7.2%.
The New Bank Credit Facility is collateralized by the real and personal
property comprising six casino hotel properties owned by the Company and its
parent and by related security agreements with assignments with assignment of
rents.
The New Bank Credit Facility contains certain financial covenants,
limitations on the incurrence of debt and limitations on the incurrence of
capital expenditures and investments, all as defined in the New Bank Credit
Facility.
F-10
<PAGE> 38
The Company, through its wholly-owned subsidiary California Hotel
Finance Company, has $185 million principal amount of 11% senior subordinated
notes due December 2002. The notes are unconditionallly guaranteed on a senior
subordinated and unsecured basis by the Company. The guarantee is subordinated
to all existing and future senior debt (as defined in the Indenture related to
the notes) of the Company (approximately $180.9 million at June 30, 1996) and is
effectively subordinated to all existing and future senior indebtedness and
other liabilities (including trade payables) of the subsidiaries of the Company
(approximately $24.8 million at June 30, 1996). The Company is not in default
and there are no payment blockages with respect to the notes. The net proceeds
were used to refinance certain indebtedness of the Company and provide for
working capital needs and expansion of the Company's operations. The notes
require semi-annual interest payments on June 1 and December 1 of each year
until December 1, 2002, at which time the principal balance is due and payable.
The notes may be redeemed at the Company's option any time after December 1,
1997 at redemption prices ranging from 104.125% in 1997 to 100% in 1999. The
notes contain certain covenants regarding incurrence of debt, sales and
disposition of assets, mergers or consolidations and limitations on restricted
payments (as defined in the indenture relating to the notes). As a result of
these restrictions, at June 30, 1996 the Company had a portion of its retained
earnings and its net assets in the amounts of $51.5 million and $106.7 million,
respectively, that were not available for distribution as dividends to Boyd
Gaming.
On June 7, 1996 the Company's parent, Boyd Gaming, filed a registration
statement with the Securities and Exchange Commission which will allow the
issuance of up to $200 million of senior notes of Boyd Gaming Corporation. The
notes will be guaranteed by all existing significant subsidiaries of Boyd Gaming
Corporation, including the Company. The guaranties will be full, unconditional
and joint and several. The net proceeds to Boyd Gaming from the notes offering
will be used to reduce outstanding indebtedness under Boyd Gaming Corporation
and the Company's New Bank Credit Facility. Amounts available under the New Bank
Credit Facility are expected to be used to redeem the parent's 10.75% Notes.
The estimated fair value of the Company's long-term debt at June 30,
1996 was approximately $374 million, versus its book value of $366 million. At
June 30, 1995 the estimated fair value of the Company's long-term debt was
approximately $403 million, versus its book value of $396 million.
In connection with the closure of the New Bank Credit Facility, the
Company recorded a $0.8 million extraordinary loss (net of income tax benefit of
$.5 million) related to the write-off of unamortized bank fees.
Interest rates on the Company's other long-term debt range from 7.2% to
16.8%.
Management believes the Company and its subsidiaries are in compliance
with all covenants contained in its long-term agreements at June 30, 1996.
F-11
<PAGE> 39
The scheduled maturities of long-term debt for the years ending June 30
are as follows:
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------ --------
<S> <C>
1997 $ 1,455
1998 1,546
1999 1,636
2000 1,180
2001 174,303
Thereafter 185,750
--------
Total $365,870
========
</TABLE>
- -------------------------------------------------------------------------------
NOTE 6. - LEASES
Future minimum lease payments required under noncancelable leases
(principally for land) as of June 30, 1995 are as follows:
<TABLE>
<CAPTION>
Operating
(In thousands) Leases
- ------------------------------------ ---------
<S> <C>
1997 $ 2,466
1998 2,103
1999 2,023
2000 1,969
2001 1,962
Thereafter 76,156
-------
Total minimum payments required $86,679
=======
</TABLE>
Rent expense for the years ended June 30, 1996, 1995 and 1994 was $2.7
million, $2.6 million and $2.3 million, respectively and is included in selling,
general and administrative expenses.
- ------------------------------------------------------------------------------
NOTE 7. - EMPLOYEE BENEFIT PLANS
The Company contributes to multi-employer pension plans under various
union agreements. Contributions, based on wages paid to covered employees,
totaled approximately $2.2 million, $2.0 million and $2.2 million in 1996, 1995
and 1994, respectively. The Company's share of the unfunded liability related to
multi-employer plans, if any, is not determinable.
The Company participates in Boyd Gaming Corporation's retirement
savings plan under Section 401(k) of the Internal Revenue Code covering its
non-union employees. The plan allows employees to defer up to the lesser of the
Internal Revenue Code - prescribed maximum amount or 15% of their income on a
pre-tax basis through contributions to the plan. On January 1, 1996 the Company
combined its profit sharing plan into the 401(k) plan. The Company expensed its
portion of voluntary contributions of $1.2 million, $.7 million and $.8 million
in 1996, 1995 and 1994, respectively, to the Company's 401(k) profit sharing
plan and trust.
F-12
<PAGE> 40
- -------------------------------------------------------------------------------
NOTE 8. - INCOME TAXES
A summary of the provision for income taxes for the years ended June 30
is as follows:
Provision for Income Taxes:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- -------------- ------- ------ ------
<S> <C> <C> <C>
Current $ 7,677 $6,752 $ 8,215
Deferred 2,998 2,028 2,563
------- ------ -------
$10,675 $8,780 $10,778
======= ====== =======
</TABLE>
The following table provides a reconciliation between the federal
statutory rate and the effective income tax rate from continuing operations at
June 30, where both are expressed as a percentage of income.
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Tax provision at statutory rate 35.0% 35.0% 35.0%
Increase/(decrease) resulting from:
Company provided benefits 4.3 8.8 1.5
Statutory rate change --- --- 2.4
Other, net 2.1 3.9 (1.4)
----- ----- -----
41.4% 47.7% 37.5%
===== ===== =====
</TABLE>
The tax items comprising the Company's net deferred tax liability as of
June 30 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- ----------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Deferred tax liabilities:
Difference between book and tax basis of property $27,053 $25,856 $22,018
Reserve differential for gaming activities 1,882 903 1,122
Difference between book and tax basis of amortizable assets 995 1,115 ---
Other 194 134 89
------- ------- -------
30,124 28,008 23,229
------- ------- -------
Deferred tax assets:
Alternative minimum tax credit carryforward 4,474 6,826 4,169
Provision for doubtful accounts 759 752 795
Other 743 363 1,083
------- ------- -------
5,976 7,941 6,047
------- ------- -------
Net deferred tax liability $24,148 $20,067 $17,182
======= ======= =======
</TABLE>
F-13
<PAGE> 41
Boyd Gaming Corporation allocates income tax expense or benefit to the
Company as if the Company was filing separate tax returns. Adoption of SFAS 109
had no effect on the amount of income tax expense allocated to the Company
during the periods ended June 30, 1996, 1995 or 1994.
The Internal Revenue Service has examined the Company's federal
consolidated income tax returns through the year ended June 30, 1989. The
Company is currently under examination for fiscal years 1990 through 1992.
Management of the Company does not believe any significant adjustments will be
required.
- -------------------------------------------------------------------------------
NOTE 9. - LEGAL PROCEEDINGS
The Company is a defendant in various pending litigation. In the
opinion of management, all pending claims in such litigation will not, in the
aggregate, have a material adverse effect on the Company.
F-14
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on September
26, 1996.
CALIFORNIA HOTEL AND CASINO
By /s/ KEITH SMITH
--------------------------------
Keith Smith
Vice President, Controller
IV-1
<PAGE> 43
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William S. Boyd, Ellis Landau and Keith
Smith and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- --------------------------- ------------------
<S> <C> <C>
/s/ WILLIAM S. BOYD President and Director September 26, 1996
- ---------------------------- (Principal Executive Officer)
William S. Boyd
/s/ ELLIS LANDAU Senior Vice President, Chief September 26, 1996
- ---------------------------- Financial Officer and Treasurer
Ellis Landau (Principal Financial Officer)
/s/ KEITH SMITH Vice President and Controller September 26, 1996
- ---------------------------- (Principal Accounting Officer)
Keith Smith
/s/ CHARLES L. RUTHE Director September 26, 1996
- ----------------------------
Charles L. Ruthe
/s/ ROBERT L. BOUGHNER Director September 26, 1996
- ----------------------------
Robert L. Boughner
</TABLE>
IV-2
<PAGE> 44
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT PAGE
- --------------- -----------------------------------------------------------------------------------
<S> <C> <C>
3(i) (1) Articles of Incorporation of the Company.
3(iii) (1) Bylaws of the Company.
10.1 (2) First Amended and Restated Credit Agreement dated as of
September 2, 1993, among the Company, Certain Commercial
Lending Institutions, CIBC Inc., First Interstate Bank of
Nevada and Bank of America and related Exhibits.
10.2 (1) Form of Indenture relating to $185,000,000 aggregate
principal amount of 11% Senior Subordinated Notes due 2002
of California Hotel Finance Corporation ("Finance"),
including the Form of Note.
10.3 (2) Loan Agreement dated March 2, 1989, by and between First
Interstate Bank of Nevada and Eldorado, Inc., including
related Promissory Note, and related Revision Agreement
dated October 31, 1989, between First Interstate Bank of
Nevada, N.A. and Eldorado, Inc.
10.4 (1) Ninety-Nine Year Lease dated June 30, 1954, between
Fremont Hotel, Inc., and Charles L. Ronnow, C.L. Ronnow
and J.L. Ronnow, and Alice Elizabeth Ronnow.
10.5 (1) Lease Agreement dated October 31, 1963, between Fremont
Hotel, Inc., and Cora Edith Garehime.
10.6 (1) Lease Agreement dated December 31, 1963, between Fremont
Hotel, Inc., Bank of Nevada and Leon H. Rockwell, Jr.
10.7 (1) Lease Agreement dated June 7, 1971, between Anthony
Antonacci, Margaret Fay Simon and Bank of Nevada, as Co-
Trustees under Peter Albert Simon's Last Will and Testament,
and related Assignment of Lease dated February 25, 1985 to
Sam-Will, Inc. and Fremont Hotel, Inc.
10.8 (1) Lease Agreement dated July 25, 1873, between CH&C and
William Peccole, as Trustee of the Peter Peccole 1970 Trust.
10.9 (1) Lease Agreement dated July 1, 1974, between Fremont Hotel,
Inc., and Bank of Nevada, Leon H. Rockwell, Jr. and Margorie
Rockwell Riley.
10.10 (1) Ground Lease Agreement dated July 5, 1978, between the
Company and Irene Elizabeth Carey, as Trustee of the Carey
Survivor's Trust U/A October 18, 1972 and Irene Elizabeth
Carey, as Trustee of the Carey Family Trust U/A October 18,
1972.
</TABLE>
<PAGE> 45
<TABLE>
<S> <C>
10.11 (1) Ninety-Nine Year Lease dated December 1, 1978, between
Matthew Paratore, and George W. Morgan and LaRue
Morgan, and related Lease Assignment dated November 10,
1987 to Sam-Will, Inc., d/b/a Fremont Hotel and Casino.
10.12 (3) Collective Bargaining Agreement effective as of January 17,
1994, between Sam-Will, Inc., d/b/a Fremont Hotel and
Casino and the International Union of Operating Engineers,
Local No. 501, AFL-CIO (slot technician unit).
10.13 (2) Labor Agreement dated as of January 13, 1993, between Mare-
Bear, Inc., d/b/a Stardust Hotel & Casino, and the International
Union of Operating Engineers, Local No. 501, AFL-CIO.
10.14 (2) Labor Agreement dated as of January 13, 1993, between Sam-
Will, Inc., d/b/a Fremont Hotel and Casino, and the
International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.15 (2) Labor Agreement dated January 13, 1993, between the
Company and the International Union of Operating Engineers,
Local No. 501; AFL-CIO.
10.16 (1) Agreement dated as of May 1, 1991, between Mare-Bear, Inc.,
d/b/a Stardust Hotel and Casino, and the Local Joint Executive
Board of Las Vegas for and on behalf of the Culinary Workers
Union, Local No. 226 and Bartenders Union, Local No. 165.
10.17 (1) Agreement dated May 1, 1991, between Sam-Will, Inc., d/b/a
Fremont Hotel and Casino, and the Local Joint Executive
Board of Las Vegas for and on behalf of the Culinary Workers
Union, Local No. 226 and Bartenders Union, Local No. 165.
10.18 (2) Collective Bargaining Agreement dated September 12, 1991,
between Eldorado Casino and the Local Joint Executive Board
of Las Vegas for and on behalf of Culinary Workers Union,
Local No. 226 and Bartenders Union, Local 165.
10.19 (1) Collective Bargaining Agreement dated March 14, 1991,
between Mare-Bear, Inc., d/b/a Stardust Hotel and Casino, and
the Musicians Union of Las Vegas, Local No. 369, American
Federation of Musicians, AFL-CIO.
10.20 (1) Labor Agreement dated May 1, 1991, between Mare-Bear,
Inc., d/b/a Stardust Hotel & Casino, and the International
Alliance of Theatrical Stage Employees and Moving Picture
Machine Operators of the United States and Canada, Local
720, Las Vegas, Nevada.
</TABLE>
<PAGE> 46
<TABLE>
<S> <C>
10.21 (1) Labor Agreement dated May 1, 1991, between Mare-Bear,
Inc., d/b/a Stardust Hotel & Casino, and the International
Alliance of Theatrical Stage Employees and Moving Picture
Machine Operators of the United States and Canada, Local
720, Las Vegas, Nevada. (Theatrical Wardrobe Employees).
10.22 (1) Labor Agreement dated June 14, 1983, between Stardust Hotel
and Casino and the International Brotherhood of Painters and
Allied Trades, Local Union No. 159, AFL-CIO.
10.23 (1) Labor Agreement dated June 1, 1983, between Stardust Hotel
and Casino and the United Brotherhood of Carpenters and
Joiners of America, Local Union No. 1780, Las Vegas,
Nevada.
10.24 (1) Labor Agreement dated August 1, 1983, between Stardust
Hotel and the International Brotherhood of Electrical
Workers, Local Union No. 357, AFL-CIO.
10.25 (1) Implemented Proposal dated June 15, 1992, between Stardust
Hotel and Casino and the Back-End Teamsters Local Union
No. 995.
10.26 (1) Implemented Proposal dated June 15, 1992, between Fremont
Hotel and Casino and the Back-End Teamsters Local Union
No. 995.
10.27 (2) Agreement and Plan of Reorganization dated as of June 25,
1993, by and between Eldorado, Inc., Boyd Gaming
Corporation, the Company and certain stockholders and
noteholders of Eldorado.
10.28(3) Promissory Note dated December 30, 1991, from Eldorado,
Inc., to Samuel A. Boyd in the principal sum of $600,000.
10.29(3) Building Contract dated July 15, 1993, between Marnell
Corrao Associates, Inc. and Sam's Town Hotel and Gambling
Hall for Sam's Town Addition Phase V.
10.30(4) Credit Agreement dated as of June 19, 1996, by and among
Boyd Gaming and Registrant on the borrowers, certain
commercial lending instructions as the lenders, Canadian
Imperial Bank of Commerce as the Agent, Bank of America
National Trust and Savings Association and Wells Fargo Bank
N.A. as co-managing Agents and Bankers Trust Company,
Credit Lyannais and Societe Generale as co-Agents.
21.1 Subsidiaries of the Company.
24.1 Powers of Attorney. Reference is made to Page IV-2.
27 Financial Data Schedule.
</TABLE>
<PAGE> 47
<TABLE>
<S> <C>
(1) Incorporated by reference to the Company's Registration
Statement on Form S-1, File No. 33-51672, which became
effective on November 18, 1992.
(2) Incorporated by reference to the Registration Statement on
Form S-1, File No. 33-64006, of Boyd Gaming Corporation, which
became effective on October 15, 1993.
(3) Incorporated by reference to the Company's Annual Report on
Form 10(K) for the fiscal year ended June 30, 1995.
(4) Incorporated by reference to Boyd Gaming's Current Report on
Form 8(K) dated June 19, 1996.
</TABLE>
<PAGE> 1
EXHIBIT 21.1
California Hotel and Casino
Significant Subsidiaries
Mare-Bear, Inc.
(State of Incorporation or Organization) Nevada
(IRS Employer Identification Number) 88-0203692
Sam-Will, Inc.
(State of Incorporation or Organization) Nevada
(IRS Employer Identification Number) 88-0203673
Eldorado, Inc.
(State of Incorporation or Organization) Nevada
(IRS Employer Identification Number) 88-0093922
MSW, Inc.
(State of Incorporation or Organization) Nevada
(IRS Employer Identification Number) 88-0310765
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1,000
<CASH> 28,444
<SECURITIES> 0
<RECEIVABLES> 8,973
<ALLOWANCES> 1,559
<INVENTORY> 5,822
<CURRENT-ASSETS> 52,452
<PP&E> 801,554
<DEPRECIATION> 310,879
<TOTAL-ASSETS> 577,520
<CURRENT-LIABILITIES> 59,107
<BONDS> 0
0
0
<COMMON> 22,328
<OTHER-SE> 107,522
<TOTAL-LIABILITY-AND-EQUITY> 577,520
<SALES> 523,430
<TOTAL-REVENUES> 523,430
<CGS> 0
<TOTAL-COSTS> 463,846
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,820
<INCOME-PRETAX> 25,764
<INCOME-TAX> 10,675
<INCOME-CONTINUING> 15,089
<DISCONTINUED> 0
<EXTRAORDINARY> 842
<CHANGES> 0
<NET-INCOME> 14,247
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
