<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ............... to ...............
Commission File Number 0-21732
PRIMADONNA RESORTS, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0297563
(State of Incorporation) (I.R.S. Employer Identification No.)
P.O. Box 95997, Las Vegas, Nevada 89193-5997
(Address of principal executive offices)
Registrant's telephone number, including area code: (702) 382-1212
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
___________________ _____________________
Not applicable Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $ .01 par value
___________________________________________________________
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 16, 1998: $299,788,863
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 16, 1998: 28,917,600 shares of Common Stock, $ .01 Par
Value
Part III incorporates information by reference from the Registrant's definitive
Proxy Statement to be filed with the Commission within 120 days after the close
of the Registrant's fiscal year.
Exhibit Index on page 68
Total number of pages 84
1
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
FORM 10-K
INDEX
Page no.
PART I
Item 1. Business................................................ 3 - 14
Item 2. Properties.............................................. 15 - 16
Item 3. Legal Proceedings....................................... 16 - 17
Item 4. Submission of Matters to a Vote of Security Holders..... 17
Part II
Item 5. Market for Registrant's Common Stock and Related
Stockholders Matters................................. 18
Item 6. Selected Financial Data................................. 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 20 - 25
Item 8. Consolidated Financial Statements and
Supplementary Data................................... 26 - 61
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.................. 62
Part III
Item 10. Directors and Executive Officers of the Registrant...... 62
Item 11. Executive Compensation.................................. 62
Item 12. Security Ownership of Certain Beneficial Owners
and Management....................................... 62
Item 13. Certain Relationships and Related Transactions.......... 62
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.......................................... 63- 66
Signatures.............................................. 67
2
<PAGE>
PART I
Item 1. Business
Primadonna Resorts, Inc. and subsidiaries ("Company") owns and operates three
resort-casinos on both sides of Interstate 15 at the California/Nevada border,
in Primm, Nevada ("Primm"), a 50% interest in New York-New York Hotel & Casino,
LLC ("New York-New York") on the Las Vegas "Strip", and the Primm Valley Golf
Club ("Golf Club") in California.
Buffalo Bill's Resort & Casino ("Buffalo Bill's"), Primm Valley Resort & Casino
("Primm Valley"), and Whiskey Pete's Hotel & Casino ("Whiskey Pete's" and
together with Buffalo Bill's and Primm Valley, "Primm Properties") form a major
destination location and offer, to the more than eleven million vehicles
traveling through Primm on Interstate 15, the first opportunity to wager upon
entering Nevada, and the last opportunity before leaving. The Company estimates
that more than 25% of all passing vehicles stopped at the Primm Properties in
1997.
The Company is a 50% joint venture partner with MGM Grand, Inc. ("MGM") in
New York-New York, which was completed in late December 1996, and opened to the
public on January 3, 1997. The New York themed mega-resort is located at the
premier location on the Las Vegas "Strip", the corner of Tropicana Avenue and
Las Vegas Boulevard.
In February 1997, the Company opened the challenging championship 18-hole Primm
Valley Golf Club, designed by Tom Fazio, and located in California, four miles
south of Primm. This represented the first phase of a golf educational complex
which will include an additional 18-hole championship course, opening in April
1998, and a golf academy operated by Compusport, opening in the spring of 1998.
Business Strategy
The Company's business strategy at Primm is to capitalize on its unique and
advantageous location on the heavily traveled Interstate 15 corridor.
Approximately 11.3 million, 10.8 million and 10.6 million vehicles traveled
through Primm on Interstate 15 in 1997, 1996, and 1995, respectively. The next
closest casino-hotel is located in Jean, Nevada, approximately eleven miles
north towards Las Vegas. Most of the land between Primm and Jean that is not
owned, leased or subject to the Company's exclusive gaming rights, is owned by
the Federal Government. The Primm Properties offer a convenient stop for
Interstate 15 travelers, and an attractive destination location for Southern
California residents, and to a lesser extent, visitors from Las Vegas and
elsewhere.
The Company positions its Primm Properties to appeal to "tiered" market
segments including the family/entertainment-oriented Buffalo Bill's, the
conference/leisure-oriented Primm Valley, and the value-oriented Whiskey
Pete's. These hotel-casinos attract drive-by and overnight customers offering
good values on dining and lodging, with an emphasis on service, quality,
cleanliness and comfort. The Primm Properties offer an array of amenities and
attractions, including 133,400 square feet of casino space, 2,676 hotel rooms,
3
<PAGE>
a 25,000 square foot conference center, 10 restaurants, and a variety of rides.
The three casinos include approximately 4,525 slot machines, 107 table games,
poker, keno, and race and sports books. In addition, the Primm Properties offer
one-of-a-kind swimming pools, a movie theater, motion simulation theaters,
ferris wheel, bowling center, an interactive water flume ride, "The Desperado"
roller coaster and the "Turbo Drop" thrill ride. These attractions encourage
visits by families and provide entertainment for children, while allowing
adults to spend more time in the Company's casinos. The 6,100-seat Star of the
Desert Arena hosts top-name entertainers, and has allowed the Company to use
special events as part of extended stay packages.
To further advance Primm as a destination location, increase mid-week
utilization, and attract a more upscale clientele, the Company opened the Golf
Club in February 1997. A second 18-hole course , opening in April 1998, and a
golf school are under construction with opening expected in the spring of 1998.
Additionally, in August 1997 the Company opened a 25,000 square foot
conference center at Primm Valley. The Company began to pursue group and
conference business to coincide with the opening. In addition, a 525,000 square
foot themed outlet mall is being constructed adjacent to Primm Valley by third
party developers; the anticipated opening is July 1998. The Company expects
these enhancements to increase both the visibility and desirability of the
Primm location.
The Company is actively continuing bus and tour contracts with major operators.
Special events and entertainment promotions are held to further enhance the
destination concept as well as to foster repeat visits from patrons.
A major element of the Company's business strategy at Primm is to emphasize
slot machine play. Slot play contributes to consistent cash flow, profit
generation, and provides significant operating leverage because of lower
associated labor costs. The Company's low minimum and maximum ($500) betting
limits for its table games also helps stabilize its cash flows. The Company
has installed player tracking systems to encourage customer loyalty, and
increased visits. Additionally, the Company uses these systems to more
efficiently target and administer its direct mail programs.
The Company's strategy at New York-New York is to create an atmosphere that
will cause visitors to believe that the hotel, with its New York skyline, the
"Manhattan Express" roller coaster and its Coney Island style amusement center,
are a "must-see" on any Las Vegas visit. New-York-New York is targeted towards
the upper end of the middle market.
The Company's growth and diversification strategy is to develop or acquire
additional casino operations by capitalizing upon its design, development,
marketing, and operational expertise. The Company is seeking opportunities to
expand beyond Primm and New York-New York, however, the Company is highly
selective in its evaluation of expansion opportunities. The Company's
expansion activities focus on (i) venues with long-term growth potential,
political stability, and a reliable regulatory environment, (ii) unique
locations that provide immediate access to high population density or traffic
flow and some degree of market protection, (iii) development sites with enough
available land to grow, and (iv) projects that generate meaningful cash flow
and an above average return on investment. The Company believes that it is well
positioned to pursue business opportunities either alone, or through strategic
alliances with other entities.
4
<PAGE>
Current Operations
Buffalo Bill's Resort & Casino
Buffalo Bill's is a western-themed resort-casino, targeted towards the family/
entertainment market segment, offering diverse amenities that appeal to all age
groups. The 35 foot high ceiling gives one the feel of the wide open spaces of
the old west. Buffalo Bill's has 1,239 rooms in two 16-story towers. The
complex includes approximately 46,000 square feet of casino space including
approximately 1,700 slot machines, 43 table games, a keno lounge, and a race
and sports book; four restaurants; a deli; two bars; two motion simulation
theaters; a movie theater; the 6,100-seat Star of the Desert Arena; a Ghost
Town attraction including various novelty, gift, and food specialty shops; a
buffalo shaped swimming pool with a Jacuzzi; a video arcade and midway games.
In addition, Buffalo Bill's features "The Desperado", the tallest and fastest
roller coaster in the western hemisphere, and the interactive "Adventure
Canyon" water log flume ride, both of which are accessible from within the
casino. In April 1997 the Company opened another thrill ride , the "Turbo
Drop", which gives riders the experience of weightlessness from 6Gs of negative
force.
Whiskey Pete's Hotel & Casino
Whiskey Pete's attracts travelers seeking a value-oriented casual and friendly
atmosphere. The congenial, "down to earth" atmosphere is promoted through the
Gold Rush period dress of the employees, the use of wood and bright colors
throughout the interior, and the "home-style" cooking offered in the Whiskey
Pete's restaurants.
Whiskey Pete's, an 1850's Gold Rush themed hotel-casino, offers a 36,400
square foot casino, three restaurants, a snack bar, three bars and a lounge,
a 650 seat showroom, 777 rooms, swimming pool with a water slide, a Jacuzzi,
and an arcade. The casino includes approximately 1,315 slot machines, 30 table
games, a keno lounge, and a race and sports book. The casino entrance features
the original Bonnie & Clyde "Death Car" and the Dutch Schultz-Al Capone
"Gangster Car".
Primm Valley Resort & Casino
The former Primadonna Resort & Casino was re-themed during 1997 to a golf
resort atmosphere, and renamed "Primm Valley Resort & Casino". A room
renovation project was completed at the end of 1996, and the casino area decor
transformation occurred in 1997 in conjunction with the completion of a 25,000
square foot conference center and a 20,000 square foot casino expansion, which
were completed in August. In October, a new 600 space parking garage was
opened. The gourmet restaurant, now called GP's, was remodeled in 1997, as was
the buffet. The expanded monorail system has been completed and now connects
Primm Valley with both Buffalo Bill's and Whiskey Pete's.
Current projects for 1998 include the renovation of the coffee shop and the
addition of a piano bar lounge in the center of the casino area. An additional
34,000 square feet of casino, restaurant and retail space will be added in
July, to tie-in directly with the new retail outlet mall discussed below.
5
<PAGE>
Primm Valley currently has a 51,000 square foot casino, including 1,510 slot
machines and 34 table games, keno lounge, poker and a race and sports book, 660
rooms, three restaurants, two bars, a snack bar, ferris wheel, arcade, and
bowling center. The property is a four-story diamond shaped building with a
large interior courtyard consisting of a swimming pool, Jacuzzi and garden.
Primm Valley Golf Club
The Primm Valley Golf Club, located approximately four miles south in
California, was completed in December 1996 and opened to the public in February
1997. The first phase offered an 18-hole Tom Fazio designed championship
course, a driving range and other practice facilities, and a clubhouse. The
second phase, currently under construction, includes a second Tom Fazio
designed 18-hole course, to be completed by April 1998. The Compusport Golf
Academy opened in March 1998, providing advanced training facilities. The
addition of the golf course, coupled with the Primm Valley re-theming and
conference center, is expected to appeal to groups seeking an attractive
setting for mid-week conferences, with golf as a recreational option. The
Company also believes that the attractiveness of the Golf Club is enhanced by
the limited number of premier golf facilities available to Las Vegas visitors
and residents.
New York-New York
The 48 story New York-New York Hotel & Casino complex includes such landmarks
as the Statue of Liberty, Empire State Building, Central Park, and the Brooklyn
Bridge. This New York-themed property contains an 84,000 square foot casino,
2,033 rooms, themed restaurants and lounges, retail outlets, the "Manhattan
Express" roller coaster and a Coney Island style amusement area. The casino has
approximately 2,400 slots machines, 71 table games, a keno lounge, and a race
and sports book. The property includes approximately 30,000 square feet of
retail space, and a showroom which opened in mid-1997.
In March 1997, New York-New York acquired an adjacent 2 acre parcel of land
which is available for future expansion.
The operating agreement for New York-New York contains a buy/sell provision
allowing either party to make an offer at a stated price for the other party's
interest. The other party must either sell its interest, or buy the offering
party's interest, at the stated price. There are no parameters or constraints
within the agreement for determining the stated price. New York-New York is
managed by a chief executive officer appointed by the board of directors
consisting of three representatives from each company. If the Company and MGM
are unable to reach agreement on any joint venture decision, there is no
mechanism for resolving the dispute other than through the buy/sell provision.
Amenities
The Company offers numerous other amenities at Primm. Interstate 15 travelers
have 24-hour Unocal and Texaco service stations as well as a truck stop at
Whiskey Pete's that offers a lounge and shower facilities. Located adjacent to
Primm Valley is the RV Village offering 199 full-service hookups for
recreational vehicles. Subleased to a franchisee is a 24-hour McDonald's.
6
<PAGE>
The Primm Properties also benefit from a convenience store (owned by the
Company's Chairman of the Board and his brothers and sisters) ("Primm Family"),
located just south of Primm on the California side of the border. This store
attracts Las Vegas residents who want to purchase California lottery tickets.
Other Projects
Retail Outlet Mall
The team of Sheldon Gordon and Randy Brant, developers of the Forum Shops at
Caesars Palace, along with the TrizecHahn Centers, intend to develop up to a
1.0 million square foot highly themed retail outlet mall on 100 acres of land
adjacent to Primm Valley and owned by Primm 650 Limited Partnership, a
partnership controlled by the Primm Family. The first phase of the "Fashion
Outlet of Las Vegas" is approximately 525,000 square feet and is expected to
be open in July 1998. The Company may incur approximately $1.5 million of
infrastructure costs related to roadways and water/sewer systems to accommodate
the development, which is being built and financed by the developers. The
Company is planning to directly connect the Primm Valley casino to the mall.
Southwest
The Company has advanced a total of $3.8 million to Southwest Casino and Hotel
Corp. ("Southwest"), a developer and manager of Native American gaming
enterprises. Southwest managed a Class II Indian gaming facility in Eagle Pass,
Texas for the Kickapoo Traditional Tribe of Texas until its recent termination.
Southwest also manages a Class II Indian gaming facility just outside Oklahoma
City, Oklahoma for the Cheyenne and Arapaho Tribes.
The Company holds a $1.6 million Convertible Term Promissory Note which is
convertible into preferred stock of Southwest. No payments have been made on
this note, and in 1996, based upon the financial condition of Southwest, the
Company fully reserved the $1.6 million and related interest. The Company also
holds a $2.2 million Demand Promissory Note which was secured by the management
contract on the Kickapoo gaming facility. Southwest has made $100,000 in
sporadic payments on this note. No reserve has been established for this note
due to its collateralization. As a result of a termination settlement of the
Southwest management contract with the Kickapoo Tribe, effective December 31,
1997, Southwest assigned the Company two notes, aggregating $2.2 million, due
Southwest from the Kickapoo Tribe. The Company has received $475,000 in
payments on those notes through March 1998.
Competition
The Company's Primm Properties compete primarily with two casino-hotels
located 11 miles north along Interstate 15 in Jean, Nevada, and with numerous
other casino-hotels in the Las Vegas area, principally on the basis of
location, range and pricing of amenities, gaming mix, and overall atmosphere.
The New York-New York Hotel & Casino competes primarily with the other mega-
resorts and hotels on Las Vegas Boulevard, and with a few major casino-hotels
in downtown Las Vegas.
7
<PAGE>
Several new major resort projects have been announced and are expected to be
completed within the next two years. This increase in capacity may
increase competition for customers both at the Company's Primm Properties and
at New York-New York. Since many of the Company's current customers stop at
Primm as they are driving on Interstate 15 to and from major casino-hotels
located in Las Vegas, the Company believes that its success at Primm is also
favorably influenced by the popularity of the Las Vegas casino-hotels.
To a lesser extent, the Company's Primm resort-casinos also compete with gaming
establishments in or near Laughlin, Nevada, approximately 90 miles away in
Southern Nevada. Laughlin caters to moderate to middle income, value oriented
customers who travel primarily by car, bus, and recreational vehicle. The
addition of major gaming properties or the substantial expansion of existing
Laughlin casino-hotels could have an adverse effect on the number of customers
visiting the Company's Primm Properties.
Since the 1980's, legalized gaming opportunities have proliferated throughout
the United States. Some form of gaming is legal in all 50 states except Hawaii
and Utah. Riverboat, dockside or land-based gaming is currently legal in
several states, and in excess of 100 compacts have been negotiated between
Indian tribes and certain states to allow various forms of gaming on Indian
owned land. California sponsors a lottery (as do numerous other states) and
allows other non-casino style gaming, including pari-mutuel wagering, card
parlors and bingo.
There are currently Indian casinos in California and Arizona, several of
which are quite large and offer slot machines and table games. Indian casinos
located along Interstate 10 in the San Bernadino-Palm Springs region and in the
greater San Diego area pose the most direct competition to the Primm
Properties. Despite the fact that compacts have not been negotiated between
these Tribes and the State of California, these Indian casinos have operated
with casino-type gaming.
The State of California recently completed negotiations for an intended "Model
Compact" with the Pala Band of Mission Indians. The ultimate impact of this
compact on currently operating Indian casinos is unknown. Additionally, there
are state and local initiatives as well as legislation continually being
presented to allow some form of Indian and non-Indian casino gaming at various
locales in California.
While the Company believes that the continued spread of legalized gaming may,
in the future, present the Company with additional opportunities for expansion,
increased legalized gaming in some jurisdictions, particularly in areas close
to Nevada, such as Southern California and Arizona, could adversely affect the
Company's operations, particularly the number of bus groups and individuals
making day trips to the Company's properties.
Business Risks
The Company is highly dependent on customers from Southern California traveling
to and from Las Vegas along Interstate 15. In the event that the Interstate, or
the entrance and exit ramps providing access to the Primm Properties, were
impaired for an extended period of time due to road modifications, repairs,
weather, or other factors, the operations and financial performance of the
Company would be adversely affected. Additionally, significant increases in
fuel costs could have an impact on the number of travelers on Interstate 15.
8
<PAGE>
As with any major construction project, the expansion of Primm Valley, the
construction of the second golf course at the Golf Club, and the plans for the
outlet mall, involve many potential risks, including shortages of materials
and labor, work stoppages, labor disputes, weather interference, engineering,
environmental, or geological problems, governmental regulations and approvals,
and unanticipated cost increases, including those arising from design changes,
any of which could give rise to delays or cost overruns.
The Company's employees primarily live in the Las Vegas area, which is
approximately 40 miles away from Primm. The continued growth and expansion of
resort properties in Las Vegas could adversely impact the Company's ability to
attract and retain qualified employees, and may put pressure on compensation
costs.
While the Company believes that it has sufficient water for its present
expansion plans and operations, the Company will need further governmental
approvals to use additional water for future expansion. There can be no
assurance that future requests for additional water will be granted.
Regulation and Licensing
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, "Nevada Act"); and (ii) various local regulations. The Company's
gaming operations are subject to the licensing and regulatory control of the
Nevada Gaming Commission ("Nevada Commission"), the Nevada State Gaming Control
Board ("Nevada Board"), and the Clark County Liquor and Gaming Licensing Board
("CCLGLB"). The Nevada Commission, the Nevada Board and the CCLGLB are
collectively referred to as the "Nevada Gaming Authorities". The PRMA Land
Development Company, which owns and operates the Primm Valley Golf Club, is
subject to licensing and regulatory control of the California and San
Bernadino County Alcoholic Beverage Commissions.
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including 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) to provide a source of state and
local revenues through taxation and licensing fees. Changes in such laws,
regulations and procedures could have an adverse effect on the Company's gaming
operations.
The Primadonna Corporation, which operates Whiskey Pete's, Primm Valley, and
Buffalo Bill's, is required to be licensed by the Nevada Gaming Authorities.
Additionally, PRMA Las Vegas, Inc., which is a 50% joint venture party in New
York-New York, as well as New York-New York itself, are required to be licensed
by the Nevada Gaming Authorities. The gaming license requires the periodic
payment of fees and taxes and is not transferable. The Company is registered
9
<PAGE>
by the Nevada Commission as a publicly traded corporation ("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. No person may become a
stockholder of, or receive any percentage of profits from, The Primadonna
Corporation, PRMA Las Vegas, Inc., or New York-New York without first obtaining
licenses and approvals from the Nevada Gaming Authorities. The Company, The
Primadonna Corporation, PRMA Las Vegas, Inc., and New York-New York 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, The Primadonna
Corporation, PRMA Las Vegas, Inc., or New York-New York 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 Primadonna Corporation, PRMA Las Vegas, Inc., or New York-New York must
file applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers,
directors and key employees of the Company who are actively and directly
involved in gaming activities of The Primadonna Corporation, PRMA Las Vegas,
Inc., or New York-New York 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, The Primadonna Corporation, PRMA Las Vegas,
Inc., or New York-New York, the companies involved would have to sever all
relationships with such person. In addition, the Nevada Commission may require
the Company, The Primadonna Corporation, PRMA Las Vegas, Inc., or New York-New
York 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, The Primadonna Corporation, PRMA Las Vegas, Inc., and New York-New
York 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 the Company, The Primadonna
Corporation, PRMA Las Vegas, Inc., or New York-New York must be reported to or
approved by the Nevada Commission.
10
<PAGE>
If it were determined that the Nevada Act was violated by The Primadonna
Corporation or New York-New York, 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 Primadonna
Corporation, PRMA Las Vegas, Inc., or New York-New York 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 the reasonable rental value of the
Company's gaming properties), could be forfeited to the State of Nevada.
Limitation, conditioning or suspension of any gaming license or the appointment
of a supervisor could (and revocation of any gaming license would) materially
adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be
investigated, and have his suitability as a beneficial holder of the Company's
voting securities determined, if the Nevada Commission has reason to believe
that such ownership would otherwise be inconsistent with the declared policies
of the State of Nevada. The applicant must pay all costs of investigation
incurred by the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the Company's
voting securities to report the acquisition to the Nevada Commission. The
Nevada Act requires that beneficial owners of more than 10% of the Company's
voting securities apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails the written
notice requiring such filing. Under certain circumstances, an "institutional
investor", as defined in the Nevada Act, which acquires more than 10%, but not
more than 15%, of the Company's voting securities, may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor, and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company's
corporate charter, bylaws, management, policies or operations of the Company,
or any of its gaming affiliates, or any other action which the Nevada
Commission finds to be inconsistent with holding the Company's voting
securities for investment purposes only. Activities which are not deemed to be
inconsistent with holding voting securities for investment purposes only
include: (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.
11
<PAGE>
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, The Primadonna Corporation, PRMA Las Vegas, Inc., or New York-New
York, 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 rights 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 CCLGLB has taken the position that it has the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming license.
The Nevada Commission may, at its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated, and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including 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 rights 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 nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company is also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require the Company's stock certificates 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 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. On July
2, 1997, the Nevada Commission granted the Company prior approval to make
public offerings for a period of two years, 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.
12
<PAGE>
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 Board and Nevada Commission 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, repurchases of voting securities, and corporate defense tactics
affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, 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 policies 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 purpose 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 and to the
counties and cities in which Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly, semi-annually, or annually, and
are based upon either: (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. Nevada licensees that hold a license as an operator of a slot
route, or a manufacturer's or distributor's license, also pay certain fees and
taxes to the State of Nevada.
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 by the Nevada Board of their participation in such foreign
gaming. The revolving fund is subject to increase or decrease at 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 it knowingly
violates any laws of the foreign jurisdiction pertaining to the foreign gaming
13
<PAGE>
operation, fails to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations,
engages in activities that are harmful to the State of Nevada or its ability to
collect gaming taxes and fees, or employs a person in the foreign operation who
has been denied a license or finding of suitability in Nevada on the grounds of
personal unsuitability.
The sale of alcoholic beverages at Primm Valley, Whiskey Pete's,
Buffalo Bill's, Primm Valley Golf Course, and New York-New York is subject to
licensing, control, and regulation by the applicable state and local
authorities. All licenses are revocable and are not transferable. The agencies
involved have full power to limit, condition, suspend, or revoke any such
licenses, and any such disciplinary action could (and revocation would) have a
material adverse effect upon the operations of the Company.
The gaming industry represents a significant source of tax revenues for the
State of Nevada and Clark County. From time to time, various changes in the tax
laws and their administration are proposed by various legislators and
officials. Recent proposals have included a federal gaming tax and increases in
state and local gaming taxes. A federal study of gaming has been passed into
law. The two year study of gaming by the commission will have broad powers,
including subpoenas. The impact of this study is not known at this time. In
addition, federal income tax proposals have been suggested which would limit
the deductibility of promotional allowances provided to customers, modify the
withholding requirements on amounts won by customers, and impose withholding on
negotiated discounts provided to customers. It is not possible to determine
with certainty the likelihood of possible changes in the tax laws or their
administration. Such changes, if adopted, could have a material adverse effect
on the Company's financial results. The federal courts have determined that
meals provided to employees are income and subject to taxes on both the
employee and employer. The impact of this decision has not yet been determined.
The Company and certain of its officers and directors have been investigated
and found suitable by the Mississippi Gaming Commission ("MGC")in connection
with a proposed acquisition in Biloxi, Mississippi, which acquisition was later
abandoned by the Company. The Company is also registered with the MGC as a
"publicly traded holding company" and remains subject to the reporting
requirements by the Mississippi Gaming Control Act and the regulations
promulgated thereunder as such requirements relate to the Company's
registration as a publicly traded holding company. Such reporting and
registration requirements are similar to those imposed by the State of Nevada
discussed above.
Employees
As of December 31, 1997, the Company had a total of 3,701 employees, of whom
1,120 were in gaming operations, 488 in hotel operations, 1,023 in food and
beverage, and 1,070 in other operations. None of the Company's employees are
represented by a labor union, but there can be no assurance that this will
continue. Management considers its labor relations to be good.
As of December 31, 1997, New York-New York, in which the Company is a 50%
partner, had 2,159 employees. Approximately 500 of these employees are
currently represented by the Culinary labor union.
14
<PAGE>
Item 2. Properties
The Primm Properties are located on approximately 142 acres of land on both
sides of Interstate 15 at the California/Nevada state line. Substantially all
of the land is leased from Primm South Real Estate Company, a corporation owned
by the Company's Chairman, and his brothers and sisters. The lease has an
expiration date of 2043 with an option to renew for an additional 25 years.
Rent for all properties covered by the lease is approximately $451,000 per
month. A lease amendment that increases land leased by approximately 2 acres,
and is effective July 1998, will increase the rent to approximately $460,000
per month. Rent increases each year by the cost of living, but not more than
eight percent in any one year. Each eight years, the rent is to be reset by two
appraisers, or, if they are unable to agree, by another appraiser selected by
the other appraisers. The lease provides for a fee of $100,000 per year,
adjusted every 10 years by the cost of living but not more than eight percent
annually, for the exclusive right to any gaming activity on any of the unleased
acreage owned by the lessor. In addition, the lessor has made available to the
Company acreage for a wastewater treatment plant operated by the Company and
the associated rapid infiltration basins.
The Whiskey Pete's facility has been expanded numerous times over the years.
The most recent major projects were a new 537 room, eighteen story hotel tower
and an adjacent parking garage, both of which were completed in early 1994. The
original Primadonna, now Primm Valley, was built in 1990 with 300 rooms, and
was expanded by another 361 rooms in 1992. In late 1996, the rooms were
refurbished and during 1997 the casino was re-themed to a golf atmosphere. Also
in 1997, a 25,000 square foot conference facility was completed in conjunction
with a 20,000 square foot casino expansion and the addition of a parking
garage. Buffalo Bill's 618 room, sixteen story hotel and casino was opened in
August of 1994. In June of 1995, a second 610 room hotel tower was added.
The Company owns approximately 12 acres immediately north of Buffalo Bill's
that are currently the site of 144 company-owned mobile homes rented to
employees. The Company owns approximately 575 acres of land in California,
approximately four miles south of Primm, which is the location for the Primm
Valley Golf Club. Upon completion of the second golf course, approximately 140
acres will remain for future use.
The Company has first priority on water in various wells located on federal
land, and has received permits to pipe the water to its property. The Company
believes that there is adequate water, and that the Company has the necessary
permits to pipe sufficient quantities of water, to meet present and ongoing
needs of the Primm Properties. Such permits and rights are subject to the
jurisdiction and on-going regulatory authority of the U.S. Bureau of Land
Management, the States of Nevada and California, and local governmental units.
The Company believes that adequate water for the Primm Properties is available.
There can be no assurances that any future requests for additional water will
be approved, or that no further requirements will be imposed by governmental
agencies on the Company's use and delivery of water to the Primm Properties.
The wastewater treatment plant has sufficient capacity to support the Primm
Properties requirements. The plant was constructed, and is being expanded, in a
manner to allow for expansion on the site if additional capacity is needed in
the future.
15
<PAGE>
New York-New York is a 48 story hotel and casino complex located on
approximately 22 acres at the intersection of Tropicana and Las Vegas Boulevard
on the Las Vegas "Strip". This facility opened in January 1997. The property is
subject to a first priority deed of trust secured by the $285 million of bank
financing due December 2001.
Item 3. Legal Proceedings
On April 26, 1994, a purported class action lawsuit was filed in the United
States District Court, Middle District of Florida, against 41 manufacturers,
distributors and casino operators of video poker and electronic slot machines,
including the Company ("Poulos"). On May 10, 1994, a complaint alleging
substantially identical claims was filed by another plaintiff in the United
States District Court, Middle District of Florida, against 48 manufacturers,
distributors and casino operators of video poker and electronic slot machines,
including the Company and most of the other major hotel-casino companies
("Ahern"). On September 26, 1995, a complaint alleging substantially identical
claims was filed by another plaintiff in the United States District Court for
Nevada, against 45 operators, manufacturers, and distributors of video poker
and electronic slot machines, including the Company ("Schreier").
The complaints allege that the defendants have engaged in a course of
fraudulent and misleading conduct intended to induce persons to play such games
based on a false belief concerning how the gaming machines operate, as well as
the extent to which there is an opportunity to win. The three lawsuits have
been consolidated into a single action, and discovery with respect to
jurisdictional issues is currently in progress ("Poulos/Ahern/Schreier"). On
December 9, 1994 the Florida Court ordered the case be transferred to the
United States District Court for the District of Nevada. On April 17, 1996, the
federal district court in Las Vegas, Nevada, dismissed the purported class
action suit, and gave the claimants until May 31, 1996 to file amended
complaints. On May 31, 1996 the plaintiffs filed an amended complaint, and also
filed a motion to substitute Brenda McElmore for Mr. Ahern as one of the class
representatives. The motion was not opposed by the Company. On July 12, 1996,
the plaintiffs filed a motion seeking to lift the December 30, 1994 stay of
discovery and seeking leave to add additional defendants. The defendants
(including the Company) have opposed those motions, and no hearing date has
been set on these motions. By order dated August 17, 1996, the Case was
transferred to Judge Ezra of the United States District Court of Hawaii, and
assigned the new Case No. CV-S-94-1126-DAE (RJJ)-BASE FILE. The plaintiffs,
Poulos/Ahern/Schreier had until February 14, 1997 to file one consolidated
complaint, which was done. The defendants (including the Company) appointed a
steering committee to file consolidated pleadings in response to the
consolidated complaint. On February 14, 1997, the parties filed a case
management order. The defendants filed a motion to dismiss on March 21, 1997.
On December 19, 1997 the Court granted a motion to dismiss one of the
complaints, the balance of the motions were denied. A motion to dismiss certain
parts of the consolidated complaint was granted, and all other remaining
motions were denied. The plaintiffs filed a second consolidated amended
complaint of January 9, 1998, with essentially the same allegations as in the
earlier Consolidated Case. The defendants (including the Company) filed their
answer on February 11, 1998. The parties are currently preparing an updated
case management order.
16
<PAGE>
Management does not expect that the above litigation will 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
Not applicable.
17
<PAGE>
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's common stock is quoted on the NASDAQ National Market System under
the symbol "PRMA". The following table sets forth, for the periods indicated,
the high and low closing sales price per share of the common stock as reported
by NASDAQ.
<TABLE>
<CAPTION>
HIGH LOW
_____ _____
Fiscal Year Ending December 31, 1997
<S> <C> <C>
First Quarter................................... $21.00 $17.50
Second Quarter.................................. 22.25 18.75
Third Quarter................................... 19.81 17.25
Fourth Quarter.................................. 18.88 14.13
Fiscal Year Ending December 31, 1996
First Quarter................................... $17.75 $12.25
Second Quarter.................................. 25.00 15.25
Third Quarter................................... 23.75 17.00
Fourth Quarter.................................. 19.50 15.63
</TABLE>
As of January 31, 1998, there were 457 holders of record of the Company's
common stock.
The Company has neither declared nor paid any dividends since its initial
public offering on June 22, 1993. The payment of any dividends in the future
will be at the discretion of the Company's Board of Directors and will depend
upon, among other things, future earnings, operations, capital requirements,
loan restrictions, the general financial condition of the Company and general
business conditions.
18
<PAGE>
Item 6. Selected Financial Data
The selected consolidated financial data presented below is qualified in its
entirety by, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements, Notes thereto, and other financial and
statistical information included elsewhere in this report.
<TABLE>
<CAPTION>
Years ended December 31,
___________________________________________
1997 1996 1995 1994 1993
_______ _______ _______ _______ _______
Income Statement Data:
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Net revenues $287,821 $234,935 $239,797 $193,860 $144,279
Operating income 74,601 31,012 43,992 41,560 44,996
Net income (1) 32,402 16,768 23,307 26,462 29,125
Cash dividends (2) - - - - 65,141
Diluted earnings per share $1.10 $ .55 $ .76 $ .86 $1.00
Balance Sheet Data:
(In thousands, except share data)
Total assets $470,695 $399,971 $373,219 $311,613 $165,674
Long term-debt 220,765 168,200 145,500 116,100 -
Stockholders' equity 211,633 201,018 196,046 171,357 144,836
Equity per share $7.33 $ 6.58 $ 6.36 $ 5.56 $ 4.99
Other Data:
Employees 3,701 3,805 3,834 3,705 2,159
Average hotel rooms 2,676 2,676 2,411 1,664 908
Slot machines 4,525 4,150 4,140 4,207 2,409
Table games 107 105 113 106 64
</TABLE>
____________________________
(1) Pro forma for 1993 reflecting provisions for federal income taxes assuming
an effective tax rate of 35% from January 1 through June 22, 1993 (the date of
the initial public offering). Also assumes the Company would not have incurred
interest on certain subordinated notes in 1993, and would not have recorded the
reinstatement of deferred taxes.
(2) The Company has not paid any dividends since its initial public offering in
June, 1993. Previously, the Company had distributed a substantial portion of
its net income as cash dividends to its S corporation stockholders.
19
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with the
"Selected Financial Data" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this report.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Summary of Operations
The Company opened its New York-New York joint venture project on January 3,
1997. Performance exceeded expectations yielding net revenues of $255.6 million
and pre-tax income of $88.0 million. The Company's 50% share of these results
more than offset a significant decline in performance of the Company's
operations at Primm.
The increased capacity in the Las Vegas market in 1997, coupled with relatively
stable air passenger numbers, intensified the competition for highway traffic
coming from Southern California. The Company decreased its room rates and
increased its marketing and promotional allowances in an effort to maintain
market share. These factors put pressure on margins, while construction
disruptions at its Primm Valley property put pressure on revenues.
Net revenues increased to $287.8 million, an increase of 23%, and operating
income increased to $74.6 million, an increase of $43.6 million. These
increases were the result of the performance of New York-New York which offset
a net revenue decline for the Primm Properties of $8.9 million, or 4%, and an
operating income decline of $18.1 million.
Casino revenue declined $6.5 million, or 3.8%. Slot revenue decreased $2.9
million, or 2.1%, primarily due to reduced volume in the casino. Table games
revenue decreased $3.6 million, or 11.4%, of which $2.1 million was due to a
lower win percentage, partially caused by increased marketing promotions, and
the other $1.5 million was due to reduced volume. Food and beverage revenue
increased slightly, however, cash revenue declined $1.0 million while
promotional revenue increased $1.4 million. The Company believes that the cash
revenue decline was due to both reduced volume and the conversion of cash
revenue to promotional revenue. The increase in promotional revenue was due to
the Company's increased marketing emphasis. Hotel revenue declined $1.7
million, or 7.1%. The number of occupied rooms increased 3.5%, while the
average daily rate dropped 10%. The increase in occupied rooms was due to an
increase in complimentary rooms provided to customers, offset by a decline in
cash room sales. The increased promotional allowances generated a $1.4 million
increase in hotel revenue, while cash revenues declined $3.1 million.
Entertainment revenue increased $1.1 million, or 9.0%, primarily due to the
opening of the Primm Valley Golf Club, which contributed $1.6 million in
additional revenue. This increase, along with a $300,000 increase in amusement
revenue fueled by increased promotional allowances of $1.1 million, offset a
decline in arcade revenues of $800,000. Service station revenue increased $2.1
million, or 13.7%. This increase was due to a 17.5% increase in volume coupled
with a 3.8% decrease in prices.
20
<PAGE>
Operating income from New York-New York is the Company's share of pre-tax, pre-
interest earnings from its 50% interest in New York-New York Hotel & Casino.
The property opened January 3, 1997, but was substantially complete prior to
the end of 1996. Accordingly, New York-New York recognized its pre-opening costs
of $16.0 million, offset by some interest income and other revenue in 1996,
which accounted for the $7.8 million loss for 1996. In 1997, New York-New York
generated net revenue of $255.6 million, and pre-tax income of $88.0 million.
Costs and Expenses
Casino expenses increased to $55.7 million from $51.7 million, an increase of
$4.0 million, or 7.7%. The increase was primarily due to increased promotional
allowance costs of $4.6 million, which are all charged to casino expense,
offset by slight decreases in payroll and gaming taxes. Food and beverage costs
decreased slightly, primarily as a result of the increased promotional
allowance costs transferred to the casino, offset by an increase in food costs
related to enhanced offerings in the buffets. Hotel costs decreased $1.1
million, or 9.7%, due primarily to the increased promotional allowance costs
transferred to the casino, offset by payroll increases and the costs associated
with an additional 24,000 occupied rooms.
Entertainment expenses increased $1.6 million, primarily due to the $2.5
million in operating costs for the golf club. The increase was partially offset
by increased promotional allowance costs transferred to the casino. Service
station costs increased $1.7 million, or 12.2%, as a result of a 17.5% increase
in volume offset by a 5.1% decline in product cost.
Selling, general and administrative expenses increased to $47.1 million from
$44.6 million, an increase of $2.4 million, or 5.5%. The increase is primarily
a result of a $1.5 million increase in advertising, a $2.3 million increase in
general marketing expenses, and an increase of $1.0 million in administrative
overhead and payroll costs. These increases were partially offset by a $2.4
million decline in development related costs. In 1996, the Company recorded a
bad debt reserve of $1.8 million related to its investment in Southwest Casino
and Hotel Corp., and incurred an additional $1.0 million for various other
projects. In 1997, the Company incurred approximately $.5 million in
development related expenses.
Depreciation expense increased $1.9 million due to the opening of the golf
course in February, the completion of the clubhouse in July, the opening of the
Primm Valley conference center and casino expansion in September, and the new
parking garage in October.
Pre-opening costs of $1.1 million related to the completion of the Primm Valley
Golf Club were recorded in 1996; there was no comparable expense in 1997.
Interest Income (Expense)
Interest expense, net, was $13.2 million compared to $4.9 million in the prior
year. The Company incurred $14.4 million of interest, of which $1.1 million was
capitalized as part of the various construction projects, and earned interest
income of $32,000. In 1996, the Company incurred $11.4 million of interest, of
which $6.1 million was capitalized as part of the New York-New York and other
21
<PAGE>
construction projects, and earned $400,000 of interest income. The increase in
interest incurred was due to an increase in the outstanding indebtedness offset
by a slight reduction in the rate.
Interest expense from New York-New York represents the Company's 50% share of
the interest expense recorded by the joint venture. This interest is primarily
attributable to amounts outstanding under its $285.0 million bank credit
facility and $20 million term loan. In 1996, all such interest was capitalized
as part of the construction project.
Income Taxes
Income taxes increased to $18.1 million from $9.3 million primarily as a result
of the doubling of earnings before taxes. The Company's share of New York-New
York earnings are recognized on a pre-tax basis, and the Company, in turn,
provides for the income tax expense on its share. The effective tax rate was
not materially different from the prior year.
Extraordinary Item
In June 1997, the Company recorded an extraordinary charge of $1.0 million, net
of a $.5 million tax benefit, related to the write-off of the unamortized loan
costs associated with the early retirement of its former bank credit facility.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Summary of Operations
The Company continued the process of absorbing the capacity provided by Buffalo
Bill's, while continuing to pursue its strategy of enhancing Primm as a
destination location. The Tom Fazio-designed golf course has been completed and
it opened to the public in February 1997. The expansion and upgrade of the
Primadonna is under way, and the construction of an upscale factory outlet mall
is expected to break ground in mid-1997.
The Company continued its focus on marketing in an effort to absorb mid-week
capacity. With the addition of comprehensive player tracking systems, the
Company is now positioned to more effectively execute its direct mail marketing
campaigns. There were an additional 52,000 occupied rooms during 1996, a
substantial portion of which were during the mid-week period.
Net revenues, before the equity loss from New York-New York, increased to
$242.8 million, an increase of 1.2%. Net income was $16.8 million, a decline of
$6.5 million, which was primarily due to the $7.8 million loss from New York-
New York, $1.1 million in pre-opening costs associated with the golf course, a
$2.3 million increase in selling, general and administrative expenses, and a
$900,000 increase in the cost of promotional allowances, offset by a $3.0
million decrease in interest expense and the corresponding $3.5 million
reduction in the tax provision.
Revenues
Overall casino revenue of $170.4 million was virtually unchanged from the
prior year. Slot revenue increased $1.4 million, while table games revenue
declined $1.3 million, yielding a net increase of $118,000 in casino revenue.
22
<PAGE>
Food and beverage revenue increased to $29.7 million from $28.1 million, an
increase of $1.6 million, or 5.7%. The increase is primarily due to increased
food covers, coupled with selected beverage price increases. Hotel revenue
increased to $23.6 million from $19.8 million, an increase of $3.8 million, or
19.4%. An increase in rooms sold, including a substantial increase in
complimentary rooms provided to customers, coupled with a 10% increase in
rates, were the primary causes of the increase. The increase in complimentary
rooms contributed $2.4 million of the revenue increase, while cash revenues
contributed $1.4 million.
Entertainment revenue declined to $11.7 million from $13.2 million, a decrease
of $1.5 million, or 11.0%. The decline was primarily due to the reduced
ridership on "The Desperado" roller coaster, the log flume ride, and the motion
theaters. These declines were compounded by "The Desperado" being out of
service for repairs during 20 days of the peak summer season, and the log flume
ride undergoing extensive renovations to make the ride more interactive and
exciting, which caused it to be out of service for 30 days. The motion theaters
are located in close proximity to the other two rides, and management believes
that they were impacted by the reduced levels of activity in the area when each
of the two primary rides was out of service. To address the declining volume in
this area, the Company is installing a new thrill ride, the "Turbo Drop", which
the Company anticipates will reinvigorate this segment of its business, upon
its completion in April 1997.
Service station revenue increased to $15.0 million from $13.0 million, an
increase of $2.0 million, or 15.6%. This increase was due to a 7% increase in
gallons sold coupled with an 8% increase in prices. Other revenue declined
$356,000, or 5.2%, primarily due to reduced volume in the gift shops.
Equity loss in New York-New York is the Company's share of earnings from its
50% interest in New York-New York Hotel & Casino. The property was completed
in December 1996, and opened to the public on January 3, 1997. Accordingly, in
1996, New York-New York wrote-off its pre-opening costs of $15.8 million and
incurred a small operating loss, offset slightly by interest income. The
Company's 50% share of this loss amounted to a $7.8 million.
Costs and Expenses
Casino expenses increased to $51.7 million from $49.8 million, an increase of
$1.9 million, or 3.7%. The increase was primarily due to increased promotional
allowances, which are all charged to casino expense, along with increases in
payroll and related benefits. Food and beverage costs increased $1.2 million,
or 4.6%, primarily as a result of the increased volume. Hotel costs increased
$401,000, or 3.7%, due primarily to an additional 52,000 occupied rooms.
Service station costs increased $1.9 million, or 15.8%, due to higher product
cost and increased volume.
Selling, general and administrative expenses increased to $44.6 million from
$42.3 million, an increase of $2.3 million, or 5.4%. The increase is primarily
a result of an $829,000 increase in bus promotions, a $345,000 increase in
general marketing expenses, an incremental $450,000 related to the departure of
the Company's former president, and an increase of $672,000 in development
expenses, offset by a decrease of $206,000 in legal and other professional
23
<PAGE>
fees. The development expenses for 1996 include a $1.8 million reserve for the
Southwest note receivable.
Pre-opening costs of $1.1 million related to the completion of the Primm Valley
Golf Club were recorded in 1996. There were no such costs in 1995.
Interest Income (Expense)
Interest expense, net, was $4.9 million as compared to $7.9 million in the
prior year. The Company incurred $11.4 million of interest of which $6.1
million was capitalized as part of the New York-New York investment and the
golf club development, and earned interest income of $400,000. In 1995, the
Company incurred $12.9 million of interest, of which $4.7 million was
capitalized, and earned interest income of $300,000. The decrease in interest
incurred is due to a decline in interest rates offset by a slight increase in
the average long-term debt outstanding.
Income Taxes
Income taxes decreased $3.5 million due primarily to lower earnings before
taxes. The Company's effective tax rate was not materially different from the
prior year.
Liquidity and Capital Resources
The Company held cash and cash equivalents of $10.0 million. Net cash provided
by operations was $38.8 million compared to $55.9 million in the prior year.
The decline in cash from operations reflects the significant decline in the
performance of the Company's Primm Properties. The Company has not received any
cash from its NEW YORK-NEW YORK investment other than that necessary to pay the
applicable federal income taxes on its share of earnings.
The Company funds its daily operations through cash flow from operations. The
Company borrows funds for significant capital expenditures and investments,
such as a portion of its New York-New York equity investment, which cannot be
fully funded out of operating cash flows.
The Company has a $300 million Credit Agreement, (" New Agreement", see Note 9
of the Consolidated Financial Statements). At December 31, 1997, the amount
outstanding under the Agreement was $220,600,000 at an average all-in rate of
7.0%.
The Company is a 50% joint venture partner with MGM Grand, Inc. ("MGM") in the
New York-New York Hotel & Casino, LLC. The joint venture secured a $285
million Construction/Revolving loan from Bank of America as agent for a
sixteen bank consortium. At December 31, 1997, $245 million was outstanding.
Additionally, term loan financing was obtained in January 1997, with a balance
at December 31, 1997 of approximately $18 million. The Company contributed
additional equity of $7.0 million to the joint venture in 1997. The Company and
MGM executed Keep-Well Agreements in conjunction with the bank loan. The Keep-
Well provisions require the maintaining of certain financial ratios, and
stipulates that equity contributions be made by the partners if these ratios
are not met. To date, the operating performance has far exceeded the required
ratios.
24
<PAGE>
The Board of Directors has approved a stock repurchase program authorizing the
Company to acquire up to $50 million worth of its outstanding shares. The
Company had acquired 2,014,500 shares for $35.7 million at December 31, 1997.
In September 1995, the Company announced that Sheldon Gordon and Randy Brant,
developers of the Forum Shops at Caesars Palace, along with the TrizecHahn
Centers, intended to develop, in two phases, up to a one million square foot
themed shopping facility on 100 acres of land that is owned by the Primm 650
Limited Partnership and is adjacent to the Primm Valley. The first phase of
approximately 525,000 square feet is scheduled to open in July 1998. The
facility being built and financed by the developers. The Company expects to
benefit from the increased visitors caused by the mall and, particularly, the
draw from the Las Vegas market. In addition, the Company will be able to place
slot machines in the facility's transition area from the casino. For its part,
the Company expects to incur approximately $1.5 million for infrastructure
costs to accommodate this planned development, of which $.6 million had been
expensed through December 31, 1997. The Company has no other financial interest
in the mall project.
Capital requirements for 1998 include $2.0 million for the second phase of
the Primm Valley Golf Club, $32.0 million for the Primm Valley expansion and
infrastructure, $2.0 million for an upgraded and expanded monorail system, and
$8.0 million for maintenance of existing facilities.
The Company expects some difficult year-ago comparisons for New York-New York,
due to its extremely successful opening in 1997. Additionally, performance at
Primm will continue to be impacted during the first six months of 1998, by
ongoing construction projects.
The Company believes that its current cash flow, coupled with its bank
facility, provides both the resources and flexibility to meet existing
obligations and to fund its commitments on the projects discussed above. The
Company continues to pursue other gaming opportunities and, if successful in
securing another location, depending upon the amount of funding required, the
Company may need to obtain additional bank or vendor financing, or issue
public or private debt or equity, or a combination thereof.
The Company has reviewed its systems to evaluate the status of its systems to
operate in the year 2000. The Company believes its systems are currently able
to process year 2000 transactions, and the Company has obtained from its major
software vendors, written confirmation that their systems are compliant with
year 2000 matters. The Company is unable to evaluate issues related to, or the
impact on, transactions with and through financial institutions such as credit
card processing.
Certain statements contained in this Annual Report on Form 10-K that are not
historical facts are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, which can be identified by
the use of forward-looking terminology such as "may", "believe", "intend",
"expect", "scheduled", "estimate", or the negative thereof, or other variations
thereon, or comparable terminology. These statements are subject to a number of
risks and uncertainties, including but not limited to, those set forth under
"Business Risks".
25
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data
Index to Consolidated Financial Statements Page no.
Primadonna Resorts, Inc. and Subsidiaries:
Report of Independent Public Accountants......................... 27
Consolidated Balance Sheets as of December 31, 1997 and 1996..... 28 - 29
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995................................. 30
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1997, 1996, and 1995................ 31
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995........................... 32 - 33
Notes to Consolidated Financial Statements....................... 34 - 46
New York-New York Hotel & Casino, LLC:
Report of Independent Public Accountants......................... 47
Balance Sheets as of December 31, 1997 and 1996.................. 48 - 49
Statements of Income for the years ended
December 31, 1997, 1996 and 1995................................. 50
Statements of Changes in Member's Equity for
the years ended December 31, 1997, 1996, and 1995................ 51
Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995........................... 52 - 53
Notes to Financial Statements.................................... 54 - 61
26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Primadonna Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of Primadonna
Resorts, Inc. (a Nevada corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Primadonna Resorts,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Las Vegas, Nevada
January 30, 1998
27
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
December 31,
1997 1996
________ ________
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,973 $ 10,027
Accounts and notes receivable 988 1,170
Income tax refund receivable 1,664 221
Inventories 1,687 1,403
Prepaid expenses and other 6,647 5,790
________ ________
Total current assets 20,959 18,611
________ ________
PROPERTY AND EQUIPMENT:
Buildings and improvements 212,396 187,756
Land improvements 95,364 90,950
Furniture, fixtures and equipment 144,371 130,169
________ ________
452,131 408,875
Less: accumulated depreciation
and amortization (144,653) (116,183)
________ ________
307,478 292,692
Land 5,654 4,274
Construction in progress 19,495 3,949
________ ________
332,627 300,915
INVESTMENT IN JOINT VENTURE 104,436 68,593
________ _______
NOTES RECEIVABLE, net 2,718 2,926
________ ________
OTHER ASSETS 9,955 8,926
________ ________
$470,695 $399,971
======== ========
</Table?
The accompanying notes are an integral part of these consolidated statements.
28
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Amounts in Thousands Except Share Data)
</TABLE>
<TABLE>
<CAPTION>
December 31,
1997 1996
________ ________
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable-trade $ 10,265 $ 5,599
Accrued expenses 10,432 10,684
Current portion of long-term debt 1,639 1,100
________ ________
Total current liabilities 22,336 17,383
________ ________
LONG-TERM DEBT, net of current portion 220,765 168,200
________ ________
DEFERRED INCOME TAXES PAYABLE 15,961 13,370
________ ________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
10,000,000 shares authorized; no
shares issued and outstanding
Common stock, $.01 par value;
100,000,000 shares authorized;
28,858,000 and 30,002,975 shares
issued and outstanding in 1997
and 1996, respectively 309 308
Additional paid-in capital 128,817 128,236
Retained earnings 118,169 85,767
Less: treasury stock, at cost (35,662) (13,293)
________ ________
211,633 201,018
________ ________
$470,695 $399,971
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
29
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Years Ended December 31,
_________________________________
1997 1996 1995
________ ________ ________
<S> <C> <C> <C>
REVENUES:
Casino $163,886 $170,395 $170,277
Food and beverage 30,068 29,709 28,095
Hotel 21,913 23,584 19,756
Entertainment 12,809 11,750 13,207
Service station 17,035 14,984 12,966
Other 6,707 6,433 6,789
Operating income (loss) from
New York-New York 53,895 (7,842) -
________ ________ ________
306,313 249,013 251,090
Less: promotional allowances (18,492) (14,078) (11,293)
________ ________ ________
Net revenues 287,821 234,935 239,797
________ ________ ________
COSTS AND EXPENSES:
Casino 55,669 51,661 49,799
Food and beverage 26,854 27,214 26,017
Hotel 10,268 11,369 10,968
Entertainment 7,060 5,492 5,636
Service station 15,529 13,846 11,958
Other 2,640 2,922 3,046
Selling, general and administrative 47,052 44,611 42,330
Property costs 18,877 18,306 18,986
Depreciation and amortization 29,271 27,358 27,065
Pre-opening costs - 1,144 -
________ ________ ________
213,220 203,923 195,805
________ ________ ________
Income from operations 74,601 31,012 43,992
OTHER INCOME (EXPENSE)
Interest expense, net (13,205) (4,923) (7,875)
Interest expense, from New York-New York (9,891) - -
________ ________ ________
Income before income taxes 51,505 26,089 36,117
INCOME TAX PROVISION 18,139 9,321 12,810
________ ________ ________
Income before extraordinary item 33,366 16,768 23,307
EXTRAORDINARY ITEM-loss on early retirement
of debt, net of income tax benefit 964 - -
________ ________ ________
NET INCOME: $ 32,402 $ 16,768 $ 23,307
Earnings per share ======== ======== ========
Basic earnings before extraordinary item $1.14 $0.55 $0.76
Basic earnings from net income $1.11 $0.55 $0.76
Diluted earnings before extraordinary item $1.13 $0.55 $0.76
Diluted earnings from net income $1.10 $0.55 $0.76
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
30
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
Additional
Common Stock Treasury Paid-in Retained
Shares Amount Stock Capital Earnings Total
__________ ______ ________ _______ ________ ________
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994 30,673,875 $307 $ - $125,358 $ 45,692 $171,357
Net income - - - - 23,307 23,307
Exercise of stock options 121,500 1 - 1,821 - 1,822
Purchase of treasury stock (30,000) - (440) - - (440)
___________ _____ ________ _______ _______ ________
Balances, December 31, 1995 30,765,375 308 (440) 127,179 68,999 196,046
Net income - - - - 16,768 16,768
Exercise of stock options 42,600 - - 1,057 - 1,057
Purchase of treasury stock (805,000) - (12,853) - - (440)
___________ _____ ________ _______ _______ ________
Balances, December 31, 1996 30,002,975 308 (13,293) 128,236 85,767 201,018
Net income - - - - 32,402 32,402
Exercise of stock options 34,525 1 - 581 - 582
Purchase of treasury stock (1,179,500) - (22,369) - - (22,369)
___________ _____ ________ _______ _______ ________
Balances, December 31, 1997 28,858,000 $309 $(35,662) $128,817 $118,169 $211,633
========== ==== ========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
31
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
_________________________________
1997 1996 1995
________ ________ ________
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 32,402 $ 16,768 $ 23,307
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 29,271 27,358 27,065
Amortization of debt issuance costs 245 425 536
Equity (income) loss in New York-New York
in excess of distributions (28,843) 7,842 -
Allowance for doubtful accounts - 1,852 -
Pre-opening costs - 1,144 -
Increase in life insurance cash
surrender value (270) (75) (299)
Gain on sale of assets (88) (314) (334)
Deferred income taxes 2,374 (1,771) 6,147
Extraordinary loss 1,483 - -
Change in current assets and liabilities
due to operating activities:
(Increase) decrease in accounts and
notes receivable 182 1,581 (764)
(Increase) decrease in income tax
refund receivable (1,443) 773 1,862
(Increase) in inventories (284) (199) (196)
(Increase) decrease in prepaid expenses
and other (640) 472 (883)
Increase (decrease) in accounts
payable-trade 4,666 (1,519) 2,352
Increase (decrease) in accrued expenses (252) 1,595 2,931
________ ________ ________
Total adjustments 6,401 39,164 38,417
________ ________ ________
Net cash provided by operating activities 38,803 55,932 61,724
________ ________ ________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (60,609) (35,158) (36,970)
Decrease in construction payables - (4,621)
Investment in joint venture (7,000) (26,874) (45,687)
Increase in other assets (1,545) (4,670) (3,438)
Proceeds from disposal of other assets 321 789 2,940
Pre-opening costs - (1,144) -
________ _______ ________
Net cash used in investing activities (68,833) (67,057) (87,776)
________ ________ ________
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
32
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
_________________________________
1997 1996 1995
________ ________ ________
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the exercise
of stock options $ 582 $ 1,057 $ 1,822
Purchase of treasury stock (22,369) (12,853) (440)
Proceeds from issuance of long-term debt 378,200 70,400 209,400
Debt issuance costs (931) - (1,504)
Principal payments of long-term debt (325,506) (46,600) (180,000)
_______ ________ ________
Net cash provided by
financing activities 29,976 12,004 29,278
_______ ________ ________
Net increase (decrease) in cash and
cash equivalents (54) 879 3,226
Cash and cash equivalents, beginning of year 10,027 9,148 5,922
________ ________ ________
Cash and cash equivalents, end of year $ 9,973 $ 10,027 $ 9,148
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
33
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATIONAL STRUCTURE AND BASIS OF PRESENTATION
Primadonna Resorts, Inc., a Nevada corporation, and subsidiaries("Company"),
owns and operates three hotel-resort/casinos, Buffalo Bill's Resort & Casino,
Primm Valley Resort & Casino, and Whiskey Pete's Hotel & Casino, all located at
the California/Nevada border in Primm, Nevada. The Company also owns and
operates the Primm Valley Golf Club, located approximately four miles south of
Primm, in California. In addition, the Company owns a 50% interest in the joint
venture which owns and operates the New York-New York Hotel & Casino, located
on the "Strip" in Las Vegas, Nevada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Primadonna Resorts, Inc. and its wholly owned subsidiaries. Investments in
unconsolidated affiliates which are 50% or less owned are accounted for under
the equity method. All material intercompany accounts and transactions have
been eliminated.
b. Cash and Cash Equivalents
Cash equivalents are stated at market value and consist of highly liquid
investments with a maturity of less than three months. There were no
significant or unrealized gains or losses from cash equivalent investments
during the years ended December 31, 1997, 1996, and 1995. The Company's cash
management policies, at times, causes deficit ledger balances in the general
disbursement accounts, which amounted to $3,591,000 and $2,089,000 at December
31, 1997 and 1996, respectively.
c. Inventories
Inventories, which consist primarily of food, beverage, and gift shop items,
are valued at the lower of cost or market as determined on the first-in, first
- -out method.
d. Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are
provided for on the straight-line method over the following estimated useful
lives:
Buildings and improvements 10 to 40 years
Land improvements 5 to 15 years
Furniture, fixtures and equipment 3 to 12 years
Normal repairs and maintenance are charged to expense when incurred.
Expenditures which materially extend the useful life of assets are
capitalized.
34
<PAGE>
e. Casino Revenues and Promotional Allowances
Casino revenues represent the net win from gaming wins and losses. The retail
value of food, beverage, and hotel rooms provided to customers without charge,
is included in gross revenues, and then deducted as promotional allowances.
The estimated departmental costs of providing such promotional allowances is
included in casino costs and expenses as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
________ ________ ________
(In thousands)
<S> <C> <C> <C>
Food and beverage $ 8,397 $ 6,534 $ 6,536
Hotel 4,116 2,403 1,265
Other 2,073 1,022 1,273
________ _______ _______
$ 14,586 $ 9,959 $ 9,074
======== ======== ========
</TABLE>
f. Development Costs
The Company defers costs associated with projects in jurisdictions in which
gaming has been approved and the Company has identified a site; otherwise these
costs are expensed as incurred.
g. Pre-Opening Costs
During construction of a new facility, the Company defers certain operating
costs, including incremental salaries and wages, as pre-opening costs. Upon
substantial completion of the facilities or commencement of operations, the
Company expenses all such pre-opening costs.
h. Capitalized Interest
The Company capitalizes interest costs associated with debt incurred in
connection with major construction projects. Interest capitalized was
$1,124,000, $6,100,000, and $4,665,000 for the years ended December 31, 1997,
1996, and 1995, respectively.
i. 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, liabilities, revenues,
and expenses for the reported periods. Actual results may differ from those
estimates.
j. Reclassifications
The consolidated financial statements for prior periods reflect certain
reclassifications to conform with classifications adopted in 1997.
35
<PAGE>
k. Segment Reporting
The Company will adopt Statement of Financial Accounting Standards ("SFAS") No.
131-"Disclosure about Segments of an Enterprise and Related Information",
in 1998.
3. STATEMENT OF CASH FLOWS
The following supplemental disclosures are provided as part of the accompanying
consolidated statements of cash flows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
________ ________ ________
(In thousands)
<S> <C> <C> <C>
Cash payments made for interest
(net of amounts capitalized) $ 12,051 $ 5,274 $ 6,899
======== ======== ========
Cash payments made for income taxes $ 16,700 $ 9,900 $ 4,800
======== ======== ========
Assets acquired through
capitalized leases $ 383 - -
======== ======== ========
</TABLE>
36
<PAGE>
4. EARNINGS PER SHARE
Earnings per share consist of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
________________ _______________ ________________
(In thousands, except share price)
Income Shares Income Shares Income Shares
_______ ______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income from continuing
operations $33,366 29,278 $16,768 30,406 $23,307 30,741
Extraordinary item (964) - - - - -
_______ ______ _______ ______ _______ ______
Net income available to
common shareholders $32,402 29,278 $16,768 30,406 $23,307 30,741
_______ ______ _______ ______ _______ ______
Per share amounts:
Income from continuing
operations $ 1.14 $ 0.55 $ 0.76
Extraordinary item $(0.03) - -
Net income available to
common shareholders $ 1.11 $ 0.55 $ 0.76
Diluted EPS:
Income before extraordinary
item $33,366 29,278 $16,768 30,406 $23,307 30,741
Effect of dilutive
stock options - 127 - 129 - 60
_______ ______ _______ ______ _______ ______
Income from continuing
operations $33,366 29,405 $16,768 30,535 $23,307 30,801
Extraordinary item (964) - - - - -
_______ ______ _______ ______ _______ ______
Net income available to
common shareholders $32,402 29,405 $16,768 30,535 $23,307 30,801
_______ ______ _______ ______ _______ ______
Per share amounts:
Income from continuing
operations $ 1.13 $ 0.55 $ 0.76
Extraordinary item $(0.03) - -
Net income available to
common shareholders $ 1.10 $ 0.55 $ 0.76
</TABLE>
Options to purchase 333,000, 393,000, and 23,000 shares of common stock at
December 31, 1997, 1996, and 1995, respectively, at prices of $21.75-$31.25,
$19.50-$31.25, and $23.25-$31.25, respectively, were outstanding during the
period but not included in the computation of diluted earnings per share
because their exercise price was in excess of the average market price of the
common shares for the periods presented.
37
<PAGE>
5. INVESTMENT IN JOINT VENTURE
On December 28, 1994 the Company and MGM Grand, Inc.("MGM"), formed a joint
venture to own and operate the New York-New York Hotel & Casino, LLC. The
hotel/casino, which cost $460 million, was completed in December 1996 and
opened January 3, 1997. The Company holds a 50% interest in the joint venture.
The Company has contributed $69.5 million in cash and certain rights to the New
York theme from a third party licensor to the joint venture. MGM has
contributed $29.5 million in cash and land upon which the property is located,
valued at $41.2 million, to the joint venture. The joint venture secured
limited recourse bank financing of $285 million, and term loan financing of $20
million, which funded the construction of, and equipment for, the hotel/casino.
The joint venture partners have executed Keep-Well Agreements in conjunction
with the financing which requires the maintenance of certain financial ratios
and stipulates that equity contributions be made by the partners if the
financial ratios are not met.
Summary condensed financial information for the joint venture is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
________ _________
(In thousands)
<S> <C> <C>
Net revenues $255,253 $ 345
Operating income (loss) 107,431 (15,830)
Interest income (expense), net (19,425) 147
Net income (loss) 88,006 (15,683)
Total assets $470,252 $457,091
Long-term debt 246,403 285,829
Member equity 183,350 111,664
</TABLE>
Pre-opening costs of $15,762,000 were expensed in the year ended December 31,
1996, and are included in the operating loss reflected above.
6. NOTES RECEIVABLE
The Company entered into an agreement to loan Southwest Casino and Hotel Corp.
("Southwest"), a developer and manager of Native American gaming enterprises,
$1,600,000. This Convertible Term Promissory Note bears interest at 8%.
Interest is payable quarterly beginning January 15, 1997, and the principal is
due on or before July 15, 2000. This note may be converted, in whole, into
16,000 shares of Series B Convertible Preferred Stock. Southwest has not made
payments on the note, and collectability is in doubt. The Company has recorded
a reserve of $1,600,000 on the note and further reserved $252,000 of interest
due.
Additionally, the Company entered into a Demand Promissory Note with Southwest
in July 1995 to loan an aggregate of $2,248,000 to Southwest for construction
of the Kickapoo gaming facility in Eagle Pass, Texas. The note bears interest
at 12% for the first six months, 15% the next six months, and 18% thereafter.
Principal and interest are payable on demand, or, if no demand, $24,800 monthly
beginning December 1996, $34,800 monthly beginning December 1997, $70,000
monthly beginning December 1998, with the remaining principal and interest due
38
<PAGE>
December 31, 1999. The note also requires the borrower to use its best efforts
to obtain take-out financing in an amount equal to at least 75% of the
principal amount of the note. Amounts advanced at December 31, 1997 and 1996
was $2,248,000. At December 31, 1997 and 1996, $151,000 of accrued interest is
outstanding, and classified as long-term. Southwest has begun making payments
of $25,000 per month since October 1997. Prior to this period, Southwest had
not made payments on this note since the December 1996 payment. This note is
secured by the management contract on the Kickapoo gaming facility. No reserve
has been recorded on this note.
<TABLE>
<CAPTION>
December 31,
1997 1996
________ ________
(In thousands)
<S> <C> <C>
Convertible Term Promissory Note, 8%,
due July 15, 2000, and related interest $ 1,852 $ 1,852
Demand Promissory Note, 12-18%, due
December 1, 1999, and related interest 2,350 2,399
Amount due on life insurance policies(Note 7) 368 527
Allowance for doubtful accounts (1,852) (1,852)
________ ________
2,718 2,926
Less: current portion - -
________ ________
$ 2,718 $ 2,926
======== ========
</TABLE>
7. LIFE INSURANCE
Included in Other Assets is the cash surrender value of various life insurance
policies held on behalf of the Company's principal shareholder and Chairman of
the Board. The aggregate face value of all policies was $94 million at December
31, 1997 and 1996. The Company is the primary beneficiary on $24 million of
face value on the policies. The Company's principal shareholder and Chairman of
the Board has agreed to reimburse the Company, with respect to certain policies
with a face value of $70 million, for the difference between premiums paid by
the Company and such policies' cash surrender value.
39
<PAGE>
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
1997 1996
________ ________
(In thousands)
<S> <C> <C>
Compensation and related benefits $ 4,300 $ 4,422
Unredeemed chips and token liability 1,078 1,178
Accrued gaming taxes 704 716
Progressive jackpot liabilities 582 652
Accrued sales and use taxes 846 1,235
Accrued interest 1,955 1,040
Other 967 1,441
________ ________
$ 10,432 $ 10,684
======== ========
</TABLE>
9. LONG-TERM DEBT
On June 5, 1997 the Company entered into a Credit Agreement (" New Agreement")
with a sixteen bank consortium led by Well Fargo Bank as agent, for a
$250,000,000 revolving loan. The loan was increased to $300,000,000 on December
19, 1997 and allows, upon certain conditions, the Company to increase the
maximum permitted balance to $350,000,000. This loan replaced the existing
Reducing Revolving Bank Credit Agreement. As of December 31, 1997, the Company
had an outstanding balance of $220,600,000 on the New Agreement.
The New Agreement provides for interest payments at least quarterly, at the
prime rate or LIBOR, plus a sliding margin, based upon the Company's debt to
earnings before interest, taxes, depreciation and amortization ("EBITDA")
ratio. The margin for the prime rate ranges between 0% and 1.125%, while the
margin for LIBOR ranges between 0.5% and 2.375%. The weighted average interest
rate at December 31, 1997, was 7.0%. The Company incurs commitment fees of .20%
to .50% for the unused portion of the New Agreement, also dependent upon the
debt to EBITDA ratio. The obligation is secured by a deed of trust on all real
property, leasehold interests in real property, and personal property of the
Company, excluding the Primm Valley Golf Club. The New Agreement contains
certain restrictive covenants relating to the use of proceeds, sale or transfer
of assets, the incurrence of additional debt over a specified level, capital
expenditures, and maintenance of certain minimum financial ratios.
The Reducing Revolving Bank Credit Agreement ("Existing Agreement") entered
into on December 28, 1993, as amended, was terminated on June 5, 1997. The
Existing Agreement provided for a maximum principal balance of $250,000,000,
with scheduled reductions in the maximum permitted beginning August 18, 1997,
and continuing thereafter through maturity on July 18, 2000. The Existing
Agreement provided for EBITDA ratios, interest payments, security interests,
and covenants that were substantially similar to the New Agreement which
replaced the Existing Agreement.
40
<PAGE>
The Company recorded an extraordinary charge of $964,000, net of a $519,000 tax
benefit, for the previously unamortized loan fees related to the Existing
Agreement.
The Company incurred a liability in connection with the acquisition of the New
York-New York theme rights of $1,100,000, due January 6, 1997, and $400,000 due
January 7, 1998. At December 31, 1997 and 1996, $1,500,000 and $1,100,000,
respectively, due for the theme rights is reflected as a current obligation.
In accordance with the terms of the theme rights agreement, the payment of the
$1,500,000 is being withheld pending the determination of indemnity
obligations.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1997 1996
________ ________
(In thousands)
<S> <C> <C>
Credit Agreement, $300,000,000, June 5, 1997,
5 year term, LIBOR plus applicable margin $220,600 $ -
Reducing Revolving Bank Credit Agreement,
amended March 27, 1997, terminated June 5,
1997, LIBOR plus applicable margin - 167,800
New York-New York theme rights due January
6,1997 and January 7, 1998 1,500 1,500
Other 304 -
________ ________
222,404 169,300
Less: Current portion 1,639 1,100
________ ________
Total long-term debt $220,765 $168,200
======== ========
</TABLE>
10. INCOME TAXES
The Company files a consolidated federal income tax return. The provision
(benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
________ ________ ________
(In thousands)
<S> <C> <C> <C>
Current $ 15,765 $ 11,092 $ 6,663
Deferred 2,374 (1,771) 6,147
________ ________ ________
$ 18,139 $ 9,321 $ 12,810
======== ======== ========
</TABLE>
41
<PAGE>
The tax effect of significant temporary differences representing deferred tax
assets and liabilities for the Company is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
________ ________
(In thousands)
<S> <C> <C>
Deferred tax assets (liabilities):
Current:
Progressive jackpots $ 69 $ 55
Accrued vacation, workers' compensation,
and group health 368 389
Inventories 38 30
Outstanding chip and token liability 265 182
Other 74 (59)
________ ________
814 597
________ ________
Long-term:
Depreciation (17,334) (16,634)
Pre-opening costs 314 394
Bad debt allowances 648 648
Joint venture timing differences 408 2,185
Other 3 37
________ ________
(15,961) (13,370)
________ ________
$(15,147) $(12,773)
======== ========
</TABLE>
The Company did not record a valuation allowance at December 31, 1997 or 1996,
relating to recorded tax benefits, because all benefits are likely to be
realized. The net current deferred tax asset is included in Prepaid expenses
and other in the accompanying consolidated balance sheets.
The provision for income taxes differs from the amount computed at the federal
statutory rate as a result of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
_____ _____ _____
<S> <C> <C> <C>
Federal Statutory rate 35% 35% 35%
Permanent differences - 1 -
_____ _____ _____
Effective tax rate 35% 36% 35%
===== ===== =====
</TABLE>
42
<PAGE>
11. LEASES
The Company entered into a lease agreement on July 1, 1993 which covers the
property upon which Whiskey Pete's, Primm Valley, and Buffalo Bill's are
located. The land is owned by Primm South Real Estate Company ("Primm South").
Certain shareholders and one Director of the Company are shareholders of Primm
South. The lease has an initial term of 50 years, with an option to extend for
one additional 25 year period. Monthly lease payments were $417,000 through
June 1995, $429,000 through June 1996, $441,000 through June 1997, and are
currently $451,000 through June 1998. Lease payments are subject to annual
increases based upon the Consumer Price Index, not to exceed 8% per year. The
lease provides for the base rent to be adjusted every 8 years, based upon
appraisal. The Company is required to pay all taxes, insurance, utilities, and
maintenance expenses related to the property.
The lease further provides the Company with the exclusive right to conduct
gaming activities on the landlord's property in Primm, Nevada, for 10 years,
for a $100,000 annual fee. This right can be extended, at the Company's
option, for consecutive 10 year periods so long as the Company is in compliance
with the lease agreement. At each renewal period, the fee will be increased by
the Consumer Price Index, subject to a maximum annual increase of 8%.
Future minimum lease payments, for all leases with noncancelable lease terms
in excess of one year, at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
_________________________
(In thousands)
<S> <C>
1998 $ 5,581
1999 5,614
2000 5,614
2001 5,614
2002 5,614
Thereafter $223,402
</TABLE>
Rent expense is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
________ ________ ________
(In Thousands)
<S> <C> <C> <C>
$ 5,564 $ 5,609 $ 5,764
======== ======== ========
</TABLE>
12. RELATED-PARTY TRANSACTIONS
The Company leases certain property from Primm South as discussed in Note 11.
Included in property costs and expenses for the years ended December 31, 1997,
1996 and 1995, is a lease expense of $5,353,000, $5,320,000, and $5,175,000,
respectively.
43
<PAGE>
The Company has an agreement with the Chairman of the Company that provides for
each party to share undivided interests of 75% and 25%, respectively, in a jet
aircraft. Operational expenses are borne by the participants based upon actual
flight hours utilized by each party.
In September 1996, the Company entered into a new two-year agreement with a
director of the Company for certain consulting services. Contract terms
provide for monthly payments of $12,500 and include an option to renew the
agreement for one additional year. The agreement provides for a waiver of any
fees to which the director would otherwise be entitled to in his capacity as a
director of the Company. This agreement replaces a substantially similar
agreement executed in September 1993 for a one year term with two one year
renewal options. Fees of $150,000 were incurred for the years ended December
31, 1997, 1996, and 1995. The director is also a partner in a law firm which
provides legal services to the Company. The total amount for such services
were $383,000, $264,000, and $250,000 for the years ended December 31, 1997,
1996, and 1995, respectively.
13. CAPITAL STOCK, STOCK OPTIONS AND INCENTIVES
a. Authorized Shares
The authorized capital stock of the Company consists of 10,000,000 shares of
preferred stock, $.01 par value, and 100,000,000 shares of common stock, $.01
par value. The preferred stock may be issued in one or more series having such
respective terms, rights, and preferences as are designated by the Board of
Directors. No preferred stock has been issued.
b. Treasury Stock
The Board of Directors has authorized the Company to acquire up to $50 million
of the Company's outstanding common shares. As of December 31, 1997, the
Company had acquired 2,014,500 shares for $35.7 million.
c. Stock Incentive Plan
The Company's Board of Directors adopted various Stock Incentive Plans
("Plans"), as amended, for directors, officers, employees, employee-directors,
consultants, or advisors. A maximum of 300,000 shares of common stock have
been reserved for non-employee directors, and 3,000,000 shares have been
reserved for issuance to all others under the Plans. All awards will terminate
10 years after grant, no awards may be granted after June 2003. In November
1995, the Company's compensation committee amended all outstanding stock
options issued to non-employee directors to reduce the exercise price per share
to $15 (the market price on the date of amendment). Excluded from the amendment
were those stock options which had been issued in connection with the Company's
initial public offering.
44
<PAGE>
Option activity under the Stock Incentive Plan was as follows:
<TABLE>
<CAPTION>
Number of Option Shares
Years Ended December 31,
1997 1996 1995
_______ ______ ______
(In thousands)
<S> <C< <C> <C>
Balance, beginning of year 1,338 1,249 1,155
Granted 979 563 1,000
Exercised (35) (43) (121)
Canceled (198) (431) (785)
______ ______ ______
Balance, end of year 2,084 1,338 1,249
______ ______ ______
Options exercisable at
end of year 547 319 247
====== ====== ======
Weighted Average Exercise Price
Granted $18.43 $19.65 $15.09
Exercised 15.00 15.00 15.00
Canceled 18.29 15.94 21.99
Balance, end of year 17.48 16.83 15.19
Options exercisable at
end of year $16.96 $15.49 $15.31
====== ====== ======
</TABLE>
The options vest ratably over 2 to 5 years. The exercise price is the market
value on the date granted. The Company applies Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for the plan.
Accordingly, no compensation expense has been recognized for the stock options.
In accordance with SFAS No. 123, the Company has calculated, on a pro forma
basis, the estimated compensation expense related to its stock option programs
utilizing the assumptions in the table below. The effect on net income and
earnings per share would be as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
________ ________ ________
(In Thousands, except share data)
________ ________ ________
<S> <C> <C> <C>
Net income as reported $ 32,402 $ 16,768 $ 23,307
Pro forma $ 31,370 $ 16,164 $ 22,946
======== ======== ========
Basic earnings per share as reported $1.11 $ .55 $ .76
Pro forma $1.07 $ .53 $ .74
====== ===== =====
Diluted earnings per share as reported $1.10 $ .55 $ .76
Pro forma $1.07 $ .53 $ .74
====== ===== =====
</TABLE>
45
<PAGE>
Weighted average assumptions, using the Black-Scholes option pricing model:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Expected stock price volatility 19% 19% 18%
Risk-free interest rate 5.60% 5.83% 6.32%
Option life, in years 3.36 4.39 4.45
Expected forfeitures 45% 45% 45%
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
a. Southwest joint venture
On January 16, 1996, the Company and Southwest entered into an agreement to
fund the development of a casino for the Kickapoo Traditional Tribe of Texas in
Eagle Pass, Texas (see Note 6). Southwest was required to post an $800,000
letter of credit in favor of the Kickapoo Tribe. The Company issued an
$800,000 reducing letter of credit on behalf of Southwest. On August 10, 1997
the letter of credit was canceled. At December 31, 1996, the balance under the
letter of credit was $601,000.
b. Litigation
Currently, there are lawsuits pending against the Company arising in the normal
course of business. In management's opinion, the ultimate outcome of these
matters will not have a material adverse effect on the results of operations or
the financial position of the Company.
46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of New York-New York Hotel & Casino, LLC:
We have audited the accompanying balance sheets of New York-New York Hotel &
Casino, LLC (the "Company") as of December 31, 1997 and 1996, and the related
statements of income, changes in members' equity, and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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, the financial statements referred to above present fairly, in
all material respects, the financial position of New York-New York Hotel &
Casino, LLC as of December 31, 1997 and 1996, and the results of its operations
and cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 28, 1998
47
NEW YORK-NEW YORK HOTEL & CASINO, LLC
BALANCE SHEETS
ASSETS
(Amounts in Thousands)
December 31,
1997 1996
________ ________
CURRENT ASSETS:
Cash and cash equivalents $ 7,296 $ 6,104
Restricted cash - 10,868
Accounts receivable, net of allowance for
doubtful accounts of $872 and $0,
respectively 4,266 370
Inventories 460 350
Prepaid expenses and other 5,999 4,097
________ ________
Total current assets 18,021 21,789
________ ________
PROPERTY AND EQUIPMENT:
Land 63,223 49,563
Building, fixtures and equipment 405,418 380,989
________ ________
468,641 430,552
Accumulated depreciation (21,768) -
________ ________
Property and equipment, net 446,873 430,552
OTHER ASSETS 5,358 4,750
________ ________
TOTAL ASSETS $470,252 $457,091
======== ========
The accompanying notes are an integral part of these financial statements.
48
NEW YORK-NEW YORK HOTEL & CASINO, LLC
BALANCE SHEETS
LIABILITIES AND MEMBERS' EQUITY
(Amounts in Thousands)
December 31,
1997 1996
________ ________
CURRENT LIABILITIES:
Current portion of notes payable $ 11,273 $ -
Swing line loan 5,600 -
Current portion of capital lease 179 172
Accounts payable 1,314 12,683
Accrued expenses 21,815 19,522
Construction payable - 12,625
Retention payable 318 14,596
________ ________
Total current liabilities 40,499 59,598
________ ________
LONG-TERM DEBT:
Long-term capital lease 718 829
Notes payable 245,685 285,000
________ ________
TOTAL LIABILITIES 286,902 345,427
________ ________
MEMBERS' EQUITY:
Members' contributions 141,400 127,400
Members' distributions (30,320) -
Retained earnings (deficit) 72,270 (15,736)
________ ________
Total members' equity 183,350 111,664
________ ________
TOTAL LIABILITIES AND MEMBERS' EQUITY $470,252 $457,091
======== ========
The accompanying notes are an integral part of these financial statements.
49
NEW YORK-NEW YORK HOTEL & CASINO, LLC
STATEMENTS OF INCOME
(Amounts in Thousands)
Years Ended
December 31,
1997 1996 1995
________ ________ ________
REVENUES:
Casino $143,953 $ - $ -
Hotel 69,400 - -
Beverage 13,983 - -
Roller Coaster 9,910 - -
Retail and other 28,058 345 149
________ ________ ________
265,304 345 149
Less: promotional allowances (10,051) - -
________ ________ ________
Net revenues 255,253 345 149
________ ________ ________
COSTS AND EXPENSES:
Casino 51,710 - -
Hotel 23,852 - -
Beverage 4,719 - -
Roller Coaster 2,079 - -
Retail and other 6,072 413 481
Selling, general and administrative 24,691 - -
Property costs 12,410 - -
Depreciation and amortization 22,289 - -
Pre-opening expenses - 15,762 -
Abandonment loss - - 642
________ ________ ________
Total costs and expenses 147,822 16,175 1,123
________ ________ ________
OPERATING INCOME/(LOSS) 107,431 (15,830) (974)
INTEREST INCOME (EXPENSE), NET (19,425) 147 921
________ ________ ________
NET INCOME/(LOSS) $ 88,006 $(15,683) $ (53)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
50
NEW YORK-NEW YORK HOTEL & CASINO
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(Amounts in thousands)
MGM PRMA Las
Grand, Inc. Vegas, Inc. Total
__________ __________ _________
Inception, December 23, 1994 $ $ $
Members' contributions 41,200 41,200 82,400
Net loss (27) (26) (53)
________ ________ ________
Balance, December 31, 1995 41,173 41,174 82,347
Members' contributions 22,500 22,500 45,000
Net loss (7,841) (7,842) (15,683)
________ ________ ________
Balance, December 31, 1996 55,832 55,832 111,664
Members' contributions 7,000 7,000 14,000
Members' distributions (15,160) (15,160) (30,320)
Net income 44,003 44,003 88,006
________ ________ ________
Balance, December 31, 1997 $ 91,675 $ 91,675 $183,350
======== ======== ========
The accompanying notes are an integral part of these financial statements.
51
NEW YORK-NEW YORK HOTEL & CASINO, LLC
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Year Ended
December 31,
1997 1996 1995
________ ________ ________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 88,006 $(15,683) $ (53)
Adjustments to reconcile net income/(loss)
to net cash provided by operating
activities:
Depreciation and amortization 21,905 - -
Amortization of debt issuance costs 384 - -
Allowance for doubtful accounts (872) - -
Pre-opening costs - 15,762 -
Change in current assets and liabilities
due to operating activities:
Increase in accounts receivable (3,024) (340) (30)
Increase in inventories (110) (304) (46)
Increase in prepaid expenses
and other (1,902) (4,097) -
Increase (decrease) in accounts
payable (11,369) 12,496 187
Increase in other accrued expenses 2,293 18,257 1,265
________ ________ ________
Total adjustments 7,305 41,774 1,376
________ ________ ________
Net cash provided by operating activities 95,311 26,091 1,323
________ ________ ________
The accompanying notes are an integral part of these financial statements.
52
NEW YORK-NEW YORK HOTEL & CASINO, LLC
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Year Ended
December 31,
1997 1996 1995
________ ________ ________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and land (52,367) (262,211) (111,544)
(Decrease) increase in construction
payables (12,625) (2,365) 14,990
Decrease (increase) in restricted cash 10,868 (10,868) -
Increase in other assets (1,628) (1,070) -
Pre-opening costs - (14,976) (786)
________ ________ ________
Net cash used in investing activities (55,752) (291,490) (97,340)
________ ________ ________
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred financing, fees, net 499 - (2,480)
Proceeds from issuance of long-term debt 25,600 225,999 59,001
Members' contributions 14,000 45,000 40,000
Members' distributions (30,320) - -
Proceeds from members' advances - - 10,000
Repayment of members' advances - - (10,000)
Principal payments of long-term debt (48,146) - -
________ ________ ________
Net cash (used in)/provided by financing
activities (38,367) 270,999 96,521
________ ________ ________
Net increase in cash and cash equivalents 1,192 5,600 504
Cash and cash equivalents, beginning of year 6,104 504 -
________ ________ ________
Cash and cash equivalents, end of year $ 7,296 $ 6,104 $ 504
======== ======== =========
The accompanying notes are an integral part of these financial statements.
53
NEW YORK-NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
MGM Grand, Inc. ("MGM"), a Delaware corporation, and PRMA Las Vegas, Inc.
("Primadonna"), a Nevada corporation, entered into an operating agreement (the
"Agreement") dated December 23, 1994 (inception) to establish New York-New York
Hotel & Casino, LLC, a Nevada limited liability company (the "Company"), which
develops and operates the New York-New York Hotel & Casino (the "Hotel-Casino")
located on the "Las Vegas Strip". The Agreement will expire on December 23,
2024. In the prior year financial statements the Company was in the development
stage.
New York-New York Hotel & Casino opened to the public January 3, 1997, at an
approximate cost of $460,000,000. MGM contributed to the Company land with a
fair market value of $41,200,000 to comprise its total initial equity
investment. Primadonna contributed to the Company theme rights with a fair
market value of $1,200,000 and cash of $40,000,000 for a total initial equity
investment of $41,200,000. Each member contributed cash of $22,500,000 and
$7,000,000 during fiscal years 1996 and 1997, respectively. Each member has a
50% ownership interest in the Company.
Profits and losses, quarterly cash flow payments, and additional capital
contributions are allocated to each member at their 50% ownership interest. MGM
and Primadonna are not responsible for debts or obligations of the Company,
except as it relates to the Bank Credit Facility (see Note 7).
2. Summary of Significant Accounting Policies
a. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
b. Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments with original maturities of three months or less. Such investments
are counted at cost, which approximates market value.
c. Casino Revenues and Promotional Allowances
Casino revenues represent the net win from gaming wins and losses. The retail
value of beverage, hotel rooms and other goods and services provided to
customers without charge, is included in gross revenues, and then deducted as
promotional allowances.
54
The estimated departmental costs of providing such promotional allowances is
included in casino costs and expenses as follows (in thousands):
Year Ended December 31, 1997
Beverage $ 4,367
Hotel 1,001
Other 197
_______
$ 5,565
=======
d. Inventories
Inventories are valued at the lower of cost or market as determined on the
first-in, first-out method. Inventories consist primarily of beverage and
retail products.
e. Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are
provided for on the straight-line method over the following estimated useful
lives:
Buildings and improvements 10 to 40 years
Furniture, fixtures and equipment 3 to 12 years
Normal repairs and maintenance are charged to expense when incurred.
Expenditures which materially extend the useful life of assets are capitalized.
f. Capitalized Interest
The Company capitalized interest costs associated with debt incurred during the
active construction and development as well as in connection with major
construction projects. Interest capitalized was $0, $13,951,000 and $759,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
g. Pre-Opening Expenses
Pre-opening expenses include direct incremental project salaries and other
expenses incurred during the pre-opening phase of the project. All pre-opening
costs directly related to gaming and hotel operations are capitalized as
incurred and charged to expense in the period the project is ready for its
intended use. All pre-opening costs were expensed in the year ended December
31, 1996, as the property was ready for use as of December 25, 1996.
h. Income Taxes
The Company is not subject to income taxes, therefore no provision for income
taxes has been made as the members include their respective shares of the
Company's income or loss in their individual income tax returns.
55
i. Valuation of Land
The land contributed by MGM has been included in property and equipment at a
value of $41,200,000 (see Note 1). This amount exceeds MGM's original cost
basis and represents the valuation which has been agreed upon by the members.
j. Fair Value of Financial Instruments
The fair value of the Company's financial instruments approximates their
recorded value at December 31, 1997 and 1996.
k. Reclassifications
The financial statements for prior periods reflect certain reclassifications to
conform with classifications adopted in 1997.
3. Statements Of Cash Flows
The following supplemental disclosures are provided as part of the accompanying
financial statements of cash flows:
Years Ended December 31,
1997 1996 1995
________ ________ ________
Cash payments made for interest
(net of amounts capitalized) $ 17,616 $ - $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease for equipment $ - $ 1,001 $ -
======== ======== ========
Retention payable included in
construction in progress $ 318 $ 14,596 $ 3,747
======== ======== ========
Contributed land, at fair market value $ - $ - $ 41,200
======== ======== ========
Contributed intangible asset,
at fair market value $ - $ - $ 1,200
======== ======== ========
56
4. Prepaid Expenses and Other
Prepaid expenses and other at December 31, 1997 and 1996 consist of the
following (in thousands):
1997 1996
________ ________
Prepaid taxes and licenses $ 2,885 $ 630
Deposits 148 2,207
Other Prepaids 2,966 1,260
________ ________
$ 5,999 $ 4,097
======== ========
5. Other Assets
Other assets at December 31, 1997 and 1996 consist of the following
(in thousands):
1997 1996
________ _______
Deferred financing fees $ 2,485 $ 2,994
Intangible assets 2,290 1,319
Organization costs 614 461
Cost of chips and tokens 988 513
________ _______
Subtotal 6,377 5,287
Less: amortization (1,019) (537)
________ _______
Other assets, net $ 5,358 $ 4,750
======== =======
Deferred financing fees related to the Company's long-term debt facility are
being amortized to interest expense on a straight-line basis over the period of
the loan. In accordance with the Company's capitalization of interest costs
during the development phase, the amortized portion of these fees was included
in capitalized interest.
Intangible assets represent certain rights related to the "New York Theme,
" contributed by Primadonna, in accordance with the Agreement. This amount is
being amortized over the life of the Agreement (30 years).
Organization costs consist primarily of professional and legal fees incurred to
establish the Company, and obtain requisite gaming licenses. These costs are
being amortized over 5 years.
Chips and tokens consist of the cost of purchasing the gaming chips and tokens
used in the Hotel-Casino. These costs are being amortized over 3 years.
57
6. Accrued Expenses
Accrued expenses at December 31, 1997 and 1996 consist of the following
(in thousands):
1997 1996
________ _______
Accrued interest $ 1,809 $ 2,158
Advance deposits 3,393 2,632
Accrued accounts payable 385 10,231
Accrued payroll and related 6,791 1,550
Accrued gaming liability 3,290 -
Accrued taxes 1,866 -
Other accruals 4,281 2,951
________ ________
$ 21,815 $ 19,522
======== ========
7. Long-Term Debt
Long-term debt at December 31, 1997 and 1996 consists of the following
(in thousands):
1997 1996
________ _______
Amount due under Master Security Agreement
for Equipment financing. Interest rate based
on Libor plus 1.88%. Interest ranged from
7.35% to 7.75% during the year. Repayable
in 58 monthly installments of $254,000. $ 17,458 $ -
Amount due under Bank Credit Facility at
floating interest rates based on Libor plus
between .75% to 2.00% depending on the
Guarantor Funded Debt Ratio as defined.
Interest on the Bank Credit Facility ranged
from 6.28% to 6.71% during 1997, maturing
March 31, 2002. 239,500 285,000
Amount due under the Swing Line loan at
floating interest rates based on Libor plus
between zero and 1.00% depending on the
Guarantor Funded Debt Ratio as defined.
Interest on the Swing Line loan ranged from
7.69% to 8.19% during 1997. This loan is
payable on demand or in any event will
mature on March 31, 2002 5,600 -
________ ________
262,558 285,000
Less - current portion of long-term debt (16,873) -
________ ________
Total long-term debt $245,685 $285,000
======== ========
58
On September 15, 1995, the Company entered into a secured limited recourse
financing agreement for a $225,000,000 Construction/Revolving Loan (the "Bank
Credit Facility") with a consortium of banks, led by Bank of America. On
September 26, 1996, the Bank Credit Facility was amended to increase the
Commitment to $285,000,000. The Bank Credit Facility was a non-revolving
construction line of credit, which converted to a 5 year reducing revolver upon
the commencement of operations of New York-New York on January 3, 1997.
Interest on the Bank Credit Facility is variable based on a formula defined in
the Bank Credit Facility agreement. An initial payment of $20,000,000 is due on
March 31, 1998 which is the Initial Reduction Date. Thereafter, quarterly
installments are due of $9,375,000 for the next four quarters; $11,250,000 for
the next eight quarters; $12,500,000 for the next three quarters; and the
balance maturing four years after the Initial Reduction Date. Additional
principal payments are due one year after operations commence based on 50% of
Available Cash Flow (as defined). The Company has the ability to apply the
payments made ahead of schedule in 1997 against this minimum payment.
Accordingly, $11,273,000 related to the Bank Credit Facility is shown in the
current portion of long-term debt which represents the additional balance due
in 1998. The Bank Credit facility is secured by substantially all of the assets
of the Company.
The Company incurred commitment fees on a quarterly basis on the unused portion
of the Bank Credit Facility at 0.5%. Commitment fees incurred during the years
ended December 31, 1997, 1996 and 1995 were $51,000, $284,000 and $228,000,
respectively; these amounts are included in capitalized interest. Substantially
all property and equipment of the Hotel-Casino is pledged as collateral under
the Bank Credit Facility.
The Bank Credit Facility contains various restrictive covenants including the
maintenance of certain financial ratios and limitations of additional debt,
distributions, disposition of property, mergers and similar transactions. The
Company is in compliance with these covenants at December 31, 1997. On March
17, 1997, the Company purchased a contiguous parcel of land for $13,500,000.
This purchase is not subject to the calculation of the maximum capital
expenditures allowable under the Bank Credit Facility.
As a condition the Bank Credit Facility, MGM and Primadonna (collectively, the
"Guarantors") guaranteed completion of the Hotel-Casino and, in addition,
entered into a "Keep Well" agreement whereby, if the Company fails to be in
compliance with any of the financial ratio covenants (as defined), the
Guarantors shall contribute Acceptable Cash Equity (as defined) to the Company.
The Bank Credit Facility allows for the issuance of letters of credit of up to
$20,000,000 and the issuance of swing line loans of up to $10,000,000. As of
December 31, 1997, no amounts were outstanding with respect to the letter of
credit and the outstanding balance on the Swing Line loan was $5,600,000.
On January 21, 1997, the Company entered into a $20,000,000 Master Security
Agreement for equipment financing with a financial institution (the "Note").
The Note is payable in 58 monthly installments of $254,000 and one final
installment of $5,000,000. The Note contains a Contract Rate of interest equal
to the sum of 1) one and 88/100 percent (1.88%) per annum, plus 2) a variable
annum interest rate which shall be equal to the one month LIBOR rate. The
Company has the option to convert to a fixed rate, based on the Treasury Rate,
for the remaining length of time on the Note, plus one and 88/100 percent
(1.88%) per annum.
59
Interest payable at December 31, 1997, 1996 and 1995 was approximately
$1,809,000, $2,158,000 and $175,000 respectively, and is included in accrued
expenses in the accompanying balance sheets.
Scheduled maturities of long-term debt are as follows as of December 31, 1997
(in thousands):
1998 $ 16,873
1999 46,173
2000 48,048
2001 51,798
2002 99,666
Thereafter -
________
$262,557
========
8. Capital Lease
In December, 1996, the Company entered into a five-year master equipment lease
agreement to purchase various powered supply carts with a fair market value of
$1,001,000 at an interest rate of 7.46%. The future minimum lease payments by
year under the lease, together with the present value of the lease payments,
consisted of the following at December 31, 1997 (in thousands):
1998 $ 240
1999 240
2000 240
2001 241
2002 -
Thereafter -
________
Minimum lease payments 961
Less: amounts representing interest (64)
________
Present value of minimum lease payments $ 897
========
9. Minimum Lease Income
The Company has entered into a number of operating leases in relation to food
and beverage and retail outlets. The future minimum lease income under these
leases consisted of the following at December 31, 1997 (in thousands):
1998 $ 6,995
1999 6,959
2000 6,959
2001 6,959
2002 5,713
Thereafter 46,877
________
$ 80,462
60
10. Abandonment Loss
The Company incurred costs related to the construction of flyover ramps to
divert traffic from the heavily traveled intersection in front of the Hotel-
Casino. Based upon the results of the traffic studies subsequently performed,
management changed their intentions and abandoned construction of these
flyovers; therefore $642,000 of abandonment loss, the cumulative costs incurred
to date, was charged to expense as of December 31, 1995.
11. Related Party Transactions
During the years ended December 31, 1997, 1996 and 1995, the Company engaged in
certain transactions with MGM and Primadonna. In 1995 MGM and Primadonna, each,
contributed $5,000,000, to the Company, which amounts were advanced to, and
subsequently repaid by the Company, during the year ended December 31, 1995.
In addition, the Company has reimbursed expenses related to construction and
pre-opening expenses paid for by MGM and Primadonna. These reimbursed expenses
approximated $96,000 and $1,544,000 for 1996 and $414,000 and $2,279,000 for
1995, for MGM and Primadonna, respectively. Included in these amounts are
interest paid of $4,000 to Primadonna for 1996, and $44,000 and $40,000 to MGM
and Primadonna, respectively for 1995.
During the year ended December 31, 1997 the Company purchased services valued
at $346,000 and $98,000 from MGM and Primadonna, respectively. At December 31,
1997, $9,000 and $1,000 was payable to MGM and Primadonna, respectively. In
addition, services were provided by the Company valued at $483,000 and $8,000
to MGM and Primadonna, respectively. At December 31, 1997 balances of $35,000
and $1,000 were receivable from MGM and Primadonna, respectively.
12. Commitments and Contingencies
Litigation
The Company is party to various litigation arising in the normal course of
business. Management is of the opinion that the ultimate resolution of the
matters will not have a material effect on the financial position or the
results of operations of the Company.
Long Term Incentive Plan
During 1997 the Company adopted a long-term incentive plan for senior
executives. The plan is based on performance to motivate management to remain
with the Company over the long term. The plan rewards performance over and
above a predetermined level of earnings before interest, taxes and depreciation
as defined, and established by the compensation committee. A total of $910,000
was charged to expense under the plan during 1997.
61
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
The information required by Items 10, 11, 12, and 13 is incorporated by
reference from the 1997 Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days of the end of the fiscal year covered by
this report.
Page 62
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements:
Reference is made to the Index to Financial Statements and Related
Information under Item 8 in Part II hereof where these documents are
listed.
(a)(2) Financial Statement Schedules:
None.
(a)(3) Exhibits
3.1 Amended and Restated Articles of Incorporation of Primadonna Resorts,
Inc. (incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-1 No. 33-61212 filed by the Registrant).
3.2 Bylaws of Primadonna Resorts, Inc., dated April 12, 1993 (incorporated
by reference to Exhibit 3.2 to the Registration Statement on Form S-1
No. 33-61212 filed by the Registrant).
10.1 Primadonna Resorts, Inc. 1993 Eligible Directors' Stock Option Plan
(incorporated by reference to Exhibit 4.1 to the Registration Statement
on Form S-8 No. 33-70842 filed by the Registrant).
10.2 Form of Eligible Director Nonqualified Stock Option Agreement
(incorporated by reference to Exhibit 4.2 to the Registration Statement
on Form S-8 No. 33-70842 filed by the Registrant).
10.3 Primadonna Resorts, Inc. 1993 Stock Incentive Plan (incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form S-8
No. 33-70844 filed by the Registrant).
10.4 Form of Employee Incentive Stock Option Award Agreement (incorporated
by reference to Exhibit 4.2 to the Registration Statement on Form S-8
No. 33-70844 filed by the Registrant).
10.5 Form of Employee Nonqualified Stock Option Award Agreement
(incorporated by reference to Exhibit 4.3 to the Registration Statement
on Form S-8 No. 33-70844 filed by the Registrant).
10.6 Form of Consultant Nonqualified Stock Option Award Agreement
(incorporated by reference to Exhibit 4.4 to the Registration Statement
on Form S-8 No. 33-70844 filed by the Registrant).
10.7 Form of Special Employee Nonqualified Stock Option Award Agreement
(incorporated by reference to Exhibit 4.5 to the Registration Statement
on Form S-8 No. 33-70844 filed by the Registrant).
Page 63
<PAGE>
10.8 Form of Special Employee Incentive Stock Option Award Agreement (Early
Vesting Provisions) (incorporated by reference to Exhibit 4.6 to the
Registration Statement on Form S-8 No. 33-70844 filed by the
Registrant).
10.9 Closing Agreement on Final Determination Covering Specific Matters dated
July 1, 1992 between the Primadonna Corporation d.b.a. Primadonna Resort
& Casino and the Internal Revenue Service (incorporated by reference to
Exhibit 10.12 to the Registration Statement on Form S-1 No. 33-61212
filed by the Registrant).
10.10 Agreement dated May 19, 1993 between RP Racing Enterprises, Inc. and The
Primadonna Corporation (incorporated by reference to Exhibit 10.13 to
the Registration Statement on Form S-1 No. 33-61212 filed by the
Registrant).
10.11 Amended and Restated Ground Lease Agreement dated July 1, 1993 between
Primm South Real Estate Company and The Primadonna Corporation
(incorporated by reference to Exhibit 1 to the Form 10-Q for the quarter
ended September 30, 1993).
10.12 Aircraft Co-Ownership Agreement by and among Gary E. Primm, as Trustee
of the Gary E. Primm Family Trust, and Primadonna Resorts, Inc. dated as
of September 7, 1993 (incorporated by reference to Exhibit 10.12 to the
Form 10-K for the year ended December 31, 1993).
10.13 Reducing Revolving Credit Agreement by and among The Primadonna
Corporation, Primadonna Resorts, Inc. First Interstate Bank of Nevada,
N.A., Bank of America NT&SA, Bank of America Nevada, Midlantic National
Bank, First Security Bank of Utah, N.A., and Michigan National Bank
dated December 28, 1993 (incorporated by reference to Exhibit 10.13 to
the Form 10-K for the year ended December 31, 1993).
10.14 Employment Agreement by and among Gary E. Primm and The Primadonna
Corporation dated as of October 1, 1993 (incorporated by reference to
Exhibit 10.14 to the Form 10-K for the year ended December 31, 1993).
10.15 Consulting Agreement between Mr. Robert E. Armstrong and The Primadonna
Corporation dated November 23, 1993 (incorporated by reference to
Exhibit 10.15 to the Form 10-K for the year ended December 31, 1993).
10.16 Employment Agreement by and among William Paulos and Primadonna Resorts,
Inc. dated January 9, 1994 (sic) (incorporated by reference to Exhibit
10.16 to the Form 10-K for the year ended December 31, 1994).
10.17 Operating Agreement by and between MGM Grand, Inc. ("MGM") and PRMA Las
Vegas, Inc. ("PRMA-LV") dated as of December 26, 1994 (incorporated by
reference to Exhibit 10.17 to the Form 10-K for the year ended December
31, 1994).
10.18 Contribution Agreement with Joint Escrow Instructions by and among PRMA-
LV, MGM and New York-New York Hotel, LLC dated as of December 26, 1994
(incorporated by reference to Exhibit 10.18 to the Form 10-K for the year
ended December 31, 1994).
Page 64
<PAGE>
10.19 Split-Dollar Agreement among Gary Primm, Primadonna Corporation and
Robert E. Armstrong, Trustee of the 1992 Primm Children's Trust U/A
dated December 22, 1992 (the ("Trustee") dated January 19, 1994 (Split-
Dollar Agreement I") (incorporated by reference to Exhibit 10.19 to the
Form 10-K for the year ended December 31, 1994).
10.20 Amendment to Split-Dollar Agreement I among Gary Primm, the Primadonna
Corporation and the Trustee dated June 16, 1994 (incorporated by
reference to Exhibit 10.20 to the Form 10-K for the year ended December
31, 1994).
10.21 Second Amendment to Split-Dollar Agreement I among Gary Primm, the
Primadonna Corporation and the Trustee dated December 15, 1994
(incorporated by reference to Exhibit 10.21 to the Form 10-K for the
year ended December 31, 1994).
10.22 Split-Dollar Agreement among Gary Primm, The Primadonna Corporation and
the Trustee dated January 19, 1994 ("Split-Dollar Agreement II")
(incorporated by reference to Exhibit 10.22 to the Form 10-K for the
year ended December 31, 1994).
10.23 First Amendment to Split-Dollar Agreement II among Gary Primm, the
Primadonna Corporation and the Trustee dated December 15, 1994
(incorporated by reference to Exhibit 10.23 to the Form 10-K for the
year ended December 31, 1994).
10.24 Split-Dollar Agreement among Gary Primm, The Primadonna Corporation and
the Trustee dated February 14, 1994 ("Split-Dollar Agreement III")
(incorporated by reference to Exhibit 10.24 to the Form 10-K for the
year ended December 31, 1994).
10.25 First Amendment to Split-Dollar Agreement III among Gary Primm, the
Primadonna Corporation and the Trustee dated December 15, 1994
(incorporated by reference to Exhibit 10.25 to the Form 10-K for the
year ended December 31, 1994).
10.26 Amended and Restated Reducing Revolving Credit Agreement dated July 17,
1995 by and among Primadonna Resorts, Inc., The Primadonna Corporation,
and PRMA Land Development Company, as "Borrowers", and First Interstate
Bank of Nevada, N.A. as "Agent Bank" for a consortium of seventeen
participating bank listed therein as "Lenders". (incorporated by
reference to Exhibit 10.26 to the Form 10-Q for the quarter ended June
30, 1995).
10.27 First Amendment to Amended and Restated Reducing Revolving Credit
Agreement, dated March 27, 1996 by and among Primadonna Resorts, Inc.,
The Primadonna Corporation, and PRMA Land Development Company as
"Borrowers", and First Interstate Bank, N.A. as "Agent Bank" for a
consortium of seventeen participating banks listed therein as "Lenders"
(incorporated by reference to Exhibit 10.27 to the Form 10-Q for the
quarter ended March 31, 1996).
10.28 Consulting Agreement between Robert E. Armstrong and The Primadonna
Corporation dated September 1, 1996 (incorporated by reference to Ex-
hibit 10.28 to the Form 10-Q for the quarter ended September 30, 1996).
65
<PAGE>
10.29 Credit Agreement dated June 5, 1997 by and among Primadonna Resorts, Inc.
and The Primadonna Corporation as "Borrowers", and Wells Fargo Bank as
"Agent Bank" for a consortium of sixteen participating banks listed
therein as :Lenders"(without schedules or exhibits) (incorporated by
reference to Exhibit 10.29 to the Form 10-Q for the quarter ended June
30, 1997).
10.30 Amended and Restated 1993 Incentive Plan, formerly known as the 1993
Stock Incentive Plan, dated March 28, 1997 (incorporated by reference
to Exhibit 4.1 to the Registration Statement on Form S-8, No. 33-70844
filed by the Registrant).
10.31 First Amendment to the Amended and Restated Ground Lease Agreement and
Consent and Waiver, dated August 25, 1997 by and among The Primadonna
Corporation and Primm South Real Estate Company.
10.32 Assumption and Consent Agreement, dated December 18, 1997, by and among
Primadonna Resorts, Inc. and The Primadonna Corporation as "Borrowers",
and Wells Fargo Bank as "Agent Bank" for a consortium of sixteen
participating banks listed therein as "Lenders"(without schedules or
exhibits).
21 Subsidiaries
23 Consent of Independent Public Accountants
24 Power of Attorney (See page 53 hereof)
(b) Reports on Form 8-K
No report on Form 8-K was filed during the three-month period ended
December 31, 1997.
27 Financial Data Schedule
27.1 Financial Data Schedule Restated six month period ended June 30, 1997,
and nine month period ended September 30, 1997.
Page 66
<PAGE>
POWER OF ATTORNEY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 25th, day of
March 1998.
Primadonna Resorts, Inc.
By: /s/ Gary E. Primm
_____________________
Gary E. Primm
Chairman of the Board,
Chief Executive Officer
and Director
Each person whose signature appears below hereby authorizes Gary E. Primm, as
attorney-in-fact to sign on his behalf, individually, and in each capacity
stated below, and to file all amendments and/or supplements to this Annual
Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
Signature Title Date
_________ _____ ____
/s/Gary E. Primm Chairman of the Board, Chief March 25, 1998
______________________ Executive Officer and Director
Gary E. Primm
/s/Michael P. Shaunnessy Vice President - Finance March 25, 1998
______________________ (Principal Financial and Accounting Officer)
Michael P. Shaunnessy
/s/Robert E. Armstrong Secretary and Director March 25, 1998
______________________
Robert E. Armstrong
/s/Madison B. Graves II Director March 25, 1998
______________________
Madison B. Graves II
/s/H. Martin Rosa Director March 25, 1998
______________________
H. Martin Rosa
/s/Sigmund Rogich Director March 25, 1998
______________________
Sigmund Rogich
/s/George C. Swarts Director March 25, 1998
______________________
George C. Swarts
/s/ Gary R. Sitzmann Director March 25, 1998
______________________
Gary R. Sitzmann
Page 67
<PAGE>
Primadonna Resorts, Inc. and Subsidiaries
Exhibit Index
Sequentially
Exhibit Numbered
No. Description Page
_______ _______________________________ ____________
21 Subsidiaries 69
23 Consent of Independent Public Accountants 70
24 Power of Attorney ( see page 67 hereof)
10.31 First Amendment to the Amended and Restated Ground
Lease Agreement and Consent and Waiver, dated
August 25, 1997 71 - 74
10.32 Assumption and Consent Agreement, dated December 18, 1997 75 - 82
27 Financial Data Schedule 83
27.1 Financial Data Schedule Restated six month period 84
ended June 30, 1997, and nine month period ended
September 30, 1997.
Page 68
<PAGE>
Exhibit 21
Primadonna Resorts, Inc. and Subsidiaries
The Primadonna Corporation, a Nevada corporation
PRMA Land Development Company, a Nevada corporation
PRMA Las Vegas, Inc., a Nevada corporation
Page 69
<PAGE>
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to incorporation of our
report dated January 30, 1998 included in this Annual Report on Form 10-K, into
Primadonna Resorts, Inc. and Subsidiaries previously filed Registration
Statements on Form S-8 (File No. 33-70842) and Form S-8 (File No. 33-70844).
/s/Arthur Andersen LLP
____________________
Arthur Andersen LLP
Las Vegas, Nevada
March 25, 1998
Page 70
<PAGE>
EXHIBIT 10.31
FIRST AMENDMENT TO THE AMENDED
AND RESTATED GROUND LEASE AGREEMENT
AND CONSENT AND WAIVER
This First Amendment to the Amended and Restated Ground Lease Agreement and
Consent and Waiver (the "Amendment") is made effective as of the 25th day of
August, 1997, (the Effective Date") by and between Primm South Real Estate
Company, a Nevada corporation ("Landlord") and The Primadonna Corporation, a
Nevada corporation ("Tenant").
RECITALS
A. Landlord and Tenant entered into an Amended and Restated Ground Lease
Agreement effective as of July 1, 1993 ("Lease"). All capitalized terms not
otherwise defined in this Amendment shall have the meanings as set forth in the
Lease.
B. Landlord has caused the filing and recordation of that certain parcel map
with the County Recorder's Office of Clark County, Nevada on April 23, 1997 in
the Parcel Maps Official Records Book No. 970423 as Map No. 01700, File No.
088, at Page 0077 (the "Parcel Map") which created four (4) separate legal
parcels, designated as Parcel 1, Parcel 2, Parcel 3, and Parcel 4.
C. Tenant desires to enlarge the leasehold parcel denoted as the "Primadonna
Parcel" in the Lease from 32.85 acres to 37.8 acres, and additional 4.95 acres
(the "Additional Acreage"). The enlarged Primadonna Parcel shall constitute
Parcel 1 of the Parcel Map, excepting therefrom the Fast Food Parcel.
D. Tenant desires to decrease the leasehold parcel denoted as the "R.V. Park
Parcel" in the Lease and designated as the "RV Park Parcel" in Exhibit "A" to
the Lease from 27.49 acres to 24.63 acres, a net decrease of 2.86 acres (the
"Decreased Acreage"). The revised RV Park Parcel shall constitute Parcel 2 of
the Parcel Map.
E. Subject to the Exclusivity Covenant under Subsection 5.2 of the Lease, the
Easements and the right of first refusal granted to Tenant under Section 21.1
of the Lease, Landlord intends to transfer or has transferred all or a portion
of the real property it presently owns in Clark County, Nevada, which lies east
of Interstate 15 and which is presently undeveloped and which is part of the
real property described in Exhibit "F" to the Lease and designated therein as
the "Landlord's Clark County Property" to Primm 650 Limited Partnership, a
Nevada limited partnership ("Primm 650") and/or another entity or entities
controlled by, or under common control with, Landlord in order to facilitate
the development of the Landlord's Clark County Property, including, but not
limited to, the development of a thematic entertainment retail shopping outlet
complex to be known as the "Fashion Outlet of Las Vegas" (the "Mall") to be
constructed in one or two phases on a portion of Parcel 3 of the Parcel Map
immediately adjacent to the Primadonna Parcel (the "Mall Parcel"). Primm 650
and Fashion Outlet of Las Vegas Associates, a Nevada general partnership (the
"Mall Tenant") have entered into a ground lease dated February 26, 1997 (the
"Mall lease") whereby Primm 650 has agreed to lease the Mall Parcel to the
Mall Tenant.
F. Landlord and Tenant desire to amend the Lease to set forth the revisions
contemplated by these Recital and to consent to or waive certain of the rights
and obligations under the Lease as set forth herein.
71
<PAGE>
AGREEMENT
NOW THEREFORE, based upon the foregoing Recitals which by reference thereto are
incorporated herein, Landlord and Tenant hereby agree as follows:
1. The legal description of the Property contained in Subsection 1.2 of the
Lease is hereby amended by: (a) the substitution of the legal description set
forth in Exhibit "A" attached hereto which shall hereafter be referred to as
the "Primm Valley Resort and Casino Parcel" in replacement for the legal
description of the Primadonna Parcel set forth in and as a part of Exhibit "A"
of the Lease and designated herein as the "Primadonna Hotel and Casino Parcel"
and, (b) the substitution of the legal description set forth in Exhibit "A"
attached hereto which shall hereafter be referred to as the "RV Park Parcel" in
replacement for the legal description of the RV Park Parcel set forth in and as
a part of Exhibit "A" of the Lease and designated therein as the "RV Park
Parcel".
2. Rent for the Additional Acreage shall be calculated at $36,832.00 per acre
per year or fraction thereof and shall be adjusted under Subsection 4.3 of the
Lease as if such Additional Acreage had been part of the Property from the
Effective Date through the Additional Base Rent Commencement Date as
hereinafter defined ("Additional Base Rent"). Additional Base Rent shall
commence upon the earlier to occur of (i) the date Tenant uses all or any
portion of the improvements to be constructed on the Additional Acreage, (ii)
when the Mall Tenant opens to the general public the Mall to be constructed on
the Mall Parcel, and (iii) August 1, 1999 ("Additional Base Rent Commencement
Date"). Until the Additional Base Rent Commencement Date, Tenant shall continue
to pay the then applicable monthly Base Rent under Section 4 of the Lease
(without any adjustment for the Additional Acreage or the Decreased Acreage).
As of the Additional Base Rent Commencement Date, the then Base Rent under the
Lease shall be increased by the Additional Base Rent and decreased by that
portion of the Base Rent attributable to the Decreased Acreage and thereafter
as set forth in Subsection 4.3 and 4.4 of the Lease. If the Additional Base
Rent Commencement Date occurs on a day other than the last day of a month, then
the Base Rent as thereby adjusted shall be prorated based upon the number of
actual days remaining in such month.
3. Landlord and Tenant hereby acknowledge that Landlord has conveyed title to
Parcel 3 of the Parcel Map to Primm 650. Tenant hereby waives its right of
first refusal under Section 21 of the Lease and consents to Landlord's
conveyance of title to parcel 3 of the Parcel map to Primm 650, subject to the
Exclusivity Covenant under Subsection 5.2 of the Lease and the Easements and,
provided further, that Tenant's right of first refusal granted under Section
21.1 of the Lease shall continue to be applicable to Primm 650 and all or any
portion of the landlord's Clark County Property it acquires from Landlord.
Tenant hereby consents to the mall Lease entered into between Primm 650 and
the Mall Tenant and waives its right of first refusal under Section 21 of the
Lease as to the Mall Parcel and the Mall Lease.
4. Landlord, Tenant, Primm 650 and Mall Tenant have entered into, or intend to
enter into, a "Lease of Water Rights and Wastewater Capacity" (the "Water
Lease") whereby Tenant, pursuant to and in partial satisfaction of Subsection
13.2(b) of the Lease, at the request of Primm South and Primm 650 for the
benefit of Primm 650 and its Mall Tenant has or will agree to lease a maximum
of 90 acre feet of extractive water rights for the first phase of the Mall and
a maximum of 67.5 acre feet of extractive water rights for the second phase of
72
<PAGE>
the mall, together with the use of Tenant's Water and Sewer Rights and
Facilities. Landlord and Tenant agree that by landlord's execution of the Water
Lease, Landlord consents to such lease by Tenant to the mall Tenant and
Landlord waives its right of first refusal under Subsection 13.2(c) of the
Lease as to, and only as to, those water rights and the Water and Sewer Rights
and Facilities which are the subject of the Water Lease.
5. Subsection 13.5 of the Lease is hereby amended by deleting Subsection 13.5
in its entirety and by adding a new Subsection 13.5 which shall read a follows:
13.5 Assignability of Landlord's Rights. Subject to the provisions of
Section 13.2(b), Landlord shall have the right to assign all or any
portion of Landlord's rights set forth in this Section 13 to any
entity which is directly or indirectly controlled by or is under
common control with Landlord and which owns or leases all or any
portion of the Property and/or Landlord's Clark County Property. For
purposes of this Section 13, the terms "controlled by" or "is under
the common control with" shall mean the possession, direct or
indirect, of the power to direct or cause the direction of the
management and policies of a person or entity, whether through the
ownership of voting securities, acting as general partner as a
manager, or by contract or otherwise.
6. Landlord and Tenant agree to execute, acknowledge and record an Amendment of
Memorandum of Ground Lease in the form and content attached hereto as Exhibit
"B".
7. Tenant's leasehold estate under the Lease is presently encumbered by that
certain Leasehold, Fee and Water Rights Deed of Trust, Fixture Filing and
Security Agreement with Assignment of Rents dated as of June 5, 1997 and
recorded on June 5, 1997, in Book 970605, as Document No. 1951, Clark County,
Nevada, Official records (the "Leasehold Mortgage"), executed by The Primadonna
Corporation, a Nevada corporation, as trustor and debtor, to United Title of
Nevada, Inc., a Nevada corporation, as trustee, to and for the benefit of Wells
Fargo Bank, National Association, in its capacity as Agent Bank on behalf of
the Lenders, Swingline lender and L/C Issuer, all of which are defined and
described in that certain Credit Agreement dated as of June 5, 1997, executed
by and among Primadonna Resorts, Inc., a Nevada Corporation, and Tenant, as the
borrowers, and the Agent Bank, Lenders, Co-Agents, Lead managers, Swingline
Lender and L/C Issuer therein described (collectively the "Banks"), as a
beneficiary and secured party (in such capacity the ("Agent Beneficiary"). This
Amendment shall not be effective until Tenant obtains from the Agent
Beneficiary a written consent to the Amendment.
8. All exhibits referred to herein and attached to this Amendment are
incorporated herein by reference.
9. Section 23 of the Lease is hereby amended by deleting the address of
Landlord as it appears therein and adding a new address for Landlord which is
as follows:
Landlord: Primm South Real Estate Company
c/o Janet Primm Rosa, President
5300 Butterworth Road
Mercer island, Washington 98040
73
<PAGE>
with copy to: Marilyn L. Skender, Esq.
Hale, Lane, Peek, Dennison,
Howard, Anderson and Pearl
100 West Liberty Street
Tenth Floor
Reno, Nevada 89501
10. The Lease, as amended by this Amendment, shall remain in full force and
effect.
11. This Amendment may be executed in counterparts, all of which executed
counterparts shall together constitute a single document. Signature pages may
be detached from the counterparts and attached to a single copy of this
document to physically form one document.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment to
the Amended and Restated Ground Lease and Consent and Waiver as of the day and
year first written above.
LANDLORD: PRIMM SOUTH REAL ESTATE COMPANY
a Nevada corporation
By: /s/ Douglas C. Clemetson
_________________________
Douglas C. Clemetson,
Vice President
TENANT: THE PRIMADONNA CORPORATION,
a Nevada corporation
By: /s/ Gary E. Primm
_________________________
Gary E. Primm,
President
74
<PAGE>
EXHIBIT 10.32
ASSUMPTION AND CONSENT AGREEMENT
THIS ASSUMPTION AND CONSENT AGREEMENT ("Assumption Agreement") is made as of
the 18th day of December, 1997, by and between WELLS FARGO BANK, National
Association ("WFB"), SOCIETE GENERALE ("SocGen"), THE LONG TERM CREDIT BANK OF
JAPAN, LTD. ("LTCBJ"), BANK OF SCOTLAND ("BOS"), CIBC INC. ("CIBC"), CREDIT
LYONNAIS, Los Angeles Branch ("Credit Lyonnais"), ABN AMRO BANK ("ABN"), THE
BANK OF NOVA SCOTIA ("BONS"), FIRST SECURITY BANK, N.A. ("FSB"), THE SUMITOMO
BANK, LTD. ("Sumitomo") and U.S. BANK NATIONAL ASSOCIATION, formerly known as
U.S. Bank of Nevada ("USBNA" and together with WFB, SocGen, LTCBJ, BOS, CIBC,
Credit Lyonnais, ABN, BONS, FSB and Sumitomo, collectively referred to as the
"Assuming Lenders" and each individually as an "Assuming Lender"), PRIMADONNA
RESORTS, INC., a Nevada corporation and THE PRIMADONNA CORPORATION, a Nevada
corporation (collectively the "Borrowers") and WELLS FARGO BANK, National
Association, in its capacity as Agent Bank as described hereinbelow.
R_E_C_I_T_A_L_S:
A.Reference is made to that certain Credit Agreement, dated as of June 5, 1997
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), by and among Borrowers, the Lenders therein named (herein together
with their respective successors and assigns collectively the "Lenders"), the
Co-Agents and Lead Managers therein named, Wells Fargo Bank, National
Association, as the swingline lender (herein in such capacity, together with
its successors and assigns, the "Swingline Lender"), Wells Fargo Bank,
National Association, as the issuer of letters of credit hereunder (herein in
such capacity, together with its successors and assigns, the "L/C Issuer"), and
Wells Fargo Bank, National Association, as administrative and collateral agent
for the Lenders, Swingline Lender and L/C Issuer (herein, in such capacity,
called the "Agent Bank" and, together with the Lenders, Swingline Lender and
L/C Issuer, collectively referred to as the "Banks").
B.In this Assumption Agreement, all capitalized words and terms not otherwise
defined herein shall have the respective meanings to be construed herein as
provided in Section 1.01 of the Credit Agreement and any reference to a
provision of the Credit Agreement shall be deemed to incorporate such provision
as a part hereof in the same manner and with the same effect as if the same
were fully set forth herein.
C.Assuming Lenders, together with the other Lenders set forth thereon,
presently hold the respective Syndication Interests in the Credit Facility set
forth on the Schedule of Lenders' Proportions in Credit Facility as of Closing
Date marked "Exhibit A", affixed hereto and by this reference incorporated
herein and made a part hereof.
D.Pursuant to Section 2.01(d) of the Credit Agreement, Borrowers desire to
increase the Aggregate Commitment from Two Hundred Fifty Million Dollars
($250,000,000.00) to Three Hundred Million Dollars ($300,000,000.00), an
increase of Fifty Million Dollars ($50,000,000.00) (the "Commitment Increase").
E.Each Assuming Lender is willing to commit to advance the portion of the
Commitment Increase set forth below, so that as of the Effective Date, as
hereinafter defined, Assuming Lenders shall hold the respective Pro Rata Shares
75
<PAGE>
of the Aggregate Commitment as increased by the Commitment Increase and the
respective Syndication Interests in the Credit Facility set forth below (each
individually an "Assumed Interest" and collectively the "Assumed Interests"):
NAME OF ASSUMING LENDER
PORTION OF COMMITMENT INCREASE
PRO RATA SHARE OF AGGREGATE COMMITMENT AFTER COMMITMENT INCREASE
PROPORTIONATE SYNDICATION INTERESTS AFTER COMMITMENT INCREASE
WFB $6,000,000.00 $40,000,000.00 13.33333%
SocGen 4,000,000.00 26,000,000.00 8.66667%
LTCBJ 3,000,000.00 19,000,000.00 6.33334%
BOS 3,000,000.00 19,000,000.00 6.33334%
CIBC 3,000,000.00 19,000,000.00 6.33334%
Credit Lyonnais 3,000,000.00 19,000,000.00 6.33334%
ABN 3,000,000.00 13,000,000.00 4.33333%
BONS 2,000,000.00 12,000,000.00 4.00000%
FSB 15,000,000.00 25,000,000.00 8.33333%
Sumitomo 3,000,000.00 13,000,000.00 4.33333%
USBNA 5,000,000.00 15,000,000.00 5.00000%
F.This Assumption Agreement is made, executed and delivered pursuant to Section
2.01(d) of the Credit Agreement and shall also constitute the assumption by and
delegation to Assuming Lenders of the Syndication Interests particularly
described hereinbelow.
NOW, THEREFORE, in consideration of the foregoing and other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto do agree as follows:
1.From and after the Effective Date, each Assuming Lender shall and does hereby
assume and agree to perform all of the promises and covenants of a Lender as to
its respective Assumed Interest arising or performable from and after the
Effective Date and does further agree to assume and be bound by each and every
term, condition, provision and covenant contained in the Credit Agreement and
each of the Loan Documents, effective as of the Effective Date, to the same
extent and manner as if such Assuming Lender had originally been named in the
Credit Agreement as a Lender holding the Assumed Interest therein and Assuming
Lender shall be deemed to be a Lender party to the Credit Agreement for all
purposes thereof.
76
<PAGE>
2.The "Effective Date" as used herein shall mean December 19, 1997, provided
that each of the following conditions precedent have been satisfied on or
before the Effective Date: (a) Assuming Lenders, Borrowers and Agent Bank have
executed twelve (12) duplicate originals of this Assumption Agreement and each
of such originals has been delivered to Agent Bank, (b) Borrowers have executed
and delivered to Agent Bank, on behalf of the Lenders, a restatement of the
Revolving Credit Note payable to the order of Agent Bank on behalf of the
Lenders, in the principal amount of Three Hundred Million Dollars
($300,000,000.00), (c) The Primadonna Corporation has executed and delivered to
Agent Bank a Second Amendment to Leasehold, Fee and Water Rights Deed of Trust,
Fixture Filing and Security Agreement with Assignment of Rents (H/C) in a form
and content acceptable to Agent Bank, for the purpose of securing repayment of
the Commitment Increase and the restated Revolving Credit Note, (d) Title
Company has committed to issue, at Borrowers' expense, its modified 110.10
endorsement to the Title Insurance Policy increasing coverage thereunder by an
additional Fifty Million Dollars ($50,000,000.00), (e) the Gaming Authorities
have approved and PRMA has delivered to Agent Bank a duly executed Stock Pledge
(Gaming) in favor of Agent Bank, together with the original stock certificates
for all issued and outstanding shares of stock of the Strip JV, (f) each Lender
realizing a decrease in its respective Syndication Interest has received from
Agent Bank such amount as is necessary to adjust such Lender's Pro Rata Share
of the Funded Outstandings as of the Effective Date equal to such Lender's
Syndication Interest as set forth on the Schedule of Lenders' Proportions in
Credit Facility as of December 19, 1997 attached hereto, and (g) each Assuming
Lender realizing an increase in its respective Syndication Interest has
delivered to Agent Bank an amount representing its Pro Rata Share of the
Funded Outstandings as of the Effective Date, less Assuming Lenders' Pro Rata
Share of the Funded Outstandings immediately prior to the Effective Date, for
distribution to the Lenders in such amounts as are necessary to adjust each
such Lenders' Pro Rata Share of the Funded Outstandings as of the Effective
Date to a percentage equal to the Syndication Interests set forth on the
Schedule of Lenders' Proportions in Credit Facility as of December 19, 1997
attached hereto. Interest accrued but remaining unpaid on the portion of the
outstanding principal balance under the Credit Facility shall be prorated to
the Effective Date and disbursed by Agent Bank to Lenders from the next payment
of accrued interest under the Note.
3.On the Effective Date, the respective aggregate Syndication Interests of the
Lenders in the Credit Facility shall be as set forth on the Schedule of Lenders
Proportions in Credit Facility as of December 19, 1997, a copy of which is
marked "Schedule 2.01(a)" affixed hereto and by this reference incorporated
herein and made a part hereof, which shall restate the Schedule of Lenders'
Proportions in Credit Facility attached as Schedule 2.01(a) to the Credit
Agreement, and all previous amendments and restatements thereof, for the
purpose of showing the Commitment Increase, the adjustment of the respective
Syndication Interests held by each of the Lenders and evidencing each Assuming
Lender's applicable Syndication Interest in the Credit Facility on and after
the Effective Date.
4.Agent Bank, on behalf of itself and each of the Lenders, makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made by Borrowers in or in connection
with the Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement, the Loan Documents
or any other instrument or document furnished pursuant thereto. Agent Bank, on
behalf of itself and each of the Lenders, makes no representation or warranty
77
<PAGE>
in connection with, and assumes no responsibility with respect to, the
solvency, financial condition or statements of the Borrowers or the performance
or observance by the Borrowers of any of their respective obligations under the
Credit Agreement, the Loan Documents or any other instrument or document
furnished in connection therewith.
5.Each Assuming Lender represents and warrants on behalf of itself that:
a.(i) it is duly organized and existing and it has full power and authority to
take, and has taken, all action necessary to execute and deliver this
Assumption Agreement and any other documents required to be executed or
delivered by it in connection with this Assumption Agreement, and to fulfill
its obligations hereunder; (ii) no notices to, or consents, authorizations or
approvals of, any person are required (other than any already given or
obtained) for its due execution, delivery and performance of this Assumption
Agreement; and apart from any agreements or undertakings or filings required by
the Credit Agreement, no further action by, or notice to, or filing with, any
person is required of it for such execution, delivery or performance; (iii)
this Assumption Agreement has been fully executed and delivered by it and
constitutes its legal, valid and binding obligations, enforceable against it in
accordance with the terms hereof, subject, as to enforcement, to bankruptcy,
insolvency, moratorium, reorganization and other laws of general application
relating to or affecting creditors' rights and to general equitable principles;
and (iv) it is eligible under the Credit Agreement to be a Lender in accordance
with the terms hereof.
b.(i) under applicable law and treaties no tax will be required to be withheld
by Borrowers or any Bank with respect to any payments to be made to such
Assuming Lender under the Credit Agreement, (ii) it agrees to furnish (if it is
organized under the laws of any jurisdiction other than the United States or
any State thereof) to the Agent Bank and the Borrowers prior to the time that
the Agent Bank or Borrowers are required to make any payment of principal,
interest or fees hereunder, duplicate executed original of either U.S. Internal
Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein
the Assuming Lender claims entitlement to the benefits of a tax treaty that
provides for a complete exemption from U.S. federal income withholding tax on
all payments hereunder) and agrees to provide new Forms 4224 or 1001 upon the
expiration of any previously delivered form or comparable statements in
accordance with applicable U.S. law and regulations and amendments thereto,
duly executed and completed by the Assuming Lender, and (iii) it agrees to
comply with all applicable U.S. laws and regulations with regard to such
withholding tax exemption.
6.Borrowers represent and warrant as of the Effective Date that:
a.the representations and warranties contained in Article IV of the Credit
Agreement and contained in each of the other Loan Documents (other than
representations and warranties which expressly speak only as of a different
date, which shall be true and correct in all material respects as of such date)
are true and correct on and as of the Effective Date in all material respects
as though such representations and warranties had been made on and as of the
Effective Date, except to the extent that such representations and warranties
are not true and correct as a result of a change which is permitted by the
Credit Agreement or by any other Loan Document or which has been otherwise
consented to by Agent Bank;
78
<PAGE>
b.Since the date of the most recent financial statements referred to in Section
5.08(a)(iii) of the Credit Agreement, no Material Adverse Change has occurred
and no event or circumstance which could reasonably be expected to result in a
Material Adverse Change or Material Adverse Effect has occurred; and
c.no event has occurred and is continuing which constitutes a Default or Event
of Default under the terms of the Credit Agreement.
7.Each Assuming Lender (a) acknowledges that it has received a copy of the
Credit Agreement and the Loan Documents, together with copies of the most
recent financial statements referred to in Section 5.08 of the Credit
Agreement, and such other documents and information as it has deemed
appropriate to make its own credit and legal analysis and decision to enter
into this Assumption Agreement; (b) agrees that it will, independently and
without reliance upon the Agent Bank or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit and legal decisions in taking or not taking action under
the Credit Agreement; and (c) appoints and authorizes the Agent Bank to take
such action as agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Agent Bank by the terms thereof, together
with such powers as are reasonably incidental thereto.
8.Intentionally omitted.
9.This Assumption Agreement may be signed in any number of counterparts, and
signatures to all counterparts thereto, when assembled together, shall
constitute signatures to this entire agreement with the same effect as if all
signatures were on the same document.
10.This Assumption Agreement shall be governed by and construed in accordance
with the internal laws of the State of Nevada without regard to principles of
conflicts of law. Borrowers further agree that the full and exclusive forum
for the determination of any action relating to this Assumption Agreement, the
Loan Documents, or any other document or instrument delivered in favor of Banks
pursuant to the terms hereof shall be either an appropriate Court of the State
of Nevada or the United States District Court or United States Bankruptcy Court
for the District of Nevada, except that an action to foreclose the Water Rights
Deed of Trust (California) may be brought in any state or federal court in San
Bernardino County, California, and the Borrowers hereby irrevocably submit to
the jurisdiction thereof.
11.Any amendment or waiver of any provision of this Assumption Agreement shall
be in writing and signed by the parties hereto. No failure or delay by either
party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver thereof and any waiver of any breach of the provisions of
this Assumption Agreement shall be without prejudice to any rights with respect
to any other or further breach thereof.
IN WITNESS WHEREOF, the parties hereto have executed the foregoing Assumption
Agreement as of the day and year first above written.
79
<PAGE>
BORROWERS:
PRIMADONNA RESORTS, INC.,
a Nevada corporation
By__________________________
Name________________________
Title_______________________
THE PRIMADONNA CORPORATION, a Nevada corporation
By__________________________
Name________________________
Title_______________________
AGENT BANK:
WELLS FARGO BANK,
National Association
By__________________________
Name________________________
Title_______________________
ASSUMING LENDERS:
WELLS FARGO BANK,
National Association
By__________________________
Name________________________
Title_______________________
SOCIETE GENERALE
By__________________________
Name________________________
Title_______________________
80
<PAGE>
THE LONG TERM CREDIT BANK OF
JAPAN, LTD.
By__________________________
Name________________________
Title_______________________
BANK OF SCOTLAND
By__________________________
Name________________________
Title_______________________
CIBC INC.
By__________________________
Name________________________
Title_______________________
CREDIT LYONNAIS, Los Angeles Branch
By__________________________
Name________________________
Title_______________________
ABN AMRO BANK
By__________________________
Name________________________
Title_______________________
By__________________________
Name________________________
Title_______________________
81
<PAGE>
THE BANK OF NOVA SCOTIA
By__________________________
Name________________________
Title_______________________
FIRST SECURITY BANK, N.A.
By__________________________
Name________________________
Title_______________________
THE SUMITOMO BANK, LTD.
By__________________________
Name________________________
Title_______________________
By__________________________
Name________________________
Title_______________________
U.S. BANK NATIONAL
ASSOCIATION
By__________________________
Name________________________
Title_______________________
82
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Annual
Report Form 10-K as of December 31, 1997, Consolidated Financial Statements, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 9973
<SECURITIES> 0
<RECEIVABLES> 2652
<ALLOWANCES> 0
<INVENTORY> 1687
<CURRENT-ASSETS> 6647
<PP&E> 477280
<DEPRECIATION> 144653
<TOTAL-ASSETS> 470695
<CURRENT-LIABILITIES> 22336
<BONDS> 220765
0
0
<COMMON> 309
<OTHER-SE> 211324
<TOTAL-LIABILITY-AND-EQUITY> 470695
<SALES> 306313
<TOTAL-REVENUES> 287821
<CGS> 118020
<TOTAL-COSTS> 213220
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23096
<INCOME-PRETAX> 51505
<INCOME-TAX> 18139
<INCOME-CONTINUING> 33366
<DISCONTINUED> 0
<EXTRAORDINARY> (964)
<CHANGES> 0
<NET-INCOME> 32402
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> JUN-30-1997 SEP-30-1997
<CASH> 8381 7574
<SECURITIES> 0 0
<RECEIVABLES> 925 652
<ALLOWANCES> 0 0
<INVENTORY> 2669 2770
<CURRENT-ASSETS> 5462 6993
<PP&E> 443127 466632
<DEPRECIATION> 129815 136875
<TOTAL-ASSETS> 434969 456544
<CURRENT-LIABILITIES> 19602 23854
<BONDS> 194555 211099
0 0
0 0
<COMMON> 309 309
<OTHER-SE> 234578 206629
<TOTAL-LIABILITY-AND-EQUITY> 434969 456544
<SALES> 155563 234431
<TOTAL-REVENUES> 147122 220933
<CGS> 56929 88287
<TOTAL-COSTS> 103130 159072
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11235 17098
<INCOME-PRETAX> 32757 44763
<INCOME-TAX> 11728 16027
<INCOME-CONTINUING> 21029 28736
<DISCONTINUED> 0 0
<EXTRAORDINARY> (964) (964)
<CHANGES> 0 0
<NET-INCOME> 20065 27772
<EPS-PRIMARY> .68 .95
<EPS-DILUTED> .67 .94
</TABLE>
