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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _________ to _________.
Commission file number: 1-12168
BOYD GAMING CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0242733
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2950 SOUTH INDUSTRIAL ROAD, LAS VEGAS NV 89109
(Address of principal executive offices)(Zip Code)
(702) 792-7200
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
10.75% SERIES B SENIOR SUBORDINATED NOTES NEW YORK STOCK EXCHANGE
9.25% SENIOR NOTES NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period than the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of September 13, 1996, the aggregate market value of the voting
stock held by non-affiliates of the Registrant, based on the closing price on
the New York Stock Exchange for such date, was approximately $218,299,582.
Shares of Common Stock held by officers, directors and holders of more than 5%
of the outstanding Common Stock have been excluded from this calculation because
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
As of September 13, 1996, the Registrant had outstanding 57,213,720
shares of Common Stock.
Documents Incorporated by Reference into Parts I-III: Portions of the
definitive Proxy Statement for the Registrant's 1996 Annual Meeting of
Stockholders are incorporated by reference into Part III hereof.
Page _____ of_____
Exhibit Index Located on Page_____
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BOYD GAMING CORPORATION
1996 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
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PART I
Page No.
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Item 1. Business............................................................... 1
Item 2. Properties ............................................................ 45
Item 3. Legal Proceedings ..................................................... 45
Item 4. Submission of Matters to a Vote of Security-Holders ................... 45
Item 4A. Executive Officers of the Registrant .................................. 45
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.. 47
Item 6. Selected Financial Data ............................................... 47
Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations ................................................. 49
Item 8. Financial Statements and Supplementary Data ........................... 58
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .................................................. 58
PART III
Item 10. Directors and Executive Officers of the Registrant .................... 58
Item 11. Executive Compensation ................................................ 59
Item 12. Security Ownership of Certain Beneficial Owners and Management ........ 59
Item 13. Certain Relationships and Related Transactions ........................ 59
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K ..... 59
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PART I
ITEM 1. BUSINESS
GENERAL
Boyd Gaming Corporation (the "Company") is a multi-jurisdictional
gaming company which currently owns or operates ten casino entertainment
facilities, is in the process of constructing its eleventh property, acquiring
its twelfth property and recently acquired land upon which it intends to
construct its thirteenth property. The Company owns and operates six facilities
in three distinct markets in Las Vegas, Nevada: the Stardust on the Las Vegas
Strip; Sam's Town Las Vegas, the Eldorado and Jokers Wild on the Boulder Strip;
and the California and the Fremont in downtown Las Vegas. The Company also owns
or manages four facilities in new gaming jurisdictions, all opened during 1994
and 1995. The Company owns and operates Sam's Town Tunica, a dockside gaming and
entertainment complex in Tunica County, Mississippi that is currently undergoing
a hotel and parking garage addition and Sam's Town Kansas City, a riverboat
gaming and entertainment complex in Kansas City, Missouri. The Company manages
and owns a minority interest in the Treasure Chest, a riverboat casino in
Kenner, Louisiana, and manages for the Mississippi Band of Choctaw Indians the
Silver Star, a land-based casino in the midst of a major expansion project,
located near Philadelphia, Mississippi. The Company plans to open Main Street
Station in downtown Las Vegas and in April 1996 entered into a definitive
purchase agreement to acquire the Par-A-Dice Riverboat Casino in East Peoria,
Illinois (the "Par-A-Dice Acquisition"). A 204-room full service hotel (the
"Par-A-Dice Hotel" and collectively with the Par-A-Dice Riverboat Casino the
"Par-A-Dice") is being developed immediately adjacent to the Par-A-Dice
Riverboat Casino. The Company recently acquired land on which it plans to
develop Sam's Town Reno, a casino, hotel and entertainment complex in Reno,
Nevada. In addition, the Company recently announced the signing of a joint
venture agreement (the "Mirage Joint Venture") with Mirage Resorts, Inc.
("Mirage") to jointly develop and own a casino hotel entertainment facility in
Atlantic City, New Jersey (the "Atlantic City Project"). The Company currently
owns or operates an aggregate of 504,500 square feet of casino space, containing
14,313 slot machines and 510 table games. Assuming completion of Main Street
Station, completion of the Par-A-Dice Acquisition, development of Sam's Town
Reno and completion of the expansion projects currently underway at certain of
its existing facilities, the Company will own or operate an aggregate of 618,000
square feet of casino space containing 17,849 slot machines and 615 table games.
Due to the many risks and uncertainties inherent in construction projects and
the establishment of a new business, there can be no assurance as to when, if at
all, the development and expansion projects will be completed or acquired. See
"Investment Considerations" "--Expansion to Other Locations" "--Competition" and
"-Governmental Gaming Regulation."
The Company currently conducts substantially all of its business
through five wholly-owned subsidiaries: California Hotel and Casino ("CH&C");
Boyd Tunica, Inc. ("Boyd Tunica"); Boyd Kenner, Inc. ("Boyd Kenner"); Boyd
Mississippi, Inc. ("Boyd Mississippi"); and Boyd Kansas City, Inc. ("Boyd Kansas
City"). CH&C directly owns and operates Sam's Town Las Vegas and the California
and owns and operates the Stardust, the Fremont and the Eldorado and Jokers
Wild, and owns and will operate Main Street Station, through wholly-owned
subsidiaries. Boyd Tunica owns and operates Sam's Town Tunica; Boyd Kenner
operates the Treasure Chest and owns a 15% equity interest in the Treasure
Chest, L.L.C. ("Treasure Chest L.L.C."), the owner of the Treasure Chest; Boyd
Mississippi operates Silver Star; and Boyd Kansas City owns and operates Sam's
Town Kansas City. Par-A-Dice Gaming, the owner and
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operator of the Par-A-Dice Riverboat Casino and East Peoria Hotel, Inc. ("EPH"),
the general partner of a limited partnership that is developing the Par-A-Dice
Hotel, are expected to become wholly-owned subsidiaries of the Company, and
Sam's Town Reno will be owned and operated by a wholly-owned subsidiary of the
Company or CH&C.
OPERATING STRATEGY
The Company believes that the following key elements have contributed
to the success of the Company in the past and are central to its future success.
Value-Oriented Casino Entertainment Experience
The Company is committed to providing a high-quality casino
entertainment experience to its primarily middle-income customers at an
affordable price in order to develop customer loyalty. The Company delivers
value to its customers through providing service in an inviting and entertaining
environment. The Company delivers additional value to its customers through
moderately-priced casino entertainment, hotel, restaurant and live entertainment
offerings and regularly reinvests in its existing facilities in an effort to
maintain the quality and competitiveness of its properties.
Lively, Friendly Atmosphere
Each of the Company's facilities is clean and modern and offers
friendly service in an informal and lively atmosphere. The Company's employee
training programs are designed to motivate employees to provide the type of
friendly and attentive service which the Company seeks to provide at its
facilities. The Company has an extensive customer feedback system, ranging from
guest comment cards in its restaurants and hotel rooms, to other consumer
surveys and research. In addition to providing a measure of customer service,
comment cards and consumer research allow the Company to obtain valuable
customer feedback and marketing information for its database.
Emphasis on Slot Play
The Company emphasizes slot machine wagering, the most consistently
profitable segment of the casino entertainment business. Technological advances
in slot product have resulted in sophisticated interactive games which offer
customers greater variety, more generous payoffs and increased periods of play
for their casino entertainment dollar. The Company continually invests in
upgrading its machines to reflect advances in technology and the development of
proprietary slot games and related equipment at all of its facilities in order
to further enhance the slot customer's experience.
Comprehensive Marketing and Promotion
The Company actively promotes its casino entertainment offerings, its
hotels, destination restaurants and live entertainment using a variety of
promotional advertising media including outdoor advertising and print and
broadcast media. The Company develops and maintains an extensive customer
database. The database is expanded daily, adding new casino customers by
obtaining their mailing addresses and other marketing information. To encourage
repeat visitation, the Company employs a direct mail program targeting its
database customers with a variety of product offerings, including
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incentives to visit the Company's facilities frequently. During fiscal 1996, the
Company distributed approximately 14 million pieces of mail to its database
customers. The Company also provides complimentary rooms, food and other
services to valued customers, but maintains limits on such items consistent with
its focus on middle-income patrons.
PROPERTIES
The Company currently owns and operates six properties in Las Vegas:
the Stardust; Sam's Town Las Vegas; the Eldorado; Jokers Wild; the California;
and the Fremont. The Company also owns and/or operates four properties outside
the State of Nevada: Sam's Town Tunica, in Tunica County, Mississippi; Sam's
Town Kansas City, in Kansas City, Missouri; Treasure Chest, in the western
suburbs of New Orleans; and Silver Star, in central Mississippi.
The Stardust
The Stardust, situated on 52 acres of land owned and nine acres of
land leased by the Company on the Las Vegas Strip, is a casino hotel complex
with approximately 87,000 square feet of casino space, a conference center
containing approximately 35,000 square feet of meeting space and a 900-seat
showroom. The casino offers nearly 2,000 slot machines and 78 table games,
including tables featuring "21," craps, roulette, baccarat, mini-baccarat, pai
gow, Caribbean stud and poker, as well as keno. The Stardust features "Enter the
Night," a production show that includes computerized lighting, lasers and
digital surround sound. The Stardust also has one of the largest and best known
race and sports books in the United States and is the home of the Stardust line,
a racing and sports line service that is quoted throughout the United States and
abroad. The Stardust features more than 2,300 guest rooms, 1,500 in its 32-story
hotel tower. Notwithstanding the increased number of rooms available in Las
Vegas, the Stardust achieved a 97% occupancy rate in fiscal 1995 and a 96%
occupancy rate for fiscal 1996. The Stardust complex, which is distinguished by
dramatic building lighting, has seven restaurants, a shopping arcade, two
swimming pools and parking spaces for approximately 2,900 cars.
The Stardust caters primarily to adult Las Vegas visitors seeking the
classic Las Vegas gaming experience. Using its extensive database, the property
promotes customer loyalty and generates repeat customer business by
communicating with its customers regarding special events, new product offerings
and special incentive promotions at the property. The Company uses a network of
tour operators and wholesalers to reach customers who prefer packaged trips and
print and broadcast media to attract the independent traveler. The Company
attracts proven slot and table game players through direct mail promotions for
tournaments, events and a variety of special offers. With its conference center,
the Stardust also attracts meeting and banquet business. In addition, the
Stardust draws a significant number of walk-in customers. Patrons of the
Stardust come primarily from the western United States, including Southern
California and Arizona, and the Midwest.
The Company has developed a master plan for the Stardust, calling for,
among other things, as many as two additional hotel towers, and has taken steps
for a future expansion, including incorporating footings for one of the two
proposed additional towers in the existing facility. In addition, the Company
has determined that the 61-acre Stardust site is capable of accommodating the
development of an entirely new casino entertainment facility adjacent to the
existing Stardust and is exploring the feasibility of such a project.
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Boulder Strip Properties
Sam's Town Las Vegas is situated on 56 acres of land owned and seven
acres of land leased by the Company on the Boulder Strip, approximately six
miles east of the Las Vegas Strip. Following a $105 million expansion completed
in July 1994, Sam's Town features an approximately 118,000 square foot casino, a
56-lane bowling center and the 25,000 square foot Western Emporium retail store.
The gaming facilities now include nearly 2,800 slot machines and 55 table games,
including tables featuring "21," craps, roulette, pai gow, poker and Caribbean
stud, as well as keno, an expanded race and sports book and a large bingo
parlor. The expanded property has 650 guest rooms, 12 restaurants, approximately
3,200 parking spaces, including two parking garages which together can
accommodate up to 2,000 cars and approximately 500 recreational vehicles. The
expanded Sam's Town facility features a 25,000 square foot atrium enclosing a
Sierra Nevada-style park with extensive foliage and trees, streams, bridges and
water features. Fronting the park are an Italian restaurant, a western
steakhouse and a food court, as well as new retail outlets. Also located at the
property is a 5,400 square foot sports bar featuring interactive activities, an
outdoor recreation complex with a swimming pool and volleyball court and a
conference facility. Sam's Town Las Vegas achieved a 92% occupancy rate in
fiscal 1995 and a 96% occupancy rate in fiscal 1996.
Sam's Town Las Vegas has a western theme and features an informal,
friendly atmosphere that appeals to both local residents and visitors. Gaming
and bowling tournaments, paycheck sweepstakes, costume contests and holiday
parties create a social center that attracts many Las Vegas residents. The
property hosts two of the largest events on the Ladies Professional Bowling
Tour, including the Sam's Town Ladies Professional Bowling Tournament, which
events have been televised on ESPN, and a premier amateur bowling tournament
which attracts participants from throughout the world. Additionally, the Company
attracts local market patrons, many of whom are repeat customers, by offering
excellent price/value relationships in its food and beverage operations, and by
slot marketing programs that include generous slot payouts. The popularity of
Sam's Town Las Vegas among local residents allows it to benefit from the rapid
development of the Las Vegas metropolitan area, which has been one of the
fastest growing communities in the United States over the last decade.
Management believes that the addition of 650 new guest rooms, as well as
destination restaurants and other amenities, as part of the expansion has
increased the appeal of Sam's Town Las Vegas to visitors. Since completion of
the expansion, overnight visitation to the property has substantially increased.
The Company has developed a master plan for Sam's Town Las Vegas calling for,
among other things, a second hotel tower. Although the Company has not yet made
any decision regarding a future Sam's Town Las Vegas expansion, it is currently
exploring the feasibility of such a project.
The Eldorado is situated on four acres of land owned by the Company in
downtown Henderson, Nevada, which is southeast of Las Vegas. The casino has over
16,000 square feet of gaming space featuring approximately 560 slot machines and
11 table games, including tables featuring "21," craps, roulette and pai gow, as
well as keno, bingo and a sports book. The facility also offers three
restaurants, a live entertainment lounge and a parking garage for up to 500
cars. The principal customers at the Eldorado are Henderson residents.
Jokers Wild is situated on 13 acres of land owned by the Company on
the Boulder Strip. Following a $5.6 million expansion completed in April 1994,
the property offers over 22,500 square feet of casino space with approximately
650 slot machines and 11 table games, including tables featuring "21,"
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craps, roulette, pai gow, Caribbean stud and poker, as well as keno and a sports
book. The facility also offers a buffet restaurant, a coffee shop, an
entertainment lounge, a video arcade and approximately 800 parking spaces.
Jokers Wild serves both local residents and visitors to the Las Vegas area
traveling on the Boulder Highway.
Downtown Properties
The California is situated on 13.9 acres of land owned and 1.6 acres
of land leased by the Company in downtown Las Vegas. The California was the
Company's first property and has over 36,000 square feet of gaming space, 781
guest rooms, five restaurants, approximately 5,000 square feet of meeting space,
more than 800 parking spaces, including a parking garage for up to 425 cars, and
an approximately 220-space recreational vehicle park, the only such facility in
the downtown area. The casino offers over 1,100 slot machines and 38 table
games, including tables featuring "21," craps, roulette, mini-baccarat, pai gow
and Caribbean stud, as well as keno and a sports book. In December 1994, the
Company completed a $15 million expansion of the California that added 140 new
guest rooms and six suites, as well as other amenities. The California achieved
a 95% occupancy rate in both fiscal 1995 and 1996.
The Fremont is situated on 1.4 acres of land owned and 0.9 acres of
land leased by the Company on the principal thoroughfare in downtown Las Vegas.
The property offers nearly 32,000 square feet of casino space including
approximately 1,100 slot machines, and 31 table games, including tables
featuring "21," craps, roulette, pai gow, poker and Caribbean stud, as well as
keno and a race and sports book. The hotel has 452 guest rooms and five
restaurants including the Second Street Grill, an upscale contemporary
restaurant, and the Paradise Buffet, which features tropical-themed
surroundings. The property also has approximately 8,200 square feet of meeting
space and a parking garage for up to 350 cars. The Fremont achieved a 96%
occupancy rate in both fiscal 1995 and 1996.
While many casinos in downtown Las Vegas compete with other downtown
properties and properties on the Las Vegas Strip for the same customers, the
Company has developed a distinctive niche for its Downtown Properties by
focusing primarily on customers from Hawaii. The Company's marketing strategy
for the Downtown Properties focuses on gaming enthusiasts from Hawaii and tour
and travel agents from Hawaii with whom the Company has cultivated relationships
since it opened the California in 1975. Through the Company's recently acquired
Hawaiian travel agency, the Company operates two DC-10 charter flights from
Honolulu to Las Vegas each week, helping to ensure stable, reasonably priced air
seats. This, as well as the Company's strong, informal relationships with other
Hawaiian travel agencies, its affordably priced, all-inclusive packages and its
Hawaiian promotions have allowed the California and the Fremont to capture a
significant share of the Hawaiian tourist trade in Las Vegas. For more than a
decade the Downtown Properties have been the leading Las Vegas destination for
visitors from Hawaii. The Company attributes this success to the amenities and
atmosphere at the Downtown Properties, which are designed to appeal specifically
to visitors from Hawaii, and to its marketing strategy featuring significant
promotions in Hawaii and a monthly newsletter circulated to over 68,000
households, primarily in Hawaii. In fiscal 1996, patrons from Hawaii comprised
over 80% of the room nights at the California and over 65% of the room nights at
the Fremont.
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In December 1993, the Company acquired for $16.5 million Main Street
Station, a casino hotel that is not currently in operation located across the
street from the California. The Company has used the facility, where it
previously leased rooms, to provide lodging for additional customers at the
Downtown Properties. The renovation and expansion of Main Street Station is
currently underway. The project includes a 28,500 square foot, newly-equipped
casino with 25 table games and over 900 slot machines. The project also includes
a complete renovation of the property's hotel rooms and an expansion and
renovation of the property's food facilities to include a 500-seat buffet, a
130-seat specialty restaurant, a 100-seat cafe, a 200-seat brew pub and oyster
bar and expanded parking to include 2,000 spaces. The renovation and expansion
of Main Street Station is expected to be completed by the end of calendar year
1996. There can be no assurance that the project will be completed on schedule
due to the many risks and uncertainties inherent in such renovation and
expansion. See "Investment Considerations--Expansion to Other Locations."
In anticipation of the opening of Main Street Station, the Company's
third property in downtown Las Vegas, the Company has begun coordinating
marketing efforts, consolidating support functions and standardizing operating
procedures and systems with the goal of enhancing revenues and reducing
expenses. This effort will include a consolidated database and marketing program
for all Downtown Properties. The Company believes these efforts will provide it
with a competitive advantage.
The Company, together with other downtown casino operators and the
City of Las Vegas, retained a well-known urban design firm to develop a major
new attraction known as the Fremont Street Experience. The attraction was
designed to capitalize on Fremont Street's famous lights and features a
semi-circular space frame nine stories above the street, stretching along four
city blocks against which a sound and light spectacle is displayed. As part of
the project, vehicular traffic on portions of Fremont Street has been
eliminated, asphalt replaced by a patterned streetscape and special events
brought to the downtown area to entertain visitors. The Fremont Street
Experience cost approximately $70 million. Of this amount, $22 million was
provided by eight downtown casino operators (including the Company), and the
remainder was provided by local bond issuances. The Company invested
approximately $5 million in the project. The Company believes that, since its
opening in December 1995, the Fremont Street Experience has significantly
enhanced the experience of visiting downtown Las Vegas and has attracted
additional customers to the downtown area. However, no assurance can be given
that the Fremont Street Experience will materially benefit the operating results
of the Company's Downtown Properties.
Central Region Properties
The Company has exported its popular Sam's Town western theme and
atmosphere to the growing Mississippi dockside gaming market by developing Sam's
Town Tunica, which opened on May 25, 1994. Sam's Town Tunica is located in
Tunica County near State Highway 61 approximately 25 miles south of Memphis,
Tennessee. The adult population within a 200-mile radius is over 3 million and
includes the cities of Nashville, Tennessee; Jackson, Mississippi; and Little
Rock, Arkansas. The Company has distinguished itself from other operators in the
area by developing a major casino entertainment complex with extensive amenities
including a 508-room hotel, an entertainment lounge featuring country-western
music, five destination restaurants including Corky's B-B-Q, featuring the food
of that popular Memphis eatery, bars, specialty shops and River Palace Arena, a
1,650-seat entertainment facility featuring country-western entertainers. In
December 1994, an $18 million expansion was completed which included the
addition of 308 guest rooms surrounding a swimming pool and recreational area.
The
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complex offers a two-story casino of approximately 75,000 square feet featuring
over 1,800 slot machines and 78 table games, including tables featuring "21,"
craps, roulette, poker, Caribbean stud and pai gow, as well as keno. The design
of the facility integrates the water-based and land-based components of the
facility. The Company, seeking to further its position in both the overnight and
drive-in markets in Tunica, is currently expanding Sam's Town Tunica. The $40
million expansion project, which is currently under construction, includes a
350-room hotel tower and a 1,000-car parking garage. The new hotel tower will
bring the total room count to 858, and the garage will be the first enclosed
parking structure at a Tunica County casino. The expansion of Sam's Town Tunica
is scheduled to be completed by the end of calendar year 1996, although there
can be no assurance that the project will be completed on schedule due to the
many risks and uncertainties inherent in such expansion. See "Investment
Considerations--Expansion to Other Locations." Sam's Town Tunica achieved an 87%
occupancy rate in fiscal 1995 and a 95% occupancy rate in fiscal 1996.
The Company has extended its popular Sam's Town theme to the Kansas
City, Kansas market with the opening of Sam's Town Kansas City on September 13,
1995. Sam's Town Kansas City was completed at a cost of approximately $145
million, including land, capitalized interest and preopening costs. The
facility, which is situated on 34 acres located on the Missouri River and
Interstate 435, features a continuously docked riverboat housing a 28,000 square
foot casino on three decks with over 1,000 slot machines and 65 table games. The
80,000 square foot land-based facility contains five food facilities, including
a 7,000 square foot sports bar, and ticketing services, all surrounding a
turn-of-the-century Kansas City streetscape. The facility also features a
1,350-space garage, connected to the main facilities by an enclosed moving
walkway. Including surface parking, the property offers a total of 2,000 parking
spaces. The Kansas City metropolitan area has an adult population of over one
million. The Company's facility is located near the Interstate 435 entertainment
corridor in Kansas City which provides access to the Worlds of Fun and Oceans of
Fun theme parks, the Kansas City Zoo, and the Kansas City Chiefs' and Kansas
City Royals' Stadiums. In connection with the operation of Sam's Town Kansas
City, the Company will pay the City of Kansas City approximately $250,000 per
year for a period of ten years ending in September 2004. The Company intends to
offer 10% of the capital stock of Boyd Kansas City, the entity that owns and
operates Sam's Town Kansas City, to certain persons or entities located in the
Kansas City area. The price to be paid by such persons or entities will be based
on the total cost of the project.
The Company manages and partly owns the Treasure Chest, a riverboat
casino operation located on Lake Pontchartrain in Kenner, Louisiana, which
opened in September 1994. Located near the New Orleans International Airport,
the Treasure Chest primarily serves patrons from Jefferson Parish, including
suburbs on the west side of New Orleans. The gaming operation features a classic
paddle-wheel riverboat with a total capacity of 2,000 persons, approximately
24,000 square feet of casino space, over 850 slot machines and 56 table games,
including tables for "21," craps, roulette and poker. Each of the riverboat's
three decks has a different theme, with one featuring contemporary Las
Vegas-style decor, one offering a nautical environment and one providing a
festive Mardi Gras setting.
The management agreement between the Company and Treasure Chest
L.L.C., owner of the Treasure Chest, provides for an initial five-year term
expiring June 1999, extendible at the Company's option for three additional
five-year periods if certain operating results are achieved. The agreement also
provides for a management fee of 10% of the enterprise's net operating profit
before interest, depreciation, income taxes, amortization, extraordinary items
and the management fee. The Company owns a 15%
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equity interest in Treasure Chest L.L.C. See "Investment
Considerations--Management Agreements of Limited Duration."
For a number of reasons, including to better focus the management and
financial resources of the Company and in order to facilitate the timing of the
Company's application for an Illinois gaming license in connection with the
Par-A-Dice Acquisition, the Company has determined to pursue a sale of its
ownership interest in Treasure Chest L.L.C. In the event of such a sale or other
substantial alteration of the Company's interest in Treasure Chest L.L.C., which
the Company currently anticipates within the next three months, the management
agreement between the Company and Treasure Chest L.L.C. would likely be
terminated.
Pursuant to an agreement with the Mississippi Band of Choctaw Indians,
the Company operates the Silver Star, the only land-based casino in the State of
Mississippi. The facility, which opened in July 1994, is located on tribal lands
in central Mississippi. The principal markets served by the facility are central
Mississippi and Alabama, with the Birmingham, Montgomery and Tuscaloosa
metropolitan areas located within approximately 200 miles of the site. The
property, a contemporary Las Vegas- style facility emphasizing light, color and
geometric design, includes a 100-room hotel and a casino with approximately
66,000 square feet of gaming space with over 2,450 slot machines and 87 table
games, including tables for "21," craps, roulette, mini-baccarat and Caribbean
stud, as well as a lounge suitable for entertainment and dancing, a swimming
pool, four restaurants and more than 1,300 parking spaces. A $10 million casino
expansion project was completed in December 1994, and a 55,000 square foot
conference center was completed in June 1995. In addition, an expansion project,
including 400 additional rooms and suites, a casino expansion, a new restaurant,
an 18-hole golf course and a full-service spa, is currently under construction.
Although the Mississippi Band of Choctaw Indians, the owner of the Silver Star,
has advised the Company that construction is currently scheduled to be completed
by early calendar year 1997, there can be no assurance that the project will be
completed on schedule due to the many risks and uncertainties inherent in such
expansion. See "Investment Considerations, -- Expansion to Other Locations." The
Silver Star achieved a 95% occupancy rate in fiscal 1995 and a 98% occupancy
rate in fiscal 1996.
The management agreement for Silver Star provides for a seven-year
term expiring in July 2001 and a management fee of 30% of the enterprise's
operating income before debt service for the first five years and 40% of its
operating income before debt service for the final two years. Under the
agreement, the Company provided $30.5 million in debt financing for the
construction and start-up of the facility, which amount was repaid during fiscal
1995 from the enterprise's cash flow. The Company has loaned to the tribe an
additional $10 million for the casino expansion project which was completed in
December 1994. This loan is scheduled to be repaid over five years.
DEVELOPMENT PROJECTS
Par-A-Dice Acquisition
On April 26, 1996, the Company entered into a definitive purchase
agreement for the Par-A-Dice Acquisition. The Par-A-Dice Riverboat Casino is a
riverboat facility located along the Illinois River in East Peoria, Illinois,
approximately 170 miles from Chicago. The Par-A-Dice Riverboat Casino initially
commenced operations in November 1991, operating from a temporary facility in
downtown Peoria. In
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May 1993, the facility was relocated across the Illinois River to a
newly constructed land-based pavilion, containing two restaurants, a bar, gift
shop, ticketing area and surface parking for 750 cars, located on 19 acres in
East Peoria. In May 1994, the original Par-A-Dice Riverboat Casino replica
paddle-wheel riverboat was replaced with a new, state-of-the-art, twin hull
cruise ship. The new boat measures 238 feet long and 66 feet wide and since the
recent completion of an expansion in March 1996, features 33,000 square feet of
gaming space on four levels with approximately 1,000 slot machines and 42 table
games, as well as limited food and beverage services. The Par-A-Dice Hotel,
which is currently under construction, is a 204-room full-service hotel with
food and beverage and banquet and meeting facilities. The Company believes the
hotel will enable the Par-A-Dice to develop an overnight customer base for the
facility and provides much needed banquet and meeting capabilities. The Company
currently anticipates the consummation of the Par-A-Dice Acquisition and the
completion of the Par-A-Dice Hotel prior to 1996 year end, subject to receipt of
regulatory approvals. There can be no assurance, however, as to when, or if, the
Par-A-Dice Acquisition will be consummated or the Par-A-Dice Hotel will be
completed. See "Investment Considerations -- Expansion to Other Locations."
The Par-A-Dice is the primary casino entertainment facility serving
central Illinois, and is strategically located within 1/8 of a mile from an exit
off of Interstate 74, a major regional east-west interstate highway. The
Par-A-Dice is the only casino entertainment facility within approximately 100
miles of Peoria. There are more than 350,000 people living within the Peoria
metropolitan area and over 1.7 million people over the age of 21 living within
100 miles of Peoria. The Par-A-Dice Acquisition is subject to certain closing
conditions, including the obtaining of regulatory approvals from the Illinois
Gaming Board and the Mississippi Gaming Commission. See "Investment
Considerations--Expansion to Other Locations."
Pursuant to the Illinois Riverboat Gambling Act and Illinois Gaming
Board Rules, the Illinois Gaming Board (the "IGB") must approve the purchase
agreement for the Par-A-Dice Acquisition as it represents a transfer of 100% of
the ownership interest in Par-A-Dice. In order to facilitate the IGB
investigation and review of the proposed acquisition, the Company was required
to file with the IGB certain information about the Company. In particular, the
Company informed the IGB about the acquisition financing and the Offerings. In
addition to information about the Company and its operations, the Company's "Key
Persons" were required to provide certain personal information. A "Key Person"
under Illinois rules is defined as an officer, director, trustee, partner,
proprietor, or managing agent of, or a holder of any direct or indirect legal or
beneficial interest whose combined direct, indirect or attributed interest is 5%
or more in a business entity.
No assurance can be given that the Company will receive IGB approval
for the Par-A-Dice Acquisition. Review of the Par-A-Dice Acquisition by the IGB
will occur only after the IGB staff has concluded its investigation of the
Company and its Key Persons. The Company cannot with any certainty predict when
this transaction will be considered by the IGB, although an IGB determination
could be made as early as the fall of 1996.
In addition, pursuant to provisions of the Mississippi Gaming Control
Act, no Mississippi gaming licensee or any company that controls, is controlled
by or is under common control with a Mississippi gaming licensee may be involved
in gaming operations outside the State of Mississippi without the prior approval
of the Mississippi Gaming Commission, acting upon a recommendation of its
Executive Director. The Company has received such approvals from the Mississippi
Gaming Commission with
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respect to its subsidiaries' operations in Nevada, Missouri and Louisiana and
was required to obtain such approvals from the Mississippi Gaming Commission
prior to engaging in gaming operations in Illinois through Par-A-Dice or another
subsidiary. The Mississippi Gaming Commission granted the Company such approval
at its September 17, 1996 meeting.
In addition to approvals under applicable state gaming laws, the
purchase agreement for the Par-A-Dice Acquisition requires that certain other
conditions to closing be satisfied or waived by the Company. These conditions
include the receipt by the Company of consents under or the termination of
certain contractual arrangements of the Par-A-Dice, its shareholders, and its
subsidiaries, including consents under certain employment agreements and
agreements between the Par-A-Dice and its institutional lenders.
Sam's Town Reno
The Company recently announced its plans for a $92 million casino
hotel and entertainment complex in Reno, Nevada and acquired a 100-acre parcel
of land south of Reno and adjacent to a newly opened freeway interchange to be
used as the site of this project. Plans for the Sam's Town Reno project include
a 33,000 square foot casino, featuring over 1,200 slot machines and 36 table
games and a hotel with 211 guest rooms and suites. The project is also expected
to include five destination restaurants, two entertainment lounges, a 5,000-seat
outdoor arena, an approximately 15,000 square foot events arena, retail shops
and two old-time movie theaters. The Company plans to commence construction of
Sam's Town Reno in the first quarter of 1997 and to complete construction as
early as Spring 1998, subject to receipt of appropriate regulatory approvals,
permits and licenses. There can be no assurance, however, as to when, or if,
such construction will be commenced or completed due to the many risks and
uncertainties inherent in the project. See "Investment Considerations --
Expansion to Other Locations."
William S. Boyd, Chairman and Chief Executive Officer of the Company,
and Warren L. Nelson, a Director of the Company, each owns a 17.5% partnership
interest in the partnership which owned the acquired land. The $6 million
purchase price for the land was based upon an independent third-party appraisal
and the purchase of the land from the partnership has been approved by an
independent committee of the Company's Board of Directors.
Mirage Joint Venture
On May 29, 1996, the Company, through a wholly-owned subsidiary,
entered into a joint venture agreement with a subsidiary of Mirage to jointly
develop and own a casino hotel entertainment facility in Atlantic City, New
Jersey. The Atlantic City Project is planned to be one component of a
multi-facility casino entertainment development, master-planned by Mirage for
the Marina District of Atlantic City. The Atlantic City Project is expected to
cost approximately $500 million. The agreement contemplates that the joint
venture would fund $300 million of the project cost with non-recourse
third-party financing. The remaining $200 million is expected to be funded
equally by capital contributions from the partners, including, in the case of
Mirage, contribution of the land. Pursuant to the joint venture agreement, the
Company will control the development and operation of the Atlantic City Project.
The Atlantic City Project is expected to include a hotel of at least 1,000 rooms
and is expected to be adjacent and connected to Mirage's planned wholly-owned
resort. The Company believes that certain highway improvements to permit greater
access to the Marina District of Atlantic City will be necessary to support the
multi-facility
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casino entertainment development master-planned by Mirage. The State of New
Jersey Department of Transportation and Mirage are currently considering the
development of a mutually satisfactory plan for those improvements. If such a
plan is developed, the Company will submit its petition for a statement of
compliance to the New Jersey Casino Control Commission ("NJCCC"). Once filed,
this petition is then forwarded to the New Jersey Division of Gaming Enforcement
("NJDGE") for investigation. Historically, such investigations have taken a
minimum of twelve months to be completed. Once construction has commenced, the
Company, through a wholly-owned subsidiary, can submit its application for
casino licensure to the NJCCC. With a statement of compliance for the Company in
place, the investigation by the NJCCC and NJDGE in connection with the casino
license application will focus on issues concerning operations, the facility and
equal employment and business opportunity. Environmental remediation and
construction of the Atlantic City Project are not expected to begin until after
the necessary highway improvements are assured. Once such improvements are
assured and other requisite approvals are received, the Company estimates that
environmental remediation will take at least six months and construction of the
Atlantic City Project will thereafter take at least two years. Accordingly, the
Company is unable to estimate when, if at all, the Atlantic City Project will be
completed. See "Investment Considerations, -- Expansion to Other Locations." The
Mirage Joint Venture will give the Company a presence in Atlantic City, the
primary casino gaming market serving the eastern United States.
Mary's Prize Sale
On August 23, 1996, the Company sold its riverboat Mary's Prize, which
has been completed since 1995 but has never been in operation, to Casino Magic
of Louisiana, Corp. for $20 million and retired $17.6 million of debt in
connection therewith. Projects for which Mary's Prize was constructed have
either been delayed or did not materialize.
INVESTMENT CONSIDERATIONS
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended.
Discussions containing such forward-looking statements may be found in the
material set forth under "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," as well as in the Annual Report
generally. Also, documents subsequently filed by the Company with the Securites
and Exchange Commission may contain forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the investment conditions set forth below and the matters set
forth in the Annual Report generally. The Company cautions the reader, however,
that this list of factors may not be exhaustive, particularly with respect to
future filings. Before making a decision to invest in the Company's Common
Stock, prospective investors should carefully consider the following factors.
Competition
The gaming industry is highly competitive. Gaming activities include:
traditional land-based casinos; riverboat and dockside gaming; casino gaming on
Indian land; state-sponsored lotteries; video poker in restaurants, bars and
hotels; pari-mutuel betting on horse racing, dog racing and jai-alai; sports
bookmaking; and card rooms. The casinos owned, managed and being developed by
the Company compete and will in the future compete with all these forms of
gaming and with any new forms of gaming that may be legalized in existing and
additional jurisdictions, as well as with other types of entertainment.
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The Company also competes with other gaming companies for opportunities to
acquire legal gaming sites in emerging and established gaming jurisdictions and
for the opportunity to manage casinos on Indian land. Such competition in the
gaming industry could adversely affect the Company's ability to compete for new
gaming opportunities as well as its existing operations. In addition, further
expansion of gaming into other jurisdictions could also adversely affect the
Company's business by diverting its customers to competitors in such
jurisdictions. In particular, the expansion of casino gaming in or near any
geographic area from which the Company attracts or expects to attract a
significant number of its customers could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Development Projects." The Company believes that successful gaming facilities
compete based on the following factors: location; attractions; quality of gaming
facilities, gaming experience and entertainment; quality of food, beverage and
atmosphere; and price. Although the Company believes it competes favorably with
respect to these factors in most of its markets, some of its competitors have
significantly greater financial and other resources than the Company.
The Company's Las Vegas properties compete primarily with other casino
hotels on the Las Vegas Strip, the Boulder Strip and in downtown Las Vegas.
Currently, there are approximately 25 major gaming properties located on or near
the Las Vegas Strip, 11 located in the downtown area and several located in
other areas of Las Vegas. Las Vegas gaming square footage and room capacity are
continuing to increase. A number of marquee properties have opened in the last
several years, and several others are currently under construction or planned
for the Las Vegas Strip, including the 1,500-room Stratosphere Tower, Casino and
Hotel, the 3,000-room Paris Casino-Resort, the 3,000-room Monte Carlo Resort and
Casino, the 2,035-room New York - New York Hotel/Casino, and the 3,000-room
Bellagio. Additionally, several properties have recently announced or begun
significant expansion and renovation projects, including Circus Circus-Las
Vegas, MGM Grand Hotel/Casino, Harrah's-Las Vegas, Rio Suite Hotel and Casino,
Luxor Hotel and Casino, and the Sahara Hotel and Casino. Each of the foregoing
facilities has or may have a theme and attractions which have drawn or may draw
significant numbers of visitors. Moreover, most of these facilities attract or
may attract primarily middle-income patrons, who are the focus of the Company's
marketing strategy. Although the Company believes that these additional
facilities will draw more visitors to Las Vegas, these properties also may
divert potential gaming activity from the Company. Future additions, expansions
and enhancements to existing properties and construction of new properties by
the Company's competitors could divert additional gaming activity from the
Company's facilities. There can be no assurance that the Company will compete
successfully in the Las Vegas market in the future.
Sam's Town Tunica competes primarily with other dockside gaming
operations in Tunica County and, to a lesser extent, with dockside casinos in
Vicksburg, Greenville, Natchez and Coahoma County, Mississippi, with dockside
casinos on the Mississippi Gulf Coast and with gaming operations in Louisiana.
Gaming has grown rapidly in Tunica County with ten dockside casinos now in
operation. Several casinos located in Tunica County have closed during the last
12 months. One such closed facility was purchased by a competitor and reopened
in April 1996. In addition, several Tunica-area casinos have recently added or
are in the process of adding hotel rooms, including 500 rooms at Fitzgeralds,
350 rooms at the Hollywood Hotel and Casino, and 200 rooms at Harrah's Mardi
Gras. Some of these facilities are operated by certain of the Company's
principal Nevada competitors and may be operated or financed by companies with
significantly greater financial resources than the Company. Sam's Town Tunica
reported an 80% decline in operating income in the fourth quarter of fiscal
1996, which management attributes principally to increased competition and also
to the disruption associated with ongoing construction at the
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facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Recent Events."
Sam's Town Kansas City competes primarily with other riverboat gaming
operations in the Kansas City area. Two riverboat gaming operations, one in
Riverside, Missouri and one in North Kansas City, Missouri are currently
operating. In addition, two other operations in the Kansas City area are
currently under construction and awaiting licensing. Several other companies,
including some of the Company's principal Nevada competitors, have announced
plans to participate in riverboat gaming in the Kansas City area. Some of these
gaming facilities are being developed by companies that have significantly
greater financial resources than the Company, some have been operating for a
longer time than the Company's facility and some may possess more desirable
locations. Sam's Town Kansas City reported an operating loss of $5 million
(before the write-off of preopening expenses) in fiscal 1996 as a result of high
fixed costs and substantial advertising and promotional expenses incurred in
response to the highly competitive operating environment. Competition in the
Kansas City market is expected to increase with the expected opening of two new
gaming facilities in the near future. No assurance can be given that the Company
will compete successfully in this new market.
The Treasure Chest competes primarily with other riverboat gaming
operations in the New Orleans metropolitan area. A large land-based casino is
planned for downtown New Orleans but the project is presently in bankruptcy
reorganization. If the land-based project opens, it will compete directly with
the Treasure Chest. There are presently 14 licensed riverboats in the State of
Louisiana with four of these projects (including the Treasure Chest) operating
in the New Orleans metropolitan area. Some of these riverboats are operated by
companies with significantly greater financial resources and some may possess
more desirable locations. No assurance can be given that the Treasure Chest will
compete successfully in the future.
The Par-A-Dice competes primarily with other gaming operations in
Illinois and, to a lesser extent, with riverboats in Indiana and dockside gaming
facilities in Indiana, Iowa and Missouri. The Illinois Riverboat Gambling Act
authorizes ten owner's licenses for riverboat gaming operations. All ten
licenses have been granted and ten riverboat gaming facilities are currently in
operation in Illinois. Some of these riverboats are being operated by companies
with greater experience in the Illinois market and significantly greater
financial resources than the Company. If the Par-A-Dice Acquisition is
consummated, there can be no assurance that the Par-A-Dice will compete
successfully in the future.
Expansion to Other Locations
The Company is engaged in several projects to expand its operations,
and regularly evaluates development and expansion opportunities. See
"Properties" and "Development Projects." Each of these projects will be subject
to the many risks inherent in the establishment of a new business enterprise,
including unanticipated design, construction, regulatory, environmental and
operating problems, and the significant risks commonly associated with
implementing a marketing strategy in new markets. There can be no assurance that
any of these projects will become operational within the time frames and budgets
currently contemplated or at all. If these projects do not become operational
within the time frames and budgets currently contemplated, it could have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, the Company will incur significant costs and
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expenses in connection with its current expansion projects. There can be no
assurance that these expenditures will ultimately result in the establishment of
profitable operations.
Many permits, licenses and approvals necessary for the Company's
expansion projects have not yet been obtained. The scope of the approvals
required for projects of this nature is extensive, including, without
limitation, gaming approvals, state and local land-use permits, building and
zoning permits and liquor licenses. Unexpected changes or concessions required
by local, state or federal regulatory authorities could involve significant
additional costs and delay the scheduled openings of the facilities. There can
be no assurance that the Company will receive the necessary permits, licenses
and approvals or that such permits, licenses and approvals will be obtained
within the anticipated time frame. In addition, although the Company designs its
expansion projects for existing facilities to minimize disruption of business
operations, major expansion projects, such as those currently underway at Sam's
Town Tunica and the Silver Star and those currently being considered for the
Stardust and Sam's Town Las Vegas, require, from time to time, portions of the
casino and parking areas to be closed and disrupt portions of existing casino or
hotel operations to some extent. Any significant disruption in casino or hotel
operations could have a material adverse effect on the Company's business,
financial condition and results of operations.
Additional Financing Requirements
The Company intends to finance its current and future expansion
projects primarily with cash flow from operations and borrowings under its $500
million reducing revolving bank credit facility (the "New Bank Credit
Facility"). If the Company is unable to finance such projects through cash flow
from operations and borrowings under its New Bank Credit Facility, it will have
to adopt one or more alternatives, such as reducing or delaying planned
expansion and capital expenditures, selling assets, restructuring debt or
obtaining additional equity or debt financing. No assurance can be given that
the aforementioned sources of funds will be sufficient to finance the Company's
expansion or that other financing will be available on acceptable terms, in a
timely manner or at all. In addition, the Company's 11% Senior Subordinated
Notes due 2002 (the "11% Notes"), the Company's 10.75% Senior Subordinated Notes
due 2003 (the "10.75% Notes"), the New Bank Credit Facility and the pending
notes offering contain certain restrictions on the ability of the Company to
incur additional indebtedness. Following the pending notes offering,
availability under the New Bank Credit Facility will effectively be reduced by
the cost to redeem all of the 10.75% Notes and will be subsequently increased if
and to the extent the Company funds a redemption of the 10.75% Notes. If the
Company is unable to secure additional financing, it could be forced to limit or
suspend expansion, development and acquisition projects, which may adversely
effect the Company's business, financial condition and results of operations.
See "-Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Leverage and Debt Service
At June 30, 1996, after giving effect to the Offerings, the
Par-A-Dice Acquisition, redemption of the 10.75% Notes and the Mary's Prize
Sale, the Company had total consolidated long-term debt of approximately $719
million. The New Bank Credit Facility is a five-year, $500 million reducing
revolving credit facility. Debt service requirements on the New Bank Credit
Facility consist of interest expense on outstanding indebtedness. Beginning in
December 1998, the total principal amount available
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under the New Bank Credit Facility will be reduced by $25 million and reduced
by an additional $50 million at the end of each six-month period thereafter
until maturity in June 2001. Debt service requirements on the 11% Notes (as
defined herein) issued by a financing subsidiary of CH&C consist of semi-annual
interest payments and repayment of the $185 million principal amount on
December 1, 2002, and debt service requirements under the Company's 10.75%
Notes (as defined herein) consist of semi-annual interest payments and
repayment of the $150 million principal amount on September 1, 2003. The
Company expects to fund the Par-A-Dice Acquisition, as well as redemption of
the 10.75% Notes, from borrowings under the New Bank Credit Facility. The
Company also expects to fund its existing $40 million expansion project for
Sam's Town Tunica, the $45 million renovation, expansion and re-equipping of
Main Street Station, the $92 million Sam's Town Reno project and its
subsidiary's required capital contributions to the Mirage Joint Venture,
currently expected to be $100 million, with borrowings under the New Bank
Credit Facility to the extent not funded from cash flow from operations. The
Company's ability to service its debt will be dependent on its future
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the
Company's control. Accordingly, no assurance can be given that the Company will
maintain a level of operating cash flow that will permit it to service its
obligations. If the Company is unable to generate sufficient cash flow or is
unable to refinance or extend outstanding borrowings, it will have to adopt one
or more alternatives, such as reducing or delaying planned expansion and
capital expenditures, selling assets, restructuring debt or obtaining
additional equity or debt financing. There can be no assurance that any of
these financing strategies could be effected on satisfactory terms, if at all.
In addition, certain states' laws contain restrictions on the ability of
companies engaged in the gaming business to undertake certain financing
transactions. Such restrictions may prevent the Company from obtaining
necessary capital. See "--Additional Financing Requirements," "--Governmental
Gaming Regulation," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Governmental Gaming Regulation
The Company is subject to a variety of regulations in the
jurisdictions in which it operates. If additional gaming regulations are adopted
in a jurisdiction in which the Company operates, such regulations could impose
restrictions or costs that could have a material adverse effect on the Company.
From time to time, various proposals have been introduced in the legislatures of
some of the jurisdictions in which the Company has existing or planned
operations that, if enacted, could adversely affect the tax, regulatory,
operational or other aspects of the gaming industry and the Company. No
assurance can be given that such legislation will not be enacted. The federal
government has also previously considered a federal tax on casino revenues and
may consider such a tax in the future. In addition, gaming companies are
currently subject to significant state and local taxes and fees in addition to
normal federal and state corporate income taxes, and such taxes and fees are
subject to increase at any time. Any material increase in these taxes or fees
could adversely affect the Company.
Nevada The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"); and (ii) various local regulation.
The Company's gaming operations are subject to the licensing and regulatory
control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada
State Gaming Control Board (the "Nevada Board"), and the Clark County Liquor and
Gaming Licensing Board
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(the "Clark County Board"). The Nevada Commission, the Nevada Board, and the
Clark County Board are collectively referred to herein as the "Nevada Gaming
Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practice of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) the provision of a source of state and local
revenues though taxation and licensing fees. Changes in such laws, regulations
and procedures could have an adverse effect on the Company's gaming operations.
Corporations that operate casinos in Nevada are required to be
licensed by the Nevada Gaming Authorities. A gaming license requires the
periodic payment of fees and taxes and is not transferable. The Company is
registered by the Nevada Commission as a publicly traded corporation (a
"Registered Corporation") and as such, it is required periodically to submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information which the Nevada Commission may require. The Company has
been found suitable by the Nevada Commission to own the stock of CH&C. CH&C is
licensed by the Nevada Commission to operate non-restricted gaming activities at
the California and Sam's Town Las Vegas and is additionally registered as a
holding corporation and approved by the Nevada Gaming Authorities to own the
stock of Mare Bear, Inc. ("Mare Bear"), the operator of the Stardust; Sam Will,
Inc. ("Sam Will"), the operator of the Fremont; and Eldorado, Inc., the operator
of the Eldorado and Joker's Wild. No person may become a stockholder of, or
receive any percentage of profits from, CH&C or its subsidiaries without first
obtaining licenses and approvals from the Nevada Gaming Authorities. The
Company, CH&C, Mare Bear, Sam Will and Eldorado, Inc. have obtained from the
Nevada Gaming Authorities the various registrations, approvals, permits and
licenses required in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, CH&C or any
of its licensed subsidiaries in order to determine whether such individual is
suitable or should be licensed as a business associate of a gaming licensee.
Officers, directors and certain key employees of CH&C and its licensed
subsidiaries must file applications with the Nevada Gaming Authorities and may
be required to be licensed or found suitable by the Nevada Gaming Authorities.
Officers, directors and key employees of the Company who are actively and
directly involved in gaming activities of CH&C or its licensed subsidiaries may
be required to be licensed or found suitable by the Nevada Gaming Authorities.
The Nevada Gaming Authorities may deny an application for licensing for any
cause which they deem reasonable. A finding of suitability is comparable to
licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. The applicant for licensing or
a finding of suitability must pay all the costs of the investigation. Changes in
licensed positions must be reported to the Nevada Gaming Authorities and in
addition to their authority to deny an application for a finding of suitability
or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
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If the Nevada Gaming Authorities were to find an officer, director or
key employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, CH&C or any of its licensed subsidiaries, the
companies involved would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Company, CH&C or any of its
licensed subsidiaries to terminate the employment of any person who refuses to
file appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company, CH&C and its licensed subsidiaries are required to submit
detailed financial and operating reports to the Nevada Commission. Substantially
all material loans, leases, sales of securities and similar financing
transactions by CH&C and its subsidiaries must be reported to, or approved by,
the Nevada Commission.
If it were determined that the Nevada Act was violated by CH&C or any
of its licensed subsidiaries, the gaming licenses they hold could be limited,
conditioned, suspended or revoked, subject to compliance with certain statutory
and regulatory procedures. In addition, CH&C, the subsidiary involved, the
Company, and the persons involved could be subject to substantial fines for each
separate violation of the Nevada Act at the discretion of the Nevada Commission.
Further, a supervisor could be appointed by the Nevada Commission to operate the
Company's gaming properties and, under certain circumstances, earnings generated
during the supervisor's appointment (except for reasonable rental value of the
Company's gaming properties) could be forfeited to the State of Nevada.
Limitation, conditioning or suspension of any gaming license or the appointment
of a supervisor could (and revocation of any gaming license would) materially
adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless
of the number of shares owned, may be required to file an application, be
investigated, and have his suitability as a beneficial holder of the Company's
voting securities determined if the Nevada Commission has reason to believe that
such ownership would otherwise be inconsistent with the declared policies of the
state of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada Commission.
The Nevada Act requires that beneficial owners of more than 10% of the Company's
voting securities apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails the written
notice requiring such filing. Under certain circumstances, an "institutional
investor," as defined in the Nevada Act, which acquires more than 10%, but not
more than 15%, of the Company's voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company's
corporate charter, bylaws, management, policies or operations of the Company, or
any of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding the Company's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes include only: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type
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normally made by securities analysts for informational purposes and not to cause
a change in its management, policies or operations; and (iii) such other
activities as the Nevada Commission may determine to be consistent with such
investment intent. If the beneficial holder of voting securities who must be
found suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability
or a license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company, CH&C or any
of its licensed subsidiaries, the Company (i) pays that person any dividend or
interest upon voting securities of the Company, (ii) allows that person to
exercise, directly or indirectly, any voting right conferred through securities
held by that person, (iii) pays remuneration in any form to that person for
services rendered or otherwise, or (iv) fails to pursue all lawful efforts to
require such unsuitable person to relinquish his voting securities for cash at
fair market value. Additionally, the Clark County Board has taken the position
that it has the authority to approve all persons owning or controlling the stock
of any corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of
any debt security of a Registered Corporation to file applications, be
investigated and be found suitable to own the debt security of a Registered
Corporation. If the Nevada Commission determines that a person is unsuitable to
own such security, then pursuant to the Nevada Act, the Registered Corporation
can be sanctioned, including the loss of its approvals, if without the prior
approval of the Nevada Commission, it: (i) pays to the unsuitable person any
dividend, interest, or any distribution whatsoever; (ii) recognizes any voting
right by such unsuitable person in connection with such securities; (iii) pays
the unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada
which may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder may
be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for finding
the record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's securities to bear a legend
indicating that the securities are subject to the Nevada Act. However, to date,
the Nevada Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its securities without
the prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Such approval, if given, does not constitute a finding, recommendation
or approval by the Nevada Gaming Authorities as to the accuracy or adequacy of
the prospectus or the investment merits of
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the securities. Any representation to the contrary is unlawful. On September 20,
1996, the Nevada Commission granted the Company prior approval to make public
offerings for a period of one year, subject to certain conditions ("Shelf
Approval"). However, the Shelf Approval may be rescinded for good cause without
prior notice upon the issuance of an interlocutory stop order by the Chairman of
the Nevada Board. This offering is made pursuant to the Shelf Approval. The
Shelf Approval does not constitute a finding, recommendation or approval by the
Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities offered. Any
representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock
or asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Gaming Authorities in a variety
of stringent standards prior to assuming control of such Registered Corporation.
The Nevada Commission may also require controlling stockholders, officers,
directors and other persons having a material relationship or involvement with
the entity proposing to acquire control, to be investigated and licensed as part
of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchase of voting securities and corporate defense
tactics affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those licensees, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes of acquiring control of the
Registered Corporation.
License fees and taxes, computed in various ways depending on the type
of gaming or activity involved, are payable to the State of Nevada, Clark County
and the City of Las Vegas. Depending upon the particular fee or tax involved,
these fees and taxes are payable either monthly, quarterly or annually and are
based upon any of: (i) a percentage of the gross revenues received; (ii) the
number of gaming devices operated; or (iii) the number of table games operated.
A casino entertainment tax is also paid by casino operations where entertainment
is furnished in connection with the selling of food or refreshments.
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with such persons
(collectively "Licensees"), and who proposes to become involved in a gaming
venture outside of Nevada is required to deposit with the Nevada Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation of the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with
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certain reporting requirements imposed by the Nevada Act. Licensees are also
subject to disciplinary action by the Nevada Commission if they knowingly
violate any laws of the foreign jurisdiction pertaining to the foreign gaming
operation, fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations, engage
in activities that are harmful to the State of Nevada or its ability to collect
gaming taxes and fees, or employ a person in the foreign operation who has been
denied a license or finding of suitability in Nevada on the ground of personal
unsuitability.
The sale of food or alcoholic beverages at the Company's Nevada
casinos is subject to licensing, control and regulation by the applicable local
authorities. All licenses are revocable and are not transferable. The agencies
involved have full power to limit, condition, suspend or revoke any such
license, and any such disciplinary action could (and revocation would) have a
material adverse effect upon the operations of the affected casino or casinos.
Indian Lands Gaming on Indian lands is extensively regulated under
federal law, tribal-state compacts and tribal law. The terms and conditions of
management agreements and the operation of gaming facilities on Indian lands are
governed by the Indian Gaming Regulatory Act of 1988 ("IGRA"), which is
administered by the National Indian Gaming Commission ("NIGC"), and are also
subject to the provisions of statutes relating to contracts with Indian tribes,
which are administered by the Secretary of the Interior (the "Secretary") and
the Bureau of Indian Affairs ("BIA").
The NIGC oversees Class II Indian gaming (essentially bingo and
bingo-like games) and, to a lesser degree, Class III gaming (e.g., slots, casino
games and banking card games). The actual regulation of Class III gaming is
determined pursuant to the terms of tribal-state compacts, which regulate
agreements between individual tribes and states that govern gaming on tribal
lands.
Under IGRA, the NIGC must approve all management agreements between
Indian tribes and managers of tribal gaming facilities. IGRA is subject to
interpretation by the Secretary and the NIGC and may be subject to judicial and
legislative clarification or amendments.
The Company's management contract with the Mississippi Band of Choctaw
Indians (the "Choctaws") for the Silver Star was approved by the NIGC in
December 1993. The management agreement provides for a seven-year term expiring
in July 2001 and a management fee of 30% of the enterprise's operating income
before debt service for the first five years and 40% of its operating income
before debt service for the final two years. Under the agreement, the Company
provided $30.5 million in debt financing for the construction and start-up of
the facility, which was repaid during fiscal 1995 from the enterprise's cash
flow. Pursuant to NIGC approval dated November 23, 1994, the Company has loaned
to the Choctaws an additional $10 million to expand the property.
The NIGC regulations provide detailed requirements as to certain
provisions which must be included in management agreements, including (i)
adequate accounting procedures and verifiable financial reports, which must be
furnished to the tribe; (ii) tribal access to the daily operations of the gaming
enterprise, including the right to verify daily gross revenues and income; (iii)
minimum guaranteed payments to the tribe, which must have priority over the
retirement of development and construction costs; (iv) a ceiling on the
repayment of such development and construction costs and (v) a term not to
exceed five years except that, upon request of a tribe, a term of seven years
may be allowed by
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<PAGE> 23
the NIGC Chairman if the Chairman is satisfied that the capital investment and
income projections for the gaming facility require the additional time. Further,
the fee received by the manager of a gaming facility may not exceed 30% of net
revenues except that a fee of 40% of net revenues may be approved if the NIGC
Chairman is satisfied that the capital investment and income projections for the
gaming facility require the additional fee.
Under IGRA, a management company, its directors, persons with
management responsibilities and certain of the company's owners must provide
background information, be investigated by the NIGC and be found suitable to be
affiliated with a gaming operation prior to the NIGC's approval of the
management agreement. The NIGC regulations provide that each of the ten persons
who have the greatest direct or indirect financial interest in a management
agreement must be found suitable in order for the management agreement to be
approved by the NIGC. The NIGC regulations provide that any entity with a
financial interest in a management agreement must be found suitable, as must the
directors and ten largest shareholders of such entities in the case of a
corporate entity, or the ten largest holders of interest in the case of a trust
or partnership. The Chairman of the NIGC may reduce the scope of information to
be provided by institutional investors. At any time, the NIGC has the power to
investigate and require the finding of suitability of any person with a direct
or indirect interest in the management agreement, as determined by the NIGC. The
management company must pay all fees associated with background investigations
by the NIGC.
The NIGC regulations require that background information as described
above must be submitted for approval within ten days of any proposed change in
financial interest in a management agreement. The NIGC regulations do not
address any specialized procedures for investigations and suitability findings
in the context of publicly held corporations. If, subsequent to the approval of
a management agreement, the NIGC determines that any of its requirements
pertaining to the management agreement have been violated, it may require the
management agreement to be modified or voided, subject to rights of appeal. In
addition, any amendments to the management agreement must be approved by the
NIGC.
In addition to IGRA, tribal-owned gaming facilities on Indian land are
subject to a number of other federal statutes.
Title 25, Section 81 of the United States Code states that "no
agreement shall be made by any person with any tribe of Indians, or individual
Indians not citizens of the United States, for the payment or delivery of any
money or other thing of value . . . in consideration of services for said
Indians relative to their lands . . . unless such contract or agreement be
executed and approved" by the Secretary or his or her designee. An agreement or
contract for services relative to Indian lands which fails to conform with the
requirements of Section 81 will be void and unenforceable. All money or other
things of value paid to any person by any Indian or tribe for or on his or their
behalf, on account of such services, in excess of any amount approved by the
Secretary or his or her authorized representative will be subject to forfeiture.
The Company believes that it has complied with the requirements of Section 81
with respect to its management contract for Silver Star.
The Indian Trader Licensing Act, Title 25, Section 261-64 of the
United States Code ("ITLA") states that "any person other than an Indian of the
full blood who shall attempt to reside in the Indian country, or on any Indian
reservation, as a trader, or to introduce goods, or to trade therein, without
such license, shall forfeit all merchandise offered for sale to the Indians or
found in his possession, and shall
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<PAGE> 24
moreover be liable to a penalty of $500 . . ." No such licenses have been issued
to the Company to date. The applicability of ITLA to management contracts is
unclear. The Company believes that ITLA is not applicable to its management
contracts under which the Company provides services rather than goods to Indian
tribes. The Company further believes that ITLA has been superseded by IGRA.
On December 4, 1992, the Choctaws and the State of Mississippi entered
into a tribal-state compact regarding the regulation of gaming on Choctaw lands
in Mississippi. The tribal-state compact has been approved by the BIA. The
tribal-state compact as well as tribal regulations provide for the creation of
the Choctaw Gaming Commission which has regulatory jurisdiction over gaming on
Choctaw lands.
The Choctaw Gaming Commission must perform background checks and
suitability findings on "parties in interest" to a management contract, which
includes the same persons as required by the NIGC regulations discussed above
but also specifically includes direct lenders and persons who hold at least ten
percent of the stock of any corporation which is a party to the management
contract. All investigatory fees of the Choctaw Gaming Commission are to be paid
by the Company. The directors and officers of the Company who are required to
submit background information for Choctaw Gaming Commission investigatory
purposes have done so and the Choctaw Gaming Commission issued the Company a
license in December 1993 (subject to renewal on a yearly basis).
Management officials and key employees of the Company affiliated with
Silver Star, as well as distributors and manufacturers of gaming devices whose
products are used on the reservation, must be licensed by the Choctaw Gaming
Commission. In addition, all employees associated with casino gaming must obtain
work permits issued by the Choctaw Gaming Commission. All holders of casino
gaming licenses and work permits (including the Company's license) are subject
to immediate revocation of such licenses and work permits under certain
circumstances, including (i) the conviction of a felony or any crime of moral
turpitude; (ii) unsuitability to be associated with casino gaming; (iii) the
violation or conspiracy to violate IGRA, the tribal-state compact, or other
tribal or federal laws applicable to casino gaming; or (iv) the violation of
certain tribal conflict of interest laws.
The management agreement provides that, should a person or entity
which is required to undergo a finding of suitability fail to be found suitable
in a final, nonappealable order of the NIGC or the Choctaw Gaming Commission,
then such person or entity must divest its interest in the management agreement
within 72 hours or receipt of such notice.
On October 18, 1993, a member of the Choctaw tribe filed suit in
Mississippi state court against the Governor of Mississippi, the members of the
Mississippi Gaming Commission and the Executive Director of the Mississippi
Gaming Commission. The suit sought a declaration that the Governor had no
authority to negotiate the tribal-state compact relating to gaming on Choctaw
tribal lands or to bind the State to perform any activities contemplated by the
compact and to declare the compact void. On December 13, 1993, the state court
ruled that the validity of action regarding the compact by the State is a
federal issue and dismissed the case. On December 23, 1993, the plaintiff in the
October 18 suit filed a similar action in the United States District Court in
Jackson, Mississippi, naming as defendants those named in the October 18 suit as
well as members of the NIGC and the Secretary of the Interior (in their official
capacities) and the Company. On April 8, 1994, the District Court dismissed the
case. The plaintiff appealed the case to the U.S. Court of Appeals for the Fifth
Circuit, and the Fifth Circuit affirmed the District Court's decision and the
plaintiffs did not appeal that decision. There is also an appeal of the earlier
state court decision pending in the Mississippi Supreme Court, and the Attorney
General has made the Fifth Circuit decision available to the Supreme Court.
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Illinois In February 1990, the State of Illinois legalized riverboat
gaming. The Illinois Riverboat Gambling Act (the "Illinois Act") authorizes the
issuance by the five-member Illinois Gaming Board of up to 10 riverboat gaming
owner's licenses for navigable streams within or forming a boundary of the state
of Illinois, except for Lake Michigan and any waterway in Cook County, which
includes Chicago. The Illinois Act regulates strictly the facilities, persons,
associations and practices related to riverboat gaming operations. The Illinois
Act grants the Illinois Gaming Board specific powers and duties, and all other
powers necessary and proper to fully and effectively execute the Illinois Act
for the purpose of administering, regulating and enforcing the system of
riverboat gaming. The Illinois Gaming Board's jurisdiction extends to every
person, association, corporation, partnership and trust involved in riverboat
gaming operations in the State of Illinois. The ownership and operation of a
riverboat gaming operation is subject to extensive regulation. Applicants must
submit comprehensive application and personal disclosure forms and undergo an
exhaustive background investigation prior to the issuance of a license.
The Illinois Act requires the owner of a riverboat gaming operation to
hold an owner's license issued by the Illinois Gaming Board. The Illinois Act
restricts the granting of certain of the ten owner's licenses by location. Four
are for operators docking at sites on the Mississippi River, one is for an
operator docking at a site on the Illinois River south of Marshall County and
one is for an operator docking at a site on the Des Plaines River in Will
County. The remaining four owner's licenses are not restricted as to location.
Riverboats operating on the Des Plaines River must have a minimum capacity of at
least 400 persons. All riverboats must be accessible to disabled persons, must
be either a replica of a 19th century Illinois riverboat or be of a casino
cruise ship design and must comply with applicable federal and state laws,
including, but not limited to, U.S. Coast Guard regulations. The Illinois Gaming
Board has currently granted ten licenses, one license to riverboat operations in
each of Alton, East Peoria, Rock Island, East
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Dubuque, Metropolis, East St. Louis, Aurora, and Elgin, and two licenses to
riverboat operators in Joliet. In addition to the ten owner's licenses which are
authorized under the Illinois Act, the Illinois Gaming Board may issue special
event licenses allowing persons who are not otherwise licensed to conduct
riverboat gaming on a specified date or series of dates.
Each owner's license initially runs for a period of three years.
Thereafter, the license is subject to renewal on an annual basis upon a
determination by the Illinois Gaming Board that the licensee continues to be
eligible for an owner's license pursuant to the Illinois Act and the Illinois
Gaming Board's rules. The owner's license for Par-A-Dice initially expired in
February 1995. Its license was thereafter renewed in February 1996. Par-A-Dice
will be required to renew its license in February 1997, and each year
thereafter. A licensed owner is authorized to apply to the Illinois Gaming Board
for and, if approved, will receive all licenses necessary for the operation of a
riverboat. These licenses include a liquor license, a license to prepare and
serve food and all other necessary licenses.
Each license granted entitles a licensee to own and operate up to two
riverboats (with a combined maximum of 1,200 gaming participants) as part of the
riverboat gaming operation. No person or entity may be licensed as the owner of
more than one riverboat gaming operation in Illinois, although a licensed owner
of greater than 10% may hold up to a 10% ownership interest in a second
riverboat gaming operation in Illinois.
The Illinois Act does not limit the maximum bet or per patron loss.
Minimum and maximum wagers on games are set by the licensee and wagering may not
be conducted with money or other negotiable currency. No person under the age of
21 is permitted to wager and wagers may only be received from a person present
on the riverboat. With respect to electronic gaming devices, the payout
percentage may not be less than 80% nor more than 100%. The Illinois Act imposes
a 20% wagering tax on adjusted gross receipts (which is gross gaming revenues
minus winnings paid to patrons). The tax imposed is to be paid by the licensed
owner to the Illinois Gaming Board on the day after the day when the liability
was established. The Illinois Act also requires that licensees pay a $2.00
admission tax for each person admitted to a gaming cruise. All state use,
occupation and excise taxes which apply to the sale of food and beverages and
taxes imposed on the sale or use of tangible property apply to such sales aboard
riverboats.
From time to time, various proposals have been introduced in the
Illinois legislature regarding riverboat gaming. Such bills include, among other
things, taxes, licensing and conduct of gaming. The Company cannot offer any
opinion of the outcome or effect of any pending or proposed legislation.
Under the Illinois Act, there is a four-hour maximum period during
which gaming may be conducted during a gaming excursion. Gaming is deemed to
commence when the first passenger boards a riverboat for an excursion and may
continue while other passengers are boarding for a period of not to exceed 30
minutes. A gaming excursion is deemed to have started upon the commencement of
gaming. Gaming may continue for a period not to exceed 30 minutes after the
gangplank or its equivalent is lowered. During this 30 minute period of egress,
new passengers may not board a riverboat.
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<PAGE> 27
If a riverboat captain reasonably determines that either it is unsafe
to transport passengers on the waterway due to inclement weather or the
riverboat has been rendered temporarily inoperable by river icing or
unforeseeable mechanical or structural difficulties, the riverboat shall either
not leave the dock or immediately return to it. In the case of unforeseeable
mechanical or structural difficulties, the owner licensee shall make all
reasonable effort to promptly remedy the problem. If a riverboat captain
reasonably determines for reasons of safety that although seaworthy, the
riverboat should not leave the dock or should return immediately thereto, due to
the above conditions, a gaming excursion may commence or continue while the
gangplank or its equivalent is raised and remains raised, in which event the
riverboat is not considered docked. If, due to the above conditions, a gaming
excursion must commence or continue with the gangplank or its equivalent raised
and the riverboat does not leave the dock, ingress is prohibited until the
completion of the excursion.
The Illinois Gaming Board is authorized to conduct investigations into
the conduct of gaming as it may deem necessary and proper and into alleged
violations of the Illinois Act and Illinois Gaming Board Rules. Employees and
agents of the Illinois Gaming Board have access to and may inspect any
facilities relating to the riverboat gaming operations at all times.
A holder of a riverboat gaming license will be subject to the
imposition of fines and suspension or revocation of its license for any act by
such holder, its agents or employees that is injurious to the public health,
safety, morals, good order and general welfare of the people of the State of
Illinois, or that would discredit or tend to discredit the Illinois gaming
industry or the State of Illinois. The following may be grounds for such
discipline: (i) failing to comply with or make provision for compliance with the
Illinois Act, the rules promulgated thereunder, any federal, state or local law
or regulation, or the license holder's internal procedures and administration
and accounting controls; (ii) failing to comply with any rule, order or filing
of the Illinois Gaming Board or its agents pertaining to gaming; (iii) receiving
goods or services from a person or business entity who does not hold a
supplier's license but who is required to hold such license by the rules; (iv)
being suspended or ruled ineligible or having a license revoked or suspended in
any other state or gaming jurisdiction; (v) associating with, either socially or
in business affairs, or employing persons of notorious or unsavory reputation or
who have extensive police records, or who have failed to cooperate with any
officially constituted investigatory or administrative body and would adversely
affect public confidence and trust in gaming; and (vi) employing in any Illinois
riverboat's gaming operation any person known to have been found guilty of
cheating or using any improper device in connection with any game.
Licensees are required to obtain formal approval from the Illinois
Gaming Board whenever a change is proposed in the following areas: (i) Key
Persons; (ii) type of entity; (iii) the equity and debt capitalization of the
entity; (iv) investors and/or debt holders; (v) sources of funds; (vi) the
applicant's economic development plan; (vii) riverboat capacity or significant
design change; (viii) the number of gaming positions; (ix) anticipated economic
impact; or (x) pro forma budgets and financial statements. In addition,
distributions to shareholders, partners and others are limited to those which
cannot impair the financial viability of the gaming operation.
The Illinois Gaming Board requires that a Key Person of an owner
licensee must submit a Personal Disclosure Form and be investigated and approved
by the Illinois Gaming Board. Any
25
<PAGE> 28
person directly or indirectly holding a legal or beneficial interest of 5% or
more of an applicant or owner licensee is deemed to be a Key Person, as are
officers, directors, trustees, partners, proprietors and managing agents of a
gaming enterprise. Furthermore, each applicant or owner licensee must disclose
the identify of every person, association, trust or corporation having a greater
than 1% direct or indirect pecuniary interest in an owner licensee or in the
riverboat gaming operation with respect to which the license is sought. The
Illinois Gaming Board may also require an applicant or owner licensee to
disclose any other principal or investor and require the investigation and
approval of such individuals.
The Illinois Gaming Board (unless the investor qualifies as an
institutional investor) requires a Personal Disclosure Form from any person or
entity who or which, individually or in association with others, acquires
directly or indirectly, beneficial ownership of more than 5% of any class of
voting securities or non-voting securities convertible into voting securities of
a publicly traded corporation which holds an ownership interest in the holder of
an owner's license. If the Illinois Gaming Board denies an application for such
a transfer and if no hearing is requested, the applicant for the transfer of
ownership interest must promptly divest those shares in the publicly traded
parent corporation. The holder of an owner's license would not be able to
distribute profits to a publicly traded parent corporation until such shares
have been divested. If a hearing is requested, the shares need not be divested
and profits may be distributed to a publicly held parent corporation pending the
issuance of a final order from the Illinois Gaming Board.
A person employed at a riverboat gaming operation must hold an
occupational license from the Illinois Gaming Board. The occupational license
permits the holder to perform only activities included within such holder's
level of occupational license or any lower level of occupational license. A
holder of a riverboat gaming license is required to investigate the background
and qualifications of all persons who apply for employment at its gaming
operation. Suppliers of gaming equipment and supplies and certain other vendors
must obtain a supplier's license from the Illinois Gaming Board prior to selling
or leasing any equipment and supplies as defined in Illinois Gaming Board Rules.
The Illinois Gaming Board may waive any licensing requirement or
procedure provided by rule if it determines that such waiver is in the best
interests of the public and the gaming industry.
New Jersey The ownership and operation of casino gaming facilities in
New Jersey are subject to the New Jersey Casino Control Act (the "Casino Control
Act"). In general, the Casino Control Act and the regulations promulgated
thereunder contains detailed provisions concerning, among other things: the
granting of casino licenses; the suitability of the approved hotel facility and
the amount of authorized casino space and gaming units permitted therein; the
qualification of natural persons and entities related to the casino licensee;
the licensing and registration of employees and vendors of casino licensees;
rules of the games; the selling and redeeming of gaming chips; the granting and
duration of credit and the enforceability of gaming debts; management control
procedures, accountability, and cash control methods and reports to gaming
agencies; security standards; the manufacture and distribution of gaming
equipment; equal opportunity for employees and casino operators, contractors of
casino facilities, and others; and advertising, entertainment, and alcoholic
beverages. The New Jersey Casino Control Commission (the "CCC") is empowered
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under the Casino Control Act to regulate a wide spectrum of gaming and nongaming
related activities and to approve the form of ownership and financial structure
of not only a casino licensee, but also its entity qualifiers and intermediary
and holding companies.
No casino hotel facility may operate unless the appropriate license and
approvals are obtained from the CCC, which has broad discretion with regard to
the issuance, renewal, revocation, and suspension of such licenses and
approvals, which are nontransferable. The qualification criteria with respect to
the holder of a casino license include its financial stability, integrity and
responsibility; the integrity and adequacy of its financial resources which bear
any relation to the casino project; its good character, honesty, and integrity;
and the sufficiency of its business ability and casino experience to establish
the likelihood of creation and maintenance of a successful, efficient casino
operation. The CCC may reopen licensing hearings at any time and must reopen a
licensing hearing at the request of the Division of Gaming Enforcement (the
"Division").
To be considered financially stable, a licensee must demonstrate the
following ability: to pay winning wagers when due; to achieve a gross operating
profit; to pay all local, state, and federal taxes when due; to make necessary
capital and maintenance expenditures to insure that it has a superior
first-class facility; and to pay, exchange, refinance or extend debts which will
mature and become due and payable during the license term.
In the event a licensee fails to demonstrate financial stability, the
CCC may take such action as it deems necessary to fulfill the purposes of the
Casino Control Act and protect the public interest, including: issuing
conditional licenses approvals or determinations; establishing an appropriate
cure period; imposing reporting requirements; placing restrictions on the
transfer of cash or the assumption of liability; requiring reasonable reserves
or trust accounts; denying licensure; or appointing a conservator.
Pursuant to the Casino Control Act, CCC regulations and precedent, no
entity may hold a casino license unless each officer, director, principal
employee, person who directly or indirectly holds any beneficial interest or
ownership in the licensee, each person who in the opinion of the CCC has the
ability to control or elect a majority of the board of directors of the licensee
(other than a banking or other licensed lending institution which makes a loan
or holds a mortgage or other loan acquired in the ordinary course of business),
and any lender, whom the CCC may consider appropriate, obtains and maintains
qualification approval from the CCC. Qualification approval means qualification
requirements as a casino key employee, as described below.
An entity qualifier or intermediary or holding company is required to
register with the CCC and meet the same basic standards for approval as a casino
licensee; provided, however, that the CCC, with the concurrence of the Director
of the Division, may waive compliance by a publicly-traded corporate holding
company as to any officer, director, lender, underwriter, agent or employee
thereof, or person directly or indirectly holding a beneficial interest or
ownership of the securities of such company, where the CCC and the Director of
the Division are satisfied that such persons are not significantly involved in
the activities of the corporate licensee, and in the case of security holders,
do not have the ability to control the publicly-trade corporation or elect one
or more of its directors.
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The CCC may require all financial backers, investors, mortgagees, bond
holders and holders of notes or other evidence of indebtedness, either in effect
or proposed, which bears any relation to the casino project, publicly-traded
securities of an entity which holds a casino license or is an entity qualifier,
subsidiary, or holding company of a casino licensee (a "Regulated Company"), to
qualify as financial sources.
An institutional investor ("Institutional Investor") is defined by the
Casino Control Act as any retirement fund administered by a public agency for
the exclusive benefit of federal, state, or local public employees; investment
company registered under the Investment Company Act of 1940; collective
investment trust organized by banks under Part Nine of the Rules of the
Comptroller of the Currency; closed end investment trust; chartered or licensed
life insurance company or property and casualty insurance company; banking and
other chartered or licensed lending institution; investment advisor registered
under the Investment Advisers Act of 1940; and such other persons as the CCC may
determine for reasons consistent with the policies of the Casino Control Act.
An Institutional Investor shall be granted a waiver by the CCC from
financial source or other qualification requirements applicable to a holder of
publicly-traded securities, in the absence of a prima facie showing by the
Division that there is any cause to believe that the Institutional Investor may
be found unqualified, on the basis of CCC findings that: (a) its holdings were
purchased for investment purposes only and, upon request by the CCC, it files a
certified statement to the effect that it has no intention of influencing or
affecting the affairs of the issuer, the casino licensee or its holding or
intermediary companies; provided, however, that the Institutional Investor will
be permitted to vote on matters put to the vote of the outstanding security
holders; and (b) if (i) the securities are debt securities of a casino
licensee's holding or intermediary companies or another subsidiary company of
the casino licensee's holding or intermediary companies which is related in any
way to the financing of the casino licensee and represent either (x) 20% or less
of the total outstanding debt of the company, or (y) 50% or less of any issue of
outstanding debt of the company, (ii) the securities are under 10% of the equity
securities of a casino licensee's holding or intermediary companies, or (iii) if
the securities so held exceed such percentages, upon a showing of good cause.
The CCC may grant a waiver of qualification to an Institutional Investor holding
a higher percentage of such securities upon a showing of good cause and if the
conditions specified above are met.
Generally, the CCC requires each institutional holder seeking waiver of
qualification to execute a certification to the effect that (i) the holder has
reviewed the definition of Institutional Investor under the Casino Control Act
and believes that it meets the definition of Institutional Investor; (ii) the
securities are those of a publicly-traded corporation; (iii) the holder
purchased the securities for investment purposes only and holds them in the
ordinary course of business; (iv) the holder has no involvement in the business
activities of, and no intention of influencing or affecting the affairs of the
issuer, the casino licensee, or any affiliate; and (v) if the holder
subsequently determines to influence or affect the affairs of the issuer, the
casino licensee or any affiliate, it shall provide not less than 30 days' prior
notice of such intent and shall file with the CCC an application for
qualification before taking any such action. If an Institutional Investor
changes its investment intent, or if the CCC finds reasonable cause to believe
that it may be found unqualified, the Institutional Investor may take no action
with respect to the security holdings,
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other than to divest itself of such holdings, until it has applied for interim
casino authorization and has executed a trust agreement pursuant to such an
application.
The Casino Control Act imposes certain restrictions upon the issuance,
ownership, and transfer of securities of a Regulated Company, and defines the
term "security" to include instruments which evidence a direct or indirect
beneficial ownership or creditor interest in a Regulated Company including, but
not limited to, mortgages, debentures, security agreements, notes, and warrants.
If the CCC finds that a holder of such securities is not qualified
under the Casino Control Act, it has the right to take any remedial action it
may deem appropriate, including the right to force divestiture by such
disqualified holder of such securities. In the event that certain disqualified
holders fail to divest themselves of such securities, the CCC has the power to
revoke or suspend the casino license affiliated with the Regulated Company which
issued the securities. If a holder is found unqualified, it is unlawful for the
holder (i) to exercise, directly or through any trustee or nominee, any right
conferred by such securities, or (ii) to receive any dividends or interest upon
any such securities or any remuneration, in any form, from its affiliated casino
licensee for services rendered or otherwise.
With respect to non-publicly-traded securities, the Casino Control Act
and CCC Regulations require that the corporate charter or partnership agreement
of a Regulated Company establish a right in the CCC of prior approval with
regard to transfers of securities, shares and other interests and an absolute
right in the Regulated Company to repurchase at the market price or the purchase
price, whichever is the lesser, any such security, share, or other interest in
the event that the CCC disapproves a transfer. With respect to publicly-traded
securities, such corporate charter or partnership agreement is required to
establish that any such securities of the entity are held subject to the
conditions that, if a holder thereof is found to be disqualified by the CCC,
such holder shall dispose of such securities.
Whenever any person enters into a contract to transfer any property
which relates to an ongoing casino operation, including a security of the casino
licensee or a holding or intermediary company or entity qualifier, under
circumstances which would require that the transferee obtain licensure or be
qualified under the Casino Control Act, and that person is not already licensed
or qualified, the transferee is required to apply for interim authorization.
Furthermore, the closing or settlement date in the contract may not be earlier
than the 121st day after the submission of a complete application for licensure
or qualification together with a fully executed trust agreement in a form
approved by the CCC. If, after the report of the Division and a hearing by the
CCC, the CCC grants interim authorization, the property will be subject to a
trust. If the CCC denies interim authorization, the contract may not close or
settle until the CCC makes a determination on the qualifications of the
applicant. If the CCC denies qualification, the contract will be terminated for
all purposes, and there will be no liability on the part of the transferor.
If, as the result of a transfer of publicly-traded securities of a
Regulated Company or a financing entity of a Regulated Company, any person is
required to qualify under the Casino Control Act, that person is required to
file an application for licensure or qualification within 30 days after the CCC
determines that qualification is required or declines to waive qualification.
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The application must include a fully executed trust agreement in a form approved
by the CCC, or in the alternative, within 120 days after the CCC determines that
qualification is required, the person whose qualification is required must
divest such securities as the CCC may require in order to remove the need to
qualify.
The CCC may grant interim casino authorization where it finds by clear
and convincing evidence that: (i) statements of compliance have been issued
pursuant to the Casino Control Act; (ii) the casino hotel is an approved hotel
in accordance with the Casino Control Act; (iii) the trustee satisfies
qualification criteria applicable to casino key employees, except for residency;
and (iv) interim operation will best serve the interests of the public.
When the CCC finds the applicant qualified, the trust will terminate.
If the CCC denies qualification to a person who has received interim casino
authorization, the trustee is required to endeavor, and is authorized, to sell,
assign, convey, or otherwise dispose of the property subject to the trust to
such persons who are licensed or qualified or shall themselves obtain interim
casino authorization.
Where a holder of publicly-traded securities is required, in applying
for qualification as a financial source or qualifier, to transfer such
securities to a trust in application for interim casino authorization and the
CCC thereafter orders that the trust become operative: (i) during the time the
trust is operative, the holder may not participate in the earnings of the casino
hotel or receive any return on its investment or debt security holdings; and
(ii) after disposition, if any, of the securities by the trustee, proceeds
distributed to the unqualified holder may not exceed the lower of their actual
cost to the unqualified holder or their value calculated as if the investment
had been made on the date the trust became operative.
The CCC may permit a licensee to increase its casino space if the
licensee agrees to add a prescribed number of qualifying sleeping units within
two years after the commencement of gaming operations in the additional casino
space. However, if the casino licensee does not fulfill such agreement due to
conditions within its control, the licensee will be required to close the
additional casino space, or any portion thereof that the CCC determines should
be closed.
The CCC is authorized to establish annual fees for the renewal of
casino licenses. The renewal fee is based upon the cost of maintaining control
and regulatory activities prescribed by the Casino Control Act, and may not be
less than $200,000 for a four-year casino license. Additionally, casino licenses
are subject to potential assessments to fund any annual operating deficits
incurred by the CCC or the Division. There is also an annual license fee of $500
for each slot machine maintained for use or in use in any casino. Additionally,
each casino licensee is also required to pay an annual tax of 8% on its gross
casino revenues.
Each party to an agreement for the management of a casino in required
to hold a casino license, and the party who is to manage the casino must own at
least 10% of all the outstanding equity securities of the casino licensee. Such
an agreement shall: (i) provide for the complete management of the casino; (ii)
provide for the sole and unrestricted power to direct the casino operations; and
(iii) provide for a term long enough to ensure the reasonable continuity,
stability and independence and management of the casino.
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An investment alternative tax imposed on the gross casino revenues of
each licensee in the amount of 2.5% is due and payable on the last day of April
next following the end of the calendar year. A licensee is obligated to pay the
investment alternative tax for a period of 30 years. Estimated payments of the
investment alternative tax obligation must be made quarterly in an amount equal
to 1.25% of estimated gross revenues for the preceding three-month period.
Investment tax credits may be obtained by the Casino Reinvestment Development
Authority ("CRDA"). CRDA bonds have terms as long as 50 years and bear interest
at below market rates, resulting in a value lower than the face value of such
CRDA bonds.
For the first 10 years of its obligation, the licensee is entitled to
an investment tax credit against the investment alternative tax in an amount
equal to twice the purchase price of the bonds issued to the licensee by the
CRDA. Thereafter, the licensee is (i) entitled to an investment tax credit in an
amount equal to twice the purchase price of such bonds or twice the amount of
its investments authorized in lieu of such bond investments made in projects
designated as eligible by the CRDA, and (ii) has the option of entering into a
contract with the CRDA to have its tax credit comprised of direct investments in
approved eligible projects which may not comprise more than 50% of its eligible
tax credit in any one year.
From the monies made available to the CRDA, the CRDA is required to set
aside $100 million for investment in hotel development projects in Atlantic City
undertaken by a licensee which result in the construction or rehabilitation of
at least 200 hotel rooms by December 31, 1996. These monies will be held to fund
up to 35% of the cost to casino licensees of expanding their hotel facilities to
provide additional hotel rooms, a portion of which will be required to be
available upon the opening of the new Atlantic City convention center and
dedicated to convention events. The CRDA has determined at this time that
eligible casino licensees will receive up to 27% of the cost of additional hotel
rooms out of these monies set aside and may, in the future, increase the
percentage to no greater than 35%.
On each October 31 during the years 1996 through 2003, each casino
licensee must pay into an account established in the CRDA and known as the
Atlantic City Fund, its proportional share of an amount related to the amount by
which annual operating expenses of the CCC and the Division are less than a
certain fixed sum. Additionally, a portion of the investment alternative tax
obligation of each casino license for the years 1994 through 1998 allocated for
projects in Northern New Jersey is required to be paid into and credited to the
Atlantic City Fund. Amounts in the Atlantic City Fund will be expended by the
CRDA for economic development projects of a revenue producing nature that foster
the redevelopment of Atlantic City other than the construction and renovation of
casino hotels.
As of July 1, 1993, each casino licensee was required to impose on and
collect from patrons a standard minimum parking charge of at least $2.00 for the
use of a parking space for the purpose of parking, garaging or storing motor
vehicles in a parking facility owned or leased by a casino licensee or by any
person on behalf of a casino licensee. Of the amount collected by the casino
licensed, $1.50 is required to be paid to the New Jersey State Treasurer and
paid by the New Jersey State Treasurer into a special fund established and held
by the New Jersey State Treasurer for the exclusive use of the CRDA.
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Amounts in the special fund will be expended by the CRDA for (i)
eligible projects in the corridor region of Atlantic City, which projects are
related to the improvement of roads, infrastructure, traffic regulation, and
public safety, and (ii) funding up to 35% of the cost to casino licensees of
expanding their hotel facilities to provide additional hotel rooms, which hotel
rooms are required to be available upon the opening of the Atlantic City
Convention Center and dedicated to convention events.
If, at any time, it is determined that a Regulated Company has violated
the Casino Control Act, or that any such entity cannot meet the qualification
requirements of the Casino Control Act, such entity could be subject to fines or
the suspension or revocation of its license or qualification. If a Regulated
Company's license is suspended for a period in excess of 120 days or revoked, or
if the CCC fails or refuses to renew such casino license, the CCC could appoint
a conservator to operate or dispose of such entity's casino hotel facilities.
The conservator would be required to act under the direct supervision of the CCC
and would be charged with the duty of conserving, preserving, and if permitted,
continuing the operation of such casino hotel. During the period of true
conservatorship, a former or suspended casino licensee is entitled to a fair
rate of return out of net earnings, if any, on the property retained by the
conservator. The CCC may also discontinue any conservatorship action and direct
the conservator to take such steps as are necessary to effect an orderly
transfer of the property of a former or suspended casino licensee.
Casino employees are subject to more stringent requirements than
non-casino employees and must meet applicable standards pertaining to financial
stability, integrity and responsibility, good character, honesty and integrity,
and New Jersey residency. These requirements have resulted in significant
competition among Atlantic City casino operators for the services of qualified
employees.
Casinos must follow certain procedures which are outlined in the Casino
Control Act when granting gaming credit and recording counter checks which have
been exchanged, redeemed, or consolidated. Gaming debts arising in Atlantic City
in accordance with applicable regulations are enforceable in the courts of the
State of New Jersey.
Louisiana The operation and management of riverboat casino facilities
in Louisiana are subject to extensive state regulation. The Louisiana Riverboat
Economic Development and Gaming Control Act (the "Riverboat Act") became
effective on July 19, 1991 and authorized the formation of the Louisiana
Riverboat Gaming Commission (the "Commission") and the Riverboat Gaming
Enforcement Division of the Louisiana State Police (the "Division"). Both the
Commission and the Division promulgated extensive regulations which controlled
riverboat gaming in Louisiana. The Act states, among other things, that certain
of the policies of the State of Louisiana are to develop a historic riverboat
industry that will assist in the growth of the tourism market, to license and
supervise the riverboat industry from the period of construction through the
actual operation, to regulate the operators, manufacturers, suppliers, and
distributors of gaming devices and to license all entities involved in the
riverboat gaming industry. The Act makes it clear, however, that no holder of a
license or permit possesses any vested interest in such license or permit and
that the license or permit may be revoked at any time. In a special session held
in April 1996, the
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Louisiana legislature passed the Louisiana Gaming Control Act which dissolved
both the Commission and the Division and replaced them with the Louisiana Gaming
Control Board. The Board came into existence on May 1, 1996, but presently there
have been no appointees confirmed, the Board has not met and no regulations have
been promulgated. The Gaming Control Board will be made up of 9 members and 2
ex-officio, members (including the superintendent of Louisiana State Police). It
will be domiciled in Baton Rouge and will regulate riverboat gaming, the
landbased casino in New Orleans and video poker. The Attorney General will act
as legal counsel to the Gaming Control Board as he did for the Commission.
Pursuant to the Gaming Control Act, all of the regulatory authority, control and
jurisdiction of licensing has now been transferred to the Gaming Control Board.
The Gaming Control Board has not yet promulgated regulations. Any material
alteration in the method whereby riverboat gaming is regulated in the State of
Louisiana could have an adverse effect on the operations of the Treasure Chest.
Presently, in the absence of regulations from the Gaming Control Board,
licensees are continuing to conduct their affairs pursuant to the regulations
promulgated under the Riverboat Act.
The Louisiana legislature also passed legislation requiring each parish
(county) where riverboat gaming is currently authorized to hold an election in
order for the voters to decide whether riverboat gaming will remain legal in
that parish. The vote is scheduled for November 6, 1996. The Treasure Chest is
located in Jefferson Parish, Louisiana. If Jefferson Parish votes riverboat
gaming out of the parish, the Treasure Chest's operations will terminate on or
before the termination date of its license (May 18, 1999). There is no assurance
that the measure allowing riverboat gaming to remain in Jefferson Parish will
pass. The failure of the measure to be approved would have adverse consequences
on the operations of the Treasure Chest.
The Riverboat Act approved the conducting of gaming activities on a
riverboat, in accordance with the Act, on twelve separate waterways in
Louisiana. The Act allowed the Division to issue up to 15 licenses to operate
riverboat gaming projects within the state with no more than 6 in any one
parish. There are presently 14 licenses issued and 13 riverboats operating. No
gaming is allowed while a riverboat is docked unless the vessel is docked for
less than 45 minutes between excursions. All cruises are required to be at least
three 3 hours in duration. Pursuant to the Riverboat Act and the regulations
promulgated thereunder, each applicant which desired to operate a riverboat
casino in Louisiana was required to file a number of separate applications for a
Certificate of Preliminary Approval, all necessary gaming licenses and a
Certificate of Final Approval. No final Certificate was issued without all
necessary and proper certificates from all regulatory agencies including the
U.S. Coast Guard, the U.S. Army Corps of Engineers, local port authorities and
local levee authorities.
The Treasure Chest project application for Certificate of Preliminary
Approval was filed by Treasure Chest Casino, L.L.C., the owner of the Treasure
Chest. The Treasure Chest received its Preliminary Certificate in August of 1993
and received its license on May 18, 1994. The license is subject to certain
general operational conditions and is subject to revocation pursuant to
applicable laws and regulations.
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The Company and certain of its directors and officers and certain key
personnel were found suitable by the Division. New directors, officers and
certain key employees associated with gaming must also be found suitable by the
Gaming Control Board prior to working in gaming related areas. These approvals
may be immediately revoked for a number of causes as determined by the Gaming
Control Board. The Gaming Control Board may deny any application for a
certificate, permit or license for any cause found to be reasonable by the
Gaming Control Board. The Gaming Control Board has the authority to require the
Company to sever its relationships with any persons for any cause deemed
reasonable by the Division or for the failure of that person to file necessary
applications with the Gaming Control Board.
At any time, the Gaming Control Board may investigate and require the
finding of suitability of any beneficial shareholder of the Company. The Gaming
Control Board requires all holders of more than 5% of the license holder to
submit to suitability requirements. Additionally, if a shareholder who must be
found suitable is a corporate or partnership entity, then the shareholders or
partners of that entity must also submit to investigation. The sale or transfer
of more than a 5% interest in any riverboat project is subject to Gaming Control
Board approval.
Annual fees are currently charged to each riverboat project as follows:
(i) $50,000 per year for the first year and $100,000 for each year thereafter;
and (ii) 18.5 % of the net gaming proceeds. Additionally, each riverboat must
pay to the local government a boarding fee of $2.50 per passenger boarding the
vessel. These fees could be increased by the Gaming Control Board.
Pursuant to the regulations promulgated by the Division and the
Commission (prior to the formation of the Gaming Control Board), all licensees
are required to inform the Commission and the Division of all debt, credit,
financing and loan transactions including the identity of debt holders. This
practice will be followed with the Gaming Control Board pending the issuance of
conflicting regulations. Although the Company is not presently a license holder,
its subsidiary, Boyd Kenner is a licensee and is subject to these regulations.
In addition, the Gaming Control Board, in its sole discretion, may require the
holders of such debt securities to file applications and obtain suitability
certificates from the Gaming Control Board. Although the Act does not
specifically require debt holders to be licensed or to be found suitable, the
Gaming Control Board will retain the discretion to investigate and require that
any holders of debt securities be found suitable under the Act. Additionally, if
the Gaming Control Board finds that any holder exercises a material influence
over the gaming operations, a suitability certificate will be required. If the
Gaming Control Board determines that a person is unsuitable to own such a
security or to hold such an indebtedness, the Gaming Control Board may propose
any such action which it determines proper and necessary to protect the public
interest, including the suspension or revocation of the license. The Gaming
Control Board may also, under the penalty of revocation of license, issue a
condition of disqualification naming the person(s) and declaring that such
person(s) may not (i) receive dividends or interest in debt or securities; (ii)
exercise directly or through a nominee a right conferred by the securities or
indebtedness; (iii) receive any remuneration from the licensee; (iv) receive any
economic benefit form the licensee or (v) continue in an ownership or economic
interest in a licensee or remain as a manager, director or partner of a
licensee.
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Any violation of the Riverboat Act or the rules promulgated by the
Commission, the Division or the Gaming Control Board could result in substantial
fines, penalties (including a revocation of the license) and criminal actions.
Additionally, all licenses and permits issued by the Commission or the Division
are revocable privileges and may be revoked at any time by the Gaming Control
Board.
Mississippi The ownership and operation of casino facilities in
Mississippi are subject to extensive state and local regulation, but primarily
the licensing and regulatory control of the Mississippi Gaming Commission and
the regulatory control of the Mississippi State Tax Commission (the "Mississippi
Gaming Authorities").
The Mississippi Gaming Control Act (the "Mississippi Act"), which
legalized dockside casino gaming in Mississippi, was enacted on June 29, 1990.
Although not identical, the Mississippi Act is similar to the Nevada Gaming
Control Act. The Mississippi Gaming Commission has adopted regulations which are
also similar in many respects to the Nevada gaming regulations.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Gaming Commission seek to: (i) prevent unsavory or unsuitable
persons from having any direct or indirect involvement with gaming at any time
or in any capacity; (ii) establish and maintain responsible accounting practices
and procedures; (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Gaming Commission; (iv) prevent
cheating and fraudulent practices; (v) provide a source of state and local
revenues through taxation and licensing fees; and (vi) ensure that gaming
licensees, to the extent practicable, employ Mississippi residents. The
regulations are subject to amendment and interpretation by the Mississippi
Gaming Commission. Changes in Mississippi law or regulations or their
interpretation may limit or otherwise materially affect the types of gaming that
may be conducted and could have an adverse effect on the Company and the
Company's Mississippi gaming operations.
The Mississippi Act provides for legalized dockside gaming at the
discretion of the 14 counties that either border the Mississippi Gulf Coast or
the Mississippi River provided that voters in such counties have not voted to
prohibit gaming in that county. As of June 1, 1996, dockside gaming was
permissible in 9 of the 14 eligible counties in the State and gaming operations
had commenced in Adams, Coahoma, Hancock, Harrison, Tunica, Warren and
Washington counties. The law permits unlimited stakes gaming on permanently
moored vessels on a 24-hour basis and does not restrict the percentage of space
which may be utilized for gaming. There are no limitations on the number of
gaming licenses which may be issued in Mississippi.
Under Mississippi law, gaming vessels must be located on the
Mississippi River or on navigable waters in eligible counties along the
Mississippi River, or in the waters of the State of Mississippi lying south of
the State in eligible counties along the Mississippi Gulf Coast. The Sam's Town
Tunica casino is located on barges situated in a specially constructed basin
several
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hundred feet inland from the Mississippi River. In the recent past, whether
basins such as the one in which the Company's barges are located constituted
"navigable waters" suitable for gaming under Mississippi law was a controversial
issue. The Mississippi Attorney General issued an opinion in July 1993
addressing legal locations for gaming vessels under the Mississippi Gaming
Control Act, and the Mississippi Gaming Commission later approved the location
of the barges on the Sam's Town Tunica site as legal under the opinion of the
Mississippi Attorney General. A competitor subsequently filed a letter with the
Mississippi Gaming Commission requesting a reconsideration with respect to the
Mississippi Gaming Commission's approval of the placement of the barges on the
Sam's Town Tunica site and other prospective gaming operators' sites adjacent
thereto. No official action was ever taken regarding this request. In December
1993, the Mississippi Gaming Commission voted to issue a license to Boyd Tunica,
the entity through which the Company operates Sam's Town Tunica. The license
requires demonstration of compliance with the Mississippi Attorney General's
"navigable waters" opinion, a requirement which has been imposed on many
licenses for Tunica County gaming projects. The Company believes that the barges
at the Sam's Town Tunica site, as well as similarly situated barges belonging to
operators whose facilities have opened and other prospective gaming operators,
are located on navigable waters within the meaning of Mississippi law. However,
no assurance can be given that a court would ultimately conclude that such sites
constitute navigable waters within the meaning of Mississippi law. If the basin
in which the Company's barges are presently located were not deemed navigable
waters within the meaning of Mississippi law, there would be a material adverse
effect on Sam's Town Tunica.
The Company has been registered with the Mississippi Gaming Commission
as a publicly traded holding company for Boyd Tunica. The Company is required
periodically to submit detailed financial and operating reports to the
Mississippi Gaming Commission and furnish any other information which the Gaming
Commission may require. The Company, Boyd Tunica and any other subsidiary of the
Company that operates a casino (other than Silver Star) in Mississippi (such a
subsidiary, including Boyd Tunica, a "Mississippi Gaming Subsidiary"), are
subject to the licensing and regulatory control of the Mississippi Gaming
Authorities. If the Company is unable to continue to satisfy the registration
requirements of the Mississippi Act, the Company and its Mississippi Gaming
Subsidiaries cannot own or operate gaming facilities in Mississippi. Each
Mississippi Gaming Subsidiary must obtain gaming licenses from the Mississippi
Gaming Commission to operate casinos in Mississippi. A gaming license is issued
by the Mississippi Gaming Commission subject to certain conditions, including
continued compliance with all applicable state laws and regulations and physical
inspection of the casinos prior to opening. The Mississippi Gaming Commission
granted a gaming license to Boyd Tunica in December 1993 which was renewed in
November of 1995.
Gaming licenses are non-transferable, are initially issued for a
two-year period and must be renewed periodically thereafter. No person may
become a stockholder of or receive any percentage of profits from a gaming
licensee subsidiary of a holding company without first obtaining approvals from
the Mississippi Gaming Commission. The Company obtained such approvals in
connection with the licensing of Boyd Tunica.
Certain employees of the Company and the officers, directors and
certain key employees of the Company's Gaming Subsidiaries must be found
suitable by the Mississippi Gaming Commission. The Mississippi Gaming
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Commission made findings of suitability with respect to such persons in
connection with the licensing of Boyd Tunica. Employees associated with gaming
must also obtain work permits that are subject to immediate suspension under
certain circumstances. In addition, any person having a material relationship or
involvement with the Company may be required to be found suitable or licensed,
in which case those persons must pay the costs and fees associated with such
investigation. The Mississippi Gaming Commission may deny an application for a
license or finding of suitability for any cause that it deems reasonable.
Changes in licensed positions must be reported to the Mississippi Gaming
Commission. Besides its authority to deny an application for a license or
finding of suitability, the Mississippi Gaming Commission has jurisdiction to
disapprove a change in corporate position. The Mississippi Gaming Commission has
the power to require any Mississippi Gaming Subsidiary and the Company to
suspend or dismiss officers, directors and other key employees or sever
relationships with other persons who refuse to file appropriate applications or
whom the authorities find unsuitable to act in such capacities.
Substantially all loans, leases, sales of securities and similar
financing transactions by a Mississippi Gaming Subsidiary must be reported to or
approved by the Mississippi Gaming Commission. A Mississippi Gaming Subsidiary
may not make a public offering of its securities, but may pledge or mortgage
casino facilities, if it obtains the prior approval of the Mississippi Gaming
Commission. The Company may not issue securities without the prior approval of
the Mississippi Gaming Commission if any part of the proceeds of the offering is
to be used to finance the construction, acquisition or operation of gaming
facilities in Mississippi or to retire or extend obligations incurred for one or
more such purposes. Such approval, if given, does not constitute a
recommendation or approval of the investment merits of the securities subject to
the offering.
If the Mississippi Gaming Commission decides that a Mississippi Gaming
Subsidiary violated a gaming law or regulation, the Mississippi Gaming
Commission could limit, condition, suspend or revoke the license of the
Mississippi Gaming Subsidiary. In addition, a Mississippi Gaming Subsidiary, the
Company and the persons involved could be subject to substantial fines for each
separate violation. Because of such a violation, the Mississippi Gaming
Commission could seek to appoint a supervisor to operate the casino facilities.
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 and the Gaming Subsidiary's gaming operations.
At any time, the Mississippi Gaming Commission has the power to
investigate and require the finding of suitability of any record or beneficial
owner of the Company's shares. Mississippi law requires any person who acquires
more than 5% of the Company's common stock to report the acquisition to the
Mississippi Gaming Commission, and such person may be required to be found
suitable. Also, any person who becomes a beneficial owner of more than 10% of
the Company's common stock, as reported to the Securities and Exchange
Commission, must apply for a finding of suitability by the Mississippi Gaming
Commission and must pay the costs and fees that the Mississippi Gaming
Commission incurs in conducting the investigation. The Mississippi Gaming
Commission has generally exercised its discretion to require a finding of
suitability of any beneficial owner of more than 5% of the Company's common
stock. If a stockholder who must be found suitable is a corporation, partnership
or trust, it must submit detailed business and
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financial information including a list of beneficial owners. The Mississippi
Gaming Commission has adopted a policy with respect to certain institutional
investors which may permit such investors to purchase and hold up to 10% of the
Company's common stock without a suitability finding. Such institutional
investors may be required to file certain information with the Mississippi
Gaming Commission under the policy and the Mississippi Gaming Commission retains
discretion to require a finding of suitability at any time. To date, all
stockholders of the Company required to be found suitable by the Mississippi
Gaming Commission have been found suitable.
Any person who fails or refuses to apply for a finding of suitability
or a license within 30 days after being ordered to do so by the Mississippi
Gaming Commission may be found unsuitable. Any person found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the securities of the
Company beyond such time as the Mississippi Gaming Commission prescribes, may be
guilty of a misdemeanor. The Company is subject to disciplinary action if, after
receiving notice that a person is unsuitable to be a stockholder or to have any
other relationship with the Company or its Mississippi Gaming Subsidiaries, the
Company: (i) pays the unsuitable person any dividend or other distribution upon
the voting securities of the Company; (ii) recognizes the exercise, directly or
indirectly, of any voting rights conferred by securities held by the unsuitable
person; (iii) pays the unsuitable person any remuneration in any form for
services rendered or otherwise, except in certain limited and specific
circumstances; or (iv) fails to pursue all lawful efforts to require the
unsuitable person to divest himself of the securities, including, if necessary,
the immediate purchase of the securities for cash at a fair market value.
The Company may be required to disclose to the Mississippi Gaming
Commission, upon request, the identities of the security holders including
holders of debt securities of the Company. In addition, the Mississippi Gaming
Commission under the Mississippi Act may, in its discretion, require holders of
debt securities of registered corporations to file applications, investigate
such holders, and require such holders to be found suitable to own such debt
securities. Although the Mississippi Gaming Commission generally does not
require the individual holders of obligations such as notes to be investigated
and found suitable, the Mississippi Gaming Commission retains the discretion to
do so for any reason, including but not limited to a default or where the holder
of the debt instrument exercises a material influence over the gaming operations
of the entity in question. Any holder of debt securities required to apply for a
finding of suitability must pay all investigative fees and costs of the
Mississippi Gaming Commission in connection with such an investigation. If the
Mississippi Gaming Commission determines that a person is unsuitable to own such
security, then it is unlawful for the unsuitable person: (i) to receive any
dividend or interest whatsoever from the company; (ii) to exercise any voting
right conferred by such securities or interest; or (iii) to receive any
remuneration in any form from the Company.
The Gaming Subsidiary must maintain a current stock ledger in its
principal office in Mississippi and the Company must maintain a current list of
stockholders in the principal offices of the Gaming Subsidiary which must
reflect the record ownership of each outstanding share of any class of equity
security issued by the Company. The stockholder list may thereafter be
maintained by adding reports regarding the ownership of such securities that it
receives from the Company's transfer agent. The ledger and stockholder lists
must be available for inspection by the Mississippi Gaming Commission at any
time. If any securities of the Company are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity of the
38
<PAGE> 41
beneficial owner to the Mississippi Gaming Authorities. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. The Company
must also render maximum assistance in determining the identity of the
beneficial owner.
The Mississippi Gaming Commission has the power to require that the
Company's securities bear a legend to the general effect that such securities
are subject to the Mississippi Act and the regulations of the Mississippi Gaming
Commission. The Mississippi Gaming Commission has the power, through the power
to regulate licensees, to impose additional restrictions on the holders of the
Company's securities at any time. The Company received a waiver from the legend
requirement in connection with the licensing of Boyd Tunica.
The Mississippi legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting securities and other
corporate defense tactics that affect corporate gaming licensees in Mississippi
and corporations whose stock is publicly traded that are affiliated with those
licensees, may be injurious to stable and productive corporate gaming. The
Mississippi Gaming Commission has established a regulatory scheme to ameliorate
the potentially adverse effects of these business practices upon Mississippi's
gaming industry and to further Mississippi's policy to: (i) assure the financial
stability of corporate gaming operators and their affiliates; (ii) preserve the
beneficial aspects of conducting business in the corporate form; and (iii)
promote a neutral environment for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Mississippi Gaming
Commission before the Company may make exceptional repurchases of voting
securities above the current market price of its common stock or before a
corporate acquisition opposed by management may be consummated. Mississippi's
gaming regulations will also require prior approval by the Mississippi Gaming
Commission if the Company adopts a plan of recapitalization proposed by its
Board of Directors opposing a tender offer made directly to the shareholders for
the purpose of acquiring control of the Company.
Neither the Company nor any subsidiary may engage in gaming activities
in Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Gaming Commission. The Mississippi Gaming
Authorities may require determinations that, among other things, there are means
for the Mississippi Gaming Authorities to have access to information concerning
the out-of-state gaming operations of the Company and its affiliates. In
connection with the licensing of Boyd Tunica, the Company and its affiliates
obtained the approval of the Mississippi Gaming Commission to engage in gaming
operations in Nevada, Louisiana and Missouri.
License fees and taxes, computed in various ways depending on the type
of gaming involved, are payable to the State of Mississippi and to the counties
and cities in which a Mississippi Gaming Subsidiary's respective operations will
be conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon (i) a
percentage of the gross gaming revenues received by the casino operation, (ii)
the number of slot machines operated by the casino, (iii) the number of table
games operated by the casino or (iv) numbers of patrons entering the casino. The
license fee payable to the State of Mississippi is based upon "gaming receipts"
(generally defined as gross receipts less payouts to customers as winnings) and
equals 4% of gaming receipts of $50,000 or less per
39
<PAGE> 42
month, 6% of gaming receipts over $50,000 and less than $134,000 per month, and
8% of gaming receipts over $134,000. The foregoing license fees are allowed as a
credit against the Company's Mississippi income tax liability for the year paid.
In October 1994, the Mississippi Gaming Commission adopted a regulation
which requires as a condition of licensure or license renewal that a gaming
establishment's plan include a 500-car parking facility in close proximity to
the casino complex and infrastructure facilities which will amount to at least
25% of the casino cost. Such facilities may include any of the following: a
250-room hotel of at least a two star rating as defined by the current edition
of the Mobil Travel Guide, a theme park, golf courses, marinas, tennis complex,
entertainment facilities, or any other such facility as approved by the
Mississippi Gaming Commission as infrastructure. Parking facilities, roads,
sewage and water systems, or facilities normally provided by cities and/or
counties are excluded. The Commission may in its discretion reduce the number of
rooms required, where it is shown to the Commission's satisfaction that
sufficient rooms are available to accommodate the anticipated visitor load. The
Company believes that Boyd Tunica, with a 508-room hotel and other amenities,
currently satisfies these requirements.
Missouri Gaming was originally authorized in the State of Missouri in
November 1992. On April 29, 1993, new legislation (the "Missouri Act") was
enacted which replaced the 1992 legislation. Subsequent to adoption, the
Missouri Act has been amended from time to time. There can be no assurances that
the Missouri Act will not be further amended and interpreted in a manner that
would limit or otherwise adversely affect the Company and its Missouri gaming
operations. The Missouri Act provides for the licensing and regulation of
riverboat and dockside gaming operations on the Mississippi and Missouri Rivers
in the State of Missouri and the licensing and regulation of persons who
distribute gaming equipment and supplies to gaming licensees. The Missouri Act
limits the loss per individual on each excursion to $500, but does not otherwise
limit the amount which may be wagered on any bet or the amount of space in the
vessel which may be utilized for gaming. In November 1994, a constitutional
amendment was passed which permits certain games of chance such as traditional
slot machines on riverboats and floating gaming facilities.
The Missouri Act is implemented and enforced by a five-member Missouri
Gaming Commission (the "Missouri Commission"). This Commission is empowered to
issue such number of riverboat gaming licenses as it determines to be
appropriate. A gaming license cannot be granted to any gaming operator unless
the voters in such operator's "home dock" city or county have authorized gaming
activities on gaming riverboats. On February 2, 1993, voters in Kansas City,
Missouri approved a riverboat gaming ballot measure. On September 13, 1995, Boyd
Kansas City was issued a Missouri gaming license for its Sam's Town Kansas City
facility. Boyd Kansas City's home dock city is Kansas City, Missouri.
Gaming boats in Missouri must generally resemble boats from Missouri's
riverboat history and must contain nongaming areas, food service and a Missouri
theme gift shop. The boats must cruise unless the Missouri Commission approves a
petition for continuous docking. On April 25, 1995, the Missouri Commission
approved Boyd Kansas City's petition for continuous docking for
40
<PAGE> 43
its riverboat at Sam's Town Kansas City. The Missouri Act also imposes a tax of
20% of adjusted gross receipts from gaming activities and a $2.00 per person
excursion fee. Annual license fees are set by the Missouri Commission but may
not be less than $25,000. Each licensee also must post a bond or other form of
surety (in an amount determined by the Missouri Commission) to secure
performance of its obligations under the Missouri Act and the regulations of the
Missouri Commission.
On September 1, 1993, the Missouri Commission adopted rules and
regulations (the "Missouri Regulations") governing the licensing, operation and
administration of riverboat gaming in the state of Missouri and the form of
application for such licensure. Subsequent to adoption, the Missouri Regulations
have been amended from time to time. There can be no assurances that the
Missouri Regulations will not be further amended and interpreted in a manner
that would limit or otherwise adversely affect the Company and its Missouri
gaming operations.
Directors and certain officers and key persons of the Company and Boyd
Kansas City must file personal disclosure forms with the gaming license
application and must be found suitable by the Missouri Commission. Owners of 5%
or more of the Company or Boyd Kansas City are considered key persons for
purposes of the gaming application disclosure and finding of suitability.
The Company, Boyd Kansas City and the Port Authority of Kansas City,
Missouri are parties to a Development Agreement dated April 25, 1995. In the
Development Agreement, Boyd Kansas City and the Company agreed that, within 6
months after the opening of Sam's Town Kansas City, Boyd Kansas City and the
Company would seek to identify qualified minority and women investors acceptable
to them and to offer such investors an opportunity to purchase up to 10% of the
stock of Boyd Kansas City; 7% of said stock is to be offered to minority
investors and 3% is to be offered to women investors which Boyd Kansas City and
the Company find to be qualified and acceptable. Boyd Kansas City has
subsequently requested, and the Port Authority has approved, a 6 month extension
of the time period within which the offering of stock of Boyd Kansas City to
qualified minority and women investors is to be completed. The Missouri
Commission's staff advised the Company that it will consider all minority or
women investors who are offered the right to purchase the stock of Boyd Kansas
City to be key persons, even if such investor's ownership is less than 5% of the
common stock of Boyd Kansas City.
Further, the Missouri Regulations require that all employees of Boyd
Kansas City who are involved in gaming operations must file applications for and
receive Missouri gaming occupational licenses. Presently, the Missouri
Commission staff has required all employees at Sam's Town Kansas City to obtain
occupational licenses, even if those employees are not involved in gaming
operations.
The Missouri Regulations require disclosure by the Company and Boyd
Kansas City of any person or entity holding any direct or indirect ownership
interest in the Company or Boyd Kansas City. The Company is also required to
disclose the names of the holders of all of the Company's debt including a
description of the nature and terms of such debt. The Missouri Commission may,
in its sole discretion, request additional information with respect to such
holders. The Company and Boyd Kansas City are required to update the Missouri
gaming license
41
<PAGE> 44
application any time there is a material change within seven business days after
the date of any such change. Missouri gaming licenses must be renewed annually
during the first two years of an entity's licensure and every two years
thereafter.
Under Missouri law, gaming licenses are not transferable. The Missouri
Regulations require that the Missouri Commission be notified at least 60 days
prior to the transfer, issuance, pledge or hypothecation of any ownership
interest in a gaming licensee which is not a publicly held entity, such as Boyd
Kansas City. The Missouri Regulations further require that the Missouri
Commission be notified at least 60 days prior to the issuance of an ownership
interest constituting 5% or more of a publicly held holding company, such as the
Company. Upon receipt of such 60-day notice, the Missouri Commission may
disapprove the transaction or require the transaction to be delayed pending
further investigation. The Missouri Regulations also require that the Missouri
Commission be notified no later than 7 days after the consummation of any pledge
or hypothecation of an ownership interest equaling 5% or more of the ownership
of a publicly held holding company or any transfer of ownership interest in a
publicly held holding company if such transfer would result in an entity or
group of entities acting in concert owning, directly or indirectly, a total
amount of ownership interest equaling 5% or more of the ownership of such
publicly held holding company. Further, without the prior approval of the
Missouri Gaming Commission, the Missouri Regulations prohibit withdrawals of
capital, loans, advances or distribution of any assets in excess of 5% of
accumulated earnings by a license holder to anyone with an ownership interest in
the license holder.
Presently, there are proposed regulations which, if adopted, will
change substantially the requirements set forth in the preceding paragraph.
Specifically, the proposed regulations will (i) prohibit the pledge or
hypothecation of any ownership interest in a gaming licensee which is not a
publicly-held entity; and (ii) permit a licensee to consummate issuance of
ownership interests in publicly-held licensees or holding companies, the
incurrence of debt by a gaming licensee or holding company or any public
issuance of debt at any time after 15 days after notice to the Commission by the
licensee of its intent to consummate such a transaction. The proposed
regulations also authorize the Commission to reopen a license hearing at any
time to consider the effect of the transaction in question on the gaming
licensee's suitability following the consummation of the transaction. If the
proposed regulations are adopted, the only type of transaction which will
require 60-day advance notice to the Commission is a transfer of an ownership
interest in a licensee or holding company which is not publicly held. All other
transactions will require either 15 days prior notice to the Commission (coupled
with the possible reopening of the licensee's suitability hearing) or notice
within 7 days after a transaction is consummated.
The Missouri Regulations specifically provide that any action of the
Missouri Commission shall not indicate or suggest that the Missouri Commission
has considered or passed in any way on the marketability of the applicant or
licensee's securities, or on any other matter, other than the applicant or
licensee's suitability for licensure under Missouri law. A Missouri gaming
license holder can be disciplined in Missouri for gaming related acts occurring
in another jurisdiction which results in disciplinary action in the other
jurisdiction.
The Missouri Commission has broad powers to require additional
disclosure by an applicant during the processing of a gaming application, to
deny gaming licensure and to administratively fine or suspend or revoke a
gaming license for failure to comply with or for violation of the Missouri Act
or Missouri Regulations. Under the Missouri regulations, a licensee is required
to provide all requested information immediately upon request by the
Commission, and to advise the Missouri Commission of any material changes in
the information submitted by a licensee on its license application within 7
business days after the occurrence of such change. Further, in certain
situations, the Missouri Commission can appoint a supervisor to continue the
operations of a license holder after lapse, suspension or revocation of a
gaming license. The supervisor may operate and sell the facility with earnings
or proceeds being paid to the former owners only after deduction of the costs
and expenses of the supervisorship and establishment of reserves.
42
<PAGE> 45
Environmental Risks
The Company is subject to certain federal, state and local
environmental, safety and health laws, regulations and ordinances that apply to
non-gaming businesses generally, such as the Clean Air Act, Clean Water Act,
Occupational Safety and Health Act, Resource Conservation and Recovery Act and
the Comprehensive Environmental Response, Compensation, and Liability Act. The
Company has not made, and does not anticipate making, material expenditures with
respect to such environmental, safety and health laws, regulations and
ordinances. However, the coverage and attendant compliance costs associated with
such laws, regulations and ordinances may result in future additional costs to
the Company's operations. For example, in 1990 the U.S. Congress enacted the Oil
Pollution Act to establish a comprehensive federal oil spill response and
liability framework. Pursuant to the Oil Pollution Act, the Department of
Transportation implemented regulations requiring owners and operators of certain
vessels, including the Company, to establish and maintain through the U.S. Coast
Guard evidence of financial responsibility sufficient to meet their potential
liability under both the Oil Pollution Act and the Comprehensive Environmental
Response, Compensation, and Liability Act for discharges or threatened
discharges of oil or hazardous substances. This requirement may be satisfied by
either proof of adequate insurance (including self-insurance) or the posting of
a surety bond or guaranty. Any significant environmental liability or compliance
costs could have a material adverse effect on the Company's business, financial
condition and results of operations.
Regulation of Riverboats
The riverboats operated by the Company must comply with U.S. Coast
Guard requirements as to boat design, on-board facilities, equipment, personnel
and safety. Each of them must hold a Certificate of Seaworthiness or must be
approved by the American Bureau of Shipping ("ABS") for stabilization and
flotation, and may also be subject to local zoning and building codes. The U.S.
Coast Guard requirements establish design standards, set limits on the operation
of the vessels and require individual licensing of all personnel involved with
the operation of the vessels. Loss of a vessel's Certificate of Seaworthiness or
ABS approval would preclude its use as a floating casino. In addition, U.S.
Coast Guard regulations require a hull inspection at a U.S. Coast Guard-approved
dry docking facility for all cruising riverboats at five-year intervals.
Currently, the closest such facility to Sam's Town Kansas City is located in St.
Louis, Missouri. The travel to and from such docking facility, as well as the
time required for inspections and any necessary repairs of the Sam's Town Kansas
City and Treasure Chest riverboats, and, if the Par-A-Dice Acquisition is
consummated, the Par-A-Dice riverboat, could be significant. The loss of a
dockside casino or riverboat casino from service for any period of time could
adversely affect the Company's business, financial condition and results of
operations.
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<PAGE> 46
Control by Boyd Family
As of June 30, William S. Boyd, Chairman and Chief Executive Officer
of the Company, together with his immediate family, beneficially owned or
controled approximately 55.7% of the Common Stock of the Company. As a result,
the Boyd family has the ability to significantly influence the affairs of the
Company, including the election of all of the directors of the Company and,
except as otherwise provided by law, approving or disapproving other matters
submitted to a vote of the Company's stockholders, including a merger,
consolidation or sale of assets.
Management Agreements of Limited Duration
The management agreement for the Silver Star, which is owned by the
Mississippi Band of Choctaw Indians, expires in July 2001. The Company must
submit any renewal of the management agreement to the NIGC, which has the right
to review management agreements. There can be no assurance that the current
management agreement will be renewed upon expiration or approved by the NIGC
upon any such review. The failure to renew the Company's management agreement
would result in the loss of revenues to the Company derived from the Silver Star
management agreement, which could have a material adverse effect on the Company.
The NIGC also has the authority to reduce the term of a management agreement or
the management fee or otherwise require modification of the agreement, which
could have an adverse effect on the Company's business, financial condition and
results of operations.
The Company manages the Treasure Chest pursuant to a management
agreement with Treasure Chest L.L.C., owner of the Treasure Chest. The
management agreement's initial five-year term expires in June 1999, subject to
extension at the Company's option if certain operating results are achieved. For
a number of reasons, including to better focus the management and financial
resources of the Company and in order to facilitate the timing of the Company's
application for an Illinois gaming license in connection with the Par-A-Dice
Acquisition, the Company has determined to pursue a sale of its ownership
interest in Treasure Chest L.L.C. In the event of such a sale or other
substantial alteration of the Company's interest in Treasure Chest L.L.C., which
the Company currently anticipates within the next three months, the management
agreement between the Company and Treasure Chest L.L.C. would likely be
terminated.
Reliance on Certain Markets
The California and the Fremont derive a substantial portion of their
customers from the Hawaiian market. In fiscal 1996, patrons from Hawaii made up
over 80% of the room nights at the California and over 65% at the Fremont. An
increase in fuel costs or transportation prices, a decrease in airplane seat
availability or a deterioration of relations with tour and travel agents, as
they affect travel between the Hawaiian market and the Company's facilities,
could materially adversely affect the Company's business, financial condition
and results of operations. The Company's Las Vegas properties also draw a
substantial number of customers from certain other specific geographic areas,
including Southern California, Arizona, Las Vegas and the Midwest. Sam's Town
Tunica draws patrons from northern Mississippi, western Tennessee (principally
Memphis) and Arkansas. The Treasure Chest appeals primarily to local market
patrons and attracts patrons from the western suburbs of New Orleans. The Silver
Star draws customers from central Mississippi, including the greater Jackson
area, and central Alabama, including Birmingham, Montgomery and Tuscaloosa.
Sam's Town Kansas City draws customers from the greater Kansas City metropolitan
area, as well as from other parts of Missouri and Kansas. The Par-A-Dice draws
customers
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<PAGE> 47
not only from the greater Peoria area but also from Chicago, Indiana, Iowa and
Missouri. Adverse economic conditions in any of these markets, or the failure of
the Company's facilities to continue to attract customers from these geographic
markets as a result of increased competition in those markets, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
EMPLOYEES
At August 31, 1996, the Company employed approximately 11,500
persons: approximately 2,100 at the Stardust; 2,100 at Sam's Town Las Vegas; 275
at the Eldorado; 300 at Joker's Wild; 1,100 at the California; 950 at the
Fremont; 1,600 at Sam's Town Tunica; 1,100 at Sam's Town Kansas City; and 1,600
at Silver Star. Treasure Chest personnel are employed by Treasure Chest L.L.C.
On such date, the Company had collective bargaining relationships with nine
unions covering approximately 1,700 employees, substantially all of whom are
employed at the Stardust and the Fremont. Several collective bargaining
agreements are currently in effect and will expire in 1997. Other agreements
have expired and are in various stages of negotiation. Employees covered by
expired agreements have continued to work during the negotiations, in some cases
under the terms of the expired agreements and in others under modifications
thereof.
ITEM 2. PROPERTIES
Reference is made to the information contained under Item 1.
"Business - Properties."
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are also parties to various other
legal proceedings arising in the ordinary course of business. In the opinion of
management, all pending claims in such matters, if adversely decided, would not
have a material adverse effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the non-director and executive
officers of Boyd Gaming Corporation as of September 25, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ellis Landau 52 Senior Vice President, Chief Financial Officer and Treasurer
Ralph Purnell 61 Senior Vice President-Director of Operations, Nevada
Region
Maunty C. Collins 53 Senior Vice President-Director of Operations, Central
Region
</TABLE>
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<PAGE> 48
<TABLE>
<S> <C> <C>
James Hippler 49 Senior Vice President-Administration
Charles E. Huff 51 Vice President, Secretary and General Counsel
Keith E. Smith 36 Vice President and Controller
Brian Larson 40 Vice President-Development and Assistant Secretary
</TABLE>
Ellis Landau has been Senior Vice President, Chief Financial
Officer and Treasurer of the Company since August 1990. From April 1990 through
July 1990, he served as a consultant to the Company. Prior to joining the
Company, Mr. Landau held various management positions with Ramada, Inc., a
gaming and hospitality company whose gaming operations were transferred to Aztar
Corporation, including Vice President and Treasurer of that company from 1978 to
February 1990.
Ralph Purnell has been Senior Vice President-Director of
Operations, Nevada Region of the Company since April 1994. From the inception
of the Company until April 1994, Mr. Purnell served as Senior Vice
President-Gaming of the Company. From 1975 to 1988, Mr. Purnell held various
positions with CH&C, including General Manager of the Stardust and the
California. Mr. Purnell serves on the Board of Directors of the Nevada Resort
Association.
Maunty C. Collins has been Senior Vice President-Director of
Operations, Central Region of the Company since June 1993. From December 1991
through June 1993, he served as Assistant General Manager at the Stardust. From
1985 until December 1991, he was General Manager at Sam's Town Gold River in
Laughlin, Nevada. From 1978 to 1985, Mr. Collins held various positions at
properties owned by the Company.
James W. Hippler has been Senior Vice President-Administration of
the Company since April 1990. From 1980 to 1990, Mr. Hippler held various
positions with CH&C, including Director of Risk Management, Director of Internal
Audit and Director of Human Resources.
Charles E. Huff has been Vice President, Secretary and General
Counsel of the Company since its inception. He has served as Vice President and
General Counsel of CH&C since July 1986 and Secretary since January 1988. Prior
to joining CH&C, Mr. Huff practiced law in Las Vegas for 13 years.
Keith E. Smith became Vice President and Controller of the Company
in June 1993. From September 1990 to June 1993 he served as Corporate Controller
of the Company. From May 1989 to September 1990, Mr. Smith was Vice
President-Finance of the Dunes Hotel, Casino and Country Club in Las Vegas. From
1982 to May 1989, he was employed by Ramada, Inc. in a variety of positions,
including Controller of the Tropicana Resort and Casino in Las Vegas.
Brian A. Larson became Vice President-Development of the Company in
June 1993 and Assistant Secretary in August 1993. He has also served as
Associate General Counsel of the Company since March 1993. From 1987 through
February 1993, Mr. Larson was associated with the law firm of Snell & Wilmer in
Phoenix, Arizona, in which he became a partner on January 1, 1992.
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<PAGE> 49
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange
under the symbol "BYD." Information with respect to sales prices and record
holders of the Company's Common Stock is set forth below:
PRICE RANGE OF COMMON STOCK
The following table sets forth, for the calendar quarters
indicated, the high and low sales prices of the Common Stock as reported on the
NYSE Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994
First Quarter ............................... 19 3/8 13 1/2
Second Quarter .............................. 15 7/8 10 5/8
Third Quarter ............................... 15 11 7/8
Fourth Quarter .............................. 14 3/4 10 1/2
1995
First Quarter ............................... 14 1/4 10 1/2
Second Quarter .............................. 18 5/8 13 1/8
Third Quarter ............................... 16 3/4 13 1/2
Fourth Quarter .............................. 15 1/8 10
1996
First Quarter ............................... 12 7/8 10 3/4
Second Quarter .............................. 18 5/8 13 1/8
Third Quarter (through September 20) ........ 15 1/2 10
</TABLE>
On September 20, 1996, the closing sales price of the Common Stock
on the NYSE was $10 1/2 per share. On that date, the Company had approximately
2,134 holders of record of its Common Stock.
The Company has not paid any cash dividends on its Common Stock to
date. The Company currently anticipates that it will retain future earnings to
fund the development and growth of its business and does not anticipate paying
any cash dividends in the foreseeable future. Restrictions imposed by commercial
lenders and note holders may also limit the ability of the Company to pay cash
dividends.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below at and for
the fiscal years ended June 30, 1996 and 1995 and for the fiscal year ended June
30, 1994, have been derived from the audited consolidated financial statements
contained elsewhere in this Form 10-K. The selected consolidated financial data
presented below as of June 30, 1994 and as of and for the fiscal years ended
June 30, 1993 and 1992 have been derived from audited consolidated financial
statements of the Company not contained herein. Operating results for the fiscal
years shown below are not necessarily indicative of the results that may be
expected for future fiscal years.
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<PAGE> 50
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net revenues $ 775,857 $ 660,340 $ 468,219 $ 431,174 $ 406,804
Operating expense 675,071 549,770 413,971 368,255 359,409
--------- --------- --------- --------- ---------
Operating income 100,786 110,570 54,248 62,919 47,395
Interest expense, net(a) 51,186 46,371 36,093 32,378 37,762
Gain on investment -- -- -- 1,062 --
--------- --------- --------- --------- ---------
Income before provision for income
taxes, cumulative effect of a
change in accounting principle
and extraordinary item 49,600 64,199 18,155 31,603 9,633
Provision for income taxes 20,021 27,950 7,505 11,469 3,519
--------- --------- --------- --------- ---------
Income before cumulative effect of
a change in accounting principle
and extraordinary item 29,579 36,249 10,650 20,134 6,114
Cumulative effect of a change in
accounting for income taxes -- -- 2,035 -- --
--------- --------- --------- --------- ---------
Income before extraordinary item 29,579 36,249 12,685 20,134 6,114
Extraordinary item, net of tax (1,435) -- -- (7,397) --
--------- --------- --------- --------- ---------
Net income 28,144 36,249 12,685 12,737 6,114
Dividends on preferred stock -- -- 467 1,881 1,920
--------- --------- --------- --------- ---------
Net income applicable to common stock $ 28,144 $ 36,249 $ 12,218 $ 10,856 $ 4,194
========= ========= ========= ========= =========
PER SHARE DATA
Earnings per common share
Income before cumulative effect
of a change in accounting
principle and extraordinary item $ 0.52 $ 0.64 $ 0.19 $ 0.37 $ 0.09
Cumulative effect of a change
in accounting for income taxes -- -- 0.04 -- --
Extraordinary item (0.03) -- -- (0.15) --
--------- --------- --------- --------- ---------
Net income $ 0.49 $ 0.64 $ 0.23 $ 0.22 $ 0.09
========= ========= ========= ========= =========
Dividends on common stock -- -- -- -- --
Weighted average common shares
outstanding 57,058 56,870 54,297 48,582 48,946
OTHER OPERATING DATA
Depreciation and amortization $ 60,626 $ 54,518 $ 42,136 $ 39,450 $ 38,853
Preopening expense 10,004 -- 4,605 -- --
Capital expenditures 90,977 183,299 326,829 24,485 18,702
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS)
BALANCE SHEET DATA
<S> <C> <C> <C> <C> <C>
Total assets $953,425 $949,513 $836,297 $500,123 $467,133
Long-term debt (excluding current
portion) 590,808 587,957 525,637 364,927 317,106
Stockholders' equity 233,257 202,613 164,405 72,686 62,668
</TABLE>
(a) Net of interest income and amounts capitalized.
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<PAGE> 51
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
Income Statement Data for the Company's properties. As used herein, "Boulder
Strip Properties" consists of Sam's Town Las Vegas, the Eldorado and the Jokers
Wild; "Downtown Properties" consists of the California and the Fremont; and
"Central Region Properties" consists of Sam's Town Tunica, Sam's Town Kansas
City (opened September 1995), management fee income from the Silver Star, and
management fee and joint venture income from the Treasure Chest (opened
September 1994).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
INCOME STATEMENT DATA
<S> <C> <C> <C>
Net revenues
Stardust $ 194,513 $ 193,563 $ 195,899
Boulder Strip Properties 189,315 168,036 125,087
Downtown Properties 139,602 135,232 137,726
Central Region Properties 245,204 163,509 9,507
--------- --------- ---------
Total Properties $ 768,634 $ 660,340 $ 468,219
========= ========= =========
Operating income
Stardust $ 30,748 $ 30,688 $ 26,713
Boulder Strip Properties 23,904 15,551 20,686
Downtown Properties 18,444 22,561 23,583
Central Region Properties 66,681 68,486 2,439
Preopening expense (10,004) -- (4,605)
--------- --------- ---------
Total Properties $ 129,773 $ 137,286 $ 68,816
========= ========= =========
</TABLE>
RECENT DEVELOPMENTS
In the fourth quarter of fiscal 1996, the Company reported net
income (before the write-off of a $1.4 million extraordinary item) of $3.5
million, as compared to approximately $12 million in the same period in fiscal
1995. For the first quarter of fiscal 1997, management expects that the
Company's operating results will continue to be adversely affected by certain
competitive trends which affected the Company's results during the fourth fiscal
quarter of 1996, and, at Sam's Town Tunica, by the effect of construction
disruption related to ongoing construction projects, as well as trends specific
to the first quarter of fiscal 1997.
Sam's Town Tunica experienced an 80% decline in operating income in
the fourth quarter of fiscal 1996 and continues to experience operating results
well below those historically achieved. Management believes that the property
has been adversely affected by the opening of new gaming facilities in April and
June of 1996 and disruption from the ongoing construction of an additional 350
hotel rooms and a 1,000-car parking garage. The construction is not anticipated
to be completed prior to the middle of December 1996. As a result of the ongoing
impact of these factors, Sam's Town Tunica is expected to post fiscal 1997 first
quarter results that are higher than those in the fourth quarter of fiscal 1996,
though well below those experienced in the comparable prior year period.
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<PAGE> 52
Sam's Town Kansas City reported an operating loss of $5 million
(before the write-off of preopening expenses) in 1996. The property is expected
to continue to report poor results during the first quarter of fiscal 1997.
Management attributes the poor performance to high fixed costs and substantial
advertising and promotional expenses incurred in response to the highly
competitive operating environment. The Company is in the process of developing
and implementing new marketing programs and making certain physical and
equipment changes in an effort to improve revenues. While management expects
results to slightly improve in the first quarter of fiscal 1997 as compared to
the fourth quarter of fiscal 1996, Sam's Town Kansas City is expected to face
increased competition following the anticipated opening of two new gaming
facilities in the near future. Further, there can be no assurance when, or if,
Sam's Town Kansas City will achieve profitability.
In addition, management expects that the first quarter of fiscal
1997 may be adversely affected by competitive pressures specific to the quarter.
In particular, the Stardust has experienced a decline in revenue and an increase
in general marketing costs during the first quarter of fiscal 1997 as compared
to the comparable prior year period. These results are, in part, attributable to
historical seasonal patterns experienced by the Stardust as well as to increased
competition in Las Vegas, as evidenced by the opening of new gaming facilities
in April and June of 1996.
As a result of the factors described above, management expects that
the Company's operating results for the first quarter of fiscal 1997 will likely
be well below those of the comparable prior fiscal year period. The Company
expects to report a net loss for the quarter. See "Business -- Investement
Considerations" and "--Competition."
FISCAL 1996 COMPARED TO FISCAL 1995
Consolidated net revenues increased 17.5% for fiscal 1996 compared
to fiscal 1995. The increase in net revenues for fiscal 1996 resulted primarily
from the opening of Sam's Town Kansas City in September 1995, increased revenues
at Sam's Town Las Vegas of 14.9% and increased revenues at Sam's Town Tunica of
8.2%. In the Company's Central Region, which consists of Sam's Town Tunica,
Sam's Town Kansas City, the Silver Star and the Treasure Chest, revenue
increased 50% for fiscal 1996 compared to fiscal 1995 while the Company's Nevada
Region, which consists of the Stardust, Sam's Town Las Vegas, the Eldorado,
Jokers Wild, the California and the Fremont, revenue increased 5.4% for fiscal
1996 compared to fiscal 1995. Revenue growth on a consolidated basis in fiscal
1996 was achieved in all major revenue categories, with casino revenue
increasing 18.3%, room revenue increasing 5.7%, food and beverage revenue
increasing 12.7% and management fee and joint venture income increasing 16.3%
compared to fiscal 1995. Slot revenue, which continued to account for more than
70% of casino revenue, increased 22% in fiscal 1996 compared to fiscal 1995. The
increase in slot revenue was primarily attributable to the opening of Sam's Town
Kansas City in September 1995 and to a 24% increase in slot revenue at Sam's
Town Las Vegas. Table games revenue, the only other significant component of
casino revenue, increased 10.6% in fiscal 1996 compared to fiscal 1995 primarily
as a result of the opening of Sam's Town Kansas City. Company-wide room revenue
increased 5.7% in fiscal 1996 compared to fiscal 1995 as a result of a 5.9%
increase in occupied rooms and a 6.3% increase in the average daily room rate.
The Company's hotel rooms posted an overall occupancy percentage of 96% in
fiscal 1996 compared to 95% in fiscal 1995 with occupancy at Sam's Town Tunica
increasing to 95% in fiscal 1996 from 87% in fiscal 1995 and occupancy at Sam's
Town Las Vegas increasing to 96% in fiscal 1996 compared to 92% in fiscal 1995.
The increase in occupied rooms was attributable to the openings of the Sam's
Town Tunica rooms expansion (300 rooms opened in December 1994) and the
California rooms expansion (146 rooms opened in December 1994). Both of these
rooms expansion projects were open for the entire fiscal
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<PAGE> 53
1996 but were only open for the last six months of fiscal 1995. Occupancy
statistics do not include rooms at Main Street Station which the Company uses to
augment the rooms base at the California and the Fremont. The Main Street
Station property was purchased in December 1993 as a closed casino hotel
facility and is currently undergoing an extensive renovation and expansion
project. The Company expects to open this renovated and expanded property in
fiscal 1997 as a complete casino hotel facility.
Consolidated operating income declined 8.8% for fiscal 1996 as
compared to fiscal 1995 while consolidated operating income margins declined to
13.0% from 16.7%. This decline in consolidated operating income and consolidated
operating income margins was primarily attributable to the write-off of
preopening expenses related to the opening of Sam's Town Kansas City on
September 13, 1995. This preopening charge, which amounted to $10 million, was
taken in the first quarter of fiscal 1996. Consolidated operating income for
fiscal 1996 before the write-off of preopening expenses increased slightly
compared to fiscal 1995 while consolidated operating income margins was 14.3% in
fiscal 1996 compared to 16.7% in fiscal 1995. In the Company's Nevada Region,
operating income increased 6.2% for fiscal 1996 compared to fiscal 1995 while
consolidated operating income margins increased to 14.0% for fiscal 1996 from
13.8% in fiscal 1995. This increase in operating income and operating income
margins was primarily attributable to increases at Sam's Town Las Vegas of 83%
and 4.3 percentage points, respectively, offset by declines at the Downtown
Properties of 18.2% and 3.5 percentage points, respectively. In the Company's
Central Region, operating income before the write-off of preopening expenses
related to Sam's Town Kansas City decreased 2.6% in fiscal 1996 compared to
fiscal 1995 while operating income margins declined to 27% primarily as a result
of an operating loss at Sam's Town Kansas City and a decline in operating income
margin at Sam's Town Tunica to 21.8% in fiscal 1996. Operating income in the
Central Region includes management fee and joint venture income related to the
Company's Silver Star and Treasure Chest operations.
Net revenues at the Stardust increased 0.5% for fiscal 1996 as
compared to the prior fiscal year. Casino and food and beverage revenues
declined 0.5% and 1.6%, respectively, while rooms revenue increased 3.4% and
showroom revenue increased 9.3% for fiscal 1996 as compared to fiscal 1995. Slot
revenue declined 1.3% in fiscal 1996 with a 2.3% increase in wagering offset by
lower net winnings. Table games revenue declined 4.1% for fiscal 1996 as
compared to fiscal 1995 as a result of an increase of 4.3% in wagering offset by
lower net winnings. Other casino revenues increased 11.9% for fiscal 1996
primarily as a result of a 28% increase in revenue in the sports book. Rooms
revenue at the Stardust increased 3.4% for fiscal 1996 compared to fiscal 1995
with a 1.3% decline in occupied rooms offset by a 7.9% increase in average daily
room rate. The Stardust posted an occupancy rate of 96% in fiscal 1996 versus
97% in the prior fiscal year. Operating income increased slightly in fiscal 1996
compared to fiscal 1995 and operating income margin was 15.8% compared to 15.9%,
respectively for fiscal 1996 versus fiscal 1995. The slight decline in operating
income margin was primarily the result of higher advertising and promotional
expenses not fully offset by increased operating income and operating income
margin in the rooms department.
Net revenues for the Boulder Strip Properties increased 12.7% for
fiscal 1996 versus fiscal 1995 primarily as a result of increased revenues at
Sam's Town Las Vegas. Sam's Town Las Vegas revenue increased 14.9% for fiscal
1996 while revenues increased 6.8% at Jokers Wild and declined slightly at the
Eldorado. Casino revenues at the Boulder Strip Properties increased 16.7% for
fiscal 1996 versus fiscal 1995, while rooms revenue increased 4.7% and food and
beverage revenue increased 4.8%. Operating income at the Boulder Strip
Properties increased 54% for fiscal 1996 compared to fiscal 1995 while operating
income margin increased 3.3 percentage points to 12.6% for fiscal 1996. Sam's
Town Las Vegas posted increases in operating income and operating income margin
of 83% and 4.3 percentage points, respectively for the 1996 fiscal year.
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<PAGE> 54
Operating income margins increased 2.5 percentage points at the Eldorado and
declined 2.3 percentage points at Jokers Wild for fiscal 1996 versus fiscal
1995. The increase in operating income margin at the Eldorado was a result of
increased casino revenue while the decline in operating income margin at Jokers
Wild was primarily a result of increased expenses in the food and beverage
department for fiscal 1996 versus fiscal 1995. Management believes that the
significant increases in revenues, operating income and operating income margin
at Sam's Town Las Vegas for fiscal 1996 versus fiscal 1995 were primarily
attributable to the implementation of successful marketing programs creating
increased customer awareness and visitation.
Net revenues at the Downtown Properties increased 3.2% for fiscal
1996 compared to fiscal 1995. Net revenues at the California increased 1.4%
while net revenues at the Fremont increased 5.2%. Casino revenues at the
Downtown Properties were up slightly while food and beverage revenue increased
20% and rooms revenue declined slightly. Operating income and operating income
margins at the Downtown Properties declined 18.2% and 3.5 percentage points,
respectively in fiscal 1996 as compared to fiscal 1995. Operating income at the
California declined 20% while operating income margin at the California declined
3.7 percentage points for fiscal 1996. The decline in operating income and
operating income margin at the California was primarily the result of increased
operating costs in the rooms and food and beverage departments and increased
advertising and promotional costs. Operating income and operating income margin
at the Fremont declined 15.6% and 3.1 percentage points, respectively for fiscal
1996 compared to fiscal 1995 primarily as a result of increased advertising and
promotional costs. Construction of the Fremont Street Experience project, which
was completed and opened to the public in December 1995, negatively impacted the
Downtown Properties for the majority of the first and second fiscal quarter.
Net revenues at the Central Region Properties increased 50% for
fiscal 1996 versus 1995. The opening of Sam's Town Kansas City on September 13,
1995 accounted for the majority of the increase in fiscal 1996. Sam's Town
Tunica revenues increased 8.2% for the 1996 fiscal year versus fiscal 1995 while
management fees and joint venture income related to the Silver Star and the
Treasure Chest operations increased 16.3%. Operating income in the Central
Region (before the write-off of preopening expenses related to Sam's Town Kansas
City) declined 2.6% to $66.7 million for fiscal 1996. The decline in operating
income was primarily a result of a $5 million operating loss at Sam's Town
Kansas City and an 8.0% decline in operating income at Sam's Town Tunica,
partially offset by a 16.3% increase in operating income from management fees
and joint venture income. The operating loss at Sam's Town Kansas City was
primarily attributable to revenues not sufficient to cover the high level of
fixed costs associated with the operation of the facility and higher levels of
advertising and promotional expenses aimed at increasing customer awareness and
revenues. Results from Sam's Town Tunica were weakened due to severe weather
during the third quarter of fiscal 1996, the effects of a new competitor opening
at the beginning of the fourth fiscal quarter and the impact of construction
disruption related to the 350-room hotel expansion project and construction of a
1,000-car parking garage which commenced in the second half of fiscal 1996.
Interest expense, net of amounts capitalized, increased $3.9
million or 8.1% for fiscal 1996 compared to fiscal 1995 primarily as a result of
less capitalized interest related to projects under development. Depreciation
and amortization expense for fiscal 1996 increased $6.1 million or 11.2%
compared to fiscal 1995 primarily as a result of the opening of Sam's Town
Kansas City in September 1995 and a full year of depreciation of the Sam's Town
Las Vegas expansion and the California rooms expansion projects which opened in
December 1994.
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<PAGE> 55
The Company's tax rate for fiscal 1996 was 40% compared to 44% in
fiscal 1995. The Company's 1995 tax rate was affected by the increase in certain
non-deductible expenses related to the Company's development efforts during that
year.
The Company recorded an extraordinary loss, net of tax, of $1.4
million in fiscal 1996. This extraordinary loss resulted from the write-off of
unamortized bank loan fees in connection with its recent bank refinancing which
was completed on June 19, 1996.
As a result of these factors, net income before extraordinary item
declined $6.7 million and net income declined $8.1 million for fiscal 1996
compared to fiscal 1995. Net income per common share declined to $0.49 for
fiscal 1996 from $0.64 in fiscal 1995 primarily as a result of lower net income
and slightly more additional shares outstanding.
FISCAL 1995 COMPARED TO FISCAL 1994
Consolidated net revenues increased 41% for fiscal 1995 compared to
fiscal 1994. This increase in net revenues in fiscal 1995 resulted from the
Company's current expansion program which included the opening of Sam's Town
Tunica in May 1994 and a subsequent rooms expansion project in December 1994,
the opening of the Silver Star in July 1994 and a subsequent casino expansion in
December 1994, the opening of the Treasure Chest in September 1994, the opening
of Sam's Town Las Vegas expansion in July 1994 and the opening of the California
rooms expansion in December 1994. The Company's Central Region, which consists
of Sam's Town Tunica, the Silver Star and the Treasure Chest, accounted for more
than 80% of the increase in net revenues. Only one of these properties was open
prior to the start of the fiscal year, as Sam's Town Tunica was open for
approximately one month in fiscal 1994. In the Company's Nevada Region, net
revenues increased 8.3% with net revenues at the Boulder Strip Properties
increasing 34% and net revenues at the Stardust and Downtown Properties
declining 1.2% and 1.8%, respectively. Net revenues at the Boulder Strip
Properties were enhanced by the opening in July 1994 of the Sam's Town Las Vegas
expansion and by the acquisition of the Eldorado and Jokers Wild in October
1993. The Company's revenue growth was achieved in all major revenue categories
with casino revenue increasing 36%, room revenue increasing 45%, food and
beverage revenue increasing 18.6% and other revenue increasing 28%. Management
fee and joint venture revenue relating to the operation of the Silver Star,
which opened in July 1994 and the Treasure Chest, which opened in September
1994, totaled $35.8 million for fiscal 1995. Slot revenue, which accounted for
more than two-thirds of total casino revenue, increased 38% in fiscal 1995
compared to fiscal 1994. The increase in slot revenue was primarily attributable
to the opening of Sam's Town Tunica in May 1994 and the opening of the Sam's
Town Las Vegas expansion in July 1994. Table games revenue, the only other
significant component of casino revenue, increased 39% also as a result of the
opening of Sam's Town Tunica and the Sam's Town Las Vegas expansion.
Company-wide room revenue increased 45% for fiscal 1995 compared to fiscal 1994
primarily as a result of a 25% increase in occupied rooms and a 12.7% increase
in average daily room rate. The increase in occupied rooms was attributable to
the opening of the Sam's Town Las Vegas expansion in July 1994 (650 rooms), the
opening and subsequent expansion of Sam's Town Tunica (200 rooms opened May 1994
and an additional 308 rooms opened December 1994) and the opening of the
California rooms expansion (146 rooms opened December 1994). The Company's hotel
rooms posted an overall occupancy percentage of 95% in fiscal 1995 compared to
98% in fiscal 1994. Occupancy statistics do not include Main Street Station
rooms which the Company uses to augment the rooms base at the California and the
Fremont. Occupancy rates at the Stardust declined to 97% while Sam's Town Tunica
posted an occupancy rate of 87% for fiscal 1995.
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<PAGE> 56
Consolidated operating income increased 104% for fiscal 1995
compared to fiscal 1994 while consolidated operating income margins increased
5.1 percentage points to 16.7% for fiscal 1995 compared to 11.6% in fiscal 1994.
The increase in operating income and operating income margins for fiscal 1995
was generated primarily by the Company's Central Region properties which
produced $68.5 million in operating income and posted a 42% operating income
margin. In the Nevada Region, the Stardust operating income margin increased to
15.9% in fiscal 1995 from 13.6% in fiscal 1994 and operating income margins at
the Boulder Strip and Downtown Properties declined to 9.3% and 16.7%,
respectively, in fiscal 1995. Higher corporate expense related to the Company's
development activities also impacted consolidated operating income margins.
Operating income in the Central Region includes management fees and joint
venture income related to the Silver Star and the Treasure Chest. Neither of
these properties were open in fiscal 1994.
Net revenues at the Stardust declined 1.2% for fiscal 1995 as
compared to the prior fiscal year. Casino and food and beverage revenues
declined 3.8% and 5.1% respectively, while rooms revenue increased 14.4% and
showroom revenue increased 19.9%. Slot revenue declined 1.8% with a 3.5%
increase in wagering offset by lower net winnings. Table games revenue declined
3.8% as a result of a decline of 2.2% in wagering combined with slightly lower
net winnings. Other casino revenues declined 15.9% for fiscal 1995 with both the
sports book and keno posting declines in wagering of 17.3% and 17.8%
respectively, offset by slightly higher net winnings. The decline in wagering in
the sports book was primarily attributable to the decline in baseball wagering
due to the Major League Baseball strike. Rooms revenue at the Stardust increased
14.4% for fiscal 1995 compared to fiscal 1994 with a 2.6% decline in occupied
rooms offset by a 15.7% increase in average daily room rate. The Stardust posted
an occupancy rate of 97% in fiscal 1995 versus 99% in the prior fiscal year.
Operating income margins increased 2.3 percentage points to 15.9% for fiscal
1995 versus 13.6% in fiscal 1994. The increase in the operating income margin
was the result of increased operating income in the rooms department and
showroom department combined with slight decreases in payroll and overhead
expenses.
Net revenues for the Boulder Strip Properties increased 34% for
fiscal 1995 versus fiscal 1994 primarily as a result of the opening of the Sam's
Town Las Vegas expansion in July 1994 and also as a result of the acquisition of
the Eldorado and Jokers Wild in October 1993. Sam's Town Las Vegas revenue
increased 31% as a result of the expansion with casino revenue increasing 22%,
food and beverage revenue increasing 54% and increased rooms revenue as a result
of having a full year of rooms revenue in fiscal 1995. For most of fiscal 1994
all 200 hotel rooms at Sam's Town Las Vegas were unavailable as a result of the
expansion project. Net revenues at the Eldorado and Jokers Wild increased 40%
and 56%, respectively, primarily as a result of their acquisition in October
1993. The operating income margin for the Boulder Strip Properties was 9.3% in
fiscal 1995 versus 16.5% in fiscal 1994. The decline in the operating income
margin was attributable to a decline in Sam's Town Las Vegas operating income
margin to 7.3% from 15.6% and a decline in operating income margins at the
Eldorado and Jokers Wild to 14.8% and 19.8%, respectively, from 18.3% and 23.7%,
respectively. The decline in operating income margins at Sam's Town Las Vegas
was primarily attributable to the growth in revenues which did not match the
growth in expenses associated with the expanded property and increased
competition, primarily the opening of a new property on the Boulder Strip. The
decline in operating income margins at the Eldorado and Jokers Wild resulted
from increased competition on the Boulder Strip.
Net revenues at the Downtown Properties decreased 1.8% for fiscal
1995 as compared to fiscal 1994. Net revenues at the California increased 2.5%
in fiscal 1995 with casino revenue increasing 1.5%, rooms revenue increasing
15.9% and food and beverage revenue declining 4.2%. Net revenues at the
California were
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<PAGE> 57
enhanced by the opening in December 1994 of a 146-room expansion project. At the
Fremont, net revenues declined 6.1% with casino revenue declining 4.5% and rooms
and food and beverage revenue declining 3.8% and 14.3%, respectively. During the
third and fourth fiscal quarters, the Fremont and to a lesser extent the
California were negatively impacted by the construction of the Fremont Street
Experience. The construction of the Fremont Street Experience, as well as work
on several adjacent streets, impeded the free flow of both vehicular and
pedestrian traffic through downtown Las Vegas. The Company was negatively
impacted by this construction until the Fremont Street Experience opened in
December 1995. Operating income margins at the Downtown Properties were 16.7% in
fiscal 1995 versus 17.1% in fiscal 1994 with operating income margins at the
California of 17.5% in fiscal 1995 versus 18.7% in fiscal 1994 and operating
income margins at the Fremont of 15.7% in fiscal 1995 versus 15.5% in fiscal
1994. The decline in operating income margin at the California was attributable
to increased revenues in lower margin departments and certain inefficiencies
associated with the opening of the new hotel rooms.
The Central Region Properties produced net revenues of $163.5
million for fiscal 1995 versus $9.5 million in fiscal 1994. Sam's Town Tunica,
in its first full year of operation, produced net revenues of $127.7 million
while management fee and joint venture income from the Silver Star and the
Treasure Chest totaled $35.8 million. Operating income and the operating income
margin for fiscal 1995 was $68.5 million or 42%. Operating income was $32.7
million at Sam's Town Tunica while operating income from the Silver Star and the
Treasure Chest totaled $35.8 million. The Central Region Properties results
include the full revenues and income from Sam's Town Tunica which opened in May
1994, management fee income from the Silver Star which opened in July 1994 and
management fee and joint venture income from the Treasure Chest which opened in
September 1994. Net revenues, operating income and operating income margin were
enhanced by the opening of a 308-room expansion at Sam's Town Tunica in December
1994 and a casino expansion at the Silver Star which opened in December 1994.
Interest income for fiscal 1995 was $2.1 million compared to $3.4
million in fiscal 1994. Interest expense, net of amounts capitalized, increased
$9.0 million or 22.7% for fiscal 1995 versus the prior year as a result of
increased borrowings and higher interest rates. Depreciation expense for fiscal
1995 increased 29% primarily as a result of the openings of Sam's Town Tunica
and the Sam's Town Las Vegas expansion.
The Company's tax rate for fiscal 1995 was 44% as compared to 41%
for fiscal 1994. The increase in the Company's tax rate was primarily a result
of the increase in certain non-deductible expenses related to the Company's
development efforts.
As a result of these factors, net income before the cumulative
effect of a change in accounting principle increased $25.6 million or 240% for
fiscal 1995 as compared to fiscal 1994. Net income increased $24.0 million or
197% during fiscal 1995 compared to the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow and Working Capital
The Company's policy is to use operating cash flow and debt and
equity financing to fund renovation of its properties and expansion of its
business. With the opening of Sam's Town Kansas City in September 1995, the
Company completed a significant expansion program and is in the process of
another expansion program which includes the $40 million expansion of its Sam's
Town Tunica facility, the $45 million expansion
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<PAGE> 58
and renovation of Main Street Station, the $175 million Par-A-Dice Acquisition,
the proposed $92 million development of a casino, hotel and entertainment
facility in Reno, Nevada and the Company's anticipated $100 million investment
in the Mirage Joint Venture. In addition, the Company continues to explore new
opportunities for growth.
For the year ended June 30, 1996, the Company's net cash provided
by operating activities was $103.9 million compared to $83.1 million in the
prior fiscal year. Net cash provided by operating activities in the prior fiscal
year was negatively impacted by significant reductions in accounts payable and
increases in other assets related to the opening of new properties and the
timing of payments related to the opening of those projects. As of June 30,
1996, the Company had balances of cash and cash equivalents of approximately $49
million.
The Company's principal sources of funds for the year ending June
30, 1995 consisted of cash flows from operating activities of $83.1 million and
borrowings under its former bank credit facilities. As of June 30, 1995, the
Company had $12.0 million available under the former bank credit facilities. For
the fiscal year ended June 30, 1994, the Company's principal sources of funds
consisted of proceeds from the issuance of long-term debt of $148.5 million,
proceeds from the issuance of Common Stock of $72.4 million and cash flows from
operating activities of $75.8 million.
Long Term Debt
In June 1996, the Company and its wholly-owned subsidiary, CH&C,
entered into the New Bank Credit Facility, a $500 million five-year reducing
revolving credit facility (under which approximately $235 million in borrowings
was outstanding as of June 30, 1996), which replaced the Company's and certain
of its subsidiaries' former bank credit facilities. Availability under the New
Bank Credit Facility will be reduced by $25 million at the end of two and
one-half years and reduced by an additional $50 million at the end of each
six-month period thereafter until maturity in June 2001. Interest on the New
Bank Credit Facility is based upon the agent bank's quoted reference rate or the
London Interbank Offered Rate, at the discretion of the Company. The interest
rate under the New Bank Credit Facility at July 1, 1996 was approximately 7.2%.
The Company intends to use the proceeds of the pending debt and equity offerings
to reduce outstanding indebtedness under the New Bank Credit Facility without
reducing the commitment thereunder. The Company recently effected the Mary's
Prize Sale for $20 million and retired $17.6 million in debt in connection
therewith.
Capital Expenditures
The Company is committed to continually maintaining and enhancing
its existing facilities, most notably by upgrading and remodeling its casinos,
hotel rooms and restaurants and by providing the latest slot machines for its
customers. The Company's capital expenditures for these purposes were $30.1
million, $23.5 million and $16.2 million in the years ended June 30, 1996, 1995
and 1994, respectively.
For the year ended June 30, 1996, cash used in investing activities
was $106 million, primarily related to the completion of Sam's Town Kansas City
(approximately $36 million) and the acquisition of property and equipment
(approximately $70 million). The Company's principal uses of funds for the two
years ended June 30, 1995 consisted of cash used in investing activities,
primarily for the acquisition of property and equipment, and cash used in
financing activities, primarily cash paid to reduce long-term debt. For the year
ended June 30, 1995, cash used in investing activities was $145.5 million,
primarily related to the completion
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<PAGE> 59
of the Sam's Town Las Vegas expansion and the construction of Sam's Town Kansas
City. For the year ended June 30, 1994, cash used in investing activities was
$310.4 million and was primarily related to the $105 million expansion project
at Sam's Town Las Vegas and the construction of Sam's Town Tunica.
Stockholders' Equity
The Company's stockholders' equity increased from $202.6 million on
June 30, 1995 to $233.3 million on June 30, 1996. The primary increase resulted
from the Company's earnings during fiscal 1996. In addition, during fiscal 1996,
212,368 and 2,334 additional shares of Common Stock were issued pursuant to the
Company's Employee Stock Purchase Plan and the Flexible Stock Incentive Plan,
respectively.
New Expansion Projects
The Company is currently involved in several projects to expand its
operations. On April 26, 1996 the Company entered into a definitive stock
purchase agreement for the Par-A-Dice Acquisition for an aggregate consideration
of approximately $175 million. Closing of the transaction is conditioned upon,
among other things, approval by the Illinois Gaming Board. The Company plans to
fund the Par-A-Dice Acquisition from borrowings under the New Bank Credit
Facility. The Company began construction of a $40 million expansion at Sam's
Town Tunica in April 1996. This project consists of a 350-room hotel tower and a
1,000-space parking garage. The Company recently began the renovation and
expansion of Main Street Station. This project, which is expected to cost
approximately $45 million, consists of a redesign of the property's public
space, expanded restaurant facilities, a refurbishment of the property's 400
hotel rooms, acquisition of new gaming equipment and increased parking. The
Company plans to fund the Sam's Town Tunica expansion and Main Street Station
renovation primarily from cash flow from operations and availability under the
New Bank Credit Facility. The Company recently acquired a casino hotel site in
Reno, Nevada and plans to develop Sam's Town Reno on the site at a total
estimated cost of approximately $92 million. The Company plans to fund the Sam's
Town Reno development primarily from cash flow from operations and availability
under the New Bank Credit Facility. On May 29, 1996 the Company, through a
wholly-owned subsidiary, executed a joint venture agreement with Mirage for the
Atlantic City Project. The Mirage Joint Venture provides for $100 million in
capital contributions by the Company during the course of the construction of
the Atlantic City Project. The Company plans to fund its Mirage Joint Venture
capital contributions primarily from cash flow from operations and availability
under the New Bank Credit Facility. In addition, the Company is exploring the
possible expansion of its Stardust and Sam's Town Las Vegas properties;
substantial funds would be required for any such expansion of those properties.
The Company has been selected by the City of Cape Girardeau, Missouri to be the
developer and operator of a riverboat casino facility in downtown Cape
Girardeau. There can be no assurance that any of the above-mentioned projects
will go forward or ultimately become operational. The source of funds required
to meet the Company's working capital needs (including maintenance capital
expenditures) and those required to complete the above-mentioned projects is
expected to be cash flow from operations and availability under the New Bank
Credit Facility. The Company does not currently anticipate issuing additional
equity or obtaining new borrowings in excess of amounts available under the New
Bank Credit Facility in the next 12 months. Thereafter, the Company may require
additional funds to support its working capital requirements or for other
purposes and may seek to raise such additional funds through public or private
equity and/or debt financings or from other sources. No assurance can be given
that additional financing will be available or that, if available, such
financing will be obtainable on terms favorable to the Company and its
stockholders. See "Business--Investment Considerations -- Additional Financing
Requirements."
-57-
<PAGE> 60
The Company continues to pursue and investigate additional
expansion opportunities both in Nevada and in other markets where casino gaming
is currently permitted. The Company is also pursuing expansion opportunities in
jurisdictions where casino gaming is not currently permitted in order for the
Company to be prepared to develop projects upon approval of casino gaming. Such
expansion will be affected and determined by several key factors, including
license selection processes, approval of gaming in jurisdictions where the
Company has been active but where casino gaming is not currently permitted,
identification of additional suitable investment opportunities in current gaming
jurisdictions, and availability of acceptable financing. Additional projects
will require the Company to make substantial investments, which the Company
intends to fund through cash flow from operations and availability under the New
Bank Credit Facility. To the extent such sources of funds are not sufficient,
the Company may also seek to raise such additional funds through public or
private equity and/or debt financings or from other sources. No assurance can be
give that additional financing will be available or that, if available, such
financing will be obtainable on terms favorable to the Company and its
stockholders. See "Business--Investment Considerations -- Additional Financing
Requirements."
Certain indebtedness of the Company contains restrictive covenants
which, among other things, impose significant restrictions on the Company's
operations and its ability to seek alternative financing means.
The Company's ability to service its debt will be dependent on its
future performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the Company's
control.
Pending Debt and Equity Offerings
On September 30, 1996, the Company's registration statements on
Form S-3 registering 4,000,000 shares of Common Stock (the "Equity Offering")
and $200,000,000 9.25% Senior Notes due 2003 (the "Debt Offering" and
collectively with the Equity Offering, the "Offerings") were declared effective.
The Company intends to use the net proceeds of the Offerings to reduce
indebtedness outstanding under the New Bank Credit Facility without reducing the
commitment thereunder. Amounts available under the New Bank Credit Facility are
expected to be used to effect the redemption of the 10.75% Notes, to fund the
Par-A-Dice Acquisition and for general corporate purposes. Neither the Debt
Offering nor the Equity Offering is conditioned on the consummation of the
other. There can be no assurance when, or if, the Offerings will be consummated.
ITEM 8.
The response to this item is submitted as a separate section of
this form 10-K. See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company is set forth under
the caption "Proposal No. 1 -- Election of Directors" and "Executive
Compensation and Other Information -- Section 16(a) Beneficial
-58-
<PAGE> 61
Ownership Reporting Compliance" in the Company's definitive Proxy Statement to
be filed in connection with its 1996 Annual Meeting of Stockholders and is
incorporated herein by reference. Information regarding non-director executive
officers of the Company is set forth in Item 4A of Part I of this Report on Form
10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption
"Executive Compensation and Other Information" and "Proposal No. 1 -- Election
of Directors -- Compensation of Directors" in the Company's definitive Proxy
Statement to be filed in connection with its 1996 Annual Meeting of Stockholders
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption
"Stock Ownership of Certain Beneficial Owners and Management" in the Company's
definitive Proxy Statement to be filed in connection with its 1996 Annual
Meeting of Stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the captions "Executive
Compensation and Other Information -- Certain Relationships and Related
Transactions and Compensation Committee Interlocks and Insider Participation" in
the Company's definitive Proxy Statement to be filed in connection with its 1996
Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
(a) 1. Financial Statement Schedules. The following financial statement schedules
for the years ended June 30, 1996, 1995 and 1994 are filed as part of this report:
Independent Auditor's Report. F-2
Consolidated Balance Sheets at June 30, 1996 and 1995 F-4
Consolidated Statements of Income for Years Ended June 30, 1996, 1995 and 1994 F-5
Consolidated Statements of Changes in Stockholders' Equity for the Years ended
June 30, 1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows for the Years ended June 30, 1996, 1995 and
1994 F-7
Notes to Consolidated Financial Statements F-7
</TABLE>
-59-
<PAGE> 62
<TABLE>
<S> <C>
2. Financial Statement Schedules. The following financial statement schedules for
the years ended June 30, 1996, 1995 and 1994 are filed as part of this report:
Condensed Financial Information of Registrant pg. 68
Schedules not listed above have been omitted because they are
either inapplicable or the required information has been given
in the financial statements or the notes thereto.
3. Exhibits. Refer to (c) below.
(b) Reports on Form 8-K.
1. Current Report on Form 8-K, dated April 26, 1996 relating to the Par-a-Dice
Acquisition.
2. Current Report on Form 8-K, dated June 7,
1996 relating to certain current
developments, competition, governmental
regulation, the Mirage Joint Venture and the
Sam's Town Reno Project.
3. Current Report on Form 8-K, dated June 9,
1996 relating to the New Bank Credit
Facility.
4. Current Report on Form 8-K, dated August
16, 1996 relating to the Sam's Town Reno
land acquisition.
</TABLE>
-60-
<PAGE> 63
Item 8.
BOYD GAMING CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets......................................................... F-3
Consolidated Statements of Income................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity.......................... F-5
Consolidated Statements of Cash Flows............................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 64
INDEPENDENT AUDITORS' REPORT
Boyd Gaming Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Boyd Gaming
Corporation and Subsidiaries (the "Company") as of June 30, 1996 and 1995, and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the three years in the period ended June 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Boyd Gaming Corporation and
Subsidiaries at June 30, 1996 and 1995 and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1996
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
August 23, 1996
F-2
<PAGE> 65
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................................... $ 48,980 $ 83,169
Accounts receivable, net........................................... 16,040 16,135
Inventories........................................................ 6,531 6,648
Prepaid expenses................................................... 15,265 13,465
------- -------
Total current assets............................................ 86,816 119,417
Property, equipment and leasehold interests, net..................... 797,593 765,799
Other assets and deferred charges.................................... 58,489 53,686
Goodwill, net........................................................ 10,527 10,611
------- -------
Total assets.................................................... $953,425 $949,513
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt............................... $ 4,031 $ 36,347
Accounts payable................................................... 47,193 50,432
Accrued liabilities
Payroll and related............................................. 22,956 21,133
Interest and other.............................................. 20,956 20,792
Income taxes payable............................................... 678 596
------- -------
Total current liabilities....................................... 95,814 129,300
Long-term debt, net of current maturities............................ 590,808 587,957
Deferred income taxes................................................ 33,546 29,643
Commitments
Stockholders' equity
Preferred stock, $.01 par value, 5,000,000 shares authorized....... -- --
Common stock, $.01 par value; 200,000,000 shares authorized;
57,213,720 and 56,999,018 shares outstanding.................... 572 570
Additional paid-in capital......................................... 102,583 100,085
Retained earnings.................................................. 130,102 101,958
------- -------
Total stockholders' equity...................................... 233,257 202,613
------- -------
Total liabilities and stockholders' equity...................... $953,425 $949,513
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 66
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues
Casino........................................................... $ 548,167 $ 463,179 $ 341,473
Food and beverage................................................ 142,420 123,527 99,082
Rooms............................................................ 69,645 62,300 44,934
Other............................................................ 49,895 37,563 28,695
Management fees and joint venture................................ 41,576 35,763 --
-------- -------- --------
Gross revenues..................................................... 851,703 722,332 514,184
Less promotional allowances........................................ 75,846 61,992 45,965
-------- -------- --------
Net revenues................................................... 775,857 660,340 468,219
-------- -------- --------
Costs and expenses
Casino........................................................... 273,545 221,844 164,798
Food and beverage................................................ 99,213 90,670 74,115
Rooms............................................................ 25,842 24,578 19,683
Other............................................................ 36,830 25,567 20,633
Selling, general and administrative.............................. 114,497 79,785 54,441
Maintenance and utilities........................................ 30,171 28,452 21,057
Depreciation and amortization.................................... 60,626 54,518 42,136
Corporate expense................................................ 24,343 24,356 12,503
Preopening expense............................................... 10,004 -- 4,605
-------- -------- --------
Total.......................................................... 675,071 549,770 413,971
-------- -------- --------
Operating income................................................... 100,786 110,570 54,248
-------- -------- --------
Other income (expense)
Interest income.................................................. 1,174 2,072 3,379
Interest expense, net of amounts capitalized..................... (52,360) (48,443) (39,472)
-------- -------- --------
Total.......................................................... (51,186) (46,371) (36,093)
-------- -------- --------
Income before provision for income taxes, cumulative effect of a
change in accounting principle and extraordinary item............ 49,600 64,199 18,155
Provision for income taxes......................................... 20,021 27,950 7,505
-------- -------- --------
Income before cumulative effect of a change in accounting principle
and extraordinary item........................................... 29,579 36,249 10,650
Cumulative effect of a change in accounting for income taxes....... -- -- 2,035
-------- -------- --------
Income before extraordinary item................................... 29,579 36,249 12,685
Extraordinary item, net of tax benefit of $889..................... 1,435 -- --
-------- -------- --------
Net income......................................................... 28,144 36,249 12,685
Dividends on preferred stock....................................... -- -- 467
-------- -------- --------
Net income applicable to common stock.............................. $ 28,144 $ 36,249 $ 12,218
======== ======== ========
Net income per common share
Income before cumulative effect of a change in accounting
principle and extraordinary item............................... $ 0.52 $ 0.64 $ 0.19
Cumulative effect of a change in accounting for income taxes..... -- -- 0.04
Extraordinary item............................................... (0.03) -- --
-------- -------- --------
Net income......................................................... $ 0.49 $ 0.64 $ 0.23
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 67
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
--------------------- --------------------- PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
-------- -------- ---------- ------ -------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JULY 1,
1993................. 177,881 $ 19,260 48,410,506 $513 $ 3,643 $ 53,491 $(4,221) $ 72,686
Net income............. 12,685 12,685
Cash dividends on
preferred stock...... (467) (467)
Conversion of preferred
stock................ (177,881) (19,260) 1,046,358 10 17,778 1,472 --
Purchase of fractional
shares............... (78) (1) (1)
Stock issued in
connection with
employee stock
purchase plan........ 36,944 463 463
Stock issued in
connection with
acquisition.......... 2,723,165 27 7,107 7,134
Issuance of stock, net
of expenses.......... 4,600,000 46 71,859 71,905
Cancellation of
treasury stock....... (28) (2,721) 2,749 --
------- -------- ---------- ----- ------- ------- ------- ---------
BALANCES, JUNE 30,
1994................. -- -- 56,816,895 568 98,128 65,709 -- 164,405
Net income............. 36,249 36,249
Stock issued in
connection with
employee stock
purchase plan........ 182,123 2 1,957 1,959
------- -------- ---------- ----- ------- ------- ------- ---------
BALANCES, JUNE 30,
1995................. -- -- 56,999,018 570 100,085 101,958 -- 202,613
Net income............. 28,144 28,144
Stock issued in
connection with
employee stock
purchase plan........ 212,368 2 2,466 2,468
Stock options
exercised............ 2,334 -- 32 32
------- -------- ---------- ----- ------- ------- ------- ---------
BALANCES, JUNE 30,
1996................. -- -- 57,213,720 $572 $102,583 $130,102 -- $ 233,257
======= ======== ========== ===== ======= ======= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 68
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................................... $ 28,144 $ 36,249 $ 12,685
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................................... 60,626 54,518 42,136
Cumulative effect of a change in accounting for income taxes................ -- -- (2,035)
Extraordinary item.......................................................... 1,435 -- --
Deferred income taxes....................................................... 3,903 14,148 877
Other....................................................................... 185 84 (142)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net........................... 95 (3,089) (4,383)
(Increase) decrease in inventories........................................ 117 (180) (1,891)
(Increase) decrease in prepaid expenses................................... (1,800) 1,940 (4,952)
Increase in other assets.................................................. (4,412) (2,032) (3,995)
Increase (decrease) in other current liabilities.......................... 15,504 (19,146) 39,766
Increase (decrease) in income taxes payable............................... 82 596 (2,291)
-------- -------- ---------
Net cash provided by operating activities....................................... 103,879 83,088 75,775
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, equipment and other assets......................... (107,734) (181,212) (307,045)
Proceeds from loans receivable.............................................. 2,000 30,667 --
Cash acquired in Eldorado, Inc. acquisition................................. -- -- 1,622
Decrease (increase) in short-term investments............................... -- 5,000 (5,000)
-------- -------- ---------
Net cash used in investing activities........................................... (105,734) (145,545) (310,423)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.................................... 230,934 86,025 148,500
Payments on long-term debt.................................................. (265,149) (22,027) (13,862)
Net borrowings under credit agreements...................................... (250) 13,000 35,000
Dividends paid.............................................................. -- -- (467)
Proceeds from issuance of common stock...................................... 2,131 1,664 72,368
-------- -------- ---------
Net cash provided by (used in) financing activities............................. (32,334) 78,662 241,539
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents............................ (34,189) 16,205 6,891
Cash and cash equivalents, beginning of year.................................... 83,169 66,964 60,073
-------- -------- ---------
Cash and cash equivalents, end of year.......................................... $ 48,980 $ 83,169 $ 66,964
======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized.......................... $ 54,342 $ 51,405 $ 33,541
Cash paid for income taxes.................................................. 15,266 12,607 10,050
======== ======== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Property additions acquired on contracts and trade
payables which were accrued, but not yet paid............................. $ 7,352 $ 24,109 $ 22,022
Unamortized financing costs written-off..................................... 2,324 -- --
Deferred bond financing costs incurred...................................... -- -- 1,500
======== ======== =========
Conversion of preferred stock to common stock............................... -- -- 17,788
Acquisition of Eldorado, Inc.
Assets acquired........................................................... -- -- 21,796
Liabilities assumed....................................................... -- -- 14,662
-------- -------- ---------
Net acquisition........................................................... $ -- $ -- $ 7,134
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 69
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Boyd Gaming Corporation and its wholly-owned subsidiaries, collectively referred
to herein as the "Company." The Company owns and operates six casino
entertainment facilities in Las Vegas, Nevada, one in Tunica, Mississippi and
one in Kansas City, Missouri which opened in September 1995. The Company manages
a casino entertainment facility in Philadelphia, Mississippi, which opened July
1, 1994, for which it has a seven-year management contract. The Company is also
part owner of and manages a riverboat gaming operation in Kenner, Louisiana,
which opened September 1994, for which it has a five-year management contract
with certain renewal options. All material intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with an
original maturity of three months or less. These investments are stated at cost
which approximates fair value.
Inventories
Inventories are stated at lower of cost or market. Cost is determined using
the first-in, first-out and retail inventory methods.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets. Costs of major improvements including interest incurred during
construction of new facilities and major additions are capitalized; costs of
normal repairs and maintenance are charged to expense as incurred. Gains or
losses on disposal of assets are recognized as incurred.
Fair Value of Financial Instruments
The carrying value of the Company's cash and cash equivalents, trade
receivables and trade payables approximates fair value because of the short
maturity of those instruments. The Company estimates fair value of its long-term
obligations based on quoted market prices or on the current rates offered to the
Company for debt of the same remaining maturities.
Goodwill
The excess of total acquisition costs over the fair value of assets
acquired is amortized using the straight-line method over forty years. As of
June 30, 1996 and 1995, accumulated amortization was $4.0 millon and $3.7
million, respectively.
Revenues
Casino revenues represent the net win from gaming wins and losses. Revenues
include the retail value of room, food, beverage and other goods and services
provided to customers without charge. Such
F-7
<PAGE> 70
amounts are then deducted as promotional allowances. The estimated cost of
providing these promotional allowances is charged to the casino department in
the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Rooms....................................... $10,660 $ 8,991 $ 8,308
Food and beverage........................... 59,254 49,674 35,507
Other....................................... 3,116 2,422 1,324
------- ------- -------
Total....................................... $73,030 $61,087 $45,139
======= ======= =======
</TABLE>
Income Taxes
The Company and its subsidiaries file a consolidated federal tax return.
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standard (SFAS) No. 109, Accounting for Income Taxes. SFAS
No. 109 requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred income taxes reflect the net tax
effects of (i) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes, and (ii) operating loss and tax credit carryforwards.
Preopening Expenses
Expenses incurred prior to the opening of new facilities are capitalized as
incurred and charged to expense upon commencement of operations. Preopening
expenses associated with the development of Sam's Town Kansas City, which opened
September 1995, amounted to $10 million and were charged to expense during the
year ended June 30, 1996. Preopening expenses associated with the development of
Sam's Town Tunica, which opened May 1994, amounted to $4.6 million and were
charged to expense during the year ended June 30, 1994.
Net Income Per Common Share
Net income per common share is based upon the weighted average number of
common stock and common stock equivalents outstanding during the period which
were 57,057,550, 56,870,104 and 54,297,226 for the years ended June 30, 1996,
1995 and 1994, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Recently Issued Accounting Standards
The FASB issued SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets to Be Disposed Of, in March 1995. This statement, effective for the
Company's fiscal year beginning July 1, 1996, requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Management believes that adoption of
SFAS No. 121 will not have a significant effect on the financial position or
results of operations of the Company.
The FASB issued SFAS No. 123, Accounting for Stock-Based Compensation, in
October 1995. This statement, effective for the Company's fiscal year beginning
July 1, 1996, requires certain disclosures about the impact on results of
operations of the fair value of stock based employee compensation arrangements.
Management intends to continue to account for stock based employee compensation
F-8
<PAGE> 71
arrangements in accordance with Accounting Principles Board No. 25, Accounting
for Stock Issued to Employees, and accordingly believes that adoption of SFAS
No. 123 will not have a significant effect on the financial position or results
of operations of the Company. The Company will include the pro forma effects of
this statement in its notes to financial statements for the fiscal year ending
June 30, 1997.
NOTE 2: RELATED PARTIES
In connection with the closing of the Company's initial public offering in
October 1993, the Company purchased Eldorado, Inc., owner of Eldorado Casino and
Jokers Wild Casino. The acquisition was accounted for as a purchase at
historical cost. The Company issued 2,723,165 shares of common stock in exchange
for all of the outstanding stock of Eldorado, Inc. and the assumption of debt
and other liabilities. For the year ended June 30, 1994, revenue, net income and
net income per common share on a proforma basis as if Eldorado, Inc. were owned
by the Company for the entire fiscal year were $477 million, $12.8 million and
$0.23, respectively. Certain former stockholders of Eldorado, Inc. are also
directors, officers and significant shareholders of the Company.
NOTE 3: ACCOUNTS RECEIVABLE
Accounts receivable at June 30 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Casino................................................. $ 6,420 $ 5,661
Hotel.................................................. 3,622 2,415
Other.................................................. 8,110 9,854
------- -------
Total.................................................. 18,152 17,930
Less allowance for doubtful accounts................... 2,112 1,795
------- -------
Total.................................................. $16,040 $16,135
======= =======
</TABLE>
NOTE 4: PROPERTY, EQUIPMENT AND LEASEHOLD INTEREST
Property, equipment and leasehold interest consist of the following at June
30:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land.............................................. $ 120,557 $ 115,803
Buildings and improvements........................ 605,332 482,443
Furniture and equipment........................... 312,937 281,791
Leasehold improvements............................ 42,270 42,878
Construction in progress.......................... 50,854 129,190
-------- --------
Total fixed assets................................ 1,131,950 1,052,105
Less accumulated depreciation and amortization.... 334,357 286,306
-------- --------
Net fixed assets.................................. $ 797,593 $ 765,799
======== ========
</TABLE>
Depreciation and amortization are computed using the straight-line method
over the following useful lives:
<TABLE>
<CAPTION>
USEFUL LIVES
-------------
<S> <C>
Buildings and improvements.................... 4 to 40 years
Furniture and equipment....................... 3 to 30 years
Leasehold improvements........................ 3 to 40 years
</TABLE>
Interest costs of $4.6, $7.1 and $6.6 million were capitalized in 1996,
1995 and 1994, respectively, during construction of new properties and major
additions.
F-9
<PAGE> 72
NOTE 5: LONG-TERM DEBT
Long-term debt at June 30 consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Notes payable under credit agreements................ $235,000 $281,500
11% senior subordinated notes........................ 185,000 185,000
10.75% senior subordinated notes..................... 150,000 150,000
Other................................................ 24,839 7,804
-------- --------
Total long-term debt................................. 594,839 624,304
Less current maturities.............................. 4,031 36,347
-------- --------
Total................................................ $590,808 $587,957
======== ========
</TABLE>
On June 19, 1996, the Company entered into a $500 million five-year
reducing, revolving bank credit facility which matures in June 2001 (the "New
Bank Credit Facility"). The New Bank Credit Facility replaced the Company's
amended senior credit agreement, Boyd Tunica loan and Boyd Kansas City loan.
Total availability under the New Bank Credit Facility will be reduced by $25
million at the end of the two and a one-half years and reduced by an additional
$50 million at the end of each six-month period thereafter until maturity. As of
June 30, 1996, the Company had unused availability of $265 million under the New
Bank Credit Facility. Interest on the New Bank Credit Facility is based upon the
agent bank's quoted reference rate or London Interbank Offered Rate, at the
discretion of the Company. The average interest rate under the New Bank Credit
Facility at June 30, 1996 was 7.2%.
The New Bank Credit Facility is collateralized by the real and personal
property comprising six casino hotel properties owned by the Company and by
related security agreements with assignment of rents.
The New Bank Credit Facility contains certain financial covenants,
limitations on the incurrence of debt and limitations on the incurrence of
capital expenditure and investments, all as defined in the New Bank Credit
Facility.
The Company has $150 million principal amount of 10.75% senior subordinated
notes due September 2003. The notes require semi-annual interest payments on
March 1 and September 1 of each year through September 1, 2003, at which time
the principal balance is due and payable. The notes may be redeemed at the
Company's option any time after September 1, 1996 at redemption prices ranging
from 105% in 1996 to 100% in 1999. The notes contain certain covenants regarding
incurrence of debt, sales and disposition of assets, mergers or consolidations
and limitations on restricted payments (as defined in the indenture relating to
the notes).
The Company, through its wholly-owned subsidiary California Hotel Finance
Company, has $185 million principal amount of 11% senior subordinated notes due
December 2002. The net proceeds were used to refinance certain indebtedness of
the Company and provide for working capital needs and expansion of the Company's
operations. The notes require semi-annual interest payments on June 1 and
December 1 of each year until December 1, 2002, at which time the principal
balance is due and payable. The notes may be redeemed at the Company's option
any time after December 1, 1997 at redemption prices ranging from 104.125% in
1997 to 100% in 1999. The notes contain certain covenants regarding incurrence
of debt, sales and disposition of assets, mergers or consolidations and
limitations on restricted payments (as defined in the indenture relating to the
notes). As a result of these restrictions, at June 30, 1996, California Hotel
and Casino (a wholly-owned subsidiary of the Company) had a portion of its
retained earnings and its net assets in the amounts of $51.5 million and $106.7
million, respectively, that were not available for distribution as dividends to
the Company.
On June 7, 1996 the Company filed a registration statement with the
Securities and Exchange Commission which will allow the issuance of up to $200
million of senior notes of the Company. The notes will be guaranteed by all
existing significant subsidiaries of the Company. The guaranties will be full,
unconditional, and joint and several. All of the Company's significant
subsidiaries are wholly-owned.
F-10
<PAGE> 73
Assets, equity income and cash flows of all other subsidiaries of the Company
that are not expected to guaranty the notes are less than 3% of the respective
consolidated amounts and are inconsequential, individually and in the aggregate,
to the Company. The Company has not included separate financial information of
the guarantors since such information is not material to investors. The net
proceeds to the Company from the notes offering will be used to reduce
outstanding indebtedness under its New Bank Credit Facility. Amounts available
under the New Bank Credit Facility are expected to be used to redeem the 10.75%
Notes.
The estimated fair value of the Company's long-term debt at June 30, 1996
was approximately $608 million, versus its book value of $595 million. At June
30, 1995 the estimated fair value of the Company's long-term debt was
approximately $636 million, versus its book value of $624 million.
In connection with the closing of the New Bank Credit Facility, the Company
recorded a $1.4 million extraordinary loss (net of income tax benefit of $.9
million) related to the write-off of unamortized bank fees.
Interest rates on the Company's other long-term debt range from 5.0% to
16.8%.
Management believes the Company and its subsidiaries are in compliance with
all covenants contained in its long-term debt agreements at June 30, 1996.
The scheduled maturities of long-term debt for the years ending June 30 are
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997.......................................................... $ 4,031
1998.......................................................... 4,086
1999.......................................................... 4,091
2000.......................................................... 11,970
2001.......................................................... 235,411
Thereafter.................................................... 335,250
--------
Total......................................................... $594,839
========
</TABLE>
NOTE 6: LEASES
Future minimum lease payments required under noncancelable operating leases
(principally for land) as of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997.......................................................... $ 2,673
1998.......................................................... 2,298
1999.......................................................... 2,030
2000.......................................................... 1,975
2001.......................................................... 1,964
Thereafter.................................................... 76,156
-------
Total minimum payments required............................... $ 87,096
=======
</TABLE>
Rent expense for the years ended June 30, 1996, 1995 and 1994 was $2.9
million, $2.8 million and $2.3 million, respectively and is included in selling,
general and administrative expenses.
NOTE 7: EMPLOYEE BENEFIT PLANS
The Company contributes to multi-employer pension plans under various union
agreements. Contributions, based on wages paid to covered employees, totaled
approximately $2.2 million, $2.0 million and $2.2 million for the years ended in
1996, 1995 and 1994, respectively. The Company's share of the unfunded liability
related to multi-employer plans, if any, is not determinable.
F-11
<PAGE> 74
The Company has a retirement savings plan under Section 401(k) of the
Internal Revenue Code covering its non-union employees. The plan allows
employees to defer up to the lesser of the Internal Revenue Code-prescribed
maximum amount or 15% of their income on a pre-tax basis through contributions
to the plan. On January 1, 1996 the Company combined its profit sharing plan
into the 401(k) plan. The Company expensed voluntary contributions of $1.4
million, $1.8 million and $1.5 million in 1996, 1995 and 1994, respectively, to
the Company's 401(k) profit-sharing plan and trust.
NOTE 8: INCOME TAXES
A summary of the provision for income taxes for the years ended June 30 is
as follows:
Provision for Income Taxes:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal............................................ $15,301 $14,165 $6,277
State.............................................. 817 494 352
------- ------- ------
16,118 14,659 6,629
------- ------- ------
Deferred
Federal............................................ 4,119 12,786 876
State.............................................. (216) 505 --
------- ------- ------
3,903 13,291 876
------- ------- ------
$20,021 $27,950 $7,505
======= ======= ======
</TABLE>
The following table provides a reconciliation between the federal statutory
rate and the effective income tax rate from continuing operations at June 30
where both are expressed as a percentage of income.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax provision at statutory rate............................... 35.0% 35.0% 35.0%
Increase/(decrease) resulting from:
Licensing expenditures for new jurisdictions................ 0.5 3.1 --
Company provided benefits................................... 2.5 2.7 2.5
State income tax, net of federal benefit.................... 0.8 1.0 1.3
Tax preferred investments................................... -- (0.1) (2.5)
Statutory rate change....................................... -- -- 3.8
Other, net.................................................. 1.6 1.8 1.2
--- --- ---
40.4% 43.5% 41.3%
=== === ===
</TABLE>
F-12
<PAGE> 75
The tax items comprising the Company's net deferred tax liability as of
June 30 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax liabilities:
Difference between book and tax basis of property........... $38,187 $33,053 $22,615
Difference between book and tax basis of amortizable
assets.................................................... 2,185 1,513 --
Reserve differential for gaming activities.................. 2,027 894 1,116
Other....................................................... 3,520 1,192 89
------ ------ ------
45,919 36,652 23,820
------ ------ ------
Deferred tax assets:
Alternative minimum tax credit carryforward................. 5,146 3,944 5,351
Preopening expense amortized for tax purposes............... 952 1,126 1,612
Provision for doubtful accounts............................. 3,498 832 795
Other....................................................... 2,777 1,107 567
------ ------ ------
12,373 7,009 8,325
------ ------ ------
Net deferred tax liability.................................. $33,546 $29,643 $15,495
====== ====== ======
</TABLE>
The Internal Revenue Service has examined the Company's federal
consolidated income tax returns through the year ended June 30, 1989. The
Company is currently under examination for fiscal years 1990 through 1992.
Management of the Company does not believe any significant adjustments will be
required.
NOTE 9: CAPITAL STOCK AND STOCK INCENTIVE PLANS
Capital Stock
Two hundred million shares of common stock with a par value of $.01 per
share are authorized, of which 57,213,720 and 56,999,018 shares were issued at
June 30, 1996 and June 30, 1995 respectively, including no treasury shares. The
Company has authorized 5,000,000 shares of $.01 par value preferred stock of
which no shares were issued at June 30, 1996 and June 30, 1995.
Stock Options
In June 1993, shareholders of the Company approved a Flexible Stock
Incentive Plan (the "Flexible Plan") which provides for the granting of
incentive stock options, as determined under the Internal Revenue Code, to
employees of the Company, the granting of non-qualified stock options, stock
bonuses and stock appreciation rights to employees, officers, directors and
consultants of the Company and for the sale of restricted common stock to such
persons. The maximum number of shares of common stock available for issuance
under this plan is 4,000,000 shares. As of June 30, 1996, 3,871,921
non-qualified stock options had been issued and 2,334 had been exercised.
Options granted under the plan generally become exercisable as to one-third
of the optioned shares each year after the date of grant. Options granted under
this plan expire no later than ten years after the grant date. Under the plan,
the exercise price of incentive options and non-qualified options granted to
certain executive officers may not be less than the fair market value of the
optioned stock at the date of grant.
In June 1993, shareholders of the Company approved a Director's
Non-qualified Stock Option Plan (the "Director Plan") which provides for the
granting of up to 50,000 common shares. Options granted under the plan become
exercisable as to one-fourth of the optioned shares each year after the date of
the grant. Options granted under the plan expire no later than ten years after
the grant. Under the plan, the exercise price of the options granted may not be
less than the fair market value of the optioned stock at the date of grant. At
June 30, 1996, a total of 20,000 stock options had been issued and none had been
exercised.
F-13
<PAGE> 76
<TABLE>
<CAPTION>
NUMBER OF SHARES OPTION PRICES
---------------------- -------------------------------------
FLEXIBLE DIRECTOR FLEXIBLE DIRECTOR
PLAN PLAN PLAN PLAN
--------- -------- ----------------- ---------------
<S> <C> <C> <C> <C>
Options outstanding at July 1,
1993......................... -- -- -- --
Options granted................ 2,688,000 15,000 $17.000 $17.00 - $18.50
Options canceled............... (36,800) -- 17.000 --
--------- ------
Options outstanding at June 30,
1994......................... 2,651,200 15,000 $17.000 $17.00 - $18.50
Options granted................ 1,287,100 2,000 13.625 14.00
Options canceled............... (38,682) -- 13.625 14.00
--------- ------
Options outstanding at June 30,
1995......................... 3,899,618 17,000 $13.625 - $17.000 $14.00 - $18.50
Options granted................ 45,000 3,000 13.250 14.375
Options canceled............... (72,697) -- $13.625 - $17.000 --
Options exercised.............. (2,334) -- $13.625
--------- ------
Options outstanding June 30,
1996......................... 3,869,587 20,000 $13.250 - $17.000 $14.00 - $18.50
========= ======
Exercisable options at June 30,
1996......................... 2,146,017 8,000
</TABLE>
At June 30, 1996, there were 128,079 and 30,000 options available for
future grant under the Flexible Plan and Director Plan, respectively.
Employee Stock Purchase Plan
In June 1993, shareholders of the Company approved an Employee Stock
Purchase Plan, which allows employees to purchase the Company's common stock,
through payroll deductions, at a price that shall not be less than 85% of fair
market value on the first or last date of the purchase period. The plan provides
for a maximum of 1,500,000 shares to be issued. During 1996, 212,368 shares were
issued at $9.88. In 1995, 182,123 shares were issued to employees at a price of
$9.14. In 1994, 36,944 shares were issued to employees at a price of $12.54. At
June 30, 1996, there were 1,068,565 shares available for issuance under the
plan.
NOTE 10: LEGAL PROCEEDINGS
The Company is a defendant in various pending litigation. In the opinion of
management, all pending claims in such litigation will not, in the aggregate,
have a material adverse effect on the Company.
NOTE 11: INITIAL PUBLIC OFFERING
In October 1993, the Company completed an initial public offering of 4.6
million shares of common stock at a price of $17 per share. In connection with
the closing of the offering, the Company effected a previously declared
11.322241 for 1 split of its common stock. The Company's $100 Preferred Stock
automatically converted into common stock of the Company upon the closing of the
initial public offering. Proceeds from the offering were approximately $73.1
million.
Upon the closing of the public offering, the Company acquired all of the
outstanding shares of Eldorado, Inc. in exchange for shares of common stock of
the Company and assumption of indebtedness. Holders of certain promissory notes
of Eldorado, Inc. also received shares of common stock of the Company in
exchange for such notes.
F-14
<PAGE> 77
NOTE 12: OTHER INFORMATION
Acquisition
On April 26, 1996, the Company entered into a definitive purchase agreement
to acquire 100% of the capital stock of Par-a-Dice Gaming Corporation and 100%
of the capital stock of East Peoria Hotel, Inc. Par-A-Dice Gaming Corporation is
the owner and operator of the Par-a-Dice Riverboat Casino in East Peoria,
Illinois and East Peoria Hotel, Inc., is the general partner of a partnership
constructing a 204-room hotel adjacent to the Par-a-Dice Riverboat Casino.
Closing of the transaction is conditioned upon, among other things, approval of
the Illinois Gaming Board. The total purchase price is $175 million and includes
the riverboat casino facility, the 204-room hotel and a vacant potential gaming
site in Missouri.
Joint Venture -- Mirage Resorts, Inc.
On May 29, 1996, the Company entered into a joint venture agreement with
Mirage Resorts, Inc. ("Mirage") to jointly develop and own a casino hotel
entertainment facility in the Marina District of Atlantic City, New Jersey (the
"Atlantic City Project"). The Atlantic City Project, which is expected to cost
approximately $500 million, is planned to be one component of a multi-facility
casino entertainment development master-planned by Mirage. Pursuant to the joint
venture agreement, the Company will control the development and operation of the
Atlantic City Project. Environmental remediation and construction of the
Atlantic City Project are not expected to begin until after the necessary
highway improvements are assured.
Sam's Town Reno
On August 16, 1996 the Company acquired land upon which it plans to develop
Sam's Town Reno, a $92 million casino hotel and entertainment complex in Reno,
Nevada. William S. Boyd, Chairman and Chief Executive Officer of the Company and
Warren L. Nelson, a Director of the Company, each own a 17.5% partnership
interest in the partnership from which the Company acquired the land. The
development of Sam's Town Reno is subject to receipt of regulatory approvals,
permits and licenses.
NOTE 13: SUBSEQUENT EVENT
Sale of Riverboat
On August 23, 1996, the Company sold its riverboat Mary's Prize for $20
million and retired debt of $17.6 million in connection therewith. Projects for
which Mary's Prize was constructed have either been delayed or did not
materialize.
F-15
<PAGE> 78
BOYD GAMING CORPORATION AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1996
Net revenues....................... $ 179,060 $ 200,289 $ 202,160 $ 194,348 $ 775,857
Operating income................... 18,729 31,280 31,743 19,034 100,786
Income before income tax and
extraordinary item............... 6,859 17,322 19,236 6,183 49,600
Extraordinary item, net of tax..... -- -- -- 1,435 1,435
Net income......................... 4,184 10,567 11,351 2,042 28,144
======== ======== ======== ======== ========
Net income per common share:
Income before extraordinary item... $ 0.07 $ 0.19 $ 0.20 $ 0.06 $ 0.52
Extraordinary item, net of tax..... -- -- -- (.02) (.03)
-------- -------- -------- -------- --------
Net income......................... $ 0.07 $ 0.19 $ 0.20 $ 0.04 $ 0.49
======== ======== ======== ======== ========
1995
Net revenues....................... $ 156,719 $ 168,909 $ 166,757 $ 167,955 $ 660,340
Operating income................... 20,854 27,755 32,209 29,752 110,570
Income before income tax........... 9,235 15,747 19,578 19,639 64,199
Net income......................... 5,477 7,336 11,482 11,954 36,249
======== ======== ======== ======== ========
Net income per common share:
Net income......................... $ 0.10 $ 0.13 $ 0.20 $ 0.21 $ 0.64
======== ======== ======== ======== ========
</TABLE>
F-16
<PAGE> 79
(c) Exhibits.
EXHIBIT
NUMBER DOCUMENT
2.1(6) Stock Purchase Agreement, dated as of April 26, 1996, by and
among Registrant, Par-A-Dice Gaming Corporation, East Peoria
Hotel, Inc., and the Owners of all the Capital Stock of
Par-A-Dice Gaming Corporation and East Peoria Hotel.
3.1(1) Restated Articles of Incorporation.
3.2(10) Restated Bylaws
10.1(1) First Amended and Restated Credit Agreement dated as of September
2, 1993, by and among CH&C, Certain Commercial Lending
Institutions, CIBC Inc., First Interstate Bank of Nevada and
related Exhibits.
10.2(2) Form of Indenture relating to $150,000,000 aggregate principal
amount 11% Senior Subordinated Notes due 2002 of California Hotel
Finance Corporation, including the Form of Note.
10.3(1) Indenture dated as of September 3, 1993 relating to 10.75% Senior
Subordinated Notes Due 2003 ("10.75% Notes"), including Form of
Note.
10.4(1) Note Purchase Agreement dated September 3, 1993 relating to
10.75% Notes.
10.5(1) Registration Rights Agreement dated as of September 3, 1993
relating to 10.75% Notes.
10.6(1) Loan Agreement dated March 2, 1989, by and between First
Interstate Bank of Nevada and Eldorado, Inc., including related
Promissory Note, and related Revision Agreement dated October 31,
1989, by and between First Interstate Bank of Nevada, N.A. and
Eldorado, Inc.
10.7(3) Loan Agreement dated August 17, 1994 by and among Boyd Tunica,
Inc., the Registrant, First Interstate Bank of Nevada, Bankers
Trust Company and Bank of America Nevada.
10.8(2) Ninety-Nine Year Lease dated June 30, 1954, by and among Fremont
Hotel, Inc., and Charles L. Ronnow and J.L. Ronnow, and Alice
Elizabeth Ronnow.
10.9(2) Lease Agreement dated October 31, 1963, by and between Fremont
Hotel, Inc. and Cora Edit Garehime.
10.10(2) Lease Agreement dated December 31, 1963, by and among Fremont
Hotel, Inc., Bank of Nevada and Leon H. Rockwell, Jr.
-61-
<PAGE> 80
10.11(2) Lease Agreement dated June 7, 1971, by and among Anthony
Antonacci, Margaret Fay Simon and Bank of Nevada, as Co-Trustees
under Peter Albert Simon's Last Will and Testament, and related
Assignment of Lease dated February 25, 1985 to Sam-Will, Inc. and
Fremont Hotel, Inc.
10.12(3) Lease Agreement dated July 25, 1973, by and between CH&C and
William Peccole, as Trustee of the Peter Peccole 1970 Trust.
10.13(2) Lease Agreement dated July 1, 1974, by and among Fremont Hotel,
Inc. and Bank of Nevada, Leon H. Rockwell, Jr. and Margorie
Rockwell Riley.
10.14(2) Ground Lease Agreement dated July 5, 1978, by and between CH&C,
and Irene Elizabeth Carey, as Trustee of the Carey Survivor's
Trust U/A October 18, 1972 and Irene Elizabeth Carey, as Trustee
of the Carey Family Trust U/A October 18, 1972.
10.15(2) Ninety-Nine Year Lease dated December 1, 1978 by and between
Matthew Paratore, and George W. Morgan and LaRue Morgan, and
related Lease Assignment dated November 10, 1987 to Sam-Will,
Inc., d/b/a/ Fremont Hotel and Casino.
10.16(3) Collective Bargaining Agreement effective as of January 17, 1994,
by and between Sam-Will, Inc. d/b/a/ Fremont Hotel and Casino and
the International Union of Operating Engineers, Local No. 501,
AFL-CIO (slot technician unit).
10.17(1) Labor Agreement dated as of January 13, 1993, by and between
Mare-Bear, Inc. d/b/a/ Stardust Hotel & Casino, and the
International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.18(1) Labor Agreement dated as of January 13, 1993, by and between
Sam-Will, Inc., d/b/a/ Fremont Hotel and Casino, and the
International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.19(1) Labor Agreement dated January 13, 1993, by and between CH&C and
the International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.20(1) Agreement dated as of May 1, 1991, by and between Mare-Bear,
Inc., d/b/a/ Stardust Hotel & Casino, and the Local Joint
Executive Board of Las Vegas for and on behalf of the Culinary
Workers' Union, Local No. 226 and Bartenders Union, Local No.
165.
10.21(2) Agreement dated as of May 1, 1991, by and between Sam-Will, Inc.,
d/b/a/ Fremont Hotel and Casino, and the Local Joint Executive
Board of Las Vegas for and on behalf of the Culinary Workers'
Union, Local No. 226 and Bartenders Union, Local No. 165.
10.22(1) Collective Bargaining Agreement dated September 12, 1991, by and
between Eldorado Casino and the Local Joint Executive Board of
Las Vegas for and on behalf of the Culinary Workers Union, Local
No. 226 and Bartenders Union, Local No. 165.
-62-
<PAGE> 81
10.23(2) Collective Bargaining Agreement dated March 14, 1991, by and
between Mare-Bear, Inc., d/b/a/ Stardust Hotel & Casino, and the
Musicians Union of Las Vegas, Local No. 369, American Federation
of Musicians, AFL-CIO.
10.24(2) Labor Agreement dated May 1, 1991, by and between Mare-Bear,
Inc., d/b/a/ Stardust Hotel & Casino, and the International
Alliance of Theatrical Stage Employees and Moving Picture Machine
Operators of the United States and Canada, Local 720, Las Vegas,
Nevada.
10.25(2) Labor Agreement dated May 1, 1991, by and between Mare-Bear,
Inc., d/b/a/ Stardust Hotel & Casino, and the International
Alliance of Theatrical Stage Employees and Moving Picture Machine
Operators of the United States and Canada, Local 720, Las Vegas,
Nevada (Theatrical Wardrobe Employees).
10.26(2) Labor Agreement dated June 14, 1983, by and between Stardust
Hotel & Casino and the International Brotherhood of Painters and
Allied Trades, Local Union No. 159, AFL-CIO.
10.27(2) Labor Agreement dated June 1, 1983, by and between Stardust Hotel
and Casino and the United Brotherhood of Carpenters and Joiners
of America, Local Union No. 1780, Las Vegas, Nevada.
10.28(2) Labor Agreement dated August 1, 1983, by and between Stardust
Hotel and the International Brotherhood of Electrical Workers,
Local Union No. 357, AFL-CIO.
10.29(2) Implemented Proposal dated June 15, 1992, by and between Stardust
Hotel and Casino and the Back-End Teamsters Local Union No. 995.
10.30(2) Implemented Proposal dated June 15, 1992, by and between Fremont
Hotel and Casino and the Back-End Teamsters Local Union No. 995.
10.31(1) Agreement and Plan of Reorganization dated as of June 25, 1993,
by and among Eldorado, Inc., the Registrant, CH&C and certain
stockholders and noteholders of Eldorado, Inc.
10.32(1) Management Agreement dated March 11, 1993, by and between
Mississippi Band of Choctaw Indians and Boyd Mississippi, Inc.
10.33(3) Addendum to Management Agreement dated November 24, 1993, by and
between Mississippi Band of Choctaw Indians and Boyd Mississippi,
Inc.
10.34(1) Casino Management Agreement dated August 30, 1993, by and between
Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
10.35(1) Subscription Agreement dated as of August 30, 1993, by and among
Boyd Kenner, Inc., the Registrant and Treasure Chest Casino,
L.L.C.
-63-
<PAGE> 82
10.36(3) Amended and Restated Operating Agreement dated August 5, 1994, by
and between Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
10.37(1) Real Estate Contract of Sale dated April 29, 1993, by and among
Boyd Tunica, Inc. and Shea Leatherman, Irwin L. Zanone and
William A. Leatherman, Jr.
10.38(1) Real Estate Contract of Sale dated April 29, 1993, by and between
Eugene H. Beck, Jr. and the Boyd Group.
10.39(1) Real Estate Contract of Sale dated April 30, 1993, by and between
Mid-West Terminal Warehouse Company and the Boyd Group.
10.40(1) Real Estate Contract of Sale dated April 30, 1993, by and between
Hunt Midwest Real Estate Development, Inc. and the Boyd Group.
10.41(1) Amendment to Real Estate Contracts of Sale dated May 26, 1993, by
and among The Boyd Group, Hunt Midwest Real Estate Development,
Inc., Mid-West Terminal Warehouse Company and Eugene H. Beck, Jr.
10.42(1) Real Estate Contract of Sale dated as of April 30, 1993, by and
between Vergie G. Bevan, individually and as trustee of the
Vergie G. Bevan Revocable Trust and the Boyd Group.
10.43(3) Development Agreement dated June 6, 1994, by and among the
Registrant, Boyd Kansas City, Inc. and Port Authority of Kansas
City, Missouri.
10.44(3) Agreement dated January 10, 1994 by and between Boyd Tunica, Inc.
and W.G. Yates & Sons Construction Company.
10.45(3) Building Contract dated July 15, 1993, by and between Marnell
Corrao Associates, Inc. and Sam's Town Hotel and Gambling Hall
for Sam's Town Addition Phase V.
10.46(1) Form of Indemnification Agreement.
10.47(1)(4) 1993 Flexible Stock Incentive Plan and related agreements.
10.48(1)(4) 1993 Directors Non-Qualified Stock Option Plan and related
agreements.
10.49(1)(4) 1993 Employee Stock Purchase Plan and related agreement.
10.50(2) 401(k) Profit Sharing Plan and Trust.
10.51(2) Note dated July 1, 1992, from Samuel A. Boyd Family Trust to the
Boyd Group in the principal sum of $3,000,000.
10.52(5) Promissory Note dated December 30, 1991, from Eldorado, Inc. to
Samuel A. Boyd in the principal sum of $600,000.
-64-
<PAGE> 83
10.53(7) Joint Venture Agreement of Stardust A.C., dated as of May 29,
1996, by and between MAC, Corp., a New Jersey Corporation, which
is a wholly-owned subsidiary of Mirage Resorts Incorporated, a
Nevada Corporation, and Grand K, Inc., a Nevada Corporation,
which is a wholly-owned subsidiary of Registrant. (Certain
portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request
for confidential treatment for this Agreement.)
10.54(8) Credit Agreement dated as of June 19, 1996, by and among the
Registrant and California Hotel and Casino as the Borrowers,
certain commercial lending institutions as the Lenders, Canadian
Imperial Bank of Commerce as the Agent, Bank of America National
Trust Savings Association and Wells Fargo Bank N.A. as
Co-Managing Agents and Bankers Trust Company, Credit Lyonnais and
Societe Generale as Co-Agents.
10.55(9) Property Purchase Agreement dated as of August 9, 1996, by and
between Steamboat Station Company, a Nevada general partnership,
and Boyd Reno, Inc., a Nevada corporation and wholly-owned
subsidiary of the Company.
10.56(9) Buy-Sell Agreement dated as of August 2, 1996, by and between the
Registrant and Casino Magic of Louisiana, Corp., a Louisiana
corporation.
21.1 Subsidiaries for Boyd Gaming Corporation
23.1 Consent of Deloitte & Touche LLP.
24 Powers of Attorney (reference is made to page II-2).
27(10 Financial Data Schedule.
- --------------------------------------------------------------------------------
(1) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, File No. 33-64006, which became effective
on October 15, 1993.
(2) Incorporated by reference to the Registration Statement on Form
S-1, File No. 33-51672, of California Hotel and Casino and
California Hotel Finance Corporation, which became effective on
November 18, 1992.
(3) Incorporated by reference to Registrant's Annual Report on Form
10-K for the year ended June 30, 1995.
(4) Management contracts or compensatory plans or arrangements.
(5) Incorporated by reference to Registrant's Annual Report on Form
10-K for the year ended June 30, 1994.
-65-
<PAGE> 84
(6) Incorporated by reference to Registrant's Current Report on Form
8-K dated April 26, 1996.
(7) Incorporated by reference to Registrant's Current Report on Form
8-K dated June 7, 1996.
(8) Incorporated by reference to Registrant's Current Report on Form
8-K dated June 19, 1996.
(9) Incorporated by reference to Registrant's Current Report on Form
8-K dated August 16, 1996.
(10) Incorporated by reference to Registrant's Registration Statement
on Form S-3, File No. 05521.
-66-
<PAGE> 85
BOYD GAMING CORPORATION AND SUBSIDIARIES
INDEX TO REGISTRANT FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report 68
Financial Statements
Balance Sheets 69
Statements of Income 70
Statements fo Cash Flows 71
Notes to Financial Statements 72
</TABLE>
67
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
Boyd Gaming Corporation and Subsidiaries:
We have audited the consolidated financial statements of Boyd Gaming Corporation
and subsidiaries (the "Company") as of June 30, 1996 and 1995, and for each of
the three years in the period ended June 30, 1996, and have issued our report
thereon dated August 23, 1996; such consolidated financial statements and report
are included in your 1996 Annual Report to Stockholders and are incorporated
herein by reference. Our audits also included the consolidated financial
statement schedule of Boyd Gaming Corporation, listed in Item 14(a). The
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such consolidated financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material aspects the information set forth therein.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
August 23, 1996
68
<PAGE> 87
<TABLE>
<CAPTION>
BOYD GAMING CORPORATION SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
June 30,
-----------------------
1996 1995
-----------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,192 $ 53,334
Accounts receivable, net 7,624 6,170
Prepaid expenses 685 275
Deferred income taxes 1,892 5,584
-----------------------
Total current assets 13,393 65,363
Property, equipment and leasehold interests, net 22,824 13,522
Other assets and deferred charges 2,118 13,825
Investments in and advances to
subsidiaries (eliminated in consolidation) 457,696 292,397
-----------------------
Total assets $496,031 $385,107
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long term-debt $ 2,437 $ 925
Accounts payable 4,964 1,129
Accrued liabilities
Payroll and related 1,081 2,169
Interest and other 6,787 5,904
-----------------------
Total current liabilities 15,269 10,127
Long-term debt, net of current maturities 226,800 167,575
Deferred income taxes 20,705 4,792
Commitments
Stockolders' equity
Preferred stock, $.01par value; 5,000,000 shares authorized -- --
Common stock, $.01 par value; 200,000,000 shares authorized:
57,213,720 and 56,999,018 shares outstanding 572 570
Additional paid-in capital 102,583 100,085
Retained earnings 130,102 101,958
-----------------------
Total stockholders' equity 233,257 202,613
-----------------------
Total liabilies and stockholders' equity $496,031 $385,107
=======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
69
<PAGE> 88
<TABLE>
<CAPTION>
BOYD GAMING CORPORATION SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
(IN THOUSANDS)
For the year ended June 30,
--------------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Revenues $ 51,091 $34,457 $ 5,178
--------------------------------------
Costs and expenses
Depreciation and amortization 1,831 550 11
Corporate expense 20,024 19,929 7,686
--------------------------------------
Total 21,855 20,479 7,697
--------------------------------------
Operating income (loss) 29,236 13,978 (2,519)
--------------------------------------
Other income (expense)
Interest income 2,812 2,033 3,180
Interest expense, net of amounts capitalized (16,404) (9,951) (9,118)
--------------------------------------
Total (13,592) (7,918) (5,938)
--------------------------------------
Income (loss) before equity in subsidiaries' earnings and
provision for income taxes 15,644 6,060 (8,457)
Equity in subsidiaries' earnings 18,820 32,825 17,649
--------------------------------------
Income before provision for income taxes 34,464 38,885 9,192
Provision (benefit) for income taxes 6,320 16,752 (3,273)
--------------------------------------
Net income 28,144 36,249 12,685
Dividends on preferred stock ---- ---- 467
--------------------------------------
Net income applicable to common stock $ 28,144 $36,249 $12,218
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
70
<PAGE> 89
<TABLE>
<CAPTION>
Boyd Gaming Corporation SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the year ended June 30,
-------------------------------------------
1996 1995 1994
-------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 28,144 $ 36,249 $ 12,685
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,831 550 11
Equity in earnings in subsidiaries
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net (1,454) (1,030) (5,140)
(Increase) decrease in prepaid expenses (410) 197 (303)
Increase in other assets 11,707 (467) (13,138)
Increase (decrease) in other current liabilities 3,630 2,582 6,095
Increase (decrease) in income taxes payable 19,605 (792) --
Increase in investments in and advances
to subsidiaries (165,299) (42,213) (170,497)
-------------------------------------------
Net cash provided by (used in) operating activities (102,246) (4,924) (170,287)
-------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, equipment and other assets (10,764) (5,477) (7,121)
Decrease in short-term investments -- 5,000 (5,000)
-------------------------------------------
Net cash used in financing activities (10,764) (477) (12,121)
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings and payments of long-term debt 60,737 18,500 148,500
Proceeds from issuance of common stock 2,131 1,664 72,368
Dividends paid -- -- (467)
-------------------------------------------
Net cash provided by (used in) financing activities 62,868 20,164 220,401
-------------------------------------------
Net increase (decrease) in cash and cash equivalents (50,142) 14,763 37,993
Cash and cash equivalents, beginning of year 53,334 38,571 578
-------------------------------------------
Cash and cash equivalents, end of year $ 3,192 $ 53,334 $ 38,571
===========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
71
<PAGE> 90
BOYD GAMING CORPORATION SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
NOTES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Boyd Gaming Corporation and its wholly-owned subsidiaries, collectively
referred to herein as the "Company". The Company owns and operates six casino
entertainment facilities in Las Vegas, Nevada, one in Tunica, Mississippi and
one in Kansas City, Missouri, which opened in September 1995. The Company
manages a casino entertainment facility in Philadelphia, Mississippi, which
opened July 1, 1994, for which it has a seven-year management contract. The
Company is also part owner of and manages a riverboat gaming operation in
Kenner, Louisiana, which opened September 1994, for which it has a five-year
management contract with certain renewal options. Certain amounts in the 1995
and 1994 financial statements have been reclassified to conform with the 1996
presentation. These reclassifications had no effect on the Company's net income.
Advances to Subsidiaries
Advances to subsidiaries primarily represents cash advances made to
various subsidiaries of the Company and to a lesser extent the value of goods
and services provided by the Company to its subsidiaries.
Income Taxes
The Company and its subsidiaries file a consolidated federal tax
return. Taxes are allocated to individual subsidiaries and to the Company based
upon their operating results.
Management Fee
The Company charges its wholly owned subsidiaries a management fee for
services provided.
NOTE 2. LEGAL PROCEEDINGS
The Company is a defendant in various pending litigation. In the
opinion of management, all pending claims in such litigation will not, in the
aggregate, have a material adverse effect on the Company.
72
<PAGE> 91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on September
27, 1996.
BOYD GAMING CORPORATION
By: /s/ Keith E. Smith
-------------------
Keith E. Smith
Vice President, Controller
II-1
<PAGE> 92
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William S. Boyd, Ellis Landau and Keith
Smith, and each of them, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------ ------------------------------------------ ------------------
<S> <C> <C>
/s/ William S. Boyd Chairman of the Board of Directors, Chief September 27, 1996
- ------------------------------------ Executive Officer and Director (Principal
William S. Boyd Executive Officer)
/s/ Ellis Landau Senior Vice President, Chief Financial September 27, 1996
- ------------------------------------ Officer and Treasurer (Principal Financial
Ellis Landau Officer)
/s/ Keith E. Smith Vice President and Controller (Principal September 27, 1996
- ------------------------------------ Accounting Officer)
Keith E. Smith
Charles L. Ruthe Director September 27, 1996
Robert L. Boughner Executive Vice President & September 27, 1996
Chief Operating Officer and Director
Don Snyder Executive Vice President - September 27, 1996
Administration and Director
William R. Boyd Director September 27, 1996
/s/ Marianne Boyd Johnson Director September 27, 1996
- -----------------------------
Marianne Boyd Johnson
Perry B. Whitt Director September 27, 1996
</TABLE>
II-2
<PAGE> 93
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------ ------------------------------------------ ------------------
<S> <C> <C>
/s/ Warren L. Nelson Director September 27, 1996
- ------------------------------------
Warren L. Nelson
/s/ Kenny C. Guinn Director September 27, 1996
- ------------------------------------
Kenny C. Guinn
</TABLE>
II-3
<PAGE> 94
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
2.1(6) Stock Purchase Agreement, dated as of April 26, 1996, by and
among Registrant, Par-A-Dice Gaming Corporation, East Peoria
Hotel, Inc., and the Owners of all the Capital Stock of
Par-A-Dice Gaming Corporation and East Peoria Hotel.
3.1(1) Restated Articles of Incorporation.
3.2(10) Restated Bylaws
10.1(1) First Amended and Restated Credit Agreement dated as of September
2, 1993, by and among CH&C, Certain Commercial Lending
Institutions, CIBC Inc., First Interstate Bank of Nevada and
related Exhibits.
10.2(2) Form of Indenture relating to $150,000,000 aggregate principal
amount 11% Senior Subordinated Notes due 2002 of California Hotel
Finance Corporation, including the Form of Note.
10.3(1) Indenture dated as of September 3, 1993 relating to 10.75% Senior
Subordinated Notes Due 2003 ("10.75% Notes"), including Form of
Note.
10.4(1) Note Purchase Agreement dated September 3, 1993 relating to
10.75% Notes.
10.5(1) Registration Rights Agreement dated as of September 3, 1993
relating to 10.75% Notes.
10.6(1) Loan Agreement dated March 2, 1989, by and between First
Interstate Bank of Nevada and Eldorado, Inc., including related
Promissory Note, and related Revision Agreement dated October 31,
1989, by and between First Interstate Bank of Nevada, N.A. and
Eldorado, Inc.
10.7(3) Loan Agreement dated August 17, 1994 by and among Boyd Tunica,
Inc., the Registrant, First Interstate Bank of Nevada, Bankers
Trust Company and Bank of America Nevada.
10.8(2) Ninety-Nine Year Lease dated June 30, 1954, by and among Fremont
Hotel, Inc., and Charles L. Ronnow and J.L. Ronnow, and Alice
Elizabeth Ronnow.
10.9(2) Lease Agreement dated October 31, 1963, by and between Fremont
Hotel, Inc. and Cora Edit Garehime.
10.10(2) Lease Agreement dated December 31, 1963, by and among Fremont
Hotel, Inc., Bank of Nevada and Leon H. Rockwell, Jr.
<PAGE> 95
10.11(2) Lease Agreement dated June 7, 1971, by and among Anthony
Antonacci, Margaret Fay Simon and Bank of Nevada, as Co-Trustees
under Peter Albert Simon's Last Will and Testament, and related
Assignment of Lease dated February 25, 1985 to Sam-Will, Inc. and
Fremont Hotel, Inc.
10.12(3) Lease Agreement dated July 25, 1973, by and between CH&C and
William Peccole, as Trustee of the Peter Peccole 1970 Trust.
10.13(2) Lease Agreement dated July 1, 1974, by and among Fremont Hotel,
Inc. and Bank of Nevada, Leon H. Rockwell, Jr. and Margorie
Rockwell Riley.
10.14(2) Ground Lease Agreement dated July 5, 1978, by and between CH&C,
and Irene Elizabeth Carey, as Trustee of the Carey Survivor's
Trust U/A October 18, 1972 and Irene Elizabeth Carey, as Trustee
of the Carey Family Trust U/A October 18, 1972.
10.15(2) Ninety-Nine Year Lease dated December 1, 1978 by and between
Matthew Paratore, and George W. Morgan and LaRue Morgan, and
related Lease Assignment dated November 10, 1987 to Sam-Will,
Inc., d/b/a/ Fremont Hotel and Casino.
10.16(3) Collective Bargaining Agreement effective as of January 17, 1994,
by and between Sam-Will, Inc. d/b/a/ Fremont Hotel and Casino and
the International Union of Operating Engineers, Local No. 501,
AFL-CIO (slot technician unit).
10.17(1) Labor Agreement dated as of January 13, 1993, by and between
Mare-Bear, Inc. d/b/a/ Stardust Hotel & Casino, and the
International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.18(1) Labor Agreement dated as of January 13, 1993, by and between
Sam-Will, Inc., d/b/a/ Fremont Hotel and Casino, and the
International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.19(1) Labor Agreement dated January 13, 1993, by and between CH&C and
the International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.20(1) Agreement dated as of May 1, 1991, by and between Mare-Bear,
Inc., d/b/a/ Stardust Hotel & Casino, and the Local Joint
Executive Board of Las Vegas for and on behalf of the Culinary
Workers' Union, Local No. 226 and Bartenders Union, Local No.
165.
10.21(2) Agreement dated as of May 1, 1991, by and between Sam-Will, Inc.,
d/b/a/ Fremont Hotel and Casino, and the Local Joint Executive
Board of Las Vegas for and on behalf of the Culinary Workers'
Union, Local No. 226 and Bartenders Union, Local No. 165.
<PAGE> 96
10.22(1) Collective Bargaining Agreement dated September 12, 1991, by and
between Eldorado Casino and the Local Joint Executive Board of
Las Vegas for and on behalf of the Culinary Workers Union, Local
No. 226 and Bartenders Union, Local No. 165.
10.23(2) Collective Bargaining Agreement dated March 14, 1991, by and
between Mare-Bear, Inc., d/b/a/ Stardust Hotel & Casino, and the
Musicians Union of Las Vegas, Local No. 369, American Federation
of Musicians, AFL-CIO.
10.24(2) Labor Agreement dated May 1, 1991, by and between Mare-Bear,
Inc., d/b/a/ Stardust Hotel & Casino, and the International
Alliance of Theatrical Stage Employees and Moving Picture Machine
Operators of the United States and Canada, Local 720, Las Vegas,
Nevada.
10.25(2) Labor Agreement dated May 1, 1991, by and between Mare-Bear,
Inc., d/b/a/ Stardust Hotel & Casino, and the International
Alliance of Theatrical Stage Employees and Moving Picture Machine
Operators of the United States and Canada, Local 720, Las Vegas,
Nevada (Theatrical Wardrobe Employees).
10.26(2) Labor Agreement dated June 14, 1983, by and between Stardust
Hotel & Casino and the International Brotherhood of Painters and
Allied Trades, Local Union No. 159, AFL-CIO.
10.27(2) Labor Agreement dated June 1, 1983, by and between Stardust Hotel
and Casino and the United Brotherhood of Carpenters and Joiners
of America, Local Union No. 1780, Las Vegas, Nevada.
10.28(2) Labor Agreement dated August 1, 1983, by and between Stardust
Hotel and the International Brotherhood of Electrical Workers,
Local Union No. 357, AFL-CIO.
10.29(2) Implemented Proposal dated June 15, 1992, by and between Stardust
Hotel and Casino and the Back-End Teamsters Local Union No. 995.
10.30(2) Implemented Proposal dated June 15, 1992, by and between Fremont
Hotel and Casino and the Back-End Teamsters Local Union No. 995.
10.31(1) Agreement and Plan of Reorganization dated as of June 25, 1993,
by and among Eldorado, Inc., the Registrant, CH&C and certain
stockholders and noteholders of Eldorado, Inc.
10.32(1) Management Agreement dated March 11, 1993, by and between
Mississippi Band of Choctaw Indians and Boyd Mississippi, Inc.
10.33(3) Addendum to Management Agreement dated November 24, 1993, by and
between Mississippi Band of Choctaw Indians and Boyd Mississippi,
Inc.
<PAGE> 97
10.34(1) Casino Management Agreement dated August 30, 1993, by and between
Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
10.35(1) Subscription Agreement dated as of August 30, 1993, by and among
Boyd Kenner, Inc., the Registrant and Treasure Chest Casino,
L.L.C.
10.36(3) Amended and Restated Operating Agreement dated August 5, 1994, by
and between Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
10.37(1) Real Estate Contract of Sale dated April 29, 1993, by and among
Boyd Tunica, Inc. and Shea Leatherman, Irwin L. Zanone and
William A. Leatherman, Jr.
10.38(1) Real Estate Contract of Sale dated April 29, 1993, by and between
Eugene H. Beck, Jr. and the Boyd Group.
10.39(1) Real Estate Contract of Sale dated April 30, 1993, by and between
Mid-West Terminal Warehouse Company and the Boyd Group.
10.40(1) Real Estate Contract of Sale dated April 30, 1993, by and between
Hunt Midwest Real Estate Development, Inc. and the Boyd Group.
10.41(1) Amendment to Real Estate Contracts of Sale dated May 26, 1993, by
and among The Boyd Group, Hunt Midwest Real Estate Development,
Inc., Mid-West Terminal Warehouse Company and Eugene H. Beck, Jr.
10.42(1) Real Estate Contract of Sale dated as of April 30, 1993, by and
between Vergie G. Bevan, individually and as trustee of the
Vergie G. Bevan Revocable Trust and the Boyd Group.
10.43(3) Development Agreement dated June 6, 1994, by and among the
Registrant, Boyd Kansas City, Inc. and Port Authority of Kansas
City, Missouri.
10.44(3) Agreement dated January 10, 1994 by and between Boyd Tunica, Inc.
and W.G. Yates & Sons Construction Company.
10.45(3) Building Contract dated July 15, 1993, by and between Marnell
Corrao Associates, Inc. and Sam's Town Hotel and Gambling Hall
for Sam's Town Addition Phase V.
10.46(1) Form of Indemnification Agreement.
10.47(1)(4) 1993 Flexible Stock Incentive Plan and related agreements.
10.48(1)(4) 1993 Directors Non-Qualified Stock Option Plan and related
agreements.
10.49(1)(4) 1993 Employee Stock Purchase Plan and related agreement.
<PAGE> 98
10.50(2) 401(k) Profit Sharing Plan and Trust.
10.51(2) Note dated July 1, 1992, from Samuel A. Boyd Family Trust to the
Boyd Group in the principal sum of $3,000,000.
10.52(5) Promissory Note dated December 30, 1991, from Eldorado, Inc. to
Samuel A. Boyd in the principal sum of $600,000.
10.53(7) Joint Venture Agreement of Stardust A.C., dated as of May 29,
1996, by and between MAC, Corp., a New Jersey Corporation, which
is a wholly-owned subsidiary of Mirage Resorts Incorporated, a
Nevada Corporation, and Grand K, Inc., a Nevada Corporation,
which is a wholly-owned subsidiary of Registrant. (Certain
portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request
for confidential treatment for this Agreement.)
10.54(8) Credit Agreement dated as of June 19, 1996, by and among the
Registrant and California Hotel and Casino as the Borrowers,
certain commercial lending institutions as the Lenders, Canadian
Imperial Bank of Commerce as the Agent, Bank of America National
Trust Savings Association and Wells Fargo Bank N.A. as
Co-Managing Agents and Bankers Trust Company, Credit Lyonnais and
Societe Generale as Co-Agents.
10.55(9) Property Purchase Agreement dated as of August 9, 1996, by and
between Steamboat Station Company, a Nevada general partnership,
and Boyd Reno, Inc., a Nevada corporation and wholly-owned
subsidiary of the Company.
10.56(9) Buy-Sell Agreement dated as of August 2, 1996, by and between the
Registrant and Casino Magic of Louisiana, Corp., a Louisiana
corporation.
21.1 Subsidiaries for Boyd Gaming Corporation
23.1 Consent of Deloitte & Touche LLP.
24 Powers of Attorney (reference is made to page II-2).
27(10) Financial Data Schedule.
- --------------------------------------------------------------------------------
(1) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, File No. 33-64006, which became effective
on October 15, 1993.
<PAGE> 99
(2) Incorporated by reference to the Registration Statement on Form
S-1, File No. 33-51672, of California Hotel and Casino and
California Hotel Finance Corporation, which became effective on
November 18, 1992.
(3) Incorporated by reference to Registrant's Annual Report on Form
10-K for the year ended June 30, 1995.
(4) Management contracts or compensatory plans or arrangements.
(5) Incorporated by reference to Registrant's Annual Report on Form
10-K for the year ended June 30, 1994.
(6) Incorporated by reference to Registrant's Current Report on Form
8-K dated April 26, 1996.
(7) Incorporated by reference to Registrant's Current Report on Form
8-K dated June 7, 1996.
(8) Incorporated by reference to Registrant's Current Report on Form
8-K dated June 19, 1996.
(9) Incorporated by reference to Registrant's Current Report on Form
8-K dated August 16, 1996.
(10) Incorporated by reference to Registrant's Registration Statement
on Form S-3, File No. 05521.
<PAGE> 1
EXHIBIT 21.1
Boyd Gaming Corporation
Significant Subsidiaries:
California Hotel and Casino
(State of Incorporation or Organization) Nevada
(IRS Employer Identification Number) 88-012743
Boyd Tunica, Inc.
(State of Incorporation or Organization) Mississippi
(IRS Employer Identification Number) 64-0829658
Boyd Mississippi, Inc.
(State of Incorporation or Organization) Mississippi
(IRS Employer Identification Number) 93-1104426
Boyd Kansas City, Inc.
(State of Incorporation or Organization) Missouri
(IRS Employer Identification Number) 43-1649728
Boyd Kenner, Inc.
(State of Incorporation or Organization) Louisiana
(IRS Employer Identification Number) 88-0319489
Mare-Bear, Inc.
(State of Incorporation or Organization) Nevada
(IRS Employer Identification Number) 88-0203692
Sam-Will, Inc.
(State of Incorporation or Organization) Nevada
(IRS Employer Identification Number) 88-0203673
Eldorado, Inc.
(State of Incorporation or Organization) Nevada
(IRS Employer Identification Number) 88-0093922
MSW, Inc.
(State of Incorporation or Organization) Nevada
(IRS Employer Identification Number) 88-0310765
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the Incorporation by reference in Registration Statements No.
33-76484 and No. 33-85022 on Form S-8 and Registration Statements No. 333-05555
and No. 333-05521 on Form S-3 of Boyd Gaming Corporation of our reports dated
August 23, 1996, appearing in and incorporated by reference in this Annual
Report on Form 10-K of Boyd Gaming Corporation for the year ended June 30, 1996.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
September 27, 1996
