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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)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from July 1, 1997 to December 31, 1997.
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
9.25% SENIOR NOTES NEW YORK STOCK EXCHANGE
9.50% SENIOR SUBORDINATED 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. [ ]
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As of February 27, 1998, 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 $207,073,000. 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 February 27, 1998, the Registrant had outstanding 61,669,628 shares of
Common Stock.
Documents Incorporated by Reference into Parts I-III: Portions of the definitive
Proxy Statement for the Registrant's 1998 Annual Meeting of Stockholders are
incorporated by reference into Part III hereof.
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BOYD GAMING CORPORATION
1997 TRANSITION REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
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PART I PAGE NO.
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Item 1. Business............................................................................. 4
Item 2. Properties........................................................................... 32
Item 3. Legal Proceedings.................................................................... 32
Item 4. Submission of Matters to a Vote of Security-Holders.................................. 32
Item 4A. Executive Officers of the Registrant................................................. 33
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 33
Item 6. Selected Consolidated Financial Data................................................. 35
Item 7. Management's Discussion and Analysis of Financial Condition and......................
Results of Operations.............................................................. 37
Item 7A. Quantitative and Qualitative Disclosure about Market Risk............................ 47
Item 8. Financial Statements and Supplementary Data.......................................... 47
Item 9. Changes in and Disagreements with Accountants on Accounting and......................
Financial Disclosure............................................................... 47
PART III
Item 10 Directors and Executive Officers of the Registrant................................... 48
Item 11. Executive Compensation............................................................... 48
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 48
Item 13. Certain Relationships and Related Transactions....................................... 48
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K.................... 49
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Boyd Gaming Corporation is a multi-jurisdictional gaming company which currently
owns or operates twelve casino entertainment facilities. The Company has
operated successfully for more than two decades in the highly competitive Las
Vegas market and has entered five other gaming jurisdictions in the past four
years. The Company owns and operates seven facilities in three distinct markets
in Las Vegas, Nevada: the Stardust Resort and Casino (the "Stardust") on the Las
Vegas Strip; Sam's Town Hotel and Gambling Hall ("Sam's Town Las Vegas"), the
Eldorado Casino (the "Eldorado") and the Jokers Wild Casino ("Jokers Wild") on
the Boulder Strip; and the California Hotel and Casino (the "California"), the
Fremont Hotel and Casino (the "Fremont") and Main Street Station Casino, Brewery
and Hotel ("Main Street Station") in downtown Las Vegas. The Company also owns
or manages five facilities in other gaming jurisdictions, all opened during the
last four years. The Company owns and operates Sam's Town Hotel and Gambling
Hall, a dockside gaming and entertainment complex in Tunica County, Mississippi
("Sam's Town Tunica"), Sam's Town Kansas City, a riverboat gaming and
entertainment complex in Kansas City, Missouri and the Par-A-Dice riverboat
casino and hotel in East Peoria, Illinois ("Par-A-Dice"). In October 1997, the
Company completed the acquisition of Treasure Chest Casino (the "Treasure
Chest"), a riverboat casino in Kenner, Louisiana, which the Company had
previously managed and partially owned. The Company manages for the Mississippi
Band of Choctaw Indians the Silver Star Resort and Casino (the "Silver Star"), a
land-based gaming and entertainment complex located near Philadelphia,
Mississippi. The Company currently owns or operates an aggregate of
approximately 590,000 square feet of casino space, containing 16,886 slot
machines and 555 table games. As such, the Company derives the majority of its
gross revenues from its casino operations, which produced over 60% of gross
revenues during the last three fiscal years. Food and beverage revenue, which
produced over 15% of gross revenues during the last three fiscal years,
represents the only other revenue source which produced more than 10% of gross
revenues during this time frame. See "Properties" and "Item 2. -- Properties."
The Company currently conducts substantially all of its business through eight
wholly-owned subsidiaries: California Hotel and Casino ("CH&C"); Boyd Tunica,
Inc. ("Boyd Tunica"); Boyd Kenner, Inc. ("Boyd Kenner"); Boyd Louisiana L.L.C.
("Boyd Louisiana"); Boyd Mississippi, Inc. ("Boyd Mississippi"); Boyd Kansas
City, Inc. ("Boyd Kansas City"), Par-A-Dice Gaming Corporation ("Par-A-Dice
Gaming") and East Peoria Hotel, Inc. ("EPH"). CH&C directly owns and operates
Sam's Town Las Vegas and the California and owns and operates the Stardust, the
Fremont, the Eldorado, Jokers Wild and 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 Treasure Chest,
L.L.C., the owner of the Treasure Chest; Boyd Louisiana owns the remaining 85%
equity interest in Treasure Chest, L.L.C.; Boyd Mississippi operates Silver
Star; and Boyd Kansas City owns and operates Sam's Town Kansas City. Par-A-Dice
Gaming owns and operates the Par-A-Dice, and EPH is the general partner and
Par-A-Dice Gaming is the limited partner of a limited partnership that owns the
Par-A-Dice Hotel.
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.
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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
products have resulted in sophisticated interactive games, which offer customers
greater variety, more generous payoffs and increased periods of play for their
casino entertainment dollar. The Company continually invests in upgrading its
machines to reflect advances in technology and the development of proprietary
slot games and related equipment at all of its facilities in order to further
enhance the slot customer's experience.
Comprehensive Marketing and Promotion
The Company actively promotes its casino entertainment offerings, its hotels,
destination restaurants and live entertainment using a variety of promotional
advertising media including outdoor advertising and print and broadcast media.
The Company develops and maintains an extensive customer database. The database
is expanded daily, adding new casino customers by obtaining their mailing
addresses and other marketing information. To encourage repeat visitation, the
Company employs a direct mail program targeting its database customers with a
variety of product offerings, including incentives to visit the Company's
facilities frequently. During the six month period ended December 31, 1997, the
Company distributed approximately 7 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 seven properties in Las Vegas: the
Stardust; Sam's Town Las Vegas; the Eldorado; Jokers Wild; the California; the
Fremont; and Main Street Station. The Company also owns and/or operates five
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; Silver Star, in central Mississippi; and
Par-A-Dice in East Peoria, Illinois.
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 79 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 sports line
service that is quoted throughout the United States and abroad. The Stardust
features 2,300 guest rooms, 1,500 in its 32-story hotel tower. 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 occupancy rate and average room rate at the
Stardust during the six month period ended December 31, 1997 were 91% and $46,
respectively.
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
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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 is analyzing various alternatives to utilize the 61-acre Stardust
site, including additional hotel rooms and other amenities to more effectively
compete with the new generation of Las Vegas properties.
Boulder Strip Properties
Sam's Town Las Vegas is situated on 56 acres of land owned and 7 acres of land
leased by the Company on the Boulder Strip, approximately six miles east of the
Las Vegas Strip. 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 approximately 2,900 slot
machines and 53 table games, including tables featuring blackjack, craps,
roulette, pai gow, poker and Caribbean stud, as well as keno, a race and sports
book, and bingo. The property has 642 guest rooms, 16 restaurants, 500 spaces
for recreational vehicles and approximately 3,200 parking spaces, including two
parking garages which together can accommodate up to 2,000 cars. The resort
features a 25,000-square foot atrium which contains extensive foliage and trees,
streams, bridges, and a large waterfall with a laser light show. Adjacent to the
atrium there are several restaurants and a large sports bar. Other features of
the property include an outdoor recreation area, as well as banquet and meeting
facilities. The occupancy rate and average room rate at Sam's Town Las Vegas
were 91% and $47, respectively, during the six month period ended December 31,
1997.
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, a western dance hall and live entertainment
create a social center that attracts many Las Vegas residents. The property is a
major sponsor of the Ladies Professional Bowling Tour and hosts many bowling
events which are televised throughout the United States and attract participants
from around 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.
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 600 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 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. The property offers 22,500 square feet of casino space with 640 slot
machines and 11 table games, including tables featuring "21," craps, roulette,
pai gow, Caribbean stud and poker, as well as keno and a sports book. The
facility also offers a buffet restaurant, a coffee shop, an entertainment
lounge, a video arcade and approximately 800 parking spaces. Jokers Wild serves
both local residents and visitors to the Las Vegas area traveling on the Boulder
Highway.
Downtown Properties
The California is situated on 13.9 acres of land owned and 1.6 acres of land
leased by the Company in downtown Las Vegas. The California was the Company's
first property and has 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 95-space recreational vehicle park, the only such facility in the
downtown area. The casino offers approximately 1,122 slot machines and 35 table
games, including tables featuring "21," craps, roulette, pai gow and Caribbean
stud, as well as keno and a sports book. The occupancy rate and average room
rate at the California were 91% and $30, respectively, during the six month
period ended December 31, 1997.
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 32,000 square feet of casino space, including 1,064 slot machines and 27
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
423 guest rooms and five restaurants including the Second Street Grill, an
upscale contemporary restaurant, and the Paradise
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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. During the six month period ended December 31, 1997, the Fremont
completed a $4.5 million rooms remodel project. The occupancy rate and average
room rate at the Fremont were 95% and $30, respectively, during the six month
period ended December 31, 1997.
Main Street Station was acquired by the Company in December 1993 and was used to
augment the rooms base for the California and Fremont prior to its opening as a
full service hotel casino in November 1996. Main Street Station is situated on
15 acres of land owned by the Company in downtown Las Vegas and was renovated
and expanded prior to its November 1996 opening. The property includes a
28,500-square foot, newly-equipped casino with 22 table games and 869 slot
machines. The property also includes 406 renovated hotel rooms and expanded and
renovated food facilities, including 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 occupancy rate and average room rate at
Main Street Station were 91% and $31, respectively, during the six month period
ended December 31, 1997.
The Company coordinates marketing efforts, support functions and has
standardized operating procedures and systems among its three Downtown
Properties with the goal of enhancing revenues and reducing expenses. This
effort includes a consolidated database and marketing program for all Downtown
Properties. The Company believes these efforts will significantly reduce costs
and provide it with a competitive advantage.
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 Hawaiian travel agency, Vacations
Hawaii, the Company currently operates six 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 California and Fremont have been the leading Las Vegas destination
for visitors from Hawaii. The Company attributes this success to the amenities
and atmosphere at the California and Fremont, which are designed to appeal
specifically to visitors from Hawaii, and to its marketing strategy featuring
significant promotions in Hawaii and a bi-monthly newsletter circulated to over
85,000 households, primarily in Hawaii. During the six month period ended
December 31, 1997, patrons from Hawaii comprised approximately 73% of the room
nights at the California, 57% of the room nights at the Fremont and 57% of the
room nights at Main Street Station.
The Company, together with other downtown casino operators and the City of Las
Vegas, developed the downtown attraction known as the Fremont Street Experience.
While the FSE has increased visitation to the downtown area, it has not
translated into increased gaming revenue for the Company's Downtown Properties.
In addition, the entity which operates the Fremont Street Experience (Fremont
Street Experience, Limited Liability Company or "FSE") has experienced
significant levels of operating loss and cash deficiency during its first full
year of operation. Management expects this trend to continue and, therefore,
does not expect to recover its investment in this entity. For these reasons, the
Company recorded a $5.3 million impairment loss in fiscal 1997 to write-off its
entire investment in FSE. See Note 3 of Notes to Consolidated Financial
Statements.
Central Region Properties
The Company exported its popular Sam's Town western theme and atmosphere to the
Mississippi dockside gaming market by developing Sam's Town Tunica, which opened
on May 25, 1994. Since its opening, Sam's Town Tunica has undergone several
expansions. In December 1994, an $18 million expansion was completed which
included the addition of 308 guest rooms surrounding a swimming pool and
recreational area. During 1996, the Company, seeking to further its position in
both the overnight and drive-in markets in Tunica, expanded Sam's Town Tunica.
The $40 million expansion project included a 350-room hotel tower and a
1,000-car parking garage. The new hotel tower brings the total room count to
857, and the garage is the first enclosed parking structure at a Tunica County
casino. The complex offers a two-story casino of approximately 75,000 square
feet featuring 1,885 slot machines and 74 table games, including tables
featuring "21," craps, roulette, poker, Caribbean stud and pai gow, as well as
the only live keno in Tunica county. The design of the facility integrates the
water-based and land-based components of the facility. 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 857-room hotel, an entertainment lounge
featuring country-western music, six restaurants including Corky's B-B-Q,
featuring the food of that popular Memphis eatery, bars, specialty shops and the
River Palace Arena, a 1,650-seat entertainment facility featuring a
cross-section of national recording artists.
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The occupancy rate and average room rate at Sam's Town Tunica were 84% and $47,
respectively, during the six month period ended December 31, 1997.
The Company extended its Sam's Town theme to the Kansas City, Missouri 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 1,099 slot machines and 49 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. 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. During fiscal 1997, the Company recorded a $126 million
impairment loss in accordance with SFAS No. 121 to write down the carrying value
of the Company's Missouri fixed and intangible assets, including Sam's Town
Kansas City, to fair value. See Note 3 of Notes to Consolidated Financial
Statements. In light of the historical operating performance at Sam's Town
Kansas City, management is considering various strategic alternatives to
mitigate its impact on the Company, which may include, among other things, the
possible sale of the property.
In October 1997, the Company completed the acquisition of the Treasure Chest, a
riverboat casino operation located on Lake Pontchartrain in Kenner, Louisiana.
Treasure Chest opened in September 1994 and is 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. In January
1996, an $11 million entertainment complex was added to serve as the main
boarding area and showcase the 140 seat Caribbean Showroom, as well as three
restaurants, a gift shop and snack bar. The gaming operation features a classic
18th century Victorian-style paddle-wheel riverboat with a total capacity of
2,000 persons, approximately 24,000 square feet of casino space, over 900 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. Prior to the October
1997 acquisition, the Company managed and owned a 15% equity interest in
Treasure Chest.
Pursuant to an agreement with the Mississippi Band of Choctaw Indians, the
Company operates the Silver Star located near Philadelphia, 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
Mississippi Band of Choctaw Indians recently completed a major expansion
project, and the property now includes a 505-room hotel, a casino with
approximately 90,000 square feet of gaming space, over 2,800 slot machines and
96 table games, including tables for "21," craps, roulette, mini-baccarat and
Caribbean stud, a lounge suitable for entertainment and dancing, a swimming
pool, spa, four restaurants, a 28,000-square foot conference center, more than
2,700 parking spaces, and an 18-golf course owned and operated by the
Mississippi Band of Choctaw Indians.
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 loaned the tribe an additional $10 million for a casino
expansion project which was completed in December 1994. This loan is scheduled
to be repaid over five years.
On December 4, 1996, the Company completed the acquisition of Par-A-Dice.
Par-A-Dice is a riverboat casino operation 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 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
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levels with over 1,000 slot machines and 42 table games, as well as limited food
and beverage services. Located adjacent to Par-A-Dice is the Par-A-Dice Hotel, a
208-room full-service hotel with food and beverage, banquet and meeting
facilities. The occupancy rate and average room rate at Par-A-Dice were 84% and
$55, respectively, during the six month period ended December 31, 1997.
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. 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.
MIRAGE JOINT VENTURE
On May 29, 1996, the Company, through a wholly-owned subsidiary, and Mirage
Resorts, Incorporated, through a wholly-owned subsidiary (collectively
"Mirage"), executed a joint venture agreement (the "Joint Venture Agreement"),
to jointly develop and own a casino hotel entertainment facility in Atlantic
City, New Jersey (the "Mirage Joint Venture"). The Mirage Joint Venture would be
one component of a multi-facility casino entertainment development,
master-planned by Mirage for the Marina district of Atlantic City and is
expected to cost at least $500 million. The Mirage Joint Venture would fund $300
million of the project cost with non-recourse third-party financing. The
remaining $200 million would 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 would control the development and
operation of the Mirage Joint Venture. The Mirage Joint Venture contemplates a
hotel of at least 1,000 rooms and a casino and related amenities (the "Atlantic
City Project") 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 casino entertainment development master-planned by Mirage. 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 would thereafter take at least two
years. Accordingly, the Company is unable to estimate, when, if at all, the
Atlantic City Project will be completed. The Company has submitted its petition
for a statement of compliance to the New Jersey Casino Control Commission
("NJCCC"). This petition has been forwarded to the New Jersey Division of Gaming
Enforcement ("NJDGE") for investigation. Upon commencement of construction, the
Company would be in a position to 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 would focus on issues concerning operations, the facility and equal
employment and business opportunity. See "Investment Considerations --
Expansion." The Atlantic City Project would give the Company a presence in
Atlantic City, the primary casino gaming market serving the eastern United
States.
In January 1998, Mirage attempted to unilaterally terminate the Joint Venture
Agreement citing the passage of a December 31, 1997 deadline for the transfer of
title of certain land in the Marina district to Mirage. On February 2, 1998, the
Company filed a lawsuit against Mirage in the Superior Court of New Jersey to
enforce its rights under the Joint Venture Agreement. The lawsuit alleges, among
other things, that Mirage attempted to unilaterally terminate the Joint Venture
Agreement and misappropriate the Mirage Joint Venture's business opportunity for
its own benefit. As a result, there can be no assurance that the Atlantic City
Project will be completed according to the terms contemplated by the Joint
Venture Agreement, or at all.
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 within the Annual Report
generally. Also, documents subsequently filed by the Company with the Securities
and Exchange Commission may contain forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the investment conditions set forth below and the matters set
forth in the Annual Report generally. The Company cautions the reader, however,
that this list of factors may not be exhaustive, particularly with respect to
future filings. Before making a decision to invest in the Company's Common Stock
or other securities, 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
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Company compete and will in the future compete with all these forms of gaming
and with any new forms of gaming that may be legalized in existing and
additional jurisdictions, as well as with other types of entertainment. In
addition, further expansion of gaming into other jurisdictions could 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.
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 with a multitude of casino hotels in
the greater Las Vegas Metropolitan area. Currently, there are approximately 18
major gaming properties located on or near the Las Vegas Strip, 13 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
3,000-room Paris Casino-Resort, the 3,000-room Bellagio, the 6,000-room
Venetian, the 3,700-room Mandalay Bay and the 2,600-room Aladdin 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 nine dockside casinos now in operation. In
addition, several Tunica-area casinos have recently added hotel rooms and other
enhancements to their properties. 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 Kansas City competes primarily with four other riverboat gaming
operations in the Kansas City area. Some of these gaming facilities are operated
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 locations. Sam's Town Kansas City reported an
operating loss of $5.0 million (before the write-off of preopening expenses) in
fiscal 1996, a $10.9 million operating loss (before impairment loss) in fiscal
1997 and a $3.7 million operating loss during the six month period ended
December 31, 1997. During fiscal 1997, the Company recorded an impairment loss
of approximately $126 million related to the Company's Missouri gaming assets,
including Sam's Town Kansas City. See Note 3 of Notes to the Consolidated
Financial Statements. No assurance can be given that the Company will be able to
compete successfully in the future. In light of the historical operating
performance at Sam's Town Kansas City, management is considering various
strategic alternatives to mitigate its impact on the Company, which may include,
among other things, the possible sale of the property.
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 licenses issued and 13 riverboats in operation in
the State of Louisiana with three 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.
Par-A-Dice competes primarily with other gaming operations in Illinois and, to a
lesser extent, with riverboats 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
nine 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.
There can be no assurance that Par-A-Dice will compete successfully in the
future.
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EXPANSION
On May 29, 1996, the Company entered into the Joint Venture Agreement with
Mirage to jointly develop the Atlantic City Project. The Atlantic City
Project is subject to a number of contingencies, including, but not limited to,
final approval and funding of highway improvements necessary to accommodate the
additional traffic that is expected to be generated to and from the Marina
district, approval and licensing by the New Jersey gaming authorities,
environmental remediation, the receipt of state and local land-use permits,
building and zoning permits and liquor licenses. Once the necessary highway
improvements are assured and other requisite approvals are received, the Company
estimates that environmental remediation would take at least six months and
construction of the Atlantic City Project would thereafter take at least two
years.
In January 1998, Mirage attempted to unilaterally terminate the Joint Venture
Agreement citing the passage of a December 31, 1997 deadline for the transfer of
title of certain land in the Marina district to Mirage. On February 2, 1998, the
Company filed a lawsuit against Mirage in the Superior Court of New Jersey to
enforce its rights under the Joint Venture Agreement. The lawsuit alleges, among
other things, that Mirage attempted to unilaterally terminate the Joint Venture
Agreement and misappropriate the Mirage Joint Venture's business opportunity for
its own benefit. Accordingly, there can be no assurance that the Atlantic City
Project will be completed according to the terms contemplated by the Joint
Venture Agreement, or at all. In addition, the Atlantic City market is very
competitive and no assurance can be given that, if completed, the Atlantic City
Project will be successful. See "Business -- Mirage Joint Venture."
The Company, as part of its ongoing strategic planning process, is currently
establishing its priorities for future growth. In Nevada, the Company has
intensified its efforts to develop alternatives for the enhancement and
development of the 61-acre Stardust site on the Las Vegas Strip and is exploring
opportunities that may exist in the locals market for expansion of its Sam's
Town concept. Outside of Nevada, the Company continues to monitor acquisition
opportunities in many of the newer gaming markets as the industry continues to
consolidate.
ADDITIONAL FINANCING REQUIREMENTS
Based upon the extent and scope of the above mentioned expansion plans, the
Company may be able to finance its current and future expansion projects
primarily with cash flow from operations and borrowings under its five-year,
$500 million reducing revolving credit facility (the "Bank Credit Facility"). If
the Company is unable to finance such projects through cash flow from operations
and borrowings under its 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, obtaining additional equity or
debt financing or joint venture partners. 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, each of the Company's significant
long-term debt agreements contain certain restrictions on the ability of the
Company to incur additional indebtedness. If the Company is unable to secure
additional financing, it could be forced to limit or suspend expansion,
development and acquisition projects, which may adversely affect 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 December 31, 1997, the Company had total consolidated long-term debt of
approximately $843 million, which represents approximately 81% of the total
capitalization of the Company as of such date. Debt service requirements on the
Company's Bank Credit Facility consist of interest expense on outstanding
Indebtedness. Beginning in December 1998, the total principal amount available
under the 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 under the Company's 9.25% and
9.50% Notes consist of semi-annual interest payments and repayment of the $200
million and $250 million of principal on October 1, 2003 and July 15, 2007,
respectively. If the Atlantic City Project goes forward, the Company expects to
fund its subsidiary's required capital contributions to the Mirage Joint
Venture, currently expected to be $100 million, with borrowings under the 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
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debt, obtaining additional equity or debt financing or joint venture partners.
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 regulations. The
Company's gaming operations are subject to the licensing and regulatory control
of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State
Gaming Control Board (the "Nevada Board"), and the Clark County Liquor and
Gaming Licensing Board (the "Clark County Board"). The Nevada Commission, the
Nevada Board, and the Clark County Board are collectively referred to herein as
the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including establishing 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 through
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 Jokers Wild, and
MSW, Inc. ("MSW"), the operator of Main Street Station. 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, Eldorado, Inc. and
MSW 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
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CH&C or its licensed subsidiaries may be required to be licensed or found
suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may
deny an application for licensing for any cause which they deem reasonable. A
finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities and, in addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, 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 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
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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 the 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 the securities. Any representation to the contrary
is unlawful. The Nevada Commission granted the Company prior approval to make
public offerings through September 21, 1997, 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. The Registered Exchange Offer or the offering
under the Shelf Registration Statement will be 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.
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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 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 Bank 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. Payments on the loan were current
as of December 31, 1997.
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 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
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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 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, Sections 261-264 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 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
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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.
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 ten 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 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 renewed in February 1996 and in February 1997, and Par-A-Dice will be
required to renew its license 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%.
From time to time, various proposals have been introduced in the Illinois
legislature regarding riverboat gaming. Such proposals include, among other
things, taxes, licensing and conduct of gaming. The Company cannot offer any
opinion of the outcome or effect
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of any pending or proposed legislation. In December 1997, the Illinois General
Assembly passed, and the Governor signed into law, an increase in the wagering
tax on adjusted gross receipts (which is gross gaming revenues minus winnings
paid to patrons). Instead of a flat 20% tax, the new law, which became effective
on January 1, 1998, imposes graduated tax rates. The new graduated rates are as
follows: 15% of the calendar year adjusted gross receipts up to and including
$25,000,000; 20% of the calendar year adjusted gross receipts in excess of
$25,000,000 but not exceeding $50,000,000; 25% of the calendar year adjusted
gross receipts in excess of $50,000,000 but not exceeding $75,000,000; 30% of
the calendar year adjusted gross receipts in excess of $75,000,000 but not
exceeding $100,000,000; and 35% of the calendar year adjusted gross receipts in
excess of $100,000,000. 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.
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 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.
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; (vi) failing to establish and maintain standards
and procedures designed to prevent ineligible or unsuitable persons from
becoming employed by a licensee, including any person known to have been found
guilty of cheating or using any improper device in connection with any game;
(vii) failing to promulgate an approved Internal Control System; any reason set
forth in Section 3000.241(d) or resulting from an event set forth in Section
3000.243; and (viii) aiding and abetting a violation by a Gaming Board member or
employee, or other government official, of ethical requirements established by
statute, resolution, ordinance, personal code or code of conduct.
Licensees are required to obtain formal approval from the Illinois Gaming Board
whenever a change is proposed in the following areas: (i) "Key Persons" (as
defined below); (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) agreements, oral or written, relating to the
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acquisition or disposition of property (real or personal) of a value greater
than $1 million. 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. For a publicly held Business Entity, a Key Person is any
person directly or indirectly holding a legal or beneficial interest of 5% or
more of an applicant or owner licensee and officers, directors, trustees,
partners, and managing agents of a gaming enterprise, and any person identified
by the Board as a person able to control or exercise significant influence over
the management or operating policies of licensee. Furthermore, each applicant or
owner licensee must disclose the identity of every person, association, trust or
corporation having a greater than 1% direct or indirect pecuniary interest in an
owner licensee or in the riverboat gaming operation with respect to which the
license is sought. The Illinois 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.
An Institutional Investor that individually or jointly with others, cumulatively
acquires, directly or indirectly, 5% or more of any class of voting securities
of a publicly-traded licensee or a licensee's publicly-traded parent corporation
shall, within no less than ten days after acquiring such securities, notify the
Administrator of the Board of such ownership and shall provide any additional
information as may be required. If an Institutional Investor (as specified
above) acquires 10% or more of any class of voting securities of a
publicly-traded licensee or a licensee's publicly-traded parent corporation, it
shall file an Institutional Investor Disclosure Form within 45 days after
acquiring such level of ownership interest.
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 interest 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
contain 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 "NJCCC") is empowered 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.
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No casino hotel facility may operate unless the appropriate license and
approvals are obtained from the NJCCC, 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 NJCCC may reopen licensing hearings at any time and must reopen a
licensing hearing at the request of the New Jersey Division of Gaming
Enforcement (the "NJDGE").
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 NJCCC 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, NJCCC 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 NJCCC 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 NJCCC may consider appropriate, obtains and maintains
qualification approval from the NJCCC. 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 NJCCC and meet the same basic standards for approval as a casino
licensee; provided, however, that the NJCCC, with the concurrence of the
Director of the NJDGE, 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 NJCCC and the Director
of the NJDGE 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-traded corporation or elect one
or more of its directors.
The NJCCC 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 Investors") 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 NJCCC
may determine for reasons consistent with the policies of the Casino Control
Act.
An Institutional Investor shall be granted a waiver by the NJCCC 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 NJDGE
that there is any cause to believe that the Institutional Investor may be found
unqualified, on the basis of NJCCC findings that: (a) its holdings were
purchased for investment purposes only and, upon request by the NJCCC, it files
a certified statement to the effect that is 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)
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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 NJCCC 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 NJCCC 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 NJCCC an application for
qualification before taking any such action. If an Institutional Investor
changes its investment intent, or if the NJCCC finds reasonable cause to believe
that it may be found unqualified, the Institutional Investor may take no action
with respect to the security holdings, 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 NJCCC 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 NJCCC 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 NJCCC
regulations require that the corporate charter or partnership agreement of a
Regulated Company establish a right in the NJCCC 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 NJCCC 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 NJCCC,
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 NJCCC. If, after the report of the NJDGE and a hearing by the
NJCCC, the NJCCC grants interim authorization, the property will be subject to a
trust. If the NJCCC denies interim authorization, the contract may not close or
settle until the NJCCC makes a determination on the qualifications of the
applicant. If the NJCCC 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 NJCCC
determines that qualification is required or declines to waive qualification.
The application must include a fully executed trust agreement in a form approved
by the NJCCC, or in the alternative, within 120 days after the NJCCC determines
that qualification is required, the person whose qualification is required must
divest such securities as the NJCCC may require in order to remove the need to
qualify.
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The NJCCC 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 NJCCC finds the applicant qualified, the trust will terminate. If the
NJCCC 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 NJCCC 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 NJCCC 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 of thereof that the NJCCC determines
should be closed.
The NJCCC 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 $100,000 for a one-year casino license nor 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 NJCCC or the
NJDGE. 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 is 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 provide for: (i) the complete management of the casino; (ii) the
sole and unrestricted power to direct the casino operations; and (iii) a term
long enough to ensure the reasonable continuity, stability and independence and
management of the casino.
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
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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 NJCCC and the NJDGE are less than a certain fixed sum.
Additionally, a portion of the investment alternative tax obligation of each
casino licensee 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, there was established a standard minimum parking charge of
at least $2.00 per day 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 licensee, $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.
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
upon the failure or refusal to renew a casino license, the NJCCC 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 NJCCC
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 NJCCC 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, which have since been dissolved, promulgated extensive regulations
which controlled riverboat gaming in Louisiana. The Riverboat 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 Riverboat 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 Louisiana legislature
passed the Louisiana Gaming Control Act (the "Gaming Control Act") which
dissolved both the Commission and the Division and replaced them with the
Louisiana Gaming Control Board. 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 came into
existence on
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May 1, 1996 and is made up of nine members and two ex-officio members (including
the Secretary of Revenue and Taxation and the superintendent of Louisiana State
Police). It is domiciled in Baton Rouge and regulates riverboat gaming, the
land-based casino in New Orleans and video poker. The Attorney General acts as
legal counsel to the Gaming Control Board as he did for the Commission. 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.
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 Treasure Chest is located in Jefferson Parish, Louisiana.
Jefferson Parish approved riverboat gaming at the special election held on
November 6, 1996.
The Riverboat Act approved the conducting of gaming activities on a riverboat,
in accordance with the Riverboat Act, on twelve separate waterways in Louisiana.
The Riverboat Act allows the Gaming Control Board to issue up to 15 licenses to
operate riverboat gaming projects within the state, with no more than six in any
one parish. There are presently 14 licenses issued and 13 riverboats operating.
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 a 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 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.
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.
The Treasure Chest license is valid for a term of five years and will expire on
May 18, 1999. Prior to such time, the Company expects to file an application for
renewal of the Treasure Chest license for an additional five year period.
However, there can be no assurance that such application will be approved.
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 of partners
of the 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
subsidiaries, Boyd Kenner, Boyd Louisiana L.L.C. and Treasure Chest Casino,
L.L.C. are licensees and are 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 Riverboat 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
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<PAGE> 25
the Riverboat 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 from the
licensee; or (v) continue in an ownership or economic interest in a licensee or
remains as a manager, director or partner of a licensee.
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 February 1, 1997, 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 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 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
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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, and again on December 1, 1997.
Gaming licenses are non-transferable, are initially issued for a two-year period
and must be renewed periodically thereafter. Boyd Tunica was granted a renewal
of its gaming license by the Mississippi Gaming Commission on November 30, 1995
and again on December 1, 1997. The gaming license for Boyd Tunica must be
renewed in December of 1999. 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 officers and 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 Company believes it has
obtained or applied for all necessary findings of suitability with respect to
such persons associated with the Company or Boyd Tunica, although the
Mississippi Gaming Commission, in its discretion, may require additional persons
to file applications for findings of suitability. 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 licensed 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 an issuance or 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 make an issuance or a public offering of
its securities without the prior approval of the Mississippi Gaming Commission
if any part of the proceeds of the offering is to be used to finance the
construction, acquisition or operation of gaming facilities in Mississippi or to
retire or extend obligations incurred for 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. Any representation
to the contrary is unlawful.
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.
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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 a public company's common stock. If a stockholder who must be found
suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners. The
Mississippi Gaming Commission has adopted a policy with respect to certain
institutional investors which may permit such investors to purchase and hold up
to 10% of a public 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. Management believes that compliance by the
Company with the licensing procedures and regulatory requirements of the
Mississippi Gaming Commission will not affect the marketability of its
securities. 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.
Boyd Tunica 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 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.
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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 or a waiver of such
approval. 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. The Company and its affiliates obtained the approval
of the Mississippi Gaming Commission to engage in gaming operations in Nevada,
Louisiana, Illinois 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) the number of patrons entering the casino.
The license fees payable to the State of Mississippi are based upon "gaming
receipts" (generally defined as gross receipts less payouts to customers as
winnings) and are equal to 4% of gaming receipts of $50,000 or less per month,
6% of gaming receipts over $50,000 and less than $134,000 per month, and 8% of
gaming receipts over $134,000 per month. 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 an 857-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 the 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
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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-themed
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 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 per 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 assurance 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 subsequently requested, and the
Port Authority approved, multiple extensions of the time period for Boyd Kansas
City to attempt to complete such offering, including the last extension, which
was in effect through September 13, 1997. Rather than granting further
extensions, the Port Authority advised Boyd Kansas City that it was going to
evaluate the status of the minority offering requirements for all licensees
having development agreements with the Port Authority. By letter dated February
16, 1998, counsel for the Port Authority advised counsel for Boyd Kansas City
that the Port Authority did not consider Boyd in default of its obligation to
complete such minority offering. Such offering has not been completed at this
time, and due to the performance of Sam's Town Kansas City, the Company does not
anticipate that the offering will 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 any 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
application any time there is a material change in the information submitted on
such license application 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 or issuance of any ownership interest in a gaming licensee
which is not a publicly-held entity, such as Boyd Kansas City. Upon receipt of
such 60-day notice, the Missouri Commission may disapprove the transaction or
require
29
<PAGE> 30
the transaction to be delayed pending further investigation. The pledge or
hypothecation of any ownership interest in a gaming licensee which is not a
publicly-held entity is prohibited.
The Missouri Regulations permit a gaming licensee to consummate issuance of
ownership interests in publicly-held gaming licensees or publicly-held holding
companies, such as the Company, and permit a gaming licensee or holding company
to incur debt or publicly issue debt, at any time after 15 days following notice
to the Missouri Commission by the gaming licensee of its intent to consummate
such a transaction. The Missouri Regulations authorize the Missouri Commission
to reopen a license hearing at any time to consider the effect of the
transaction in question on the gaming licensee's suitability.
The Missouri Regulations require that the Missouri Commission be notified not
later than seven days after the consummation of any pledge or hypothecation of
an ownership interest equaling 5% or more of the ownership of a publicly-held
gaming licensee or publicly-held holding company or any transfer or issuance of
ownership interest in a publicly-held gaming licensee or publicly-held holding
company if such transfer or issuance resulted 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 gaming licensee or holding
company. If any part of such ownership interest is transferred voluntarily or
involuntarily pursuant to such a pledge or hypothecation, separate notice to the
Missouri Commission is required not later than seven days after the consummation
of such transfer. The Missouri Regulations also require that the Missouri
Commission be notified not later than seven days after the consummation of any
transaction that involves or relates to a gaming licensee and has a dollar value
equal to or greater than one million dollars. 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 gaming licensee to anyone with an ownership
interest in the gaming licensee.
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 such 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 Missouri Commission,
and to advise the Missouri Commission of any material changes in the information
submitted by a licensee on its license application within seven 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 or 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.
On November 26, 1997, the Supreme Court of Missouri held that the part of the
Missouri Act that authorizes games of chance to be conducted in artificial
spaces within one thousand feet of the channel of the Mississippi or Missouri
Rivers is invalid to the extent it conflicts with Article III, section 39(e) of
the Missouri Constitution, which authorizes games of chance to be conducted
solely upon the Mississippi and Missouri Rivers. The Missouri Supreme Court,
however, clarified that games of chance may occur in artificial spaces that are
contiguous to the surface streams of the Mississippi and Missouri Rivers. Boyd
Kansas City has been advised by the Missouri Gaming Commission that it, along
with five other licensees in Missouri who collectively hold 10 gaming licenses,
may not be authorized to conduct games of chance due to the configuration of
their respective gaming facilities. Boyd Kansas City believes that it is in full
compliance with the Missouri Act, as interpreted by the Missouri Supreme Court,
but an adverse ruling could result in the closure of Sam's Town Kansas City.
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
30
<PAGE> 31
ordinances may result in future additional costs to the Company's operations.
Any significant environmental liability or compliance costs could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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 of the Sam's Town Kansas City, Treasure Chest and
Par-A-Dice riverboats, 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.
CONTROL BY BOYD FAMILY
William S. Boyd, Chairman and Chief Executive Officer of the Company, together
with his immediate family, beneficially own approximately 51% of the outstanding
shares of Common Stock of the Company as of December 31, 1997. 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 AGREEMENT 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 a material adverse effect on the Company's business, financial condition
and results of operations.
RELIANCE ON CERTAIN MARKETS
The California, Fremont and Main Street Station derive a substantial portion of
their customers from the Hawaiian market. During the six month period ended
December 31, 1997, patrons from Hawaii comprised approximately 73% of the room
nights at the California, 57% at the Fremont and 57% at Main Street Station. 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 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 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.
31
<PAGE> 32
EMPLOYEES
At December 31, 1997, the Company employed approximately 15,500 persons. On such
date, the Company had collective bargaining relationships with eleven unions
covering approximately 2,600 employees, substantially all of whom are employed
at the Stardust and the Fremont. Several collective bargaining agreements are
currently in effect; 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
The following table sets forth certain information regarding the properties
owned or operated by the Company as of December 31, 1997.
<TABLE>
<CAPTION>
YEAR BUILT CASINO SPACE SLOT TABLE HOTEL LAND
OR ACQUIRED (SQ. FT.) MACHINES GAMES ROOMS RESTAURANTS (ACRES)
----------- ------------ -------- ------ ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
LAS VEGAS STRIP
Stardust Resort and Casino............. 1985 87,000 1,966 79 2,300 7 61
BOULDER STRIP
Sam's Town Las Vegas................... 1979 118,000 2,898 53 642 16 63
Eldorado Casino........................ 1993 16,000 600 11 -- 3 4
Jokers Wild Casino..................... 1993 22,500 640 11 -- 2 13
DOWNTOWN LAS VEGAS
California Hotel and Casino............ 1975 36,000 1,122 35 781 5 16
Fremont Hotel and Casino............... 1985 32,000 1,064 27 423 5 2
Main Street Station Casino, Brewery
and Hotel ............................ 1993 28,500 869 22 406 4 15
CENTRAL REGION
Sam's Town Tunica...................... 1994 75,000 1,885 74 857 6 150
Sam's Town Kansas City................. 1995 28,000 1,099 49 -- 5 34
Par-A-Dice Hotel and Casino............ 1996 33,000 1,023 42 208 3 19
Silver Star Resort and Casino.......... 1994 90,000 2,816 96 505 6 20
Treasure Chest Casino.................. 1994 24,000 904 56 -- 4 --
------- ------ ---- ----- --- ---
Total.......................... 590,000 16,886 555 6,122 66 397
======= ====== ==== ===== === ===
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are also parties to various legal proceedings
arising in the ordinary course of business. See "Business -- Mirage Joint
Venture". 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
32
<PAGE> 33
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the non-director executive officers of Boyd
Gaming Corporation as of February 27, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ellis Landau 54 Executive Vice President, Chief Financial Officer and Treasurer
James W. Hippler 51 Senior Vice President-Administration
Keith E. Smith 37 Senior Vice President and Controller
Brian A. Larson 42 Senior Vice President and General Counsel
Charles E. Huff 52 Vice President, Secretary and Senior Gaming Counsel
</TABLE>
Ellis Landau has been Executive Vice President since January 1997 and 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.
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.
Keith E. Smith became Senior Vice President in January 1997. Mr. Smith served as
Vice President and Controller from June 1993 to January 1997 and, 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 Senior Vice President and General Counsel in January
1998. He 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.
Charles E. Huff has been Vice President and Secretary of the Company since its
inception and became Senior Gaming Counsel in January 1998. 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.
PART II
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:
33
<PAGE> 34
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>
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......................................... 17 3/8 11 1/8
Third Quarter.......................................... 15 1/2 9 3/8
Fourth Quarter......................................... 9 1/4 7 1/8
1997
First Quarter.......................................... 8 5/8 5 3/8
Second Quarter......................................... 6 1/8 5 3/8
Third Quarter.......................................... 9 1/4 5
Fourth Quarter......................................... 9 1/4 6 5/8
1998
First Quarter (through February 27, 1998).............. 8 3/8 5 1/2
</TABLE>
On February 27, 1998, the closing sales price of the Common Stock on the NYSE
was $7.94 per share. On that date, the Company had approximately 2,562 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.
34
<PAGE> 35
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of December 31,
1997, June 30, 1997 and June 30, 1996 and for the six month period ended
December 31, 1997 and for the fiscal years ended June 30, 1997, 1996 and 1995,
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, 1995 and as of and for the fiscal years ended June 30, 1994
and 1993 have been derived from audited consolidated financial statements of the
Company not contained herein. Operating results for the six month period and
fiscal years shown below are not necessarily indicative of the results that may
be expected for future fiscal years.
<TABLE>
<CAPTION>
SIX MONTH FISCAL YEAR ENDED JUNE 30,
PERIOD ENDED ----------------------------------------------------------------------
DECEMBER 31, 1997 1997 1996 1995 1994 1993
----------------- --------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net revenues $ 455,771 $ 819,259 $775,857 $660,340 $468,219 $431,174
Operating expense (a) 397,625 863,685 675,071 549,770 413,971 368,255
---------- --------- -------- -------- -------- --------
Operating income (loss) 58,146 (44,426) 100,786 110,570 54,248 62,919
Interest expense, net (b) 37,310 61,022 51,186 46,371 36,093 32,378
Gain on investment -- -- -- -- -- (1,062)
---------- --------- -------- -------- -------- --------
Income (loss) before provision
(benefit) for income taxes,
cumulative effect of a change
in accounting principle
and extraordinary items 20,836 (105,448) 49,600 64,199 18,155 31,603
Provision (benefit) for income taxes 8,736 (34,025) 20,021 27,950 7,505 11,469
---------- --------- -------- -------- -------- --------
Income (loss) before cumulative
effect of a change in accounting
principle and extraordinary items 12,100 (71,423) 29,579 36,249 10,650 20,134
Cumulative effect of a change in
accounting for income taxes -- -- -- -- 2,035 --
---------- --------- -------- -------- -------- --------
Income (loss) before
extraordinary items 12,100 (71,423) 29,579 36,249 12,685 20,134
Extraordinary items, net of tax 7,240 6,069 1,435 -- -- 7,397
---------- --------- -------- -------- -------- --------
Net income (loss) 4,860 (77,492) 28,144 36,249 12,685 12,737
Dividends on preferred stock -- -- -- -- 467 1,881
---------- --------- -------- -------- -------- --------
Net income (loss) applicable to
common stock $ 4,860 $ (77,492) $ 28,144 $ 36,249 $ 12,218 $ 10,856
========== ========= ======== ======== ======== ========
</TABLE>
- ------------
(a) Includes $131,339 of impairment loss recorded during the year ended June
30, 1997. See Note 3 to Notes to Consolidated Financial Statements.
(b) Net of interest income and amounts capitalized.
35
<PAGE> 36
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
SIX MONTH FISCAL YEAR ENDED JUNE 30,
PERIOD ENDED ----------------------------------------------------------------------
DECEMBER 31, 1997 1997 1996 1995 1994 1993
----------------- --------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Basic and diluted net income (loss)
per common share:
Income (loss) before cumulative
effect of a change in accounting
principle and extraordinary items $ 0.20 $ (1.19) $ 0.52 $ 0.64 $ 0.19 $ 0.37
Cumulative effect of a change in
accounting for income taxes -- -- -- -- 0.04 --
Extraordinary items (0.12) (0.10) (0.03) -- -- (0.15)
---------- ----------- ------- -------- -------- --------
Net income (loss) $ 0.08 $ (1.29) $ 0.49 $ 0.64 $ 0.23 $ 0.22
========== =========== ======= ======== ======== ========
Dividends on common stock -- -- -- -- -- --
Weighted average common shares:
Basic 61,525 60,248 57,058 56,870 54,297 48,582
Diluted 61,786 60,248 57,058 56,870 54,297 48,582
OTHER OPERATING DATA
Depreciation and amortization $ 35,097 $ 67,242 $ 60,626 $ 54,518 $ 42,136 $ 39,450
Preopening expense -- 3,481 10,004 -- 4,605 --
Capital expenditures 17,816 99,207 90,977 183,299 326,829 24,485
BALANCE SHEET DATA
Total assets $1,152,415 $1,030,185 $953,425 $ 949,513 836,297 $500,123
Long-term debt (excluding
current maturities) 842,932 739,792 590,808 587,957 525,637 364,927
Stockholders' equity 197,141 191,316 233,257 202,613 164,405 72,686
</TABLE>
36
<PAGE> 37
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 operating
data for the Company's properties. As used herein, "Boulder Strip Properties"
consist of Sam's Town Las Vegas, the Eldorado and the Jokers Wild; "Downtown
Properties" consists of the California, the Fremont, Main Street Station
(opened November 1996) and Vacations Hawaii (acquired October 1995), the
Company's wholly-owned travel agency which operates for the benefit of the
Downtown casino properties; and "Central Region Properties" consists of Sam's
Town Tunica, Sam's Town Kansas City (opened September 1995), Par-A-Dice
(acquired December 1996), management fee income from the Silver Star, and
management fee and joint venture income from the Treasure Chest through October
27, 1997, at which time the Company acquired the remaining 85% equity interest
in Treasure Chest that it did not already own to make it a wholly-owned
subsidiary. Net revenues displayed in this table and discussed in this section
are net of promotional allowances; as such, references to room revenue and food
and beverage revenue do not agree to the amounts on the Consolidated Statements
of Operations. Operating income from properties for the purpose of this table
exclude corporate expense, including related depreciation and amortization,
preopening expense and impairment loss.
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, FISCAL YEAR ENDED JUNE 30,
---------------------------------------- ---------------------------------------------------------
(IN THOUSANDS) 1997 1996 1997 1996 1995
---------------- ---------------- ---------------- ---------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues
Stardust $ 83,626 $ 91,290 $ 180,387 $ 194,513 $ 193,563
Boulder Strip Properties 93,419 96,757 193,004 189,315 168,036
Downtown Properties(a) 96,369 76,679 167,330 146,825 135,232
Central Region Properties 182,357 119,432 278,538 245,204 163,509
---------- ---------- ---------- ---------- ----------
Total Properties $ 455,771 $ 384,158 $ 819,259 $ 775,857 $ 660,340
========== ========== ========== ========== ==========
Operating income
Stardust $ 6,981 $ 8,342 $ 19,086 $ 30,748 $ 30,688
Boulder Strip Properties 10,464 11,419 26,766 23,904 15,551
Downtown Properties 1,574 5,623 8,763(b) 17,431 22,561
Central Region Properties 49,343 21,781 62,935(c) 66,683(b) 68,486
---------- ---------- ---------- ---------- ----------
Total Properties $ 68,362 $ 47,165 $ 117,550 $ 138,766 $ 137,286
========== ========== ========== ========== ==========
</TABLE>
- -----------
(a) Includes revenues related to Vacations Hawaii, a Honolulu Travel Agency,
of $16,420 and $6,102, respectively, for the six month periods ended
December 31, 1997 and 1996, and $16,922 and $7,222, respectively, for the
fiscal years ended June 30, 1997 and 1996.
(b) Before preopening expense.
(c) Before impairment loss.
SIX MONTH PERIOD ENDED DECEMBER 31, 1997 COMPARED TO THE SIX MONTH PERIOD ENDED
DECEMBER 31, 1996
Revenues
Consolidated net revenues increased 18.6% during the six month period ended
December 31, 1997 compared to the six month period ended December 31, 1996.
Company-wide casino revenue increased 20.7%, food and beverage revenue increased
4.4% and room revenue increased 14.8%. Net revenues from the Stardust, Boulder
Strip Properties and Downtown Properties (the "Nevada Region") increased 3.3%
during the six month period ended December 31, 1997 compared to the six month
period ended December 31, 1996 primarily as a result of the opening of Main
Street Station in November 1996, and enhanced utilization of the Company's
wholly-owned travel agency, Vacations Hawaii. These increases were partially
offset by declines in net revenues experienced principally at the Stardust
(8.4%), the Fremont (14.2%), and Sam's Town Las Vegas (4.4%). Net revenues in
the Central Region increased 52.7% during the six month period ended December
31, 1997 compared to the six month period ended December 31, 1996 primarily as a
result of the acquisitions of Par-A-Dice in December 1996 and Treasure Chest in
October 1997, as well as a 15.3% increase in net revenues at Sam's Town Tunica.
These increases were partially offset by a 39.9% decline in net revenues
experienced at Sam's Town Kansas City. The decline in net revenues at those
properties which were included as part of the Company's consolidated operations
for the full six months in the periods ended December 1997 and 1996 (excludes
Par-A-Dice, Treasure Chest, Main Street Station and Vacations Hawaii) is
attributable, in each case, to increased competition. In addition, the Fremont
was adversely impacted by construction disruption during the six month period
ended December 31, 1997.
37
<PAGE> 38
Operating Income
Consolidated operating income before preopening expense increased by 66.3% from
$35.0 million during the six month period ended December 31, 1996 to $58.1
million during the six month period ended December 31, 1997. Operating income
in the Nevada Region declined 25.1% due to declines experienced
at the Stardust, Boulder Strip and Downtown Properties. In the Central Region,
operating income increased 127% due primarily to the acquisitions of
Par-A-Dice in December 1996 and Treasure Chest in October 1997, as well as gains
experienced at each of the other Central Region Properties.
Stardust
Net revenues at the Stardust declined by 8.4% during the six month period ended
December 31, 1997 compared to the six month period ended December 31, 1996 due
to increased competition on the Las Vegas Strip. The majority of the decline is
attributable to a 8.2% reduction in casino revenue, as a result of a decline in
slot and table game wagering. In addition, food and beverage revenue also
declined by approximately 11.2% due to a decline in the number of food guests.
Operating income declined by 16.3% to $7.0 million during the six month period
ended December 31, 1997 compared to the six month period ended December 31,
1996, and operating income margin declined to 8.3% during the six month period
ended December 31, 1997 from 9.1% during the six month period ended December 31,
1996. These declines in operating income and operating income margin are
primarily the result of the decline in net revenues.
Boulder Strip Properties
Net revenues at the Boulder Strip Properties decreased 3.4% during the six month
period ended December 31, 1997 compared to the six month period ended December
31, 1996 due to increased competition on the Boulder Strip. Casino revenue
declined by 1.8% primarily as a result of a decrease in table game wagering
volume. Room revenue and food and beverage revenue decreased 6.9% and 9.2%,
respectively, over the prior periods levels. The decline in room revenue is
primarily attributable to a decrease in average daily room rates at Sam's Town
Las Vegas. Operating income margin at the Boulder Strip Properties decreased
from 11.8% during the six month period ended December 31, 1996 to 11.2% during
the six month period ended December 31, 1997, due to the decrease in net
revenues.
Downtown Properties
Net revenues at the Downtown Properties increased 25.7% during the six month
period ended December 31, 1997 compared to the six month period ended December
31, 1996. The increase is attributable to the November 1996 opening of Main
Street Station as well as increased revenues from Vacations Hawaii. (Hawaiian
customers comprise a majority of the available room nights at the three downtown
casino properties. See "Business -- Properties"). These increases in net
revenues were partially offset by declines in net revenues at the Fremont and
California of 14.2% and 3.5%, respectively. The decline in net revenues at the
Fremont is primarily attributable to a rooms remodel project which began in July
1997 and was substantially complete by the end of calendar 1997. Aggregate
operating income for the Downtown Properties decreased from $5.6 million (before
preopening expense) during the six month period ended December 31, 1996 to $1.6
million during the comparable period in 1997. The decrease is mainly
attributable to the Fremont, which posted operating income of $.6 million during
the six month period ended December 31, 1997 compared to $3.3 million during the
six month period ended December 31, 1996 due primarily to the rooms remodel
project discussed above. In addition, Main Street Station's operating loss
(before preopening expense) increased from $.4 million during the six month
period ended December 31, 1996 to $2.6 million during the six month period ended
December 31, 1997.
Central Region
Net revenues from the Central Region increased 52.7% during the six month period
ended December 31, 1997 compared to the six month period ended December 31,
1996. The majority of the increase is attributable to the acquisition of
Par-A-Dice on December 4, 1996 and the acquisition of the remaining interest in
Treasure Chest on October 27, 1997. Par-A-Dice generated $54.2 million in net
revenues during
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the six month period ended December 31, 1997 compared to $7.5 million during the
six month period ended December 31, 1996, and Treasure Chest produced net
revenues of $22.6 million during the six month period ended December 31, 1997
compared to $3.0 million during the six month period ended December 31, 1996.
Prior to the acquisition of Treasure Chest, the Company accounted for its 15%
minority interest under the equity method. However, since the acquisition of the
remaining 85% equity interest in Treasure Chest, the operations of that property
are now included in the Company's consolidated statement of operations. In
addition, Sam's Town Tunica experienced a 15.3% increase in net revenues during
the six month period ended December 31, 1997 versus the comparable period in
1996 due to the addition of a 350-room hotel tower and 1,000 space parking
garage in December 1996. These increases in net revenues during the December 31,
1997 period were partially offset by a 39.9% decline in net revenues at Sam's
Town Kansas City due to increased market competition. In light of the historical
operating performance at Sam's Town Kansas City, management is considering
various strategic alternatives to mitigate its impact on the Company, which may
include, among other things, the possible sale of the property. Operating income
and operating margin for the Central Region increased to $49.3 million and
27.1%, respectively, during the six month period ended December 31, 1997 from
$21.8 million and 18.2%, respectively, during the comparable period in 1996.
These increases are due to the acquisitions of Par-A-Dice and Treasure Chest, as
well as an increase of 101% in operating income from Sam's Town Tunica and a
44.2% reduction in the operating loss at Sam's Town Kansas City. In addition,
management fee income from Silver Star increased 7.7% during the six month
period ended December 31, 1997 versus the comparable period in 1996. This
increase is due to the completion of a guest room expansion project and a golf
course project in July 1997.
Other Expenses
Depreciation and amortization expense increased by $4.3 million during the six
month period ended December 31, 1997 versus the comparable period in 1996 due to
the increased levels of property and equipment in service, as well as an
increase in intangible assets related to the acquisitions of Par-A-Dice in
December 1996 and Treasure Chest in October 1997.
Corporate expenses declined from $10.7 million during the six month period ended
December 31, 1996 to $9.1 million during the comparable period in 1997. The
decline is primarily attributable to a reduction in development related
expenses.
During the six month period ended December 31, 1996, the Company recorded a
preopening charge of $3.5 million upon the opening of Main Street Station. No
preopening costs were incurred during the six month period ended December 31,
1997.
Other Income (Expense)
Other income and expense is primarily comprised of interest expense, net of
amounts capitalized. Interest expense increased by $10.5 million during the six
month period ended December 31, 1997 compared to the corresponding period in
1996. The increase is attributable to higher levels of average debt outstanding
due to, among other things, the December 1996 acquisition of Par-A-Dice for
approximately $171 million, the October 1997 acquisition of Treasure Chest for
approximately $117 million, the major renovation and expansion of Main Street
Station and the addition of a 350-room hotel tower and 1,000 space parking
garage at Sam's Town Tunica. In addition, the Company capitalized $3.0 million
in interest costs during the six month period ended December 31, 1996 related to
the renovation and expansion of Main Street Station and Sam's Town Tunica. There
were no such costs capitalized during the comparable period in 1997.
Provision for Income Taxes
The Company's effective tax rate was 41.9% and 40.0%, respectively, for the six
month periods ended December 31, 1997 and 1996. The fluctuation in the rates is
primarily attributable to state taxes, which have increased due to the enhanced
earnings generated from the Company's Central Region properties. The Company's
Nevada properties are not subject to a state income tax.
Extraordinary Items
The Company recorded an extraordinary loss of $7.2 million, net of tax, during
the six month period ended December 31, 1997 related to the early redemption of
the Company's $185 million, 11% Notes in December 1997. In addition, in
connection with the redemption of the Company's $150 million, 10.75% Notes in
October 1996, the Company recognized an extraordinary loss of $6.1 million, net
of tax, during the six month period ended December 31, 1996.
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Net Income
As a result of these factors, the Company reported net income of $4.9 million
during the six month period ended December 31, 1997 compared to a net loss of
$3.2 million during the six month period ended December 31, 1996.
Effective July 1, 1997, the Company changed its fiscal year from a June 30 year
end to a December 31 year end. As such, fiscal year, as defined in the following
sections for the fiscal years 1997, 1996 and 1995, is the period beginning on
July 1 and ending on June 30.
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 1996
Revenues
Consolidated net revenues increased 5.6% during fiscal 1997 compared to fiscal
1996. Company-wide casino revenue increased 4.7%, food and beverage revenue
increased 6.2% and room revenue increased 5.8%. Net revenues in the Nevada
Region increased 1.9% in fiscal 1997 compared to fiscal 1996 primarily as a
result of the opening of Main Street Station in November 1996, as well as a full
year of operations and enhanced utilization of the Company's wholly-owned travel
agency, Vacations Hawaii. These increases were partially offset by declines in
net revenues experienced principally at the Stardust (7.3%) and the California
(13.1%). Net revenues in the Central Region increased 13.6% in fiscal 1997
compared to fiscal 1996 primarily as a result of the acquisition of Par-A-Dice
in December 1996, partially offset by declines in net revenues experienced at
Sam's Town Tunica (13.8%) and Sam's Town Kansas City (12.9%).
The decline in net revenues at those properties which were in operation for the
full 12 months of fiscal 1997 and 1996 (excludes Par-A-Dice, Main Street
Station, Vacations Hawaii and Sam's Town Kansas City) is attributable, in each
case, to increased competition. In addition, Sam's Town Tunica and the
California were each adversely impacted by construction disruption during the
first part of fiscal 1997.
Operating Income (Loss)
Consolidated operating loss was $44.4 million during fiscal 1997 compared to
consolidated operating income of $100.8 million in fiscal 1996. The majority of
the decline in consolidated operating income was the result of $131 million in
impairment losses recorded during fiscal 1997, primarily related to the
write-down of certain fixed and intangible assets in the Missouri gaming market
to fair value. See further discussion under "Impairment Losses".
Consolidated operating income before impairment loss and preopening expense
declined by 18.4% from $110.8 million in fiscal 1996 to $90.4 million in fiscal
1997, while consolidated operating margins declined from 14.3% to 11.0%,
respectively. Operating income in the Nevada Region declined 24.2% due to
declines experienced at the Stardust and Downtown Properties, partially offset
by an increase in operating income at the Boulder Strip Properties. In the
Central Region, operating income declined by 19.6% as a result of declines
experienced at Sam's Town Tunica and Sam's Town Kansas City, offset by operating
income from Par-A-Dice (acquired December 1996). Management fee and joint
venture income from Silver Star and Treasure Chest operating income increased
2.8% in fiscal 1997 versus fiscal 1996.
Stardust
Net revenues at the Stardust declined by 7.3% during fiscal 1997 compared to
fiscal 1996 due to increased competition on the Las Vegas Strip. The majority of
the decline is attributable to a 8.5% reduction in casino revenue, as a result
of a decline in slot wagering and a lower win percentage in the sports book
partially offset by increased wagering. Revenues from room, food and beverage
also declined by approximately 6.2% during the fiscal year due to a decline in
the number of occupied rooms and food covers. Operating income declined by 37.9%
to $19.1 million in fiscal 1997 compared to fiscal 1996, and operating income
margin declined from 15.8% in fiscal 1996 to 10.6% in fiscal 1997. These
declines in operating income and operating income margin are primarily the
result of the decline in revenues.
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Boulder Strip Properties
Net revenues at the Boulder Strip Properties increased 1.9% during fiscal 1997
compared to fiscal 1996. The increase is primarily attributable to a 2.2%
increase in casino revenue as a result of increased wagering volume in table
games and slots at Sam's Town Las Vegas. Room revenue and food and beverage
revenue increased 11.0% and 2.2%, respectively, over the prior fiscal year's
levels. The increase in room revenue is primarily attributable to a 24.3%
increase in average daily room rates at Sam's Town Las Vegas. Operating income
margin at the Boulder Strip Properties increased from 12.6% in fiscal 1996 to
13.9% in fiscal 1997, due to the increase in net revenues as well as improved
operating margins in the room and food and beverage departments at Sam's Town
Las Vegas.
Downtown Properties
Net revenues at the Downtown Properties increased 14.0% during fiscal 1997
compared to fiscal 1996. The increase is attributable to the November 1996
opening of Main Street Station as well as increased revenues from Vacations
Hawaii. Hawaiian customers comprise a majority of the available room nights at
the three downtown casino properties. See "Business -- Properties". These
increases in net revenues were partially offset by declines in net revenues at
the California and Fremont of 13.1% and 5.7%, respectively. These two properties
have been affected by the opening of Main Street Station, which initially
attracted patrons from their customer bases. In addition, each component of the
California's net revenues were adversely impacted by a rooms remodel project
which reduced its room availability by approximately 15% during the first fiscal
quarter of 1997. Aggregate operating income for the Downtown Properties declined
by 50% during fiscal 1997 to $8.8 million, and aggregate operating income margin
for the Downtown Properties decreased from 11.9% in fiscal 1996 to 5.2% in
fiscal 1997. These declines are a result of the reduction in net revenues at the
California and Fremont, as well as the $1.6 million operating loss from
Vacations Hawaii. In addition, Main Street Station posted a $1.9 million
operating loss before preopening expense since its opening in November 1996.
Central Region
Net revenues from the Central Region increased 13.6% during fiscal 1997 compared
to fiscal 1996. The majority of the increase is attributable to Par-A-Dice,
which was acquired on December 4, 1996. Par-A-Dice generated net revenues of
$59.6 million since its acquisition. This increase was partially offset by
declines of 13.8% and 12.9%, respectively, in net revenues at Sam's Town Tunica
and Sam's Town Kansas City. Operating income before preopening expense and
impairment loss declined by 5.6% in fiscal 1997, and operating income margin
declined from 27.2% in fiscal 1996 to 22.6% in fiscal 1997. The decrease in
operating income is due to the decline in net revenues at Sam's Town Tunica and
the increased operating losses at Sam's Town Kansas City, offset by the
operating income from Par-A-Dice. Sam's Town Tunica's operating margin declined
from 21.8% in fiscal 1996 to 14.9% during fiscal 1997 as a result of increased
competition in that market as well as the construction disruption from the
350-room hotel tower and the additional 1,000 space parking garage which were
completed in December 1996. Sam's Town Kansas City posted a $10.9 million
operating loss (before impairment loss) during fiscal 1997 compared to a $5.0
million operating loss in the prior fiscal year. The increase in operating loss
is attributable to increased market competition. Due to the significant change
in the competitive environment, the Company recorded an impairment loss of
approximately $126 million related to its investment in the Missouri gaming
market. See further discussion below regarding this write-down under "Impairment
Losses."
Other Expenses
Depreciation and amortization expense increased by $6.6 million during fiscal
1997. The increase is primarily attributable to an increase in fixed and
intangible assets related to the opening of Main Street Station in November
1996, the acquisition of Par-A-Dice in December 1996, and the completion of the
new hotel tower and parking garage at Sam's Town Tunica in December 1996. As
discussed below under Impairment Losses, the write-down of the fixed and
intangible assets related to Sam's Town Kansas City is expected to reduce future
depreciation and amortization expense by approximately $7 million on an annual
basis.
Corporate expenses were $24.3 million for both fiscal 1997 and fiscal 1996.
During fiscal 1997 and 1996, the Company recorded a preopening charge of $3.5
million and $10.0 million, respectively, upon the opening of Main Street Station
in November 1996 and Sam's Town Kansas City in September 1995.
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Impairment Losses
During fiscal 1997, the Company, in accordance with SFAS No. 121, recorded an
impairment loss of $126 million to adjust the carrying value of its fixed and
intangible assets in the Missouri gaming market to fair value. The impairment
loss was recorded due to a significant change in the competitive environment
with the January 1997 addition of a significantly larger facility in the Kansas
City gaming market and a history of operating losses at the Company's Sam's Town
Kansas City gaming establishment. In addition, the restrictive nature of the
Missouri gaming regulations with respect to wagering limits and simulated cruise
requirements has not been conducive to profitable operations, and based upon
currently available information, management does not believe that any
significant regulatory relief is forthcoming. The Company continues to operate
Sam's Town Kansas City while focusing on cost control measures and the pursuit
of future legislative and regulatory relief.
In addition, the Company recorded a $5.3 million impairment loss related to its
17.4% ownership interest in FSE during fiscal 1997. This impairment loss is
principally due to the significant levels of operating loss and operating cash
deficiency reported in May 1997 by FSE relating to its first full year of
operation. Management expects this trend to continue and, therefore, does not
expect to recover its investment in this entity.
Other Income (Expense)
Other income and expense is primarily comprised of interest expense, net of
amounts capitalized. Interest expense increased by $9.3 million during fiscal
1997 to $61.7 million and is primarily attributable to higher levels of
debt outstanding due to, among other things, the December 1996 acquisition of
Par-A-Dice for approximately $171 million and the major renovation and expansion
projects related to Main Street Station and Sam's Town Tunica.
Provision (Benefit) for Income Taxes
The Company's effective tax rate was (32.3%) and 40.4%, respectively, for fiscal
years ended June 30, 1997 and 1996. The fluctuation in the rates is primarily
attributable to the impairment loss recorded during fiscal 1997.
Extraordinary Items
In connection with the early redemption of the Company's $150 million, 10.75%
Notes in October 1996, the Company recognized an extraordinary loss of $6.1
million, net of tax, during fiscal 1997. In addition, the Company recorded an
extraordinary loss of $1.4 million, net of tax, during fiscal 1996 related to
the write-off of unamortized bank loan fees in connection with the completion of
the Company's current Bank Credit Facility in June 1996.
Net Income (Loss)
As a result of these factors, the Company reported a net loss of $77.5 million
for fiscal 1997 compared to net income of $28.1 million in fiscal 1996.
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 1995
Revenues
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, revenue increased 50% for fiscal 1996 compared to
fiscal 1995 while in the Company's Nevada Region, 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
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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 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
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 used
until the November 1996 opening of Main Street Station 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. In November 1996,
the Company completed a major renovation of the facility and opened Main Street
Station for business.
Operating Income
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.
Stardust
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 room 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. Room 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. 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 room department.
Boulder Strip Properties
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 revenue at the Boulder Strip Properties increased 16.7% for fiscal 1996
versus fiscal 1995, while room revenue increased 4.7% and food and beverage
revenue increased 4.8%. Operating income at the Boulder Strip Properties
increased 54% for fiscal 1996 compared to fiscal 1995 while operating income
margin increased 3.3 percentage points to 12.6% for fiscal 1996. Sam's Town Las
Vegas posted increases in operating income and operating income margin of 83%
and 4.3 percentage points, respectively for the 1996 fiscal year.
Operating income margins increased 2.5 percentage points at the Eldorado and
declined 2.3 percentage points at Jokers Wild for fiscal 1996 versus fiscal
1995. The increase in operating income margin at the Eldorado was a result of
increased casino revenue while the decline in operating income margin at Jokers
Wild was primarily a result of increased expenses in the food and beverage
department for fiscal 1996 versus fiscal 1995. Management believes that the
significant increases in revenues, operating income and operating
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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.
Downtown Properties
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 room 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 room
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.
Central Region
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.
Other Expenses
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.
Provision for Income Taxes
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.
Extraordinary Item
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.
Net Income
As a result of these factors, the Company reported net income of $28.1 million
for fiscal 1996 compared to net income of $36.2 million in fiscal 1995.
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LIQUIDITY AND CAPITAL RESOURCES
Cash Flow and Working Capital
The Company's policy is to use operating cash flow in combination with debt and
equity financing to fund renovations of its properties and expansion of its
business. During the six month period ended December 31, 1997, the Company
acquired the remaining 85% of Treasure Chest which it did not already own for
$103 million plus the assumption of debt. During fiscal 1997, the Company
completed the expansion and renovation of Main Street Station, the acquisition
of Par-A-Dice and the construction of a 350-room hotel tower and 1,000 space
parking garage at Sam's Town Tunica. The aggregate cost of these expansion and
renovation projects was approximately $255 million over the course of fiscal
1997 and 1996.
During the six month period ended December 31, 1997, the Company's generated
operating cash flows of $57.5 million compared to $41.7 million during the six
month period ended December 31, 1996. The increase in operating cash flows is
primarily attributable to the operations of Par-A-Dice and Treasure Chest, which
were acquired in December 1996 and October 1997, respectively. As of December
31, 1997 and 1996, the Company had balances of cash and cash equivalents of
$78.3 million and $70.4 million, respectively, and working capital of $12.4
million and $1.1 million, respectively. The Company has historically operated
with minimal or negative levels of working capital in order to minimize
borrowings and related interest costs under its Bank Credit Facility. The
working capital deficits, if any, are funded through cash generated from
operations as well as borrowings under the Bank Credit Facility.
Capital Expenditures
The Company is committed to continually maintaining and enhancing its existing
facilities, most notably by upgrading and remodeling its casinos, hotel rooms,
restaurants and other public space and by providing the latest slot machines for
its customers. The Company's capital expenditures for these purposes were
approximately $22.2 million and $15.1 million, respectively, during the six
month periods ended December 31, 1997 and 1996. Approximately $4.5 million of
the $22.2 million in capital expenditures related to the Fremont rooms remodel,
which was substantially completed in December 1997.
During the six month period ended December 31, 1997, net cash used in investing
activities was $125.2 million compared to $229.9 million during the six month
period ended December 31, 1996. Investing activities during the current period
consisted primarily of the $103 million acquisition of the remaining 85% of the
Treasure Chest and maintenance capital expenditures at the Company's properties.
In comparison, investing activities during the prior period consisted primarily
of the $171 million acquisition of Par-A-Dice, the expansion and renovation of
Main Street Station, the construction of a new 350-room hotel tower and parking
garage facility at Sam's Town Tunica, as well as maintenance capital
expenditures at the Company's properties.
Debt Facilities and Equity Financing
Much of the funding for the Company's renovation and expansion projects comes
from debt and equity financings, as well as cash flows from existing operations.
Cash flows provided by financing activities totalled $90.8 million during the
six month period ended December 31, 1997 compared to $209.6 million during the
corresponding period in 1996. Financing activities during the December 31, 1997
period consisted primarily of proceeds from the issuance of $250 million
principal amount of 9.50% Senior Subordinated Notes (the "9.50% Notes")
described below, offset by the redemption of $185 million principal amount of
11% Senior Subordinated Notes (the "11% Notes"). In addition, net borrowings
under the Bank Credit Facility for the six month period ended December 31, 1997
were $39 million and were used primarily to assist in the acquisition of the
remaining 85% equity interest in Treasure Chest. At December 31, 1997,
outstanding borrowings and unused availability under the Bank Credit Facility
were $390 million and $110 million, respectively. Interest on the 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 blended rate under
the Bank Credit Facility at December 31, 1997 was 8.2%.
In October 1996, the Company issued $200 million principal amount of 9.25%
Senior Notes due October 1, 2003. The net proceeds from this offering were used
to reduce outstanding indebtedness under the Company's Bank Credit Facility.
Subsequently, in November 1996, the Company used amounts available under its
Bank Credit Facility to redeem its $150 million principal amount of 10.75%
Senior Subordinated Notes prior to their scheduled maturity. Also in October
1996, the Company completed an offering of 4,000,000 shares of common stock at
$9.00 per share generating net proceeds of approximately $34 million. The net
proceeds from this offering were used to reduce outstanding indebtedness under
the Company's Bank Credit Facility.
45
<PAGE> 46
In July 1997, Company issued, through a private placement, $250 million
principal amount of 9.50% Senior Subordinated Notes due July 2007. The net
proceeds from this offering were used to reduce outstanding indebtedness under
the Company's Bank Credit Facility. Subsequently, in December 1997, the Company
used its availability under the Bank Credit Facility to redeem the Company's
$185 million principal amount of 11% Senior Subordinated Notes (the "11% Notes")
prior to their scheduled maturity. On October 31, 1997, the Company completed
the exchange of the 9.50% Notes for identical notes that were registered with
the Securities and Exchange Commission.
The Bank Credit Facility contains certain financial and other covenants,
including, without limitation, various covenants (i) requiring the maintenance
of a minimum tangible net worth, (ii) requiring the maintenance of a minimum
fixed charge coverage ratio, (iii) establishing a maximum permitted funded debt
to EBITDA ratio, (iv) imposing limitations on the incurrence of additional
indebtedness and the creation of liens, (v) imposing limitations on the maximum
permitted expansion capital expenditures during the term of the Bank Credit
Facility, (vi) imposing limits on the maximum permitted maintenance capital
expenditures during the term of the Bank Credit Facility, and (vii) imposing
restrictions on investments, the purchase or redemption of subordinated debt
prior to its stated maturity (except for a redemption of the 11% Notes, which is
permitted), dividends and other distributions, and the redemption or purchase of
capital stock of the Company.
The 9.25% and 9.50% Notes contain limitations on, among other things, (a) the
ability of the Company and its Restricted Subsidiaries (as defined in the
Indenture Agreements) to incur additional indebtedness, (b) the payment of
dividends and other distributions with respect to the capital stock of the
Company and its Restricted Subsidiaries and the purchase, redemption or
retirement of capital stock of the Company and its Restricted Subsidiaries, (c)
the making of certain investments, (d) asset sales, (e) the incurrence of
liens, (f) transactions with affiliates, (g) payment restrictions affecting
restricted subsidiaries, and (h) certain consolidations, mergers and transfers
of assets.
The Company's ability to service its debt will be dependent on its future
performance, which will be affected by, among other things, prevailing economic
conditions and financial, business and other factors, certain of which are
beyond the Company's control.
New Expansion Projects
The Company, as part of its ongoing strategic planning process, is currently
establishing its priorities for future growth. In Nevada, the Company has
intensified its efforts to develop alternatives for the enhancement and
development of the 61-acre Stardust site on the Las Vegas Strip and is exploring
opportunities that may exist in the locals market for expansion of its Sam's
Town concept.
Outside of Nevada, the Company continues to monitor acquisition opportunities in
many of the newer gaming markets as the industry continues to consolidate. In
addition, the Company has been focusing its efforts on the Mirage Joint Venture.
On May 29, 1996, the Company, through a wholly-owned subsidiary, executed the
Joint Venture Agreement with Mirage to develop the Atlantic City Project. The
Joint Venture Agreement provides for at least $100 million in capital
contributions by the Company. Funding of the Company's Mirage Joint Venture
capital contributions would come from cash flow from operations and availability
under the Company's Bank Credit Facility.
In January 1998, Mirage attempted to unilaterally terminate the Joint Venture
Agreement. On February 2, 1998, the Company filed a lawsuit against Mirage
alleging, among other things, that Mirage attempted to unilaterally terminate
the Joint Venture Agreement and misappropriate the Mirage Joint Venture's
business opportunity for its own benefit. As a result, there can be no assurance
that the Atlantic City Project will be completed according to the terms
contemplated by the Joint Venture Agreement, or at all.
Substantial funds would be required for the expansion projects discussed above.
There are no assurances 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) is
expected to be cash flow from operations and availability under the Company's
Bank Credit Facility. The source of funds for the Company's expansion projects
may come from cash flow from operations and availability under the Company's
Bank Credit Facility, additional debt or equity offerings, joint venture
partners or 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 or its stockholders. See "Investment
Considerations -- Leverage and Debt Service," "-- Expansion," and "-- Additional
Financing Requirements."
-46-
<PAGE> 47
Year 2000 Project
The Company is conducting a review of its computer systems to identify those
areas that could be affected by the "Year 2000" issue and is in the process of
replacing many of its existing systems to improve overall business performance
and to accommodate business for the "Year 2000". However, given the inherent
risks for a project of this magnitude and the resources required, actual results
could differ materially from those anticipated by the Company. The Company
expects its "Year 2000" date conversion project to be completed on a timely
basis. However, there can be no assurance that the systems of other companies on
which the Company may rely also will be timely converted or that such failure to
convert by another company would not have an adverse impact of the Company's
systems. The estimated costs directly or indirectly associated with the project
is currently expected to be approximately $16 million. At December 31, 1997, the
Company had directly or indirectly expended $1.7 million on the "Year 2000"
project.
Recently Issued Accounting Standards
See Note 1 to Notes to Consolidated Financial Statements for a complete
discussion of recently issued accounting standards and their expected impact on
the Company's consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not required of the Company at this time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this Form 10-K.
See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-47-
<PAGE> 48
PART III
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 Ownership Reporting Compliance" in the
Company's definitive Proxy Statement to be filed in connection with its 1998
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 1998 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 1998 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
1998 Annual Meeting of Stockholders and is incorporated herein by reference.
48
<PAGE> 49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
1. FINANCIAL STATEMENTS. The following financial statements for the six month
period ended December 31, 1997 and December 31, 1996 (unaudited) and for
the fiscal years ended June 30, 1997, 1996 and 1995 are filed as part of
this report:
Independent Auditors' Report................................................. 51
Consolidated Balance Sheets at December 31, 1997, June 30, 1997 and June
30, 1996................................................................... 52
Consolidated Statements of Operations for the Six Month Periods Ended
December 31, 1997 and December 31, 1996 (unaudited) and for the Fiscal
Years Ended June 30, 1997, 1996 and 1995................................... 53
Consolidated Statements of Changes in Stockholders' Equity for the Six
Month Period Ended December 31, 1997 and for the Fiscal Years Ended June
30, 1997, 1996 and 1995.................................................... 54
Consolidated Statements of Cash Flows for the Six Month Period Ended
December 31, 1997 and December 31, 1996 (unaudited) and for the Fiscal
Years Ended June 30, 1997, 1996 and 1995................................... 55
Notes to Consolidated Financial Statements................................... 57
2. REPORTS ON FORM 8-K.
(a) Company's current report on Form 8-K dated November 13, 1997 relating
to Item 2 --"Acquisition or Disposition of Assets."
3. EXHIBITS. Refer to (c) on page 69.
</TABLE>
49
<PAGE> 50
BOYD GAMING CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report 51
Consolidated Financial Statements
Consolidated Balance Sheets 52
Consolidated Statements of Operations 53
Consolidated Statements of Changes in Stockholders' Equity 54
Consolidated Statements of Cash Flows 55
Notes to Consolidated Financial Statements 57
</TABLE>
50
<PAGE> 51
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 December 31, 1997, June 30,
1997 and June 30, 1996, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the six month period ended
December 31, 1997 and for each of the three years in the period ended June 30,
1997. 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 December 31, 1997, June 30, 1997 and June 30, 1996 and the
results of their operations and their cash flows for the six month period ended
December 31, 1997 and for each of the three years in the period ended June 30,
1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 18, 1998
51
<PAGE> 52
CONSOLIDATED BALANCE SHEETS Boyd Gaming Corporation and Subsidiaries
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1996
------------ ---------- --------
ASSETS
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 78,277 $ 55,220 $ 48,980
Accounts receivable, net 19,372 16,946 16,040
Inventories 9,906 8,501 6,531
Prepaid expenses 14,357 14,873 15,265
Income taxes receivable 2,787 -- --
---------- ---------- --------
Total current assets 124,699 95,540 86,816
Property and equipment, net 771,235 744,038 796,093
Other assets and deferred charges 41,912 56,944 59,989
Deferred income taxes 6,558 8,533 --
Goodwill and other intangible assets, net 208,011 125,130 10,527
---------- ---------- --------
Total assets $1,152,415 $1,030,185 $953,425
========== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,828 $ 1,841 $ 4,031
Accounts payable 28,535 30,760 31,936
Accrued liabilities
Payroll and related 26,100 24,648 22,956
Interest and other 55,879 40,725 36,213
Income taxes payable -- 1,103 678
---------- ---------- --------
Total current liabilities 112,342 99,077 95,814
Long-term debt, net of current maturities 842,932 739,792 590,808
Deferred income taxes -- -- 33,546
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value;
5,000,000 shares authorized -- -- --
Common stock, $.01 par value; 200,000,000
shares authorized; 61,669,628,
61,523,988 and 57,213,720 shares outstanding 617 615 572
Additional paid-in capital 139,054 138,091 102,583
Retained earnings 57,470 52,610 130,102
---------- ---------- --------
Total stockholders' equity 197,141 191,316 233,257
---------- ---------- --------
Total liabilities and stockholders' equity $1,152,415 $1,030,185 $953,425
========== ========== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
52
<PAGE> 53
CONSOLIDATED STATEMENTS OF OPERATIONS Boyd Gaming Corporation and Subsidiaries
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31, FISCAL YEAR ENDED JUNE 30,
---------------------- --------------------------------------
1997 1996 1997 1996 1995
-------- -------- --------- -------- --------
UNAUDITED
<S> <C> <C> <C> <C> <C>
Revenues
Casino $323,707 $268,208 $ 573,782 $548,167 $463,179
Food and Beverage 78,658 73,387 151,261 142,420 123,527
Room 38,330 35,449 74,209 69,645 62,300
Other 39,074 26,883 58,311 49,895 37,563
Management fees and joint venture 20,310 20,406 42,747 41,576 35,763
-------- -------- --------- -------- --------
Gross revenues 500,079 424,333 900,310 851,703 722,332
Less promotional allowances 44,308 40,175 81,051 75,846 61,992
-------- -------- --------- -------- --------
Net revenues 455,771 384,158 819,259 775,857 660,340
-------- -------- --------- -------- --------
Costs and expenses
Casino 166,776 145,928 298,081 273,545 221,844
Food and beverage 53,757 50,885 106,729 99,213 90,670
Room 12,958 12,044 25,210 25,842 24,578
Other 32,793 21,574 50,695 36,830 25,567
Selling, general and administrative 68,461 58,860 120,538 114,497 79,785
Maintenance and utilities 18,652 18,327 36,037 30,171 28,452
Depreciation and amortization 35,097 30,834 67,242 60,626 54,518
Corporate expense 9,131 10,744 24,333 24,343 24,356
Preopening expense -- 3,481 3,481 10,004 --
Impairment loss -- -- 131,339 --
-------- -------- --------- -------- --------
Total 397,625 352,677 863,685 675,071 549,770
-------- -------- --------- -------- --------
Operating income (loss) 58,146 31,481 (44,426) 100,786 110,570
-------- -------- --------- -------- --------
Other income (expense)
Interest income 261 342 650 1,174 2,072
Interest expense, net of amounts capitalized (37,571) (27,069) (61,672) (52,360) (48,443)
-------- -------- --------- -------- --------
Total (37,310) (26,727) (61,022) (51,186) (46,371)
-------- -------- --------- -------- --------
Income (loss) before provision (benefit) for income
taxes and extraordinary items 20,836 4,754 (105,448) 49,600 64,199
Provision (benefit) for income taxes 8,736 1,902 (34,025) 20,021 27,950
-------- -------- --------- -------- --------
Income (loss) before extraordinary items 12,100 2,852 (71,423) 29,579 36,249
Extraordinary items, net of tax benefit of $3,899,
$3,268, $3,268 and $889, respectively 7,240 6,069 6,069 1,435 --
-------- -------- --------- -------- --------
Net income (loss) $ 4,860 $ (3,217) $ (77,492) $ 28,144 $ 36,249
======== ======== ========= ======== ========
Basic and diluted net income (loss) per common share:
Income (loss) before extraordinary items $ 0.20 $ 0.05 $ (1.19) $ 0.52 $ 0.64
Extraordinary items, net of tax (0.12) (0.10) (0.10) (0.03) --
-------- -------- --------- -------- --------
Net income (loss) $ 0.08 $ (0.05) $ (1.29) $ 0.49 $ 0.64
======== ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
53
<PAGE> 54
CONSOLIDATED STATEMENTS OF Boyd Gaming Corporation and Subsidiaries
CHANGES IN STOCKHOLDERS' EQUITY
For the six month period ended December 31, 1997 and fiscal years ended June 30,
1997, 1996 and 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------------- PAID-IN RETAINED STOCKHOLDERS'
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances, July 1, 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
Net loss (77,492) (77,492)
Issuance of stock,
net of expenses 4,000,000 40 33,493 33,533
Stock issued in connection with
employee stock purchase plan 310,268 3 2,015 2,018
---------- ---- -------- --------- ---------
Balances, June 30, 1997 61,523,988 615 138,091 52,610 191,316
Net income 4,860 4,860
Stock issued in connection with
employee stock purchase plan 145,640 2 963 965
---------- ---- -------- --------- ---------
BALANCES, DECEMBER 31, 1997 61,669,628 $617 $139,054 $ 57,470 $ 197,141
========== ==== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
54
<PAGE> 55
CONSOLIDATED STATEMENTS OF CASH FLOWS Boyd Gaming Corporation and Subsidiaries
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31, FISCAL YEAR ENDED JUNE 30,
------------------------ ------------------------------------------
1997 1996 1997 1996 1995
-------- -------- --------- -------- --------
UNAUDITED
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 4,860 $ (3,217) $ (77,492) $ 28,144 $ 36,249
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 35,097 30,834 67,242 60,626 54,518
Loss on early retirement of debt 11,139 9,337 9,337 3,759 --
Deferred income taxes 1,975 171 (42,079) 3,903 14,148
Impairment loss -- -- 131,339 -- --
Other -- 301 -- 185 84
Changes in assets and liabilities:
Accounts receivable, net (2,426) (9,836) (906) 95 (3,089)
Inventories (1,405) (2,319) (1,970) 117 (180)
Prepaid expenses 516 (3,855) 392 (1,800) 1,940
Other assets (5) (4,902) (4,853) (6,736) (2,032)
Other current liabilities 11,611 33,016 574 15,504 (19,146)
Income taxes receivable (2,787) (7,144) -- -- --
Income taxes payable (1,103) (678) 425 82 596
-------- -------- --------- -------- --------
Net cash provided by operating activities 57,472 41,708 82,009 103,879 83,088
-------- -------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash paid for acquisition of
Treasure Chest Casino, L.L.C. (103,040) -- -- -- --
Net cash paid for acquisition of
Par-A-Dice Hotel and Casino -- (170,725) (170,725) -- --
Acquisition of property, equipment and
other assets (22,186) (79,132) (99,586) (107,734) (181,212)
Proceeds from loans receivable -- -- -- 2,000 30,667
Proceeds from sale of riverboat -- 20,000 20,000 -- --
Decrease in short-term investments -- -- -- -- 5,000
-------- -------- --------- -------- --------
Net cash used in investing activities (125,226) (229,857) (250,311) (105,734) (145,545)
-------- -------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 244,525 200,000 200,148 230,934 86,025
Payments on long-term debt (903) (18,334) (19,354) (265,149) (22,027)
Early retirement of long-term debt (192,631) (157,500) (157,500) -- --
Net borrowings (payments) under credit
agreements 39,000 150,850 116,000 (250) 13,000
Proceeds from issuance of common stock 820 34,579 35,248 2,131 1,664
-------- -------- --------- -------- --------
Net cash provided by (used in) financing
activities 90,811 209,595 174,542 (32,334) 78,662
-------- -------- --------- -------- --------
Net increase (decrease) in cash and cash
equivalents 23,057 21,446 6,240 (34,189) 16,205
Cash and cash equivalents, beginning of year 55,220 48,980 48,980 83,169 66,964
-------- -------- --------- -------- --------
Cash and cash equivalents, end of year $ 78,277 $ 70,426 $ 55,220 $ 48,980 $ 83,169
======== ======== ========= ======== ========
</TABLE>
55
<PAGE> 56
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Boyd Gaming Corporation and Subsidiaries
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31, FISCAL YEAR ENDED JUNE 30,
---------------------- --------------------------------------
1997 1996 1997 1996 1995
------- --------- -------- ------ -------
UNAUDITED
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized $ 29,029 $ 29,950 $ 58,556 $54,342 $51,405
Cash paid for income taxes 6,815 4,915 7,981 15,266 12,607
======== ======== ======= ======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Property additions acquired on contracts and trade
payables which were accrued, but not yet paid $ 2,603 $ 7,398 $ 6,973 $ 7,352 $24,109
Deferred bond financing costs incurred 5,475 -- 4,624 -- --
Acquisition of Par-A-Dice Hotel and Casino
Fair value of assets acquired $ -- $ 174,800 $174,800 $ -- --
Cash paid to seller -- 170,725 170,725 -- --
-------- --------- -------- ------- -------
Liabilities assumed $ -- $ 4,075 $ 4,075 $ -- $ --
======== ========= ======== ======= =======
Acquisition of Treasure Chest Casino, L.L.C.
Fair value of assets acquired $110,180 $ -- $ -- $ -- $ --
Cash paid to seller 103,040 -- -- -- --
-------- --------- -------- ------- --------
Liabilities assumed $ 7,140 $ -- $ -- $ -- $ --
======== ========= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
56
<PAGE> 57
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 eleven casino
entertainment facilities located in Las Vegas, Nevada, Tunica, Mississippi,
Kansas City, Missouri, East Peoria, Illinois, and Kenner, Louisiana as well as a
travel agency located in Honolulu, Hawaii. In addition, the Company manages a
casino entertainment facility in Philadelphia, Mississippi for which it has a
seven year management contract that expires in 2001. 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 the 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 are capitalized, while costs of normal
repairs and maintenance are charged to expense as incurred. Gains or losses on
disposal of assets are recognized as incurred.
Capitalized Interest
Interest costs associated with major construction projects are capitalized. When
no debt is incurred specifically for a project, interest is capitalized on
amounts expended for the project using the Company's weighted average cost of
borrowing. Capitalization of interest ceases when the project is substantially
complete. Capitalized interest during the fiscal years ended June 30, 1997, 1996
and 1995 was $3.2 million, $4.6 million and $7.1 million, respectively. There
were no such interest costs capitalized during the six month period ended
December 31, 1997.
Goodwill and Other Intangible Assets
The excess of total acquisition costs over the fair market value of net assets
acquired is amortized using the straight-line method over forty years.
Management periodically assesses the recoverability of goodwill and other
intangible assets by comparing its carrying value to the undiscounted cash flows
expected to be generated by the acquired operation during the anticipated period
of benefit. As of December 31, 1997 and June 30, 1997 and 1996, accumulated
amortization was $8.0 million, $6.1 million and $4.0 million, respectively.
Debt Issuance Costs
Debt issuance costs incurred in connection with the issuance of long-term debt
are capitalized and amortized to interest expense over the terms of the related
debt agreements.
57
<PAGE> 58
Revenue and Promotional Allowances
Casino revenue represents the net win from gaming activities, which is the
difference between gaming wins and losses. Revenues include the estimated retail
value of rooms, food and beverage, and other goods and services provided to
customers on a complimentary basis. Such 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>
SIX MONTHS
ENDED DECEMBER 31, FISCAL YEAR ENDED JUNE 30,
------------------- ---------------------------------------------
(IN THOUSANDS) 1997 1997 1996 1995
- --------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Room $ 5,668 $11,704 $10,660 $ 8,991
Food and beverage 33,397 58,120 59,254 49,674
Other 2,638 3,168 3,116 2,422
------- ------- ------- -------
Total $41,703 $72,992 $73,030 $61,087
======= ======= ======= =======
</TABLE>
Preopening Expenses
Expenses incurred prior to the opening of new facilities are capitalized as
incurred and charged to expense upon commencement of operations. During the
years ended June 30, 1997 and 1996, the Company expensed $3.5 million and $10.0
million, respectively, upon the opening of Main Street Station and Sam's Town
Kansas City. There were no preopening expenses recorded during the six month
period ended December 31, 1997 or the year ended June 30, 1995.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates used by the Company include the estimated useful lives for
depreciable and amortizable assets, the estimated allowance for doubtful
accounts receivable, the estimated valuation allowance for deferred tax assets,
and estimated cash flows in assessing the recoverability of long-lived assets.
Actual results could differ from those estimates.
Reclassifications
Certain prior period amounts in the consolidated financial statements have been
reclassified to conform to the December 31, 1997 presentation. These
reclassifications had no effect on the Company's net income.
Change in Fiscal Year
Effective July 1, 1997, the Company changed its fiscal year from a June 30 year
end to a December 31 year end.
Recently Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which
is effective for fiscal years beginning after December 15, 1997. This statement
requires businesses to disclose comprehensive income and its components in their
financial statements. Management intends to comply with the disclosure
requirements of this statement in the year ending December 31, 1998.
The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which is effective for fiscal years beginning after
December 15, 1997. This statement redefines how operating segments are
determined and requires qualitative disclosure of certain financial and
descriptive information about a company's operating segments. The Company will
adopt SFAS No. 131 in the year ending December 31, 1998. Management has not
finalized its analysis of which operating segments it will report on to comply
with SFAS No. 131.
58
<PAGE> 59
NOTE 2. -- ACQUISITIONS
On October 27, 1997, the Company acquired the remaining 85% equity interest in
Treasure Chest Casino, L.L.C. ("Treasure Chest") that was not owned by the
Company for approximately $103 million, plus the assumption of debt. Intangible
license rights, representing the excess of the purchase price over the fair
value of the net assets acquired, was approximately $85 million. Treasure Chest
owns the Treasure Chest Casino, a riverboat casino operation on Lake
Pontchartrain in Kenner, Louisiana. The Company has been managing the Treasure
Chest since its opening in September 1994. The Company funded the acquisition
and the repayment of Treasure Chest's debt with borrowings under its bank credit
facility. The Company's pro forma consolidated results of operations, as if the
acquisition had occurred on July 1, 1995, are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30,
----------------------------- -------------------------
1997 1996 1997 1996
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Pro forma (in thousands, except per share data)
Net revenues................................ $ 489,715 $ 435,733 $ 923,072 $ 872,446
Income (loss) before extraordinary items.... 12,335 3,682 (69,275) 30,860
Net income (loss)........................... 5,095 (2,387) (75,344) 29,425
---------- --------- --------- ---------
Basic and diluted net income (loss) per common share
Income (loss) before extraordinary items.... $ 0.20 $ 0.06 $ (1.15) $ 0.54
Net income (loss)........................... 0.08 (0.04) (1.25) 0.52
----------- --------- --------- ---------
</TABLE>
On December 4, 1996, the Company acquired Par-A-Dice Gaming Corporation, owner
and operator of the Par-A-Dice riverboat casino in East Peoria, Illinois, and
East Peoria Hotel, Inc., the general partner of a partnership which recently
opened a 208 room hotel adjacent to the Par-A-Dice casino. The purchase price of
the acquisition was approximately $171 million. Intangible license rights,
representing the excess of the purchase price over the fair value of the net
assets acquired, was approximately $116 million. The Company's pro forma
consolidated results of operations, as if the acquisition had occurred on July
1, 1995, are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30,
----------------------------- -------------------------
1997 1996 1997 1996
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Pro forma (in thousands, except per share data)
Net revenues................................ $ 455,771 $ 428,998 $ 861,563 $ 869,819
Income (loss) before extraordinary items.... 12,100 5,860 (66,644) 40,828
Net income (loss)........................... 4,860 (209) (72,713) 39,393
---------- --------- --------- ---------
Basic and diluted net income (loss) per common share
Income (loss) before extraordinary items.... $ 0.20 $ 0.10 $ (1.11) $ 0.72
Net income (loss)........................... 0.08 (0.00) (1.21) 0.69
----------- --------- --------- ---------
</TABLE>
NOTE 3. -- IMPAIRMENT LOSS
During the fiscal year ended June 30, 1997, the Company recorded an impairment
loss of $126 million to adjust the carrying value of its fixed and intangible
assets in the Missouri gaming market to fair value. The impairment loss was
recorded due to a significant change in the competitive environment in the
Kansas City gaming market with the January 1997 addition of a significantly
larger facility and a history of operating losses at the Company's Sam's Town
Kansas City gaming establishment. The fair value of the impaired assets was
primarily determined through a discounted cash flow analysis of the operations
of Sam's Town Kansas City.
The Company also recorded a $5.3 million impairment loss related to its 17.4%
ownership interest in the Fremont Street Experience, Limited Liability Company
("FSE"). This impairment loss is principally due to the significant levels of
operating loss and operating cash deficiency reported in May 1997 by FSE
relating to its first full year of operation. Management expects this trend to
continue and, therefore, does not expect to recover its investment in this
entity.
59
<PAGE> 60
NOTE 4. -- ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
(IN THOUSANDS) 1997 1997 1996
- -------------- ------------ ------- -------
<S> <C> <C> <C>
Casino $ 9,612 $ 7,428 $ 6,420
Hotel 2,563 2,947 3,622
Other 10,951 9,875 8,110
------- ------- -------
Total 23,126 20,250 18,152
Less allowance for doubtful accounts 3,754 3,304 2,112
------- ------- -------
Accounts receivable, net $19,372 $16,946 $16,040
======= ======= =======
</TABLE>
NOTE 5. -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
LIFE DECEMBER 31, JUNE 30, JUNE 30,
(IN THOUSANDS) (YEARS) 1997 1997 1996
-------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Land -- $ 115,439 $ 115,946 $ 119,057
Buildings and leasehold 3-40 632,094 632,829 607,874
improvements
Furniture and equipment 3-30 341,759 327,445 312,937
Riverboats and barges 15-40 66,646 39,728 39,728
Construction in progress -- 14,570 5,973 50,854
---------- ---------- ----------
Total 1,170,508 1,121,921 1,130,450
Less accumulated depreciation
and amortization 399,273 377,883 334,357
---------- ---------- ----------
Property and equipment, net $ 771,235 $ 744,038 $ 796,093
========== ========== ==========
</TABLE>
NOTE 6. -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1996
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Bank Credit Facility $390,000 $351,000 $235,000
9.25% Senior Notes 200,000 200,000 --
9.50% Senior Subordinated Notes 250,000 -- --
11% Senior Subordinated Notes -- 185,000 185,000
10.75% Senior Subordinated Notes -- -- 150,000
Other 4,760 5,633 24,839
-------- -------- --------
Total long-term debt 844,760 741,633 594,839
Less current maturities 1,828 1,841 4,031
-------- -------- --------
Total $842,932 $739,792 $590,808
======== ======== ========
</TABLE>
The Company has a $500 million revolving bank credit facility which matures in
June 2001 (the "Bank Credit Facility"). Beginning in December 1998, total
availability under the 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. As of December 31, 1997, the Company had unused
availability of $110 million under the Bank Credit Facility. Interest on the
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 blended
interest rate under the Bank Credit Facility at December 31, 1997 was 8.2%. The
Company incurs a commitment fee on the unused portion of the Bank Credit
Facility which ranges from 0.375% to 0.50% per annum, depending upon the level
of a certain predefined ratio. The Bank Credit Facility is collateralized by the
real and personal property comprising nine casino properties owned by the
Company and by related security agreements with assignment of rents. The Bank
Credit Facility contains certain financial covenants, limitations on the
incurrence of
60
<PAGE> 61
debt and limitations on the incurrence of capital expenditures and investments,
all as defined in the Bank Credit Facility. In connection with the closing of
the Bank Credit Facility in June 1996, the Company recorded a $1.4 million
extraordinary loss (net of $.9 million in tax benefits) related to the write-off
of unamortized fees.
On October 4, 1996, the Company issued $200 million of 9.25% Senior Notes (the
"9.25% Notes") due October 1, 2003. The 9.25% Notes require semi-annual interest
payments in April and October of each year through October 2003, at which time
the entire principal balance becomes due and payable. The 9.25% Notes contain
certain restrictive covenants regarding, among other things, incurrence of debt,
sales of assets, mergers and consolidations and limitations on restricted
payments (as defined in the indenture relating to the 9.25% Notes). In addition,
the 9.25% Notes are guaranteed by all existing significant subsidiaries of the
Company. The guaranties are full, unconditional, and joint and several. All of
the Company's significant subsidiaries are wholly-owned. Assets, equity, income
and cash flows of all other subsidiaries of the Company that do not guaranty the
9.25% 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 from this offering
were used to reduce outstanding indebtedness under the Company's Bank Credit
Facility. Subsequently, the Company used amounts available under its Bank Credit
Facility to redeem $150 million principal amount of 10.75% Senior Subordinated
Notes on November 4, 1996. As a result, the Company recognized an extraordinary
loss of $6.1 million (net of $3.3 million in tax benefits) related to the early
extinguishment of debt.
On July 22, 1997, the Company issued $250 million principal amount of 9.50%
Senior Subordinated Notes (the "9.50% Notes") due July 2007. The 9.50% Notes
require semi-annual interest payments in January and July of each year through
July 2007, at which time the entire principal balance becomes due and payable.
The 9.50% Notes contain certain restrictive covenants regarding, among other
things, incurrence of debt, sales of assets, mergers and consolidations and
limitations on restricted payments (as defined in the indenture relating to the
9.50% Notes). The 9.50% Notes may be redeemed at the Company's option anytime
after July 15, 2002 at redemption prices ranging from 104.75% in 2002 to 100% in
2005 and thereafter. The net proceeds from this offering were used to reduce
outstanding indebtedness under the Company's Bank Credit Facility.
On December 1, 1997, the Company redeemed the $185 million principal amount of
11% Senior Subordinated Notes. In connection with the redemption, the Company
incurred an extraordinary loss on the early extinguishment of debt of $7.2
million (net of $3.9 million in tax benefits). The Company funded the redemption
with borrowings under the Bank Credit Facility.
The estimated fair value of the Company's long-term debt at December 31, 1997
was approximately $867 million, versus its book value of $845 million. At June
30, 1997, the estimated fair value of the Company's long-term debt was
approximately $750 million, versus its book value of $742 million. The estimated
fair value amounts were based on quoted market prices on or about December 31,
1997 and June 30, 1997 for the Company's debt securities that are traded. For
the debt securities that are not traded, fair value was based on estimated
discounted cash flows using current rates offered to the Company for debt
securities having the same remaining maturities.
Interest rates on the Company's other long-term debt range from 5% to 10%.
Management believes the Company and its subsidiaries are in compliance with all
covenants contained in its long-term debt agreements at December 31, 1997.
The scheduled maturities of long-term debt for the years ending December 31 are
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- --------------
<S> <C>
1998 $ 1,828
1999 1,852
2000 648
2001 390,432
2002 --
Thereafter 450,000
--------
Total $844,760
========
</TABLE>
61
<PAGE> 62
NOTE 7. -- INTEREST RATE SWAP AGREEMENT
On December 31, 1997, the Company entered into an interest rate swap agreement
for a notional amount of $100 million. The agreement calls for the Company to
swap its variable libor rate (5.91% at December 31, 1997) for a fixed libor rate
of 5.54%, resulting in an initial gain of approximately $.1 million which will
be deferred and amortized over the life of the agreement. The variable libor
rate readjusts each quarter and the agreement is cancelable should the libor
rate exceed 5.99%. Any subsequent differential between the amounts to be paid or
received, as a result of this swap agreement, will be recorded as interest
expense during the period of settlement. The swap agreement terminates on
December 31, 2000.
NOTE 8. -- COMMITMENTS AND CONTINGENCIES
Future minimum lease payments required under noncancelable operating leases
(principally for land) as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- --------------
<S> <C>
1998 $ 3,952
1999 2,156
2000 2,144
2001 2,155
2002 2,143
Thereafter 84,476
---------
Total $ 97,026
=========
</TABLE>
Rent expense for the six month period ended December 31, 1997 and the years
ended June 30, 1997, 1996 and 1995 was $1.8 million, $3.2 million, $2.9 million
and $2.8 million, respectively, and is included in selling, general and
administrative expenses on the consolidated statements of operations.
The Company is required to pay, to the City of Kenner, Louisiana, an annual
boarding fee of $2.50 per passenger onto the Company's Treasure Chest riverboat
casino. The future minimum payment due in 1998 to the City of Kenner, based upon
a portion of actual passenger counts from the prior year, is approximately $3.6
million.
On May 29, 1996, the Company, through a wholly-owned subsidiary, executed the
Joint Venture Agreement with Mirage to develop and own the Atlantic City
Project. The Joint Venture Agreement provides for at least $100 million in
capital contributions by the Company during the course of 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 Bank Credit Facility.
In January 1998, Mirage attempted to unilaterally terminate the Joint Venture
Agreement. On February 2, 1998, the Company filed a lawsuit against Mirage in
the Superior Court of New Jersey to enforce its rights under the Joint Venture
Agreement. The lawsuit alleges, among other things, that Mirage attempted to
unilaterally terminate the Joint Venture Agreement and misappropriate the Mirage
Joint Venture's business opportunity for its own benefit. As a result, there can
be no assurance that the Atlantic City Project will be completed according to
the terms contemplated by the Joint Venture Agreement, or at all.
The Company is subject to various claims and litigation in the normal course of
business. In the opinion of management, all pending legal matters are either
adequately covered by insurance or, if not insured, will not have a material
adverse impact on the Company's consolidated financial statements.
NOTE 9. -- 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 $1.2 million, $2.2 million, $2.2 million and $2.0 million for the
six month period ended December 31, 1997 and for the years ended June 30, 1997,
1996 and 1995, respectively. The Company's share of the unfunded liability
related to multi-employer plans, if any, is not determinable.
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, $2.6
million, $1.4 million and $1.8 million for the
62
<PAGE> 63
six month period ended December 31, 1997 and for the years ended June 30, 1997,
1996 and 1995, respectively, to the Company's 401(k) profit-sharing plan and
trust.
NOTE 10. -- INCOME TAXES
A summary of the provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FISCAL YEAR ENDED JUNE 30,
DECEMBER 31, --------------------------------------
(IN THOUSANDS) 1997 1997 1996 1995
- -------------- ------------- -------- ------- -------
<S> <C> <C> <C> <C>
Current
Federal $5,671 $ 7,009 $15,301 $14,165
State 1,091 1,045 817 494
------ -------- ------- -------
6,762 8,054 16,118 14,659
------ -------- ------- -------
Deferred
Federal 1,833 (43,899) 4,119 12,786
State 141 1,820 (216) 505
------ -------- ------- -------
1,974 (42,079) 3,903 13,291
------ -------- ------- -------
Total $8,736 $(34,025) $20,021 $27,950
====== ======== ======= =======
</TABLE>
The following table provides a reconciliation between the federal statutory rate
and the effective income tax rate from continuing operations where both are
expressed as a percentage of income.
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, --------------------------
1997 1997 1996 1995
------------ -------- ------- -----
<S> <C> <C> <C> <C>
Tax provision at statutory rate 35.0% (35.0)% 35.0% 35.0%
Increase/(decrease) resulting from:
State income tax, net of federal benefit 3.8 1.7 0.8 1.0
Company provided benefits 1.8 0.9 2.5 2.7
Licensing expenditures for new jurisdictions 0.5 0.3 0.5 3.1
Tax preferred investments -- -- -- (0.1)
Other, net 0.8 (0.2) 1.6 1.8
---- ------ ----- -----
Total 41.9% (32.3)% 40.4% 43.5%
==== ====== ===== =====
</TABLE>
63
<PAGE> 64
The tax items comprising the Company's net deferred tax liability (asset) are as
follows:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, -------------------------------------
(IN THOUSANDS) 1997 1997 1996 1995
- -------------- ------------- -------- ------- -------
<S> <C> <C> <C> <C>
Deferred tax assets:
Alternative minimum tax credit carryforward $ 9,234 $ 7,677 $ 5,146 $ 3,944
Preopening expense amortized for tax purposes 2,611 3,119 3,498 1,126
Difference between book and tax basis of
property -- 1,991 -- --
Provision for doubtful accounts 1,495 1,314 952 832
Separate state loss attributes 5,575 5,425 -- --
Other 2,934 2,808 2,777 1,107
------- ------- ------- -------
Subtotal 21,849 22,334 12,373 7,009
Valuation allowance (5,575) (5,425) -- --
------- ------- ------- -------
Gross deferred tax asset 16,274 16,909 12,373 7,009
------- ------- ------- -------
Deferred tax liabilities:
Difference between book and tax basis of
property 354 -- 38,187 33,053
Difference between book and tax basis of
amortizable assets 5,445 3,821 2,185 1,513
Reserve differential for gaming activities 1,030 1,010 2,027 894
Other 2,887 3,545 3,520 1,192
------- ------- ------- -------
Gross deferred liability 9,716 8,376 45,919 36,652
------- ------- ------- -------
Net deferred tax liability (asset) $(6,558) $(8,533) $33,546 $29,643
======= ======= ======= =======
</TABLE>
At December 31, 1997 the Company has approximately $43.0 million of state tax
net operating loss carryforwards which begin to expire in the year 2011.
In 1995, the Company implemented a meal charge and reimbursement program and
deducted the entire cost of the meals for tax purposes. The Internal Revenue
Service ("IRS") subsequently notified the Company and the gaming industry that
this deduction may be limited to 50% of the cost of providing these meals. In
the event that the IRS decides to challenge this deduction and is successful in
doing so, management estimates the potential impact, as of December 31, 1997, to
be approximately $4 million (including interest). However, management believes
that it will prevail on this issue as the deduction is appropriate under the
guidelines set forth by the Internal Revenue Code.
NOTE 11. -- STOCKHOLDERS' EQUITY AND STOCK INCENTIVE PLANS
Equity Offering
In October 1996, the Company completed a public offering of 4,000,000 shares of
common stock at $9.00 per share. Net proceeds for this offering, after deducting
costs paid by the Company, were $33.5 million. The net proceeds from the
offering were used to reduce outstanding indebtedness under the Company's Bank
Credit Facility.
Employee Stock Purchase Plan
Under the terms of the Company's Employee Stock Purchase Plan (the "Plan"),
eligible employees may purchase the Company's common stock, semi-annually,
through payroll deductions, at 85% of the market price either on the purchase
date or the offering date, whichever price is lower. The Company had provided
1,500,000 shares for issuance under the Plan and 612,657 shares remain available
for future issuance.
Stock Options
As of December 31, 1997, the Company had in effect various stock option plans.
Stock options awarded under these plans are granted primarily to employees and
directors of the Company. The maximum number of shares of common stock available
for issuance under these plans are 7,050,000 shares.
Options granted under the plans generally become exercisable ratably over a
three or four year period from the date of grant. Options granted under the
plans have an exercise price equal to the market price of the Company's common
stock on the date of grant and expire no later than ten years after the date of
grant. In May 1997, the Board of Directors of the Company authorized the
repricing of certain options. The effect of the repricing resulted in the
cancellation of 2,274,033 options and the reissuance of 1,277,971 options with a
price equal to the market value of the common stock at the date of repricing.
All repriced options will fully vest and become exercisable on December 31,
1998.
64
<PAGE> 65
Summarized information for the stock options plans is as follows:
<TABLE>
<CAPTION>
OPTION
OPTIONS PRICES
--------- --------------
<S> <C> <C>
Options outstanding at July 1, 1994 2,669,700 $ 17.00-$18.50
Options granted 1,285,600 13.63- 14.00
Options canceled (38,682) 13.63- 17.00
--------- --------------
Options outstanding at June 30, 1995 3,916,618 $ 13.63-$18.50
Options granted 63,000 13.25- 14.38
Options canceled (72,697) 13.63- 17.00
Options exercised (2,334) 13.63
--------- --------------
Options outstanding at June 30, 1996 3,904,587 $ 13.25-$18.50
Options granted 2,841,671 5.50- 11.50
Options canceled (2,677,087) 13.25- 17.00
--------- --------------
Options outstanding at June 30, 1997 4,069,171 $ 5.50-$18.50
Options granted 706,000 5.75- 8.25
Options canceled (73,161) 5.75- 18.50
---------- --------------
Options outstanding at December 31, 1997 4,702,010 $ 5.50-$17.00
========= ==============
Exercisable options at December 31, 1997 1,693,747
=========
Options available for grant at
December 31, 1997 2,345,656
=========
</TABLE>
The following table summarizes the information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ------------------------------
WEIGHTED AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE PRICE
- ---------------- ----------- ---------------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$5.50-$5.50 15,000 9.24 $ 5.50 -- $ --
5.75- 5.75 1,978,559 7.46 5.75 30,000 5.75
7.75-17.00 2,708,451 7.57 12.11 1,663,747 14.05
---------- ---- -------- ---------- --------
4,702,010 7.53 $ 9.41 1,693,747 $ 13.90
========== ==== ======== ========== ========
</TABLE>
During the fiscal year ended June 30, 1997, the Company adopted the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No.
123 provides, among other things, that companies may elect to account for
employee stock options using a fair value-based method or continue to apply the
intrinsic value-based method prescribed by Accounting Principal Board Opinion
No. 25 ("APB No. 25"). The Company has elected to continue to account for
employee stock options in accordance with APB No. 25.
The following table discloses the Company's pro forma net income (loss) and net
income (loss) per share assuming compensation cost for employee stock options
had been recognized under SFAS No. 123. In addition, the table includes the
excess of the compensation cost under SFAS No. 123 over the cost recognized
related to the Employee Stock Purchase Plan. The table also discloses the
weighted-average assumptions used in estimating the fair value of each option
grant on the date of grant using the Black-Scholes
65
<PAGE> 66
option pricing model, and the estimated weighted-average fair value of the
options granted. The model assumes no expected future dividend payments on the
Company's common stock for the options granted in the six months ended December
31, 1997 or the years ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, -------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1997 1996
- ------------------------------------- ---------------- --------- --------
<S> <C> <C> <C>
Income (loss) before extraordinary item
As reported $ 12,100 $(71,423) $29,579
Pro forma 10,904 (72,555) 29,561
Net income (loss)
As reported $ 4,860 $(77,492) $28,144
Pro forma 3,664 (78,624) 28,126
Basic and diluted income (loss) per share before
extraordinary item
As reported $ 0.20 $ (1.19) $ 0.52
Pro forma 0.18 (1.20) 0.52
Basic and diluted net income (loss) per share
As reported $ 0.08 $ (1.29) $ 0.49
Pro forma 0.06 (1.31) 0.49
Weighted-average assumptions
Expected stock price volatility 38.48% 38.48% 38.48%
Risk-free interest rate 6.05% 6.05% 6.20%
Expected option lives (years) 2.02 2.54 2.72
Estimated fair value of options granted $ 1.79 $ 2.13 $ 4.15
</TABLE>
Because the accounting method prescribed by SFAS No. 123 is not applicable to
options granted prior to July 1, 1995, the compensation cost reflected in the
pro forma amounts shown above may not be representative of that to be expected
in future years.
66
<PAGE> 67
NOTE 12. -- EARNINGS PER SHARE
The Company recently adopted SFAS No. 128 "Earnings Per Share." This statement
established standards for computing and presenting earnings per share and
required restatement of all prior-period earnings per share data presented. The
adoption of SFAS No. 128 did not affect the Company's previously reported
earnings per share. A reconciliation of income and shares for basic and diluted
earnings per share is as follows:
<TABLE>
<CAPTION>
Six months ended December 31,
----------------------------------------------------------------------------------------
1997 1996 (UNAUDITED)
------------------------------------------- ----------------------------------------
Weighted Weighted
Income/ Average Per Share Income/ Average Per Share
(IN THOUSANDS, EXCEPT PER SHARE DATA) (Loss) Shares Amount (Loss) Shares Amount
-------- --------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income before extraordinary item $12,100 61,524,780 $ 0.20 $ 2,852 59,149,914 $ 0.05
Extraordinary item, net (7,240) 61,524,780 (0.12) (6,069) 59,149,914 (0.10)
------- ---------- ------ ------- ---------- ------
Net income (loss) $ 4,860 61,524,780 $ 0.08 $(3,217) 59,149,914 $(0.05)
======= ========== ====== ======= ========== ======
DILUTED EARNINGS PER SHARE
Income before extraordinary item $12,100 61,524,780 2,852 59,149,914
Effect of dilutive securities-stock
options -- 261,018 -- 8,622
------- ---------- ------ ------- ---------- ------
Income before extraordinary item 12,100 61,785,798 $ 0.20 2,852 59,158,536 $ 0.05
Extraordinary item, net (7,240) -- (0.12) (6,069) -- (0.10)
------- ---------- ------ ------- ---------- ------
Net income (loss) $ 4,860 61,785,798 $ 0.08 $(3,217) 59,158,536 $(0.05)
======= ========== ====== ======= ========== ======
</TABLE>
Options to purchase 2,778,451 and 3,676,337 shares of common stock at December
31, 1997 and 1996, respectively, at prices of $7.75 - $17.00 and $13.63 -
$18.50, respectively, were outstanding during the period but not included in the
computation of diluted earnings per share because their exercise price was in
excess of the average market price of the common share for the periods
presented.
<TABLE>
<CAPTION>
Fiscal year ended June 30,
------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------- ------------------------------- -----------------------------
Weighted Weighted Weighted Per
IN THOUSANDS, EXCEPT PER Income/ Average Per Share Income/ Average Per Share Income/ Average Share
SHARE DATA) (Loss) Shares Amount (Loss) Shares Amount (Loss) Shares Amount
--------- --------- --------- ---------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income before extraordinary item $(71,423) 60,247,508 $(1.19) $ 29,579 57,057,550 $ 0.52 $ 36,249 56,870,104 $ 0.64
Extraordinary item, net (6,069) 60,247,508 (0.10) (1,435) 57,057,550 (0.03) -- 56,870,104 --
-------- ---------- ----- --------- ---------- ------ -------- ---------- -------
Net income (loss) $(77,492) 60,247,508 $(1.29) $ 28,144 57,057,550 $ 0.49 $ 36,249 56,870,104 $ 0.64
======== ========== ====== ========= ========== ======= ======== ========== =======
DILUTED EARNINGS PER SHARE
Income before extraordinary item $(71,423) 60,247,508 $ 29,579 57,057,550 $ 36,249 56,870,104
Effect of dilutive
securities-stock
Options -- -- -- 80 -- -- --
-------- ---------- ----- --------- ---------- ------ -------- ---------- -------
Income before extraordinary item (71,423) 60,247,508 $(1.19) 29,579 57,057,630 $ 0.52 36,249 56,870,104 $ 0.64
Extraordinary item, net (6,069) -- (0.10) (1,435) -- (0.03) -- -- --
-------- ---------- ----- --------- ---------- ------ -------- ---------- -------
Net income (loss) $(77,492) 60,247,508 $(1.29) $ 28,144 57,057,630 $ 0.49 $ 36,249 56,870,104 $ 0.64
======== ========== ====== ========= ========== ======= ======== ========== =======
</TABLE>
Options to purchase 2,752,367, 3,842,253, and 3,916,618 shares of common stock
at June 30, 1997, 1996, and 1995, respectively, at prices of $8.38 - $18.50,
$13.63 - $18.50, and $13.63 - $18.50, respectively, were outstanding during the
period but not included in the computation of diluted earnings per share because
their exercise price was in excess of the average market price of the common
share for the periods presented. Options to purchase 18,042 shares of common
stock at June 30, 1997 are not included in diluted earnings per share due to
the net loss before extraordinary item that was incurred during that year.
67
<PAGE> 68
SELECTED QUARTERLY FINANCIAL INFORMATION
(Unaudited) Boyd Gaming Corporation and Subsidiaries
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1997
-----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) FIRST SECOND TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Net revenues $ 217,748 $ 238,023 $ 455,771
Operating income 28,011 30,135 58,146
Income before income tax
and extraordinary item 9,878 10,958 20,836
Extraordinary item, net of tax -- 7,240 7,240
Net income (loss) $ 5,876 $ (1,016) $ 4,860
--------- --------- ---------
Basic and diluted net income (loss)
per common share:
Income before extraordinary item $ 0.10 $ 0.10 $ 0.20
Extraordinary item, net of tax -- (0.12) (0.12)
--------- --------- ---------
Net income (loss) $ 0.10 $ (0.02) $ 0.08
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1997
--------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH TOTAL
------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues $185,891 $ 198,267 $ 219,154 $ 215,947 $ 819,259
Operating income (loss) 11,121 20,360 (98,740) 22,833 (44,426)
Income (loss) before income tax
and extraordinary item (1,960) 6,714 (115,941) 5,739 (105,448)
Extraordinary item, net of tax -- 6,069 -- -- 6,069
Net income (loss) $ (1,215) $ (2,002) $ (77,712) $ 3,437 $ (77,492)
-------- --------- --------- --------- ---------
Basic and diluted net income (loss) per common share:
Income (loss) before extraordinary item $ (0.02) $ 0.07 $ (1.27) $ 0.06 $ (1.19)
Extraordinary item, net of tax -- (0.10) -- -- (0.10)
-------- --------- --------- --------- ---------
Net income (loss) $ (0.02) $ (0.03) $ (1.27) $ 0.06 $ (1.29)
======== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1996
--------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH TOTAL
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
-------- --------- --------- --------- ---------
Basic and diluted net income per common share:
Income before extraordinary item 0.07 $ 0.19 $ 0.20 $ 0.06 $ 0.52
Extraordinary item, net of tax $ -- -- (0.02) (0.03)
-------- --------- --------- --------- ---------
Net income $ 0.07 $ 0.19 $ 0.20 $ 0.04 $ 0.49
======== ========= ========= ========= =========
</TABLE>
68
<PAGE> 69
(c) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<S> <C>
2.1(5) 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.
2.2(2) Agreement and Plan of Reorganization dated as of June 25, 1993,
by and among Eldorado, Inc., the Company, CH&C and certain
stockholders and noteholders of Eldorado, Inc.
2.3(2) Subscription Agreement dated as of August 30, 1993, by and among
Boyd Kenner, Inc., the Company and Treasure Chest Casino, L.L.C.
2.4(12) Purchase Agreement, dated as of July 11, 1997, by and among the
Company, Boyd Kenner, Inc., Boyd Louisiana, L.L.C., Treasure
Chest casino, L.L.C., and certain members of Treasure Chest
Casino, L.L.C.
2.5(13) First Amendment to Purchase Agreement, dated as of September 9,
1997 among the Company, Boyd Kenner, Inc., Boyd Louisiana,
L.L.C., Treasure Chest Casino, L.L.C. and the Selling Members.
3.1(9) Restated Articles of Incorporation.
3.2(9) Restated Bylaws
4.1(13) Registration Agreement, dated July 17, 1997, among the Company,
Salomon Brothers Inc., UBS Securities LLC and CIBC Wood Gundy
Securities Corp.
4.2(14) Form of Indenture relating to $200,000,000 aggregate principal
amount of 9.25% Senior Subordinated Notes due 2003, including the
Form of Note.
4.4(13) Form of Indenture relating to 9.50% Senior Subordinated Notes due
2007, dated as of July 22, 1997, between the Company and State
Street Bank and Trust Company, including the Form of Note.
4.5(13) First Supplemental Indenture, among Registrant, as Issuer,
certain subsidiaries of the Company, as Guarantors, and the Bank
of New York, as Trustee, dated as of December 31, 1996.
10.1(2) 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) 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.
10.3(4) Loan Agreement dated August 17, 1994 by and among Boyd Tunica,
Inc., the Company, First Interstate Bank of Nevada, Bankers Trust
Company and Bank of America Nevada.
10.4(1) 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.
10.5(1) Lease Agreement dated October 31, 1963, by and between Fremont
Hotel, Inc. and Cora Edit Garehime.
10.6(1) Lease Agreement dated December 31, 1963, by and among Fremont
Hotel, Inc., Bank of Nevada and Leon H. Rockwell, Jr.
</TABLE>
69
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<S> <C>
10.7(1) 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.
10.8(4) Lease Agreement dated July 25, 1973, by and between CH&C and
William Peccole, as Trustee of the Peter Peccole 1970 Trust.
10.9(1) Lease Agreement dated July 1, 1974, by and among Fremont Hotel,
Inc. and Bank of Nevada, Leon H. Rockwell, Jr. and Margorie
Rockwell Riley.
10.10(1) 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.
10.11(1) 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.
10.12(4) 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).
10.13(2) 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.
10.14(2) 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.
10.15(2) Labor Agreement dated January 13, 1993, by and between CH&C and
the International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.16(2) 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.
10.17(1) 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.
10.18(2) 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.
10.19(1) 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.
10.20(1) 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.
10.21(1) 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).
</TABLE>
70
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<S> <C>
10.22(1) 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.
10.23(1) 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.
10.24(1) Labor Agreement dated August 1, 1983, by and between Stardust
Hotel and the International Brotherhood of Electrical Workers,
Local Union No. 357, AFL-CIO.
10.25(1) Implemented Proposal dated June 15, 1992, by and between Stardust
Hotel and Casino and the Back-End Teamsters Local Union No. 995.
10.26(1) Implemented Proposal dated June 15, 1992, by and between Fremont
Hotel and Casino and the Back-End Teamsters Local Union No. 995.
10.27(2) Management Agreement dated March 11, 1993, by and between
Mississippi Band of Choctaw Indians and Boyd Mississippi, Inc.
10.28(4) Addendum to Management Agreement dated November 24, 1993, by and
between Mississippi Band of Choctaw Indians and Boyd Mississippi,
Inc.
10.29(2) Casino Management Agreement dated August 30, 1993, by and between
Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
10.30(4) Amended and Restated Operating Agreement dated August 5, 1994, by
and between Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
10.31(2) 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.
10.32(2) Real Estate Contract of Sale dated April 29, 1993, by and between
Eugene H. Beck, Jr. and the Boyd Group.
10.33(2) Real Estate Contract of Sale dated April 30, 1993, by and between
Mid-West Terminal Warehouse Company and the Boyd Group.
10.34(2) Real Estate Contract of Sale dated April 30, 1993, by and between
Hunt Midwest Real Estate Development, Inc. and the Boyd Group.
10.35(2) 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.
10.36(2) 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.
10.37(4) Development Agreement dated June 6, 1994, by and among the
Company, Boyd Kansas City, Inc. and Port Authority of Kansas
City, Missouri.
10.38(4) Agreement dated January 10, 1994 by and between Boyd Tunica, Inc.
and W.G. Yates & Sons Construction Company.
10.39(4) 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.
10.40(2) Form of Indemnification Agreement.
</TABLE>
71
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<S> <C>
10.41(2)* 1993 Flexible Stock Incentive Plan and related agreements.
10.42(2)* 1993 Directors Non-Qualified Stock Option Plan and related
agreements.
10.43(2)* 1993 Employee Stock Purchase Plan and related agreement.
10.44(1) 401(k) Profit Sharing Plan and Trust.
10.45(1) Note dated July 1, 1992, from Samuel A. Boyd Family Trust to the
Boyd Group in the principal sum of $3,000,000.
10.46(3) Promissory Note dated December 30, 1991, from Eldorado, Inc. to
Samuel A. Boyd in the principal sum of $600,000.
10.47(6) 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 the Company. (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.)
10.48(7) Credit Agreement dated as of June 19, 1996, by and among the
Company 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.
10.49(8) 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.
10.50(8) Buy-Sell Agreement dated as of August 2, 1996, by and between the
Company and Casino Magic of Louisiana, Corp., a Louisiana
corporation.
10.51(10)* Boyd Gaming Corporation 1996 Stock Incentive Plan.
10.52(11) First Amendment to Credit Agreement, dated as of March 28, 1997,
among Boyd Gaming Corporation and California Hotel and Casino,
and Wells Fargo Bank, N.A., as Swingline Lender, Canadian
Imperial Bank of Commerce, ("CIBC") as letter of credit issuer,
Bank of America National Trust and Savings Association and Wells
Fargo Bank, N.A., as co-managing agents, Bankers Trust Company,
Credit Lyonnais, Los Angeles Branch and Societe Generale as
co-agents, and CIBC as administrative agent and collateral agent.
10.53(13) Second Amendment to Credit Agreement, dated as of June 11, 1997,
among the Company and California Hotel and Casino, and Wells
Fargo Bank, N.A., as Swingline Lender, Canadian Imperial Bank of
Commerce, ("CIBC") as letter of credit issuer, Bank of America
National Trust and Saving Association and Wells Fargo Bank, N.A.,
as co-managing agents, Bankers Trust Company, Credit Lyonnais Los
Angeles Branch and Societe Generale as co-agents, and CIBC as
administrative agent and collateral agent.
10.54(13) Third Amendment to Credit Agreement, dated as of June 24, 1997,
among the Company and California Hotel and Casino, and Wells
Fargo Bank, N.A., as Swingline Lender, Canadian Imperial Bank of
Commerce, ("CIBC") as letter of credit issuer, Bank of America
National Trust and Saving Association and Wells Fargo Bank, N.A.,
as co-managing agents, Bankers Trust Company, Credit Lyonnais Los
Angeles Branch and Societe Generale as co-agents, and CIBC as
administrative agent and collateral agent.
21.1 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
24 Powers of Attorney (reference is made to page II-2).
</TABLE>
72
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<S> <C>
27 Financial Data Schedule.
</TABLE>
- ------------
* Management contracts or compensatory plans or arrangements.
(1) 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.
(2) Incorporated by reference to the Company's Statement on Form S-1, File No.
33-64006, which became effective on October 15, 1993.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1994.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1995.
(5) Incorporated by reference to the Company's Current Report on Form 8-K dated
April 26, 1996.
(6) Incorporated by reference to the Company's Current Report on Form 8-K dated
June 7, 1996.
(7) Incorporated by reference to Exhibit 10.1 of the Company's Current Report
on Form 8-K dated June 19, 1996.
(8) Incorporated by reference to the Company's Exhibit 2.1 of Current Report on
Form 8-K dated August 16, 1996.
(9) Incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1996.
(10) Incorporated by reference to Appendix A of the Company's October 22, 1996
Proxy Statement for the 1996 Annual Meeting of Stockholders.
(11) Incorporated by reference to Exhibit 10.59 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.
(12) Incorporated by reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K dated July 11, 1997.
(13) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1997.
(14) Incorporated by reference to the Company's Registration Statement on Form
S-3, File No. 333-0555.
73
<PAGE> 74
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 March 31, 1998.
BOYD GAMING CORPORATION
By: /s/ KEITH E. SMITH
------------------------------------
Keith E. Smith
Senior Vice President,
Controller
74
<PAGE> 75
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 March 31, 1998
- ------------------------- Executive Officer and Director (Principal
William S. Boyd Executive Officer)
/s/ Ellis Landau Executive Vice President, Chief Financial March 31, 1998
- ------------------------- Officer and Treasurer (Principal Financial Officer)
Ellis Landau
/s/ Keith E. Smith Senior Vice President and Controller March 31, 1998
- ------------------------- (Principal Accounting Officer)
Keith E. Smith
/s/ Donald D. Snyder President and Director March 31, 1998
- -------------------------
Donald D. Snyder
/s/ Robert L. Boughner Executive Vice President & March 31, 1998
- ------------------------- Chief Operating Officer and Director
Robert L. Boughner
/s/ William R. Boyd Director March 31, 1998
- -------------------------
William R. Boyd
/s/ Marianne Boyd Johnson Director March 31, 1998
- -------------------------
Marianne Boyd Johnson
/s/ Perry B. Whitt Director March 31, 1998
- -------------------------
Perry B. Whitt
/s/ Warren L. Nelson Director March 31, 1998
- -------------------------
Warren L. Nelson
/s/ Phillip Dion Director March 31, 1998
- -------------------------
Philip Dion
/s/ Michael O. Maffe Director March 31, 1998
- -------------------------
Michael O. Maffe
/s/ Billy G. McCoy Director March 31, 1998
- -------------------------
Billy G. McCoy
/s/ William G. Yates Director March 31, 1998
- -------------------------
William G. Yates
</TABLE>
-75-
<PAGE> 76
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<S> <C>
2.1(5) 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.
2.2(2) Agreement and Plan of Reorganization dated as of June 25, 1993,
by and among Eldorado, Inc., the Company, CH&C and certain
stockholders and noteholders of Eldorado, Inc.
2.3(2) Subscription Agreement dated as of August 30, 1993, by and among
Boyd Kenner, Inc., the Company and Treasure Chest Casino, L.L.C.
2.4(12) Purchase Agreement, dated as of July 11, 1997, by and among the
Company, Boyd Kenner, Inc., Boyd Louisiana, L.L.C., Treasure
Chest casino, L.L.C., and certain members of Treasure Chest
Casino, L.L.C.
2.5(13) First Amendment to Purchase Agreement, dated as of September 9,
1997 among the Company, Boyd Kenner, Inc., Boyd Louisiana,
L.L.C., Treasure Chest Casino, L.L.C. and the Selling Members.
3.1(9) Restated Articles of Incorporation.
3.2(9) Restated Bylaws
4.1(13) Registration Agreement, dated July 17, 1997, among the Company,
Salomon Brothers Inc., UBS Securities LLC and CIBC Wood Gundy
Securities Corp.
4.2(14) Form of Indenture relating to $200,000,000 aggregate principal
amount of 9.25% Senior Subordinated Notes due 2003, including the
Form of Note.
4.4(13) Form of Indenture relating to 9.50% Senior Subordinated Notes due
2007, dated as of July 22, 1997, between the Company and State
Street Bank and Trust Company, including the Form of Note.
4.5(13) First Supplemental Indenture, among Registrant, as Issuer,
certain subsidiaries of the Company, as Guarantors, and the Bank
of New York, as Trustee, dated as of December 31, 1996.
10.1(2) 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) 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.
10.3(4) Loan Agreement dated August 17, 1994 by and among Boyd Tunica,
Inc., the Company, First Interstate Bank of Nevada, Bankers Trust
Company and Bank of America Nevada.
10.4(1) 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.
10.5(1) Lease Agreement dated October 31, 1963, by and between Fremont
Hotel, Inc. and Cora Edit Garehime.
10.6(1) Lease Agreement dated December 31, 1963, by and among Fremont
Hotel, Inc., Bank of Nevada and Leon H. Rockwell, Jr.
</TABLE>
-76-
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
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10.7(1) 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.
10.8(4) Lease Agreement dated July 25, 1973, by and between CH&C and
William Peccole, as Trustee of the Peter Peccole 1970 Trust.
10.9(1) Lease Agreement dated July 1, 1974, by and among Fremont Hotel,
Inc. and Bank of Nevada, Leon H. Rockwell, Jr. and Margorie
Rockwell Riley.
10.10(1) 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.
10.11(1) 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.
10.12(4) 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).
10.13(2) 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.
10.14(2) 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.
10.15(2) Labor Agreement dated January 13, 1993, by and between CH&C and
the International Union of Operating Engineers, Local No. 501,
AFL-CIO.
10.16(2) 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.
10.17(1) 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.
10.18(2) 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.
10.19(1) 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.
10.20(1) 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.
10.21(1) 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).
</TABLE>
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10.22(1) 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.
10.23(1) 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.
10.24(1) Labor Agreement dated August 1, 1983, by and between Stardust
Hotel and the International Brotherhood of Electrical Workers,
Local Union No. 357, AFL-CIO.
10.25(1) Implemented Proposal dated June 15, 1992, by and between Stardust
Hotel and Casino and the Back-End Teamsters Local Union No. 995.
10.26(1) Implemented Proposal dated June 15, 1992, by and between Fremont
Hotel and Casino and the Back-End Teamsters Local Union No. 995.
10.27(2) Management Agreement dated March 11, 1993, by and between
Mississippi Band of Choctaw Indians and Boyd Mississippi, Inc.
10.28(4) Addendum to Management Agreement dated November 24, 1993, by and
between Mississippi Band of Choctaw Indians and Boyd Mississippi,
Inc.
10.29(2) Casino Management Agreement dated August 30, 1993, by and between
Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
10.30(4) Amended and Restated Operating Agreement dated August 5, 1994, by
and between Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
10.31(2) 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.
10.32(2) Real Estate Contract of Sale dated April 29, 1993, by and between
Eugene H. Beck, Jr. and the Boyd Group.
10.33(2) Real Estate Contract of Sale dated April 30, 1993, by and between
Mid-West Terminal Warehouse Company and the Boyd Group.
10.34(2) Real Estate Contract of Sale dated April 30, 1993, by and between
Hunt Midwest Real Estate Development, Inc. and the Boyd Group.
10.35(2) 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.
10.36(2) 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.
10.37(4) Development Agreement dated June 6, 1994, by and among the
Company, Boyd Kansas City, Inc. and Port Authority of Kansas
City, Missouri.
10.38(4) Agreement dated January 10, 1994 by and between Boyd Tunica, Inc.
and W.G. Yates & Sons Construction Company.
10.39(4) 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.
10.40(2) Form of Indemnification Agreement.
</TABLE>
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10.41(2)* 1993 Flexible Stock Incentive Plan and related agreements.
10.42(2)* 1993 Directors Non-Qualified Stock Option Plan and related
agreements.
10.43(2)* 1993 Employee Stock Purchase Plan and related agreement.
10.44(1) 401(k) Profit Sharing Plan and Trust.
10.45(1) Note dated July 1, 1992, from Samuel A. Boyd Family Trust to the
Boyd Group in the principal sum of $3,000,000.
10.46(3) Promissory Note dated December 30, 1991, from Eldorado, Inc. to
Samuel A. Boyd in the principal sum of $600,000.
10.47(6) 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 the Company. (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.)
10.48(7) Credit Agreement dated as of June 19, 1996, by and among the
Company 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.
10.49(8) 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.
10.50(8) Buy-Sell Agreement dated as of August 2, 1996, by and between the
Company and Casino Magic of Louisiana, Corp., a Louisiana
corporation.
10.51(10)* Boyd Gaming Corporation 1996 Stock Incentive Plan.
10.52(11) First Amendment to Credit Agreement, dated as of March 28, 1997,
among Boyd Gaming Corporation and California Hotel and Casino,
and Wells Fargo Bank, N.A., as Swingline Lender, Canadian
Imperial Bank of Commerce, ("CIBC") as letter of credit issuer,
Bank of America National Trust and Savings Association and Wells
Fargo Bank, N.A., as co-managing agents, Bankers Trust Company,
Credit Lyonnais, Los Angeles Branch and Societe Generale as
co-agents, and CIBC as administrative agent and collateral agent.
10.53(13) Second Amendment to Credit Agreement, dated as of June 11, 1997,
among the Company and California Hotel and Casino, and Wells
Fargo Bank, N.A., as Swingline Lender, Canadian Imperial Bank of
Commerce, ("CIBC") as letter of credit issuer, Bank of America
National Trust and Saving Association and Wells Fargo Bank, N.A.,
as co-managing agents, Bankers Trust Company, Credit Lyonnais Los
Angeles Branch and Societe Generale as co-agents, and CIBC as
administrative agent and collateral agent.
10.54(13) Third Amendment to Credit Agreement, dated as of June 24, 1997,
among the Company and California Hotel and Casino, and Wells
Fargo Bank, N.A., as Swingline Lender, Canadian Imperial Bank of
Commerce, ("CIBC") as letter of credit issuer, Bank of America
National Trust and Saving Association and Wells Fargo Bank, N.A.,
as co-managing agents, Bankers Trust Company, Credit Lyonnais Los
Angeles Branch and Societe Generale as co-agents, and CIBC as
administrative agent and collateral agent.
21.1 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
24 Powers of Attorney (reference is made to page 75).
</TABLE>
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27 Financial Data Schedule.
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* Management contracts or compensatory plans or arrangements.
(1) 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.
(2) Incorporated by reference to the Company's Statement on Form S-1, File No.
33-64006, which became effective on October 15, 1993.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1994.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1995.
(5) Incorporated by reference to the Company's Current Report on Form 8-K dated
April 26, 1996.
(6) Incorporated by reference to the Company's Current Report on Form 8-K dated
June 7, 1996.
(7) Incorporated by reference to Exhibit 10.1 of the Company's Current Report
on Form 8-K dated June 19, 1996.
(8) Incorporated by reference to the Company's Exhibit 2.1 of Current Report on
Form 8-K dated August 16, 1996.
(9) Incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1996.
(10) Incorporated by reference to Appendix A of the Company's October 22, 1996
Proxy Statement for the 1996 Annual Meeting of Stockholders.
(11) Incorporated by reference to Exhibit 10.59 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.
(12) Incorporated by reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K dated July 11, 1997.
(13) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1997.
(14) Incorporated by reference to the Company's Registration Statement on Form
S-3, File No. 333-0555.
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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) 08-0319489
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
Par-A-Dice Gaming Corporation
(State of Incorporation or Organization) Illinois
(IRS Employer Identification Number) 87-1268902
East Peoria Hotel, Inc.
(State of Incorporation or Organization) Illinois
(IRS Employer Identification Number) 37-1342276
Boyd Travel, Inc.
(State of Incorporation or Organization) Nevada
(IRS Employer Identification Number) 88-0345135
Boyd Louisiana L.L.C.
(State of Incoporation or Organization) Nevada
(IRS Employer Identification Number) 86-0880651
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Boyd Gaming Corporation and Subsidiaries:
We consent to the incorporation by reference in Registration Statements No.
33-17941, No. 33-76484, and No. 33-85022 on Form S-8 of Boyd Gaming Corporation
and Subsidiaries of our report dated February 18, 1998, appearing in and
incorporated by reference in this Transition Report on Form 10-K of Boyd Gaming
Corporation for the six month period ended December 31, 1997.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
March 30, 1998
-82-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 78,277
<SECURITIES> 0
<RECEIVABLES> 23,126
<ALLOWANCES> 3,754
<INVENTORY> 9,906
<CURRENT-ASSETS> 124,699
<PP&E> 1,170,508
<DEPRECIATION> 399,273
<TOTAL-ASSETS> 1,152,415
<CURRENT-LIABILITIES> 112,342
<BONDS> 842,932
0
0
<COMMON> 617
<OTHER-SE> 196,524
<TOTAL-LIABILITY-AND-EQUITY> 1,152,415
<SALES> 0
<TOTAL-REVENUES> 455,771
<CGS> 0
<TOTAL-COSTS> 397,625
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,571
<INCOME-PRETAX> 20,836
<INCOME-TAX> 8,736
<INCOME-CONTINUING> 12,100
<DISCONTINUED> 0
<EXTRAORDINARY> 7,240
<CHANGES> 0
<NET-INCOME> 4,860
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
