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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-12168
BOYD GAMING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEVADA 88-0242733
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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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:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 26, 1999, 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 $111,010,000. 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 26, 1999, the Registrant had outstanding 62,027,514 shares
of Common Stock.
Documents Incorporated by Reference into Parts I - III: Portions of the
definitive Proxy Statement for the Registrant's 1999 Annual Meeting of
Stockholders are incorporated by reference into Part III hereof.
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BOYD GAMING CORPORATION
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PAGE NO.
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 33
Item 3. Legal Proceedings........................................... 33
Item 4. Submission of Matters to a Vote of Security Holders......... 33
Item 4A. Executive Officers of the Registrant........................ 34
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 35
Item 6. Selected Consolidated Financial Data........................ 36
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 37
Item 7A. Quantitative and Qualitative Disclosure about Market Risk... 49
Item 8. Financial Statements and Supplementary Data................. 50
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 50
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 51
Item 11. Executive Compensation...................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 51
Item 13. Certain Relationships and Related Transactions.............. 51
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on
Form 8-K.................................................. 52
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PART I
ITEM 1. BUSINESS
GENERAL
Boyd Gaming Corporation is a multi-jurisdictional gaming company which
currently owns or operates eleven casino entertainment facilities. The Company
has operated successfully for more than two decades in the highly competitive
Las Vegas market and has entered several other gaming jurisdictions in the past
five 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 four facilities in other gaming jurisdictions.
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") and the Par-A-Dice Hotel and Casino in East Peoria, Illinois
("Par-A-Dice"). In October 1997, the Company completed the acquisition of
Treasure Chest Casino ("Treasure Chest"), a riverboat casino in Kenner,
Louisiana, which the Company had previously partially owned and managed pursuant
to a management agreement. The Company manages, for the Mississippi Band of
Choctaw Indians, the Silver Star Resort and Casino ("Silver Star"), a land-based
gaming and entertainment complex located near Philadelphia, Mississippi. The
Company also owns and operates Vacations Hawaii, a travel agency that operates
for the benefit of the California, Fremont and Main Street Station. The Company
currently owns or operates an aggregate of approximately 562,000 square feet of
casino space, containing 15,793 slot machines and 497 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
seven 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"); 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 Treasure Chest and owns a 15%
equity interest in Treasure Chest, L.L.C., the owner of Treasure Chest; Boyd
Louisiana owns the remaining 85% equity interest in Treasure Chest, L.L.C.; Boyd
Mississippi operates Silver Star; 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 and maintain 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 entertain-
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ment, hotel, restaurant and live entertainment offerings and regularly reinvests
in its existing facilities in an effort to maintain the quality and
competitiveness of its properties.
LIVELY, FRIENDLY ATMOSPHERE
Each of the Company's facilities is clean and modern and offers friendly
service in an informal and lively atmosphere. The Company's employee training
programs are designed to motivate employees to provide the type of friendly and
attentive service which the Company seeks to provide at its facilities. The
Company has an extensive customer feedback system, ranging from guest comment
cards in its restaurants and hotel rooms, to other consumer surveys and
research. In addition to providing a measure of customer service, comment cards
and consumer research allow the Company to obtain valuable customer feedback and
marketing information for its database.
EMPHASIS ON SLOT PLAY
The Company emphasizes slot machine wagering, the most consistently
profitable segment of the casino entertainment business. Technological advances
in slot 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 as well as print,
broadcast and Internet 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 year ended December 31,
1998, the Company distributed approximately 11 million pieces of mail to its
database customers. The Company also provides complimentary rooms, food and
beverage 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 four
properties outside the State of Nevada: Sam's Town Tunica, in Tunica County,
Mississippi; 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, Big Six, progressive
pai gow poker, Caribbean stud, Let it Ride 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 2,112 guest
rooms, 1,331 in its 32-story hotel tower. The Stardust complex, which is
distinguished by dramatic building lighting, has six restaurants, a shopping
arcade, two swimming
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pools and parking spaces for approximately 2,900 cars. The occupancy rate and
average room rate at the Stardust were approximately 90% and $47, respectively,
during 1998.
The Stardust caters primarily to adult Las Vegas visitors seeking the
classic Las Vegas gaming experience. Using its extensive database, the property
promotes customer loyalty and generates repeat customer business by
communicating with its customers regarding special events, new product offerings
and special incentive promotions at the property. The Company uses a network of
tour operators and wholesalers to reach customers who prefer packaged trips and
print and broadcast media to attract the independent traveler. The Company
attracts proven slot and table game players through direct mail promotions for
tournaments, events and a variety of special offers. With its conference center,
the Stardust also attracts meeting and banquet business. In addition, the
Stardust draws a significant number of walk-in customers. Patrons of the
Stardust come primarily from the western United States, including Southern
California and Arizona, and the Midwest.
The Stardust is currently in the process of a $25 million renovation, which
includes guest rooms, public space and exterior enhancements, and is intended to
make the property more competitive with other Strip resorts. In connection with
the renovation project, the Stardust will remove all of its approximately 550
motor inn rooms from service for a period of approximately 90 days beginning in
April 1999. During this time, the Company will evaluate the impact of the motor
inn closure on the Stardust's operations. Based upon the results of the
evaluation, the Company will either refurbish or demolish the Stardust motor inn
rooms. The renovation project is expected to be completed in 1999, although
there can be no assurance that the renovation will be completed on time or
within budget.
BOULDER STRIP PROPERTIES
Sam's Town Las Vegas is situated on 56 acres of land owned and seven acres
of land leased by the Company on the Boulder Strip, approximately six miles east
of the Las Vegas Strip. Sam's Town features an approximately 118,000-square foot
casino, a newly renovated state-of-the-art 56-lane bowling center and the
25,000-square foot Western Emporium retail store. The gaming facilities include
approximately 2,900 slot machines and 52 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, 12
restaurants, 500 spaces for recreational vehicles and approximately 4,000
parking spaces, including two parking garages which together can accommodate up
to 2,400 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 approximately 95% and $42, respectively,
during 1998.
Sam's Town Las Vegas has a western theme and features an informal, friendly
atmosphere that appeals to both local residents and visitors. Gaming, bowling, 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, Sam's Town Las Vegas sponsors several NASCAR events at the new Las
Vegas Motor Speedway that are televised nationally. The property attracts a mix
of tourists and 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.
Sam's Town Las Vegas will begin a renovation project during 1999 intended
to update the casino and reconfigure the gaming space to allow for slightly more
gaming positions. In addition, the porte cochere and valet parking area will be
reconfigured and remodeled to facilitate access into the property. The
renovation is expected to be completed in mid-2000 and cost approximately $25
million, although there can be no assurance that the renovation will be
completed on time or within budget.
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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, a children's arcade 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 625
slot machines and 11 table games, including tables featuring "21," craps and
roulette, as well as keno and a sports book. The facility also offers a 24-hour
restaurant, a buffet, an entertainment lounge, a sports bar, 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, the Company's
first property, 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 1,100 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 approximately 94% and $30, respectively, during
1998.
The Fremont is situated on 1.4 acres of land owned and 0.9 acres of land
leased by the Company on the principal pedestrian thoroughfare in downtown Las
Vegas. The property offers 32,000 square feet of casino space, including 1,031
slot machines and 28 table games, including tables featuring "21," craps,
roulette, pai gow, and Caribbean stud, as well as keno and a race and sports
book. The hotel has 447 guest rooms and five restaurants including the Second
Street Grill, an upscale contemporary restaurant, and the Paradise Buffet, which
features tropical-themed surroundings. The property also has approximately 8,200
square feet of meeting space and a parking garage for up to 350 cars. The
occupancy rate and average room rate at the Fremont were approximately 94% and
$30, respectively, during 1998.
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 28,500 square feet of gaming space with 22 table
games and 905 slot machines. The property also includes 406 hotel rooms, a
475-seat buffet, a 125-seat specialty restaurant, a 90-seat cafe, a 200-seat
brew pub and oyster bar and expanded parking to include over 2,000 spaces. The
occupancy rate and average room rate at Main Street Station were approximately
96% and $30, respectively, during 1998.
The Company coordinates marketing efforts and 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 have significantly reduced costs
and will continue to provide the Downtown Properties 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 a stable supply
of 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
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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 87,000 households, primarily in Hawaii.
During fiscal 1998, patrons from Hawaii comprised approximately 67% of the room
nights at the California, 55% of the room nights at the Fremont and 39% of the
room nights at Main Street Station.
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 in May 1994. Since its opening, Sam's Town Tunica has undergone two
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 hotel has a total room count of 843 including 49
suites, and the garage was the first enclosed parking structure at a Tunica
County casino. The complex offers a two-story casino of approximately 75,000
square feet featuring 1,715 slot machines and 72 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 most other
operators in the area by developing a major casino entertainment complex with
extensive amenities including a 843-room hotel, an entertainment lounge
featuring regional country-western and top-40 music, five 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. Additionally, Sam's
Town Tunica and two other neighboring casino properties are each 1/3 partners in
the River Bend Links Golf Course, an 18-hole championship lynx style golf course
which opened in November 1998. The occupancy rate and average room rate at Sam's
Town Tunica were approximately 85% and $45, respectively, during 1998.
In October 1997, the Company completed the acquisition of the remaining 85%
interest in Treasure Chest the Company did not already own. Treasure Chest, a
riverboat casino operation located on Lake Pontchartrain in Kenner, Louisiana,
opened in September 1994 and is located near the New Orleans International
Airport. 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 a 24 hour buffet, a Steak
house, a gift shop and snack bar. The gaming operation features a classic 18th
century Victorian-style paddle-wheel riverboat with a total capacity of 1,750
persons, approximately 24,000 square feet of casino space, over 950 slot
machines and 55 table games, including tables for "21," craps, roulette and
poker. Each of the riverboat's gaming decks has a different theme, with one
featuring contemporary Las Vegas-style decor, one offering a Caribbean
environment and one providing a festive Mardi Gras setting. Prior to the October
1997 acquisition, the Company owned a 15% equity interest in Treasure Chest and
managed the property pursuant to a management agreement.
Pursuant to an agreement with the Mississippi Band of Choctaw Indians, the
Company operates 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, as well
as the Atlanta metropolitan area. 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,
approximately 3,000 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, six restaurants, a
28,000-square foot conference center, more than
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2,700 parking spaces, and a 36-hole 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 June 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.
In December 1996, the Company completed the acquisition of Par-A-Dice, a
riverboat casino operation located along the Illinois River in East Peoria,
Illinois, approximately 170 miles from Chicago. The boat measures 238 feet long
and 66 feet wide and since the completion of an expansion in March 1996,
features 33,000 square feet of gaming space on four levels with over 1,000 slot
machines and 36 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 approximately 82% and $58,
respectively, during 1998. 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 July 14, 1998, Mirage Resorts, Incorporated, through a wholly-owned
subsidiary (collectively "Mirage") and the Company, through a wholly-owned
subsidiary, entered into an amended and restated joint venture agreement (as
currently amended, the "Agreement") to jointly develop and own a casino hotel
entertainment facility in Atlantic City, New Jersey (the "Mirage Joint
Venture"). Among other things, the Agreement provides for the settlement of
litigation between the Company and Mirage relating to the joint venture
agreement that the Company and Mirage entered into in May 1996. The Mirage Joint
Venture project has been named The Borgata and will 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 $750 million. The
Agreement calls for funding $450 million of the project cost with non-recourse
third-party financing. The remaining $300 million will be funded equally by
capital contributions from the venturers, including, in the case of Mirage,
contribution of the land. Of the Company's share of capital contributions, $90
million is expected to be contributed in 1999. Funding of the Company's capital
contributions to The Borgata is expected to be derived from cash flow from
operations and availability under the Company's five year, reducing revolving
credit facility (the "Bank Credit Facility"). Pursuant to the Agreement, the
Company's wholly-owned subsidiary, Boyd Atlantic City, Inc. ("Boyd AC"), will
control the development and operation of The Borgata. The Borgata contemplates a
hotel of over 1,400 rooms, and a casino and related amenities 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. After environmental
remediation has been completed, which has commenced as is expected to take at
least six months, financing has been arranged and other requisite approvals are
received, the construction of The Borgata can begin and, once begun would
thereafter take at least two years, although there can be no assurance that The
Borgata will be completed on time or within budget.
On April 27, 1997, Boyd AC filed an application for a casino license with
the New Jersey Casino Control Commission (the "NJCCC"). Boyd AC and Boyd Gaming
Corporation ("Boyd") also sought Statements of Compliance regarding their
satisfaction of certain criteria in connection with Boyd AC's application for a
casino license. On July 8, 1998, at a public meeting, the NJCCC confirmed Boyd
AC's status as an applicant for a casino license. The NJCCC also considered the
petition for Statements of Compliance and declared that, as of the date of the
meeting, Boyd AC and Boyd possessed: (i) the required financial stability,
integrity and responsibility; (ii) the required good character, honesty and
integrity; and (iii) the required business ability and casino experience. The
NJCCC further found that, as of the date thereof, the officers and directors of
Boyd AC and Boyd whose qualifications must be established to receive Statements
of Compliance met the qualifications established under the Casino Control Act.
While the issuance of Statements of Compliance
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indicate satisfaction of various criteria as of the date thereof, such issuance
is not an assurance of licensure and the NJCCC retains the right to review the
Statements of Compliance based on changes of circumstances. Furthermore, the
Statements of Compliance do not address many of the items required for casino
licensure. Boyd AC, Boyd and The Borgata will continue to submit additional
license application items to the NJCCC as is required. With a Statement of
Compliance for the Company in place, the investigation by the NJCCC and New
Jersey Division of Gaming Enforcement ("NJDGE") in connection with the casino
license application will focus on issues concerning operations, the facility and
equal employment and business opportunities. See "Investment
Considerations -- Expansion." The Borgata once opened, shall give the Company a
presence in Atlantic City, the primary casino gaming market serving the eastern
United States.
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. Forward
looking statements may be recognized by the use of words such as "believes,"
"expects," "may," "will," "should," "seeks," "anticipates" and similar
expressions, or a general description of these types of statements. 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 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 Company compete and will in the future compete with all these forms of
gaming and with any new forms of gaming that may be legalized in existing and
additional jurisdictions, as well as with other types of entertainment. In
addition, further expansion of gaming into other jurisdictions could adversely
affect the Company's business by diverting its customers to competitors in such
jurisdictions. In particular, the expansion of casino gaming in or near any
geographic area from which the Company attracts or expects to attract a
significant number of its customers could have a material adverse effect on the
Company's business, financial condition and results of operations. The
California electorate approved Proposition 5 in November 1998. Proposition 5, if
implemented, would give all California Indian tribes the right to operate an
unlimited number of certain kinds of gaming machines and other forms of casino
wagering on California Indian reservations. Legal challenges to Proposition 5
have been filed that may delay or prevent its implementation. If implemented,
Proposition 5 may negatively affect Nevada gaming markets. Management is unable,
however, to assess the magnitude of the impact to the Company. 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 21 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. On
the Las Vegas Strip, a number of marquee properties have opened in the last
several years, and others are currently under construction or planned, including
the 3,000-room Paris Casino-Resort, the 3,000-room Venetian and the 2,600-room
Aladdin
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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 Counties, 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 and
the Isle of Capri Casinos' facility set to open in the summer of 1999. 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. There can be no assurance that the Company will compete successfully in
the Mississippi market in the future.
There are presently 14 licenses issued and 13 riverboats operating in the
State of Louisiana. Treasure Chest competes primarily with two of those
riverboat operations in the New Orleans metropolitan area as well as the 12
casinos on the Mississippi Gulf Coast, including Mirage's $680 million Beau
Rivage which opened in March 1999. In addition, a 100,000 square foot land based
casino is currently under construction in downtown New Orleans and is expected
to open in late October 1999. These new facilities may divert local market
patrons from Treasure Chest. There can be no assurance that 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.
Silver Star is located on tribal lands in central Mississippi. The
principle 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, as well as the Atlanta metropolitan area.
Mirage's $680 million Beau Rivage, which opened in March 1999, may divert
patrons from Silver Star. There can be no assurance that Silver Star will
compete successfully in the future.
Failure to compete successfully in any of these markets could have a
material adverse effect on the Company's business, financial condition and
results of operations.
EXPANSION
On July 14, 1998, the Company entered into the Agreement with Mirage to
jointly develop and own The Borgata. The construction and opening of the Borgata
project is subject to a number of contingencies, including, but not limited to,
obtaining adequate financing, continuing construction 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. After environmental
remediation has been completed, which has commenced as is expected to take at
least six months, and other requisite approvals are received, the construction
of The Borgata would thereafter take at least two years. The Borgata will be
subject to the many risks inherent in the establishment of a new business
enterprise, including potential unanticipated design, construction, regulatory,
environmental and operating problems, lack of adequate financing and the
significant risks commonly associated with implementing a marketing strategy in
a
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new market. If the Borgata does not become operational within the time frame and
budget currently contemplated or does not compete successfully in its new
market, it could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company, as part of its ongoing strategic planning process, is
currently establishing its priorities for future growth. In Nevada, the Company
is exploring opportunities for both the expansion of its Sam's Town Las Vegas
property and the development of new properties on other sites in the Las Vegas
local market. 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 from 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, obtaining additional equity financing
or joint venture partners, modifying the Bank Credit Facility or obtaining
additional debt financing. No assurance can be given that the aforementioned
sources of funds will be sufficient to finance the Company's expansion, or that
other financing will be available on acceptable terms, in a timely manner or at
all. In addition, 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, 1998, the Company had total consolidated long-term debt,
less current maturities, of approximately $775 million, which represents
approximately 77% 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. In December 1998, the total
principal amount available under the Bank Credit Facility was reduced by $25
million to $475 million and will be reduced by an additional $50 million at the
end of each six-month period thereafter until December 2000. The Bank Credit
Facility matures in June 2001. The Company is currently exploring various
alternatives to modify the Bank Credit Facility including, but not limited to,
increasing the total principal amount available under the Bank Credit Facility.
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 Borgata
goes forward, the Company expects to fund its subsidiary's required capital
contributions to The Borgata, currently expected to be at least $150 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 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."
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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 and the
Company's business, financial condition and results of 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
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Nevada Gaming Authorities and may be required to be licensed or found suitable
by the Nevada Gaming Authorities. Officers, directors and key employees of the
Company who are actively and directly involved in gaming activities of CH&C or
its licensed subsidiaries may be required to be licensed or found suitable by
the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an
application for licensing for any cause which they deem reasonable. A finding of
suitability is comparable to licensing, and both require submission of detailed
personal and financial information followed by a thorough investigation. The
applicant for licensing or a finding of suitability must pay all the costs of
the investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and, in addition to their authority to deny an application
for a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, 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 and the Company's business,
financial condition and results of 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
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management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities who must be found suitable is a corporation, partnership or trust, it
must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company, CH&C or any
of its licensed subsidiaries, the Company (i) pays that person any dividend or
interest upon voting securities of the Company, (ii) allows that person to
exercise, directly or indirectly, any voting right conferred through securities
held by 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 1999, 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 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
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Corporation must satisfy the Nevada Gaming Authorities in a variety of stringent
standards prior to assuming control of such Registered Corporation. The Nevada
Commission may also require controlling stockholders, officers, directors and
other persons having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part of the
approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchase of voting securities and corporate defense
tactics affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those licensees, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes of acquiring control of the
Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada, Clark County
and the City of Las Vegas. Depending upon the particular fee or tax involved,
these fees and taxes are payable either monthly, quarterly or annually and are
based upon any of: (i) a percentage of the gross revenues received; (ii) the
number of gaming devices operated; or (iii) the number of table games operated.
A casino entertainment tax is also paid by casino operations where entertainment
is furnished in connection with the selling of food or refreshments.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with 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
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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 June 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, 1998.
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 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
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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 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
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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. There are currently
nine owner's licenses in operation in Alton, East Peoria, Rock Island,
Metropolis, East St. Louis, Aurora, Elgin and two licenses to riverboat
operators in Joliet. The tenth license which was granted to an operator in East
Dubuque, was not renewed by the Gaming Board and is the subject of litigation.
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, February 1997 and in
February 1998. 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. The number of gaming participants will be determined
by the number of gaming positions available and such positions will be counted
as follows: positions for games utilizing electronic gaming devices will be
determined as 90 percent of the total number of devices available for play;
craps tables will be counted as having ten gaming positions; and games utilizing
live gaming devices, except for craps, will be counted as having five gaming
positions. 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 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
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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; (viii) any
reason set forth in Section 3000.241(d) or resulting from an event set forth in
Section 3000.243; and (ix) 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
acquisition or
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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 or Business Entity Form and be investigated
and approved by the Illinois Gaming Board. The Gaming Board shall certify for
each applicant for or holder of an owner's license each position, individual or
Business Entity that is to be approved by the Board and maintain suitability as
a Key Person. With respect to an applicant for or the holder of an owner's
license, a Key Person includes: any Business Entity and any individual with an
ownership interest or voting rights of more than 5 percent in the licensee or
applicant, and the trustee of any trust holding such ownership interest or
voting rights; the directors of the licensee or applicant and its chief
executive officer, president and chief operating officer, or their functional
equivalents; and all other individuals or Business Entities that, upon review of
the applicant's or licensee's Table of Organization, Ownership and Control the
Board determines hold a position or a level of ownership, control or influence
that is material to the regulatory concerns and obligations of the Board for the
specified licensee or applicant.
In order to assist the Gaming Board in its determination of Key Persons,
applicants for or holders of an owner's license shall provide to the Gaming
Board a Table of Organization, Ownership and Control. The Table of Organization,
Ownership and Control shall identify in sufficient detail to identify the
hierarchy of individuals and Business Entities that, through direct or indirect
means, manage own or control the interest and assets of the applicant or
licensee holder. If a Business Entity identified in the Table of Organization,
Ownership and Control is a publicly traded company, the following information
must be provided in the Table: the name and percentage of ownership interest of
each individual or Business Entity with ownership of more than 5 percent of the
voting shares of the entity, to the extent such information is known or
contained in Schedule 13D or 13G Securities and Exchange Commission filings; to
the extent known, the names and percentage of interest of ownership of persons
who are relatives of one another and who together (as individuals or through
trusts) exercise control over or own more than 10 percent of the voting shares
of the entity; and any trust holding more than 5 percent ownership or voting
interest in the Company, to the extent such information is know or contained in
Schedule 13D or 13G Securities and Exchange Commission filings. The Table of
Organization may be disclosed under the Freedom of Information Act.
Each owner licensee must provide a means for the economic disassociation of
a Key Person in the event such economic disassociation is required by an order
of the Gaming Board. Based upon findings from an investigation into the
character, reputation, experience, associations, business probity and financial
integrity of a Key Person, the Gaming Board may enter an order upon the licensee
to require the economic disassociation of such Key Person.
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.
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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
On April 27, 1997, Boyd AC filed an application for a casino license with
the NJCCC. Boyd AC and Boyd Gaming Corporation ("Boyd") also sought Statements
of Compliance regarding their satisfaction of certain criteria in connection
with Boyd AC's application for a casino license.
On July 8, 1998, at a public meeting, the NJCCC confirmed Boyd AC's status
as an applicant for a casino license. The NJCCC also considered the petition for
Statements of Compliance and declared that, as of the date of the meeting, Boyd
AC and Boyd possessed: (i) the required financial stability, integrity and
responsibility; (ii) the required good character, honesty and integrity; and
(iii) the required business ability and casino experience. The NJCCC further
found that, as of the date thereof, the officers and directors of Boyd AC and
Boyd whose qualifications must be established to receive Statements of
Compliance met the qualifications established under the Casino Control Act.
On August 8, 1998, Boyd notified the NJCCC that its proposed casino project
will be that of Marina District Development Company ("MDDC"), a joint venture
between Boyd AC and MAC, CORP., a wholly owned subsidiary of Mirage Resorts,
Inc. Subsequently, on October 6, 1998, the general counsel's office of the
NJCCC, by letter, confirmed that the staff of the NJCCC is treating Marina
District Development Corporation as the applicant for the proposed casino hotel
project.
While the issuance of Statements of Compliance indicate satisfaction of
various criteria as of the date thereof, such issuance is not an assurance of
licensure and the NJCCC retains the right to review the Statements of Compliance
based on changes of circumstances. Furthermore, the Statements of Compliance do
not address many of the items required for casino licensure. Boyd AC, Boyd and
MDDC will continue to submit additional license application items to the NJCCC
as is required.
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
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Control Act to regulate a wide spectrum of gaming and nongaming related
activities and to approve the form of ownership and financial structure of not
only a casino licensee, but also its entity qualifiers and intermediary and
holding companies.
No casino hotel facility may operate unless the appropriate license and
approvals are obtained from the 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
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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 is 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) 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, will provide not less than 30 days' prior
notice of such intent and will 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
condition that, if a holder thereof is found to be disqualified by the NJCCC,
such holder shall dispose of such securities.
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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.
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
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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, 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 or such later date as extended by
the CRDA. These monies will be held to fund up to 27% of the cost to casino
licensees of expanding their hotel facilities to provide additional hotel rooms,
but in no event may the amount reserved exceed $52,500 per unit, a portion of
which will be required to be available to the new Atlantic City convention
center and dedicated to convention events.
From the monies made available to it, the CRDA shall also set aside an
additional $75,000,000 for investment in hotel development projects in Atlantic
City. Casino licensees who had approved projects which were not fully funded
under the $100,000,000 allotment are first eligible for these funds as long as
the approved project has actually and substantially commenced on or before
August 31, 1996. Thereafter, any casino licensee is eligible for the remaining
funds as long as the application is received by April 1, 1996. The $75,000,000
allotment is subject to the same requirements as the $100,000,000 allotment.
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.
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On April 15, 1997, the CRDA approved a funding package for the development
of the H-Tract. The funding package consists of the following: (i) a $65 million
dollar allocation from the parking fees referred to above of casinos being
developed in the H-Tract; and (ii) a $55 million allocation from future CRDA
obligations of those casinos.
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,
responsibility, good character, honesty, 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 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
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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 Treasure
Chest. 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 Louisiana riverboat gaming license of Treasure Chest is valid for five
years and will expire on May 18, 1999. An application for a one year renewal was
filed and, in March 1999, the renewal was conditionally approved by the
Louisiana Gaming Control Board for an additional one year period, subject to the
completion of the Louisiana State Police's customary suitability investigation.
Treasure Chest will apply for one year renewals each year hereafter.
In October 1998, a former majority member of Treasure Chest pleaded guilty
to conspiracy to commit extortion under the Hobbs Act, 18 U.S.C. 371, in
connection with the granting of the original Louisiana gaming license of
Treasure Chest. Neither Treasure Chest nor the Company or any of its affiliates
or employees have been implicated in any manner in this investigation or
prosecution. The Louisiana Gaming Control Board stated that a full and complete
investigation into the matter will be undertaken. Additionally, two unsuccessful
applicants for riverboat licenses have raised issues concerning the issuance of
the Treasure Chest license.
In November 1998, Astoria Entertainment, Inc. ("Astoria"), an unsuccessful
applicant for a riverboat gaming license in Jefferson Parish, Louisiana, filed
two separate lawsuits (one in state court, one in federal court) which named
Treasure Chest and the Company as defendants. After the Company filed a motion
to dismiss the federal claim, Astoria voluntarily dismissed all claims against
the Company and Treasure Chest in the federal actions without prejudice to its
right to refile the claims at a later date. The Astoria state court suit is
still pending.
Also, Alvin C. Copeland ("Copeland"), the sole shareholder of an
unsuccessful applicant for the original license that was granted to Treasure
Chest, challenged the validity of Treasure Chest's license at the recent
Louisiana Gaming Control Board meeting at which the Company received its
renewal. Copeland's challenges were based upon several allegations, including
the Hobbs Act violation discussed above, alleged licensing process
irregularities and alleged improper conduct by the Company. In addition, in
1993, Copeland objected to the granting of Treasure Chest's license through an
administrative procedure which was denied by the Louisiana Gaming Control Board.
Copeland's appeal of the decision is presently pending in the Louisiana District
Court.
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If any of these matters ultimately result in the Treasure Chest license not
being renewed, it could have a material adverse effect on the business,
financial condition and results of operations of the Company.
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 a 5% interest in 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 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 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 remain 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 (the "Mississippi
Commission") and the Mississippi State Tax Commission.
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 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 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
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procedures for internal fiscal affairs and safeguarding of assets and revenues,
providing reliable record keeping and making periodic reports to the Mississippi
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
Commission. Changes in Mississippi law or regulations 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 Gulf Coast or the
Mississippi River but only if the voters in such counties have not voted to
prohibit gaming in that county. Certain amendments to the Mississippi
Constitution have been proposed for adoption through the initiative and
referendum process which, if a sufficient number of signatures are gathered to
place the matter on the ballot and if adopted by the voters of the state, would
prohibit gaming in Mississippi. See "Mississippi Anti-Gaming Initiatives".
As of October 1, 1998, dockside gaming was permissible in nine of the 14
eligible counties in the state and gaming operations had commenced in Adams,
Coahoma, Hancock, Harrison, Tunica, Warren and Washington counties. 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 Company's 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 Act and the Mississippi
Commission later approved the location of the barges on the Sam's Town Tunica
site as legal under the opinion of the Mississippi Attorney General. Although a
competitor requested the Mississippi Commission to review and reconsider its
decision, the Mississippi Commission declined to do so and since that date has
issued or renewed licenses to Sam's Town Tunica on three separate occasions. The
license requires demonstration of compliance with the Mississippi Attorney
General's "navigable waters" opinion, a requirement which has been imposed on
many licenses for Tunica County gaming projects. The Company believes that the
Sam's Town Tunica site is in compliance with the Mississippi Act and the
Mississippi Attorney General's "navigable waters" opinion. However, no assurance
can be given that a court would ultimately conclude that a site constitutes
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 the Company and Sam's Town Tunica's business, financial condition and results
of operations.
The Mississippi Act 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. The Mississippi Act permits substantially all
traditional casino games and gaming devices and, on August 11, 1997, a
Mississippi Circuit Court judge issued a ruling that the Mississippi Act permits
race books on the premises of licensed casinos. The Mississippi Commission
appealed that decision to the Mississippi Supreme Court and a decision is
expected in the near future.
The Company and its Mississippi licensee are subject to the licensing and
regulatory control of the Mississippi Commission. The Company is registered
under the Mississippi Act as the publicly traded holding company of its
Mississippi licensee. Each is required periodically to submit detailed financial
and operating reports to the Mississippi Commission and furnish any other
information which the Mississippi Commission may require. If the Company is
unable to continue to satisfy the registration requirements of the Mississippi
Act, the Company and its affiliates cannot own or operate gaming facilities in
Mississippi.
The Company's Mississippi licensee must maintain a gaming license from the
Mississippi Commission to operate a casino in Mississippi. Such licenses are
issued by the Mississippi Commission subject to certain conditions, including
continued compliance with all applicable state laws and regulations. There are
no limitations on the number of gaming licenses which may be issued in
Mississippi. Gaming licenses are not
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transferable, are issued for a two-year period and must be renewed periodically
thereafter. Sam's Town Tunica's gaming license expires in December of 1999. No
person may become a stockholder of or receive any percentage of profits from a
licensed subsidiary of a holding company without first obtaining licenses and
approvals from the Mississippi Commission. The Company has obtained such
approvals in connection with its registration with the Mississippi Commission as
a holding company.
Certain officers and employees of the Company and the officers, directors
and certain key employees of the Company's licensed Mississippi subsidiary must
be found suitable or be licensed by the Mississippi Commission. The Company
believes it has obtained, applied for or is in the process of applying for all
necessary findings of suitability with respect to such persons, although the
Mississippi Commission, in its discretion, may require additional persons to
file applications for findings of suitability. In addition, any person having a
material relationship or involvement with the Company may be required to be
found suitable, in which case those persons must pay the costs and fees
associated with such investigation. The Mississippi Commission may deny an
application for a finding of suitability for any cause that it deems reasonable.
Changes in certain licensed positions must be reported to the Mississippi
Commission. In addition to its authority to deny an application for a finding of
suitability, the Mississippi Commission has jurisdiction to disapprove a change
in any person's corporate position or title and such changes must be reported to
the Mississippi Commission. The Mississippi Commission has the power to require
the Company and its registered or licensed subsidiaries 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.
Employees associated with gaming must obtain work permits that are subject
to immediate suspension under certain circumstances. The Mississippi Commission
will refuse to issue a work permit to a person convicted of a felony and it may
refuse to issue a work permit to a gaming employee if the employee has committed
certain misdemeanors or knowingly violated the Mississippi Act or for any other
reasonable cause.
At any time, the Mississippi Commission has the power to investigate and
require the finding of suitability of any record or beneficial shareholder of
the Company. Mississippi law requires any person who acquires more than 5% of
the common stock of a publicly traded corporation registered with the
Mississippi Commission to report the acquisition to the Mississippi 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 common stock of such a
company, as reported to the Securities and Exchange Commission, must apply for a
finding of suitability by the Mississippi Commission and must pay the costs and
fees that the Mississippi Commission incurs in conducting the investigation. The
Mississippi Commission generally has exercised its discretion to require a
finding of suitability of any beneficial owner of more than 5% of a registered
publicly-traded holding company's common stock. However, the Mississippi
Commission has adopted a policy that permits certain institutional investors to
own beneficially up to 10% of a registered public company's common stock without
a finding of suitability. 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.
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
Commission may be found unsuitable. The same restrictions apply to a record
owner, if the record owner, after request, fails to identify the beneficial
owner. Management believes that compliance by the Company with the licensing
procedures and regulatory requirements of the Mississippi Commission will not
affect the marketability of the Company's 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 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 licensed
subsidiary, 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
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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 Commission, upon
request, the identities of the holders of any debt or other securities. In
addition, under the Mississippi Act the Mississippi Commission may, in its
discretion, (i) require holders of debt securities of registered corporations to
file applications, (ii) investigate such holders, and (iii) require such holders
to be found suitable to own such debt securities or receive distributions
thereon. If the Mississippi Commission determines that a person is unsuitable to
own such security, then the issuer may be sanctioned, including the loss of its
approvals, if without the prior approval of the Mississippi 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. Although the Mississippi Commission generally does not require the
individual holders of obligations such as notes to be investigated and found
suitable, the Mississippi 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 Commission in connection with such an investigation.
The Company's Mississippi licensed subsidiary must maintain in Mississippi
a current ledger with respect to the ownership of its equity securities and the
Company must maintain in the offices of the Company's Mississippi licensed
subsidiary a current list of stockholders of the Company which must reflect the
record ownership of each outstanding share of any equity security issued by the
Company. The ledger and stockholder lists must be available for inspection by
the Mississippi 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 Commission. 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
identify of the beneficial owner.
The Mississippi Act requires that the certificates representing securities
of a registered publicly traded corporation bear a legend to the general effect
that such securities are subject to the Mississippi Act and the regulations of
the Mississippi Commission. The Company has received from the Mississippi
Commission an exemption from this legend requirement. The Mississippi Commission
has the power to impose additional restrictions on the holders of the Company's
securities at any time.
Substantially all loans, leases, sales of securities and similar financing
transactions by a licensed gaming subsidiary must be reported to or approved by
the Mississippi Commission. A licensed gaming subsidiary may not make a public
offering of its securities, but may pledge or mortgage casino facilities. The
Company may not make a public offering of its securities without the prior
approval of the Mississippi 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.
Under the regulations of the Mississippi Commission, a gaming licensee may
not guarantee a security issued by an affiliated company pursuant to a public
offering, or pledge its assets to secure payment or performance of the
obligations evidenced by the security issued by the affiliated company, without
the prior approval of the Mississippi Commission. A pledge of the stock of a
gaming licensee and the foreclosure of such a pledge are ineffective without the
prior approval of the Mississippi Commission. Moreover, restrictions on the
transfer of an equity security issued by a Mississippi licensee and agreements
not to encumber such securities are ineffective without the prior approval of
the Mississippi Commission.
Changes in control of the Company through merger, consolidation,
acquisition of assets, management or consulting agreements or any form of
takeover cannot occur without the prior approval of the Mississippi Commission.
The Mississippi Commission may also require controlling stockholders, officers,
directors, and
29
<PAGE> 32
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 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 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
Commission before the Company may make exceptional repurchases of voting
securities in excess of the current market price of its common stock (commonly
called "greenmail") or before a corporate acquisition opposed by management may
be consummated. Mississippi's gaming regulations will also require prior
approval by the Mississippi Commission if the Company adopts a plan of
recapitalization proposed by its board of directors opposing a tender offer made
directly to the stockholders 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 Commission. The Mississippi Commission may
require determinations that, among other things, there are means for the
Mississippi Commission to have access to information concerning the out-of-state
gaming operations of the Company and its affiliates. The Company will be
required to obtain the approval or a waiver of such approval from the
Mississippi Commission prior to engaging in any additional future gaming
operations outside of Mississippi.
If the Mississippi Commission decided that the Company's licensed gaming
subsidiary violated a gaming law or regulation, the Mississippi Commission could
limit, condition, suspend or revoke the license of the subsidiary, subject to
compliance with certain statutory and regulatory procedures. In addition, the
licensed subsidiary, the Company and the persons involved could be subject to
substantial fines for each separate violation. Because of such a violation, the
Mississippi Commission could attempt 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) have a material adverse effect upon the Company's business, financial
condition and results of operations.
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 licensed gaming subsidiary's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon (i) a
percentage of the gross gaming revenues received by the casino operation, (ii)
the number of slot machines operated by the casino or (iii) the number of table
games operated by the casino. The license fee payable to the State of
Mississippi is based upon "gaming receipts" (generally defined as gross receipts
less payouts to customers as winnings) and equals 4% of gaming receipts of
$50,000 or less per month, 6% of gaming receipts over $50,000 and less than
$134,000 per month, and 8% of gaming receipts over $134,000. The foregoing
license fees are allowed as a credit against the Company's Mississippi income
tax liability for the year paid. The gross revenue fee imposed by Tunica County
in which the Company's casino operations are located equals approximately 4% of
the gaming receipts.
The Mississippi Commission has adopted a regulation requiring as a
condition of licensure that a new 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 100% of the casino cost. Recently, the
Mississippi Commission adopted an amendment which would increase the
infrastructure requirement to 100% from the existing 25%; however, the increase
will apply only to new casino projects and casinos that are not operating at the
time of acquisition or purchase. Management of the Company believes that its
Mississippi gaming licensee is in compliance with the previously existing
requirement and will not be subject to the new regulation.
30
<PAGE> 33
The sale of alcoholic beverages by the Company's licensed subsidiary is
subject to the licensing, control and regulation by both the local jurisdiction
and the Alcoholic Beverage Control Division (the "ABC") of the Mississippi State
Tax Commission. The Company's Mississippi casino is in an area designated as
special resort area, which allows the casinos to serve alcoholic beverages on a
24-hour basis. The ABC has the full power to limit, condition, suspend or revoke
any license for the serving of alcoholic beverages or to place such a licensee
on probation with or without conditions. Any such disciplinary action could (and
revocation would) have a material adverse effect upon the Company's business,
financial condition and results of operations. Certain officers and managers of
the Company's and the casino must be investigated by the ABC in connection with
its liquor permits and changes in certain positions must be approved by the ABC.
In Mississippi, two referenda were proposed which, if approved, would have
amended the Mississippi Constitution to ban gaming in Mississippi and would have
required all currently legal gaming entities to cease operations within two
years of the ban. A Mississippi State Circuit Court judge ruled that the first
of the proposed referenda was illegal because, among other reasons, it failed to
include required information regarding its anticipated effect on government
revenues. The Mississippi Supreme Court affirmed the Circuit Court ruling, but
only on procedural grounds. The second referendum proposal included the same
language on government revenues as the first referendum and was struck down by
another Mississippi State Circuit Court judge on the same grounds as the first.
Any such referendum must be approved by the Mississippi Secretary of State and
signatures of approximately 98,000 registered voters must be gathered and
certified in order for such a proposal to be included on a statewide ballot for
consideration by the voters. The next election for which the proponents could
attempt to place such a proposal on the ballot would be in November 2000. It is
likely at some point that a revised initiative will be filed which will
adequately address the issues regarding the effect on government revenues of a
prohibition of gaming in Mississippi. However, while it is too early in the
process for the Company to make any predictions with respect to whether such a
referendum will appear on a ballot or the likelihood of such a referendum being
approved by the voters, if such a referendum were passed and gaming were
prohibited in Mississippi, it would have a material adverse effect on the
Company's business, financial condition and results of operations.
ENVIRONMENTAL RISKS
The Company is subject to certain federal, state and local environmental,
safety and health laws, regulations and ordinances that apply to non-gaming
businesses generally, such as the Clean Air Act, Clean Water Act, Occupational
Safety and Health Act, Resource Conservation and Recovery Act and the
Comprehensive Environmental Response, Compensation, and Liability Act. The
Company has not made, and does not anticipate making, material expenditures with
respect to such environmental, safety and health laws, regulations and
ordinances. However, the coverage and attendant compliance costs associated with
such laws, regulations and ordinances may result in future additional costs to
the Company's operations. Any significant environmental liability or compliance
costs could have a material adverse effect on the Company's business, financial
condition and results of operations.
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. The
travel to and from such docking facility, as well as the time required for
inspections of the 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.
31
<PAGE> 34
CONTROL BY BOYD FAMILY
William S. Boyd, Chairman and Chief Executive Officer of the Company,
together with his immediate family, beneficially own approximately 50% of the
outstanding shares of Common Stock of the Company as of December 31, 1998. 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 Silver Star, which is owned by the Mississippi
Band of Choctaw Indians, expires in June 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 fiscal year
ended December 31, 1998, patrons from Hawaii comprised approximately 67% of the
room nights at the California, 55% at the Fremont and 39% 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. The
California electorate approved Proposition 5 in November 1998. Proposition 5 if
implemented, would give all California Indian tribes the right to operate an
unlimited number of certain kinds of gaming machines and other forms of casino
wagering on California Indian reservations. Legal challenges to Proposition 5
have been filed that may delay or prevent its implementation. If implemented,
Proposition 5 may negatively affect Nevada gaming markets. Management is unable,
however, to assess the magnitude of the impact to the Company. Sam's Town Tunica
draws patrons from northern Mississippi, western Tennessee (principally Memphis)
and Arkansas. Treasure Chest appeals primarily to local market patrons and
attracts patrons from the western suburbs of New Orleans. Silver Star draws
customers from central Mississippi, including the greater Jackson area, and
central Alabama, including Birmingham, Montgomery and Tuscaloosa. 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.
EMPLOYEES
At December 31, 1998, the Company employed approximately 15,000 persons. On
such date, the Company had collective bargaining relationships with eleven
unions covering approximately 2,500 employees, substantially all of whom are
employed at the Stardust, the Fremont and Main Street Station. 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.
32
<PAGE> 35
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Project."
ITEM 2. PROPERTIES
The following table sets forth certain information regarding the properties
owned or operated by the Company as of December 31, 1998.
<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 1,958 79 2,112 6 61
BOULDER STRIP
Sam's Town Las Vegas....................... 1979 118,000 2,884 52 642 12 63
Eldorado Casino............................ 1993 16,000 599 11 -- 3 4
Jokers Wild Casino......................... 1993 22,500 625 11 -- 2 13
DOWNTOWN LAS VEGAS
California Hotel and Casino................ 1975 36,000 1,108 35 781 5 16
Fremont Hotel and Casino................... 1985 32,000 1,031 28 447 5 2
Main Street Station Casino, Brewery
and Hotel................................ 1993 28,500 905 22 406 4 15
CENTRAL REGION
Sam's Town Tunica.......................... 1994 75,000 1,715 72 843 5 150
Silver Star Resort and Casino.............. 1994 90,000 2,955 96 505 6 20
Treasure Chest Casino...................... 1994 24,000 951 55 -- 4 --
Par-A-Dice Hotel and Casino................ 1996 33,000 1,062 36 208 3 19
------- ------ --- ----- -- ---
Total.............................. 562,000 15,793 497 5,944 55 363
======= ====== === ===== == ===
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various legal proceedings
arising in the ordinary course of business. Except for the Astoria and Copeland
matters, 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. See "Item 1 -- Investment
Considerations -- Governmental Gaming Regulation -- Louisiana" for a discussion
regarding each of the pending Astoria and Copeland matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
33
<PAGE> 36
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the non-director executive officers of Boyd
Gaming Corporation as of February 26, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ellis Landau................... 55 Executive Vice President, Chief Financial
Officer and Treasurer
Keith E. Smith................. 38 Executive Vice President -- Operations
James W. Hippler............... 52 Senior Vice President -- Administration
Brian A. Larson................ 43 Senior Vice President and General Counsel
Charles E. Huff................ 53 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.
KEITH E. SMITH became Executive Vice President -- Operations in May 1998.
Mr. Smith joined the Company in September 1990 serving in various controllership
positions, the last of which was Senior Vice President and Controller.
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.
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.
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.
34
<PAGE> 37
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:
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>
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........................................... 8 3/8 5 1/2
Second Quarter.......................................... 7 5/16 5 11/16
Third Quarter........................................... 6 7/16 3 1/2
Fourth Quarter.......................................... 4 1/2 2 1/2
1999
First Quarter (through February 26, 1999)............... 4 5/8 3 1/16
</TABLE>
On February 26, 1999, the closing sales price of the Common Stock on the
NYSE was $4.13 per share. On that date, the Company had approximately 2,550
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.
35
<PAGE> 38
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of December 31,
1998 and 1997 and for the fiscal year ended December 31, 1998, the six month
period ended December 31, 1997 and for the fiscal years ended June 30, 1997 and
1996, 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, 1997 and 1996 and as of and for the fiscal years
ended June 30, 1995 and 1994 have been derived from audited consolidated
financial statements of the Company not contained herein. Operating results for
the periods presented below are not necessarily indicative of the results that
may be expected for future years. Effective July 1, 1997, the Company changed
its fiscal year from a June 30 year end to a December 31 year end.
<TABLE>
<CAPTION>
SIX MONTH
YEAR ENDED PERIOD ENDED FISCAL YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -----------------------------------------
1998 1997 1997 1996 1995 1994
------------ ------------ -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net revenues........................................ $975,096 $455,771 $819,259 $775,857 $660,340 $468,219
Operating expense(a)................................ 851,408 397,625 863,685 675,071 549,770 413,971
-------- -------- -------- -------- -------- --------
Operating income (loss)............................. 123,688 58,146 (44,426) 100,786 110,570 54,248
Interest expense, net(b)............................ 73,797 37,310 61,022 51,186 46,371 36,093
Income (loss) before provision (benefit) for income
taxes, cumulative effect of a change in accounting
principle and extraordinary items................. 49,891 20,836 (105,448) 49,600 64,199 18,155
Provision (benefit) for income taxes................ 21,291 8,736 (34,025) 20,021 27,950 7,505
-------- -------- -------- -------- -------- --------
Income (loss) before cumulative effect of a change
in accounting principle and extraordinary items... 28,600 12,100 (71,423) 29,579 36,249 10,650
Cumulative effect of a change in accounting for
income taxes...................................... -- -- -- -- -- 2,035
-------- -------- -------- -------- -------- --------
Income (loss) before extraordinary items............ 28,600 12,100 (71,423) 29,579 36,249 12,685
Extraordinary items, net of tax..................... -- 7,240 6,069 1,435 -- --
-------- -------- -------- -------- -------- --------
Net income (loss)................................... 28,600 4,860 (77,492) 28,144 36,249 12,685
Dividends on preferred stock........................ -- -- -- -- -- 467
-------- -------- -------- -------- -------- --------
Net income (loss) applicable to common stock........ $ 28,600 $ 4,860 $(77,492) $ 28,144 $ 36,249 $ 12,218
======== ======== ======== ======== ======== ========
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........................................... $ 0.46 $ 0.20 $ (1.19) $ 0.52 $ 0.64 $ 0.19
Cumulative effect of a change in accounting for
income taxes.................................... -- -- -- -- -- 0.04
Extraordinary items............................... -- (0.12) (0.10) (0.03) -- --
-------- -------- -------- -------- -------- --------
Net income (loss)................................. $ 0.46 $ 0.08 $ (1.29) $ 0.49 $ 0.64 $ 0.23
======== ======== ======== ======== ======== ========
Dividends on Common Stock......................... -- -- -- -- -- --
Weighted average common shares:
Basic........................................... 61,749 61,525 60,248 57,058 56,870 54,297
Diluted......................................... 61,850 61,786 60,248 57,058 56,870 54,297
OTHER OPERATING DATA
Depreciation and amortization....................... $ 73,407 $ 35,097 $ 67,242 $ 60,626 $ 54,518 $ 42,136
Preopening expense.................................. -- -- 3,481 10,004 -- 4,605
Capital expenditures................................ 70,848 17,816 99,207 90,977 183,299 326,829
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ ----------------------------------------------
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets............................... $1,146,256 $1,152,415 $1,030,185 $953,425 $949,513 $836,297
Long-term debt (excluding current
maturities).............................. 774,890 842,932 739,792 590,808 587,957 525,637
Stockholders' equity....................... $ 227,306 $ 197,141 $ 191,316 $233,257 $202,613 $164,405
</TABLE>
- ---------------
(a) Includes $5,925 and $131,339 of impairment and restructuring charges
recorded during the years ended December 31, 1998 and June 30, 1997,
respectively. See Note 3 to Notes to Consolidated Financial Statements.
(b) Net of interest income and amounts capitalized.
36
<PAGE> 39
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" consist 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 and closed in July
1998), 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 excludes corporate expense, including related depreciation
and amortization, preopening expense and impairment and restructuring charges.
<TABLE>
<CAPTION>
TWELVE MONTH SIX MONTHS ENDED FISCAL YEAR ENDED
YEAR ENDED PERIOD ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, DECEMBER 31, ----------------------- --------------------
1998 1997 1997 1996 1997 1996
------------ ------------ -------- ----------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues
Stardust................. $162,628 $172,723 $ 83,626 $ 91,290 $180,387 $194,513
Boulder Strip
Properties............. 192,021 189,666 93,419 96,757 193,004 189,315
Downtown Properties(a)... 207,510 187,020 96,369 76,679 167,330 146,825
Central Region
Properties............. 412,937 341,463 182,357 119,432 278,538 245,204
-------- -------- -------- -------- -------- --------
Total
properties...... $975,096 $890,872 $455,771 $384,158 $819,259 $775,857
======== ======== ======== ======== ======== ========
Operating income
Stardust................. $ 10,326 $ 17,725 $ 6,981 $ 8,342 $ 19,086 $ 30,748
Boulder Strip
Properties............. 24,690 25,812 10,464 11,419 26,766 23,904
Downtown Properties...... 13,390 4,715 1,574 5,623(b) 8,763(b) 17,431
Central Region
Properties............. 102,932(c) 90,496(c) 49,343 21,781 62,935(c) 66,683(b)
-------- -------- -------- -------- -------- --------
Total
properties...... $151,338 $138,748 $ 68,362 $ 47,165 $117,550 $138,766
======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) Includes revenues related to Vacations Hawaii, a Honolulu Travel Agency, of
$32,341 and $27,240, respectively for the year ended December 31, 1998 and
the twelve month period ended December 31, 1997, $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 and restructuring charges.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE TWELVE MONTH PERIOD ENDED DECEMBER
31, 1997
REVENUES
Consolidated net revenues increased 9.5% during the year ended December 31,
1998 compared to the twelve month period ended December 31, 1997. Company-wide
casino revenue increased 14.8%, food and beverage revenue declined 1.8% and room
revenue declined 9.2%. Net revenues from the Stardust, Boulder Strip Properties
and Downtown Properties (the "Nevada Region") increased 2.3% during 1998
compared to the twelve month period ended December 31, 1997 due to an 11.0%
increase in net revenues from the Downtown Properties, partially offset by a
decline of 5.8% in net revenues at the Stardust that is primarily attributable
to the competitive environment on the Las Vegas Strip. Net revenues on the
Boulder Strip for
37
<PAGE> 40
1998 increased slightly (1.2%) compared to the twelve month period ended
December 31, 1997. Net revenues in the Central Region increased 21% during the
year ended December 31, 1998 compared to the same period in the prior year. This
increase in net revenues is primarily attributable to the acquisition of
Treasure Chest in October 1997 and is partially offset by a 55% decline in net
revenues at Sam's Town Kansas City due primarily to the closure of the property
on July 15, 1998. See further discussion under Impairment and Restructuring
Charges later in this section.
OPERATING INCOME
For the year ended December 31, 1998, consolidated operating income before
impairment and restructuring charges increased by 14.1% to $130 million compared
to $114 million in the twelve month period ended December 31, 1997. Operating
income in the Nevada Region remained virtually unchanged as the gains
experienced at the Downtown Properties were nearly offset by reductions in
operating income at the Stardust as a result of the competitive environment on
the Las Vegas Strip. In the Central Region, operating income increased 13.7% due
primarily to the October 1997 acquisition of Treasure Chest and the reduction of
operating loss at Sam's Town Kansas City due to the closure of the property in
July 1998. This operating income increase was partially offset by the decline
experienced at Sam's Town Tunica as a result of the increased competition in the
Tunica gaming market.
STARDUST
For the year ended December 31, 1998, net revenues at the Stardust declined
by 5.8% versus the prior year. Casino revenue declined by 1.7% due primarily to
a decline in slot and table game wagering. Non-gaming revenues declined 13.0%
due to a 10.7% decline in the number of occupied rooms. The decline in the
number of occupied rooms is attributable in part to competitive factors and in
part to a $9 million suite remodel project which reduced the number of available
rooms by 8.1% during 1998. Operating income declined by 42% or $7.4 million
during 1998 compared to the twelve month period ended December 31, 1997.
Operating income margin declined to 6.3% during 1998 from 10.3% during the same
period in the prior year. These declines in operating income and operating
income margin are attributable to the reduction in net revenues, coupled with an
increase in marketing expenses due to the competitive environment on the Las
Vegas Strip.
BOULDER STRIP PROPERTIES
Net revenues at the Boulder Strip Properties increased slightly (1.2%)
during the year ended December 31, 1998 compared to the twelve month period
ended December 31, 1997. Casino revenue increased 4.4% due primarily to an
increase in slot win percentage. Food and beverage revenue and room revenue
declined by 7.9% and 9.2%, respectively, from 1997. The decline in room revenue
is primarily attributable to a decrease in average daily room rates at Sam's
Town Las Vegas. During 1998, operating income at the Boulder Strip Properties
declined 4.3% or $1.1 million versus the same period in the prior year.
Operating income margin declined to 12.9% for 1998 compared to 13.6% for the
twelve month period ended December 31, 1997. The decline in operating income and
margin is primarily attributable to an increase in marketing expense for 1998 as
compared to the same period in the prior year.
DOWNTOWN PROPERTIES
Net revenues at the Downtown Properties increased 11.0% during 1998
compared to the twelve month period ended December 31, 1997. Casino revenue
increased 12.2% due primarily to increased slot wagering volumes at each of the
Downtown casino properties. Non-gaming revenues at the Downtown Properties
increased 3.3% during 1998 versus the same period in the prior year due to
increases in both food and beverage revenue and room revenue. Operating income
at the Downtown Properties increased $8.7 million or 184% during 1998 compared
to the twelve month period ended December 31, 1997 because of improvements in
operating income at the California, the Fremont and Vacations Hawaii, as well as
a decrease in the operating loss at Main Street. Operating income margin
increased to 6.5% during 1998 versus 2.5% during the twelve month period ended
December 31, 1997. These increases are primarily attributable to the
implementation of
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<PAGE> 41
various marketing programs to enhance operating volumes, as well as the
coordination of support functions and standardized operating procedures and
systems at the Downtown Properties.
CENTRAL REGION
Net revenues from the Central Region increased 21% during 1998 compared to
the twelve month period ended December 31, 1997. The majority of the increase is
attributable to the acquisition of the remaining interest in Treasure Chest on
October 27, 1997, as well as a 5.7% increase in management fees from Silver
Star. Treasure Chest produced net revenues for the Company of $124 million
during 1998 versus $26 million during the prior year. 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 revenues and expenses generated by that property
are now included in the Company's consolidated statements of operations. The
increases in net revenues were partially offset by a 55% decline in net revenues
at Sam's Town Kansas City due to the closure of the property on July 15, 1998.
See further discussion under Impairment and Restructuring Charges later in this
section. In addition, Sam's Town Tunica experienced a 4.5% decline in net
revenues due to increased competition which came online in the Tunica gaming
market toward the end of the quarter ended March 31, 1998. Net revenues at
Par-A-Dice remained flat for 1998 compared to the prior year. Operating income
for the Central Region increased to $103 million during 1998 from $90 million
during the twelve month period ended December 31, 1997 due primarily to the
acquisition of Treasure Chest and the reduction of operating loss at Sam's Town
Kansas City due to the closure of the property in July 1998. This operating
income increase was partially offset by a decline in operating results at Sam's
Town Tunica.
IMPAIRMENT AND RESTRUCTURING CHARGES
During the quarter ended March 31, 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 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. On June 30, 1998, the Company recorded a $5.9
million restructuring charge in connection with its announcement to cease
operations at Sam's Town Kansas City. During July 1998, the Company closed Sam's
Town Kansas City and sold substantially all of its tangible assets for $12.5
million, which approximated net book value.
During the quarter ended June 30, 1997, the Company recorded a $5.3 million
impairment loss related to its 17.4% ownership interest in Fremont Street
Experience, Limited Liability Company ("FSE"), which is the entity that operates
the downtown Las Vegas tourist attraction known as the Fremont Street
Experience. 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 operations. Management expected this trend to
continue and, therefore, did not expect to recover its investment in this
entity.
OTHER EXPENSES
Depreciation and amortization expense increased by $1.9 million during 1998
compared to the twelve month period ended December 31, 1997 due primarily to the
increase in intangible and fixed assets related to the acquisition of Treasure
Chest in October 1997, offset by the reduction in fixed and intangible assets
related to the impairment loss recorded during the quarter ended March 31, 1997.
OTHER INCOME (EXPENSE)
Other income and expense is primarily comprised of interest expense.
Interest expense increased by $2.0 million during 1998 compared to the twelve
month period ended December 31, 1997. This increase is primarily attributable to
higher levels of debt outstanding due to the October 1997 acquisition of
Treasure Chest, partially offset by a decline in interest rates on certain
floating rate debt.
39
<PAGE> 42
PROVISION (BENEFIT) FOR INCOME TAXES
The Company's effective tax rates were 43% and (30%), respectively during
1998 and the twelve month period ended December 31, 1997. The fluctuation in the
rates during 1998 and the prior year is primarily attributable to the impairment
loss recorded during the quarter ended March 31, 1997.
EXTRAORDINARY ITEM
The Company recorded an extraordinary loss of $7.2 million, net of tax,
during the twelve month period ended December 31, 1997 related to the early
redemption of the Company's $185 million, 11% Notes in December 1997. There were
no such items recorded during the year ended December 31, 1998.
NET INCOME (LOSS)
As a result of these factors, the Company reported net income of $28.6
million during 1998 compared to a net loss of $69.4 million during the twelve
month period ended December 31, 1997.
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 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.
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%
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<PAGE> 43
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 period 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 significant portion 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 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. 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
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<PAGE> 44
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 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 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 the six month period ended December 31, 1996.
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 and 1996 is the period beginning on
July 1 and ending on June 30.
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<PAGE> 45
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 an 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.
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
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<PAGE> 46
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 significant portion 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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<PAGE> 47
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 continued 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.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth, for the periods indicated, certain cash
flow data for the Company.
<TABLE>
<CAPTION>
TWELVE MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash flow from operating activities............... $121,749 $ 97,425
-------- ---------
Cash flow from investing activities............... $(57,511) $(145,362)
-------- ---------
Cash flow from financing activities............... $(66,578) $ 55,788
-------- ---------
</TABLE>
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<PAGE> 48
CASH FLOW FROM OPERATING ACTIVITIES AND WORKING CAPITAL
The Company's policy is to use operating cash flow in combination with debt
and equity financing to fund renovations and expansion of its business.
During 1998, the Company generated operating cash flows of $122 million
compared to $97 million during the twelve month period ended December 31, 1997.
The increase in operating cash flows is primarily attributable to the operations
of Treasure Chest, which was acquired in October 1997. As of December 31, 1998
and 1997, the Company had balances of cash and cash equivalents of $76 million
and $78 million, respectively, and working capital of $24 million and $12
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.
In connection with the July 1998 sale of certain tangible assets of Sam's
Town Kansas City for $12.5 million, the Company will be able to realize the
benefit of approximately $35 million in deferred tax assets. The realization of
these deferred tax assets, which began in the quarter ended September 30, 1998,
will continue to benefit operating cash flows in 1999 by generating tax refunds
and reducing the amount of future federal income tax payments.
CASH FLOW FROM INVESTING ACTIVITIES
During 1998, net cash used in investing activities was $58 million compared
to $145 million during the twelve month period ended December 31, 1997. 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 primarily related to these
purposes, were approximately $68 million and $42 million, respectively, during
1998 and the twelve month period ended December 31, 1997. During the prior year,
cash used in investing activities also included $103 million for the acquisition
of the remaining 85% of Treasure Chest the Company did not already own.
CASH FLOW FROM FINANCING ACTIVITIES
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. The Company paid down outstanding debt with its free cash flow
generated from operations and proceeds from the sale of Sam's Town Kansas City's
assets, which resulted in cash flow used for financing activities of $67 million
during 1998. In comparison, net cash provided by financing activities during the
twelve month period ended December 31, 1997 was $56 million, which consisted
primarily of proceeds from the issuance of $250 million principal amount of
9.50% Senior Subordinated Notes (the "9.50% Notes") offset by the redemption of
$185 million principal amount of 11% Senior Subordinated Notes (the "11%
Notes"). At December 31, 1998, outstanding borrowings and unused availability
under the Bank Credit Facility were $317 million and $158 million, respectively.
Interest on the Bank Credit Facility is based upon the agent bank's quoted
reference rate or the London Interbank Offered Rate ("LIBOR"), at the discretion
of the Company. The blended rate under the Bank Credit Facility at December 31,
1998 was 7.3%.
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.
In July 1997, the Company issued $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
46
<PAGE> 49
Company's Bank Credit Facility. Subsequently, in December 1997, the Company used
its availability under the Bank Credit Facility to redeem the 11% Notes prior to
their scheduled maturity.
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 each year of the term of the Bank Credit Facility, and (vii)
imposing restrictions in investments, the purchase or redemption of subordinated
debt prior to its stated maturity (except for a redemption of the 11% Notes,
which was permitted), dividends and other distributions, and the redemption or
purchase of capital stock of the Company. Management believes the Company and
its subsidiaries are in compliance with the Bank Credit Facility covenants at
December 31, 1998.
The 9.25% and 9.50% Notes contains 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.
Management believes the Company and its subsidiaries are in compliance with the
covenants related to the 9.25% and 9.50% Notes at December 31, 1998.
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.
EXPANSION AND OTHER PROJECTS
The Company, as part of its ongoing strategic planning process, is
currently establishing its priorities for the future. In Nevada, the Company is
exploring opportunities for both the expansion of its Sam's Town Las Vegas
property and the development of new properties on other sites in the Las Vegas
local market. The Company has postponed plans to develop a new property on the
Stardust's 61-acre site until the impact of the opening of several new resorts
on the Las Vegas Strip has been determined. Instead, the Company has initiated a
$25 million renovation of the Stardust which includes guest rooms, public space
and exterior enhancements intended to make the property more competitive with
other Strip resorts. In connection with the renovation project, the Stardust
will remove all of its approximately 550 motor inn rooms from service for a
period of approximately 90 days beginning in April 1999. During this time, the
Company will evaluate the impact of the motor inn closure on the Stardust's
operations. Based upon the results of the evaluation, the Company will either
refurbish or demolish the Stardust motor inn rooms. In addition, Sam's Town Las
Vegas will begin a $25 million renovation project during 1999 intended to update
the casino and reconfigure the gaming space to allow for slightly more gaming
positions. In addition, the porte cochere and valet parking area will be
reconfigured and remodeled to facilitate access into the property. This project
is expected to be completed in mid-2000.
On July 14, 1998, the Company, through a wholly-owned subsidiary, entered
into an amended and restated joint venture agreement with Mirage Resorts,
Incorporated to jointly develop and own The Borgata, a casino hotel
entertainment facility in Atlantic City, New Jersey. Among other things, the
Agreement provides for the settlement of litigation between the Company and
Mirage relating to the joint venture agreement that the Company and Mirage
entered into in May 1996. The Borgata is expected to cost $750 million and
contemplates a hotel of over 1,400 rooms and a casino and related amenities
adjacent and connected to Mirage's planned wholly-owned resort. The Agreement
provides for at least $150 million in capital contributions by the Company, $90
million of which is expected to be contributed in 1999. Funding of the Company's
joint venture capital contributions is expected to be derived from cash flow
from operations and availability under the Company's
47
<PAGE> 50
Bank Credit Facility. The Company has begun work on the planning stages of this
development. In addition, outside of Nevada and New Jersey, the Company
continues to monitor acquisition opportunities in many of the newer gaming
markets as the industry continues to consolidate.
The Company recently began an information systems ("IS") project that will
standardize the Company's customer tracking systems. The purpose of the IS
project is to link all points of customer contact to enable the Company to
better monitor customer activity in order to enhance and direct marketing
efforts. The Company expects to spend $14 million in 1999 on the IS project and
will account for those costs in accordance with Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (see Note 1 of the Notes to Consolidated Financial Statements).
Substantial funds are required for The Borgata, as well as the other
projects discussed above and would also be required for other future expansion
projects. 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.
YEAR 2000 PROJECT
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations.
The Company is currently engaged in a five-phase process of evaluating and
resolving the problems that might be associated with its internal operating
systems and the Year 2000 issue. The five phases are as follows:
1. Evaluation and development of remediation plans for traditional
information technology ("IT") systems;
2. Evaluation and development of remediation plans for non-IT systems;
3. Implementation and testing of remediation plans;
4. Evaluation of vendor compliance with Year 2000 issues; and
5. Preparation of contingency plans.
The first phase of the process is the evaluation and development of
remediation plans for IT systems which was completed in the fourth quarter of
1998. In this phase, the Company evaluated which IT systems are Year 2000
compliant and made plans to bring identified non-compliant systems into
compliance.
The second phase of the process, expected to be completed by the second
quarter of 1999, is the evaluation and development of remediation plans for
non-IT systems. Currently, non-IT systems are still under evaluation. The
Company does not expect the impact of the Year 2000 to be material for its
non-IT systems. The Company may discover Year 2000 issues in the course of its
evaluation processes in phases one or two, or issues may not be detected, that
would have a material adverse effect on the business, financial condition and
results of operations of the Company.
Phase three of the process involves the implementation of remediation plans
for IT and non-IT systems that were identified in phase one and two as
non-compliant. This process is expected to be completed by the end of the third
quarter of 1999 and will involve either the replacement of the Company's
existing systems with systems that are Year 2000 compliant or the remedial
review and replacement of the software code with code that does not use the two
digit year code. As part of this phase, the Company intends to perform date
sensitive testing including testing on systems that vendors have certified to be
Year 2000 compliant, to ensure that the modifications developed adequately
resolve the Year 2000 issue. While the Company believes the testing program
should provide additional evidence of its ability to operate in the Year 2000,
the Company
48
<PAGE> 51
may discover Year 2000 issues in the course of its testing process, or issues
may not be detected, that would have a material adverse effect on the business,
financial condition and results of operations of the Company.
Phase four, expected to be completed by the end of the second quarter of
1999, involves evaluating Year 2000 compliance for those vendors who provide the
Company with goods and services critical to the servicing of our guests, mainly
in the non-gaming portions of our business. While no individual vendor supplies
the Company with a significant portion of the goods or services used in the
non-gaming operations, the Company may discover Year 2000 issues in the course
of evaluation of its vendors, or issues may not be detected, that would have a
material adverse effect on the business, financial condition and results of
operations of the Company.
The final phase of the process, expected to be completed during the third
quarter of 1999, will involve the development of a contingency plan in the event
any non-compliant critical systems remain by January 1, 2000. As part of this
phase, the Company will attempt to quantify the impact, if any, of the failure
to complete any necessary corrective action. The Company currently believes that
the majority of the equipment and processes used by the Company have adequate
manual backup procedures that would allow the Company to continue to operate a
significant portion of the business in the event the conversion project is not
completed on schedule (or the systems of other companies on which the Company
may rely are not timely converted). However, in most of the Central Region
gaming jurisdictions, electronic monitoring of operations is required. Waivers
for manual processes may be obtained from these gaming jurisdictions; however,
there can be no assurance that a material portion of the gaming business at
those properties would not be affected until the time at which a waiver is
granted or if a waiver is granted at all. If the Company is able to obtain
timely waivers for the Central Region properties, the remaining primary risks
associated with the Year 2000 may be an effect on the timing of the reporting of
certain operating results to management and may include an adverse effect on
business volumes if the Year 2000 problems could not be timely corrected.
Although the Company cannot currently estimate the magnitude of such impact, if
systems material to the Company's operations have not been made Year 2000
compliant upon completion of this phase, the Year 2000 issue could have a
material adverse impact on the Company's business, financial condition and
results of operation.
The Company recently reevaluated its estimates and assumptions of the costs
directly associated with the Year 2000 project and currently estimates
approximately $8 million in costs directly associated with the project that is
expected to be funded from cash flow from operations and availability under the
Company's Bank Credit Facility. This current estimate includes approximately $3
million in operating expenses related to the remediation efforts, including
training. At December 31, 1998, the Company had incurred approximately $2
million in costs directly related to the Year 2000 project, substantially all of
which were capitalized as they related to replacement of systems that were not
Year 2000 compliant.
Given the inherent risks for a project of this magnitude and the resources
required, the timing and costs involved could differ materially from those
anticipated by the Company. There can be no assurance that the Year 2000 project
will be completed on schedule or within budget.
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
The Company is exposed to market risk from changes in interest rates. To
reduce such risks, the Company selectively uses financial instruments for its
floating rate debt. 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 (5.31% at December 31, 1998) for
a fixed LIBOR rate of 5.54%. The variable LIBOR rate readjusts each quarter and
the agreement is cancelable should the LIBOR rate exceed 5.99%. The swap
agreement terminates in December 2000. The fair value of the swap liability at
December 31, 1998 is approximately $419,000 based on the present value of future
cash outflows expected from the Company based on the LIBOR rate at December 31,
1998.
49
<PAGE> 52
The Company also has certain fixed-rate debt which it believes to have a
fair value that approximates its reported amounts. The Company believes that the
market risk arising from these financial instruments is not material.
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.
50
<PAGE> 53
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 1999 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 1999 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 1999 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 1999 Annual Meeting of Stockholders and is incorporated
herein by reference.
51
<PAGE> 54
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
1. FINANCIAL STATEMENTS. The following financial statements for
the year ended December 31, 1998, the six month periods
ended December 31, 1997 and December 31, 1996 (unaudited)
and for the fiscal years ended June 30, 1997 and 1996 are
filed as part of this report:
Independent Auditors' Report................................ 54
Consolidated Balance Sheets at December 31, 1998 and 1997... 55
Consolidated Statements of Operations for the Year Ended
December 31, 1998, the Six Month Periods Ended December
31, 1997 and December 31, 1996 (unaudited) and for the
Fiscal Years Ended June 30, 1997 and 1996................. 56
Consolidated Statements of Changes in Stockholders' Equity
for the Year Ended December 31, 1998, the Six Month Period
Ended December 31, 1997 and for the Fiscal Years Ended
June 30, 1997 and 1996.................................... 57
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1998, the Six Month Periods Ended December
31, 1997 and December 31, 1996 (unaudited) and for the
Fiscal Years Ended June 30, 1997 and 1996................. 58
Notes to Consolidated Financial Statements.................. 59
2. REPORTS ON FORM 8-K.
(a) Company's current report on Form 8-K dated July 14, 1998
related to the Amended and Restated Joint Venture
Agreement of Stardust A.C.
3. EXHIBITS. Refer to (c) on page 81.
</TABLE>
52
<PAGE> 55
BOYD GAMING CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ 54
Consolidated Financial Statements
Consolidated Balance Sheets............................... 55
Consolidated Statements of Operations..................... 56
Consolidated Statements of Changes in Stockholders'
Equity................................................. 57
Consolidated Statements of Cash Flows..................... 58
Notes to Consolidated Financial Statements................ 59
</TABLE>
53
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
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, 1998 and 1997,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the year ended December 31, 1998, the six month period
ended December 31, 1997, and for each of the two 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 these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Boyd Gaming Corporation and
Subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for the year ended December 31, 1998, the six month period
ended December 31, 1997, and for each of the two years in the period ended June
30, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 15, 1999
54
<PAGE> 57
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 75,937 $ 78,277
Accounts receivable, net.................................. 21,988 19,372
Inventories............................................... 9,567 9,906
Prepaid expenses and other................................ 17,333 14,357
Income taxes receivable................................... 11,065 2,787
Deferred income taxes..................................... 5,855 --
---------- ----------
Total current assets.............................. 141,745 124,699
Property and equipment, net................................. 763,207 771,235
Other assets and deferred charges........................... 38,690 41,912
Deferred income taxes....................................... -- 6,558
Goodwill and other intangible assets, net................... 202,614 208,011
---------- ----------
Total assets...................................... $1,146,256 $1,152,415
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt...................... $ 1,961 $ 1,828
Accounts payable.......................................... 32,065 28,535
Accrued liabilities
Payroll and related.................................... 29,465 26,100
Interest and other..................................... 54,162 55,879
---------- ----------
Total current liabilities......................... 117,653 112,342
Long-term debt, net of current maturities................... 774,890 842,932
Deferred income taxes and other liabilities................. 26,407 --
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; 62,027,514 and 61,669,628 shares
outstanding............................................ 620 617
Additional paid-in capital................................ 140,616 139,054
Retained earnings......................................... 86,070 57,470
---------- ----------
Total stockholders' equity........................ 227,306 197,141
---------- ----------
Total liabilities and stockholders' equity........ $1,146,256 $1,152,415
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
55
<PAGE> 58
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEAR
YEAR ENDED ENDED DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, -------------------- -------------------
1998 1997 1996 1997 1996
------------ -------- --------- -------- --------
UNAUDITED
<S> <C> <C> <C> <C> <C>
Revenues
Casino................................. $ 722,124 $323,707 $ 268,208 $573,782 $548,167
Food and beverage...................... 161,582 78,658 73,387 151,261 142,420
Room................................... 74,053 38,330 35,449 74,209 69,645
Other.................................. 70,903 39,074 26,883 58,311 49,895
Management fees and joint venture...... 40,206 20,310 20,406 42,747 41,576
---------- -------- --------- -------- --------
Gross revenues........................... 1,068,868 500,079 424,333 900,310 851,703
Less promotional allowances.............. 93,772 44,308 40,175 81,051 75,846
---------- -------- --------- -------- --------
Net revenues................... 975,096 455,771 384,158 819,259 775,857
---------- -------- --------- -------- --------
Costs and expenses
Casino................................. 366,746 166,776 145,928 298,081 273,545
Food and beverage...................... 106,195 53,757 50,885 106,729 99,213
Room................................... 24,724 12,958 12,044 25,210 25,842
Other.................................. 65,626 32,793 21,574 50,695 36,830
Selling, general and administrative.... 147,647 68,461 58,860 120,538 114,497
Maintenance and utilities.............. 41,144 18,652 18,327 36,037 30,171
Depreciation and amortization.......... 73,407 35,097 30,834 67,242 60,626
Corporate expense...................... 19,994 9,131 10,744 24,333 24,343
Preopening expense..................... -- -- 3,481 3,481 10,004
Impairment and restructuring charges... 5,925 -- -- 131,339 --
---------- -------- --------- -------- --------
Total.......................... 851,408 397,625 352,677 863,685 675,071
---------- -------- --------- -------- --------
Operating income (loss).................. 123,688 58,146 31,481 (44,426) 100,786
---------- -------- --------- -------- --------
Other income (expense)
Interest income........................ 365 261 342 650 1,174
Interest expense, net of amounts
capitalized......................... (74,162) (37,571) (27,069) (61,672) (52,360)
---------- -------- --------- -------- --------
Total.......................... (73,797) (37,310) (26,727) (61,022) (51,186)
---------- -------- --------- -------- --------
Income (loss) before provision (benefit)
for income taxes and extraordinary
items.................................. 49,891 20,836 4,754 (105,448) 49,600
Provision (benefit) for income taxes..... 21,291 8,736 1,902 (34,025) 20,021
---------- -------- --------- -------- --------
Income (loss) before extraordinary
items.................................. 28,600 12,100 2,852 (71,423) 29,579
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)........................ $ 28,600 $ 4,860 $ (3,217) $(77,492) $ 28,144
========== ======== ========= ======== ========
Basic and diluted net income (loss) per
common share:
Income (loss) before extraordinary
items............................... $ 0.46 $ 0.20 $ 0.05 $ (1.19) $ 0.52
Extraordinary items, net of tax........ -- (0.12) (0.10) (0.10) (0.03)
---------- -------- --------- -------- --------
Net income (loss)...................... $ 0.46 $ 0.08 $ (0.05) $ (1.29) $ 0.49
========== ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
56
<PAGE> 59
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998,
THE SIX MONTH PERIOD ENDED DECEMBER 31, 1997,
AND FISCAL YEARS ENDED JUNE 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances, July 1, 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
Net income................................. 28,600 28,600
Stock issued in connection with employee
stock purchase plan...................... 357,886 3 1,562 -- 1,565
---------- ---- -------- -------- --------
BALANCES, DECEMBER 31, 1998................ 62,027,514 $620 $140,616 $ 86,070 $227,306
========== ==== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
57
<PAGE> 60
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, --------------------- ---------------------
1998 1997 1996 1997 1996
------------ --------- --------- --------- ---------
UNAUDITED
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ 28,600 $ 4,860 $ (3,217) $ (77,492) $ 28,144
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 73,407 35,097 30,834 67,242 60,626
Loss on early retirement of debt........................ -- 11,139 9,337 9,337 3,759
Deferred income taxes................................... 26,259 1,975 171 (42,079) 3,903
Impairment and restructuring charges.................... 5,925 -- -- 131,339 --
Other..................................................... -- -- 301 -- 185
Changes in assets and liabilities:
Accounts receivable, net................................ (616) (2,426) (9,836) (906) 95
Inventories............................................. 339 (1,405) (2,319) (1,970) 117
Prepaid expenses and other.............................. (574) 516 (3,855) 392 (1,800)
Other assets............................................ (814) (5) (4,902) (4,853) (6,736)
Other current liabilities............................... (3,350) 11,611 33,016 574 15,504
Other liabilities....................................... 851 -- -- -- --
Income taxes receivable................................. (8,278) (2,787) (7,144) -- --
Income taxes payable.................................... -- (1,103) (678) 425 82
-------- --------- --------- --------- ---------
Net cash provided by operating activities................... 121,749 57,472 41,708 82,009 103,879
-------- --------- --------- --------- ---------
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) --
Proceeds from sale of Sam's Town Kansas City's assets..... 10,500 -- -- -- --
Acquisition of property, equipment and other assets....... (68,011) (22,186) (79,132) (99,586) (107,734)
Proceeds from loans receivable............................ -- -- -- -- 2,000
Proceeds from sale of riverboat........................... -- -- 20,000 20,000 --
-------- --------- --------- --------- ---------
Net cash used in investing activities....................... (57,511) (125,226) (229,857) (250,311) (105,734)
-------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.................. 8,000 244,525 200,000 200,148 230,934
Payments on long-term debt................................ (2,909) (903) (18,334) (19,354) (265,149)
Early retirement of long-term debt........................ -- (192,631) (157,500) (157,500) --
Net borrowings (payments) under credit agreements......... (73,000) 39,000 150,850 116,000 (250)
Proceeds from issuance of common stock.................... 1,331 820 34,579 35,248 2,131
-------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities......... (66,578) 90,811 209,595 174,542 (32,334)
-------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ (2,340) 23,057 21,446 6,240 (34,189)
Cash and cash equivalents, beginning of year................ 78,277 55,220 48,980 48,980 83,169
-------- --------- --------- --------- ---------
Cash and cash equivalents, end of year...................... $ 75,937 $ 78,277 $ 70,426 $ 55,220 $ 48,980
======== ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized........ $ 74,080 $ 29,029 $ 29,950 $ 58,556 $ 54,342
Cash paid for income taxes................................ 5,992 6,815 4,915 7,981 15,266
======== ========= ========= ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Property additions acquired on contracts and trade
payables which were accrued, but not yet paid........... $ 5,440 $ 2,603 $ 7,398 $ 6,973 $ 7,352
Receivable from sale of Sam's Town Kansas City's assets... 2,000 -- -- -- --
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.
58
<PAGE> 61
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 ten casino
entertainment facilities located in Las Vegas, Nevada, Tunica, Mississippi, 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 June 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 and
1996 was $3.2 million and $4.6 million, respectively. There were no such
interest costs capitalized during the year ended December 31, 1998 or 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, 1998 and 1997, accumulated amortization was $13.5
million and $8.0 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.
59
<PAGE> 62
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
FISCAL YEAR ENDED
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ------------------
1998 1997 1997 1996
------------ ----------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Room.............................. $12,190 $ 5,668 $11,704 $10,660
Food and beverage................. 71,663 33,397 58,120 59,254
Other............................. 5,123 2,638 3,168 3,116
------- ------- ------- -------
Total............................. $88,976 $41,703 $72,992 $73,030
======= ======= ======= =======
</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 year ended
December 31, 1998 or the six month period ended December 31, 1997.
The American Institute of Certified Public Accountants ("AICPA") issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," which is effective for fiscal years beginning after December 15,
1998. The statement requires businesses to expense certain costs of start-up
activities as incurred. The initial application of this statement in January
1999 requires the Company to expense certain previously capitalized items as a
cumulative effect of a change in accounting principle. As such, the Company
expects to report a charge of approximately $1.7 million, net of tax, to the
consolidated statement of operations during the first quarter of the year ending
December 31, 1999 as the cumulative effect of the change in accounting
principle.
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, 1998 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.
60
<PAGE> 63
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Recently Issued Accounting Standards
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments for fiscal years beginning after June 15,
1999. Management believes that this statement could have a material impact on
the consolidated financial statements depending on the London Interbank Offered
Rate ("LIBOR") at the time of adoption of this standard.
The AICPA issued SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This statement, effective for fiscal
years beginning after December 15, 1998, requires the Company to capitalize
certain internal-use software costs once certain criteria are met. Management
intends to comply with this statement during the year ending December 31, 1999
and does not expect the adoption of this statement to have a material impact on
the Company's consolidated financial statements.
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'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, FISCAL 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 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
61
<PAGE> 64
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Pro forma (in thousands, except per share data):
Net revenues.............................................. $861,563 $869,819
Income (loss) before extraordinary items.................. (66,644) 40,828
Net income (loss)......................................... (72,713) 39,393
-------- --------
Basic and diluted net income (loss) per common share:
Income (loss) before extraordinary items.................. $ (1.11) $ 0.72
Net income (loss)......................................... (1.21) 0.69
-------- --------
</TABLE>
NOTE 3. IMPAIRMENT AND RESTRUCTURING CHARGES
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.
On June 30, 1998, the Company recorded a $5.9 million restructuring charge
in connection with its announcement to cease operations at Sam's Town Kansas
City. Termination benefits of approximately $3 million for substantially all of
the property's 646 employees were paid and included as part of the restructuring
charge. Other costs to exit the Kansas City gaming market of approximately $3
million were included in the restructuring charge and principally represent the
recognition of liabilities for various long-term commitments which the Company
intends to honor. The Company paid approximately $2 million related to the long
term commitments during the year ended December 31, 1998. At December 31, 1998,
the $0.2 million current portion and the $0.5 million non-current portion of the
remaining restructuring charge liabilities are included in "Interest and other"
and "Deferred income taxes and other liabilities," respectively, on the
accompanying consolidated balance sheet.
During July 1998, the Company closed Sam's Town Kansas City and sold
substantially all of its tangible assets for $12.5 million, which approximated
net book value for those assets. In connection with the sale, the Company
generated a tax loss of approximately $100 million. The net loss, after
adjusting for current year taxable income generated by the Company's other
subsidiaries, will be carried back two years. Any tax loss not utilized against
prior year income will be carried forward for up to twenty years. The net tax
loss carry back created an income tax receivable of $11.1 million and a current
deferred income tax asset of $5.9 million. The remaining tax loss carry forward
is netted in the non-current deferred income tax liability on the accompanying
consolidated balance sheet at December 31, 1998.
During the fiscal year ended June 30, 1997, the Company 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 expected this trend to continue and, therefore, did not
expect to recover its investment in this entity.
62
<PAGE> 65
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Casino...................................................... $10,614 $ 9,612
Hotel....................................................... 2,926 2,563
Other....................................................... 12,541 10,951
------- -------
Total....................................................... 26,081 23,126
Less allowance for doubtful accounts........................ 4,093 3,754
------- -------
Accounts receivable, net.................................... $21,988 $19,372
======= =======
</TABLE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
LIFE ------------------------
(YEARS) 1998 1997
--------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land............................................. -- $ 124,186 $ 115,439
Buildings and leasehold improvements............. 3 - 40 634,922 632,094
Furniture and equipment.......................... 3 - 30 376,758 341,759
Riverboats and barges............................ 15 - 40 64,368 66,646
Construction in progress......................... -- 18,756 14,570
---------- ----------
Total............................................ 1,218,990 1,170,508
Less accumulated depreciation and amortization... 455,783 399,273
---------- ----------
Property and equipment, net...................... $ 763,207 $ 771,235
========== ==========
</TABLE>
NOTE 6. INVESTMENT IN JOINT VENTURE
On July 14, 1998, the Company, through a wholly-owned subsidiary, entered
into an amended and restated joint venture agreement with Mirage Resorts,
Incorporated to jointly develop and own a casino hotel entertainment facility in
Atlantic City, New Jersey that has been named The Borgata. The Company holds a
50% interest in the joint venture and accounts for its share of the joint
venture's net income or loss under the equity method of accounting. The Borgata
is expected to cost approximately $750 million and contemplates a hotel of over
1,400 rooms and a casino and related amenities adjacent and connected to
Mirage's planned wholly-owned resort. The joint venture agreement requires
capital contributions by the Company of $150 million, $90 million of which is
expected to be contributed during 1999. At December 31, 1998, the Company had
contributed or advanced $1.3 million to the joint venture.
63
<PAGE> 66
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Bank Credit Facility........................................ $317,000 $390,000
9.25% Senior Notes.......................................... 200,000 200,000
9.50% Senior Subordinated Notes............................. 250,000 250,000
Other....................................................... 9,851 4,760
-------- --------
Total long-term debt.............................. 776,851 844,760
Less current maturities..................................... 1,961 1,828
-------- --------
Total............................................. $774,890 $842,932
======== ========
</TABLE>
The Company has a reducing revolving bank credit facility which matures in
June 2001 (the "Bank Credit Facility"). On December 19, 1998, total availability
under the Bank Credit Facility was reduced by $25 million to $475 million and
will be reduced by an additional $50 million at the end of each six-month period
thereafter until December 2000. As of December 31, 1998, the Company had unused
availability of $158 million under the Bank Credit Facility. Interest on the
Bank Credit Facility is based upon the agent bank's quoted reference rate or
LIBOR rate, at the discretion of the Company. The blended interest rate under
the Bank Credit Facility at December 31, 1998 was 7.3%. 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 eight 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 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 a majority of the Company's
existing significant subsidiaries. The guaranties are full, unconditional, and
joint and several. (See Note 15 for a presentation of separate condensed
financial statement information on a combined basis for the parent only, as well
as the Company's guarantor subsidiaries and non-guarantor subsidiaries). 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
64
<PAGE> 67
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
1998 was approximately $788 million, versus its book value of $777 million. At
December 31, 1997, the estimated fair value of the Company's long-term debt was
approximately $867 million, versus its book value of $845 million. The estimated
fair value amounts were based on quoted market prices on or about December 31,
1998 and 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 6.9% to
10.0%. Management believes the Company and its subsidiaries are in compliance
with all covenants contained in its long-term debt agreements at December 31,
1998.
The scheduled maturities during the year ended December 31, 1998 of
long-term debt for the years ending December 31 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999........................... $ 1,961
2000........................... 775
2001........................... 317,452
2002........................... 455
2003........................... 200,487
Thereafter..................... 255,721
--------
Total................ $776,851
========
</TABLE>
NOTE 8. 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 (5.31% at December 31, 1998) for a fixed
LIBOR rate of 5.54%, which resulted in an initial gain of approximately $0.1
million which was deferred and is being 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,
is recorded as interest expense or an offset to interest expense during the
period of settlement. The swap agreement terminates on December 31, 2000. Net
swap settlements during the year ended December 31, 1998 had virtually no impact
on interest expense.
65
<PAGE> 68
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. COMMITMENTS AND CONTINGENCIES
Future minimum lease payments required under noncancelable operating leases
(principally for land) as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999........................... $ 3,635
2000........................... 2,580
2001........................... 2,310
2002........................... 2,259
2003........................... 2,259
Thereafter..................... 75,855
-------
Total................ $88,898
=======
</TABLE>
Rent expense for the year ended December 31, 1998, the six month period
ended December 31, 1997 and the fiscal years ended June 30, 1997 and 1996 was
$3.2 million, $1.8 million, $3.2 million and $2.9 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, a
boarding fee of $2.50 for each passenger boarding the Company's Treasure Chest
riverboat casino during the year. The future minimum payment due in 1999 to the
City of Kenner, based upon a portion of actual passenger counts from the prior
year, is approximately $4.3 million.
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 10. EMPLOYEE BENEFIT PLANS
The Company contributes to multi-employer pension plans under various union
agreements. Contributions, based on wages paid to covered employees, totaled
approximately $2.4 million, $1.2 million, $2.2 million and $2.2 million for the
year ended December 31, 1998, the six month period ended December 31, 1997 and
for the fiscal years ended June 30, 1997 and 1996, 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 $2.8
million, $1.4 million, $2.6 million and $1.4 million for the year end December
31, 1998, the six month period ended December 31, 1997 and for the fiscal years
ended June 30, 1997 and 1996, respectively, to the Company's 401(k)
profit-sharing plan and trust.
66
<PAGE> 69
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. INCOME TAXES
A summary of the provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, FISCAL YEAR ENDED JUNE 30,
1998 1997 1997 1996
------------ ---------------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current
Federal........................ $(7,021) $5,671 $ 7,009 $15,301
State.......................... 1,465 1,091 1,045 817
------- ------ -------- -------
(5,556) 6,762 8,054 16,118
------- ------ -------- -------
Deferred
Federal........................ 25,532 1,833 (43,899) 4,119
State.......................... 1,315 141 1,820 (216)
------- ------ -------- -------
26,847 1,974 (42,079) 3,903
------- ------ -------- -------
Total.................. $21,291 $8,736 $(34,025) $20,021
======= ====== ======== =======
</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>
DECEMBER 31, JUNE 30,
------------ -------------
1998 1997 1997 1996
---- ---- ----- ----
<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............. 3.6 3.8 1.7 0.8
Company provided benefits............................ 1.9 1.8 0.9 2.5
Licensing expenditures for new jurisdictions......... 1.1 0.5 0.3 0.5
Other, net........................................... 1.1 0.8 (0.2) 1.6
---- ---- ----- ----
Total........................................ 42.7% 41.9% (32.3)% 40.4%
==== ==== ===== ====
</TABLE>
67
<PAGE> 70
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax items comprising the Company's net deferred tax liability (asset)
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................... $17,131 $ --
Tax credit carryforward................................... 6,407 9,234
Preopening expense amortized for tax purposes............. 1,370 2,611
Provision for doubtful accounts........................... 1,376 1,495
Reserve differential for gaming activities................ 1,392 --
Separate state loss attributes............................ -- 5,575
Other..................................................... 1,590 2,934
------- -------
Subtotal.................................................. 29,266 21,849
Valuation allowance....................................... -- (5,575)
------- -------
Gross deferred tax asset.................................. 29,266 16,274
------- -------
Deferred tax liabilities:
Difference between book and tax basis of property......... 38,113 354
Difference between book and tax basis of amortizable
assets................................................. 9,385 5,445
Reserve differential for gaming activities................ -- 1,030
Other..................................................... 1,469 2,887
------- -------
Gross deferred liability.................................. 48,967 9,716
------- -------
Net deferred tax liability (asset)................ $19,701 $(6,558)
======= =======
</TABLE>
At December 31, 1998, the Company had approximately $58.0 million of
federal tax net operating loss carryforwards which begin to expire in the year
2018 and $8.0 million of losses which may be carried back to the fiscal year
ended June 30, 1997. Additionally, the Company has approximately $6.0 million of
state tax net operating loss carryforwards which begin to expire in the year
2018.
The Company charged off a state tax operating loss carryforward generated
in connection with its operations in Kansas City, Missouri. The Company is no
longer conducting business in Missouri and will not utilize the carryforward in
future years. The carryforward was fully reserved in prior years and the charge
will have no effect on the current or future tax provision.
NOTE 12. 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
68
<PAGE> 71
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1,500,000 shares for issuance under the Plan and 254,771 shares remain available
for future issuance. The Company will cancel the Plan on July 1, 1999.
Stock Options
As of December 31, 1998, 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 is 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 became fully vested and exercisable on December 31, 1998.
Summarized information for the stock options plans is as follows:
<TABLE>
<CAPTION>
OPTION
OPTIONS PRICES
---------- ---------------
<S> <C> <C>
Options outstanding at July 1, 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
Options granted......................................... 1,112,600 4.56 - 7.50
Options canceled........................................ (115,400) 4.56 - 13.63
---------- ---------------
Options outstanding at December 31, 1998................ 5,699,210 $ 4.56 - $17.00
========== ===============
Exercisable options at December 31, 1998................ 3,656,652
==========
Options available for grant at December 31, 1998........ 1,348,456
==========
</TABLE>
The following table summarizes the information about stock options
outstanding at December 31, 1998:
<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>
$4.56 - $ 5.50 1,098,300 9.71 $4.58 3,750 $ 5.50
5.75 - 5.75 1,931,508 6.48 5.75 1,471,511 5.75
6.88 - 17.00 2,669,402 6.56 12.15 2,181,391 12.95
--------- ---- ----- --------- ------
5,699,210 7.14 $8.52 3,656,652 $10.05
========= ==== ===== ========= ======
</TABLE>
69
<PAGE> 72
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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 year ended December 31, 1998, the six months ended
December 31, 1997 or the years ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ------------------
1998 1997 1997 1996
------------ ---------------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Income (loss) before extraordinary
item
As reported........................ $28,600 $12,100 $(71,423) $29,579
Pro forma.......................... 26,694 10,904 (72,555) 29,561
Net income (loss)
As reported........................ $28,600 $ 4,860 $(77,492) $28,144
Pro forma.......................... 26,694 3,664 (78,624) 28,126
Basic and diluted income (loss) per
share before extraordinary items
As reported........................ $ 0.46 $ 0.20 $ (1.19) $ 0.52
Pro forma.......................... 0.43 0.18 (1.20) 0.52
Basic and diluted net income (loss)
per share
As reported........................ $ 0.46 $ 0.08 $ (1.29) $ 0.49
Pro forma.......................... 0.43 0.06 (1.31) 0.49
Weighted-average assumptions
Expected stock price volatility.... 57.16% 38.48% 38.48% 38.48%
Risk-free interest rate............ 5.02% 6.05% 6.05% 6.20%
Expected option lives (years)...... 3.39 2.02 2.54 2.72
Estimated fair value of options
granted......................... $ 1.83 $ 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.
NOTE 13. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" for the year ended December 31, 1998. This
statement redefines how operating segments are determined and requires
qualitative disclosure of certain financial and descriptive information about a
company's operating segments.
70
<PAGE> 73
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's management reviews the results of operations, certain assets,
and additions to property and equipment based on four distinct geographic gaming
market segments: the Stardust Resort and Casino on the Las Vegas Strip, Boulder
Strip Properties, Downtown Properties and Central Region Properties. As used
herein, "Boulder Strip Properties" consist of Sam's Town Hotel and Gambling
Hall, the Eldorado Casino, and Jokers Wild Casino; "Downtown Properties" consist
of the California Hotel and Casino, the Fremont Hotel and Casino, Main Street
Station Casino, Brewery and Hotel and Vacations Hawaii; "Central Region
Properties" consist of Sam's Town Hotel and Gambling Hall located in Tunica,
Mississippi, Sam's Town Kansas City (through July 15, 1998), Par-A-Dice Hotel
and Casino, Treasure Chest Casino, and management fee income from Silver Star
Resort and Casino.
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEAR ENDED
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------
1998 1997 1997 1996
------------ ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Casino Revenue
Stardust............................... $107,857 $ 53,974 $ 114,571 $125,223
Boulder Strip Properties............... 147,104 69,188 142,264 139,219
Downtown Properties.................... 127,948 56,812 109,739 106,399
-------- -------- --------- --------
Nevada Region............................ 382,909 179,974 366,574 370,841
Central Region........................... 339,215 143,733 207,208 177,326
-------- -------- --------- --------
Total casino revenue........... $722,124 $323,707 $ 573,782 $548,167
======== ======== ========= ========
EBITDA(1)
Stardust............................... $ 22,114 $ 14,061 $ 35,028 $ 49,673
Boulder Strip Properties............... 39,500 17,824 41,717 38,607
Downtown Properties.................... 28,314 8,886 21,067 26,441
-------- -------- --------- --------
Nevada Region............................ 89,928 40,771 97,812 114,721
Central Region........................... 133,086 61,603 84,157 81,038
-------- -------- --------- --------
Property EBITDA........................ 223,014 102,374 181,969 195,759
-------- -------- --------- --------
Other Costs and Expenses
Corporate expense...................... 19,994 9,131 24,333 24,343
Depreciation and amortization.......... 73,407 35,097 67,242 60,626
Impairment and restructuring charges... 5,925 -- 131,339 --
Preopening expense..................... -- -- 3,481 10,004
Other expense, net..................... 73,797 37,310 61,022 51,186
-------- -------- --------- --------
Total other costs and
expenses..................... 173,123 81,538 287,417 146,159
-------- -------- --------- --------
Income (loss) before provision (benefit)
for income taxes and extraordinary
items............................... 49,891 20,836 (105,448) 49,600
Provision (benefit) for taxes............ 21,291 8,736 (34,025) 20,021
-------- -------- --------- --------
Income (loss) before extraordinary
items.................................. 28,600 12,100 (71,423) 29,579
Extraordinary items, net of tax.......... -- 7,240 6,069 1,435
-------- -------- --------- --------
Net income (loss)........................ $ 28,600 $ 4,860 $ (77,492) $ 28,144
======== ======== ========= ========
</TABLE>
71
<PAGE> 74
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Assets(2)
Stardust.................................................. $160,697 $158,017
Boulder Strip Properties.................................. 159,930 157,697
Downtown Properties....................................... 166,272 174,818
-------- --------
Nevada Region............................................... 486,899 490,532
Central Region.............................................. 432,566 460,551
-------- --------
Total properties' assets.......................... 919,465 951,083
Corporate Entities.......................................... 46,356 28,163
-------- --------
Total assets...................................... $965,821 $979,246
======== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEAR ENDED
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ------------------
1998 1997 1997 1996
------------ ------------ ------- -------
<S> <C> <C> <C> <C>
Additions to Property and Equipment
Stardust............................ $14,705 $ 1,418 $ 3,630 $ 1,446
Boulder Strip Properties............ 16,076 1,806 5,084 11,984
Downtown Properties................. 7,683 7,432 41,410 25,794
------- ------- ------- -------
Nevada Region......................... 38,464 10,656 50,124 39,224
Central Region........................ 11,658 6,051 34,820 51,396
------- ------- ------- -------
Total properties'
additions................. 50,122 16,707 84,944 90,620
Corporate Entities.................... 20,726 1,109 14,263 357
------- ------- ------- -------
Total additions to property
and equipment............. $70,848 $17,816 $99,207 $90,977
======= ======= ======= =======
</TABLE>
- ---------------
(1) EBITDA is earnings before interest, taxes, depreciation and amortization
expense, preopening expense and impairment and restructuring charges.
(2) Assets represent property and equipment, net and goodwill and other
intangible assets, net.
NOTE 14. EARNINGS PER SHARE
A reconciliation of income and shares for basic and diluted earnings per
share is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------
WEIGHTED AVERAGE PER SHARE
INCOME SHARES AMOUNT
------- ---------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income............................ $28,600 61,749 $0.46
======= ====== =====
DILUTED EARNINGS PER SHARE
Net income...................................... $28,600 61,749
Effect of dilutive securities-stock options..... -- 101
------- ------
Net income............................ $28,600 61,850 $0.46
======= ====== =====
</TABLE>
Options to purchase approximately 5.7 million shares of common stock at
December 31, 1998 at prices of $4.56 - $17.00 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 stock for
the period presented.
72
<PAGE> 75
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996
------------------------------ ------------------------------
WEIGHTED WEIGHTED
AVERAGE PER SHARE INCOME/ AVERAGE PER SHARE
INCOME SHARES AMOUNT (LOSS) SHARES AMOUNT
------- -------- --------- ------- -------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income before extraordinary items....... $12,100 61,525 $ 0.20 $ 2,852 59,150 $ 0.05
Extraordinary items, net................ (7,240) 61,525 (0.12) (6,069) 59,150 (0.10)
------- ------ ------ ------- ------ ------
Net income (loss)............. $ 4,860 61,525 $ 0.08 $(3,217) 59,150 $(0.05)
======= ====== ====== ======= ====== ======
DILUTED EARNINGS PER SHARE
Income before extraordinary items....... $12,100 61,525 $ 2,852 59,150
Effect of dilutive securities-stock
options............................... -- 261 -- 9
------- ------ ------- ------
Income before extraordinary items....... 12,100 61,786 $ 0.20 2,852 59,159 $ 0.05
Extraordinary items, net................ (7,240) -- (0.12) (6,069) -- (0.10)
------- ------ ------ ------- ------ ------
Net income (loss)............. $ 4,860 61,786 $ 0.08 $(3,217) 59,159 $(0.05)
======= ====== ====== ======= ====== ======
</TABLE>
Options to purchase approximately 2.8 million and 3.7 million 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
stock for the periods presented.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------------------------------------------
1997 1996
------------------------------- ------------------------------
WEIGHTED WEIGHTED
INCOME/ AVERAGE PER SHARE AVERAGE PER SHARE
(LOSS) SHARES AMOUNT INCOME SHARES AMOUNT
-------- -------- --------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income before extraordinary items...... $(71,423) 60,248 $(1.19) $29,579 57,058 $ 0.52
Extraordinary items, net............... (6,069) 60,248 (0.10) (1,435) 57,058 (0.03)
-------- ------ ------ ------- ------ ------
Net income (loss)............ $(77,492) 60,248 $(1.29) $28,144 57,058 $ 0.49
======== ====== ====== ======= ====== ======
DILUTED EARNINGS PER SHARE
Income before extraordinary items...... $(71,423) 60,248 $29,579 57,058
Effect of dilutive securities-stock
options.............................. -- -- -- --
-------- ------ ------- ------
Income before extraordinary items...... (71,423) 60,248 $(1.19) 29,579 57,058 $ 0.52
Extraordinary items, net............... (6,069) -- (0.10) (1,435) -- (0.03)
-------- ------ ------ ------- ------ ------
Net income (loss)............ $(77,492) 60,248 $(1.29) $28,144 57,058 $ 0.49
======== ====== ====== ======= ====== ======
</TABLE>
Options to purchase approximately 2.8 million and 3.8 million shares of
common stock at June 30, 1997 and 1996, respectively, at prices of
$8.38 - $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
stock for the periods presented. Options to purchase approximately 18,000 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.
73
<PAGE> 76
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. GUARANTOR INFORMATION
The Company's 9.25% Notes (see Note 7) are guaranteed by a majority of the
Company's wholly-owned existing significant subsidiaries. These guaranties are
full, unconditional, and joint and several. In connection with the October 1997
acquisition of Treasure Chest, the Company created significant subsidiaries that
do not guarantee the 9.25% Notes. Prior to October 1997, the assets, equity,
income and cash flows of the non-guarantor subsidiaries represented less than 3%
of the respective consolidated amounts and were inconsequential, individually
and in the aggregate, to the Company. As such, the following consolidating
schedules present separate condensed financial statement information on a
combined basis for the parent only, as well as the Company's guarantor
subsidiaries and non-guarantor subsidiaries, as of and for the year ended
December 31, 1998 and as of and for the six month period ended December 31,
1997. Comparative financial information for the fiscal years ended June 30, 1997
and 1996 is not presented since management believes such information is not
material to investors.
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
-------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets...................... $ 23,193 $ 97,564 $ 22,533 $ (1,545)(1) $ 141,745
Property and equipment, net......... 36,490 687,740 38,977 -- 763,207
Other assets and deferred charges... 919,264 (515,630) 153,170 (518,114)(1)(2) 38,690
Goodwill and other intangible
assets, net....................... -- 119,365 83,249 -- 202,614
-------- --------- -------- --------- ----------
Total assets.............. $978,947 $ 389,039 $297,929 $(519,659) $1,146,256
======== ========= ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities................. $ 35,301 $ 69,217 $ 15,575 $ (2,440)(1) $ 117,653
Long-term debt, net of current
maturities........................ 706,373 68,484 33 -- 774,890
Deferred income taxes and other
liabilities....................... 9,984 16,382 41 -- 26,407
Stockholders' equity................ 227,289 234,956 282,280 (517,219)(2) 227,306
-------- --------- -------- --------- ----------
Total liabilities and
stockholders' equity.... $978,947 $ 389,039 $297,929 $(519,659) $1,146,256
======== ========= ======== ========= ==========
</TABLE>
- ---------------
Elimination Entries
(1) To eliminate intercompany payables and receivables.
(2) To eliminate investment in subsidiaries and subsidiaries' equity.
74
<PAGE> 77
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
-------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets...................... $ 7,559 $ 106,127 $ 18,620 $ (7,607)(1) $ 124,699
Property and equipment, net......... 19,153 708,235 43,847 -- 771,235
Other assets and deferred charges... 807,630 (389,658) 125,707 (495,209)(1)(2) 48,470
Goodwill and other intangible
assets, net....................... -- 122,622 85,389 -- 208,011
-------- --------- -------- --------- ----------
Total assets.............. $834,342 $ 547,326 $273,563 $(502,816) $1,152,415
======== ========= ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities................. $ 28,136 $ 75,740 $ 16,425 $ (7,959)(1) $ 112,342
Long-term debt, net of current
maturities........................ 605,675 237,190 67 -- 842,932
Stockholders' equity................ 200,531 234,396 257,071 (494,857)(2) 197,141
-------- --------- -------- --------- ----------
Total liabilities and
stockholders' equity.... $834,342 $ 547,326 $273,563 $(502,816) $1,152,415
======== ========= ======== ========= ==========
</TABLE>
- ---------------
Elimination Entries
(1) To eliminate intercompany payables and receivables.
(2) To eliminate investment in subsidiaries and subsidiaries' equity.
75
<PAGE> 78
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
-------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues
Casino.............................. $ -- $601,781 $120,343 $ -- $ 722,124
Food and beverage................... -- 151,837 9,745 -- 161,582
Room................................ -- 74,053 -- -- 74,053
Other............................... 9,517 37,903 35,180 (11,697)(1) 70,903
Management fees..................... 106,903 47,439 20,174 (134,310)(1) 40,206
-------- -------- -------- --------- ----------
Gross revenues........................ 116,420 913,013 185,442 (146,007) 1,068,868
Less promotional allowances........... -- 86,740 7,032 -- 93,772
-------- -------- -------- --------- ----------
Net revenues................ 116,420 826,273 178,410 (146,007) 975,096
-------- -------- -------- --------- ----------
Costs and expenses
Casino.............................. -- 322,186 44,560 -- 366,746
Food and beverage................... -- 96,040 10,155 -- 106,195
Room................................ -- 24,724 -- -- 24,724
Other............................... -- 77,071 38,424 (49,869)(1) 65,626
Selling, general and
administrative................... -- 122,759 24,888 -- 147,647
Maintenance and utilities........... -- 35,625 5,519 -- 41,144
Depreciation and amortization....... 642 63,718 9,047 -- 73,407
Corporate expense................... 28,528 1,514 1,649 (11,697)(1) 19,994
Restructuring charge................ -- 5,925 -- -- 5,925
-------- -------- -------- --------- ----------
Total....................... 29,170 749,562 134,242 (61,566) 851,408
-------- -------- -------- --------- ----------
Operating income...................... 87,250 76,711 44,168 (84,441) 123,688
Other income (expense), net........... (68,204) (6,572) 979 -- (73,797)
-------- -------- -------- --------- ----------
Income before income taxes............ 19,046 70,139 45,147 (84,441) 49,891
Provision (benefit) for income
taxes............................... (9,539) 30,825 5 -- 21,291
-------- -------- -------- --------- ----------
Net income............................ $ 28,585 $ 39,314 $ 45,142 $ (84,441) $ 28,600
======== ======== ======== ========= ==========
</TABLE>
- ---------------
Elimination Entries
(1) To eliminate intercompany revenue and expense.
76
<PAGE> 79
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
-------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues
Casino................................ $ -- $303,250 $20,457 $ -- $323,707
Food and beverage..................... -- 77,104 1,554 -- 78,658
Room.................................. -- 38,330 -- -- 38,330
Other................................. 120 22,473 17,444 (963)(1) 39,074
Management fees and joint venture..... 62,865 21,849 3,729 (68,133)(1) 20,310
-------- -------- ------- -------- --------
Gross revenues.......................... 62,985 463,006 43,184 (69,096) 500,079
Less promotional allowances............. -- 43,198 1,110 -- 44,308
-------- -------- ------- -------- --------
Net revenues..................... 62,985 419,808 42,074 (69,096) 455,771
-------- -------- ------- -------- --------
Costs and expenses
Casino................................ -- 159,464 7,312 -- 166,776
Food and beverage..................... -- 52,036 1,721 -- 53,757
Room.................................. -- 12,958 -- -- 12,958
Other................................. -- 38,129 17,057 (22,393)(1) 32,793
Selling, general and administrative... -- 63,760 4,701 -- 68,461
Maintenance and utilities............. -- 18,227 425 -- 18,652
Depreciation and amortization......... 208 33,276 1,613 -- 35,097
Corporate expense..................... 3,703 4,668 760 -- 9,131
-------- -------- ------- -------- --------
Total............................ 3,911 382,518 33,589 (22,393) 397,625
-------- -------- ------- -------- --------
Operating income........................ 59,074 37,290 8,485 (46,703) 58,146
Other expense, net...................... (24,736) (12,574) -- -- (37,310)
-------- -------- ------- -------- --------
Income before provision (benefit) for
income taxes.......................... 34,338 24,716 8,485 (46,703) 20,836
Provision (benefit) for income taxes.... (2,258) 10,991 3 -- 8,736
-------- -------- ------- -------- --------
Income before extraordinary item........ 36,596 13,725 8,482 (46,703) 12,100
Extraordinary item, net................. -- 7,240 -- -- 7,240
-------- -------- ------- -------- --------
Net income.............................. $ 36,596 $ 6,485 $ 8,482 $(46,703) $ 4,860
======== ======== ======= ======== ========
</TABLE>
- ---------------
Elimination Entries
(1) To eliminate intercompany revenue and expense.
77
<PAGE> 80
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMBINED
COMBINED NON-
PARENT GUARANTORS GUARANTORS CONSOLIDATED
-------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities................ $ 64,427 $ 37,873 $ 19,449 $121,749
-------- -------- -------- --------
Cash flows from investing activities
Proceeds from sale of Sam's Town Kansas City's
assets......................................... -- 10,500 -- 10,500
Acquisition of property, equipment and other
assets......................................... (11,514) (54,467) (2,030) (68,011)
-------- -------- -------- --------
Net cash used in investing activities............... (11,514) (43,967) (2,030) (57,511)
-------- -------- -------- --------
Cash flows from financing activities
Proceeds from issuance of long-term debt.......... -- 8,000 -- 8,000
Payments on long-term debt........................ (2,218) (562) (129) (2,909)
Receipt/(payment) of dividends.................... 19,196 (4,169) (15,027) --
Net borrowings under credit agreements............ (73,000) -- -- (73,000)
Proceeds from issuance of common stock............ 1,331 -- -- 1,331
-------- -------- -------- --------
Net cash provided by (used in) financing
activities........................................ (54,691) 3,269 (15,156) (66,578)
-------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents....................................... (1,778) (2,825) 2,263 (2,340)
Cash and cash equivalents, beginning of
period............................................ 2,832 58,317 17,128 78,277
-------- -------- -------- --------
Cash and cash equivalents, end of period............ $ 1,054 $ 55,492 $ 19,391 $ 75,937
======== ======== ======== ========
</TABLE>
78
<PAGE> 81
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
--------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities..... $(314,554) $ 249,131 $ 115,280 $ 7,615(1) $ 57,472
--------- --------- --------- ------- ---------
Cash flows from investing activities
Net cash paid for Treasure Chest Casino
L.L.C............................... -- -- (103,040) -- (103,040)
Acquisition of property, equipment and
other assets........................ (1,183) (20,489) (514) -- (22,186)
--------- --------- --------- ------- ---------
Net cash used in investing activities.... (1,183) (20,489) (103,554) -- (125,226)
--------- --------- --------- ------- ---------
Cash flows from financing activities
Proceeds from issuance of long-term
debt................................ 244,525 -- -- -- 244,525
Payments on long-term debt............. (346) (462) (95) -- (903)
Early retirement of long-term debt..... -- (192,631) -- -- (192,631)
Net borrowings (payments) under credit
agreements.......................... 73,469 (26,854) -- (7,615)(1) 39,000
Proceeds from issuance of common
stock............................... 820 -- -- -- 820
--------- --------- --------- ------- ---------
Net cash provided by (used in) financing
activities............................. 318,468 (219,947) (95) (7,615) 90,811
--------- --------- --------- ------- ---------
Net increase in cash and cash
equivalents............................ 2,731 8,695 11,631 -- 23,057
Cash and cash equivalents, beginning of
period................................. 101 49,622 5,497 -- 55,220
--------- --------- --------- ------- ---------
Cash and cash equivalents, end of
period................................. $ 2,832 $ 58,317 $ 17,128 $ -- $ 78,277
========= ========= ========= ======= =========
</TABLE>
- ---------------
Elimination Entries
(1) To eliminate intercompany payments of debt.
79
<PAGE> 82
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SELECTED QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues................................ $250,042 $245,485 $234,593 $244,976 $975,096
Operating income............................ 35,235 25,733 28,772 33,948 123,688
Net income.................................. $ 9,324 $ 4,034 $ 5,937 $ 9,305 $ 28,600
-------- -------- -------- -------- --------
Basic and diluted net income per common
share:
Net income.................................. $ 0.15 $ 0.07 $ 0.10 $ 0.15 $ 0.46
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1997
---------------------------------------
FIRST SECOND TOTAL
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<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
------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<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>
80
<PAGE> 83
(C) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
---------- --------
<S> <C>
2.1(5) Stock Purchase Agreement, dated as of April 26, 1996, by and
among the Company, 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.
2.4(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.
4.3(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.
4.4(13) First Supplemental Indenture, among the Company, 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(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.
10.2(1) Lease Agreement dated October 31, 1963, by and between
Fremont Hotel, Inc. and Cora Edit Garehime.
10.3(1) Lease Agreement dated December 31, 1963, by and among
Fremont Hotel, Inc., Bank of Nevada and Leon H. Rockwell,
Jr.
10.4(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.
10.5(4) Lease Agreement dated July 25, 1973, by and between CH&C and
William Peccole, as Trustee of the Peter Peccole 1970 Trust.
10.6(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.
</TABLE>
81
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
---------- --------
<S> <C>
10.7(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.
10.8(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.
10.9(1) Implemented Proposal dated June 15, 1992, by and between
Stardust Hotel and Casino and the Back-End Teamsters Local
Union No. 995.
10.10(1) Implemented Proposal dated June 15, 1992, by and between
Fremont Hotel and Casino and the Back-End Teamsters Local
Union No. 995.
10.11(2) Management Agreement dated March 11, 1993, by and between
Mississippi Band of Choctaw Indians and Boyd Mississippi,
Inc.
10.12(4) Addendum to Management Agreement dated November 24, 1993, by
and between Mississippi Band of Choctaw Indians and Boyd
Mississippi, Inc.
10.13(2) Casino Management Agreement dated August 30, 1993, by and
between Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
10.14(4) Amended and Restated Operating Agreement dated August 5,
1994, by and between Treasure Chest Casino, L.L.C. and Boyd
Kenner, Inc.
10.15(4) Development Agreement dated June 6, 1994, by and among the
Company, Boyd Kansas City, Inc. and Port Authority of Kansas
City, Missouri.
10.16(2) Form of Indemnification Agreement.
10.17(2)* 1993 Flexible Stock Incentive Plan and related agreements.
10.18(2)* 1993 Directors Non-Qualified Stock Option Plan and related
agreements.
10.19(2)* 1993 Employee Stock Purchase Plan and related agreement.
10.20(1) 401(k) Profit Sharing Plan and Trust.
10.21(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.)
10.22(3) Amended and Restated Joint Venture Agreement of Stardust
A.C.
10.23(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.
10.24(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.
10.25(10)* Boyd Gaming Corporation 1996 Stock Incentive Plan.
</TABLE>
82
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
---------- --------
<S> <C>
10.26(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.
10.27(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.
10.28(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 (15) Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
24(15) Powers of Attorney.
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 Current Report on Form 8-K dated
July 14, 1998.
(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.
83
<PAGE> 86
(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.
(15) Incorporated by reference to the Company's Annual Report on Form 10-K for
the transition period from July 1, 1997 to December 31, 1997.
84
<PAGE> 87
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, 1999.
BOYD GAMING CORPORATION
By: /s/ ELLIS LANDAU
------------------------------------
Ellis Landau
Executive Vice President,
Chief Financial Officer,
Treasurer (Principal Financial
Officer)
85
<PAGE> 88
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William S. Boyd and Ellis Landau, and
each of them, his of 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
--------- ----- ----
<C> <C> <S>
/s/ WILLIAM S. BOYD Chairman of the Board of March 31, 1999
- -------------------------------------------------------- Directors, Chief Executive
William S. Boyd Officer and Director
(Principal Executive
Officer)
/s/ ELLIS LANDAU Executive Vice President, March 31, 1999
- -------------------------------------------------------- Chief Financial Officer and
Ellis Landau Treasurer (Principal
Financial Officer)
/s/ DONALD D. SNYDER President and Director March 31, 1999
- --------------------------------------------------------
Donald D. Snyder
/s/ ROBERT L. BOUGHNER Senior Executive Vice March 31, 1999
- -------------------------------------------------------- President & Chief Operating
Robert L. Boughner Officer and Director
/s/ WILLIAM R. BOYD Director March 31, 1999
- --------------------------------------------------------
William R. Boyd
/s/ MARIANNE BOYD JOHNSON Director March 31, 1999
- --------------------------------------------------------
Marianne Boyd Johnson
/s/ PERRY B. WHITT Director March 31, 1999
- --------------------------------------------------------
Perry B. Whitt
/s/ WARREN L. NELSON Director March 31, 1999
- --------------------------------------------------------
Warren L. Nelson
/s/ PHILIP J. DION Director March 31, 1999
- --------------------------------------------------------
Philip J. Dion
/s/ MICHAEL O. MAFFIE Director March 31, 1999
- --------------------------------------------------------
Michael O. Maffie
/s/ MAJ. GEN. BILLY G. MCCOY, RET. USAF Director March 31, 1999
- --------------------------------------------------------
Maj. Gen. Billy G. McCoy, Ret. USAF
/s/ WILLIAM G. YATES Director March 31, 1999
- --------------------------------------------------------
William G. Yates
</TABLE>
86
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ---------- --------
<S> <C>
2.1(5) Stock Purchase Agreement, dated as of April 26, 1996, by and
among the Company, 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.
2.4(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.
4.3(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.
4.4(13) First Supplemental Indenture, among the Company, 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(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.
10.2(1) Lease Agreement dated October 31, 1963, by and between
Fremont Hotel, Inc. and Cora Edit Garehime.
10.3(1) Lease Agreement dated December 31, 1963, by and among
Fremont Hotel, Inc., Bank of Nevada and Leon H. Rockwell,
Jr.
10.4(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.
10.5(4) Lease Agreement dated July 25, 1973, by and between CH&C and
William Peccole, as Trustee of the Peter Peccole 1970 Trust.
10.6(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.
10.7(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.
10.8(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.
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ---------- --------
<S> <C>
10.9(1) Implemented Proposal dated June 15, 1992, by and between
Stardust Hotel and Casino and the Back-End Teamsters Local
Union No. 995.
10.10(1) Implemented Proposal dated June 15, 1992, by and between
Fremont Hotel and Casino and the Back-End Teamsters Local
Union No. 995.
10.11(2) Management Agreement dated March 11, 1993, by and between
Mississippi Band of Choctaw Indians and Boyd Mississippi,
Inc.
10.12(4) Addendum to Management Agreement dated November 24, 1993, by
and between Mississippi Band of Choctaw Indians and Boyd
Mississippi, Inc.
10.13(2) Casino Management Agreement dated August 30, 1993, by and
between Treasure Chest Casino, L.L.C. and Boyd Kenner, Inc.
10.14(4) Amended and Restated Operating Agreement dated August 5,
1994, by and between Treasure Chest Casino, L.L.C. and Boyd
Kenner, Inc.
10.15(4) Development Agreement dated June 6, 1994, by and among the
Company, Boyd Kansas City, Inc. and Port Authority of Kansas
City, Missouri.
10.16(2) Form of Indemnification Agreement.
10.17(2)* 1993 Flexible Stock Incentive Plan and related agreements.
10.18(2)* 1993 Directors Non-Qualified Stock Option Plan and related
agreements.
10.19(2)* 1993 Employee Stock Purchase Plan and related agreement.
10.20(1) 401(k) Profit Sharing Plan and Trust.
10.21(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.)
10.22(3) Amended and Restated Joint Venture Agreement of Stardust
A.C.
10.23(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.
10.24(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.
10.25(10)* Boyd Gaming Corporation 1996 Stock Incentive Plan.
10.26(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.
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ---------- --------
<S> <C>
10.27(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.
10.28(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 (15) Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
24(15) Powers of Attorney.
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 Current Report on Form 8-K dated
July 14, 1998.
(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.
(15) Incorporated by reference to the Company's Annual Report on Form 10-K for
the transition period from July 1, 1997 to December 31, 1997.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
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 15, 1999, appearing
in and incorporated by reference in this Annual Report on Form 10-K of
Boyd Gaming Corporation for the year ended December 31, 1998.
/s/ Deloitte & Touche LLP
- -----------------------------
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
March 30, 1999
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0
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