-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RKjenmqxLZha5EwGYtaSGNv5Cx9HfIsvAhdhkWXTxizIKKO14to7pN9FNFd8pW6W B3GgaxHaSMcbMywSAZBTUg== 0000892569-00-000322.txt : 20000331 0000892569-00-000322.hdr.sgml : 20000331 ACCESSION NUMBER: 0000892569-00-000322 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOYD GAMING CORP CENTRAL INDEX KEY: 0000906553 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880242733 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12168 FILM NUMBER: 587999 BUSINESS ADDRESS: STREET 1: 2950 S INDUSTRIAL RD CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 7027927200 MAIL ADDRESS: STREET 1: 2950 SOUTH INDUSTRIAL ROAD CITY: LAS VEGAS STATE: NV ZIP: 89109 FORMER COMPANY: FORMER CONFORMED NAME: BOYD GROUP DATE OF NAME CHANGE: 19941130 10-K 1 FORM 10-K YEAR ENDED DECEMBER 31, 1999 1 ================================================================================ 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, 1999 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) NEVADA 88-0242733 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2950 INDUSTRIAL ROAD, LAS VEGAS NV 89109 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (702) 792-7200 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - -------------------------------------- ----------------------- Common Stock, Par Value $.01 Per Share New York Stock Exchange 9.25% Senior Notes New York Stock Exchange 9.50% Senior Subordinated Notes New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 29, 2000, 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 $160,383,000. 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. 1 2 As of February 29, 2000, the Registrant had outstanding 62,228,487 shares of Common Stock. Documents Incorporated by Reference into Parts I -- III: Portions of the definitive Proxy Statement for the Registrant's 2000 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. ================================================================================ 2 3 BOYD GAMING CORPORATION 1999 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
PAGE NO. -------- PART I Item 1. Business.................................................................................. 4 Item 2. Properties................................................................................ 34 Item 3. Legal Proceedings......................................................................... 34 Item 4. Submission of Matters to a Vote of Security Holders....................................... 34 Item 4A. Executive Officers of the Registrant...................................................... 34 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 36 Item 6. Selected Consolidated Financial Data...................................................... 36 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 38 Item 7A. Quantitative and Qualitative Disclosure about Market Risk................................. 48 Item 8. Financial Statements and Supplementary Data............................................... 49 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 49 PART III Item 10. Directors and Executive Officers of the Registrant........................................ 50 Item 11. Executive Compensation.................................................................... 50 Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 50 Item 13. Certain Relationships and Related Transactions............................................ 50 PART IV Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K......................... 51
3 4 PART I ITEM 1. BUSINESS GENERAL Boyd Gaming Corporation is a multi-jurisdictional gaming company that currently owns and 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 six 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. In November 1999, the Company acquired the Blue Chip Casino ("Blue Chip"), a riverboat casino in Michigan City, Indiana. Through January 31, 2000, the Company managed, 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. As of December 31, 1999 the Company owned or operated an aggregate of approximately 587,400 square feet of casino space, containing 17,136 slot machines and 539 table games. 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 15% or more of gross revenues during the last three fiscal years, represents the only other revenue source that produced more than 10% of gross revenues during this time frame. See "Properties" and "Item 2 -- Properties." The Company currently conducts substantially all of its business through eight wholly-owned subsidiaries: California Hotel and Casino ("CH&C"); Boyd Tunica, Inc. ("Boyd Tunica"); Boyd Kenner, Inc. ("Boyd Kenner"); Boyd Louisiana L.L.C. ("Boyd Louisiana"); Boyd Mississippi, Inc. ("Boyd Mississippi"); Par-A-Dice Gaming Corporation ("Par-A-Dice Gaming"), East Peoria Hotel, Inc. ("EPH") and Boyd Indiana, Inc. ("Boyd Indiana"). 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 manages 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 managed Silver Star through January 31, 2000; Par-A-Dice Gaming owns and operates the Par-A-Dice; 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; and Boyd Indiana owns the full equity interest in Blue Chip Casino, L.L.C. OPERATING STRATEGY The Company believes that the following key elements have contributed to the success of the Company in the past and are central to its future success. VALUE-ORIENTED CASINO ENTERTAINMENT EXPERIENCE The Company is committed to providing a high-quality casino entertainment experience to its primarily middle-income customers at an affordable price in order to develop 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 entertainment, hotel, restaurant and live entertainment offerings and regularly reinvests in its existing facilities in an effort to maintain the quality and competitiveness of its properties. 4 5 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 that 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, 1999, the Company distributed approximately 10 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 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; Par-A-Dice in East Peoria, Illinois; and Blue Chip in Michigan City, Indiana. The Company managed the Silver Star, in central Mississippi, from its opening in 1994 through January 31, 2000. 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 75,000 square feet of casino space, a conference center containing approximately 35,000 square feet of meeting space and the Wayne Newton Theatre which seats up to 981 guests. The casino offers approximately 1,600 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 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 1,506 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 pools and parking spaces for approximately 3,400 cars. The occupancy rate and average room rate at the Stardust were approximately 90% and $55, respectively, during 1999. 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. 5 6 At December 31, 1999, the Stardust had completed a $23 million renovation project, which included 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 demolished all of its approximately 550 motor inn rooms. BOULDER STRIP PROPERTIES Sam's Town Las Vegas is situated on 63 acres of land on the Boulder Strip, approximately six miles east of the Las Vegas Strip. Sam's Town features an approximately 118,000-square foot casino and a state-of-the-art 56-lane bowling center. The gaming facilities include approximately 2,950 slot machines and 48 table games, including tables featuring blackjack, craps, roulette, pai gow and Caribbean stud poker, as well as keno, a race and sports book, and bingo. The property has 648 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 that contains extensive foliage and trees, streams, bridges, and a impressive 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 96% and $43, respectively, during 1999. Sam's Town Las Vegas has a casual western theme. Its informal, friendly atmosphere appeals to both local residents and visitors alike. 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 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 began an $86 million renovation and expansion program during 1999. The project includes, among other things, an 18 screen state-of-the-art movie theatre complex, childcare facilities, an arcade, additional casino space for 500 slot machines, an 11,200 square foot multi-purpose events center for concerts and meetings, a new 650 seat buffet, and a reconfigured and remodeled porte cochere and valet parking area to improve access to the property. The renovation portion of the project is expected to continue until the summer of 2000, and the expansion is expected to be completed by December 31, 2000, although there can be no assurance that the renovation and expansion will be completed on time or within budget. 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 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 635 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 96-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 95% and $31, respectively, during 1999. 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 1,114 slot machines and 26 6 7 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 $33, respectively, during 1999. 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 916 slot machines. The property also includes 406 hotel rooms, a 475-seat buffet, a 125-seat specialty restaurant, 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 93% and $37, respectively, during 1999. 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 seven 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 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 90,000 households, primarily in Hawaii. During the year ended December 31, 1999, patrons from Hawaii comprised approximately 70% of the room nights at the California, 56% of the room nights at the Fremont and 47% 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 1,586 slot machines and 65 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. The occupancy rate and average room rate at Sam's Town Tunica were approximately 83% and $45, respectively, during 1999. In early 2000, Sam's Town Tunica began a $21 million renovation project to reconfigure and remodel the casino, redesign and enhance its restaurant product, remodel the atrium, and build an RV park adjacent to the property. The renovation project is expected to be completed by December 31, 2000, although there can be no assurances that the project will be completed on time or within budget. 7 8 In October 1997, the Company completed the acquisition of the remaining 85% interest in Treasure Chest that 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 1,000 slot machines and 47 table games, including tables for "21," craps and roulette. 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 managed the Silver Star located near Philadelphia, Mississippi. The facility, which opened in July 1994, is located on tribal lands in central Mississippi. The principal markets served by the facility are central Mississippi and Alabama, with the Birmingham, Montgomery and Tuscaloosa metropolitan areas located within approximately 200 miles of the site, as well as the Atlanta metropolitan area. The property includes a 505-room hotel, a casino with approximately 90,000 square feet of gaming space, approximately 3,100 slot machines and 102 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 2,700 parking spaces, and a 36-hole golf course owned and operated by the Mississippi Band of Choctaw Indians. On October 20, 1999, the Company agreed to terminate its management contract with the Mississippi Band of Choctaw Indians prior to the contract's expiration date in June 2001 in exchange for a one-time payment of $72 million. Pursuant to that agreement, the Company ceased management of Silver Star and received the one-time payment on February 1, 2000. 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 approximately 1,100 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 hotel with food and beverage, banquet and meeting facilities. The occupancy rate and average room rate at Par-A-Dice were approximately 90% and $57, respectively, during 1999. 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. On November 10, 1999, the Company acquired Blue Chip, a riverboat casino operation located 60 miles east of Chicago, Illinois and 40 miles west of South Bend, Indiana. The vessel, built on-site in 1997, measures 348 feet long by 80 feet wide, offers over 37,000 square feet of gaming space and can accommodate up to 3,000 passengers. In June 1998, a third deck accommodating 17 table games was added. The first two decks feature 1,332 slot machines and 40 table games, four bars and a players club. The land-based 87,000 square foot pavilion facility includes three large meeting rooms, a Grand Ballroom, an executive board room, entertainment lounge, snack shop, 285-seat buffet and 80-seat gourmet restaurant. In February 2000, the Company completed the construction of a 188-room hotel and a parking facility that is attached to the existing casino complex. 8 9 MIRAGE JOINT VENTURE On May 29, 1996, Mirage Resorts, Incorporated, through a wholly-owned subsidiary (collectively "Mirage") and the Company, through a wholly-owned subsidiary, entered into a joint venture agreement to jointly develop and own a casino hotel entertainment facility in Atlantic City, New Jersey. Certain aspects of the joint venture agreement were subsequently modified into an amended and restated joint venture agreement (the "Agreement") on July 14, 1998. The Agreement provides for a hotel of at least 1,200 rooms and a casino and related amenities (collectively named "The Borgata") adjacent and connected to Mirage's planned wholly-owned resort and contemplates a total cost of $750 million. Any project costs exceeding the $750 million budget shall be funded by the Company without any proportionate increase in the ownership of The Borgata by the Company. The Agreement provides for each party to make an equity contribution of $150 million. Under the Agreement, the Company will contribute $90 million upon Mirage's contribution of the land to the venture, which is expected in the fall of 2000. The Agreement further provides for the venture to arrange $450 million in non-recourse financing for the project. There can be no assurances that The Borgata can be designed or developed for $750 million. In that regard, the Company has recently had discussions with Mirage regarding a possible increase in the size of The Borgata and each partner's required capital contribution and joint venture financing. Funding of the Company's capital contributions to The Borgata is expected to be derived from cash flow from operations, availability under the Company's $600 million credit facility (the "New Bank Credit Facility"), incremental bank financing, or additional debt offerings. 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. In March 2000, The Borgata obtained final approval of its site plan application from the City of Atlantic City Planning Board and it received its CAFRA (Coastal Area Facility Review Act) permit from the New Jersey Department of Environmental Protection, Land Use Regulation Program. Also in March 2000, the Atlantic City Planning Board granted final approval for the onsite roadways and related infrastructure improvements to be constructed by Mirage that will provide access and site circulation for The Borgata. The Company believes that certain highway improvements to permit greater access to the Marina district of Atlantic City will be necessary to support the 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. It is currently expected that construction would take at least two years, although there can be no assurance that The Borgata will be completed on time or within budget. The Borgata, once opened, shall give the Company a presence in Atlantic City, the primary casino gaming market serving the eastern United States. 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 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." 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. 9 10 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; card rooms and internet gaming. 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 1A on March 7, 2000. Proposition 1A gives all California Indian tribes the right to operate a limited number of certain kinds of gaming machines and other forms of casino wagering on California Indian reservations. Proposition 1A 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 22 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 2,600-room Aladdin Hotel and Casino. Each of the foregoing facilities has or may have a theme and attractions that 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 as well as land-based operations and with gaming operations in Louisiana. Gaming has grown rapidly in Tunica County, with ten dockside casinos now in operation, including the Isle of Capri Casinos' facility that opened in 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 Beau Rivage which opened in March 1999 and the new Harrah's land-based casino in downtown New Orleans which opened in late October 1999. 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. Blue Chip competes primarily with other gaming operations in Indiana and Illinois, and, to a lesser extent, with riverboats and dockside gaming facilities in Iowa and Missouri. The Indiana Riverboat Gambling Act authorized ten licenses for riverboat gaming operations, nine of which currently operate in Indiana. Some of these riverboats are being operated with greater experience in the Indiana market and significantly greater financial resources than the Company. In addition, the Pokagon Band of Potawatomi Indians (the "Pokagons"), a federally recognized Indian tribe, has announced its intention to construct a land-based gaming operation in or near the City of New Buffalo, Michigan, which is located less than 15 miles from Blue Chip. Although the Pokagons have several legal and regulatory issues that must be resolved prior to construction of its proposed gaming facility, if such facility is constructed and operated, it could have a negative impact on Blue Chip. There can be no assurance that Blue Chip will compete successfully in the future. 10 11 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 May 29, 1996, the Company entered into an agreement with Mirage, subsequently amended and restated on July 14, 1998, to jointly develop and own a casino hotel entertainment facility in Atlantic City, New Jersey, named The Borgata. The construction and opening of the development 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 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. On January 18, 2000, the Company signed a Memorandum of Understanding (the "Memorandum") with the Narragansett Indian Tribe (the "Narragansetts") to assist in the development and operation of the proposed Narragansett Indian Casino in West Warwick, Rhode Island. The Memorandum provides that the Company's role in this project may include, without limitation, assisting in lobbying efforts, assisting in procurement of project financing, assisting in the design and construction of the project, and potentially participating in the ownership and management of the project. The Company's participation in the project is contingent upon a number of factors, including but not limited to, negotiation of a definitive agreement between the Company and the Narragansetts; approval of legislation by the Rhode Island Legislature and approval of the project by the voters of Rhode Island in a state-wide referendum, both of which are necessary to enable the project to go forward; and negotiation by the Narragansetts of a definitive settlement of the dispute with Capital Gaming Development, Inc. ("Capital") relating to the termination of the management agreement between the Narragansetts and Capital. The Company can make no assurances that this project will go forward or that if the project goes forward that it will be successful. In January 2000, the Company reached an agreement in principle with Nevso, L.L.C. to purchase approximately 18 acres of land in western Las Vegas, Nevada to develop a hotel and casino catering to local market patrons. The purchase of the land and development of the project is subject to a number of contingencies, including but not limited to, the parties reaching a definitive agreement and securing various regulatory and development approvals. The zoning to allow the construction of the project and its use as a locals resort casino was reversed upon administrative appeal and is the subject of litigation. The Company can make no assurances that this project will go forward or that if the project goes forward that it will be successful. The Company, as part of its ongoing strategic planning process, is currently establishing its priorities for future growth. In Nevada, the Company is expanding its Sam's Town Las Vegas property and is exploring opportunities for the development of new properties on other sites in the Las Vegas locals market. Outside of Nevada, the Company continues to monitor acquisition opportunities in many of the newer gaming markets as the industry continues to consolidate. 11 12 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, borrowings from the New Bank Credit Facility, and additional debt financing. If the Company is unable to finance such projects through cash flow from operations, borrowings under its New Bank Credit Facility, and additional debt financing, 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, or modifying the New Bank Credit Facility. 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, 1999, the Company had total consolidated long-term debt, less current maturities, of approximately $982 million, which represents approximately 79% of the total capitalization of the Company as of such date. Debt service requirements on the Company's New Bank Credit Facility primarily consists of interest payments on outstanding indebtedness. The New Bank Credit Facility consists of a $500 million revolver component (the "Revolver") and a $100 million term loan component (the "Term Loan"), both of which mature in June 2003. Availability under the Revolver will be reduced by $15.6 million on December 31, 2001 and at the end of each quarter thereafter until March 31, 2003. The Term Loan is being repaid in increments of $0.25 million per quarter that began on September 30, 1999 and will continue through March 31, 2003. 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 $150 million capital contribution required by the Agreement with borrowings under the New Bank Credit Facility, incremental bank financing, or the issuance of subordinated debt 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." 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. 12 13 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 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 13 14 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 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, at its discretion, require the holder of any debt security of a Registered Corporation to file applications, be investigated and be found suitable to own the debt security of a Registered Corporation. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can be sanctioned, including 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 14 15 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 2001, 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 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. 15 16 ILLINOIS The Company is subject to the jurisdiction of the Illinois gaming authorities as a result of its acquisition of the Par-A-Dice Gaming Corporation d.b.a., Par-A-Dice Riverboat Casino based in East Peoria, Illinois. In February 1990, the State of Illinois legalized riverboat gambling. The Illinois Riverboat Gambling Act (the "Illinois Act") authorizes the five-member Illinois Gaming Board (the "Illinois Board") to issue up to ten riverboat gaming owners' licenses on 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. Pursuant to the initial Illinois Act, a licensed owner who holds greater than a 10% interest in one riverboat operation, could hold no more than a 10% interest in any other riverboat operation. In addition, the initial Illinois Act restricted the location of certain of the ten owners' licenses. Four of the licenses were to be located on the Mississippi River, one license was to be at a location on the Illinois River south of Marshall County and one license had to be located on the Des Plaines River in Will County. The remaining licenses were not restricted as to location. Currently, nine owner's licenses are in operation in Alton, Aurora, East Peoria, East St. Louis, Elgin, Metropolis, Rock Island and two licenses in Joliet. The tenth license, which was initially granted to an operator in East Dubuque, was not renewed by the Illinois Board and has been the subject of on-going litigation. Furthermore, under the initial Illinois Act, no gambling could be conducted while a riverboat was docked. A gaming excursion could last no more than four hours, and a gaming excursion was deemed to have started when the first passenger boarded a riverboat. Gaming could continue during passenger boarding for a period of up to 30 minutes. Gaming was also allowed for a period of up to 30 minutes after the gangplank or its equivalent was lowered, thereby allowing passengers to exit the riverboat. During the 30-minute exit time period, new passengers were not allowed to board the riverboat. Although riverboats were mandated to cruise, there were certain exceptions. If a riverboat captain reasonably determined that either it was unsafe to transport passengers on the waterway due to inclement weather or the riverboat had been rendered temporarily inoperable by unforeseeable mechanical or structural difficulties or river icing, the riverboat could remain dockside or return to the dock. In those situations, a gaming excursion could commence or continue while the gangplank or its equivalent was raised and remained raised, in which event the riverboat was not considered docked. If a gaming excursion had to begin or continue with the gangplank or its equivalent raised, and the riverboat did not leave the dock, entry of new patrons on to the riverboat was prohibited until the completion of the excursion. In June of 1999, amendments to the Illinois Act (the "Amended Illinois Act") were passed by the legislature and signed into law by the Governor. The Amended Illinois Act redefined the conduct of gaming in the state. Pursuant to the Amended Illinois Act, riverboats can conduct gambling without cruising, and passengers can enter and leave a riverboat at any time. In addition, riverboats may now be located upon any water within Illinois, and not just navigable waterways. There is no longer any prohibition of a riverboat being located in Cook County. Riverboats are now defined as self-propelled excursion boats or permanently moored barges. The Amended Illinois Act requires that only three, rather than four owner's licenses, be located on the Mississippi River. The 10% ownership prohibition has also been removed. Therefore, subject to certain Illinois Board rules, individuals or entities could own more than one riverboat operation. The Amended Illinois Act also allows for the relocation of a riverboat home dock. A licensee that was not conducting riverboat gambling on January 1, 1998, may apply to the Illinois Board for renewal and approval of relocation to a new home dock and the Illinois Board shall grant the application and approval of the new home dock upon the licensee providing to the Illinois Board authorization from the new dockside community. Pursuant to the Amended Illinois Act, the former owner and operator of the East Dubuque riverboat has applied for renewal of its license and to relocate its operation to Rosemont, Illinois. Any licensee that relocates in accordance with the provisions of the Amended Illinois Act, must attain a level of at least 20% minority ownership of such a gaming operation. The constitutionality of the Amended Illinois Act has been challenged and is currently the subject of litigation. There is no assurance that the Amended Illinois Act will be upheld as constitutional. If the Amended Illinois Act is deemed unconstitutional, all of the new provisions would no longer be in effect. Specifically, in that situation, riverboats would have to return to cruising in order to conduct gaming. The Illinois Act strictly regulates the facilities, persons, associations and practices related to gaming operations. The Illinois Act grants the Illinois 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 Board has authority over every person, association, corporation, partnership and trust involved in riverboat gaming operations in the State of Illinois. The Illinois Act requires the owner of a riverboat gaming operation to hold an owner's license issued by the Illinois Board. Each owner's license permits the holder to own up to two riverboats, however, gaming participants are limited to 1,200 for any owner's 16 17 license. The number of gaming participants will be determined by the number of gaming positions available. Gaming positions are counted as follows: electronic gaming devices positions will be determined as 90% 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. Each owner's license initially runs for a period of three years. Thereafter, the license must be renewed annually. Under the Amended Illinois Act, the Board may renew an owner's license for up to four years. An owner licensee is eligible for renewal upon payment of the applicable fee and a determination by the Illinois Board that the licensee continues to meet all of the requirement of the Illinois Act and Illinois Board rules. The owner's license for Par-A-Dice Riverboat Casino initially expired in February 1995. Since that time, the license has been renewed annually, with the most recent renewal approved by the Illinois Board in March of 2000. An ownership interest in an owner's license may not be transferred or pledged as collateral without the prior approval of the Illinois Board. Pursuant to the Amended Illinois Act, which lifted the 10% ownership prohibition, the Illinois Board established certain rules to effectuate this statutory change. In deciding whether to approve direct or indirect ownership or control of an owner's license, the Illinois Board shall consider the impact of any economic concentration of the ownership or control. No direct or indirect ownership or control shall be approved which will result in undue economic concentration of the ownership of a riverboat gambling operation in Illinois. Undue economic concentration means that a person or entity would have actual or potential domination of riverboat gambling in Illinois sufficient to: substantially impede or suppress competition among holders of owner's licenses; adversely impact the economic stability of the riverboat casino industry in Illinois; or negatively impact the purposes of the Illinois Act, including tourism, economic development, benefits to local communities, and State and local revenues. The Illinois Board will consider the following criteria in determining whether the approval of the issuance, transfer or holding of a license will create undue economic concentration: the percentage share of the market presently owned or controlled by the person or entity; the estimated increase in the market share if the person or entity is approved to hold the owner's license; the relative position of other persons or entities that own or control owner's licenses in Illinois; the current and projected financial condition of the riverboat gaming industry; current market conditions, including proximity and level of competition, consumer demand, market concentration, and any other relevant characteristics of the market; whether the license to be approved has separate organizational structures or other independent obligations; the potential impact on the projected future growth and development of the riverboat gambling industry, the local communities in which licenses are located, and the State of Illinois; the barriers to entry into the riverboat gambling industry and if the approval of the license will operate as a barrier to new companies and individuals desiring to enter the market; whether the approval of the license is likely to result in enhancing the quality and customer appeal of products and services offered by riverboat casinos in order to maintain or increase their respective market shares; whether a restriction on the approval of the additional license is necessary in order to encourage and preserve competition in casino operations; and any other relevant information. The Illinois Act does not limit the maximum bet or per patron loss. Minimum and maximum wagers on games are set by the owner licensee. 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%. As admission tax is imposed on the owner of a riverboat operation. Under the Amended Illinois Act, a $2.00 admission tax is imposed for each admission to a riverboat casino. Additionally, a wagering tax is imposed on the adjusted gross receipts, as defined in the Illinois Act, of a riverboat operation. Currently, the wagering tax is as follows: 15% of adjusted gross receipts up to and including $25,000,000; 20% of adjusted gross receipts in excess of $25,000,000 but not exceeding $50,000,000; 25% of adjusted gross receipts in excess of $50,000,000 but not exceeding $75,000,000; and 30% of adjusted gross receipts in excess of $75,000,000 but not exceeding $100,000,000; and 35% of adjusted gross receipts in excess of $100,000,000. The owner licensee is required, on a daily basis, to wire the wagering tax payment to the Illinois Board. In addition to owner's licenses, the Illinois Board also requires licensing for all vendors of gaming supplies and equipment and for all employees of a riverboat gaming operation. The Illinois Board is authorized to conduct investigations into the conduct of gaming and into alleged violations of the Illinois Act and the Illinois Board rules. Employees and agents of the Illinois Board have access to and may inspect any facilities relating to the riverboat gaming operation. A holder of any license is subject to imposition of fines, suspension or revocation of such license, or other action for any act or failure to act by himself or his agents or employees, that is injurious to the public health, safety, morals, good order and general welfare of the people of the State of 17 18 Illinois, or that would discredit or tend to discredit the Illinois gaming industry or the State of Illinois. Any riverboat operations not conducted in compliance with the Illinois Act may constitute an illegal gaming place and consequently may be subject to criminal penalties, which penalties include possible seizure, confiscation and destruction of illegal gaming devices and seizure and sale of riverboats and dock facilities to pay any unsatisfied judgment that may be recovered and any unsatisfied fine that may be levied. The Illinois Act also provides for civil penalties, equal to the amount of gross receipts derived from wagering on the gaming, whether unauthorized or authorized, conducted on the day of any violation. The Illinois Board may revoke or suspend licenses, as the Illinois Board may see fit and in compliance with applicable laws of the State of Illinois regarding administrative procedures and may suspend an owner's license, without notice or hearing, upon a determination that the safety or health of patrons or employees is jeopardized by continuing a riverboat's operation. The suspension may remain in effect until the Illinois Board determines that the cause for suspension has been abated and it may revoke the owner's license upon a determination that the owner has not made satisfactory progress toward abating the hazard. The Illinois Board requires that a "Key Person" of an owner licensee submit a Personal Disclosure or Business Entity Form and be investigated and approved by the Illinois Board. The Illinois 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, Key Person shall include: any Business Entity and any individual with an ownership interest or voting rights of more that 5% 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 licensees Table of Organization, Ownership and Control the Board determines hold a position or a level of ownership, control or influence this is material to the regulatory concerns and obligations of the Illinois 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"). The Table shall identify in sufficient detail 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 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% of the voting shares of the entity, to the extent such information is known or contained in Schedule 13D or 13G of 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% of the voting shares of the entity; and any trust holding more than 5% ownership or voting interest in the Company, to the extent such information is known or contained in Schedule 13D or 13G of Securities and Exchange Commission filings. The Table 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 or 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. 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 18 19 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. The owner licensee shall notify the Administrator as soon as possible after it becomes aware that it or its parent is involved in an ownership acquisition by an Institutional Investor. The Institutional Investor also has an obligation to notify the Administrator of its ownership interest. In addition to Institutional Investor Disclosure Forms, certain other forms may be required to be submitted to the Illinois Board. An owner-licensee must submit a Marketing Agent Form to the Illinois Board for each Marketing Agent with whom it intends to do business. A Marketing Agent is a person or entity, other than a junketeer or an employee of a riverboat gaming operation, who is compensated by the riverboat gaming operation in excess of $100 per patron per trip for identifying and recruiting patrons. Key Persons of owner-licensees must submit Trust Identification Forms for trusts, excluding land trusts, for which they are a grantor, trustee or beneficiary each time such a trust relationship is established, amended or terminated. Applicants for and holders of an owner's license are required to obtain formal approval from the Illinois Board for changes in the following areas: (i) Key Persons; (ii) type of entity; (iii) equity and debt capitalization of the entity; (iv) investors and/or debt holders; (v) source of funds; (vi) applicant's economic development plan; (vii) riverboat capacity or significant design change; (viii) gaming positions, (ix) anticipated economic impact; or (x) agreements, oral or written, relating to the acquisition or disposition of property (real or personal) of a value greater than $1 million. A holder of an owner's license is allowed to make distributions to its stockholders only to the extent that such distribution would not impair the financial viability of the gaming operation. Factors to be considered by the licensee will include but not be limited to the following: (i) cash flow, casino cash and working capital requirements; (ii) debt service requirements obligations and covenants associated with financial instrument; (iii) requirements for repairs and maintenance and capital improvements; and (iv) employment or economic development requirements of the Act; and (v) a licensee's financial projections. The Illinois Board may waive any licensing requirement or procedure provided by rule if it determines that such waiver is in the best interests of the public and the gaming industry. Also, the Illinois Board may, from time to time, amend or change its rules. From time to time, various proposals have been introduced in the Illinois legislature that, if enacted, would affect the taxation, regulation, operation or other aspects of the gaming industry or the Company. Some of this legislation, if enacted, could adversely affect the gaming industry or the Company. No assurance can be given whether such or similar legislation will be enacted. Uncertainty exists regarding the Illinois gambling regulatory environment due to limited experience in interpreting the Illinois Act. NEW JERSEY On April 27, 1997, Boyd Atlantic City, Inc. ("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. 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 MDDC 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. 19 20 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 NJCCC is empowered under the Casino Control Act to regulate a wide spectrum of gaming and nongaming related activities and to approve the form of ownership and financial structure of not only a casino licensee, but also its entity qualifiers and intermediary and holding companies. 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, mortgagors, bond holders and holders of notes or other evidence of indebtedness, either in effect or proposed, which bears any relation to the casino project, publicly-traded securities of an entity which holds a casino license or is an entity qualifier, subsidiary, or holding company of a casino licensee (a "Regulated Company"), to qualify as financial sources. An institutional investor ("Institutional Investor") is defined by the Casino Control Act as any retirement fund administered by a public agency for the exclusive benefit of federal, state, or local public employees; investment company registered under the Investment Company Act of 1940; collective investment trust organized by banks under Part Nine of the Rules of the Comptroller of the Currency; closed end investment trust; chartered or licensed life insurance company or property and casualty insurance company; banking and other chartered or licensed lending institution; investment advisor registered under the Investment Advisers Act of 1940; and such other persons as the NJCCC may determine for reasons consistent with the policies of the Casino Control Act. 20 21 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. 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. 21 22 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 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 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. 22 23 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. 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 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 the Commission and replaced it 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- 23 24 officio members (including the Secretary of Revenue and Taxation and the superintendent of Louisiana State Police). It is domiciled in Baton Rouge and regulates riverboat gaming, the land-based casino in New Orleans and video poker. The Attorney General acts as legal counsel to the Gaming Control Board as he did for the Commission. Any material alteration in the method whereby riverboat gaming is regulated in the State of Louisiana could have an adverse effect on the operations of the Treasure Chest. The Louisiana legislature also passed legislation requiring each parish (county) where riverboat gaming is currently authorized to hold an election in order for the voters to decide whether riverboat gaming will remain legal in that parish. The Treasure Chest is located in Jefferson Parish, Louisiana. Jefferson Parish approved riverboat gaming at the special election held on November 6, 1996. The Riverboat Act approved the conducting of gaming activities on a riverboat, in accordance with the Riverboat Act, on twelve separate waterways in Louisiana. The Riverboat Act allows the Gaming Control Board to issue up to 15 licenses to operate riverboat gaming projects within the state, with no more than six in any one parish. There are presently 14 licenses issued and 13 riverboats operating. Pursuant to the Riverboat Act and the regulations promulgated thereunder, each applicant which desired to operate a riverboat casino in Louisiana was required to file a number of separate applications for a Certificate of Preliminary Approval, all necessary gaming licenses and a Certificate of Final Approval. No final Certificate was issued without all necessary and proper certificates from all regulatory agencies including the U.S. Coast Guard, the U.S. Army Corps of Engineers, local port authorities and local levee authorities. The Treasure Chest project application for a Certificate of Preliminary Approval was filed by Treasure Chest Casino, L.L.C., the owner of 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 original Louisiana riverboat gaming license of Treasure Chest was valid for five years and was to 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 the entity that previously owned an 85% interest in the 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. Although 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 has indicated 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 a 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. In 1999, Copeland brought an action against Treasure Chest in an effort to have Treasure Chest's license revoked and transferred to Copeland. The suit is presently stayed pending the criminal investigation and trial referred to above. 24 25 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 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. 25 26 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 February 1, 2000, 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 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 several 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. 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 transferable, are issued for a three-year period and may be continued for two additional three-year periods prior to renewal. Sam's Town Tunica's current gaming license expires in December of 2001. 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. 26 27 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 15% 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 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. 27 28 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 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 decides 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 28 29 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 regulation grandfathers existing licensees and applies 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. 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, in three separate instances, 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. All three of the proposed referenda have been ruled illegal by Mississippi state trial court judges because, among other reasons, each of the proposed referenda failed to include required information regarding the anticipated effect of such a ban on government revenues. The proponents of the most recent referendum filed a notice of appeal of the trial court ruling with the Mississippi Supreme Court, requesting expedited action on the matter. On March 13, 2000, a panel of the Mississippi Supreme Court heard oral argument with respect to the matter, but had not yet ruled on the issue raised in the appeal. 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 the 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 2002. 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 and its Mississippi gaming operations. INDIANA The Indiana Riverboat Gaming Act ("Indiana Act") was passed in 1993 and authorizes the issuance of up to eleven Riverboat Owner's Licenses to be operated from counties that are contiguous to the Ohio River, Lake Michigan and Patoka Lake. As of February 2000, nine riverboats were operating, five in counties contiguous to Lake Michigan and four in counties contiguous to the Ohio River. A Certificate of Suitability, the precursor to a Riverboat Owner's License, has been issued to an operator. The tenth riverboat is projected to commence operations in a county contiguous to the Ohio River in the fall of 2000. The Indiana Gaming Commission, the regulatory body with jurisdiction over Indiana riverboats, has not considered applications for a Riverboat Owner's License to be sited in a county contiguous to Patoka Lake since Patoka Lake is a project of the U.S. Army Corps of Engineers ("Corps") and the Corps has determined Patoka Lake is unsuitable for a riverboat project. The Indiana Act and rules promulgated thereunder provide for the strict regulation of the facilities, persons, associations and practices related to gaming operations. The Indiana Act vests the seven member Indiana Gaming Commission with the power and duties of administering, regulating and enforcing riverboat gaming in Indiana. The Indiana Gaming Commission's jurisdiction extends to every person, association, corporation, partnership and trust involved in any riverboat gaming operation located in the State of Indiana. The Indiana Act requires that the owner of a riverboat gambling operation hold a Riverboat Owner's License issued by the Indiana Gaming Commission. The applicants for a Riverboat Owner's License must submit a comprehensive application and the substantial owners and key persons must submit personal disclosure forms. The company, substantial owners and key persons must undergo an exhaustive background investigation prior to the issuance of a Riverboat Owner's License. A person who owns or will own five 29 30 percent of a Riverboat Owner's License must automatically undergo the background investigation. The Indiana Gaming Commission may investigate any person with any level of ownership interest. If the Riverboat Licensee is a publicly-traded corporation, its Articles of Incorporation must contain language concerning transfer of ownership, suitability determinations and possible divestiture of ownership. A Riverboat Owner's License entitles the licensee to operate one riverboat. A person licensed to hold more than ten percent of one Indiana riverboat gambling operation may only hold up to ten percent of a second Indiana riverboat gambling operation. All riverboats must comply with applicable federal and state laws including, but not limited to, U.S. Coast Guard regulations. Each riverboat must be certified to carry at least five hundred passengers and be at least one hundred fifty feet in length. Those riverboats located in counties contiguous to the Ohio River must replicate historic Indiana steamboat passenger vessels of the nineteenth century. The Indiana Act does not limit the number of gaming positions allowed on each riverboat. The only limitation on the number of permissible patrons allowed is established by the U.S. Coast Guard Certificate of Inspection in the specification of the riverboat's capacity. The Indiana Gaming Commission, after consultation with the Corps may determine those navigable waterways located in counties contiguous to Lake Michigan or the Ohio River, that are suitable for riverboats. If the Corps rescinds approval for the operation of a riverboat gambling facility, the Riverboat Owner's License issued by the Indiana Gaming Commission is void and the Riverboat Licensee may not commence or must cease conducting gambling operations. Rules promulgated by the Indiana Gaming Commission require that employees working on a riverboat docked on the waters of Lake Michigan hold a merchant marine document from the U.S. Coast Guard. Employees whose duties consist of operating or navigating the riverboat must hold the appropriate licenses and a merchant marine document from the U.S. Coast Guard. The initial Riverboat Owner's License runs for a period of five years. Thereafter, the license is subject to renewal on an annual basis upon a determination by the Indiana Gaming Commission that it continues to be eligible to hold a Riverboat Owner's License pursuant to the Indiana Act and rules promulgated thereunder. After the expiration of the initial license, each Riverboat Licensee undergoes a complete re-investigation every three years, but the Indiana Gaming Commission reserves the right to investigate Riverboat Licensees at any time it deems necessary. The initial license was issued to Blue Chip Casino, Inc., the predecessor to Blue Chip Casino, LLC, in August of 1997 and will remain valid until August of 2002. Thus, unless otherwise deemed necessary, Blue Chip Casino, LLC will undergo its first re-investigation in 2002. Riverboat licensees may apply for and hold all other licenses necessary for the operation of a riverboat gambling operation, including, but not limited to, alcoholic beverage licenses and food preparation licenses. The Riverboat Owner's License may not be leased, hypothecated or have money borrowed or loaned against it. An ownership interest in a Riverboat Owner's License may only be transferred in accordance with the Indiana Act and rules promulgated thereunder. The Indiana Act does not limit the amount a patron may bet or lose. Minimum and maximum wagers for each game are set by the Riverboat Licensee. Wagering may not be conducted with money or other negotiable currency. No person under the age of 21 is permitted to wager on or be present on a riverboat. Wagers may only be taken from a person present on the riverboat. All electronic gaming devices must pay out between eighty and one hundred percent of the amount wagered. Unless otherwise approved by the Indiana Gaming Commission, gambling excursions are required to be a minimum of two hours and a maximum of four hours. A gambling excursion begins when patrons are allowed ingress to the vessel if gambling is allowed during that period. A gambling excursion continues during patron disembarkation if gambling is allowed during that period. Patron embarkation and disembarkation periods each last thirty minutes. During the patron disembarkation period, new patrons are not allowed to board the riverboat. Except for the patron embarkation and disembarkation periods, dockside gambling may not be conducted unless the master of the riverboat certifies, in writing, that one of the following conditions exists: (1) weather or water conditions present a danger to the riverboat, its passengers and crew; (2) the vessel or docking facility is being repaired; (3) traffic conditions present a danger to the riverboat, its passengers and crew or other vessels; or (4) cruising would result in a violation of federal law. The riverboat is to commence cruising once the condition has been corrected. If the vessel remains dockside due to one of the conditions listed above, patrons are only allowed access to the riverboat during the thirty-minute embarkation period. The Indiana Act imposes a 20% wagering tax on adjusted gross receipts received from gaming. The wagering tax is to be paid by the Riverboat Licensee to the Indiana Department of Revenue before the close of the business day following the day the wagers are made. 30 31 The Indiana Act requires that Riverboat Licensees pay a $3.00 admission tax for each person admitted to a gambling excursion. The Indiana Act provides for the suspension or revocation of a license whose owner does not timely submit the admission tax. Riverboats licensed by the Indiana Gaming Commission are assessed as real property for property tax purposes and, thus, are taxed at rates determined by local taxing authorities. All Indiana state excise taxes, use taxes and gross retail taxes apply to sales made on a riverboat. The Indiana Gaming Commission is authorized to conduct investigations into gambling games, the maintenance of equipment, and violations of the Act as it deems necessary. The Indian Gaming Commission may subject a Riverboat Licensee to fines, suspension or revocation of its license for any conduct that violates the Indiana Act, rules promulgated thereunder or that constitutes a fraudulent act. A Riverboat licensee must post a bond during the period of the initial five-year license in an amount the Indiana Gaming Commission deems will reflect the amount a local community will expend for infrastructure and other facilities associated with the riverboat gambling operation and that may be used as payment to the local community, the state and other aggrieved parties. The bond must be payable to the Indiana Gaming Commission as obligee. The bond may be reduced during the five-year period of the initial license as the Riverboat Licensee fulfills its obligations. The Riverboat Licensee must carry insurance in types and amounts as required by the Indiana Gaming Commission. A Riverboat Licensee may not enter into or perform any contract or transaction in which it transfers or receives consideration that is not commercially reasonable or that does not reflect the fair market value of goods and services rendered or received. All contracts are subject to disapproval by the Indiana Gaming Commission and contracts should reflect the potential for disapproval. The Indiana Act places special emphasis on minority and women business enterprise participation in the riverboat industry. Riverboat licensees must establish goals of expending ten percent of the total dollars spent on goods and services with minority business enterprises and five percent with women business enterprises. Riverboat Licensees may be subject to a disciplinary action for failure to meet the minority and women business enterprise expenditure goals. A Riverboat Licensee or affiliate may not enter into a debt transaction without the prior approval of the Indiana Gaming Commission. Debt transaction means any transaction that will result in the encumbrance of assets. Unless waived, approval of debt transactions requires consideration by the Indiana Gaming Commission at two business meetings. Rules promulgated by the Indiana Gaming Commission require the reporting of currency transactions to the Indiana Gaming Commission after the transactions are reported to the federal government. Indiana rules also require that Riverboat Licensees track and maintain logs of transactions that exceed $3,000. The Indiana Gaming Commission has promulgated a rule that prohibits distributions, excluding distributions for the payment of taxes, by a Riverboat Licensee to its partners, shareholders, itself or any affiliated entity if the distribution would impair the financial viability of the riverboat gaming operation. The Indiana Gaming Commission has also promulgated a rule mandating Riverboat Licensees to maintain a cash reserve to protect patrons against defaults in gaming debts. The cash reserve is to be equal to a Riverboat Licensee's average payout for a three-day period based on the riverboat's performance the prior calendar year. The cash reserve can consist of cash on hand, cash maintained in Indiana bank accounts and cash equivalents not otherwise committed or obligated. The Indiana Act prohibits contributions to a candidate for a state legislative or local office or to a candidate's committee or to a regular party committee by: (1) a person who owns at least one percent of Riverboat Licensee; (2) a person who is an officer of a Riverboat Licensee; (3) a person who is an officer of a person that owns at least one percent of a Riverboat Licensee; or (4) a person who is a political action committee of a Riverboat Licensee. The prohibition against political contribution extends for three years following a change in the circumstances that resulted in the prohibition. Various bills concerning riverboat gaming were introduced during the current session of the Indiana General Assembly. These bills cover dockside gaming, an increase in the amounts to be expended with minority and women owned businesses and allowing ownership of two Riverboat Owner's Licenses and up to ten percent of a third Riverboat Owner's License. On October 25, 1996, a lawsuit was filed in Harrison County, Indiana, by three individuals against the State of Indiana, the 108th Indiana General Assembly, the Indiana Gaming Commission and the individual members of the Indiana Gaming Commission. The 31 32 lawsuit challenged the constitutionality of the Indiana Act on the grounds that: (1) it allegedly created an unequal privilege since numerous city or county elections may be required to defeat riverboat gambling while only one election is required to approve riverboat gambling; and (2) it was enacted as a provision attached to a state budget bill allegedly in violation of an Indiana constitutional provision that legislative acts be confined to one subject and to matters properly connected to that subject. The judge in the case dismissed the lawsuit on June 10, 1999. The plaintiffs have filed an appeal and the matter is now pending before the Indiana Court of Appeals. Individuals employed on a riverboat and in certain positions must hold an occupational license issued by the Indiana Gaming Commission. Suppliers of gaming equipment and gaming or revenue tracking services must hold a supplier's license issued by the Indiana Gaming Commission. Riverboat Licensees who employ non-licensed individuals in positions requiring licensure or who purchase supplies from a non-licensed entity may be subject to a disciplinary action. 32 33 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, Par-A-Dice and Blue Chip riverboats, could be significant. The loss of a dockside casino or riverboat casino from service for any period of time could adversely affect the Company's business, financial condition and results of operations. CONTROL BY BOYD FAMILY William S. Boyd, Chairman and Chief Executive Officer of the Company, together with his immediate family, beneficially owned approximately 50% of the outstanding shares of Common Stock of the Company as of December 31, 1999. 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. RELIANCE ON CERTAIN MARKETS The California, Fremont and Main Street Station derive a substantial portion of their customers from the Hawaiian market. During the year ended December 31, 1999, patrons from Hawaii comprised approximately 70% of the room nights at the California, 56% at the Fremont and 47% 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 1A on March 7, 2000. Proposition 1A gives all California Indian tribes the right to operate a limited number of certain kinds of gaming machines and other forms of casino wagering on California Indian reservations. Proposition 1A 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. Par-A-Dice draws customers not only from the greater Peoria area but also from Chicago, Indiana, Iowa and Missouri. Blue Chip draws patrons primarily from Indiana, Southern Michigan and the Chicago area. 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, 1999, the Company employed approximately 15,400 persons. On such date, the Company had collective bargaining relationships with eleven unions covering approximately 1,800 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 33 34 expired and are in various stages of negotiation. Employees covered by expired agreements have continued to work during the negotiations, in some cases under the terms of the expired agreements and in others under modifications thereof. ITEM 2. PROPERTIES The following table sets forth certain information regarding the properties owned or operated by the Company as of December 31, 1999.
YEAR BUILT CASINO SPACE SLOT TABLE HOTEL LAND OR ACQUIRED (SQ. FT.) MACHINES GAMES ROOMS RESTAURANTS (ACRES) ----------- ------------ -------- ----- ----- ----------- ------- LAS VEGAS STRIP Stardust Resort and Casino 1985 75,000 1,623 79 1,506 6 61 BOULDER STRIP Sam's Town Las Vegas 1979 118,000 2,950 48 648 12 63 Eldorado Casino 1993 16,000 599 11 -- 3 4 Jokers Wild Casino 1993 22,500 635 11 -- 2 13 DOWNTOWN LAS VEGAS California Hotel and Casino 1975 36,000 1,109 35 781 5 16 Fremont Hotel and Casino 1985 32,000 1,114 26 447 5 2 Main Street Station Casino, Brewery and Hotel 1993 28,500 916 22 406 3 15 CENTRAL REGION Sam's Town Tunica 1994 75,000 1,586 65 843 5 150 Silver Star Resort and Casino 1994 90,000 3,136 102 505 6 20 Treasure Chest Casino 1994 24,000 1,045 47 -- 4 -- Par-A-Dice Hotel and Casino 1996 33,000 1,091 36 208 3 19 Blue Chip Casino 1999 37,400 1,332 57 -- 3 32 ------- ------ ----- ----- --- --- Total 587,400 17,136 539 5,344 57 395 ======= ====== ===== ===== === ===
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. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the non-director executive officers of Boyd Gaming Corporation as of February 29, 2000:
NAME AGE POSITION - ---- --- -------- Ellis Landau................... 56 Executive Vice President, Chief Financial Officer and Treasurer Keith E. Smith................. 39 Executive Vice President -- Operations James W. Hippler............... 53 Senior Vice President -- Administration Brian A. Larson................ 44 Senior Vice President and General Counsel Charles E. Huff................ 54 Vice President, Secretary and Senior Gaming Counsel
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. 34 35 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. 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. 35 36 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. HIGH LOW ----- ----- 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............................. 4 13/16 3 1/16 Second Quarter............................ 7 3/8 4 1/8 Third Quarter............................. 7 3/16 4 7/8 Fourth Quarter............................ 7 3/16 5 1/2 2000 First Quarter (through February 29, 2000). 6 4 7/8 On February 29, 2000, the closing sales price of the Common Stock on the NYSE was $5.19 per share. On that date, the Company had approximately 2,292 holders of record of its Common Stock. The Company has not paid any cash dividends on its Common Stock to date. The Company currently anticipates that it will retain future earnings to fund the development and growth of its business and does not anticipate paying any cash dividends in the foreseeable future. Restrictions imposed by commercial lenders and note holders may also limit the ability of the Company to pay cash dividends. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below as of December 31, 1999 and 1998 and for the two years in the period ended December 31, 1999, the six month period ended December 31, 1997 and for the fiscal year ended June 30, 1997, 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 December 31, 1997, and June 30, 1997 and 1996 and as of and for the fiscal years ended June 30, 1996 and 1995 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. 36 37
SIX MONTH YEAR ENDED PERIOD FISCAL YEAR ENDED DECEMBER 31, ENDED JUNE 30, ------------------------- DECEMBER 31, ------------------------------------ 1999 1998 1997 1997 1996 1995 ----------- ---------- ----------- ----------- --------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA Net revenues ................................ $ 987,041 $ 975,096 $ 455,771 $ 819,259 $ 775,857 $660,340 Operating expense(a) ........................ 850,430 851,408 397,625 863,685 675,071 549,770 ----------- ---------- ----------- ----------- --------- -------- Operating income (loss) ..................... 136,611 123,688 58,146 (44,426) 100,786 110,570 Interest expense, net(b) .................... 68,977 73,797 37,310 61,022 51,186 46,371 Income (loss) before provision (benefit) for income taxes, cumulative effect of a change in accounting principle and extraordinary items ....................... 67,634 49,891 20,836 (105,448) 49,600 64,199 Provision (benefit) for income taxes ........ 27,595 21,291 8,736 (34,025) 20,021 27,950 ----------- ---------- ----------- ----------- --------- -------- Income (loss) before cumulative effect of a change in accounting principle and extraordinary items ......... 40,039 28,600 12,100 (71,423) 29,579 36,249 Cumulative effect of a change in accounting for start-up activities, net of tax ................................ (1,738) -- -- -- -- -- ----------- ---------- ----------- ----------- --------- -------- Income (loss) before extraordinary items ..................................... 38,301 28,600 12,100 (71,423) 29,579 36,249 Extraordinary items, net of tax ............. -- -- (7,240) (6,069) (1,435) -- ----------- ---------- ----------- ----------- --------- -------- Net income (loss) ........................... $ 38,301 $ 28,600 $ 4,860 $ (77,492) $ 28,144 $ 36,249 =========== ========== =========== =========== ========= ======== 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 ....... $ 0.65 $ 0.46 $ 0.20 $ (1.19) $ 0.52 $ 0.64 Cumulative effect of a change in accounting for start-up activities, net of tax .............................. (0.03) -- -- -- -- -- Extraordinary items ....................... -- -- (0.12) (0.10) (0.03) -- ----------- ---------- ----------- ----------- --------- -------- Net income (loss) ......................... $ 0.62 $ 0.46 $ 0.08 $ (1.29) $ 0.49 $ 0.64 =========== ========== =========== =========== ========= ======== Dividends on Common Stock ................. -- -- -- -- -- -- Weighted average common shares: Basic ................................... 62,124 61,749 61,525 60,248 57,058 56,870 Diluted ................................. 62,293 61,850 61,786 60,248 57,058 56,870 OTHER OPERATING DATA Depreciation and amortization ............... $ 74,118 $ 73,407 $ 35,097 $ 67,242 $ 60,626 $ 54,518 Preopening expense .......................... 1,489 -- -- 3,481 10,004 -- Capital expenditures ........................ 96,888 70,848 17,816 99,207 90,977 183,299
DECEMBER 31, JUNE 30, --------------------------------------- ------------------------------------ 1999 1998 1997 1997 1996 1995 ----------- ---------- ----------- ----------- --------- -------- BALANCE SHEET DATA Total assets ................................ $ 1,443,981 $1,146,256 $ 1,152,415 $ 1,030,185 $ 953,425 $949,513 Long-term debt (excluding current maturities) 982,149 774,890 842,932 739,792 590,808 587,957 Stockholders' equity ........................ 266,979 227,306 197,141 191,316 233,257 202,613
- ---------- (a) Includes $5,925 and $131,339 of impairment and restructuring charges recorded during the year ended December 31, 1998 and the fiscal year ended June 30, 1997, respectively. See Note 4 to Notes to Consolidated Financial Statements. (b) Net of interest income and amounts capitalized. 37 38 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, the Company's wholly-owned travel agency which operates for the benefit of the Downtown casino properties; and "Central Region Properties" consist of Sam's Town Tunica, Sam's Town Kansas City (closed in July 1998), Par-A-Dice (acquired December 1996), Blue Chip (acquired November 1999), 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.
TWELVE MONTH YEAR ENDED PERIOD SIX MONTHS ENDED DECEMBER 31, ENDED DECEMBER 31, ------------------- DECEMBER 31, ------------------- 1999 1998 1997 1997 1996 -------- -------- -------- -------- -------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS) Net revenues Stardust .................. $148,321 $162,628 $172,723 $ 83,626 $ 91,290 Boulder Strip Properties... 186,354 192,021 189,666 93,419 96,757 Downtown Properties (a).... 218,800 207,510 187,020 96,369 76,679 Central Region Properties.. 433,566 412,937 341,463 182,357 119,432 -------- -------- -------- -------- -------- Total properties.... $987,041 $975,096 $890,872 $455,771 $384,158 ======== ======== ======== ======== ======== Operating income Stardust .................. $ 2,182 $ 10,326 $ 17,725 $ 6,981 $ 8,342 Boulder Strip Properties... 20,631 24,690 25,812 10,464 11,419 Downtown Properties ....... 22,735 13,390 4,715 1,574 5,623(b) Central Region Properties.. 121,538 102,932(c) 90,496(c) 49,343 21,781 -------- -------- -------- -------- -------- Total properties.... $167,086 $151,338 $138,748 $ 68,362 $ 47,165 ======== ======== ======== ======== ========
- ---------------- (a) Includes revenues related to Vacations Hawaii, a Honolulu Travel Agency, of $37,522, $32,341 and $27,240, respectively, for the years ended December 31, 1999 and 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 for the fiscal year ended June 30, 1997. (b) Before preopening expense. (c) Before impairment and restructuring charges. YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998 REVENUES Consolidated net revenues increased 1.2% during the year ended December 31, 1999 compared to the year ended December 31, 1998. Company-wide casino revenue increased 1.6%, food and beverage revenue declined 2.6% and room revenue declined 3.6%. Net revenues from the Stardust, Boulder Strip Properties and Downtown Properties (the "Nevada Region") decreased 1.5% during 1999 compared to 1998 due to a 5.4% increase at the Downtown Properties, offset by declines of 8.8% at the Stardust and 3.0% at the Boulder Strip Properties. The decline in net revenues at the Stardust is attributable in part to increased competition on the Las Vegas Strip as well as construction disruption related to its year-long renovation project that was substantially completed by the end of 1999. The decline in net revenues at the Boulder Strip Properties is attributable to the competitive environment on the Boulder Strip as well as construction disruption experienced at Sam's Town Las Vegas related to its $86 million renovation and expansion project that began in August 1999. Net revenues in the Central Region increased 5.0% during the year ended December 31, 1999 compared to the year ended December 31, 1998. The increase is attributable, in part, to the acquisition of Blue Chip Casino on November 10, 1999, a 15.6% increase at Par-A-Dice due to the change to dockside operations which began on June 26, 38 39 1999, and an 18.0% increase from Silver Star due mainly to the July 1, 1999 increase in the management fee percentage from 30% to 40% of operating income. On January 31, 2000, the management contract for Silver Star was terminated 17 months prior to its originally scheduled expiration date in exchange for a $72 million payment to the Company. See further discussion under "Liquidity and Capital Resources - Termination of Management Contract." These increases in the Central Region were partially offset by a decline in net revenues due to the closure of the Sam's Town Kansas City property on July 15, 1998. OPERATING INCOME For the year ended December 31, 1999, consolidated operating income before preopening expense and impairment and restructuring charges increased by 6.5% to $138 million compared to $130 million in the prior year. Operating income in the Nevada Region declined 5.9% as the 70% gain experienced at the Downtown Properties did not overcome the declines experienced at the Stardust and the Boulder Strip due to increased competition and construction disruption at the Stardust and Sam's Town Las Vegas. In the Central Region, operating income increased 18.3% due to the acquisition of Blue Chip Casino, a 37% increase in operating income at Par-A-Dice due to the change to dockside operations which began on June 26, 1999 and an 18.5% increase at Silver Star related to the change in the management fee percentage from 30% to 40% of operating income. These increases were offset by declines in operating income at Sam's Town Tunica (24%) and Treasure Chest (18.2%) due to increased competition in their respective gaming markets. STARDUST For the year ended December 31, 1999, net revenues at the Stardust declined by 8.8% versus the prior year due to increased competition as well as construction disruption related to the year-long renovation project that was substantially completed by the end of 1999. Casino revenue declined 8.3% due primarily to a decline in slot and table game wagering. Room revenue declined 11.0% resulting from a 25% decline in the number of available rooms due to the April 1999 closure of motor inn rooms and the renovation of guest rooms in both hotel towers. Operating income declined 79% to $2.2 million during 1999 from $10.3 million in 1998. Operating income margin declined to 1.5% during 1999 from 6.3% in 1998. These declines in operating income and operating income margin are a result of the decline in revenues. BOULDER STRIP PROPERTIES Net revenues at the Boulder Strip Properties declined 3.0% during the year ended December 31, 1999 compared to the year ended December 31, 1998 due mainly to construction disruption related to the ongoing $86 million renovation and expansion project at Sam's Town Las Vegas, which began during the last half of 1999. Casino revenue remained virtually unchanged as a slight increase in slot win percentage offset a 7.5% decline in table game wagering. Non-gaming revenue declined 14.3% due primarily to the permanent closure of Sam's Town Las Vegas' Western Emporium in September 1999 as part of the property's renovation and expansion project. During 1999, operating income decreased 16.4% or $4.1 million compared to 1998. Operating income margin declined to 11.1% for 1999 compared to 12.9% for 1998. The decline in operating income and margin is attributable to the decline in revenues, an increase in marketing expense for 1999 compared to 1998 and the inventory liquidation of the Western Emporium. DOWNTOWN PROPERTIES Net revenues at the Downtown Properties increased 5.4% during 1999 compared to 1998. Casino revenue increased 4.1% due primarily to increased slot wagering at each of the Downtown casino properties. Non-gaming revenues during the year ended December 31, 1999 increased 6.3% compared to 1998 due to a 16.0% increase in revenues related to Vacations Hawaii, the Company's Honolulu travel agency. (Hawaiian customers comprise a significant portion of the available room nights at these Downtown casino properties - see "Business Properties.") Operating income at the Downtown Properties increased $9.3 million or 70% during 1999 compared to 1998, and operating income margin increased to 10.4% during 1999 from 6.5% during 1998. These increases in operating income and operating income margin are attributable to the increase in net revenues coupled with cost consolidation and effective marketing at the Downtown casino properties. CENTRAL REGION Net revenues from the Central Region increased 5.0% during 1999 compared to 1998. The increase is attributable, in part, to Blue Chip Casino, which generated $23.3 million in revenue from the November 10, 1999 date of acquisition through the end of calendar 1999, as well as a 15.6% increase in revenue at Par-A-Dice and an 18.0% increase in management fees from Silver Star. The increase at Par-A-Dice is due mainly to the change to dockside operations which began on June 26, 1999. The increase in revenues 39 40 at Silver Star is due mainly to the increase in the management fee percentage from 30% to 40% of operating income on July 1, 1999 pursuant to the terms of the management agreement. On January 31, 2000, the management contract was terminated 17 months prior to its originally scheduled expiration date in exchange for a $72 million payment to the Company. See further discussion under "Liquidity and Capital Resources- Termination of Management Contract." Net revenues at Treasure Chest declined 1.1% and net revenues at Sam's Town Tunica declined 4.6% due to reductions in slot and table game wagering related to increased competition in both gaming markets. Operating income for the Central Region increased to $122 million during 1999 from $103 million during 1998 due primarily to the acquisition of Blue Chip Casino and the increase in net revenues at Par-A-Dice and Silver Star, partially offset by declines in operating income at Sam's Town Tunica and Treasure Chest. OTHER EXPENSES Depreciation expense remained virtually unchanged during 1999 compared to 1998 as an increase in depreciation expense related to the fixed assets of Blue Chip Casino (acquired on November 10, 1999) was offset by declines related to fully depreciated fixed assets at certain properties that have been operating for over five years. Amortization expense of intangible license rights and acquisition costs increased 10.0% during 1999 compared to 1998 due to the acquisition of Blue Chip Casino. Preopening expense during 1999 was $1.5 million and relates primarily to the Company's share of preopening expense in The Borgata, the Company's Atlantic City joint venture. OTHER INCOME (EXPENSE) Other income and expense is primarily comprised of interest expense. Interest expense decreased by $4.9 million during the year ended December 31, 1999 compared to the prior year. The decline is attributable to lower average debt levels during the year combined with a decline in interest rates on floating rate debt. In addition, the Company capitalized $1.8 million in interest costs during 1999. There were no such costs capitalized during the year ended December 31, 1998. CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR START-UP ACTIVITIES The Company reported a charge of $1.7 million, net of $0.9 million in tax benefits, as the cumulative effect of a change in accounting for start-up activities. The American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" that required the Company to expense certain previously capitalized costs of start-up activities as the cumulative effect of a change in accounting principle. NET INCOME As a result of these factors, the Company reported net income of $38.3 million and $28.6 million, respectively, during the years ended December 31, 1999 and 1998. 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 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 40 41 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 Station. 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 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. 41 42 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. 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. 42 43 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% 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. 43 44 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 room remodel project which began in July 1997 and was substantially completed 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 $0.6 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 $0.4 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 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 44 45 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. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW FROM OPERATING ACTIVITIES AND WORKING CAPITAL The Company's policy is to use operating cash flow in combination with debt financing to fund renovations and expansion of its business. During 1999, the Company generated operating cash flow of $158 million compared to $122 million during 1998. The increase in operating cash flow is primarily attributable to the Company's enhanced earnings as well as the realization of a portion of the tax benefits related to the sale of certain assets of the Sam's Town Kansas City property. (See further discussion regarding the realization of tax attributes related to the sale of Sam's Town Kansas City in the following paragraph.) As of December 31, 1999 and 1998, the Company had balances of cash and cash equivalents of $86 million and $76 million, respectively, and working capital of $5.7 million at December 31, 1999 compared to $24 million at December 31, 1998. The Company has historically operated with minimal levels of working capital in order to minimize borrowings and related interest costs under its $600 million bank credit facility (the "New 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 has been and will be able to realize the benefit of approximately $35 million in tax attributes. The realization of these tax attributes, which began in the quarter ended September 30, 1998 and continued to benefit operating cash flow in 1999, generated tax refunds of approximately $11 million. Current and future federal tax payments on the Company's taxable income will also be reduced at such time as the remaining tax attributes are realized. At December 31, 1999, the Company had $16.8 million in current deferred tax assets. CASH FLOWS FROM INVESTING ACTIVITIES 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 spaces and by providing the latest slot machines for its customers. The Company's capital expenditures primarily related to these purposes were approximately $92 million and $68 million, respectively, during 1999 compared to 1998. On November 10, 1999, the Company acquired the Blue Chip Casino, a riverboat casino in Michigan City, Indiana for $261 million in net cash, subject to certain adjustments. Included as part of the acquisition was a partially constructed hotel and parking 45 46 facility attached to the existing casino complex. The hotel opened in February 2000. The Company funded the acquisition from borrowings under the New Bank Credit Facility. See "Expansion and Other Projects" for a further discussion on current and planned investing activities. The Company received $10.5 million in cash at the time of sale of certain tangible assets of Sam's Town Kansas City in 1998 and received the remaining $2.0 million when certain third party consents were received in 1999. In addition, the Company funded $4.7 million during 1999 to its unconsolidated subsidiaries, substantially all of which relates to the Atlantic City joint venture. See further discussion regarding the joint venture under "Expansion and Other Projects." CASH FLOWS FROM FINANCING ACTIVITIES Substantially all of the funding for the Company's acquisitions and renovation and expansion projects comes from cash flows from existing operations as well as debt financing. Cash flows provided by financing activities totaled $208 million during 1999, substantially all of which was borrowed from the Company's New Bank Credit Facility to partially fund the acquisition of Blue Chip and other capital expenditures. During 1998, the Company paid down existing debt with its free cash flows generated from operations and proceeds from the sale of Sam's Town Kansas City's assets that resulted in cash flows used for financing activities of $67 million. At December 31, 1999, outstanding borrowings and unused availability under the New Bank Credit Facility were $526 million and $73.5 million, respectively. On July 21, 1999, the Company replaced its existing bank credit facility with a new $600 million bank credit facility. The New Bank Credit Facility consists of a $500 million revolver component (the "Revolver") and a $100 million term loan component (the "Term Loan"), both of which mature in June 2003. Availability under the Revolver will be reduced by $15.6 million on December 31, 2001 and at the end of each quarter thereafter until March 31, 2003. The Term Loan is being repaid in increments of $0.25 million per quarter which began on September 30, 1999 and will continue through March 31, 2003. The interest rate on the New Bank Credit Facility is based upon either the agent bank's quoted base rate or the Eurodollar rate, plus an applicable margin that is determined by the level of a predefined financial leverage ratio. In addition, the Company incurs a commitment fee on the unused portion of the Revolver which ranges from 0.375% to 0.50% per annum. The blended rate on outstanding borrowings under the New Bank Credit Facility as of December 31, 1999 was 8.1%. The New Bank Credit Facility is secured by substantially all of the real and personal property of the Company and its subsidiaries, including eleven casino properties. The obligations of the Company under the New Bank Credit Facility are guaranteed by the significant subsidiaries of the Company. The New Bank Credit Facility contains certain financial and other covenants, including, without limitation, various covenants (i) requiring the maintenance of a minimum net worth, (ii) requiring the maintenance of a minimum interest coverage ratio, (iii) establishing a maximum permitted total leverage ratio and senior secured leverage ratio, (iv) imposing limitations on the incurrence of additional indebtedness, (v) imposing limitations on the maximum permitted expansion capital expenditures during the term of the New Bank Credit Facility, (vi) imposing limits on the maximum permitted maintenance capital expenditures during each year of the term of the New Bank Credit Facility, and (vii) imposing restrictions on investments, dividends and certain other payments. Management believes the Company and its subsidiaries are in compliance with the New Bank Credit Facility covenants. 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 development opportunities in the Las Vegas locals market. In January 2000, the Company reached an agreement in principle with Nevso, L.L.C. to purchase approximately 18 acres of land in western Las Vegas, Nevada to develop a locals hotel and casino. The purchase of the land and development of the project is subject to a number of contingencies, including but not limited to, the parties reaching a definitive agreement and securing various regulatory and development approvals. The zoning to allow the construction of the project and its use as a locals resort casino was reversed upon administrative appeal and is the subject of litigation. The Company can make no assurances that this project will go forward or that if the project goes forward that it will be successful. In addition, the Company has initiated an $86 million expansion and renovation project at Sam's Town Las Vegas. The project includes, among other things, an 18 screen state-of-the-art movie theatre complex, childcare facilities, an arcade, additional casino space for 500 slot machines, an 11,200 square foot multi-purpose events center for concerts and meetings, a new 650 seat buffet, and a reconfigured and remodeled porte cochere and valet parking area to improve access to the property. As of 46 47 December 31, 1999, the Company had incurred $22.8 million in costs associated with the Sam's Town Las Vegas expansion and renovation. The renovation portion of the project is expected to continue until the summer of 2000 and the expansion is expected to be completed by December 31, 2000. There can be no assurances that the Sam's Town Las Vegas renovation and expansion project will be completed on time or within budget. 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 recently completed a renovation of the Stardust which included 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 demolished all of its approximately 550 motor inn rooms. As of December 31, 1999, the Company had incurred $23.0 million in costs associated with the Stardust renovation, $21.5 million of which was incurred during the year ended December 31, 1999. Outside Nevada, the Company is pursuing several other projects. On May 29, 1996, the Company, through a wholly-owned subsidiary, entered into a joint venture agreement with Mirage Resorts, Incorporated, through a wholly-owned subsidiary ("Mirage"), to jointly develop and own a casino hotel entertainment facility in Atlantic City, New Jersey. Certain aspects of the joint venture agreement were subsequently modified into an amended and restated joint venture agreement (the "Agreement") on July 14, 1998. The Agreement provides for a hotel of at least 1,200 rooms and a casino and related amenities (collectively named "The Borgata") adjacent and connected to Mirage's planned wholly-owned resort and contemplates a total cost of $750 million. Any project costs exceeding the $750 million budget shall be funded by the Company without any proportionate increase in the ownership of the joint venture by the Company. The Agreement provides for each party to make an equity contribution of $150 million. The Company will contribute $90 million when Mirage contributes land to the venture, which is expected in the fall of 2000. The Agreement further provides for the venture to arrange $450 million in non-recourse financing for the project. There can be no assurances that The Borgata can be designed or developed for $750 million. In that regard, the Company has recently had discussions with Mirage regarding a possible increase in the size of The Borgata and each partner's required capital contributions and joint venture financing. Funding of the Company's capital contributions to The Borgata is expected to be derived from cash flow from operations, availability under the Company's New Bank Credit Facility, incremental bank financing, or additional debt offerings. 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, increased project costs, timing delays, lack of adequate financing and the significant risks commonly associated with implementing a marketing strategy in a new market. Once construction begins, 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 has begun work on the planning stages of this development which is expected to open in late 2002. As of December 31, 1999 and 1998, the Company has contributed or advanced funds of $5.7 million and $1.3 million, respectively, to The Borgata. In early 2000, the Company began a $21 million renovation project at Sam's Town Tunica to reconfigure and remodel the casino, redesign and enhance its restaurant product, remodel the atrium and build an RV park adjacent to the property. The renovation project is expected to be completed by December 31, 2000, although there can be no assurances that the project will be completed on time or within budget. On January 18, 2000, the Company signed a Memorandum of Understanding (the "Memorandum") with the Narragansett Indian Tribe (the "Narragansetts") to assist in the development and operation of the proposed Narragansett Indian Casino in West Warwick, Rhode Island. The Memorandum provides that the Company's role in this project may include, without limitation, assisting in lobbying efforts, assisting in procurement of project financing, assisting in the design and construction of the project, and potentially participating in the ownership and management of the project. The Company's participation in the project is contingent upon a number of factors, including but not limited to, negotiation of a definitive agreement between the Company and the Narragansetts; approval of legislation by the Rhode Island Legislature and approval of the project by the voters of Rhode Island in a state-wide referendum, both of which are necessary to enable the project to go forward; and negotiation by the Narragansetts of a definitive settlement of the dispute with Capital Gaming Development, Inc. ("Capital") relating to the termination of the management agreement between the Narragansetts and Capital. The Company can make no assurances that this project will go forward or that if the project goes forward that it will be successful. The Company has undertaken a Customer Information System ("CIS") project that will standardize the Company's customer tracking systems. The purpose of the CIS project is to link all points of customer contact at a particular property to enable the Company to better monitor customer activity in order to enhance and direct marketing efforts. For the year ended December 31, 1999, the Company had incurred $8.7 million in costs associated with the CIS project, substantially all of which was capitalized. The Company expects to spend $20 million in 2000 on the next phases of the CIS project. The Company has never undertaken a technology project of this magnitude and may experience difficulties in the integration and implementation of this project. In addition, given the inherent difficulties of a project of this magnitude and the resources required, the timing and costs involved could 47 48 differ materially from those anticipated by the Company. There can be no assurance that the CIS project will be completed successfully, on schedule, or within budget. 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 on a timely basis, if at all, 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 New 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 New Bank Credit Facility, incremental bank financing, 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. TERMINATION OF MANAGEMENT CONTRACT On October 20, 1999, the Company agreed to terminate its management contract with the Mississippi Band of Choctaw Indians prior to the contract's expiration date in June 2001 in exchange for a one-time payment of $72 million. Pursuant to that agreement, the Company ceased management of Silver Star and received the one-time payment on February 1, 2000. The Company used the net proceeds from the termination agreement to reduce its outstanding indebtedness under the New Bank Credit Facility. 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 recently completed 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 were 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. During the five phase process, the Company brought all significant non-compliant systems into compliance. The Company experienced no material adverse effects related to the Year 2000 transition and believes there are no material continuing risks or exposures related to the Year 2000 issue. At December 31, 1999, the Company had incurred approximately $9.8 million in costs directly related to the Year 2000 project, $6.8 million of which were capitalized as they related to replacement of systems that were not Year 2000 compliant. 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 called for the Company to swap its variable LIBOR rate for a fixed LIBOR rate of 48 49 5.54%. The variable LIBOR rate readjusted each quarter and the agreement was canceled in December 1999, per the terms of the agreement as the LIBOR rate exceeded 5.99%. 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. 49 50 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 2000 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 2000 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 2000 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 2000 Annual Meeting of Stockholders and is incorporated herein by reference. 50 51 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
PAGE NO. -------- 1. FINANCIAL STATEMENTS. The following financial statements for the two years in the period ended December 31, 1999, the six month periods ended December 31, 1997 and December 31, 1996 (unaudited) and for the fiscal year ended June 30, 1997 are filed as part of this report: Independent Auditors' Report.......................................................... 53 Consolidated Balance Sheets at December 31, 1999 and 1998............................. 54 Consolidated Statements of Operations for the Two Years in the Period Ended December 31, 1999, the Six Month Periods Ended December 31, 1997 and December 31, 1996 (unaudited) and for the Fiscal Year Ended June 30, 1997......... 55 Consolidated Statements of Changes in Stockholders' Equity for the Two Years in the Period Ended December 31, 1999, the Six Month Period Ended December 31, 1997 and for the Fiscal Year Ended June 30, 1997......................... 56 Consolidated Statements of Cash Flows for the Two Years in the Period Ended December 31, 1999, the Six Month Periods Ended December 31, 1997 and December 31, 1996 (unaudited) and for the Fiscal Year Ended June 30, 1997........ 57 Notes to Consolidated Financial Statements............................................ 59
2. REPORTS ON FORM 8-K. (a) The Company filed a current report on Form 8-K dated July 13, 1999 related to a definitive agreement to acquire 100% of the equity interests in Blue Chip Casino, L.L.C. (b) The Company filed a current report on Form 8-K dated January 7, 2000 related to the Acquisition of Blue Chip Casino. 3. EXHIBITS. Refer to (c) on page 78. 51 52 BOYD GAMING CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ---- Independent Auditors' Report............................................. 53 Consolidated Financial Statements Consolidated Balance Sheets.......................................... 54 Consolidated Statements of Operations................................ 55 Consolidated Statements of Changes in Stockholders' Equity........... 56 Consolidated Statements of Cash Flows................................ 57 Notes to Consolidated Financial Statements........................... 59 52 53 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, 1999 and 1998, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the two years in the period ended December 31, 1999, the six month period ended December 31, 1997, and for the fiscal year 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 auditing standards generally accepted in the United States of America. 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, 1999 and 1998, and the results of their operations and their cash flows for the two years in the period ended December 31, 1999, the six month period ended December 31, 1997, and for the fiscal year ended June 30, 1997 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Las Vegas, Nevada February 23, 2000 53 54 BOYD GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
DECEMBER 31, ------------------------ 1999 1998 ---------- ---------- Current assets Cash and cash equivalents ........................ $ 86,192 $ 75,937 Accounts receivable, net ......................... 17,585 21,988 Inventories ...................................... 6,181 9,567 Prepaid expenses and other ....................... 14,718 17,333 Income taxes receivable .......................... 1,108 11,065 Deferred income taxes ............................ 16,835 5,855 ---------- ---------- Total current assets ..................... 142,619 141,745 Property and equipment, net ......................... 901,014 763,207 Other assets and deferred charges, net .............. 45,689 38,690 Intangible assets, net .............................. 354,659 202,614 ---------- ---------- Total assets ............................. $1,443,981 $1,146,256 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt ............. $ 1,744 $ 1,961 Accounts payable ................................. 36,531 32,065 Construction payables ............................ 8,609 -- Accrued liabilities Payroll and related .......................... 31,184 29,465 Interest and other ........................... 58,862 54,162 ---------- ---------- Total current liabilities ................ 136,930 117,653 Long-term debt, net of current maturities ........... 982,149 774,890 Deferred income taxes and other liabilities ......... 57,923 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; 62,227,753 and 62,027,514 shares outstanding .................................... 622 620 Additional paid-in capital ........................ 141,986 140,616 Retained earnings ................................. 124,371 86,070 ---------- ---------- Total stockholders' equity ............... 266,979 227,306 ---------- ---------- Total liabilities and stockholders' equity $1,443,981 $1,146,256 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 54 55 BOYD GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED SIX MONTHS ENDED YEAR DECEMBER 31, DECEMBER 31, ENDED --------------------------- ----------------------- JUNE 30, 1999 1998 1997 1996 1997 ----------- ----------- --------- --------- --------- UNAUDITED Revenues Casino ..................................... $ 733,677 $ 722,124 $ 323,707 $ 268,208 $ 573,782 Food and beverage .......................... 158,982 161,582 78,658 73,387 151,261 Room ....................................... 71,478 74,053 38,330 35,449 74,209 Other ...................................... 69,988 70,903 39,074 26,883 58,311 Management fees and joint venture .......... 47,463 40,206 20,310 20,406 42,747 ----------- ----------- --------- --------- --------- Gross revenues ................................ 1,081,588 1,068,868 500,079 424,333 900,310 Less promotional allowances ................... 94,547 93,772 44,308 40,175 81,051 ----------- ----------- --------- --------- --------- Net revenues ....................... 987,041 975,096 455,771 384,158 819,259 ----------- ----------- --------- --------- --------- Costs and expenses Casino ..................................... 371,400 366,746 166,776 145,928 298,081 Food and beverage .......................... 103,439 106,195 53,757 50,885 106,729 Room ....................................... 22,532 24,724 12,958 12,044 25,210 Other ...................................... 63,825 65,626 32,793 21,574 50,695 Selling, general and administrative ........ 145,788 147,647 68,461 58,860 120,538 Maintenance and utilities .................. 41,972 41,144 18,652 18,327 36,037 Depreciation ............................... 67,793 67,656 32,964 30,381 65,085 Amortization of intangible license rights and acquisition costs .................... 6,325 5,751 2,133 453 2,157 Corporate expense .......................... 25,867 19,994 9,131 10,744 24,333 Preopening expense ......................... 1,489 -- -- 3,481 3,481 Impairment and restructuring charges ....... -- 5,925 -- -- 131,339 ----------- ----------- --------- --------- --------- Total .............................. 850,430 851,408 397,625 352,677 863,685 ----------- ----------- --------- --------- --------- Operating income (loss) ....................... 136,611 123,688 58,146 31,481 (44,426) ----------- ----------- --------- --------- --------- Other income (expense) Interest income ............................ 253 365 261 342 650 Interest expense, net of amounts capitalized (69,230) (74,162) (37,571) (27,069) (61,672) ----------- ----------- --------- --------- --------- Total .............................. (68,977) (73,797) (37,310) (26,727) (61,022) ----------- ----------- --------- --------- --------- Income (loss) before provision (benefit) for income taxes, cumulative effect and extraordinary items ....................... 67,634 49,891 20,836 4,754 (105,448) Provision (benefit) for income taxes .......... 27,595 21,291 8,736 1,902 (34,025) ----------- ----------- --------- --------- --------- Income (loss) before cumulative effect and extraordinary items ....................... 40,039 28,600 12,100 2,852 (71,423) Cumulative effect of a change in accounting for start-up activities, net of tax benefit of $936 ............................. (1,738) -- -- -- -- Extraordinary items, net of tax benefit of $3,899, $3,268 and $3,268, respectively . -- -- (7,240) (6,069) (6,069) ----------- --------- --------- --------- --------- Net income (loss) ............................. $ 38,301 $ 28,600 $ 4,860 $ (3,217) $ (77,492) =========== ========= ========= ========= ========= Basic and diluted net income (loss) per common share: Income (loss) before cumulative effect and extraordinary items ..................... $ 0.65 $ 0.46 $ 0.20 $ 0.05 $ (1.19) Cumulative effect, net of tax .............. (0.03) -- -- -- -- Extraordinary items, net of tax ............ -- -- (0.12) (0.10) (0.10) ----------- --------- --------- --------- --------- Net income (loss) .......................... $ 0.62 $ 0.46 $ 0.08 $ (0.05) $ (1.29) =========== ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 55 56 BOYD GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1999, THE SIX MONTH PERIOD ENDED DECEMBER 31, 1997, AND FISCAL YEAR ENDED JUNE 30, 1997 (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL TOTAL ---------------------- PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY ---------- ------ ---------- -------- ------------- Balances, July 1, 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 Net income ....................... -- -- -- 38,301 38,301 Stock issued in connection with employee stock purchase plan ... 179,801 2 1,256 -- 1,258 Stock options exercised .......... 20,438 -- 114 -- 114 ----------- ---- -------- -------- -------- BALANCES, DECEMBER 31, 1999 ...... 62,227,753 $622 $141,986 $124,371 $266,979 =========== ==== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 56 57 BOYD GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED SIX MONTHS ENDED FISCAL DECEMBER 31, DECEMBER 31, ENDED ---------------------- ---------------------- JUNE 30, 1999 1998 1997 1996 1997 --------- --------- --------- --------- --------- UNAUDITED CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ............................................. $ 38,301 $ 28,600 $ 4,860 $ (3,217) $ (77,492) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ............................ 74,118 73,407 35,097 30,834 67,242 Cumulative effect of a change in accounting principle .... 2,674 -- -- -- -- Loss on early retirement of debt ......................... -- -- 11,139 9,337 9,337 Deferred income taxes .................................... 20,010 26,259 1,975 171 (42,079) Impairment and restructuring charges ..................... -- 5,925 -- -- 131,339 Other ...................................................... -- -- -- 301 -- Equity loss in unconsolidated subsidiaries ................. 1,356 -- -- -- -- Changes in assets and liabilities: Accounts receivable, net ................................. 3,055 (616) (2,426) (9,836) (906) Inventories .............................................. 3,569 339 (1,405) (2,319) (1,970) Prepaid expenses and other ............................... 366 (574) 516 (3,855) 392 Other assets ............................................. (4,906) (814) (5) (4,902) (4,853) Other current liabilities ................................ 8,632 (3,350) 11,611 33,016 574 Other liabilities ........................................ 526 851 -- -- -- Income taxes receivable .................................. 9,957 (8,278) (2,787) (7,144) -- Income taxes payable ..................................... -- -- (1,103) (678) 425 --------- --------- --------- --------- --------- Net cash provided by operating activities ..................... 157,658 121,749 57,472 41,708 82,009 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Net cash paid for acquisition of Blue Chip Casino .......... (261,195) -- -- -- -- 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) Investment in and advances to unconsolidated subsidiaries .. (4,717) -- -- -- -- Proceeds from sale of Sam's Town Kansas City's assets ...... 2,000 10,500 -- -- -- Acquisition of property, equipment and other assets ........ (91,719) (68,011) (22,186) (79,132) (99,586) Proceeds from sale of riverboat ............................ -- -- -- 20,000 20,000 --------- --------- --------- --------- --------- Net cash used in investing activities ......................... (355,631) (57,511) (125,226) (229,857) (250,311) --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt ................... -- 8,000 244,525 200,000 200,148 Payments on long-term debt ................................. (1,958) (2,909) (903) (18,334) (19,354) Early retirement of long-term debt ......................... -- -- (192,631) (157,500) (157,500) Net borrowings (payments) under credit agreements .......... 209,000 (73,000) 39,000 150,850 116,000 Proceeds from issuance of common stock ..................... 1,186 1,331 820 34,579 35,248 --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities ........... 208,228 (66,578) 90,811 209,595 174,542 --------- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents .......... 10,255 (2,340) 23,057 21,446 6,240 Cash and cash equivalents, beginning of year .................. 75,937 78,277 55,220 48,980 48,980 --------- --------- --------- --------- --------- Cash and cash equivalents, end of year ........................ $ 86,192 $ 75,937 $ 78,277 $ 70,426 $ 55,220 ========= ========= ========= ========= =========
57 58 BOYD GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS)
FISCAL YEAR YEAR ENDED SIX MONTHS ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1999 1998 1997 1996 1997 -------- ------- -------- -------- -------- UNAUDITED SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest, net of amounts capitalized .... $ 67,329 $74,080 $ 29,029 $ 29,950 $ 58,556 Cash paid for income taxes ............................ 7,882 5,992 6,815 4,915 7,981 ======== ======= ======== ======== ======== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Property additions acquired on construction and trade payables which were accrued, but not yet paid ....... $ 10,609 $ 5,440 $ 2,603 $ 7,398 $ 6,973 Receivable from sale of Sam's Town Kansas City's assets -- 2,000 -- -- -- Deferred bond financing costs incurred ................ -- -- 5,475 -- 4,624 Acquisition of Blue Chip Casino Fair value of non-cash assets acquired .............. $267,074 $ -- $ -- $ -- $ -- Net cash paid to seller ............................. 261,195 -- -- -- -- -------- ------- -------- -------- -------- Liabilities assumed ................................. $ 5,879 $ -- $ -- $ -- $ -- ======== ======= ======== ======== ======== 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 $ -- $ -- ======== ======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 58 59 BOYD GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of Boyd Gaming Corporation and its wholly-owned subsidiaries, collectively referred to herein as the "Company." The Company owns and operates eleven casino entertainment facilities located in Las Vegas, Nevada, Tunica, Mississippi, East Peoria, Illinois, Kenner, Louisiana, and Michigan City, Indiana as well as a travel agency located in Honolulu, Hawaii. In addition, the Company managed a casino entertainment facility in Philadelphia, Mississippi for which it had a management contract that expired on January 31, 2000 (see Note 3). 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 or discernible portions of the project are substantially complete. Capitalized interest during the year ended December 31, 1999 and the fiscal year ended June 30, 1997 was $1.8 million and $3.2 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. 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 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, 1999 and 1998, accumulated amortization was $19.4 million and $13.5 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. 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: 59 60
YEAR ENDED SIX MONTHS FISCAL YEAR DECEMBER 31, ENDED ENDED ---------------------- DECEMBER 31, JUNE 30, 1999 1998 1997 1997 ------- ------- ------------ ------------ (IN THOUSANDS) Room................. $11,101 $12,190 $ 5,668 $11,704 Food and beverage.... 70,822 71,663 33,397 58,120 Other................ 7,217 5,123 2,638 3,168 ------- ------- ------- ------- Total................ $89,140 $88,976 $41,703 $72,992 ======= ======= ======= =======
Preopening Expenses Prior to January 1, 1999, expenses incurred prior to the opening of new facilities were capitalized as incurred and charged to expense upon commencement of operations. During the fiscal year ended June 30, 1997, the Company expensed $3.5 million upon the opening of Main Street Station. 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 issued Statement of Position 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. During the year ended December 31, 1999, the Company expensed $1.5 million in preopening costs that related primarily to the Company's share of preopening expense in The Borgata, the Company's Atlantic City joint venture (see Note 7). The initial application of this statement in January 1999 required the Company to expense certain previously capitalized items as a cumulative effect of a change in accounting principle. As such, the Company reported a charge of $1.7 million, net of tax, to the consolidated statement of operations during the three month period ended March 31, 1999 as the cumulative effect of the change in accounting principle. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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, 1999 presentation. These reclassifications had no effect on the Company's net income (loss). Change in Fiscal Year Effective July 1, 1997, the Company changed its fiscal year from a June 30 year end to a December 31 year end. Recently Issued Accounting Standards The Financial Accounting Standards Board 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, 2000. Management has not yet completed an analysis of its existing contracts, agreements, and other commitments to determine the potential impact that the adoption of this statement will have on the consolidated financial statements. NOTE 2. ACQUISITIONS On November 10, 1999, the Company acquired Blue Chip Casino, L.L.C. ("Blue Chip"), located in Michigan City, Indiana, for approximately $261 million in net cash, including $10.3 million for a hotel and parking facility that was under construction and attached to the existing casino complex. Intangible license rights, representing the excess of the purchase price over the fair value of the net assets acquired, was approximately $158 million. The purchase price excludes a contingent purchase price payment of $5.0 million. The contingent 60 61 purchase price payment will be made to the former owners of Blue Chip Casino, Inc. in the event that, over a period of 36 months, Blue Chip's aggregated earnings before interest, taxes, depreciation and amortization and certain other qualified expenses exceeds a specified amount. Blue Chip Casino opened in August 1997. The Company's pro forma consolidated results of operations, as if the acquisition had occurred at the time of its opening, are as follows:
YEAR ENDED SIX MONTHS DECEMBER 31 ENDED -------------------------- DECEMBER 31, 1999 1998 1997 ---------- ---------- ----------- Pro forma (in thousands, except per share data): Net revenues .............................. $1,131,781 $1,122,853 $497,235 Income before cumulative effect and extraordinary items .................... $ 60,656 $ 42,994 $ 3,463 Net income ................................ $ 55,635 $ 42,994 $ 3,463 Basic and diluted net income per common share: Income before cumulative effect and extraordinary items .................... $ 0.98 $ 0.70 $ 0.06 Net income ................................ $ 0.90 $ 0.70 $ 0.06
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, 1996, are as follows:
SIX MONTHS ENDED FISCAL DECEMBER 31, YEAR ENDED ----------------------- JUNE 30, 1997 1996 1997 -------- --------- ---------- Pro forma (in thousands, except per share data): Net revenues ...................................... $489,715 $ 435,733 $ 923,072 Income (loss) before extraordinary items .......... $ 12,335 $ 3,682 $ (69,275) Net income (loss) ................................. $ 5,095 $ (2,387) $ (75,344) Basic and diluted net income (loss) per common share: Income (loss) before extraordinary items .......... $ 0.20 $ 0.06 $ (1.15) Net income (loss) ................................. $ 0.08 $ (0.04) $ (1.25)
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 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, 1996, are as follows: FISCAL YEAR ENDED JUNE 30, 1997 ---------- Pro forma (in thousands, except per share data): Net revenues.................................. $861,563 Loss before extraordinary items............... $(66,644) Net loss...................................... $(72,713) Basic and diluted net loss per common share: Loss before extraordinary items............... $ (1.11) Net loss...................................... $ (1.21) NOTE 3. TERMINATION OF MANAGEMENT CONTRACT On October 20, 1999, the Company signed an agreement with the Mississippi Band of Choctaw Indians (the "Tribe") to terminate the Company's management of the Silver Star Resort and Casino in Philadelphia Mississippi. Under the agreement, the Company continued to manage Silver Star under the terms of the management contract through January 31, 2000, at which time the Tribe made and the Company recorded a one-time payment of $72 million to the Company. The agreement with the Tribe terminated the Company's original management contract 17 months prior to the contract's scheduled maturity date. The one-time payment will accelerate the utilization of the Company's tax credits and net operating losses carried forward from prior years. As such, the majority of the 61 62 Company's deferred tax assets are classified as part of current assets on the accompanying consolidated balance sheet as of December 31, 1999. NOTE 4. 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 $0.1 million related to the long-term commitments during the year ended December 31, 1999. At December 31, 1999, the $0.1 million current portion and the $0.4 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, adjusted for 1998 taxable income generated by the Company's other subsidiaries, was carried back two years. The 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, which was received in 1999. Additionally, a deferred income tax asset of $5.9 million was created as a result of the sale. At December 31, 1999, approximately $2.8 million of the deferred asset has not been utilized and is included in current deferred income tax assets on the accompanying consolidated balance sheet. 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 was 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. NOTE 5. ACCOUNTS RECEIVABLE Accounts receivable consists of the following: DECEMBER 31, ---------------------- 1999 1998 ------- ------- (IN THOUSANDS) Casino ......................... $11,186 $10,614 Hotel .......................... 2,594 2,926 Other .......................... 8,444 12,541 ------- ------- Total .......................... 22,224 26,081 Less allowance for doubtful accounts ..................... 4,639 4,093 ------- ------- Accounts receivable, net ....... $17,585 $21,988 ======= ======= 62 63 NOTE 6. PROPERTY AND EQUIPMENT Property and equipment consists of the following: ESTIMATED DECEMBER 31, LIFE ----------------------- (YEARS) 1999 1998 --------- ---------- ---------- (IN THOUSANDS) Land..................................... -- $ 161,443 $ 124,186 Buildings and leasehold improvements..... 3--40 691,165 634,922 Furniture and equipment.................. 3--30 383,094 376,758 Riverboats and barges.................... 12--40 101,211 64,368 Construction in progress................. -- 46,838 18,756 ---------- ---------- Total.................................... 1,383,751 1,218,990 Less accumulated depreciation and amortization........................... 482,737 455,783 ---------- ---------- Property and equipment, net.............. $ 901,014 $ 763,207 ========== ========== NOTE 7. INVESTMENT IN JOINT VENTURE AND OTHER UNCONSOLIDATED SUBSIDIARIES On May 29, 1996, the Company, through a wholly-owned subsidiary, entered into a joint venture agreement with Mirage Resorts, Incorporated ("Mirage") to jointly develop and own a casino hotel entertainment facility in Atlantic City, New Jersey. Certain aspects of the joint venture agreement were subsequently modified into an amended and restated joint venture agreement (the "Agreement") on July 14, 1998. 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 Agreement provides for a hotel of at least 1,200 rooms and related amenities (collectively named The Borgata) adjacent and connected to Mirage's planned wholly-owned resort and contemplates a total cost of $750 million. The Agreement requires capital contributions by the Company of $150 million, $90 million of which is expected to be contributed during 2000. Any project costs exceeding the $750 million budget shall be funded by the Company without any proportionate increase in the ownership in the joint venture by the Company. At December 31, 1999 and 1998, the Company had net contributions and advances of $4.2 million and $1.3 million, respectively, to the joint venture. The Company has a one-third investment in Tunica Golf Course, L.L.C. (d.b.a. River Bend Links) located in Tunica, Mississippi which had its grand opening in April 1999. The Company accounts for its share of the golf course's net income or loss under the equity method of accounting. At December 31, 1999 and 1998, the Company had net contributions and advances of $2.3 million and $2.2 million, respectively, to the golf course. NOTE 8. LONG-TERM DEBT Long-term debt consists of the following: DECEMBER 31, -------------------- 1999 1998 -------- -------- (IN THOUSANDS) Bank Credit Facilities........ $526,000 $317,000 9.25% Senior Notes............ 200,000 200,000 9.50% Senior Subordinated Notes 250,000 250,000 Other......................... 7,893 9,851 -------- -------- Total long-term debt 983,893 776,851 Less current maturities....... 1,744 1,961 -------- -------- Total............... $982,149 $774,890 ======== ======== On July 21, 1999, the Company replaced its existing bank credit facility with a new $600 million bank credit facility (the "New Bank Credit Facility"). The New Bank Credit Facility consists of a $500 million revolver component (the "Revolver") and a $100 million term loan component (the "Term Loan"), both of which mature in June 2003. Availability under the Revolver will be reduced by $15.6 million on December 31, 2001 and at the end of each quarter thereafter until March 31, 2003. The Term Loan will be repaid in increments of $0.25 million per quarter which began on September 30, 1999 and will continue through March 31, 2003. As of December 31, 1999, the Company had unused availability of $73.5 million under the New Bank Credit Facility. The interest rate on the New Bank Credit Facility is based upon either the agent bank's quoted base rate or the Eurodollar rate, plus an applicable margin that is determined by the level of a predefined financial leverage ratio. The blended interest rate under the New Bank Credit Facility at December 31, 1999 was 8.1%. In addition, the Company incurs a commitment fee on the unused portion of the Revolver which ranges from 0.375% to 0.50% per annum. The New Bank Credit Facility is secured by substantially all of the real and personal property of the Company and its subsidiaries, including eleven casino properties. The obligations of the Company under the New Bank Credit Facility are guaranteed by the significant subsidiaries of the Company. 63 64 The New Bank Credit Facility contains certain financial and other covenants including, without limitation, various covenants (i) requiring the maintenance of a minimum net worth, (ii) requiring the maintenance of a minimum interest coverage ratio, (iii) establishing a maximum permitted total leverage ratio and senior secured leverage ratio, (iv) imposing limitations on the incurrence of additional indebtedness, (v) imposing limitations on the maximum permitted expansion capital expenditures during the term of the New Bank Credit Facility, (vi) imposing limits on the maximum permitted maintenance capital expenditures during each year of the term of the New Bank Credit Facility, and (vii) imposing restrictions on investments, dividends and certain other payments. Management believes the Company and its subsidiaries are in compliance with the New Bank Credit Facility covenants. 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 significant subsidiaries that existed at the time the 9.25% Notes were issued. The guaranties are full, unconditional, and joint and several. (See Note 16 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 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 $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, 1999 was approximately $976 million, versus its book value of $984 million. At December 31, 1998, the estimated fair value of the Company's long-term debt was approximately $788 million, versus its book value of $777 million. The estimated fair value amounts were based on quoted market prices on or about December 31, 1999 and 1998 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 8.1%. Management believes the Company and its subsidiaries are in compliance with all covenants contained in its long-term debt agreements at December 31, 1999. 64 65 The scheduled maturities of long-term debt for the years ending December 31 are as follows: (IN THOUSANDS) -------------- 2000........................... $1,744 2001........................... 1,486 2002........................... 1,455 2003........................... 723,487 2004........................... 522 Thereafter..................... 255,199 ------- Total................ $983,893 ======== NOTE 9. 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 called for the Company to swap its variable LIBOR rate for a fixed LIBOR rate of 5.54%, which resulted in an initial gain of approximately $0.1 million which was deferred and was being amortized over the life of the agreement. The variable LIBOR rate readjusted each quarter and the agreement was canceled on December 31, 1999, per the terms of the agreement as the LIBOR rate exceeded 5.99%. Any differential between the amounts to be paid or received, as a result of this swap agreement, was recorded as interest expense or an offset to interest expense during the period of settlement. Net swap settlements during the years ended December 31, 1999 and 1998 had virtually no impact on interest expense. NOTE 10. COMMITMENTS AND CONTINGENCIES Future minimum lease payments required under noncancelable operating leases (principally for land) as of December 31, 1999 are as follows: (IN THOUSANDS) -------------- 2000.......................... $4,601 2001.......................... 3,376 2002.......................... 2,649 2003.......................... 2,144 2004.......................... 1,860 Thereafter.................... 69,912 ------- Total.................. $84,542 ======= Rent expense for the years ended December 31, 1999 and 1998, the six month period ended December 31, 1997 and the fiscal year ended June 30, 1997 was $4.4 million, $3.2 million, $1.8 million and $3.2 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 2000 to the City of Kenner, based upon a portion of actual passenger counts from the prior year, is approximately $4.4 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 11. 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 $2.3 million, $2.4 million, $1.2 million and $2.2 million for the years ended December 31, 1999 and 1998, the six month period ended December 31, 1997 and for the fiscal year ended June 30, 1997, respectively. The Company's share of the unfunded liability related to multi-employer plans, if any, is not determinable. The Company has retirement savings plans under Section 401(k) of the Internal Revenue Code covering its non-union employees. The plans allow 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 plans. The Company expensed voluntary contributions of $2.8 million, $2.8 million, $1.4 million and $2.6 million for the years ended December 31, 1999 and 1998, the six month period ended December 31, 1997 and for the fiscal year ended June 30, 1997, respectively, to the Company's 401(k) profit-sharing plans and trust. 65 66 NOTE 12. INCOME TAXES A summary of the provision (benefit) for income taxes is as follows:
YEAR ENDED SIX MONTHS FISCAL YEAR DECEMBER 31, ENDED ENDED -------------------------- DECEMBER 31, JUNE 30, 1999 1998 1997 1997 -------- -------- ------------ ----------- (IN THOUSANDS) Current Federal .......... $ 5,845 $ (7,021) $ 5,671 $ 7,009 State ............ 1,740 1,465 1,091 1,045 -------- -------- -------- -------- 7,585 (5,556) 6,762 8,054 -------- -------- -------- -------- Deferred Federal .......... 18,697 25,532 1,833 (43,899) State ............ 1,313 1,315 141 1,820 -------- -------- -------- -------- 20,010 26,847 1,974 (42,079) -------- -------- -------- -------- Total $ 27,595 $ 21,291 $ 8,736 $(34,025) ======== ======== ======== ========
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.
DECEMBER 31, JUNE 30, -------------- ------------- 1999 1998 1997 1997 ---- ---- ---- ---- Tax provision at statutory rate .......... 35.0% 35.0% 35.0% (35.0)% Increase/(decrease) resulting from: State income tax, net of federal benefit 2.9 3.6 3.8 1.7 Licensing expenditures for new jurisdictions ........................ 0.4 1.1 0.5 0.3 Company provided benefits .............. 0.3 1.9 1.8 0.9 Other, net ............................. 2.2 1.1 0.8 (0.2) ---- ---- ---- ---- Total .......................... 40.8% 42.7% 41.9% (32.3)% ==== ==== ==== ====
The tax items comprising the Company's net deferred tax liability are as follows: DECEMBER 31, ------------------- 1999 1998 ------- ------- (IN THOUSANDS) Deferred tax liabilities: Difference between book and tax basis of property . $44,645 $38,113 Difference between book and tax basis of amortizable assets ................................ 10,855 9,385 Other ............................................. 4,469 1,469 ------- ------- Gross deferred liability .......................... 59,969 48,967 ------- ------- Deferred tax assets: Tax credit carryforward ........................... 12,600 6,407 Net operating loss carryforward ................... 2,774 17,131 Provision for doubtful accounts ................... 1,516 1,376 Reserve differential for gaming activities ........ 982 1,392 Preopening expense amortized for tax purposes ..... 666 1,370 Other ............................................. 1,720 1,590 ------- ------- Gross deferred tax asset .......................... 20,258 29,266 ------- ------- Net deferred tax liability ................ $39,711 $19,701 ======= ======= At December 31, 1999 and 1998, the Company had approximately $8.0 million and $58.0 million, respectively, of federal tax net operating loss carryforwards which begin to expire in the year 2018. Additionally, $8.0 million of net operating losses was carried back to the short year ended December 31, 1997 and the fiscal year ended June 30, 1997. The Company also generated approximately $6.0 million of Illinois state tax net operating loss carryforwards in 1998 which were fully utilized to offset Illinois state taxable income in 1999. 66 67 In 1998, the Company charged off a state tax net 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 provisions. The Internal Revenue Service has completed examinations of the Company's federal consolidated income tax returns through the fiscal year ended June 30, 1992. The Company is currently under examination for fiscal years ended June 30, 1993 and 1994. The Internal Revenue Service has proposed adjustments in connection with the examination of the 1993 and 1994 returns but no final determinations have been made. In the opinion of management, any tax liability arising from these examinations will not have a material adverse impact on the Company's consolidated financial statements. NOTE 13. STOCKHOLDERS' EQUITY AND STOCK INCENTIVE PLANS Employee Stock Purchase Plan Under the terms of the Company's Employee Stock Purchase Plan (the "Plan"), eligible employees had been able to 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 canceled the Plan on July 1, 1999. Stock Options As of December 31, 1999, 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 approximately 7.1 million 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: OPTION OPTIONS PRICES ---------- -------------- Options outstanding at July 1, 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 Options granted............................ 1,079,000 5.56-- 6.56 Options canceled........................... (317,909) 4.56-- 17.00 Options exercised.......................... (20,438) 4.56-- 5.75 --------- -------------- Options outstanding at December 31, 1999... 6,439,863 $ 4.56--$17.00 ========= ============== Exercisable options at December 31, 1999... 4,469,792 ========= Options available for grant at December 31, 1999.......................... 637,365 ========= 67 68 The following table summarizes the information about stock options outstanding at December 31, 1999:
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 - --------------- ----------- ---------------- -------------- ----------- -------- $ 4.56--$ 5.75 3,863,493 7.50 $ 5.39 1,916,671 $5.54 6.56-- 14.38 1,591,970 6.57 9.37 1,568,721 9.40 17.00-- 17.00 984,400 3.79 17.00 984,400 17.00 --------- ---- ------ --------- ----- 6,439,863 6.70 $ 8.15 4,469,792 $9.42 ========= ==== ====== ========= =====
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 Principle 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 since July 1, 1995.
YEAR ENDED SIX MONTHS FISCAL YEAR DECEMBER 31, ENDED ENDED -------------------- DECEMBER 31, JUNE 30, 1999 1998 1997 1997 ------- ------- ------------ --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Income (loss) before cumulative effect and extraordinary items As reported ............................ $40,039 $28,600 $12,100 $(71,423) Pro forma .............................. 38,768 26,694 10,904 (72,555) Net income (loss) As reported ............................ $38,301 $28,600 $ 4,860 $(77,492) Pro forma .............................. 37,030 26,694 3,664 (78,624) Basic and diluted income (loss) per share before cumulative effect and extraordinary items As reported............................. $ 0.65 $ 0.46 $ 0.20 $ (1.19) Pro forma .............................. 0.62 0.43 0.18 (1.20) Basic and diluted net income (loss) per share As reported ............................ $ 0.62 $ 0.46 $ 0.08 $ (1.29) Pro forma .............................. 0.60 0.43 0.06 (1.31) Weighted-average assumptions Expected stock price volatility ........ 64.56% 57.16% 38.48% 38.48% Risk-free interest rate ................ 6.65% 5.02% 6.05% 6.05% Expected option lives (years) .......... 2.82 3.39 2.02 2.54 Estimated fair value of options granted $ 2.55 $ 1.83 $ 1.79 $ 2.13
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 14. 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. 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, Blue Chip Casino (acquired November 10, 1999), and management fee income from Silver Star Resort and Casino. 68 69
YEAR ENDED SIX MONTHS FISCAL DECEMBER 31, ENDED YEAR ENDED ----------------------- DECEMBER 31, JUNE 30, 1999 1998 1997 1997 --------- -------- --------- --------- (IN THOUSANDS) Casino Revenue Stardust ............................... $ 98,926 $107,857 $ 53,974 $ 114,571 Boulder Strip Properties ............... 147,855 147,104 69,188 142,264 Downtown Properties .................... 133,138 127,948 56,812 109,739 --------- -------- --------- --------- Nevada Region ............................ 379,919 382,909 179,974 366,574 Central Region ........................... 353,758 339,215 143,733 207,208 --------- -------- --------- --------- Total casino revenue ........... $ 733,677 $722,124 $ 323,707 $ 573,782 ========= ======== ========= ========= EBITDA(1) Stardust ............................... $ 14,403 $ 22,114 $ 14,061 $ 35,028 Boulder Strip Properties ............... 34,517 39,500 17,824 41,717 Downtown Properties .................... 38,649 28,314 8,886 21,067 --------- -------- --------- --------- Nevada Region ............................ 87,569 89,928 40,771 97,812 Central Region ........................... 150,516 133,086 61,603 84,157 --------- -------- --------- --------- Property EBITDA ........................ 238,085 223,014 102,374 181,969 --------- -------- --------- --------- Other Costs and Expenses Corporate expense ...................... 25,867 19,994 9,131 24,333 Depreciation and amortization .......... 74,118 73,407 35,097 67,242 Impairment and restructuring charges ... -- 5,925 -- 131,339 Preopening expense ..................... 1,489 -- -- 3,481 Other expense, net ..................... 68,977 73,797 37,310 61,022 --------- -------- --------- --------- Total other costs and expenses . 170,451 173,123 81,538 287,417 --------- -------- --------- --------- Income (loss) before provision (benefit) for income taxes and other items ....... 67,634 49,891 20,836 (105,448) Provision (benefit) for taxes ............ 27,595 21,291 8,736 (34,025) --------- -------- --------- --------- Income (loss) before cumulative effect and extraordinary items .................... 40,039 28,600 12,100 (71,423) Cumulative effect, net of tax ............ (1,738) -- -- -- Extraordinary items, net of tax .......... -- -- (7,240) (6,069) --------- -------- --------- --------- Net income (loss) ........................ $ 38,301 $ 28,600 $ 4,860 $ (77,492) ========= ======== ========= =========
DECEMBER 31, -------------------------- 1999 1998 ---------- -------- Assets(2) Stardust ................. $ 173,727 $160,697 Boulder Strip Properties . 177,401 159,930 Downtown Properties ...... 162,007 166,272 ---------- -------- Nevada Region .............. 513,135 486,899 Central Region ............. 687,047 432,566 ---------- -------- Total properties' assets . 1,200,182 919,465 Corporate Entities ......... 55,491 46,356 ---------- -------- Total assets ..... $1,255,673 $965,821 ========== ======== 69 70
YEAR ENDED SIX MONTHS FISCAL YEAR DECEMBER 31, ENDED ENDED ------------------- DECEMBER 31, JUNE 30, 1999 1998 1997 1997 ------- ------- ------- ----------- Additions to Property and Equipment Stardust ........................ $25,960 $14,705 $ 1,418 $ 3,630 Boulder Strip Properties ........ 30,201 16,076 1,806 5,084 Downtown Properties ............. 11,917 7,683 7,432 41,410 ------- ------- ------- ------- Nevada Region ..................... 68,078 38,464 10,656 50,124 Central Region .................... 17,834 11,658 6,051 34,820 ------- ------- ------- ------- Total properties' additions .. 85,912 50,122 16,707 84,944 Corporate Entities ................ 10,976 20,726 1,109 14,263 ------- ------- ------- ------- Total additions to property and equipment ............. $96,888 $70,848 $17,816 $99,207 ======= ======= ======= =======
- ---------- (1) EBITDA is earnings before interest, taxes, depreciation, amortization, preopening expense and impairment and restructuring charges. The Company believes that EBITDA is a useful financial measurement for assessing the operating performances of its properties. EBITDA does not represent net income or cash flows from operating, investing or financing activities as defined by accounting principles generally accepted in the United States of America. (2) Assets represent property and equipment and intangible assets, net of accumulated depreciation and amortization. NOTE 15. EARNINGS PER SHARE A reconciliation of income and shares for basic and diluted earnings per share is as follows:
YEAR ENDED SIX MONTHS ENDED FISCAL YEAR DECEMBER 31, DECEMBER 31, ENDED ------------------- ------------------- JUNE 30, 1999 1998 1997 1996 1997 ------- ------- ------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Income (loss) before cumulative effect and extraordinary items ...................... $40,039 $28,600 $12,100 $ 2,852 $(71,423) ======= ======= ======= ======= ======== Weighted average common stock outstanding .. 62,124 61,749 61,525 59,150 60,248 Dilutive effect of stock options outstanding 169 101 261 9 -- ------- ------- ------- ------- -------- Weighted average common and potential outstanding shares outstanding............. 62,293 61,850 61,786 59,159 60,248 ======= ======= ======= ======= ======== Basic and dilutive earnings per share ...... $ 0.65 $ 0.46 $ 0.20 $ 0.05 $ (1.19)
Options to purchase approximately 4.8 million, 5.7 million, 2.8 million, 3.7 million, and 2.8 million shares of common stock, respectively, at December 31, 1999, 1998, 1997, 1996 and June 30, 1997 at prices of $5.56 -- $17.00, $5.56 -- $17.00, $7.75 -- $17.00, $13.63 -- $18.50, and $8.38 -- $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 period 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. NOTE 16. GUARANTOR INFORMATION The Company's 9.25% Notes (see Note 8) 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 years ended December 31, 1999 and 1998 and as of and for the six month period ended December 31, 1997. Comparative financial information for the fiscal year ended June 30, 1997 is not presented since management believes such information is not material to investors. 70 71 CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION AS OF DECEMBER 31, 1999
COMBINED COMBINED NON- ELIMINATION PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED ---------- ---------- ---------- ----------- ------------ (IN THOUSANDS) ASSETS Current assets ............................... $ 17,583 $ 100,696 $ 26,599 $ (2,259)(1) $ 142,619 Property and equipment, net .................. 43,559 708,072 149,383 -- 901,014 Other assets and deferred charges, net ....... 1,163,857 (524,688) 464,362 (1,057,842)(1)(2) 45,689 Intangible assets, net ....................... -- 116,107 238,552 -- 354,659 ---------- --------- -------- ----------- ---------- Total assets .............................. $1,224,999 $ 400,187 $878,896 $(1,060,101) $1,443,981 ========== ========= ======== =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities .......................... $ 36,470 $ 62,993 $ 39,640 $ (2,173)(1) $ 136,930 Long-term debt, net of current maturities .... 914,028 68,088 33 -- 982,149 Deferred income taxes and other liabilities .. 7,522 49,059 1,342 -- 57,923 Stockholders' equity ......................... 266,979 220,047 837,881 (1,057,928)(2) 266,979 ---------- --------- -------- ----------- ---------- Total liabilities and stockholders' equity. $1,224,999 $ 400,187 $878,896 $(1,060,101) $1,443,981 ========== ========= ======== =========== ==========
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION AS OF DECEMBER 31, 1998
COMBINED COMBINED NON- ELIMINATION PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED -------- ---------- ---------- ----------- ------------ (IN THOUSANDS) 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, net ....... 919,264 (515,630) 153,170 (518,114)(1)(2) 38,690 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 ======== ========= ======== ========= ==========
- ---------- Elimination Entries (1) To eliminate intercompany payables and receivables. (2) To eliminate investment in subsidiaries and subsidiaries' equity. 71 72 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1999
COMBINED COMBINED NON- ELIMINATION PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED --------- --------- -------- --------- ----------- (IN THOUSANDS) Revenues Casino .............................. $ -- $ 592,508 $141,169 $ -- $ 733,677 Food and beverage ................... -- 147,927 11,055 -- 158,982 Room ................................ -- 71,478 -- -- 71,478 Other ............................... 11,380 31,990 40,787 (14,169)(1) 69,988 Management fee ...................... 121,996 53,490 24,172 (152,195)(1) 47,463 --------- --------- -------- --------- ----------- Gross revenues ........................ 133,376 897,393 217,183 (166,364) 1,081,588 Less promotional allowances ........... -- 86,920 7,627 -- 94,547 --------- --------- -------- --------- ----------- Net revenues ................ 133,376 810,473 209,556 (166,364) 987,041 --------- --------- -------- --------- ----------- Costs and expenses Casino .............................. -- 317,769 53,631 -- 371,400 Food and beverage ................... -- 91,739 11,700 -- 103,439 Room ................................ -- 22,532 -- -- 22,532 Other ............................... -- 72,919 45,603 (54,697)(1) 63,825 Selling, general and administrative . -- 114,949 30,839 -- 145,788 Maintenance and utilities ........... -- 35,164 6,808 -- 41,972 Depreciation and amortization ....... 1,950 61,853 10,315 -- 74,118 Corporate expense ................... 38,226 160 1,649 (14,168)(1) 25,867 Preopening expense .................. 202 -- 1,287 -- 1,489 --------- --------- -------- --------- ----------- Total ....................... 40,378 717,085 161,832 (68,865) 850,430 --------- --------- -------- --------- ----------- Operating income ...................... 92,998 93,388 47,724 (97,499) 136,611 Other income (expense), net ........... (63,898) (6,117) 1,038 -- (68,977) --------- --------- -------- --------- ----------- Income before income taxes and cumulative effect .................. 29,100 87,271 48,762 (97,499) 67,634 Provision (benefit) for income taxes .. (10,939) 37,352 1,182 -- 27,595 --------- --------- -------- --------- ----------- Income before cumulative effect ....... 40,039 49,919 47,580 (97,499) 40,039 Cumulative effect, net of taxes ....... (1,738) -- -- -- (1,738) --------- --------- -------- --------- ----------- Net income ............................ $ 38,301 $ 49,919 $ 47,580 $ (97,499) $ 38,301 ========= ========= ======== ========= ===========
- ------------------ Elimination Entries (1) To eliminate intercompany revenue and expense. 72 73 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1998
COMBINED COMBINED NON- ELIMINATION PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED --------- ---------- ---------- ----------- ------------ (IN THOUSANDS) 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 fee ...................... 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 ========= ========= ======== ========= ===========
- -------------- Elimination Entries (1) To eliminate intercompany revenue and expense. 73 74 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
COMBINED COMBINED NON- ELIMINATION PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED --------- ---------- ---------- ----------- ------------ (IN THOUSANDS) 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 34,338 24,716 8,485 (46,703) 20,836 taxes 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 ======== ========= ======= ======== =========
- -------------- Elimination Entries (1) To eliminate intercompany revenue and expense. 74 75 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1999
COMBINED COMBINED NON- PARENT GUARANTORS GUARANTORS CONSOLIDATED --------- --------- --------- --------- (IN THOUSANDS) Cash flows from operating activities .................. $(270,556) $ 148,012 $ 280,202 $ 157,658 --------- --------- --------- --------- Cash flows from investing activities Proceeds from sale of Sam's Town Kansas City's assets -- 2,000 -- 2,000 Net cash paid for acquisition of Blue Chip Casino ... -- -- (261,195) (261,195) Investment in and advances to unconsolidated subsidiaries ...................................... -- (266) (4,451) (4,717) Acquisition of property, equipment and other assets . (8,892) (80,906) (1,921) (91,719) --------- --------- --------- --------- Net cash used in investing activities ................. (8,892) (79,172) (267,567) (355,631) --------- --------- --------- --------- Cash flows from financing activities Payments on long-term debt .......................... (1,550) (408) -- (1,958) Receipt/(payment) of dividends ...................... 69,896 (61,169) (8,727) -- Net borrowings under credit agreements .............. 209,000 -- -- 209,000 Proceeds from issuance of common stock .............. 1,186 -- -- 1,186 --------- --------- --------- --------- Net cash provided by (used in) financing activities ... 278,532 (61,577) (8,727) 208,228 --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents .. (916) 7,263 3,908 10,255 Cash and cash equivalents, beginning of period ........ 1,054 55,492 19,391 75,937 --------- --------- --------- --------- Cash and cash equivalents, end of period .............. $ 138 $ 62,755 $ 23,299 $ 86,192 ========= ========= ========= =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1998
COMBINED COMBINED NON- PARENT GUARANTORS GUARANTORS CONSOLIDATED -------- -------- -------- --------- (IN THOUSANDS) 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 ======== ======== ======== =========
75 76 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
COMBINED COMBINED NON- ELIMINATION PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED --------- --------- --------- ------- --------- (IN THOUSANDS) 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 ========= ========= ========= ======= =========
- ------------- Elimination Entries (1) To eliminate intercompany payments of debt. 76 77 SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
YEAR ENDED DECEMBER 31, 1999 --------------------------------------------------------------- FIRST SECOND THIRD FOURTH TOTAL --------- -------- -------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues .................................. $ 243,258 $241,936 $239,515 $262,332 $ 987,041 Operating income .............................. 35,419 33,066 33,708 34,418 136,611 Income before income tax and cumulative effect of a change in accounting principle ......... 18,345 16,450 17,306 15,533 67,634 Cumulative effect of a change in accounting for start-up activities, net of tax ........... (1,738) -- -- -- (1,738) Net income .................................... $ 8,902 $ 9,705 $ 10,337 $ 9,357 $ 38,301 --------- -------- -------- -------- --------- Basic and diluted net income per common share: Income before cumulative effect ............... $ 0.17 $ 0.16 $ 0.17 $ 0.15 $ 0.65 Cumulative effect, net of tax ................. (0.03) -- -- -- (0.03) --------- -------- -------- -------- --------- Net income .................................... $ 0.14 $ 0.16 $ 0.17 $ 0.15 $ 0.62 ========= ======== ======== ======== =========
YEAR ENDED DECEMBER 31, 1998 --------------------------------------------------------------- FIRST SECOND THIRD FOURTH TOTAL --------- -------- -------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 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 ========= ======== ======== ======== =========
SIX MONTHS ENDED DECEMBER 31, 1997 ------------------------------------- FIRST SECOND TOTAL -------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 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 ======== ========= =========
FISCAL YEAR ENDED JUNE 30, 1997 ------------------------------------------------------------------- FIRST SECOND THIRD FOURTH TOTAL --------- --------- --------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 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) ========= ========= ========= ======== =========
77 78 (C) EXHIBITS.
EXHIBIT NUMBER DOCUMENT ----------- -------- 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(16) 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. 4.5(17) Amended 1993 Directors' Non-Qualified Stock Option Plan 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. 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.
78 79
EXHIBIT NUMBER DOCUMENT ----------- -------- 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. 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. 10.29(18) Unit Purchase Agreement among the Company, Boyd Indiana, Inc., Blue Chip Casino, Inc., Blue Chip Casino, LLC, and certain individuals, dated as of June 27, 1999. 10.30(18) First Amended and Restated Credit Agreement, dated as of June 30, 1999 among the Company as the Borrower, Certain Commercial Lending Institutions, as the Lenders, Canadian Imperial Bank of Commerce, as L/C Issuer and Administrative Agent, Wells Fargo Bank N.A., as Swingline Lender and Syndication Agent, and Bank of America National Trust and Savings Association, as Documentation Agent. 10.31(19) Termination and Transition Agreement among the Company and the Mississippi Band of Choctaw Indians, dated as of October 20, 1999. 21.1(15) Subsidiaries of Registrant. 23.1 Consent of Deloitte & Touche LLP.
79 80
EXHIBIT NUMBER DOCUMENT ----------- -------- 24(15) Powers of Attorney. 27 Financial Data Schedule
- ---------- * 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. (16) Incorporated by reference to Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. (17) Incorporated by reference to the Registration Statement on Form S-8, File No. 333-79895, dated June 3, 1999. (18) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. (19) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. - ------------------------ 80 81 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 30, 2000. BOYD GAMING CORPORATION By: /s/ ELLIS LANDAU --------------------------------------- Ellis Landau Executive Vice President, Chief Financial Officer, Treasurer (Principal Financial Officer) 81 82 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.
SIGNATURE TITLE DATE --------- ----- ---- /s/ WILLIAM S. BOYD Chairman of the Board of Directors, March 30, 2000 - ------------------------------------- Chief Executive Officer and Director William S. Boyd (Principal Executive Officer) /s/ ELLIS LANDAU Executive Vice President, March 30, 2000 - ------------------------------------- Chief Financial Officer and Treasurer Ellis Landau (Principal Financial Officer) /s/ DONALD D. SNYDER President and Director March 30, 2000 - ------------------------------------- Donald D. Snyder /s/ ROBERT L. BOUGHNER Senior Executive Vice President & March 30, 2000 - ------------------------------------- Chief Operating Officer and Director Robert L. Boughner /s/ WILLIAM R. BOYD Vice President and Director March 30, 2000 - ------------------------------------- William R. Boyd /s/ MARIANNE BOYD JOHNSON Vice President and Director March 30, 2000 - ------------------------------------- Marianne Boyd Johnson /s/ PERRY B. WHITT Director March 30, 2000 - ------------------------------------- Perry B. Whitt /s/ WARREN L. NELSON Director March 30, 2000 - ------------------------------------- Warren L. Nelson /s/ PHILIP J. DION Director March 30, 2000 - ------------------------------------- Philip J. Dion /s/ MICHAEL O. MAFFIE Director March 30, 2000 - ------------------------------------- Michael O. Maffie /s/ MAJ. GEN. BILLY G. MCCOY, RET. USAF Director March 30, 2000 - --------------------------------------- Maj. Gen. Billy G. McCoy, Ret. USAF
82 83 EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT ----------- -------- 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(16) 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. 4.5(17) Amended 1993 Directors' Non-Qualified Stock Option Plan 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. 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.
84
EXHIBIT NUMBER DOCUMENT ----------- -------- 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. 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. 10.29(18) Unit Purchase Agreement among the Company, Boyd Indiana, Inc., Blue Chip Casino, Inc., Blue Chip Casino, LLC, and certain individuals, dated as of June 27, 1999. 10.30(18) First Amended and Restated Credit Agreement, dated as of June 30, 1999 among the Company as the Borrower, Certain Commercial Lending Institutions, as the Lenders, Canadian Imperial Bank of Commerce, as L/C Issuer and Administrative Agent, Wells Fargo Bank N.A., as Swingline Lender and Syndication Agent, and Bank of America National Trust and Savings Association, as Documentation Agent. 10.31(19) Termination and Transition Agreement among the Company and the Mississippi Band of Choctaw Indians, dated as of October 20, 1999. 21.1(15) Subsidiaries of Registrant. 23.1 Consent of Deloitte & Touche LLP.
85
EXHIBIT NUMBER DOCUMENT ----------- -------- 24(15) Powers of Attorney. 27 Financial Data Schedule
- ---------- * 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. (16) Incorporated by reference to Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. (17) Incorporated by reference to the Registration Statement on Form S-8, File No. 333-79895, dated June 3, 1999. (18) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. (19) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. - ------------------------ EX-23.1 2 CONSENT OF EXPERTS AND COUNSEL 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 Statement No. 33-17941, No. 33-76484, No. 33-79895, and No. 33-85022 of Boyd Gaming Corporation and Subsidiaries on Form S-8 of our report dated February 23, 2000, appearing in the Annual Report on Form 10-K of Boyd Gaming Corporation and Subsidiaries for the year ended December 31, 1999. /s/ DELOITTE & TOUCHE LLP - ------------------------- Deloitte & Touche LLP Las Vegas, Nevada March 30, 2000 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1999 DEC-31-1999 86,192 0 22,224 4,639 6,181 142,619 1,383,751 482,737 1,443,981 136,930 982,149 0 0 622 266,357 1,443,981 0 987,041 0 850,430 0 0 69,230 67,634 27,595 40,039 0 0 (1,738) 38,301 0.62 0.62
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