1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: June 7, 1996
BOYD GAMING CORPORATION
-----------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada
------
(State or Other Jurisdiction of
Incorporation or Organization)
1-12168 88-0242733
------- ----------
(Commission File Number) (I.R.S. Employer
Identification No.)
2950 South Industrial Road
Las Vegas, Nevada 89109
-----------------------
(Address of Principal Executive Offices) (Zip Code)
(702) 792-7200
--------------
(Registrant's telephone number,
including area code)
2
ITEM 5. OTHER EVENTS.
a. Atlantic City Joint Venture
On May 29, 1996, the Company, through a wholly-owned subsidiary,
entered into a joint venture agreement (the "Mirage Joint Venture") with a
subsidiary of Mirage Resorts, Incorporated ("Mirage") to jointly develop and own
a casino/hotel entertainment facility in Atlantic City, New Jersey (the
"Atlantic City Project"). The Atlantic City Project, which is expected to cost
approximately $500 million, is planned to be one component of a multi-facility
casino entertainment development, master-planned by Mirage for the Marina
district of Atlantic City. Pursuant to the joint venture agreement, the Company
will control the development and operation of the Atlantic City Project. The
Atlantic City Project will be adjacent and connected to Mirage's planned
wholly-owned resort. Construction is anticipated to begin after completion of
the remediation of the property and is expected to take approximately 24 months
to complete. The Mirage Joint Venture will give the Company a presence
in Atlantic City, the primary casino gaming market serving the Eastern
United States.
On May 29, 1996, the Company and Mirage issued a joint press release
concerning the Mirage Joint Venture, the text of which press release is attached
hereto as Exhibit 99.1 and is incorporated by reference herein.
b. Sam's Town Reno Project
The Company has identified a site in Reno, Nevada upon which it plans
to develop a $92 million casino, hotel and entertainment complex, featuring the
Sam's Town brand name and western theme, which is planned to include a 33,000
square foot casino, a hotel with 211 guest rooms and suites, five restaurants,
an outdoor arena, an events center and various other amenities. The Company has
reached a preliminary agreement for the acquisition of a 100 acre parcel of land
and expects to complete the acquisition of the land and is currently planning
to commence construction of the project by the end of this calendar year, with
the opening occurring as early as spring 1998. William S. Boyd, Chairman and
Chief Executive Officer of the Company, and Warren L. Nelson, a Director of the
Company, each owns a 17.5 % interest in the partnership which owns the land to
be acquired for the project. A copy of the press release issued by the Company
concerning the Sam's Town Reno project is attached as Exhibit 99.2 hereto and
is incorporated by reference herein.
c. Governmental Regulation
As previously reported on the Company's Current Report on Form 8-K
filed on May 13, 1996, the Company entered into a definitive purchase agreement
on April 26, 1996 to acquire 100% of the capital stock of Par-A-Dice Gaming
Corporation ("Par-A-Dice Gaming"), an Illinois corporation, and 100% of the
capital stock of East Peoria Hotel, Inc. ("EPH"), an Illinois corporation (the
"Par-A-Dice Acquisition"). Par-A-Dice Gaming is the owner and operator of the
Par-A-Dice Riverboat Casino in East Peoria, Illinois, and EPH is the general
partner of a limited partnership which is developing the 204-room Par-A-Dice
Hotel located immediately adjacent to the Par-A-Dice Riverboat Casino. The
ownership and operation of the Par-A-Dice Riverboat
2
3
Casino is subject to the jurisdiction of the Illinois Gaming Board and the
gaming laws of the State of Illinois.
As explained above, the Company, through a wholly-owned subsidiary, has
entered into the Mirage Joint Venture to jointly develop and own the Atlantic
City Project. The ownership and operation of the Atlantic City Project will be
subject to the jurisdiction of the New Jersey Casino Control Commission and the
gaming laws of the State of New Jersey.
In April 1996, the Louisiana legislature passed the Louisiana Gaming
Control Act, which abolished the Louisiana Riverboat Gaming Commission and the
Riverboat Gaming Enforcement Division of the Louisiana State Police and replaced
them with the Louisiana Gaming Control Board.
The following is a summary of the Illinois Riverboat Gambling Act, the
New Jersey Casino Control Act and the Louisiana Gaming Control Act, as well as
descriptions of the Missouri and Mississippi gaming regulations applicable to
the Company updated from those contained in the Company's Form 10-K Annual
Report for the fiscal year ended June 30, 1995 ("1995 Form 10-K").
Illinois
In February 1990, the State of Illinois legalized riverboat gaming. The
Illinois Riverboat Gambling Act (the "Illinois Act") authorizes the issuance by
the five-member Illinois Gaming Board of up to 10 riverboat gaming owner's
licenses for navigable streams within or forming a boundary of the state of
Illinois, except for Lake Michigan and any waterway in Cook County, which
includes Chicago. The Illinois Act regulates strictly the facilities, persons,
associations and practices related to riverboat gaming operations. The Illinois
Act grants the Illinois Gaming Board specific powers and duties, and all other
powers necessary and proper to fully and effectively execute the Illinois Act
for the purpose of administering, regulating and enforcing the system of
riverboat gaming. The Illinois Gaming Board's jurisdiction extends to every
person, association, corporation, partnership and trust involved in riverboat
gaming operations in the State of Illinois. The ownership and operation of a
riverboat gaming operation is subject to extensive regulation. Applicants must
submit comprehensive application and personal disclosure forms and undergo an
exhaustive background investigation prior to the issuance of a license.
The Illinois Act requires the owner of a riverboat gaming operation to
hold an owner's license issued by the Illinois Gaming Board. The Illinois Act
restricts the granting of certain of the ten owner's licenses by location. Four
are for operators docking at sites on the Mississippi River, one is for an
operator docking at a site on the Illinois River south of Marshall County and
one is for an operator docking at a site on the Des Plaines River in Will
County. The remaining four owner's licenses are not restricted as to location.
Riverboats operating on the Des Plaines River must have a minimum capacity of at
least 400 persons. All riverboats must be accessible to disabled persons, must
be either a replica of a 19th century Illinois riverboat or be of a casino
cruise ship design and must comply with applicable federal and state laws,
including, but not limited to, U.S. Coast Guard regulations. The Illinois Gaming
Board has currently granted ten licenses, one license to riverboat operations in
each of Alton, East Peoria, Rock Island, East
3
4
Dubuque, Metropolis, East St. Louis, Aurora, and Elgin, and two licenses to
riverboat operators in Joliet. In addition to the ten owner's licenses which are
authorized under the Illinois Act, the Illinois Gaming Board may issue special
event licenses allowing persons who are not otherwise licensed to conduct
riverboat gaming on a specified date or series of dates.
Each owner's license initially runs for a period of three years.
Thereafter, the license is subject to renewal on an annual basis upon a
determination by the Illinois Gaming Board that the licensee continues to be
eligible for an owner's license pursuant to the Illinois Act and the Illinois
Gaming Board's rules. The owner's license for Par-A-Dice initially expired in
February 1995. Its license was thereafter renewed in February 1996. Par-A-Dice
will be required to renew its license in February 1997, and each year
thereafter. A licensed owner is authorized to apply to the Illinois Gaming Board
for and, if approved, will receive all licenses necessary for the operation of a
riverboat. These licenses include a liquor license, a license to prepare and
serve food and all other necessary licenses.
Each license granted entitles a licensee to own and operate up to two
riverboats (with a combined maximum of 1,200 gaming participants) as part of the
riverboat gaming operation. No person or entity may be licensed as the owner of
more than one riverboat gaming operation in Illinois, although a licensed owner
of greater than 10% may hold up to a 10% ownership interest in a second
riverboat gaming operation in Illinois.
The Illinois Act does not limit the maximum bet or per patron loss.
Minimum and maximum wagers on games are set by the licensee and wagering may not
be conducted with money or other negotiable currency. No person under the age of
21 is permitted to wager and wagers may only be received from a person present
on the riverboat. With respect to electronic gaming devices, the payout
percentage may not be less than 80% nor more than 100%. The Illinois Act imposes
a 20% wagering tax on adjusted gross receipts (which is gross gaming revenues
minus winnings paid to patrons). The tax imposed is to be paid by the licensed
owner to the Illinois Gaming Board on the day after the day when the liability
was established. The Illinois Act also requires that licensees pay a $2.00
admission tax for each person admitted to a gaming cruise. All state use,
occupation and excise taxes which apply to the sale of food and beverages and
taxes imposed on the sale or use of tangible property apply to such sales aboard
riverboats.
From time to time, various proposals have been introduced in the
Illinois legislature regarding riverboat gaming. Such bills include, among other
things, taxes, licensing and conduct of gaming. The Company cannot offer any
opinion of the outcome or effect of any pending or proposed legislation.
Under the Illinois Act, there is a four-hour maximum period during
which gaming may be conducted during a gaming excursion. Gaming is deemed to
commence when the first passenger boards a riverboat for an excursion and may
continue while other passengers are boarding for a period of not to exceed 30
minutes. A gaming excursion is deemed to have started upon the commencement of
gaming. Gaming may continue for a period not to exceed 30 minutes after the
gangplank or its equivalent is lowered. During this 30 minute period of egress,
new passengers may not board a riverboat.
4
5
If a riverboat captain reasonably determines that either it is unsafe
to transport passengers on the waterway due to inclement weather or the
riverboat has been rendered temporarily inoperable by river icing or
unforeseeable mechanical or structural difficulties, the riverboat shall either
not leave the dock or immediately return to it. In the case of unforeseeable
mechanical or structural difficulties, the owner licensee shall make all
reasonable effort to promptly remedy the problem. If a riverboat captain
reasonably determines for reasons of safety that although seaworthy, the
riverboat should not leave the dock or should return immediately thereto, due to
the above conditions, a gaming excursion may commence or continue while the
gangplank or its equivalent is raised and remains raised, in which event the
riverboat is not considered docked. If, due to the above conditions, a gaming
excursion must commence or continue with the gangplank or its equivalent raised
and the riverboat does not leave the dock, ingress is prohibited until the
completion of the excursion.
The Illinois Gaming Board is authorized to conduct investigations into
the conduct of gaming as it may deem necessary and proper and into alleged
violations of the Illinois Act and Illinois Gaming Board Rules. Employees and
agents of the Illinois Gaming Board have access to and may inspect any
facilities relating to the riverboat gaming operations at all times.
A holder of a riverboat gaming license will be subject to the
imposition of fines and suspension or revocation of its license for any act by
such holder, its agents or employees that is injurious to the public health,
safety, morals, good order and general welfare of the people of the State of
Illinois, or that would discredit or tend to discredit the Illinois gaming
industry or the State of Illinois. The following may be grounds for such
discipline: (i) failing to comply with or make provision for compliance with the
Illinois Act, the rules promulgated thereunder, any federal, state or local law
or regulation, or the license holder's internal procedures and administration
and accounting controls; (ii) failing to comply with any rule, order or filing
of the Illinois Gaming Board or its agents pertaining to gaming; (iii) receiving
goods or services from a person or business entity who does not hold a
supplier's license but who is required to hold such license by the rules; (iv)
being suspended or ruled ineligible or having a license revoked or suspended in
any other state or gaming jurisdiction; (v) associating with, either socially or
in business affairs, or employing persons of notorious or unsavory reputation or
who have extensive police records, or who have failed to cooperate with any
officially constituted investigatory or administrative body and would adversely
affect public confidence and trust in gaming; and (vi) employing in any Illinois
riverboat's gaming operation any person known to have been found guilty of
cheating or using any improper device in connection with any game.
Licensees are required to obtain formal approval from the Illinois
Gaming Board whenever a change is proposed in the following areas: (i) Key
Persons; (ii) type of entity; (iii) the equity and debt capitalization of the
entity; (iv) investors and/or debt holders; (v) sources of funds; (vi) the
applicant's economic development plan; (vii) riverboat capacity or significant
design change; (viii) the number of gaming positions; (ix) anticipated economic
impact; or (x) pro forma budgets and financial statements. In addition,
distributions to shareholders, partners and others are limited to those which
cannot impair the financial viability of the gaming operation.
The Illinois Gaming Board requires that a Key Person of an owner
licensee must submit a Personal Disclosure Form and be investigated and approved
by the Illinois Gaming Board. Any
5
6
person directly or indirectly holding a legal or beneficial interest of 5% or
more of an applicant or owner licensee is deemed to be a Key Person, as are
officers, directors, trustees, partners, proprietors and managing agents of a
gaming enterprise. Furthermore, each applicant or owner licensee must disclose
the identify of every person, association, trust or corporation having a greater
than 1% direct or indirect pecuniary interest in an owner licensee or in the
riverboat gaming operation with respect to which the license is sought. The
Illinois Gaming Board may also require an applicant or owner licensee to
disclose any other principal or investor and require the investigation and
approval of such individuals.
The Illinois Gaming Board (unless the investor qualifies as an
institutional investor) requires a Personal Disclosure Form from any person or
entity who or which, individually or in association with others, acquires
directly or indirectly, beneficial ownership of more than 5% of any class of
voting securities or non-voting securities convertible into voting securities of
a publicly traded corporation which holds an ownership interest in the holder of
an owner's license. If the Illinois Gaming Board denies an application for such
a transfer and if no hearing is requested, the applicant for the transfer of
ownership interest must promptly divest those shares in the publicly traded
parent corporation. The holder of an owner's license would not be able to
distribute profits to a publicly traded parent corporation until such shares
have been divested. If a hearing is requested, the shares need not be divested
and profits may be distributed to a publicly held parent corporation pending the
issuance of a final order from the Illinois Gaming Board.
A person employed at a riverboat gaming operation must hold an
occupational license from the Illinois Gaming Board. The occupational license
permits the holder to perform only activities included within such holder's
level of occupational license or any lower level of occupational license. A
holder of a riverboat gaming license is required to investigate the background
and qualifications of all persons who apply for employment at its gaming
operation. Suppliers of gaming equipment and supplies and certain other vendors
must obtain a supplier's license from the Illinois Gaming Board prior to selling
or leasing any equipment and supplies as defined in Illinois Gaming Board Rules.
The Illinois Gaming Board may waive any licensing requirement or
procedure provided by rule if it determines that such waiver is in the best
interests of the public and the gaming industry.
New Jersey
The ownership and operation of casino gaming facilities in New Jersey
are subject to the New Jersey Casino Control Act (the "Casino Control Act"). In
general, the Casino Control Act and the regulations promulgated thereunder
contains detailed provisions concerning, among other things: the granting of
casino licenses; the suitability of the approved hotel facility and the amount
of authorized casino space and gaming units permitted therein; the qualification
of natural persons and entities related to the casino licensee; the licensing
and registration of employees and vendors of casino licensees; rules of the
games; the selling and redeeming of gaming chips; the granting and duration of
credit and the enforceability of gaming debts; management control procedures,
accountability, and cash control methods and reports to gaming agencies;
security standards; the manufacture and distribution of gaming equipment; equal
opportunity for employees and casino operators, contractors of casino
facilities, and others; and advertising, entertainment, and alcoholic beverages.
The New Jersey Casino Control Commission (the "CCC") is empowered
6
7
under the Casino Control Act to regulate a wide spectrum of gaming and nongaming
related activities and to approve the form of ownership and financial structure
of not only a casino licensee, but also its entity qualifiers and intermediary
and holding companies.
No casino hotel facility may operate unless the appropriate license and
approvals are obtained from the CCC, which has broad discretion with regard to
the issuance, renewal, revocation, and suspension of such licenses and
approvals, which are nontransferable. The qualification criteria with respect to
the holder of a casino license include its financial stability, integrity and
responsibility; the integrity and adequacy of its financial resources which bear
any relation to the casino project; its good character, honesty, and integrity;
and the sufficiency of its business ability and casino experience to establish
the likelihood of creation and maintenance of a successful, efficient casino
operation. The CCC may reopen licensing hearings at any time and must reopen a
licensing hearing at the request of the Division of Gaming Enforcement (the
"Division").
To be considered financially stable, a licensee must demonstrate the
following ability: to pay winning wagers when due; to achieve a gross operating
profit; to pay all local, state, and federal taxes when due; to make necessary
capital and maintenance expenditures to insure that it has a superior
first-class facility; and to pay, exchange, refinance or extend debts which will
mature and become due and payable during the license term.
In the event a licensee fails to demonstrate financial stability, the
CCC may take such action as it deems necessary to fulfill the purposes of the
Casino Control Act and protect the public interest, including: issuing
conditional licenses approvals or determinations; establishing an appropriate
cure period; imposing reporting requirements; placing restrictions on the
transfer of cash or the assumption of liability; requiring reasonable reserves
or trust accounts; denying licensure; or appointing a conservator.
Pursuant to the Casino Control Act, CCC regulations and precedent, no
entity may hold a casino license unless each officer, director, principal
employee, person who directly or indirectly holds any beneficial interest or
ownership in the licensee, each person who in the opinion of the CCC has the
ability to control or elect a majority of the board of directors of the licensee
(other than a banking or other licensed lending institution which makes a loan
or holds a mortgage or other loan acquired in the ordinary course of business),
and any lender, whom the CCC may consider appropriate, obtains and maintains
qualification approval from the CCC. Qualification approval means qualification
requirements as a casino key employee, as described below.
An entity qualifier or intermediary or holding company is required to
register with the CCC and meet the same basic standards for approval as a casino
licensee; provided, however, that the CCC, with the concurrence of the Director
of the Division, may waive compliance by a publicly-traded corporate holding
company as to any officer, director, lender, underwriter, agent or employee
thereof, or person directly or indirectly holding a beneficial interest or
ownership of the securities of such company, where the CCC and the Director of
the Division are satisfied that such persons are not significantly involved in
the activities of the corporate licensee, and in the case of security holders,
do not have the ability to control the publicly-trade corporation or elect one
or more of its directors.
7
8
The CCC may require all financial backers, investors, mortgagees, bond
holders and holders of notes or other evidence of indebtedness, either in effect
or proposed, which bears any relation to the casino project, publicly-traded
securities of an entity which holds a casino license or is an entity qualifier,
subsidiary, or holding company of a casino licensee (a "Regulated Company"), to
qualify as financial sources.
An institutional investor ("Institutional Investor") is defined by the
Casino Control Act as any retirement fund administered by a public agency for
the exclusive benefit of federal, state, or local public employees; investment
company registered under the Investment Company Act of 1940; collective
investment trust organized by banks under Part Nine of the Rules of the
Comptroller of the Currency; closed end investment trust; chartered or licensed
life insurance company or property and casualty insurance company; banking and
other chartered or licensed lending institution; investment advisor registered
under the Investment Advisers Act of 1940; and such other persons as the CCC may
determine for reasons consistent with the policies of the Casino Control Act.
An Institutional Investor shall be granted a waiver by the CCC from
financial source or other qualification requirements applicable to a holder of
publicly-traded securities, in the absence of a prima facie showing by the
Division that there is any cause to believe that the Institutional Investor may
be found unqualified, on the basis of CCC findings that: (a) its holdings were
purchased for investment purposes only and, upon request by the CCC, it files a
certified statement to the effect that it has no intention of influencing or
affecting the affairs of the issuer, the casino licensee or its holding or
intermediary companies; provided, however, that the Institutional Investor will
be permitted to vote on matters put to the vote of the outstanding security
holders; and (b) if (i) the securities are debt securities of a casino
licensee's holding or intermediary companies or another subsidiary company of
the casino licensee's holding or intermediary companies which is related in any
way to the financing of the casino licensee and represent either (x) 20% or less
of the total outstanding debt of the company, or (y) 50% or less of any issue of
outstanding debt of the company, (ii) the securities are under 10% of the equity
securities of a casino licensee's holding or intermediary companies, or (iii) if
the securities so held exceed such percentages, upon a showing of good cause.
The CCC may grant a waiver of qualification to an Institutional Investor holding
a higher percentage of such securities upon a showing of good cause and if the
conditions specified above are met.
Generally, the CCC requires each institutional holder seeking waiver of
qualification to execute a certification to the effect that (i) the holder has
reviewed the definition of Institutional Investor under the Casino Control Act
and believes that it meets the definition of Institutional Investor; (ii) the
securities are those of a publicly-traded corporation; (iii) the holder
purchased the securities for investment purposes only and holds them in the
ordinary course of business; (iv) the holder has no involvement in the business
activities of, and no intention of influencing or affecting the affairs of the
issuer, the casino licensee, or any affiliate; and (v) if the holder
subsequently determines to influence or affect the affairs of the issuer, the
casino licensee or any affiliate, it shall provide not less than 30 days' prior
notice of such intent and shall file with the CCC an application for
qualification before taking any such action. If an Institutional Investor
changes its investment intent, or if the CCC finds reasonable cause to believe
that it may be found unqualified, the Institutional Investor may take no action
with respect to the security holdings,
8
9
other than to divest itself of such holdings, until it has applied for interim
casino authorization and has executed a trust agreement pursuant to such an
application.
The Casino Control Act imposes certain restrictions upon the issuance,
ownership, and transfer of securities of a Regulated Company, and defines the
term "security" to include instruments which evidence a direct or indirect
beneficial ownership or creditor interest in a Regulated Company including, but
not limited to, mortgages, debentures, security agreements, notes, and warrants.
If the CCC finds that a holder of such securities is not qualified
under the Casino Control Act, it has the right to take any remedial action it
may deem appropriate, including the right to force divestiture by such
disqualified holder of such securities. In the event that certain disqualified
holders fail to divest themselves of such securities, the CCC has the power to
revoke or suspend the casino license affiliated with the Regulated Company which
issued the securities. If a holder is found unqualified, it is unlawful for the
holder (i) to exercise, directly or through any trustee or nominee, any right
conferred by such securities, or (ii) to receive any dividends or interest upon
any such securities or any remuneration, in any form, from its affiliated casino
licensee for services rendered or otherwise.
With respect to non-publicly-traded securities, the Casino Control Act
and CCC Regulations require that the corporate charter or partnership agreement
of a Regulated Company establish a right in the CCC of prior approval with
regard to transfers of securities, shares and other interests and an absolute
right in the Regulated Company to repurchase at the market price or the purchase
price, whichever is the lesser, any such security, share, or other interest in
the event that the CCC disapproves a transfer. With respect to publicly-traded
securities, such corporate charter or partnership agreement is required to
establish that any such securities of the entity are held subject to the
conditions that, if a holder thereof is found to be disqualified by the CCC,
such holder shall dispose of such securities.
Whenever any person enters into a contract to transfer any property
which relates to an ongoing casino operation, including a security of the casino
licensee or a holding or intermediary company or entity qualifier, under
circumstances which would require that the transferee obtain licensure or be
qualified under the Casino Control Act, and that person is not already licensed
or qualified, the transferee is required to apply for interim authorization.
Furthermore, the closing or settlement date in the contract may not be earlier
than the 121st day after the submission of a complete application for licensure
or qualification together with a fully executed trust agreement in a form
approved by the CCC. If, after the report of the Division and a hearing by the
CCC, the CCC grants interim authorization, the property will be subject to a
trust. If the CCC denies interim authorization, the contract may not close or
settle until the CCC makes a determination on the qualifications of the
applicant. If the CCC denies qualification, the contract will be terminated for
all purposes, and there will be no liability on the part of the transferor.
If, as the result of a transfer of publicly-traded securities of a
Regulated Company or a financing entity of a Regulated Company, any person is
required to qualify under the Casino Control Act, that person is required to
file an application for licensure or qualification within 30 days after the CCC
determines that qualification is required or declines to waive qualification.
9
10
The application must include a fully executed trust agreement in a form approved
by the CCC, or in the alternative, within 120 days after the CCC determines that
qualification is required, the person whose qualification is required must
divest such securities as the CCC may require in order to remove the need to
qualify.
The CCC may grant interim casino authorization where it finds by clear
and convincing evidence that: (i) statements of compliance have been issued
pursuant to the Casino Control Act; (ii) the casino hotel is an approved hotel
in accordance with the Casino Control Act; (iii) the trustee satisfies
qualification criteria applicable to casino key employees, except for residency;
and (iv) interim operation will best serve the interests of the public.
When the CCC finds the applicant qualified, the trust will terminate.
If the CCC denies qualification to a person who has received interim casino
authorization, the trustee is required to endeavor, and is authorized, to sell,
assign, convey, or otherwise dispose of the property subject to the trust to
such persons who are licensed or qualified or shall themselves obtain interim
casino authorization.
Where a holder of publicly-traded securities is required, in applying
for qualification as a financial source or qualifier, to transfer such
securities to a trust in application for interim casino authorization and the
CCC thereafter orders that the trust become operative: (i) during the time the
trust is operative, the holder may not participate in the earnings of the casino
hotel or receive any return on its investment or debt security holdings; and
(ii) after disposition, if any, of the securities by the trustee, proceeds
distributed to the unqualified holder may not exceed the lower of their actual
cost to the unqualified holder or their value calculated as if the investment
had been made on the date the trust became operative.
The CCC may permit a licensee to increase its casino space if the
licensee agrees to add a prescribed number of qualifying sleeping units within
two years after the commencement of gaming operations in the additional casino
space. However, if the casino licensee does not fulfill such agreement due to
conditions within its control, the licensee will be required to close the
additional casino space, or any portion thereof that the CCC determines should
be closed.
The CCC is authorized to establish annual fees for the renewal of
casino licenses. The renewal fee is based upon the cost of maintaining control
and regulatory activities prescribed by the Casino Control Act, and may not be
less than $200,000 for a four-year casino license. Additionally, casino licenses
are subject to potential assessments to fund any annual operating deficits
incurred by the CCC or the Division. There is also an annual license fee of $500
for each slot machine maintained for use or in use in any casino. Additionally,
each casino licensee is also required to pay an annual tax of 8% on its gross
casino revenues.
Each party to an agreement for the management of a casino in required
to hold a casino license, and the party who is to manage the casino must own at
least 10% of all the outstanding equity securities of the casino licensee. Such
an agreement shall: (i) provide for the complete management of the casino; (ii)
provide for the sole and unrestricted power to direct the casino operations; and
(iii) provide for a term long enough to ensure the reasonable continuity,
stability and independence and management of the casino.
10
11
An investment alternative tax imposed on the gross casino revenues of
each licensee in the amount of 2.5% is due and payable on the last day of April
next following the end of the calendar year. A licensee is obligated to pay the
investment alternative tax for a period of 30 years. Estimated payments of the
investment alternative tax obligation must be made quarterly in an amount equal
to 1.25% of estimated gross revenues for the preceding three-month period.
Investment tax credits may be obtained by the Casino Reinvestment Development
Authority ("CRDA"). CRDA bonds have terms as long as 50 years and bear interest
at below market rates, resulting in a value lower than the face value of such
CRDA bonds.
For the first 10 years of its obligation, the licensee is entitled to
an investment tax credit against the investment alternative tax in an amount
equal to twice the purchase price of the bonds issued to the licensee by the
CRDA. Thereafter, the licensee is (i) entitled to an investment tax credit in an
amount equal to twice the purchase price of such bonds or twice the amount of
its investments authorized in lieu of such bond investments made in projects
designated as eligible by the CRDA, and (ii) has the option of entering into a
contract with the CRDA to have its tax credit comprised of direct investments in
approved eligible projects which may not comprise more than 50% of its eligible
tax credit in any one year.
From the monies made available to the CRDA, the CRDA is required to set
aside $100 million for investment in hotel development projects in Atlantic City
undertaken by a licensee which result in the construction or rehabilitation of
at least 200 hotel rooms by December 31, 1996. These monies will be held to fund
up to 35% of the cost to casino licensees of expanding their hotel facilities to
provide additional hotel rooms, a portion of which will be required to be
available upon the opening of the new Atlantic City convention center and
dedicated to convention events. The CRDA has determined at this time that
eligible casino licensees will receive up to 27% of the cost of additional hotel
rooms out of these monies set aside and may, in the future, increase the
percentage to no greater than 35%.
On each October 31 during the years 1996 through 2003, each casino
licensee must pay into an account established in the CRDA and known as the
Atlantic City Fund, its proportional share of an amount related to the amount by
which annual operating expenses of the CCC and the Division are less than a
certain fixed sum. Additionally, a portion of the investment alternative tax
obligation of each casino license for the years 1994 through 1998 allocated for
projects in Northern New Jersey is required to be paid into and credited to the
Atlantic City Fund. Amounts in the Atlantic City Fund will be expended by the
CRDA for economic development projects of a revenue producing nature that foster
the redevelopment of Atlantic City other than the construction and renovation of
casino hotels.
As of July 1, 1993, each casino licensee was required to impose on and
collect from patrons a standard minimum parking charge of at least $2.00 for the
use of a parking space for the purpose of parking, garaging or storing motor
vehicles in a parking facility owned or leased by a casino licensee or by any
person on behalf of a casino licensee. Of the amount collected by the casino
licensed, $1.50 is required to be paid to the New Jersey State Treasurer and
paid by the New Jersey State Treasurer into a special fund established and held
by the New Jersey State Treasurer for the exclusive use of the CRDA.
11
12
Amounts in the special fund will be expended by the CRDA for (i)
eligible projects in the corridor region of Atlantic City, which projects are
related to the improvement of roads, infrastructure, traffic regulation, and
public safety, and (ii) funding up to 35% of the cost to casino licensees of
expanding their hotel facilities to provide additional hotel rooms, which hotel
rooms are required to be available upon the opening of the Atlantic City
Convention Center and dedicated to convention events.
If, at any time, it is determined that a Regulated Company has violated
the Casino Control Act, or that any such entity cannot meet the qualification
requirements of the Casino Control Act, such entity could be subject to fines or
the suspension or revocation of its license or qualification. If a Regulated
Company's license is suspended for a period in excess of 120 days or revoked, or
if the CCC fails or refuses to renew such casino license, the CCC could appoint
a conservator to operate or dispose of such entity's casino hotel facilities.
The conservator would be required to act under the direct supervision of the CCC
and would be charged with the duty of conserving, preserving, and if permitted,
continuing the operation of such casino hotel. During the period of true
conservatorship, a former or suspended casino licensee is entitled to a fair
rate of return out of net earnings, if any, on the property retained by the
conservator. The CCC may also discontinue any conservatorship action and direct
the conservator to take such steps as are necessary to effect an orderly
transfer of the property of a former or suspended casino licensee.
Casino employees are subject to more stringent requirements than
non-casino employees and must meet applicable standards pertaining to financial
stability, integrity and responsibility, good character, honesty and integrity,
and New Jersey residency. These requirements have resulted in significant
competition among Atlantic City casino operators for the services of qualified
employees.
Casinos must follow certain procedures which are outlined in the Casino
Control Act when granting gaming credit and recording counter checks which have
been exchanged, redeemed, or consolidated. Gaming debts arising in Atlantic City
in accordance with applicable regulations are enforceable in the courts of the
State of New Jersey.
Louisiana
The operation and management of riverboat casino facilities in
Louisiana are subject to extensive state regulation. The Louisiana Riverboat
Economic Development and Gaming Control Act (the "Riverboat Act") became
effective on July 19, 1991 and authorized the formation of the Louisiana
Riverboat Gaming Commission (the "Commission") and the Riverboat Gaming
Enforcement Division of the Louisiana State Police (the "Division"). Both the
Commission and the Division promulgated extensive regulations which controlled
riverboat gaming in Louisiana. The Act states, among other things, that certain
of the policies of the State of Louisiana are to develop a historic riverboat
industry that will assist in the growth of the tourism market, to license and
supervise the riverboat industry from the period of construction through the
actual operation, to regulate the operators, manufacturers, suppliers, and
distributors of gaming devices and to license all entities involved in the
riverboat gaming industry. The Act makes it clear, however, that no holder of a
license or permit possesses any vested interest in such license or permit and
that the license or permit may be revoked at any time. In a special session held
in April 1996, the
12
13
Louisiana legislature passed the Louisiana Gaming Control Act which dissolved
both the Commission and the Division and replaced them with the Louisiana Gaming
Control Board. The Board came into existence on May 1, 1996, but presently there
have been no appointees confirmed, the Board has not met and no regulations have
been promulgated. The Gaming Control Board will be made up of 9 members and 2
ex-officio, members (including the superintendent of Louisiana State Police). It
will be domiciled in Baton Rouge and will regulate riverboat gaming, the
landbased casino in New Orleans and video poker. The Attorney General will act
as legal counsel to the Gaming Control Board as he did for the Commission.
Pursuant to the Gaming Control Act, all of the regulatory authority, control and
jurisdiction of licensing has now been transferred to the Gaming Control Board.
The Gaming Control Board has not yet promulgated regulations. Any material
alteration in the method whereby riverboat gaming is regulated in the State of
Louisiana could have an adverse effect on the operations of the Treasure Chest.
Presently, in the absence of regulations from the Gaming Control Board,
licensees are continuing to conduct their affairs pursuant to the regulations
promulgated under the Riverboat Act.
The Louisiana legislature also passed legislation requiring each parish
(county) where riverboat gaming is currently authorized to hold an election in
order for the voters to decide whether riverboat gaming will remain legal in
that parish. The vote is scheduled for November 6, 1996. The Treasure Chest is
located in Jefferson Parish, Louisiana. If Jefferson Parish votes riverboat
gaming out of the parish, the Treasure Chest's operations will terminate on or
before the termination date of its license (May 18, 1999). There is no assurance
that the measure allowing riverboat gaming to remain in Jefferson Parish will
pass. The failure of the measure to be approved would have adverse consequences
on the operations of the Treasure Chest.
The Riverboat Act approved the conducting of gaming activities on a
riverboat, in accordance with the Act, on twelve separate waterways in
Louisiana. The Act allowed the Division to issue up to 15 licenses to operate
riverboat gaming projects within the state with no more than 6 in any one
parish. There are presently 14 licenses issued and 13 riverboats operating. No
gaming is allowed while a riverboat is docked unless the vessel is docked for
less than 45 minutes between excursions. All cruises are required to be at least
three 3 hours in duration. Pursuant to the Riverboat Act and the regulations
promulgated thereunder, each applicant which desired to operate a riverboat
casino in Louisiana was required to file a number of separate applications for a
Certificate of Preliminary Approval, all necessary gaming licenses and a
Certificate of Final Approval. No final Certificate was issued without all
necessary and proper certificates from all regulatory agencies including the
U.S. Coast Guard, the U.S. Army Corps of Engineers, local port authorities and
local levee authorities.
The Treasure Chest project application for Certificate of Preliminary
Approval was filed by Treasure Chest Casino, L.L.C., the owner of the Treasure
Chest. The Treasure Chest received its Preliminary Certificate in August of 1993
and received its license on May 18, 1994. The license is subject to certain
general operational conditions and is subject to revocation pursuant to
applicable laws and regulations.
13
14
The Company and certain of its directors and officers and certain key
personnel were found suitable by the Division. New directors, officers and
certain key employees associated with gaming must also be found suitable by the
Gaming Control Board prior to working in gaming related areas. These approvals
may be immediately revoked for a number of causes as determined by the Gaming
Control Board. The Gaming Control Board may deny any application for a
certificate, permit or license for any cause found to be reasonable by the
Gaming Control Board. The Gaming Control Board has the authority to require the
Company to sever its relationships with any persons for any cause deemed
reasonable by the Division or for the failure of that person to file necessary
applications with the Gaming Control Board.
At any time, the Gaming Control Board may investigate and require the
finding of suitability of any beneficial shareholder of the Company. The Gaming
Control Board requires all holders of more than 5% of the license holder to
submit to suitability requirements. Additionally, if a shareholder who must be
found suitable is a corporate or partnership entity, then the shareholders or
partners of that entity must also submit to investigation. The sale or transfer
of more than a 5% interest in any riverboat project is subject to Gaming Control
Board approval.
Annual fees are currently charged to each riverboat project as follows:
(i) $50,000 per year for the first year and $100,000 for each year thereafter;
and (ii) 18.5 % of the net gaming proceeds. Additionally, each riverboat must
pay to the local government a boarding fee of $2.50 per passenger boarding the
vessel. These fees could be increased by the Gaming Control Board.
Pursuant to the regulations promulgated by the Division and the
Commission (prior to the formation of the Gaming Control Board), all licensees
are required to inform the Commission and the Division of all debt, credit,
financing and loan transactions including the identity of debt holders. This
practice will be followed with the Gaming Control Board pending the issuance of
conflicting regulations. Although the Company is not presently a license holder,
its subsidiary, Boyd Kenner is a licensee and is subject to these regulations.
In addition, the Gaming Control Board, in its sole discretion, may require the
holders of such debt securities to file applications and obtain suitability
certificates from the Gaming Control Board. Although the Act does not
specifically require debt holders to be licensed or to be found suitable, the
Gaming Control Board will retain the discretion to investigate and require that
any holders of debt securities be found suitable under the Act. Additionally, if
the Gaming Control Board finds that any holder exercises a material influence
over the gaming operations, a suitability certificate will be required. If the
Gaming Control Board determines that a person is unsuitable to own such a
security or to hold such an indebtedness, the Gaming Control Board may propose
any such action which it determines proper and necessary to protect the public
interest, including the suspension or revocation of the license. The Gaming
Control Board may also, under the penalty of revocation of license, issue a
condition of disqualification naming the person(s) and declaring that such
person(s) may not (i) receive dividends or interest in debt or securities; (ii)
exercise directly or through a nominee a right conferred by the securities or
indebtedness; (iii) receive any remuneration from the licensee; (iv) receive any
economic benefit form the licensee or (v) continue in an ownership or economic
interest in a licensee or remain as a manager, director or partner of a
licensee.
14
15
Any violation of the Riverboat Act or the rules promulgated by the
Commission, the Division or the Gaming Control Board could result in substantial
fines, penalties (including a revocation of the license) and criminal actions.
Additionally, all licenses and permits issued by the Commission or the Division
are revocable privileges and may be revoked at any time by the Gaming Control
Board.
Mississippi
The ownership and operation of casino facilities in Mississippi are
subject to extensive state and local regulation, but primarily the licensing and
regulatory control of the Mississippi Gaming Commission and the regulatory
control of the Mississippi State Tax Commission (the "Mississippi Gaming
Authorities").
The Mississippi Gaming Control Act (the "Mississippi Act"), which
legalized dockside casino gaming in Mississippi, was enacted on June 29, 1990.
Although not identical, the Mississippi Act is similar to the Nevada Gaming
Control Act. The Mississippi Gaming Commission has adopted regulations which are
also similar in many respects to the Nevada gaming regulations.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Gaming Commission seek to: (i) prevent unsavory or unsuitable
persons from having any direct or indirect involvement with gaming at any time
or in any capacity; (ii) establish and maintain responsible accounting practices
and procedures; (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Gaming Commission; (iv) prevent
cheating and fraudulent practices; (v) provide a source of state and local
revenues through taxation and licensing fees; and (vi) ensure that gaming
licensees, to the extent practicable, employ Mississippi residents. The
regulations are subject to amendment and interpretation by the Mississippi
Gaming Commission. Changes in Mississippi law or regulations or their
interpretation may limit or otherwise materially affect the types of gaming that
may be conducted and could have an adverse effect on the Company and the
Company's Mississippi gaming operations.
The Mississippi Act provides for legalized dockside gaming at the
discretion of the 14 counties that either border the Mississippi Gulf Coast or
the Mississippi River provided that voters in such counties have not voted to
prohibit gaming in that county. As of June 1, 1996, dockside gaming was
permissible in 9 of the 14 eligible counties in the State and gaming operations
had commenced in Adams, Coahoma, Hancock, Harrison, Tunica, Warren and
Washington counties. The law permits unlimited stakes gaming on permanently
moored vessels on a 24-hour basis and does not restrict the percentage of space
which may be utilized for gaming. There are no limitations on the number of
gaming licenses which may be issued in Mississippi.
Under Mississippi law, gaming vessels must be located on the
Mississippi River or on navigable waters in eligible counties along the
Mississippi River, or in the waters of the State of Mississippi lying south of
the State in eligible counties along the Mississippi Gulf Coast. The Sam's Town
Tunica casino is located on barges situated in a specially constructed basin
several
15
16
hundred feet inland from the Mississippi River. In the recent past, whether
basins such as the one in which the Company's barges are located constituted
"navigable waters" suitable for gaming under Mississippi law was a controversial
issue. The Mississippi Attorney General issued an opinion in July 1993
addressing legal locations for gaming vessels under the Mississippi Gaming
Control Act, and the Mississippi Gaming Commission later approved the location
of the barges on the Sam's Town Tunica site as legal under the opinion of the
Mississippi Attorney General. A competitor subsequently filed a letter with the
Mississippi Gaming Commission requesting a reconsideration with respect to the
Mississippi Gaming Commission's approval of the placement of the barges on the
Sam's Town Tunica site and other prospective gaming operators' sites adjacent
thereto. No official action was ever taken regarding this request. In December
1993, the Mississippi Gaming Commission voted to issue a license to Boyd Tunica,
the entity through which the Company operates Sam's Town Tunica. The license
requires demonstration of compliance with the Mississippi Attorney General's
"navigable waters" opinion, a requirement which has been imposed on many
licenses for Tunica County gaming projects. The Company believes that the barges
at the Sam's Town Tunica site, as well as similarly situated barges belonging to
operators whose facilities have opened and other prospective gaming operators,
are located on navigable waters within the meaning of Mississippi law. However,
no assurance can be given that a court would ultimately conclude that such sites
constitute navigable waters within the meaning of Mississippi law. If the basin
in which the Company's barges are presently located were not deemed navigable
waters within the meaning of Mississippi law, there would be a material adverse
effect on Sam's Town Tunica.
The Company has been registered with the Mississippi Gaming Commission
as a publicly traded holding company for Boyd Tunica. The Company is required
periodically to submit detailed financial and operating reports to the
Mississippi Gaming Commission and furnish any other information which the Gaming
Commission may require. The Company, Boyd Tunica and any other subsidiary of the
Company that operates a casino (other than Silver Star) in Mississippi (such a
subsidiary, including Boyd Tunica, a "Mississippi Gaming Subsidiary"), are
subject to the licensing and regulatory control of the Mississippi Gaming
Authorities. If the Company is unable to continue to satisfy the registration
requirements of the Mississippi Act, the Company and its Mississippi Gaming
Subsidiaries cannot own or operate gaming facilities in Mississippi. Each
Mississippi Gaming Subsidiary must obtain gaming licenses from the Mississippi
Gaming Commission to operate casinos in Mississippi. A gaming license is issued
by the Mississippi Gaming Commission subject to certain conditions, including
continued compliance with all applicable state laws and regulations and physical
inspection of the casinos prior to opening. The Mississippi Gaming Commission
granted a gaming license to Boyd Tunica in December 1993 which was renewed in
November of 1995.
Gaming licenses are non-transferable, are initially issued for a
two-year period and must be renewed periodically thereafter. No person may
become a stockholder of or receive any percentage of profits from a gaming
licensee subsidiary of a holding company without first obtaining approvals from
the Mississippi Gaming Commission. The Company obtained such approvals in
connection with the licensing of Boyd Tunica.
Certain employees of the Company and the officers, directors and
certain key employees of the Company's Gaming Subsidiaries must be found
suitable by the Mississippi Gaming Commission. The Mississippi Gaming
16
17
Commission made findings of suitability with respect to such persons in
connection with the licensing of Boyd Tunica. Employees associated with gaming
must also obtain work permits that are subject to immediate suspension under
certain circumstances. In addition, any person having a material relationship or
involvement with the Company may be required to be found suitable or licensed,
in which case those persons must pay the costs and fees associated with such
investigation. The Mississippi Gaming Commission may deny an application for a
license or finding of suitability for any cause that it deems reasonable.
Changes in licensed positions must be reported to the Mississippi Gaming
Commission. Besides its authority to deny an application for a license or
finding of suitability, the Mississippi Gaming Commission has jurisdiction to
disapprove a change in corporate position. The Mississippi Gaming Commission has
the power to require any Mississippi Gaming Subsidiary and the Company to
suspend or dismiss officers, directors and other key employees or sever
relationships with other persons who refuse to file appropriate applications or
whom the authorities find unsuitable to act in such capacities.
Substantially all loans, leases, sales of securities and similar
financing transactions by a Mississippi Gaming Subsidiary must be reported to or
approved by the Mississippi Gaming Commission. A Mississippi Gaming Subsidiary
may not make a public offering of its securities, but may pledge or mortgage
casino facilities, if it obtains the prior approval of the Mississippi Gaming
Commission. The Company may not issue securities without the prior approval of
the Mississippi Gaming Commission if any part of the proceeds of the offering is
to be used to finance the construction, acquisition or operation of gaming
facilities in Mississippi or to retire or extend obligations incurred for one or
more such purposes. Such approval, if given, does not constitute a
recommendation or approval of the investment merits of the securities subject to
the offering.
If the Mississippi Gaming Commission decides that a Mississippi Gaming
Subsidiary violated a gaming law or regulation, the Mississippi Gaming
Commission could limit, condition, suspend or revoke the license of the
Mississippi Gaming Subsidiary. In addition, a Mississippi Gaming Subsidiary, the
Company and the persons involved could be subject to substantial fines for each
separate violation. Because of such a violation, the Mississippi Gaming
Commission could seek to appoint a supervisor to operate the casino facilities.
Limitation, conditioning or suspension of any gaming license or the appointment
of a supervisor could (and revocation of any gaming license would) materially
adversely affect the Company's and the Gaming Subsidiary's gaming operations.
At any time, the Mississippi Gaming Commission has the power to
investigate and require the finding of suitability of any record or beneficial
owner of the Company's shares. Mississippi law requires any person who acquires
more than 5% of the Company's common stock to report the acquisition to the
Mississippi Gaming Commission, and such person may be required to be found
suitable. Also, any person who becomes a beneficial owner of more than 10% of
the Company's common stock, as reported to the Securities and Exchange
Commission, must apply for a finding of suitability by the Mississippi Gaming
Commission and must pay the costs and fees that the Mississippi Gaming
Commission incurs in conducting the investigation. The Mississippi Gaming
Commission has generally exercised its discretion to require a finding of
suitability of any beneficial owner of more than 5% of the Company's common
stock. If a stockholder who must be found suitable is a corporation, partnership
or trust, it must submit detailed business and
17
18
financial information including a list of beneficial owners. The Mississippi
Gaming Commission has adopted a policy with respect to certain institutional
investors which may permit such investors to purchase and hold up to 10% of the
Company's common stock without a suitability finding. Such institutional
investors may be required to file certain information with the Mississippi
Gaming Commission under the policy and the Mississippi Gaming Commission retains
discretion to require a finding of suitability at any time. To date, all
stockholders of the Company required to be found suitable by the Mississippi
Gaming Commission have been found suitable.
Any person who fails or refuses to apply for a finding of suitability
or a license within 30 days after being ordered to do so by the Mississippi
Gaming Commission may be found unsuitable. Any person found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the securities of the
Company beyond such time as the Mississippi Gaming Commission prescribes, may be
guilty of a misdemeanor. The Company is subject to disciplinary action if, after
receiving notice that a person is unsuitable to be a stockholder or to have any
other relationship with the Company or its Mississippi Gaming Subsidiaries, the
Company: (i) pays the unsuitable person any dividend or other distribution upon
the voting securities of the Company; (ii) recognizes the exercise, directly or
indirectly, of any voting rights conferred by securities held by the unsuitable
person; (iii) pays the unsuitable person any remuneration in any form for
services rendered or otherwise, except in certain limited and specific
circumstances; or (iv) fails to pursue all lawful efforts to require the
unsuitable person to divest himself of the securities, including, if necessary,
the immediate purchase of the securities for cash at a fair market value.
The Company may be required to disclose to the Mississippi Gaming
Commission, upon request, the identities of the security holders including
holders of debt securities of the Company. In addition, the Mississippi Gaming
Commission under the Mississippi Act may, in its discretion, require holders of
debt securities of registered corporations to file applications, investigate
such holders, and require such holders to be found suitable to own such debt
securities. Although the Mississippi Gaming Commission generally does not
require the individual holders of obligations such as notes to be investigated
and found suitable, the Mississippi Gaming Commission retains the discretion to
do so for any reason, including but not limited to a default or where the holder
of the debt instrument exercises a material influence over the gaming operations
of the entity in question. Any holder of debt securities required to apply for a
finding of suitability must pay all investigative fees and costs of the
Mississippi Gaming Commission in connection with such an investigation. If the
Mississippi Gaming Commission determines that a person is unsuitable to own such
security, then it is unlawful for the unsuitable person: (i) to receive any
dividend or interest whatsoever from the company; (ii) to exercise any voting
right conferred by such securities or interest; or (iii) to receive any
remuneration in any form from the Company.
The Gaming Subsidiary must maintain a current stock ledger in its
principal office in Mississippi and the Company must maintain a current list of
stockholders in the principal offices of the Gaming Subsidiary which must
reflect the record ownership of each outstanding share of any class of equity
security issued by the Company. The stockholder list may thereafter be
maintained by adding reports regarding the ownership of such securities that it
receives from the Company's transfer agent. The ledger and stockholder lists
must be available for inspection by the Mississippi Gaming Commission at any
time. If any securities of the Company are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity of the
18
19
beneficial owner to the Mississippi Gaming Authorities. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. The Company
must also render maximum assistance in determining the identity of the
beneficial owner.
The Mississippi Gaming Commission has the power to require that the
Company's securities bear a legend to the general effect that such securities
are subject to the Mississippi Act and the regulations of the Mississippi Gaming
Commission. The Mississippi Gaming Commission has the power, through the power
to regulate licensees, to impose additional restrictions on the holders of the
Company's securities at any time. The Company received a waiver from the legend
requirement in connection with the licensing of Boyd Tunica.
The Mississippi legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting securities and other
corporate defense tactics that affect corporate gaming licensees in Mississippi
and corporations whose stock is publicly traded that are affiliated with those
licensees, may be injurious to stable and productive corporate gaming. The
Mississippi Gaming Commission has established a regulatory scheme to ameliorate
the potentially adverse effects of these business practices upon Mississippi's
gaming industry and to further Mississippi's policy to: (i) assure the financial
stability of corporate gaming operators and their affiliates; (ii) preserve the
beneficial aspects of conducting business in the corporate form; and (iii)
promote a neutral environment for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Mississippi Gaming
Commission before the Company may make exceptional repurchases of voting
securities above the current market price of its common stock or before a
corporate acquisition opposed by management may be consummated. Mississippi's
gaming regulations will also require prior approval by the Mississippi Gaming
Commission if the Company adopts a plan of recapitalization proposed by its
Board of Directors opposing a tender offer made directly to the shareholders for
the purpose of acquiring control of the Company.
Neither the Company nor any subsidiary may engage in gaming activities
in Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Gaming Commission. The Mississippi Gaming
Authorities may require determinations that, among other things, there are means
for the Mississippi Gaming Authorities to have access to information concerning
the out-of-state gaming operations of the Company and its affiliates. In
connection with the licensing of Boyd Tunica, the Company and its affiliates
obtained the approval of the Mississippi Gaming Commission to engage in gaming
operations in Nevada, Louisiana and Missouri.
License fees and taxes, computed in various ways depending on the type
of gaming involved, are payable to the State of Mississippi and to the counties
and cities in which a Mississippi Gaming Subsidiary's respective operations will
be conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon (i) a
percentage of the gross gaming revenues received by the casino operation, (ii)
the number of slot machines operated by the casino, (iii) the number of table
games operated by the casino or (iv) numbers of patrons entering the casino. The
license fee payable to the State of Mississippi is based upon "gaming receipts"
(generally defined as gross receipts less payouts to customers as winnings) and
equals 4% of gaming receipts of $50,000 or less per
19
20
month, 6% of gaming receipts over $50,000 and less than $134,000 per month, and
8% of gaming receipts over $134,000. The foregoing license fees are allowed as a
credit against the Company's Mississippi income tax liability for the year paid.
In October 1994, the Mississippi Gaming Commission adopted a regulation
which requires as a condition of licensure or license renewal that a gaming
establishment's plan include a 500-car parking facility in close proximity to
the casino complex and infrastructure facilities which will amount to at least
25% of the casino cost. Such facilities may include any of the following: a
250-room hotel of at least a two star rating as defined by the current edition
of the Mobil Travel Guide, a theme park, golf courses, marinas, tennis complex,
entertainment facilities, or any other such facility as approved by the
Mississippi Gaming Commission as infrastructure. Parking facilities, roads,
sewage and water systems, or facilities normally provided by cities and/or
counties are excluded. The Commission may in its discretion reduce the number of
rooms required, where it is shown to the Commission's satisfaction that
sufficient rooms are available to accommodate the anticipated visitor load. The
Company believes that Boyd Tunica, with a 508-room hotel and other amenities,
currently satisfies these requirements.
Missouri
Gaming was originally authorized in the State of Missouri in November
1992. On April 29, 1993, new legislation (the "Missouri Act") was enacted which
replaced the 1992 legislation. Subsequent to adoption, the Missouri Act has been
amended from time to time. There can be no assurances that the Missouri Act will
not be further amended and interpreted in a manner that would limit or otherwise
adversely affect the Company and its Missouri gaming operations. The Missouri
Act provides for the licensing and regulation of riverboat and dockside gaming
operations on the Mississippi and Missouri Rivers in the State of Missouri and
the licensing and regulation of persons who distribute gaming equipment and
supplies to gaming licensees. The Missouri Act limits the loss per individual on
each excursion to $500, but does not otherwise limit the amount which may be
wagered on any bet or the amount of space in the vessel which may be utilized
for gaming. In November 1994, a constitutional amendment was passed which
permits certain games of chance such as traditional slot machines on riverboats
and floating gaming facilities.
The Missouri Act is implemented and enforced by a five-member Missouri
Gaming Commission (the "Missouri Commission"). This Commission is empowered to
issue such number of riverboat gaming licenses as it determines to be
appropriate. A gaming license cannot be granted to any gaming operator unless
the voters in such operator's "home dock" city or county have authorized gaming
activities on gaming riverboats. On February 2, 1993, voters in Kansas City,
Missouri approved a riverboat gaming ballot measure. On September 13, 1995, Boyd
Kansas City was issued a Missouri gaming license for its Sam's Town Kansas City
facility. Boyd Kansas City's home dock city is Kansas City, Missouri.
Gaming boats in Missouri must generally resemble boats from Missouri's
riverboat history and must contain nongaming areas, food service and a Missouri
theme gift shop. The boats must cruise unless the Missouri Commission approves a
petition for continuous docking. On April 25, 1995, the Missouri Commission
approved Boyd Kansas City's petition for continuous docking for
20
21
its riverboat at Sam's Town Kansas City. The Missouri Act also imposes a tax of
20% of adjusted gross receipts from gaming activities and a $2.00 per person
excursion fee. Annual license fees are set by the Missouri Commission but may
not be less than $25,000. Each licensee also must post a bond or other form of
surety (in an amount determined by the Missouri Commission) to secure
performance of its obligations under the Missouri Act and the regulations of the
Missouri Commission.
On September 1, 1993, the Missouri Commission adopted rules and
regulations (the "Missouri Regulations") governing the licensing, operation and
administration of riverboat gaming in the state of Missouri and the form of
application for such licensure. Subsequent to adoption, the Missouri Regulations
have been amended from time to time. There can be no assurances that the
Missouri Regulations will not be further amended and interpreted in a manner
that would limit or otherwise adversely affect the Company and its Missouri
gaming operations.
Directors and certain officers and key persons of the Company and Boyd
Kansas City must file personal disclosure forms with the gaming license
application and must be found suitable by the Missouri Commission. Owners of 5%
or more of the Company or Boyd Kansas City are considered key persons for
purposes of the gaming application disclosure and finding of suitability.
The Company, Boyd Kansas City and the Port Authority of Kansas City,
Missouri are parties to a Development Agreement dated April 25, 1995. In the
Development Agreement, Boyd Kansas City and the Company agreed that, within 6
months after the opening of Sam's Town Kansas City, Boyd Kansas City and the
Company would seek to identify qualified minority and women investors acceptable
to them and to offer such investors an opportunity to purchase up to 10% of the
stock of Boyd Kansas City; 7% of said stock is to be offered to minority
investors and 3% is to be offered to women investors which Boyd Kansas City and
the Company find to be qualified and acceptable. Boyd Kansas City has
subsequently requested, and the Port Authority has approved, a 6 month extension
of the time period within which the offering of stock of Boyd Kansas City to
qualified minority and women investors is to be completed. The Missouri
Commission's staff advised the Company that it will consider all minority or
women investors who are offered the right to purchase the stock of Boyd Kansas
City to be key persons, even if such investor's ownership is less than 5% of the
common stock of Boyd Kansas City.
Further, the Missouri Regulations require that all employees of Boyd
Kansas City who are involved in gaming operations must file applications for and
receive Missouri gaming occupational licenses. Presently, the Missouri
Commission staff has required all employees at Sam's Town Kansas City to obtain
occupational licenses, even if those employees are not involved in gaming
operations.
The Missouri Regulations require disclosure by the Company and Boyd
Kansas City of any person or entity holding any direct or indirect ownership
interest in the Company or Boyd Kansas City. The Company is also required to
disclose the names of the holders of all of the Company's debt including a
description of the nature and terms of such debt. The Missouri Commission may,
in its sole discretion, request additional information with respect to such
holders. The Company and Boyd Kansas City are required to update the Missouri
gaming license
21
22
application any time there is a material change within seven business days after
the date of any such change. Missouri gaming licenses must be renewed annually
during the first two years of an entity's licensure and every two years
thereafter.
Under Missouri law, gaming licenses are not transferable. The Missouri
Regulations require that the Missouri Commission be notified at least 60 days
prior to the transfer, issuance, pledge or hypothecation of any ownership
interest in a gaming licensee which is not a publicly held entity, such as Boyd
Kansas City. The Missouri Regulations further require that the Missouri
Commission be notified at least 60 days prior to the issuance of an ownership
interest constituting 5% or more of a publicly held holding company, such as the
Company. Upon receipt of such 60-day notice, the Missouri Commission may
disapprove the transaction or require the transaction to be delayed pending
further investigation. The Missouri Regulations also require that the Missouri
Commission be notified no later than 7 days after the consummation of any pledge
or hypothecation of an ownership interest equaling 5% or more of the ownership
of a publicly held holding company or any transfer of ownership interest in a
publicly held holding company if such transfer would result in an entity or
group of entities acting in concert owning, directly or indirectly, a total
amount of ownership interest equaling 5% or more of the ownership of such
publicly held holding company. Further, without the prior approval of the
Missouri Gaming Commission, the Missouri Regulations prohibit withdrawals of
capital, loans, advances or distribution of any assets in excess of 5% of
accumulated earnings by a license holder to anyone with an ownership interest in
the license holder.
Presently, there are proposed regulations which, if adopted, will
change substantially the requirements set forth in the preceding paragraph.
Specifically, the proposed regulations will (i) prohibit the pledge or
hypothecation of any ownership interest in a gaming licensee which is not a
publicly-held entity; and (ii) permit a licensee to consummate issuance of
ownership interests in publicly-held licensees or holding companies, the
incurrence of debt by a gaming licensee or holding company or any public
issuance of debt at any time after 15 days after notice to the Commission by the
licensee of its intent to consummate such a transaction. The proposed
regulations also authorize the Commission to reopen a license hearing at any
time to consider the effect of the transaction in question on the gaming
licensee's suitability following the consummation of the transaction. If the
proposed regulations are adopted, the only type of transaction which will
require 60-day advance notice to the Commission is a transfer of an ownership
interest in a licensee or holding company which is not publicly held. All other
transactions will require either 15 days prior notice to the Commission (coupled
with the possible reopening of the licensee's suitability hearing) or notice
within 7 days after a transaction is consummated.
The Missouri Regulations specifically provide that any action of the
Missouri Commission shall not indicate or suggest that the Missouri Commission
has considered or passed in any way on the marketability of the applicant or
licensee's securities, or on any other matter, other than the applicant or
licensee's suitability for licensure under Missouri law. A Missouri gaming
license holder can be disciplined in Missouri for gaming related acts occurring
in another jurisdiction which results in disciplinary action in the other
jurisdiction.
22
23
The Missouri Commission has broad powers to require additional
disclosure by an applicant during the processing of a gaming application, to
deny gaming licensure and to administratively fine or suspend or revoke a gaming
license for failure to comply with or for violation of the Missouri Act or
Missouri Regulations. Under the Missouri Regulations, a licensee is required to
provide all requested information immediately upon request by the Commission,
and to advise the Missouri Commission of any material changes in the information
submitted by a licensee on its license application within 7 business days after
the occurrence of such change. Further, in certain situations, the Missouri
Commission can appoint a supervisor to continue the operations of a license
holder after lapse, suspension or revocation of a gaming license. The supervisor
may operate and sell the facility with earnings or proceeds being paid to the
former owners only after deduction of the costs and expenses of the
supervisorship and establishment of reserves.
d. Competition
The following "Competition" discussion is updated from that contained
in the Company's 1995 Form 10-K.
The Company faces intense competition from other companies in the
gaming industry. The Company's Las Vegas properties compete primarily with other
casino hotels on the Las Vegas Strip, the Boulder Strip and in downtown Las
Vegas. Currently, there are approximately 24 major gaming properties located on
or near the Strip, 11 located in the downtown area and several located in other
areas of Las Vegas. Las Vegas gaming square footage and room capacity are
continuing to increase. A number of marquee properties have opened in the last
several years and several others are currently under construction or planned for
the Las Vegas strip, including the 1,500 room Stratosphere, the 3,000 room Paris
Hotel and Casino, the 3,000 room Monte Carlo Hotel and Casino, the 2,035 room
New York, New York Hotel and Casino, and the 3,000 room Bellagio Resort.
Additionally, several properties have recently announced or begun significant
expansion and renovation projects, including Circus Circus Hotel and Casino, MGM
Grand Hotel and Casino, Harrah's Hotel and Casino, Rio Hotel and Casino, Luxor
Hotel and Casino, and the Sahara Hotel and Casino. Each of the foregoing
facilities has or may have a theme and attractions which have drawn or may draw
significant numbers of visitors. Moreover, most of these facilities attract or
may attract primarily middle income patrons, who are the focus of the Company's
marketing strategy. Although the Company believes that these additional
facilities will have a positive effect on the Company by drawing more visitors
to Las Vegas, these properties also may divert some gaming activity from the
Company. Future additions, expansions and enhancements to existing properties by
the Company's competitors could divert additional gaming activity from the
Company's facilities. Although the Company has been able to compete successfully
following previous market expansions, there can be no assurance that the Company
will be able to compete successfully in the future.
The Company believes that a Las Vegas property is differentiated from
its competitors by the following factors: location; attractions; quality of
gaming facilities, gaming experience and entertainment; quality of food,
beverages and atmosphere; and price. The Company competes by offering a complete
entertainment and gaming experience with excellent price/value relationships
23
24
and by targeting specific groups of customers. In addition, the Company competes
by offering the most modern video and other slot machines available. The Company
believes that the bases of competition in new markets are similar to those in
Las Vegas and that its principal competitors in those markets are, and will be,
those operators who develop high quality casino entertainment facilities.
Sam's Town Tunica competes primarily with other dockside gaming
operations in Tunica County and, to a lesser extent, with dockside casinos in
Vicksburg, Greenville, Natchez and Coahoma County, Mississippi, with dockside
casinos on the Mississippi Gulf Coast and with gaming operations in Louisiana.
Gaming has grown rapidly in Tunica County with nine dockside casinos now in
operation and one casino under construction and expected to open in June 1996.
Six casinos located in Tunica County have closed during the last 12 months.
Another closed facility was purchased by a competitor and reopened in April
1996. In addition, several Tunica area casinos are in the process of adding
hotel rooms, including 500 rooms at the Fitzgeralds Hotel and Casino, 350 rooms
at the Hollywood Hotel and Casino, and 200 rooms at Harrah's. Some of these
facilities are operated by certain of the Company's principal Nevada
competitors.
Sam's Town Kansas City competes primarily with other riverboat gaming
operations in the Kansas City area. Two riverboat gaming operations, one in
Riverside, Missouri and one in North Kansas City, Missouri have been granted a
license and have begun operations. In addition, two other operations in the
Kansas City area are currently under construction and awaiting licensing.
Several other companies, including some of the Company's principal Nevada
competitors, have announced plans to participate in riverboat gaming in the
Kansas City area. Some of these operations are being developed by companies that
have significantly greater financial resources than the Company, some have been
operating for a longer time than the Company's facility and some may possess
more desirable locations. While the Company believes that it has created a high
quality gaming and entertainment facility at Sam's Town Kansas City, no
assurance can be given that the Company will be able to compete successfully in
this new market.
The Treasure Chest competes primarily with other riverboat gaming
operations in the New Orleans metropolitan area and competes with a large
land-based temporary casino opened by Harrah's in May 1995. Fifteen operators
were granted licenses, one of which was subsequently surrendered, by the
Department of Public Safety, Office of State Police, Riverboat Gaming Division
(the "Louisiana Gaming Division") to operate riverboat casinos within the state
of Louisiana. Approximately four of these riverboat gaming operations currently
are located in the New Orleans metropolitan area. Some of the operations against
which the Treasure Chest competes are operated by companies with significantly
greater financial resources and some may possess more desirable locations. While
the Treasure Chest's operating results have met the Company's expectations, no
assurance can be given that the Treasure Chest will be able to continue to
compete successfully in this market.
The Par-A-Dice competes primarily with other gaming operations in
Illinois and, to a lesser extent, with dockside gaming facilities in Indiana,
Iowa and Missouri. The Illinois Riverboat Act authorizes ten owner's licenses
for riverboat gaming operations. All ten licenses have been granted and, of the
ten current riverboat gaming operations in Illinois, only one is within a 100
24
25
mile radius of Peoria. Some of these riverboats are being operated by companies
with greater experience in the Illinois market than the Company. In addition,
the Par-A-Dice may face competition from riverboats in Indiana.
The Company also competes to a lesser extent with casino hotel
operators located in other parts of the State of Nevada, with facilities in
Atlantic City, New Jersey and in other parts of the world, with state-sponsored
lotteries, off-track wagering, card parlors, water-based and Indian gaming
ventures outside of Illinois, Mississippi, Missouri and Louisiana, and with
other forms of permitted gambling. Certain states have recently permitted, and
several other states may permit, casino gaming in specific geographic areas. In
addition, passage of the Indian Gaming Regulatory Act has led to rapid increases
in Indian gaming ventures. Although the Company intends to establish facilities
in certain of these new markets, expansion of gaming could significantly and
adversely affect the Company's business. In particular, adoption of legislation
permitting casino gaming in or near any major metropolitan area from which the
Company attracts customers could have a material adverse effect on the Company's
business.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Consolidated Financial Statements.
Unaudited Consolidated Financial Statements of Par-A-Dice
Gaming Corporation as of March 31, 1996 and for the quarters
ended March 31, 1996 and 1995.
Consolidated Financial Statements of Par-A-Dice Gaming
Corporation as of December 31, 1995 and 1994 and for each of
the three years in the period ended December 31, 1995, together
with Report of Independent Accountants.
Report of Independent Accountants
Financial Statements:
Consolidated Balance Sheets, as of December 31, 1995
and 1994
Consolidated Statements of Income for the three years
ended December 31, 1995
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1995
Consolidated Statements of Cash Flows for the three
years ended December 31, 1995
Notes to Financial Statements
(b) Pro Forma Financial Information.
Pro Forma Consolidated Balance Sheet as of March 31, 1996.
Pro Forma Consolidated Statement of Income for the nine months
ended March 31, 1996.
Pro Forma Consolidated Statement of Income for the year ended
June 30, 1995.
Notes to Pro Forma Consolidated Financial Statements.
(c) Exhibits.
Exhibit No. Description
- ----------- -----------
10.1 Joint Venture Agreement of Stardust A.C., dated as of May 29,
1996, between MAC, CORP., a New Jersey corporation which is a
wholly-owned
23.1 Consent of Coopers & Lybrand L.L.P.
25
26
subsidiary of Mirage Resorts, Incorporated, a Nevada corporation,
and Grand K, Inc., a Nevada corporation which is a wholly-owned
subsidiary of Registrant. (Certain portions of this exhibit have
been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential
treatment for this Agreement.)
99.1 Registrant's Press Release, dated May 29, 1996, regarding
Atlantic City Project.
99.2 Registrant's Press Release, dated June 7, 1996, regarding Sam's
Town Reno.
26
27
PAR-A-DICE GAMING CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
As of March 31, (In thousands, except share data) 1996
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $6,719
Receivables:
Trade, net of allowances of $117 384
Inventories 266
Prepaid expenses and other 391
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 7,760
Property and equipment, net 50,077
Due from related parties 1,117
Other assets, net 154
- -----------------------------------------------------------------------------------------------------------------------
Total assets $59,108
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $1,091
Accrued expenses 3,494
Notes payable and current portion of long-term debt 2,400
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 6,985
Long-term debt, net of current portion 14,700
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 21,685
- -----------------------------------------------------------------------------------------------------------------------
Minority interest 1,000
- -----------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value: authorized
13,000,000 shares: issued 9,568,535 shares 9,048
Retained earnings 27,375
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 36,423
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $59,108
=======================================================================================================================
27
28
PAR-A-DICE GAMING CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
For the quarters ended March 31, (In thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
OPERATING REVENUES
Casino $24,778 $22,161
Admissions and parking 331 530
Food and beverage 1,292 965
Other 98 116
- -----------------------------------------------------------------------------------------------------
Total operating revenues 26,499 23,772
- -----------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Casino 7,904 6,987
Food and beverage 1,783 1,417
General and administrative 9,331 8,217
- -----------------------------------------------------------------------------------------------------
Total operating expenses 19,018 16,621
- -----------------------------------------------------------------------------------------------------
OPERATING INCOME 7,481 7,151
- -----------------------------------------------------------------------------------------------------
OTHER (INCOME) EXPENSE
Loss on disposition of property 0 16
Interest and other income (133) (91)
Interest expense 312 385
- -----------------------------------------------------------------------------------------------------
Total other (income) expense 179 310
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR STATE INCOME TAXES 7,302 6,841
Provision for state income taxes 98 95
- -----------------------------------------------------------------------------------------------------
NET INCOME $7,204 $6,746
=====================================================================================================
28
29
PAR-A-DICE GAMING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
- -------------------------------------------------------------------------------
COMMON STOCK RETAINED TREASURY STOCK STOCKHOLDERS'
---------- -------- --------------------
SHARES AMOUNT EARNINGS SHARES AMOUNT EQUITY
-------------------------------------------------------------------------
BALANCE, JANUARY 1, 1995 9,568,535 $9,048 $17,444 0 $0 $26,492
Net Income 6,746 6,746
Distribution to stockholders (4,856) (4,856)
-------------------------------------------------------------------------
BALANCE, MARCH 31, 1995 9,568,535 9,048 19,334 0 0 28,382
=========================================================================
BALANCE, JANUARY 1, 1996 9,568,535 9,048 23,171 0 0 32 219
Net Income 7,204 7,204
Distribution to stockholders (3,000) (3,000)
-------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 9,568,535 $9,048 $27,375 0 $0 $36,423
=========================================================================
29
30
PAR-A-DICE GAMING CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the quarters ended March 31, (in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $7,204 $6,746
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,123 1,096
(Gain) loss on dispositions of property -- 31
Changes in assets and liabilities:
Trade receivables, net 156 34
Inventories 111 (30)
Prepaid expenses and other 191 (278)
Accounts payable (716) (1,217)
Accrued expenses (512) (1,255)
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,557 5,127
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property -- 70
Purchase of property and equipment (4,270) (226)
Investment in affiliates -- (108)
- -----------------------------------------------------------------------------------------------------
Net cash used by investing activities (4,270) (264)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable and long-term debt 5,800 --
Payments on notes payable and long-term debt (3,600) (600)
Distributions to stockholders (3,000) (4,856)
- -----------------------------------------------------------------------------------------------------
Net cash used by financing activities (800) (5,456)
- -----------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,487 (593)
CASH AND CASH EQUIVALENTS, BEGINNING OF QUARTER 4,232 7,726
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF QUARTER $6,719 $7,133
=====================================================================================================
Supplemental cash flow disclosure:
Interest paid (net of amount capitalized) $266 $388
===========================
State income taxes paid $341 $385
===========================
30
31
PAR-A-DICE GAMING CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary, consisting of only
normal recurring adjustments, to present fairly the results of its operations
and its cash flows for the three month periods ended March 31, 1996 and 1995.
This report should be read in conjunction with the Company's audited
consolidated financial statements included elsewhere herein. The operating
results and cash flows for the three months ended March 31, 1996 are not
necessarily indicative of the results that will be achieved for the full year
or for future periods.
31
32
Coopers Coopers & Lybrand L.L.P.
&Lybrand a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Shareholders
Par-A-Dice Gaming Corporation
East Peoria, Illinois
We have audited the accompanying consolidated balance sheets of
Par-A-Dice Gaming Corporation as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Par-A-Dice Gaming Corporation as of December 31, 1995 and 1994, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
March 15, 1996, except for footnote 11
for which the date is May 23, 1996
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
32
33
PAR-A-DICE GAMING CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
As of December 31, (In thousands, except share data) 1995 1994
- -----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $4,232 $7,726
Receivables:
Trade, net of allowances of $80 (1995) and $88 (1994) 541 325
Inventories 377 291
Prepaid expenses and other 628 457
- -----------------------------------------------------------------------------------------------------
Total current assets 5,778 8,799
Property and equipment, net 46,866 42,219
Due from related parties 1,117 1,117
Other assets, net 171 747
- -----------------------------------------------------------------------------------------------------
Total assets $53,932 $52,882
=====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $1,794 $2,929
Due to related parties 14 2,924
Accrued expenses 4,005 3,937
Notes payable and current portion of long-term debt 3,100 2,400
- -----------------------------------------------------------------------------------------------------
Total current liabilities 8,913 12,190
Long-term debt, net of current portion 11,800 14,200
- -----------------------------------------------------------------------------------------------------
Total liabilities 20,713 26,390
- -----------------------------------------------------------------------------------------------------
Minority interest 1,000
- -----------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized
13,000,000 shares; issued 9,568,535 shares 9,048 9,048
Retained earnings 23,171 17,444
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 32,219 26,492
- -----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $53,932 $52,882
=====================================================================================================
The accompanying notes are an integral part of these financial statements.
33
34
PAR-A-DICE GAMING CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, (In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Casino $ 95,029 $84,483 $64,264
Admissions and parking 2,255 2,503 2,117
Food and beverage 4,829 4,275 2,611
Other 689 704 489
- -----------------------------------------------------------------------------------------------------------------
Total operating revenues 102,802 91,965 69,481
- -----------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Casino 30,386 27,290 20,614
Food and beverage 6,951 5,605 3,271
General and administrative 35,987 35,058 23,467
- -----------------------------------------------------------------------------------------------------------------
Total operating expenses 73,324 67,953 47,352
- -----------------------------------------------------------------------------------------------------------------
OPERATING INCOME 29,478 24,012 22,129
- -----------------------------------------------------------------------------------------------------------------
OTHER EXPENSE (INCOME)
(Gain) loss on disposition of property (611) 1,646 --
Gain on sale of riverboat -- (3,755) --
Interest and other income (594) (383) (126)
Interest expense 1,507 1,086 583
Equity in net loss of affiliates 635 613 --
Loss on sale of affiliate 186 -- --
- -----------------------------------------------------------------------------------------------------------------
Total other expense (income) 1,123 (793) 457
- -----------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR STATE INCOME TAXES 28,355 24,805 21,672
Provision for state income taxes 419 302 307
- -----------------------------------------------------------------------------------------------------------------
NET INCOME $ 27,936 $24,503 $21,365
=================================================================================================================
The accompanying notes are an integral part of these financial statements.
34
35
PAR-A-DICE GAMING CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1995, 1994 and 1993
(In thousands, except share data)
- -------------------------------------------------------------------------------
COMMON STOCK RETAINED TREASURY STOCK STOCKHOLDERS'
SHARES AMOUNT EARNINGS SHARES AMOUNT EQUITY
BALANCE, JANUARY 1, 1993 11,802,500 $11,270 $4,972 968,965 $(958) $15,284
Purchase of common stock 225,000 (2,500) (2,500)
Retirement of treasury stock (968,965) (958) (968,965) 958 0
Capital acquired through GPLC
merger 1 1
Net income 21,365 21,365
Distribution to stockholders (12,388) (12,388)
----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 10,833,535 10,313 13,949 225,000 (2,500) 21,762
Purchase of common stock 1,040,000 (11,239) (11,239)
Retirement of treasury stock (1,265,000) (1,265) (12,474) (1,265,000) 13,739 0
Net income 24,503 24,503
Distribution to stockholders (8,534) (8,534)
----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,1994 9,568,535 9,048 17,444 26,492
Net income 27,936 27,936
Distribution to stockholders (22,209) (22,209)
----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 9,568,535 $ 9,048 $ 23,171 $ 32,219
========================================================================================
The accompanying notes are an integral part of these financial statements.
35
36
PAR-A-DICE GAMING CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, (In thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $27,936 $24,503 21,365
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,362 4,433 3,783
Gain on sale of riverboat -- (3,755) --
(Gain) loss on dispositions of property (596) 1,695 --
Equity in net loss of affiliates 635 613 --
Loss on sale of affiliate 166 -- --
Changes in assets and liabilities:
Trade receivables, net (216) (43) (188)
Due from related parties -- 415 72
Inventories (86) (114) (76)
Prepaid expenses and other (443) (385) (286)
Other assets (10) (261) (65)
Accounts payable (359) (663) 2,234
Due to affiliate (2,832) -- --
Accrued expenses 68 167 929
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 28,625 26,605 27,768
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property 77 15,400 --
Proceeds from sale of investment in affiliate 230 -- --
Purchase of property and equipment (7,986) (22,538) (15,229)
Loans to related parties -- (10) (1,107)
Investment in affiliates (531) (839) (294)
Deposit on sale of riverboat -- -- 1,000
- -------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (8,210) (7,987) (15,630)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable and long-term debt 1,200 28,148 12,152
Payments on notes payable and long-term debt (2,900) (25,204) (8,886)
Purchase of common stock -- (8,387) (2,500)
Distributions to stockholders (22,209) (8,534) (12,388)
- -------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (23,909) (13,977) (11,622)
- -------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,494) 4,641 516
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,726 3,085 2,569
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $4,232 $7,726 $3,085
=============================================================================================================
Supplemental cash flow disclosure:
Interest paid (net of amount capitalized) $1,485 $1,050 $595
=============================
State income taxes paid $391 $284 $182
=============================
Noncash investing and financing activities:
Increase in due to related parties to purchase common stock -- $2,852 --
=============================
Decrease in accrued expenses in exchange for land $635 -- --
=============================
Acquisition of riverboat through GPLC merger and
related reduction in due from affiliate -- -- $2,048
=============================
The accompanying notes are an integral part of these financial statements.
36
37
NOTES TO FINANCIAL STATEMENTS
1. Business
PAR-A-DICE GAMING CORPORATION (the "Company" or "PGC") was
incorporated on June 26, 1990, and owns and operates the Par-A-Dice
Riverboat Casino in East Peoria, Illinois. The riverboat casino began
operations on November 20, 1991 from a dockside location in Peoria,
after receipt of a temporary operating license from the Illinois
Gaming Board ("IGB"). The Company received its original permanent
operating license on February 14, 1992, which is valid for a three
year term and subject thereafter to annual renewal upon approval of
the IGB. Renewal of the original license was approved by the IGB on
February 14, 1995. The license is subject to annual renewal
thereafter. In February 1996, the Company was approved for the
following twelve months. In early 1993, the Company moved operations
to a new and larger dockside facility in East Peoria. Formerly known
as the Greater Peoria Riverboat Corporation, the Company legally
changed its name to Par-A-Dice Gaming Corporation in late 1993.
The Company is actively pursuing opportunities in other gaming venues.
On December 10, 1993, the Company entered into a general partnership
with New Concepts Incorporated, (Jamaica) Ltd, a Jamaican corporation
("NCI"). The general partnership was formed to own and operate
electronic gaming machines in Jamaican tourist hotels and elsewhere
and to develop the gaming industry in Jamaica. On November 22, 1995,
PGC sold its interest in the partnership.
On October 1, 1993 the Company entered into a limited partnership with
Recreational Concepts, Incorporated, a Virginia corporation ("RCI")
and Heritage Cruise Associates, a Virginia limited partnership
("HCA"). The partnership was formed to own and operate the Annabel
Lee riverboat in Virginia. PGC, RCI, and HCA have 70%, 1%, and 29%
interest in the partnership, respectively.
In April, 1995, the Company entered into a limited partnership
agreement with East Peoria Hotel Inc., a Delaware corporation, and
FOLEPI Foundation, Inc., an Illinois not-for-profit corporation
(FOLEPI). The partnership was formed to develop a hotel on property
adjacent to the Par-A-Dice Casino docking area. PGC has a 99%
interest in the partnership.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could
differ from those estimates.
37
38
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include those of the Company and
all material majority owned affiliates; investments in unconsolidated
affiliated companies are accounted for on the equity method and
included in other assets. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Casino Revenues and Promotional Allowances
In accordance with industry practice, the Company recognizes as casino
revenues the net win from gaining activities, which is the difference
between gaming wins and losses. The retail value of admissions and
parking, food and beverage, and other complimentary items furnished to
customers without charge is excluded from revenues. The estimated
retail value of complimentaries, for the years ended December 31,
1995, 1994 and 1993 are as follows:
(Dollars in thousands)
1995 1994 1993
---- ---- ----
Admissions and Parking $ 6,139 $ 5,150 $ 3,099
Food and Beverage 2,287 2,167 918
Other 323 393 162
------- ------- -------
Total $8,749 $7,710 $4,179
======= ======= =======
Cash Equivalents and Concentrations of Credit Risk
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents. The Company places its
temporary cash investments in local financial institutions. At
December 31, 1995, 1994 and 1993 a portion of these deposits was in
excess of federally insured limits.
Inventories
Inventories consist primarily of food, beverage, and logo merchandise
and are stated at the lower of cost or market value. Cost is
determined by the first-in, first-out method.
38
39
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are recorded at cost and include interest
capitalized during the construction period. Depreciation and
amortization are provided for on the straight-line basis over the
following expected useful lives:
Building 40 years
Equipment 5 years
Furniture & fixtures 7 years
Land & barge improvements 15 years
Riverboat 25 years
Leasehold improvements Lesser of lease term or expected useful lives
Significant replacements and improvements are capitalized; other
maintenance and repairs are expensed. The cost and accumulated
depreciation of assets retired or otherwise disposed of are eliminated
from the accounts and any resulting gain or loss is included in net
income.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter
S of the Internal Revenue Code. Under those provisions, the
stockholders, instead of the Company, are liable for federal income
taxes on the Company's taxable income, in proportion to their
respective interests. The Company is subject to state
income/replacement tax which has been provided for in the financial
statements.
Financial Instruments
The fair value of cash equivalents is assumed to approximate the
carrying value of these assets due to the short maturity of these
instruments. The fair value of the Company's debt, current and
long-term, is estimated to approximate the carrying value of these
liabilities based upon borrowing rates currently available to the
Company for borrowings with similar terms.
Advertising
Advertising and promotion costs are expensed when incurred.
Reclassifications
Certain reclassifications were made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
39
40
NOTES TO FINANCIAL STATEMENTS
3. Property and Equipment
A summary of property and equipment at December 31, 1995 and 1994
follows:
(Dollars in thousands)
1995 1994
---- ----
Land and improvements $ 5,753 $ 4,953
Building and improvements 8,468 8,468
Riverboat 18,332 8,181
Furniture, fixtures and equipment 14,993 14,168
Construction in progress 7,462 610
--------- ---------
55,008 46,380
Less accumulated depreciation
and amortization (8,142) (4,161)
--------- ---------
Property and equipment, net $ 46,866 $ 42,219
========= =========
Capitalized interest for boat construction for the years ended
December 31, 1995, 1994, and 1993 was approximately $0, $189,000 and
$30,000, respectively.
4. Transactions with Related Parties
In January of 1993, PGC merged with the Greater Peoria Leasing
Corporation ("GPLC"). Prior to the merger, GPLC had leased the Spirit
of Peoria riverboat to PGC for use in its Peoria site operations. The
stockholders of GPLC were also the stockholders of PGC in the same
proportion as their ownership in PGC. The merger was recorded like a
pooling of interests and had the impact of eliminating a PGC
receivable from GPLC of approximately $2,048,000.
The Company has transactions with J-Four, Incorporated ("J-Four").
The Company leased the Katie Hooper and Belle Reynolds riverboats in
addition to a landing barge from J-Four for use in PGC's Peoria site
operations. The stockholders of J-Four were also the stockholders of
PGC in the same proportion as their ownership in PGC. On February 15,
1994 the Company and J-Four entered into an agreement with the City of
Peoria for the sale of the Katie Hooper and the Belle Reynolds.
Proceeds from the sales were used to pay down the receivable from
J-Four of $415,000 at December 31, 1993.
40
41
NOTES TO FINANCIAL STATEMENTS
4. Transactions with Related Parties (continued)
Under the terms of the Company's limited partnership agreement with
RCI and HCA, the Company made a loan to the partnership for the
purchase of the Annabel Lee riverboat and a loan for the purchase of
land. Furthermore, the agreement calls for capital contributions for
pre-development costs and annual operating cash contributions not to
exceed $50,000 which will be treated as additional capital
contributions. As of December 31, 1995 PGC had contributed
approximately $826,000, which has been expensed and the $1,117,000
loan balances are included in the accompanying consolidated balance
sheets as due from related parties. The boat and land loans earn
interest at 7 1/2% until maturity and are collateralized by the
Annabel Lee riverboat and the land, respectively, and are to be paid
back from available partnership cash flow, prior to distributions to
partners. The loans mature in November and December 1998,
respectively.
5. Notes Payable and Long-Term Debt
Long-term debt consisted of the following at December 31, 1995 and
1994:
1995 1994
---- ----
(Dollars in thousands)
Borrowings under a $10,000,000 commercial bank line of
credit maturing February 15, 1997 bearing interest at
the lender's base rate (8.5% at December 31, 1995) $ 700
Note payable to finance corporation, bearing interest at a rate
adjusted monthly based on the 30-day commercial paper
rate on the adjustment date plus 2.25% and 3.5% at
December 31, 1995 and 1994 respectively, payable in
monthly installments of approximately $100,000 plus
interest from June, 1994 through April, 1999, with final
principal installment of $6,100,000 in May, 1999 10,100 $11,300
Note payable to finance corporation, bearing interest at a rate
adjusted monthly based on the 30-day commercial paper
rate on the adjustment date plus 2.25% and 3.5% at
December 31, 1995 and 1994 respectively, payable in
monthly installments of approximately $100,000 plus
interest from June, 1994 through May, 1999. 4,100 5,300
-------- --------
14,900 16,600
Less current portion 3,100 2,400
-------- --------
$11,800 $14,200
======== ========
41
42
NOTES TO FINANCIAL STATEMENTS
5. Notes Payable and Long-Term Debt (continued)
The two notes payable to the finance corporation are
cross-collateralized by liens on the Par-A-Dice Riverboat and related
improvements, and all gaming equipment of the Company purchased with
the proceeds of the loans. The loan agreements place limitations on
the Company, relative to additional future borrowings and payment of
dividends, and changes in control. It also requires the maintenance
of certain financial ratios and amounts. The notes payable are
guaranteed by the Company's stockholders.
Maturities of notes payable and long-term debt are as follows (in
thousands):
1996 $ 2,400
1997 2,400
1998 2,400
1999 7,000
-------
Total $14,200
=======
On February 15, 1995 with prior IGB approval, the Company entered into
a new uncollateralized $10,000,000 line of credit with a financial
institution to be utilized for working capital purposes. The line
bears interest at the lender's base rate and matures on February 15,
1997. The loan agreement places limitations on the Company, relative
to additional future borrowings, payments of dividends and changes in
control. It also requires the maintenance of certain financial ratios
and amounts. Certain distributions during 1995 exceeded the amounts
allowed by the loan agreements, but waivers were received for all
covenant violations.
6. Hotel Development
During 1995, the Company entered into a Hotel Development Agreement
(the "Hotel Agreement") with the City of East Peoria (the "City").
Under the Hotel Agreement, the Company agreed to organize East Peoria
Hotel Limited Partnership (the "Partnership") to develop, own and
operate a hotel on land adjacent to the Company's riverboat casino
operation. That land had been given to the City in partial payment
for a late arrival payment asserted against the Company by the City.
The Hotel Agreement provided for the subsequent transfer of the land
by the City to the Partnership in return for the Class B limited
partnership interest in the Partnership, and contributions by the
Company of the funds necessary to construct the hotel in return for
all of the Class A limited partnership interest.
42
43
NOTES TO FINANCIAL STATEMENTS
6. Hotel Development (continued)
The City transferred the land to FOLEPI Foundation, Inc., a charitable
organization, which in turn transferred the land to the Partnership in
return for the Class B limited partnership interest. That interest is
not entitled to share in operating cash flow of the Partnership.
However, if the hotel is sold or refinanced, the holder of the Class B
interest is entitled to receive up to $1 million, but only after the
holders of the Class A limited partnership interest receive a return
of their capital contributions together with a cumulative 8% return.
If the hotel has not been sold or refinanced within ten years after
its opening, the holder of the Class B interest may tender its
interest to the Partnership and receive $1 million in return, if
certain conditions are fulfilled.
The Company is the holder of the Class A limited partnership interest.
As of December 31, 1995, the Company had contributed $6.5 million to
the hotel. The Class A interest is entitled to 99% of the operating
cash flow. The remaining 1% interest in operating cash flow is held
by East Peoria Hotel, Inc., the general partner. The general partner
is owned by shareholders of the Company.
For financial reporting purposes, the Partnership's assets,
liabilities and earnings are consolidated with those of the Company,
and FOLEPI's Class B limited partnership interest in the Partnership
is included in the Company's financial statements as a minority
interest.
7. Commitments and Contingencies
The Company is subject to legal actions in the ordinary course of
business. The Company believes it has defenses for all such claims
and is vigorously defending the actions. In the opinion of
management, based on the advice of legal counsel, liabilities, if any,
arising from these actions should not have a material effect on the
Company's financial statements.
8. Equity
On March 31, 1994 the Company's Board of Directors resolved to
repurchase 770,000 shares of common stock of the Company from the
estate of a deceased stockholder for approximately $8,556,000. On the
same day, the Board of Directors also resolved to repurchase 270,000
shares of common stock of the Company of another stockholder for
approximately $2,684,000. As of December 31, 1994, $2,852,000 is
payable to the estate of a former stockholder and is included in due
to related parties.
On January 2, 1996 the Board of Directors approved a distribution to
stockholders of $3,000,000.
43
44
NOTES TO FINANCIAL STATEMENTS
9. Sale and Donation of Riverboats
In February of 1994, the Company consummated an agreement with the
City of Peoria for the donation of the Spirit of Peoria to the City of
Peoria, which resulted in a loss of approximately $1,646,000 to PGC.
In May of 1994, PGC also consummated an agreement with The Missouri
Gaming Company for the sale of the original Par-A-Dice riverboat.
This sale resulted in a gain of approximately $3,755,000 to PGC.
10. Benefit Plan
The Company has a 401(k) plan (the "Plan") for substantially all
employees with one year of service. Company contributions to the Plan
are discretionary. Approximately $240,000, $185,000 and $174,000,
were contributed by the Company for the years ended December 31, 1995,
1994 and 1993, respectively.
11. Subsequent Events
On February 9, 1996, the Illinois Gaming Board ordered the Company to
divest a 2.7% shareholder of his ownership interest in Par-A-Dice
Gaming because of the shareholder's failure to disclose the beneficial
interest of an unlicensed third party in 50% of his shares of the
Company. The shares of such shareholder and the beneficial owner were
redeemed by the Company on March 14 and 15, 1996 for $1,350,000 and
$130,000, respectively.
On January 29, 1996, the Company amended its long term note payable
with the finance corporation. The agreement called for an additional
credit advance of $3.5 million, reduced the stated interest rate and
eliminated the dividend restriction covenant. The balance of this
note was $10.1 million as of December 31, 1995. The payment schedule
was modified such that the final principal payment due in May of 1999
will be increased by $3.5 million.
The Company also renegotiated the terms of its commercial bank line of
credit in early 1996. The new agreement eliminates the dividend
restriction covenant and provides for rates based upon LIBOR (London
InterBank Offered Rate).
On March 28 and May 23, 1996, the Board of Directors approved
distributions to stockholders of $2,000,000 and $3,000,000,
respectively.
On April 26, 1996, Boyd Gaming Corporation entered into an agreement
with the Company and its stockholders to purchase all of the Company's
outstanding common stock. The closing of this sale is contingent upon
several matters including the approval of the IGB.
44
45
BOYD GAMING CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The accompanying pro forma consolidated financial statements present pro
forma information for the Company and Par-A-Dice Gaming giving effect to the
Par-A-Dice Acquisition. The pro forma consolidated financial statements of the
Company are based on the historical consolidated financial statements of the
Company and Par-A-Dice Gaming as of and for the nine months ended March 31, 1996
and the year ended June 30, 1995.
The accompanying pro forma consolidated income statements for the nine
months ended March 31, 1996 and for the year ended June 30, 1995, have been
presented as if the Par-A-Dice Acquisition occurred on July 1, 1994. The
accompanying pro forma consolidated balance sheet at March 31, 1996 has been
presented as if the Par-A-Dice Acquisition occurred on March 31, 1996.
The pro forma adjustments are based on currently available information and
upon certain assumptions that management of the Company believes are reasonable
under the circumstances.
THESE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS ARE PROVIDED FOR
INFORMATIONAL PURPOSES ONLY AND ARE NOT NECESSARILY INDICATIVE OF THE RESULTS
THAT WILL BE ACHIEVED FOR FUTURE PERIODS. THESE PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS DO NOT PURPORT TO REPRESENT WHAT THE COMPANY'S RESULTS OF OPERATIONS
OR FINANCIAL POSITION WOULD ACTUALLY HAVE BEEN IF THE PAR-A-DICE ACQUISITION IN
FACT HAD OCCURRED AT JULY 1, 1994 OR MARCH 31, 1996. THESE PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO SHOULD BE READ
IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND THE
CONSOLIDATED FINANCIAL STATEMENTS OF PAR-A-DICE GAMING INCLUDED ELSEWHERE OR
INCORPORATED IN THIS REPORT.
45
46
BOYD GAMING CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996
(IN THOUSANDS)
ADJUSTMENTS
COMPANY PAR-A-DICE AND COMPANY
HISTORICAL HISTORICAL ELIMINATIONS PRO FORMA
---------- ---------- ----------- ----------
ASSETS
Current assets
Cash and cash equivalents.................. $ 51,918 $ 6,719 $ 180,775(a)
(3,000)(b)
(17,100)(c)
(160,675)(d) $ 58,637
Accounts receivable, net................... 17,358 384 17,742
Inventories................................ 6,455 266 6,721
Prepaid expenses........................... 17,039 391 17,430
-------- ------- ----------
Total current assets.................... 92,770 7,760 100,530
Property, equipment and leasehold interests,
net........................................ 782,754 50,077 (e) 832,831
Other assets and deferred charges............ 55,810 1,271 3,000(b)
(1,117)(d) 58,964
Goodwill and intangibles, net................ 10,619 125,369(d) 135,988
-------- ------- -------- ----------
Total assets............................ $ 941,953 $ 59,108 $ 127,252 $1,128,313
======== ======= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt.......... $ 40,657 $ 2,400 $ (2,400)(c) $ 40,657
Accounts payable........................... 40,066 1,091 41,157
Accrued liabilities........................
Payroll and related..................... 21,491 -- 21,491
Interest and other...................... 25,229 3,494 28,723
Income taxes payable....................... 3,882 -- 3,882
-------- ------- -------- ----------
Total current liabilities............... 131,325 6,985 (2,400) 135,910
Long-term debt, net of current maturities.... 548,034 14,700 180,775(a)
(14,700)(c) 728,809
Deferred income taxes........................ 32,527 -- 32,527
Minority interest............................ -- 1,000 1,000
Commitments..................................
Stockholders' equity
Common stock............................... 571 -- 571
Additional paid-in capital................. 101,436 9,048 (9,048)(d) 101,436
Retained earnings.......................... 128,060 27,375 (27,375)(d) 128,060
-------- ------- -------- ----------
Total stockholders' equity.............. 230,067 36,423 (36,423) 230,067
-------- ------- -------- ----------
Total liabilities and stockholders'
equity................................ $ 941,953 $ 59,108 $ 127,252 $1,128,313
======== ======= ======== ==========
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
46
47
BOYD GAMING CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ADJUSTMENTS
COMPANY PAR-A-DICE AND COMPANY
HISTORICAL HISTORICAL ELIMINATIONS PRO FORMA
---------- ---------- --------------- ---------
Revenues
Casino.................................. $ 413,097 $ 74,012 $ $ 487,109
Food and beverage....................... 105,703 5,861 111,564
Rooms................................... 52,308 -- 52,308
Other................................... 35,300 1,705 37,005
Management fees and joint venture....... 30,893 -- 30,893
-------- ------- -------- --------
Gross revenues............................ 637,301 81,578 718,879
Less promotional allowances............... 55,792 1,669 57,461
-------- ------- -------- --------
Net revenues......................... 581,509 79,909 661,418
-------- ------- -------- --------
Costs and expenses
Casino.................................. 203,769 25,319 229,088
Food and beverage....................... 74,337 5,598 79,935
Rooms................................... 17,910 -- 17,910
Other................................... 25,653 1,203 26,856
Selling, general and administrative..... 83,179 20,327 103,506
Maintenance and utilities............... 22,620 2,160 24,780
Depreciation and amortization........... 45,868 3,306 (3,306)(f)
5,806(g) 51,674
Corporate expense....................... 16,417 -- 16,417
Preopening expense...................... 10,004 -- 10,004
-------- ------- -------- --------
Total................................ 499,757 57,913 2,500 560,170
-------- ------- -------- --------
Operating income.......................... 81,752 21,996 (2,500) 101,248
-------- ------- -------- --------
Other income (expense)
Interest income......................... 987 516 (63)(h) 1,440
Interest expense, net of amounts
capitalized.......................... (39,322) (1,127) 1,127(i)
(10,169)(j) (49,491)
-------- ------- -------- --------
Total................................ (38,335) (611) (9,105) (48,051)
-------- ------- -------- --------
Income before provision for income
taxes................................... 43,417 21,385 (11,605) 53,197
Provision for income taxes................ 17,315 311 3,140(k) 20,766
-------- ------- -------- --------
Net income................................ $ 26,102 $ 21,074 $ (14,745) $ 32,431
======== ======= ======== ========
Net income per common share............... $ 0.46 $ 0.57
======== ========
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
47
48
BOYD GAMING CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ADJUSTMENTS
COMPANY PAR-A-DICE AND COMPANY
HISTORICAL HISTORICAL ELIMINATIONS PRO FORMA
---------- ---------- ----------- ----------
Revenues
Casino................................... $ 463,179 $ 93,050 $ $ 556,229
Food and beverage........................ 123,527 6,744 130,271
Rooms.................................... 62,300 -- 62,300
Other.................................... 37,563 2,520 40,083
Management fees and joint venture........ 35,763 -- 35,763
-------- ------- -------- --------
Gross revenues............................. 722,332 102,314 824,646
Less promotional allowances................ 61,992 2,297 64,289
-------- ------- -------- --------
Net revenues............................. 660,340 100,017 760,357
-------- ------- -------- --------
Costs and expenses
Casino................................... 221,844 33,169 255,013
Food and beverage........................ 90,670 5,278 95,948
Rooms.................................... 24,578 -- 24,578
Other.................................... 25,567 349 25,916
Selling, general and administrative...... 79,785 27,094 106,879
Maintenance and utilities................ 28,452 2,721 31,173
Depreciation and amortization............ 54,518 4,426 (4,426)(f)
7,760(g) 62,278
Corporate expense........................ 24,356 -- 24,356
-------- ------- -------- --------
Total................................. 549,770 73,037 3,334 626,141
-------- ------- -------- --------
Operating income........................... 110,570 26,980 (3,334) 134,216
-------- ------- -------- --------
Other income (expense)
Interest income.......................... 2,072 457 (84)(h) 2,445
Interest expense, net of amounts
capitalized........................... (48,443) (1,436) 1,436(i)
(13,558)(j) (62,001)
-------- ------- -------- --------
Total................................. (46,371) (979) (12,206) (59,556)
-------- ------- -------- --------
Income before provision for income taxes... 64,199 26,001 (15,540) 74,660
Provision for income taxes................. 27,950 508 3,251(k) 31,709
-------- ------- -------- --------
Net income................................. $ 36,249 $ 25,493 $ (18,791) $ 42,951
======== ======= ======== ========
Net income per common share................ $ 0.64 $ 0.76
======== ========
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
48
49
BOYD GAMING CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
The pro forma adjustments contained in the accompanying pro forma
consolidated financial statements reflect:
(a) The proceeds from the draw down of the New Bank Credit Facility to fund the
Par-A-Dice Acquisition.
(b) The payment of $3,000 in fees related to the Par-A-Dice Acquisition.
(c) The retirement of assumed indebtedness of Par-A-Dice Gaming.
(d) The payment of approximately $160,675 to the Par-A-Dice Gaming shareholders,
the transfer of certain assets of $1,117 not associated with the Par-A-Dice
to the Par-A-Dice Gaming shareholders (the "Transferred Assets"), the
elimination of Par-A-Dice Gaming's equity ($9,048 in common stock and
$27,375 in retained earnings) and the allocation of the excess purchase
price over historical value of acquired assets ($125,369) to
intangibles-license rights based on the Company's estimates of the fair
market values of the assets being acquired.
(e) No adjustment to property, equipment and leasehold interests is necessary as
the book value at March 31, 1996 reflects the fair value of the assets to
be acquired in the merger.
(f) The elimination of Par-A-Dice Gaming's historical depreciation and
amortization expense for the year ended June 30, 1995 and for the
nine-months ended March 31, 1996.
(g) Depreciation and amortization expense as follows:
NINE-
AMOUNT LIFE ANNUAL MONTHS
-------- ---- ------ ------
Property, equipment and leasehold interests.... $ 50,077 11 $4,426 $3,306
Other assets................................... 3,000 15 200 150
Intangibles-license rights..................... 125,369 40 3,134 2,350
------ ------
Total..................................... $7,760 $5,806
====== ======
(h) The elimination of interest income of $63 and $84, respectively, for the
nine months ended March 31, 1996 and the year ended June 30, 1995 related
to the transfer of the Transferred Assets.
(i) The elimination of Par-A-Dice Gaming's historical interest expense for the
year ended June 30, 1995 and for the nine-months ended March 31, 1996.
(j) Interest expense on $180,775 in debt at an assumed interest rate of 7.5%.
(k) An adjustment to the provision for income taxes of $3,140 and $3,251,
respectively, for the nine months ended March 31, 1996 and the year ended
June 30, 1995 in order to result in a 36% combined state and federal
corporate tax rate due to the conversion from Subchapter S status to C
corporate status under the Internal Revenue Code.
49
50
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BOYD GAMING CORPORATION
Date: June 7, 1996 /s/ Keith E. Smith
----------------------------------
Keith E. Smith
Vice President and Controller
(Chief Accounting Officer)
50