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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission File Number 1-8570
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CIRCUS CIRCUS ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
Nevada 88-0121916
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2880 Las Vegas Boulevard South, Las Vegas, Nevada 89109-1120
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 734-0410
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Securities registered pursuant to Section 12(b) of the Act:
Name of Exchanges
Title of Class on which Registered
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Common Stock, $.01-2/3 Par Value New York Stock Exchange and
Pacific Stock Exchange
Common Stock Purchase Rights New York Stock Exchange and
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant held by
persons other than the registrant's directors and executive officers as of April
24, 1995 (based upon the last reported sale price on the New York Stock Exchange
on such date) was $2,731,910,535.
The number of shares of Common Stock, $.01-2/3 par value, outstanding at
April 24, 1995: 85,867,798.
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DOCUMENTS INCORPORATED BY REFERENCE
PART II - Portions of the Registrant's Annual Report to Stockholders for
the year ended January 31, 1995 are incorporated by reference into Items 7 and
8, inclusive.
PART III - Portions of the Registrant's definitive proxy statement in
connection with the annual meeting of stockholders to be held on June 22, 1995,
are incorporated by reference into Items 10 through 13, inclusive.
PART I
ITEM 1. BUSINESS.
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General
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Circus Circus Enterprises, Inc. (the "Company"), which was incorporated in
1974, owns and operates, through wholly-owned subsidiaries, six hotel-casino
properties with approximately 13,700 guest rooms in the State of Nevada,
including three properties in Las Vegas (Circus Circus-Las Vegas, Luxor and
Excalibur), the Circus Circus Hotel and Casino in Reno and the Colorado Belle
Hotel and Casino and the Edgewater Hotel and Casino which are located on the
Colorado River in Laughlin. The Company also owns and operates a dockside
casino (which opened in August 1994) situated on a 24-acre site in Tunica
County, Mississippi and operates two smaller casinos on the Las Vegas Strip,
Slots-A-Fun (which the Company also owns) and the Silver City Casino (which the
Company operates under a long-term lease).
The Company is currently engaged, through wholly-owned subsidiaries, as a
50% participant in two joint ventures which are developing, subject to the
requisite regulatory approvals, casino projects in Reno, Nevada and Chalmette,
Louisiana. The Company is also a one-third participant in a company which is
operating a temporary casino in Windsor, Ontario, Canada that opened in May
1994, pending the completion of a permanent hotel-casino facility. For
additional information concerning the projects with which the Company is
involved through the aforementioned joint ventures, see "Joint Venture
Participations" in this Item 1.
On March 6, 1995, the Company entered into an agreement to purchase the
Hacienda Hotel & Casino, which is situated on a 47-acre site adjacent to Luxor,
subject to the receipt of certain regulatory approvals. On March 2, 1995, the
Company purchased an unimproved 73-acre site adjacent to the Hacienda property.
The Company plans to operate the Hacienda while it finalizes plans to develop
these newly acquired properties into an integrated development with the
Company's Luxor and Excalibur properties. For additional information concerning
these properties, see "Current Expansion Activities" in this Item 1.
Pursuant to an Agreement and Plan of Merger dated as of March 19, 1995 (the
"Merger Agreement") and an Exchange Agreement dated as of March 19, 1995 (the
"Exchange Agreement" and, together with the Merger Agreement, the "Gold Strike
Agreements"), the Company has agreed, subject to the receipt of certain
regulatory approvals and the satisfaction of certain conditions, to acquire from
certain entities and individuals (collectively the "Gold Strike Shareholders") a
group of affiliated entities (collectively the "Gold Strike Entities") which own
the Gold Strike Hotel & Gambling Hall and the Nevada Landing Hotel & Casino in
Jean, Nevada, the Railroad Pass Hotel & Casino in Henderson, Nevada, a 50%
interest in a joint venture partnership with an affiliate of Hyatt Development
Corporation which owns the Grand Victoria, a riverboat casino and land-based
entertainment complex in Elgin, Illinois (situated approximately 40 miles
northwest of downtown Chicago), a 50% interest in a joint venture partnership
with an affiliate of Mirage Resorts, Incorporated which is developing a
3,000-room gaming resort near the south end of the Las Vegas Strip and certain
other assets (collectively the "Gold Strike Properties"). The Gold Strike
Agreements provide for the Company's acquisition of the Gold Strike Entities
(the "Acquisitions") in exchange for its issuance of 16,291,551 shares of its
Common Stock and the issuance by a subsidiary of the Company of shares of the
subsidiary's preferred stock which will be convertible into an additional
793,156 shares of the Company's Common Stock, as well as the Company's payment
of approximately $12.1 million in cash and its assumption of approximately $165
million of debt. Consummation of the Acquisitions is expected to occur at the
end of May 1995. The foregoing discussion is qualified in its entirety by
reference to the Merger Agreement and the Exchange Agreement, copies of which
are included as Exhibits 10(ee) and 10(ff), respectively, to this Report and are
incorporated herein by this reference.
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For additional information concerning the Merger Agreement, see: "Current
Expansion Activities - Pending Acquisition of Gold Strike Entities" in this Item
1.
Unless the context otherwise indicates, all references to the Company are
to Circus Circus Enterprises, Inc. and its subsidiaries.
DESCRIPTION OF THE COMPANY'S OPERATING HOTELS AND CASINOS
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Las Vegas, Nevada
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Circus Circus-Las Vegas. Circus Circus-Las Vegas, the Company's original
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property, is a circus-themed hotel and casino complex situated on approximately
69 acres on the north end of the Las Vegas Strip. The property, which has a
total of 2,786 hotel rooms, includes approximately 110,000 square feet of casino
space where, as of January 31, 1995, 2,412 licensed slot machines and other
coin-operated devices, 49 blackjack ("21") tables, three craps tables, seven
roulette tables and a wheel of fortune as well as poker, keno and a race and
sports book were available to the casino's patrons. From a "Big Top" above the
casino, Circus Circus-Las Vegas offers its guests a variety of circus acts
performed free of charge to the public from 11 a.m. to midnight daily. A
mezzanine area overlooking the casino has a circus midway with carnival-style
games and an arcade that offers a variety of amusements and electronic games.
Two specialty restaurants, a buffet with a seating capacity of approximately
1,084, two coffee shops, several fast food snack bars, four cocktail bars and
two cocktail service bars, and a variety of gift shops and specialty shops are
also available to the guests at Circus Circus-Las Vegas. The latest addition to
Circus Circus-Las Vegas is Grand Slam Canyon, an "adventuredome" covering
approximately five acres. The new facility, which opened in August 1993, offers
theme park entertainment that includes a high-speed, double-loop, double-
corkscrew roller coaster, a coursing river flume ride on white-water rapids,
several rides and attractions designed for pre-school age children, themed
carnival-style arcade games, a state-of-the art arcade, a 65-foot waterfall,
fully animated life-size dinosaurs in their primeval habitat, food kiosks, and
souvenir shops, all in a climate-controlled setting under a giant pink space-
frame dome. An expansion program which increased the number of attractions at
Grand Slam Canyon was completed during 1994 at a cost of approximately $15.4
million. On-site parking is available for approximately 5,100 vehicles,
including three garages that will accommodate approximately 3,200 vehicles and
covered parking for approximately 320 vehicles beneath Grand Slam Canyon.
Circus Circus-Las Vegas also offers accommodations for
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approximately 375 recreational vehicles at the property's Circusland RV Park.
Luxor. Luxor is an Egyptian-themed hotel and casino complex which features
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a 30-story pyramid sheathed in reflective glass. Situated at the south end of
the Las Vegas Strip on a 64-acre site adjacent to Excalibur, Luxor was opened to
the public October 15, 1993 and offers its guests more than 400,000 square feet
of public entertainment area on three different levels beneath a soaring hotel
atrium enclosed by 2,526 hotel rooms, including 287 suites. The rooms can be
reached from the four corners of the pyramid by state-of-the-art "inclinators"
which travel at a 39-degree angle. Luxor includes approximately 100,000 square
feet of casino space where, as of January 31, 1995, 2,501 licensed slot machines
and other coin-operated devices, 60 blackjack ("21") tables, seven craps tables,
nine roulette tables and two wheels of fortune as well as poker, keno and a race
and sports book were available to the casino's patrons. On the casino level,
guests may view a chronological tableau of Egyptian archaeological wonders
dating from 4000 B.C. to 300 B.C. from boats operated on a waterway that flows
along the interior perimeter of the building, separating the hotel rooms from
the casino. Above the casino, a series of high-tech "participatory" adventures
arrayed in striking scenery are designed to seemingly transport visitors to
extraordinary places of times past, present and future. Below the casino is a
showroom which features big-name entertainment. Also on the showroom level is a
museum of the Tomb of King Tutankhamen featuring authentic replicas of Egyptian
artifacts as they were found in the tomb. Luxor's other public areas contain a
buffet with a seating capacity of approximately 800, six themed restaurants
including two gourmet restaurants, as well as a snack bar, nine cocktail lounges
and a variety of specialty shops. In addition, the property's spa offers guests
a relaxing escape from the excitement of the casino. Parking is available for
nearly 3,500 vehicles, including a garage which contains approximately 1,300
spaces.
Excalibur. Excalibur is a castle-themed hotel and casino complex situated
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on the south end of the Las Vegas Strip on a 53-acre site adjacent to Luxor.
Excalibur, which has a total of 4,032 hotel rooms, offers its guests more than
400,000 square feet of public entertainment area, including approximately
110,000 square feet of casino space where, as of January 31, 1995, 2,706
licensed slot machines and other coin-operated devices, 62 blackjack ("21")
tables, five craps tables, six roulette tables and two wheels of fortune as well
as poker, keno and a race and sports book were available to the casino's
patrons. Excalibur's other public areas include a Renaissance faire, a medieval
village, an amphitheater with seating capacity of nearly 1,000 where nightly
mock jousting tournaments are held and costume drama are presented, two dynamic
motion theaters, various artisans' booths and medieval games of skill. In
addition, the property has a buffet with seating capacity of
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approximately 1,450, six themed restaurants, as well as three snack bars,
several cocktail lounges and a variety of specialty shops. Parking is available
for approximately 4,000 vehicles, including a garage which contains
approximately 1,400 spaces.
Other Las Vegas Properties. The Silver City Casino and Slots-A-Fun have
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18,200 and 16,700 square feet of casino space, respectively. Both casinos
depend on foot traffic along the Las Vegas Strip for their business. As of
January 31, 1995, the Silver City Casino had 536 licensed slot machines and
other coin-operated devices, and Slots-A-Fun had 629 such licensed machines and
devices.
Reno, Nevada
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Circus Circus-Reno. Circus Circus-Reno is a circus-themed hotel and casino
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complex situated in downtown Reno, Nevada. The property, which has a total of
1,625 hotel rooms, includes approximately 60,000 square feet of casino space
where, as of January 31, 1995, 1,675 licensed slot machines and other coin-
operated devices, 65 blackjack ("21") tables, three craps tables, six roulette
tables and a wheel of fortune as well as poker, keno and a race and sports book
were available to the casino's patrons. From a "Big Top" above the casino,
Circus Circus-Reno also offers its guests a variety of circus acts performed
free of charge to the public from 11 a.m. to midnight daily. A mezzanine area
overlooking the casino has a circus midway with carnival-style games and an
arcade that offers a variety of amusement and electronic games. The facilities
at Circus Circus-Reno also include a specialty restaurant, a buffet with a
seating capacity of approximately 700, a coffee shop, three fast food snack
bars, four cocktail lounges, a gift shop and specialty shops. Covered parking
is available for over 1,800 vehicles. For information concerning the Company's
participation in a joint venture which is developing a casino, hotel and
entertainment complex to be known as Silver Legacy, which will be connected to
Circus Circus-Reno by a skywalk, see "Joint Venture Participation -- Reno Joint
Venture", below.
Laughlin, Nevada
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Colorado Belle. The Colorado Belle Hotel and Casino is situated on a 22-
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acre site on the bank of the Colorado River (with 1,080 feet of river frontage)
in Laughlin, Nevada, approximately 90 miles south of Las Vegas. The Colorado
Belle features a 600-foot replica of a Mississippi riverboat with 200 hotel
rooms, two towers containing an additional 1,034 hotel rooms and a casino with
approximately 64,000 square feet of space where, as of January 31, 1995, 1,546
licensed slot machines and other coin-operated devices, 37 blackjack ("21")
tables, two craps tables and four roulette tables as well as poker, keno and a
sports book were available to the casino's patrons. The Colorado Belle's
facilities also include a 350-seat buffet, a coffee shop, three specialty
restaurants, two fast food snack
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bars, four cocktail lounges and a cocktail service bar as well as a gift shop
and other specialty shops. There is surface parking available for an estimated
1,700 vehicles.
Edgewater. The Edgewater Hotel and Casino is situated on a 16-acre site
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adjacent to the Colorado Belle in Laughlin, Nevada with approximately 1,640 feet
of frontage on the Colorado River. The property, which has 1,450 hotel rooms,
includes approximately 57,000 square feet of casino space where, as of January
31, 1995, 1,537 licensed slot machines and other coin-operated devices, 38
blackjack ("21") tables, two craps tables, four roulette tables and a wheel of
fortune as well as poker, keno and a race and sports book were available to the
casino's patrons. The Edgewater's facilities also include a specialty
restaurant, a coffee shop, a buffet with a seating capacity of approximately
735, a snack bar and three cocktail lounges. There is surface parking available
for approximately 1,350 vehicles and a parking garage which can accommodate
approximately 930 additional vehicles.
Tunica County, Mississippi
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Circus Circus-Tunica. Circus Circus-Tunica, which opened in August 1994,
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is a riverboat situated on a 24-acre site along the Mississippi River in Tunica
County, Mississippi, approximately three miles west of Mississippi State Highway
61 (a major north/south highway connecting Memphis, Tennessee with Tunica
County) and approximately 20 miles south of Memphis. The facility, which has a
total of approximately 127,000 square feet of space, is operated 24 hours a day
and includes approximately 59,000 square feet of casino space in addition to
restaurants, retail shops and entertainment areas. As of January 31, 1995,
1,468 licensed slot machines and other coin-operated devices, 41 blackjack
("21") tables, eight craps tables and four roulette tables as well as poker were
available to the casino's patrons. The facility also includes a specialty
restaurant, a 500-seat buffet, a snack bar, three cocktail lounges and two
service bars. Circus Circus-Tunica was completed at a cost of approximately $70
million, including land, capitalized interest and preopening expenses. For
information concerning regulatory provisions applicable to Circus Circus-Tunica,
including a new regulation relating to mandated infrastructure development, see
"Regulation and Licensing--Mississippi" in this Item 1.
The Company's Tunica site is a part of a three-casino development covering
approximately 72-acres. The other two casinos are owned and operated by
unaffiliated third parties. The Company also has an undivided one-half interest
in an additional 388 acres of land contiguous to or near the three casino sites
which may be used for future development.
MARKETING
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Generally, the Company follows a marketing and operating philosophy which
emphasizes high-volume business by providing moderately priced hotel rooms, food
and beverage and alternative entertainment in combination with the gaming
activity. The
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Company also maintains stringent cost controls which are exemplified by a
general policy of offering minimal credit for gaming customers at the Company's
properties. Management believes that this philosophy sets the Company apart
from its principal competitors.
The Company's current operations are conducted 24 hours a day, every day of
the year. The Company does not consider its business to be highly seasonal,
although its operating income is typically somewhat lower in the fourth
quarter. Management emphasizes courtesy and prompt service to its customers and
aspires to a high standard of excellence in all of its operations.
The Company believes it has been able to maintain high occupancy rates at
its hotels, in part, due to the modest prices charged for its rooms and its
advertised policy of assisting any customer who cannot be accommodated at its
properties in finding similarly priced rooms in nearby hotels and motels. The
combined occupancy rate (excluding complimentaries but including non-refunded
prepaid cancellations) of the Company hotel's was approximately 95.7%, 97.8% and
98.3% for the years ended January 31, 1995, 1994 and 1993, respectively.
Circus Circus-Las Vegas and Circus Circus-Reno, which together contributed
29% of the Company's revenues in the year ended January 31, 1995 (and 36% and
39%, respectively, in the years ended January 31, 1994 and 1993), have popular
buffets, attractive because of their variety, quality and low price. From a
"Big Top" above the casino, both properties offer a variety of circus acts
performed free of charge to the public from 11 a.m. to midnight daily. A
mezzanine area overlooking each casino has a circus midway with carnival-style
games and an arcade that offers a variety of amusement and electronic games. In
August 1993, the Grand Slam Canyon adventuredome was opened at Circus Circus-Las
Vegas and additional attractions were added during 1994.
Excalibur, which contributed 25% of the Company's revenues in the year
ended January 31, 1995 (and 30% and 33%, respectively, in the years ended
January 31, 1994 and 1993), attracts customers in the same manner as the
Company's two circus-themed Nevada properties by offering quality rooms, food
and entertainment at moderate prices. By way of entertainment, the medieval
castle-themed Excalibur offers a medieval village, an amphitheater where mock
tournaments and costume drama are presented, dynamic motion theaters, various
artisans' booths and medieval games of skill.
Luxor, which opened in October 1993 and contributed 24% of the Company's
revenues in the year ended January 31, 1995 (and 9% in the year ended January
31, 1994), is designed to attract the higher income segment of the middle-income
strata of gaming customers by offering a new level of entertainment and hotel
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accommodations. Designed with an Egyptian theme, the pyramid-shaped Luxor
offers its guests a tri-level entertainment area which includes a water journey
from which guests discover replicas of artifacts and treasures of ancient Egypt.
The upper level includes a series of high-tech "participatory" adventures
arrayed in striking scenery designed to seemingly transport visitors to
extraordinary places of times past, present and future. Other entertainment
features include a showroom with big-name entertainment and a museum replicating
King Tut's Tomb and its contents.
The Colorado Belle and Edgewater together contributed 16% of the Company's
revenues in the year ended January 31, 1995 (and 21% and 23%, respectively, in
the years ended January 31, 1994 and 1993). Forming the heart of the Laughlin
"Strip", the Colorado Belle and the Edgewater combine to offer 2,700 rooms and
over 120,000 square feet of casino space. The Colorado Belle offers a classic
Mississippi riverboat theme, complete with a 60-foot paddlewheel. The
Edgewater's southwestern motif provides a relaxing atmosphere to enjoy the
property's casino and other facilities. Connected by a scenic walkway, the two
resorts form an inviting shoreline along the Colorado River.
Circus Circus-Tunica, which opened in August 1994, represents the Company's
first wholly-owned casino outside of Nevada as well as its first riverboat
casino. The facility is part of an integrated three casino development that
provides patrons with the opportunity to visit any of the three casinos without
driving, a unique experience in the Tunica market. The three casinos are the
closest and provide the easiest access from Tunica's primary feeder market,
Memphis, Tennessee.
The Company maintains an active media advertising program through radio,
television, billboards and printed publications primarily in Nevada, California
and Arizona for its Nevada properties and in the Memphis area for Circus Circus-
Tunica. During the year ended January 31, 1995, the Company incurred total
expenses relating to advertising (including the media advertising described
above) of $49.8 million compared with $40.4 million and $35.0 million during the
years ended January 31, 1994 and 1993, respectively. While the Company offers
complimentary hotel accommodations, meals and drinks to its customers on an
individual basis, no group complimentary arrangements are offered.
OPERATIONS
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The primary source of revenues and income to the Company is its casinos,
although the hotels, restaurants, bars, shops, midway games and other
entertainment attractions and other services are an important adjunct to the
casinos.
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The following table sets forth the contribution to net revenues on a dollar
and percentage basis of the Company's major activities for each of the three
most recent fiscal years.
Year Ended January 31,
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1993 1994 1995
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(Dollars in thousands)
Revenues:
Casino(1)............... $495,012 58.2% $538,813 55.9% $612,115 52.3%
Food and
beverage(2)........... 135,786 15.9% 152,469 15.8% 189,664 16.2%
Rooms(2)................ 147,115 17.3% 176,001 18.3% 232,346 19.9%
Other(2)................ 100,416 11.8% 126,048 13.1% 171,754 14.7%
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878,329 103.2% 993,331 103.1% $1,205,879 103.1%
Less:
Complimentary
allowances(2)......... 27,388 3.2% 29,861 3.1% 35,697 3.1%
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Net revenues.............. $850,941 100.0% $963,470 100.0% $1,170,182 100.0%
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(1) Casino revenues are the net difference between the sums received as
winnings and the sums paid as losses.
(2) Food and beverage, Rooms and Other include the retail value of revenues
from services which are provided to casino customers and others on a
complimentary basis. Such amounts are then deducted as complimentary
allowances to arrive at net revenue.
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In connection with its gaming activities, the Company follows a policy of
stringent controls and crosschecks on the recording of all receipts and
disbursements. The audit and cash controls developed and utilized by the
Company include the following: locked cash boxes, independent counters,
checkers and observers to perform the daily cash and coin counts, floor
observation of the gaming areas, closed-circuit television observation of
certain areas, computer tabulation of receipts and disbursements for each of the
Company's slot machines, tables and other games, and the rapid analysis and
resolution of discrepancies or deviations from normal performance.
The Company's credit policies are stringent and credit play historically
has accounted for an insignificant portion of its gaming activities. Because of
the Company's policies, its casino receivables have been significantly less than
1% of its total assets and its annual bad debt expense has been less than 1/10
of 1% of casino revenues.
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JOINT VENTURE PARTICIPATIONS
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The Company is currently participating in joint ventures which are engaged
in the development, subject to the requisite regulatory approvals, of casino
projects in Reno, Nevada and Chalmette, Louisiana (where the Company is a 50%
participant) and Windsor, Ontario, Canada (where the Company is a one-third
participant).
The following is a description of the casino projects with which the
Company is currently involved as a joint venture participant:
Reno, Nevada Joint Venture (50% Participation)
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The Company, through a wholly-owned subsidiary, is a 50% participant with
Eldorado Limited Liability Company ("Eldorado Limited") in a general partnership
(the "Reno Joint Venture") which is engaged in the development of Silver Legacy,
a themed hotel, casino and entertainment complex being constructed on two city
blocks in downtown Reno, Nevada. The casino and entertainment complex will be
located between Circus Circus-Reno and Eldorado Hotel & Casino (the
"Eldorado"). Silver Legacy's casino and entertainment complex will be connected
at the mezzanine level with Circus Circus-Reno, the Eldorado and Silver Legacy's
hotel complex by enclosed climate-controlled skyways above the streets between
the respective properties. The property's exterior will be heavily themed to
evoke images of Reno during the period from the 1880's through the 1930's. At
the main pedestrian entrances to the casino and hotel (located on all four sides
of each complex), patrons will be able to enter the property by passing through
active retail establishments and store fronts reminiscent of turn-of-the-century
Reno.
Silver Legacy's casino and entertainment complex will offer approximately
82,000 square feet of gaming space on two levels, including approximately 72,000
square feet on the ground level and approximately 10,000 square feet on the
mezzanine level. The casino is currently expected to open with approximately
2,500 slot machines and other coin operated devices and approximately 90 table
games, including blackjack ("21"), craps, roulette, baccarat, pai gow and pai
gow poker tables. A 180-foot diameter dome will project from the roof of the
casino complex. Extending up into the dome structure from the center of the
casino floor will be a 120-foot tall mining rig situated over a replica of a
silver mine. The rig will depict a functioning mining rig with running ore
wagons, water flumes, steam and beam-traction engines, cradles and working
buckets, and will appear to mine and smelt ore and pour liquid gold and silver
into coins and bullion in the center of the casino. At the center of the rig, a
glass-encased elevator will carry patrons between the main casino floor and
mezzanine level. Using light projectors, video screens, mirrors and other
optical devices, as well as sound equipment, atmospheric special effects will be
created on the interior
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surface of the dome, replicating lightning, sunsets, moving cloud patterns and
night skies accompanied by the sounds of the desert wind.
The hotel complex, which will be approximately 400 feet high, will, upon
completion, be the tallest structure in the Reno area and will be visible from
Interstate 80, the principal highway connecting Reno with San Francisco,
Sacramento and other cities in northern California. The hotel will have three
towers with guest rooms on 37, 34 and 31 floors, respectively, with a total of
approximately 1,700 guest rooms (approximately 400 of which will be completed
subsequent to Silver Legacy's initial opening to the public). The hotel's guest
rooms will include 145 player spa suites, each of which will have approximately
700 square feet of space (approximately twice the size of a standard guest
room), and eight luxury suites which will range in size from approximately 1,200
to 1,600 square feet. The hotel complex will also include a parking structure
with space for approximately 1,900 vehicles on ten levels.
The property will have four restaurants, including a 240-seat delicatessen,
bar and "sidewalk" cafe located on the ground floor. The mezzanine level of the
casino will have a seafood grill, a buffet and a 24-hour coffee shop. The
property will also include a 25,000-square foot special events center and a
12,000-square foot health spa with an outdoor pool and sun deck. In addition,
32,000 square feet of space on the mezzanine level of the casino complex not
initially opened to the public will be available for the expansion of the
Project's public areas to include additional restaurant, entertainment or retail
space.
Silver Legacy is expected to open in July 1995 with approximately 1,300
guest rooms in service. The remaining 400 guest rooms are scheduled for
completion by May 1996. The total cost of the project is currently estimated at
approximately $335 million (excluding capitalized interest and preopening
expenses).
Pursuant to the joint venture agreement relating to the Reno Joint Venture
(the "Reno Venture Agreement"), each of the participants has contributed to the
Reno Joint Venture cash or property with an agreed to value of $52.5 million.
The Reno Joint Venture expects to enter into a Credit Agreement with a group of
major banks pursuant to which $220 million of the costs associated with the
construction, furnishing and equipping of Silver Legacy will be funded. The
indebtedness under the Credit Agreement will be secured by a Deed of Trust on
Silver Legacy and security interests in other assets of the Reno Joint Venture.
The indebtedness incurred pursuant to the Credit Agreement will be subject to
scheduled quarterly reductions ranging from $5 million to $7 million per
quarter, and a scheduled reduction of $125 million on September 30, 2000.
Mandatory prepayments will be required after the end of each of the first eight
full fiscal quarters following the opening of Silver Legacy in the amount of 50%
of the Reno Joint Venture's Consolidated Available Cash Flow
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(as defined). Any funds required in excess of those available under the Credit
Agreement will be provided by the Company in the form of subordinated loans to
the Reno Joint Venture. The Company is also obligated to provide a $10 million
revolving line of credit to provide working capital for Silver Legacy, although
it is presently expected that these funds will be provided through additional
bank financing arranged by the Reno Joint Venture. Each venturer's ability to
participate in cash flows generated by Silver Legacy is limited by the terms of
the Reno Venture Agreement and will be limited by the Credit Agreement, and the
Company's right to receive repayments of its loan to the Reno Joint Venture will
be subject to limitations under the Credit Agreement. The foregoing discussion
of the Reno Venture Agreement is qualified in its entirety by reference to the
full text of such agreement which is included as Exhibit 10(y) to this Report.
As a condition to the Credit Agreement, the Company will be required to
enter into an agreement pursuant to which it will guarantee completion of Silver
Legacy. In addition, the Company will be required to enter into a make-well
agreement with the Reno Joint Venture for the benefit of the lenders under the
Credit Agreement pursuant to which the Company will be obligated to make such
additional contributions to the Reno Joint Venture as may be necessary to
maintain the Reno Joint Venture's coverage ratio at a minimum permitted level of
1.05 to 1.00.
Windsor, Ontario, Canada Joint Venture (33 1/3% Participation)
-------------------------------------------------------------
The Company is a participant in a casino in Windsor, Ontario with Hilton
Hotels Corporation and Caesars World, Inc., through its ownership of a one-third
interest in Windsor Casino Limited, an Ontario corporation ("WCL"), which has
been awarded the exclusive right to negotiate an agreement to develop and
operate a casino in Windsor, Ontario, Canada, approximately 1.5 miles from
Detroit, Michigan across the Detroit River. WCL plans, subject to reaching such
agreement, to develop and operate a hotel-casino which will include slot
machines, table games as well as entertainment, meeting facilities and other
public areas. WCL opened an interim casino in May 1994 and anticipates opening
the permanent facility in 1997. It is currently estimated that the total cost
of the permanent project will be approximately $250-$275 million. For
information concerning additional regulatory requirements applicable to the
ownership and operation of casino gaming facilities in Windsor, see "Regulation
and Licensing -- Windsor, Ontario, Canada" in this Item 1.
Chalmette, Louisiana (50% Participation)
----------------------------------------
The Company is a 50% participant with American Entertainment Corp. ("AEC")
in American Entertainment, L.L.C. (the "Louisiana Joint Venture"), a Louisiana
limited liability company, which is engaged in the development of a riverboat
gaming facility on a 26-acre parcel in Chalmette, Louisiana (the "Louisiana
Project"). As presently planned, the Louisiana Project will initially
-12-
consist of a 290-foot riverboat casino designed to replicate a nineteenth
century paddlewheel-driven riverboat with approximately 30,000 square feet of
gaming space, additional dockside facilities and parking accommodations. The
site has additional space available for future expansion as warranted. Subject
to receipt of gaming and other approvals, it is currently anticipated that the
first phase of the Louisiana Project will commence operations in late 1995. The
Louisiana Joint Venture has received a certificate of preliminary approval from
the Louisiana Riverboat Gaming Commission to begin construction of the Louisiana
Project and has been issued a gaming operator's license by the Gaming
Enforcement Division of the Louisiana State Police (the "Louisiana Division").
The operation of the Louisiana Project's riverboat casino will be subject
to certain restrictions and conditions imposed by Louisiana gaming law, which
cause this riverboat gaming operation to differ from the Company's other gaming
operations. For example, gaming at the Louisiana Project will not be permitted
while the riverboat is docked, other than during the 45 minutes between
excursions and times when dangerous weather or water conditions exist. Also,
each round-trip riverboat cruise generally may not be less than three nor more
than eight hours in duration. For information concerning additional regulatory
requirements applicable to the ownership and operation of casino gaming
facilities in Louisiana, see "Regulation and Licensing -- Louisiana" in this
Item 1.
The Louisiana Project's riverboat casino, which will be docked in
Chalmette, Louisiana, approximately 20 minutes from New Orleans, will cruise
Bayou Bienvenue. It is anticipated that the Louisiana Project's principal
market will be the area within 50 miles of Chalmette, which includes New Orleans
(with a population of approximately 1,500,000). The Louisiana Division is
empowered to issue up to 15 licenses to conduct riverboat gaming activities, and
no more than six licenses may be granted to riverboat casinos operating in any
one parish. As of March 31, 1995, the Louisiana Division had issued 15 licenses
for riverboat casinos. Of the 15 licenses, seven are in the New Orleans area,
four in the City of New Orleans, one in Harvey (approximately eight miles from
the Louisiana Joint Venture site) and one is for a riverboat casino in
Luling/St. Rose (approximately 30 miles from the Louisiana Joint Venture site),
one in Kenner (approximately 30 miles from the Louisiana Joint Venture site),
and the Louisiana Venture in Chalmette. In addition, Harrah's Jazz Company is
developing a major land-based casino in downtown New Orleans, which is planning
to open its temporary facility in May 1995. As of March 31, 1995, 18 gaming
licenses had been granted for the operation of dockside casinos on the
Mississippi Gulf Coast, which is approximately 60 miles from Chalmette and may
draw customers from the same markets as the Louisiana Project. There is no
limit on the number of licenses that can be granted to operate casinos in
Mississippi.
-13-
Pursuant to the terms of the Amended and Restated Operating Agreement
between AEC and a wholly-owned subsidiary of the Company (the "Louisiana
Agreement"), each of the Company and AEC is obligated to make capital
contributions to the Louisiana Joint Venture. AEC will contribute to the
Louisiana Joint Venture a portion of the land on which the Louisiana Project
will be located (at an agreed value of $5 million) and certain other property
with an agreed value of $15 million. The Company will make its $20 million
contribution in cash, of which $13.7 million had been funded as of January 31,
1995. In addition, the Company will lend the Louisiana Project any amount which
cannot be financed by a third party. The costs and the specifics of the design
and funding have yet to be finalized. Any loans made by the Company will bear
interest at the rate of 10% per annum and will be amortized over five years. In
addition, the Company has made a $10 million loan to AEC which bears interest at
1% over the prime rate and is payable in annual installments equal to the
greater of (i) interest only payments commencing November 1, 1995 or (ii) the
amount of "Net Available Cash" otherwise payable to AEC pursuant to the
Louisiana Agreement. Any remaining balance outstanding will be due November 1,
2001.
In accordance with the Louisiana Agreement, the Louisiana Joint Venture
will enter into a management agreement pursuant to which the Company will manage
and operate the Louisiana Project. Under the terms of the management agreement,
the Company will be paid a management fee for its services equal to 3-1/2% of
the first $100 million in annual gross revenues of the Louisiana Project plus 1-
1/2% of any such annual gross revenues in excess of $100 million. The
management agreement will also provide for reimbursement of certain expenses
incurred by the Company in connection with its management of the Louisiana
Project. The Louisiana Agreement also provides that the Louisiana Joint Venture
will enter into a consulting agreement with AEC under which AEC will be paid a
fee equal to 1% of the first $100 million in annual gross revenues of the
Louisiana Project plus 1/2% of any such annual gross revenues in excess of $100
million. The foregoing summaries of the Louisiana Agreement and the related
management and consulting agreements are qualified in their entirety by
references to the full text of the Louisiana Agreement and forms of such other
agreements which are included as Exhibit 10(z) to this Report.
Bid Proposals
-------------
The Company, which participated with its two Windsor venture partners in
the submission of a bid proposal to develop a casino project in Michigan City,
Indiana, has withdrawn from further participation in the development of a casino
project in Michigan City, Indiana.
-14-
CURRENT EXPANSION ACTIVITIES
- ----------------------------
General. Consistent with past practice and the longstanding policy of
-------
making substantial investments in its gaming business at regular intervals, the
Company continues to actively pursue new projects, either by development or
acquisition. New projects may be undertaken in Nevada, where all but one of the
Company's wholly-owned operating properties are currently located, or in other
jurisdictions within the United States or abroad where gaming has been
legalized. Such projects may, like all of the Company's currently operating
properties (other than Silver City Casino), be wholly-owned and operated by the
Company, or may be developed, owned and/or operated through joint ventures
involving the Company and one or more other parties, such as the joint venture
projects described above.
The Company believes that its financial resources are adequate to permit it
to successfully meet its commitments with respect to its current expansion
projects and joint venture participations. However, depending on their timing,
and the size and the nature of the Company's commitments with respect thereto,
future expansion projects or joint venture participations may require the
Company to seek additional debt or equity funding.
Pending Acquisition of the Hacienda. On March 6, 1995, the Company reached
-----------------------------------
an agreement to purchase the Hacienda Hotel and Casino in Las Vegas, Nevada for
approximately $80 million. The Hacienda is located on 47 acres of land adjacent
to Luxor, between I-15 and the Las Vegas Strip, and contains 1,135 rooms and
approximately 50,000 square feet of casino space. Subject to receipt of the
requisite regulatory approvals, the Company anticipates the acquisition to be
completed in the summer or fall of 1995.
Recent Land Acquisition. On March 2, 1995, the Company purchased
-----------------------
approximately 73 acres of undeveloped land at the northwest corner of Russell
Road and the Las Vegas Strip, just south of the Hacienda at a cost of
approximately $73 million. The land is being held for future development.
Master Plan.
-----------
The Company is developing a master plan for its property on the south end
of the Las Vegas Strip, including the Hacienda and the Russell Road land, as
well as the existing Excalibur and Luxor resorts. The master plan, as presently
contemplated, will encompass several stages of development and will include a
series of new and interconnected hotel/casino/entertainment complexes. The
timing, cost, design and other specifics of the master plan have yet to be
determined.
Pending Acquisition of Gold Strike Entities
-------------------------------------------
The Company has entered into the Gold Strike Agreements, pursuant to which
it has agreed, subject to the receipt of applicable regulatory approvals and the
satisfaction of certain other conditions, to acquire the Gold Strike Entities,
which own the properties and venture interests described below.
Jean, Nevada Properties
-----------------------
General. Gold Strike Hotel & Gambling Hall ("Gold Strike") and Nevada
-------
Landing Hotel & Casino ("Nevada Landing") are located in Jean, Nevada on either
side of I-15, the primary thoroughfare
-15-
between Las Vegas and Southern California. Situated 25 miles south of Las Vegas
and 12 miles north of the California/Nevada border, Gold Strike and Nevada
Landing each is conveniently located at the only highway interchange within 12
miles in either direction and is strategically positioned to attract the large
number of people traveling to or from Las Vegas.
Gold Strike Hotel & Gambling Hall. Gold Strike, which opened in December
---------------------------------
1987, is an "old west" themed casino-hotel located on approximately 21 acres of
land on the east side of I-15. The property includes, among other amenities,
approximately 37,000 square feet of casino space, 813 hotel rooms, several
restaurants, a gift shop, a swimming pool and spa, a banquet center and parking
spaces for approximately 1,600 cars.
Nevada Landing Hotel & Casino. Nevada Landing was built in 1989 and is a
-----------------------------
turn-of-the-century riverboat themed casino-hotel located on approximately 40
acres of land on the west side of I-15. The property includes approximately
37,000 square feet of casino space, 303 hotel rooms, a Chinese restaurant, a
coffee shop, a buffet, a snack bar, a gift shop, a swimming pool and spa, a
banquet facility and parking spaces for approximately 1,400 cars.
Henderson, Nevada Property
--------------------------
Railroad Pass Hotel & Casino. Railroad Pass Hotel & Casino ("Railroad
----------------------------
Pass") is situated in Henderson, Nevada. Built on approximately 52 acres,
Railroad Pass is located along US-93, the direct route between Las Vegas and
Phoenix, Arizona. The casino-hotel includes, among other amenities,
approximately 21,000 square feet of casino space, 120 hotel rooms, two bars, two
full-service restaurants, an all-you-can-eat buffet, gift shop, swimming pool, a
banquet facility and parking spaces for approximately 660 cars. In contrast with
the Jean properties, Railroad Pass caters to local residents, particularly from
Henderson, who often prefer
-16-
the informal, friendly atmosphere and easy access of the Railroad Pass casino
over those on the Las Vegas Strip.
Elgin, Illinois Property
------------------------
The Grand Victoria. The Grand Victoria, which opened on October 6, 1994,
------------------
is a stately, Victorian themed riverboat casino and land-based entertainment
complex located in Elgin, Illinois, a suburb approximately 40 miles northwest of
downtown Chicago. The Grand Victoria is owned and operated by a 50/50 general
partnership (the "Elgin Partnership"), between Nevada Landing Partnership, an
Illinois general partnership ("Gold Strike-Illinois"), and RBG, L.P., an
affiliate of Hyatt Development Corporation. The two-story vessel is 420 feet in
length and 110 feet in width, providing up to approximately 80,000 square feet
of gaming space, approximately 46,000 of which is currently utilized. An
adjacent dockside complex on approximately 12 acres of land overlooking the Fox
River contains an approximately 83,000-square-foot pavilion with two movie
theaters, a buffet, a fine dining restaurant, a VIP lounge and a gift shop, in
addition to ticketing and registration services for the riverboat. There is also
both ground level and structured parking for more than 2,000 vehicles. The Grand
Victoria is strategically located in Elgin among the residential suburbs of
Chicago, with nearby freeway access and direct train service from downtown
Chicago. Under its agreements with the City of Elgin, the Elgin Partnership also
was granted an option to purchase an additional nine acres of land contiguous to
the existing site.
-17-
Las Vegas, Nevada Joint Venture Development
-------------------------------------------
Victoria Partners is a 50/50 general partnership between Gold Strike L.V.,
a Nevada general partnership ("GSLV"), and MRGS Corp., an affiliate of Mirage
Resorts, Incorporated ("MRI"). GSLV will become an indirect subsidiary of the
Company upon consummation of the Acquisitions. Victoria Partners commenced
construction in April 1995 of a 3,000-room gaming mega-resort, tentatively named
The Victoria, that will have frontage of nearly 600 feet on the Las Vegas Strip.
The project, which will be located on 44 acres of the former "Dunes" golf course
between two of the busiest intersections in Las Vegas, will be part of a cluster
of new mega-resorts including the MGM Grand, Excalibur and Luxor, and will be
situated between Mirage's Beau Rivage and New York-New York, a casino resort
being jointly developed by MGM Grand, Inc. and Primadonna Resorts, Inc. The
Victoria, which is expected to open in the fall of 1996, is expected to contain
approximately 85,000 square feet of casino space and will be themed with
turn-of-the-century architecture.
GSLV is the managing partner of Victoria Partners and, subject to certain
exceptions, has sole authority for the design, development, construction and
operation of The Victoria. The cost of construction (including preopening
expenses, capitalized interest and land acquisition costs) is estimated to be
approximately $325 million. Victoria Partners has obtained a $175 million non-
recourse construction facility from a consortium of major banks, which, subject
to certain conditions, will
-18-
convert to a permanent reducing revolving loan once The Victoria opens.
COMPETITION
- -----------
Recognizing that middle class vacationers enjoy gambling, but also vacation
with their families, the Company seeks to appeal to this value-oriented market
and satisfy the group's diverse entertainment demands by offering exciting
entertainment opportunities at reasonable prices. The Company seeks to achieve
this objective through its entertainment "megastores", such as the Circus
properties in Las Vegas and Reno, Luxor, Excalibur, Colorado Belle and
Edgewater, by offering gaming combined with dramatic entertainment concepts and
reasonably priced rooms, reasonably priced food and beverage and prompt,
courteous service. As of January 31, 1995, the Company was the largest hotel-
casino operator in the Las Vegas and Laughlin markets in terms of total square
footage of casino space and number of hotel rooms.
The Company's Las Vegas casino and hotel operations, which are conducted
from facilities located along the Las Vegas Strip, currently compete with
approximately 25 major hotel-casinos and a number of smaller casinos located on
or near the Las Vegas Strip. Such operations also compete with casinos located
in downtown Las Vegas, approximately 12 of which offer hotel, food and beverage
and entertainment facilities, and several major hotel-casinos located elsewhere
in the Las Vegas area. The Company's Las Vegas properties also compete, to a
lesser extent, with casino and hotel facilities in other parts of Nevada,
including Laughlin, Reno and along I-15 (the principal means of access to Las
Vegas from southern California by car) near the California-Nevada state line.
-19-
The casino and hotel capacity continues to increase in the Las Vegas
market. During the fourth calendar quarter of 1993, two major new hotel-
casinos, including Luxor, opened at the south end of the Las Vegas Strip, and a
third such property opened near the center of the Las Vegas Strip. These three
properties added significant casino capacity and over 10,500 hotel rooms to the
existing Las Vegas market. These openings have shifted the focus of the Las
Vegas Strip toward its south end, although at Circus Circus - Las Vegas (which
is located at the Strip's northern end) results were not significantly different
compared to the prior year. The Company also believes such openings have had a
negative impact on Laughlin area properties, including the Colorado Belle and
the Edgewater, by drawing visitors from the Laughlin market. This has resulted
in increased competition among Laughlin properties for a reduced number of
visitors thus contributing to generally lower revenues and profit margins at
Laughlin properties, including the Colorado Belle and the Edgewater. Three other
major Las Vegas Strip projects have been announced, including The Victoria in
which the Company will acquire a 50% interest if the transactions described
under "Current Expansion Activities - Pending Acquisition of Gold Strike
Entities" are consummated. According to public statements of the developers, the
three projects (which will all be situated on contiguous sites near the south
end of the Las Vegas Strip between Flamingo Road and Tropicana Avenue) are
expected to add approximately 8,000 hotel rooms and significantly increase the
casino capacity along the Las Vegas Strip. The Company cannot determine at this
time what impact the opening of these projects will have on the Company's
operations. For information concerning the Company's pending agreement to
acquire certain properties, including the aforementioned 50% interest in a joint
venture partnership which is developing one of the three projects, see "Current
Expansion Activities - Pending Acquisition of Gold Strike Entities" in this
Item 1.
Excalibur and Luxor each benefit from walk-in business attributable to the
registered guests and casino customers at the other property. While Luxor may
attract guests who would otherwise have stayed at other properties of the
Company, management believes that the Company's Las Vegas operations, on a
consolidated basis, have benefited significantly as a result of the addition of
Luxor.
Circus Circus-Reno competes with approximately 12 major casinos (the
majority of which offer hotel rooms) as well as numerous other smaller casinos
in the greater Reno area. This property competes to a lesser extent with casino
and hotel facilities in other parts of Nevada. Upon the opening of Silver
Legacy (which is expected to commence operations in July 1995), Circus Circus-
Reno will also compete with that property which is being developed by a joint
venture partnership in which a wholly-owned subsidiary of the Company is a 50%
participant. See "Joint Venture Participations-Reno, Nevada Joint Venture (50%
Participation)" in this Item 1. The Company cannot determine at this time what
impact Silver Legacy will have on operations at Circus Circus-Reno.
-20-
In Laughlin, the Colorado Belle and the Edgewater, which together account
for approximately 24% of the rooms in Laughlin, compete with eight other
Laughlin casinos. They also compete with the hotel-casinos in Las Vegas and
those situated on I-15 (the principal highway between Las Vegas and Los Angeles)
near the Nevada-California state line, as well as a growing number of casinos on
Indian reservations in Laughlin's regional market. While the Colorado Belle and
the Edgewater also compete with each other, both properties have consistently
maintained occupancy levels of approximately 95% at their hotels and, because
the two properties are situated on adjoining sites, the Company believes that
each property benefits from walk-in business attributable to the registered
guests and casino customers at the other property.
The Company believes that it receives the major portion of its Las Vegas
business from Southern California and to a lesser degree from the remainder of
the southwestern United States. The major portion of its Reno business is
derived from Northern California and to a lesser degree from the northwestern
United States. Laughlin's business is derived principally from Arizona and
Southern California.
The State of Mississippi legalized casino gaming on the water along the
Mississippi River and the Mississippi Gulf Coast in June 1990. Under Mississippi
law, 14 counties adjacent to the Mississippi River and the Gulf Coast have been
granted the option to authorize gaming, including Tunica County. Circus Circus-
Tunica competes with eight other casinos in Tunica County. There is no limit on
the number of licenses that may be granted within Mississippi or within any
county in Mississippi. The Company believes that Circus Circus-Tunica's
principal market is the area within 100 miles of Tunica County. This area
includes Memphis, Tennessee (with a population of approximately 1,000,000),
Little Rock, Arkansas (with a population of approximately 175,000) and northern
Mississippi with a population base of over 250,000. Tunica County is currently
the closest legalized gaming jurisdiction to Memphis. Because Circus Circus-
Tunica is heavily dependent upon the patronage of Memphis residents and upon
tourists and other out-of-state gaming customers coming to Tunica from Memphis,
the opening of gaming casinos at locations closer to Memphis could have a
material adverse effect on Circus Circus-Tunica's operations. In this regard, De
Soto County, the northwesternmost Mississippi county and the nearest to Memphis,
by local referendum in November 1992 voted against authorizing gaming activities
in the county, but could at any time after October 1996 vote to allow gaming
activities. If the proposed merger with the Gold Strike Entities is completed,
the Company will acquire an option to purchase land in De Soto County in the
event gaming activities are legalized in the county. In addition, the
authorization of gaming activities in Arkansas, or Tennessee, which currently
has a constitutional restriction on gaming activities, could have a material
adverse effect on the Company's Tunica County operations.
Gaming has expanded dramatically in the United States in recent years.
This growth has been reflected in various forms including riverboats, dockside
gaming facilities, Native American
-21-
gaming ventures, land-based casinos, state-sponsored lotteries, off-track
wagering and card parlors. Since 1990, when there were casinos in only three
states (excluding casinos on Native American lands), gaming has spread to a
number of additional states and still other states are currently considering the
legalization of casino gaming in specific geographic areas within their
jurisdictions. Casino gaming is currently conducted by numerous Native American
tribes throughout the United States and other Native American tribes are either
in the process of establishing or are considering the establishment of gaming at
additional locations, including sites in California and Arizona. The Company
does not believe that gaming, as presently conducted in other states, has had a
material adverse impact on its operations. The competitive impact on Nevada
gaming establishments, in general, and the Company's operations, in particular,
from the continued growth of gaming in jurisdictions outside of Nevada cannot be
determined at this time. The Company believes that the introduction of casino
gaming in areas close to Nevada, such as California and Arizona, could have an
adverse impact on the Company's operations and, depending on the nature,
location and extent of such operations, such impact could be material.
REGULATION AND LICENSING
- ------------------------
Nevada
------
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"); and (ii) various local ordinances
and regulations. The Company's gaming operations are subject to the licensing
and regulatory control of the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada State Gaming Control Board (the "Nevada Board"), and
various local licensing and regulatory authorities, including the Clark County
Liquor and Gaming Licensing Board and the City of Reno (collectively, the "Local
Authorities"). The Nevada Commission, the Nevada Board and the Local
Authorities are collectively referred to as the "Nevada Gaming Authorities".
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation
-22-
and licensing fees. Change in such laws, regulations and procedures could have
an adverse effect on the Company's gaming operations.
The Company is registered by the Nevada Commission as a publicly traded
corporation (a "Registered Corporation") and has been found suitable to own the
stock of Circus Circus Casinos, Inc., Slots-A-Fun, Inc., Edgewater Hotel
Corporation, Colorado Belle Corp., New Castle Corp. and Ramparts, Inc., each of
which is a corporate gaming licensee under the terms of the Nevada Act (each
individually, a "Corporate Licensee" and collectively, the "Corporate
Licensees"). The Corporate Licensees are required to be licensed by the Nevada
Gaming Authorities. The gaming licenses held by the Corporate Licensees require
the payment of fees and taxes and are not transferable. As a Registered
Corporation, the Company is required periodically to submit detailed financial
and operating reports to the Nevada Commission and furnish any other information
which the Nevada Commission may require. No person may become a stockholder of,
or receive any percentage of profits from the Corporate Licensees without first
obtaining licenses and approvals from the Nevada Gaming Authorities. The
Company and the Corporate Licensees have obtained from the Nevada Gaming
Authorities the various registrations, approvals, permits and licenses required
in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or the
Corporate Licensees in order to determine whether such individual is suitable or
should be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of the Corporate Licensees must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers,
directors and key employees of the Company who are actively and directly
involved in gaming activities of the Corporate Licensees may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an application for licensing for any cause which they deem
reasonable. A finding of suitability is comparable to licensing, and both
require submission of detailed personal and financial information followed by a
thorough investigation. The applicant for licensing or a finding of suitability
must pay all the costs of the investigation. Changes in licensed positions must
be reported to the Nevada Gaming Authorities and in addition to their authority
to deny an application for a finding of suitability or licensure, the Nevada
Gaming Authorities have jurisdiction to disapprove a change in a corporate
position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or the Corporate Licensees, the companies involved
would have to sever
-23-
all relationships with such person. In addition, the Nevada Commission may
require the Company or the Corporate Licensees to terminate the employment of
any person who refuses to file appropriate applications. Determinations of
suitability or of questions pertaining to licensing are not subject to judicial
review in Nevada.
The Company and the Corporate Licensees are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing transactions
by the Corporate Licensees must be reported to or approved by the Nevada
Commission.
If it were determined that the Nevada Act was violated by a Corporate
Licensee, the gaming licenses it holds could be limited, conditioned, suspended
or revoked, subject to compliance with certain statutory and regulatory
procedures. In addition, the Corporate Licensees, the Company and the persons
involved could be subject to substantial fines for each separate violation of
the Nevada Act at the discretion of the Nevada Commission. Further, a
supervisor could be appointed by the Nevada Commission to operate the Company's
gaming properties and, under certain circumstances, earnings generated during
the supervisor's appointment (except for reasonable rental value of the casino)
could be forfeited to the State of Nevada. Limitation, conditioning or
suspension of any gaming license or the appointment of a supervisor could (and
revocation of any gaming license would) materially adversely affect the
Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of the Company's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
state of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than five percent of a
Registered Corporation's voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of a Registered Corporation's voting securities apply to the Nevada
Commission for a finding of suitability within thirty days after the Chairman of
the Nevada Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor", as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of the Registered Corporation's
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An
-24-
institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company's
corporate charter, bylaws, management, policies or operations of the Registered
Corporation, or any of its gaming affiliates, or any other action which the
Nevada Commission finds to be inconsistent with holding the Registered
Corporation's voting securities for investment purposes only. Activities which
are not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders; (ii)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent.
If the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the Company's voting
securities beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company or the
Corporate Licensees, the Company (i) pays that person any dividend or interest
upon voting securities of the Company, (ii) allows that person to exercise,
directly or indirectly, any voting right conferred through securities held by
that person, (iii) pays remuneration in any form to that person for services
rendered or otherwise, or (iv) fails to pursue all lawful efforts to require
such unsuitable person to relinquish his voting securities including, if
necessary, the immediate purchase of said voting securities for cash at fair
market value. Additionally, the Clark County Liquor and Gaming Licensing Board
has the authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming licensee.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation to file applications, be investigated
and be found suitable to own the debt security of a Registered Corporation. If
the Nevada Commission determines that a person is unsuitable to own such
-25-
security, then pursuant to the Nevada Act, the Registered Corporation can be
sanctioned, including the loss of its approvals, if without the prior approval
of the Nevada Commission, it: (i) pays to the unsuitable person any dividend,
interest, or any distribution whatsoever; (ii) recognizes any voting right by
such unsuitable person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or proceeds therefrom
are intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. On
September 29, 1994, the Nevada Commission granted the Company prior approval to
make public offerings for a period of one year, subject to certain conditions
(the "Shelf Approval"). The Shelf approval also applies to any affiliated
company wholly owned by the Company (an "Affiliate") which is a publicly traded
corporation or would thereby become a publicly traded corporation pursuant to a
public offering. The Shelf Approval also includes approval for the Corporate
Licensees to guarantee any security issued by, or to hypothecate their assets to
secure the payment or performance of any obligations issued by, the Company or
an Affiliate in a public offering under the Shelf Registration. However, the
Shelf Approval may be rescinded for good cause without prior notice upon the
issuance of an interlocutory stop order by the Chairman of the Nevada Board and
must be renewed annually. The Shelf Approval does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities offered. Any representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he obtains control, may not occur without the prior approval
of
-26-
the Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Board and Nevada Commission in a variety of
stringent standards prior to assuming control of such Registered Corporation.
The Nevada Commission may also require controlling stockholders, officers,
directors and other persons having a material relationship or involvement with
the entity proposing to acquire control, to be investigated and licensed as part
of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming corporate licensees, and Registered Corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these business practices
upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes of acquiring control of the
Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Corporate Licensees' respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, also pay certain fees and taxes to the
State of Nevada.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively,
the "Licensees"), and who proposes to become involved in a gaming venture
outside of Nevada, is required to deposit with the Nevada Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to
-27-
pay the expenses of investigation by the Nevada Board of their participation in
such foreign gaming. The revolving fund is subject to increase or decrease in
the discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. Licensees
are also subject to disciplinary action by the Nevada Commission if they
knowingly violate any laws of the foreign jurisdiction pertaining to the foreign
gaming operation, fail to conduct the foreign gaming operation in accordance
with the standards of honesty and integrity required of Nevada gaming
operations, engage in activities that are harmful to the state of Nevada or its
ability to collect gaming taxes and fees, or employ a person in the foreign
operation who has been denied a license or finding of suitability in Nevada on
the ground of personal unsuitability.
The sale of alcoholic beverages by the Company at its Nevada establishments
is subject to supervision, control and regulation by the Clark County Board or
the City of Reno, each of which issues licenses deemed to be nontransferable,
revocable privileges, and have full power to limit, condition, suspend or revoke
such licenses. The Company is currently licensed to sell alcoholic beverages at
each of its establishments. Any adverse regulatory act with respect to these
licenses could have an adverse effect upon operations at the affected properties
and, depending on the property or properties affected, the operation of the
Company.
Mississippi
-----------
The Company conducts its Mississippi gaming operations through a
Mississippi subsidiary, Circus Circus Mississippi, Inc. ("CCMI"). The ownership
and operation of casino gaming facilities in Mississippi are subject to
extensive state and local regulation. In order to open and operate Circus
Circus-Tunica, the Company was required to register under the Mississippi Gaming
Control Act (the "Mississippi Act") and its Mississippi gaming operations are
subject to the licensing and regulatory control of the Mississippi Gaming
Commission (the "Mississippi Commission") and various local and county
regulatory agencies. Effective October 29, 1991, the Mississippi Commission
adopted regulations in furtherance of the Mississippi Act (the "regulations").
Changes in the Mississippi Act, the regulations and/or interpretations of the
Mississippi Act and the regulations by the Mississippi Commission could have a
material adverse effect on gaming operations conducted by the Company in
Mississippi.
The Company is required to submit detailed financial, operating and other
reports to the Mississippi Commission. Substantially all loans, leases, sales
of securities and similar financing transactions entered into by CCMI must be
reported to or approved by the Mississippi Commission. CCMI also is required to
periodically submit detailed financial and operating reports
-28-
to the Mississippi Commission and the Mississippi State Commission and to
furnish any other information required thereby.
Each of the directors, officers and key employees of the Company who are
actively and directly engaged in the administration or supervision of gaming in
Mississippi, or who have any other significant direct or indirect involvement
with the gaming activities of the Company in Mississippi, must be found suitable
therefor, and may be required to be licensed, by the Mississippi Commission.
The finding of suitability is comparable to licensing, and both require
submission of detailed personal financial information followed by a thorough
investigation. In addition, any individual who is found to have a material
relationship to, or material involvement with, the Company may be required to be
investigated in order to be found suitable or to be licensed as a business
associate of the Company. Key employees, controlling persons or others who
exercise significant influence upon the management or affairs of the Company may
also be deemed to have such a relationship or involvement. There can be no
assurance that a person who is subject to a finding of suitability will be
found suitable by the Mississippi Commission. An application for licensing may
be denied for any cause deemed reasonable by the Mississippi Commission.
Changes in licensed positions must be reported to the Mississippi Commission.
In addition to its authority to deny an application for a license, the
Mississippi Commission has jurisdiction to disapprove a change in corporate
position. If the Mississippi Commission were to find a director, officer or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, the Company would have to suspend, dismiss and
sever all relationships with such person in order to continue to have any
involvement in gaming in Mississippi. The Company would have similar
obligations with regard to any person who should refuse to file appropriate
applications. Each gaming employee at a Mississippi gaming facility must obtain
from the Mississippi Commission a work permit which may be revoked upon the
occurrence of certain specified events.
Mississippi statutes and regulations give the Mississippi Commission the
discretion to require a suitability finding with respect to anyone who acquires
any security of the Company, regardless of the percentage of ownership. The
current policy of the Mississippi Commission is to require anyone acquiring five
percent or more of any voting securities of a public or private company to be
found suitable. If the owner of voting securities who is required to be found
suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation which the Company may
reimburse. The Mississippi Commission has selected those persons it feels were
required to be investigated and found suitable and has made the findings of
suitability. However,
-29-
other persons, for the reasons set forth above, may be required to be found
suitable.
Any owner of voting securities found unsuitable and who holds, directly or
indirectly, any beneficial ownership of equity interests in the Company beyond
such period of time as may be prescribed by the Mississippi Commission may be
guilty of a misdemeanor. Any person who fails or refuses to apply for a finding
of suitability or a license within 30 days after being ordered to do so by the
Mississippi Commission may be found unsuitable. The Company will be subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be an owner of or to have any other relationship with it, the Company (i) pays
the unsuitable person any dividends or interest upon any securities of the
gaming subsidiary or any payments or distribution of any kind whatsoever, (ii)
recognizes the exercise, directly or indirectly, of any voting rights in its
securities by the unsuitable person, or (iii) pays the unsuitable person any
remuneration in any form for services rendered or otherwise, except in certain
limited and specific circumstances. In addition, if the Mississippi Commission
finds any owner of voting securities unsuitable, such owner must immediately
surrender all securities to the Company, and the Company must refund any money
or other thing of value that may have been invested in the Company or made use
of by the Company.
The Company is required to maintain current equity ownership ledgers in the
State of Mississippi which may be examined by the Mississippi Commission at any
time. The Company obtained a waiver of this ledger requirement from the
Mississippi Commission at its licensing hearing, however, the waiver may be
revoked, modified or suspended at any time by the Mississippi Commission in its
discretion. If any securities are held in trust by an agent or by a nominee,
the record holder may be required to disclose the identity of the beneficial
owner to the Mississippi Commission. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. The Company also is required
to render maximum assistance in determining the identity of such a beneficial
owner.
The Mississippi Act requires that certificates representing equity
securities of the Company bear a legend to the general effect that the
securities are subject to the Mississippi Act and regulations of the Mississippi
Commission. The Company obtained a waiver of this legend requirement from the
Mississippi Commission at its licensing hearing, however, this waiver may be
revoked, modified or suspended by the Mississippi Commission in its discretion
at any time. The Mississippi Commission, through the power to regulate
licenses, has the power to impose additional restrictions on the Company and on
the holders of the Company's securities at any time.
The regulations provide that a change in control of the Company may not
occur without the prior approval of the
-30-
Mississippi Commission. Mississippi law prohibits the Company from making a
public offering of its securities without the approval of the Mississippi
Commission if any part of the proceeds of the offering is to be used to finance
the construction, acquisition or operation of gaming facilities in Mississippi,
or to retire or extend obligations incurred for one or more of such purposes.
As long as the Company is licensed to conduct gaming in Mississippi, the
Company may not engage in gaming activities in Mississippi while also conducting
gaming operations outside of Mississippi without approval of the Mississippi
Commission. The Company has been approved in the following jurisdictions;
Nevada, Indiana, Louisiana and Ontario, Canada.
The Company received its Mississippi gaming license on August 18, 1994.
The gaming license is not transferable and must be renewed every two years. The
Mississippi Commission in 1994 enacted an infrastructure development regulation
which requires that a Mississippi casino invest 25% of its casino costs in
infrastructure facilities. Infrastructure facilities are defined in the
regulation to include a hotel with at least 250 rooms, theme park, golf course
and other similar facilities. The regulation provides that the infrastructure
requirement is not satisfied by construction of parking, roads, drainage or
other items which a municipality or county would normally construct. The
Mississippi Commission in recent relicensure hearings has applied the
infrastructure regulation to existing licensed casinos seeking relicensure. The
Company anticipates that infrastructure development will be an issue considered
by the Mississippi Commission in the Company's relicensure hearing in 1996.
There can be no assurance that any renewal application will be approved. Each
issuing agency may at any time dissolve, suspend, condition, limit or restrict a
license or approval to own equity interests in the Company for any cause deemed
reasonable by such agency.
Substantial fines for each violation of gaming laws or regulations may be
levied against the Company in Mississippi. A violation under any gaming license
held by the Company may be deemed a violation of its Mississippi license.
Suspension or revocation of any of the Company's foregoing gaming licenses or
of the approval of the Company would have a material adverse effect upon any
business conducted by the Company in Mississippi.
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 county and
cities in which the Company conducts operations in Mississippi. Depending upon
the particular fee or tax involved, these fees and taxes are payable either
weekly or annually and are based upon (i) the gross gaming revenues received by
the casino operation, (ii) the number of slot machines operated by the casino,
and (iii) the number of
-31-
table games operated by the casino. The legal age for gaming in Mississippi is
21.
Windsor, Ontario, Canada
------------------------
The Company is a shareholder holding one-third of the outstanding shares of
WCL, a corporation incorporated under the laws of the Province of Ontario,
Canada. WCL has two other shareholders, each holding one-third of the
outstanding shares of WCL. Pursuant to a contract with the Ontario Casino
Corporation (the "OCC"), a governmental authority established under the Ontario
Casino Corporation Act, WCL intends to develop and operate a hotel-casino in
Windsor, Ontario on behalf of the OCC and, pending the opening of such property,
has been operating an interim casino that opened in May 1994.
The operation of casino gaming facilities by WCL in Windsor, Ontario, is
subject to extensive regulation. The gaming operations of WCL in Ontario are
subject to the registration and regulatory control of the Ontario Gaming Control
Commission (the "Ontario Commission"), the Registrar of Gaming Control (the
"Ontario Registrar") and the Director of Gaming Control (the "Ontario Director")
established or appointed under the Ontario Gaming Control Act (the "Ontario
Act"). So long as WCL operates a casino in Windsor, it must be registered as a
casino operator under the Ontario Act.
An application for registration or renewal of registration will be denied
if there are reasonable grounds to believe that the applicant will not be
financially responsible in the conduct of its business or if there are
reasonable grounds to believe that it will not act in accordance with the law or
with integrity, honesty, or in the public interest. In determining whether
registration should be granted or renewed, the Ontario Registrar may have regard
to the financial history and past conduct of the applicant, its officers and
directors and "interested persons" who have a beneficial interest in, control
of, or who have financed the applicant's business or any of its officers' or
directors' businesses. The Ontario Registrar is empowered to investigate the
character, financial history and competence of WCL or any person who has a
beneficial interest in, control of, or who has financed WCL's business,
including WCL's shareholders. The Ontario Registrar may also investigate
officers or directors of WCL. The applicant for registration or renewal must
pay the reasonable costs of such investigations. Each gaming employee at an
Ontario gaming facility must be registered as a gaming assistant which
registration may be revoked upon the occurrence of certain events.
The Ontario Registrar may, subject to a registrant's right to a hearing
under the Ontario Act, suspend or revoke a registration for any reason that
would disentitle such registrant to registration or renewal. A change in
control of WCL could result in revocation of registration if the new person or
entity
-32-
in control is determined to be unsuitable by the Ontario Registrar. The
registration of WCL shall be deemed to expire immediately upon any change in the
composition of the officers and directors of WCL, unless the Ontario Registrar
has consented in writing to such change. Moreover, there can be no assurance
that any renewal application will be approved.
All suppliers of goods and services to WCL must be registered as a supplier
under the Ontario Act and regulations or have been issued a certificate of
exemption from the Ontario Registrar.
All games of chance must be played in accordance with the rules of play
prescribed by the regulations and approved in writing by the Ontario Commission.
Investigators appointed by the Ontario Commission are empowered, subject to
certain limitations, to conduct warrantless searches for the purpose of
determining compliance with the Ontario Act, the regulations or the terms of a
registration. The Ontario Director may issue an order freezing the assets of a
person if it is alleged that a person has contravened the Ontario Act or the
regulations thereunder, is subject to criminal proceeding, or is the subject of
an investigation under the Ontario Act and the Ontario Director finds reasonable
grounds to believe that the interests of the person on whose behalf the assets
are to be held require protection.
Substantial fines for each violation of the gaming laws or regulations may
be levied against WCL. Suspension or revocation of registration could lead to a
termination of any contract with OCC and could have a material adverse effect
upon any business conducted by WCL in Ontario. The legal age for gaming in
Ontario is 19.
WCL is required to submit audited financial statements to the Ontario
Commission and to keep records prescribed by regulation. WCL must also make
available to the OCC all reports, accounts, records and other documents related
to the operation of the casino.
The government can make further regulations under the Ontario Act. Any
additions to or changes in the Ontario Act or the regulations thereunder could
have a material adverse effect on WCL's gaming operations, and thus the
Company's interest therein.
The sale of alcoholic beverages by WCL at its Ontario establishment is
subject to the supervision, control and regulation of the Liquor License Board
of Ontario, an Ontario provincial government agency. The failure to obtain or
the revocation of a license to sell alcoholic beverages for the casino gaming
facilities operated by WCL in Windsor could have a material adverse effect on
the operation of such facilities.
-33-
Louisiana
---------
In July 1991, the Louisiana legislature adopted legislation permitting
riverboat casino activity on certain rivers and waterways in Louisiana. The
legislation granted authority to supervise riverboat gaming activities to the
Louisiana Division and to the Louisiana Riverboat Gaming Commission (the
"Louisiana Commission"). The Louisiana Division is authorized to investigate
applicants and issue licenses, investigate violations of the gaming statutes and
conduct continuing reviews of gaming activities generally. The Louisiana
Commission is authorized to hear and determine all appeals relative to the
granting, suspension, revocation, condition or renewal of licenses, permits and
applications; in addition, the Louisiana Commission must establish regulations
concerning authorized routes and duration of excursions, minimum levels of
insurance and the construction and periodic inspections of riverboat casinos.
The Louisiana Division is empowered to issue up to 15 licenses to conduct
riverboat gaming activities, and no more than six licenses may be granted to
riverboat casinos operating in any one parish. As of March 31, 1995, the
Louisiana Division had issued 15 licenses for riverboat casinos. Of the 15
licenses, seven are in the New Orleans area, four in the City of New Orleans,
one in Harvey (approximately eight miles from the Louisiana Joint Venture site)
and one is for a riverboat casino in Luling/St. Rose (approximately 30 miles
from the Louisiana Joint Venture site), one in Kenner (approximately 30 miles
from the Louisiana Joint Venture site), and the Louisiana Venture in Chalmette.
In issuing a license, the Louisiana Division must find that the applicant
is of good character, honesty and integrity and that the applicant's prior
activities, criminal record, if any, reputation, habits, and associations do not
pose a threat to the public interest of the State of Louisiana or to the
effective regulation and control of gaming, or create or enhance the dangers of
unsuitable, unfair or illegal practices, methods and activities in the conduct
of gaming or the carrying on of business and financial arrangements in
connection therewith. The applicant's officers, directors, managers and
principal shareholders may be subject to strict scrutiny and approval by the
Louisiana Division. The Louisiana Division will not grant a license unless it
finds that: (i) the applicant is capable of conducting gaming operations, which
means that the applicant can demonstrate the capability, either through
training, education, business experience, or a combination of the above, to
operate a gaming casino; (ii) the proposed financing of the riverboat and the
gaming operations is adequate for the nature of the proposed operation and from
a source suitable and acceptable to the Louisiana Division; (iii) the applicant
demonstrates a proven ability to operate a vessel of comparable size, capacity
and complexity to a riverboat so as to ensure the safety of its passengers; (iv)
the applicant submits a detailed plan of design
-34-
of the riverboat in its application for a license; (v) the applicant designates
the docking facilities to be used by the riverboat; (vi) the applicant shows
adequate financial ability to construct and maintain a riverboat; and (vii) the
applicant has a good faith plan to recruit, train and upgrade minorities in all
employment classifications.
The Louisiana gaming law specifies certain restrictions and conditions
relating to the operation of a riverboat casino, including the following: (i)
gaming is not permitted while a riverboat casino is docked, except for 45
minutes between excursions and during times when dangerous weather or water
conditions exist, and an excursion would be unsafe; (ii) each excursion may not
be less than three hours nor more than eight hours in duration, subject to
specified exceptions; (iii) gaming devices, equipment and supplies may only be
purchased or leased from permitted suppliers; (iv) gaming may only take place in
the designated gaming area while the riverboat casino is upon a designated river
or waterway; (v) gaming equipment may not be possessed, maintained or exhibited
by any person on a riverboat except in the specifically designated gaming area,
or a secure area used for inspection, repair or storage of such equipment; (vi)
wagers may be received only from a person present on a licensed riverboat
casino; (vii) persons under 21 are not permitted in designated gaming areas;
(viii) except for slot machine play, wagers may be made only with tokens, chips
or electronic cards purchased from the licensee aboard a riverboat; (ix)
licensees may only use docking facilities and routes for which they are licensed
and may only board and discharge passengers at the riverboat casino's licensed
berth; (x) licenses must have adequate protection and indemnity insurance; (xi)
licensees must have all necessary federal and state licenses, certificates and
other regulatory approvals prior to operating a riverboat casino; and (xii)
gaming may only be conducted in accordance with the terms of the license and the
rules and regulations adopted by the Louisiana Division and the Louisiana
Commission.
A license is for a fixed term of five years and is subject to annual review
by the Louisiana Division thereafter. The transfer of a license or the transfer
of an interest in a license is prohibited. The sale, assignment, transfer,
pledge or disposition by any person of securities which represent five percent
or more of the total outstanding shares of a license holder is subject to
Louisiana Division approval. A security issued by a corporation that holds a
license must generally disclose these restrictions.
Fees for conducting gaming activities on a Louisiana riverboat casino
include (i) $50,000 for the first year after a license is issued and $100,000
per year thereafter plus (ii) 18-1/2% of net gaming proceeds. In addition, the
local governing authority may levy a per excursion admission fee of up to $2.50
per passenger boarding or embarking on a gaming riverboat.
-35-
In July 1991, Louisiana also authorized operation of video poker machines
at various types of facilities in the state, including bars, truckstops and
racetracks.
Illinois
--------
If the Company's acquisition of the Gold Strike Entities is consummated,
the Company will become subject to the jurisdiction of the Illinois gaming
authorities as a result of its acquisition of a 50% interest in The Grand
Victoria riverboat casino and gaming complex based in Elgin, Illinois.
In 1990, the Riverboat Gambling Act (the "Illinois Act") was enacted by the
State of Illinois. The Illinois Act authorizes the five-member Illinois Gaming
Board (the "Illinois Board") to issue up to ten owners licenses on navigable
streams within or forming a boundary of the State of Illinois except for Lake
Michigan and any waterway in Cook County, which includes Chicago. The Illinois
Act strictly regulates the facilities, persons, associations and practices
related to gaming operations pursuant to the police powers of the State of
Illinois, including comprehensive law enforcement supervision. The Illinois Act
grants the Illinois Board specific powers and duties, and all other powers
necessary and proper to fully and effectively execute the Illinois Act for the
purpose of administering, regulating and enforcing the system of riverboat
gaming. The Illinois Board's jurisdiction extends to every person, association,
corporation, partnership and trust involved in riverboat gaming operations in
the State of Illinois.
The Illinois Act requires the owner of a riverboat gaming operation to hold
an owner's license issued by the Illinois Board. Each owner's license permits
the holder to own up to two riverboats, however, gaming participants are limited
to 1,200 for any owner's license. A licensed owner may hold up to 10% of a
second riverboat gaming operation in Illinois.
The Illinois Act restricts the granting of certain of the ten owners'
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. In addition to the ten owner's licenses which
may be authorized under the Illinois Act, the Illinois Board may issue special
event licenses allowing persons who are not otherwise licensed to conduct
riverboat gaming to conduct such gaming on a specified date or series of dates.
Riverboat gaming under such a license may take place on a riverboat not normally
used for riverboat gaming.
A gaming license issued to the Company will be valid for an initial period
of three years and must be renewed annually thereafter. An owner's license is
eligible for renewal upon
-36-
payment of the applicable fee and a determination by the Illinois Board that the
licensee continues to meet all of the requirements of the Illinois Act. An
ownership interest in an owner's license, or in a business entity other than a
publicly held business entity which holds an owner's license, may not be (i)
transferred or (ii) pledged as collateral without the approval of the Illinois
Board. The Illinois Board also requires that employees of a gaming operator and
vendors of gaming supplies and equipment be licensed.
The Illinois Act does not limit the maximum bet or per patron loss.
Licensees, however, may set any maximum or minimum limits on wagering under the
Illinois Act. No person under the age of 21 is permitted to wager.
An admission tax is imposed on the owner of a riverboat operation at a rate
of $2 per person admitted. Additionally, a wagering tax is imposed on the
adjusted gross receipts, as defined in the Illinois Act, of a riverboat
operation at the rate of 20%. The licensee is required to wire the wagering tax
payment to the Illinois Board daily.
Under the Illinois Act, there is a four-hour maximum period during which
gaming may be conducted during a gaming excursion. Gaming is deemed to commence
when the first passenger boards a riverboat for an excursion and may continue
while other passengers are boarding for a period not to exceed 30 minutes. A
gaming excursion is deemed to have started upon the commencement of gaming.
Gaming may continue for a period not to exceed 30 minutes after the gangplank or
its equivalent is lowered. During this 30-minute period of egress, new
passengers may not board a riverboat. Special event extended cruises may be
authorized by the Illinois Board.
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 mechanical or structural
difficulties or river icing, the riverboat shall either not leave the dock or
immediately return to it. 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 either of 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 either of 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.
After consultation with the U.S. Army Corps of Engineers, the Illinois
Board may establish binding emergency orders upon the concurrence of a majority
regarding the navigability of
-37-
rivers in the event of extreme weather conditions, acts of God or their extreme
circumstances.
The Illinois 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 the Illinois 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 any license is subject to imposition of fines, suspension or
revocation of such license, or other action for any act or failure to act by
himself or his agents or employees, that is injurious to the public health,
safety, morals, good order and general welfare of the people of the State of
Illinois, or that would discredit or tend to discredit the Illinois gaming
industry or the State of Illinois. Any riverboat operations not conducted in
compliance with the Illinois Act may constitute an illegal gaming place and
consequently may be subject to criminal penalties, which penalties include
possible seizure, confiscation and destruction of illegal gaming devices and
seizure and sale of riverboats and dock facilities to pay any unsatisfied
judgment that may be recovered and any unsatisfied fine that may be levied. The
Illinois Act also provides for civil penalties, equal to the amount of gross
receipts derived from wagering on the gaming, whether unauthorized or
authorized, conducted on the day of any violation. The Illinois Board may
revoke or suspend licenses, as the Illinois Board may see fit and in compliance
with applicable laws of the State of Illinois regarding administrative
procedures and may suspend an owner's license, without notice or hearing, upon a
determination that the safety or health of patrons or employees is jeopardized
by continuing a riverboat's operation. The suspension may remain in effect
until the Illinois Board determines that the cause for suspension has been
abated and it may revoke the owner's license upon a determination that the owner
has not made satisfactory progress toward abating the hazard.
The Illinois Board requires that a "Key Person" of an owner, operator or
licensee be investigated and approved by the Illinois Board. Any person
directly or indirectly holding a legal or beneficial interest of 5% or more of
an applicant is deemed to be a "Key Person," as are officers, directors,
trustees, partners, proprietors and managing agents of a gaming enterprise.
Furthermore, each applicant for an owner's license must disclose the identity of
every person, association, trust or corporation having a greater than 1% direct
or indirect pecuniary interest in the riverboat gaming operation with respect to
which the license is sought. The Illinois Board may also require an applicant
to disclose any other principal or investor and require the investigation and
approval of such individuals.
The Illinois Board (unless the investor qualifies as an institutional
investor) requires a Personal Disclosure Form from
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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 Board denies an application
for such a transfer and if no hearing is requested, the applicant for the
transfer of ownership 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.
If the Illinois Board does not approve of a holder of any of the Common
Stock, the Company's Bylaws provide that the Company shall have the right to
purchase the Common Stock under procedures similar to the purchase provisions
applicable to Disqualified Holders under the Casino Act.
The Illinois Board may waive any licensing requirement or procedure
provided by rule if it determines that such waiver is in the best interests of
the public and the gaming industry.
Uncertainty exists regarding the Illinois gambling regulatory environment
due to limited experience in interpreting the Illinois Act.
From time to time, various proposals have been introduced in the Illinois
legislature that, if enacted, would affect the taxation, regulation, operation
or other aspects of the gaming industry or the Company. Some of this
legislation, if enacted, could adversely affect the gaming industry or the
Company. No assurance can be given whether such or similar legislation will be
enacted.
Applicants for and holders of an owner's license are required to obtain
formal approval from the Illinois Board for changes in the following areas: (i)
Key Persons, (ii) type of entity, (iii) equity and debt capitalization of the
entity, (iv) investors and/or debt holders, (v) source of funds, (vi)
applicant's economic development plan, (vii) riverboat capacity or significant
design change, (viii) gaming positions, (ix) anticipated economic impact, or (x)
pro forma budgets and financial statements.
A holder of an owner's license is allowed to make distributions to its
stockholders only to the extent that such distribution would not impair the
financial viability of the gaming operation. Factors to be considered by the
licensee will include but not be limited to the following: (i) working capital
requirements, (ii) debt service requirements, (iii) requirements
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for repairs and maintenance, and (iv) capital expenditure requirements.
Other Jurisdictions
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As a result of the Company's efforts to expand its operations into new
jurisdictions, the Company is likely to become subject to comprehensive gaming
and other regulations in each such jurisdiction into which its operations are
expanded. Such regulations may be similar to, and could be more restrictive
than, those currently applicable to the Company, its officers, directors or
employees or persons associated with the Company.
EMPLOYEES AND LABOR RELATIONS
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At January 31, 1995, the Company employed approximately 18,000 persons.
Approximately 41% of the Company's employees at January 31, 1995 were employed
pursuant to the terms of collective bargaining agreements. Management considers
its labor relations to be satisfactory. A work stoppage has not been experienced
at a Company-owned property since an industry-wide strike in 1975. In Windsor,
Ontario, the interim casino being operated by a corporation in which the Company
owns a 33-1/3% interest was closed by a three-week long strike in March 1995,
but has settled this labor dispute and has reopened the casino.
Certain states in which gaming recently has been legalized have established
community commitment and similar laws which require that a specified percentage
of employees of gaming ventures be residents of the state in which the gaming
venture is located. These laws could affect the ability of the Company to
attract and retain qualified employees for gaming operations conducted by the
Company or joint ventures in which it participates outside Nevada.
ITEM 2. PROPERTIES.
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Circus Circus-Las Vegas. The Company owns approximately 69 acres of land
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with 375 feet of frontage on the Las Vegas Strip (the "Circus Circus-Las Vegas
Site") and the related improvements. As of January 31, 1995, neither the Circus
Circus-Las Vegas Site nor any of the improvements situated thereon was subject
to any encumbrance securing the repayment of indebtedness. For additional
information concerning Circus Circus-Las Vegas, see "Description of the
Company's Operating Hotels and Casinos -- Las Vegas, Nevada -- Circus Circus-Las
Vegas" in Item 1 of this Report.
Luxor and Excalibur. The Company owns a 117-acre parcel on the southwest
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corner of the intersection of the Las Vegas Strip and Tropica