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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 000-21640
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STATION CASINOS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0136443
(State of incorporation of (IRS Employer Identification No.)
incorporation or organization)
2411 WEST SAHARA AVENUE, LAS 89102
VEGAS, NEVADA (Zip Code)
(Address of principal executive
offices)
(Registrant's telephone number, including area code): (702) 367-2411
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01
Par Value
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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 / /
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 the
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates (all
persons other than executive officers or directors) of the registrant as of
March 15, 2001, based on the closing price per share as reported on the New York
Stock Exchange was $439,045,476.
As of March 15, 2001, the registrant has 57,144,121 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 2000 Annual Meeting of
Stockholders to be held May 22, 2001 (which has not been made publicly available
as of the date of this filing) are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
When used in this report and elsewhere by management from time to time, the
words "believes," "anticipates," and "expects" and similar expressions are
intended to identify forward-looking statements with respect to the financial
condition, results of operations and the business of Station Casinos, Inc. (the
"Company") and its subsidiaries including the expansion, development and
acquisition projects, legal proceedings and employee matters of the Company and
its subsidiaries. Certain important factors, including but not limited to,
financial market risks, could cause the Company's actual results to differ
materially from those expressed in the Company's forward-looking statements.
Further information on potential factors which could affect the financial
condition, results of operations and business of the Company and its
subsidiaries including, without limitation, the ability to maintain existing
management, integration of acquisitions, competition within the gaming industry,
the cyclical nature of the hotel business and gaming business economic
conditions, development and construction risks, regulatory matters and
litigation are included in the filings of the Company with the Securities and
Exchange Commission. Readers are cautioned not to place undue reliance on any
forward-looking statements, which speak only as of the date thereof. The Company
undertakes no obligation to publicly release any revisions to such
forward-looking statements to reflect events or circumstances after the date
hereof.
GENERAL
Station Casinos, Inc. is a gaming company that owns and operates seven
distinctly themed hotel/ casino properties and two smaller casino properties
throughout the Las Vegas metropolitan area. The Company also owns and provides
slot route management services in southern Nevada. Management's growth strategy
includes the master-planned expansion of the Company's existing gaming
facilities in Nevada, as well as the evaluation and pursuit of additional
acquisition or development opportunities in Nevada and other gaming markets.
The Company owns and operates Palace Station Hotel & Casino ("Palace
Station"), Boulder Station Hotel & Casino ("Boulder Station"), Texas Station
Gambling Hall & Hotel ("Texas Station"), Sunset Station Hotel & Casino ("Sunset
Station"), Santa Fe Station Hotel & Casino ("Santa Fe Station"), Fiesta Casino
Hotel ("Fiesta"), The Reserve Hotel & Casino ("The Reserve") and Tropicana
Station, Inc., the operator of Wild Wild West Gambling Hall & Hotel ("Wild Wild
West"). The Company also owns a 50% interest in Town Center Amusements, Inc.
d.b.a. Barley's Casino & Brewing Company ("Barley's"). Palace Station is
situated on approximately 39 acres on Sahara Avenue adjacent to Interstate 15,
and is near major attractions on the Las Vegas Strip and downtown Las Vegas.
Boulder Station is situated on approximately 46 acres along Boulder Highway,
immediately adjacent to Interstate 515, and is located on the opposite side of
Las Vegas from Palace Station. Texas Station is located on approximately 47
acres at the corner of Lake Mead Boulevard and Rancho Road in North Las Vegas.
Sunset Station is located on approximately 105 acres on Sunset Road immediately
adjacent to Interstate 515 and features a Spanish/Mediterranean-themed
hotel/casino. Santa Fe Station is situated on approximately 38 acres at the
intersection of Interstate 95 and Rancho Road, approximately five miles
northwest of Texas Station. Fiesta is situated on approximately 25 acres at the
intersection of Lake Mead Boulevard and Rancho Road in North Las Vegas, across
from Texas Station. The Reserve is situated on approximately 46 acres at the
intersection of Interstate 215 and Interstate 515. Each of the Company's casinos
caters primarily to local Las Vegas residents. The Company markets the five
"Station" casinos together under the Station Casinos' brand, and the Fiesta and
The Reserve independently, offering convenience and choices to residents
throughout the Las Vegas Valley with its strategically located properties.
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OPERATING STRATEGY
Management believes that the following key principles have been integral to
its success as a gaming operator and intends to continue to employ these
strategies at each of its various operations.
TARGETED CUSTOMER BASE
The Company's operating strategy emphasizes attracting and retaining
customers primarily from the local and repeat visitor markets. The casino
properties attract customers from the Las Vegas locals market through
innovative, frequent and high-profile promotional programs, focused marketing
efforts and convenient locations, and from the repeat visitor market through
aggressive marketing and the development of strong relationships with
specifically targeted travel wholesalers. Although perceived value initially
attracts a customer to the casino properties, actual value generates customer
satisfaction and loyalty. Management believes that actual value becomes apparent
during the customer's visit through an enjoyable, affordable and high-quality
entertainment experience. Las Vegas, which is and has been one of the fastest
growing cities in the United States, is characterized by a strong economy and
demographics which include an increasing number of retirees and other active
gaming customers. The Company believes that its out-of-town patrons are also
discerning customers who enjoy the Company's value-oriented, high-quality
approach. Our patrons view the Company's hotel and casino product as a
preferable alternative to attractions located on the Las Vegas Strip and
downtown Las Vegas.
PROVIDE A HIGH-VALUE EXPERIENCE
Because the Company targets the repeat customer, management is committed to
providing a high-value entertainment experience for its customers in its
restaurants, hotels, casinos, and other entertainment amenities. Management
believes that the value offered by restaurants at each of the casino properties
is a major factor in attracting its local gaming customers, as dining is a
primary motivation for casino visits by many locals. Through their restaurants,
each of which has a distinct theme and style of cuisine, the casino properties
offer generous portions of high-quality food at reasonable prices. In addition,
the Company's operating strategy focuses on slot and video poker machine play.
The Company's target market consists of frequent gaming patrons who seek not
only a friendly atmosphere and convenience, but also higher than average payout
rates. Because locals and repeat visitors demand variety and quality in their
slot and video poker machine play, the casino properties offer the latest in
slot and video poker technology, including several games designed exclusively
for the Company.
As part of its commitment to providing a quality entertainment experience
for its patrons, the Company is dedicated to ensuring a high level of customer
satisfaction and loyalty by providing attentive customer service in a friendly,
casual atmosphere. Management recognizes that consistent quality and a
comfortable atmosphere stem from the collective care and friendliness of each
employee. The Company, which began as a family-run business, has maintained
close-knit relationships among its management and endeavors to instill among its
employees this same sense of loyalty. Toward this end, management takes a
hands-on approach through active and direct involvement with employees at all
levels.
MARKETING AND PROMOTION
The Company employs an innovative marketing strategy that utilizes frequent,
high-profile promotional programs in order to attract customers and establish a
high level of name recognition. In addition to aggressive marketing through
television, radio and newspaper advertising, the Company has created and
sponsored such promotions as "Paycheck Bonanza" and the "Great Giveaway," a
popular
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football season contest. These promotions have become a tradition in the locals'
market and have had a positive impact upon the Company's patronage during their
respective promotion periods.
In April 1999, the Company introduced its unified Boarding Pass player
rewards program at the casino properties. The Boarding Pass program allows
guests to earn points based on their level of gaming activity. These points can
then be redeemed for food, entertainment and merchandise at any of the Station
properties. This "single card", for which the technology was developed in-house,
sets the Company apart from its competition in the Las Vegas locals market.
CASINO PROPERTIES
Set forth below is certain information concerning the properties that are
owned and operated by the Company. The properties are more fully described in
the following table.
CASINO PROPERTIES (1)
CASINO PARKING
SQUARE HOTEL GAMING SPACES
PROPERTY FOOTAGE ROOMS SLOTS (2) TABLES (3) (4)
-------- -------- -------- --------- ---------- --------
Casino Properties
Palace Station............................... 84,000 1,014 2,084 51 3,700
Boulder Station.............................. 89,000 300 2,988 44 4,350
Texas Station................................ 102,300 200 2,999 40 5,300
Sunset Station............................... 110,000 467 3,059 55 7,100
Santa Fe Station............................. 85,000 200 1,840 27 1,100
Fiesta....................................... 70,000 100 1,850 24 2,300
The Reserve.................................. 42,000 224 1,450 26 1,900
Other Properties
Wild Wild West............................... 12,500 260 248 7 500
Barley's..................................... 10,000 -- 199 9 --
Southwest Gaming............................. -- -- 790 -- --
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(1) The information with respect to each property other than Fiesta and The
Reserve is as of December 31, 2000. Information for Fiesta and The Reserve
is as of February 28, 2001.
(2) Includes slot and video poker machines and other coin-operated devices.
(3) Generally includes blackjack ("21"), craps, roulette, pai gow poker, mini
baccarat, Caribbean stud poker, let it ride, big six, three card and double
down stud. The Casino Properties also offer a keno lounge, poker room, bingo
parlor and a race and sports book. Wild Wild West and Barley's also offer a
sports book.
(4) Includes covered parking spaces of 1,900 for Palace Station, 1,900 for
Boulder Station, 3,500 for Texas Station, 2,900 for Sunset Station and 1,000
for Fiesta.
PALACE STATION
Palace Station is strategically located on approximately 39 acres at the
intersection of Sahara Avenue and Interstate 15, one of Las Vegas' most heavily
traveled areas. Palace Station is a short distance from McCarran International
Airport and from major attractions on the Las Vegas Strip and downtown Las
Vegas. Palace Station's ample parking and convenient location assure customers
easy access to the hotel and casino, a factor that management believes is
particularly important in attracting and retaining its customers. The Palace
Station complex features a turn-of-the-20th-century railroad
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station theme. The complex also includes two swimming pools, an approximately
20,000-square foot banquet and convention center, five full-service restaurants,
several fast-food outlets, a 24-hour gift shop and a non-gaming video arcade.
Palace Station's five full-service restaurants have a total of over 1,225
seats. These restaurants offer a variety of high-quality food at reasonable
prices, including the 24-hour Palace Cafe (featuring American and Chinese fare),
an all-you-can-eat buffet known as "The Feast," the Broiler (a steak and seafood
restaurant), the Pasta Palace (an Italian restaurant) and the Guadalajara Bar &
Grille (a Mexican restaurant). Palace Station also offers a 17 seat Oyster Bar.
Palace Station guests also may take advantage of the Palace Saloon Piano Bar and
the Sound Trax Lounge, which provide music, dancing and entertainment.
BOULDER STATION
Boulder Station, which opened in August 1994, is strategically located on
approximately 46 acres on the opposite side of Las Vegas from Palace Station.
Patrons enjoy convenient access to this facility which is located on Boulder
Highway and immediately adjacent to the Interstate 515 interchange. Management
believes that its highly visible location at this well-traveled intersection
offers a competitive advantage relative to existing hotels and casinos located
on Boulder Highway. Boulder Station is located approximately four miles east of
the Las Vegas Strip and approximately four miles southeast of downtown Las
Vegas. The Boulder Station complex, like Palace Station, features a
turn-of-the-20th-century railroad station theme. The complex also includes five
full-service restaurants, several fast-food outlets, a 750-seat entertainment
lounge, eight additional bars, a high-quality 11-screen movie theater complex, a
Kid's Quest child-care facility, a swimming pool, a non-gaming video arcade and
a gift shop.
Boulder Station's five full-service restaurants have a total of over 1,400
seats. These restaurants offer a variety of high-quality food at reasonable
prices. Restaurant themes and menus are similar to Palace Station's, allowing
Boulder Station to benefit from the market acceptance and awareness of this
product. Restaurants include the 24-hour Boulder Cafe (featuring American and
Chinese fare), an all-you-can-eat buffet known as "The Feast," the Broiler (a
steak and seafood restaurant), the Pasta Palace (an Italian restaurant), and the
Guadalajara Bar & Grille (a Mexican restaurant). In addition to these
restaurants, Boulder Station offers various fast-food outlets. Boulder Station's
restaurants and bars are located in open settings that are designed to
intermingle the dining and gaming experience.
TEXAS STATION
Texas Station, which opened in July 1995, is strategically located on
approximately 47 acres located at the corner of Lake Mead Boulevard and Rancho
Road in North Las Vegas. The facility features a friendly, "down-home" Texas
atmosphere, highlighted by its distinctive early Texas architecture. In
December 2000, the Company completed a master-planned expansion at Texas Station
with capital expenditures of approximately $78 million. The scope of the project
included renovation of various restaurants and additional upgrades to provide
consistency in the quality of finishes between all phases of Texas' expansion.
The expansion project also included the addition of 350 gaming devices, a
60-lane bowling center and approximately 40,000 square feet of meeting and
banquet space. The latest phase of the master plan was designed to further
position Texas Station as an all-inclusive entertainment destination for Las
Vegas residents. Texas Station includes four full-service restaurants, several
fast-food outlets, a 10,000-square foot Kid's Quest child-care facility, a
300-seat entertainment lounge, a 1,700-seat event center, seven additional bars,
a high-quality 18-screen movie theater complex, a swimming pool, a non-gaming
video arcade and a gift shop. Management believes that the theater complex
provides a competitive advantage for the property and is an additional
attraction that draws a significant number of patrons to the facility.
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Texas Station's four full-service restaurants have a total of over 1,300
seats. These restaurant facilities offer a variety of high-quality food at
reasonable prices, including the 24-hour Texas Cafe (featuring American and
Chinese fare), Austin's Steakhouse, the San Lorenzo (an Italian restaurant) and
the Market Street Buffet (featuring seven different food stations). Texas
Station also features the Texas Star Oyster Bar, which has 110 seats. In
addition to the Texas Station-themed restaurants, guests may also take advantage
of the unique features of several bars and lounges including the Martini Ranch,
the Whiskey Bar, the Garage Bar, or the Armadillo Honky Tonk. The facility also
offers a variety of fast-food outlets to enhance the customers' dining
selection. Management believes that the quality and variety of the restaurants
offered at the facility are a major draw in the rapidly growing North Las Vegas
and Summerlin markets.
SUNSET STATION
Sunset Station, which opened in June 1997, is located on an approximately
105-acre parcel at the intersection of Interstate 515 and Sunset Road. Multiple
access points provide customers convenient access to the gaming complex and
parking areas. Situated in a highly concentrated commercial corridor along
Interstate 515, Sunset Station has prominent visibility from the freeway and the
Sunset commercial corridor. Sunset Station is located approximately nine miles
east of McCarran International Airport and eight miles southeast of Boulder
Station.
Sunset Station is distinguished from the Company's other properties by its
interior and exterior Spanish/Mediterranean-style architecture. The facility
seven full-service restaurants, themed to capitalize on the restaurants at the
Company's other properties, a 520-seat entertainment lounge and a 4,000-seat
outdoor amphitheater, additional bars, a gift shop, a non-gaming video arcade, a
high-quality 13-screen movie theater complex, a Kid's Quest child-care facility,
and a swimming pool, as well as several fast-food outlets and franchises.
Sunset Station's seven full-service restaurants have a total of over 2,200
seats featuring "live-action" cooking and simulated patio dining. These
restaurant facilities offer a variety of high-quality food at reasonable prices,
including the 24-hour Sunset Cafe (featuring American and Chinese fare), the
Sonoma Cellar (a steakhouse), the Casa Del Sol (a seafood restaurant), the Capri
(an Italian restaurant), Guadalajara Bar & Grille (a Mexican restaurant), Sunset
Brewing Company (a microbrewery) and The Feast Around the World, a live action
buffet featuring Mexican, Italian, barbecue, American and Chinese cuisine.
Sunset Station also features a 65 seat Oyster Bar. Guests may also take
advantage of the Gaudi Bar, a centerpiece of the casino featuring over 8,000
square feet of stained-glass and a water light display. The facility also offers
fast-food outlets to enhance the customers' dining selection.
Sunset Station is located on approximately 105 acres, approximately 70 acres
of which have been developed. The Company is currently evaluating potential
development plans for the undeveloped property. Uses for the land could include
a lifestyle entertainment retail center, as well as the development of several
pads for various build-to-suit retail, restaurant and entertainment concepts.
Timing and definitive plans have not yet been determined for such a development.
SANTA FE STATION
On October 2, 2000, the Company consummated the purchase of substantially
all of the assets of the Santa Fe Hotel & Casino for an aggregate purchase price
of $205 million and renamed the property "Santa Fe Station." Santa Fe Station is
strategically located on approximately 38 acres at the intersection of
Interstate 95 and Rancho Road, approximately five miles northwest of Texas
Station. Santa Fe Station has approximately 440,000 square feet of main facility
area and features a Southwestern theme which includes a swimming pool, three
full-service restaurants, several fast food outlets, a gift shop, a non-gaming
video arcade, a 250-seat entertainment lounge, four additional bars, a
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60-lane bowling center, a regulation-sized ice skating arena and 10,000 square
feet of meeting and banquet facilities.
Santa Fe Station's three full-service restaurants have a total of over 400
seats, and include the Taos Steakhouse, the Capri (an Italian restaurant) and
the 24-hour Santa Fe Cafe (featuring American and Chinese fare).
In October, the Company began a renovation, retheming and expansion project
at the property. In late November, the number of slot machines on the casino
floor were increased to 1,932 and remodeled restaurants were opened. The Company
is currently constructing a 1,700-space parking garage, a food court area with
eight lease tenants, a 25,000-square foot casino expansion to allow for
approximately 700 additional gaming devices, the build-out of lease tenant space
for two new restaurants, a new hotel lobby and a new gift shop. The Company
expects that post-acquisition renovation, retheming and expansion capital
expenditures at Santa Fe Station will total approximately $71 million and the
expansion project will be completed in the third quarter of 2001.
FIESTA
On January 4, 2001, the Company consummated the purchase of substantially
all of the assets of the Fiesta Casino Hotel for a purchase price of
$170 million. The property will retain the Fiesta name and theme. Fiesta is
strategically located on approximately 25 acres at the intersection of Lake Mead
Boulevard and Rancho Road in North Las Vegas across from Texas Station. Fiesta
features a Southwestern theme which also includes a swimming pool, four
full-service restaurants, several fast-food outlets, a gift shop, a non-gaming
video arcade, a 970-seat entertainment lounge and five additional bars.
Fiesta's four full-service restaurants have a total of over 1,100 seats, and
include Gardunos (a Mexican restaurant), the Old San Francisco Steakhouse, the
Festival Buffet and the 24-hour Cafe Fiesta (featuring American fare).
The Company expects to spend approximately $5 million during the first half
of 2001 on minor renovations to the property.
THE RESERVE
On January 30, 2001, the Company consummated the purchase of substantially
all of the assets of The Reserve Hotel & Casino for an aggregate purchase price
of $71.8 million. The property will retain its name and theme pending further
evaluation. The Reserve is strategically located on approximately 46 acres at
the intersection of Interstate 215 and Interstate 515. The Reserve features an
African safari and big game reserve theme which also includes a swimming pool,
four full-service restaurants, several fast-food outlets, a gift shop, three
bars and lounges and meeting space.
The Reserve's four full-service restaurants have a total of over 1,000
seats, and include the Tusk Steakhouse, Serengeti Spaghetti (an Italian
restaurant), the Grand Safari Buffet and the 24-hour Congo Jack's Cafe
(featuring American and Chinese fare).
The Company expects to spend approximately $8 million during 2001 to make
minor revisions and additions to the casino floor and parking areas.
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OTHER PROPERTIES
WILD WILD WEST
Wild Wild West, which the Company acquired in July 1998, is strategically
located on approximately 19 acres located on Tropicana Avenue and immediately
adjacent to Interstate 15. Wild Wild West has a full service restaurant and bar.
BARLEY'S
Barley's, which opened in January 1996, is a casino and brew pub located in
Henderson, Nevada which the Company owns a 50% interest. Barley's offers a full
service restaurant and bar.
SOUTHWEST GAMING
The Company provides slot route management services to numerous food and
beverage establishments and commercial businesses in Southern Nevada through its
subsidiary, Southwest Gaming Services, Inc. ("SGSI"). SGSI commenced its slot
route business in southern Nevada in December 1990. Management combined its
gaming experience with its route management abilities to capitalize on the
rapidly expanding slot route business.
EXPANSION STRATEGY
SELECTION CRITERIA
Management believes that a highly visible central location, convenient
access and ample parking are critical factors in attracting local patronage and
repeat visitors. Additionally, sites must be large enough to support
multi-phased master-planned growth to capitalize on growing demand in
incremental stages. The Company selects sites that are centrally located within
a dense population base so that the facility cannot be cut-off from its primary
market. These sites generally have been adjacent to high-traffic surface streets
and interstate highways. Management believes that each of its casino properties'
locations has provided the Company with a significant competitive advantage to
attract its targeted customer base.
MASTER-PLANNED DEVELOPMENT
Management's expansion strategy includes the master-planned expansion of its
existing and future gaming locations. In designing project sites, the Company
plans and engineers for multi-phased facility expansion to accommodate future
growth and to allow the Company to develop dominant properties in each market
place. A project's master-planned design typically allows the option of adding
hotel rooms, casino space and non-gaming entertainment such as movie theaters,
additional restaurants, retail shops, and various other entertainment venues.
EXPANSION, DEVELOPMENT AND ACQUISITION OPPORTUNITIES
The Company continually evaluates the timing and scope of its master-planned
developments at each of its properties and may determine from time to time to
expand the scope of, improve on or suspend the implementation of its master
plans. These decisions are dependent upon the availability of financing,
competition and future economic and gaming regulatory environments, many of
which are beyond the Company's control.
The Company also evaluates other development and acquisition opportunities
in current and emerging gaming markets, including land-based, dockside,
riverboat and Indian gaming opportunities. The Company's decision whether to
proceed with any new gaming development or acquisition
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opportunity is dependent upon future economic and regulatory factors, the
availability of financing and competitive and strategic considerations, many of
which are beyond the Company's control.
GREEN VALLEY RANCH
A 50/50 joint venture between the Company and GCR Gaming, LLC (an affiliate
of American Nevada Corporation) has commenced construction of a new
casino/resort, Green Valley Ranch on the south side of Interstate 215 at Green
Valley Parkway in Henderson, Nevada. The 40-acre resort site is part of a
170-acre mixed-use commercial, retail and office project. The Company expects to
contribute approximately $50 million in cash equity for a 50 percent equity
ownership. As of December 31, 2000, the Company has made cash equity
contributions of $34 million. The Company will be the managing partner of Green
Valley Ranch and will receive a management fee for its services. Construction of
the resort is expected to be completed in the fourth quarter of 2001. The
estimated construction cost of this project is approximately $300 million. The
project is expected to be capitalized with total equity contributions from the
partners of approximately $100 million and third party financing for the
remainder. The joint venture has received commitments from a group of banks for
a $165 million reducing revolving credit facility, subject to customary
conditions. The Company anticipates that it will be required to enter into a
completion guarantee and a make-well agreement in connection with the Green
Valley Ranch financing. In addition, the joint venture anticipates obtaining
$35 million of equipment lease financing from a group of lenders. The Company
has co-owned Barley's with an affiliate of American Nevada Corporation since
January 1996.
The new project is planned to complement the Green Valley Ranch
master-planned community. The plans for the project include over 330,000 square
feet of public space and 200 hotel rooms. Planned entertainment amenities
include a state-of-the-art spa with outdoor pools, a 10-screen movie theater,
six full-service restaurants, a fast-food court with six quick-serve outlets and
a non-gaming arcade. It is anticipated that the casino will have over 2,400 slot
machines and 40 table games. The planned facility also includes a race and
sports book, a poker room and parking for approximately 3,200 vehicles in a
low-rise garage and on surface parking.
UNITED AUBURN INDIAN COMMUNITY
On October 12, 1999, the Company announced that it has entered into a
Development Services Agreement and a Management Agreement with the United Auburn
Indian Community (the "UAIC"). Subject to the receipt of certain governmental
approvals, as well as voter approval of a proposed amendment to the California
constitution, the Company and the UAIC intend to develop a gaming and
entertainment facility on 49 acres, located approximately seven miles north of
Interstate 80, in Placer County, California, near Sacramento. Voter approval of
the proposed amendment to the California constitution was received in
March 2000, however, there can be no assurances when or if the necessary
government approvals will be received. The scope and the timing of this project
have yet to be determined.
COMPETITION
The gaming industry includes land-based casinos, dockside casinos, riverboat
casinos, casinos located on Indian reservations and other forms of legalized
gaming. There is intense competition among companies in the gaming industry,
many of which have significantly greater resources than the Company. Certain
states have recently legalized, and several other states are currently
considering legalizing, casino gaming in designated areas. Legalized casino
gaming in such states and on Indian reservations will provide strong competition
to the Company and could adversely affect the Company's operations, particularly
to the extent that such gaming is conducted in areas close to the Company's
operations. Indian gaming in California, as it currently exists, has had little,
if any impact on the Company's operations to date, although there are no
assurances as to future impact. Proposition 1A is
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an amendment to the California Constitution, passed by the voters of California
on March 7, 2000, designed to modify the Constitution to authorize the Governor
to negotiate compacts with federally recognized Indian tribes, subject to
Legislative ratification, for the operation of slot machines, lottery games, and
banking and percentage games (including "21") on Indian lands. In
September 1999 the Governor negotiated, and the Legislature ratified, compacts
with 57 Indian tribes that became effective with the passage of Proposition 1A.
It is not certain how Proposition 1A will affect the Company; however, because
visitors from California make up Nevada's largest visitors market, with
Proposition 1A, increased competition from Indian gaming may result in a decline
in the Company's revenues and may have a material adverse effect on the
Company's business.
The casino properties face more direct competition from 35 nonrestricted
gaming locations primarily targeted to the local and the repeat visitor markets.
Some of these competitors have completed expansions and existing competitors and
new entrants into these markets are in the planning stages or under construction
on other projects. Although the Company has competed strongly in these
marketplaces, there can be no assurance that additional capacity will not have a
negative impact on the Company.
The casino properties face competition from all other casinos and hotels in
the Las Vegas area, including to some degree, from each other. In addition, the
casino properties face competition from all smaller nonrestricted gaming
locations and restricted gaming locations (locations with 15 or fewer slot
machines) in the greater Las Vegas area. As of December 31, 2000, there were
1,324 restricted gaming locations with a total of 12,946 slot machines. The
Company competes with other locals oriented hotel/ casinos by focusing on repeat
customers and attracting these customers through innovative marketing programs.
The Company's value-oriented, high-quality approach is designed to generate
repeat business. Additionally, the casino properties are strategically located
and designed to permit convenient access and ample parking, which are critical
factors in attracting local visitors and repeat patrons. Currently, there are
approximately 32 major gaming properties located on or near the Las Vegas Strip,
14 located in the downtown area and several located in other areas of Las Vegas.
Major additions, expansions or enhancements of existing properties or the
construction of new properties by competitors, could also have a material
adverse effect on the businesses of the casino properties. The additional
capacity has had little, if any, impact on the casino properties' hotel
occupancy or casino volume to date, although there can be no assurance that
hotel occupancy or casino volume will not be adversely affected in the future.
To a lesser extent, the Company's operations compete with gaming operations
in other parts of the state of Nevada, such as Reno, Laughlin and Lake Tahoe,
with facilities in Atlantic City, New Jersey, casinos located on Indian
reservations and other parts of the world and with state-sponsored lotteries,
on-and-off-track pari-mutuel wagering, card parlors and other forms of legalized
gambling.
REGULATION AND LICENSING
NEVADA GAMING REGULATIONS
The ownership and operation of casino gaming facilities, the operation of
gaming device routes and the manufacture and distribution of gaming devices in
Nevada are subject to: (i) the Nevada Gaming Control Act and the rules and
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 ("Nevada Commission"), the Nevada State Gaming Control Board ("Nevada
Board"), the City of Las Vegas, the Clark County Liquor and Gaming Licensing
Board (the "Clark County Board"), the City of North Las Vegas, the City of
Henderson and certain other local regulatory agencies. The Nevada Commission,
the Nevada Board, the City of Las Vegas, the Clark County Board, the City of
North Las Vegas, the City of
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Henderson, and certain other local regulatory agencies 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 controls 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 and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.
The Company's direct and indirect subsidiaries that conduct gaming
operations in Nevada are required to be licensed by the Nevada Gaming
Authorities. The gaming licenses require the periodic payment of fees and taxes
and are not transferable. SGSI is licensed as a distributor and as an operator
of a slot machine route. Palace Station Hotel & Casino, Inc. ("PSHC"), Boulder
Station, Inc. ("BSI"), Texas Station, Inc. ("TSI"), Sunset Station, Inc.
("SSI"), Tropicana Station, Inc. ("TRSI"), Santa Fe Station, Inc. ("SFSI"),
Fiesta Station, Inc. ("FSI") and Lake Mead Station, Inc. ("LMSI") have received
licenses to conduct nonrestricted gaming operations. Town Center
Amusements, Inc. ("TCAI") has been licensed to conduct nonrestricted gaming
operations at Barley's Casino & Brewing Company ("Barley's Casino"), a micro
brewery and casino located in Southeast Las Vegas. The Company's ownership in
TCAI is held through an intermediary company known as Green Valley
Station, Inc. ("GVSI") which is licensed as a member and Manager of TCAI. 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
PSHC, BSI, TSI, SSI, TRSI, GVSI, SGSI, SFSI, FSI and LMSI. The Company is also
licensed as a manufacturer and distributor. PSHC, BSI, TSI, SSI, TRSI, GVSI,
SGSI, SFSI, FSI, and LMSI are each a corporate gaming licensee and TCAI is a
limited liability company licensee (individually a "Gaming Subsidiary" and
collectively the "Gaming Subsidiaries") under the terms of the Nevada Act. As a
Registered Corporation, the Company is required periodically to submit detailed
financial and operating reports to the Nevada Commission and the Nevada Board
and furnish any other information which the Nevada Commission or the Nevada
Board may require. No person may become a stockholder or holder of an interest
of, or receive any percentage of profits from the Gaming Subsidiaries without
first obtaining licenses and approvals from the Nevada Gaming Authorities. The
Company and the Gaming Subsidiaries have obtained from the Nevada Gaming
Authorities the various registrations, findings of suitability, approvals,
permits and licenses (individually, a "Gaming License" and collectively, the
"Gaming 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, a Registered
Corporation, such as the Company or the Gaming Subsidiaries, which hold a
license, in order to determine whether such individual is suitable or should be
licensed as a business associate of a Registered Corporation or a gaming
licensee. Officers, directors and certain key employees of the Gaming
Subsidiaries must file applications with the Nevada Gaming Authorities and may
be required to be licensed or found suitable by the Nevada Gaming Authorities.
Officers, directors and key employees of the Company who are actively and
directly involved in gaming activities of the Gaming Subsidiaries may be
required to be licensed or found suitable by the Nevada Gaming Authorities. The
Nevada Gaming Authorities may deny an application for licensing for any cause
which they deem reasonable. A finding of suitability is comparable to licensing,
and both require submission of detailed personal and financial information
followed by a thorough investigation. The applicant for licensing or a finding
of suitability must pay all the costs of the investigation. Changes in
11
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 corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue to have a
relationship with the Company or the Gaming Subsidiaries, the companies involved
would have to sever all relationships with such person. In addition, the Nevada
Commission may require the Company or the Gaming Subsidiaries to terminate the
employment of any person who refuses to file the appropriate applications.
Determinations of suitability or questions pertaining to licensing are not
subject to judicial review in Nevada.
The Company and the Gaming Subsidiaries are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing transactions
by the Company and the Gaming Subsidiaries must be reported to or approved by
the Nevada Commission and/or the Nevada Board.
If it were determined that the Nevada Act was violated by a Gaming
Subsidiary, the gaming licenses it holds could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, the Company, the Gaming Subsidiaries 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 Palace
Station, Boulder Station, Texas Station, Sunset Station, Santa Fe Station,
Fiesta, The Reserve, Wild Wild West and Barley's Casino and, under certain
circumstances, earnings generated during the supervisor's appointment (except
for the reasonable rental value of the premises) could be forfeited to the State
of Nevada. Limitation, conditioning or suspension of the Gaming Licenses of the
Gaming Subsidiaries or the appointment of a supervisor could (and revocation of
any Gaming License would) have a material adverse affect on the Company's gaming
operations.
Any beneficial owner of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have their suitability as a beneficial owner 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 provides that persons who acquire beneficial ownership of
more than 5% of the voting securities of a Registered Corporation must report
the acquisition to the Nevada Commission. The Nevada Act also requires that
beneficial owners of more than 10% of the voting securities of a Registered
Corporation must 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. An "institutional investor," as defined in the
Nevada Commission's regulations, which acquires beneficial ownership of more
than 10%, but not more than 15% of the Company's voting securities may apply to
the Nevada Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes only.
An institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company's
corporate charter, bylaws, management policies or operations of the Company, or
any of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding the Company's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes 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
12
cause a change in its management, policies or operations; and (iii) such other
activities as the Nevada Commission may determine to be consistent with such
investment intent. If the beneficial holder of voting securities who must be
found suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder who is found unsuitable and
who holds, directly or indirectly, any beneficial ownership of the common stock
of a Registered Corporation beyond such period of time as may be prescribed by
the Nevada Commission may be guilty of a criminal offense. The Company is
subject to disciplinary action if, after it receives notice that a person is
unsuitable to be a stockholder or to have any other relationship with the
Company or the Gaming Subsidiaries, the Company (i) pays that person any
dividend or interest upon voting securities of the Company, (ii) allows that
person to exercise, directly or indirectly, any voting right conferred through
securities held by that person, (iii) pay 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 Board has the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation if the
Nevada Commission has reason to believe that such ownership would otherwise be
inconsistent with the declared policies of the State of Nevada. If the Nevada
Commission determines that a person is unsuitable to own such security, then
pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation or similar
transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's 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.
13
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
May 27, 1999, the Nevada Commission granted the Company prior approval to make
public offerings for a period of two years, subject to certain conditions
("Shelf Approval"). The Shelf Approval has been amended several times to reflect
the addition of new subsidiaries, most recently on January 25, 2001. 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 at the end of the two year approval period. 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 Gaming Subsidiaries to guarantee any security
issued by, or to hypothecate their assets to secure the payment or performance
of any obligations evidenced by a security issued by, the Company or an
Affiliate in a public offering under the Shelf Approval. The Shelf Approval does
not constitute a finding, recommendation or approval by the Nevada Commission or
the Nevada Board as to the accuracy or adequacy of the prospectus or the
investment merits of the securities offered. Any representation to the contrary
is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby such person obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and the Nevada Commission
that they meet 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 corporate gaming 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 licensees 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 a Registered Corporation 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 Registered Corporation's Board of Directors in response to a tender offer
made directly to the Registered Corporation's stockholders for the purpose 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 Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
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 serving or selling of food or refreshments or
the selling of any merchandise. Nevada licensees that hold a license as an
operator of a slot route, or manufacturer's or distributor's license also pay
certain fees and taxes to the state of Nevada.
14
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation 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 or
enter into associations that are harmful to the state of Nevada or its ability
to collect gaming taxes and fees, or employ, contract with or associate with a
person in the foreign operation who has been denied a license or finding of
suitability in Nevada on the grounds of unsuitability or whom a court in the
state of Nevada has found guilty of cheating. The loss or restriction of the
Company's gaming licenses in Nevada would have a material adverse effect on its
business and could require the Company to cease gaming operations in Nevada.
NEVADA LIQUOR REGULATIONS
The sale of alcoholic beverages at Palace Station and Santa Fe Station is
subject to licensing, control and regulation by the City of Las Vegas. The sale
of alcoholic beverages at Boulder Station and Wild Wild West is subject to
licensing control and regulation by the Clark County Board. Texas Station and
Fiesta are subject to licensing control and regulation of the City of North Las
Vegas. Sunset Station, The Reserve and Barley's Casino are subject to the
licensing control and regulation of the City of Henderson and the Department of
Treasury, Bureau of Alcohol, Tobacco and Firearms, as applicable. All licenses
are revocable and are not transferable. The agencies involved have full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on the
operations of the Gaming Subsidiaries.
GENERAL GAMING REGULATIONS IN OTHER JURISDICTIONS
If the Company becomes involved in gaming operations in any other
jurisdictions, such gaming operations will subject the Company and certain of
its officers, directors, key employees, stockholders and other affiliates
("Regulated Persons") to strict legal and regulatory requirements, including
mandatory licensing and approval requirements, suitability requirements, and
ongoing regulatory oversight with respect to such gaming operations. Such legal
and regulatory requirements and oversight will be administered and exercised by
the relevant regulatory agency or agencies in each jurisdiction (the "Regulatory
Authorities"). The Company and the Regulated Persons will need to satisfy the
licensing, approval and suitability requirements of each jurisdiction in which
the Company seeks to become involved in gaming operations. These requirements
vary from jurisdiction to jurisdiction, but generally concern the
responsibility, financial stability and character of the owners and managers of
gaming operations as well as persons financially interested or involved in
gaming operations. In general, the procedures for gaming licensing, approval and
finding of suitability require the Company and each Regulated Person to submit
detailed personal history information and financial information to demonstrate
that the proposed gaming operation has adequate financial resources generated
from suitable sources and adequate procedures to comply with the operating
controls and requirements imposed by law and regulation in each jurisdiction,
followed by a thorough investigation by such Regulatory Authorities. In general,
the Company and each Regulated Person must pay the costs of such investigation.
An application for any gaming license, approval or finding of suitability may be
denied for any cause that the Regulatory Authorities deem reasonable. Once
obtained, licenses and approvals may be subject to periodic renewal and
generally are not transferable. The Regulatory Authorities may at any time
revoke, suspend, condition, limit or restrict a license, approval or finding of
suitability for
15
any cause they deem reasonable. Fines for violations may be levied against the
holder of a license or approval and in certain jurisdictions, gaming operation
revenues can be forfeited to the state under certain circumstances. There can be
no assurance that the Company will obtain all of the necessary licenses,
approvals and findings of suitability or that its officers, directors, key
employees, other affiliates and certain other stockholders will satisfy the
suitability requirements in one or more jurisdictions, or that such licenses,
approvals and findings of suitability, if obtained, will not be revoked,
limited, suspended or not renewed in the future.
Failure by the Company to obtain, or the loss or suspension of, any
necessary licenses, approval or findings of suitability would prevent the
Company from conducting gaming operations in such jurisdiction and possibly in
other jurisdictions. The Company may be required to submit detailed financial
and operating reports to Regulatory Authorities.
The laws, regulations and procedures pertaining to gaming are subject to the
interpretation of the Regulatory Authorities and may be amended. Any changes in
such laws, regulations, or their interpretations could have a material adverse
effect on the Company.
EMPLOYEES
As of December 31, 2000, the Company and its subsidiaries had approximately
8,100 employees and as a result of the acquisitions of Fiesta and The Reserve,
the number of employees has increased to approximately 9,600. From time to time,
certain employees of the Company are contacted by unions and the Company engages
in discussions with such employees regarding establishment of collective
bargaining agreements. In 1998, approximately 12 of the Company's employees
voted to be represented by a union. While the Company is from time to time faced
with such movements by employees, the Company does not believe that such
movements will have any broad-based impact on its employees; however there can
be no assurances to that effect. Management believes that it has good
relationships with its employees.
ITEM 2. PROPERTIES
Palace Station is situated on approximately 39 acres located on the west
side of Las Vegas, Nevada. The Company owns 26 acres and leases the remaining 13
acres pursuant to five long-term ground leases with unaffiliated third parties.
The property is subject to a lien to secure borrowings under the Amended Bank
Facility.
Boulder Station is situated on approximately 46 acres located on the east
side of Las Vegas, Nevada. The Company owns 19 acres and leases the remaining 27
acres from a trust pursuant to a long-term ground lease. The trustee of such
trust is Bank of America National Trust and Savings Association ("Bank of
America NT&SA") and the beneficiary of which is KB Enterprises, an affiliated
company owned by Frank J. Fertitta, Jr. and Victoria K. Fertitta (the "Related
Lessor"), the parents of Frank J. Fertitta III, Chairman of the Board and Chief
Executive Officer of the Company. The lease has a maximum term of 65 years,
ending in June 2058. The lease provides for monthly payments of $135,525 through
June 2008. In July 2008, and every ten years thereafter, the rent will be
adjusted by a cost of living factor. In July 2003, and every ten years
thereafter, the rent will be adjusted to the product of the fair market value of
the land and the greater of (i) the then prevailing annual rate of return for
comparably situated property or (ii) 8% per year. In no event will the rent for
any period be less than the immediately preceding period. Pursuant to the ground
lease, the Company has an option, exercisable at five-year intervals beginning
in June 1998, to purchase the land at fair market value. The Company did not
exercise its June 1998 option. The Company believes that the terms of the ground
lease are as fair to the Company as could be obtained from an independent third
party. The Company's leasehold interest in the property and the acreage it owns
directly are subject to a lien to secure borrowings under the Amended Bank
Facility.
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Texas Station is situated on approximately 47 acres located in North Las
Vegas, Nevada. The Company leases this land from a trust pursuant to a long-term
ground lease. The trustee of this trust is Bank of America NT&SA, the
beneficiary of which is Texas Gambling Hall & Hotel, Inc., an affiliate company
of the Related Lessor. The lease has a maximum term of 65 years, ending in
July 2060. The lease provides for monthly rental payments of $287,500 through
June 2010. In July 2010, and every ten years thereafter, the rent will be
adjusted to the product of the fair market value of the land and the greater of
(i) the then prevailing annual rate of return being realized for owners of
comparable land in Clark County or (ii) 8% per year. The rent will be further
adjusted by a cost of living factor after the first ten years and every ten
years thereafter. In no event will the rent for any period be less than the
immediately preceding period. Pursuant to the ground lease, the Company has an
option, exercisable at five-year intervals beginning in May 2000, to purchase
the land at fair market value. The Company did not exercise its May 2000 option.
Pursuant to the ground lease, the lessor will have a right to put the land to
the Company, exercisable no later than one year after the first to occur of
(a) a change of control (as defined in the lease), or (b) delivery of written
notice that such a change of control is anticipated, at a purchase price equal
to fair market value as determined by negotiation. The Company believes that the
terms of the ground lease are as fair to the Company as could be obtained from
an independent third party. The Company's leasehold interest in the property is
subject to a lien to secure borrowings under the Amended Bank Facility.
Sunset Station is situated on approximately 105 acres located in the Green
Valley/Henderson area of Las Vegas, Nevada. The Company leases approximately 48
acres pursuant to a long-term ground lease with an unaffiliated third party. The
lease was entered into in June 1994, and has a term of 65 years with monthly
rental payments of $120,000, adjusted on each subsequent five-year anniversary
by a cost of living factor. The Company has notified the landlord of its
intention to exercise its option to purchase this land for $23.8 million in June
2001. The Company's leasehold interest in the property is subject to a lien to
secure borrowings under the Amended Bank Facility.
Santa Fe Station is situated on approximately 38 acres located on the
northwest side of Las Vegas, Nevada.
Fiesta, which was purchased on January 4, 2001, is situated on approximately
25 acres in North Las Vegas, Nevada across from Texas Station.
The Reserve, which was purchased on January 30, 2001, is situated on
approximately 46 acres in Henderson, Nevada.
The Company currently owns or leases six sites, which have been acquired for
potential gaming projects, consisting of 224 acres with options on an additional
66 acres adjacent to two of the sites.
17
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are defendants in various lawsuits relating
to routine matters incidental to their business. As with all litigation, no
assurance can be provided as to the outcome of the following matters and
litigation inherently involves significant costs.
POULOS/AHEARN CASE
On April 26, 1994, a suit seeking status as a class action lawsuit was filed
by plaintiff, William H. Poulos, et al., as class representative, in the United
States District Court, Middle District of Florida, naming 41 manufacturers,
distributors and casino operators of video poker and electronic slot machines,
including the Company. On May 10, 1994, a lawsuit alleging substantially
identical claims was filed by another plaintiff, William Ahearn, et al., as
class representative, in the United States District Court, Middle District of
Florida, against 48 manufacturers, distributors and casino operators of video
poker and electronic slot machines, including the Company and most of the other
major hotel/casino companies. The lawsuits allege that the defendants have
engaged in a course of fraudulent and misleading conduct intended to induce
persons to play such games based on a false belief concerning how the gaming
machines operate, as well as the extent to which there is an opportunity to win.
The two lawsuits have been consolidated into a single action, and have been
transferred to the United States District Court for the District of Nevada. On
September 26, 1995, a lawsuit alleging substantially identical claims was filed
by plaintiff, Larry Schreier, et al., as class representative, in the United
States District Court for the District of Nevada, naming 45 manufacturers,
distributors, and casino operators of video poker and electronic slot machines,
including the Company. Motions to dismiss the Poulos/ Ahearn and Schreier cases
were filed by defendants. On April 17, 1996, the Poulos/Ahearn lawsuits were
dismissed, but plaintiffs were given leave to file Amended Complaints on or
before May 31, 1996. On May 31, 1996, an Amended Complaint was filed, naming
William H. Poulos, et al., as plaintiff. Defendants filed a motion to dismiss.
On August 15, 1996, the Schreier lawsuit was dismissed with leave to amend. On
September 27, 1996, Schreier filed an Amended Complaint. Defendants filed
motions to dismiss the Amended Complaint. In December 1996, the Court
consolidated the Poulos/ Ahearn, the Schreier, and a third case not involving
the Company and ordered all pending motions be deemed withdrawn without
prejudice, including Defendants' Motions to Dismiss the Amended Complaints. The
plaintiffs filed a Consolidated Amended Complaint on February 13, 1997. On or
about December 19, 1997, the Court issued formal opinions granting in part and
denying in part the defendants' motion to dismiss. In so doing, the Court
ordered plaintiffs to file an amended complaint in accordance with the Court's
orders in January of 1998. Accordingly, plaintiffs amended their complaint and
filed it with the United States District Court for the District of Nevada in
February 1998. The Company and all other defendants continue to deny the
allegations contained in the amended complaint filed on behalf of plaintiffs.
The plaintiffs are seeking compensatory, special, consequential, incidental, and
punitive damages in unspecified amounts. The defendants have committed to
vigorously defend all claims and allegations contained in the consolidated
action. The parties have fully briefed the issues regarding class certification,
which are currently pending before the court. The Company does not expect that
the lawsuits will have a material adverse effect on the Company's financial
position or results of operations.
STEPHEN B. SMALL CASE
A class action lawsuit was filed by plaintiff Stephen B. Small, et al., as
class representative, on November 28, 1997, in the United States District Court
for the Western District of Missouri, naming four gaming operators in Kansas
City, Missouri, including Kansas City Station Corporation. The lawsuit alleged
that the defendants are conducting gaming operations that are not located on the
Missouri River in violation of certain state and federal statutes. The plaintiff
also sought compensatory, special, consequential, and incidental damages in
unspecified amounts. On September 1, 1998, the United
18
States District Court granted Kansas City Station Corporation's motion to
dismiss the lawsuit. On February 16, 1999, the plaintiff served the defendants
with a notice of appeal of the federal court dismissal. On October 30, 1998, the
plaintiff filed a similar lawsuit in the Circuit Court of Cole County, Missouri.
The lawsuit alleged that the operators were conducting illegal games of chance
prior to December 3, 1998, the effective date of a Constitutional amendment
passed by Missouri voters on November 3, 1998, legalizing gaming facilities
within 1,000 feet of the main channel of the Mississippi and Missouri Rivers. On
February 9, 1999, the Cole County Circuit Court granted Kansas City Station
Corporation's motion to dismiss the lawsuit. On February 19, 1999, the plaintiff
served the defendants with a notice of appeal of the state court dismissal.
Management believes that the plaintiff's claims are without merit and does not
expect that the lawsuit will have a material adverse effect on the Company's
financial position or results of operations.
FITZGERALD'S SUGAR CREEK, INC. V. KANSAS CITY STATION CORP., ET AL.
On December 20, 2000, SCI and Kansas City Station Corporation were named as
defendants in an action styled FITZGERALD SUGAR CREEK. INC. V. KANSAS CITY
STATION CORP., ET AL., No. 00CV230480 (Circuit Court of Jackson County,
Missouri). The Company and its subsidiary responded to this lawsuit on
January 19, 2001 and moved to remove the case to bankruptcy court in Nevada. The
plaintiff alleges that the defendants are liable for unspecified actual punitive
damages and other relief, based on alleged tortious interference with the
plaintiff's business expectancy of receiving a Missouri gaming license in the
Kansas City metropolitan area. The allegations of the petition appear to be
based on the same issues involved in the investigation by the Missouri Gaming
Commission related to activities of Michael Lazaroff, an attorney who formerly
represented the Company in Missouri. The plaintiff also alleges claims based on
fraudulent concealment and civil conspiracy. Although no assurance can be made
with respect to any litigation, the Company believes that the plaintiffs claims
are without merit and does not expect that the lawsuit will have a material
adverse effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal year 2000.
19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock trades on the New York Stock Exchange under the symbol
"STN". Prior to September 5, 1996, the common stock traded on the Nasdaq Stock
Market under the symbol "STCI". On May 23, 2000, the Company announced a 3-for-2
stock split. The record date for the stock split was June 30, 2000 and the
distribution date was July 17, 2000. Cash was paid for all fractional shares.
All share data has been adjusted retroactively for the 3-for-2 stock split. The
following table sets forth, for the periods indicated, the high and low sale
price per share of the Common Stock as reported on the New York Stock Exchange,
adjusted for the stock split.
HIGH LOW
-------- --------
FISCAL YEAR ENDING DECEMBER 31, 2000
First Quarter........................................... $16.17 $11.79
Second Quarter.......................................... 20.00 13.50
Third Quarter........................................... 17.92 12.13
Fourth Quarter.......................................... 19.13 14.00
FISCAL PERIOD ENDING DECEMBER 31, 1999
First Quarter........................................... $ 9.92 $ 5.29
Second Quarter.......................................... 13.59 8.17
Third Quarter........................................... 16.42 11.33
Fourth Quarter.......................................... 18.25 11.00
As of March 15, 2001, there were 617 holders of record of the Company's
common stock.
The Company has never paid cash dividends on any shares of Common Stock. The
Company does not intend to pay cash dividends in the foreseeable future so that
it may reinvest its earnings in the development of its business. The payment of
dividends in the future will be at the discretion of the Board of Directors of
the Company. Restrictions imposed by the Company's debt instruments and other
agreements, limit the payment of dividends by the Company (see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Description of Certain Indebtedness and Capital Stock").
20
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
On November 6, 1998 the Company filed a Form 8-K announcing its change in
fiscal year end from March 31 of each year to December 31 of each year. This
change is effective for the nine month period ended December 31, 1998 (the
"Transition Period 1998").
The selected consolidated financial data presented below as of and for the
Company's fiscal years ended March 31, 1997 and 1998, for the Transition Period
1998, and for the fiscal years ended December 31, 1999 and 2000 have been
derived from consolidated financial statements which, except for 1997 and 1998,
are contained elsewhere in this Annual Report on Form 10-K. The selected
consolidated financial data set forth below are qualified in their entirety by,
and should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements, the notes thereto and other financial and statistical information
included elsewhere in this Annual Report on Form 10-K.
FOR THE YEARS ENDED FOR THE YEARS ENDED
DECEMBER 31, TRANSITION MARCH 31,
----------------------- PERIOD -----------------------
2000 1999 1998 1998 1997
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING RESULTS:
Net revenues....................... $ 991,678 $ 942,469 $ 642,214 $ 769,610 $ 583,515
Operating income................... 242,812 28,871 64,696 84,186 58,123
Income (loss) before income taxes
and extraordinary item........... 148,149 (47,223) (9,864) (4,120) 21,378
Extraordinary item-loss on early
retirement of debt, net of
applicable income tax benefit.... (546) (10,653) (3,104) (2,042) --
Net income (loss) applicable to
common stock..................... 93,505 (44,758) (17,531) (12,441) 6,518
Basic earnings (loss) per common
share............................ $ 1.55 $ (0.76) $ (0.33) $ (0.23) $ 0.12
Diluted earnings (loss) per common
share............................ $ 1.48 $ (0.76) $ (0.33) $ (0.23) $ 0.12
BALANCE SHEET DATA:
Total assets....................... $1,440,428 $1,276,273 $1,531,925 $1,300,216 $1,234,118
Long-term debt..................... 989,625 942,480 1,147,266 900,226 760,963
Stockholders' equity............... 288,887 216,801 269,406 286,887 298,848
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the financial statements and notes
thereto included elsewhere in this Annual Report on Form 10-K.
RESULTS OF OPERATIONS
The following table highlights the results of operations for the Company
(dollars in thousands):
TWELVE
FISCAL YEARS ENDED MONTHS
DECEMBER 31, ENDED TRANSITION
------------------- DECEMBER 31, PERIOD
2000 1999 1998 1998
-------- -------- ------------ ----------
(UNAUDITED)
NET REVENUES -- TOTAL............................. $991,678 $942,469 $847,015 $642,214
Nevada Operations (a)......................... 627,968 584,852 526,854 397,908
Missouri Operations (a)....................... 315,422 313,439 290,160 219,734
Other (a)..................................... 48,288 44,178 30,001 24,572
OPERATING INCOME (LOSS) -- TOTAL.................. $242,812 $ 28,871 $ 92,380 $ 64,696
Nevada Operations (a)......................... 165,138 147,217 111,902 83,669
Missouri Operations (a)....................... 102,882 (85,269) (1,528) (5,056)
Other (a)..................................... (25,208) (33,077) (17,994) (13,917)
CASH FLOWS FROM:
Operating activities.......................... $163,696 $173,058 $108,321 $ 76,692
EBITDA, AS ADJUSTED (B) -- TOTAL.................. $273,847 $236,970 $192,384 $147,682
Nevada Operations (a)......................... 211,252 186,677 150,413 113,284
Missouri Operations (a)....................... 82,636 69,223 54,314 43,163
Other (a)..................................... (20,041) (18,930) (12,343) (8,765)
EBITDA, AS ADJUSTED (B), ADJUSTED FOR THE SUNSET
EQUIPMENT LEASE -- TOTAL........................ $273,847 $242,890 $200,952 $154,186
Nevada Operations (a)......................... 211,252 192,597 158,981 119,788
- ------------------------
(a) The Nevada Operations include the accounts of: Palace Station, Boulder
Station, Texas Station, Sunset Station, Santa Fe Station (from October 2,
2000) and preopening expenses related to Fiesta and The Reserve. The
Missouri Operations include the accounts of: Station Casino St. Charles and
Station Casino Kansas City. On December 20, 2000, the Company completed the
sale of substantially all of the assets of the Missouri Operations. Other
includes the operations of Wild Wild West, the Company's investment in
Barley's, Southwest Gaming and Corporate expense.
(b) "EBITDA, As Adjusted" consists of operating income plus depreciation,
amortization, preopening expenses, restructuring charge, Missouri/Nevada
investigations and fines, gain on sale of Missouri assets and impairment
loss. The Company believes that in addition to cash flows and net income,
EBITDA, As Adjusted is a useful financial performance measurement for
assessing the operating performance of the Company. Together with net income
and cash flows, EBITDA, As Adjusted provides investors with an additional
basis to evaluate the ability of the Company to incur and service debt and
incur capital expenditures. To evaluate EBITDA, As Adjusted and the trends
it depicts, the components should be considered. The impact of interest,
taxes, depreciation and amortization, preopening expenses, restructuring
charge, Missouri/Nevada investigations and fines, gain on the sale of
Missouri assets and impairment loss, each of which can significantly affect
the
22
Company's results of operations and liquidity and should be considered in
evaluating the Company's operating performance, cannot be determined from
EBITDA, As Adjusted. Further, EBITDA, As Adjusted does not represent net
income or cash flows from operating, financing and investing activities as
defined by generally accepted accounting principles ("GAAP") and does not
necessarily indicate cash flows will be sufficient to fund cash needs. It
should not be considered as an alternative to net income, as an indicator of
the Company's operating performance or to cash flows as a measure of
liquidity. In addition, it should be noted that not all gaming companies
that report EBITDA or adjustments to such measures may calculate EBITDA, or
such adjustments in the same manner as the Company, and therefore, the
Company's measure of EBITDA, As Adjusted may not be comparable to similarly
titled measures used by other gaming companies.
Consolidated net revenues, cash flows from operating activities, and EBITDA,
As Adjusted for the fiscal year ended December 31, 1999 increased as compared to
the Transition Period 1998. These increases are due to the Transition Period
1998 consisting of nine months as compared to the fiscal year ended
December 31, 1999, which is twelve months. The above table presents certain
results of operations from the unaudited twelve month period ended December 31,
1998 for comparison purposes.
CONSOLIDATED NET REVENUES
The increase in consolidated net revenues for the fiscal year ended
December 31, 2000 as compared to the fiscal year ended December 31, 1999 is due
to increased revenues at all of the Company's properties with the exception of
Station Casino St. Charles, which decreased slightly. Increased revenues at the
Nevada Operations are partially a result of the acquisition of Santa Fe Station
on October 2, 2000 and the subsequent completion in late November of the
renovation and retheming of the casino and restaurants. In addition, revenues at
the Nevada Operations increased in the early part of the year due to the
introduction of the Boarding Pass player rewards program in April 1999, which
makes it more convenient for customers to take advantage of products, services
and amenities offered under the Station brand. Net revenues at the Missouri
Operations increased slightly. However, the results were negatively impacted
during the fourth quarter due to inclement weather throughout the Midwest, the
anticipated sale of the Missouri Operations and the timing of the sale of the
Missouri Operations on December 20, 2000.
The increase in consolidated net revenues for the fiscal year ended
December 31, 1999 as compared to the twelve months ended December 31, 1998 is
due to increased revenues at all of the Company's properties. Increased revenues
at the Nevada Operations are partially a result of the completed master-planned
expansions at Texas Station and Sunset Station, which were completed in
February 1999 and November 1998, respectively. In addition, revenues at the
Nevada Operations increased due to the introduction of the Boarding Pass player
rewards program in April 1999, which makes it more convenient for customers to
take advantage of the Station brand. Net revenues at the Missouri Operations
increased 8% primarily due to Station Casino Kansas City which generated a 13%
increase.
23
OPERATING INCOME/OPERATING MARGIN
The Company's operating income was impacted by certain charges/credits in
each of the above periods that affect the ability to analyze year to year
comparisons. The following table identifies these charges/credits (dollars in
thousands):
TWELVE
FISCAL YEARS ENDED MONTHS
DECEMBER 31, ENDED TRANSITION
------------------- DECEMBER 31, PERIOD
2000 1999 1998 1998
-------- -------- ------------ ----------
(UNAUDITED)
Operating income................................... $242,812 $ 28,871 $ 92,380 $64,696
OPERATING MARGIN............................... 24.5% 3.1% 10.9% 10.1%
Certain charges/credits:
Gain on sale of Missouri assets................ $(41,731) $ -- $ -- $ --
Missouri/Nevada investigations and fines....... 4,388 -- -- --
Preopening expenses............................ 3,858 -- -- --
Restructuring charge........................... 1,174 -- -- --
Impairment loss................................ -- 137,435 30,011 30,011
Operating income, excluding certain
charges/credits.................................. $210,501 $166,306 $122,391 $94,707
OPERATING MARGIN, EXCLUDING CERTAIN
CHARGES/CREDITS.............................. 21.2% 17.6% 14.4% 14.7%
Consolidated operating income, excluding certain charges/credits, improved
by $44.2 million in the fiscal year ended December 31, 2000 as compared to the
fiscal year ended December 31, 1999 with operating income at all of the
Company's properties increasing with the exception of Texas Station. The
increases at the Nevada Operations are attributed to the same factors affecting
consolidated net revenues discussed above, to the elimination of the equipment
lease at Sunset Station in October 1999 and the continued focus on cost controls
at each of the properties. The increases at the Missouri Operations are
primarily due to significant improvement in operations at both Station Casino
St. Charles and Station Casino Kansas City. Operating income at Station Casino
St. Charles increased significantly due to a reconfiguration of the gaming
operations which transferred all gaming activities from the riverboat to the
barge. The new configuration is much more efficient from a cost perspective than
the two facility layout. Station Casino Kansas City continued to benefit from
increases in the overall gaming market in the Kansas City area.
The consolidated operating margin, excluding certain charges/credits,
improved in the fiscal year ended December 31, 2000 as compared to the fiscal
year ended December 31, 1999, due to the operating margin at the Missouri
Operations improving 7.6 percentage points as a result of the elimination of
costs associated with the riverboat in St. Charles, as discussed above, and the
Nevada Operations improving 1.7 percentage points due primarily to the revenue
growth discussed above.
Consolidated operating income, excluding certain charges/credits, improved
by $43.9 million in the fiscal year ended December 31, 1999 as compared to the
twelve months ended December 31, 1998 with operating income at all of the
Company's properties increasing. The increases at the Nevada properties are
attributed to the same factors affecting consolidated net revenues discussed
above and the increases at the Missouri properties are primarily attributed to a
95.2% increase in operating income, excluding certain charges/credits, at
Station Casino Kansas City due to a significant improvement in operations at
this property. In addition, the decline in the prior year at Station Casino St.
Charles was reversed as the property posted a $1.6 million increase in operating
income, excluding certain charges/credits.
The consolidated operating margin, excluding certain charges/credits,
improved in the fiscal year ended December 31, 1999 as compared to the twelve
months ended December 31, 1998, due to the
24
operating margins at Sunset Station and Station Casino Kansas City improving
over 600 basis points and smaller increases at all of the other properties.
The following table highlights the various sources of revenues and expenses
for the Company as compared to prior periods (dollars in thousands):
TWELVE
FISCAL YEARS ENDED MONTHS
DECEMBER 31, ENDED TRANSITION
---------------------- DECEMBER 31, PERIOD
2000 1999 1998 1998
-------- -------- ------------ ----------
(UNAUDITED)
Casino revenues................................ $807,880 $764,089 $673,124 $509,149
Casino expenses................................ 372,826 356,365 328,953 249,353
MARGIN..................................... 53.9% 53.4% 51.1% 51.0%
Food and beverage revenues..................... $137,198 $141,116 $138,044 $104,538
Food and beverage expenses..................... 83,879 88,898 88,423 66,121
MARGIN..................................... 38.9% 37.0% 35.9% 36.7%
Room revenues.................................. $ 46,260 $ 42,870 $ 39,678 $ 30,040
Room expenses.................................. 16,416 15,860 14,975 11,515
MARGIN..................................... 64.5% 63.0% 62.3% 61.7%
Other revenues................................. $ 67,999 $ 62,286 $ 59,924 $ 47,663
Selling, general and administrative expenses... $180,659 $190,753 $181,723 $136,649
PERCENT OF NET REVENUES.................... 18.2% 20.2% 21.5% 21.3%
Corporate expense.............................. $ 26,974 $ 23,007 $ 15,661 $ 11,431
PERCENT OF NET REVENUES.................... 2.7% 2.4% 1.8% 1.8%
CASINO. Casino revenues increased 5.7% for the fiscal year ended
December 31, 2000 as compared to the fiscal year ended December 31, 1999 with
increases at all of the Company's properties. The increase in casino revenues at
the Nevada Operations is a result of the same factors affecting consolidated net
revenues discussed above. The growth in casino revenues in the second half of
the year was tempered somewhat due to the competitive impact of the opening of
the Suncoast on Texas Station, continued road construction near Palace Station
and competitive supply increases on the Boulder Strip and surrounding areas. The
increase in casino revenues at the Missouri Operations was impacted by the same
factors affecting consolidated net revenues discussed above. The casino profit
margin remained relatively consistent for the fiscal year ended December 31,
2000 as compared to the fiscal year ended December 31, 1999.
Casino revenues increased for the fiscal year ended December 31, 1999 as
compared to the twelve months ended December 31, 1998 as a result of the same
factors affecting consolidated net revenues discussed above. The casino profit
margin increased to 53.4% for the fiscal year ended December 31, 1999 from 51.1%
for the twelve months ended December 31, 1998 with all properties improving
their margin with the exception of Boulder Station which decreased slightly.
FOOD AND BEVERAGE. Food and beverage revenues decreased 2.8% for the fiscal
year ended December 31, 2000 as compared to the fiscal year ended December 31,
1999 despite the acquisition of Santa Fe Station. At the Nevada Operations, food
and beverage revenues remained flat with the acquisition of Santa Fe Station
offsetting the reduction in food covers at the other Nevada properties. The
reduction in food covers is due to a combination of selected menu price
increases and additional competition in the market from restaurants in both
gaming and non-gaming facilities. At the Missouri Operations, food and beverage
revenues experienced a 12.4% decrease primarily due to a decrease in food covers
as a result of selected menu price increases at Station Casino Kansas City and
to an overall
25
reduction of complimentaries at Station Casino St. Charles. Food and beverage
net profit margin increased for the fiscal year ended December 31, 2000 as
compared to the fiscal year ended December 31, 1999 due to an improvement at the
Nevada Operations, primarily as a result of continued focus on cost control and
purchasing efficiencies, as well as selected menu price increases. The increase
in margin at the Nevada Operations was offset by a decrease at Station Casino
St. Charles.
Food and beverage revenues for the fiscal year ended December 31, 1999
increased 2.2% over food and beverage revenues for the twelve months ended
December 31, 1998. This increase is primarily due to the completion of the
expansion projects at Sunset Station and Texas Station. These increases in food
and beverage revenues in Nevada were offset by decreases at the Missouri
properties. Also, food and beverage revenues increased due to selected menu
price increases, which were offset by a decrease in food covers at all of the
properties. Food and beverage net profit margins increased to 37.0% for the
fiscal year ended December 31, 1999 from 35.9% for the twelve months ended
December 31, 1998.
ROOM. Room revenues for the fiscal year ended December 31, 2000 increased
7.9% as compared to the fiscal year ended December 31, 1999. The increase in
room revenues is primarily due to the acquisition of Santa Fe Station and to
average daily room rates at Palace Station and Wild Wild West increasing 14.9%
and 12.7%, respectively, over the prior year and smaller increases at the other
Nevada properties. At Palace Station the room rates for all market segments were
increased as a result of room renovations completed during the summer. The
increase in average daily room rate at the Nevada properties was offset by a
decrease in the average daily room rate at Station Casino Kansas City to $106 in
the fiscal year ended December 31, 2000 from $109 in the fiscal year ended
December 31, 1999 due to new lower rate competitors that entered the market
during 1999.
The company-wide room occupancy decreased to 88% in the fiscal year ended
December 31, 2000 as compared to 89% in the fiscal year ended December 31, 1999
due to the Company increasing room rates at the Nevada properties. The
company-wide average daily room rate increased to $58 in the fiscal year ended
December 31, 2000 as compared to $54 in the fiscal year ended December 31, 1999.
Room revenues for the fiscal year ended December 31, 1999 increased 8.0%
over room revenues for the twelve months ended December 31, 1998. The primary
reason for this increase was due to the acquisition of Wild Wild West in
July 1998, which contributed $2.3 million of room revenues in the fiscal year
ended December 31, 1999 as compared to $1.1 million of room revenues in the
twelve months ended December 31, 1998.
The company-wide room occupancy decreased to 89% in the fiscal year ended
December 31, 1999 as compared to 90% in the twelve months ended December 31,
1998 due to the Company increasing room rates at the properties. The average
daily room rate increased to $54 in the fiscal year ended December 31, 1999 as
compared to $51 in the twelve months ended December 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). As a percent of net revenues,
SG&A decreased to 18.2% in the fiscal year ended December 31, 2000, as compared
to 20.2% in the fiscal year ended December 31, 1999. This decrease is due
primarily to the continuing operating efficiencies in addition to the
elimination of the equipment lease at Sunset Station in October 1999. Also, due
to the fixed cost nature of some of these expenses, they decrease on a
percentage basis as the Company continues to increase revenue.
As a percent of net revenues, SG&A decreased to 20.2% in the fiscal year
ended December 31, 1999 as compared to 21.5% in the twelve months ended
December 31, 1998. These decreases are due primarily to the fine tuning of
operations at Sunset Station and Station Casino Kansas City.
26
CORPORATE EXPENSE. Corporate expense as a percent of net revenues increased
to 2.7% in the fiscal year ended December 31, 2000 as compared to 2.4% in the
fiscal year ended December 31, 1999. Corporate expense as a percent of net
revenues increased to 2.4% in the fiscal year ended December 31, 1999 as
compared to 1.8% in the twelve months ended December 31, 1998. The Company has
increased its corporate infrastrucure and spending on Information Technology and
Human Resources as it continues to lay the foundation for future growth.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
10.4% in the fiscal year ended December 31, 2000 to $63.3 million as compared to
$70.7 million in the fiscal year ended December 31, 1999. This decrease is
primarily due to the write down of assets at Station Casino St. Charles in the
fourth quarter of 1999 and also due to the assets at Station Casino St. Charles
and Station Casino Kansas City not being depreciated during the last two months
of the year. Upon entering into the agreement to sell the Missouri properties,
these assets were classified as "assets held for sale" and, consequently,
depreciation ceased. This decrease was offset by an increase at Sunset Station
due to the purchase of various leased equipment in October 1999 and due to the
acquisition of Santa Fe Station.
Depreciation and amortization increased $0.7 million in the fiscal year
ended December 31, 1999 to $70.7 million as compared to $70.0 million in the
twelve months ended December 31, 1998. This increase is due to the completion of
the expansion projects at Sunset Station and Texas Station which were completed
in November 1998 and February 1999, respectively. This increase was offset by
decreases at Boulder Station and Station Casino St. Charles as a portion of the
original equipment became fully depreciated during the fiscal year ended
December 31, 1999, as both properties have been open for five years. In
addition, Palace Station had a large purchase of slot machines in 1994 that
became fully depreciated during the fiscal year ended December 31, 1999.
IMPAIRMENT LOSS. In accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
the Company recorded an impairment loss of $137.4 million in the fiscal year
ended December 31, 1999 and $30.0 million in the Transition Period 1998 to
adjust the carrying value of its fixed assets and land held for development to
their estimated fair value. In the fiscal year ended December 31, 1999,
approximately $125.2 million of the impairment loss was related to Station
Casino St. Charles. In the fourth quarter of 1999, the Company made a decision
to reconfigure the existing Station Casino St. Charles facility to a more
efficient layout in response to the new open boarding rules promulgated by the
Missouri Gaming Commission that began in September 1999 in the St. Louis market.
In March 2000, all gaming operations were moved to the existing barge and the
existing riverboat has been sold. In accordance with SFAS No. 121, the riverboat
and miscellaneous other fixed assets were written down by approximately
$15 million to their net realizable value.
In addition, the Company performed an evaluation of the carrying values of
the remaining assets in St. Charles and determined a $110 million write-down of
the asset values was necessary. The write-down was deemed appropriate after a
review of the property's asset valuations relative to the Company's near-term
investment objectives. The balance of the impairment loss in the fiscal year
ended December 31, 1999, resulted primarily from the Company's determination
that it would sell a 40-acre parcel of land in Henderson, Nevada, that it had
acquired. Future development of the property will be limited to non-gaming
purposes. The resulting write-down of the parcel was necessary to reflect the
value of the land as a non-gaming site. This land was sold in the fiscal year
ended December 31, 2000.
In the Transition Period 1998, the impairment loss principally involves
assets at the Station Casino St. Charles facility, including a riverboat
formerly used in the Missouri operations, capitalized project costs associated
with various parcels of land determined to have no value, and several parcels of
land within close proximity to the St. Charles, Missouri site that were being
held for future development.
27
The fair value of the impaired assets was primarily determined through the
market's interest in riverboats and barges, and on the comparable sales prices
on parcels of land in the St. Charles area. The total amount of the impairment
loss in the Transition Period 1998 related to this category of assets was
approximately $23.4 million. In addition to the assets described above, the most
significant portion of the remaining impairment loss in the Transition Period
1998 relates to several parcels of land in Nevada and Texas that the Company had
acquired in the past for either defensive or expansion purposes. The value of
these parcels was determined based on sales prices for comparable parcels of
land on the market. The following two circumstances led to the Company's
decision to write-down these assets to their fair market value: (1) the passage,
in Nevada, of legislation which places significantly higher requirements on land
to be zoned for gaming purposes, and (2) the termination of the Plan of Merger
with Crescent Real Estate Equities.
RESTRUCTURING CHARGE. During the fiscal year ended December 31, 2000, the
Company recorded a restructuring charge of $1.2 million related to
organizational changes to reduce costs and improve efficiency which resulted
primarily in employee severance payments. The Nevada Operations were
restructured to divide management responsibility between the east side and west
side of the Las Vegas valley. As a result, certain functions that were operated
on an individual property basis have been consolidated.
MISSOURI/NEVADA INVESTIGATIONS AND FINES. During the fiscal year ended
December 31, 2000, the Company recorded $4.4 million in costs related to
litigation and fines stemming from investigatory proceedings in Missouri and
Nevada (see Lazaroff Investigation below for additional information on the
Missouri investigation).
PREOPENING EXPENSES. Prior to December 31, 1998, the Company capitalized
preopening expenses associated with its construction projects. Such amounts were
expensed upon the opening of the related project. Preopening expenses incurred
after January 1, 1999 have been expensed as incurred. Preopening expenses during
the fiscal year ended December 31, 2000 included $1.1 million related to costs
incurred for the acquisition of Santa Fe Station, $1.8 million related to the
expansion project at Texas Station, $0.7 million related to costs incurred prior
to the acquisition of the Fiesta, $0.1 million related to costs incurred prior
to the acquisition of The Reserve and $0.2 million related to Green Valley
Ranch.
INTEREST EXPENSE, NET. Interest costs incurred (expensed and capitalized)
increased 16.2% to $99.2 million for the fiscal year ended December 31, 2000 as
compared to $85.4 million in the fiscal year ended December 31, 1999. This
increase is due in part to an increase of $47.1 million in total long-term debt
from the prior year. In addition, the Company issued $375 million of 9 7/8%
Senior Subordinated Notes in July 2000. The proceeds of the notes were used to
repay amounts outstanding on the revolving credit facility and term loan which
carried lower interest rates.
Interest costs incurred (expensed and capitalized) decreased 6.2% to
$85.4 million for the fiscal year ended December 31, 1999 as compared to
$91.0 million in the twelve months ended December 31, 1998. This decrease is due
to a decline of $17.2 million in total long-term debt from the prior year and to
a reduction in average interest rates on long-term debt to 9.0% from 9.6% in the
prior year.
OTHER INCOME/EXPENSE. During the fourth quarter of the fiscal year ended
December 31, 1999, the Company wrote off $2.4 million of costs incurred related
to the termination of the Flamingo Hilton Kansas City acquisition.
In April 1999, the Company received a $15.0 million settlement payment from
Crescent Real Estate Equities, Inc., which is included in the "Merger
settlement, net of related legal costs" line on the accompanying Consolidated
Statements of Operations.
28
EXTRAORDINARY ITEM. During the fiscal year ended December 31, 2000, the
Company recorded an extraordinary charge of $0.4 million (net of applicable tax
benefit) related to the termination of the Company's Term Loan and $0.1 million
(net of applicable tax benefit) related to the termination of the Company's
bridge loan.
In 1999, the Company recorded an extraordinary charge of $10.4 million (net
of applicable tax benefit) to reflect the write-off of the unamortized debt
discount, unamortized loan costs and the premium to redeem the 9 5/8% senior
subordinated notes, which were repaid on January 4, 1999. In addition, the
Company also recorded an extraordinary charge of $0.3 million (net of applicable
tax benefit) related to the write-off of unamortized loan costs on the Company's
$75.0 million secured term loan facility.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended December 31, 2000, the Company generated cash
flows from operating activities of $163.7 million. At December 31, 2000, the
Company had total available borrowings of $380.8 million under the Amended Bank
Facility, of which $64.0 million was directly outstanding. Total available
borrowings will reduce each quarter in accordance with the terms of the Amended
Bank Facility (see "Description of Certain Indebtedness and Capital
Stock-Amended Bank Facility"). The Company also had $256.0 million in cash and
cash equivalents. Included in the cash balance was $194.2 million received from
the sale of the Missouri properties that was held to fund portions of the Fiesta
and The Reserve acquisitions, which were completed in January 2001, as well as
the purchase of land in North Las Vegas in January 2001. On December 20, 2000,
the Company sold the Missouri Operations to Ameristar Casinos, Inc. for
$488 million.
During the year ended December 31, 2000, total capital expenditures were
approximately $358.8 million, of which approximately (i) $205 million was
associated with the acquisition of Santa Fe Station, (ii) $65.5 million was
associated with the expansion project at Texas Station, (iii) $3.3 million was
associated with the reconfiguration of the Station Casino St. Charles facility
to a more efficient layout, (iv) $8.8 million was associated with the hotel room
remodels at Palace Station and Boulder Station, (v) $27.3 million was associated
with the renovation and retheming of Santa Fe Station, (vi) $7.7 million was
associated with the expansion of the Sunset Station parking garage,
(vii) $29.3 million was for maintenance capital expenditures, and
(viii) $9.5 million was associated with various other projects. In addition to
the capital expenditures noted above, the Company also made $32.0 million of
equity contributions to Green Valley Ranch.
The Company's primary capital requirements during fiscal year 2001 are
expected to include (i) purchase of the Fiesta Casino Hotel and costs of capital
improvements, expected to total approximately $175 million, (ii) purchase of The
Reserve Hotel & Casino, and costs of capital improvements, expected to total
approximately $80 million, (iii) the remaining costs of the expansion project at
Santa Fe Station, estimated to be approximately $43.7 million, (iv) the
remaining equity contributions to Green Valley Ranch expected to be
approximately $16 million, (v) investments in new slot machines and a new slot
system of approximately $40 million, (vi) the purchases of land for
approximately $33 million, which includes the buyout of the land that is
currently leased by Sunset Station, (vii) strategic land purchases throughout
the Las Vegas area, (viii) opportunistic repurchases of the Company's Common
Stock, (ix) maintenance capital expenditures, and (x) principal and interest
payments on indebtedness.
In February 2001, the Company issued $300 million of senior notes, the
proceeds of which were used to pay down the Revolving Facility and to repay
$100 million of principal amount of the 10 1/8% senior subordinated notes. The
Company believes that cash flows from operations, borrowings under the Amended
Bank Facility, vendor and lease financing of equipment, and existing cash
balances will be adequate to satisfy the Company's anticipated uses of capital
during fiscal year 2001. The Company,
29
however, continually is evaluating its financing needs. If more attractive
financing alternatives or expansion, development or acquisition opportunities
become available to the Company, the Company may amend its financing plans
assuming such financing would be permitted under its existing debt agreements
(See "Description of Certain Indebtedness and Capital Stock") and other
applicable agreements.
FUTURE DEVELOPMENT
GREEN VALLEY RANCH
A 50/50 joint venture between the Company and GCR Gaming, LLC (an affiliate
of American Nevada Corporation) has commenced construction of a new
resort/casino, Green Valley Ranch, on the south side of Interstate 215 at Green
Valley Parkway in Henderson, Nevada. The 40-acre resort site is part of a
170-acre mixed-use commercial, retail and office project. The Company expects to
contribute approximately $50 million in cash equity for a 50 percent equity
ownership. As of December 31, 2000, the Company has made cash equity
contributions of $34 million. The Company will be the managing partner of Green
Valley Ranch and will receive a management fee for its services. Construction of
the resort is expected to be completed in the fourth quarter of 2001. The
estimated construction cost of this project is approximately $300 million. The
project is expected to be capitalized with total equity contributions from the
partners of approximately $100 million and third party financing for the
remainder. The joint venture has received commitments from a group of banks for
a $165 million reducing revolving credit facility, subject to customary
conditions. The Company anticipates that it will be required to enter into a
completion guarantee and a make-well agreement in connection with the Green
Valley Ranch financing. In addition, the joint venture anticipates obtaining
$35 million of equipment lease financing from a group of lenders. If the third
party financing cannot be obtained or is insufficient to fund the construction
costs, the Company and GCR Gaming, LLC would be obligated to contribute amounts
necessary to finance the construction and opening of the project. The Company
has co-owned Barley's with an affiliate of American Nevada Corporation since
January 1996.
UNITED AUBURN INDIAN COMMUNITY
On October 12, 1999, the Company announced that it has entered into a
Development Services Agreement and a Management Agreement with the United Auburn
Indian Community (the "UAIC"). Subject to the receipt of certain governmental
approvals, as well as voter approval of a proposed amendment to the California
constitution, the Company and the UAIC intend to develop a gaming and
entertainment facility on 49 acres, located approximately seven miles north of
Interstate 80, in Placer County, California, near Sacramento. Voter approval of
the proposed amendment to the California constitution was received in
March 2000, however there can be no assurances when or if the necessary
government approvals will be received. The scope and timing of this project have
yet to be determined.
LAND ACQUISITION
In addition to Green Valley Ranch, the Company has purchased or has options
to purchase an additional 290 acres of land for six additional gaming sites in
the Las Vegas Valley which will be used for future development. The Rhodes Ranch
site consists of two parcels totaling 83 acres (the Company owns 51 acres and
has an option to purchase 32 acres), located at the intersection of Durango Road
and the Southern Beltway/I-215 located in the southwest quadrant of Las Vegas.
The Boulder/Tropicana site is a 68-acre site consisting of two parcels at the
intersection of Boulder Highway and Tropicana Avenue in eastern Las Vegas. The
Company is leasing (with an option to purchase) 34 acres of the site and has
entered into an option to purchase the adjacent 34-acre parcel. The Company paid
$30.2 million for the land mentioned above. The Company has no immediate plans
to develop these sites.
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On April 19, 2000, the Company announced that it had secured a gaming site
in North Las Vegas. The site is a 34-acre parcel near the intersection of Martin
Luther King Jr. Drive and Craig Road in North Las Vegas, Nevada. The Company has
entered into a long-term ground lease with an option to purchase the property.
The parcel is already entitled for gaming. As part of the transaction, the
Company also placed a deed restriction prohibiting casino gaming on an 18-acre
parcel, approximately 1.5 miles east of this site, that was previously entitled
for gaming. The Company is currently evaluating the size, scope and timing of
this project. In order to maintain its gaming entitlements, the Company would be
required to complete the facility prior to the end of 2002.
In December 2000, the Company purchased for $42.0 million a 49-acre
gaming-entitled parcel in southwest Las Vegas at the intersection of Flamingo
Road and the soon-to-be-completed Interstate 215 Western Beltway. In
January 2001, the Company purchased for $9.0 million a 29-acre gaming-entitled
parcel at the intersection of Smoke Ranch Road and Rancho Road in North Las
V