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[STATION CASINOS]
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended March 31, 1998.
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.
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(Exact name of registrant as specified in its charter)
Nevada 88-0136443
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2411 West Sahara Avenue, Las Vegas, Nevada 89102
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(Address of principal executive offices, Zip Code)
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
$3.50 Convertible Preferred Stock, $0.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to 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 May
29, 1998, based on the closing price per share as reported on the New York
Stock Exchange was $311,272,911.
As of May 29, 1998, the registrant has 35,312,792 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrants' 1998 Annual Meeting of
Stockholders to be held August 4, 1998 (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 expansion projects of Station Casinos,
Inc. (the "Company") and its subsidiaries. Certain important factors,
including but not limited to, competition from other gaming operations,
construction risks, licensing and other regulatory risks, could cause the
Company's actual results to differ materially from those expressed in the
Company's forward-looking statements. In addition, there can be no assurance
that (i) the Merger (as defined herein) will occur or, if it does occur, that
the conduct of the Company's business, including its expansion plans and
operating strategy described herein will not change or (ii) the rights offering
by Crescent Real Estate Equities Company, a Texas real estate investment trust
("Crescent"), as discussed herein, will not adversely impact the expected
results of the Merger or the results of operations of Crescent. Further
information on potential factors which could affect the financial condition,
results of operations and expansion projects of the Company and its
subsidiaries are included in the filings of the Company with the Securities and
Exchange Commission, including, but not limited to, the Company's Registration
Statement on Form S-4 (File No. 333-30685). 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 an established multi-jurisdictional gaming company
that owns and operates six distinctly-themed casino properties, four of which
are located in Las Vegas, Nevada, one which is located in Kansas City, Missouri
and one which is located in St. Charles, Missouri. 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 and Missouri, as well as the evaluation and pursuit of
additional development opportunities in Nevada and other gaming markets.
In Las Vegas, the Company owns and operates Palace Station Hotel & Casino
("Palace Station"), Boulder Station Hotel & Casino ("Boulder Station"), Texas
Station Gambling Hall & Hotel ("Texas Station") and Sunset Station Hotel &
Casino ("Sunset Station"). Palace Station caters primarily to Las Vegas
residents and repeat visitors and aggressively markets itself as "The Local
Favorite." Palace Station is situated on 39 acres strategically located 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 45
acres along the Boulder Highway, immediately adjacent to Interstate 515, and is
strategically located on the opposite side of Las Vegas from Palace Station.
Boulder Station caters primarily to Las Vegas residents living on the eastern
side of Las Vegas. Texas Station is strategically located on 47 acres at the
corner of Lake Mead Boulevard and Tonopah Highway in North Las Vegas and draws
customers from the rapidly growing North Las Vegas and Summerlin residential
areas. Sunset Station is strategically located on 105 acres on Sunset Road
immediately adjacent to Interstate 515 and features a Spanish/Mediterranean-
themed hotel-casino. Sunset Station caters primarily to residents living in the
rapidly growing Henderson/Green Valley area of Las Vegas. Sunset Station is
located eight miles southeast of Boulder Station. In May 1998, the Company
entered into a long term lease for approximately 19 acres of land located on
Tropicana Avenue adjacent to Interstate 15, approximately three miles from
Palace Station. The Company will operate the existing small hotel/casino
facility located on this land beginning July 1, 1998, while management
evaluates development alternatives for this location.
In Missouri, the Company owns and operates Station Casino Kansas City and
Station Casino St. Charles. Station Casino Kansas City, is situated on 171
acres immediately east of the heavily traveled Interstate 435 bridge, seven
miles east of downtown Kansas City. Station Casino Kansas City caters to local
customers within the greater Kansas City area, as well as tourists from outside
the region. Station Casino St. Charles is located on 52 acres situated
immediately north of the Interstate 70 bridge in St. Charles, and is
strategically located to attract customers from the St. Charles and greater
St. Louis areas, as well as tourists from outside the region. Management is
employing the same operating strategies that have been successful at the
Company's properties in the competitive Las Vegas market in order to secure a
strong presence in the Missouri markets.
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Merger Agreement
On January 16, 1998, the Company entered into an Agreement and Plan of
Merger, as amended (the "Merger Agreement") with Crescent Real Estate Equities
Company, a Texas real estate investment trust ("Crescent"). The Merger
Agreement provides for the merger (the "Merger") of the Company and Crescent at
the time of effectiveness of the Merger in accordance with the Merger Agreement
(the "Effective Time"). As permitted by the Merger Agreement, the Company will
be reincorporated in Delaware by the merger of the Company with and into its
wholly-owned Delaware subsidiary ("Delaware Station") with Delaware Station as
the surviving entity (the "Reincorporation Merger"). Delaware Station will
then be merged with and into Crescent, with the result that, among other
things, the separate corporate existence of the Company will cease and
Crescent will continue as the surviving entity. Upon consummation of the
Merger, an operating joint venture (the "Operating Joint Venture") that will be
50% owned by certain members of the Company's management and certain board
members involved in management will, pursuant to a lease with Crescent, operate
Palace Station, Boulder Station, Texas Station, Sunset Station, Station Casino
Kansas City and Station Casino St. Charles. The lease will provide for base
and percentage rent although the amount of rent has not yet been determined.
Prior to the Effective Time, the Company will sell, assign, transfer and
convey to the Operating Joint Venture, certain of the Company's non- real
estate assets pursuant to a bill of sale. Following the Merger, it is
anticipated that Crescent will transfer the stock of certain of the Company's
subsidiaries and certain other assets of the Company to one or more
subsidiaries of Crescent in which Crescent does not maintain a voting interest.
As of the Effective Time, by virtue of the Merger, and without any action
on the part of Crescent or the Company (collectively , the "Constituent
Entities"), or the holders of any securities of the Constituent Entities, and
subject to certain provisions of the Merger Agreement: (i) each share of the
Company's common stock par value $0.01 per share ( "Common Stock") (including
restricted shares of Common Stock issued under the Company's Stock
Compensation Program) issued and outstanding immediately prior to the Effective
Time (other than treasury shares and shares of Common Stock held by Crescent
which will be canceled) will be converted into the right to receive 0.466
shares of validly issued, fully paid and nonassessable common shares of
beneficial interest in Crescent ("Crescent Common Shares") and (ii) each share
of the Company's $3.50 Convertible Preferred Stock ("Convertible Preferred
Stock") issued and outstanding immediately prior to the Effective Time will be
converted into the right to receive one validly issued, fully paid and
nonassessable $3.50 Convertible Preferred Share of Crescent ("Crescent
Convertible Preferred Shares").
The Merger Agreement entitles Crescent to a $54 million break-up fee if
such agreement is terminated (i) by either Crescent or the Board of Directors
of the Company if any required approval of the Merger is not obtained by reason
of the failure to obtain the required vote of stockholders, (ii) by Crescent,
if the Board of Directors of the Company does not recommend or withdraws its
approval or recommendation of the Merger, modifies its approval or
recommendation adversely to Crescent or approves or recommends a superior
proposal or (iii) by the Board of Directors of the Company, if it receives a
superior proposal that Crescent does not match or exceed.
The obligations of Crescent and the Company to consummate the Merger are
subject to the satisfaction or waiver of various conditions, including approval
by both the common and preferred stockholders of the Company and receipt of
certain regulatory approvals and consents, including approval from Nevada and
Missouri gaming authorities.
On June 15, 1998, Crescent filed a registration statement on Form S-3 (No.
333-56809) with the Securities and Exchange Commission relating to a planned
rights offering to be made upon consummation of the Merger to holders of the
Crescent Common Shares (including holders of Crescent Common shares as a result
of the conversion of the Common Stock in the Merger). It is expected that
Crescent will distribute one transferable subscription right (each a "Crescent
Right") for each Crescent Common Share held. In addition, it is expected that
every five Crescent Rights will entitle the holder thereof to purchase one
Crescent Common Share at an exercise price of $31 1/8 per share. At the same
time, Crescent announced that its Board of Trust Managers had approved, subject
to consummation of the Merger, an increase in its quarterly dividend from $0.38
per Crescent Common Share to $0.63 per share. Crescent also announced its
intent to contribute, following consummation of the Merger, substantially all of
the real estate assets acquired in the Merger to a new partnership that will
invest principally in casinos, other gaming properties and other real estate
property in Las Vegas, Nevada. Crescent expects to offer holders of Crescent
Common Shares rights (each a Gaming Right) to acquire common or preferred equity
interests in such partnership or in a real estate investment trust which would
hold interests in such partnership. Such partnership and its owners will be
subject to strict regulatory requirements similar to those that will be
applicable to Crescent. Such Gaming Rights are expected to be taxable to the
holders of Common Shares upon issuance of such Gaming Right. Crescent does not
believe distribution of the Crescent Rights will be taxable to holders of
Crescent Common shares, however, no assurances can be made in this regard. Tax
information will be provided to such shareholders at the time of such
distribution. The record date for either such offering will occur after the
Effective Time. The conversion price for Crescent Preferred Shares received in
the Merger in exchange for the Convertible Preferred Stock will be adjusted in
accordance with the certificate setting forth the rights, preferences and
privileges of the Crescent $3.50 Convertible Preferred Stock (which has
substantially the same terms as the certificate for the Convertible Preferred
Stock except for certain real estate investment trust provisions) to account for
such distributions. Holders of options to purchase Common Stock converted to
options to purchase Crescent Common Shares pursuant to the Merger will receive
the same adjustments to their options, if any, as other holders of options to
purchase Crescent Common Shares.
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EXPANSION STRATEGY
Management's expansion strategy includes the master-planned expansion of
the Company's existing gaming facilities in Nevada and Missouri, as well as the
evaluation and pursuit of additional development opportunities in Nevada,
Missouri, and other gaming markets. Management believes that the following
factors enable the Company to capitalize on its expertise in the local and
repeat visitor markets as well as on its reputation as a provider of a
high-quality, affordable gaming and entertainment experience.
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. The Company selects sites that are
centrally located within a dense population base so that the facility cannot be
cutoff 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 and Development 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 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 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.
EXPANSION OF EXISTING CASINO PROPERTIES
Sunset Station
In April 1998, the Company commenced construction of the next phase of the
master planned expansion at Sunset Station. This phase of the master plan is
designed to enhance Sunset Station's reputation for quality entertainment and
will include a 2,000-space covered parking garage, an additional 20,000 square
feet of casino space, a new steakhouse, food court area, improved conference
facilities, additional "stadium-style" movie screens, and a dual rink Wayne
Gretzky Roller Hockey Center and ice skating complex. The new casino space
will offer an additional 400 slots and video poker machines. The additional
movie screens will complement the existing 13-screen multiplex movie theaters
operated by Act III. The Wayne Gretzky Roller Hockey Center and ice skating
complex will be a state-of-the-art complex that will feature in-line roller
hockey and ice skating surfaces for a wide range of league activities, public
skating, clinics, instruction and other events designed for all ages. All
components of this expansion except the skating complex are estimated to take
nine months to complete.
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Construction of the skating complex will begin upon completion of the parking
garage and is estimated to take approximately six months to complete.
Texas Station
In May 1998, the Company commenced construction of the next phase of the
master plan at Texas Station. This phase of the master plan is designed to
enhance Texas Station's reputation for quality entertainment and will include a
2,000-space covered parking garage, an additional 21,000 square feet of casino
space, a 10,000-square foot Kid's Quest Child-Care Facility, a food court area,
an expanded arcade, additional "stadium-style" movie screens and a new bar
and lounge similar to the Gaudi Bar at Sunset Station, except with a Texas
theme. The Company estimates that this expansion project will take
approximately 10 months to complete.
Station Casino St. Charles
The Company commenced construction of the next phase of development at
Station Casino St. Charles consisting of two new gaming vessels located in a
backwater protective basin, as well as a uniquely designed retail and
entertainment complex (the "St. Charles Expansion Project"). The new facilities
are designed to offer guests a more complete entertainment experience.
As of March 31, 1998, construction on the project has ceased and management
does not expect that any major construction on the project will resume before
the Merger with Crescent is consummated. Once the Merger is consummated, the
Company, jointly with Crescent, will determine the final scope and timing of
the project.
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, and plans to continue these
strategies after the Merger.
Targeted Customer Base
The Company's operating strategy emphasizes attracting and retaining
customers primarily from the local and repeat visitor markets. Palace
Station, Boulder Station, Texas Station, Sunset Station, Station Casino Kansas
City and Station Casino St. Charles (collectively the "Casino Properties")
attract customers from their local markets 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. This strategy applies as well to the Missouri markets. The Company
believes that its visitor patrons are also discerning customers who enjoy the
Company's value-oriented, high-quality approach. This is particularly true in
Las Vegas where 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 and casinos. 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 Company's 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
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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. An indication of the value of this approach may be seen by the number
of Las Vegas residents seeking employment with the Company.
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 "Car-A-Day", "Paycheck Bonanza" and the "Great
Giveaway," a popular 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.
LAS VEGAS CASINO PROPERTIES
Palace Station
Palace Station is situated on approximately 39 acres strategically located
at the intersection of Sahara Avenue and Interstate 15, one of Las Vegas' most
heavily traveled areas, and a short distance from the McCarran International
Airport and from major attractions on the Las Vegas Strip and downtown Las
Vegas. With Palace Station's ample parking and its convenient location,
customers are assured 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 has approximately 287,000 square feet of
main facility area and features a turn-of-the- century railroad station theme.
The complex includes a 1,028-room hotel, an approximately 84,000-square foot
casino, two swimming pools, 3,700 parking spaces (including 1,900 spaces in two
multi-level parking structures), an approximately 20,000-square foot banquet
and convention center, five full- service restaurants, two fast-food outlets, a
24-hour gift shop and a non- gaming video arcade. The casino offers
approximately 2,225 slot and video poker machines, 47 gaming tables, a keno
lounge, a poker room, a bingo parlor, and a race and sports book.
The hotel features 587 rooms in a modern 21-story tower. Guests in the
tower enjoy a view of the Las Vegas Strip, downtown Las Vegas and the
surrounding mountains. The remaining 441 hotel rooms are located in low- rise
buildings adjoining the tower and casino.
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 Iron Horse Cafe (featuring a Chinese menu in
addition to American 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 guests also may take advantage of the Palace Saloon Piano Bar and the
recently remodeled Loading Dock Lounge which provide music, dancing and
entertainment. Quick service meals and snacks are offered at the Pizza Palace,
Manhattan Bagel, Baskin Robbins, Burger King and The Whistle Stop Snackbar.
Palace Station is master planned for the further growth. The master plan
includes a total of 3,000 hotel rooms, approximately 148,000 square feet of
casino space, 3,200 slot machines and 90 table games. Additionally, the
expanded Palace Station would offer approximately 50,000 square feet of
rentable banquet space, a child-care facility, and expanded arcade, expanded
retail lease space, an estimated 5,600 parking spaces, a Las Vegas - style
showroom and several new restaurants, bars and other entertainment amenities.
This master plan is designed to be executed in multiple phases over several
years. Currently, there are neither definitive construction plans nor budgets
for any portion of the master- planned development, and the scope of any
project may vary significantly from that which has been described.
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Boulder Station
Boulder Station, which opened in August 1994, is situated on approximately
45 acres strategically located on the opposite side of Las Vegas from Palace
Station. Patrons enjoy convenient access to this facility which is located on
the Boulder Highway and immediately adjacent to the Interstate 515 interchange.
Interstate 515 and the Boulder Highway are the major thoroughfares into Las
Vegas for visitors from Arizona. Management believes that its highly visible
location at this well-traveled intersection offers a competitive advantage
relative to existing hotels and casinos located on the 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 has approximately 337,000 square feet of main facility area
and, like Palace Station, features a turn-of-the-century railroad station
theme. The complex includes a 300-room hotel, an approximately 86,000-square
foot casino, 4,350 parking spaces (including a 1,900-space multi-level parking
structure), five full-service restaurants, several fast-food outlets, a
280-seat entertainment lounge, eight additional bars, a high-quality 11- screen
movie theater complex, a child-care facility, a swimming pool, a non-gaming
video arcade and a gift shop. The casino offers approximately 3,020 slot and
video poker machines, 38 gaming tables, a keno lounge, a poker room, a bingo
parlor and a race and sports book.
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 Iron Horse Cafe (featuring a Chinese
menu in addition to American 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 which are similar to the offerings at Palace
Station, Boulder Station offers fast-food outlets, including Pizza Palace, Viva
Salsa, and China Express. Additionally, the Company leases space to the
operators of such restaurants as Burger King, TCBY and Starbuck's Coffee to
enhance the customers' dining selection. Boulder Station's restaurants and bars
are located in open settings that are designed to intermingle the dining and
gaming experience.
Boulder Station is master planned for further growth. After completion of
the master-planned development, Boulder Station would offer 1,500 hotel rooms,
140,000 square feet of casino space with 3,500 slot and video poker machines
and 50 table games, a 23-screen Act III movie theater complex, a bowling
center, several restaurant concepts and additional lease space for food and
retail uses. This master plan is designed to be executed in multiple phases
over several years. Currently, there are neither definitive construction plans
nor budgets for any portion of the master-planned development, and the scope of
any project may vary significantly from that which has been described.
Texas Station
Texas Station, which commenced operations in July 1995, is situated on
approximately 47 acres strategically located at the corner of Lake Mead
Boulevard and Tonopah Highway in North Las Vegas. The facility features a
friendly, "down-home" Texas atmosphere, highlighted by its distinctive early
Texas architecture. Texas Station has approximately 258,000 square feet of
main facility area in a low rise complex plus a six story, 200-room hotel tower
and approximately 4,000 parking spaces (including a 1,500-space multi-level
parking structure). The complex includes an approximately 75,000-square foot
casino, five full-service restaurants, several fast-food outlets, a 132-seat
entertainment lounge, seven additional bars, a high- quality 12-screen movie
theater complex, a swimming pool, a non-gaming video arcade and a gift shop.
The casino offers approximately 2,090 slot and video poker machines, 34 gaming
tables, a keno lounge, a poker room, a bingo parlor and a race and sports book.
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.
Texas Station's five 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 Yellow Rose Cafe (a 24- hour coffee
shop), the Stockyard Steakhouse, the Laredo Cantina and Cafe (a Mexican
restaurant), the San Lorenzo (an Italian restaurant) and the Market Street
Buffet (featuring seven different food stations). In addition to the Texas
Station themed restaurants, guests may also take advantage of the unique
features of the Whiskey Bar with a seven-foot high bronco rider, which rotates
on a pedestal and may be viewed by patrons on all sides, the Garage Bar which
features a 1976 fire-engine red Cadillac Eldorado with seven-foot Texas
long-horns on the hood, or the Armadillo Honky Tonk where a 3,000 piece cut
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glass armadillo is the centerpiece of a dance hall. The facility also offers
fast-food outlets, including a pizza kitchen and ice cream shop. 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.
Texas Station is master planned for further growth. The master plan would
create a complex with 700 hotel rooms, 127,000 square feet of casino space with
approximately 3,500 slot and video poker machines and 50 table games, over
55,000 square feet of banquet and meeting space, additional movie theaters,
additional arcade space and a 70-lane bowling alley. As previously noted, the
Company has commenced construction on the next phase of this master plan. The
completed master plan may be executed in multiple phases over several years.
Except as noted previously, no additional construction plans or budgets for the
remaining master plan have been developed and the ultimate scope of the master
plan may vary significantly from that which has been described.
Sunset Station
Sunset Station, which commenced operations on June 10, 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 the path of development along
Interstate 515, the major thoroughfare into Las Vegas from Boulder City and
Arizona, 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
features approximately 350,000 square feet of main facility area, plus a
20-story, 467-room hotel tower and approximately 4,200 parking spaces. The
complex includes an approximately 80,000-square foot casino, with approximately
2,750 slot and video poker machines, 55 gaming tables, a keno lounge, a poker
room, a bingo parlor and a race and sports book. The complex also includes six
full-service restaurants, themed to capitalize on the restaurants at the
Company's other properties, an entertainment lounge, additional bars, a
microbrewery, a gift shop, a non-gaming video arcade, tenant lease space for
additional restaurants, a high-quality 13-screen movie theater complex, a
child-care facility, an outdoor swimming pool and an amphitheater, as well as
several fast-food outlets and franchises.
Sunset Station's six full-service restaurants have a total of over 2,100
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 (a 24-hour coffee shop), the Casa Del
Sol (a seafood restaurant), the Capri (an Italian restaurant), Rosalitas (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. Guests may also take advantage of the Gaudi Bar,
a center piece of the casino featuring over 8,000 square feet of stained-glass
and a water light display. The facility also offers fast-food outlets
including Fat Burger, Viva Salsa, Capri Pizza, Kenya's Bakery and Ben & Jerry's
Ice Cream.
Sunset Station is master planned for further growth. The completed master
planned development would create a complex with 2,000 hotel rooms, 130,000
square feet of casino space, 60,500 square feet of banquet and meeting space, a
bowling center and additional leasable space for retail and entertainment
venues. As previously noted, the Company has commenced construction of the next
phase of this master plan. The master plan is designed to be executed in phases
over multiple years. Except as noted previously, no additional construction
plans or budgets for the remaining master plan have been developed and the
ultimate scope of the master plan may vary significantly from that which has
been described.
Sunset Station is located on approximately 105 acres, of which only
approximately 70 acres have been developed. The Company is currently
evaluating potential development plans for the undeveloped property. Uses for
the land could include a life-style entertainment retail center, as well as the
development of several pads for various build-to-suit retail, restaurant and
entertainment concepts and a 199-gaming machine bar and restaurant. Timing and
definitive plans have not yet been determined for such a development.
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MISSOURI CASINO PROPERTIES
Station Casino Kansas City
Station Casino Kansas City commenced operations in January 1997. This
facility is a master-planned gaming and entertainment destination facility
featuring a historic Missouri riverboat theme and is strategically located to
attract customers from the greater Kansas City area as well as tourists from
outside the region. The facility is located on a 171-acre site immediately
east of the heavily traveled Interstate 435 bridge, seven miles east of
downtown Kansas City, one mile south of Worlds of Fun and Oceans of Fun
Amusement Parks, six miles north of the Truman Sports Complex, which includes
Arrowhead Stadium and Kauffman Stadium, and 12 miles from the Kansas City
International Airport. Station Casino Kansas City's marketing programs are
specifically designed to effectively target and capture repeat customer demand
from the local customer base and also emphasize the strong visitor and
overnight markets. Management believes that Station Casino Kansas City has
specific advantages relative to both existing and future riverboat facilities
in the region and that it is the premier facility in the Kansas City market.
The site is adjacent to the Interstate 435 bridge, which supports traffic flow
of approximately 71,000 cars per day. Interstate 435 is a six-lane,
north-south expressway offering quick and easy accessibility to the site, and
also provides direct visibility of the site. The high visibility and easy
access to the Station Casino Kansas City site helps attract auto travelers who
are visiting the theme parks and sports facilities along this entertainment
corridor.
The Station Casino Kansas City facility features two continuously docked
gaming vessels situated in a man-made protective basin. The two gaming
facilities feature approximately 140,000 square feet of gaming space that
offers approximately 3,070 slot and video poker machines and 158 gaming tables
and a poker room. Station Casino Kansas City is the fourth largest casino in
the United States in terms of casino square footage and the Company believes
the facility offers the first Las Vegas-style gaming experience in the Midwest.
The gaming facilities are docked adjacent to a land-based entertainment
facility with approximately 526,000 square feet of main facility area which
includes a 200-room hotel, seven full-service restaurants, several fast-food
outlets, 11 bars and lounges, a 1,400-seat Grand Pavillion featuring headline
entertainment, a Kid's Quest child-care facility, a high-quality 18-screen
movie theater complex operated by Act III, a 5,700-square foot non-gaming video
arcade and midway operated by Sega Game Works, a gift shop and parking for
5,000 vehicles.
Station Casino Kansas City's restaurants offer a variety of high- quality
food at reasonable prices. Restaurants include an all-you-can-eat live action
buffet "Feast Around the World," featuring Italian, Mexican, Chinese, barbecue,
and traditional American fare, Bugatti's Little Italy Cafe, featuring fine
Italian cuisine and a wine bar with an extensive selection, Pancho Villa's
Cantina, featuring southwestern foods, the Orleans Seafood Co. and Oyster Bar,
featuring fresh Louisiana style seafood, and the Hafbrauhaus Brewery &
Biergarten featuring a wide selection of micro-brewed lagers, an assortment of
American and Bavarian cuisine and live entertainment. In addition, Station
Casino Kansas City leases space to a well-known Kansas City favorite, Arthur
Bryant's Barbeque. Additionally, the complex offers Winstead's (a hamburger
outlet), the Morning Glory Coffee Cafe and Bakery featuring fresh-baked goods
and the Royal Chieftan Cigar Co., offering a wide variety of fine cigars and
cigar accessories.
The Company believes that Station Casino Kansas City offers significant
growth and expansion opportunities that can be implemented on an incremental
basis. The project is master-planned for multi-phased growth including
additional hotel rooms, restaurants and other entertainment facilities. The
development of the additional facilities is subject to numerous uncertainties,
including future market conditions, regulatory approvals, the outcome of
certain litigation (See Item 3 Legal Proceedings) and ultimate financial
viability.
Station Casino St. Charles
Station Casino St. Charles commenced operations in May 1994. Station Casino
St. Charles is a master-planned gaming and entertainment complex featuring a
historic riverboat theme. Station Casino St. Charles is situated immediately
north of the Interstate 70 bridge in St. Charles on approximately 52 acres owned
by the Company. The Station Casino St. Charles complex is strategically
located to attract customers from the St. Charles and greater St. Louis area,
as well as tourists from outside the region. Management believes that this
location offers the Company certain competitive
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advantages relative to both existing and future riverboat facilities in the
region. The site is adjacent to the Interstate 70 bridge. Interstate 70 is a
10-lane, east-west expressway offering quick and easy accessibility to and
direct visibility of the Station Casino St. Charles site. Furthermore, the
Station Casino St. Charles location is approximately seven miles from St.
Louis' airport, offering convenience to the air traveler and access to the
large number of hotel rooms in the area.
Station Casino St. Charles currently features two gaming vessels -- a
292-foot long by 74-feet wide gaming riverboat known as "The Station Casino
Belle" and a floating two-story, 105,000-square foot gaming and entertainment
facility. The two current gaming vessels have 47,000 square feet of gaming
space with capacity for 4,000 gaming customers, as well as food and beverage
and other related facilities. Station Casino St. Charles offers approximately
1,845 slot and video poker machines, 75 gaming tables and a poker room.
Station Casino St. Charles features a 250-seat all-you-can-eat buffet known as
"The Feast," as well as an 80-seat specialty steakhouse known as "The Broiler."
In addition to the casinos and restaurants, the facility offers seven bars, a
fast-food court, an entertainment lounge, a lobby, a ticketing facility and a
gift shop.
Capitalizing on its operating experience in Las Vegas, the facility has
emphasized convenience in offering two separate gaming facilities. In doing so,
the Company is able to stagger its two hour cruises to begin each hour of the
day from nine in the morning until two the following morning, seven days a
week. With a 45 minute boarding time, the longest a customer has to wait is 15
minutes to enter a gaming facility. Additionally, the Company received approval
for continuously docked gaming on each of the gaming facilities. In Missouri,
continuously docked gaming requires "simulated cruising," which allows
customers to board only at certain specified times; however, the customer may
leave at any time, which is significantly more convenient for the customer.
In furtherance of the Station Casino St. Charles master plan, the Company
completed construction of a new elevated roadway and a 4,000-space five-story
parking structure in May 1996. This project includes a turn-around deck and
porte-cochere. The parking facility is constructed above the existing flood
plain and provides the infrastructure for the current facilities as well as the
St. Charles Expansion Project. The elevated roadway and parking structure
provide improved access to the current and new gaming facilities and
significantly diminish Station Casino St. Charles' susceptibility to closure
during the spring flooding season. This was evidenced in May 1996 when
flooding on the Missouri River occurred and the parking garage and elevated
roadway served one of its intended purposes in minimizing business disruption
caused by the flood.
THE SOUTHWEST COMPANIES
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. SGSI has
approximately 720 machines in service throughout southern Nevada.
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.
Palace Station, Boulder Station, Texas Station and Sunset Station face
competition from all other casinos and hotels in the Las Vegas area, including
to some degree, from each other. Such competition includes at least ten
hotel-casinos targeted primarily towards local residents and repeat visitors,
as well as numerous non-hotel gaming facilities targeted towards local
residents. 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-
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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 27 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. In addition,
seven new hotel-casinos and four hotel-casino expansions are under construction
or have been announced, which will add approximately 19,000 rooms to the Las
Vegas area over approximately the next two years. Five of the new hotel-casinos
are major resorts with a theme and an attraction which are expected to draw
significant numbers of visitors. These new facilities could have a positive
effect on Palace Station, Boulder Station, Texas Station and Sunset Station if
more visitors are drawn to Las Vegas. However, 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
Palace Station, Boulder Station, Texas Station and Sunset Station. The
additional capacity has had little, if any, impact on Palace Station's, Boulder
Station's, Texas Station's, or Sunset Station's 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.
The Company's Las Vegas casino properties face more direct competition from
ten hotel-casinos 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. 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 Missouri Gaming Commission has been empowered to determine the number
of gaming licenses supportable by the region's economic situation. As of March
31, 1998, 37 applications for gaming licenses had been filed with the State of
Missouri, including nine applications to operate in the St. Louis marketplace.
Eleven of these 37 applicants have been granted a license, permitting gaming
operations in St. Louis, Kansas City, St. Joseph and Caruthersville, Missouri.
Station Casino St. Charles competes primarily with other gaming operations in
and around St. Louis, Missouri. Currently, in addition to Station Casino St.
Charles, there are four facilities operating in the St. Louis market, including
a facility in Maryland Heights which opened in March 1997. In particular, the
Company expects that Station Casino St. Charles will be directly impacted by
competition from the facility located in Maryland Heights due to the size,
quality and close proximity of that facility. The Company has experienced a
decline in revenues at Station Casinos St. Charles since the opening of the
Maryland Heights facility. The Company has taken steps management believes to
mitigate the effects of such competition and the decline in revenues has
stabilized. Additionally, two of the four competitors operating in the St.
Louis market are located in Illinois, which does not impose a $500 loss limit.
Gaming also has been approved by local voters in jurisdictions near St. Louis,
including St. Charles, Jefferson City and other cities and counties along the
Mississippi and Missouri Rivers. Any new gaming operations developed near St.
Louis would likely provide significant competition to Station Casino St.
Charles. Gaming laws in surrounding states and in other areas may be amended
in ways that would increase the competition to Station Casino St. Charles.
This increasing competition could have a material adverse effect on the
Company's business.
Recently, Davis Gaming was selected for investigation for licensure for a
gaming operation which it intends to develop in Boonville, Missouri, a city in
central Missouri near Jefferson City and Columbia, and Mark Twain Casino L.L.C.
was selected for investigation for licensure for a gaming operation which it
intends to develop in LaGrange, Missouri, a city in northeastern Missouri.
Neither area is currently served by a Missouri gaming facility.
Station Casino Kansas City competes primarily with other gaming operations
in and around Kansas City, Missouri. Currently there are five gaming
facilities operating in the Kansas City market. Earlier entrants to the Kansas
City market may have an advantage over the Company due to their ability to
establish early market share. Gaming has been approved by local voters in
jurisdictions near Kansas City, including St. Josephs (which currently has one
riverboat gaming operation), Jefferson City and other cities and counties along
the Missouri River. Any new gaming operations developed near Kansas City would
likely provide significant competition to Station Casino Kansas City.
Several companies are engaging in riverboat gaming in states neighboring
Missouri. Illinois sites, including Alton, East St. Louis, and Metropolis,
enjoy certain competitive advantages over Station Casino St. Charles because
Illinois, unlike Missouri, does not impose limits on the size of losses and
places fewer restrictions on the extension of credit to customers. In
contrast, Missouri gaming law provides for a maximum loss of $500 per player on
each cruise and prohibits the extension of credit (except credit cards and
checks). Unlike Illinois gaming law, the Missouri gaming law places no limits
on the number of gaming positions allowed at each site. As of March 31, 1998,
Illinois had approved a total of ten licenses. While riverboats currently are
the only licensed form of casino-style gaming in Illinois and the
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number of licenses is restricted to ten, possible future competition may arise
if gaming is legalized in or around Chicago, which was specifically excluded
from the legislation permitting gaming in Illinois.
In addition certain litigation in Missouri may impact the competitive
position of the Company and its Missouri competitors. The Company cannot
anticipate the results of the outcome of such litigation or the impact on the
Company or its competitors (See Item 3 Legal Proceedings).
The Company's Missouri gaming operations also compete to a lesser extent
with the riverboat and floating gaming facilities in Mississippi, Louisiana,
Iowa and Indiana. Like Illinois, neither Mississippi nor Louisiana gaming
legislation imposes limits on wagers or losses. Mississippi had 30 licensed
riverboats and two licensed operations which have not yet opened as of April
30, 1998. In addition, Mississippi has one land-based casino located on Indian
lands. In Louisiana, 15 licenses for gaming vessels have been granted, which
is the maximum number of licenses currently authorized in the state, and 14
vessels have commenced operations. Gaming laws in these surrounding states and
in other areas may be amended in ways that would increase the competition to
the Company's Missouri gaming operations.
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 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 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, Boulder Station, Texas
Station, and Sunset Station 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, 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
Palace Station, Boulder Station, Texas Station, Sunset Station, GVSI, and SGSI.
The Company is also licensed as a manufacturer and distributor. Palace
Station, Boulder Station, Texas Station, Sunset Station, GVSI and SGSI 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
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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 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, Palace Station, Boulder Station, Texas Station, Sunset
Station, TCAI and SGSI 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 Palace Station,
Boulder Station, Texas Station, Sunset Station, TCAI and SGSI 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, and Barley's
Casino and, under certain circumstances, earnings generated during the
supervisor's appointment (except for the reasonable rental value of the casino)
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) materially
adversely affect 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
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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 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.
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
22, 1997, the Nevada Commission granted the Company prior approval to make
offerings under a Shelf Registration for a period of twenty-two months, subject
to certain conditions ("Shelf Approval"). However, the Shelf Approval may be
rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board 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 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.
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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 merchandize. 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.
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 personal 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.
The Crescent Entities and the Operating Joint Venture will be required to
obtain all Gaming Licenses necessary for the ownership, leasing and operation
of the Casino Properties and approvals of the Merger.
Nevada Liquor Regulations
The sale of alcoholic beverages at Palace Station and Boulder Station are
subject to licensing, control and regulation by the City of Las Vegas and the
Clark County Board, respectively. Texas Station is subject to licensing control
and regulation of the City of North Las Vegas. Sunset Station is subject to
the licensing, control and regulation of the City of Henderson. Barley's
Casino is subject to licensing control and regulation of the City of Henderson
and the Department of Treasury, Bureau of Alcohol, Tobacco and Firearms. All
licenses are revocable and are not transferable.
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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.
Missouri Gaming Regulations
Gaming was originally authorized in the State of Missouri and the City of
St. Charles on November 3, 1992, although no governmental action was taken to
enforce or implement the original law. On April 29, 1993, Missouri enacted the
Missouri Gaming Law which replaced the original law and established the
Missouri Gaming Commission, which is responsible for the licensing and
regulation of riverboat gaming in Missouri. The Missouri Gaming Commission has
discretion to approve gaming license applications for both permanently moored
("dockside") riverboat casinos and powered ("excursion") riverboat casinos. On
September 20, 1993, the Company filed its initial application with the Missouri
Gaming Commission for either a dockside or a cruising gaming license in St.
Charles, Missouri, which license was issued on May 27, 1994, thereby making the
Company one of the first two entrants in the Missouri riverboat gaming market.
However, due to both a January 25, 1994, ruling by the Missouri Supreme
Court which held that games of chance, including certain games authorized under
the Missouri Gaming Law such as bingo and keno, constitute "lotteries" and were
therefore prohibited under the Missouri Constitution and the failure of a state
wide election on April 5, 1994, to adopt a constitutional amendment that would
have exempted excursion boats and floating facilities from such constitutional
prohibition on lotteries, the Company commenced operations only with those
games which involve some element of skill ("limited gaming"), such as poker and
blackjack, that would be constitutionally permissible. The authorization of
both games of skill and games of chance ("full-scale gaming") occurred on
November 9, 1994 with passage by Missouri voters of a constitutional amendment
virtually identical to the measure which was defeated on April 5, 1994.
Full-scale gaming became effective on December 9, 1994, and by the end of
December 1994, the Company was conducting full scale gaming on both its
excursion and dockside casinos in St. Charles, Missouri.
Opponents of gaming in Missouri have brought several legal challenges to
gaming in the past and may possibly bring similar challenges in the future.
There can be no assurances that any future challenges, if brought, would not
further interfere with full-scale gaming operations in Missouri, including the
operations of the Company and its subsidiaries. On November 25, 1997, the
Supreme Court ruled, in a case involving certain operators who compete with
Station Casino St. Charles in Maryland Heights, Missouri, that gaming may occur
only in artificial spaces that are contiguous to the surface stream of the
Missouri and Mississippi rivers. The effect this ruling may have on operations
at Station Casino Kansas City cannot be predicted.
On January 16, 1997, the Missouri Gaming Commission granted Station Casino
Kansas City a Class A and Class B Excursion Gambling Boat license to own and
operate the River King and River Queen floating gaming facilities.
Under the Missouri Gaming Law, the ownership and operation of riverboat
gaming facilities in Missouri are subject to extensive state and local
regulation. By virtue of its gaming license in Missouri, the Company, any
subsidiaries it has or it may form and certain of its officers and employees
are subject to the Missouri Gaming Law and the regulations of the Missouri
Gaming Commission.
As part of the application and licensing process for a gaming license, the
applicant must submit detailed financial, operating and other reports to the
Missouri Gaming Commission. Each applicant has an ongoing duty to update the
information provided to the Missouri Gaming Commission in the application. In
addition to the information required of the applicant, directors, officers and
other key persons must submit Personal Disclosure Forms which include detailed
personal financial information and are subject to thorough investigations. All
gaming employees must obtain an occupational license issued by the Missouri
Gaming Commission. Operators' licenses are issued through application to the
Missouri Gaming Commission, which requires, among other things, (a)
investigations into an applicant's character, financial responsibility and
experience qualifications and (b) that applicants furnish (i) an affirmative
action plan for the hiring and training of minorities and women and (ii) an
economic development or impact report. License fees are a minimum of $50,000
for the initial application and $25,000 annually thereafter.
The Missouri Gaming Commission may revoke or suspend gaming licenses and
impose other penalties for violation of the Missouri Gaming Law and the rules
and regulations which may be promulgated thereunder, including, without
limitation, forfeiture of all gaming equipment used for improper gaming and
fines of up to three times an
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operator's highest daily gross adjusted receipts during the preceding twelve
months. The gaming licenses may not be transferred nor pledged as collateral,
and the Missouri Gaming Law regulations bar a licensee from taking any of the
following actions without 15 days' prior notice to, and approval by, the
Missouri Gaming Commission: any issuance of an ownership interest of five
percent or more of the issued and outstanding ownership interest, any private
incurrence of debt by the licensee or any holding company of $1,000,000 or
more, and any public issuance of debt by a licensee or its holding company.
The Missouri Gaming Commission may reopen the licensing hearing of the
applicable gaming licensee prior to or following the consummation date to
consider the effect of the transaction on the gaming licensee's suitability.
In addition, the licensee must notify the Missouri Gaming Commission of other
transactions, including the transfer of five percent or more of an ownership
interest in the licensee or holding company, the pledge of five percent or more
of the ownership interest in a license or holding company, and any transaction
of at least $1,000,000. The restrictions on transfer of ownership apply to the
Company and its subsidiaries.
The Missouri Gaming Law imposes operational requirements on riverboat
operators, including a charge of two dollars per gaming customer that licensees
must pay to the Missouri Gaming Commission, certain minimum payout
requirements, a 20% tax on adjusted gross receipts, prohibitions against
providing credit to gaming customers (except for the use of credit cards and
cashing checks) and a requirement that each licensee reimburse the Missouri
Gaming Commission for all costs of any Missouri Gaming Commission staff
necessary to protect the public on the licensee's riverboat. Licensees must
also submit audited quarterly financial reports to the Commission and pay the
associated auditing fees. Other areas of operation which are subject to
regulation under Missouri rules are the size, denomination and handling of
chips and tokens; the surveillance methods and computer monitoring of
electronic games; accounting and audit methods and procedures; and approval of
an extensive internal control system. The Missouri rules also require that all
of an operator's purchases of chips, tokens, dice, playing cards and electronic
gaming devices must be acquired from suppliers licensed by the Missouri Gaming
Commission. The Missouri Gaming Law provides for a loss limit of $500 per
person per excursion and requires licensees to maintain scheduled excursions
with boarding and disembarking times regardless of whether the riverboat
cruises. Although the Missouri Gaming Law provides no limit on the amount of
riverboat space that may be used for gaming, the Missouri Gaming Commission is
empowered to impose such space limitations through the adoption of rules and
regulations. Additionally, United States Coast Guard safety regulations could
affect the amount of riverboat space that may be devoted to gaming. The
Missouri Gaming Law also includes requirements as to the form of riverboats,
which must resemble Missouri's riverboat history to the extent practicable and
include certain non-gaming amenities. All eleven licensees in Missouri are
authorized to conduct all or a portion of their operations on a dockside basis.
With respect to the availability of dockside gaming, which may be more
profitable than excursion gaming, the Missouri Gaming Commission is empowered
to determine on a site-by-site basis where such gaming is appropriate and shall
be permitted. All other riverboats will be required to cruise. On December
27, 1994, Station Casino St. Charles was granted a dockside gaming license for
its floating gaming facility by the Missouri Gaming Commission. On April 16,
1996, Station Casino St. Charles, subsequently received approval from the
Missouri Gaming Commission to conduct its operations on its excursion gaming
riverboat on a continuously docked basis. The U.S. Coast Guard has recommended
to the Missouri Gaming Commission that all gaming vessels on the Missouri River
be required to remain dockside because certain characteristics of the Missouri
River, including turbulence, lack of emergency response infrastructure and
potential congestion, create substantially elevated risks for the operation of
large capacity passenger vessels. Dockside gaming in Missouri may differ from
dockside gaming in other states, such as Mississippi, because the Missouri
Gaming Commission has the ability to require "simulated cruising." This
requirement permits customers to board dockside riverboats only at specific
times and prohibits boarding during a certain portion of each simulated cruise,
which is presently two hours in length. Dockside gaming in Missouri may not be
as profitable as dockside gaming in other states, that allow for continuous
customer ingress and egress.
The Company may not make a public issuance of debt or ownership interests
without first notifying the Missouri Gaming Commission at least 15 days prior
to such issuance. The Missouri Gaming Commission may reopen the licensing
hearing of the gaming licensee prior to or following the consummation date to
consider the effect of the transaction on the gaming licensee's suitability.
The Crescent Entities and the Operating Joint Venture will be required to
obtain all Gaming Licenses necessary for the ownership, leasing and operation
of the Casino Properties and approvals of the Merger.
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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
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 May 29, 1998, the Company and its subsidiaries had approximately
10,400 employees. 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 Company's
reducing revolving bank credit facility.
Boulder Station is situated on approximately 45 acres located on the east
side of Las Vegas, Nevada. The Company owns 18 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 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
$125,000 through June 1998. The rent will be adjusted in July 1998 and every
ten years thereafter 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 is not expected to 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
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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 Company's
reducing revolving bank credit facility.
Texas Station is situated on approximately 47 acres located in North Las
Vegas, Nevada. The Company leases the property from a trust pursuant to a long-
term ground lease. The trustee of such trust is Bank of America NT&SA and 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 May
2060. The lease provides for monthly rental payments of $150,000 until July
2000. In July 2000, 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. 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),
including the Merger, 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 has not received such notice in
connection with the Merger as of the date of this filing. 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 Company's
reducing revolving bank credit facility.
Station Casino St. Charles is situated on approximately 52 acres located
immediately north of Interstate 70 on the edge of the Missouri River in St.
Charles, Missouri. The Company owns the entire 52 acres. The Company's
ownership interest in the St. Charles property is subject to liens to secure
borrowings under the Company's reducing revolving bank credit facility.
Station Casino Kansas City is situated on approximately 171 acres in Kansas
City, Missouri. The Company entered into a joint venture with an unaffiliated
third party to acquire the property. Station Casino Kansas City leases the site
from the joint venture with monthly payments of $90,000 through the remainder of
the lease term. The lease term was extended to March 31, 2006, with the option
to extend the lease for up to eight renewal periods of ten years each plus one
additional period of seven years. Commencing April 1, 1998, the rent was, and
every anniversary thereafter the rent will be, adjusted by a cost of living
factor. In connection with the joint venture agreement, the Company received an
option that provided for the right to acquire the joint venture partners
interest in this joint venture. The Company has the option to purchase this
interest at any time after April 1, 2002 through April 1, 2011 for $11.7
million, however, the purchase price will be adjusted by a cost of living factor
of not more than 5% or less than 2% per annum commencing April 1, 1998. The
Company paid $2.6 million for this option. The Company's leasehold interest in
the property is subject to a lien to secure borrowings under the Company's
reducing revolving bank credit facility, and under certain circumstances the
reducing revolving bank credit facility permits the lenders to force the
exercise of such option.
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. On the seventh anniversary date of
the lease, the Company has the option to purchase the land for $23.8 million.
The lessor also has an option to sell the land to the Company for $21.8 million
on the seventh anniversary of the lease. The remaining approximate 52 acres
were purchased by the Company in September 1995, for approximately $11 million.
The Company has acquired or leased several parcels of land in various
jurisdictions as part of the Company's development activities. At March 31,
1998, $20.6 million of land had been acquired for potential gaming projects in
jurisdictions where gaming has been approved. In addition, $3.7 million of land
had been acquired in certain jurisdictions where gaming has not yet been
approved. No assurances can be made that these jurisdictions will approve
gaming in the future.
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ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are defendants in various lawsuits
relating to routine matters incidental to their business. Management does not
believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on the Company.
A suit seeking status as a class action lawsuit was filed by plaintiff,
William H. Poulos, et al., as class representative, on April 26, 1994, 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 State 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
Stated District Court, for the State 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 Company does
not expect that the lawsuits will have a material adverse effect on the
Company's financial position or results of operations.
A suit seeking status as a class action lawsuit was filed by plaintiff
Nicole Anderson, et. al., as class representative, on September 24, 1997, in
the United States District Court for the Eastern District of Missouri, Eastern
Division. The lawsuit alleges certain racially based discriminatory action at
Station Casino St. Charles and seeks injunctive relief and compensatory,
special, consequential, incidental and punitive damages in unspecified amounts.
On or about October 24, 1997, plaintiff filed her first amended complaint. On
November 24, 1997, the Company filed its answer to plaintiff's first amended
complaint which denied the allegations contained therein. The Company does not
believe the suit has merit and intends to defend itself vigorously.
On January 16, 1997, the Company's gaming license in Kansas City was
formally issued for its facility, which is located in a man-made basin filled
with water piped in from the surface of the Missouri River. In reliance on
numerous approvals from the Missouri Gaming Commission specific to the
configuration and granted prior to the formal issuance of its gaming license,
the Company built and opened the Station Casino Kansas City facility. The
license issued to the Company and the resolutions related thereto specifically
acknowledge that the Missouri Gaming Commission had reviewed and approved this
configuration. On November 25, 1997, the Supreme Court of Missouri, in a case
challenging the gaming licenses of certain competitors of Station Casino St.
Charles located in Maryland Heights, Missouri, ruled that gaming in artificial
spaces may occur only in spaces that are contiguous to the surface stream of
the Missouri and Mississippi Rivers. The case was remanded to the trial court
for a factual determination as to whether such competing operators meet this
requirement.
Based upon this Missouri Supreme Court ruling (the "Akin Ruling"), the
Missouri Gaming Commission attempted to issue preliminary orders for
disciplinary action to all licensees in Missouri that operate gaming facilities
in
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artificial basins. These preliminary orders started the hearing process, which
allows the affected licensees to demonstrate that they are, in fact, contiguous
to the surface stream of the Missouri or Mississippi River. Station Casino
Kansas City was issued a preliminary order for disciplinary action. Station
Casino St. Charles did not receive such an order. The preliminary orders were
challenged by the licensees. The Circuit Court of Cole County granted writs of
prohibition preventing the Missouri Gaming Commission from proceeding with such
hearings under the Missouri Gaming Commission's existing procedures. The
Missouri Gaming Commission sought further review of these writs of prohibition
in the Missouri Supreme Court. On May 28, 1998, the Missouri Supreme Court
quashed the writs of prohibition, allowing the Missouri Gaming Commission to
proceed with hearings concerning Station Casino Kansas City and other licensees
for alleged noncompliance with the Akin Ruling. Subsequent thereto, on June 18,
1998, the Missouri Gaming Commission issued an Amended Preliminary Order for
Disciplinary Action against Station Casino Kansas City for noncompliance with
the Akin Ruling.
Prior to this ruling, on January 16, 1998, Station Casino Kansas City's
licenses were renewed for one year, subject to the satisfactory resolution of
the issues raised in the Akin Ruling. Furthermore, after the Akin Ruling was
entered by the Missouri Supreme Court, but before any further proceeding on
remand, the plaintiffs dismissed the Akin case without prejudice. Because of
the open questions raised but not answered in the Akin Ruling, it is not
possible to predict what effect, if any, the Akin Ruling or Missouri Gaming
Commission's action will have on operations at Station Casino Kansas City.
At this time, based on discussions with its Missouri legal counsel,
management of the Company believes that it has potentially meritorious defenses
in any lawsuits or administrative actions that are based on the Akin Ruling.
Management cannot provide any assurance, however, as to whether the Station
Casino Kansas City facility would be found to comply with the guidelines
described in the Akin Ruling, whether it would be permitted to modify the
facility to comply with such standards, or whether the Company's legal
defenses, electoral alternatives or other means available to permit the
continued use of this current configuration would succeed. Further, it is
unclear, in the event of a determination that the configuration of Station
Casino Kansas City does not comply with the Akin Ruling, whether Station Casino
Kansas City would be able to continue to operate or whether such findings would
result in the temporary or permanent closure of Station Casino Kansas City.
Any or all of the steps management is currently taking in response to the Akin
Ruling, including consideration of possible remediation of the site at a cost
that management believes would not have a material adverse effect on the
Company's financial position, could reverse or mitigate the financial impact of
this action. However, the Company cannot provide any assurance that there
would not be a material adverse impact in such an eventuality. Management of
the Company does not believe, however, that the Akin Ruling will have a
material adverse impact on the existing Station Casino St. Charles operations.
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 alleges
that the defendants are conducting gaming operations that are not located on
the Missouri River in violation of certain state and federal statutes. The
plaintiffs are seeking declaratory judgment that the operators are conducting
illegal games of chance, as well as compensatory, special, consequential, and
incidental damages in unspecified amounts. On January 28, 1998, the Company
filed its answer to the complaint denying the allegations contained therein.
Management believes that the 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 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock trades on 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." The following table sets forth, for the
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periods indicated, the high and low sale price per share of the Common Stock as
reported on the New York Stock Exchange or the Nasdaq National Market, as
applicable.
HIGH LOW
---- ---
FISCAL YEAR ENDED MARCH 31, 1998
--------------------------------
First Quarter 9.50 8.00
Second Quarter 8.38 7.00
Third Quarter 10.50 6.13
Fourth Quarter 16.63 9.94
FISCAL YEAR ENDED MARCH 31, 1997
--------------------------------
First Quarter 16.38 11.63
Second Quarter 14.50 11.69
Third Quarter 12.75 9.50
Fourth Quarter 10.88 8.00
As of May 29, 1998, there were 899 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, including the Convertible Preferred Stock,
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".
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of and for the
Company's fiscal years ended March 31, 1994, 1995, 1996, 1997 and 1998 have been
derived from consolidated financial statements which, except for 1994 and 1995,
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 MARCH 31,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Statement of Operations Data:
Operating revenues:
Casino ....................................................... $ 600,847 $ 450,013 $ 358,495 $ 210,534 $ 109,090
Food and beverage ............................................ 131,365 92,220 73,057 43,208 26,078
Room ......................................................... 37,330 27,420 23,614 17,690 14,360
Other ........................................................ 53,494 48,957 39,099 36,561 31,226
--------- --------- --------- --------- ---------
Gross revenues ........................................... 823,036 618,610 494,265 307,993 180,754
Less promotional allowances .................................. (53,426) (35,095) (27,408) (17,715) (11,211)
--------- --------- --------- --------- ---------
Net revenues .............................................. 769,610 583,515 466,857 290,278 169,543
--------- --------- --------- --------- ---------
Operating costs and expenses:
Casino ....................................................... 291,102 203,857 150,805 92,812 47,492
Food and beverage ............................................ 89,928 68,994 57,659 34,045 19,528
Room ......................................................... 13,461 10,318 9,147 7,014 5,439
Other ........................................................ 24,658 23,927 24,902 27,270 22,432
Selling, general and administrative .......................... 172,258 120,285 97,466 60,810 26,269
Corporate expenses ........................................... 15,633 18,284 15,979 13,141 7,920
Restructuring charge ......................................... -- 2,016 -- -- --
Development expenses ......................................... 104 1,302 3,960 7,200 1,791
Depreciation and amortization ................................ 67,414 44,589 35,039 22,220 12,976
Preopening expenses .......................................... 10,866 31,820 2,436 19,378 --
--------- --------- --------- --------- ---------
Total operating costs and expenses ........................ 685,424 525,392 397,393 283,890 143,847
--------- --------- --------- --------- ---------
Operating income ................................................ 84,186 58,123 69,464 6,388 25,696
Interest expense, net ........................................... (78,826) (36,698) (30,563) (19,967) (9,179)
Write-off of costs to elect REIT status ......................... (2,914) -- -- -- --
Other income (expense) .......................................... (6,566) (47) 1,150 2,160 2,192
--------- --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary item ........ (4,120) 21,378 40,051 (11,419) 18,709
Income tax (provision) benefit .................................. 966 (7,615) (14,579) 3,477 (4,806)
Reinstatement of deferred taxes ................................. -- -- -- -- (4,486)
--------- --------- --------- --------- ---------
Net income (loss) before extraordinary item ..................... (3,154) 13,763 25,472 (7,942) 9,417
Extraordinary item - loss on early retirement of debt, net of
applicable income tax benefit ................................ (2,042) -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) ............................................... (5,196) 13,763 25,472 (7,942) 9,417
Preferred stock dividends ....................................... (7,245) (7,245) (53) -- --
--------- --------- --------- --------- ---------
Net income (loss) applicable to common stock .................... $ (12,441) $ 6,518 $ 25,419 $ (7,942) $ 9,417
========= ========= ========= ========= =========
Proforma net income after income taxes (unaudited)(1) ........... $ -- $ -- $ -- $ -- $ 12,309
========= ========= ========= ========= =========
Basic and diluted earnings per share:
Earnings (loss) per common share ................................ $ (0.35) $ 0.18 $ 0.75 $ (0.26) --
Pro forma earnings per share (unaudited) (1) .................... -- -- -- -- $ 0.42
Weighted average common shares outstanding ...................... 35,309 35,316 33,918 30,113 --
Pro forma weighted average common
shares outstanding (unaudited) ............................... -- -- -- -- 29,413
23
24
FOR THE YEARS ENDED MARCH 31,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Other Data (2):
Number of hotel rooms.................................. 2,195 1,728 1,528 1,328 1,028
Average daily occupancy rate........................... 93% 96% 94% 95% 97%
Casino square footage.................................. 521,000 432,000 278,000 206,000 84,000
Number of slot machines................................ 16,237 13,008 9,555 7,020 3,323
Capital expenditures (3)............................... $ 134,385 $ 506,096 $ 307,745 $ 163,884 $ 102,687
EBITDA, As Adjusted (4)................................ 162,466 136,548 106,939 47,986 41,743
EBITDAR, As Adjusted (4)............................... 174,894 141,921 113,476 50,563 41,9