ITEM 1. BUSINESS
GENERAL
California Hotel and Casino (the "Company") is a gaming company with operations in the State of Nevada and is the only casino operator with properties in each of the three principal Las Vegas gaming markets: the Las Vegas Strip; the Boulder Strip in eastern Las Vegas; and downtown Las Vegas. The Company owns and operates six properties in Las Vegas: the Stardust Resort and Casino (the "Stardust") located on the Las Vegas Strip; Sam's Town Hotel and Gambling Hall (Sam's Town Las Vegas"), the Eldorado Casino (the "Eldorado") and Jokers Wild Casino (the "Jokers Wild") located on or near the Boulder Strip; and the California Hotel and Casino (the "California") and the Fremont Hotel and Casino (the "Fremont") located in downtown Las Vegas. In total, the Company currently owns and operates 311,500 square feet of casino space containing 8,173 slot machines and 224 table games. The Company plans to open Main Street Station in downtown Las Vegas, by the end of calendar year 1996.
The Company is a wholly owned subsidiary of Boyd Gaming Corporation ("Boyd Gaming"), which owns, operates and develops gaming properties both inside and outside Nevada. The Company directly owns and operates Sam's Town and the California and owns and operates the Stardust, the Fremont, the Eldorado and Jokers Wild through wholly owned subsidiaries. Unless the context otherwise requires, the "Company" refers to California Hotel and Casino and its subsidiaries. The Company was incorporated in Nevada in 1973. The executive offices of the Company are located at 2950 South Industrial Road, Las Vegas, Nevada 89109, and its telephone number is (702) 792-7200.
OPERATING STRATEGY
The Company believes that the following key elements have contributed to the success of the Company in the past and are central to its future success.
Value-Oriented Casino Entertainment Experience
The Company is committed to providing a high-quality casino entertainment experience to its primarily middle-income customers at an affordable price in order to develop customer loyalty. The Company delivers value to its customers through providing service in an inviting and entertaining environment. The Company delivers additional value to its customers through moderately-priced casino entertainment, hotel, restaurant and live entertainment offerings and regularly reinvests in its existing facilities in an effort to maintain the quality and competitiveness of its properties.
Lively, Friendly Atmosphere
Each of the Company's facilities is clean and modern and offers friendly service in an informal and lively atmosphere. The Company's employee training programs are designed to motivate employees to provide the type of friendly and attentive service which the Company seeks to provide at its facilities. The Company has an extensive customer feedback system, ranging from guest comment cards in its restaurants and hotel rooms, to other consumer surveys and research. In addition to providing a measure of customer
service, comment cards and consumer research allow the Company to obtain valuable customer feedback and marketing information for its database.
Emphasis on Slot Play
The Company emphasizes slot machine wagering, the most consistently profitable segment of the casino entertainment business. Technological advances in slot product have resulted in sophisticated interactive games which offer customers greater variety, more generous payoffs and increased periods of play for their casino entertainment dollar. The Company continually invests in upgrading its machines to reflect advances in technology and the development of proprietary slot games and related equipment at all of its facilities in order to further enhance the slot customer's experience.
Comprehensive Marketing and Promotion
The Company actively promotes its casino entertainment offerings, its hotels, destination restaurants and live entertainment using a variety of promotional advertising media including outdoor advertising and print and broadcast media. The Company develops and maintains an extensive customer database. The database is expanded daily, adding new casino customers by obtaining their mailing addresses and other marketing information. To encourage repeat visitation, the Company employs a direct mail program targeting its database customers with a variety of product offerings, including incentives to visit the Company's facilities frequently. During fiscal 1996, the Company distributed over 8 million pieces of mail to its database customers. The Company also provides complimentary rooms, food and other services to valued customers, but maintains limits on such items consistent with its focus on middle-income patrons.
PROPERTIES
The Company currently owns and operates six properties in Las Vegas, Nevada: the Stardust; Sam's Town Las Vegas; the Eldorado; Jokers Wild; the California; and the Fremont and is developing Main Street Station.
The Stardust
The Stardust, situated on 52 acres of land owned and nine acres of land leased by the Company on the Las Vegas Strip, is a casino hotel complex with approximately 87,000 square feet of casino space, a conference center containing approximately 35,000 square feet of meeting space and a 900-seat showroom. The casino offers nearly 2,000 slot machines and 78 table games, including tables featuring "21," craps, roulette, baccarat, mini-baccarat, pai gow, Caribbean stud and poker, as well as keno. The Stardust features "Enter the Night," a production show that includes computerized lighting, lasers and digital surround sound. The Stardust also has one of the largest and best known race and sports books in the United States and is the home of the Stardust line, a racing and sports line service that is quoted throughout the United States and abroad. The Stardust features more than 2,300 guest rooms, 1,500 in its 32-story hotel tower. Notwithstanding the increased number of rooms available in Las Vegas, the Stardust achieved a 97% occupancy rate in fiscal 1995 and a 96% occupancy rate for fiscal 1996. The Stardust complex, which is distinguished by dramatic building lighting, has seven restaurants, a shopping arcade, two swimming pools and parking spaces for approximately 2,900 cars.
The Stardust caters primarily to adult Las Vegas visitors seeking the classic Las Vegas gaming experience. Using its extensive database, the property promotes customer loyalty and generates repeat customer business by communicating with its customers regarding special events, new product offerings and special incentive promotions at the property. The Company uses a network of tour operators and wholesalers to reach customers who prefer packaged trips and print and broadcast media to attract the independent traveler. The Company attracts proven slot and table game players through direct mail promotions for tournaments, events and a variety of special offers. With its conference center, the Stardust also attracts meeting and banquet business. In addition, the Stardust draws a significant number of walk-in customers. Patrons of the Stardust come primarily from the western United States, including Southern California and Arizona, and the Midwest.
The Company has developed a master plan for the Stardust, calling for, among other things, as many as two additional hotel towers, and has taken steps for a future expansion, including incorporating footings for one of the two proposed additional towers in the existing facility. In addition, the Company has determined that the 61-acre Stardust site is capable of accommodating the development of an entirely new casino entertainment facility adjacent to the existing Stardust and is exploring the feasibility of such a project.
Boulder Strip Properties
Sam's Town Las Vegas is situated on 56 acres of land owned and seven acres of land leased by the Company on the Boulder Strip, approximately six miles east of the Las Vegas Strip. Following a $105 million expansion completed in July 1994, Sam's Town features an approximately 118,000 square foot casino, a 56-lane bowling center and the 25,000 square foot Western Emporium retail store. The gaming facilities now include nearly 2,800 slot machines and 55 table games, including tables featuring "21," craps, roulette, pai gow, poker and Caribbean stud, as well as keno, an expanded race and sports book and a large bingo parlor. The expanded property has 650 guest rooms, 12 restaurants, approximately 3,200 parking spaces, including two parking garages which together can accommodate up to 2,000 cars and approximately 500 recreational vehicles. The expanded Sam's Town facility features a 25,000 square foot atrium enclosing a Sierra Nevada-style park with extensive foliage and trees, streams, bridges and water features. Fronting the park are an Italian restaurant, a western steakhouse and a food court, as well as new retail outlets. Also located at the property is a 5,400 square foot sports bar featuring interactive activities, an outdoor recreation complex with a swimming pool and volleyball court and a conference facility. Sam's Town Las Vegas achieved a 92% occupancy rate in fiscal 1995 and a 96% occupancy rate in fiscal 1996.
Sam's Town Las Vegas has a western theme and features an informal, friendly atmosphere that appeals to both local residents and visitors. Gaming and bowling tournaments, paycheck sweepstakes, costume contests and holiday parties create a social center that attracts many Las Vegas residents. The property hosts two of the largest events on the Ladies Professional Bowling Tour, including the Sam's Town Ladies Professional Bowling Tournament, which events have been televised on ESPN, and a premier amateur bowling tournament which attracts participants from throughout the world. Additionally, the Company attracts local market patrons, many of whom are repeat customers, by offering excellent price/value relationships in its food and beverage operations, and by slot marketing programs that include generous slot payouts. The popularity of Sam's Town Las Vegas among local residents allows it to benefit from the rapid development of the Las Vegas metropolitan area, which has been one of the fastest growing communities in the United States over the last decade. Management believes that the addition of 650 new
guest rooms, as well as destination restaurants and other amenities, as part of the expansion has increased the appeal of Sam's Town Las Vegas to visitors. Since completion of the expansion, overnight visitation to the property has substantially increased. The Company has developed a master plan for Sam's Town Las Vegas calling for, among other things, a second hotel tower. Although the Company has not yet made any decision regarding a future Sam's Town Las Vegas expansion, it is currently exploring the feasibility of such a project.
The Eldorado is situated on four acres of land owned by the Company in downtown Henderson, Nevada, which is southeast of Las Vegas. The casino has over 16,000 square feet of gaming space featuring approximately 560 slot machines and 11 table games, including tables featuring "21," craps, roulette and pai gow, as well as keno, bingo and a sports book. The facility also offers three restaurants, a live entertainment lounge and a parking garage for up to 500 cars. The principal customers at the Eldorado are Henderson residents.
Jokers Wild is situated on 13 acres of land owned by the Company on the Boulder Strip. Following a $5.6 million expansion completed in April 1994, the property offers over 22,500 square feet of casino space with approximately 650 slot machines and 11 table games, including tables featuring "21," craps, roulette, pai gow, Caribbean stud and poker, as well as keno and a sports book. The facility also offers a buffet restaurant, a coffee shop, an entertainment lounge, a video arcade and approximately 800 parking spaces. Jokers Wild serves both local residents and visitors to the Las Vegas area traveling on the Boulder Highway.
Downtown Properties
The California is situated on 13.9 acres of land owned and 1.6 acres of land leased by the Company in downtown Las Vegas. The California was the Company's first property and has over 36,000 square feet of gaming space, 781 guest rooms, five restaurants, approximately 5,000 square feet of meeting space, more than 800 parking spaces, including a parking garage for up to 425 cars, and an approximately 220-space recreational vehicle park, the only such facility in the downtown area. The casino offers over 1,100 slot machines and 38 table games, including tables featuring "21," craps, roulette, mini-baccarat, pai gow and Caribbean stud, as well as keno and a sports book. In December 1994, the Company completed a $15 million expansion of the California that added 140 new guest rooms and six suites, as well as other amenities. The California achieved a 95% occupancy rate in both fiscal 1995 and 1996.
The Fremont is situated on 1.4 acres of land owned and 0.9 acres of land leased by the Company on the principal thoroughfare in downtown Las Vegas. The property offers nearly 32,000 square feet of casino space including approximately 1,100 slot machines, and 31 table games, including tables featuring "21," craps, roulette, pai gow, poker and Caribbean stud, as well as keno and a race and sports book. The hotel has 452 guest rooms and five restaurants including the Second Street Grill, an upscale contemporary restaurant, and the Paradise Buffet, which features tropical-themed surroundings. The property also has approximately 8,200 square feet of meeting space and a parking garage for up to 350 cars. The Fremont achieved a 96% occupancy rate in both fiscal 1995 and 1996.
While many casinos in downtown Las Vegas compete with other downtown properties and properties on the Las Vegas Strip for the same customers, the Company has developed a distinctive niche for its Downtown Properties by focusing primarily on customers from Hawaii. The Company's marketing
strategy for the Downtown Properties focuses on gaming enthusiasts from Hawaii and tour and travel agents from Hawaii with whom the Company has cultivated relationships since it opened the California in 1975. Through the Company's recently acquired Hawaiian travel agency, the Company operates two DC-10 charter flights from Honolulu to Las Vegas each week, helping to ensure stable, reasonably priced air seats. This, as well as the Company's strong, informal relationships with other Hawaiian travel agencies, its affordably priced, all-inclusive packages and its Hawaiian promotions have allowed the California and the Fremont to capture a significant share of the Hawaiian tourist trade in Las Vegas. For more than a decade the Downtown Properties have been the leading Las Vegas destination for visitors from Hawaii. The Company attributes this success to the amenities and atmosphere at the Downtown Properties, which are designed to appeal specifically to visitors from Hawaii, and to its marketing strategy featuring significant promotions in Hawaii and a monthly newsletter circulated to over 68,000 households, primarily in Hawaii. In fiscal 1996, patrons from Hawaii comprised over 80% of the room nights at the California and over 65% of the room nights at the Fremont.
In December 1993, the Company acquired for $16.5 million Main Street Station, a casino hotel that is not currently in operation located across the street from the California. The Company has used the facility, where it previously leased rooms, to provide lodging for additional customers at the Downtown Properties. The renovation and expansion of Main Street Station is currently underway. The project includes a 28,500 square foot, newly-equipped casino with 25 table games and over 900 slot machines. The project also includes a complete renovation of the property's hotel rooms and an expansion and renovation of the property's food facilities to include a 500-seat buffet, a 130-seat specialty restaurant, a 100-seat cafe, a 200-seat brew pub and oyster bar and expanded parking to include 2,000 spaces. The renovation and expansion of Main Street Station is expected to be completed by the end of calendar year 1996. There can be no assurance that the project will be completed on schedule due to the many risks and uncertainties inherent in such renovation and expansion.
In anticipation of the opening of Main Street Station, the Company's third property in downtown Las Vegas, the Company has begun coordinating marketing efforts, consolidating support functions and standardizing operating procedures and systems with the goal of enhancing revenues and reducing expenses. This effort will include a consolidated database and marketing program for all Downtown Properties. The Company believes these efforts will provide it with a competitive advantage.
The Company, together with other downtown casino operators and the City of Las Vegas, retained a well-known urban design firm to develop a major new attraction known as the Fremont Street Experience. The attraction was designed to capitalize on Fremont Street's famous lights and features a semi-circular space frame nine stories above the street, stretching along four city blocks against which a sound and light spectacle is displayed. As part of the project, vehicular traffic on portions of Fremont Street has been eliminated, asphalt replaced by a patterned streetscape and special events brought to the downtown area to entertain visitors. The Fremont Street Experience cost approximately $70 million. Of this amount, $22 million was provided by eight downtown casino operators (including the Company), and the remainder was provided by local bond issuances. The Company invested approximately $5 million in the project. The Company believes that, since its opening in December 1995, the Fremont Street Experience has significantly enhanced the experience of visiting downtown Las Vegas and has attracted additional customers to the downtown area. However, no assurance can be given that the Fremont Street Experience will materially benefit the operating results of the Company's Downtown Properties.
INVESTMENT CONSIDERATION
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. Discussions containing such forward-looking statements may be found in the material set forth under "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as in the Annual Report generally. Also, documents subsequently filed by the Company with the Securities and Exchange Commission may contain forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of the investment conditions set forth below and the matters set forth in the Annual Report generally. The Company cautions the reader, however, that this list of factors may not be exhaustive, particularly with respect to future filings.
COMPETITION
The gaming industry is highly competitive. Gaming activities include: traditional land-based casinos; riverboat and dockside gaming; casino gaming on Indian land; state-sponsored lotteries; video poker in restaurants, bars and hotels; pari-mutuel betting on horse racing, dog racing and jai-alai; sports bookmaking; and card rooms. The casinos owned and being developed by the Company compete and will in the future compete with all these forms of gaming and with any new forms of gaming that may be legalized in existing and additional jurisdictions, as well as with other types of entertainment. In addition, further expansion of gaming into other jurisdictions could adversely affect the Company's business by diverting its customers to competitors in such jurisdictions. In particular, the expansion of casino gaming in or near any geographic area from which the Company attracts or expects to attract a significant number of its customers could have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that successful gaming facilities compete based on the following factors: location; attractions; quality of gaming facilities, gaming experience and entertainment; quality of food, beverage and atmosphere; and price. Although the Company believes it competes favorably with respect to these factors in most of its markets, some of its competitors have significantly greater financial and other resources than the Company.
The Company's properties compete primarily with other casino hotels on the Las Vegas Strip, the Boulder Strip and in downtown Las Vegas. Currently, there are approximately 25 major gaming properties located on or near the Las Vegas Strip, 11 located in the downtown area and several located in other areas of Las Vegas. Las Vegas gaming square footage and room capacity are continuing to increase. A number of marquee properties have opened in the last several years, and several others are currently under construction or planned for the Las Vegas Strip, including the 1,500-room Stratosphere Tower, Casino and Hotel, the 3,000-room Paris Casino-Resort, the 3,000-room Monte Carlo Resort and Casino, the 2,035-room New York - New York Hotel/Casino, and the 3,000-room Bellagio. Additionally, several properties have recently announced or begun significant expansion and renovation projects, including Circus Circus-Las Vegas, MGM Grand Hotel/Casino, Harrah's-Las Vegas, Rio Suite Hotel and Casino, Luxor Hotel and Casino, and the Sahara Hotel and Casino. Each of the foregoing facilities has or may have a theme and attractions which have drawn or may draw significant numbers of visitors. Moreover, most of
these facilities attract or may attract primarily middle-income patrons, who are the focus of the Company's marketing strategy. Although the Company believes that these additional facilities will draw more visitors to Las Vegas, these properties also may divert potential gaming activity from the Company. Future additions, expansions and enhancements to existing properties and construction of new properties by the Company's competitors could divert additional gaming activity from the Company's facilities. There can be no assurance that the Company will compete successfully in the Las Vegas market in the future.
ADDITIONAL FINANCING REQUIREMENTS
The Company intends to finance its current and future expansion projects primarily with cash flow from operations and borrowings under its $500 million reducing revolving bank credit facility (the "New Bank Credit Facility"). If the Company is unable to finance such projects through cash flow from operations and borrowings under its New Bank Credit Facility, it will have to adopt one or more alternatives, such as reducing or delaying planned expansion and capital expenditures, selling assets, restructuring debt or obtaining additional equity or debt financing. No assurance can be given that the aforementioned sources of funds will be sufficient to finance the Company's expansion or that other financing will be available on acceptable terms, in a timely manner or at all. In addition, the Company's 11% Senior Subordinated Notes due 2002 (the "11% Notes"), and the New Bank Credit Facility contain certain restrictions on the ability of the Company to incur additional indebtedness. If the Company is unable to secure additional financing, it could be forced to limit or suspend expansion, development and acquisition projects, which may adversely effect the Company's business, financial condition and results of operations. See "--Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources."
LEVERAGE AND DEBT SERVICE
At June 30, 1996 the Company had total long-term debt of approximately $366 million. The New Bank Credit Facility is a five-year, $500 million reducing revolving credit facility. Debt service requirements on the New Bank Credit Facility consist of interest expense on outstanding indebtedness. Beginning in December 1998, the total principal amount available under the New Bank Credit Facility will be reduced by $25 million and reduced by an additional $50 million at the end of each six-month period thereafter until maturity in June 2001. Debt service requirements on the 11% Notes (as defined herein) issued by a financing subsidiary of the Company consist of semi-annual interest payments and repayment of the $185 million principal amount on December 1, 2002. The Company expects to fund the $45 million renovation, expansion and re-equipping of Main Street Station with borrowings under the New Bank Credit Facility to the extent not funded from cash flow from operations. The Company's ability to service its debt will be dependent on its future performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond the Company's control. Accordingly, no assurance can be given that the Company will maintain a level of operating cash flow that will permit it to service its obligations. If the Company is unable to generate sufficient cash flow or is unable to refinance or extend outstanding borrowings, it will have to adopt one or more alternatives, such as reducing or delaying planned expansion and capital expenditures, selling assets, restructuring debt or obtaining additional debt financing. There can be no assurance that any of these financing strategies could be effected on satisfactory terms, if at all. In addition, certain states' laws contain restrictions on the ability of companies engaged in the gaming business to undertake certain financing transactions. Such restrictions may prevent the Company from obtaining necessary capital. See "--Additional Financing Requirements," "--Governmental Gaming Regulation," and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources."
GOVERNMENTAL REGULATION
Nevada
The ownership and operation of casino gaming facilities in Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, the "Nevada Act"); and (ii) various local regulation. The Company's gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming Control Board (the "Nevada Board"), and the Clark County Liquor and Gaming Licensing Board (the "Clark County Board"). The Nevada Commission, the Nevada Board, and the Clark County Board are collectively referred to herein as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practice of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) the provision of a source of state and local revenues though taxation and licensing fees. Changes in such laws, regulations and procedures could have an adverse effect on the Company's gaming operations.
Corporations that operate casinos in Nevada are required to be licensed by the Nevada Gaming Authorities. A gaming license requires the periodic payment of fees and taxes and is not transferable. The Company is registered by the Nevada Commission as a publicly traded corporation (a "Registered Corporation") and as such, it is required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information which the Nevada Commission may require. The Company has been found suitable by the Nevada Commission to own the stock of CH&C. CH&C is licensed by the Nevada Commission to operate non-restricted gaming activities at the California and Sam's Town Las Vegas and is additionally registered as a holding corporation and approved by the Nevada Gaming Authorities to own the stock of Mare Bear, Inc. ("Mare Bear"), the operator of the Stardust; Sam Will, Inc. ("Sam Will"), the operator of the Fremont; and Eldorado, Inc., the operator of the Eldorado and Joker's Wild. No person may become a stockholder of, or receive any percentage of profits from, CH&C or its subsidiaries without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Company, CH&C, Mare Bear, Sam Will and Eldorado, Inc. have obtained from the Nevada Gaming Authorities the various registrations, approvals, permits and licenses required in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company, or any of its licensed subsidiaries in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of the Company and its licensed subsidiaries must file applications
with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Officers, directors and key employees of the Company who are actively and directly involved in gaming activities of CH&C or its licensed subsidiaries may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Company or any of its licensed subsidiaries, the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company, CH&C or any of its licensed subsidiaries to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada.
The Company and its licensed subsidiaries are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by CH&C and its subsidiaries must be reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by the Company or any of its licensed subsidiaries, the gaming licenses they hold could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, the Company, the subsidiary involved, the Company, and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate the Company's gaming properties and, under certain circumstances, earnings generated during the supervisor's appointment (except for reasonable rental value of the Company's gaming properties) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have his suitability as a beneficial holder of the Company's voting securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the state of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the Company's voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of the Company's voting securities apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing. Under certain circumstances, an "institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of the Company's voting securities may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Company, any change in the Company's corporate charter, bylaws, management, policies or operations of the Company, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Company's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes include only: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a license within thirty days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock of a Registered Corporation beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company, CH&C or any of its licensed subsidiaries, the Company (i) pays that person any dividend or interest upon voting securities of the Company, (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) pays remuneration in any form to that person for services rendered or otherwise, or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities for cash at fair market value. Additionally, the Clark County Board has taken the position that it has the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any debt security of a Registered Corporation to file applications, be investigated and be found suitable to own the debt security of a Registered Corporation. If the Nevada Commission determines that a person is unsuitable to own such 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 securities to bear a legend indicating that the securities are subject to the Nevada Act. However, to date, the Nevada Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or the proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. Such approval, if given, does not constitute a finding, recommendation or approval by the Nevada Gaming Authorities as to the accuracy or adequacy of the prospectus or the investment merits of the securities. Any representation to the contrary is unlawful. On September 20, 1996, the Nevada Commission granted the Company prior approval to make public offerings for a period of one year, 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. This offering is made pursuant to the Shelf Approval. The Shelf Approval does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities offered. Any representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the Nevada Gaming Authorities in a variety of stringent standards prior to assuming control of such Registered Corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchase of voting securities and corporate defense tactics affecting Nevada gaming licensees, and Registered Corporations that are affiliated with those licensees, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before the Company can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by the Company's Board of Directors in response to a tender offer made directly to the Registered Corporation's stockholders for the purposes of acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada, Clark County and the City of Las Vegas. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are
based upon any of: (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. A casino entertainment tax is also paid by casino operations where entertainment is furnished in connection with the selling of food or refreshments.
Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation of the Nevada Board of their participation in such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Commission. Thereafter, Licensees are required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Nevada Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employ a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of personal unsuitability.
The sale of food or alcoholic beverages at the Company's Nevada casinos is subject to licensing, control and regulation by the applicable local authorities. All licenses are revocable and are not transferable. The agencies involved have full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could (and revocation would) have a material adverse effect upon the operations of the affected casino or casinos.
ENVIRONMENTAL RISKS
The Company is subject to certain federal, state and local environmental, safety and health laws, regulations and ordinances that apply to non-gaming businesses generally, such as the Clean Air Act, Clean Water Act, Occupational Safety and Health Act, Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation, and Liability Act. The Company has not made, and does not anticipate making, material expenditures with respect to such environmental, safety and health laws, regulations and ordinances. However, the coverage and attendant compliance costs associated with such laws, regulations and ordinances may result in future additional costs to the Company's operations. Any significant environmental liability or compliance costs could have a material adverse effect on the Company's business, financial condition and results of operations.
RELIANCE ON CERTAIN MARKETS
The California and the Fremont derive a substantial portion of their customers from the Hawaiian market. In fiscal 1996, patrons from Hawaii made up over 80% of the room nights at the California and over 65% at the Fremont. An increase in fuel costs or transportation prices, a decrease in airplane seat availability or a deterioration of relations with tour and travel agents, as they affect travel between the Hawaiian market and the Company's facilities, could materially adversely affect the Company's business, financial condition and results of operations. The Company's properties also draw a substantial number of customers from certain other specific geographic areas, including Southern California, Arizona, Las Vegas and the Midwest. Adverse economic conditions in any of these markets, or the failure of the Company's facilities to continue to attract customers from these geographic market as a result of increased competition
in those markets could have a material adverse effect on the Company's business, financial condition and results of operations.
EMPLOYEES
At August 31, 1996, the Company employed approximately 7,200 persons: approximately 2,100 at the Stardust; 2,100 at Sam's Town Las Vegas; 275 at the Eldorado; 300 at Joker's Wild; 1,100 at the California and 950 at the Fremont. On such date, the Company had collective bargaining relationships with nine unions covering approximately 1,700 employees, substantially all of whom are employed at the Stardust and the Fremont. Several collective bargaining agreements are currently in effect and will expire in 1997. Other agreements have expired and are in various stages of negotiation. Employees covered by expired agreements have continued to work during the negotiations, in some cases under the terms of the expired agreements and in others under modifications thereof.
ITEM 2.
ITEM 2. PROPERTIES
Reference is made to the information contained under Item 1. "Business - - Properties."
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are also parties to various other legal proceedings arising in the ordinary course of business. In the opinion of management, all pending claims in such matters, if adversely decided, would not have a material adverse effect on the Company's financial position or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is currently no established public trading market for the Company's Common Stock. Boyd Gaming is the sole stockholder of the Company.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below at and for the fiscal years ended June 30, 1996 and 1995 and for the fiscal year ended June 30, 1994, have been derived from the audited consolidated financial statements contained elsewhere in this Form 10-K. The selected consolidated financial data presented below as of June 30, 1994 and as of and for the fiscal years ended June 30, 1993 and 1992 have been derived from audited consolidated financial statements of the Company not contained herein. Operating results for the fiscal years shown below are not necessarily indicative of the results that may be expected for future fiscal years.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain Income Statement Data for the Company's properties. As used herein, "Boulder Strip Properties" consist of Sam's Town Las Vegas, the Eldorado Casino and the Jokers Wild Casino; and "Downtown Properties" consist of the California Hotel and Casino and the Fremont Hotel and Casino.
Fiscal 1996 Compared to Fiscal 1995
Consolidated net revenues increased 5.4% for fiscal 1996 compared to fiscal 1995. The increase in net revenues for fiscal 1996 resulted primarily from increased revenues at Sam's Town Las Vegas of 14.9%. Revenue growth on a consolidated basis in fiscal 1996 was achieved in all major revenue categories, with casino revenue increasing 5.5%, room revenue increasing 2.6%, food and beverage revenue increasing 6.0% compared to fiscal 1995. Slot revenue, which continued to account for more than 70% of casino revenue, increased 8.2% in fiscal 1996 compared to fiscal 1995. The increase in slot revenue was primarily attributable to a 24% increase in slot revenue at Sam's Town Las Vegas. Table games revenue, the only other significant component of casino revenue, decreased 3.6% in fiscal 1996 compared to fiscal 1995. Company-wide room revenue increased 2.6% in fiscal 1996 compared to fiscal 1995 as a result of a 2.1% increase in occupied rooms and a 6.4% increase in the average daily room rate. The Company's hotel rooms posted an overall occupancy percentage of 96% in both fiscal 1996 and fiscal 1995 with occupancy at Sam's Town Las Vegas increasing to 96% in fiscal 1996 compared to 92% in fiscal 1995. The increase in occupied rooms was attributable to the opening of the California rooms expansion (146 rooms opened in December 1994). The rooms expansion project was open for the entire fiscal 1996 but was only open for
the last six months of fiscal 1995. Occupancy statistics do not include rooms at Main Street Station which the Company uses to augment the rooms base at the California and the Fremont. The Main Street Station property was purchased in December 1993 as a closed casino hotel facility and is currently undergoing an extensive renovation and expansion project. The Company expects to open this renovated and expanded property in fiscal 1997 as a complete casino hotel facility.
Consolidated operating income increased 4.8% for fiscal 1996 compared to fiscal 1995 while consolidated operating income margins remained at 11.4%. This increase in operating income and operating income margins was primarily attributable to increases at Sam's Town Las Vegas of 83% and 4.3 percentage points, respectively, offset by declines at the Downtown Properties of 18.2% and 3.5 percentage points, respectively.
Net revenues at the Stardust increased 0.5% for fiscal 1996 as compared to the prior fiscal year. Casino and food and beverage revenues declined 0.5% and 1.6%, respectively, while rooms revenue increased 3.4% and showroom revenue increased 9.3% for fiscal 1996 as compared to fiscal 1995. Slot revenue declined 1.3% in fiscal 1996 with a 2.3% increase in wagering offset by lower net winnings. Table games revenue declined 4.1% for fiscal 1996 as compared to fiscal 1995 as a result of an increase of 4.3% in wagering offset by lower net winnings. Other casino revenues increased 11.9% for fiscal 1996 primarily as a result of a 28% increase in revenue in the sports book. Rooms revenue at the Stardust increased 3.4% for fiscal 1996 compared to fiscal 1995 with a 1.3% decline in occupied rooms offset by a 7.9% increase in average daily room rate. The Stardust posted an occupancy rate of 96% in fiscal 1996 versus 97% in the prior fiscal year. Operating income increased slightly in fiscal 1996 compared to fiscal 1995 and operating income margin was 15.8% compared to 15.9%, respectively for fiscal 1996 versus fiscal 1995. The slight decline in operating income margin was primarily the result of higher advertising and promotional expenses not fully offset by increased operating income and operating income margin in the rooms department.
Net revenues for the Boulder Strip Properties increased 12.7% for fiscal 1996 versus fiscal 1995 primarily as a result of increased revenues at Sam's Town Las Vegas. Sam's Town Las Vegas revenue increased 14.9% for fiscal 1996 while revenues increased 6.8% at Jokers Wild and declined slightly at the Eldorado. Casino revenues at the Boulder Strip Properties increased 16.7% for fiscal 1996 versus fiscal 1995, while rooms revenue increased 4.7% and food and beverage revenue increased 4.8%. Operating income at the Boulder Strip Properties increased 54% for fiscal 1996 compared to fiscal 1995 while operating income margin increased 3.3 percentage points to 12.6% for fiscal 1996. Sam's Town Las Vegas posted increases in operating income and operating income margin of 83% and 4.3 percentage points, respectively for the 1996 fiscal year. Operating income margins increased 2.5 percentage points at the Eldorado and declined 2.3 percentage points at Jokers Wild for fiscal 1996 versus fiscal 1995. The increase in operating income margin at the Eldorado was a result of increased casino revenue while the decline in operating income margin at Jokers Wild was primarily a result of increased expenses in the food and beverage department for fiscal 1996 versus fiscal 1995. Management believes that the significant increases in revenues, operating income and operating income margin at Sam's Town Las Vegas for fiscal 1996 versus fiscal 1995 were primarily attributable to the implementation of successful marketing programs creating increased customer awareness and visitation.
Net revenues at the Downtown Properties increased 3.2% for fiscal 1996 compared to fiscal 1995. Net revenues at the California increased 1.4% while net revenues at the Fremont increased 5.2%. Casino revenues at the Downtown Properties were up slightly while food and beverage revenue increased 20% and
rooms revenue declined slightly. Operating income and operating income margins at the Downtown Properties declined 18.2% and 3.5 percentage points, respectively in fiscal 1996 as compared to fiscal 1995. Operating income at the California declined 20% while operating income margin at the California declined 3.7 percentage points for fiscal 1996. The decline in operating income and operating income margin at the California was primarily the result of increased operating costs in the rooms and food and beverage departments and increased advertising and promotional costs. Operating income and operating income margin at the Fremont declined 15.6% and 3.1 percentage points, respectively for fiscal 1996 compared to fiscal 1995 primarily as a result of increased advertising and promotional costs. Construction of the Fremont Street Experience project, which was completed and opened to the public in December 1995, negatively impacted the Downtown Properties for the majority of the first and second fiscal quarter.
Interest expense, net of amounts capitalized, decreased $4.7 million or 12.1% for fiscal 1996 compared to fiscal 1995 primarily as a result of more capitalized interest related to projects under development and lower net borrowings. Depreciation and amortization expense for fiscal 1996 decreased $1.5 million or 3.3% compared to fiscal 1995.
The Company's tax rate for fiscal 1996 was 41% compared to 48% in fiscal 1995. The Company's 1995 tax rate was affected by the increase in certain non-deductible Company provided benefits.
The Company recorded an extraordinary loss, net of tax, of $.8 million in fiscal 1996. This extraordinary loss resulted from the write-off of unamortized bank loan fees in connection with its recent bank refinancing which was completed on June 19, 1996.
As a result of these factors, net income before extraordinary item increased $6.0 million and net income increased $5.1 million for fiscal 1996 compared to fiscal 1995.
Fiscal 1995 Compared to Fiscal 1994
Consolidated net revenues increased 8.3% for fiscal 1995 compared to fiscal 1994. The increase in net revenues in fiscal 1995 resulted from the opening of Sam's Town Las Vegas expansion in July 1994 and the opening of the California Hotel rooms expansion in December 1994. Net revenues at the Boulder Strip Properties increased 34% and net revenues at the Stardust and Downtown Properties declined 1.2% and 1.8%, respectively. Net revenues at the Boulder Strip Properties were enhanced by the opening in July 1994 of the Sam's Town Las Vegas expansion and by the acquisition of the Eldorado Casino and Jokers Wild Casino in October 1993. The Company's revenue growth was achieved in all major revenue categories with casino revenue increasing 5.6%, room revenue increasing 31.3%, food and beverage revenue increasing 8.2% and other revenue increasing 14.9%. Slot revenue, which continues to account for more than two-thirds of total casino revenue, increased 8.1% in fiscal 1995 compared to fiscal 1994. The increase in slot revenue is primarily attributable to the opening of the Sam's town Las Vegas expansion in July 1994. Table games revenue, the only other significant component of casino revenue, increased 3.6% also as a result of the opening of the Sam's Town Las Vegas expansion. Company-wide room revenue increased 31.3% for fiscal 1995 compared to fiscal 1994 primarily as a result of a 16.1% increase in occupied rooms and a 9.7% increase in average daily room rate. The increase in occupied rooms is attributable to the openings of the Sam's Town Las Vegas expansion in July 1994 (650 rooms) and the opening of the California Hotel and Casino rooms expansion (146 rooms opened in December 1994). The Company's hotel rooms posted an overall occupancy percentage of 96% in fiscal 1995 compared to 98% in fiscal 1994. Occupancy statistics do not include Main Street Station rooms which the Company uses to
augment the rooms base at the California and Fremont.
Consolidated operating income decreased 3.5% for fiscal 1995 compared to fiscal 1994 and consolidated operating income margins were 11.4% in fiscal 1995 compared to 12.8% in fiscal 1994. The decline in consolidated operating income and consolidated operating income margin was primarily the result of declines at the Boulder Strip Properties and to a lesser extent the Downtown Properties offset by increases at the Stardust
Net revenues at the Stardust declined 1.2% for fiscal 1995 as compared to the prior fiscal year. Casino and food and beverage revenues declined 3.8% and 5.1% respectively, while rooms revenue increased 14.4% and showroom revenue increased 19.9%. Slot revenue declined 1.8% with a 3.5% increase in wagering offset by lower net winnings. Table games revenue declined 3.8% as a result of a decline of 2.2% in wagering combined with slightly lower net winnings. Other casino revenues declined 15.9% for fiscal 1995 with both the sports book and keno posting declines in wagering, 17.3% and 17.8% respectively, offset by slightly higher net winnings. The decline in wagering in the sports book was primarily attributable to the decline in baseball wagering due to the Major League Baseball strike. Rooms revenue at the Stardust increased 14.4% for fiscal 1995 compared to fiscal 1994 with a 2.6% decline in occupied rooms offset by a 15.7% increase in average daily room rate. The Stardust posted an occupancy rate of 97% in fiscal 1995 versus 99% in the prior fiscal year. Operating income margins increased 2.3 percentage points to 15.9% for fiscal 1995 versus 13.6% in fiscal 1994. The increase in the operating income margin was the result of increased operating income in the rooms department and showroom department combined with slight decreases in payroll and overhead expenses.
Net revenues for the Boulder Strip Properties increased 34% for fiscal 1995 versus fiscal 1994 primarily as a result of the opening of the Sam's Town Las Vegas expansion in July 1994 and also as a result of the acquisition of the Eldorado Casino and Jokers Wild Casino in October 1993. Sam's Town Las Vegas revenue increased 31% as a result of the expansion with casino revenue increasing 22%, food and beverage revenue increasing 54% and increased rooms revenue as a result of having a full year of rooms revenue in fiscal 1995. For most of fiscal 1994 all 200 hotel rooms at Sam's Town Las Vegas were removed as part of the expansion project. Net revenues at the Eldorado and Jokers Wild increased 40% and 56% respectively, primarily as a result of their acquisition in October 1993. The operating income margin for the Boulder Strip Properties was 9.3% in fiscal 1995 versus 16.5% in fiscal 1994. The decline in the operating income margin was attributable to a decline in Sam's Town Las Vegas operating income margin to 7.3% from 15.6% and a decline in operating income margins at the Eldorado and Jokers Wild to 14.8% and 19.8%, respectively, from 18.3% and 23.7%, respectively. The decline in operating income margins at Sam's Town Las Vegas was primarily attributable to the growth in revenue which did not match the growth in expenses associated with the expanded property and increased competition, primarily the opening of a new property on the Boulder Strip. The decline in operating income margins at the Eldorado and Jokers Wild resulted from increased competition on the Boulder Strip.
Net revenues at the Downtown Properties decreased 1.8% for fiscal 1995 as compared to fiscal 1994. Net revenues at the California increased 2.5% in fiscal 1995 with casino revenue increasing 1.5%, rooms revenue increasing 15.9% and food and beverage revenue declining 4.2%. Net revenues at the California were enhanced by the opening in December 1994 of a 146-room expansion project. At the Fremont, net revenues declined 6.1% with casino revenue declining 4.5% and rooms and food and beverage revenue declining 3.8% and 14.3%, respectively. During the third and fourth fiscal quarters, the Fremont
and to a lesser extent the California were negatively impacted by the construction of the Fremont Street Experience. The construction of the Fremont Street Experience, as well as work on several adjacent streets, impeded the free flow of both vehicular and pedestrian traffic through downtown Las Vegas. The Company expects to be negatively impacted by this construction until the Fremont Street Experience is completed which is expected to be December 1995. The Fremont Street Experience, a cooperative effort between the downtown casino operators and the City of Las Vegas, is designed to be a nightly high-tech light and sound extravaganza set against the backdrop of a space frame high above Fremont Street. Operating income margins at the Downtown Properties were 16.7% in fiscal 1995 versus 17.1% in fiscal 1994 with operating income margins at the California of 17.5% in fiscal 1995 versus 18.7% in fiscal 1994 and operating income margins at the Fremont of 15.7% in fiscal 1995 versus 15.5% in fiscal 1994. The decline in operating income margin at the California is attributable to increased revenues in lower margin departments and certain inefficiencies associated with the opening of the new hotel rooms.
Interest expense, net of amounts capitalized, increased $8.1 million or 26.8% for fiscal 1995 versus the prior year as a result of increased borrowings, higher interest rates and less capitalized interest related to projects under development. Depreciation expense for fiscal 1995 increased 10.5% primarily as a result of the openings of the Sam's Town Las Vegas expansion and the California rooms addition.
The Company's tax rate for fiscal 1995 was 48% as compared to 38% for fiscal 1994. The increase in the Company's tax rate was primarily as a result of the increase in certain non-deductible Company provided benefits.
As a result of these factors, net income before the cumulative effect of a change in accounting principle decreased $8.4 million or 47% for fiscal 1995 as compared to fiscal 1994. Net income decreased $10.4 million or 52% during fiscal 1995 compared to the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow and Working Capital
The Company's policy is to use operating cash flow and debt financing to fund renovation of its properties and expansion of its business which includes the $45 million expansion and renovation of Main Street Station. In addition, the Company continues to explore new opportunities for growth.
The Company's principal sources of funds for the year ending June 30, 1996 consisted of cash flows from operating activities of $66.5 million. As of June 30, 1996 the Company had balances of cash and cash equivalents of approximately $28 million.
The Company's principal sources of funds for the year ending June 30, 1995 consisted of cash flows from operating activities of $39.6 million and borrowings under its amended senior credit agreement. For the fiscal year ended June 30, 1994 the Company's principal sources of funds consisted of cash flows from operating activities of $69.6 million.
Long Term Debt
In June 1996, the Company and its parent, Boyd Gaming entered into a $500 million five-year reducing revolving credit facility (the "New Bank Credit Facility" under which approximately $235 million in borrowings was outstanding as of June 30, 1996) which replaced the Company's and certain of its subsidiaries' former bank credit facilities. Availability under the New Bank Credit Facility will be reduced by $25 million at the end of two and one-half years and reduced by an additional $50 million at the end of each six-month period thereafter until maturity in June 2001. Interest on the New Bank Credit Facility is based upon the agent bank's quoted reference rate or the London Interbank Offered Rate, at the discretion of the Company. The interest rate under the New Bank Credit Facility at July 1, 1996 was approximately 7.2%. Boyd Gaming intends to use the proceeds of the pending debt and equity offerings to reduce outstanding indebtedness under the New Bank Credit Facility without reducing the commitment thereunder.
The Company's ability to service its debt will be dependent on its future performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond the Company's control. Certain indebtedness of the Company contains restrictive covenants which, among other things, impose significant restrictions on the Company's operations and its ability to seek alternative financing means.
Capital Expenditures
The Company is committed to continually maintaining and enhancing its existing facilities, most notably by upgrading and remodeling its casinos, hotel rooms and restaurants and by providing the latest slot machines for its customers. The Company's principal uses of funds for the three years ended June 30, 1996 consisted of cash used in investing activities, primarily for the acquisition of property and equipment, and cash used in financing activities, primarily cash paid to reduce long-term debt. For the year ended June 30, 1996 cash used in investing activities was $41.2 million primarily for the acquisition of property and equipment. For the year ended June 30, 1995 cash used in investing activities was $37.6 million primarily related to the completion of the Sam's Town Las Vegas expansion (approximately $15 million) and the acquisition of property and equipment (approximately $22.6 million). For the year ended June 30, 1994, cash used in investing activities was primarily related to the $105 million expansion project at Sam's Town.
New Expansion Projects
The Company recently began the renovation and expansion of Main Street Station. This project, which is expected to cost approximately $45 million, consists of a redesign of the property's public space, expanded restaurant facilities, a refurbishment of the property's 400 hotel rooms, acquisition of new gaming equipment and increased parking. The Company plans to fund the Main Street Station renovation primarily from cash flow from operations and availability under the New Bank Credit Facility. In addition, the Company is exploring the possible expansion of its Stardust and Sam's Town Las Vegas properties; substantial funds would be required for any such expansion of those properties. There can be no assurance that any of the above-mentioned projects will go forward or ultimately become operational. The source of funds required to meet the Company's working capital needs (including maintenance capital expenditures) and those required to complete the above-mentioned projects is expected to be cash flow from operations and availability under the New Bank Credit Facility. The Company does not currently anticipate obtaining new borrowings in excess of amounts available under the New Bank Credit Facility in the next 12 months. Thereafter, the Company may require additional funds to support its working capital requirements or for other purposes and may seek to raise such additional funds through public or private debt financings or from other sources. No assurance can be given that additional financing will be available or that, if available, such financing will be obtainable on terms favorable to the Company.
Pending Debt and Equity Offerings
On September 30, 1996, the Company's parent, Boyd Gaming registration statements on Form S-3 registering 4,000,000 shares of Common Stock (the "Equity Offering") and $200,000,000 9.25% Senior Notes due 2003 (the "Debt Offering" and collectively with the Equity Offering, the "Offerings") were declared effective. Boyd Gaming intends to use the net proceeds of the Offerings to reduce indebtedness outstanding under the New Bank Credit Facility without reducing the commitment thereunder. The Notes will be guaranteed by all existing significant subsidiaries of Boyd Gaming, including the Company. The guaranties will be full, unconditional and joint and several. Amounts available under the New Bank Credit Facility are expected to be used to effect the redemption of the Boyd Gaming's 10.75% Senior Subordinated Notes due 2003 (the "10.75% Notes"), to fund Boyd Gaming's Acquisition of the Par-A-Dice Riverboat Casino (the "Par-A-Dice Acquisition"), and for general corporate purposes. Neither the Debt Offering nor the Equity Offering is conditioned on the consummation of the other. There can be no assurance when, or if, the Offerings will be consummated.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this Form 10-K. See Item 14.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the directors and executive officers of the Company as of September 25, 1996.
William S. Boyd, a co-founder of the Company, has served as a director and President of the Company since its inception in 1973 and Chairman of the Board of Directors and Chief Executive Officer from January 1988. Prior to joining the Company, Mr. Boyd practiced law in Las Vegas for 15 years. Between 1970 and 1974 he also was Secretary and Treasurer and a member of the Board of Directors of the Union Plaza Hotel and Casino. Mr. Boyd is active in numerous business and civic organizations in Las Vegas.
Robert L. Boughner has been Executive Vice President and Chief Operating Officer of the Company since April 1990. From 1985 until April 1990, he served as Senior Vice President of Administration of CH&C and prior to that time he held various management positions in the Company. Mr. Boughner is active in civic and industry affairs, and serves on the Board of Directors of the Las Vegas Convention and Visitors Authority, the Nevada Hotel and Motel Association and the Nevada Restaurant Association.
James W. Hippler has been Senior Vice President-Administration of the Company since April 1990. From 1980 to 1990, Mr. Hippler held various positions with CH&C, including Director of Risk Management, Director of Internal Audit and Director of Human Resources.
Ellis Landau has been Senior Vice President Chief Financial Officer and Treasurer of the Company since August 1990. From April 1990 through July 1990, he served as a consultant to the Company. Prior to joining the Company, Mr. Landau held various management positions with Ramada, Inc., a gaming and hospitality company whose gaming operations were transferred to Aztar Corporation, including Vice President and Treasurer of that company from 1978 to February 1990.
Ralph Purnell has been Senior Vice President-Director of Operations, Nevada Region of the Company since April 1994. From the inception of the Company until April 1994, Mr. Purnell served as Senior Vice President-Gaming of the Company. From 1975 to 1988, Mr. Purnell held various positions with CH&C, including General Manager of the Stardust and the California. Mr. Purnell serves on the Board of Directors of the Nevada Resort Association.
Charles L. Ruthe has served as a director of the Company since its inception, President and Chief Operating Officer from September 1988 until September 1989, Executive Vice President of Administration from September 1985 until 1988 and Senior Vice President from September 1983 until September 1985. Mr. Ruthe is active in many Las Vegas business and civic organizations. Mr. Ruthe is a director of Sierra Health Services, Inc., a healthcare company.
Charles E. Huff has been Vice President, Secretary and General Counsel of the Company since its inception. He has served as Vice President and General Counsel of CH&C since July 1986 and Secretary since January 1988. Prior to joining CH&C, Mr. Huff practiced law in Las Vegas for 13 years.
Keith E. Smith became Vice President and Controller of the Company in June 1993. From September 1990 to June 1993 he served as Corporate Controller of the Company. From May 1989 to September 1990, Mr. Smith was Vice President-Finance of the Dunes Hotel, Casino and Country Club in Las Vegas. From 1982 to May 1989, he was employed by Ramada, Inc., a gaming and hospitality company, in a variety of positions, including Controller of the Tropicana Resort and Casino in Las Vegas.
Directors of the Company are elected annually to serve for one year and until their successors are duly elected and qualified. Officers serve at the discretion of the Board of Directors.
Each director of the Company is also a director of Boyd Gaming. Each director who is not an employee of Boyd Gaming or the Company currently receives an annual fee of $25,000, meeting fees of $1,000 per board meeting attended and $500 per committee meeting attended and related expenses for services as a director of both Boyd Gaming and the Company. Employee and non-employee directors participate in the Directors' Medical Reimbursement Plan, which covers medical expenses incurred by directors and their spouses that are not covered by other medical plans. During fiscal 1996, Messrs. William S. Boyd, William R. Boyd and Ruthe received reimbursement under this Plan totaling $2,509, $6,443, $11,882, respectively. Boyd Gaming pays the directors fees and provides the benefits described above.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The Company is a wholly owned subsidiary of Boyd Gaming. The following table sets forth the cash compensation earned for services performed for Boyd Gaming and the Company during the three fiscal years in the period ended June 30, 1996 by the Company's Chief Executive Officer and each of the other four most highly compensated executive officers of Boyd Gaming. The Compensation and Stock Option Committee of Boyd Gaming has been responsible for recommending cash and other non-stock plan compensation for the named executive officers and the Board of Directors of the Company and Boyd Gaming and for administration of Boyd Gaming's stock plans.
- ------------- (1) Positions indicated are those currently held with Boyd Gaming.
(2) Except as set forth in the Summary Compensation Table, the incremental cost to the Company of providing perquisites and other personal benefits during the last three years did not exceed, as to any executive officer, the lesser of $50,000 or 10% of the total salary and bonus paid to such executive officer for any such year and, accordingly, is omitted from the table.
(3) Represents reimbursement under the Directors' Medical Reimbursement Plan of expenses incurred by Mr. Ruthe's spouse.
(4) Amounts represent Boyd Gaming's Profit Sharing and 401(k) Plan contributions, payment of term life insurance premiums and, in the case of Mr. Ruthe (in each year) payments in connection with split dollar insurance policies, and in the case of Mr. Purnell (in 1994) payments of $4,301in connection with a retirement arrangement. In fiscal 1996, Boyd Gaming's Profit Sharing and 401(k) Plan contributions were $3,000, $3,000, $3,000 and $3,000 for Messrs. Boyd, Ruthe, Boughner, Purnell and Landau, respectively. In fiscal 1996, life insurance premium payments by the Company for Messrs. Boyd, Ruthe (including split dollar insurance payments), Boughner, Purnell and Landau were $4,865, $6,441, $1,250, $3,650 and $1,498, respectively.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to the named executive officers by Boyd Gaming in fiscal 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
- ----------------------
(1) Value realized is based on estimated fair market value of Boyd Gaming Common Stock on the date of exercise less the exercise price.
(2) Value is based on the closing price of Boyd Gaming Common Stock on the New York Stock Exchange on June 30, 1996 ($15.00) less the exercise price.
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Perry B. Whitt, a member of the Compensation and Stock Option Committee of Boyd Gaming is a former executive officer of the Company.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding shares of stock of the Company are owned by Boyd Gaming Corporation.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. The following financial statements incorporated herein by reference.
2. Financial Statement Schedules. None.
3. Exhibits. Refer to (c) below.
(b) Reports on Form 8-K. None.
(c) Exhibits. Reference is made to the Index to Exhibits immediately preceding the exhibits hereto.
Page CALIFORNIA HOTEL AND CASINO AND SUBSIDIARIES
Independent Auditors' Report.................................
Consolidated Balance Sheets..................................
Consolidated Statements of Income............................
Consolidated Statements of Changes in Stockholder's Equity...
Consolidated Statements of Cash Flows........................
Notes to Consolidated Financial Statements...................
INDEPENDENT AUDITORS' REPORT
California Hotel and Casino and Subsidiaries (a wholly owned subsidiary of Boyd Gaming Corporation)
We have audited the accompanying balance sheets of California Hotel and Casino and Subsidiaries (a wholly owned subsidiary of Boyd Gaming Corporation) as of June 30, 1996 and 1995, and the related consolidated statements of income, changes in stockholder's equity, and cash flows for each of the three years in the period ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of California Hotel and Casino and Subsidiaries at June 30, 1996 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada August 23, 1996
CONSOLIDATED BALANCE SHEETS California Hotel and Casino and Subsidiaries (a wholly owned subsidiary of Boyd Gaming Corporation)
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
California Hotel and Casino and Subsidiaries (a wholly owned subsidiary of Boyd Gaming Corporation)
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
California Hotel and Casino and Subsidiaries (a wholly owned subsidiary of Boyd Gaming Corporation)
For the years ended June 30, 1996, 1995 and 1994
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS California Hotel and Casino and Subsidiaries (a wholly owned subsidiary of Boyd Gaming Corporation)
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS California Hotel and Casino and Subsidiaries (a wholly owned subsidiary of Boyd Gaming Corporation)
NOTE 1. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of California Hotel and Casino and its wholly owned subsidiaries, collectively referred to herein as the "Company". The Company owns and operates six casino entertainment facilities in Las Vegas, Nevada. All material intercompany accounts and transactions have been eliminated. The Company is a wholly owned subsidiary of Boyd Gaming Corporation.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with an original maturity of three months or less. These investments are stated at cost which approximates fair value.
Inventories
Inventories are stated at lower of cost or market. Cost is determined using the first-in, first-out and retail inventory methods.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. Costs of major improvements including interest incurred during construction of new facilities and major additions are capitalized; costs of normal repairs and maintenance are charged to expense as incurred. Gains or losses on disposal of assets are recognized as incurred.
Fair Value of Financial Instruments
The carrying value of the Company's cash and cash equivalents, trade receivables and trade payables approximates fair value because of the short maturity of those instruments. The Company estimates fair value of its long-term obligations based on quoted market prices or on the current rates offered to the Company for debt of the same remaining maturities.
Goodwill
The excess of total acquisition costs over the fair value of assets acquired is amortized using the straight-line method over forty years. As of June 30, 1996 and 1995, accumulated amortization was $4.0 million and $3.7 million respectively.
Revenues
Casino revenues represent the net win from gaming wins and losses. Revenues include the retail value of room, food, beverage and other goods and services provided to customers without charge. Such amounts are then deducted as promotional allowances. The estimated costs of providing these promotional allowances is charged to the casino department in the following amounts:
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standard
The FASB issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets to Be Disposed Of, in March 1995. This statement, effective for the Company's fiscal year beginning July 1, 1996, requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management believes that adoption of SFAS No. 121 will not have a significant effect on the financial position or results of operations of the Company.
Income Taxes
The Company is a wholly owned subsidiary of Boyd Gaming Corporation and is included in Boyd Gaming Corporation's consolidated tax return. Boyd Gaming Corporation accounts for income taxes in accordance with the Statement of Financial Accounting Standard (SFAS) No. 109, Accounting for Income Taxes. SFAS 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income taxes reflect the net tax effects of (i) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (ii) operating loss and tax credit carryforwards.
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In connection with the closing of Boyd Gaming Corporation's initial public offering in October 1993, the Company purchased Eldorado, Inc., owner of Eldorado Casino and Jokers Wild Casino. The acquisition was accounted for as a purchase at historical cost. Boyd Gaming Corporation issued 2,723,165 shares of common stock in exchange for all of the outstanding stock of Eldorado, Inc. and the assumption of debt and other liabilities. For the year ended June 30, 1994, revenue and net income on a proforma basis as if Eldorado, Inc., were owned by the Company for the entire fiscal year were $467 million and $20.6 million respectively.
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Accounts receivable at June 30 are as follows:
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NOTE 4. - PROPERTY, EQUIPMENT AND LEASEHOLD INTEREST
Property, equipment and leasehold interest consist of the following at June 30:
Depreciation and amortization are computed using the straight-line method over the following useful lives:
Interest costs of $2.0 and $.3 and $2.3 million were capitalized in 1996, 1995 and 1994, respectively during construction of new properties and major additions.
- ------------------------------------------------------------------------------ NOTE 5. - LONG-TERM DEBT
Long-term debt at June 30 consist of the following:
On June 19, 1996, the Company and its parent, Boyd Gaming Corporation, entered into a $500 million five-year reducing, revolving bank credit facility which matures in June 2001 (the "New Bank Credit Facility"). The New Bank Credit Facility replaced the Company's amended senior credit agreement and certain of its parent's loans. Total availability under the New Bank Credit Facility will be reduced by $25 million at the end of two and one-half years and reduced by an additional $50 million at the end of each six-month thereafter until maturity. As of June 30, 1996, the Company and its parent had unused availability of $265 million under the New Bank Credit Facility. Interest on the New Bank Credit Facility is based upon the agent bank's quoted reference rate or London Interbank Offered Rate, at the discretion of the Company. The average interest rate under the New Bank Credit Facility at June 30, 1996 was 7.2%.
The New Bank Credit Facility is collateralized by the real and personal property comprising six casino hotel properties owned by the Company and its parent and by related security agreements with assignments with assignment of rents.
The New Bank Credit Facility contains certain financial covenants, limitations on the incurrence of debt and limitations on the incurrence of capital expenditures and investments, all as defined in the New Bank Credit Facility.
The Company, through its wholly-owned subsidiary California Hotel Finance Company, has $185 million principal amount of 11% senior subordinated notes due December 2002. The notes are unconditionallly guaranteed on a senior subordinated and unsecured basis by the Company. The guarantee is subordinated to all existing and future senior debt (as defined in the Indenture related to the notes) of the Company (approximately $180.9 million at June 30, 1996) and is effectively subordinated to all existing and future senior indebtedness and other liabilities (including trade payables) of the subsidiaries of the Company (approximately $24.8 million at June 30, 1996). The Company is not in default and there are no payment blockages with respect to the notes. The net proceeds were used to refinance certain indebtedness of the Company and provide for working capital needs and expansion of the Company's operations. The notes require semi-annual interest payments on June 1 and December 1 of each year until December 1, 2002, at which time the principal balance is due and payable. The notes may be redeemed at the Company's option any time after December 1, 1997 at redemption prices ranging from 104.125% in 1997 to 100% in 1999. The notes contain certain covenants regarding incurrence of debt, sales and disposition of assets, mergers or consolidations and limitations on restricted payments (as defined in the indenture relating to the notes). As a result of these restrictions, at June 30, 1996 the Company had a portion of its retained earnings and its net assets in the amounts of $51.5 million and $106.7 million, respectively, that were not available for distribution as dividends to Boyd Gaming.
On June 7, 1996 the Company's parent, Boyd Gaming, filed a registration statement with the Securities and Exchange Commission which will allow the issuance of up to $200 million of senior notes of Boyd Gaming Corporation. The notes will be guaranteed by all existing significant subsidiaries of Boyd Gaming Corporation, including the Company. The guaranties will be full, unconditional and joint and several. The net proceeds to Boyd Gaming from the notes offering will be used to reduce outstanding indebtedness under Boyd Gaming Corporation and the Company's New Bank Credit Facility. Amounts available under the New Bank Credit Facility are expected to be used to redeem the parent's 10.75% Notes.
The estimated fair value of the Company's long-term debt at June 30, 1996 was approximately $374 million, versus its book value of $366 million. At June 30, 1995 the estimated fair value of the Company's long-term debt was approximately $403 million, versus its book value of $396 million.
In connection with the closure of the New Bank Credit Facility, the Company recorded a $0.8 million extraordinary loss (net of income tax benefit of $.5 million) related to the write-off of unamortized bank fees.
Interest rates on the Company's other long-term debt range from 7.2% to 16.8%.
Management believes the Company and its subsidiaries are in compliance with all covenants contained in its long-term agreements at June 30, 1996.
The scheduled maturities of long-term debt for the years ending June 30 are as follows:
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Future minimum lease payments required under noncancelable leases (principally for land) as of June 30, 1995 are as follows:
Rent expense for the years ended June 30, 1996, 1995 and 1994 was $2.7 million, $2.6 million and $2.3 million, respectively and is included in selling, general and administrative expenses.
- ------------------------------------------------------------------------------ NOTE 7. - EMPLOYEE BENEFIT PLANS
The Company contributes to multi-employer pension plans under various union agreements. Contributions, based on wages paid to covered employees, totaled approximately $2.2 million, $2.0 million and $2.2 million in 1996, 1995 and 1994, respectively. The Company's share of the unfunded liability related to multi-employer plans, if any, is not determinable.
The Company participates in Boyd Gaming Corporation's retirement savings plan under Section 401(k) of the Internal Revenue Code covering its non-union employees. The plan allows employees to defer up to the lesser of the Internal Revenue Code - prescribed maximum amount or 15% of their income on a pre-tax basis through contributions to the plan. On January 1, 1996 the Company combined its profit sharing plan into the 401(k) plan. The Company expensed its portion of voluntary contributions of $1.2 million, $.7 million and $.8 million in 1996, 1995 and 1994, respectively, to the Company's 401(k) profit sharing plan and trust.
- ------------------------------------------------------------------------------- NOTE 8. - INCOME TAXES
A summary of the provision for income taxes for the years ended June 30 is as follows:
Provision for Income Taxes:
The following table provides a reconciliation between the federal statutory rate and the effective income tax rate from continuing operations at June 30, where both are expressed as a percentage of income.
The tax items comprising the Company's net deferred tax liability as of June 30 are as follows:
Boyd Gaming Corporation allocates income tax expense or benefit to the Company as if the Company was filing separate tax returns. Adoption of SFAS 109 had no effect on the amount of income tax expense allocated to the Company during the periods ended June 30, 1996, 1995 or 1994.
The Internal Revenue Service has examined the Company's federal consolidated income tax returns through the year ended June 30, 1989. The Company is currently under examination for fiscal years 1990 through 1992. Management of the Company does not believe any significant adjustments will be required.
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The Company is a defendant in various pending litigation. In the opinion of management, all pending claims in such litigation will not, in the aggregate, have a material adverse effect on the Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on September 26, 1996.
CALIFORNIA HOTEL AND CASINO
By /s/ KEITH SMITH -------------------------------- Keith Smith Vice President, Controller
IV-1 POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William S. Boyd, Ellis Landau and Keith Smith and each of them, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
IV-2 INDEX TO EXHIBITS