-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CC7YXCcE8Q5A3vmojQzjYnrBZPu6RILZww7EJLaHhTyDH4EaLSdAV6PdK1sBC2v+ 06hgnanUC3N5idguc0erBQ== 0001047469-99-017545.txt : 19990504 0001047469-99-017545.hdr.sgml : 19990504 ACCESSION NUMBER: 0001047469-99-017545 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIRCUS CIRCUS ENTERPRISES INC CENTRAL INDEX KEY: 0000725549 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880121916 STATE OF INCORPORATION: NV FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08570 FILM NUMBER: 99608198 BUSINESS ADDRESS: STREET 1: 2880 LAS VEGAS BLVD S CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 7027340410 10-K405 1 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER 1-8570 CIRCUS CIRCUS ENTERPRISES, INC. (Exact name of Registrant as specified in its charter) NEVADA 88-0121916 State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 3950 LAS VEGAS BOULEVARD SOUTH, LAS 89119 VEGAS, NEVADA (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (702)632-6700 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - -------------------------------------------------------- -------------------------------------------------------- Common Stock, $.01 2/3 Par Value New York Stock Exchange and Pacific Exchange Common Stock Purchase Rights New York Stock Exchange and Pacific Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the voting stock of the Registrant held by persons other than the Registrant's directors and executive officers as of April 19, 1999 (based upon the last reported sale price on the New York Stock Exchange on such date) was $1,622,116,907. The number of shares of Registrant's Common Stock, $.01 2/3 par value, outstanding at April 19, 1999: 90,258,088. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE PART II--Portions of the Registrant's Annual Report to Stockholders for the year ended January 31, 1999 are incorporated by reference into Items 7 through 8, inclusive. PART III--Portions of the Registrant's definitive proxy statement in connection with the annual meeting of stockholders to be held on June 17, 1999, are incorporated by reference into Items 10 through 13, inclusive. 2 PART I ITEM 1. BUSINESS. GENERAL Circus Circus Enterprises, Inc. (the "Company"), which was incorporated in 1974, currently owns and operates, through wholly owned subsidiaries, ten hotel-casino properties in Nevada with over 22,000 guest rooms. These properties include (i) four hotel/casinos in Las Vegas (Mandalay Bay (which opened March 2, 1999), Luxor, Excalibur and Circus Circus-Las Vegas), (ii) the Circus Circus Hotel and Casino in Reno, (iii) the Colorado Belle Hotel and Casino and the Edgewater Hotel and Casino which are located on the Colorado River in Laughlin, (iv) Gold Strike Hotel and Gambling Hall and the Nevada Landing Hotel & Casino in Jean, and (v) Railroad Pass Hotel and Casino in Henderson. The Company also owns and operates a dockside casino situated on a 24-acre site in Tunica County, Mississippi, which includes a 1,066 room hotel tower placed in service during late 1997 and early 1998. It also owns and operates Slots-A-Fun, a casino on the Las Vegas Strip. It currently operates the Silver City, another small casino on the Las Vegas Strip, under a lease which expires in October 1999. For additional information concerning the properties owned and operated by the Company, see "Description of the Company's Hotels and Casinos" in this Item 1. The Company, through wholly owned subsidiaries, is a 50% participant in (i) a joint venture (the "Las Vegas Joint Venture") which owns and operates Monte Carlo, a hotel-casino on the Las Vegas Strip, (ii) a joint venture (the "Elgin Joint Venture") which owns and operates the Grand Victoria, a riverboat casino, and a related land-based entertainment complex located in Elgin, Illinois, and (iii) a joint venture (the "Reno Joint Venture") which owns and operates Silver Legacy, a hotel-casino located in downtown Reno that is situated between (and connected by enclosed climate-controlled skyways to) Circus Circus-Reno and another hotel-casino owned and operated by an affiliate of the other participant in the Reno Joint Venture. For additional information concerning the properties with which the Company is involved through the aforementioned joint ventures, see "Joint Venture Participation" in this Item 1. For information concerning the Company's current expansion activities, including its participation in a joint venture which has been selected to develop one of three casinos permitted to be developed in Detroit, Michigan (the "Detroit Joint Venture"), see "Current Expansion Activities" in this Item 1. Unless the context otherwise indicates, all references to the Company are to Circus Circus Enterprises, Inc. and its subsidiaries. DESCRIPTION OF THE COMPANY'S HOTELS AND CASINOS Set forth below is certain information concerning the properties that are owned and operated by the Company. Such properties are more fully described following the table. 3 COMPANY OPERATED PROPERTIES(1)
CASINO HOTEL SQUARE GAMING PARKING LOCATION/PROPERTY ROOMS FOOTAGE SLOTS(2) TABLES(3) SPACES - ------------------------------------------------------------- ----------- --------- ----------- ------------- ----------- Las Vegas, Nevada Mandalay Bay............................................... 3,700(4) 135,000 2,398 124 7,011 Luxor...................................................... 4,404 120,000 2,034 105 3,200 Excalibur.................................................. 4,008 110,000 2,420 80 4,000 Circus Circus.............................................. 3,744 109,000 2,258 77 4,700 Silver City................................................ -- 18,200 434 20 350 Slots-A-Fun................................................ -- 16,700 532 27 -- Reno, Nevada Circus Circus.............................................. 1,572 60,000 1,809 71 3,000 Laughlin, Nevada Colorado Belle............................................. 1,226 64,000 1,241 41 1,700 Edgewater.................................................. 1,450 44,000 1,299 40 2,300 Jean, Nevada Gold Strike................................................ 812 37,000 1,030 23 2,100 Nevada Landing............................................. 303 36,000 1,035 23 1,400 Henderson, Nevada Railroad Pass.............................................. 120 21,000 393 10 600 Tunica County, Mississippi Gold Strike................................................ 1,066 48,000 1,348 46 1,400
- ------------------------ (1) The information with respect to each property other than Mandalay Bay is as of January 31, 1999. Mandalay Bay opened March 2, 1999 and the information with respect to that property is as of that date. (2) Includes slot machines and other coin-operated devices. (3) Generally includes blackjack ("21"), craps, baccarat, pai gow poker, Caribbean stud poker, wheel of fortune and roulette. With the exception of Slots-A-Fun, Silver City, both the Jean properties and Railroad Pass, each property offers poker. With the exception of Mandalay Bay, Silver City, Slotsp-A-Fun and Gold Strike-Tunica, each property also offers keno, and, with the exception of Slots-A-Fun, Silver City, the two Gold Strike properties and Railroad Pass, each property offers a race and/or sports book. (4) Includes the 424-room Four Seasons at Mandalay Bay, which is owned by the Company and managed by Four Seasons. LAS VEGAS, NEVADA The Company's three largest resorts, Mandalay Bay, Luxor and Excalibur are part of the Company's development of over 230 acres of land it owns at the south end of the Las Vegas Strip which runs from Tropicana Avenue south approximately one mile to Russell Road (the "Masterplan Site"). An elevated monorail system, which was completed and placed in service in April 1999, provides a quick convenient means of travel between the three resorts. Mandalay Bay and Luxor are connected by a climate-controlled skyway while a climate-controlled skyway with moving walkways also connects Luxor and Excalibur. For information concerning additional development of the Masterplan Site, see "Current Expansion Activities" in this Item 1. 4 MANDALAY BAY. Mandalay Bay, which opened on March 2, 1999, is a 43-story, hotel-casino resort which has approximately 3,700 rooms (including the 424-room Four Seasons at Mandalay Bay). The resort is situated on approximately 60 acres just south of Luxor. Mandalay Bay's attractions include an 11-acre tropical lagoon featuring a sand-and-surf beach and a three-quarter-mile lazy river ride. Inside, Mandalay Bay offers 13 restaurants that include Charlie Palmer's Aureole, Wolfgang Puck's Trattoria Del Lupo, China Grill, rumjungle and Red Square. The resort also features a House of Blues nightclub and restaurant, including its signature Foundation Room sited on Mandalay Bay's rooftop and 100 "music-themed" hotel rooms in Mandalay Bay's tower. Additional features include a 125,000-square-foot convention facility and a 30,000-square-foot spa. The property offers multiple entertainment venues that include a 1,700-seat showroom featuring the Tony Award-winning musical "Chicago", the rumjungle nightclub and a 12,000-seat special events arena that will feature big-name entertainment and sporting events. At Mandalay Bay, a Four Seasons Hotel operates 424 rooms, providing Las Vegas visitors with a luxury "five-star" hospitality experience. This hotel, which is owned by the Company and managed by Four Seasons Regent Hotels and Resorts, represents the first step pursuant to the Company's cooperative effort with Four Seasons to identify strategic opportunities for development of hotel and casino properties worldwide. LUXOR. Luxor is an Egyptian-themed hotel and casino complex situated on the Masterplan Site, between Mandalay Bay and Excalibur. This resort features a 30-story pyramid and two 22-story hotel towers. Luxor also offers 20,000 square feet of convention space, a multi-purpose showroom and a nightclub. Situated on a 64-acre site, Luxor features food and entertainment venues on three different levels beneath a soaring hotel atrium. The pyramid's hotel rooms can be reached from the four corners of the building by state-of-the-art "inclinators" which travel at a 39-degree angle. Above the pyramid's casino, the property offers a special format motion base ride and an IMAX 2D/3D theater. Luxor's other public areas include a buffet with a seating capacity of approximately 800, seven restaurants including three gourmet restaurants, as well as a snack bar, a food court featuring national fast food franchises, several cocktail lounges and a variety of specialty shops. EXCALIBUR. Excalibur is a castle-themed hotel and casino complex situated on a 53-acre site immediately to the north of Luxor. Excalibur offers its guests more than 400,000 square feet of public entertainment area, including the casino. Excalibur's other public areas include a Renaissance faire, a medieval village, an amphitheater with seating capacity of nearly 1,000 where nightly mock jousting tournaments and costume drama are presented, two dynamic motion theaters, various artisans' booths and medieval games of skill. In addition, Excalibur has a buffet with a seating capacity of approximately 1,300, seven themed restaurants, as well as several snack bars, cocktail lounges and a variety of specialty shops. CIRCUS CIRCUS-LAS VEGAS. Circus Circus-Las Vegas, the Company's original property, is a circus-themed hotel and casino complex situated on approximately 69 acres on the north end of the Las Vegas Strip. From a "Big Top" above the casino, Circus Circus-Las Vegas offers its guests a variety of circus acts performed daily, free of charge. A mezzanine area overlooking the casino has a circus midway with carnival-style games and an arcade that offers a variety of amusements and electronic games. Three specialty restaurants, a buffet with a seating capacity of approximately 1,200, two coffee shops, three fast food snack bars, several cocktail bars and a variety of gift shops and specialty shops are also available to the guests at Circus Circus-Las Vegas. The Adventuredome, covering approximately five acres, offers theme park entertainment that includes a high-speed, double-loop, double-corkscrew roller coaster, a coursing river flume ride on white-water rapids, an IMAX motion base ride, several rides and attractions designed for preschool age children, themed carnival-style midway games, a state-of-the-art arcade, a 65-foot waterfall, animated life-size dinosaurs, food kiosks and souvenir shops, all in a climate-controlled setting under a giant space-frame dome. Circus Circus-Las Vegas also offers accommodations for approximately 384 recreational vehicles at the property's Circusland RV Park. 5 RENO, NEVADA CIRCUS CIRCUS-RENO. Circus Circus-Reno is a circus-themed hotel and casino complex situated in downtown Reno, Nevada. From a "Big Top" above the casino, Circus Circus-Reno offers its guests a variety of circus acts performed daily free of charge. A mezzanine area has a circus midway with carnival-style games and an arcade that offers a variety of amusements and electronic games. The facilities at Circus Circus-Reno also include two specialty restaurants, a buffet with a seating capacity of approximately 450, a coffee shop, a deli/bakery, a fast food snack bar, cocktail lounges, a gift shop and specialty shops. For information concerning the Company's participation in a joint venture which owns and operates Silver Legacy, a casino, hotel and entertainment complex which is connected to Circus Circus-Reno by an enclosed skywalk, see "Joint Venture Participation--Reno Joint Venture" in this Item 1. LAUGHLIN, NEVADA COLORADO BELLE. The Colorado Belle Hotel and Casino is situated on a 22-acre site on the bank of the Colorado River (with 1,080 feet of river frontage) in Laughlin, Nevada, approximately 90 miles south of Las Vegas. The Colorado Belle, which features a 600-foot replica of a Mississippi riverboat, includes among its facilities a 350-seat buffet, a coffee shop, three specialty restaurants, a microbrewery, fast food snack bars, and cocktail lounges as well as a gift shop and other specialty shops. EDGEWATER. The Edgewater Hotel and Casino is situated on a 16-acre site adjacent to the Colorado Belle in Laughlin, Nevada with approximately 1,640 feet of frontage on the Colorado River. The Edgewater's facilities include a specialty restaurant, a coffee shop, a buffet with a seating capacity of 735, a snack bar and cocktail lounges. JEAN, NEVADA GOLD STRIKE. Gold Strike Hotel & Gambling Hall is an "old west" themed hotel-casino located on approximately 51 acres of land on the east side of I-15, the primary thoroughfare between Las Vegas and southern California. The property includes, among other amenities, several restaurants, a gift shop, an arcade, a swimming pool and spa and a banquet center equipped to serve 260 people. The casino has a stage bar with regularly scheduled live entertainment and a casino bar. NEVADA LANDING. Nevada Landing Hotel & Casino is a turn-of-the-century riverboat themed hotel-casino located on approximately 55 acres of land across I-15 from Gold Strike. The property includes a 72-seat Chinese restaurant, a full-service coffee shop, a buffet, a snack bar, a gift shop, a swimming pool and spa and a 300-guest banquet facility. HENDERSON, NEVADA RAILROAD PASS. Railroad Pass Hotel & Casino is situated on approximately 56 acres along US-93, the direct route between Las Vegas and Phoenix, Arizona. The property includes, among other amenities, two bars, two full-service restaurants, a buffet, gift shop, swimming pool and a 194-guest banquet facility. In contrast with the Company's other Nevada properties, Railroad Pass caters to local residents, particularly from Henderson, who often prefer the informal, friendly atmosphere and easy access of Railroad Pass over the casinos on the Las Vegas Strip. TUNICA COUNTY, MISSISSIPPI GOLD STRIKE-TUNICA. Gold Strike Casino Resort is a dockside casino situated on a 24-acre site along the Mississippi River in Tunica County, Mississippi, approximately three miles west of Mississippi State Highway 61 (a major north/south highway connecting Memphis, Tennessee with Tunica County) and approximately 20 miles south of Memphis. The property includes a 1,066-room, 31-story hotel tower which was completed and placed in service during late 1997 and early 1998. The facilities at Gold Strike-Tunica 6 also include an 800-seat showroom, a coffee shop, a specialty restaurant, a 500-seat buffet, a snack bar and several cocktail lounges. Gold Strike-Tunica is part of a three-casino development covering approximately 72 acres. The other two casinos are owned and operated by unaffiliated third parties. The Company also owns an undivided one-half interest in an additional 388 acres of land which may be used for future development. MARKETING The Company has historically followed a marketing and operating philosophy which has emphasized high-volume business by providing moderately priced hotel rooms, food and beverage and alternative entertainment in combination with the gaming activity. While the Company will continue to employ this philosophy, Mandalay Bay, and to a lesser extent Luxor, cater to high-level casino customers and conventions. Mandalay Bay, which opened on March 2, 1999, offers a level of entertainment and hotel accommodations which is designed to attract a higher income customer than the Company has historically targeted. Designed with a South Seas theme, Mandalay Bay offers its guests an expanded dining and entertainment menu. Internationally renowned restaurants provide guests a wide variety of dining options, while the entertainment options include an 11-acre lagoon with a surfing beach and a lazy river ride, House of Blues, rumjungle, a showroom featuring the Tony Award-winning musical "Chicago" and a special events arena which will feature big name entertainment and sporting events. In addition, Mandalay Bay's 125,000-square foot convention facility marks the Company's entry into competition for the convention segment of customers. Luxor contributed 24% of the Company's revenues in the year ended January 31, 1999 (and 23% and 17%, respectively, in the years ended January 31, 1998 and 1997). This property offers a level of entertainment and hotel accommodations which is designed to attract the higher income segment of the middle-income strata of customers. Designed with an Egyptian theme, Luxor's 30-story pyramid offers its guests a tri-level entertainment area. An expansion program completed at the Luxor in 1997 added 1,950 new hotel rooms, a new spa, 20,000 square feet of convention space, a new multi-purpose showroom and a nightclub. Excalibur, which contributed 19% of the Company's revenues in the year ended January 31, 1999 (and 21% and 23%, respectively, in the years ended January 31, 1998 and 1997), attracts customers by offering quality rooms, food and entertainment at moderate prices. By way of entertainment, the medieval castle- themed Excalibur offers a medieval village, an amphitheater where mock tournaments and costume drama are presented, dynamic motion theaters, various artisans' booths and medieval games of skill. Circus Circus-Las Vegas and Circus Circus-Reno, which together contributed 24% of the Company's revenues in the year ended January 31, 1999 (and 25% and 24%, respectively, in the years ended January 31, 1998 and 1997), have popular buffets, attractive because of their variety, quality and low price. From a "Big Top" above the casino, both properties offer a variety of circus acts performed free of charge to the public on a daily basis. A mezzanine area overlooking each casino has a circus midway with carnival-style games and an arcade that offers a variety of amusements and electronic games. The Adventuredome offers additional theme park attractions at Circus Circus-Las Vegas. The Colorado Belle and Edgewater together contributed 11% of the Company's revenues in the year ended January 31, 1999 (and 12% in each of the years ended January 31, 1998 and 1997). These properties offer quality rooms, food and entertainment at moderate prices. The Colorado Belle offers a classic Mississippi riverboat theme, complete with a 60-foot paddle wheel. The Edgewater's southwestern motif provides a relaxing atmosphere to enjoy the property's casino and other facilities. Connected by a scenic walkway, the two resorts form an inviting shoreline along the Colorado River. 7 Gold Strike and Nevada Landing together contributed 5% of the Company's revenues in the year ended January 31, 1999 (6% in each of the years ended January 31, 1998 and 1997). The two properties are located on opposite sides of I-15, the primary thoroughfare between Las Vegas and southern California, approximately 25 miles south of Las Vegas and 12 miles north of the California/Nevada border. The properties are conveniently located at the only highway interchange within 12 miles in either direction and are strategically positioned to attract visitors from the large number of people traveling to and from Las Vegas. Gold Strike-Tunica, the Company's first wholly owned casino outside of Nevada, contributed 7% of the Company's revenues in the year ended January 31, 1999 (and 4% in each of the years ended January 31, 1998 and 1997). The facility, a dockside casino, is part of an integrated three casino development that provides patrons with the opportunity to visit any of the three casinos without driving, a unique experience in the Tunica market. In the first quarter of 1998 the Company completed and opened a 31-story hotel tower, with 1,066 rooms, at this property, which previously had no hotel rooms. The original Circus-themed casino and other facilities were also remodeled and rethemed into a more elegant resort. The Company maintains stringent cost controls which historically have been exemplified by a general policy of offering minimal credit for gaming customers at the Company's properties. During fiscal 1998, Luxor began to extend credit to gaming customers on a selective basis in an effort to appeal to a broader segment of the gaming market. This policy has also been extended to the Company's operations at Mandalay Bay. As a result, while our other properties continue to offer minimal credit, credit play now represents a more significant portion of the volume of table games play at Luxor and Mandalay Bay. The Company maintains strict controls over the issuance of credit and aggressively pursues collection of customer debts. These collection efforts are similar to those used by most large corporations, including the mailing of statements and delinquency notices, personal and other contacts, the use of outside collection agencies and civil litigation. Nevada gaming debts evidenced by written credit instruments are enforceable under the laws of Nevada. All other states are required to enforce a judgment on a gaming debt entered in Nevada pursuant to the Full Faith and Credit Clause of the United States Constitution. Gaming debts are not legally enforceable in some foreign countries, but the United States assets of foreign debtors may be reached to satisfy judgments entered in the United States. While the portion of the Company's accounts receivable that is owed by foreigners is not currently material, to the extent the Company holds obligations of foreign debtors, the collectibility of such debts may be affected by a number of factors, including changes in currency exchange rates and economic conditions in the customers' home countries. The Company's current operations at each of its casinos are conducted 24 hours a day, every day of the year. The Company does not consider its business to be highly seasonal, although its operating income is typically somewhat lower in the fourth quarter. Management emphasizes courteous and prompt service to its customers and aspires to a high standard of excellence in all of its operations. The Company maintains an active media advertising program through radio, television, billboards and printed publications primarily in Nevada, California and Arizona for its Nevada properties and in the Memphis area for its Gold Strike property in Tunica. In addition, the Company advertises on and allows patrons to make room reservations via the Internet. The Company also offers complimentary hotel accommodations, meals and drinks to selected customers. OPERATIONS The primary source of revenues to the Company is its casinos, although the hotels, restaurants, bars, shops, midway games and other entertainment attractions and other services are an important adjunct to the casinos. 8 The following table sets forth the contribution to net revenues on a dollar and percentage basis of the Company's major activities for each of the three most recent fiscal years.
YEAR ENDED JANUARY 31, ---------------------------------------------------------------- 1999 1998 1997 -------------------- -------------------- -------------------- (DOLLARS IN THOUSANDS) Revenues:(1) Casino(2)............................. $ 709,909 48.0% $ 632,122 46.7% $ 655,902 49.2% Rooms(3).............................. 355,635 24.0% 330,644 24.4% 294,241 22.0% Food and beverage(3).................. 246,622 16.7% 215,584 15.9% 210,384 15.8% Other(3).............................. 170,701 11.5% 142,407 10.5% 146,554 11.0% Earnings of unconsolidated affiliates.......................... 83,967 5.7% 98,977 7.3% 86,646 6.5% --------- --------- --------- --------- --------- --------- $1,566,834 105.9% $1,419,734 104.8% $1,393,727 104.5% Less: Complimentary allowances(3)........... 87,054 5.9% 65,247 4.8% 59,477 4.5% --------- --------- --------- --------- --------- --------- Net revenues............................ $1,479,780 100.0% $1,354,487 100.0% $1,334,250 100.0% --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- ------------------------ (1) Includes operations of Hacienda to December 1, 1996. (2) Casino revenues are the net difference between the sums received as winnings and the sums paid as losses. (3) Rooms, Food and beverage and Other include the retail value of services which are provided to casino customers and others on a complimentary basis. Such amounts are then deducted as complimentary allowances to arrive at net revenue. In connection with its gaming activities, the Company follows a policy of stringent controls and cross checks on the recording of all receipts and disbursements. The audit and cash controls developed and utilized by the Company include the following: locked cash boxes, independent counters, checkers and observers to perform the daily cash and coin counts, floor observation of the gaming areas, closed-circuit television observation of certain areas, computer tabulation of receipts and disbursements for each of the Company's slot machines, tables and other games, and the rapid analysis and resolution of discrepancies or deviations from normal performance. JOINT VENTURE PARTICIPATION The Company is a 50% participant in three joint ventures. They include (i) the Las Vegas Joint Venture, which owns and operates Monte Carlo, a hotel-casino resort on the Las Vegas Strip; (ii) the Elgin Joint Venture, which owns and operates Grand Victoria, a riverboat casino and land-based entertainment complex in Elgin, Illinois; and (iii) the Reno Joint Venture, which owns and operates Silver Legacy, a hotel-casino in Reno, Nevada. The Company is also a 45% participant in a joint venture formed for the purpose of constructing, owning and operating a hotel-casino in Detroit, Michigan (the "Detroit Joint Venture"), subject to the receipt of all necessary gaming approvals and satisfaction of other conditions. See "Current Expansion Activity--Detroit, Michigan" in this Item 1. The following table sets forth certain information as of January 31, 1999, concerning the properties of the joint ventures in which the Company is a 50% participant, each of which is more fully described following the table. 9 JOINT VENTURE PROPERTIES
CASINO HOTEL SQUARE GAMING PARKING LOCATION/PROPERTY ROOMS FOOTAGE SLOTS(1) TABLES(2) SPACES - ----------------------------------------------------------------- ----------- --------- ----------- ------------- ----------- Las Vegas, Nevada Monte Carlo.................................................... 3,002 90,000 2,087 95 4,000 Elgin, Illinois Grand Victoria................................................. -- 36,000 977 58 2,000 Reno, Nevada Silver Legacy.................................................. 1,711 85,000 2,276 81 1,800
- ------------------------ (1) Includes slot machines and other coin-operated devices. (2) Generally includes, blackjack ("21"), craps, pai gow poker, Caribbean stud poker, wheel of fortune and roulette. Monte Carlo also offers poker, keno and a race and sports book. LAS VEGAS JOINT VENTURE (50% PARTICIPATION) The Company, through a wholly owned entity, is a 50% participant with an affiliate of Mirage Resorts, Incorporated ("Mirage") in the Las Vegas Joint Venture, a Nevada general partnership, which owns and operates Monte Carlo, a hotel-casino resort situated on approximately 46 acres with approximately 600 feet of frontage on the Las Vegas Strip. Monte Carlo is situated between Bellagio, a 3,000-room luxury resort which opened in October 1998 and is connected to Monte Carlo by a monorail, and New York-New York, a 2,000-room hotel-casino resort which opened in January 1997. Monte Carlo's casino reflects a palatial style reminiscent of the BELLE EPOQUE, the French Victorian architecture of the late 19th century. Amenities at Monte Carlo include three specialty restaurants, a buffet, a coffee shop, a food court, a microbrewery featuring live entertainment and approximately 15,000 square feet of meeting and banquet space. A 1,200-seat replica of a plush vaudeville theater, including a balcony and proscenium arch, features an elaborately staged show of illusions with the world-renowned magician, Lance Burton. As of January 31, 1999, the assets of the Las Vegas Joint Venture were subject to encumbrances securing the repayment of indebtedness in the aggregate principal amount of $91.2 million. ELGIN JOINT VENTURE (50% PARTICIPATION) The Company, through a wholly owned entity, is a 50% participant with an affiliate of Hyatt Development Corporation in the Elgin Joint Venture, an Illinois general partnership which owns and operates the Grand Victoria. The Grand Victoria is a Victorian themed riverboat casino and land-based entertainment complex in Elgin, Illinois, a suburb approximately 40 miles northwest of downtown Chicago. The Grand Victoria offers a Las Vegas-style gaming experience. The two-story vessel is 420 feet in length and 110 feet in width, and provides a maximum 80,000 square feet of gaming space, approximately 36,000 square feet of which was being used at January 31, 1999. The vessel has a capacity of 1,736 passengers and operates on a fixed cruising schedule consisting of eight cruises each Sunday through Thursday and nine cruises each Friday and Saturday. The dimensions of the specially designed riverboat allow the Grand Victoria to maximize the gaming positions permitted under existing Illinois gaming regulations. This feature also allows the Grand Victoria to significantly increase the number of on-board gaming positions and to adapt the vessel to provide for dockside gaming in the event of liberalized gaming regulations in the State of Illinois. An adjacent dockside complex on approximately 12 acres of land overlooking the Fox River contains an approximately 83,000-square-foot pavilion with two movie theaters, an approximately 400-seat buffet, a 76-seat fine dining restaurant, a VIP lounge and a gift shop, in addition to ticketing and registration services for the riverboat. The Grand Victoria is strategically located in Elgin among the residential suburbs of Chicago, with nearby freeway access and direct train service from downtown 10 Chicago. The Grand Victoria is located approximately 20 miles and 40 miles, respectively, from its nearest competitors in Aurora, Illinois and Joliet, Illinois, and holds one of only ten riverboat gaming licenses currently granted state-wide. After the Elgin Joint Venture's recovery of its $112 million initial investment in the Grand Victoria (which occurred in June 1996), it became obligated to contribute 20% of its net operating income (as defined) to various local educational, environmental and economic projects benefitting the City of Elgin and Kane County, Illinois. The pavilion and parking lot are located on land leased by the Elgin Joint Venture from the City of Elgin for an initial period of ten years, subject to certain renewal and purchase options granted to the Elgin Joint Venture. Under the lease, the Elgin Joint Venture's annual rent is equal to the greater of the base rent ($110,000 per year) or 3% of its net operating income. The Elgin Joint Venture may offset certain capital expenditures against this rental obligation. Further, rent is deductible from net operating income (as defined) for purposes of calculating the 20% contribution obligation described above. Until October 1999, the Elgin Joint Venture is also obligated to make certain payments to the City of Elgin to help defray law enforcement costs. Under its agreements with the City of Elgin, the Elgin Joint Venture also was granted an option to purchase an additional nine acres of land contiguous to the existing site. For information concerning certain regulatory requirements applicable to the ownership and operation of the Elgin Joint Venture's gaming facilities, see "Regulation and Licensing--Illinois" in this Item 1. As of January 31, 1999, the assets of the Elgin Joint Venture were not subject to any encumbrances securing the repayment of indebtedness. RENO JOINT VENTURE (50% PARTICIPATION) The Company, through a wholly owned subsidiary, is a 50% participant with Eldorado Limited Liability Company ("Eldorado Limited") in the Reno Joint Venture, a general partnership which owns and operates Silver Legacy, a hotel-casino and entertainment complex situated on two city blocks in downtown Reno, Nevada. The casino and entertainment complex is located between Circus Circus-Reno and Eldorado Hotel & Casino (the "Eldorado"), which is owned and operated by an affiliate of Eldorado Limited. Silver Legacy's casino and entertainment complex is connected at the mezzanine level with Circus Circus-Reno and the Eldorado by enclosed climate-controlled skyways above the streets between the respective properties. The property's exterior is themed to evoke images of Reno during the period from the 1880's through the 1930's. At the main pedestrian entrances to the casino (located on all four sides of the complex), patrons enter by passing store fronts reminiscent of turn-of-the-century Reno. Silver Legacy's attractions include a 120-foot tall mining rig, situated over a replica of a silver mine, which extends up from the center of the casino floor into a 180-foot diameter dome structure. The property offers five restaurants and several bars to its patrons. The Silver Legacy's other amenities include a 25,000-square-foot special events center, custom retail shops, a health spa and an outdoor pool and sun deck. As of January 31, 1999, the assets of the Reno Joint Venture, including Silver Legacy, were subject to encumbrances securing the repayment of indebtedness in the principal amount of $198.5 million. CURRENT EXPANSION ACTIVITIES Consistent with past practice and the longstanding policy of making substantial investments in its gaming business at regular intervals, the Company continues to actively pursue new projects, either by development or acquisition. New investments may involve the expansion of existing facilities or the development of new properties. Projects may be undertaken in Nevada, where all but one of the Company's wholly owned operating properties are currently located, or in other jurisdictions within the 11 United States or abroad where gaming has been legalized. The Company's new investments may be in properties wholly owned and operated by the Company, or may be in properties developed, owned and/or operated through joint ventures involving the Company and one or more other parties. DETROIT, MICHIGAN The Detroit Joint Venture, in which the Company owns a 45% interest, has been selected to develop one of three casinos permitted to be developed in Detroit, Michigan. A development agreement for this project was approved by the Detroit city council on April 9, 1998. The ability of the Detroit Joint Venture to proceed with the proposed project is contingent upon the receipt of all necessary gaming approvals and satisfaction of other customary conditions. It is presently contemplated that the project will involve an investment of approximately $600 million, of which the Company expects to contribute $120 million in equity, with the balance being provided through project-specific financing. The development agreement provides that the Company will guarantee completion of the project and will enter into a keep-well guarantee with the city, pursuant to which the Company could be required to contribute additional funds, if and as needed, to continue operation of the project for a period of two years. If the project is completed and opened, it will be managed by the Company which will receive a management fee from the Detroit Joint Venture. The Detroit Joint Venture has commenced construction of a temporary casino facility in downtown Detroit. The facility will contain approximately 75,000 square feet of gaming space, including approximately 2,600 slot machines and 130 table games, five restaurants and a 3,000-space parking facility. Construction is expected to be completed in September 1999. The estimated cost of the temporary facility, including the land and capitalized interest, is approximately $140 million. The Detroit Joint Venture expects shortly to complete a $150 million credit facility secured by the assets associated with the Detroit temporary casino. The Company will guarantee the credit facility, subject to the release of the guaranty if certain performance criteria are achieved. The joint venture's ability to open and operate the temporary casino facility (and its ability to construct, open and operate a permanent facility) is contingent upon the receipt of all necessary gaming approvals and satisfaction of other customary conditions. See "Regulation and Licensing--Michigan" in this Item 1. In LAC VIEUX DESERT BAND OF LAKE SUPERIOR CHIPPEWA INDIANS V. THE MICHIGAN GAMING CONTROL BOARD ET AL., the Lac Vieux Band of Lake Superior Chippewa Indians has sought to challenge the validity of the Act and the City of Detroit's Casino Development Competitive Selection Process ordinance. On October 31, 1997, the United States District Court for the Western District of Michigan issued an opinion holding that the Lac Vieux Band lacked standing to challenge the Act and the Detroit ordinance on First Amendment and Equal Protection grounds. In a decision issued on April 12, 1999, the United States Court of Appeals for the Sixth Circuit affirmed the District Court's determination that the Lac Vieux Band lacked standing to challenge the Act. However, the Sixth Circuit reversed the District Court's determination that (1) the Lac Vieux Band lacked standing to challenge the Detroit ordinance. (2) the First Amendment is not implicated in the Detroit ordinance and (3) a rational basis review rather than a strict scrutiny review should be applied in determining the merits of the Lac Vieux Equal Protection claim regarding the Detroit ordinance. The Sixth Circuit remanded the case to the District Court for further proceedings consistent with the Sixth Circuit's decision. No assurance can be given regarding the timing and outcome of further proceedings in this litigation. If the District Court determines that the Detroit ordinance is defective and that determination is upheld, this may have an impact upon the validity of the Development Agreement entered into between Detroit Entertainment, L.L.C. and the City of Detroit which, in turn, could delay, preclude or otherwise adversely impact the issuance of a certificate of suitability and a casino license to Detroit Entertainment, L.L.C. 12 MISSISSIPPI GULF COAST The Company has announced that it plans to develop a hotel-casino resort on the Mississippi Gulf Coast at the north end of the Bay of St. Louis, near the DeLisle exit on Interstate 10, provided it receives all of the requisite approvals. It is currently anticipated that the resort will include approximately 1,500 hotel rooms and involve an investment by the Company of approximately $225 million. The Company has received all necessary approvals to commence development. However, these approvals have been challenged in federal court, and the Company anticipates it will not commence the design and construction of this resort until there is a satisfactory resolution of all legal actions. As presently contemplated, the Company will own 90% of the resort, with a partner contributing the land in exchange for the remaining 10% interest. CONSTRUCTION RISKS Any major construction project the Company, or any joint venture in which the Company owns an interest, may undertake will involve many risks, including potential shortages of materials and labor, work stoppages, labor disputes, weather interference, unforeseen engineering, environmental or geological problems and unanticipated cost increases, any of which could give rise to delays or cost overruns. Construction, equipment or staffing requirements or problems or difficulties in obtaining any of the requisite licenses, permits, allocations or authorizations from regulatory authorities could increase the cost or delay the construction or opening of the facilities or otherwise affect the planned design and features. It is possible that any budget and construction plans developed for a project may be changed for competitive or other reasons. In addition, construction of the Detroit Joint Venture's proposed project is dependent on the acquisition of the proposed permanent site and the satisfactory resolution of the Lac Vieux litigation described under "Current Expansion Activities--Detroit, Michigan" in this Item 1 . Accordingly, there can be no assurance as to the commencement or successful completion of any projects undertaken by the Company or any of the joint ventures in which the Company is a participant, including the one contemplated by the Detroit Joint Venture. COMPETITION Recognizing that middle class vacationers come to the Company's properties to enjoy both gaming and other activities, the Company seeks to appeal to this value-oriented market and satisfy the group's diverse entertainment demands by offering exciting entertainment opportunities at reasonable prices. The Company seeks to achieve this objective by offering gaming combined with dramatic entertainment concepts and reasonably priced rooms, reasonably priced food and beverage and prompt, courteous service at its entertainment "megastores." As the Company broadens the market segments it seeks to serve with the addition of the up scale Mandalay Bay, the competitive objective remains the same--to provide memorable entertainment experiences at attractive values. The Company's largest concentration of properties is in Las Vegas where the Company opened Mandalay Bay--its newest hotel-casino resort--on March 2, 1999. As of March 31, 1999, the Company was the largest hotel-casino operator in Las Vegas in terms of total square footage of casino space and number of hotel rooms. The Company's Las Vegas casino and hotel operations, which are conducted from facilities located along the Las Vegas Strip, currently compete with approximately 29 major hotel-casinos and a number of smaller casinos located on or near the Las Vegas Strip. Such operations also compete with casinos located in downtown Las Vegas, approximately 11 of which offer hotel, restaurant and entertainment facilities, and several major hotel-casinos located elsewhere in the Las Vegas area. The Company's Las Vegas properties also compete, to a lesser extent, with casino and hotel facilities in other parts of Nevada, including Laughlin, Reno and along I-15 (the principal means of access to Las Vegas from southern California by car) near the California-Nevada state line. 13 The casino and hotel capacity continues to increase in the Las Vegas market. In October 1998, the 3,000-room Bellagio opened, followed by the March 1999 opening of the 3,700-room Mandalay Bay. Three other major hotel-casinos with a total of approximately 8,500 rooms are under construction in Las Vegas, two of which are expected to open in 1999 and the third of which is expected to open in 2000. The impact on the Company of these additions to the hotel and casino capacity in Las Vegas cannot be determined at this time. While the Company's Las Vegas operations, on a consolidated basis, had previously benefitted from growth of hotel and casino capacity in the Las Vegas market when the Company was a significant contributor to the new capacity, its addition of 1,000 rooms at Circus Circus-Las Vegas and an additional 1,950 at Luxor in 1997 contributed to a growth in hotel capacity in the Las Vegas market that outpaced market growth in fiscal 1998, putting downward pressure on room and occupancy rates in Las Vegas in fiscal 1998 and early fiscal 1999. The impact on the Company's operations of the added hotel and casino capacity recently completed or under construction in Las Vegas will depend, to a significant extent, on the ability of the new properties, including Mandalay Bay, to significantly increase, on a sustained basis, the flow of visitors to the Las Vegas market. Circus Circus-Reno competes with approximately 13 major casinos (the majority of which offer hotel rooms), including Silver Legacy, a 1,711-room hotel-casino complex which is 50% owned by a wholly owned subsidiary of the Company. Circus Circus-Reno and Silver Legacy also compete with numerous other smaller casinos in the greater Reno area and, to a lesser extent, with casino and hotel facilities at Lake Tahoe and in other parts of Nevada. Silver Legacy, which is situated between Circus Circus-Reno and the Eldorado, is connected to each of these properties at the mezzanine level by enclosed climate-controlled skyways above the streets between the respective properties, thus facilitating the flow of customers within the three properties. In Laughlin, the Colorado Belle and the Edgewater, which together accounted for approximately 24% of the rooms in Laughlin as of January 31, 1999, compete with eight other Laughlin casinos. They also compete with the hotel-casinos in Las Vegas and those situated on I-15 (the principal highway between Las Vegas and Los Angeles) near the California-Nevada state line, as well as a growing number of Native American casinos in Laughlin's regional market. The Colorado Belle and the Edgewater, which also compete with each other, maintained a combined occupancy level in fiscal 1999 of approximately 84%. Because the two properties are situated on adjoining sites, the Company believes that each property benefits from walk-in business attributable to the registered guests and casino customers at the other property. The Company believes the significant expansion of hotel and casino capacity in Las Vegas in recent years and the growth of unregulated Native American casinos in Laughlin's central Arizona and southern California feeder markets have had a negative impact on Laughlin area properties, including the Colorado Belle and the Edgewater, by drawing visitors from the Laughlin market. However, during fiscal 1999, revenues and operating income both increased at the Colorado Belle and the Edgewater. The Company's Jean, Nevada properties, Gold Strike and Nevada Landing, are located on I-15, the primary thoroughfare between Las Vegas and southern California, approximately 25 miles south of Las Vegas and 12 miles north of the California-Nevada state line, and are dependent for their customers almost entirely on the large number of people traveling between Las Vegas and southern California. As such, these properties compete with the large concentration of hotel, casino and other entertainment options available in Las Vegas as well as three hotel-casinos clustered at the California-Nevada state line. The Company believes that it receives the major portion of its Las Vegas business from southern California and to a lesser degree from the remainder of the southwestern United States. The major portion of its Reno business is derived from northern California and to a lesser degree from the northwestern United States. Laughlin's business is derived principally from Arizona and southern California. Gold Strike-Tunica competes with eight other casinos in Tunica County, including a hotel-casino which opened in 1996 at Buck Lake, directly north of the Gold Strike, and which is situated closer to Memphis than any of the other facilities currently in operation in Tunica County. In response to the increased 14 competition in the Tunica market, the Company completed an expansion program at Gold Strike-Tunica with the opening of a new 31-story, 1,066 room hotel tower in late 1997 and early 1998. The existing facilities, which previously included no hotel rooms, were also completely rethemed into a more elegant resort under the Gold Strike name. The completion of the hotel tower gives Gold Strike-Tunica the largest room base in the Tunica market. There is no limit on the number of licenses that may be granted within Mississippi or within any county in Mississippi. The Company believes that Gold Strike-Tunica's principal market is the area within 100 miles of Tunica County. This area includes Memphis, Tennessee, Little Rock, Arkansas and northern Mississippi. Tunica County is currently the closest legalized gaming jurisdiction to Memphis. Because Gold Strike-Tunica is heavily dependent upon the patronage of Memphis residents and upon tourists and other out-of-state gaming customers coming to Tunica from Memphis, the opening of gaming casinos at locations closer to Memphis can have a material adverse effect on Gold Strike-Tunica's operations. De Soto County, the northwestern-most county in Mississippi and the nearest to Memphis, by local referendum in November 1996, voted (as it had in November 1992) against authorizing gaming activities in the county. However, De Soto County could at any time after October 2004 again vote on the question of allowing gaming activities in the county. In addition, the authorization of gaming activities in Arkansas or Tennessee (which currently has a constitutional restriction on gaming activities) could have a material adverse effect on the Company's Tunica County operations. Gaming has expanded dramatically in the United States in recent years. This growth has been reflected in various forms including riverboats, dockside gaming facilities, Native American gaming ventures, land-based casinos, state-sponsored lotteries, off-track wagering and card parlors. Since 1990, when there were casinos in only three states (excluding casinos on Native American lands), gaming has spread to a number of additional states and still other states are currently considering, or may in the future consider, the legalization of casino gaming in specific geographic areas within their jurisdictions. Casino gaming is currently conducted by numerous Native American tribes throughout the United States and other Native American tribes are either in the process of establishing or are considering the establishment of gaming at additional locations, including sites in California and Arizona. The competitive impact on Nevada gaming establishments, in general, and the Company's operations, in particular, from the continued growth of gaming in jurisdictions outside of Nevada cannot be determined at this time. The Company believes that the expansion of casino gaming in areas close to Nevada, such as California and Arizona, could have an adverse impact on the Company's operations and, depending on the nature, location and extent of such operations, such impact could be material. In November 1998, the California electorate approved Proposition 5, an initiative to provide a model compact between the State of California and its Native American tribes, setting terms and conditions for gambling on tribal lands. Video gaming devices and a variety of class three card games are currently operated on a number of California reservations without a State compact as required by federal law. If implemented, Proposition 5 would give all California Native American tribes the right to operate an unlimited number of certain kinds of gaming machines and conduct other forms of casino wagering on California reservations. In December 1998, the California Supreme Court enjoined implementation of Proposition 5 pending the resolution of legal challenges to Proposition 5 which are currently before the Court. However, in December 1998, the United States Court of Appeals in San Francisco declined to enforce a federal District Court injunction shutting down the gaming operations conducted on a number California reservations pending a resolution of the lawsuit challenging Proposition 5. Legal challenges to Proposition 5 may delay or prevent its implementation. However, if implemented, Proposition 5 may negatively affect the Company. The Company is unable at this time to determine the outcome of the litigation relating to Proposition 5 or to assess the impact on the Company's operations or those of the Nevada joint ventures in which the Company is a participant if Proposition 5 is eventually implemented. 15 REGULATION AND LICENSING NEVADA The ownership and operation of casino gaming facilities in Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, the "Nevada Act"); and (ii) various local ordinances and regulations. The Company's gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming Control Board (the "Nevada Board"), and various local licensing and regulatory authorities, including the Clark County Liquor and Gaming Licensing Board, the City of Reno and the City of Henderson (collectively, the "Local Authorities"). The Nevada Commission, the Nevada Board and the Local Authorities are collectively referred to as the "Nevada Gaming Authorities". The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) providing a source of state and local revenues through taxation and licensing fees. Changes in such laws, regulations and procedures could have an adverse effect on the Company's gaming operations. The Company's direct and indirect subsidiaries that conduct gaming operations or have an ownership interest in an entity that conducts gaming operations are required to be licensed by the Nevada Gaming Authorities. The Company is registered by the Nevada Commission as a publicly traded corporation (a "Registered Corporation") and has been found suitable to own the stock of Circus Circus Casinos, Inc., Slots-A-Fun, Inc., Edgewater Hotel Corporation, Colorado Belle Corp., New Castle Corp., Ramparts, Inc. and Mandalay Corp., each of which is a corporate gaming licensee under the terms of the Nevada Act (individually, a "Corporate Licensee" and collectively with the additional corporate subsidiaries referenced herein below, the "Corporate Licensees") that has been licensed to conduct nonrestricted gaming operations at its respective gaming establishment. The Company has also been found suitable to own the stock of M.S.E. Investments, Incorporated ("M.S.E."), Last Chance Investments, Inc. ("LCI"), Goldstrike Investments, Inc. ("GII"), Diamond Gold, Inc. ("DGI"), Oasis Development Company, Inc. ("Oasis") and Galleon, Inc. ("Galleon"), each of which is a Corporate Licensee that has been licensed as a general partner of one or more Nevada general partnerships that have been licensed to conduct nonrestricted or restricted gaming operations at their respective gaming establishments. M.S.E., LCI and GII are each licensed as general partners of Railroad Pass Investment Group, a Nevada general partnership ("Railroad Pass"), Jean Development Company, a Nevada general partnership ("Jean Development"), Jean Development West, a Nevada general partnership ("Jean West"), Gold Strike Fuel Company, a Nevada general partnership ("GSFC") and Jean Fuel Company West, a Nevada general partnership ("Jean Fuel") and Gold Strike L.V., a Nevada general partnership ("GSLV"); DGI is licensed as a general partner of GSLV and Jean West; Oasis is licensed as a general partner of GSFC and Jean Fuel; and Galleon is licensed as a 50% general partner of Circus and Eldorado Joint Venture, a Nevada general partnership ("CEJV") which operates the Silver Legacy and GSLV is licensed as a 50% general partner of Victoria Partners, a Nevada general partnership ("Victoria Partners") which operates Monte Carlo (all such general partnerships individually, a "Partnership Licensee" and collectively, the "Partnership Licensees"). Railroad Pass, Jean Development, Jean West, CEJV and Victoria Partners have each been licensed to conduct nonrestricted gaming operations at their respective gaming establishments and Jean Fuel and GSFC have each been licensed to conduct restricted gaming operations consisting of 15 or fewer slot machines at their respective gaming establishments. 16 The gaming licenses held by the Corporate Licensees and the Partnership Licensees (each individually, a "Gaming Subsidiary" and collectively, the "Gaming Subsidiaries") to conduct nonrestricted gaming operations require the payment of periodic fees and taxes and are not transferable. As a Registered Corporation, the Company is required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information which the Nevada Commission may require. No person may become a stockholder or partner of, or receive any percentage of profits from the Gaming Subsidiaries without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Company and the Gaming Subsidiaries have obtained from the Nevada Gaming Authorities the various registrations, approvals, findings of suitability permits and licenses required in order to engage in gaming activities in Nevada. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company or the Gaming 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 Gaming Subsidiaries must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Officers, directors and key employees of the Company who are actively and directly involved in gaming activities of the Gaming Subsidiaries may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in 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 a Gaming Subsidiary, the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company and the Gaming 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 the Gaming Subsidiaries are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by the Company and the Gaming Subsidiaries must be reported to or approved by the Nevada Commission. If it were determined that the Nevada Act was violated by a Gaming Subsidiary, the gaming licenses it holds could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, the Gaming Subsidiaries, the Company and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate the Company's gaming properties and, under certain circumstances, earnings generated during the supervisor's appointment (except for reasonable rental value of the casino) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect the Company's gaming operations. Any beneficial holder of the Company's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have his suitability as a beneficial holder of the Company's voting securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the state of Nevada. The applicant 17 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 beneficial ownership of more than five percent of a Registered Corporation's voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of a Registered Corporation's voting securities apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing. Under certain circumstances, an "institutional investor", as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of the Registered Corporation's voting securities may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Company, any change in the Company's corporate charter, bylaws, management, policies or operations of the Registered Corporation, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Registered Corporation's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the Company's voting securities beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company or the Gaming Subsidiaries, the Company: (i) pays that person any dividend or interest upon voting securities of the Company; (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person; (iii) pays remuneration in any form to that person for services rendered or otherwise; or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities including, if necessary, the immediate purchase of said voting securities for cash at fair market value. Additionally, the Clark County Liquor and Gaming Licensing Board has the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming licensee. The Nevada Commission may, in its discretion, require the holder of any debt security of a Registered Corporation to file applications, be investigated and be found suitable to own the debt security of a Registered Corporation if the Nevada Commission has reason to believe that such holder's acquisition of such debt security would otherwise be inconsistent with the declared policy of the State of Nevada. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction. 18 The Company is required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company is also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power to require the Company's stock certificates to bear a legend indicating that the securities are subject to the Nevada Act. However, to date, the Nevada Commission has not imposed such a requirement on the Company. The Company may not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. On January 28, 1999, the Nevada Commission granted the Company prior approval to make public offerings for a period of two years, subject to certain conditions (the "Shelf Approval"). The Shelf Approval also applies to any affiliated company wholly owned by the Company (an "Affiliate") which is a publicly traded corporation or would thereby become a publicly traded corporation pursuant to a public offering. The Shelf Approval also includes approval for the Corporate Licensees to guarantee any security issued by, or to hypothecate their assets to secure the payment or performance of any obligations issued by, the Company or an Affiliate in a public offering under the Shelf Registration. However, the Shelf Approval may be rescinded for good cause without prior notice upon the issuance of an interlocutory stop order by the Chairman of the Nevada Board and must be renewed annually. The Shelf Approval does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities offered. Any representation to the contrary is unlawful. Changes in control of the Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the Nevada Board and Nevada Commission in a variety of stringent standards prior to assuming control of such Registered Corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction. The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming corporate licensees, and Registered Corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before the Company can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by the Company's Board of Directors in response to a tender offer made directly to the Registered Corporation's stockholders for the purposes of acquiring control of the Registered Corporation. License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the Gaming Subsidiaries' respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either: (i) a 19 percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of gaming tables operated. A casino entertainment tax is also paid by nonrestricted casino operations where entertainment is furnished in connection with the serving or selling of food or refreshments or the selling of merchandise. Nevada licensees that hold a license as an operator of a slot route, or a manufacturer's or distributor's license, also pay certain fees and taxes to the State of Nevada. Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively, the "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation by the Nevada Board of their participation in such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Commission. Thereafter, Licensees are required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Nevada Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities or enter into associations that are harmful to the state of Nevada or its ability to collect gaming taxes and fees, or employ, contract with or associate with a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of personal unsuitability. The sale of alcoholic beverages at the gaming establishments operated by the Gaming Subsidiaries is subject to licensing, control and regulation by the applicable Local Authorities. All licenses are revocable and are not transferable. The Local Authorities 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 affect upon the operations of the licensed gaming establishments. MISSISSIPPI The Company conducts its Mississippi gaming operations through a Mississippi subsidiary, Circus Circus Mississippi, Inc. ("CCMI"). The ownership and operation of casino gaming facilities in Mississippi are subject to extensive state and local regulation. In order to open and operate Gold Strike-Tunica (formerly Circus Circus-Tunica), the Company was required to register under the Mississippi Gaming Control Act (the "Mississippi Act") and its Mississippi gaming operations are subject to the licensing and regulatory control of the Mississippi Gaming Commission (the "Mississippi Commission") and various local and county regulatory agencies. Effective October 29, 1991, the Mississippi Commission adopted regulations in furtherance of the Mississippi Act (the "regulations"). Changes in the Mississippi Act, the regulations and/or interpretations of the Mississippi Act and the regulations by the Mississippi Commission could have a material adverse effect on gaming operations conducted by the Company in Mississippi. The Company is required to submit detailed financial, operating and other reports to the Mississippi Commission. Substantially all loans, leases, sales of securities and similar financing transactions entered into by CCMI must be reported to or approved by the Mississippi Commission. CCMI also is required to periodically submit detailed financial and operating reports to the Mississippi Commission and the Mississippi State Tax Commission and to furnish any other information required thereby. Each of the directors, officers and key employees of the Company who are actively and directly engaged in the administration or supervision of gaming in Mississippi, or who have any other significant direct or indirect involvement with the gaming activities of the Company in Mississippi, must be found suitable therefor, and may be required to be licensed, by the Mississippi Commission. The finding of suitability is comparable to licensing, and both require submission of detailed personal financial information followed by a thorough investigation. In addition, any individual who is found to have a material relationship to, or material involvement with, the Company may be required to be investigated in order to be found suitable or to be licensed as a business associate of the Company. Key employees, controlling 20 persons or others who exercise significant influence upon the management or affairs of the Company may also be deemed to have such a relationship or involvement. There can be no assurance that a person who is subject to a finding of suitability will be found suitable by the Mississippi Commission. An application for licensing may be denied for any cause deemed reasonable by the Mississippi Commission. The findings of suitability of directors, officers and key employees must be renewed every two years. Changes in licensed positions must be reported to the Mississippi Commission. In addition to its authority to deny an application for a license, the Mississippi Commission has jurisdiction to disapprove a change in corporate position. If the Mississippi Commission were to find a director, officer or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Company, the Company would have to suspend, dismiss and sever all relationships with such person in order to continue to have any involvement in gaming in Mississippi. The Company would have similar obligations with regard to any person who should refuse to file appropriate applications. Each gaming employee at a Mississippi gaming facility must obtain from the Mississippi Commission a work permit which may be revoked upon the occurrence of certain specified events. Mississippi statutes and regulations give the Mississippi Commission the discretion to require a suitability finding with respect to anyone who acquires any security of the Company, regardless of the percentage of ownership. The current policy of the Mississippi Commission is to require anyone acquiring five percent or more of any voting securities of a public or private company to be found suitable. If the owner of voting securities who is required to be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation which the Company may reimburse. The Mississippi Commission has selected those persons it feels were required to be investigated and found suitable and has granted the findings of suitability. However, other persons, for the reasons set forth above, may be required to be found suitable. The Mississippi Commission may at any time dissolve, suspend, condition, limit or restrict a license or approval to own equity interests in the Company for any cause deemed reasonable by the Mississippi Commission. Any owner of voting securities found unsuitable and who holds, directly or indirectly, any beneficial ownership of equity interests in the Company beyond such period of time as may be prescribed by the Mississippi Commission may be guilty of a misdemeanor. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Mississippi Commission may be found unsuitable. The Company will be subject to disciplinary action if, after it receives notice that a person is unsuitable to be an owner of or to have any other relationship with it, the Company: (i) pays the unsuitable person any dividends or interest upon any securities of the gaming subsidiary or any payments or distribution of any kind whatsoever; (ii) recognizes the exercise, directly or indirectly, of any voting rights in its securities by the unsuitable person; or (iii) pays the unsuitable person any remuneration in any form for services rendered or otherwise, except in certain limited and specific circumstances. In addition, if the Mississippi Commission finds any owner of voting securities unsuitable, such owner must immediately surrender all securities to the Company, and the Company must refund any money or other thing of value that may have been invested in the Company or made use of by the Company. The Company is required to maintain current equity ownership ledgers in the State of Mississippi which may be examined by the Mississippi Commission at any time. The Company obtained a waiver of this ledger requirement from the Mississippi Commission at its licensing hearing, however, the waiver may be revoked, modified or suspended at any time by the Mississippi Commission in its discretion. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Mississippi Commission. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company also is required to render maximum assistance in determining the identity of such a beneficial owner. The Mississippi Act requires that certificates representing equity securities of the Company bear a legend to the general effect that the securities are subject to the Mississippi Act and regulations of the 21 Mississippi Commission. The Company obtained a waiver of this legend requirement from the Mississippi Commission, however, this waiver may be revoked, modified or suspended by the Mississippi Commission in its discretion at any time. The Mississippi Commission, through the power to regulate licenses, has the power to impose additional restrictions on the Company and on the holders of the Company's securities at any time. The Company may not make a public offering of its securities without the prior approval of the Mississippi Commission if the securities or proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Mississippi, or to retire or extend obligations incurred for such purposes. On January 21, 1999, the Mississippi Commission granted the Company prior approval to make public offerings for a period of two years, subject to certain conditions (the "Shelf Approval"). The Shelf Approval also applies to any affiliated company wholly owned by the Company (an "Affiliate") which is a publicly traded corporation or would thereby become a publicly traded corporation pursuant to a public offering. However, the Shelf Approval may be rescinded for good cause without prior notice upon the issuance of an interlocutory stop order by the Executive Director of the Mississippi Commission and must be renewed every two years. The Shelf Approval does not constitute a finding, recommendation or approval by the Mississippi Commission as to the accuracy or adequacy of the prospectus or the investment merits of the securities offered. Any representation to the contrary is unlawful. The regulations provide that a change in control of the Company may not occur without the prior approval of the Mississippi Commission. As long as CCMI is licensed to conduct gaming in Mississippi, the Company may not engage in gaming activities in Mississippi while also conducting gaming operations outside of Mississippi without approval of the Mississippi Commission. The Mississippi Commission has approved the Company's gaming activities in the following jurisdictions; Nevada, Indiana, Louisiana, Illinois, New Jersey, Michigan and Ontario, Canada. CCMI received its Mississippi gaming license on August 18, 1994 and renewals on July 18, 1996 and July 16, 1998. The gaming license is not transferable and must be renewed every two years. The Mississippi Commission in 1994 enacted an infrastructure development regulation which requires that a Mississippi casino invest 25% of its casino costs in infrastructure facilities. Infrastructure facilities are defined in the regulation to include a hotel with at least 250 rooms, theme park, golf course and other similar facilities. With the opening of its resort hotel and other amenities in Tunica, CCMI has met the infrastructure requirements. On January 21, 1999, the Mississippi Commission amended this regulation to increase the minimum level of infrastructure investment from 25% to 100% of the casino cost; however, the 100% infrastructure investment amendment applies only to new casino developments and existing casino developments that are not operating at the time of their acquisition or purchase, and would therefore not apply to CCMI. Substantial fines for each violation of gaming laws or regulations may be levied against the Company in Mississippi. A violation under any gaming license held by the Company may be deemed a violation of its Mississippi license. Suspension or revocation of any of the Company's gaming licenses or of the approval of the Company would have a material adverse effect upon any business conducted by the Company in Mississippi. License fees and taxes, computed in various ways depending on the type of gaming involved, are payable to the State of Mississippi and to the county and cities in which the Company conducts operations in Mississippi. Depending upon the particular fee or tax involved, these fees and taxes are payable either weekly or annually and are based upon: (i) the gross gaming revenues received by the casino operation; (ii) the number of slot machines operated by the casino; and (iii) the number of gaming tables operated by the casino. The legal age for gaming in Mississippi is 21. 22 ILLINOIS The Company is subject to the jurisdiction of the Illinois gaming authorities as a result of its acquisition of the Grand Victoria riverboat casino and gaming complex based in Elgin, Illinois. In 1990, the Riverboat Gambling Act (the "Illinois Act") was enacted by the State of Illinois. The Illinois Act authorizes the five-member Illinois Gaming Board (the "Illinois Board") to issue up to ten owners licenses on navigable streams within or forming a boundary of the State of Illinois except for Lake Michigan and any waterway in Cook County, which includes Chicago. The Illinois Act strictly regulates the facilities, persons, associations and practices related to gaming operations pursuant to the police powers of the State of Illinois, including comprehensive law enforcement supervision. The Illinois Act grants the Illinois Board specific powers and duties, and all other powers necessary and proper to fully and effectively execute the Illinois Act for the purpose of administering, regulating and enforcing the system of riverboat gaming. The Illinois Board's jurisdiction extends to every person, association, corporation, partnership and trust involved in riverboat gaming operations in the State of Illinois. The Illinois Act requires the owner of a riverboat gaming operation to hold an owner's license issued by the Illinois Board. Each owner's license permits the holder to own up to two riverboats, however, gaming participants are limited to 1,200 for any owner's license. The number of gaming participants will be determined by the number of gaming positions available and such positions will be counted as follows: positions for games utilizing electronic gaming devices will be determined as 90% of the total number of devices available for play; craps tables will be counted as having ten gaming positions; and games utilizing live gaming devices, except for craps, will be counted as having five gaming positions. A licensed owner who holds greater than 10% interest on one riverboat operation, may hold up to 10% of a second riverboat gaming operation in Illinois. The Illinois Act restricts the granting of certain of the ten owners' licenses by location. Four are for operators docking at sites on the Mississippi River, one is for an operator docking at a site on the Illinois River south of Marshall County and one is for an operator docking at a site on the Des Plaines River in Will County. The remaining four owner's licenses are not restricted as to location. In addition to the ten owner's licenses which may be authorized under the Illinois Act, the Illinois Board may issue special event licenses allowing persons who are not otherwise licensed to conduct riverboat gaming to conduct such gaming on a specified date or series of dates. Riverboat gaming under such a license may take place on a riverboat not normally used for riverboat gaming. The gaming license issued to the Grand Victoria riverboat casino in October 1994, was valid for an initial period of three years and now must be renewed annually. Most recently, its license was renewed in October 1998. An owner licensee is eligible for renewal upon payment of the applicable fee and a determination by the Illinois Board that the licensee continues to meet all of the requirements of the Illinois Act and Illinois Board rules. An ownership interest in an owner's license, or in a business entity other than a publicly held business entity which holds an owner's license, may not be (i) transferred or (ii) pledged as collateral without the approval of the Illinois Board. The Illinois Board also requires that employees of a riverboat gaming operation and vendors of gaming supplies and equipment be licensed. The Illinois Act does not limit the maximum bet or per patron loss. Owner-licensees, however, may set any maximum or minimum limits on wagering under the Illinois Act. No person under the age of 21 is permitted to wager. 23 An admission tax is imposed on the owner of a riverboat operation at a rate of $2 per person admitted. Additionally, a wagering tax is imposed on the adjusted gross receipts, as defined in the Illinois Act, of a riverboat operation. As of January 1, 1998, the wagering tax is as follows: 15% of adjusted gross receipts up to and including $25,000,000; 20% of adjusted gross receipts in excess of $25,000,000 but not exceeding $50,000,000; 25% of adjusted gross receipts in excess of $50,000,000 but not exceeding $75,000,000; 30% of adjusted gross receipts in excess of $75,000,000 but not exceeding $100,000,000; and 35% of adjusted gross receipts in excess of $100,000,000. The owner-licensee is required to wire the wagering tax payment to the Illinois Board daily. Under the Illinois Act, there is a four-hour maximum period during which gaming may be conducted during a gaming excursion. Gaming is deemed to commence when the first passenger boards a riverboat for an excursion and may continue while other passengers are boarding for a period not to exceed 30 minutes. A gaming excursion is deemed to have started upon the commencement of gaming. Gaming may continue for a period not to exceed 30 minutes after the gangplank or its equivalent is lowered. During this 30-minute period of egress, new passengers may not board a riverboat. Special event extended cruises may be authorized by the Illinois Board. If a riverboat captain reasonably determines that either it is unsafe to transport passengers on the waterway due to inclement weather or the riverboat has been rendered temporarily inoperable by unforeseeable mechanical or structural difficulties or river icing, the riverboat shall either not leave the dock or immediately return to it. If a riverboat captain reasonably determines for reasons of safety that although seaworthy, the riverboat should not leave the dock or should return immediately thereto, due to either of the above conditions, a gaming excursion may commence or continue while the gangplank or its equivalent is raised and remains raised, in which event the riverboat is not considered docked. If, due to either of the above conditions, a gaming excursion must commence or continue with the gangplank or its equivalent raised, and the riverboat does not leave the dock, ingress is prohibited until the completion of the excursion. After consultation with the U.S. Army Corps of Engineers, the Illinois Board may establish binding emergency orders upon the concurrence of a majority of the Board regarding the navigability of rivers in the event of extreme weather conditions, acts of God or their extreme circumstances. The Illinois Board is authorized to conduct investigations into the conduct of gaming as it may deem necessary and proper and into alleged violations of the Illinois Act and the Illinois Board's rules. Employees and agents of the Illinois Gaming Board have access to and may inspect any facilities relating to the riverboat gaming operations at all times. A holder of any license is subject to imposition of fines, suspension or revocation of such license, or other action for any act or failure to act by himself or his agents or employees, that is injurious to the public health, safety, morals, good order and general welfare of the people of the State of Illinois, or that would discredit or tend to discredit the Illinois gaming industry or the State of Illinois. Any riverboat operations not conducted in compliance with the Illinois Act may constitute an illegal gaming place and consequently may be subject to criminal penalties, which penalties include possible seizure, confiscation and destruction of illegal gaming devices and seizure and sale of riverboats and dock facilities to pay any unsatisfied judgment that may be recovered and any unsatisfied fine that may be levied. The Illinois Act also provides for civil penalties, equal to the amount of gross receipts derived from wagering on the gaming, whether unauthorized or authorized, conducted on the day of any violation. The Illinois Board may revoke or suspend licenses, as the Illinois Board may see fit and in compliance with applicable laws of the State of Illinois regarding administrative procedures and may suspend an owner's license, without notice or hearing, upon a determination that the safety or health of patrons or employees is jeopardized by continuing a riverboat's operation. The suspension may remain in effect until the Illinois Board determines that the cause for suspension has been abated and it may revoke the owner's license upon a determination that the owner has not made satisfactory progress toward abating the hazard. 24 The Illinois Board requires that a "Key Person" of an owner licensee submit a Personal Disclosure or Business Entity Form and be investigated and approved by the Illinois Board. The Illinois Board shall certify for each applicant for or holder of an owner's license each position, individual or Business Entity that is to be approved by the Board and maintain suitability as a Key Person. With respect to an applicant for or the holder of an owner's license, Key Person shall include: any Business Entity and any individual with an ownership interest or voting rights of more than 5% in the licensee or applicant, and the trustee of any trust holding such ownership interest or voting rights; the directors of the licensee or applicant and its chief executive officer, president and chief operating officer, or their functional equivalents; and all other individuals or Business Entities that, upon review of the applicant's or licensees Table of Organization, Ownership and Control the Board determines hold a position or a level of ownership, control or influence that is material to the regulatory concerns and obligations of the Illinois Board for the specified licensee or applicant. In order to assist the Illinois Board in its determination of Key Persons, applicants for or holders of an owner's license shall provide to the Illinois Board a Table of Organization, Ownership and Control. The Table of Organization, Ownership and Control shall identify in sufficient detail the hierarchy of individuals and Business Entities that, through direct or indirect means, manage own or control the interests and assets of the applicant or licensee holder. If a Business Entity identified in the Table of Organization, Ownership and Control is a percentage of ownership interest of each individual or Business Entity with ownership of more than 5% of the voting shares of the entity, to the extent such information is known or contained in 13D or 13G Securities and Exchange Commission filings; to the extent known, the names and percentage of interest of ownership of persons who are relatives of one another and who together (as individuals or through trusts) exercise control over or own more than 10% percent of the voting shares of the entity; and any trust holding a more than 5% ownership or voting interest in the company, to the extent such information is known or contained in 13D or 13G Securities and Exchange Commission filings. The Table of Organization may be disclosed under the Freedom of Information Act. Each owner licensee shall provide a means for the economic disassociation of a Key Person in the event such economic disassociation is required by an order of the Illinois Board. Based upon findings from an investigation into the character, reputation, experience, associations, business probity and financial integrity of a Key Person, the Illinois Board may enter an order upon the licensee to require the economic disassociation of such Key Person. Furthermore, each applicant for an owner's license or owner licensee must disclose the identity of every person, association, trust or corporation having a greater than 1% direct or indirect pecuniary interest in an owner licensee or in the riverboat gaming operation with respect to which the license is sought. The Illinois Board may also require an applicant or owner licensee to disclose any other principal or investor and require the investigation and approval of such individuals. The Illinois Board (unless the investor qualifies as an Institutional Investor) requires a Personal Disclosure Form from any person or entity who or which, individually or in association with others, acquires directly or indirectly, beneficial ownership of more than 5% of any class of voting securities or nonvoting securities convertible into voting securities of a publicly traded corporation which holds an ownership interest in the holder of an owner's license. If the Illinois Board denies an application for such a transfer and if no hearing is requested, the applicant for the transfer of ownership must promptly divest those shares in the publicly traded parent corporation. The holder of an owner's license would not be able to distribute profits to a publicly traded parent corporation until such shares have been divested. If a hearing is requested, the shares need not be divested and profits may be distributed to a publicly-held parent corporation pending the issuance of a final order from the Illinois Board. An Institutional Investor that individually or jointly with others, cumulatively acquires, directly or indirectly, 5% or more of any class of voting securities of a publicly-traded licensee or a licensee's publicly-traded parent corporation shall, within no less than ten days after acquiring such securities, notify the 25 Administrator of the Illinois Board of such ownership and shall provide any additional information as may be required. If an Institutional Investor (as specified above) acquires 10% or more of any class of voting securities of a publicly-traded licensee or a licensee's publicly-traded parent corporation, it shall file an Institutional Investor Disclosure Form within 45 days after acquiring such level of ownership interest. The licensee shall notify the Administrator as soon as possible after it becomes aware that it or its parent is involved in an ownership acquisition by an Institutional Investor subject to this Section. Notwithstanding the foregoing, the Institutional Investor's obligation under this Section shall be independent of the licensee's obligation to notify the Administrator. In addition to Institutional Investor Disclosure Forms, certain other forms may be required to be submitted to the Illinois Board. An owner-licensee must submit a Marketing Agent Form to the Illinois Board for each Marketing Agent with whom it intends to do business. A Marketing Agent is a person or entity, other that a junketeer or an employee of a riverboat gaming operation, who is compensated by the riverboat gaming operation in excess of $100 per patron per trip for identifying and recruiting patrons. Key Persons of owner-licensees must submit Trust Identification Forms for trusts, excluding land trusts, for which they are a grantor, trustee or beneficiary each time such a trust relationship is established, amended or terminated. The Illinois Board may waive any licensing requirement or procedure provided by rule if it determines that such waiver is in the best interests of the public and the gaming industry. Also, the Illinois Board may, from time to time, amend or change its rules. Uncertainty exists regarding the Illinois gambling regulatory environment due to limited experience in interpreting the Illinois Act. From time to time, various proposals have been introduced in the Illinois legislature that, if enacted, would affect the taxation, regulation, operation or other aspects of the gaming industry or the Company. Some of this legislation, if enacted, could adversely affect the gaming industry or the Company. No assurance can be given whether such or similar legislation will be enacted. Applicants for and holders of an owner's license are required to obtain formal approval from the Illinois Board for changes in the following areas: (i) Key Persons; (ii) type of entity; (iii) equity and debt capitalization of the entity; (iv) investors and/or debt holders; (v) source of funds; (vi) applicant's economic development plan; (vii) riverboat capacity or significant design change; (viii) gaming positions, (ix) anticipated economic impact; or (x) agreements, oral or written, relating to the acquisition or disposition of property (real or personal) of a value greater than $1 million. A holder of an owner's license is allowed to make distributions to its stockholders only to the extent that such distribution would not impair the financial viability of the gaming operation. Factors to be considered by the licensee will include but not be limited to the following: (i) cash flow, casino cash and working capital requirements; (ii) debt service requirements obligations and covenants associated with financial instruments; (iii) requirements for repairs and maintenance and capital improvements; and (iv) employment or economic development requirements of the Act; and (v) a licensee's financial projections. MICHIGAN The Company is subject to the jurisdiction of the Michigan gaming authorities as a result of a Company subsidiary, Circus Circus Michigan, Inc., having an ownership interest in Detroit Entertainment, L.L.C., which has executed a Development Agreement with the City of Detroit for the construction and operation of a casino within the City of Detroit, and has filed an application for a Michigan casino license with the Michigan Gaming Control Board. 26 In 1996, the Michigan Gaming Control and Revenue Act was adopted by public initiative. In 1997, a substantive modification to the Michigan Act was enacted (herein, as modified, the "Michigan Act"). The Michigan Act does not license or regulate Native American casino gaming in Michigan. The Michigan Act establishes a five-member Michigan Gaming Control Board (the "Michigan Board") and authorizes the Michigan Board to issue up to three casino licenses in any Michigan city which has a population of at least 800,000 at the time the casino license is issued and which is located within 100 miles of any other state or country in which gaming was permitted on December 5, 1996, provided the local legislative body of the city has enacted an ordinance approving casino gaming which is consistent with the Michigan Act and rule promulgated pursuant to the Michigan Act. At the present time, the City of Detroit is the only Michigan city which meets the qualification requirements. The Michigan Act strictly regulates the facilities, persons, associations and practices related to the to the casino gaming operations and the buildings, facilities and rooms functionally or physically connected to the casino gaming operations, including any bar, restaurant, hotel, cocktail lounge, retail establishment or arena and any other facility located in the city which is under the control of the casino licensee or an affiliated company (collectively, under the Michigan Act, a "Casino Enterprise") pursuant to the police powers of the State of Michigan, including comprehensive law enforcement supervision. The Michigan Act grants the Michigan Board specific powers and duties, and all other powers necessary and proper to fully and effectively execute the Michigan Act for the purpose of administering, regulating and enforcing the system of casino gaming in Michigan. The Michigan Board's jurisdiction extends to every person, association, corporation, partnership, trust and other business entity involved in casino gaming operations governed by the Michigan Act in the State of Michigan. The Michigan Act requires as a condition precedent to the issuance of a casino license that the applicant for a casino license enter into a development agreement (a "Development Agreement") with the city in which the casino is located. The limited liability company in which the Company has an ownership interest, Detroit Entertainment, L.L.C., has entered into a Development Agreement with the City of Detroit and, therefore, this condition precedent has been met. Under the Michigan Act, in order to operate a casino in a qualified city the casino applicant must obtain a casino license from the Michigan Board. A licensed owner who holds greater than a 10% interest in one casino operation licensed under the Michigan Act is prohibited from owning more than a 10% ownership in any other casino license issued under the Michigan Act. The Michigan Act authorizes the Michigan Board to adopt rules consistent with the Michigan Act and in compliance with rule making procedures established by the laws of the State of Michigan. The Michigan Board has adopted rules in accordance with the Michigan Act. The Michigan Act defines "control" of a casino license applicant or a casino licensee as having a greater than 15% direct or indirect pecuniary interest in the casino license applicant or casino licensee. For purposes of the Michigan Act, the Company has control of Detroit Entertainment, L.L.C. by virtue of the Company subsidiary's forty five percent ownership interest in Detroit Entertainment, L.L.C. The Michigan Act and Michigan Board rules require that certain owners and "Key Persons" of a casino license applicant and a casino licensee meet the qualification and approval standards set forth in the Michigan Act and the Michigan Board rules. These owners and Key Persons are required to timely file qualification information in the form of a Personal Disclosure Form or a Business Disclosure Form with the Michigan Board and be approved by the Michigan Board. Each person, other than a shareholder of a publicly traded company, who directly or indirectly beneficially owns 1% or more of the casino license applicant or casino licensee must submit the qualification information to the Michigan Board. Each shareholder who directly or indirectly beneficially owns more than 5% of a publicly traded company which owns 1% or more of a Michigan casino license 27 applicant or casino licensee must submit qualification information to the Michigan Board. Under the Michigan Act and the Michigan Board rules, an "Institutional Investor" which has invested in the equity or debt securities of a publicly traded company which owns 1% or more of the casino license applicant or casino licensee may, under certain conditions discussed below, obtain a waiver from meeting the qualification and approval standards established by the Michigan Act and the Michigan Board rules. Each Key Person of the casino license applicant or casino licensee must submit qualification information to the Michigan Board. The Michigan Board rules provide that a "Key Person" includes any person who (1) is an officer, director, trustee, partner or proprietor of the casino license applicant or casino licensee, (2) holds a combined direct, indirect or attributed debt or equity interest of more than 5% in a casino license applicant or casino licensee, (3) holds a combined direct, indirect or attributed interest of more than 5% in a person who has a controlling interest in a casino license applicant or a casino licensee, (4) is a managerial employee or an affiliate or holding company with control of the casino licensee applicant or casino licensee or an affiliate or holding company with control of the casino license applicant or casino licensee and who performs the function of principal executive officer, principal operating officer, principal accounting officer or equivalent thereof, or (5) is a managerial employee of the casino license applicant or casino licensee or an affiliate or holding company with control thereof who will perform or performs the function of gaming operations manager or will exercise or exercises management, supervisory or policy making authority over the proposed or existing gaming operation or Casino Enterprise in Michigan and who is not otherwise subject to occupational licensing under the Michigan Act. The Michigan Board is currently taking the position that an Institutional Investor which individually or in association with others, acquires, directly or indirectly, beneficial ownership of more than 5% of a person that has applied for or holds a casino license or the holding company or intermediary of a casino license applicant or casino licensee shall notify the Michigan Board of the acquisition within ten business days after the Institutional Investor acquires the interest or files form 13-D or 13-G with the Securities and Exchange Commission, or both, and shall provide additional information, and may be subject to a finding of suitability as required by the Michigan Board. Under the Michigan Board rules, the Company is a holding company of Detroit Entertainment, L.L.C., which is a casino license applicant under the Michigan Act and the Michigan Board rules. The Michigan Board is currently taking the position that any Institutional Investor which owns or acquires, directly or indirectly, beneficial ownership of more than a 5% interest but not more than a 10% interest in a person that has applied for or holds a casino license or the holding company or intermediary of a casino license applicant or casino licensee may obtain from the Michigan Board a waiver of the eligibility and suitability requirements of the Michigan Act and the Michigan Board rules if the securities were purchased for investment purposes only and not for the purpose of influencing or affecting the affairs of the issuer, the casino licensee or its affiliates. In order to obtain the waiver, the Institutional Investor must complete and file with the Michigan Board a Michigan Institutional Investor Waiver Application (less than 10% interest), which requires certain Institutional Investor identification information and a certification concerning investment intent. An Institutional Investor which owns or acquires, directly or indirectly, beneficial ownership of more than a 10% interest but not more than 15% interest in a person that has applied for or holds a casino license or the holding company or intermediary of a casino license applicant or casino licensee may also apply to the Michigan Board for a waiver of the eligibility and suitability requirements of the Michigan Act and the Michigan Board rules. The Michigan Board rules require that an Institutional Investor within these ownership parameters which is seeking a waiver disclose in the waiver application certain specific information concerning the Institutional Investor which will assist the Michigan Board in determining whether to grant the waiver request. An Institutional Investor which owns or acquires, directly or indirectly, beneficial ownership of more than 15% of a casino license applicant or casino licensee is required to file qualification information with 28 the Michigan Gaming Control Board within 45 days after acquiring the interest and meet the qualification and approval standards of the Michigan Act and the Michigan Board. An Institutional Investor which owns or acquires beneficial ownership of (1) 10% or more of debt securities of a casino licensee's affiliate or affiliated company which are related in any way to the financing of the casino licensee or (2) more than 50% of any issue of the outstanding debt of the casino licensee's affiliate or affiliated company may be required to file qualification information and meet the qualification and approval standards of the Michigan Act and the Michigan Board. An Institutional Investor which owns or acquires beneficial ownership of more than 5% but under 10% of debt securities of a casino licensee's affiliate or affiliated company which are related in any way to the financing of the casino licensee may be granted a waiver of the eligibility and suitability standards of the Michigan Act and the Michigan Board rules if (1) the debt securities do not represent more than 20% of the outstanding debt of the casino licensee's affiliate or affiliated company or (2) the debt securities represent not more than 50% of any issue of the outstanding debt of the casino licensee's affiliate or affiliated company and (3) the debt securities are those of a publicly traded corporation and were purchased for investment purposed only. For purposes of the Michigan Act the Company is an affiliate of Detroit Entertainment, L.L.C. The Michigan Board has the authority to require additional owners who have a direct or indirect ownership interest in a casino license applicant or a casino licensee to meet the qualification and approval standards set forth in the Michigan Act and the Michigan Board rules notwithstanding the fact that they do not meet the ownership thresholds currently described in the Michigan Act and the Michigan Board rules when the Michigan Board determines that it is in the best interests of the casino regulatory process to do so. If a shareholder who is required to submit qualification information to the Michigan Board is not approved by the Michigan Board, then the shareholder must promptly divest all ownership interest in the shares. If a person who seeks to acquire shares is a person who is required to submit qualification information to the Michigan Board and the person is not approved by the Michigan Board, then the person may not acquire the shares and must divest all interest in the shares. If a Key Person who is required to submit qualification information to the Michigan Board is not approved by the Michigan Board, then the Key Person must promptly cease all involvement in the Michigan Casino Enterprise. In addition to and separate and apart from complying with qualification and approval standards established by the Michigan Act and the Michigan Board rules, Michigan law requires that any person who holds a "Casino Interest" must file a registration form with the Michigan Secretary of State not later than 5 days after obtaining the interest. A person holding a Casino Interest includes (1) a person who holds at least a 1% interest in a casino licensee or a Casino Enterprise, (2) A person who is a partner, officer or key or managerial employee of the casino licensee or Casino Enterprise, (3) a person who is an officer of the person who holds at least a 1% interest in the casino licensee or Casino Enterprise and (4) the spouse or children of a person described in (1) through (3) above. For purpose of this registration requirement, a "Person" includes an individual, limited liability company, proprietorship, firm, partnership, joint venture, syndicate, business trust, labor organization, company, corporation, association, committee, governmental entity or other legal entity. A person who fails to register with the Michigan Secretary of State in compliance with Michigan law will be assessed a late filing fee of not more than $300. In addition, the person is subject to being charged with a misdemeanor and a fine of not more than $1,000. 29 Under the Michigan Act, an applicant for a casino license is, if approved, first issued a certificate of suitability which is valid while the holder is making satisfactory progress toward meeting the conditions of the certificate of suitability. In the event that the Michigan Board determines that the holder of the certificate of suitability is not, in the judgment of the Michigan Board, making satisfactory progress toward meeting the conditions of the certificate of suitability, the Michigan Board will reconvene the public investigative hearing for the purpose of considering the applicant's compliance with the condition of its certificate of suitability. The Michigan Board may thereafter take whatever action it deems necessary to assure compliance with the certificate of suitability or may cancel and withdraw the certificate of suitability. Under the Michigan Act, the Michigan Board will issue a casino license to the applicant upon completion of construction of the casino in accordance with the certificate of suitability and upon satisfactory completion of a final operational inspection performed by the Michigan Board. Under the Act, there is no distinction between a temporary casino and a permanent casino. Under the Development Agreement entered into with the City of Detroit, Detroit Entertainment, L.L.C. is permitted to first construct and open a temporary casino, which must then be replaced with a permanent casino to be constructed in accordance with the provisions of the Development Agreement. Detroit Entertainment, L.L.C. is currently in the process of renovating the Wonder Bread Bakery facility in Detroit to serve as a temporary casino once Detroit Entertainment, L.L.C. has received its casino license from the Michigan Board, while the permanent casino site is being obtained by the City of Detroit and made available for construction of the Detroit Entertainment, L.L.C. permanent casino. No assurance can be given regarding if or when Detroit Entertainment, L.L.C. will receive its casino license and be able to open the temporary casino. The permanent casino will be constructed in accordance with the Development Agreement once the permanent casino site has been acquired in accordance with procedures being developed by the City of Detroit and is prepared for construction activity. No assurance can be given regarding when the permanent casino site will be available and ready for construction of the permanent casino or when construction of the permanent casino will be completed and the permanent casino opened. A casino license is renewable annually. The casino license is renewable upon payment of the application fees and a determination by the Michigan Board that the casino licensee continues to meet all of the requirements of the Michigan Act and the Michigan Board rules. Under the Michigan Act and the Michigan Board rules, the transfer of a direct or indirect beneficial ownership interest of more than 1% in a casino license applicant or a casino licensee is regulated by and subject to the approval of the Michigan Board. There are certain exceptions and higher ownership thresholds in the case of ownership interests acquired in a publicly traded corporation which has an ownership interest in a casino license applicant or a casino licensee and ownership interests acquired by an Institutional Investor when the ownership interests meet the exceptions established by the Michigan Act and/or the Michigan Board rules. The Michigan Act and the Michigan Board rules also require that certain employees of the casino license applicant and casino licensee and certain employees of owners of the casino license applicant and casino licensee be licensed by the Michigan Board. In addition, the Michigan Act and the Michigan Board rules require that vendors of gaming related goods and services and vendors of certain nongaming goods and services used by the Casino Enterprise either register with the Michigan Board as a vendor or be licensed as a supplier by the Michigan Board. The Michigan Act and the Michigan Board rules do not limit the maximum bet or per person loss. Casino licensees, however, may set any maximum or minimum limits on wagering under the Michigan Act and Michigan Board rules. No person under the age of twenty one is permitted to wager. The casino operation may be operated twenty four hours a day, seven days a week. Under the Michigan Act, casino licensees are subject to five forms of gaming taxes and fees: (1) a nonrefundable application fee of $50,000, (2) a $25,000 license fee which is payable annually, (3) a 30 wagering tax equal to 18% of adjusted gross receipts, (4) a municipal services fee in an amount equal to the greater of 1.25% of adjusted gross receipts or $4,000,000 and (5) an annual payment of all regulatory and enforcement costs, including compulsive gaming programs, casino related programs and activities, casino related legal services provided by the Michigan Attorney General and casino related expenses of the Michigan State Police up to a combined total annual maximum of $25,000,000 in the first year of casino operations for all casinos licensed under the Michigan Act, adjusted annually by the Detroit Consumer Price Index, with no casino licensee being assessed more than 1/3 of the total annual assessment, with these funds being placed into a services fee fund. The service fee fund is prohibited from exceeding $65,000,000. If the service fee fund exceeds $65,00,000, then the excess amount must be credited towards the annual payments the casinos are required to make to the services fee fund. These gaming taxes and fees are in addition to the taxes, fees and assessments customarily paid by business entities doing business in the State of Michigan and the City of Detroit. The Michigan Board, the Michigan Attorney General and the Michigan State Police are authorized to conduct such investigations into the conduct of gaming as they may deem necessary and proper, including investigations of alleged violations of the Michigan Act and the Michigan Board rules. Employees of the Michigan Board and the Michigan Attorney General staff and Michigan State Police staff assigned to the Board have access to and may inspect any facilities relating to the Casino Enterprise operations at any time. Under the Michigan Board rules, the Michigan Board will have dedicated rooms on site at the casino and Michigan Board staff at the casino on a twenty four hour per day, seven days a week basis. Applicants for and holders of a casino license and their affiliates and holding companies are required to obtain formal approval from the Michigan Board for changes in the following areas: (1) Key Persons, (2) type of entity, (3) equity and debt capitalization of the entity, (4) investors and/or debt holders exceeding certain minimum percentage levels, (5) source of funds and (6) related party transactions exceeding $250,000 in a twelve month period. A holder of a Michigan gaming license is subject to the imposition of fines, suspension or revocation of the casino license, or other action for any act or failure to act by the licensee or the licensee's agents or employees that is in violation of the Michigan Act or the Michigan Board rules. Any casino operation not conducted in compliance with the Michigan Act and the Michigan Board rules may constitute an illegal gaming operation and consequently may be subject to civil and criminal penalties, which penalties include the possibility of seizure, confiscation and destruction of gaming devices and seizure and sale of casino operations. The Michigan Act also provides for civil penalties against casino licensees of up to $10,000 or the amount of daily gross receipts derived from wagering on gaming on the day of the violation, whichever is greater. The Michigan Board may revoke, suspend, restrict or place conditions on licenses and certificates of suitability, as the Michigan Board may see fit and in compliance with the Michigan Act and applicable laws of the State of Michigan regarding administrative procedures, and may suspend a casino operator's license, without notice or hearing, upon a determination that the safety or health of patrons or employees would be threatened by the continued operation of the casino or that the action is necessary for the immediate preservation of the integrity of casino gaming, public peace, health, safety, morals, good order, or general welfare. The Michigan Board may waive any licensing requirement or procedure provided by rule and not required by the Michigan Act if it determines that such waiver is in the best interests of the public and the gaming industry. Also, the Michigan Board may, from time to time, amend or change its rules provided the amendment is made in compliance with applicable Michigan law. The Michigan Act prohibits casino licensees and related persons from making contributions to a candidate and certain political committees during (1) any period during which the casino licensee is being considered by the Michigan Board or the city in which the licensee seeks to operate the casino, (2) the term during which the licensee holds a license, (3) three years following the expiration or termination of the licensee's license and (4) the period beginning after the effective date of the Michigan Act or the 31 period beginning one year prior to applying for a license, whichever period is shorter. The Michigan Act also prohibits casino and any person who has an interest in a casino licensee and the spouse, parent, child or spouse of a child from either making a contribution indirectly to a candidate or a committee through a legal entity that is established, directed or controlled by that licensee, person or related party. A person is considered to have an interest in a casino licensee if (1) the person holds at least a 1% interest in the licensee or Casino Enterprise, (2) the person is an officer or managerial employee of the licensee or Casino Enterprise, (3) the person is an officer of the person who holds at least a 1% interest in the licensee or Casino Enterprise or (4) the person is an independent committee of the licensee or Casino Enterprise. The Michigan Act and the Michigan Board rules establish extensive requirements and procedures relating to operation of casino games, ownership records, reporting of transactions, handling of money, extending credit, accounting and editing, internal control systems and compliance reporting. The development agreement which has been entered into between Detroit Entertainment, L.L.C. and the City of Detroit has numerous terms and conditions relating to the construction and operation of a casino in the City of Detroit, including goals for the use of Detroit based or minority businesses and the hiring of Detroit residents. Detroit Entertainment, L.L.C. has agreed to exert its reasonable best efforts to comply with vendor use and hiring goals. Failure to comply with the terms of the development agreement could adversely effect the granting of a certificate of suitability or a casino license to or the continued casino licensure of Detroit Entertainment, L.L.C. Uncertainty exists regarding the Michigan gaming regulatory environment due to the limited experience in interpreting the Michigan Act and the Michigan Board rules. The Michigan Act and the Michigan Board rules are evolving pursuant to an ongoing regulatory, legislative and judicial process and, therefore, are subject to and in all probability will change with the maturation of casino gaming regulated by the Michigan Act. Various regulatory ordinance proposals have been discussed by the Detroit City Council concerning regulation of casinos in the City of Detroit. Some of this legislation, if enacted, could adversely affect the gaming industry or the Company. No assurance can be given whether such or similar city ordinances will be enacted. From time to time, various proposals have been introduced in the Michigan legislature that, if enacted, would affect the taxation, regulation, operation or other aspects of the gaming industry or the Company. Some of this legislation, if enacted, could adversely affect the gaming industry or the Company. No assurance can be given whether such or similar legislation will be enacted. OTHER JURISDICTIONS As a result of the Company's efforts to expand its gaming operations, the Company and/or joint ventures in which the Company is a participant may become subject to comprehensive gaming and other regulations in additional jurisdictions. Such regulations may be similar to, and could be more restrictive than, those currently applicable to the Company, its officers, directors or employees or persons associated with the Company. NATIONAL GAMBLING COMMISSION A National Gambling Impact Study Commission (the "National Commission") has been established by the United States Congress to conduct a comprehensive legal and factual study of the social and economic impact of gaming in the United States. The National Commission is required by the enabling legislation to issue a report containing its findings and conclusions, together with recommendations of the National Commission for legislation and administrative actions, within two years after the date on which it held its first meeting, which occurred on June 20, 1997. Any recommendations which may be made by the National Commission could result in the enactment of new laws and/or the adoption of new regulations 32 which could adversely impact the gaming industry in general and the Company in particular. The Company is unable at this time to determine what recommendations, if any, the National Commission will make, or the ultimate disposition of any recommendations the National Commission may make. EMPLOYEES AND LABOR RELATIONS At March 31, 1999, the Company employed approximately 27,000 persons. Approximately 37% of the Company's employees at January 31, 1999 were employed pursuant to the terms of collective bargaining agreements. The contract with one union expired on March 31, 1999. A new contract is currently being negotiated and the Company does not anticipate any difficulties in renewing its agreement. The Company currently has contracts with all of its other major unions with remaining terms ranging from one to four years. The Company considers its labor relations to be satisfactory. A work stoppage has not been experienced at a Company-owned property since an industry-wide strike in 1975. Certain states in which gaming recently has been legalized have established community commitment and similar laws or requirements which require that a specified percentage of employees of gaming ventures be residents of the community or state in which the gaming venture is located or meet certain other criteria. These laws could affect the ability of the Company to attract and retain qualified employees for gaming operations conducted by the Company or joint ventures in which it participates outside Nevada. FACTORS THAT MAY AFFECT OUR FUTURE RESULTS (Cautionary Statements Under the Private Securities Litigation Reform Act of 1995) Certain information included in this Report and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They contain words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "may," "could," "might" and other words or phrases of similar meaning in connection with any discussion of future operating or financial performance. Such statements include information relating to current construction activities, plans for future expansion and other business development activities as well as other capital spending, financing sources and the effects of regulation (including gaming and tax regulation) and competition. From time to time, oral or written forward-looking statements are also included in the Company's periodic reports on Forms 10-Q and 8-K, press releases and other materials released to the public. Any or all of the forward-looking statements in this Report, in the Company's Annual Report to Stockholders for fiscal 1999 and in any other public statements the Company makes may turn out to be wrong. This can occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this Report, such as government regulation and the competitive environment, will be important in determining the Company's future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in the Company's subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. The following discussion of risks, uncertainties and possible inaccurate assumptions relevant to the Company's business includes factors the Company believes could cause its actual results to differ materially from expected and historical results. Other factors beyond those listed below could also adversely affect the Company. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995. 33 - As described under "Competition," in this Item 1, the Company and the joint ventures in which it is a participant operate in a very competitive environment, particularly in Las Vegas. The growth in the number of hotel rooms in Las Vegas, which will increase sharply in 1999, and the spread of legalized gaming in other states and countries, have negatively affected the Company's operating results and may continue to do so. - As discussed under "Regulation and Licensing" in this Item 1, the gaming operations of the Company and the joint ventures in which it is a participant are highly regulated by governmental authorities in Nevada, Mississippi and Illinois. The Detroit Joint Venture and the Company will also be subject to regulation by the authorities in Michigan if the Detroit Joint Venture successfully completes and opens a casino in Detroit, Michigan. This regulation may or may not be similar to that in Nevada, Mississippi and Illinois. The Company may also be subject to regulation in other jurisdictions where gaming may be conducted in the future. - Changes in applicable laws or regulations could have a significant effect on the operations of the Company and the gaming joint ventures in which it participates. As a result of federal legislation passed in 1996, the National Gambling Impact Study Commission has been conducting a two-year study of the gaming industry in the United States and is expected to report its findings and recommendations to Congress in June 1999. It is possible that this report may result in additional regulation and taxation of the gaming industry. - The Company's operations and those of the joint ventures in which it is a participant are affected by changes in local and national general economic and market conditions in the locations where operations are conducted and where customers live. The Company and its joint ventures' Nevada properties are affected by the economic conditions in California and Mandalay Bay may be susceptible to the effects of economic conditions in the Far East. - The interstate highway between Las Vegas and Southern California, where a large number of the Company's customers reside, has experienced long traffic delays during peak periods. These factors may affect the number of customers who visit our facilities in Southern Nevada. - Plans for future construction can be affected by a number of factors, including time delays in obtaining necessary governmental permits and approvals and legal challenges. Changes may be made in the scope of a project, budgets and schedules for competitive, aesthetic or other reasons, and these changes may also result from circumstances beyond the Company's control. These circumstances include weather interference, shortages of materials and labor, work stoppages, labor disputes, unforeseen engineering, environmental or geological problems and unanticipated cost increases. Any of these circumstances could give rise to delays in the completion of any project undertaken by the Company or any of its joint ventures or cost overruns. - The gaming industry represents a significant source of tax revenues to the state, county and local jurisdictions in which gaming is conducted. From time to time, various state and federal legislators and officials have proposed changes in tax laws, or in the administration of the laws, affecting the gaming industry. Proposals in recent years that have not been enacted included a federal gaming tax and increases in state or local taxes. - The Company believes that its recorded tax balances are adequate. However, it is not possible to determine with certainty the likelihood of possible changes in the tax laws or their administration. These changes, if adopted, could have a material negative effect on the operating results of the Company and the joint ventures in which it participates. - The Company's debt has increased in the past several years, primarily due to the construction of Mandalay Bay, the hotel tower at Gold Strike-Tunica and the expansion projects at Luxor and Circus Circus-Las Vegas. The interest rate on a large portion of the Company's long-term debt is subject to fluctuation based on changes in short-term interest rates and the ratings which national 34 rating agencies assign to its outstanding debt securities. Interest expense could increase as a result of these factors. - Claims have been brought against the Company in various legal proceedings, and additional legal and tax claims arise from time to time. It is possible that the Company's cash flows and results of operations could be affected from time to time by the resolution of one or more of these contingencies. The Company believes that the ultimate disposition of current matters will not have a material impact on its financial condition or results of operations. See the further discussion under "Legal Proceedings" in Item 3 of this Form 10-K. - There is intense competition to attract and retain management and key employees in the gaming industry. The Company's business could be adversely affected in the event of its inability to recruit or retain key personnel. - Litigation is currently pending in the United States District Court for the Western District of Michigan which challenges the city ordinance pursuant to which the Detroit Joint Venture was selected to develop one of three casinos permitted to be developed in Detroit, Michigan. See "Current Expansion Activities--Detroit, Michigan" in this Item 1. Depending on the eventual outcome of this litigation, the Detroit Joint Venture's ability to complete, open and/or operate a Detroit casino could be delayed, precluded or otherwise adversely impacted. - As described under "Year 2000 Readiness Disclosure" in Item 7 of this Form 10-K, the Company is working to address the Year 2000 issue. If the Company should fail to identify or correct problems in its critical systems, or if it is affected by disruptions in airline service or other economic disruptions affecting its customers, operations could be impacted. - While the Company from time to time communicates with securities analysts, it is against Company policy to disclose to them any material non-public information or other confidential business information. Therefore, it should not be assumed that the Company agrees with any statement or report issued by any analyst, irrespective of the content of the statement or report. Furthermore, the Company has a policy against publicly issuing financial forecasts or projections or confirming forecasts or projections issued by others. Hence, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, those reports are not the Company's responsibility. ITEM 2. PROPERTIES. MANDALAY BAY. The Company owns approximately 60 acres of land, with approximately 1,300 feet of frontage, on the Las Vegas Strip and Mandalay Bay is situated on the site. For additional information concerning Mandalay Bay, see "Description of the Company's Hotels and Casinos--Las Vegas, Nevada-- Mandalay Bay" in Item 1 of this Report. LUXOR AND EXCALIBUR. The Company owns a 117-acre parcel on the southwest corner of the intersection of the Las Vegas Strip and Tropicana Avenue, with approximately 2,400 feet of frontage on the Las Vegas Strip, that includes, Excalibur, which is situated on the northern portion of the parcel at the intersection of the Las Vegas Strip and Tropicana Avenue, and Luxor, which is situated on such site to the south of Excalibur. For additional information concerning Luxor and Excalibur, see "Description of the Company's Hotels and Casinos--Las Vegas, Nevada--Luxor" and--Excalibur" in Item 1 of this Report. CIRCUS CIRCUS-LAS VEGAS. The Company owns approximately 69 acres of land with 375 feet of frontage on the Las Vegas Strip and Circus Circus-Las Vegas which is situated on the site. For additional information concerning Circus Circus-Las Vegas, see "Description of the Company's Hotels and Casinos-- Las Vegas, Nevada--Circus Circus-Las Vegas" in Item 1 of this Report. 35 CIRCUS CIRCUS-RENO. Circus Circus-Reno is situated on a three-block area in downtown Reno, of which approximately 90% is owned by the Company and the remainder is held under three separate leases, two of which expire in 2032 and 2033, respectively. The Company owns the remaining interest in the parcel subject to the third lease pursuant to which the Company is obligated to pay rent for the lifetime of the landlord. For additional information concerning Circus Circus-Reno, see "Description of the Company's Hotels and Casinos--Reno, Nevada--Circus Circus-Reno" in Item 1 of this Report. COLORADO BELLE. The Company owns approximately 22 acres on the bank of the Colorado River in Laughlin, Nevada and the Colorado Belle, which is situated on the site. For additional information concerning the Colorado Belle Hotel and Casino, see "Description of the Company's Hotels and Casinos--Laughlin, Nevada--Colorado Belle" in Item 1 of this Report. EDGEWATER. Adjacent to the site of the Colorado Belle, the Company owns approximately 16 acres on the bank of the Colorado River in Laughlin, Nevada, and the Edgewater Hotel and Casino, which is situated on the site. For additional information concerning the Edgewater Hotel and Casino, see "Description of the Company's Hotels and Casinos--Laughlin, Nevada--Edgewater" in Item 1 of this Report. GOLD STRIKE. The Company owns approximately 51 acres and the Gold Strike Hotel & Gambling Hall, which is situated on the site, located on the east side of I-15 in Jean, Nevada, approximately 12 miles from the California/Nevada border and 25 miles from Las Vegas. For additional information concerning Gold Strike, see "Description of the Company's Hotels and Casinos--Jean, Nevada--Gold Strike" in Item 1 of this Report. NEVADA LANDING. The Company owns approximately 55 acres and the Nevada Landing Hotel & Casino, which is situated on the site, located on the west side of I-15 in Jean, Nevada. For additional information concerning Nevada Landing, see "Description of the Company's Hotels and Casinos--Jean, Nevada--Nevada Landing" in Item 1 of this Report. RAILROAD PASS. The Company owns approximately 56 acres and the Railroad Pass Hotel & Casino, which is situated on the site, located on US-93 in Henderson, Nevada. For additional information concerning Railroad Pass, see "Description of the Company's Hotels and Casino--Henderson, Nevada-- Railroad Pass" in Item 1 of this Report. GOLD STRIKE-TUNICA. The Company owns approximately 24 acres in Tunica County, Mississippi and Gold Strike-Tunica, which is situated on the site. The Company also owns an undivided 50% interest in an additional 388-acre site which is owned jointly with another unaffiliated gaming company. For additional information concerning Gold Strike-Tunica, see "Description of the Company's Hotels and Casinos-- Tunica County, Mississippi--Gold Strike-Tunica" in Item 1 of this Report. OTHER REAL PROPERTY Slots-A-Fun is situated on a 30,000-square-foot parcel owned by the Company and has approximately 100 feet of frontage on the Las Vegas Strip. The Company operates the Silver City Casino in Las Vegas under a lease which expires in October 1999. The Company currently pays a base rent of $129,982 per month. The base rent is subject to annual increases, calculated by using a specified index with a cap based on a specified percentage of annual revenues. Under the terms of the lease, the landlord or the landlord's assignee is entitled to participate in the profits to the extent by which 50% of defined exceeds the adjusted base rent. There was no profit participation rent due for the years ended January 31, 1996, 1997 or 1998. The Company does not plan to renew this lease and will thus cease operations at that property. 36 The Company owns approximately 60 acres of unimproved land located immediately south of Mandalay Bay and approximately 15 acres of land on the Las Vegas Strip across from Luxor, which from time to time is utilized as a parking lot for employees at Luxor and Excalibur. The Company owns 60 acres of land in Jean, Nevada to the north of Gold Strike and approximately 89 acres of land in Sloan, Nevada off of I-15. Sloan is located between Jean and Las Vegas. The Company also owns or leases, or has options and/or agreements to purchase or lease, certain other improved and unimproved properties which are not deemed to be material to the Company. As of January 31, 1999, the aforementioned properties owned by the Company were not subject to any encumbrances securing the repayment of indebtedness. JOINT VENTURE INTERESTS. The Company, either directly or through wholly owned subsidiaries, owns (i) a 50% interest in the Las Vegas Joint Venture, which owns and operates Monte Carlo, a hotel-casino complex on the Las Vegas Strip; (ii) a 50% interest in the Elgin Joint Venture, which owns and operates the Grand Victoria, a riverboat casino and land-based entertainment complex in Elgin, Illinois; and (iii) a 50% interest in the Reno Joint Venture, which owns and operates Silver Legacy, a hotel-casino in Reno, Nevada. Reference is made to the information appearing under the caption "Joint Venture Participations" in Item 1 of this Report concerning the properties owned and operated by the aforementioned joint venture entities, which information is hereby incorporated in this Item 2 by this reference. ITEM 3. LEGAL PROCEEDINGS. On April 26, 1994, a lawsuit requesting class certification was filed by William H. Poulos in the United States District Court for the Middle District of Florida against 41 manufacturers, distributors and casino operators of video poker and electronic slot machines, including the Company. On May 10, 1994, a lawsuit requesting class certification alleging substantially identical claims was filed by William Ahearn in the same court against 48 defendants, including the Company. The two lawsuits were consolidated into a single action and transferred to the United States District Court for the District of Nevada (the "Court"). On September 26, 1995, a lawsuit requesting class certification alleging substantially identical claims was filed by Larry Schreier in the Court against 45 defendants, including the Company. On February 14, 1997, the three plaintiffs filed a consolidated amended complaint in the Court. The consolidated complaint alleges that the defendants have engaged in a course of fraudulent and misleading conduct intended to induce persons to play video poker and electronic slot machines based on a false belief concerning how the gaming machines operate, as well as the extent to which there is an opportunity to win. The complaint alleges violations of the Racketeer Influenced and Corrupt Organizations Act, as well as claims of common law fraud, unjust enrichment and negligent misrepresentation, and seeks unspecified compensatory and punitive damages. In December 1997, the Court issued formal opinions granting in part and denying in part defendants' motions to dismiss. In so doing, the Court ordered plaintiffs to file an amended complaint which was filed in January 1998. The defendants filed an answer to the amended complaint in February 1998. In March 1998, the plaintiffs moved to certify the action as a class action. The defendants opposed that motion. All proceedings in the case have been stayed pending the Court's ruling on the motion for class certification. A ruling on that motion is expected within the next few months. The Company denies the allegations contained in the amended complaint and continues to vigorously defend all claims and allegations contained in the consolidated action. The Company is a defendant in various other pending law-suits. In management's opinion, the ultimate outcome of such law suits will not have a material adverse effect on the results of operations or the financial position of the Company. 37 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year ended January 31, 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. PRICE RANGE OF COMMON STOCK. The Company's Common Stock is listed on the New York Stock Exchange and on the Pacific Exchange and traded under the symbol CIR. The following table sets forth, for the fiscal quarters shown, the low and high sale prices for the Common Stock on the New York Stock Exchange Composite Tape.
FISCAL 1999 LOW HIGH - ----------------------------------------------------------------------------------------------- --------- --------- First Quarter.................................................................................. $ 17.56 $ 26.50 Second Quarter................................................................................. $ 13.63 $ 19.25 Third Quarter.................................................................................. $ 7.13 $ 13.94 Fourth Quarter................................................................................. $ 10.75 $ 14.13
FISCAL 1998 LOW HIGH - ----------------------------------------------------------------------------------------------- --------- --------- First Quarter.................................................................................. $ 23.50 $ 36.50 Second Quarter................................................................................. $ 21.06 $ 29.25 Third Quarter.................................................................................. $ 21.00 $ 26.69 Fourth Quarter................................................................................. $ 20.00 $ 26.19
On April 19, 1999 there were 4,074 holders of record of the Common Stock of the Company. DIVIDEND POLICY. The Company does not currently pay a cash dividend, nor is one contemplated in the foreseeable future. The Company believes that currently its stockholders are best served by a policy of reinvestment in new high-return projects. The Company has a policy of periodic share repurchase, as cash flows, borrowing capacity and market conditions warrant. On December 10, 1998, the Company repriced the outstanding options to purchase its Common Stock, then held by full time employees, which had exercise prices of $15 or higher. The repricing involved the exchange of options to purchase an aggregate of 3.9 million shares for new options to purchase an aggregate of 2.6 million shares. The new options have terms identical to the repriced options, with the following exceptions: (i) the exercise price was reduced to $11.25 (representing the market value of the Common Stock on the date of the repricing); (ii) the new options may not be exercised prior to June 10, 1999; and (iii) the new options which were exchanged for options with exercise prices in excess of $20 were conditioned on the surrender to the Company of options to purchase three shares for every two shares covered by the new option, unless the exercise price of the repriced option was in excess of $30, in which case the new options were conditioned on the surrender of options to purchase two shares for every share covered by the new option. The new options were offered exclusively to existing holders of options to purchase the Company's Common Stock and no commission or other remuneration was paid or given directly or indirectly for soliciting the exchange. The exchange was made in reliance on the exemption in Section 3(a)(9) of the Securities Act of 1933 (the "1933 Act"). The Common Stock which may be purchased upon exercise of the options are the subject of effective registration statements under the 1933 Act. 38 ITEM 6. SELECTED FINANCIAL DATA.
YEAR ENDED JANUARY 31, ----------------------------------------------------- 1999 1998 1997 1996 1995 --------- --------- --------- --------- --------- (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) OPERATING RESULTS(1): Revenues(2)........................ $1,479,780 $1,354,487 $1,334,250 $1,299,596 $1,170,182 Income from operations............. 242,779 236,500 222.169 251,373 256,007 Pretax income...................... 140,815 147,922 163,863 205,759 214,490 Net income......................... 85,198 89,908 100,733 128,898 136,286 Basic earnings per share........... $ .90 $ .95 $ .99 $ 1.33 $ 1.59 Diluted earnings per share......... $ .90 $ .94 $ .97 $ 1.30 $ 1.58 BALANCE SHEET DATA: Total assets....................... $3,869,707 $3,263,548 $2,729,111 $2,213,503 $1,512,548 Long-term debt..................... 2,259,149 1,788,818 1,405,897 715,214 632,652 Stockholders' equity............... 1,157,628 1,123,749 971,791 1,226,812 686,124
- ------------------------ (1) Gold Strike, Nevada Landing and Railroad Pass were acquired on June 1, 1995. The Hacienda was acquired on September 1, 1995 and closed on December 1, 1996. Gold Strike-Tunica opened in August 1994, Luxor opened in October 1993. (2) Revenues are net of complimentary allowances. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Incorporated herein by reference are pages 25 through 37 of the Company's Annual Report to Stockholders for the fiscal year ended January 31, 1999 (the "1999 Annual Report"), which pages are included as part of Exhibit 13 to this Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The information in the 1999 Annual Report beginning immediately following the caption "Market Risk and Derivative Financial Instruments" on page 35 thereof to, but not including, the caption "Year 2000 Readiness Disclosure" on page 36 thereof is incorporated herein by reference, which information is included as part of Exhibit 13 to this Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Incorporated herein by reference are pages 38 through 55 of the 1999 Annual Report, which pages are included as part of Exhibit 13 to this Report. 39 SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
YEAR ENDED JANUARY 31, 1999 ----------------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER TOTAL --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue.................................. $ 356,962 $ 384,661 $ 382,449 $ 355,708 $1,479,780 Income from operations................... 61,059 66,105 64,257 51,358 242,779 Income before income tax................. 35,794 40,043 39,289 25,689 140,815 Net income............................... 21,607 25,285 23,716 14,590 85,198 Basic earnings per share................. $ .23 $ .27 $ .25 $ .16 $ .90 Diluted earnings per share............... $ .23 $ .27 $ .25 $ .16 $ .90
YEAR ENDED JANUARY 31, 1998 ----------------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER TOTAL --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue.................................. $ 344,098 $ 343,292 $ 341,852 $ 325,245 $1,354,487 Income from operations................... 82,638 62,747 59,650 31,465 236,500 Income before income tax................. 59,367 38,876 43,061 6,618 147,922 Net income............................... 37,489 24,488 27,223 708 89,908 Basic earnings per share................. $ .40 $ .26 $ .29 $ .01 $ .95 Diluted earnings per share............... $ .39 $ .26 $ .29 $ .01 $ .94
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 40 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information beginning immediately following the caption "Election of Directors" to, but not including, the caption "Management Remuneration" in the Company's Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after the close of the Company's fiscal year ended January 31, 1999 and forwarded to stockholders prior to the Company's 1999 Annual Meeting of Stockholders (the "1999 Proxy Statement"), is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information in the 1999 Proxy Statement beginning immediately following the caption "Management Remuneration" to, but not including, the caption "Report of the Board of Directors and the Compensation Committee on Executive Compensation", is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information in the 1999 Proxy Statement beginning immediately following the caption "Security Ownership of Certain Beneficial Owners and Management" to, but not including, the caption "Election of Directors", is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information in the 1999 Proxy Statement beginning immediately following the caption "Compensation Committee Interlocks and Insider Participation" to, but not including, the caption "Comparative Stock Price Performance Graph" and the additional information in the 1999 Proxy Statement beginning immediately following the caption "Certain Transactions" to, but not including, the caption "Proposal to Amend the Restated Articles of Incorporation to Change the Company's Name" is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1)Consolidated Financial Statements:
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES PAGE - ----------------------------------------------------------------------------------------------------------- ----- Consolidated Balance Sheets as of January 31, 1999 and 1998................................................ 38* Consolidated Statements of Income for the three years ended January 31, 1999............................... 39* Consolidated Statements of Cash Flows for the three years ended January 31, 1999........................... 40* Consolidated Statements of Stockholders' Equity for the three years ended January 31, 1999................. 41* Notes to Consolidated Financial Statements................................................................. 42* Report of Independent Public Accountants................................................................... 55*
(a)(2)Supplemental Financial Statement Schedules: None. - ------------------------ * Refers to page of the Annual Report to Stockholders for the year ended January 31, 1999, the incorporated portions of which are included as Exhibit 13 to this Report. 41 (a)(3)Exhibits: The following exhibits are filed as a part of this Report or incorporated herein by reference: 3(i)(a). Restated Articles of Incorporation of the Company as of July 15, 1988 and Certificate of Amendment thereto, dated June 29, 1989. (Incorporated by reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1991.) 3(i)(b). Certificate of Division of Shares into Smaller Denominations, dated June 20, 1991. (Incorporated by reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1992.) 3(i)(c). Certificate of Division of Shares into Smaller Denominations, dated June 22, 1993. (Incorporated by reference to Exhibit 3(i) to the Company's Current Report on Form 8-K dated July 21, 1993.) 3(ii). Restated Bylaws of the Company dated April 30, 1999. 4(a). Rights Agreement dated as of July 14, 1994, between the Company and First Chicago Trust Company of New York. (Incorporated by reference to Exhibit 4 to the Company's Current Report on Form 8-K dated August 15, 1994.) 4(b). Amendment to Rights Agreement effective as of April 16, 1996, between the Company and First Chicago Trust Company of New York. (Incorporated by reference to Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 31, 1996.) 4(c). Amended and Restated $2.0 Billion Loan Agreement, dated as of May 23, 1997, by and among the Company, the Banks named therein and Bank of America National Trust and Savings Association, as administrative agent for the Banks, and the related Subsidiary Guarantee dated May 23, 1997, of the Company's subsidiaries named therein. (Incorporated by reference to Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 30, 1997.) 4(d). Amendment No. 1 to Amended and Restated $2.0 Billion Loan Agreement, by and among the Company, the Banks named therein and Bank of America National Trust and Savings Association, as administrative agent for the Banks. (Incorporated by reference to Exhibit 4(a) to the Company's Quarterly Report for the quarterly period ended October 31, 1997.) 4(e). Amendment No. 2 to the $2.0 Billion Loan Agreement, by and among the Company, the Banks named therein and Bank of America National Trust and Savings Association, as administrative agent for the Banks. (Incorporated by reference to Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 30, 1998.) 4(f). Rate Swap Master Agreement, dated as of October 24, 1986, and Rate Swap Supplements One through Four. (Incorporated by reference to Exhibit 4(j) to the Company's Current Report on Form 8-K dated December 29, 1986.) 4(g). Interest Rate Swap Agreement, dated as of October 20, 1989, by and between the Company and Salomon Brothers Holding Company Inc. (Incorporated by reference to Exhibit 4(q) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1990.) 4(h). Interest Rate Cap Agreement, dated October 20, 1997, between the Company and Morgan Guaranty Trust Company of New York. (Incorporated by reference to Exhibit 4(f) to the Company's Quarterly Report for the quarterly period ended October 31, 1997.)
42 4(i). Interest Rate Cap Agreement, dated January 13, 1998, between the Company and Morgan Guaranty Trust Company of New York. (Incorporated by reference to Exhibit 4(h) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998.) 4(j). Grid Promissory Note, dated October 17, 1997, between the Company and Lyon Short Term Funding Corp. (Incorporated by reference to Exhibit 4(g) to the Company's Quarterly Report for the quarterly period ended October 31, 1997.) 4(k). Commercial Paper Dealer Agreement, dated October 9, 1997, between the Company and Merrill Lynch Money Markets Inc. (Incorporated by reference to Exhibit 4(b) to the Company's Quarterly Report for the quarterly period ended October 31, 1997.) 4(l). Commercial Paper Dealer Agreement, dated October 9, 1997, between the Company and BancAmerica Robertson Stephens. (Incorporated by reference to Exhibit 4(c) to the Company's Quarterly Report for the quarterly period ended October 31, 1997.) 4(m). Commercial Paper Dealer Agreement, dated October 9, 1997, between the Company and Credit Suisse First Boston Corporation. (Incorporated by reference to Exhibit 4(d) to the Company's Quarterly Report for the quarterly period ended October 31, 1997.) 4(n). Issuing and Paying Agency Agreement, dated October 9, 1997, between the Company and The Chase Manhattan Bank. (Incorporated by reference to Exhibit 4(e) to the Company's Quarterly Report for the quarterly period ended October 31, 1997.) 4(o). Indenture by and between the Company and First Interstate Bank of Nevada, N.A., as Trustee with respect to the Company's 6 3/4% Senior Subordinated Notes due 2003 and its 7 5/8% Senior Subordinated Debentures due 2013. (Incorporated by reference to Exhibit 4(a) to the Company's Current Report on Form 8-K dated July 21, 1993.) 4(p). Indenture, dated February 1, 1996, by and between the Company and First Interstate Bank of Nevada, N.A., as Trustee. (Incorporated by reference to Exhibit 4(b) to the Company's Current Report on Form 8-K dated January 29, 1996.) 4(q). Supplemental Indenture, dated February 1, 1996, by and between the Company and First Interstate Bank of Nevada, N.A., as Trustee, with respect to the Company's 6.45% Senior Notes due February 1, 2006. (Incorporated by reference to Exhibit 4(c) to the Company's Current Report on Form 8-K dated January 29, 1996.) 4(r). 6.45% Senior Notes due February 1, 2006 in the principal amount of $200,000,000. (Incorporated by reference to Exhibit 4(d) to the Company's Current Report on Form 8-K dated January 29, 1996.) 4(s). Supplemental Indenture, dated as of November 15, 1996, to an indenture dated February 1, 1996, by and between the Company and Wells Fargo Bank (Colorado), N.A., as Trustee, with respect to the Company's 6.70% Senior Notes due November 15, 2096. (Incorporated by reference to Exhibit 4(c) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1996.) 4(t). 6.70% Senior Notes due February 15, 2096 in the principal amount of $150,000,000. (Incorporated by reference to Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1996.) 4(u). Indenture, dated November 15, 1996, by and between the Company and Wells Fargo Bank (Colorado), N.A., as Trustee. (Incorporated by reference to Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1996.)
43 4(v). Supplemental Indenture, dated as of November 15, 1996, to an indenture dated November 15, 1996, by and between the Company and Wells Fargo Bank (Colorado), N.A., as Trustee, with respect to the Company's 7.0% Senior Notes due November 15, 2036. (Incorporated by reference to Exhibit 4(f) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1996.) 4(w). 7.0% Senior Notes due February 15, 2036, in the principal amount of $150,000,000. (Incorporated by reference to Exhibit 4(g) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1996.) 4(x). Instrument of Joinder, dated May 31, 1998, by Mandalay Corp., pursuant to the Subsidiary Guaranty dated as of May 23, 1997, with respect to the Amended and Restated $2.0 Billion Loan Agreement, in favor of Bank of America National Trust and Savings Association, as administrative agent for the Banks. (Incorporated by reference to Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 31, 1998.) 4(y). Indenture dated November 20, 1998, by and between the Company and The Bank of New York, as Trustee. (Incorporated by reference to Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1998.) 4(z). Supplemental Indenture, dated November 20, 1998, by and between the Company and The Bank of New York, as Trustee, with respect to the Company's 9 1/4% Senior Subordinated Notes due December 1, 2005. (Incorporated by reference to Exhibit 4(b) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1998.) 4(aa). 9 1/4% Senior Subordinated Notes due December 1, 2005 in the principal amount of $275,000,000. (Incorporated by reference to Exhibit 4(c) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1998.) 10(a). * 1983 Nonqualified Stock Option Plan of the Company. (Incorporated by reference to Exhibit 10(d) to the Company's Registration Statement (No. 2-85794) on Form S-1.) 10(b). * 1983 Incentive Stock Option Plan of the Company. (Incorporated by reference to Exhibit 10(e) to the Company's Registration Statement (No. 2-85794) on Form S-1.) 10(c). * Amendment to Circus Circus Enterprises, Inc. 1983 Incentive Stock Option Plan. (Incorporated by reference to Exhibit 4(a) to the Company's Registration Statement (No. 2-91950) on Form S-8.) 10(d). * Amended and Restated 1989 Stock Option Plan of the Company. (Incorporated by reference to Exhibit 10 to the Post Effective Amendment No. 4 to the Company's Registration Statement (No. 33-39215) on Form S-8.) 10(e). * Amended and Restated 1991 Stock Incentive Plan of the Company. (Incorporated by reference to Exhibit 10 to the Post Effective Amendment No. 3 to the Company's Registration Statement (No. 33-56420) on Form S-8.) 10(f). * Amended and Restated 1993 Stock Option Plan of the Company. (Incorporated by reference to Exhibit 10 to the Post Effective Amendment No. 2 to the Company's Registration Statement (No. 33-53303) on Form S-8.) 10(g). * 1995 Special Stock Option Plan and Forms of Nonqualified Stock Option Certificate and Agreement. (Incorporated by reference to Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1995.) 10(h). * 1998 Stock Option Plan. (Incorporated by reference to Exhibit 4(g) to the Company's Registration Statement (No. 333-51073) on Form S-8.) 10(i). 1999 Non-employee Directors Stock Option Plan.
44 10(j). * Circus Circus Enterprises, Inc. Executive Compensation Insurance Plan. (Incorporated by reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1992.) 10(k). Lease, dated November 1, 1957, by and between Bethel Palma and others, as lessor, and the Company's predecessor in interest, as lessee; Amendment of Lease, dated May 6, 1983. (Incorporated by reference to Exhibit 10(g) to the Company's Registration Statement (No. 2-85794) on Form S-1.) 10(l). Grant, Bargain and Sale Deed to the Company pursuant to the Lease dated November 1, 1957. (Incorporated by reference to Exhibit 10(h) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1984.) 10(m). Lease, dated August 3, 1977, by and between B&D Properties, Inc., as lessor, and the Company, as lessee; Amendment of Lease, dated May 6, 1983. (Incorporated by reference to Exhibit 10(h) to the Company's Registration Statement (No. 2-85794) on Form S-1.) 10(n). Tenth Amendment and Restatement of the Circus Circus Employees' Profit Sharing and Investment Plan. (Incorporated by reference to Exhibit 4(e) to Post Effective Amendment No. 7 to the Company's Registration Statement (No. 33-18278) on Form S-8.) 10(o). Fifth Amendment and Restatement to Circus Circus Employees' Profit Sharing and Investment Trust. (Incorporated by reference to Exhibit 4(h) to Post Effective Amendment No. 7 to the Company's Registration Statement (No. 33-18278) on Form S-8.) 10(p). Group Annuity Contract No. GA70867 between Philadelphia Life (formerly Bankers Life Company) and Trustees of Circus Circus Employees' Profit Sharing and Investment Plan. (Incorporated by reference to Exhibit 4(c) to the Company's Registration Statement (No. 33-1459) on Form S-8.) 10(q). Lease, dated as of November 1, 1981, between Novus Property Company, as landlord, and the Company, as tenant. (Incorporated by reference to Exhibit 4(h) to the Company's Registration Statement (No. 2-85794) on Form S-1.) 10(r). First Addendum and First Amendment, each dated as of June 15, 1983, to Lease dated as of November 1, 1981. (Incorporated by reference to Exhibit 4(i) to the Company's Annual Report on Form 10-K for the year ended January 31, 1984.) 10(s). Second Amendment, dated as of April 1, 1984, to Lease dated as of November l, 1981. (Incorporated by reference to Exhibit 10(o) to the Company's Registration Statement (No. 33-4475) on Form S-1.) 10(t). Lease by and between Robert Lewis Uccelli, guardian, as lessor, and Nevada Greens, a limited partnership, William N. Pennington, as trustee, and William G. Bennett, as trustee, and related Assignment of Lease. (Incorporated by reference to Exhibit 10(p) to the Company's Registration Statement (No. 33-4475) on Form S-1.) 10(u). Agreement of Purchase, dated March 15, 1985, by and between Denio Brothers Trucking Company, as seller, and the Company, as buyer, and related lease by and between Denio Brothers Trucking Co., as lessor, and Nevada Greens, a limited partnership, William N. Pennington, as trustee, and William G. Bennett, as trustee, and related Assignment of Lease. (Incorporated by reference to Exhibit 10(q) to the Company's Registration Statement (No. 33-4475) on Form S-1.) 10(v). Agreement of Joint Venture, dated as of March 1, 1994, by and among Eldorado Limited Liability Company, Galleon, Inc., and the Company. (Incorporated by reference to Exhibit 10(y) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1994.)
45 10(w). Amended and Restated Credit Agreement, dated November 25, 1997, by and among Circus and Eldorado Joint Venture, the Banks named therein and Bank of America National Trust and Savings Association as Administrative Agent, and the related Note, Amended and Restated Make-Well Agreement and Amended and Restated Deed of Trust. (Incorporated by reference to Exhibit 4(h) to the Company's Quarterly Report for the quarterly period ended October 31, 1997.) 10(x). Agreement and Plan of Merger, dated March 19, 1995, by and among the Company and M.S.E. Investments, Incorporated, Last Chance Investments, Incorporated, Gold Strike Investments, Incorporated, Diamond Gold, Inc., Gold Strike Aviation, Incorporated, Gold Strike Finance Company, Inc., Oasis Development Company, Inc., Michael S. Ensign, William A. Richardson, David R. Belding, Peter A. Simon II and Robert J. Verchota. (Incorporated by reference to Exhibit 10(ee) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1995.) 10(y). First Amendment to Agreement and Plan of Merger, dated May 30, 1995, by and among the Company and M.S.E. Investments, Incorporated, Last Chance Investments, Incorporated, Goldstrike Investments, Incorporated, Diamond Gold, Inc., Gold Strike Aviation, Incorporated, Goldstrike Finance Company, Inc., Oasis Development Company, Inc., Michael S. Ensign, William A. Richardson, David R. Belding, Peter A. Simon II and Robert J. Verchota. (Incorporated by reference to Exhibit 99.2 of the Schedule 13D of Michael S. Ensign relating to the Company's Common Stock, filed on June 12, 1995.) 10(z). Exchange Agreement, dated March 19, 1995, by and among the Company and New Way, Inc., a wholly owned subsidiary of the Company, Glenn W. Schaeffer, Gregg H. Solomon, Antonio C. Alamo, Anthony Korfman and William Ensign. (Incorporated by reference to Exhibit 10(ff) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1995.) 10(aa). First Amendment to Exchange Agreement, dated May 30, 1995, by and among the Company and New Way, Inc., a wholly owned subsidiary of the Registrant, Glenn W. Schaeffer, Gregg H. Solomon, Antonio C. Alamo, Anthony Korfman and William Ensign. (Incorporated by reference to Exhibit 10(d) to the Company's Current Report on Form 8-K dated June 1, 1995.) 10(bb). Registration Rights Agreement, dated as of June 1, 1995, by and among the Company and Michael S. Ensign, William A. Richardson, David R. Belding, Peter A. Simon II, Glenn W. Schaeffer, Gregg H. Solomon, Antonio C. Alamo, Anthony Korfman, William Ensign and Robert J. Verchota. (Incorporated by reference to Exhibit 99.5 of the Schedule 13D of Michael S. Ensign, relating to the Company's Common Stock, filed on June 12, 1995.) 10(cc). Standstill Agreement, dated as of June 1, 1995, by and among the Company and Michael S. Ensign, William A. Richardson, David R. Belding, Peter A. Simon II and Glenn W. Schaeffer. (Incorporated by reference to Exhibit 99.4 of the Schedule 13D of Michael S. Ensign, relating to the Company's Common Stock, filed on June 12, 1995.) 10(dd). Amendment No. 1 to Standstill Agreement, effective April 16, 1996, by and among the Company and Michael S. Ensign, William A. Richardson, David R. Belding, Peter A. Simon II and Glenn W. Schaeffer. (Incorporated by reference to Exhibit 99.7 of Amendment No. 2 to the Schedule 13D of Michael S. Ensign, relating to the Company's Common Stock, filed on September 5, 1996.) 10(ee). * Executive Officer Annual Bonus Plan. (Incorporated by reference to Exhibit 10(hh) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1995.)
46 10(ff). * Amendment and Restatement of Employment Agreement dated November 1, 1997, by and between the Company and Clyde Turner. (Incorporated by reference to Exhibit 10(ee) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998.) 10(gg). * Agreement and Release dated January 17, 1998, by and between the Company and Clyde Turner. (Incorporated by reference to Exhibit 10(ff) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998.) 10(hh).* Amendment and Restatement of Employment Agreement dated November 1, 1997, by and between the Company and Michael S. Ensign. (Incorporated by reference to Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998.) 10(ii).* Amendment and Restatement of Employment Agreement dated November 1, 1997, by and between the Company and Glenn W. Schaeffer. (Incorporated by reference to Exhibit 10(hh) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998.) 10(jj).* Amendment and Restatement of Employment Agreement dated November 1, 1997, by and between the Company and William A. Richardson. (Incorporated by reference to Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998.) 10(kk).* Amendment and Restatement of Employment Agreement dated November 1, 1997, by and between the Company and Antonio C. Alamo. (Incorporated by reference to Exhibit 10(kk) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998.) 10(ll).* Amendment and Restatement of Employment Agreement dated November 1, 1997, by and between the Company and Gregg H. Solomon. (Incorporated by reference to Exhibit 10(ll) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998.) 10(mm). Joint Venture Agreement, dated as of December 18, 1992, between Nevada Landing Partnership and RBG, L.P. (Incorporated by reference to Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 31, 1995.) 10(nn). Amendment dated July 15, 1993 to the Joint Venture Agreement between Nevada Landing Partnership and RBG, L.P. (Incorporated by reference to Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 31, 1995.) 10(oo). Amendment dated October 6, 1994 to the Joint Venture Agreement between Nevada Landing Partnership and RBG, L.P. (Incorporated by reference to Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 31, 1995.) 10(pp). Amendment dated June 1, 1995 to the Joint Venture Agreement between Nevada Landing Partnership and RBG, J.P. (Incorporated by reference to Exhibit 10(j) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 31, 1995.) 10(qq). Amendment dated February 28, 1996 to the Joint Venture Agreement between Nevada Landing Partnership and RBG, L.P. (Incorporated by reference to Exhibit 10(ww) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996.)
47 10(rr). Reducing Revolving Loan Agreement, dated as of December 21, 1994, among Victoria Partners, each bank party thereto, The Long-Term Credit Bank of Japan, Ltd., Los Angeles Agency, and Societe Generale, as Co-agents, and Bank of America National Trust and Savings Association, as Administrative Agent (without Schedules or Exhibits) (the "Victoria Partners Loan Agreement"). (Incorporated by reference to Exhibit 99.2 to Amendment No. 1 on Form 8-K/A to the Current Report on Form 8-K dated December 9, 1994 of Mirage Resorts, Incorporated. Commission File No. 1-6697.) (Incorporated by reference to Exhibit 10(ww) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996.) 10(ss). Amendment No. 1 to the Victoria Partners Loan Agreement, dated as of January 31, 1995. (Incorporated by reference to Exhibit 10(uu) to the Annual Report on Form 10-K for the year ended December 31, 1994 of Mirage Resorts, Incorporated. Commission File No. 1-6697.) 10(tt). Amendment No. 2 to the Victoria Partners Loan Agreement, dated as of June 30, 1995. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995 of Mirage Resorts, Incorporated. Commission File No. 1-6697.) 10(uu). Amendment No. 3 to the Victoria Partners Loan Agreement, dated as of July 28, 1995. (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995 of Mirage Resorts, Incorporated. Commission File No. 1-6697.) 10(vv). Amendment No. 4 to the Victoria Partners Loan Agreement, dated as of October 16, 1995. (Incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1995.) 10(ww). Amendment No. 5 to the Victoria Partners Loan Agreement dated as of August 1, 1996. (Incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 31, 1996.) 10(xx). Amendment No.6 to the Victoria Partners Loan Agreement, dated as of April 12, 1997. (Incorporated by reference to Exhibit 10(ccc) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1997.) 10(yy). Joint Venture Agreement, dated as of December 9, 1994, between MRGS Corp. and Gold Strike L.V. (without Exhibit) (the "Victoria Partners Venture Agreement"). (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K dated December 9, 1994 of Mirage Resorts, Incorporated. Commission File No. 1-6697.) 10(zz). Amendment No. 1 to the Victoria Partners Venture Agreement dated as of April 17, 1995. (Incorporated by reference to Exhibit 10(c) to the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1995 of Mirage Resorts, Incorporated. Commission File No. 1-6697.) 10(aaa). Amendment No. 2 to the Victoria Partners Venture Agreement dated as of September 25, 1995. (Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995 of Mirage Resorts, Incorporated. Commission File No. 1-6697.) 10(bbb). Amendment No. 3 to the Victoria Partners Venture Agreement dated as of February 28, 1996. (Incorporated by reference to Exhibit 10(fff) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996.)
48 10(ccc). Amendment No. 4 to the Victoria Partners Venture Agreement dated as of May 29, 1996. (Incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 30, 1996.) 10(ddd). Consulting Agreement, dated June 1, 1995, between Circus Circus Casinos, Inc. (a subsidiary of the Company) and Lakeview Company. (Incorporated by reference to Exhibit 10(ggg) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996.) 10(eee). Letter agreement between the Company and Atwater Casino Group, L.L.C., and related Executive Summary. (Incorporated by reference to Exhibit 10(a) to the Company's Amendment on Form 10-Q/A dated August 1, 1997.) 10(fff). Operating Agreement, dated October 7, 1997, by and between Circus Circus Michigan, Inc. and Atwater Casino Group, L.L.C. (Incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report for the quarterly period ended October 31, 1997.) 10(ggg). Amended and Restated Development Agreement, dated as of April 9, 1998, by and among Detroit Entertainment, L.L.C., the City of Detroit and the Economic Development Corporation of the City of Detroit for the City of Detroit Casino Development Project. (Incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 31, 1998.) 10(hhh). First Amendment to the Amended and Restated Development Agreement, dated as of April 9, 1998, by and among Detroit Entertainments, L.L.C., the City of Detroit and the Economic Development Corporation of the City of Detroit for the City of Detroit Casino Development Project. (Incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 31, 1998.) 10(iii). Hotel Pre-opening Services Agreement, dated as of January 1, 1997, by and among the Company and Four Seasons Hotels Limited. (Incorporated by reference to Exhibit 10(kkk) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998.) 10(jjj). Hotel Management Agreement, dated as of March 10, 1998, by and among the Company, Mandalay Corp. and Four Seasons Hotel Limited. (Incorporated by reference to Exhibit 10(lll) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998.) 10(kkk). Hotel License Agreement, dated as of March 10, 1998, by and among Mandalay Corp. and Four Seasons Hotel Limited. (Incorporated by reference to Exhibit 10(mmm) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998.) 10(lll). Lease Intended As Security, dated October 30, 1998, among Circus Circus Leasing, Inc., as lessee; the Company, as guarantor; First Security Bank, National Association, as Trustee, the Banks named therein and Bank of America National Trust and Savings Association, as administrative agent for the Banks. (Incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1998.) 10(mmm). Guaranty, dated October 30, 1998, by the Company in favor of First Security Bank, National Association, as Trustee, and the Banks named therein. (Incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1998.) 10(nnn).* Circus Circus Enterprises, Inc. Supplemental Executive Retirement Plan. (Incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1998.)
49 13. Portions of the Annual Report to Stockholders for the Year Ended January 31, 1999 specifically incorporated by reference as part of this Report. 21. Subsidiaries of the Company. 23. Consent of Arthur Andersen LLP. 27. Financial Data Schedule for the year ended January 31, 1999 as required under EDGAR.
- ------------------------ * This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report. Certain instruments with respect to long-term debt have not been filed hereunder or incorporated by reference herein where the total amount of such debt thereunder does not exceed 10% of the consolidated total assets of the Company. Copies of such instruments will be furnished to the Securities and Exchange Commission upon request. (b) During the fourth quarter of the fiscal year ended January 31, 1999, the Company filed no Current Report on Form 8-K. (c) The exhibits required by Item 601 of Regulation S-K filed as part of this Report or incorporated herein by reference are listed in Item 14(a)(3) above, and the exhibits filed herewith are listed on the Index to Exhibits which accompanies this Report. (d) See Item 14(a)(2) of this Report. 50 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CIRCUS CIRCUS ENTERPRISES, INC. Dated: April 30, 1999 By: /s/ MICHAEL S. ENSIGN ------------------------------------ Michael S. Ensign, CHAIRMAN OF THE BOARD
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 dates indicated.
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- Chairman of the Board, /s/ MICHAEL S. ENSIGN Chief Executive Officer - ------------------------------ and Chief Operating April 30, 1999 Michael S. Ensign Officer (Principal Executive Officer) /s/ WILLIAM A. RICHARDSON - ------------------------------ Vice Chairman of the Board April 30, 1999 William A. Richardson President, Chief Financial /s/ GLENN SCHAEFFER Officer, Treasurer and - ------------------------------ Director (Principal April 30, 1999 Glenn Schaeffer Financial Officer) Vice President and Chief /s/ LES MARTIN Accounting Officer - ------------------------------ (Principal Accounting April 30, 1999 Les Martin Officer) /s/ WILLIAM E. BANNEN - ------------------------------ Director April 30, 1999 William E. Bannen /s/ ARTHUR H. BILGER - ------------------------------ Director April 30, 1999 Arthur H. Bilger /s/ ROSE MCKINNEY-JAMES - ------------------------------ Director April 30, 1999 Rose McKinney-James /s/ MICHAEL D. MCKEE - ------------------------------ Director April 30, 1999 Michael D. McKee /s/ DONNA B. MORE - ------------------------------ Director April 30, 1999 Donna B. More
51 INDEX TO EXHIBITS FORM 10-K FISCAL YEAR ENDED JANUARY 31, 1999
EXHIBIT NUMBER - ----------- 3(ii) Restated Bylaws of the Company dated April 30, 1999. 10(i). 1999 Non-employee Directors Stock Option Plan. 13. Portions of the Annual Report to Stockholders for the Year Ended January 31, 1999 specifically incorporated by reference as part of this Report. 21. Subsidiaries of the Company. 23. Consent of Arthur Andersen LLP. 27. Financial Data Schedule for the year ended January 31, 1999 as required under EDGAR.
52 EX-3.(II) 2 EXHIBIT 3(11) EXHIBIT 3(ii) AMENDED AND RESTATED BY-LAWS OF CIRCUS CIRCUS ENTERPRISES, INC. (A Nevada Corporation) Effective as of April 30, 1999 ARTICLE I Offices SECTION 1.1. PRINCIPAL OFFICE. The principal office of the corporation in the State of Nevada is 3950 Las Vegas Boulevard South, Las Vegas, Clark County, Nevada 89119. SECTION 1.2. OTHER OFFICES. The corporation may also have offices at such other places both within and without the State of Nevada as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II Meetings of Stockholders SECTION 2.1. PLACE OF MEETING. All meetings of stockholders shall be held at such place, either within or without the State of Nevada, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. SECTION 2.2. ANNUAL MEETINGS. The annual meeting of stockholders shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. SECTION 2.3. VOTING LIST. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 1 SECTION 2.4. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation of the corporation, as amended (the "Articles of Incorporation"), may be called by the Chairman of the Board, the President or by the Board of Directors or by written order of a majority of the directors and shall be called by the Chairman of the Board, the President or the Secretary at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purposes of the proposed meeting. The officers or directors shall fix the time and any place, either within or without the State of Nevada, as the place for holding such meeting. SECTION 2.5. NOTICE OF MEETING. Written notice of the annual and each special meeting of stockholders, stating the date, time, place and purpose or purposes thereof, shall be given to each stockholder entitled to vote thereat, not less than 10 nor more than 60 days before the meeting. The President, a Vice President, the Secretary, an assistant Secretary or any other person designated by the Board of Directors shall sign and deliver such written notice. The written certificate of the individual signing a notice of meeting, setting forth the substance of the notice or having a copy thereof attached, the date the notice was mailed or personally delivered to the stockholders and the addresses to which the notice was mailed, shall be prima facie evidence of the manner and fact of giving such notice. SECTION 2.6. QUORUM. A majority of the voting power, which includes the voting power that is present in person or by proxy, regardless of whether the proxy has authority to vote on all matters, shall constitute a quorum at any meeting of stockholders for the transaction of business except when stockholders are required to vote by class, in which event a majority of the VOTING POWER of the appropriate class which includes the voting power of such class that is present in person or by proxy, regardless of whether the proxy has authority to vote on all matters, shall be present, and except as otherwise provided by statute or by the Articles of Incorporation. Notwithstanding any other provision of the Articles of Incorporation or these by-laws, the holders of a majority of the voting power present in person or by proxy, regardless of whether the proxy has authority to vote on all matters, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 2.7. VOTING. When a quorum is present at any meeting of the stockholders, action by the stockholders on a matter other than the election of directors shall be approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, unless the question is one upon which, by express provision of the statutes, of the Articles of Incorporation or of these by-laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Every stockholder having the right 2 to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder, and filed with the Secretary of the corporation before, or at the time of, the meeting. Provided, however, no such proxy shall be valid after the expiration of six months from the date of its execution, unless coupled with an interest, or unless the person executing it specifies therein the length of time for which it is to continue in force, which in no case shall exceed seven years from the date of its execution. If such instrument shall designate two or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise such powers in respect of the same portion of the shares as he is of the proxies representing such shares. Unless required by statute or determined by the Chairman of the meeting to be advisable, the vote on any question need not be by written ballot. SECTION 2.8. CONSENT OF STOCKHOLDERS. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action by any provision of the statutes, the meeting and vote of stockholders may be dispensed with if all the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken; or if the Articles of Incorporation authorize the action to be taken with the written consent of the holders of less than all the stock who would have been entitled to vote upon the action if a meeting were held, then on the written consent of the stockholders having not less than such percentage of the number of votes as may be authorized in the Articles of Incorporation; provided that in no case shall the written consent be by the holders of stock having less than the minimum percentage of the vote required by statutes for the proposed corporate action, and provided that prompt notice must be given to all stockholders of the taking of corporate action without a meeting and less than unanimous written consent. SECTION 2.9. VOTING OF STOCK OF CERTAIN HOLDERS. Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the by-laws of such corporation may prescribe, or in the absence of such provision, as the Board of Directors of such corporation may determine. Shares standing in the name of a deceased person may be voted by the executor or administrator of such deceased person, either in person or by proxy. Shares standing in the name of a guardian, conservator or trustee may be voted by such fiduciary, either in person or by proxy, but no such fiduciary shall be entitled to vote shares held in such fiduciary capacity without a transfer of such shares into the name of such fiduciary. Shares standing in the name of a receiver may be voted by such receiver. A stockholder whose shares are pledged shall be entitled to vote such shares, unless in the transfer by the pledgor on the books of the corporation, he has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent the stock and vote thereon. 3 SECTION 2.10. TREASURY STOCK. The corporation shall not vote, directly or indirectly, shares of its own stock owned by it; and such shares shall not be counted in determining the total number of outstanding shares. SECTION 2.11. FIXING RECORD DATE. The Board of Directors may fix in advance a date, not exceeding 60 nor less than 10 days preceding the date of any meeting of stockholders, or the date for payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining a consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of and to vote at any such meeting and any adjournment thereof, or to receive payment of such dividend or distribution, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. ARTICLE III Board of Directors SECTION 3.1. POWERS. The business and affairs of the corporation shall be managed by its Board of Directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these by-laws directed or required to be exercised or done by the stockholders. SECTION 3.2 NUMBER, ELECTION AND TERM. The directors shall be elected at the annual meeting of stockholders, except as provided in Section 3.3, and each director elected shall hold office until his successor shall be elected and shall qualify. The total number of directors, which shall be established from time to time by resolution of the Board of Directors, shall not be fewer than six (6) nor more than eleven (11). Directors need not be residents of Nevada or stockholders of the corporation. Commencing with the election of directors at the annual meeting of stockholders in 1991, the directors shall be classified with respect to the time for which they shall hold their offices by dividing them into three classes, to be known as Class I, Class II and Class III. At the annual meeting of the stockholders in 1991, directors of Class I shall be elected for terms of one (1) year, directors of Class II shall be elected for terms of two (2) years, and directors of Class III shall be elected for terms of three (3) years. At each annual meeting of stockholders after 1991, successors to the directors of the Class whose term of office expires in that year shall be elected to hold office until the third succeeding annual meeting of stockholders, so that the term of office of only one Class of directors shall expire in each year. The number of directors in each Class, which shall be such that at least one-fourth in number of the directors are elected annually, shall be 4 established from time to time by resolution of the Board of Directors and shall be increased or decreased by resolution of the Board of Directors, as may be appropriate whenever the total number of directors is increased or decreased. SECTION 3.3. VACANCIES, ADDITIONAL DIRECTORS AND REMOVAL FROM OFFICE. If any vacancy occurs in the Board of Directors caused by death, resignation, retirement, disqualification or removal from office of any director, or otherwise, or if any new directorship is created by an increase in the authorized number of directors, a majority of the directors then in office, though less than a quorum, or a sole remaining director, may choose a successor director or a director to fill the newly created directorship, as the case may be; and a director so chosen shall hold office until the next annual meeting of stockholders at which the directors of the Class in which such director serves are to be elected and until his successor shall be duly elected and shall qualify, unless such director is sooner displaced. Any director may be removed either for or without cause at any special meeting of stockholders duly called and held for such purpose. SECTION 3.4. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held each year, without other notice than this by-law, at the place of, and immediately following, the annual meeting of stockholders; and other regular meetings of the Board of Directors shall be held during each year, at such time and place as the Board of Directors may from time to time provide by resolution, either within or without the State of Nevada, without other notice than such resolution. SECTION 3.5. SPECIAL MEETINGS. A special meeting of the Board of Directors may be called by the Chairman of the Board or by the President and shall be called by the Secretary on the written request of any two directors. The Chairman of the Board or President so calling, or the directors so requesting, any such meeting shall fix the time and any place, either within or without the State of Nevada, as the place for holding such meeting. SECTION 3.6. NOTICE OF SPECIAL MEETINGS. Written notice of special meetings of the Board of Directors shall be given to each director at least 48 hours prior to the time of such meeting. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting solely for the purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting, except that notice shall be given of any proposed amendment to the by-laws if it is to be adopted at any special meeting or with respect to any other matter where notice is required by statute. SECTION 3.7. QUORUM. A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Articles of Incorporation or by these by-laws. If a quorum shall not be present at any meeting of the Board of 5 Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 3.8. ACTION WITHOUT MEETING. Unless otherwise restricted by the Articles of Incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof as provided in Article IV of these by-laws, may be taken without a meeting, if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. SECTION 3.9. MEETING BY TELEPHONE. Any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken by means of a meeting by conference telephone network or similar communications method so long as all persons participating in the meeting can hear each other. Any person participating in such meeting shall be deemed to be present in person at such meeting. SECTION 3.10. COMPENSATION. Except as otherwise provided in this Section 3 .10, directors, as such, shall not be entitled to any compensation for their services unless voted by the stockholders; but by resolution of the Board of Directors, there may be allowed (a) to "outside" directors, as that term is defined in Section 4.2 of these by-laws, a stated salary and/or a fixed sum for each regular or special meeting of the Board of Directors or any meeting of a committee of directors attended, and (b) to all directors, expenses of attendance, if any, for each regular or special meeting of the Board of Directors or any meeting of a committee of directors attended. No provision of these by-laws shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. ARTICLE IV Committees of Directors SECTION 4.1. EXECUTIVE COMMITTEE. The Executive Committee of the Board of Directors (the "Executive Committee") shall consist of not less than two directors to be designated by the Board of Directors annually at its first regular meeting held pursuant to Section 3.4 of these by-laws after the annual meeting of stockholders or as soon thereafter as conveniently possible. None of the members of the Executive Committee need be officers of the corporation. The Executive Committee shall have and may exercise all of the powers of the Board of Directors during the period between meetings of the Board of Directors except as reserved to the Board of Directors or as delegated by these by-laws or by the Board of Directors to another standing or special committee or as may be prohibited by law and, except further, that the Executive Committee shall not have the power to elect officers of the corporation. SECTION 4.2. AUDIT COMMITTEE. The Audit Committee of the Board of Directors (the "Audit Committee") shall consist solely of directors, one or more, each of whom shall be an 6 "outside" director of the corporation, to be designated annually by the Board of Directors at its first regular meeting held pursuant to Section 3.4 of these by-laws after the annual meeting of stockholders or as soon thereafter as conveniently possible. The term "outside" director, as used in this Section 4.2, shall mean a director of the corporation who is independent of management, not an officer, employee, consultant, agent or affiliate (except as a director) of the corporation and who is free of any relationship that, in the opinion of the Board of Directors, would interfere with the designated director's exercise of independent judgment as a member of the Audit Committee. The Audit Committee shall have and may exercise all of the powers of the Board of Directors during the period between meetings of the Board of Directors, except as may be prohibited by law, with respect to (i) the selection and recommendation for employment by the corporation, subject to approval by the Board of Directors and the stockholders, of a firm of certified public accountants whose duty it shall be to audit the books and accounts of the corporation and its subsidiaries for the fiscal year in which they are appointed and who shall report to the Audit Committee, provided, that in selecting and recommending for employment any firm of certified public accountants, the Audit Committee shall make a thorough investigation to insure the "independence" of such accountants as defined in the applicable rules and regulations of the Securities and Exchange Commission; (ii) instructing the certified public accountants to expand the scope and extent of the annual audits of the corporation into areas of any concern to the Audit Committee, which may be beyond that necessary for the certified public accountants to report on the financial statements of the corporation, and, at its discretion, directing other special investigations to insure the objectivity of the financial reporting of the corporation; (iii) reviewing the reports submitted by the certified public accountants, conferring with the auditors and reporting thereon to the Board of Directors with such recommendations as the Audit Committee may deem appropriate; (iv) meeting with the corporation's principal accounting and financial officers, the certified public accountants and auditors, and other officers or department managers of the corporation as the Audit Committee shall deem necessary in order to determine the adequacy of the corporation's accounting principles and financial and operating policies, controls and practices, its public financial reporting policies and practices, and the results of the corporation's annual audit; (v) conducting inquiries into any of the foregoing, the underlying and related facts, including such matters as the conduct of the personnel of the corporation, the integrity of the records of the corporation, the adequacy of the procedures and the legal and financial consequences of such facts; and (vi) retaining and deploying such professional assistance, including outside counsel and auditors and any others, as the Audit Committee shall deem necessary or appropriate, in connection with the exercise of its powers on such terms as the Audit Committee shall deem necessary or appropriate to protect the interests of the stockholders of the corporation. SECTION 4.3. OTHER COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more additional special or standing committees other than the Executive Committee and Audit Committee, each such additional committee to consist of one or more of the directors of the corporation. Each such committee shall have and may exercise such of the powers of the Board of Directors in the management of the business and affairs of the corporation as may be provided in such resolution, except as delegated by these by-laws or by the Board of Directors to another standing or special committee or as may be prohibited by law. 7 SECTION 4.4. COMMITTEE OPERATIONS. A majority of a committee shall constitute a quorum for the transaction of any committee business. Such committee or committees shall have such name or names and such limitations of authority as provided in these by-laws or as may be determined from time to time by resolution adopted by the Board of Directors. The corporation shall pay all expenses of committee operations. The Board of Directors may designate one or more appropriate directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of any members of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another appropriate member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. SECTION 4.5. MINUTES. Each committee of directors shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. The Secretary or any Assistant Secretary of the corporation shall (i) serve as the Secretary of the Executive Committee, the Audit Committee and any other special or standing committee of the Board of Directors of the corporation, (ii) keep regular minutes of standing or special committee proceedings, (iii) make available to the Board of Directors, as required, copies of all resolutions adopted or minutes or reports of other actions recommended or taken by any such standing or special committee and (iv) otherwise as requested keep the members of the Board of Directors apprised of the actions taken by such standing or special committees, except that the chairman of any committee of directors shall have the authority to designate an individual other than the Secretary or an Assistant Secretary of the corporation to keep and deliver to the Secretary the minutes of any meeting of the committees. SECTION 4.6. COMPENSATION. Members of special or standing committees who are "outside" directors, as that term is defined elsewhere in this Article, may be allowed compensation for serving as a member of any such committee and all members may be compensated for expenses of attending committee meetings, if the stockholders or Board of Directors shall so determine in accordance with Section 3.10. ARTICLE V Notice SECTION 5.1. METHODS OF GIVING NOTICE. Whenever under the provisions of the statutes, the Articles of Incorporation or these by-laws, notice is required to be given to any director, member of any committee or stockholder, such notice shall be in writing and delivered personally or mailed, postage prepaid, to such director, member or stockholder; provided that in the case of a director or a member of any committee such notice may be given orally, by telephone, by telegram or by facsimile. If mailed, notice to a director, member of a committee or stockholder shall be deemed to be given when deposited in the United States mail, in a sealed envelope, with first class postage thereon prepaid, addressed, in the case of a stockholder, to the stockholder at the stockholder's address as it appears on the records of the corporation or, in the case of a director or 8 a member of a committee, to such person at his business address. If sent by telegraph, notice to a director or member of a committee shall be deemed to be given when the telegram, so addressed, is delivered to the telegraph company. If sent by facsimile, notice to a director or member of a committee shall be deemed to be given when the transmission from the transmitting facsimile machine has been completed. SECTION 5.2. WRITTEN WAIVER. Whenever any notice is required to be given under the provisions of the statutes, the Articles of Incorporation or these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VI Officers SECTION 6.1. OFFICERS. The executive officers of the corporation shall be the Chairman of the Board, Vice Chairman of the Board, President, Secretary and Treasurer. The Board of Directors shall elect and, when applicable, appoint all the executive officers of the corporation. The Board of Directors and the Chairman of the Board may appoint such other officers and agents, including but not limited to one or more Vice Presidents (any one or more of which may be designated Executive Vice President or Senior Vice President), Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, as they deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as prescribed by the Board of Directors or Chairman of the Board. Any two or more offices may be held by the same person. No officer shall execute, acknowledge, verify or countersign any instrument on behalf of the corporation in more than one capacity, if such instrument is required by law, by these by-laws or by any act of the corporation to be executed, acknowledged, verified or countersigned by two or more officers. The Chairman of the Board and the Vice Chairman of the Board shall be elected from among the directors. With the foregoing exception, none of the other officers need be a director, and none of the officers need be a stockholder of the corporation. SECTION 6.2. ELECTION AND TERM OF OFFICE. The executive officers of the corporation shall be elected annually by the Board of Directors at its first regular meeting held after the annual meeting of stockholders or as soon thereafter as conveniently possible. Each executive officer shall hold office until his successor shall have been chosen and shall have qualified or until his death or the effective date of his resignation or removal, or until he shall cease to be a director in the case of the Chairman of the Board or the Vice Chairman of the Board. SECTION 6.3. REMOVAL AND RESIGNATION. Any executive officer or other officer or agent appointed by the Board of Directors may be removed, either with or without cause, by the affirmative vote of a majority of the Board of Directors whenever, in its judgment, the best interests of the corporation shall be served thereby, but such removal shall be without prejudice to the contractual rights, if any, of the person so removed. Any other officer or agent may be removed, 9 either with or without cause, in the sole discretion of the Chairman of the Board. Any executive officer or other officer or agent may resign at any time by giving written notice to the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 6.4. VACANCIES. Any vacancy occurring in any executive office of the corporation by death, resignation, removal or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. SECTION 6.5. SALARIES. The salaries of all executive officers of the corporation shall be fixed by the Board of Directors or pursuant to the direction of the Board of Directors; and no executive officer shall be prevented from receiving such salary by reason of his also being a director. Compensation of officers and agents not appointed by the Board of Directors shall be established by the Chairman of the Board and President, but subject to review by the Board of Directors. SECTION 6.6. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all meetings of the Board of Directors and of the stockholders of the corporation. In the Chairman's absence, such duties shall be attended to by the Vice Chairman of the Board. The Chairman of the Board shall hold the position of chief executive officer of the corporation and shall perform such duties as usually pertain to the position of chief executive officer and such duties as may be prescribed by the Board of Directors or the Executive Committee. The Chairman of the Board shall formulate and submit to the Board of Directors or the Executive Committee matters of general policy for the corporation and shall perform such other duties as usually appertain to the office or as may be prescribed by the Board of Directors. He shall have the power to appoint and remove subordinate officers, agents and employees, except those elected or appointed by the Board of Directors. He may sign with the President or any other officer of the corporation thereunto authorized by the Board of Directors certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors, and any deeds, bonds, mortgages, contracts, checks, notes, drafts or other instruments which the Board of Directors or the Executive Committee has authorized to be executed, except in cases where the signing and execution thereof has been expressly delegated or reserved by these by-laws or by the Board of Directors or the Executive Committee to some other officer or agent of the corporation, or shall be required by law to be otherwise executed. SECTION 6.7 VICE CHAIRMAN OF THE BOARD. In the absence of the Chairman of the Board, or in the event of his inability or refusal to act, the Vice Chairman of the Board shall perform the duties and exercise the powers of the Chairman of the Board. The Vice Chairman of the Board may sign with the President or any other officer of the corporation thereunto authorized by the Board of Directors, certificates for shares of capital stock of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors. The Vice Chairman of the Board shall perform such other duties as from time to time may be assigned to him by the Chairman of the Board, the Board of Directors or the Executive Committee. 10 SECTION 6.8. PRESIDENT. The President, subject to the control of the Board of Directors, the Executive Committee, and the Chairman of the Board, shall in general supervise and control the business and affairs of the corporation. He shall have the power to appoint and remove subordinate officers, agents and employees, except those elected or appointed by the Board of Directors or the Chairman of the Board. The President shall keep the Board of Directors, the Executive Committee and the Chairman of the Board fully informed as they or any of them shall request and shall consult them concerning the business of the corporation. He may sign with the Chairman of the Board, the Vice Chairman of the Board, or any other officer of the corporation thereunto authorized by the Board of Directors, certificates for shares of capital stock of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors, and any deeds, bonds, mortgages, contracts, checks, notes, drafts or other instruments which the Board of Directors or the Executive Committee has authorized to be executed, except in cases where the signing and execution thereof has been expressly delegated by these by-laws or by the Board of Directors or the Executive Committee to some other officer or agent of the corporation, or shall be required by law to be otherwise executed. In general he shall perform all other duties normally incident to the office of the President, except any duties expressly delegated to other persons by these by-laws, the Board of Directors, or the Executive Committee, or assigned to the Vice Chairman of the Board by the Chairman of the Board, and such other duties as may be prescribed by the stockholders, the Chairman of the Board, the Board of Directors or the Executive Committee, from time to time. SECTION 6.9. VICE PRESIDENTS. In the absence of the President, or in the event of his inability or refusal to act, the Executive Vice President (or in the event there shall be no Vice President or more than one Vice President designated Executive Vice President, any Vice President designated by the Board) shall perform the duties and exercise the powers of the President. Any Vice President authorized by resolution of the Board of Directors to do so, may sign with any other officer of the corporation thereunto authorized by the Board of Directors, certificates for shares of capital stock of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors. The Vice Presidents shall perform such other duties as from time to time may be assigned to them by the Chairman of the Board, the President, the Board of Directors or the Executive Committee. SECTION 6.10. SECRETARY. The Secretary shall (a) keep the minutes of the meetings of the stockholders, the Board of Directors and committees of directors, except that a chairman of any committee of directors shall have the authority to designate another individual, who may or may not be an Assistant Secretary, to keep the minutes of any meeting of such committee,in which case the minutes of such meeting shall be delivered to the Secretary as custodian of the corporate records of the corporation; (b) see that all notices are duly given in accordance with the provisions of these by-laws and as required by law; (c) be custodian of the corporate records and of the seal of the corporation, and see that the seal of the corporation or a facsimile thereof is affixed to all certificates for shares prior to the issuance thereof and to all documents, the execution of which on behalf of the corporation under its seal is duly authorized in accordance with the provisions of these by-laws; (d) keep or cause to be kept a register of the post office address of each stockholder which shall be 11 furnished by such stockholder; (e) have general charge of the stock transfer books of the corporation; and (f) in general, perform all duties normally incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Chairman of the Board, the President, the Board of Directors or the Executive Committee. SECTION 6.11. TREASURER. The Treasurer shall (a) have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Section 7.3 of these by-laws; (b) prepare, or cause to be prepared, for submission at each regular meeting of the Board of Directors, at each annual meeting of stockholders, and at such other times as may be required by the Board of Directors, the Chairman of the Board, the President or the Executive Committee, a statement of financial condition of the corporation in such detail as may be required; and (c) in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Chairman of the Board, the President, the Board of Directors or the Executive Committee. If required by the Board of Directors or the Executive Committee, the Treasurer shall give a bond for the faithful discharge of his duties in such sums and with such surety or sureties as the Board of Directors or the Executive Committee shall determine. SECTION 6.12. ASSISTANT SECRETARY OR TREASURER. The Assistant Secretaries and Assistant Treasurers shall, in general, perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the Chairman of the Board, the President, the Board of Directors or the Executive Committee. The Assistant Secretaries or Assistant Treasurers shall, in the absence of the Secretary or Treasurer, respectively, perform all functions and duties which such absent officers may delegate, but such delegation shall not relieve the absent officer from the responsibilities and liabilities of his office. The Assistant Treasurers shall respectively, if required by the Board of Directors or the Executive Committee, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors or the Executive Committee shall determine. ARTICLE VII Contracts, Checks and Deposits SECTION 7.1. CONTRACTS. Subject to the provisions of Section 6.1., the Board of Directors or the Executive Committee may authorize any officer, officers, agent or agents, to enter into any contract or execute and deliver an instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. SECTION 7.2. CHECKS, ETC. All checks, demands, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, 12 shall be signed by such officer or officers or such agent or agents of the corporation, and in such manner, as shall be determined by the Board of Directors or the Executive Committee. SECTION 7.3. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Chairman of the Board, the President or the Treasurer may be empowered by the Board of Directors or the Executive Committee to select or as the Board of Directors or the Executive Committee may select. ARTICLE VIII Certificate of Stock SECTION 8.1. ISSUANCE. Each stockholder of this corporation shall be entitled to a certificate or certificates showing the number of shares of stock registered in his name on the books of the corporation. The certificates shall be in such form as may be determined by the Board of Directors or the Executive Committee, shall be issued in numerical order and shall be entered in the books of the corporation as they are issued. They shall exhibit the holder's name and the number of shares and shall be signed by the Chairman of the Board and the President or such other officers as may from time to time be authorized by resolution of the Board of Directors. Any of or all the signatures on the certificate may be a facsimile . The seal of the corporation shall be impressed, by original or by facsimile, printed or engraved, on all such certificates. In case any officer who has signed or whose facsimile signature has been placed upon any such certificate shall have ceased to be such officer before such certificate is issued, such certificate may nevertheless be issued by the corporation with the same effect as if such officer had not ceased to be such officer at the date of its issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designation, preferences and relative, participating, option or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class of stock; provided that except as otherwise provided by statute, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish to each stockholder who so requests the designations, preferences and relative, participating, option or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in the case of a lost, stolen, destroyed or mutilated certificate a new one may be issued therefor upon such terms and with such indemnity, if any, to the corporation as the Board of Directors may prescribe. In addition to the above, all certificates evidencing shares of the corporation's stock or other securities issued by the corporation shall contain such legend or legends as may from time to time be required by the Nevada Revised Statutes and/or the Nevada Gaming 13 Commission Regulations then in effect, or such other federal, state or local laws or regulations then in effect. SECTION 8.2. LOST CERTIFICATES. The Board of Directors may direct that a new certificate or certificates be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate or certificates alleged to have been lost, stolen or destroyed, or both. SECTION 8.3. TRANSFERS. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Transfers of shares shall be made only on the books of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney and filed with the Secretary of the corporation or the transfer agent. SECTION 8.4. REGISTERED STOCKHOLDERS. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by laws of the State of Nevada. ARTICLE IX Dividends SECTION 9.1. DECLARATION. Dividends upon the capital stock of the corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of capital stock, subject to the provisions of the Articles of Incorporation. SECTION 9.2. RESERVE. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests 14 of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE X Indemnification SECTION 10.1. THIRD PARTY ACTIONS. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 10.2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. SECTION 10.3. SUCCESSFUL DEFENSE. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 10.1 and 10.2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. 15 SECTION 10.4. DETERMINATION OF CONDUCT. Any indemnification under Section 10.1 or 10.2 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 10.1 and 10.2. Such determination shall be made (1) by the Board of Directors or the Executive Committee by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. SECTION 10.5. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in this Article X. SECTION 10.6. INDEMNITY NOT EXCLUSIVE. The indemnification provided hereunder shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any other by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 10.7. THE CORPORATION. For purposes of this Article X, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article X (including, without limitation the provisions of Section 10.4) with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. SECTION 10.8. INSURANCE INDEMNIFICATION. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article X. 16 ARTICLE XI Miscellaneous SECTION 11.1. SEAL. The corporate seal shall have inscribed thereon the name of the corporation, and the words "Corporate Seal, Nevada". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. SECTION 11.2. BOOKS. The books of the corporation may be kept within or without the State of Nevada (subject to any provisions contained in the statutes) at such place or places as may be designated from time to time by the Board of Directors or the Executive Committee. SECTION 11.3. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. ARTICLE XII Amendment These by-laws may be altered, amended or repealed at any regular meeting of the Board of Directors without prior notice, or at any special meeting of the Board of Directors if notice of such alteration, amendment or repeal be contained in the notice of such special meeting. 17 EX-10 3 EXHIBIT 10(I) EXHIBIT 10(i) CIRCUS CIRCUS ENTERPRISES, INC. 1999 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN (Adopted by the Board of Directors on February 12, 1999) 1. PURPOSE OF THE PLAN The purpose of this 1999 Non-Employee Directors Stock Option Plan (the "Plan") is to enable Circus Circus Enterprises, Inc. (the "Company") to provide stock options (in addition to the options awarded pursuant to the Company's 1991 Stock Incentive Plan) to those individuals, other than employees of the Company or its subsidiaries, who are serving as members of the Company's Board of Directors (the "Board") as additional compensation for their services as non-employee directors of the Company, and to motivate such persons to continue to serve as non-employee directors of the Company. 2. GENERAL PROVISIONS 2.1 Definitions As used in the Plan: (a) "Board" means the Board of Directors of the Company. (b) "Code" means the Internal Revenue Code of 1986, including any and all amendments thereto. (c) "Committee" means a committee consisting of two (2) or more members of the Board who are also officers of the Company designated by the Board from time to time to serve as members of the Committee. The initial members of the Committee shall be Michael S. Ensign and Glenn W. Schaeffer. In addition, the term "Committee" also includes the Board with respect to any actions taken by the Board with respect to Stock Options granted under the Plan. (d) "Common Stock" means the Company s Common Stock, $.01-2/3 par value. (e) "Fair Market Value" means, with respect to a specific date, the last reported sale price of the Common Stock on the NYSE Composite Tape on the date such Fair Market Value is being determined, and, in the absence of any sale on such day, the Fair Market Value as determined in good faith by the Committee on the basis of such quotations and other considerations as the Committee deems appropriate. (f) "NYSE" means the New York Stock Exchange. (g) "Participant" means a person to whom a Stock Option has been granted under the Plan. (h) "Stock Option" means a stock option granted under the Plan. 2.2 Administration of the Plan (a) Except as provided in Section 2.2(d), the Plan shall be administered by the Committee. The Committee shall select one of its members as Chairman, and shall hold meetings at such times and places as it may determine. (b) The Committee shall have the full power, subject to and within the limits of the Plan, to: (i) interpret and administer the Plan, and Stock Options granted under it; (ii) make and interpret rules and regulations for the administration of the Plan and to make changes in and revoke such rules and regulations (and in the exercise of this power, shall generally determine all questions of policy and expediency that may arise and may correct any defect, omission, or inconsistency in the Plan or any agreement evidencing the grant of any Stock Option in a manner and to the extent it shall deem necessary to make the Plan fully effective); and (iii) generally, exercise such powers and perform such acts in connection with the Plan as are deemed necessary or expedient to promote the best interests of the Company. The interpretation and construction by the Committee of any provisions of the Plan or of any Stock Option shall be final, binding and conclusive. (c) The Committee may act only by a majority of its members then in office; however, the Committee may authorize any one (1) or more of its members or any officer of the Company to execute and deliver documents on behalf of the Committee. (d) The Board shall have exclusive authority under the Plan and in accordance with its terms to: (i) determine those persons to whom Stock Options shall be granted and the number of Stock Options to be granted to any person; and (ii) determine the terms of Stock Options granted under the Plan, consistent with the provisions of the Plan. (e) No member of the Committee or the Board shall be liable for any action taken or omitted to be taken or for any determination made by him or her in good faith with respect to the Plan, and the Company shall indemnify and hold harmless each member of the 2 Committee and the Board against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Board of Directors) arising out of any act or omission in connection with the administration or interpretation of the Plan, unless arising out of such person s own fraud or bad faith. 2.3 Effective Date The Plan shall become effective upon its adoption by the Board of Directors, and Stock Options may be granted upon such adoption and from time to time thereafter during the period the Plan remains in effect. 2.4 Duration The Plan shall remain in effect for a period of ten (10) years following its adoption by the Board of Directors or until sooner terminated by the Board of Directors. 2.5 Shares Subject to the Plan Subject to adjustment in accordance with Section 4.1, the maximum number of shares of Common Stock which may be issued pursuant to Stock Options granted under the Plan shall be [100,000]. The Stock Options shall be subject to adjustment in accordance with Section 4.1, as appropriate. The shares to be issued upon exercise of Stock Options shall be authorized and issued shares of Common Stock purchased or acquired by the Company for any purpose and held by the Company as treasury shares. If a Stock Option or portion thereof shall expire or is terminated, canceled or surrendered for any reason without being exercised in full, the unpurchased shares of Common Stock which were subject to such Stock Option or portion thereof shall be available for future grants of Stock Options under the Plan. 2.6 Amendments The Plan may be suspended, terminated or reinstated, in whole or in part, at any time by the Board. The Board may, from time to time, make such amendments to the Plan as it may deem advisable. Except as otherwise provided herein, termination or amendment of the Plan shall not, without the consent of a Participant, affect such Participant s rights under any Stock Option previously granted to such Participant. 2.7 Participants and Grants Stock Options may be granted to any member of the Board who is not an employee of the Company or any subsidiary of the Company. The Board may grant Stock Options to purchase such number of shares of Common Stock (subject to the limitations of Section 2.5) as the Board may, in its sole discretion, determine; provided, however, the grant of any Stock Option under the Plan shall be made solely for the purpose of compensating the 3 Participant for services rendered in his or her capacity as a member of the Board (including service on one or more committees of the Board). In granting Stock Options under the Plan, the Board, on an individual basis, may vary the number of Stock Options as between Participants and may grant Stock Options to a Participant in such amounts as the Board may determine in its sole discretion. 3. STOCK OPTIONS 3.1 General All Stock Options granted under the Plan shall be evidenced by written agreements executed by the Company and the Participant to whom granted, which agreement shall state the number of shares of Common Stock which may be purchased upon the exercise thereof and shall contain such investment representations and other terms and conditions as the Committee may from time to time determine. The Stock Options which may be granted under the Plan are not intended to qualify as incentive stock options under Section 422 of the Code. 3.2 Price Subject to the provisions of Section 4.1, the purchase price per share of Common Stock subject to a Stock Option shall, in no case, be less than one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the date the Stock Option is granted. 3.3 Period The duration or term of each Stock Option granted under the Plan shall be for such period as the Committee shall determine but in no event more than ten (10) years from the date of grant thereof, 3.4 Exercise Subject to Section 4.4, Stock Options may be exercisable at such other time or times as the Board shall specify when granting the Stock Option, provided, however, that no Stock Option granted pursuant to the Plan shall be exercisable during the first six (6) months following its date of grant. Once exercisable, a Stock Option shall be exercisable, in whole or in part, by delivery of a written notice of exercise to the Secretary of the Company at the principal office of the Company specifying the number of shares of Common Stock as to which the Stock Option is then being exercised together with payment of the full purchase price for the shares being purchased upon such exercise. Until the shares of Common Stock as to which a Stock Option is exercised are issued, the Participant shall have none of the rights of a shareholder of the Company with respect to such shares. 4 3.5 Payment The purchase price for shares of Common Stock as to which a Stock Option has been exercised and any amount required to be withheld, as contemplated by Section 4.3, may be paid: (a) In United States dollars in cash, or by check, bank draft or money order payable in United States dollars to the order of the Company; or (b) By the delivery by the Participant to the Company of whole shares of Common Stock having an aggregate Fair Market Value on the date of payment equal to the aggregate of the purchase price of Common Stock as to which the Stock Option is then being exercised or by the withholding of whole shares of Common Stock having such Fair Market Value upon the exercise of such Stock Option; or (c) By a combination of both (a) and (b) above. The Committee may, in its discretion, impose limitations, conditions and prohibitions on the use by a Participant of shares of Common Stock to pay the purchase price payable by such Participant upon the exercise of a Stock Option. 3.6 Termination of Service (a) In general, if a Participant's service as a member of the Board terminates, each Stock Option held by such Participant at the date of such termination (which has not previously lapsed or terminated) shall, unless otherwise specified in the written agreement evidencing such Stock Option, continue to be exercisable by such Participant (but only to the extent exercisable at the time of such termination) for a period of three months after such termination, unless the Stock Option expires earlier by its terms. (b) Notwithstanding the general provisions of Section 3.6(a), if a Participant's service as a member of the Board shall terminate as a result of such Participant's death or total disability, each Stock Option held by such Participant at the date of such termination (which has not previously lapsed or terminated) shall immediately become fully exercisable as to the total number of shares of Common Stock subject thereto (whether or not exercisable to that extent at the time of such termination) and shall remain so exercisable by such Participant (or, following the death of the Participant, by the executor or administrator of the Participant's estate or by the person or persons to whom the deceased Participant's rights thereunder shall have passed by will or by the laws of descent or distribution) for a period of twelve 12 months after such termination unless such Stock Option expires earlier by its terms. For purposes of the foregoing sentence, total disability shall mean permanent mental or physical disability as determined by the Committee. 5 (c) Notwithstanding anything else contained in this Section 3.6 to the contrary, effective as of the date the Committee determines that a Participant has engaged in any act of disloyalty or dishonesty with respect to the Company, has made any disclosure of confidential information or trade secrets of the Company (other than as has been consented to by the Board or as may be required pursuant to any law or by action of any governmental agency), has become unable to continue as member of the Board under any law or governmental regulation, including any Nevada gaming law or regulation, or has engaged in any acts that constitute a breach of the Participant's fiduciary duties arising from his or her status as a member of the Board, any Stock Options then held by such Participant shall immediately terminate and become void. The Committee may, pending its investigation into any circumstances that could reasonably lead to the applicability of this Section 3.6(c), suspend the Participant's rights to exercise any Stock Options, notwithstanding the Participant's rights to exercise such Stock Options under any other provisions of the Plan or of the agreement specifying the terms of a Stock Option. 4. MISCELLANEOUS PROVISIONS 4.1 Adjustments Upon Changes in Capitalization In the event of changes to the outstanding shares of Common Stock of the Company through reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend, stock consolidation or otherwise, or in the event of a sale of all or substantially all of the assets of the Company, an appropriate and proportionate adjustment shall be made in the number and kind of shares as to which Stock Options may be granted. A corresponding adjustment changing the number or kind of shares and/or the purchase price per share of unexercised Stock Options or portions thereof which shall have been granted prior to any such change shall likewise be made. Notwithstanding the foregoing, in the case of a reorganization, merger or consolidation, or sale of all or substantially all of the assets of the Company, in lieu of adjustments as aforesaid, the Committee may in is discretion accelerate the date after which a Stock Option may or may not be exercised and/or the stated expiration date thereof. Adjustments or changes under this Section shall be made by the Committee, whose determination as to what adjustments or changes shall be made, and the extent thereof, shall be final, binding and conclusive. 4.2 Non-Transferability No Stock Option shall be transferable except by will or the laws of descent and distribution, nor shall any Stock Option be exercisable during the Participant s lifetime by any person other than the Participant or his guardian or legal representative. 6 4.3 Withholding The Company's obligations under this Plan shall be subject to applicable federal, state and local tax withholding requirements. Federal, state and local withholding tax due at the time of a grant or upon the exercise of any Stock Option may, in the discretion of the Committee, be paid in shares of Common Stock already owned by the Participant or through the withholding of shares otherwise issuable to such Participant, upon such terms and conditions as the Committee shall determine. If the Participant shall fail to pay, or make arrangements satisfactory to the Committee for the payment, to the Company of all such federal, state and local taxes required to be withheld by the Company, then the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to such Participant an amount equal to any federal, state or local taxes of any kind required to be withheld by the Company. 4.4 Compliance with Law and Approval of Regulatory Bodies No Stock Option shall be exercisable and no shares will be delivered under the Plan except in compliance with all applicable federal and state laws and regulations including, without limitation, compliance with all federal and state securities laws and withholding tax requirements and with the rules of the NYSE and of all other domestic stock exchanges on which the Common Stock may be listed. Any share certificate issued to evidence shares for which a Stock Option is exercised may bear legends and statements the Committee shall deem advisable to assure compliance with federal and state laws and regulations. No Stock Option shall be exercisable and no shares will be delivered under the Plan, until the Company has obtained consent or approval from regulatory bodies, federal or state, having jurisdiction over such matters as the Committee may deem advisable. In the case of the exercise of a Stock Option by a person or estate acquiring the right to exercise the Stock Option as a result of the death of the Participant, the Committee may require reasonable evidence as to the ownership of the Stock Option and may require consents and releases of taxing authorities that it may deem advisable. 4.5 No Right to Continued Service on Board Neither the adoption of the Plan nor its operation, nor any document describing or referring to the Plan, or any part thereof, nor the granting of any Stock Options hereunder, shall confer upon any Participant under the Plan any right to continue as a member of the Board, or in any other relationship, or shall in any way affect the right and power of the Company to terminate the Company's relationship with a Participant at any time with or without assigning a reason therefor, to the same extent as might have been done if the Plan had not been adopted. 7 4.6 Abandonment of Options A Participant may at any time abandon a Stock Option prior to its expiration date. The abandonment shall be evidenced in writing, in such form as the Committee may from time to time prescribe. A Participant shall have no further rights with respect to any Stock Option so abandoned. 4.7 Severability If any of the terms or provisions of the Plan conflict with the requirements of law, then such terms or provisions shall be deemed inoperative to the extent they so conflict with such requirements of law. 4.8 Interpretation of the Plan Headings are given to the Sections of the Plan solely as a convenience to facilitate reference, such headings, numbering and paragraphing shall not in any case be deemed in any way material or relevant to the construction of the Plan or any provision hereof. The use of the masculine gender shall also include within its meaning the feminine. The use of the singular shall also include within its meaning the plural and vice versa. 4.9 Use of Proceeds Funds received by the Company upon the exercise of Stock Options shall be used for the general corporate purposes of the Company. 4.10 Construction of Plan The place of administration of the Plan shall be in the State of Nevada, and the validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the State of Nevada. 8 EX-13 4 EXHIBIT 13 EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL POLICY A key part of the Company's financial policy is a focus on free cash flow, which represents true economic profit. Free cash flow is the cash remaining after all expenses, including ordinary (or maintenance) reinvestment in the business. Strong free cash flow provides the Company with financial flexibility and the opportunity to pursue a range of options, including sizeable reinvestment in the business, accelerated repayment of indebtedness or cash distributions to shareholders, such as share repurchases. Strong free cash flow also ensures ready access to capital markets at comparatively low rates. Circus has always been an extraordinary cash generator, producing more than $1.1 billion in free cash flow over the past five years. For fiscal 1999, our free cash flow on a per share basis was $2.34, almost 2 1/2 times higher than our earnings per share (prior to nonrecurring items).
FREE CASH FLOW ANALYSIS Year ended January 31, (in thousands) 1999 1998 1997 1996 1995 - ----------------------- -------- -------- -------- -------- -------- Income from operations* $249,279 $247,152 $276,092 $301,753 $259,019 Add noncash expenses Depreciation and amortization 142,141 129,729 103,717 98,380 82,753 Joint venture depreciation 24,490 24,357 18,785 6,712 -- Other (65) (65) (65) (65) (65) -------- -------- -------- -------- -------- Cash generated from operations before income tax 415,845 401,173 398,529 406,780 341,707 Cash income taxes (18,770) (37,395) (48,043) (55,995) (52,500) Interest, dividends and other income 5,852 15,820 11,941 11,539 1,217 Proceeds from disposal of assets 5,788 8,160 3,056 1,353 415 -------- -------- -------- -------- -------- Cash available for repayment of debt and reinvestment 408,715 387,758 365,483 363,677 290,839 Scheduled principal and interest payments (131,468) (99,831) (63,356) (58,018) (45,935) Joint venture scheduled principal and interest payments (16,087) (25,417) (22,261) (7,076) -- Ordinary capital expenditures (40,035) (50,979) (50,117) (31,936) (29,856) -------- -------- -------- -------- -------- Free cash flow $221,125 $211,531 $229,749 $266,647 $215,048 ======== ======== ======== ======== ========
* Before nonrecurring items. 25 Furthermore, the Company estimates that its annual maintenance capital spending will be in the range of $40-$60 million over the next three years, well below its estimated annual depreciation expense of approximately $180 million. This difference alone, before the impact of positive operating results, translates to as much as $1.00 per share in free cash flow. Graph Description: Depicts Circus Circus' free cash flow per share for the fiscal years ended January 31, 1999 and 1998 and an estimate for fiscal 2000. Free Cash Flow Per Share -------------- 1998 $2.23 1999 $2.34 2000(e) $3.08 The Company estimates that its cost of capital, blended for the amounts of debt and equity used to finance the business, is approximately 9%. Achieving rates of return on invested capital that trend above this cost is the Company's primary goal when it evaluates new projects or reinvests in its existing resorts. Traditionally, the Company has employed leverage as a technique for lowering its overall cost of capital and raising returns to shareholders (since debt is considerably cheaper than equity). While the Company's financial flexibility remains intact, it intends, over the next three years, to reduce leverage and increase cash flow coverage of total debt service, which should restore the strong credit ratings of its recent past. Currently, the Company has no significant mandatory principal repayments for three years and expects to refinance any then-maturing debt beyond those dates. ROIC Graph Description: Depicts Circus Circus' five-year average return on invested capital (ROIC) of 12% compared to our weighted average cost of capital of 9%. The difference between ROIC and our cost of capital is the value creation to our shareholders. EBITDA Companies frequently refer to operating cash flow, or EBITDA, as a benchmark of earning power. The following table shows the amounts of EBITDA (earnings before interest, taxes, depreciation and amortization) for the Company's wholly owned properties and its joint venture properties. 26 EBITDA by property (in millions):
Year ended January 31, ---------------------- 1999 1998 ------- ------- Luxor $ 97.6 $ 89.4 Excalibur 74.2 80.0 Circus Circus-Las Vegas/Slots-A-Fun/Silver City 55.9 51.8 Colorado Belle/Edgewater 29.1 26.8 Gold Strike-Tunica 26.0 9.0 Circus Circus-Reno 24.3 18.9 Gold Strike/Nevada Landing/Railroad Pass 19.2 17.2 Monte Carlo* 83.5 90.4 Grand Victoria* 76.9 96.8 Silver Legacy* 47.1 49.6
(*) Amounts represent 100% of this joint venture property, of which the Company is a 50% owner. FISCAL 1999 COMPARED WITH FISCAL 1998 RESULTS OF OPERATIONS For the year ended January 31, 1999, the Company reported net income of $85.2 million, or $.90 per share, compared to $89.9 million, or $.95 per share, in the prior year. During fiscal 1999, the Company recorded a charge to corporate expense of $6.5 million for political campaign costs associated with Proposition 5 in California, while in the prior year, the Company recognized approximately $8.0 million in costs associated with the resignation of its chairman and $3.4 million in preopening expenses related to a new 1,100-room hotel at its remodeled Gold Strike Casino Resort in Tunica County, Mississippi. Also during fiscal 1998, the Company recognized a $6.0 million gain on the sale of a company airplane. Excluding the effect of these nonrecurring items, earnings per share for fiscal 1999 were $.94 versus $1.01 in the prior year. The decrease reflects higher net interest expense due to higher average borrowings, as well as lower interest income due to a $35.1 million note receivable from Silver Legacy which was redeemed in the prior year. REVENUES Revenues for fiscal 1999 increased $125.3 million, or 9%, from the prior year. All of the Company's wholly owned properties posted increases in revenues, with the exception of Excalibur, whose revenues declined less than one percent. The primary contributors to the increase were Gold Strike-Tunica, Luxor and Circus Circus-Las Vegas. At Gold Strike-Tunica, the completion of an 1,100-room hotel tower in the first quarter contributed to a $63.1 million, or 133%, revenue increase at that property. Luxor achieved a revenue increase of $45.2 million, or 15%; the property benefitted from a new national advertising campaign, an increase in the amount of high-budget play in the casino and the opening of a new 1,200-seat showroom in the third quarter of the prior year. Revenues at Circus Circus-Las Vegas rose $14.1 million, or 6%, driven by increased contributions from the hotel department (rooms were being remodeled in the prior year) and the food and beverage department (due to selective price increases). The above revenue increases were partially offset by reduced -- contributions from the Company's joint venture properties. The Company's share of the operating income of joint ventures -- which is recorded as revenue under Earnings of Unconsolidated Affiliates -- declined $15.0 million from fiscal 1998. The decline was due primarily to Grand Victoria, a 50%-owned riverboat casino in Elgin, Illinois. A January 1998 hike in the maximum tax rate on casino revenues in Illinois to 35% from 20% was responsible for the $10.3 million, or 23%, decrease in Grand Victoria's contribution. 27 Casino revenues increased $77.8 million, or 12%, during fiscal 1999. For the reasons mentioned above, Gold Strike-Tunica, with a 106% increase, and Luxor, with a 16% increase, were the primary drivers of the overall growth in casino revenues. Meanwhile, hotel revenues rose $25.0 million, or 8%, due to the addition of the 1,100-room tower at Gold Strike-Tunica and to higher room and occupancy rates at Luxor. Revenues in the Company's other revenue centers (principally food, beverage, amusements, retail and entertainment) rose $59.3 million, or 17%, due to a combination of increased business and selective price increases, particularly for food and beverage. INCOME FROM OPERATIONS (excluding nonrecurring items) Income from operations for fiscal 1999 increased $2.1 million, or 1%, from the prior year. The Company's composite operating margin was 16.8%, compared to 18.2% in fiscal 1998. Income from operations for the first quarter decreased $21.6 million from the prior year; then, over the next three quarters, it rose $23.7 million, as the Company started to reap the benefits of its larger capacity, product advertising and player marketing efforts. A discussion of operating results by market follows. Las Vegas Overall, results at our Las Vegas properties were even with those for the prior year. Increases at Luxor and Circus Circus-Las Vegas, which occurred largely in the second half of the year, were offset by declines at Excalibur and Monte Carlo. At Luxor, operating income increased $5.8 million, or 12%, mainly because of the aforementioned national advertising campaign and an increase in the amount of high-budget play in the casino. Operating income at Circus Circus-Las Vegas grew by $3.1 million, or 12%, due to higher contributions from the hotel department and the food department. In the hotel department, remodeling work carried out in fiscal 1998 led to a 6% increase in the number of rooms available in fiscal 1999. In the food department, prices were increased selectively without impacting the number of customers served. While Luxor and Circus Circus-Las Vegas were able to achieve higher operating income in the extremely competitive Las Vegas market, Excalibur and Monte Carlo were unable to sustain the levels of the prior year. Operating income at Excalibur decreased $6.6 million, or 10%, while the Company's contribution from the 50%-owned Monte Carlo decreased $3.6 million, or 10%. Both properties incurred higher marketing and promotional expenses while revenues hovered near the prior year's levels. Reno In Reno, Circus Circus posted a $1.8 million, or 18%, increase in operating income over the prior year. Contributing to this strong year-to-year comparison was the fact that in fiscal 1998, the casino underwent remodeling during the middle of the year and business was affected by severe weather in the latter part of the year. Meanwhile, the Company's share of operating income from Silver Legacy declined by $0.9 million, or 4%, in fiscal 1999. Although the Company owns 50% of Silver Legacy, it currently receives approximately two-thirds of Silver Legacy's operating income as a priority return on its investment. The 4% decrease recorded by Circus occurred even though this priority allocation was in effect for all of fiscal 1999 versus nine months in fiscal 1998. Based upon current projections, the Company anticipates that this priority return will continue approximately two years beyond fiscal 1999, but will gradually decrease from the current two-thirds allocation to a 50% allocation. 28 Laughlin The Company's two properties in Laughlin -- Colorado Belle and Edgewater - --reported a combined increase in operating income of $1.6 million, or 9%, from the prior year. While the region continues to suffer from difficult competitive challenges, particularly the unregulated Native American casinos in Laughlin's prime central Arizona and southern California feeder markets, the two properties posted their first increase in operating income on a year-to-year basis since fiscal 1993. This improvement stemmed from a combination of casino marketing efforts and reduced costs. Other Markets At Gold Strike, in Tunica County, Mississippi, operating income more than quadrupled during fiscal 1999, to $12.1 million. The addition of an 1,100-room hotel tower and a complete remodeling of the property into a resort, which were completed in early 1998, drove the increase in operating income. As mentioned above, the results at the 50%-owned Grand Victoria were negatively affected by a substantial increase in the tax rate on casino revenues in Illinois. Results for fiscal 1999 at the Company's other, smaller properties exceeded those for the prior year. The lease for the Silver City Casino, which the Company operates in Las Vegas, expires at the end of October 1999. The Company does not plan to renew this lease and will thus cease operations at that property. Silver City generated a slight loss from operations in fiscal 1999. DEPRECIATION AND AMORTIZATION In fiscal 1999, depreciation and amortization expense rose $12.4 million, to $142.1 million. This increase derived primarily from the new hotel tower at Gold Strike-Tunica, and from a full year's depreciation on the improvements at Circus Circus-Reno. For fiscal 2000, Circus estimates that its depreciation expense will be approximately $180 million, the increase reflecting the addition of Mandalay Bay. Depreciation expense by property (in millions):
Year ended January 31, ---------------------- 1999 1998 ------- ------- Luxor $ 41.8 $ 39.5 Excalibur 15.0 14.1 Circus Circus-Las Vegas 23.4 22.7 Colorado Belle/Edgewater 9.5 8.7 Gold Strike-Tunica 14.0 6.2 Circus Circus-Reno 12.0 8.5 Other 26.4 30.0 ------- ------- $ 142.1 $ 129.7 ======= =======
29 INTEREST EXPENSE In fiscal 1999, interest incurred (excluding joint venture interest expense and before capitalized interest) rose $30.2 million to $141.1 million. The year saw higher average debt outstanding ($2.0 billion versus $1.6 billion in fiscal 1998) mainly related to the construction of Mandalay Bay. The increase in interest incurred was partially offset by higher capitalized interest ($45.5 million versus $22.0 million in fiscal 1998), also largely associated with the construction of Mandalay Bay. The Company recorded interest expense related to joint venture projects of approximately $12.3 million in fiscal 1999 versus $15.6 million in fiscal 1998. These amounts represent the Company's 50% share of Silver Legacy's and Monte Carlo's interest expense. TAXES The Company's effective tax rates for the years ended January 31, 1999 and 1998 were 39.5% and 39.2%. These rates reflect the federal statutory rate of 35% plus the effect of various nondeductible expenses, primarily the amortization of goodwill associated with the June 1995 Gold Strike acquisition. For fiscal 2000, the Company estimates its effective tax rate will be approximately 39%. FISCAL 1998 COMPARED WITH FISCAL 1997 RESULTS OF OPERATIONS Excluding nonrecurring items and preopening expenses, earnings per share for fiscal 1998 were $1.01 compared to $1.33 in the previous year. During fiscal 1998, the Company recognized approximately $8.0 million in costs associated with the resignation of its chairman and $3.4 million of preopening expenses related to a new 1,100-room hotel at its remodeled Gold Strike-Tunica. The Company also recognized a $6.0 million gain on the sale of a company airplane. During fiscal 1997, the Company took one-time asset write-offs totaling $48.3 million that were related to construction and remodeling at Luxor and Circus Circus-Las Vegas. In addition, it recognized $5.6 million in preopening expenses for Monte Carlo. The decline in earnings in fiscal 1998 was due primarily to two factors. The first was lower operating income at Excalibur, which faced significant new competition from New York-New York, Monte Carlo and the expanded Luxor. The second factor was higher interest expense arising from borrowings in the prior year for the expansion projects at Luxor and Circus Circus-Las Vegas. REVENUES Revenues for fiscal 1998 increased $20.2 million, or 2%, from fiscal 1997. This increase was attributable primarily to Luxor, whose revenues grew 34% on the strength of 1,950 new rooms. Circus Circus-Las Vegas posted an increase in revenues of 5% due to 1,000 new rooms, which opened late in fiscal 1997. Contributing to the positive fiscal 1998 comparisons for both Luxor and Circus Circus-Las Vegas was the fact that in the prior year those properties' operations were significantly disrupted by construction. The Company also benefitted from a full year's contribution from Monte Carlo, which was open only seven months in the prior year. Meanwhile, the Company's 50% interest in Silver Legacy contributed $20.7 million to the Company's revenues in fiscal 1998 versus $12.0 million in fiscal 1997. Effective May 1, 1997, the Company began receiving a priority return on its investment in Silver Legacy representing approximately two-thirds of the joint venture's operating income. 30 The above increases were offset by the closure of the Hacienda Hotel and Casino in December 1996, which produced $41.6 million in revenues in fiscal 1997, and by lower results at Excalibur, whose revenues decreased $23.4 million, or 8%, from their record level of the prior year. INCOME FROM OPERATIONS (excluding nonrecurring items) Income from operations for fiscal 1998 decreased $28.9 million, or 10%, from fiscal 1997. The principal factor behind this decline was depreciation expense, which was $26.0 million higher in fiscal 1998 due to the expansion projects at Luxor and Circus Circus-Las Vegas that were completed in fiscal 1997. Operating income was also negatively affected by lower results at Excalibur, closure of the Hacienda and sale of the Company's interest in Windsor Casino Limited, which in fiscal 1997 had contributed $9.5 million of operating income to the Company's results. DEPRECIATION AND AMORTIZATION In fiscal 1998, depreciation and amortization expense rose $26.0 million, to $129.7 million. This increase stemmed primarily from a full year's depreciation on the expansion and remodeling projects at Luxor and Circus Circus-Las Vegas. INTEREST EXPENSE In fiscal 1998, interest incurred (excluding joint venture interest expense and before capitalized interest) rose $40.2 million to $110.9 million. This increase was due primarily to higher average debt outstanding ($1.6 billion versus $865 million in fiscal 1997) related to the completed expansion projects at Luxor and Circus Circus-Las Vegas; a share repurchase in fiscal 1997; the completed expansion at Gold Strike-Tunica; and the ongoing construction of Mandalay Bay. The increase was partially offset by higher capitalized interest ($22.0 million versus $16.0 million in fiscal 1997) related primarily to the Gold Strike-Tunica and Mandalay Bay projects. The Company also recorded interest expense related to joint venture projects of approximately $15.6 million in both fiscal 1998 and fiscal 1997. This represents the Company's 50% share of Silver Legacy's and Monte Carlo's interest expense. FINANCIAL POSITION AND CAPITAL RESOURCES The Company had cash and cash equivalents of $81.4 million at January 31, 1999, reflecting normal daily operating requirements. The Company's pretax cash flow from operations (before nonrecurring items) was $415.8 million in fiscal 1999 compared to $401.2 million in fiscal 1998 and $398.5 million in fiscal 1997. Pretax cash flow from operations is defined as the Company's income from operations (before nonrecurring items) plus noncash operating expenses (primarily depreciation and amortization). See "Free Cash Flow Analysis" on page 25. The Company used its fiscal 1999 cash flow (in combination with borrowings) primarily to fund the construction of Mandalay Bay and other core components of Masterplan Mile (a convention center, arena, monorail and aquarium exhibit); the renovation of hotel rooms at Excalibur; the completion of the hotel tower at Gold Strike-Tunica; the repurchase of 4.5 million shares of its common stock; and other miscellaneous construction projects. During fiscal 1998, the Company used its cash flow (in combination with borrowings) to fund the construction of Mandalay Bay, the construction of the new hotel tower at Gold Strike- Tunica, and other miscellaneous construction projects. 31 CAPITAL SPENDING Capital expenditures in fiscal 1999 were $671.5 million compared with $663.3 million in fiscal 1998 and $585.8 million in fiscal 1997. The majority of capital expenditures in fiscal 1999 related to the construction of Mandalay Bay ($431.8 million), the construction of the other core components of Masterplan Mile ($92.0 million), the renovation of the hotel rooms at Excalibur ($12.3 million) and the completion of construction and remodeling at Gold Strike-Tunica ($18.8 million). The majority of the capital expenditures in fiscal 1998 related to construction at Mandalay Bay ($264.9 million), the construction and remodeling at Gold Strike-Tunica ($119.8 million), completion of the remaining elements of the Luxor expansion ($116.5 million), remodeling of the tower rooms and completion of the expansion at Circus Circus-Las Vegas ($35.2 million), remodeling of the casino at Circus Circus-Reno ($25.6 million), various renovation projects at Excalibur ($25.1 million), and the addition of a microbrewery and other improvements at the Colorado Belle ($9.8 million). LONG-TERM DEBT In May 1997, the Company amended its unsecured credit facility with its bank group, increasing the size of the facility from $1.5 billion to $2.0 billion at more favorable terms and pricing (see Note 3 of Notes to Consolidated Financial Statements). In order to allow for increased borrowing capacity during the construction of Mandalay Bay, the credit facility was further amended in May 1998 to provide a more liberal test for total indebtedness during such period and a new leverage test for senior debt. The Company also has a commercial paper program, pursuant to which it may utilize up to $1 billion of its borrowing capacity under the credit facility to issue commercial paper. As of January 31, 1999, the Company had aggregate borrowings of $1.1 billion outstanding under the credit facility and an additional $50 million outstanding under its corporate debt program. On October 30, 1998, the Company entered into an operating lease with a group of financial institutions (the "Lease Facility") pursuant to which it may lease up to $200 million of equipment. The lease term consists of an interim term commencing on the delivery date and ending June 30, 1999, plus a base term of two years. On January 28, 1999, the Company leased $100 million of equipment at Mandalay Bay pursuant to the Lease Facility and permanently reduced the commitment under its bank credit facility by the amount of the lease financing, thus reducing the commitment under the credit facility to $1.9 billion at January 31, 1999. An additional $75 million was drawn under the Lease Facility in April 1999, thus further reducing the commitment under the bank credit facility to $1.825 billion. In August 1998, the Company filed a shelf registration statement relating to $550 million of securities that may be issued from time to time in the form of additional debt securities of the Company. Securities may also be issued in the form of preferred securities of Delaware business trusts formed for the purpose of issuing their trust securities and investing the proceeds in debt securities of the Company. In November 1998, pursuant to the shelf registration statement, the Company issued $275 million principal amount of 9 1/4% Senior Subordinated Notes due December 1, 2005. Proceeds from this offering were used to repay outstanding borrowings under the credit facility. 32 JOINT VENTURES In July 1995, Silver Legacy, a 50/50 joint venture with the Eldorado Hotel/Casino, opened in downtown Reno, Nevada. As a condition of the joint venture's $230 million bank credit agreement, the Company is obligated under a make-well agreement to make additional contributions to the joint venture as may be necessary to maintain a minimum coverage ratio (as defined). NEW PROJECTS On March 2, 1999, the Company opened Mandalay Bay, a 43-story, hotel/casino resort in Las Vegas, Nevada. The resort includes approximately 3,700 rooms and 135,000 square feet of gaming space and is situated on approximately 60 acres of land just south of Luxor. Mandalay Bay's attractions include an 11-acre tropical lagoon featuring a sand-and-surf beach, a three-quarter-mile lazy river ride, a 30,000-square-foot spa and other entertainment attractions. Inside, Mandalay Bay offers internationally renowned restaurants; a House of Blues nightclub and restaurant, including its signature Foundation Room sited on Mandalay Bay's rooftop; and 100 "music-themed" hotel rooms in Mandalay Bay's tower. Four Seasons operates approximately 400 rooms at Mandalay Bay, providing Las Vegas visitors with a luxury "five-star" hospitality experience. The Four Seasons Hotel, which is owned by the Company and managed by Four Seasons, represents the first step in the Company's cooperative effort with Four Seasons to identify strategic opportunities for development of hotel and casino properties worldwide. The total cost of Mandalay Bay, including the Four Seasons Hotel and including leased equipment, but excluding land, capitalized interest and preopening expenses, was approximately $900 million; as of January 31, 1999, $784.8 million of this cost had been incurred. During construction, Mandalay Bay's hotel tower experienced settling in excess of the level contemplated in the building's original design. The settling was greater in some portions of the structure than others. The Company retained geotechnical, structural engineering and foundation consultants who evaluated the situation and recommended remedial measures, which have been completed. These remedial measures will be evaluated over a period of time to determine if any further measures will be required. Mandalay Bay is the latest phase of the Company's development of more than 230 acres of land it owns at the south end of the Las Vegas Strip. This parcel of land runs from Tropicana Avenue south approximately one mile to Russell Road ("Masterplan Mile"). As part of its development plan for Masterplan Mile, the Company has completed construction of a 125,000-square-foot convention facility, which opened March 12, and a 12,000-seat arena, which opened April 10. These properties, which represent core components of Masterplan Mile, will be cross-marketed to guests at the Company's existing and future hotel/casinos within Masterplan Mile. The total estimated cost of the convention facility and arena, excluding land, capitalized interest and preopening expenses, was approximately $115 million; as of January 31, 1999, $73.9 million in costs had been incurred for these facilities. The Company has also completed construction of a monorail system, which links the Company's resorts on Masterplan Mile. Furthermore, the Company is planning a Sea of Predators aquarium exhibit, which is expected to open early in the year 2000. The cost of these additional Masterplan Mile core components, excluding land, capitalized interest and preopening expenses, is estimated at approximately $75 million, of which $19.9 million had been incurred as of January 31, 1999. The Company may add other core components to its development plan for Masterplan Mile in the future. 33 The Company has formed a joint venture with the Detroit-based Atwater Casino Group to build, own and operate a hotel/casino in Detroit, Michigan. The Company will own a 45% equity interest in the proposed project and receive a management fee. The joint venture is one of three groups which negotiated development agreements with the city. These agreements were approved by the city council on April 9, 1998. The joint venture's ability to proceed with the proposed project is contingent upon the receipt of all necessary gaming approvals and satisfaction of other conditions. The joint venture is planning a $600 million project. The Company is expected to contribute 20% of this amount in the form of equity, and will seek project-specific financing for the balance. The development agreement provides that the Company will guarantee completion of the project and will enter into a keep-well guarantee with the city, pursuant to which the Company could be required to contribute additional funds, if and as needed, to continue operation of the project for a period of two years. The Detroit joint venture has commenced construction of a temporary casino property in downtown Detroit. The property will contain approximately 75,000 square feet of gaming space, including approximately 2,600 slot machines and 130 table games, plus 5 restaurants and a 3,000-space parking facility. Construction is expected to be completed in September 1999. The cost of the temporary casino, including land and capitalized interest, is approximately $140 million. The joint venture will shortly complete a $150 million credit facility secured by the assets associated with the Detroit temporary casino. The Company will guaranty the credit facility subject to the release of the guaranty if certain performance measures are reached. The joint venture's ability to proceed with the temporary casino facility is contingent upon the receipt of all necessary gaming approvals and satisfaction of other customary conditions. The City of Detroit's Casino Development Competitive Selection Process ordinance has been challenged in a lawsuit brought by the Lac Vieux Band of Lake Superior Chippewa Indians. No assurance can be given regarding the timing and outcome of proceedings in this litigation. If the court determines that the Detroit ordinance is defective and that determination is upheld, this may have an impact upon the validity of the development agreement entered into between the joint venture and the City of Detroit which, in turn, could have an impact on the issuance of a certificate of suitability and a casino license to the joint venture. The Company has announced that it plans to develop a hotel/casino resort on the Mississippi Gulf Coast at the north end of the Bay of St. Louis, near the DeLisle exit on Interstate 10. It is currently anticipated that the resort will include approximately 1,500 rooms and will involve an investment of approximately $225 million. The Company has received all necessary approvals to commence development. However, these approvals have been challenged in federal court, and the Company anticipates that the design and construction of this project will begin only after satisfactory resolution of all legal actions. Present plans call for Circus to own 90% of the resort, with a partner contributing land (up to 500 acres) in exchange for the remaining 10% interest. Although the Company had previously entered into an agreement with Mirage Resorts to participate in the development of a site located in the Marina District of Atlantic City, New Jersey, the agreement was subject to litigation, which was subsequently settled. The Company has no current plans for development in Atlantic City. LIQUIDITY The Company believes that -- through the combination of its operating cash flows, credit facility and ability to raise additional funds through debt or equity markets -- it has sufficient capital resources to meet all of its existing cash obligations, fund its capital commitments on the projects under way and strategically repurchase shares of the Company's common stock. As of January 31, 1999, under its most restrictive loan covenant, the Company could issue additional debt of approximately $43 million. 34 The calculation of additional debt capacity is based on either the most recent quarter times four, or a rolling four-quarter total, whichever is better. With the opening of Mandalay Bay on March 2, 1999, the Company anticipates that its capacity to incur additional debt will increase as of April 30, 1999. MARKET RISK AND DERIVATIVE FINANCIAL INSTRUMENTS The Company is exposed to market risk in the form of fluctuations in interest rates and their potential impact upon the Company's variable-rate debt. The Company manages this market risk by utilizing derivative financial instruments in accordance with established policies and procedures. The Company evaluates its exposure to market risk by monitoring interest rates in the marketplace. The Company does not utilize derivative financial instruments for trading purposes. There have been no material quantitative changes in market risk exposure, or how such risks are managed, in the current fiscal year when compared to the prior fiscal year. The Company's derivative financial instruments consist exclusively of interest rate swap agreements. Interest differentials resulting from these agreements are recorded on an accrual basis as an adjustment to interest expense. Interest rate swaps related to debt are matched either with specific fixed-rate debt obligations or with levels of variable-rate borrowings. To manage its exposure to counterparty credit risk in interest rate swaps, the Company enters into agreements with highly rated institutions that can be expected to fully perform under the terms of such agreements. Frequently, these institutions are also members of the bank group providing the Company's credit facility, which management believes further minimizes the risk of nonperformance. The following table provides information about the Company's financial instruments (both interest rate swaps and debt obligations) that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted-average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted-average interest rates by contractual maturity dates. Notional amounts are used to calculate the contractual cash flows to be exchanged under the contract. Weighted-average variable rates are based on implied forward rates in the yield curve. Implied forward rates should not be considered a predictor of actual future interest rates.
Year ending January 31, ---------------------------------------------------- (in millions) 2000 2001 2002 2003 2004 Thereafter Total -------- -------- -------- -------- -------- ---------- -------- Long-term debt (including current portion) Fixed rate $ 3.5 $ 0.5 $ 0.3 $ 0.3 $ 150.2 $ 927.8 $1,082.6 Average interest rate 5.3% 5.6% 6.7% 6.7% 6.8% 7.6% 7.5% Variable rate -- -- -- $1,180.0 -- -- $1,180.0 Average interest rate -- -- -- 6.0% -- -- 6.0% Interest rate swaps Pay fixed $ 25.0 -- -- -- -- $ 150.0 $ 175.0 Average payable rate 8.1% -- -- -- -- 5.9% 6.2% Average receivable rate 5.6% -- -- -- -- 6.8% 6.6% Pay floating -- -- $ 30.0 -- -- -- $ 30.0 Average payable rate -- -- 5.9% -- -- -- 5.9% Average receivable rate -- -- 8.2% -- -- -- 8.2%
35 YEAR 2000 READINESS DISCLOSURE BACKGROUND In the past, many computer software programs were written using two digits rather than four to define the applicable year. As a result, information technology ("IT"), such as date-sensitive computer software, as well as non-IT systems (such as equipment containing microcontrollers or other embedded technology) may recognize a date using "00" as the year 1900 rather than the year 2000. This is generally referred to as the Year 2000 issue. If the year is recognized incorrectly, the potential exists for computer system failures or miscalculations by computer programs, which could disrupt operations. RISK FACTORS Date-sensitive IT and non-IT systems and equipment are utilized throughout the Company's wholly owned properties and its joint venture properties. Consequently, the Company is exposed to the risk that Year 2000 problems could disrupt operations at the affected properties and have a material adverse impact upon the Company's operating results. The Company is also exposed to the risk of possible failure of IT and non-IT systems external to the Company's operations ("external risk factors"). These external risk factors arise from the fact that the Company's operations, like those of most businesses, are dependent upon numerous other private and public entities. While such risk factors are not the responsibility of the Company and their remediation is beyond the Company's control, we are attempting to monitor these risks and form contingency plans as warranted. As a result of the external risk factors, the Company may be materially and adversely impacted even if its own IT and non-IT systems and equipment are Year 2000-compliant. The most significant of these factors are as follows: - -One or more of the Company's suppliers or its joint ventures' suppliers could experience Year 2000 problems that impact their ability to provide goods and services. The Company believes that such a disruption would have a limited impact due to the availability of alternative suppliers. - -One or more of the Company's utility providers (of electric, natural gas, water, sewer, garbage collection and similar services) could experience Year 2000 problems that impact their ability to provide their services. Furthermore, the Company could be adversely impacted if utility services were significantly disrupted in any of its key customer markets (e.g., southern California), as this could alter the customary flow of visitors from the affected market. - -Airline service to and from the principal markets in which the Company operates could be disrupted by Year 2000 problems, which would limit the ability of potential customers to visit our properties. - -The possible disruption of banking services due to Year 2000 problems could impair the Company's daily financial transactions, including the deposit of monies and processing of checks. Furthermore, credit card processing and customers' access to cash via automated teller machines could also be disrupted. The Company is developing contingency plans to address the identified risks. However, given the nature of many of the external risk factors, the Company does not believe viable alternatives would be available. For example, the Company cannot develop a meaningful contingency plan to address a disruption in airline service. Consequently, the occurrence of any of the aforementioned disruptions could, depending upon their severity and duration, have a material adverse impact on operating results. 36 APPROACH The Company has established a task force to coordinate its response to the Year 2000. This task force, which reports to the Audit Committee of the Board of Directors, includes the Company's Chief Accounting Officer, the Chief Internal Auditor, the Director of Information Services, as well as support staff. Previously, the Company engaged an outside consultant who helped establish a program for dealing with the Year 2000 issue. The Company is now implementing this program at its wholly owned properties and at its joint venture properties. The program consists of the following phases: Phase 1 Compile an inventory of IT and non-IT systems that may be sensitive to the Year 2000 problem. Phase 2 Identify which of these systems are critical, and prioritize them; identify third parties with whom the Company does significant business (e.g., vendors) and inquire as to the state of their Year 2000 readiness. Phase 3 Analyze critical systems to determine which ones are not Year 2000-compliant, and evaluate the costs to repair or replace them. Phase 4 Repair or replace noncompliant systems; test those systems for which information about Year 2000 compliance has not been received or for which information has been received but not confirmed. STATUS Phases 1 and 2 are substantially complete, though the Company has not received all responses from significant third parties about their Year 2000 readiness. Phases 3 and 4 are ongoing and will continue through the first half of calendar 1999. It is the Company's goal to have this project substantially completed by mid-1999. Based upon the analysis conducted to date, the Company believes that all of the critical systems at its wholly owned and joint venture properties are currently compliant or will be compliant by mid-1999. To date, the most significant Year 2000 requirement that has been identified is the need to replace older personal computers whose systems are not Year 2000 compatible. COSTS The Company currently estimates that the total cost to the Company of making its systems and those of its joint venture properties Year 2000 compliant will be in the range of $5 to $10 million, of which approximately $3.6 million had been incurred as of January 31, 1999. Most of this cost relates to the acquisition of new computer hardware to replace noncompliant personal computers and the purchase of new software to replace noncompliant software. These costs are being capitalized and the equipment and software depreciated over their expected useful lives. To the extent existing hardware or software is replaced, the Company will recognize a loss currently for the undepreciated balance. This loss is included in the above cost estimate. Furthermore, all costs related to software modification, as well as all costs associated with the Company's administration of its Year 2000 project, are being expensed as incurred and are likewise included in the cost estimate above. 37 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
January 31, ---------------------------- 1999 1998 ----------- ----------- (in thousands, except share data) ASSETS Current assets Cash and cash equivalents $ 81,389 $ 58,631 Accounts receivable 26,136 21,714 Income tax receivable -- 11,926 Inventories 24,270 22,440 Prepaid expenses 21,451 20,281 Deferred income tax 8,032 7,871 ----------- ----------- Total current assets 161,278 142,863 ----------- ----------- Property, equipment and leasehold interests, at cost, net 3,000,822 2,466,848 ----------- ----------- Other assets Excess of purchase price over fair market value of net assets acquired, net 367,076 375,375 Notes receivable 10,895 1,075 Investments in unconsolidated affiliates 271,707 255,392 Deferred charges and other assets 57,929 21,995 ----------- ----------- Total other assets 707,607 653,837 ----------- ----------- Total assets $3,869,707 $3,263,548 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ 3,481 $ 3,071 Accounts and contracts payable Trade 23,745 22,103 Construction 75,030 40,670 Accrued liabilities Salaries, wages and vacations 40,006 36,107 Progressive jackpots 8,889 7,511 Advance room deposits 8,195 6,217 Interest payable 27,767 17,828 Other 44,460 33,451 ----------- ----------- Total current liabilities 231,573 166,958 ----------- ----------- Long-term debt 2,259,149 1,788,818 ----------- ----------- Other liabilities Deferred income tax 200,376 175,934 Other long-term liabilities 20,981 8,089 ----------- ----------- Total other liabilities 221,357 184,023 ----------- ----------- Total liabilities 2,712,079 2,139,799 ----------- ----------- Commitments and contingent liabilities ----------- ----------- Stockholders' equity Common stock $.01-2/3 par value Authorized -- 450,000,000 shares Issued -- 113,622,508 and 113,609,008 shares 1,894 1,893 Preferred stock $.01 par value Authorized -- 75,000,000 shares -- -- Additional paid-in capital 558,935 558,658 Retained earnings 1,159,469 1,074,271 Treasury stock (22,959,425 and 18,496,125 shares), at cost (562,670) (511,073) ----------- ----------- Total stockholders' equity 1,157,628 1,123,749 ----------- ----------- Total liabilities and stockholders' equity $3,869,707 $3,263,548 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 38 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year ended January 31, (in thousands, except share data) 1999 1998 1997 --------- --------- --------- Revenues Casino $ 709,909 $ 632,122 $ 655,902 Rooms 355,635 330,644 294,241 Food and beverage 246,622 215,584 210,384 Other 170,701 142,407 146,554 Earnings of unconsolidated affiliates 83,967 98,977 86,646 -------- --------- --------- 1,566,834 1,419,734 1,393,727 Less-complimentary allowances (87,054) (65,247) (59,477) --------- --------- --------- 1,479,780 1,354,487 1,334,250 --------- --------- --------- Costs and expenses Casino 367,449 316,902 302,096 Rooms 128,622 122,934 116,508 Food and beverage 207,663 199,955 200,722 Other operating expenses 102,910 90,187 90,601 General and administrative 264,092 232,536 227,348 Depreciation and amortization 133,801 117,474 95,414 Preopening expense -- 3,447 -- Abandonment losses -- -- 48,309 --------- --------- --------- 1,204,537 1,083,435 1,080,998 --------- --------- --------- Operating profit before corporate expense 275,243 271,052 253,252 Corporate expense 32,464 34,552 31,083 --------- --------- --------- Income from operations 242,779 236,500 222,169 --------- --------- --------- Other income (expense) Interest, dividends and other income 2,730 9,779 5,077 Interest income and guarantee fees from unconsolidated affiliate 3,122 6,041 6,865 Interest expense (95,541) (88,847) (54,681) Interest expense from unconsolidated affiliates (12,275) (15,551) (15,567) --------- --------- --------- (101,964) (88,578) (58,306) --------- --------- --------- Income before provision for income tax 140,815 147,922 163,863 Provision for income tax 55,617 58,014 63,130 --------- --------- --------- Net income $ 85,198 $ 89,908 $100,733 ========= ========= ========= Basic earnings per share $0.90 $0.95 $0.99 ========= ========= ========= Diluted earnings per share $0.90 $0.94 $0.97 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 39 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended January 31, --------- --------- --------- 1999 1998 1997 --------- --------- --------- Increase (decrease) in cash and cash equivalents (in thousands) Cash flows from operating activities Net income $ 85,198 $ 89,908 $ 100,733 --------- --------- --------- Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 142,141 129,729 103,717 Increase in deferred income tax 24,281 24,005 3,234 Increase in interest payable 9,939 8,824 5,835 (Gain) loss on sale of fixed assets (1,641) (6,519) 47,301 (Increase) decrease in other current assets 4,504 (2,605) (17,742) Increase in other current liabilities 19,906 6,148 7,741 Increase in other noncurrent assets (35,817) (785) (3,406) Decrease in other noncurrent liabilities (65) (65) (65) Unconsolidated affiliates' earnings in excess of distributions (10,863) (33,330) (21,984) --------- --------- --------- Total adjustments 152,385 125,402 124,631 --------- --------- --------- Net cash provided by operating activities 237,583 215,310 225,364 --------- --------- --------- Cash flows from investing activities Capital expenditures (671,547) (663,270) (585,835) Increase in construction payables 34,360 19,526 21,144 Increase in investments in unconsolidated affiliates (5,865) (8,353) (19,204) (Increase) decrease in notes receivable (9,820) 35,368 (8,934) Proceeds from sale of equipment and other assets 5,788 8,160 3,056 Other -- -- (1,270) --------- --------- --------- Net cash used in investing activities (647,084) (608,569) (591,043) --------- --------- --------- Cash flows from financing activities Proceeds from issuance of senior notes and debentures 275,000 -- 499,066 Net effect on cash of issuances and payments of debt with initial maturities of three months or less 502,528 474,355 43,850 Issuance of debt with initial maturities in excess of three months 337,334 201,843 292,533 Principal payments of debt with initial maturities in excess of three months (644,241) (290,712) (145,392) Exercise of stock options and warrants 310 7,889 28,400 Purchase of stock warrants -- (2,000) -- Purchase of subsidiary preferred stock -- -- (1,346) Purchases of treasury stock (51,634) (1,300) (341,837) Other 12,962 (7,701) (2,783) --------- --------- --------- Net cash provided by financing activities 432,259 382,374 372,491 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 22,758 (10,885) 6,812 Cash and cash equivalents at beginning of year 58,631 69,516 62,704 --------- --------- --------- Cash and cash equivalents at end of year $ 81,389 $ 58,631 $ 69,516 ========= ========= ========= Supplemental cash flow disclosures Cash paid during the year for Interest (net of amount capitalized) $ 82,879 $ 77,426 $ 46,498 Income tax $ 18,770 $ 37,395 $ 48,043
The accompanying notes are an integral part of these consolidated financial statements. 40 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Issued Additional Total ------------------- Paid-in Retained Treasury Stockholders' Shares Amount Capital Earnings Stock Equity -------- -------- ---------- ---------- ------------ ------------- (in thousands) Balance, January 31, 1996 112,795 $ 1,880 $ 527,205 $ 883,630 $ (185,903) $ 1,226,812 Net income -- -- -- 100,733 -- 100,733 Exercise of stock options and warrants 13 -- 14,005 -- 14,395 28,400 Treasury stock acquired (10,096 shares), at cost -- -- -- -- (341,837) (341,837) Purchase of subsidiary preferred stock -- -- (447) -- -- (447) Sale/purchase of puts and calls -- -- (44,950) -- -- (44,950) Amortization of deferred compensation -- -- 3,080 -- -- 3,080 -------- -------- ---------- ---------- ----------- ----------- Balance, January 31, 1997 112,808 1,880 498,893 984,363 (513,345) 971,791 Net income -- -- -- 89,908 -- 89,908 Exercise of stock options 46 -- 4,317 -- 3,572 7,889 Treasury stock acquired (38 shares), at cost -- -- -- -- (1,300) (1,300) Conversion of subsidiary preferred stock 755 13 17,618 -- -- 17,631 Sale/purchase of puts and calls -- -- 35,536 -- -- 35,536 Amortization of deferred compensation -- -- 4,294 -- -- 4,294 Purchase of warrants -- -- (2,000) -- -- (2,000) -------- -------- ---------- ---------- ----------- ----------- Balance, January 31, 1998 113,609 1,893 558,658 1,074,271 (511,073) 1,123,749 Net income -- -- -- 85,198 -- 85,198 Exercise of stock options 14 1 272 -- 37 310 Treasury stock acquired (4,466 shares), at cost -- -- -- -- (51,634) (51,634) Other -- -- 5 -- -- 5 -------- -------- ---------- ---------- ----------- ----------- Balance, January 31, 1999 113,623 $ 1,894 $ 558,935 $ 1,159,4 $ (562,670) $ 1,157,628 ======== ======= ========= ========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION Circus Circus Enterprises, Inc. (the "Company") was incorporated February 27, 1974. The Company owns and operates hotel and casino facilities in Las Vegas, Reno, Laughlin, Jean and Henderson, Nevada and in Tunica County, Mississippi. It is also an investor in several unconsolidated affiliates, with operations that include a riverboat casino in Elgin, Illinois, a hotel/casino in Reno, Nevada and a hotel/casino on the Las Vegas Strip. (See Note 10 - Investments in Unconsolidated Affiliates.) The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Material intercompany accounts and transactions have been eliminated. Investments in 50% or less owned affiliated companies are accounted for under the equity method. On June 1, 1995, the Company completed its acquisition of Gold Strike Resorts, in which it acquired two hotel/casino facilities in Jean, Nevada, one in Henderson, Nevada, a 50% interest in a joint venture which owns Grand Victoria, a riverboat casino and land- based entertainment complex in Elgin, Illinois, and a 50% interest in a joint venture which owns the Monte Carlo, a major hotel/ casino on the Las Vegas Strip. On February 1, 1983, the Company purchased the Edgewater Hotel and Casino in Laughlin, Nevada and on November l, 1979, the Company purchased the Slots-A-Fun Casino in Las Vegas. The excess of the purchase price over the fair market value of the net assets acquired amounted to $394.5 million for the purchase of Gold Strike Resorts, $9.7 million for the purchase of the Edgewater and $4.2 million for the purchase of Slots-A-Fun, and each is being amortized over a period of 40 years. CAPITALIZED INTEREST The Company capitalizes interest costs associated with debt incurred in connection with major construction projects. When debt is not specifically identified as being incurred in connection with a construction project, the Company capitalizes interest on amounts expended on the project at the Company's average cost of borrowed money. The amounts capitalized during the years ended January 31, 1999, 1998 and 1997, were $45.5 million, $22.0 million and $16.0 million, respectively. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out and the average cost methods. CASH EQUIVALENTS At January 31, 1999 and 1998, cash equivalents (consisting principally of money market funds and instruments with initial maturities of three months or less) had a cost approximately equal to market value. INTEREST RATE SWAPS The Company, from time to time, uses interest rate swaps and similar financial instruments to assist in managing interest incurred on its long-term debt. The difference between amounts received and amounts paid under such agreements, as well as any costs or fees, is recorded as a reduction of, or addition to, interest expense as incurred over the life of the swap or similar financial instrument. DEPRECIATION AND AMORTIZATION Depreciation and amortization of property, equipment and leasehold interests are provided using the straight-line method over the following estimated useful lives: - ------------------------------------------------------------------------------ Buildings and improvements 15-45 years Equipment, furniture and fixtures 3-15 years Leasehold interests and improvements 5-16 years - -------------------------------------------------------------------------------
Accumulated amortization of the excess of the purchase price over the fair market value of the net assets of businesses acquired was $41.3 million and $31.1 million, as of January 31, 1999 and 1998, respectively. 42 REVENUES AND EXPENSES Revenues include the retail value of rooms, food and beverage furnished gratuitously to customers. Such amounts are then deducted as complimentary allowances. The costs of such rooms, food and beverage were included as casino expenses as follows: $58.7 million, $45.9 million and $37.9 million for the fiscal years ended January 31, 1999, 1998 and 1997, respectively. For the three years, approximately 80%-90% of such costs were for food and beverage with the balance for rooms. Casino revenues are the net difference between the sums received as winnings and the sums paid as losses. RECLASSIFICATIONS The financial statements for prior years reflect certain reclassifications, which have no effect on net income, to conform with classifications adopted in the current year. PREOPENING EXPENSES Preopening expenses consist principally of direct incremental personnel costs and advertising and marketing expenses. These costs are capitalized prior to the opening of the specific project and are charged to expense at the commencement of operations. For the year ended January 31, 1998, preopening expenses amounted to $3.4 million related to the opening of a hotel tower at Gold Strike Casino Resort in Tunica County, Mississippi. In accordance with a recent accounting pronouncement, preopening expenses incurred prior to January 31, 1999 ($33.8 million), on projects opening after that date, will be reflected as a cumulative effect of a change in accounting principle in the first quarter ending April 30, 1999. Preopening expenses incurred after January 31, 1999 on those projects will be expensed as incurred. 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 and affect the disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Note 2. Property, Equipment and Leasehold Interests Property, equipment and leasehold interests consist of the following:
January 31, (in thousands) 1999 1998 - ------------------------------------------------------------------------------ Land and land leases $ 362,661 $ 343,556 Buildings and improvements 1,851,511 1,798,417 Equipment, furniture and fixtures 653,058 618,011 Leasehold interests and improvements 11,192 10,803 - ------------------------------------------------------------------------------ 2,878,422 2,770,787 Less - accumulated depreciation and amortization (733,967) (624,205) - ------------------------------------------------------------------------------ 2,144,455 2,146,582 Construction in progress 856,367 320,266 - ------------------------------------------------------------------------------ $3,000,822 $2,466,848 ========== ==========
43 Note 3. Long-term Debt Long-term debt consists of the following:
January 31, (in thousands) 1999 1998 - ------------------------------------------------------------------------------ Amounts due under bank credit agreements at floating interest rates, weighted average of 6.0% $ 1,130,000 $ -- Amounts due under corporate debt program at floating interest rates, weighted average of 5.7% and 5.8% 50,000 981,310 9-1/4% Senior Subordinated Notes due 2005 275,000 -- 6.45% Senior Notes due 2006 (net of unamortized discount of $308 and $352) 199,692 199,648 7-5/8% Senior Subordinated Debentures due 2013 150,000 150,000 6-3/4% Senior Subordinated Notes due 2003 (net of unamortized discount of $71 and $87) 149,929 149,913 7.0% Debentures due 2036 (net of unamortized discount of $133 and $146) 149,867 149,854 6.70% Debentures due 2096 (net of unamortized discount of $231 and $279) 149,769 149,721 Other notes 8,373 11,443 ---------- ---------- 2,262,630 1,791,889 Less - current portion (3,481) (3,071) ----------- ----------- $2,259,149 $1,788,818 =========== ===========
The Company has established a corporate debt program whereby it can issue commercial paper or similar forms of short-term debt. Although the debt instruments issued under this program are short term in tenor, they are classified as long-term debt because (i) they are backed by long-term debt facilities (see below) and (ii) it is management's intention to continue to replace such borrowings on a rolling basis as various instruments come due and to have such borrowings outstanding for longer than one year. To the extent that the Company incurs debt under this program, it maintains an equivalent amount of credit available under its bank credit facility, discussed more fully below. In May 1997, the Company renegotiated its $1.5 billion unsecured credit facility, dated January 29, 1996. This agreement was replaced by a new $2 billion unsecured credit facility which matures on July 31, 2002 (the "Facility"). See Note 4 - Leasing Arrangements, for reductions in the availability under the credit facility due to certain operating lease transactions. The maturity date may be extended for an unlimited number of one-year periods with the consent of the bank group. The Facility contains financial covenants regarding senior and total debt and new venture capital expenditures and investments. The Facility is for general corporate purposes. The Company incurs commitment fees (currently 17.5 basis points) on the unused portion of the Facility. As of January 31, 1999, the Company had $1.1 billion of borrowings under the Facility. At such date, the Company also had $50 million issued under the corporate debt program thus reducing, by that amount, the credit available under the Facility for purposes other than repayment of such indebtedness. The fair value of the debt issued under the Facility and the corporate debt program approximates the carrying amount of the debt due to the short-term maturities of the individual components of the debt. In November 1998, the Company issued $275 million principal amount of 9-1/4% Senior Subordinated Notes due December 2005 (the "9-1/4% Notes"), with interest payable each June and December. The 9-1/4% Notes are redeemable at the option of the Company, in whole, at 100% of the principal amount plus a make-whole premium at any time prior to December 1, 2002. The 9-1/4% Notes are also redeemable at the option of the Company, in whole or in part, beginning December 1, 2002 at prices declining annually to 100% on or after December 1, 2004. The Company may also use the net proceeds of a public offering of equity securities to redeem up to 35% of the 9-1/4% Notes prior to December 1, 2001. The 9-1/4% Notes are not subject to any sinking fund requirements. The net proceeds from this offering were used to repay borrowings under the Company's credit facility. As of January 31, 1999, the estimated fair value of the 9-1/4% Notes was $277.1 million, based on their trading price. 44 In November 1996, the Company issued $150 million principal amount of 7.0% Debentures due November 2036 (the "7.0% Debentures"). The 7.0% Debentures may be redeemed at the option of the holder in November 2008. Also, in November 1996, the Company issued $150 million principal amount of 6.70% Debentures due November 2096 (the "6.70% Debentures"). The 6.70% Debentures may be redeemed at the option of the holder in November 2003. Both the 7.0% Debentures, which were discounted to $149.8 million, and the 6.70% Debentures, which were discounted to $149.7 million, have interest payable each May and November, are not redeemable by the Company prior to maturity and are not subject to any sinking fund requirements. The net proceeds from these offerings were used primarily to repay borrowings under the Company's corporate debt program. As of January 31, 1999, the estimated fair value of the 7.0% Debentures was $139.9 million and the estimated fair value of the 6.70% Debentures was $143.4 million, based on their trading prices. In February 1996, the Company issued $200 million principal amount of 6.45% Senior Notes due February 1, 2006 (the "6.45% Notes"), with interest payable each February and August. The 6.45% Notes, which were discounted to $199.6 million, are not redeemable prior to maturity and are not subject to any sinking fund requirements. The net proceeds from this offering were used primarily to repay borrowings under the Company's corporate debt program. As of January 31, 1999, the estimated fair value of the 6.45% Notes was $184.5 million, based on their trading price. In July 1993, the Company issued $150 million principal amount of 6-3/4% Senior Subordinated Notes (the "6-3/4% Notes") due July 2003 and $150 million principal amount of 7-5/8% Senior Subordinated Debentures (the "7-5/8% Debentures") due July 2013, with interest payable each July and January. The 6-3/4% Notes, which were discounted to $149.8 million, and the 7-5/8% Debentures are not redeemable prior to maturity and are not subject to any sinking fund requirements. The net proceeds from these offerings were used primarily to repay borrowings under the Company's corporate debt program. As of January 31, 1999, the estimated fair value of the 6-3/4% Notes was $142.1 million and the estimated fair value of the 7-5/8% Debentures was $133.5 million, based on their trading prices. The Company has a policy aimed at managing interest rate risk associated with its current and anticipated future borrowings. This policy enables the Company to use any combination of interest rate swaps, futures, options, caps and similar instruments. To the extent the Company employs such financial instruments pursuant to this policy, they are accounted for as hedging instruments. In order to qualify for hedge accounting, the underlying hedged item must expose the Company to risks associated with market fluctuations and the financial instrument used must be designated as a hedge and must reduce the Company's exposure to market fluctuation throughout the hedge period. If these criteria are not met, a change in the market value of the financial instrument is recognized as a gain or loss in the period of change. Otherwise, gains and losses are not recognized except to the extent that the financial instrument is disposed of prior to maturity. Net interest paid or received pursuant to the financial instrument is included as interest expense in the period. The Company has entered into various interest rate swaps, principally with its bank group, to manage interest expense, which is subject to fluctuation due to the variable-rate nature of the debt under the Company's corporate debt program. The Company has interest rate swap agreements under which it pays a fixed interest rate (weighted average of approximately 6.2%) and receives a variable interest rate (weighted average of approximately 5.3% at January 31, 1999) on $175 million notional amount of "initial" swaps, and pays a variable interest rate of approximately 5.6% at January 31, 1999, and receives a fixed interest rate of approximately 8.2% on $30 million notional amount of a "reversing" swap. The net effect of all such swaps resulted in additional interest expense due to an interest rate differential which, at January 31, 1999, was approximately 0.4% on the total notional amount of the swaps. Two of the initial swaps with a combined notional amount of $150 million provide that the swaps will terminate two business days after any date on which three-month LIBOR is set at or above 9.0% on or after October 15, 2000 for $100 million notional amount and on or after January 15, 2001 for $50 million notional amount. These swaps otherwise terminate in fiscal 2008. The remaining initial swap of $25 million terminates in fiscal 2000, while the reversing swap expires in fiscal 2002. 45 The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreements. However, the Company considers the risk of nonperformance by the counterparties to be minimal because the parties to the swaps and the reverse swap are predominantly members of the Company's bank group. If the Company had terminated all swaps as of January 31, 1999, it would have had to pay a net amount of approximately $8.8 million based on quoted market values from the various financial institutions holding the swaps. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 - Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). This statement establishes accounting and reporting standards for derivative financial instruments. The provisions of SFAS 133 require that a company recognize derivatives as either assets or liabilities on its balance sheet and that the instrument be valued at its fair value. The statement also defines the criteria and conditions which govern the recognition of subsequent changes in the fair value of the instrument as either balance sheet or income statement events. SFAS 133 is effective for fiscal years beginning after June 15, 1999. The Company does not expect the adoption of this pronouncement to materially impact its results of operations or financial position. As of January 31, 1999, under the Company's most restrictive loan covenants, the Company was restricted as to the purchase of its own capital stock in excess of approximately $495 million and was restricted from issuing additional debt in excess of approximately $43 million. Required annual principal payments as of January 31, 1999 are as follows:
Year ending January 31, (in thousands) ---------------------------------------------------------------- 2000 $ 3,481 2001 488 2002 262 2003 1,180,274 2004 150,216 Thereafter 927,909 ---------------------------------------------------------------- $2,262,630 ==========
Note 4. Leasing Arrangements On October 30, 1998, the Company entered into an operating lease agreement with a group of financial institutions (the "Lease Facility") pursuant to which it may lease up to $200 million of equipment. The lease term consists of an interim term commencing on the delivery date and ending June 30, 1999, plus a base term of two years. On January 28, 1999, the Company leased $100 million of equipment at Mandalay Bay pursuant to the Lease Facility. The lease payment is variable in nature. Based upon the current lease rate, the quarterly lease payment during the interim term is approximately $1.5 million, while the quarterly lease payment during the base term is approximately $4.6 million. The Company permanently reduced the commitment under its bank credit facility by the amount of the lease financing, thus reducing the commitment under the credit facility to $1.9 billion at January 31, 1999. Effective November 1, 1981, the Company entered into an 18-year lease for the premises on which the Silver City Casino in Las Vegas operates. This lease is accounted for as an operating lease. The current monthly base rent of $129,982 is subject to annual increases, calculated using a specified index with a cap based on a specified percentage of annual revenues. The lease also provides for profit participation. The profit participation is the amount by which 50% of defined net income exceeds the adjusted base rent. There was no profit participation rent due for the three years ended January 31, 1999. The lease terminates October 31, 1999. 46 The Company also leases various storage facilities and equipment and has various air space under operating leases expiring individually through 2032. A portion of the Circus Circus facility in Reno is built on leased land with various operating leases expiring through 2033. The following is a schedule of future minimum rental payments required as of January 31, 1999 under those operating leases that have lease terms in excess of one year:
Year ending January 31, (in thousands) ---------------------------------------------------------------- 2000 $16,284 2001 20,120 2002 9,053 2003 1,321 2004 1,014 Thereafter 6,732 ---------------------------------------------------------------- $54,524 =======
Rent expense for all leases accounted for as operating leases was as follows:
Year ended January 31, (in thousands) 1999 1998 1997 ----------------------------------------------------------------- Operating rent expense $3,454 $3,211 $3,869 ====== ====== ======
Note 5. Income Tax The components of the provision for income taxes are as follows:
Year ended January 31, (in thousands) 1999 1998 1997 -------------------------------------------------------------- Current Federal $34,810 $36,980 $52,695 State 510 491 670 ------- ------- ------- 35,320 37,471 53,365 ------- ------- ------- Deferred Federal 20,297 20,543 5,838 Foreign - - 3,927 ------- ------- ------- 20,297 20,543 9,765 ------- ------- ------- Total $55,617 $58,014 $63,130 ======= ======= =======
The Company has recognized a tax benefit of $38,000, $0.9 million and $8.0 million related to the exercise of stock options and warrants for the fiscal years ended January 31, 1999, 1998 and 1997, respectively. Such amounts reduce the current portion of taxes payable. 47 The cumulative balance of the deferred tax liability is due predominantly to temporary book/tax depreciation differences. The components of deferred income tax expense are as follows:
Year ended January 31, (in thousands) 1999 1998 1997 ---------------------------------------------------------------- Additional depreciation resulting from the use of accelerated methods for tax purposes and the straight-line method for financial statement purposes $11,811 $14,089 $7,493 Effect of writing off preopening expenses for financial statement purposes and amortizing over five years for tax purposes 1,062 1,281 1,253 Difference between book and tax basis of assets written off 497 327 (8,341) Difference between book and tax basis of investments in uncon- solidated affiliates 3,392 5,730 4,028 Foreign tax credits -- -- 5,075 Outstanding chips and tokens 1,501 (150) 1,083 Capitalized interest 2,993 1,432 -- Other, net (959) (2,166) (826) ------- ------- ------- $20,297 $20,543 $ 9,765 ======= ======= =======
The reconciliation of the difference between the federal statutory tax rate and the Company's effective tax rate is as follows:
Year ended January 31, 1999 1998 1997 ------------------------------------------------------------------ Federal statutory tax rate 35.0% 35.0% 35.0% Nondeductible goodwill 2.5 2.4 2.2 Nondeductible political contributions 2.0 .3 .5 Nondeductible compensation -- 2.2 -- Other, net -- (.7) .8 ---- ---- ---- Effective tax rate 39.5% 39.2% 38.5% ==== ==== ====
The income tax effects of temporary differences between financial and income tax reporting that gave rise to deferred income tax assets and liabilities at January 31, 1999 and 1998, under the provisions of Statement of Financial Accounting Standards No. 109, are as follows:
Year ended January 31, (in thousands) 1999 1998 ---------------------------------------------------------------- Deferred tax liabilities Property and equipment $176,592 $152,069 Investments in unconsolidated affiliates 18,697 19,766 Other 13,205 12,632 -------- -------- Gross deferred tax liabilities 208,494 184,467 -------- -------- Deferred tax assets Accrued vacation 5,045 5,107 Outstanding chips and tokens 558 2,060 Preopening expense, net of amortization 520 838 Other 10,027 8,399 -------- -------- Gross deferred tax assets 16,150 16,404 -------- -------- Net deferred tax liabilities $192,344 $168,063 ======== ========
48 Note 6. Employee Retirement Plans Approximately 37% of the Company's employees are covered by union-sponsored, collectively bargained, multi-employer, defined benefit pension plans. The Company contributed $10.2 million, $9.9 million and $9.3 million during the years ended January 31, 1999, 1998 and 1997, respectively, for such plans. These contributions are determined in accordance with the provisions of negotiated labor contracts and generally are based on the number of hours worked. The Company also has a profit sharing and investment plan covering primarily nonunion employees who are at least 21 years of age and have at least one year of service. The plan is a voluntary defined contribution plan and is subject to the provisions of the Employee Retirement Income Security Act of 1974. The plan allows for investments in the Company's common stock as one of the investment alternatives. The Company's contributions to this plan are determined based on employees' years of service and matching of employees' contributions, and were approximately $4.5 million, $4.2 million and $4.0 million in the years ended January 31, 1999, 1998 and 1997. Contributions are funded with cash. On June 18, 1998, the Company adopted a Supplemental Executive Retirement Plan ("SERP"). The SERP is a defined benefit plan pursuant to which the Company will pay supplemental pension benefits to certain key employees based upon the employees' years of service, compensation and SERP tier. As of January 31, 1999, no employees were enrolled in the SERP, and no benefits were accrued or funded. While the plan does not require formal funding, it is intended that the SERP will be funded through life insurance contracts on the key employees. Note 7. Stock Options The Company has various stock option plans for executive, managerial and supervisory personnel as well as the Company's outside directors and consultants. The plans permit grants of options, performance shares and restricted stock awards relating to the Company's common stock. The stock options are generally exercisable in one or more installments beginning not less than six months after the grant date. Summarized information for stock option plans is as follows:
Year ended January 31, ----------------------------------------------------- 1999 1998 1997 ---------------- ---------------- ---------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price -------- ----- -------- ----- -------- ----- Outstanding at beginning of year... 5,143,505 $23.94 7,183,560 $25.43 8,129,015 $23.88 Granted.............. 3,188,335 12.51 575,000 23.52 365,000 33.48 Exercised............ (16,500) 13.29 (341,005) 20.75 (1,188,105) 17.24 Canceled.............(4,418,666) 23.80 (2,274,050) 29.01 (122,350) 26.13 --------- --------- --------- Outstanding at end of year............ 3,896,674 $14.78 5,143,505 $23.94 7,183,560 $25.43 ========= ========= ========= Options exercisable at end of year..... 1,324,005 $21.21 3,340,498 $22.54 3,459,067 $23.52 Options available for grant at end of year............... 3,949,231 2,026,900 2,327,850
49 The following table summarizes information about stock options outstanding at January 31, 1999:
Options Outstanding Options ------------------- -------- Exercisable - ----------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Prices Outstanding Life (yrs) Price Exercisable Price - ---------------- ------------ ---------- -------- ----------- --------- $11.25 to $11.25 2,506,669 6.78 $11.25 - $ - 11.75 to 17.48 51,505 7.31 16.20 11,505 11.75 21.25 to 21.25 1,290,000 4.60 21.25 1,290,000 21.25 23.08 to 25.88 48,500 8.15 23.57 22,500 23.89 --------- --------- 3,896,674 6.08 $14.78 1,324,005 $21.21 ========= =========
In December 1998, replacement options to purchase an aggregate of approximately 2.6 million shares of the Company's common stock were awarded at an exercise price of $11.25 per share, subject to the surrender for cancellation of 3.9 million options with an average exercise price of $24.29. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123-Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123 is effective for fiscal years beginning after December 15, 1995 and provides, among other things, that companies may elect to account for employee stock options using a fair value method or continue to apply the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"). Under SFAS 123, all employee stock option grants are considered compensatory. Compensation cost is measured at the date of grant based on the estimated fair value of the options determined using an option pricing model. The model takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the stock, expected dividends on the stock and the risk-free interest rate over the expected life of the option. Under APB 25, generally only stock options that have intrinsic value at the date of grant are considered compensatory. Intrinsic value represents the excess, if any, of the market price of the stock at the grant date over the exercise price of the options. Under both methods, compensation cost is charged to earnings over the period the options become exercisable. The Company has elected to continue to account for employee stock options under APB 25. Accordingly, no compensation cost has been recognized. The following table discloses the Company's pro forma net income and net income per share assuming compensation cost for employee stock options had been determined consistent with SFAS 123. The table also discloses the weighted average assumptions used in estimating the fair value of each option grant on the date of grant using the Black-Scholes option pricing model, and the estimated weighted average fair value of the options granted. The model assumes no expected future dividend payments on the Company's common stock. 50
Year ended January 31, ---------------------- (dollars in thousands, except share data) 1999 1998 -------- -------- Net income - As reported............................. $ 85,198 $ 89,908 Pro forma............................... 79,722 82,334 Net income per share (basic) - As reported............................. $ 0.90 $ 0.95 Pro forma............................... 0.84 0.87 Net income per share (diluted) - As reported............................. $ 0.90 $ 0.94 Pro forma............................... 0.84 0.86 Weighted average assumptions - Expected stock price volatility......... 43.6% 37.7% Risk-free interest rate................. 5.0% 5.7% Expected option lives (years)........... 2.1 3.5 Estimated fair value of options granted. $ 3.50 $ 8.06
Because the accounting method prescribed by SFAS 123 has not been applied to options granted prior to January 1, 1995, the compensation cost reflected in the pro forma amounts shown above may not be representative of that to be expected in future years. Note 8. Stock Related Matters On July 14, 1994, the Company declared a dividend of one common stock purchase right (the "Rights") for each share of common stock outstanding at the close of business on August 15, 1994. Each Right entitles the holder to purchase from the Company one share of common stock at an exercise price of $125, subject to certain antidilution adjustments. The Rights become exercisable ten days after the earlier of an announcement that an individual or group has acquired 15% or more of the Company's outstanding common stock or the announcement of commencement of a tender offer for 15% or more of the Company's common stock. In the event the Rights become exercisable, each Right (except the Rights beneficially owned by the acquiring individual or group, which become void) would entitle the holder to purchase, for the exercise price, a number of shares of the Company's common stock having an aggregate current market value equal to two times the exercise price. The Rights expire August 15, 2004, and may be redeemed by the Company at a price of $.01 per Right any time prior to their expiration or the acquisition of 15% or more of the Company's common stock. The Rights should not interfere with any merger or other business combination approved by the Company's Board of Directors and are intended to cause substantial dilution to a person or group that attempts to acquire control of the Company on terms not approved by the Board of Directors. During the year ended January 31, 1999, the Company repurchased 4.5 million shares of its common stock at a cost of $51.6 million. In fiscal 1998, the Company repurchased 38,486 shares of its common stock at a cost of $1.3 million. During the year ended January 31, 1998, the Company elected to settle, for cash, outstanding put options on 2.0 million shares of its common stock and call options on 600,000 shares of common stock. The net cost to the Company was $9.4 million. The put and call options were entered into as a complement to the Company's overall share repurchase program. In connection with the acquisition of Gold Strike Resorts, New Way, Inc., a wholly owned subsidiary of the Company, issued 1,069,926 shares of $10.00 Cumulative Preferred Stock. Of the preferred shares issued, 866,640 were issued to another wholly owned subsidiary of the Company. During the year ended January 31, 1997, the Company purchased 9,864 shares of the preferred stock for $1.3 million. The price paid by the Company was based on the trading price of the Company's common stock prior to the transaction. On February 26, 1997, New Way, Inc. merged into another subsidiary of the Company and, therefore, the remaining preferred stock was converted into 754,666 shares of common stock. 51 The Company is authorized to issue up to 75 million shares of $.01 par value preferred stock in one or more series having such respective terms, rights and preferences as are designated by the Board of Directors. No preferred stock has yet been issued. Note 9. Earnings Per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 - Earnings Per Share ("SFAS 128"). SFAS 128 is effective for periods ending after December 15, 1997 and replaces earnings per share as previously reported with "basic", or undiluted earnings per share, and "diluted" earnings per share. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period, while diluted earnings per share reflects the additional dilution for all potentially dilutive securities, such as stock options. The Company adopted the provisions of SFAS 128 for its fiscal year ended January 31, 1998, and all previously reported earnings per share amounts have been restated. The table below reconciles weighted average shares outstanding used to calculate basic earnings per share with the weighted average shares outstanding used to calculate diluted earnings per share. There were no reconciling items for net income.
Year ended January 31, ---------------------- (in thousands, except per share data) 1999 1998 1997 - --------------------------------------------------------------- Net income $85,198 $89,908 $100,733 ======= ======= ======== Weighted average shares out- standing used in computation of basic earnings per share 94,601 94,943 101,896 Stock options 70 309 1,405 Subsidiary preferred stock - - 783 ------- ------- -------- Weighted average shares out- standing used in computation of diluted earnings per share 94,671 95,252 104,084 ======= ======= ======== Basic earnings per share $0.90 $0.95 $0.99 ======= ======= ======== Diluted earnings per share $0.90 $0.94 $0.97 ======= ======= ========
Note 10. Investments in Unconsolidated Affiliates The Company has investments in unconsolidated affiliates that are accounted for under the equity method. Under the equity method, original investments are recorded at cost and adjusted by the Company's share of earnings, losses and distributions of these companies. The investment balance also includes interest capitalized during construction. Investments in unconsolidated affiliates consist of the following:
January 31, (in thousands) 1999 1998 - ------------------------------------------------------------------ Circus and Eldorado Joint Venture (50%) (Silver Legacy, Reno, Nevada) $ 74,871 $ 64,407 Elgin Riverboat Resort (50%) (Grand Victoria, Elgin, Illinois) 42,461 44,759 Victoria Partners (50%) (Monte Carlo, Las Vegas, Nevada) 141,658 139,958 Detroit Entertainment (45%) (Proposed Hotel/Casino, Detroit, Michigan) 12,717 6,268 -------- -------- $271,707 $255,392 ======== ========
52 The Company's unconsolidated affiliates operate with fiscal years ending on December 31. Summarized balance sheet information of the unconsolidated affiliates as of December 31, 1998 and 1997 is as follows:
(in thousands) 1998 1997 - ----------------------------------------------------------------- Current assets $ 81,539 $ 85,437 Property and other assets, net 747,790 763,479 Current liabilities 74,177 76,496 Long-term debt and other liabilities 283,006 329,275 Equity 472,146 443,145
Summarized results of operations of the unconsolidated affiliates for the years ended December 31, 1998 and 1997 are as follows:
(in thousands) 1998 1997 - ---------------------------------------------------------------- Revenues $676,268 $661,884 Expenses 518,169 473,357 Operating income 158,099 188,527 Net income 134,405 157,872
Note 11. Abandonment Losses During fiscal 1997, the Company wrote off $48.3 million of various assets. These write-offs included the special-effects films at Luxor ($12.0 million) which were replaced by IMAX special-format filmed attractions, structural elements being demolished as part of Luxor's remodeling ($12.1 million) and fixtures and equipment at Circus Circus-Las Vegas, Excalibur and Gold Strike-Tunica being replaced in the course of upgrading and expanding those properties ($16.0 million). The Company also wrote off $8.2 million of costs associated with the demolition of a people mover at Circus Circus-Las Vegas and the removal of the Nile River at Luxor. Note 12. Commitments and Contingent Liabilities In July 1995, Silver Legacy, a 50/50 joint venture with the Eldorado Hotel/Casino, opened in downtown Reno, Nevada. As a condition to the joint venture's $230 million bank credit agreement Circus is obligated under a make-well agreement to make additional contributions to the joint venture as may be necessary to maintain a minimum coverage ratio (as defined). The Company's latest resort, Mandalay Bay, is a 43-story, hotel/casino resort in Las Vegas, Nevada that includes approximately 3,700 rooms and 135,000 square feet of gaming space and is situated on approximately 60 acres of land just south of Luxor. Mandalay Bay's attractions include an 11-acre tropical lagoon featuring a sand-and-surf beach, a three-quarter-mile lazy river ride, a 30,000-square-foot spa and other entertainment attractions. Inside, Mandalay Bay offers internationally renowned restaurants; a House of Blues nightclub and restaurant, including its signature Foundation Room sited on Mandalay Bay's rooftop; and 100 "music-themed" hotel rooms in Mandalay Bay's tower. Four Seasons operates approximately 400 rooms at Mandalay Bay, providing Las Vegas visitors with a luxury "five star" hospitality experience. The Four Seasons Hotel, which is owned by the Company and managed by Four Seasons, represents the first step pursuant to the Company's cooperative effort with Four Seasons to identify strategic opportunities for development of hotel and casino properties worldwide. The total cost of Mandalay Bay, including the Four Seasons Hotel and including leased equipment, but excluding land, capitalized interest and preopening expenses, was approximately $900 million; as of January 31, 1999, $784.8 million of these costs had been incurred. During construction, Mandalay Bay's hotel tower experienced settling in excess of the level contemplated in the building's original design. The settling was greater in some portions of the structure than others. The Company retained geotechnical, structural engineering and foundation consultants who evaluated the situation and recommended remedial measures, which have been completed. These remedial measures will be evaluated over a period of time to determine if any further measures will be required. 53 Mandalay Bay is the latest phase of the Company's development of more than 230 acres of land it owns at the south end of the Las Vegas Strip. This parcel of land runs from Tropicana Avenue south approximately one mile to Russell Road ("Masterplan Mile"). As part of its development plan for Masterplan Mile, the Company has completed construction of a 125,000-square-foot convention facility, which opened March 12, and a 12,000-seat arena, which opened April 10. These properties, which represent core components of Masterplan Mile, will be cross-marketed to guests at the Company's existing and future hotel-casinos within Masterplan Mile. The total estimated cost of the convention facility and arena, excluding land, capitalized interest and preopening expenses, is approximately $115 million and as of January 31, 1999, $73.9 million in costs had been incurred for these facilities. The Company is nearing completion of a monorail system which will link the Company's resorts on Masterplan Mile. Furthermore, the Company is planning a "Sea of Predators" aquarium exhibit, which will likewise represent a core component of Masterplan Mile. The Sea of Predators exhibit is expected to open in early 2000. The cost of these additional Masterplan Mile core components, excluding land, capitalized interest and preopening expenses, is estimated at approximately $75 million, of which $19.9 million had been incurred as of January 31, 1999. The Company may add other core components to its development plan for Masterplan Mile in the future. The Company has funded the above projects from internal cash flows, project-specific financing or its credit facility, and anticipates that future funding for such projects will be from these sources. The Company is a defendant in various pending litigation. In management's opinion, the ultimate outcome of such litigation will not have a material effect on the results of operations or the financial position of the Company. 54 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Circus Circus Enterprises, Inc.: We have audited the accompanying consolidated balance sheets of Circus Circus Enterprises, Inc. (a Nevada corporation) and subsidiaries as of January 31, 1999 and 1998 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended January 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Circus Circus Enterprises, Inc. and subsidiaries as of January 31, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended January 31, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Las Vegas, Nevada February 22, 1999 Management's Report on Financial Statements The Company is responsible for preparing the consolidated financial statements and related information appearing in this report. Management believes that the financial statements present fairly its financial position, results of operations and cash flows in conformity with generally accepted accounting principles. In preparing its financial statements, the Company is required to include amounts based on estimates and judgments which management believes are reasonable under the circumstances. The Company maintains accounting and other control systems designed to provide reasonable assurance that financial records are reliable for purposes of preparing financial statements and that assets are properly accounted for and safeguarded. Compliance with these systems and controls is reviewed through a program of audits by an internal audit staff. The Board of Directors fulfills its responsibility for the Company's financial statements through its audit committee, which is composed solely of directors who are not Company officers or employees. The audit committee meets from time to time with the independent public accountants, management and the internal auditors. The independent public accountants have direct access to the audit committee, with or without the presence of management representatives. 55 EX-21 5 EXHIBIT 21 EXHIBIT 21 Subsidiaries of the Company Set forth below is information concerning the Company's (CCEI) subsidiaries and their respective ownership.
Jurisdiction Percentage Name and Form of Ownership - ------------------------------------------------------------------------------- Circus Circus Casinos, Inc.(1) Nevada corporation 100% CCEI Slots-A-Fun, Inc.(2) Nevada corporation 100% CCEI Edgewater Hotel Corporation(3) Nevada corporation 100% CCEI Colorado Belle Corp.(4) Nevada corporation 100% CCEI New Castle Corp.(5) Nevada corporation 100% CCEI Ramparts, Inc.(6) Nevada corporation 100% CCEI Circus Circus Mississippi, Inc.(7) Mississippi corporation 100% CCEI Pinkless, Inc. Nevada corporation 100% CCEI Mandalay Corp. (8) Nevada corporation 100% CCEI Circus Circus Development Corp. Nevada corporation 100% CCEI Ramparts International ("RI") Nevada corporation 100% CCEI Galleon, Inc.("GI") Nevada corporation 100% CCEI M.S.E. Investments, Incorporated ("MSE") Nevada corporation 100% CCEI Last Chance Investments, Incorporated ("LCI") Nevada corporation 100% CCEI Goldstrike Investments, Incorporated ("GSI") Nevada corporation 100% CCEI Diamond Gold, Inc. ("DGI") Nevada corporation 100% CCEI Oasis Development Company, Inc. ("ODC") Nevada corporation 100% CCEI Goldstrike Finance Company, Inc. Nevada corporation 100% CCEI Railroad Pass Investment Group ("RPIG")(9) Nevada partnership 70% MSE 20% LCI 10% GSI Jean Development Company ("JDC")(10) Nevada partnership 40% MSE 40% LCI 20% GSI Jean Development West ("JDW")(11) Nevada partnership 40% MSE 40% LCI 12% GSI 8% DGI Nevada Landing Partnership ("NLP") Illinois partnership 40% MSE 40% LSI 5% GSI 15% DGI Gold Strike L.V. ("GSLV") Nevada partnership 52% MSE 39% LCI 6.5% GSI 2.5% DGI
Jean Development North ("JDN") Nevada partnership 47.5% MSE 38.5% LCI 5% GSI 9% DGI Lakeview Gaming Partnerships Joint Venture Nevada partnership 25% RPIG 25% JDC 25% JDN 25% JDW Goldstrike Resorts, Inc. Nevada corporation 100% CCEI Gold Strike Fuel Company Nevada partnership 16 2/3% MSE 16 2/3% LCI 16 2/3% GSI 50% ODC Jean Fuel Company West Nevada partnership 40% MSE 40% LCI 12% GSI 8% ODC Goldstrike Aviation, Incorporated Nevada corporation 100% CCEI Circus Circus Louisiana, Inc. ("CCLI") Louisiana corporation 100% CCEI Circus Circus Michigan, Inc.("CCM") Michigan corporation 100% CCEI Circus Australia Casino, Inc. Nevada corporation 100% CCEI Circus Circus New Jersey, Inc. New Jersey corporation 100% CCEI Pine Hills Development II ("PHDII") Mississippi partnership 58% MSE 32% LCI 7.5% GSI 2.5% DGI Scentsational, Inc. Nevada corporation 100% CCEI Other Interests: Darling Casino Limited Australian public company limited by shares 50% CCEI Circus and Eldorado Joint Venture Nevada partnership 50% GI Detroit Entertainment, L.L.C. Michigan limited liability company 45% CCM Victoria Partners Nevada partnership 50% GSLV Elgin Riverboat Resort Illinois partnership 50% NLP Pine Hills Development Mississippi partnership 90% PHDII Circus Circus Leasing, Inc. Nevada corporation 78.7% CCEI New Dirt, Inc. Nevada corporation 100% CCEI Ramparts International PTE Ltd. Singapore corporation 100% RI Time Share Operating Co. Nevada corporation 100% CCEI
- ------------ (1) Doing business as Circus Circus Hotel & Casino-Las Vegas, Circus Circus Hotel & Casino-Reno and Silver City Casino. (2) Doing business as Slots-A-Fun Casino. (3) Doing business as Edgewater Hotel & Casino. (4) Doing business as Colorado Belle Hotel & Casino. (5) Doing business as Excalibur Hotel & Casino. (6) Doing business as Luxor Hotel & Casino. (7) Doing business as Gold Strike Casino Resort. (8) Doing business as Mandalay Bay Resort & Casino (9) Doing business as Railroad Pass Hotel & Casino. (10) Doing business as Gold Strike Hotel and Gambling Hall. (11) Doing business as Nevada Landing Hotel & Casino. EX-23 6 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 22, 1999 included (or incorporated by reference) in Circus Circus Enterprises, Inc.'s Annual Report on Form 10-K for the year ended January 31, 1999 into the Company's previously filed Form S-8 Registration Statements File Nos. 2-91950, 2-93578, 33-18278, 33-29014, 33-39215, 33-56420, 33-53303 and 333-51073 and to the Company's previously filed Form S-3 Registration Statement File No. 333-60975. ARTHUR ANDERSEN LLP Las Vegas, Nevada April 29, 1999 53 EX-27 7 EXHIBIT 27
5 1,000 YEAR JAN-31-1999 JAN-31-1999 81,389 0 26,136 0 24,270 161,278 3,734,789 733,967 3,869,707 231,573 2,259,149 0 0 1,894 1,155,734 3,869,707 1,479,780 1,479,780 0 1,204,537 32,464 0 101,964 140,815 55,617 85,198 0 0 0 85,198 .90 .90
-----END PRIVACY-ENHANCED MESSAGE-----