-----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, TRZMcuI0lBAagnWTnBd28r47td/TDjYhXe/z2lwqvaUVVKu+zA0Pt8UvWOhe9zLw 8EgXTVrU7/xHA0Z0490iHw== 0001047469-99-024101.txt : 19990615 0001047469-99-024101.hdr.sgml : 19990615 ACCESSION NUMBER: 0001047469-99-024101 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990614 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-Q SEC ACT: SEC FILE NUMBER: 001-08570 FILM NUMBER: 99645981 BUSINESS ADDRESS: STREET 1: 2880 LAS VEGAS BLVD S CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 7027340410 10-Q 1 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------ FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 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 incorporation or organization) identification no.) 3950 LAS VEGAS BOULEVARD SOUTH, LAS VEGAS, NEVADA 89119 (Address of principal executive offices) (702) 632-6700 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) ------------------------ 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT MAY 31, 1999 Common Stock, $.01 2/3 par value 90,858,088 shares - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES FORM 10-Q INDEX
PAGE NO. -------- Part I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets at April 30, 1999 (Unaudited) and January 31, 1999.......................... 3-4 Condensed Consolidated Statements of Income (Unaudited) for the Three Months Ended April 30, 1999 and 1998............ 5-6 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended April 30, 1999 and 1998........ 7 Notes to Condensed Consolidated Financial Statements (Unaudited)............................................... 8-15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 16-22 Item 3. Quantitative and Qualitative Disclosures About Market Risks..................................................... 22 Part II. OTHER INFORMATION........................................... 23
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
APRIL 30, JANUARY 31, 1999 1999 --------------- --------------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents............. $ 90,558 $ 81,389 Receivables........................... 56,771 26,136 Inventories........................... 27,402 24,270 Prepaid expenses and other............ 31,027 29,483 --------------- --------------- Total current assets............ 205,758 161,278 PROPERTY, EQUIPMENT AND LEASEHOLD INTERESTS, at cost, less accumulated depreciation and amortization of $772,799 and $733,967, respectively... 3,173,544 3,000,822 EXCESS OF PURCHASE PRICE OVER FAIR MARKET value of net assets acquired, net................................... 364,511 367,076 NOTES RECEIVABLE........................ 17,758 10,895 INVESTMENTS IN UNCONSOLIDATED AFFILIATES............................ 265,155 271,707 OTHER ASSETS............................ 42,257 57,929 --------------- --------------- Total Assets.................... $ 4,068,983 $ 3,869,707 --------------- --------------- --------------- ---------------
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) LIABILITIES AND STOCKHOLDERS' EQUITY
APRIL 30, JANUARY 31, 1999 1999 --------------- --------------- (UNAUDITED) CURRENT LIABILITIES: Current portion of long-term debt..... $ 3,001 $ 3,481 Accounts payable--trade............... 32,361 23,745 Accounts payable--construction........ 50,809 75,030 Accrued liabilities................... 153,362 129,317 --------------- --------------- Total current liabilities....... 239,533 231,573 LONG-TERM DEBT.......................... 2,463,836 2,259,149 DEFERRED INCOME TAX..................... 198,386 200,376 OTHER LONG-TERM LIABILITIES............. 21,578 20,981 --------------- --------------- Total liabilities............... 2,923,333 2,712,079 STOCKHOLDERS' EQUITY: Common stock, $.01 2/3 par value Authorized--450,000,000 shares Issued--113,634,013 and 113,622,508 shares............................ 1,894 1,894 Preferred stock, $.01 par value Authorized--75,000,000 shares....... -- -- Additional paid-in capital............ 559,070 558,935 Retained earnings..................... 1,154,614 1,159,469 Treasury stock (23,375,925 and 22,959,425 shares), at cost......... (569,928) (562,670) --------------- --------------- Total stockholders' equity...... 1,145,650 1,157,628 --------------- --------------- Total Liabilities and Stockholders' Equity.......... $ 4,068,983 $ 3,869,707 --------------- --------------- --------------- ---------------
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED APRIL 30, ------------------------ 1999 1998 ----------- ----------- REVENUES:............................................. Casino.............................................. $ 216,815 $ 168,417 Rooms............................................... 130,610 87,799 Food and beverage................................... 81,355 60,089 Other............................................... 50,953 37,984 Earnings of unconsolidated affiliates............... 21,994 22,051 ----------- ----------- 501,727 376,340 Less-complimentary allowances....................... (30,468) (19,378) ----------- ----------- 471,259 356,962 ----------- ----------- COSTS AND EXPENSES: Casino.............................................. 110,519 84,069 Rooms............................................... 41,965 31,422 Food and beverage................................... 64,134 51,094 Other operating expenses............................ 34,599 24,097 General and administrative.......................... 73,308 65,127 Depreciation and amortization....................... 41,090 33,966 Operating lease rent................................ 2,415 -- Preopening expenses................................. 33,610 -- ----------- ----------- 401,640 289,775 ----------- ----------- OPERATING PROFIT BEFORE CORPORATE EXPENSE............. 69,619 67,187 CORPORATE EXPENSE..................................... 7,120 6,128 ----------- ----------- INCOME FROM OPERATIONS................................ 62,499 61,059 ----------- ----------- OTHER INCOME (EXPENSE): Interest, dividend and other income................. 522 920 Interest income and guarantee fees from unconsolidated affiliate.......................... 715 798 Interest expense.................................... (33,507) (23,823) Interest expense from unconsolidated affiliates..... (2,802) (3,160) ----------- ----------- (35,072) (25,265) ----------- ----------- INCOME BEFORE PROVISION FOR INCOME TAX................ 27,427 35,794 Provision for income tax............................ 10,288 14,187 ----------- ----------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE................................ 17,139 21,607 Cumulative effect of change in accounting principle for preopening expenses, net of tax benefit of $11,843........................................... (21,994) -- ----------- ----------- NET (LOSS) INCOME..................................... $ (4,855) $ 21,607 ----------- ----------- ----------- -----------
5 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED APRIL 30, ------------------------ 1999 1998 ----------- ----------- BASIC EARNINGS PER SHARE Income before cumulative effect of change in accounting principle.............................. $ 0.19 $ 0.23 ----------- ----------- ----------- ----------- Cumulative effect of change in accounting principle......................................... $ (0.24) $ -- ----------- ----------- ----------- ----------- Net (loss) income per share......................... $ (0.05) $ 0.23 ----------- ----------- ----------- ----------- DILUTED EARNINGS PER SHARE Income before cumulative effect of change in accounting principle.............................. $ 0.19 $ 0.23 ----------- ----------- ----------- ----------- Cumulative effect of change in accounting principle......................................... $ (0.24) $ -- ----------- ----------- ----------- ----------- Net (loss) income per share......................... $ (0.05) $ 0.23 ----------- ----------- ----------- ----------- Average shares outstanding--basic................... 90,540,287 95,122,726 ----------- ----------- ----------- ----------- Average shares outstanding--diluted................. 91,583,038 95,294,160 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED APRIL 30, -------------------- 1999 1998 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income....................................... $ (4,855) $ 21,607 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization......................... 43,262 35,983 Gain on disposition of fixed assets................... (19) (422) (Increase) decrease in other current assets........... (35,311) 12,744 Decrease in other noncurrent assets................... 15,703 671 Increase in interest payable.......................... 13,658 5,060 Increase in other current liabilities................. 19,004 7,314 Increase (decrease) in deferred income tax............ (1,990) 1,811 Decrease in other noncurrent liabilities.............. (16) (16) Unconsolidated affiliates' distributions in excess of earnings (earnings in excess of distributions)...... 8,602 (9,050) --------- --------- Total adjustments..................................... 62,893 54,095 --------- --------- Net cash provided by operating activities......... 58,038 75,702 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures.................................... (213,547) (184,379) Increase (decrease) in construction payable............. (24,221) 10,969 Increase in investments in unconsolidated affiliates.... (2,155) (1,510) Proceeds from sale of equipment and other assets........ 251 528 (Increase) decrease in notes receivable................. (6,863) 61 --------- --------- Net cash used in investing activities............. (246,535) (174,331) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net effect on cash of issuances and payments of debt with original maturities of three months or less...... 204,515 251,434 Issuances of debt with original maturities in excess of three months.......................................... 480 21,736 Principal payments of debt with original maturities in excess of three months............................. (819) (159,015) Exercise of stock options and warrants.................. 135 219 Purchases of treasury stock............................. (7,258) -- Other................................................... 613 (720) --------- --------- Net cash provided by financing activities......... 197,666 113,654 --------- --------- Net increase in cash and cash equivalents................. 9,169 15,025 Cash and cash equivalents at beginning of period.......... 81,389 58,631 --------- --------- Cash and cash equivalents at end of period................ $ 90,558 $ 73,656 --------- --------- --------- --------- SUPPLEMENTAL CASH FLOW DISCLOSURES Cash paid during the period for: Interest (net of amount capitalized).................... $ 18,946 $ 18,125 Income tax.............................................. $ 110 $ 120
The accompanying notes are an integral part of these condensed consolidated financial statements. 7 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (ALL INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998 IS UNAUDITED.) (1) 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 a hotel and dockside casino 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. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Material intercompany accounts and transactions have been eliminated. The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair statement of results for the interim periods have been made. The results for the three month period are not necessarily indicative of results to be expected for the full fiscal year. Certain reclassifications have been made to the financial statements for the three months ended April 30, 1998 to conform to the financial statement presentation for the three months ended April 30, 1999. These reclassifications have no effect on net income. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended January 31, 1999. 8 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998 IS UNAUDITED.) (2) LONG-TERM DEBT-- Long-term debt consists of the following (in thousands):
APRIL 30, JANUARY 31, 1999 1999 --------------- --------------- (UNAUDITED) Amounts due under bank credit agreement at floating interest rates, weighted average of 5.8% and 6.0%.............. $ 1,335,000 $ 1,130,000 Amounts due under corporate debt program at floating interest rates, weighted average of 5.6% and 5.7%.............. 50,000 50,000 9 1/4% Senior Subordinated Notes due 2005.................................. 275,000 275,000 6.45% Senior Notes due 2006 (net of unamortized discount of $297 and $308)................................. 199,703 199,692 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 $67 and $71).......................... 149,933 149,929 7.0% Debentures due 2036 (net of unamortized discount of $129 and $133)................................. 149,871 149,867 6.70% Debentures due 2096 (net of unamortized discount of $219 and $231)................................. 149,781 149,769 Other notes............................. 7,549 8,373 --------------- --------------- 2,466,837 2,262,630 Less--current portion................... (3,001) (3,481) --------------- --------------- $ 2,463,836 $ 2,259,149 --------------- --------------- --------------- ---------------
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 a long-term debt facility (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 must maintain 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 $2.0 billion unsecured credit facility which matures on July 31, 2002 (the "Facility"). 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 April 30, 1999, the Company had $1.3 billion outstanding 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. 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% 9 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998 IS UNAUDITED.) (2) LONG-TERM DEBT--(CONTINUED) 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. A portion of the 9 1/4% Notes are also redeemable at the option of the Company prior to December 1, 2001 with the proceeds of a public offering of equity securities. The 9 1/4% Notes are also redeemable at the option of the Company beginning December 1, 2002 at prices declining annually to 100% on or after December 2004. 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. 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. 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. 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. 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 10 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998 IS UNAUDITED.) (2) LONG-TERM DEBT--(CONTINUED) fixed interest rate (weighted average of approximately 6.2%) and receives a variable interest rate (weighted average of approximately 5.0% at April 30, 1999) on $175 million notional amount of "initial" swaps, and pays a variable interest rate of approximately 5.1% at April 30, 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 April 30, 1999, was approximately 0.6% 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% 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. As of April 30, 1999, under its most restrictive loan covenants, the Company was restricted as to the purchase of its own capital stock in excess of $403 million and was restricted from issuing additional debt in excess of approximately $620 million. (3) LEASE FACILITY-- 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. An additional $75 million was drawn under the Lease Facility in April and May 1999, thus further reducing the commitment under the bank credit facility to $1.825 billion. (4) 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 relating to the Company's common stock and one of the plans also permits grants of the Company's common stock as performance share and restricted stock awards. The only awards granted pursuant to such plans through April 30, 1999 are stock options, which are generally exercisable in one or more installments beginning not less than six months after the grant date. 11 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998 IS UNAUDITED.) (4) STOCK OPTIONS--(CONTINUED) Summarized information for stock options granted pursuant to the Company's plans is as follows:
THREE MONTHS ENDED APRIL 30, 1999 ------------------- WEIGHTED AVERAGE EXERCISE OPTIONS PRICE --------- -------- Outstanding at beginning of period......................... 3,896,674 $14.78 Granted.................................................... 2,989,833 13.10 Exercised.................................................. (11,505) 11.75 Cancelled.................................................. (4,500) 25.88 --------- -------- Outstanding at end of period............................... 6,870,502 $14.06 --------- -------- --------- -------- Options exercisable at end of period....................... 1,308,000 $21.28 Options available for grant at end of period............. 2,063,898
(5) 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 generally 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 quarter ended April 30, 1999, the Company repurchased 416,500 shares of its common stock at a cost of $7.3 million. 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 such preferred stock has yet been issued. (6) 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 12 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998 IS UNAUDITED.) (6) EARNINGS PER SHARE--(CONTINUED) 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 has adopted the provisions of SFAS 128 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 shares outstanding used to calculate diluted earnings per share. There were no reconciling items for net income.
THREE MONTHS ENDED APRIL 30, (IN THOUSANDS, EXCEPT EARNINGS PER SHARE) 1999 1998 - -------------------------------------------------------------- ------- ------- Net income (loss)............................................. $(4,855) $21,607 ------- ------- ------- ------- Weighted average shares outstanding used in computation of basic earnings per share.................................... 90,540 95,123 Stock options................................................. 1,043 171 ------- ------- Weighted average shares outstanding used in computation of diluted earnings per share.................................. 91,583 95,294 ------- ------- ------- ------- Basic earnings per share...................................... $ (.05) $ 0.23 ------- ------- ------- ------- Diluted earnings per share.................................... $ (.05) $ 0.23 ------- ------- ------- -------
(7) INVESTMENTS IN UNCONSOLIDATED AFFILIATES-- The Company has investments in unconsolidated affiliates that are accounted for under the equity method. Using the equity method, original investments are recorded at cost and adjusted by the Company's share of earnings or losses of these entities. The investment balance also includes interest capitalized during construction (net of amortization). Investments in unconsolidated affiliates consist of the following (in thousands):
APRIL 30, JANUARY 31, 1999 1999 --------------- --------------- (UNAUDITED) Circus and Eldorado Joint Venture (50%) (Silver Legacy, Reno, Nevada)......... $ 76,209 $ 74,871 Elgin Riverboat Resort (50%) (Grand Victoria, Elgin, Illinois)............ 39,137 42,461 Victoria Partners (50%) (Monte Carlo, Las Vegas, Nevada).................... 141,094 141,658 Detroit Entertainment (45%) (Proposed Hotel/Casino, Detroit, Michigan)...... 8,715 12,717 --------------- --------------- $ 265,155 $ 271,707 --------------- --------------- --------------- ---------------
13 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998 IS UNAUDITED.) (7) INVESTMENTS IN UNCONSOLIDATED AFFILIATES--(CONTINUED) The above unconsolidated affiliates operate with fiscal years ending on December 31. Summarized results of operations of the unconsolidated affiliates are as follows (unaudited, in thousands):
THREE MONTHS ENDED MARCH 31, ------------------ 1999 1998 -------- -------- Revenues.................................................... $174,359 $163,513 Expenses.................................................... 145,933 125,132 Operating income............................................ 28,426 38,381 Net income.................................................. 23,186 32,015
Included in the above are revenues of the Grand Victoria of $67,581 and $64,994 for the three months ended March 31, 1999 and 1998. The property's operating margin during those periods was 24% and 27%, respectively. (8) COMMITMENTS AND CONTINGENT LIABILITIES-- 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 Company has issued letters of credit in an aggregate amount of $50 million for the benefit of Bank of America to back letters of credit in an aggregate amount of $50 milllion issued to secure payments of principle and interest on bonds issued by the Economic Development Corporation of the City of Detroit, the proceeds of which will be used to finance costs related to the acquisition of and other activities on the land on which the permanent casinos will be built. 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 $150 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. 14 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998 IS UNAUDITED.) (8) COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED) 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 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. (9) RECENTLY ISSUED ACCOUNTING STANDARDS Effective February 1, 1999, the Company adopted Statement of Position No. 98-5 ("SOP 98-5") "Reporting on the Costs of Start-up Activities." SOP 98-5 requires that the costs of all start-up activities, as defined, be expensed as incurred. The Company previously capitalized preopening costs prior to the opening of a specific project and charged them to expense at the commencement of operations. As required by SOP 98-5, the Company wrote off $67.4 million in preopening costs associated with Mandalay Bay and the development of its Detroit and timeshare projects. This amount includes $33.6 million of costs incurred during the first quarter of fiscal 2000, and $33.8 million of costs incurred in the previous fiscal year. These previously capitalized costs are reflected, net of income tax benefit of $11.8 million, as a cumulative effect of a change in accounting principle for preopening expenses in the condensed consolidated statements of income. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative financial instruments. The provisions of SFAS No. 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 No. 133 is effective for fiscal years beginning after June 15, 2000. The Company does not expect the adoption of this pronouncement to materially impact its results of operations or financial position. 15 CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) RESULTS OF OPERATIONS EARNINGS PER SHARE For the quarter ended April 30, 1999, the Company reported a net loss of $4.9 million, or $.05 per share, versus net income of $21.6 million, or $.23 per share, in the prior year. Earnings per share before the write-off of $67.4 million of preopening expenses relating to Mandalay Bay, the Four Seasons at Mandalay Bay, the Company's project in Detroit and its timeshare project in Las Vegas were $.43 versus $.23 last year. This increase in earnings was due primarily to the opening of Mandalay Bay on March 2, 1999 and improved operating results at the Company's core Las Vegas properties. The preopening expenses mentioned above were reflected in two categories. Those expenses incurred prior to January 31, 1999 were treated as a cumulative effect of a change in accounting principle and those incurred subsequent January 31, 1999 were expensed as incurred. See Note 9 of Notes to Condensed Consolidated Financial Statements for a further explanation of the accounting for preopening expenses. REVENUES Revenues for the Company increased $114.3 million, or 32%, versus the prior year. All of the Company's wholly owned properties produced higher overall revenues during the first quarter. The overall increase is primarily attributable to four properties. Mandalay Bay opened on March 2, 1999 and generated $80.5 million of revenues in its 59 days of operation. Gold Strike-Tunica's revenues increased $9.2 million, or 37%, due primarily to operation of the new 1,100-room hotel tower for the entire quarter in the current year versus only a partial quarter a year ago. Increases in room and occupancy rates drove up overall revenue at Circus Circus-Las Vegas by $6.6 million, or 12%, and at Luxor by $6.5 million, or 8%. INCOME FROM OPERATIONS (EXCLUDING PREOPENING EXPENSES AND OTHER NONRECURRING ITEMS) For the quarter ended April 30, 1999, income from operations rose $35.1 million, or 57%, from the prior year. The Company's composite operating margin was 20.4% versus 17.1% in the prior year quarter. A discussion of operating results by market follows. LAS VEGAS The Company's Las Vegas properties posted an overall increase in operating income of $28.1 million, or 63%. The largest contributor to the increase was Mandalay Bay, which generated $11.7 million of operating income in approximately two months of operation. All of the existing properties produced significant increases in operating income led by Luxor, whose operating income rose $7.7 million, or 63%. The increase at Luxor was due primarily to a $14 increase in the revenue per available room, offset by a 5% decrease in casino revenue that was due primarily to an unusually low hold percentage on table games in the month of February. Circus Circus-Las Vegas increased $5.6 million, or 94%, due to a combination of higher room rates and a 4% increase in casino revenues. Excalibur increased $2.1 million, or 12%, due to a combination of higher room rates, higher hotel occupancy and a 6% increase in casino revenues. RENO In Reno, the Company's combined operating income (Circus Circus-Reno plus the Company's 50% interest in Silver Legacy) declined $.5 million, or 10%, versus the year ago quarter. Reno is the host to national bowling tournaments two out of every three years, and this year the city was without a tournament. The absence of a bowling tournament was partially offset by better weather conditions 16 compared to the prior year, when travel in and out of the area was difficult. 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. 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. LAUGHLIN The Company's two properties in Laughlin, Colorado Belle and Edgewater, posted a combined increase in operating income of $1.6 million, or 22%. This marks the fourth consecutive quarter in which the Laughlin properties have posted positive comparisons from the prior year. The increases have stemmed from a combination of increased visitor counts to Laughlin and additional casino marketing efforts which have resulted in increased market share. OTHER MARKETS In Tunica County, Mississippi, operating income at Gold Strike rose $4.2 million, an almost four-fold increase over the prior year. The addition of a 1,100-room hotel tower and an extensive remodeling of the property, which were completed during the first quarter last year, drove the increase in operating income. The contribution from Grand Victoria (a 50%-owned riverboat casino in Elgin, Illinois) increased $.6 million, or 8%, as the introduction of credit play in the casino during the quarter contributed to increased revenues and operating income. INTEREST EXPENSE For the three months ended April 30, 1999, interest expense (excluding joint venture interest expense and before capitalized interest) rose $10.2 million to $41.2 million. The increase was due primarily to higher average borrowings (approximately $2.4 billion in the current quarter against approximately $1.9 billion last year) related to the construction cost incurred to complete Mandalay Bay and core components of Masterplan Mile. Capitalized interest was $7.7 million for the quarter ended April 30, 1999 versus $7.1 million in the year-ago quarter. Long-term debt at April 30, 1999 stood at nearly $2.5 billion compared to $1.9 billion at April 30, 1998. The Company also recorded interest expense related to joint venture projects of $2.8 million in the quarter ended April 30, 1999 compared to $3.2 million in the previous year. This reflects the Company's 50% share of the interest expense of Silver Legacy and Monte Carlo. INCOME TAX For the three months ended April 30, 1999, the Company's effective tax rate was 37.5% compared with 39.6% for the three months ended April 30, 1998. These rates reflect the corporate statutory rate of 35% plus the effect of various nondeductible expenses, including the amortization of goodwill associated with the acquisition of Gold Strike Resorts. FINANCIAL POSITION AND CAPITAL RESOURCES The Company had cash and cash equivalents of $90.6 million at April 30, 1999, representing normal daily operating requirements. The Company's pretax cash flow from operations, before preopening expenses and rent (see "Lease Facility" below), was $141.8 million for the three months ended April 30, 1999 versus $97.0 million in the prior year, an increase of 46%. In this context, pretax cash flow from operations is defined as the Company's income from operations plus noncash operating expenses (primarily depreciation and amortization). The Company used its cash flow to fund the construction of Mandalay Bay and other miscellaneous construction projects. 17 CAPITAL SPENDING Capital expenditures for the quarter ended April 30, 1999 were $213.5 million, of which $124.1 million related to the construction of Mandalay Bay, $39.7 million related to the construction of the convention center and arena, $18.9 million related to the construction of the monorail and $4.8 million related to room renovation at Excalibur. 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 2 of Notes to Condensed 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 April 30, 1999, the Company had aggregate borrowings of $1.3 billion outstanding under the credit facility and an additional $50 million outstanding under its corporate debt program. LEASE FACILITY 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. An additional $75 million was drawn under the Lease Facility in April and May 1999, thus further reducing the commitment under the bank credit facility to $1.825 billion. 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, is estimated at approximately $950 million. 18 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. As part of its development plan for Masterplan Mile, the Company is constructing various core components of Masterplan Mile which will be cross-marketed to guests at the Company's existing and future hotel/casinos within Masterplan Mile. These components include a 125,000-square-foot convention facility (which opened March 12) and a 12,000-seat arena (which opened April 10). The total cost of the convention facility and arena (excluding land, capitalized interest and preopening expenses) was approximately $115 million, of which $112.6 million had been incurred as of April 30, 1999. Additional core components include a monorail system (which opened April 10) linking the Company resorts Masterplan Mile, as well as a Sea of Predators aquarium exhibit, which is currently under construction and is expected to open in Spring 2000. The cost of the monorail (excluding land, capitalized interest and preopening expenses) was approximately $35 million, of which $34.3 million had been incurred as of April 30, 1999. The estimated cost of the aquarium (excluding land, capitalized interest and preopening expenses) is approximately $35 million, of which $5.8 million had been incurred as of April 30, 1999. The Company may add other core components to its development plan for Masterplan Mile in the future. 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 Company has issued letters of credit in an aggregate amount of $50 million for the benefit of Bank of America to back letters of credit in an aggregate amount of $50 milllion issued to secure payments of principle and interest on bonds issued by the Economic Development Corporation of the City of Detroit, the proceeds of which will be used to finance costs related to the acquisition of and other activities on the land on which the permanent casinos will be built. 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 $150 million. The joint venture has arranged 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 19 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. 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 April 30, 1999, under its most restrictive loan covenant, the Company could issue additional debt of approximately $620 million, and was restricted as to the purchase of its own capital stock in excess of $403 million. The Company's Board of Directors recently authorized a share repurchase program for up to 15% of the outstanding shares, as market conditions and other factors warrant. This authorization replaces a former 15% authorization that was utilized over a four-year span. 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. 20 - 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. 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 critical 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 into the third fiscal quarter. It is the Company's goal to have this project substantially completed by the end of that quarter. 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 the end of the third fiscal quarter. 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. 21 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 $4.0 million had been incurred as of April 30, 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. CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS As of April 30, 1999 there were no material changes to the information incorporated by reference in Item 7A of the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1999. 22 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The exhibits filed as part of this report are listed on the Index to Exhibits accompanying this report. (b) REPORTS ON FORM 8-K. No report on Form 8-K was filed during the period covered by this report. 23 SIGNATURES Pursuant to the requirements 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. --------------------------------------------- (Registrant) Date: June 11, 1999 By /s/ GLENN SCHAEFFER ----------------------------------------- Glenn Schaeffer PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
24 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ----- ---------------------------------------------------------------------- 10(a) Conveyance Agreement, dated April 29, 1999, by and among the City of Detroit, the Economic Development Corporation of the City of Detroit and Detroit Entertainment, L.L.C. 27. Financial Data Schedule for the three months ended April 30, 1999 as required under EDGAR.
EX-10.(A) 2 EXHIBIT 10(A) EXHIBIT 10(a) DATE: APRIL 29, 1999 CONVEYANCE AGREEMENT BY AND AMONG THE CITY OF DETROIT, THE ECONOMIC DEVELOPMENT CORPORATION OF THE CITY OF DETROIT and DETROIT ENTERTAINMENT, L.L.C. THIS CONVEYANCE AGREEMENT (this "Agreement"), entered into this 29th day of April, 1999, by and among the City of Detroit, a Michigan municipal corporation ("City"), The Economic Development Corporation of the City of Detroit, a Michigan public body corporate ("EDC") , whose address is 211 West Fort St., Suite 900, Detroit, Michigan 48226 and Detroit Entertainment, L.L.C., a Michigan limited liability company ("Developer"), whose address is 1922 Cass, Detroit, Michigan 48226. WITNESSETH: WHEREAS, Developer has agreed to purchase and develop the land described in EXHIBIT "A" attached hereto and made a part hereof, together with any improvements thereon (the "Property") in accordance with the terms, covenants and conditions of that certain Amended and Restated Development Agreement dated April 9, 1998 (the "Development Agreement"), by and among City, EDC and Developer; and WHEREAS, the Development Agreement requires Developer to purchase the Property pursuant to the terms, covenants and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual obligations of the parties hereto, each of them does hereby covenant and agree with the others, as follows: 1. DEFINITIONS 1.01 Each capitalized term used in this Agreement shall have the meaning ascribed to it in the Development Agreement, unless otherwise expressly defined herein. 2. PURCHASE AND SALE OF PROPERTY 2.01 APPROVAL OF REVISED SCHEDULES A AND B. In reliance upon the representation by City and EDC that Developer or its consultants have been furnished with all Supporting Material (as defined in SECTION 3.03 of the form of Conveyance Agreement annexed to the Development Agreement) reasonably required by Developer or its consultants to make an informed decision as to the accuracy of Revised Schedules A and B in the form attached hereto as EXHIBIT "B" ("Revised Schedules A and B") which will be submitted as contemplated by SECTION 2.18 of the Development Agreement, Developer hereby approves and accepts Revised Schedules A and B. 2.02 DEVELOPER WAIVER REGARDING REVISED SCHEDULES A AND B. Developer hereby waives any and all rights that it may have to claim or assert that the information set forth on Revised Schedules A and B, or the Supporting Material on which they are based, is incomplete, inaccurate or requires further revision in any respect. Developer hereby acknowledges that the amounts set forth on Revised Schedules A and B are estimates and agrees that Developer's waiver shall not be affected if final costs exceed such estimates. 2.03 PURCHASE AND SALE OF PROPERTY. The City hereby agrees to acquire the Property pursuant to the Development Agreement and the Resolution of Necessity, and upon acquisition of the Property, the City agrees to convey the Property to EDC. Notwithstanding the immediately preceding sentence, the City will not initiate an action to acquire Parcel Numbers 105, 106, 109, 113, and 114 (the "Parcels") as depicted on a drawing dated October 21, 1998 by METCO Services, Inc. for the Waterfront Reclamation and Casino Development Project, located in the Public Land through the exercise of the power of eminent domain except in the circumstance where the City has ownership or control of a suitable site or sites on which to relocate the business(es) operating on such Parcels, in accordance with and subject to the provisions of Sections 1. 1 (a)(69) and 2.9 of the Development Agreement. In the event such an action shall be commenced and one or more sites selected by the City shall be determined to be unsuitable, it shall be the obligation of the City to provide one or more alternate suitable sites ("Alternate Sites") in accordance with and subject to the provisions of Sections 1. 1 (a)(69) and 2.9 of the Development Agreement. The parties agree that there shall be no third party beneficiaries with respect to the agreement set forth in the inunediately preceding sentence. EDC agrees to sell the Property, as and when acquired from City, to Developer and Developer hereby agrees to purchase the Property from EDC on the terms, conditions and covenants contained herein. Developer agrees to develop the Property in accordance with the terms, conditions and covenants of the Development Agreement. 2.04 CONVEYANCE. EDC shall sell, transfer and convey the Property to Developer either at a single closing or, at the option of the Developer and the Other Land-Based Casino Developers, in a series of closings (a "Closing") at which EDC shall convey any portion of the Property which has been acquired by City and/or EDC that EDC shall from time to time designate (the "Designated Parcel"). The Closings shall take place in the manner set forth in Article IV below. 2.05 PAYMENT OF PURCHASE PRICE. a. Pursuant to a certain Land and Funds Transfer Agreement by and between City and EDC of even date herewith (the "Transfer Agreement"), EDC will receive the proceeds (the "Bond 2 Proceeds") of one or more series of bond offerings made by EDC as issuer (the "Bonds"). The terms of the Transfer Agreement govern the use of the Bond Proceeds, together with the earnings thereon, by City and EDC. The Bonds will be payable solely from draws upon the letter of credit being delivered by Developer pursuant to the Development Agreement. b. The purchase price for all of the Property (including any Alternate Sites) shall be an amount equal to Developer's Pro Rata Share of Feehold Compensation less its Pro Rata Share of the City Contribution (the "Purchase Price"). Because the Property has been or will be acquired by City through one or more acquisition activities, including exercise of the power of eminent domain, the total amount of Feehold Compensation may not be known at the time of the Closing. Accordingly, the Purchase Price shall be subi ect to adjustment after the Closing as provided in SECTION 2.9 of the Development Agreement. The obligation of Developer or EDC, as the case may be, to make payments in the form of post-Closing adjustments as provided in SECTION 2.9 of the Development Agreement shall survive Closing, shall not merae into the Deed (as herein defined) and shall continue in effect unless and until Developer reconveys any acquired Designated Parcel or Parcels to EDC as provided in the Development Agreement. 2.06 CONDITIONS OF APPROVAL AND WAIVER. Developer's approval under SECTION 2.01 and waiver under SECTION 2.02 are expressly subject to and conditioned upon: a. The City not amending or revising Revised Schedules A or B to add any new matter; b. The accuracy of the City's and EDC's representation in Section 2.01 above, provided that such representation shall not be deemed inaccurate if Developer's or its consultant's failure to receive any Supporting Material would not have reasonably resulted in a conclusion that Revised Schedules A and B are inaccurate or incomplete; c. The accuracy of the City's representation in SECTION 4.06; d. The City not including as the cost of a Response activity on a Revised Schedule A a matter that reasonably could be classified as an Infrastructure Improvement; and e. Receipt by the Developer of an ALTA boundary survey of the land to be included in the Land-Based Casino Developments (the "Survey") together with currently-effective title insurance commitments sufficient to assure the Developer, in the exercise of its reasonable judgment, that it will acquire all of the Property pursuant to the Conveyance Agreement subject to no restrictions or encumbrances which would materially prevent or impede the development of the Casino Complex. 3. CONDITION OF TITLE 3.01 EVIDENCE OF TITLE. The EDC has delivered to Developer a commitment for an owner's title insurance policy for the Property (the "Commitment") issued by First American Title Insurance 3 Company (the "Title Company") together with the Survey prepared by METCO Services, Inc. The Commitment sets forth the state of title to the Property together with all exceptions, conditions, reservations, and encumbrances. If Developer is dissatisfied, in its reasonable discretion, with any matter shown on the Survey or the Commitment, City, EDC and Developer shall work together to remedy any deficiency disclosed by the Survey or the Commitment, pre or post-Closing as the parties may agree. 3.02 CONVEYANCE. At Closing, EDC will deliver to Developer a quit claim deed in substantially the form as attached hereto as EXHIBIT "C" (the "Deed") conveying title to the Property subject only to such matters as may be acceptable to Developer in its reasonable discretion. 3.03 SURVEYING AND TESTING . EDC shall permit Developer and its consultants to enter the Property for purposes of site investigation and testing, in the manner and subject to the limitations set forth IN SECTION 5.1 of the Development Agreement. 3.04 DEVELOPER'S ACCEPTANCE OF THE PROPERTY. Subject to SECTION 18.1(b) of the Development Agreement, Developer agrees to accept the Property in an "as is", "where is" condition and Developer waives any and all rights and remedies it may have against City and EDC as a result of the condition thereof. 4. REPRESENTATION AND WARRANTIES 4.01 TIME AND PLACE OF CLOSING. EDC will notify Developer of the prospective date for any Closing not less than ten (10) calendar days prior thereto, unless otherwise agreed between the par-ties, provided that the Closing on all parcels shall occur no later than ten (10) calendar days after the conditions precedent set forth in Section 2.4(a) of the Development Agreement have been satisfied or waived and EDC has acquired the Property. Each Closing shall take place at the office of the Title Company, or other location in downtown Detroit designated by EDC. 4.01 CONDITIONS TO EDC'S PERFORMANCE. The obligation of EDC to convey the Property shall be subject to the following conditions precedent: a. NO DEFAULT. There shall be no existing Event of Default by Developer under this Agreement. b. NO INJUNCTION. There shall be no temporary restraining order, preliminary injunction or permanent injunction enjoining the EDC from performing its obligations under this Agreement. 4.03 CONDITIONS TO DEVELOPER'S PERFORMANCE. The obligation of Developer to accept title to the Property shall be subject to the following conditions precedent: a. SATISFACTION OF CERTAIN DEVELOPMENT AGREEMENT CONDITIONS. The conditions precedent set forth in SECTIONS 2.4(a)(6), (8) AND 9 of the Development Agreement have been satisfied or 4 waived, other than the obligation of the City Council set forth in SECTION 2.4(a)(8)(x) of the Development Agreement. b. DEVELOPER APPROVAL OF CITY FINANCING ARRANGEMENT. All of the conditions set forth in SECTION 2.5(a) of the Development Agreement have been satisfied or waived in accordance with the provisions thereof. c. CONDITION OF TITLE. The Title Company shall have marked-up (or reissued) the Commitment as of the date of the Closing to indicate that all conditions of issuance of the policy and endorsements provided for in the Commitment have been satisfied and that the Property is not subject to any federal or state tax liens or real property taxes or assessments which are due and payable, unpaid water bills or other encumbrances of record. 4.04 DELIVERY OF DEED AND POSSESSION. EDC will deliver the Deed to the Designated Parcel and the possession thereof to Developer at Closing provided that Developer has complied with all conditions precedent as specified herein. Developer shall be responsible for recording the Deed and paying all recording costs including county and state transfer taxes, if any. 4.05 CLOSING STATEMENT. At each Closing, Developer and EDC shall each execute and deliver to the other a closing statement setting forth the amount of Bond Proceeds used at Closing to acquire the Designated Parcel and reflecting all adjustments provided for in this Agreement. 4.06 REPRESENTATION AND WARRANTY OF THE CITY. The City represents and warrants that it has not withheld from Developer any information which, in the exercise of its good faith judgment, would have been reasonably required to make an informed decision as to the accuracy of Revised Schedules A and B. 5. DEFAULTS AND REMEDIES 5.01 DEFAULT BY DEVELOPER. The occurrence of any one or more of the following events shall constitute an Event of Default under this Agreement: a. If Developer does not take title to the Property, as required by this Agreement, upon tender of conveyance by EDC. b. If any Event of Default occurs under the Development Agreement. Upon an Event of Default, EDC shall have the right to exercise any and all remedies available to EDC under the Development Agreement. 5.02 DEFAULT BY EDC. In the event EDC does not tender the conveyance of the Property or any part thereof in the manner provided in this Agreement, and any such failure shall not be cured within thirty (30) days after written demand by Developer, then, provided Developer is not in Default under this Agreement, Developer, as its sole and exclusive remedy, shall be entitled to obtain 5 specific performance of this Agreement and seek actual damages, if any, arising from delay or failure of performance; provided, however, that if the nature of EDC's obligation is such that more than thirty (30) days are reasonably required for performance, then EDC shall not be in default if EDC commences performance within such thirty (30) day period and thereafter diligently pursues such performance to completion. 5.03 DEFAULT BY CITY. In the event City breaches its obligation to find Alternate Sites as set forth in SECTION 2.03 above, Developer, as its sole and exclusive remedy, shall be entitled to speci ically enforce the City's obligation to find Alternate Sites as and to the extent set forth in SECTION 2.03, above. Under no circumstances shall the Developer be entitled to seek or recover damages or restitution for a breach by City of its obligation to find Alternate Sites as set forth in SECTION 2.03. 5.04 RESELECTION BY CITY. a. For purposes of this SECTION 5.04, (1) "Triggering Event" shall mean the elimination of Developer from acting as a designated developer (as that term is defined in the Ordinance) as a result of a final, non-appealable court judgment or court order, other than a court judgment or court order issued in connection with any action resulting from the City's or EDC's enforcement of their respective rights under the Development Agreement and (2) "Transportation Corridor" shall have the meaning ascribed to it in the Modified Project Plan for the Waterfront Reclamation and Casino Development Agreement approved by City Council on January 29, 1999. b. The City agrees to use its reasonable best efforts to have three casino developers as permitted under the Act. Accordingly, in the event a Triggering Event occurs, the City agrees to use its reasonable best efforts to reselect a developer (a "New Developer") with which the City and EDC will enter into a development agreement (a "New Agreement") for the development of a casino complex, upon the following terms and conditions: (1) The New Agreement will require that the New Developer purchase from the Developer the: (x) Project Premises, together with any improvements constructed thereon and Developer's interest in the entity that owns the Transportation Corridor, for the purchase price as determined in SECTION 5.04 b.(2) and (y) Temporary Casino, together with all related structures, including parking and restaurant facilities that are connected with, or operated in such an integral manner as to form a part of the Temporary Casino operation (the "Temporary Casino Complex"), for the purchase price and subject to the conditions imposed in SECTION 5.04 b.(3). (2) The purchase price for the Project Premises under SECTION 5.04 b.(1) shall be an amount equal to Developer's documented costs incur-red in connection with acquiring the Project Premises, acquiring its interest in the entity that owns the Transportation Corridor, and constructing any improvements on either the Project Premises or the Transportation Corridor including but not limited to finance, design, architectural, permitting, legal and environmental remediation costs. 6 (3) The purchase price for the Temporary Casino Complex under SECTION 5.04 b.(1) shall be an amount equal to its fair market value determined by an investment banker knowledgeable in casino gaming matters selected by agreement of the Developer and the New Developer. If the Developer and New Developer cannot agree on the selection of an investment banker, then the City shall select an investment banker who has not been materially involved with the Development or any portion thereof and who is knowledgeable in casino gaming matters. The New Developer's obligation to purchase the Temporary Casino Complex will be conditioned upon and subject to Developer's assignment to New Developer of any premises leases for the Temporary Casino Complex, together with any landlord's consent if required pursuant to any such leases. (4) Developer agrees to sell to New Developer the Project Premises, the Temporary Casino Complex, its interest in the entity that owns the Transportation Corridor, and assign to New Developer any premises leases for the Temporary Casino Complex, all as provided in this SECTION 5.04. c. The rights and obligations of City, EDC and Developer under SECTION 5.04 shall survive the Closing and shall not merge into the Deed. 5.05 WAIVER OF CERTAIN REMEDY. Developer hereby waives its right and remedy set forth in SECTION 10.2(c) of the Development Agreement for the return of the letter of credit delivered pursuant to the Development Agreement to the Developer for any failure by the City to vacate all. streets, sidewalks and other land, as required by SECTION 2.4(a)(8)(x) of the Development Agreement. In consideration of such waiver, City agrees, in any instance under SECTION 10.2(g) of the Development Agreement in which Developer would be entitled to the return of its letter of credit, that in lieu of returning the letter of credit to Developer, City shall deliver to Developer irrevocable letters of credit of a commercial bank providing for direct payments to the Developer each time Developer's letter of credit is drawn and otherwise conforming to the definition of "Alternate Letter of Credit" appearing in those certain indentures of trust (the "Indentures") between EDC as issuer and U.S. Bank Trust National Association as Trustee in connection with the issuance of those certain taxable and tax-exempt economic development revenue bonds for the Waterfront Reclamation and Casino Development Project, Series 1999A, Series 1999B and Series 1999C and shall pay to the Developer all costs associated with maintaining Developer's letter of credit. The waiver by Developer and the rights and obligations of City, EDC and Developer under SECTION 5.05 shall survive the Closing and shall not merge into the Deed. 6. MISCELLANEOUS 6.01 NOTICES. Any notice, demand or other communication which any party may desire or may be required to give to any other party shall be given as provided in the Development Agreement. 7 6.02 SEVERABILITY. If any one or more provisions of this Agreement or in any instrument or other document delivered pursuant to this Agreement or the application thereof to any person or circumstance shall to any extent be declared or determined to be invalid or unenforceable, the validity, legality and enforceability of the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected or impaired thereby, and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 6.03 COMPLETE AGREEMENT. This Agreement and the Development Agreement and all the documents and agreements described or referred to herein and therein, including the Exhibits hereto and thereto, constitute the full and complete agreement between the parties hereto with respect to the subject matter hereof and thereof, and supersede and control in their entirety over any and all prior agreements, understandings, representations and statements, whether written or oral, by each of the parties hereto. The parties hereto acknowledge and agree that this Agreement shall implement, and is not intended to supersede, the Development Agreement, and therefore the terms of the Development Agreement shall control in the event of any conflict between this Agreement and the Development Agreement provided that notwithstanding the foregoing, in the event of any conflict between the terms of the Development Agreement and the terms of SECTION 2.03 above, the terms of SECTION 2.03 above shall control.. 6.04 TERMINOLOGY. Unless the context otherwise expressly requires, the words "herein", "hereof", and "hereunder", and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section, or other subdivision. As used herein, the singular includes the plural, the plural the singular, and the use of any gender shall be applicable to all genders. 6.05 COVENANTS AND CONDITIONS. All the terms and provisions of this Agreement shall be deemed and construed to be "covenants" and "conditions" as though the words specifically expressing or imparting covenants and conditions were used in each separate term and provision. 6.06 CAPTIONS. The headings of the Articles, Sections and other subdivisions in this Agreement are for convenience of reference only and shall not be used to construe or interpret the scope or intent of this Agreement or in any way affect the same. 6.07 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original document and together shall constitute one instrument. 8 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. WITNESSES: CITY OF DETROIT, a Michigan municipal corporation. JAMES NOSEDA BY: DENNIS ARCHER - ----------------------------- --------------------------------- Print: JAMES NOSEDA Its: MANAGER --------------------------------- OLIVIA TOWNSEND - ----------------------------- Print: THE ECONOMIC DEVELOPMENT CORPORATION OF THE CITY OF DETROIT, WITNESSES: a Michigan public body corporate. By: C. BETH DUNCOMBE --------------------------------- Its: AUTHORIZED AGENT --------------------------------- JAMES NOSEDA - ----------------------------- Print: JAMES NOSEDA By: ATHANASIOS PAPAPANOS --------------------------------- Its: AUTHORIZED AGENT --------------------------------- CANDACE WRIGHT - ----------------------------- Print: CANDACE WRIGHT DETROIT ENTERTAINMENT, L.L.C., a Michigan limited liability company. WITNESSES: By: Circus Circus Michigan, Inc., a Michigan corporation, one of its members. JOYCE SHELTON - ----------------------------- Print: JOYCE SHELTON TANYA L. POPE By: CRAIG GHELFI - ----------------------------- --------------------------------- Print: TANYA L. POPE Its: V.P & GENERAL MANAGER --------------------------------- By: Atwater Casino Group, LLC, a Michigan limited liability company, one of its members By: Atwater Management Corporation a Delaware corporation, its manager By: HERBERT STRATHER --------------------------------- Its: CHAIRMAN --------------------------------- By: THOMAS CELANI --------------------------------- Its: PRESIDENT --------------------------------- 9 STATE OF MICHIGAN ) ) ss. COUNTY OF WAYNE ) The foregoing instrument was acknowledged before me on _______________1999, by _________________________, the duly authorized agent of the City of Detroit, a Michigan municipal corporation, on behalf of said corporation. _________________________________ Print:_____________________ Notary Public, Wayne County Michigan MY Commission expires:___________ STATE OF MICHIGAN ) ) ss. COUNTY OF WAYNE ) The foregoing instrument was acknowledged before me on _______________1999, by _________________________, and ________________________, the duly authorized agent of The Economic Development Corporation of the City of Detroit, a Michigan public body corporate, on behalf of said corporation. _________________________________ Print:_____________________ Notary Public, Wayne County Michigan MY Commission expires:___________ 10 STATE OF MICHIGAN ) ) ss. COUNTY OF WAYNE ) The foregoing instrument was acknowledged before me on _______________1999, by _________________________, the ________________________ of__________________, a Michigan corporation, on behalf of said _____________________. _________________________________ Print:_____________________ Notary Public, Wayne County Michigan MY Commission expires:___________ STATE OF MICHIGAN ) ) ss. COUNTY OF WAYNE ) The foregoing instrument was acknowledged before me on _______________1999, by _________________________, the ____________________ of _____________________, a Michigan __________________, on behalf of said _____________________________. _________________________________ Print:_____________________ Notary Public, Wayne County Michigan MY Commission expires:___________ Drafted by and when recorded return to: 11 EXHIBIT A CASINO PARCEL 2 Land in the City of Detroit, County of Wayne, State of Michigan, being part of Private Claims 14 and 90. Being Lots 9-24, part of Lots 25-27, part of vacated Dequindre Avenue, part of Woodbridge Street (50' wide), part of Franklin Street (50' wide), part of Guoin Street (50' wide), and alley (20' wide) of "Subdivision of Lot 1, Witherell Farm, lying between Jefferson Avenue and Atwater Street, 1859" as recorded in Liber I of Plats on Page 76 (W.C.R.). Also being Lots 5-24, part of Lots 1-4 and reserved lot, part of Woodbridge Street (50' wide), part of Franklin Street (50' wide), part of Guoin Street (50' wide), and alley (20' wide) of "Subdivision of Lot 2, Witherell Farm, City of Detroit" as recorded in Liber I of Plats on Page 37 (W.C.R.). Also being part of Lots 1-4 of "Resubdivision of Lots 1, 2, 3, 4, 5, 6, 7 and 8, between Guoin and Atwater Streets, Witherell Farm" as recorded in Liber I of Plats on Page 302 (W.C.R.). Also being Lots 9 and 10, part of Lots 1, 3 and 8, part of Estate of Troussant Campau and vacated alley (20'wide) of Section 2, Lots 6-10, part of Lots 1-5 and vacated alley of Section 3, Lots 1-10 and alley (20' wide) of Section 4, Lots 1 and 2, 9 and 10, part of Lots 3 and 8 and part of vacated alley of Section 5, Lots 1 and 2, 9 and 10, part of Lots 3 and 8 and part of alley of Section 6, Lots 1-10 and vacated alley (20' wide) of Section'7, part of Lots 1-3 of Section 8, part of Lots 1 and 4 of Section 9, part of Woodbridge Street (50' wide), part of Franklin Street (50'wide), part of Guoin Street (50'wide), and part of St. Aubin Avenue (70' wide) of "Subdivision of the St. Aubin Farm, South of Jefferson Avenue, City of Detroit", as recorded in Liber 1 of Deeds on Page 35 (W.C.R.), described as: Beginning at a point distant N59DEG.46'04"E 489.14 feet and N59DEG.56'21"E 335.44 feet along the southerly right-of-way line of Jefferson Avenue (120' wide) and S26DEG.05'03"E 99.24 feet from the intersection of the southerly right-of-way line of Jefferson Avenue (120' wide) and the westerly right-of-way line of Riopelle Street (84' wide); Thence along said line N59DEG.56'21 "E 377.81 feet and N59DEG.48'24"E 461.27 feet; Thence S25DEG.56'42"E 910.15 feet to the northerly right-of-way line of realigned Atwater Street (variable width); Thence along said line S64DEG.39'33"W 834.85 feet; Thence N26DEG.05'03"W 840.07 feet to the point of beginning. Containing 16.788 acres, more or less. 12 REVISED SCHEDULE A* (i) The City's best estimate of the aggregate of the Feehold Compensation $151,801,800 (ii) The cost of all Infrastructure Improvements 88,694,880 (iii) The costs of all of the above and below ground environmental Response activity necessary in order to obtain a covenant not to sue in favor of the City, EDC, Developer and the Other Land-Based Casino Developers issued by the Michigan Department of Environmental Quality with respect to the Casino Area and the Public Land 9,187,647 --------- Total of (i), (ii) and (iii) $ 249,684,327 ------------------ ------------------
*Capitalized terms have the same meanings ascribed to them in the Agreements Exhibit B 13 REVISED SCHEDULE B
- ------------------------------------------------------------------------------- I. ST. AUBIN CORRIDOR - ------------------------------------------------------------------------------- A. Reconstruct Jefferson Ave. Bridge for 6-lane roadway $1,520,000 section. - ------------------------------------------------------------------------------- B. Roadway Section from South line of Jefferson to Antietam bridge, including utility relocations, four-lane roadway with future rail provision, new bridges at Jefferson, Larned, Lafayette and Antietam and one pedestrian bridge. 29,710,000 - ------------------------------------------------------------------------------- C-1. Gratiot/1-75 intersection at grade including utility relocation and signage to prohibit left turns onto St. Aubin and Cherie. 11,387,200 - ------------------------------------------------------------------------------- C-2. PLD ducts and related work for signals and lights. 1,340,000 - ------------------------------------------------------------------------------- D . Environmental remediation on land at Gratiot and in 3,041,030 corridor. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- II. ROADWAYS - ------------------------------------------------------------------------------- A. Atwater 5 land roadway from Rivard to Cherie along existing alignment widened to north from Riopelle to Cherie and to south from Riopelle to Rivard; 15 foot sidewalk on north to be on private property with utility easement. 4,400,000 - ------------------------------------------------------------------------------- B. Atwater same as above from Rivard to New Boulevard. 931,000 - ------------------------------------------------------------------------------- C. Riopelle from Jefferson to Atwater widened and reconstructed with public sidewalks both sides. 710,000 - ------------------------------------------------------------------------------- D. Chene from Jefferson to Atwater widened and reconstructed with public sidewalks both sides. 819,000 - ------------------------------------------------------------------------------- E. Upgrade existing traffic signal at Cherie & Jefferson 228,000 intersection. - ------------------------------------------------------------------------------- F. New traffic signals for: - ------------------------------------------------------------------------------- 1. 1-375 (New Boulevard) & Atwater 202,000 - ------------------------------------------------------------------------------- 2. Atwater & Riopelle 157,000 - ------------------------------------------------------------------------------- 14 - ------------------------------------------------------------------------------- 3. Atwater& Dequindre 202,000 - ------------------------------------------------------------------------------- 4. New Street (N-S) & Atwater 202,000 - ------------------------------------------------------------------------------- 5. Jefferson & Riopelle 187,000 - ------------------------------------------------------------------------------- 6. Atwater& Cherie 187,000 - ------------------------------------------------------------------------------- G. Traffic signal feed extension and traffic signal iintra connect extension. 634,000 - ------------------------------------------------------------------------------- H. Roadway trail blazing signs on City streets and on MDOT 712,000 freeways. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- III. OTHER - ------------------------------------------------------------------------------- Purchase of trolley buses for Atwater route: 2 natural gas fueled decorative "trolleys" at $250,000 each. 500,000 - ------------------------------------------------------------------------------- Contingency 25,000,000 - ------------------------------------------------------------------------------- TOTAL - ------------------------------------------------------------------------------- Detroit Based Enterprise Premium (2%) 883,420 - ------------------------------------------------------------------------------- Wage escalation for labor (3%) 1,325,130 - ------------------------------------------------------------------------------- GMP Expense, overhead and profit (10%) 4,417,100 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Grand Total $88,694,880 - -------------------------------------------------------------------------------
Exhibit B 15 EXHIBIT C QUIT CLAIM DEED The Economic Development Corporation of the City of Detroit, a Michigan public body corporate (the "EDC"), quit claims to ____________________ whose post office address _____________________is the premises located in the City of Detroit, County of Wayne, and State of Michigan, described on Exhibit A attached hereto and made a part hereof, together with any and all tenements, hereditaments and appurtenances thereunto belonging or in anywise appertaining, for the sum of ______________________ ($______________). This Deed is given subject to the terms, covenants and conditions of [IDENTIFY RESTRICTIVE COVENANT DOCUMENT] which is incorporated herein by reference and recorded on ______________, _________________________ in the Office of the Register of Deeds for the County of Wayne in Liber _____________ on Pages____________ through ______________ inclusive, none of the terms, covenants and conditions of which shall be deemed merged in this Deed. The covenants therein recited to be covenants running with the land are hereby declared to be covenants running with the land enforceable by EDC as therein set forth. Dated this ______ day of ___________, 19__. IN WITNESS WHEREOF, The Economic Development Corporation of the City of Detroit has caused this instrument to be executed by its duly authorized officer and sealed with its corporate seal, the day and year first above written. WITNESSES: THE ECONOMIC DEVELOPMENT CORPORATION OF THE CITY OF DETROIT, a Michigan public body corporate _______________________________ Print: By: ________________________________ Its: ________________________________ _______________________________ Print: By: ________________________________ Its: ________________________________ [If any parcels are unplatted, add the statements required by the Land Division Act.] 16 STATE OF MICHIGAN ) ) ss. COUNTY OF WAYNE ) The foregoing instrument was acknowledged before me on____________________ 1999, by _________________________, and ________________________, the duly authorized agent of The Economic Development Corporation of the City of Detroit, a Michigan public body corporate, on behalf of said corporation. Print:___________________________________ Notary Public, Wayne County Michigan My Commission expires:____________ This instrument was drafted by and after recording return to: 17 May 5, 1999 Detroit Entertainment, LLC c/o Circus Circus Enterprises, Inc. 3950 Las Vegas Boulevard South Las Vegas, NV 89119 Re: Indenture of Trust (the "Trust Indenture") between The Economic Development Corporation of the City of Detroit to U.S. Bank Trust National Association, as Trustee involving The Economic Development Corporation of the City of Detroit Taxable Economic Development Revenue Bonds (the "Bonds") (Waterfront Reclamation and Casino Development Project) Series 1999A dated as of March 1, 1999 Ladies and Gentlemen: This letter agreement is for the purpose of confirming and documenting our agreements in connection with our acting and performing services as Trustee, Paying Agent and Tender Agent under the Trust Indenture (collectively the "Trust Services"). We have agreed to perform the Trust Services under the Trust Indenture in consideration of your agreements concerning our compensation and indemnification described in this letter agreement. You have agreed as follows. For our services as Trustee you will pay one-third of an Acceptance Fee of $3,000 and one-third of an Annual Administration Fee of $3,500. Our fees for acting as Bond Registrar and Paying Agent will be determined based on the bonds being held by the Depository Trust Company in book-entry-form and therefore are only $500 annually per Series. We will include our duties as Tender Agent in this annual amount, unless extraordinary services are required in this capacity such as a mandatory tender of the entire issue prior to maturity of the bonds. If the City of Detroit should maintain all or a part of either the Bonds in a commercial paper mode, you will pay one-third of an Acceptance Fee of $250 per issue and one-third of an Annual Fee of $500 to administer that portion of the transaction. All trades are $10 per issuance and will be billed one-third to you. We will include the purchase of any investments at the inception of the project fund along with our annual administration fee. Any future investments will be billed at one-third of $75 per trade. If an outside investment contract is utilized, we will charge an annual fee of one-third $ 1,000 for the custody and administration of such contract. 18 Detroit Entertainment, LLC May 5, 1999 Page 2 You will pay one-third of all out-of-pocket expenses, such as postage, stationery, supplies, printing, telephone, travel and all other costs and expenses reasonably incurred by us in performing the Trust Services. Reasonable counsel fees are to be added to our regular charges for services at the time of closing on the issuance of the Bonds for legal costs associated with document review and giving legal opinions. Any other special or extraordinary services not contemplated at the inception of appointment or not specifically covered herein will be invoiced at a flexible rate of $50 to $200 per hour depending upon the nature of the work, degree of risk, and level of employee involved. We have entered into similar letter agreements with MGM Grand Detroit, LLC ("MGM") and Greektown Casino, LLC ("Greektown"). You will be legally responsible to pay one-tl~iird of such fees and expenses. In addition to your agreement to pay the foregoing, you have agreed to inderrinify and hold us harmless from one-third of any costs, damages, expenses (including reasonable attorneys fees), causes of action, claims or liability arising out of our performing the Trust Services and acting as Trustee, Bond Registrar, Paying or Tender Agent except such liability determined to be the result of our gross negligence or wilful misconduct. The fee as above stated are limited to the Bonds initially issued under the Trust Indenture. Fees for services rendered in connection with any additional bonds issued under any supplemental indentures will be quoted separately and be in addition to the fees stated. Please indicate your agreement to the items set forth above in this letter agreement by executing the copy of this letter agreement and returning it to us for our files. Sincerely yours, U. S. BANK TRUST NATIONAL ASSOCIATION By: M. KARAN ----------------------------------------- Its: VICE PRESIDENT ----------------------------------------- Items set forth above agreed to by: DETROIT ENTERTAINMENT, LLC By: CHERYL SCOTT DUBE ---------------------------------- Its: AUTHORIZED SIGNATOR --------------------------------- Date: 5/5/99 -------------------------------- 19 EX-27 3 EXHIBIT 27
5 1,000 3-MOS JAN-31-2000 APR-30-1999 90,558 0 56,771 0 27,402 205,758 3,946,343 772,799 4,068,983 239,533 2,463,836 0 0 1,894 1,143,756 4,068,983 471,259 471,259 0 401,640 7,120 0 35,072 27,427 10,288 17,139 0 0 (21,994) (4,855) (.05) (.05)
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