3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_____________
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________
to ______________________
Commission file number 0-14897
Players International, Inc.
(Exact name of registrant as specified in its charter)
Nevada 95-4175832
(State or other jurisdiction of incorporation or organization)
(I.R.S. employer identification no.)
1300 Atlantic Ave., Suite 800 Atlantic City, NJ
08401
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code
(609) 449-7777
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 10, 1998, there were 31,949,237 shares of the
registrant's Common Stock outstanding, net of treasury stock.
PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended September 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended September 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3.Quantitative and Qualitative Disclosures About Market Risk 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
2
PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
September March
30, 31,
1998 1998
(Unaudited)
_____________________
CURRENT ASSETS:
Cash and cash equivalents $21,736 $17,223
Accounts receivable, net of allowance
for doubtful accounts of
$897 at September 30, 1998 and
$786 at March 31, 1998 2,197 3,559
Notes receivable 1,500 -
Inventories 1,370 1,476
Deferred income tax 2,010 2,010
Income taxes refundable 2,156 6,580
Prepaid expenses and other current
assets 2,731 2,285
________ ________
Total current assets 33,700 33,133
________ ________
PROPERTY AND EQUIPMENT, net of
accumulated depreciation
and amortization of $53,326 at
September 30, 1998 and
$44,405 at March 31, 1998 232,378 237,478
________ ________
NOTES RECEIVABLE - 1,500
________ ________
INTANGIBLES, net of accumulated
amortization of $4,054 at
September 30, 1998 and $3,572 at
March 31, 1998 34,826 35,302
________ ________
INVESTMENT IN JOINT VENTURE 94,154 96,587
________ ________
OTHER ASSETS 5,331 5,587
________ ________
TOTAL ASSETS $400,389 $409,587
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except par value)
LIABILITIES AND STOCKHOLDERS' EQUITY
September March
30, 31,
1998 1998
(Unaudited)
______________________
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,574 $ 2,008
Accounts payable 3,765 4,590
Accrued liabilities 31,580 28,832
Other liabilities 4,047 3,775
________ ________
Total current liabilities 40,966 39,205
________ ________
OTHER LONG-TERM LIABILITIES 28,762 28,997
________ ________
DEFERRED TAX LIABILITIES - LONG TERM 2,930 2,930
________ ________
LONG-TERM DEBT, net of current portion 164,000 180,541
________ ________
STOCKHOLDERS' EQUITY:
Preferred stock, no par value,
Authorized- 10,000,000 shares,
Issued- none - -
Common stock, $.005 par value,
Authorized- 90,000,000 shares,
Issued- 32,613,873 at September 30,
1998 and 32,613,498 at March 31, 1998 163 163
Additional paid-in capital 132,338 132,338
Treasury stock, at cost; 672,100
shares at September 30, 1998 and
March 31, 1998 (7,294) (7,294)
Retained earnings 38,524 32,707
________ ________
Total stockholders' equity 163,731 157,914
________ ________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $400,389 $409,587
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(Unaudited)
For the Three Months For the Six Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
____________________ ___________________
REVENUES:
Casino $ 82,687 $78,379 $159,711 $154,166
Food and beverage 2,586 2,773 5,096 6,959
Hotel 959 228 1,948 2,023
Other 1,021 1,180 2,063 3,594
_______ _______ _______ _______
87,253 82,560 168,818 166,742
_______ _______ _______ _______
COSTS AND EXPENSES:
Casino 37,440 35,478 73,286 71,966
Food and beverage 2,209 2,229 4,320 6,306
Hotel 445 90 842 761
Other operating expenses 10,038 10,547 20,626 22,002
Selling, general and
administrative 15,489 14,878 28,945 30,179
Corporate administrative
expenses 2,963 1,704 4,817 3,294
Allocated amounts of
joint venture 2,718 2,903 5,439 6,154
Depreciation and
amortization 4,992 5,331 9,928 9,935
_______ _______ _______ _______
76,294 73,160 148,203 150,597
_______ _______ _______ _______
Income before other income
(expense) and provision for
income taxes 10,959 9,400 20,615 16,145
_______ _______ _______ _______
OTHER INCOME (EXPENSE):
Interest income 220 225 280 237
Other income, net (233) 1 (248) (18)
Interest expense (5,410) (6,139) (11,111) (12,393)
_______ _______ ________ ________
(5,423) (5,913) (11,079) (12,174)
_______ _______ ________ ________
Income before provision
for income taxes 5,536 3,487 9,536 3,971
PROVISION FOR INCOME
TAXES 2,159 1,367 3,719 1,558
_______ _______ _______ _______
NET INCOME $ 3,377 $ 2,120 $ 5,817 $ 2,413
======= ======= ======= =======
EARNINGS PER COMMON AND
COMMON SHARE EQUIVALENT
Primary $ 0.11 $ 0.07 $ 0.18 $ 0.08
Fully Diluted $ 0.11 $ 0.07 $ 0.18 $ 0.08
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
For the Six Months
Ended September 30,
1998 1997
______________________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,817 $ 2,413
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,928 9,935
Joint venture depreciation and
amortization 2,432 2,610
Loss on disposition of property and
equipment 270 91
Other 318 258
Changes in assets and liabilities:
Accounts and notes receivable 1,044 746
Inventories, prepaid expenses and
other current assets (340) 1,646
Income taxes refundable 4,424 28,808
Other assets 6 137
Accounts payable and accrued
liabilities 1,923 (9,689)
Other liabilities 37 1,150
_______ _______
Net cash provided by operating
activities 25,859 38,105
_______ _______
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of property and equipment (4,217) (12,916)
Proceeds from disposal of property and
equipment 34 7,289
Investment in joint venture - (6,390)
_______ ________
Net cash used in investing activities (4,183) (12,017)
_______ ________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt 10,000 19,000
Repayments of long-term debt (26,974) (39,439)
Debt issuance cost (190) (266)
Other 1 (20)
________ ________
Net cash used in financing activities (17,163) (20,725)
________ ________
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,513 5,363
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 17,223 20,567
_______ _______
CASH AND CASH EQUIVALENTS AT END OF PERIOD $21,736 $25,930
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $10,815 $12,445
Income taxes paid 1,529 9
Debt incurred to purchase equipment - 3,905
Note receivable on sale of Mesquite
property - 1,500
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to those rules and regulations. It is suggested that
these condensed consolidated financial statements be read in
conjunction with the financial statements and the notes thereto
included in the Company's Form 10-K for the year ended March 31,
1998. In the opinion of management, all adjustments (which
include normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows of
all periods presented have been made.
The results of operations for the six months ended
September 30, 1998, are not necessarily indicative of the
operating results for the full year.
Certain reclassifications have been made to the
financial statements as previously presented to conform to
current classifications.
Effective April 1, 1998, the Company adopted SFAS No.
130, "Reporting Comprehensive Income." The objective of SFAS
130 is to report a measure of all changes in equity of a company
that result from transactions and other economic events of the
period other than transactions with stockholders. Comprehensive
income is the total of net income and all other non-stockholder
changes in equity ("Other Comprehensive Income"). The Company
had no Other Comprehensive Income for the three month and six
month periods ended September 30, 1998 and 1997.
Note 2 - Casino Revenues and Promotional Allowances
Casino revenues are the net of gaming wins less losses.
Revenues exclude the retail value of complimentary food and
beverage, hotel accommodations and other items furnished to
customers, which totaled approximately $5,927,000 and $5,775,000
and $12,053,000 and $12,449,000 for the three and six months
ended September 30, 1998 and 1997, respectively.
The estimated cost of providing such complimentary
services are included in casino costs and expenses through inter-
department allocations from the department granting the services
as follows:
For the Three Months For the Six Months
Ended September 30, Ended September 30,
(dollars in (dollars in
thousands) thousands)
1998 1997 1998 1997
____________________ ___________________
Food and beverage $ 4,345 $ 4,142 $ 8,593 $ 9,002
Hotel and other 351 350 784 815
_______ _______ _______ _______
$ 4,696 $ 4,492 $ 9,377 $ 9,817
======= ======= ======= =======
7
Note 3 - Allocated Amounts of Joint Venture
The Company owns a 50% interest in a casino entertainment
facility in Maryland Heights, Missouri (the "Joint Venture").
The investment in the Joint Venture is accounted for using the
equity method of accounting.
Summary condensed financial information for the Joint
Venture is as follows:
For the Three Months For the Six Months
Ended September 30, Ended September 30,
(dollars in thousands) (dollars in thousands)
1998 1997 1998 1997
______________________ ______________________
Net revenues $ 5,217 $ 4,721 $10,131 $ 9,379
Depreciation and
amortization 2,524 2,597 4,852 5,214
Net loss 5,436 5,806 10,877 12,307
Note 4 - Earnings Per Share
The following table illustrates the computation of
basic and diluted earnings per share:
For the Three For the Six
Months Ended Months Ended
September 30, September 30,
1998 1997 1998 1997
______________________ ____________________
Numerator:
Net income $3,377,000 $2,120,000 $5,817,000 $2,413,000
Denominator:
Denominator for basic
earnings per share-
weighted-average shares 31,941,773 31,892,715 31,941,676 31,891,982
Effect of dilutive
securities-stock options 138,850 19,048 143,068 20,375
__________ _________ __________ _________
Denominator for diluted
earnings per share-
adjusted weighted-
average shares 32,080,623 31,911,763 32,084,744 31,912,357
========== ========== ========== ==========
Basic earnings per share $ 0.11 $ 0.07 $ 0.18 $ 0.08
====== ====== ====== ======
Diluted earnings per share $ 0.11 $ 0.07 $ 0.18 $ 0.08
====== ====== ====== ======
8
Note 5 - Subsequent Events
On November 3, 1998, the voters of Missouri approved an
amendment to the state's constitution that (i) expressly
authorizes the provision of the Missouri Gaming Act (permitting
gaming facilities in artificial basins within 1,000 feet of the
Mississippi and Missouri Rivers) that was found unconstitutional
by the Missouri Supreme Court, and (ii) declares that the
facilities that were heretofore built in such artificial basins,
including the Company's facilities in Maryland Heights, are
legally sanctioned.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Comparison of Operating Results for the Three-Month Periods Ended
September 30, 1998 and 1997
The Company owns and operates riverboat gaming and
entertainment facilities. These include one riverboat casino in
Metropolis, Illinois (the "Metropolis Facility"), two riverboat
casinos in Lake Charles, Louisiana (the "Lake Charles Facility")
and two contiguous, permanently moored, dockside riverboat
casinos in Maryland Heights, Missouri (the "Maryland Heights
Facility"). In addition, the Company owns a 50% interest in a
casino entertainment facility in Maryland Heights, Missiouri (the
"Maryland Heights Joint Venture"). The Company operated a land-
based casino resort in Mesquite, Nevada (the "Mesquite Facility")
until June 30, 1997. The Company also owns and operates a
thoroughbred racetrack in Paducah, Kentucky. The Company's
fiscal year ends on March 31st. References to the second quarter
of 1999 or 1998, mean the three-month periods ended September 30,
1998, and September 30, 1997, respectively.
Results of Operations
Financial Highlights
%Increase/
Three months ended September 30, 1998 1997 (Decrease)
(Dollars in thousands, except per share amounts)
Casino Revenues
Metropolis $ 20,545 $ 21,032 (2.3)
Lake Charles 39,419 39,922 (1.3)
Maryland Heights 22,723 17,425 30.4
_________ _________ ____
$ 82,687 $ 78,379 5.5
========= ========= ====
Total Revenues
Metropolis $ 21,317 $ 21,916 (2.7)
Lake Charles 42,002 41,810 0.5
Maryland Heights 23,633 18,638 26.8
Other 301 196 53.6
_________ _________ ____
$ 87,253 $ 82,560 5.7
========= ========= ====
Operating Income (Loss)
Metropolis $ 4,501 $ 6,211 (27.5)
Lake Charles 8,245 7,238 13.9
Maryland Heights (a) 1,621 (1,749) 192.7
Corporate, development,
and other (3,408) (2,300) (48.1)
_________ _________ ____
$ 10,959 $ 9,400 16.6
========= ========= ====
Depreciation and
amortization (b) $ 4,992 $ 5,331 (6.4)
Interest expense 5,410 6,139 (11.9)
Net income 3,377 2,120 59.3
Earnings per share
assuming dilution $ 0.11 $ 0.07 57.1
Operating Margin (operating
income/total revenues)
Metropolis 21.1% 28.3% (7.2)pts
Lake Charles 19.6% 17.3% 2.3pts
Maryland Heights 6.9% (9.4)% 16.3pts
Consolidated 12.6% 11.4% 1.2pts
(a) Amount includes the Company's 50% share of both the Maryland
Heights Joint Venture operating losses and Maryland Heights Joint
Venture depreciation and amortization. In the second quarter of
1999, Player's share of the total loss from investment in the
Maryland Heights Joint Venture was approximately $2.7 million,
which consisted of $1.4 million in operating losses and $1.3
million in depreciation and amortization. In the second quarter
of 1998, Player's share of the total loss from investment in the
Maryland Heights Joint Venture was approximately $2.9 million,
which consisted of $1.6 million in operating losses and $1.3
million in depreciation and amortization.
9
(b) The second quarters of 1999 and 1998 do not include Player's
share of the Maryland Heights Joint Venture depreciation and
amortization of approximately $1.3 million and $1.3 million,
respectively.
The 5.5% and 5.7% net increases in casino and total
revenues, respectively, in the second quarter of 1999 as compared
to the second quarter of 1998, resulted from significant revenue
growth in the comparable periods at the Maryland Heights Facility
which opened on March 11, 1997. U.S. Interstate 10 road construction,
which began in August 1998, and severe tropical storms affected Lake
Charles revenues in September, 1998.
The Company's operating income increased 16.6% during the
second quarter of 1999 as compared to the second quarter of 1998.
The increase was due to profitable performance at the Maryland
Heights Facility as compared to the loss experienced in the
second quarter of 1998. Substantial revenue growth coupled with
continuing cost reductions were the primary reasons for the
Maryland Height's operating income growth. Despite increased
city gaming taxes in the current fiscal year, Lake Charles
operating margins increased during the comparable periods as a
result of expense reduction efforts. Operating margins in
Metropolis were affected by costs related to its summer marketing
strategy, general and administrative expense adjustments, and the
year-over-year increase in Illinois gaming taxes.
Corporate, development, and other expenses increased 48.1%
during the second quarter of 1999 as a result of legal and
consulting costs incurred for the Missouri "boat-in-a-moat"
referendum and certain shareholder value projects.
Interest Expense
Interest expense decreased 11.9% in the second quarter of
1999 as compared to the second quarter of 1998 due to reductions
in the Company's bank borrowings and average borrowing rate. The
lower interest rates are contained in a new $80 million, five
year bank agreement that closed in March 1998.
Comparison of Operating Results for the Six-Month Periods Ended
September 30, 1998 and 1997
References to the first half of 1999 or 1998 mean the six-
month periods ended September 30, 1998 and September 30, 1997,
respectively.
Results of Operations
Financial Highlights
%Increase/
Six months ended September 30, 1998 1997 (Decrease)
(Dollars in thousands, except per share amounts)
Casino Revenues
Metropolis $ 40,230 $ 39,757 1.2
Lake Charles 75,683 77,259 (2.0)
Maryland Heights 43,798 32,712 33.9
Mesquite - 4,438 n.m.
_________ _________ _____
$ 159,711 $ 154,166 3.6
========= ========= =====
Total Revenues
Metropolis $ 41,790 $ 41,420 0.9
Lake Charles 80,907 80,988 (0.1)
Maryland Heights 45,623 35,220 29.5
Mesquite - 8,700 n.m.
Other 498 414 20.3
_________ _________ ____
$ 168,818 $ 166,742 1.2
========= ========= ====
10
Operating Income (Loss)
Metropolis $ 9,268 $ 10,928 (15.2)
Lake Charles 15,093 14,091 7.1
Maryland Heights (a) 2,278 (3,432) 166.4
Mesquite - (690) n.m.
Corporate, development,
and other (6,024) (4,752) (26.8)
_________ __________ ____
$ 20,615 $ 16,145 27.7
========= ========== ====
Depreciation and
amortization (b) $ 9,928 $ 9,935 (0.1)
Interest expense 11,111 12,393 (10.3)
Net income 5,817 2,413 141.1
Earnings per share
assuming dilution $ 0.18 $ 0.08 125.0
Operating Margin (operating
income/total revenue)
Metropolis 22.2% 26.4% (4.2)pts
Lake Charles 18.7% 17.4% 1.3pts
Maryland Heights 5.0% (9.7)% 14.7pts
Mesquite - (7.9)% n.m.
Consolidated 12.2% 9.7% 2.5pts
(a) Amount includes the Company's 50% share of both the
Maryland Heights Joint Venture operating losses and Maryland
Heights Joint Venture depreciation and amortization. In the
first half of 1999, Player's share of the total loss from
investment in the Maryland Heights Joint Venture was
approximately $5.4 million which consisted of $3.0 million in
operating losses and $2.4 million in depreciation and
amortization. In the first half of 1998, Player's share of the
total loss from investment in the Maryland Heights Joint Venture
was approximately $6.2 million, which consisted of $3.6 million
in operating losses and $2.6 million in depreciation and
amortization.
(b) The first six months of 1999 and 1998 do not include
Player's share of the Maryland Heights Joint Venture depreciation
and amortization of approximately $2.4 million and $2.6 million,
respectively.
n.m. - not meaningful
The 3.6% and 1.2% net increases in casino and total
revenues, respectively, in the first half of 1999 as compared to
the first half of 1998, resulted from significant revenue growth
in the comparable periods at the Maryland Heights Facility which
opened on March 11, 1997. This increase more than offset the
absence of revenues from the Mesquite Facility which was sold on
June 30, 1997. Lower summer revenues in Metropolis, and U.S.
Interstate 10 road construction coupled with severe weather in
Lake Charles during the second quarter of 1999 kept comparable
half-year revenues relatively flat at both locations.
The Company's operating income increased 27.7% during the
first half of 1999 as compared to the first half of 1998. The
increase was due to profitable performance at the Maryland
Heights Facility as compared to the loss experienced in the first
half of 1998. Lake Charles results benefited from cost
reductions in the 1999 period as compared to the first half of
1998. The Metropolis Facility was affected by the increase in
Illinois gaming taxes and, in the second quarter of 1999, costs
related to its summer marketing strategy and general and
administrative expense adjustments.
Corporate, development, and other expenses, increased 26.8%
during the first half of 1999 as a result of legal and consulting
costs incurred for the Missouri "boat-in-a-moat" referendum and
certain shareholder value projects.
Interest Expense
Interest expense decreased 10.3% in the first half of 1999
as compared to the first half of 1998 due to reductions in the
Company's bank borrowings and average borrowing rate. The lower
interest rates are contained in a new $80 million, five year bank
agreement that closed in March, 1998.
11
Additional Factors Affecting Future Operating Income
Road construction began on U.S. Interstate 10 in front of
the Company's Lake Charles Facility in August, 1998, and is
scheduled to be completed no later than March, 1999. The
construction has resulted in lanes of U.S. Interstate 10 being
closed for periods of time, although the Company has been advised
that one Eastbound lane and one Westbound lane will always remain
open, permitting access to and from the casino. The Star
Riverboat in Lake Charles was dry-docked on November 1, 1998,
for required hull inspection by the U.S. Coast Guard.
The Star returned to service on November 6, 1998.
These events will negatively impact the facility's results
during the third quarter of 1999 and the ongoing traffic delays
caused by road construction are expected to continue to adversely
impact results during the remainder of the construction period.
Year 2000
The "Year 2000" problem refers to the inability of computers
and software programs to recognize and properly process data
fields containing a two digit year. A system which is not Year
2000 compliant would not be able to correctly process date-based
information, and in extreme situations, could cause entire
systems to be disabled.
The Company has identified five phases in its efforts to
become Year 2000 compliant, which include awareness, assessment,
renovation, testing and implementation. The awareness and
assessment phases have been completed and the Company is
currently in the process of renovating its major Information
Technology ("IT") systems. The Company does not rely on
internally developed, proprietary systems, but rather "canned"
software solutions purchased from third party vendors. As part
of the renovation/upgrade process, testing and implementation of
the new IT systems will also be completed. The Company
anticipates completing its upgrade cycle for Year 2000 compliance
by the end of the current fiscal year.
Embedded systems and vendor affiliates have been inventoried
and criticality has been assessed. Manufacturers of the
Company's critical embedded systems are currently being contacted
to identify compliance and questionnaires have been sent to each
facility's critical vendor affiliates to identify each vendor's
Year 2000 compliance status.
Upon completion of the five phases described above, the
Company expects to design a contingency plan to address any
remaining identified Year 2000 exposure. As of September 30,
1998, the Company had either expended or committed approximately
$400,000 and expects to expend no more than a total of $1 million
on its Year 2000 compliance efforts.
Capital Resources and Liquidity
During the six months ended September 30, 1998, cash
generated by operations was used to reduce bank borrowings. The
Credit Facility's outstanding balance on March 31, 1998, June 30,
1998, and September 30, 1998 was $30 million, $26.5 million, and
$14 million, respectively.
12
Forward Looking Information
Certain information included in this section and
elsewhere in this Quarterly Report on Form 10-Q contains, and
other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information
included in oral statements or other written statements made or
to be made by the Company) contain or will contain or include,
forward-looking statements within the meaning of Section 21E of
the Securities and Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended. Such forward-
looking statements address, among other things, the effects of
competition, the effects of riverboat hull inspections, I-10
road construction in Lake Charles, Year 2000 remediation efforts,
future borrowing and capital costs, plans for future expansion
and property enhancements, business development activities,
capital expenditure programs and requirements, financing sources
and the effects of legislation and regulation (including possible
gaming legislation, gaming licensure and regulation, state and
local regulation, tax regulation, and the potential for
regulatory reform). Forward looking statements can generally be
identified by the use of forward-looking terminology such as
"may", "will", "expect", "intend", "estimate", "believe", or
"continue" or the negative thereof or variations thereon or
similar terminology. Such forward-looking information is based
upon management's current plans or expectations and is subject to
a number of uncertainties and risks that could significantly
affect current plans, anticipated actions, and the Company's
future financial condition and results of operations. These
uncertainties and risks include, but are not limited to, those
relating to conducting operations in an increasingly competitive
environment, conducting operations at a newly or recently
developed site or in a jurisdiction for which gaming has recently
been permitted, changes in state and local gaming laws and
regulations, development and construction activities, leverage
and debt service requirements (including sensitivity to
fluctuation in interest rates), general economic conditions,
changes in federal and state tax laws, the disruption to Lake
Charles operations caused by road construction, Year 2000
remediation efforts, action taken under applications for licenses
(including renewals) and approvals under applicable laws and
regulations (including gaming laws and regulations). As a
consequence, current plans, anticipated actions, and future
financial condition and results from operations may differ from
those expressed in any forward-looking statements made by or on
behalf of the Company and no assurance can be given that such
statements will prove to be correct.
Item 3. Quantitative and Qualitative Disclosure About Market
Risk.
13
Not applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Poulos, Ahern and Schreier Litigation
The Company, certain suppliers and distributors of video
poker and electronic slot machines and over forty other casino
operators have been named as defendants in a class action suit
filed April 26, 1994 in the United States District Court, Middle
District of Florida, by William Ahern and William H. Poulos.
The plaintiffs allege common law fraud and deceit, mail fraud,
wire fraud and Racketeer Influenced and Corrupt Organizations Act
violations in the marketing and operation of video poker games
and electronic slot machines. The suit seeks unspecified damages
and recovery of attorney's fees and costs. On December 9, 1994,
an Order was entered by the District Court in Florida
transferring the consolidated action to the United States
District Court for the District of Nevada.
On or about October 27, 1995 the Company was served with a
purported class action captioned Schreier, et. al. v. Players
International, et al. in the United States District Court for the
District of Nevada, which is essentially identical to the Poulos
and Ahern litigation, except for certain variations in the
definition of the purported class. The matter has been
consolidated with the Poulos and Ahern litigation.
These matters are currently in the discovery stage, after
which substantive motions for dismissal will be filed by the
defendants. The Company believes that the plaintiffs' claims are
wholly without merit and does not expect that the lawsuits will
have a material adverse effect on the Company's financial
position or results of operations.
J.A. Miller, et al. v. Showboat Star Partnership, et al.
Showboat Star Partnership and Players Lake Charles, LLC,
subsidiaries of the Company, were served with a petition
captioned J.A. Miller, et al. v. Showboat Star Partnership, et
al. on or about February 27, 1997, Docket No. 10-14544, in the
38th Judicial District Court, Parish of Cameron, State of
Louisiana. The plaintiffs, a group of oyster fishermen, allege
in the petition that on or about February 2, 1997, the Star
Riverboat discharged raw sewage and other hazardous and toxic
substances from the bilge of the vessel into Lake Charles.
Plaintiffs further allege that, since 1994, the Star Riverboat
and the Players Lake Charles Riverboat have discharged raw sewage
and other hazardous and toxic substances into Lake Charles which
is part of the Calcasieu Estuary. Plaintiffs claim that alleged
acts of the Company have resulted in great damage to natural
oyster beds forty-three (43) miles down river in Cameron Parish,
resulting in oysters situated thereon to become dangerous and
unfit for human consumption and/or preventing the oyster
fishermen from harvesting oysters. The oyster fishermen are
claiming both compensatory and punitive damages. The matter is
in the early stages of litigation. Several motions are pending
before the court including a motion to dismiss the suit in its
entirety for failure to state a cause of action. A separate
motion is currently pending before the court to dismiss the
claims of twenty-eight (28) plaintiffs who have failed to comply
with the court's discovery order. The Company has obtained
certain discovery in connection with motions and additional
discovery has been requested. A motion to require plaintiffs to
post security for taxable costs which may be incurred by the
Company, through its insurer, in connection with this litigation
is also pending. The Company intends to vigorously defend this
action.
Ceola and Richard Morris v. Players Lake Charles, Inc., et al.
Players Lake Charles, Inc. has been named as a defendant in
a claim in Louisiana State Court for personal injuries filed by
Ceola and Richard Morris. The claim allegedly resulted when a
piece of fret-work aboard the Players Lake Charles Riverboat fell
from the wall and allegedly hit Ms. Morris on the head. Third
party demands and cross claims have been filed on behalf of
Players against Leevac Shipyards, who was responsible for the
construction of the vessel, and its insurer, as well as James
Carpet & Drapery, who actually installed the fret work, and its
insurer. These claims arise from a breach of workmanlike
performance in the construction of the vessel. Plaintiffs and
Players have agreed to a settlement. In exchange for a full
release and judgment of dismissal with prejudice, Players will
pay plaintiffs $100,000 plus $2,000 court costs. The Company's
primary insurer with respect to this claim, Anglo American
14
Insurance Company Limited ("Anglo American"), has been placed in
liquidation. The Company continues to pursue its claim against
Anglo American.
W. Todd Akin, et al. v. Missouri Gaming Commission
W. Todd Akin et al. v. Missouri Gaming Commission was filed
in the Circuit Court of Cole County, Missouri, in August of 1996
in order to seek a judicial declaration that the Missouri Gaming
Act is unconstitutional because, allegedly contrary to the
Missouri Constitution, the Missouri Gaming Act permits gaming
facilities (such as the Maryland Heights Facility) to be located
upon artificial basins fed by the Missouri or Mississippi Rivers.
The Company and Harrah's, the Missouri Riverboat Gaming
Association and the City of Maryland Heights intervened in order
to protect their respective interests. The statute was found
constitutional and the suit was dismissed in its entirety on the
merits by the trial court in December, 1996. That dismissal was
appealed directly to the Missouri Supreme Court by the plaintiffs
in January, 1997. On November 25, 1997, the Missouri Supreme
Court ruled that gaming may occur only in artificial spaces that
are contiguous to the surface stream of the Missouri and
Mississippi Rivers. The case was remanded to the trial court for
a factual determination as to whether those casino operators meet
this requirement. The plaintiffs dismissed their case against
the Company after this ruling but prior to a determination by the
trial court on this issue. A number of Missouri gaming licensees
conduct gaming operations directly on the Missouri and
Mississippi rivers and thus these operators are not expected to
be adversely affected by the implications of the Akin decision.
On November 3, 1998, the voters of Missouri approved an
amendment to the state's constitution that (i) expressly
authorizes the provision of the Missouri Gaming Act (permitting
gaming facilities in artificial basins within 1,000 feet of the
Mississippi and Missouri Rivers) that was found unconstitutional
by the Missouri Supreme Court, and (ii) declares that the
facilities that were heretofore built in such artificial basins,
including the Company's facilities in Maryland Heights, are
legally sanctioned. At this time, therefore, based on
discussions with Missouri legal counsel, management believes that
the disciplinary proceedings before the Missouri Gaming
Commission hereinafter described will be withdrawn shortly, and
that the suit by the Company and Harrah's seeking a declaratory
judgment (also hereinafter described) will likewise be resolved,
thus fully resolving the issues created by the Supreme Court's
decision in the Akin case.
Disciplinary Proceedings
In January, 1998, the Company was advised by the Missouri
Gaming Commission (the "Commission") that it intended to take
disciplinary action against the licenses held by the Company in
Maryland Heights for failure to comply with Missouri law, as
modified and interpreted in the Akin decision, and to revoke the
Company's licenses to conduct games of chance at the Maryland
Heights Facility. In response to this, on January 9, 1998, the
Company (and certain other casino companies) sought and obtained
a Preliminary Writ of Prohibition from the Circuit Court of Cole
County, Missouri, prohibiting the Commission from taking
disciplinary action against such companies. On January 29, 1998,
following hearings on the Petition for Writ of Prohibition, the
Circuit Court of Cole County made its Preliminary Writ of
Prohibition permanent, holding that the companies had a
constitutional right to due process which was violated by the
proposed disciplinary actions of the Commission. The Commission
appealed that decision granting a Writ of Prohibition to the
Missouri Supreme Court. On May 28, 1998, the Missouri Supreme
Court reversed the decision of the Circuit Court and quashed the
Writ of Prohibition issued against the Commission. The Court
found that because the Commission presumptively had jurisdiction
to take disciplinary action against gaming facilities for failing
to comply with state law location requirements, a Writ of
Prohibition was an inappropriate remedy. The Court held that the
companies' objections to jurisdiction and other components of the
proceedings should be addressed to the Commission, and to the
courts of appeal should the companies not prevail before the
Commission. The Court also held that the appeal was an effective
alternative remedy at law because the Commission does have the
authority to stay any adverse decision pending the outcome of all
appeals, thus rendering prohibition an inappropriate remedy in
the circumstances.
On June 18, 1998, the Commission issued its Preliminary
Orders for Disciplinary Action to the gaming companies affected
by the Akin decision, including the Company. On July 23, 1998,
the Company requested a hearing on the Preliminary Orders for
Disciplinary Action, which request stayed the effect of the
proposed Preliminary Orders indefinitely and entitled the Company
to a full evidentiary hearing before the Commission's Hearing
Officer. There are five gaming companies in separate locations
which received Preliminary Orders for Disciplinary Action and for
whom hearings must be conducted. The Commission has indicated
15
that all hearings will be conducted prior to any recommended
decision being submitted to the Commission by its Hearing Officer
for a vote of the Commission on final discipline for any
facility. Hearings are anticipated to take several weeks.
Discovery has been undertaken and it is anticipated that any
hearings are unlikely to commence prior to December, 1998.
Should a recommendation adverse to the Company be made and
adopted by the Commission after such hearings, the Company will
seek a stay of any discipline in order to appeal to the Missouri
Court of Appeals, Western District. Appeals of this type
ordinarily take six months to one year from filing to decision.
Further appeal from any adverse decision of the Missouri Court of
Appeals may then be taken by transfer to the Missouri Supreme
Court.
Declaratory Judgment Action
Because of management's belief that the Company was
entitled to clarification of the uncertainty caused by the Akin
decision and the Commission's and Attorney General's
interpretation of it, the Company and Harrah's filed suit for a
declaratory judgment in Circuit Court on January 22, 1998. This
suit seeks a declaration that: (i) the Company's reasonable
reliance upon the prior approval of the Commission of its
location prohibits adverse action by the Commission or Attorney
General against the Company on the basis of the subsequent Akin
decision; (ii) the Company, if found not in compliance to any
extent, must be permitted a reasonable period of time within
which to remedy any deficiency in its facilities to bring them
into compliance; and (iii) the Company is entitled to be justly
compensated for any financial loss resulting from adverse actions
of the Commission or the Attorney General in enforcing their
interpretation of the Akin decision. On February 23, 1998, the
Commission filed a Motion to Dismiss the Petition for Lack of
Ripeness and Failure to Exhaust Administrative Remedies. On April
13, 1998, the Circuit Court issued an order denying the Motions
to Dismiss and requiring an Answer to be filed. Defendants'
Answer to the Petition was filed May 1, 1998, and Plaintiff's
Discovery commenced with Interrogatories and Requests for
Production of Documents. While this case involves no fixed
monetary sum, it will be diligently prosecuted by the Company in
order to obtain relief from the uncertainty created by the Akin
decision.
In the event that, for whatever reason, the disciplinary
proceedings and the declaratory judgment suit are not withdrawn
or dismissed as a result of the constitutional amendment approved
by the voters on November 3, 1998, the Company continues to
believe, based on discussions with Missouri counsel, that the
problem created by the Akin decision could be remedied by either
(1) the legal and equitable defenses available to the Company if
a lawsuit judgment or administrative sanction based on the
Supreme Court ruling were to be issued against the Company, or
(2) remedial action to the property. If, subsequent to any
judicial or administrative resolution of any of the foregoing
issues, remediation of the Maryland Heights property were
considered, management would, prior to undertaking any
remediation, (i) consult with Harrah's concerning the alternative
means by which to remediate the property and the terms thereof,
including whether the Company in such circumstances would be
contractually obligated to fund any remediation effort and (ii)
individually evaluate whether the cost of remediation would be
justified in light of the projected future results of the
Company's Maryland Heights operations. Management cannot
presently provide any assurance as to whether the Maryland
Heights Facility would be permitted to modify the facility to
comply with any such remediation order or whether the Company's
legal defenses, legislative or electoral alternatives or other
means available would be successful to permit continued use of
the facility without interruption. Further, it is unclear, in
the event of a determination of non-compliance, what penalty or
monetary obligation or sanction, if any, including a possible
temporary or permanent closure, could be imposed on the Maryland
Heights Facility or the Company. If the Company could not, or
chose not to, remediate the property and it were closed, the
Company would incur a substantial write-down in asset values
related to the property in addition to the possibility of
incurring substantial losses related to any potential shut-down
or suspension of operations. Such negative impacts may be
offset, in part, by certain tax benefits.
16
Item 6. Exhibits and Reports on Form 8-K
Exhibits Filed with this Form 10-Q:
Exhibit No. Exhibit Description
10.1 Amendment to Peter J. Aranow Employment Agreement
dated September 29, 1998
27.0 Financial Data Schedule
Reports on Form 8-K Filed During Quarter:
None
17
SIGNATURE
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
PLAYERS INTERNATIONAL, INC.
Date: November 10, 1998 By:/s/ Peter J. Aranow
___________________________
Peter J. Aranow
Executive Vice President Finance,
Chief Financial Officer,
Treasurer and Secretary
(Principal Financial Officer)
18
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 21736
<SECURITIES> 0
<RECEIVABLES> 4594
<ALLOWANCES> 897
<INVENTORY> 1370
<CURRENT-ASSETS> 33700
<PP&E> 285704
<DEPRECIATION> 53326
<TOTAL-ASSETS> 400389
<CURRENT-LIABILITIES> 40966
<BONDS> 164000
0
0
<COMMON> 163
<OTHER-SE> 163568
<TOTAL-LIABILITY-AND-EQUITY> 400389
<SALES> 0
<TOTAL-REVENUES> 168818
<CGS> 0
<TOTAL-COSTS> 78448
<OTHER-EXPENSES> 69755
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11111
<INCOME-PRETAX> 9536
<INCOME-TAX> 3719
<INCOME-CONTINUING> 5817
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<EPS-PRIMARY> .18
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</TABLE>
PH06/159164.4
EXHIBIT 10.1
AMENDMENT
THIS AMENDMENT, dated as of September 29, 1998, is between
Players International, Inc. (together with its successors or
assigns, the "Company") and Peter J. Aranow ("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive are parties to an
Employment Agreement dated as of August 1, 1996 (the "Employment
Agreement"), and the Company and Executive now wish to amend the
Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable
consideration, the Company and Executive agree as follows:
1. Paragraph 1(l) is amended in its entirety to read as
follows:
(l) "Term of Employment" shall mean the
period of employment specified in Paragraph 2.
2. Paragraph 2 is amended by revising subparagraph (b) and
adding a new subparagraph (c) to read as follows:
(b) The Term of Employment shall commence on
October 1, 1996 and shall, unless sooner terminated as
provided in Paragraph 9 or unless extended by the
Company and Executive by mutual written agreement,
terminate on the close of business on January 1, 1999
(January 1, 1999 or any date to which the Company and
Executive have extended this Agreement is referred to
as the "Expiration Date").
(c) Between January 1, 1999 and June 30,
1999, if the Company commences or continues active
negotiations with any party with respect to a potential
Change in Control that has received active
consideration by the Board prior to December 31, 1998,
Executive and the Company will mutually agree as to the
time, if any, that Executive will devote to such
negotiations and the compensation that Executive will
receive for his services.
3. Paragraph 9(c) is amended in its entirety to read as
follows:
(c) Termination Without Cause; Constructive
Termination Without Cause; Expiration of the Agreement.
In the event Executive's employment is terminated by
the Company without Cause (which shall not include a
termination pursuant to Paragraph 9(a) or 9(d)) or in
the event of a Constructive Termination Without Cause,
or in the event this Agreement expires by its terms on
the Expiration Date set forth in Paragraph 2 and
Executive thereupon terminates employment, Executive,
upon executing and not revoking a release of the
Company as to all matters arising in the course of his
employment by the Company and the termination thereof,
in the form attached as Exhibit C to the Employment
Agreement, shall be entitled to receive:
(i) unpaid Base Compensation earned or
accrued through his date of termination and:
(A) in the case of expiration of this
Agreement by its terms on the Expiration Date
set forth in Paragraph 2, an amount equal to
Executive's Base Compensation payments, at
the rate in effect at the time of Executive's
termination, for a period of six months
following termination of his employment,
which amount shall be paid in a lump sum cash
payment upon termination of employment and
shall not be reduced by a present value
calculation; or
(B) in all other cases to which this
Paragraph 9(c) is applicable, continued Base
Compensation payments, at the rate in effect
at the time of his termination, for a period
of 12 months following termination of his
employment or through the end of the Term of
Employment, whichever is longer, payable, at
Executive's option, either (1) over such 12
months or the remaining Term of Employment,
as the case may be, or (2) in a lump-sum
payment promptly following termination of
Executive's employment equal to the then
present value using a discount rate per annum
determined by reference to the discount rate
then published by the Pension Benefit
Guaranty Corporation for determining the
value of immediate annuities (the "Present
Value") of the remaining Base Compensation
due Executive through the end of such 12
months or the remaining Term of Employment;
(ii) except in the case of a termination of
employment by reason of expiration of this
Agreement on the Expiration Date set forth in
Paragraph 2, continued performance bonuses for a
period of 12 months following termination of his
employment or through the end of the Term of
Employment, whichever is longer, in amounts
determined under the then applicable program of
the Company to the extent then applicable to
Executive, or, to the extent such amounts are not
reasonably determinable, in amounts based on
performance bonuses paid to Executive for the last
complete fiscal year of the Company ended prior to
the completion of such 12-month period;
(iii) any performance or special
incentive bonus earned but not yet paid; if
Executive's employment terminates by reason of
expiration of this Agreement on the Expiration
Date set forth in Paragraph 2, Executive shall
receive pursuant to this Paragraph (iii) a lump
sum cash payment upon termination of employment
equal to a pro rata portion (based on the portion
of the fiscal year completed as of the date of
Executive's termination of employment) of the
target annual performance bonus in effect for
Executive for the fiscal year in which Executive's
termination of employment occurs, and if
Executive's employment terminates on January 1,
1999, such payment shall be made on or before
December 31, 1998.
(iv) reimbursement for expenses incurred but
not yet reimbursed by the Company pursuant to
Paragraph 8;
(v) the immediate vesting of all stock
options previously granted to Executive,
notwithstanding the terms of any such grant to the
contrary, with the ability to exercise any such
options for 12 months following the date of
termination or, if there is a Pre-July 1999
Agreement, as hereinafter defined, for such longer
period as is provided in Section 9(d) hereof, but
in no event after the fifth anniversary of the
date of grant or, in the case of the November 19,
1997 option grant (the "1997 Option"), the tenth
anniversary of the date of grant; provided,
however, that the foregoing shall not apply to the
Non-Qualified Stock Option and Stock Appreciation
Right granted to Executive on September 19, 1996
(the "1996 Option and SAR"); the 1996 Option and
SAR shall remain outstanding through June 30, 1999
or, if later, for six months after Executive's
termination of employment (but not after September
18, 2001), and if there is a Pre-July 1999
Agreement and a Change in Control is thereafter
consummated, the 1996 Option and SAR shall remain
outstanding (but not beyond September 18, 2001)
pending the occurrence of a Change in Control, and
the provisions of Paragraph 9(d) shall apply;
(vi) any other compensation and benefits to
which he may be entitled under applicable plans,
programs and agreements of the Company and the
continuation of all Employee Benefit Programs
provided under Paragraph 7 during the period for
which Executive would receive payments under
clause (i) above if such payments were not paid in
a lump sum; provided, however, that in the event
the Company is precluded from providing coverage
under any such program by applicable law or
regulation it may choose to provide Executive with
a payment equal to the cost of such coverage
without regard to tax effect.
4. Paragraph 9(d) is amended by adding a new paragraph to
the end to read as follows:
If Executive's employment terminates by
reason of expiration of this Agreement pursuant to
Paragraph 9(c) and the Company has theretofore entered,
or thereafter enters, into an agreement on or before
June 30, 1999 to effect a Change in Control transaction
which received active consideration by the Board before
December 31, 1998 (a "Pre-July 1999 Agreement"), the
consummation of the Change in Control shall be
considered a "Termination Upon a Change in Control" for
purposes of this Agreement, and Executive shall be
entitled to receive the payments and benefits described
in this Paragraph 9(d) upon the Change in Control. The
payments and benefits described in this Paragraph 9(d)
shall be provided promptly following the consummation
of the Change in Control and, unless otherwise agreed
by the parties in writing, shall be determined by
reference to the benefit that would have been paid
assuming a Termination Upon a Change in Control had
occurred on January 1, 1999. Any amounts previously
paid to Executive upon his termination of employment
under Paragraph 9(c) shall be credited against the
payments to be made under this Paragraph 9(d). For
purposes of subparagraph (v) above, all of Executive's
outstanding stock options which have not theretofore
become vested (including the 1996 Option and SAR)
shall, notwithstanding any provision of the option
agreements to the contrary, continue in effect and
become fully vested upon the Change in Control, and
Executive shall have the ability to exercise his
outstanding stock options until the date that is 12
months following the Change in Control, but in no event
shall the options remain in effect after the fifth
anniversary of the date of grant or, in the case of the
1997 Option, the tenth anniversary of the date of
grant.
5. In all respects not amended, the Employment Agreement
is hereby ratified and confirmed.
IN WITNESS WHEREOF, the undersigned have executed this Amendment
as of the date first above written.
PLAYERS INTERNATIONAL, INC.
Howard A. Goldberg
Chief Executive Officer
Peter J. Aranow
