Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 No. 1-4748
Griffin Gaming & Entertainment, Inc.
(Exact name of registrant as specified in its charter)
Delaware 59-0763055
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1133 Boardwalk, Atlantic City, New Jersey 08401
(Address of principal executive offices) (Zip Code)
(609) 344-6000
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
Number of shares outstanding of each class of registrant's common
stock as of September 30, 1996: Common Stock - 7,942,785 shares and
Class B Redeemable Common Stock - 35,000 shares.
Exhibit Index is presented on page 20
Total number of pages 23
1<PAGE>
GRIFFIN GAMING & ENTERTAINMENT, INC.
FORM 10-Q
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
at September 30, 1996 and
December 31, 1995 3
Consolidated Statements of
Operations for the Quarters
and Three Quarters Ended
September 30, 1996 and 1995 4
Consolidated Statements of
Cash Flows for the Three
Quarters Ended September 30,
1996 and 1995 5
Notes to Consolidated
Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 11
Part II. Other Information
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on
Form 8-K 17
2<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
GRIFFIN GAMING & ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, except par value)
September 30, December 31,
1996 1995
(Unaudited)
ASSETS
Current assets:
Cash (including cash equivalents
of $40,939 and $35,515) $ 54,011 $ 51,210
Restricted cash equivalents 2,275 4,362
Receivables, less allowance for
doubtful accounts of $3,319
and $3,570 8,469 7,910
Inventories 2,064 2,447
Prepaid expenses 5,196 6,615
Total current assets 72,015 72,544
Land held for investment,
development or resale 94,420 93,795
Property and equipment, net of
accumulated depreciation of $70,025
and $62,227 158,433 158,975
Deferred charges and other assets 15,932 13,137
$340,800 $ 338,451
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 626 $ 589
Accounts payable and accrued
liabilities 35,604 41,209
Total current liabilities 36,230 41,798
Long-term debt, net of unamortized
discounts 220,059 217,356
Deferred income taxes 53,110 53,350
Shareholders' equity:
GGE Common Stock - $.01 par value 79 79
Class B Stock - $.01 par value
Capital in excess of par 129,581 129,572
Accumulated deficit (98,259) (103,704)
Total shareholders' equity 31,401 25,947
$340,800 $ 338,451
3<PAGE>
GRIFFIN GAMING & ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share amounts)
(Unaudited)
Quarter Ended Three Quarters Ended
September 30, September 30,
1996 1995 1996 1995
Revenues:
Casino $71,770 $76,058 $198,551 $206,690
Rooms 1,800 2,113 5,023 5,180
Food and beverage 3,782 3,811 9,908 9,708
Other casino/hotel
revenues 1,484 1,480 3,921 4,124
Real estate related 2,201 2,140 6,607 6,361
81,037 85,602 224,010 232,063
Expenses:
Casino 43,892 42,035 123,149 118,021
Rooms 720 819 2,705 2,701
Food and beverage 4,216 4,091 11,392 10,731
Other casino/hotel
operating expenses 8,783 8,764 25,505 25,885
Selling, general and
administrative 8,312 9,788 27,349 29,321
Depreciation 3,102 3,350 9,307 10,312
69,025 68,847 199,407 196,971
Earnings from operations 12,012 16,755 24,603 35,092
Other income (deductions):
Interest income 932 726 2,502 2,698
Interest expense, net (6,092) (6,357) (18,485) (18,956)
Amortization of debt
discounts (1,092) (964) (3,175) (2,958)
Net earnings $ 5,760 $10,160 $ 5,445 $ 15,876
Net earnings per
share - primary $ .65 $1.16 $ .62 $1.87
Weighted average number
of shares and equivalents 8,807 8,743 8,736 8,493
Net earnings per
share - fully diluted $ .64 $1.16 $ .61 $1.83
Weighted average number
of shares and equivalents 8,975 8,743 8,978 8,697
4<PAGE>
GRIFFIN GAMING & ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
Three Quarters Ended
September 30,
1996 1995
Cash flows from operating activities:
Cash received from customers $ 222,726 $ 230,798
Cash paid to suppliers and employees (188,816) (181,533)
Cash flow from operations before
interest and income taxes 33,910 49,265
Interest received 2,456 2,630
Interest paid, net of amount
capitalized (23,487) (23,766)
Income taxes paid (244)
Net cash provided by operating
activities 12,635 28,129
Cash flows from investing activities:
Payments for property and equipment,
including capitalized interest and
property taxes (8,765) (16,954)
Payments for land held for
investment, development or resale (625)
Proceeds from sale of land held for
investment, development or resale 65
CRDA deposits and bond purchases (2,170) (2,234)
Net cash used in investing
activities (11,495) (19,188)
Cash flows from financing activities:
Proceeds from borrowing 1,815
Repayments of non-public debt (435) (181)
Proceeds from exercise of
stock options 9 17
Net cash provided by (used in)
financing activities (426) 1,651
Net increase in cash and cash
equivalents 714 10,592
Cash and cash equivalents at beginning
of period 55,572 40,891
Cash and cash equivalents at end of
period $ 56,286 $ 51,483
5<PAGE>
GRIFFIN GAMING & ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. General:
The accompanying consolidated interim financial statements, which
are unaudited, include the operations of Griffin Gaming &
Entertainment, Inc. ("GGE") and its subsidiaries. The term "Company"
as used herein includes GGE and/or one or more of its subsidiaries, as
the context may require.
While the accompanying interim financial information is
unaudited, management of the Company believes that all adjustments
necessary for a fair presentation of these interim results have been
made and all such adjustments are of a normal recurring nature.
The notes presented herein are intended to provide supplemental
disclosure of items of significance occurring subsequent to December
31, 1995 and should be read in conjunction with the Notes to
Consolidated Financial Statements contained in pages 41 through 60 of
GGE's Annual Report on Form 10-K for the year ended December 31, 1995.
B. Agreement and Plan of Merger:
On August 19, 1996, GGE entered into an Agreement and Plan of
Merger, which was subsequently amended on October 10, 1996, (as
amended, the "Merger Agreement") with Sun International Hotels Limited
("SIHL"), a Bahamian corporation, and Sun Merger Corp., a wholly owned
subsidiary of SIHL. Under the Merger Agreement, through a stock-for-
stock merger, a wholly owned subsidiary of SIHL will be merged with
and into GGE (the "Merger"), with GGE surviving as a wholly owned
subsidiary of SIHL. Subject to the terms and conditions of the Merger
Agreement, each share of GGE common stock, $.01 par value per share
(the "GGE Common Stock") outstanding immediately prior to the
effective time (the "Effective Time") of the Merger will be converted
into the right to receive the Conversion Number (as defined below) of
a fully paid and nonassessable ordinary share, $.001 par value per
share of SIHL (the "Ordinary Shares"). Cash will be paid to holders
of GGE Common Stock in lieu of any fractional Ordinary Shares. Also
subject to the terms of the Merger Agreement, each issued and
outstanding share of Class B common stock, $.01 par value per share,
of GGE (the "Class B Stock") will be converted into the right to
receive .1928 of a fully paid and nonassessable Ordinary Share. As a
result of this conversion, holders of Class B Stock will not be
entitled to special rights with respect to the election of directors
to which holders of Class B Stock were previously entitled. As of the
Effective Time, the .1928 Ordinary Share received in exchange for a
share of Class B Stock will trade as part of a unit along with $1,000
principal amount of Resorts International Hotel Financing, Inc.
11.375% Junior Mortgage Notes due 2004.
6<PAGE>
"Conversion Number" means .4324; provided, however, that if the
average of the closing sales prices of one Ordinary Share on the New
York Stock Exchange for each of the 15 consecutive trading days
immediately preceding the fifth trading day prior to the Effective
Time (the "Average Market Price") is less than $47.41, then the
Conversion Number shall be the quotient, rounded to the fourth decimal
place, obtained by dividing 20.5 by the Average Market Price. If the
Average Market Price of Ordinary Shares falls below $41.625, SIHL can
terminate the Merger Agreement unless GGE elects to go forward with
the Merger at a fixed exchange ratio whereby the "Conversion Number"
shall mean .4925.
The Merger is subject to certain customary conditions, including
adoption of the Merger Agreement by the holders of GGE Common Stock
and the approval of an amendment to the Restated Articles of
Association of SIHL (the "Charter Amendment") by holders of Ordinary
Shares. The Charter Amendment would add certain provisions relating
to the New Jersey Casino Control Act. In this connection, SIHL has
entered into an agreement with an affiliate of Merv Griffin, the
Chairman of the Board of GGE, who controls approximately 27% of the
outstanding shares of GGE Common Stock. This agreement provides,
among other things and subject to certain conditions, that Mr. Griffin
will vote such shares for the Merger and that, upon consummation of
the Merger, an affiliate of Mr. Griffin will enter into a new license
and services agreement with GGE and its subsidiary which owns and
operates Merv Griffin's Resorts Casino Hotel in Atlantic City, New
Jersey (the "Resorts Casino Hotel"). Also, Sun International
Investments Limited ("SIIL"), which controls approximately 55% of the
outstanding Ordinary Shares, has entered into an agreement with GGE,
pursuant to which SIIL has agreed, subject to certain conditions, to
vote all Ordinary Shares owned by it in favor of the Charter
Amendment.
SIHL's obligation to consummate the Merger is conditioned on
approval by the New Jersey Casino Control Commission (the "CCC") of
SIHL's application for a plenary casino license (the "Plenary
License"). On October 30, 1996, SIHL received an interim casino
authorization ("ICA") from the CCC and the CCC approved the terms of
an ICA trust document and the selection of an ICA trustee. The ICA is
the equivalent of a temporary casino license which would allow, but
not obligate, SIHL to close the Merger and operate the Company pending
the issuance of a Plenary License. In the event SIHL elects to
consummate the Merger pursuant to the ICA, all shares of GGE Common
Stock would be placed into a "stand by" trust (the "ICA Trust")
pending final determination by the CCC with respect to SIHL's
qualification for a Plenary License. If SIHL receives a Plenary
License, the ICA Trust would be terminated and the shares of GGE
Common Stock would revert to SIHL. If after consummation of the
Merger the CCC subsequently determines that there is reasonable cause
to believe that SIHL should not be granted a plenary license, the ICA
Trust would be activated and the ICA trustee would take control of the
Company pending a final determination by the CCC with respect to
SIHL's application for a Plenary License. In the event SIHL's
application for a Plenary License were denied, the ICA trustee would
be obligated to dispose of the GGE Common Stock and SIHL would be
entitled
7<PAGE>
to receive the lesser of (i) the fair market value or (ii) the price
paid by SIHL for the securities.
Management of the Company can give no assurance as to whether or
when the Merger will be effected.
C. Reverse Repurchase Agreements:
Cash equivalents at September 30, 1996 included reverse
repurchase agreements (federal government securities purchased under
agreements to resell those securities) with the institutions listed in
the following table under which the Company had not taken delivery of
the underlying securities. These agreements matured during the first
week of October 1996.
(In Thousands of Dollars)
Prudential Securities, Inc. $31,561
National Westminster Bank NJ $ 8,906
D. Complimentary Services:
The Consolidated Statements of Operations reflect each category
of operating revenues excluding the retail value of complimentary
services provided to casino patrons without charge. The retail value
of such complimentary services excluded from revenues amounted to
$9,775,000 and $9,554,000 for the third quarter of 1996 and 1995,
respectively, and $22,557,000 and $22,193,000 for the first three
quarters of 1996 and 1995, respectively. The rooms, food and
beverage, and other casino/hotel operations departments allocate a
percentage of their total operating expenses to the casino department
for complimentary services provided to casino patrons. These
allocations do not necessarily represent the incremental cost of
providing such complimentary services to casino patrons. Amounts
allocated to the casino department from the other operating
departments were as follows:
Quarter Ended Three Quarters Ended
September 30, September 30,
(In Thousands of Dollars) 1996 1995 1996 1995
Rooms $1,588 $1,438 $ 3,922 $ 3,737
Food and beverage 4,723 4,653 12,591 12,802
Other casino/hotel
operations 1,920 2,185 4,765 4,900
Total allocated to casino $8,231 $8,276 $21,278 $21,439
8<PAGE>
E. Related Party Transactions:
Griffin Entertainment, Inc. ("GEI"), a subsidiary of GGE, was
formed in 1995 to pursue development and production activities in
the television, live entertainment and motion picture industries.
In March 1996, in order to enable the Company to concentrate its
efforts on expansion of its core gaming business, the independent
members of the Board of Directors of GGE accepted an offer from The
Griffin Group, Inc., a corporation controlled by Merv Griffin, to
purchase the assets and ongoing operations of GEI at a purchase price
to equal the amount of the Company's expenditures on these assets
and operations from their inception in September 1995 through the
consummation of the transaction. There were no revenues offsetting
these expenditures, which totaled approximately $340,000 through
April 30, 1996, the effective date of the sale.
F. Capitalized Interest and Real Estate Taxes:
In the second quarter of 1996 the Company commenced the
capitalization of interest and real estate taxes on its expansion
project adjacent to the Resorts Casino Hotel. Interest expense
reported for 1996 is net of $317,000 and $600,000 capitalized in the
third quarter and first three quarters, respectively. Real estate
taxes of $152,000 and $296,000, respectively, were also capitalized in
those periods.
9<PAGE>
G. Statements of Cash Flows:
Supplemental disclosures required by Statement of Financial
Accounting Standards No. 95 "Statement of Cash Flows" are presented
below.
Three Quarters Ended
September 30,
(In Thousands of Dollars) 1996 1995
Reconciliation of net earnings to net
cash provided by operating activities:
Net earnings $ 5,445 $15,876
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 9,307 10,312
Amortization of debt discounts 3,175 2,958
Provision for doubtful receivables 501 887
Provision for discount on CRDA
obligations, net of amortization 1,150 1,175
Deferred tax benefit (240)
Gain on asset disposition (65)
Net increase in receivables (1,060) (1,979)
Net decrease in inventories and
prepaid expenses 1,802 1,112
Net (increase) decrease in deferred
charges and other assets (1,639) 318
Net decrease in accounts payable
and accrued liabilities (5,741) (2,530)
Net cash provided by operating activities $12,635 $28,129
Non-cash financing and investing
activities:
Exchange of real estate in Atlantic
City (at carrying value of property
exchanged) $ 1,501
Increase in liabilities for additions
to other assets $ 136 179
H. Commitments and Contingencies:
Land Lease/Option
The Company entered into a five year lease effective August 1,
1996 (the "Lease Agreement"), to lease approximately 3 acres to the
north of Resorts Casino Hotel and an additional .6 acres nearby
(the "Leased Property"). In accordance with the Lease Agreement
(i) the Company is required to pay rent of $825,000 per year plus
related real estate taxes, (ii) the Company has an option to
purchase the Leased Property
10<PAGE>
for $12,000,000 on July 31, 1997 and every consecutive July 31 until
and including the expiration date of the lease, July 31, 2001, and
(iii) the lessor has an option to require the Company to purchase
the Leased Property for $12,000,000 upon the expiration date of the
lease.
Casino Reinvestment Development Authority ("CRDA")
As previously reported, certain issues have been raised by the
CRDA and the State of New Jersey Department of the Treasury (the
"Treasury") concerning the satisfaction of investment obligations for
the years 1979 through 1983 by Resorts International Hotel, Inc.
("RIH"), GGE's subsidiary which owns and operates Resorts Casino
Hotel. These matters were dormant for an extensive period of time
until late 1995 when the Company was contacted by the CRDA. CRDA
legal representatives have recently indicated that Treasury may take
a position that RIH owes additional investment alternative taxes
including interest and possibly penalties. If these issues are
determined adversely, RIH could be required to pay the relevant amount
in cash. Management of the Company intends to contest these issues
and believes a negotiated settlement with an insignificant monetary
cost to the Company is possible.
Litigation
GGE and certain of its subsidiaries are defendants in certain
litigation. In the opinion of management, based upon advice of
counsel, the aggregate liability, if any, arising from such litigation
will not have a material adverse effect on the accompanying
consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
See Note B of Notes to Consolidated Financial Statements for
discussion of the Merger Agreement to which GGE is a party. Because
consummation of the Merger is subject to various conditions, the
Company can make no representations as to whether, or when, the Merger
will be consummated or as to the possible impact of the Merger on the
Company's financial condition and results of operations should the
Merger be consummated.
FINANCIAL CONDITION
Liquidity
At September 30, 1996 the Company's working capital amounted to
$35,785,000, including unrestricted cash and equivalents of
$54,011,000. A significant portion of the unrestricted cash and
equivalents is required for day-to-day operations, including
approximately $10,000,000 of currency and coin on hand which amount
varies by days of the week,
11<PAGE>
holidays and seasons, as well as additional cash balances necessary to
meet current working capital needs.
The Company will satisfy the interest payment due December 16,
1996 on its 11.375% Junior Mortgage Notes due 2004 by cash payment.
Capital Expenditures and Resources
As previously disclosed the Company planned to construct up to
700 new hotel rooms, 70,000 square feet of casino space and a 2,000
space parking garage and transportation center (the "Chalfonte
Project") on the 4.4 acre tract on the Boardwalk (the "Chalfonte
Site") adjacent to Resorts Casino Hotel which GGE purchased in 1995.
Subject to receipt of regulatory approvals, the Company planned to
break ground in the fall of 1996 on the infrastructure necessary to
support the full expansion. The first phase of construction was
expected to consist of 500 new hotel rooms, 50,000 square feet of
casino floor space and the new garage. Construction costs for this
phase were estimated at approximately $200,000,000. The Company also
recently entered into a five year lease with an option to purchase
approximately 3 acres to the north of the Resorts Casino Hotel,
purchased an adjacent parcel and was successful in vacating the
portion of North Carolina Avenue that lies between the Chalfonte Site
and Resorts Casino Hotel. These parcels together with the Chalfonte
Site total more than 9 acres, all of which would play a role in the
Company's expansion plans. Although the Merger Agreement limits the
amount of capital expenditures that the Company can make on this
project prior to consummation of the Merger or termination of the
Merger Agreement, the Company is continuing with the process of
obtaining permits and limited design activities. SIHL has advised the
Company that if and when the Merger is consummated, SIHL expects to
proceed with development of the Chalfonte Site, although it expects to
reconsider the type of facility to be developed and significantly
increase the amount to be invested. To date the Company has spent
$2,900,000 on Chalfonte Project costs, including capitalized interest
and real estate taxes.
During the first three quarters of 1996 the Company's capital
expenditures included approximately $5,000,000 at Resorts Casino Hotel
for computer system upgrades, the purchase of 81 slot machines
(replacements for older models), corridor carpeting and other
maintenance projects.
Also during the first three quarters of 1996 the Company expended
approximately $900,000 on the demolition of the Steeplechase Pier, an
ocean pier across the Boardwalk from Resorts Casino Hotel, which was
damaged beyond repair in a fire several years ago. The Company has
permits to construct a new pier similar in size to the old one.
12<PAGE>
RESULTS OF OPERATIONS
Revenues
Revenues by geographic and business segment were as follows (in
thousands of dollars):
Quarter Ended Three Quarters Ended
September 30, September 30,
1996 1995 1996 1995
Casino/hotel -
Atlantic City,
New Jersey:
Casino $71,770 $76,058 $198,551 $206,690
Rooms 1,800 2,113 5,023 5,180
Food and beverage 3,782 3,811 9,908 9,708
Other casino/hotel 1,484 1,474 3,921 4,118
78,836 83,456 217,403 225,696
Real estate related -
Atlantic City,
New Jersey 2,201 2,140 6,607 6,361
Other segments 6 6
Revenues from
operations $81,037 $85,602 $224,010 $232,063
Third Quarter and First Three Quarters 1996 Compared to 1995
Casino/hotel - Atlantic City, New Jersey
Casino revenues were down $4,288,000 for the third quarter and
$8,139,000 for the first three quarters of 1996. For the third
quarter slot win was down $3,140,000 and table game win was down
$1,008,000. The decrease in slot win was primarily due to a decrease
in hold percentage (ratio of casino win to total amount wagered for
slots or total amount of chips purchased for table games), though the
amount wagered by patrons also decreased. Table game win was down due
to both a decrease in amounts wagered by patrons and the effects of a
decreased hold percentage.
For the first three quarters of 1996 slot win was down $6,588,000
and table game win was down $1,347,000. The decrease in slot win was
almost totally attributable to a decrease in hold percentage. The
decrease in table game win resulted as the decrease in amounts wagered
by patrons more than offset the effects of an increased hold
percentage.
Two factors negatively affected the Company's performance in the
first three quarters - heightened competition for patrons in the
13<PAGE>
Atlantic City market and severe weather conditions during the first
quarter of 1996.
As competition for patrons has intensified, promotions -
complimentary services (rooms, food and beverage provided to patrons
without charge), cash giveaways and events - have increased. In
recent quarters certain competitors have increased complimentaries and
cash giveaways dramatically. Although the Company did increase its
promotions somewhat during the first quarter and more significantly
during the second and third quarters, it still has elected not to keep
pace with the industry's increased promotions due to the belief that
the resulting increase in gaming win would not be sufficient to
justify the incremental costs incurred. (In this regard, see
"Casino/hotel - Atlantic City, New Jersey" under "Contribution to
Consolidated Earnings" for a discussion of RIH's increased costs of
promotions.) Consequently, the Company's market share of revenues has
suffered. Adding to the competition for patrons, expansions at two
competing Atlantic City properties opened in May 1996 which, combined,
added approximately 1,100 hotel rooms and approximately 60,000 square
feet of gaming space. Several other companies have announced plans to
expand existing or construct new casino/hotels in Atlantic City. The
Company can give no assurance that the increased cost of obtaining
gaming revenues will not continue in future periods.
As noted above, the severe weather experienced during the first
quarter of 1996 adversely affected operations in that period as the
principal means of transportation to Atlantic City is by automobile or
bus. The impact of inclement weather is more severe on the Resorts
Casino Hotel than on competing properties which are more accessible
from main thoroughfares and which currently have more covered parking
and covered terminals for bus patrons.
14<PAGE>
Contribution to Consolidated Earnings
Results by geographic and business segment were as follows (in
thousands of dollars):
Quarter Ended Three Quarters Ended
September 30, September 30,
1996 1995 1996 1995
Casino/hotel - Atlantic
City, New Jersey $ 7,284 $12,947 $ 12,688 $ 23,206
Real estate related -
Atlantic City,
New Jersey 2,840 2,052 7,534 6,124
Other segments,
principally GEI (2) (20) 127 (20)
Management fees, net of
corporate expense 1,890 1,776 4,254 5,782
Earnings from
operations 12,012 16,755 24,603 35,092
Other income
(deductions):
Interest income 932 726 2,502 2,698
Interest expense (6,092) (6,357) (18,485) (18,956)
Amortization of debt
discounts (1,092) (964) (3,175) (2,958)
Net earnings $ 5,760 $10,160 $ 5,445 $ 15,876
Third Quarter and First Three Quarters 1996 Compared to 1995
Casino/hotel - Atlantic City, New Jersey
For the third quarter and first three quarters of 1996 casino,
hotel and related operating results decreased by $5,663,000 and
$10,518,000, respectively, due to a combination of decreased revenues
discussed above and a net increase in operating expenses. For the
third quarter the most significant variance in operating expenses was
an increase in casino promotional costs ($2,400,000). This was
primarily due to an increase in the amount of cash giveaways to bus
patrons as the cash giveaway per person increased, though the
Company's number of bus passengers was down slightly.
For the first three quarters the most significant variances in
operating expenses were increases in casino promotional costs
($6,200,000) and payroll and related expenses ($1,100,000) and
decreases in the accrual for performance incentive bonuses
($1,600,000) and depreciation expense ($1,000,000). Casino
promotional costs increased primarily due to bus cash giveaways for
the reasons noted above. The
15<PAGE>
increase in payroll and related costs was due to increased salary and
wage rates, while the average number of employees was down slightly
for the period, and, to a lesser extent, increased costs of union and
other benefits.
Real Estate Related
This segment includes real estate related revenues, lease
payments under a 99-year net lease of approximately 10 acres of
Boardwalk property in Atlantic City (the "Showboat Lease"), net of the
cost of carrying the Company's non-operating real estate. Lease
payments received under the Showboat Lease are passed-through (subject
to certain adjustments) as interest to holders of GGE's First Mortgage
Non-Recourse Pass-Through Notes due June 30, 2000 (the "Showboat
Notes"). Thus, the casino/hotel operations do not fund the interest
on the Showboat Notes.
The lease payments under the Showboat Lease are adjusted
annually, as of April 1, for changes in the consumer price index. For
the lease year commencing April 1, 1996 annual lease payments
increased from $8,560,000 to $8,805,000.
Also affecting the comparison of real estate related results
presented were (i) a credit of $580,000 recorded in the third quarter
of 1996 resulting from a favorable litigation settlement and (ii)
credits of $660,000 and $400,000 recorded in the second quarter of
1996 and 1995, respectively, for refunds of prior years' real estate
taxes due to reduced assessments. The Company does not expect such
refunds to continue in the future.
Other Segments, Principally GEI
See Note E of Notes to Consolidated Financial Statements for a
discussion of the sale of GEI, which was effective April 30, 1996.
Management Fees, Net of Corporate Expense
This segment includes credits for management fees which GGE
charges RIH based on three percent of its gross revenues. The
corresponding charge is included in the Atlantic City casino/hotel
segment. Management fees charged to RIH, amounted to $2,657,000 and
$2,790,000 for the third quarter of 1996 and 1995, respectively, and
$7,197,000 and $7,436,000 for the first three quarters of 1996 and
1995, respectively.
Corporate expense for the first three quarters of 1995 includes a
credit of $1,000,000 from a favorable litigation settlement.
The Environmental Protection Agency ("EPA") has named a
predecessor to GGE as a potentially responsible party in the Bay Drum
hazardous waste site (the "Site") in Tampa, Florida which the EPA has
listed on the National Priorities List. No formal action has
commenced against GGE and GGE intends to dispute any claims of this
nature, if asserted. Although it may ultimately be determined that
GGE is one of several
16<PAGE>
hundred parties that are jointly and severally liable for the costs of
Site remediation and for damages to natural resources at the Site
caused by hazardous wastes, the extent of such liability, if any,
cannot be determined at this time.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
The following is an update of the status of certain litigation
which was previously described in "Item 3. Legal Proceedings" of GGE's
Annual Report on Form 10-K for the year ended December 31, 1995.
U.S. District Court Action - Rogers
This previously reported action which was pending in the U.S.
District Court for the District of Delaware was voluntarily dismissed
in May 1996.
Item 5. Other Information
GGE's Board of Directors set December 10, 1996 as the date of
GGE's special meeting of holders of GGE Common Stock. At such meeting
holders of GGE Common Stock will be asked to vote on adoption of the
Merger Agreement described in Note B of Notes to Consolidated
Financial Statements. The record date for determining holders of GGE
Common Stock entitled to vote at the special meeting was November 1,
1996. Holders of Class B Stock will not be entitled to vote at the
special meeting.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The following Part I exhibits are filed herewith:
Exhibit
Number Exhibit
(11) Statement re computation of per share data
(27)(a) Financial data schedule as of September 30, 1996
(27)(b) Restated financial data schedule as of September 30,
1995
17<PAGE>
The following Part II exhibits are filed herewith:
Exhibit
Number Exhibit
(2)(a) Amendment dated October 10, 1996 to the Agreement and
Plan of Merger among Sun International Hotels Limited,
Sun Merger Corp. and Griffin Gaming & Entertainment,
Inc. (Incorporated by reference to Annex I to
Registrant's Definitive Proxy Statement dated November
1, 1996 on Schedule 14A in File No. 1-4748.)
(2)(b) Amendment dated October 10, 1996 to the Stockholder
Agreement among Sun International Hotels Limited and
the various Stockholders of Griffin Gaming &
Entertainment, Inc. set forth therein. (Incorporated
by reference to Annex II to Registrant's Definitive
Proxy Statement dated November 1, 1996 on Schedule 14A
in File No. 1-4748.)
(2)(c) Amendment dated October 10, 1996 to the Stockholder
Agreement between Griffin Gaming & Entertainment, Inc.
and Sun International Investments Limited.
(Incorporated by reference to Annex III to Registrant's
Definitive Proxy Statement dated November 1, 1996 on
Schedule 14A in File No. 1-4748.)
b. Reports on Form 8-K
GGE filed a Current Report on Form 8-K dated August 19, 1996 to
report that GGE entered into the Agreement and Plan of Merger dated
August 19, 1996, described in Note B of Notes to Consolidated
Financial Statements, and to file relevant agreements as exhibits. No
amendments to previously filed Forms 8-K were filed during the third
quarter of 1996.
18<PAGE>
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.
GRIFFIN GAMING & ENTERTAINMENT, INC.
(Registrant)
/s/ Matthew B. Kearney
Matthew B. Kearney
Executive Vice President - Finance
(Authorized Officer of Registrant
and Chief Financial Officer)
Date: November 12, 1996
19<PAGE>
GRIFFIN GAMING & ENTERTAINMENT, INC.
Form 10-Q for the quarterly period
ended September 30, 1996
EXHIBIT INDEX
Reference to Previous
Exhibit Filing or Page Number in
Number Exhibit Form 10-Q
(2)(a) Amendment dated October Incorporated by reference
10, 1996 to the to Annex I to Registrant's
Agreement and Plan of Definitive Proxy Statement
Merger among Sun dated November 1, 1996 on
International Hotels Schedule 14A in File No.
Limited, Sun Merger Corp. 1-4748.
and Griffin Gaming &
Entertainment, Inc.
(2)(b) Amendment dated October Incorporated by reference
10, 1996 to the to Annex II to Registrant's
Stockholder Agreement Definitive Proxy Statement
among Sun International dated November 1, 1996 on
Hotels Limited and the Schedule 14A in File No.
various Stockholders of 1-4748.
Griffin Gaming &
Entertainment, Inc. set
forth therein.
(2)(c) Amendment dated October Incorporated by reference
10, 1996 to the to Annex III to
Stockholder Agreement Registrant's
between Griffin Gaming & Definitive Proxy Statement
Entertainment, Inc. and dated November 1, 1996 on
Sun International Schedule 14A in File No.
Investments Limited. 1-4748.
(11) Statement re computation
of per share data Page 21.
(27)(a) Financial data schedule
as of September 30, 1996 Page 22.
(27)(b) Restated financial data
schedule as of September
30, 1995 Page 23.
20<PAGE>
EXHIBIT 11
GRIFFIN GAMING & ENTERTAINMENT, INC.
COMPUTATION OF PER SHARE DATA
(In Thousands, except per share amounts)
Quarter Ended Three Quarters Ended
September 30, September 30,
1996 1995 1996 1995
Per Share Data - Primary:
Net earnings $5,760 $10,160 $5,445 $15,876
Shares and share
equivalents:
Weighted average number
of shares of GGE Common
Stock outstanding 7,941 7,941 7,941 7,940
Weighted average number
of share equivalents
outstanding 866 802 795 553
Weighted average number
of shares and share
equivalents 8,807 8,743 8,736 8,493
Net earnings per share $ .65 $1.16 $ .62 $1.87
Per Share Data - Fully
Diluted:
Net earnings $5,760 $10,160 $5,445 $15,876
Shares and share
equivalents:
Weighted average number
of shares of GGE Common
Stock outstanding 7,941 7,941 7,941 7,940
Weighted average number
of share equivalents
outstanding 1,034 802 1,037 757
Weighted average number
of shares and share
equivalents 8,975 8,743 8,978 8,697
Net earnings per share $ .64 $1.16 $ .61 $1.83
21<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GRIFFIN
GAMING & ENTERTAINMENT, INC.'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO INCLUDED IN THE FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> $56,286<F1>
<SECURITIES> 0
<RECEIVABLES> $8,936
<ALLOWANCES> $3,319
<INVENTORY> $2,064
<CURRENT-ASSETS> $72,015
<PP&E> $228,458
<DEPRECIATION> $70,025
<TOTAL-ASSETS> $340,800
<CURRENT-LIABILITIES> $36,230
<BONDS> $220,059<F2>
<COMMON> $79
0
0
<OTHER-SE> $31,322
<TOTAL-LIABILITY-AND-EQUITY> $340,800
<SALES> 0
<TOTAL-REVENUES> $224,010
<CGS> 0
<TOTAL-COSTS> $162,751<F3>
<OTHER-EXPENSES> $9,307<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $21,660
<INCOME-PRETAX> $5,445
<INCOME-TAX> 0
<INCOME-CONTINUING> $5,445
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $5,445
<EPS-PRIMARY> $.62
<EPS-DILUTED> $.61
<FN>
<F1>INCLUDES NON-RESTRICTED CASH EQUIVALENTS OF $40,939 AND
RESTRICTED CASH EQUIVALENTS OF $2,275.
<F2>NET OF UNAMORTIZED DISCOUNTS.
<F3>EXCLUDES DEPRECIATION.
<F4>DEPRECIATION EXPENSE.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GRIFFIN
GAMING & ENTERTAINMENT, INC.'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO INCLUDED IN THE FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995,
EXCEPT AT NOTED BELOW IN FOOTNOTE 3, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> $51,483<F1>
<SECURITIES> 0
<RECEIVABLES> $8,851
<ALLOWANCES> $3,979
<INVENTORY> $2,382
<CURRENT-ASSETS> $68,837
<PP&E> $219,146
<DEPRECIATION> $59,288
<TOTAL-ASSETS> $335,176
<CURRENT-LIABILITIES> $39,066
<BONDS> $216,486<F2>
<COMMON> $79
0
0
<OTHER-SE> $25,845
<TOTAL-LIABILITY-AND-EQUITY> $335,176
<SALES> 0
<TOTAL-REVENUES> $232,063
<CGS> 0
<TOTAL-COSTS> $157,338<F3>
<OTHER-EXPENSES> $10,312<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $21,914
<INCOME-PRETAX> $15,876
<INCOME-TAX> 0
<INCOME-CONTINUING> $15,876
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $15,876
<EPS-PRIMARY> $1.87
<EPS-DILUTED> $1.83
<FN>
<F1>INCLUDES NON-RESTRICTED CASH EQUIVALENTS OF $33,182 AND
RESTRICTED CASH EQUIVALENTS OF $3,994.
<F2>NET OF UNAMORTIZED DISCOUNTS.
<F3>EXCLUDES DEPRECIATION; RESTATED TO EXCLUDE $222 RECLASSIFIED
TO SELLING, GENERAL & ADMINISTRATIVE EXPENSE.
<F4>DEPRECIATION EXPENSE.
</FN>
</TABLE>
