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 March 31, 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 March 31, 1996: Common Stock - 7,941,035 shares and Class
B Redeemable Common Stock - 35,000 shares.
Exhibit Index is presented on page 16
Total number of pages 17
1<PAGE>
GRIFFIN GAMING & ENTERTAINMENT, INC.
FORM 10-Q
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
at March 31, 1996 and
December 31, 1995 3
Consolidated Statements of
Operations for the Quarters
Ended March 31, 1996 and 1995 4
Consolidated Statements of
Cash Flows for the Quarters
Ended March 31, 1996 and 1995 5
Notes to Consolidated
Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 8
Part II. Other Information
Item 1. Legal Proceedings 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on
Form 8-K 14
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)
March 31, December 31,
1996 1995
(Unaudited)
ASSETS
Current assets:
Cash (including cash equivalents
of $34,987 and $35,515) $ 47,783 $ 51,210
Restricted cash equivalents 2,234 4,362
Receivables, less allowance for
doubtful accounts of $3,446
and $3,570 6,706 7,910
Inventories 2,231 2,447
Prepaid expenses 5,452 6,615
Total current assets 64,406 72,544
Land held for investment, development
or resale 93,795 93,795
Property and equipment, net of
accumulated depreciation of $63,963
and $62,227 156,902 158,975
Deferred charges and other assets 13,653 13,137
$ 328,756 $ 338,451
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt $ 600 $ 589
Accounts payable and accrued
liabilities 34,723 41,209
Total current liabilities 35,323 41,798
Long-term debt, net of unamortized
discounts 218,249 217,356
Deferred income taxes 53,350 53,350
Shareholders' equity:
GGE Common Stock - $.01 par value 79 79
Class B Stock - $.01 par value
Capital in excess of par 129,572 129,572
Accumulated deficit (107,817) (103,704)
Total shareholders' equity 21,834 25,947
$ 328,756 $ 338,451
3<PAGE>
GRIFFIN GAMING & ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share data)
(Unaudited)
Quarter Ended
March 31,
1996 1995
Revenues:
Casino $58,687 $62,118
Rooms 1,434 1,346
Food and beverage 2,712 3,030
Other casino/hotel revenues 1,176 1,186
Real estate related 2,140 2,081
66,149 69,761
Expenses:
Casino 37,713 37,064
Rooms 1,036 975
Food and beverage 3,270 3,389
Other casino/hotel operating
expenses 8,753 8,632
Selling, general and administrative 9,809 10,122
Depreciation 2,965 3,188
Real estate related 137 236
63,683 63,606
Earnings from operations 2,466 6,155
Other income (deductions):
Interest income 769 1,237
Interest expense (6,302) (6,291)
Amortization of debt discounts (1,046) (1,081)
Net earnings (loss) $(4,113) $ 20
Net earnings (loss) per share of
common stock S (.52) $ -0-
Weighted average number of shares
outstanding 7,941 7,939
4<PAGE>
GRIFFIN GAMING & ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
Quarter Ended
March 31,
1996 1995
Cash flows from operating activities:
Cash received from customers $ 66,571 $ 70,592
Cash paid to suppliers and employees (59,698) (57,709)
Cash flow from operations before
interest and income taxes 6,873 12,883
Interest received 760 1,156
Interest paid (11,307) (11,109)
Income taxes paid (79)
Net cash provided by (used in)
operating activities (3,753) 2,930
Cash flows from investing activities:
Payments for property and equipment (892) (688)
Casino Reinvestment Development
Authority deposits and bond
purchases (768) (773)
Net cash used in investing
activities (1,660) (1,461)
Cash used in financing activities -
repayments of non-public debt (142)
Net increase (decrease) in cash and
cash equivalents (5,555) 1,469
Cash and cash equivalents at beginning
of period 55,572 40,891
Cash and cash equivalents at end
of period $ 50,017 $ 42,360
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. GGE was known as
Resorts International, Inc. until its name change, which was effective
June 30, 1995. "GGE" is used herein to refer to the corporation both
before and after its name change. 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.
Per share data
Certain per share data, as well as references to number of shares
of common stock of GGE (the "GGE Common Stock"), have been restated to
give effect to the one-for-five reverse stock split, which was
effective June 30, 1995.
B. Reverse Repurchase Agreements:
Cash equivalents at March 31, 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 April 1996.
(In Thousands of Dollars)
Prudential Securities, Inc. $24,966
National Westminster Bank NJ $ 9,733
C. 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
$5,639,000 and
6<PAGE>
$5,671,000 for the first quarter 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
March 31,
(In Thousands of Dollars) 1996 1995
Rooms $1,110 $1,051
Food and beverage 3,823 3,946
Other casino/hotel operations 1,318 1,318
Total allocated to casino $6,251 $6,315
D. 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,
Chairman of the Board of GGE, 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.
7<PAGE>
E. Statements of Cash Flows:
Supplemental disclosures required by Statement of Financial
Accounting Standards No. 95 "Statement of Cash Flows" are presented
below.
Quarter Ended
March 31,
(In Thousands of Dollars) 1996 1995
Reconciliation of net earnings (loss)
to net cash provided by (used in)
operating activities:
Net earnings (loss) $(4,113) $ 20
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities:
Depreciation 2,965 3,188
Amortization of debt discounts 1,046 1,081
Provision for doubtful receivables 165 218
Provision for discount on Casino
Reinvestment Development Authority
obligations, net of amortization 348 368
Net decrease in receivables 1,039 28
Net decrease in inventories and
prepaid expenses 1,379 1,709
Net (increase) decrease in deferred
charges and other assets (127) 433
Net decrease in accounts payable
and accrued liabilities (6,455) (4,115)
Net cash provided by (used in) operating
activities $(3,753) $ 2,930
F. Commitments and Contingencies:
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
FINANCIAL CONDITION
Liquidity
At March 31, 1996 the Company's working capital amounted to
$29,083,000, including unrestricted cash and equivalents of
$47,783,000. A significant portion of the unrestricted cash and
equivalents is
8<PAGE>
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, holidays and seasons, as well as additional cash balances
necessary to meet current working capital needs.
The existing indentures permit a $20,000,000 working capital
facility to be senior to the 11% Mortgage Notes due 2003 and the
11.375% Junior Mortgage Notes due 2004 (the "Junior Mortgage Notes").
The Company had previously negotiated a senior credit facility (the
"Senior Facility") of approximately $20,000,000 which was available up
to May 2, 1996. The Company allowed the Senior Facility to expire
unutilized as the Company did not have immediate needs for the funds,
and, in light of current market conditions, the Company believes that
alternative sources of a comparable working capital facility would be
available at terms no less favorable than those of the Senior
Facility.
The Company will satisfy the interest payment due June 15, 1996
on its Junior Mortgage Notes by cash payment.
Capital Expenditures and Resources
During the first quarter of 1996 the Company's $892,000 of
capital expenditures included corridor carpeting and computer system
upgrades.
The Company continues the development of its expansion plans for
the 4.4 acre tract on the Boardwalk, adjacent to Merv Griffin's
Resorts Casino Hotel (the "Resorts Casino Hotel"). The entire
addition will include up to 700 new hotel rooms, 70,000 square feet of
casino space and a 2,000 space parking garage and transportation
center. Subject to receipt of regulatory approvals, the Company plans
to break ground in the fall of 1996 on the infrastructure necessary to
support the full expansion. The first phase of construction is
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 are currently estimated at $200,000,000. Initial cash outlays
are expected to be from existing working capital and cash flow
generated by operations during the construction period. External
sources of financing will also be required. In this regard, the
Company is exploring various alternatives in both the public and
private sectors.
9<PAGE>
RESULTS OF OPERATIONS
Revenues
Revenues by geographic and business segment were as follows (in
thousands of dollars):
Quarter Ended
March 31,
1996 1995
Casino/hotel - Atlantic City,
New Jersey:
Casino $58,687 $62,118
Rooms 1,434 1,346
Food and beverage 2,712 3,030
Other casino/hotel 1,176 1,186
64,009 67,680
Real estate related - Atlantic
City, New Jersey 2,140 2,081
Revenues from operations $66,149 $69,761
First Quarter 1996 Compared to 1995
Casino/hotel - Atlantic City, New Jersey
Casino revenues decreased by $3,431,000 for the first quarter of
1996 due almost entirely to decreased slot win. Slot win was down
largely 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) and, to a lesser extent, a decrease in amounts wagered by
patrons. Table game win was virtually flat as the effects of
increased hold percentage were offset by a decrease in amounts
wagered. Revenues from poker, simulcasting and keno were also down
slightly.
Two factors negatively affected the Company's performance in the
first quarter - heightened competition in the Atlantic City market for
patrons and severe weather conditions. 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 during the first quarter, it
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. Consequently,
the Company's market share of revenues suffered. The Company can give
no assurance that the increased cost of obtaining gaming revenues will
not continue in future periods.
10<PAGE>
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.
Contribution to Consolidated Earnings (Loss)
Results by geographic and business segment were as follows (in
thousands of dollars):
Quarter Ended
March 31,
1996 1995
Casino/hotel - Atlantic City,
New Jersey $ (417) $ 2,819
Real estate related - Atlantic
City, New Jersey 1,998 1,840
Other segments, principally GEI (135)
Management fees, net of corporate
expense 1,020 1,496
Earnings from operations 2,466 6,155
Other income (deductions):
Interest income 769 1,237
Interest expense (6,302) (6,291)
Amortization of debt discounts (1,046) (1,081)
Net earnings (loss) $(4,113) $ 20
First Quarter 1996 Compared to 1995
Casino/hotel - Atlantic City, New Jersey
For the first quarter of 1996 casino, hotel and related operating
results decreased by $3,236,000 due to the decreased revenues
described above. Although total operating expenses were relatively
flat, the most significant variances in operating expenses were
increases in casino promotional costs ($900,000) and payroll and
related costs ($400,000). Casino promotional costs increased
primarily due to an increase in the amount of cash giveaways to bus
patrons, although the number of bus passengers was down. Payroll and
related costs increased primarily due to increased salary and wage
rates, although the average number of employees was down slightly for
the quarter. These increases were offset by decreases in the accrual
for performance and incentive bonuses ($700,000), casino win tax and
other operating costs.
11<PAGE>
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.
Management Fees, Net of Corporate Expense
This segment includes credits for management fees which GGE
charges Resorts International Hotel, Inc. ("RIH"), GGE's subsidiary
that owns and operates the Resorts Casino Hotel, 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 $2,089,000 and $2,200,000 for the first quarter of
1996 and 1995, respectively.
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 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 / U.S. Bankruptcy Court Action - GGE v.
Lowenschuss
As previously reported, in 1989 GGE filed an action to recover
sums paid to the defendant, as trustee for two Individual Retirement
Accounts and the Fred Lowenschuss Associates Pension Plan (the
"Pension Plan"), which was transferred to the U.S. Bankruptcy Court
for the District of New Jersey (the "NJ Bankruptcy Court") in
connection with the Company's former bankruptcy case commenced there
in 1989. On March 8, 1996 Fred
12<PAGE>
Lowenschuss, as trustee of various Lowenschuss children's trusts (the
"Trusts"), and Laurence Lowenschuss, as trustee for the Pension Plan,
filed a counterclaim and a third party claim against GGE and First
Interstate Trust Company, in the NJ Bankruptcy Court alleging that the
Pension Plan and Trusts timely surrendered certain securities for
exchange under the Company's 1990 plan of reorganization and that
those securities were wrongfully dishonored and returned. The Company
replied to the counterclaims in April 1996 and denied the allegations.
As previously reported, the U.S. Bankruptcy Court for the
District of Nevada (the "Nevada Bankruptcy Court") confirmed Fred
Lowenschuss' plan of reorganization in October 1993. GGE appealed
certain portions of the confirmation order and other orders of the
Nevada Bankruptcy Court. In June 1994, the U.S. District Court for
the District of Nevada (the "Nevada District Court") granted GGE's
appeal in all respects. In October 1995, the U.S. Court of Appeals
for the Ninth Circuit affirmed the Nevada District Court's ruling in
all respects. In November 1995, the Court of Appeals denied Fred
Lowenschuss' petition for rehearing. In February 1996, Fred
Lowenschuss filed a petition for certiorari to the U.S. Court of
Appeals for the Ninth Circuit with the United States Supreme Court.
T h e related malicious prosecution action brought by Fred
Lowenschuss against GGE and its counsel was dismissed by both the
Nevada Bankruptcy Court and the Nevada District Court. Fred
Lowenschuss has appealed the District Court's dismissal to the Ninth
Circuit.
Also, an injunction action brought by Fred Lowenschuss against
GGE in the Nevada Bankruptcy Court was dismissed on April 10, 1996.
U.S. Bankruptcy Court Action - Rogers
As previously reported, the Company had filed a motion to dismiss
the proceeding before the NJ Bankruptcy Court. The hearing for that
motion was held on April 29, 1996. The Court reserved decision and is
scheduled to render a decision on May 13, 1996.
Item 5. Other Information
GGE's Board of Directors set May 10, 1996 as the date of GGE's
annual meeting of shareholders. At such meeting holders of GGE Common
Stock were asked to vote on, among other things, (i) election of a
Director, (ii) increasing the number of authorized shares of GGE
Common Stock from 20,000,000 to 100,000,000 shares and (iii)
increasing the maximum number of shares of GGE Common Stock that may
be issued under GGE's 1994 Stock Option Plan from 466,685 to 966,685
shares. Also at the annual meeting, holders of GGE's class B
redeemable common stock (the "Class B Stock") were asked to vote on
the election of a Class B Director. The record date for determining
shareholders entitled to vote at the annual meeting was April 1, 1996.
13<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The following Part I exhibit is filed herewith:
Exhibit
Number Exhibit
(27) Financial data schedule.
b. Reports on Form 8-K
No Current Report on Form 8-K was filed by GGE covering an event
during the first quarter of 1996. No amendments to previously filed
Forms 8-K were filed during the first quarter of 1996.
14<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: May 10, 1996
15<PAGE>
GRIFFIN GAMING & ENTERTAINMENT, INC.
Form 10-Q for the quarterly period
ended March 31, 1996
EXHIBIT INDEX
Exhibit Reference to Previous Filing
Number Exhibit or Page Number in Form 10-Q
(27) Financial data schedule. Page 17.
16<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 MARCH 31, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> $50,017<F1>
<SECURITIES> 0
<RECEIVABLES> $7,564
<ALLOWANCES> $3,446
<INVENTORY> $2,231
<CURRENT-ASSETS> $64,406
<PP&E> $220,865
<DEPRECIATION> $63,963
<TOTAL-ASSETS> $328,756
<CURRENT-LIABILITIES> $35,323
<BONDS> $218,249<F2>
<COMMON> $79
0
0
<OTHER-SE> $21,755
<TOTAL-LIABILITY-AND-EQUITY> $328,756
<SALES> 0
<TOTAL-REVENUES> $66,149
<CGS> 0
<TOTAL-COSTS> $50,909<F3>
<OTHER-EXPENSES> $2,965<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $7,348
<INCOME-PRETAX> $(4,113)
<INCOME-TAX> 0
<INCOME-CONTINUING> $(4,113)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $(4,113)
<EPS-PRIMARY> $(.52)
<EPS-DILUTED> 0
<FN>
<F1>INCLUDES NON-RESTRICTED CASH EQUIVALENTS OF $34,987 AND
RESTRICTED CASH EQUIVALENTS OF $2,234.
<F2>NET OF UNAMORTIZED DISCOUNTS.
<F3>EXCLUDES DEPRECIATION.
<F4>DEPRECIATION EXPENSE.
</FN>
</TABLE>
