<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
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 000-21640
---------
STATION CASINOS, INC.
---------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0136443
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2411 West Sahara Avenue, Las Vegas, Nevada
------------------------------------------
(Address of principal executive offices)
89102
-----
(Zip Code)
(702) 367-2411
--------------
Registrant's telephone number, including area code
N/A
---
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
-------- -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at July 31, 1997
- ---------------------------- ---------------------------
Common stock, $.01 par value 35,306,657
1
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STATION CASINOS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited)- 3
June 30, 1997 and March 31, 1997
Condensed Consolidated Statements of Operations (unaudited)- 4
Three months ended June 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows (unaudited)- 5
Three months ended June 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements (unaudited)-6
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATION CASINOS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
--------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 49,018 $ 42,522
Accounts and notes receivable, net................ 12,802 7,852
Inventories....................................... 4,308 3,473
Prepaid gaming taxes.............................. 5,453 4,291
Prepaid expenses and other........................ 14,417 11,231
---------- ----------
TOTAL CURRENT ASSETS........................... 85,998 69,369
Property and equipment, net......................... 1,130,127 1,069,052
Land held for development........................... 26,354 26,354
Other assets, net................................... 61,361 69,343
---------- ----------
TOTAL ASSETS................................... $1,303,840 $1,234,118
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................. $ 19,186 $ 18,807
Accounts payable.................................. 22,786 21,106
Accrued payroll and related....................... 15,548 13,460
Construction contracts payable.................... 49,679 94,835
Accrued interest payable.......................... 14,180 10,625
Accrued expenses and other........................ 30,828 26,433
---------- ----------
TOTAL CURRENT LIABILITIES...................... 152,207 185,266
Long-term debt, less current portion................ 853,407 742,156
Deferred income taxes, net.......................... 9,393 7,848
---------- ---------
TOTAL LIABILITIES.............................. 1,015,007 935,270
---------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01; authorized
5,000,000 shares; 2,070,000 convertible
preferred shares issued and outstanding......... 103,500 103,500
Common stock, par value $.01; authorized 90,000,000
shares; 35,306,657 and 35,318,057 shares issued
and outstanding................................. 353 353
Additional paid-in capital........................ 167,155 167,397
Deferred compensation - restricted stock.......... (897) (1,225)
Retained earnings................................. 18,722 28,823
---------- ----------
TOTAL STOCKHOLDERS' EQUITY...................... 288,833 298,848
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..... $1,303,840 $1,234,118
========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
STATION CASINOS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
OPERATING REVENUES:
Casino............................................ $ 133,275 $ 104,660
Food and beverage................................. 28,855 21,166
Room.............................................. 8,039 6,444
Other............................................. 14,208 11,301
--------- ---------
Gross revenues................................. 184,377 143,571
Less promotional allowances....................... (10,861) (8,131)
--------- ---------
Net revenues................................... 173,516 135,440
--------- ---------
OPERATING COSTS AND EXPENSES:
Casino............................................ 64,291 45,314
Food and beverage................................. 21,281 16,085
Room.............................................. 3,101 2,558
Other............................................. 7,162 5,795
Selling, general and administrative............... 38,656 28,522
Corporate expenses................................ 3,894 4,213
Development expenses.............................. 104 317
Depreciation and amortization..................... 15,983 9,823
Preopening expenses............................... 10,866 -
--------- ---------
165,338 112,627
--------- ---------
OPERATING INCOME..................................... 8,178 22,813
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense, net............................. (16,007) (8,293)
Other............................................. (5,017) 61
--------- ---------
(21,024) (8,232)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.................... (12,846) 14,581
Income tax (provision) benefit....................... 4,556 (5,122)
-------- ---------
NET INCOME (LOSS).................................... (8,290) 9,459
PREFERRED STOCK DIVIDENDS............................ (1,811) (1,811)
-------- ---------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK......... $(10,101) $ 7,648
======== =========
EARNINGS (LOSS) PER COMMON SHARE..................... $ (0.29) $ 0.22
======== =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING........... 35,314 35,308
======== =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
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STATION CASINOS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................ $ (8,290) $ 9,459
---------- ----------
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization................................. 15,983 9,823
Increase in deferred income taxes............................. 839 3,498
Preopening expenses........................................... 10,866 -
Changes in assets and liabilities:
Increase in accounts and notes receivable, net.............. (920) (1,313)
Increase in inventories and prepaid expenses and other...... (4,477) (3,248)
Increase (decrease) in accounts payable..................... 1,680 (385)
Increase in accrued expenses and other...................... 8,506 68
Other, net.................................................... 7,397 2,016
---------- ----------
Total adjustments...................................... 39,874 10,459
---------- ----------
Net cash provided by operating activities................... 31,584 19,918
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................................... (72,569) (102,696)
(Decrease) increase in construction contracts payable......... (45,156) 21,601
Preopening expenses........................................... (8,550) -
Other, net.................................................... (31) 2,945
---------- ----------
Net cash used in investing activities....................... (126,306) (78,150)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under bank facility, net............................. (89,000) -
Borrowings under Sunset loan agreement, net................... 43,500 -
Proceeds from the issuance of notes payable................... 15,732 -
Principal payments on notes payable........................... (6,715) (8,396)
Proceeds from the issuance of senior subordinated notes, net.. 144,287 -
Proceeds from the issuance of preferred stock, net............ - 13,095
Dividends paid................................................ (1,811) (1,550)
Other, net.................................................... (4,775) (23)
---------- ----------
Net cash provided by financing activities................... 101,218 3,126
---------- ----------
CASH AND CASH EQUIVALENTS:
Increase (decrease) in cash and cash equivalents.............. 6,496 (55,106)
Balance, beginning of period.................................. 42,522 114,868
---------- ----------
Balance, end of period........................................ $ 49,018 $ 59,762
---------- ----------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest, net of amounts capitalized............ $ 11,084 $ 7,216
Cash paid for income taxes.................................... $ - $ 250
Property and equipment purchases financed by debt............. $ 3,532 $ 361
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
STATION CASINOS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Station Casinos, Inc. (the "Company"), a Nevada Corporation, is
an established multi-jurisdicitional gaming enterprise that currently
owns and operates four casino properties in Las Vegas, Nevada, a
gaming and entertainment complex in St. Charles, Missouri and a
gaming and entertainment complex in Kansas City, Missouri. The
Company also owns and provides slot route management services in
Southern Nevada and Louisiana.
The accompanying condensed consolidated financial statements
include the accounts of Station Casinos, Inc. and its wholly-owned
subsidiaries, Palace Station Hotel & Casino, Inc. ("Palace
Station"), Boulder Station, Inc. ("Boulder Station"), St. Charles
Riverfront Station, Inc. ("Station Casino St. Charles"), Texas
Station, Inc. ("Texas Station"), Kansas City Station Corporation
("Station Casino Kansas City"), Sunset Station, Inc. ("Sunset
Station") and the Southwest Companies. All significant intercompany
accounts and transactions have been eliminated.
The accompanying condensed consolidated financial statements
included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, all
adjustments (which include normal recurring adjustments) necessary
for a fair presentation of the results for the interim periods have
been made. The results for the three months ended June 30, 1997 are
not necessarily indicative of results to be expected for the full
fiscal year. These financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997.
6
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STATION CASINOS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
2. LONG-TERM DEBT
Long-term debt consists of the following (amounts in thousands):
<TABLE>
June 30, March 31,
1997 1997
---------- -----------
<S> <C> <C>
STATION CASINOS, INC. (EXCLUDING SUNSET STATION):
- ------------------------------------------------
Reducing revolving credit facility, secured by substantially all of the
assets of Palace Station, Boulder Station, Texas Station, Station
Casino St. Charles and Station Casino Kansas City, $360 million
limit at June 30, 1997, reducing quarterly by varying amounts until
September 2000 when the remaining principal balance is due,
interest at a margin above the bank's prime rate or the Eurodollar
Rate (8.15% at June 30, 1997)....................................... $ 188,000 $ 277,000
9 5/8% senior subordinated notes, payable interest only semi-annually,
principal due June 1, 2003, net of unamortized discount of $6.6
million at June 30, 1997............................................ 186,440 186,248
9 3/4% senior subordinated notes, payable interest only semi-annually,
principal due April 15, 2007, net of unamortized discount of $5.6
million at June 30, 1997............................................ 144,368 -
10 1/8% senior subordinated notes, payable interest only semi-annually,
principal due March 15, 2006, net of unamortized discount of $1.2
million at June 30, 1997............................................ 196,840 196,818
Notes payable to banks and others, collateralized by slot machines,
furniture and equipment, monthly installments including interest
ranging from 7.69% to 9.00% at June 30, 1997........................ 40,067 27,564
Capital lease obligations, collateralized by furniture and equipment.... 5,539 7,703
Other long-term debt.................................................... 21,839 19,630
---------- ----------
Sub-total................................................ 783,093 714,963
SUNSET STATION, INC.:
- ---------------------
$110 million Sunset Station first mortgage construction/term loan
agreement, secured by substantially all of the assets of Sunset Station,
interest at a margin of 375 basis points above the Eurodollar Rate
(9.53% at June 30, 1997), due September 2000........................ 89,500 46,000
---------- ----------
Total long-term debt..................................... 872,593 760,963
Current portion of long-term debt....................................... (19,186) (18,807)
---------- ----------
Total long-term debt, less current portion............... $ 853,407 $ 742,156
========== ==========
</TABLE>
In April 1997, the Company completed an offering of $150 million
of senior subordinated notes due in April 2007, that rank pari passu
with the Company's existing senior subordinated notes. The $150
million senior subordinated notes have a coupon rate of 9 3/4% and
were priced to yield 10.37% to maturity. The discount on the $150
million senior subordinated notes has been recorded as a reduction to
long-term debt. Proceeds from the offering were used to pay down
amounts outstanding under the reducing revolving credit facility.
In June 1997, the Company obtained an amendment to the reducing
revolving credit facility (the "Bank Facility"). This amendment
modified the covenant restricting the maximum consolidated funded
7
<PAGE>
STATION CASINOS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. LONG-TERM DEBT (CONTINUED)
debt to EBITDA ratio to 5.75 to 1.00 for the fiscal quarter ended
June 30, 1997, 5.85 to 1.00 for the fiscal quarter ending September
30, 1997, 5.75 to 1.00 for each fiscal quarter through March 31,
1998, 5.00 to 1.00 for the fiscal quarter ending June 30, 1998, 4.75
to 1.00 for the fiscal quarter ending September 30, 1998, 4.50 to
1.00 for the fiscal quarter ending December 31, 1998, 4.25 to 1.00
for each fiscal quarter through June 30, 1999, 4.00 to 1.00 for the
fiscal quarter ending September 30, 1999 and 3.75 to 1.00 thereafter.
As of June 30, 1997, the Company's funded debt to EBITDA ratio was
5.68 to 1.00. In addition, in July 1997, the Company voluntarily
reduced the total amount available under the Bank Facility by $30
million. As a result, no additional reductions are required until
June 30, 1998, at which time the Bank Facility will reduce by $22.4
million each fiscal quarter through March 31, 2000.
3. OTHER MATTERS
PREOPENING EXPENSES
Prior to the opening of a facility, all operating expenses,
including incremental salaries and wages, related thereto are
capitalized as preopening expenses. In June 1997, Sunset Station
Hotel & Casino opened. During the three months ended June 30, 1997
$10.9 million of preopening expense primarily related to Sunset
Station were expensed.
EXPIRED OPTION PAYMENTS
In June 1997, approximately $5.0 million of certain expired option
payments to lease or acquire land for future development, which had
previously been capitalized, were expensed. Such amounts are included
in other income/expense in the accompany condensed consolidated statements
of operations for the three months ended June 30, 1997.
EARNINGS PER SHARE
The Financial Accounting Standards Board has issued Statement on
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," which is effective for fiscal years ending after December 15,
1997. This statement replaces primary earnings per share ("EPS")
with basic EPS. No dilution for potentially dilutive securities is
included in basic EPS. This statement also requires when applying
the treasury stock method for diluted EPS to compute dilution for
options and warrants, to use average share price for the period,
rather than the more dilutive greater of the average share price or
end-of-period share price. The Company will adopt SFAS No. 128 in
the fiscal year ending March 31, 1998. Management believes the
adoption of SFAS No. 128 will have no impact on the Company's
previously reported earnings per share.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(amounts in thousands)
(unaudited)
1. OVERVIEW
The following table highlights the results of operations for the
Company and its subsidiaries:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------
1997 1996
--------- ----------
<S> <C> <C>
NEVADA OPERATIONS:
- ------------------
PALACE STATION
Net revenues........................................ $ 32,890 $ 34,320
Operating income.................................... $ 7,770 $ 7,893
EBITDA (1).......................................... $ 9,903 $ 9,931
BOULDER STATION
Net revenues........................................ $ 35,896 $ 34,399
Operating income.................................... $ 10,383 $ 8,823
EBITDA (1).......................................... $ 13,289 $ 11,414
TEXAS STATION
Net revenues........................................ $ 21,141 $ 19,788
Operating income.................................... $ 2,354 $ 1,312
EBITDA (1).......................................... $ 4,512 $ 3,007
SUNSET STATION
Net revenues........................................ $ 9,543 $ -
Operating loss...................................... $ (8,836) $ -
EBITDAR (1)......................................... $ 2,786 $ -
EBITDA (1).......................................... $ 2,265 $ -
TOTAL NEVADA OPERATIONS:
Net revenues........................................ $ 99,470 $ 88,507
Operating income.................................... $ 11,671 $ 18,028
EBITDA (1).......................................... $ 29,969 $ 24,352
MISSOURI OPERATIONS:
- --------------------
STATION CASINO ST. CHARLES
Net revenues........................................ $ 31,354 $ 39,525
Operating income.................................... $ 3,378 $ 8,540
EBITDA (1).......................................... $ 6,664 $ 11,320
STATION CASINO KANSAS CITY
Net revenues........................................ $ 35,279 $ -
Operating loss...................................... $ (3,270) $ -
EBITDA (1).......................................... $ 1,160 $ -
TOTAL MISSOURI OPERATIONS:
Net revenues........................................ $ 66,633 $ 39,525
Operating income.................................... $ 108 $ 8,540
EBITDA (1).......................................... $ 7,824 $ 11,320
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(amounts in thousands)
(unaudited)
1. OVERVIEW (CONTINUED)
The following table highlights the results of operations for the
Company and its subsidiaries:
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------
1997 1996
--------- ----------
<S> <C> <C>
STATION CASINOS, INC. AND OTHER
- -------------------------------
Net revenues........................................ $ 7,413 $ 7,408
Operating loss...................................... $ (3,601) $ (3,755)
EBITDA (1).......................................... $ (2,766) $ (3,036)
</TABLE>
(1) "EBITDA" consists of operating income plus depreciation and amortization,
including preopening expenses. "EBITDAR" consists of operating income plus
depreciation, amortization, preopening expenses and rent expense. EBITDA and
EBITDAR should not be construed as alternatives to operating income as an
indicator of the Company's operating performance, or as alternatives to cash
provided by operating activities as a measure of liquidity. The Company has
presented EBITDA and EBITDAR solely as supplemental disclosure because the
Company believes that certain investors consider this information useful in
the evaluation of the financial performance of companies with substantial
depreciation and amortization.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
2. RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1996.
Consolidated net revenues increased 28.1% to $173.5 million
for the three months ended June 30, 1997, from $135.4 million in
the prior year. The Company's Nevada Operations contributed
$99.5 million of net revenues for the three months ended June
30, 1997, an increase of 12.4% over the prior year. This
increase in net revenues is due primarily to the opening of
Sunset Station in June 1997, as well as improved results at
both Boulder Station and Texas Station. The Company's
Missouri Operations contributed $66.6 million of net
revenues for the three months ended June 30, 1997, an
increase of 68.6% over the prior year. This increase in net
revenues is due to Station Casino Kansas City which opened in
January 1997, offset by a decline in net revenues at Station
Casino St. Charles due to increased competition in the St. Louis
Market with the opening of a new hotel/casino in Maryland Heights
in March 1997.
Operating income decreased 64.2% to $8.2 million for the
three months ended June 30, 1997, from $22.8 million in the
prior year. Operating income at the Company's Nevada Operations
decreased 35.3% to $11.7 million due to the write-off of
preopening expenses of $10.9 million primarily related to Sunset
Station. Operating income at the Company's Missouri Operations
decreased 98.7% due to a decrease of $5.2 million at Station
Casino St. Charles related to increased competition and an
operating loss of $3.3 million at Station Casino Kansas City.
The decline in operating income, an increase in net interest
expense of $7.7 million the expiration of certain option payments
to lease or acquire land for future development resulting in an
expense of approximately $5.0 million and dividends of $1.8
million on the convertible preferred stock, resulted in a net loss
applicable to common stock of $10.1 million, or a loss per common
share of $0.29 for the three months ended June 30, 1997, compared
to net income applicable to common stock of $7.6 million, or
earnings per common share of $0.22 in the prior year.
CASINO. Casino revenues increased 27.3% to $133.3 million
for the three months ended June 30, 1997, from $104.7 million in
the prior year. This increase is due to the opening of Station
Casino Kansas City in January 1997, the opening of Sunset
Station in June 1997, and improvements at the Company's Nevada
Operations offset by a decrease at Station Casino St. Charles as
a result of the new competition added to the St. Louis Market in
March 1997.
Casino expenses increased 41.9% to $64.3 million for the
three months ended June 30, 1997, from $45.3 million in the
prior year. This increase in casino expenses is consistent with
the increase in casino revenues discussed above. Casino net
profit margin decreased to 51.8% for the three months ended
June 30, 1997, from 56.7% in the prior year. The Nevada
Operations experienced a slight increase in net casino margin,
while the Missouri Operations were negatively impacted in St.
Charles due to the increased competition and Station Casino
Kansas City has a lower margin due to the start-up nature of
the new operations, especially being the last entrant into
this market. In addition, the Missouri Operations have a lower
margin that the Company's combined margin due primarily to higher
gaming tax rates in Missouri as compared to Nevada.
FOOD AND BEVERAGE. Food and beverage revenues increased
36.3% to $28.9 million for the three months ended June 30, 1997,
from $21.2 million in the prior year. This increase is
primarily due to the opening of Station Casino Kansas City and
Sunset Station as noted above.
Food and beverage net profit margins improved to 26.3% for
the three months ended June 30, 1997, from 24.0% in the prior
year. This increase in margin is due to improvement at the
Nevada properties as a result of continued focus on cost control.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
2. RESULTS OF OPERATIONS (CONTINUED)
ROOM. Room revenues increased 24.8% to $8.0 million for
the three months ended June 30, 1997, from $6.4 million in the
prior year. This increase is due primarily to the addition of
Station Casino Kansas City and Sunset Station. The Company
wide room occupancy decreased to 96% from 97%, while the
average daily room rate increased to $50 from $47 during the
three months ended June 30, 1997.
OTHER. Other revenues increased 25.7% to $14.2 million
for the three months ended June 30, 1997, from $11.3 million
in the prior year. This increase is due primarily to the
addition of Station Casino Kansas City and Sunset Station. Revenues
from the Company's slot route business increased 18.1% to $6.3 million
for the three months ended June 30, 1997.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses ("SG&A") increased 35.5% to $38.7 million for
the three months ended June 30, 1997, from $28.5 million in the prior
year. This increase is due to the addition of Station Casino Kansas
City and Sunset Station. SG&A as a percentage of net revenues
increased slightly to 22.3% from 21.1% in the prior year.
CORPORATE EXPENSES. Corporate expenses decreased 7.6% to $3.9
million for the three months ended June 30, 1997, from $4.2 million
in the prior year. Corporate expenses declined to 2.2% of net
revenues for the three months ended June 30, 1997, from 3.1% in the
prior year.
DEVELOPMENT EXPENSES. Development expenses continue to decrease
as a result of reduced efforts to identify potential gaming
opportunities. Such costs are incurred by the Company in its efforts
to identify and pursue potential gaming opportunities in selected
jurisdictions, including those in which gaming has not been approved.
The Company expenses development costs including lobbying, legal and
consulting until such time as the jurisdiction has approved gaming
and the Company has identified a specific site. Costs incurred
subsequent to these criteria being met are capitalized.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased 62.7% to $16.0 million for the three months ended June 30,
1997, from $9.8 million in the prior year. This increase is due
primarily to the addition of Station Casino Kansas City and Sunset
Station.
PREOPENING EXPENSES. The Company capitalizes preopening
expenses associated with its construction projects, including Sunset
Station which opened June 10, 1997. These amounts are expensed upon
the opening of the related project. During the three months ended
June 30, 1997, the Company expensed preopening expenses of $10.9
million related primarily to Sunset Station.
INTEREST EXPENSE, NET. Interest costs incurred (expensed and
capitalized) increased 68.2% to $21.9 million for the three months
ended June 30, 1997. This increase is primarily attributable to
added interest costs associated with the 9 3/4% senior subordinated
notes issued by the Company in April 1997, borrowing's under the
Sunset Loan Agreement (as defined herein) and borrowings under the
Company's reducing revolving bank credit facility used for the
construction of Station Casino Kansas City, Sunset Station and the
expansion at Station Casino St. Charles. For the three months ended
June 30, 1996 there were no borrowings under the reducing revolving
credit facility. Capitalized interest will decrease significantly
with the opening of Sunset Station this quarter.
RECENTLY ISSUED ACCOUNTING STANDARD. The Financial Accounting
Standards Board has issued Statement on Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," which is effective
for fiscal years ending after December 15, 1997. This statement
replaces primary earnings per share ("EPS") with basic EPS. No
dilution for potentially dilutive securities is included in basic
EPS. This statement also requires when applying the treasury stock
method for diluted EPS to compute dilution for
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2. RESULTS OF OPERATIONS (CONTINUED)
options and warrants, to use average share price for the period,
rather than the more dilutive greater of the average share price or
end-of-period share price. The Company will adopt SFAS No. 128 in
the fiscal year ending March 31, 1998. Management believes the
adoption of SFAS No. 128 will have no impact on the Company's
previously reported earnings per share.
3. LIQUIDITY AND CAPITAL RESOURCES
During the three months ended June 30, 1997, the Company's
sources of capital included net proceeds of $144.3 million from the
issuance of 9 3/4% senior subordinated notes, which were used to re-pay
amounts outstanding under the Company's reducing revolving bank
credit facility, cash flows from operating activities of $31.6
million, and borrowings under the Sunset Loan Agreement (as defined
herein) of $43.5 million. At June 30, 1997, the Company had
available borrowings of $172 million under its reducing revolving
bank credit facility, $20.5 million under the Sunset Loan Agreement,
available advances of $23.4 million under the Sunset Operating Lease
(as defined herein) and $49.0 million in cash and cash equivalents.
During the three months ended June 30, 1997, total capital
expenditures were approximately $76.1 million, of which approximately
(i) $33.7 million was associated with the development and
construction of Sunset Station, (ii) $12.3 million was associated
with the development and construction of the expansion project at
Station Casino St. Charles, (iii) $7.0 million was associated with
the acquisition of land adjacent to Boulder Station, and (iv) $23.1
million was associated with various other projects, maintenance
capital expenditures and net construction period interest.
The Company's primary requirements during the remainder of
fiscal year 1998 are expected to include (i) the payment of
construction contracts payable of approximately $49.7 million as of
June 30, 1997, (ii) maintenance capital expenditures at the Company's
subsidiaries, (iii) principal and interest payments on indebtedness,
(iv) dividend payments on convertible preferred stock, and (v)
general corporate purposes. In addition, the Company has commenced
construction of an expansion project at Station Casino St. Charles
(the "St. Charles Expansion Project"). In connection with this
expansion project, the Company is constructing a man-made backwater
basin that contains two new gaming vessels, which will be similar to
the gaming vessels at Station Casino Kansas City. The project also
includes a transition deck to provide direct access from the 4,000-
space parking garage into the new casino facilities. This project is
expected to cost approximately $190 million (excluding construction
period interest and preopening expenses), of which $111.9 million had
been incurred at June 30, 1997. Management estimates that the St.
Charles Expansion Project will be completed by mid-summer 1998. The
scope and timing of this expansion project depend on several factors,
including, but not limited to, the Company's ability to draw under
its reducing revolving bank credit facility as restricted by the
maximum funded debt to EBITDA (as adjusted for preopening expenses)
ratio described herein. In addition, the Company had entered into a
non-binding letter of intent with the Gordon Group Holdings, Ltd.
(the "Gordon Group") to develop a substantial portion of the new
retail and entertainment complex portion of the St. Charles Expansion
Project. The letter of intent is subject to various termination
provisions and a 90-day due diligence period which the parties have
continued to conduct beyond the original June 19, 1997 due diligence
expiration date. The Company anticipates that between $50 million and
$70 million of financing will be required by the Gordon Group for the
development of a uniquely styled shopping and entertainment area,
including a variety of specialty retail stores, restaurants and
entertainment attractions. If the Gordon Group fails to proceed with
development of the retail and entertainment complex, the Company
plans to complete a smaller-scale build-out of the retail and
entertainment complex for an estimated cost of $16 million (net of
construction period interest and preopening expenses). No assurances
can be given that
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
3. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
the Company and the Gordon Group will enter into a definitive
development agreement with respect to the project, that the Gordon
Group will be able to obtain the necessary financing, that the Gordon
Group will complete the build-out of the complex within the Company's
estimated completion time of mid-summer 1998 or that the Gordon Group
will be able to develop and operate the project successfully.
The Company believes that cash flows from operations, borrowings
under the reducing revolving bank credit facility, the Sunset Loan
Agreement, vendor and lease financing of equipment and existing cash
balances will be adequate to satisfy the Company's anticipated uses
of capital during the remainder of fiscal year 1998. The Company,
however, continually is evaluating the financing needs of its current
and planned projects. If more attractive financing alternatives
become available to the Company, the Company may amend its financing
plans with respect to such projects, assuming such financing would be
permitted under its existing debt agreements (see "Description of
Certain Indebtedness and Capital Stock") and other applicable
agreements.
DESCRIPTION OF CERTAIN INDEBTEDNESS AND CAPITAL STOCK
BANK FACILITY
The Company's secured, Amended and Restated Reducing Revolving
Loan Agreement, dated as of March 19, 1996, as amended on June 27,
1997 (the "Bank Facility"), is a reducing revolving bank credit
facility which provides for borrowings up to an aggregate principal
amount of $360 million as of June 30, 1997. In July 1997, the Company
voluntarily reduced the total amount available under the Bank
Facility by $30 million. As a result, no additional reductions are
required until June 30, 1998 at which time the Bank Facility will
reduce by $22.4 million each fiscal quarter through March 31, 2000.
The Bank Facility is secured by substantially all of the assets of
Palace Station, Boulder Station, Texas Station, Station Casino Kansas
City and Station Casino St. Charles (collectively, the "Borrowers").
The Company and Southwest Gaming Services, Inc. guarantee the
borrowings under the Bank Facility (collectively the "Guarantors").
The Bank Facility matures on September 30, 2000. Borrowings under the
Bank Facility bear interest at a margin above the bank's prime rate
or the Eurodollar Rate, as selected by the Company. The margin above
such rates, and the fee on the unfunded portions of the Bank
Facility, will vary quarterly based on the combined Borrower's and
the Company's consolidated (exclusive of Sunset Station) ratio of
funded debt to earnings before interest, taxes, depreciation and
amortization ("EBITDA") adjusted for preopening expenses. As of June
30, 1997, the Company's margin above the Eurodollar Rate on
borrowings under the Bank Facility was 2.13%. Such margin will
increase to 2.75% if the maximum funded debt to EBITDA (adjusted for
preopening expenses) ratio is reached.
The Bank Facility contains certain financial and other
covenants. These include a maximum funded debt to EBITDA (adjusted
for preopening expenses) ratio for the Borrowers combined of 3.00 to
1.00 for each fiscal quarter through June 30, 1997, 2.75 to 1.00 for
each fiscal quarter through June 30, 1998, and 2.50 to 1.00 for each
fiscal quarter thereafter, a minimum fixed charge coverage ratio for
the preceding four quarters for the Borrowers combined of 1.35 to
1.00 for the periods March 31, 1996 through June 30, 1998, and 1.50
to 1.00 for periods thereafter, a limitation on indebtedness, and
limitations on capital expenditures. As of June 30, 1997, the
Borrowers funded debt to EBITDA ratio was 1.79 to 1.00 and the fixed
charge coverage ratio for the proceeding four quarters ended June 30,
1997 was 1.78 to 1.00. A tranche of the Bank Facility contains a
minimum tangible net worth requirement for Palace Station ($10
million plus 95% of net income determined as of the end of each fiscal
quarter with no reduction for net losses) and certain restrictions on
distributions of cash from Palace Station to the Company. As of June
30, 1997, Palace Station's tangible net worth exceeded the requirement
by
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
3. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
approximately $7 million. These covenants limit Palace Station's
ability to make payments to the COmpany, a significant source of
anticipated cash for the Company.
In addition, the Bank Facility has financial covenants relating
to the Company. These include prohibitions on dividends on or
redemptions of the Company's Common Stock, restrictions on repayment
of any subordinated debt, limitations on the incurrence of additional
indebtedness, the Company's senior subordinated notes and other
specified indebtedness, minimum consolidated tangible net worth
requirements (adjusted upwards for post October 1, 1995 preopening
expenses, not to exceed $18 million and for potential losses on
disposed or discontinued assets, not to exceed $30 million), for the
Company of $165 million plus 95% of post October 1, 1995 net income
(not reduced by net losses) and 100% of net equity offering proceeds,
and limitations on capital expenditures and investments. As of June
30, 1997, the Company's consolidated net worth exceeded the
requirement by approximately $22 million. In March and June 1997,
the Company obtained certain amendments to the Bank Facility in
order to enhance its borrowing capacity under its Bank Facility. As
amended in June 1997, the Bank Facility includes a maximum funded
debt to EBITDA (adjusted for preopening expenses) ratio, including
annualized EBITDA (adjusted for preopening expenses) for any new
venture, as defined, open less than a year, for the Company on a
consolidated basis of 5.75 to 1.00 for the fiscal quarter ending
June 30, 1997, 5.85 to 1.00 for the fiscal quarter ending September
30, 1997, 5.75 to 1.00 for each fiscal quarter through March 31,
1998, 5.00 to 1.00 for the fiscal quarter ending June 30, 1998, 4.75
to 1.00 for the fiscal quarter ending September 30, 1998, 4.50 to
1.00 for the fiscal quarter ending December 31, 1998, 4.25 to
1.00 for each fiscal quarter through June 30, 1999, 4.00 to 1.00
for the fiscal quarter ending September 30, 1999 and 3.75 to 1.00
thereafter. As of June 30, 1997, the Company's funded debt to EBITDA
ratio was 5.68 to 1.00. Such consolidated calculations for the
Company do not include Sunset Station. In addition, the Bank
Facility prohibits the Company from holding cash and cash equivalents
in excess of the sum of the amounts necessary to make the next
scheduled interest or dividend payments on the Company's senior
subordinated notes and preferred stock, the amounts necessary to fund
casino bankroll in the ordinary course of business and $2.0 million.
The Guarantors waive certain defenses and rights including rights of
subrogation and reimbursement. The Bank Facility contains customary
events of default and remedies and is cross-defaulted to the
Company's senior subordinated notes and the Change of Control
Triggering Event as defined in the indentures governing the senior
subordinated notes.
The Company has obtained an amendment to the Bank Facility that
will permit the Company to form a wholly-owned limited partnership to
enter into a financing transaction to lease the two new gaming
vessels under construction at Station Casino St. Charles pursuant to
an operating lease.
SENIOR SUBORDINATED NOTES
The Company has $527.6 million, net of unamortized discount of
$13.4 million, of senior subordinated notes outstanding as of June
30, 1997, $186.4 million of these notes bear interest, payable semi-
annually, at a rate of 9 5/8% per year, $196.8 million of these notes
bear interest, payable semi-annually, at a rate of 10 1/8% per year
and $144.4 million of the notes bear interest , payable semi-
annually, at a rate of 9 3/4% per year (collectively the "Notes").
The indentures governing the Notes ("Indentures") contain certain
customary financial and other covenants which prohibit the Company
and its subsidiaries from incurring indebtedness (including capital
leases) other than (a) non-recourse debt for certain specified
subsidiaries, (b) certain equipment financings, (c) the Notes, (d) up
to $15 million of additional indebtedness, (e) additional
indebtedness if, after giving effect thereto, a 2.00 to 1.00 pro
forma Consolidated Coverage Ratio (as defined) has been met, (f)
Permitted Refinancing Indebtedness (as defined), (g) borrowings of up
to $72 million under the Bank Facility, and (h) certain other
indebtedness. At
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
3. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
June 30, 1997, the Company's Consolidated Coverage Ratio was 2.42 to
1.00. In addition, the Indentures prohibit the Company from paying
dividends on any of its capital stock unless at the time of and after
giving effect to such dividends, among other things, the aggregate
amount of all Restricted Payments and Restricted Investments (as
defined in the indentures, and which include any dividends on any
capital stock of the Company) do not exceed the sum of (i) 50% of
Cumulative Consolidated Net Income (as defined) of the Company (less
100% of any consolidated net losses), (ii) certain net proceeds from
the sale of equity securities of the Company and (iii) $15 million.
The limitation on the incurrence of additional indebtedness and
dividend restrictions in the Indentures may significantly affect the
Company's ability to pay dividends on its capital stock. The
Indentures also give the holders of the Notes the right to require
the Company to purchase the Notes at 101% of the principal amount of
the Notes plus accrued interest thereon upon a Change of Control and
Rating Decline (each as defined in the Indentures) of the Company.
SUNSET LOAN AGREEMENT, SUPPLEMENTAL LOAN AGREEMENT AND SUNSET
OPERATING LEASE
On September 25, 1996, Sunset Station, a wholly-owned subsidiary
of the Company, entered into a Construction/Term Loan Agreement (the
"Sunset Loan Agreement") with Bank of America National Trust and
Savings Association ("Bank of America NT&SA"), Bank of Scotland,
Societe Generale and each of the other lenders party to such
agreement, pursuant to which Sunset Station received a commitment for
$110 million to finance the remaining development and construction
costs of Sunset Station. The Company also entered into an operating
lease for certain furniture, fixtures and equipment with a cost of
$40 million to be subleased to Sunset Station.
The Sunset Loan Agreement includes a first mortgage term note in
the amount of $110 million (the "Sunset Note") which is non-recourse
to the Company, except as to certain construction matters pursuant to
a completion guarantee dated as of September 25, 1996, executed by
the Company on behalf of Sunset Station, and except that the Company
has pledged all of the stock of Sunset Station as security for the
Sunset Loan Agreement. As of June 30, 1997, Sunset Station had
borrowed $89.5 million under the Sunset Note. The Sunset Note is to
reduce $1.8 million for each fiscal quarter ending March 1998 through
December 1998, $2.3 million for each fiscal quarter ending March
1999 through December 1999, and $2.0 million for the fiscal quarters
ending March 2000 and June 2000 and matures in September 2000. In
addition, the Sunset Note is subject to prepayment subsequent to July
1998 by an amount equal to a specified percentage of Excess Cash Flow
(as defined). The Sunset Note carries an interest rate of 375 basis
points over the Eurodollar Rate (as defined in the Sunset Loan
Agreement). The Sunset Note is secured by substantially all of the
assets of Sunset Station, including a deed of trust with respect to
the real property on which Sunset Station is situated, a portion of
which is subject to a lease from the Company to Sunset Station, and
the remainder of which property is owned by Sunset Station, and a
security agreement as to all tangible and intangible personal
property including Sunset Station's rights under an operating lease
for certain furniture, fixtures and equipment.
The Sunset Loan Agreement contains certain customary financial
and other covenants (related exclusively to Sunset Station) including
a minimum fixed charge coverage ratio as of the last day of any full
quarter after the opening of Sunset Station of not less than 1.10 to
1.00, a maximum senior funded debt to EBITDA (adjusted for certain
cash contributions or advances by the Company) ratio after opening of
4.50 to 1.00 for the first full quarter reducing by 0.25 on certain
quarters thereafter to 3.25 to 1.00 for the tenth quarter and each
quarter thereafter, and a minimum net worth as of any quarter end
after opening of not less then $52 million plus 80% of net income
(not reduced by net losses), plus 100% of certain additional equity
contributions by the Company and Supplemental Loans (as defined). In
addition, the
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
3. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
agreement places restrictions on indebtedness and guarantees,
dividends, stock redemptions, mergers, acquisitions, sale of assets
or sale of stock in subsidiaries and limitations on capital
expenditures.
In addition, the Company has provided a funding commitment to
Sunset Station of up to an additional $25 million pursuant to a
supplemental loan agreement (the "Supplemental Loan Agreement"). The
Sunset Loan Agreement requires Sunset Station to draw amounts under
the Supplemental Loan Agreement in the event of the failure of
certain financial covenants under the Sunset Loan Agreement. Loans
under this funding commitment may be drawn down beginning on the last
day of the first full calendar quarter ending after Sunset Station
opens for business in the amount of up to $10 million during the
first year after such date, up to $10 million during the second year
after such date and up to $5 million during the third year after such
date. The Supplemental Loan Agreement also provides for an
additional, separate funding commitment up to $40 million in
connection with a purchase option for certain furniture, fixtures and
equipment currently financed under the Sunset Operating Lease (as
defined herein). Sunset Station will pay interest at a rate per
annum equal to the three month Eurodollar Rate, the interest being
payable solely in the form of commensurate additions to the principal
of the Supplemental Loans. The Supplemental Loan Agreement expires
in September 2001. The funding commitments under the Supplemental
Loan Agreement are subject to limitations imposed by the Existing
Indentures, the Indenture and the Bank Facility.
In order to manage the interest rate risk associated with the
Sunset Note, Sunset Station entered into an interest rate swap
agreement with Bank of America NT&SA. This agreement swaps the
variable rate interest pursuant to the Sunset Note to a fixed rate of
9.58% on $90 million notional amount as of June 1997, increasing to
$100 million at September 1997 and then decreasing to $95 million at
June 1998. The agreement expires in December 1998. The difference
paid or received pursuant to the swap agreement is accrued as
interest rates change and recognized as an adjustment to interest
expense for the Sunset Note. Sunset Station is exposed to credit
risk in the event of non-performance by the counterparty to the
agreement. The Company believes the risk of non-performance by the
counterparty is minimal.
The Company has also entered into an operating lease for
furniture, fixtures and equipment (the "Equipment") with a cost of
$40 million, dated as of September 25, 1996 (the "Sunset Operating
Lease") between the Company and First Security Trust Company of
Nevada. The Sunset Operating Lease expires in October 2000 and
carries a lease rate of 225 basis points above the Eurodollar Rate.
As of June 30, 1997, $16.6 million of this facility had been drawn.
The Company has entered into a sublease with Sunset Station for the
Equipment pursuant to an operating lease with financial terms
substantially similar to the Sunset Operating Lease. In the event
that Sunset Station elects to purchase the Equipment, the Company has
provided a funding commitment up to the amount necessary for such
purchase pursuant to the Supplemental Loan Agreement (subject to the
limitations on funding contained in the Supplemental Loan Agreement).
In connection with the Sunset Operating Lease, the Company also
entered into a participation agreement, dated as of September 25,
1996 (the "Participation Agreement") with the trustee, as lessor
under the Sunset Operating Lease, and holders of beneficial interests
in the Lessor Trust (the "Holders"). Pursuant to the Participation
Agreement, the Holders will advance funds to the trustee for the
purchase by the trustee of, or to reimburse the Company for the
purchase, of the Equipment, which will then be leased to the Company
under the Sunset Operating Lease, and in turn subleased to Sunset
Station. Pursuant to the Participation Agreement, the Company also
agreed to indemnify the Lessor and the Holders against certain
liabilities.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
3. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
COMMON STOCK
The Company is authorized to issue up to 90,000,000 shares of
its common stock, $.01 par value per share (the "Common Stock"),
35,306,657 shares of which were issued and outstanding as of June 30,
1997. Each holder of the Common Stock is entitled to one vote for
each share held of record on each matter submitted to a vote of
stockholders. Holders of the Common Stock have no cumulative voting,
conversion, redemption or preemptive rights or other rights to
subscribe for additional shares. Subject to any preferences that may
be granted to the holders of the Company's preferred stock, each
holder of Common Stock is entitled to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally
available therefor as well as any distributions to the stockholders
and, in the event of liquidation, dissolution or winding up of the
Company, is entitled to share ratably in all assets of the Company
remaining after payment of liabilities.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of its
preferred stock, $.01 par value per share (the "Preferred Stock").
As of June 30, 1997, 2,070,000 shares of $3.50 Convertible Preferred
Stock (the "Convertible Preferred Stock") has been issued and are
outstanding. The Board of Directors, without further action by the
holders of Common Stock or the Convertible Preferred Stock, may issue
shares of Preferred Stock in one or more series and may fix or alter
the rights, preferences, privileges and restrictions, including the
voting rights, redemption provisions (including sinking fund
provisions), dividend rights, dividend rates, liquidation rates,
liquidation preferences, conversion rights and the description and
number of shares constituting any wholly unissued series of Preferred
Stock. Except as described above, the Board of Directors, without
further stockholder approval, may issue shares of Preferred Stock
with rights that could adversely affect the rights of the holders of
Common Stock or the Convertible Preferred Stock. The issuance of
shares of Preferred Stock under certain circumstances could have the
effect of delaying or preventing a change of control of the Company
or other corporate action.
CONVERTIBLE PREFERRED STOCK
Each of the Convertible Preferred Stock shares outstanding have
a liquidation preference of $50.00 per share plus an amount equal to
any accumulated and unpaid dividends at the annual rate of $3.50 per
share, or 7.0% of such liquidation preference. Such dividends accrue
and are cumulative from the date of issuance and are payable
quarterly. The Convertible Preferred Stock is convertible at the
option of the holder thereof at any time, unless previously redeemed,
into shares of Common Stock at an initial conversion rate of 3.2573
shares of Common Stock for each share of Convertible Preferred Stock,
subject to adjustment in certain circumstances. The Company may
reduce the conversion price of the Convertible Preferred Stock by any
amount for any period of at least 20 days, so long as the decrease is
irrevocable during such period. The Convertible Preferred Stock is
redeemable, at the option of the Company, in whole or in part, for
shares of Common Stock, at any time after March 15, 1999, initially
at a price of $52.45 per share of Convertible Preferred Stock, and
thereafter at prices decreasing annually to $50.00 per share of
Convertible Preferred Stock on and after March 15, 2006, plus accrued
and unpaid dividends. The Common Stock to be issued is determined by
dividing the redemption price by the lower of the average daily
closing price for the Company's Common Stock for the preceding 20
trading days or the closing price of the Company's Common Stock on
the first business day preceding the date of the redemption notice.
Any fractional shares would be paid in cash. There is no mandatory
sinking fund obligation with respect to the Convertible Preferred
Stock. The holders of the Convertible Preferred Stock do not have
any voting rights, except as required by applicable law and except
that, among other things, whenever accrued and unpaid dividends on
the Convertible Preferred Stock are equal to or exceed the
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
3. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
equivalent of six quarterly dividends payable on the Convertible
Preferred Stock, the holders of the Convertible Preferred Stock,
voting separately as a class with the holders of any other series of
parity stock upon which like voting rights have been conferred and
are exercisable, will be entitled to elect two directors to the Board
of Directors until dividend arrearage has been paid or amounts have
been set apart for such payment. The Convertible Preferred Stock is
senior to the Common Stock with respect to dividends and upon
liquidation, dissolution or winding-up.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. The forward-looking statements in this document are
intended to be subject to the safe harbor protection provided by
Section 21E. All forward-looking statements involve risks and
uncertainties. Although the Company believes that its expectations
are based upon reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance
that actual results will not materially differ from its expectations.
Factors that could cause actual results to differ materially from
expectations include, among other things, the Company's competition,
the limitations on capital resources imposed by the Company's Bank
Facility and the terms of the Indentures governing the Company's
Notes, the Company's ability to meet its interest expense and
principal repayment obligations, loss of the Company's riverboat and
dockside facilities from service, construction risks, the Company's
dependence on key gaming markets, the Company's ability to take
advantage of new gaming development opportunities and gaming
regulations. For other factors that may cause actual results to
materially differ from expectations and underlying assumptions, refer
to the Registration Statement on Form S-4 (File No. 333-30685) (and
particularly the section labeled "Risk Factors" therein) and periodic
reports, including the Annual Report on Form 10-K for the year ended
March 31, 1997, filed by the Company with the Securities and Exchange
Commission (and particularly the section labeled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" therein). Readers are cautioned not to place undue
reliance on any forward-looking statements, which speak only as of
the date thereof. The Company undertakes no obligation to publicly
release any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -
The Company and its subsidiaries are defendants in
various lawsuits relating to routine matters incidental to
their business. Management does not believe that the
outcome of such litigation, in the aggregate, will have a
material adverse effect on the Company.
A suit seeking status as a class action lawsuit was
filed by plaintiff, William H. Poulos, et. al, as class
representative, on April 26, 1994, in the United States
District Court, Middle District of Florida, naming 41
manufacturers, distributors and casino operators of video
poker and electronic slot machines, including the Company.
On May 10, 1994, a lawsuit alleging substantially identical
claims was filed by another plaintiff, William Ahearn, et.
al, as class representative, in the United States
District Court, Middle District of Florida, against 48
manufacturers, distributors and casino operators of
video poker and electronic slot machines, including
the Company and most of the other major hotel-casino
companies. The lawsuits allege that the defendants have
engaged in a course of fraudulent and misleading conduct
intended to induce persons to play such games based on a
false belief concerning how the gaming machines operate, as
well as the extent to which there is an opportunity to
win. The two lawsuits have been consolidated into a
single action, and have been transferred to the
United States District Court, for the State of Nevada. On
September 26, 1995, a lawsuit alleging substantially
identical claims was filed by plaintiff, Larry Schreier,
et. al, as class representative, in the United States
District court for the District of Nevada, naming 45
manufacturers, distributors, and casino operators of video
poker and electronic slot machines, including the Company.
Motions to dismiss the Poulos/Ahearn and Schreier cases
were filed by Defendants. On April 17, 1996, the
Poulos/Ahearn lawsuits were dismissed, but plaintiffs
were given leave to file amended Complaints on or before
May 31, 1996. On May 31, 1996, an amended Compliant
was filed, naming William H. Poulos, et. al, as plaintiff.
Defendants filed a motion to dismiss. On August 15, 1996, the
Schreier lawsuit was dismissed with leave to amend. On
September 27, 1996, Schreier filed an Amended Complaint.
Defendants filed motions to dismiss the Amended Complaint.
In December 1996, the Court consolidated the Poulos/Ahearn,
the Schreier, and a third case not involving the Company and
ordered all pending motions be deemed withdrawn without
prejudice, including Defendants' Motions to Dismiss the
Amended Complaints. The plaintiffs filed a Consolidated
Amended Complaint on February 13, 1997. The Defendants have
filed motions to dismiss, substantially identical to those
filed in the earlier separate actions. The motions to dismiss
remain pending before the Court. Management believes that the
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.
20
<PAGE>
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit
Number
-------
27 Financial Data Schedule
(b) Reports on Form 8-K - On April 7, 1997, the Company filed a
current report on Form 8-K dated April 3, 1997. The Company
reported under Item 5 the issuance of $150 million senior
subordinated notes due 2007.
21
<PAGE>
SIGNATURE
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.
Station Casinos, Inc.,
Registrant
DATE: August 13, 1997 /s/ Glenn C. Christenson
-----------------------------
Glenn C. Christenson,
Executive Vice President,
Chief Financial Officer, and
Chief Administrative Officer
(Principal Accounting Officer)
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOUND ON PAGE 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE
YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000898660
<NAME> STATION CASINOS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 49,018
<SECURITIES> 0
<RECEIVABLES> 12,802
<ALLOWANCES> 0
<INVENTORY> 4,308
<CURRENT-ASSETS> 85,998
<PP&E> 1,252,308
<DEPRECIATION> 122,181
<TOTAL-ASSETS> 1,303,840
<CURRENT-LIABILITIES> 152,207
<BONDS> 527,648
0
103,500
<COMMON> 353
<OTHER-SE> 184,980
<TOTAL-LIABILITY-AND-EQUITY> 1,303,840
<SALES> 0
<TOTAL-REVENUES> 173,516
<CGS> 0
<TOTAL-COSTS> 95,835
<OTHER-EXPENSES> 15,983
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,007
<INCOME-PRETAX> (12,846)
<INCOME-TAX> (4,556)
<INCOME-CONTINUING> (8,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,290)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
