-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HFmqol546xlJbfkV3OJvii8Vytav3huVwOE4O65e2BBhs87HVRRnV0SHZ74hoLBZ /EHgpWnMkHvm6sdQ1EWU1g== 0000796912-98-000012.txt : 19980817 0000796912-98-000012.hdr.sgml : 19980817 ACCESSION NUMBER: 0000796912-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLAYERS INTERNATIONAL INC /NV/ CENTRAL INDEX KEY: 0000796912 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 954175832 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14897 FILM NUMBER: 98689456 BUSINESS ADDRESS: STREET 1: 1300 ATLANTIC AVENUE STREET 2: SUITE 800 CITY: ATLANTIC CITY STATE: NJ ZIP: 08401 BUSINESS PHONE: 609-449-7777 MAIL ADDRESS: STREET 1: 1300 ATLANTIC AVE STREET 2: STE 800 CITY: ATLANTIC CITY STATE: NJ ZIP: 08401 FORMER COMPANY: FORMER CONFORMED NAME: PLAYERS CLUB INTERNATIONAL INC DATE OF NAME CHANGE: 19861020 10-Q 1 3 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 _____________ FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________ to ____________________ Commission file number 0-14897 Players International, Inc. (Exact name of registrant as specified in its charter) Nevada 95-4175832 (State or other jurisdiction of incorporation or organization) (I.R.S. employer identification no.) 1300 Atlantic Ave., Suite 800, Atlantic City, NJ 08401 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (609) 449-7777 (Former name, former address and former fiscal year, if changed since last report.) Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO CORPORATE ISSUERS: As of August 12, 1998, there were 31,941,737 shares of the registrant's Common Stock outstanding, net of treasury stock. PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements Condensed Consolidated Balance Sheets at June 30, 1998 and March 31, 1998 3 Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 1998 and 1997 5 Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 1998 and 1997 6 Notes to Condensed Consolidated Financial Statements 7 Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3.Quantitative and Qualitative Disclosures About Market Risk 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings 12 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 Signature 16 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) ASSETS June 30, March 31, 1998 1998 -------- --------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 19,238 $ 17,223 Accounts receivable, net of allowance for doubtful accounts of $774 at June 30, 1998 and $786 at March 31, 1998 2,575 3,559 Notes receivable 1,500 - Inventories 1,381 1,476 Deferred income tax 2,010 2,010 Income taxes refundable 4,532 6,580 Prepaid expenses and other current assets 2,567 2,285 --------- --------- Total current assets 33,803 33,133 --------- --------- PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $48,861 at June 30, 1998 and $44,405 at March 31, 1998 235,079 237,478 --------- --------- NOTES RECEIVABLE - 1,500 --------- --------- INTANGIBLES, net of accumulated amortization of $3,813 at June 30, 1998 and $3,572 at March 31, 1998 35,061 35,302 --------- --------- INVESTMENT IN JOINT VENTURE 95,442 96,587 --------- --------- OTHER ASSETS 5,529 5,587 --------- --------- TOTAL ASSETS $ 404,914 $ 409,587 ========= ========= The accompanying notes are an integral part of these condensed consolidated financial statements. PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except par value) LIABILITIES AND STOCKHOLDERS' EQUITY June 30, March 31, 1998 1998 -------- --------- (Unaudited) CURRENT LIABILITIES: Current portion of long-term debt $ 2,069 $ 2,008 Accounts payable 3,778 4,590 Accrued liabilities 26,491 28,832 Other liabilities 3,924 3,775 -------- -------- Total current liabilities 36,262 39,205 -------- -------- OTHER LONG-TERM LIABILITIES 28,868 28,997 -------- -------- DEFERRED TAX LIABILITIES - LONG TERM 2,930 2,930 -------- -------- LONG-TERM DEBT, net of current portion 176,500 180,541 -------- -------- STOCKHOLDERS' EQUITY: Preferred stock, no par value, Authorized- 10,000,000 shares, Issued- none - - Common stock, $.005 par value, Authorized- 90,000,000 shares, Issued- 32,613,873 at June 30, 1998 and 32,613,498 at March 31, 1998 163 163 Additional paid-in capital 132,338 132,338 Treasury stock, at cost; 672,100 shares at June 30, 1998 and March 31, 1998 (7,294) (7,294) Retained earnings 35,147 32,707 -------- -------- Total stockholders' equity 160,354 157,914 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $404,914 $409,587 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) (Unaudited) For the Three Months Ended June 30, --------------------- 1998 1997 ---- ---- REVENUES: Casino $ 77,024 $ 75,787 Food and beverage 2,510 4,186 Hotel 989 1,795 Other 1,042 2,414 -------- -------- 81,565 84,182 -------- -------- COSTS AND EXPENSES: Casino 35,846 36,488 Food and beverage 2,111 4,077 Hotel 397 671 Other operating expenses 10,588 11,455 Selling, general and administrative 13,456 15,301 Corporate administrative expenses 1,854 1,590 Allocated amounts of joint venture 2,721 3,251 Depreciation and amortization 4,936 4,604 -------- -------- 71,909 77,437 -------- -------- Income before other income (expense) and provision for income taxes 9,656 6,745 -------- -------- OTHER INCOME (EXPENSE): Interest income 60 12 Other income, net (15) (19) Interest expense (5,701) (6,254) -------- -------- (5,656) (6,261) -------- -------- Income before provision for income taxes 4,000 484 PROVISION FOR INCOME TAXES 1,560 191 -------- -------- NET INCOME $ 2,440 $ 293 ======== ======== EARNINGS PER COMMON SHARE Basic $ 0.08 $ 0.01 Diluted $ 0.08 $ 0.01 The accompanying notes are an integral part of these condensed consolidated financial statements. PLAYERS INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (Unaudited) For the Three Months Ended June 30, ------------------ 1998 1997 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,440 $ 293 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,936 4,604 Joint venture depreciation and amortization 1,145 1,308 Loss on disposition of property and equipment 18 24 Other 70 638 Changes in assets and liabilities: Accounts and notes receivable 914 (7,879) Inventories, prepaid expenses and other current assets (187) 1,830 Income taxes refundable 2,048 3,333 Other assets 7 (829) Accounts payable and accrued liabilities (3,153) (2,803) Other liabilities 20 (201) -------- -------- Net cash provided by operating activities 8,258 318 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net purchases of property and equipment (2,123) (13,498) Proceeds from disposal of property and equipment 24 7,057 Investment in joint venture - (6,390) -------- -------- Cash used in investing activities (2,099) (12,831) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 9,000 22,317 Repayments of long-term debt (12,980) (11,386) Debt issuance cost (164) (122) -------- -------- Net cash provided by (used in) financing activities (4,144) 10,809 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,015 (1,704) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,223 20,567 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $19,238 $18,863 ======== ======== SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ 9,280 $10,396 Income taxes paid 2 2 Debt incurred to purchase equipment - 3,905 Note receivable on sale of Mesquite property - 1,500 The accompanying notes are an integral part of these condensed consolidated financial statements. Note 1 - Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's Form 10-K for the year ended March 31, 1998. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows of all periods presented have been made. The results of operations for the three months ended June 30, 1998, are not necessarily indicative of the operating results for the full year. Certain reclassifications have been made to the financial statements as previously presented to conform to current classifications. Note 2 - Casino Revenues and Promotional Allowances Casino revenues are the net of gaming wins less losses. Revenues exclude the retail value of complimentary food and beverage, hotel accommodations and other items furnished to customers, which totaled approximately $6,126,000 and $6,674,000 for the three months ended June 30, 1998 and 1997, respectively. The estimated cost of providing such complimentary services are included in casino costs and expenses through inter- department allocations from the department granting the services as follows: For the Three Months Ended June 30, -------------------- (dollars in thousands) 1998 1997 ---- ---- Food and beverage $ 4,248 $ 4,860 Other 433 465 ------- ------- $ 4,681 $ 5,325 ======= ======= Note 3 - Allocated Amounts of Joint Venture The Company owns a 50% interest in a casino entertainment facility in Maryland Heights, Missouri (the "Joint Venture"). The investment in the Joint Venture is accounted for using the equity method of accounting. Summary condensed financial information for the Joint Venture is as follows: For the Three Months Ended June 30, -------------------- (dollars in thousands) 1998 1997 ---- ---- Net revenues $ 4,914 $ 4,658 Depreciation and amortization 2,328 2,617 Net loss 5,441 6,501 Note 4 - Earnings Per Share The following table illustrates the computation of basic and diluted earnings per share: For the Three Months Ended June 30, -------------------- 1998 1997 ---- ---- Numerator: Net income $ 2,440,000 $ 293,000 Denominator: Denominator for basic earnings per share- weighted-average shares 31,941,579 31,891,248 Effect of dilutive securities- stock options 147,286 21,702 ----------- ----------- Denominator for diluted earnings per share- adjusted weighted-average shares 32,088,865 31,912,950 =========== =========== Basic earnings per share $ 0.08 $ 0.01 =========== =========== Diluted earnings per share $ 0.08 $ 0.01 =========== =========== Note 5 - Contingencies The Company is involved in certain litigation regarding the constitutionality of gaming facilities such as the Company's Maryland Heights, Missouri (the "Maryland Heights Facility") located upon artificial basins fed by the Missouri River. An amendment to the State constitution has been proposed for the November 1998 ballot. Based on the outcome of the November referendum and subsequent court proceedings, the possibility exists that the Company could be forced either to remediate or close the Maryland Heights Facility. If either of these events occur, the Company could incur substantial remediation costs or a substantial write-down in asset values. The amounts involved cannot be reasonably estimated at this time. Each cruising riverboat is regulated by the U.S. Coast Guard. U.S. Coast Guard regulations require that hulls of vessels of the type being operated by the Company in Lake Charles and Metropolis be inspected every five years at a U.S. Coast Guard approved dry docking facility which will cause a temporary loss of service that could last one month or longer, unless the U.S. Coast Guard determines that an alternative to dry docking is acceptable. The next such inspection is scheduled to occur in the fall of calendar 1998 for the Lake Charles Star Riverboat and the fall of calendar 2000 for both the Players Lake Charles Riverboat and the Metropolis Riverboat. Subject to U.S. Coast Guard approval, the Company is pursuing an underwater onsite inspection of the hull of the Lake Charles Star Riverboat as an alternative to dry docking. An underwater hull inspection would likely involve a minimal disruption in operations, however, no assurance can be given that dry docking and the related loss of service will not be required. The Company and its subsidiaries are defendants in certain other litigation. In the opinion of management, based upon the advice of counsel, the aggregate liability, if any, arising from such other 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. Comparison of Operating Results for the Three-Month Periods Ended June 30, 1998 and 1997 The Company owns and operates riverboat gaming and entertainment facilities. These include one riverboat casino in Metropolis, Illinois (the "Metropolis Facility"), two riverboat casinos in Lake Charles, Louisiana (the "Lake Charles Facility") and two contiguous, permanently moored, dockside riverboat casinos in Maryland Heights, Missouri (the "Maryland Heights Facility"). The Company operated a land-based casino resort in Mesquite, Nevada (the "Mesquite Facility") until June 30, 1997. The Company also owns and operates a thoroughbred racetrack in Paducah, Kentucky. The Company's fiscal year ends on March 31st. References to the first quarter of 1999 or 1998, mean the three month periods ended June 30, 1998, and June 30, 1997, respectively. Results of Operations Financial Highlights %Increase/ Three months ended June 30, 1998 1997 (Decrease) (Dollars in thousands, except per share amounts) Casino Revenues Metropolis $ 19,684 $ 18,725 5.1 Lake Charles 36,265 37,337 (2.9) Maryland Heights 21,075 15,287 37.9 Mesquite - 4,438 (c) --------- --------- $ 77,024 $ 75,787 1.6 ========= ========= Total Revenues Metropolis $ 20,473 $ 19,504 5.0 Lake Charles 38,904 39,178 (0.7) Maryland Heights 21,991 16,582 32.6 Mesquite - 8,700 (c) Other 197 218 (9.6) --------- --------- $ 81,565 $ 84,182 (3.1) ========= ========= Operating Income (Loss) Metropolis $ 4,767 $ 4,717 1.1 Lake Charles 6,848 6,854 - Maryland Heights (a) 657 (1,683) 139.0 Mesquite - (690) (c) Corporate, development, pre-opening and other (2,616) (2,453) (6.7) --------- --------- $ 9,656 $ 6,745 43.1 ========= ========= Depreciation and amortization (b) $ 4,936 $ 4,604 7.2 ========= ========= Interest expense $ 5,701 $ 6,254 (8.8) ========= ========= Net income $ 2,440 $ 293 732.8 ========= ========= Earnings per share assuming dilution $ 0.08 $ 0.01 700.0 ========= ========= Operating Margin (operating income/total revenues) Metropolis 23.3% 24.2% (0.9) pts Lake Charles 17.6% 17.5% 0.1 pts Maryland Heights 3.0% (10.1)% 13.1 pts Mesquite - (7.9)% (c) Consolidated 11.8% 8.0% 3.8 pts (a) Amount includes the Company's 50% share of both the Maryland Heights Joint Venture operating losses and Maryland Heights Joint Venture depreciation and amortization. In the first quarter of 1999, Player's share of the total loss from investment in the Maryland Heights Joint Venture was approximately $2.7 million which consisted of $1.6 million in operating losses and $1.1 million in depreciation and amortization. In the first quarter of 1998, Player's share of the total loss from investment in the Maryland Heights Joint Venture was approximately $3.3 million, which includes $1.3 million of depreciation and amortization. (b) The first quarter of 1999 and 1998 do not include Player's share of the Maryland Heights Joint Venture depreciation and amortization of approximately $1.1 million and $1.3 million, respectively. (c) The Mesquite Facility was sold on June 30, 1997. The 1.6% net increase in casino revenue and 3.1% net decrease in total revenue in the first quarter of 1999 as compared to the first quarter of 1998, resulted from significant revenue growth in the comparable periods at the Maryland Heights Facility which opened on March 11, 1997. Revenue growth from this facility offset the absence of any revenues from Mesquite which was sold on June 30, 1997. The 45.9% decline in food and beverage, hotel and other revenue in the first quarter of 1999 as compared to the first quarter of 1998, was primarily attributable to the absence of Mesquite. In the first quarter of 1999, Metropolis revenues benefited from the addition of the new dining and entertainment complex which was placed in service during December, 1997, and the Lake Charles Facility benefited from the acquisition of the Lake Charles Holiday Inn which was purchased by the Company in January, 1998. The Company's operating income increased 43.1% during the first quarter of 1999 as compared to the first quarter of 1998. The increase was due to profitable performance at the Maryland Heights Facility as compared to the loss experienced in the first quarter of 1998, its first full quarter of operation. Substantial revenue growth coupled with continuing cost reductions were the primary reasons for the operating income growth in Maryland Heights between the comparable first quarter periods. The growth in operating income at the Metropolis Facility more than offset the increase in Illinois gaming taxes which went into effect on January 1, 1998. In addition, the first quarter of 1999 benefited from the absence of an operating loss for Mesquite. Corporate, development, pre-opening and other expenses increased 6.7% as a result of approximately $250,000 in legal and consulting costs incurred during the first quarter of 1999 for the "boat-in-a-moat" proceedings in the State of Missouri. Depreciation and amortization expense increased 7.2% in the first quarter of 1999 as compared to the first quarter of 1998 due to additional depreciation from both the new Metropolis dining and entertainment complex and the Lake Charles Holiday Inn acquisition. In addition, depreciation adjustments at the Maryland Heights Facility for the comparable periods contributed to the overall increase. Interest Expense Interest expense decreased 8.8% in the first quarter of 1999 as compared to the first quarter of 1998 due to reductions in the Company's bank borrowings and average borrowing rate. The interest rate decrease resulted from a new $80 million, five year bank agreement that closed in March, 1998. Additional Factors Affecting Future Operating Income Road construction is currently scheduled to begin on U.S. Interstate 10 in front of the Company's Lake Charles Facility in August, 1998, and is scheduled to be completed no later than March, 1999. The construction will result in lanes of U.S. Interstate 10 being closed for periods of time, although the Company has been advised that one Eastbound lane and one Westbound lane will always remain open, permitting access to and from the casino. The Company cannot determine what effect, if any, traffic delays caused by road construction may have on patronage to the facility, although significant delays may adversely impact patronage and revenues during the construction period. Capital Resources and Liquidity During the three months ended June 30, 1998, cash generated by operations was used to reduce bank borrowings from $30 million on March 31, 1998, to $26.5 million on June 30, 1998. Contingencies The Company is involved in certain litigation regarding the constitutionality of gaming facilities (such as the Maryland Heights Facility) located upon artificial basins fed by the Missouri River. See Part II, Item 1; W. Todd Akin, et al. v. Missouri Gaming Commission. Based on the outcome of the November Referendum and subsequent court proceedings, the possibility exists that the Company could be forced either to remediate or close the Maryland Heights Facility. If either of these events occur, the Company could incur substantial remediation costs or a substantial write-down in asset values. The amounts involved cannot be reasonably estimated at this time. Each cruising riverboat is regulated by the U.S. Coast Guard. U.S. Coast Guard regulations require that hulls of vessels of the type being operated by the Company in Lake Charles and Metropolis be inspected every five years at a U.S. Coast Guard approved dry docking facility which will cause a temporary loss of service that could last one month or longer, unless the U.S. Coast Guard determines that an alternative to dry docking is acceptable. The next inspection is scheduled to occur in the fall of calendar 1998 for the Lake Charles Star Riverboat and the fall of calendar 2000 for both the Players Lake Charles Riverboat and the Metropolis Riverboat. Subject to U.S. Coast Guard approval, the Company is pursuing an underwater onsite inspection of the hull of the Lake Charles Star Riverboat as an alternative to dry docking. An underwater hull inspection would likely involve a minimal disruption in operations, however, no assurance can be given that dry docking and the related loss of service will not be required. Forward Looking Information Certain information included in this section and elsewhere in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contain or will contain or include, forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements address, among other things, the effects of competition, the resolution of pending or threatened litigation or regulatory proceedings concerning the Company's alleged non- compliance with Missouri's gaming laws and Constitution, plans for future riverboat hull inspections, I-10 road construction in Lake Charles, future borrowing and capital costs, plans for future expansion and property enhancements, business development activities, capital expenditure programs and requirements, financing sources and the effects of legislation and regulation (including possible gaming legislation, gaming licensure and regulation, state and local regulation, tax regulation, and the potential for regulatory reform). Forward looking statements can generally be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimate", "believe", or "continue" or the negative thereof or variations thereon or similar terminology. Such forward-looking information is based upon management's current plans or expectations and is subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions, and the Company's future financial condition and results of operations. These uncertainties and risks include, but are not limited to, those relating to conducting operations in an increasingly competitive environment, conducting operations at a newly or recently developed site or in a jurisdiction for which gaming has recently been permitted, changes in state and local gaming laws and regulations, development and construction activities, leverage and debt service requirements (including sensitivity to fluctuation in interest rates), general economic conditions, the U.S. Coast Guard's acceptance of underwater hull inspections as an alternative to dry docking and inspection, changes in federal and state tax laws, the disruption to Lake Charles operations caused by road construction, action taken under applications for licenses (including renewals) and approvals under applicable laws and regulations (including gaming laws and regulations), and the legalization of gaming in certain jurisdictions. As a consequence, current plans, anticipated actions, and future financial condition and results from operations may differ from those expressed in any forward-looking statements made by or on behalf of the Company and no assurance can be given that such statements will prove to be correct. Item 3. Quantitative and Qualitative Disclosure About Market Risk. Not applicable. PART II - OTHER INFORMATION Item 1. Legal Proceedings. Poulos, Ahern and Schreier Litigation The Company, certain suppliers and distributors of video poker and electronic slot machines and over forty other casino operators have been named as defendants in a class action suit filed April 26, 1994 in the United States District Court, Middle District of Florida, by William Ahern and William H. Poulos. The plaintiffs allege common law fraud and deceit, mail fraud, wire fraud and Racketeer Influenced and Corrupt Organizations Act violations in the marketing and operation of video poker games and electronic slot machines. The suit seeks unspecified damages and recovery of attorney's fees and costs. On December 9, 1994, an Order was entered by the District Court in Florida transferring the consolidated action to the United States District Court for the District of Nevada. On or about October 27, 1995 the Company was served with a purported class action captioned Schreier, et. al. v. Players International, et al. in the United States District Court for the District of Nevada, which is essentially identical to the Poulos and Ahern litigation, except for certain variations in the definition of the purported class. The matter has been consolidated with the Poulos and Ahern litigation. These matters are currently in the discovery stage, after which substantive motions for dismissal will be filed by the defendants. The Company believes that the plaintiffs' claims are wholly without merit and does not expect that the lawsuits will have a material adverse effect on the Company's financial position or results of operations. J.A. Miller, et al. v. Showboat Star Partnership, et al. Showboat Star Partnership and Players Lake Charles, LLC, subsidiaries of the Company, were served with a petition captioned J.A. Miller, et al. v. Showboat Star Partnership, et al. on or about February 27, 1997, Docket No. 10-14544, in the 38th Judicial District Court, Parish of Cameron, State of Louisiana. The plaintiffs, a group of oyster fishermen, allege in the petition that on or about February 2, 1997, the Star Riverboat discharged raw sewage and other hazardous and toxic substances from the bilge of the vessel into Lake Charles. Plaintiffs further allege that, since 1994, the Star Riverboat and the Players Lake Charles Riverboat have discharged raw sewage and other hazardous and toxic substances into Lake Charles which is part of the Calcasieu Estuary. Plaintiffs claim that alleged acts of the Company have resulted in great damage to natural oyster beds forty-three (43) miles down river in Cameron Parish, resulting in oysters situated thereon to become dangerous and unfit for human consumption and/or preventing the oyster fishermen from harvesting oysters. The oyster fishermen are claiming both compensatory and punitive damages. The matter is in the early stages of litigation. The Company has filed several motions in response to the petition, including motions to dismiss the action. The Company has requested certain discovery in connection with the motions. The Company has also filed a motion to require Plaintiffs to post security for taxable costs which may be incurred by the Company, through its insurer, in connection with this litigation. The Company intends to vigorously defend this action. Ceola and Richard Morris v. Players Lake Charles, Inc., et al. Players Lake Charles, Inc. has been named as a defendant in a claim in Louisiana State Court for personal injuries filed by Ceola and Richard Morris. The claim allegedly resulted when a piece of fret-work aboard the Players Lake Charles Riverboat fell from the wall and allegedly hit Ms. Morris on the head. Third party demands and cross claims have been filed on behalf of Players against Leevac Shipyards, who was responsible for the construction of the vessel, and its insurer, as well as James Carpet & Drapery, who actually installed the fret work, and its insurer. These claims arise from a breach of workmanlike performance in the construction of the vessel. The Company is in the process of filing a Motion for Summary Judgment against Leevac Shipyards on the issue of indemnity. The Company's primary insurer with respect to this claim, Anglo American Insurance Company Limited ("Anglo American"), has been placed in liquidation, which liquidation proceedings are still ongoing. It is not known whether, at the conclusion of such proceedings, Anglo American will have sufficient assets remaining to satisfy and judgment that may be obtained against the Company in this case, which is currently set for trial on September 8, 1998. There is a likelihood that this trial date will be continued. The Company continues to pursue its claim against Anglo American. W. Todd Akin, et al. v. Missouri Gaming Commission W. Todd Akin et al. v. Missouri Gaming Commission was filed in the Circuit Court of Cole County, Missouri, in August of 1996 in order to seek a judicial declaration that the Missouri Gaming Act is unconstitutional because, allegedly contrary to the Missouri Constitution, the Missouri Gaming Act permits gaming facilities (such as the Maryland Heights Facility) to be located upon artificial basins fed by the Missouri River. The Company and Harrah's, the Missouri Riverboat Gaming Association and the City of Maryland Heights intervened in order to protect their respective interests. The statute was found constitutional and the suit was dismissed in its entirety on the merits by the trial court in December, 1996. That dismissal was appealed directly to the Missouri Supreme Court by the plaintiffs in January, 1997. On November 25, 1997, the Missouri Supreme Court ruled that gaming may occur only in artificial spaces that are contiguous to the surface stream of the Missouri and Mississippi Rivers. The case was remanded to the trial court for a factual determination as to whether those casino operators meet this requirement. The plaintiffs dismissed their case against the Company after this ruling but prior to a determination by the trial court on this issue. A number of Missouri gaming licensees conduct gaming operations directly on the Missouri and Mississippi rivers and thus these operators are not expected to be adversely affected by the implications of the Akin decision. In January, 1998, the Company was advised by the Missouri Gaming Commission that it intended to take disciplinary action against the licenses held by the Company in Maryland Heights for failure to comply with Missouri law, as modified and interpreted in the Akin decision, and to revoke the Company's licenses to conduct games of chance at the Maryland Heights Facility. In response to this, on January 9, 1998, the Company (and certain other casino companies) sought and obtained a Preliminary Writ of Prohibition from the Circuit Court of Cole County, prohibiting the Missouri Gaming Commission from taking disciplinary action against such companies. On January 29, 1998, following hearings on the Petition for Writ of Prohibition, the Circuit Court of Cole County made its Preliminary Writ of Prohibition permanent, holding that the companies had a constitutional right to due process which was violated by the proposed disciplinary actions of the Missouri Gaming Commission. The Missouri Gaming Commission appealed that decision granting a Writ of Prohibition to the Missouri Supreme Court. On May 28, 1998 the Missouri Supreme Court issued its decision in this case, reversing the decision of the Circuit Court and quashing the Writ of Prohibition issued against the Missouri Gaming Commission. The Court found that because the Missouri Gaming Commission presumptively had jurisdiction to take disciplinary action against gaming facilities for failing to comply with state law location requirements, a Writ of Prohibition was an inappropriate remedy. The Court held that the companies' objections to jurisdiction and other components of the proceedings should be addressed to the agency, and to the courts of appeal should the companies not prevail before the agency. The Court also held that the appeal was an effective alternative remedy at law because the Commission does have the authority to stay any adverse decision pending the outcome of all appeals, thus rendering prohibition an inappropriate remedy in the circumstances. On June 18, 1998, the Missouri Gaming Commission issued its Preliminary Orders for Disciplinary Action to the gaming companies affected by the Akin decision, including the Company. On July 23, 1998, the Company requested a hearing on the Preliminary Orders for Disciplinary Action, which stays the effect of the proposed Preliminary Orders indefinitely and entitles the Company to a full evidentiary hearing before the Missouri Gaming Commission's Hearing Officer. There are five gaming companies in separate locations which received Preliminary Orders for Disciplinary Action and for whom hearings must be conducted. The Missouri Gaming Commission has indicated that all hearings will be conducted prior to any recommended decision being submitted to the Commission by its Hearing Officer for a vote of the Commission on final discipline for any facility. Hearings are anticipated to take several weeks. Discovery is permitted and it is anticipated that hearings are unlikely to commence prior to September or October of 1998. Should a recommendation adverse to the Company be made and adopted by the Missouri Gaming Commission, the Company may obtain a stay of any discipline, in order to appeal to the Missouri Court of Appeals, Western District. Appeals of this type ordinarily take six months to one year from filing to decision. Further appeal from any adverse decision of the Missouri Court of Appeals may then be taken by transfer to the Missouri Supreme Court. Because of management's belief that the Company is entitled to clarification of the uncertainty caused by the Akin decision and the Missouri Gaming Commission's and Attorney General's interpretation of it, the Company and Harrah's filed suit for a declaratory judgment in Circuit Court on January 22, 1998. Such suit seeks a declaration that: (i) the Company's reasonable reliance upon the prior approval of the Missouri Gaming Commission of its location prohibits adverse action by the Commission or Attorney General against the Company on the basis of the subsequent Akin decision; (ii) the Company, if found not in compliance to any extent, must be permitted a period of time within which to remedy any deficiency in its facilities to bring them into compliance; and (iii) the Company is entitled to be justly compensated for any financial loss resulting from adverse actions of the Missouri Gaming Commission or the Attorney General in enforcing their interpretation of the Akin decision. On February 23, 1998 the Commission filed its Motion to Dismiss the Petition for Lack of Ripeness and Failure to Exhaust Administrative Remedies. On March 26, 1998 arguments were heard on the Commission's Motion by the Circuit Court. On April 13, 1998 the Circuit Court issued its Order denying the Motions to Dismiss and requiring an Answer to be filed. Defendants' Answer to the Petition was filed May 1, 1998 and Plaintiff's Discovery commenced with Interrogatories and Requests for Production of Documents on April 16, 1998. While this case involves no monetary sum, it will be diligently prosecuted by the Company in order to obtain relief from the uncertainty created by the Akin decision. Because of the questions raised, but not answered, in the Missouri Supreme Court's Akin decision, and because the Company has not yet had its hearing on the Missouri Gaming Commission's Preliminary Order for Disciplinary Action, the Company cannot predict what effect the Missouri Supreme Court's ruling, or any action of the Attorney General or Missouri Gaming Commission, will have on the operations at Maryland Heights. At this time, based on discussions with Missouri legal counsel, management believes that any potential problem could be remedied through (i) a public referendum at the November 1998 Missouri election in order to cure any ambiguity or uncertainty in the law or (ii) the defenses available to the Company if a lawsuit or administrative action based on this ruling were to be brought or (iii) remedial action to the property. The riverboat gaming industry in Missouri has circulated petitions for signatures of 8% of the qualified voters in two-thirds of the state's congressional districts for the purpose of placing on the November 1998 statewide general election ballot a constitutional amendment authorizing floating facilities within 1,000 feet of the main channel of the Missouri and Mississippi Rivers. Petition signatures of over 200,000 voters were submitted to the Secretary of State July 3, 1998, and are undergoing a verification process for placement of the constitutional amendment on the November 1998 general election ballot. Such initiative, if approved by the voters, would terminate all litigation and disciplinary action described herein. The staff of the Missouri Gaming Commission has suggested to counsel for the Company that no final decision of the Missouri Gaming Commission on disciplinary actions is anticipated prior to the November, 1998 election. Should the initiative fail, the Company shall pursue its state administrative remedies before the Missouri Gaming Commission, judicial review before the courts of appeal, and the Company's litigation for declaratory judgment, injunction and compensation for regulatory taking of property described above. If, subsequent to any judicial or administrative resolution of any of the foregoing issues, remediation of the Maryland Heights property were considered, management would, prior to undertaking any remediation, (i) consult with Harrah's concerning the alternative means by which to remediate the property and the terms thereof, including whether the Company in such circumstances would be contractually obligated to fund any remediation effort and (ii) individually evaluate whether the cost of remediation would be justified in light of the projected future results of the Company's Maryland Heights operations. Management cannot presently provide any assurance as to whether the Maryland Heights Facility would be permitted to modify the facility to comply with any such remediation order or whether the Company's legal defenses, legislative or electoral avenues or other means available would be successful to permit continued use of the facility without interruption. Further, it is unclear, in the event of a determination of non-compliance, what penalty or monetary obligation or sanction, if any, including a possible temporary or permanent closure, could be imposed on the Maryland Heights Facility or the Company. If the Company could not, or chose not to, remediate the property and it were closed, the Company would incur a substantial write-down in asset values related to the property in addition to the possibility of incurring substantial losses related to any potential shut-down or suspension of operations. Such negative impacts may be offset, in part, by certain tax benefits. Item 5. Other Information. TIMELY SUBMISSION OF STOCKHOLDER PROPOSALS The Securities and Exchange Commission ("SEC") requires a registrant to give stockholders notice of deadlines for timely submission of certain types of stockholder proposals that stockholders wish to present for a vote at a registrant's annual meeting. These deadlines are set based on certain SEC rules as they relate to the registrant's annual meeting and proxy statement mailing dates and relevant provisions of its charter and by-laws. The Company's Board of Directors has not yet acted to set a 1998 annual meeting date, but the Company anticipates a proxy statement mailing date on or about September 17, 1998, for the Company's 1998 Annual Meeting. Stockholder proposals submitted outside the process of Rule 14a-8 under the Securities Exchange Act of 1934, as amended, must have been received by August 3, 1998, or they will be considered untimely. In the event a stockholder did not timely notify the Company concerning stockholder proposals, the Company will have the right to exercise its discretionary authority (through the right conferred upon its proxies) to vote against such stockholder proposal. Item 6. Exhibits and Reports on Form 8-K Exhibits Filed with this Form 10-Q: Exhibit No. Exhibit Description 27.0 Financial Data Schedule Reports on Form 8-K Filed During Quarter: None SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PLAYERS INTERNATIONAL, INC. Date: August 13, 1998 By: /s/ Peter J. Aranow Peter J. Aranow, Executive Vice President Finance, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer) EX-27 2
5 1,000 3-MOS MAR-31-1999 JUN-30-1998 19238 0 4849 774 1381 33803 283940 48861 404914 36262 176500 0 0 163 160191 404914 0 81565 0 38354 33555 0 5701 4000 1560 2440 0 0 0 2440 .08 .08
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