FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30,October 31, 1994
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 1-5976
CAESARS WORLD, INC.
(Exact name of registrant as specified in its charter)
Florida 59-0773674
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization) Employer
Identification No.)
1801 Century Park East, Suite 2600
Los Angeles, California 90067
(Address of principal executive offices) (Zip Code)
(310) 552-2711
(Registrant's telephone number, including area code)
Not applicable
(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 Xx No _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by
Sections 12, 13, or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes _____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
At June 9,December 8, 1994, registrant had outstanding
24,878,65425,120,463 shares of its $.10 par value common stock.
CAESARS WORLD, INC. AND SUBSIDIARIES
April 30,October 31, 1994
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
April 30,October 31, 1994 (Unaudited) and July 31, 19931994 3
Consolidated Statement of Shareholders' Equity
(Unaudited) - NineThree months ended April 30,October 31, 1994 4
Consolidated Statements of Income (Unaudited) -
Nine months ended April 30, 1994 and 1993 5
Consolidated Statements of Income (Unaudited) -
Three months ended April 30,October 31, 1994 and 1993 65
Condensed Consolidated Statements of Cash
Flows (Unaudited) - NineThree months ended
April 30,October 31, 1994 and 1993 76
Notes to Condensed Consolidated Financial
Statements (Unaudited) 87
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 119
Part II. Other Information
Item 1. Legal Proceedings 2113
Item 5. Other Information 2113
Item 6. Exhibits and Reports on Form 8-K 2414
PART I. Financial Information
Item 1. Financial Statements
CAESARS WORLD, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
April 30,October 31, July 31,
Assets 1994 19931994
(Unaudited) (a)
Current assets
Cash and cash equivalent investments $115,970 $108,616$155,932 $143,499
Receivables, net 75,986 66,041
Inventories 12,468 11,36469,537 71,341
Deferred income taxes 36,163 42,748
Prepaid37,120 37,120
Inventories, prepaid expenses and other 14,105 12,36628,359 24,881
Total current assets 254,692 241,135290,948 276,841
Property and equipment, net 617,704 616,393622,711 626,740
Excess cost of investments over net assets 52,609 52,671
acquired, net
52,732 52,916
Other assets 56,320 45,275
$981,448 $955,71956,932 61,769
$1,023,200 $1,018,021
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt and
obligations under capital leases $ 29,31827,778 $ 30,26327,778
Accounts payable and accrued expenses 125,122 125,835113,307 132,337
Income taxes 9,738 9,36132,572 19,186
Total current liabilities 164,178 165,459173,657 179,301
Long-term debt, and obligations under capital
leases, net of current maturities 221,952 253,422198,667 212,556
Other liabilities, including deferred
income taxes of $22,831$19,158 and $29,282 58,370 63,948$20,015 68,962 69,297
Shareholders' equity
Common stock 2,612 2,5902,645 2,620
Additional paid-in capital 127,125 117,399138,165 128,028
Common stock in treasury (33,182) (32,695) (30,358)
Deferred compensation (20,955) (16,146)(26,664) (18,852)
Retained earnings 460,861 399,405500,950 477,766
Total shareholders' equity 536,948 472,890
$981,448 $955,719
(a) The balance sheet at July 31, 1993581,914 556,867
$1,023,200 $1,018,021
(a) The balance sheet at July 31, 1994 has been condensed from the
audited balance sheet at that date.
See notes to condensed consolidated financial statements.
CAESARS WORLD, INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity - (Unaudited)
NineThree months Ended April 30,October 31, 1994
(In thousands, except shares outstanding)
Common Stock Additional Common
Shares Paid-in Stock in Deferred Retained
Outstanding Amount Capital Treasury Compensation Earnings Total
Balance July 31, 1993 24,619,631 $2,590 $117,399 $(30,358) $(16,146) $399,405 $472,8901994 24,872,862 $2,620 $128,028 $(32,695) $(18,852) $477,766 $556,867
Stock options exercised 50,392 5 76128,288 3 417 - - - 766420
Amortization of deferred
compensation, termination
of restricted stock grants
and other, net (32,868) (3) (1,230) - 5,406 - 4,173
Common stock purchased
and held in treasury (44,048)(9,754) - - (2,337)(487) 1,930 - - (2,337)
Vesting of incentive
stock grants 89,833 - - - - - -1,443
Issuance of restricted
stock grants 199,781 20 10,195226,017 22 9,720 - (10,215)(9,742) - -
Net income - - - - - 61,456 61,45623,184 23,184
Balance
April 30,October 31, 1994 24,882,721 $2,612 $127,125 $(32,695) $(20,955) $460,861 $536,948
See notes to condensed consolidated financial statements
CAESARS WORLD, INC. AND SUBSIDIARIES
Consolidated Statements of Income - (Unaudited)
(In thousands, except net income per share)
Nine Months Ended
April 30,
1994 1993
Revenue
Casino $600,763 $564,171
Rooms 51,690 51,692
Food and beverage 60,673 57,758
Other income 51,182 47,823
764,308 721,444
Costs and expenses
Casino 324,067 306,464
Rooms 15,723 15,217
Food and beverage 46,240 42,968
Other operating expenses 30,226 28,471
Selling, general and administrative 141,411 137,709
Depreciation and amortization 41,671 40,769
Provision for doubtful accounts 51,836 36,720
651,174 608,318
Operating income 113,134 113,126
Interest and dividend income 2,403 1,258
Interest expense, net (14,471) (21,596)
Income before income taxes 101,066 92,788
Income taxes 39,610 35,259
Net income $ 61,456 $ 57,529
Net income per share $ 2.51 $ 2.36
Average number of common and common equivalent
shares outstanding 24,532 24,41825,117,413 $2,645 $138,165 $(33,182) $(26,664) $500,950 $581,914
See notes to condensed consolidated financial statements.
CAESARS WORLD, INC. AND SUBSIDIARIES
Consolidated Statements of Income - (Unaudited)
(In thousands, except net income per share)
Three Months Ended
April 30,October 31,
1994 1993
Revenue
Casino $184,505 $170,820$192,329 $208,660
Rooms 16,725 17,56118,508 19,934
Food and beverage 19,539 18,72921,008 22,313
Earnings of unconsolidated affiliate 1,479 -
Other income 16,475 17,299
237,244 224,40919,187 18,176
252,511 269,083
Costs and expenses
Casino 107,170 94,540109,797 105,175
Rooms 4,951 5,1834,706 5,938
Food and beverage 15,486 14,58715,541 16,461
Other operating expenses 8,839 9,25811,130 11,043
Selling, general and administrative 46,803 45,42250,596 47,876
Depreciation and amortization 14,013 13,39414,031 13,752
Provision for doubtful accounts 17,106 9,451
214,368 191,8355,851 18,236
211,652 218,481
Operating income 22,876 32,57440,859 50,602
Interest and dividend income 756 2721,396 928
Interest expense, net (4,693) (5,371)(4,861) (5,110)
Income before income taxes 18,939 27,47537,394 46,420
Income taxes 7,291 10,44014,210 18,572
Net income $ 11,648 $ 17,035$23,184 $27,848
Net income per share $ .47.94 $ .691.14
Average number of common and common
equivalent shares outstanding 24,620 24,58824,609 24,513
See notes to condensed consolidated financial statements.
CAESARS WORLD, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows - (Unaudited)
(In thousands)
NineThree Months
Ended
April 30,October 31,
1994 1993
Cash flows from (used for) operating
activities:
Net income $ 61,456 $ 57,529$23,184 $27,848
Non-cash charges to income, net 47,242 46,37115,689 15,250
Changes in assets and liabilities due to
operating activities:
Receivables, net (9,945) 1,344
Accounts payable and accrued expenses (713) (20,021)(18,520) (1,288)
Income taxes payable 13,386 18,840
Other assets and liabilities, net (12,739) (8,703)4,018 (6,222)
Net cash provided from operating activities 85,301 76,52037,757 54,428
Cash flows used for investing activities:
Purchases of property and equipment (42,040) (25,052)(9,892) (16,190)
Other investing activities, net (1,921) (2,541)(978) (1,035)
Net cash used for investing activities (43,961) (27,593)(10,870) (17,225)
Cash flows from (used for) financing
activities:
Issuance of 8 7/8 % Senior Subordinated Notes - 150,000
Increase in long-term bank borrowings - 125,000
Reductions in debt and obligations
under capital leases (32,415) (309,312)(14,388) (15,752)
Other (1,571) (3,769)(67) 300
Net cash used for financing activities (33,986) (38,081)(14,455) (15,452)
Net increase in cash and cash equivalent
investments 7,354 10,84612,432 21,751
Cash and cash equivalent investments at the
beginning of the period 143,499 108,616 52,336
Cash and cash equivalent investments at the
end of the period $ 115,970 $ 63,182$155,931 $130,367
Supplemental cash flow information
Cash used for:
Payment of interest $ 17,7328,223 $ 28,3727,955
Payment of Federal and state income taxes, net $ 39,756157 $ 36,83558
See notes to condensed consolidated financial statements.
Note 1. Condensed Consolidated Financial Statements -- The
condensed
consolidated balance sheetCondensed Consolidated Balance Sheet as of April 30,October
31, 1994, the consolidated statementConsolidated Statement of
shareholders' equity for the nine
months ended April 30, 1994, the consolidated statements of
incomeShareholders' Equity for the three and nine months ended
April 30,October 31, 1994, the Consolidated Statements of
Income for the three months ended October 31, 1994
and 1993, and the condensed consolidated statementsCondensed Consolidated Statements
of cash flowsCash Flows for the ninethree months ended April 30,October
31, 1994 and 1993, have been prepared by the
Company and have not been audited. In the opinion
of management, all material adjustments (which
include only normal recurring adjustments)
necessary to present fairly the financial position,
results of operations and cash flows for all
periods presented have been made. All significant
intercompany balances and transactions have been
eliminated.
Certain information and footnote disclosures
normally included in financial statements prepared
in accordance with generally accepted accounting
principles have been condensed or omitted. These
condensed consolidated financial statements should
be read in conjunction with the financial
statements and notes thereto included in the
Company's July 31, 19931994 Annual Report to
Shareholders. The results of operations for the
three and nine month periodsperiod ended April
30,October 31, 1994 are not
necessarily indicative of the operating results for
the full year.
The Company's independent public accountants have
made an unaudited interim review of the condensed
consolidated financial statements for the three
and nine months ended April 30,October 31, 1994 and 1993, in
accordance with professional standards and
procedures established by the American Institute of
Certified Public Accountants. A report from the
independent public accountants regarding the
unaudited review of the interim financial
statements is included herein in Part II, Item 6
(a), Exhibit 15.
Note 2. Net Income Per Share -- Net income per share is
based upon the weighted average number of common
and common equivalent shares outstanding for each
period presented.
Note 3. Regulatory Environment -- The gaming industry in
which the Company operates is subject to extensive
regulatory supervision and, accordingly, operating
results could be affected by legislative and
regulatory changes or changes in the policies of,
or application of the laws by governmental
entities. There have been recent aborted proposals for a
federal gaming excise tax and for withholding on certain
gaming winnings which in either case if adopted could
materially adversely affect operating results. See also the discussion under the
caption "Regulatory and Tax Environment" set forth
on page 2425 of the Form 10-K of the Company for the
fiscal year ended July 31, 1993.1994.
Note 4. Income TaxesContingent Receivable -- In February 1992, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes, which
supersedes previously issued standards. The Company adopted
SFAS 109 effective August 1, 1993. As permissible under the
new standard,1993, the Company
reflected the impact asannounced it had entered into a cumulative adjustment in the fiscal 1994 first quarter and
did not restate prior periods. Under SFAS No. 109, the
liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are
determined based upon differences between financial and tax
reporting utilizing the enacted tax rates and laws in effect
when the differences are expected to reverse. The adoptionmanagement
operating agreement with one of the new standard had an immaterial impact on net income.bidders for a
casino development in New Orleans. In August 1993,
the Omnibus Budget Reconciliation Act of 1993
(OBRA)bid was enacted which resulted in an increaseawarded to another operator and the
initial bidder's participation in the federal corporate tax rateproject ended.
Subsequently, the Company's former principal joined
with others and they were awarded the contract to
operate the New Orleans casino development project.
Pursuant to settlement of a dispute arising with
the initial bidder, the Company is to receive
$5,000,000 for expenses and pre-development
services from 34%the initial bidder. Previously, this
receivable, in part, had been contingent (at least
as to 35% retroactive to
January 1, 1993.timing) on the operator completing its
financing. The retroactive impactfinancing was completed in November
1994 and the receivable is due at the end of
December 1994. While the Company has received an
acknowledgement from a representative of the
enactment of
OBRAobligors that these amounts are due and the adoptionobligor
is seeking financing, in view of SFAS 109 aggregated a net charge to
the provisionunavailability of
enough information at this time for income taxes in the first quarter of fiscal
1994 of approximately $750,000. Future net income of the Company to
fully evaluate this item and the uncertainity as to
when collection will be adversely impacted byoccur, the increased tax rate.Company is
currently planning to record realization only upon
collection of this receivable. The Company will
reflect collections of this item as a reduction of
expenses.
Note 5. On January 1,Labor Contracts -- In November 1994, the Company
adoptedagreed to a 401(k) Plan for all
full-time employees having at least onenew three year of service (as
defined incontract with the Plan). This replaced the Company sponsored
Individual Retirement Account (IRA) Plan. The annual pretax
cost to the Company of the new 401(k) Plan will be
approximately $2 million greater than the previous IRA Plan.
Note 6. The
Culinary Workers Union and Bartenders Union
contracts
covering approximately 2,500 employees and another unionin Las
Vegas. Another contract covering approximately 20
theatrical stage employees has expired on June 1, 1994 at Caesars
Palace in Las Vegas and a tentative agreement has
been reached but not yet been ratified by these
employees. A work is continuing under a contract extension cancelable with
three days notice. The Company is continuing to negotiate
with these unions and currently does not expect a work slow-
downslow-down or stoppage is not
expected in the Las Vegas showroom as a result of
thesethis expired labor
contracts.contract.
Note 6. Exercise of Lease Purchase Option -- Two of the
Company's resorts in the Pocono mountains of
Pennsylvania are operated under leases the initial
20-year-lease terms of which expire on January 31,
1995. The leases include purchase options at the
fair market value of the lease properties excluding
personal property, goodwill, certain structures and
other intangibles. In November 1994, the Company
gave notice to the landlord that the Company will
exercise its purchase options to acquire the two
resort properties in fiscal 1995. The fair market
value purchase price will be determined by
independent appraisals. The Company has engaged an
independent appraiser and the lessor has notified
the Company it has engaged a separate independent
appraiser. The Company is uncertain as to the
amount or when the purchase option payments will be
made.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
Cash flow from operations together with available debt
capacity are the primary components providing the Company
financial flexibility to explore expansion opportunities and
provide adequate liquidity. Net cash provided byfrom
operating activities was $85.3$37.8 million in the first ninethree
months of fiscal 1994,1995, compared with $76.5$54.4 million in the
same period of fiscal 1993.1994. The increasedecrease in fiscal 19941995 is
primarily attributable to higherlower net income and the changesa decrease in
accounts payable and accrued expenses which reduced the cash
generated by operating activities by a lesser amount during the fiscal 1994 first nine month
period compared with the same period in fiscal 1993.activities. At April 30,October 31, 1994, the
Company's cash and cash equivalent investments were $76.1$155.9
million compared with $67.5$143.5 million at July 31, 1993.1994.
Cash used for investing activities in the ninethree months ended
April 30,October 31, 1994 was primarily for capital expenditure
projects at Caesars Palace in Las Vegas, and Caesars Atlantic City. Construction was completed in
December 1993 on two rooftop luxury suites, each costing approximately
$6 million, on one of the hotel towers at Caesars Palace. In mid-
October 1993, Caesars Atlantic
City opened a new 15,000-square-foot
simulcast casino, bringing the resort's total casino area to
approximately 75,000 square feet. This new facility features high-tech
systems for race horse betting, a poker area and additional table games.
Approximately 300 slot machines were added in the original casino area
where table games had previously been located.
In the first six months of fiscal 1993, the Company completed its debt
restructuring program. The impact of this restructuring combined with
the scheduled reduction of bank borrowings has been to significantly
reduce interest expense. A description of the new notes, the new bank
loan agreement and the debt restructuring is includedCaesars Pocono Resorts in Note 6 of Notes
to Consolidated Financial Statements beginning on page 40 of the Form
10-K of the Company for the fiscal year ended July 31, 1993Pennsylvania. Room
and in "Debt
Restructuring" of Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations on page 21 of the July 31,
1993 Form 10-K incorporated herein by reference.
In October 1993, the Company announced an additional $150 million multi-
year capital expenditure program for Caesars Palace in Las Vegas. This
will dramatically change the exterior of Caesars Palace, add
approximately 100 new suites, provide underground parking, add
approximately 40,000 square feet of casino spacesuite remodeling as well as provide new
entertainment features. This is in addition toongoing construction of the
Magical Empire were the major capital expenditures previously announced which includein Las
Vegas. The Magical Empire is expected to combine dining and
intimate magical experiences in a new state-of-the-art
magicalstructure adjacent to
the casino and diningis scheduled to open in calendar 1995. At
Caesars Atlantic City building modifications are under
construction to lease approximately 22,500 square feet to
"Planet Hollywood" for a restaurant and entertainment
facility scheduled to be opened in fiscalthe spring of 1995.
The conceptual design phase of the multi-year capital program is
expected to be completeTwenty new Roman Tower Suites are nearly completed at
Caesars Pocono Palace in the summer of 1994 with the construction
occurring principally in fiscal 1995Pennsylvania and 1996.
During the nine months ended April 30, 1994, $6.3 million was advanced
by the Company to Windsor Casino Ltd. (WCL). The Company owns one-third
of WCL, a management company that will operate a casino for the
government in Windsor, Ontario, Canada. See Item 5 "Other Information"
in Part II on page 21 of this Form 10-Q. Between April 30, 1994 and
June 13, 1994 an additional $8.3 million was advanced to WCL by the Company.
A temporary casino was opened to the public on May 17, 1994 and no
additional material advances are expected to be
madeopened in stages by the Company
priorJanuary 1, 1995. See Note 6 to
July 31, 1994. WCL is currently negotiating with banks to
obtainCondensed Consolidated Financial Statements for a credit line which will repay substantially all the amounts
advanced by the owners of WCL including the Company. Such a bank
facility will be severally guaranteed by eachdiscussion
of the joint venture
partners and is expectedpayment to be in place duringmade for the fourth quarterexercise of the Company's fiscal 1994 year.
Successful developmentlease
purchase option for two of the projects described at Item 5 of Part II of
this Report and of other opportunities currently being explored will
likely require capital investment by the Company.Pocono resorts.
The Company expects to be able to meet its future debt
obligations, finance operations and capital expenditures, as
well as provide for a substantial expansion of operations
through internally generated cash flow, liquidation of cash
equivalent investments, future borrowings (including amounts
available under the bank credit facilities), capital lease
transactions and/or sales of equity and debt securities.
Results of OperationsRESULTS OF OPERATIONS
Comparison of net income for the three month periods ended
April 30,October 31, 1994 and April 30,October 31, 1993
Contribution to revenue and operating income by location,
interest and income taxes for the periods, were as follows
(in thousands):
Three Months Ended
April 30,October 31,
1994 1993
Revenue
Nevada $142,157 $133,153$125,614 $155,224
New Jersey 80,389 76,526103,776 94,036
Earnings of unconsolidated affiliate 1,479 -
Casino/hotel operations 222,546 209,679230,869 249,260
Pocono Resorts 9,798 9,73414,597 14,492
Other (A) 4,900 4,9967,045 5,331
Total revenue $237,244 $224,409$252,511 $269,083
Contributions to operating income
Nevada $ 14,68613,376 $ 22,89327,484
New Jersey 11,014 12,40024,757 22,642
Earnings of unconsolidated affiliate 1,479 -
Casino/hotel operations 25,700 35,29339,612 50,126
Pocono Resorts 1,002 1,1334,760 5,077
Other expenses (B) (3,826) (3,852)(3,513) (4,601)
Operating income 22,876 32,57440,859 50,602
Interest and dividend income 756 2721,396 928
Interest expense, net (4,693) (5,371)(4,861) (5,110)
Income before income taxes 18,939 27,47537,394 46,420
Income taxes 7,291 10,44014,210 18,572
Net income $ 11,64823,184 $ 17,035
27,848
(A) Other revenue is primarily from merchandising
operations.
(B) Other expenses include the contribution from
merchandising operations and corporate expenses.
Intercompany transactions have been eliminated.
Nevada Operations
Revenue increased 7%decreased 19 percent and contribution to operating
income decreased 51 percent at the Nevada properties in the
three months ended April 30,October 31, 1994 compared with the same
prior year period. HigherThe lower casino revenue and operating
income during the quarter resulted from record third quartera significantly
lower table game and slot machine activity generated by the Company's two Nevada casinos.
The table games win percentage was lower than the five-year average but
about the same as the year earlier third quarter. Total slot win was
flat as compared with the fiscal 1993 third quarteryear-
earlier quarter. Casino losses to a small number of high-
wagering table game customers in Las Vegas resulted in a
table game win because apercentage that was 7.9 percentage points
lower than last year's first-quarter table game win
percentage. This lower win percentage combined with reduced
table game activity more than offset increasedthe record quarterly
slot results. The Nevada operations realized all-time
quarterly slot machine activityrecords in both volume and win in the
fiscalquarter ended October 31, 1994, third quarter. The 36% reduction in operating income from Nevada
operations during the three months ended April 30, 1994 compared with
the prior year was primarily the result of increased casino expenses and
a higher provision for doubtful accounts. Casino expenses includedattributable to
enhanced marketing costs associated with the higher volume of business in Nevada
operations along with costs related to a world heavyweight championship
fight at Caesars Palace.programs. The provision for doubtful
accounts increased
$6.8at the Nevada operations decreased by $12.2 million
during the quarter as thedue to a 13 percent reduction in credit issued and lower use
of issuing receivable
allowances to high-betting limit customersthe provision as a marketing incentive has
intensified with the opening of three new themed casino/hotels on the
"Strip" in Las Vegas between October and December 1993. The higher
provision for doubtful accountstool to high-wagering
customers. There was also caused by a 23% increasereduction in operating expenses
resulting from the amount of casino credit issued.decline in table game win and activity
when comparing the respective fiscal quarters.
Caesars New Jersey
Revenue from Caesars Atlantic City for the thirdfirst quarter
ended April 30,October 31, 1994 increased 5%10 percent and contribution
to operating income increased 9 percent from the same prior
year period, primarily
attributablequarter. Record results for any previous quarter in
both casino activity and win were realized at Caesars
Atlantic City with record results from slot machines being
the primary contributor to increased casino revenue. Slot activity was 15% higher,
which combined with a slightly lower win percentage, resulted in a 14%
increase in slot win for the thirdfirst quarter of fiscal 1994, compared withimprovement.
Another positive impact on the fiscal 1993 third quarter. Thequarterly comparisons came
from Caesars Atlantic City's Simulcast Casino which began
operationopened
with horse race betting and poker in October 1993 alsoand
subsequently the introduction of other games. Increased
casino costs and higher marketing expenses, primarily
related to more extensive casino busing programs, partially
offset the casino revenue increase in New Jersey.
Unconsolidated Affiliate
During the fiscal 1995 first quarter, the Company had a
favorable impact on the third
quarter. Table game win for the three months ended April 30, 1994,
compared with the three months ended April 30, 1993, was down 15% due to
a comparatively low win percentage during the quarter on approximately
the same amount of table game activity. Thepositive contribution of operating
income from Atlantic City was down 11%, primarily the result of higher
operating costs, including the increased payroll costs related to the
Simulcast Casino and an increase in the provision for doubtful accounts.
Interest Expense
The Company's interest expense decreased 13% when comparing the fiscal
1994 third quarter with the fiscal 1993 third quarter, primarily due to
reduced amount of debt.
Subsequent Event
See page 20 for discussion of subsequent event occurring after April 30,
1994.
Comparison of net income for the nine month periods ended April 30, 1994
and April 30, 1993
Contribution to revenue and operating income by location, interest and income
taxes for the periods, were as follows (in thousands):
Nine Months Ended April 30,
1994 1993
Revenue
Nevada $465,429 $423,334
New Jersey 250,473 251,141
Casino/hotel operations 715,902 674,475
Pocono Resorts 33,172 31,644
Other (A) 15,234 15,325
Total revenue $764,308 $721,444
Contributions to operating income
Nevada $ 80,489 $ 78,590
New Jersey 40,796 41,168
Casino/hotel operations 121,285 119,758
Pocono Resorts 6,450 6,150
Other expenses (B) (14,601) (12,782)
Operating income 113,134 113,126
Interest and dividend income 2,403 1,258
Interest expense, net (14,471) (21,596)
Income before income taxes 101,066 92,788
Income taxes 39,610 35,259
Net income $ 61,456 $ 57,529
(A) Other revenue is primarily from merchandising operations.
(B) Other expenses include the contribution from merchandising
operations and corporate expenses. Intercompany transactions
have been eliminated.
Nevada Operations
Revenue from
Nevada operations increased 10%an unconsolidated affiliate in the nine months ended
April 30, 1994 compared with the same prior year period. This increase
is primarily due toWindsor, Ontario, Canada.
Caesars World has a 12% increase in casino revenue over the prior
year and is a Company record for any first nine months period. Table
game activity during the nine months ended April 30, 1994 increased 8%,
with a win percentage of 22.0% compared with 20.6% for the nine months
ended April 30, 1993. Slot activity improved 13% during the nine
months, as the number of visitors to Las Vegas increased and marketing
programs continued to generate higher levels of customer traffic at
Caesars Palace. Slot win increased by 4.8%, less than the activity
improvement due to a lower slot win percentage.
Contribution to operating income from Nevada operations for the nine
months ended April 30, 1994 was 2.4% higher than the nine months ended
April 30, 1993. Increased casino costs and a higher provision for
doubtful accounts partially offset the higher revenue for the nine
months. Casino cost increases were primarily related to the increased
activity levels in Las Vegas and include marketing related costs,
including a world heavyweight championship fight held in the third
quarter at Caesars Palace in Las Vegas, as well as increases in payroll
expenses for necessary staffing levels. The provision for doubtful
accounts was 38% higher than the nine months ended April 30, 1993,
primarily because of increased casino credit issued and marketing
incentives for high-betting-limit customers. The intensified
competition, particularly in Las Vegas, has increased nearly all types
of marketing costs in order to maintain and grow market share.
Caesars New Jersey
Revenue from Caesars Atlantic City for the nine months ended April 30,
1994 was flat as compared with the nine months ended April 30, 1993.
Casino revenue decreased for the nine months, due to lower table game
revenue partially offset by increased slot revenue. The decrease in
table game revenue was primarily attributable to a 12% lower activity
level for the nine months, compared with the same period last year.
This decrease is consistent with the Atlantic City industry trend, and
was partially offset by a higher win percentage compared with prior
year. An increased number of jurisdictions allowing legalized gaming as
well as a severe winter reduced the number of visitors to Atlantic City.
The fiscal 1994 casino revenue was favorably impacted by the opening in
October 1993one-third ownership of the Simulcast Casino, which features horse race betting
and poker.company
operating the casino on behalf of the Ontario government.
The game of keno is expected to be introducedcasino in the
Simulcast Casino areaWindsor opened in JuneMay 1994.
Costs were flat in the nine months compared with prior year, as
increases in payroll related costs associated with the new casino area
and in the provision for doubtful accounts were offset by decreases in
marketing, busing and legal costs.
Other Expenses
Other expenses increased 14% in the first nine months of fiscal 1994
compared with fiscal 1993 due to increased compensation costs and costs
related to the exploration of expansion opportunities by the Company.
See Item 5 of Part II of this Form 10-Q for a discussion of the major
expansion activities the Company is currently working on.
Interest and Dividend Income
A higher balance of interest and dividend earning cash equivalent
investments during the first nine months of fiscal 1994 compared with
the same period last year is the primary reason for the $1.1 million
increase.
Interest Expenses
The Company's interest expense decreased 33% for the nine months ended
April 30, 1994 compared with the nine months ended April 30, 1993. A reduction in borrowings as well as the debt restructuring completed in
early fiscal 1993 resulted in the lower interest expense.
Income taxes
The effective income tax rate during the nine months ended April 30,
1994, was 1.2 percentage points higher than the same period in 1993.
The higher tax rate reflects the impactother expenses of two non-recurring tax
charges. In August 1993, the Federal tax rate increased, retroactive to
January 1, 1993, from 34 to 35 percent. The Company also changed its
method for income tax accounting by adopting FASB 109 effective August
1, 1993. The impact of this cumulative change in accounting and the
retroactive change in the corporate tax rate aggregated a net charge of
approximately $750,000$1.1 million in the first
quarter of fiscal 1994.
Subsequent Event
On June 13, 1994, the Company announced that due to unusually large
losses to a small number of long-term, table-game customers in June the
Company expects a substantial reduction in the Company's income for the
fiscal 1994 fourth quarter ending July 31, 1994, when1995 compared with the sameyear earlier
quarter was primarily attributable to reimbursement of pre-
opening expenses incurred in prior periods for the operation
in Windsor, Canada and improved contribution from the
Company's merchandising operations.
Income Taxes
The higher income tax rate in the first fiscal quarter of
last year was primarily due to the adoption of FASB 109 and
a retroactive tax rate adjustment during the first quarter
of fiscal 1993. The Company's net income for the fiscal
1993 fourth quarter was $25,686,000, or $1.04 per share. The Company
can not estimate the size of the expected reduction in net income
because about seven weeks remain in the current fiscal quarter and the
sizes of either casino wins or losses in the short-term are difficult to
predict, particularly when it comes to high-level betting activity. The
Company believes that it is highly unlikely that the effects of the
recent losses to these high-level customers at its Nevada operations,
estimated to total more than $18 million, could be offset enough to
avoid the quarter-to-quarter decline in earnings.1994.
PART II. Other Information
Item 1. Legal Proceedings
See Item 3 of the Form 10-K of the Company for
the fiscal year ended July 31, 19931994 which is hereby
incorporated herein.
Item 2. Changes in Securities
On December 8, 1994, the Board of Directors of
the Company approved an amendment (the "Amendment")
to the Rights Agreement, dated as of January 10,
1989, between the Company and Morgan Shareholder
Services Trust Company (the "Rights Agreement"),
which affects the Rights previously issued to
shareholders of the Company pursuant to the Rights
Agreement. The amendment requires the Board of
Directors to determine whether it is in the best
interests of the Company to decide that a person or
entity which would otherwise meet the criteria of
an "Unqualified Gaming Person" (as defined in the
Rights Agreement) should be so deemed by the Board.
No other provisions of the Rights Agreement were
affected.
Item 5. Other Information
The Forum Shops at Caesars (the Forum) isWith reference to the Company's 25 percent
participation in the limited partnership selected
as the preferred bidder to negotiate a shopping complex
located on approximately eight acres ownedlease to
operate a gaming facility in downtown St. Louis,
Missouri, a referendum was approved by the Company atvoters
in November 1994 to allow slot machines and other
games of chance. Negotiations are currently in
process with respect to this lease opportunity,
however, the north endultimate composition and size of Caesars Palace in Las Vegas having
approximately 235,000 square feet of gross leasable area. The
Company leases the land to an independent development company
which provided its own financing to construct the Forum and
which owns the development and pays rent to the Company. The
Company is negotiating the possible lease of approximately
four additional acres adjacent to the site to a spin off of
current tenant in order for them to add an approximate 200,000
square foot expansion to the Forum, including a new
entertainment feature. Since the
project is subject to the
mutually satisfactory completion of such negotiations,
finalizing a new lease agreement,now under discussion and the independent
development company obtaining the necessary financing and
obtaining regulatory approvals, the ultimate timing and
completion of this project is uncertain at this time.
On May 20, 1994, Ontario Canada Corp. and Windsor Casino Ltd.
announced details of the Interim Casino Operating Agreement
for Casino Windsor, the 50,000 square foot temporary casino
which opened to the public on May 17, 1994. The casino is
owned by the Government of Ontario and operated by Windsor
Casino, Ltd., an Ontario company owned equally by Caesars
World, Inc., Circus Circus Enterprises, Inc. and Hilton Hotels
Corporation. The interim agreement runs until April 30, 1997,
and calls for Windsor Casino Ltd. to receive 2.75 percent of
gross operating revenue and 5 percent of net operating
margins. Windsor Casino Ltd. has first refusal operating
rights for casinos in Ontario within 125 kilometers of Casino
Windsor and the parent companies agree that without Ontario
Casino Corp.'s consent, they will not be part of any U.S.-
based competing casinos within this distance. The interim
casino includes 65 table games and 1,702 slot machines. A
permanent facility, which will include a 75,000 square foot
casino and 300-room hotel, will be built in Windsor and is
expected to open within three years. Ontario Casino Corp. and
Windsor Casino Ltd. also signed a Heads of Agreement which
represents a commitment by the parties to negotiate final
agreements for the construction, development, financing, and
operation of the permanent facility.
In October 1993, the Casino Reinvestment Development Authority
(CRDA) of the State of New Jersey announced it had selected a
joint venture comprised of Doubletree Hotel Corporation, a
subsidiary of the Company and an independent developer and
operator to build in two phases, a 1,000 room non-gaming
Convention Center Headquarters Hotel in Atlantic City. The
first phase will be a 600 room first class hotel. As
currently proposed, in exchange for a non-controlling interest
in the joint venture and receipt of certain CRDA credits, the
Company will guarantee a portion of the first mortgage note on
the property. The project is subject to final agreements
among all the parties, including governmental regulatory
agencies and the obtaining of third-party financing for the
project and is currently is awaiting regulatory approval,
which is uncertain as to timing and result at the current
time.
Subsidiaries of the Company have also entered into joint
ventures to seek opportunities to own and operate riverboats
in Michigan City, Indiana and St. Louis, Missouri. The
Michigan City project is still in the proposal stage and is a
joint venture with a subsidiary of the Company being a 30%
partner.
With respect to the St. Louis project, the joint venture has
previously announced that it had proposed the "Joint Venture
Proposal", a $210 million casino and hotel development at
Laclede's Landing which includes a $110 million 976-room
convention center hotel with parking, and a 152,000 square
foot, dockside casino barge and entertainment complex expected
to cost approximately $100 million including a $10 million
investment for parking. The current plan calls for 2,658 slot
machines and 170 gaming tables on two 2,000 gaming position
barges to be built in phases about two years apart. On
January 24, 1994 the City of St. Louis (City) announced that
the Joint Venture Proposal was ranked first among the nine
proposals the City had received and the City planned to
commence negotiations for a berthing lease with the joint
venture. Representatives of the City have cautioned, however,
that it had some concerns about the Joint Venture Proposal and
if negotiations did not eliminate those concerns or were
otherwise unsuccessful, it would move to the second-ranked
candidate. Once a lease is negotiated, City agency and board
of alderman approvals and state licensing will be required.
The ultimate outcome of
these negotiations and the obtaining of the
ultimate approvals are uncertain atuncertain.
See the "Expansion and Growth Opportunities"
section of Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of
Operations in the Form 10-K for the fiscal year
ended July 31, 1994 for a further discussion of
this time. On January 25, 1994, the Missouri
gaming law was declared unconstitutional insofar as it allowed
slot machines, baccarat, craps, roulette, and other games
which in the Court's view do not require skill in deciding the
outcome. A voter initiative directed at legalizing games that
were found to be unconstitutional did not pass at the April 5,
1994 election. Efforts are in process to obtain a sufficient
number of signatures on a petition to have a referendum on
the ballot for the November, 1994 election. Currently,
Missouri law only authorizes poker and blackjack, video games
and craps and the authorization of the video games and craps
is being challenged in court as contrary to the aforesaid
court decision. The original proposal by the Company as
described above does not appear to be financially feasible
under such a limited gaming scenario. The joint venture
currently expects to finance about 80% of the project through
mortgage bonds. Subject to further developments, the Company
currently expects to have a 37.5% interest in the ultimate
limited partnership and a 50% interest in management companies
that will manage the hotel and casino under the Joint Venture
Proposal.
The Company also is in the process of working with the Agua
Caliente Tribe (Tribe) in completing land acquisitions and
regulatory approvals with respect to a proposed management
project for the Tribe in Palm Springs, California. The
ultimate timing of this project is uncertain at this time.
The government of Greece plans to shortly issue a new request
for proposal ("RFP") to operate private casinos in Greece. The
Company has an arrangement with another company to be a
manager and investor in a project to be developed by such
other company if it is successful in obtaining a franchise
from the Greek government. This RFP will be evaluated for
submission after it is issued. The prospects and timing for
this project are uncertain.expansion activities.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits filed herewith (the * denotes
documents included in this filing):
*10(a)Amendment No. 1 dated December 9, 1994 to
Rights Agreement dated January 10, 1989 between
Caesars World, Inc. and First Chicago Trust Company
of New York.
*10(b)First Amendment dated May 24, 1994August 1, 1992 to
CWI's Executive
Security Plan as amended and restated asEmpliyment Agreement of January 24, 1989.
*10(b) Henry Gluck dated August 1,
1991.
*10(c)First Amendment dated May 24,August 1, 1992 to
Employment Agreement of J. Terrence Lanni dated
August 1, 1991.
*10(d)Second Amendment dated October 4, 1994 to
CWI's 1985
Executive Security Plan as amended and restated asEmployment Agreement of February
21,Henry Gluck dated August 1,
1991.
*10(c) First*10(e)Second Amendment dated May 24,October 4, 1994 to
CWI's 401(k)
Retirement Savings PlanEmployment Agreement of J. Terrence Lanni dated
JanuaryAugust 1, 1994.
10(d) Stock Option Agreement between CWI and Evander
Holyfield dated February 22, 1994. Incorporated by reference
to Exhibit 28(ii) of this Corporation's registration statement
on Form S-8, Registration No. 33-52363 filed with the
Commission February 22, 1994.1991.
*15 Review Report of Independent Public
Accountants
*27 Financial Data Schedule
(b) During the quarter ended October 31, 1994
a Form 8-K dated August 25, 1994 was filed and
included the Company's press release of the
same date announcing the earnings for the
fiscal year ended July 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
CAESARS WORLD, INC.
(Registrant)
Principal Financial Officer:
Date: June 14,December 12, 1994 /s/ Roger Lee
Roger Lee
Senior Vice President-FinancePresident-
Finance and Administration
Principal Accounting
Officer:
Date: June 14,December 12, 1994 /s/ Bruce C. Hinckley
Bruce C. Hinckley
Vice President and
Corporate Controller