1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 8-K
-----------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
January 25, 1995
(Date of earliest event reported)
ITT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-5627 13-5158950
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification Number)
1330 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019-5490
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 258-1000
2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
The registrant announced on January 25, 1995, that the cash tender offer by
an ITT subsidiary for all the outstanding shares of common stock of Caesars
World, Inc. at $67.50 per share had expired and that all shares validly tendered
pursuant to the offer had been accepted for payment. 24,130,291 shares of common
stock of Caesars World, Inc., representing approximately 92.9 percent of the
outstanding shares on a fully diluted basis, were finally tendered. The
registrant expects to consummate a merger of the ITT subsidiary into Caesars
World, Inc. on March 2, 1995. Caesars World, Inc. operates three hotel-casinos
in Las Vegas, Atlantic City and Lake Tahoe, a number of non gaming resorts in
the Pocono mountains of Pennsylvania and, in conjunction with two partners, also
manages a casino owned by the Ontario government in Windsor, Canada. Total sales
and net income of Caesars World, Inc. for its fiscal year ended July 31, 1994,
were $1.0 billion and $78 million, respectively.
ITEM 5. OTHER EVENTS.
On January 27, 1995, ITT Financial Corporation, a wholly owned subsidiary
of the registrant, announced that requisite consents for each series have been
received on its consent solicitation to amend certain covenants of $3.4 billion
principal amount of public debt securities. The amendments will conform the
covenants to those contained in recent issues of public debt securities of the
registrant. As previously announced, it is expected that ITT Financial will sell
all or substantially all of its businesses and assets to various purchasers
during 1995. In connection with the sale, it is planned that ITT Financial will
merge into the registrant. Thereafter, the registrant will become the obligor on
the securities.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
The Pro Forma Financial Information pursuant to Item 7(b) has not been
included in this filing because it was impracticable to prepare such financial
information for filing on this date. The Registrant will file such Pro Forma
Financial Information by April 2, 1995.
See Exhibit Index for exhibits filed herewith.
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.
ITT CORPORATION
By /s/ Walter F. Diehl, Jr.
-----------------------------------
Walter F. Diehl, Jr.
Vice President and
Associate General Counsel
Dated: February 6, 1995
3
EXHIBIT INDEX
Exhibit
Number Description Location
- ------- ----------- --------
99 Financial Statements with
respect to Caesars World, Inc. ..... Filed herewith
1
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 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) 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 /X/ 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 December 8, 1994, registrant had outstanding 25,120,463 shares of its $.10
par value common stock.
2
CAESARS WORLD, INC. AND SUBSIDIARIES
OCTOBER 31, 1994
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
October 31, 1994 (Unaudited) and July 31, 1994 . . . . . . . . . . . . . . 3
Consolidated Statement of Shareholders' Equity
(Unaudited) - Three months ended October 31, 1994 . . . . . . . . . . . . 4
Consolidated Statements of Income (Unaudited) -
Three months ended October 31, 1994 and 1993 . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash
Flows (Unaudited) - Three months ended
October 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 14
-2-
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAESARS WORLD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
OCTOBER 31, JULY 31,
ASSETS 1994 1994
---------- ----------
(Unaudited) (a)
Current assets
Cash and cash equivalent investments $ 155,932 $ 143,499
Receivables, net 69,537 71,341
Deferred income taxes 37,120 37,120
Inventories, prepaid expenses and other 28,359 24,881
---------- ----------
Total current assets 290,948 276,841
Property and equipment, net 622,711 626,740
Excess cost of investments over net assets acquired, net 52,609 52,671
Other assets 56,932 61,769
---------- ----------
$1,023,200 $1,018,021
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 27,778 $ 27,778
Accounts payable and accrued expenses 113,307 132,337
Income taxes 32,572 19,186
---------- ----------
Total current liabilities 173,657 179,301
Long-term debt, net of current maturities 198,667 212,556
Other liabilities, including deferred income
taxes of $19,158 and $20,015 68,962 69,297
Shareholders' equity
Common stock 2,645 2,620
Additional paid-in capital 138,165 128,028
Common stock in treasury (33,182) (32,695)
Deferred compensation (26,664) (18,852)
Retained earnings 500,950 477,766
---------- ----------
Total shareholders' equity 581,914 556,867
---------- ----------
$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.
-3-
4
CAESARS WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - (UNAUDITED)
THREE MONTHS ENDED 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, 1994 24,872,862 $2,620 $128,028 $(32,695) $(18,852) $477,766 $556,867
Stock options exercised 28,288 3 417 - - - 420
Amortization of deferred
compensation, termination
of restricted stock grants
and other, net (9,754) - - (487) 1,930 - 1,443
Issuance of restricted
stock grants 226,017 22 9,720 - (9,742) - -
Net income - - - - - 23,184 23,184
---------- ------ -------- -------- -------- -------- --------
Balance October 31, 1994 25,117,413 $2,645 $138,165 $(33,182) $(26,664) $500,950 $581,914
========== ====== ======== ======== ======== ======== ========
See notes to condensed consolidated financial statements.
-4-
5
CAESARS WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED)
(In thousands, except net income per share)
THREE MONTHS ENDED
OCTOBER 31,
--------------------------
1994 1993
-------- --------
REVENUE
Casino $192,329 $208,660
Rooms 18,508 19,934
Food and beverage 21,008 22,313
Earnings of unconsolidated affiliate 1,479 -
Other income 19,187 18,176
-------- --------
252,511 269,083
-------- --------
COSTS AND EXPENSES
Casino 109,797 105,175
Rooms 4,706 5,938
Food and beverage 15,541 16,461
Other operating expenses 11,130 11,043
Selling, general and administrative 50,596 47,876
Depreciation and amortization 14,031 13,752
Provision for doubtful accounts 5,851 18,236
--------- --------
211,652 218,481
-------- --------
Operating income 40,859 50,602
Interest and dividend income 1,396 928
Interest expense, net (4,861) (5,110)
-------- --------
Income before income taxes 37,394 46,420
Income taxes 14,210 18,572
-------- --------
Net income $ 23,184 $ 27,848
======== ========
Net income per share $.94 $1.14
==== =====
Average number of common and common equivalent
shares outstanding 24,609 24,513
======== =======
See notes to condensed consolidated financial statements.
-5-
6
CAESARS WORLD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
(In thousands)
THREE MONTHS ENDED
OCTOBER 31,
------------------------
1994 1993
------------------------
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net income $ 23,184 $ 27,848
Non-cash charges to income, net 15,689 15,250
Changes in assets and liabilities due to
operating activities:
Accounts payable and accrued expenses (18,520) (1,288)
Income taxes payable 13,386 18,840
Other assets and liabilities, net 4,018 (6,222)
-------- --------
Net cash provided from operating activities 37,757 54,428
-------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of property and equipment (9,892) (16,190)
Other investing activities, net (978) (1,035)
-------- --------
Net cash used for investing activities (10,870) (17,225)
-------- --------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Reductions in debt and obligations
under capital leases (14,388) (15,752)
Other (67) 300
-------- --------
Net cash used for financing activities (14,455) (15,452)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENT INVESTMENTS
12,432 21,751
Cash and cash equivalent investments at the
beginning of the period 143,499 108,616
-------- --------
Cash and cash equivalent investments at the
end of the period $155,931 $130,367
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash used for:
Payment of interest $ 8,223 $ 7,955
======== ========
Payment of Federal and state income taxes, net $ 157 $ 58
======== ========
See notes to condensed consolidated financial statements.
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7
CAESARS WORLD, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Condensed Consolidated Financial Statements -- The Condensed
Consolidated Balance Sheet as of October 31, 1994, the
Consolidated Statement of Shareholders' Equity for the three
months ended October 31, 1994, the Consolidated Statements of
Income for the three months ended October 31, 1994 and 1993, and
the Condensed Consolidated Statements of Cash Flows for the
three months ended 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, 1994 Annual Report to
Shareholders. The results of operations for the three month
period ended 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 months ended 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. See
also the discussion under the caption "Regulatory and Tax
Environment" set forth on page 25 of the Form 10-K of the
Company for the fiscal year ended July 31, 1994.
-7-
8
CAESARS WORLD, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 4. Contingent Receivable -- In 1993, the Company announced it had
entered into a management operating agreement with one of the
bidders for a casino development in New Orleans. In August
1993, the bid was awarded to another operator and the initial
bidder's participation in the project 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 the
initial bidder. Previously, this receivable, in part, had been
contingent (at least as to timing) on the operator completing
its financing. The financing 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 obligors that these amounts are due and the obligor is
seeking financing, in view of unavailability of enough
information at this time for the Company to fully evaluate this
item and the uncertainity as to when collection will occur, the
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. Labor Contracts -- In November 1994, the Company agreed to a new
three year contract with the Culinary Workers Union and
Bartenders Union covering approximately 2,500 employees in Las
Vegas. Another contract covering approximately 20 theatrical
stage employees has expired at Caesars Palace in Las Vegas and a
tentative agreement has been reached but not yet been ratified
by these employees. A work slow-down or stoppage is not
expected in the Las Vegas showroom as a result of this expired
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.
-8-
9
CAESARS WORLD, INC. AND SUBSIDIARIES
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 from operating
activities was $37.8 million in the first three months of fiscal 1995, compared
with $54.4 million in the same period of fiscal 1994. The decrease in fiscal
1995 is primarily attributable to lower net income and a decrease in accounts
payable and accrued expenses which reduced the cash generated by operating
activities. At October 31, 1994, the Company's cash and cash equivalent
investments were $155.9 million compared with $143.5 million at July 31, 1994.
Cash used for investing activities in the three months ended October 31, 1994
was primarily for capital expenditure projects at Caesars Palace in Las Vegas,
Caesars Atlantic City and the Caesars Pocono Resorts in Pennsylvania. Room and
suite remodeling as well as ongoing construction of the Magical Empire were the
major capital expenditures in Las Vegas. The Magical Empire is expected to
combine dining and intimate magical experiences in a new structure adjacent to
the casino and is 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 the spring of 1995. Twenty new Roman Tower Suites
are nearly completed at Caesars Pocono Palace in Pennsylvania and are expected
to be opened in stages by January 1, 1995. See Note 6 to Condensed
Consolidated Financial Statements for a discussion of the payment to be made
for the exercise of the lease purchase option for two of the 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.
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10
CAESARS WORLD, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
COMPARISON OF NET INCOME FOR THE THREE MONTH PERIODS ENDED OCTOBER 31, 1994 AND
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 OCTOBER 31,
---------------------------------
1994 1993
-------- --------
Revenue
Nevada $125,614 $155,224
New Jersey 103,776 94,036
Earnings of unconsolidated affiliate 1,479 -
-------- --------
Casino/hotel operations 230,869 249,260
Pocono Resorts 14,597 14,492
Other(A) 7,045 5,331
-------- --------
Total revenue $252,511 $269,083
======== ========
Contributions to operating income
Nevada $ 13,376 $ 27,484
New Jersey 24,757 22,642
Earnings of unconsolidated affiliate 1,479 -
-------- --------
Casino/hotel operations 39,612 50,126
Pocono Resorts 4,760 5,077
Other expenses(B) (3,513) (4,601)
-------- --------
Operating income 40,859 50,602
Interest income 1,396 928
Interest expense, net (4,861) (5,110)
-------- --------
Income before income taxes 37,394 46,420
Income taxes 14,210 18,572
-------- --------
Net income $ 23,184 $ 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.
-10-
11
CAESARS WORLD, INC. AND SUBSIDIARIES
NEVADA OPERATIONS
Revenue decreased 19 percent and contribution to operating income decreased 51
percent at the Nevada properties in the three months ended October 31, 1994
compared with the same prior year period. The lower casino revenue and
operating income during the quarter resulted from a significantly lower table
game win percentage compared with the year-earlier quarter. Casino losses to a
small number of high-wagering table game customers in Las Vegas resulted in a
table game win percentage 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 the record quarterly slot
results. The Nevada operations realized all-time quarterly slot machine
records in both volume and win in the quarter ended October 31, 1994, primarily
attributable to enhanced marketing programs. The provision for doubtful
accounts at the Nevada operations decreased by $12.2 million due to a 13
percent reduction in credit issued and lower use of the provision as a
marketing tool to high-wagering customers. There was also a reduction in
operating expenses resulting from the decline in table game win and activity
when comparing the respective fiscal quarters.
CAESARS NEW JERSEY
Revenue from Caesars Atlantic City for the first quarter ended October 31, 1994
increased 10 percent and contribution to operating income increased 9 percent
from the same prior year quarter. 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 the first quarter
improvement. Another positive impact on the quarterly comparisons came from
Caesars Atlantic City's Simulcast Casino which opened with horse race betting
and poker in October 1993 and 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.
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12
CAESARS WORLD, INC. AND SUBSIDIARIES
UNCONSOLIDATED AFFILIATE
During the fiscal 1995 first quarter, the Company had a positive contribution
to revenue and operating income from an unconsolidated affiliate in Windsor,
Ontario, Canada. Caesars World has a one-third ownership of the company
operating the casino on behalf of the Ontario government. The casino in
Windsor opened in May 1994.
OTHER EXPENSES
The reduction in other expenses of $1.1 million in the first quarter of fiscal
1995 compared with the year 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 1994.
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13
CAESARS WORLD, INC. AND SUBSIDIARIES
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, 1994 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
With reference to the Company's 25 percent participation in the
limited partnership selected as the preferred bidder to negotiate
a lease to operate a gaming facility in downtown St. Louis,
Missouri, a referendum was approved by the voters 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 ultimate composition and size of the
project is now under discussion and the outcome of these
negotiations and the obtaining of the ultimate approvals are
uncertain.
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 and other
expansion activities.
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14
CAESARS WORLD, INC. AND SUBSIDIARIES
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 August 1, 1992 to Employment
Agreement of Henry Gluck dated August 1, 1991.
*10(c) First Amendment dated August 1, 1992 to Employment
Agreement of J. Terrence Lanni dated August 1, 1991.
*10(d) Second Amendment dated October 4, 1994 to Employment
Agreement of Henry Gluck dated August 1, 1991.
*10(e) Second Amendment dated October 4, 1994 to Employment
Agreement of J. Terrence Lanni dated August 1, 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.
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15
CAESARS WORLD, INC. AND SUBSIDIARIES
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: December 12, 1994 /s/ Roger Lee
---------------------------------------
Roger Lee
Senior Vice President-Finance and
Administration
PRINCIPAL ACCOUNTING OFFICER:
Date: December 12, 1994 /s/ Bruce C. Hinckley
---------------------------------------
Bruce C. Hinckley
Vice President and Corporate Controller
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CAESARS WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JULY 31, 1994, 1993 AND 1992
(In thousands except per share data)
1994 1993 1992
---------- -------- --------
Revenue
Casino $ 792,584 $772,061 $734,766
Rooms 69,766 70,035 67,768
Food and beverage 81,856 77,563 73,989
Earnings of unconsolidated affiliate 1,958 - -
Other income 69,602 63,800 56,775
---------- -------- --------
1,015,766 983,459 933,298
---------- -------- --------
Costs and expenses
Casino 437,645 410,805 381,869
Rooms 20,377 20,413 19,932
Food and beverage 61,438 58,043 54,697
Other operating expenses 41,182 39,373 38,051
Selling, general and administrative 187,597 185,096 173,131
Depreciation and amortization 55,857 54,574 57,681
Provision for doubtful accounts 67,165 56,044 48,048
---------- -------- --------
871,261 824,348 773,409
---------- -------- --------
Operating income 144,505 159,111 159,889
Dividend and interest income 3,345 1,748 989
Interest expense, net of amounts capitalized (19,295) (26,883) (43,518)
---------- -------- --------
Income before income taxes
and extraordinary loss 128,555 133,976 117,360
Income taxes 50,194 50,761 44,652
Extraordinary loss, net of income tax benefit - - (6,703)
---------- -------- --------
Net income $ 78,361 $ 83,215 $ 66,005
========== ======== ========
Net income per common share
Income before extraordinary loss $ 3.19 $ 3.40 $ 3.01
Extraordinary loss - - (.28)
---------- -------- --------
Net income $ 3.19 $ 3.40 $ 2.73
========== ======== ========
See notes to consolidated financial statements.
1
17
CAESARS WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT JULY 31, 1994 AND 1993
(In thousands except shares authorized and outstanding)
ASSETS
1994 1993
---------- --------
Current assets
Cash $ 44,283 $ 41,116
Cash equivalent investments 99,216 67,500
Receivables, net 71,341 66,041
Inventories 12,986 11,364
Deferred income taxes 37,120 42,748
Prepaid expenses and other 11,895 12,366
---------- --------
Total current assets 276,841 241,135
Property and equipment, net 626,740 616,393
Excess cost of investments over net assets acquired 52,671 52,916
Investments in and advances to unconsolidated affiliates 12,393 -
Other assets 49,376 45,275
---------- --------
$1,018,021 $955,719
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 27,778 $ 28,344
Accounts payable and accrued expenses 132,337 127,754
Income taxes 19,186 9,361
---------- --------
Total current liabilities 179,301 165,459
Long-term debt, net of current maturities 212,556 243,024
Other liabilities, including deferred income taxes of $20,015
and $29,282 69,297 74,346
Commitments and contingencies
Shareholders' equity
Common stock, $.10 par value; 50,000,000 shares authorized;
24,872,862 and 24,619,631 shares outstanding 2,620 2,590
Additional paid-in capital 128,028 117,399
Common stock in treasury (32,695) (30,358)
Deferred compensation (18,852) (16,146)
Retained earnings 477,766 399,405
---------- --------
Total shareholders' equity 556,867 472,890
---------- --------
$1,018,021 $955,719
========== ========
See notes to consolidated financial statements.
2
18
CAESARS WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED JULY 31, 1994, 1993 AND 1992
(In thousands except shares outstanding)
COMMON STOCK
---------------------- ADDITIONAL COMMON DEFERRED
SHARES PAID-IN STOCK IN COMP- RETAINED
OUTSTANDING AMOUNT CAPITAL TREASURY ENSATION EARNINGS TOTAL
----------- ------ ---------- -------- -------- -------- --------
BALANCE JULY 31, 1991 23,966,295 $2,516 $99,703 $(27,034) $(12,190) $250,185 $313,180
Stock options exercised 189,547 20 2,474 - - - 2,494
Issuance of restricted
stock grants 206,900 21 6,122 - (6,143) - -
Amortization of
deferred compensation - - - - 5,120 - 5,120
Common stock
purchased and held
in treasury (54,718) - - (1,986) - - (1,986)
Other (13,084) (2) (507) - 344 - (165)
Net income - - - - - 66,005 66,005
---------- ------ -------- -------- -------- -------- --------
BALANCE JULY 31, 1992 24,294,940 2,555 107,792 (29,020) (12,869) 316,190 384,648
Stock options exercised 71,378 7 1,139 - - - 1,146
Issuance of restricted
stock grants 197,700 20 8,444 - (8,464) - -
Amortization of
deferred compensation - - - - 5,081 - 5,081
Common stock
purchased and held
in treasury (34,243) - - (1,338) - - (1,338)
Other 89,856 8 24 - 106 - 138
Net income - - - - - 83,215 83,215
---------- ------ -------- -------- -------- -------- --------
BALANCE JULY 31, 1993 24,619,631 2,590 117,399 (30,358) (16,146) 399,405 472,890
Stock options exercised 51,267 5 854 - - - 859
Issuance of restricted
stock grants 199,781 20 10,195 - (10,215) - -
Amortization of
deferred compensation - - - - 6,522 - 6,522
Common stock
purchased and held
in treasury (44,048) - - (2,337) - - (2,337)
Other 46,231 5 (420) - 987 - 572
Net income - - - - - 78,361 78,361
---------- ------ -------- -------- -------- -------- --------
BALANCE JULY 31, 1994 24,872,862 $2,620 $128,028 $(32,695) $(18,852) $477,766 $556,867
========== ====== ======== ======== ======== ======== ========
See notes to consolidated financial statements.
3
19
CAESARS WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JULY 31, 1994, 1993 AND 1992
(In thousands)
1994 1993 1992
-------- --------- --------
Cash flows from operating activities:
Net income $ 78,361 $ 83,215 $ 66,005
Reconciliation of net income to net cash provided
by operating activities:
Depreciation and amortization 55,857 54,574 57,681
Deferred income taxes (3,578) 3,062 (9,183)
Extraordinary loss - - 6,703
Amortization of deferred compensation and other, net 7,791 6,538 5,337
Changes in assets and liabilities due to operating activities:
Receivables, net (5,300) (3,047) (10,147)
Other, net 3,005 (5,666) 1,249
-------- --------- --------
Net cash provided by operating activities 136,136 138,676 117,645
-------- --------- --------
Cash flows from investing activities:
Purchases of property and equipment (65,366) (40,795) (41,700)
Other, net (2,763) (3,425) (1,992)
-------- --------- --------
Net cash used for investing activities (68,129) (44,220) (43,692)
-------- --------- --------
Cash flows from financing activities:
Reductions in debt and obligations under capital leases (32,898) (309,906) (62,615)
Issuance of 8 7/8% Senior Subordinated Notes - 150,000 -
Increase in long-term bank borrowings - 125,000 -
Purchase and retirement of common stock (2,337) (1,338) (1,986)
Debt issuance costs - (3,301) -
Issuance of common stock and other, net 2,111 1,369 2,454
-------- --------- --------
Net cash used for financing activities (33,124) (38,176) (62,147)
-------- --------- --------
Increase in cash and cash equivalent investments 34,883 56,280 11,806
Cash and cash equivalent investments at the beginning
of the period 108,616 52,336 40,530
-------- --------- --------
Cash and cash equivalent investments at the end of
the period $143,499 $ 108,616 $ 52,336
======== ========= ========
Supplemental cash flow disclosures
Interest paid, net of amount capitalized $ 19,209 $ 30,268 $ 42,919
======== ========= ========
Federal and state income taxes paid, net of refunds $ 43,444 $ 53,435 $ 48,292
======== ========= ========
See notes to consolidated financial statements.
4
20
CAESARS WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Caesars World,
Inc. (the Company) and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. Investments in
unconsolidated affiliates are stated at cost adjusted by equity in
undistributed earnings. Certain reclassifications have been made to prior
years' amounts to conform with the 1994 presentation.
The excess cost of investments over net assets acquired subsequent to 1969 is
being amortized over 40 years. The excess cost over net assets acquired
includes $43,971,000 relating to the purchase of Caesars Palace in 1969 which
is believed to have continuing value and, accordingly, is not being amortized.
CASINO REVENUE AND PROMOTIONAL ALLOWANCES
Casino revenue represents the net win from gaming wins and losses. Revenue
excludes the retail value of rooms, food, beverage, entertainment and other
promotional allowances provided on a complimentary basis to customers. The
estimated retail value of these promotional allowances was $117,760,000;
$106,613,000 and $103,727,000 for the years ended July 31, 1994, 1993 and 1992,
respectively. The estimated costs of such promotional allowances have been
classified primarily as casino costs and expenses as follows:
YEAR ENDED JULY 31
-------------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Rooms $16,857 $14,502 $13,298
Food and beverage 58,661 54,520 53,374
Other operating expenses 11,446 10,105 9,036
------- ------- -------
$86,964 $79,127 $75,708
======= ======= =======
CASH EQUIVALENT INVESTMENTS
There were no significant realized or unrealized gains or losses from cash
equivalent investments during the years ended July 31, 1994, 1993 and 1992.
Cash equivalent investments were stated at cost and consisted of commercial
paper and other short-term instruments with maturities of less than three
months at the date of purchase. The cost of these investments approximates
market value. It is the Company's policy to limit the amount of its credit
exposure with any one company and investments are made only in investment
instruments of companies having high credit ratings.
INVENTORIES
Inventories are stated at the lower of cost or market, determined principally
on the first-in, first-out basis.
5
21
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and include interest on funds
borrowed to finance construction. Capitalized interest was $105,000; $37,000
and $32,000 in fiscal 1994, 1993 and 1992, respectively. Depreciation and
amortization are provided for on the straight-line method over the following
estimated useful lives:
Buildings and improvements 5 to 40 years
Leasehold improvements 3 to 40 years
Furniture, fixtures and equipment 2 to 10 years
Property under capital leases 5 to 20 years
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance charges are expensed as
incurred. The cost and related accumulated depreciation applicable to assets
retired are removed from the accounts and the gain or loss on disposition is
recognized in income.
AMORTIZATION OF LOAN COSTS
Debt discount and loan issuance costs in connection with long-term debt are
capitalized and amortized to expense during the period the debt is outstanding.
INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax return.
Deferred income taxes are provided for timing differences between book and tax
recognition of revenues and expenses. The income tax benefit realized upon
exercise of non-qualified stock options and early disposition of incentive
stock options is credited to additional paid-in capital.
The Omnibus Budget Reconciliation Act of 1993, enacted in August 1993,
contained a corporate tax rate increase from 34 to 35 percent retroactive to
January 1, 1993. In accordance with generally accepted accounting principles,
the retroactive effect of this change was recognized in the first quarter of
fiscal 1994 and approximated $700,000.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109 (SFAS 109) on accounting for income taxes. The
Company adopted the accounting and disclosure rules prescribed by SFAS 109 in
the first quarter of fiscal 1994. The Company elected to adopt SFAS 109 by
recognizing a cumulative adjustment which did not have a material effect on the
Company's financial position or results of operations.
POSTEMPLOYMENT BENEFITS
In November 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112 (SFAS 112), "Employers' Accounting for
Postemployment Benefits," which requires accrual accounting for benefits
offered to employees after employment, but before retirement. The adoption of
SFAS 112 did not have significant impact on the Company's financial position or
results of operations.
NET INCOME PER COMMON SHARE
Net income per common share is based upon the weighted average number of common
stock and common stock equivalents outstanding which were 24,567,000;
24,475,000 and 24,167,000 for the years ended July 31, 1994, 1993 and 1992,
respectively.
6
22
NOTE 2. RECEIVABLES
ACCOUNTS RECEIVABLE
Components of receivables were as follows:
AT JULY 31
-------------------------
1994 1993
-------- --------
(IN THOUSANDS)
Accounts and notes receivable
Casino $107,061 $ 94,890
Hotel 4,283 4,401
Other 5,258 3,521
-------- --------
116,602 102,812
Less allowance for doubtful accounts 45,261 36,771
-------- --------
$ 71,341 $ 66,041
======== ========
At July 31, 1994, approximately 61 percent of the Company's casino receivables
were from customers whose primary residence is outside the United States with
no significant concentration in any one foreign country.
CONTINGENT RECEIVABLE
In 1993, the Company announced it had entered into a management operating
agreement with one of the bidders for a casino development in New Orleans. In
August 1993, the bid was awarded to another operator and the Company's
participation in the project ended. Pursuant to a settlement agreement with
the Company's former co-venturer in the New Orleans project, the Company is to
receive $5,000,000 for the Company's expenses and pre-development services
contingent upon the co-venturer obtaining financing to construct a casino
development in New Orleans in association with the successful bidder for the
project. The Company is unable to predict the timing or probability of
collecting this settlement.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
AT JULY 31
-------------------------
1994 1993
-------- --------
(IN THOUSANDS)
Land $ 76,582 $ 76,470
Buildings and improvements 584,064 562,815
Leasehold improvements 86,138 80,550
Furniture, fixtures and equipment 258,807 284,574
Construction in progress 22,369 5,933
Property under capital leases 22,267 22,699
---------- ----------
1,050,227 1,033,041
Less accumulated depreciation and amortization 423,487 416,648
---------- ----------
$ 626,740 $ 616,393
========== ==========
7
23
NOTE 4. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
In December 1993 a newly-formed corporation, Windsor Casino, Limited (WCL),
owned equally by the Company, Circus Circus Enterprises, Inc. and a subsidiary
of Hilton Hotels Corporation, was selected by the government of Ontario,
Canada, to develop and operate the province's first casino, in the city of
Windsor. In May 1994, a 50,000-square-foot interim casino was opened in
Windsor. The interim casino is owned by the government of Ontario and operated
by WCL. WCL receives 2.75 percent of gross operating revenue and 5 percent of
net operating margins (as defined in the management agreement) of the interim
casino. Cash advances of $14,591,000 were made by each shareholder of WCL,
including the Company, prior to June 1994 of which $4,531,000 had been repaid
to each shareholder at July 31, 1994. During the second quarter of fiscal 1995,
WCL is expected to borrow from a syndicate of banks, using a portion of the
funds to repay the remaining outstanding cash advances made to WCL by its three
shareholders. Each of the WCL shareholders, including the Company, is expected
to guarantee one-third of these bank borrowings. The WCL bank loan is expected
to be repaid from cash generated from operations.
The permanent facility to be built in Windsor is in the planning stage and is
expected to include a 75,000-square-foot casino, a 300-room hotel, food and
beverage outlets and other amenities. This complex is expected to be open in
fiscal 1997 and will be built on a 13-acre site in downtown Windsor in view of
the Detroit, Michigan skyline. The estimated cost of this complex is
$300,000,000 of which a portion will be advanced by each of the shareholders of
WCL, including the Company.
The Company continues to explore gaming and expansion opportunities in the
United States and internationally. At July 31, 1994, two other refundable
advances had been made for expansion projects which are in preliminary
development stages. All costs and expenses incurred to explore expansion
opportunities for the Company are charged to general and administrative
expenses until it is determined the project will be developed.
NOTE 5. SHORT-TERM BANK BORROWINGS
Since August 1992, the Company has had no outstanding short-term bank
borrowings (see Note 7). During fiscal 1992 the Company's short-term borrowings
under a $10,000,000 unsecured bank revolving credit facility totaled $7,200,000
and the interest rate was 3 7/8 percent at July 31, 1992. The average
outstanding borrowings during fiscal 1992 were $7,200,000, computed by using
the daily balances, and the weighted average interest rate was 5.4 percent,
computed by dividing short-term interest expense by the average short-term debt
outstanding. The maximum borrowings outstanding at any month-end during fiscal
1992 totaled $7,200,000.
NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
AT JULY 31
---------------------------
1994 1993
--------- ---------
(IN THOUSANDS)
Accounts payable $ 47,052 $ 46,804
Accrued interest 6,327 6,540
Accrued progressive slot machine jackpots 6,359 5,458
Accrued salaries, wages and employee benefits 24,171 24,199
Short-term portion of capital lease obligations payable 1,046 1,919
Other accrued expenses 47,382 42,834
-------- --------
$132,337 $127,754
======== ========
8
24
NOTE 7. LONG-TERM DEBT
Long-term debt consisted of the following:
AT JULY 31
-----------------------
1994 1993
-------- --------
(IN THOUSANDS)
Amounts due under Bank Loan agreement,
at floating rates approximating prime
or an alternative negotiated rate which at
July 31, 1994, was approximately 5.48 percent $ 90,334 $118,111
Senior subordinated notes, due August 15, 2002,
at 8 7/8 percent payable semi-annually
in February and August 150,000 150,000
Mortgages payable bearing interest at rates between
8 and 9 3/4 percent, secured by property,
retired in 1994 - 3,257
-------- --------
240,334 271,368
Less current maturities 27,778 28,344
-------- --------
$212,556 $243,024
======== ========
In August 1992 the Company entered into a $275,000,000 unsecured credit
facility (Bank Loan) with a syndicate of banks. This facility consists of a
$125,000,000 Term Loan which had an outstanding balance of $83,334,000 and
$111,111,000, at July 31, 1994 and 1993, respectively. The facility also
includes a $150,000,000 Revolver which had a $7,000,000 outstanding balance at
July 31, 1994 and 1993. The Term Loan is payable in equal installments of
$13,889,000 on September 30 and March 31 each year until final payment is made
on March 31, 1997, and interest is payable quarterly or earlier.
The proceeds from the Term Loan were used for the retirement of certain debt
that was outstanding at July 31, 1992. In August 1992, $7,000,000 of the
revolving portion of the facility was utilized to replace the outstanding
portion of a short-term bank credit line of a subsidiary. Although the
revolving credit facility is utilized for working capital and general corporate
purposes, it is classified as long-term due to its maturity on October 31,
1997. At July 31, 1994, a provision of the Bank Loan agreement restricted the
Company from making cash dividends in excess of $196,604,000. The Company
incurs commitment fees of 5/16 to 1/2 percent on the unused portion of the
credit facilities and the interest rate fluctuates depending upon the Company's
financial leverage and the selection of one of the borrowing rate alternatives
available at the option of the Company, one of which approximates the bank's
prime rate. The fair value of the borrowings under the Bank Loan approximates
the carrying amount of the debt.
On August 15, 1992, the Company issued $150,000,000 of 8 7/8 percent Senior
Subordinated Notes (the Notes) that mature in 2002. The Notes are subordinated
to all senior indebtedness (as defined in the Indenture), which includes the
indebtedness under the Bank Loan agreement, are effectively subordinated to
liabilities of the Company's subsidiaries and are senior in the right of
payment to other subordinated indebtedness. The Notes are redeemable at the
Company's option, in whole or in part, beginning August 15, 1997, at a premium
price of 103.27 percent, declining annually to par at August 15, 2000, and
thereafter. The original issue discount and costs are being amortized over the
term of the Notes. At July 31, 1994, the estimated fair value of the Notes was
approximately $147,750,000, based on the quoted market trading price.
The proceeds from the Notes and cash available from operations together with
$115,000,000 of the Term Loan were used on October 1, 1992, to retire the
$241,200,000 of principal outstanding plus the accrued interest thereon and a
redemption premium of 2.25 percent of the principal amount. In December 1992
the outstanding principal on one of the mortgages payable which was secured by
9
25
property in Las Vegas was retired. The retirement of the above described debt
prior to its maturity resulted in an extraordinary charge, net of income tax
benefit, in July 1992 of $6,703,000.
Prior to August 1992 the Company had a $250,000,000 unsecured credit facility
with a syndicate of banks. The facility consisted of a $100,000,000 term loan
with an outstanding balance at July 31, 1992, of $25,000,000 and a $150,000,000
revolving credit facility with no outstanding amount.
The Bank Loan agreement and the Notes, as well as the previous loan agreements
covering 1992, contain covenants, among others, that require the maintenance of
certain financial ratios and include restrictions on the Company and its
subsidiaries with respect to additional debt, dividends, stock repurchases,
sales of certain assets, investments and capital expenditures, mergers,
consolidations and similar transactions, liens, acquisitions, disposition of
property, and prepayment of other debt. Cross default clauses provide that the
default under either the Notes or the Bank Loan agreement may result in the
acceleration of the other. The loss or suspension of a gaming license which
has a potential $15,000,000 charge to operations of the Company and is
determined by the banks to be materially adverse to the bank's investment would
constitute a default under the Bank Loan agreement. Also, the bank agreement
requires guarantees by specified subsidiaries of the Company.
The annual maturities of long-term debt as of July 31, 1994, follow:
Year ending July 31 (In thousands)
------------------- --------------
1995 $ 27,778
1996 27,778
1997 27,778
1998 7,000
1999 -
Thereafter 150,000
--------
$240,334
========
NOTE 8. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
YEAR ENDED JULY 31
-------------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Current
Federal $47,604 $40,217 $43,727
State 6,168 7,482 6,656
Deferred (3,578) 3,062 (9,183)
------- ------- -------
$50,194 $50,761 $41,200
======= ======= =======
10
26
The provision (benefit) for income taxes is included in the financial
statements as follows:
YEAR ENDED JULY 31
---------------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Income before extraordinary loss $50,194 $50,761 $44,652
Extraordinary loss - - (3,452)
------- ------- -------
$50,194 $50,761 $41,200
======= ======= =======
The provision (benefit) for deferred income taxes represents temporary
differences in the recognition of revenue and expenses for tax and financial
statement purposes. The tax effects of these differences were as follows:
YEAR ENDED JULY 31
---------------------------------------
1994 1993 1992
------- ------- --------
(IN THOUSANDS)
Depreciation $(1,127) $ 418 $ (592)
Provision for doubtful accounts (2,809) 3,023 268
Accrued liabilities 461 (2,992) (4,636)
Extraordinary loss on early extinguishment of debt - 3,452 (3,452)
Other, net (103) (839) (771)
------- ------ -------
$(3,578) $3,062 $(9,183)
======= ====== =======
The income tax effects of temporary differences between financial and income
tax reporting that gave rise to deferred income tax assets and liabilities at
July 31, 1994, under the provisions of SFAS No. 109, were as follows:
ASSETS LIABILITIES TOTAL
------- ----------- --------
(IN THOUSANDS)
Current deferred income taxes
Bad debt reserves $17,601 $ - $ 17,601
Accrued expenses 13,619 - 13,619
Other 5,900 - 5,900
------- -------- --------
$37,120 $ - $ 37,120
======= ======== ========
Non-current deferred income taxes
Depreciation $ - $(38,137) $(38,137)
Deferred compensation 3,943 - 3,943
Accrued expenses 11,291 - 11,291
Other 5,223 (2,335) 2,888
------- -------- --------
$20,457 $(40,472) $(20,015)
======= ======== ========
11
27
The provision for income taxes differed from the amount computed at the
statutory rate as follows:
YEAR ENDED JULY 31
---------------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Federal income taxes at statutory rate $44,995 $45,552 $36,450
State income taxes, net of federal benefit 4,078 4,972 4,060
Other, net 1,121 237 690
------- ------- -------
$50,194 $50,761 $41,200
======= ======= =======
The Internal Revenue Service has examined the Company's federal consolidated
income tax returns through fiscal 1988 and is currently examining the returns
for fiscal 1989 through 1992.
NOTE 9. LEASES
The Company and its subsidiaries lease land, buildings and equipment under
noncancelable lease agreements with primary terms which expire at various dates
through 2076. The leases generally provide that the Company pay the taxes,
insurance and maintenance expenses related to the leased assets. Major leased
assets, which have been capitalized, include land in Atlantic City unrelated to
current operations, and the land and buildings of two of the Company's Pocono
resorts.
In January 1992 the Company exercised a $6,500,000 purchase option for a land
lease upon which a portion of the Caesars Atlantic City hotel is located. The
lease required payments of $247,000 in fiscal 1992, prior to the exercise of
the option.
Caesars Atlantic City also owns approximately 1.2 acres and leases
approximately six acres of property in Atlantic City, including an entire block
of Boardwalk frontage which may be suitable for development of a casino/hotel.
The capitalized lease expires in 2076 and requires annual payments of $875,000;
the property may be purchased for $13,000,000. The purchase option price will
increase by $500,000 in August 1997 and another $500,000 every 10 years
thereafter.
Two of the Company's resorts in the Pocono mountains of Pennsylvania are
operated under leases whose initial 20-year-lease terms expire on January 31,
1995. The leases include purchase options at the fair market value of the
lease properties excluding personal property, goodwill and other intangibles.
The Company currently anticipates exercising the purchase options to acquire
the properties in fiscal 1995. The fair market value purchase price will be
determined by an independent appraisal. The Company also maintains a letter of
credit ($2,865,000 at July 31, 1994) under an agreement with the New Jersey
Casino Control Commission for the payment of the remaining future lease rentals
on the two leases.
The Caesars Tahoe land and building are leased pursuant to an operating lease
which expires in 2004 and is renewable for two additional 25-year periods. The
lease provides for a minimum rent of $2,606,000 for fiscal 1995, increasing by
$75,000 per year in each subsequent year, and for percentage rent of 20 percent
of the casino/hotel's net profit (as therein defined). Additionally, the lease
required payments to discharge the lessor's obligations of a mortgage loan and
the final payment was made by the Company in fiscal 1994. The aggregate fixed
lease payments, including amounts paid on the mortgage note, are amortized on a
straight-line basis over the remaining initial lease term. At July 31, 1994,
there was $11,165,000 of prepaid rent included in "Other Assets" related to
this lease accounting.
12
28
Future minimum lease payments for all leases at July 31, 1994, are as follows:
YEAR ENDING JULY 31 OPERATING CAPITAL
------------------- --------- -------
(IN THOUSANDS)
1995 $ 5,264 $ 1,963
1996 4,172 898
1997 3,692 898
1998 3,662 948
1999 3,694 948
Thereafter 18,584 84,385
------- -------
Total minimum lease payments $39,068 90,040
Less amount representing interest ======= 79,587
-------
Present value of minimum lease payments 10,453
Less current maturities of obligations under capital leases 1,046
-------
Long-term obligations under capital leases $ 9,407
=======
Rental expense was comprised of the following:
YEAR ENDED JULY 31
---------------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Minimum rentals under lease obligations $10,084 $10,688 $10,177
Contingent rentals under operating and capital leases 566 562 76
------- ------- -------
$10,650 $11,250 $10,253
======= ======= =======
NOTE 10. CAPITAL STOCK, STOCK OPTIONS AND INCENTIVES
The authorized capital stock of the Company consists of 1,000,000 shares of $1
par value preferred stock and 50,000,000 shares of 10 cents par value common
stock. No preferred stock has been issued. Common stock outstanding was net of
1,343,951; 1,299,903 and 1,265,660 treasury shares at July 31, 1994, 1993 and
1992, respectively. The Company has designated 250,000 shares of the
authorized preferred stock as constituting Series A Junior Participating
Preferred Stock for purposes of the Shareholders' Rights Plan described below.
Upon issuance, each share of such preferred stock will have a $2 dividend
(subject to adjustment in certain cases) which will be payable prior to any
dividends on common stock. Each share will have 200 votes and shall vote as a
class with common stock (with special voting provisions to apply in the event
of a dividend default).
In January 1989 the Board of Directors of the Company authorized a
Shareholders' Rights Plan and declared a dividend of one right for each share
of common stock. The rights may only become exercisable under certain
circumstances involving actual or potential acquisitions of the Company's
common stock by a specified person or affiliated group. If the rights become
exercisable and are not redeemed by the Company, the holder may be entitled to
purchase or receive upon exercise, depending on the circumstances, units
consisting of one two-hundredth of a share of the Company's $1 par value Series
A Junior Participating Preferred Stock at a price of $125 per share (subject to
adjustment), shares of the Company's common stock or other assets with a value
equal to twice the exercise price, or shares of the common stock of the
acquirer at one-half the then market price. The rights expire in January 1999
13
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unless they are exercised or redeemed. Until certain specified dates, the
Company may redeem the rights at one cent per share. Rights owned by certain
specified shareholders may be void. The provisions concerning the rights are
set forth in a Rights Agreement between the Company and the Rights Agent.
The Company has a long-term stock incentive program (the Program) which
authorizes the issuance of various stock incentives to officers and key
employees, including options, stock appreciation rights, and stock bonuses in
the form of restricted stock grants or contingent shares. At July 31, 1994,
123 employees were participating in the Program. Under the terms of the
Program, as amended by the shareholders in December 1988 and November 1990,
2,655,126 shares of common stock may be used for awards, of which 391,088 were
unissued at July 31, 1994. Employee stock options under the Program expire
after 10 years and usually become exercisable either in four or five equal
annual installments commencing one year after the date of grant or in one
installment one year after the date of grant. Under the terms of such options,
adjustments will be made for changes resulting from stock dividends, stock
splits and similar changes. Exercisability of such options is on a cumulative
basis. Employee stock options for 244,953 shares were exercisable as of July
31, 1994. The Audit and Compensation Committee of the Board of Directors may
accelerate exercisability of stock options at its discretion including, without
limitation, acceleration due to the occurrence of certain specified
contingencies.
As of July 31, 1994, there were outstanding unvested grants of restricted stock
in the amount of 751,429 shares held among 72 employees (including 13 officers)
which will vest in fiscal years as follows: 152,115 in 1995; 214,871 in 1996;
192,166 in 1997; 127,507 in 1998 and 64,770 in 1999. Contingent incentive
shares totaling 90,174 shares (net of forfeitures) granted to 41 employees
(including nine officers) principally in December 1989 were outstanding at July
31, 1994. These shares vest in fiscal years as follows: 89,340 in 1995 and 834
in 1996. The restricted stock grants and contingent incentive share grants
become fully vested in the event of a change in control (as defined). As to
officers, sale of the contingent incentive shares is restricted for two years
following vesting subject to certain contingencies. Deferred compensation
equivalent to the market value on the date of grant was charged to
shareholders' equity and is being amortized over the respective vesting
periods. The amount amortized was $5,840,000; $4,997,000 and $4,956,000 in
fiscal 1994, 1993 and 1992, respectively. During fiscal 1994, 180,183 shares
of such awards vested.
A non-employee directors' plan (the Plan) authorizes the issuance of options on
100,000 shares of common stock to non-employee directors, of which options
covering 40,000 shares were unissued at July 31, 1994. Options for 4,000;
11,000 and 22,000 shares were exercised in fiscal 1994, 1993 and 1992,
respectively. The 23,000 options outstanding at July 31, 1994, were all
exercisable and include 3,000 granted at a price of $32.13; 5,000 granted at a
price of $15.19; 5,000 granted at a price of $28.19; 5,000 granted at a price
of $39.38; and 5,000 granted at a price of $51.13. All stock options granted
under the Plan become exercisable six months after grant and expire five years
from the date of grant. Persons eligible under the Plan are not eligible for
awards under the Program. Option prices under the Plan equal the fair market
value of the stock on the date of grant. Grant or exercise of stock options
under the Plan or the Program does not result in a charge to earnings.
Prior to 1990, unlimited stock appreciation rights were granted to certain
officers of the Company. As a result of changes in the market price of the
common stock subsequent to the date of grant, the Company recorded a credit of
$265,000 in fiscal 1994 and incurred charges of $1,838,000 and $429,000 in 1993
and 1992, respectively. During fiscal 1994, an officer exercised a tandem
unlimited stock appreciation right with respect to a stock option for 30,000
shares, realizing $427,000 of taxable income, and the related stock option was
terminated. At July 31, 1994, there were 145,000 unlimited stock appreciation
rights outstanding to three officers. As of July 31, 1994, three officers and
five non-employee directors had been granted 46,125 limited stock appreciation
rights. These limited stock appreciation rights were issued in tandem with
stock options and are only exercisable in the event of certain specified
changes in the ownership of the Company. Surrender of the related option (or
portion thereof) on exercise of the right, generally entitles the optionee or
holder to receive in cash the difference between the exercise price of the
outstanding option and the higher of the stock market price for the 60 days
prior to exercise
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or the tender or exchange offer price with respect to the Company's common
shares. Future exercisability of the limited stock appreciation rights will
result in a charge to earnings based upon the value of such rights when they
become exercisable.
Employee and director stock option activity during the three-year period ended
July 31, 1994, was as follows:
EXERCISE PRICE
RANGE
--------------------
SHARES FROM TO
------- ------ ------
Outstanding at July 31, 1991 705,276 $10.69 $32.13
Granted 23,800 28.19 29.69
Exercised (189,547) 10.69 24.44
Expired or cancelled (11,840) 13.25 32.13
--------
Outstanding at July 31, 1992 527,689 11.63 32.13
Granted 88,500 29.63 42.81
Exercised (71,378) 11.63 32.13
Expired or cancelled (6,220) 13.25 29.69
--------
Outstanding at July 31, 1993 538,591 13.25 42.81
Granted 157,300 39.06 51.13
Exercised (51,267) 13.25 42.81
Expired or cancelled (67,460) 13.25 51.13
--------
Outstanding at July 31, 1994 577,164 13.25 51.13
========
The above chart does not include a non-qualified option, with a ten-year
vesting period, granted on January 19, 1994, to a third party at a price of
$55.50 in return for services to be rendered. This option vests in three equal
annual installments beginning January 19, 1995.
The number of shares covered by options which are scheduled to become
exercisable during the next five fiscal years are as follows: 127,854 in both
1995 and 1996; 81,023 in 1997; 43,250 in 1998; and 29,230 in 1999.
NOTE 11. PENSION PLANS
The Company has defined benefit pension plans covering any officer or other
employee designated as a key executive of the Company and its subsidiaries.
The benefits are based on years of service (not to exceed 30) and the
employee's highest five years of compensation during the last 10 years of
employment. The Company has funded the vested benefits of certain current
employees by making contributions to revocable trusts. Income earned by the
trusts accrues to the benefit of the Company. At July 31, 1994, the amount in
these revocable trusts was $12,756,000 and is recorded in "Other Assets." Such
trusts shall become irrevocable in the event of a change of control (as
defined).
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The following table sets forth the plans' status and amounts recognized in the
Company's financial statements:
AT JULY 31
-------------------------
1994 1993
------- -------
(IN THOUSANDS)
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefit obligation of $16,180,000 and $14,628,000,
respectively $16,794 $15,382
======= =======
Accrued pension liability consists of the following:
Projected benefit obligation for service rendered to
date in excess of plan assets $21,982 $20,161
Unrecognized net loss from past experience and
effects of changes in assumptions
(2,090) (2,904)
Unrecognized net obligation to be recognized over
15 years (963) (1,082)
------- -------
$18,929 $16,175
======= =======
The net pension expense included the following components:
YEAR ENDED JULY 31
-----------------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
Service cost - benefits earned during the period $1,612 $1,702 $1,403
Interest cost on projected benefit obligation 1,590 1,319 1,117
Net amortization 180 143 119
------ ------ ------
$3,382 $3,164 $2,639
====== ====== ======
At July 31, 1994 and 1993, the weighted average discount rate used in
determining the actuarial present value of the projected benefit obligation and
the rate of increase in future compensation levels used in such calculations
were 8 and 6 percent, respectively.
The Company's Individual Retirement Account Plan which was generally available
to all full-time employees who had at least one year of service and were not
covered under any qualified retirement plan terminated as of December 31, 1993.
The expense of this plan was $828,000; $2,148,000 and $2,014,000 in fiscal
1994, 1993 and 1992, respectively.
Effective January 1, 1994, the Company adopted a 401(k) retirement plan
covering substantially all of its non-union employees. The plan provides for
the Company to contribute 1 percent of certain compensation for eligible
employees who may also contribute up to 4 percent of their base compensation to
this plan and their contributions are matched by the Company in an amount equal
to 50 percent of each employee's contribution. Employees may also contribute
an additional 8 percent of base compensation to the plan, with certain
limitations, which is not matched by the Company. The Company's matching
contributions for fiscal 1994 were $3,121,000.
In addition to the Company's plans described above, union employees are covered
by various multi-employer pension plans. The Company charged to expense
approximately $3,534,000; $3,402,000 and
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$3,005,000 in fiscal 1994, 1993 and 1992, respectively, for such plans. For the
union sponsored plans, information is not available from the plans' sponsors to
permit the Company to determine its share of unfunded vested benefits, if any.
NOTE 12. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has severance agreements with 19 employees (including 11 officers)
which grant these employees the right to receive up to two times their annual
salary and bonus, plus continuation of certain benefits, and acceleration of
certain stock options and restricted grants subject to certain maximums under
tax law, if there is a change in control of the Company (as defined) and a
termination (as defined) of such employees within three years thereafter. The
maximum contingent liability for salary and incentive compensation under these
agreements is approximately $10,520,000. In addition, insurance benefits, car
allowances and nonqualified pension plan accrue for up to two years. The
Company also has entered into employment agreements with eight employees which
expire at various dates through July 31, 1997. The aggregate commitment for
future salaries, excluding bonuses, under these employment agreements is
approximately $3,428,000. The Company also has entered into severance and
employment agreements with two officers which contain continual self-renewing
terms of five years and three years, respectively, subject to the option of the
Company to terminate this self-renewing provision. In addition, these
agreements provide these officers the option to terminate their contractual
obligations in the event of a change in control or a material breach by the
Company. If such change of control had occurred on July 31, 1994, the
aggregate maximum contingent liability under these agreements would have been
approximately $24,314,000. See Note 10 as to acceleration of contingent and
restricted stock grants in the event of a change in control.
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CAESARS WORLD, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
QUARTER
------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- -------- ----------
(In thousands except per share data)
Fiscal 1994(a)
Revenue $269,083 $257,981 $237,244 $251,458 $1,015,766
Operating income 50,602 39,656 22,876 31,371 144,505
Income before income taxes 46,420 35,707 18,939 27,489 128,555
Income taxes 18,572 13,747 7,291 10,584 50,194
Net income 27,848 21,960 11,648 16,905 78,361
======== ======== ======== ======== ==========
Net income per common share(b) $1.14 $.90 $.47 $.69 $3.19
===== ==== ==== ==== =====
Fiscal 1993(a)
Revenue $232,562 $264,473 $224,409 $262,015 $ 983,459
Operating income 33,708 46,844 32,574 45,985 159,111
Income before income taxes 24,140 41,173 27,475 41,188 133,976
Income taxes 9,173 15,646 10,440 15,502 50,761
Net income 14,967 25,527 17,035 25,686 83,215
======== ======== ======== ======== ==========
Net income per common share $.62 $1.05 $.69 $1.04 $3.40
==== ===== ==== ===== =====
(a) There were no dividends paid in fiscal 1994 or 1993.
(b) Net income per share calculations for each quarter are based on the
weighted average number of common stock and common stock equivalents
outstanding during the respective quarters; accordingly, the sum of the
quarters does not equal the full-year income per share for 1994.
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