UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
_XX_QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended_________SEPTEMBER 30, 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_______________1-7123____________________________
_____________________________SHOWBOAT, INC.____________________________
(Exact name of registrant as specified in its charter)
______________NEVADA______________ _________ 88-0090766_________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
__2800 FREMONT STREET, LAS VEGAS, NEVADA____________89104-4035_________
(Address of principal executive offices) (Zip Code)
_____________________________(702) 385-9123____________________________
(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 Sections 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 PAST FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution under a
plan confirmed by a court. Yes_____ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of the issuer's classes of
common stock, as of November 11, 1994.
_Common Stock - $1 Par Value__ _15,556,355 shares outstanding_
SHOWBOAT, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements.
Consolidated Balance Sheets -
September 30, 1994 and December 31, 1993 1-2
Consolidated Statements of Income
For the nine months ended
September 30, 1994 and 1993 3-4
Consolidated Statements of Income
For the three months ended
September 30, 1994 and 1993 5-6
Consolidated Statements of Shareholders'
Equity - For the nine months ended
September 30, 1994 and year ended
December 31, 1993 7
Consolidated Statements of Cash Flows -
For the nine months ended
September 30, 1994 and 1993 8-9
Notes to Consolidated Financial
Statements 10-16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 17-26
PART II
OTHER INFORMATION
ITEMS 1 - 6 27
SIGNATURES 28
Item 1. Financial Statements.
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
SEPTEMBER 30,DECEMBER 31,
ASSETS 1994 1993
-------- ------------ -----------
(In thousands)
Current assets:
Cash and cash equivalents $97,506 $122,787
Receivables, net 12,185 5,913
Inventories 2,528 2,359
Prepaid expenses 5,679 4,044
Current deferred income taxes 6,615 4,865
------------ -----------
Total current assets 124,513 139,968
------------ -----------
Property and equipment 498,791 443,347
Less accumulated depreciation
and amortization 161,771 145,527
------------ -----------
337,020 297,820
------------ -----------
Other assets, at cost:
Deposits and other assets 14,496 7,892
Restricted Cash 100,000 -
Investment in Showboat Star Partnership 31,294 17,750
Debt issuance costs, net of accumulated
amortization of $748,000 at September 30,
1994 and $323,000 at December 31,
1993 11,233 7,270
------------ -----------
157,023 32,912
------------ -----------
$618,556 $470,700
============ ===========
See accompanying notes to consolidated financial statements.
-1- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
(continued)
SEPTEMBER 30,DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993
----------------------------------- ------------ -----------
(In thousands)
Current liabilities:
Current maturities of long-term debt $97 $3,574
Accounts payable 12,947 14,173
Income taxes payable 2,845 1,752
Dividends payable 384 375
Accrued liabilities 35,119 23,664
------------ -----------
Total current liabilities 51,392 43,538
------------ -----------
Long-term debt 391,949 277,043
------------ -----------
Deferred liabilities 22,654 14,961
------------ -----------
Shareholders' equity:
Common stock, $1 par value, 50,000,000
shares authorized, 15,794,578 shares
issued at September 30, 1994 and
December 31, 1993 15,795 15,795
Additional paid-in capital 76,897 71,162
Retained earnings 68,203 54,628
------------ -----------
160,895 141,585
Less: Cost of common stock in treasury,
418,223 shares at September 30,
1994 and 814,483 shares at
December 31, 1993 (3,306) (6,370)
Unearned compensation for
restricted stock (5,028) (57)
------------ -----------
Total shareholders' equity 152,561 135,158
------------ -----------
$618,556 $470,700
============ ===========
See accompanying notes to consolidated financial statements.
-2-
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(In thousands except share and per share data)
1994 1993
------------ -----------
Revenues:
Casino $265,946 $251,605
Food and beverage 38,192 37,237
Rooms 15,248 14,563
Sports and special events 3,166 3,221
Management fees 1,403 -
Other 4,686 4,332
------------ -----------
328,641 310,958
Less complimentaries 24,709 24,751
------------ -----------
Net revenues 303,932 286,207
------------ -----------
Costs and expenses:
Casino 103,771 98,536
Food and beverage 43,911 41,808
Rooms 10,119 9,823
Sports and special events 2,537 2,486
General and administrative 82,456 69,576
Selling, advertising and promotion 9,663 9,051
Depreciation and amortization 20,680 17,009
------------ -----------
273,137 248,289
------------ -----------
Income from operations from consolidated
subsidiaries 30,795 37,918
Equity in income of unconsolidated
affiliate 11,596 -
------------ -----------
Income from operations 42,391 37,918
------------ -----------
-3- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(In thousands except share and per share data)
(continued)
1994 1993
------------ -----------
Income from operations $42,391 $37,918
------------ -----------
Other (income) expense:
Interest income (2,833) (2,298)
Interest expense 22,582 19,107
Interest capitalized (2,202) (925)
------------ -----------
17,547 15,884
------------ -----------
Income before income tax expense,
extraordinary loss and cumulative
effect adjustment 24,844 22,034
Income tax expense 10,135 9,006
------------ -----------
Income before extraordinary loss and
cumulative effect adjustment 14,709 13,028
Extraordinary loss on extinguishment of
debt, net of tax - (6,679)
Cumulative effect of change in method of
accounting for income taxes - 556
------------ -----------
Net income $14,709 $6,905
============ ===========
Weighted average shares outstanding 15,461,490 15,254,712
Income per common and equivalent share:
Income before extraordinary loss
and cumulative effect adjustment $0.95 $0.85
Extraordinary loss on extinguishment of
debt, net of tax - ($0.44)
Cumulative effect of change in method of
accounting for income taxes - $0.03
------------ -----------
Net income $0.95 $0.44
============ ===========
See accompanying notes to consolidated financial statements.
-4-
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(In thousands except share and per share data)
1994 1993
------------ -----------
Revenues:
Casino $99,588 $95,172
Food and beverage 14,155 14,268
Rooms 5,907 5,850
Sports and special events 1,080 1,093
Management fees 447 -
Other 1,580 1,518
------------ -----------
122,757 117,901
Less complimentaries 9,526 9,896
------------ -----------
Net revenues 113,231 108,005
------------ -----------
Costs and expenses:
Casino 37,406 35,956
Food and beverage 15,550 15,372
Rooms 3,527 3,498
Sports and special events 931 895
General and administrative 31,226 24,434
Selling, advertising and promotion 3,423 3,348
Depreciation and amortization 7,484 6,252
------------ -----------
99,547 89,755
------------ -----------
Income from operations from consolidated
subsidiaries 13,684 18,250
Equity in income of unconsolidated
affiliate 3,578 -
------------ -----------
Income from operations 17,262 18,250
------------ -----------
-5- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(In thousands except share and per share data)
(continued)
1994 1993
------------ -----------
Income from operations $17,262 $18,250
------------ -----------
Other (income) expense:
Interest income (1,308) (974)
Interest expense 9,310 6,702
Interest capitalized (850) (286)
------------ -----------
7,152 5,442
------------ -----------
Income before income tax expense 10,110 12,808
Income tax expense 4,195 5,452
------------ -----------
Net Income 5,915 7,356
============ ===========
Weighted average shares outstanding 15,488,979 15,197,067
Income per common and equivalent share: $0.38 $0.48
============ ===========
See accompanying notes to consolidated financial statements.
-6-
<TABLE>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
AND YEAR ENDED DECEMBER 31, 1993
<CAPTION>
Unearned
Additional compensation
Common paid-in Retained Treasury for restricted
stock capital earnings stock stock Total
---------- ------------ ---------- ------------ ----------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $15,795 $69,374 $48,778 ($7,761) ($168) $126,018
Net income - - 7,341 - - $7,341
Cash dividends ($.10 per share) - - (1,491) - - ($1,491)
Share transactions under
stock plans - 1,788 - 1,391 - $3,179
Amortization of unearned
compensation - - - - 111 $111
---------- ------------ ---------- ------------ ------------ -----------
Balance, December 31, 1993 15,795 71,162 54,628 (6,370) (57) 135,158
Net income - - 14,709 - - $14,709
Cash dividends ($.075 per share) - - (1,134) - - ($1,134)
Share transactions under
stock plans - 3,782 - 3,064 (6,122) $724
Warrants issued for debt commitment - 1,953 - - - $1,953
Amortization of unearned
compensation - - - - 1,151 $1,151
---------- ------------ ---------- ------------ ------------ -----------
Balance, September 30, 1994 $15,795 $76,897 $68,203 ($3,306) ($5,028) $152,561
========== ============ ========== ============ ============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
-7-
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
1994 1993
------------ -----------
(In thousands)
Cash flows from operating activities:
Net income $14,709 $6,905
Adjustments to reconcile net income to
net cash provided by operating activities:
Allowance for doubtful accounts 592 1,443
Depreciation and amortization 20,680 17,009
Extraordinary loss on extinguishment of
debt - 11,166
Cumulative effect of change in accounting
method - (556)
Amortization of discount on debt and
debt issuance costs 521 618
Provision for deferred income taxes 1,804 1,950
Provision for loss on Casino
Reinvestment Development Authority
obligation 920 858
Amortization of unearned compensation 1,151 84
Undistributed earnings of unconsolidated
affiliate (4,544) -
(Increase) in receivables, net (6,864) (1,673)
(Increase) decrease in income taxes
receivable 1,333 (495)
(Increase) in inventories and
prepaid expenses (1,804) (1,166)
(Increase) decrease in deposits and
other assets (1,224) 42
Increase (decrease) in accounts payable (314) 1,413
Increase in accrued liabilities 11,455 4,778
Other 136 462
------------ -----------
Net cash provided by
operating activities 38,551 42,838
------------ -----------
Cash flows from investing activities:
Acquisition of property and equipment (61,567) (47,602)
Proceeds from sale of equipment 204 60
Deposit for Casino Reinvestment
Development Authority obligation (2,489) (2,284)
Casino Reinvestment Development Authority
investment credit 2,672 -
Decrease in deposits and other assets - 4,226
Restricted cash (100,000) -
Investment in Showboat Star Partnership (9,000) (15,000)
------------ -----------
Net cash used in
investing activities (170,180) (60,600)
------------ -----------
See accompanying notes to consolidated financial statements.
-8- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(continued)
1994 1993
------------ -----------
(In thousands)
Cash flows from financing activities:
Principal payments of long-term debt and
capital lease obligations ($3,491) ($210,980)
Proceeds from Issuance of long-term debt 120,000 275,000
Debt issuance costs (4,388) (7,593)
Payment of dividends (1,125) (1,027)
Distribution to Bond Holders (5,176) -
Proceeds from employee stock option exercise 528 1,936
------------ -----------
Net cash provided by
financing activities 106,348 57,336
------------ -----------
Net increase (decrease) in cash and
cash equivalents (25,281) 39,574
Cash and cash equivalents at
beginning of period 122,787 99,601
------------ -----------
Cash and cash equivalents at end of period $97,506 $139,175
============ ===========
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $13,199 $15,120
Income taxes 6,998 3,064
Supplemental schedule of noncash investing
and financing activities:
(Decrease) in property and equipment
acquisitions included in construction
contracts and retentions payable (1,185) (2,426)
Share transactions under long-term incentive
plan 6,122 -
Transfer deposits to property and equipment (458) -
Warrants granted for loan commimtment 1,953 -
Accumulated benefit obligations of the
Supplemental Executive Retirement Plan 3,799 -
See accompanying notes to consolidated financial statements.
-9-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The consolidated financial statements of Showboat, Inc. and
Subsidiaries (the Company) include the accounts of Showboat, Inc.
(SBO) and its wholly-owned subsidiaries, Showboat Development
Company (SDC), Showboat Operating Company (SOC) and Ocean
Showboat, Inc. (OSI). They also include SDC's wholly-owned
subsidiaries, Lake Pontchartrain Showboat, Inc. (LPSI) and
Showboat Louisiana, Inc. (SLI), and OSI's wholly-owned
subsidiaries Atlantic City Showboat, Inc. (ACSI) and Ocean
Showboat Finance Corporation (OSFC). Showboat, Inc. and its
subsidiaries own and operate hotel casinos in Las Vegas, Nevada
(Las Vegas Showboat) and Atlantic City, New Jersey (Atlantic City
Showboat) and own an equity interest in and manage a riverboat
casino on Lake Pontchartrain in New Orleans, Louisiana (Star
Casino).
LPSI was formed in 1993 to manage a riverboat casino, the Star
Casino, in New Orleans, Louisiana pursuant to a management
contract. SLI was also formed in 1993 to hold a 30% equity
interest in Showboat Star Partnership (SSP) which owns the Star
Casino, managed by LPSI. On March 1, 1994, the Company purchased an
additional 20% equity interest, increasing its interest to 50%, in
SSP, from its partner for $9.0 million. Operation of the Star
Casino commenced on November 8, 1993. The investment by SLI in SSP
is included in the Consolidated Statement of Income as equity in
income of unconsolidated affiliate. LPSI receives a management fee
from SSP of 5.0% of casino revenues net of gaming taxes of 18.5% and
boarding fees. Intercompany management fees have been eliminated in
consolidation.
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 financial statements should be read in
conjunction with the financial statements and notes thereto
included in the Company's December 31, 1993 Annual Report to
Shareholders and Form 10-K.
The accompanying unaudited consolidated financial statements
contain all adjustments which are, in the opinion of management,
necessary for a fair statement of the results of the interim
periods. The results of operations for the interim periods are
not indicative of results of operations for an entire year.
Certain prior period balances have been reclassified to conform to
the current period's presentation.
-10- (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2.RESTRICTED CASH
On August 10, 1994 the Company placed $100.0 million of the net
proceeds from the issuance of $120.0 million of 13% Senior
Subordinated Notes due 2009 in an escrow account, which may only be
used to fund the Company's investment in Sydney Harbour Casino
Holdings Limited (SHCL). On September 30, 1994 approximately $44.4
million of the escrow funds were converted to $60.0 million
Australian dollars, at an exchange rate of $.7406. The Company
subsequently converted all escrow funds to $135.0 million Australian
at an average exchange rate of $.7393.
3.LONG-TERM DEBT
Long-term debt consists of the following:
September 30,December 31,
1994 1993
------------ -----------
(In thousands)
9 1/4% First Mortgage Bonds due 2008
net of unamortized discount of
$5,079,000 at September 30, 1994 $269,921 $275,000
13% Senior Subordinated Notes due 2009 120,000 -
Capitalized lease obligations 2,125 5,617
------------ -----------
392,046 280,617
Less current maturities 97 3,574
------------ -----------
$391,949 $277,043
============ ===========
On March 24, 1994, the Company secured a line of credit for
approximately $6.1 million, the equivalent of approximately $8.4
million Australian, in compliance with the New South Wales Casino
Control Authority's licensing requirements. This line of credit is
secured by a $6.3 million certificate of deposit. Interest on this
line of credit is payable at the bank's prime rate plus 2.0%. At
September 30, 1994, the bank's prime rate was 7.75%. This line of
credit expires in December 1994. At September 30, 1994 all funds
were available under this line of credit.
At September 30, 1994, ACSI had available an unsecured line of
credit for general working capital purposes totaling $15.0 million.
Interest is payable monthly at the bank's prime rate plus .5%. At
September 30, 1994, the bank's prime rate was 7.75%. The line
-11- (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
3.LONG-TERM DEBT (continued)
of credit expires in August 1995. Borrowings on this line of credit
may not be used for the payment of management fees to SBO or to fund
ventures in other jurisdictions. At September 30, 1994, ACSI had
all the funds under this line of credit available for use.
On July 1, 1994 the Company obtained consents to amend
(Amendments) its Indenture (Bond Indenture) governing its 9 1/4%
First Mortgage Bonds due 2008 (Bonds). The Bond Indenture, as
amended, places significant restrictions on SBO and its
subsidiaries, including restrictions on making loans and advances by
SBO to subsidiaries which are Non-Recourse Subsidiaries or
subsidiaries in which SBO owns less than 50% of the equity. All
capitalized terms not otherwise defined in this paragraph have the
meanings assigned to the Bond Indenture, as amended. The Company
received consents from Holders of approximately $259,000,000 or 94%
of the Bonds approving the amendments. In consideration the
consenting Bond Holders received 2% of the face value of the Bonds.
On July 28, 1994, the Company paid approximately $5.2 million to the
consenting Bond Holders, this amount is shown as a discount on the
Bonds and is being amortized as an adjustment to yield over the
remaining life of the Bonds using the effective interest method.
The Bond Indenture, as amended, places significant
restrictions on the incurrence of additional Indebtedness by SBO
and its subsidiaries, the creation of additional Liens on the
Collateral securing the Bonds, transactions with Affiliates and the
investment by SBO and its subsidiaries in
certain Investments. In addition, the terms of the Bond Indenture,
as amended, prohibit SBO and its subsidiaries from making a
Restricted Payment unless, at the time of such Restricted Payment:
(i) no Default or Event of Default has occurred or would occur as a
consequence of such restricted payment; (ii) SBO, at the time of
such Restricted Payment other than an investment in a subsidiary in
a gaming related business or a quarterly dividend, and after giving
proforma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, would have
been permitted to incur at least $1.00 of additional Indebtedness;
and, (iii) such Restricted Payment, together with the aggregate of
all other Restricted Payments by SBO and its subsidiaries is less
than the sum of (x) 50% of the Consolidated Net Income of SBO for
the period (taken as one accounting period) from April 1, 1993 to
the end of SBO's most recently ended fiscal quarter for which
internal financial statements are available, plus (y) 100% of the
aggregate net cash proceeds received by SBO from the issuance or
sale of Equity Interests of SBO since the Issue Date, plus (z)
Excess Non-Recourse Subsidiary Cash Proceeds received after the
Issue Date. The term Restricted Payment does not include, among
other things, the payment of any dividend if, at the time of
declaration of such dividend, the dividend would have complied with
-12- (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
3.LONG-TERM DEBT (continued)
the provisions of the Bond Indenture, as amended; the redemption,
repurchase, retirement, or other acquisition of any Equity Interest
of SBO out of proceeds of, the substantially concurrent sale of
other Equity Interests of SBO; Investments by SBO in an amount not
to exceed $75,000,000 in the aggregate in any Non-Recourse
Subsidiary engaged in a Gaming Related Business; Investments by SBO
in any Non-Recourse Subsidiary engaged in a Gaming Related Business
in an amount not to exceed in the aggregate 100% of all cash
received by SBO from any Non-Recourse Subsidiary up to $75,000,000
in the aggregate and thereafter, 50% of all cash received by SBO
from any Non-Recourse Subsidiary other than cash required to be
repaid or returned to such Non-Recourse Subsidiary provided that the
aggregate amount of Investments pursuant thereto does not exceed
$125,000,000 in the aggregate; Investment in Controlled Entities;
and the purchase, redemption, defeasance of any pari passu
Indebtedness with a substantially concurrent purchase, redemption,
defeasance, or retirement of the Bonds (on a pro rata basis).
On August 10, 1994 the Company issued $120,000,000 of 13% Senior
Subordinated Notes due 2009 (Notes). The proceeds from the sale of
the Notes (Note Offering) were $116.5 million, net of underwriting
discounts and commissions. Proceeds will be used to (i) invest
approximately $100.0 million for an approximately 27% equity
interest in SHCL, an affiliate of which has been selected as the
preferred applicant to build, manage and operate the sole
full-service casino in New South Wales, Australia (Sydney Harbour
Casino), and (ii) renovate the Las Vegas Showboat in order to
upgrade the facility to current building codes and replace the
existing power plant facility at an aggregate cost of approximately
$18.5 million. In the event that the Company determines not to
pursue any portion of the Las Vegas renovation, the Company will use
any remaining net proceeds for other expansion opportunities,
capital improvements to its existing properties or other general
corporate purposes.
The Company has placed $100.0 million of the net proceeds of the
Note Offering into an escrow account, which may only be used to fund
the Company's investment in SHCL. In the event that (i) SHCL (or a
subsidiary of SHCL) has not been officially selected as the sole
licensee of the Sydney Harbour Casino, and (ii) the Company (or a
subsidiary of the Company) has not entered into a binding agreement
with SHCL to manage the gaming operations of the Sydney Harbour
Casino for a period of not less than 12 years, within 12 months of
the issuance of the Notes, then the Company shall first offer to
purchase the Notes up to an aggregate of $100.0 million principal
amount and then if any portion of the $100.0 million remains (First
Remaining Portion), then offer to purchase up to an aggregate of the
First Remaining Portion of the Bonds from the Bond Holders.
-13- (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
3.LONG-TERM DEBT (continued)
Following such offers, if any portion of the $100.0 million remains,
such portion may be used for general corporate purposes.
The Notes are unconditionally guaranteed by OSI, ACSI and SOC.
Interest on the Notes is payable semi-annually on February 1 and
August 1 of each year commencing on February 1, 1995. The Notes
are not redeemable prior to August 1, 2001. Thereafter, the Notes
will be redeemable, in whole or in part, at redemption prices
specified in the Indenture for the Notes (Note Indenture). The
Notes are unsecured general obligations of the Company subordinated
in right of payment to all Senior Debt (as defined in the Note
Indenture) of the Company.
The Note Indenture places significant restrictions on the Company,
many of which are similar to the restrictions placed on the Company
by the Indenture for the Bonds (Bond Indenture), including covenants
restricting or limiting the ability of the Company and its
Restricted Subsidiaries (as defined in the Note Indenture) to, among
other things, (i) pay dividends or make other restricted payments,
(ii) incur additional indebtedness and issue preferred stock, (iii)
create liens, (iv) create dividend and other payment restrictions
affecting Restricted Subsidiaries, (v) enter into mergers,
consolidations or make sales of all or substantially all assets,
(vi) enter into transactions with affiliates and (vii) engage in
other lines of business.
4.LONG-TERM INCENTIVE PLAN
On May 25, 1994, the shareholders of SBO approved a long-term
incentive plan in which officers and key employees of the Company
participate. Up to 2,000,000 shares of SBO common stock may be
awarded to plan participants as either restricted shares or stock
options. As of September 30, 1994, 1,118,000 options to purchase
Showboat, Inc. common stock at an exercise price of $20.25 per share
have been granted and 366,000 restricted shares have been issued
from treasury shares to officers and key employees. Restricted
shares and stock options vest over a five year period. Plan
participants are entitiled to cash dividends and to vote their
respective restricted shares. Restrictions limit the sale or
transfer of these restricted shares during a five-year period.
Unearned compensation equal to the market value of SBO's common
stock was recorded at June 30, 1994 and is being amortized ratably
from the date of grant over the restricted five-year period as it is
earned. Compensation expense of $1,151,000 was recognized during
the nine months ended September 30, 1994. Unearned compensation at
September 30, 1994 is $5,028,000 and is shown as a reduction of
Shareholders' Equity in the accompanying Consolidated Balance Sheet.
-14- (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
5.PENSION PLANS
In August, 1994 the Company implemented a Supplemental Executive
Retirement Plan (SERP) for a select group of senior line and staff
management personnel to ensure that the Company's overall executive
compensation program will attract, retain and motivate qualified
senior management personnel. The participants receive benefits
based on years of service and final compensation. This defined
benefit plan is noncontributory and unfunded. The pension costs are
determined actuarially and are based on the assumption that all
eligible personnel will participate in the plan. The accrued
pension cost is included in deferred liabilities.
The net pension cost for the nine months ended September 30, 1994
consists of the following:
Service Costs of Benefits Earned 126
Interest Cost on Projected Benefit Obligations 116
Amortization of Unrecognized prior Service Costs 98
-----------
Net Periodic Pension Cost 340
===========
The status of the defined benefit plan at September 30, 1994 is as
follows:
Fair value of plan assets 0
===========
Actuarial present value of benefit obligations:
Vested benefits 1,661
Non-vested benefits 2,138
-----------
Accumulated benefit obligations 3,799
Effect of projected future salary increases 461
-----------
Projected benefit obligations 4,260
===========
Plan assets less than projected benefit obligations (4,260)
Unrecognized prior service costs 4,161
Unrecognized (gain) loss (242)
Adjustment to recognize minimum liability (3,799)
-----------
Accrued pension cost (4,140)
===========
The assumptions used in computing the information above were as
follows:
Discount rate 7.50%
Future compensation growth rate 4.50%
-15- (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
6.WARRANTS
On May 6, 1994, in connection with the Company's financing of its
investment in SHCL, the Company issued warrants to purchase 150,000
shares of Showboat, Inc. common stock with an exercise price of
$15.50 per share, subject to adjustment. The warrants were
exercisable on issuance and are scheduled to expire on May 6, 1999.
At September 30, 1994 all warrants were outstanding. The value of
the warrants, approximately $2.0 million, has been reported as part
of its investment in SHCL.
7.NEW JERSEY INVESTMENT OBLIGATION
In connection with the Company's Credit Agreement with the Casino
Reinvestment Development Authority (CRDA) the Company applied for
and received funds from the CRDA of approximately $2.7 million as a
credit for expenditures made relating to the construction of
Atlantic City Showboat's additional hotel rooms. This credit was
recorded as a reduction in CRDA deposits.
-16-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
The consolidated financial statements of Showboat, Inc. and
Subsidiaries (the Company) include the accounts of Showboat, Inc.
(SBO) and its wholly-owned subsidiaries, Showboat Development Company
(SDC), Showboat Operating Company (SOC) and Ocean Showboat, Inc.
(OSI). They also include SDC's wholly-owned subsidiaries, Lake
Pontchartrain Showboat, Inc. (LPSI) and Showboat Louisiana, Inc.
(SLI), and OSI's wholly-owned subsidiaries Atlantic City Showboat,
Inc. (ACSI) and Ocean Showboat Finance Corporation (OSFC). Showboat,
Inc. and its subsidiaries own and operate hotel casinos in Las Vegas,
Nevada (Las Vegas Showboat) and Atlantic City, New Jersey (Atlantic
City Showboat) and own an equity interest in and manage a riverboat
casino on Lake Pontchartrain in New Orleans, Louisiana (Star Casino).
On March 1, 1994, the Company purchased an additional 20% equity
interest, increasing its interest to 50%, in Showboat Star
Partnership, the owner of the Star Casino, from its partner for $9.0
million. The Company's equity in the income of Showboat Star
Partnership is included in the Consolidated Statement of Income as
equity in income of unconsolidated affiliate. Due to either inclement
weather or underwater obstructions, Star Casino has been principally
operating mock cruises since the commencement of operations and
dockside gaming with open boarding since June 22, 1994. No
determination has been made as to the timing of removal of certain
underwater obstructions. Star Casino will face increased competition
as additional riverboats open in the New Orleans area. Nine of the
fifteen riverboat licenses granted in Louisiana are in the greater New
Orleans area.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Quarter Ended September 30, 1994 Compared to Quarter Ended
September 30, 1993
Net revenues for the Company increased to $113.2 million in the
quarter ended September 30, 1994 compared to $108.0 million in the
same period in 1993, an increase of $5.2 million or 4.8%. Casino
revenues increased $4.4 million or 4.6% to $99.6 million in the
quarter ended September 30, 1994 from $95.2 million in 1993.
Nongaming revenues, which consist principally of food, beverage, room
and bowling revenues and management fees, were $23.2 million in the
third quarter of 1994 compared to $22.7 million in 1993.
-17-
(continued)
The Atlantic City Showboat generated $93.3 million of net revenues
in the quarter ended September 30, 1994 compared to $88.0 million in
the same period in the prior year, an increase of $5.3 million or
6.0%. Casino revenues were $85.1 million in the three months ended
September 30, 1994 compared to $80.2 million for the same period in
the prior year, an increase of $4.8 million or 6.0%. The increase in
casino revenues was due to an increase in slot revenues of $4.8
million or 8.2%. Slot revenues were $63.8 million in the third
quarter of 1994, compared to $59.0 million for the prior year. This
increase compares to a 5.2% growth in slot revenues in the Atlantic
City market for the quarter ended September 30, 1994. The favorable
comparison to the prior year is the result of the opening on May 27,
1994 of an additional 15,000 square feet of casino space with
approximately 560 new slot machines. Atlantic City Showboat slot
revenues continued to dominate casino revenues at 75.0% of casino
revenues in the quarter ended September 30, 1994 compared to 73.5% of
casino revenues in the quarter ended September 30, 1993.
At the Las Vegas Showboat, net revenues decreased to $19.5 million
in the quarter ended September 30, 1994 from $20.0 million in the same
period in 1993, a decrease of $.5 million or 2.6%. Casino revenues
decreased to $14.5 million in the third quarter of 1994 from $14.9
million in the third quarter of 1993, a decrease of $.4 million or
2.8%. Slot revenues accounted for 82.1% of casino revenues in the
third quarter of 1994 compared to 84.2% in the same period in 1993. A
principal competitor of the Company opened at the end of August 1994,
negatively impacting revenues at the Las Vegas Showboat in September
1994. Slot capacity on the Boulder Strip increased by 37% during the
three months ended September 30, 1994. The Company anticipates that
revenues at the Las Vegas Showboat will continue to be impacted until
the excess casino capacity on the Boulder Strip is absorbed by the
Las Vegas market.
LPSI generated $.9 million in management fee revenues in the third
quarter of 1994. LPSI receives management fees of 5.0% of Star
Casino's revenues after gaming taxes of 18.5% and boarding fees
totaling $5.00 per passenger boarding the vessel. Star Casino
generated net revenues of $25.7 million in the third quarter of 1994
consisting primarily of casino revenues of $25.4 million. During the
third quarter of 1994 the total number of passengers boarding the
vessel was 565,968 with an average gaming win per passenger per visit
of $44.93. During the third quarter of 1994 two additional riverboats
opened in the New Orleans area. The Company anticipates that revenues
will be impacted as competition increases in the greater New Orleans
area.
Income From Operations
The Company's income from operations decreased to $17.3 million in
the quarter ended September 30, 1994 from $18.3 million in the same
period in 1993, a decrease of $1.0 million or 5.4% primarily as a
result of the Company's commitment to expansion opportunities. The
Company incurred approximately $5.8 million in corporate expenses and
expenses relating to the pursuit of expansion opportunities in
jurisdictions outside of Nevada and New Jersey in the
-18-
(continued)
third quarter of 1994 compared to $1.2 million in the third quarter of
1993. In August 1994 the Company terminated all arrangements and
negotiations with the St. Regis Mohawk Tribe located in New York. In
the quarter ended September 30, 1994 the Company recorded $.9 million
in expenses relating to the St. Regis Mohawks.
Atlantic City Showboat's income from operations, before management
fees, increased to $19.3 million in the third quarter of 1994 compared
to $18.4 million for the same period in 1993, an increase of $.9
million or 5.0%, primarily as a result of the increase in slot
revenues. Total operating expenses at the Atlantic City Showboat
increased to $74.0 million in the third quarter of 1994, an increase
of $4.4 million or 6.3%. This increase in operating expenses was due
primarily to increases in depreciation expense and payroll expenses
due to the expanded facility, and increases in casino division
expenses consisting primarily of an increase in promotional coin
expense and gaming taxes.
Income from operations, before management fee, at the Las Vegas
Showboat declined to $.1 million in the third quarter of 1994 from
$1.2 million in the third quarter of 1993, a decrease of $1.1 million
or 95.2%. This decrease is primarily due to increased competition
which resulted in decreased revenues and increased operating expenses
primarily from increases in promotional activities,
entertainment expenses, advertising costs and payroll expenses.
SLI's equity in the earnings of Showboat Star Partnership for the
quarter ended September 30, 1994 was $3.1 million before the
elimination of intercompany management fees. Showboat Star
Partnership had pre-tax net income of $6.2 million on net revenues of
$25.7 million. LPSI, which manages Showboat Star Partnership, had
income from operations for the quarter ended September 30, 1994 of $.6
million, before elimination of intercompany management fees.
Other (Income) Expense
Net interest expense increased to $7.2 million in the third quarter
of 1994 up from $5.4 million in the same period in 1993, an increase
of $1.8 million or 31.4%. This increase is primarily the result of
the issuance, on August 10, 1994, of $120.0 million of 13% Senior
Subordinated Notes due 2009. This increase was offset by a $.6
million increase in capitalized interest associated with the Company's
Atlantic City expansion and a $.3 million increase in interest income.
Net Income
The Company recognized net income of $5.9 million for the quarter
ended September 30, 1994 or $.38 per share, compared to income of $7.4
million for the quarter ended September 30, 1993 or $.48 per share.
-19-
(continued)
Nine Months Ended September 30, 1994 Compared to Nine Months Ended
September 30, 1993
Net revenues for the Company increased to $303.9 million in the nine
months ended September 30, 1994 compared to $286.2 million in the same
period in 1993, an increase of $17.7 million or 6.1%. Casino revenues
increased $14.3 million or 5.7% to $265.9 million in the nine months
ended September 30, 1994 from $251.6 million in 1993. Nongaming
revenues, which consist principally of food, beverage, room and
bowling revenues and management fees, were $62.7 million in the nine
months ended September 30, 1994 compared to $59.4 million in 1993.
The Atlantic City Showboat generated $240.6 million of net revenues
in the nine months ended September 30, 1994, compared to $224.9
million for the same period in the prior year, an increase of $15.7
million or 7.0%. Casino revenues were $219.5 million for the nine
months ended September 30, 1994 compared to $205.7 million for the
same period in the prior year, an increase of $13.9 million or 6.7%.
The increase in casino revenues is attributable to increases in slot
revenues of $12.4 million, poker revenue of $1.7 million, keno revenue
of $.4 million and simulcasting revenue of $.3 million, offset by a
decrease in table game revenue of $.9 million. Slot revenues were
$162.8 million for the nine months ended September 30, 1994, compared
to $150.4 million for the prior year. The $12.4 million, or 8.2%
increase in slot revenue at the Atlantic City Showboat compares to a
1.7% increase in slot revenue in the Atlantic City market for the same
time period. The favorable comparison to prior year is the result of
the adverse impact of construction activities in the first six months
of 1993 on slot revenues and the opening on May 27, 1994 of an
additional 15,000 square feet of casino space with approximately 560
new slot machines, an increase of slot machines of approximately 23%.
At the Atlantic City Showboat, slot revenues were 74.2 % of casino
revenues for the first nine months of 1994, and 73.2% of casino
revenues in the same period in 1993.
At the Las Vegas Showboat, net revenues increased to $61.9 million
in the nine months ended September 30, 1994 from $61.3 million in the
same period in 1993, an increase of $.6 million or 1.0%. The marginal
increase in net revenues resulted primarily from the opening, at the
end of August 1994, of a direct competitor increasing slot capacity
on the Boulder Strip by 37%. The Company anticipates that revenues at
the Las Vegas Showboat will be negatively impacted until the excess
casino capacity on the Boulder Strip is absorbed by the Las Vegas
market. Casino revenues increased to $46.4 million in the first nine
months of 1994 from $45.9 million in the first nine months of 1993, an
increase of $.5 million or 1.1%. Slot revenues accounted for 82.6% of
casino revenues in the nine months ended September 30, 1994 and 84.2%
for the same period in 1993. Improvements in nongaming revenues were
due to increased hotel occupancy resulting from increased
effectiveness of certain marketing activities.
LPSI generated $2.8 million in management fee revenues in the nine
months ended September 30, 1994. Star Casino generated net revenues
of $79.1 million in the first nine months of 1994 consisting primarily
of casino revenues of $78.2 million. During the first nine
-20-
(continued)
months of 1994 the total number of passengers boarding the vessel was
1,537,155 with an average gaming win per passenger per visit of
$50.87. During the third quarter of 1994 two additional riverboats
opened in the New Orleans area. The Company anticipates that revenues
will be adversely impacted as competition increases in the greater New
Orleans area.
Income From Operations
The Company's income from operations increased to $42.4 million in
the nine months ended September 30, 1994 from $37.9 million in the
same period in 1993, an increase of $4.5 million or 11.8% primarily as
a result of improved operating results at the Atlantic City Showboat
and the opening of the Star Casino in late 1993. The Company incurred
approximately $13.4 million in corporate expenses and in expenses
relating to the pursuit of expansion opportunities in jurisdictions
outside of Nevada and New Jersey in the first nine months of 1994
compared to $2.7 million in the first nine months of 1993.
Atlantic City Showboat's income from operations, before management
fees, increased $3.9 million or 11.3% to $38.9 million for the nine
months ended September 30, 1994 compared to $34.9 million in the same
period in the prior year. This increase was due primarily to the
increase in net revenues. Operating expenses at the Atlantic City
Showboat increased $11.8 million, or 6.2% to $201.7 million for the
nine months ended September 30, 1994 compared to $190.0 million for
the same period in the prior year. The increased operating expenses
included a $3.8 million increase in depreciation expense due to
Atlantic City Showboat's expanded facility and a $1.9 million increase
in food and beverage expenses and a $4.8 million increase in casino
division expenses. This increase in casino division expenses was due
primarily to increased slot marketing expenses, increased payroll and
gaming taxes.
Income from operations, before management fees, at the Las Vegas
Showboat declined to $4.6 million in the nine months ended September
30, 1994 from $6.3 million in the nine months ended September 30,
1993, a decrease of $1.6 million or 25.4%. This decrease is primarily
due to increased competition which resulted in marginal increases in
net revenues due to the increased slot capacity on the Boulder Strip
and to increased operating expenses. The increased operating expenses
primarily resulted from increases in promotional food costs, increased
entertainment costs and increased advertising costs.
SLI's equity in the earnings of Showboat Star Partnership for the
nine months ended September 30, 1994 was $10.2 million before
elimination of intercompany management fees. Showboat Star
Partnership had net income of $22.8 million on net revenues of $79.1
million. LPSI, which manages Showboat Star Partnership, had income
from operations for the nine months ended September 30, 1994 of $2.1
million before elimination of intercompany management fees.
Other (Income) Expense
Net interest expense increased to $17.5 million in the nine months
ended September 30, 1994 from $15.9 million in the same period in
1993, an increase in of $1.7 million or 10.5%. This increase is
primarily the result of the issuance, on August 10, 1994, of $120.0
-21-
(continued)
million of 13% Senior Subordinated Notes due 2009. This increase was
offset by a $1.3 million increase in capitalized interest associated
with the Company's Atlantic City expansion and a $.5 million increase
in interest income.
Net Income
The Company recognized net income of $14.7 million for the nine
months ended September 30, 1994 or $.95 per share, compared to income
of $13.0 million or $.85 per share before an extraordinary loss of
$6.7 million or $.44 per share and the cumulative effect of a change
in accounting method of $.6 million or $.03 per share in the nine
months ended September 30, 1993. Net income for the nine months ended
September 30, 1993 was $6.9 million or $.44 per share.
MATERIAL CHANGES IN FINANCIAL CONDITION
As of September 30, 1994 the Company held cash and cash equivalents
of $97.5 million compared to $122.8 million at December 31, 1993.
During the nine months ended September 30, 1994 increases in cash
generated from operating activities of $38.6 million and from the
proceeds from the issuance of $120.0 million of Senior Subordinated
Notes net of funds escrowed were offset by $61.6 million of capital
improvements and the investment in March 1994 of $9.0 million in
Showboat Star Partnership. Income from operating activities includes a
reduction of approximately $13.4 million in the nine months ended
September 30, 1994 for corporate expenses and in its investigation of
expansion opportunities in new jurisdictions.
Costs associated with the expansion project in Atlantic City were
$44.4 million at September 30, 1994. Capital expenditures relating to
the expansion project in Atlantic City are expected to be $52.2
million in 1994.
At September 30, 1994, ACSI had available an unsecured line of
credit for general working capital purposes totaling $15.0 million.
Interest is payable monthly at the bank's prime rate plus .5%. The
bank's prime rate at September 30, 1994 was 7.75%. The line of
credit expires in August 1995. Borrowings on this line of credit may
not be used for the payment of management fees to SBO or to fund
ventures in other jurisdictions. At September 30, 1994, ACSI had all
the funds under this line of credit available for use.
On March 24, 1994 the Company secured a line of credit for
approximately $6.1 million, the equivalent of approximately $8.4
million Australian, in compliance with the New South Wales Casino
-22-
(continued)
Control Authority's licensing requirements. This line of credit is
secured by a $6.3 million certificate of deposit. Interest on this
line of credit is payable at the bank's prime rate plus 2.0%. The
bank's prime rate at September 30, 1994 was 7.75%. This line of
credit expires in December 1994. At September 30, 1994 all funds were
available under this line of credit.
On May 18, 1993, the Company issued $275,000,000 of 9 1/4% First
Mortgage Bonds due 2008 (Bonds) pursuant to an indenture among the
Company, as issuer, SOC, ACSI and OSI, as guarantors, and IBJ
Schroeder Bank & Trust Company, as trustee (Bond Indenture). The Bonds
are unconditionally guaranteed by OSI, ACSI and SOC. The Bond
Indenture was amended on July 18, 1994. Interest on the Bonds is
payable semi-annually on May 1 and November 1 of each year. The Bonds
are not redeemable prior to May 1, 2000. Thereafter, the Bonds will
be redeemable, in whole or in part, at redemption prices specified in
the Bond Indenture, as amended. The Bonds are senior secured
obligations of the Company and rank senior in right of payment to all
existing and future subordinated indebtedness of the Company and pari
passu with the Company's senior indebtedness. The Bonds are secured
by a deed of trust representing a first lien on the Las Vegas hotel
casino (other than certain assets), by a pledge of all outstanding
shares of capital stock of OSI, an intercompany note by ACSI in favor
of SBO and a pledge of certain intellectual property rights of the
Company. OSI's obligation under its guarantee is secured by a pledge
of all outstanding shares of capital stock of ACSI. ACSI's obligation
under its guarantee is secured by a leasehold mortgage representing a
first lien on the Atlantic City hotel casino (other than certain
assets). SOC's guarantee is secured by a pledge of certain assets
related to the Las Vegas hotel casino.
The Bond Indenture, as amended, places significant restrictions on
SBO and its subsidiaries, including restrictions on making loans and
advances by SBO to subsidiaries which are Non-Recourse Subsidiaries
or subsidiaries in which SBO owns less than 50% of the equity. All
capitalized terms not otherwise defined in this paragraph have the
meanings assigned to the Bond Indenture, as amended. The Bond
Indenture, as amended, also places significant restrictions on the
incurrence of additional Indebtedness by SBO and its subsidiaries,
the creation of additional Liens on the Collateral securing the
Bonds, transactions with Affiliates and the investment by SBO and its
subsidiaries in certain Investments. In addition, the terms of the
Bond Indenture, as amended, prohibit SBO and its subsidiaries from
making a Restricted Payment unless, at the time of such Restricted
Payment: (i) no Default or Event of Default has occurred or would
occur as a consequence of such restricted payment; (ii) SBO, at the
time of such Restricted Payment other than an investment in a
subsidiary in a gaming related business or a quarterly dividend, and
after giving proforma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period,
would have been permitted to incur at least $1.00 of additional
Indebtedness; and, (iii) such Restricted Payment, together with the
aggregate of all other Restricted Payments by SBO and its
subsidiaries is less than the sum of (x) 50% of the Consolidated Net
Income of SBO for the period (taken as one accounting period) from
April 1, 1993 to the end of SBO's most recently ended fiscal quarter
for which internal financial statements are available, plus (y) 100%
-23-
(continued)
of the aggregate net cash proceeds received by SBO from the issuance
or sale of Equity Interests of SBO since the Issue Date, plus (z)
Excess Non-Recourse Subsidiary Cash Proceeds received after the Issue
Date. The term Restricted Payment does not include, among other
things, the payment of any dividend if, at the time of declaration of
such dividend, the dividend would have complied with the provisions
of the Bond Indenture, as amended; the redemption, repurchase,
retirement, or other acquisition of any Equity Interest of SBO out of
proceeds of, the substantially concurrent sale of other Equity
Interests of SBO; Investments by SBO in an amount not to exceed
$75,000,000 in the aggregate in any Non-Recourse Subsidiary engaged in
a Gaming Related Business; Investments by SBO in any Non-Recourse
Subsidiary engaged in a Gaming Related Business in an amount not to
exceed in the aggregate 100% of all cash received by SBO from any
Non-Recourse Subsidiary up to $75,000,000 in the aggregate and
thereafter, 50% of all cash received by SBO from any Non-Recourse
Subsidiary other than cash required to be repaid or returned to such
Non-Recourse Subsidiary provided that the aggregate amount of
Investments pursuant thereto does not exceed $125,000,000 in the
aggregate; Investment in Controlled Entities; and the purchase,
redemption, defeasance of any pari passu Indebtedness with a
substantially concurrent purchase, redemption, defeasance, or
retirement of the Bonds (on a pro rata basis).
Additionally, the Bond Indenture, as amended, permits the Company to
incur up to $150.0 million in aggregate principal amount of
Indebtedness without meeting the debt incurrence test contained in the
Bond Indenture, provided that $100.0 million of such Indebtedness is
kept in an escrow account which may only be used to fund the Company's
investment in SHCL. The Company subsequently entered into the Note
Indenture and issued Notes representing $120.0 million. Both
Indentures state that in the event that (i) SHCL (or a subsidiary of
SHCL) has not been officially selected as the sole licensee of the
Sydney Harbour Casino, or (ii) the Company (or a subsidiary of the
Company) has not entered into a binding agreement with SHCL to manage
the gaming operations of the Sydney Harbour Casino for a period of not
less than 12 years, within 12 months of the issuance of the Notes,
then the Company shall first offer to purchase the Notes up to an
aggregate of $100.0 million principal amount and then if any portion
of the $100.0 million remanins (First Remaining Portion), then offer
to purchase up to an aggregate of the First Remaining Portion of the
Bonds from the Bond Holders. Following such offers, if any portion of
the $100.0 million remains, such portion may be used for general
corporate purposes.
On August 10, 1994 the Company issued $120,000,000 of 13% Senior
Subordinated Notes due 2009 (Notes). The proceeds from the sale of
the Notes (Note Offering) were $116.5 million, net of underwriting
discounts and commissions. Proceeds will be used to (i) invest
approximately $100.0 million for an approximately 27% equity interest
in Sydney Harbour Casino Holdings Limited (SHCL), an affiliate of
which has been selected as the preferred applicant to build, manage
and operate the sole full-service casino in New South Wales, Australia
(Sydney Harbour Casino), and (ii) renovate the Las Vegas Showboat in
-24-
(continued)
order to upgrade the facility to current building codes and replace
the existing power plant facility at an aggregate cost of
approximately $18.5 million. In the event that the Company elects to
pursue the Las Vegas renovation, the construction may have an adverse
impact on revenues. In the event that the Company determines not to
pursue any portion of the Las Vegas renovation, the Company will use
any remaining net proceeds for other expansion opportunities, capital
improvements to its existing properties or other general corporate
purposes.
The Notes are unconditionally guaranteed by OSI, ACSI and SOC.
Interest on the Notes is payable semi-annually on February 1 and
August 1 of each year commencing on February 1, 1995. The Notes are
not redeemable prior to August 1, 2001. Thereafter, the Notes will be
redeemable, in whole or in part, at redemption prices specified in the
Indenture for the Notes (Note Indenture). The Notes are unsecured
general obligations of the Company subordinated in right of payment
to all Senior Debt (as defined in the Note Indenture) of the Company.
The Note Indenture places significant restrictions on the Company,
many of which are similar to the restrictions placed on the Company by
the Bond Indenture, as amended, including covenants restricting or
limiting the ability of the Company and its Restricted Subsidiaries
(as defined in the Note Indenture) to, among other things, (i) pay
dividends or make other restricted payments, (ii) incur additional
indebtedness and issue preferred stock, (iii) create liens, (iv)
create dividend and other payment restrictions affecting Restricted
Subsidiaries, (v) enter into mergers, consolidations or make sales of
all or substantially all assets, (vi) enter into transactions with
affiliates and (vii) engage in other lines of business.
Pursuant to the terms of the Indentures, as amended, the Company on
August 10, 1994 placed $100.0 million of the net proceeds from the
Notes in an escrow account to fund the Company's investment in SHCL.
On September 30, 1994 approximately $44.4 million of the escrow funds
were converted to $60.0 million Australian, at an exchange rate of
$.7406. The Company subsequently converted all escrow funds to $135.0
million Australian at an average rate of $.7393.
The Company believes that it has sufficient capital resources to
cover the cash requirements of its existing operations. The ability
of the Company to satisfy its cash requirements, however, will be
dependent upon the future performance of its casino hotels which will
continue to be influenced by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the
control of the Company.
The Company is involved in certain expansion opportunities. No
assurance can be given that any of the announced projects, or any
project under development or any unannounced projects under
development will be completed, licensed or result in any significant
contribution to the Company's cash flow or earnings. Casino gaming
operations are highly regulated and new casino development is subject
to a number of risks.
Announced expansion opportunities include:
1. On May 6, 1994 the New South Wales Casino Control Authority
-25-
(continued)
(Authority) announced that an affiliate of SHCL, a company in which
the Company is a principal founding shareholder, was the Preferred
Applicant to develop a casino in Sydney, Australia. As the Preferred
Applicant, SHCL has been seeking to obtain all the necessary planning
agency approvals, which approvals are a pre-condition to the issuance
of the casino license, and the casino license originally projected to
be issued by November 30, 1994. Currently, the Company's reputation
for good character, honesty and integrity and that of its "close
associates" and "business associates" are the subject of Public
Inquiry initiated by the Authority as part of its final review of
SHCL's probity. SHCL anticipates a favourable outcome to the inquiry,
the timely receipt of planning agency approvals which are a
pre-condition to the license, and the grant of the license prior to
December 31, 1994. Any delay could jeopardise SHCL financing
commitiments. Concurrently with the grant of the license the
Authority will enter into a 99 year lease for the site of the casino
in New South Wales and issue an exclusive casino license for 12 years
to cover the State of New South Wales. The Company will have a 27%
interest in SHCL at a cost of approximately $100.0 million when the
Company is licensed. The Company anticipates making its investment in
SHCL during December 1994. The Company's investment was raised in
August 1994 and remains in escrow pending notification that the funds
are to be deposited as the final pre-condition to the issuance of the
license. In the event that SHCL is not granted the casino license,
approximately $9.4 million in other assets and accounts receivable
from SHCL to the Company would be charged to operations.
2. The Company is a member of a partnership which is the only
applicant for the sole riverboat gaming license allocated by statute
to East Chicago, Indiana. Subject to available financial resources
the Company anticipates that it will contribute approximately $30.0
million to the East Chicago partnership and will help the partnership
obtain financing of approximately $90.0 million for the construction
of a gaming vessel and related land site improvements. The
Partnership has not yet determined the timing or source of the
contribution or financing for the East Chicago gaming opportunity.
Issuance of the gaming license is subject to the resolution of certain
legal challenges to the Indiana gaming statute.
The Company is actively pursuing potential gaming opportunities in
certain jurisdictions where gaming has recently been legalized, as
well as jurisdictions where gaming is not yet, but is expected soon to
be legalized. There can be no assurance that legislation to legalize
gaming will be enacted in any additional jurisdictions, that any
properties in which the Company may have invested will be compatible
with any gaming legislation so enacted, that legalized gaming will
continue to be authorized in any jurisdiction or that the Company will
be able to obtain the required licenses in any jurisdiction.
-26-
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
ITEM 1. Legal proceedings.
Not applicable
ITEM 2. Change in Securities.
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matter to a Vote of Security Holders.
None
ITEM 5. Other Information.
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27.01 Financial Data Schedule
(b) Current Report on Form 8-K, Item 5,
dated August 10, 1994, reporting the
completion of the Company's underwritten
public offering of 13% Senior Subordinated
Notes due 2009.
Current Report on Form 8-K, Item 5, dated
July 8, 1994, reporting that the St
Regis Mohawk Tribe withdrew its request
for approval from the National Indian
Gaming Commission for the tribe's
proposed casino management agreements
with both the Company and another
casino operator.
-27-
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.
SHOWBOAT, INC.
Registrant
Date: November 14, 1994 s/J. Kell Houssels III
------------------- -------------------------------------------
J. KELL HOUSSELS III President and Chief
Executive Officer
Date: November 14, 1994 s/Leann Schneider
------------------- -------------------------------------------
LEANN SCHNEIDER, Vice President - Finance
and Chief Financial Officer
-28-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000089966
<NAME> SHOWBOAT, INC.
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-START> JUL-1-1994 JAN-1-1994
<PERIOD-END> SEP-30-1994 SEP-30-1994
<CASH> 25375 25375
<SECURITIES> 72131 72131
<RECEIVABLES> 14655 14655
<ALLOWANCES> 2470 2740
<INVENTORY> 2528 2528
<CURRENT-ASSETS> 124513 124513
<PP&E> 498791 498791
<DEPRECIATION> 161771 161771
<TOTAL-ASSETS> 618556 618556
<CURRENT-LIABILITIES> 51392 51392
<BONDS> 391949 391949
<COMMON> 15795 15795
0 0
0 0
<OTHER-SE> 136766 136766
<TOTAL-LIABILITY-AND-EQUITY> 618556 618556
<SALES> 111204 297843
<TOTAL-REVENUES> 113231 303932
<CGS> 57414 160338
<TOTAL-COSTS> 92063 252457
<OTHER-EXPENSES> 7484 20680
<LOSS-PROVISION> 378 399
<INTEREST-EXPENSE> 8460 20380
<INCOME-PRETAX> 10110 24844
<INCOME-TAX> 4195 10135
<INCOME-CONTINUING> 17262 42391
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5915 14709
<EPS-PRIMARY> 38 95
<EPS-DILUTED> 38 95
</TABLE>
