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, 1995
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-7123
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SHOWBOAT, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 88-0090766
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2800 FREMONT STREET, LAS VEGAS, NEVADA 89104-4035
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(Address of principal executive offices) (Zip Code)
(702) 385-9123
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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
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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 the latest practicable date.
Common Stock - $1 Par Value 15,528,415 shares outstanding
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SHOWBOAT, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 1-2
Consolidated Statements of Income -
For the nine months ended September 30,
1995 and 1994 3-4
Consolidated Statements of Income -
For the three months ended September 30,
1995 and 1994 5-6
Consolidated Statements of Shareholders'
Equity - For the nine months ended
September 30, 1995 and year ended
December 31, 1994 7
Consolidated Statements of Cash Flows -
For the nine months ended September 30,
1995 and 1994 8-9
Notes to Consolidated Financial
Statements 10-12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 13-24
PART II
OTHER INFORMATION
ITEMS 1 - 6 25-31
SIGNATURES 32
Item 1. Financial Statements
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
SEPTEMBER 30, DECEMBER 31,
ASSETS 1995 1994
-------- ----------- -----------
(In thousands)
Current assets:
Cash and cash equivalents $125,594 $90,429
Receivables, net 8,645 8,890
Inventories 2,605 2,591
Prepaid expenses 5,737 4,736
Investment in unconsolidated affiliate
held for sale - 30,346
Current deferred income taxes 9,197 6,529
----------- -----------
Total current assets 151,778 143,521
----------- -----------
Property and equipment 530,024 506,199
Less accumulated depreciation
and amortization 187,365 168,531
----------- -----------
342,659 337,668
----------- -----------
Other assets, at cost:
Investments in unconsolidated affiliates 120,154 108,853
Deposits and other assets 25,716 22,537
Debt issuance costs, net of accumulated
amortization of $1,590,000 at September 30
1995 and $955,000 at December 31, 1994 11,010 11,112
----------- -----------
156,880 142,502
----------- -----------
$651,317 $623,691
=========== ===========
See accompanying notes to consolidated financial statements.
-1- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(continued)
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
-------------------------------------- ----------- -----------
(In thousands)
Current liabilities:
Current maturities of long-term debt $21 $19
Accounts payable 10,230 11,059
Income taxes payable 5,582 4,562
Dividends payable 388 384
Accrued liabilities 40,136 34,286
----------- -----------
Total current liabilities 56,357 50,310
----------- -----------
Long-term debt, excluding current maturities 392,281 392,016
----------- -----------
Other liabilities 4,892 5,144
----------- -----------
Deferred income taxes 23,287 18,760
----------- -----------
Minority interest 1,824 -
----------- -----------
Shareholders' equity:
Common stock, $1 par value, 50,000,000
shares authorized, 15,794,578 shares
issued at September 30, 1995 and
December 31, 1994 15,795 15,795
Additional paid-in capital 77,975 76,845
Retained earnings 82,219 68,809
----------- -----------
175,989 161,449
Foreign currency translation adjustment 1,336 3,490
Cost of common stock in treasury,
266,163 shares at September 30, 1995 and
425,823 shares at December 31, 1994 (2,103) (3,364)
Unearned compensation for restricted stock (2,546) (4,114)
----------- -----------
Total shareholders' equity 172,676 157,461
----------- -----------
$651,317 $623,691
=========== ===========
See accompanying notes to consolidated financial statements.
-2-
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(In thousands except share and per share data)
1995 1994
----------- -----------
Revenues:
Casino $292,838 $265,946
Food and beverage 41,425 38,192
Rooms 19,282 15,248
Sports and special events 2,957 3,166
Management fees 190 1,529
Other 3,938 4,686
----------- -----------
360,630 328,767
Less promotional allowances 30,518 24,709
----------- -----------
Net revenues 330,112 304,058
----------- -----------
Costs and expenses:
Casino 135,108 126,733
Food and beverage 24,955 26,810
Rooms 6,394 5,970
Sports and special events 2,506 2,537
General and administrative 88,833 82,456
Selling, advertising and promotion 7,693 7,951
Depreciation and amortization 23,909 20,680
----------- -----------
289,398 273,137
----------- -----------
Income from operations from consolidated
subsidiaries 40,714 30,921
Equity in income (loss) of unconsolidated
affiliate (22) 11,470
----------- -----------
Income from operations 40,692 42,391
----------- -----------
-3- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(In thousands except share and per share data)
(continued)
1995 1994
----------- -----------
Income from operations $40,692 $42,391
----------- -----------
Other (income) expense:
Interest income (4,547) (2,833)
Interest expense 32,019 22,582
Interest capitalized (9,916) (2,202)
Foreign currency gain (267) -
Gain on sale of unconsolidated affiliate (2,558) -
----------- -----------
14,731 17,547
----------- -----------
Income before income taxes 25,961 24,844
Income tax expense 11,393 10,135
----------- -----------
Net income $14,568 $14,709
=========== ===========
Weighted average shares outstanding 15,548,448 15,461,490
Income per common and equivalent share $0.94 $0.95
=========== ===========
See accompanying notes to consolidated financial statements.
-4-
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(In thousands except share and per share data)
1995 1994
----------- -----------
Revenues:
Casino $106,741 $99,588
Food and beverage 15,057 14,155
Rooms 7,149 5,907
Sports and special events 1,012 1,080
Management fees - 447
Other 1,385 1,580
----------- -----------
131,344 122,757
Less promotional allowances 11,775 9,526
----------- -----------
Net revenues 119,569 113,231
----------- -----------
Costs and expenses:
Casino 46,871 45,699
Food and beverage 8,905 9,468
Rooms 2,047 1,939
Sports and special events 880 931
General and administrative 31,706 31,226
Selling, advertising and promotion 2,520 2,800
Depreciation and amortization 7,646 7,484
----------- -----------
100,575 99,547
----------- -----------
Income from operations from consolidated
subsidiaries 18,994 13,684
Equity in income of unconsolidated
affiliate - 3,578
----------- -----------
Income from operations 18,994 17,262
----------- -----------
-5- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(In thousands except share and per share data)
(continued)
1995 1994
----------- -----------
Income from operations $18,994 $17,262
----------- -----------
Other (income) expense:
Interest income (1,657) (1,308)
Interest expense 10,768 9,310
Interest capitalized (3,349) (850)
Foreign currency gain (267) -
----------- -----------
5,495 7,152
----------- -----------
Income before income taxes 13,499 10,110
Income tax expense 5,673 4,195
----------- -----------
Net income 7,826 5,915
=========== ===========
Weighted average shares outstanding 15,730,786 15,488,979
Income per common and equivalent share $0.50 $0.38
=========== ===========
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, 1995
AND YEAR ENDED DECEMBER 31, 1994
<CAPTION>
Cumulative Unearned
foreign compensation
Additional currency for
Common paid-in Retained translation Treasury restricted
stock capital earnings adjustment stock stock Total
--------- --------- ---------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $15,795 $71,162 $54,628 $ - ($6,370) ($57) $135,158
Net income - - 15,699 - - - 15,699
Cash dividends
($.10 per share) - - (1,518) - - - (1,518)
Issuance of warrants - 1,953 - - - - 1,953
Share transactions under
stock plans - 3,730 - - 3,006 (6,021) 715
Amortization of unearned
compensation - - - - - 1,964 1,964
Foreign currency translation
adjustment - - - 3,490 - - 3,490
--------- --------- ---------- ----------- ----------- ----------- ----------
Balance, December 31, 1994 15,795 76,845 68,809 3,490 (3,364) (4,114) 157,461
Net income - - 14,568 - - - 14,568
Cash dividends
($.075 per share) - - (1,158) - - - (1,158)
Share transactions under
stock plans - 1,130 - - 1,261 (367) 2,024
Amortization of unearned
compensation - - - - - 1,935 1,935
Foreign currency translation
adjustment - - - (2,154) - - (2,154)
--------- --------- ---------- ----------- ----------- ----------- ----------
Balance, September 30, 1995 $15,795 $77,975 $82,219 $1,336 ($2,103) ($2,546) $172,676
========= ========= ========== =========== =========== ============ ==========
See accompanying notes to consolidated financial statements.
-7-
</TABLE>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
1995 1994
----------- -----------
(In thousands)
Cash flows from operating activities:
Net income $14,568 $14,709
Adjustments to reconcile net income to
net cash provided by operating activities:
Allowance for doubtful accounts 1,241 592
Depreciation and amortization 23,909 20,680
Amortization of discount on debt and
debt issuance costs 917 521
Provision for deferred income taxes 3,019 1,804
Provision for loss on Casino Reinvestment
Development Authority obligation 924 920
Amortization of unearned compensation 1,935 1,151
Gain on sale of unconsolidated affiliate (2,558) -
(Undistributed) distributed earnings of
unconsolidated affiliate 8,362 (4,544)
Increase in receivables, net (1,326) (6,864)
Increase in inventories and
prepaid expenses (1,015) (1,804)
(Increase) decrease in deposits and
other assets 563 (1,224)
Decrease in accounts payable (537) (314)
Increase in income taxes payable 1,507 1,333
Increase in accrued liabilities 3,541 11,455
Other 458 136
----------- -----------
Net cash provided by operating activities 55,508 38,551
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (28,812) (61,567)
Proceeds from sale of equipment 288 204
Deposit for Casino Reinvestment
Development Authority obligation (2,721) (2,489)
Casino Reinvestment Development Authority
investment credit - 2,672
Restricted cash - (100,000)
Investment in unconsolidated affiliates (39,163) (9,000)
Proceeds from sale of unconsolidated
affiliate 51,366 -
Advances to unconsolidated affiliates (3,340) -
Repayments of advances to unconsolidated
affiliates 3,928 -
Increase in deposits and other assets (3,615) -
Other (42) -
----------- -----------
Net cash used in investing activities (22,111) (170,180)
----------- -----------
-8- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(continued)
1995 1994
----------- -----------
(In thousands)
Cash flows from financing activities:
Principal payments of long-term debt and
capital lease obligations ($15) ($3,491)
Proceeds from issuance of long-term debt - 120,000
Debt issuance costs (533) (4,388)
Payment of dividends (1,154) (1,125)
Distribution to bond holders - (5,176)
Proceeds from employee stock option exercises 1,767 528
Minority interest contributions 1,824 -
----------- -----------
Net cash provided by (used in)
financing activities 1,889 106,348
----------- -----------
Effect of exchange rate changes on cash (121) -
----------- -----------
Net increase (decrease) in cash and
cash equivalents 35,165 (25,281)
Cash and cash equivalents at
beginning of period 90,429 122,787
----------- -----------
Cash and cash equivalents at end of period $125,594 $97,506
=========== ===========
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $18,337 $13,199
Income taxes 6,867 6,998
Supplemental schedule of noncash investing
and financing activities:
Decrease in construction contracts and
retentions payable (604) (1,185)
Share transactions under long-term incentive
plan 617 6,122
Transfer deposits to property and equipment 777 (458)
Warrants granted for loan commitment - 1,953
Accumulated benefit obligations of the Supplemental
Executive Retirement Plan - 3,799
Foreign currency translation adjustment (2,154) -
Net liabilities of unconsolidated
affiliate assumed 1,824 -
See accompanying notes to consolidated financial statements.
-9-
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Showboat, Inc. and subsidiaries, collectively the Company or
SBO, conduct casino gaming operations in Las Vegas, Nevada,
Atlantic City, New Jersey and until March 9, 1995, in New Orleans,
Louisiana. In addition, the Company operates support services
including hotel, restaurant, bar, and convention facilities. On
September 13, 1995, the Sydney Harbour Casino commenced gaming
operations in Sydney, Australia. The Company, through its wholly
owned subsidiary, Showboat Australia Pty. Ltd. (SA), owns
approximately 26% of Sydney Harbour Casino Holdings Limited, the
parent corporation of the casino licensee, the Sydney Harbour
Casino Pty. Limited (SHC). SA also owns 85% of the manager of the
Sydney Harbour Casino. The Company also owns a 55.0% interest in a
general partnership formed to operate a riverboat casino in East
Chicago, Indiana and an 80% interest in a limited partnership
formed to operate a riverboat and dockside gaming facility in
Lemay, Missouri. Gaming applications for the Indiana and
Missouri projects are pending and gaming operations cannot
commence until such applications are affirmatively acted upon by
the respective regulatory agency.
The consolidated financial statements include all domestic and
foreign subsidiaries which are more than 50% owned and controlled
by Showboat, Inc. Investments in unconsolidated affiliates which
are at least 20% owned by Showboat, Inc. are carried at cost plus
equity in undistributed earnings or loss since acquisition. All
material intercompany balances 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, 1994 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.
-10- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenues & Promotional Allowances
Casino revenues represent the net win from gaming wins and
losses. Revenues include the retail value of room, food, beverage
and other goods and services provided to customers without charge.
Such amounts are then deducted as promotional allowances. The
estimated cost of providing these promotional allowances was
charged to the casino department in the following amounts:
Nine Months Ended
September 30,
-----------------------
1995 1994
----------- -----------
Food and beverage 20,063 17,101
Room 5,314 4,149
Other 1,091 1,712
----------- -----------
Total 26,468 22,962
=========== ===========
Reclassifications
Certain prior period balances have been reclassified to
conform to the current period's presentation.
2. LONG-TERM DEBT
Long-term debt consists of the following:
September 30, December 31,
1995 1994
----------- -----------
(In thousands)
9 1/4% First Mortgage Bonds due 2008 $270,274 $269,992
13% Senior Subordinated Notes due 2009 120,000 120,000
Capitalized lease obligations 2,028 2,043
----------- -----------
392,302 392,035
Less current maturities 21 19
----------- -----------
$392,281 $392,016
=========== ===========
-11- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. LONG-TERM DEBT (continued)
On August 4, 1995, the Company obtained a two year secured line of
credit for general working capital purposes totaling $25.0
million. At the end of the two year term, the line of credit may
convert to a three year term loan. The bank received security
pari passu with the holders of the Company's $275.0 million 9 1/4%
First Mortgage Bonds due 2008. Interest is payable monthly at the
bank's prime rate plus .5% or LIBOR plus 2.5% at the election of
the Company. The interest rate charged at the date the line of
credit is converted to a term loan will be the bank's prime rate
plus 1.0% or the fixed rate designated by the bank at the election
of the Company. In the event the line of credit is utilized for
equity investments in or loans to entities constituting new
projects, the Company will be required to pay the bank a fee equal
to .75% of the advance. As of September 30, 1995, all the funds
under this line of credit were available for use by the Company.
This line of credit replaced the Atlantic City Showboat's unsecured
line of credit which expired in August of 1995.
3. GAIN ON SALE OF UNCONSOLIDATED AFFILIATE
In March 1995, the Company purchased an additional 50% of the
equity of Showboat Star Partnership (SSP), which operated the
Showboat Star Casino on Lake Pontchartrain in New Orleans,
Louisiana, bringing the Company's total equity interest in SSP
to 100%. The purchase price of the additional equity interest was
$25.0 million coupled with a distribution of certain of the current
assets of SSP to partners other than the Company. On March 9, 1995,
the Company ceased all operations at the Showboat Star Casino as a
result of certain legal issues related to conducting dockside
gaming in Orleans Parish. In a series of unrelated transactions,
the Company sold certain of the assets of SSP and its equity
interest in SSP resulting in a net pretax gain of $2.6 million
which is included in the 1995 Consolidated Statement of Income as
gain on sale of unconsolidated affiliate.
-12-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
Showboat, Inc. and subsidiaries, collectively the Company or
SBO, conduct casino gaming operations in Las Vegas, Nevada, Atlantic
City, New Jersey and until March 9, 1995, in New Orleans, Louisiana.
In addition, the Company operates support services including hotel,
restaurant, bar, and convention facilities. On September 13, 1995,
the Sydney Harbour Casino commenced gaming operations in Sydney,
Australia. The Company, through its wholly owned subsidiary, Showboat
Australia Pty. Ltd. (SA), owns approximately 26% of Sydney Harbour
Casino Holdings Limited, the parent corporation of the casino
licensee, the Sydney Harbour Casino Pty Limited (SHC). SA also owns
85% of the manager of the Sydney Harbour Casino. The Company also owns
a 55.0% interest in a general partnership formed to operate a
riverboat casino in East Chicago, Indiana and an 80% interest in a
limited partnership formed to operate a riverboat and dockside gaming
facility in Lemay, Missouri. Gaming applications for the Indiana and
Missouri projects are pending and gaming operations cannot commence
until such applications are affirmatively acted upon by the respective
regulatory agency.
The consolidated financial statements include all domestic and
foreign subsidiaries which are more than 50% owned and controlled by
Showboat, Inc. Investments in unconsolidated affiliates which are at
least 20% owned by Showboat, Inc. are carried at cost plus equity in
undistributed earnings or loss since acquisition. All material
intercompany balances have been eliminated in consolidation.
In March 1995, the Company purchased an additional 50% of the
equity of Showboat Star Partnership (SSP), which operated the Showboat
Star Casino on Lake Pontchartrain in New Orleans, Louisiana, bringing
the Company's total equity interest in SSP to 100%. The purchase price
of the additional equity interest was $25.0 million coupled with a
distribution of certain of the current assets of SSP to partners other
than the Company. On March 9, 1995, the Company ceased all operations
at the Showboat Star Casino as a result of certain legal issues
related to conducting dockside gaming in Orleans Parish. In a series
of unrelated transactions, the Company sold certain of the assets of
SSP and its equity interest in SSP resulting in a net pretax gain of
$2.6 million which is included in the 1995 Consolidated Statement of
Income as gain on sale of unconsolidated affiliate.
-13- (continued)
GENERAL (continued)
SA was formed in 1994 and, along with Leighton Properties Ltd.
formed SHC, to apply for the exclusive full service casino license in
Sydney, Australia. The casino license was awarded to SHC in December
1994. SA invested approximately $100.0 million for a 26.3% equity
interest in Sydney Harbour Casino Holdings Limited (SHCH) which owns
100% of SHC. SA also owns 85% of the company engaged to manage the
casino for a fee. The Company has agreed to forego approximately
$14.1 million in fees due under the management agreement. SHC
commenced gaming operations on September 13, 1995 in a 60,000 square
foot interim casino. SHC opened with very little or no marketing. In
spite of this, table games revenues are meeting expectations although
slot and food revenues are behind forecast. In response, SHC has
commenced certain marketing programs. SHC is scheduled to open its
permanent facility in early 1998. The company's equity in earnings
of SHC's operations has been reduced to zero due to the write-off of
certain preopening and development costs. The Company does not
anticipate any contribution to earnings from SA or SHC in 1995 due to
the write-off of preopening and development costs and the foregone
management fees.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Quarter Ended September 30, 1995 Compared to Quarter Ended
September 30, 1994
Revenues
Net revenues for the Company increased to $119.5 million in the
quarter ended September 30, 1995 compared to $113.2 million in the same
period in 1994, an increase of $6.3 million or 5.6%. Casino revenues
increased $7.1 million or 7.2% to $106.7 million in the quarter ended
September 30, 1995 from $99.6 million in the same period in 1994.
Nongaming revenues, which consist principally of food, beverage, room
and bowling revenues and management fees, were $24.6 million in the
third quarter of 1995 compared to $23.2 million in 1994.
-14- (continued)
The Atlantic City Showboat generated $107.3 million of net
revenues in the quarter ended September 30, 1995 compared to $93.3
million in the same period in the prior year, an increase of $14.0
million or 15.1%. Casino revenues were $98.4 million in the three
months ended September 30, 1995 compared to $85.1 million in the same
period in the prior year, an increase of $13.3 million or 15.6%. The
increase in casino revenues was due primarily to an increase in slot
machine revenues of $9.7 million or 15.2% to $73.5 million in the
quarter ended September 30, 1995 compared to $63.8 million in the same
period in the prior year. This increase compares to a 9.5% growth in
slot machine revenues in the Atlantic City market for the quarter ended
September 30, 1995. The favorable comparison to the prior year is also
the result of the addition of 200 slot machines in May of 1995, which
were targeted toward high end slot players, and the increased hotel
room capacity. The Atlantic City Showboat also increased
its table game revenues by $3.8 million or 18.7% to $24.1
million for the quarter ended September 30, 1995 compared to $20.3
million for the same period in the prior year.
The Las Vegas Showboat realized net revenues of $12.3 million in the
quarter ended September 30, 1995, as compared to $19.5 million in the
same period in 1994, a decrease of $7.2 million or 37.2%. Casino
revenues decreased to $8.4 million in the third quarter of 1995 from
$14.5 million in the third quarter of 1994, a decrease of $6.1 million
or 42.3%. The renovation project at the Las Vegas Showboat
which commenced in late June of 1995 and the increased competition
on the Boulder Strip continued to negatively impact revenues
in the third quarter of 1995. The casino capacity at the
Las Vegas Showboat has been reduced approximately 40% due to
the construction. The renovation is expected to be completed by
the end of the year. It is anticipated that the construction will
continue to adversely affect revenue through the remainder of 1995.
Income From Operations
The Company's income from operations increased to $19.0 million
in the quarter ended September 30, 1995 from $17.3 million in the same
period in 1994, an increase of $1.7 million or 10.0%. Improvements at
the Atlantic City Showboat were offset by the cessation of operations
of SSP and lower results at the Las Vegas Showboat. In addition, the
Company incurred approximately $5.3 million in corporate expenses and
expenses relating to the pursuit of expansion opportunities in
jurisdictions outside of Nevada and New Jersey in the third quarter of
1995 compared to $5.9 million in the third quarter of 1994.
-15- (continued)
Atlantic City Showboat's income from operations, before
management fees, increased to $26.7 million in the third quarter of
1995 compared to $19.3 million in the same period in 1994, an increase
of $7.4 million or 38.7%. Operating expenses at the Atlantic City
Showboat increased $6.6 million or 8.9% to $80.6 million in the three
months ended September 30, 1995 compared to $74.0 million in the same
period in the prior year. Increases in operating expenses at the
Atlantic City Showboat primarily relate to increased casino capacity
and volume of business as a result of the expansion of the Atlantic
City facility. General and administrative expenses increased
primarily as a result of increased incentive compensation, higher
maintenance and utility costs as a result of the expanded facility,
and increased property rent and real estate taxes. The Atlantic City
Showboat's operating margin increased to 24.9% in the quarter ended
September 30, 1995 compared to 20.7% in the same period in 1994.
For the quarter ended September 30, 1995, the Las Vegas Showboat
had a loss from operations, before management fees and intercompany
rent, of $2.4 million compared to income of $0.1 million in the same
period in 1994. Operating expenses at the Las Vegas
Showboat declined to $14.6 million in the third quarter of 1995
compared to $19.4 million in the same period in 1994, a decrease of
$4.8 million or 24.4%. Results at the Las Vegas Showboat were
adversely impacted on a broad scale by the closure of approximately 40%
of total casino floor space, the disruption to the guest experience
caused by a major casino renovation project which commenced in July
1995, and the increased competition on the Boulder Strip. The
renovation project is scheduled to be completed by the end of the year.
Other (Income) Expense
Net interest expense decreased to $5.8 million in the third
quarter of 1995 down from $7.2 million in the same period in 1994, a
decrease of $1.4 million or 19.4%. Although interest expense net of
interest income increased by $1.1 million during the quarter,
capitalized interest increased by $2.5 million resulting in an overall
decrease in net interest expense. The increase in interest expense
is primarily the result of the issuance, on August 10, 1994, of $120.0
million of 13% Senior Subordinated Notes due 2009. The increase
in the capitalized interest is due primarily to the construction by SHC
of its interim and permanent casino facilities in Sydney, Australia.
Net Income
The Company realized net income of $7.8 million or $.50 per share
in the quarter ended September 30, 1995 compared to net income of $5.9
million or $.38 per share in the quarter ended September 30, 1994.
-16- (continued)
Nine Months Ended September 30, 1995 Compared to Nine Months
Ended September 30, 1994
Net revenues for the Company increased to $330.1 million in the
nine months ended September 30, 1995 compared to $304.1 million in the
same period in 1994, an increase of $26.0 million or 8.6%. Casino
revenues increased $26.9 million or 10.1% to $292.8 million in the
nine months ended September 30, 1995 from $265.9 million in the same
period in 1994. Nongaming revenues, which consist principally of food,
beverage, room and bowling revenues and management fees, were $67.8
million in the nine months ended September 30, 1995 compared to $62.8
million in the same period in 1994.
The Atlantic City Showboat generated $283.2 million of net
revenues in the nine months ended September 30, 1995 compared to $240.6
million in the same period in the prior year, an increase of $42.6
million or 17.7%. Casino revenues were $259.0 million in the nine
months ended September 30, 1995 compared to $219.5 million in the same
period in the prior year, an increase of $39.5 million or 18.0%. The
increase in casino revenues was due primarily to an increase in slot
machine revenue of $29.4 million and an increase in table game revenue
of $10.0 million compared to the same period in the prior year. The
favorable comparison to the prior year is the result of the addition
of 15,000 square feet of casino space with approximately 560 new
slot machines that opened in May 1994, the increased hotel room
capacity in November 1994, and the addition of 200 slot machines in
May 1995. Also contributing to the increase in revenues was the mild
winter weather during the first quarter of 1995 compared to the harsh
winter weather during the same period in the prior year. At the
Atlantic City Showboat, slot machine revenues were 74.2% of total
casino revenues in the nine months ended September 30, 1995 and 1994.
At the Las Vegas Showboat, net revenues decreased to $46.7
million in the nine months ended September 30, 1995 from $61.9 million
in the same period in 1994, a decrease of $15.2 million or 24.6%.
Casino revenues decreased to $33.9 million in the nine months ended
September 30, 1995 from $46.4 million in the same period of 1994, a
decrease of $12.5 million or 27.1%. The renovation project which
commenced in late June 1995 and the increased competition on the
Boulder Strip continued to negatively impact revenues in the first nine
months of 1995. The Casino capacity at the Las Vegas Showboat has been
reduced by approximately 40% during the construction period which is
expected to be completed by the end of the year. It is anticipated
that the construction will continue to adversely affect revenue
through the remainder of 1995.
-17- (continued)
Income From Operations
The Company's income from operations decreased to $40.7 million
in the nine months ended September 30, 1995 from $42.4 million in the
same period in 1994, a decrease of $1.7 million or 4.0%. This decrease
is primarily due to the cessation of operations in Louisiana due to the
Company's sale of its equity interest in SSP, lower results in Las
Vegas, and an increase in corporate and development expenses. These
decreases were partially offset by the improved performance at the
Atlantic City Showboat.
Atlantic City Showboat's income from operations, before
management fees, increased to $58.3 million in the nine months ended
September 30, 1995 compared to $38.9 million in the same period in 1994,
an increase of $19.4 million or 50.0%. Operating expenses at the
Atlantic City Showboat increased $23.2 million or 11.5% to $224.9
million in the nine months ended September 30, 1995 compared to $201.7
million in the same period in the prior year. Increases in operating
expenses at the Atlantic City Showboat primarily relate to increased
casino capacity and volume of business as a result of the expansion of
the Atlantic City facility. General and administrative expenses
increased primarily as a result of increased incentive compensation,
higher maintenance and utilities costs as a result of the expanded
facility, and increased property and real estate taxes. The Atlantic
City Showboat's operating margin increased to 20.6% in the nine months
ended September 30, 1995 compared to 16.2% in the same period in 1994.
For the nine months ended September 30, 1995, the Las Vegas Showboat
had a loss from operations, before management fees and intercompany
rent, of $2.1 million compared to income of $4.9 million in the same
period in 1994. Operating expenses declined to $48.8 million in the
nine months ended September 30, 1995 compared to $57.0 million in the
nine months ended September 30, 1994, a decrease of $8.2 million or
14.4%. Reductions in expenses were realized as a result of the decrease
in volume of business, however, the increased competition on the Boulder
Strip resulted in the continuation of certain promotional and marketing
programs which negatively affected the overall operating results.
Other (Income) Expense
Other expense decreased to $14.7 million in the nine months ended
September 30, 1995 compared to $17.5 million in the same period in
1994, a decrease of $2.8 million or 16.0%. Contributing to this
decrease was the gain on sale of unconsolidated affiliate of $2.6
million and a foreign currency gain of $0.3 million. Net interest
expense for the nine months ended September 30, 1995 and September 30,
1994 was $17.5 million. Interest expense net of interest income
increased by $7.7 million during the nine months ended September 30,
1995 as compared to the prior period, but capitalized interest also
increased by $7.7 million. The increase in interest expense is
primarily the result of the issuance, on August 10, 1994, of $120.0
million of 13% Senior Subordinated Notes due 2009. The increase in
capitalized interest is due primarily to the construction by SHC of its
interim and permanent casino facilities in Sydney, Australia.
-18- (continued)
Income Taxes
The Company's effective income tax rate increased to 43.9% in the
nine months ended September 30, 1995 compared to 40.8% in the nine
months ended September 30, 1994, an increase of 3.1%. This increase is
primarily due to an increase in state income taxes. The Company has
utilized all of its previous state net operating loss carryforward's
and is in a state taxable position.
Net Income
The Company realized net income of $14.6 million or $.94 per share
in the nine months ended September 30, 1995 compared to net income of
$14.7 million or $.96 per share in the nine months ended
September 30, 1994.
MATERIAL CHANGES IN FINANCIAL CONDITION
As of September 30, 1995, the Company held cash and cash equivalents
of $125.6 million compared to $90.4 million at December 31, 1994. On
March 31, 1995, the Company sold all of its interest in SSP which
resulted in net proceeds available to the Company of approximately
$34.7 million.
During the nine months ended September 30, 1995 the Company expended
approximately $28.8 million on capital improvements at its Las Vegas
and Atlantic City facilities which were funded from operations. The
Company has commenced an $18.5 million renovation of its Las Vegas
facility. The construction project required closure of approximately
40% of the casino space for a period of up to six months commencing at
the end of June 1995. The Las Vegas renovation is being funded from
available cash. The Company expects the results of operations at the
Las Vegas facility will continue to be adversely impacted by business
disruption during the construction period.
On August 4, 1995, the Company obtained a two year secured line
of credit for general working capital purposes totaling $25.0 million.
At the end of the two year term, the line of credit may convert to a
three year term loan. The bank received security pari passu with the
holders of the Company's $275.0 million 9 1/4% First Mortgage Bonds due
2008. Interest is payable monthly at the bank's prime rate plus .5% or
LIBOR plus 2.5% at the election of the Company. The interest rate
charged at the date the line of credit is converted to a term loan will
be the bank's prime rate plus 1% or the fixed rate designated by the
bank at the election of the Company. In the event the line of credit
is utilized for equity investments in or loans to entities constituting
new projects, the Company will be required to pay the bank a fee equal
to .75% of the advance. As of September 30, 1995, all the funds under
this line of credit are available for use by the Company. This line of
credit replaced the Atlantic City Showboat's unsecured line of credit
which expired in August of 1995.
-19- (continued)
On May 18, 1993, the Company issued $275.0 million of 9 1/4%
First Mortgage Bonds due 2008 (Bonds). The Bonds are unconditionally
guaranteed by Showboat Operating Company, a wholly-owned subsidiary of
the Company, (SOC), Ocean Showboat, Inc., a wholly-owned subsidiary
of the Company, (OSI), and Atlantic City Showboat, Inc. (ACSI), a
wholly-owned subsidiary of OSI. The Bond Indenture was amended in
July, 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 Indenture for the Bonds
(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 the Company 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 them in 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,
-20- (continued)
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
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
$75.0 million 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 $75.0 million 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 $125.0 million in the
aggregate; Investments 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). Notwithstanding the
foregoing, the Company is permitted to make investments in Controlled
Entities only if from July 18, 1994 until December 31, 1996, the
Company's Fixed Charge Coverage Ratio for the Company's most recently
ended twelve months is greater than 1.5 to 1 and for the period
commencing after December 31, 1996 the Company's Fixed Charge Coverage
Ratio is greater than 1.75 to 1. For all other Restricted Payments,
other than a Regular Quarterly Dividend or a Restricted Investment in
a Subsidiary engaged in a Gaming Related Business, the Company's Fixed
Charge Coverage Ratio for the most recently ended four full fiscal
quarters, after giving effect to such Restricted Payment must be
greater than 2.25 to 1. As of September 30, 1995, the Company's Fixed
Charge Coverage Ratio was 3.40 to 1. Additionally, the Bond
Indenture, as amended, permits the Company to issue up to $150.0
million of additional Indebtedness (of which $120.0 million has been
issued) without compliance with the debt incurrence tests stated
therein.
On August 10, 1994 the Company issued $120.0 million of 13%
Senior Subordinated Notes due 2009 (Notes). 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
permits the issuance of an additional $30.0 million of Notes at the
discretion of the Company.
-21- (continued)
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.
The Company is actively pursuing potential gaming opportunities
in certain jurisdictions where gaming is legalized, as well as
jurisdictions where gaming is not yet, but is expected soon to
be legalized. There can be no assurance that gaming legislation 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. Further, 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.
In February 1995, the Company, with an unrelated corporation,
formed Showboat Mardi Gras, L.L.C. (SMGLLC) to own and operate,
subject to licensing, a riverboat casino near Kansas City, Missouri.
SMGLLC is 35%-owned by the Company. In May 1995, the Missouri Gaming
Commission selected the applicants for the then current available
gaming licenses in Kansas City. SMGLLC was not selected and is
currently seeking a buyer for its riverboat. The Company has
contributed approximately $4.5 million to SMGLLC for the completion of
the riverboat, costs incurred in the licensing process and other general
and administrative expenses. SMGLLC is currently completing the
construction of the riverboat and intends to sell the riverboat.
Although additional contributions may be required from the Company in
order for SMGLLC to complete the riverboat, the Company will
receive a portion of the proceeds upon sale of the assets of SMGLLC.
The Company has made a contingent offer to SMGLLC for the riverboat
based on obtaining a license to operate a riverboat casino in Lemay,
Missouri. The purchase price is based on the cost of the assets and
should result in no gain or loss to the Company, however, if the Company
does not acquire the riverboat from SMGLLC, the Company will write-off
approximately $1.5 million, or $.06 per share, in order to write-
down its investment in SMGLLC to its net realizable value.
-22- (continued)
The Company is a member of a partnership, Showboat Marina
Partnership (Indiana Partnership), consisting of Showboat Indiana
Investment Limited Partnership, a limited partnership owned by the
Company (SII), and Waterfront Entertainment and Development, Inc., an
unrelated Indiana corporation (Waterfront). The Indiana Partnership is
the only applicant for the sole riverboat gaming license allocated by
statute to East Chicago, Indiana. The Company anticipates that it will
contribute approximately $35.0 million to the Indiana Partnership in a
combination of debt and equity of which $6.4 million has been funded as
of September 30, 1995. The Company will help the partnership obtain
debt financing for the construction of a gaming vessel and related land
site improvements. Licensing hearings for the Indiana Partnership's
gaming application were scheduled for October 1995. However, on
October 17, 1995, a complaint was filed against the Indiana Gaming
Commission seeking a preliminary injunction and a temporary restraining
order to enjoin the Indiana Gaming Commission from conducting a
hearing on the Partnership's application. The complaint alleges that
the City of East Chicago failed to hold an open public bidding process
in selecting its applicant, and that such failure is in conflict with
the Indiana gaming laws. On October 19, 1995, the Indiana Gaming
Commission commenced the hearing on the application, but was served
with a temporary restraining order and halted the proceedings. A final
decision has not been reached in this matter. Neither the Indiana
Partnership nor the Company are parties to the litigation and it is
not known when this matter will be completed. Further, the Indiana
Partnership's site location and improvements have not received
approval from the Army Corp of Engineers. The City of East Chicago
has resubmitted its application for the site location and improve-
ments and is awaiting approval from the Army Corp of Engineers. No
assurance can be given that the Indiana Partnership will be successful
in obtaining the necessary funds to finance its gaming project, that
the Indiana Partnership will successfully obtain a casino license or
that the approvals will be received from the Army Corp of Engineers.
In July 1995, the Company and Rockingham Venture, Inc., which owns
the Rockingham Park, a thoroughbred racetrack in New Hampshire, entered
into agreements to develop and manage any additional gaming that may
be authorized at Rockingham Park. In December 1994, the Company loaned
Rockingham Venture, Inc. $8.85 million, which loan is secured by
a second mortgage on Rockingham Park. At this time, casino gaming
is not permitted in the State of New Hampshire. No assurance
can be given that casino gaming legislation will be enacted in the
State of New Hampshire or, if enacted, such legislation will authorize
casino gaming at Rockingham Park.
The Company through its subsidiary, Showboat Lemay, Inc., has an
80% general partner interest in Southboat Limited Partnership
(Southboat) which, subject to licensing, plans to build and operate a
riverboat and dockside gaming facility on the Mississippi River in
Lemay, Missouri. On June 1, 1995, the St. Louis County Council named
Southboat as the preferred developer/operator for the gaming facility
and on October 13, 1995, Southboat executed a 99 year lease with the
-23- (continued)
St. Louis County Port Authority for development and operation of a
dockside gaming facility in Lemay, Missouri. On October 17, 1995,
Southboat filed its application for a gaming license with the Missouri
Gaming Commission. Southboat Limited Partnership has entered into a
commitment letter to receive up to $75.0 million of financing for the
construction of a riverboat and related site improvements subject to
certain conditions. The Company expects to contribute approximately
$20.0 million to Southboat. No assurance can be given that Southboat
will be successful in obtaining the necessary funds to finance its
gaming project or that the Partnership will successfully obtain a
casino license.
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. As the Company realizes expansion
opportunities, the Company shall make significant capital investments
in such opportunities and additional financing will be required. The
Company anticipates that additional funds shall be obtained through
loans or public offerings of equity or debt securities.
-24-
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
ITEM 1. Legal Proceedings.
"Darling Harbour Casino Limited ("DHCL") vs. New South Wales
Casino Control Authority, New South Wales Minister for
Planning", Case No. 40227/94 and 40230/94, instituted in
December 1994, in the Land and Environment Court of the State
of New South Wales, Australia. On August 18, 1995, DHCL lodged
an appeal with the Court of Appeals of the Supreme Court of
New South Wales against the April 21, 1995 decision of the
Land and Environmental Court which dismissed this
proceeding. This legal proceeding is more fully discussed in
the Company's Form 10-Q, Part II, Item 1 "Legal Proceedings"
for the three months ended March 31, 1995.
"DHCL vs. New South Wales Casino Control Authority, Sydney
Harbour Casino Pty Limited and Cheif Secretary and Minister
for Administrative Services", Case No. 30091 of 1994,
instituted in the Supreme Court of New South Wales, Sydney
Registry, Administrative Law Division, in December 1994. On
November 8, 1995, the Court of Appeals of the Supreme Court
of New South Wales dismissed the action filed by DHCL to
revoke the issuance of the casino license to Sydney Habour
Casino Pty Limited on December 14, 1994. DHCL has a period of
21 days to file a notice of appeal to the High Court of
Australia. This legal proceeding is more fully discussed in
the Company's Form 10-K, Part I, Item 3 "Legal Proceedings"
for the year ended December 31, 1994.
"Edward H. Egipiaco (Egipiaco) v. Indiana Gaming
Commission", Case No. 45C01-95-10-MI01845, instituted on
October 17, 1995 in the Circuit Court for Lake County, Indiana.
Egipiaco filed a complaint (the Egipiaco Complaint) on behalf
of himself and the residents of the City of East Chicago
requesting a preliminary injunction to enjoin the Indiana
Gaming Commission from conducting a hearing on the Indiana
Partnership's application for the sole riverboat casino
license in East Chicago, Indiana, and from issuing a
Certificate of Suitability to the Indiana Partnership. The
Egipiaco Complaint alleges that the City of East Chicago failed
to hold an open public bidding process in selecting its
applicant, and such failure is in conflict with Indiana gaming
laws. On October 19, 1995, the Indiana Gaming Commission
commenced the hearing on the East Chicago application, but was
served with a temporary restraining order and halted the
proceedings. A final decision has not been reached in this
matter, but because neither the Company nor the Indiana
Partnership is a party to the litigation it is not known when
this matter will be completed. While neither the Company nor
the Indiana Partnership is a party to the
-25- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
(continued)
Egipiaco Complaint, an unfavorable outcome of such litigation
would have a material adverse effect on the Indiana
Partnership and its proposed riverboat casino project in East
Chicago, Indiana.
"Larry Schreier v. Caesars World, Inc. et al.", Case No.
95-923-DWH (RJJ), instituted on September 26, 1995 in the United
States District Court for the District of Nevada. An
individual, purportedly representing a class, filed a complaint
against four manufacturers, three distributors and 38 casino
operators, including the Company, who manufacture, distribute or
offer for play video poker and electronic slot machines. The
individual allegedly intends to seek class certification of the
interests he claims to represent. The complaint alleges that
the defendants have engaged in a course of conduct intended to
induce persons to play such games based on a false belief
concerning how the gaming machines operate, as well as the
extent to which there is an opportunity to win on a given play.
The complaint alleges violations of the Racketeer Influenced and
Corrupt Organizations Act, as well as claims of common law
fraud, unjust enrichment and negligent misrepresentation, and
seeks damages in excess of $1.0 billion. The complaint is
similar to the Poulos Complaint and the Ahern Complaint
referenced in the Company's Form 10-K, Part I, Item 3 "Legal
Proceedings" for the year ended December 31, 1994. The
Company has not yet responded to the complaint, but intends to
defend the action vigorously. Management believes that the
complaint is without merit and that the litigation will not have
a material adverse impact on the Company's financial condition
or operations.
"Hyland, et al. v. Griffin Investigation, et al. (the
Hyland Case)", Case No. 95-CV-2236 (JEI), instituted on May 5,
1995 in the United States District Court for the District of New
Jersey (Camden Division). The Company was served with a First
Amended Complaint on August 29, 1995. On October 25, 1995, the
plantiffs in the Hyland Case filed a "Notice of Dismissal
Without Prejudice Only As To Defendant Showboat, Inc.," with the
District Court Clerk. Seventy-six casino operators, including
the Company, and others were originally named as defendants in
the action. The action, brought on behalf of "card counters,"
alleges that the casino operators exclude "card counters" from
play and share information about "card counters." The action is
based on alleged violations of federal antitrust law, the Fair
Credit Reporting Act, and various state consumer protection
laws.
-26- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
(continued)
Item 2. Changes in Securities.
On October 5, 1995, the Board of Directors of Showboat,
Inc. (the Company) declared a dividend distribution of one
Preferred Stock Purchase Right for each outstanding share of
Common Stock, par value $1.00 per share (the "Common Stock"),
of the Company. The distribution was payable as of October 16,
1995 to stockholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one
one-hundredth (1/100) of a share of preferred stock of the
Company, designated as Series A Junior Preferred Stock (the
Stock") at a price of $120.00 per one one-hunderdth (1/100) of
a share ("Exercise Price"). The description and terms of the
Rights are set forth in a Rights Agreement (the "Rights
Agreement") between the Company and American Stock Transfer
and Trust Company, as Rights Agent (the "Rights Agent").
The Rights, unless earlier redeemed by the Board of
Directors, become exercisable upon the close of business on the
day (the "Distribution Date") which is the earlier of (i) the
tenth day following a public announcement that a person or
group of affiliated or associated persons, with certain
exceptions set forth below, has acquired beneficial ownership
of 15% or more of the outstanding voting stock of the Company
(an "Acquiring Person") or (ii) the tenth business day (or such
later date as may be determined by the Board of Directors prior
to such time as any person or group of affiliated or associated
persons becomes an Acquiring Person) after the date of the
commencement of announcement of a person's or group's intention
to commence a tender or exchange offer the consummation of
which would result in the ownership of 30% or more of the
Company's outstanding voting stock (even if no shares are
actually purchased pursuant to such offer); prior thereto, the
Rights would not be exercisable, would not be represented by a
separate certificate, and would not be transferable apart from
the Company's Common Stock, but will instead be evidenced,
with respect to any of the Common Stock certificates
outstanding as of October 16, 1995, by such Common Stock
certificate with a copy of a Summary of Rights attached
thereto. An Acquiring Person does not include (A) the Company,
(B) any subsidiary of the Company, (C) any employee benefit
plan or employee stock plan of the Company or of any
subsidiary of the Company, or any trust or other entity
organized, appointed, established or holding Common Stock for
or pursuant to the terms of any such plan or (D) any person or
group whose ownership of 15% or more of the shares of voting
stock of the Company then outstanding results solely from (i)
any action or transaction or transactions approved by the Board
of Directors before such person or group became an Acquiring
-27- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
(continued)
Person or (ii) a reduction in the number of issued and
outstanding shares of voting stock of the Company pursuant to a
transaction or transactions approved by the Board of Directors
(provided that any person or group that does not become an
Acquiring Person by reason of clause (i) or (ii) above shall
become an Acquiring Person upon acquisition of an additional 1%
of the Company's voting stock unless such acquisition of
additional voting stock will not result in such person or
group becoming an Acquiring Person by reason of such clause (i)
or (ii)).
Until the Distribution Date (or earlier redemption or
expiration of the Rights), new Common Stock certificates issued
after October 16, 1995 will contain a legend incorporating
the Rights Agreement by reference. Until the Distribution Date
(or earlier redemption or expiration of the Rights), the
surrender for transfer of any of the Common Stock certificates
outstanding as of October 16, 1995, with or without a copy
of this Summary of Rights attached thereto, will also constitute
the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Stock as of the close of
business on the Distribution Date and such separate certificates
alone will evidence the Rights from and after the Distribution
Date.
The Rights are not exercisable until the Distribution Date.
The Rights will expire at the close of business on October 5,
2005, unless earlier redeemed by the Company as described below.
The Preferred Stock is nonredeemable and, unless otherwise
provided in connection with the creation of a subsequent series
of preferred stock, subordinate to any other series of the
Company's preferred stock. The Preferred Stock may not be
issued except upon exercise of Rights. Each share of Preferred
Stock will be entitled to receive when, as and if declared, a
quarterly dividend in an amount equal to the greater of $120.00
per share or 100 times the cash dividends declared on the
Company's Common Stock. In addition, Preferred Stock is
entitled to 100 times any non-cash dividends (other than
dividends payable in equity securities) declared on the Common
Stock, in like kind. In the event of the liquidation of the
Company, the holders of Preferred Stock will be entitled to
receive, for each share of Preferred Stock, a payment in an
amount equal to the greater of $12,000.00 or 100 times the
payment made per share of Common Stock. Each share of Preferred
Stock will have 100 votes, voting together with the Common
Stock. In the event of any merger, consolidation or other
-28- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
(continued)
transaction in which Common Stock is exchanged, each share of
Preferred Stock will be entitled to receive 100 times the amount
received per share of Common Stock. The rights of Preferred
Stock as to dividends, liquidation and voting are protected by
anti- dilution provisions.
The number of shares of Preferred Stock issuable upon
exercise of the Rights is subject to certain adjustments from time
to time in the event of a stock dividend on, or a subdivision or
combination of, the Common Stock. The Exercise Price for the
Rights is subject to adjustment in the event of extraordinary
distributions of cash or other property to the holders of Common
Stock.
Unless the Rights are earlier redeemed or the transaction is
approved by the Board of Directors and the Continuing Directors,
if the Company at any time after the Distribution Date were to
be acquired in a merger or other business combination (in which
any shares of Common Stock are changed into or exchanged for other
securities or assets) or more than 50% of the assets or earning
power of the Company and its subsidiaries (taken as a whole)
were to be sold or transferred in one or a series of related
transactions, the Rights Agreement provides that proper provision
will be made so that each holder of record of a Right will from
and after such date have the right to receive, upon payment of
the Exercise Price, that number of shares of common stock of the
acquiring company having a market value at the time of such
transaction equal to two times the Exercise Price. In addition,
unless the Rights are earlier redeemed, in the event that a person
or group becomes the beneficial owner of 15% or more of the
Company's voting stock (other than pursuant to a tender or
exchange offer (a "Qualifying Tender Offer") for all outstanding
shares of Common Stock that is approved by the Board of Directors,
after taking into account the long-term value of the Company and
all other factors they consider relevant in the circumstances),
the Rights Agreement provides that proper provisions will be
made so that each holder of record of a Right, other than the
Acquiring Person (whose Rights will thereupon become null and
void), will thereafter have the right to receive, upon payment
of the Exercise Price, that number of shares of the Preferred
Stock having a market value at the time of the transaction
equal to two times the Exercise Price (such market value to be
determined with reference to the market value of the Company's
Common Stock as provided in the Rights Agreement).
Fractions of shares of Preferred Stock (other than fractions
which are integral multiples of one one-hundredth of a share) may,
at the election of the Company, be evidenced by depositary
-29- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
(continued)
receipts. The Company may also issue cash in lieu of fractional
shares which are not integral multiples of one one-hundredth of
a share.
At any time on or prior to the close of business on the
earlier of (i) the tenth day after the time that a person has
become an Acquiring Person (or such date as a majority of the
Board of Directors and a majority of the Continuing Directors
(as defined in the Rights Agreement) may determine) or (ii)
October 5, 2005, the Company may redeem the Rights in whole, but
not in part, at a price of $.01 per Right (the "Redemption
Price"). The Rights may be redeemed after the time that any
Person has become an Acquiring Person only if approved by a
majority of the Continuing Directors. Immediately upon the
effective time of the action of the Board of Directors of the
Company authorizing redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the
holders of the Rights will be to receive the Redemption Price.
For as long as the Rights are then redeemable, the Company
may, except with respect to the redemption price or date of
expiration of the Rights, amend the Rights in any manner,
including an amendment to extend the time period in which the
Rights may be redeemed. At any time when the Rights are not
then redeemable, the Company may amend the Rights in any manner
that does not materially affect the interests of holders of the
Rights as such. Amendments to the Rights Agreement from and
after the time that any Person becomes an Acquiring person
requires the approval of a majority of the Continuing Directors
(as provided in the Rights Agreement).
Until a Right is exercised, the holder, as such, will have no
rights as a stockholder of the Company, including, without
limitation, the right to vote or receive dividends.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information
None
-30- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
(continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.01 Restated Bylaws of Showboat, Inc., Dated
October 24, 1995.
27.01 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K, Items 5 and 7, dated October 13, 1995, reporting
the execution of a lease and development agreement by and
between Southboat Limited Partnership and the St. Louis County
Port Authority.
Form 8-K, Items 5 and 7, dated October 5, 1995, reporting
a dividend of Preferred Stock Purchase Rights.
Form 8-K, Items 5, dated September 13, 1995, reporting the
opening of the Sydney Harbour Casino temporary facility.
-31-
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 13, 1995 s/H. Gregory Nasky
------------------- ----------------------------------
H. GREGORY NASKY, Executive Vice
President and Secretary
Date: November 13, 1995 s/ Leann Schneider
------------------- ----------------------------------
LEANN SCHNEIDER, Vice President -
Finance and Chief Financial Officer
-32-
EXHIBIT INDEX
Exhibit No. Description
3.01 Restate Bylaws of Showboat, Inc., dated October 24,
1995
27.01 Financial Data Schedule
