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 JUNE 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 15,403,955 shares outstanding
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SHOWBOAT, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1995 and December 31, 1994 1-2
Consolidated Statements of Income -
For the six months ended June 30,
1995 and 1994 3-4
Consolidated Statements of Income -
For the three months ended June 30,
1995 and 1994 5-6
Consolidated Statements of Shareholders'
Equity - For the six months ended
June 30, 1995 and year ended
December 31, 1994 7
Consolidated Statements of Cash Flows -
For the six months ended June 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 13-23
PART II
OTHER INFORMATION
ITEMS 1 - 6 24
SIGNATURES 26
Item 1. Financial Statements
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
JUNE 30, 1994 AND DECEMBER 31, 1994
JUNE 30, DECEMBER 31,
ASSETS 1995 1994
-------- ----------- -----------
(In thousands)
Current assets:
Cash and cash equivalents $110,135 $90,429
Receivables, net 9,048 8,890
Inventories 2,668 2,591
Prepaid expenses 6,192 4,736
Investment in unconsolidated affiliate
held for sale - 30,346
Current deferred income taxes 7,388 6,529
----------- -----------
Total current assets 135,431 143,521
----------- -----------
Property and equipment 522,268 506,199
Less accumulated depreciation
and amortization 181,095 168,531
----------- -----------
341,173 337,668
----------- -----------
Other assets, at cost:
Investments in unconsolidated affiliates 110,982 108,853
Deposits and other assets 23,684 22,537
Debt issuance costs, net of accumulated
amortization of $1,357,000 at June 30
1995 and $955,000 at December 31, 1994 10,735 11,112
----------- -----------
145,401 142,502
----------- -----------
$622,005 $623,691
=========== ===========
See accompanying notes to consolidated financial statements.
-1- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
JUNE 30, 1994 AND DECEMBER 31, 1994
(continued)
JUNE 30, DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
-------------------------------------- ----------- -----------
(In thousands)
Current liabilities:
Current maturities of long-term debt $21 $19
Accounts payable 8,363 11,059
Income taxes payable 1,070 4,562
Dividends payable 384 384
Accrued liabilities 36,113 34,286
----------- -----------
Total current liabilities 45,951 50,310
----------- -----------
Long-term debt, excluding current maturities 392,192 392,016
----------- -----------
Other liabilities 4,671 5,144
----------- -----------
Deferred income taxes 18,766 18,760
----------- -----------
Minority interest 1,509 -
----------- -----------
Shareholders' equity:
Common stock, $1 par value, 50,000,000
shares authorized, 15,794,578 shares
issued at June 30, 1995 and
December 31, 1994 15,795 15,795
Additional paid-in capital 76,960 76,845
Retained earnings 74,782 68,809
----------- -----------
167,537 161,449
Foreign currency translation adjustment (2,467) 3,490
Cost of common stock in treasury,
390,623 shares at June 30, 1995 and
425,823 shares at December 31, 1994 (3,086) (3,364)
Unearned compensation for restricted stock (3,068) (4,114)
----------- -----------
Total shareholders' equity 158,916 157,461
----------- -----------
$622,005 $623,691
=========== ===========
See accompanying notes to consolidated financial statements.
-2-
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(In thousands except share and per share data)
1995 1994
----------- -----------
Revenues:
Casino $186,097 $166,358
Food and beverage 26,368 24,037
Rooms 12,133 9,341
Sports and special events 1,945 2,086
Management fees 190 1,082
Other 2,553 3,106
----------- -----------
229,286 206,010
Less complimentaries 18,743 15,183
----------- -----------
Net revenues 210,543 190,827
----------- -----------
Costs and expenses:
Casino 71,489 66,365
Food and beverage 28,829 28,361
Rooms 7,633 6,592
Sports and special events 1,626 1,606
General and administrative 57,127 51,230
Selling, advertising and promotion 5,856 6,240
Depreciation and amortization 16,263 13,196
----------- -----------
188,823 173,590
----------- -----------
Income from operations from consolidated
subsidiaries 21,720 17,237
Equity in income (loss) of unconsolidated
affiliate (22) 7,892
----------- -----------
Income from operations 21,698 25,129
----------- -----------
-3- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(In thousands except share and per share data)
(continued)
1995 1994
----------- -----------
Income from operations $21,698 $25,129
----------- -----------
Other (income) expense:
Interest income (2,890) (1,525)
Interest expense 21,251 13,272
Interest capitalized (6,567) (1,352)
Gain on sale of unconsolidated affiliate (2,558) -
----------- -----------
9,236 10,395
----------- -----------
Income before income taxes 12,462 14,734
Income tax expense 5,720 5,940
----------- -----------
Net income $6,742 $8,794
=========== ===========
Weighted average shares outstanding 15,522,432 15,253,861
Income per common and equivalent share $0.43 $0.58
=========== ===========
See accompanying notes to consolidated financial statements.
-4-
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(In thousands except share and per share data)
1995 1994
----------- -----------
Revenues:
Casino $99,250 $89,461
Food and beverage 14,062 12,835
Rooms 6,506 5,116
Sports and special events 890 980
Management fees - 481
Other 1,330 1,708
----------- -----------
122,038 110,581
Less complimentaries 10,174 8,186
----------- -----------
Net revenues 111,864 102,395
----------- -----------
Costs and expenses:
Casino 37,593 35,360
Food and beverage 14,924 14,794
Rooms 3,832 3,339
Sports and special events 675 728
General and administrative 29,234 27,897
Selling, advertising and promotion 3,225 3,706
Depreciation and amortization 8,107 6,835
----------- -----------
97,590 92,659
----------- -----------
Income from operations from consolidated
subsidiaries 14,274 9,736
Equity in income of unconsolidated
affiliate - 4,305
----------- -----------
Income from operations 14,274 14,041
----------- -----------
-5- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(In thousands except share and per share data)
(continued)
1995 1994
----------- -----------
Income from operations $14,274 $14,041
----------- -----------
Other (income) expense:
Interest income (1,691) (722)
Interest expense 10,620 6,621
Interest capitalized (3,321) (903)
----------- -----------
5,608 4,996
----------- -----------
Income before income taxes 8,666 9,045
Income tax expense 3,707 3,691
----------- -----------
Net income 4,959 5,354
=========== ===========
Weighted average shares outstanding 15,556,514 15,321,474
Income per common and equivalent share $0.32 $0.35
=========== ===========
See accompanying notes to consolidated financial statements.
-6-
<TABLE>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
FOR THE SIX MONTHS ENDED JUNE 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 - - 6,742 - - - 6,742
Cash dividends
($.05 per share) - - (769) - - - (769)
Share transactions under
stock plans - 115 - - 278 (438) (45)
Amortization of unearned
compensation - - - - - 1,484 1,484
Foreign currency translation
adjustment - - - (5,957) - - (5,957)
--------- --------- ---------- ----------- ----------- ----------- ----------
Balance, June 30, 1995 $15,795 $76,960 $74,782 ($2,467) ($3,086) ($3,068) $158,916
========= ========= ========== =========== =========== ============ ==========
See accompanying notes to consolidated financial statements.
-7-
</TABLE>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
1995 1994
----------- -----------
(In thousands)
Cash flows from operating activities:
Net income $6,742 $8,794
Adjustments to reconcile net income to
net cash provided by operating activities:
Allowance for doubtful accounts 807 (154)
Depreciation and amortization 16,263 13,196
Amortization of discount on debt and
debt issuance costs 590 253
Provision for deferred income taxes 2,354 1,970
Provision for loss on Casino Reinvestment
Development Authority obligation 521 566
Amortization of unearned compensation 1,484 361
Gain on sale of unconsolidated affiliate (2,558) -
(Undistributed) distributed earnings of
unconsolidated affiliate 8,362 (3,563)
Increase in receivables, net (394) (2,216)
Increase in income taxes receivable - (3,027)
Increase in inventories and
prepaid expenses (1,533) (1,807)
(Increase) decrease in deposits and
other assets 1,158 (2,299)
Increase (decrease) in accounts payable (1,662) 893
Decrease in income taxes payable (3,510) -
Increase (decrease) in accrued liabilities (479) 1,970
Other 461 (63)
----------- -----------
Net cash provided by operating activities 28,606 14,874
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (20,394) (48,407)
Proceeds from sale of equipment 130 65
Deposit for Casino Reinvestment
Development Authority obligation (1,773) (1,557)
Investment in unconsolidated affiliates (35,965) (9,000)
Proceeds from sale of unconsolidated
affiliate 51,366 -
Advances to unconsolidated affiliates (2,402) -
Repayments of advances to unconsolidated
affiliates 1,967 -
Increase in deposits and other assets (2,665) -
Other 146 -
----------- -----------
Net cash used in investing activities (9,590) (58,899)
----------- -----------
-8- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(continued)
1995 1994
----------- -----------
(In thousands)
Cash flows from financing activities:
Principal payments of long-term debt and
capital lease obligations ($10) ($2,973)
Debt issuance costs (25) -
Payment of dividends (769) (749)
Proceeds from employee stock option exercises 127 507
Minority interest contributions 1,509 -
Other - (240)
----------- -----------
Net cash provided by (used in)
financing activities 832 (3,455)
----------- -----------
Effect of exchange rate changes on cash (142) -
----------- -----------
Net increase (decrease) in cash and
cash equivalents 19,706 (47,480)
Cash and cash equivalents at
beginning of period 90,429 122,787
----------- -----------
Cash and cash equivalents at end of period $110,135 $75,307
=========== ===========
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $13,704 $13,019
Income taxes 6,876 6,998
Supplemental schedule of noncash investing
and financing activities:
Decrease in construction contracts and
retentions payable (1,145) (1,400)
Share transactions under long-term incentive
plan 602 6,131
Transfer deposits to property and equipment 594 433
Foreign currency translation adjustment (5,957) -
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. The
Company also owns a 55.0% interest in a partnership formed to
operate a riverboat in East Chicago, Indiana.
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.
Certain prior period balances have been reclassified to
conform to the current period's presentation.
-10- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. LONG-TERM DEBT
Long-term debt consists of the following:
June 30, December 31,
1995 1994
----------- -----------
(In thousands)
9 1/4% First Mortgage Bonds due 2008 $270,180 $269,992
13% Senior Subordinated Notes due 2009 120,000 120,000
Capitalized lease obligations 2,033 2,043
----------- -----------
392,213 392,035
Less current maturities 21 19
----------- -----------
$392,192 $392,016
=========== ===========
During the quarter ended June 30, 1995, Atlantic City
Showboat, Inc. (ACSI) had available an unsecured line of credit.
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 is required to pay the bank a fee equal to
.75% of the advance. As of August 14, 1995, all the funds under
this line of credit were available for use by the Company. This
line of credit replaces the ACSI unsecured line of credit which
was due to expire in August of 1995.
-11- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 its total equity interest 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 (Las Vegas
Showboat) and Atlantic City, New Jersey (Atlantic City Showboat) and
until March 31, 1995 owned an equity interest in and managed a
riverboat casino on Lake Pontchartrain in New Orleans, Louisiana
(Showboat Star Casino).
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
its total equity interest 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.
Showboat Australia Pty Limited (SA) was formed in 1994 and, along
with Leighton Properties Ltd. formed Sydney Harbour Casino Pty.
Limited (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 in SHC for a
26.3% equity interest. SA also owns 85% of the company engaged to
manage the casino for a fee. SHC anticipates that it will commence
gaming operations in a temporary facility in September 1995 and that
the operations at the permanent facility will commence in early 1998.
As a result of the anticipated write-off of certain preopening and
development costs subsequent to the opening of the temporary casino,
the Company anticipates minimal contribution to its earnings in 1995
from the commencement of operations at the temporary facility.
-13- (continued)
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Quarter Ended June 30, 1995 Compared to Quarter Ended June 30, 1994
Revenues
Net revenues for the Company increased to $111.9 million in the
quarter ended June 30, 1995 compared to $102.4 million in the same
period in 1994, an increase of $9.5 million or 9.3%. Casino revenues
increased $9.8 million or 10.9% to $99.3 million in the quarter ended
June 30, 1995 from $89.5 million in the same period in 1994.
Nongaming revenues, which consist principally of food, beverage, room
and bowling revenues and management fees, were $22.8 million in the
second quarter of 1995 compared to $21.1 million in 1994.
The Atlantic City Showboat generated $95.0 million of net
revenues in the quarter ended June 30, 1995 compared to $81.1 million
in the same period in the prior year, an increase of $13.9 million or
17.2%. Casino revenues were $86.7 million in the three months ended
June 30, 1995 compared to $73.9 million in the same period in the
prior year, an increase of $12.8 million or 17.3%. The increase in
casino revenues was due primarily to an increase in slot revenues of
$9.3 million or 16.9% to $64.2 million in the quarter ended June 30,
1995 compared to $54.9 million in the same period in the prior year.
This increase compares to a 9.3% growth in slot revenues in the
Atlantic City market for the quarter ended June 30, 1995. The
favorable comparison to the prior year is also the result of the
addition of 15,000 square feet of casino space with approximately 560
new slot machines that opened in May 1994 and the addition of 200 slot
machines in May 1995.
At the Las Vegas Showboat, net revenues decreased to $16.9
million in the quarter ended June 30, 1995 from $20.8 million in the
same period in 1994, a decrease of $4.0 million or 19.0%. Casino
revenues decreased to $12.6 million in the second quarter of 1995 from
$15.5 million in the second quarter of 1994, a decrease of $2.9
million or 19.0%. The 37% increase in slot machine capacity on the
Boulder Strip continued to negatively impact revenues in the second
quarter of 1995. The Las Vegas Showboat also commenced an $18.5
million renovation project that required the closure of approximately
40% of its casino space. The closure of the casino space began in late
June and the Company expects the construction to be completed by
Mid-December. The Company anticipates that the construction will have
a negative impact on revenues through the end of the year.
-14- (continued)
Income From Operations
The Company's income from operations increased to $14.3 million
in the quarter ended June 30, 1995 from $14.0 million in the same
period in 1994, an increase of $.3 million or 1.7%. Improvements at
the Atlantic City Showboat were offset by the cessation of operations
of SSP and lower results in Las Vegas. In addition, the Company
incurred approximately $5.2 million in corporate expenses and expenses
relating to the pursuit of expansion opportunities in jurisdictions
outside of Nevada and New Jersey in the second quarter of 1995
compared to $5.0 million in the second quarter of 1994.
Atlantic City Showboat's income from operations, before
management fees, increased to $19.1 million in the second quarter of
1995 compared to $12.6 million in the same period in 1994, an increase
of $6.5 million or 52.0%. Operating expenses at the Atlantic City
Showboat increased $7.4 million or 10.8% to $75.9 million in the three
months ended June 30, 1995 compared to $68.5 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 rent and real estate taxes. The Atlantic City
Showboat's operating margin increased to 20.1% in the quarter ended
June 30, 1995 compared to 15.5% in the same period in 1994.
Income from operations, before management fees and intercompany
rent, at the Las Vegas Showboat declined to $0.4 million in the second
quarter of 1995 from $1.9 million in the second quarter of 1994, a
decrease of $1.6 million. Operating expenses at the Las Vegas
Showboat declined to $16.5 million in the second quarter of 1995
compared to $18.9 million in the same period in 1994, a decrease of
$2.4 million or 12.7%. Although certain reductions in expenses were
realized as a result of the decrease in the volume of business,
increased competition on the Boulder Strip resulted in the
continuation or increase in certain promotional and marketing programs.
-15- (continued)
Other (Income) Expense
Net interest expense increased to $5.6 million in the second
quarter of 1995 up from $5.0 million in the same period in 1994, an
increase of $0.6 million or 12.3%. 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
$2.4 million increase in capitalized interest associated with the
construction of SHC's temporary casino in Sydney, Australia and a $1.0
million increase in interest income.
Net Income
The Company realized net income of $5.0 million or $.32 per share
in the quarter ended June 30, 1995 compared to net income of $5.4
million or $.35 per share in the quarter ended June 30, 1994.
Six Months Ended June 30, 1995 Compared to Six Months
Ended June 30, 1994
Net revenues for the Company increased to $210.5 million in the
six months ended June 30, 1995 compared to $190.8 million in the same
period in 1994, an increase of $19.7 million or 10.3%. Casino
revenues increased $19.7 million or 11.9% to $186.1 million in the
six months ended June 30, 1995 from $166.4 million in the same period
in 1994. Nongaming revenues, which consist principally of food,
beverage, room and bowling revenues and management fees, were $43.2
million in the six months ended June 30, 1995 compared to $39.7
million in the same period in 1994.
The Atlantic City Showboat generated $175.9 million of net
revenues in the six months ended June 30, 1995 compared to $147.4
million in the same period in the prior year, an increase of $28.6
million or 19.4%. Casino revenues were $160.6 million in the six
months ended June 30, 1995 compared to $134.5 million in the same
period in the prior year, an increase of $26.2 million or 19.5%. The
increase in casino revenues was due primarily to an increase in slot
revenue of $19.7 million and an increase in table game revenue of $6.2
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 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 revenues were 73.9% of total casino
revenues in the six months ended June 30, 1995 and 73.6% in the same
period in the prior year.
-16- (continued)
At the Las Vegas Showboat, net revenues decreased to $34.4
million in the six months ended June 30, 1995 from $42.4 million in
the same period in 1994, a decrease of $8.0 million or 18.8%. Casino
revenues decreased to $25.5 million in the first six months of 1995
from $31.9 million in the first six months of 1994, a decrease of $6.4
million or 20.1%. The increased competition on the Boulder Strip
continued to have a negative impact on revenues. The Las Vegas
Showboat has commenced an $18.5 million renovation project which
required the closure of approximately 40% of the casino space at the
end of June. The Company expects the construction to have a negative
impact on revenues through the end of the year.
Income From Operations
The Company's income from operations decreased to $21.7 million
in the six months ended June 30, 1995 from $25.1 million in the same
period in 1994, a decrease of $3.4 million or 13.7%. 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 $31.6 million in the six months ended
June 30, 1995 compared to $19.6 million in the same period in 1994, an
increase of $12.0 million or 61.0%. Operating expenses at the
Atlantic City Showboat increased $16.6 million or 13.0% to $144.3
million in the six months ended June 30, 1995 compared to $127.7
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 18.0% in the six months
ended June 30, 1995 compared to 13.3% in the same period in 1994.
Income from operations, before management fees and intercompany
rent, at the Las Vegas Showboat declined to $.3 million in the six
months ended June 30, 1995 compared to $4.8 million in the six months
ended June 30, 1994, a decrease of $4.5 million. Operating expenses
at the Las Vegas Showboat declined to $34.1 million in the six months
ended June 30, 1995 compared to $37.6 million in the same period in
1994, a decrease of $3.5 million or 9.2%. 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 or increase in certain promotional and marketing programs.
-17- (continued)
Other (Income) Expense
Net interest expense increased to $11.8 million in the six months
ended June 30, 1995 up from $10.4 million in the same period in 1994,
an increase of $1.4 million or 13.5%. 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
$5.2 million increase in capitalized interest associated with the
construction of SHC's temporary casino in Sydney, Australia and a $1.4
million increase in interest income.
Income Taxes
The Company's effective income tax rate increased to 45.9% in the
six months ended June 30, 1995 compared to 40.3% in the six months
ended June 30, 1994, an increase of 5.6%. 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 $6.7 million or $.43 per share
in the six months ended June 30, 1995 compared to net income of $8.8
million or $.58 per share in the six months ended June 30, 1994.
MATERIAL CHANGES IN FINANCIAL CONDITION
As of June 30, 1995, the Company held cash and cash equivalents of
$110.1 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 six months ended June 30, 1995 the Company expended
approximately $20.4 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 will require 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 will be
funded from available cash. The Company expects the results of
operations at the Las Vegas facility will be adversely impacted by
business disruption during the construction period.
-18- (continued)
During the quarter ended June 30, 1995, Atlantic City Showboat,
Inc. (ACSI) had available an unsecured line of credit. 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 is required to pay the bank a fee equal to
.75% of the advance. As of August 14, 1995, all the funds under this
line of credit are available for use by the Company. This line of
credit replaces the ACSI unsecured line of credit which was set to
expire in August of 1995.
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), ACSI and Ocean Showboat, Inc., a wholly-owned
subsidiary of the Company, (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
that 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 them in the Bond Indenture, as amended.
-19- (continued)
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% 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,
-20- (continued)
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 June 30, 1995, the Company's Fixed
Charge Coverage Ratio was 3.03 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.
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 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 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.
-21- (continued)
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 contributed
$13.0 million to an escrow account for the benefit of SMGLLC. During
the six months ended June 30, 1995, the Company transferred $4.5
million from the escrow account to SMGLLC for the completion of the
riverboat, costs incurred in the licensing process and other general
and administrative expenses. Under the terms of certain agreements,
the Company will receive 35% of the net proceeds from any sale of the
assets of SMGLLC.
The Company is a member of a partnership, the Indiana
Partnership, consisting of Showboat Indiana Investment Limited
Partnership, a wholly owned limited partnership (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. Subject to available financial resources the Company
anticipates that it will contribute approximately $35.0 million to the
Indiana Partnership in a combination of debt and equity of which $5.4
million has been funded as of June 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 are anticipated to occur in
late 1995. Subject to licensing and other approvals, the Indiana
Partnership anticipates the commencement of gaming operations in
1996. The Indiana Partnership's site location and improvements have
not received approval from the Army Corp of Engineers. The
Partnership is currently revising its site proposal. 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
Indiana Partnership will receive approvals from the Army Corp of
Engineers.
In July 1995, the Company and Rockingham Venture, Inc., 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. The Company loaned Rockingham
Venture, Inc. $8.85 million, which loan is secured by a second
mortgage on Rockingham Park, in December 1994. 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
gaming at Rockingham Park.
-22- (continued)
The Company through its subsidiary Showboat Lemay, Inc., has an
80% general partnership interest in the Southboat Limited Partnership
(Southboat) which, subject to licensing, plans to build and operate a
riverboat casino 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 riverboat casino. Southboat will file its
application for a Missouri gaming license following completion of the
negotiation of contracts with St. Louis County. Subject to available
financial resources, the Company expects to contribute approximately
$20.0 million to Southboat and will assist the partnership in
obtaining debt financing for the construction of a riverboat casino
and related land site improvements. 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 gaming license or complete the negotiation of
contracts with St. Louis County.
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 a public offering of equity or debt securities.
-23-
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
ITEM 1. Legal Proceedings.
"Darling Harbour Casino Limited vs. New South Wales Casino
Control Authority Chief Secretary and Minister of
Administrative Services and Sydney Harbour Casino Pty. Limited"
On May 31, 1995, the Administrative Law Division of the
Supreme Court of the State of New South Wales, Australia made
an order striking certain of the claims in the complaint filed
by Darling Harbour Casino Limited (DHCL) against Sydney
Harbour Casino Pty. Limited (SHC), the New South Wales Casino
Control Authority (NSWCCA) and the Chief Secretary and
Minister for Administrative Services (Minister). DHCL as
appealed to the Court of Appeals of the Supreme Court of the
State of New South Wales against this decision, and SHC, the
NSWCCA and the Minister have cross-appealed. Arguments on the
appeals have been scheduled to be heard on October 3 and 4,
1995. The remaining claims in DHCL's complaint allege, among
other things, that DHCL was denied natural justice and/or
procedural fairness as a result of its failure to receive
notice and opportunities to respond to certain matters with
respect to an amendment to SHC's application for the casino
license. DHCL's complaint seeks the revocation of the casino
license awarded to SHC in the State of New South Wales. DHCL
was the unsuccessful applicant for such casino license. The
Company owns 26.3% of the equity of SHC.
" Hyland, et al v. Griffin Investigations, et al"
The Company has been advised that a purported class action
lawsuit was filed under the name "Hyland, et al v. Griffin
Investigations, et al on May 5, 1995 in the United States
District Court for the District of New Jersey (Camden
Division). Seventy-six casino operators, including the
Company, and others were named as defendants in the action.
The Company has not been served with a summons and complaint.
The action, purportedly 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 ostensibly based on purported violations of the federal
antitrust law, the Fair Credit Reporting Act, and various
state consumer protection laws. If served, the Company
intends to defend the action vigorously.
Item 2. Changes in Securities.
Not applicable
Item 3. Defaults Upon Senior Securities.
Not applicable
-24- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
(continued)
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company's annual meeting of shareholders was held on
May 31, 1995.
(b) Directors elected at the annual meeting for a term
expiring in 1998 are as follows: J.K. Houssels, William C.
Richardson and Jeanne S. Stewart. Directors continuing in
office after the annual meeting are as follows: John D.
Gaughan (term expires in 1997), Frank A. Modica (term expires
in 1997), H. Gregory Nasky (term expires in 1997), J. Kell
Houssels, III (term expires in 1997), George A. Zettler (term
expires in 1996) and Carolyn M. Sparks (term expires in 1996).
(c) Votes for election of directors:
Nominees For Against Abstain
----------------------------- --------- ----------- -----------
J.K. Houssels 14,590,147 114,849 -0-
William C. Richardson 14,593,172 111,824 -0-
Jeanne S. Stewart 14,592,022 112,974 -0-
Votes for ratification and selection of auditors for the year
ended December 31, 1995:
Item 5.
For Against Abstain
--------- ----------- -----------
Item 6. KPMG Peat Marwick 14,648,024 23,118 33,854
Other Information.
Not applicable
Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Current Report on Form 8-K, Item 5, dated March 31, 1995,
reporting the sale of 100% of the partnership interests of the
Showboat Star Partnership, a Louisiana general partnership
wholly-owned by Lake Pontchartrain Showboat, Inc. and Showboat
Louisiana, Inc., to Players Riverboat L.L.C., a Louisiana
limited liability company and Players Riverboat Management,
Inc., a Nevada corporation, for $52.0 million, subject to
adjustment.
-25-
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: August 14, 1995 s/H. Gregory Nasky
------------------- ----------------------------------
H. GREGORY NASKY, Executive Vice
President and Secretary
Date: August 14, 1995 s/Leann Schneider
------------------- ----------------------------------
LEANN SCHNEIDER, Vice President -
Finance and Chief Financial Officer
-26-
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