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, 1996
---------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
to
For the transition period from ------------ -----------------
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 (I.R.S. Employer
of 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
--- ---
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,
and Preferred Stock Purchase Rights 16,177,649 shares outstanding
-------------------------------- ----------------------------------
SHOWBOAT, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
September 30, 1996 and December 31, 1995 1-2
Condensed Consolidated Statements of Income-
For the three months ended September 30,
1996 and 1995 3-4
Condensed Consolidated Statements of Income-
For the nine months ended September 30,
1996 and 1995 5-6
Condensed Consolidated Statements of Cash Flows-
For the nine months ended September 30,
1996 and 1995 7
Notes to the Condensed Consolidated Financial
Statements 8-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10-22
PART II OTHER INFORMATION
ITEMS 1 - 6 23-24
SIGNATURES 25
EXHIBIT INDEX 26
Item 1. Financial Statements
SHOWBOAT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
September 30, December 31,
Assets 1996 1995
---------
(unaudited)
(In thousands)
Current assets:
Cash and cash equivalents $89,609 $106,927
Receivables, net 9,763 8,448
Income tax receivable 2,241 2,076
Inventories 2,680 2,808
Prepaid expenses 5,746 4,728
Current deferred income taxes 8,356 9,744
----------- -----------
Total current assets 118,395 134,731
----------- -----------
Property and equipment 613,473 541,786
Less accumulated depreciation
and amortization (203,131) (186,872)
--------------------------
410,342 354,914
--------------------------
Other assets:
Restricted cash and investment 101,591 -
Investments in unconsolidated affiliates 133,266 120,090
Deposits and other assets 36,320 28,911
Debt issuance costs, net of
accumulated amortization of $2,672,000
and $1,860,000 at September 30, 1996 and
December 31, 1995, respectively 9,937 10,749
--------------------------
281,114 159,750
--------------------------
$809,851 $649,395
==========================
See accompanying notes to condensed consolidated financial statements.
1 (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(continued)
LIABILITIES AND SHAREHOLDERS' EQUITY September 30, December 31,
------------------------------------ 1996 1995
(unaudited)
Current liabilities: (In thousands)
Current maturities of long-term debt $24 $22
Accounts payable 15,123 15,143
Dividends payable 405 392
Accrued liablilities 39,626 37,524
--------------------------
Total current liabilities 55,178 53,081
--------------------------
Long-term debt, excluding current maturities 532,632 392,369
--------------------------
Other liabilities 6,617 5,662
--------------------------
Deferred income taxes 23,457 22,319
--------------------------
Minority Interest 791 2,023
--------------------------
Shareholders' equity:
Preferred stock, $1 par value; 1,000,000
shares authorized; none issued
Common stock, $1 par value; 50,000,000
shares authorized; issued 16,176,049
shares at September 30, 1996 and 15,794,578
at December 31, 1995. 16,176 15,795
Additional paid-in capital 87,688 80,078
Retained earnings 84,465 80,434
--------------------------
188,329 176,307
Cumulative foreign currency
translation adjustment 4,543 285
Cost of common stock in treasury,
-0- shares at September 30, 1996 and
74,333 shares at December 31, 1995 - (587)
Unearned compensation for restricted stock (1,696) (2,064)
--------------------------
Total shareholders' equity 191,176 173,941
--------------------------
Total liabilities & shareholders' equity $809,851 $649,395
==========================
See accompanying notes to condensed consolidated financial statements.
2
SHOWBOAT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands except per share data)
1996 1995
--------------------------
Revenues:
Casino $109,262 $106,741
Food and beverage 16,323 15,057
Rooms 7,222 7,149
Sports and special events 875 1,012
Other 1,613 1,385
--------------------------
135,295 131,344
Less complimentaries 13,053 11,775
--------------------------
Net revenues 122,242 119,569
--------------------------
Operating costs and expenses:
Casino 54,035 46,871
Food and beverage 8,625 8,905
Rooms 1,557 2,047
Sports and speical eves 694 880
General and administrative 31,715 31,706
Selling, advertising and promotion 2,379 2,520
Depreciation and amortization 8,170 7,646
--------------------------
107,175 100,575
--------------------------
Income from operations from
consolidated subsidiaries 15,067 18,994
Equity in income of unconsolidated
affiliate 1,526 -
--------------------------
Income from operations 16,593 18,994
--------------------------
(continued)
3
SHOWBOAT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands except per share data)
(continued)
1996 1995
--------------------------
Income from operations $16,593 $18,994
--------------------------
Other (income) expense:
Interest income (2,818) (1,657)
Interest expense 15,541 10,768
Interest capitalized (4,852) (3,349)
Foreign currency transaction (gain)loss 1 (267)
--------------------------
7,872 5,495
--------------------------
Income before income taxes
and minority interest 8,721 13,499
Minority interest (income) (474) -
--------------------------
Income before income
tax expense 9,195 13,499
--------------------------
Income tax expense 4,294 5,673
--------------------------
Net income $4,901 $7,826
==========================
Weighted average shares outstandin 16,274,570 15,730,786
Net income per common and equivalent share $0.30 $0.50
==========================
See accompanying notes to condensed consolidated financial statements.
4
SHOWBOAT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands except per share data)
1996 1995
--------------------------
Revenues:
Casino $295,110 $292,838
Food and beverage 43,433 41,425
Rooms 19,650 19,282
Sports and special events 2,778 2,957
Management fees - 190
Other 4,524 3,938
--------------------------
365,495 360,630
Less complimentaries 31,438 30,518
--------------------------
Net revenues 334,057 330,112
--------------------------
Operating costs and expenses:
Casino 146,136 135,108
Food and beverage 24,892 24,955
Rooms 5,564 6,394
Sports and special events 2,145 2,506
General and administrative 89,497 88,833
Selling, advertising and promotion 7,739 7,693
Depreciation and amortization 24,496 23,909
--------------------------
300,469 289,398
--------------------------
Income from operations from
consolidated subsidiaries 33,588 40,714
Equity in income (loss) of
unconsolidated affiliate 1,526 (22)
--------------------------
Income from operations 35,114 40,692
--------------------------
(continued)
5
SHOWBOAT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands except per share data)
(continued)
1996 1995
--------------------------
Income from operations $35,114 $40,692
--------------------------
Other (income) expense:
Interest income (7,164) (4,547)
Interest expense 42,051 32,019
Interest capitalized (12,087) (9,916)
Gain on sale of affiliate - (2,558)
Write-down of investment in affiliate 3,902 -
Foreign currency transaction gain (83) (267)
--------------------------
26,619 14,731
--------------------------
Income before income taxes
and minority interest 8,495 25,961
Minority interest (income) (1,309) -
--------------------------
Income before income
tax expense 9,804 25,961
--------------------------
Income tax expense 4,568 11,393
--------------------------
Net income $5,236 $14,568
==========================
Weighted average shares outstanding 16,418,749 15,548,448
Net income per common and equivalent share $0.32 $0.94
==========================
See accompanying notes to condensed consolidated financial statements.
6
SHOWBOAT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
-----------------------
Cash flows from operating activities: (In thousands)
Net cash provided by operating activities $35,301 $55,508
--------------------------
Cash flows from investing activities:
Acquisition of property and equipmen (68,424) (28,812)
Proceeds from sale of equipment 466 288
Investments in unconsolidated affiliates (8,735) (39,163)
Advances to unconsolidated affiliates (3,990) (3,340)
Repayment of advances to unconsolidated affiliates 4,186 3,928
Proceeds from sale of unconsolidated affiliates - 51,366
Restricted Cash and Investments (111,440) -
(Increase) decrease in deposits and
other assets 251 (3,615)
Deposit for Casino Reinvestment
Development Authority obligation (2,900) (2,721)
Other - (42)
--------------------------
Net cash used in investing activities (190,586) (22,111)
--------------------------
Cash flows from financing activities:
Principal payments of long-term debt $ (16) $ (15)
Proceeds from issuance of long-term debt 140,000 -
Proceeds from employee stock option exercises 5,395 1,767
Debt issuance costs (6,297) (533)
Payment of dividends (1,192) (1,154)
Minority interest contributions 77 1,824
Other - (121)
--------------------------
Net cash provided (used) by financing
activities 137,967 1,768
--------------------------
Net increase (decrease) in cash and
cash equivalents (17,318) 35,165
Cash and cash equivalents at
beginning of period 106,927 90,429
Cash and cash equivalents at --------------------------
end of period $89,609 $125,594
==========================
Supplemental disclosures of cash flow information
and non-cash investing and financing activities:
Cash paid during the period for:
Interest, net of amounts capitalized 25,389 18,337
Income taxes 2,209 6,867
Foreign currency translation adjustmen 4,258 (2,154)
See accompanying notes to condensed consolidated financial statements.
7
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The condensed consolidated financial statements include all
domestic and foreign subsidiaries which are more than 50% owned and
controlled. Investments in unconsolidated affiliates which are at least
20% owned 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, 1995
Annual Report on Form 10-K.
The accompanying unaudited condensed consolidated financial statements
contain all adjustments which are only of a recurring nature, 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.
On March 28, 1996 the Company's 55% owned affiliates, Showboat
Marina Casino Partnership(SMCP) and Showboat Marina Finance Corporation
(SMFC), issued $140.0 million, 13 1/2% First Mortgage Notes due 2003,
(the First Mortgage Notes). The net proceeds of the First Mortgage
Notes plus cash contributions by the Company are classified as
restricted cash and investments in the Company's Condensed Consolidated
Balance Sheet. These funds are being used to develop a riverboat casino
complex in East Chicago, Indiana to be operated on Lake Michigan.
8 (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. LONG-TERM DEBT
Long-term debt increased by approximately $140.0 million from
December 31, 1995 to September 30, 1996. This increase is due to the
issuance of $140.0 million, 13 1/2% First Mortgage Notes, by SMCP and
SMFC. SMCP and SMFC are effectively owned 55% by the Company and
therefore are consolidated for financial reporting purposes. The First
Mortgage Notes are due 2003 and pay interest semiannually on March 15,
and September 15, of each year commencing September 15, 1996.
3. WRITE-DOWN OF INVESTMENT IN AFFILIATE
In March 1995, the Company, with an unrelated corporation (the
majority member), formed Showboat Mardi Gras, L.L.C. (SMG), to own and
operate, subject to licensing, a riverboat casino near Kansas City,
Missouri. The Company owns 35% of the equity of SMG. SMG was not
selected by the Missouri Gaming Commission for investigation for a
license. Due to a decline in the market value of the assets of SMG,
principally a riverboat, the Company has recorded a pre-tax write-down
of $3,902,000 which is included in the 1996 Condensed Consolidated
Statement of Income as write-down of investment in affiliate.
This write-down includes the Company's remaining investment in SMG.
9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
Showboat, Inc., and subsidiaries, collectively the Company or SBO, is
an international gaming company with over 40 years of gaming experience
that owns and operates the Atlantic City Showboat Casino and Hotel in
Atlantic City, New Jersey, (Atlantic City Showboat), the Las Vegas
Showboat, Hotel, Casino and Bowling Center in Las Vegas, Nevada (Las
Vegas Showboat), owns an interest in, and manages through subsidiaries,
the Sydney Harbour Casino located in Sydney, Australia and owns through
subsidiaries a 55% interest in, and will manage, the East Chicago
Showboat riverboat casino project in East Chicago, Indiana (East Chicago
Showboat), which is under construction and scheduled to open sometime in
the second quarter of 1997. Until March 31, 1995, the Company owned an
equity interest in and managed a riverboat casino on Lake Pontchartrain
in New Orleans, Louisiana (Star Casino).
Information contained in this quarterly report is supplemental to
disclosures in the Company's year end financial reports. This
management's discussion and analysis of financial condition and results
of operations should be read in conjunction with the management's
discussion and analysis of financial condition and results of operations
included in the Company's December 31, 1995 Annual Report on Form 10-K.
As used in this management's discussion and analysis of financial
condition and results of operations, amounts in Australian dollars are
denoted as "A$". As of September 30, 1996, the exchange rate was
approximately $0.7916 for each A$1.00.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Quarter Ended September 30, 1996 Compared to Quarter Ended
September 30, 1995.
Revenues
Net revenues for the Company increased $2.7 million or 2.2% in the
third quarter 1996 compared to the same period in 1995. This increase
was principally due to the $2.5 million or 2.4% increase in casino
revenues in the quarter ended September 30, 1996. Non casino revenues,
which consist principally of food, beverage and room revenues were up
$1.4 million or 5.8% in the third quarter 1996. The increases in gross
revenues were partially offset by the $1.3 million or 10.9% increase
in complimentaries. Due to the Company's agreement to forgive the first
A$19.1 million of management fees due it from Sydney Harbour Casino, the
Company has not yet received management fees from Sydney Harbour Casino.
For the quarter ended September 30, 1996, approximately A$2.9 million
of management fees were forgiven and approximately A$6.8 million in
management fees remain to be forgiven.
10 (continued)
Revenues (continued)
Quarter ended September 30,
(Unaudited)
(in thousands)
1996 1995 Variance Percent
--------------------------------------------------
Consolidated:
Casino revenues $ 109,262 $ 106,741 $ 2,521 2.4%
Non casino revenues 26,033 24,603 1,430 5.8%
Less complimentaries 13,053 11,775 1,278 10.9%
--------------------------------------------------
Net revenues Consolidated $ 122,242 $ 119,569 $ 2,673 2.2%
--------------------------------------------------
Atlantic City:
Table game revenues $ 23,291 $24,075 $ (784) -3.3%
Slot revenues 74,538 73,497 1,041 1.4%
Other gaming revenues 605 781 (176) -22.5%
--------------------------------------------------
Total casino 98,434 98,353 81 0.1%
--------------------------------------------------
Non casino revenues 19,954 19,855 99 0.5%
Less complimentaries 11,920 10,897 1,023 9.4%
--------------------------------------------------
Net revenues Atlantic City $ 106,468 $ 107,311 $ (843) -0.8%
--------------------------------------------------
Las Vegas:
Table game revenues $ 1,231 $998 $ 233 23.3%
Slot revenues 9,484 7,225 2,259 31.3%
Other gaming revenues 113 165 (52) -31.5%
--------------------------------------------------
Total casino 10,828 8,388 2,440 29.1%
--------------------------------------------------
Non casino revenues 6,079 4,748 1,331 28.0%
Less complimentaries 1,133 878 255 29.0%
--------------------------------------------------
Net revenues Las Vegas $ 15,774 $ 12,258 $ 3,516 28.7%
--------------------------------------------------
11 (continued)
Revenues (continued)
The Atlantic City Showboat's net revenues declined $.8 million or
.8% in the third quarter 1996 compared to the third quarter of 1995.
This decline is principally due to a $1.0 million or 9.4% increase in
complimentaries. The increase in complimentaries is due principally to
an increase in complimentary rooms offered to patrons in the third
quarter 1996 compared to the same period in 1995. The $.8 million
decline in table games revenues was offset by $1.0 million increase
in slot revenues or 1.4% increase in the third quarter 1996. The
Atlantic City industry's slot revenue growth slowed to .4% in the third
quarter of 1996 compared to a 9.5% increase in the same quarter of 1995.
The increase in slot revenues is attributable to approximately 350
additional slot units or an increase of 11.0% in the third quarter 1996
compared to the same period in 1995. The industry's slot unit growth
in the third quarter 1996 was 13.1% compared to a 7.7% growth in the
same quarter of 1995. The decline in other gaming revenues of $.2
million or 22.5% is principally due to the decline in keno revenues
during the quarter ended September 30, 1996.
For the quarter ended September 30, 1996 the Las Vegas Showboat's net
revenues increased $3.5 million or 28.7% to $15.8 million compared to
$12.3 million in the same period in 1995. The increase in total casino
revenues and non casino revenues in the quarter ended
September 30, 1996 as compared to the same period in 1995 is
principally due to the increased casino and food and beverage capacity.
During the third quarter of 1995, the casino was operating at
approximately 60% of capacity due to the renovation project and the
coffee shop was closed for a full month during the third quarter.
Income from Operations
The Company's income from operations declined $2.4 million or 12.6%
in the quarter ended September 30, 1996 compared to the same period in
the prior year. The decrease was due principally to a decline in
income from operations at both the Atlantic City Showboat and Las Vegas
Showboat. These declines were partially offset by a $1.5 million
contribution from the Company's Australian operations and $1.0 million
or 19.2% decrease in operating expenses for the Company's corporate and
development functions.
12 (continued)
Income From Operations (continued)
Quarter ended September 30,
(Unaudited)
(in thousands)
1996 1995 Variance Percent
Income from operations: --------------------------------------------------
Atlantic City $ 23,069 $ 26,727 $ (3,658) -13.7%
Las Vegas (3,671) (2,382) (1,289) -54.1%
Australia 1,478 (48) 1,526 N/A
Corporate and
development (4,283) (5,303) 1,020 19.2%
--------------------------------------------------
Consolidated $ 16,593 $ 18,994 $ (2,401) -12.6%
--------------------------------------------------
EBITDA:*
Atlantic City $ 29,600 $ 33,387 $ (3,787) -11.3%
Las Vegas (2,132) (1,456) (676) -46.4%
Australia 1,478 (48) 1,526 N/A
Corporate and
development (4,183) (5,243) 1,060 20.2%
--------------------------------------------------
Consolidated $ 24,763 $ 26,640 $ (1,877) -7.0%
--------------------------------------------------
*EBITDA is defined as income from operations before depreciation and
amortization. EBITDA should not be construed as a substitute for
income from operations, net earnings (loss) and cash flows from
operating activities determined in accordance with Generally Accepted
Accounting Principles ("GAAP"). The Company has included EBITDA because
it believes it is commonly used by certain investors and analysts to
analyze and compare gaming companies on the basis of operating
performance, leverage and liquidity and to determine a company's ability
to service debt.
Atlantic City Showboat's income from operations, before management
fees, decrease of $3.7 million or 13.7% is principally due to a decrease
in industry revenue growth and an increase in operating expenses of
$2.8 million or 3.5% to $83.4 million for the September 30, 1996
quarter up from $80.6 million for the same period in the prior year.
The increase in operating expenses is primarily attributable to
increased marketing expenses in response to aggressive competition for
slot patrons in the Atlantic City market during the third quarter 1996.
13 (continued)
Income From Operations (continued)
The $1.3 million decrease in income from operations at the Las Vegas
Showboat, before management fees and inter-company rent, was due
primarily to an increase in operating expenses, partially offset by the
increase in net revenues. Operating expenses increased $4.8 million or
32.8% during the third quarter of 1996 to $19.4 million compared to
$14.6 million for the same period in 1995. The increase in operating
expenses is due principally to the increased casino and food and
beverage capacity during the third quarter 1996 as compared to when the
casino was under renovation in the same quarter of 1995 and an increase
in marketing expenses during the quarter ended September 30, 1996.
The $1.0 million decline in operating expenses for corporate and
development is attributable to a reduction in the scope of development
activities in the third quarter of 1996 compared to the same period of
1995.
Net income
In the quarter ended September 30, 1996 the Company recorded net
income of $4.9 million or $.30 per share compared to net income of $7.8
million or $.50 per share for the quarter ended September 30, 1995. The
decline in net income for the third quarter of 1996 is attributable to
the $2.4 million decrease in income from operations reported in the
quarter ended September 30, 1995, and a $1.6 million increase in net
interest expense, due principally to the East Chicago, Indiana project
financing.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
Revenues
Net revenues for the Company increased $3.9 million or 1.2% in the
first nine months of 1996 compared to the same period in 1995. The
Company received no management fees in the nine months ended September
30, 1996 due to the Company's agreement to forgive the first A$19.1
million of management fees due it from Sydney Harbour Casino. For the
nine months ended September 30, 1996, approximately A$8.3 million of
management fees were forgiven and approximately A$6.8 million in
management fees remain to be forgiven. The $.2 million management
fee received in 1995 was attributable to the Company's investment in the
Star Casino which was sold in March of 1995.
14 (continued)
Revenues (continued)
Nine months ended September 30,
(Unaudited)
(in thousands)
1996 1995 Variance Percent
--------------------------------------------------
Consolidated:
Casino revenues $ 295,110 $292,838 $ 2,272 0.8%
Non casino revenues 70,385 67,602 2,783 4.1%
Management fees - 190 (190) -100.0%
Less complimentaries 31,438 30,518 (920) -3.0%
--------------------------------------------------
Net revenues Consolidated $ 334,057 $330,112 $ 3,945 1.2%
--------------------------------------------------
Atlantic City:
Table game revenues $ 60,797 $64,453 $ (3,656) -5.7%
Slot revenues 199,563 192,220 7,343 3.8%
Other gaming revenues 1,608 2,298 (690) -30.0%
--------------------------------------------------
Total casino 261,968 258,971 2,997 1.2%
--------------------------------------------------
Non casino revenues 51,860 51,499 361 0.7%
Less complimentaries 28,077 27,252 825 3.0%
--------------------------------------------------
Net revenues Atlantic City $ 285,751 $ 283,218 $ 2,533 0.9%
--------------------------------------------------
Las Vegas:
Table game revenues $ 3,908 $3,649 $ 259 7.1%
Slot revenues 28,000 28,658 (658) -2.3%
Other gaming revenues 1,234 1,560 (326) -20.9%
--------------------------------------------------
Total casino 33,142 33,867 (725) -2.1%
--------------------------------------------------
Non casino revenues 18,525 16,103 2,422 15.0%
Less complimentaries 3,361 3,266 95 2.9%
--------------------------------------------------
Net revenues Las Vegas $ 48,306 $ 46,704 $ 1,602 3.4%
--------------------------------------------------
15 (continued)
Revenues (continued)
The Atlantic City Showboat's net revenues were up $2.5 million or .9%
principally due to a $7.3 million or 3.8% increase in slot revenue in
the nine months ended September 30, 1996 over the same period in 1995.
The increase in slot revenue is attributable to the addition of
approximately 370 slot units or 11.7% increase during the nine months
ended September 30, 1996. The Atlantic City industry's slot revenue
growth slowed to 2.4% in the first nine months of 1996 compared to
growth of 13.4% in the same period in 1995. In addition, there was a
9.6% increase in slot units in the nine months ended September 30, 1996
compared to a slot unit growth of 11.0% in the same period of 1995.
The increase in slot revenues for the Atlantic City Showboat was
partially offset by a $3.7 million or 5.7% decrease in table game
revenues. This decline is attributable to a reduction in table games
marketing during the nine months ended September 30, 1996. The decline
in other gaming revenues of $.7 million or 30.0% is principally due
to the decline in keno revenues during the nine months ended
September 30, 1996.
For the nine months ended September 30, 1996 the Las Vegas Showboat
net revenues increased $1.6 million or 3.4% to $48.3 million compared to
$46.7 million in the same period in 1995. Although casino revenues
decreased only $.7 million or 2.1% for the nine months ended September
30, 1996 compared to the same period in 1995, the 1995 net revenues
reflect a reduced casino capacity in the third quarter due to the
property's renovation project. The non-casino revenues increased $2.4
million or 15.0% to $18.5 million for the nine months ended September
30, 1996 compared to $16.1 million in the same period in 1995. This
increase is due to the increased food and beverage capacity as compared
with the same period in the prior year.
Income From Operations
The Company's income from operations decreased $5.6 million or 13.7%
in the nine months ended September 30, 1996 compared to the same period
in the prior year. The decrease was due principally to a decline in
income from operations at both the Atlantic City Showboat and Las Vegas
Showboat. These declines were partially offset by the $1.5 million
contribution from the Company's Australian operations and the $2.9
million or 18.9% decrease in operating expenses for the Company's
corporate and development functions.
16 (continued)
Income From Operations (continued)
Nine Months ended September 30,
(Unaudited)
(in thousands)
1996 1995 Variance Percent
--------------------------------------------------
Income from operations:
Atlantic City $ 53,206 $ 58,313 $ (5,107) -8.8%
Las Vegas (6,981) (2,081) (4,900) -235.5%
Australia 1,401 (105) 1,506 N/A
Corporate and
development (12,512) (15,435) 2,923 18.9%
--------------------------------------------------
Consolidated $ 35,114 $ 40,692 $ (5,578) -13.7%
--------------------------------------------------
EBITDA:*
Atlantic City $ 73,037 $ 79,010 $ (5,973) -7.6%
Las Vegas (2,589) 961 (3,550) -369.4%
Australia 1,401 (105) 1,506 N/A
Corporate and
development (12,239) (15,265) 3,026 19.8%
--------------------------------------------------
Consolidated $ 59,610 $ 64,601 $ (4,991) -7.7%
--------------------------------------------------
*EBITDA is defined as income from operations before depreciation and
amortization. EBITDA should not be construed as a substitute for income
from operations, net earnings (loss) and cash flows from operating
activities determined in accordance with Generally Accepted Accounting
Principles ("GAAP"). The Company has included EBITDA because it believes
it is commonly used by certain investors and analysts to analyze and
compare gaming companies on the basis of operating performance, leverage
and liquidity and to determine a company's ability to service debt.
The Atlantic City Showboat's income from operations, before
management fees, decreased $5.1 million or 8.8% in the nine months
ended September 30, 1996 compared to the same period in 1995. This
decrease is attributable to an increase in operating expenses of $7.6
million or 3.4% to $232.5 million and the slower industry revenue
growth for the nine months ended September 30, 1996 compared to the same
period in the prior year. The increase in operating expenses is
primarily attributable to increased marketing expenses in response to
aggressive competition for slot patrons in the Atlantic City Market
during the nine months ended September 30, 1996. This was partially
offset by the $2.5 million increase in net revenues for the nine
months ended September 30, 1996.
17 (continued)
Income From Operations (continued)
The $4.9 million decline in income from operations at the Las Vegas
Showboat, before management fees and inter-company rent, for the nine
months ended September 30, 1996 was due principally to an increase in
operating expenses, partially offset by an increase in net revenues.
Operating expenses increased $6.5 million during the nine months ended
September 30, 1996 to $55.3 million compared to $48.8 million for the
same period in 1995. The increased operating expense is due primarily
to an increase in advertising and marketing promotions and an increase
in all operating expenses in the third quarter of 1996 compared to the
third quarter of 1995. During the third quarter of 1995, the casino was
operating at approximately 60% of capacity due to the property's
renovation project.
The $2.9 million decrease in operating expenses for corporate and
development is attributable to a reduction in the scope of development
activities for the nine months ended September 30, 1996 compared to
1995. The Company capitalized $1.1 million of costs related to the
Company's St. Louis project in the first nine months of 1996 compared to
$3.7 million capitalized for the Company's East Chicago and Randolph
riverboat projects in the same period in 1995.
Net income
In the nine months ended September 30, 1996 the Company recorded net
income of $5.2 million or $.32 per share compared to net income of $14.6
million or $.94 per share for the nine months ended September 30, 1995.
Unusual items totaling $5.1 million are contributing factors to the
decline in net income for the nine months ended September 30, 1996
compared to September 30, 1995. The 1996 results reflect an after tax
loss of $2.0 million or $.12 per share for the write down of the
Company's investment in Showboat Mardi Gras, L.L.C. (SMG). SMG was
formed to develop a riverboat casino operation in Randolph, Missouri.
In comparison, the first nine months of 1995 net income results
included an after tax gain of $1.4 million or $.09 per share on the sale
of the Star Casino. The 1996 results also reflect net interest expense
for the East Chicago, Indiana project of $.9 million or $.06 per share
and a reduction of interest income of $.8 million or $.05 per share due
to the investment of corporate cash in the East Chicago Subsidiary.
18 (continued)
MATERIAL CHANGES IN FINANCIAL CONDITION
As of September 30, 1996 the Company held cash and cash equivalents
of $89.6 million compared to $106.9 million at December 31, 1995. This
decline is due principally to the funding of the East Chicago project.
On March 28, 1996 the Company's 55% owned subsidiaries, Showboat
Marina Casino Partnership (SMCP) and Showboat Marina Finance
Corporation (SMFC), sold $140.0 million, 13 1/2% First Mortgage Notes
due 2003 (the "First Mortgage Notes"). The funds were raised to
support the development of the East Chicago Showboat riverboat casino
project in East Chicago, Indiana (the "East Chicago Showboat")
Interest expense incurred on the First Mortgage Notes will be
capitalized to the extent permitted under generally accepted accounting
principles and as a result the Company anticipates that a portion of
this expense will impact results in reporting periods preceding the
opening of the East Chicago Showboat project, currently anticipated for
sometime in the second quarter of 1997. As a result, for the period
ended December 31, 1996, the Company anticipates that net interest
expense of approximately $2.0 million to $3.0 million will be recorded.
The First Mortgage Notes are senior secured obligations of SMCP and
rank senior in right of payment to all existing and future subordinated
indebtedness of SMCP and pari passu with SMCP's senior indebtedness.
Terms not otherwise defined herein have the meanings assigned to them
in the First Mortgage Note Indenture. The First Mortgage Notes are
secured by a first lien on substantially all of SMCP's assets. The
First Mortgage Note Indenture places significant restrictions on SMCP
for the incurrence of additional Indebtedness, the creation of
additional Liens on the Collateral securing the First Mortgage Notes,
transactions with Affiliates and making Restricted Payments unless
certain conditions are met. Restricted Payments include paying a
management fee to the Manager of the East Chicago Showboat, an entity
which is 55% owned by the Company. In order to pay the management fee,
among other things, SMCP's Fixed Charge Coverage Ratio must be greater
than 1.5 to 1.0 for the most recently ended four full fiscal quarters,
after giving effect to such Restricted Payment. To make any other
Restricted Payment SMCP must, among other things, have a Fixed Charge
Coverage Ratio greater than 2.0 to 1.0 for the most recently ended four
full fiscal quarters, after giving effect to such Restricted Payment.
19 (continued)
In addition, subject to certain qualifications and exceptions, the
Company entered into a standby equity commitment with SMCP, pursuant to
which it will cause to be made up to an aggregate of $30.0 million in
additional capital contributions to SMCP if, during the first three
full four fiscal quarters following the commencement of operations at
the East Chicago Showboat, the project's combined cash flow (as defined)
is less than $35.0 million for any one such full four quarter period.
However, in no event will the Company be required to cause to be
contributed to SMCP more than $15.0 million in respect of any such
full four quarter period. In addition, subject to certain
qualifications and exceptions, the Company entered into a completion
guarantee with SMCP to complete the East Chicago project so that it
becomes operational, including the payment of all costs owing prior to
such completion, up to a maximum aggregate amount of $30.0 million.
The Company's obligation to complete the East Chicago project will be
suspended during the pendency of any force majeure event or other event
outside the control of the Company. The East Chicago project budget
recently was increased by $5.0 million to $200.0 million to provide for
an enhanced pavilion and enhanced employee training. Currently, the
Company believes that SMCP has sufficient resources to complete the
East Chicago Showboat. However, no assurance can be given that SMCP
will be able to complete the East Chicago Showboat from its available
financing resources.
The Company's ability to make certain payments and to incur
additional indebtedness is restricted due to the covenants contained in
its indentures governing its 9 1/4% First Mortgage Notes due 2008 and
13% Senior Subordinated Notes due 2009. A description of these
restrictions is contained in management's discussion and analysis of
financial condition and results of operations contained in the Company's
Form 10-k for the period ended December 31, 1995.
During the nine months ended September 30, 1996 the Company expended
approximately $68.4 million on capital improvements at its Las Vegas
and Atlantic City facilities (which were funded from operations) and
construction costs at the East Chicago Showboat(which were principally
funded from the proceeds of the First Mortgage Notes). Approximately
$48.3 million of the $68.4 million related to the East Chicago Showboat.
On April 1, 1996, an affiliate of the Company, Sydney Harbour Casino
Holdings Limited, ("SHCH") through its wholly owned subsidiary, Sydney
Harbour Casino Properties Pty Limited, ("SHCP") renegotiated its
agreement with Leighton Properties Pty Limited ("Leighton Properties")
for the design and construction of the interim and permanent Sydney
Harbour Casino. The renegotiated project cost is approximately A$867.2
million, a A$176.1 million increase over the April 1994 projected
project cost of A$691.1 million, and includes the administration and
management of the project, enhancement of the interior theming, an
accelerated completion date of December 1997, the firming up of monetary
allowances and resolution of certain claims by Leighton Properties to
SHCP. The design element changes incorporated in the renegotiated
20 (continued)
contract for the permanent casino were made with a view towerd improving
its operational efficiency and product quality and to match the changing
competitive environment. The increased project cost is being funded in
part by the sale of 35,250,000 preferred ordinary shares of stock by
SHCH on May 13, 1996, providing net proceeds of approximately A$64.0
million. Additional financing of A$150.0 million has been negotiated
with local banks. Bank documents have been finalized with the banks
and are awaiting final regulatory approval. As with any construction
contract, the final amount of such contract will be subject to
modification based upon change orders and the occurrence of events such
as costs associated with certain types of construction delays. No
assurance can be given that the construction costs for the Sydney
Harbour will not exceed the announced project cost estimate. The
sale of the additional equity by SHCH reduced the Company's equity in
the project to 24.6% from 26.3%.
The Company through its subsidiary, Showboat Lemay, Inc. ("Showboat
Lemay"), has an 80% general partner interest in Southboat Limited
Partnership ("SLP") which, subject to licensing, plans to build and
operate a riverboat casino project and related facilities (the
"Southboat Casino Project") on the Mississippi River near Lemay,
Missouri. Pursuant to the limited partnership agreement, Showboat Lemay
is responsible for borrowing up to $75.0 million (the "Development
Financing') on behalf of SLP. The Company has committed to use its best
efforts to obtain a commitment letter for the Development Financing
within 60 days after SLP is selected for investigation for a gaming
license by the Missouri Gaming Commission or obtain the Development
Financing within a commercially reasonable time following such
selection. The Company's commitment replaced a previous commitment
letter from an unrelated party. No assurance can be given that SLP will
be successful in obtaining the necessary funds to finance its gaming
project or that SLP will successfully obtain a casino license.
The Company continues to examine, and if appropriate, may pursue
potential gaming opportunities in jurisdictions where gaming is
legalized and in other jurisdictions that, in the future, may legalize
private for profit casino gaming. There can be no assurance that
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 jurisdictions or the Company will be
able to obtain the required licenses in any jurisdiction. Further, no
assurance can be given that any of the announced or 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 developments are
subject to a number of risks and uncertainties, many of which are beyond
the Company's control.
21 (continued)
The Company believes that it has sufficient capital resources,
including its existing cash balances, cash provided by operations and
existing borrowing capacity, to cover the cash requirements of its
existing operations. The ability of the Company to satisfy its cash
requirements, 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 will need to make significant
capital investments in such opportunities and additional financing will
be required. The Company anticipates that additional funds will be
obtained through loans or public offerings of equity or debt
securities, although no assurance can be made that such funds will be
available or at interest rates acceptable to the Company.
All statements contained herein that are not historical facts,
including but not limited to, statements regarding the Company's
current business strategy, the Company's prospective joint ventures,
expansions of existing projects, and the Company's plans for future
development and operations, are based upon current expectations. These
statements are forward-looking in nature and involve a number of risks
and uncertainties. Actual results may differ materially. Among the
factors that could cause actual results to differ materially are the
following: the availability of sufficient capital to finance the
Company's business plan on terms satisfactory to the Company;
competitive factors, such as legalization of gaming in jurisdictions
from which the Company draws significant numbers of patrons and an
increase in the number of casinos serving the markets in which the
Company's casinos are located; changes in labor, equipment and capital
costs; the ability of the Company to consummate its contemplated joint
ventures on terms satisfactory to the Company and to obtain necessary
regulatory approvals therefore; changes in regulations affecting the
gaming industry; the ability of the Company to comply with its
Indentures for its 9 1/4% First Mortgage Bonds and 13% Senior
Subordinated Indebtedness; future acquisitions or strategic
partnerships; general business and economic conditions; and other
factors described from time to time in the Company's reports filed with
the Securities and Exchange Commission. The Company wishes to caution
the readers not to place undue reliance on any such forward-looking
statements, which statements are made pursuant to the Private
Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
22
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
Item 1. Legal Proceedings
"Larry Schreier v. Caesars World, Inc. et al.", Case No. 95-923-LDG
(RJJ), instituted on September 26, 1995, in the United States District
Court for the District of Nevada, Southern District. An individual,
purportedly representing a class, filed a complaint against four
manufacturers, three distributors and 38 casino operators, including the
Company, that 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
without any substantiation of that amount. The Company filed a motion
to dismiss the complaint. The Nevada District Court entered an order
granting the motions to dismiss based on defects in the pleadings, and
denying as moot all other pending motions, including those of the
Company. The Court granted plaintiff until September 30, 1996 within
which to file an amended complaint that complies with the applicable
pleading requirements. The plaintiff filed an amended complaint on or
about September 30, 1996. The Company renewed its motion to dismiss
based on abstention and related doctrines, and based on defects in the
pleadings. Management believes that the complaint is without merit and
intends to vigorously defend the allegations.
"Global Gaming Technology, Inc. v. Trump Plaza Funding, Inc.,
et al.", Case No.94-2021 (JHR), instituted on May 5, 1994, in the United
States District Court for the District of New Jersey. The plaintiff,
Global Gaming Technology, Inc., filed a complaint against eight casino
operators in Atlantic City, New Jersey. The complaint alleges a patent
infringement with respect to certain of the electronic slot machines
used by the defendants, including the Atlantic City Showboat. The
plaintiff seeks to recover damages for copyright infringement in excess
of $500 million. The manufacturers of the slot machines in question
have assumed the defense and have indemnified the Atlantic City Showboat
and other casinos in this matter. The manufacturers filed a complaint
against the plaintiff in the United States District Court for the
District of Nevada, Southern District. The United States District Court
for the District of New Jersey stayed the New Jersey action pending
resolution of the issues in the pending Nevada action. In September
1996, the trial of the Nevada action was held and the parties are
awaiting the decision of the trial judge.
23 (continued)
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
(continued)
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
---------- ----------------------------------
10.01 Showboat, Inc. 1996 Stock Appreciation
Rights Plan, effective date September 3, 1996.
27.1 Finanical Data Schedules
(b) Reports on Form 8-K
None
24
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, 1996 s/ J. Kell Houssels, III
--------------------- --------------------------------------
J. KELL HOUSSELS, III,
President and Chief Executive
Officer
Date: November 13, 1996 s/ R. Craig Bird
--------------------- --------------------------------------
R. CRAIG BIRD, Executive Vice
President - Finance and
Administration and Chief
Financial Officer
25
EXHIBIT INDEX
Exhibit No. Description
------------ ----------------------------------
10.01 Showboat, Inc. 1996 Stock Appreciation
Rights Plan, effective date September 3, 1996.
27.1 Financial Data Schedules
26
SHOWBOAT, INC.
1996 STOCK APPRECIATION RIGHTS PLAN
I. PURPOSES
Showboat, Inc. (the "Company") desires to afford
certain of its key employees and certain key employees of
its subsidiaries who are responsible for the continued
growth of the Company, an opportunity to participate in the
growth of the Company, and thus to create in such persons an
increased interest in and a greater concern for the welfare
of the Company and its subsidiaries.
The stock appreciation rights ("Rights") offered
pursuant to this 1996 Stock Appreciation Rights Plan (the
Plan) are a matter of separate inducement and are not in
lieu of any salary or other compensation for the services of
any key employee.
II. GRANT OF STOCK APPRECIATION RIGHTS
PURSUANT TO THE PLAN
The Company may, from time to time during the
period beginning on September 3, 1996 (the "Effective Date")
and ending on the tenth anniversary thereof grant Rights to
certain key employees of the Company, or certain key
employees of any subsidiary of the Company, under the terms
hereinafter set forth. The total number of shares of common
stock, $1.00 par value per share, of the Company ("Common
Stock") subject to Rights which may be issued pursuant to
this Plan shall not exceed 800,000, with no individual
employee to receive in excess of 120,000 Rights, in both
cases subject to adjustment in accordance with Article VIII
of the Plan.
III. ADMINISTRATION
The board of directors of the Company (the "Board
of Directors") shall designate from among its members a
committee (the "Committee") to administer the Plan. The
Committee shall consist of no less than two members of the
Board of Directors, each of whom shall be an "outside
director" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code") and
any regulations promulgated thereunder, and the Committee
1
shall administer the Plan so as to comply at all time with
Section 162(m) of the Code. A majority of the members of
the Committee shall constitute a quorum (or if the
Committee consists of only two members, then both members
shall constitute a quorum), and the acts of a majority of
the members present at any meeting at which a quorum is
present, or acts approved in writing by all members of the
Committee, shall be the acts of the Committee.
Any member of the Committee may be removed at any
time with or without cause by resolution adopted by the
Board of Directors and any vacancy on the Committee at any
time may be filled by resolution adopted by the Board of
Directors.
Subject to and not inconsistent with the express
provisions of the Plan, the Committee shall have authority,
in its sole discretion, to:
(a) determine the key employees to whom Rights
shall be granted, the time when such Rights shall be
granted, the number of shares of Common Stock subject to
Rights, the period(s) during which such Rights shall be
exercisable (whether in whole or in part), the restrictions
to be applicable to Rights and all other terms and
provisions thereof (which need not be identical);
(b) require, as a condition to the granting of
any Rights, that the person receiving such Rights agree not
to sell or otherwise dispose of such Rights;
(c) provide (in accordance with Article X hereof
or otherwise) the establishment of a procedure whereby the
necessary amounts may be withheld from the total payments
made to any person upon exercise of a Right to meet the
obligation of withholding for income, social security and
other taxes incurred by such person upon such exercise or
required to be withheld by the Company in connection with
such exercise;
(d) prescribe, amend, modify and rescind rules
and regulations relating to the Plan;
(e) make all determinations permitted or deemed
necessary, appropriate or advisable for the administration
of the Plan, interpret any Plan or Rights provision, perform
all other acts, exercise all other powers, and establish
any other procedures determined by the Committee to be
necessary, appropriate or advisable in administering the
Plan or for the conduct of the Committee's business. Any
act of the Committee, including interpretations of the
2
provisions of the Plan or any Rights and determinations
under the Plan or any Rights shall be final, conclusive and
binding on all parties.
The Committee may employ attorneys, consultants,
accountants, or other persons as it may deem desirable for
the administration of the Plan and may rely upon the advice,
opinions or computations of any such persons. Expenses
incurred by the Committee in the engagement of such persons
shall be paid by the Company. No member or former member of
the Committee shall be personally liable for any action,
determination or interpretation made in good faith with
respect to the Plan or any Rights granted hereunder.
IV. ELIGIBILITY; TERMS AND CONDITIONS OF
STOCK APPRECIATION RIGHTS
Rights may be granted only to key employees of the
Company or any subsidiary of the Company. The Plan does not
create a right in any person to participate in, or be
granted Rights under, the Plan.
Any Rights granted hereunder shall, unless
otherwise provided in such Rights, vest immediately upon the
grant of such Rights.
The exercise price of a Right shall be $24.58 in
the case of the initial grant of any Rights hereunder (which
shall not be less than one hundred percent (100%) of the
fair market value of one share of Common Stock on the date
of grant of such Right) and the exercise price of a Right
granted after such initial grant shall be equal to one
hundred and fifteen percent (115%) of the fair market value
of one share of Common Stock on the date of grant of such
Right.
Any Right granted hereunder shall be exercisable
at any time during a period of not more than thirty (30)
days after the date of a Change in Control of the Company
(as hereinafter defined) (the "Exercise Period"); provided,
however, that a Right shall not be exercisable after the
expiration of ten (10) years from the Effective Date. Any
Right remaining unexercised at the earlier of (i) the
expiration of ten (10) years from the Effective Date or
Period, shall expire on such date.
Any Right shall be exercisable upon such
additional terms and conditions as may from time to time be
prescribed by the Committee.
3
The Committee shall have the right to accelerate,
in whole or in part, from time to time, conditionally or
unconditionally, rights to exercise any Right granted
hereunder.
Except as otherwise provided below or in the terms
of the grant of any Right, the exercise of a Right, in the
manner described in Article V below, shall entitle the
holder to receive from the Company, cash, in an aggregate
amount equal to the excess, if any, of fair market value
per share of Common Stock on the date of the Change in
Control of the Company over the exercise price of the Right
as specified in such Right.
For purposes of the Plan, "fair market value,"
with respect to any date of determination, means:
(i) if the shares of Common Stock are listed or
admitted to trading on a national securities exchange in the
United States or reported through the NASDAQ Stock Market
("NASDAQ"), then the closing sale price on such exchange or
NASDAQ on such date or, if no trading occurred or quotations
were available on such date, then on the closest preceding
date on which the shares of Common Stock were traded or
quoted; or
(ii) if not so listed or reported but an active
public market for the shares of Common Stock exists (as
determined in the sole discretion of the Committee, whose
decision shall be conclusive and binding), then the average
of the closing bid and ask quotations per share of Common
Stock in the over-the-counter market for such shares of
Common Stock in the United States on such date or, if no
such quotations are available on such date, then on the
closest date preceding such date. For purposes of the
foregoing, a market in which trading is sporadic and the ask
quotations generally exceed the bid quotations by more than
15% shall not be deemed to be an "active public market"; or
(iii) in the case of a Change in Control of the
Company, (A) the highest price per share of Common Stock
paid by the "person" described in clause (a) of the
definition of "Change in Control of the Company", (B) the
fair market value per share of Common Stock (determined as
provided in (i) and (ii) above) on the date of a
transaction described in clause (b) of the definition of
Change in Control of the Company and (C) the amount of
cash (or the fair market value of other property, as
determined by the Committee in its sole discretion) paid per
share of Common Stock in the
4
case of a transaction described in clause (c) of the
definition of "Change in Control of the Company".
If the Committee determines that an active public
market does not exist for the shares of Common Stock, or in
the case of a determination to be made by the Committee
pursuant to (iii) above, the Committee shall determine the
fair market value of the shares of Common Stock in its good
faith judgment based on the total number of shares of Common
Stock then outstanding, taking into account all outstanding
options, warrants, rights or other securities exercisable or
exchangeable for, or convertible into, shares of Common
Stock.
For purposes of the Plan, a "Change in Control of
the Company" shall occur (a) if any person or other entity,
including any person as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act") becomes the beneficial owner, as defined in Rule 13d-3
of the Exchange Act, directly or indirectly, of more than
fifty percent (50%) of the total combined voting power of
all classes of capital stock of the Company normally
entitled to vote for the election of directors of the
Company (the "Voting Stock"), (b) upon the closing of the
sale of all or substantially all of the property or assets
of the Company or (c) upon the closing of a consolidation or
merger of the Company with another corporation, the
consummation of which results in the stockholders of the
Company immediately before the occurrence of the
consolidation or merger owning, in the aggregate, less than
50% of the Voting Stock of the surviving entity.
In the event that any payment or benefit received
or to be received by a holder of a Right pursuant to the
terms of this Plan or the Rights (the "Rights Payments") or
of any other plan, arrangement or agreement of the Company
(or any affiliate) ("Other Payments" and, together with the
Rights Payments, the "Payments") would, in the opinion of
independent tax counsel selected by the Company and
reasonably acceptable to the employee ("Tax Counsel"), be
subject to the excise tax (the "Excise Tax") imposed by
section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (in whole or in part), as determined as
provided below, the Rights Payments shall be reduced (but
not below zero) until no portion of the Payments would be
subject to the Excise Tax. For purposes of this limitation,
which the employee shall have effectively waived in writing
shall be taken into account, (ii) only the portion of the
Payments which in the opinion of Tax Counsel constitute a
parachute payment within the meaning of Section 280G(b)(2)
5
of the Code shall be taken into account, (iii) the Payments
shall be reduced only to the extent necessary so that the
Payments would not be subject to the Excise Tax, in the
opinion of Tax Counsel, and (iv) the value of any noncash
benefit or any deferred payment or benefit included in such
payments shall be determined in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
V. EXERCISE OF STOCK APPRECIATION RIGHTS
A holder shall exercise a Right by submitting to
the Company at its principal office a written notice (the
Notice) specifying the number of Rights being exercised
and the exercise price(s) of such Rights.
Except as otherwise provided herein, the exercise
of a Right shall entitle the holder to receive from the
Company, within ten (10) business days of the date of
receipt of the Notice by the Company at its principal
office, an amount of cash determined as set forth in
Article IV hereof.
VI. NONTRANSFERABILITY OF STOCK
APPRECIATION RIGHTS
Any Right granted hereunder shall not be
transferable, other than by will or the laws of descent and
distribution, and any Right granted hereunder shall, subject
to Article VIII hereof, be exercisable, during the lifetime
of the holder, only by such holder.
VII. TERMINATION OF EMPLOYMENT
Upon termination of employment of any key employee
with the Company and all subsidiary corporations of the
Company, any Right previously granted to such employee,
unless otherwise specified by the Committee in the Right
shall, to the extent not theretofore exercised, terminate
and become null and void; provided, however, that:
(A) if any key employee shall die while in the
employ of such corporation or during either the one (1) year
or three (3) month period, whichever is applicable,
specified in clauses (B) and (C) below, any Right granted
hereunder, unless otherwise specified by the Committee in
the Right, shall be exercisable by the legal representative
of such employee or such person who acquired such Right by
bequest or inheritance or by reason of the death of such
6
employee, at any time up to and including one (1) year after
the date of death;
(B) if the employment of any key employee shall
terminate by reason of such employee's disability (as
described in Section 22(e)(3) of the Code), any Right
granted hereunder, unless otherwise specified by the
Committee in the Right, shall be exercisable at any time up
to and including one (1) year after the effective date of
such termination of employment;
(C) if the employment of any key employee shall
terminate (i) by reason of the employee's retirement (at
such age or upon such conditions as shall be specified by
the Committee), (ii) by the key employee for "good reason"
cause (as defined below), such Right, unless otherwise
specified by the Committee in the Right, shall be
exercisable at any time up to and including three (3) months
after the effective date of such termination of employment;
and
(D) if the employment of any employee shall
terminate by any reason other than that provided for in
clauses (A), (B) or (C) above, such Right, unless otherwise
specified by the Committee in such Right shall, to the
extent not theretofore exercised, become null and void.
None of the events described above shall extend
the period of exercisability of the Right beyond the
expiration date thereof.
If a Right granted hereunder shall be exercised by
the legal representative of a deceased grantee or by a
person who acquired a Right granted hereunder by bequest or
inheritance or by reason of the death of any employee or
former employee, written notice of such exercise shall be
accompanied by a certified copy of letters testamentary or
equivalent proof of the right of such legal representative
or other person to exercise such Right.
For purposes of the Plan, the term "for cause"
shall mean (a) with respect to an employee who is a party to
a written severance agreement with, or, alternatively,
participates in a compensation or benefit plan (other than
the Plan) of, the Company or a subsidiary corporation of the
Company, which agreement or plan contains a definition of
for cause or "cause" (or words of like import) for
purposes of termination of employment or services thereunder
by the Company or such subsidiary corporation of the
Company, "for cause" or "cause" as defined therein (if an
7
employee is both party to a severance agreement and
participates in such a plan, the definition contained in
such agreement shall control); or (b) in all other cases, as
determined by the Committee in its sole discretion, the
willful and continued misconduct of an employee or the
willful and continued failure of an employee to
substantially perform the duties of such employee to the
Company or a subsidiary corporation of the Company (other
than due to physical or mental illness), if such failure or
misconduct is materially damaging or materially detrimental
to the business and operations of the Company and has not
been cured within thirty (30) days after written notice
thereof has been given to the employee by the Committee.
For purposes of the Plan, the term "good reason"
shall mean:
(i) the assignment to the employee of any duties
inconsistent with the position in the Company that the
employee held immediately prior to the Change in Control of
the Company, or a significant adverse alteration in the
nature or status of the responsibilities or the conditions
of employment of the employee from those in effect
immediately prior to such Change in Control of the Company;
(ii) a reduction by the Company in the annual
base salary of the employee as in effect immediately prior
to the Change in Control of the Company;
(iii) the relocation of the Company's offices at
which the employee is principally employed immediately prior
to the Change in Control of the Company to a location more
than 25 miles from such location or the Company's requiring
the employee to be based anywhere other than the Company's
offices at such location except for required travel on the
Company's business to an extent substantially consistent
with the employee's business travel obligations prior to the
Change in Control of the Company;
(iv) the failure by the Company to pay to the
employee any portion of current compensation or to pay to
the employee any portion of an installment of deferred
compensation under any deferred compensation program of the
Company within seven (7) days of the date such compensation
is due;
(v) the failure by the Company to continue in
effect any material compensation or benefit plan in
which the employee participates immediately prior to
8
the Change in Control of the Company unless an equitable
arrangement (embodied in an on-going substitute or
alternative plan) has been made with respect to such plan,
or the failure by the Company to continue the employee's
participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of
the employee's participation relative to other participants,
as existed at the time of the Change in Control of the
Company;
(vi) the failure by the Company to continue to
provide the employee with benefits substantially similar to
those enjoyed by the employee under any of the Company's
life insurance, medical, health and accident, or disability
plans in which the employee participates at the time of the
Change in Control of the Company, the taking of any action
by the Company which would directly or indirectly materially
reduce any of such benefits, or the failure by the Company
to provide the employee with the number of paid vacation
days to which the employee is entitled on the basis of years
of service with the Company in accordance with the Company's
normal vacation policy in effect at the time of the Change
in Control of the Company; or
(vii) any purported termination of employment
that is not effected in a manner satisfying the definition
of "for cause" hereunder.
For purposes of the Plan, an employment
relationship shall be deemed to exist between an individual
and a corporation if, at the time of determination, the
individual was an "employee" of such corporation for
purposes of Section 422(a) of the Code. If an individual is
on leave of absence taken with the consent of the
corporation by which such individual was employed, or is on
active military service, and is determined to be an
employee for purposes of the exercise of Right, such
individual shall not be entitled to exercise such Right
during such period and while the employment is treated as
continuing intact unless such individual shall have obtained
the prior written consent of such corporation, which consent
shall be signed by the chairman of the board of directors,
the president, a senior vice-president or other duly
authorized officer of such corporation.
A termination of employment shall not be deemed to
occur by reason of (i) the transfer of an employee from
employment by the Company to employment by a subsidiary
9
corporation of the Company or (ii) the transfer of an
employee from employment by a subsidiary corporation of the
Company to employment by the Company or by another
subsidiary corporation.
VIII. ADJUSTMENT OF SHARES;
EFFECT OF CERTAIN TRANSACTIONS
Notwithstanding any other provision contained
herein, in the event of any change in the shares of Common
Stock subject to the Plan or to any Right granted under the
Plan (through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, split-up,
split-off, spin-off, combination of shares, exchange of
shares, or other like change in the capital structure of the
Company), the Committee shall make any appropriate
adjustments to the total number of shares of Common Stock
which may be subject to Rights under the Plan, the maximum
number of shares of Common Stock for which Rights may be
granted to any employee and the number of shares of Common
Stock and fair market value per share of Common Stock
subject to outstanding Rights as shall be equitable to
prevent dilution or enlargement of rights under such Rights,
and the determination of the Committee as to these matters
shall be conclusive and binding on the holder.
IX. RIGHT TO TERMINATE EMPLOYMENT
The Plan shall not impose any obligation on the
Company or on any subsidiary corporation to continue the
employment of any holder of a Right and it shall not impose
any obligation on the part of any holder of a Right to
remain in the employ of the Company or of any subsidiary
corporation.
X. WITHHOLDING TAXES
The Company shall have the right to withhold the
amount of any taxes required by any governmental authority
to be withheld or otherwise deducted and paid by the Company
in respect of any sums due or to become due from the Company
to the employee from such sums upon such terms and
conditions as the Committee shall prescribe. In lieu
thereof, the Company may require an employee exercising any
Right to reimburse the Company for such taxes.
10
XI. AMENDMENT OF THE PLAN
The Committee may, from time to time, amend the
Plan, provided that no amendment shall be made, without the
approval of the stockholders of the Company, that will (a)
increase the total number of shares of Common Stock subject
to Rights under the Plan or the maximum number of shares of
Common Stock for which Rights may be granted to any employee
(other than an increase resulting from an adjustment
provided for in Article VIII hereof), (b) reduce the
exercise price of any Right granted hereunder, (c) modify
the provisions of the Plan relating to eligibility, or (d)
materially increase the benefits accruing to participants
under the Plan. The Rights and obligations under any Rights
granted before amendment of the Plan or any unvested or
unexercised portion of such Rights shall not be adversely
affected by amendment of the Plan or the Rights without the
consent of the holder of the Rights.
XII. TERMINATION OR SUSPENSION OF THE PLAN
The Committee may at any time suspend or terminate
the Plan. Rights may not be granted while the Plan is
suspended or after it is terminated. Rights and obligations
under any Rights granted while the Plan is in effect shall
not be altered or impaired by suspension or termination of
the Plan, except upon the consent of the person to whom the
Rights were granted. The power of the Committee to construe
and administer any Rights granted prior to the termination
or suspension of the Plan under Article III nevertheless
shall continue after such termination or during such
suspension.
XIII. GOVERNING LAW
The Plan, such Rights as may be granted thereunder
and all related matters shall be governed by, and construed
and enforced in accordance with, the laws of the State of
Nevada.
11
XIV. PARTIAL INVALIDITY
The invalidity or illegality of any provision
herein shall not be deemed to affect the validity of any
other provision.
XV. Notices
All notices hereunder shall be sent by registered
mail, postage prepaid, to the Company at its principal place
of business, or to a holder of any Rights, or any permitted
transferee, at his last known address, or the address, if
any, appearing on the books of the Company.
XVI. EFFECTIVE DATE
The Plan shall become effective at 5:00 P.M., Las
Vegas, Nevada time, on the Effective Date; provided,
however, that if the Plan is not approved by a vote of the
stockholders of the Company at the first meeting of
stockholders after such date, the Plan and any Rights
granted thereunder shall terminate.
12
[ARTICLE] 5
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] SEP-30-1996
[CASH] 25235
[SECURITIES] 64374
[RECEIVABLES] 11813
[ALLOWANCES] 2050
[INVENTORY] 2680
[CURRENT-ASSETS] 118395
[PP&E] 613473
[DEPRECIATION] (203131)
[TOTAL-ASSETS] 809851
[CURRENT-LIABILITIES] 55178
[BONDS] 530650
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 16176
[OTHER-SE] 170457
[TOTAL-LIABILITY-AND-EQUITY] 809851
[SALES] 329533
[TOTAL-REVENUES] 334057
[CGS] 0
[TOTAL-COSTS] 178737
[OTHER-EXPENSES] 121732
[LOSS-PROVISION] 2050
[INTEREST-EXPENSE] 22800
[INCOME-PRETAX] 9804
[INCOME-TAX] 4568
[INCOME-CONTINUING] 5236
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 5236
[EPS-PRIMARY] .32
[EPS-DILUTED] .32
</TABLE>
