SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 [FEE REQUIRED]
For the fiscal year December 31, 1995
ended
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-7123
Showboat, Inc.
(Exact name of registrant as specified in its charter)
Nevada 88-0090766
(State or other jurisdiction (I.R.S. employer
of incorporation or identification no.)
organization)
2800 Fremont Street, Las Vegas, Nevada 89104
(Address of principal executive offices) (Zip code)
(702) 385-9141
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Name of each
Title of each class exchange on
which registered
Common Stock, $1.00 par value, and New York Stock
Preferred Stock Purchase Rights Exchange
9 1/4% First Mortgage Bonds due 2008 New York Stock
Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-
affiliates of the registrant, based on the closing price of
registrant's common stock on the New York Stock Exchange on
March 15, 1996, was approximately $342,272,000.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of March 15, 1996:
15,762,285
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report is
incorporated by reference from the Showboat, Inc. Proxy Statement
to be filed with the Commission not later than 120 days after the
end of the fiscal year covered by this Report.
The undersigned registrant hereby amends the following
items, financial statements, exhibits or portions of its annual
report on Form 10-K for the fiscal year ended December 31, 1995,
as set forth in the pages attached hereto:
Item 1. Business
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation
PART I
ITEM 1. BUSINESS
GENERAL
Showboat, Inc. (the "Company"), through subsidiaries,
(i) owns and operates the Showboat Casino Hotel fronting the
Boardwalk in Atlantic City, New Jersey (the "Atlantic City
Showboat"), (ii) owns and operates the Showboat Hotel, Casino and
Bowling Center in Las Vegas, Nevada (the "Las Vegas Showboat"),
and (iii) beneficially owns a 26.3% interest in, and manages, the
Sydney Harbour Casino in Sydney, New South Wales, Australia,
which commenced gaming operations in an interim casino on
September 13, 1995. The Company, through subsidiaries, also owns
(i) a 55% partnership interest in Showboat Marina Partnership,
which received a certificate of suitability on January 8, 1996
for a riverboat owner's license in East Chicago, Indiana, and
(ii) an 80% interest in Southboat Limited Partnership which has
submitted an application with the Missouri Gaming Commission for
a riverboat gaming license near Lemay, Missouri. From July 1993
to March 31, 1995, the Company owned an interest in, and managed
the Showboat Star Casino, a riverboat casino then located on Lake
Pontchartrain in New Orleans, Louisiana.
The Company commenced operations in September 1954, as a
partnership, and was incorporated in Nevada in 1960. The Company
operated only in Nevada until the Atlantic City Showboat
commenced operations in 1987. The Company became a publicly
traded company on December 9, 1968. It was listed on the
American Stock Exchange from 1973 to 1984 and on the New York
Stock Exchange from 1984 to the present. Unless the context
otherwise requires, the "Company" or "Showboat," as applicable,
refers to Showboat, Inc. and its subsidiaries. The Company's
executive offices are located at 2800 Fremont Street, Las Vegas,
Nevada 89104, and its telephone number is (702) 385-9141.
FISCAL YEAR 1995 DEVELOPMENTS
SYDNEY, AUSTRALIA
The Sydney Harbour Casino commenced gaming operations in an
interim casino in Sydney, New South Wales, Australia on
September 13, 1995. Showboat Australia Pty Limited ("SA"), a
corporation formed under the laws of the State of New South Wales
and wholly-owned by subsidiaries of Showboat, is the largest
single shareholder at 26.3% of Sydney Harbour Casino Holdings
Limited ("SHCH"). SHCH, through wholly-owned subsidiaries, owns
the Sydney Harbour Casino and holds the casino license required
to operate the Sydney Harbour Casino. SA also has an 85%
interest in the management company which manages the Sydney
Harbour Casino pursuant to the terms of a 99-year management
agreement.
The interim casino, which has approximately 60,000 square
feet of casino space, is located approximately one mile from the
Sydney central business district at Pyrmont Bay adjacent to
Darling Harbour on Wharves 12 and 13. An existing building was
renovated to permit the operation of the interim casino
containing 500 slot machines and 150 table games. The interim
casino is open 24 hours per day, every day of the year. The
interim casino features restaurants, bars, a sports lounge and a
gift shop.
The opening of the Sydney Harbour Casino marks the beginning
of Sydney Harbour Casino's 12-year monopoly as the only full-
service casino in the State of New South Wales. This exclusive
12-year period is included in the 99-year casino license awarded
to Sydney Harbour Casino Pty Limited ("SHCL"), a wholly-owned
subsidiary of SHCH.
Pursuant to the terms of a construction contract and subject
to certain exceptions, the permanent Sydney Harbour Casino must
be completed within 38 months of the December 1994 award of the
casino license to SHCL. The Company anticipates that the
permanent Sydney Harbour Casino will commence operations by early
1998. The permanent Sydney Harbour Casino will be located at
Pyrmont Bay next to the interim casino site. Pursuant to the
terms of the casino license, upon opening the permanent casino,
the interim casino will cease operations. The permanent Sydney
Harbour Casino will feature approximately 153,000 square feet of
casino space, including an approximately 22,000 square foot
private gaming area to be located on a separate level which will
target a premium clientele. The Sydney Harbour Casino will have
1,500 slot machines and 200 table games. The permanent Sydney
Harbour Casino will also contain several themed restaurants,
cocktail lounges, a 2,000 seat lyric theatre, a 900 seat cabaret
style theatre and extensive public areas. The Sydney Harbour
Casino complex will include a 352-room hotel tower and an
adjacent condominium tower containing 139 privately-owned units
with full hotel services. The complex will also include
extensive retail facilities, a station for Sydney's proposed
light rail system, a bus terminal, docking facilities for
commuter ferries and parking for approximately 2,500 cars.
EAST CHICAGO, INDIANA
On January 8, 1996, the Showboat Marina Partnership ("SMP")
was issued a certificate of suitability by the Indiana Gaming
Commission (the "Indiana Commission") for a gaming license to own
and operate a riverboat casino and related facilities
(collectively, the "East Chicago Showboat") in East Chicago,
Indiana. SMP is owned 55% by Showboat Indiana Investment Limited
Partnership, a wholly-owned limited partnership of the Company,
and 45% by Waterfront Entertainment and Development, Inc.
("Waterfront"), an unrelated corporation. SMP has applied to the
Indiana Commission to transfer the certificate of suitability to
a subsidiary partnership. The subsidiary partnership would then,
if the transfer is approved, own and operate the East Chicago
Showboat. No assurance can be given that the Indiana Commission
will approve the transfer of the certificate of suitability to
the subsidiary partnership. The certificate of suitability is
valid for a period of 180 days from January 8, 1996, during which
time SMP or the subsidiary partnership, as applicable, must
comply with certain statutory requirements and special conditions
in order to receive a permanent riverboat owner's license. The
time period of the certificate of suitability may be extended at
the discretion of the Indiana Commission. During the 180 day (or
subsequently extended) interim compliance period, SMP or the
subsidiary partnership, as applicable, must (i) invest at least
$154.5 million in project development costs for the East Chicago
Showboat, including, but not limited to site improvements,
preopening expenses and contingency; (ii) obtain all permits,
licenses and certificates required for lawful operation of the
East Chicago Showboat, including those related to zoning,
building, fire safety and health; (iii) obtain any required
financing; (iv) post a bond in an amount the local community will
spend for infrastructure and any other facilities associated with
the East Chicago Showboat; (v) obtain insurance; and (vi) obtain
licensure for gaming equipment. Failure to substantially comply
with the foregoing requirements may result in the Indiana
Commission not extending the certificate of suitability beyond
the initial 180 day period. The certificate of suitability also
provides that failure to commence excursions within twelve months
of January 8, 1996, may result in the revocation of the
certificate of suitability; however, to date, the Indiana
Commission has not revoked any gaming operator's certificate of
suitability for failure to commence excursions within twelve
months of issuance. No assurance can be given, however, that the
Indiana Commission will not revoke the certificate of suitability
if SMP or the subsidiary partnership, as applicable, fails to
commence excursions within 12 months of the date of issuance
thereof. If the Indiana Commission determines SMP or the
subsidiary partnership, as applicable, has complied with the
requirements of the certificate of suitability and all other
applicable statutory and regulatory requirements required during
the interim compliance period, it may issue an owner's license.
The East Chicago Showboat will be located approximately 12
miles from downtown Chicago, Illinois. The current plans for the
East Chicago Showboat contemplate a 100,000 square foot state-of-
the-art riverboat casino containing approximately 51,000 square
feet of gaming space on four levels and will feature
approximately 1,700 slot machines and approximately 86 table
games. The riverboat casino is designated to accommodate up to
3,750 customers. Adjacent to the riverboat will be an
approximately 100,000 square foot pavilion which will feature
restaurants, cocktail lounges and retail space. The East Chicago
Showboat will provide secure, well-lit customer parking for
approximately 2,500 vehicles, which includes a parking garage for
approximately 1,000 vehicles and surface level parking for
approximately 1,500 vehicles.
The East Chicago Showboat is expected to cost approximately
$195.0 million and is expected to commence gaming operations by
July 1, 1997. Showboat will invest approximately $40.0 million
in SMP of which $39.0 million will be contributed to the
subsidiary partnership. SMP, or the subsidiary partnership, as
applicable, intends to obtain a combination of debt and equipment
financings for an aggregate of approximately $156.0 million to
develop the East Chicago Showboat. No assurance can be given
that SMP, or the subsidiary partnership, as applicable, will be
successful in obtaining such financings. Under the current
partnership agreement, the Company will receive a 12% preferred
return on its investment in SMP. In addition, subject to certain
qualifications and exceptions, the Company has agreed to provide
a completion guarantee 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 should a lender require a completion guarantee
in connection with any development financing. In addition,
subject to certain qualifications and exceptions, the Company has
agreed to provide a standby equity commitment should a lender
require a standby equity commitment in connection with any
development financing, pursuant to which it will cause to be made
up to an aggregate of $30.0 million in additional capital
contributions to SMP or the subsidiary partnership if, during the
first three full four fiscal quarters following the commencement
of operations, the East Chicago 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 the subsidiary partnership
more than $15.0 million in respect of any one such full four
quarter period. If the Company is required to provide a standby
equity commitment, Waterfront has agreed to pay the Company $5.2
million, which amount shall accrue interest at 12% per annum
until paid, from Waterfront's share of distributable cash from
SMP.
Among other things, SMP agreed to contribute the following
economic incentives to the City of East Chicago: (i) 3% of its
adjusted gross receipts for the benefit of economic development,
education and community development in the City of East Chicago,
(ii) .75% of its adjusted gross receipts for the benefit of
commercial and housing development in the City of East Chicago,
(iii) to reimburse certain expenses of the City of East Chicago,
(iv) to fund certain projects and programs designated by the City
of East Chicago, and (v) to provide job training for residents of
the City of East Chicago who are hired as employees of East
Chicago Showboat. SMP committed to fund the following projects
in the approximate amounts specified, regardless of the issuance
of a gaming license: (1) Healthy East Chicago Wellness Program,
with estimated expenditures of $200,000 in 1996; (2)
comprehensive market development assessment for various
transportation corridors in the City, with estimated expenditures
of $70,000 in 1996; (3) various capital improvements to the City,
with expenditures of $500,000 in 1996; and (4) engineering fees
related to the water marketing project for extension of the
City's water main, with estimated expenditures of $500,000 in
1996. Fifty percent of the funds expended by SMP or the
subsidiary partnership, as applicable, in connection with these
four projects shall be credited against the 1% share payable to
the City of East Chicago during the first and, if necessary
second years of operations, only, unless otherwise approved by
the City of East Chicago.
On October 19, 1995, SMP entered into a lease with the City
of East Chicago for certain real property and improvements in
Lake County, Indiana. The term of the lease which commenced upon
the issuance of the certificate of suitability is 30 years with
two options to extend for 30 years each. Annual rent for the SMP
Casino Site is $400,000, subject to adjustment. On December 6,
1995, the U.S. Army Corps of Engineers issued a final development
permit to the City of East Chicago for the East Chicago Showboat.
LAS VEGAS, NEVADA
In December 1995, the Company completed an approximately
$21.0 million renovation of the Las Vegas Showboat that primarily
improved the quality of the public areas of the Las Vegas
Showboat. Approximately 30,000 square feet or 40% of the casino
space was closed from July 1995 to December 1995 as a result of
the renovation, which closure caused a significant disruption in
operations and earnings at the Las Vegas Showboat. The
renovation project included the replacement of the roof over a
portion of the casino which resulted in higher ceilings and the
removal of a number of support pillars, giving the casino a more
expansive appearance. An internal balcony was added which
provides an overview of the casino. The renovation also included
a number of alterations and expansions to the dining and bar
areas to improve their variety and overall ambiance. The coffee
shop was expanded to include patio seating which looks into the
casino. The Mardi Gras Lounge, formerly the Carnival Lounge, was
doubled in size to meet the demand of patrons when popular
entertainers perform, and the casino bar adjacent to the lounge
was expanded to include an additional raised seating area and a
large screen television. Additionally, the facilities power
plant and HVAC systems were replaced, a new pool building was
constructed, new carpeting was installed throughout the property,
the buffet and coffee shop kitchens and the employee dining room
were remodeled and enlarged and an employee learning center was
added.
ATLANTIC CITY, NEW JERSEY
During 1995, the Atlantic City Showboat restructured the
layout of its casino. Jake's Betting Parlor, which contained
approximately 15,000 square feet of casino space, approximately
40 table games, a horse race simulcast facility, a keno facility
and a poker room, was converted into the Carousel Room, a premium
slot area. The simulcast and keno facilities were relocated to
the main casino floor. Approximately 400 slot machines were
added in connection with this restructuring. In connection with
the settlement of certain litigation in December 1995 for cash
and non-cash consideration, Atlantic City Showboat, Inc.
("ACSI"), a wholly-owned subsidiary of the Company, received
title to certain real property adjacent to the Atlantic City
Showboat upon which it constructed a surface level parking area
for approximately 500 vehicles.
LEMAY, MISSOURI
On May 1, 1995, Southboat Limited Partnership ("SLP") was
formed by Showboat Lemay, Inc. ("Showboat Lemay"), a corporation
wholly-owned by the Company, and Futuresouth, Inc.
("Futuresouth"), an unrelated corporation, for the purpose of
designing, developing, constructing, owning and operating a
riverboat casino and related facilities (collectively, the
"Southboat Casino Project"). SLP is owned 80% by Showboat Lemay,
the sole general partner, and 20% by Futuresouth, the sole
limited partner. The Southboat Casino Project is expected to be
located on approximately 29 acres at the southernmost portion of
the St. Louis County Port Authority Site on the Mississippi River
near Lemay, Missouri (the "Southboat Casino Site"). The
Southboat Casino Project is intended to be a multi-level gaming
and entertainment facility within a New Orleans-themed riverboat
and permanently-moored barge complex. The total cost of the
Southboat Casino Project is anticipated to be approximately
$117.0 million. The limited partnership agreement provides that
the Company's initial capital contribution is $19.5 million and
that Showboat Lemay, on behalf of SLP, will arrange for a $75.0
million loan to develop the Southboat Casino Project and to
arrange for equipment financing for the remaining costs of the
project. SLP has entered into a commitment letter to receive up
to $75.0 million of financing for the construction of the
Southboat Casino Project, subject to certain conditions. The
commitment letter expires on May 10, 1996. No assurance can be
given that SLP will be selected for investigation prior to the
expiration of the commitment letter. No assurance can be given
that SLP will be successful in obtaining the necessary funds to
finance the Southboat Casino Project or that SLP will be
successful in obtaining a casino license. The Company has also
agreed to provide a loan to SLP in the amount of approximately
$4.5 million to assist in the development of the Southboat Casino
Project.
Pursuant to the terms of a management agreement, an
administrative services agreement and a trademark license
agreement, each dated May 2, 1995, the Company has agreed to
manage and to provide other services to the proposed operations
at the Southboat Casino Project. The Company will receive an
aggregate fee equal to 5 1/4 % of gross gaming revenues net of
all gaming taxes, plus an incentive management fee equal to (i)
20% of earnings between $30.0 to $35.0 million before any
interest expense, income taxes, capital lease rent, depreciation
and amortization, and (ii) 10% of earnings in excess of $35.0
million before any interest expense, income taxes, capital lease
rent, depreciation and amortization.
On October 13, 1995, SLP entered into a lease and
development agreement with the St. Louis County Port Authority
("Port Authority") for the lease of the Southboat Casino Site for
a term of 99 years, commencing upon the investigation of SLP for
a Missouri gaming license and the receipt of all permits from the
U.S. Army Corps of Engineers. Fees and rent for the Southboat
Casino Site are payable as follows: (i) a $500,000 acceptance
fee upon completion of a due diligence period; (ii) a $750,000
security deposit on the commencement date of the lease; (iii) a
$2.5 million fee on the commencement date of the lease; (iv) a
$2.5 million fee on the opening date of the Southboat Casino
Project; (v) rent in the amount of $2.0 million per annum payable
in equal monthly installments, beginning on the commencement date
and continuing until the opening of the Southboat Casino Project;
and (iv) rent in the amount of the greater of 4% of adjusted
gross receipts or Minimum Rent (as defined below), beginning on
the opening date of the Southboat Casino Project and continuing
until the expiration of the term of the lease. "Minimum Rent"
means $3.0 million during the first 12-month period occurring
after the opening of the Southboat Casino Project; $2.8 million
during the second 12-month period; $2.6 million during the third
12-month period; $2.4 million during the fourth 12-month period;
$2.2 million during the fifth 12-month period; and $2.0 million
beginning on the fifth anniversary of the opening of the
Southboat Casino Project and continuing through the 15th lease
year ("Guarantee Period"). The Company has guaranteed SLP's
payment of Minimum Rent for the Guarantee Period and SLP's timely
completion of, construction of, and payment for all improvements
and installations in connection with SLP's development of the
Southboat Casino Project. If SLP fails to pay any monthly
installment of Minimum Rent, or if the lease is terminated at any
time within the Guarantee Period due to an event of default by
SLP, the Company must pay either (i) the full sum of unpaid
Minimum Rent due for the remainder of the Guarantee Period, or
(ii) if it posts a $2.0 million letter of credit, make monthly
payments of Minimum Rent. In addition, the Company agreed to
provide a Guarantee of Completion to the Port Authority which
provides, in material part, that the Company will complete the
construction of the Southboat Casino Project should SLP, after
the commencement of work, abandon the project for a period of 30
days after receipt of notice from the Port Authority.
On October 17, 1995, SLP submitted an application to the
Missouri Gaming Commission (the "Missouri Commission") for the
necessary gaming licenses to own and operate the Southboat Casino
Project. In the event SLP is selected for investigation by the
Missouri Commission for a casino license, SLP will submit an
application to the U.S. Army Corps of Engineers for the necessary
permits. In the event that SLP is issued such permits by the
U.S. Army Corps of Engineers, SLP will commence construction of
the Southboat Casino Project, which construction the Company
believes will take approximately 12 to 18 months to complete. As
of March 15, 1996, SLP had not been selected for investigation by
the Missouri Commission for a casino license and there can be no
assurance that such a selection will occur or, if such selection
occurs, that a gaming license will be granted to SLP.
PREFERRED STOCK PURCHASE RIGHTS
On October 5, 1995, the Board of Directors of the Company
declared a dividend to shareholders of record on October 16, 1995
of one Preferred Stock Purchase Right (the "Right(s)") for each
outstanding share of Common Stock, par value $1.00 per share (the
"Common Stock"), of the Company. Each Right entitles the
registered holder to purchase from the Company one one-hundredth
(1/100) of a share of a new series of preferred shares of the
Company, designated as Series A Junior Preferred Stock
("Preferred Stock"), at a price of $120.00 per one one-hundredth
(1/100) of a share (the "Exercise Price"), subject to certain
adjustments. Initially, the Rights are not exercisable and
automatically trade with the Common Stock. The Rights are not
represented by a separate certificate, but are evidenced, with
respect to any of the Common Stock certificates outstanding as of
October 16, 1995, by such Common Stock certificate with a copy of
a summary of the Rights attached thereto.
The Rights, unless earlier redeemed by the Board of
Directors, become exercisable upon the close of business on the
day (the "Distribution Date") which is the earlier of (i) the
tenth day following a public announcement that a person or group
of affiliated or associated persons, with certain exceptions set
forth below, has acquired beneficial ownership of 15% or more of
the outstanding voting stock of the Company (an "Acquiring
Person") and (ii) the tenth business day (or such later date as
may be determined by the Board of Directors prior to such time as
any person or group of affiliated or associated persons becomes
an Acquiring Person) after the date of the commencement or
announcement of a person's or group's intention to commence a
tender or exchange offer the consummation of which would result
in the ownership of 30% or more of the Company's outstanding
voting stock (even if no shares are actually purchased pursuant
to such offer). An Acquiring Person does not include (A) the
Company, (B) any subsidiary of the Company, (C) any employee
benefit plan or employee stock plan of the Company or of any
subsidiary of the Company, or any trust or other entity
organized, appointed, established or holding Common Stock for or
pursuant to the terms of any such plan or (D) any person or group
whose ownership of 15% or more of the shares of voting stock of
the Company then outstanding results solely from (i) any action
or transaction or transactions approved by the Board of Directors
before such person or group became an Acquiring Person or (ii) a
reduction in the number of issued and outstanding shares of
voting stock of the Company pursuant to a transaction or
transactions approved by the Board of Directors (provided that
any person or group that does not become an Acquiring Person by
reason of clause (i) or (ii) above shall become an Acquiring
Person upon acquisition of an additional 1% of the Company's
voting stock unless such acquisition of additional voting stock
will not result in such person or group becoming an Acquiring
Person by reason of such clause (i) or (ii)).
The Rights are not exercisable until the Distribution Date.
The Rights will expire at the close of business on October 5,
2005, unless earlier redeemed by the Company as described below.
The Preferred Stock is non-redeemable and, unless otherwise
provided in connection with the creation of a subsequent series
of preferred stock, subordinate to any other series of the
Company's preferred stock. The Preferred Stock may not be issued
except upon exercise of Rights. Each share of Preferred Stock
will be entitled to receive when, as and if declared, a quarterly
dividend in an amount equal to the greater of $120.00 per share
and 100 times the cash dividends declared on the Company's Common
Stock. In addition, the Preferred Stock is entitled to 100 times
any non-cash dividends (other than dividends payable in equity
securities) declared on the Common Stock, in like kind. In the
event of liquidation, the holders of Preferred Stock will be
entitled to receive for each share of Series A Preferred Stock, a
liquidation payment in an amount equal to the greater of
$12,000.00 or 100 times the payment made per share of Common
Stock. Each share of Preferred Stock will have 100 votes, voting
together with the Common Stock. In the event of any merger,
consolidation or other transaction in which Common Stock is
exchanged, each share of Preferred Stock will be entitled to
receive 100 times the amount received per share of Common Stock.
The rights of Preferred Stock as to dividends, liquidation and
voting are protected by anti-dilution provisions. The number of
shares of Preferred Stock issuable upon exercise of the Rights is
subject to certain adjustments from time to time in the event of
a stock dividend on, or a subdivision or combination of, the
Common Stock. The Exercise Price for the Rights is subject to
adjustment in the event of extraordinary distributions of cash or
other property to holders of Common Stock.
Unless the Rights are earlier redeemed or the transaction is
approved by the Board of Directors and the Continuing Directors,
in the event that, after the time that the Rights become
exercisable, the Company were to be acquired in a merger or other
business combination (in which any shares of the Company's Common
Stock are changed into or exchanged for other securities or
assets) or more than 50% of the assets or earning power of the
Company and its subsidiaries (taken as a whole) were to be sold
or transferred in one or a series of related transactions, the
Rights Agreement provides that proper provision will be made so
that each holder of record of a Right will from and after such
date have the right to receive, upon payment of the Exercise
Price, that number of shares of common stock of the acquiring
company having a market value at the time of such transaction
equal to two times the Exercise Price. In addition, unless the
Rights are earlier redeemed, if a person or group (with certain
exceptions) becomes the beneficial owner of 15% or more of the
Company's voting stock (other than pursuant to a tender or
exchange offer (a "Qualifying Tender Offer") for all outstanding
shares of Common Stock that is approved by the Board of
Directors, after taking into account the long-term value of the
Company and all other factors they consider relevant in the
circumstances), the Rights Agreement provides that proper
provision will be made so that each holder of record of a Right,
other than the Acquiring Person (whose Rights will thereupon
become null and void), will thereafter have the right to receive,
upon payment of the Exercise Price, that number of shares of the
Company's Preferred Stock having a market value at the time of
the transaction equal to two times the Exercise Price (such
market value to be determined with reference to the market value
of the Company's Common Stock as provided in the Rights
Agreement).
At any time on or prior to the close of business on the
tenth day after the time that a person has become an Acquiring
Person (or such later date as a majority of the Board of
Directors and a majority of the Continuing Directors (as defined
in the Rights Agreement) may determine), the Company may redeem
the Rights in whole, but not in part, at a price of $.01 per
Right ("Redemption Price"). The Rights may be redeemed after the
time that any person has become an Acquiring Person only if
approved by a majority of the Continuing Directors. Immediately
upon the effective time of the action of the Board of Directors
of the Company authorizing redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the
holders of the Rights will be to receive the Redemption Price.
For as long as the Rights are then redeemable, the Company may,
except with respect to the redemption price or date of expiration
of the Rights, amend the Rights in any manner, including an
amendment to extend the time period in which the Rights may be
redeemed. At any time when the Rights are not then redeemable,
the Company may amend the Rights in any manner that does not
materially adversely affect the interests of holders of the
Rights as such. Amendments to the Rights Agreement from and
after the time that any person becomes an Acquiring Person
requires the approval of a majority of the Continuing Directors
(as provided in the Rights Agreement). 200,000 shares of
Preferred Stock have been reserved for issuance upon exercise of
the Rights.
The Rights have certain anti-takeover effects. The Rights
will cause substantial dilution to a person or group who attempts
to acquire the Company on terms not approved by the Company's
Board of Directors. The Rights should not interfere with any
merger or other business combination approved by the Board since
they may be redeemed by the Company at $.01 per Right at any time
until the close of business on the tenth day (or such later date
as described above) after a person or group has obtained
beneficial ownership of 15% or more of the voting stock.
NEW ORLEANS, LOUISIANA
In a series of unrelated transactions in 1995, Showboat Star
Partnership ("SSP") sold certain of its assets, and the Company
sold all of its equity interest in SSP, resulting in a pretax
gain to the Company of $2.6 million. SSP owned the Showboat Star
Casino that was located on the south shore of Lake Pontchartrain
in New Orleans, Louisiana, approximately seven miles from the New
Orleans' "French Quarter." The Showboat Star Casino commenced
gaming operations on November 8, 1993. The riverboat contained
approximately 21,900 square feet of gaming space on three levels,
with approximately 770 slot machines and 40 table games. On-
shore facilities included a 34,000 square foot terminal building,
which contained a restaurant, a cocktail lounge and
administrative offices. SSP elected to cease all gaming
operations on March 9, 1995 due to conflicting interpretations by
the Orleans Parish District Attorney and an administrative law
judge regarding the Louisiana Riverboat Gaming Act relating to
circumstances under which a riverboat casino could conduct
dockside gaming operations.
RANDOLPH, MISSOURI
In March 1995, the Company, through a subsidiary, purchased
a 35% interest in Showboat Mardi Gras, L.L.C. ("SMG") (f/k/a
Randolph Riverboat Company, L.L.C.), which applied for a gaming
license with the Missouri Commission to own and operate a
riverboat casino in Randolph, Missouri. In May 1995, the
Missouri Commission selected the applicants for the then
available gaming licenses in the Kansas City, Missouri
metropolitan area. SMG was not selected and is currently seeking
a buyer for its riverboat. The Company contributed approximately
$5.1 million to SMG which was used for the construction of the
riverboat, costs incurred in the license application process and
other general and administrative expenses. Although additional
contributions may be required from the Company in order for SMG
to sell the riverboat, the Company will receive a portion of the
proceeds upon the sale of the riverboat and other assets of SMG.
The Company has recognized a pre-tax write-down of $1.4 million
on its investment in SMG.
ROCKINGHAM PARK, NEW HAMPSHIRE
In July 1995, the Company, through its wholly-owned
subsidiary, Showboat New Hampshire, Inc. ("SNHI"), entered into
definitive agreements with Rockingham Venture, Inc. ("RVI")
regarding the proposed development and management of a non-racing
gaming project ("Showboat Rockingham Park") at Rockingham Park in
Salem, New Hampshire. RVI is the owner and operator of
Rockingham Park which is a thoroughbred racetrack. In December
1994, the Company loaned approximately $8.9 million to RVI, which
loan is secured by a second mortgage on Rockingham Park. The
development of Showboat Rockingham Park, among other things, is
subject to the passage of enabling gaming legislation by the
State of New Hampshire and the Town of Salem. SNHI owns a 50%
interest in Showboat Rockingham Company, L.L.C. ("SRC") that was
formed for the purpose of developing and owning Showboat
Rockingham Park. Depending upon the number and types of games,
if any, legalized by the necessary authorities, SNHI and RVI will
make certain capital contributions to SRC. At a minimum, the
Company will contribute the promissory note representing the
loan. If enabling gaming legislation permits more than 500 slot
machines or any combination of slot machines and table games, the
Company, subject to available financing, will contribute funds
not to exceed 30% of the cash funds required for the project. At
this time, the cost of the project has not been determined.
Pursuant to the terms of a management agreement, an
administrative services agreement and a trademark license
agreement, each dated June 1995, the Company has agreed to manage
and to provide other services to the proposed operations at
Showboat Rockingham Park. The Company will receive an aggregate
fee equal to (i) 1.5% of gross gaming revenue up to a maximum fee
of $1.0 million per year, and (ii) 7% of earnings before any
interest expense, income taxes, capital lease rentals,
depreciation and amortization. The horse racing activities will
continue to be operated by RVI.
FUTURE EXPANSION
The Company regularly evaluates and pursues potential
expansion and acquisition opportunities in both domestic and
international markets. Such opportunities may include the
ownership, management and operation of gaming and entertainment
facilities, either alone or with joint venture partners.
Development and operation of any gaming facility is subject to
numerous contingencies, several of which are outside of the
Company's control and may include the enactment of appropriate
gaming legislation, the issuance of requisite permits, licenses
and approvals, the availability of appropriate financing and the
satisfaction of other conditions. There can be no assurance that
the Company will elect or be able to consummate any such
acquisition or expansion opportunity.
NARRATIVE DESCRIPTION OF BUSINESS
ATLANTIC CITY OPERATIONS
The Company's subsidiary, ACSI, owns and operates the
Atlantic City Showboat, which commenced operations in 1987. ACSI
is a wholly-owned subsidiary of Ocean Showboat, Inc. ("OSI"),
which is a wholly-owned subsidiary of the Company. The Atlantic
City Showboat is located at the eastern end of the Boardwalk on
approximately 12 acres, 10 1/2 acres of which are leased to ACSI.
In addition, ACSI owns two nearby surface parking lots which
consist of approximately nine acres in the aggregate.
The Atlantic City Showboat is a New Orleans-themed hotel-
casino featuring, as of March 1, 1996, approximately 97,000
square feet of casino space located in an expansive four-story
podium facility. The four-story podium houses the casino and a
20-story hotel tower and is adjacent to a 17-story hotel tower
constructed in 1994. The Atlantic City Showboat has been
designed to promote ease of customer access to the casino and all
other public areas of the hotel-casino. Access to the Atlantic
City Showboat's four-story podium is provided by two main
entrances, one on the Boardwalk and one on Pacific Avenue, which
runs parallel to the Boardwalk.
The Atlantic City Showboat contains two public levels. Two
pairs of large escalators, which are directly accessible from the
two ground level entrances, and ten elevators provide easy access
to the second public level. Public areas located on the ground
level, in addition to the casino space, include a show lounge,
five restaurants, two cocktail lounges, a pizza snack bar, an ice
cream parlor, and retail shopping. Public areas located on the
second level include a buffet, a coffee shop, a private players
club, a beauty salon, a health spa, a video game arcade,
approximately 27,000 square feet of meeting rooms, convention,
board room and exhibition space and a 60-lane bowling center,
including a snack bar and cocktail lounge. As of March 1, 1996,
the casino offered approximately 3,300 slot machines, 95 table
games, a horse race simulcast facility and a keno facility. The
second and fourth levels of the four-story podium are occupied by
kitchens, storage for food, beverage and other perishables,
surveillance and security areas, an employee cafeteria, computer
equipment and executive and administrative offices.
The two hotel towers feature a total of 800 hotel rooms.
Many of the hotel rooms have a view of the ocean. Included in
the number of hotel rooms are 59 suites, 40 of which have ocean-
front decks. A nine-story parking garage is located on-site at
the Pacific Avenue entrance. The facility provides self-parking
for approximately 2,000 cars and a 14-bus depot integrated with
the casino podium. In addition, on-site underground parking
accommodates valet parking for approximately 500 cars. This
design permits Atlantic City Showboat's customers to enter the
casino hotel protected from the weather. The Atlantic City
Showboat also has surface level self-parking for approximately
950 cars.
Adjacent to the Atlantic City Showboat is the Taj Mahal
Casino Hotel (the "Taj Mahal"). The Taj Mahal is the largest
casino in Atlantic City and is connected to both the Atlantic
City Showboat and Merv Griffin's Resorts International Casino
Hotel by pedestrian passageways. These three properties form an
"uptown casino complex" in which patrons can pass from property
to property, either on the ocean-front Boardwalk or through the
pedestrian connectors.
ATLANTIC CITY EMPLOYEES AND LABOR RELATIONS
As of March 1, 1996, the Atlantic City Showboat employed
approximately 3,300 persons on a full-time basis and
approximately 350 persons on a part-time basis. Approximately
1,330 or 40.3% of the Atlantic City Showboat's full-time
employees are covered by collective bargaining agreements. The
number of employees at the Atlantic City Showboat is expected to
fluctuate, with the highest number during the summer months and
the lowest number during the winter months. All employees of the
Atlantic City Showboat whose responsibilities involve or relate
to the casino or the simulcast area must be licensed by or
registered with the applicable New Jersey regulatory authorities
before commencing work at the Atlantic City Showboat. The
Company considers its current labor relations to be satisfactory.
LAS VEGAS OPERATIONS
The Company owns the Las Vegas Showboat which commenced
operations in September 1954. The Las Vegas Showboat is managed
by Showboat Operating Company ("SBOC"), a wholly-owned subsidiary
of the Company. The Las Vegas Showboat, which covers
approximately 26 acres, is located near the Boulder Highway
approximately two and one-half miles from the hotel-casinos in
downtown Las Vegas or on the Las Vegas Strip.
The Las Vegas Showboat is a New Orleans-themed hotel casino
in an 18-story hotel tower and low-rise complex. The Las Vegas
Showboat features an approximately 75,000 square foot casino, 453
hotel rooms, a 106-lane bowling center, two specialty
restaurants, a buffet, a coffee shop, a 1,300-seat bingo parlor
garden and a showroom. In addition, 8,300 square feet of meeting
room area is available with a seating capacity of 1,000 persons.
As of March 1, 1996, the Las Vegas Showboat's casino offered
approximately 1,450 slot machines, 28 table games, a race and
sports book and a keno facility. The Las Vegas Showboat also
plans to develop a recreational vehicle park with approximately
80 spaces on leased property near the Las Vegas Showboat.
Assuming there are no delays in the design and construction
phases, the recreational vehicle park is expected to be
operational in September 1996.
The Las Vegas Showboat sponsors a variety of special events
designed to produce a high volume of traffic through the casino.
The Las Vegas Showboat sponsors such events as the Professional
Bowlers Association Tour and Superstar Bingo, a high-stakes bingo
game, and is the site of the annual High Rollers Million Dollar
Bowling Tournament. The Las Vegas Showboat also regularly hosts
small conventions and groups. In addition, the Las Vegas
Showboat provides a slot club which is designed to attract and
reward frequent slot players at the Las Vegas Showboat.
LAS VEGAS EMPLOYEES AND LABOR RELATIONS
As of March 1, 1996, the Las Vegas Showboat employed
approximately 1,275 persons, of which approximately 724 or 56.8%
of the employees were represented by collective bargaining
agreements. The Company considers its current labor relations to
be satisfactory.
SYDNEY OPERATIONS
The Company's wholly-owned subsidiary, SA, invested
approximately $100.0 million for a 26.3% interest in SHCH, which,
through wholly-owned subsidiaries, owns the Sydney Harbour Casino
and holds the casino license required to operate the Sydney
Harbour Casino. SA also has an 85% interest in the management
company which manages the Sydney Harbour Casino. In December
1994, the New South Wales Casino Control Authority ("NSWCCA")
granted the only full-service casino license in the State of New
South Wales to SHCL. The Sydney Harbour Casino commenced gaming
operations in an interim casino in Sydney, Australia on
September 13, 1995.
The interim casino, which has approximately 60,000 square
feet of casino space, is located approximately one mile from the
Sydney central business district at Pyrmont Bay adjacent to
Darling Harbour on Wharves 12 and 13. An existing building was
renovated to permit the operation of the interim casino
containing 500 slot machines and 150 table games. The interim
casino is open 24 hours per day, every day of the year. The
interim casino also features restaurants, bars, a sports lounge
and a gift shop.
The opening of the Sydney Harbour Casino marks the beginning
of Sydney Harbour Casino's 12-year monopoly as the only full-
service casino in the State of New South Wales. This exclusive
12-year period is included in the 99-year casino license awarded
to SHCL.
Pursuant to the terms of a construction contract and subject
to certain exceptions, the permanent Sydney Harbour Casino must
be completed within 38 months of the award of the casino license
to SHCL. The Company anticipates that the permanent Sydney
Harbour Casino will commence operations by early 1998. The
permanent Sydney Harbour Casino will be located at Pyrmont Bay
next to the interim casino site. Pursuant to the terms of the
casino license, upon opening the permanent casino, the interim
casino will cease operations. The permanent Sydney Harbour
Casino will feature approximately 153,000 square feet of casino
space, including an approximately 22,000 square foot private
gaming area to be located on a separate level which will target a
premium clientele. The Sydney Harbour Casino will have 1,500
slot machines and 200 table games. The permanent Sydney Harbour
Casino will also contain several themed restaurants, cocktail
lounges, a 2,000 seat lyric theatre, a 900 seat cabaret style
theatre and extensive public areas. The Sydney Harbour Casino
complex will include a 352 room hotel tower and an adjacent
condominium tower containing 139 privately-owned units with full
hotel services. When available, some of the 139 privately-owned
units may also be used by the hotel for its guests. The complex
will also include extensive retail facilities, a station for
Sydney's proposed light rail system, a bus terminal, docking
facilities for commuter ferries and parking for approximately
2,500 cars on site.
In April 1994, Sydney Harbour Casino Properties Pty Limited
("SHCP"), a wholly-owned subsidiary of SHCH, entered into an
agreement with Leighton Properties Pty Limited ("Leighton
Properties") to design and construct the interim and permanent
Sydney Harbour Casino for a total of A$691.0 million. (As used
in this Form 10-K, amounts in Australian dollars are denoted as
"A$." As of March 15, 1996, the exchange rate was approximately
$0.7744 for each A$1.00.) SHCP is currently reviewing the design
of the permanent Sydney Harbour Casino with the view to improving
its operational efficiency and product quality and to match the
changing competitive environment. SHCP has announced project
cost estimates of up to A$771.0 million, a portion of which is
subject to obtaining financing, required approvals and
agreements.
Additionally, SHCP and Leighton Properties are discussing
matters in relation to the administration and management of the
project under the construction contract, including an accelerated
completion date for the project, firming up on monetary
allowances and resolution of certain claims notified by Leighton
Properties to SHCP. The total development cost is subject to
change based upon the outcome of these discussions. As with any
construction contract, the final amount of such contract will be
subject to modification based upon change orders and the
occurrence of certain events such as costs associated with
certain types of construction delays. No assurance can be given
that the construction costs for the Sydney Harbour Casino will
not exceed the announced project cost estimates.
SHCP has incurred approximately A$276.1 million of the
project costs as of December 31, 1995.
Under the terms of the construction contract and subject to
certain exceptions, the permanent casino must be completed within
38 months of December 1994, the date of issuance of the casino
license. In the event that the permanent Sydney Harbour Casino
is not completed within such time period, the construction
contract provides for the payment of liquidated damages of not
more than A$150,000 per day to an aggregate maximum amount of
A$30.0 million. Additionally, SHCH is indemnified against any
loss arising from the contractor's failure to perform its
obligations under the construction contract. The cost of the
Sydney Harbour Casino, excluding the cost components for
construction of the interim and permanent casinos, is anticipated
to be approximately A$518.0 million.
In addition to its 26.3% equity interest in SHCH, SA has an
option to purchase an additional 37,446,553 ordinary shares of
SHCH at an exercise price of A$1.15 per share. SA's option may
be exercised no earlier than July 1, 1998 and expires June 30,
2000. If all of the options to purchase equity in SHCH were
exercised, including the exercise by SA of its options, SA's
ownership in SHCH would increase to 28.3%. However, depending on
various factors, including the number of options exercised by the
holders of options, the issuance of additional shares or options
by SHCH and the purchase or sale of shares of SHCH by SA, SA's
ownership interest in SHCH could vary. SA is restricted to
remain the beneficial owner of not less than 10% of the issued
capital of SHCH for a period of not less than five years after
completion of the permanent Sydney Harbour Casino and remain the
beneficial owner of not less than 5% of the issued capital of
SHCH for an additional two years thereafter. SHCH became a
publicly listed company on the Australian Stock Exchange in June
1995.
Sydney Casino Management Pty Limited (the "Manager"), a
company which is 85% owned by SA and 15% owned by National Mutual
Trustees Limited in trust for Leighton Properties, manages the
interim casino and will manage the permanent Sydney Harbour
Casino pursuant to a 99-year management agreement (the
"Management Agreement"). The terms of the Management Agreement
require the Manager to advise SHCL or SHCP as to the casino
design and configuration and the placement of all gaming
equipment. The Manager also has agreed to train all employees of
the Sydney Harbour Casino and to manage a high quality
international class casino in accordance with the operating
standards required by the NSWCCA. The NSWCCA requires a service
audit to be conducted yearly by a third party so that areas of
non-compliance can be identified and remedied by the Manager.
The Manager will be paid a management fee equal to the sum of
(i) 1 1/2% of casino revenue, (ii) 6% of casino gross operating
profit, (iii) 3 1/2% of total non-casino revenue, and (iv) 10% of
total gross non-casino operating profit, for each fiscal year for
services rendered by the Manager pursuant to the Management
Agreement. SA has agreed to forego the first A$19.1 million of
its 85% portion of the fees due under the Management Agreement,
of which amount approximately A$15.1 million remains as of
December 31, 1995. Gaming revenue from the Sydney Harbour Casino
will be taxed at a rate of (i) 22.5% of slot machine revenue and
(ii) 20% of the first A$200.0 million of gross table game revenue
with the rate increasing by 1.0% for each additional A$5.0
million of gross table game revenue up to a maximum rate of 45.0%
payable on gross table game revenue in excess of A$320.0 million
per annum. The A$200.0 million of base gross table game revenue
will be adjusted annually in accordance with changes in the
Consumer Price Index (Sydney All Groups) from the first week in
July each year. The base year of the index is 1992. SHCL will
also pay a community benefit levy of 2.0% of gross gaming
revenue.
As with any major construction effort, the permanent Sydney
Harbour Casino involves many risks, including, without
limitation, shortages of materials and labor, work stoppages,
labor disputes, weather interference, unforeseen engineering,
environmental or geological problems and unanticipated cost
increases, any of which could give rise to delays or cost
overruns. Construction, equipment or staffing problems or
difficulties in obtaining any of the requisite permits,
allocations and authorizations from regulatory authorities could
increase the cost or delay the construction or opening of the
permanent facilities or otherwise affect their design and
features. The final budgets and construction plans for the
permanent Sydney Harbour Casino may vary significantly from that
which is currently anticipated. Accordingly, there can be no
assurance that the permanent Sydney Harbour Casino will be
completed within the time periods or budgets which are currently
contemplated.
In addition, the Company's participation in foreign
operations in New South Wales, Australia involves a number of
risks. These risks include, without limitation, currency and
exchange control problems, operating in highly inflationary
environments, fluctuations in monetary exchange rates, the
possible inability to execute and enforce agreements, the future
regulations governing the repatriation of funds, political,
regulatory and economic instability or changes in policies of the
foreign government, and the dependence on other future events
which can influence the success or failure of such foreign
operations. There can be no assurance that these factors will
not have an adverse impact on the Company's operating results.
SYDNEY EMPLOYEES AND LABOR RELATIONS
As of March 1, 1996, the Sydney Harbour Casino employed
approximately 2,750 persons, of which approximately 2,290 or 83%
of the employees were represented by collective bargaining
agreements. The Sydney Harbour Casino considers its current
labor relations to be satisfactory.
FINANCIAL INFORMATION ABOUT THE COMPANY
The primary source of revenue and income to the Company is
its casinos, although the hotels, restaurants, bars, buffets,
shops, bowling, sports and other special events and services are
important adjuncts to the casinos. At December 31, 1995, casinos
either owned or managed by the Company featured the following
approximate number of slot machines and table games:
<TABLE>
<CAPTION>
Interim
Sydney
Atlantic City Las Vegas Harbour
SHOWBOAT SHOWBOAT CASINO TOTAL
<S> <C> <C> <C> <C>
Slot Machines 3,450 1,450 500 5,400
"21" Tables 47 15 83 147
Poker Tables 6 0 0 6
"Craps" Tables 12 2 2 16
Roulette Tables 13 2 31 46
Caribbean Stud Poker 7 1 4 12
Pai Gow Poker Tables 1 1 4 6
Baccarat Tables 3 0 3 6
Mini-Baccarat Tables 2 0 14 16
Big Six Wheel 2 0 3 5
Sic Bo 1 0 3 5
Let It Ride 0 2 0 2
Two Up 0 0 1 1
</TABLE>
The Atlantic City Showboat also contains a horse racing simulcast
room and a keno facility. The Las Vegas Showboat also contains a
race and sports book, a 1,300-seat bingo parlor and a keno
facility. On March 1, 1996, the Las Vegas Showboat reintroduced
five poker tables.
Slot machines have been the principal source of casino
revenues at the Atlantic City Showboat and the Las Vegas
Showboat. At the Atlantic City Showboat, slot machines accounted
for 73.9%, 73.6% and 73.2% of casino revenues for the years ended
December 31, 1995, 1994 and 1993, respectively. At the Las Vegas
Showboat, slot machines accounted for 85.5%, 83.0% and 84.2% of
casino revenues for the years ended December 31, 1995, 1994 and
1993, respectively. In contrast, table games have been the
principal source of casino revenues at the interim Sydney Harbour
Casino. For the period from commencement of operations to
December 31, 1995, table games accounted for 86.1% of casino
revenues at the Sydney Harbour Casino. Gaming operations at the
Atlantic City Showboat, the Las Vegas Showboat and the interim
Sydney Harbour Casino are each conducted 24 hours a day, every
day of the year.
The following table sets forth the contribution to total net
revenues on a dollar and percentage basis of the Company's major
activities at the Atlantic City Showboat and the Las Vegas
Showboat for the years ended December 31, 1995, 1994 and 1993.
Net revenues for the interim Sydney Harbour Casino and the
Showboat Star Casino are not included in the table since the
Company accounts for its investment in SHCH and the SSP,
respectively, under the equity method of accounting. The
Company's equity in the income or loss of SHCH, net of
intercompany elimination, was reduced to zero due to the write-
off of preopening costs for the period from commencement of
operations to December 31, 1995. Approximately, A$44.0 million
in preopening costs were incurred as of December 31, 1995, and
approximately A$23.4 million in preopening costs were expensed as
of December 31, 1995. The remaining preopening costs will be
expensed in 1996. The Company's equity in the income or loss of
SSP, net of intercompany elimination, was a loss of $22,000
through March 31, 1995, income of $12,828,000 for the year ended
December 31, 1994 and a loss of $850,000 for the period from
commencement of operations to December 31, 1993. For other
financial information, see the Company's financial statements
contained in Item 8. Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>
Year Ended Year Ended
DECEMBER 31, 1995 DECEMBER 31, 1994
(dollar amounts in thousands)
AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C>
Revenues:
Casino<F1> $379,494 88.5 $351,436 87.6
Food and
beverage 53,894 12.6 50,624 12.6
Rooms 25,694 6.0 20,587 5.1
Sports and
special events 3,924 1.0 4,168 1.0
Other<F2> 5,379 1.2 7,799 2.0
Total gross
revenues<F3> 468,385 109.3 434,614 108.3
Less compli-
mentaries<F1> 39,793 9.3 33,281 8.3
Total net
revenues<F3> $428,592 100.0 $401,333 100.0
</TABLE>
<TABLE>
<CAPTION>
Year Ended
DECEMBER 31, 1993
(dollar amounts in thousands)
AMOUNT PERCENT
<S> <C> <C>
Revenues:
Casino<F1> $329,522 87.7
Food and
beverage 48,669 12.9
Rooms 19,355 5.2
Sports and
special events 4,251 1.1
Other<F2> 5,982 1.6
Total gross
revenues<F3> 407,779 108.5
Less compli-
mentaries<F1> 32,052 8.5
Total net
revenues<F3> $375,727 100.0
<FN>
<F1> Casino revenues are the net difference between the sums
paid as winnings and the sums received as losses.
Complimentaries consist primarily of rooms, food and beverages
furnished gratuitously to customers. The sales value of such
services is included in the respective revenue classifications
and is then deducted as complimentaries. Complimentary rates
are periodically reviewed and adjusted by management. See
Note 1 of Notes to Consolidated Financial Statements in
Item 8. Financial Statements and Supplementary Data.
<F2> Includes management fee revenues, net of intercompany
elimination, in the amount of $.2 million, $1.9 million and
$.3 million paid to Lake Pontchartrain Showboat, Inc., a
wholly-owned subsidiary of the Company, from SSP in 1995, 1994
and 1993, respectively.
<F3> Does not include interest income.
</FN>
</TABLE>
The Atlantic City Showboat offers complimentary meals,
drinks and room accommodations to a larger percentage of
customers than does the Las Vegas Showboat or the Sydney Harbour
Casino. Such promotional allowances (complimentary services) at
the Atlantic City Showboat were 9.7%, 8.8% and 9.3% of total net
revenues for the years ended December 31, 1995, 1994 and 1993,
respectively. Such promotional allowances (complimentary
services) at the Las Vegas Showboat were 6.4%, 6.5% and 5.9% of
total net revenues for the years ended December 31, 1995, 1994
and 1993, respectively. At the interim Sydney Harbour Casino,
such complimentary services were 2.7% of the total net revenues
for the period from commencement of operations to December 31,
1995.
GAMING CREDIT POLICY
A relatively minimal dollar amount of credit is extended to
a limited number of gaming customers at the Las Vegas Showboat.
The Sydney Harbour Casino is prohibited by regulation from
extending any credit to its gaming customers. The Atlantic City
Showboat, however, offers substantially more credit to a greater
number of customers than the Las Vegas Showboat. At the Atlantic
City Showboat, gaming receivables were approximately $7.1 million
at December 31, 1995, before deducting allowance for doubtful
accounts of approximately $2.5 million. In comparison, gaming
receivables at the Atlantic City Showboat were approximately $6.9
million at December 31, 1994, before deducting allowance for
doubtful accounts of approximately $2.2 million. The Atlantic
City Showboat's gaming credit, as a percentage of total gaming
revenues, is at a level which is consistent with that of the
average credit levels for all other hotel-casinos in Atlantic
City. Overall, the Company's gaming receivables were
approximately $7.2 million at December 31, 1995, before deducting
allowance for doubtful accounts of approximately $2.6 million.
In comparison, the Company's gaming receivables were
approximately $7.0 million at December 31, 1994, before deducting
allowance for doubtful accounts of approximately $2.2 million.
The non-collectibility of gaming receivables can have a
material adverse effect on results of operations, depending upon
the amount of credit extended and the size of uncollected
amounts. The Company maintains strict controls over the issuance
of credit and aggressively pursues collection of its customer
receivables. These collection efforts parallel those procedures
commonly followed by most large corporations, including the
mailing of statements and delinquency notices, personal contacts,
the use of outside collection agencies and civil litigation.
Gaming debts evidenced by credit instruments are enforceable
under the laws of New Jersey and Nevada, respectively. All other
states are required to enforce a judgment on a gaming debt
entered in New Jersey or Nevada pursuant to the Full Faith and
Credit Clause of the United States Constitution. Although gaming
debts are not legally enforceable in some foreign countries, the
United States assets of foreign debtors may be reached to satisfy
a judgment entered in the United States. Annual gaming bad debt
expense at the Atlantic City Showboat was approximately .4% of
casino revenues for the year ended December 31, 1995, as compared
to approximately .2% for the year ended December 31, 1994. Annual
gaming bad debt expense at the Las Vegas Showboat was
approximately .2% of casino revenues for the year ended
December 31, 1995, as compared to approximately .2% of casino
revenues for the year ended December 31, 1994.
CONTROL PROCEDURES
In connection with its gaming activities, the Company
follows a policy of stringent internal controls, cross-checks and
recording of all receipts and disbursements in accordance with
industry practice. The audit and cash controls developed and
utilized by the Company include locked cash boxes, independent
counters, checkers and observers to perform the daily cash and
coin counts, floor observation of the gaming areas, closed-
circuit television observation of certain areas, daily computer
tabulation of receipts and disbursements for each slot machine,
table and other games, and the rapid identification, analysis and
resolution of discrepancies or deviations from normal
performance. All dealers and other personnel are internally
trained by the Company, however, dealers in New Jersey must also
obtain certification from an independent dealer's school in order
to meet licensing requirements. The Company presently intends to
promote qualified employees to supervisory and management levels.
However, staffing requirements for the Company's hotel-casinos
and for the Company's Gaming Development Division have required
that certain supervisory and management personnel be hired from
other hotel-casinos. Gaming operations are subject to risk of
loss as a result of employee or customer dishonesty due to the
large amount of cash and gaming chips handled. However, the
Company has not experienced significant losses related to
employee dishonesty.
SEASONAL FACTORS
The Company does not believe that gaming and hotel revenues
are significantly seasonal in Las Vegas, Nevada. In contrast,
the Company believes that gaming and hotel revenues are seasonal
in Atlantic City, New Jersey due to the harsher weather in the
mid-eastern seaboard during winter months. Due to the limited
operating history of the Sydney Harbour Casino, the Company is
currently evaluating whether gaming and hotel revenues are
seasonal in Sydney, Australia.
COMPETITION
The gaming industry includes land-based casinos, dockside
casinos, riverboat casinos, casinos located on Native American
land, card parlors, state-sponsored lotteries, on-track and off-
track wagering and other forms of legalized gaming in the United
States and internationally. Competition is intense among
companies in the gaming industry, and the Company expects it to
remain so in the future. Many states have legalized, and other
states are currently considering legalizing, casino gaming. The
Company believes that the growth in the legalization of gaming is
fueled by a combination of increasing popularity and
acceptability of gaming activities and the desire and need for
states and local communities to generate revenues without
increasing general taxation.
ATLANTIC CITY, NEW JERSEY
The Atlantic City Showboat competes with 11 other hotel-
casinos in Atlantic City containing a total of approximately
961,000 square feet of gaming space and approximately 9,200
casino hotel rooms as of December 31, 1995 (including the
Atlantic City Showboat). According to the New Jersey Convention
and Visitors Authority, seven expansions of existing hotel-
casinos have been announced and are expected to be complete
within the next two years, which will add approximately 3,600
more hotel rooms. There are several sites on the Boardwalk and in
the Marina Area of Atlantic City on which hotel-casino facilities
could be built in the future. Several established gaming
companies, are at various stages in the licensing process with
the New Jersey Casino Control Commission to obtain gaming
licenses to develop major casino resorts in Atlantic City. Hotel-
casinos in Atlantic City generally compete on the basis of
promotional allowances, bus programs and packages, entertainment,
advertising, service provided to patrons, caliber of personnel,
attractiveness of the hotel-casino areas and related amenities.
The Atlantic City Showboat targets slot machine customers by
utilizing a variety of marketing techniques.
The Atlantic City Showboat also competes with Foxwood's High
Stakes Bingo and Casino on the Mashantucket Pequot Indian
Reservation in Ledyard, Connecticut. To a lesser extent, the
Atlantic City Showboat competes with casinos in Nevada and other
states of the United States and internationally. Delaware
recently passed legislation authorizing all three racetracks in
its state to operate slot machines. On December 29, 1995, two of
those racetracks opened casinos containing a total of
approximately 1,200 slot machines. The Company believes that the
commencement or expansion of casino and other gaming ventures in
states close to New Jersey, particularly, Delaware, Maryland, New
York or Pennsylvania, could have an adverse effect on the
Company's Atlantic City operations.
LAS VEGAS, NEVADA
The Las Vegas Showboat competes with casinos located in the
Las Vegas area, including competitors located on the Boulder
Strip, on the Las Vegas Strip, in downtown Las Vegas and at the
Nevada-California stateline. Such competition includes a number
of hotel-casinos, as well as numerous non-hotel gaming
facilities, targeted toward slot machine players and local
residents. As of December 31, 1995, there were approximately
four hotel-casinos located on the Boulder Strip (including the
Las Vegas Showboat), 37 located on or near the Las Vegas Strip,
14 located in the downtown area and 11 located in other areas in
or near Las Vegas. In recent months, several of the Company's
direct competitors have opened new hotel-casinos or have
commenced or completed major expansion projects, and other
expansions are in progress or are planned. A new hotel-casino
targeting a similar market as the Las Vegas Showboat is scheduled
to open in April 1997 in Henderson, Nevada, approximately eight
miles from the Las Vegas Showboat. According to the Las Vegas
Convention and Visitors Authority, the Las Vegas hotel-motel room
inventory was approximately 90,046 rooms as of December 31, 1995,
an increase of approximately 1.7% from the prior year. Seven new
hotel-casinos and seven hotel-casino expansions are under
construction or have been announced, which will add approximately
19,000 rooms to the Las Vegas areas over the next approximately
two years.
As a result of increased competition primarily for slot
machine players and Las Vegas area residents, the Las Vegas
Showboat has experienced declines in revenues and earnings from
operations. The Company has expanded marketing and customer
service programs in response to excess casino capacity in the Las
Vegas market. In December 1995, the Company completed an
approximately $21.0 million renovation of the Las Vegas Showboat
that primarily improved the quality of the public areas of the
Las Vegas Showboat. Approximately 30,000 square feet or 40% of
the casino space was closed from July 1995 to December 1995 as a
result of the renovation. The increased competition and the
construction activities caused a significant disruption in
operations and earnings at the Las Vegas Showboat.
To a lesser extent, the Las Vegas Showboat competes with
casinos located in Mesquite, Laughlin and Reno-Lake Tahoe areas
of Nevada and in New Jersey and other states of the United States
and internationally. According to the Attorney General of
California, as of January 1996, there were approximately 9,000
slot machines illegally located in approximately 30 casinos on
Native American land throughout California, including four
casinos in the Palm Springs area. In November 1995, a proposed
initiative for the approval of gaming on Native American land in
California was submitted to the California Attorney General's
office but is facing opposition from certain government, law
enforcement and religious leaders. The Company believes that the
commencement or expansion of casino and other gaming ventures in
states close to Nevada, particularly California, could have a
material adverse effect on the Company's Las Vegas operations.
SYDNEY, NEW SOUTH WALES
The Sydney Harbour Casino competes with casinos in Australia
and other casinos located within the Pacific Rim. Currently, 16
full-service casinos operate in Australia and New Zealand.
Sydney Harbour Casino will remain the only full-service casino in
the State of New South Wales for 12 years following commencement
of gaming operations in the interim casino. While only 13.9% of
casino revenues were generated by slot machines, in 1994 (the
most recently available public information), in excess of
approximately 70,000 slot machines were permitted in
approximately 1,800 hotels and approximately 1,500 non-profit
private clubs in New South Wales. Hotels are limited to a
maximum of ten slot machines each. In 1994, over 50% of the
private clubs contained 25 slot machines or less; however, the
largest private club contained in excess of 800 slot machines.
Sydney Harbour Casino expects to compete with the local slot
clubs and with the casinos throughout Australia and the Pacific
Rim by offering excellent service and an attractive facility
containing hotel operations, bars and restaurants, sports and
recreation facilities, entertainment centers, car parking,
theatres, convention facilities and retail shopping.
MARKETING
The Company's revenues and operating income depend primarily
upon the level of gaming activity at its casinos, although the
Company also seeks to maximize revenues from food and beverage,
lodging and other retail operations. Therefore, the primary goal
of the Company's marketing efforts is to attract gaming customers
to its casinos. Specifically, the Company's marketing strategy
at the Atlantic City Showboat and the Las Vegas Showboat is to
develop a high volume of traffic through the casinos, emphasizing
slot machine play which accounted for 73.9% and 85.5% of casino
revenues of the Atlantic City Showboat and the Las Vegas
Showboat, respectively, in 1995. The Atlantic City Showboat
targets slot machine customers by providing competitive games and
excellent service in an attractive convenient facility and by
using a variety of marketing techniques. Customers are attracted
to the Las Vegas Showboat by competitive slot machines, bingo,
moderately priced food and accommodations, a friendly "locals"
atmosphere and a 106-lane bowling center. The Sydney Harbour
Casino intends to target gaming patrons by positioning itself as
a complete entertainment venue with restaurants, bars, free live
entertainment and gaming. The Company advertises its hotel-
casinos on television and radio, in newspapers and magazines and
on outdoor signs and billboards. The Company markets its slot
machine customers by means of promotions, including players'
clubs, and direct mailings. The Company also sponsors special
events designed to attract its target customers.
REGULATION AND LICENSING
NEW JERSEY GAMING
Casino gaming activities in Atlantic City are subject to the
New Jersey Casino Control Act ("New Jersey Act") and the
regulations of the New Jersey Casino Control Commission (the "New
Jersey Commission"). No casino may operate unless the required
licenses and approvals are obtained from the New Jersey
Commission. The New Jersey Commission is authorized under the
New Jersey Act to adopt regulations covering a broad spectrum of
gaming, gaming-related activities and non-gaming-related
activities and to prescribe the methods and forms of applications
for licenses. The New Jersey Commission: (i) approves license
applications; (ii) regulates the design of casino facilities and
determines the allowable amount of casino space based upon the
number of hotel rooms; (iii) monitors operating methods and
financial accounting practices of licensees; and (iv) determines
and imposes sanctions for violations of the New Jersey Act and
the New Jersey Commission regulations. The New Jersey Act also
establishes a Division of Gaming Enforcement (the "Division")
which is a branch of the New Jersey Attorney General's office.
The Division investigates all applications for the granting and
renewal of licenses, enforces the provisions of the New Jersey
Act and prosecutes before the New Jersey Commission proceedings
for violations of the New Jersey Act. The Division conducts
audits and continuing reviews of all casino operations.
The New Jersey Commission has extremely broad discretion
with regard to the issuance, renewal and revocation or suspension
of licenses. A casino license is not transferable and must be
renewed by the licensee at certain intervals. The first two
license renewal periods are one year. Thereafter, the casino
licenses may be renewed for up to four years, subject to the New
Jersey Commission's authority to reconsider license eligibility
during any term. A casino license may be revoked or suspended at
any time by the New Jersey Commission upon a finding of
disqualification or noncompliance. The holder of a casino license
must also obtain an operation certificate which may be revoked or
suspended at any time by the New Jersey Commission upon a finding
of noncompliance.
In order to obtain or renew a casino license, an applicant
must demonstrate to the New Jersey Commission: (i) its financial
stability, integrity and responsibility; (ii) its business
ability and casino experience; (iii) its good character, honesty
and integrity; and (iv) the qualification of all its financial
sources, security holders and holding and intermediate companies.
Moreover, each officer, director, principal employee, lender or
person directly or indirectly holding any beneficial interest or
ownership of the securities of the corporate licensee, and any
person deemed by the New Jersey Commission as having the ability
to control the corporate licensee or elect a majority of the
board of directors of the corporate licensee or other person
deemed appropriate by the New Jersey Commission must be found
qualified. ACSI's casino license was granted on March 27, 1987,
effective April 2, 1987. ACSI's casino license was renewed on
January 25, 1995 for the period commencing January 31, 1995 and
ending January 31, 1997. In connection therewith, the Company
and OSI were required to satisfy the licensure standards set
forth above.
The New Jersey Commission imposes certain restrictions upon
the ownership of securities issued by a corporation which holds a
casino license or is a holding company of a corporate casino
licensee. Among other restrictions, the sale, assignment,
transfer, pledge or other disposition of any security issued by a
corporation which holds a casino license is subject to approval
by the New Jersey Commission. If the New Jersey Commission finds
an individual owner or holder of any security of a corporate
casino licensee or any of its holding companies or a "financial
source," or any of its security holders to be disqualified, the
New Jersey Commission may take any necessary remedial action,
including requiring divestiture by the disqualified security
holder. If disqualified security holders of either the corporate
licensee or the holding company fail to divest themselves of such
security interests, the New Jersey Commission may revoke or
suspend ACSI's casino license. Disqualified security holders are
prohibited from: (i) receiving any dividends or interest on their
securities; (ii) exercising, directly or through any trustee or
nominee, any rights conferred by such securities; and (iii)
receiving any remuneration in any form from the corporate
licensee for services rendered or otherwise. The corporate
licensee and its non-publicly traded holding companies are
required to include in their charter or articles of incorporation
a provision establishing the right of prior approval by the New
Jersey Commission with regard to transfers of securities, shares
and other interests in the corporation. The corporate licensees'
publicly traded holding companies are required to provide in
their charter or articles of incorporation a provision that any
securities of the corporation are held subject to the condition
that if a holder thereof is disqualified, such holder shall
dispose of his interest. The Company and OSI are holding
companies of ACSI, a New Jersey casino licensee. The Company,
OSI and ACSI have charters or articles of incorporation that
comply with these regulatory requirements.
The New Jersey Commission regulations include detailed
provisions concerning, among others: (i) the rules of games,
including minimum and maximum wagers, and methods of supervision
of games and of selling and redeeming gaming chips; (ii) the
granting and duration of credit, the operation of junkets, and
the extension of and accounting for complimentary services;
(iii) the manufacture, distribution and sale of gaming equipment;
(iv) the security standards, management control procedures,
accounting and cash control methods and the reporting of such
matters to gaming authorities; (v) casino advertising; (vi) the
deposit of checks from patrons of casinos; (vii) the reporting of
currency transactions with patrons in amounts exceeding $10,000
to the Division; and (viii) the standards for entertainment and
distribution of alcoholic beverages in hotel-casinos.
All contracts and leases entered into by a casino licensee
are subject to the review of the New Jersey Commission and, if
reviewed and found unacceptable, may be voided. All enterprises
providing gaming-related equipment or services to a casino
licensee must be licensed or good cause must be shown for a
waiver of such licensing requirements. All other enterprises
dealing with a casino licensee must register with the New Jersey
Commission, which may require that they be licensed if they
regularly engage in business with casino licensees.
The New Jersey Commission could appoint a conservator upon
the revocation of or failure to renew a casino license. A
conservator would be vested with title to the hotel-casino of the
former or suspended licensee, subject to valid liens and
encumbrances. The conservator would act subject to the general
supervision of the New Jersey Commission and would be charged
with the duty of conserving, preserving and continuing the
operation of the hotel-casino. During the period of any such
conservatorship, the conservator may not make any distributions
of net earnings without the prior approval of the New Jersey
Commission. The New Jersey Commission may direct that all or a
portion of such net earnings be paid to the Casino Revenue Fund,
provided, however, that a suspended or former licensee is
entitled to a fair rate of return out of net earnings, if any.
Except during the pendency of a suspension or during any appeal
from any action precipitating the appointment of a conservator,
and after appropriate consultations with the former licensee, a
conservator, subject to the prior approval of the New Jersey
Commission, would be authorized to sell, assign, convey or
otherwise dispose of the hotel-casino of a former licensee
subject to all valid liens, claims and encumbrances, and to remit
the net proceeds to the former licensee.
After completion of its first full year of operation, and
continuing for 30 years thereafter, a casino licensee is subject
to a New Jersey investment obligation. To satisfy this
obligation, the Company may either: (i) pay an investment
alternative tax equal to 2 1/2% of its annual gross revenues from
gaming operations; or (ii) purchase bonds issued by, or invest in
other development projects approved by, the Casino Reinvestment
Development Authority, a state agency, in an amount equal to 1 1/4%
of its annual gross revenues from gaming operations.
All corporations doing business in New Jersey are subject to
a corporate franchise tax, based on allocated net income, at a 9%
annual rate. Interest on indebtedness is deductible under New
Jersey law. There is also an 8% tax on the gross win revenues of
New Jersey casinos, in addition to an annual $500 fee for each
slot machine.
Atlantic City imposes a real property tax and a luxury tax
applicable to certain sales, including, but not limited to, the
sale of alcoholic beverages, tickets to entertainment events and
rental of hotel rooms. In 1992, the New Jersey legislature
adopted laws imposing a fee of $2.00 per occupied casino hotel
room per day ($1.00 for non-casino hotel rooms). These fees are
dedicated exclusively to a fund to market Atlantic City as a
tourist destination and resort. In addition, the state of New
Jersey, effective July 1, 1993, imposed a $1.50 per day fee for
each patron's car that is parked at an Atlantic City casino.
ACSI has elected to absorb the parking fee as a marketing
expense, and not to collect the fee from patrons as do the
majority of Atlantic City casinos. ACSI has incurred parking fees
of approximately $1.9 million, $1.8 million and $.8 million in
1995, 1994 and 1993, respectively.
From time to time new laws and regulations, as well as
amendments to existing laws and regulations, relating to gaming
activities in New Jersey are proposed or adopted.
In addition, the New Jersey casino regulatory authorities
from time to time may change their laws, regulations or
procedures, including their procedures for renewing licenses.
The Company cannot predict what effect, if any, new or amended
laws, regulations or procedures would have on the Company. While
in the last few years the changes to New Jersey gaming laws,
regulations or procedures have generally not been restrictive to
New Jersey licenses, changes in such laws, regulations or
procedures could have an adverse effect on the Company.
The Company is subject to various other federal, state and
local laws and regulations and, on a periodic basis, has to
obtain various licenses and permits, including those required to
sell alcoholic beverages. In particular, the United States
Department of the Treasury has adopted regulations pursuant to
which a casino is required to file a report of each deposit,
withdrawal or exchange of currency or other payment or transfer
by, through or to a casino which involves a transaction in
currency of more than a predetermined amount ($10,000 for 1995)
per gaming day. Such reports are required to be made on forms
prescribed by the Secretary of the Treasury and must be filed
with the Commissioner of the Internal Revenue Service. In
addition, a casino is required to maintain detailed records
(including the names, addresses, social security numbers or other
information with respect to its customers) dealing with, among
other items, a customer's deposit and withdrawal of funds and the
maintenance of a line of credit.
The Company, through SBOC, conducts casino gaming operations
in Las Vegas, Nevada. The Company is not required to obtain the
prior approval of the Nevada Gaming Authorities to conduct casino
gaming operations outside Nevada. However, the Company must
submit quarterly reports to the Nevada Board regarding (i) any
changes in ownership or control of any interest in ACSI or OSI;
(ii) any changes in officers, directors or key employees of ACSI
or OSI; (iii) all complaints, disputes, orders to show cause and
disciplinary actions, related to gaming, instituted or presided
over by an entity of the United States, a state or any other
governmental jurisdiction concerning ACSI or OSI; (iv) any arrest
of an employee of ACSI or OSI involving cheating or theft related
to gaming in New Jersey; and (v) any arrest or conviction of an
officer, director, key employee or equity owner of ACSI or OSI
for certain offenses. The Company, through its New Jersey
subsidiaries, must provide to the Nevada Board all documents
filed with the state of New Jersey relating to the Atlantic City
Showboat, the systems of accounting and internal control utilized
in connection with the Atlantic City Showboat, and annual
operational and regulatory reports describing compliance with
regulations, procedures for audit, and procedures for
surveillance relating to the Atlantic City Showboat. The Company
must also comply with any additional reporting requirements which
may be imposed by the Nevada Board. New laws and regulations as
well as amendments to existing laws and regulations pertaining to
gaming activities in Nevada from time to time are proposed or
adopted. Changes in such laws, regulations and procedures could
have an adverse effect on the Company.
NEVADA GAMING
The ownership and operation of casino gaming facilities in
Nevada are subject to: (i) the Nevada Gaming Control Act and the
regulations promulgated thereunder (collectively "Nevada Act");
and (ii) various local regulations. The Company's gaming
operations are subject to the licensing and regulatory control of
the Nevada Gaming Commission ("Nevada Commission"), the Nevada
State Gaming Control Board ("Nevada Board"), and the City Council
of the City of Las Vegas ("City Board"). The Nevada Commission,
the Nevada Board, and the City Board are collectively referred to
as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the
Nevada Gaming Authorities are based upon declarations of public
policy which are concerned with, among other things: (i) the
prevention of unsavory or unsuitable persons from having a direct
or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible
accounting practices and procedures; (iii) the maintenance of
effective controls over the financial practices of licensees,
including the establishment of minimum procedures for internal
fiscal affairs and the safeguarding of assets and revenues,
providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the
prevention of cheating and fraudulent practices; and (v) to
provide a source of state and local revenues through taxation and
licensing fees. Change in such laws, regulations and procedures
could have an adverse effect on the Company's gaming operations.
SBOC, which operates the Las Vegas Showboat, is required to
be licensed by the Nevada Gaming Authorities. The gaming license
requires the periodic payment of fees and taxes and is not
transferable. The Company is registered by the Nevada Commission
as a publicly traded corporation ("Registered Corporation") and
as such, it is required periodically to submit detailed financial
and operating reports to the Nevada Commission and furnish any
other information which the Nevada Commission may require. No
person may become a shareholder of, or receive any percentage of
profits from, SBOC without first obtaining licenses and approvals
from the Nevada Gaming Authorities. The Company and SBOC have
obtained from the Nevada Gaming Authorities the various
registrations, approvals, permits and licenses required in order
to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual
who has a material relationship to, or material involvement with,
the Company or SBOC in order to determine whether such individual
is suitable or should be licensed as a business associate of a
gaming licensee. Officers, directors and certain key employees
of SBOC must file applications with the Nevada Gaming Authorities
and may be required to be licensed or found suitable by the
Nevada Gaming Authorities. Officers, directors and key employees
of the Company who are actively and directly involved in gaming
activities of SBOC may be required to be licensed or found
suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an application for licensing for any cause
which they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed
personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of
suitability must pay all the costs of the investigation. Changes
in licensed positions must be reported to the Nevada Gaming
Authorities and in addition to their authority to deny an
application for a finding of suitability or licensure, the Nevada
Gaming Authorities have jurisdiction to disapprove a change in a
corporate position.
If the Nevada Gaming Authorities were to find an officer,
director or key employee unsuitable for licensing or unsuitable
to continue having a relationship with the Company or SBOC, the
companies involved would have to sever all relationships with
such person. In addition, the Nevada Commission may require the
Company or SBOC to terminate the employment of any person who
refuses to file appropriate applications. Determinations of
suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.
The Company and SBOC are required to submit detailed
financial and operating reports to the Nevada Commission.
Substantially all material loans, leases, sales of securities and
similar financing transactions by SBOC must be reported to, or
approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by
SBOC the gaming licenses it holds could be limited, conditioned,
suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, SBOC, the
Company, and the persons involved could be subject to substantial
fines for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could
be appointed by the Nevada Commission to operate the Company's
gaming properties and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the
reasonable rental value of the Company's gaming properties) could
be forfeited to the state of Nevada. Limitation, conditioning or
suspension of any gaming license or the appointment of a
supervisor could (and revocation of any gaming license would)
materially adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities,
regardless of the number of shares owned, may be required to file
an application, be investigated, and have his suitability as a
beneficial holder of the Company's voting securities determined
if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared
policies of the state of Nevada. The applicant must pay all
costs of investigation incurred by the Nevada Gaming Authorities
in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5%
of the Company's voting securities to report the acquisition to
the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of the Company's voting securities apply
to the Nevada Commission for a finding of suitability within
thirty days after the Chairman of the Nevada Board mails the
written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the
Nevada Act, which acquires more than 10%, but not more than 15%,
of the Company's voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment
purposes only. An institutional investor shall not be deemed to
hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of
business as an institutional investor and not for the purpose of
causing, directly or indirectly, the election of a majority of
the members of the board of directors of the Company, any change
in the Company's corporate charter, bylaws, management, policies
or operations of the Company, or any of its gaming affiliates, or
any other action which the Nevada Commission finds to be
inconsistent with holding the Company's voting securities for
investment purposes only. Activities which are not deemed to be
inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by
stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for
informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other
activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered to do
so by the Nevada Commission, or the Chairman of the Nevada Board,
may be found unsuitable. The same restrictions apply to a record
owner if the record owner, after request, fails to identify the
beneficial owner. Any shareholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the
common stock of the Company beyond such period of time as may be
prescribed by the Nevada Commission may be guilty of a criminal
offense. The Company is subject to disciplinary action if, after
it receives notice that a person is unsuitable to be a
shareholder or to have any other relationship with the Company or
SBOC, the Company (i) pays that person any dividend or interest
upon voting securities of the Company, (ii) allows that person to
exercise, directly or indirectly, any voting right conferred
through securities held by that person, (iii) pays remuneration
in any form to that person for services rendered or otherwise, or
(iv) fails to pursue all lawful efforts to require such
unsuitable person to relinquish his voting securities for cash at
fair market value.
The Nevada Commission may, in its discretion, require the
holder of any debt security of a Registered Corporation to file
applications, be investigated and be found suitable to own the
debt security of a Registered Corporation. If the Nevada
Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered
Corporation can be sanctioned, including the loss of its
approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend,
interest, or any distribution whatsoever, (ii) recognizes any
voting right by such unsuitable person in connection with such
securities, (iii) pays the unsuitable person remuneration in any
form, or (iv) makes any payment to the unsuitable person by way
of principal, redemption, conversion, exchange, liquidation, or
similar transaction.
The Company is required to maintain a current stock ledger
in Nevada which may be examined by the Nevada Gaming Authorities
at any time. If any securities are held in trust by an agent or
by a nominee, the record holder may be required to disclose the
identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds
for finding the record holder unsuitable. The Company is also
required to render maximum assistance in determining the identity
of the beneficial owner. The Nevada Commission has the power at
any time to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada
Act. However, to date, the Nevada Commission has not imposed
such a requirement on the Company.
The Company may not make a public offering of its securities
without the prior approval of the Nevada Commission if the
securities or the proceeds therefrom are intended to be used to
construct, acquire or finance gaming facilities in Nevada, or
retire or extend obligations incurred for such purposes. In
November 1995, the Nevada Commission granted the Company prior
approval to make public offerings for a period of one year,
subject to certain conditions ("Shelf Approval"). The Shelf
Approval also applies to any affiliated company wholly owned by
the Company (a "Gaming Affiliate") which is a publicly traded
corporation or would thereby become a publicly traded corporation
pursuant to a public offering. The Shelf Approval also includes
approval for the Company's licensed Nevada subsidiaries to
guaranty any security issued by, or to hypothecate their assets
to secure the payment or performance of any obligations issued by
the Company or a Gaming Affiliate in a public offering under the
Shelf Approval. However, the Shelf Approval may be rescinded for
good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board and
the Shelf Approval must be renewed annually. The Shelf Approval
does not constitute a finding, recommendation or approval by the
Nevada Commission or the Nevada Board as to the accuracy or
adequacy of the prospectus or the investment merits of the
securities offered. Any representation to the contrary is
unlawful.
Changes in control of the Company through merger,
consolidation, stock or asset acquisitions, management or
consulting agreements, or any act or conduct by a person whereby
he obtains control, may not occur without the prior approval of
the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada
Commission in a variety of stringent standards prior to assuming
control of such Registered Corporation. The Nevada Commission
may also require controlling stockholders, officers, directors
and other persons having a material relationship or involvement
with the entity proposing to acquire control, to be investigated
and licensed as part of the approval process relating to the
transaction.
The Nevada legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting
securities and corporate defense tactics affecting Nevada gaming
licensees, and Registered Corporations that are affiliated with
those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a
regulatory scheme to ameliorate the potentially adverse effects
of these business practices upon Nevada's gaming industry and to
further Nevada's policy to: (i) assure the financial stability of
corporate gaming operators and their affiliates; (ii) preserve
the beneficial aspects of conducting business in the corporate
form; and (iii) promote a neutral environment for the orderly
governance of corporate affairs. Approvals are, in certain
circumstances, required from the Nevada Commission before the
Company can make exceptional repurchases of voting securities
above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada
Act also requires prior approval by the Nevada Commission of a
plan of recapitalization proposed by the Company's Board of
Directors in response to a tender offer made directly to its
shareholders for the purpose of acquiring control of the Company.
The sale of alcoholic beverages by the casino is subject to
licensing, control and regulation by the applicable local
authorities. All licenses are revocable and are not
transferable. The agencies involved have full power to limit,
condition, suspend or revoke any such license, and any such
disciplinary action could (and revocation would) have a material
adverse affect upon the operations of the casino.
License fees and taxes, computed in various ways depending
on the type of gaming or activity involved, are payable to the
state of Nevada and to the counties and cities in which the
Nevada licensee's respective operations are conducted. Depending
upon the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received;
(ii) the number of gaming devices operated; or (iii) the number
of table games operated. A casino entertainment tax is also paid
by casino operations where entertainment is furnished in
connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or
a manufacturer's or distributor's license, also pay certain fees
and taxes to the state of Nevada.
Any person who is licensed, required to be licensed,
registered, required to be registered, or is under common control
with such persons (collectively, "Licensees"), and who proposes
to become involved in a gaming venture outside of Nevada is
required to deposit with the Nevada Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation of the Nevada Board of their
participation in such foreign gaming. The revolving fund is
subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with
certain reporting requirements imposed by the Nevada Act.
Licensees are also subject to disciplinary action by the Nevada
Commission if it knowingly violates any laws of the foreign
jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming
operations, engages in activities that are harmful to the state
of Nevada or its ability to collect gaming taxes and fees, or
employs a person in the foreign operation who has been denied a
license or finding of suitability in Nevada on the ground of
personal unsuitability.
NEW SOUTH WALES GAMING
The NSWCCA was created pursuant to the Casino Control Act
1992 (NSW) ("Casino Act") to maintain and administer systems for
licensing, supervision and control of a casino.
In considering an application for a casino license,
Section 11 of the Casino Act requires the NSWCCA to have regard
to the following matters: (i) the suitability of applicants and
close associates of applicants; (ii) the standard and nature of
the proposed casino, and the facilities to be provided in, or in
conjunction with, the proposed casino; (iii) the likely impact of
the use of the premises concerned as a casino on tourism,
employment and economic development generally in the place or
region in which the premises are located; (iv) the expertise of
the applicant, having regard to the obligations of the holder of
a casino license under the Casino Act; and (v) such other matters
as the NSWCCA considers relevant.
The NSWCCA is to determine an application by either granting
a casino license to the applicant or declining to grant a casino
license. The casino license may be granted subject to such
conditions as the NSWCCA thinks fit and is granted for the
location specified in the casino license. A casino license
confers no right of property and cannot be assigned or mortgaged,
charged or otherwise encumbered.
The conditions of a casino license may be amended by being
substituted, varied, revoked or added to by the NSWCCA subject to
the right of the licensee to make submissions to the NSWCCA in
regard to any such proposal. The NSWCCA may also cancel or
suspend, or amend the terms or conditions, of a casino license
where there are grounds for disciplinary action, including:
(i) the casino license being improperly obtained; (ii) the casino
operator, a person in charge of the casino, an agent of the
casino operator or a casino employee contravening a provision of
the Casino Act or a condition of the license; (iii) the casino
premises no longer being suitable for the conduct of the casino
operations; (iv) the licensee being considered to be no longer a
suitable person to give effect to the casino license and the
Casino Act; and (v) the public interest that the casino license
should no longer remain in force. No right of compensation
against the government arises for the cancellation, suspension or
variation of the terms and conditions of the casino license.
The NSWCCA must not grant an application for a casino
license unless it is satisfied that the applicant and each close
associate is a suitable person to be concerned in or associated
with the management and operation of a casino. In making the
determination as to the suitability of the applicant, the NSWCCA
must consider whether: (a) the applicant and each close
associate are of good repute, having regard to character, honesty
and integrity; (b) the applicant and each close associate is of
sound and stable financial background; (c) in the case of an
applicant that is not a natural person, the applicant has or has
arranged a satisfactory ownership, trust or corporate structure;
(d) the applicant has or is able to obtain financial resources
that are both suitable and adequate for insuring the financial
viability of the proposed casino; (e) the applicant has or is
able to obtain the services of persons who have sufficient
experience in the management and operation of a casino; (f) the
applicant has sufficient business ability to establish and
maintain a successful casino; (g) the applicant or any close
associate who has any business association with any person, body
or association who, in the opinion of the NSWCCA is not of good
repute, having regard to character, honesty and integrity or has
undesirable or unsatisfactory financial sources; and (h) each
director, partner, trustee, executive officer and secretary and
any other officer or person determined by the NSWCCA to be
associated or connected with the ownership, administration or
management of the operations or business of the applicant or a
close associate of the applicant is a suitable person to act in
that capacity.
On receiving an application for a casino license, the NSWCCA
must carry out all such investigations and inquiries as it deems
necessary. The costs of the investigation by the NSWCCA are
payable to the NSWCCA by the applicant unless the NSWCCA
determines otherwise.
The NSWCCA may give written direction to a casino operator
as to the conduct, supervision or control of operations of the
casino. The NSWCCA may investigate a casino from time to time at
the discretion of the NSWCCA. Not later than three years after
the grant of the casino license, and thereafter in intervals not
exceeding three years, the NSWCCA must investigate and form an
opinion as to whether or not the casino operator is a suitable
person to continue to give effect to the casino license and
determine that it is in the public interest the casino license
should continue in force.
A casino operator must not enter into a controlled contract
without first notifying the NSWCCA. A controlled contract is a
contract that relates wholly or partly to the supply of goods or
services to a casino, but does not include a contract that
relates solely to the construction of the casino or to the
alteration of premises used or to be used as a casino, or such
other contracts as may be defined by the NSWCCA.
Gaming is not to be conducted in the casino unless the
facilities provided in relation to the conduct and monitoring of
operations of the casino are in accordance with the plans,
diagrams and specifications that are approved by the NSWCCA. The
NSWCCA may approve the games to be played in the casino. A
casino operator must not conduct a game in a casino unless there
is an order in force approving the game and the game is conducted
in accordance with the rules approved by such order.
The casino is to be open to the public on such days and at
such times as are directed by the NSWCCA in writing. The casino
must be closed on days and at times that are not days or times
specified by the NSWCCA.
A casino operator must not (i) accept a wager made otherwise
than by means of money or chips, (ii) lend money, chips or any
other valuable thing; provide money or chips as part of a
transaction involving a credit card or debit card, (iii) extend
any other form of credit, or (iv) wholly or partly discharge any
debt. The casino operator may issue chips in exchange for
checks.
INDIANA GAMING
In 1993, the state of Indiana passed a Riverboat Gambling
Act which created the Indiana Commission. The Indiana Commission
is given extensive powers and duties for the purposes of
administering, regulating and enforcing the system of riverboat
gaming. It is authorized to award no more than 11 gaming
licenses (five to counties contiguous to Lake Michigan, five to
counties contiguous to the Ohio River and one to a county
contiguous to Patoka Lake).
The Indiana Commission has jurisdiction and supervision over
all riverboat gaming operations in Indiana and all persons on
riverboats where gaming operations are conducted. These powers
and duties include authority to (1) investigate all applicants
for riverboat gaming licenses, (2) select among competing
applicants those that promote the most economic development in a
home dock area and that best serve the interest of the citizens
of Indiana, (3) establish fees for licenses, and (4) prescribe
all forms used by applicants. The Indiana Commission shall adopt
rules pursuant to statute for administering the gaming statute
and the conditions under which riverboat gaming in Indiana may be
conducted. The Indiana Commission has promulgated certain formal
rules and has proposed additional rules governing the application
procedure. The Indiana Commission may suspend or revoke the
license of a licensee or impose civil penalties, in some cases
without notice or hearing. The Indiana Commission will
(1) authorize the route of the riverboat and stops that the
riverboat may make, (2) establish minimum amounts of insurance
and (3) after consulting with the U.S. Army Corps of Engineers,
determine which waterways are navigable waterways for purposes of
the Indiana Riverboat Gambling Act and determine which navigable
waterways are suitable for the operation of riverboats.
Additionally, the Indiana Commission may adopt emergency orders
concerning navigability of waters for extreme weather conditions
or other extreme circumstances.
The Indiana Riverboat Gambling Act requires an extensive
disclosure of records and other information concerning an
applicant, including disclosure of all directors, officers and
persons holding one percent (1%) or more direct or indirect
beneficial interest.
In determining whether to grant an owner's license to an
applicant, the Indiana Commission shall consider (1) the
character, reputation, experience and financial integrity of the
applicant and any person who (a) directly or indirectly controls
the applicant, or (b) is directly or indirectly controlled by
either the applicant or a person who directly or indirectly
controls the applicant, (2) the facilities or proposed facilities
for the conduct of riverboat gaming, (3) the highest total
prospective revenue to be collected by the state from the conduct
of riverboat gaming, (4) the good faith affirmative action plan
to recruit, train and upgrade minorities in all employment
classifications, (5) the financial ability of the applicant to
purchase and maintain adequate liability and casualty insurance,
(6) whether the applicant has adequate capitalization to provide
and maintain the riverboat for the duration of the license and
(7) the extent to which the applicant meets or exceeds other
standards adopted by the Indiana Commission. The Indiana
Commission may also give favorable consideration to applicants
for economically depressed areas and applicants who provide for
significant development of a large geographic area. Each
applicant must pay an application fee of $50,000 and an
additional investigation fee of $55,000. If the applicant is
selected, the applicant must pay an initial license fee of
$25,000 and post a bond. A person holding an owner's gaming
license issued by the Indiana Commission may not own more than a
ten percent (10%) interest in another such license. An owners
license expires five years after the effective date of the
license; however, after three years the holder of an owner's
license will undergo a reinvestigation to ensure continued
suitability for licensure. Unless the license has been
terminated, expired or revoked, the gaming license may be renewed
if the Indiana Commission determines that the licensee has
satisfied all statutory and regulatory requirements. A gaming
license is a revocable privilege and is not a property right. In
connection with its application for an owner's license, the
Company, SMP and Waterfront declared to the Indiana Commission
that if SMP, or upon the transfer of the certificate of
suitability to the subsidiary partnership, the subsidiary
partnership receives a riverboat owner's license for East
Chicago, Indiana, they shall not commence more than one other
casino gaming operation within a fifty-mile radius of East
Chicago Showboat for a period of five years beginning on the date
of issuance of an owner's license by the Indiana Commission to
SMP or the subsidiary partnership, as applicable. Adherence to
the non-competition declaration is a condition of the certificate
of suitability and the owner's license. There can be no
assurance that SMP or the subsidiary partnership will obtain an
owner's license.
Some municipalities have initiated their own review process.
The Indiana Commission has passed a resolution stating that
certain evaluations by local governments will be important
factors in the Indiana Commission's economic development
evaluation process, however, the Indiana Commission retains the
sole authority to award a license.
Minimum and maximum wagers on games are not established by
regulation but are left to the discretion of the licensee.
Wagering may not be conducted with money or other negotiable
currency. Riverboat gaming excursions are limited to a duration
of four hours unless expressly approved by the Indiana
Commission. No gaming may be conducted while the boat is docked
except (1) for 30-minute time periods at the beginning and end of
a cruise while the passengers are embarking and disembarking,
(2) if the master of the riverboat reasonably determines that
specific weather or water conditions present a danger to the
riverboat, its passengers and crew, (3) if either the vessel or
the docking facility is undergoing mechanical or structural
repair, (4) if water traffic conditions present a danger to (a)
the riverboat, riverboat passengers, and crew, or (b) other
vessels on the water, or (5) if the master has been notified that
a condition exists that would cause a violation of federal law if
the riverboat were to cruise.
An admission tax of $3.00 for each person admitted to the
gaming excursion is imposed upon the license owner. An
additional twenty percent (20%) tax is imposed on the adjusted
gross receipts received from gaming operations, which is defined
as the total of all cash and property (including checks received
by the licensee whether collected or not) received, less the
total of all cash paid out as winnings to patrons and uncollected
gaming receivables. The gaming license owner shall remit the
admission and wagering taxes before the close of business on the
day following the day on which the taxes were incurred.
Legislation is currently before the Indiana Legislature
permitting the imposition of property taxes on the riverboats at
rates to be determined by local taxing authorities of the
jurisdiction in which a riverboat operates.
The Indiana Commission is authorized to license suppliers
and certain occupations related to riverboat gaming. Gaming
equipment and supplies customarily used in conducting riverboat
gaming may be purchased or leased only from licensed suppliers.
The Indiana Riverboat Gambling Act places special emphasis
upon minority and women's business enterprise participation in
the riverboat industry. Any person issued a gaming owners
license must establish goals of expending at least ten percent
(10%) of the total dollar value of the licensee's contracts for
goods and services with minority business enterprises and five
percent (5%) of the total dollar value of the licensees contracts
for goods and services with women's business enterprises. The
Indiana Commission may suspend, limit or revoke the gaming owners
license or impose a fine for failure to comply with statutory
requirements.
MISSOURI GAMING
Gaming was originally authorized in the state of Missouri in
November 1992. On April 29, 1993, new legislation (the "Missouri
Act") was enacted which replaced the 1992 legislation. In
January 1994 the Missouri Supreme court handed down a decision
which held that the operation of certain games of chance such as
traditional slot machines was prohibited by the constitution of
the state of Missouri. On November 8, 1994, the people of
Missouri voted in favor of an amendment to the Missouri
constitution to allow slot machine gaming in the state. The
Missouri Act provides for the licensing and regulation of
excursion gambling boat operations on the Mississippi and
Missouri Rivers in the state of Missouri and the licensing and
regulation of persons who distribute gaming equipment and
supplies to gaming licensees. An excursion gambling boat is a
boat, ferry or other floating facility on which gaming is
allowed. The Missouri Act limits the loss per individual on each
excursion to $500, but does not otherwise limit the amount which
may be wagered on any bet or the amount of space in the vessel
which may be utilized for gaming.
The Missouri Act is to be implemented and enforced by a five-
member Missouri Commission. The Missouri Commission is empowered
to issue such number of riverboat gaming licenses as it
determines to be appropriate. A gaming license cannot be granted
to any gaming operator unless the voters in such operator's "home
dock" city or county have authorized gaming activities on gaming
riverboats.
Gaming boats in Missouri must generally resemble boats from
Missouri's riverboat history and must contain nongaming areas,
food service and a Missouri theme gift shop. The boats must
cruise unless public safety requires continuous docking. Annual
license fees will be set by the Missouri Commission but may not
be less than $25,000. Each licensee also must post a bond or
other form of surety (in an amount determined by the Missouri
Commission) to secure performance of its obligations under the
Missouri Act and the regulations of the Missouri Commission.
On September 1, 1993, the Missouri Commission adopted rules
and regulations (the "Missouri Regulations") governing the
licensing, operation and administration of riverboat gaming in
the state of Missouri and the form of application for such
licensure. SLP has submitted its gaming application. There can
be no assurance that SLP will be selected for investigation for
licensing or if so selected that a Missouri gaming license will
be issued. In addition, the Missouri Regulations remain subject
to amendment and interpretation, and may further limit or
otherwise adversely affect the Company and its Missouri gaming
operations.
Directors and certain officers and key persons of the
Company and SLP must file personal disclosure forms with the
gaming license application and must be found suitable by the
Missouri Commission. Further, the Missouri Regulations require
that all employees of SLP who are involved in gaming operations
must file applications for and receive Missouri gaming
occupational licenses. The Missouri Regulations require
disclosure by the Company and SLP of any person or entity holding
any direct or indirect ownership interest in SLP. SLP is also
required to disclose the names of the holders of all of SLP's
debt including a description of the nature and terms of such
debt. The Missouri Commission may, in its sole discretion,
request additional information with respect to such holders.
Missouri gaming licenses must be renewed annually during the
first two years of an entity's licensure and renewed every two
years thereafter.
Under Missouri law, gaming licenses are not transferable,
and under the Missouri Regulations the transfer of (i) any
ownership interest in a privately held business entity or (ii) a
5% or greater interest in a publicly traded company directly or
indirectly holding a Missouri gaming license is prohibited
without the approval of the Missouri Commission. Further,
without the prior approval of the Missouri Commission, the
Missouri Regulations prohibit withdrawals of capital, loans,
advances or distribution of any assets in excess of 5% of
accumulated earnings by a license holder to anyone with an
ownership interest in the license holder.
The Missouri Regulations specifically provide that any
action of the Missouri Commission shall not indicate or suggest
that the Missouri Commission has considered or passed in any way
on the marketability of the applicant or licensee's securities,
or on any other matter, other than the applicant or licensee's
suitability for licensure under Missouri law. A Missouri gaming
license holder can be disciplined in Missouri for gaming related
acts occurring in another jurisdiction which results in
disciplinary action in the other jurisdiction.
In addition to any other taxes or fees payable to state and
local governmental authorities, gaming licensure in the state of
Missouri will subject SLP to a 20% Adjusted Gross Receipts tax.
Adjusted Gross Receipts is generally defined as gross receipts
from gaming less payouts to customers as winnings. Also, a $2.00
admission is payable to the Missouri Commission for each person
admitted to the riverboat.
The Missouri Commission has broad powers to require
additional disclosure by an applicant during the processing of a
gaming application, to deny gaming licensure and to
administratively fine or suspend or revoke a gaming license for
failure to comply with or for violation of the Missouri Act or
Missouri Regulations. Further, in certain situations, the
Missouri Commission can appoint a supervisor to continue the
operations of a license holder after lapse, suspension or
revocation of a gaming license.
The supervisor may operate and sell the facility with
earnings or proceeds being paid to the former owners only after
deduction of the costs and expenses of the supervisorship and
establishment of reserves.
U.S. COAST GUARD
Each riverboat also is regulated by the U.S. Coast Guard,
whose regulations affect boat design, construction, operation
(including requirements that each vessel be operated by a minimum
complement of licensed personnel) and maintenance, in addition to
restricting the number of persons who can be aboard the boat at
any one time. All vessels operated by the Company must hold a
Certificate of Inspection. Loss of the Certificate of Inspection
of a vessel would preclude its use as an operating riverboat.
The vessel must be drydocked periodically for inspection of the
hull, which will result in a loss of service that can have an
adverse effect on the Company. For vessels of the Company's
type, the inspection cycle is every five years. Less stringent
rules apply to permanently moored vessels. The Company believes
that these regulations, and the requirements of operating and
managing cruising gaming vessels generally, make it more
difficult to conduct riverboat gaming than to operate land-based
casinos.
All shipboard employees of the Company employed on U.S.
Coast Guard regulated vessels, even those who have nothing to do
with the actual operation of the vessel, such as dealers,
cocktail hostesses and security personnel, may be subject to the
Jones Act which, among other things, exempts those employees from
state limits on workers' compensation awards. The Company
intends to obtain such insurance to cover employee claims.
SHIPPING ACT OF 1916; MERCHANT MARINE ACT OF 1936
In order for the Company's vessels to have United States
flag registry, the Company must maintain "United States
citizenship" as defined in the Merchant Marine Act of 1920, as
amended, and the Shipping Act of 1916. A corporation or
partnership operating any vessel in the coastwise trade is not
considered a United States citizen unless United States citizens
own 75% of the equity of the Company or the partnership and, if a
partnership, all general partners must be United States citizens.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
GENERAL
Showboat, Inc. and subsidiaries (collectively, the "Company"
or "SBO"), (i) owns and operates the Showboat Casino Hotel
fronting the Boardwalk in Atlantic City, New Jersey (the
"Atlantic City Showboat"), (ii) owns and operates the Showboat
Hotel, Casino and Bowling Center in Las Vegas, Nevada (the "Las
Vegas Showboat"), and (iii) beneficially owns a 26.3% interest
in, and manages the Sydney Harbour Casino in Sydney, New South
Wales, Australia, which commenced gaming operations in an interim
casino on September 13, 1995. The Company, through subsidiaries,
also owns (i) a 55% partnership interest in Showboat Marina
Partnership, which received a certificate of suitability on
January 8, 1996 for a riverboat owner's license in East Chicago,
Indiana, and (ii) an 80% interest in Southboat Limited
Partnership which has submitted an application with the Missouri
Gaming Commission for a riverboat gaming license near Lemay,
Missouri. From July 1993 to March 31, 1995, the Company owned an
interest in, and managed the Showboat Star Casino, a riverboat
casino then located on Lake Pontchartrain in New Orleans,
Louisiana.
The consolidated financial statements include all domestic
and foreign subsidiaries which are more than 50% owned and
controlled by Showboat, Inc. Investments in unconsolidated
affiliates which are at least 20% owned by Showboat, Inc. are
carried at cost plus equity in undistributed earnings or loss
since acquisition. All material intercompany balances have been
eliminated in consolidation.
In March 1995, the Company purchased an additional 50% of
the equity of Showboat Star Partnership ("SSP"), which operated
the Showboat Star Casino on Lake Pontchartrain in New Orleans,
Louisiana, bringing the Company's total equity interest in SSP to
100%. The purchase price of the additional equity interest was
$25.0 million coupled with a distribution of certain of the
current assets of SSP to partners other than the Company. On
March 9, 1995, the Company ceased all operations at the Showboat
Star Casino as a result of certain legal issues related to
conducting dockside gaming in the Orleans Parish. In a series of
unrelated transactions, SSP sold certain of its assets, and the
Company sold all of its equity interest in SSP, resulting in a
pretax gain to the Company of $2.6 million which is included in
the 1995 Consolidated Statement of Income as gain on sale of
affiliate.
In August, 1994, Showboat Australia Pty Limited ("SA"), a
wholly-owned subsidiary of the Company, invested approximately
$100.0 million for a 26.3% interest in Sydney Harbour Casino
Holdings Limited ("SHCH"), which, through wholly-owned
subsidiaries, owns the Sydney Harbour Casino and holds the casino
license required to operate the Sydney Harbour Casino. In
December 1994, the New South Wales Casino Control Authority
granted the only full-service casino license in the State of New
South Wales to Sydney Harbour Casino Pty Limited ("SHCL"). SA
also has an 85% interest in the management company which manages
the Sydney Harbour Casino. SA has agreed to forego the first
A$19.1 million of its 85% portion of the fees due under the
management agreement, of which amount approximately A$15.1
million remains as of December 31, 1995. SHCL commenced gaming
operations on September 13, 1995 in a 60,000 square foot interim
casino. Pursuant to the terms of the construction contract and
subject to certain exceptions, the permanent facility must be
completed within 38 months of the award of the casino license to
SHCL. SHCL anticipates that the permanent facility will commence
operations by early 1998. The Company's equity in earnings of
SHCL's operations has been reduced to zero due to the write-off
of certain preopening costs.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 (1995)
COMPARED TO YEAR ENDED DECEMBER 31, 1994 (1994)
REVENUES
Net revenues for the Company increased to $428.6 million in
1995 from $401.3 million in 1994, an increase of $27.3 million or
6.8%. Casino revenues increased $28.1 million or 8.0% to $379.5
million in 1995 from $351.4 million in 1994. Nongaming revenues,
which consist principally of room, food, beverage, management fee
and bowling revenues, were $88.9 million in 1995 compared to
$83.2 million in 1994, an increase of $5.7 million or 6.9%.
The Atlantic City Showboat generated $368.9 million of net
revenues in the year ended December 31, 1995 compared to $320.2
million for the same period in the prior year, an increase of
$48.7 million or 15.2%. Casino revenues were $337.2 million for
the year ended December 31, 1995 compared to $292.4 million for
the same period in the prior year, an increase of $44.8 million
or 15.3%. The increase in casino revenues was due primarily to
an increase in gross slot revenues of $35.4 million or 16.1% with
a 14.7% increase in slot units at the Atlantic City Showboat.
The increase in slot revenues compares to a 12.0% growth in slot
revenues in the Atlantic City market for the year ended December
31, 1995 and a 10.0% increase in average slot units in the
Atlantic City market. Also contributing to the increase in
casino revenues was the mild winter weather during the first
quarter 1995 compared to the harsh winter weather during the same
period in the prior year. The favorable comparison to the prior
year is attributed to the addition of 15,000 square feet of
casino space and approximately 600 slot machines added throughout
1994, and the addition of approximately 200 slot machines in May
1995. The Atlantic City Showboat also added approximately 200
slot machines in December 1995 raising the total number of
machines to approximately 3,450 as of December 31, 1995.
Atlantic City Showboat slot revenues accounted for 73.9% of total
casino revenues for the year ended December 31, 1995 and 73.6%
for the year ended December 31, 1994. Table game revenues
increased $11.3 million or 15.9% to $82.9 million for the year
ended December 31, 1995 compared to $71.6 million for the same
period in the prior year. Contributing to the increase in table
game revenues was the 1995 expanded marketing programs and the
introduction of the Caribbean stud poker in late 1994. The
Company's table game growth of 15.9% compares to a 4.5% growth in
table game revenues in the Atlantic City market for the year
ended December 31, 1995. Food and beverage revenues were $42.1
million for the year ended December 31, 1995 compared to $36.2
million for the same period in the prior year, an increase of
$5.9 million or 16.4%. This increase is attributable to increased
food promotional programs during the year ended December 31,
1995.
The Las Vegas Showboat achieved net revenues of $59.5
million for the year ended December 31, 1995, compared to $79.2
million in the same period in 1994, a decrease of $19.7 million
or 24.9%. Casino revenues decreased to $42.3 million in 1995
from $59.0 million in 1994, a decrease of $16.7 million or 28.3%.
Food and beverage revenues decreased to $11.8 million for the
year ended December 31, 1995 from $14.4 million in the same
period in 1994, a decrease of $2.6 million or 18.1%. The
decreases in revenues were attributable to construction
activities within the property for the second half of 1995 and
increased competition along the Boulder Strip throughout the
entire year. The Company anticipates that revenues at the Las
Vegas Showboat will continue to be impacted until the excess
casino capacity is absorbed by the Las Vegas market. During the
construction period, casino capacity was reduced by approximately
40% and service to food outlets was substantially disrupted.
INCOME FROM OPERATIONS
The Company's income from operations declined $5.1 million
or 9.9% to $46.7 million in 1995 from $51.8 million in 1994. The
decline is attributable to the cessation of operations of SSP
(which resulted in a $12.8 million reduction in income from
operations), a decline in operating results at the Las Vegas
Showboat 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 $72.4 million in the year ended
December 31, 1995 compared to $50.7 million from the same period
in 1994, an increase of $21.7 million or 42.9%. Operating
expenses at the Atlantic City Showboat increased $26.9 million or
10.0% to $296.4 million for the year ended December 31, 1995
compared to $269.5 million for the same period in the prior year.
The increased operating expenses included a $14.2 million
increase in casino division expenses (which includes: $4.1
million increase in marketing expenses, $5.4 million increase in
promotional allowance costs and $3.6 million increase in gaming
taxes), a $8.0 million increase in general and administrative
expenses which is primarily related to increased payroll, real
estate taxes, and rent related to the expanded property, and a
$3.4 million increase in depreciation expense for the Atlantic
City Showboat's expanded facility. The Atlantic City Showboat's
operating margin, before management fees, increased to 19.6% in
1995 compared to 15.8% in 1994.
For the year ended December 31, 1995, the Las Vegas Showboat
had a loss from operations, before management fees and
intercompany rent, of $3.7 million compared to income of $4.4
million in the same period in 1994. Operating expenses declined
to $63.3 million in 1995 compared to $74.8 million in 1994, a
decrease of $11.6 million or 15.5%. The Company anticipated a
reduction in revenues during the construction period and
concentrated on reducing expenses. Expenses declined in all
departments for the year ended December 31, 1995. However,
significant decreases were not realized in certain promotional
and marketing utilized at the Las Vegas Showboat in order to
compete with the other gaming facilities on the Boulder Strip
during the renovation of the facility.
Corporate and development expenses totaled $21.7 million in
1995 compared to $17.0 million in 1994. The increased
development expense is attributed to (i) the maintenance of a
comprehensive development effort to pursue expansion
opportunities, which includes $2.9 million expended for the
proposed riverboat casino project near Lemay, Missouri,
(ii) preopening support for new projects, and (iii) $1.2 million
for insurance costs which were previously recorded by the
respective operating properties.
OTHER (INCOME) EXPENSE
In 1995, other (income) expense consisted of $29.7 million
of interest expense, net of $13.1 million of capitalized
interest, and $6.2 million of interest income. Foreign currency
gain was $.3 million during 1995 and a net gain on the sale and
write-down of affiliates totaled $1.1 million. In 1994, other
(income) expense consisted of $29.5 million of interest expense,
net of $3.3 million of capitalized interest, and $4.9 million of
interest income. In connection with its renovation project at
the Las Vegas Showboat and the Company's investment in Sydney
Harbour Casino, the Company capitalized interest of $.5 million
and $12.6 million respectively in 1995.
INCOME TAXES
In 1995, the Company incurred income taxes of $11.4 million,
or an effective tax rate of 46.5% compared to $11.5 million or an
effective tax rate of 42.4% in 1994. Differences between the
Company's effective tax rate and the statutory federal tax rates
are due to permanent differences between financial and tax
reporting and state income taxes.
NET INCOME
In 1995, the Company realized net income of $13.2 million or
$.84 per share. In 1994, the Company realized net income of
$15.7 million or $1.02 per share.
YEAR ENDED DECEMBER 31, 1994 (1994)
COMPARED TO YEAR ENDED DECEMBER 31, 1993 (1993)
REVENUES
Net revenues for the Company increased to $401.3 million in
1994 from $375.7 million in 1993, an increase of $25.6 million or
6.8%. Casino revenues increased $21.9 million or 6.7% to $351.4
million in 1994 from $329.5 million in 1993. Nongaming revenues,
which consist principally of room, food, beverage, management fee
and bowling revenues, were $83.2 million in 1994 compared to
$78.3 million in 1993, an increase of $4.9 million or 6.3%.
The Atlantic City Showboat generated $320.2 million of net
revenues in 1994 compared to $294.2 million in 1993, an increase
of $26.0 million or 8.8%. Casino revenues were $292.4 million in
1994 compared to $268.8 million in 1993, an increase of $23.6
million or 8.8%. The increase in casino revenues was primarily
due to increases in both slot machine and table game revenues.
Slot machine revenues at the Atlantic City Showboat increased
$18.3 million or 9.3% in 1994. This compares favorably to 3.7%
growth in slot machine revenues in the Atlantic City market
during the same period. The improved slot revenue growth
experienced by the Atlantic City Showboat is primarily attributed
to the addition of 609 slot machines throughout 1994 for a total
of 3,027 slot machines by December 31, 1994. Table game revenues
increased $2.9 million or 4.2% in 1994. Casino revenues were
also favorably impacted by the mid-1994 addition of keno and the
mid-1993 addition of poker and horse race simulcasting.
Nongaming revenues increased $3.3 million or 6.2% in 1994 to
$56.0 million from $52.7 million in 1993. This increase was
primarily due to increased complimentary room revenue of $1.2
million and non-complimentary food revenues of $2.2 million.
At the Las Vegas Showboat, net revenues decreased to $79.2
million in 1994 from $81.1 million in 1993, a decrease of $1.9
million or 2.3%. The decrease in net revenues primarily resulted
from an approximate 37% increase in slot machine capacity on the
Boulder Strip in the third quarter of 1994. The Company
anticipates that revenues at the Las Vegas Showboat will be
negatively impacted until the excess casino capacity on the
Boulder Strip is absorbed by the Las Vegas market. Casino
revenues decreased to $59.0 million in 1994 from $60.7 million in
1993, a decrease of $1.7 million or 2.8%. Nongaming revenues
increased $.2 million in 1994 primarily as a result of increased
hotel occupancy due to increased effectiveness of certain hotel
marketing programs.
Lake Pontchartrain Showboat, Inc., a wholly-owned subsidiary
of the Company, managed the Showboat Star Casino and generated
$3.5 million of management fee revenues, before an intercompany
elimination of $1.6 million, in 1994 compared to $.4 million in
1993. Showboat Star Casino, which opened November 8, 1993,
generated net revenues of $98.4 million in 1994 consisting
primarily of casino revenues of $97.2 million. In 1993, Showboat
Star Casino generated net revenues of $12.1 million and casino
revenues of $10.9 million.
INCOME FROM OPERATIONS
The Company's income from operations increased to $51.8
million in 1994 from $45.4 million in 1993, an increase of $6.4
million or 14.1%. Improvements in income from operations at the
Atlantic City Showboat and the Showboat Star Casino were offset
by a decline in income from operations at the Las Vegas Showboat
and by an increase in corporate and development expenses.
Income from operations at the Atlantic City Showboat, before
intercompany management fees, was $50.7 million in 1994 compared
to $44.0 million in 1993, an increase of $6.7 million or 15.3%.
The increase in income from operations was primarily due to
increased revenues that were offset by a $19.3 million or 7.7%
increase in operating expenses before intercompany management
fees to $269.5 million in 1994 from $250.2 million in 1993. The
increase in operating expenses was primarily due to the increased
capacity and volume of business as a result of the expansion of
the Atlantic City facility. General and administrative expenses
were also impacted by a $1.5 million or 22.0% increase in real
estate taxes and an increase of $1.0 million in a parking
assessment absorbed by the Atlantic City Showboat. Partially
offsetting these increases was the decrease of $1.0 million in
insurance costs borne by the parent company.
Income from operations at the Las Vegas Showboat, before
intercompany management fees, declined $3.8 million or 46.4% in
1994 to $4.4 million in 1994 from $8.2 million in 1993. The
decrease was primarily due to increased competition on the
Boulder Strip that resulted in a decrease in net revenue. In
addition, operating expenses increased to $74.8 million in 1994
from $72.9 million in 1993, an increase of $1.9 million or 2.7%.
Increases in expenses were due to increased payroll and payroll
related costs and increased advertising costs.
SSP realized net income of $24.8 million on net revenues of
$98.4 million in 1994. Operations at the Showboat Star Casino
contributed $13.7 million in 1994 to the Company's income from
operations. In 1993, SSP recognized a loss of $2.8 million
primarily as a result of the write-off of preopening costs.
Corporate and development expenses totaled $17.0 million in
1994 compared to $5.5 million in 1993. The Company established a
separate corporate and development office in late 1993. Prior to
this time, a significant portion of corporate expenses were
absorbed by operating subsidiaries. In addition, the Company has
expanded the scope of its activities related to the pursuit of
expansion opportunities in jurisdictions outside Nevada and New
Jersey.
OTHER (INCOME) EXPENSE
In 1994, other (income) expense consisted of $29.5 million
of interest expense, net of $3.3 million of capitalized interest,
and $4.9 million of interest income. In 1993, other (income)
expense consisted of $24.7 million of interest expense, net of
capitalized interest, and $3.2 million of interest income. The
increase in interest expense is due to an increase in long-term
debt during the period. In connection with its expansion project
at the Atlantic City Showboat and the Company's 1994 investment
in Sydney Harbour Casino, the Company capitalized interest of
$2.7 million and $.6 million, respectively, in 1994.
INCOME TAXES
In 1994, the Company incurred income taxes of $11.5 million,
or an effective tax rate of 42.4% compared to $10.5 million,
before the income tax benefit of an extraordinary loss, or an
effective tax rate of 43.8% in 1993. Differences between the
Company's effective tax rate and the statutory federal tax rates
are due to permanent differences between financial and tax
reporting and state income taxes.
NET INCOME
In 1994, the Company realized net income of $15.7 million or
$1.02 per share. In 1993, income before an extraordinary loss
and a cumulative effect adjustment was $13.4 million or $.89 per
share. In 1993, the Company recognized an extraordinary loss net
of tax of $6.7 million, or $.44 per share, as a result of the
redemption of all of its 11 3/8% Mortgage-Backed Bonds Due 2002.
Net income for 1993, after recognition of the extraordinary loss
and the cumulative effect adjustment, was $7.3 million or $.49
per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations was $53.2 million in
1995 compared to $55.4 million in 1994. Cash used in investing
activities was $41.2 million in 1995 compared to $193.5 million
in 1994. The decrease resulted from fewer capital expenditures
in 1995 and a reduction in investments in unconsolidated
affiliates, offset by the proceeds from the sale of SSP in 1995.
Cash provided from financing activities was $4.5 million in 1995
compared to $105.8 million in 1994. The decrease was primarily
due to the issuance of $120.0 million of 13% Senior Subordinated
Notes in 1994.
In 1995, the Company expended approximately $49.6 million on
capital improvements primarily related to its Atlantic City and
Las Vegas facilities which were funded from operations and
proceeds of the 1994 sale of $120.0 million of 13% Senior
Subordinated Notes due 2009. The Board of Directors has
authorized capital expenditures for the Atlantic City Showboat
and Las Vegas Showboat for 1996 totaling $21.7 million and $6.0
million, respectively. In addition, cash requirements include
capital improvements approved during 1995 that will be incurred
in 1996 totaling $5.3 million and $6.0 million for the Atlantic
City Showboat and the Las Vegas Showboat, respectively.
The Company is eligible to receive approximately $8.8
million in credits reserved by the Casino Reinvestment
Development Authority ("CRDA"), which is being redistributed in
cash, as a result of the completion of additional hotel rooms
added as part of the approximately $93.0 million expansion and
renovation program at the Atlantic City Showboat. To date the
Company has received approximately $2.9 million of the $8.8
million. In 1995, a court ruling not involving the Company,
disallowed the payment of CRDA disbursement of funding credits
for an unrelated expansion project. As a result, the CRDA has
suspended disbursement of funding credits until such time as the
appeal court overturns the lower court's decision. ACSI, in
December 1995, entered into an agreement with the Atlantic City
Housing Authority and Forest City Ratner Companies in which ACSI
conditionally covenanted to donate $2.5 million of its CRDA funds
toward construction of planned community facilities in the Urban
Renewal Tract, including, but not limited to, a public skating
rink.
The Company completed a $21.0 million renovation of the Las
Vegas Showboat. The construction project required the closure of
approximately 40% of casino space for six months during the
second half of 1995. As a result, revenues and results of
operations at the Las Vegas Showboat were adversely impacted by
business disruption during the construction period. The Company
anticipates that the renovated facility will improve its
competitive position on the Boulder Strip. No assurance can be
given, however, that the renovated facility will be successful in
attracting former or new customers to the Las Vegas Showboat.
On August 4, 1995, the Company obtained a two year secured
line of credit for general working capital purposes totaling
$25.0 million. At the end of the two year term, the line of
credit may convert to a three year term loan. The bank received
security pari passu with the holders of the Company's $275.0
million 9 1/4% First Mortgage Bonds due 2008. Interest is
payable monthly at the bank's prime rate plus .5% or LIBOR plus
2.5% at the election of the Company. The interest rate charged
at the date the line of credit is converted to a term loan will
be the bank's prime rate plus 1% or the fixed rate designated by
the bank at the election of the Company. In the event the line
of credit is utilized for equity investments in or loans to
entities constituting new projects, the Company will be required
to pay the bank a fee equal to .75% of the advance. As of
December 31, 1995, all the funds under this line of credit are
available for use by the Company. This line of credit replaced
the Atlantic City Showboat's unsecured line of credit which
expired in August of 1995.
On May 18, 1993, the Company issued $275.0 million of 9 1/4%
First Mortgage Bonds due 2008 (the "Bonds"). The Bonds are
unconditionally guaranteed by Showboat Operating Company
("SBOC"), a wholly-owned subsidiary of the Company, Ocean
Showboat, Inc. ("OSI"), a wholly-owned subsidiary of the Company,
and Atlantic City Showboat, Inc. ("ACSI"), a wholly-owned
subsidiary of OSI. The Bond Indenture was amended in July 1994.
Interest on the Bonds is payable semi-annually on May 1 and
November 1 of each year. The Bonds are not redeemable prior to
May 1, 2000. Thereafter, the Bonds will be redeemable, in whole
or in part, at redemption prices specified in the Indenture for
the Bonds (the "Bond Indenture"), as amended. The Bonds are
senior secured obligations of the Company and rank senior in
right of payment to all existing and future subordinated
indebtedness of the Company and pari passu with the Company's
senior indebtedness. The Bonds are secured by a deed of trust
representing a first lien on the Las Vegas Showboat (other than
certain assets), by a pledge of all outstanding shares of capital
stock of OSI, an intercompany note by ACSI in favor of the
Company and a pledge of certain intellectual property rights of
the Company. OSI's obligation under its guarantee is secured by
a Pledge of all outstanding shares of capital stock of ACSI.
ACSI's obligation under its guarantee is secured by a leasehold
mortgage representing a first lien on the Atlantic City Showboat
(other than certain assets). SBOC's guarantee is secured by a
pledge of certain assets related to the Las Vegas Showboat.
Additional security is or will be provided to the holders of the
Bonds from other subsidiaries of SBO which are not unrestricted
subsidiaries.
The Bond Indenture, as amended, place significant
restrictions on SBO and its subsidiaries including restrictions
on making loans and advances by SBO to subsidiaries that are Non-
Recourse subsidiaries or subsidiaries in which SBO owns less than
50% of the equity. All capitalized terms not otherwise defined
in this paragraph have the meanings assigned to them in the Bond
Indenture, as amended. The Bond Indenture, as amended, also
places significant restrictions on the incurrence of additional
Indebtedness by SBO and its subsidiaries, the creation of
additional Liens on the Collateral securing the Bonds,
transactions with Affiliates and the investment by SBO and its
subsidiaries in certain investments. In addition, the terms of
the Bond Indenture, as amended, prohibit SBO and its subsidiaries
from making a Restricted Payment unless, at the time of such
Restricted Payment: (i) no Default or Event of Default has
occurred or would occur as a consequence of such Restricted
payment; (ii) SBO, at the time of such Restricted Payment other
than in an investment in a subsidiary in a gaming related
business or a Quarterly Dividend, and after giving pro forma
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 of 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 a Controlled Entity only if from July 18, 1994
until December 31, 1996 the Company's Fixed Charge Coverage Ratio
for the Company's most recently ended twelve months is greater
than 1.5 to 1 and for the period commencing after December 31,
1996 the Company's Fixed Charge Coverage Ratio is greater than
1.75 to 1. For all other Restricted Payments, other than a
Regular Quarterly Dividend or a Restricted Investment in a
Subsidiary engaged in a Gaming Related Business, the Company's
Fixed Charge Coverage Ratio for the most recently ended four full
fiscal quarters, after giving effect to such Restricted Payment
must be greater than 2.25 to 1. As of December 31, 1995, the
Company's Fixed Charge Coverage Ratio was 3.41 to 1.
Additionally, the Bond Indenture, as amended, permits the Company
to issue up to $150.0 million of debt (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 (the "Notes"). The Notes are
unconditionally guaranteed by OSI, ACSI and SBOC. 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 (the "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 sale 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 opportunities in
certain jurisdictions where gaming has recently been legalized,
as well as jurisdictions where gaming is not yet legalized.
There can be no assurance that (i) legislation to legalize gaming
will be enacted in any additional jurisdictions, (ii) properties
in which the Company has invested will be compatible with any
gaming legislation so enacted, (iii) legalized gaming will
continue to be authorized in any jurisdiction that the Company
currently operates or has pending applications to operating a
gaming establishment, or (iv) 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 will be completed, or result in any significant
contribution to the Company's cash flow or earnings. Casino
gaming operations are highly regulated and new casino development
is subject to a number of risks.
In April 1994, Sydney Harbour Casino Properties Pty Limited
("SHCP"), a wholly-owned subsidiary of SHCH, entered into an
agreement with Leighton Properties Pty Limited ("Leighton
Properties") to design and construct the interim and permanent
Sydney Harbour Casino for a total of A$691.0 million. (As used
in this Form 10-K, amounts in Australian dollars are denoted as
"A$". As of March 15, 1996, the exchange rate was approximately
$0.7744 for each A$1.00.) SHCP is currently reviewing the design
of the permanent Sydney Harbour Casino with the view to improving
its operational efficiency and product quality and to match the
changing competitive environment. SHCP has announced project
cost estimates of up to A$771.0 million, a portion of which is
subject to obtaining financing, required approvals and
agreements.
Additionally, SHCP and Leighton Properties are discussing
matters in relation to the administration and management of the
project under the construction contract, including an accelerated
completion date for the project, firming up on monetary
allowances and resolution of certain claims notified by Leighton
Properties to SHCP. The total development cost is subject to
change based upon the outcome of these discussions. As with any
construction contract, the final amount of such contract will be
subject to modification based upon change orders and the
occurrence of certain events such as costs associated with
certain types of construction delays. No assurance can be given
that the construction costs for the Sydney Harbour Casino will
not exceed the announced project cost estimate.
The Company is a member of a partnership, Showboat Marina
Partnership ("SMP"), consisting of Showboat Indiana Investment
Limited Partnership, a limited partnership owned by the Company,
and Waterfront Entertainment and Development, Inc.
("Waterfront"), an unrelated Indiana corporation. SMP received
its certificate of suitability from the Indiana Gaming Commission
("Indiana Commission") for a riverboat owner's license allocated
by statute to East Chicago, Indiana on January 8, 1996. SMP has
applied to the Indiana Commission to transfer the certificate of
suitability to a subsidiary partnership. No assurance can be
given that the Indiana Commission will approve the transfer of
the certificate of suitability to the subsidiary partnership.
Additionally, no assurance can be given that SMP or the
subsidiary partnership, as applicable, will receive an owner's
license from the Indiana Commission. A certificate of
suitability indicates that the recipient has been chosen for
licensure and is valid for 180 days, unless extended by the
Indiana Commission. The Company will apply to the Indiana
Commission to extend the effectiveness of the certificate of
suitability beyond its initial 180 days. Although the Indiana
Commission has extended the effectiveness of certificates of
suitability held by other gaming operators, no assurance can be
given that the Indiana Commission will extend the effectiveness
of SMP's certificate of suitability beyond 180 days from the date
of issuance.
The certificate of suitability requires SMP or the
subsidiary partnership, as applicable, to invest no less than, in
the aggregate, $170.0 million in the proposed riverboat casino
and related facilities (collectively, the "East Chicago Project")
and in economic incentives to East Chicago. The East Chicago
Project is expected to cost approximately $195.0 million. The
Company anticipates that it will contribute approximately $40.0
million to SMP of which $8.9 million had been funded as of
December 31, 1995. In addition to funds contributed by the
partners, SMP or the subsidiary partnership, as applicable,
intends to obtain a combination of debt and equipment financings
for an aggregate of approximately $156.0 million to develop the
East Chicago Project. No assurance can be given that SMP or the
subsidiary partnership will successfully obtain the necessary
financings, or if such financings are available, the financings
will be available on favorable terms. Under the current
partnership agreement, the Company will receive a 12% preferred
return on its investment in SMP. In addition, subject to certain
qualifications and exceptions, the Company has agreed to provide
a completion guarantee 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, should a lender require a completion guarantee
in connection with any development financing. In addition,
subject to certain qualifications and exceptions, the Company has
agreed to provide a standby equity commitment pursuant to which
it will cause to be made up to an aggregate of $30.0 million in
additional capital contributions to the SMP or the subsidiary
partnership if, during the first three full four fiscal quarters
following the commencement of operations, the East Chicago
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 SMP or the subsidiary partnership more than $15.0 million in
respect of any one such full four quarter period. If the Company
is required to provide a standby equity commitment, Waterfront
has agreed to pay the Company $5.2 million, which amount shall
accrue interest at 12% per annum until paid, from Waterfront's
share of distributable cash from SMP.
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 (the "Southboat Casino
Site"). On June 1, 1995, the St. Louis County Council named SLP
as the preferred developer/operator for a dockside gaming
facility at the Southboat Casino Site. On October 13, 1995, SLP
entered into a lease agreement with the St. Louis County Port
Authority ("Port Authority") for the lease of the Southboat
Casino Site for a term of 99 years, commencing upon the
investigation of SLP for a Missouri gaming license and the
receipt of all permits from the U.S. Army Corps of Engineers.
Fees and rent for the Southboat Casino Site are payable as
follows: (i) a $500,000 acceptance fee upon completion of a due
diligence period; (ii) a $750,000 security deposit on the
commencement date of the lease; (iii) a $2.5 million fee on the
commencement date of the lease; (iv) a $2.5 million fee on the
opening date of the Southboat Casino Project; (v) rent in the
amount of $2.0 million per annum payable in equal monthly
installments, beginning on the commencement date and continuing
until the opening of the Southboat Casino Project; and (iv) rent
in the amount of the greater of 4% of adjusted gross receipts or
Minimum Rent (as defined below), beginning on the opening date of
the Southboat Casino Project and continuing until the expiration
of the term of the lease. "Minimum Rent" means $3.0 million
during the first 12-month period occurring after the opening of
the Southboat Casino Project; $2.8 million during the second 12-
month period; $2.6 million during the third 12-month period; $2.4
million during the fourth 12-month period; $2.2 million during
the fifth 12-month period; and $2.0 million beginning on the
fifth anniversary of the opening of the Southboat Casino Project
and continuing through the 15th lease year ("Guarantee Period").
The Company has guaranteed SLP's payment of Minimum Rent for the
Guarantee Period and SLP's timely completion of, construction of,
and payment for all improvements and installations in connection
with SLP's development of the Southboat Casino Project. If SLP
fails to pay any monthly installment of Minimum Rent, or if the
lease is terminated at any time within the Guarantee Period due
to an event of default by SLP, the Company must pay either
(i) the full sum of unpaid Minimum Rent due for the remainder of
the Guarantee Period, or (ii) if it posts a $2.0 million letter
of credit, make monthly payments of Minimum Rent. In addition,
the Company agreed to provide a Guarantee of Completion to the
Port Authority which provides, in material part, that the Company
will complete the construction of the Southboat Casino Project
should SLP, after the commencement of work, abandon the project
for a period of 30 days after receipt of notice from the Port
Authority. On October 17, 1995, SLP filed its application for a
gaming license with the Missouri Gaming Commission. The total
cost of the Southboat Casino Project is expected to be $117.0
million. The limited partnership agreement provides that the
Company's initial capital contribution is $19.5 million and that
Showboat Lemay, on behalf of SLP, will arrange for a $75.0
million loan to develop the Southboat Casino Project and to
arrange for equipment financing for the remaining costs of the
Southboat Casino Project. The Company has also agreed to provide
a loan to SLP in the amount of approximately $4.5 million to
assist in the development of the Southboat Casino Project. SLP
has entered into a commitment letter to receive up to $75.0
million of financing from an unrelated party for the construction
of a riverboat and related site improvements subject to certain
conditions. The financing commitment expires May 10, 1996. No
assurance can be given that SLP will be selected for
investigation for a gaming license prior to the expiration of the
financing commitment. 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.
In July 1995, the Company and Rockingham Venture, Inc.
("RVI"), which owns the Rockingham Park, a thoroughbred racetrack
in New Hampshire, entered into agreements to develop and manage
any additional gaming that may be authorized at Rockingham Park.
In December 1994, the Company loaned RVI approximately $8.9
million, which loan is secured by a second mortgage on Rockingham
Park. The unpaid principal and all accrued interest with respect
to the loan becomes due on December 28, 1999. Subject to certain
conditions, RVI may extend the maturity date of the loan up to an
additional 24 months. At this time, casino gaming is not
permitted in the State of New Hampshire. No assurance can be
given that casino gaming legislation will be enacted in the State
of New Hampshire or, if enacted, such legislation will authorize
casino gaming at Rockingham Park. Depending upon the number and
types of gaming, if any, legalized by the necessary authorities,
the Company and RVI will make certain capital contributions. At
a minimum, the Company will contribute the promissory note
representing the loan. If casino enabling legislation permits
more than 500 slot machines or any combination of slot machines
and table games, then the Company, subject to available
financing, will contribute funds not to exceed 30% of cash funds
required for the project. At this time, the cost of the project
has not been determined.
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, 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 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.
In March 1995, the Financial Accounting Standards Board
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS No.
121"). SFAS No. 121 becomes effective for fiscal years beginning
after December 15, 1995. The Company is currently assessing the
impact of SFAS No. 121 on its financial statements.
In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). SFAS No. 123 is effective for transactions
entered into in fiscal years beginning after December 15, 1995.
The Company will not be adopting the recognition and measurement
criteria of SFAS No. 123 and thus, the impact of SFAS No. 123 on
the Company's financial statements will not be material.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this amendment to be signed on its behalf by this undersigned,
thereunto duly authorized.
REGISTRANT: SHOWBOAT, INC.
By: /s/ H. Gregory Nasky
H. Gregory Nasky, Executive Vice
President, Secretary and Director
DATE: March 21, 1996
