UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( XX ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1997
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from:____________________ to ___________________
Commission file number: 1-7123
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SHOWBOAT, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 88-0090766
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2800 FREMONT STREET, LAS VEGAS NEVADA 89104-4035
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(Address of principal executive offices) (Zip Code)
(702) 385-9123
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by 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 X NO
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1
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution under a plan
confirmed by a court.
YES NO
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock - $1 Par Value,
and Preferred Stock Purchase Rights 16,114,670 shares outstanding
- ----------------------------------- -----------------------------
2
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
INDEX
Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 4-5
Condensed Consolidated Statements of Income -
For the three months ended June 30,
1997 and 1996 6
Condensed Consolidated Statements of Income -
For the six months ended June 30,
1997 and 1996 7
Condensed Consolidated Statements of Cash Flows -
For the six months ended June 30,
1997 and 1996 8
Notes to the Condensed Consolidated Financial
Statements 9-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12-19
PART II OTHER INFORMATION
ITEMS 1 - 6 20-21
SIGNATURES 22
3
<PAGE>
Item 1. Financial Statements
<TABLE>
<CAPTION>
SHOWBOAT, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
June 30, December 31,
ASSETS 1997 1996
- ------------------------ ---------- ------------
(unaudited)
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 75,481 $ 60,287
Short term investments 17,228 28,848
Receivables, net 14,599 12,402
Income tax receivable 4,205 2,396
Inventories 3,343 2,785
Prepaid expenses 8,968 4,470
Current deferred income taxes 8,780 7,802
----------- -----------
Total current assets 132,604 118,990
----------- -----------
Property and equipment 740,076 651,486
Less accumulated depreciation
and amortization 224,153 211,298
----------- -----------
515,923 440,188
----------- -----------
Other assets:
Restricted cash and investments - 69,601
Investments in unconsolidated affiliate 140,651 138,964
Deposits and other assets 24,787 23,326
Economic development and licensing
costs, net of accumulated amortization
of $229,000 and -0- at June 30, 1997
and December 31, 1996, respectively 11,241 7,637
Debt issuance costs, net of accumulated
amortization of $3,666,000 and $2,942,000
at June 30, 1997 and December 31, 1996,
respectively 15,356 15,963
----------- -----------
192,035 255,491
----------- -----------
$ 840,562 $ 814,669
=========== ===========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4 (continued)
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(continued)
June 30, December 31,
LIABILITIES AND SHAREHOLDERS'EQUITY 1997 1996
- -------------------------------- ------------ -------------
(unaudited)
(In thousands)
<S> <C> <C>
Current liabilities
Current maturities of long-term debt -
with recourse $ 27 $ 25
Current maturities of long-term debt -
without recourse 5,284 -
Accounts payable 27,623 17,688
Dividends payable 403 405
Accured liabilities 47,644 41,933
------------- -----------
Total current liabilities 80,981 60,051
------------- -----------
Long-term debt, excluding current maturities
Debt with recourse 392,893 392,719
Debt without recourse 154,609 140,000
------------- -----------
547,502 532,719
Other liabilities 3,386 4,866
------------- -----------
Deferred income taxes 24,004 24,888
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Shareholders' equity:
Preferred stock, $1 par value; 1,000,000
shares authorized; none issued
Common stock, $1 par value; 50,000,000
shares authorized; issued 16,252,169
shares at June 30, 1997 and 16,181,199
at December 31, 1996 16,252 16,181
Additional paid-in capital 89,114 87,698
Retained earnings 82,899 84,828
------------- -----------
188,265 188,707
Cumulative foreign currency translation
adjustment 976 4,773
Cost of common stock in treasury, 151,250
shares at June 30, 1997 and -0- shares at
December 31, 1996 (3,026) -
Unearned compensation for restricted stock (1,526) (1,335)
-------------- -----------
Total shareholders'equity 184,689 192,145
-------------- -----------
$ 840,562 $ 814,669
============== ===========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(unaudited)
(In thousands except per share data)
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Casino $ 134,244 $ 95,858
Food and beverage 16,415 14,119
Rooms 6,639 6,632
Management fees 837 -
Sports and special events 820 855
Other 1,938 1,898
------------ ------------
160,893 119,362
Less complimentaries 11,588 10,137
------------ ------------
Net revenues 149,305 109,225
------------ ------------
Operating costs and expenses:
Casino 67,284 47,876
Food and beverage 9,989 8,181
Rooms 1,651 1,870
Sports and special events 683 630
General and administrative 36,204 29,407
Selling, advertising and promotion 6,762 2,871
Depreciation and amortization 10,574 8,308
Preopening costs 9,577 -
----------- -----------
142,724 99,143
----------- -----------
Income from consolidated subsidiaries 6,581 10,082
Equity in income of unconsolidated affiliate 540 -
----------- -----------
Income from operations 7,121 10,082
----------- -----------
Other (income) expense:
Interest income (1,124) (3,034)
Interest expense, net of amounts capitalized 12,436 11,738
----------- -----------
11,312 8,704
----------- -----------
Income (loss) before income taxes and
minority interest (4,191) 1,378
Minority interest share of loss 598 828
----------- -----------
Income (loss) before income taxes (3,593) 2,206
Income tax expense (benefit) (1,594) 1,070
----------- -----------
Net income (loss) $ (1,999) $ 1,136
=========== ===========
Net income (loss) per common and
equivalent share $ (0.12) $ 0.07
Shares used in per share calculation 16,218,119 16,428,966
See accompanying notes to condensed consolidated financial statements.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(unaudited)
(In thousands except per share data)
1997 1996
------------ -------------
<S> <C> <C>
Revenues:
Casino $ 226,841 $ 185,848
Food and beverage 29,477 27,110
Rooms 12,309 12,428
Management fees 837 -
Sports and special events 1,797 1,903
Other 3,178 2,911
------------ ------------
274,439 230,200
Less complimentaries 21,101 18,385
------------ ------------
Net revenues 253,338 211,815
------------ ------------
Operating costs and expenses:
Casino 115,602 92,101
Food and beverage 17,380 16,267
Rooms 3,440 4,007
Sports and special events 1,593 1,451
General and administrative 64,587 57,782
Selling, advertising and promotion 8,767 5,360
Depreciation and amortization 18,903 16,326
Preopening costs 9,577 -
----------- -------------
239,849 193,294
------------ -------------
Income from consolidated subsidiaries 13,489 18,521
Equity in income of unconsolidated affiliate 2,003 -
------------ -------------
Income from operations 15,492 18,521
------------ -------------
Other (income) expense:
Interest income (2,978) (4,430)
Interest expense, net of amounts capitalized 21,392 19,275
Write down of investment in affiliate - 3,902
------------ -------------
18,414 18,747
Loss before income taxes and minority interest (2,922) (226)
Minority interest share of loss 747 835
------------ ------------
Income (loss) before income taxes (2,175) 609
Income tax expense (benefit) (1,055) 274
------------ ------------
Net income (loss) $ (1,120) $ 335
============ ============
Net income (loss) per common and
equivalent share $ (0.07) $ 0.02
Shares used in per share calculation 16,267,433 16,213,182
See accompanying notes to condensed consolidated finanical statements.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(unaudited)
1997 1996
------------- ------------
(In thousands)
<S> <C> <C>
Net cash provided by operating activities $ 18,701 $ 20,038
---------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (77,307) (39,424)
Investment in unconsolidated affiliate (5,823) (5,823)
(Increase) decrease in restricted cash and
investments in consolidated affiliate 64,408 (145,474)
Deposit for Casino Reinvestment
Development Authority obligation (2,014) (1,964)
Sale of short term investments 11,620 -
Other 554 184
---------- ----------
Net cash used in investing activities (8,562) (192,501)
---------- ----------
Cash flows from financing activities:
Principal payments of long-term debt (739) (12)
Proceeds from issuance of long-term debt 9,636 140,000
Debt issuance costs (116) (6,105)
Proceeds from employee stock option exercises 128 5,331
Payment of dividends (811) (788)
Minority interest contributions - 77
Repurchase of shares for treasury stock (3,043) -
---------- ----------
Net cash provided by financing activities 5,055 138,503
---------- ----------
Net increase (decrease) in cash and
cash equivalents 15,194 (33,960)
Cash and cash equivalents at beginning of period 60,287 106,927
---------- ----------
Cash and cash equivalents at end of period $ 75,481 $ 72,967
========== ==========
Supplemental disclosures of cash flow
information and non-cash investing and
financing activities:
Cash paid during the period for:
Interest, net of amounts capitalized 20,209 13,669
Income taxes 495 2,524
Increase (decrease) in property and
equipment aquisitions included in
construction contracts and retentions
payable 6,409 (1,864)
Foreign currency translation adjustment (3,797) 4,070
Equipment acquired under capital leases 10,984 -
See accompanying notes to condensed consolidated financial statements.
</TABLE>
8
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The condensed consolidated financial statements include
all domestic and foreign subsidiaries which are more than 50% owned and
controlled. Investments in unconsolidated affiliates which are at least 20%
owned are carried at cost plus equity in undistributed earnings or loss since
acquisition. All material intercompany balances have been eliminated in
consolidation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
December 31, 1996 Annual Report on Form 10-K.
The accompanying unaudited condensed consolidated financial
statements contain all adjustments of a recurring nature, which in the
opinion of managment, are necessary for a fair statement of the results
of the interim periods. The results of operations for the interim periods
are not indicative of results of operations for an entire year. Certain
prior period balances have been reclassified to conform to the current
period's presentation.
Preopening Costs
Effective January 1, 1997, the Company changed its method of
accounting for preopening costs. Preopening costs will be immediately
expensed when a new facility opens for business rather than amortized
over a period not to exceed one year as was previously done. Expensing
these costs at the date of opening is a general industry practice and
will provide a better comparison of the Company's operations to other
gaming companies. This change in accounting resulted in a $9,577,000
charge to operations for the three months and the six months ended
June 30, 1997. There is no cummulative effect as of January 1, 1997
of this accounting change.
If the new method of accounting for preopening costs had been
applied as of January 1, 1996, the equity in income of unconsolidated
affiliate would have increased resulting in net income for the three
months and six months ended June 30, 1996 of 1,856,000 and 1,613,000,
respectively. Earnings per share for the three months and six months
ended June 30, 1996 would have increased to $.11 and $.10, respectively.
2. LONG TERM DEBT
The Company's increase in long term debt was due to the
completion of certain capital lease financing ("Capital Lease") by
the Company's 55% owned affiliate Showboat Marina Casino Partnership
(SMCP) in March of 1997. The total amount borrowed under the Capital
Lease was approximately $11.0 million. The term of the lease is 48
months and accrues interest at 11.0%.
9 (continued)
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. LONG TERM DEBT (continued)
SMCP also secured additional equipment financing from FINOVA
Capital Corporation of approximately $10.0 million in June of 1997.
The FINOVA equipment financing was secured by certain equipment
purchased during the construction of the casino. The term of the
FINOVA financing was for a period of three years and the financing
accrues interest at 11.1%.
3. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
(Statement 128) which establishes standards for computing and presenting
earnings per share (EPS). It replaces the presentation of primary and fully
diluted EPS with a presentation of basic and diluted EPS. Statement 128 is
effective for financial statements for both interim and annual periods
ending after December 15, 1997. Earlier application is not permitted.
After adoption, all prior period EPS data should be restated to conform to
Statement 128.
The Company will adopt Statement 128 in the fourth quarter of 1997.
The pro forma impact of Statement 128 on the three months and six months
ended June 30, 1997 is basic and diluted EPS would have been $(.12) and
$(.07), respectively.
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 129, "Disclosure of Information about Capital Structure" (SFAS
No. 129). SFAS No. 129 establishes standards for disclosing information
about an entity's capital structure. The company intends to comply with the
disclosure requirements of this statement which is effective for periods
ending after December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130
requires companies to classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position,
and is effective for financial statements issued for fiscal years beginning
after December 15, 1997. The Company is currently assessing the impact of
this pronouncement on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosure About Segments of an Enterprise and Related Information"
(SFAS No. 131). SFAS No. 131 establishes additional standards for segment
reporting in the financial statements and is effective for fiscal years
beginning after December 15, 1997. The Company is currently assessing the
impact of this pronouncement on the Company's financial statements.
4. COMMITMENTS AND CONTINGENCIES
On May 3, 1997, Publishing & Broadcasting Limited ("PBL") formally
advised the Company that PBL had let lapse the agreement in principle to
acquire from the Company 10% of the stock of Sydney Harbour Casino Holdings
Limited and the right to manage Sydney Harbour Casino. Accordingly, the
Company will not receive any of the funds which would have been provided to
it upon the sale of those assets described in the agreement in principle.
The Company retains its rights to manage Sydney Harbour Casino and will
remain the largest single shareholder (at 24.6%) of Sydney Harbour Casino
Holdings Limited.
10 (continued)
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. COMMITMENTS AND CONTINGENCIES (continued)
As previously disclosed in the Company's 1996 year end financial
statements and management's discussion and analysis of financial
condition and results of operations, the Company entered into a completion
guarantee to complete the East Chicago Showboat up to a maximum aggregate
amount of $30.0 million. On April 18, 1997, the East Chicago Showboat
commenced operations and the Company's obligations under the completion
guarantee were terminated. The Company was not required to provide any
funds under the completion guarantee. In addition, the Company entered
into 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 East Chicago Showboat if, during the first three full four fiscal
quarters following the commencement of operations at the East Chicago
Showboat, the project's combined cash flow (as defined) is less than $35.0
million for any one such full four quarter period. However, in no event
will the Company be required to cause to be contributed to the East Chicago
Showboat more than $15.0 million in respect of any such full four quarter
period.
The Company is involved in various claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial statements taken as a whole.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
Showboat, Inc. and subsidiaries (collectively the "Company" or "SBO") is an
international gaming company which owns and operates the Atlantic City
Showboat Casino and Hotel in Atlantic City, New Jersey (the "Atlantic City
Showboat"), the Las Vegas Showboat Hotel, Casino and Bowling Center in
Las Vegas, Nevada (the "Las Vegas Showboat"), owns a 24.6% equity interest
in, and manages through subsidiaries, the Sydney Harbour Casino located in
Sydney, New South Wales, Australia ("Sydney Harbour Casino") and owns through
subsidiaries a 55% interest in, and manages, the Showboat Mardi Gras Casino
located in East Chicago, Indiana (the "East Chicago Showboat"), which
commenced operations April 18, 1997.
Information contained in this quarterly report is supplemental to
disclosures in the Company's year end financial reports. This management's
discussion and analysis of financial condition and results of operations
should be read in conjunction with the management's discussion and analysis of
financial conditions and results of operations included in the Company's
December 31, 1996 Annual Report on Form 10-K.
As used in this management's discussion and analysis of financial
condition and results of operations, amounts in Australian dollars are
denoted as "A$". As of June 30, 1997, the exchange rate was approximately
US$.7525 for each A$1.00.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Quarter Ended June 30, 1997 Compared to Quarter Ended June 30, 1996
Comparison of Operating Results for the three months ended June 30, 1997
and 1996 Financial Highlights
<TABLE>
<CAPTION>
Three months ended June 30, 1997 1996 Variance Percent
- ----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Gross revenues
Atlantic City Showboat 107,401 102,765 4,636 4.5%
Las Vegas Showboat 17,134 16,597 537 3.2%
Showboat Australia - Mgt. Fee 837 - 837 N/A
East Chicago Showboat 35,521 - 35,521 N/A
-------- -------- -------- -------
160,893 119,362 41,531 34.8%
-------- -------- -------- -------
Net revenues
Atlantic City Showboat 97,452 93,696 3,756 4.0%
Las Vegas Showboat 16,176 15,529 647 4.2%
Showboat Australia - Mgt. Fee 837 - 837 N/A
East Chicago Showboat 34,840 - 34,840 N/A
-------- -------- -------- -------
149,305 109,225 40,080 36.7%
-------- -------- -------- -------
</TABLE>
12 (continued)
<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued)
Comparison of Operating Results for the three months ended June 30, 1997 and
1996 Financial Highlights (continued)
<TABLE>
<CAPTION>
Three months ended June 30, 1997 1996 Variance Percent
- -----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Income from Operations
Atlantic City Showboat 17,627 16,711 916 5.5%
Las Vegas Showboat (1,051) (2,467) 1,416 57.4%
Corporate and development (4,322) (4,125) (197) (4.8%)
Showboat Australia- Mgmt. Fee 764 (37) 801 2164.9%
Sydney Harbour Casino 540 - 540 N/A
East Chicago Showboat 3,140 - 3,140 N/A
East Chicago Showboat-
preopening (9,577) - (9,577) N/A
-------- -------- -------- ----------
7,121 10,082 (2,961) (29.4%)
-------- -------- -------- ----------
EBITDA *
Atlantic City Showboat 24,097 23,363 734 3.1%
Las Vegas Showboat 519 (891) 1,410 158.2%
Corporate and development (4,217) (4,045) (172) (4.3%)
Showboat Australia - Mgmt. Fee 764 (37) 801 2164.9%
Sydney Harbour Casino 540 - 540 N/A
East Chicago Showboat 5,569 - 5,569 N/A
East Chicago Showboat-
preopening (9,577) - (9,577) N/A
-------- -------- -------- ----------
17,695 18,390 (695) (3.8%)
-------- -------- -------- ----------
</TABLE>
* EBITDA is defined as income from operations before depreciation and
amortization. EBITDA should not be construed as a substitute for income
from operations, net earnings (loss) and cash flow from operating activities
determined in accordance with Generally Accepted Accounting Principles
("GAAP"). The Company has included EBITDA because it believes it is commonly
used by certain investors and analysts to analyze and compare gaming
companies on the basis of operating performance, leverage and liquidity and
to determine a company's ability to service debt.
Revenues
Gross revenues for the quarter ended June 30, 1997, increased
$41.5 million or 34.8% over the same period in 1996 due primarily to the
inclusion of $35.5 million of revenues from the East Chicago Showboat and the
recognition of $.8 million of management fees from the Company's affiliate
Sydney Harbour Casino. The increase in gross revenues was offset by a $1.5
million or 14.3% increase in complimentaries, resulting in a $40.1 million
or 36.7% increase in net revenues for the second quarter 1997.
13 (continued)
<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued)
Revenues (continued)
The Atlantic City Showboat's gross revenue for the second quarter
1997 compared to the second quarter 1996 increased $4.6 million or 4.5%
and was attributable to a $4.8 million or 5.6% increase in casino revenues.
The increase in casino revenues was due to the $6.4 million or 9.8% increase
in slot revenue attributable to the addition of approximately 80 slot
machines during the second quarter of 1997 compared to the same period in
1996. This increase was partially offset by the $1.7 million or 8.9%
decline in table games revenue attributable to the decline in table
games hold percent of 13.9% in the second quarter compared to 15.3% in the
same quarter of 1996. Net revenues increased $3.8 million or 4.0% after
recognition of a $.9 million or 9.7% increase in complimentaries in the
second quarter of 1997.
The Las Vegas Showboat's net revenues improved $.6 million or 4.2%
in the second quarter 1997 compared to the second quarter 1996 primarily
due to a $.7 million or 6.8% increase in casino revenues. The increase
in casino revenues primarily resulted from a $.6 million or 6.5% increase
in slot revenue. Revenue improvements were achieved through focused
marketing activities aided by the fact that there were no significant
capacity increases in the market until the end of the June 1997 quarter.
At the end of the June quarter, capacity on the Boulder Strip increased
21% due to the opening of a new hotel casino.
The Company recorded a management fee for the first time of $.8
million from Sydney Harbour Casino. Due to an agreement with the Sydney
Harbour Casino, the first A$19.1 million of management fees were forgiven.
The Company also recognized consolidated net revenues of $34.8 million
from the 55% owned East Chicago Showboat which commenced operations
April 18, 1997.
Income From Operations
The Company's income from operations in the second quarter 1997
declined $3.0 million or 29.4% compared to the same period in 1996. The
decline was principally due to the $9.6 million write off of preopening
expenses, partially offset by the positive operating results of $3.1
million for the East Chicago Showboat. The Company is reviewing the
operations of the East Chicago Showboat in an effort to improve
profitability. Also offsetting the decline was the improved operating
results at the Las Vegas Showboat, and the equity contribution of $.5
million and net management fees of $.8 million from the Sydney Harbour
Casino.
The Atlantic City Showboat's income from operations before management
fees increased $.9 million or 5.5% in the quarter ended June 30, 1997
compared to the same period in 1996. This increase is attributable to
the improvement in net revenues though partially offset by the increase
in promotional expenses of $1.2 million and a $.9 million increase in
costs associated with multicasino progressive slot machines during the
second quarter 1997.
The Las Vegas Showboat's income from operations before management
fees and intercompany rent increased $1.4 million or 57.4% in the quarter
ended June 30, 1997 compared to the same period in 1996. The increase is
attributable to the 6.8% increase in casino revenue coupled with cost
control activities.
14 (continued)
<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued)
Net Income (loss)
The Company recorded a net loss of $2.0 million or $(.12) per share
in the quarter ended June 30, 1997. Net income in the second quarter of 1997
was negatively impacted as the East Chicago Showboat incurred $9.6 million in
preopening expenses. The after tax effect to the Company of the write-off
of the preopening expenses was $4.9 million or $.30 per share. In addition,
the East Chicago Showboat incurred a $1.3 million pre-tax loss of which the
Company's after tax share was $.4 million or $(.02) per share. Showboat,
Inc. recognized approximately 95% of the East Chicago Showboat's pre-tax
loss due to its minority partner's inability to absorb its share of losses
from its capital account. In future periods, the Company will recognize
more than its 55% ownership interest, of the East Chicago Showboat's net
income, until the Company has recovered the losses recognized related to its
minority partner. For the same period 1996, the Company recorded net income
of $1.1 million or $.07 per share. The 1996 results included the after tax
effect of the write-off of preopening expenses at Sydney Harbour Casino of
$.7 million or $.04 per share.
Six Months Ended June 30, 1997 Compared to Six Months ended June 30, 1996
Comparison of Operating Results for the six months ended June 30, 1997
and 1996 Financial Highlights
<TABLE>
<CAPTION>
Six months ended June 30, 1997 1996 Variance Percent
- ---------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Gross revenues
Atlantic City Showboat 203,643 195,440 8,203 4.2%
Las Vegas Showboat 34,438 34,760 (322) (0.9%)
Showboat Australia - Mgt. Fee 837 - 837 N/A
East Chicago Showboat 35,521 - 35,521 N/A
-------- -------- ------- --------
274,439 230,200 44,239 19.2%
-------- -------- ------- --------
Net revenues
Atlantic City Showboat 185,277 179,283 5,994 3.3%
Las Vegas Showboat 32,384 32,532 (148) (0.5%)
Showboat Australia - Mgt. Fee 837 - 837 N/A
East Chicago Showboat 34,840 - 34,840 N/A
-------- -------- ------- --------
253,338 211,815 41,523 19.6%
-------- -------- ------- --------
</TABLE>
15 (continued)
<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued)
Comparison of Operating Results for the six months ended June 30, 1997
and 1996 Financial Highlights (continued)
<TABLE>
<CAPTION>
Six months ended June 30, 1997 1996 Variance Percent
- ---------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Income from Operations
Atlantic City Showboat 30,141 30,137 4 N/A
Las Vegas Showboat (2,577) (3,310) 733 22.1%
Corporate and development (8,112) (8,235) 123 1.5%
Showboat Australia- Mgmt. Fee 474 (71) 545 767.6%
Sydney Harbour Casino 2,003 - 2,003 N/A
East Chicago Showboat 3,140 - 3,140 N/A
East Chicago Showboat-
preopening (9,577) - (9,577) N/A
--------- -------- -------- --------
15,492 18,521 (3,029) (16.4%)
--------- -------- -------- --------
EBITDA *
Atlantic City Showboat 43,290 43,437 (147) (0.3%)
Las Vegas Showboat 540 (457) 997 218.2%
Corporate and development (7,904) (8,062) 158 2.0%
Showboat Australia- Mgmt. Fee 474 (71) 545 767.6%
Sydney Harbour Casino 2,003 - 2,003 N/A
East Chicago Showboat 5,569 - 5,569 N/A
East Chicago Showboat-
preopening (9,577) - (9,577) N/A
-------- -------- -------- --------
34,395 34,847 (452) (1.3%)
-------- -------- -------- --------
</TABLE>
* EBITDA is defined as income from operations before depreciation and
amortization. EBITDA should not be construed as a substitute for income
from operations, net earnings (loss) and cash flow from operating activities
determined in accordance with Generally Accepted Accounting Principles
("GAAP"). The Company has included EBITDA because it believes it is commonly
used by certain investors and analysts to analyze and compare gaming
companies on the basis of operating performance, leverage and liquidity and
to determine a company's ability to service debt.
Revenues
Gross revenues for the six months ended June 30, 1997, increased
$44.2 million or 19.2% compared to the same period in 1996. This increase
is primarily attributable to the $35.5 million of revenues from the East
Chicago Showboat. Complimentaries rose $2.7 million during the first six
months of 1997 resulting in a $41.5 million or 19.6% increase in net
revenues.
16 (continued)
<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued)
Revenues (continued)
The Atlantic City Showboat's gross revenues increased $8.2 million or
4.2% during the first six months ended June 30, 1997 compared to the same
period in 1996. This increase is attributed to an $8.1 million or 4.9%
increase in casino revenues tied to the $9.7 million or 7.8% growth in slot
revenue. Table games revenue declined $1.7 million or 4.5% in the first six
months of 1997 compared to 1996 due primarily to decline in table games hold
percent to 14.3% in 1997 compared to 16.0% in 1996. The increase in gross
revenues was partially offset by the $2.2 million or 13.7% increase in the
cost of complimentaries, resulting in a $6.0 million or 3.3% increase in net
revenues.
Revenues at the Las Vegas Showboat were relatively unchanged during
the comparative six month periods.
The Company recorded a management fee for the first time of $.8
million from Sydney Harbour Casino. Due to an agreement with the Sydney
Harbour Casino, the first A$19.1 million of management fees were forgiven.
The Company also recognized consolidated net revenues of $34.8 million from
the 55% owned East Chicago Showboat which commenced operations April 18,
1997.
Income From Operations
The Company's income from operations for the six months ended June 30,
1997, decreased $3.0 million or 16.4% over the same period in the prior year.
The decrease is primarily attributable to the $9.6 million write-off of
preopening expenses offset by the positive operating results of $3.1 million
for the East Chicago Showboat. The Company is reviewing the operations of
the East Chicago Showboat in an effort to improve profitability. This net
decrease was partially offset by the $2.0 million equity contribution and the
$.5 million of net management fees from Sydney Harbour Casino.
The Atlantic City Showboat's income from operations remained flat
during the six months ended June 30, 1997 compared to the same period in
1996.
The Las Vegas Showboat's income from operations increased $.7 million
or 22.1% for the six months ended June 30, 1997 compared to the same period in
1996. This increase was realized principally through cost control programs
implemented at the property.
Net Income (Loss)
The Company recorded a net loss of $1.1 million or $(.07) per share
for the six months ended June 30, 1997. Net income in 1997 was negatively
impacted as the East Chicago Showboat incurred $9.6 million in preopening
expenses. The after tax effect to the Company of the write-off of the
preopening expenses was $4.9 million or $.30 per share. In addition, the
East Chicago Showboat incurred a $1.7 million pre-tax loss of which the
Company's after tax share was $.5 million or $(.03) per share. Showboat,
Inc. recognized approximately 95% of the East Chicago Showboat's pre-tax
loss due to its minority partner's inability to absorb its share of losses
from its capital account. In future periods, the Company will recongnize
more than its 55% ownership interest, of East Chicago Showboat's net income,
until the Company has recovered the losses recognized related to its minority
partner. For the same period 1996, the Company reported net income of $.3
million or $.02 per share. The 1996 results reflect an after tax loss of
$2.5 million or $.15 per share for the write-off of an investment in the
Randolph Riverboat project and an after tax write-off of preopening expenses
of $1.3 million or $.08 per share for the Sydney Harbour Casino.
17
<PAGE>
MATERIAL CHANGES IN FINANCIAL CONDITION
As of June 30, 1997 the Company held cash and cash equivalents
of $75.5 million and short term investments of $17.2 million compared to
$60.3 million and $28.8 million respectively at December 31, 1996.
During the six months ended June 30, 1997, the Company expended
approximately $21.4 million on capital improvements at its Las Vegas and
Atlantic City facilities, which were funded by operations. In addition,
the Company expended approximately $55.9 million on construction costs at
the East Chicago Showboat, which were principally funded from the proceeds
of the $140.0 million, 13 1/2% First Mortgage Notes which were issued by the
East Chicago Showboat in March of 1996.
On May 3, 1997, Publishing & Broadcasting Limited ("PBL") formally
advised the Company that PBL had let lapse the agreement in principle to
acquire from the Company 10% of the stock of Sydney Harbour Casino Holdings
Limited and the right to manage Sydney Harbour Casino. Accordingly, the
Company will not receive any of the funds which would have been provided to
it upon the sale of those assets described in the agreement in principle.
The Company retains its rights to manage Sydney Harbour Casino and will
remain the largest single shareholder (at 24.6%) of Sydney Harbour Casino
Holdings Limited.
As previously disclosed in the Company's 1996 year end financial
statements and management's discussion and analysis of financial condition
and results of operations, the Company entered into a completion guarantee to
complete the East Chicago Showboat up to a maximum aggregate amount of $30.0
million. On April 18, 1997, the East Chicago Showboat commenced operations
and the Company's obligations under the completion guarantee were terminated.
The Company was not required to provide any funds under the completion
guarantee. In addition, the Company entered into 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 East Chicago Showboat if,
during the first three full four fiscal quarters following the commencement
of operations at the East Chicago Showboat, the project's combined cash flow
(as defined) is less than $35.0 million for any one such full four quarter
period. However, in no event will the Company be required to cause to be
contributed to the East Chicago Showboat more than $15.0 million in
respect of any such full four quarter period.
On June 9, 1997, the Company announced that it will not seek the
necessary regulatory approvals for the tribal management agreement and
related documents with the Lummi Indian Nation for a proposed Class III
casino located between Bellingham, Washington, and Vancouver, British
Columbia, and has withdrawn from the pursuit of this project.
18
<PAGE>
MATERIAL CHANGES IN FINANCIAL CONDITION (continued)
The Company believes that it has sufficient capital resources,
including its existing cash balances, anticipated operating cash flows
and existing borrowing capacity, to meet the cash requirements of its
existing operations. The Company's ability to draw on the $25.0 million
revolving line of credit with Fleet Bank N.A. (successor to Nat West
Bank N.A.) expired in July 1997. The Company is currently seeking a
replacement line of credit with Fleet Bank N.A. The ability of the
Company to satisfy its cash requirements will be dependent upon the
future performance of its casino hotels which will continue to be influenced
by prevailing economic conditions and financial, business and other
factors, certain of which are beyond the control of the Company. As
the Company realizes expansion opportunities, the Company will
need to make significant capital investments in such opportunities and
additional financing will be required. The Company anticipates that
additional funds will be obtained through loans or public offerings of
equity or debt securities, although no assurance can be made that such funds
will be available or at interest rates acceptable to the Company.
Additionally, the Company's ability to make certain payments and to incur
additional indebtedness is restricted due to its indentures governing its
9 1/4% First Mortgage Bonds due 2008 and 13% Senior Subordinated Notes due
2009. A description of these restrictions is contained in management's
discussion and analysis of financial condition and results of operations
contained in the Company's Form 10-K for the period ended December 31, 1996.
No assurance can be given that the Company will in the future meet the
terms of the indentures permitting it to make restricted payments or incur
indebtedness.
All statements contained herein that are not historical facts,
including but not limited to, statements regarding the Company's current
business strategy, the Company's prospective joint ventures, expansions of
existing projects, and the Company's plans for future development and
operations, are based upon current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially. Among the factors that could cause
actual results to differ materially are the following: the availability
of sufficient capital to finance the Company's business plan on terms
satisfactory to the Company; competitive factors, such as legalization
of gaming in jurisdictions from which the Company draws significant numbers
of patrons and an increase in the number of casinos serving the markets
in which the Company's casinos are located; changes in labor, equipment
and capital costs; the ability to obtain necessary regulatory approvals
or changes in regulations affecting the gaming industry; the ability of
the Company to comply with the Indentures for its 9 1/4% Mortgage Bonds
and 13% Senior Subordinated Indebtedness; future acquisitions or strategic
partnerships; general business and economic conditions; and other factors
described from time to time in the Company's reports filed with the
Securities and Exchange Commission. The Company cautions the readers
not to place undue reliance on any such forward-looking statements,
which statements are made pursuant to the Private Litigation Reform
Act of 1995 and, as such, speak only as of the date made.
19
<PAGE>
SHOWBOAT, INC AND SUBSIDIARIES
PART II, OTHER INFORMATION
ITEM 1. Legal Proceedings
"Doug Grant, Inc. et al. v. Greate Bay Casino Corporation
et al.," instituted on July 28, 1997, in the Superior Court of New Jersey,
Middlesex County, Law Division. The Company was served with the Complaint
on July 31, 1997. The casino operators in Atlantic City, including the
Company, and others were named defendants in the action, which alleges that
the casino operators treated plaintiffs differently due to the fact they
were known or suspected "card counters" and that the operators shared
information on such individuals. The action is ostensibly based on
purported violations of state and federal RICO and antitrust laws and
various common law causes of action and state consumer protections law.
The Company is currently reviewing the complaint and intends to vigorously
defend the action.
The Company (including its subsidiaries) is also a
defendant in various other lawsuits, most of which relate to routine matters
incidental to its business. Management does not believe that the outcome
of such pending litigation, in the aggregate, will have a material adverse
effect on the Company.
ITEM 2. Changes in Securities
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Company's annual meeting of Shareholders was
held on May 29, 1997.
(b) Directors Elected at the Meeting and the Remaining
Directors
(i) Directors Elected at the Meeting:
<TABLE>
<CAPTION>
Name: Term Expiring in the Year:
<S> <C>
John D. Gaughan 2000
Frank A. Modica 2000
H. Gregory Nasky 2000
J. Kell Houssels, III 2000
</TABLE>
(ii) Directors whose Term of Office Continued after the
Meeting:
<TABLE>
<CAPTION>
Name: Term Expiring in the Year:
<S> <C>
J. K. Houssels 1998
William C. Richardson 1998
Jeanne S. Stewart 1998
George A. Zettler 1999
Carolyn M. Sparks 1999
</TABLE>
20 (continued)
<PAGE>
SHOWBOAT, INC AND SUBSIDIARIES
PART II, OTHER INFORMATION
(continued)
ITEM 4. (continued)
(c) Matters Voted Upon at the Meeting
(i) Votes for the Election of Directors:
<TABLE>
<CAPTION>
Nominee: "For" Votes Withheld Votes Abstain
<S> <C> <C> <C>
John D. Gaughan 12,334,031 762,336 0
Frank A. Modica 12,374,581 721,786 0
H. Gregory Nasky 12,374,381 721,986 0
J. Kell Houssels, III 12,374,556 721,811 0
</TABLE>
(ii) Votes to Approve the Showboat, Inc. 1996 Stock
Appreciation Rights Plan:
<TABLE>
<CAPTION>
"For" Votes "Against" Votes Abstain/Broker Non-Votes
<S> <C> <C>
9,834,867 2,473,860 787,640
</TABLE>
(iii) Votes to ratify the selection of the appointment
of KPMG Peat Marwick as independent public accountants for the year
ended December 31, 1997:
<TABLE>
<CAPTION>
"For" Votes "Against" Votes Abstain/Broker Non-Votes
<S> <C> <C>
13,072,153 14,508 9,706
</TABLE>
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
- ---------------- ---------------------------------------
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Showboat, Inc.
Registrant
Date: August 14, 1997 /s/ J. KELL HOUSSELS, III
------------------------ -------------------------
J. KELL HOUSSELS, III,
President and Chief
Executive Officer
Date: August 14, 1997 /s/ R. CRAIG BIRD
------------------------ --------------------------
R. CRAIG BIRD, Executive
Vice President - Finance and
Administrative and Chief
Financial Officer
22
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 75481
<SECURITIES> 17228
<RECEIVABLES> 17279
<ALLOWANCES> 2680
<INVENTORY> 3343
<CURRENT-ASSETS> 132604
<PP&E> 740076
<DEPRECIATION> 224153
<TOTAL-ASSETS> 840562
<CURRENT-LIABILITIES> 80981
<BONDS> 530931
0
0
<COMMON> 16252
<OTHER-SE> 168437
<TOTAL-LIABILITY-AND-EQUITY> 840562
<SALES> 249323
<TOTAL-REVENUES> 253338
<CGS> 0
<TOTAL-COSTS> 138015
<OTHER-EXPENSES> 101834
<LOSS-PROVISION> 1249
<INTEREST-EXPENSE> 18414
<INCOME-PRETAX> (2175)
<INCOME-TAX> (1055)
<INCOME-CONTINUING> (1120)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1120)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
