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: March 31, 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
incorporation or organization) Identification No.)
2800 FREMONT STREET, LAS VEGAS NEVADA 89104-4035
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(Address of principal executive offices) (Zip Code)
(702) 385-9123
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by 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 requiredments for the past 90 days.
YES X NO
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<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 16,102,419 Shares Outstanding
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<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
INDEX
Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 1-2
Condensed Consolidated Statements of Income -
For the three months ended March 31,
1997 and 1996 3
Condensed Consolidated Statements of Cash Flows -
For the three months ended March 31,
1997 and 1996 4
Notes to the Condensed Consolidated Financial
Statements 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7-11
PART II OTHER INFORMATION
ITEMS 1 - 6 12-14
SIGNATURES 15
<PAGE>
Item 1. Financial Statements
<TABLE>
<CAPTION>
SHOWBOAT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
March 31, December 31,
ASSETS 1997 1996
------ -------- ------------
<S> <C> <C>
(unaudited)
(In thousands)
Current assets:
Cash and cash equivalents $63,339 $60,287
Short term investments 23,275 28,848
Receivables, net 12,635 12,402
Income tax receivable 2,610 2,396
Inventories 3,363 2,785
Prepaid expenses 5,468 4,470
Current deferred income taxes 7,697 7,802
-------- -------
Total current assets 118,387 118,990
-------- -------
Property and equipment 698,645 651,486
Less accumulated depreciation
and amortization 215,889 211,298
-------- -------
482,756 440,188
-------- -------
Other assets:
Restricted cash 26,201 69,601
Investment in unconsolidated affiliate 141,537 138,964
Deposits and other assets 39,760 30,963
Debt issuance costs, net of
accumulated amortization of
$3,212,000 and $2,942,000 at
March 31, 1997 and
December 31, 1996, respectively 15,693 15,963
-------- -------
223,191 255,491
-------- -------
$824,334 $814,669
======== ========
See accompanying notes to condensed consolidated financial statements.
1 (continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(continued)
March 31, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
------------------------------------ --------- ------------
<S> <C> <C>
(unaudited)
(In thousands)
Current liabilities:
Current maturities of long-term debt $2,338 $25
Accounts payable 18,709 17,688
Dividends payable 406 405
Accrued liabilities 39,632 41,933
------- --------
Total current liabilities 61,085 60,051
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Long-term debt, excluding current maturities 541,478 532,719
------- --------
Other liabilities 4,995 4,866
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Deferred income taxes 24,276 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 16,248,919
shares at March 31, 1997 and 16,181,199
at December 31, 1996 16,249 16,181
Additional paid-in capital 88,997 87,698
Retained earnings 85,301 84,828
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190,547 188,707
Cumulative foreign currency
translation adjustment 3,686 4,773
Unearned compensation for restricted stock (1,733) (1,335)
-------- --------
Total shareholders' equity 192,500 192,145
-------- --------
$824,334 $814,669
======== ========
See accompanying notes to condensed consolidated financial statements.
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(In thousands except per share data)
1997 1996
----- -----
<S> <C> <C>
Revenues:
Casino $92,597 $89,990
Food and beverage 13,062 12,991
Rooms 5,670 5,796
Sports and special events 977 1,048
Other 1,240 1,013
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113,546 110,838
Less complimentaries 9,513 8,248
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Net revenues 104,033 102,590
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Operating costs and expenses:
Casino 48,318 44,225
Food and beverage 7,391 8,086
Rooms 1,789 2,137
Sports and special events 910 821
General and administrative 28,383 28,375
Selling, advertising and promotion 2,005 2,489
Depreciation and amortization 8,329 8,018
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97,125 94,151
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Income from consolidated subsidiaries 6,908 8,439
Equity in income of unconsolidated affiliate 1,463 -
------- -------
Income from operations 8,371 8,439
Other (income) expense:
Interest income (1,854) (1,330)
Interest expense, net of amounts capitalized 8,956 7,537
Write down of investment in affiliate - 3,902
Foreign currency transaction gain - (66)
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7,102 10,043
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Income (loss) before income taxes and minority
interest 1,269 (1,604)
Minority interest share of loss 149 7
------- -------
Income (loss) before income taxes 1,418 (1,597)
Income tax expense (benefit) 539 (796)
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Net income (loss) $879 $(801)
======= =======
Shares used in per share calculation 16,324,058 16,067,137
Net income (loss) per common and equivalent shares $0.05 $(0.05)
See accompanying notes to condensed consolidated financial statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
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(In thousands)
<S> <C> <C>
Net cash provided by operating activities $ 6,706 $11,081
-------- -------
Cash flows from investing activities:
Acquisition of property and equipment (40,874) (21,769)
Investment in unconsolidated affiliate (2,912) (2,911)
Repayments from unconsolidated affiliate 94 386
Investments in consolidated affiliates - (157,296)
Decrease in restricted cash 43,400 -
Increase in deposits and other assets (7,854) (1,673)
Deposit for Casino Reinvestment
Development Authority obligation (981) (981)
Sale of short term investments 5,573 -
Other 239 165
-------- --------
Net cash used in investing activities (3,315) (184,079)
-------- ---------
Cash flows from financing activities:
Principal payments of long-term debt (5) (5)
Proceeds from issuance of long-term debt - 140,000
Proceeds from employee stock option exercises 71 758
Payment of dividends (405) (392)
Minority interest contributions - 70
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Net cash provided by (used in) financing
activities (339) 140,431
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Net increase (decrease) in cash and cash equivalents 3,052 (32,567)
Cash and cash equivalents at beginning of period 60,287 106,927
-------- --------
Cash and cash equivalents at end of period $ 63,339 $ 74,360
======== ========
Supplemental disclosures of cash flow information
and non-cash investing and
financing activities:
Cash paid during the period for:
Interest, net of amounts capitalized 10,731 4,494
Income taxes 675 1,839
Foreign currency translation adjustment (1,087) 3,458
Equipment acquired under capital leases 10,984 -
See accompanying notes to condensed consolidated finanical statements.
4
</TABLE>
<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
management, 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
had no impact on the results of operations for the quarter ended March 31, 1997
and there is no cummulative effect as of January 1,1997 of this accounting
chanage.
If the new method of accounting for preopening costs had been applied in
the first quarter of 1996, the equity in income of unconsolidated affiliate
would have increased by $1,137,000. Net income for the quarter ended March 31,
1996, would have increased by the same amount resulting in net income of
$336,000 or $.02 per share.
2. LONG TERM DEBT
The Company's long term debt increased by approximately $8.8 million
due to the completion of certain capital lease financing ("Capital Lease") by
the Company's 55% owned affiliate Showboat Marina Casino Partnership (SMCP).
The total amount borrowed under the Capital Lease was approximately $11.0
million with a term of 48 months. The rate was fixed two weeks prior to the
closing of each lease schedule at four hundred fifty (450) basis points over
the four (4) year Treasury Note rate.
SMCP is currently negotiating additional lease financing in the amount
of the lesser of $11.0 million or SMCP's cost to acquire certain equipment.
5 (continued)
<PAGE>
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 quarter ended March 31, 1997
is basic and diluted EPS would have been $.05 per share.
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.
As previously disclosed in the Company's 1996 year end financial
statements and management's discussion and analysis of financial condition and
results of operation, the Company entered into a completion guarantee to
complete the East Chicago Showboat up to a maximum aggregate amount of $30.0
million. On April 18, 1997, the East Chicago Showboat commenced operations
and the Company's obligations under the completion guarantee were terminated.
The Company was not required to provide any funds under the completion
guarantee.
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ulimate
disposition of these matters will not have a material adverse effect on the
Company's financial statements taken as a whole.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
GENERAL
Showboat, Inc., and subsidiaries (collectively the "Company" or
"SBO"), is an international gaming company which owns and operates the
Atlantic City Showboat Casino and Hotel in Atlantic City, New Jersey
(the "Atlantic City Showboat"), the Las Vegas Showboat Hotel, Casino and
Bowling Center in Las Vegas, Nevada (the "Las Vegas Showboat"), owns a
24.6% equity interest in, and manages through subsidiaries, the Sydney
Harbour Casino located in Sydney, New South Wales, Australia and owns through
subsidiaries a 55% interest in, and manages, the East Chicago Showboat casino
located in East Chicago, Indiana, (the "East Chicago Showboat"), which
commenced operations April 18, 1997.
Information contained in this quarterly report is supplemental to
disclosures in the Company's year end financial reports. This management's
discussion and analysis of financial condition and results of operations
should be read in conjunction with the management's discussion and analysis
of financial condition and results of operations included in the Company's
December 31, 1996 Annual Report on Form 10-K.
As used in this management's discussion and analysis of financial
condition and results of operations, amounts in Australian dollars are
denoted as "A$". As of March 31, 1997, the exchange rate was approximately
US$.7820 for each A$1.00.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Quarter Ended March 31, 1997 Compared to Quarter Ended March 31, 1996
<TABLE>
Comparison of Operating Results for the three months ended
March 31, 1997 and 1996
Financial Highlights
Three months ended March 31, 1997 1996 Variance Percent
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(Dollars in thousands)
<S> <C> <C> <C> <C>
Gross revenues
Atlantic City Showboat 96,242 92,675 3,567 3.8%
Las Vegas Showboat 17,304 18,163 (859) (4.7%)
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113,546 110,838 2,708 2.4%
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Net revenues
Atlantic City Showboat 87,825 85,587 2,238 2.6%
Las Vegas Showboat 16,208 17,003 (795) (4.7%)
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104,033 102,590 1,443 1.4%
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7 (continued)
</TABLE>
<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued)
<TABLE>
Comparison of Operating Results for the three months ended
March 31, 1997 and 1996
Financial Highlights (continued)
Three months ended March 31, 1997 1996 Variance Percent
- ----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Income from Operations
Atlantic City Showboat 12,514 13,426 (912) (6.8%)
Las Vegas Showboat (1,526) (843) (683) (81.0%)
Corporate and development (3,790) (4,110) 320 7.8%
Sydney Harbour Casino 1,173 (34) 1,207 3550.0%
----------------------------------------
8,371 8,439 (68) (0.8%)
----------------------------------------
EBITDA*
Atlantic City Showboat 19,193 20,074 (881) (4.4%)
Las Vegas Showboat 21 434 (413) (95.2%)
Corporate and development (3,687) (4,017) 330 8.2%
Sydney Harbour Casino 1,173 (34) 1,207 3550.0%
----------------------------------------
16,700 16,457 243 1.5%
----------------------------------------
</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 increased $2.7 million or 2.4% which was attributable to
an increase in casino revenues of $2.6 million or 2.9%. This was offset by a
$1.3 million or 15.3% increase in complimentaries, resulting in a net revenue
increase for the Company of $1.4 million or 1.4% for the first quarter of 1997.
The Atlantic City Showboat's gross revenues increase of $3.6 million or
3.8% was due primarily to a $3.3 million or 4.2% increase in casino revenues
attributed to improved weather conditions experienced during the first quarter
of this year compared to 1996. The overall increase in casino revenues was
negatively impacted by a decline in the table games hold percent to 14.6%
during the first quarter of 1997 compared to 16.8% in the same quarter of 1996.
Due to an increase in complimentary expenses of $1.3 million or 18.8%,
attributable to increased food and beverage complimentaries incurred for
promotions to attract slot patrons, the resulting increase in net revenues was
$2.2 million or 2.6%.
8 (continued)
<PAGE>
Revenues (continued)
The Las Vegas Showboat's net revenues declined $.8 million or 4.7% in the
first quarter 1997 compared to the first quarter 1996. The decline in net
revenues is primarily due to a decrease of $.6 million or 6.2% in slot and
bingo revenues as a result of increased competition for the locals market.
The Company has not yet received a management fee from Sydney Harbour
Casino due to an agreement to forgive the first A$19.1 million of management
fees. For the quarter ended March 31, 1997, approximately A$3.0 million of
management fees were forgiven and approximately A$1.6 million of management
fees still remain to be forgiven. The Company expects to begin receiving a
management fee from Sydney Harbour Casino during the second quarter 1997.
Income From Operations
The Company's income from operations in the first quarter of 1997 was
$8.4 million and was relatively flat compared to the same period in 1996.
Income from operations were positively impacted by the $1.2 million (which
includes $.3 million in operating expense and amortization of equity and debt
costs at Showboat, Inc.) contribution from the Company's Sydney Harbour
Casino affiliate. This contribution was offset by the declines in operating
income of $.9 million and $.7 million at the Atlantic City Showboat and
Las Vegas Showboat, respectively.
The Atlantic City Showboat's income from operations, before management
fees, decreased $.9 million or 6.8% which was attributable to a decrease
in the table games hold percent to 14.6% during the first quarter of 1997
compared to 16.8% in the same quarter of 1996 and a $3.2 million increase in
operating expenses. The increase in operating expenses was due largely to
increases in promotional expenses, payroll and benefits and tax expenses.
The decline in income from operations at the Las Vegas Showboat, before
management fees and intercompany rent, was due primarily to the $.8 million
decline in net revenues.
Net Income
In the quarter ended March 31, 1997 the Company recognized net income of
$.9 million or $.05 per share compared to a net loss of $.8 million or $.05
per share for the same period in 1996. Net income in the first quarter of
1997 was reduced for an increase in net interest expense of $.5 million or
$.03 per share primarily caused by the East Chicago Showboat. The March 31,
1996 net loss reflects an after tax loss of $1.9 million or $.12 per share for
the write down of the Company's investment in Showboat Mardi Gras, L.L.C.
(SMG) an appicant for a casino license for a riverboat casino which was to
be located near Kansas City, Missouri.
MATERIAL CHANGES IN FINANCIAL CONDITION
As of March 31, 1997 the Company held cash and cash equivalents of $63.3
million and short term investments of $23.3 million compared to $60.3 million
and $28.8 million respectively at December 31, 1996.
9 (continued)
<PAGE>
MATERIAL CHANAGES IN FINANCIAL CONDITION (continued)
During the three months ended March 31, 1997, the Company expended
approximately $40.9 million on capital improvements at its Las Vegas and
Atlantic City facilities, which were funded by operations, and construction
costs at the East Chicago Showboat, which were principally funded from the
proceeds of $140.0 million, 13 1/2% First Mortgage Notes, which were issued
by the East Chicago Showboat in March of 1996. Approximately $30.5 million of
the $40.9 million expended were related to the East Chicago Showboat.
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 operation, 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.
The Company believes that is 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 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.
10 (continued)
<PAGE>
MATERIAL CHANAGES IN FINANCIAL CONDITION (continued)
All statements contained herein that are not historical facts, including
but not limited to, statements regarding the Company's current business
strategy, the Company's prospective joint ventures, expansions of existing
projects, and the Company's plans for future development and operations,
are based upon current expectations. These statements are forward-looking in
nature and involve a number of risks and uncertainties. Actual results may
differ materially. Among the factors that could cause actual results to
differ materially are the following: the availability of sufficient capital
to finance the Company's business plan on terms satisfactory to the Company;
competitive factors, such as legalization of gaming in jurisdictions from
which the Company draws significant numbers of patrons and an increase in the
number of casinos serving the markets in which the Company's casinos are
located; changes in labor, equipment and capital costs; the ability of the
Company to consummate its contemplated joint ventures on terms satisfactory
to the Company and to obtain necessary regulatory approvals, therefore;
changes in regulations affecting the gaming industry; the ability of the
Company to comply with its Indentures for its 9 1/4% First Mortgage Bonds and
13% Senior Subordinated Indebtedness; future acquisitions or strategic
partnerships; general business and economic conditions; and other factors
described from time to time in the Company's reports filed with the Securities
and Exchange Commission. The Company wishes to caution the readers not to
place undue reliance on any such forward-looking statements, which statements
are made pursuant to the Private Litigation Reform Act of 1995 and, as such,
speak only as of the date made.
11
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
ITEM 1. Legal Proceedings
Darling Casino Limited ("DCL") v. NSWCCA, SHCL and Chief Secretary and
----------------------------------------------------------------------
Minister For Administrative Services ("Minister For Administrative Services"),
- ------------------------------------------------------------------------------
Case No. 30091/94, instituted in December 1994, in the Administrative Law
Division of the Supreme Court of New South Wales, Sydney Registry. DCL, the
unsuccessful applicant for the casino license in New South Wales, initiated an
action against NSWCCA, SHCL and the Minister for Administrative Services
seeking, among other things, the revocation of the casino license awarded to
SHCL on December 14, 1994. On November 8, 1995, the New South Wales Court of
Appeal dismissed the legal proceedings filed by DCL. DCL appealed the
dismissal to the High Court of Australia. The High Court affirmed the
dismissal of the action and awarded costs against DCL on April 3, 1997.
William H. Ahern v. Caesar World, Inc., et al., Case No.
-----------------------------------------------
94-532-Civ-Orl-22, instituted on May 10, 1994 in the United States District
Court for the Middle District of Florida, transferred to the United States
District Court for the District of Nevada, Southern Division; William Poulos
--------------
V. Caesars World, Inc., et al., Case No. 94-478-Civ-Orl-22, instituted on
- -------------------------------
April 26, 1994 in the United States District Court for the Middle District of
Florida, transferred to the United States District Court for the District of
Nevada, Southern Division; Larry Schreier v. Caesars World, Inc., et al.,
----------------------------------------------
Case No. 95-923-LDG (RJJ), instituted on September 26, 1995, in the United
States District Court for the District of Nevada, Southern Division.
Plaintiffs in these actions, each purportedly representing a class, filed
complaints against manufacturers, distributors and casino operators of video
poker and electronic slot machines, including the Company, alleging that the
defendants have engaged in a course of conduct intended to induce persons to
play such games based on a false belief concerning how the gaming machines
operate, as well as the extent to which there is an opportunity to win on a
given play. The Complaints charge defendants with violations of the
Racketeer Influenced and Corrupt Organizations Act, as well as claims of
common law fraud, unjust enrichment and negligent misrepresentation, and seek
damages in excess of $1 billion without any substantiation of that amount.
The Nevada District Court dismissed the Complaints following consideration
of defendants' motions to dismiss, granting leave to Plaintiffs to re-file.
The Plaintiffs filed an amended complaint on or about May 31, 1996. The
Company renewed its motions to dismiss and joined in motions to dismiss filed
by other defendants. Subsequently, the Nevada District Court consolidated
the actions (and one other action styled William Poulos v. American Family
---------------------------------
Cruise Line, N.V., et al., Case No. CV-S-95-936-LDG (RLH), in which the Company
- ------------------------
is not a named defendant), ordered Plaintiffs to file a consolidated amended
complaint on or before February 14, 1997, and ordered all defense motions,
including those of the Company, withdrawn without prejudice. The parties have
established a steering committee to address motion practice, scheduling and
discovery matters. Plaintiffs filed their consolidated amended complaint on
February 14, 1997. Management believes that the substantive allegations in
the Complaints are without merit and that the consolidated amended complaint
will be subject to the same defects addressed in earlier motions, and intends
vigorously to defend the allegations.
12 (continued)
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
(continued)
Global Gaming Technology, Inc. v. Trump Plaza Funding, Inc., et al.,
--------------------------------------------------------------------
Case No. 94-2021 (JHR), instituted on May 5, 1994, in the United States
District Court for the District of New Jersey. The plaintiff, Global Gaming
Technology, Inc., filed a complaint against eight casino operators in Atlantic
City, New Jersey. The complaint alleges a patent infringement with respect to
certain of the electronic slot machines used by the defendants, including the
Atlantic City Showboat. The plaintiff seeks to recover damages for copyright
infringement in excess of $500 million. The manufacturers of the slot machines
in question have assumed the defense and have indemnified the Atlantic City
Showboat and other casinos in this matter. The manufacturers filed a complaint
against the plaintiff in the United States District Court for the District of
Nevada, Southern District. The United States District Court for the District
of New Jersey stayed the New Jersey action pending resolution of the issues in
the pending Nevada action. Several of the manufacturers have reached a
settlement with the plaintiff for the release of all claims. The United States
District Court for the District of Nevada issued its decision in February 1997
which found that although the manufacturers infringed on Global Gaming
Technology's patent, no liability occurred since the manufacturers sold the
slot machines more than one year before Global Gaming Technology, Inc. filed
its patent application. Global Gaming Technology, Inc. has filed a motion for
reconsideration of the Court's February 1997 decision.
Progressive Games, Inc. v. Arizona Charlie's et al., Case No.
----------------------------------------------------
CV-S-96-00489-PMP (RJJ), instituted on June 5, 1996 in the United States
District Court for the District of Nevada. The plaintiff filed a Complaint
against 62 casinos located in Nevada, including the Las Vegas Showboat. The
complaint alleges a patent infringement in connection with a live casino game
including an electronic jackpot feature known as "Let It Ride the Tournament"
used by the defendants. The plaintiff seeks to recover damages for patent
infringement, including punitive damages. The licensor of the casino game has
assumed the defense and has agreed to indemnify the Las Vegas Showboat and
other casinos in this matter. On July 28, 1996, the licensor filed a motion
to dismiss the action against the casino defendants until such time as certain
issues in the pending action between plaintiff and licensor have been resolved
and the motion to dismiss was denied on March 25,1997.
ITSI TV Production, Inc. v. Balley's Grand, Inc., et al., Case No.
---------------------------------------------------------
CV-N-90-314-HDM, instituted on June 29, 1990 in the United States Court,
District of Nevada (the "Nevada action"). The plaintiff claims that the
Company infringed on the plaintiff's copyright by displaying to the Company's
sports book customers certain horse race broadcasts. Numerous other hotel-
casinos located in Las Vegas, Nevada are defendants in this lawsuit. The same
factual issues were presented in an action filed in the United States District
Court for the Eastern District of California (the "California action") in which
Showboat is not a party. The California action was tried in 1993 and therein
the Court found that although the plaintiff owned the copyright, there was no
infringement. The Ninth Circuit Court of Appeals subsequently affirmed the
decision of the trial court in the California action. The Nevada District
Court approved a stipulation dismissing the action in April 1997.
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.
13 (continued)
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
PART II, OTHER INFORMATION
(continued)
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits on Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
--------- --------------------------------------------
18.01 Letter regarding change in accounting prinicples.
27.01 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K with the Securities and
Exchange Commission on or about January 31, 1997 disclosing
the execution of an agreement in principle for the proposed
sale of 10% of the outstanding ordinary shares of Sydney
Harbour Casino Holdings Limited ("SHCL") and the right to
manage Sydney Harbour Casino to Publishing & Broadcasting
Limited ("PBL").
The Company filed a Form 8-K with the Securities and
Exchanage Commission on or about May 13, 1997 disclosing
that PBL had let lapse the agreement in principle for the
proposed sale of shares of stock and the right to manage
Sydney Harbour Casino.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securties 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: May 14, 1997 /s/J. KELL HOUSSELS, III
---------------------- ------------------------
J. KELL HOUSSELS, III,
President and Chief Executive Officer
Date: May 14, 1997 /s/R. CRAIG BIRD
---------------------- -------------------------
R. CRAIG BIRD, Executive Vice
President - Finance and Administration
and Chief Financial Officer
15
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
No. Description
--------- --------------------------------------------
18.01 Letter regarding change in accounting principles.
16
<PAGE>
May 12, 1997
Showboat, Inc.
2800 Fremont Street
Las Vegas, NV 89104-4035
Ladies and Gentlemen:
We have been furnished with a copy of Form 10-Q of Showboat, Inc.
for the three months ended March 31, 1997, and have read the
Company's statements contained in Note 1 to the condensed financial
statements included therein. As stated in Note 1, the Company
changed its method of accounting for the amortization of preopening
costs from amortizing such costs over a period not to exceed one
year from date of opening to expensing them immediately upon
opening of the new facility and states that the newly adopted
accounting principle is preferable in the circumstances because it
conforms to the common industry practice of the major gaming
companies. In accordance with your request, we have reviewed and
discussed with Company officials the circumstances and business
judgment and planning upon which the decision to make this change
in the method of accounting was based.
We have not audited any financial statements of Showboat, Inc. as
of any date or for any period subsequent to December 31, 1996, nor
have we audited the information set forth in the aforementioned
Note 1 to the condensed financial statements; accordingly, we do
not express an opinion concerning the factual information contained
therein.
With regard to the aforementioned accounting change, authoritative
criteria have not been established for evaluating the preferability
of one acceptable method of accounting over another acceptable
method. However, for purposes of Showboat, Inc.'s compliance with
the requirements of the Securities and Exchange Commission, we are
furnishing this letter.
Based on our review and discussion, with reliance on management's
business judgment and planning, we concur that the newly adopted
method of accounting is preferable in the Company's circumstances.
Very truly yours,
KPMG Peat Marwick LLP
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