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, 1998
-------------------------
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.
- --------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0090766
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2800 FREMONT STREET, LAS VEGAS NEVADA 89104-4035
- --------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(702) 385-9123
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(Registrant's telephone number, including area code)
NOT APPLICABLE
- ---------------------------------------------------------------
(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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<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 16,640,390 SHARES OUTSTANDING
- ----------------------------------- -----------------------------
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
INDEX
Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 1-2
March 31, 1998 and December 31, 1997
Condensed Consolidated Statements of 3
Operations - For the three months
ended March 31, 1998 and 1997
Condensed Consolidated Statements of 4
Comprehensive Operations For the
three months ended March 31, 1998 and
1997
Condensed Consolidated Statements of 5
Cash Flows - For the three months
ended March 31, 1998 and 1997
Notes to the Condensed Consolidated 6-7
Financial
Item 2. Management's Discussion and Analysis of 8-12
Financial Condition and Results of
Operations
PART II OTHER INFORMATION
ITEMS 1 - 6 13
SIGNATURES 15
<PAGE>
Item 1. Financial Statements
<TABLE>
<CAPTION>
SHOWBOAT, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
March 31, December 31,
ASSETS 1998 1997
- ------------------------------- ----------- ------------
(unaudited)
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 85,431 $ 67,145
Short term investments - 21,755
Receivables, net 13,648 15,748
Income tax receivable 381 2,361
Inventories 3,096 3,328
Prepaid expenses 4,480 6,027
Current deferred income taxes 6,430 6,603
------------ ------------
Total current assets 113,466 122,967
------------ ------------
Property and equipment 858,737 744,390
Less accumulated depreciation
and amortization 253,906 243,414
------------ ------------
604,831 500,976
------------ ------------
Other assets:
Restricted cash and investments 3,000 3,000
Investments in unconsolidated
affiliate 125,527 125,148
Deposits and other assets 34,482 33,906
Debt issuance costs, net of
accumulated amortization of
$4,730,000 and $4,193,000 at March
31, 1998 and December 31, 1997,
respectively 15,897 14,550
------------ ------------
178,906 176,604
------------ ------------
$ 897,203 $ 800,547
============ ============
See accompanying notes to condensed consolidated financial statements.
(continued)
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(continued)
March 31, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
- ------------------------------------ ------------ ------------
(unaudited)
(In thousands)
<S> <C> <C>
Current liabilities
Current maturities of long-term debt -
with recourse $ 29 $ 28
Current maturities of long-term debt -
without recourse 6,688 5,554
Notes payable 3,000 -
Accounts payable 17,130 16,756
Dividends payable 414 402
Accrued liabilities 41,990 51,905
------------ -----------
Total current liabilities 69,251 74,645
------------ -----------
Long-term debt, excluding current maturities
Debt with recourse 393,153 393,066
Debt without recourse 249,423 151,968
------------ -----------
642,576 545,034
------------ -----------
Other liabilities 6,398 6,184
------------ -----------
Deferred income taxes 10,373 11,741
------------ -----------
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 16,619,824
shares at March 31, 1998 and 16,350,849
at December 31, 1997 16,620 16,351
Additional paid-in capital 97,218 91,145
Retained earnings 63,644 64,761
------------ -----------
177,482 172,257
Cumulative foreign currency translation
adjustment (7,416) (8,437)
Unearned compensation for restricted stock (1,461) (877)
------------ -----------
Total shareholders' equity 168,605 162,943
------------ -----------
$ 897,203 $ 800,547
============ ===========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(unaudited)
(In thousands except per share data)
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Casino $ 140,173 $ 92,597
Food and beverage 15,296 13,062
Rooms 5,419 5,670
Management fees 2,501 -
Sports and special events 912 977
Other 1,166 1,240
------------ ------------
165,467 113,546
Less complimentaries 9,914 9,513
------------ ------------
Net revenues 155,553 104,033
------------ ------------
Operating costs and expenses:
Casino 69,088 48,318
Food and beverage 9,253 7,391
Rooms 1,391 1,789
Sports and special events 920 910
General and administrative 36,909 28,383
Selling, advertising and promotion 8,955 2,005
Depreciation and amortization 11,851 8,329
------------ ------------
138,367 97,125
------------ ------------
Income from consolidated subsidiaries 17,186 6,908
Equity in income (loss) of unconsolidated affiliate (953) 1,463
------------ ------------
Income from operations 16,233 8,371
------------ ------------
Other (income) expense:
Interest income (1,180) (1,854)
Interest expense, net of amounts capitalized 17,614 8,956
------------ ------------
16,434 7,102
------------ ------------
Income (loss) before income taxes and minority interest (201) 1,269
Minority interest share of loss - 149
------------ ------------
Income (loss) before income taxes (201) 1,418
Income tax expense 502 539
------------ ------------
Net income (loss) $ (703) $ 879
============ ============
Basic earnings (loss) per share $ (0.04) $ 0.05
Shares used in per share calculation 16,463,122 16,202,397
Diluted earnings (loss) per share $ (0.04) $ 0.05
Shares used in per share calculation 16,463,122 16,324,058
See accompanying notes to condensed consolidated financial statements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(unaudited)
1998 1997
----------- ----------
(In Thousands)
<S> <C> <C>
Net Income (loss) $ (703) $ 879
Foreign currency translation adjustments net of tax 1,021 (1,087)
----------- ----------
Comprehensive Income (loss) $ 318 $ (208)
=========== ==========
See accompanying motes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(unaudited)
1998 1997
------------ -----------
(In thousands)
<S> <C> <C>
Net cash provided by operating activities $ 9,237 $ 6,706
------------ -----------
Cash flows from investing activities:
Acquisition of property and equipment (115,477) (40,874)
Investment in unconsolidated affiliate (781) (2,912)
Repayments from unconsolidated affiliate 970 94
Decrease in restricted cash - 43,400
Increase in deposits and other assets - (7,854)
Deposit for Casino Reinvestment
Development Authority obligation (1,006) (981)
Sale of short term investments 21,755 5,573
Other 120 239
------------ -----------
Net cash used in investing activities (94,419) (3,315)
------------ -----------
Proceeds from issuance of long-term debt 100,000 -
Proceeds from issuance of note payable 3,000 -
Principal payments of long-term debt (1,418) (5)
Debt issuance costs (1,884) -
Proceeds from employee stock option exercises 4,172 71
Payment of dividends (402) (405)
------------ -----------
Net cash provided by (used in) financing
activities 103,468 (339)
------------ -----------
Net increase in cash and cash equivalents 18,286 3,052
Cash and cash equivalents at beginning of period 67,145 60,287
------------ -----------
Cash and cash equivalents at end of period $ 85,431 $ 63,339
============ ===========
Supplemental disclosures of cash flow information
and non-cash investing and financing activities:
Cash paid (received) during the period for:
Interest, net of amounts capitalized 18,442 10,731
Income taxes (448) 675
Foreign currency translation adjustment 1,021 (1,087)
Equipment acquired under capital leases - 10,984
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The condensed consolidated financial statements of
Showboat, Inc. and subsidiaries (the "Company") 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, 1997 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.
2. LONG TERM DEBT
On January 28, 1998, a special purpose subsidiary
of the Company borrowed $100.0 million from Column
Financial, Inc. to acquire 10 1/2 leased acres of real
property (the "Atlantic City Property") located at 801
Boardwalk, Atlantic City, New Jersey and the lease pursuant
to which the Atlantic City Property was leased to Atlantic
City Showboat, Inc. ("ACSI") from Sun International, Inc.
for a total purchase price of $110.0 million. The loan will
mature on February 1, 2028. Interest accrues on the loan at
an interest rate of 7.09% until February 1, 2008, at which
time, unless paid off as of such date, the loan will accrue
a second tranche of interest at a rate equal to the lesser
of (i) the positive excess (if any) of (A) the 20 year
Treasury Rate plus 2.0% per annum over (B) 7.09%, and (ii)
5.0% per annum.
3. SHOWBOAT MERGER
On December 18, 1997, the Company entered an Agreement
and Plan of Merger with Harrah's Entertainment, Inc., a
Delaware corporation ("Harrah's"), and HEI Acquisition
Corp., a Nevada corporation and wholly owned subsidiary of
Harrah's ("Harrah's Sub"), whereby Harrah's Sub would be
merged with and into the Company and the Company would
consequently become a wholly owned subsidiary of Harrah's
(the "Showboat Merger"). On April 23, 1998, the Company's
shareholders approved the Showboat Merger and the Company
has received all required regulatory approvals except for
the approval of the regulatory authorities in New South
Wales, Australia. If the Showboat Merger is approved by the
Australian regulatory authorities and the other conditions
to the Showboat Merger are satisfied or waived, articles of
merger will be filed
6
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. SHOWBOAT MERGER (Continued)
with the Nevada Secretary of State and the Company's
shareholders will become entitled to receive $30.75 in cash,
without interest, per share of common stock of the Company
held.
In conjunction with its acquisition of the
Company, on May 13, 1998, Harrah's commenced a fixed spread
cash tender offer for all of the Company's outstanding 9 1/2%
First Mortgage Bonds due 2008 and 13% Senior Subordinated
Notes due 2009 (collectively, "the Notes"). Concurrently
with the tender offer, Harrah's is soliciting consents from
the holders of the Notes to amend the respective Indentures
governing each of the Notes to eliminate or modify
substantially all of the negative covenants, certain events
of default, and to make certain other changes to the
Indentures. The tender offer is scheduled to expire on
June 10, 1998, unless extended. The tender offer and
consent solicitation are conditioned upon, among other
things, the receipt of tenders and consents from not less
than a majority in aggregate principal amount outstanding of
each series of Notes.
4. COMMITMENTS AND CONTINGENCIES
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.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
GENERAL
Showboat, Inc. and its subsidiaries (collectively, the
"Company" or "SBO"), is an international gaming company that owns
and operates the Atlantic City Showboat Casino Hotel in Atlantic
City, New Jersey (the "Atlantic City Showboat"), the Las Vegas
Showboat Casino, Hotel and Bowling Center in Las Vegas, Nevada
(the "Las Vegas Showboat"), beneficially owns 24.6% of, and
manages, Star City, a casino and entertainment complex located
in Sydney, New South Wales, Australia ("Star City" or "Sydney
Harbour Casino"), and owns a 55% interest in, and manages, the
Showboat Mardi Gras Casino located in East Chicago, Indiana (the
"East Chicago Showboat").
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 in the Company's December 31,
1997 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$". The exchange rate was
approximately $.6630 and $.7820 for each A$1.00 as of March 31,
1998 and 1997, respectively.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Financial Highlights (unaudited)
Comparison of Operating Results for the three months ended March 31, 1998 and 1997
(Dollars in thousands) 1998 1997 Variance Percent
<S> <C> <C> <C> <C>
Gross revenues
Atlantic City $ 97,934 $ 96,242 $ 1,692 1.8%
Las Vegas 17,734 17,304 430 2.5%
Showboat Australia Mgt. Fees 2,501 - 2,501 N/A
East Chicago Showboat 47,298 - 47,298 N/A
---------- ---------- ---------- -------
$ 165,467 $ 113,546 $ 51,921 45.7%
---------- ---------- ---------- -------
Net revenues
Atlantic City $ 89,875 $ 87,825 $ 2,050 2.3%
Las Vegas 16,643 16,208 435 2.7%
Showboat Australia Mgt. Fees 2,501 - 2,501 N/A
East Chicago Showboat 46,534 - 46,534 N/A
---------- ---------- ---------- -------
$ 155,553 $ 104,033 $ 51,520 49.5%
---------- ---------- ---------- -------
</TABLE>
(continued)
8
<PAGE>
<TABLE>
<CAPTION>
MATERIAL CHANGES IN RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the three months ended March 31, 1998 and 1997
(Dollars in thousands) 1998 1997 Variance Percent
<S> <C> <C> <C> <C>
Income from operations
Atlantic City $ 14,741 $ 12,514 $ 2,227 17.8%
Las Vegas (613) (1,526) 913 59.8%
Corporate and Development (2,486) (3,790) 1,304 34.4%
Showboat Australia - Mgt. Fee <F1> 2,234 (290) 2,524 970.3%
Sydney Harbour Casino <F1> (953) 1,463 (2,416) (265.1)%
East Chicago Showboat 3,310 - 3,310 N/A
---------- ---------- ---------- ----------
Consolidated $ 16,233 $ 8,371 $ 7,862 93.9%
---------- ---------- ---------- ----------
EBITDA*
Atlantic City $ 21,496 $ 19,193 $ 2,303 12.0%
Las Vegas 1039 21 1,018 4,847.6%
Corporate and Development (2,380) (3,687) 1,307 135.4%
Showboat Australia - Mgt. Fee <F1> 2,234 (290) 2,524 970.3%
Sydney Harbour Casino <F1> (953) 1,463 (2,416) (265.1)%
East Chicago Showboat 6,648 - 6,648 N/A
---------- ---------- ---------- ---------
Consolidated $ 28,084 $ 16,700 $ 11,384 68.2%
---------- ---------- ---------- ---------
<FN>
<F1> Net of operating expenses and amortization of equity and debt
costs at Showboat, Inc.
</FN>
*EBITDA is defined as income from operations before depreciation and
amortization. EBITDA should not be construed as a substitute for
income from operations, net earnings (loss) and cash flows from
operating activities determined in accordance with Generally
Accepted Accounting Principles ("GAAP"). The Company has included
EBITDA because it believes it is commonly used by certain investors
and analysts to analyze and compare gaming companies on the basis of
operating performance, leverage and liquidity and to determine a
company's ability to service debt.
</TABLE>
REVENUES
The Company's gross revenues increased $51.9 million or
45.7% which was primarily attributable to the $47.3 million of
gross revenues from the East Chicago Showboat which commenced
operations in April 1997 and the recognition of $2.5 million of
management fees from Sydney Harbour Casino. Management fees from
Sydney Harbour Casino had not been recognized in the prior year's
first quarter due to an agreement to forgo the first A$19.1
million of management fees payable to the Company.
Complimentaries rose $.4 million in the first quarter of 1998
compared to 1997, primarily due to the operations of the East
Chicago Showboat, resulting in a $51.5 million or 49.5% increase
in net revenues.
9
<PAGE>
REVENUES (CONTINUED)
The Atlantic City Showboat's gross revenues increase of
$1.7 million or 1.8% was principally attributed to a $2.7 million
or 3.4% increase in casino revenues. The increase in casino
revenues was tied to the $5.8 million or 9.0% growth in slot
revenue, at the Atlantic City casino which compared. favorably to
a 4.6% slot revenue growth in the Atlantic City market. Table
games revenue declined $2.4 million or 13.3% due primarily to an
increased level of competition for table games patrons. The cost
of complimentaries declined $.4 million or 4.3% in the first
quarter of 1998 compared to 1997, contributing to the $2.1
million or 2.3% increase in net revenues.
The Company recognized consolidated net revenues of
$46.5 million from the East Chicago Showboat which were derived
principally from the casino operation that produced $33.1 million
of slot revenue, $9.7 million of table game revenue and $1.4
million of poker revenue. Revenues at the Las Vegas Showboat were
relatively unchanged during the comparative periods.
INCOME FROM OPERATIONS
The Company's income from operations increased $7.9
million or 93.9% due principally to the recognition of the $3.3
million income from operations from the East Chicago Showboat and
a $2.2 million improvement in income from operations at the
Atlantic City Showboat. The improvement at the Atlantic City
Showboat is primarily due to the improvement in net revenues.
Income from operations was also positively impacted by the
elimination of $1.5 million of rental expense for the quarter on
a consolidated basis due to the January 1998 purchase of the 10
1/2 leased acres of real property (the "Atlantic City Property")
located at 801 Boardwalk, Atlantic City, New Jersey. Due to the
purchase of the Atlantic City Property the Company incurred
additional interest expense during the first quarter of 1998 of
approximately $1.3 million. As a result the financial impact to
net income due to the purchase of the Atlantic City Property was
approximately $.2 million.
The Las Vegas Showboat's income from operations
increased $.9 million or 59.8%. This increase was realized
principally through cost control programs implemented at the Las
Vegas property and more targeted marketing programs.
The Company realized a loss from its unconsolidated
affiliate Star City of $1.0 million in the current quarter
compared to income of $1.4 million in the same period in 1997.
The $2.4 million decline is primarily attributable to lower than
anticipated revenues from the newly opened Star City and the
higher cost of labor and operating costs. Star City's management
took steps during the first quarter of 1998, that included staff
reductions, to enhance future operating results. The Company's
loss from its unconsolidated affiliate includes approximately $.8
million of expense associated with staff reductions. In
addition, income from operations at Star City was positively
impacted by the recognition of $.8 million from the sale of
apartments which had been developed as part of the permanent
facility. The decline in income from operations at Star City was
substantially offset by the recognition of $2.5 million of
management fees from Star City.
NET INCOME
In the quarter ended March 31, 1998 the Company recorded a
net loss of $.7 million or $.04 per share. Net interest expense
increased by approximately $8.7 million due to the incurrence of
new debt and the expensing of interest in the first quarter of
1998 versus capitalizing
10
<PAGE>
NET INCOME (CONTINUED)
a portion of the interest in 1997. Net income for the first
quarter of 1998 was also negatively impacted due to the
recognition of the following unusual items totaling $1.7 million
(before tax): (i) East Chicago Showboat minority partner's share
of losses totaling $1.0 million (ii) $.7 million of charges
associated with the proposed merger with Harrah's Entertainment,
Inc. (iii) $.8 million of one time staff reduction costs incurred
by Star City and (iv) was positively impacted by the recognition
of $.8 million from the sale of apartments by Star City.
Exclusive of these unusual items, the Company would have recorded
net income of approximately $.8 million or $.05 per share.
Net income for the first quarter of 1997 included
interest expense of approximately $.2 million incurred by the
East Chicago Showboat prior to its opening in April of 1997.
Exclusive of this unusual item, the Company would have recorded
net income of approximately $1.0 million or $.06 per share.
MATERIAL CHANGES IN FINANCIAL CONDITION
As of March 31, 1998 the Company held cash and cash
equivalents of $85.4 million compared to cash and cash
equivalents of $67.1 million and short term investments of $21.8
million at December 31, 1997. The cash balances include the funds
of the East Chicago Showboat ($8.3 million and $7.2 million at
March 31, 1998 and December 31, 1997, respectively) that are not
available for use other than to support the East Chicago
Showboat. In addition to the Company's cash balances, $3.0
million of restricted cash has been pledged as collateral for the
East Chicago Showboat's line of credit with Fleet Bank N.A. As
of March 31, 1998 all available funds were drawn by the East
Chicago Showboat on this line of credit.
During the three months ended March 31, 1998, the
Company expended approximately $4.9 million on capital
improvements at the Atlantic City Showboat and the Las Vegas
Showboat which were funded by operations. In addition, the
Company expended approximately $.6 million on capital
improvements at the East Chicago Showboat which were funded from
the operation of the East Chicago Showboat.
On December 18, 1997, the Company entered an Agreement
and Plan of Merger with Harrah's Entertainment, Inc., a Delaware
corporation ("Harrah's"), and HEI Acquisition Corp., a Nevada
corporation and wholly owned subsidiary of Harrah's ("Harrah's
Sub"), whereby Harrah's Sub would be merged with and into the
Company and the Company would consequently become a wholly owned
subsidiary of Harrah's (the "Showboat Merger"). On April 23,
1998, the Company's shareholders approved the Showboat Merger and
the Company has received all required regulatory approvals except
for the approval of the regulatory authorities in New South
Wales, Australia. If the Showboat Merger is approved by the
Australian regulatory authorities and the other conditions to the
Showboat Merger are satisfied or waived, articles of merger will
be filed with the Nevada Secretary of State and the Company's
shareholders will become entitled to receive $30.75 in cash,
without interest, per share of common stock of the Company held.
In conjunction with its acquisition of the Company, on
May 13, 1998, Harrah's commenced a fixed spread cash tender offer
for all of the Company's outstanding 9 1/2% First Mortgage Bonds
due 2008 and 13% Senior Subordinated Notes due 2009
(collectively, "the Notes"). The consideration to be paid to the
holders of validly tendered Notes will be determined on the
second business
11
<PAGE>
MATERIAL CHANGES IN FINANCIAL CONDITION (continued)
day preceding the expiration of the tender offer. This
consideration will be a price resulting in a yield to the first
redemption date of the Notes equal to the yield, plus a fixed
spread, of a specified reference security maturing at the first
redemption date of each Note, plus accrued interest.
Concurrently with the tender offer, Harrah's is soliciting
consents from the holders of the Notes to amend the respective
Indentures governing each of the Notes to eliminate or modify
substantially all of the negative covenants, certain events of
default, and to make certain other changes to the Indentures.
The tender offer is scheduled to expire on June 10, 1998, unless
extended. The tender offer and consent solicitation are
conditioned upon, among other things, the receipts of tenders and
consents from not less than a majority in aggregate principal
amount outstanding of each series of Notes.
As previously disclosed in the Company's Form 10-K
filed December 31, 1997, the Company entered into a standby
equity commitment which requires that if, during any of the first
three Operating Years (as defined), SMCP's Combined Cash Flow (as
defined) is less than $35.0 million, the Company will be required
to make additional capital contributions to SMCP in the lesser of
(a) $15.0 million, or (b) the difference between the $35.0
million and the Operating Year's Combined Cash Flow. The
Company's aggregate potential obligation under the standby equity
commitment is $30.0 million. SMCP anticipates that the Combined
Cash Flow of SMCP for the first full four quarters of operation
will not achieve the $35.0 million threshold and Showboat will be
required to contribute approximately $14.0 million under the
standby equity commitment. As of March 31, 1998, the Company has
contributed $1.0 million to SMCP as part of this standby equity
commitment. There can be no assurance that the Combined Cash
Flow for any future Operating Year will exceed $35.0 million and
that the Company will not be required to make additional capital
contributions to SMCP in accordance with the standby equity
commitment. The Standby Equity Commitment is subject to certain
limitations, qualifications, and exceptions.
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. Additionally the Company's ability to
make certain payments and to incur additional indebtedness is
restricted due to the 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 the financial condition
and results of operation contained in the Company's Form 10-K for
the period ended December 31, 1997. 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.
12
<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., in the United States District Court,
District of New Jersey, Camden, New Jersey with the assigned
Docket Number 97CV4291 (JEI). On May 1, 1998, the Court
dismissed, with prejudice, all of the counts against the
Company, except for the privacy claims of six plaintiffs.
The remaining count was remanded to the Superior Court of
New Jersey, Middlesex County.
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
On April 23, 1998, the Company held a Special
Meeting ("Meeting") of Shareholders to consider the proposal
to approve and adopt an Agreement and Plan of Merger, dated
as of December 18, 1997 ("Merger Agreement"), by and among
Harrah's Entertainment, Inc. ("Harrah's"), HEI Acquisition
Corp., an indirect wholly-owned subsidiary of Harrah's
("Sub"), and the Company, pursuant to which, (i) Sub will be
merged with and into the Company ("Merger"), with the
Company continuing as the surviving corporation and becoming
an indirect wholly-owned subsidiary of Harrah's and (ii)
each outstanding share of common stock, par value $1.00 per
share, of the Company, other than shares owned by Harrah's
or the Company as treasury stock (which will be canceled),
will be converted into the right to receive $30.75 in cash,
without interest.
The affirmative vote of the holders of 66 2/3% of
the outstanding shares of Common Stock was required to
approve and adopt the Merger Agreement. On March 19, 1998,
the record date for the Meeting, there were 16,548,765
shares outstanding. The proposal was approved by in excess
of 66 2/3% of the shares outstanding and received the
following votes:
"For" 11,868,696
"Against" 80,512
"Abstain" 7,358
ITEM 5. OTHER INFORMATION
Not applicable.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description
11.01 Computation of Net Earnings (Loss) Per
Share
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<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: May 14, 1998 /s/ J. KELL HOUSSELS, III
J. KELL HOUSSELS, III,
President and Chief Executive Officer
Date: May 14, 1998 /s/ R. CRAIG BIRD
R. CRAIG BIRD, Executive Vice
President - Finance and Administrative
and Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
11.01 Computation of Net Earnings (Loss) Per
Share
27.01 Financial Data Schedule
16
<PAGE>
EXHIBIT 11.01
<TABLE>
<CAPTION>
COMPUTATION OF NET EARNINGS (LOSS) PER SHARE
(UNAUDITED)
Three Months Ended
March 31
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net income (loss) $ (703,000) $ 879,000
============= =============
Weighted average common shares outstanding 16,463,122 16,202,397
Common equivalent shares representing shares 320,181 121,661
issuable upon exercise of stock options
Less common equivalent shares due to
antidilutive nature (320,181) -
------------- -------------
Dilutive adjusted weighted average shares and
assumed conversions 16,463,122 16,324,058
------------- -------------
Basic net income (loss) per share $ (0.04) $ 0.05
Diluted net income (loss) per share $ (0.04) $ 0.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 85,431
<SECURITIES> 0
<RECEIVABLES> 16,480
<ALLOWANCES> 2,832
<INVENTORY> 3,096
<CURRENT-ASSETS> 113,466
<PP&E> 858,737
<DEPRECIATION> 253,906
<TOTAL-ASSETS> 897,203
<CURRENT-LIABILITIES> 69,251
<BONDS> 531,213
0
0
<COMMON> 16,620
<OTHER-SE> 151,985
<TOTAL-LIABILITY-AND-EQUITY> 897,203
<SALES> 151,886
<TOTAL-REVENUES> 155,553
<CGS> 0
<TOTAL-COSTS> 80,652
<OTHER-EXPENSES> 57,715
<LOSS-PROVISION> 581
<INTEREST-EXPENSE> 16,434
<INCOME-PRETAX> (201)
<INCOME-TAX> 502
<INCOME-CONTINUING> (703)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (703)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
