-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q324maNueBRExbgDED795W2x26SpqrEdnONqMNmz2jHcMinzisJRqEiumEEw7GEA bknkgjf+pHHjqJrsDPa83w== 0000089966-97-000011.txt : 19971113 0000089966-97-000011.hdr.sgml : 19971113 ACCESSION NUMBER: 0000089966-97-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHOWBOAT INC CENTRAL INDEX KEY: 0000089966 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880090766 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07123 FILM NUMBER: 97716243 BUSINESS ADDRESS: STREET 1: 2800 FREMONT ST CITY: LAS VEGAS STATE: NV ZIP: 89104 BUSINESS PHONE: 7023859123 FORMER COMPANY: FORMER CONFORMED NAME: NEW HOTEL SHOWBOAT INC DATE OF NAME CHANGE: 19690122 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ( XX ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 1997 -------------------------------------- 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 -------------------------------------------------- SHOWBOAT, INC. - -------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) NEVADA 88-0090766 - -------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2800 FREMONT STREET, LAS VEGAS NEVADA 89104-4035 - ---------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (702) 385-9123 - ---------------------------------------------------------------------------- (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 ------ --------- 1 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 16,095,850 shares outstanding ----------------------------------- ------------------------------ 2 SHOWBOAT, INC. AND SUBSIDIARIES INDEX Part I FINANCIAL INFORMATION Page No. Item 1. Financial Statements Condensed Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 4-5 Condensed Consolidated Statements of Income - For the three months ended September 30, 1997 and 1996 6 Condensed Consolidated Statements of Income - For the nine months ended September 30, 1997 and 1996 7 Condensed Consolidated Statements of Cash Flows - For the nine months ended September 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 12-21 PART II OTHER INFORMATION ITEMS 1 - 6 22 SIGNATURES 23 3 Item 1. Financial Statements
SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 September 30, December 31, ASSETS 1997 1996 - --------------------------- ---------------- ------------------- (unaudited) (In thousands) Current assets: Cash and cash equivalents $ 76,743 $ 60,287 Short term investments 14,424 28,848 Receivables, net 15,120 12,402 Income tax receivable 185 2,396 Inventories 3,132 2,785 Prepaid expenses 7,904 4,470 Current deferred income taxes 6,752 7,802 ---------------- ------------------ Total current assets 124,260 118,990 ---------------- ------------------ Property and equipment 735,877 651,486 Less accumulated depreciation and amortization 232,611 211,298 ---------------- ------------------ 503,266 440,188 ---------------- ------------------ Other assets: Restricted cash and investment 900 69,601 Investment in unconsolidated affiliate 140,498 138,964 Deposits and other assets 26,474 23,326 Economic development and licensing costs, net of accumulated amortization of $499,000 and -0- at September 30, 1997 and December 31, 1996, respectively 10,996 7,637 Debt issuance costs, net of accumulated amortization of $4,214,000 and $2,942,000 at September 30, 1997 and December 31, 1996, respectively 14,848 15,963 ---------------- ------------------ 193,716 255,491 ---------------- ------------------ $ 821,242 $ 814,669 ================ =================== See accompanying notes to condensed consolidated financial statements.
4 (continued)
SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 (continued) September 30, December 31, LIABILITIES AND SHAREHOLDERS'EQUITY 1997 1996 - ----------------------------------- ------------- -------------- (unaudited) (In thousands) Current liabilities Current maturities of long-term debt - with recourse $ 28 $ 25 Current maturities of long-term debt - without recourse 5,407 - Accounts payable 11,242 17,688 Dividends payable 403 405 Accured liabilities 47,394 41,933 ------------- -------------- Total current liabilities 64,474 60,051 ------------- -------------- Long-term debt, excluding current maturities Debt with recourse 392,980 392,719 Debt without recourse 153,413 140,000 ------------- -------------- 546,393 532,719 Other liabilities 3,733 4,866 ------------- -------------- Deferred income taxes 21,336 24,888 ------------- -------------- 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 16,228,569 shares at September 30, 1997 and 16,181,199 at December 31, 1996 16,229 16,181 Additional paid-in captial 88,574 87,698 Retained earnings 86,008 84,828 ------------- -------------- 190,811 488,707 Cumulative foreign currency translation adjustment (1,590) 4,773 Cost of common stock in treasury, 138,120 shares at September 30, 1997 and -0- shares at December 31, 1996 (2,763) - Unearned compensation for restricted stock (1,152) (1,335) ------------- -------------- Total shareholders' equity 185,306 192,145 ------------- -------------- $ 821,242 $ 814,669 ============= ============== See accompanying notes to condensed consolidated financial statements. 5
SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (unaudited) (In thousands except per share data) 1997 1996 ------------- -------------- Revenues: Casino $ 145,842 $ 109,262 Food and beverage 17,634 16,323 Rooms 7,055 7,222 Management fees 2,236 - Sports and special events 849 875 Other 1,908 1,613 ------------- -------------- 175,524 135,295 Less complimentaries 13,125 13,053 ------------- -------------- Net revenues 162,399 122,242 ------------- -------------- Operating costs and expenses: Casino 71,391 54,035 Food and beverage 10,507 8,625 Rooms 1,848 1,557 Sports and special events 702 694 General and administrative 38,649 31,715 Selling, advertising and promotion 8,460 2,379 Depreciation and amortization 11,453 8,170 ------------- -------------- 143,010 107,175 ------------- -------------- Income from consolidated subsidiaries 19,389 15,067 Equity in income of unconsolidated affiliate 1,000 1,526 ------------- -------------- Income from operations 20,389 16,593 ------------- -------------- Other (income) expense: Interest income (1,195) (2,817) Interest expense, net of amounts capitalized 13,440 10,689 ------------- -------------- 12,245 7,872 ------------- -------------- Income before income taxes and minority interest 8,144 8,721 Minority interest share of loss - 474 ------------- -------------- Income before income taxes 8,144 9,195 Income tax expense 4,632 4,294 ------------- -------------- Net income $ 3,512 $ 4,901 ============= =============== Net income per common and equivalent share $ 0.22 $ 0.30 Shares used in per share calculation 16,162,016 16,274,570 See accompanying notes to condensed consolidated financial statements 6
SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (unaudited) (In thousands except per share data) 1997 1996 ------------- -------------- Revenues: Casino $ 372,683 $ 295,110 Food and beverage 47,111 43,433 Rooms 19,364 19,650 Management fees 3,073 - Sports and special events 2,646 2,778 Other 5,086 4,524 ------------- -------------- 449,963 365,495 Less complimentaries 34,226 31,438 ------------- -------------- Net revenues 415,737 334,057 ------------- -------------- Operating costs and expenses: Casino 186,993 146,136 Food and beverage 27,887 24,892 Rooms 5,288 5,564 Sports and special events 2,295 2,145 General and administrative 103,236 89,497 Selling, advertising and promotion 17,227 7,739 Depreciation and amortization 30,356 24,496 Preopening costs 9,577 - ------------- -------------- 382,859 300,469 ------------- -------------- Income from consolidated subsidiaries 32,878 33,588 Equity in income of unconsolidated affiliate 3,003 1,526 ------------- -------------- Income from operations 35,881 35,114 ------------- -------------- Other (income) expense: Interest income (4,173) (7,247) Interest expense, net of amounts capitalized 34,832 29,964 Write down of investment in affiliate - 3,902 ------------- -------------- 30,659 26,619 Income before income taxes and minority interest 5,222 8,495 Minority interest share of loss 747 1,309 ------------- -------------- Income before income taxes 5,969 9,804 Income tax expense 3,577 4,568 ------------- -------------- Net income $ 2,392 $ 5,236 ============= =============== Net income per common and equivalent share $ 0.15 $ 0.32 Shares used in per share calculation 16,236,687 16,418,749 See accompanying notes to condensed consolidated financial statements. 7
SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (unaudited) 1997 1996 ------------- -------------- Cash flows from operating activities: (In thousands) Net cash provided by operating activities $ 33,720 $ 35,301 ------------- -------------- Cash flows from investing activities: Acquisition of property and equipment (86,948) (68,424) Investment in unconsolidated affiliate (8,986) (8,539) (Increase) decrease in restricted cash and investments in consolidated affiliate 63,169 (111,189) Deposit for Casino Reinvestment Development Authority obligation (3,162) (2,900) Sale of short term investments 14,424 - Other 585 466 ------------- -------------- Net cash used in investing activities (20,918) (190,586) ------------- -------------- Cash flows from financing activities: Principal payments of long-term debt (1,819) (16) Proceeds from issuance of long-term debt 9,636 140,000 Debt issuance costs (156) (6,297) Proceeds from employee stock option exercises 250 5,395 Payment of dividends (1,214) (1,192) Minority interest contributions - 77 Repurchase of shares for treasury stock (3,043) - ------------- -------------- Net cash provided by financing activities 3,564 137,967 ------------- -------------- Net increase (decrease) in cash and cash equivalents 16,456 (17,318) Cash and cash equivalents at beginning of period 60,287 106,927 ------------- -------------- Cash and cash equivalents at end of period $ 76,743 $ 89,609 ============= ============== Supplemental disclosures of cash flow information and non-cash investing and financing activities: Cash paid during the period for: Interest, net of amounts capitalized 35,047 25,389 Income taxes 443 2,209 Increase (decrease) in property and equipment acquisitions included in construction contracts and retentions payable (4,817) 547 Foreign currency translation adjustment (6,363) 4,258 Equipment acquired under capital leases 10,984 - See accompanying notes to condensed consolidated financial statements. 8
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, 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 nine months ended September 30, 1997. There is no cumulative 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 resulted in net income for the three months and nine months ended September 30, 1996 of $4,741,000 and $6,354,000, respectively. Earnings per share for the three months and nine months ended September 30, 1996 would have been $.29 and $.39, 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) 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 September 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 nine months ended September 30, 1997 is basic and diluted EPS would have been $.22 and $.15, 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. 10 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4. COMMITMENTS AND CONTINGENCIES The Company received an offer to purchase the approximately 10 1/2 acres of real property (the "Atlantic City Parcel") currently leased by the Atlantic City Showboat from Sun International North America, Inc. (the "Landlord") for $110.0 million. The offer was made pursuant to the Lease Agreement requiring the Landlord to first offer the Company the opportunity to purchase the Atlantic City Parcel in the event the Landlord intends to sell the Atlantic City Parcel to a third party. The Company accepted the offer, in accordance with the Lease Agreement and the Company has 90 days from November 7, 1997 to complete the purchase of the Atlantic City Parcel, including obtaining the necessary financing and regulatory approvals necessary for the purchase. No assurance can be given that the Company will obtain the necessary financing for the purchase of the Atlantic City Parcel or that the necessary regulatory approvals, including the approval of the New Jersey Casino Control Commission will be obtained, if at all, in the necessary time frame. 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 is 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 which requires that if, during any of the first three Operating Years (as defined), the project's Combined Cash Flow (as defined) is less than $35.0 million, the Company will be required to make additional capital contributions to the East Chicago Showboat 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. The first quarter of the first Operating Year of the East Chicago Showboat ended September 30, 1997 and the Combined Cash Flow for such quarter was approximately $6.0 million. There can be no assurance that the Combined Cash Flow for the current Operating Year, or for any, Operating Year thereafter, will exceed $35.0 million and that the Company will not be required to make additional capital contributions to the East Chicago Showboat in accordance with the standby equity commitment. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial statements taken as a whole. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL Showboat, Inc. and subsidiaries (collectively the "Company" or "SBO") is an international gaming company which owns and operates the Atlantic City Showboat Casino and Hotel in Atlantic City, New Jersey (the "Atlantic City Showboat"), the Las Vegas Showboat Hotel, Casino and Bowling Center in Las Vegas, Nevada (the "Las Vegas Showboat"), owns a 24.6% equity interest in, and manages through subsidiaries, the Sydney Harbour Casino located in Sydney, New South Wales, Australia (the "Sydney Harbour Casino") and owns through subsidiaries a 55% interest in, and manages, the Showboat Mardi Gras Casino located in East Chicago, Indiana (the "East Chicago Showboat"), which commenced operations April 18, 1997. Information contained in this quarterly report is supplemental to disclosures in the Company's year end financial reports. This management's discussion and analysis of financial condition and results of operations should be read in conjunction with the management's discussion and analysis of financial conditions and results of operations included in the Company's December 31, 1996 Annual Report on Form 10-K. As used in this management's discussion and analysis of financial condition and results of operations, amounts in Australian dollars are denoted as "A$". As of September 30, 1997, the exchange rate was approximately US$.725 for each A$1.00. MATERIAL CHANGES IN RESULTS OF OPERATIONS Quarter Ended September 30, 1997 Compared to Quarter Ended September 30, 1996 Comparison of Operating Results for the three months ended September 30, 1997 and 1996 Financial Highlights (unaudited)
- ------------------------------------------------------------------------------ Three months ended Septmeber 30, 1997 1996 Variance Percent - ------------------------------------------------------------------------------ (Dollars in thousands) Gross revenues Atlantic City Showboat $112,817 $118,388 $(5,571) (4.7)% Las Vegas Showboat 16,642 16,907 (265) (1.6)% Showboat Australia - Mgt. Fee 2,236 - 2,236 N/A East Chicago Showboat 43,829 - 43,829 N/A ---------- --------- -------- -------- $175,524 $135,295 $40,229 29.7 % ---------- --------- -------- -------- Net revenues Atlantic City Showboat $101,828 $106,468 $(4,640) (4.4)% Las Vegas Showboat 15,697 15,774 (77) (.5)% Showboat Australia - Mgt. Fee 2,236 - 2,236 N/A East Chicago Showboat 42,638 - 42,638 N/A ---------- --------- -------- -------- $162,399 $122,242 $40,157 32.9 % ---------- --------- -------- -------- 12 (continued)
MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued) Comparison of Operating Results for the three months ended September 30, 1997 and 1996 Financial Highlights (unaudited) (continued)
- ------------------------------------------------------------------------------ Three months ended Septmeber 30, 1997 1996 Variance Percent - ------------------------------------------------------------------------------ (Dollars in thousands) Income from Operations Atlantic City Showboat $ 20,334 $ 23,069 $(2,735) (11.9)% Las Vegas Showboat (1,777) (3,671) 1,894 51.6 % Corporate and development (4,064) (4,283) 219 5.1 % Showboat Australia - Mgt. Fee 2,167 (48) 2,215 4,614.6 % Sydney Harbour Casino 1,000 1,526 (526) (34.5)% East Chicago Showboat 2,729 - 2,729 N/A ---------- --------- -------- -------- $ 20,389 $ 16,593 $ 3,796 22.9 % ---------- --------- -------- -------- EBITDA * Atlantic City Showboat $ 26,740 $ 29,600 $(2,860) (9.7)% Las Vegas Showboat (114) (2,132) 2,018 94.6 % Corporate and development (3,956) (4,183) 227 5.4 % Showboat Australia - Mgt. Fee 2,167 (48) 2,215 4,614.6 % Sydney Harbour Casino 1,000 1,526 (526) (34.5)% East Chicago Showboat 6,005 - 6,005 N/A ---------- --------- -------- -------- $ 31,842 $24,763 $ 7,079 28.6 % ---------- --------- -------- --------
* 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 September 30, 1997, increased $40.2 million or 29.7% over the same period in 1996 due primarily to the inclusion of $43.8 million of revenues from the East Chicago Showboat and the recognition of $2.2 million of management fees from the Company's affiliate Sydney Harbour Casino. Gross revenues were offset by $13.1 million of complimentaries in the third quarter in both years 1997 and 1996, resulting in $162.4 million and $122.2 million in net revenues for the third quarter 1997 and 1996 respectively. 13 (continued) MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued) Revenues (continued) The Atlantic City Showboat's gross revenues for the third quarter 1997 compared to the same quarter of 1996 decreased $5.6 million or 4.7% and was primarily attributable to a $4.4 million or 4.4% decrease in casino revenues. The decrease in casino revenues was principally due to the $3.5 million or 14.6% decrease in table games revenue attributable to the decline in table games hold percent which was 15.0% in the third quarter 1997 compared to 16.0% in the same quarter of 1996. Table games drop also declined 9.1% during the third quarter 1997 compared to the same quarter of 1996 principally due to the addition of new capacity in the market during the third quarter 1997. Slot revenue also decreased $.9 million or 1.2% in the third quarter 1997 due primarily to a decline in marketing by the Company and increased capacity added during the quarter by a competitor. Net revenues decreased $4.6 million or 4.4% in the third quarter of 1997. The Las Vegas Showboat's net revenues declined $.1 million or .5% in the third quarter 1997 compared to the third quarter 1996 despite a $.2 million or 1.5% increase in casino revenues. The increase in casino revenues resulted primarily from a reduction of losses in bingo. Slot revenues declined $.3 million, or 3.5%, in the third quarter 1997, principally due to the 21% increase of capacity on the Boulder Strip resulting from the opening of a new hotel casino at the end of the 1997 second quarter. Non-gaming revenues decreased $.4 million or 7.0% in the third quarter 1997, primarily due to the capacity increases. The Company recorded a management fee of $2.2 million in the third quarter 1997 from Sydney Harbour Casino. Due to an agreement with the Sydney Harbour Casino, the first A$19.1 million of management fees were forgiven and the Company first started to recognize management fees in the second quarter of 1997. The Company also recognized consolidated net revenues of $42.6 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 third quarter 1997 increased $3.8 million or 22.9% compared to the same period in 1996. The increase was principally due to the recognition of management fees of $2.2 million from the Sydney Harbour Casino, the $1.9 million improvement in operating results at the Las Vegas Showboat and $2.7 million reported from the East Chicago Showboat. Partially offsetting these positive variances was the $2.7 million decline in Atlantic City Showboat's income from operations and a $.5 million decline in equity earnings from the Sydney Harbour Casino. The Atlantic City Showboat's income from operations before management fees decline of $2.7 million or 11.9% in the quarter ended September 30, 1997 compared to the same period in 1996 is attributable to the decline in net revenues. Operating costs also declined $1.9 million due primarily to a reduction in promotional costs and $1.0 million decrease in general and administrative expenses, resulting from lower payroll costs. The Las Vegas Showboat's income from operations before management fees increased $1.9 million or 51.6% in the quarter ended September 30, 1997 compared to the same period in 1996. The increase is attributable to cost containment activities, the management of expenses in accordance with business levels and more effective marketing. 14 (continued) MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued) Income From Operations (continued) The contribution by the Sydney Harbour Casino increased $1.7 million in third quarter 1997 as compared to the same period in the prior year. This increase is attributed to the recognition of $2.2 million of management fees offset by a $.5 million reduction in equity from the Sydney Harbour Casino. The reduction in equity was due principally to the payment of management fees in 1997. Due to an agreement with the Sydney Harbour Casino, the first A$19.1 million of management fees were forgiven and no management fees were recorded by the Company in 1996. The preopening costs associated with the permanent and interim casino in Sydney Australia were originally budgeted at approximately A$44.8 million. Currently, Sydney Harbour Casino anticipates that the costs that will be incurred for preopening of the permanent facility will be approximately A$55.9 million. The increase in the preopening costs will negatively impact the Company's income from operations in the fourth quarter of 1997. The magnitude of the impact will be dependent upon the actual costs incurred, the proper treatment of the costs under Generally Accepted Accounting Principles and the currency rate between Australia and the United States. Net Income The Company recorded net income of $3.5 million or $.22 per share for the quarter ended September 30, 1997. Net income in the third quarter of 1997 was negatively impacted by an increase in tax expense and by the East Chicago Showboat incurring a $2.7 million pre-tax loss that includes the Company's minority partner's share of losses of $1.2 million. The Company recognized 100% 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 recognized losses related to its minority partner. The effective tax rate for the quarter ended September 30, 1997 was approximately 56.9%. The increase in the Company's effective tax rate is attributable to an anticipated increase of preopening costs associated with the scheduled November 1997, opening of the permanent Sydney Harbour Casino. The preopening costs will not generate a tax benefit for federal or state income tax purposes. The Company's 1997 annual tax rate excluding unusual items (the preopening costs from the Sydney Harbour Casino and the East Chicago Showboat and the minority partner's share of losses from the East Chicago Showboat) is expected to be approximately 36.6%. Exclusive of the unusual items, the Company would have reported net income of $6.0 million or $.37 per share for the quarter ended September 30, 1997. For the quarter ended September 30, 1996, the Company recorded net income of $4.9 million or $.30 per share. The 1996 results included pre-tax interest expense of $.6 million for the East Chicago Showboat incurred prior to opening and an adjustment for the write-off of preopening expenses at Sydney Harbour Casino of $(.3) million. The effective tax rate utilized in the third quarter of 1996 was approximately 46.7%. The 1996 annual effective tax rate was 36.7%. Utilizing the 1996 annual effective rate on earnings exclusive of unusual items (the East Chicago interest expense incurred prior to opening and Sydney Harbour Casino preopening costs), the Company would have reported net income of $6.0 million or $.37 per share for the quarter ended September 30, 1996. 15 (continued) MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued) Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30, 1996 Comparison of Operating Results for the nine months ended September 30, 1997 and 1996 Financial Highlights (unaudited)
- ------------------------------------------------------------------------------ Nine months ended Septmeber 30, 1997 1996 Variance Percent - ------------------------------------------------------------------------------ (Dollars in thousands) Gross revenues Atlantic City Showboat $316,460 $313,828 $ 2,632 .8 % Las Vegas Showboat 51,080 51,667 (587) (1.1)% Showboat Australia - Mgt. Fee 3,073 - 3,073 N/A East Chicago Showboat 79,350 - 79,350 N/A ---------- --------- -------- -------- $449,963 $365,495 $84,468 23.1% ---------- --------- -------- -------- Net revenues Atlantic City Showboat $287,105 $285,751 $ 1,354 .5 % Las Vegas Showboat 48,081 48,306 (225) (.5)% Showboat Australia - Mgt. Fee 3,073 - 3,073 N/A East Chicago Showboat 77,478 - 77,478 N/A ---------- --------- -------- -------- $415,737 $334,057 $81,680 24.5 % ---------- --------- -------- -------- Income from Operations Atlantic City Showboat $ 50,475 $ 53,206 $(2,731) (5.1)% Las Vegas Showboat (4,354) (6,981) 2,627 37.6 % Corporate and development (12,176) (12,512) 336 2.7 % Showboat Australia - Mgt. Fee 2,641 (125) 2,766 2,212.8 % Sydney Harbour Casino 3,003 1,526 1,477 96.8 % East Chicago Showboat 5,869 - 5,869 N/A East Chicago Showboat-preopening (9,577) - (9,577) N/A ---------- --------- -------- -------- $ 35,881 $ 35,114 $ 767 2.2 % ---------- --------- -------- -------- 16 (continued)
MATERIAL CHANGES IN RESULT OF OPERATIONS (continued) Comparison of Operating Results for the nine months ended September 30, 1997 and 1996 Financial Highlights (unaudited) (continued)
- ----------------------------------------------------------------------------- Nine months ended September 30, 1997 1996 Variance Percent - ----------------------------------------------------------------------------- (dollars in thousands) EBITDA * Atlantic City Showboat $ 70,030 $ 73,037 $(3,007) (4.1)% Las Vegas Showboat 426 (2,589) 3,015 116.4 % Corporate and development (11,860) (12,239) 379 3.1 % Showboat Australia - Mgt. Fee 2,641 (125) 2,766 2,212.8 % Sydney Harbour Casino 3,003 1,526 1,477 96.8 % East Chicago Showboat 11,574 - 11,574 N/A East Chicago Showboat-preopening (9,577) - (9,577) N/A ---------- --------- -------- -------- $ 66,237 $59,610 $ 6,627 11.1 % ---------- --------- -------- --------
* 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 nine months ended September 30, 1997, increased $84.5 million or 23.1% compared to the same period in 1996. This increase is primarily attributable to the $79.4 million of gross revenues from the East Chicago Showboat. Complimentaries rose $2.8 million during the first nine months of 1997 resulting in a $81.7 million or 24.5% increase in net revenues. The Atlantic City Showboat's gross revenues increased $2.6 million or .8% during the first nine months ended September 30, 1997 compared to the same period in 1996. This increase is attributed to a $3.7 million or 1.4% increase in casino revenues tied to the $8.8 million or 4.4% growth in slot revenue. The increase in slot revenue is attributable to the addition of 131 slot units (the majority of which were added in the fourth quarter of 1996) and the introduction of new gaming products. Table games revenue declined $5.1 million or 8.2% in the first nine months of 1997 compared to the same period 1996 due primarily to a decline in table games hold percent which was 14.5% in 1997 compared to 16.0% in 1996. The increase in gross revenues was partially offset by the $1.3 million or 4.6% increase in the cost of complimentaries, resulting in a $1.4 million or .5% increase in net revenues. Revenues at the Las Vegas Showboat were relatively unchanged during the comparative nine month periods. 17 (continued) MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued) Revenues (continued) The Company recorded management fees of $3.1 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, as a result the Company first started to recognize management fees in the second quarter of 1997. The Company also recognized consolidated net revenues of $77.5 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 nine months ended September 30, 1997, increased $.8 million or 2.2% over the same period in the prior year, despite the $9.6 million write-off of preopening expenses for the East Chicago Showboat. The improvement in income from operations is attributable to the recognition of management fees from Sydney Harbour Casino, the improved operating results at the Las Vegas Showboat and the operating income from the East Chicago Showboat. For the first nine months of 1997, the Sydney Harbour Casino provided a $3.0 million equity contribution and $2.6 million of net management fees and the East Chicago Showboat contributed $5.9 million of income from operations (before preopening write-off). The Atlantic City Showboat's income from operations decreased $2.7 million or 5.1% during the nine months ended September 30, 1997 compared to the same period in 1996. This decrease is attributable to the decline in table games revenue and a $4.1 million or 1.8% increase in operating costs. The increase in operating expenses is primarily attributed to an increased marketing cost for slot patrons and casino operating expenses. These increases were partially offset by a decline in payroll and related costs. The Las Vegas Showboat's income from operations increased $2.6 million or 37.6% for the nine months ended September 30, 1997 compared to the same period in 1996. This increase was realized principally through cost control programs implemented at the property and more efficient marketing programs. The contribution by the Sydney Harbour Casino increased $4.2 million in first nine months of 1997 as compared to the same period in the prior year. This increase is attributed to the recognition of $2.6 million of management fees and an increase of $1.5 million from the equity in Earnings of Sydney Harbour Casino. The increase in management fees was due to an agreement to forgive the first A$19.1 million of fees and therefore no fees were recognized in 1996. The increase in equity earnings is due to the write-off of preopening costs related to the interim casino and as a result no equity in earnings was reported in the first six months of 1996. The preopening costs associated with the permanent and interim casino in Sydney, Australia were originally budgeted at approximately A$44.8 million. Currently, Sydney Harbour Casino anticipates that the costs that will be incurred for preopening of the permanent facility will be approximately A$55.9 million. The increase in preopening costs will negatively impact the Company's income from operations in the fourth quarter of 1997. The magnitude of the impact will be dependent upon the actual costs incurred, the proper treatment of the costs under Generally Accepted Accounting Principles and the currency rate between Australia and the United States. 18 (continued) MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued) Net Income The Company recorded net income of $2.4 million or $.15 per share for the nine months ended September 30, 1997. Net income in 1997 was negatively impacted by the preopening costs of $9.6 million and $3.7 million of pre-tax operating losses incurred at the East Chicago Showboat, that included the Company's minority partner's share of losses of $1.2 million, and an increase in income tax expense. The Company recognized approximately $13.4 million or 94% 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 East Chicago Showboat's net income, until the Company has recovered the recognized losses related to its minority partner. The effective tax rate for the nine months ended September 30, 1997 was approximately 59.9%. The increase in the Company's effective tax rate is attributable to an anticipated increase of preopening costs associated with the scheduled November 1997, opening of the permanent Sydney Harbour Casino. The preopening costs will not generate a tax benefit for federal or state income tax purposes. The Company's 1997 annual tax rate excluding unusual items (the preopening costs from the Sydney Harbour Casino and the East Chicago Showboat and the minority partner's share of losses from the East Chicago Showboat) is expected to be approximately 36.6%. Exclusive of the unusual items, the Company would have reported net income of $10.6 million or $.66 per share for the nine months ended September 30, 1997. For the nine months ended September 30, 1996, the Company reported net income of $5.2 million or $.32 per share. The 1996 results reflect a pre-tax loss of $3.9 million for the write-off of an investment in the Randolph Riverboat project, $1.6 million of interest expense recorded for the East Chicago Showboat incurred prior to opening and $1.8 million for the write-off of preopening expenses at Sydney Harbour Casino. The effective tax rate utilized for the nine months ended September 30, 1996 was approximately 46.6%. The 1996 annual effective tax rate was approximately 36.7%. Utilizing the 1996 annual effective tax rate on earnings exclusive of unusual items (the Randolph Riverboat write-off, the interest expense incurred prior to opening for the East Chicago Showboat and preopening costs at the Sydney Harbour Casino), the Company would have reported net income of $10.8 million or $.66 per share for the nine months ended September 30, 1996. 19 MATERIAL CHANGES IN FINANCIAL CONDITION As of September 30, 1997 the Company held cash and cash equivalents of $76.7 million and short term investments of $14.4 million compared to $60.3 million and $28.8 million respectively at December 31, 1996. Included in the cash balances are funds of the East Chicago Showboat (cash equivalents of $7.8 million) that are not available for use other than to support the East Chicago Showboat operating requirements. During the nine months ended September 30, 1997, the Company expended approximately $27.4 million on capital improvements at its Las Vegas and Atlantic City facilities, which were funded by operations. In addition, the Company expended approximately $59.4 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. The Company received an offer to purchase the approximately 10 1/2 acres of real property (the "Atlantic City Parcel") currently leased by the Atlantic City Showboat from Sun International North America, Inc. (the "Landlord") for $110.0 million. The offer was made pursuant to the Lease Agreement requiring the Landlord to first offer the Company the opportunity to purchase the Atlantic City Parcel in the event the Landlord intends to sell the Atlantic City Parcel to a third party. The Company accepted the offer, in accordance with the Lease Agreement and the Company has 90 days from November 7, 1997 to complete the purchase of the Atlantic City Parcel, including obtaining the necessary financing and regulatory approvals necessary for the purchase. No assurance can be given that the Company will obtain the necessary financing for the purchase of the Atlantic City Parcel or that the necessary regulatory approvals, including the approval of the New Jersey Casino Control Commission will be obtained, if at all, in the necessary time frame. 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 is 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 which requires that if, during any of the first three Operating Years (as defined), the project's Combined Cash Flow (as defined) is less than $35.0 million, the Company will be required to make additional capital contributions to the East Chicago Showboat 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. The first quarter of the first Operating Year of the East Chicago Showboat ended on September 30, 1997 and the Combined Cash Flow for such quarter was approximately $6.0 million. There can be no assurance that the Combined Cash Flow for the current Operating Year, or for any, Operating Year thereafter, will exceed $35.0 million and that the Company will not be required to make additional capital contributions to the East Chicago Showboat in accordance with the standby equity commitment. 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 pursuing this project. 20 (continued) 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. In October 1997, the Company renewed and increased its revolving line of credit to $35.0 million with Fleet Bank N.A. effective as of July 1997. At the end of two years, the revolving line of credit may be converted into a three-year term loan. As of the date hereof no funds have been drawn by the Company on the revolving line of credit. 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's expansion opportunities are realized, the Company may need to make significant capital investments in such opportunities and additional financing may 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% First Mortgage Bonds and 13% Senior Subordinated Indebtedness; future acquisitions or strategic partnerships; general business and economic conditions; the effective income tax rate for the Company which includes federal, state and foreign jurisdictions; 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. 21 SHOWBOAT, INC AND SUBSIDIARIES PART II, OTHER INFORMATION ITEM 1. Legal Proceedings "Doug Grant, Inc. et al. v. Great Bay Casino Corporation et al.," instituted on July 28, 1997, in the Superior Court of New Jersey, Middlesex County, Law Division, was transferred to the United States District Court, District of New Jersey, Camden, New Jersey and assigned Docket Number 97cv4291 (JEI). This case was reported in the Company's Form 10-Q for the quarter ended June 30, 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. ITEM 3. Defaults Upon Senior Securities Not applicable. ITEM 4. Submission of Matters to a Vote of Security Holders Not applicable. 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 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Showboat, Inc. Registrant Date: November 13 , 1997 /s/J. KELL HOUSSELS, III -------------------------- ---------------------------- J. KELL HOUSSELS, III, President and Chief Executive Officer Date: November 13, 1997 /s/R. CRAIG BIRD -------------------------- ----------------------------- R. CRAIG BIRD, Executive Vice President - Strategic Financing/Investor Relations and Chief Financial Officer 23 EX-27 2
5 1000 9-MOS DEC-31-1997 SEP-30-1997 76743 14424 18120 2815 3132 124260 735877 (232611) 821242 64474 531025 0 0 16229 169077 821242 407578 415737 0 222463 125549 1686 30659 5969 3577 2392 0 0 0 2392 .15 .15
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