-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, M/o4xZCi/JaE6g44FMrBOObf9DOwtHAl5kAOafkAo03m4uXlo3s07MRJKMRn/Pmq VAsqhVbdW9QNn0Ehke+93w== 0000089966-94-000009.txt : 19940520 0000089966-94-000009.hdr.sgml : 19940520 ACCESSION NUMBER: 0000089966-94-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHOWBOAT INC CENTRAL INDEX KEY: 0000089966 STANDARD INDUSTRIAL CLASSIFICATION: 7990 IRS NUMBER: 880090766 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07123 FILM NUMBER: 94528672 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 3/31/94 10Q SHOWBOAT, INC. AND SUBSIDIARIES INDEX PART I FINANCIAL INFORMATION Page No. Item 1. Financial Statements. Consolidated Balance Sheets - March 31, 1994 and December 31, 1993 1-2 Consolidated Statements of Income For the three months ended March 31, 1994 and 1993 3-4 Consolidated Statements of Shareholders' Equity - For the three months ended March 31, 1994 and year ended December 31, 1993 5 Consolidated Statements of Cash Flows - For the three months ended March 31, 1994 and 1993 6-7 Notes to Consolidated Financial Statements 8-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 11-17 PART II OTHER INFORMATION ITEMS 1 - 6 18 SIGNATURES 19 Item 1. Financial Statements. SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) MARCH 31, 1994 AND DECEMBER 31, 1993 MARCH 31, DECEMBER 31, ASSETS 1994 1993 -------- ----------- ----------- (In thousands) Current assets: Cash and cash equivalents $107,458 $122,787 Receivables, net 6,086 5,913 Income taxes receivable 435 - Inventories 2,213 2,359 Prepaid expenses 4,114 4,044 Current deferred income taxes 5,847 4,865 ----------- ----------- Total current assets 126,153 139,968 ----------- ----------- Property and equipment 462,717 443,347 Less accumulated depreciation and amortization 150,795 145,527 ----------- ----------- 311,922 297,820 ----------- ----------- Other assets, at cost: Deposits and other assets 8,167 7,892 Investment in Showboat Star Partnership 29,090 17,750 Debt issuance costs, net of accumulated amortization of $450,000 at March 31, 1994 and $323,000 at December 31, 1993 7,143 7,270 ----------- ----------- 44,400 32,912 ----------- ----------- $482,475 $470,700 =========== =========== See accompanying notes to consolidated financial statements. -1- (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) MARCH 31, 1994 AND DECEMBER 31, 1993 (continued) MARCH 31, DECEMBER 31, LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993 ----------------------------------- ----------- ----------- (In thousands) Current liabilities: Current maturities of long-term debt $2,549 $3,574 Accounts payable 16,497 14,173 Income taxes payable - 1,752 Dividends payable 375 375 Accrued liabilities 30,787 23,664 ----------- ----------- Total current liabilities 50,208 43,538 ----------- ----------- Long-term debt 277,021 277,043 ----------- ----------- Deferred income taxes 16,685 14,961 ----------- ----------- Shareholders' equity: Common stock, $1 par value, 20,000,000 shares authorized, 15,794,578 shares issued at March 31, 1994 and December 31, 1993 15,795 15,795 Additional paid-in capital 71,437 71,162 Retained earnings 57,693 54,628 ----------- ----------- 144,925 141,585 Less: Cost of common stock in treasury, 809,383 shares at March 31, 1994 and 814,483 shares at December 31, 1993 (6,328) (6,370) Unearned compensation for restricted stock (36) (57) ----------- ----------- Total shareholders' equity 138,561 135,158 ----------- ----------- $482,475 $470,700 =========== =========== See accompanying notes to consolidated financial statements. -2- SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993 (In thousands except share and per share data) 1994 1993 ----------- ----------- Revenues: Casino $76,897 $75,272 Food and beverage 11,202 10,972 Rooms 4,225 3,834 Sports and special events 1,106 1,159 Management fees 948 - Other 1,398 1,345 ----------- ----------- 95,776 92,582 Less complimentaries 6,997 7,086 ----------- ----------- Net revenues 88,779 85,496 ----------- ----------- Costs and expenses: Casino 31,005 31,906 Food and beverage 13,567 12,689 Rooms 3,253 3,049 Sports and special events 878 869 General and administrative 23,333 21,898 Selling, advertising and promotion 2,534 2,260 Depreciation and amortization 6,361 5,140 ----------- ----------- 80,931 77,811 ----------- ----------- Income from operations from consolidated subsidiaries 7,848 7,685 Equity in income of unconsolidated affiliate 3,240 - ----------- ----------- Income from operations 11,088 7,685 ----------- ----------- -3- (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993 (In thousands except share and per share data) (continued) 1994 1993 ----------- ----------- Income from operations $11,088 $7,685 ----------- ----------- Other (income) expense: Interest income (803) (401) Interest expense 6,651 5,089 Interest capitalized (449) (189) ----------- ----------- 5,399 4,499 ----------- ----------- Income before income tax expense and cumulative effect adjustment 5,689 3,186 Income tax expense 2,249 1,265 ----------- ----------- Income before cumulative effect adjustment 3,440 1,921 Cumulative effect of change in method of accounting for income taxes - 556 ----------- ----------- Net income $3,440 $2,477 =========== =========== Weighted average shares outstanding 15,180,008 15,141,493 Income per common and equivalent share: Income before cumulative effect adjustment $0.23 $0.13 Cumulative effect of change in method of accounting for income taxes - $0.03 ----------- ----------- Net income $0.23 $0.16 =========== =========== See accompanying notes to consolidated financial statements. -4- SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND YEAR ENDED DECEMBER 31, 1993
Unearned Additional compensation Common paid-in Retained Treasury for restricted stock capital earnings stock stock Total --------- ----------- ---------- ------------ ----------- ------------ (In thousands) Balance, January 1, 1993 $15,795 $69,374 $48,778 ($7,761) ($168) $126,018 Net income - - 7,341 - - 7,341 Cash dividends ($.10 per share) - - (1,491) - - (1,491) Share transactions under stock plans - 1,788 - 1,391 - 3,179 Amortization of unearned compensation - - - - 111 111 --------- ----------- ---------- ------------ ------------ ----------- Balance, December 31, 1993 15,795 71,162 54,628 (6,370) (57) 135,158 Net income - - 3,440 - - 3,440 Cash dividends ($.025 per share) - - (375) - - (375) Share transactions under stock plans - 275 - 42 9 326 Amortization of unearned compensation - - - - 12 12 --------- ----------- ---------- ------------ ------------ ----------- Balance, March 31, 1994 $15,795 $71,437 $57,693 ($6,328) ($36) $138,561 ========= =========== ========== ============ ============ =========== See accompanying notes to consolidated financial statements.
-5- SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993 1994 1993 ----------- ----------- (In thousands) Cash flows from operating activities: Net income $3,440 $2,477 Adjustments to reconcile net income to net cash provided by operating activities: Allowance for doubtful accounts 58 513 Depreciation and amortization 6,361 5,140 Amortization of debt issue costs 127 134 Provision for deferred income taxes 742 141 Provision for loss on Casino Reinvestment Development Authority obligation 255 249 Amortization of unearned compensation 12 30 Equity in income of unconsolidated affiliate (3,240) - (Increase) decrease in receivables, net (231) 43 (Increase) decrease in inventories and prepaid expenses 76 (339) Decrease in deposits and other assets 235 52 Increase in accounts payable 1,556 1,236 (Decrease) in income taxes payable (1,996) (1,531) Increase (decrease) in accrued liabilities 7,123 (5,038) Other (66) 346 ----------- ----------- Net cash provided by operating activities 14,452 3,453 ----------- ----------- Cash flows from investing activities: Acquisition of property and equipment (19,693) (17,286) Proceeds from sale of equipment 47 29 Deposit for Casino Reinvestment Development Authority obligation (792) (717) (Increase) in deposits and other assets - (67) Investment in Showboat Star Partnership (9,000) - Distribution of Partnership earnings 900 - ----------- ----------- Net cash used in investing activities (28,538) (18,041) ----------- ----------- See accompanying notes to consolidated financial statements. -6- (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993 (continued) 1994 1993 ----------- ----------- (In thousands) Cash flows from financing activities: Principal payments of long-term debt and capital lease obligations ($1,047) ($51,080) Proceeds from note payable - 1,100 Payment of dividends (375) (284) Issuance of common stock 179 18 ----------- ----------- Net cash used in financing activities (1,243) (50,246) ----------- ----------- Net decrease in cash and cash equivalents (15,329) (64,834) Cash and cash equivalents at beginning of period 122,787 99,601 ----------- ----------- Cash and cash equivalents at end of period $107,458 $34,767 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $164 $10,275 Income taxes 3,503 2,100 Supplemental schedule of noncash investing and financing activities: Increase in property and equipment acquisitions included in construction contracts and retentions payable 795 483 See accompanying notes to consolidated financial statements. -7- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The consolidated financial statements of Showboat, Inc. and Subsidiaries (the Company) include the accounts of Showboat, Inc. (SBO) and its wholly-owned subsidiaries, Showboat Development Company (SDC), Showboat Operating Company (SOC) and Ocean Showboat, Inc. (OSI). They also include SDC's wholly-owned subsidiaries, Lake Pontchartrain Showboat, Inc. (LPSI) and Showboat Louisiana, Inc. (SLI), and OSI's wholly-owned subsidiaries Atlantic City Showboat, Inc. (ACSI) and Ocean Showboat Finance Corporation (OSFC). Showboat, Inc. and its subsidiaries own and operate hotel casinos in Las Vegas, Nevada (Las Vegas Showboat) and Atlantic City, New Jersey (Atlantic City Showboat) and owns an equity interest in and manages a riverboat casino on Lake Pontchartrain in New Orleans, Louisiana (Star Casino). On March 1, 1994, the Company purchased an additional 20% equity interest, increasing its interest to 50%, in Showboat Star Partnership from its partner for $9.0 million. The Company's equity in the income of Showboat Star Partnership is included in the Consolidated Statement of Income as equity in income of unconsolidated affiliate. 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 financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1993 Annual Report to Shareholders and Form 10-K. The accompanying unaudited consolidated financial statements contain all adjustments which are, in the opinion of management, 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. Reclassifications Certain prior period balances have been reclassified to conform to the current period's presentation. -8- (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2.LONG-TERM DEBT Long-term debt consists of the following: March 31, December 31, 1994 1993 --------- ----------- (In thousands) 9 1/4% First Mortgage Bonds due 2008 $275,000 $275,000 Capitalized lease obligations 4,570 5,617 --------- ----------- 279,570 280,617 Less: Current maturities 2,549 3,574 --------- ----------- $277,021 $277,043 ========= =========== On March 24, 1994 the Company secured a line of credit for the US dollar equivalent of $8.4 million Australian dollars (approximately $6.0 million) in compliance with the New South Wales Casino Control Authority's licensing requirements. This line of credit is secured by a $6.3 million certificate of deposit. Interest on this line of credit is payable at the bank's prime rate plus 2.0%. This line of credit expires in December 1994. At March 31, 1994 all funds were available under this line of credit. At March 31, 1994, ACSI had available an unsecured line of credit for general working capital purposes totaling $15.0 million. Interest is payable monthly at the bank's prime rate plus .5%. At March 31, 1994, the bank's prime rate was 6.75%. The line of credit is guarantied by OSI and expires in August 1994. Borrowings on this line of credit may not be used for the payment of management fees or to fund ventures in other jurisdictions. At March 31, 1994, ACSI had all the funds under this line of credit available for use. -9- (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3.Subsequent Events On May 6, 1994 the New South Wales Casino Control Authority announced that Sydney Harbour Casino Pty Limited, a company in which Showboat, Inc. is a principal founding shareholder, was the Preferred Applicant to develop a casino in Sydney, Australia. As the Preferred Applicant, Sydney Harbour Casino will work with the Authority during the next six months to obtain all the necessary planning agency approvals. Subsequently the Authority will enter into a 99-year lease for the site of the casino in New South Wales and issue an exclusive casino license for 12 years to cover the State of New South Wales. The Company will have a 27% equity interest in the casino at a cost of approximately $100.0 million. The Company anticipates making its investment in September or October 1994. -10- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL The consolidated financial statements of Showboat, Inc. and Subsidiaries (the Company) include the accounts of Showboat, Inc. (SBO) and its wholly-owned subsidiaries, Showboat Development Company (SDC), Showboat Operating Company (SOC) and Ocean Showboat, Inc. (OSI). They also include SDC's wholly-owned subsidiaries, Lake Pontchartrain Showboat, Inc. (LPSI) and Showboat Louisiana, Inc. (SLI), and OSI's wholly-owned subsidiaries Atlantic City Showboat, Inc. (ACSI) and Ocean Showboat Finance Corporation (OSFC). Showboat, Inc. and its subsidiaries own and operate hotel casinos in Las Vegas, Nevada (Las Vegas Showboat) and Atlantic City, New Jersey (Atlantic City Showboat) and owns an equity interest in and manages a riverboat casino on Lake Pontchartrain in New Orleans, Louisiana (Star Casino). MATERIAL CHANGES IN RESULTS OF OPERATIONS Quarter Ended March 31, 1994 Compared to Quarter Ended March 31, 1993 Revenues Net revenues for the Company increased to $88.8 million in the quarter ended March 31, 1994 compared to $85.5 million in the same period in 1993, an increase of $3.3 million or 3.8%. Casino revenues increased $1.6 million or 2.2% to $76.9 million in the quarter ended March 31, 1994 from $75.3 million in 1993. Nongaming revenues, which consist principally of food, beverage, room and bowling revenues and management fees, were $18.9 million in the first quarter of 1994, compared to $17.3 million in 1993. The Atlantic City Showboat generated $66.3 million of net revenues in the quarter ended March 31, 1994 compared to $64.8 million in the same period in the prior year, an increase of $1.5 million or 2.3%. Casino revenues were $60.5 million in the three months ended March 31, 1994 compared to $59.7 million for the same period in the prior year, an increase of $.8 million or 1.4%. The increase in casino revenues was due primarily to poker revenue of $.7 million and simulcasting revenue of $.5 million recognized for the three months ended March 31, 1994. The poker and simulcasting facilities were not open in the same period in the prior year. This increase was offset by a $.6 million or 1.3% decrease in slot revenues to $44.1 million for the three months ended March 31, 1994 compared to $44.7 million for the same period in the prior year. During the first quarter of 1993, slot revenues included the effect of a $.8 -11- (continued) million reversal for a progressive slot accrual. The decrease in slot revenue was also affected by the harsh winter weather experienced during the first quarter of 1994. The inclement weather was a factor in the results for the total Atlantic City market as gross slot revenues declined 3.7% in that market. At the Las Vegas Showboat, net revenues increased to $21.6 million in the quarter ended March 31, 1994 from $20.7 million in the same period in 1993, an increase of $.9 million or 4.2%. The greatest improvement in revenues was realized in the casino where revenues increased to $16.4 million in the first quarter of 1994 from $15.6 million in the first quarter of 1993, an increase of $.8 million or 5.1%. Slot revenues accounted for 81.7% of casino revenues in the first three months of 1994 and 83.3% for the same period in 1993. This is consistent with the increased customer volume as a result of certain marketing activities. Improvements in nongaming revenues were due to increased hotel occupancy resulting from increased effectiveness of certain marketing activities. LPSI generated $.9 million in management fee revenues in the first quarter of 1994. LPSI receives management fees of 5.0% of Star Casino's revenues after gaming taxes of 18.5% and boarding fees totaling $5.00 per passenger boarding the vessel. Star Casino, which began operation in November 1993, generated net revenues of $27.5 million in the first quarter of 1994 consisting primarily of casino revenues of $27.1 million. During the first quarter of 1994 the total number of passengers boarding the vessel was 485,189 with an average gaming win per passenger of $55.00. Income from operations The Company's income from operations increased to $11.1 million in the quarter ended March 31, 1994 from $7.7 million in the same period in 1993, an increase of $3.4 million or 44.3% primarily as a result of improved operating results at the Atlantic City Showboat and the opening of the Star Casino in late 1993. The Company incurred approximately $2.3 million in expenses relating to the pursuit of expansion opportunities in jurisdictions outside of Nevada and New Jersey in the first three months of 1994 compared to $.5 million in the first quarter of 1993. Atlantic City Showboat's income from operations, before management fees, increased to $7.0 million in the first quarter of 1994 compared to $5.6 million for the same period in 1993, an increase of $1.4 million or 25.3%, primarily as a result of the increase in net revenues. Total operating expenses at the Atlantic City Showboat remained unchanged from the prior year at $59.2 million. -12- (continued) Increased depreciation expense resulting from recent facility expansion was offset by a $1.1 million or a 15% decrease in promotional coin incentives offered in conjunction with slot marketing programs and by a $1.2 million or 11% decrease in general and administrative costs. Income from operations at the Las Vegas Showboat, which includes parent company expenses, declined to $2.4 million in the first quarter of 1994 from $2.6 million in the quarter ended March 31, 1993, a decrease of $.2 million or 9.5%. This decrease is primarily due to increased parent company expenses, increased food costs and increases in payroll and benefits due to the increased customer volume. Until March 1, 1994 SLI owned 30% of Showboat Star Partnership. On March 1, 1994 SLI acquired an additional 20% equity interest in Showboat Star Partnership giving SLI a total equity interest of 50%. SLI's equity in the earnings of Showboat Star Partnership for the quarter ending March 31, 1994 was $3.2 million. Showboat Star Partnership had net income of $9.1 million on net revenues of $27.5 million. LPSI, which manages Showboat Star Partnership, had income from operations for the quarter ended March 31, 1994 of $.8 million. Operating expenses for LPSI for the first quarter of 1994 were $.1 million. Other (income) expense Net interest expense increased to $5.4 million in the first quarter of 1994 up from $4.5 million in the same period in 1993, an increase of $.9 million or 20.0%. This increase is primarily the result of an increase in interest expense of $1.5 million as a result of an increase in long-term debt. The increase in interest expense was offset by a $.4 million increase in interest income as a result of increased invested cash and a $.3 million increase in capitalized interest costs associated with the Company's Atlantic City expansion. The Company recognized net income of $3.4 million for the quarter ended March 31, 1994 or $.23 per share, compared to a net income before the cumulative effect of the change in method of accounting for income taxes of $1.9 million or $.13 per share in the quarter ended March 31, 1993. Net income for the quarter ended March 31, 1993 was $2.5 million or $.16 per share. -13- (continued) MATERIAL CHANGES IN FINANCIAL CONDITION As of March 31, 1994 the Company held cash and cash equivalents of $107.5 million compared to $122.8 million at December 31, 1993. On March 1, 1994 the Company purchased from a partner an additional 20% equity interest in Showboat Star Partnership for $9.0 million. The Company has expended approximately $2.3 million in the quarter ended March 31, 1994 in its investigation of expansion opportunities in new jurisdictions. During the quarter ended March 31, 1994, the Company expended approximately $19.7 million on capital improvements at its Las Vegas and Atlantic City facilities which were funded from operations. Costs associatied with the expansion project in Atlantic City were $19.5 million at March 31, 1994. Capital expenditures relating to the expansion project in Atlantic City are expected to be $52.2 million in 1994 and $2.3 million in 1995. At March 31, 1994, ACSI had available an unsecured line of credit for general working capital purposes totaling $15.0 million. Interest is payable monthly at the bank's prime rate plus .5%. The bank's prime rate at March 31, 1994 was 6.75%. The line of credit is guarantied by OSI and expires in August 1994. Borrowings on this line of credit may not be used for the payment of management fees or to fund ventures in other jurisdictions. At March 31, 1994, ACSI had all the funds under this line of credit available for use. On March 24, 1994 the Company secured a line of credit for the US dollar equivalent of $8.4 million Australian dollars (approximately $6.0 million) in compliance with the New South Wales Casino Control Authority's licensing requirements. This line of credit is secured by a $6.3 million certificate of deposit. Interest on this line of credit is payable at the bank's prime rate plus 2.0%. This line of credit expires in December 1994. At March 31, 1994 all funds were available under this line of credit. On May 18, 1993, the Company issued $275,000,000 of 9 1/4% First Mortgage Bonds due 2008 (First Mortgage Bonds). The proceeds from the sale of the First Mortgage Bonds were $268,469,000, net of underwriting discounts and commissions. Proceeds from the sale of the First Mortgage Bonds were used to redeem all of the outstanding 11 3/8% Mortgage-Backed Bonds Due 2002 at 105.7% of the principal amount plus accrued interest. The remaining proceeds were reserved by the Company to benefit existing facilities and to expand into new facilities or gaming jurisdictions. -14- (continued) The First Mortgage Bonds are unconditionally guarantied by OSI, ACSI and SOC. Interest on the First Mortgage Bonds is payable semi-annually on May 1 and November 1 of each year commencing November 1, 1993. The First Mortgage Bonds are not redeemable prior to May 1, 2000. Thereafter, the First Mortgage Bonds will be redeemable, in whole or in part, at redemption prices specified in the Indenture for the First Mortgage Bonds (Indenture). The First Mortgage Bonds are senior secured obligations of the Company and rank senior in right of payment to all existing and future subordinated indebtedness of the Company and pari passu with the Company's senior indebtedness. The First Mortgage Bonds are secured by a deed of trust representing a first lien on the Las Vegas hotel casino (other than certain assets), by a pledge of all outstanding shares of capital stock of OSI, an intercompany note by ACSI in favor of SBO and a pledge of certain intellectual property rights of the Company. OSI's obligation under its guaranty is secured by a pledge of all outstanding shares of capital stock of ACSI. ACSI's obligation under its guaranty is secured by a leasehold mortgage representing a first lien on the Atlantic City hotel casino (other than certain assets). SOC's guaranty is secured by a pledge of certain assets related to the Las Vegas hotel casino. The Indenture places significant restrictions on SBO and its subsidiaries, including restrictions on making loans and advances by SBO to subsidiaries which are Non-Recourse Subsidiaries or subsidiaries in which SBO owns less than 50% of the equity. All capitalized terms not otherwise defined in this paragraph have the meanings assigned to the Indenture. The Indenture also places significant restrictions on the incurrence of additional Indebtedness by SBO and its subsidiaries, the creation of additional Liens on the Collateral securing the First Mortgage Bonds, transactions with Affiliates and the investment of SBO and its subsidiaries in certain Investments. In addition, the terms of the Indenture prohibit SBO and its subsidiaries from making a Restricted Payment unless, at the time of such Restricted Payment: (i) no Default or Event of Default has occurred or would occur as a consequence of such restricted payment; (ii) SBO, at the time of such Restricted Payment and after giving proforma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, would have been permitted to incur at least $1.00 of additional Indebtedness; and, (iii) such Restricted Payment, together with the aggregate of all other Restricted Payments by SBO and its subsidiaries is less than the sum of (x) 50% of the Consolidated Net Income of SBO for the period (taken as one accounting period) from April 1, 1993 to the end of SBO's most recently ended fiscal quarter for which internal financial statements are available, plus (y) 100% of the aggregate net cash proceeds received by SBO from the issuance or sale of -15- (continued) Equity Interests of SBO since the Issue Date, plus (z) Excess Non-Recourse Subsidiary Cash Proceeds received after the Issue Date. The term Restricted Payment does not include, among other things, the payment of any dividend if, at the time of declaration of such dividend, the dividend would have complied with the provisions of the Indenture; the redemption, repurchase, retirement, or other acquisition of any Equity Interest of SBO out of proceeds of, the substantially concurrent sale of other Equity Interests of SBO; Investments by SBO in an amount not to exceed $75,000,000 in the aggregate in any Non-Recourse Subsidiary engaged in a Gaming Related Business; Investments by SBO in any Non-Recourse Subsidiary engaged in a Gaming Related Business in an amount not to exceed in the aggregate 100% of all cash received by SBO from any Non-Recourse Subsidiary up to $75,000,000 in the aggregate and thereafter, 50% of all cash received by SBO from any Non-Recourse Subsidiary other than cash required to be repaid or returned to such Non-Recourse Subsidiary provided that the aggregate amount of Investments pursuant thereto does not exceed $125,000,000 in the aggregate; and the purchase, redemption, defeasance of any pari passu Indebtedness with a substantially concurrent purchase, redemption, defeasance, or retirement of the First Mortgage Bonds (on a pro rata basis). The Company believes that it has sufficient capital resources 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. The Company is involved, among others, in the following expansion opportunities: 1. On May 6, 1994 the New South Wales Casino Control Authority announced that Sydney Harbour Casino Pty Limited, a company in which Showboat, Inc. is a principal founding shareholder, was the Preferred Applicant to develop a casino in Sydney, Australia. As the Preferred Applicant, Sydney Harbour Casino will work with the Authority during the next six months to obtain all the necessary planning agency approvals. Subsequently the Authority will enter into a 99-year lease for the site of the casino in New South Wales and issue an exclusive casino license for 12 years to cover the State of New South Wales. The Company will have a 27% equity interest in the casino at a cost of approximately $100.0 million. The Company anticipates making its investment in September or October 1994. -16- (continued) 2. The Company is a member of a partnership which is the only applicant for the gaming berth in East Chicago, Indiana. The Company anticipates that it will contribute approximately $30.0 million to the East Chicago partnership and obtain financing of approximately $90.0 million for the construction of a gaming vessel and related land site improvements. The Partnership has not yet determined the timing of the contribution or financing for the East Chicago gaming opportunity. 3. The Company has entered into a tribal management and construction agreement with the St. Regis Mohawk Tribe for a tribal casino on the St. Regis Mohawk reservation. The Company will initially loan up to $35.0 million for renovating and outfitting an existing building on the St. Regis Mohawk reservation for the conduct of a gaming business and for working capital purposes. This agreement must be approved by the National Indian Gaming Commission (NIGC). No funds shall be advanced for renovation of an existing building until the project has obtained the approval of NIGC and other environmental approvals. Under the terms of the Indenture the Company can finance its investment in announced opportunities with equity or a combination of debt and equity financing. The Company is currently exploring equity and debt financing options in order to timely meet all of its obligations in connection with these announced expansion opportunities. There can be no assurance that funds will be available on acceptable terms to the Company to finance the development of all announced or other gaming opportunities. -17- SHOWBOAT, INC. AND SUBSIDIARIES PART II, OTHER INFORMATION ITEM 1. Legal Proceedings. Not Applicable 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. None ITEM 5. Other Information. Not applicable ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits None (b) Reports on Form 8-K None -18- 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 13, 1994 s/ J. K. Houssels ------------------ ------------------------------------- J. K. HOUSSELS, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER Date: May 13, 1994 s/ Leann Schneider ------------------ ----------------------------------------- LEANN SCHNEIDER, VICE PRESIDENT - FINANCE AND CHIEF FINANCIAL OFFICER -19- -----END PRIVACY-ENHANCED MESSAGE-----