-----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, aQyMNm4TlY8TzW2/XsED9XtRLQ78b8jn6Hlen6jRZkjnef0EwSJ8BCuHBDvd+6tR 0uTyuuiNU53vkjlKHXcdxg== 0000089966-94-000013.txt : 19941117 0000089966-94-000013.hdr.sgml : 19941117 ACCESSION NUMBER: 0000089966-94-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE 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: 94559516 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, 1994_____________ 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 incorporation or organization) Identification No.) __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 Sections 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_____ 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 November 11, 1994. _Common Stock - $1 Par Value__ _15,556,355 shares outstanding_ SHOWBOAT, INC. AND SUBSIDIARIES INDEX PART I FINANCIAL INFORMATION Page No. Item 1. Financial Statements. Consolidated Balance Sheets - September 30, 1994 and December 31, 1993 1-2 Consolidated Statements of Income For the nine months ended September 30, 1994 and 1993 3-4 Consolidated Statements of Income For the three months ended September 30, 1994 and 1993 5-6 Consolidated Statements of Shareholders' Equity - For the nine months ended September 30, 1994 and year ended December 31, 1993 7 Consolidated Statements of Cash Flows - For the nine months ended September 30, 1994 and 1993 8-9 Notes to Consolidated Financial Statements 10-16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 17-26 PART II OTHER INFORMATION ITEMS 1 - 6 27 SIGNATURES 28 Item 1. Financial Statements. SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) SEPTEMBER 30, 1994 AND DECEMBER 31, 1993 SEPTEMBER 30,DECEMBER 31, ASSETS 1994 1993 -------- ------------ ----------- (In thousands) Current assets: Cash and cash equivalents $97,506 $122,787 Receivables, net 12,185 5,913 Inventories 2,528 2,359 Prepaid expenses 5,679 4,044 Current deferred income taxes 6,615 4,865 ------------ ----------- Total current assets 124,513 139,968 ------------ ----------- Property and equipment 498,791 443,347 Less accumulated depreciation and amortization 161,771 145,527 ------------ ----------- 337,020 297,820 ------------ ----------- Other assets, at cost: Deposits and other assets 14,496 7,892 Restricted Cash 100,000 - Investment in Showboat Star Partnership 31,294 17,750 Debt issuance costs, net of accumulated amortization of $748,000 at September 30, 1994 and $323,000 at December 31, 1993 11,233 7,270 ------------ ----------- 157,023 32,912 ------------ ----------- $618,556 $470,700 ============ =========== See accompanying notes to consolidated financial statements. -1- (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) SEPTEMBER 30, 1994 AND DECEMBER 31, 1993 (continued) SEPTEMBER 30,DECEMBER 31, LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993 ----------------------------------- ------------ ----------- (In thousands) Current liabilities: Current maturities of long-term debt $97 $3,574 Accounts payable 12,947 14,173 Income taxes payable 2,845 1,752 Dividends payable 384 375 Accrued liabilities 35,119 23,664 ------------ ----------- Total current liabilities 51,392 43,538 ------------ ----------- Long-term debt 391,949 277,043 ------------ ----------- Deferred liabilities 22,654 14,961 ------------ ----------- Shareholders' equity: Common stock, $1 par value, 50,000,000 shares authorized, 15,794,578 shares issued at September 30, 1994 and December 31, 1993 15,795 15,795 Additional paid-in capital 76,897 71,162 Retained earnings 68,203 54,628 ------------ ----------- 160,895 141,585 Less: Cost of common stock in treasury, 418,223 shares at September 30, 1994 and 814,483 shares at December 31, 1993 (3,306) (6,370) Unearned compensation for restricted stock (5,028) (57) ------------ ----------- Total shareholders' equity 152,561 135,158 ------------ ----------- $618,556 $470,700 ============ =========== See accompanying notes to consolidated financial statements. -2- SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (In thousands except share and per share data) 1994 1993 ------------ ----------- Revenues: Casino $265,946 $251,605 Food and beverage 38,192 37,237 Rooms 15,248 14,563 Sports and special events 3,166 3,221 Management fees 1,403 - Other 4,686 4,332 ------------ ----------- 328,641 310,958 Less complimentaries 24,709 24,751 ------------ ----------- Net revenues 303,932 286,207 ------------ ----------- Costs and expenses: Casino 103,771 98,536 Food and beverage 43,911 41,808 Rooms 10,119 9,823 Sports and special events 2,537 2,486 General and administrative 82,456 69,576 Selling, advertising and promotion 9,663 9,051 Depreciation and amortization 20,680 17,009 ------------ ----------- 273,137 248,289 ------------ ----------- Income from operations from consolidated subsidiaries 30,795 37,918 Equity in income of unconsolidated affiliate 11,596 - ------------ ----------- Income from operations 42,391 37,918 ------------ ----------- -3- (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (In thousands except share and per share data) (continued) 1994 1993 ------------ ----------- Income from operations $42,391 $37,918 ------------ ----------- Other (income) expense: Interest income (2,833) (2,298) Interest expense 22,582 19,107 Interest capitalized (2,202) (925) ------------ ----------- 17,547 15,884 ------------ ----------- Income before income tax expense, extraordinary loss and cumulative effect adjustment 24,844 22,034 Income tax expense 10,135 9,006 ------------ ----------- Income before extraordinary loss and cumulative effect adjustment 14,709 13,028 Extraordinary loss on extinguishment of debt, net of tax - (6,679) Cumulative effect of change in method of accounting for income taxes - 556 ------------ ----------- Net income $14,709 $6,905 ============ =========== Weighted average shares outstanding 15,461,490 15,254,712 Income per common and equivalent share: Income before extraordinary loss and cumulative effect adjustment $0.95 $0.85 Extraordinary loss on extinguishment of debt, net of tax - ($0.44) Cumulative effect of change in method of accounting for income taxes - $0.03 ------------ ----------- Net income $0.95 $0.44 ============ =========== See accompanying notes to consolidated financial statements. -4- SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (In thousands except share and per share data) 1994 1993 ------------ ----------- Revenues: Casino $99,588 $95,172 Food and beverage 14,155 14,268 Rooms 5,907 5,850 Sports and special events 1,080 1,093 Management fees 447 - Other 1,580 1,518 ------------ ----------- 122,757 117,901 Less complimentaries 9,526 9,896 ------------ ----------- Net revenues 113,231 108,005 ------------ ----------- Costs and expenses: Casino 37,406 35,956 Food and beverage 15,550 15,372 Rooms 3,527 3,498 Sports and special events 931 895 General and administrative 31,226 24,434 Selling, advertising and promotion 3,423 3,348 Depreciation and amortization 7,484 6,252 ------------ ----------- 99,547 89,755 ------------ ----------- Income from operations from consolidated subsidiaries 13,684 18,250 Equity in income of unconsolidated affiliate 3,578 - ------------ ----------- Income from operations 17,262 18,250 ------------ ----------- -5- (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (In thousands except share and per share data) (continued) 1994 1993 ------------ ----------- Income from operations $17,262 $18,250 ------------ ----------- Other (income) expense: Interest income (1,308) (974) Interest expense 9,310 6,702 Interest capitalized (850) (286) ------------ ----------- 7,152 5,442 ------------ ----------- Income before income tax expense 10,110 12,808 Income tax expense 4,195 5,452 ------------ ----------- Net Income 5,915 7,356 ============ =========== Weighted average shares outstanding 15,488,979 15,197,067 Income per common and equivalent share: $0.38 $0.48 ============ =========== See accompanying notes to consolidated financial statements. -6- SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 - - 14,709 - - $14,709 Cash dividends ($.075 per share) - - (1,134) - - ($1,134) Share transactions under stock plans - 3,782 - 3,064 (6,122) $724 Warrants issued for debt commitment - 1,953 - - - $1,953 Amortization of unearned compensation - - - - 1,151 $1,151 ---------- ------------ ---------- ------------ ------------ ----------- Balance, September 30, 1994 $15,795 $76,897 $68,203 ($3,306) ($5,028) $152,561 ========== ============ ========== ============ ============ =========== See accompanying notes to consolidated financial statements.
-7- SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 1994 1993 ------------ ----------- (In thousands) Cash flows from operating activities: Net income $14,709 $6,905 Adjustments to reconcile net income to net cash provided by operating activities: Allowance for doubtful accounts 592 1,443 Depreciation and amortization 20,680 17,009 Extraordinary loss on extinguishment of debt - 11,166 Cumulative effect of change in accounting method - (556) Amortization of discount on debt and debt issuance costs 521 618 Provision for deferred income taxes 1,804 1,950 Provision for loss on Casino Reinvestment Development Authority obligation 920 858 Amortization of unearned compensation 1,151 84 Undistributed earnings of unconsolidated affiliate (4,544) - (Increase) in receivables, net (6,864) (1,673) (Increase) decrease in income taxes receivable 1,333 (495) (Increase) in inventories and prepaid expenses (1,804) (1,166) (Increase) decrease in deposits and other assets (1,224) 42 Increase (decrease) in accounts payable (314) 1,413 Increase in accrued liabilities 11,455 4,778 Other 136 462 ------------ ----------- Net cash provided by operating activities 38,551 42,838 ------------ ----------- Cash flows from investing activities: Acquisition of property and equipment (61,567) (47,602) Proceeds from sale of equipment 204 60 Deposit for Casino Reinvestment Development Authority obligation (2,489) (2,284) Casino Reinvestment Development Authority investment credit 2,672 - Decrease in deposits and other assets - 4,226 Restricted cash (100,000) - Investment in Showboat Star Partnership (9,000) (15,000) ------------ ----------- Net cash used in investing activities (170,180) (60,600) ------------ ----------- See accompanying notes to consolidated financial statements. -8- (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (continued) 1994 1993 ------------ ----------- (In thousands) Cash flows from financing activities: Principal payments of long-term debt and capital lease obligations ($3,491) ($210,980) Proceeds from Issuance of long-term debt 120,000 275,000 Debt issuance costs (4,388) (7,593) Payment of dividends (1,125) (1,027) Distribution to Bond Holders (5,176) - Proceeds from employee stock option exercise 528 1,936 ------------ ----------- Net cash provided by financing activities 106,348 57,336 ------------ ----------- Net increase (decrease) in cash and cash equivalents (25,281) 39,574 Cash and cash equivalents at beginning of period 122,787 99,601 ------------ ----------- Cash and cash equivalents at end of period $97,506 $139,175 ============ =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $13,199 $15,120 Income taxes 6,998 3,064 Supplemental schedule of noncash investing and financing activities: (Decrease) in property and equipment acquisitions included in construction contracts and retentions payable (1,185) (2,426) Share transactions under long-term incentive plan 6,122 - Transfer deposits to property and equipment (458) - Warrants granted for loan commimtment 1,953 - Accumulated benefit obligations of the Supplemental Executive Retirement Plan 3,799 - See accompanying notes to consolidated financial statements. -9- 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 own an equity interest in and manage a riverboat casino on Lake Pontchartrain in New Orleans, Louisiana (Star Casino). LPSI was formed in 1993 to manage a riverboat casino, the Star Casino, in New Orleans, Louisiana pursuant to a management contract. SLI was also formed in 1993 to hold a 30% equity interest in Showboat Star Partnership (SSP) which owns the Star Casino, managed by LPSI. On March 1, 1994, the Company purchased an additional 20% equity interest, increasing its interest to 50%, in SSP, from its partner for $9.0 million. Operation of the Star Casino commenced on November 8, 1993. The investment by SLI in SSP is included in the Consolidated Statement of Income as equity in income of unconsolidated affiliate. LPSI receives a management fee from SSP of 5.0% of casino revenues net of gaming taxes of 18.5% and boarding fees. Intercompany management fees 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 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. Certain prior period balances have been reclassified to conform to the current period's presentation. -10- (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2.RESTRICTED CASH On August 10, 1994 the Company placed $100.0 million of the net proceeds from the issuance of $120.0 million of 13% Senior Subordinated Notes due 2009 in an escrow account, which may only be used to fund the Company's investment in Sydney Harbour Casino Holdings Limited (SHCL). On September 30, 1994 approximately $44.4 million of the escrow funds were converted to $60.0 million Australian dollars, at an exchange rate of $.7406. The Company subsequently converted all escrow funds to $135.0 million Australian at an average exchange rate of $.7393. 3.LONG-TERM DEBT Long-term debt consists of the following: September 30,December 31, 1994 1993 ------------ ----------- (In thousands) 9 1/4% First Mortgage Bonds due 2008 net of unamortized discount of $5,079,000 at September 30, 1994 $269,921 $275,000 13% Senior Subordinated Notes due 2009 120,000 - Capitalized lease obligations 2,125 5,617 ------------ ----------- 392,046 280,617 Less current maturities 97 3,574 ------------ ----------- $391,949 $277,043 ============ =========== On March 24, 1994, the Company secured a line of credit for approximately $6.1 million, the equivalent of approximately $8.4 million Australian, 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%. At September 30, 1994, the bank's prime rate was 7.75%. This line of credit expires in December 1994. At September 30, 1994 all funds were available under this line of credit. At September 30, 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 September 30, 1994, the bank's prime rate was 7.75%. The line -11- (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3.LONG-TERM DEBT (continued) of credit expires in August 1995. Borrowings on this line of credit may not be used for the payment of management fees to SBO or to fund ventures in other jurisdictions. At September 30, 1994, ACSI had all the funds under this line of credit available for use. On July 1, 1994 the Company obtained consents to amend (Amendments) its Indenture (Bond Indenture) governing its 9 1/4% First Mortgage Bonds due 2008 (Bonds). The Bond Indenture, as amended, 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 Bond Indenture, as amended. The Company received consents from Holders of approximately $259,000,000 or 94% of the Bonds approving the amendments. In consideration the consenting Bond Holders received 2% of the face value of the Bonds. On July 28, 1994, the Company paid approximately $5.2 million to the consenting Bond Holders, this amount is shown as a discount on the Bonds and is being amortized as an adjustment to yield over the remaining life of the Bonds using the effective interest method. The Bond Indenture, as amended, places significant restrictions on the incurrence of additional Indebtedness by SBO and its subsidiaries, the creation of additional Liens on the Collateral securing the Bonds, transactions with Affiliates and the investment by SBO and its subsidiaries in certain Investments. In addition, the terms of the Bond Indenture, as amended, 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 other than an investment in a subsidiary in a gaming related business or a quarterly dividend, 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 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 -12- (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3.LONG-TERM DEBT (continued) the provisions of the Bond Indenture, as amended; 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; Investment in Controlled Entities; and the purchase, redemption, defeasance of any pari passu Indebtedness with a substantially concurrent purchase, redemption, defeasance, or retirement of the Bonds (on a pro rata basis). On August 10, 1994 the Company issued $120,000,000 of 13% Senior Subordinated Notes due 2009 (Notes). The proceeds from the sale of the Notes (Note Offering) were $116.5 million, net of underwriting discounts and commissions. Proceeds will be used to (i) invest approximately $100.0 million for an approximately 27% equity interest in SHCL, an affiliate of which has been selected as the preferred applicant to build, manage and operate the sole full-service casino in New South Wales, Australia (Sydney Harbour Casino), and (ii) renovate the Las Vegas Showboat in order to upgrade the facility to current building codes and replace the existing power plant facility at an aggregate cost of approximately $18.5 million. In the event that the Company determines not to pursue any portion of the Las Vegas renovation, the Company will use any remaining net proceeds for other expansion opportunities, capital improvements to its existing properties or other general corporate purposes. The Company has placed $100.0 million of the net proceeds of the Note Offering into an escrow account, which may only be used to fund the Company's investment in SHCL. In the event that (i) SHCL (or a subsidiary of SHCL) has not been officially selected as the sole licensee of the Sydney Harbour Casino, and (ii) the Company (or a subsidiary of the Company) has not entered into a binding agreement with SHCL to manage the gaming operations of the Sydney Harbour Casino for a period of not less than 12 years, within 12 months of the issuance of the Notes, then the Company shall first offer to purchase the Notes up to an aggregate of $100.0 million principal amount and then if any portion of the $100.0 million remains (First Remaining Portion), then offer to purchase up to an aggregate of the First Remaining Portion of the Bonds from the Bond Holders. -13- (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3.LONG-TERM DEBT (continued) Following such offers, if any portion of the $100.0 million remains, such portion may be used for general corporate purposes. The Notes are unconditionally guaranteed by OSI, ACSI and SOC. Interest on the Notes is payable semi-annually on February 1 and August 1 of each year commencing on February 1, 1995. The Notes are not redeemable prior to August 1, 2001. Thereafter, the Notes will be redeemable, in whole or in part, at redemption prices specified in the Indenture for the Notes (Note Indenture). The Notes are unsecured general obligations of the Company subordinated in right of payment to all Senior Debt (as defined in the Note Indenture) of the Company. The Note Indenture places significant restrictions on the Company, many of which are similar to the restrictions placed on the Company by the Indenture for the Bonds (Bond Indenture), including covenants restricting or limiting the ability of the Company and its Restricted Subsidiaries (as defined in the Note Indenture) to, among other things, (i) pay dividends or make other restricted payments, (ii) incur additional indebtedness and issue preferred stock, (iii) create liens, (iv) create dividend and other payment restrictions affecting Restricted Subsidiaries, (v) enter into mergers, consolidations or make sales of all or substantially all assets, (vi) enter into transactions with affiliates and (vii) engage in other lines of business. 4.LONG-TERM INCENTIVE PLAN On May 25, 1994, the shareholders of SBO approved a long-term incentive plan in which officers and key employees of the Company participate. Up to 2,000,000 shares of SBO common stock may be awarded to plan participants as either restricted shares or stock options. As of September 30, 1994, 1,118,000 options to purchase Showboat, Inc. common stock at an exercise price of $20.25 per share have been granted and 366,000 restricted shares have been issued from treasury shares to officers and key employees. Restricted shares and stock options vest over a five year period. Plan participants are entitiled to cash dividends and to vote their respective restricted shares. Restrictions limit the sale or transfer of these restricted shares during a five-year period. Unearned compensation equal to the market value of SBO's common stock was recorded at June 30, 1994 and is being amortized ratably from the date of grant over the restricted five-year period as it is earned. Compensation expense of $1,151,000 was recognized during the nine months ended September 30, 1994. Unearned compensation at September 30, 1994 is $5,028,000 and is shown as a reduction of Shareholders' Equity in the accompanying Consolidated Balance Sheet. -14- (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5.PENSION PLANS In August, 1994 the Company implemented a Supplemental Executive Retirement Plan (SERP) for a select group of senior line and staff management personnel to ensure that the Company's overall executive compensation program will attract, retain and motivate qualified senior management personnel. The participants receive benefits based on years of service and final compensation. This defined benefit plan is noncontributory and unfunded. The pension costs are determined actuarially and are based on the assumption that all eligible personnel will participate in the plan. The accrued pension cost is included in deferred liabilities. The net pension cost for the nine months ended September 30, 1994 consists of the following: Service Costs of Benefits Earned 126 Interest Cost on Projected Benefit Obligations 116 Amortization of Unrecognized prior Service Costs 98 ----------- Net Periodic Pension Cost 340 =========== The status of the defined benefit plan at September 30, 1994 is as follows: Fair value of plan assets 0 =========== Actuarial present value of benefit obligations: Vested benefits 1,661 Non-vested benefits 2,138 ----------- Accumulated benefit obligations 3,799 Effect of projected future salary increases 461 ----------- Projected benefit obligations 4,260 =========== Plan assets less than projected benefit obligations (4,260) Unrecognized prior service costs 4,161 Unrecognized (gain) loss (242) Adjustment to recognize minimum liability (3,799) ----------- Accrued pension cost (4,140) =========== The assumptions used in computing the information above were as follows: Discount rate 7.50% Future compensation growth rate 4.50% -15- (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6.WARRANTS On May 6, 1994, in connection with the Company's financing of its investment in SHCL, the Company issued warrants to purchase 150,000 shares of Showboat, Inc. common stock with an exercise price of $15.50 per share, subject to adjustment. The warrants were exercisable on issuance and are scheduled to expire on May 6, 1999. At September 30, 1994 all warrants were outstanding. The value of the warrants, approximately $2.0 million, has been reported as part of its investment in SHCL. 7.NEW JERSEY INVESTMENT OBLIGATION In connection with the Company's Credit Agreement with the Casino Reinvestment Development Authority (CRDA) the Company applied for and received funds from the CRDA of approximately $2.7 million as a credit for expenditures made relating to the construction of Atlantic City Showboat's additional hotel rooms. This credit was recorded as a reduction in CRDA deposits. -16- 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 own an equity interest in and manage 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, the owner of the Star Casino, 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. Due to either inclement weather or underwater obstructions, Star Casino has been principally operating mock cruises since the commencement of operations and dockside gaming with open boarding since June 22, 1994. No determination has been made as to the timing of removal of certain underwater obstructions. Star Casino will face increased competition as additional riverboats open in the New Orleans area. Nine of the fifteen riverboat licenses granted in Louisiana are in the greater New Orleans area. MATERIAL CHANGES IN RESULTS OF OPERATIONS Quarter Ended September 30, 1994 Compared to Quarter Ended September 30, 1993 Net revenues for the Company increased to $113.2 million in the quarter ended September 30, 1994 compared to $108.0 million in the same period in 1993, an increase of $5.2 million or 4.8%. Casino revenues increased $4.4 million or 4.6% to $99.6 million in the quarter ended September 30, 1994 from $95.2 million in 1993. Nongaming revenues, which consist principally of food, beverage, room and bowling revenues and management fees, were $23.2 million in the third quarter of 1994 compared to $22.7 million in 1993. -17- (continued) The Atlantic City Showboat generated $93.3 million of net revenues in the quarter ended September 30, 1994 compared to $88.0 million in the same period in the prior year, an increase of $5.3 million or 6.0%. Casino revenues were $85.1 million in the three months ended September 30, 1994 compared to $80.2 million for the same period in the prior year, an increase of $4.8 million or 6.0%. The increase in casino revenues was due to an increase in slot revenues of $4.8 million or 8.2%. Slot revenues were $63.8 million in the third quarter of 1994, compared to $59.0 million for the prior year. This increase compares to a 5.2% growth in slot revenues in the Atlantic City market for the quarter ended September 30, 1994. The favorable comparison to the prior year is the result of the opening on May 27, 1994 of an additional 15,000 square feet of casino space with approximately 560 new slot machines. Atlantic City Showboat slot revenues continued to dominate casino revenues at 75.0% of casino revenues in the quarter ended September 30, 1994 compared to 73.5% of casino revenues in the quarter ended September 30, 1993. At the Las Vegas Showboat, net revenues decreased to $19.5 million in the quarter ended September 30, 1994 from $20.0 million in the same period in 1993, a decrease of $.5 million or 2.6%. Casino revenues decreased to $14.5 million in the third quarter of 1994 from $14.9 million in the third quarter of 1993, a decrease of $.4 million or 2.8%. Slot revenues accounted for 82.1% of casino revenues in the third quarter of 1994 compared to 84.2% in the same period in 1993. A principal competitor of the Company opened at the end of August 1994, negatively impacting revenues at the Las Vegas Showboat in September 1994. Slot capacity on the Boulder Strip increased by 37% during the three months ended September 30, 1994. The Company anticipates that revenues at the Las Vegas Showboat will continue to be impacted until the excess casino capacity on the Boulder Strip is absorbed by the Las Vegas market. LPSI generated $.9 million in management fee revenues in the third 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 generated net revenues of $25.7 million in the third quarter of 1994 consisting primarily of casino revenues of $25.4 million. During the third quarter of 1994 the total number of passengers boarding the vessel was 565,968 with an average gaming win per passenger per visit of $44.93. During the third quarter of 1994 two additional riverboats opened in the New Orleans area. The Company anticipates that revenues will be impacted as competition increases in the greater New Orleans area. Income From Operations The Company's income from operations decreased to $17.3 million in the quarter ended September 30, 1994 from $18.3 million in the same period in 1993, a decrease of $1.0 million or 5.4% primarily as a result of the Company's commitment to expansion opportunities. The Company incurred approximately $5.8 million in corporate expenses and expenses relating to the pursuit of expansion opportunities in jurisdictions outside of Nevada and New Jersey in the -18- (continued) third quarter of 1994 compared to $1.2 million in the third quarter of 1993. In August 1994 the Company terminated all arrangements and negotiations with the St. Regis Mohawk Tribe located in New York. In the quarter ended September 30, 1994 the Company recorded $.9 million in expenses relating to the St. Regis Mohawks. Atlantic City Showboat's income from operations, before management fees, increased to $19.3 million in the third quarter of 1994 compared to $18.4 million for the same period in 1993, an increase of $.9 million or 5.0%, primarily as a result of the increase in slot revenues. Total operating expenses at the Atlantic City Showboat increased to $74.0 million in the third quarter of 1994, an increase of $4.4 million or 6.3%. This increase in operating expenses was due primarily to increases in depreciation expense and payroll expenses due to the expanded facility, and increases in casino division expenses consisting primarily of an increase in promotional coin expense and gaming taxes. Income from operations, before management fee, at the Las Vegas Showboat declined to $.1 million in the third quarter of 1994 from $1.2 million in the third quarter of 1993, a decrease of $1.1 million or 95.2%. This decrease is primarily due to increased competition which resulted in decreased revenues and increased operating expenses primarily from increases in promotional activities, entertainment expenses, advertising costs and payroll expenses. SLI's equity in the earnings of Showboat Star Partnership for the quarter ended September 30, 1994 was $3.1 million before the elimination of intercompany management fees. Showboat Star Partnership had pre-tax net income of $6.2 million on net revenues of $25.7 million. LPSI, which manages Showboat Star Partnership, had income from operations for the quarter ended September 30, 1994 of $.6 million, before elimination of intercompany management fees. Other (Income) Expense Net interest expense increased to $7.2 million in the third quarter of 1994 up from $5.4 million in the same period in 1993, an increase of $1.8 million or 31.4%. This increase is primarily the result of the issuance, on August 10, 1994, of $120.0 million of 13% Senior Subordinated Notes due 2009. This increase was offset by a $.6 million increase in capitalized interest associated with the Company's Atlantic City expansion and a $.3 million increase in interest income. Net Income The Company recognized net income of $5.9 million for the quarter ended September 30, 1994 or $.38 per share, compared to income of $7.4 million for the quarter ended September 30, 1993 or $.48 per share. -19- (continued) Nine Months Ended September 30, 1994 Compared to Nine Months Ended September 30, 1993 Net revenues for the Company increased to $303.9 million in the nine months ended September 30, 1994 compared to $286.2 million in the same period in 1993, an increase of $17.7 million or 6.1%. Casino revenues increased $14.3 million or 5.7% to $265.9 million in the nine months ended September 30, 1994 from $251.6 million in 1993. Nongaming revenues, which consist principally of food, beverage, room and bowling revenues and management fees, were $62.7 million in the nine months ended September 30, 1994 compared to $59.4 million in 1993. The Atlantic City Showboat generated $240.6 million of net revenues in the nine months ended September 30, 1994, compared to $224.9 million for the same period in the prior year, an increase of $15.7 million or 7.0%. Casino revenues were $219.5 million for the nine months ended September 30, 1994 compared to $205.7 million for the same period in the prior year, an increase of $13.9 million or 6.7%. The increase in casino revenues is attributable to increases in slot revenues of $12.4 million, poker revenue of $1.7 million, keno revenue of $.4 million and simulcasting revenue of $.3 million, offset by a decrease in table game revenue of $.9 million. Slot revenues were $162.8 million for the nine months ended September 30, 1994, compared to $150.4 million for the prior year. The $12.4 million, or 8.2% increase in slot revenue at the Atlantic City Showboat compares to a 1.7% increase in slot revenue in the Atlantic City market for the same time period. The favorable comparison to prior year is the result of the adverse impact of construction activities in the first six months of 1993 on slot revenues and the opening on May 27, 1994 of an additional 15,000 square feet of casino space with approximately 560 new slot machines, an increase of slot machines of approximately 23%. At the Atlantic City Showboat, slot revenues were 74.2 % of casino revenues for the first nine months of 1994, and 73.2% of casino revenues in the same period in 1993. At the Las Vegas Showboat, net revenues increased to $61.9 million in the nine months ended September 30, 1994 from $61.3 million in the same period in 1993, an increase of $.6 million or 1.0%. The marginal increase in net revenues resulted primarily from the opening, at the end of August 1994, of a direct competitor increasing slot capacity on the Boulder Strip by 37%. The Company anticipates that revenues at the Las Vegas Showboat will be negatively impacted until the excess casino capacity on the Boulder Strip is absorbed by the Las Vegas market. Casino revenues increased to $46.4 million in the first nine months of 1994 from $45.9 million in the first nine months of 1993, an increase of $.5 million or 1.1%. Slot revenues accounted for 82.6% of casino revenues in the nine months ended September 30, 1994 and 84.2% for the same period in 1993. Improvements in nongaming revenues were due to increased hotel occupancy resulting from increased effectiveness of certain marketing activities. LPSI generated $2.8 million in management fee revenues in the nine months ended September 30, 1994. Star Casino generated net revenues of $79.1 million in the first nine months of 1994 consisting primarily of casino revenues of $78.2 million. During the first nine -20- (continued) months of 1994 the total number of passengers boarding the vessel was 1,537,155 with an average gaming win per passenger per visit of $50.87. During the third quarter of 1994 two additional riverboats opened in the New Orleans area. The Company anticipates that revenues will be adversely impacted as competition increases in the greater New Orleans area. Income From Operations The Company's income from operations increased to $42.4 million in the nine months ended September 30, 1994 from $37.9 million in the same period in 1993, an increase of $4.5 million or 11.8% 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 $13.4 million in corporate expenses and in expenses relating to the pursuit of expansion opportunities in jurisdictions outside of Nevada and New Jersey in the first nine months of 1994 compared to $2.7 million in the first nine months of 1993. Atlantic City Showboat's income from operations, before management fees, increased $3.9 million or 11.3% to $38.9 million for the nine months ended September 30, 1994 compared to $34.9 million in the same period in the prior year. This increase was due primarily to the increase in net revenues. Operating expenses at the Atlantic City Showboat increased $11.8 million, or 6.2% to $201.7 million for the nine months ended September 30, 1994 compared to $190.0 million for the same period in the prior year. The increased operating expenses included a $3.8 million increase in depreciation expense due to Atlantic City Showboat's expanded facility and a $1.9 million increase in food and beverage expenses and a $4.8 million increase in casino division expenses. This increase in casino division expenses was due primarily to increased slot marketing expenses, increased payroll and gaming taxes. Income from operations, before management fees, at the Las Vegas Showboat declined to $4.6 million in the nine months ended September 30, 1994 from $6.3 million in the nine months ended September 30, 1993, a decrease of $1.6 million or 25.4%. This decrease is primarily due to increased competition which resulted in marginal increases in net revenues due to the increased slot capacity on the Boulder Strip and to increased operating expenses. The increased operating expenses primarily resulted from increases in promotional food costs, increased entertainment costs and increased advertising costs. SLI's equity in the earnings of Showboat Star Partnership for the nine months ended September 30, 1994 was $10.2 million before elimination of intercompany management fees. Showboat Star Partnership had net income of $22.8 million on net revenues of $79.1 million. LPSI, which manages Showboat Star Partnership, had income from operations for the nine months ended September 30, 1994 of $2.1 million before elimination of intercompany management fees. Other (Income) Expense Net interest expense increased to $17.5 million in the nine months ended September 30, 1994 from $15.9 million in the same period in 1993, an increase in of $1.7 million or 10.5%. This increase is primarily the result of the issuance, on August 10, 1994, of $120.0 -21- (continued) million of 13% Senior Subordinated Notes due 2009. This increase was offset by a $1.3 million increase in capitalized interest associated with the Company's Atlantic City expansion and a $.5 million increase in interest income. Net Income The Company recognized net income of $14.7 million for the nine months ended September 30, 1994 or $.95 per share, compared to income of $13.0 million or $.85 per share before an extraordinary loss of $6.7 million or $.44 per share and the cumulative effect of a change in accounting method of $.6 million or $.03 per share in the nine months ended September 30, 1993. Net income for the nine months ended September 30, 1993 was $6.9 million or $.44 per share. MATERIAL CHANGES IN FINANCIAL CONDITION As of September 30, 1994 the Company held cash and cash equivalents of $97.5 million compared to $122.8 million at December 31, 1993. During the nine months ended September 30, 1994 increases in cash generated from operating activities of $38.6 million and from the proceeds from the issuance of $120.0 million of Senior Subordinated Notes net of funds escrowed were offset by $61.6 million of capital improvements and the investment in March 1994 of $9.0 million in Showboat Star Partnership. Income from operating activities includes a reduction of approximately $13.4 million in the nine months ended September 30, 1994 for corporate expenses and in its investigation of expansion opportunities in new jurisdictions. Costs associated with the expansion project in Atlantic City were $44.4 million at September 30, 1994. Capital expenditures relating to the expansion project in Atlantic City are expected to be $52.2 million in 1994. At September 30, 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 September 30, 1994 was 7.75%. The line of credit expires in August 1995. Borrowings on this line of credit may not be used for the payment of management fees to SBO or to fund ventures in other jurisdictions. At September 30, 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 approximately $6.1 million, the equivalent of approximately $8.4 million Australian, in compliance with the New South Wales Casino -22- (continued) 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%. The bank's prime rate at September 30, 1994 was 7.75%. This line of credit expires in December 1994. At September 30, 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 (Bonds) pursuant to an indenture among the Company, as issuer, SOC, ACSI and OSI, as guarantors, and IBJ Schroeder Bank & Trust Company, as trustee (Bond Indenture). The Bonds are unconditionally guaranteed by OSI, ACSI and SOC. The Bond Indenture was amended on July 18, 1994. Interest on the Bonds is payable semi-annually on May 1 and November 1 of each year. The Bonds are not redeemable prior to May 1, 2000. Thereafter, the Bonds will be redeemable, in whole or in part, at redemption prices specified in the Bond Indenture, as amended. The 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 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 guarantee is secured by a pledge of all outstanding shares of capital stock of ACSI. ACSI's obligation under its guarantee is secured by a leasehold mortgage representing a first lien on the Atlantic City hotel casino (other than certain assets). SOC's guarantee is secured by a pledge of certain assets related to the Las Vegas hotel casino. The Bond Indenture, as amended, 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 Bond Indenture, as amended. The Bond Indenture, as amended, 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 Bonds, transactions with Affiliates and the investment by SBO and its subsidiaries in certain Investments. In addition, the terms of the Bond Indenture, as amended, 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 other than an investment in a subsidiary in a gaming related business or a quarterly dividend, 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% -23- (continued) of the aggregate net cash proceeds received by SBO from the issuance or sale of 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 Bond Indenture, as amended; 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; Investment in Controlled Entities; and the purchase, redemption, defeasance of any pari passu Indebtedness with a substantially concurrent purchase, redemption, defeasance, or retirement of the Bonds (on a pro rata basis). Additionally, the Bond Indenture, as amended, permits the Company to incur up to $150.0 million in aggregate principal amount of Indebtedness without meeting the debt incurrence test contained in the Bond Indenture, provided that $100.0 million of such Indebtedness is kept in an escrow account which may only be used to fund the Company's investment in SHCL. The Company subsequently entered into the Note Indenture and issued Notes representing $120.0 million. Both Indentures state that in the event that (i) SHCL (or a subsidiary of SHCL) has not been officially selected as the sole licensee of the Sydney Harbour Casino, or (ii) the Company (or a subsidiary of the Company) has not entered into a binding agreement with SHCL to manage the gaming operations of the Sydney Harbour Casino for a period of not less than 12 years, within 12 months of the issuance of the Notes, then the Company shall first offer to purchase the Notes up to an aggregate of $100.0 million principal amount and then if any portion of the $100.0 million remanins (First Remaining Portion), then offer to purchase up to an aggregate of the First Remaining Portion of the Bonds from the Bond Holders. Following such offers, if any portion of the $100.0 million remains, such portion may be used for general corporate purposes. On August 10, 1994 the Company issued $120,000,000 of 13% Senior Subordinated Notes due 2009 (Notes). The proceeds from the sale of the Notes (Note Offering) were $116.5 million, net of underwriting discounts and commissions. Proceeds will be used to (i) invest approximately $100.0 million for an approximately 27% equity interest in Sydney Harbour Casino Holdings Limited (SHCL), an affiliate of which has been selected as the preferred applicant to build, manage and operate the sole full-service casino in New South Wales, Australia (Sydney Harbour Casino), and (ii) renovate the Las Vegas Showboat in -24- (continued) order to upgrade the facility to current building codes and replace the existing power plant facility at an aggregate cost of approximately $18.5 million. In the event that the Company elects to pursue the Las Vegas renovation, the construction may have an adverse impact on revenues. In the event that the Company determines not to pursue any portion of the Las Vegas renovation, the Company will use any remaining net proceeds for other expansion opportunities, capital improvements to its existing properties or other general corporate purposes. The Notes are unconditionally guaranteed by OSI, ACSI and SOC. Interest on the Notes is payable semi-annually on February 1 and August 1 of each year commencing on February 1, 1995. The Notes are not redeemable prior to August 1, 2001. Thereafter, the Notes will be redeemable, in whole or in part, at redemption prices specified in the Indenture for the Notes (Note Indenture). The Notes are unsecured general obligations of the Company subordinated in right of payment to all Senior Debt (as defined in the Note Indenture) of the Company. The Note Indenture places significant restrictions on the Company, many of which are similar to the restrictions placed on the Company by the Bond Indenture, as amended, including covenants restricting or limiting the ability of the Company and its Restricted Subsidiaries (as defined in the Note Indenture) to, among other things, (i) pay dividends or make other restricted payments, (ii) incur additional indebtedness and issue preferred stock, (iii) create liens, (iv) create dividend and other payment restrictions affecting Restricted Subsidiaries, (v) enter into mergers, consolidations or make sales of all or substantially all assets, (vi) enter into transactions with affiliates and (vii) engage in other lines of business. Pursuant to the terms of the Indentures, as amended, the Company on August 10, 1994 placed $100.0 million of the net proceeds from the Notes in an escrow account to fund the Company's investment in SHCL. On September 30, 1994 approximately $44.4 million of the escrow funds were converted to $60.0 million Australian, at an exchange rate of $.7406. The Company subsequently converted all escrow funds to $135.0 million Australian at an average rate of $.7393. 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 in certain expansion opportunities. No assurance can be given that any of the announced projects, or any project under development or any unannounced projects under development will be completed, licensed or result in any significant contribution to the Company's cash flow or earnings. Casino gaming operations are highly regulated and new casino development is subject to a number of risks. Announced expansion opportunities include: 1. On May 6, 1994 the New South Wales Casino Control Authority -25- (continued) (Authority) announced that an affiliate of SHCL, a company in which the Company is a principal founding shareholder, was the Preferred Applicant to develop a casino in Sydney, Australia. As the Preferred Applicant, SHCL has been seeking to obtain all the necessary planning agency approvals, which approvals are a pre-condition to the issuance of the casino license, and the casino license originally projected to be issued by November 30, 1994. Currently, the Company's reputation for good character, honesty and integrity and that of its "close associates" and "business associates" are the subject of Public Inquiry initiated by the Authority as part of its final review of SHCL's probity. SHCL anticipates a favourable outcome to the inquiry, the timely receipt of planning agency approvals which are a pre-condition to the license, and the grant of the license prior to December 31, 1994. Any delay could jeopardise SHCL financing commitiments. Concurrently with the grant of the license 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% interest in SHCL at a cost of approximately $100.0 million when the Company is licensed. The Company anticipates making its investment in SHCL during December 1994. The Company's investment was raised in August 1994 and remains in escrow pending notification that the funds are to be deposited as the final pre-condition to the issuance of the license. In the event that SHCL is not granted the casino license, approximately $9.4 million in other assets and accounts receivable from SHCL to the Company would be charged to operations. 2. The Company is a member of a partnership which is the only applicant for the sole riverboat gaming license allocated by statute to East Chicago, Indiana. Subject to available financial resources the Company anticipates that it will contribute approximately $30.0 million to the East Chicago partnership and will help the partnership 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 or source of the contribution or financing for the East Chicago gaming opportunity. Issuance of the gaming license is subject to the resolution of certain legal challenges to the Indiana gaming statute. The Company is actively pursuing potential gaming opportunities in certain jurisdictions where gaming has recently been legalized, as well as jurisdictions where gaming is not yet, but is expected soon to be legalized. There can be no assurance that legislation to legalize gaming will be enacted in any additional jurisdictions, that any properties in which the Company may have invested will be compatible with any gaming legislation so enacted, that legalized gaming will continue to be authorized in any jurisdiction or that the Company will be able to obtain the required licenses in any jurisdiction. -26- SHOWBOAT, INC. AND SUBSIDIARIES PART II, OTHER INFORMATION ITEM 1. Legal proceedings. Not applicable ITEM 2. Change in Securities. Not applicable ITEM 3. Defaults Upon Senior Securities Not applicable ITEM 4. Submission of Matter to a Vote of Security Holders. None ITEM 5. Other Information. Not applicable ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 27.01 Financial Data Schedule (b) Current Report on Form 8-K, Item 5, dated August 10, 1994, reporting the completion of the Company's underwritten public offering of 13% Senior Subordinated Notes due 2009. Current Report on Form 8-K, Item 5, dated July 8, 1994, reporting that the St Regis Mohawk Tribe withdrew its request for approval from the National Indian Gaming Commission for the tribe's proposed casino management agreements with both the Company and another casino operator. -27- 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 14, 1994 s/J. Kell Houssels III ------------------- ------------------------------------------- J. KELL HOUSSELS III President and Chief Executive Officer Date: November 14, 1994 s/Leann Schneider ------------------- ------------------------------------------- LEANN SCHNEIDER, Vice President - Finance and Chief Financial Officer -28- EX-27 2
5 0000089966 SHOWBOAT, INC. 1000 3-MOS 9-MOS DEC-31-1994 DEC-31-1994 JUL-1-1994 JAN-1-1994 SEP-30-1994 SEP-30-1994 25375 25375 72131 72131 14655 14655 2470 2740 2528 2528 124513 124513 498791 498791 161771 161771 618556 618556 51392 51392 391949 391949 15795 15795 0 0 0 0 136766 136766 618556 618556 111204 297843 113231 303932 57414 160338 92063 252457 7484 20680 378 399 8460 20380 10110 24844 4195 10135 17262 42391 0 0 0 0 0 0 5915 14709 38 95 38 95
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