-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GIRL6pjIqaMT+sshn7ed5AhhTOTKOkYUloQpkQCgbeIXvFe1boXioupXajee8AKZ gfcR/7JXbYBiZ2qVH5igAA== 0000906477-97-000052.txt : 19970815 0000906477-97-000052.hdr.sgml : 19970815 ACCESSION NUMBER: 0000906477-97-000052 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHOWBOAT INC CENTRAL INDEX KEY: 0000089966 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880090766 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07123 FILM NUMBER: 97663614 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: June 30, 1997 ------------------------------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from:____________________ to ___________________ Commission file number: 1-7123 --------------------------------------------------- SHOWBOAT, INC. - --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) NEVADA 88-0090766 ---------------------------- ---------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2800 FREMONT STREET, LAS VEGAS NEVADA 89104-4035 - ---------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (702) 385-9123 - ---------------------------------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE - ---------------------------------------------------------------------------- (Former name, former address and former fiscal year,if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- ------- 1 APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution under a plan confirmed by a court. YES NO ------ ------ APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of the issuer's classes of common stock, as of the latest practicable date. Common Stock - $1 Par Value, and Preferred Stock Purchase Rights 16,114,670 shares outstanding - ----------------------------------- ----------------------------- 2 SHOWBOAT, INC. AND SUBSIDIARIES INDEX Part I FINANCIAL INFORMATION Page No. Item 1. Financial Statements Condensed Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 4-5 Condensed Consolidated Statements of Income - For the three months ended June 30, 1997 and 1996 6 Condensed Consolidated Statements of Income - For the six months ended June 30, 1997 and 1996 7 Condensed Consolidated Statements of Cash Flows - For the six months ended June 30, 1997 and 1996 8 Notes to the Condensed Consolidated Financial Statements 9-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-19 PART II OTHER INFORMATION ITEMS 1 - 6 20-21 SIGNATURES 22 3 Item 1. Financial Statements
SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 June 30, December 31, ASSETS 1997 1996 - ------------------------ ---------- ------------ (unaudited) (In thousands) Current assets: Cash and cash equivalents $ 75,481 $ 60,287 Short term investments 17,228 28,848 Receivables, net 14,599 12,402 Income tax receivable 4,205 2,396 Inventories 3,343 2,785 Prepaid expenses 8,968 4,470 Current deferred income taxes 8,780 7,802 ----------- ----------- Total current assets 132,604 118,990 ----------- ----------- Property and equipment 740,076 651,486 Less accumulated depreciation and amortization 224,153 211,298 ----------- ----------- 515,923 440,188 ----------- ----------- Other assets: Restricted cash and investments - 69,601 Investments in unconsolidated affiliate 140,651 138,964 Deposits and other assets 24,787 23,326 Economic development and licensing costs, net of accumulated amortization of $229,000 and -0- at June 30, 1997 and December 31, 1996, respectively 11,241 7,637 Debt issuance costs, net of accumulated amortization of $3,666,000 and $2,942,000 at June 30, 1997 and December 31, 1996, respectively 15,356 15,963 ----------- ----------- 192,035 255,491 ----------- ----------- $ 840,562 $ 814,669 =========== =========== See accompanying notes to condensed consolidated financial statements.
4 (continued)
SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 (continued) June 30, December 31, LIABILITIES AND SHAREHOLDERS'EQUITY 1997 1996 - -------------------------------- ------------ ------------- (unaudited) (In thousands) Current liabilities Current maturities of long-term debt - with recourse $ 27 $ 25 Current maturities of long-term debt - without recourse 5,284 - Accounts payable 27,623 17,688 Dividends payable 403 405 Accured liabilities 47,644 41,933 ------------- ----------- Total current liabilities 80,981 60,051 ------------- ----------- Long-term debt, excluding current maturities Debt with recourse 392,893 392,719 Debt without recourse 154,609 140,000 ------------- ----------- 547,502 532,719 Other liabilities 3,386 4,866 ------------- ----------- Deferred income taxes 24,004 24,888 ------------- ----------- Shareholders' equity: Preferred stock, $1 par value; 1,000,000 shares authorized; none issued Common stock, $1 par value; 50,000,000 shares authorized; issued 16,252,169 shares at June 30, 1997 and 16,181,199 at December 31, 1996 16,252 16,181 Additional paid-in capital 89,114 87,698 Retained earnings 82,899 84,828 ------------- ----------- 188,265 188,707 Cumulative foreign currency translation adjustment 976 4,773 Cost of common stock in treasury, 151,250 shares at June 30, 1997 and -0- shares at December 31, 1996 (3,026) - Unearned compensation for restricted stock (1,526) (1,335) -------------- ----------- Total shareholders'equity 184,689 192,145 -------------- ----------- $ 840,562 $ 814,669 ============== =========== See accompanying notes to condensed consolidated financial statements.
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SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996 (unaudited) (In thousands except per share data) 1997 1996 ------------ ------------ Revenues: Casino $ 134,244 $ 95,858 Food and beverage 16,415 14,119 Rooms 6,639 6,632 Management fees 837 - Sports and special events 820 855 Other 1,938 1,898 ------------ ------------ 160,893 119,362 Less complimentaries 11,588 10,137 ------------ ------------ Net revenues 149,305 109,225 ------------ ------------ Operating costs and expenses: Casino 67,284 47,876 Food and beverage 9,989 8,181 Rooms 1,651 1,870 Sports and special events 683 630 General and administrative 36,204 29,407 Selling, advertising and promotion 6,762 2,871 Depreciation and amortization 10,574 8,308 Preopening costs 9,577 - ----------- ----------- 142,724 99,143 ----------- ----------- Income from consolidated subsidiaries 6,581 10,082 Equity in income of unconsolidated affiliate 540 - ----------- ----------- Income from operations 7,121 10,082 ----------- ----------- Other (income) expense: Interest income (1,124) (3,034) Interest expense, net of amounts capitalized 12,436 11,738 ----------- ----------- 11,312 8,704 ----------- ----------- Income (loss) before income taxes and minority interest (4,191) 1,378 Minority interest share of loss 598 828 ----------- ----------- Income (loss) before income taxes (3,593) 2,206 Income tax expense (benefit) (1,594) 1,070 ----------- ----------- Net income (loss) $ (1,999) $ 1,136 =========== =========== Net income (loss) per common and equivalent share $ (0.12) $ 0.07 Shares used in per share calculation 16,218,119 16,428,966 See accompanying notes to condensed consolidated financial statements.
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SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (unaudited) (In thousands except per share data) 1997 1996 ------------ ------------- Revenues: Casino $ 226,841 $ 185,848 Food and beverage 29,477 27,110 Rooms 12,309 12,428 Management fees 837 - Sports and special events 1,797 1,903 Other 3,178 2,911 ------------ ------------ 274,439 230,200 Less complimentaries 21,101 18,385 ------------ ------------ Net revenues 253,338 211,815 ------------ ------------ Operating costs and expenses: Casino 115,602 92,101 Food and beverage 17,380 16,267 Rooms 3,440 4,007 Sports and special events 1,593 1,451 General and administrative 64,587 57,782 Selling, advertising and promotion 8,767 5,360 Depreciation and amortization 18,903 16,326 Preopening costs 9,577 - ----------- ------------- 239,849 193,294 ------------ ------------- Income from consolidated subsidiaries 13,489 18,521 Equity in income of unconsolidated affiliate 2,003 - ------------ ------------- Income from operations 15,492 18,521 ------------ ------------- Other (income) expense: Interest income (2,978) (4,430) Interest expense, net of amounts capitalized 21,392 19,275 Write down of investment in affiliate - 3,902 ------------ ------------- 18,414 18,747 Loss before income taxes and minority interest (2,922) (226) Minority interest share of loss 747 835 ------------ ------------ Income (loss) before income taxes (2,175) 609 Income tax expense (benefit) (1,055) 274 ------------ ------------ Net income (loss) $ (1,120) $ 335 ============ ============ Net income (loss) per common and equivalent share $ (0.07) $ 0.02 Shares used in per share calculation 16,267,433 16,213,182 See accompanying notes to condensed consolidated finanical statements.
7
SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (unaudited) 1997 1996 ------------- ------------ (In thousands) Net cash provided by operating activities $ 18,701 $ 20,038 ---------- --------- Cash flows from investing activities: Acquisition of property and equipment (77,307) (39,424) Investment in unconsolidated affiliate (5,823) (5,823) (Increase) decrease in restricted cash and investments in consolidated affiliate 64,408 (145,474) Deposit for Casino Reinvestment Development Authority obligation (2,014) (1,964) Sale of short term investments 11,620 - Other 554 184 ---------- ---------- Net cash used in investing activities (8,562) (192,501) ---------- ---------- Cash flows from financing activities: Principal payments of long-term debt (739) (12) Proceeds from issuance of long-term debt 9,636 140,000 Debt issuance costs (116) (6,105) Proceeds from employee stock option exercises 128 5,331 Payment of dividends (811) (788) Minority interest contributions - 77 Repurchase of shares for treasury stock (3,043) - ---------- ---------- Net cash provided by financing activities 5,055 138,503 ---------- ---------- Net increase (decrease) in cash and cash equivalents 15,194 (33,960) Cash and cash equivalents at beginning of period 60,287 106,927 ---------- ---------- Cash and cash equivalents at end of period $ 75,481 $ 72,967 ========== ========== Supplemental disclosures of cash flow information and non-cash investing and financing activities: Cash paid during the period for: Interest, net of amounts capitalized 20,209 13,669 Income taxes 495 2,524 Increase (decrease) in property and equipment aquisitions included in construction contracts and retentions payable 6,409 (1,864) Foreign currency translation adjustment (3,797) 4,070 Equipment acquired under capital leases 10,984 - See accompanying notes to condensed consolidated financial statements.
8 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The condensed consolidated financial statements include all domestic and foreign subsidiaries which are more than 50% owned and controlled. Investments in unconsolidated affiliates which are at least 20% owned are carried at cost plus equity in undistributed earnings or loss since acquisition. All material intercompany balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1996 Annual Report on Form 10-K. The accompanying unaudited condensed consolidated financial statements contain all adjustments of a recurring nature, which in the opinion of managment, are necessary for a fair statement of the results of the interim periods. The results of operations for the interim periods are not indicative of results of operations for an entire year. Certain prior period balances have been reclassified to conform to the current period's presentation. Preopening Costs Effective January 1, 1997, the Company changed its method of accounting for preopening costs. Preopening costs will be immediately expensed when a new facility opens for business rather than amortized over a period not to exceed one year as was previously done. Expensing these costs at the date of opening is a general industry practice and will provide a better comparison of the Company's operations to other gaming companies. This change in accounting resulted in a $9,577,000 charge to operations for the three months and the six months ended June 30, 1997. There is no cummulative effect as of January 1, 1997 of this accounting change. If the new method of accounting for preopening costs had been applied as of January 1, 1996, the equity in income of unconsolidated affiliate would have increased resulting in net income for the three months and six months ended June 30, 1996 of 1,856,000 and 1,613,000, respectively. Earnings per share for the three months and six months ended June 30, 1996 would have increased to $.11 and $.10, respectively. 2. LONG TERM DEBT The Company's increase in long term debt was due to the completion of certain capital lease financing ("Capital Lease") by the Company's 55% owned affiliate Showboat Marina Casino Partnership (SMCP) in March of 1997. The total amount borrowed under the Capital Lease was approximately $11.0 million. The term of the lease is 48 months and accrues interest at 11.0%. 9 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2. LONG TERM DEBT (continued) SMCP also secured additional equipment financing from FINOVA Capital Corporation of approximately $10.0 million in June of 1997. The FINOVA equipment financing was secured by certain equipment purchased during the construction of the casino. The term of the FINOVA financing was for a period of three years and the financing accrues interest at 11.1%. 3. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," (Statement 128) which establishes standards for computing and presenting earnings per share (EPS). It replaces the presentation of primary and fully diluted EPS with a presentation of basic and diluted EPS. Statement 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997. Earlier application is not permitted. After adoption, all prior period EPS data should be restated to conform to Statement 128. The Company will adopt Statement 128 in the fourth quarter of 1997. The pro forma impact of Statement 128 on the three months and six months ended June 30, 1997 is basic and diluted EPS would have been $(.12) and $(.07), respectively. In February 1997, the Financial Accounting Standards Board issued SFAS No. 129, "Disclosure of Information about Capital Structure" (SFAS No. 129). SFAS No. 129 establishes standards for disclosing information about an entity's capital structure. The company intends to comply with the disclosure requirements of this statement which is effective for periods ending after December 15, 1997. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position, and is effective for financial statements issued for fiscal years beginning after December 15, 1997. The Company is currently assessing the impact of this pronouncement on the Company's financial statements. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 establishes additional standards for segment reporting in the financial statements and is effective for fiscal years beginning after December 15, 1997. The Company is currently assessing the impact of this pronouncement on the Company's financial statements. 4. COMMITMENTS AND CONTINGENCIES On May 3, 1997, Publishing & Broadcasting Limited ("PBL") formally advised the Company that PBL had let lapse the agreement in principle to acquire from the Company 10% of the stock of Sydney Harbour Casino Holdings Limited and the right to manage Sydney Harbour Casino. Accordingly, the Company will not receive any of the funds which would have been provided to it upon the sale of those assets described in the agreement in principle. The Company retains its rights to manage Sydney Harbour Casino and will remain the largest single shareholder (at 24.6%) of Sydney Harbour Casino Holdings Limited. 10 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4. COMMITMENTS AND CONTINGENCIES (continued) As previously disclosed in the Company's 1996 year end financial statements and management's discussion and analysis of financial condition and results of operations, the Company entered into a completion guarantee to complete the East Chicago Showboat up to a maximum aggregate amount of $30.0 million. On April 18, 1997, the East Chicago Showboat commenced operations and the Company's obligations under the completion guarantee were terminated. The Company was not required to provide any funds under the completion guarantee. In addition, the Company entered into a standby equity commitment pursuant to which it will cause to be made up to an aggregate of $30.0 million in additional capital contributions to the East Chicago Showboat if, during the first three full four fiscal quarters following the commencement of operations at the East Chicago Showboat, the project's combined cash flow (as defined) is less than $35.0 million for any one such full four quarter period. However, in no event will the Company be required to cause to be contributed to the East Chicago Showboat more than $15.0 million in respect of any such full four quarter period. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial statements taken as a whole. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL Showboat, Inc. and subsidiaries (collectively the "Company" or "SBO") is an international gaming company which owns and operates the Atlantic City Showboat Casino and Hotel in Atlantic City, New Jersey (the "Atlantic City Showboat"), the Las Vegas Showboat Hotel, Casino and Bowling Center in Las Vegas, Nevada (the "Las Vegas Showboat"), owns a 24.6% equity interest in, and manages through subsidiaries, the Sydney Harbour Casino located in Sydney, New South Wales, Australia ("Sydney Harbour Casino") and owns through subsidiaries a 55% interest in, and manages, the Showboat Mardi Gras Casino located in East Chicago, Indiana (the "East Chicago Showboat"), which commenced operations April 18, 1997. Information contained in this quarterly report is supplemental to disclosures in the Company's year end financial reports. This management's discussion and analysis of financial condition and results of operations should be read in conjunction with the management's discussion and analysis of financial conditions and results of operations included in the Company's December 31, 1996 Annual Report on Form 10-K. As used in this management's discussion and analysis of financial condition and results of operations, amounts in Australian dollars are denoted as "A$". As of June 30, 1997, the exchange rate was approximately US$.7525 for each A$1.00. MATERIAL CHANGES IN RESULTS OF OPERATIONS Quarter Ended June 30, 1997 Compared to Quarter Ended June 30, 1996 Comparison of Operating Results for the three months ended June 30, 1997 and 1996 Financial Highlights
Three months ended June 30, 1997 1996 Variance Percent - ---------------------------------------------------------------------------- (Dollars in thousands) Gross revenues Atlantic City Showboat 107,401 102,765 4,636 4.5% Las Vegas Showboat 17,134 16,597 537 3.2% Showboat Australia - Mgt. Fee 837 - 837 N/A East Chicago Showboat 35,521 - 35,521 N/A -------- -------- -------- ------- 160,893 119,362 41,531 34.8% -------- -------- -------- ------- Net revenues Atlantic City Showboat 97,452 93,696 3,756 4.0% Las Vegas Showboat 16,176 15,529 647 4.2% Showboat Australia - Mgt. Fee 837 - 837 N/A East Chicago Showboat 34,840 - 34,840 N/A -------- -------- -------- ------- 149,305 109,225 40,080 36.7% -------- -------- -------- -------
12 (continued) MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued) Comparison of Operating Results for the three months ended June 30, 1997 and 1996 Financial Highlights (continued)
Three months ended June 30, 1997 1996 Variance Percent - ----------------------------------------------------------------------------- (Dollars in thousands) Income from Operations Atlantic City Showboat 17,627 16,711 916 5.5% Las Vegas Showboat (1,051) (2,467) 1,416 57.4% Corporate and development (4,322) (4,125) (197) (4.8%) Showboat Australia- Mgmt. Fee 764 (37) 801 2164.9% Sydney Harbour Casino 540 - 540 N/A East Chicago Showboat 3,140 - 3,140 N/A East Chicago Showboat- preopening (9,577) - (9,577) N/A -------- -------- -------- ---------- 7,121 10,082 (2,961) (29.4%) -------- -------- -------- ---------- EBITDA * Atlantic City Showboat 24,097 23,363 734 3.1% Las Vegas Showboat 519 (891) 1,410 158.2% Corporate and development (4,217) (4,045) (172) (4.3%) Showboat Australia - Mgmt. Fee 764 (37) 801 2164.9% Sydney Harbour Casino 540 - 540 N/A East Chicago Showboat 5,569 - 5,569 N/A East Chicago Showboat- preopening (9,577) - (9,577) N/A -------- -------- -------- ---------- 17,695 18,390 (695) (3.8%) -------- -------- -------- ----------
* EBITDA is defined as income from operations before depreciation and amortization. EBITDA should not be construed as a substitute for income from operations, net earnings (loss) and cash flow from operating activities determined in accordance with Generally Accepted Accounting Principles ("GAAP"). The Company has included EBITDA because it believes it is commonly used by certain investors and analysts to analyze and compare gaming companies on the basis of operating performance, leverage and liquidity and to determine a company's ability to service debt. Revenues Gross revenues for the quarter ended June 30, 1997, increased $41.5 million or 34.8% over the same period in 1996 due primarily to the inclusion of $35.5 million of revenues from the East Chicago Showboat and the recognition of $.8 million of management fees from the Company's affiliate Sydney Harbour Casino. The increase in gross revenues was offset by a $1.5 million or 14.3% increase in complimentaries, resulting in a $40.1 million or 36.7% increase in net revenues for the second quarter 1997. 13 (continued) MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued) Revenues (continued) The Atlantic City Showboat's gross revenue for the second quarter 1997 compared to the second quarter 1996 increased $4.6 million or 4.5% and was attributable to a $4.8 million or 5.6% increase in casino revenues. The increase in casino revenues was due to the $6.4 million or 9.8% increase in slot revenue attributable to the addition of approximately 80 slot machines during the second quarter of 1997 compared to the same period in 1996. This increase was partially offset by the $1.7 million or 8.9% decline in table games revenue attributable to the decline in table games hold percent of 13.9% in the second quarter compared to 15.3% in the same quarter of 1996. Net revenues increased $3.8 million or 4.0% after recognition of a $.9 million or 9.7% increase in complimentaries in the second quarter of 1997. The Las Vegas Showboat's net revenues improved $.6 million or 4.2% in the second quarter 1997 compared to the second quarter 1996 primarily due to a $.7 million or 6.8% increase in casino revenues. The increase in casino revenues primarily resulted from a $.6 million or 6.5% increase in slot revenue. Revenue improvements were achieved through focused marketing activities aided by the fact that there were no significant capacity increases in the market until the end of the June 1997 quarter. At the end of the June quarter, capacity on the Boulder Strip increased 21% due to the opening of a new hotel casino. The Company recorded a management fee for the first time of $.8 million from Sydney Harbour Casino. Due to an agreement with the Sydney Harbour Casino, the first A$19.1 million of management fees were forgiven. The Company also recognized consolidated net revenues of $34.8 million from the 55% owned East Chicago Showboat which commenced operations April 18, 1997. Income From Operations The Company's income from operations in the second quarter 1997 declined $3.0 million or 29.4% compared to the same period in 1996. The decline was principally due to the $9.6 million write off of preopening expenses, partially offset by the positive operating results of $3.1 million for the East Chicago Showboat. The Company is reviewing the operations of the East Chicago Showboat in an effort to improve profitability. Also offsetting the decline was the improved operating results at the Las Vegas Showboat, and the equity contribution of $.5 million and net management fees of $.8 million from the Sydney Harbour Casino. The Atlantic City Showboat's income from operations before management fees increased $.9 million or 5.5% in the quarter ended June 30, 1997 compared to the same period in 1996. This increase is attributable to the improvement in net revenues though partially offset by the increase in promotional expenses of $1.2 million and a $.9 million increase in costs associated with multicasino progressive slot machines during the second quarter 1997. The Las Vegas Showboat's income from operations before management fees and intercompany rent increased $1.4 million or 57.4% in the quarter ended June 30, 1997 compared to the same period in 1996. The increase is attributable to the 6.8% increase in casino revenue coupled with cost control activities. 14 (continued) MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued) Net Income (loss) The Company recorded a net loss of $2.0 million or $(.12) per share in the quarter ended June 30, 1997. Net income in the second quarter of 1997 was negatively impacted as the East Chicago Showboat incurred $9.6 million in preopening expenses. The after tax effect to the Company of the write-off of the preopening expenses was $4.9 million or $.30 per share. In addition, the East Chicago Showboat incurred a $1.3 million pre-tax loss of which the Company's after tax share was $.4 million or $(.02) per share. Showboat, Inc. recognized approximately 95% of the East Chicago Showboat's pre-tax loss due to its minority partner's inability to absorb its share of losses from its capital account. In future periods, the Company will recognize more than its 55% ownership interest, of the East Chicago Showboat's net income, until the Company has recovered the losses recognized related to its minority partner. For the same period 1996, the Company recorded net income of $1.1 million or $.07 per share. The 1996 results included the after tax effect of the write-off of preopening expenses at Sydney Harbour Casino of $.7 million or $.04 per share. Six Months Ended June 30, 1997 Compared to Six Months ended June 30, 1996 Comparison of Operating Results for the six months ended June 30, 1997 and 1996 Financial Highlights
Six months ended June 30, 1997 1996 Variance Percent - --------------------------------------------------------------------------- (Dollars in thousands) Gross revenues Atlantic City Showboat 203,643 195,440 8,203 4.2% Las Vegas Showboat 34,438 34,760 (322) (0.9%) Showboat Australia - Mgt. Fee 837 - 837 N/A East Chicago Showboat 35,521 - 35,521 N/A -------- -------- ------- -------- 274,439 230,200 44,239 19.2% -------- -------- ------- -------- Net revenues Atlantic City Showboat 185,277 179,283 5,994 3.3% Las Vegas Showboat 32,384 32,532 (148) (0.5%) Showboat Australia - Mgt. Fee 837 - 837 N/A East Chicago Showboat 34,840 - 34,840 N/A -------- -------- ------- -------- 253,338 211,815 41,523 19.6% -------- -------- ------- --------
15 (continued) MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued) Comparison of Operating Results for the six months ended June 30, 1997 and 1996 Financial Highlights (continued)
Six months ended June 30, 1997 1996 Variance Percent - --------------------------------------------------------------------------- (Dollars in thousands) Income from Operations Atlantic City Showboat 30,141 30,137 4 N/A Las Vegas Showboat (2,577) (3,310) 733 22.1% Corporate and development (8,112) (8,235) 123 1.5% Showboat Australia- Mgmt. Fee 474 (71) 545 767.6% Sydney Harbour Casino 2,003 - 2,003 N/A East Chicago Showboat 3,140 - 3,140 N/A East Chicago Showboat- preopening (9,577) - (9,577) N/A --------- -------- -------- -------- 15,492 18,521 (3,029) (16.4%) --------- -------- -------- -------- EBITDA * Atlantic City Showboat 43,290 43,437 (147) (0.3%) Las Vegas Showboat 540 (457) 997 218.2% Corporate and development (7,904) (8,062) 158 2.0% Showboat Australia- Mgmt. Fee 474 (71) 545 767.6% Sydney Harbour Casino 2,003 - 2,003 N/A East Chicago Showboat 5,569 - 5,569 N/A East Chicago Showboat- preopening (9,577) - (9,577) N/A -------- -------- -------- -------- 34,395 34,847 (452) (1.3%) -------- -------- -------- --------
* EBITDA is defined as income from operations before depreciation and amortization. EBITDA should not be construed as a substitute for income from operations, net earnings (loss) and cash flow from operating activities determined in accordance with Generally Accepted Accounting Principles ("GAAP"). The Company has included EBITDA because it believes it is commonly used by certain investors and analysts to analyze and compare gaming companies on the basis of operating performance, leverage and liquidity and to determine a company's ability to service debt. Revenues Gross revenues for the six months ended June 30, 1997, increased $44.2 million or 19.2% compared to the same period in 1996. This increase is primarily attributable to the $35.5 million of revenues from the East Chicago Showboat. Complimentaries rose $2.7 million during the first six months of 1997 resulting in a $41.5 million or 19.6% increase in net revenues. 16 (continued) MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued) Revenues (continued) The Atlantic City Showboat's gross revenues increased $8.2 million or 4.2% during the first six months ended June 30, 1997 compared to the same period in 1996. This increase is attributed to an $8.1 million or 4.9% increase in casino revenues tied to the $9.7 million or 7.8% growth in slot revenue. Table games revenue declined $1.7 million or 4.5% in the first six months of 1997 compared to 1996 due primarily to decline in table games hold percent to 14.3% in 1997 compared to 16.0% in 1996. The increase in gross revenues was partially offset by the $2.2 million or 13.7% increase in the cost of complimentaries, resulting in a $6.0 million or 3.3% increase in net revenues. Revenues at the Las Vegas Showboat were relatively unchanged during the comparative six month periods. The Company recorded a management fee for the first time of $.8 million from Sydney Harbour Casino. Due to an agreement with the Sydney Harbour Casino, the first A$19.1 million of management fees were forgiven. The Company also recognized consolidated net revenues of $34.8 million from the 55% owned East Chicago Showboat which commenced operations April 18, 1997. Income From Operations The Company's income from operations for the six months ended June 30, 1997, decreased $3.0 million or 16.4% over the same period in the prior year. The decrease is primarily attributable to the $9.6 million write-off of preopening expenses offset by the positive operating results of $3.1 million for the East Chicago Showboat. The Company is reviewing the operations of the East Chicago Showboat in an effort to improve profitability. This net decrease was partially offset by the $2.0 million equity contribution and the $.5 million of net management fees from Sydney Harbour Casino. The Atlantic City Showboat's income from operations remained flat during the six months ended June 30, 1997 compared to the same period in 1996. The Las Vegas Showboat's income from operations increased $.7 million or 22.1% for the six months ended June 30, 1997 compared to the same period in 1996. This increase was realized principally through cost control programs implemented at the property. Net Income (Loss) The Company recorded a net loss of $1.1 million or $(.07) per share for the six months ended June 30, 1997. Net income in 1997 was negatively impacted as the East Chicago Showboat incurred $9.6 million in preopening expenses. The after tax effect to the Company of the write-off of the preopening expenses was $4.9 million or $.30 per share. In addition, the East Chicago Showboat incurred a $1.7 million pre-tax loss of which the Company's after tax share was $.5 million or $(.03) per share. Showboat, Inc. recognized approximately 95% of the East Chicago Showboat's pre-tax loss due to its minority partner's inability to absorb its share of losses from its capital account. In future periods, the Company will recongnize more than its 55% ownership interest, of East Chicago Showboat's net income, until the Company has recovered the losses recognized related to its minority partner. For the same period 1996, the Company reported net income of $.3 million or $.02 per share. The 1996 results reflect an after tax loss of $2.5 million or $.15 per share for the write-off of an investment in the Randolph Riverboat project and an after tax write-off of preopening expenses of $1.3 million or $.08 per share for the Sydney Harbour Casino. 17 MATERIAL CHANGES IN FINANCIAL CONDITION As of June 30, 1997 the Company held cash and cash equivalents of $75.5 million and short term investments of $17.2 million compared to $60.3 million and $28.8 million respectively at December 31, 1996. During the six months ended June 30, 1997, the Company expended approximately $21.4 million on capital improvements at its Las Vegas and Atlantic City facilities, which were funded by operations. In addition, the Company expended approximately $55.9 million on construction costs at the East Chicago Showboat, which were principally funded from the proceeds of the $140.0 million, 13 1/2% First Mortgage Notes which were issued by the East Chicago Showboat in March of 1996. On May 3, 1997, Publishing & Broadcasting Limited ("PBL") formally advised the Company that PBL had let lapse the agreement in principle to acquire from the Company 10% of the stock of Sydney Harbour Casino Holdings Limited and the right to manage Sydney Harbour Casino. Accordingly, the Company will not receive any of the funds which would have been provided to it upon the sale of those assets described in the agreement in principle. The Company retains its rights to manage Sydney Harbour Casino and will remain the largest single shareholder (at 24.6%) of Sydney Harbour Casino Holdings Limited. As previously disclosed in the Company's 1996 year end financial statements and management's discussion and analysis of financial condition and results of operations, the Company entered into a completion guarantee to complete the East Chicago Showboat up to a maximum aggregate amount of $30.0 million. On April 18, 1997, the East Chicago Showboat commenced operations and the Company's obligations under the completion guarantee were terminated. The Company was not required to provide any funds under the completion guarantee. In addition, the Company entered into a standby equity commitment pursuant to which it will cause to be made up to an aggregate of $30.0 million in additional capital contributions to the East Chicago Showboat if, during the first three full four fiscal quarters following the commencement of operations at the East Chicago Showboat, the project's combined cash flow (as defined) is less than $35.0 million for any one such full four quarter period. However, in no event will the Company be required to cause to be contributed to the East Chicago Showboat more than $15.0 million in respect of any such full four quarter period. On June 9, 1997, the Company announced that it will not seek the necessary regulatory approvals for the tribal management agreement and related documents with the Lummi Indian Nation for a proposed Class III casino located between Bellingham, Washington, and Vancouver, British Columbia, and has withdrawn from the pursuit of this project. 18 MATERIAL CHANGES IN FINANCIAL CONDITION (continued) The Company believes that it has sufficient capital resources, including its existing cash balances, anticipated operating cash flows and existing borrowing capacity, to meet the cash requirements of its existing operations. The Company's ability to draw on the $25.0 million revolving line of credit with Fleet Bank N.A. (successor to Nat West Bank N.A.) expired in July 1997. The Company is currently seeking a replacement line of credit with Fleet Bank N.A. The ability of the Company to satisfy its cash requirements will be dependent upon the future performance of its casino hotels which will continue to be influenced by prevailing economic conditions and financial, business and other factors, certain of which are beyond the control of the Company. As the Company realizes expansion opportunities, the Company will need to make significant capital investments in such opportunities and additional financing will be required. The Company anticipates that additional funds will be obtained through loans or public offerings of equity or debt securities, although no assurance can be made that such funds will be available or at interest rates acceptable to the Company. Additionally, the Company's ability to make certain payments and to incur additional indebtedness is restricted due to its indentures governing its 9 1/4% First Mortgage Bonds due 2008 and 13% Senior Subordinated Notes due 2009. A description of these restrictions is contained in management's discussion and analysis of financial condition and results of operations contained in the Company's Form 10-K for the period ended December 31, 1996. No assurance can be given that the Company will in the future meet the terms of the indentures permitting it to make restricted payments or incur indebtedness. All statements contained herein that are not historical facts, including but not limited to, statements regarding the Company's current business strategy, the Company's prospective joint ventures, expansions of existing projects, and the Company's plans for future development and operations, are based upon current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Among the factors that could cause actual results to differ materially are the following: the availability of sufficient capital to finance the Company's business plan on terms satisfactory to the Company; competitive factors, such as legalization of gaming in jurisdictions from which the Company draws significant numbers of patrons and an increase in the number of casinos serving the markets in which the Company's casinos are located; changes in labor, equipment and capital costs; the ability to obtain necessary regulatory approvals or changes in regulations affecting the gaming industry; the ability of the Company to comply with the Indentures for its 9 1/4% Mortgage Bonds and 13% Senior Subordinated Indebtedness; future acquisitions or strategic partnerships; general business and economic conditions; and other factors described from time to time in the Company's reports filed with the Securities and Exchange Commission. The Company cautions the readers not to place undue reliance on any such forward-looking statements, which statements are made pursuant to the Private Litigation Reform Act of 1995 and, as such, speak only as of the date made. 19 SHOWBOAT, INC AND SUBSIDIARIES PART II, OTHER INFORMATION ITEM 1. Legal Proceedings "Doug Grant, Inc. et al. v. Greate Bay Casino Corporation et al.," instituted on July 28, 1997, in the Superior Court of New Jersey, Middlesex County, Law Division. The Company was served with the Complaint on July 31, 1997. The casino operators in Atlantic City, including the Company, and others were named defendants in the action, which alleges that the casino operators treated plaintiffs differently due to the fact they were known or suspected "card counters" and that the operators shared information on such individuals. The action is ostensibly based on purported violations of state and federal RICO and antitrust laws and various common law causes of action and state consumer protections law. The Company is currently reviewing the complaint and intends to vigorously defend the action. The Company (including its subsidiaries) is also a defendant in various other lawsuits, most of which relate to routine matters incidental to its business. Management does not believe that the outcome of such pending litigation, in the aggregate, will have a material adverse effect on the Company. ITEM 2. Changes in Securities Not applicable. ITEM 3. Defaults Upon Senior Securities Not applicable. ITEM 4. Submission of Matters to a Vote of Security Holders (a) The Company's annual meeting of Shareholders was held on May 29, 1997. (b) Directors Elected at the Meeting and the Remaining Directors (i) Directors Elected at the Meeting:
Name: Term Expiring in the Year: John D. Gaughan 2000 Frank A. Modica 2000 H. Gregory Nasky 2000 J. Kell Houssels, III 2000
(ii) Directors whose Term of Office Continued after the Meeting:
Name: Term Expiring in the Year: J. K. Houssels 1998 William C. Richardson 1998 Jeanne S. Stewart 1998 George A. Zettler 1999 Carolyn M. Sparks 1999
20 (continued) SHOWBOAT, INC AND SUBSIDIARIES PART II, OTHER INFORMATION (continued) ITEM 4. (continued) (c) Matters Voted Upon at the Meeting (i) Votes for the Election of Directors:
Nominee: "For" Votes Withheld Votes Abstain John D. Gaughan 12,334,031 762,336 0 Frank A. Modica 12,374,581 721,786 0 H. Gregory Nasky 12,374,381 721,986 0 J. Kell Houssels, III 12,374,556 721,811 0
(ii) Votes to Approve the Showboat, Inc. 1996 Stock Appreciation Rights Plan:
"For" Votes "Against" Votes Abstain/Broker Non-Votes 9,834,867 2,473,860 787,640
(iii) Votes to ratify the selection of the appointment of KPMG Peat Marwick as independent public accountants for the year ended December 31, 1997:
"For" Votes "Against" Votes Abstain/Broker Non-Votes 13,072,153 14,508 9,706
ITEM 5. Other Information Not applicable. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description - ---------------- --------------------------------------- 27.01 Financial Data Schedule (b) Reports on Form 8-K None 21 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: August 14, 1997 /s/ J. KELL HOUSSELS, III ------------------------ ------------------------- J. KELL HOUSSELS, III, President and Chief Executive Officer Date: August 14, 1997 /s/ R. CRAIG BIRD ------------------------ -------------------------- R. CRAIG BIRD, Executive Vice President - Finance and Administrative and Chief Financial Officer 22 EX-27 2
5 1000 6-MOS DEC-31-1997 JUN-30-1997 75481 17228 17279 2680 3343 132604 740076 224153 840562 80981 530931 0 0 16252 168437 840562 249323 253338 0 138015 101834 1249 18414 (2175) (1055) (1120) 0 0 0 (1120) (.07) (.07)
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