-----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, WJo/7FNbYvLtU8Fk2Uc9jNmVS3vsarFfrLqf8S0ZhnVfu+LuY9M4X+A8O/sbQT// 3zT9GoCIbYKNNvEkHslUng== 0000906477-98-000016.txt : 19980515 0000906477-98-000016.hdr.sgml : 19980515 ACCESSION NUMBER: 0000906477-98-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHOWBOAT INC CENTRAL INDEX KEY: 0000089966 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880090766 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07123 FILM NUMBER: 98620458 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: March 31, 1998 ------------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: to ------------ ------------ Commission file number: 1-7123 --------------------------------------- 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 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 ------- ------- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution under a plan confirmed by a court. YES NO ------- ------- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of the issuer's classes of common stock, as of the latest practicable date. COMMON STOCK - $1 PAR VALUE, AND PREFERRED STOCK PURCHASE RIGHTS 16,640,390 SHARES OUTSTANDING - ----------------------------------- ----------------------------- SHOWBOAT, INC. AND SUBSIDIARIES INDEX Part I FINANCIAL INFORMATION Page No. Item 1. Financial Statements Condensed Consolidated Balance Sheets - 1-2 March 31, 1998 and December 31, 1997 Condensed Consolidated Statements of 3 Operations - For the three months ended March 31, 1998 and 1997 Condensed Consolidated Statements of 4 Comprehensive Operations For the three months ended March 31, 1998 and 1997 Condensed Consolidated Statements of 5 Cash Flows - For the three months ended March 31, 1998 and 1997 Notes to the Condensed Consolidated 6-7 Financial Item 2. Management's Discussion and Analysis of 8-12 Financial Condition and Results of Operations PART II OTHER INFORMATION ITEMS 1 - 6 13 SIGNATURES 15 Item 1. Financial Statements
SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1998 AND DECEMBER 31, 1997 March 31, December 31, ASSETS 1998 1997 - ------------------------------- ----------- ------------ (unaudited) (In thousands) Current assets: Cash and cash equivalents $ 85,431 $ 67,145 Short term investments - 21,755 Receivables, net 13,648 15,748 Income tax receivable 381 2,361 Inventories 3,096 3,328 Prepaid expenses 4,480 6,027 Current deferred income taxes 6,430 6,603 ------------ ------------ Total current assets 113,466 122,967 ------------ ------------ Property and equipment 858,737 744,390 Less accumulated depreciation and amortization 253,906 243,414 ------------ ------------ 604,831 500,976 ------------ ------------ Other assets: Restricted cash and investments 3,000 3,000 Investments in unconsolidated affiliate 125,527 125,148 Deposits and other assets 34,482 33,906 Debt issuance costs, net of accumulated amortization of $4,730,000 and $4,193,000 at March 31, 1998 and December 31, 1997, respectively 15,897 14,550 ------------ ------------ 178,906 176,604 ------------ ------------ $ 897,203 $ 800,547 ============ ============ See accompanying notes to condensed consolidated financial statements. (continued)
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SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1998 AND DECEMBER 31, 1997 (continued) March 31, December 31, LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997 - ------------------------------------ ------------ ------------ (unaudited) (In thousands) Current liabilities Current maturities of long-term debt - with recourse $ 29 $ 28 Current maturities of long-term debt - without recourse 6,688 5,554 Notes payable 3,000 - Accounts payable 17,130 16,756 Dividends payable 414 402 Accrued liabilities 41,990 51,905 ------------ ----------- Total current liabilities 69,251 74,645 ------------ ----------- Long-term debt, excluding current maturities Debt with recourse 393,153 393,066 Debt without recourse 249,423 151,968 ------------ ----------- 642,576 545,034 ------------ ----------- Other liabilities 6,398 6,184 ------------ ----------- Deferred income taxes 10,373 11,741 ------------ ----------- Shareholders' equity: Preferred stock, $1 par value; 1,000,000 shares authorized; none issued Common stock, $1 par value; 50,000,000 shares authorized; issued 16,619,824 shares at March 31, 1998 and 16,350,849 at December 31, 1997 16,620 16,351 Additional paid-in capital 97,218 91,145 Retained earnings 63,644 64,761 ------------ ----------- 177,482 172,257 Cumulative foreign currency translation adjustment (7,416) (8,437) Unearned compensation for restricted stock (1,461) (877) ------------ ----------- Total shareholders' equity 168,605 162,943 ------------ ----------- $ 897,203 $ 800,547 ============ =========== See accompanying notes to condensed consolidated financial statements.
2
SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (unaudited) (In thousands except per share data) 1998 1997 ------------ ------------ Revenues: Casino $ 140,173 $ 92,597 Food and beverage 15,296 13,062 Rooms 5,419 5,670 Management fees 2,501 - Sports and special events 912 977 Other 1,166 1,240 ------------ ------------ 165,467 113,546 Less complimentaries 9,914 9,513 ------------ ------------ Net revenues 155,553 104,033 ------------ ------------ Operating costs and expenses: Casino 69,088 48,318 Food and beverage 9,253 7,391 Rooms 1,391 1,789 Sports and special events 920 910 General and administrative 36,909 28,383 Selling, advertising and promotion 8,955 2,005 Depreciation and amortization 11,851 8,329 ------------ ------------ 138,367 97,125 ------------ ------------ Income from consolidated subsidiaries 17,186 6,908 Equity in income (loss) of unconsolidated affiliate (953) 1,463 ------------ ------------ Income from operations 16,233 8,371 ------------ ------------ Other (income) expense: Interest income (1,180) (1,854) Interest expense, net of amounts capitalized 17,614 8,956 ------------ ------------ 16,434 7,102 ------------ ------------ Income (loss) before income taxes and minority interest (201) 1,269 Minority interest share of loss - 149 ------------ ------------ Income (loss) before income taxes (201) 1,418 Income tax expense 502 539 ------------ ------------ Net income (loss) $ (703) $ 879 ============ ============ Basic earnings (loss) per share $ (0.04) $ 0.05 Shares used in per share calculation 16,463,122 16,202,397 Diluted earnings (loss) per share $ (0.04) $ 0.05 Shares used in per share calculation 16,463,122 16,324,058 See accompanying notes to condensed consolidated financial statements
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SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (unaudited) 1998 1997 ----------- ---------- (In Thousands) Net Income (loss) $ (703) $ 879 Foreign currency translation adjustments net of tax 1,021 (1,087) ----------- ---------- Comprehensive Income (loss) $ 318 $ (208) =========== ========== See accompanying motes to condensed consolidated financial statements.
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SHOWBOAT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (unaudited) 1998 1997 ------------ ----------- (In thousands) Net cash provided by operating activities $ 9,237 $ 6,706 ------------ ----------- Cash flows from investing activities: Acquisition of property and equipment (115,477) (40,874) Investment in unconsolidated affiliate (781) (2,912) Repayments from unconsolidated affiliate 970 94 Decrease in restricted cash - 43,400 Increase in deposits and other assets - (7,854) Deposit for Casino Reinvestment Development Authority obligation (1,006) (981) Sale of short term investments 21,755 5,573 Other 120 239 ------------ ----------- Net cash used in investing activities (94,419) (3,315) ------------ ----------- Proceeds from issuance of long-term debt 100,000 - Proceeds from issuance of note payable 3,000 - Principal payments of long-term debt (1,418) (5) Debt issuance costs (1,884) - Proceeds from employee stock option exercises 4,172 71 Payment of dividends (402) (405) ------------ ----------- Net cash provided by (used in) financing activities 103,468 (339) ------------ ----------- Net increase in cash and cash equivalents 18,286 3,052 Cash and cash equivalents at beginning of period 67,145 60,287 ------------ ----------- Cash and cash equivalents at end of period $ 85,431 $ 63,339 ============ =========== Supplemental disclosures of cash flow information and non-cash investing and financing activities: Cash paid (received) during the period for: Interest, net of amounts capitalized 18,442 10,731 Income taxes (448) 675 Foreign currency translation adjustment 1,021 (1,087) Equipment acquired under capital leases - 10,984 See accompanying notes to condensed consolidated financial statements.
5 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS The condensed consolidated financial statements of Showboat, Inc. and subsidiaries (the "Company") include all domestic and foreign subsidiaries which are more than 50% owned and controlled. Investments in unconsolidated affiliates which are at least 20% owned are carried at cost plus equity in undistributed earnings or loss since acquisition. All material intercompany balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1997 Annual Report on Form 10-K. The accompanying unaudited condensed consolidated financial statements contain all adjustments of a recurring nature, which in the opinion of management, are necessary for a fair statement of the results of the interim periods. The results of operations for the interim periods are not indicative of results of operations for an entire year. Certain prior period balances have been reclassified to conform to the current period's presentation. 2. LONG TERM DEBT On January 28, 1998, a special purpose subsidiary of the Company borrowed $100.0 million from Column Financial, Inc. to acquire 10 1/2 leased acres of real property (the "Atlantic City Property") located at 801 Boardwalk, Atlantic City, New Jersey and the lease pursuant to which the Atlantic City Property was leased to Atlantic City Showboat, Inc. ("ACSI") from Sun International, Inc. for a total purchase price of $110.0 million. The loan will mature on February 1, 2028. Interest accrues on the loan at an interest rate of 7.09% until February 1, 2008, at which time, unless paid off as of such date, the loan will accrue a second tranche of interest at a rate equal to the lesser of (i) the positive excess (if any) of (A) the 20 year Treasury Rate plus 2.0% per annum over (B) 7.09%, and (ii) 5.0% per annum. 3. SHOWBOAT MERGER On December 18, 1997, the Company entered an Agreement and Plan of Merger with Harrah's Entertainment, Inc., a Delaware corporation ("Harrah's"), and HEI Acquisition Corp., a Nevada corporation and wholly owned subsidiary of Harrah's ("Harrah's Sub"), whereby Harrah's Sub would be merged with and into the Company and the Company would consequently become a wholly owned subsidiary of Harrah's (the "Showboat Merger"). On April 23, 1998, the Company's shareholders approved the Showboat Merger and the Company has received all required regulatory approvals except for the approval of the regulatory authorities in New South Wales, Australia. If the Showboat Merger is approved by the Australian regulatory authorities and the other conditions to the Showboat Merger are satisfied or waived, articles of merger will be filed 6 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3. SHOWBOAT MERGER (Continued) with the Nevada Secretary of State and the Company's shareholders will become entitled to receive $30.75 in cash, without interest, per share of common stock of the Company held. In conjunction with its acquisition of the Company, on May 13, 1998, Harrah's commenced a fixed spread cash tender offer for all of the Company's outstanding 9 1/2% First Mortgage Bonds due 2008 and 13% Senior Subordinated Notes due 2009 (collectively, "the Notes"). Concurrently with the tender offer, Harrah's is soliciting consents from the holders of the Notes to amend the respective Indentures governing each of the Notes to eliminate or modify substantially all of the negative covenants, certain events of default, and to make certain other changes to the Indentures. The tender offer is scheduled to expire on June 10, 1998, unless extended. The tender offer and consent solicitation are conditioned upon, among other things, the receipt of tenders and consents from not less than a majority in aggregate principal amount outstanding of each series of Notes. 4. COMMITMENTS AND CONTINGENCIES The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial statements taken as a whole. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL Showboat, Inc. and its subsidiaries (collectively, the "Company" or "SBO"), is an international gaming company that owns and operates the Atlantic City Showboat Casino Hotel in Atlantic City, New Jersey (the "Atlantic City Showboat"), the Las Vegas Showboat Casino, Hotel and Bowling Center in Las Vegas, Nevada (the "Las Vegas Showboat"), beneficially owns 24.6% of, and manages, Star City, a casino and entertainment complex located in Sydney, New South Wales, Australia ("Star City" or "Sydney Harbour Casino"), and owns a 55% interest in, and manages, the Showboat Mardi Gras Casino located in East Chicago, Indiana (the "East Chicago Showboat"). Information contained in this quarterly report is supplemental to disclosures in the Company's year end financial reports. This management's discussion and analysis of financial condition and results of operations should be read in conjunction with the management's discussion and analysis of financial condition and results of operations in the Company's December 31, 1997 Form 10-K. As used in this management's discussion and analysis of financial condition and results of operations, amounts in Australian dollars are denoted as "A$". The exchange rate was approximately $.6630 and $.7820 for each A$1.00 as of March 31, 1998 and 1997, respectively. MATERIAL CHANGES IN RESULTS OF OPERATIONS QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
Financial Highlights (unaudited) Comparison of Operating Results for the three months ended March 31, 1998 and 1997 (Dollars in thousands) 1998 1997 Variance Percent Gross revenues Atlantic City $ 97,934 $ 96,242 $ 1,692 1.8% Las Vegas 17,734 17,304 430 2.5% Showboat Australia Mgt. Fees 2,501 - 2,501 N/A East Chicago Showboat 47,298 - 47,298 N/A ---------- ---------- ---------- ------- $ 165,467 $ 113,546 $ 51,921 45.7% ---------- ---------- ---------- ------- Net revenues Atlantic City $ 89,875 $ 87,825 $ 2,050 2.3% Las Vegas 16,643 16,208 435 2.7% Showboat Australia Mgt. Fees 2,501 - 2,501 N/A East Chicago Showboat 46,534 - 46,534 N/A ---------- ---------- ---------- ------- $ 155,553 $ 104,033 $ 51,520 49.5% ---------- ---------- ---------- -------
(continued) 8
MATERIAL CHANGES IN RESULTS OF OPERATIONS (CONTINUED) Comparison of Operating Results for the three months ended March 31, 1998 and 1997 (Dollars in thousands) 1998 1997 Variance Percent Income from operations Atlantic City $ 14,741 $ 12,514 $ 2,227 17.8% Las Vegas (613) (1,526) 913 59.8% Corporate and Development (2,486) (3,790) 1,304 34.4% Showboat Australia - Mgt. Fee 2,234 (290) 2,524 970.3% Sydney Harbour Casino (953) 1,463 (2,416) (265.1)% East Chicago Showboat 3,310 - 3,310 N/A ---------- ---------- ---------- ---------- Consolidated $ 16,233 $ 8,371 $ 7,862 93.9% ---------- ---------- ---------- ---------- EBITDA* Atlantic City $ 21,496 $ 19,193 $ 2,303 12.0% Las Vegas 1039 21 1,018 4,847.6% Corporate and Development (2,380) (3,687) 1,307 135.4% Showboat Australia - Mgt. Fee 2,234 (290) 2,524 970.3% Sydney Harbour Casino (953) 1,463 (2,416) (265.1)% East Chicago Showboat 6,648 - 6,648 N/A ---------- ---------- ---------- --------- Consolidated $ 28,084 $ 16,700 $ 11,384 68.2% ---------- ---------- ---------- --------- Net of operating expenses and amortization of equity and debt costs at Showboat, Inc. *EBITDA is defined as income from operations before depreciation and amortization. EBITDA should not be construed as a substitute for income from operations, net earnings (loss) and cash flows from operating activities determined in accordance with Generally Accepted Accounting Principles ("GAAP"). The Company has included EBITDA because it believes it is commonly used by certain investors and analysts to analyze and compare gaming companies on the basis of operating performance, leverage and liquidity and to determine a company's ability to service debt.
REVENUES The Company's gross revenues increased $51.9 million or 45.7% which was primarily attributable to the $47.3 million of gross revenues from the East Chicago Showboat which commenced operations in April 1997 and the recognition of $2.5 million of management fees from Sydney Harbour Casino. Management fees from Sydney Harbour Casino had not been recognized in the prior year's first quarter due to an agreement to forgo the first A$19.1 million of management fees payable to the Company. Complimentaries rose $.4 million in the first quarter of 1998 compared to 1997, primarily due to the operations of the East Chicago Showboat, resulting in a $51.5 million or 49.5% increase in net revenues. 9 REVENUES (CONTINUED) The Atlantic City Showboat's gross revenues increase of $1.7 million or 1.8% was principally attributed to a $2.7 million or 3.4% increase in casino revenues. The increase in casino revenues was tied to the $5.8 million or 9.0% growth in slot revenue, at the Atlantic City casino which compared. favorably to a 4.6% slot revenue growth in the Atlantic City market. Table games revenue declined $2.4 million or 13.3% due primarily to an increased level of competition for table games patrons. The cost of complimentaries declined $.4 million or 4.3% in the first quarter of 1998 compared to 1997, contributing to the $2.1 million or 2.3% increase in net revenues. The Company recognized consolidated net revenues of $46.5 million from the East Chicago Showboat which were derived principally from the casino operation that produced $33.1 million of slot revenue, $9.7 million of table game revenue and $1.4 million of poker revenue. Revenues at the Las Vegas Showboat were relatively unchanged during the comparative periods. INCOME FROM OPERATIONS The Company's income from operations increased $7.9 million or 93.9% due principally to the recognition of the $3.3 million income from operations from the East Chicago Showboat and a $2.2 million improvement in income from operations at the Atlantic City Showboat. The improvement at the Atlantic City Showboat is primarily due to the improvement in net revenues. Income from operations was also positively impacted by the elimination of $1.5 million of rental expense for the quarter on a consolidated basis due to the January 1998 purchase of the 10 1/2 leased acres of real property (the "Atlantic City Property") located at 801 Boardwalk, Atlantic City, New Jersey. Due to the purchase of the Atlantic City Property the Company incurred additional interest expense during the first quarter of 1998 of approximately $1.3 million. As a result the financial impact to net income due to the purchase of the Atlantic City Property was approximately $.2 million. The Las Vegas Showboat's income from operations increased $.9 million or 59.8%. This increase was realized principally through cost control programs implemented at the Las Vegas property and more targeted marketing programs. The Company realized a loss from its unconsolidated affiliate Star City of $1.0 million in the current quarter compared to income of $1.4 million in the same period in 1997. The $2.4 million decline is primarily attributable to lower than anticipated revenues from the newly opened Star City and the higher cost of labor and operating costs. Star City's management took steps during the first quarter of 1998, that included staff reductions, to enhance future operating results. The Company's loss from its unconsolidated affiliate includes approximately $.8 million of expense associated with staff reductions. In addition, income from operations at Star City was positively impacted by the recognition of $.8 million from the sale of apartments which had been developed as part of the permanent facility. The decline in income from operations at Star City was substantially offset by the recognition of $2.5 million of management fees from Star City. NET INCOME In the quarter ended March 31, 1998 the Company recorded a net loss of $.7 million or $.04 per share. Net interest expense increased by approximately $8.7 million due to the incurrence of new debt and the expensing of interest in the first quarter of 1998 versus capitalizing 10 NET INCOME (CONTINUED) a portion of the interest in 1997. Net income for the first quarter of 1998 was also negatively impacted due to the recognition of the following unusual items totaling $1.7 million (before tax): (i) East Chicago Showboat minority partner's share of losses totaling $1.0 million (ii) $.7 million of charges associated with the proposed merger with Harrah's Entertainment, Inc. (iii) $.8 million of one time staff reduction costs incurred by Star City and (iv) was positively impacted by the recognition of $.8 million from the sale of apartments by Star City. Exclusive of these unusual items, the Company would have recorded net income of approximately $.8 million or $.05 per share. Net income for the first quarter of 1997 included interest expense of approximately $.2 million incurred by the East Chicago Showboat prior to its opening in April of 1997. Exclusive of this unusual item, the Company would have recorded net income of approximately $1.0 million or $.06 per share. MATERIAL CHANGES IN FINANCIAL CONDITION As of March 31, 1998 the Company held cash and cash equivalents of $85.4 million compared to cash and cash equivalents of $67.1 million and short term investments of $21.8 million at December 31, 1997. The cash balances include the funds of the East Chicago Showboat ($8.3 million and $7.2 million at March 31, 1998 and December 31, 1997, respectively) that are not available for use other than to support the East Chicago Showboat. In addition to the Company's cash balances, $3.0 million of restricted cash has been pledged as collateral for the East Chicago Showboat's line of credit with Fleet Bank N.A. As of March 31, 1998 all available funds were drawn by the East Chicago Showboat on this line of credit. During the three months ended March 31, 1998, the Company expended approximately $4.9 million on capital improvements at the Atlantic City Showboat and the Las Vegas Showboat which were funded by operations. In addition, the Company expended approximately $.6 million on capital improvements at the East Chicago Showboat which were funded from the operation of the East Chicago Showboat. On December 18, 1997, the Company entered an Agreement and Plan of Merger with Harrah's Entertainment, Inc., a Delaware corporation ("Harrah's"), and HEI Acquisition Corp., a Nevada corporation and wholly owned subsidiary of Harrah's ("Harrah's Sub"), whereby Harrah's Sub would be merged with and into the Company and the Company would consequently become a wholly owned subsidiary of Harrah's (the "Showboat Merger"). On April 23, 1998, the Company's shareholders approved the Showboat Merger and the Company has received all required regulatory approvals except for the approval of the regulatory authorities in New South Wales, Australia. If the Showboat Merger is approved by the Australian regulatory authorities and the other conditions to the Showboat Merger are satisfied or waived, articles of merger will be filed with the Nevada Secretary of State and the Company's shareholders will become entitled to receive $30.75 in cash, without interest, per share of common stock of the Company held. In conjunction with its acquisition of the Company, on May 13, 1998, Harrah's commenced a fixed spread cash tender offer for all of the Company's outstanding 9 1/2% First Mortgage Bonds due 2008 and 13% Senior Subordinated Notes due 2009 (collectively, "the Notes"). The consideration to be paid to the holders of validly tendered Notes will be determined on the second business 11 MATERIAL CHANGES IN FINANCIAL CONDITION (continued) day preceding the expiration of the tender offer. This consideration will be a price resulting in a yield to the first redemption date of the Notes equal to the yield, plus a fixed spread, of a specified reference security maturing at the first redemption date of each Note, plus accrued interest. Concurrently with the tender offer, Harrah's is soliciting consents from the holders of the Notes to amend the respective Indentures governing each of the Notes to eliminate or modify substantially all of the negative covenants, certain events of default, and to make certain other changes to the Indentures. The tender offer is scheduled to expire on June 10, 1998, unless extended. The tender offer and consent solicitation are conditioned upon, among other things, the receipts of tenders and consents from not less than a majority in aggregate principal amount outstanding of each series of Notes. As previously disclosed in the Company's Form 10-K filed December 31, 1997, the Company entered into a standby equity commitment which requires that if, during any of the first three Operating Years (as defined), SMCP's Combined Cash Flow (as defined) is less than $35.0 million, the Company will be required to make additional capital contributions to SMCP in the lesser of (a) $15.0 million, or (b) the difference between the $35.0 million and the Operating Year's Combined Cash Flow. The Company's aggregate potential obligation under the standby equity commitment is $30.0 million. SMCP anticipates that the Combined Cash Flow of SMCP for the first full four quarters of operation will not achieve the $35.0 million threshold and Showboat will be required to contribute approximately $14.0 million under the standby equity commitment. As of March 31, 1998, the Company has contributed $1.0 million to SMCP as part of this standby equity commitment. There can be no assurance that the Combined Cash Flow for any future Operating Year will exceed $35.0 million and that the Company will not be required to make additional capital contributions to SMCP in accordance with the standby equity commitment. The Standby Equity Commitment is subject to certain limitations, qualifications, and exceptions. The Company believes that it has sufficient capital resources, including its existing cash balances, cash provided by operations and existing borrowing capacity, to cover the cash requirements of its existing operations. The ability of the Company to satisfy its cash requirements, however, will be dependent upon the future performance of its casino hotels which will continue to be influenced by prevailing economic conditions and financial, business and other factors, certain of which are beyond the control of the Company. As the Company realizes expansion opportunities, the Company will need to make significant capital investments in such opportunities and additional financing will be required. The Company anticipates that additional funds will be obtained through loans or public offerings of equity or debt securities, although no assurance can be made that such funds will be available or at interest rates acceptable to the Company. Additionally the Company's ability to make certain payments and to incur additional indebtedness is restricted due to the indentures governing its 9 1/4% First Mortgage Bonds due 2008 and 13% Senior Subordinated Notes due 2009. A description of these restrictions is contained in management's discussion and analysis of the financial condition and results of operation contained in the Company's Form 10-K for the period ended December 31, 1997. No assurance can be given that the Company will in the future meet the terms of the indentures permitting it to make restricted payments or incur indebtedness. 12 SHOWBOAT, INC AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Doug Grant, Inc. et. al v. Greate Bay Casino Corporation, et. al., in the United States District Court, District of New Jersey, Camden, New Jersey with the assigned Docket Number 97CV4291 (JEI). On May 1, 1998, the Court dismissed, with prejudice, all of the counts against the Company, except for the privacy claims of six plaintiffs. The remaining count was remanded to the Superior Court of New Jersey, Middlesex County. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 23, 1998, the Company held a Special Meeting ("Meeting") of Shareholders to consider the proposal to approve and adopt an Agreement and Plan of Merger, dated as of December 18, 1997 ("Merger Agreement"), by and among Harrah's Entertainment, Inc. ("Harrah's"), HEI Acquisition Corp., an indirect wholly-owned subsidiary of Harrah's ("Sub"), and the Company, pursuant to which, (i) Sub will be merged with and into the Company ("Merger"), with the Company continuing as the surviving corporation and becoming an indirect wholly-owned subsidiary of Harrah's and (ii) each outstanding share of common stock, par value $1.00 per share, of the Company, other than shares owned by Harrah's or the Company as treasury stock (which will be canceled), will be converted into the right to receive $30.75 in cash, without interest. The affirmative vote of the holders of 66 2/3% of the outstanding shares of Common Stock was required to approve and adopt the Merger Agreement. On March 19, 1998, the record date for the Meeting, there were 16,548,765 shares outstanding. The proposal was approved by in excess of 66 2/3% of the shares outstanding and received the following votes: "For" 11,868,696 "Against" 80,512 "Abstain" 7,358 ITEM 5. OTHER INFORMATION Not applicable. 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. Description 11.01 Computation of Net Earnings (Loss) Per Share 27.01 Financial Data Schedule (b) Reports on Form 8-K None 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Showboat, Inc. Registrant Date: May 14, 1998 /s/ J. KELL HOUSSELS, III J. KELL HOUSSELS, III, President and Chief Executive Officer Date: May 14, 1998 /s/ R. CRAIG BIRD R. CRAIG BIRD, Executive Vice President - Finance and Administrative and Chief Financial Officer 15 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION PAGE NO. 11.01 Computation of Net Earnings (Loss) Per Share 27.01 Financial Data Schedule 16 EX-11 2 EXHIBIT 11.01
COMPUTATION OF NET EARNINGS (LOSS) PER SHARE (UNAUDITED) Three Months Ended March 31 ------------------------------ 1998 1997 ------------- ------------- Net income (loss) $ (703,000) $ 879,000 ============= ============= Weighted average common shares outstanding 16,463,122 16,202,397 Common equivalent shares representing shares 320,181 121,661 issuable upon exercise of stock options Less common equivalent shares due to antidilutive nature (320,181) - ------------- ------------- Dilutive adjusted weighted average shares and assumed conversions 16,463,122 16,324,058 ------------- ------------- Basic net income (loss) per share $ (0.04) $ 0.05 Diluted net income (loss) per share $ (0.04) $ 0.05
EX-27 3
5 1,000 3-MOS DEC-31-1998 MAR-31-1998 85,431 0 16,480 2,832 3,096 113,466 858,737 253,906 897,203 69,251 531,213 0 0 16,620 151,985 897,203 151,886 155,553 0 80,652 57,715 581 16,434 (201) 502 (703) 0 0 0 (703) (.04) (.04)
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