ITEM 1. BUSINESS.
General
The Company owns and operates two hotel, casino and bowling centers, the Showboat Hotel, Casino and Bowling Center in Las Vegas, Nevada ("Las Vegas Showboat") and the Showboat Casino Hotel in Atlantic City, New Jersey ("Atlantic City Showboat") through its respective Nevada and New Jersey subsidiaries. The Company's wholly-owned Nevada subsidiaries include Showboat Operating Company and Showboat Development Company. Showboat Development Company's wholly owned subsidiaries include Showboat Indiana, Inc., Showboat Missouri, Inc., Lake Pontchartrain Showboat, Inc. and Showboat Louisiana, Inc. Showboat Indiana Investment L.P. is a subsidiary of which 99% is owned by Showboat Operating Company and 1% is owned by Showboat Indiana, Inc. Showboat Indiana Investment L.P. owns a 55% partnership interest in Showboat Marina Partnership. Showboat Marina Partnership is the sole applicant for a riverboat gaming license in East Chicago, Indiana. Showboat Australia Pty Limited ("SAPL") is a subsidiary owned 50% by Showboat Development Company and 50% by the Company. SAPL owns 26.3% of Sydney Harbour Casino Holdings Limited, the holding company of the licensee awarded a 99 year casino license to operate the first full-service casino in Sydney, New South Wales, Australia.
The Company commenced operations on September 9, 1954, as a partnership and was incorporated under the laws of the State of Nevada in 1960. The Company became a registered public company on December 19, 1968. It was listed on the American Stock Exchange on February 1973 and was listed on the New York Stock Exchange on May 30, 1984. The Company operated only the Las Vegas Showboat until March 30, 1987 when the Atlantic City Showboat commenced operations. The Company's New Jersey subsidiaries include its wholly-owned subsidiary Ocean Showboat, Inc. ("OSI"), and OSI's wholly-owned subsidiaries Atlantic City Showboat, Inc. ("ACSI") and Ocean Showboat Finance Corporation ("OSFC"). Unless the context otherwise requires, the "Company" or "SBO," as applicable, refers to Showboat, Inc. and its subsidiaries. The Company's executive offices are located at 2800 Fremont Street, Las Vegas, Nevada 89104, and its telephone number is (702) 385-9141.
Through its subsidiary, Showboat Louisiana, Inc., the Company owned an equity interest in Showboat Star Partnership, a Louisiana general partnership. Showboat Star Partnership owned a riverboat casino named the "Star Casino," which had been
operating on Lake Pontchartrain in New Orleans, Louisiana since November 8, 1993 until March 9, 1995 when it permenantly closed the casino. Another subsidiary of the Company, Lake Pontchartrain Showboat, Inc. ("LPSI"), received a management fee of 5% of gaming revenues, net of gaming taxes and regulatory boarding fees, in exchange for managing the Star Casino's operations pursuant to a management contract. On March 3, 1995, Showboat Louisiana, Inc. and LPSI acquired all of the partnership interests not previously owned by Showboat Louisiana, Inc. for $25.0 million subject to adjustment. SBO had previously acquired a 30% equity interest in 1993 for $18.6 million and had acquired an additional 20% equity interest in the Showboat Star Partnership in March 1994 from a partner in exchange for $9.0 million.
The Company, through its subsidiary Showboat Indiana Investment Limited Partnership, owns a 55% interest in the Showboat Marina Partnership (the "Indiana Partnership") which is the only applicant for the sole riverboat gaming license allocated by statute to East Chicago, Indiana. The riverboat will be located approximately 20 minutes from downtown Chicago, Illinois and approximately three miles from the Chicago city limits. The Company anticipates that licensing hearings for the Indiana Partnership will begin in late 1995 and in the event the Indiana Partnership is granted a license, it is anticipated that gaming will first commence at temporary facilities and gaming vessel while the permanent facilities and gaming vessel are being constructed.
Sydney Harbour Casino Pty Limited, a subsidiary of Sydney Harbour Casino Holdings Limited ("SHCL") a corporation in which the Company owns 26.3% of the outstanding capital, was, in December 1994, awarded the single full-service casino license for Sydney, New South Wales, Australia, which is exclusive in the State of New South Wales for 12 years from the commencement of operations at the temporary casino. SHCL has commenced construction of both temporary and permanent facilities. The Company anticipates that the temporary facility, containing 150 table games and 500 slot machines, will commence operations in September 1995 and the permanent facility, containing 200 table games and 1,500 slot machines, will commence operations in early 1998.
The Company's marketing and operating strategy is to develop a high volume of traffic through its casinos, emphasizing slot machine play which accounted for 83.0%, 73.6% and 75.3% of the casino revenues of the Las Vegas Showboat, the Atlantic City Showboat, and the Star Casino, respectively, in 1994. Customers are attracted to the Las Vegas Showboat by competitive slot machines, bingo, moderately priced food and accommodations, a friendly "locals" atmosphere and a 106-lane bowling center. The Atlantic City Showboat targets the drive-in customer by providing competitive games and excellent service in an attractive convenient facility. The Star Casino, like the Las Vegas Showboat, targeted "locals"
with its excellent service, attractive and convenient facility and accessible location.
Fiscal Year 1994 Developments
Sydney, Australia
On December 14, 1994, the New South Wales Casino Control Authority ("NSWCCA") selected Sydney Harbour Casino Pty Limited ("SHCP"), a subsidiary of SHCL, as the single full-service casino licensee in Sydney, New South Wales. An unsuccessful applicant for the casino license has initiated legal proceedings in New South Wales against SHCP, the NSWCCA and others, alleging, among other things, that the NSWCCA was not justified in issuing the casino license to SHCP. The proceedings seek the revocation of the casino license awarded to SHCP. The Company believes that the proceedings are meritless and intends to vigorously defend the allegations. For a more detailed discussion of the legal proceedings see "PART I, ITEM 3: LEGAL PROCEEDINGS." The casino license has a term, subject to earlier termination, of 99 years, and provides to SHCP the exclusive right to operate a full- service casino in New South Wales for twelve years commencing upon the opening of the temporary casino. SAPL owns 26.3% of the outstanding equity of SHCL. Slot machines are currently permitted in approximately 1,500 non-profit private clubs in New South Wales, most of which contain less than 25 slot machines.
The Sydney Harbour Casino will begin operations in a temporary casino, which will be located at Pyrmont Bay on Wharves 12 and 13 in an existing building which is being renovated to permit the operation of a casino. The temporary casino is anticipated to open in September 1995, and is expected to contain approximately 500 slot machines, and 150 table games. Additional amenities are expected to include cocktail lounges, specialty restaurants, retail shops and on-site parking for over 400 vehicles.
The permanent Sydney Harbour Casino is expected to be open in early 1998. The Sydney Harbour Casino will be located less than one mile from the Sydney central business district on an eight-acre waterfront site on Pyrmont Bay next to Darling Harbour. The Sydney Harbour Casino will feature approximately 136,000 square feet of casino space, including an approximately 20,000 square foot private gaming area to be located on a separate level which will target a premium clientele. The Sydney Harbour Casino will have approximately 1,500 slot machines and 200 table games. The Sydney Harbour Casino has been designed to capture Australia's natural beauty and diverse geography and will contain cascading water fountains. The Sydney Harbour Casino will also contain 14 themed restaurants, 12 cocktail lounges, a deluxe 2,000 seat lyric theatre, a 700 seat cabaret style theatre and extensive public areas which include
landscaped gardens. The Sydney Harbour Casino complex will include a 352 room hotel tower and an adjacent condominium tower containing 139 privately owned luxury units with full hotel services. The complex will also include extensive retail facilities, a station for Sydney's proposed light rail system, a bus terminal, docking facilities for commuter ferries and underground parking for approximately 2,500 cars.
Public Offering of 13% Senior Subordinated Notes due 2009
On August 10, 1994 the Company issued $120 million of 13% Senior Subordinated Notes due 2009 ("Notes"). The Notes are unsecured general obligations of the Company, subordinated in right of payment to all senior indebtedness of the Company. The Notes are jointly and severally guaranteed on an unsecured, senior subordinated basis by OSI, ACSI and Showboat Operating Company. Pursuant to the indenture for the Notes (the "Note Indenture") among the Company, OSI, ACSI, Showboat Operating Company and Marine Midland Bank, as trustee. The Note Indenture provides for the issuance of an additional $30 million of the Notes. The Notes are not redeemable by the Company prior to August 1, 2001 unless otherwise permitted pursuant to the terms of the Note Indenture. On or after August 1, 2001, the Notes are redeemable at the option of the Company, in whole or in part, at redemption prices provided for in the Note Indenture, together with accrued and unpaid interest, if any, to the redemption date. The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes.
The proceeds from the sale of the Notes (Note Offering) were $116.5 million, net of underwriting discounts and commissions. Proceeds were reserved for or used to (i) invest approximately $100.0 million to purchase 135 million ordinary shares of SHCL, 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 connection with providing certain financial services, the Company issued as of May 6, 1994, warrants to purchase 150,000 shares of common stock, $1.00 par value, of the Company, issuable at an exercise price per share equal to $15.50 to DLJ Bridge Finance, Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation, the underwriter of the Note Offering.
Amendment of Indenture governing 9 1/4% First Mortgage Bonds due 2008
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, includingrestrictions 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. The Company received consents from the holders of approximately $260 million 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. For a description of the restrictions contained in the Bond Indenture, as amended, see "PART II, ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES."
Atlantic City Showboat Expansion
During 1994, the Company completed the construction of a three-part $97 million expansion project which has made the Atlantic City Showboat one of the largest casinos in Atlantic City. The first stage of the expansion was completed in May 1993 and added Jake's Betting Parlor, Atlantic City's first horse race simulcasting facility. Approximately 4,500 square feet of casino space was added in 1993 and 15,500 square feet more was added in 1994, yielding a total of 95,000 square feet of casino space. Along with the additional casino space, the Company added approximately 340 slot machines and 28 table games in 1993 and approximately 609 slot machines and 10 table games in 1994 for a total of approximately 3,000 slot machines and 116 table games. The final stage of the expansion was the addition of the new seventeen story 284-room hotel tower, which opened in November 1994, three months ahead of the original schedule. As a result of the expansion, the Company will receive $8.7 million in credits from the Casino Reinvestment Development Authority, which are currently being redistributed to Showboat in the form of cash.
Star Casino
The Star Casino, a riverboat casino located on the south shore of Lake Pontchartrain in New Orleans, Louisiana is owned by the Showboat Star Partnership, a Louisiana general partnership formed in July 1993 between the Company and Star Casino, Inc., a Louisiana corporation. Until March 1, 1994, Showboat Louisiana, Inc. owned 30% of the partnership and Star Casino, Inc. was the managing partner. Effective March 1, 1994, Showboat Louisiana, Inc. purchased from Star Casino, Inc. an additional 20% equity interest in the partnership for $9.0 million. Effective March 3, 1995 Showboat Louisiana, Inc. and LPSI
purchased the remaining 50% of the equity of the partnership not owned by Showboat Louisiana, Inc. for $25.0 million, subject to certain adjustments. Showboat Louisiana, Inc. and LPSI anticipate selling their partnership interests to subsidiaries of Players International, Inc. for $52 million, subject to adjustment, on March 31, 1995.
On December 5, 1994, the operations of the Star Casino were suspended by the Louisiana State Police, Riverboat Gaming Division, who alleged that the Star Casino was not permitted to operate dockside gaming. The Showboat Star Partnership obtained a restraining order the next day and recommenced dockside gaming operations pending an administrative hearing. The administrative hearing occurred on December 21 and 22, 1994. On December 28, 1994, the administrative law judge, a retired Louisiana Supreme Court Justice, ruled that the Star Casino was operating in compliance with the Louisiana Riverboat Gaming Act.
On January 17, 1995, the Showboat Star Partnership elected to cease gaming operations as a result of the receipt of information that the District Attorney of Orleans Parish ("District Attorney") would charge the Showboat Star Partnership with a misdemeanor if the Star Casino did not cease dockside gaming activities. A temporary restraining order was obtained against the District Attorney which prevented the District Attorney from filing charges against the Showboat Star Partnership on January 26, 1995 and the Star Casino was reopened on January 27, 1995.
The District Attorney requested first the Fourth Circuit Court of Appeals, and upon its denial, the Louisiana Supreme Court to suspend the temporary restraining order. On March 9, 1995, the Louisiana Supreme Court ruled that a civil district court cannot, except in exigent circumstances, restrict a district attorney from investigating or filing charges, and, as a result of that ruling, suspended the temporary restraining order obtained by the Showboat Star Partnership. Rather than risk criminal indictment, which could jeopardize the Company's current licenses and pending and future applications in other jurisdictions, Showboat Star Partnership permanently ceased operations on March 9, 1995.
On February 24, 1995, Showboat Star Partnership (i) assigned its leases with the Orleans Levee Board for leased land, parking areas and docking facilities; (ii) sold the terminal building and other improvements it constructed on the leased land; and (iii) sold certain personal property used at the terminal building, for $6 million to Belle of Orleans, L.L.C. The Company recognized a pre-tax loss of approximately $2.7 million upon the consummation of the sale of the terminal facilities. The net proceeds of the transactions with Player's International, Inc. and Belle of Orleans, L.L.C. approximate the Company's cumulative investment in Showboat Star Partnership.
East Chicago, Indiana
On February 2, 1994, the Indiana Partnership, consisting of Showboat Indiana Investment Limited Partnership, a wholly-owned limited partnership ("SII"), and Waterfront Entertainment and Development, Inc., an unrelated Indiana corporation ("Waterfront"), filed Part I of its gaming application with the Indiana Riverboat Gaming Commission to operate a riverboat casino on Lake Michigan in East Chicago, Indiana. The Indiana Partnership filed Part II of its gaming application on April 12, 1994. The Indiana Partnership is the sole applicant for the only license allocated to East Chicago by Indiana statute and which is for a berth located approximately 20 minutes from downtown Chicago and approximately three miles from the Chicago city limits. The Indiana Partnership is owned 55% by SII and 45% by Waterfront. Subject to available financial resources, the Company expects to invest approximately $28 million in the Indiana Partnership and will help the partnership obtain approximately $90 million in debt financing. Under the current partnership agreement, the Company would receive a 12% preferred return on its investment prior to additional partnership distributions. The Indiana Partnership anticipates that licensing hearings for the Indiana Partnership will begin in late 1995 and in the event the Indiana Partnership is granted a license, will first commence gaming operations in a temporary vessel and facilities while a permanent larger vessel and facilities are being constructed.
Randolph, Missouri
As of January 25, 1995, Showboat Missouri, Inc. entered into definitive agreements with Randolph Riverboat Company, Inc. ("Randolph") to design, develop, construct and operate a riverboat casino ("Randolph Riverboat"), which is intended to contain approximately 26,000 square feet, and related dockside improvements to be located on the Missouri River in or near Randolph, Missouri ("Randolph Project"). Randolph Missouri, Inc. and Randolph formed a limited liability company with the name Randolph Riverboat Company, L.L.C. ("RLLC"), of which 35% will be owned by Showboat Missouri, Inc. and 65% will be owned by Randolph. The total cost of the Randolph Project is estimated to be approximately $100 million. Showboat Missouri, Inc. contributed $13 million into escrow as its capital contribution to RLLC, of which amount $4 million may be used after Randolph has expended $10 million of its own funds toward the Randolph Project. The remaining $9 million of Showboat Missouri, Inc.'s capital contribution shall be available for use by RLLC at Showboat Missouri, Inc.'s discretion or upon the closing of the high yield debt financing for the Randolph Project.
Randolph has entered into an agreement with underwriter Bear Stearns & Co. to obtain financing of approximately $80 million through high yield
debt and capital leases, for construction of the Randolph Project. Additional capital contributions, if needed, shall be made by the partners of RLLC pro rata with their respective interest.
The Company or an affiliate of the Company shall provide management services to the Randolph Project until the Company no longer has an equity position in RLLC, in exchange for a management fee of 4% of the net gaming revenues of the Randolph Project and an additional incentive fee of 20% of all earnings before interest expense, income taxes, property taxes, ground lease rent, capital lease rent, depreciation and amortization ("EBITDA") in excess of $20 million.
Rockingham Park, New Hampshire
In January 1995, the Company and Rockingham Venture, Inc., a New Hampshire corporation and the operator of Rockingham Park, a thoroughbred racetrack in Salem, New Hampshire, entered into negotiations to finalize an agreement to develop and manage any additional gaming which may be authorized by the State of New Hampshire and the Town of Salem. In December 1994, the Company loaned $8.85 million to Rockingham Venture, Inc. which loan is secured by a second mortgage on Rockingham Park. If gaming is legalized by the appropriate and necessary authorities, the Company and Rockingham Venture, Inc. shall form a joint venture, partially capitalized through conversion of the Company's loan into equity, to develop a gaming and entertainment facility at Rockingham Park. The horse racing activities will continue to be operated by Rockingham Venture, Inc. No assurance can be given that the proposed agreements will be consummated or that any operation by the Company of gaming at Rockingham Park will take place at any time in the future.
St. Regis Mohawk Reservation, New York
In April 1994, the Company, through a subsidiary entered into agreements with the St. Regis Mohawk Tribe ("Tribe") and Native American Gaming Consultants, a corporation formed under tribal law ("NAGC"), to develop, construct, manage and operate a casino containing Class III games in Hogansburg, New York. The agreements were subsequently submitted by the Tribe to the National Indian Gaming Commission ("NIGC") for NIGC's approval. In July 1994, the St. Regis Mohawk Tribe withdrew all gaming contracts submitted to the NIGC, including the agreements with the Company; subsequently, the Company terminated its relationship with the Tribe.
Narrative Description of Business
Current Las Vegas Operations
The Las Vegas Showboat includes an approximately 78,000 square foot casino centrally located in a 453-room 18-story hotel, featuring a 106-lane bowling center, a buffet, a coffee shop, a 1,300-seat bingo parlor garden, a showroom and two specialty restaurants. In addition, 8,300 square feet of meeting room area is available with a seating capacity of 1,000 persons. The Company also owns and operates a 33-room motel directly across from the hotel. The Las Vegas Showboat covers approximately twenty-six acres and is approximately two and one- half miles from the hotel casinos located in downtown Las Vegas or on the "Strip."
At the Las Vegas Showboat, the Company sponsors a variety of special events designed to produce a high volume of traffic through its casino. The Las Vegas Showboat sponsors such events as the Professional Bowlers Association tour and Superstar Bingo, a high-stakes bingo game, and is the site of the annual High Rollers Million Dollar Bowling Tournament. The Las Vegas Showboat also regularly hosts small conventions and groups. In addition, the Las Vegas Showboat provides a slot club, the Officer's Club, which is designed to attract and reward frequent slot players at the Las Vegas Showboat.
Las Vegas Competition
The Las Vegas Showboat competes generally with approximately 130 casinos in Clark County, Nevada, which includes the cities of Las Vegas, Henderson, Laughlin and Mesquite. Competition among casinos in Clark County is intense and the Company expects it to remain so in the future. The Company has experienced increased competition from new and existing Las Vegas hotel casinos which have also sought to attract slot machine players and Las Vegas- area residents. The Company anticipates continuing increased competition for these customers.
As a result of increased competition for slot machine players and Las Vegas-area residents, and particularly due to the opening of new hotel casinos and the expansion of existing hotel casinos, including the expansion of Sam's Town Hotel and Casino, completed in 1994, and the opening of Boulder Station also in 1994 (each of which are located on Boulder Highway near the Las Vegas Showboat), the Company has experienced declines in revenues and net income. The Company has expanded marketing and customer service programs but nevertheless anticipates results 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. In addition, the Company will commence a major renovation of the Las Vegas Showboat in 1995 which will
significantly improve the quality of the casino space and which the Company believes will improve its competitive position. Approximately 30,000 square feet or 40% of the casino space will be closed for a portion of 1995 due to the renovation, which closure will cause a significant disruption in operations and earnings at the Las Vegas Showboat. There can be no assurance that the expanded marketing activities, the improved casino area and the implementation of other alternatives being considered by the Company will successfully result in the maintenance or expansion of the Las Vegas Showboat's customer base.
The Company believes the legalization of casino gaming in Colorado, Connecticut, Illinois, Iowa, Indiana, Louisiana, Mississippi, Missouri, New Jersey, and South Dakota, and on various Native American reservations, has not had a material adverse impact on its business in Las Vegas because of the Company's customer base of local area residents. The legalization and commencement of casino gaming in states close to Nevada, particularly California, could have a material adverse effect on the Company's Las Vegas operations.
Las Vegas Employees and Labor Relations
As of March 1, 1995, the Company's Las Vegas operations employed approximately 1,450 persons, of which approximately 834 or 57.5% of the employees were represented by collective bargaining agreements. The Company considers its current labor relations to be satisfactory. The Company is currently negotiating with the Culinary Workers Local No. 226 ("Culinary Union"), which represents approximately 700 or 78% of the Las Vegas Showboat employees represented by collective bargaining agreements, to reach a new collective bargaining agreement with those workers.
Atlantic City Operations
Since March 30, 1987, the Company, through its New Jersey subsidiaries, has operated the Atlantic City Showboat fronting the Boardwalk in Atlantic City, New Jersey. The Atlantic City Showboat is located at the eastern end of the Atlantic City Boardwalk on approximately 13 acres. Access to the Atlantic City Showboat's four-story podium, which houses the casino and the 20- story hotel tower, is provided by two main entrances, one on the Boardwalk and one on Pacific Avenue, which runs parallel to the Boardwalk. Adjacent to the casino, is the newly constructed 17- story hotel tower containing 284 hotel rooms. The Atlantic City Showboat has been designed to promote ease of customer access to the casino and all other public areas of the casino hotel.
The Atlantic City Showboat contains two public levels. Two pairs of large escalators directly accessible from the two ground level entrances and six
elevators provide easy access to the second level. Public areas located on the ground level, in addition to the approximately 95,000 square feet of gaming space, include a show lounge, five restaurants, two cocktail lounges, a pizza snack bar, an ice cream parlor, and two shops. Public areas located on the second level include a buffet, a coffee shop, a private Players Club, a beauty salon, a health spa, approximately 2,000 square feet of space for video games, approximately 27,000 square feet of meeting rooms, convention, board room and exhibition space and the 60-lane bowling center, including a snack bar and cocktail lounge. The Atlantic City Showboat leases to independent operators the two shops located on the ground level and the beauty salon on the second level.
At December 31, 1994, the casino featured approximately 3,000 slot machines, 116 table games, a horse race simulcast facility, and a keno facility. The 20-story hotel tower features 516 guest rooms and the adjacent 17-story hotel tower features 284 guest rooms. Many of the guest rooms in both towers have a view of the ocean. Included in the number of guest rooms are 59 suites, 40 of which have ocean-front decks. The nine-story parking garage is located on-site at the Pacific Avenue entrance. The facility provides self-parking for approximately 2,000 cars and a 14-bus depot integrated with the casino podium. In addition, on-site underground parking accommodates valet parking for approximately 500 cars. This design permits Atlantic City Showboat's customers to enter the casino hotel protected from the weather. Two stories of the four story podium are occupied by kitchens, storage for food and other perishables, surveillance and security equipment and personnel, an employee cafeteria, computer equipment and executive and administrative offices.
Adjacent to the Atlantic Showboat is the Taj Mahal Casino Hotel ("Taj Mahal"). The Taj Mahal is the largest casino in Atlantic City and is connected to both the Atlantic City Showboat and Merv Griffin's Resorts International Casino Hotel by pedestrian passageways. These three properties form an "uptown casino complex" in which patrons can pass from property to property, either on the ocean-front Boardwalk or through the pedestrian connectors.
Atlantic City Competition
The Atlantic City Showboat competes with 11 other casino hotels in Atlantic City containing, in the aggregate, approximately 833,000 square feet of gaming space, and 8,900 rooms and with Foxwood's High Stakes Bingo and Casino on the Mashantucket Pequot Indian Reservation in Connecticut. There are several sites on the Boardwalk and in the Marina Area of Atlantic City on which casino hotel facilities could be built in the
future. However, no new casino hotel facilities are currently being constructed.
The Atlantic City Showboat targets drive-in slot customers by emphasizing its frequent player's slot club. Competition among the casinos in Atlantic City is intense and the Company expects that it will remain so in the future. Casino hotels in Atlantic City generally compete on the basis of promotional allowances, entertainment, advertising, service provided to patrons, caliber of personnel, attractiveness of the hotel and casino areas and related amenities.
Casino hotels in Atlantic City also face competition, to some extent, from casinos located in Nevada and other states of the United States and from casinos in the Commonwealth of Puerto Rico, the Bahamas and other locations outside the United States, and from other forms of wagering such as pari-mutuel racing, jai alai, card parlors, riverboat gaming, lottery games and other legalized gaming activities. Legislation permitting casino gaming has been approved in Colorado, Connecticut, Illinois, Indiana, Iowa, Louisiana, Mississippi, Missouri and South Dakota, and on various Native American reservations. With the exception of Indiana, casinos are in operation in each of those states. In addition, Class III gaming is permitted on Native American reservations in the following states: Arizona, Colorado, Connecticut, Iowa, Louisiana, Michigan, Minnesota, Mississippi, Montana, Nevada, New York, North Dakota, Oregon, South Dakota, Washington and Wisconsin. The legalization and commencement of casino and other gaming ventures in states close to New Jersey, particularly, Delaware, Maryland, New York or Pennsylvania, could have an adverse effect on the Company's Atlantic City operations.
Atlantic City Employees and Labor Relations
At March 1, 1995, the Atlantic City Showboat employed approximately 3,290 persons on a full-time basis and approximately 364 persons on a part-time basis. Approximately 1,125 or 34% of the Atlantic City Showboat's full-time employees are covered by collective bargaining agreements. The number of employees at the Atlantic City Showboat is expected to fluctuate, with the highest number during the summer months and the lowest number during the winter months. All employees of the Atlantic City Showboat whose responsibilities involve or relate to the casino or the simulcast area must be licensed by or registered with the applicable New Jersey regulatory authority before commencing work at the Atlantic City Showboat.
Louisiana Operations
In July 1993, a subsidiary of the Company, Showboat Louisiana, Inc., and Star Casino, Inc., a Louisiana corporation, formed Showboat Star Partnership, a Louisiana general partnership, to own and operate a riverboat casino, the "Star Casino." At December 31, 1993, Showboat Louisiana, Inc. owned a 30% equity interest in Showboat Star Partnership. Effective March 1, 1994, Showboat Louisiana, Inc. purchased an additional 20% equity interest in the Showboat Star Partnership from its partner, Star Casino, Inc. On March 3, 1995, Showboat Louisiana, Inc. and LPSI purchased the remaining 50% equity interest in the Showboat Star Partnership for $25.0 million, subject to certain adjustments. The Company intends to sell all of its partnership interests to subsidiaries of Players International, Inc. for $52.0 million, subject to adjustment, on March 31, 1995.
Throughout 1994, LPSI managed and operated the gaming areas at the Star Casino on behalf of the Showboat Star Partnership. LPSI received, as a management fee, 5% of Star Casino's gaming revenue, net of gaming taxes of 18.5% and boarding fees totalling up to $5.00 per passenger boarding the vessel. Louisiana Riverboat Services, Inc., a non-affiliate of the Company, performed the marine services for the Star Casino, including those services related to the crew, operations and maintenance of the riverboat. Louisiana Riverboat Services, Inc. received a monthly management fee equal to its costs plus a surcharge of 15% of such costs.
The Star Casino commenced gaming operations on November 8, 1993 and permanently closed gaming operations on March 9, 1995. The Star Casino was located on the south shore of Lake Pontchartrain in New Orleans, Louisiana, approximately seven miles from New Orleans' "French Quarter." The vessel, which measured 265 feet long and 78 feet wide, was built to resemble a traditional paddle-wheel riverboat. As of December 31, 1994, the riverboat contained an aggregate of 21,900 square feet of gaming space on three levels, with 778 slot machines and 42 table games. A cocktail lounge was located on each of the three public levels of the riverboat casino.
On-shore facilities included a 34,000 square foot terminal building, which contained a restaurant, a cocktail lounge and administrative offices. The on-shore facility provided parking for 1,150 cars. The terminal facilities were designed so that Star Casino passengers must pass through the terminal area in order to board the riverboat. Due to either inclement weather or underwater obstructions, the Star Casino had been principally restricted to mock cruises since commencement of operations and dockside gaming since June 22, 1994.
On February 24, 1995, Showboat Star Partnership (i) assigned its leases with the Orleans Levee Board for leased land, parking areas and docking facilities; (ii) sold the terminal building and other improvements it constructed on the leased land; and (iii) sold certain personal property used at the terminal building, for $6 million to
Belle of Orleans, L.L.C. The Company recognized a pre-tax loss of approximately $2.7 million upon consummation of the sale of the terminal facilities and the assignment of the leases with the Orleans Levee Board. The net proceeds of the transactions with Players International, Inc. and Belle of Orleans, L.L.C. approximate the Company's cumulative investment in Showboat Star Partnership.
On December 5, 1994, the operations of the Star Casino were suspended by the Louisiana State Police, Riverboat Gaming Division, who alleged that the Star Casino was not permitted to operate dockside gaming. The Showboat Star Partnership obtained a restraining order the next day and recommenced dockside gaming operations pending an administrative hearing. The administrative hearing occurred on December 21 and 22, 1994. On December 28, 1994, the administrative law judge, a retired Louisiana Supreme Court Justice, ruled that the Star Casino was operating in compliance with the Louisiana Riverboat Gaming Act.
On January 17, 1995, the Showboat Star Partnership elected to cease gaming operations as a result of the receipt of information that the District Attorney of Orleans Parish ("District Attorney") would charge the Showboat Star Partnership with a misdemeanor if the Star Casino did not cease dockside gaming activities. A temporary restraining order was obtained against the District Attorney which prevented the District Attorney from filing charges against the Showboat Star Partnership on January 26, 1995 and the Star Casino was reopened on January 27, 1995.
The District Attorney requested first the Fourth Circuit Court of Appeals, and upon its denial, the Louisiana Supreme Court to suspend the temporary restraining order. On March 9, 1995, the Louisiana Supreme Court ruled that a civil district court cannot, except in exigent circumstances, restrict a district attorney from investigating or filing charges, and, as a result of that ruling, suspended the temporary restraining order obtained by the Showboat Star Partnership. Rather than risk criminal indictment, which could jeopardize the Company's current licenses and pending and future applications in other jurisdictions, Showboat Star Partnership permanently ceased operations on March 9, 1995.
Louisiana Competition
The Star Casino experienced intense direct competition in its primary market area which competition increased significantly during 1994. As of December 31, 1994, there were 4 riverboat casinos operating in the New Orleans area.
The Company competed with other forms of gaming, including land-based casinos, bingo and pulltab games, card clubs, parimutuel betting on horse racing and dog racing, state- sponsored lotteries, video lottery, video bingo and video poker terminals, as well as other forms of entertainment. Louisiana had authorized video lottery terminals at various types of facilities in the state, including bars, truckstops and racetracks.
Louisiana Employees and Labor Relations
As of December 31, 1994, the Showboat Star Partnership employed approximately 962 persons on a full-time basis and approximately 50 on a part-time basis. LPSI, which manages and operates the gaming areas at the Star Casino, employed 8 persons on a full-time basis as of December 31, 1994. In addition, Louisiana Riverboat Services, Inc., which operated the riverboat, employed approximately 45 persons on a full-time basis and 10 persons on a part-time basis. All Showboat Star Partnership and LPSI employees associated with gaming had to be approved by the Riverboat Gaming Enforcement Division of the Louisiana State Police prior to commencing work in gaming-related areas.
Sydney, Australia Operations
On December 14, 1994, the NSWCCA selected SHCP, a subsidiary of SHCL, as the single full-service casino licensee in Sydney, New South Wales. An unsuccessful applicant for the casino license has initiated legal proceedings in New South Wales against SHCP, the NSWCCA and others, alleging, among other things, that the NSWCCA was not justified in issuing the casino license to SHCP. The proceedings seek the revocation of the casino license awarded to SHCP. The Company believes that the proceedings are meritless and intends to vigorously defend the allegations. For a more detailed discussion of the legal proceedings, see PART I, ITEM 3; "LEGAL PROCEEDINGS." The casino license has a term, subject to earlier termination, of 99 years and provides to SHCP the exclusive right to operate a casino in New South Wales for 12 years commencing upon the opening of the temporary casino. Showboat Australia Pty Limited, a wholly-owned Australian subsidiary of the Company, owns 26.3% of the equity of SHCL. Slot machines are currently permitted in approximately 1,500 non- profit private clubs in New South Wales, most of which contain less than 25 slot machines.
The Sydney Harbour Casino will begin operations in a temporary casino, which will be located at Pyrmont Bay on Wharves 12 and 13 in an existing building which is being renovated to permit the operation of a casino. The temporary casino is anticipated to open in September 1995, and is expected to contain approximately 500 slot machines, and 150 table games (30 of which are expected to be located in a private gaming room). Additional amenities are expected to include five cocktail lounges, four specialty restaurants, retail shops and on-site parking for more than 400 vehicles.
The permanent Sydney Harbour Casino is expected to be open in early 1998. The Sydney Harbour Casino will be located less than one mile from the Sydney central business district on an eight-acre waterfront site on Pyrmont Bay next to Darling Harbour. The Sydney Harbour Casino will feature approximately 136,000 square feet of casino space, including an approximately 20,000 square foot private gaming area to be located on a separate level which will target a premium clientele. The Sydney Harbour Casino will have approximately 1,500 slot machines and 200 table games, including 20 slot machines and 30 table games in the private gaming area. The Sydney Harbour Casino will be decorated to capture Australia's natural beauty and diverse geography and will contain cascading water fountains. Passage through the casino will allow patrons to experience Australia's indigenous landscape from wall surfaces of brilliant oranges and reds representing the cliffs and ranges of Australia's central desert to an Australian rain forest
under a glass canopy and a Great Barrier Reef room with a large aquarium of tropical fish. The Sydney Harbour Casino will also contain 14 themed restaurants, 12 cocktail lounges, a deluxe 2,000 seat lyric theatre, a 700 seat cabaret style theatre and extensive public areas which include landscaped gardens. The Sydney Harbour Casino complex will include a 352 room hotel tower and an adjacent condominium tower containing 139 privately owned luxury units with full hotel services. The complex will also include extensive retail facilities, a station for Sydney's proposed light rail system, a bus terminal, docking facilities for commuter ferries and underground parking for approximately 2,500 vehicles.
Leighton Contractors Pty Limited will construct the Sydney Harbour Casino (including the temporary casino) for A$691.0 million under the direction of Leighton Properties Pty Limited ("Leighton Properties") as developer on behalf of the Sydney Harbour Casino Group. (As used in this Form 10-K, amounts in Australian dollars are denoted as "A$"). Under the terms of the construction contract, the temporary casino must be completed nine months, and the permanent casino must be completed within 38 months, of December 1994, the date of issuance of the casino license. In the event that the permanent Sydney Harbour Casino is not completed within such time period, the construction contract provides for the payment of liquidated damages of not more than A $150,000 per day to an aggregate maximum amount of A$30 million. Additionally, SHCL is indemnified against any loss arising from the contractor's failure to perform its obligations under the construction contract.
The cost of the Sydney Harbour Casino, including licensing fees, is anticipated to be approximately A$1.2 billion. SAPL and its consortium partner, Leighton Properties, invested A$135.0 million and A$25.0 million respectively, in SHCL for equity stakes of 26.3% and 4.8%, respectively. Leighton Properties subsequently placed its shareholdings and other interests in the Sydney Harbour Casino development in trust appointing National Mutual Trustees Limited, an independent Australian public trustee company, as trustee. In addition, SAPL has an option to purchase an additional 7% of the fully diluted equity of SHCL at an option exercise price of A$1.15 per share. The option may be exercised no earlier than July 1, 1998 and expires June 30, 2000. Prior to the exercise of any outstanding options, SHCL had 505,000,000 shares outstanding, consisting of 160,000,000 ordinary shares, 135,000,000 of which are owned by SAPL, and 345,000,000 preferred ordinary shares purchased by certain institutional investors at a purchase price of A$1.00 per share. The preferred ordinary shares are entitled to a cumulative dividend of A$.05 per share per annum for the three fiscal years ended June 30, 1997, 1998 and 1999. After June 30, 1999, the preferred ordinary shares have the same rights and preferences as the ordinary shares. SHCL is expected to become a publicly listed company on the Australian Stock Exchange approximately six months of receiving the casino license. The shares offered to the public shall include a number of the shares subscribed for by institutional investors but not the shares subscribed to by Leighton Properties or SAPL or those who held Class A options
issued by SHCL. The number of shares offered to the public shall not exceed one-third of the total number of shares allotted to those parties.
SHCL has entered into a loan agreement (the "Facility Agreement") with the Commonwealth Bank of Australia ("CBA") in the amount of A$500.0 million to finance a portion of the development and construction of the Sydney Harbour Casino. SHCL has also obtained from CBA a working capital facility in the amount of A$50.0 million for working capital purposes. The Facility Agreement will convert to a seven-year term loan upon completion of the Sydney Harbour Casino. The term loan will be amortized by mandatory repayments specified in the Facility Agreement. The Facility Agreement also requires that SAPL remain the beneficial owner of not less than 10% of the issued ordinary shares of SHCL for a period of not less than five years after completion of the permanent Sydney Harbour Casino and remain the beneficial owner of not less than 5% of the issued ordinary shares of SHCL for an additional two years thereafter. The Facility Agreement further restricts SHCL's ability to declare or pay any dividend (other than a permitted preferred ordinary dividend) or make distributions to stockholders, except under certain conditions as specified in the Facility Agreement. The Facility Agreement contains additional customary financial covenants. In connection with the Facility Agreement, CBA will receive options to acquire 17,250,000 preferred ordinary shares at an exercise price of A$1.10 per share. CBA's options may be exercised no earlier than July 1, 1998 and the options expire five years from the date of the agreement granting such options.
SHCL granted options to purchase an aggregate of 20,200,000 shares of SHCL. Of these Options, options to (i) purchase 7,575,000 preferred ordinary shares at an exercise price of A$1.00 have been exercised by the holders thereof, (ii) purchase 7,575,000 preferred ordinary shares at an exercise price of A$1.00 have expired, (iii) purchase 5,050,000 ordinary shares at an exercise price of A$1.15 per share are exercisable between June 1, 1998 and June 30, 2000.
Sydney Harbour Casino Management Pty Limited (the "Manager"), a company which is 85% owned by SAPL and 15% owned by National Mutual Trustees Limited in trust for Leighton Properties, will manage the temporary casino and the permanent Sydney Harbour Casino pursuant to a 99-year management agreement (the "Management Agreement"). The terms of the Management Agreement require the Manager to advise SHCP or Sydney Harbour Casino Properties Pty Limited, wholly owned subsidiaries of SHCL, as to the casino design and configuration and the placement of all gaming equipment. The Manager also has agreed to train all employees of the Sydney Harbour Casino and to manage a high quality international class casino in accordance with the operating standards required by the NSWCCA. The
NSWCCA requires a service audit to be conducted yearly by a third party so that areas of non-compliance can be identified and remedied by the Manager. The Manager will be paid a management fee equal to the sum of (i) 1 1/2% of casino revenue, (ii) 6% of casino gross operating profit, (iii) 3 1/2% of total non-casino revenue, and (iv) 10% of total gross non-casino operating profit, for each fiscal year for services rendered by the Manager pursuant to the Management Agreement. Under certain conditions, the Manager has agreed to forego management fees in an amount with a present value of approximately A$19.0 million. Gaming revenue from the Sydney Harbour Casino will be taxed at a rate of (i) 22.5% of slot machine revenue and (ii) 20% of the first A$200.0 million of table game revenue, increasing 1% for each additional A$5.0 million of table game revenue, up to a maximum rate of 45%, and will also be subject to a community benefit levy of 2% of gross gaming revenue.
Competition
Sydney Harbour Casino, when operating, will generally compete with casinos in Australia and other casinos located within the Pacific Rim. Currently, 12 casinos operate in Australia. Other than the non-profit private slot clubs, most of which contain 25 or fewer slot machines, Sydney Harbour Casino shall be the only casino in the State of New South Wales for 12 years following commencement of gaming operations in the temporary casino. Sydney Harbour Casino expects to compete with the local slot clubs and with the casinos throughout Australia and the Pacific Rim by offering excellent service and an attractive facility containing hotel operations, bars and restaurants, sports and recreation facilities, entertainment centres, car parking, theatres, convention facilities and retail shopping.
Financial Information about the Company
The primary source of revenue and income to the Company is its casinos, although the hotels, restaurants, bars, buffets, shops, bowling, sports and other special events and services are important adjuncts to the casinos. At December 31, 1994, the Company's casinos featured the following slot machines and table games:
The Las Vegas Showboat also contains a race and sports book, a 1,300-seat bingo parlor and a keno area. The Atlantic City Showboat also contains a horse racing simulcast room and a keno facility.
At the Las Vegas Showboat, slot machines accounted for 83.0% of casino revenues for the year ended December 31, 1994, 84.2% of casino revenues for the year ended December 31, 1993, and 84.5% of casino revenues for the year ended December 31, 1992. At the Atlantic City Showboat, slot machines accounted for 73.6% of casino revenues for the year ended December 31, 1994, 73.2% of casino revenues for the year ended December 31, 1993, and 71.5% of casino revenues for the year ended December 31, 1992. At the Star Casino, slot machines accounted for 75.3% of casino revenues for the year ended December 31, 1994 and 68.6% of casino revenues for the period from the commencement of operations to December 31, 1993. The Las Vegas Showboat operations and the Atlantic City Showboat operations are conducted 24 hours a day, every day of the year. The Star Casino was operated 24 hours a day, every day of the year prior to permanently closing the Star Casino on March 9, 1995.
The following table sets forth the contribution to total net revenues on a dollar and percentage basis of the Company's major activities at the Las Vegas Showboat and the Atlantic City Show boat for the years ended December 31, 1994, 1993 and 1992. Net revenues for the Star Casino are not included in the table since the Company accounts for its investment in the Showboat Star Partnership under the equity method of accounting. The Company's equity in the income or loss of Showboat Star Partnership, net of intercompany elimination, was $12,828,000 and a loss of $850,000 in 1994 and 1993, respectively. For other financial information, see the Company's financial statements contained in Item 8. Financial Statements and Supplementary Data.
The Atlantic City Showboat offers complimentary meals, drinks and room accommodations to a larger percentage of customers than does the Las Vegas Showboat or the Star Casino. Such promotional allowances (complimentary services) at the Atlantic City Showboat were 8.8% of total net revenues for the year ended December 31, 1994, 9.3% of total net revenues for the year ended December 31, 1993, and 8.8% of total net revenues for the year ended December 31, 1992. Such promotional allowances (complimentary services) at the Las Vegas Showboat were 6.5% of total net revenues for the year ended December 31, 1994, 5.9% of total net revenues for the year ended December 31, 1993, and 6.0% of total net revenues for the year ended December 31, 1992. At the Star Casino, such complimentary services
were 3.3% of total net revenues for the year ended December 31, 1994.
Gaming Credit Policy
A minimal dollar amount of credit is extended to a limited number of gaming customers at the Las Vegas Showboat and the Star Casino. The Atlantic City Showboat, however, offers substantially more credit to a greater number of customers. The Atlantic City Showboat's gaming credit, as a percentage of total gaming revenues, is at a level which is consistent with that of the average credit levels for all other casino hotels in Atlantic City. Overall, the Company's gaming receivables were approximately $7.0 million at December 31, 1994, before deducting allowance for doubtful accounts of approximately $2.2 million. In comparison, the Company's gaming receivables were approximately $6.8 million at December 31, 1993, before deducting allowance for doubtful accounts of approximately $2.8 million. At the Atlantic City Showboat, gaming receivables were approximately $6.9 million at December 31, 1994, before deducting allowance for doubtful accounts of approximately $2.2 million. In comparison, gaming receivables at the Atlantic City Showboat were approximately $6.7 million at December 31, 1993, before deducting allowance for doubtful accounts of approximately $2.8 million.
The non-collectibility of gaming receivables can have a material adverse effect on results of operations, depending upon the amount of credit extended and the size of uncollected amounts. Nevada, Louisiana and New Jersey casino gaming debts are required to be evidenced by properly accomplished credit instruments to be legally enforceable in Nevada, Louisiana and New Jersey, respectively. Nevada, Louisiana and New Jersey judgments enforcing such instruments are enforceable in most other states of the United States and certain foreign countries. Annual gaming bad debt expense at the Las Vegas Showboat has been approximately .2% of casino revenues for the year ended December 31, 1994, as compared to approximately .1% of casino revenues for the year ended December 31, 1993. Annual gaming bad debt expense at the Atlantic City Showboat was approximately .2% of casino revenues for the year ended December 31, 1994, as compared to approximately .4% for the year ended December 31, 1993. At the Star Casino, annual gaming bad debt expense has been approximately .03% of casino revenues for the year ended December 31, 1994.
Control Procedures
In connection with its gaming activities, the Company follows a policy of stringent internal controls, cross-checks and recording of all receipts and disbursements in accordance with industry practice. The audit and cash controls developed and utilized by the
Company include locked cash boxes, independent counters, checkers and observers to perform the daily cash and coin counts, floor observation of the gaming areas, closed-circuit television observation of certain areas, daily computer tabulation of receipts and disbursements for each slot machine, table and other games, and the rapid identification, analysis and resolution of discrepancies or deviations from normal performance. All dealers and other personnel are internally trained by the Company, however, dealers in New Jersey must also obtain certification from an independent dealer's school in order to meet licensing requirements. The Company presently intends to promote qualified employees to supervisory and management levels. However, staffing requirements for the Company's casino hotels and for the Company's Gaming Development Division have required that certain supervisory and management personnel be hired from other casino hotels. Gaming operations are subject to risk of loss as a result of employee or customer dishonesty due to the large amount of cash and gaming chips handled. However, the Company has not experienced significant losses related to employee dishonesty.
Seasonal Factors
The Company does not believe that gaming and hotel revenues are significantly seasonal in Las Vegas, Nevada or New Orleans, Louisiana. In contrast, the Company believes that gaming and hotel revenues are seasonal in Atlantic City due to the harsher weather in Atlantic City during winter months.
Regulation and Licensing
Nevada Gaming
The ownership and operation of casino gaming facilities in Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively "Nevada Act"); and (ii) various local regulations. The Company's gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the Nevada State Gaming Control Board ("Nevada Board"), and the City Council of the City of Las Vegas ("City Board"). The Nevada Commission, the Nevada Board, and the City Board are collectively referred to as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) to provide a source of state and local revenues through taxation and licensing fees. Change in such laws, regulations and procedures could have an adverse effect on the Company's gaming operations.
Showboat Operating Company, which operates the Las Vegas Showboat, is required to be licensed by the Nevada Gaming Authorities. The gaming license requires the periodic payment of fees and taxes and is not transferrable. The Company is registered by the Nevada Commission as a publicly traded corporation ("Registered Corporation") and as such, it is required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information which the Nevada Commission may require. No person may become a shareholder of, or receive any percentage of profits from, Showboat Operating Company without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Company and Showboat Operating Company have obtained from the Nevada Gaming Authorities the various registrations, approvals, permits and licenses required in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company or Showboat Operating Company in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of Showboat Operating Company must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Officers, directors and key employees of the Company who are actively and directly involved in gaming activities of Showboat Operating Company may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Company or Showboat Operating Company, the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company or Showboat Operating Company to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada.
The Company and Showboat Operating Company are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by Showboat Operating Company must be reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by Showboat Operating Company the gaming licenses it holds could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, Showboat Operating Company, the Company, and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. In addition, a supervisor could be appointed by the Nevada Commission to operate the Company's gaming properties and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of the Company's gaming properties) could be forfeited to the state of Nevada. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have his suitability as a beneficial holder of the Company's voting securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the state of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the Company's voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of the Company's voting securities apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of the Company's voting securities may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Company, any change in the Company's corporate charter, bylaws, management, policies or operations of the Company, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Company's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission, or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any shareholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the Common Stock beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a shareholder or to have any other relationship with the Company or Showboat Operating Company, the Company (i) pays that person any dividend or interest upon voting securities of the Company, (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) pays remuneration in any form to that person for services rendered or otherwise, or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities for cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any debt security of a corporation registered under the Nevada Gaming Control Act to file applications, be investigated and be found suitable to
own the debt security of a registered corporation. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever, (ii) recognizes any voting right by such unsuitable person in connection with such securities, (iii) pays the unsuitable person remuneration in any form, or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company is also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power at any time to require the Company's stock certificates to bear a legend indicating that the securities are subject to the Nevada Gaming Control Act and the regulation of the Nevada Commission. However, to date, the Nevada Commission has not imposed such a requirement.
The Company may not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or retire or extend obligations incurred for such purposes. Such approval, if given, will not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities. Any representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the Nevada Board and Nevada Commission in a variety of stringent standards prior to assuming control of such Registered Corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming licensees, and Registered Corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to (i) assure the financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before the Company can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval by the Nevada Commission of a plan of recapitalization proposed by the Company's Board of Directors in response to a tender offer made directly to its shareholders for the purpose of acquiring control of the Company.
The sale of alcoholic beverages by the casino is subject to licensing, control and regulation by the applicable local authorities. All licenses are revocable and are not transferable. The agencies involved have full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could (and revocation would) have a material adverse affect upon the operations of the casino.
License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the state of Nevada and to the counties and cities in which the Nevada licensee's respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either: (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. A casino entertainment tax is also paid by casino operations where entertainment is furnished in connection with the selling of food or refreshments. Nevada licensees that hold a license as an operator of a slot route, or a manufacturer's or distributor's license, also pay certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively, "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of their participation in such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Commission. Thereafter, Licensees are required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Nevada Commission if it knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engages in activities that are harmful to the state of Nevada or its ability to collect gaming taxes and fees, or employs a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of personal unsuitability.
New Jersey Gaming
Casino gaming activities in Atlantic City are subject to the New Jersey Casino Control Act ("New Jersey Act") and the regulations of the New Jersey Commission. No casino may operate unless the required licenses and approvals are obtained from the New Jersey Commission. The New Jersey Commission is authorized under the New Jersey Act to adopt regulations covering a broad spectrum of gaming, gaming-related activities and non-gaming- related activities and to prescribe the methods and forms of applications for licenses. The New Jersey Commission: (i) approves license applications; (ii) regulates the design of casino facilities and determines the allowable amount of casino space based upon the number of hotel rooms; (iii) monitors operating methods and financial accounting practices of licensees; and (iv) determines and imposes sanctions for violations of the New Jersey Act and the New Jersey Commission regulations. The New Jersey Act also establishes a Division of Gaming Enforcement ("Division") which is a branch of the New Jersey Attorney General's office. The Division investigates all applications for the granting and renewal of licenses, enforces the provisions of the New Jersey Act and prosecutes before the New Jersey Commission proceedings for violations of the New Jersey Act. The Division conducts audits and continuing reviews of all casino operations.
The New Jersey Commission has extremely broad discretion with regard to the issuance, renewal and revocation or suspension of licenses. A casino license is not transferable and must be renewed by the licensee at certain intervals. The first two license renewal periods are one year. Thereafter, the casino licenses may be renewed for up to four years, subject to the New Jersey Commission's authority to reconsider license eligibility during any term. A casino license may be revoked or suspended at any time by the New Jersey Commission upon a finding of disquali fication or noncompliance. The holder of a casino license must also obtain an operation certificate which may be revoked or
suspended at any time by the New Jersey Commission upon a finding of noncompliance.
In order to obtain or renew a casino license, an applicant must demonstrate to the New Jersey Commission: (i) its financial stability, integrity and responsibility; (ii) its business ability and casino experience; (iii) its good character, honesty and integrity; and (iv) the qualification of all its financial sources, security holders and holding and intermediate companies. Moreover, each officer, director, principal employee, lender or person directly or indirectly holding any beneficial interest or ownership of the securities of the corporate licensee, and any person deemed by the New Jersey Commission as having the ability to control the corporate licensee or elect a majority of the board of directors of the corporate licensee or other person deemed appropriate by the New Jersey Commission must be found qualified. ACSI's casino license was granted on March 27, 1987, effective April 2, 1987. ACSI's casino license was renewed on January 25, 1995 for the period commencing January 31, 1995 and ending January 31, 1997. In connection therewith, SBO and OSI were required to satisfy the licensure standards set forth above.
The New Jersey Commission imposes certain restrictions upon the ownership of securities issued by a corporation which holds a casino license or is a holding company of a corporate casino licensee. Among other restrictions, the sale, assignment, transfer, pledge or other disposition of any security issued by a corporation which holds a casino license is subject to approval by the New Jersey Commission. If the New Jersey Commission finds an individual owner or holder of any security of a corporate casino licensee or any of its holding companies or a "financial source," or any of its security holders to be disqualified, the New Jersey Commission may take any necessary remedial action, including requiring divestiture by the disqualified security holder. If disqualified security holders of either the corporate licensee or the holding company fail to divest themselves of such security interests, the New Jersey Commission may revoke or suspend ACSI's casino license. Disqualified security holders are prohibited from: (i) receiving any dividends or interest on their securities; (ii) exercising, directly or through any trustee or nominee, any rights conferred by such securities; and (iii) receiving any remuneration in any form from the corporate licensee for services rendered or otherwise. The corporate licensee and its non-publicly traded holding companies are required to include in their charter or articles of incorporation a provision establishing the right of prior approval by the New Jersey Commission with regard to transfers of securities, shares and other interests in the corporation. The corporate licensees' publicly traded holding companies are required to provide in their charter or articles of incorporation a provision that any securities of the corporation are held subject to the condition that if a holder thereof is
disqualified, such holder shall dispose of his interest. SBO and OSI are holding companies of a New Jersey casino licensee. SBO, OSI and ACSI have charters or articles of incorporation that comply with these regulatory requirements.
The New Jersey Commission regulations include detailed provisions concerning, among others: (i) the rules of games, including minimum and maximum wagers, and methods of supervision of games and of selling and redeeming gaming chips; (ii) the granting and duration of credit, the operation of junkets, and the extension of and accounting for complimentary services; (iii) the manufacture, distribution and sale of gaming equipment; (iv) the security standards, management control procedures, accounting and cash control methods and the reporting of such matters to gaming authorities; (v) casino advertising; (vi) the deposit of checks from patrons of casinos; (vii) the reporting of currency transactions with patrons in amounts exceeding $10,000 to the Division; and (viii) the standards for entertainment and distribution of alcoholic beverages in casino hotels.
All contracts and leases entered into by a casino licensee are subject to the review of the New Jersey Commission and, if reviewed and found unacceptable, may be voided. All enterprises providing gaming-related equipment or services to a casino licensee must be licensed or good cause must be shown for a waiver of such licensing requirements. All other enterprises dealing with a casino licensee must register with the New Jersey Commission, which may require that they be licensed if they regularly engage in business with casino licensees.
The New Jersey Commission could appoint a conservator upon the revocation of or failure to renew a casino license. A conservator would be vested with title to the casino hotel of the former or suspended licensee, subject to valid liens and encumbrances. The conservator would act subject to the general supervision of the New Jersey Commission and would be charged with the duty of conserving, preserving and continuing the operation of the casino hotel. During the period of any such conservatorship, the conservator may not make any distributions of net earnings without the prior approval of the New Jersey Commission. The New Jersey Commission may direct that all or a portion of such net earnings be paid to the Casino Revenue Fund, provided, however, that a suspended or former licensee is entitled to a fair rate of return out of net earnings, if any. Except during the pendency of a suspension or during any appeal from any action precipitating the appointment of a conservator, and after appropriate consultations with the former licensee, a conservator, subject to the prior approval of the New Jersey Commission, would be authorized to sell, assign, convey or otherwise dispose of the casino hotel of a former licensee subject to all valid liens, claims and encumbrances, and to remit the net proceeds to the former licensee.
After completion of its first full year of operation, and continuing for thirty years thereafter, a casino licensee is subject to a New Jersey investment obligation. To satisfy this obligation, the Company may either: (i) pay an investment alternative tax equal to 2 1/2% of its annual gross revenues from gaming operations; or (ii) purchase bonds issued by, or invest in other development projects approved by, the Casino Reinvestment Development Authority, a state agency, in an amount equal to 1 1/4% of its annual gross revenues from gaming operations.
All corporations doing business in New Jersey are subject to a corporate franchise tax, based on allocated net income, at a 9% annual rate. Interest on indebtedness is deductible under New Jersey law. There is also an 8% tax on the gross win revenues of New Jersey casinos, in addition to an annual $500 fee for each slot machine.
Atlantic City imposes a real property tax and a luxury tax applicable to certain sales, including, but not limited to, the sale of alcoholic beverages, tickets to entertainment events and rental of hotel rooms. In 1992, the New Jersey legislature adopted laws imposing a fee of $2.00 per occupied casino hotel room per day ($1.00 for non-casino hotel rooms). These fees are dedicated exclusively to a fund to market Atlantic City as a tourist destination and resort. In addition, the state of New Jersey, effective July 1, 1993, imposed a $1.50/day fee for each patron's car that is parked at an Atlantic City casino. ACSI has elected to absorb the parking fee as a marketing expense, and not to collect the fee from patrons as do the majority of Atlantic City casinos. For 1994, the total parking fees paid by ACSI were approximately $1.8 million, while in 1993, total parking fees paid by ACSI were $0.8 million.
From time to time new laws and regulations, as well as amendments to existing laws and regulations, relating to gaming activities in New Jersey are proposed or adopted.
In addition, the New Jersey casino regulatory authorities from time to time may change their laws, regulations or procedures, including their procedures for renewing licenses. The Company cannot predict what effect, if any, new or amended laws, regulations or procedures would have on the Company. Changes in such laws, regulations or procedures could have an adverse effect on the Company.
The Company is subject to various other federal, state and local laws and regulations and, on a periodic basis, has to obtain various licenses and permits, including those required to sell alcoholic beverages. In particular, the United States Department of the Treasury has adopted regulations pursuant to which a casino is required to file a report of each deposit, withdrawal or
exchange of currency or other payment or transfer by, through or to a casino which involves a transaction in currency of more than a predetermined amount ($10,000 for 1994) per gaming day. Such reports are required to be made on forms prescribed by the Secre tary of the Treasury and must be filed with the Commissioner of the Internal Revenue Service. In addition, a casino is required to maintain detailed records (including the names, addresses, social security numbers or other information with respect to its customers) dealing with, among other items, a customer's deposit and withdrawal of funds and the maintenance of a line of credit.
The parent company of OSI is SBO and through a wholly-owned Nevada subsidiary, SBO conducts casino gaming operations in Las Vegas, Nevada. SBO is not required to obtain the prior approval of the Nevada Gaming Authorities to conduct casino gaming operations outside Nevada. However, SBO must submit quarterly reports to the Nevada Board regarding (i) any changes in ownership or control of any interest in ACSI or OSI; (ii) any changes in officers, directors or key employees of ASCI or OSI; (iii) all complaints, disputes, orders to show cause and disciplinary actions, related to gaming, instituted or presided over by an entity of the United States, a state or any other governmental jurisdiction concerning ASCI or OSI; (iv) any arrest of an employee of ASCI or OSI involving cheating or theft related to gaming in New Jersey; and (v) any arrest or conviction of an officer, director, key employee or equity owner of ASCI or OSI for certain offenses. SBO, through its New Jersey subsidiaries, must provide to the Nevada Board all documents filed with the state of New Jersey relating to the Atlantic City Showboat, the systems of accounting and internal control utilized in connection with the Atlantic City Showboat, and annual operational and regulatory reports describing compliance with regulations, procedures for audit, and procedures for surveillance relating to the Atlantic City Showboat. SBO must also comply with any additional reporting requirements which may be imposed by the Nevada Board. New laws and regulations as well as amendments to existing laws and regulations pertaining to gaming activities in Nevada from time to time are proposed or adopted. Changes in such laws, regulations and procedures could have an adverse effect on the Company.
Louisiana Gaming
The operation and management of riverboat casino facilities in Louisiana are subject to extensive state regulation. The Louisiana Riverboat Economic Development and Gaming Control Act (the "Louisiana Act") became effective on July 18, 1991 and authorized the formation of the Louisiana Riverboat Gaming Commission (the "Louisiana Gaming Commission") and the Riverboat Gaming Enforcement Division of the Louisiana State Police (the "Louisiana Enforcement Division"). Both the Louisiana Gaming Commission and the Louisiana Enforcement Division
have promulgated extensive regulations which control riverboat gaming in Louisiana. The Louisiana Act states, among other things, that certain of the policies of the state of Louisiana are to develop a historic riverboat industry that will assist in the growth of the tourism market, to license and supervise the riverboat industry from the period of construction through actual operations, to regulate the operators, manufacturers, suppliers, and distributors of gaming devices and to license all entities involved in the riverboat gaming industry. The Louisiana Act makes it clear, however, that no holder of a license or permit possesses any vested interest in such license or permit and that the license or permit may be revoked at any time. Changes in the Louisiana laws or regulations or in the interpretation of the laws or regulations could materially affect the types of riverboat gaming activities in Louisiana and could have an adverse effect on the Showboat Star Partnership.
The Louisiana Act approved the conduct of riverboat gaming activities, in accordance with the Louisiana Act, on twelve separate waterways in Louisiana. The Louisiana Act allows the Louisiana Enforcement Division to issue up to 15 licenses to operate riverboat gaming projects within the state with no more than six in any one parish (county). The Louisiana Act requires that the riverboats be of new construction. No gaming is allowed while a riverboat is docked unless the vessel is docked for less than 45 minutes between excursions, or unless the riverboat is docked for reason of adverse water or weather conditions. All cruises are required to be at least three hours in duration.
Each applicant which desires to operate a riverboat casino in Louisiana is required to file an application for a Certificate of Preliminary Approval ("Preliminary Certificate") with the Louisiana Gaming Commission. The applicant is required to submit various information to the Louisiana Gaming Commission including ownership information, details concerning financing, proposed location, preliminary riverboat construction plans, statements of local support or opposition and proposed excursion routes. The issuance of the Preliminary Certificate must be approved by a majority vote of the Louisiana Gaming Commission. Issuance is subject to the discretion of the Commission exercised in accordance with certain criteria outlined in the regulations of the Louisiana Riverboat Gaming Commission. After the Preliminary Certificate is issued, construction of the riverboat, as approved by the Louisiana Gaming Commission, may commence.
In addition to the Preliminary Certificate, an applicant is required to apply with the Louisiana Enforcement Division for the necessary gaming license. Specifically, the operator, certain of its shareholders and directors and officers are required to submit to thorough background investigations by the Louisiana Enforcement Division. Persons, including shareholders, who hold a 5% or greater economic interest in an entity
holding a Louisiana gaming license are subject to suitability investigations. Additionally, the Louisiana Enforcement Division may require any person or entity which it believes has control or influence over an applicant or license holder to submit to an investigation by the Louisiana Enforcement Division. The Louisiana Enforcement Division can deny any application for a gaming license on any findings of nonsuitability and any applicant who is denied a gaming license is not allowed to own or operate any gaming equipment in the state of Louisiana.
After an applicant and its operator (and all others required by the Louisiana Enforcement Division) have been approved for the issuance of their license by the Louisiana Enforcement Division, the project must receive a Certificate of Final Approval ("Final Certificate") from the Louisiana Gaming Commission. A Final Certificate will not be issued without all necessary and proper certificates from all regulatory agencies, including the U.S. Coast Guard, the Army Corps, local port authorities and local levee authorities.
All certificates and licenses may be issued with certain conditions attached to them. The conditions become requirements of the certificates and licenses and failure to adhere to these conditions will result in revocation of the certificates or licenses. Licenses are issued for an initial period of five years and permits for an initial period of one year. Renewal terms are for one year for both licenses and certificates. Application fees for licenses are $50,000 and for certificates are $25,000.
On October 24, 1993, a final certificate was issued to the Showboat Star Partnership.
The Company and certain of its directors and officers and certain key personnel must be found suitable by the Louisiana Enforcement Division, and applications for these persons were submitted to the Louisiana Enforcement Division. Employees associated with gaming must also be approved by the Louisiana Enforcement Division prior to working in gaming related areas. These approvals may be immediately revoked for a number of causes as determined by the Louisiana Enforcement Division. The Louisiana Enforcement Division may deny any application for a certificate, permit or license for any cause found to be reasonable by the Louisiana Enforcement Division. The Louisiana Enforcement Division has the authority to require the Company to sever its relationships with any persons for any cause deemed reasonable by the Louisiana Enforcement Division or for failure of that person to file necessary applications with the Louisiana Enforcement Division.
Both the Louisiana Enforcement Division and the Louisiana Gaming Commission regulatory schemes are intended to maintain regulatory supervision over control
of licensees. Certain changes in ownership or control of a licensee through merger, consolidation, acquisition, management or consulting agreements or any form of takeover may be conditioned upon approval of the Louisiana State Police riverboat Gaming Enforcement Division. The Louisiana Act specifically provides that the sale, assignment, transfer, pledge or disposition of a security or securities representing 5% or more of total outstanding shares issued by a corporation holding a license must be approved by the Division. Moreover, acquisition of 5% or more of the total outstanding shares of a licensee or a 5% or more economic interest in a licensee requires Division approval. Additionally, all securities issued by a licensed corporation are required to bear, on both sides, a statement of the restrictions imposed by the Louisiana Act.
At any time after a license has been issued, the Louisiana Enforcement Division may investigate and require the finding of suitability of any beneficial shareholder of the Company. The Louisiana Enforcement Division requires all holders of more than 5% of the license holder to submit to suitability requirements. Additionally, if a shareholder who must be found suitable is a corporate or partnership entity, then the shareholders or partners of that entity must also submit to investigation. The sale or transfer of more than a 5% interest in any riverboat project is subject to Louisiana Enforcement Division approval.
Annual fees are charged to each riverboat project as follows: (1) $50,000 per year for the first year and $100,000 for each year thereafter; and (2) 18.5% of the net gaming proceeds. Additionally, the Star Casino must pay the City of New Orleans a boarding fee of $2.50 per patron and an additional fee of $2.50 per patron to the Orleans Levee District.
Any violation of the Louisiana Act or the rules promulgated by the Louisiana Gaming Commission or the Louisiana Enforcement Division could result in substantial fines, penalties and criminal actions. Any material and knowing violation of the Louisiana Act (including the making of a material false statement in any application) may be a criminal offense. Violation of the regulations of either the Louisiana Enforcement Division or the Louisiana Gaming Commission may result in civil penalties and disciplinary action including suspension of a license or certificate. Additionally, certificates issued by the Louisiana Gaming Commission or licenses issued by the Louisiana Enforcement Division are revocable privileges and may be revoked at any time.
In the event that the Louisiana Enforcement Division determines that an individual owner or holder of a security of a corporate licensee or any person or persons with an economic interest in a licensee is not qualified and suitable, the Division may disqualify that person from receiving dividends or interest on the licensee's
corporate securities, from exercising rights conferred by those securities, from receiving any remuneration or economic benefit from the licensee and may prohibit the continuation of the ownership, economic interest or management participation. These conditions may be imposed as a condition to the licensee retaining its license.
Missouri Gaming
Gaming was originally authorized in the State of Missouri in November 1992. On April 29, 1993, new legislation (the "Missouri Act") was enacted which replaced the 1992 legislation. In January 1994 the Missouri Supreme court handed down a decision which held that the operation of certain games of chance such as traditional slot machines was prohibited by the constitution of the state of Missouri. On November 8, 1994, the people of Missouri voted in favor of an amendment to the Missouri constitution to allow slot machine gaming in the state. The Missouri Act provides for the licensing and regulation of riverboat and dockside gaming operations on the Mississippi and Missouri Rivers in the State of Missouri and the licensing and regulation of persons who distribute gaming equipment and supplies to gaming licensees. The Missouri Act limits the loss per individual on each excursion to $500, but does not otherwise limit the amount which may be wagered on any bet or the amount of space in the vessel which may be utilized for gaming.
The Missouri Act is to be implemented and enforced by a five-member Missouri Gaming Commission. This Commission is empowered to issue such number of riverboat gaming licenses as it determines to be appropriate. A gaming license cannot be granted to any gaming operator unless the voters in such operator's "home dock" city or county have authorized gaming activities on gaming riverboats. No assurance can be given that RLLC will obtain a gaming license in a timely fashion or at all.
Gaming boats in Missouri must generally resemble boats from Missouri's riverboat history and must contain nongaming areas, food service and a Missouri theme gift shop. The boats must cruise unless public safety requires continuous docking. Annual license fees will be set by the Missouri Gaming Commission but may not be less than $25,000. Each licensee also must post a bond or other form of surety (in an amount determined by the Missouri Gaming Commission) to secure performance of its obligations under the Missouri Act and the regulations of the Missouri Gaming Commission.
On September 1, 1993, the Missouri Gaming Commission adopted rules and regulations (the "Missouri Regulations") governing the licensing, operation and administration of riverboat gaming in the state of Missouri and the form of application for such licensure. RLLC has submitted its gaming application. There can be
no assurance that RLLC will be selected for investigation for licensing or if so selected that a Missouri gaming license will be issued.
In addition, the Missouri Regulations remain subject to amendment and interpretation, and may further limit or otherwise adversely affect the Company and its Missouri gaming operations.
Directors and certain officers and key persons of the Company and RLLC must file personal disclosure forms with the gaming license application and must be found suitable by the Missouri Gaming Commission. Further, the Missouri Regulations require that all employees of RLLC who are involved in gaming operations must file applications for and receive Missouri gaming occupational licenses. The Missouri Regulations require disclosure by the Company and RLLC of any person or entity holding any direct or indirect ownership interest in RLLC. RLLC is also required to disclose the names of the holders of all of RLLC's debt including a description of the nature and terms of such debt. The Missouri Gaming Commission may, in its sole discretion, request additional information with respect to such holders. Missouri gaming licenses must be renewed annually during the first two years of an entity's licensure and renewed every two years thereafter.
Under Missouri law, gaming licenses are not transferable, and under the Missouri Regulations the transfer of (i) any ownership interest in a privately held business entity or (ii) a 5% or greater interest in a publicly traded company directly or indirectly holding a Missouri gaming license is prohibited without the approval of the Missouri Gaming Commission. Further, without the prior approval of the Missouri Gaming Commission, the Missouri Regulations prohibit withdrawals of capital, loans, advances or distribution of any assets in excess of 5% of accumulated earnings by a license holder to anyone with an ownership interest in the license holder.
The Missouri Regulations specifically provide that any action of the Missouri Gaming Commission shall not indicate or suggest that the Commission has considered or passed in any way on the marketability of the applicant or licensee's securities, or on any other matter, other than the applicant or licensee's suitability for licensure under Missouri law. A Missouri gaming license holder can be disciplined in Missouri for gaming related acts occurring in another jurisdiction which results in disciplinary action in the other jurisdiction.
In addition to any other taxes or fees payable to state and local governmental authorities, gaming licensure in the State of Missouri will subject RLLC to a 20% Adjusted Gross Receipts tax. Adjusted Gross Receipts is generally defined as gross receipts from gaming less payouts to customers as winnings. Also, a $2.00 admission is payable to the Missouri Gaming Commission for each person admitted to the riverboat.
The Missouri Gaming Commission has broad powers to require additional disclosure by an applicant during the processing of a gaming application, to deny gaming licensure and to administratively fine or suspend or revoke a gaming license for failure to comply with or for violation of the Missouri Act or Missouri Regulations. Further, in certain situations, the Missouri Gaming Commission can appoint a supervisor to continue the operations of a license holder after lapse, suspension or revocation of a gaming license.
The supervisor may operate and sell the facility with earnings or proceeds being paid to the former owners only after deduction of the costs and expenses of the supervisorship and establishment of reserves.
Sydney, Australia Gaming
The NSWCCA was created pursuant to the Casino Control Act 1992 (NSW) ("Casino Act") to maintain and administer systems for licensing, supervision and control of a casino.
In considering an application for a casino license, Section 11 of the Casino Act requires the NSWCCA to have regard to the following matters: (i) the suitability of applicants and "close associates" of applicants; (ii) the standard and nature of the proposed casino, and the facilities to be provided in, or in conjunction with, the proposed casino; (iii) the likely impact of the use of the premises concerned as a casino on tourism, employment and economic development generally in the place or region in which the premises are located; (iv) the expertise of the applicant, having regard to the obligations of the holder of a casino license under the Casino Act; and (v) such other matters as the NSWCCA considers relevant.
The term "close associate" is broadly defined in the Casino Act. It includes a person who:
(a) holds or will hold any Relevant Financial Interest,or is or will be entitled to exercise any Relevant Power (whether in his or her own right or on behalf of any other person), in the casino business of the license applicant or holder, and by virtue of that interest or power is or will be able (in the opinion of the NSWCCA) to exercise a significant influence over or with respect to the management or operation of that casino business; or
(b) holds or will hold any Relevant Position, whether in his or her own right or on behalf of any other person, in the casino business of the license applicant or holder.
The Casino Act defines "Relevant Financial Interest" as meaning any share in the capital of the business or
any entitlement to receive any income derived from the business, whether the entitlement arises at law, equity or otherwise.
"Relevant Position" is defined as the position of director, manager, secretary and other executive positions.
The Casino Act defines "Relevant Power" as any power, exercisable by voting or otherwise and whether exercisable alone or in association with others to participate in a directional managerial or executive decision or to elect or appoint any person to any Relevant Position.
The NSWCCA is to determine an application by either granting a casino license to the applicant or declining to grant a casino license. The casino license may be granted subject to such conditions as the NSWCCA thinks fit and is granted for the location specified in the casino license.
A casino license confers no right of property and cannot be assigned or mortgaged, charged or otherwise encumbered.
The conditions of a casino license may be amended by being substituted, varied, revoked or added to by the NSWCCA subject to the right of the licensee to make submissions to the NSWCCA in regard to any such proposal. The NSWCCA may also cancel or suspend, or amend the terms or conditions, of a casino license where there are grounds for disciplinary action, including: (i) the casino license being improperly obtained; (ii) the casino operator, a person in charge of the casino, an agent of the casino operator or a casino employee contravening a provision of the Casino Act or a condition of the license; (iii) the casino premises no longer being suitable for the conduct of the casino operations; (iv) the licensee being considered to be no longer a suitable person to give effect to the casino license and the Casino Act; and (v) the public interest that the casino license should no longer remain in force.
No right of compensation against the government arises for the cancellation, suspension or variation of the terms and conditions of the casino license.
The NSWCCA must not grant an application for a casino license unless it is satisfied that the applicant and each close associate is a suitable person to be concerned in or associated with the management and operation of a casino. In making the determination as to the suitability of the applicant, the NSWCCA must consider whether: (a) the applicant and each close associate are of good repute, having regard to character, honesty and integrity; (b) the applicant and each close associate is of sound and stable financial background; (c) in the case of an applicant that is not a natural person, the applicant has or has arranged a satisfactory ownership, trust or corporate structure; (d) the applicant has or is able to obtain financial resources that are both suitable and adequate for insuring the financial viability of the proposed casino; (e) the
applicant has or is able to obtain the services of persons who have sufficient experience in the management and operation of a casino; (f) the applicant has sufficient business ability to establish and maintain a successful casino; (g) the applicant or any close associate who has any business association with any person, body or association who, in the opinion of the NSWCCA is not of good repute, having regard to character, honesty and integrity or has undesirable or unsatisfactory financial sources; and (h) each director, partner, trustee, executive officer and secretary and any other officer or person determined by the NSWCCA to be associated or connected with the ownership, administration or management of the operations or business of the applicant or a close associate of the applicant is a suitable person to act in that capacity.
On receiving an application for a casino license, the NSWCCA may carry out all such investigations and inquiries as it deems necessary. The costs of the investigation by the NSWCCA are payable to the NSWCCA by the applicant unless the NSWCCA determines otherwise.
The NSWCCA may give written direction to a casino operator as to the conduct, supervision or control of operations of the casino.
The NSWCCA may investigate a casino from time to time at the discretion of the NSWCCA. Not later than three years after the grant of the casino license, and thereafter in intervals not exceeding three years, the NSWCCA must investigate and form an opinion as to whether or not the casino operator is a suitable person to continue to give effect to the casino license and determine that it is in the public interest the casino license should continue in force.
A casino operator must not enter into a controlled contract without first notifying the NSWCCA. A controlled contract is a contract that relates wholly or partly to the supply of goods or services to a casino, but does not include a contract that relates solely to the construction of the casino or to the alteration of premises used or to be used as a casino, or such other contracts as may be defined by the NSWCCA.
Gaming is not to be conducted in the casino unless the facilities provided in relation to the conduct and monitoring of operations of the casino are in accordance with the plans, diagrams and specifications that are approved by the NSWCCA. The NSWCCA may approve the games to be played in the casino. A casino operator must not conduct a game in a casino unless there is an order in force approving the game and the game is conducted in accordance with the rules approved by such order.
The casino is to be open to the public on such days and at such times as are directed by the NSWCCA in writing. The casino must be closed on days and at times that are not days or times specified by the NSWCCA.
A casino operator must not (i) accept a wager made otherwise than by means of money or chips, (ii) lend money, chips or any other valuable thing; provide money or chips as part of a transaction involving a credit card or debit card, (iii) extend any other form of credit, or (iv) wholly or partly discharge any debt. The casino operator may issue chips in exchange for checks.
Indiana Gaming
In 1993, the state of Indiana passed a Riverboat Gambling Act which created the Indiana Gaming Commission. The Indiana Gaming Commission is given extensive powers and duties for the purposes of administering, regulating and enforcing the system of riverboat gaming. It is authorized to award no more than 11 gaming licenses (five to counties contiguous to Lake Michigan, five to counties contiguous to the Ohio River and one to a county contiguous to Patoka Lake).
With the exception of Lake County, a county must pass a referendum approving (by a majority of those who voted) riverboat gaming before riverboat gaming can be legalized in that county. If a referendum fails to pass in any county, another referendum may not be held for another two years. Once a referendum has passed in a county, the Riverboat Gambling Act requires any proposed riverboat to operate from the most populous city in that county, unless such city passes a resolution authorizing a riverboat to operate elsewhere in the county. For Lake County, the Riverboat Gambling Act provides that the second and third most populous cities of the county, respectively Hammond and East Chicago according to the 1990 census, may authorize riverboat gaming within such cities, by passage of a municipal referendum. Voters in both cities have passed such referenda. Gary, Lake County's most populous city, is exempted by the Riverboat Gambling Act from the gaming referendum requirement altogether. Pursuant to Indiana Gaming Commission resolution, the cost of any referendum is to be borne by all license applicants for the voting county or municipality. The constitutionality of the Indiana Riverboat Gambling Act was upheld by the Indiana Supreme Court in INDIANA GAMING COMMISSION V. MOSELEY, decided November 21, 1994.
The Indiana Gaming Commission has jurisdiction and supervision over all riverboat gaming operations in Indiana and all persons on riverboats where gaming operations are conducted. These powers and duties include authority to (1) investigate all applicants for riverboat gaming licenses, (2) select among competing applicants those that promote the most economic development in a home dock area and that best serve the interest of the citizens of Indiana, (3) establish fees for licenses, and (4) prescribe all forms used by applicants. The Indiana Gaming Commission shall adopt rules pursuant to statute for administering the gaming statute and the conditions under which riverboat gaming in Indiana may be conducted. The Indiana Gaming Commission has promulgated certain formal rules and has proposed additional rules governing the application
procedure. The Indiana Gaming Commission may suspend or revoke the license of a licensee or impose civil penalties, in some cases without notice or hearing. The Indiana Gaming Commission will (1) authorize the route of the riverboat and stops that the riverboat may make, (2) establish minimum amounts of insurance and (3) after consulting with the United States Army Corps of Engineers, determine which waterways are navigable waterways for purposes of the Indiana Riverboat Gambling Act and determine which navigable waterways are suitable for the operation of riverboats. Additionally, the Indiana Gaming Commission may adopt emergency orders concerning navigability of waters for extreme weather conditions or other extreme circumstances.
The Indiana Riverboat Gambling Act requires an extensive disclosure of records and other information concerning an applicant, including disclosure of all directors, officers and persons holding one percent (1%) or more direct or indirect beneficial interest.
In determining whether to grant an owner's license to an applicant, the Indiana Gaming Commission shall consider (1) the character, reputation, experience and financial integrity of the applicant and any person who (a) directly or indirectly controls the applicant, or (b) is directly or indirectly controlled by either the applicant or a person who directly or indirectly controls the applicant, (2) the facilities or proposed facilities for the conduct of riverboat gaming, (3) the highest total prospective revenue to be collected by the state from the conduct of riverboat gaming, (4) the good faith affirmative action plan to recruit, train and upgrade minorities in all employment classifications, (5) the financial ability of the applicant to purchase and maintain adequate liability and casualty insurance, (6) whether the applicant has adequate capitalization to provide and maintain the riverboat for the duration of the license and (7) the extent to which the applicant meets or exceeds other standards adopted by the Indiana Gaming Commission. The Indiana Gaming Commission may also give favorable consideration to applicants for economically depressed areas and applicants who provide for significant development of a large geographic area. Each applicant must pay an application fee of $50,000 and an additional investigation fee of $55,000. If the applicant is selected, the applicant must pay an initial license fee of $25,000 and post a bond. A person holding an owner's gaming license issued by the Indiana Gaming Commission may not own more than a ten percent (10%) interest in another such license. An owners license expires five years after the effective date of the license. Unless the license has been terminated, expired or revoked, the gaming license may be renewed if the Indiana Gaming Commission determines that the licensee has satisfied all statutory and regulatory requirements. A gaming license is a revocable privilege and is not a property right. There can be no assurance that the Indiana Partnership will obtain an Indiana Gaming license.
Some municipalities have initiated their own review process. The Indiana Gaming Commission has passed a resolution stating that certain evaluations by local governments will be important factors in the Indiana Gaming Commission's economic development evaluation process, however, the Indiana Gaming Commission retains the sole authority to award a license.
Minimum and maximum wagers on games are not established by regulation but are left to the discretion of the licensee. Wagering may not be conducted with money or other negotiable currency. Riverboat gaming excursions are limited to a duration of four hours unless expressly approved by the Indiana Gaming Commission. No gaming may be conducted while the boat is docked except (1) for 30-minute time periods at the beginning and end of a cruise while the passengers are embarking and disembarking, (2) if the master of the riverboat reasonably determines that specific weather or water conditions present a danger to the riverboat, its passengers and crew, or (3) by rule of the Indiana Gaming Commission.
An admission tax of $3.00 for each person admitted to the gaming excursion is imposed upon the license owner. An additional twenty percent (20%) tax is imposed on the adjusted gross receipts received from gaming operations, which is defined as the total of all cash and property (including checks received by the licensee whether collected or not) received, less the total of all cash paid out as winnings to patrons and uncollected gaming receivables. The gaming license owner shall remit the admission and wagering taxes before the close of business on the day following the day on which the taxes were incurred. Legislation is currently before the Indiana Legislature permitting the imposition of property taxes on the riverboats at rates to be determined by local taxing authorities of the jurisdiction in which a riverboat operates.
The Indiana Gaming Commission is authorized to license suppliers and certain occupations related to riverboat gaming. Gaming equipment and supplies customarily used in conducting riverboat gaming may be purchased or leased only from licensed suppliers.
The Indiana Riverboat Gambling Act places special emphasis upon minority and women's business enterprise participation in the riverboat industry. Any person issued a gaming owners license must establish goals of expending at least ten percent (10%) of the total dollar value of the licensee's contracts for goods and services with minority business enterprises and five percent (5%) of the total dollar value of the licensees contracts for goods and services with women's business enterprises. The Indiana Gaming Commission may suspend, limit or revoke the gaming owners license or impose a fine for failure to comply with statutory requirements.
U.S. Coast Guard
Each cruising riverboat also is regulated by the U.S. Coast Guard, whose regulations affect boat design and stipulate on- board facilities, equipment and personnel (including requirements that each vessel be operated by a minimum complement of licensed personnel) in addition to restricting the number of persons who can be aboard the boat at any one time. All vessels operated by the Company must hold a Certificate of Inspection. Loss of the Certificate of Inspection of a vessel would preclude its use as an operating riverboat. The vessel must be drydocked periodically for inspection of the hull, which will result in a loss of service that can have an adverse effect on the Company. For vessels of the Company's type, the inspection cycle is every five years. Less stringent rules apply to permanently moored vessels. The Company believes that these regulations, and the requirements of operating and managing cruising gaming vessels generally, make it more difficult to conduct riverboat gaming than to operate land-based casinos.
All shipboard employees of the Company employed on U.S. Coast Guard regulated vessels, even those who have nothing to do with the actual operation of the vessel, such as dealers, cocktail hostesses and security personnel, may be subject to the Jones Act which, among other things, exempts those employees from state limits on workers' compensation awards. The Company believes that it has adequate insurance to cover employee claims.
Shipping Act of 1916; Merchant Marine Act of 1936
In order for the Company's vessels to have United States flag registry, the Company must maintain "United States citizenship" as defined in the Shipping Act of 1916, as amended, and the Merchant Marine Act of 1936, as amended. A corporation operating any vessel in the coastwise trade, such as the Company, is not considered a United States citizen unless United States citizens own 75% of its outstanding capital stock.
ITEM 2.
ITEM 2. PROPERTIES.
Las Vegas
The Las Vegas Showboat is located on the eastern edge of the City of Las Vegas approximately two and one-half miles from both downtown Las Vegas and the area commonly known as the "Strip" where many of Las Vegas' major resort hotel casinos are located. The Las Vegas Showboat is primarily a two-story structure with an eighteen-story high-rise hotel and a 620-car parking garage. The hotel registration area, bowling center, restaurants, bars and entertainment lounge surround the casino area and are on the first floor of the Las Vegas Showboat. The buffet, 1,300-seat bingo room, meeting and
banquet facilities, employee dining room, and the Company's executive offices are located on the second floor. The Las Vegas Showboat's high-rise tower contains 352 of the Showboat's 453 guest rooms. The entire facility covers approximately 26 acres, which includes approximately 19.25 acres of improved parking area. The Company also owns and operates the 33-room Showboat Motel located immediately across the street from the Showboat on approximately one acre of land.
The facilities are constantly monitored to make sure that the needs of the Company's business and customers are met. In 1994 the Company authorized an approximately $18.5 million renovation of the casino, dining rooms and bar areas, all of which is anticipated to be completed in 1995. The renovation will include the replacement of the HVAC units for the casino and replacement of the existing roof over the casino in conjunction with the raising of the casino ceiling up to twenty-three feet, giving the casino a more expansive appearance. Stained glass panes will be used to accent this larger look. Additionally, near the buffet area, a balcony will be added, which will provide an overview of the casino.
The renovation will also include a number of alterations and expansions to the various dining and bar areas to improve their variety and overall ambience. The coffee shop will be expanded to include patio seating which will look into the casino. A fast food restaurant will be added as a dining alternative. The Carnival Lounge will be doubled in size to meet the demand of patrons when popular entertainers are booked and the casino bar adjacent to the lounge will be expanded with an added seating area containing raised seating and a large screen television. Additionally, the facilities power plant will be upgraded, a new pool building will be constructed and new carpeting will be installed throughout the property. For employees, the employee dining room will be remodeled and enlarged. As a result of this extensive renovation construction during 1995, approximately forty percent of the main casino space of the Las Vegas Showboat will be closed for up to six months of 1995.
The Company holds fee title to all of the above-described properties. The real property, buildings and improvements comprising the Las Vegas Showboat secure the Company's First Mortgage Bonds. All of the above-mentioned land and buildings are leased to Showboat Operating Company, a wholly-owned subsidiary.
Atlantic City
The Atlantic City Showboat is located on approximately 13 acres, 10 1/2 acres of which is leased from Resorts International, Inc. ("Resorts") pursuant to a 99-year lease dated October 26, 1983 (as amended, "Lease"). The remaining acreage is held in fee by Atlantic City Showboat, Inc.
Under the New Jersey Act, both Resorts and ACSI, because of their lessor-lessee relationship, are jointly and severally liable for the acts of the other with
respect to any violations of the New Jersey Act by the other. In order to limit the potential liability which could result from this provision, ACSI, OSI and Resorts have agreed to indemnify each other from all liabilities and losses which may arise as a result of the joint and several liability imposed by the New Jersey Act. However, the New Jersey Commission could determine that the party seeking indemnification is not entitled to or is barred from such indemnification.
Pursuant to the New Jersey Act, the New Jersey Commission approved, subject to certain changes, an Assumption Agreement ("Assumption Agreement") executed by Trump Taj Mahal Associates Limited Partnership and Trump Taj Mahal Realty Corp. (collectively, "Trump Taj"), ACSI and Resorts in connection with Trump Taj's acquisition of the land on which the Taj Mahal Casino Hotel is constructed and pursuant to which Trump Taj assumed some of Resorts' obligations in the Lease. The New Jersey Commission ruled that the Assumption Agreement is a lease under the New Jersey Act for casino regulatory purposes. As a result, for casino regulatory purposes, a lessor-lessee relationship is deemed to exist among ACSI, Resorts, and Trump Taj making them jointly and severally liable for the acts of the other with respect to any violations of the New Jersey Act by the others. In order to limit their potential liability, ACSI, Resorts and Trump Taj have entered into an agreement to indemnify each other from all liabilities and losses which may arise as a result of the joint and several liability imposed upon them by the New Jersey Act. However, the New Jersey Commission could determine that the party seeking indemnification is not entitled to or is barred from such indemnification.
In the event Resorts is unable under the laws of New Jersey to act as lessor of the site to the Atlantic City Showboat ("Premises"), ACSI has an option to purchase the Premises for the greater of $66.0 million or the fair market value of the "leased fee estate" (determined by appraisal in the case of disagreement), subject to a maximum purchase price of 11 times the annual rent in the option year. However, if the appraisal is not completed within the time period specified by the New Jersey Commission, the purchase price is equal to the lesser of $66.0 million or 11 times the annual rent in the option year. If ACSI is unable to continue operating the Atlantic City Showboat under the New Jersey gaming laws, Resorts has a similar option to purchase ACSI's interest in the Premises together with the Atlantic City Showboat building and all furniture, fixtures and equipment thereon for their fair market value as of the option date (determined by appraisal in the case of disagreement). Also, should Resorts elect to sell its interest in the Lease or the Premises to an unaffiliated third party, ACSI has a first right of purchase unless such sale is made to a person who acquires all of the assets and liabilities of Resorts (subject to the Lease). Similarly, Resorts has a first right of purchase of ACSI's leasehold interest in the Premises or the Atlantic City Showboat if ACSI elects to sell the same to any person other than an affiliate of ACSI or a mortgagee of ACSI's leasehold interest and improvements on the leased
land. Any such transfer by ACSI, other than to a permitted transferee, requires Resorts' consent which cannot be unreasonably withheld.
The Lease and all amendments thereto are subject to review and approval by the New Jersey Commission, and Resorts and ACSI have agreed that they will accept any reasonable modification to the Lease that may be required by the New Jersey Commission. If either party determines that the requested Lease modifications are unduly burdensome, the Lease may be terminated, subject to arbitration in the case of disagreement. The Lease, as amended to date, has been approved by the New Jersey Commission. In addition, Resorts, pursuant to a ruling by the New Jersey Commission, in its capacity as lessor of the site of the Atlantic City Showboat, must obtain a casino service industry license. Resorts presently holds a casino service industry license, which must be renewed every three years.
The First Mortgage Bonds are also secured by a first leasehold mortgage on ACSI's interest in the Lease, the Atlantic City Showboat building and future improvements on the leased land as well as certain personal property therein. Such mortgage is subject and subordinate to Resorts' rights under the Lease and its fee interest in the Premises. Subject to certain limited exceptions, the Lease may not be amended without the consent of the trustee under the Indenture governing the First Mortgage Bonds unless certain opinions are delivered to the effect that the amendment does not materially impair the security of the mortgage. An event of default under the Lease constitutes an event of default under the mortgage and the Indenture.
In addition to its rental payment obligations under the Lease, ACSI is obligated to contribute up to one-third of the costs of certain infrastructure improvements to be constructed on a 56-acre tract ("Urban Renewal Tract"). The Atlantic City Showboat is located on a portion of the Urban Renewal Tract owned by Resorts. ACSI is obligated to contribute only toward improvements of which it is the beneficiary or which are expected to benefit ACSI and all future occupants of the Urban Renewal Tract. ACSI has contributed to infrastructure improvements involving the construction of certain sewer and water lines and the realigning of a portion of Delaware Avenue ("Realigned Delaware Avenue") to permit direct ingress and egress from the Realigned Delaware Avenue to the Atlantic City Showboat, which improvements have been completed.
Realigned Delaware Avenue has not yet been dedicated to the City of Atlantic City. Pending dedication of the Realigned Delaware Avenue to the City, the Atlantic City Housing Authority granted to ACSI a permanent easement and right of way ("Easement") for the Realigned Delaware Avenue for the benefit of ACSI and ACSI's employees, agents, guests, suppliers, visitors, invitees and all others seeking access to the Atlantic City Showboat. Until acceptance of a deed of dedication of the Realigned Delaware Avenue by the City of Atlantic City, ACSI shall maintain at its expense and pay, if billed separately, the real property taxes associated with the Easement, or
reimburse Resorts for its allocable share of such real property taxes for the Easement.
In addition, the CRDA approved a plan effective November 1992 to widen Delaware Avenue to four traffic lanes and two parking lanes. Delaware Avenue leads directly from White Horse Pike (U.S. Route 30) to the Atlantic City Showboat. ACSI proposed and the CRDA approved that $8.0 million of ACSI's deposits with the CRDA will be used for the widening of Delaware Avenue. In connection with its approval, the CRDA required ACSI to donate $2.5 million of its deposits with the CRDA to certain CRDA programs. The widening of Delaware Avenue was completed in the Spring of 1994.
ACSI's Board of Directors routinely authorizes capital expenditures at the Atlantic City Showboat. In addition to the three-part expansion of the Atlantic City Showboat which was completed in 1994, the Board has authorized expending $15.7 million for recurring annual capital improvements in 1995. None of these recurring annual capital expenditures in 1995 commit the Company to additional capital expenditures in subsequent years.
During 1994, the Company completed the construction of a three-part $97 million expansion project, before credits of $8.7 million from CRDA, at the Atlantic City Showboat. For a discussion of CRDA credits see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources." The first stage of the expansion was completed in May 1993 and added Atlantic City's first horse race simulcasting facility. Approximately 4,500 square feet of casino space was added in June 1993. With the additional casino space, the Company added approximately 340 slot machines and 28 table games to its Atlantic City Casino in 1993.
In the second stage of the expansion, during 1994, the Company added an additional 15,500 square feet of casino space. With the additional casino space, the Company added approximately 550 slot machines and 10 table games, bringing the then total number of slot machines and table games at the Atlantic City Showboat to approximately 3,000 and 115, respectively.
The final stage of the expansion was the addition of a new seventeen story, 284-room hotel tower which opened in November 1994, three months ahead of the original schedule. The new tower was constructed on approximately four acres of real property abutting the Atlantic City Showboat which was purchased in 1993 from the Atlantic City Housing Authority and Urban Redevelopment Agency ("ACHA").
The Company believes that it presently is utilizing the Atlantic City facilities at an acceptable level. See Item 1. "BUSINESS" p. 3. The Atlantic City facilities are constantly monitored to make sure that the needs of the Company's business and customers are met.
Other Facilities
ACSI leases a 63,200 square-foot warehouse and office in Egg Harbor Township, New Jersey, approximately 15 miles from the Atlantic City Showboat. The lease term is through July 31, 2001. ACSI holds an option to purchase the warehouse for $1.9 million. This option may be exercised by ACSI on or after January 1, 1996, and shall remain in effect until March 31, 2001.
ACSI leases a parking area for its employees from Atlantic City Public Parking Garage No. 1 for 250 parking spaces. This lease expires, unless earlier terminated, on March 31, 1995. In 1993 the Company purchased a vacant city block from private owners which currently provides approximately 500 parking spaces for ACSI customers and employees. ACSI provides, through an independent contractor, a shuttle service for its employees between the two parking areas and the Atlantic City Showboat. Additionally, ACSI owns an additional parcel of land nearby which serves as an overflow for parking. In December 1994, ACSI entered into a 5-year lease with ACHA for a parcel of land adjacent to the Atlantic City Showboat. ACSI is currently constructing on the land to construct a parking lot consisting of approximately 500 additional parking spaces for use by customers and employees by June 20, 1995.
The Company leases office space in Ventnor, New Jersey pursuant to a lease agreement executed on December 20, 1993 between Showboat Operating Company and Ventroy Associates. The term of the lease is five years commencing on January 1, 1994, with monthly rental payments of approximately $22,000.
Lake Pontchartrain, Louisiana
The Star Casino permanently ceased gaming operations on March 9, 1995. The Star Casino was located on the south side of Lake Pontchartrain in New Orleans, Louisiana, approximately seven miles from New Orleans' "French Quarter." The terminal building and parking area were located on approximately 19.6 acres. The terminal building is a two-story structure containing approximately 34,000 square feet. The terminal building housed a restaurant and cocktail lounge on the first floor and administrative offices on the second floor. On-site parking for 1,150 cars was located immediately adjacent to the terminal building.
Showboat Star Partnership leased land, wharf and water bottom from the Orleans Levee District for use in its riverboat gaming operations and leased space for employee parking. The term of the land lease agreement was for ten years, with four options to renew for a period of ten years each. Additionally, Showboat Star Partnership leases a building from the Orleans Levee District, which was adjacent to its terminal building, pursuant to a lease agreement dated February 1, 1994. The term of the lease agreement for the additional building was one year, with nine options to renew for a
period of one year each. Each of the foregoing leases were assigned to Belle of Orleans LLC in February 1995. The Showboat Star Partnership, immediately following the assignment to Belle of Orleans LLC, entered into a sublease agreement to sublet the leased land until April 30, 1995. In March 1995, Showboat Louisiana, Inc. and Lake Pontchartrain Showboat, Inc. sold their partnership interests to subsidiaries of Players International, Inc. for $52 million subject to adjustment.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
The Company is from time to time involved in legal proceed ings arising in the ordinary course of business.
ATLANTIC CITY SHOWBOAT, INC. V. ATLANTIC CITY HOUSING AUTHORITY AND URBAN DEVELOPMENT AGENCY OF THE CITY OF ATLANTIC CITY, ET AL.
On March 9, 1995, Atlantic City Showboat filed an action in an Atlantic County Superior Court against the Atlantic City Housing Authority ("ACHA") and Forest City Ratner Companies ("FCR") to protect its ownership of, and its right to develop, two parcels of beach-block land adjacent to the Atlantic City Showboat which were purchased by the Company in 1993 for $4.6 million ("Parcels"). The complaint alleges that the ACHA improperly sought to force the Company to give the Parcels to ACHA so ACHA could give the Parcels to FCR as a site for a strip mall construction project. The complaint further alleges that ACHA acted in violation of the United States and New Jersey constitutions as well as in violation of contracts between Atlantic City Showboat and ACHA. The Company believes that its lawsuit is meritorious but, it cannot evaluate the likelihood of an favorable outcome with respect to these claims.
DARLING HARBOUR CASINO LIMITED V. NEW SOUTH WALES CASINO CONTROL AUTHORITY, NEW SOUTH WALES MINISTER FOR PLANNING; DARLING HARBOUR CASINO LIMITED V. NEW SOUTH WALES CASINO CONTROL AUTHORITY, CHIEF SECRETARY AND MINISTER FOR ADMINISTRATIVE SERVICES AND SYDNEY HARBOUR CASINO PTY LIMITED
In December 1994, the NSWCCA awarded the Casino License to SHCP. Immediately thereafter, Darling Harbour Casino Limited ("DHCL") initiated legal proceedings in both the Land & Environment Court of the State of New South Wales, Australia and the Administrative Law Division of the Supreme Court of that State. The Land & Environment Court proceedings were instituted against NSWCCA and the New South Wales Minister for Planning, and SHCP applied to be joined as a party to those proceedings in view of its interest in their outcome. The action alleges that the development plans for the Sydney Harbour Casino were improperly approved. The proceedings in the Supreme Court of New South Wales were instituted against
the NSWCCA, SHCP and the Chief Secretary and Minister for Administrative Services, who is the Minister of the Crown in New South Wales whose portfolio includes responsibility for the operation and administration of the NSWCCA.
The proceedings in the Land & Environment Court have now been heard at first instance and a judgment is expected shortly. However, the proceedings in the Supreme Court have not as yet been heard and are currently the subject of an application by SHCP and the NSWCCA that they be struck out.
DHCL relies upon various grounds in its complaint against SHCP, the NSWCCA and the Minister in these proceedings but its principal contention is that the NSWCCA, in determining to issue a license to SHCP, did not consider all matters relevant to, or if it did consider such matters, it was not justified in concluding that, SHCP and its "close associates" (as defined in Section 13 of the Casino Control Act 1992 (NSW) and in particular Leighton Properties) were suitable persons to be concerned in or associated with the management and operation of a casino as it is bound to do under the Casino Act. The action in the Supreme Court seeks revocation of the license awarded to SHCP. The Company believes that these actions are meritless and intends to vigorously defend against the allegations.
POULOS/AHERN V. SHOWBOAT, INC., ET AL., On April 26, 1994 and May 10, 1994, complaints in purported class action lawsuits were filed in the United States District Court, Middle District of Florida, against 41 manufacturers, distributors and casino operators of video poker and electronic slot machines, including the Company. The complaints allege that the defendants have engaged in a course of conduct intended to induce persons to play such games based on a false belief concerning how the gaming machines win on a given play. One complaint alleges violations of the Racketeer Influenced and Corrupt Organizations Act (the "RICO Act"), as well as claims of common law fraud, unjust enrichment and negligent misrepresentation, and seeks damages in excess of $1 billion. The other complaint alleges violations of the RICO Act and seeks damages in excess of $1 billion. The cases have been consolidated. Management believes that the complaints are without merit and intends to vigorously defend the allegations in the complaints. The case has been transferred to U.S. District Court, State of Nevada, Case No. W/CV-S-94-1137-LDG (RJJ). The Company has filed a motion to dismiss the complaints on grounds of lack of jurisdiction. In the opinion of management, the ultimate disposition of this matter will not have a material adverse effect on the Company's financial position or results of operation.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is listed on the New York Stock Exchange. The range of high and low sales prices for the Company's common stock for each quarter in the last two years is as follows:
On March 15, 1995, the closing price of the Company's common stock on the New York Stock Exchange was $14 3/4.
The Company has paid quarterly dividends since 1970. The declaration and payment of dividends is at the discretion of the Board of Directors. The Board of Directors considers, among other factors, the Company's earnings, financial condition and capital spending requirements in determining an appropriate dividend.
The Company is restricted in the payment of cash, dividends, loans or other similar transactions by the terms of an Indenture executed by it in connection with the issuance of First Mortgage Bonds. See Note 6 to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations.
The approximate number of holders of the common stock as of March 15, 1995 was 1,850.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
GENERAL
Showboat, Inc. and its subsidiaries, collectively the Company or SBO, own and operate casino hotels 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 (Showboat Star Casino).
The 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.
In 1993, Showboat Louisiana, Inc. ("SLI") purchased a 30% equity interest in Showboat Star Partnership ("SSP") which owns the Showboat Star Casino for $18.6 million. In addition, Lake Pontchartrain Showboat, Inc. ("LPSI") manages the Showboat Star Casino for a fee equal
to 5% of gaming revenues net of gaming taxes. Operation of the Showboat Star Casino commenced on November 8, 1993. On March 1, 1994, SLI purchased an additional 20% equity interest in SSP for $9.0 million bringing its total interest to 50%. In March 1995, SLI and LPSI purchased the remaining 50% equity interest from its partners for $25.0 million, subject to adjustment, and subsequently sold all of the equity of the partnership to a competitor for $52.0 million, subject to adjustment. The Company's equity in the income or loss of SSP is included in the Consolidated Statement of Income as equity in income or loss of unconsolidated affiliate. Intercompany management fees have been eliminated in consolidation.
Showboat Australia Pty Limited ("SA") was formed in 1994 and, along with Leighton Properties Ltd. formed Sydney Harbour Casino Pty Ltd. ("SHC") to apply for the exclusive full-service casino license in Sydney, Australia. The casino license was awarded to SHC in December 1994. SA invested approximately $100.0 million in SHC for a 26.3% equity interest. SA also owns 85% of the company engaged to manage the casino for a management fee. SHC anticipates that it will commence gaming operations in a temporary facility in September 1995 and that the operations at the permanent facility will commence in early 1998. As a result of the anticipated write-off of certain preopening and development costs subsequent to the opening of the temporary casino, the Company anticipates minimal contribution to its earnings in 1995 from the commencement of operations at the Sydney Harbour Casino.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 (1994) COMPARED TO YEAR ENDED DECEMBER 31, 1993 (1993)
REVENUES
Net revenues for the Company increased to $401.3 million in 1994 from $375.7 million in 1993, an increase of $25.6 million or 6.8%. Casino revenues increased $21.9 million or 6.7% to $351.4 million in 1994 from $329.5 million in 1993. Nongaming revenues, which consist principally of room, food, beverage, management fee and bowling revenues, were $83.2 million in 1994 compared to $78.3 million in 1993, an increase of $4.9 million or 6.3%.
The Atlantic City Showboat generated $320.2 million of net revenues in 1994 compared to $294.2 million in 1993, an increase of $26.0 million or 8.8%. Casino revenues were $292.4 million in 1994 compared to $268.8 million in 1993, an increase of $23.6 million or 8.8%. The increase in casino revenues was primarily due to increases in both slot machine and table game revenues. Slot machine revenues at the Atlantic City Showboat increased $18.3 million or 9.3% in 1994. This compares favorably to 3.7% growth in slot machine revenues in the Atlantic City market during the same period. The improved slot revenue growth experienced by the Atlantic
City Showboat is primarily attributed to the addition of 609 slot machines throughout 1994 for a total of 3,027 slot machines by December 31 1994. Table game revenues increased $2.9 million or 4.2% in 1994. Casino revenues were also favorably impacted by the mid-1994 addition of keno and the mid-1993 addition of poker and horse race simulcasting. Nongaming revenues increased $3.3 million or 6.2% in 1994 to $56.0 million from $52.7 million in 1993. This increase was primarily due to increased complimentary room revenue of $1.2 million and non-complimentary food revenues of $2.2 million.
At the Las Vegas Showboat, net revenues decreased to $79.2 million in 1994 from $81.1 million in 1993, a decrease of $1.9 million or 2.3%. The decrease in net revenues primarily resulted from an approximate 37% increase in slot machine capacity on the Boulder Strip in the third quarter of 1994. 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 decreased to $59.0 million in 1994 from $60.7 million in 1993, a decrease of $1.7 million or 2.8%. Nongaming revenues increased $.2 million in 1994 primarily as a result of increased hotel occupancy due to increased effectiveness of certain hotel marketing programs.
LPSI generated $3.5 million of management fee revenues, before an intercompany elimination of $1.6 million, in 1994 compared to $.4 million in 1993. Showboat Star Casino, which opened November 8, 1993 generated net revenues of $98.0 million in 1994 consisting primarily of casino revenues of $97.2 million. In 1993, Showboat Star Casino generated net revenues of $12.1 million and casino revenues of $10.9 million.
INCOME FROM OPERATIONS
The Company's income from operations increased to $51.8 million in 1994 from $45.4 million in 1993, an increase of $6.4 million or 14.1%. Improvements in income from operations at the Atlantic City Showboat and the Showboat Star Casino were offset by a decline in income from operations at the Las Vegas Showboat and by an increase in corporate and development expenses.
Income from operations at the Atlantic City Showboat, before intercompany management fees, was $50.7 million in 1994 compared to $44.0 million in 1993, an increase of $6.7 million or 15.3%. The increase in income from operations was primarily due to increased revenues that were offset by a $19.3 million or 7.7% increase in operating expenses before intercompany management fees to $269.5 million in 1994 from $250.2 million in 1993. The increase in operating expenses was primarily due to the increased capacity and volume of business as a result of the expansion of the Atlantic City facility. General and administrative expenses were also impacted by a $1.5 million or 22.0% increase in real estate taxes and an increase of $1.0 million in a parking assessment absorbed by the Atlantic City Showboat. Partially offsetting these increases was the decrease of
$1.0 million in insurance costs borne by the parent company.
Income from operations at the Las Vegas Showboat, before intercompany management fees, declined $3.8 million or 46.4% in 1994 to $4.4 million in 1994 from $8.2 million in 1993. The decrease was primarily due to increased competition on the Boulder Strip that resulted in a decrease in net revenue. In addition operating expenses increased to $74.8 million in 1994 from $72.9 million in 1993, an increase of $1.9 million or 2.7%. Increases in expenses were due to increased payroll and payroll related costs and increased advertising costs.
Showboat Star Partnership realized net income of $24.8 million on net revenues of $98.4 million in 1994. Operations at the Showboat Star Casino contributed $13.7 million in 1994 to the Company's income from operations. In 1993, Showboat Star Partnership recognized a loss of $2.8 million primarily as a result of the write-off of preopening costs.
Corporate and development expenses totaled $17.0 million in 1994 compared to $5.5 million in 1993. The Company established a separate corporate and development office in late 1993. Prior to this time, a significant portion of corporate expenses were absorbed by operating subsidiaries. In addition, the Company has expanded the scope of its activities related to the pursuit of expansion opportunities in jurisdictions outside Nevada and New Jersey.
OTHER (INCOME) EXPENSE
In 1994, other (income) expense consisted of $29.5 million of interest expense, net of $3.3 million of capitalized interest, and $4.9 million of interest income. In 1993, other (income) expense consisted of $24.7 million of interest expense, net of capitalized interest, and $3.2 million of interest income. The increase in interest expense is due to an increase in long-term debt during the period. In connection with its expansion project at the Atlantic City Showboat and the Company's 1994 investment in Sydney Harbour Casino, the Company capitalized $2.7 million and $.6 million, respectively, in 1994.
INCOME TAXES
In 1994, the Company incurred income taxes of $11.5 million, or an effective tax rate of 42.4%, compared to $10.5 million, before the income tax benefit of an extraordinary loss, or an effective tax rate of 43.8% in 1993. Differences between the Company's effective tax rate and the statutory federal tax rates are due to permanent differences between financial and tax reporting and state income taxes.
NET INCOME
In 1994, the Company realized net income of $15.7 million or $1.02 per share. In 1993 income before an extraordinary loss and a cumulative effect adjustment was $13.4 million or $.89 per share. In 1993, the Company recognized an extraordinary loss net of tax of $6.7 million, or $.44 per share, as a result of the redemption of all of its 11 3/8% Mortgage-Backed Bonds Due 2002. Net income for 1993 after recognition of the extraordinary loss and the cumulative effect adjustment was $7.3 million or $.49 per share.
YEAR ENDED DECEMBER 31, 1993 (1993) COMPARED TO YEAR ENDED DECEMBER 31, 1992 (1992)
REVENUES
Net revenues for the Company increased to $375.7 million in 1993 from $355.2 million in 1992, an increase of $20.5 million or 5.8%. Casino revenues increased $16.3 million or 5.2% to $329.5 million in 1993 from $313.2 million in 1992. Nongaming revenues, which consist principally of food, beverage, room, and bowling revenue, were $78.3 million in 1993 compared to $71.2 million in 1992, an increase of $7.1 million or 10.0%.
The Atlantic City Showboat generated $294.2 million of net revenues in 1993 compared to $277.3 million in 1992, an increase of $16.9 million or 6.1%. Casino revenues were $268.8 million in 1993 compared to $254.7 million in 1992, an increase of $14.1 million or 5.5%. The increase in casino revenues was due primarily to a $14.7 million or 8.0% increase in slot machine revenue during the year. This compares to a 4.8% increase in slot machine revenue in the Atlantic City market during the same period. The improved slot revenue growth experienced by the Atlantic City Showboat is primarily attributed to a 340 machine increase in slot units throughout 1993 to 2,411 slot machines. The increase in slot machine revenue was partially offset by the $4.0 million or 5.5% decrease in table game revenues that primarily resulted from the 3.2% decline in table game revenues in the Atlantic City market during 1993 compared to 1992. Casino revenues were favorably impacted by the mid-1993 addition of poker and horse race simulcasting. These games contributed $1.1 million and $2.2 million, respectively, to casino revenues during 1993. Nongaming revenues increased $5.6 million or 12.0% in 1993 to $52.7 million from $47.1 million in 1992. This increase was attributed to promotional programs offering casino customers rooms, food and beverage at a reduced price as well as increases in complimentary services.
At the Las Vegas Showboat, net revenues increased to $81.1 million in 1993 from $77.9 million in 1992, an increase of $3.2 million or 4.1%. Casino revenues increased $2.2 million or 3.8% in 1993 to $60.7 million from $58.5 million in 1992. Slot machine revenues showed the greatest casino revenue improvement with an increase
of $1.6 million or 3.4%. Slot machine revenues accounted for 84.2% of casino revenues in 1993 compared to 84.5% of casino revenues in 1992. Increases in gaming revenues were primarily the result of higher patron volume due to promotions and increased advertising. Nongaming revenues increased $1.1 million or 4.3% in 1993 to $25.2 million from $24.1 million in 1992. These increases were principally in rooms and food and beverage revenues resulting from targeted marketing programs for rooms and promotional programs offering food at a reduced price.
LPSI generated $.4 million in management fee revenues in 1993. LPSI receives a management fee of 5.0% of Showboat Star Casino's casino revenues after gaming taxes of 18.5% and boarding fees totaling $5.00 per passenger boarding the vessel. Showboat Star Casino opened November 8, 1993 and generated net revenues of $12.0 million in 1993 consisting primarily of casino revenues of $10.9 million.
INCOME FROM OPERATIONS
The Company's income from operations decreased to $45.4 million in 1993 from $46.5 million in 1992, a decrease of $1.1 million or 2.3%.
The Company incurred approximately $5.5 million in corporate and development expenses in 1993 compared to $2.1 million in 1992. During 1993, the Company increased its activities related to the pursuit of expansion opportunities in jurisdictions other than Nevada and New Jersey.
Income from operations at the Atlantic City Showboat, before intercompany management fees, was $44.0 million in 1993 compared to $39.5 million in 1992, an increase of $4.5 million or 11.1%. The increase in income from operations was primarily due to increased revenues that were offset by a $12.4 million or 5.3% increase in operating expenses, before intercompany management fees, to $250.2 million in 1993 compared to $237.8 million in 1992. The increase in operating expenses was primarily due to the increased capacity and volume of business as a result of the expansion of the Atlantic city facility. General and administrative expenses also increased as a result of an $.8 million or 13.2% increase in real estate taxes and an $.8 million parking assessment absorbed by the Atlantic City Showboat.
Income from operations at the Las Vegas Showboat declined $.9 million or 8.9% in 1993 to $8.2 million from $9.1 million in 1992. The decrease was primarily due to a $4.1 million or 5.8% increase in operating expenses resulting primarily from increases in payroll and payroll related expenses, increased advertising costs and increased repairs and maintenance expenses.
Showboat Star Partnership recognized a net loss in 1993 of $2.8 million primarily as a result of the write-off in November 1993 of $4.2 million in preopening
expenses. Before the write-off of preopening costs, SSP recognized net income of $1.4 million. Showboat's share of the results of the Showboat Star Casino combined with management fees received was a loss of $1.3 million in 1993.
OTHER (INCOME) EXPENSE
In 1993, other (income) expense consisted of $24.7 million of interest expense, net of $1.1 million of capitalized interest, and $3.2 million of interest income. In 1992, other (income) expense consisted of $25.3 million of interest expense and $1.4 million of interest income. Two offsetting factors impacted 1993 interest expense. In January 1993, the Company repurchased all of its outstanding 13% Sinking Fund Debentures and repaid its construction and term loan, and in June 1993, the Company repurchased all of its 11 3/8% Mortgage-Backed Bonds. This resulted in a $14.4 million decrease in interest expense. This decrease was offset by the issuance in May 1993 of $275.0 million of 9 1/4% First Mortgage Bonds resulting in a $15.8 million increase in interest expense. In connection with its expansion project at the Atlantic City Showboat, the Company capitalized $1.1 million of interest expense in 1993.
INCOME TAXES
In 1993, the Company incurred income taxes of $10.5 million, before the income tax benefit on an extraordinary loss, or an effective tax rate of 43.8% in 1993 compared to $6.8 million, or an effective tax rate of 29.9% in 1992. Differences between the Company's effective tax rate and the statutory federal tax rates are due to permanent differences between financial and tax reporting. In 1993, these differences consisted principally of $.9 million of state income taxes resulting from the utilization, for financial reporting purposes, of New Jersey net operating loss carryforwards, a $.6 million restricted interest assessment, net of tax, resulting from an Internal Revenue Service audit of prior years and $.4 million resulting from an increase in federal tax rates.
Effective January 1, 1993, the Company adopted the provisions of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes" without restating prior years' financial statements. The adoption of FAS 109 resulted in a reduction of net deferred tax liabilities of $.6 million, or $.04 per share, and this amount was reported separately as a cumulative effect of a change in accounting method in the 1993 Consolidated Statement of Income.
NET INCOME
In 1993, the Company realized net income before an extraordinary loss on the extinguishment of debt and cumulative effect of the change in the method of accounting for income taxes of $23.9 million or $.89 per share. On June 18, 1993, the Company redeemed all of its
11 3/8% Mortgage-Backed Bonds at 107.5% of the principal amount plus accrued and unpaid interest up to and including the redemption date. The Company recognized an extraordinary loss, before an income tax benefit of $11.2 million as a result of the write-off of unamortized debt issue costs of $2.7 million and payment of a 5.7% redemption premium of $8.5 million. The after tax loss was $6.7 million or $.44 per share. The Company also recognized a cumulative effect adjustment for the change in the method of accounting for income taxes of $.6 million or $.04 per share. Net income for 1993 was $7.3 million or $.49 per share.
In 1992, the Company realized income before an extraordinary loss on the extinguishment of debt of $15.9 million or $1.37 per share. As a result of the repurchase of the Company's outstanding 13% Sinking Fund Debentures, the Company recognized an extraordinary loss, net of tax, of $3.4 million or $.29 per share. Net income for 1992 was $12.4 million or $1.08 per share.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1994, the Company held cash and cash equivalents of $90.4 million compared to $122.8 million at December 31, 1993. The Company's significant sources of cash and cash investments were primarily from cash flows from operations of $55.4 million and the issuance in August 1994 of $120.0 million of 13% Senior Subordinated Notes due 2009 ("Notes"). The Company's significant uses of cash in 1994 related to capital improvements of $72.5 million and investments in unconsolidated affiliates of approximately $111.0 million.
In 1994, the Company expended $72.5 million on capital improvement projects at its Atlantic City and Las Vegas facilities. Normal capital expenditures at these facilities in 1994 were $24.5 million. In addition, the Company expended approximately $48.0 million in 1994 on its expansion and renovation project at its Atlantic City facility to add additional casino space and hotel rooms. In connection with the construction of hotel rooms at the Atlantic City facility, the Company has applied for and received funding credits of approximately $8.7 million from the Casino Reinvestment Development Authority (CRDA). ACSI's CRDA funding credit could increase to a maximum of $9.4 million if other applicants for CRDA funding credits discontinue projects for which they have applied. Likewise, ACSI's CRDA funding credit could decrease in the event that other casino applicants in Atlantic City increase their allowable expansion costs. To date ACSI has received $3.2 million of its eligible CRDA funding credits.
In 1995, the Company will commence an $18.5 million renovation of its Las Vegas facility. The renovation will include the replacement of existing HVAC systems and the replacement of the existing wood roof with a steel structure. This will allow an increase in the ceiling height up to 23 feet and will eliminate the majority of
the approximately 47 support columns in the existing casino. The construction project will require the closure of approximately 30,000 square feet, or 40%, of casino space for a period of up to six (6) months commencing in June 1995. The number of slot machines and table games are expected to be reduced to one half of their present levels during the construction period. As a result, the Company anticipates that revenues and results of operations at the Las Vegas facility will be adversely impacted by business disruption during the construction period.
At December 31, 1994, ACSI had available an unsecured line of credit for general working capital purposes totaling $15.0 million. Interest is payable monthly at the bank's prime rate plus .5%. The bank's prime rate was 8.5% at December 31, 1994. This line of credit expires in August 1995. Borrowing on the line of credit may not be used for the payment of management fees to SBO or to fund ventures in other jurisdictions. At December 31, 1994, ACSI had all of the funds under this line of credit available for use.
On May 18, 1993, the Company issued $275.0 million of 9 1/4% First Mortgage Bonds due 2008 ("Bonds"). On July 1, 1994, the Company obtained consents to amend ("Amendments") its Indenture for the Bonds ("Bond Indenture"). The Company received consents from holders of $359.8 million or 94% of the Bonds approving the Amendments. In consideration, the consenting Bondholders received 2.0% of the face value of the Bonds. On July 28, 1994, the Company paid $5.2 million to the consenting Bondholders. 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 SBO and its subsidiaries including restrictions on making loans and advances by SBO to subsidiaries that are Non- Recourse 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 them in 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 pro forma 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 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 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 $75.0 million 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 $75.0 million 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 the Non- Recourse Subsidiary provided that the aggregate amount of Investments pursuant thereto does not exceed $125.0 million in aggregate; Investments 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). Notwithstanding the foregoing, the Company is only permitted to make investments in a Controlled Entity only if from July 18, 1994 until December 31, 1996, the Company's Fixed Charge Coverage Ratio for the Company's most recently ended 12 months is greater than 1.5 to 1 and for the period commencing after December 31, 1996 the Company's Fixed Charge Coverage Ratio is greater than 1.75 to 1. For all other Restricted Payments, other than a Regular Quarterly Dividend or a Restricted Investment in a Subsidiary engaged in a Gaming Related Business, the Company's most recently ended four full fiscal quarters, after the giving effect to such Restricted Payment, must be greater than 2.25 to 1. As of December 31, 1994, the Company's Fixed Charge Coverage Ratio was 2.13 to 1. Additionally, the Bond Indenture, as amended, permits the Company to issue up to $150.0 million of debt (of which $120.0 million has been issued) without compliance with the debt incurrence tests stated therein.
On August 10, 1994, the Company issued $120.0 million 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 from the Note Offering were reserved for or used to (i) invest $100.0 million for an approximately 26.3% equity interest in SHC, and (ii) renovate the Las Vegas Showboat in order to upgrade the facility and replace the existing power plant facility at an approximate cost of $18.5 million.
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. 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 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 permits the issuance of an additional $30.0 million of Notes at the discretion of the Company.
The Note Indenture places significant restrictions on the Company, many of which are substantially 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.
In February 1995, SSP (i) assigned its leases with the Orleans Levee Board for leased land, docking facilities and parking areas, (ii) sold the terminal building and other improvements it constructed on the leased land, and (iii) sold certain personal property used at the terminal building, for $6.0 million to Belle of Orleans, L.L.C. Contemporaneously with the sale of terminal facility and the assignment of the leases, SSP entered into a sublease of the terminal and the leased land with Belle of Orleans, L.L.C. which sublease terminates on April 30, 1995. On March 9, 1995, SSP elected to permanently cease operations. In March 1995, SLI and LPSI acquired the balance of the partnership interests from its partners for $25.0 million, subject to certain adjustments. SLI and LPSI intend to sell all of their interest in SSP to subsidiaries of Players International, Inc. for $52.0 million, subject to certain adjustments, on March 31, 1995. No significant gain or loss is anticipated on this series of transactions related to SSP.
The Company is actively pursuing potential opportunities in certain jurisdictions where gaming has recently been legalized, as well as jurisdictions where gaming is not yet legalized. There can be no assurance that (i) legislation to legalize gaming will be enacted in any additional jurisdictions, (ii) properties in which the Company has invested will be compatible with any gaming legislation so enacted, (iii) legalized gaming will continue to be authorized in any jurisdiction that the Company currently operates or has pending applications to operate a gaming establishment, or (iv) the Company will be able to obtain the required licenses in any jurisdiction. Further, no assurance can be given that any of the announced projects, or any project under development will be completed, 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. Expansion developments in 1994 included:
1. On December 14, 1994, the New South Wales Casino Control Authority ("NSWCCA") selected SHC, a subsidiary of Sydney Harbour Casino Holdings Limited ("SHCL"), as the single full-service casino licensee in New South Wales, Australia. The casino license has a term, subject to earlier termination, of 99 years, and provides SHC the exclusive right to operate a casino in New South Wales for twelve years commencing upon the opening of the temporary casino. SA, a wholly owned subsidiary of the Company, purchased 135,000,000 shares or 26.3% of the outstanding equity in SHCL for approximately $100.0 million in December 1994. Slot machines are currently permitted in approximately 1,500 non- profit private clubs in New South Wales, most of which contain less than 25 machines.
SHCL will begin operations in a temporary casino expected to open in September 1995. The temporary casino will have approximately 500 slot machines, 150 table games and, subject to certain approvals, keno. The permanent casino is expected to be open in early 1998. As a result of the anticipated write-off of certain preopening and development costs subsequent to the opening of the temporary casino, the Company anticipates minimal contributions to its earnings in 1995 from the commencement of operations at the Sydney Harbour Casino.
2. In February 1995, the Company along with Randolph Riverboat Company, Inc. formed Randolph Riverboat Company, L.L.C. ("RLLC"). A subsidiary of the Company will own 35% of RLLC. The Company has contributed $13.0 million to an escrow account for the benefit of RLLC. Additional capital contributions, if needed, shall be made by the partners of RLLC pro rata with their respective interests. However, it is intended that the majority of financing for the Randolph project, approximately $80.0 million, will be obtained by RLLC through high yield debt and capital leases. No assurance can be given that RLLC will be successful in obtaining funds to finance the Randolph project or that RLLC will obtain a casino license.
3. On February 2, 1994, the Indiana Partnership, consisting of Showboat Indiana Investment Limited Partnership, a wholly owned limited partnership ("SII"), and Waterfront Entertainment and Development, Inc., an unrelated Indiana corporation ("Waterfront"), filed Part I of its gaming application with the Indiana Riverboat Gaming Commission to operate a riverboat casino on Lake Michigan in East Chicago, Indiana. The Indiana Partnership is the sole applicant for the only license allocated to East Chicago by Indiana statute. The berth for the riverboat casino is located approximately three miles from the city limits of Chicago, Illinois. Showboat Marina Partnership is owned 55% by SII and 45% by Waterfront. Subject to available financial resources, the Company expects to invest approximately $28.0 million in the Indiana Partnership and will help the partnership obtain in excess of $90.0 million in debt financing. Under the current partnership agreement, the
Company will receive a 12% preferred return on its investment prior to additional partnership distributions. The Indiana Partnership application for a casino license will be considered by the Indiana Gaming Commission in late 1995. Subject to licensing, the Indiana Partnership shall commence gaming operations in 1996 in a temporary vessel and facilities while a larger permanent vessel and facilities are being constructed. No assurance can be given that the Indiana Partnership will be successful in obtaining the necessary funds to finance its gaming project or that the Indiana Partnership will successfully obtain a casino gaming license.
4. In January 1995, the Company and Rockingham Venture, Inc., the operator of Rockingham Park, a thoroughbred racetrack in New Hampshire, entered into negotiations to finalize agreements to develop and manage any additional gaming that may be authorized at Rockingham Park. In connection therewith, the Company loaned Rockingham Venture, Inc. $8.85 million, which loan is secured by a second mortgage on Rockingham Park, in December 1994. At this time casino gaming is not permitted in the State of New Hampshire. No assurance can be given that casino gaming legislation will be enacted in the State of New Hampshire.
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 that 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 shall make significant capital investments in such opportunities and additional financing will be required. The Company anticipates that additional funds shall be obtained through loans or a public offering of equity or debt securities.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Independent Auditors' Report;
Consolidated Balance Sheets December 31, 1994 and 1993;
Consolidated Statements of Income for the Years Ended December 31, 1994, 1993 and 1992;
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1994, 1993 and 1992;
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992; and
Notes to Consolidated Financial Statements
Schedule - Valuation and Qualifying Accounts
Independent Auditors' Report
The Shareholders and Board of Directors Showboat, Inc.:
We have audited the consolidated financial statements of Showboat, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Showboat, Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Notes 1 and 9 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
KPMG PEAT MARWICK LLP
Las Vegas, Nevada March 10, 1995
SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1994 and 1993
ASSETS 1994 1993 --------- --------- (In thousands) Current assets: Cash and cash equivalents $90,429 $122,787 Receivables, net 8,890 5,913 Inventories 2,591 2,359 Prepaid expenses 4,736 4,044 Investment in unconsolidated affiliate held for sale 30,346 - Current deferred income taxes 6,529 4,865 --------- --------- Total current assets 143,521 139,968 --------- ---------
Property and equipment: Land 9,545 9,425 Land improvements 10,142 541 Buildings 316,884 261,009 Furniture and equipment 164,388 145,178 Construction in progress 5,240 27,194 --------- --------- 506,199 443,347 Less accumulated depreciation and amortization 168,531 145,527 --------- --------- 337,668 297,820 --------- ---------
Other assets, at cost: Investments in unconsolidated affiliates 108,853 17,750 Deposits and other assets 22,537 7,892 Debt issuance costs, net of accumulated amortization of $955,000 at December 31, 1994 and $323,000 at December 31, 1993 11,112 7,270 --------- --------- 142,502 32,912 --------- ---------
$623,691 $470,700 ========= =========
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SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1994 and 1993 (continued)
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993 --------- --------- (In thousands) Current liabilities: Current maturities of long-term debt $19 $3,574 Accounts payable 11,059 14,173 Income taxes payable 4,562 1,752 Dividends payable 384 375 Accrued liabilities 34,286 23,664 --------- --------- Total current liabilities 50,310 43,538 --------- ---------
Long-term debt, excluding current maturities 392,016 277,043 --------- ---------
Other liabilities 5,144 - --------- ---------
Deferred income taxes 18,760 14,961 --------- ---------
Commitments and contingencies and subsequent events (Note 7,15 and 16)
Shareholders' equity: Common stock, $1 par value; 50,000,000 shares authorized; issued 15,794,578 shares at December 31, 1994 and 1993 15,795 15,795 Additional paid-in capital 76,845 71,162 Retained earnings 68,809 54,628 --------- --------- 161,449 141,585
Cumulative foreign currency translation adjustment 3,490 - Cost of shares in treasury, 425,823 shares and 814,483 shares at December 31, 1994 and 1993, respectively (3,364) (6,370) Unearned compensation for restricted stock (4,114) (57) --------- --------- Total shareholders' equity 157,461 135,158 --------- ---------
$623,691 $470,700 ========= =========
See accompanying notes to consolidated financial statements.
SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 1994, 1993 and 1992 (In thousands except per share data)
1994 1993 1992 ---------- --------- --------- Revenues: Casino $351,436 $329,522 $313,247 Food and beverage 50,624 48,669 44,511 Rooms 20,587 19,355 17,280 Sports and special events 4,168 4,251 4,443 Management fees 1,861 279 - Other 5,938 5,703 4,932 ---------- --------- --------- 434,614 407,779 384,413 Less complimentaries 33,281 32,052 29,177 ---------- --------- --------- Net revenues 401,333 375,727 355,236 ---------- --------- ---------
Operating costs and expenses: Casino 137,944 129,898 125,773 Food and beverage 58,180 55,608 51,173 Rooms 13,730 13,083 12,169 Sports and special events 3,321 3,198 3,141 General and administrative 109,058 92,739 84,058 Selling, advertising and promotion 11,713 11,629 10,402 Depreciation and amortization 28,387 23,303 22,012 ---------- --------- --------- 362,333 329,458 308,728 ---------- --------- ---------
Income from operations from consolidated subsidiaries 39,000 46,269 46,508
Equity in income (loss) of unconsolidated affiliate 12,828 (850) - ---------- --------- --------- Income from operations 51,828 45,419 46,508 ---------- --------- ---------
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SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 1994, 1993 and 1992 (In thousands except per share data) (continued)
1994 1993 1992 ---------- --------- ---------
Income from operations $51,828 $45,419 $46,508 ---------- --------- ---------
Other (income) expense: Interest income (4,872) (3,215) (1,441) Interest expense, net of amounts capitalized 29,452 24,696 25,335 ---------- --------- --------- 24,580 21,481 23,894 ---------- --------- --------- Income before income tax expense, extraordinary items and cumulative effect adjustment 27,248 23,938 22,614
Income tax expense 11,549 10,474 6,757 ---------- --------- --------- Income before extraordinary items and cumulative effect adjustment 15,699 13,464 15,857
Extraordinary items, net of income tax - (6,679) (3,408)
Cumulative effect of change in method of accounting for income taxes - 556 - ---------- --------- --------- Net income $15,699 $7,341 $12,449 ========== ========= =========
Income per common and equivalent share: Income before extraordinary items and cumulative effect adjustment $1.02 $0.89 $1.37
Extraordinary items, net of income tax - (0.44) (0.29)
Cumulative effect of change in method of accounting for income taxes - 0.04 - ---------- --------- --------- Net income $1.02 $0.49 $1.08 ========== ========= =========
See accompanying notes to consolidated financial statements
See accompanying notes to consolidated financial statements.
SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1994, 1993 and 1992
1994 1993 1992 ---------- --------- --------- (In thousands) Cash flows from operating activities: Net income $15,699 $7,341 $12,449 Adjustments to reconcile net income to net cash provided by operating activities: Allowance for doubtful accounts 950 1,849 1,644 Depreciation and amortization 28,387 23,303 22,012 Amortization of original issue discount and debt issuance costs 820 744 1,011 Provision for deferred income taxes 256 813 238 Amortization of unearned compensation 1,964 111 156 Provision for loss on Casino Reinvestment Development Authority obligation 1,018 1,122 1,068 Undistributed (earnings) loss of unconsolidated affiliate (3,596) 850 - Extraordinary loss on extinguishment of debt - 11,166 5,164 (Gain) loss on disposition of property and equipment (251) 517 264 Increase in receivables, net (2,580) (2,670) (1,537) Increase in inventories and prepaid expenses (924) (23) (265) (Increase) decrease in deposits and other assets (1,378) (554) 284 Pension costs 995 - - Increase in accounts payable 396 85 395 Increase in income taxes payable 3,051 968 429 Increase (decrease) in accrued liabilities 10,622 (1,503) 400 Other (56) - - ---------- --------- --------- Net cash provided by operating activities 55,373 44,119 43,712 ---------- --------- ---------
-75- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1994, 1993 and 1992 (continued)
1994 1993 1992 ---------- --------- --------- (In thousands) Cash flows from investing activities: Acquisition of property and equipment ($72,471) ($59,686) ($21,050) Proceeds from sale of property and equipment 290 78 105 Investments in unconsolidated affiliates (110,979) (18,600) - Advances to unconsolidated affiliates (899) - - (Increase) decrease in deposits and other assets (8,850) 4,046 910 Deposit for Casino Reinvestment Development Authority obligation, net of refunds (599) (3,289) (3,161) ---------- --------- --------- Net cash used in investing activities (193,508) (77,451) (23,196) ---------- --------- ---------
Cash flows from financing activities: Principal payments of long-term debt (3,575) (3,914) (8,879) Proceeds from issuance of long-term debt 120,000 275,000 - Early extinguishment of debt - (208,085) - Debt issuance costs (4,474) (7,593) - Payment of dividends (1,509) (1,400) (1,141) Distribution to bond holders (5,195) - - Issuance of common stock 530 2,510 50,366 Other - - 49 ---------- --------- --------- Net cash provided by financing activities 105,777 56,518 40,395 ---------- --------- --------- Net increase (decrease) in cash and cash equivalents (32,358) 23,186 60,911
Cash and cash equivalents at beginning of year 122,787 99,601 38,690 ---------- --------- --------- Cash and cash equivalents at end of year $90,429 $122,787 $99,601 ========== ========= =========
-76- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1994, 1993 and 1992 (continued)
1994 1993 1992 ---------- --------- --------- (In thousands) Supplemental disclosures of cash flow information: Cash paid during the year for: Interest, net of amount capitalized $22,522 $25,741 $24,562 Income taxes 8,242 3,650 4,400
Supplemental schedule of non-cash investing and financing activities: Capital lease obligations incurred in connection with acquisition of equipment - - 152 Increase (decrease) in property and equipment acquisitions included in construction contracts and retentions payable and long-term debt (3,639) 3,914 1,890 Share transactions under long-term incentive plan 6,131 - 27 Transfer deposits for Casino Reinvestment Development Authority obligation to construction in progress (558) 6,667 - Stock purchase warrants granted 1,953 - - Accumulated benefit obligations of the Supplemental Executive Retirement Plan 4,149 - - Foreign currency translation adjustment 3,490 - -
See accompanying notes to consolidated financial statements.
SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation
Showboat, Inc. and subsidiaries, collectively the Company or SBO, conduct casino gaming operations in Las Vegas, Nevada, Atlantic City, New Jersey and New Orleans, Louisiana. In addition, the Company operates support services including hotel, restaurant, bar, bowling and convention facilities.
The 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.
Casino Revenue and Complimentaries
In accordance with common industry practice, casino revenues are the net of gaming wins less losses.
Complimentaries primarily consist of rooms, food and beverage furnished gratuitously to customers. The sales values of such services are included in the respective revenue classifications and are then deducted as complimentaries. Complimentary rates are periodically reviewed and adjusted by management.
Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method.
Fair Value of Certain Financial Instruments
The carrying amount of cash equivalents, accounts receivable and all current liabilities approximates fair value because of the short maturity of these instruments. See Notes 5 and 6 for additional fair value disclosures.
-78- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation, including amortization of capitalized leases, is computed using the straight-line method. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized.
Estimated useful lives for property and equipment are 5 to 15 years for land improvements, 10 to 40 years for buildings and 2 to 10 years for furniture and equipment.
Interest Costs
Interest is capitalized in connection with the construction of major facilities. Further, interest is capitalized on equity funds, loans and advances made to unconsolidated companies accounted for by the equity method of accounting during the period the investee company is undergoing activities necessary to start its planned principal operations and those activities include the use of funds to acquire assets qualifying for interest capitalization. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. For the years ended December 31, 1994 and 1993, $3,378,000 and $1,085,000, respectively, of interest cost was capitalized. No interest was capitalized in the year ended December 31, 1992.
Preopening and Development Costs
The Company is currently investigating expansion opportunities in new gaming jurisdictions. Costs associated with these investigations are expensed as incurred until such time as a particular opportunity is determined to be viable, generally when the Company is selected as the operator of a new gaming facility or a gaming license has been granted.
Costs incurred during the construction and preopening phase are capitalized. Types of costs capitalized include professional fees, salaries and wages, temporary office expenses, marketing expenses and training costs. When the new operation opens for business, preopening costs will be amortized over a period not to exceed 12 months using the straight-line method.
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Postemployment and Postretirement Benefits
The Company has a defined benefit pension plan that provides retirement benefits for certain key employees. Pension costs under this pension plan are actuarially computed. The benefits provided under this plan are not funded until due.
Income Taxes
In February 1992, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under the asset and liability method of FAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.
Effective January 1, 1993, the Company adopted FAS 109 and has reported the cumulative effect of that change in accounting method in the 1993 Consolidated Statement of Income.
The Company previously used the asset and liability method under Statement of Financial Accounting Standards No. 96 (FAS 96). Under the asset and liability method of FAS 96, deferred tax assets and liabilities were recognized for all the events that had been recognized in the financial statements. Under FAS 96, the future tax consequences of recovering assets or settling liabilities at their financial statement carrying amounts were considered in calculating deferred income taxes. Generally, FAS 96 prohibited consideration of any other future events in calculating deferred income taxes.
The Company and its subsidiaries file a consolidated federal income tax return. For tax reporting purposes, the Company has elected to continue its fiscal year ending June 30.
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Amortization of Original Issue Discount and Debt Issuance Costs
Original issue discount is amortized over the life of the related indebtedness using the effective interest method.
Costs associated with the issuance of debt have been deferred and are being amortized over the life of the related indebtedness using a weighted average method based on retirement schedules specified in the debt indentures.
Income Per Common and Equivalent Share
Income per common and equivalent share is based on the weighted average number of shares outstanding. Such averages were 15,363,984, 15,099,147 and 11,584,275 for the years ended December 31, 1994, 1993 and 1992, respectively. Fully-diluted and primary income per common and equivalent share are the same.
Foreign Currency Translation
The financial statements of foreign subsidiaries are translated into U.S. dollars for balance sheet accounts at current exchange rates in effect at the balance sheet date. Items of revenue and expense are translated at average exchange rates during the reporting period. Gains and losses resulting from foreign currency transactions are included in income currently. Gains and losses resulting from translation of financial statements are excluded from the Consolidated Statements of Income and are credited or charged directly to a separate component of Shareholders' Equity.
Reclassifications
Certain prior year balances have been reclassified to conform to the current year's presentation.
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. RECEIVABLES, NET
Receivables, net consist of the following:
December 31, ------------------- 1994 1993 --------- --------- (In thousands)
Casino $6,983 $6,816 Hotel 993 1,020 Employees 81 88 Other 3,233 935 --------- --------- 11,290 8,859 Less allowance for doubtful accounts 2,400 2,946 --------- --------- Receivables, net $8,890 $5,913 ========= =========
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
December 31, ------------------- 1994 1993 --------- --------- (In thousands)
Interest $10,350 $4,240 Salaries and wages 11,113 8,289 Taxes, other than taxes on income 3,380 1,988 Medical and liability claims 3,110 2,983 Advertising and promotion 2,201 2,397 Outstanding chips and tokens 1,897 1,204 Other 2,235 2,563 --------- --------- Total accrued liabilities $34,286 $23,664 ========= =========
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Showboat Louisiana, Inc. (SLI) was formed in 1993 to hold a 30% equity interest in Showboat Star Partnership (SSP) which owns a riverboat casino managed by Lake Pontchartrain Showboat, Inc. (LPSI), a wholly-owned subsidiary of the Company. In 1993, the Company invested $18,600,000 in SSP for its 30% equity interest in the riverboat casino. Effective March 1, 1994, the Company purchased an additional 20% equity interest from its partner for $9,000,000. Operation of the riverboat casino commenced on November 8, 1993. The investment by SLI in SSP has been accounted for under the equity method of accounting. The Company's equity in the income or loss of SSP is included in the Consolidated Statement of Income as equity in income or loss 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.
Preopening costs associated with the riverboat casino on Lake Pontchartrain in New Orleans, Louisiana totaling $4,246,000 were written-off upon commencement of operations. The Company's share of those costs of $1,274,000 are included in equity in loss of unconsolidated affiliate in the December 31, 1993 Consolidated Statement of Income.
Showboat Australia Pty. Ltd. (SA), a wholly-owned subsidiary of the Company, was formed in 1994 and along with Leighton Properties Ltd. formed Sydney Harbour Casino Pty. Ltd. (SHC) to apply for the sole casino license in Sydney, Australia. The casino license was awarded to SHC in December 1994. SA invested approximately $100,000,000 in SHC for a 26.3% equity interest. SA's investment in SHC has been accounted for under the equity method of accounting. SA also owns 85% of the company engaged to manage the casino for a management fee. SHC anticipates that it will commence gaming operations in a temporary facility in September 1995 and that a permanent facility will commence operations in early 1998.
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES (continued)
Summarized condensed financial information of SSP and SHC at December 31, 1994 and 1993 is as follows:
1994 1993 --------- --------- Showboat Star Partnership: (In thousands) Income statement data: Net revenues $97,989 $12,062 Net income (loss) 24,782 (2,836) Company's share of net income (loss) 12,828 (850)
Balance sheet data: Assets Current assets $16,624 $8,150 Property and equipment, net 35,135 36,236 Other assets 19,522 20,481 --------- --------- Total assets $71,281 $64,867 ========= ========= Liabilities and partners' capital accounts: Current liabilities 3,950 6,268 Partners' capital accounts 67,331 58,599 --------- --------- Total liabilities and partners' capital accounts $71,281 $64,867 ========= =========
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES (continued)
1994 1993 --------- --------- Sydney Harbour Casino Holdings Ltd.(unaudited) (In thousands) Income statement data: Net revenues $ - $ - Net income (loss) - - Company's share of net income (loss) - -
Balance sheet data: Assets: Current assets $61,750 $ - Property and equipment, net 20,024 - Other assets 324,695 - --------- --------- Total assets $406,469 $ - ========= ========= Liabilities and shareholders' equity: Current liabilities 8,608 $ - Partners' capital accounts 397,861 - --------- --------- Total liabilities and shareholders' equity $406,469 $ - ========= =========
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. NEW JERSEY INVESTMENT OBLIGATION
The New Jersey Casino Control Act (Act) provides, among other things, for an assessment on a gaming licensee based upon its gross casino revenues after completion of its first full year of operation. This assessment may be satisfied by investing in qualified direct investments, purchasing bonds issued by the Casino Reinvestment Development Authority (CRDA), or paying an "alternative tax". In order for direct investments to be eligible, they must be approved by the CRDA.
Deposits with the CRDA bear interest at two-thirds of market rates resulting in a current value lower than cost. At December 31, 1994 and 1993, deposits and other assets include $5,277,000 and $5,010,000, respectively, representing the Company's deposit with the CRDA of $7,716,000 as of December 31, 1994 and $7,488,000 as of December 31, 1993, net of a valuation allowance of $2,439,000 and $2,478,000, respectively. The carrying value of these deposits, net of the valuation allowance, approximates fair value.
The CRDA, as an agency of the City of Atlantic City, is responsible for the redevelopment of the area surrounding the Boardwalk. During 1994, $8,000,000 of the Company's deposits with the CRDA were used in connection with the expansion of a City street leading to the Atlantic City Showboat. In connection with its approval, the CRDA required the Company to donate $2,500,000 of its deposits with the CRDA to certain public programs. Construction of the City street commenced in the fourth quarter of 1993 and was completed in 1994. The Company reclassified these CRDA deposits, net of the valuation allowance, totaling approximately $7,000,000 to property and equipment.
The Company has applied for and received approval for approximately $8,700,000 in funding credits from the CRDA in connection with the construction of Atlantic City Showboat's additional hotel rooms. In connection with the Company's Credit Agreement with the CRDA, which states the terms and conditions by which the Company may receive funding credit, the Company applied for and received funds from the CRDA of approximately $2,955,000 as a credit for expenditures made relating to the construction of the hotel rooms. The balance of the funding credits may be applied to portions of future CRDA deposits.
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. LONG-TERM DEBT
Long-term debt consists of the following:
December 31, ------------------- 1994 1993 --------- --------- (In thousands)
9 1/4% First Mortgage Bonds due 2008 net of unamortized discount of $5,008,000 at December 31, 1994 (a) $269,992 $275,000 13% Senior Subordinated Notes due 2009 (b) 120,000 - Capital lease obligations (Note 7) 2,043 5,617 --------- --------- 392,035 280,617 Less current maturities 19 3,574 --------- --------- $392,016 $277,043 ========= =========
(a) On May 18, 1993, the Company issued $275,000,000 of 9 1/4% First Mortgage Bonds due 2008 (Bonds). The proceeds from the sale of the Bonds were $268,469,000, net of underwriting discounts and commissions. Proceeds from the sale of the Bonds were used to redeem all of the outstanding 11 3/8% Mortgage-Backed Bonds Due 2002 at 105.7% of the principal amount plus accrued interest. The remaining proceeds were reserved by the Company to benefit existing facilities and to expand into new facilities or gaming jurisdictions.
On July 1, 1994, the Company obtained consents to amend (Amendments) its Indenture governing its Bonds (Bond Indenture). The Company received consents from holders of approximately $259,772,000 or 94% of the Bonds approving the Amendments. In consideration for their consent, the consenting Bond holders received 2% of the face value of the Bonds. On July 28, 1994, the Company paid $5,195,000 to the consenting Bond holders. As the amount paid does not represent as significant modification of the terms of the Bonds, it is reflected 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.
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. LONG-TERM DEBT (continued)
The Bonds are unconditionally guaranteed by Ocean Showboat, Inc. (OSI), Atlantic City Showboat, Inc. (ACSI) and Showboat Operating Company (SOC). 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. 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, a pledge of certain intellectual property rights of the Company, and by investments in Controlled Entities (as defined in the Bond Indenture, as amended). 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 them in 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 pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, would
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. LONG-TERM DEBT (continued)
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 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; Investments 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). Notwithstanding the foregoing, the Company is only permitted to make investments in a Controlled Entity only if from July 18, 1994 until December 31, 1996, the Company's Fixed Charge Coverage Ratio for the Company's most recently ended twelve months is greater than 1.50 to 1 and for the period commencing after December 31, 1996 the Company's Fixed Charge Coverage Ratio is greater than 1.75 to 1. For all other Restricted Payments, other
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. LONG-TERM DEBT (continued)
than a Regular Quarterly Dividend or a Restricted Investment in a Subsidiary engaged in a Gaming Related Business, the Company's most recently ended four full fiscal quarters, after giving effect to such Restricted Payment must be greater than 2.25 to 1. As of December 31, 1994, the Company's Fixed Charge Coverage Ratio was 2.13 to 1. Additionally, the Bond Indenture, as amended, permits the Company to issue up to $150,000,000 of debt (of which $120,000,000 has been issued) without compliance with the debt incurrence tests stated therein.
(b) 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 $116,520,000, net of underwriting discounts and commissions. Proceeds from the Note Offering were reserved for or used to (i) invest $100,000,000 for an approximately 26.3% equity interest in SHC, an affiliate which was granted the license to manage and operate the only full-service casino in New South Wales, Australia and (ii) renovate the Las Vegas Showboat in order to upgrade the facility and replace the existing power plant facility at an approximate cost of $18,500,000.
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. 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 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 permits the issuance of an additional $30,000,000 of Notes at the discretion of the Company.
The Note Indenture places significant restrictions on the Company, many of which are substantially 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.
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. LONG-TERM DEBT (continued)
At December 31, 1994, the Company's Atlantic City subsidiary, ACSI, had available an unsecured line of credit for general working capital purposes totaling $15,000,000. Interest is payable monthly at the bank's prime rate plus .5%. The bank's prime rate was 8.5% at December 31, 1994. The line of credit expires in August 1995. Borrowings on this line of credit may not be used for the payment of management fees or to fund ventures in other jurisdictions. At December 31, 1994, ACSI had all the funds under this line of credit available for use.
Maturities of the Company's long-term debt are as follows:
Year ending (In thousands) December 31, 1995 $19 1996 1,950 1997 25 1998 29 1999 20 Thereafter 389,992 --------- $392,035 =========
The fair value of the Company's Bonds and Notes were 229,969,000 and $114,300,000, respectively, at December 31, 1994 based on the quoted market prices. The carrying amount of capital leases approximates fair value at December 31, 1994.
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. LEASES
The Company leases certain furniture and equipment and a warehouse under long-term lease agreements. The leases covering furniture and equipment expire in 1994 and the warehouse lease expires in 2001. The Company has the option, which it currently intends to exercise, to purchase the warehouse from January 1, 1996 through March 31, 2001 at an option price of approximately $1,928,000.
Property leased under capital leases by major classes are as follows:
December 31, ------------------- 1994 1993 --------- --------- (In thousands)
Building - warehouse $2,050 $2,050 Furniture and equipment 152 22,621 --------- --------- 2,202 24,671 Less accumulated amortization 1,203 19,456 --------- --------- $999 $5,215 ========= =========
ACSI is leasing 10 1/2 acres of Boardwalk property in Atlantic City, New Jersey for a term of 99 years commencing October 1983. Annual rent payments, which are payable monthly, commenced upon opening of the Atlantic City Showboat. The rent is adjusted annually based upon changes in the Consumer Price Index. In April 1994, the annual rent increased $156,000 to $8,274,000. ACSI is responsible for taxes, assessments, insurance and utilities.
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. LEASES (continued)
The following is a schedule of future minimum lease payments for capital leases and operating leases (with initial or remaining terms in excess of one year) as of December 31, 1994:
Capital Operating Leases Leases --------- --------- Year ending (In thousands) December 31, 1995 $286 $10,268 1996 1,961 10,222 1997 33 10,129 1998 33 10,039 1999 20 9,518 Thereafter - 685,009 --------- --------- Total minimum lease payments 2,333 $735,185 ========= Less amount representing interest (10.4% to 12.9%) 290 --------- Present value of net minimum capital lease payments $2,043 =========
Rent expense for all operating leases was $10,380,000, $9,287,000 and $8,659,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. EXTRAORDINARY ITEMS
On June 18, 1993, the Company redeemed all of its remaining 11 3/8% Mortgage-Backed Bonds Due 2002 at 105.7% plus accrued and unpaid interest up to and including the redemption date. The Company recognized an extraordinary loss before any income tax benefit of $11,166,000 as a result of the write-off of the unamortized debt issuance costs of $2,666,000 and the payment of a 5.7% redemption premium of $8,500,000. The after tax loss was $6,679,000 or $.44 per share.
On December 30, 1992, the Company notified debentureholders of its intent to redeem all of the outstanding 13% Subordinated Sinking Fund Debentures Due 2004 at par plus accrued interest on January 29, 1993. Accordingly, as of December 31, 1992, the Company recognized an extraordinary loss of $5,164,000 before an income tax benefit of $1,756,000 as a result of the write-off of the unamortized discount and debt issuance costs. The after tax loss was $3,408,000 or $.29 per share.
9. INCOME TAXES
As discussed in Note 1, the Company adopted FAS 109 effective January 1, 1993. The cumulative effect of the change in method of accounting for income taxes of $556,000 is determined as of January 1, 1993 and is reported separately in the Consolidated Statement of Income for the year ended December 31, 1993. Prior year financial statements have not been restated to apply the provisions of FAS 109.
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. INCOME TAXES (continued)
Total income tax expense for the years ended December 31, 1994 and 1993 was allocated as follows:
1994 1993 --------- --------- (In thousands)
Continuing operations $11,549 $10,474 Extraordinary item - (4,487) Shareholders' equity, related to cumulative foreign currency translation adjustment (1,879) - Shareholders' equity, related to compensation expense deferred and reported as a reduction of shareholders' equity for financial reporting purposes (241) (661) --------- --------- $9,429 $5,326 ========= =========
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. INCOME TAXES (continued)
Income tax expense attributable to income from continuing operations consists of:
Year ended December 31, ------------------------------ 1994 1993 1992 ---------- --------- --------- (In thousands) U.S. federal Current $8,793 $7,910 $6,519 Deferred 323 965 238 ---------- --------- --------- 9,116 8,875 6,757 ---------- --------- --------- State and local Current 2,500 1,195 - Deferred (67) 404 - ---------- --------- --------- 2,433 1,599 - ---------- --------- --------- Total Current 11,293 9,105 6,519 Deferred 256 1,369 238 ---------- --------- --------- $11,549 $10,474 $6,757 ========== ========= =========
In 1992, income tax expense of $6,757,000 represents income tax expense from continuing operations before extraordinary items. In 1992, as a result of an extraordinary loss of $5,164,000 (Note 8), the Company recognized an income tax benefit of $1,756,000 resulting in total income tax expense of $5,001,000.
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. INCOME TAXES (continued)
Income tax expense attributable to income from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 35% for the years ended December 31, 1994 and 1993 and 34% for the year ended December 31, 1992 to pretax income from continuing operations as a result of the following:
Year ended December 31, ------------------------------ 1994 1993 1992 ---------- --------- --------- (In thousands)
Computed "expected" tax expense $9,537 $8,378 $7,689 Increase (reduction) in income taxes resulting from: Change in the beginning of the year balance of the valuation allowance for deferred tax assets allocated to income tax expense (161) 224 - Adjustment to deferred tax assets and liabilities for enacted changes in tax rates - 383 - State and local income taxes, net of federal tax benefit 1,715 930 - Impact of settlement of Internal Revenue Service examination 277 - (102) Restricted interest assessment, net of tax 30 619 - Other, net 151 (60) (830) ---------- --------- --------- Income tax expense $11,549 $10,474 $6,757 ========== ========= =========
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. INCOME TAXES (continued)
The significant components of deferred income tax expense attributable to income from continuing operations for the years ended December 31, 1994 and 1993 are as follows:
December 31, ------------------- 1994 1993 --------- --------- (In thousands) Deferred tax expense (exclusive of other components listed below) $417 $762 Adjustment to deferred tax assets and liabilities for enacted changes in tax rates - 383 Change in beginning of the year balance of the valuation allowance for deferred tax assets (161) 224 --------- --------- $256 $1,369 ========= =========
For the year ended December 31, 1992, deferred income tax expense of $238,000 results from temporary differences in the recognition of income and expenses for income tax and financial reporting purposes. The sources and tax effects of these temporary differences are as follows:
(In thousands) Depreciation and amortization $1,250 Utilization of credit carryforwards, net 1,145 Provision for loss on Casino Reinvestment Development Authority obligation (1,496) Allowance for doubtful accounts 309 Preopening costs 369 Accrued vacations (359) Impact of settlement of Internal Revenue Service examination (625) Other, net (355) --------- $238 =========
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. INCOME TAXES (continued)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1994 and 1993 are as follows:
1994 1993 --------- --------- (In thousands) Deferred tax assets: Preopening costs ($2,191) ($1,268) Accrued vacations (1,803) (1,621) Casino Reinvestment Development Authority obligation (1,002) (1,566) Allowance for doubtful accounts (991) (1,210) Accrued state income taxes (800) - Long-term incentive plan (772) (176) Alternative minimum tax credit carryforwards (697) (2,423) Other (3,029) (2,162) --------- --------- Total gross deferred tax assets (11,285) (10,426) Less valuation allowance 440 601 --------- --------- Net deferred tax assets (10,845) (9,825) --------- ---------
Deferred tax liabilities: Depreciation and amortization 18,655 17,350 Capitalized interest 2,494 2,571 Cumulative foreign currency translation adjustment 1,879 - Other 48 - --------- --------- Total gross deferred tax liabilities 23,076 19,921 --------- --------- Net deferred tax liability $12,231 $10,096 ========= =========
At December 31, 1994, the Company had available $697,000 of alternative minimum tax credit carryforwards which are available to reduce future federal regular income taxes, if any, over an indefinite period.
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. EMPLOYEE BENEFIT PLANS
The Company maintains a retirement and savings plan for eligible employees who are not covered by a collective bargaining agreement or by another plan to which the Company contributes. Under the terms of the plan, eligible employees may defer up to 3% of their compensation, as defined, of which 100% of the deferral is matched by the Company. Eligible employees may contribute an additional 12% of their compensation which will not be matched by the Company. Contributions by the Company vest over a five-year period. The Company contributed an aggregate of $1,826,000, $1,525,000 and $1,285,000 to this and another Company plan merged into this plan for the years ended December 31, 1994, 1993 and 1992, respectively.
The Company's union employees are covered by union-sponsored, collectively-bargained, multi-employer pension plans. The Company contributed and charged to expense $1,298,000, $1,197,000 and $1,182,000 during the years ended December 31, 1994, 1993 and 1992, respectively. These contributions are determined in accordance with the provisions of negotiated labor contracts and generally are based on the number of hours worked.
In August 1994, the Company implemented a Supplemental Executive Retirement Plan (SERP) for a select group of senior line staff and 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 SERP.
The net pension cost for the year ended December 31, 1994 consists of the following: (In thousands)
Service costs of benefits earned $376 Interest cost on projected benefit obligations 335 Amortization of unrecognized prior service costs 284 --------- $995 =========
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. EMPLOYEE BENEFIT PLANS (continued)
The status of the defined benefit plan at December 31, 1994 is as follows:
(In thousands)
Fair value of plan assets $ - ---------
Actuarial present value of benefit obligations: Vested benefit obligation 2,512 Non-vested benefit obligation 1,637 --------- Accumulated benefit obligation 4,149 Effect of projected future salary increases 512 --------- Projected benefit obligations 4,661 ---------
Plan assets less than projected benefit obligation (4,661) Unrecognized prior service costs 3,964 Unrecognized gain (298) Adjustment to recognize minimum liability (4,149) --------- Accrued pension cost included in other liabilities ($5,144) =========
Prior service costs to be recognized in income in future years of $4,149,000 are included in deposits and other assets on the Consolidated Balance Sheet.
The assumptions used in computing the information above were as follows:
Discount rate 7.50% Future compensation growth rate 4.50%
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. STOCK PLANS
The Company has various incentive plans under which stock options or restricted shares may be granted to key employees, members of the Board of Directors and all other full and part-time employees. A total of 3,720,000 shares have been reserved for issuance as stock options or restricted shares under these plans. Restricted shares and options granted to key employees vest over a five-year period. All other options vest over a one-year period. The options are exercisable, subject to vesting, over ten years at option prices not less than 100% of the fair market value of the Company's common stock determined on the date of grant of the options.
Unearned compensation in connection with restricted stock issued for future services is recorded on the date of grant at the fair market value of SBO's common stock and is being amortized ratably from the date of grant over the five-year vesting period as it is earned. Compensation expense of $1,964,000, $111,000 and $156,000 was recognized for the years ended December 31, 1994, 1993 and 1992, respectively. Unearned compensation has been shown as a reduction of shareholders' equity in the accompanying Consolidated Balance Sheets.
A summary of certain stock option information is as follows:
Year ended December 31, ------------------------------ 1994 1993 1992 ---------- --------- ---------
Options outstanding at January 1 812,320 901,080 393,570
Granted 1,228,750 96,550 521,550 Exercised (37,160) (176,560) (6,840) Forfeited (87,340) (8,750) (7,200) ---------- --------- --------- Options outstanding at December 31 1,916,570 812,320 901,080 ========== ========= =========
Option price range at December 31 $6.50 to $6.50 to $6.50 to $20.25 $18.00 $14.50
Options exercisable at December 31 644,320 529,495 120,430 ========== ========= =========
-102- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. SHAREHOLDERS' EQUITY
On December 24, 1992, the Company issued 3,450,000 shares of its $1.00 par value common stock in a public offering. The price to the public was $15.50 per share. Net proceeds of the offering, after deducting all associated costs, were $50,366,000 or $14.60 per newly issued share.
On May 6, 1994, in connection with the Company's investment in SHC, the Company issued warrants to purchase 150,000 shares of Showboat, Inc. common stock with an exercise price of $15.50 per share. The warrants were exercisable on issuance and are scheduled to expire on May 6, 1999. At December 31, 1994, all warrants were outstanding. The value of the warrants of $1,953,000 has been reported as part of the investment in SHC and will be amortized over the life of the principal assets.
13. FOREIGN CURRENCY TRANSLATION
Cumulative foreign currency translation adjustments at December 31, 1994, which represent the effects of translating the financial statements of the Company's foreign subsidiaries were:
(In thousands)
Balance, January 1, 1994 $ -
Translation adjustments 5,369
Related income tax effect (1,879) --------- Balance, December 31, 1994 $3,490 =========
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SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. SELECTED QUARTERLY DATA (Unaudited)
Summarized unaudited financial data for interim periods for the years ended December 31, 1994 and 1993 are as follows:
Quarter ended (a) Year ---------------------------------------- ended 3/31/94 6/30/94 9/30/94 12/31/94 12/31/94 --------- --------- ---------- --------- --------- (In thousands except per share data)
Net revenues $88,432 $102,395 $113,231 $97,275 $401,333 Income from operations 11,088 14,041 17,262 9,437 51,828 Net income 3,440 5,354 5,915 990 15,699 Net income per share 0.23 0.35 0.38 0.06 1.02
Quarter ended (a) Year ---------------------------------------- ended 3/31/93 6/30/93 9/30/93 12/31/93 12/31/93 --------- --------- ---------- --------- --------- (In thousands except per share data)
Net revenues $85,496 $92,706 $108,005 $89,520 $375,727 Income from operations (b) 7,685 11,983 18,250 7,501 45,419 Income before extraordinary loss and cumu- lative effect adjust- ment (c)(d) 1,921 3,751 7,356 436 13,464 Net income (loss) 2,477 (2,928) 7,356 436 7,341 Income before extraordinary loss and cumu- lative effect adjustment per share (c)(d) 0.13 0.24 0.48 0.03 0.89 Net income (loss) per share 0.16 (0.20) 0.48 0.03 0.49
-104- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. SELECTED QUARTERLY DATA (Unaudited) (continued)
(a) Quarterly results may not be comparable due to the seasonal nature of the Atlantic City operation.
(b) In 1993, the Company acquired a 30% equity interest in Showboat Star Partnership which was engaged in the development of a riverboat casino on Lake Pontchartrain in New Orleans, Louisiana. Operation of the riverboat casino commenced on November 8, 1993. The Company's share of the partnership's loss from the commencement of operations through December 31, 1993, including the write-off of preopening costs of $1,274,000, is included in income from operations for the quarter ended December 31, 1993.
(c) The Company adopted FAS 109 in 1993 and reported the cumulative effect of the change in method of accounting for income taxes as of January 1, 1993 in the 1993 Consolidated Statement of Income.
(d) In the quarter ended June 30, 1993, the Company recognized an extraordinary loss of $6,679,000, net of tax, as a result of the redemption of all of its outstanding 11 3/8% Mortgage-Backed Bonds Due 2002 (Note 8).
15. COMMITMENTS AND CONTINGENCIES
In February 1994, the Company and Waterfront Entertainment and Development, Inc. formed Showboat Marina Partnerhip (SMP). SMP has filed a gaming application with the Indiana Gaming Commission to operate a riverboat on Lake Michigan in East Chicago, Indiana. Under the terms of the partnerhip agreement, Showboat will own 55% of SMP and is required to make an initial capital contribution of $1,000,000 and an additional contribution of $16,500,000 at such later dates as specified in an initial development budget.
The Company is involved in various claims and legal actions arising in the ordinary course of business. Additionally, the State of New Jersey is currently auditing the Company's state income tax returns for the years ended June 30, 1986 through 1992. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position or results of operations.
-105- (continued)
SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. COMMITMENTS AND CONTINGENCIES (continued)
In December 1995, the Company entered into a preliminary agreement with a thoroughbred racetrack in New Hampshire to finalize an agreement to develop and manage any additional gaming which may be authorized at the facility by the State of New Hampshire. In connection with the preliminary agreement, the Company loaned the operator of the racetrack $8,850,000. The loan is secured by a second mortgage on the racetrack. This note receivable is included in deposits and other assets on the Consolidated Balance Sheet.
16. SUBSEQUENT EVENTS
In February 1995, SSP (i) assigned its lease with the Orleans Levee Board for leased land, docking facilities and parking areas; (ii) sold the terminal building and other improvements it constructed on the leased land and (iii) sold certain personal property used at the terminal building for $6,000,000. Effective March 3, 1995, the Company purchased the remaining 50% of the equity of SSP from its partners for $25,000,000, subject to certain adjustments. In March 1995, the Company entered into an agreement to sell 100% of SSP for $52,000,000. The net proceeds of these transactions approximates the Company's cumulative investment in SSP. The investment in SSP has been reclassified to current assets as Investment in unconsolidated affiliate held for sale. As a result of certain issues related to the legality of dockside gaming in Orleans Parish, the Company ceased all operations at the Showboat Star Casino on March 9, 1995.
In February 1995, the Company formed Randolph Riverboat Company L.L.C. (RLLC) to own and operate a riverboat casino near Kansas City, Missouri. RLLC will be 35% owned by the Company. The Company has contributed $13,000,000 to an escrow account for the benefit of RLLC. Additional capital contributions, if needed, will be made by the partners of RLLC pro rata with their respective interests. The Company currently contemplates that the majority of the financing for the project will be obtained through high yield debt and capital leases.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following information is furnished with respect to each member of the Board of Directors or nominee thereto, each of whom, unless otherwise indicated, has served as a director continuously since the year shown opposite his or her name. Similar information is presented for the executive officers who are not directors. There are no family relationships between or among any of the Company's directors, nominees to the Board of Directors or executive officers, except J.K. Houssels and Jeanne S. Stewart formerly were married and are the parents of J. Kell Houssels, III.
NON-DIRECTOR EXECUTIVE OFFICERS
G. Clifford Taylor, Jr., 49, has been Treasurer of the Company and Showboat Operating Company since February 1981. He served as Treasurer of Showboat Development Company from June 1983 to May 1993. He has been Treasurer of Ocean Showboat, Inc. since December 1983, Atlantic City Showboat, Inc. since June 1984 and Ocean Showboat Finance Corporation since December 1986. He also has served as the Assistant Secretary of the Company since May 1990. Until February 1995, Mr. Taylor was the Executive Vice President and Chief Operating Officer of Showboat Operating Company. He serves at the pleasure of the respective board of directors.
R. Craig Bird, 48, has been Executive Vice President-Finance and Development of the Company since June 1994 and the Executive Vice President and Chief Operating Officer of Showboat Development Company since October 1993. Mr. Bird was Vice President-Financial Administration of Atlantic City Showboat, Inc. from March 1990 to October 1993. He serves at the pleasure of the respective boards of directors.
Mark J. Miller, 38, has been Executive Vice President- Operations of the Company since June 1994; President and Chief Executive Officer of Atlantic City Showboat, Inc. since May 1994; Vice President-Finance of Ocean Showboat since April 1988; Vice President-Finance
and Chief Financial Officer of Ocean Showboat since April 1991. From October 1993 to June 1994, Mr. Miller served as Executive Vice President and Chief Operating Officer of Atlantic City Showboat, Inc. and he was Vice President-Finance and Chief Financial Officer of Atlantic City Showboat, Inc. from December 1988 to October 1993. He serves at the pleasure of the respective boards of directors.
Donald L. Tatzin, 43, has been an Executive Vice President of the Company since March 22, 1995 and an Executive Vice President of Showboat Development Company since April 1993. Mr. Tatzin has been a consultant with Arthur D. Little, Inc., San Francisco, California since June 1976.
Paul S. Harris, 59, has been Senior Vice President-Human Resources of the Company since June 1994. Mr. Harris served as Vice President-Organization and Development of Atlantic City Showboat, Inc. from July 1988 to June 1994.
Leann Schneider, 41, has been Vice President-Finance and Chief Financial Officer of the Company and Showboat Operating Company since May 1990; Chief Financial Officer and Treasurer of Showboat Development Company since May 1993; Treasurer of Showboat Mohawk, Inc., Showboat Louisiana, Inc., Lake Pontchartrain Showboat, Inc. since July 1993; Treasurer of Showboat Indiana, Inc. since September 1993; and Treasurer of Showboat Missouri, Inc. since February 1995. From December 1989 until May 1990, she served as Vice President-Financial Relations and Chief Financial Officer of the Company. She serves at the pleasure of the respective boards of directors.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of the Common Stock, to file with the Securities and Exchange Commission and the New York Stock Exchange initial reports of ownership and reports of changes in ownership of Common Stock. Directors, executive officers and greater than ten percent shareholders are required by Securities and Exchange Commission regulation to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 1994, all Section 16(a) filing requirements were complied with, except that one report of ownership for one transaction, covering an aggregate of three shares, was filed late by George A. Zettler, and one report of ownership for one transaction, covering an aggregate of 350 shares was filed late by R. Craig Bird. Mr. Zettler's late filing disclosed a purchase of Common Stock due to a dividend
reinvestment which was inadvertently not timely reported on Mr. Zettler's Forms 4, and Mr. Bird's late filing disclosed a purchase of Common Stock by his children which also was inadvertently not timely reported on Mr. Bird's Forms 4.
INFORMATION CONCERNING BOARD AND COMMITTEE MEETINGS
The entire Board of Directors met eleven times during the year ended December 31, 1994 and each incumbent director, other than Mr. Nasky, attended at least 75% of the board meetings held and committee meetings held for committees of which each was a member. Mr. Nasky resided in Sydney, Australia during 1994 assisting the Company's efforts to obtain the exclusive full- service gaming license in Sydney. Mr. Houssels, Mr. Houssels, III and Mr. Nasky are the only directors who are employees of the Company.
The NOMINATING COMMITTEE met once during the twelve months ended December 31, 1994. The Nominating Committee's responsibilities include: interviewing potential nominees to the Board of Directors; recommending to the Board of Directors qualified nominees to fill Board of Directors vacancies; developing procedures to identify potential nominees to the Board of Directors; and developing criteria for Board of Directors membership. During 1994, the Nominating Committee consisted of Mr. Houssels, Mr. Richardson and Ms. Stewart.
The Nominating Committee will consider nominees to the Board of Directors submitted in writing by shareholders to the Secretary of the Company at least seventy-five days prior to the initiation of solicitation of the shareholders for the election of directors in the event of an election other than at an annual meeting; and seventy-five days before the corresponding date that had been the record date for the previous year's annual meeting or seventy-five days before the date of the next annual meeting of shareholders announced in the previous year's proxy materials in the event of an election at an annual meeting. Such shareholder's written notice to the Secretary shall set forth: (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director (i) the name, age, business address, and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Company beneficially owned by the person, (iv) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations have to be made by the shareholder, (v) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, and (vi) the consent of such nominee to serve as a director; and (b) as to the shareholder giving the
notice, (i) the name and record address of such shareholder, and (ii) the class and number of shares of capital stock of the Company which are beneficially owned by the shareholder.
The COMPENSATION COMMITTEE met ten times during the twelve months ended December 31, 1994. Responsibilities include reviewing the performance of the Company's officers and recommending to the Board of Directors remuneration arrangements and compensation plans involving the Company's directors, executive officers, and key employees, including, but not limited to, the incentive bonus plans for the Company's Las Vegas and Atlantic City operations. The Compensation Committee also serves as the administrators of the 1989 Executive Long-Term Incentive Plan and the 1994 Executive Long Term Incentive Plan (collectively the "Incentive Plans"). Pursuant to the Incentive Plans, the Compensation Committee makes recommendations to the Board of Directors respecting the grant of options or awards of restricted stock and construes and interprets the Incentive Plan. During 1994, the Compensation Committee consisted of Mr. Richardson and Mr. Zettler.
The AUDIT COMMITTEE met six times during the twelve months ended December 31, 1994. The Audit Committee's responsibilities and functions include: review of reports of independent public accountants to the Company; review of the Company's financial practices, internal controls and policies with officers and key personnel; review of such matters with the Company's independent public accountants to determine the scope of compliance and any deficiencies; select and recommend to the Board of Directors a firm of independent public accountants to audit annually the books and records of the Company; review and discuss the scope of such audit; report periodically on such matters to the Board of Directors; and perform such other functions as the Board of Directors from time to time shall delegate to said committee. During 1994, the Audit Committee consisted of Mr. Gaughan, Mr. Zettler, and Mrs. Sparks.
EXECUTIVE COMPENSATION
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION AND THE PERFORMANCE GRAPH ON PAGE 12 SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.
OVERVIEW. The Compensation Committee of the Board of Directors ("Compensation Committee") administers the Company's executive compensation programs. The Compensation Committee presently consists of Mr. Richardson and Mr. Zettler.
The compensation philosophy of the Company is based on two central objectives:
* To provide competitive executive compensation opportunities to attract, motivate and retain qualified and motivated executive officers; and
* To align the Company's financial results and the compensation paid to the Company's executive officers with the enhancement of shareholder value.
The Company's compensation policy is structured so that executive officers' compensation is dependent, in one part, on the degree to which the Company achieves its current year business plan objectives, and in another part, on the increase of shareholder value.
COMPENSATION PROGRAMS. The Company's compensation programs consist of a base salary, an annual incentive bonus, and an award of restricted stock and/or stock options. The base salary is targeted to fairly recognize each executive officer's unique value and historical contributions to the success of the Company in light of the industry median salary for the equivalent position in the relevant market. The annual incentive bonus is based on actual performance compared to pre-established quantitative and qualitative performance objectives which may include Company, operating subsidiary, and individual components. The Company and operating subsidiary performance is generally measured against the annual budgeted operating profits set forth at the beginning of the year for the Company and/or the particular operating subsidiary applicable to an individual. Individual goals are also set at the beginning of the year for each executive officer, and are determined through a series of meetings with the Company's Compensation Committee and outside compensation consultants. At the end of each quarter, an evaluation of performance compared to all relevant objectives is conducted in order to determine the incentive award amount earned. In no event may an executive officer receive an annual incentive award if pre-established threshold levels of performance are not achieved. The Company's long-term incentive compensation consists of awards of restricted stock and stock options. Awards of restricted stock, which are forfeited if the executive officer fails to be continuously employed by the Company or one of its subsidiaries, provide an incentive to the executive officer to remain in the employ of the Company. Awards of stock options become exercisable over time and only have value if the Company's Common Stock increases in value.
The Compensation Committee believes that it is important to compensate executive officers on the basis of individual and Company financial performance, including the enhancement of shareholder value. To this end, the Compensation Committee actively uses the incentive-based compensation programs, namely, annual incentive bonuses and awards of restricted stock and/or
stock options. For 1994, the bonus compensation and the award of restricted shares and options to the Chief Executive Officer and the four named executive officers represented the incentive-based compensation.
CHIEF EXECUTIVE OFFICER. The base salary of J. Kell Houssels, III, the Company's President and Chief Executive Officer, is targeted to fairly recognize his leadership skills and management responsibilities in light of the median level for chief executive officers of similar gaming companies. Mr. Houssels, III salary was increased for the 1994 fiscal year based upon a review of compensation of similarly sized gaming companies. Mr. Houssels, III 1994 annual incentive award was based on pre-established management objectives which included both financial and non-financial objectives. Mr. Houssels, III financial objectives included a comparison of consolidated EBITDA for Atlantic City Showboat, Inc. to budgeted EBITDA. Mr. Houssels, III non financial objectives included (i) the implementation of the 1994 business plan for the Atlantic City Showboat; (ii) continual improvement of customer experience and employee satisfaction at the Atlantic City Showboat; and (iii) the development and implementation of the business plan and budget for Showboat's development division. Non-financial objectives included spearheading the Company's development activities both domestically and internationally. Additionally, Mr. Houssels, III received 10,000 restricted shares, which vest over a five-year period, and options to purchase 40,000 shares of Common Stock of the Company. The Committee believes that the primary duty of the Chief Executive Officer is to enhance shareholder value. The restricted shares and options were granted primarily based upon competitive practices within the gaming industry.
February 23, 1995 COMPENSATION COMMITTEE
William C. Richardson George A. Zettler
The following tables set forth compensation received by J.K. Houssels, the Company's Chief Executive Officer until May 1994, and J. Kell Houssels, III, the Company's Chief Executive Officer after May 1994, and the four other highest paid executive officers of the Company during the last fiscal year for each year of the three-year period ended December 31, 1994 for services rendered in all capacities to the Company and its subsidiaries:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
PENSION PLAN TABLE
The Company maintains the Supplemental Executive Retirement Plan (the "SERP"), a nonqualified plan for highly compensated employees whose retirement benefits are restricted by limitations of the Code concerning qualified plans such as the 401(k) Plan. In general, a participant will receive a retirement benefit under the SERP equal to a percentage of his final average pay times such participant's years of service up to 15 years, less any benefits payable to such participant under the federal Social Security Act, the 401(k) Plan, or under any stock plan of the Company, with "final average pay" being the average of such participant's annual base salary for his last three consecutive years of service. A participant becomes vested in his benefits under the SERP upon the participant's 65th birthday or upon the participant's completion of 10 years of service if the participant is at least 55 years of age.
The following table shows, as of December 31, 1994, the approximate annual retirement benefits under the SERP to eligible employees in specified compensation and years of service categories, assuming retirement occurs at age 65 and that benefits are payable only during the employee's lifetime. The estimated retirement benefits provided in the table have not been reduced by the amount of benefits payable to an individual participant under the federal Social Security Act, the 401(k) Plan, or under any stock plan of the Company.
The years of service for certain employees as of December 31, 1994, are as follows: Mr. Houssels, 32 years; Mr. Houssels III, 9 years; Mr. Modica, 24 years; Mr. Nasky, 1 year; Mr. Tatzin, 1 year and Mr. Miller, 9 years. The vested benefits to Mr. Houssels and Mr. Modica, $851,000 and $1,661,000, respectively, under the SERP have been accrued by the Company.
EMPLOYMENT AGREEMENTS
The Company has Employment Agreements (the "Agreements") with five of the six named executive officers and with eight additional executive officers and other key employees (collectively "employees" and individually "employee"). The Agreements are renewed, unless terminated, on an annual basis. The Agreements provide for severance benefits if the employee is terminated by the Company (other than for cause or by reason of the employee's retirement, death or disability) or by the employee for Good Reason (as defined in the Agreements) within 24 months after a Change in Control (as defined in the Agreements) or within 12 months after a Change in Control in the case of Messrs. Houssels and Houssels, III. Each Agreement provides that, in the event of a Potential Change in Control (as defined in the Agreements), the employee shall not voluntarily resign as an employee, subject to certain conditions, for at least six months after the occurrence of such Potential Change in Control.
The Agreements provide for: (i) a lump-sum payment equal to 200% of the employee's annual salary if his employment was terminated by the Company or 100% of the employee's annual salary if his employment was terminated by the employee for Good Reason (or, in the case of Messrs. Houssels and Houssels, III, 300% of their respective annual salary), plus 200% of the average bonuses awarded to the employee for the three fiscal years preceding the employee's termination if the employee's employment was terminated by the Company or 100% of the average bonuses awarded to employee for the three fiscal years preceding employee's termination if the employee's employment was terminated by the employee for Good Reason (or, in the case of Messrs. Houssels and Houssels, III, 300% of their respective average bonus for the three fiscal years preceding their respective termination) and (ii) the reimbursement of legal fees and expenses incurred by the employee in seeking to enforce employee's rights under the Agreement. In addition, in the event that payments to the employee pursuant to employee's Agreement would subject such employee to a tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the employee may reduce his severance benefits to an amount below the amount which would require the employee to pay such tax. Certain provisions of the Agreement could have the effect of delaying or preventing a Change in Control of the Company. Based on compensation levels as of December 31, 1994, assuming a Change in Control of the Company, each of Messrs. Houssels, Houssels, III, Nasky, Tatzin and, Miller would be entitled to receive a maximum lump-sum payment of $996,516, $1,372,237, $833,124, $793,262, and $549,468, respectively, under the Agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's executive compensation is determined by the Compensation Committee ("Compensation Committee") of the Board of Directors, no current member of which is or was an officer of the Company. Throughout 1994, the Compensation Committee consisted of Messrs. Zettler and Richardson.
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the Company's Common Stock for the last five years with the cumulative total return on the Standard & Poors 500 Composite Stock Index and an industry peer group index(1). The graph assumes that $100 is invested in December 31, 1989 in each of the Company's Common Stock, the S&P 500 Composite Stock Index and the industry peer group index. The total return assumes the reinvestment of dividends.
[PERFORMANCE GRAPH]
COMPENSATION OF DIRECTORS
REMUNERATION OF NON-EMPLOYEE DIRECTORS.
For 1994, each non-employee director received a retainer of $3,000 per quarter plus attendance fees of $2,000 per meeting attended. Such fees are paid by the Company and Ocean Showboat, Inc., as applicable. In addition, non-employee members of each committee are paid $850 for each committee meeting attended. Only non-employee directors receive the retainer or attendance fees. Reasonable out-of-pocket expenses incurred in attending scheduled meetings are reimbursed as to all directors.
1989 DIRECTORS' STOCK OPTION PLAN.
The Company maintains a director stock option plan entitled the 1989 Directors' Stock Option Plan ("Option Plan"). The Option Plan is designed to encourage non-employee directors to take a long-term view of the affairs of the Company; to attract and retain new superior non-employee directors; and to aid in compensating non-employee directors for their services to the Company. The Company's non-employee directors are William C. Richardson, John D. Gaughan, Jeanne S. Stewart, George A. Zettler and Carolyn M. Sparks.
Stock options granted under the Option Plan are intended to be designated non-qualified options or options not qualified as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended. Subject to adjustment by reason of stock dividend or split or other similar capital adjustments, an aggregate of 120,000 shares of Common Stock are reserved for issuance under the Option Plan.
The administration of the Option Plan is carried out by a committee ("Committee") consisting of not less than two non-employee directors of the Company selected by and serving at the pleasure of the Company's Board of Directors. The Committee, unless permitted by holders of the majority of outstanding Common Stock, shall not have any discretion to determine or vary any matters which are fixed under the terms of the Option Plan. Fixed matters include, but are not limited to, which non-employee directors shall receive awards, the number of shares of the Common Stock subject to each option award, the exercise price of any option, and the means of acceptable payment for the exercise of the option. The Committee shall have the authority to otherwise interpret the Option Plan and make all determinations necessary or advisable for its administration. All decisions of the Committee are subject to approval of the Company's Board of Directors. Current members of the Committee are Messrs. Zettler and Richardson.
Under the terms of the Option Plan, each option shall be exercisable in full one year after the date of grant. Unless special circumstances exist, each option shall expire on the later of the tenth anniversary of the
date of its grant or two years after the non-employee director retires. Each non-employee director initially receives a one- time option to purchase 5,000 shares of Common Stock following his or her election to the Board of Directors. Thereafter, each non-employee director receives a grant to purchase 1,000 shares of Common Stock each year, for five years following his or her election to the Board of Directors.
The option exercise price is the greater of $7.625 or the fair market value, as defined under the Option Plan, of the Common Stock on the date such options are granted. The per share exercise price of options granted during 1994 pursuant to the Option Plan was $20.25.
As of December 31, 1994, options representing 71,000 shares have been granted to the current five non-employee directors and two former non-employee directors and a director who has since become an employee. Of the outstanding options, options representing 66,000 shares are currently exercisable. The balance may not be exercised until May 25, 1995. As of December 31, 1994, none of the options granted pursuant to the Option Plan have been exercised.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the number of shares of Common Stock subject to options held by the Company's directors and those executive officers named in the Summary Compensation Table, by all directors and executive officers as a group, and by persons beneficially owning more than 5% of the outstanding Common Stock at the close of business on March 28, 1995. The address for all directors and executive officers of the Company is: Showboat, Inc., 2800 Fremont Street, Las Vegas, Nevada 89104. Security ownership was verified with filings with the Securities and Exchange Commission received by the Company, and according to individual verification as of March 28, 1995, which the Company solicited and received from the beneficial owners listed in the following table:
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company entered into a five-year lease agreement with Exber, Inc. commencing on February 15, 1994, for land nearby the Las Vegas Showboat. Exber, Inc., a Nevada corporation controlled by John D. Gaughan, a Director of the Company, has rights to the land pursuant to a sublease agreement dated November 5, 1966. The Company pays monthly rent of $13,095.80 and has an option to purchase the land and all of Exber, Inc.'s rights thereto for the purchase price of $1,400,000.00.
The Company's subsidiary, ACSI, leases space at the Atlantic City Showboat to R. Craig Bird for the operation of a gift shop and certain vending machines. During 1994, Mr. Bird paid rent and vending commissions to ACSI in the amount of $100,000 and $240,394, respectively.
Carolyn M. Sparks, a director of the Company, is a co-owner of International Insurance Services, Ltd. The Company engaged International Insurance Services, Ltd. as its insurance adjuster for the Company's Nevada subsidiaries. During 1994, the Company paid International Insurance Services, Ltd. $100,081.00 for services rendered to the Company.
At all times during 1994, H. Gregory Nasky was a director of the Company and the Secretary of the Company and its subsidiaries. Additionally, Mr. Nasky was a member of the law firm of Vargas & Bartlett, previous general counsel to the Company. On March 1, 1994, Vargas & Bartlett was reorganized from which the law firm of Kummer Kaempfer Bonner & Renshaw was formed and it succeeded as general counsel to the Company. Mr. Nasky is of counsel to Kummer Kaempfer Bonner & Renshaw. During 1994, the law firm of Vargas & Bartlett was paid $13,435.50 by the Company's Nevada gaming subsidiary, $2,275.00 by the Company's New Jersey subsidiaries, $75,727.50 by the Company in connection with its expansion opportunities, and $37,369.00 by the Company for other parent company matters. During 1994, the law firm of Kummer Kaempfer Bonner & Renshaw was paid $64,128.50 by the Company's Nevada gaming subsidiary, $46,582.55 by the Company's New Jersey subsidiaries, $141,853.49 by the Company in connection with its expansion opportunities, $165,095.50 by the Company in connection with a public offering, and $174,229.00 by the Company for other parent company matters.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(l) The following consolidated financial statements of the Company and its subsidiaries have been filed as a part of this report (See "Item 8: Financial Statements and Supplementary Data"):
Independent Auditors' Report;
Consolidated Balance Sheets at December 31, 1994 and 1993;
Consolidated Statements of Income for the Years Ended December 31, 1994, 1993 and 1992;
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1994, 1993 and 1992;
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992; and
Notes to Consolidated Financial Statements
(2) The following additional information for the Years Ended December 31, 1994, 1993 and 1992 is submitted herewith, SEE ITEM 8., FINANCIAL STATEMENT AND SUPPLEMENTARY DATA:
All other schedules are omitted because they are not required, inapplicable, or the information is otherwise shown in the financial statements or notes thereto.
(3) Exhibits(1)
EXHIBIT NUMBER DESCRIPTION(2)
3.01 Restated Articles of Incorporation of the Company dated July 23, 1994, is incorporated herein by reference from the Company's Amendment No. 1 to Registration Statement on Form S-3 dated July 8, 1994 (file no. 33-54325), Item 16, Exhibit 4.02.
3.02 Restated Bylaws of the Company dated February 25, 1993, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 3.02.
4.01 Specimen common stock certificate for the Common Stock of the Company is incorporated herein by reference from the Company's Amendment No. 1 to Registration Statement on Form S- 3 dated July 8, 1994 (file no. 33-54325), Item 16, Exhibit 4.01.
4.02 Indenture for the 9 1/4% First Mortgage Bonds due 2008 among the Company, OSI, ACSI, SBOC, and Trustee dated May 18, 1993; Guaranty in favor of the Trustee issued by OSI, ACSI and SBOC; and Form of Bond Certificate for the 9 1/4% First Mortgage Bonds due 2008 are incorporated herein by reference from the Company's Form 8-K dated May 18, 1993, Item 5, Exhibit 28.01. First Supplemental Indenture for the 9 1/4% First Mortgage Bonds among the Company, OSI, ACSI, SBOC and Trustee dated July 18, 1994; Showboat Development Company Security and Pledge Agreement between SDC and the Trustee dated July 18, 1994; and Showboat Louisiana, Inc. Security and Pledge Agreement between SLI and the Trustee dated July 18, 1994. ______________ (1)Copies of exhibits to this form 10-K will be furnished to any requesting security holder who furnishes the Company a list identifying the exhibits to be copied by the Company at a charge of $.25 per page.
(2)All exhibits which are incorporated by reference are incorporated from the Company's respective periodic reports, Securities and Exchange Commision File Number 1-7123
4.03 Indenture for the 13% Senior Subordinated Notes Due 2009 by and among the Company, OSI, ACSI, SBOC, and Trustee dated August 10, 1994; Guaranty in favor of the Trustee issued by OSI, ACSI and SBOC; and Form of Note Certificate for the 13% Senior Subordinated Notes due 2009 are incorporated herein by reference from the Company's Form 8-K dated August 10, 1994, Item 5, Exhibit 4.01.
10.01 Ground Lease between OSI and Resorts International, Inc. ("Resorts") dated October 26, 1983 is incorporated by reference herein from the Company's Form 8-K, as amended by the Form 8, filed with the Securities and Exchange Commission on November 28, 1983. Assignment and Assumption of Leases between OSI and ACSI dated December 3, 1985; First Amendment to Agreement between Resorts and ACSI dated January 15, 1985; Second Amendment to Lease Agreement between Resorts and ACSI dated July 5, 1985 are incorporated herein by reference from the Form 10-K for the Year Ended June 30, 1985, Part IV, Item 14(a)(3), Exhibit 10.02. Restated Third Amendment to Lease Agreement dated August 28, 1986 between Resorts and ACSI is incorporated herein by reference from the Form 10-K for the Year Ended June 30, 1986, Part IV, Item 14(a)(3), Exhibit 10.08; Fourth Amendment to Lease Agreement by and between Resorts and ACSI dated December 16, 1986; Fifth Amendment to Lease Agreement between Resorts and ACSI dated March 2, 1987; Sixth Amendment to Lease Agreement between Resorts and ACSI dated March 13, 1987; Indemnity Agreement among Resorts, ACSI, and OSI dated January 15, 1985; and Amended Indemnity Agreement among Resorts, ACSI, and OSI dated December 3, 1985 are incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.02; and Seventh Amendment to Lease Agreement between Resorts and ACSI dated October 18, 1988 is incorporated herein by reference from the Company's Form 8-K dated November 16, 1988, Item 7(c), Exhibit 28.01; and Eighth Amendment to Lease Agreement by and between ACSI and Resorts International, Inc. dated May 18, 1993 is incorporated herein by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.06.
10.02 Tax Allocation Agreement among the Company and each of its subsidiaries dated effective May 10, 1993, is incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.11. First Amendment to Tax Allocation Agreement among the Company and each of its subsidiaries dated effective May 10, 1993 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.07.
10.03 Promissory Note in the principal amount of $56,801.75 between the Company and Frank A. Modica dated December 31, 1993 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.08.
10.04 Form of Indemnification Agreement between SBO and each director and officer of the Company is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1987, Part IV, Item 14(a)(3), Exhibit 10.13.
10.05 Statement regarding the Company's Incentive Bonus Plans is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.12.
10.06 Parent Services Agreement by and between Company and ACSI dated November 21, 1985 is incorporated herein by reference from the Company's Form 8-K dated November 25, 1985, Item 7(c), Exhibit 10.01. Amendment No. 1 to Parent Services Agreement by and between the Company and ACSI dated February 1, 1987 is incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.17. Amendment No. 2 to Parent Services Agreement by and between the Company and ACSI dated December 31, 1990 is incorporated herein by reference from the Company's Form 8-K dated December 31, 1990, Item 7(c), Exhibit 28.01. Amendment No. 3 to Parent Services Agreement by and between the Company and ACSI dated May 8, 1991, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.14. Amendment No. 4 to Parent Services Agreement by and between the Company and ACSI dated August 17, 1993, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.11.
10.07 Closing Escrow Agreement among Housing Authority and Urban Redevelopment Agency of the City of Atlantic City, Resorts, ACSI, Trump Taj Mahal Associates Limited Partnership, and Clapp & Eisenberg, P.C. dated as of September 21, 1988; Agreement as to Assumption of Obligations with respect to Properties among ACSI, Trump Taj Mahal Realty Corp. dated as of September 21, 1988; First Amendment of Agreement as to Assumption of Obligations with respect to Properties among ACSI, Trump Taj Mahal Associates Limited Partnership, and Trump Taj Mahal Realty Corp. dated as of September 21, 1988; Settlement Agreement among ACSI, Trump Taj Mahal Associates Limited Partnership, Trump Taj Mahal Realty Corp., Resorts and the Housing Authority and Urban Renewal Redevelopment Agency of the City of Atlantic City dated October 18, 1988; Tri-Party Agreement among Resorts
International, Inc., ACSI and Trump Taj Mahal Associates Limited Partnership dated October 18, 1988; Declaration of Easement and Right of Way Agreement between the Housing Authority and Redevelopment Agency of the City of Atlantic City, as grantor, and ACSI, as grantee, dated October 18, 1988; and Certificate of Trump Taj Mahal Associates Limited Partnership and Resorts, dated November 16, 1988 are incorporated herein by reference from the Company's Form 8-K dated November 16, 1988, Item 7(c), Exhibit 28.01. Revised Second Amendment to Agreement as to Assumption of Obligations with respect to Properties among ACSI, Trump Taj Mahal Associates Limited Partnership and Trump Taj Mahal Realty Corp. dated as of May 24, 1989, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1989, Part IV, Item 14(a)(3), Exhibit 10.17.
10.08 Lease between the Company and Showboat Operating Company, dated January 1, 1989 is incorporated herein by reference from the Company's Form 8-K dated January 1, 1989, Item 7(c), Exhibit 28.01.
10.09 Management Services Agreement between the Company and SBOC dated January 1, 1989, is incorporated herein by reference from the Company's Form 8-K dated January 1, 1989, Item 7(c), Exhibit 28.03.
10.10 Promissory Note in the principal amount of $20,400.69 among the Company, R. Craig Bird and Debra E. Bird dated August 5, 1993, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.15.
10.11 Securities Purchase Contract between the Casino Reinvestment Development Authority and ACSI dated March 29, 1988, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1988, Part IV, Item 14(a)(3), Exhibit 10.23.
10.12 Lease of Retail Store No. 7 among ACSI, R. Craig Bird and Debra E. Bird dated April 10, 1987; and Guaranty of Lease among ACSI, R. Craig Bird and Debra E. Bird are incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1988, Part IV, Item 14(a)(3), Exhibit 10.24.
10.13 ACSI Executive Health Examinations Plan effective date January 1, 1989 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1989, Part IV, Item 14(a)(3), Exhibit 10.24.
10.14 ACSI Executive Medical Reimbursement Plan, effective date August 15, 1991, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.23.
10.15 Showboat, Inc. 1989 Long Term Incentive Plan as Amended and Restated February 25, 1993, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV Item 14(a)(3), Exhibit 10.23.
10.16 Letter agreement dated September 23, 1992 between Trump Taj Mahal Associates and ACSI and letter agreement dated October 26, 1992 to Trump Taj Mahal Associates from Atlantic City Showboat, Inc. are incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.24.
10.17 Showboat, Inc. 1989 Directors' Stock Option Plan as Amended and Restated February 25, 1993, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.27.
10.18 Deed of Trust, Assignment of Rents, Security Agreement made by the Company to Nevada Title Company for the benefit of Trustee dated as of May 18, 1993; Showboat, Inc. Security and Pledge Agreement between the Company and The Trustee dated as of May 18, 1993; Trademark Security Agreement by the Company in favor of the Trustee dated as of May 18, 1993; Unsecured Indemnity Agreement executed by the Company in favor of the Trustee dated May 18, 1993; and Showboat Operating Company Security Agreement between SBOC and the Trustee dated as of May 18, 1993, are incorporated by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.02.
10.19 Leasehold Mortgage, Assignment of Rents, Security Agreement ("Guaranty") made by ACSI for the benefit of Trustee dated May 18, 1993; Assignment of Leases and Rents by and between ACSI and Trustee dated as of May 18, 1993; and Ocean Showboat, Inc. Security and Pledge Agreement between OSI and the Trustee dated as of May 18, 1993 are incorporated by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.03.
10.20 Intercompany Note in the principal amount of $215.0 million, dated as of May 18, 1993; Assignment of Lease and Rents by and between ACSI and the Company dated as of May 18, 1993; and Issuer Collateral Assignment executed by ACSI in favor of Trustee dated May 18, 1993 are incorporated by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.04.
10.21 First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement among ACSI and the Company dated July 9, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.01.
10.22 First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement among ACSI and IBJ Schroder Bank & Trust Company dated July 9, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.02.
10.23 Assignment of Rights under Agreement by ACSI, as assignee, to IBJ Schroder Bank & Trust Company dated July 9, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.03.
10.24 Form of Deed for Sale of Land for Private Redevelopment for Tract 1 and Tract 2 each dated July 7, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.04.
10.25 Use and Occupancy Agreement between ACHA and ACSI dated July 7, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.05.
10.26 Standard Form of Agreement between Owner and Contractor (AIA Document A111) executed by ACSI and T.N. Ward Company dated July 2, 1993 is
incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.01.
10.27 Standard Form of Agreement Between Owner and Contractor (AIA Document A111) executed by ACSI and T.N. Ward Company dated September 15, 1993 is incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.02.
10.28 Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated July 2, 1993 and First Amendment to Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated July 20, 1993 are incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.01; Second Amendment to Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated August 1, 1993 and Third Amendment to Showboat Star Partnership Agreement between Star Casino, Inc and Showboat Louisiana, Inc. dated March 1, 1994 are incorporated by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.35. Fourth Amendment to Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated October 1, 1994, Fifth Amendment to Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated January 26, 1995 and Sixth Amendment to Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated March 17, 1995.
10.29 Management Agreement by and between Lake Pontchartrain Showboat, Inc. and Star Casino, Inc. dated May 24, 1993 is incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.02.
10.30 Marine Management Services Agreement between Louisiana Riverboat Services, Inc. and Showboat Star Partnership dated September 30, 1993 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.37.
10.31 Agreement between Showboat, Inc., Showboat Indiana, Inc., Showboat Operating Company, Showboat Development Company, Showboat Indiana Investment Limited Partnership and Waterfront Entertainment and Development, Inc. dated September 13, 1993; and Showboat Marina Partnership Agreement between Waterfront Entertainment and Development, Inc. and Showboat Investment Limited Partnership dated January 31, 1994 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.38.
10.32 Lease between the Company and Exber, Inc. effective January 14, 1994; and Sublease between Dodd Smith and John D. Gaughan and Leslie C. Schwartz, dated November 5, 1966 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.39.
10.33 Lease between Showboat Star Partnership and Orleans Levee District dated February 18, 1993 and First Amendment to Lease dated August 27, 1993 are incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.40.
10.34 Lease between Showboat Star Partnership and Orleans Levee District dated February 1, 1994 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.41.
10.35 Lease between Showboat Operating Company and Ventroy Associates executed on December 20, 1993 is incorporated by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.42.
10.36 Showboat, Inc. 1994 Executive Long Term Incentive Plan, effective May 25, 1994.
10.37 Showboat, Inc. Supplemental Executive Retirement Plan, effective April 1, 1994.
10.38 Showboat, Inc. Restoration Plan, effective April 1, 1994.
10.39 Form of Severance Agreement between the Company and certain executive officer and key employees of the Company and its subsidiaries.
10.40 Operating Agreement dated January 25, 1995, between Showboat Missouri, Inc. and Randolph Riverboat Company, Inc.; Management Agreement dated January 25, 1995, between SBOC and Randolph Riverboat Company, Inc.; Administrative Services Agreement dated January 25, 1995 between SBOC and Randolph Riverboat Company, L.L.C.; Trademark License Agreement dated January 25, between the Company and Randolph Riverboat Company, L.L.C.
10.41 Purchase and Sale Agreement dated January 4, 1995, between Showboat Star Partnership and Belle of Orleans, L.L.C.; Assignment of Leases dated January 4, 1995 between Showboat Star Partnership and Belle of Orleans, L.L.C.; Sublease dated January 4, 1995, between Showboat Star Partnership and Belle of Orleans, L.L.C.
10.42 Non-Negotiable Mortgage Promissory Note dated December 28, 1994, in the principal amount of $8,850,000, by Rockingham Venture, Inc. in favor of the Company; Mortgage and Security Agreement dated December 28, 1994, between Rockingham Venture, Inc. and the Company.
10.43 Promissory Note dated January 1, 1994, in the principal amount of $18,600,000 by Showboat Louisiana, Inc. in favor of the Company, which Promissory Note expired on March 1, 1994; Promissory Note dated March 1, 1994, in the principal amount of $27,905,388 by Showboat Louisiana, Inc. in favor of the Company, which Promissory Note expired on December 31, 1994; and Promissory Note dated January 1, 1995, in the principal amount of $23,807.832.11 by Showboat Louisiana, Inc. in favor of the Company.
10.44 Promissory Note dated March 2, 1995, in the principal amount of $25,000,000 by Lake Pontchartrain Showboat, Inc. and Showboat Louisiana, Inc. in favor of Showboat, Inc.
10.45 Promissory Note dated March 19, 1995, in the principal amount of $15,000,000 by Atlantic City Showboat, Inc. and the Company.
10.46 Lease dated December 22, 1994, between Housing Authority and Urban Redevelopment Agency of the City of Atlantic City and Atlantic City Showboat, Inc.; Tri-Party Agreement dated May 26, 1994, among Housing Authority and Urban Redevelopment Agency of the City of Atlantic City, Forest City Ratner Companies and Atlantic City Showboat, Inc.; Terms and Conditions Part II of Contract for Sale of Land for Private Redevelopment between Housing Authority and Urban Redevelopment Agency of the City of Atlantic City and Atlantic City Showboat, Inc.; and Rider to Contract for Sale of Land for Private Redevelopment between Housing Authority and Urban Redevelopment Agency of the City of Atlantic City and Atlantic City Showboat, Inc.
21.01 List of Subsidiaries.
23.01 Consent of KPMG Peat Marwick.
27.01 Financial Data Schedule for the Company's Form 10-K for the Year Ended December 31, 1994.
99.01 Warrant Agreement dated as of May 6, 1994, by and between the Company and DLJ Bridge Finance, Inc., is incorporated by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(A)(3), Exhibit 99.01.
(b) REPORTS ON FORM 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by this undersigned, thereunto duly authorized.
REGISTRANT: SHOWBOAT, INC.
By: /S/ J.K. HOUSSELS, III J.K. HOUSSELS, III, President and Chief Executive Officer (principal executive officer)
DATE: March 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
March 28, 1995 By: /S/ J.K. HOUSSELS J.K. Houssels, Chairman of the Board
March 28, 1995 By: /S/ J.K. HOUSSELS, III J.K. Houssels, III, President and Chief Executive Officer and Director
March 28, 1995 By: /S/ LEANN SCHNEIDER Leann Schneider, Vice President-Finance and Chief Financial Officer (principal accounting officer)
March 28, 1995 By: /S/ WILLIAM C. RICHARDSON William C. Richardson, Director
March 28, 1995 By: /S/ JOHN D. GAUGHAN John D. Gaughan, Director
March 28, 1995 By: /S/ JEANNE S. STEWART Jeanne S. Stewart, Director
March 28, 1995 By: /S/ FRANK A. MODICA Frank A. Modica, Director
March 28, 1995 By: /S/ H. GREGORY NASKY H. Gregory Nasky, Director, Executive Vice President, and Secretary
March 28, 1995 By: /S/ GEORGE A. ZETTLER George A. Zettler, Director
March __, 1995 By: Carolyn M. Sparks, Director
EXHIBIT INDEX
Exhibit NUMBER DESCRIPTION(1)
3.01 Restated Articles of Incorporation of the Company dated July 23, 1994, is incorporated herein by reference from the Company's Amendment No. 1 to Registration Statement on Form S-3 dated July 8, 1994 (file no. 33-54325), Item 16, Exhibit 4.02.
3.02 Restated Bylaws of the Company dated February 25, 1993, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 3.02.
4.01 Specimen common stock certificate for the Common Stock of the Company is incorporated herein by reference from the Company's Amendment No. 1 to Registration Statement on Form S-3 dated July 8, 1994 (file no. 33-54325), Item 16, Exhibit 4.01.
4.02 Indenture for the 9 1/4% First Mortgage Bonds Due 2008 among the Company, OSI, ACSI, SBOC, and Trustee dated May 18, 1993; Guaranty in favor of the Trustee issued by OSI, ACSI and SBOC; and Form of Bond Certificate for the 9 1/4% First Mortgage Bonds due 2008 are incorporated herein by reference from the Company's Form 8-K dated May 18, 1993, Item 5, Exhibit 28.01. First Supplemental Indenture for the 9 1/4% First Mortgage Bonds among the Company, OSI, ACSI, SBOC and Trustee dated July 18, 1994; Showboat Development Company Security and Pledge Agreement between SDC and the Trustee dated July 18, 1994; and Showboat Louisiana, Inc. Security and Pledge Agreement between SLI and the Trustee dated July 18, 1994.
4.03 Indenture for the 13% Senior Subordinated Notes Due 2009 by and among the Company, OSI, ACSI, SBOC, and Trustee dated August 10, 1994; Guaranty in favor of the Trustee issued by OSI, ACSI and SBOC; and Form of Note Certificate for the 13% Senior Subordinated Notes due 2009 are incorporated herein by reference from the Company's Form 8-K dated August 10, 1994, Item 5, Exhibit 4.01. _______________ (1)All exhibits which are incorporated by reference are incorporated from the Company's respective periodic reports, Securities and Exchange Commision File Number 1-7123
10.01 Ground Lease between OSI and Resorts International, Inc. ("Resorts") dated October 26, 1983 is incorporated by reference herein from the Company's Form 8-K, as amended by the Form 8, filed with the Securities and Exchange Commission on November 28, 1983. Assignment and Assumption of Leases between OSI and ACSI dated December 3, 1985; First Amendment to Agreement between Resorts and ACSI dated January 15, 1985; Second Amendment to Lease Agreement between Resorts and ACSI dated July 5, 1985 are incorporated herein by reference from the Form 10-K for the Year Ended June 30, 1985, Part IV, Item 14(a)(3), Exhibit 10.02. Restated Third Amendment to Lease Agreement dated August 28, 1986 between Resorts and ACSI is incorporated herein by reference from the Form 10- K for the Year Ended June 30, 1986, Part IV, Item 14(a)(3), Exhibit 10.08; Fourth Amendment to Lease Agreement by and between Resorts and ACSI dated December 16, 1986; Fifth Amendment to Lease Agreement between Resorts and ACSI dated March 2, 1987; Sixth Amendment to Lease Agreement between Resorts and ACSI dated March 13, 1987; Indemnity Agreement among Resorts, ACSI, and OSI dated January 15, 1985; and Amended Indemnity Agreement among Resorts, ACSI, and OSI dated December 3, 1985 are incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.02; Seventh Amendment to Lease Agreement between Resorts and ACSI dated October 18, 1988 is incorporated herein by reference from the Company's Form 8-K dated November 16, 1988, Item 7(c), Exhibit 28.01; Eighth Amendment to Lease Agreement by and between ACSI and Resorts International, Inc. dated May 18, 1993 is incorporated herein by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.06.
10.02 Tax Allocation Agreement among the Company and each of its subsidiaries dated effective May 10, 1993, is incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.11. First Amendment to Tax Allocation Agreement among the Company and each of its subsidiaries
dated effective May 10, 1993 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.07.
10.03 Promissory Note in the principal amount of $56,801.75 between the Company and Frank A. Modica dated December 31, 1993 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.08.
10.04 Form of Indemnification Agreement between SBO and each director and officer of the Company is incor porated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1987, Part IV, Item 14(a)(3), Exhibit 10.13.
10.05 Statement regarding the Company's Incentive Bonus Plans is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.12.
10.06 Parent Services Agreement by and between Company and ACSI dated November 21, 1985 is incorporated herein by reference from the Company's Form 8-K dated November 25, 1985, Item 7(c), Exhibit 10.01. Amendment No. 1 to Parent Services Agreement by and between the Company and ACSI dated February 1, 1987 is incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.17. Amendment No. 2 to Parent Services Agreement by and between the Company and ACSI dated December 31, 1990 is incorporated herein by reference from the Company's Form 8-K dated December 31, 1990, Item 7(c), Exhibit 28.01 and Amendment No. 3 to Parent Services Agreement by and between the Company and ACSI dated May 8, 1991, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.14. Amendment No. 4 to Parent Services Agreement by and between the Company and ACSI dated August
17, 1993, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.11.
10.07 Closing Escrow Agreement among Housing Authority and Urban Redevelopment Agency of the City of Atlantic City, Resorts, ACSI, Trump Taj Mahal Associates Limited Partnership, and Clapp & Eisenberg, P.C. dated as of September 21, 1988; Agreement as to Assumption of Obligations with respect to Properties among ACSI, Trump Taj Mahal Realty Corp. dated as of September 21, 1988; First Amendment of Agreement as to Assumption of Obligations with respect to Properties among ACSI, Trump Taj Mahal Associates Limited Partnership, and Trump Taj Mahal Realty Corp. dated as of September 21, 1988; Settlement Agreement among ACSI, Trump Taj Mahal Associates Limited Partnership, Trump Taj Mahal Realty Corp., Resorts and the Housing Authority and Urban Renewal Redevelopment Agency of the City of Atlantic City dated October 18, 1988; Tri-Party Agreement among Resorts International, Inc., ACSI and Trump Taj Mahal Associates Limited Partnership dated October 18, 1988; Declaration of Easement and Right of Way Agreement between the Housing Authority and Redevelopment Agency of the City of Atlantic City, as grantor, and ACSI, as grantee, dated October 18, 1988; and Certificate of Trump Taj Mahal Associates Limited Partnership and Resorts, dated November 16, 1988 are incorporated herein by reference from the Company's Form 8-K dated November 16, 1988, Item 7(c), Exhibit 28.01 Revised Second Amendment to Agreement as to Assumption of Obligations with respect to Properties among ACSI, Trump Taj Mahal Associates Limited Partnership and Trump Taj Mahal Realty Corp. dated as of May 24, 1989, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1989, Part IV, Item 14(a)(3), Exhibit 10.17.
10.08 Lease between the Company and Showboat Operating Company, dated January 1, 1989 is incorporated herein by reference from the Company's Form 8-K dated January 1, 1989, Item 7(c), Exhibit 28.01.
10.09 Management Services Agreement between the Company and SBOC dated January 1, 1989, is incorporated herein by reference from the Company's Form 8-K dated January 1, 1989, Item 7(c), Exhibit 28.03.
10.10 Promissory Note in the principal amount of $20,400.69 among the Company, R. Craig Bird and Debra E. Bird dated August 5, 1993, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.15.
10.11 Securities Purchase Contract between the Casino Reinvestment Development Authority and ACSI dated March 29, 1988, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1988, Part IV, Item 14(a)(3), Exhibit 10.23.
10.12 Lease of Retail Store No. 7 among ACSI, R. Craig Bird and Debra E. Bird dated April 10, 1987; and Guaranty of Lease among ACSI, R. Craig Bird and Debra E. Bird are incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1988, Part IV, Item 14(a)(3), Exhibit 10.24.
10.13 ACSI Executive Health Examinations Plan effective date January 1, 1989 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1989, Part IV, Item 14(a)(3), Exhibit 10.24.
10.14 ACSI Executive Medical Reimbursement Plan, effective date August 15, 1991, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.23.
10.15 Showboat, Inc. 1989 Long Term Incentive Plan as Amended and Restated February 25, 1993, is incorporated herein by reference from the Company's Form 10-K for the Year Ended
December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.23.
10.16 Letter agreement dated September 23, 1992 between Trump Taj Mahal Associates and ASCI and letter agreement dated October 26, 1992 to Trump Taj Mahal Associates from Atlantic City Showboat, Inc. are incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.24.
10.17 Showboat, Inc. 1989 Directors' Stock Option Plan as Amended and Restated February 25, 1993, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.27.
10.18 Deed of Trust, Assignment of Rents, Security Agreement made by the Company to Nevada Title Company for the benefit of Trustee dated as of May 18, 1993; Showboat, Inc. Security and Pledge Agreement between the Company and the Trustee dated as of May 18, 1993; Trademark Security Agreement by the Company in favor of the Trustee dated as of May 18, 1993; Unsecured Indemnity Agreement executed by the Company in favor of the Trustee dated May 18, 1993; and Showboat Operating Company Security Agreement between SBOC and the Trustee dated as of May 18, 1993, are incorporated by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.02.
10.19 Leasehold Mortgage, Assignment of Rents, Security Agreement ("Guaranty") made by ACSI for the benefit of Trustee dated May 18, 1993; Assignment of Leases and Rents by and between ACSI and Trustee dated as of May 18, 1993; and Ocean Showboat, Inc. Security and Pledge Agreement between OSI and the Trustee dated as of May 18, 1993 are incorporated by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.03.
10.20 Intercompany Note in the principal amount of $215.0 million, dated as of May 18, 1993; Assignment of Lease and Rents by and between ACSI and the Company dated as of May 18, 1993; and Issuer Collateral Assignment executed by ACSI in favor of Trustee dated May 18, 1993 are incorporated by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.04.
10.21 First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement among ACSI and the Company dated July 9, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.01.
10.22 First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement among ACSI and IBJ Schroder Bank & Trust Company dated July 9, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.02.
10.23 Assignment of Rights under Agreement by ACSI, as assignee, to IBJ Schroder Bank & Trust Company dated July 9, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.03.
10.24 Form of Deed for Sale of Land for Private Redevelopment for Tract 1 and Tract 2 each dated July 7, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.04.
10.25 Use and Occupancy Agreement between ACHA and ACSI dated July 7, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.05.
10.26 Standard Form of Agreement between Owner and Contractor (AIA Document A111) executed by ACSI and T.N. Ward Company dated July 2, 1993 is incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.01.
10.27 Standard Form of Agreement Between Owner and Contractor (AIA Document A111) executed by ACSI and T.N. Ward Company dated September 15, 1993 is incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.02.
10.28 Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated July 2, 1993 and First Amendment to Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated July 20, 1993 are incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.01; Second Amendment to Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated August 1, 1993 and Third Amendment to Showboat Star Partnership Agreement between Star Casino, Inc and Showboat Louisiana, Inc. dated March 1, 1994 areincorporated by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.35. Fourth Amendment to Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated October 1, 1994, Fifth Amendment to Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated January 26, 1995 and Sixth Amendment to Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated March 17, 1995.
10.29 Management Agreement by and between Lake Pontchartrain Showboat, Inc. and Star Casino, Inc. dated May 24, 1993 is incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.02.
10.30 Marine Management Services Agreement between Louisiana Riverboat Services, Inc. and Showboat Star Partnership dated September 30, 1993 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.37.
10.31 Agreement between Showboat, Inc., Showboat Indiana, Inc., Showboat Operating Company, Showboat Development Company, Showboat Indiana Investment Limited Partnership and Waterfront Entertainment and Development, Inc. dated September 13, 1993; and Showboat Marina Partnership Agreement between Waterfront Entertainment and Development, Inc. and Showboat Investment Limited Partnership dated January 31, 1994 is incorporated herein by reference from the Company's Form 10-K for the Year Ended
December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.38.
10.32 Lease between the Company and Exber, Inc. effective January 14, 1994; and Sublease between Dodd Smith and John D. Gaughan and Leslie C. Schwartz, dated November 5, 1966 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.39.
10.33 Lease between Showboat Star Partnership and Orleans Levee District dated February 18, 1993 and First Amendment to Lease dated August 27, 1993 are incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.40.
10.34 Lease between Showboat Star Partnership and Orleans Levee District dated February 1, 1994 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.41.
10.35 Lease between Showboat Operating Company and Ventroy Associates executed on December 20, 1993 is incorporated by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.42.
10.36 Showboat, Inc. 1994 Executive Long Term Incentive Plan, effective May 25, 1994.
10.37 Showboat, Inc. Supplemental Executive Retirement Plan, effective April 1, 1994.
10.38 Showboat, Inc. Restoration Plan effective April 1, 1994.
10.39 Form of Severance Agreement between the Company and certain executive officer and key employees of the Company and its subsidiaries.
10.40 Operating Agreement dated January 25, 1995, between Showboat Missouri, Inc. and Randolph Riverboat Company, Inc.; Administrative Services Agreement dated January 25, 1995, between SBOC and Randolph Riverboat Company, Inc.; Administrative Services Agreement dated January 25, 1995 between SBOC and Randolph Riverboat Company, L.L.C.; Trademark License Agreement dated January 25, between the Company and Randolph Riverboat Company, L.L.C.
10.41 Purchase and Sale Agreement dated January 4, 1995, between Showboat Star Partnership and Belle of Orleans, L.L.C.; Assignment of Leases dated January 4, 1995 between Showboat Star Partnership and Belle of Orleans, L.L.C.; Sublease dated January 4, 1995, between Showboat Star Partnership and Belle of Orleans, L.L.C.
10.42 Non-Negotiable Mortgage Promissory Note dated December 28, 1994, in the principal amount of $8,850,000, by Rockingham Venture, Inc. in favor of the Company; Mortgage and Security Agreement dated December 28, 1994, between Rockingham Venture, Inc. and the Company.
10.43 Promissory Note dated January 1, 1994, in the principal amount of $18,600 by Showboat Louisiana, Inc. in favor of the Company, which Promissory Note expired on March 1, 1994; Promissory Note dated March 1, 1994, in the principal amount of $27,905,388 by Showboat Louisiana, Inc. in favor of the Company which Promissory Note expired on December 31, 1994; and Promissory Note dated January 1, 1995, in the principal amount of $23,807,832.11 by Showboat Louisiana, Inc. in favor of the Company.
10.44 Promissory Note dated March 2, 1995, in the principal amount of $25,000,000 by Lake Pontchartrain Showboat, Inc. and Showboat Louisiana, Inc. in favor of Showboat, Inc.
10.45 Promissory Note dated March 19, 1995, in the principal amount of $15,000,000 by Atlantic City Showboat, Inc. and the Company.
10.46 Lease dated December 22, 1994, between Housing Authority and Urban Redevelopment Agency of the City of Atlantic City and Atlantic City Showboat, Inc.; Tri-Party Agreement dated May 26, 1994, among Housing Authority and Urban Redevelopment Agency of the City of Atlantic City, Forest City Ratner Companies and Atlantic City Showboat, Inc.; Terms and Conditions Part II of Contract for Sale of Land for Private Redevelopment between Housing Authority and Urban Redevelopment Agency of the City of Atlantic City and Atlantic City Showboat, Inc.; and Rider to Contract for Sale of Land for Private Redevelopment between Housing Authority and Urban Redevelopment Agency of the City of Atlantic City and Atlantic City Showboat, Inc.
21.01 List of Subsidiaries.
23.01 Consent of KPMG Peat Marwick.
27.01 Financial Data Schedule for the Company's Form 10-K for the Year Ended December 31, 1994.
99.01 Warrant Agreement dated as of May 6, 1994, by and between the Company and DLJ Bridge Finance, Inc., is incorporated by reference from the Company's Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(A)(3), Exhibit 99.01.
(b) REPORTS ON FORM 8-K.
None.