UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
OR
/_/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: to
------------------ -------------------
Commission file number: 001-12419
SHOWBOAT MARINA CASINO PARTNERSHIP
SHOWBOAT MARINA FINANCE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
INDIANA 35-1978576
NEVADA 88-0356197
- ----------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE SHOWBOAT PLACE, EAST CHICAGO, INDIANA 46312
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(219) 378-3000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /X/ NO / /
Indicate the number of shares outstanding of the issuer's classes of
common stock, as of the latest practicable date.
Showboat Marina Casino Partnership Not applicable
Showboat Marina Finance Corporation 1,000 shares of common stock, $1.00
par value as of May 10, 1998
SHOWBOAT MARINA CASINO PARTNERSHIP (SMCP)
INDEX
Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 3-4
Condensed Consolidated Statements of Operations -
For the second quarter and six months ended June
30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 1998
and 1997 6
Notes to the Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis 8-11
of Financial Condition and Results of Operations
Part II OTHER INFORMATION
ITEM 6 12
SIGNATURES 13
2
PART I. Financial Information
Item 1. Financial Statements
SHOWBOAT MARINA CASINO PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(In thousands)
June 30, December 31,
Assets 1998 1997
- ----------------------------------------------------------- --------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $ 9,921 $ 7,246
Accounts receivable, net 1,238 931
Inventories 309 337
Prepaid expenses 1,300 805
--------- ---------
Total current assets 12,768 9,319
--------- ---------
Property and equipment:
Buildings 56,366 56,304
Vessel 82,553 82,528
Furniture, fixtures and equipment 27,767 26,533
Land improvements 2,123 2,123
--------- ---------
168,809 167,488
Less accumulated depreciation and amortization (13,848) (7,833)
--------- ---------
Net property and equipment 154,961 159,655
--------- ---------
Other assets:
Licensing costs, net of accumulated amortization of
$583 and $340 at June 30, 1998 and December 31,
1997, respectively 1,818 2,061
Economic development costs, net of accumulated
amortization of $737 and $432 at June 30, 1998 and
December 31, 1997, respectively 8,357 8,662
Debt issuance costs, net of accumulated amortization of
$1,331 and $778 at June 30, 1998 and December 31,
1997, respectively 5,111 5,664
Other assets, net of accumulated amortization of $323
and $197 at June 30, 1998 and December 31, 1997,
respectively 2,359 2,580
--------- ---------
17,645 18,967
--------- ---------
$ 185,374 $ 187,941
========= =========
See accompanying notes to condensed consolidated financial statements.
(continued)
3
SHOWBOAT MARINA CASINO PARTNERSHIP (SMCP) AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(In thousands)
(continued)
June 30, December 31,
LIABILITIES AND PARTNERS' CAPITAL 1998 1997
- ---------------------------------------------------- -------- -----------
(unaudited)
Current liabilities:
Current maturities of long-term debt $ 5,834 $ 5,555
Accounts payable 2,018 2,766
Payable to affiliates 2,476 2,712
Accrued expenses 8,577 5,331
Accrued interest 5,512 5,512
-------- --------
Total current liabilities 24,417 21,876
Long-term debt, excluding current maturities 149,240 151,968
-------- --------
Total liabilities 173,657 173,844
Partners' capital 11,717 14,097
-------- --------
$185,374 $187,941
======== ========
See accompanying notes to condensed consolidated financial statements.
4
SHOWBOAT MARINA CASINO PARTNERSHIP (SMCP)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands) Second Quarter Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
Revenues
Casino $ 42,545 $ 32,902 $ 86,735 $ 32,902
Food and beverage 2,689 2,133 5,606 2,133
Other 468 486 659 486
Less: casino promotional
allowances (616) (681) (1,380) (681)
-------- -------- -------- --------
Net revenues 45,086 34,840 91,620 34,840
-------- -------- -------- --------
Operating expenses
Direct
Casino 20,846 16,702 42,313 16,702
Food and beverage 2,508 2,156 5,196 2,156
Depreciation of buildings,
riverboats and equipment 2,961 2,429 6,299 2,429
Project opening costs -- 9,577 -- 9,577
Other 14,686 10,662 30,417 10,662
-------- -------- -------- --------
Total operating expenses 41,001 41,526 84,225 41,526
-------- -------- -------- --------
Income (loss) from operations 4,085 (6,686) 7,395 (6,686)
Interest expense, net of interest
capitalized (5,403) (4,528) (10,878) (5,573)
Other income, including interest
income 68 62 104 775
-------- -------- -------- --------
Net loss $ (1,250) $(11,152) $ (3,379) $(11,484)
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
5
SHOWBOAT MARINA CASINO PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
June 30, June 30,
1998 1997
-------- --------
(In thousands)
Net cash provided by (used in) operating activities $ 5,445 $ (610)
-------- --------
Cash flows from investing activities:
Economic development costs -- (3,833)
Purchase of property and equipment (1,321) --
Payments for construction in progress -- (55,873)
(Purchase) maturity of short-term investments -- 68,899
-------- --------
Net cash provided by (used in) investing activities (1,321) 9,193
-------- --------
Cash flows from financing activities:
Proceeds from long term financing -- 9,636
Repayments of long-term debt (2,449) (727)
Debt issuance costs -- (106)
Capital contributions 1,000 1,000
-------- --------
Net cash provided by (used in) financing activities (1,449) 9,803
-------- --------
Net increase in cash and equivalents 2,675 18,386
Cash and cash equivalents at beginning of period 7,246 599
-------- --------
Cash and cash equivalents at end of period $ 9,921 $ 18,985
======== ========
Supplemental disclosures of cash flow information and
non-cash investing and financing activities:
Cash paid during the period for:
Interest, net of amounts capitalized $ 10,325 $ 5,432
See accompanying notes to condensed consolidated financial statements.
6
SHOWBOAT MARINA CASINO PARTNERSHIP (SMCP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The accompanying condensed consolidated financial statements
present the financial position, results of operations and cash flows of
Showboat Marina Casino Partnership (SMCP) and its wholly owned
subsidiary, Showboat Marina Finance Corporation (SMFC) as of June 30,
1998 and December 31, 1997 and for the second quarter and six month
periods ended June 30, 1998 and 1997.
SMCP is a general partnership and was formed as of March 1,
1996. SMCP received a riverboat license from the Indiana Gaming Commission
and commenced operations on April 18, 1997. SMFC was incorporated on March
7, 1996, to assist SMCP in financing the East Chicago Showboat.
SMCP is effectively owned 55% by Showboat, Inc. (Showboat,) an
indirect, wholly-owned subsidiary of Harrah's Entertainment, Inc., and 45%
by Waterfront Entertainment and Development, Inc. (Waterfront) through
various partnership interests.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been consolidated or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in SMCP's December 31,
1997 annual report on Form 10-K.
The accompanying unaudited condensed consolidated financial
statements contain all adjustments, which in the opinion of management are
necessary for a fair statement of the results of the interim period. The
results of operations for the interim periods are not indicative of
results of operations for an entire year. Certain prior period balances
have been reclassified to conform to the current period's presentation.
2. LONG-TERM DEBT
In October 1997, SMCP entered into an unsecured line of credit
agreement with Fleet Bank N.A. in the amount of $3.0 million. The line of
credit is secured by Showboat with funds on deposit with Fleet Bank N.A.
The term of the line is for a period of one year, renewable annually at an
interest rate of LIBOR plus 75 basis points. The line is available for
general partnership purposes. No amounts were outstanding under this
facility on June 30, 1998.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
Showboat Marina Casino Partnership (SMCP) owns and operates a
riverboat casino, the Showboat Mardi Gras Casino, located in East Chicago,
Indiana (the East Chicago Showboat). The East Chicago Showboat began operations
on April 18, 1997.
SMCP is a general partnership, which was formed as of March 1, 1996.
Showboat Marina Finance Corporation (SMFC) is a wholly owned subsidiary of SMCP
and was formed on March 7, 1996 to assist SMCP in financing the East Chicago
Showboat. SMCP is owned 99% by Showboat Marina Partnership and 1% by Showboat
Marina Investment Partnership. SMCP is effectively owned 55% by Showboat, Inc.
(Showboat), an indirect, wholly-owned subsidiary of Harrah's Entertainment,
Inc., and 45% by Waterfront Entertainment and Development, Inc. (Waterfront)
through the partnership interests.
Information contained in this quarterly report is supplemental to
disclosures in SMCP's year end financial reports. This management's discussion
and analysis of financial condition and results of operations should be read in
conjunction with the management's discussion and analysis of financial condition
and results of operations included in SMCP's December 31, 1997 Annual Report
on Form 10-K.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Prior to the commencement of operations on April 18, 1997, the
activities of SMCP were limited to applying for the gaming license, securing the
land for, arranging for the financing of and completing the design and
construction of the East Chicago Showboat. All costs, except for some interest
expense, were capitalized. As a result, SMCP had no operating history prior to
its April 18, 1997, commencement of operations, which impacts the comparability
of SMCP's operating results between the current and prior year period.
Revenues
For the second quarter ended June 30, 1998, SMCP had gross revenues
of $45.7 million, compared to revenues of $35.5 million in the prior year second
quarter. This was offset by complimentaries of $0.6 million in second quarter
1998 and $0.7 million in second quarter 1997, resulting in net revenues of $45.1
million and $34.8 million for the current and prior year second quarters,
respectively. The revenue increase reflects both operating growth and the
inclusion of a full quarter's operations in the results for the current year,
versus only approximately two and one-half month's operations in the prior year.
For the six months, net revenues were $91.6 million in the current year versus
$34.8 million in the prior year. The year-over-year revenue increase for the six
month period reflects the April 18, 1997, commencement of operations.
Casino revenues for the second quarter ended June 30, 1998 were
$42.5 million, and consisted of $9.0 million in table games revenue and $33.5
million in slot revenue. For the prior year second quarter, casino revenues
totaled $32.9 million and were comprised of $8.7 million in table games revenue
and $24.2 million in slot revenue. For the six months ended June 30, 1998, total
casino revenues were $86.7 million.
8
Income From Operations
SMCP's income from operations for the second quarter ended June 30,
1998 was $4.1 million, as compared to an operating loss of $6.7 million for the
prior year second quarter. The prior year second quarter included a
non-recurring $9.6 million charge for preopening costs. Operating expenses for
second quarter 1998 included $12.0 million of gross revenue and admission taxes,
as well as $1.6 million of community benefit levies. For the six months ended
June 30, 1998, SMCP's operating income was $7.4 million.
SMCP is currently reviewing its operations in an effort to improve
margin performance. SMCP implemented a series of cost controls and continues to
evaluate opportunities to reduce costs. SMCP continues to develop cost-effective
marketing programs to increase awareness in the Chicago gaming market in an
effort to enhance revenue. The Chicago gaming market has had significant
capacity growth over the last two years, resulting in a slower than anticipated
absorption of additional gaming capacity.
Net Loss
For the second quarter ended June 30, 1998, SMCP experienced a net
loss of $1.3 million. This loss was primarily attributable to the level of
income from operations offset by interest expense of $5.4 million. For the prior
year second quarter, SMCP reported a loss of $11.5 million, which included $9.6
million of preopening costs. For the six months ended June 30, 1998, SMCP
reported a loss of $3.3 million.
MATERIAL CHANGES IN FINANCIAL CONDITION
As of June 30, 1998 SMCP held cash and cash equivalents of $9.9
million compared to $7.2 million in cash and cash equivalents at December 31,
1997. Since its inception, SMCP has met its capital requirements through the
$40.0 million capital contribution (the "Capital Contribution"), the $133.7
million net proceeds from the offering (the "Offering") of its 13 1/2% First
Mortgage Notes due 2003 (the "East Chicago Notes") and equipment financing of
approximately $20.6 million. The funds provided by these sources provided
sufficient amounts to develop and commence operations of the East Chicago
Showboat.
In October 1997, SMCP entered into an unsecured line of credit
agreement with Fleet Bank N.A. in the amount of $3.0 million. The term of the
line is for a period of one year, renewable annually at the rate of LIBOR plus
75 basis points. The line is available for general partnership purposes. The
line is secured with funds deposited by Showboat with Fleet Bank N.A. As of June
30, 1998, no amounts were outstanding under this facility.
SMCP is committed to letter agreements dated April 8, 1994 and April
18, 1995, with the City of East Chicago (which agreements were also included in
the Owner's license issued to SMCP). Pursuant to the letter agreements and its
Owner's license, SMCP is required to reimburse the City of East Chicago for
expenses incurred in connection with the development of East Chicago Showboat
including, but not limited to, professional planning and design fees,
engineering, construction of infrastructure (including the construction of a
proposed on/off ramp from Highway 912), utilities or other improvements at the
Pastrick Marina or elsewhere related to the East Chicago Showboat, legal fees
and costs, and financial and other professional fees deemed necessary by the
City. Additionally, SMCP has further committed to general and equipment
funding for support and enhancement of neighborhood improvement programs, law
9
enforcement operations, public safety programs, the East Chicago School system
and infrastructure of East Chicago. As of June 30, 1998, SMCP has fulfilled all
but approximately $0.9 million of these obligations.
Additionally, pursuant to its letter agreements with the City, SMCP
is committed to contribute annually an aggregate 3.75% of its adjusted gross
receipts to fund economic and community development projects for the City of
East Chicago. Through June 30, 1998, a total of $7.9 million had been
contributed.
SMCP has also agreed to the creation of a $5.0 million pool for a
mortgage guarantee program to assist a minimum of 250 residents of East Chicago
by guaranteeing up to 25% of the purchase price of a home; and the creation of a
$500,000 pool to provide for its employees (who have been employed for at least
six months) who are first time home buyers, down payment assistance of 5% of the
purchase price of a home up to a maximum of $5,000. As of the date hereof, no
funds have been expended in connection with the mortgage guarantee program or
home down payment assistance program.
SMCP has purchased a surety bond naming the City of East Chicago and
the Indiana Gaming Commission as beneficiaries for the amount of the commitments
outstanding at the time of opening plus approximately $2.0 million related to
the rental payment to the City pursuant to the Redevelopment Lease between the
City and SMCP over the 5 year license plus approximately $2.0 million required
by the Indiana Gaming Commission.
During 1997, SMCP evaluated its various systems to determine whether
or not those systems were year 2000 compliant. Based upon this review, SMCP has
identified those systems which are not compliant and has implemented a plan to
update those systems. SMCP expects the cost to update the affected systems will
not exceed $2.0 million. SMCP is currently evaluating the effect of a failure to
bring its systems into compliance will have on SMCP.
Showboat and SMCP entered into a standby equity commitment which
requires that if, during any of the first three Operating Years (as defined),
SMCP's Combined Cash Flow (as defined) is less than $35.0 million, Showboat will
be required to make additional capital contributions to SMCP each year in the
lesser of (a) $15.0 million, or (b) the difference between the $35.0 million and
the Operating Year's Combined Cash Flow. Showboat's aggregate potential
obligation under the standby equity commitment is $30.0 million. SMCP
anticipates that the Combined Cash Flow of SMCP for the first full four quarters
of operation will not achieve the $35.0 million threshold and Showboat will be
required to contribute up to approximately $14.0 million pursuant to its standby
equity commitment. As of June 30, 1998, Showboat has contributed $1.0 million to
SMCP as part of this standby equity commitment. There can be no assurance that
the Combined Cash Flow for any future Operating Year will exceed $35.0 million
and that Showboat will not be required to make additional capital contributions
to SMCP in accordance with the standby equity commitment. The Standby Equity
Commitment is subject to certain limitations, qualifications, and exceptions.
SMCP expects to fund its operating, debt service and capital needs
from operating cash flow and the standby equity commitment. Based upon SMCP's
anticipated operations and other available sources of cash, management believes
that the foregoing sources of cash will be adequate to meet SMCP's anticipated
future requirements for working capital, capital expenditures and scheduled
payments of principal and interest on the Notes for the foreseeable future. No
assurance can be given, however, that these sources of cash will be sufficient
for that purpose. SMCP intends to establish initial working capital reserves to
provide for anticipated short-term liquidity needs. Although no additional
financing beyond the line of credit described above is contemplated, SMCP will
seek, if necessary and to the extent permitted
10
under the Indenture for the East Chicago Notes, additional financing through
bank borrowings, debt or equity financing. There can be no assurance that
additional financing, if needed, will be available to SMCP, or that, if
available, the financing will be on terms favorable to SMCP. There is no
assurance that SMCP's estimate of its reasonably anticipated liquidity needs is
accurate or that new business developments or other unforeseen events will not
occur, resulting in the need to raise additional funds.
All statements contained herein that are not historical facts,
including but not limited to, statements regarding SMCP's current business
strategy, and SMCP's plans for future development and operations, are based upon
current expectations. These statements are forward-looking in nature and involve
a number of risks and uncertainties. Actual results may differ materially. Among
the factors that could cause actual results to differ materially are the
following: the availability of sufficient capital to finance SMCP's business
plan on terms satisfactory to SMCP; competitive factors, such as expansion of
gaming in Illinois, Indiana and Michigan, states from which SMCP expects to draw
significant numbers of patrons and an increase in the number of casinos serving
the Chicago metropolitan area; changes in labor, equipment and capital costs;
contemplated joint ventures on terms satisfactory to SMC and to obtain necessary
regulatory approvals; general business and economic conditions; changes in laws
and regulations and decisions by courts and regulatory agencies; and other
factors described from time to time in SMCP's reports filed with the Securities
and Exchange Commission. SMCP wishes to caution the readers not to place undue
reliance on any such forward-looking statements, which statements are made
pursuant to the Private Litigation Reform Act of 1995 and, as such, speak only
as of the date made.
11
SHOWBOAT MARINA CASINO PARTNERSHIP AND SUBSIDIARY
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
---------- --------------------------------------------------------
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1998
SHOWBOAT MARINA CASINO
PARTNERSHIP, an Indiana
general partnership
By: SHOWBOAT MARINA INVESTMENT By: SHOWBOAT MARINA PARTNERSHIP
PARTNERSHIP, an Indiana an Indiana general
general partnership, a partnership, a general
general partner partner
By: SHOWBOAT INDIANA INVESTMENT By: SHOWBOAT INDIANA INVESTMENT
LIMITED PARTNERSHIP, a Nevada LIMITED PARTNERSHIP, a Nevada
limited partnership, a limited partnership, a
general partner general partner
By: SHOWBOAT INDIANA, INC., a By: SHOWBOAT INDIANA, INC., a
Nevada corporation, its Nevada corporation, its
general partner general partner
By: /s/ JUDY T. WORMSER By: /s/ JUDY T. WORMSER
------------------------------ -------------------------------
Judy T. Wormser Judy T. Wormser
Vice President and Vice President and
Treasurer Treasurer
By: WATERFRONT ENTERTAINMENT AND By: WATERFRONT ENTERTAINMENT AND
DEVELOPMENT, INC., an Indiana DEVELOPMENT, INC., an Indiana
corporation, a general corporation, a general
partner partner
By: /s/ MICHAEL A. PANNOS By: /s/ MICHAEL A. PANNOS
------------------------------ -------------------------------
Michael A. Pannos Michael A. Pannos
President President
By: /s/ THOMAS S. CAPPAS By: /s/ THOMAS S. CAPPAS
------------------------------ -------------------------------
Thomas S. Cappas Thomas S. Cappas
Treasurer (principal Treasurer (principal
financial officer) financial officer)
SHOWBOAT MARINA FINANCE
CORPORATION, a Nevada
corporation
By: /s/ MICHAEL A. PANNOS
------------------------------
Michael A. Pannos
Secretary
By: /s/ CHARLES L. ATWOOD
----------------------------------
Charles L. Atwood
Vice President and
Treasurer
- --------------------------------------------------------------------------------
13
Exhibit Index
-------------
Sequential
Exhibit No. Description Page No.
- ----------- ------------------------------- ----------
EX-27 Financial Data Schedule 15
14