UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( XX ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: to
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Commission file number: 001-12419
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SHOWBOAT MARINA CASINO PARTNERSHIP
SHOWBOAT MARINA FINANCE CORPORATION
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(Exact name of registrant as specified in its charter)
INDIANA 35-1978576
NEVADA 88-0356197
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE SHOWBOAT PLACE, EAST CHICAGO, INDIANA 46312
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(Address of principal executive offices) (Zip Code)
(219) 378-3000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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
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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 November 13, 1998
SHOWBOAT MARINA CASINO PARTNERSHIP AND SUBSIDIARY
INDEX
Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997.................................... 3-4
Condensed Consolidated Statements of Operations -
For the third quarter and nine months ended September 30,
1998 and 1997............................................................... 5
Condensed Consolidated Statements of Cash Flows -
For the nine months ended September 30, 1998 and 1997....................... 6
Notes to the Condensed Consolidated Financial Statements...................... 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations............................ 8-11
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
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(In thousands)
September 30, December 31,
Assets 1998 1997
------------------------------------------------------------------ ------------------- -------------------
(unaudited)
Current assets:
Cash and cash equivalents..................................... $ 20,033 $ 7,246
Accounts receivable, net...................................... 1,453 931
Inventories................................................... 276 337
Prepaid expenses.............................................. 1,149 805
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Total current assets.................................... 22,911 9,319
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Property and equipment:
Buildings..................................................... 56,372 56,304
Vessel........................................................ 82,612 82,528
Furniture, fixtures and equipment............................. 29,269 26,533
Land improvements............................................. 2,139 2,123
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170,392 167,488
Less accumulated depreciation and amortization................... (16,895) (7,833)
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Net property and equipment.................................... 153,497 159,655
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Other assets:
Licensing costs, net of accumulated amortization of
$720 and $340 at September 30, 1998 and December 31,
1997, respectively......................................... 1,681 2,061
Economic development costs, net of accumulated
amortization of $909 and $432 at September 30, 1998 and
December 31, 1997, respectively............................ 9,053 8,662
Debt issuance costs, net of accumulated amortization of
$1,647 and $778 at September 30, 1998 and
December 31, 1997, respectively............................ 4,795 5,664
Other assets, net of accumulated amortization of $915 and
$197 at September 30, 1998 and December 31, 1997,
respectively............................................... 1,859 2,580
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17,388 18,967
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$ 193,796 $ 187,941
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See accompanying notes to condensed consolidated financial statements.
(continued)
3
SHOWBOAT MARINA CASINO PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(In thousands)
(continued)
September 30, December 31,
LIABILITIES AND PARTNERS' CAPITAL 1998 1997
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(unaudited)
Current liabilities:
Current maturities of long-term debt.................. $ 5,992 $ 5,555
Accounts payable...................................... 2,525 2,766
Payable to affiliates................................. 3,253 2,712
Accrued expenses...................................... 8,844 5,331
Accrued interest...................................... 788 5,512
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Total current liabilities....................... 21,402 21,876
Long-term debt, excluding current maturities............. 147,679 151,968
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Total liabilities............................... 169,081 173,844
Partners' capital........................................ 24,715 14,097
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$ 193,796 $ 187,941
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See accompanying notes to condensed consolidated financial statements.
4
SHOWBOAT MARINA CASINO PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Third Quarter Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
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Revenues
Casino..................................... $ 45,307 $ 40,798 $ 132,042 $ 73,700
Food and beverage.......................... 2,765 2,801 8,371 4,934
Other...................................... 828 230 1,487 716
Less: casino promotional
allowances............................... (1,409) (1,191) (2,789) (1,872)
------------ ------------ ------------- ------------
Net revenues........................... 47,491 42,638 139,111 77,478
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Operating expenses
Direct
Casino................................... 19,443 19,847 61,756 36,550
Food and beverage........................ 1,946 2,575 7,142 4,731
Depreciation of buildings,
riverboats and equipment................. 4,343 3,276 10,642 5,705
Project opening costs...................... - - - 9,577
Other...................................... 16,722 13,962 47,139 24,623
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Total operating expenses............. 42,454 39,660 126,679 81,186
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Income (loss) from operations................ 5,037 2,978 12,432 (3,708)
Interest expense, net of interest
capitalized................................ (5,432) (5,574) (16,310) (11,147)
Other income, including interest
income..................................... 55 80 159 855
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Net loss $ (340) $ (2,516) $ (3,719) $ (14,000)
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See accompanying notes to condensed consolidated financial statements.
5
SHOWBOAT MARINA CASINO PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
September 30, September 30,
1998 1997
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Net cash provided by (used in) operating activities.................... $ 6,075 $ (6,950)
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Cash flows from investing activities:
Economic development costs........................................... (868) (3,858)
Purchase of property and equipment................................... (2,905) -
Payments for construction in progress................................ - (59,408)
Maturity of short-term investments................................... - 68,688
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Net cash provided by (used in) investing activities............... (3,773) 5,422
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Cash flows from financing activities:
Proceeds from long-term financing.................................... - 9,636
Repayments of long-term debt......................................... (3,851) (1,799)
Debt issuance costs.................................................. - (145)
Capital contributions................................................ 14,336 1,000
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Net cash provided by financing activities......................... 10,485 8,692
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Net increase in cash and equivalents................................... 12,787 7,164
Cash and cash equivalents at beginning of period....................... 7,246 599
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Cash and cash equivalents at end of period............................. $ 20,033 $ 7,763
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Supplemental disclosures of cash flow information and non-cash investing and
financing activities:
Cash paid during the period for:
Interest, net of amounts capitalized $ 20,166 $ 15,328
Equipment acquired under capital lease $ - $ 10,984
See accompanying notes to condensed consolidated financial statements.
6
SHOWBOAT MARINA CASINO PARTNERSHIP AND SUBSIDIARY
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
September 30, 1998 and December 31, 1997 and for the third quarter and
nine month periods ended September 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 September 30, 1998.
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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 third quarter ended September 30, 1998, SMCP had gross
revenues of $48.9 million, compared to revenues of $43.8 million in the prior
year third quarter. This was offset by complimentaries of $1.4 million in third
quarter 1998 and $1.2 million in third quarter 1997, resulting in net revenues
of $47.5 million and $42.6 million for the current and prior year third
quarters, respectively. For the nine months, net revenues were $139.1 million in
the current year versus $77.5 million in the prior year. The year-over-year
revenue increase for the nine month period reflects the April 18, 1997,
commencement of operations.
Casino revenues for the third quarter ended September 30, 1998
were $45.3 million, and consisted of $9.8 million in table games revenue and
$35.5 million in slot revenue. For the prior year third quarter, casino revenues
totaled $40.8 million and were comprised of $12.2 million in table games revenue
and $28.6 million in slot revenue. For the nine months ended September 30, 1998,
total casino revenues were $132.0 million versus $77.5 million for the prior
partial nine month period ended September 30, 1997.
8
Income From Operations
SMCP's income from operations for the third quarter ended
September 30, 1998 was $5.0 million, as compared to an operating income of $3.0
million for the prior year third quarter. Operating expenses for third quarter
1998 included $12.6 million of gross revenue and admission taxes, as well as
$1.7 million of community benefit levies. For the nine months ended September
30, 1998, SMCP's operating income was $12.4 million versus a $3.7 million loss
for the prior partial nine month period ended September 30, 1997.
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 third quarter ended September 30, 1998, SMCP
experienced a net loss of $0.3 million. This loss was primarily attributable to
$5.0 million of income from operations offset by interest expense of $5.4
million. For the prior year third quarter, SMCP reported a loss of $2.5 million.
For the nine months ended September 30, 1998, SMCP reported a loss of $3.7
million.
MATERIAL CHANGES IN FINANCIAL CONDITION
As of September 30, 1998, SMCP held cash and cash equivalents
of $20.0 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
September 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
9
programs, law enforcement operations, public safety programs, the East Chicago
School system and infrastructure of East Chicago. As of September 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 within the
City of East Chicago. Through September 30, 1998, a total of $9.6 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. The amount outstanding under
the surety bond at September 30, 1998, is $15.4 million.
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 Year 2000
readiness of its significant suppliers. However, should SMCP and/or its
significant suppliers fail to correct material Year 2000 issues, such failure
could have a significant impact on SMCP's ability to operate as it did before
Year 2000. In such an event, contingency plans will be developed to minimize any
impact to the extent possible. The impact on SMCP's operating results of such
failures and of any contingency plans to be designed to address such events
cannot be determined at this time.
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. The
Combined Cash Flow of SMCP for the first full four quarters of operation did not
achieve the $35.0 million threshold and Showboat was required to contribute
$14.3 million pursuant to its standby equity commitment. As of September 30,
1998, Showboat's remaining potential obligation under the standby equity
commitment was $15.7 million. 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.
10
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 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;
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
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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: November 13, 1998
SHOWBOAT MARINA CASINO
PARTNERSHIP, an Indiana general partnership
By: SHOWBOAT MARINA INVESTMENT PARTNERSHIP, an By: SHOWBOAT MARINA PARTNERSHIP an Indiana general
Indiana general partnership, a general partner partnership, a general partner
By: SHOWBOAT INDIANA INVESTMENT LIMITED By: SHOWBOAT INDIANA INVESTMENT LIMITED
PARTNERSHIP, a Nevada limited partnership, a PARTNERSHIP, a Nevada limited partnership, a
general partner general partner
By: SHOWBOAT INDIANA, INC., a Nevada corporation, By: SHOWBOAT INDIANA, INC., a Nevada corporation,
its general partner its general partner
By: /s/ JUDY T. WORMSER By: /s/ JUDY T. WORMSER
Judy T. Wormser Judy T. Wormser
Vice President and Treasurer Vice President and Treasurer
By: WATERFRONT ENTERTAINMENT AND DEVELOPMENT, By: WATERFRONT ENTERTAINMENT AND DEVELOPMENT,
INC., an Indiana corporation, a general INC., an Indiana 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 financial officer) Treasurer (principal 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
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Sequential
Exhibit No. Description Page No.
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EX-27 Financial Data Schedule 15
14