Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial data presented below is derived from our historical consolidated financial statements and the historical financial statements of Mark Twain Casino, L.L.C., St. Joseph Riverboat Partners and Southern Iowa Gaming Company and its subsidiary (the current owners of Mark Twain, St. Jo and Lakeside Iowa, respectively), which have been previously filed with the SEC. The unaudited pro forma condensed combined balance sheet information is presented on an as adjusted basis as if the recently priced offering of our senior subordinated notes, borrowings under the amended credit facility in respect of the Grace Acquisition and the Grace Acquisition had occurred on June 30, 2004. The unaudited pro forma condensed combined statements of operations information is presented on an as adjusted basis as if the recently priced offering of our senior subordinated notes, borrowings under the amended credit facility in respect of the Grace Acquisition and Grace Acquisition had occurred on January 1, 2003. We believe this information is important in evaluating the future operations and impact of the Grace Acquisition, and related financings.
The unaudited pro forma condensed combined financial statements contained in this offering memorandum use the purchase method of accounting, with Herbst Gaming, Inc. treated as the acquirer. The purchase price for the Grace Acquisition is approximately $287.5 million. The pro forma adjustments are based on currently available information and upon assumptions that we believe are reasonable under the circumstances. A final determination of the allocation of the purchase price to the assets acquired and the liabilities assumed has not been made, and the allocation reflected in the unaudited pro forma condensed combined financial statements should be considered preliminary and is subject to the completion of a more comprehensive valuation of the assets acquired and liabilities assumed. The final allocation of purchase price could differ from the pro forma allocation included herein. Amounts preliminarily allocated to intangible assets may change significantly, and amortization methods and useful lives may differ from the assumptions that we used in this unaudited pro forma condensed combined financial information, any of which could result in a material change in depreciation and amortization expense.
You should read the following pro forma statements in conjunction with the financial statements and related notes that we have previously filed with the SEC.
We have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code of 1986. Under those provisions, the owners of our company pay income taxes on our taxable income. Accordingly, a provision for income taxes is not included in our financial data.
The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only. They do not purport to represent what our results of operations and financial position would have been had the Grace Acquisition and related transactions actually occurred as of the dates indicated, and they do not purport to project or predict our future results of operations or financial position.
1
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
| | Herbst Gaming, Inc. Historical | | Mark Twain
Casino, L.L.C. Historical | | St. Joseph Riverboat Partners
Historical | | Southern Iowa Gaming Company Historical | | Grace Acquisition Adjustments | | Refinancing Adjustments | | Pro Forma
As Adjusted | |
| | (in thousands) | |
Revenues | | | | | | | | | | | | | | | |
Route operations | | $ | 241,833 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 241,833 | |
Casino operations | | 78,342 | | 26,881 | | 26,075 | | 65,307 | | — | | — | | 196,605 | |
Other | | 3,049 | | 50 | | 136 | | 353 | | — | | — | | 3,588 | |
Total revenues | | 323,224 | | 26,931 | | 26,211 | | 65,660 | | — | | — | | 442,026 | |
Less promotional allowances | | (11,249 | ) | (600 | ) | (479 | ) | (1,447 | ) | — | | — | | (13,775 | ) |
Net revenues | | 311,975 | | 26,331 | | 25,732 | | 64,213 | | — | | — | | 428,251 | |
Costs and expenses | | | | | | | | | | | | | | | |
Route operations | | 192,757 | | — | | — | | — | | — | | — | | 192,757 | |
Casino operations | | 51,142 | | 16,356 | (7) | 16,571 | (7) | 34,676 | (7) | — | | — | | 118,745 | |
General and administrative | | 12,514 | | 2,304 | | 1,874 | | 3,917 | | (2,298 | )(1) | — | | 18,311 | |
Depreciation and amortization | | 24,382 | | 1,499 | | 1,508 | | 2,660 | | 530 | (2) | (629 | )(5) | 29,950 | |
Total costs and expenses | | 280,795 | | 20,159 | | 19,953 | | 41,253 | | (1,768 | ) | (629 | ) | 359,763 | |
Income from operations | | 31,180 | | 6,172 | | 5,779 | | 22,960 | | 1,768 | | 629 | | 68,488 | |
Other income (expenses) | | | | | | | | | | | | | | | |
Interest expense, net of capitalized interest | | (22,932 | ) | (675 | ) | (236 | ) | (1,188 | ) | (15,029 | )(3) | 5,640 | (6) | (34,420 | ) |
Interest income | | 228 | | 8 | | 16 | | 71 | | (95 | )(4) | — | | 228 | |
Loss on early retirement of debt | | (267 | ) | — | | — | | — | | — | | — | | (267 | ) |
Total other income (expense) | | (22,971 | ) | (667 | ) | (220 | ) | (1,117 | ) | (15,124 | ) | 5,640 | | (34,459 | ) |
Net income (loss) | | $ | 8,209 | | $ | 5,505 | | $ | 5,559 | | $ | 21,843 | | $ | (13,356 | ) | $ | 6,269 | | $ | 34,029 | |
| | | | | | | | | | | | | | | | | | | | | | | |
(1) Represents the elimination of $1,638,000 in management fees expensed at Southern Iowa Gaming Company and $660,000 in management fees expensed at Mark Twain Casino, L.L.C. Since the acquisition is an asset purchase, Herbst Gaming, Inc. will not be assuming any of the overhead costs of the parent and does not believe there will be material additional corporate overhead costs incurred in connection with the acquired assets.
(2) Represents the elimination of $96,000 in amortization that was included in the expenses of Southern Iowa Gaming Company, $79,000 included in amortization of Mark Twain Casino, L.L.C. and $75,000 included in amortization of St. Joseph Riverboat Partners. None of these loan amortization costs will be assumed by Herbst Gaming, Inc. Reflects estimated amortization of $780,000 on loan fees related to the acquisition.
(3) Represents the elimination of $1,188,000 in interest expense that was included in the expenses of Southern Iowa Gaming Company, $675,000 included in the interest expenses of Mark Twain Casino, L.L.C. and $236,000 included in the interest expenses of St. Joseph Riverboat Partners. Since the acquisition is an asset purchase, Herbst Gaming, Inc. will not be assuming any of the interest bearing debts of these entities. Reflects estimated interest expense of $17,128,000 on the additional debt related to the financing of the acquisition, assuming an average interest rate of 5.76%.
(4) Represents the elimination of interest income on idle cash of $71,000 from Southern Iowa Gaming Company, $8,000 from Mark Twain Casino, L.L.C. and $16,000 from St. Joseph Riverboat Partners, which is excluded from acquired assets.
(5) Represents the net change in loan fee amortization of Herbst Gaming, Inc. as a result of the refinancing of substantially all its debt in June 2004. The amount of amortization eliminated was $1,593,000 and the amount of amortization added was $964,000.
(6) Represents the net change in interest expense of Herbst Gaming, Inc. as a result of the refinancing of substantially all its debt in June 2004. Interest was reduced from $22,932,000 to $17,292,000 on a pro forma basis.
(7) Casino operating costs and expenses combine both departmental and cost of goods sold expenses for all three acquired entities.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED JUNE 30, 2004
| | Herbst Gaming, Inc. Historical | | Mark Twain Casino, L.L.C. Historical | | St. Joseph Riverboat Partners Historical | | Southern Iowa Gaming Company Historical | | Grace Acquisition Adjustments | | Refinancing Adjustments | | Pro Forma As Adjusted | |
| | (in thousands) | |
Revenues | | | | | | | | | | | | | | | |
Route operations | | $ | 268,352 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 268,352 | |
Casino operations | | 85,106 | | 27,434 | | 25,249 | | 65,570 | | — | | — | | 203,359 | |
Other | | 3,257 | | 30 | | 346 | | 420 | | — | | — | | 4,053 | |
Total revenues | | 356,715 | | 27,464 | | 25,595 | | 65,990 | | — | | — | | 475,764 | |
Less promotional allowances | | (11,631 | ) | (611 | ) | (430 | ) | (1,277 | ) | — | | — | | (13,949 | ) |
Net revenues | | 345,084 | | 26,853 | | 25,165 | | 64,713 | | — | | — | | 461,815 | |
| | | | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | | | |
Route operations | | 213,064 | | — | | — | | — | | — | | — | | 213,064 | |
Casino operations | | 54,267 | | 16,382 | (7) | 16,029 | (7) | 34,658 | (7) | — | | — | | 121,336 | |
General and administrative | | 13,588 | | 2,339 | | 1,906 | | 4,017 | | (2,326 | )(1) | — | | 19,524 | |
Depreciation and amortization | | 26,236 | | 1,510 | | 1,399 | | 2,699 | | 559 | (2) | (506 | )(5) | 31,897 | |
Total costs and expenses | | 307,155 | | 20,231 | | 19,334 | | 41,374 | | (1,767 | ) | (506 | ) | 385,821 | |
| | | | | | | | | | | | | | | |
Income from operations | | 37,929 | | 6,622 | | 5,831 | | 23,339 | | 1,767 | | 506 | | 75,944 | |
Other income (expenses) | | | | | | | | | | | | | | | |
Interest expense, net of capitalized interest | | (22,898 | ) | (543 | ) | (159 | ) | (1,060 | ) | (15,366 | )(3) | 5,606 | (6) | (34,420 | ) |
Interest income | | 194 | | 5 | | 14 | | 68 | | (87 | )(4) | — | | 194 | |
Loss on early retirement of debt | | (38,258 | ) | — | | — | | — | | — | | — | | (38,258 | ) |
Total other income (expense) | | (60,692 | ) | (538 | ) | (145 | ) | (992 | ) | (15,453 | ) | 5,606 | | (72,484 | ) |
Net income (loss) | | $ | (23,033 | ) | $ | 6,084 | | $ | 5,686 | | $ | 22,347 | | $ | (13,686 | ) | $ | 6,112 | | $ | 3,510 | |
| | | | | | | | | | | | | | | | | | | | | | | |
(1) Represents the elimination of $1,653,000 in management fees expensed at Southern Iowa Gaming Company and $673,000 in management fees expensed at Mark Twain Casino, L.L.C. Since the acquisition is an asset purchase, Herbst Gaming, Inc. will not be assuming any of the overhead costs of the parent and does not believe there will be material additional corporate overhead costs incurred in connection with the acquired assets.
(2) Represents the elimination of $67,000 in amortization that was included in the expenses of Southern Iowa Gaming Company, $79,000 included in amortization of Mark Twain Casino, L.L.C. and $75,000 included in amortization of St. Joseph Riverboat Partners. None of these loan amortization costs will be assumed by Herbst Gaming, Inc. Reflects estimated amortization of $780,000 on loan fees related to the acquisition.
(3) Represents the elimination of $1,060,000 in interest expense that was included in the expenses of Southern Iowa Gaming Company, $543,000 included in the interest expenses of Mark Twain Casino, L.L.C. and $159,000 included in the interest expenses of St. Joseph Riverboat Partners. Since the acquisition is an asset purchase, Herbst Gaming, Inc. will not be assuming any of the interest bearing debts of these entities. Reflects estimated interest expense of $17,128,000 on the additional debt related to the financing of the acquisition, assuming an average interest rate of 5.76%.
(4) Represents the elimination of interest income on idle cash of $68,000 from Southern Iowa Gaming Company, $5,000 from Mark Twain Casino, L.L.C. and $14,000 from St. Joseph Riverboat Partners, which is excluded from acquired assets.
(5) Represents the net change in loan fee amortization of Herbst Gaming, Inc. as a result of the refinancing of substantially all its debt in June 2004. The amount of amortization eliminated was $1,469,000 and the amount of amortization added was $963,000.
(6) Represents the net change in interest expense of Herbst Gaming, Inc. as a result of the refinancing of substantially all its debt in June 2004. Interest was reduced from $22,898,000 to $17,292,000 on a pro forma basis.
(7) Casino operating costs and expenses combine both departmental and cost of goods sold expenses for all three acquired entities.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004
| | Herbst Gaming, Inc. Historical | | Mark Twain Casino, L.L.C. Historical | | St. Joseph Riverboat Partners Historical | | Southern Iowa Gaming Company Historical | | Grace Acquisition Adjustments | | Refinancing Adjustments | | Pro Forma As Adjusted | |
| | (in thousands) | |
Revenues | | | | | | | | | | | | | | | |
Route operations | | $ | 141,743 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 141,743 | |
Casino operations | | 45,449 | | 14,258 | | 12,901 | | 31,629 | | — | | — | | 104,237 | |
Other | | 1,826 | | 31 | | 258 | | 197 | | — | | — | | 2,312 | |
Total revenues | | 189,018 | | 14,289 | | 13,159 | | 31,826 | | — | | — | | 248,292 | |
Less promotional allowances | | (5,999 | ) | (312 | ) | (227 | ) | (651 | ) | — | | — | | (7,189 | ) |
Net revenues | | 183,019 | | 13,977 | | 12,932 | | 31,175 | | — | | — | | 241,103 | |
| | | | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | | | |
Route operations | | 110,224 | | — | | — | | — | | — | | — | | 110,224 | |
Casino operations | | 27,715 | | 8,314 | (7) | 8,105 | (7) | 17,039 | (7) | — | | — | | 61,173 | |
General and administrative | | 7,137 | | 1,172 | | 1,002 | | 2,076 | | (1,145 | )(1) | — | | 10,242 | |
Depreciation and amortization | | 13,280 | | 757 | | 712 | | 1,388 | | 301 | (2) | (328 | )(5) | 16,110 | |
Total costs and expenses | | 158,356 | | 10,243 | | 9,819 | | 20,503 | | (844 | ) | (328 | ) | 197,749 | |
| | | | | | | | | | | | | | | |
Income from operations | | 24,663 | | 3,734 | | 3,113 | | 10,672 | | 844 | | 328 | | 43,354 | |
Other income (expenses) | | | | | | | | | | | | | | | |
Interest expense, net of capitalized interest | | (11,116 | ) | (255 | ) | (61 | ) | (499 | ) | (7,749 | )(3) | 2,470 | (6) | (17,210 | ) |
Interest income | | 99 | | 3 | | 8 | | 32 | | (43 | )(4) | | | 99 | |
Loss on early retirement of debt | | (37,991 | ) | — | | — | | — | | — | | — | | (37,991 | ) |
Total other income (expense) | | (49,008 | ) | (252 | ) | (53 | ) | (467 | ) | (7,792 | ) | 2,470 | | (55,102 | ) |
Net income (loss) | | $ | (24,345 | ) | $ | 3,482 | | $ | 3,060 | | $ | 10,205 | | $ | (6,948 | ) | $ | 2,798 | | $ | (11,748 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
(1) Represents the elimination of $795,000 in management fees expensed at Southern Iowa Gaming Company and $350,000 in management fees expensed at Mark Twain Casino, L.L.C. Since the acquisition is an asset purchase, Herbst Gaming, Inc. will not be assuming any of the overhead costs of the parent and does not believe there will be material additional corporate overhead costs incurred in connection with the acquired assets.
(2) Represents the elimination of $44,000 in amortization that was included in the expenses of Southern Iowa Gaming Company, $40,000 included in the amortization expenses of Mark Twain Casino, L.L.C. and $5,000 included in the amortization expenses of St. Joseph Riverboat Partners. None of these loan amortization costs will be assumed by Herbst Gaming, Inc. Reflects estimated amortization of $390,000 on loan fees related to the acquisition.
(3) Represents the elimination of $499,000 in interest expense that was included in the expenses of Southern Iowa Gaming Company, $255,000 included in the interest expenses of Mark Twain Casino, L.L.C. and $61,000 included in the interest expenses of St. Joseph Riverboat Partners. Since the acquisition is an asset purchase, Herbst Gaming, Inc. will not be assuming any of the interest bearing debts of these entities. Reflects estimated interest expense of $8,564,000 on the additional debt related to the financing of the acquisition, assuming an average interest rate of 5.76%.
(4) Represents the elimination of interest income on idle cash of $32,000 from Southern Iowa Gaming Company, $3,000 from Mark Twain Casino, L.L.C. and $8,000 from St. Joseph Riverboat Partners which is excluded from acquired assets.
(5) Represents the net change in loan fee amortization of Herbst Gaming, Inc. as a result of the refinancing of substantially all its debt in June 2004. The amount of amortization eliminated was $810,000 and the amount of amortization added was $482,000.
(6) Represents the net change in interest expense of Herbst Gaming, Inc. as a result of the refinancing of substantially all its debt in June 2004. Interest was reduced from $11,116,000 to $8,646,000 on a pro forma basis.
(7) Casino operating costs and expenses combine both departmental and cost of goods sold expenses for all three acquired entities.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2004
| | Herbst Gaming, Inc. Historical | | Mark Twain Casino, L.L.C. Historical | | St. Joseph Riverboat Partners Historical | | Southern Iowa Gaming Company Historical | | Grace Acquisition Adjustments(1) | | Pro Forma As Adjusted | |
| | (in thousands) | |
Assets | | | | | | | | | | | | | |
Current Assets | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 52,234 | | $ | 7,587 | | $ | 5,252 | | $ | 12,227 | | $ | (18,467 | )(2) | $ | 58,833 | |
Accounts receivable, net | | 1,122 | | 14 | | 382 | | 79 | | (475 | ) | 1,122 | |
Notes and loans receivable | | 481 | | — | | — | | 36 | | (36 | ) | 481 | |
Prepaid expenses and other | | 4,592 | | 381 | | 391 | | 816 | | (1,588 | ) | 4,592 | |
Inventory | | 975 | | 58 | | 105 | | 133 | | — | | 1,271 | |
Total current assets | | 59,404 | | 8,040 | | 6,130 | | 13,291 | | (20,566 | ) | 66,299 | |
Property and equipment, net | | 104,591 | | 11,883 | | 14,079 | | 36,567 | | (215 | ) | 166,905 | |
Lease acquisition costs, net | | 55,145 | | — | | — | | — | | — | | 55,145 | |
Other intangible assets | | — | | — | | 5,461 | | — | | 223,929 | (4) | 229,390 | |
Due from related parties | | 117 | | — | | — | | — | | — | | 117 | |
Other assets, net | | 7,486 | | 472 | | 5 | | 44 | | (521 | ) | 7,486 | |
Total assets | | $ | 226,743 | | $ | 20,395 | | $ | 25,675 | | $ | 49,902 | | $ | 202,627 | | $ | 525,342 | |
| | | | | | | | | | | | | |
Liabilities and stockholders’ equity (deficiency) | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | |
Current portion of long-term debt | | $ | 154 | | $ | 2,060 | | $ | 965 | | $ | 5,200 | | $ | (7,225 | (3) | $ | 1,154 | |
Accounts payable | | 4,879 | | 265 | | 453 | | 549 | | (1,267 | ) | 4,879 | |
Accrued expenses | | 7,176 | | 1,393 | | 1,345 | | 2,909 | | (4,548 | )(2) | 8,275 | |
Total current liabilities | | 12,209 | | 3,718 | | 2,763 | | 8,658 | | (13,040 | ) | 14,308 | |
Long-term debt, less current portion | | 257,165 | | 7,244 | | — | | 13,000 | | 276,256 | (3) | 553,665 | |
Other liabilities | | 1,010 | | — | | — | | — | | — | | 1,010 | |
Commitments and contingencies | | — | | — | | — | | — | | — | | — | |
Stockholders’ equity (deficiency) | | | | | | | | | | | | | |
Common stock (no par value; 2,500 shares authorized; 300 shares issued and outstanding) | | 2,368 | | — | | — | | 10,000 | | (10,000 | ) | 2,368 | |
(Accumulated deficit) retained earnings | | (47,640 | ) | 9,433 | | 22,912 | | 18,244 | | (50,589 | ) | (47,640 | ) |
Additional paid-in capital | | 1,631 | | — | | — | | — | | — | | 1,631 | |
Total stockholders’ equity (deficiency) | | (43,641 | ) | 9,433 | | 22,912 | | 28,244 | | (60,589 | ) | (43,641 | ) |
Total liabilities and stockholders’ equity (deficiency) | | $ | 226,743 | | $ | 20,395 | | $ | 25,675 | | $ | 49,902 | | $ | 202,627 | | $ | 525,342 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) The allocation of the purchase price, which is subject to change based on a final valuation of the assets acquired and liabilities assumed as of the closing date of the acquisition, is as follows:
Estimated Fair Market Value of assets acquired (in thousands)
Cash | | $ | 6,599 | (2) |
Inventory | | 296 | |
Property plant and equipment | | 62,314 | |
Intangibles | | 229,390 | |
Estimated Fair Market Value of liabilities assumed (in thousands)
Accrued expenses | | $ | (1,099 | )(2) |
Total Cash Purchase Price | | 297,500 | |
The amounts also reflect the elimination of assets and liabilities of Southern Iowa Gaming Co., Mark Twain Casino, L.L.C. and St. Joseph Riverboat Partners which are excluded from the asset acquisition.
(2) Cash is adjusted for $5.5 million in cash on hand pursuant to the Grace asset purchase agreement and an amount equal to assumed liabilities for player’s club, progressive jackpots and outstanding chips and tokens. The estimated liabilities to be assumed are: Southern Iowa Gaming Co. $210,000, Mark Twain Casino, L.L.C. $429,000 and St. Joseph Riverboat Partners Casino $460,000.
(3) Includes addition of $297,500,000 in debt in connection with the acquisition of the casino assets pursuant to the Grace Acquisition.
(4) Represents the excess of the purchase price over the estimated fair value of assets and liabilities assumed.
5
