Exhibit 99.5
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial data presented below is derived from the historical consolidated financial statements of the Company 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 former owners of Mark Twain, St. Jo and Lakeside Iowa, respectively), which are included in this report. The unaudited pro forma condensed combined balance sheet information is presented on an as adjusted basis as if the borrowings under the Company’s amended credit facility in respect of the Grace Acquisition and the Grace Acquisition had occurred on December 31, 2004. The unaudited pro forma condensed combined statements of operations information is presented on an as adjusted basis as if the borrowings under the Company’s amended credit facility in respect of the Grace Acquisition and Grace Acquisition had occurred on January 1, 2004. The Company believes this information is important in evaluating the future operations and impact of the Grace Acquisition and the borrowings under the amended credit facility in respect of the Grace Acquisition.
The unaudited pro forma condensed combined financial statements contained in this report use the purchase method of accounting, with the Company treated as the acquirer. The amended purchase price for the Grace Acquisition was approximately $266.8 million. The pro forma adjustments are based on currently available information and upon assumptions that the Company believes 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements and related notes contained in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2004.
The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code of 1986. Under those provisions, the owners of the Company pay income taxes on its taxable income. Accordingly, a provision for income taxes is not included in the Company’s financial data.
The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only. They do not purport to represent what the results of operations and financial position of the Company 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 the future results of operations or financial position of the Company.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 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 | | Pro Forma
As Adjusted | |
| | | | | | | | (in thousands) | | | | | |
Revenues | | | | | | | | | | | | | |
Route operations | | $ | 293,244 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 293,244 | |
Casino operations | | 91,254 | | 28,525 | | 25,689 | | 63,293 | | — | | 208,761 | |
Other | | 3,628 | | 43 | | 335 | | 300 | | — | | 4,306 | |
| | | | | | | | | | | | | |
Total revenues | | 388,126 | | 28,568 | | 26,024 | | 63,593 | | — | | 506,311 | |
Less promotional allowances | | (12,514 | ) | (634 | ) | (466 | ) | (1,433 | ) | — | | (15,047 | ) |
| | | | | | | | | | | | | |
Net revenues | | 375,612 | | 27,934 | | 25,558 | | 62,160 | | — | | 491,264 | |
| | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | |
Route operations | | 227,929 | | — | | — | | — | | — | | 227,929 | |
Casino operations | | 56,331 | | 16,729 | (5) | 16,525 | (5) | 38,622 | (5) | — | | 128,207 | |
General and administrative | | 14,366 | | 2,495 | | 2,068 | | 1,628 | | (2,327 | )(1) | 18,230 | |
Depreciation and amortization | | 26,667 | | 1,788 | | 1,492 | | 2,822 | | 320 | (2) | 33,089 | |
Loss on lease termination | | 600 | | — | | — | | — | | — | | 600 | |
| | | | | | | | | | | | | |
Total costs and expenses | | 325,893 | | 21,012 | | 20,085 | | 43,072 | | (2,007 | ) | 408,055 | |
| | | | | | | | | | | | | |
Income from operations | | 49,719 | | 6,922 | | 5,473 | | 19,088 | | 2,007 | | 83,209 | |
| | | | | | | | | | | | | |
Other income (expenses) | | | | | | | | | | | | | |
Interest expense, net of capitalized interest | | (20,849 | ) | (455 | ) | (82 | ) | (957 | ) | (15,630 | )(3) | (37,973 | ) |
Interest income | | 353 | | 22 | | 28 | | 98 | | (148 | )(4) | 353 | |
Use tax settlement | | — | | — | | — | | 300 | | (300 | )(6) | — | |
Loss on early retirement of debt | | (37,991 | ) | — | | — | | — | | — | | (37,991 | ) |
| | | | | | | | | | | | | |
Total other income (expense) | | (58,487 | ) | (433 | ) | (54 | ) | (559 | ) | (16,078 | ) | 75,611 | |
| | | | | | | | | | | | | |
Net income (loss) | | $ | (8,768 | ) | $ | 6,489 | | $ | 5,419 | | $ | 18,529 | | $ | (14,071 | ) | $ | 7,598 | |
(1) Represents the elimination of $1,628 in management fees expensed at Southern Iowa Gaming Company and $699 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 $89 in amortization that was included in the expenses of Southern Iowa Gaming Company, $362 included in amortization of Mark Twain Casino, L.L.C. and $9 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 on loan fees related to the acquisition. Loan fees were amortized over the life of the corresponding loan, which is not materially different from the effective interest method. The estimated aggregate loan fees were $5,600 with an average life of the loans of 7.2 years.
(3) Represents the elimination of $957 in interest expense that was included in the expenses of Southern Iowa Gaming Company, $455 included in the interest expenses of Mark Twain Casino, L.L.C. and $82 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. Total debt incurred in connection with the Grace Acquisition was $276,800. Reflects estimated interest expense of $17,124 on the additional debt related to the financing of the acquisition, assuming an average interest rate of 6.20%.
(4) Represents the elimination of interest income on idle cash of $98 from Southern Iowa Gaming Company, $22 from Mark Twain Casino, L.L.C. and $28 from St. Joseph Riverboat Partners, which is excluded from acquired assets.
(5) Casino operating costs and expenses combine both departmental and cost of goods sold expenses for all three acquired entities.
(6) Represents a tax settlement at Southern Iowa Gaming Company not included in the operations acquired by Herbst Gaming, Inc.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2004
| | Herbst
Gaming, Inc.
Historical | | Mark Twain
Casino, L.L.C.
Historical | | St. Joseph
Riverboat
Partners
Historical | | Southern Iowa
Gaming
Company
Historical | | Grace Acquisition
Excluded
Assets and Liabilities | | Grace
Acquisition
Adjustments(1) | | Pro Forma
As Adjusted | |
| | (in thousands) | |
Assets | | | | | | | | | | | | | | | |
Current Assets | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 138,172 | | $ | 4,021 | | $ | 4,554 | | $ | 10,639 | | $ | (11,988 | ) | $ | (90,800 | )(3) | $ | 54,598 | |
Accounts receivable, net | | 1,281 | | 14 | | 636 | | 178 | | (828 | ) | — | | 1,281 | |
Notes and loans receivable | | 411 | | — | | — | | — | | — | | — | | 411 | |
Prepaid expenses and other | | 5,182 | | 394 | | 200 | | 491 | | (1,085 | ) | — | | 5,182 | |
Inventory | | 1,080 | | 63 | | 104 | | 133 | | — | | — | | 1,380 | |
| | | | | | | | | | | | | | | |
Total current assets | | 146,126 | | 4,492 | | 5,494 | | 11,441 | | (13,901 | ) | (90,800 | ) | 62,852 | |
Property and equipment, net | | 107,205 | | 12,006 | | 14,105 | | 36,557 | | (215 | ) | — | | 169,658 | |
Lease acquisition costs, net | | 51,394 | | — | | — | | — | | — | | — | | 51,394 | |
Goodwill and other intangible assets | | — | | — | | 5,460 | | — | | (5,460 | ) | 208,547 | (4) | 208,547 | |
Due from related parties | | 161 | | — | | — | | — | | — | | — | | 161 | |
Other assets, net | | 13,545 | | — | | — | | — | | — | | — | | 13,545 | |
| | | | | | | | | | | | | | | |
Total assets | | $ | 318,431 | | $ | 16,498 | | $ | 25,059 | | $ | 47,998 | | $ | (19,576 | ) | $ | 117,747 | | $ | 506,157 | |
| | | | | | | | | | | | | | | |
Liabilities and stockholders’ equity (deficiency) | | | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | |
Current portion of long-term debt | | $ | 154 | | $ | — | | $ | — | | $ | 15,600 | | $ | (15,600 | ) | $ | 1,000 | (3) | $ | 1,154 | |
Accounts payable | | 5,733 | | 576 | | 371 | | 1,080 | | (2,027 | ) | — | | 5,733 | |
Accrued expenses | | 8,896 | | 1,050 | | 1,096 | | 2,586 | | (3,006 | ) | — | | 10,622 | |
Due to related parties | | 36 | | — | | — | | — | | — | | — | | 36 | |
| | | | | | | | | | | | | | | |
Total current liabilities | | 14,819 | | 1,626 | | 1,467 | | 19,266 | | (20,633 | ) | 1,000 | | 17,545 | |
| | | | | | | | | | | | | | | |
Long-term debt, less current portion | | 333,258 | | — | | — | | — | | — | | 185,000 | (3) | 518,258 | |
Other liabilities | | 1,118 | | — | | — | | 163 | | (163 | ) | — | | 1,118 | |
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 | | (34,763 | ) | 14,872 | | 23,592 | | 18,569 | | (57,033 | ) | — | | (34,763 | ) |
Additional paid-in capital | | 1,631 | | — | | — | | — | | — | | — | | 1,631 | |
| | | | | | | | | | | | | | | |
Total stockholders’ equity | | (30,764 | ) | 14,872 | | 23,592 | | 28,569 | | (67,033 | ) | — | | (30,764 | ) |
| | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity (deficiency) | | $ | 318,431 | | $ | 16,498 | | $ | 25,059 | | $ | 47,998 | | $ | (87,829 | ) | $ | 186,000 | (3) | $ | 506,157 | |
(1) The allocation of the purchase price, which is subject to change based upon completion of the 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 | | $ | 7,226 | (2) |
Inventory | | 300 | |
Property plant and equipment | | 62,453 | |
Goodwill and other intangible assets | | 208,547 | |
3
Estimated Fair Market Value of liabilities assumed (in thousands)
Accrued expenses | | $ | (1,726 | )(2) |
Total Cash Purchase Price | | 276,800 | |
The foregoing table reflects only adjustments due to the elimination of assets and liabilities not acquired or assumed in connection with the Grace Acquisition. As of the date hereof, none of the adjustments in the foregoing table reflect adjustments related to purchase price adjustments to fair value.
(2) Cash is adjusted for $11,988 in cash retained by Grace, $5,500 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 liabilities assumed at Southern Iowa Gaming Co. were $793, at Mark Twain Casino, L.L.C. were $444 and at St. Joseph Riverboat Partners were $489. Cash is also adjusted for $90,800 used to consummate the Grace Acquisition (see footnote 3).
(3) On November 24, 2004, Herbst Gaming, Inc. received net proceeds of approximately $165,000 from its issuance of $170,000 7% senior subordinated notes due 2014. Approximately $74,200 from the proceeds of its 7% senior subordinated note offering was used to repay all borrowings under its revolving credit facility, leaving it with $90,800 in remaining cash proceeds at December 31, 2004.
On February 2, 2005, Herbst Gaming, Inc. used this $90,800 in cash, and drew down a $100,000 term loan and $86,000 million in revolving loans under its credit facility to consummate the Grace Acquisition. Of the $86,000 revolving borrowing, $74,200 was used to reborrow revolving credit facility borrowings repaid with the proceeds of the 7% senior subordinated note offering and $11,800 million was used in connection with the Grace Acquisition. As a result, the $276,800 of total debt incurred pursuant to the Grace Acquisition consisted of $165,000 in proceeds from the 7% senior subordinated notes, a $100,000 term loan and a borrowing of $11,800 under Herbst Gaming, Inc.’s revolving credit facility.
(4) Includes the excess of the purchase price over the estimated fair value of assets and liabilities assumed.
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