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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2004
Commission file number 001-13641
PINNACLE ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 95-3667491 | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
(Address of Principal Executive Offices) (Zip Code)
(702) 784-7777
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether 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, and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x NO ¨
The number of outstanding shares of the registrant’s common stock, as of the close of business on November 5, 2004: 35,802,978.
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ITEM 1. | FINANCIAL INFORMATION |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
(in thousands, except per share data, unaudited) | ||||||||||||||||
Revenues: | ||||||||||||||||
Gaming | $ | 120,485 | $ | 115,793 | $ | 351,926 | $ | 341,561 | ||||||||
Food and beverage | 8,442 | 8,063 | 23,657 | 22,044 | ||||||||||||
Truck stop and service station | 7,397 | 6,502 | 18,348 | 16,578 | ||||||||||||
Hotel and recreational vehicle park | 5,280 | 4,189 | 13,469 | 11,150 | ||||||||||||
Other operating income | 4,904 | 5,196 | 13,323 | 13,568 | ||||||||||||
146,508 | 139,743 | 420,723 | 404,901 | |||||||||||||
Expenses and Other Items: | ||||||||||||||||
Gaming | 68,313 | 66,891 | 201,615 | 202,103 | ||||||||||||
Food and beverage | 7,726 | 7,594 | 22,092 | 21,506 | ||||||||||||
Truck stop and service station | 6,980 | 5,951 | 17,269 | 15,239 | ||||||||||||
Hotel and recreational vehicle park | 2,358 | 1,973 | 6,678 | 5,631 | ||||||||||||
General and administrative | 26,867 | 28,326 | 84,232 | 82,580 | ||||||||||||
Depreciation and amortization | 12,085 | 11,852 | 35,712 | 35,166 | ||||||||||||
Other operating expenses | 2,361 | 1,985 | 5,952 | 6,556 | ||||||||||||
Pre-opening and development costs | 5,702 | 305 | 10,369 | 678 | ||||||||||||
Gain on sale of assets, net of other items | 0 | 0 | (42,344 | ) | 0 | |||||||||||
Goodwill impairment charge | 0 | 7,832 | 0 | 7,832 | ||||||||||||
Indiana regulatory and related benefit | 0 | (1,516 | ) | 0 | (579 | ) | ||||||||||
132,392 | 131,193 | 341,575 | 376,712 | |||||||||||||
Operating income | 14,116 | 8,550 | 79,148 | 28,189 | ||||||||||||
Interest income | (879 | ) | (516 | ) | (2,408 | ) | (1,366 | ) | ||||||||
Interest expense, net of capitalized interest | 12,957 | 15,111 | 39,858 | 40,753 | ||||||||||||
Loss on early extinguishment of debt | 3,164 | 8,744 | 11,418 | 8,744 | ||||||||||||
Income (loss) before income taxes | (1,126 | ) | (14,789 | ) | 30,280 | (19,942 | ) | |||||||||
Income tax expense (benefit) | 2,115 | 1,608 | 16,345 | (314 | ) | |||||||||||
Net income (loss) | $ | (3,241 | ) | $ | (16,397 | ) | $ | 13,935 | $ | (19,628 | ) | |||||
Net income (loss) per common share—basic | $ | (0.09 | ) | $ | (0.63 | ) | $ | 0.41 | $ | (0.76 | ) | |||||
Net income (loss) per common share—diluted | $ | (0.09 | ) | $ | (0.63 | ) | $ | 0.39 | $ | (0.76 | ) | |||||
Number of shares—basic | 35,623 | 25,934 | 34,195 | 25,934 | ||||||||||||
Number of shares—diluted | 35,623 | 25,934 | 35,582 | 25,934 |
See accompanying notes to the unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2004 | December 31, 2003 | |||||||
(in thousands, except share data, unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents (exclusive of restricted cash items below) | $ | 152,084 | $ | 100,107 | ||||
Restricted cash | 3,972 | 4,400 | ||||||
Accounts receivable, net | 9,224 | 7,359 | ||||||
Inventories | 5,439 | 5,518 | ||||||
Prepaid expenses and other assets | 16,866 | 10,699 | ||||||
Deferred income taxes | 5,378 | 5,378 | ||||||
Assets held for sale | 0 | 12,160 | ||||||
Total current assets | 192,963 | 145,621 | ||||||
Restricted cash—completion reserve account | 108,435 | 124,529 | ||||||
Property and equipment, net | 735,734 | 621,709 | ||||||
Goodwill, net | 26,656 | 26,656 | ||||||
Gaming licenses, net | 21,569 | 21,848 | ||||||
Debt issuance costs, net | 18,069 | 15,864 | ||||||
Other assets | 869 | 875 | ||||||
$ | 1,104,295 | $ | 957,102 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 25,622 | $ | 15,958 | ||||
Accrued interest | 8,607 | 15,459 | ||||||
Accrued compensation | 22,601 | 21,847 | ||||||
Other accrued liabilities | 60,079 | 40,016 | ||||||
Current portion of notes payable | 2,439 | 2,341 | ||||||
Total current liabilities | 119,348 | 95,621 | ||||||
Notes payable, less current maturities | 630,566 | 643,594 | ||||||
Deferred income taxes | 17,028 | 17,028 | ||||||
Commitments and contingencies (Note 7) | ||||||||
Stockholders’ Equity: | ||||||||
Common—$0.10 par value, 35,715,478 and 23,926,942 shares outstanding, net of treasury shares | 3,773 | 2,594 | ||||||
Capital in excess of par value | 345,902 | 224,377 | ||||||
Retained earnings | 17,852 | 3,917 | ||||||
Accumulated other comprehensive loss | (10,084 | ) | (9,939 | ) | ||||
Treasury stock, at cost | (20,090 | ) | (20,090 | ) | ||||
Total stockholders’ equity | 337,353 | 200,859 | ||||||
$ | 1,104,295 | $ | 957,102 | |||||
See accompanying notes to the unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Common Stock | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||
(in thousands, unaudited) | |||||||||||||||||||||
Balance as of January 1, 2004 | $ | 2,594 | $ | 224,377 | $ | 3,917 | $ | (9,939 | ) | $ | (20,090 | ) | $ | 200,859 | |||||||
Net income | 0 | 0 | 13,935 | 0 | 0 | 13,935 | |||||||||||||||
Foreign currency translation loss | 0 | 0 | 0 | (145 | ) | 0 | (145 | ) | |||||||||||||
Total comprehensive income | 13,790 | ||||||||||||||||||||
Common stock offering | 1,150 | 118,713 | 0 | 0 | 0 | 119,863 | |||||||||||||||
Common stock options, inclusive of tax benefit | 29 | 2,812 | 0 | 0 | 0 | 2,841 | |||||||||||||||
Balance as of September 30, 2004 | $ | 3,773 | $ | 345,902 | $ | 17,852 | $ | (10,084 | ) | $ | (20,090 | ) | $ | 337,353 | |||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, | ||||||||
2004 | 2003 | |||||||
(in thousands, unaudited) | ||||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 13,935 | $ | (19,628 | ) | |||
Depreciation and amortization | 35,712 | 35,166 | ||||||
Amortization of debt issuance costs | 2,537 | 3,010 | ||||||
Loss on early extinguishment of debt | 11,418 | 8,744 | ||||||
Goodwill impairment charge | 0 | 7,832 | ||||||
Gain on sale of assets, net of other items | (42,344 | ) | 0 | |||||
Changes in working capital: | ||||||||
Accounts receivable, net | (1,865 | ) | 1,013 | |||||
Income tax receivable | 0 | 6,364 | ||||||
Prepaid expenses and other assets | (6,846 | ) | (7,783 | ) | ||||
Accounts payable | (4,910 | ) | 1,681 | |||||
Accrued liabilities | 16,016 | 9,184 | ||||||
Accrued interest | (6,852 | ) | (12,744 | ) | ||||
All other, net | 1,473 | 1,333 | ||||||
Net cash provided by operating activities | 18,274 | 34,172 | ||||||
Cash flows from investing activities: | ||||||||
Decrease (increase) in restricted cash | 16,522 | (188,818 | ) | |||||
Additions to property and equipment | (135,745 | ) | (47,804 | ) | ||||
Receipts from dispositions of assets and property and equipment | 56,939 | 144 | ||||||
Net cash used in investing activities | (62,284 | ) | (236,478 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from credit facility | 125,000 | 123,437 | ||||||
Payment of credit facility | (147,000 | ) | 0 | |||||
Proceeds from senior subordinated notes | 198,564 | 132,799 | ||||||
Payment of senior subordinated notes | (188,000 | ) | (60,999 | ) | ||||
Payment of secured and unsecured notes payable | (1,755 | ) | (2,059 | ) | ||||
Debt issuance costs | (13,777 | ) | (14,074 | ) | ||||
Common stock offering | 120,400 | 0 | ||||||
Common stock options exercised | 2,841 | 0 | ||||||
Net cash provided by financing activities | 96,273 | 179,104 | ||||||
Effect of exchange rate changes on cash | (286 | ) | (99 | ) | ||||
Increase (decrease) in cash and cash equivalents | 51,977 | (23,301 | ) | |||||
Cash and cash equivalents at the beginning of the year | 100,107 | 114,286 | ||||||
Cash and cash equivalents at the end of period | $ | 152,084 | $ | 90,985 | ||||
Cash, cash equivalents and restricted cash at end of period | $ | 264,491 | $ | 249,057 | ||||
Supplemental Cash Flow Information: | ||||||||
Cash paid (received) during the period for: | ||||||||
Interest | $ | 46,625 | $ | 48,896 | ||||
Income taxes, net | 1,096 | (10,479 | ) | |||||
Non-cash currency translation rate adjustment | 145 | (737 | ) | |||||
Construction payable | 14,574 | 1,023 |
See accompanying notes to the unaudited condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1—Summary of Significant Accounting Policies
GeneralPinnacle Entertainment, Inc. (the “Company” or “Pinnacle Entertainment”) owns and operates gaming entertainment facilities in numerous gaming markets. These include five properties in the United States, located in southeastern Indiana (“Belterra Casino Resort”); Reno, Nevada (“Boomtown Reno”); Bossier City and New Orleans, Louisiana (“Boomtown Bossier City” and “Boomtown New Orleans”, respectively); and Biloxi, Mississippi (“Casino Magic Biloxi”). The Company is also building L’Auberge du Lac, a major casino resort in Lake Charles, Louisiana (“L’Auberge”). In addition, the Company is developing a major casino in downtown St. Louis and another major casino in south St. Louis County (“St. Louis Development Projects”). The Company is also building a replacement casino for the larger of the three casinos it operates in Argentina (“Casino Magic Argentina”), and the Company receives lease income from two card clubs in Southern California.
Basis of Presentation The accompanying interim condensed consolidated financial statements include the accounts of Pinnacle Entertainment, Inc. and its subsidiaries and have been prepared by the Company’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the interim condensed consolidated financial statements presented herein reflect all adjustments of a normal and recurring nature which are considered necessary for a fair presentation of the results for the interim periods presented and all inter-company accounts and transactions have been eliminated. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and (iii) the reported amounts of revenues and expenses during the reporting period. Estimates used by the Company include, among other things, (i) the evaluation of the non-impairment of property, equipment and other long-term assets, (ii) the evaluation of the future realization of deferred tax assets, and (iii) the adequacy of reserves associated with asset sales, and determining litigation reserves and other obligations. Actual results could differ from those estimates.
Gaming Revenues and Promotional AllowancesThe estimated cost of providing promotional allowances (which is included in gaming expenses) for the three months ended September 30, 2004 and 2003 was $8,987,000 and $9,520,000, respectively, and for the nine months ended September 30, 2004 and 2003 was $29,198,000 and $28,858,000, respectively.
Pre-opening and Development Costs Pre-opening and development costs are expensed as incurred. For the three months ended September 30, 2004 and 2003, such costs were $5,702,000 and $305,000, respectively, and for the nine months ended September 30, 2004 and 2003, such costs were $10,369,000 and $678,000, respectively.
Earnings per Share Diluted earnings per share assume exercise of in-the-money stock options (those options with exercise prices at or below the weighted average market price for the periods presented) outstanding at the beginning of the year or at the date of the issuance, unless the assumed exercises are antidilutive.
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the three months ended September 30, 2004 and the three and nine months ended September 30, 2003, there were 1,286,000, 134,000 and 8,000, respectively, of potentially dilutive in-the-money stock options. For these periods, the effect of stock options outstanding was not included in the diluted calculation as the Company incurred a loss for the periods and such inclusion would have been antidilutive.
Restricted Cash—Completion Reserve Account Restricted cash—completion reserve account at September 30, 2004 was $108,435,000, compared to $124,529,000 at December 31, 2003. The decrease is primarily due to the use of funds for construction of the L’Auberge and Belterra expansion projects (see Note 4) and repayment of a portion of the credit facility (see Note 5), offset by land sales proceeds and a portion of the equity offering (see Notes 3 and 6, respectively), which proceeds were required by the Company’s credit agreement to be deposited into the completion reserve account.
Debt Issuance Costs and Related Amortization Debt issuance costs at September 30, 2004 were $18,069,000, compared to $15,864,000 at December 31, 2003. The increase results primarily from capitalized costs incurred for the 8.25% Notes and Amended Credit Facility refinancings (both as defined below), offset by the write-off of portions of the refinanced debt (see Note 5) and monthly amortization.
Amortization cost included in interest expense for the three months ended September 30, 2004 and 2003 was $773,000 and $1,378,000, respectively, and for the nine months ended September 30, 2004 and 2003 was $2,276,000 and $3,456,000, respectively. Accumulated amortization as of September 30, 2004 and December 31, 2003 was $4,714,000 and $6,333,000, respectively.
Goodwill Impairment and Income Tax Matters During the three months ended September 30, 2003, the Company resolved certain old tax matters, resulting in a goodwill impairment charge of $7,832,000 and a tax provision of $4,248,000 (which tax provision excluded a tax benefit for the 2003 third quarter).
Indiana Regulatory and Related Benefit During the three months ended September 30, 2003, the Company was reimbursed for legal expenses it had incurred in connection with a derivative action lawsuit. In addition, a portion of a reserve established in 2002 for Indiana matters was recovered in the 2003 third quarter.
Stock-based Compensation Consistent with Statement of Financial Accounting Standard No. 148 “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS No. 148”), the Company discloses the theoretical costs of employee stock-based compensation in the notes to the financial statements rather than in the consolidated income statement itself. The reason for this is that the costs as of the date of grant of stock option compensation are theoretical; if the stock price does not appreciate or the employee does not stay employed long enough to vest in the options, then the actual cost does not materialize.
In estimating the pro forma effect of stock-based compensation, the Company uses an option-pricing model. Such model requires the use of subjective assumptions, including the expected life of the option, the expected volatility of the underlying stock, the expected dividend on the stock, and the risk-free interest rate for the expected life of the option.
There were no options granted in the three months ended September 30, 2004. However, in computing the stock-based compensation for the three months ended September 30, 2003, the following assumptions were made:
Risk-Free Interest Rate | Expected Life at Issuance | Expected Volatility | Expected Dividends | |||||||
September 30, 2003 | 2.8 | % | 5 years | 55.0 | % | None |
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The expected volatility is derived from the historical performance of the Company’s common stock over the past 10 years. Further volatility may be substantially less or greater than historical volatility. The Company does not currently pay dividends and, based on the Company’s debt covenants and expansion plans, management does not anticipate that dividends will be paid within the average expected life of existing options. Five-year U.S. Treasury strip rates are used as the proxy for the risk-free rate. The expected life at issuance is based on the Company’s experience as to the average life of recent option grants before being exercised or forfeited.
The following sets forth the pro forma costs and effect on net income (loss) due to the Company’s employee stock-based compensation plans if the estimated fair value at the date of grant of such options were to be charged to earnings over the vesting period of the options:
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||||
(in thousands, except per share data) | |||||||||||||||
Income (loss) before stock-based compensation expense | $ | (3,241 | ) | $ | (16,397 | ) | $ | 13,935 | $ | (19,628 | ) | ||||
Theoretical stock-based compensation expense, net of taxes | 450 | 351 | 1,376 | 1,059 | |||||||||||
Pro forma net income (loss) | $ | (3,691 | ) | $ | (16,748 | ) | $ | 12,559 | $ | (20,687 | ) | ||||
Pro forma net income (loss) per share—basic | $ | (0.10 | ) | $ | (0.65 | ) | $ | 0.37 | $ | (0.80 | ) | ||||
Pro forma net income (loss) per share—diluted | $ | (0.10 | ) | $ | (0.65 | ) | $ | 0.35 | $ | (0.80 | ) | ||||
Number of shares—basic | 35,623 | 25,934 | 34,195 | 25,934 | |||||||||||
Number of shares—diluted | 35,623 | 25,934 | 35,582 | 25,934 |
ReclassificationsCertain reclassifications, having no effect on net income, have been made to certain 2003 amounts to be consistent with the 2004 financial statement presentation.
Note 2—Property and Equipment
Property and equipment held at September 30, 2004 and December 31, 2003 consisted of the following:
September 30, 2004 | December 31, 2003 | |||||
(in thousands) | ||||||
Land and land improvements | $ | 127,306 | $ | 124,110 | ||
Buildings | 371,842 | 341,956 | ||||
Equipment | 250,582 | 236,727 | ||||
Vessel and barges | 117,181 | 116,706 | ||||
Construction in progress | 153,619 | 60,330 | ||||
1,020,530 | 879,829 | |||||
Less accumulated depreciation | 284,796 | 258,120 | ||||
$ | 735,734 | $ | 621,709 | |||
Construction in progress relates primarily to the L’Auberge project (see Note 4). Construction in progress includes interest capitalized based on an imputed interest rate estimating the Company’s average cost of borrowed funds for the projects. Capitalized interest for the three months ended September 30, 2004 and 2003 was $1,394,000 and $377,000, respectively, and for the nine months ended September 30, 2004 and 2003 was $3,067,000 and $864,000, respectively.
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Depreciation expense for the three months ended September 30, 2004 and 2003 was $11,991,000 and $11,756,000, respectively, and for the nine months ended September 30, 2004 and 2003 was $35,425,000 and $34,884,000, respectively.
Note 3—Assets Held For Sale
During the nine months ended September 30, 2004, the Company completed the sale of 97 acres of surplus land in Inglewood, California for approximately $57 million in net cash proceeds and recorded a gain of $43,880,000, net of transactional and other costs. In addition, the Company recorded a charge of $1,536,000 for the expensing of an agreement for a consultant that assisted with the disposition of the surplus land.
The Company does not anticipate paying any current income tax on the land sales based on its federal net operating loss carry-forwards. In addition, all of the net cash proceeds from the land sales were deposited into the completion reserve account pursuant to the Company’s credit facility.
Note 4—Expansion and Development
L’Auberge du Lac: In early September 2003, the Company commenced construction of L’Auberge du Lac, which management believes will be the premier casino in the Lake Charles, Louisiana area. L’Auberge is located on 227 acres of land, and is expected to offer approximately 745 guestrooms (including more than 100 suites), several restaurants, approximately 28,000 square feet of meeting space, a championship golf course designed by Tom Fazio, an expansive outdoor pool area, retail shops and a full-service spa. Unlike most other riverboat casinos, all of the public areas at L’Auberge (except the parking garage), and in particular the casino, will be situated entirely on one level. The casino will be surrounded on three sides by the hotel facility and other guest amenities, providing convenient access to approximately 1,600 slot machines and 60 table games.
In July 2004, the Company announced an increase in the scope and budget of L’Auberge, including, among other items, increasing the number of guestrooms to approximately 745 from approximately 700. Overall, the budget was increased to $365 million from $325 million to reflect these and other changes. Through September 30, 2004, the Company has incurred approximately $155 million of construction and other costs.
L’Auberge remains on schedule for its opening in Spring 2005 and in accord with its agreement with the Louisiana Gaming Control Board that currently calls for construction to be completed by May 12, 2005. Issuance of the gaming license from the Louisiana Gaming Control Board is subject to continued compliance with gaming regulations and other conditions.
Belterra: In early May 2004, the Company opened its new 300-guestroom tower at the Belterra Casino Resort, the centerpiece of the $37 million expansion project commenced in February 2003. In addition to increasing the guestroom base to a total of 608 guestrooms, the expansion project added approximately 33,000 square feet of meeting and conference space, a year-round swimming pool and other amenities. The expansion opened as scheduled and on budget.
St. Louis Development Projects: In January 2004, the City of St. Louis (through affiliated entities) selected the Company to develop a $208 million casino and luxury hotel project in downtown St. Louis near Laclede’s Landing. A redevelopment agreement was executed in April (see Note 7 for a description of such agreement). As proposed, the project would be located near the Edward Jones Dome stadium, the America’s Center convention center, the famed Gateway Arch and the central business district on approximately 7.3 acres of land currently owned by the Company. The proposed project includes a 75,000-square-foot casino, 200 luxury guestrooms, restaurants and retail space. On May 24, 2004, the Company executed an 18-month option to lease approximately seven acres of additional land near Laclede’s Landing which are owned by a city agency.
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In February 2004, St. Louis County (through an affiliated entity) selected the Company to develop a proposed $300 million casino complex in the community of Lemay. In June, the Company received the approval of the St. Louis County Council for the project and in August executed a lease and development agreement (see Note 7 for a description of such agreement). Located approximately 10 miles south of downtown St. Louis, the South St. Louis County development will be situated on 80 acres of land and will include a 90,000-square-foot casino, 100-guestroom hotel, retail space, multiplex movie theater and bowling alley. According to the terms of the agreement, Pinnacle will lease approximately 56 acres of land from the Port Authority for its gaming and commercial facilities. The remaining 24 acres of leased land will become a public park and include additional community and recreational facilities.
On September 1, the Missouri Gaming Commission (“MGC”) selected the Company for priority investigation, thereby allowing it to proceed with its St. Louis Development Projects. For each project, the Company anticipates beginning construction shortly after receiving necessary building and land-use permits. The Company expects to receive such permits for both projects in Spring 2005. The City project is expected to open 18 months thereafter, in late 2006. Development of the County site requires extensive environmental remediation and construction of a new road to the site. Management therefore estimates that full project development of the County project will take approximately one year longer than the City project, opening in late 2007. Both of the projects are subject to MGC approval and licensing.
Casino Magic Argentina: In May 2004, construction began for a replacement facility for the existing Neuquen casino, the principal Casino Magic Argentina property. The new facility will include a casino, restaurants and an entertainment venue on land owned by the Company approximately one mile from the existing facility at an estimated cost of approximately US$14 million. The Company will fund the expansion project utilizing Casino Magic Argentina’s existing cash resources and its retained earnings through 2006. Depending on the subsidiary’s profitability through 2006, the Company may develop additional phases of the planned expansion. Under the Company’s concession agreement with the Province of Neuquen, either construction of certain minimum facilities or reinvestment of Casino Magic Argentina’s financial resources (existing cash and retained earnings through 2006) will extend the existing concession agreement from December 2006 to December 2016. An incremental investment of 5 million pesos (or approximately US$1,677,000 based on exchange rates as of September 30, 2004) to build a hotel facility with a minimum of 10 guestrooms will further extend the agreement to December 2021.
Note 5—Notes Payable
Notes payable at September 30, 2004 and December 31, 2003 consisted of the following:
September 30, 2004 | December, 31, 2003 | |||||
(in thousands) | ||||||
Secured Credit Facility | $ | 125,000 | $ | 147,000 | ||
Unsecured 8.25% Notes due 2012 (net of OID) | 198,661 | 0 | ||||
Unsecured 8.75% Notes due 2013 (net of OID) | 133,021 | 132,856 | ||||
Unsecured 9.25% Notes due 2007 | 162,000 | 350,000 | ||||
Hollywood Park-Casino capital lease | 13,077 | 14,746 | ||||
Other secured and unsecured notes payable | 1,246 | 1,333 | ||||
633,005 | 645,935 | |||||
Less current maturities | 2,439 | 2,341 | ||||
$ | 630,566 | $ | 643,594 | |||
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Secured Credit Facility: On August 27, 2004, the Company amended and restated its existing bank credit facility, increasing the total facility to $400 million from $272 million (the “Amended Credit Facility”). The Amended Credit Facility provides for a six-year $275 million term loan facility, of which $125 million was drawn immediately and $150 million is available on a delayed basis in minimum increments of $25 million through September 2005, and a $125 million revolving credit facility maturing in December 2008.
Upon closing of the facility, the Company repaid all outstanding obligations (including accrued interest and commitment fees) under the credit facility executed in December 2003, totaling approximately $147,670,000, and paid certain transaction fees and expenses.
The Amended Credit Facility provides for, among other things: (a) an expanded use of the term loan proceeds to include the St. Louis Development Projects (subject to certain approvals) and to repay all or a portion of the 9.25% Notes; (b) an extended maturity of the funded term loans to August 2010; (c) an extended availability of the unfunded delayed-draw term loan period to September 2005; (d) a reduced term loan interest rate margin of 50 basis points for LIBOR loans; and, (e) an extension of the 0.25% quarterly term loan installment repayments to March 2006. The maturity dates under the Amended Credit Facility will advance to August 15, 2006 if the Company has not, before such date, repaid, refinanced or extended the maturity of its 9.25% Notes beyond the term loan maturity date.
Other than the increased liquidity and flexibility noted above, the Amended Credit Facility is substantially consistent with the December 2003 facility. In addition, borrowings under the Amended Credit Facility and access to funds from the completion reserve account for the costs and expense associated with the Company’s current projects continue to be subject to conditions commonly associated with construction loans, including an “in balance requirement” (as defined in the Amended Credit Facility).
Interest on the Amended Credit Facility is subject to change based on the floating rate index selected. For the revolving loan facility, the interest rate margin is based on certain financial ratios. As of September 30, 2004, the term loan bore interest of 4.98% (3.00% over LIBOR), and the delayed-draw term loan and revolver facility bore facility fees for unborrowed amounts of 1.00% and 1.25% per annum, respectively. The Company may also, at its option, borrow at a base rate, as defined in the agreement.
Under the Company’s two most restrictive indentures, the Company is permitted to incur up to $350 million in senior indebtedness. The Company’s indentures permit the incurrence of additional indebtedness (senior or otherwise) in excess of $350 million for debt refinancing or under a provision that permits additional incurrence if at the time the indebtedness is proposed to be incurred, the Company’s consolidated coverage ratio on a pro form basis (as defined in those indentures) would be at least 2.00:1.00. The Company’s consolidated coverage ratio is currently below 2.00:1.00. Accordingly, except as noted above, the Company’s current ability to incur senior indebtedness is limited to less than the $400 million that would otherwise be available under the Amended Credit Facility. Management anticipates that the income from the Lake Charles facility, when included in such ratios, will enable the Company to access all of its current credit facilities.
In connection with the execution of the Amended Credit Facility, the Company incurred transaction costs of $4,929,000, which amount was capitalized as “Debt Issuance Costs” on the Consolidated Balance Sheet. In addition, the Company recorded a loss on early extinguishment of debt of approximately $3,164,000 related to the write-off of unamortized debt issuance costs attributed to the term loan portion of the December credit facility.
On September 1, 2004, the MGC selected the Company for priority investigation, thereby allowing it to proceed with its proposed St. Louis projects (see Note 4). Pursuant to the Company’s St. Louis City
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
redevelopment agreement for such project (see Note 7), on September 16 the Company issued a $10 million irrevocable letter of credit for the benefit of an affiliate of the City of St. Louis, thereby reducing availability under the revolving credit facility to $115,000,000 as of September 30, 2004. The letter of credit bears a facility fee of 3.25% per annum as of September 30, 2004.
Unsecured 8.25% Notes: In March 2004, the Company privately placed $200 million aggregate principal amount of 8.25% Senior Subordinated Notes due 2012 (the “8.25% Notes”), which were issued at 99.282% of par to yield 8.375% to maturity. Net proceeds of the offering plus cash on hand were used to repurchase $188 million in aggregate principal amount of the Company’s 9.25% Senior Subordinated Notes due 2007 (see below).
The 8.25% Notes are redeemable, at the option of the Company, in whole or in part, on the following dates, at the following redemption prices (expressed as percentages of par value):
8.25% Notes redeemable: | |||
On and after March 15, | at a percentage of par value equal to | ||
2008 | 104.125 | % | |
2009 | 102.063 | % | |
2010 and thereafter | 100.000 | % |
The 8.25% Notes are unsecured obligations of the Company, guaranteed by all material restricted subsidiaries (excluding foreign subsidiaries) of the Company, as defined in the indenture. The indenture contains certain covenants limiting the ability of the Company and its restricted subsidiaries to incur additional indebtedness, issue preferred stock, pay dividends or make certain distributions, repurchase equity interests or subordinated indebtedness, create certain liens, enter into certain transactions with affiliates, sell assets, issue or sell equity interests in its subsidiaries, or enter into certain mergers and consolidations. Among other things, the Company is permitted to amend, restate, modify, renew, refund, replace or refinance its senior indebtedness up to a maximum of $475 million (which amount is limited to $350 million under the Company’s other two senior subordinated note indentures) of such debt outstanding. It is also permitted to put certain of its undeveloped real estate, measured in acres, into an unrestricted subsidiary.
On July 13, 2004, the Company completed a registered exchange offer, pursuant to which $199,500,000 aggregate principal amount of the privately placed 8.25% Notes were exchanged by the holders for $199,500,000 aggregate principal amount of registered 8.25% Notes.
9.25% Notes Repurchase: On March 19, 2004, the Company repurchased $188 million aggregate principal amount of its $350 million aggregate principal amount of 9.25% Senior Subordinated Notes due 2007 (the “9.25% Notes”) pursuant to a cash tender offer using proceeds from the Company’s offering of 8.25% Notes plus cash on hand. The indenture governing the remaining $162 million aggregate principal amount of 9.25% Notes was unchanged and the 9.25% Notes continue to be unsecured obligations of the Company, guaranteed by all material restricted subsidiaries.
In connection with the repurchase, the Company incurred a loss on early extinguishment of debt of $8,254,000, including paying a tender offer premium of $6,031,000 and expensing a pro rata portion of unamortized debt issuance costs of $1,863,000.
The Company’s debt obligations contain certain customary covenants. As of September 30, 2004, the Company was in compliance with such covenants.
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 6—Stockholders’ Equity
Common Stock: In February 2004, the Company consummated the public offering of 11,500,000 shares of its common stock at $11.15 per share and received approximately $120,400,000 of net proceeds. Under the terms of the December 2003 credit facility, the Company deposited 25% of the net proceeds of the equity offering into a completion reserve account. The remaining proceeds will be used for general corporate purposes, which may include L’Auberge construction and new capital projects, including the St. Louis Development Projects.
Shelf Registration: As of September 30, 2004, availability under the Company’s shelf registration statement with the SEC was $236,775,000. There can be no assurance the Company will be able to issue any additional securities under the shelf registration statement on terms acceptable to the Company.
Note 7—Commitments and Contingencies
Belterra Hotel Tower Expansion: As discussed in Note 4, the Company opened the new 300-guestroom tower in early May 2004 and therefore the $5 million deposit previously placed into escrow was released to the Company in July 2004.
Construction Commitments: As described in Note 4, the Company is building L’Auberge du Lac in Lake Charles, Louisiana and a replacement casino in Neuquen, Argentina. The Company has agreements related to the design, development and construction of these projects for approximately $213,298,000. Of this, $131,536,000 was included in the Company’s construction in progress as of September 30, 2004.
Redevelopment Agreement: Also as described in Note 4, the Company entered into a redevelopment agreement for its St. Louis City development project. Among other things, the agreement commits the Company to: (a) invest $208 million (including the approximate $8 million previously spent to acquire the 7.3-acre proposed site) to construct a gaming and multi-use facility that will include a 75,000 square foot casino and 200-guestroom luxury hotel; (b) invest, potentially with one or more development partners, a minimum of $50 million in residential housing, retail, or mixed-use developments in the City of St. Louis within five years of the opening of the casino and hotel; (c) pay, beginning after the facility opens, the City of St. Louis annual and other services fees; and, (d) pay substantial penalties to the City of St. Louis if the project fails to open before certain projected dates.
Lease and Development Agreement: Also as described in Note 4, the Company entered into a lease and development agreement for its St. Louis County project. Among other things, the agreement commits the Company to: (a) lease a parcel of land for 99 years (not including certain termination provisions) for a minimum lease rent of $4 million or 2.5% of adjusted gross receipts (as defined in the lease agreement) commencing on the date the project opens; (b) invest $300 million to construct a gaming and multi-use facility that will include a minimum 90,000 square foot casino with a minimum 3,000 slot machines and 60 table games, a 100-guestroom hotel, a parking garage and other amenities; (c) construct a 280,000-square-foot combination retail, commercial and/or entertainment facility within three years of the casino opening; (d) construct additional community and recreational facilities; (e) construct a roadway into the facility; (e) remediate the 80-acre site, with lease termination provisions for the benefit of the Company if the cost exceeds a certain amount; and, (f) pay penalties if the project fails to open prior to certain projected dates.
Employment and Severance Agreements: The Company has entered into employment agreements with key employees, including its Chief Executive Officer (“CEO”), Chief Operating Officer (“COO”), Chief Financial Officer (“CFO”) and General Counsel. These agreements generally grant the employee the right to receive his or her annual salary for up to the balance of the employment agreement, plus extension of certain benefits and the
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
immediate vesting of stock options, if the employee terminates his or her employment for good reason or the Company terminates the employee without cause (both as defined in the respective agreements). Upon certain events (including the employee’s termination of his or her employment after a diminution of his or her responsibilities or after the Company’s failure to pay a minimum bonus, or the Company’s termination of the employee) (each a “Severance Trigger”) following a change in control (as defined in the various agreements), the employee is entitled to (i) a lump-sum payment equal to two times the largest annual salary and incentive compensation that was paid to the employee during the two years preceding the change in control (or in the case of the CEO, CFO and General Counsel, a lump sum payment equal to their annual salary through the end of the term, or if the balance of the contract is less than one year, for one year), (ii) the extension of certain benefits for at least one year after termination, and (iii) the immediate vesting of the employee’s stock options. In the case of the CEO, he may terminate his employment following a change of control and receive such payments, benefits and option vesting without the requirement that there be a subsequent Severance Trigger.
City Annexation Costs: During 2002, the 569 acres owned by the Company at Boomtown Reno were annexed into the City of Reno, Nevada. The City is extending the municipal sewer line to the Boomtown property. The Company estimates the sewer hook-up fees to Boomtown will approximate $1,500,000. The project is scheduled for completion in the first half of 2005. Upon completion, the annual sewer service fees are estimated to be approximately $100,000 higher than the costs currently incurred to operate the Company’s own sewage treatment plant. However, the Company will no longer have a need to maintain or replace its own sewage treatment plant equipment. The annexation of the property by the City of Reno and the extension of city services, particularly sewage treatment capability, enhance the value and feasibility of developing the Company’s approximately 500 acres of surplus land. The Company has not yet determined whether to sell, develop or simply retain such excess land.
Self-Insurance Reserves: The Company self-insures various levels of general liability, property, workers’ compensation and medical coverage. Insurance reserves include accruals of estimated settlements for known claims, as well as accruals of estimates of incurred but not reported claims.
Legal
Astoria Entertainment Litigation: In November 1998, Astoria Entertainment, Inc. filed a complaint in the United States District Court for the Eastern District of Louisiana. Astoria, an unsuccessful applicant for a license to operate a riverboat casino in Louisiana, attempted to assert a claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), seeking damages allegedly resulting from its failure to obtain a license. Astoria named several companies and individuals as defendants, including Hollywood Park, Inc. (the predecessor to Pinnacle Entertainment), Louisiana Gaming Enterprises, Inc. (“LGE”), then a wholly owned subsidiary of Pinnacle Entertainment, and an employee of Boomtown, Inc. (currently, Boomtown, LLC). The Company believed the claims had no merit and, indeed, Astoria voluntarily dismissed its claims against Hollywood Park, LGE, and the Boomtown employee.
On March 1, 2001, Astoria amended its complaint, adding new claims and renaming Boomtown, Inc. and LGE as defendants. Astoria asserted that the defendants (i) conspired to corrupt the process for awarding licenses to operate riverboat casinos in Louisiana, (ii) succeeded in corrupting the process, (iii) violated federal and Louisiana antitrust laws, and (iv) violated the Louisiana Unfair Trade Practices Act. Astoria asserted that it would have obtained a license to operate a riverboat casino in Louisiana, but for alleged improper acts by Boomtown and LGE. On August 21, 2001, the court dismissed Astoria’s federal claims with prejudice and its state claims without prejudice. In May 2002, Astoria refiled its state claims in the Civil District Court for the Parish of Orleans, Louisiana. The Company filed a motion to dismiss, which was denied by the district court. On
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 7, 2004, the Louisiana Fourth Circuit Court of Appeal granted the Company’s writ application, reversed the district court, and dismissed Astoria’s claims. Astoria recently applied for supervisory writs to the Louisiana Supreme Court, which has not yet acted on the matter. While the Company cannot predict the outcome of this litigation, management intends to continue to defend it vigorously.
Poulos Lawsuit: A class-action lawsuit was filed on April 26, 1994, in the United States District Court, Middle District of Florida (the “Poulos Lawsuit”), naming as defendants 41 manufacturers, distributors and casino operators of video poker and electronic slot machines, including Casino Magic. The lawsuit alleges that the defendants have engaged in a course of fraudulent and misleading conduct intended to induce people to play such games based on false beliefs concerning the operation of the gaming machines and the extent to which there is an opportunity to win. The suit alleges violations of RICO, as well as claims of common law fraud, unjust enrichment and negligent misrepresentation, and seeks damages in excess of $6 billion. On May 10, 1994, a second class-action lawsuit was filed in the United States District Court, Middle District of Florida (the “Ahern Lawsuit”), naming as defendants the same defendants who were named in the Poulos Lawsuit and adding as defendants the owners of certain casino operations in Puerto Rico and the Bahamas, who were not named as defendants in the Poulos Lawsuit. The claims in the Ahern Lawsuit are identical to the claims in the Poulos Lawsuit. Because of the similarity of parties and claims, the Poulos Lawsuit and Ahern Lawsuit were consolidated into one case file (the “Poulos/Ahern Lawsuit”) in the United States District Court, Middle District of Florida. On December 9, 1994 a motion by the defendants for change of venue was granted, transferring the case to the United States District Court for the District of Nevada, in Las Vegas. In an order dated April 17, 1996, the court granted motions to dismiss filed by Casino Magic and other defendants and dismissed the complaint without prejudice. The plaintiffs then filed an amended complaint on May 31, 1996 seeking damages against Casino Magic and other defendants in excess of $1 billion and punitive damages for violations of RICO and for state common law claims for fraud, unjust enrichment and negligent misrepresentation.
At a December 13, 1996 status conference, the Poulos/Ahern Lawsuit was consolidated with two other class-action lawsuits (one on behalf of a smaller, more defined class of plaintiffs and one against additional defendants) involving allegations substantially identical to those in the Poulos/Ahern Lawsuit (collectively, the “Consolidated Lawsuits”) and all pending motions in the Consolidated Lawsuits were deemed withdrawn without prejudice. The plaintiffs in the Consolidated Lawsuits filed a consolidated amended complaint on February 14, 1997, which the defendants moved to dismiss. On December 19, 1997, the court granted the defendants’ motion to dismiss certain allegations in the RICO claim, but denied the motion as to the remainder of such claim; granted the defendants’ motion to strike certain parts of the consolidated amended complaint; denied the defendants’ remaining motions to dismiss and to stay or abstain; and permitted the plaintiffs to substitute one of the class representatives. On January 9, 1998, the plaintiffs filed a second consolidated amended complaint containing claims nearly identical to those in the previously dismissed complaints. The defendants answered, denying the substantive allegations of the second consolidated amended complaint. On June 21, 2002, the court denied plaintiffs’ motion for class certification. On July 11, 2002, the plaintiffs filed a petition for permission to appeal the court’s denial of the plaintiffs’ motion for class certification. On August 15, 2002, the United States Court of Appeals for the Ninth Circuit granted plaintiffs’ petition. On August 23, 2002, the plaintiffs filed their notice of appeal with the U.S. District Court for the District of Nevada. On or about April 30, 2003, the plaintiffs filed their opening brief on appeal. Defendants’ answering brief was filed on September 18, 2003. The plaintiffs’ reply brief was filed on October 20, 2003. Oral argument on the appeal of the order denying class certification was heard on January 15, 2004. On August 10, 2004, the Ninth Circuit affirmed the district court’s denial of plaintiffs’ class certification motion. The case is again before the district court.
The claims may not be covered under the Company’s insurance policies. While the Company cannot predict the outcome of this action, management intends to defend it vigorously.
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Casino Magic Biloxi Patron Incident: In January 2001, three Casino Magic Biloxi patrons sustained injuries as a result of an assault by another Casino Magic Biloxi patron. In August 2001, two of the casino patrons injured during the January 2001 incident filed a complaint in the Circuit Court of Harrison County, Mississippi, Second Judicial District, which complaint was subsequently amended. In February 2004, Casino Magic Biloxi settled the complaint that was originally filed in August 2001 with respect to the two injured patrons. An Order of Dismissal with prejudice was entered on February 20, 2004. The settlement has been paid by the Company’s applicable insurance carriers.
On February 13, 2002, a third injured victim and her husband filed a subsequent complaint in the Circuit Court of Harrison County, Mississippi, Second Judicial District. The allegations in the complaint are substantially similar to those contained in the original August 2001 lawsuit. No trial date has been set for the subsequent suit.
While the Company cannot predict the outcome of this action, the Company, together with its applicable insurers, intends to defend it vigorously.
Alanis Suit: On or about December 3, 2002, Paul Alanis, the Company’s former Chief Executive Officer and President and a former Company director, filed a lawsuit in the Superior Court of California for Los Angeles County against the Company, R.D. Hubbard and Daniel R. Lee, claiming, among other things, wrongful termination and defamation and seeking unspecified compensatory and punitive damages. On February 10, 2003, the court granted the Company’s motion to send the matter to binding arbitration, with the exception of the defamation claims, and stayed the action pending completion of the arbitration. On December 29, 2003, the arbitrator granted summary judgment in favor of the Company and Mr. Hubbard. (No claims were asserted against Mr. Lee in the arbitration.) The arbitrator also determined that the Company and Mr. Hubbard were entitled to reimbursement from Mr. Alanis for their costs, expenses and attorneys’ fees. A trial on the defamation claims was continued and a trial date was not set.
Effective June 9, 2004, the Company and the other defendants and Mr. Alanis entered into a settlement agreement wherein Mr. Alanis agreed to drop all suits and claims filed against the Company and the other defendants and the Company agreed to waive all claims against Mr. Alanis, including the right to reimbursement for costs, expenses and attorneys’ fees referenced above. The Company and other defendants were not required to make any payment to Mr. Alanis. All parties agreed to releases of all further claims.
Indiana State Tax Dispute. The State of Indiana conducted a sales and use tax audit at the Company’s Belterra entity in 2001. In October 2002, the Company received a proposed assessment in the amount of $3,070,000 with respect to the construction of the Miss Belterra casino riverboat, including interest and a penalty. A protest was filed by the Company in December of 2002. On June 16, 2003, the Indiana Tax Court issued two favorable rulings for other taxpayers with claims similar to the Company’s. On September 21, 2004, the Indiana Supreme Court reversed the Tax Court’s ruling with respect to one of those taxpayers. The Company believes that this recent ruling by the Supreme Court may not apply to its case because of the different facts involved, and intends to pursue this matter vigorously.
Other. The Company is party to a number of other pending legal proceedings. Management does not expect that the outcome of such proceedings, either individually or in the aggregate, will have a material effect on the Company’s financial results.
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 8—Consolidating Condensed Financial Information—Pending from accounting
The Company’s subsidiaries (excluding Casino Magic Argentina and certain non-material subsidiaries) have fully and unconditionally and jointly and severally guaranteed the payment of all obligations under the 8.25% Notes, 8.75% Notes and 9.25% Notes. Separate financial statements and other disclosures regarding the subsidiary guarantors are not included herein because management has determined that such information is not material to investors. In lieu thereof, the Company includes the following:
Pinnacle Entertainment, Inc. | Wholly Owned Guarantor Subsidiaries(a) | Wholly Owned Non-Guarantor Subsidiaries(b) | Consolidating and Eliminating Entries | Pinnacle Entertainment, Inc. Consolidated | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
As of September 30, 2004 | ||||||||||||||||||||
Balance Sheet | ||||||||||||||||||||
Current assets | $ | 117,230 | $ | 69,936 | $ | 5,797 | $ | 0 | $ | 192,963 | ||||||||||
Property and equipment, net | 17,560 | 712,733 | 5,441 | 0 | 735,734 | |||||||||||||||
Other non-current assets | 133,602 | 29,441 | 1,704 | 10,851 | 175,598 | |||||||||||||||
Investment in subsidiaries | 503,111 | 7,047 | 0 | (510,158 | ) | 0 | ||||||||||||||
Inter-company | 274,916 | 4,019 | 0 | (278,935 | ) | 0 | ||||||||||||||
$ | 1,046,419 | $ | 823,176 | $ | 12,942 | $ | (778,242 | ) | $ | 1,104,295 | ||||||||||
Current liabilities | $ | 50,408 | $ | 67,059 | $ | 1,881 | $ | 0 | $ | 119,348 | ||||||||||
Notes payable, long term | 629,424 | 1,142 | 0 | 0 | 630,566 | |||||||||||||||
Other non-current liabilities | 29,234 | 0 | 0 | (12,206 | ) | 17,028 | ||||||||||||||
Inter-company | 0 | 274,921 | 4,014 | (278,935 | ) | 0 | ||||||||||||||
Equity | 337,353 | 480,054 | 7,047 | (487,101 | ) | 337,353 | ||||||||||||||
$ | 1,046,419 | $ | 823,176 | $ | 12,942 | $ | (778,242 | ) | $ | 1,104,295 | ||||||||||
For the three months ended September 30, 2004 |
| |||||||||||||||||||
Statement of Operations | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Gaming | $ | 0 | $ | 116,624 | $ | 3,861 | $ | 0 | $ | 120,485 | ||||||||||
Food and beverage | 0 | 8,145 | 297 | 0 | 8,442 | |||||||||||||||
Equity in subsidiaries | 16,320 | 1,446 | 0 | (17,766 | ) | 0 | ||||||||||||||
Other | 1,500 | 16,081 | 0 | 0 | 17,581 | |||||||||||||||
17,820 | 142,296 | 4,158 | (17,766 | ) | 146,508 | |||||||||||||||
Expenses: | ||||||||||||||||||||
Gaming | 0 | 67,295 | 1,018 | 0 | 68,313 | |||||||||||||||
Food and beverage | 0 | 7,390 | 336 | 0 | 7,726 | |||||||||||||||
Administrative and other | 6,218 | 37,257 | 793 | 0 | 44,268 | |||||||||||||||
Depreciation and amortization | 536 | 11,366 | 183 | 0 | 12,085 | |||||||||||||||
6,754 | 123,308 | 2,330 | 0 | 132,392 | ||||||||||||||||
Operating (loss) income | 11,066 | 18,988 | 1,828 | (17,766 | ) | 14,116 | ||||||||||||||
Early extinguishment of debt | 3,164 | 0 | 0 | 0 | 3,164 | |||||||||||||||
Interest expense (income), net | 13,563 | (1,476 | ) | (9 | ) | 0 | 12,078 | |||||||||||||
Income (loss) before inter-company activity and income taxes | (5,661 | ) | 20,464 | 1,837 | (17,766 | ) | (1,126 | ) | ||||||||||||
Management fee & inter-company interest expense (income) | (4,144 | ) | 4,144 | 0 | 0 | 0 | ||||||||||||||
Income tax (benefit) expense | 1,724 | 0 | 391 | 0 | 2,115 | |||||||||||||||
Net income (loss) | $ | (3,241 | ) | $ | 16,320 | $ | 1,446 | $ | (17,766 | ) | $ | (3,241 | ) | |||||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Pinnacle Entertainment, Inc. | Wholly Owned Guarantor | Wholly Owned Non-Guarantor Subsidiaries(b) | Consolidating and Eliminating Entries | Pinnacle Entertainment, Inc. Consolidated | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
For the nine months ended September 30, 2004 |
| |||||||||||||||||||
Statement of Operations | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Gaming | $ | 0 | $ | 341,215 | $ | 10,711 | $ | 0 | $ | 351,926 | ||||||||||
Food and beverage | 0 | 22,822 | 835 | 0 | 23,657 | |||||||||||||||
Equity in subsidiaries | 44,979 | 3,457 | 0 | (48,436 | ) | 0 | ||||||||||||||
Other | 4,500 | 40,640 | 0 | 0 | 45,140 | |||||||||||||||
49,479 | 408,134 | 11,546 | (48,436 | ) | 420,723 | |||||||||||||||
Expenses: | ||||||||||||||||||||
Gaming | 0 | 198,757 | 2,858 | 0 | 201,615 | |||||||||||||||
Food and beverage | 0 | 21,143 | 949 | 0 | 22,092 | |||||||||||||||
Administrative and other | (21,423 | ) | 101,178 | 2,401 | 0 | 82,156 | ||||||||||||||
Depreciation and amortization | 1,822 | 33,248 | 642 | 0 | 35,712 | |||||||||||||||
(19,601 | ) | 354,326 | 6,850 | 0 | 341,575 | |||||||||||||||
Operating income (loss) | 69,080 | 53,808 | 4,696 | (48,436 | ) | 79,148 | ||||||||||||||
Loss on early extinguishment of debt | 11,418 | 0 | 0 | 0 | 11,418 | |||||||||||||||
Interest expense (income), net | 40,734 | (3,261 | ) | (23 | ) | 0 | 37,450 | |||||||||||||
Income (loss) before inter-company activity and taxes | 16,928 | 57,069 | 4,719 | (48,436 | ) | 30,280 | ||||||||||||||
Management fee & inter-company interest expense (income) | (12,090 | ) | 12,090 | 0 | 0 | 0 | ||||||||||||||
Income tax expense | 15,083 | 0 | 1,262 | 0 | 16,345 | |||||||||||||||
Net income (loss) | $ | 13,935 | $ | 44,979 | $ | 3,457 | $ | (48,436 | ) | $ | 13,935 | |||||||||
For the three months ended September 30, 2003 |
| |||||||||||||||||||
Statement of Operations | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Gaming | $ | 0 | $ | 112,604 | $ | 3,189 | $ | 0 | $ | 115,793 | ||||||||||
Food and beverage | 0 | 7,823 | 240 | 0 | 8,063 | |||||||||||||||
Equity in subsidiaries | 14,969 | 992 | 0 | (15,961 | ) | 0 | ||||||||||||||
Other | 1,500 | 14,368 | 19 | 0 | 15,887 | |||||||||||||||
16,469 | 135,787 | 3,448 | (15,961 | ) | 139,743 | |||||||||||||||
Expenses: | ||||||||||||||||||||
Gaming | 0 | 66,067 | 824 | 0 | 66,891 | |||||||||||||||
Food and beverage | 0 | 7,369 | 225 | 0 | 7,594 | |||||||||||||||
Administrative and other | 11,458 | 32,735 | 663 | 0 | 44,856 | |||||||||||||||
Depreciation and amortization | 637 | 11,032 | 183 | 0 | 11,852 | |||||||||||||||
12,095 | 117,203 | 1,895 | 0 | 131,193 | ||||||||||||||||
Operating (loss) income | 4,374 | 18,584 | 1,553 | (15,961 | ) | 8,550 | ||||||||||||||
Loss on early extinguishment of debt | 8,744 | 0 | 0 | 0 | 8,744 | |||||||||||||||
Interest expense (income), net | 15,016 | (411 | ) | (10 | ) | 0 | 14,595 | |||||||||||||
(Loss) income before inter-company activity and income taxes | (19,386 | ) | 18,995 | 1,563 | (15,961 | ) | (14,789 | ) | ||||||||||||
Management fee & inter-company interest expense (income) | (4,026 | ) | 4,026 | 0 | 0 | 0 | ||||||||||||||
Income tax (benefit) expense | 1,037 | 0 | 571 | 0 | 1,608 | |||||||||||||||
Net (loss) income | $ | (16,397 | ) | $ | 14,969 | $ | 992 | $ | (15,961 | ) | $ | (16,397 | ) | |||||||
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Pinnacle Entertainment, Inc. | Wholly Owned Guarantor Subsidiaries(a) | Wholly Owned Non-Guarantor Subsidiaries(b) | Consolidating and Eliminating Entries | Pinnacle Entertainment, Inc. Consolidated | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
For the nine months ended September 30, 2003 |
| |||||||||||||||||||
Statement of Operations | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Gaming | $ | 0 | $ | 333,326 | $ | 8,235 | $ | 0 | $ | 341,561 | ||||||||||
Food and beverage | 0 | 21,455 | 589 | 0 | 22,044 | |||||||||||||||
Equity in subsidiaries | 34,752 | 2,422 | 0 | (37,174 | ) | 0 | ||||||||||||||
Other | 4,500 | 36,745 | 51 | 0 | 41,296 | |||||||||||||||
39,252 | 393,948 | 8,875 | (37,174 | ) | 404,901 | |||||||||||||||
Expenses: | ||||||||||||||||||||
Gaming | 0 | 199,890 | 2,213 | 0 | 202,103 | |||||||||||||||
Food and beverage | 0 | 20,935 | 571 | 0 | 21,506 | |||||||||||||||
Administrative and other | 21,019 | 94,282 | 2,636 | 0 | 117,937 | |||||||||||||||
Depreciation and amortization | 1,850 | 32,779 | 537 | 0 | 35,166 | |||||||||||||||
22,869 | 347,886 | 5,957 | 0 | 376,712 | ||||||||||||||||
Operating (loss) income | 16,383 | 46,062 | 2,918 | (37,174 | ) | 28,189 | ||||||||||||||
Loss on early extinguishment of debt | 8,744 | 0 | 0 | 0 | 8,744 | |||||||||||||||
Interest expense (income), net | 40,319 | (920 | ) | (12 | ) | 0 | 39,387 | |||||||||||||
(Loss) income before inter-company activity and income taxes | (32,680 | ) | 46,982 | 2,930 | (37,174 | ) | (19,942 | ) | ||||||||||||
Management fee & inter-company interest expense (income) | (12,230 | ) | 12,230 | 0 | 0 | 0 | ||||||||||||||
Income tax (benefit) expense | (822 | ) | 0 | 508 | 0 | (314 | ) | |||||||||||||
Net (loss) income | $ | (19,628 | ) | $ | 34,752 | $ | 2,422 | $ | (37,174 | ) | $ | (19,628 | ) | |||||||
Statement of Cash Flows |
| |||||||||||||||||||
For the nine months ended September 30, 2004 |
| |||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (111,979 | ) | $ | 128,228 | $ | 2,025 | $ | 0 | $ | 18,274 | |||||||||
Net cash provided by (used in) investing activities | 71,414 | (131,242 | ) | (2,456 | ) | 0 | (62,284 | ) | ||||||||||||
Net cash provided by (used in) financing activities | 96,310 | (37 | ) | 0 | 0 | 96,273 | ||||||||||||||
Effect of exchange rate changes on cash | 0 | 0 | (286 | ) | 0 | (286 | ) | |||||||||||||
For the nine months ended September 30, 2003 |
| |||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (24,216 | ) | $ | 56,477 | $ | 1,911 | $ | 0 | $ | 34,172 | |||||||||
Net cash provided by (used in) investing activities | (191,539 | ) | (45,259 | ) | 320 | 0 | (236,478 | ) | ||||||||||||
Net cash provided by (used in) financing activities | 179,340 | (236 | ) | 0 | 0 | 179,104 | ||||||||||||||
Effect of exchange rate changes on cash | 0 | 0 | 99 | 0 | 99 |
18
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Pinnacle Entertainment, Inc. | Wholly Owned Guarantor Subsidiaries(a) | Wholly Owned Non-Guarantor Subsidiaries(b) | Consolidating and Eliminating Entries | Pinnacle Entertainment, Inc. Consolidated | ||||||||||||
(in thousands) | ||||||||||||||||
As of December 31, 2003 | ||||||||||||||||
Balance Sheet | ||||||||||||||||
Current assets | $ | 72,821 | $ | 66,241 | $ | 6,559 | $ | 0 | $ | 145,621 | ||||||
Property and equipment, net | 18,808 | 600,780 | 2,121 | 0 | 621,709 | |||||||||||
Other non-current assets | 147,491 | 29,448 | 1,982 | 10,851 | 189,772 | |||||||||||
Investment in subsidiaries | 485,060 | 3,735 | 0 | (488,795 | ) | 0 | ||||||||||
Inter-company | 190,279 | 4,072 | 0 | (194,351 | ) | 0 | ||||||||||
$ | 914,459 | $ | 704,276 | $ | 10,662 | $ | (672,295 | ) | $ | 957,102 | ||||||
Current liabilities | 41,955 | 50,811 | 2,855 | 0 | 95,621 | |||||||||||
Notes payable, long term | 642,412 | 1,182 | 0 | 0 | 643,594 | |||||||||||
Other non-current liabilities | 29,233 | 0 | 0 | (12,205 | ) | 17,028 | ||||||||||
Inter-company | 0 | 190,279 | 4,072 | (194,351 | ) | 0 | ||||||||||
Equity | 200,859 | 462,004 | 3,735 | (465,739 | ) | 200,859 | ||||||||||
$ | 914,459 | $ | 704,276 | $ | 10,662 | $ | (672,295 | ) | $ | 957,102 | ||||||
(a) | The following subsidiaries are treated as guarantors of the 8.25% Notes, the 8.75% Notes and the 9.25% Notes: Belterra Resort Indiana, LLC, Boomtown, LLC, PNK (Reno), LLC, Louisiana—I Gaming, PNK (Lake Charles), LLC, Casino Magic Corp., Biloxi Casino Corp., PNK (Bossier City), Inc., Casino One Corporation, HP/Compton, Inc. and Crystal Park Hotel and Casino Development Company, LLC. |
(b) | The Company’s only material non-guarantor subsidiary of the 8.25% Notes, the 8.75% Notes and the 9.25% Notes is Casino Magic Neuquen S.A. and its subsidiary Casino Magic Support Services. |
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 9—Segment Information
The following table reconciles the Company’s segment activity to its consolidated results of operations for the three and nine months ended September 30, 2004 and 2003 and financial position as of September 30, 2004 and December 31, 2003:
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||
(in thousands) | ||||||||||||
Revenues and expenses | ||||||||||||
Boomtown New Orleans | ||||||||||||
Revenues | $ | 27,812 | $ | 26,991 | $ | 83,349 | $ | 80,372 | ||||
Expenses, excluding depreciation and amortization | 19,840 | 19,610 | 59,010 | 58,220 | ||||||||
Depreciation and amortization | 1,720 | 1,520 | 5,048 | 4,836 | ||||||||
Net operating income—Boomtown New Orleans | $ | 6,252 | $ | 5,861 | $ | 19,291 | $ | 17,316 | ||||
Belterra Casino Resort | ||||||||||||
Revenues | $ | 42,594 | $ | 35,912 | $ | 117,225 | $ | 100,633 | ||||
Expenses, excluding depreciation and amortization | 31,742 | 28,644 | 92,191 | 83,705 | ||||||||
Depreciation and amortization | 4,190 | 3,482 | 11,759 | 10,229 | ||||||||
Net operating income—Belterra Casino Resort | $ | 6,662 | $ | 3,786 | $ | 13,275 | $ | 6,699 | ||||
Boomtown Bossier City | ||||||||||||
Revenues | $ | 25,164 | $ | 25,711 | $ | 77,193 | $ | 80,418 | ||||
Expenses, excluding depreciation and amortization | 19,946 | 21,781 | 60,838 | 67,809 | ||||||||
Depreciation and amortization | 1,678 | 2,286 | 5,080 | 6,466 | ||||||||
Net operating income—Boomtown Bossier City | $ | 3,540 | $ | 1,644 | $ | 11,275 | $ | 6,143 | ||||
Casino Magic Biloxi | ||||||||||||
Revenues | $ | 19,697 | $ | 21,755 | $ | 61,404 | $ | 64,174 | ||||
Expenses, excluding depreciation and amortization | 15,569 | 17,034 | 48,599 | 51,584 | ||||||||
Depreciation and amortization | 1,953 | 1,942 | 5,893 | 5,786 | ||||||||
Net operating income—Casino Magic Biloxi | $ | 2,175 | $ | 2,779 | $ | 6,912 | $ | 6,804 | ||||
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
(in thousands) | ||||||||||||||||
Boomtown Reno | ||||||||||||||||
Revenues | $ | 25,523 | $ | 24,366 | $ | 65,326 | $ | 65,749 | ||||||||
Expenses, excluding depreciation, and amortization | 20,299 | 19,036 | 55,906 | 53,690 | ||||||||||||
Depreciation and amortization | 1,719 | 1,782 | 5,320 | 5,322 | ||||||||||||
Net operating (loss) income—Boomtown Reno | $ | 3,505 | $ | 3,548 | $ | 4,100 | $ | 6,737 | ||||||||
Casino Magic Argentina | ||||||||||||||||
Revenues | $ | 4,158 | $ | 3,448 | $ | 11,546 | $ | 8,875 | ||||||||
Expenses, excluding depreciation and amortization | 2,147 | 1,712 | 6,208 | 5,420 | ||||||||||||
Depreciation and amortization | 183 | 183 | 642 | 537 | ||||||||||||
Net operating income—Casino Magic Argentina | $ | 1,828 | $ | 1,553 | $ | 4,696 | $ | 2,918 | ||||||||
Card Clubs | ||||||||||||||||
Revenues | $ | 1,560 | $ | 1,560 | $ | 4,680 | $ | 4,680 | ||||||||
Expenses, excluding depreciation and amortization | 72 | 66 | 60 | 99 | ||||||||||||
Depreciation and amortization | 454 | 593 | 1,630 | 1,863 | ||||||||||||
Net operating income—Card Clubs | $ | 1,034 | $ | 901 | $ | 2,990 | $ | 2,718 | ||||||||
Total Reportable Segments | ||||||||||||||||
Revenues | $ | 146,508 | $ | 139,743 | $ | 420,723 | $ | 404,901 | ||||||||
Expenses, excluding depreciation and amortization | 109,615 | 107,883 | 322,812 | 320,527 | ||||||||||||
Depreciation and amortization | 11,897 | 11,788 | 35,372 | 35,039 | ||||||||||||
Net operating income—Total Reportable Segments | $ | 24,996 | $ | 20,072 | $ | 62,539 | $ | 49,335 | ||||||||
Reconciliation to Consolidated Net Income (Loss) | ||||||||||||||||
Total net operating income for reportable segments | $ | 24,996 | $ | 20,072 | $ | 62,539 | $ | 49,335 | ||||||||
Unallocated income and expenses | ||||||||||||||||
Corporate expense | 5,178 | 4,901 | 15,366 | 13,215 | ||||||||||||
Pre-opening and development costs | 5,702 | 305 | 10,369 | 678 | ||||||||||||
Gain on sale of assets, net of other items | 0 | 0 | (42,344 | ) | 0 | |||||||||||
Goodwill impairment charge | 0 | 7,832 | 0 | 7,832 | ||||||||||||
Indiana regulatory and related benefit | 0 | (1,516 | ) | 0 | (579 | ) | ||||||||||
Interest income | (879 | ) | (516 | ) | (2,408 | ) | (1,366 | ) | ||||||||
Interest expense, net of capitalized interest | 12,957 | 15,111 | 39,858 | 40,753 | ||||||||||||
Loss on early extinguishment of debt | 3,164 | 8,744 | 11,418 | 8,744 | ||||||||||||
Income (loss) before income taxes | (1,126 | ) | (14,789 | ) | 30,280 | (19,942 | ) | |||||||||
Income tax expense (benefit) | 2,115 | 1,608 | 16,345 | (314 | ) | |||||||||||
Net income (loss) | $ | (3,241 | ) | $ | (16,397 | ) | $ | 13,935 | $ | (19,628 | ) | |||||
EBITDA (a) | ||||||||||||||||
Boomtown New Orleans | $ | 7,972 | $ | 7,381 | $ | 24,339 | $ | 22,152 | ||||||||
Belterra Casino Resort | 10,852 | 7,268 | 25,034 | 16,928 | ||||||||||||
Boomtown Bossier City | 5,218 | 3,930 | 16,355 | 12,609 | ||||||||||||
Casino Magic Biloxi | 4,128 | 4,721 | 12,805 | 12,590 | ||||||||||||
Boomtown Reno | 5,224 | 5,330 | 9,420 | 12,059 | ||||||||||||
Casino Magic Argentina | 2,011 | 1,736 | 5,338 | 3,455 | ||||||||||||
Card Clubs | 1,488 | 1,494 | 4,620 | 4,581 | ||||||||||||
Corporate | (4,990 | ) | (4,837 | ) | (15,026 | ) | (13,088 | ) | ||||||||
31,903 | 27,023 | 82,885 | 71,286 | |||||||||||||
Pre-opening and development costs | (5,702 | ) | (305 | ) | (10,369 | ) | (678 | ) | ||||||||
Gain on sale of assets, net of other items | 0 | 0 | 42,344 | 0 | ||||||||||||
Goodwill impairment charge | 0 | (7,832 | ) | 0 | (7,832 | ) | ||||||||||
Indiana regulatory and related benefit | 0 | 1,516 | 0 | 579 | ||||||||||||
$ | 26,201 | $ | 20,402 | $ | 114,860 | $ | 63,355 | |||||||||
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the three months | For the nine months | |||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||
EBITDA margins (b) | ||||||||||||
Boomtown New Orleans | 28.7 | % | 27.3 | % | 29.2 | % | 27.2 | % | ||||
Belterra Casino Resort | 25.5 | % | 20.2 | % | 21.4 | % | 16.8 | % | ||||
Boomtown Bossier City | 20.7 | % | 15.3 | % | 21.2 | % | 15.7 | % | ||||
Casino Magic Biloxi | 21.0 | % | 21.7 | % | 20.9 | % | 19.6 | % | ||||
Boomtown Reno | 20.5 | % | 21.9 | % | 14.4 | % | 18.3 | % | ||||
Casino Magic Argentina | 48.4 | % | 50.3 | % | 46.2 | % | 38.9 | % | ||||
Card clubs | 95.4 | % | 95.8 | % | 98.7 | % | 97.9 | % |
(a) | The Company defines EBITDA as earnings before interest expense and interest income, provision for income taxes, depreciation, amortization and loss on early extinguishment of debt. EBITDA is not a measure of financial performance under the promulgations of the accounting profession known as GAAP. Management uses EBITDA adjusted for certain non-routine items to analyze the performance of the Company’s business segments. EBITDA is relevant in evaluating large, long-lived hotel casino projects because it provides a perspective on the current effects of operating decisions separated from the substantial, non-operational depreciation charges, financing costs and other non-routine costs of such projects. Additionally, management believes some investors consider EBITDA to be a useful measure in determining a company’s ability to service or incur indebtedness and for estimating a company’s underlying cash flow from operations before capital costs, taxes, capital expenditures and other non-routine costs. EBITDA, subject to certain adjustments, is also a measure used in debt covenants in the Company’s debt agreements. Unlike net income, EBITDA does not include depreciation or interest expense and therefore does not reflect past, current or future capital expenditures or the cost of capital. Management uses EBITDA as only one of several comparative tools, together with GAAP measurements, to assist in the evaluation of operating performance and to measure cash flow generated by ongoing operations. Such GAAP measurements include operating income (loss), net income (loss), cash flow from operations and cash flow data. EBITDA is not calculated in the same manner by all companies and, accordingly, may not be an appropriate measure of comparing performance amongst different companies. The following table is a reconciliation of net income (loss) to EBITDA: |
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
(in thousands) | ||||||||||||||||
Net income (loss) | $ | (3,241 | ) | $ | (16,397 | ) | $ | 13,935 | $ | (19,628 | ) | |||||
Provision for income taxes | 2,115 | 1,608 | 16,345 | (314 | ) | |||||||||||
Income (loss) before income taxes | (1,126 | ) | (14,789 | ) | 30,280 | (19,942 | ) | |||||||||
Loss on early extinguishment of debt | 3,164 | 8,744 | 11,418 | 8,744 | ||||||||||||
Interest expense, net of capitalized interest and interest income | 12,078 | 14,595 | 37,450 | 39,387 | ||||||||||||
Operating income | 14,116 | 8,550 | 79,148 | 28,189 | ||||||||||||
Depreciation and amortization | 12,085 | 11,852 | 35,712 | 35,166 | ||||||||||||
EBITDA (*) | $ | 26,201 | $ | 20,402 | $ | 114,860 | (*) | $ | 63,355 | |||||||
(*) | EBITDA includes in the nine-month period ended September 30, 2004 a gain on sale of assets, net of other items, of $42,344,000. |
(b) | EBITDA margin is EBITDA as a percent of revenues. |
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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2004 | December 31, 2003 | |||||
(in thousands) | ||||||
Total Assets | ||||||
Boomtown New Orleans | $ | 78,351 | $ | 80,569 | ||
Belterra Casino Resort | 234,959 | 227,409 | ||||
Boomtown Bossier City | 127,399 | 127,617 | ||||
Casino Magic Biloxi | 99,474 | 103,181 | ||||
Boomtown Reno | 84,304 | 87,139 | ||||
Casino Magic Argentina | 12,942 | 10,662 | ||||
Card Clubs | 5,900 | 5,904 | ||||
L’Auberge Lake Charles | 151,408 | 34,735 | ||||
St. Louis | 7,373 | 7,373 | ||||
Corporate | 302,185 | 272,513 | ||||
Total Reportable Segments, Corporate and Other | $ | 1,104,295 | $ | 957,102 | ||
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Table of Contents
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and the notes thereto and other financial information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, and other filings with the Securities and Exchange Commission.
Overview and Summary
The Company is a diversified, multi-jurisdictional owner and operator of gaming entertainment facilities. The Company owns and operates casinos in Nevada, Mississippi, Louisiana, Indiana and Argentina. In addition, the Company receives lease income from two card clubs in southern California. The Company is also building a $365 million casino resort in Lake Charles, Louisiana and has been selected to build two new casino hotel projects in the area of St. Louis, Missouri.
The Company has undertaken a number of initiatives designed to increase earnings from its existing operations. For example, in early May 2004, the Company opened its 300-guestroom tower at Belterra in Indiana. The Company also is gradually upgrading the slot machines at most of its facilities to the new “ticket-in, ticket-out” technology and has corporate-wide efforts to centralize certain services and control staffing levels. Such improvements were partially offset during the first half of 2004 by the competitive effect on the Company’s Reno property of large Native American casinos that recently opened or expanded in Northern California.
Since September 2003, the Company has amended and increased its credit facility (August 2004), refinanced a significant portion of its long-term debt (September 2003 and March 2004), issued in February 2004 approximately $120,400,000 of common stock (net of expenses) and sold its two parcels of surplus land in Inglewood, California (February and May 2004). As a result, the Company believes it has the resources necessary to both complete the $365 million L’Auberge du Lac casino and the $200 million St. Louis City casino resort and, when combined with its expected ongoing earnings, to fund much of its $300 million St. Louis County project as well.
24
Table of Contents
The following table highlights the Company’s results of operations for the three and nine months ended September 30, 2004 and 2003:
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
(in thousands) | ||||||||||||||||
Revenues | ||||||||||||||||
Boomtown New Orleans | $ | 27,812 | $ | 26,991 | $ | 83,349 | $ | 80,372 | ||||||||
Belterra Casino Resort | 42,594 | 35,912 | 117,225 | 100,633 | ||||||||||||
Boomtown Bossier City | 25,164 | 25,711 | 77,193 | 80,418 | ||||||||||||
Casino Magic Biloxi | 19,697 | 21,755 | 61,404 | 64,174 | ||||||||||||
Boomtown Reno | 25,523 | 24,366 | 65,326 | 65,749 | ||||||||||||
Casino Magic Argentina | 4,158 | 3,448 | 11,546 | 8,875 | ||||||||||||
Card Clubs | 1,560 | 1,560 | 4,680 | 4,680 | ||||||||||||
Total Revenues | $ | 146,508 | $ | 139,743 | $ | 420,723 | $ | 404,901 | ||||||||
Operating income (loss) | ||||||||||||||||
Boomtown New Orleans | $ | 6,252 | $ | 5,861 | $ | 19,291 | $ | 17,316 | ||||||||
Belterra Casino Resort | 6,662 | 3,786 | 13,275 | 6,699 | ||||||||||||
Boomtown Bossier City | 3,540 | 1,644 | 11,275 | 6,143 | ||||||||||||
Casino Magic Biloxi | 2,175 | 2,779 | 6,912 | 6,804 | ||||||||||||
Boomtown Reno | 3,505 | 3,548 | 4,100 | 6,737 | ||||||||||||
Casino Magic Argentina | 1,828 | 1,553 | 4,696 | 2,918 | ||||||||||||
Card Clubs | 1,034 | 901 | 2,990 | 2,718 | ||||||||||||
Corporate | (5,178 | ) | (4,901 | ) | (15,366 | ) | (13,215 | ) | ||||||||
Pre-opening and development costs | (5,702 | ) | (305 | ) | (10,369 | ) | (678 | ) | ||||||||
Gain on sale of assets, net of other items | 0 | 0 | 42,344 | 0 | ||||||||||||
Goodwill impairment charge | 0 | (7,832 | ) | 0 | (7,832 | ) | ||||||||||
Indiana regulatory and related benefit | 0 | 1,516 | 0 | 579 | ||||||||||||
Operating income (a) | $ | 14,116 | $ | 8,550 | $ | 79,148 | (a) | $ | 28,189 | |||||||
Depreciation and amortization | $ | 12,085 | $ | 11,852 | $ | 35,712 | $ | 35,166 | ||||||||
Revenue by Property as % of Total Revenue | ||||||||||||||||
Boomtown New Orleans | 19.0 | % | 19.3 | % | 19.8 | % | 19.8 | % | ||||||||
Belterra Casino Resort | 29.2 | % | 25.7 | % | 28.0 | % | 24.8 | % | ||||||||
Boomtown Bossier City | 17.1 | % | 18.5 | % | 18.3 | % | 20.0 | % | ||||||||
Casino Magic Biloxi | 13.4 | % | 15.5 | % | 14.6 | % | 15.8 | % | ||||||||
Boomtown Reno | 17.4 | % | 17.4 | % | 15.5 | % | 16.2 | % | ||||||||
Casino Magic Argentina | 2.8 | % | 2.5 | % | 2.7 | % | 2.2 | % | ||||||||
Card Clubs | 1.1 | % | 1.1 | % | 1.1 | % | 1.2 | % | ||||||||
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Operating margins (b) | ||||||||||||||||
Boomtown New Orleans | 22.5 | % | 21.7 | % | 23.1 | % | 21.5 | % | ||||||||
Belterra Casino Resort | 15.6 | % | 10.5 | % | 11.3 | % | 6.7 | % | ||||||||
Boomtown Bossier City | 14.1 | % | 6.4 | % | 14.6 | % | 7.6 | % | ||||||||
Casino Magic Biloxi | 11.0 | % | 12.8 | % | 11.3 | % | 10.6 | % | ||||||||
Boomtown Reno | 13.7 | % | 14.6 | % | 6.3 | % | 10.2 | % | ||||||||
Casino Magic Argentina | 44.0 | % | 45.0 | % | 40.7 | % | 32.9 | % | ||||||||
Card Clubs | 66.3 | % | 57.8 | % | 63.9 | % | 58.1 | % |
(a) | Operating income includes in the nine-month period ended September 30, 2004 a gain on sale of assets, net of other items, of $42,344,000. |
(b) | Operating margin by property is calculated by dividing operating income (loss) by revenue by location. |
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Table of Contents
Comparisons of the Three and Nine Months Ended September 30, 2004 and 2003
The following commentary reflects the Company’s results in accordance with several GAAP measures. An additional, supplemental analysis of the Company’s results using EBITDA, including the Company’s definition of EBITDA and a reconciliation of such EBITDA to GAAP accounting measures, is provided in the “Other Supplemental Data” section below.
Operating Results As noted in the preceding table, operating income for the three months ended September 30, 2004 increased to $14,116,000 from $8,550,000 for the three months ended September 30, 2003, largely due to strong performances at Belterra Casino Resort and Boomtown Bossier City. Revenues for the three months ended September 30, 2004 increased 4.8% compared to the 2003 comparable period.
For the nine months ended September 30, 2004, operating income grew substantially from the 2003 nine-month period, largely due to asset sale gains (net of other items) in the 2004 period. Also, a goodwill impairment charge affected results in the 2003 period. Revenues for the nine months ended September 30, 2004 increased to $420,723,000 from $404,901,000 in the 2003 comparable period. Each property’s contribution to these results is as follows:
Boomtown New Orleans reported a solid 2004 third quarter despite Hurricane Ivan, which forced the property to close for three days in mid-September. Operating income for the quarter rose 6.7% to $6,252,000 from $5,861,000 in the third quarter of 2003. Revenues for the three months ended September 30, 2004 were $27,812,000, up 3% from $26,991,000 in the third quarter of 2003. Operating income margin for the quarter rose to 22.5% from 21.7% in the prior-year period.
Net revenues for the nine-month period ended September 30, 2004 improved by 3.7% to $83,349,000 compared to $80,372,000 in the prior-year nine-month period. Operating income improved by 11.4% to $19,291,000 from $17,316,000, primarily on the strength of the first half of 2004.
Belterra Casino Resort generated its tenth successive quarter of record results. The recent quarter included results of a $37 million expansion, which opened in early May. Operating income increased 76.0% to $6,662,000 from $3,786,000 in the year-earlier period. Revenues for the quarter rose 18.6% to $42,594,000 from $35,912,000 in the third quarter of 2003. The expansion offers 300 additional guestrooms, along with the new meeting space and swimming pool, and fueled an increase in admissions of 9.2%, or 45,000, in the third quarter of 2004 versus the third quarter of 2003. Despite the doubled guestroom base, Belterra reported hotel occupancy of 93.2% for the third quarter of 2004, and maintained consistent average daily guestroom rates. Operating margins increased by 5.1 percentage points to 15.6% in the 2004 third quarter versus 10.5% in the prior-year period, as the result of increased revenues and operating efficiencies.
Belterra’s nine-month revenues and operating income significantly exceeded the prior-year nine-month results. Net revenues for the nine months ended September 30, 2004 were up 16.5% to $117,225,000 compared to $100,633,000 for the nine months ended September 30, 2003, while operating income more than doubled to $13,275,000 in the 2004 nine-month period compared to $6,699,000 in the nine months of 2003.
Boomtown Bossier City’s three-month results ended September 30, 2004 reflect continued operating efficiency, despite the highly competitive gaming market. Net revenues for the quarter were $25,164,000 compared to $25,711,000 for the three months ended September 30, 2003. Expanded Native American gaming in Oklahoma and increased competition from a new race track casino approximately eight miles east of Bossier City/Shreveport continue to affect the property’s net gaming revenues. However, as a result of continued cost-control measures, the operating margin improved to 14.1% for the 2004 three-month period compared to 6.4% in the 2003 quarterly period. Operating income more than doubled to $3,540,000 from $1,644,000.
The nine-month revenues reflect similar competitive pressures, as net revenues declined to $77,193,000 from $80,418,000 in the prior-year nine-month period. Operating income increased to $11,275,000 in the 2004 period from $6,143,000 in the 2003 period.
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AtCasino Magic Biloxi, third quarter 2004 revenues and operating income were adversely affected by Hurricane Ivan, as the property was required to close its facility for the storm by the Mississippi Gaming Commission for approximately three days in mid-September. In addition, the Company believes the pending threat of the hurricane in the days prior to closure reduced operating results. The facility incurred only minor damage, but the storm caused widespread damage in key feeder markets, including the 19-day closure of a portion of Interstate 10, the principal highway leading to Biloxi. Consequently, net revenues for the third quarter of 2004 were $19,697,000 compared to $21,755,000 in the prior-year third quarter, and operating income was $2,175,000 for the three months ended September 30, 2004 compared to $2,779,000 in the 2003 comparable period.
For the nine months ended September 30, 2004, revenues were $61,404,000 compared to $64,174,000 in the 2003 period. Operating income was $6,912,000 for the 2004 period versus $6,804,000 in the nine months ended September 30, 2003.
AtBoomtown Reno, revenues for the quarter ended September 30, 2004 were $25,523,000, compared to $24,366,000 for the third quarter of 2003, primarily due to higher fuel prices at its two service stations. Operating income was $3,505,000 for the 2004 third quarter, slightly below September 2003 quarterly amount of $3,548,000, reflecting a shift in revenue from high-margin casino revenue to low-margin fuel sales.
For the nine months ended September 30, 2004, revenues were $65,326,000 compared to $65,749,000 for the nine months ended September 30, 2003. Operating income for the 2004 period was $4,100,000 compared to the 2003 comparable period of $6,737,000. Again the reduction in operating income and margins reflected a shift in revenue from high-margin casino revenue to low-margin fuel sales. The State of Nevada also materially raised its gaming taxes effective July 1, 2003. The Reno market is seasonal, favoring the warmer months of the second and third quarters.
Casino Magic Argentina continues to benefit from an improved economic and political environment. Revenues for the three and nine months ended September 30, 2004 improved to $4,158,000 and $11,546,000, respectively, compared to $3,448,000 and $8,875,000 for the three and nine months ended September 30, 2003, respectively. Operating income also improved, increasing to $1,828,000 and $4,696,000 for the three and nine months ended September 30, 2004, respectively, compared to $1,553,000 and $2,918,000 for the three and nine months ended September 30, 2003, respectively.
Card Clubs revenue and operating income were consistent with prior-year quarterly and nine-month results, as there was no change in the monthly lease income from either facility.
Corporate Costs for the three months ended September 30, 2004 were $5,178,000, or 5.7% above the prior year quarterly costs of $4,901,000. Costs for the nine-months ended September 30, 2004 of $15,366,000 were above the $13,215,000 for the nine months ended September 30, 2003.
Pre-opening and Development Costs The majority of pre-opening and development costs of $5,702,000 and $10,369,000 for the three and nine months ended September 30, 2004, respectively, relate to L’Auberge and to the St. Louis development opportunities.
Gain on Sale of Assets, Net of Other Items As discussed in Note 3 to the Condensed Consolidated Financial Statements, in the nine months ended September 30, 2004, the Company sold its 97 acres of surplus land for approximately $57 million in cash and recorded a gain, net of transactional and other costs, of $43,880,000. In addition, the Company recorded a charge of $1,536,000 for the expensing of an agreement for a consultant that assisted with the disposition of the surplus land.
Goodwill Impairment and Income Tax Matters During the three months ended September 30, 2003, the Company resolved certain old tax matters resulting in a goodwill impairment charge of $7,832,000 and a tax provision of $4,248,000 (which tax provision excluded a tax benefit for the 2003 third quarter).
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Indiana Regulatory and Related Benefit During the three months ended September 30, 2003, the Company was reimbursed for legal expenses it had incurred in connection with a derivative action lawsuit. In addition, a portion of the reserve established in 2002 for Indiana matters was recovered in the 2003 third quarter.
Interest Income Interest income for the three months ended September 30, 2004 and 2003 was $879,000 and $516,000, respectively. Interest income for the nine months ended September 30, 2004 and 2003 was $2,408,000 and $1,366,000, respectively. Additional cash generated from the equity offering in early February 2004 and the asset sales in February and May 2004 led to the increased interest income for both the three and nine month periods.
Interest Expense Interest expense for the three months ended September 30, 2004 before capitalized interest decreased approximately $1,137,000, primarily due to a reduction in the Company’s cost of debt capital through the various refinancings completed in 2004 and late 2003. Interest expense for the nine months ended September 30, 2004 before capitalized interest increased approximately $1,685,000, primarily due to increased borrowings throughout 2004 compared to the first nine months of 2003.
Capitalized interest for the L’Auberge and Belterra projects was $1,394,000 and $3,067,000 for the three and nine months ended September 30, 2004, respectively, compared to $377,000 and $864,000 for the three and nine months ended September 30, 2003, respectively. The increase in the capitalization of interest expense reflects higher investment in construction in progress than in the prior year periods.
Loss on Early Extinguishment of Debt During the three and nine months ended September 30, 2004, the Company amended and restated its credit facility (August 2004) and repurchased a portion of its 9.25% Notes (March 2004). In September 2003, the Company repurchased all of its then outstanding 9.5% senior subordinated notes. These transactions improved the pricing, maturity, liquidity and flexibility of the Company’s debt. In connection with the resulting early extinguishment of debt and related costs, the Company incurred charges of $3,164,000 and $11,418,000 for the three and nine months ended September 30, 2004, respectively, and a charge of $8,744,000 for the three and nine months ended September 30, 2003.
Income Tax Expense/Benefit Because of the non-deductibility of certain pre-opening and development costs incurred in 2004 (principally lobbying costs paid by the Company with respect to a California gaming initiative), the Company’s effective tax rate was higher than the statutory rate.
As noted above, the Company resolved certain old tax matters in the third quarter of 2003, recording a tax charge of $4,248,000.
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2004, the Company had $264,491,000 of cash, cash equivalents and restricted cash. Management currently estimates that approximately $45 million is used to fund the Company’s casino cages, slot machines, operating accounts and day-to-day working capital needs. By consolidating certain accounts and services, and introducing more “cashless” slot machines, management believes that it can gradually reduce the required operating cash balances to less than $45 million, despite the Company’s anticipated growth.
Included in cash, cash equivalents and restricted cash at September 30, 2004 and December 31, 2003 is restricted cash of $112,407,000 and $128,929,000, respectively. The decrease is primarily due to the use of funds for construction of L’Auberge and the Belterra guestroom expansion and the repayment of a portion of the credit facility, offset by land sales proceeds and a portion of the equity offering, which proceeds were required by the Company’s credit agreement to be deposited in the completion reserve account.
Working capital for the Company (current assets less current liabilities) was $73,615,000 at September 30, 2004, versus $50,000,000 at December 31, 2003. The increase is attributable to the net cash proceeds of the equity offering, offset by capital spending primarily for the L’Auberge project.
For the nine months ended September 30, 2004, cash generated from operations was $18,274,000, compared to $34,172,000 in the 2003 nine-month period. The prior-year period included cash tax refunds of approximately $10,479,000.
During the 2004 nine-month period, the Company invested $135,745,000 in property and equipment (primarily L’Auberge and Belterra). The Company also sold surplus land it owned in Inglewood, California comprising nearly all of its $56,939,000 in receipts from dispositions of assets. Its ongoing construction was in part funded by use of its restricted cash accounts. The net effect was $62,284,000 invested in the Company’s long-term assets.
For the 2004 nine-month period, cash provided from financing activities was $96,273,000, primarily from the common stock offering completed at the beginning of 2004, offset by a reduction in the term loan facility as discussed below.
For the nine months ended September 30, 2003, cash provided from financing activities was $179,104,000, as the Company restructured its then-existing bank credit facility and completed a $135 million 8.75% notes offering. The Company immediately borrowed $125 million upon closing of the credit facility, and deposited the funds into a completion reserve account (long-term restricted cash). Net proceeds from the new notes offering were used to fund the retirement of $125 million aggregate principal of 9.50% senior subordinated notes, $64,001,000 of which were deposited with a trustee for the benefit of a redemption completed in October 2003. These funds were also classified as long-term restricted cash at September 30, 2003. During the nine-month period, the Company invested $47,804,000 in property and equipment. Overall, cash and cash equivalents (which excludes restricted cash) declined by $23,301,000 for the nine months ended September 30, 2003.
As of September 30, 2004, the Company’s debt consists primarily of the term loan portion of the Amended Credit Facility (defined below) of $125 million and the three issues of senior subordinated indebtedness: $200 million aggregate principal amount of 8.25% Senior Subordinated Notes due March 2012 (the “8.25% Notes”), $135 million aggregate principal amount of 8.75% Senior Subordinated Notes due October 2013 (the “8.75% Notes”) and $162 million aggregate principal amount of 9.25% Senior Subordinated Notes due February 2007 (the “9.25% Notes”).
On August 27, 2004, the Company amended and restated its existing bank credit facility, increasing the total facility to $400 million from $272 million (the “Amended Credit Facility”). The Amended Credit Facility provides for a six-year $275 million term loan facility, of which $125 million was drawn immediately and $150 million is available on a delayed basis in minimum increments of $25 million through September 2005, and a $125 million revolving credit facility maturing in December 2008.
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Upon closing of the facility, the Company repaid all outstanding obligations (including accrued interest and commitment fees) under the credit facility executed in December 2003, totaling approximately $147,670,000, and paid certain transaction fees and expenses, using $125 million of proceeds from the term loans under the Amended Credit Facility, supplemented by approximately $26,394,000 in cash from the completion reserve account.
The Amended Credit Facility provides for, among other things: (a) an expanded use of the term loan proceeds to include the St. Louis Development Projects (subject to certain approvals) and to repay all or a portion of the 9.25% Notes; (b) an extended maturity of the funded term loans to August 2010; (c) an extended availability of the unfunded delayed-draw term loan period to September 2005; (d) a reduced term loan interest rate margin of 50 basis points for LIBOR loans; and, (e) an extension of the 0.25% quarterly term loan installment repayments to March 2006. The maturity dates under the Amended Credit Facility will advance to August 15, 2006 if the Company has not, before such date, repaid, refinanced or extended the maturity of its 9.25% Notes beyond the term loan maturity date.
Other than the increased liquidity and flexibility noted above, the Amended Credit Facility is substantially consistent with the December 2003 facility. In addition, borrowings under the Amended Credit Facility and access to funds from the completion reserve account for the costs and expense associated with the Company’s current projects continue to be subject to conditions normally associated with construction loans, including an “in balance requirement” (as defined in the Amended Credit Facility).
Interest on the Amended Credit Facility is subject to change based on the floating rate index selected. For the revolver loan facility, the interest rate margin is additionally based on certain financial ratios. As of September 30, 2004, the term loan bore interest of 4.98% (3.00% over LIBOR), and the delayed-draw term loan and revolver facility bore facility fees for unborrowed amounts of 1.00% and 1.25%, respectively. The Company may also, at its option, borrow at a base rate, as defined in the agreement.
On March 15, 2004, the Company privately placed $200 million aggregate principal amount of 8.25% Notes, which were issued at 99.282% of par to yield 8.375% to maturity. Net proceeds of the offering plus cash on hand were used to repurchase $188 million aggregate principal amount of the Company’s 9.25% Notes.
In July 2004, the Company completed a registered exchange offer, pursuant to which $199,500,000 aggregate principal amount of the privately placed 8.25% Notes were exchanged by the holders for $199,500,000 aggregate principal amount of registered 8.25% Notes.
The 8.25% Notes become callable at a premium over their face amount on March 15, 2008; the 8.75% Notes become callable at a premium over their face amount on October 1, 2008; and, the 9.25% Notes became callable at a premium over their face amount on February 15, 2003. Such premiums decline periodically as the bonds near their respective maturities. None of the notes has any required sinking fund payments prior to their maturities.
The 8.25%, 8.75% and 9.25% Notes (the “Notes”) are unsecured obligations of the Company, guaranteed by all material restricted subsidiaries (excluding foreign subsidiaries) of the Company, as defined in the indentures. The indentures contain certain covenants limiting the ability of the Company and its restricted subsidiaries to incur additional indebtedness, issue preferred stock, pay dividends or make certain distributions, repurchase equity interests or subordinated indebtedness, create certain liens, enter into certain transactions with affiliates, sell assets, issue or sell equity interests in its subsidiaries, or enter into certain mergers and consolidations. Among other things, the Company is permitted, under the two most restrictive indentures, to amend, restate, modify, renew, refund, replace and refinance its senior indebtedness with up to a maximum of $350 million of such debt outstanding. The indentures also permit the incurrence of additional indebtedness for debt refinancing or under a provision that, if at the time the indebtedness is proposed to be incurred, the Company’s consolidated coverage ratio on a pro forma basis, as defined in those indentures (essentially the ratio of EBITDA to interest costs), would be at least 2.00 to 1.00. The Company’s consolidated coverage ratio is currently below 2.00 to 1.00.
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Accordingly, except as noted above, the Company’s current ability to incur additional indebtedness is limited to less than the $400 million that would otherwise be available under the Amended Credit Facility. Management anticipates that the income from the Lake Charles facility, when included in such ratios, will enable the Company to access all of its current credit facilities. The Company is also permitted to put certain of its undeveloped real estate, measured in acres, into an unrestricted subsidiary. The proceeds of any subsequent sale of the land would also remain unrestricted.
On September 1, 2004, the MGC selected the Company for priority investigation, thereby allowing it to proceed with its proposed St. Louis projects (see Note 4 to the Condensed Consolidated Financial Statements). Pursuant to the Company’s St. Louis City redevelopment agreement for such project (see Note 7 to the Condensed Consolidated Financial Statements), on September 16 the Company issued a $10 million irrevocable letter of credit for the benefit of an affiliate of the City of St. Louis, thereby reducing availability under the revolving credit facility of the Amended Credit Facility to $115,000,000 as of September 30, 2004. The letter of credit bears a facility fee of 3.25% as of September 30, 2004.
The Company also has a $3,300,000 stand-by letter of credit outstanding at September 30, 2004, which is cash-collateralized and for the benefit of the Company’s self-funded workers’ compensation insurance program.
During the nine months ended September 30, 2004, the Company completed the sale of its 97 acres of surplus land previously owned in Inglewood, California for net cash proceeds of approximately $57 million. The Company does not anticipate paying any current income tax on the land sales based on its federal net operating loss carry-forwards.
The Company intends to continue to maintain its current properties in good condition and estimates that this will require maintenance capital spending of approximately $25 million per year.
The Company currently believes that its existing cash resources and cash flows from operations and funds available under the Amended Credit Facility, without regard to asset sales, will be sufficient to fund operations, maintain existing properties, make necessary debt service payments and fund remaining construction costs of L’Auberge.
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EBITDA: The Company defines EBITDA as earnings before interest expense and interest income, provision for income taxes, depreciation, amortization and loss on early extinguishment of debt. EBITDA is not a measure of financial performance under the promulgations of the accounting profession known as GAAP. Management uses EBITDA adjusted for certain non-routine items to analyze the performance of the Company’s business segments. EBITDA is relevant in evaluating large, long-lived hotel casino projects because it provides a perspective on the current effects of operating decisions separated from the substantial, non-operational depreciation charges, financing costs and other non-routine costs of such projects. Additionally, management believes some investors consider EBITDA to be a useful measure in determining a company’s ability to service or incur indebtedness and for estimating a company’s underlying cash flow from operations before capital costs, taxes, capital expenditures and other non-routine costs. EBITDA, subject to certain adjustments, is also a measure used in debt covenants in the Company’s debt agreements. Unlike net income, EBITDA does not include depreciation or interest expense and therefore does not reflect past, current or future capital expenditures or the cost of capital. Management uses EBITDA as only one of several comparative tools, together with GAAP measurements, to assist in the evaluation of operating performance and to measure cash flow generated by ongoing operations. Such GAAP measurements include operating income (loss), net income (loss), cash flow from operations and cash flow data. EBITDA is not calculated in the same manner by all companies and, accordingly, may not be an appropriate measure of comparing performance amongst different companies. Below is a reconciliation of operating income (loss) to EBITDA:
Operating Income (Loss) | Depreciation and Amortization | EBITDA | |||||||||
(in thousands) | |||||||||||
For the three months ended September 30, 2004 | |||||||||||
Boomtown New Orleans | $ | 6,252 | $ | 1,720 | $ | 7,972 | |||||
Belterra Casino Resort | 6,662 | 4,190 | 10,852 | ||||||||
Boomtown Bossier City | 3,540 | 1,678 | 5,218 | ||||||||
Casino Magic Biloxi | 2,175 | 1,953 | 4,128 | ||||||||
Boomtown Reno | 3,505 | 1,719 | 5,224 | ||||||||
Casino Magic Argentina | 1,828 | 183 | 2,011 | ||||||||
Card Clubs | 1,034 | 454 | 1,488 | ||||||||
Corporate | (5,178 | ) | 188 | (4,990 | ) | ||||||
19,818 | 12,085 | 31,903 | |||||||||
Pre-opening and development costs | (5,702 | ) | 0 | (5,702 | ) | ||||||
$ | 14,116 | $ | 12,085 | $ | 26,201 | ||||||
For the three months ended September 30, 2003 | |||||||||||
Boomtown New Orleans | $ | 5,861 | $ | 1,520 | $ | 7,381 | |||||
Belterra Casino Resort | 3,786 | 3,482 | 7,268 | ||||||||
Boomtown Bossier City | 1,644 | 2,286 | 3,930 | ||||||||
Casino Magic Biloxi | 2,779 | 1,942 | 4,721 | ||||||||
Boomtown Reno | 3,548 | 1,782 | 5,330 | ||||||||
Casino Magic Argentina | 1,553 | 183 | 1,736 | ||||||||
Card Clubs | 901 | 593 | 1,494 | ||||||||
Corporate | (4,901 | ) | 64 | (4,837 | ) | ||||||
15,171 | 11,852 | 27,023 | |||||||||
Pre-opening and development costs | (305 | ) | 0 | (305 | ) | ||||||
Goodwill impairment charge | (7,832 | ) | 0 | (7,832 | ) | ||||||
Indiana regulatory and related benefit | 1,516 | 0 | 1,516 | ||||||||
$ | 8,550 | $ | 11,852 | $ | 20,402 | ||||||
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Operating Income (Loss) | Depreciation and Amortization | EBITDA | |||||||||
(in thousands) | |||||||||||
For the nine months ended September 30, 2004 | |||||||||||
Boomtown New Orleans | $ | 19,291 | $ | 5,048 | $ | 24,339 | |||||
Belterra Casino Resort | 13,275 | 11,759 | 25,034 | ||||||||
Boomtown Bossier City | 11,275 | 5,080 | 16,355 | ||||||||
Casino Magic Biloxi | 6,912 | 5,893 | 12,805 | ||||||||
Boomtown Reno | 4,100 | 5,320 | 9,420 | ||||||||
Casino Magic Argentina | 4,696 | 642 | 5,338 | ||||||||
Card Clubs | 2,990 | 1,630 | 4,620 | ||||||||
Corporate | (15,366 | ) | 340 | (15,026 | ) | ||||||
47,173 | 35,712 | 82,885 | |||||||||
Pre-opening and development costs | (10,369 | ) | 0 | (10,369 | ) | ||||||
Gain on sale of assets, net of other items | 42,344 | 0 | 42,344 | ||||||||
$ | 79,148 | $ | 35,712 | $ | 114,860 | ||||||
For the nine months ended September 30, 2003 | |||||||||||
Boomtown New Orleans | $ | 17,316 | $ | 4,836 | $ | 22,152 | |||||
Belterra Casino Resort | 6,699 | 10,229 | 16,928 | ||||||||
Boomtown Bossier City | 6,143 | 6,466 | 12,609 | ||||||||
Casino Magic Biloxi | 6,804 | 5,786 | 12,590 | ||||||||
Boomtown Reno | 6,737 | 5,322 | 12,059 | ||||||||
Casino Magic Argentina | 2,918 | 537 | 3,455 | ||||||||
Card Clubs | 2,718 | 1,863 | 4,581 | ||||||||
Corporate | (13,215 | ) | 127 | (13,088 | ) | ||||||
36,120 | 35,166 | 71,286 | |||||||||
Pre-opening and development costs | (678 | ) | 0 | (678 | ) | ||||||
Goodwill impairment charge | (7,832 | ) | 0 | (7,832 | ) | ||||||
Indiana regulatory and related benefit | 579 | 0 | 579 | ||||||||
$ | 28,189 | $ | 35,166 | $ | 63,355 | ||||||
For the three months | For the nine months | |||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||
EBITDA margins (a) | ||||||||||||
Boomtown New Orleans | 28.7 | % | 27.3 | % | 29.2 | % | 27.2 | % | ||||
Belterra Casino Resort | 25.5 | % | 20.2 | % | 21.4 | % | 16.8 | % | ||||
Boomtown Bossier City | 20.7 | % | 15.3 | % | 21.2 | % | 15.7 | % | ||||
Casino Magic Biloxi | 21.0 | % | 21.7 | % | 20.9 | % | 19.6 | % | ||||
Boomtown Reno | 20.5 | % | 21.9 | % | 14.4 | % | 18.3 | % | ||||
Casino Magic Argentina | 48.4 | % | 50.3 | % | 46.2 | % | 38.9 | % | ||||
Card clubs | 95.4 | % | 95.8 | % | 98.7 | % | 97.9 | % |
(a) | EBITDA margin is EBITDA as a percent of revenues. |
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CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The material changes to the Company’s contractual obligations and commitments disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 are:
• | The closing of the offering of $200 million aggregate principal amount of 8.25% Senior Subordinated Notes due 2012 and related repurchase of $188 million aggregate principal amount of 9.25% Senior Subordinated Notes due 2007 (see Note 5 to the Condensed Consolidated Financial Statements); |
• | The execution of a $400 million amended and restated bank credit facility, in which $125 million of a six-year $275 million term loan was drawn immediately, which proceeds were combined with available cash to repay a $147 million term loan under the prior credit facility (see Note 5 to the Condensed Consolidated Financial Statements); |
• | A net decrease in construction obligations of approximately $18,374,000, primarily due to the L’Auberge du Lac and Casino Magic Neuquen expansion projects, offset by the completion of the Belterra expansion (see Note 4 to the Condensed Consolidated Financial Statements); and, |
• | The execution of the St. Louis City and County development agreements as more fully described in Note 7 to the Condensed Consolidated Financial Statements. |
OFF BALANCE SHEET ARRANGEMENTS
The Company’s off balance sheet arrangements as of September 30, 2004 include a $10 million irrevocable letter of credit for the benefit of an affiliate of the City of St. Louis in connection with the Company’s St. Louis City casino project and a $3,300,000 cash-collateralized letter of credit for the Company’s self-funded workers’ compensation insurance program.
FACTORS AFFECTING FUTURE OPERATING RESULTS
California Gaming: In March 2000, California voters passed Proposition 1A, a ballot initiative that allows Native American groups to conduct various gaming activities, including slot machines, house-banked card games and lotteries. Each Native American group in California may operate slot machines, and up to two gaming facilities may be operated on any one reservation. The number of machines each Native American group is allowed to operate may be subject to agreements with the State of California. Recently, the Governor of California entered into agreements with certain Native American groups, which were subsequently ratified by the legislature, that significantly increases the amount of gaming positions available to certain tribes in California. Numerous Native American groups have established or are developing large-scale hotel and gaming facilities in California.
In mid-2003, new Native American casino developments opened in California that compete with the Boomtown Reno property. These casino developments are significantly closer to several primary feeder markets than is Boomtown Reno. Numerous Native American groups are planning new or significantly expanded facilities in the northern California area.
An initiative was introduced in California that, under certain circumstances, would have legalized slot machines at certain California racetracks and card clubs, including the two card clubs owned by the Company. This initiative, Proposition 68, appeared on the November 2004 ballot and failed to achieve the majority vote required.
The adverse effect on the Reno gaming market from expanded gaming in California is expected to continue. Boomtown Reno contributed approximately 15.5% of Pinnacle’s net revenues in the nine months ended
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September 30, 2004. The Company has taken steps to reduce its cost structure at Boomtown Reno. The Company is also evaluating the possibility of selling its significant amount of surplus land surrounding the Reno property, preferably to parties who would develop the land in ways that would be beneficial to the Company’s casino operations.
Casino Magic Biloxi: In mid-September 2004, Hurricane Ivan struck the Gulf Coast region near the Alabama/Florida border, causing the closure of the Company’s Casino Magic Biloxi property for approximately three days. Although the property did not incur any significant property damage, the closure negatively affected the quarterly operating results. Due to the severe damage to customer markets to the east of the property, including the 19-day closure of a portion of Interstate 10, the Company believes Hurricane Ivan may adversely affect the 2004 fourth quarter operating results.
L’Auberge du Lac: The Company is building a $365 million casino resort in Lake Charles, Louisiana. This amount includes capitalized interest and pre-opening costs. Under GAAP, capitalized interest is added to the property and equipment, while pre-opening costs are expensed as incurred. As of September 30, 2004, the Company has incurred approximately $155 million of construction and other costs. The Company anticipates completion of the project in the Spring of 2005.
Belterra Casino Resort: In early May 2004, the Company completed its $37 million Belterra hotel tower expansion project, which added 300 guestrooms, meeting and conference space and other amenities. Through the first five months of operation the expansion project has significantly improved the operating results at Belterra, including achieving record quarterly operating results for the three months ended September 30, 2004.
St. Louis Development Projects:On September 1, the Missouri Gaming Commission (“MGC”) selected the Company for priority investigation, thereby allowing it to proceed with its St. Louis Development Projects. For each project, the Company anticipates beginning construction shortly after receiving necessary building and land-use permits. The Company expects to receive such permits for both projects in Spring 2005. The City project is expected to open 18 months thereafter, in late 2006. Development of the County site requires extensive environmental remediation and construction of a new road to the site. Management therefore estimates that full project development of the County project will take approximately one year longer than the City project, opening in late 2007. Both of the projects are subject to MGC approval and licensing.
The Company expects to incur significant costs before starting construction, including costs for legal, consulting and design services. Such costs are being expensed as incurred.
Indiana State Income Tax Matter: In April 2004, the Indiana Tax Court ruled that Indiana wagering taxes paid are not deductible for Indiana state income tax purposes. In September 2004, the Indiana State Supreme Court denied a petition to review such matter, thereby affirming the lower tax court’s ruling. The Company is considering various options with respect to such ruling. Such ruling does not have any current effect on the Company’s cash flow or deferred tax asset or liability accounts. However, if such ruling remains unchanged, it would result in a reduction of the Company’s net operating loss position and therefore cause the Company to pay Indiana state income tax in the future sooner than would otherwise have been the case. This ruling was in connection with an unrelated third party that had been litigating the matter for several years.
Contingencies: The Company assesses its exposure to loss contingencies including legal and income tax matters and provides for an exposure if it is judged to be probable and estimable. If the actual loss from a contingency differs from management’s estimate, operating results could be affected.
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A description of the Company’s critical accounting policies and estimates can be found in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. For a more extensive discussion of the Company’s accounting policies, see Note 1, “Summary of Significant Accounting Policies,” in the Notes to the Consolidated Financial Statements in the Company’s 2003 Annual Report on Form 10-K for the year ended December 31, 2003.
RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS
There are no accounting standards issued before September 30, 2004 but effective after September 30, 2004 that are expected to have a material effect on our financial reporting (see Note 1 to the Consolidated Financial Statements).
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FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Except for the historical information contained herein, the matters addressed in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Words such as, but not limited to, “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “could”, “may”, “should” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements, which may include, without limitation, statements regarding expansion plans, cash needs, cash reserves, liquidity, operating and capital expenses, financing options, expense reductions, operating results and pending regulatory and legal matters, are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those anticipated by the Company. From time to time, oral or written forward-looking statements are also included in the Company’s other periodic reports on Forms 10-K, 10-Q and 8-K, press releases and other materials released to the public.
Actual results may differ materially from those that might be anticipated from forward-looking statements. This can occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that may cause actual performance of the Company to differ materially from that contemplated by such forward-looking statements include, among others: (1) the gaming industry is very competitive and increased competition from the legalization or expansion of gaming in Alabama, Arkansas, California, Florida, Georgia, Kentucky, Ohio, Oklahoma, Pennsylvania or Texas and the development or expansion of Native American casinos in or near the Company’s markets could adversely affect the Company’s profitability, (2) general construction risks and other factors, some of which are beyond the Company’s control, could prevent the Company from completing its construction and development projects as planned, (3) because of the Company’s leverage, future cash flows may not be sufficient to meet its financial obligations and the Company might have difficulty obtaining additional financing, and (4) the Lake Charles resort development, the St. Louis projects, the Argentine replacement casino and other capital-intensive projects could strain the Company’s financial resources and might not provide for a sufficient return. Additional factors that could cause actual performance of the Company to differ materially from that contemplated by such forward-looking statements are detailed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the Act. For more information on the potential factors that could affect the Company’s operating results and financial condition, see“—Factors Affecting Future Operating Results” above and review the Company’s other filings with the Securities and Exchange Commission.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from adverse changes in interest rates with respect to the short-term floating interest rate on borrowings under the Amended Credit Facility (see Note 5 to the Condensed Consolidated Financial Statements). At September 30, 2004, 19.8% of the aggregate principal amount of the Company’s funded debt obligations and virtually all of the Company’s invested cash balances had floating interest rates.
The Company is also exposed to market risk from adverse changes in the exchange rate of the dollar to the Argentine Peso. The total assets of Casino Magic Argentina at September 30, 2004 were $12,942,000, or approximately 1% of the consolidated assets of the Company.
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The table below provides the principal cash flows and related weighted average interest rates by contractual maturity dates for the Company’s debt obligations at September 30, 2004. At September 30, 2004, the Company did not hold any investments in market risk sensitive instruments of the type described in Item 305 of Regulation S-K.
Liabilities | 2004 | 2005 | 2006 | 2007 | 2008 | Thereafter | Total | Fair Value | |||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||||||
Credit Facility (a) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 125,000 | $ | 125,000 | $ | 126,250 | |||||||||||||||
Rate | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 4.98 | % | |||||||||||||||||
8.25% Notes | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 200,000 | $ | 200,000 | $ | 200,500 | |||||||||||||||
Fixed Rate | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 8.25 | % | 8.25 | % | |||||||||||||||||
8.75% Notes | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 135,000 | $ | 135,000 | $ | 138,375 | |||||||||||||||
Fixed Rate | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 8.75 | % | 8.75 | % | |||||||||||||||||
9.25% Notes | $ | 0 | $ | 0 | $ | 0 | $ | 162,000 | $ | 0 | $ | 0 | $ | 162,000 | $ | 166,050 | |||||||||||||||
Fixed Rate | 0 | % | 0 | % | 0 | % | 9.25 | % | 0 | % | 0 | % | 9.25 | % | |||||||||||||||||
All Other (b) | $ | 2,439 | $ | 2,526 | $ | 2,672 | $ | 2,824 | $ | 2,987 | $ | 875 | $ | 14,323 | $ | 14,323 | |||||||||||||||
All Other Avg. Interest Rate | 5.65 | % | 5.59 | % | 5.59 | % | 5.59 | % | 5.59 | % | 8.00 | % | 5.75 | % |
(a) | Under the Company’s Amended Credit Facility, the term loan matures in August 2010. This maturity date would advance to August 15, 2006 if the Company has not, before such date, repaid, refinanced or extended the maturity of its 9.25% Notes beyond the term loan maturity date. The term loan facility is classified through the August 2010 maturity date in the above table based on the Company’s apparent ability and intent to repay, refinance or extend the maturity date of the 9.25% Notes. The term loan has a floating interest rate based on 3.0% over LIBOR. As of September 30, 2004, the term loan facility bore a rate of 4.98%. |
(b) | Primarily the Hollywood Park-Casino capitalized lease obligation of $13,077,000 with a fixed rate of 5.53%. |
Item 4.Controls and Procedures
The Company’s management, with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2004. Based on this evaluation, the CEO and CFO concluded that, as of September 30, 2004, the Company’s disclosure controls and procedures were (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the CEO and CFO by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Company’s management, including the CEO and CFO, does not expect that its disclosure controls and procedures or internal controls over financial reporting will prevent all errors or fraud. A control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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There have been no material developments during the three months ended September 30, 2004 to the litigation entitled “Casino Magic Biloxi Patron Dispute”, “Actions by Greek Authorities” or “Alanis Suit” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004 and June 30, 2004 under the heading “Legal Proceedings.”
During the three months ended September 30, 2004, material developments occurred with respect to the following litigation, which is further described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and the Company’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2004 and June 30, 2004, in each case, under the heading “Legal Proceedings” and to which reference should be made.
Astoria Entertainment Litigation: In May 2002, Astoria refiled its state claims in the Civil District Court for the Parish of Orleans, Louisiana. The Company filed a motion to dismiss, which was denied by the district court. On September 7, 2004, the Louisiana Fourth Circuit Court of Appeal granted the Company’s writ application, reversed the district court, and dismissed Astoria’s claims. Astoria recently applied for supervisory writs to the Louisiana Supreme Court, which has not yet acted on the matter. While the Company cannot predict the outcome of this litigation, management intends to continue to defend it vigorously.
Poulos Lawsuit: On August 10, 2004, the Ninth Circuit affirmed the district court’s denial of plaintiffs’ class certification motion.
Indiana State Tax Dispute On September 21, 2004, the Indiana Supreme Court reversed the Indiana Tax Court’s favorable ruling with respect to another taxpayer. The Company believes the recent ruling by the Indiana Supreme Court may not apply to its case because of the different facts involved. The Company continues to pursue this matter vigorously.
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EXHIBIT INDEX
Exhibit Number | Description of Exhibit | ||
10.1 | * | Lease and Development Agreement, dated as of August 12, 2004, by and between the St. Louis County Port Authority and Pinnacle Entertainment, Inc. | |
10.2 | Amended and Restated Credit Agreement, dated as of August 27, 2004, among Pinnacle Entertainment, Inc., the Lenders referred to therein, Lehman Brothers Inc. and Bear, Stearns & Co. Inc., as Joint Advisors, Joint Lead Arrangers and Joint Book Runners, Societe Generale and Wells Fargo Bank, N.A., as Joint Documentation Agents, Bear Stearns Corporate Lending Inc., as Syndication Agent, and Lehman Commercial Paper Inc., as Administrative Agent., is hereby incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on September 2, 2004. | ||
11 | * | Statement re Computation of Per Share Earnings. | |
31.1 | * | Chief Executive Officer Certification Pursuant to Section 13a-14 of the Securities Exchange Act. | |
31.2 | * | Chief Financial Officer Certification Pursuant to Section 13a-14 of the Securities Exchange Act. | |
32 | * | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002—CEO and CFO. |
* | Filed herewith. |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
PINNACLE ENTERTAINMENT, INC. (Registrant) | ||||||||
Date: November 8, 2004 | By: | /s/ STEPHEN H. CAPP | ||||||
Stephen H. Capp Executive Vice President and Chief Financial Officer (Authorized Officer, Principal Financial Officer and Chief Accounting Officer) |
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