EXHIBIT 99.2
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
(dollars in thousands, except share data) | | June 30,
2004 | | December 31,
2003 | |
| | | | | |
ASSETS | | | | | |
| | | | | |
Current assets | | | | | |
Cash and cash equivalents | | $ | 61,356 | | $ | 103,359 | |
Restricted cash | | - | | 1,000 | |
Accounts receivable, net of allowance for doubtful accounts of $6,419 and $6,305, respectively | | 18,749 | | 16,720 | |
Inventories | | 3,679 | | 4,889 | |
Prepaid expenses and other | | 10,066 | | 6,780 | |
Total current assets | | 93,850 | | 132,748 | |
| | | | | |
Property and equipment, net | | 487,376 | | 485,557 | |
| | | | | |
Goodwill | | 252,242 | | 252,242 | |
| | | | | |
Other intangibles, net | | 9,934 | | 10,549 | |
| | | | | |
Other, net | | 26,810 | | 36,180 | |
| | | | | |
| | $ | 870,212 | | $ | 917,276 | |
| | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
| | | | | |
Current liabilities | | | | | |
Accounts payable | | $ | 9,865 | | $ | 6,274 | |
Accrued expenses and other | | 70,052 | | 80,365 | |
Total current liabilities | | 79,917 | | 86,639 | |
| | | | | |
Long-term liabilities | | | | | |
Long-term debt | | 534,067 | | 533,968 | |
Other long-term liabilities | | - | | 6,068 | |
Total long-term liabilities | | 534,067 | | 540,036 | |
| | | | | |
Commitments and contingencies | | | | | |
| | | | | |
Stockholders’ equity | | | | | |
Common stock, $.01 par value, 50,000 shares authorized, 25,000 shares issued, 23,115 shares outstanding | | - | | - | |
Additional paid-in capital | | 59,090 | | 59,090 | |
Retained earnings | | 251,336 | | 285,709 | |
| | 310,426 | | 344,799 | |
Treasury stock, at cost, 1,885 shares | | (54,198 | ) | (54,198 | ) |
Total stockholders’ equity | | 256,228 | | 290,601 | |
| | $ | 870,212 | | $ | 917,276 | |
The accompanying notes are an integral part of these
consolidated condensed financial statements.
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
| | Three months ended June 30, | | Six months ended June 30, | |
(in thousands) | | 2004 | | 2003 | | 2004 | | 2003 | |
Revenues | | | | | | | | | |
Casino | | $ | 211,556 | | $ | 212,362 | | $ | 437,195 | | $ | 427,583 | |
Food and beverage | | 19,665 | | 20,229 | | 40,148 | | 40,656 | |
Hotel | | 7,743 | | 7,598 | | 15,318 | | 15,018 | |
Retail and other | | 4,772 | | 4,770 | | 9,129 | | 9,060 | |
| | 243,736 | | 244,959 | | 501,790 | | 492,317 | |
Promotional allowances and other | | (39,911 | ) | (38,966 | ) | (79,369 | ) | (76,223 | ) |
Net revenues | | 203,825 | | 205,993 | | 422,421 | | 416,094 | |
| | | | | | | | | |
Expenses | | | | | | | | | |
Casino | | 120,308 | | 125,120 | | 244,498 | | 244,348 | |
Food and beverage | | 6,118 | | 6,256 | | 12,377 | | 12,517 | |
Hotel | | 463 | | 488 | | 1,014 | | 983 | |
Retail and other | | 1,641 | | 1,472 | | 3,293 | | 2,717 | |
General and administrative | | 28,788 | | 28,111 | | 59,317 | | 56,398 | |
Corporate expenses | | 26,289 | | 6,084 | | 31,467 | | 11,582 | |
Deferred compensation | | 44,574 | | (293 | ) | 45,552 | | (492 | ) |
Net loss on disposal of assets | | 529 | | 1,157 | | 642 | | 1,228 | |
Depreciation and amortization | | 13,423 | | 13,394 | | 26,989 | | 26,773 | |
Total expenses | | 242,133 | | 181,789 | | 425,149 | | 356,054 | |
| | | | | | | | | |
Operating income (loss) | | (38,308 | ) | 24,204 | | (2,728 | ) | 60,040 | |
| | | | | | | | | |
Other income (expense) | | | | | | | | | |
Interest expense | | (11,911 | ) | (12,690 | ) | (23,776 | ) | (25,438 | ) |
Interest income | | 184 | | 202 | | 306 | | 380 | |
Loss on early retirement of debt | | (179 | ) | - | | (179 | ) | - | |
Other, net | | (1 | ) | 66 | | (1 | ) | 66 | |
Total other income (expense) | | (11,907 | ) | (12,422 | ) | (23,650 | ) | (24,992 | ) |
| | | | | | | | | |
Net income (loss) | | $ | (50,215 | ) | $ | 11,782 | | $ | (26,378 | ) | $ | 35,048 | |
The accompanying notes are an integral part of these
consolidated condensed financial statements.
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(unaudited)
(in thousands) | | 2004 | | 2003 | |
| | | | | |
Cash flows from operating activities | | | | | |
Net income (loss) | | $ | (26,378 | ) | $ | 35,048 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
Depreciation and amortization | | 26,989 | | 26,773 | |
Amortization of debt discounts, deferred finance charges and other | | 1,359 | | 1,356 | |
Loss on early retirement of debt | | 179 | | - | |
Net loss on disposal of assets | | 642 | | 1,228 | |
Provision for doubtful accounts | | 1,588 | | 1,617 | |
Deferred compensation | | 45,552 | | (492 | ) |
(Decrease) increase in restricted cash | | 1,000 | | (61 | ) |
Net change in current assets and current liabilities | | (8,746 | ) | (20,626 | ) |
Net cash provided by operating activities | | 42,185 | | 44,843 | |
| | | | | |
Cash flows from investing activities | | | | | |
Purchases of property and equipment | | (28,852 | ) | (26,159 | ) |
Proceeds from sale of property and equipment | | 64 | | 268 | |
Decrease in notes receivables | | 800 | | - | |
Net increase in other assets | | 120 | | 93 | |
Net cash used in investing activities | | (27,868 | ) | (25,798 | ) |
| | | | | |
Cash flows from financing activities | | | | | |
Proceeds from long-term debt | | - | | 20,000 | |
Repayments on long-term debt | | - | | (18,000 | ) |
Exercise of stock options | | - | | 162 | |
Payment of stock appreciation rights | | (47,689 | ) | - | |
Capital dividends | | (8,631 | ) | (22,594 | ) |
Net cash used in financing activities | | (56,320 | ) | (20,432 | ) |
| | | | | |
Net change in cash and cash equivalents | | (42,003 | ) | (1,387 | ) |
| | | | | |
Cash and cash equivalents, beginning of period | | 103,359 | | 87,373 | |
| | | | | |
Cash and cash equivalents, end of period | | $ | 61,356 | | $ | 85,986 | |
| | | | | |
Supplemental cash flow disclosure | | | | | |
Interest paid | | $ | 22,310 | | $ | 24,241 | |
The accompanying notes are an integral part of these
consolidated condensed financial statements.
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated condensed financial statements of Horseshoe Gaming Holding Corp., a Delaware corporation, and its subsidiaries (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. It is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s Form 10-K for the year ended December 31, 2003. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows of all periods presented have been made. The results of operations for the six months ended June 30, 2004, are not necessarily indicative of the operating results for the full year.
Note 2 – Sale of the Company
On September 10, 2003, the Company and its stockholders entered into a definitive Stock Purchase Agreement (the “Harrah’s Sale Agreement”) with Harrah’s Entertainment, Inc. (“Harrah’s”). Under the terms of the Harrah’s Sale Agreement, the stockholders of the Company agreed to sell all of the outstanding stock of the Company to Harrah’s, subject to customary conditions, for $1.45 billion, including the assumption of debt. The transaction was completed on July 1, 2004.
Due to the sale, the Company incurred costs for the three and six months ended June 30, 2004, of approximately $21.3 million and $21.5 million, respectively, which are included in corporate expenses in the accompanying consolidated condensed statements of operations.
Note 3 – Other Intangibles, Net
As of June 30, 2004, and December 31, 2003, the Company had the following intangible assets recorded on its balance sheet (in thousands):
| | Gross
Carrying
Amount | | Accumulated
Amortization | | Balance | |
June 30, 2004 | | | | | | | |
Deferred licensing fees | | $ | 11,131 | | $ | 3,914 | | $ | 7,217 | |
Other | | 6,392 | | 3,675 | | 2,717 | |
| | $ | 17,523 | | $ | 7,589 | | $ | 9,934 | |
| | | | | | | |
December 31, 2003 | | | | | | | |
Deferred licensing fees | | $ | 11,131 | | $ | 3,640 | | $ | 7,491 | |
Other | | 6,380 | | 3,322 | | 3,058 | |
| | $ | 17,511 | | $ | 6,962 | | $ | 10,549 | |
Amortization expense for the three months ended June 30, 2004 and 2003 was approximately $0.3 million and $0.9 million, respectively. Amortization expense for the six months ended June 30, 2004 and 2003 was approximately $0.6 million and $2.2 million, respectively. Estimated annual amortization expense for the years ended December 31, 2004, 2005, 2006, 2007 and 2008 is approximately $1.3 million, $0.8 million, $0.8 million, $0.8 million and $0.8 million, respectively.
Note 4 – Long-term Debt
On June 30, 2004, the Company terminated its Credit Facility due to the sale to Harrah’s. As a result the Company recognized a loss on early retirement of debt of approximately $0.2 million for the three and six months ended June 30, 2004.
Note 5 – Deferred Compensation
As a result of the sale of the Company, the change of control provision contained in the stock appreciation rights (“SARs”) granted to employees became effective. The provision provided for immediate and full vesting of all SARs. The Company recognized additional deferred compensation expense for the three and six months ended June 30, 2004, of approximately $43.4 million, which is included on the deferred compensation line in the accompanying consolidated condensed statements of operations.
Note 6 – Contingencies
The Company and its subsidiaries are from time to time, party to legal proceedings arising in the ordinary course of business. Except as discussed in the Company’s Form 10-K for the year ended December 31, 2003, the Company is unaware of any legal proceedings which, even if the outcome were unfavorable to the Company, would have a material adverse impact on either its financial condition or results of operations.
Note 7 – Income Taxes
The Company is organized as a corporation under Delaware laws and has elected to be taxed as an S Corporation for federal income tax purposes. Accordingly, no provision is made in the accounts of the Company for federal income taxes, as such taxes are liabilities of the stockholders.
