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 March 31, 2000 Commission file number 0-106-619 Pinnacle Entertainment, Inc. (Formerly Hollywood Park, Inc.) (Exact Name of Registrant as Specified in Its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 95-3667491 (IRS Employer Identification No.) 330 North Brand Boulevard, Suite 1100, Glendale, California 91203 (Address of Principal Executive Offices) (Zip Code) (818) 662-5900 (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 [_] The number of outstanding shares of the registrant's common stock, as of the close of business on May 8, 2000: 26,303,652. PINNACLE ENTERTAINMENT, INC. Table of Contents Part I Item 1. Financial information Consolidated Statements of Operations for the three months ended March 31, 2000 and 1999......................................................1 Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999............................................................2 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999...................................3 Condensed Notes to Consolidated Financial Statements............................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements and Risk Factors....................................18 Factors Affecting Future Operating Results.....................................18 Results of Operations..........................................................22 Liquidity, Capital Resources and Other Factors Influencing Future Results......24 Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................25 Part II Item 4. Submission of Matters to a Vote of Security Holders..............................26 Item 5. Other Information................................................................26 Item 6. Exhibits and Reports on Form 8-K................................................ 26 Other Financial Information......................................................28 Signatures.......................................................................29 Item 1. Financial Information - ----------------------------- Pinnacle Entertainment, Inc. Consolidated Statements of Operations For the three months ended March 31, ---------------------------- 2000 1999 ------------- ------------- (in thousands, except per share data - unaudited) Revenues: Gaming $133,153 $140,391 Racing 6,143 9,779 Food and beverage 8,251 9,671 Hotel and recreational vehicle park 2,814 2,668 Truck stop and service station 4,076 2,988 Other income 8,160 6,501 ------------- ------------- 162,597 171,998 ------------- ------------- Expenses: Gaming 74,245 77,378 Racing 2,658 5,355 Food and beverage 9,177 11,655 Hotel and recreational vehicle park 1,540 1,340 Truck stop and service station 3,764 2,758 General and administrative 30,713 35,146 Depreciation and amortization 12,591 13,367 Pre-opening costs, Belterra Resort and Casino 1,743 707 Gain on disposition of assets, net (23,854) 0 Proposed merger costs 625 0 Other 2,364 2,454 ------------- ------------- 115,566 150,160 ------------- ------------- Operating Income 47,031 21,838 Interest expense, net 12,880 14,491 ------------- ------------- Income before minority interests and income taxes 34,151 7,347 Minority interests 0 458 Income tax expense 12,239 2,756 ------------- ------------- Net income $21,912 $4,133 ============= ============= ================================================================================================ Net income per common share: Net income - basic $0.83 $0.16 Net income - diluted $0.80 $0.16 Number of shares - basic 26,260 25,800 Number of shares - diluted 27,307 25,800 - ----------- See accompanying condensed notes to consolidated financial statements. 1 Pinnacle Entertainment, Inc. Consolidated Balance Sheets March 31, December 31, 2000 1999 ------------ ------------ (unaudited) (in thousands, except share data) Assets Current Assets: Cash and cash equivalents $ 227,815 $ 123,362 Short term investments 0 123,428 Receivables, net 16,278 17,132 Prepaid expenses and other assets 13,912 13,118 Assets held for sale 153,206 154,649 Current portion of notes receable 5,785 5,785 ------------ ------------ Total current assets 416,996 437,474 Notes receivables 8,632 8,912 Net property, plant and equipment 473,365 437,715 Goodwill, net of amortization 86,681 87,481 Gaming licenses, net of amortization 40,848 41,485 Debt issuance costs, net of amortization 21,691 22,813 Other assets 10,659 9,528 ------------ ------------ $ 1,058,872 $ 1,045,408 ============ ============ Liabilities and Shareholders' Equity Current Liabilities: Accounts payable $ 21,122 $ 21,096 Accrued interest 9,594 26,080 Other accrued liabilities 35,595 36,796 Accrued compensation 16,962 16,073 Liabilities to be assumed by buyers of assets held for sale 9,593 9,866 Federal and state income taxes 37,615 28,315 Current portion of notes payable 6,527 6,782 ------------ ------------ Total current liabilities 137,008 145,008 Notes payable, less current maturities 617,549 618,698 Deferred income taxes 826 826 Stockholders' Equity: Capital stock-- Preferred - $1.00 par value, authorized 250,000 shares; non issued and outstanding in 2000 and 1999 0 0 Common - $0.10 par value, authorized 40,000,000 shares; 26,282,862 and 26,234,699 shares issued and outstanding in 2000 and 1999 2,629 2,624 Capital in excess of par value 225,350 224,654 Retained earnings 75,510 53,598 ------------ ------------ Total stockholders' equity 303,489 280,876 ------------ ------------ $ 1,058,872 $ 1,045,408 ============ ============ See accompanying condensed notes to consolidated financial statements. 2 Pinnacle Entertainment, Inc. Condensed Consolidated Statements of Cash Flows For the three months ended March 31, ------------------------------------ 2000 1999 ----------- ----------- (in thousands - unaudited) Cash flows from operating activities: Net income $21,912 4,133 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 12,591 13,367 Gain on disposition of assets (23,854) 0 Decrease in other receivables 613 2,499 Increase in prepaid expenses and other assets (1,880) (1,040) Decrease in other accrued interest (16,486) (5,540) Decrease in other accrued liabilities (3,494) (1,945) Increase in federal and state income taxes 9,300 0 All other, net 420 (2,624) --------- --------- Net cash (used in) provided by operating activities (878) 8,850 --------- --------- Cash flows from investing activities: Additions to property, plant and equipment (42,392) (11,281) Receipts from sale of property, plant and equipment 24,353 37 Principal collected on notes receivable 280 254 Proceeds from sale of short term investments 123,428 0 --------- --------- Net cash provided by (used in) investing activities 105,669 (10,990) --------- --------- Cash flows from financing activities: Proceeds from secured Bank Credit Facility 0 17,000 Payment of secured Bank Credit Facility 0 (287,000) Payment on notes payable (935) (2,006) Proceeds from issuance of 9.25% Notes 0 350,000 Common stock options exercised 597 0 Increase in debt issuance costs 0 (15,309) --------- --------- Net cash (used in) provided by financing activities (338) 62,685 --------- --------- Increase in cash and cash equivalents 104,453 60,545 Cash and cash equivalents at beginning of the period 123,362 44,234 --------- --------- Cash and cash equivalents at the end of the period $227,815 $104,779 ========= ========= - ------------ See accompanying condensed notes to consolidated financial statements. 3 Pinnacle Entertainment, Inc. Condensed Notes to Consolidated Financial Statements Note 1 - Summary of Significant Accounting Policies Company Name Change In February 2000, a newly formed wholly owned subsidiary of Hollywood Park, Inc. merged into Hollywood Park, Inc. for the sole purpose of changing Hollywood Park, Inc.'s name to Pinnacle Entertainment, Inc. Pinnacle Entertainment, Inc. (the "Company" or "Pinnacle Entertainment") is a diversified gaming company that owns and operates eight casinos (four with hotels) in Nevada, Mississippi, Louisiana and Argentina, two of which are subject to a pending sales transaction (see Note 4). Pinnacle Entertainment receives lease income from two card clubs, both in the Los Angeles metropolitan area; and owns and operates a horse racing facility in Arizona, which is also subject to a pending sale transaction (see Note 4). General Pinnacle Entertainment owns and operates, through its Boomtown, Inc. ("Boomtown") subsidiary, land-based, dockside and riverboat gaming operations in Verdi, Nevada ("Boomtown Reno"), Biloxi, Mississippi ("Boomtown Biloxi") (which is subject to a pending sale transaction - see Note 4) and Harvey, Louisiana ("Boomtown New Orleans"), respectively. Pinnacle Entertainment also owns and operates, through its Casino Magic Corp. ("Casino Magic") subsidiary, dockside gaming casinos in the cities of Bay St. Louis and Biloxi, Mississippi ("Casino Magic Bay St. Louis" and "Casino Magic Biloxi") (Casino Magic Bay St. Louis is subject to a pending sale transaction - see Note 4); riverboat gaming operations in Bossier City, Louisiana ("Casino Magic Bossier City"); and two land-based casinos in Argentina ("Casino Magic Argentina"). In October 1999, the Company purchased the 49% minority interest not owned by Pinnacle Entertainment in Casino Magic Argentina (see Note 5). Pinnacle Entertainment receives lease income from two card clubs - the Hollywood Park-Casino and Crystal Park Hotel and Casino. Since September 1999, the Hollywood Park-Casino has been leased from Churchill Downs California Company ("Churchill Downs"), a wholly owned subsidiary of Churchill Downs Incorporated, and subleased to an unaffiliated third party operator (see Note 3). Prior to September 1999, the Hollywood Park- Casino was owned and operated by the Company. The Crystal Park Hotel and Casino ("Crystal Park") is owned by the Company and is leased to the same card club operator that now leases and operates the Hollywood Park-Casino. In September 1999, the Company completed the disposition of the Hollywood Park Race Track in Inglewood, California to Churchill Downs (see Note 3). The Company owns Turf Paradise, Inc. ("Turf Paradise"), a horse racing facility in Phoenix, Arizona, which is subject to a pending sale transaction (see Note 4). The Company began construction in July 1999 on the Belterra Resort and Casino, a hotel and riverboat casino resort in Switzerland County, Indiana, in which the Company owns a 97% interest, with the remaining 3% held by a non-voting local partner (see Note 6). In April 2000, the Company entered into a definitive agreement with respect to the Proposed Merger whereby, if consummated, all the shares of the Company would be acquired for cash (see Note 2). The financial information included herein has been prepared in conformity with generally accepted accounting principles as reflected in the Company's consolidated Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, for the year ended December 31, 1999. This Quarterly Report on Form 10-Q does not include certain footnotes and financial presentations normally presented annually and should be read in conjunction with the Company's 1999 Annual Report on Form 10-K. The information furnished herein is unaudited; however, in the opinion of management it reflects all normal and recurring adjustments necessary to present a fair statement of the financial results for the interim periods. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. The interim results of operations are not indicative of the results for the full year, due to the seasonality of the Company's racing business, the sale of significant operating assets in 1999 and pending asset sales at March 31, 2000 which are expected to close within the next twelve months. 4 Principles of Consolidation The consolidated financial statements include the accounts of Pinnacle Entertainment and its majority owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. The Company's significant subsidiaries include Boomtown, Inc. (and its Boomtown casinos), Casino Magic, Corp. (and its Casino Magic casinos), Turf Paradise, Inc. and Belterra Resort and Casino. Gaming Licenses In 1994, Casino Magic acquired a twelve-year concession agreement to operate the two Casino Magic Argentina casinos, and capitalized the costs related to obtaining the concession agreement. The costs are being amortized over the life of the concession agreement. In 1996, Casino Magic acquired a Louisiana gaming license to conduct the gaming operations of Casino Magic Bossier City. Casino Magic allocated a portion of the purchase price to the gaming license and is amortizing the cost over twenty-five years. Amortization of Debt Issuance Costs Debt issuance costs incurred in connection with long-term debt and bank financing are capitalized and amortized to interest expense during the period the debt or loan commitments are outstanding. Amortization expense was $659,000 and $356,000 for the three months ended March 31, 2000 and 1999, respectively. Goodwill Goodwill consists of the excess of the acquisition cost over the fair value of net assets acquired in business combinations and is being amortized on a straight-line basis over 40 years. Amortization expense was $803,000 and $756,000 for the three months ended March 31, 2000 and 1999, respectively. Racing Revenues and Expenses The Company recorded pari-mutuel revenues, admissions, food and beverage and other racing income associated with racing on a daily basis, except for prepaid admissions, which were recorded ratably over the racing season. Expenses associated with racing revenues were charged against income in those periods in which racing revenues were recognized. Other expenses were recognized as they occurred throughout the year. Gaming Revenue and Promotional Allowances Gaming revenues at the Boomtown and Casino Magic properties consists of the difference between gaming wins and losses, and at the Hollywood Park-Casino consisted of fees collected from patrons on a per seat or per hand basis. Revenues in the accompanying statements of operations exclude the retail value of food and beverage, hotel rooms and other items provided to patrons on a complimentary basis. The estimated cost of providing these promotional allowances (which is included in gaming expenses) during the three months ended March 31, 2000 and 1999 was $11,506,000 and $11,436,000, respectively. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles 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 consolidated financial statements, and (iii) the reported amounts of revenues and expenses during the reporting period. The Company uses estimates in evaluating the recoverability of property, plant and equipment, other long- term assets, deferred tax assets and in determining litigation and other obligations. Property, Plant and Equipment Additions to property, plant and equipment are recorded at cost and projects in excess of $10,000,000 include interest on funds borrowed to finance construction. Capitalized interest was $777,000 and $711,000 for the three months ended March 31, 2000 and 1999, respectively. Earnings per Share Basic earnings per share are based on net income less preferred stock dividend requirements divided by the weighted average common shares outstanding during the period. Diluted earnings per share assume exercise of in-the-money stock options outstanding at the beginning of the year or date of the issuance, unless they are antidilutive. 5 Reclassifications Certain reclassifications have been made to the 1999 amounts to be consistent with the year 2000 financial statement presentation. Note 2 - Proposed Merger On March 8, 2000, the Company announced it had received a proposal pursuant to which an affiliate of Harveys Casino Resorts ("Harveys") would acquire all of the outstanding shares of common stock of Pinnacle Entertainment. The Company's Board of Directors formed a special committee (which committee excluded certain management board members) (the "Special Committee") to evaluate and negotiate the proposal. Harveys is an affiliate of Colony Capital, Inc., a private investment firm. On April 17, 2000, the Company entered into a definitive agreement with PH Casino Resorts ("PHCR"), a newly formed subsidiary of Harveys, and Pinnacle Acquisition Corporation ("Pinnacle Acq. Corp."), a newly formed subsidiary of PHCR, pursuant to which PHCR would acquire by merger all of the outstanding capital stock of Pinnacle Entertainment (the "PHCR Merger Agreement"). The proposed merger received the unanimous approval of both the Special Committee and the Board of Directors of the Company (the "Proposed Merger"). In the Proposed Merger, Pinnacle Acq. Corp. would merge into Pinnacle Entertainment. In addition, in connection with the Proposed Merger, Harveys (like the Company) would become a wholly owned subsidiary of PHCR. Upon closing of the Proposed Merger, PHCR will acquire all of the outstanding stock of Pinnacle Entertainment for $24 per fully diluted share in cash, plus up to an additional $1 per fully diluted share in cash, which amount is contingent upon the sale of the Company's 97 acres of surplus land in Inglewood, California for net after tax proceeds of at least $40,750,000 by December 31, 2001 (see Note 4). In the event the 97 acres are sold prior to December 31, 2001 for after tax proceeds of less than $40,750,000 but more than $13,054,000, the $1 per fully diluted share will be reduced proportionately. In the event the 97 acres are not sold by December 31, 2001, or have been sold, but at a price less than or equal to $13,054,000, then Pinnacle Entertainment stockholders would not be entitled to any additional payment. PHCR's obligation to pay the contingent portion of the merger consideration will be secured by an irrevocable letter of credit in the maximum amount of the obligation. As described in Note 4, the Company has signed an agreement to sell the 97 acres at a price which management believes will entitle shareholders to the additional $1 payment per share. There can be no assurances, however, that such sale of the 97 acres will be completed. Consummation of the merger is subject to, among other things, (a) senior management contributing $50,000,000 of Pinnacle Entertainment equity to PHCR and maintaining an on-going role within PHCR; (b) regulatory approvals in the various jurisdictions in which the Company and Harveys conduct gaming operations; (c) approval by a majority of the Company's stockholders; (d) completion of PHCR's financing for the transaction (which customary bank commitment and high yield "highly confident" letters have been received by PHCR); and (e) satisfaction of other conditions precedent, including completion of the Company's pending casino and race track assets sales (see Note 4) and the opening of the Belterra Resort and Casino (currently under construction - see Note 6) substantially in accordance with its current budget not later than September 15, 2000. The Proposed Merger is expected to close in the fourth quarter of 2000. As of March 31, 2000, the Company incurred professional fees of $625,000 in connection with the Special Committee and Board of Directors' evaluation of the Proposed Merger. Additional fees have been and will continue to be incurred after March 31, 2000 relating to the Proposed Merger. In the event the Proposed Merger is terminated, under certain circumstances a termination fee of $25,000,000 may be payable by the Company to Pinnacle Acq. Corp., which circumstances are defined in the PHCR Merger Agreement previously filed with the Securities and Exchange Commission. 6 Note 3 - Assets Sold On March 24, 2000, the Company announced it had completed the sale of approximately 42 acres of surplus land in Inglewood, California to Home Depot, Inc. for $24,200,000 in cash. The 42 acres of surplus land was included in "Assets held for sale" as of December 31, 1999. The after tax cash proceeds from this sale is expected to be $15,300,000. The 42 acres of raw land did not materially contribute to the historical results of operations. On September 10, 1999, the Company completed the dispositions of the Hollywood Park Rack Track and Hollywood Park-Casino to Churchill Downs for $117,000,000 cash and $23,000,000 cash, respectively. Churchill Downs acquired the race track, 240 acres of related real estate and the Hollywood Park-Casino. The Company then entered into a 10-year leaseback of the Hollywood Park-Casino at an annual lease rate of $3,000,000 per annum, with a 10-year renewal option. The Company then subleased the facility to a third party operator for a lease payment of $6,000,000 per year. The sublease is for a one-year period. The disposition of the Hollywood Park Race Track and related real estate was accounted for as a sale and resulted in a pre-tax gain of $61,522,000. The disposition of the Hollywood Park-Casino was accounted for as a financing transaction and therefore not recognized as a sale for accounting purposes as the Company subleased the Hollywood Park-Casino to a third-party operator. Under the provisions of SFAS No. 121, the Company recorded an impairment write- down of the Hollywood Park-Casino of $20,446,000 during the quarter ended September 30, 1999. Pursuant to accounting guidelines, the Company recorded a long-term debt obligation of $23,000,000 for the Hollywood Park-Casino (see Note 9). The Hollywood Park-Casino building will continue to be depreciated over its estimated useful life. The estimated tax liability on the sales transactions to Churchill Downs is approximately $22,000,000 and will be paid in the second quarter 2000. Due to the disposition of the Hollywood Park Race Track and Hollywood Park- Casino in September 1999, there are no results of operations for the quarter ended March 31, 2000 for these facilities (as discussed above, effective with the disposition of the Hollywood Park-Casino, the Company receives only lease income from the operator of the facility). The condensed results of operations for the Hollywood Park Race Track and Hollywood Park-Casino for the three months ended March 31, 1999 were: For the three months ended March 31, 1999 ---------------- (in thousands - unaudited) Revenues $19,490 Expenses 21,165 ------- Operating income (1,675) Interest expense (a) 0 ------- Income before income taxes $(1,675) ======= (a) No interest expense was specifically identified for these operations. 7 Note 4 - Assets Held For Sale Assets held for sale at March 31, 2000 and December 31, 1999 consisted of the following, and excluded the related goodwill and deferred income taxes associated with such assets: At March 31, 2000 ----------------- Net Property Plant & Equipment Other Total ------------ -------- -------- (in thousands - unaudited) Casino Magic Bay St. Louis & Boomtown Biloxi Casinos $114,483 $ 6,017 $120,500 Turf Paradise Race Track 10,720 4,284 15,004 Other (primarily undeveloped land in California) 17,702 0 17,702 -------- ------- -------- $142,905 $10,301 $153,206 ======== ======= ======== At December 31, 1999 -------------------- Net Property Plant & Equipment Other Total ------------ -------- -------- (in thousands) Casino Magic Bay St. Louis & Boomtown Biloxi Casinos $115,731 $ 5,876 $121,607 Turf Paradise Race Track 10,873 4,359 15,232 Other (primarily undeveloped land in California) 17,810 0 17,810 --------- ------- -------- $144,414 $10,235 $154,649 ========= ======= ======== Sales transactions for these assets were pending or the properties were actively being marketed as of March 31, 2000 and December 31, 1999. There are no assurances these transactions will close. Until the sales transactions are completed, the Company continues to operate the casinos and race track held for sale. In addition, certain liabilities will be assumed by the buyers of these assets. Such liabilities, consisting primarily of accrued liabilities and accounts payable, have been classified as "Liabilities to be assumed by buyers of assets held for sale" on the accompanying Consolidated Balance Sheets. Goodwill net of amortization at March 31, 2000 and December 31, 1999 includes approximately $13,245,000 and $13,331,000, respectively, related to the pending casino and race track sales. Casinos in Mississippi On December 10, 1999, the Company announced it had entered into definitive agreements with subsidiaries of Penn National Gaming, Inc. ("Penn National") to sell its Casino Magic Bay St. Louis, Mississippi, and Boomtown Biloxi, Mississippi, casino operations for $195,000,000 in cash. Subsidiaries of Penn National will purchase all of the operating assets and certain liabilities and related operations of the Casino Magic Bay St. Louis and Boomtown Biloxi properties, including the 590 acres of land at Casino Magic Bay St. Louis and the leasehold rights at Boomtown Biloxi. The transactions are subject to certain closing conditions, including, but not limited to, approval by the Mississippi Gaming Commission (which approval Penn National received in April 2000), and Penn National completing the necessary financing. The Company estimates the transactions will close in the second quarter of 2000. 8 Race Track in Arizona On February 28, 2000, the Company announced the signing of a definitive agreement under which the Company will sell its Turf Paradise horse racing facility located in Phoenix, Arizona to a private investor for $53,000,000 in cash. The agreement includes the horse racing operations and all 275 acres at the Phoenix, Arizona property. The Company anticipates closing the transaction in the second quarter of 2000. Other On April 18, 2000, the Company announced it had entered into an agreement with Casden Properties Inc. for the sale of the remaining 97 acres of surplus land in Inglewood, California for $63,050,000 in cash. The sale of the 97 acres is subject to a number of conditions, including the receipt by Casden Properties Inc. of certain entitlements to develop the property. The sale is expected to take six to twelve months to close and is expected to generate after tax net cash proceeds in excess of $41,000,000. The Company owns other land parcels in Missouri, which it is trying to sell. Condensed results of operations for the Casino Magic Bay St. Louis and Boomtown Biloxi casinos and the Turf Paradise horse racing facility for the three months ended March 31, 2000 and 1999 are as follows: For the three months ended March 31, ------------------------------------ 2000 1999 ------- ------- (in thousands - unaudited) Revenues (a) $48,438 $47,548 Expenses 38,722 37,770 ------- -------- Operating income 9,716 9,778 Interest expense, net 18 75 ------- -------- Income before income taxes $ 9,698 $ 9,703 ======= ======== (a) Year 2000 revenues include proceeds from the settlement of a 1998 business interrupiton claim of approximately $1,204,000. Note 5 - Acquisitions Casino Magic Argentina On October 8, 1999, the Company purchased the 49% minority interest not owned by the Company in Casino Magic Argentina for $16,500,000 in cash. The Casino Magic Argentina operations consist of two casinos in the Province of Neuquen, Argentina. The Company operates the two casinos under an exclusive concession contract with the Province that is currently scheduled to expire in December 2006. The Company and the province are in discussions to possibly extend such concession contract for an additional ten years. The $12,300,000 purchase price in excess of the minority interest of approximately $4,200,000 is being amortized over the extended life of the concession contract beginning October 1999. Note 6 - Expansion and Development Belterra Resort and Casino In July 1999, the Company broke ground on the Belterra Resort and Casino and is continuing on schedule for an opening in August 2000. The project is located in Switzerland County, Indiana, which is approximately 35 miles southwest of Cincinnati, Ohio and will be the gaming site most readily accessible to major portions of northern and central Kentucky, including the city of Lexington. The Company plans to spend approximately $200,000,000 ($70,322,000 of which has been spent as of March 31, 2000) in total costs (including land, pre-opening expenses, organizational expenses and community grants) on the Belterra Resort and Casino, which will feature a 15-story, 308-room hotel, a cruising riverboat casino with approximately 1,800 gaming positions, an 18-hole championship golf course, a 1,500 seat entertainment facility, four restaurants, retail areas and other amenities. 9 Lake Charles In November 1999, the Company filed an application for the fifteenth and final gaming license to be issued by the Louisiana Gaming Control Board. The Company was one of five applicants for such license. The Company's application is seeking the approval to operate a cruising riverboat casino, hotel and golf course resort complex in Lake Charles, Louisiana. The Louisiana Gaming Control Board has not awarded such license and there are no assurances such license will be issued to the Company or any other applicant. In connection with such submittal, Pinnacle Entertainment has entered into an option agreement with the Lake Charles Harbor and Terminal District (the "District") to lease 225 acres of unimproved land from the District upon which such resort complex would be constructed. The initial lease option was for a six-month period which ended in January 2000, with three six-month renewal options (the first of which the Company has exercised), at a cost of $62,500 per six-month option. If the lease option is exercised, the annual rental payment would be $815,000, with a maximum annual increase of 5%. The term of the lease would be for a total of up to 70 years, with an initial term of 10 years and six consecutive renewal options of 10 years each. The lease would require the Company to develop certain on- and off- site improvements at the location. If awarded the license by the Louisiana Gaming Control Board, the Company anticipates building a resort similar in design and scope to the Belterra Resort and Casino currently under construction in Indiana. Note 7 - Short Term Investments At March 31, 2000, the Company did not hold any short term investments. However, included in "Cash and cash equivalents" on the Consolidated Balance Sheet at March 31, 2000 is $166,240,000 of commercial paper and other cash equivalents with original maturities of less than 90 days. At December 31, 1999, short term held to maturity investments consisted of investments in commercial paper of $123,428,000. The commercial paper consisted of investment grade instruments issued by major corporations and financial institutions that are highly liquid and have original maturities between three months and one year. Commercial paper held as short term investments is carried at amortized cost which approximates market value. Interest income for the three months ended March 31, 2000 and 1999 was $3,221,000 and $898,000, respectively. Note 8 - Property, Plant and Equipment Property, plant and equipment held at March 31, 2000 and December 31, 1999 consisted of the following: March 31, December 31, 2000 (a) 1999 (a) -------------------- -------------------- (unaudited) (in thousands) Land and land improvements $ 72,191 $ 71,052 Buildings 253,474 253,126 Equipment 136,558 134,701 Vessel and barges 66,107 65,580 Construction in progress 72,396 32,813 --------------- --------------- 600,726 557,272 Less accumulated depreciation 127,361 119,557 --------------- --------------- $473,365 $437,715 =============== =============== (a) Excludes $214,631,000 of assets and $71,726,000 of accumulated depreciation at March 31, 2000 and $213,992,000 of assets and $69,578,000 of accumulated depreciation at December 31, 1999, related to assets classified as held for sale (see Note 4) 10 Note 9 - Secured and Unsecured Notes Payable Notes payable at March 31, 2000 and December 31, 1999 consisted of the following: March 31, December 31, 2000 1999 -------------------- ------------------- (unaudited) (in thousands) Unsecured 9.25% Notes $350,000 $350,000 Unsecured 9.5% Notes 125,000 125,000 Casino Magic 13% Notes (a) 119,346 119,814 Hollywood Park-Casino debt obligation 22,126 22,566 Other secured notes payable 5,284 5,785 Other unsecured notes payable 2,320 2,315 --------- --------- 624,076 625,480 Less current maturities 6,527 6,782 --------- --------- $617,549 $618,698 ========= ========== (a) Includes a write up to fair market value (net of amortization), as of the October 15, 1998 acquisition of Casino Magic, of $6,471,000 and $6,939,000, as of March 31, 2000 and December 31, 1999, respectively, as required under the purchase method of accounting for a business combination. Secured Notes Payable, Bank Credit Facility Under the terms of the 1998 bank credit facility with a syndicate of banks, expiring in 2003 (the "Bank Credit Facility"), the Company chose in May of 1999 to reduce the amount available under the facility from $300,000,000 (with an option to increase to $375,000,000), to $200,000,000 (with an option to increase to $300,000,000). The Bank Credit Facility also provides for letters of credit up to $30,000,000 and swing line loans of up to $10,000,000. In February 1999, the Company repaid all amounts outstanding under the Bank Credit Facility with proceeds from the issuance of the 9.25% Notes (see below). Since February 1999, the Bank Credit Facility has remained unused and therefore, at March 31, 2000, and December 31, 1999, there was no outstanding balance under the Bank Credit Facility. Interest rates on borrowings under the Bank Credit Facility are determined by adding a margin, which is based upon the Company's debt to cash flow ratio (as defined in the Bank Credit Facility), to either the LIBOR rate or Prime Rate (at the Company's option). The Company also pays a quarterly commitment fee on the unused balance of the Bank Credit Facility. The Bank Credit Facility allows for interest rate swap agreements or other interest rate protection agreements, to a maximum notional amount of $300,000,000. Presently, the Company does not use such financial instruments. Unsecured 9.25% and 9.5% Notes In February of 1999 the Company issued $350,000,000 of 9.25% Senior Subordinated Notes due 2007 (the "9.25% Notes"), the proceeds of which were used to pay the outstanding borrowings on the Bank Credit Facility, fund current capital expenditures, and other general corporate purposes. In August of 1997 the Company issued $125,000,000 of 9.5% Senior Subordinated Notes due 2007 (the "9.5% Notes"). On January 29, 1999, the Company received the required number of consents to modify selected covenants associated with the 9.5% Notes. Among other things, the modifications lowered the required minimum consolidated coverage ratio for debt assumption and increased the size of allowed borrowings under the Bank Credit Facility. The Company paid a consent fee of $50.00 per $1,000 principal amount of the 9.5% Notes, which, combined with other transactional expenses, is being amortized over the remaining term of the 9.5% Notes. 11 The 9.25% and 9.5% Notes are redeemable, at the option of the Company, in whole or in part, on the following dates, at the following premiums to face value: 9.25% Notes redeemable: 9.5% Notes redeemable: - -------------------------------------- ------------------------------------- after February 14, at a premium of after July 31, at a premium of - -------------------------------------- -------------- ------------------ 2003 104.625% 2002 104.750% 2004 103.083% 2003 102.375% 2005 101.542% 2004 101.188% 2006 100.000% 2005 100.000% 2007 maturity 2006 100.000% 2007 maturity Both the 9.25% and 9.5% Notes are unsecured obligations of the Company, guaranteed by all material restricted subsidiaries of the Company, as defined in the indentures. The subsidiaries which do not guaranty the debt include certain Casino Magic subsidiaries, principally Casino Magic of Louisiana, Corp. (Casino Magic Bossier City) and the Casino Magic Argentina subsidiaries. The indentures governing the 9.25% and 9.5% Notes, as well as the Bank Credit Facility, 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. Casino Magic 13% Notes In August of 1996 Casino Magic of Louisiana, Corp. (Casino Magic Bossier City) issued $115,000,000 of 13% First Mortgage Notes due 2003 (the "Casino Magic 13% Notes"), with contingent interest equal to 5% of Casino Magic Bossier City's adjusted consolidated cash flow (as defined by the indenture). The Casino Magic 13% Notes are secured by a first priority lien and security interest in substantially all of the assets of Casino Magic Bossier City. The Casino Magic 13% Notes are redeemable, at the option of the Company, in whole or in part, on or after August 15, 2000, at a premium to face amount, plus accrued interest, as follows: (a) August 15, 2000, at 106.5%; (b) August 15, 2001, at 104.332%; and (c) August 15, 2002 through maturity at 102.166%. In December of 1998, the Company completed the post Casino Magic Merger change of control purchase offer whereby $2,125,000 of principal amount of the Casino Magic 13% Notes was tendered to the Company at a price of 101% of face value. The indenture governing the Casino Magic 13% Notes contains certain covenants limiting the subsidiaries that own Casino Magic Bossier City from engaging in lines of business other than the current gaming operations at Bossier City and incidental related activities, to borrow funds or otherwise become liable for additional debt, to pay dividends, issue preferred stock, make investments and certain types of payments, to grant liens on its property, enter into mergers or consolidations, or to enter into certain specified transactions with affiliates. Hollywood Park-Casino Debt Obligation In connection with the disposition of the Hollywood Park-Casino to Churchill Downs (see Note 3), the Company recorded a long-term lease finance obligation of $23,000,000. Annual lease payments to Churchill Downs of $3,000,000 will be applied as principal and interest on the finance debt. The debt is being amortized over 10 years (the initial lease term with Churchill Downs). 12 Note 10 - Litigation 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 the Racketeer Influenced and Corrupt Organization Act, 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 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 the Racketeer Influenced and Corrupt Organizations Act and for state common law claims for fraud, unjust enrichment and negligent misrepresentation. Casino Magic and other defendants have moved to dismiss the amended Complaint. The Company believes that the claims are without merit and does not expect that the lawsuit will have a materially adverse effect on the financial condition or results of operations of the Company. Casino America Litigation On or about September 6, 1996, Casino America, Inc. commenced litigation in the Chancery Court of Harrison County, Mississippi, Second Judicial District, against Casino Magic, and James Edward Ernst, its then Chief Executive Officer, seeking injunctive relief and unspecified compensatory damages in an amount to be proven at trial as well as punitive damages. The plaintiff claims, among other things, that the defendants (i) breached the terms of an agreement they had with the plaintiff; (ii) tortiously interfered with certain of the plaintiff's business relations; and (iii) breached covenants of good faith and fair dealing they allegedly owed to the plaintiff. On or about October 8, 1996, the defendants interposed an answer, denying the allegations contained in the Complaint. On June 26, 1998, defendants filed a motion for summary judgment. Thereafter, plaintiffs, in July of 1998, filed a motion to reopen discovery. Both of these motions are pending. On November 30, 1999, the matter was transferred to the First Judicial District Court for Harrison County, Mississippi. No trial date has been set. While the Company cannot predict the outcome of this action, it believes plaintiff's claims are without merit and intends to vigorously defend this action. Bus Litigation On May 9, 1999, a bus owned and operated by Custom Bus Charters, Inc. was involved in an accident in New Orleans, Louisiana while en route to Casino Magic in Bay St. Louis, Mississippi. To date, multiple deaths and numerous injuries are attributed to this accident and the Company's subsidiaries, Casino Magic Corp. and / or Mardi Gras Casino Corp., together with several other defendants, have been named in thirty-eight (38) lawsuits, each seeking unspecified damages due to the deaths and injuries sustained in this accident. While the Company cannot predict the outcome of the litigation, the Company believes Casino Magic is not liable for any damages arising from this accident and the Company and its insurers intend to vigorously defend these actions. 13 Skrmetta Lawsuit A suit was filed on August 14, 1998 in the Circuit Court of Harrison County, Mississippi by the ground lessor of property underlying Boomtown Biloxi landbased improvements in Biloxi, Mississippi (the "Project"). The lawsuit alleges that the plaintiff agreed to exchange the first two years' ground rentals for an equity position in the Project based upon defendants' purported assurances that a hotel would be constructed as a component of the Project. Plaintiff seeks recovery in excess of $4,000,000 plus punitive damages. No substantive developments in the matter occurred prior to July 30, 1999 when the court denied the defendants' motions to arbitrate, and to stay, the matter. At trial of the matter in March 2000, the judge granted the Company's motion to dismiss the case. On April 26, 2000, plaintiff appealed the court's dismissal to the Mississippi Supreme Court. Class Action Lawsuits On March 14, 2000, Harbor Finance Partners filed a class action lawsuit in the Chancery Court of the State of Delaware against the Company, and each of its directors, claiming that the defendants have breached their fiduciary duty to the stockholders of the Company by agreeing to negotiate exclusively with Harveys Casino Resorts, a majority owned company of Colony Capital, Inc. (see Note 2). On March 21, 2000, a similar class action lawsuit was filed by Leta Hilliard in the Superior Court of the State of California. The lawsuits claim that the Company and its directors have failed to undertake an appropriate process for evaluating the Company's worth and eliciting bids from third parties, and that the price for the stock is inadequate. The Company intends to vigorously defend these actions and believes that the plaintiffs' claims are without merit. Casino Magic Bay St. Louis Wrongful Death Litigation On February 18, 2000, three Casino Magic Bay St. Louis patrons, after leaving the casino property, were involved in a vehicular accident which resulted in the death of two of the individuals and injury to the third. On April 13, 2000, a lawsuit was filed on behalf of the injured individual and one of the deceased individuals against Casino Magic Bay St. Louis seeking compensatory damages in the amount of $2,000,000 and punitive damages in the amount of $10,000,000. The suit alleges, among other things, that Casino Magic Bay St. Louis employees negligently served alcoholic beverages to the three individuals and the acts and omissions of the Casino Magic Bay St. Louis employees were the proximate cause of the accident. While the Company cannot predict the outcome of this action, it believes that the plaintiffs' claims are without merit and intends to vigorously defend this action. The Company is party to a number of other pending legal proceedings in the ordinary course of business, though 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 condition or results of operations. 14 Note 11 - Consolidating Condensed Financial Information The Company's subsidiaries (excluding Casino Magic of Louisiana, Corp., Casino Magic Argentina and certain non-material subsidiaries) have fully and unconditionally guaranteed the payment of all obligations under the 9.25% Notes and the 9.5% 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. Consolidating Condensed Financial Information For the three months ended March 31, 2000 and 1999 and balance sheets as of March 31, 2000 and December 31, 1999 (in thousands - unaudited) (b) (a) Wholly Wholly Owned Consolidating Pinnacle Pinnacle Owned Non- and Entertainment, Entertainment, Guarantor Guarantor Eliminating Inc. Inc. Subsidiaries Subsidiaries Entries Consolidated -------------- ------------ ------------ ------------- -------------- As of and for the three months ended March 31, 2000 Balance Sheet - ------------- Current assets $ 199,255 $185,601 $ 32,140 $ 0 $ 416,996 Property, plant and equipment, net 42,839 342,043 88,483 0 473,365 Other non-current assets 27,501 41,181 43,736 56,093 168,511 Investment in subsidiaries 397,470 104,726 0 (502,196) 0 Inter-company 219,565 167,917 31,481 (418,963) 0 --------- -------- -------- ---------- ---------- $ 886,630 $841,468 $195,840 ($865,066) $1,058,872 ========= ======== ======== ========== ========== Current liabilities $ 73,318 $ 51,362 $ 12,328 $ 0 $ 137,008 Notes payable, long term 501,488 3,192 112,869 0 617,549 Other non-current liabilities (7,165) 83 20,114 (12,206) 826 Inter-company 15,500 378,025 25,440 (418,965) 0 Equity 303,489 408,806 25,089 (433,895) 303,489 --------- -------- -------- ---------- ---------- $ 886,630 $841,468 $195,840 ($865,066) $1,058,872 ========= ======== ======== ========== ========== Statement of Operations - ----------------------- Revenues: Gaming $ 0 $ 90,557 $ 42,596 $ 0 $ 133,153 Racing 0 6,143 0 0 6,143 Food and beverage 0 7,242 1,009 0 8,251 Equity in subsidiaries 24,158 5,375 0 (29,533) 0 Other 1,500 12,639 911 0 15,050 --------- -------- -------- ---------- ---------- 25,658 121,956 44,516 (29,533) 162,597 --------- -------- -------- ---------- ---------- Expenses: Gaming 0 50,150 24,095 0 74,245 Racing 0 2,658 0 0 2,658 Food and beverage 0 8,130 1,047 0 9,177 Administrative and other 5,139 29,164 6,446 0 40,749 Gain on disposition of assets (23,854) 0 0 0 (23,854) Depreciation and amortization 715 9,007 2,500 369 12,591 --------- -------- -------- ---------- ---------- (18,000) 99,109 34,088 369 115,566 --------- -------- -------- ---------- ---------- Operating income (loss) 43,658 22,847 10,428 (29,902) 47,031 Interest expense, net 9,729 (1,311) 4,462 0 12,880 --------- -------- -------- ---------- ---------- Income (loss) before minority interests and taxes 33,929 24,158 5,966 (29,902) 34,151 Income tax expense 11,648 0 591 0 12,239 --------- -------- -------- ---------- ---------- Net income (loss) $ 22,281 $ 24,158 $ 5,375 ($29,902) $ 21,912 ========= ======== ======== ========== ========== Statement of Cash Flows - ----------------------- Net cash provided by (used in) operating activities ($40,917) $ 35,230 $ 4,440 $ 369 ($878) Net cash provided by (used in) investing activities 140,691 (34,556) (466) 0 105,669 Net cash provided by (used in) financing activities 597 (622) (313) 0 (338) 15 Pinnacle Entertainment, Inc. Consolidating Condensed Financial Information For the three months ended March 31, 2000 and 1999 and balance sheets as of March 31, 2000 and December 31, 1999 (in thousands - unaudited) Hollywood Park Pinnacle Operating (b) (c) Entertainment, Co. (a) Wholly Non Wholly Inc. (Co-Obligor Wholly Owned Owned Consolidating Pinnacle Guarantor 9.5% Notes/ Owned Non- Non- And Entertainment, (Parent Guarantor Guarantor Guarantor Guarantor Eliminating Inc. Obligor) 9.25% Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated ------------ ------------ ------------ ------------ ------------ ------------- -------------- For the three months ended March 31, 1999 Statement of Operations - ----------------------- Revenues: Gaming $ 11,856 $ 0 $ 91,219 $32,398 $4,918 $ 0 $140,391 Racing 0 3,842 5,937 0 0 0 9,779 Food and beverage 1,226 0 7,457 648 340 0 9,671 Equity in subsidiaries 14,865 (138) 22,112 0 0 (36,839) 0 Other 1,294 915 9,073 806 69 0 12,157 --------- -------- -------- ------- ------ --------- -------- 29,241 4,619 135,798 33,852 5,327 (36,839) 171,998 --------- -------- -------- ------- ------ --------- -------- Expenses: Gaming 6,500 0 49,419 20,059 1,400 0 77,378 Racing 0 2,892 2,463 0 0 0 5,355 Food and beverage 2,429 0 8,188 736 302 0 11,655 Administrative and othe 5,904 3,505 26,861 4,682 1,453 0 42,405 Depreciation and amortization 1,121 1,030 8,584 1,889 372 371 13,367 --------- -------- -------- ------- ------ --------- -------- 15,954 7,427 95,515 27,366 3,527 371 150,160 --------- -------- -------- ------- ------ --------- -------- Operating income (loss) 13,287 (2,808) 40,283 6,486 1,800 (37,210) 21,838 Interest expense 6,882 3,252 (231) 4,588 0 0 14,491 --------- -------- -------- ------- ------ --------- -------- Income (loss) before minority interests and taxes 6,405 (6,060) 40,514 1,898 1,800 (37,210) 7,347 Minority interests 0 0 0 0 0 458 458 Income tax expense 2,243 0 10 0 503 0 2,756 --------- -------- -------- ------- ------ --------- -------- Net income (loss) $ 4,162 ($6,060) $ 40,504 $ 1,898 $1,297 ($37,668) $ 4,133 ========= ======== ======== ======= ====== ========= ======== Statement of Cash Flows - ----------------------- Net cash provided by (used in) operating activities ($15,507) $ 7,208 $ 5,857 $10,227 $ 680 $ 385 $ 8,850 Net cash provided by (used in) investing activities (486) (193) (9,253) (915) (143) 0 (10,990) Net cash provided by (used in) financing activities 70,423 (5,726) 6,249 (8,261) 0 0 62,685 16 Pinnacle Entertainment, Inc. Consolidating Condensed Financial Information For the three months ended March 31, 2000 and 1999 and balance sheets as of March 31, 2000 and December 31, 1999 (in thousands - unaudited) (b) (a) Wholly Wholly Owned Consolidating Pinnacle Pinnacle Owned Non- and Entertainment, Entertainment, Guarantor Guarantor Eliminating Inc. Inc. Subsidiaries Subsidiaries Entries Consolidated -------------- ------------ ------------ ------------- -------------- As of December 31, 1999 Balance Sheet - ------------- Current assets $220,216 $188,330 $ 28,928 $ 0 $ 437,474 Property, plant and equipment, net 36,671 311,165 89,879 0 437,715 Other non-current assets 28,369 40,788 44,599 56,463 170,219 Investment in subsidiaries 340,840 86,215 0 (427,055) 0 Inter-company 239,469 173,002 31,493 (443,964) 0 -------- -------- -------- ---------- ---------- $865,565 $799,500 $194,899 ($814,556) $1,045,408 ======== ======== ======== ========== ========== Current liabilities $ 75,933 $ 52,159 $ 16,916 $ 0 $ 145,008 Notes payable, long term 502,421 3,393 112,884 0 618,698 Other non-current liabilities (7,165) 83 20,114 (12,206) 826 Inter-company 13,500 406,437 24,031 (443,968) 0 Equity 280,876 337,428 20,954 (358,382) 280,876 -------- -------- -------- ---------- ---------- $865,565 $799,500 $194,899 ($814,556) $1,045,408 ======== ======== ======== ========== ========== _____ (a) The following subsidiaries are treated as guarantors on both the 9.5% Notes and 9.25% Notes for all periods presented: Turf Paradise, Inc., Hollywood Park Food Services, Inc. (through September 10, 1999), Hollywood Park Fall Operating Company (through September 10, 1999) and, with respect to the 9.25% Notes, Hollywood Park Operating Company (through September 10, 1999) (it was a co-obligor on the 9.5% Notes through September 10, 1999). The following subsidiaries were treated as guarantors for periods beginning on June 30, 1997, when the Boomtown Merger was consummated: Boomtown, Inc., Boomtown Hotel & Casino, Inc., Bay View Yacht Club, Inc., Louisiana - I Gaming, Louisiana Gaming Enterprises, Inc., and Boomtown Hoosier, Inc. The following subsidiaries were treated as guarantors for periods beginning on October 15, 1998, when the Casino Magic Merger was consummated: Casino Magic Corp., Mardi Gras Casino Corp., Biloxi Casino Corp., Bay St. Louis Casino Corp., Casino Magic Finance Corp., Casino Magic American Corp., and Casino One Corporation. HP Casino, Inc., HP Yakama, Inc., and HP Consulting, Inc., were treated as guarantors beginning in 1997 when these subsidiaries began operations. HP/Compton, Inc. was treated as a guarantor beginning in October 1996 when this subsidiary began operations. Crystal Park Hotel and Casino Development Company, LLC and Mississippi - I Gaming L.P. were treated as wholly owned guarantors for periods beginning in January 1998 and October 1998, respectively, when the Company acquired the outstanding minority interests therein and they became wholly owned subsidiaries. (b) The following wholly owned subsidiaries are not guarantors on either the 9.5% Notes or the 9.25% Notes and became subsidiaries of the Company on October 15, 1998, when the Casino Magic Merger was consummated: Jefferson Casino Corporation, Casino Magic of Louisiana, Corp., and Casino Magic Management Services, Corp. In October 1999, Casino Magic Neuquen S.A. and its subsidiary Casino Magic Support Services, became wholly owned subsidiaries of the Company but remain non-guarantors of the 9.5% Notes and 9.25% Notes. (c) The following non-wholly owned subsidiaries are not guarantors on either the 9.5% notes or the 9.25% Notes and became subsidiaries of the Company on October 15, 1998, when the Casino Magic Merger was consummated: Casino Magic Neuquen S.A. and its subsidiary, Casino Magic Support Services S.A. 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------------- of Operations - ------------- 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. Such forward-looking statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those anticipated by the Company's management. Factors that may cause actual performance of the Company to differ materially from that contemplated by such forward-looking statements include, among others: the failure to complete the Proposed Merger with an affiliate of Harveys Casino Resorts (discussed below); the failure to complete pending asset sale transactions (discussed below); the failure to complete or successfully operate planned expansion and development projects (including the Belterra Resort and Casino); the failure to obtain adequate financing to meet strategic goals; the failure to obtain or retain gaming licenses or regulatory approvals; increased competition by casino operators who have more resources and have built or are building competitive casino properties; severe weather conditions; the failure to meet the Company's debt service obligations; and other adverse changes in the gaming markets in which the Company operates (particularly in the southeastern United States). 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 which could affect the Company's financial results, please review the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Factors Affecting Future Operating Results Proposed Merger On March 8, 2000, the Company announced it had received a proposal pursuant to which an affiliate of Harveys Casino Resorts ("Harveys") would acquire all of the outstanding shares of common stock of Pinnacle Entertainment. The Company's Board of Directors formed a special committee (which committee excluded certain management board members) (the "Special Committee") to evaluate and negotiate the proposal. Harveys is an affiliate of Colony Capital, Inc., a private investment firm. On April 17, 2000, the Company entered into a definitive agreement with PH Casino Resorts ("PHCR"), a newly formed subsidiary of Harveys, and Pinnacle Acquisition Corporation ("Pinnacle Acq. Corp."), a newly formed subsidiary of PHCR, pursuant to which PHCR would acquire by merger all of the outstanding capital stock of Pinnacle Entertainment (the "PHCR Merger Agreement"). The proposed merger received the unanimous approval of both the Special Committee and the Board of Directors of the Company (the "Proposed Merger"). In the Proposed Merger, Pinnacle Acq. Corp. would merger into Pinnacle Entertainment. In addition, in connection with the Proposed Merger, Harveys (like the Company) would become a wholly owned subsidiary of PHCR. Upon closing of the Proposed Merger, PHCR will acquire all of the outstanding stock of Pinnacle Entertainment for $24 per fully diluted share in cash, plus up to an additional $1 per fully diluted share in cash, which amount is contingent upon the sale of the Company's 97 acres of surplus land in Inglewood, California for net after tax proceeds of at least $40,750,000 by December 31, 2001 (see Note 4 to the Condensed Notes to Consolidated Financial Statements). In the event the 97 acres are sold prior to December 31, 2001 for after tax proceeds of less than $40,750,000 but more than $13,054,000, the $1 per fully diluted share will be reduced proportionately. In the event the 97 acres are not sold by December 31, 2001, or have been sold, but at a price less than or equal to $13,054,000, then Pinnacle Entertainment stockholders would not be entitled to any additional payment. PHCR's obligation to pay the contingent portion of the merger consideration will be secured by an irrevocable letter of credit in 18 the maximum amount of the obligation. As described in Note 4 to the Condensed Notes to Consolidated Financial Statements, the Company has signed an agreement to sell 97 acres at a price which management believes will entitle shareholders to the additional $1 payment per share. There can be no assurance, however, that such sale of 97 acres will be completed. Consummation of the merger is subject to, among other things, (a) senior management contributing $50,000,000 of Pinnacle Entertainment equity to PHCR and maintaining an on-going role within PHCR; (b) regulatory approvals in the various jurisdictions in which the Company and Harveys conduct gaming operations; (c) approval by a majority of the Company's stockholders; (d) completion of PHCR's financing for the transaction (which customary bank commitment and high yield "highly confident" letters have been received by PHCR); and (e) satisfaction of other conditions precedent, including completion of the Company's pending casino and race track assets sales (see Note 4 to the Condensed Notes to Consolidated Financial Statements) and the opening of the Belterra Resort and Casino (currently under construction - see Note 6 to the Condensed Notes to Consolidated Financial Statements) substantially in accordance with its current budget not later than September 15, 2000. The Proposed Merger is expected to close in the fourth quarter of 2000. As of March 31, 2000, the Company incurred professional fees of $625,000 in connection with the Special Committee and Board of Directors' evaluation of the Proposed Merger. Additional fees have been and will continue to be incurred after March 31, 2000 relating to the Proposed Merger. In the event the Proposed Merger is terminated, under certain circumstances, a termination fee of $25,000,000 may be payable by the Company to Pinnacle Acq. Corp., which circumstances are defined in the PHCR Merger Agreement previously filed with the Securities and Exchange Commission. Land Sale On March 24, 2000, the Company announced it had completed the sale of approximately 42 acres of surplus land in Inglewood, California to Home Depot, Inc. for $24,200,000 in cash (see Note 3 to the Condensed Notes to Consolidated Financial Statements). The 42 acres of surplus land was included in "Assets held for sale" as of December 31, 1999. The after tax cash proceeds from this sale is expected to be $15,300,000. The 42 acres of raw land did not materially contribute to the historical results of operations. Sales of Hollywood Park Race Track and Hollywood Park-Casino On September 10, 1999, the Company completed the dispositions of the Hollywood Park Rack Track and Hollywood Park-Casino to Churchill Downs for $117,000,000 cash and $23,000,000 cash, respectively (see Note 3 to the Condensed Notes to Consolidated Financial Statements). Churchill Downs acquired the race track, 240 acres of related real estate and the Hollywood Park-Casino. The Company then entered into a 10-year leaseback of the Hollywood Park-Casino at an annual lease rate of $3,000,000 per annum, with a 10-year renewal option. The Company then subleased the facility to a third party operator for a lease payment of $6,000,000 per year. The sublease is for a one-year period. The disposition of the Hollywood Park Race Track and related real estate was accounted for as a sale and resulted in a pre-tax gain of $61,522,000. The disposition of the Hollywood Park-Casino was accounted for as a financing transaction and therefore not recognized as a sale for accounting purposes as the Company subleased the Hollywood Park-Casino to a third-party operator. Under the provisions of SFAS No. 121, the Company recorded an impairment write- down of the Hollywood Park-Casino of $20,446,000 during the quarter ended September 30, 1999. Pursuant to accounting guidelines, the Company recorded a long-term debt obligation of $23,000,000 for the Hollywood Park-Casino (see Note 9 to the Condensed Notes to Consolidated Financial Statements). The Hollywood Park-Casino building will continue to be depreciated over its estimated useful life. The estimated tax liability on the sales transactions to Churchill Downs is approximately $22,000,000 and will be paid in the second quarter 2000. Due to the disposition of the Hollywood Park Race Track and Hollywood Park- Casino in September 1999, there are no results of operations for the quarter ended March 31, 2000 for these facilities (as discussed above, effective with the disposition of the Hollywood Park-Casino, the Company receives only lease income from the operator of the facility). 19 The condensed results of operations for the Hollywood Park Race Track and Hollywood Park-Casino for the three months ended March 31, 1999 were: For the three months ended March 31, 1999 ------------------ (in thousands - unaudited) Revenues $19,490 Expenses 21,165 ------- Operating income (1,675) Interest expense (a) 0 ------- Income before income taxes $(1,675) ======= (a) No interest expense was specifically identified for these operations. Pending Casino, Race Track and Land Sales Assets held for sale at March 31, 2000 and December 31, 1999 consisted of the following, and excluded the related goodwill and deferred income taxes associated with such assets: At March 31, 2000 ------------------ Net Property Plant & Equipment Other Total -------------- -------- -------- (in thousands - unaudited) Casino Magic Bay St. Louis and Boomtown Biloxi Casinos $114,483 $ 6,017 $120,500 Turf Paradise Race Track 10,720 4,284 15,004 Other (primarily undeveloped land in California) 17,702 0 17,702 -------- ------- -------- $142,905 $10,301 $153,206 ======== ======= ======== At December 31, 1999 -------------------- Net Property Plant & Equipment Other Total -------------- -------- -------- (in thousands) Casino Magic Bay St. Louis and Boomtown Biloxi Casinos $115,731 $ 5,876 $121,607 Turf Paradise Race Track 10,873 4,359 15,232 Other (primarily undeveloped land in California) 17,810 0 17,810 -------- ------- -------- $144,414 $10,235 $154,649 ======== ======= ======== Sales transactions for these assets were pending or the properties were actively being marketed as of March 31, 2000 and December 31, 1999. There are no assurances these transactions will close. Until the sales transactions are completed, the Company continues to operate the casinos and race track held for sale. In addition, certain liabilities will be assumed by the buyers of these assets. Such liabilities, consisting primarily of accrued liabilities and accounts payable, have been classified as "Liabilities to be assumed by buyers of assets held for sale" on the accompanying Consolidated Balance Sheets. Goodwill net of amortization at 20 March 31, 2000 and December 31, 1999 includes approximately $13,245,000 and $13,331,000, respectively, related to the pending casino and race track sales. Casinos in Mississippi On December 10, 1999, the Company announced it had - ---------------------- entered into definitive agreements with subsidiaries of Penn National Gaming, Inc. ("Penn National") to sell its Casino Magic Bay St. Louis, Mississippi, and Boomtown Biloxi, Mississippi, casino operations for $195,000,000 in cash (see Note 4 to the Condensed Notes to Consolidated Financial Statements). Subsidiaries of Penn National will purchase all of the operating assets and certain liabilities and related operations of the Casino Magic Bay St. Louis and Boomtown Biloxi properties, including the 590 acres of land at Casino Magic Bay St. Louis and the leasehold rights at Boomtown Biloxi. The transactions are subject to certain closing conditions, including, but not limited to, approval by the Mississippi Gaming Commission (which approval Penn National received in April 2000), and Penn National completing the necessary financing. The Company estimates the transactions will close in the second quarter of 2000. Race Track in Arizona On February 28, 2000, the Company announced the signing - --------------------- of a definitive agreement under which the Company will sell its Turf Paradise horse racing facility located in Phoenix, Arizona to a private investor for $53,000,000 in cash (see Note 4 to the Condensed Notes to Consolidated Financial Statements). The agreement includes the horse racing operations and all 275 acres at the Phoenix, Arizona property. The Company anticipates closing the transaction in the second quarter of 2000. Other On April 18, 2000, the Company announced it had entered into an agreement - ----- with Casden Properties Inc. for the sale of the remaining 97 acres of surplus land in Inglewood, California for $63,050,000 in cash (see Note 4 to the Condensed Notes to Consolidated Financial Statements). The sale of the 97 acres is subject to a number of conditions, including the receipt by Casden Properties Inc. of certain entitlements to develop the property. The sale is expected to take six to twelve months to close and is expected to generate after tax net cash proceeds in excess of $41,000,000. The Company owns other land parcels in Missouri, which it is trying to sell. Condensed results of operations for the Casino Magic Bay St. Louis and Boomtown Biloxi casinos and the Turf Paradise horse racing facility for the three months ended March 31, 2000 and 1999 are as follows: For the three months ended March 31, ------------------------------------ 2000 1999 ------- ------- (in thousands - unaudited) Revenues (a) $48,438 $47,548 Expenses 38,722 37,770 ------- ------- Operating income 9,716 9,778 Interest expense, net 18 75 ------- ------- Income before income taxes $ 9,698 $ 9,703 ======= ======= (a) Year 2000 revenue includes proceeds from the settlement of a 1998 business interruption claim of approximately $1,204,000. Expansion & Development Belterra Resort and Casino In July 1999, the Company -------------------------- broke ground on the Belterra Resort and Casino and is continuing on schedule for an opening in August 2000. The project is located in Switzerland County, Indiana, which is approximately 35 miles southwest of Cincinnati, Ohio and will be the gaming site most readily accessible to major portions of northern and central Kentucky, including the city of Lexington. 21 The Company plans to spend approximately $200,000,000 ($70,322,000 of which has been spent as of March 31, 2000) in total costs (including land, pre-opening expenses, organizational expenses and community grants) on the Belterra Resort and Casino, which will feature a 15-story, 308-room hotel, a cruising riverboat casino with approximately 1,800 gaming positions, an 18-hole championship golf course, a 1,500 seat entertainment facility, four restaurants, retail areas and other amenities. Lake Charles In November 1999, the Company filed an application for the - ------------ fifteenth and final gaming license to be issued by the Louisiana Gaming Control Board. The Company was one of five applicants for such license. The Company's application is seeking the approval to operate a cruising riverboat casino, hotel and golf course resort complex in Lake Charles, Louisiana. The Louisiana Gaming Control Board has not awarded such license and there are no assurances such license will be issued to the Company or any other applicant. In connection with such submittal, Pinnacle Entertainment has entered into an option agreement with the Lake Charles Harbor and Terminal District (the "District") to lease 225 acres of unimproved land from the District upon which such resort complex would be constructed. The initial lease option was for a six-month period ending January 2000, with three six-month renewal options (the first of which the Company has exercised), at a cost of $62,500 per six-month option. If the lease option is exercised, the annual rental payment would be $815,000, with a maximum annual increase of 5%. The term of the lease would be for a total of up to 70 years, with an initial term of 10 years and six consecutive renewal options of 10 years each. The lease would require the Company to develop certain on- and off- site improvements at the location. If awarded the license by the Louisiana Gaming Control Board, the Company anticipates building a resort similar in design and scope to the Belterra Resort and Casino currently under construction in Indiana. California Card Clubs By California state law, a corporation may operate a gambling enterprise in California only if every officer, director and shareholder holds a state gambling license. Only 5% or greater shareholders of a publicly traded racing association, however, must hold a state gambling license. As a practical matter, therefore, public corporations that are not qualified racing associations may not operate gambling enterprises in California. As a result, the Hollywood Park-Casino, since September 10, 1999 (see Note 3 to the Condensed Notes to Consolidated Financial Statements), and the Crystal Park Hotel and Casino, are leased to, and operated by, an unrelated third party. By law, a California card club may neither bank card games nor offer certain of the casino games permitted in Nevada and other traditional gambling jurisdictions, and thus does not participate in the wagers made or in the outcome of any of the games played. Year 2000 The Company has not experienced any disruption due to the Year 2000 issue. The Year 2000 issue exists because computer systems and applications were historically designed to use two digit fields (rather than four) to designate a year, which could result in miscalculations or system failures. The Company cannot be assured there will not be Year 2000 issues in the future. Results of Operations On September 10, 1999, the Company completed the dispositions of the Hollywood Park Race Track and Hollywood Park-Casino (see Note 3 to the Condensed Notes to Consolidate Financial Statements). The results of operations of the Hollywood Park Race Track and Hollywood Park-Casino are included in the results of operations only until such date. Future revenue and operating results will be materially reduced due to the sale of these assets, as well as by the future sale of assets, which are classified as held for sale at March 31, 2000 and December 31, 1999 on the Consolidated Balance Sheets (see Note 4 to the Condensed Notes to Consolidated Financial Statements). 22 Three months ended March 31, 2000 compared to the three months ended -------------------------------------------------------------------- March 31, 1999 -------------- Total revenues for the three months ended March 31, 2000 decreased by $9,401,000, or 5.5%, as compared to the three months ended March 31, 1999. Contribution to revenues in the three months ended March 31, 2000 from the Hollywood Park Race Track and Hollywood Park-Casino was $1,500,000 (all from the sublease arrangement for the Hollywood Park-Casino - see Note 3 to the Notes to Condensed Consolidated Financial Statements) compared to $19,490,000 in the three months ended March 31, 1999. When excluding such revenue for both periods, total revenues in the three months ended March 31, 2000 increased by $8,589,000, or 5.6%, when compared to March 31, 1999. Gaming revenues decreased by $7,238,000, or 5.2%, including $11,856,000 due to the timing of the disposition of the Hollywood Park-Casino in September 1999. When excluding the Hollywood Park-Casino from the three month results ended March 31, 1999, gaming revenues increased by $4,618,000, or 3.6%. Gaming revenues increased at Boomtown Reno by $2,581,000 and at Casino Magic Bossier City by $4,927,000, while gaming revenues declined at Boomtown New Orleans by $704,000 and at Casino Magic Biloxi by $1,807,000. Boomtown Reno's record first quarter gaming revenue was due primarily to a 22% increase in slot coin-in (volume of slot play), a 20% increase in table game drop (volume of table game play) and higher table game win percentage. The higher volume of casino activity in Reno was the result of: a) completion of a 200 room hotel addition and convention area in the first quarter of last year; b) significantly improved occupancy at such expanded hotel facility; c) good weather with minimal snowfall this year making the property more accessible; d) strong marketing programs; and, e) changes since last year in the management team. The Casino Magic Bossier City gaming revenue improvement was due primarily to an increase in the overall Shreveport-Bossier City casino market, new marketing programs and management changes that have occurred since the first quarter of 1999. The decline in gaming revenues at the New Orleans and Biloxi locations reflect the adverse impact of new competition in 1999 in each market. Racing revenues declined by $3,636,000, or 37.2%, entirely due to the disposition of the Hollywood Park Race Track in September 1999. Food and beverage revenues decreased by $1,420,000, or 14.7%, including $1,934,000 due to the dispositions of the Hollywood Park Race Track and Hollywood Park-Casino in September 1999. When excluding the results of these two locations from the 1999 results, food and beverage revenue increased $514,000, or 6.6%. A majority of the increase is attributed to Boomtown Reno (increase of $508,000), which resulted primarily from the increased occupancy of the hotel, which rose from 52% in the first quarter of 1999 to 79% in the same period in 2000. Hotel and recreational vehicle park revenues increased by $146,000, or 5.5%, due primarily to increases at Boomtown Reno. Truck stop and service station revenue increased by $1,088,000, or 36.4%, primarily due to increased fuel prices at Boomtown Reno. Other income increased by $1,659,000, or 25.5%, which amount includes $800,000 received by Casino Magic Biloxi and $1,204,000 received by Casino Magic Bay St. Louis for the settlement of a 1998 hurricane business interruption claim. Total expenses for the three months ended March 31, 2000 decreased by $34,594,000, or 23.0%, as compared to the three months ended March 31, 1999. Included in the results of operations for the three months ended March 31, 2000, is a gain on the sale of land (see Note 3 to the Condensed Notes to Consolidated Financial Statements) of $23,854,000. Included in the results of operations for the three months ended March 31, 1999, are expenses of $20,113,000 related to the Hollywood Park Race Track and Hollywood Park-Casino. Excluding the land gain from the year 2000 results of operations and the race track and casino expenses from the 1999 results of operations, total expenses for the three months ended March 31, 2000 increased by $9,373,000, or 7.2%, as compared to the three months ended March 31, 1999. Gaming expenses decreased by $3,133,000, or 4.0%, including $6,500,000 due to the timing of the disposition of the Hollywood Park-Casino in September 1999. Gaming expenses increased $2,546,000 at Casino Magic Bossier City, consistent with increased gaming revenues. Racing expenses decreased by $2,697,000, or 50.4%, including $2,892,000 due to the disposition of the Hollywood Park Race Track in September 1999. Food and beverage expenses decreased by $2,478,000, or 21.3%, including $3,215,000 due to the timing of the dispositions of the Hollywood Park Race Track and Hollywood Park-Casino in 23 September 1999. Such expenses increased $362,000 at Boomtown Reno, consistent with the overall increase in food and beverage revenue at such property. Hotel and recreational vehicle park expenses increased by $200,000, or 14.9%, primarily due to an increase at Casino Magic Biloxi, attributable to higher marketing costs resulting from increased competition in the market. Truck stop and service station expenses increased by $1,006,000, or 36.5%, primarily due to increased fuel costs at Boomtown Reno. General and administrative expenses decreased by $4,433,000, or 12.6%, including a reduction in expenses of $5,812,000 due to the dispositions of the Hollywood Park Race Track and Hollywood Park-Casino in September 1999. Depreciation and amortization decreased by $776,000, or 5.8%, primarily due to the disposition of the Hollywood Park Race Track assets in September 1999. Pre-opening costs for the Belterra Resort and Casino increased $1,036,000, or 146.5%, which is consistent with the overall development of the project under construction. The gain on disposition of assets of $23,854,000 is due to the sale of 42 acres of surplus land in March 2000 (see Note 3 to the Condensed Notes to Consolidated Financial Statements). Proposed merger costs of $625,000 relate to the Proposed Merger with PHCR - see Note 2 to the Condensed Notes to Consolidated Financial Statements. Other expenses decreased by $90,000, or 3.7%, including a reduction in other expenses of $604,000 due to the dispositions of the Hollywood Park Race Track and Hollywood Park-Casino in September 1999, partially offset by increases at Casino Magic Bay St. Louis of $226,000 and Casino Magic Biloxi of $149,000. The increase at Casino Magic Bay St. Louis is primarily due to costs associated with its golf course, while the increase at Casino Magic Biloxi is primarily due to competitive pressures in the Biloxi gaming market. Net interest expense decreased by $1,611,000, or 11.1%, primarily due to the interest income of $3,221,000 generated from invested funds in the first quarter of 2000. Income tax expense increased to $12,239,000, or $9,483,000, from $2,756,000, which increase includes $8,532,000 associated with the land sale in March 2000 (see Note 3 to the Condensed Notes to Consolidated Financial Statements). Liquidity, Capital Resources and Other Factors Influencing Future Results At March 31, 2000, the Company had cash and cash equivalents, all of which had original maturities within ninety days, of $227,815,000 compared to $123,362,000 at December 31, 1999. At December 31, 1999, the Company had $123,428,000 of short-term investments and had no such investments at March 31, 2000 (see Note 7 to the Notes to Condensed Consolidated Financial Statements). The Condensed Consolidated Statements of Cash Flows detailing changes in the cash balances is on page 3. Operating activities used net cash of $878,000 in the three months ended March 31, 2000 compared with cash provided by operating activities of $8,850,000 in the first three months of 1999. This year-over-year change is largely due to the reduction of operating cash flow for the non-recurring gain on the sale of the land to Home Depot Inc. (see Note 3 to the Notes to Condensed Consolidated Financial Statements) and to the higher payment of accrued interest in the first quarter of 2000 as compared to the first quarter of 1999 (the Company issued the 9.25% Notes in February 1999 - see Note 9 to the Condensed Notes to Consolidated Financial Statements), offset by the increase in federal and state income taxes, which increase is primarily due to the taxes associated with the land sale to Home Depot, Inc. Net cash provided by investing activities of $105,669,000 in the three months ended March 31, 2000 include proceeds of $123,428,000 from the maturity of short term investments and the receipt of $24,353,000 from the sale of property, plant and equipment (such receipts primarily from the sale of 42 acres in March 2000 - see Note 3 to the Condensed Notes to Consolidated Financial Statements), offset by the use of cash of $42,392,000 for the additions of property, plant and equipment (the primary additions attributed to the Belterra Resort and Casino - see Note 6 to the Condensed Notes to Consolidated Financial Statements). During the three months ended March 31, 1999, net cash used in investing activities was primarily for the addition to property, plant and equipment of $11,281,000. The net cash used in financing activities in the first quarter of 2000 of $338,000 reflects payments on notes payable of $935,000, partially offset by proceeds from the exercise of common stock options of the Company. During the three months ended March 31, 1999, net cash provided by financing activities of 24 $62,685,000 is primarily attributed to the net cash proceeds from the issuance of the 9.25% Notes, offset by the pay down of the Bank Credit Facility. Since February 1999, the Company has not borrowed any amounts under its bank credit facility and in May 1999 the maximum amount of such bank credit facility was reduced from $300,000,000 (with an option to increase to $375,000,000) to $200,000,000 (with an option to increase to $300,000,000) (see Note 9 to the Condensed Notes to Consolidated Financial Statements). At March 31, 2000, the Company had signed definitive sales agreements to sell assets for $248,000,000 cash, which transactions are expected to close in 2000. This includes the sale of essentially all of the assets to operate the Casino Magic Bay St. Louis and Boomtown Biloxi casinos in Mississippi and the Turf Paradise horse racing facility in Arizona. In addition, in April 2000, the Company signed an agreement to sell the remaining 97 acres of surplus land in Inglewood, California, and is actively seeking buyers to purchase the unused land in Missouri. See Note 4 to the Condensed Notes to Consolidated Financial Statements for more information on these proposed transactions. The sales of these assets are expected to generate gains; however, there is no assurance any of these transactions will be consummated in 2000 or 2001. The Company believes that its available cash, cash equivalents, short-term investments, cash to be generated by assets held for sale and cash flow from operations will be sufficient to finance operations and capital requirements until the Proposed Merger is consummated. Although the Company has substantial cash resources and unused bank credit facilities, it has committed to utilize approximately $130,000,000 to complete the Belterra project and pay approximately $22,000,000 in Federal and State income taxes related to the sale of the Hollywood Park Race Track. In addition, the Company may use a portion of these resources to i) reduce its outstanding debt obligations prior to their scheduled maturities, ii) make significant capital improvements to existing properties, and/or iii) develop or acquire other casino properties or companies, including the proposed Lake Charles, Louisiana project. To the extent cash is used for these purposes, the Company's cash reserves will also be diminished and the Company may require additional capital to finance any such activities. Additional capital may be generated through internally generated cash flow, future borrowings (including amounts available under the bank credit facility) and/or lease transactions. There can be no assurance, however, that such capital will be available on terms acceptable to the Company. Should the Proposed Merger (see Note 2 to the Notes to Condensed Consolidated Financial Statements and "Factors Affecting Future Operating Results" above) be consummated, new shareholders, Board of Directors and management will operate the business. Accordingly, the Liquidity and Capital Resources will likely change. Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------ At March 31, 2000, the Company did not hold any investments in market risk sensitive instruments of the type described in Item 305 of Regulation S-K. 25 Part II Other Information Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ None Item 5. Other Information - ------------------------- None Item 6. Exhibits and Reports on Form 8-K - ---------------------------------------- (a) Exhibit Number Description of Exhibit - ------- ------------------------------------------------------------------- 2.1 Agreement and Plan of Merger, dated as of April 17, 2000, among Pinnacle Entertainment, Inc., PH Casino Resorts, Inc., and Pinnacle Acquisition Corp., is hereby incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed May 1, 2000. 11* Statement re Computation of Per Share Earnings 27* Financial Data Schedule _____ * Filed herewith (b) Reports on Form 8-K: A Current Report on Form 8-K was filed on February 25, 2000, to report the issuance of a press release on February 23, 2000, in which the Company announced it had changed its corporate name to Pinnacle Entertainment, Inc. from Hollywood Park, Inc., and that the Company would begin trading under the stock symbol PNK on the New York Stock Exchange on February 28, 2000. A Current Report on Form 8-K was filed on March 6, 2000, to report the issuance of a press release on February 28, 2000, in which the Company announced it had signed a definitive agreement under which the Company will sell the Turf Paradise horse racing facility to a private investor. A Current Report on Form 8-K was filed on March 8, 2000, to report the issuance of a press release on March 8, 2000, in which the Company announced it had received a proposal from an affiliate of Harveys pursuant to which Harveys would acquire all of the outstanding shares of common stock of the Company for cash. 26 A Current Report on Form 8-K was filed on April 18, 2000, to report the issuance of a press release on April 17, 2000, in which the Company announced it had entered into a definitive agreement with PHCR, a newly formed subsidiary of Harveys, pursuant to which PHCR would acquire by merger all of the outstanding capital stock of the Company. A Current Report on Form 8-K was filed on May 1, 2000, to report that, on April 17, 2000, the Company, PHCR, and Pinnacle Acq. Corp., a wholly owned subsidiary of PHCR, entered into the Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Pinnacle Acq. Corp. would merge with and into the Company and each share of the Company's common stock would be converted into the right to receive cash, as more fully described in the Merger Agreement. 27 PINNACLE ENTERTAINMENT, INC. Selected Financial Data by Property For the three months ended March 31, ---------------------------- 2000 1999 --------- ---------- (in thousands, except per share data - unaudited) Revenues: Boomtown Reno $18,636 $14,142 Boomtown New Orleans 24,995 25,721 Boomtown Biloxi 17,504 17,799 Casino Magic Bay St. Louis 23,991 22,963 Casino Magic Biloxi 23,894 24,631 Casino Magic Bossier City 38,830 33,852 Casino Magic Argentina 5,686 5,327 Hollywood Park Race Track 0 5,465 Turf Paradise, Inc. 6,943 6,786 Hollywood Park-Casino 1,500 14,025 Other 618 589 Pinnacle Entertainment, Inc. - Corporate 0 698 ------- -------- 162,597 171,998 ------- -------- Expenses: Boomtown Reno 16,060 13,198 Boomtown New Orleans 18,196 17,269 Boomtown Biloxi 14,388 14,086 Casino Magic Bay St. Louis 17,171 16,753 Casino Magic Biloxi 17,811 17,587 Casino Magic Bossier City 28,258 25,477 Casino Magic Argentina 3,330 3,155 Hollywood Park Race Track 0 7,184 Turf Paradise, Inc. 4,363 4,205 Hollywood Park-Casino 0 11,839 Other 96 26 Pinnacle Entertainment, Inc. - Corporate 4,788 5,307 ------- -------- 124,461 136,086 ------- -------- Non-recurring income (expenses): Gain on disposition of assets, net 23,854 0 Pre-opening costs, Belterra Resort and Casino (1,743) (707) Proposed merger costs (625) 0 Depreciation and amortization: Boomtown Reno 1,900 1,659 Boomtown New Orleans 1,501 1,425 Boomtown Biloxi 899 993 Casino Magic Bay St. Louis 1,614 1,438 Casino Magic Biloxi 1,852 1,739 Casino Magic Bossier City 2,094 1,889 Casino Magic Argentina 406 372 Hollywood Park Race Track 0 1,090 Turf Paradise, Inc. 287 295 Hollywood Park-Casino 622 665 Other 408 485 Pinnacle Entertainment, Inc. - Corporate 1,008 1,317 ------- -------- 12,591 13,367 ------- -------- Operating income (loss): Boomtown Reno 676 (715) Boomtown New Orleans 5,298 7,027 Boomtown Biloxi 2,217 2,720 Casino Magic Bay St. Louis 5,206 4,772 Casino Magic Biloxi 4,231 5,305 Casino Magic Bossier City 8,478 6,486 Casino Magic Argentina 1,950 1,800 Hollywood Park Race Track 0 (2,809) Turf Paradise, Inc. 2,293 2,286 Hollywood Park-Casino 878 1,521 Other 114 78 Pinnacle Entertainment, Inc. - Corporate (5,796) (5,926) Gain on disposition of assets, net 23,854 0 Pre-opening costs, Belterra Resort and Casino (1,743) (707) Proposed merger costs (625) 0 ------- -------- 47,031 21,838 ------- -------- Interest expense, net 12,880 14,491 ------- -------- Income before minority interests and income taxes 34,151 7,347 ------- -------- Minority interests - Casino Magic Argentina 0 458 Income tax expense 12,239 2,756 ------- -------- Net income $21,912 $4,133 ======= ======== Net income per common share: Net income - basic $0.83 $0.16 Net income - diluted $0.80 $0.16 Number of shares: Basic 26,260 25,800 Diluted 27,307 25,800 28 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Pinnacle Entertainment, Inc. (Registrant) By: /s/ R.D. Hubbard Dated: May 12, 2000 ------------------------------ R.D. Hubbard Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: /s/ Bruce C. Hinckley Dated: May 12, 2000 ------------------------------ Bruce C. Hinckley Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 29