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, 2001
Commission file number 0-106-619
Pinnacle Entertainment, 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, 2001: 26,002,544.
PINNACLE ENTERTAINMENT, INC.
Table of Contents
Part I
Item 1. Financial information
Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000............ 1
Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000.............................. 2
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000.. 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......................................................... 17
Factors Affecting Future Operating Results.......................................................... 17
Results of Operations............................................................................... 19
Liquidity, Capital Resources and Other Factors Influencing Future Results........................... 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................. 23
Part II
Item 1. Legal Proceedings...................................................................................... 23
Item 6. Exhibits and Reports on Form 8-K ...................................................................... 24
Other Financial Information............................................................................ 25
Signatures............................................................................................. 27
Pinnacle Entertainment, Inc.
Consolidated Statements of Operations
For the three months
ended March 31,
---------------------------------------
2001 2000
---------------------------------------
(in thousands, except per share data - unaudited)
Revenues:
Gaming $114,262 $127,211
Food and beverage 7,363 8,251
Hotel and recreational vehicle park 3,124 2,814
Truck stop and service station 4,262 4,076
Other income 4,996 8,160
Racing 0 6,143
------------- ------------------
134,007 156,655
------------- ------------------
Expenses:
Gaming 66,262 68,303
Food and beverage 9,493 9,177
Hotel and recreational vehicle park 2,666 1,540
Truck stop and service station 4,018 3,764
Racing 0 2,658
General and administrative 28,972 30,713
Depreciation and amortization 12,088 12,591
Other operating expenses 3,165 2,364
Pre-opening costs, Belterra Casino Resort 198 1,743
Gain on sale of assets 0 (23,854)
Terminated merger costs 0 625
------------- ------------------
126,862 109,624
------------- ------------------
Operating income 7,145 47,031
Interest income (1,848) (3,189)
Interest expense, net of capitalized interest 12,307 16,069
------------- ------------------
(Loss) income before income taxes (3,314) 34,151
Income tax (benefit) expense (1,193) 12,239
------------- ------------------
Net (loss) income ($2,121) $21,912
============= ==================
Net (loss) income per common share:
Net (loss) income - basic ($0.08) $0.83
Net (loss) income - diluted ($0.08) $0.80
Number of shares - basic 26,288 26,260
Number of shares - diluted 26,288 27,307
See accompanying condensed notes to consolidated financial statements.
1
Pinnacle Entertainment, Inc.
Consolidated Balance Sheets
March 31, December 31,
2001 2000
-------------- -------------
(unaudited)
(in thousands, except share data)
Assets
Current Assets:
Cash and cash equivalents $145,025 $172,868
Receivables, net 16,994 19,007
Prepaid expenses and other assets 18,231 18,425
Assets held for sale 12,160 12,164
Current portion of notes receivable 2,394 2,393
--------- ---------
Total current assets 194,804 224,857
Notes receivable 6,502 6,604
Net property, plant and equipment 593,309 593,718
Goodwill, net of amortization 70,553 71,263
Gaming licenses, net of amortization 38,296 38,934
Debt issuance costs, net of amortization 14,928 15,847
Other assets 10,731 10,252
--------- ---------
$ 929,123 $ 961,475
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $9,073 $19,349
Accrued interest 6,755 17,997
Other accrued liabilities 30,861 31,594
Accrued compensation 14,109 16,668
Deferred income taxes 4,335 4,335
Current portion of notes payable 3,463 3,432
--------- ---------
Total current liabilities 68,596 93,375
Notes payable, less current maturities 496,470 497,162
Deferred income taxes 9,762 9,762
Stockholders' Equity:
Capital stock --
Preferred - $1.00 par value, authorized 250,000 shares;
none issued and outstanding in 2001 and 2000 0 0
Common - $0.10 par value, authorized 40,000,000 shares;
26,046,744 and 26,434,302 shares issued and outstanding in 2001 and 2000 2,605 2,644
Capital in excess of par value 223,374 228,095
Retained earnings 128,316 130,437
--------- ---------
Total stockholders' equity 354,295 361,176
--------- ---------
$929,123 $961,475
========= =========
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,
---------------------------------------
2001 2000
---------------------------------------
(in thousands - unaudited)
Cash flows from operating activities:
Net (loss) income ($2,121) $21,912
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 12,088 12,591
Gain on sale of assets, net 0 (23,854)
Other changes that (used) provided cash:
Receivables, net 2,013 613
Prepaid expenses and other assets (212) (1,880)
Accounts payable (10,276) 26
Accrued interest (11,242) (16,486)
Other accrued liabilities (737) 5,806
Accrued compensation (2,559) 889
All other, net 935 (495)
------------- -----------
Net cash used in operating activities (12,111) (878)
------------- -----------
Cash flows from investing activites:
Additions to property, plant and equipment (10,082) (41,615)
Capitalized interest included in property, plant and equipment (226) (777)
Receipts from sale of property, plant and equipment 0 24,353
Principal collected on notes receivable 101 280
Proceeds from short term investments 0 123,428
------------- -----------
Net cash (used in) provided by investing activities (10,207) 105,669
------------- -----------
Cash flows from financing activites:
Repurchase of common stock (5,344) 0
Payment on notes payable (661) (935)
Common stock options excercised 480 597
------------- -----------
Net cash used in financing activites (5,525) (338)
------------- -----------
(Decrease) increase in cash and cash equivalents (27,843) 104,453
Cash and cash equivalents at beginning of the period 172,868 123,362
------------- -----------
Cash and cash equivalents at the end of the period $145,025 $227,815
============= ===========
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
General Pinnacle Entertainment, Inc. (the "Company" or "Pinnacle
Entertainment") is a diversified gaming company that owns and operates seven
casinos (four with hotels) in Indiana, Nevada, Mississippi, Louisiana and
Argentina. Pinnacle Entertainment operates (effective with its opening in
October 2000) the Belterra Casino Resort, a hotel and cruising 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 2). The
Company also owns and operates, through its Boomtown, Inc. ("Boomtown")
subsidiary, land-based gaming operations in Verdi, Nevada ("Boomtown Reno") and
dockside riverboat gaming operations in Harvey, Louisiana ("Boomtown New
Orleans"). On April 1, 2001, legislation became effective in Louisiana that
required cruising riverboat casinos in Southern Louisiana, including the
Company's Boomtown New Orleans operations, to remain dockside at all times (see
Note 3). The Company also owns and operates, through its Casino Magic Corp.
("Casino Magic") subsidiary, dockside gaming operations in Biloxi, Mississippi
("Casino Magic Biloxi"); dockside riverboat gaming operations in Bossier City,
Louisiana ("Casino Magic Bossier City"); and two land-based casinos in Argentina
("Casino Magic Argentina"). Pinnacle Entertainment receives lease income from
two card clubs - the Hollywood Park-Casino and Crystal Park Hotel and Casino.
The Hollywood Park-Casino is leased from Churchill Downs California Company
("Churchill Downs"), a wholly-owned subsidiary of Churchill Downs Incorporated,
and subleased to an unaffiliated third party operator. The Crystal Park Hotel
and Casino ("Crystal Park") is owned by the Company and is leased to the same
card club operator that leases and operates the Hollywood Park-Casino.
Prior to August 8, 2000, the Company owned and operated dockside gaming
facilities in Biloxi, Mississippi ("Boomtown Biloxi") and in Bay St. Louis,
Mississippi ("Casino Magic Bay St. Louis"). On August 8, 2000, the Company
completed the sale of these facilities to subsidiaries of Penn National Gaming,
Inc. (see Note 6). Prior to June 13, 2000, the Company owned and operated Turf
Paradise, Inc. ("Turf Paradise"), a horse racing facility in Phoenix, Arizona.
On June 13, 2000, the Company completed the sale of Turf Paradise to a company
owned by a private investor (see Note 6).
The financial information included herein has been prepared in conformity with
U.S. 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, 2000. 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 2000 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.
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 Belterra Casino Resort, Boomtown,
Inc. (and its Boomtown casinos) and Casino Magic Corp. (and its Casino Magic
casinos).
Gaming Licenses In 1994, Casino Magic acquired a twelve-year concession
agreement to operate two casinos in Argentina, and capitalized the costs related
to obtaining the concession agreement. Such costs are being amortized, based on
the straight-line method, over the life of the concession agreement. The
exclusive concession contract with the Province of Neuquen, Argentina is
currently scheduled to expire in December 2006. The Company and the Province
are in discussions to extend such concession contract for an additional
4
fifteen years. In order to obtain such extension, Casino Magic Argentina would
be required to invest in the development of a new casino facility and related
amenities.
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, based on
the straight-line method, over twenty-five years. Accumulated amortization as
of March 31, 2001 and December 31, 2000 was $7,222,000 and $6,821,000,
respectively.
Amortization expense was $401,000 in both the three month periods ended March
31, 2001 and 2000.
Amortization of Debt Issuance Costs Debt issuance costs incurred in connection
with long-term debt and bank financing are capitalized and amortized, based on
the straight-line method which approximates the effective interest method, to
interest expense during the period the debt or loan commitments are outstanding.
Accumulated amortization as of March 31, 2001 and December 31, 2000 was
$9,886,000 and $8,967,000, respectively. During the twelve months ended
December 31, 2000, the Company wrote off $2,429,000 of unamortized debt issuance
costs associated with the Casino Magic 13% Notes in connection with the
redemption of such notes (see Note 10).
Amortization included in interest expense was $919,000 and $659,000 for the
three months ended March 31, 2001 and 2000, respectively.
Goodwill Goodwill consists of the excess of the acquisition cost over the fair
value of the net assets acquired in business combinations and is being amortized
on a straight-line basis over 40 years. Accumulated amortization as of March
31, 2001 and December 31, 2000 was $11,727,000 and $11,017,000, respectively.
In August 2000, in connection with the sale of the two casinos in Mississippi
(see Note 6), the Company wrote off approximately $13,128,000 of unamortized
goodwill associated with these properties.
Amortization expense was $710,000 and $803,000 for the three months ended March
31, 2001 and 2000, respectively.
Gaming Revenues and Promotional Allowances Gaming revenues at the Belterra,
Boomtown and Casino Magic properties consist of the difference between gaming
wins and losses. 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) was $13,098,000
and $11,506,000 for the three months ended March 31, 2001 and 2000,
respectively.
Use of Estimates The preparation of consolidated financial statements in
conformity with U.S. 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 the 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, deferred tax assets, other long-term assets, reserves associated with
asset sales, and in determining litigation reserves and other obligations.
Actual results could differ from those estimates.
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 $226,000 and
$777,000 for the three months ended March 31, 2001 and 2000, respectively,
attributed to the Belterra Casino Resort.
Cash and Cash Equivalents Cash and cash equivalents consist of cash,
certificates of deposit and short-term investments with original maturities of
90 days or less. There was no restricted cash at March 31, 2001 and December
31, 2000.
5
Long-lived Assets The Company periodically reviews the propriety of the
carrying amount of long-lived assets and the related intangible assets as well
as the related amortization period to determine whether current events or
circumstances warrant adjustments to the carrying value and/or to the estimates
of useful lives. This evaluation consists of comparing asset carrying values to
the Company's projection of the undiscounted cash flows over the remaining lives
of the assets, in accordance with Statement of Financial Accounting Standards
No. 121 Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to Be Disposed Of ("SFAS No. 121"). Based on its review, the Company
believes that, as of March 31, 2001, there were no significant impairments of
its long-lived assets or related intangible assets.
Pre-opening Costs The Company's policy has been to expense pre-opening costs as
incurred. In April 1998, Statement of Position 98-5 Reporting on the Costs of
Start-Up Activities was issued and was effective for years beginning after
December 15, 1998. Statement of Position 98-5 required that start-up activities
and organization costs be expensed as incurred.
Revenue Recognition In December 1999, Staff Accounting Bulletin 101 Revenue
Recognition in Financial Statements ("SAB 101") issued by the Securities and
Exchange Commission ("SEC"), was issued and became effective beginning the
fourth quarter of fiscal years beginning after December 15, 1999. SAB 101
summarizes certain of the SEC staff's views in applying accounting principles
generally accepted in the United States to revenue recognition in financial
statements. Implementation of SAB 101 did not have a material impact on the
Company's financial position and results of operations.
Derivative Instruments and Hedging Activities In June 1998, Statement of
Financial Accounting Standards No. 133 Accounting for Derivative Instruments and
Hedging Activities ("SFAS No. 133") was issued. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In June 1999, Statement of Financial Accounting Standards No. 137 Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 ("SFAS No. 137") was issued. SFAS No. 133, as amended
by SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company did not have any derivative or hedging
instruments as of March 31, 2001 and December 31, 2000.
Accounting for Customer "Cash-back" Loyalty Programs In January 2001, the
Emerging Issues Task Force ("EITF") reached consensus on Issue 3 addressed in
Issue No. 00-22 Accounting for "Points" and Certain Other Time-Based Sales
Incentive Offers, and Offers for Free Products or Services to Be Delivered in
the Future. This EITF requires that the cost of the cash back component of the
Company's customer loyalty programs be treated as a reduction in revenues. The
Company rewards customers with cash, based upon their level of play on certain
casino games (primarily slot machines). These costs were previously recorded as
a casino expense. The consensus reached on Issue 3 is effective beginning in
fiscal quarters ending after February 15, 2001 and was adopted by the Company in
the quarter ended March 31, 2001. In connection with the adoption of Issue 3,
the Company reclassified (i.e., reduced gaming revenue and gaming expense) the
cash back component of its customer loyalty programs in the amount of $4,889,000
related to the three months ended March 31, 2000 to be consistent with the three
months ended March 31, 2001.
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.
Reclassifications Certain reclassifications have been made to the 2000 amounts
to be consistent with the 2001 financial statement presentation.
6
Note 2 - Belterra Casino Resort
The Company owns a 97% interest in the Belterra Casino Resort, which opened in
October 2000, with the remaining 3% held by a non-voting local partner. On
November 6, 2000, the Company entered into an agreement with its local partner
whereby the local partner has the right to require the Company to purchase, for
a purchase price determined in accordance with the agreement, its local
partner's entire ownership interest in the Belterra Casino Resort at any time on
or after January 1, 2001. The agreement also provides that the Company has the
option to require the local partner to sell to the Company, for a purchase price
determined in accordance with the agreement, its local partner's entire
ownership interest in the Belterra Casino Resort at any time on or after January
1, 2004 or, in the event that the state of Indiana prior to such time has
enacted legislation authorizing the conduct of full dockside gaming, the later
of January 1, 2004 or the end of the calendar quarter following the second
anniversary of the effective date of such legislation.
Note 3 - Louisiana Dockside Gaming Legislation
In March 2001, the governor of Louisiana called a special session of the state
legislature (the "2001 Special Session") to address new gaming legislation. In
the 2001 Special Session, a law was passed requiring riverboat casinos to remain
dockside at all times and increasing the gaming taxes paid to the state of
Louisiana from 18.5% to 21.5% of net gaming proceeds effective April 1, 2001 for
the nine riverboats in the southern region of the state, including the Company's
Boomtown New Orleans property. The gaming tax increase to 21.5% of net gaming
proceeds will be phased in over an approximately two-year period for the
riverboats operating in parishes bordering the Red River, including the
Company's Casino Magic Bossier City property.
Note 4 - Expansion and Development
Boomtown New Orleans As discussed in Note 3, effective April 1, 2001, the
Company's Boomtown New Orleans riverboat casino is required to remain dockside
at all times. In response to the anticipated increase in casino customers, the
Company has begun the renovation of the third floor of its dockside riverboat
casino, including the addition of 325 slot machines (while still conforming to
the state of Louisiana's 30,000 square foot gaming limitation), and the
renovation and improvement of its land-based facility. The Company anticipates
spending between $9,000,000 to $10,000,000 in connection with the renovation of
the facility and purchase of gaming equipment, and anticipates completing such
project by the end of August 2001.
Casino Magic Bossier City In April 2001, in response to increased competition
in the Bossier City/ Shreveport gaming market and increased gaming taxes (see
Note 3), the Board of Directors of the Company approved the expansion and
renovation of the Casino Magic Bossier City facility, including the replacement
of the existing dockside riverboat casino with a new, larger and more luxurious
dockside riverboat casino, the construction of a new 300-room hotel tower
adjacent to the new dockside riverboat casino and the renovation and upgrade of
other land-based amenities. The Company estimates the cost of this expansion
and renovation to be approximately $115,000,000. Construction is scheduled to
begin in the third quarter of 2001 and to be completed by the fall of 2002.
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. In July 2000, the Company was one of three groups that presented their
proposed projects to the Louisiana Gaming Control Board. The Company's
application is seeking the approval to construct and operate a dockside
riverboat casino, hotel and golf course resort complex in Lake Charles,
Louisiana (the Company amended the original application to reflect dockside
legislation recently enacted in Louisiana - see Note 3). The Louisiana Gaming
Control Board has not awarded such license and there is no assurance such
license will be issued to the Company or to any other applicant. At the July
2000 meeting, the Louisiana Gaming Control Board indicated that another meeting
to address the applications for the license would be held at such time as the
Louisiana State Police shall have completed their suitability investigations of
the applicants. The Louisiana State Police is in the process of completing its
investigations, with a report to the Louisiana Gaming Control Board expected
after such completion.
7
In connection with the application, Pinnacle Entertainment 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 (all
of which have been exercised), at a cost of $62,500 per six-month renewal
option. The District has agreed to extend the option period for one additional
six-month term at a cost of $62,500 for that one additional period. These lease
option payments are expensed over the option periods. If the lease option were
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 Casino Resort and incorporating the benefits of dockside
gaming legislation recently enacted in Louisiana (see Note 3). All costs
incurred by the Company related to obtaining this license have been expensed as
incurred.
Note 5 - Stock Buyback
In August 1998, the Company announced its intention to repurchase and retire up
to 20%, or approximately 5,256,000 shares, of its then issued and outstanding
common stock on the open market or in negotiated transactions. In February
2001, the Company announced its intention to continue to make purchases under
this program. As of May 8, 2001, the Company had repurchased approximately
1,044,000 shares at a total cost of approximately $11,296,000 in connection with
this program. Under the Company's most restrictive debt covenants,
approximately $8,704,000 is currently available to continue the stock buyback
program (see Note 10).
Note 6 - Assets Sold
Casino Sales On August 8, 2000, the Company completed the sale of two of its
casinos in Mississippi, Casino Magic Bay St. Louis and Boomtown Biloxi, to
subsidiaries of Penn National Gaming, Inc. ("Penn National") for $195,000,000 in
cash. Subsidiaries of Penn National purchased all of the operating assets and
assumed certain liabilities of the Casino Magic Bay St. Louis and Boomtown
Biloxi properties, including 590 acres of land at Casino Magic Bay St. Louis and
leasehold rights at Boomtown Biloxi. Goodwill, net of accumulated amortization
of $13,128,000, was written off in connection with the casino sales. The after-
tax gain from these sales (which was recorded in the third quarter of 2000) was
approximately $35,538,000.
Due to the sale of Casino Magic Bay St. Louis and Boomtown Biloxi in August
2000, there are no results of operations for the quarter ended March 31, 2001
for these facilities. The condensed results of operations before income taxes
for Casino Magic Bay St. Louis and Boomtown Biloxi for the three months ended
March 31, 2000 were:
Three
months ended
March 31, 2000
--------------
Revenues (a) $ 40,009
Expenses 32,586
--------------
Operating income 7,423
Interest expense, net of interest income 45
--------------
Income before income taxes $ 7,378
==============
(a) Revenue for the three months ended March 31, 2000 include proceeds
from the settlement of a business interruption claim of
approximately $1,204,000 related to hurricane damage and casino
closure in September 1998.
8
Turf Paradise Sale On June 13, 2000, the Company completed the sale of Turf
Paradise, including all 275 acres at the Phoenix, Arizona horse racing facility,
to a company owned by a private investor for $53,000,000 in cash. The after-tax
gain from this sale (which was recorded in the second quarter of 2000) was
approximately $21,262,000.
Due to the sale of Turf Paradise in June 2000, there are no results of
operations for the quarter ended March 31, 2001 for this facility. The
condensed results of operations before income taxes for Turf Paradise for the
three months ended March 31, 2000 were:
Three
months ended
March 31, 2000
--------------
Revenues $ 6,943
Expenses 4,650
--------------
Operating Income 2,293
Interest expense, net of interest income (27)
--------------
Income before income taxes $ 2,320
==============
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. The after-tax gain from this sale (which was
recorded in the first quarter of 2000) was approximately $15,322,000.
Note 7 - Assets Held For Sale
Assets held for sale of $12,160,000 and $12,164,000 as of March 31, 2001 and
December 31, 2000, respectively, consist of 97 acres of surplus land in
Inglewood, California. In April 2000, the Company announced it had entered into
an agreement with Casden Properties Inc. for the sale of the 97 acres for
$63,050,000 in cash. On April 18, 2001, the Company announced that Casden
Properties Inc. had elected to terminate the agreement. The Company continues
to market the property to prospective buyers.
Note 8 - Terminated Merger Agreement
On April 17, 2000, the Company entered into a definitive agreement with PH
Casino Resorts ("PHCR"), a newly formed subsidiary of Harveys Casino Resorts,
and Pinnacle Acquisition Corporation ("Pinnacle Acq Corp"), a newly formed
subsidiary of PHCR, pursuant to which PHCR would have acquired by merger (the
"Merger") all of the outstanding capital stock of Pinnacle Entertainment (the
"Merger Agreement"). Consummation of the Merger was subject to numerous
conditions, including PHCR obtaining the necessary financing for the transaction
and regulatory approvals, as well as other conditions.
On January 23, 2001, the Company announced that it had been notified by PHCR
that PHCR did not intend to further extend the outside closing date (previously
extended to January 31, 2001) of the Merger. Since all of the conditions to
consummation of the Merger would not be met by such date, the Company, PHCR and
Pinnacle Acq Corp mutually agreed that the Merger Agreement would be terminated.
9
Note 9 - Property, Plant and Equipment
Property, plant and equipment held at March 31, 2001 and December 31, 2000
consisted of the following:
March 31, December 31,
2001 (a) 2000 (a)
-------------------- -------------------
(unaudited)
(in thousands)
Land and land improvements $100,731 $ 96,249
Buildings 356,563 353,902
Equipment 186,521 183,523
Vessel and barges 105,828 105,829
Construction in progress 2,174 2,404
-------------------- --------------------
751,817 741,907
Less accumulated depreciation 158,508 148,189
-------------------- --------------------
$593,309 $593,718
==================== ====================
(a) Excludes $12,160,000 and $12,164,000 of assets as of March 31, 2001 and
December 31, 2000, respectively, related to assets classified as held for sale
(see Note 7).
Note 10 - Secured and Unsecured Notes Payable
Notes payable at March 31, 2001 and December 31, 2000 consisted of the
following:
March 31, December 31,
2001 2000
-------------------- -------------------
(unaudited)
(in thousands)
Secured notes payable, Bank Credit Facility $ 0 $ 0
Unsecured 9.25% Notes 350,000 350,000
Unsecured 9.5% Notes 125,000 125,000
Hollywood Park-Casino debt obligation 20,280 20,745
Other secured notes payable 3,058 3,259
Other unsecured notes payable 1,595 1,590
-------------------- -------------------
499,933 500,594
Less current maturities 3,463 3,432
-------------------- -------------------
$496,470 $497,162
==================== ===================
Secured Notes Payable, Bank Credit Facility Under the terms of the 1998 bank
credit facility with a syndicate of banks, expiring in 2003 (the "Credit
Facility"), the Company chose in May of 1999 to reduce the amount available
under the facility from $300,000,000 to $200,000,000. Effective April 2, 2001,
the commitment amount of the Credit Facility was reduced by $10,000,000 to
$190,000,000 in connection with scheduled commitment reductions. Remaining
scheduled commitment reductions are $10,000,000 on each of June 30, September 30
and December 31, 2001, and March 31, June 30, September 30 and December 31,
2002, with the commitment reduction amount increasing to $16,667,000 on each
March 31, June 30 and September 30, 2003. The Credit Facility also provides for
letters of credit up to $30,000,000 and swing line loans of up to $10,000,000.
As of March 31, 2001 and December 31, 2000, the Company had no outstanding
borrowings under the Credit Facility. The Credit Facility has remained unused
since February 1999.
Interest rates on borrowings under the Credit Facility are determined by adding
a margin, which is based upon the Company's debt to cash flow ratio (as defined
in the 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 Credit Facility. The Credit Facility allows for interest
rate swap agreements or other interest rate protection
10
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 from which were used to pay the outstanding borrowings on the
Credit Facility, fund current capital expenditures, and fund 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 Credit Facility. The Company paid a consent fee of
$50 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.
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 premium-to-face values:
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 the 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 the Casino Magic Argentina subsidiaries.
The indentures governing the 9.25% and 9.5% Notes, as well as the 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 (including the Company's common stock - see Note 5),
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.
Redemption of Casino Magic 13% Notes and Extraordinary Item 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 flows (as defined by the indenture).
On August 15, 2000, the Company redeemed all $112,875,000 in aggregate principal
amount of its then outstanding Casino Magic 13% Notes at the redemption price of
106.5%. Upon deposit of principal, premium and accrued interest for such
redemption, Casino Magic Bossier City satisfied all conditions required to
discharge its obligations under the indenture. In connection with the
redemption, in August 2000, the Company recorded an extraordinary loss of
$2,653,000, net of federal and state income taxes, or $0.10 per basic and
diluted share. The extraordinary loss represents the payment of the redemption
premium and the write-off of deferred finance and premium costs, net of the
related federal and state income tax benefit of $1,493,000. Following the
redemption, Casino Magic Bossier City became a guarantor of the Credit Facility,
the 9.25% Notes and the 9.5% Notes.
11
Hollywood Park-Casino Debt Obligation In connection with the disposition of the
Hollywood Park-Casino to Churchill Downs in September 1999, the Company recorded
a long-term lease obligation of $23,000,000. Annual lease payments to Churchill
Downs of $3,000,000 are applied as a reduction of principal and interest
expense. The debt obligation is being amortized, based on a mortgage interest
method, over 10 years (the initial lease term with Churchill Downs).
Note 11 - 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 ("RICO"), as well as claims of common
law fraud, unjust enrichment and negligent misrepresentation, and seeks damages
in excess of $6 billion. On May 10, 1994, a second class action lawsuit was
filed in the United States District Court, Middle District of Florida (the
"Ahern Lawsuit"), naming as defendants the same defendants who were named in the
Poulos Lawsuit and adding as defendants the owners of certain casino operations
in Puerto Rico and the Bahamas, who were not named as defendants in the Poulos
Lawsuit. The claims in the Ahern Lawsuit are identical to the claims in the
Poulos Lawsuit. Because of the similarity of parties and claims, the Poulos
Lawsuit and Ahern Lawsuit were consolidated into one case file (the
"Poulos/Ahern Lawsuit") in the United States District Court, Middle District of
Florida. On December 9, 1994 a motion by the defendants for change of venue was
granted, transferring the case to the United States District Court for the
District of Nevada, in Las Vegas. In an order dated April 17, 1996, the court
granted motions to dismiss filed by Casino Magic and other defendants and
dismissed the Complaint without prejudice. The plaintiffs then filed an amended
Complaint on May 31, 1996 seeking damages against Casino Magic and other
defendants in excess of $1 billion and punitive damages for violations of RICO
and for state common law claims for fraud, unjust enrichment and negligent
misrepresentation.
At a December 13, 1996 status conference, the Poulos/Ahern Lawsuit was
consolidated with two other class action lawsuits (one on behalf of a smaller,
more defined class of plaintiffs and one against additional defendants)
involving allegations substantially identical to those in the Poulos/Ahern
Lawsuit (collectively, the "Consolidated Lawsuits") and all pending motions in
the Consolidated Lawsuits were deemed withdrawn without prejudice. The
plaintiffs in the Consolidated Lawsuits filed a consolidated amended complaint
on February 14, 1997, which the defendants moved to dismiss. On December 19,
1997, the court granted the defendants' motion to dismiss certain allegations in
the RICO claim, but denied the motion as to the remainder of such claim; granted
the defendants' motion to strike certain parts of the consolidated amended
complaint; denied the defendants' remaining motions to dismiss and to stay or
abstain; and permitted the plaintiffs to substitute one of the class
representatives. On January 9, 1998, the plaintiffs filed a second consolidated
amended complaint containing claims nearly identical to those in the previously
dismissed complaints. The defendants answered, denying the substantive
allegations of the second consolidated amended complaint. On March 19, 1998,
the magistrate judge granted the defendants' motion to bifurcate discovery into
"class" and "merits" phases. "Class" discovery was completed on July 17, 1998.
The magistrate judge recommended denial of the plaintiffs' motion to compel
further discovery from the defendants, and the court affirmed in part. "Merits"
discovery is stayed until the court decides the motion for class certification
filed by the plaintiffs on March 18, 1998, which motion the defendants opposed.
In January 2001, the plaintiffs filed a supplement to their motion for class
certification. On March 29, 2001, defendants filed their response to
plaintiffs' supplement to motion for class certification.
The claims are not covered under the Company's insurance policies. While the
Company cannot predict the outcome of this litigation, management 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.
12
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 Corp., and James Edward Ernst,
its then Chief Executive Officer. In the complaint, as amended, 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 contracts and business relations; and (iii) breached
covenants of good faith and fair dealing they allegedly owed to the plaintiff,
and seeks compensatory damages in an amount to be proven at trial as well as
punitive damages. 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, as well as a motion for partial
summary judgment on damages issues. Thereafter, the plaintiff, in July of 1998,
filed a motion to reopen discovery. The court granted the plaintiff's motion,
in part, allowing the parties to conduct additional limited discovery. The
motion for summary judgment and partial summary judgment are pending. On
November 30, 1999, the matter was transferred to the Circuit Court for the
Second Judicial District for Harrison County, Mississippi. A trial date has
been set for October 2001. The Company's insurer has essentially denied
coverage of the claim against Mr. Ernst under the Company's directors and
officer's insurance policy, but has reserved its right to review the matter as
to tortious interference at or following trial. The Company believes that the
insurer should not be permitted to deny coverage, although no assurances can be
given that the insurer will change its position. While the Company cannot
predict the outcome of this action, management believes the lawsuit will not
have a material adverse effect 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 (including the State of Louisiana, the manufacturer of
the bus and the doctor who treated the driver of the bus and released him to
return to work), have been named in fifty-four (54) lawsuits, each seeking
unspecified damages due to the deaths and injuries sustained in this accident.
Most of the cases filed in the Louisiana state courts were removed and
consolidated with the cases which were filed and are pending in the United
States District Court for the Eastern District of Louisiana. Casino Magic has
denied liability in the cases. The federal district court entered a case
management/scheduling order which fixes pretrial scheduling deadlines and
preliminary trial dates have been set for the fall of 2001. The proceedings are
in the early stages of discovery. 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, together with its applicable
insurers, intend to vigorously defend these actions.
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 the
Boomtown Biloxi land based 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. 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. The claim is not covered under the
Company's insurance policies. While the Company cannot predict the outcome of
this lawsuit, management does not expect that the lawsuit will have a materially
adverse effect on the financial condition or results of operations of the
Company.
Purported Class Action Lawsuits On March 14, 2000, Harbor Finance Partners
- -------------------------------
filed a purported class action lawsuit in the Chancery Court of the State of
Delaware against the Company and each of its directors, claiming that the
defendants breached their fiduciary duty to the stockholders of the Company by
agreeing to negotiate exclusively with Harveys, an affiliate of Colony Capital,
LLC (see Note 8). On June 2, 2000, the action was dismissed without prejudice.
On March 21, 2000, a similar purported class action lawsuit was filed by Leta
Hilliard in the Superior Court of the State of California. The lawsuit claims
that the Company and its directors failed to undertake an
13
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
believes that the plaintiff's claims are without merit. The parties have
executed a definitive agreement to settle the purported Hilliard class action
litigation. The settlement is subject to court approval. As part of the
settlement, the Company has agreed to pay attorney's fees and costs to the
plaintiff's counsel, subject to court approval. As of March 31, 2001, the
Company had incurred estimated costs of approximately $2,000,000 in connection
with the negotiation and settlement of this lawsuit, including amounts that
might be paid as fees and costs to plaintiff's counsel. In view of the fact that
the Merger Agreement has been terminated, the parties to the litigation intend
to file a stipulated dismissal of the case with prejudice. This stipulated
dismissal would incorporate the Company's agreement to pay attorney's fees and
costs to the plaintiff's counsel as provided in the settlement agreement, though
at a reduced level. The defendants' agreement to the settlement/stipulated
dismissal does not constitute, and should not be construed as, an admission that
the defendants have any liability to or acted wrongfully in any way with respect
to the plaintiff or any other person.
Casino Magic Bay St. Louis Wrongful Death Litigation On February 17, 2000,
- ----------------------------------------------------
three Mardi Gras Casino Corp. (dba 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 Mardi Gras Casino Corp. seeking compensatory
damages in the amount of $2,000,000 and punitive damages, attorney fees, costs
and expenses in the amount of $10,000,000. The suit alleges, among other
things, that Mardi Gras Casino Corp. employees negligently served alcoholic
beverages to the three individuals and the acts and omissions of the employees
were the proximate cause of the accident. The Company has submitted a claim to
its insurer under its general liability insurance policy. While the Company
cannot predict the outcome of this lawsuit, management believes the claims are
without merit and intends to vigorously defend this action.
Astoria Entertainment Litigation In November 1998, Astoria Entertainment, Inc.
- ----------------------------------
filed a complaint in the United States District Court for the Eastern District
of Louisiana. Astoria, an unsuccessful applicant for a license to operate a
riverboat casino in Louisiana, attempted to assert a claim under the Racketeer
Influenced and Corrupt Organizations ("RICO") statutes, seeking damages
allegedly resulting from its failure to obtain a license. Astoria named several
companies and individuals as defendants, including Hollywood Park, Inc. (the
predecessor to Pinnacle Entertainment), Louisiana Gaming Enterprises, Inc.
("LGE"), and an employee of Boomtown, Inc. The Company believed the RICO claim
against it had no merit and, indeed, Astoria voluntarily dismissed its RICO
claim against Hollywood Park, LGE, and the Boomtown employee.
On March 1, 2001, Astoria amended its complaint. Astoria's amended complaint
added new legal claims, and named Boomtown, Inc. and LGE as defendants. Astoria
claims that the defendants (i) conspired to corrupt the process for awarding
licenses to operate riverboat casinos in Louisiana, (ii) succeeded in corrupting
the process, (iii) violated federal and Louisiana antitrust laws, and (iv)
violated the Louisiana Unfair Trade Practices Act. The amended complaint
asserts that Astoria would have obtained a license to operate a riverboat casino
in Louisiana, but for these alleged improper acts. While the Company cannot
predict the outcome of this action, the Company asserts that it has no liability
in this matter, and it intends to vigorously defend the action.
Casino Magic Biloxi Patron Shooting Incident On January 13, 2001, three Casino
- --------------------------------------------
Magic Biloxi patrons were shot, in the casino, sustaining serious injuries as a
result of a shooting incident involving another Casino Magic Biloxi patron, who
then killed himself. Several other patrons sustained minor injuries while
attempting to exit the casino. To date, no lawsuits relating to this incident
have been filed against Casino Magic Biloxi. However, the Company has notified
its insurance carriers of the incident, and the Company will submit any claims
relating to the incident to its insurers under its general liability insurance
policy, subject to a deductible.
Other Proceedings 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 12 - Consolidating Condensed Financial Information
The Company's subsidiaries (excluding 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, 2001 and 2000 and balance sheets
as of March 31, 2001 and December 31, 2000
(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, 2001
Balance Sheet
- -------------
Current assets $ 113,515 $ 70,696 $10,593 $ 0 $ 194,804
Property, plant and equipment, net 23,529 566,796 2,984 0 593,309
Other non-current assets 23,333 70,528 5,457 41,692 141,010
Investment in subsidiaries 585,816 7,336 0 (593,152) 0
Inter-company 148,229 101,006 0 (249,235) 0
--------- -------- ------- ---------- ---------
$ 894,422 $816,362 $19,034 ($800,695) $ 929,123
========= ======== ======= ========== =========
Current liabilities $ 27,277 $ 39,320 $ 1,999 $ 0 $ 68,596
Notes payable, long term 494,238 2,232 0 0 496,470
Other non-current liabilities 18,611 0 3,357 (12,206) 9,762
Inter-company 0 242,888 6,347 (249,235) 0
Equity 354,296 531,922 7,331 (539,254) 354,295
--------- -------- ------- ---------- ---------
$ 894,422 $816,362 $19,034 ($800,695) $ 929,123
========= ======== ======= ========== =========
Statement of Operations
- -----------------------
Revenues:
Gaming $ 0 $109,453 $ 4,809 $ 0 $ 114,262
Food and beverage 0 7,009 354 0 7,363
Equity in subsidiaries 10,956 1,154 0 (12,110) 0
Other 1,500 10,852 30 0 12,382
--------- -------- ------- ---------- ---------
12,456 128,468 5,193 (12,110) 134,007
--------- -------- ------- ---------- ---------
Expenses:
Gaming 0 64,952 1,310 0 66,262
Food and beverage 0 9,218 275 0 9,493
Administrative and other 4,394 33,026 1,599 0 39,019
Depreciation and amortization 683 10,767 359 279 12,088
--------- -------- ------- ---------- ---------
5,077 117,963 3,543 279 126,862
--------- -------- ------- ---------- ---------
Operating income (loss) 7,379 10,505 1,650 (12,389) 7,145
Interest expense (income), net 10,979 (451) (69) 0 10,459
--------- -------- ------- ---------- ---------
Income (loss) before taxes (3,600) 10,956 1,719 (12,389) (3,314)
Income tax (benefit) expense (1,758) 0 565 0 (1,193)
--------- -------- ------- ---------- ---------
Net income (loss) ($1,842) $ 10,956 $ 1,154 ($12,389) ($2,121)
========= ======== ======= ========== =========
Statement of Cash Flows
- -----------------------
Net cash (used in) provided by operating
activities ($27,323) $ 13,772 $ 1,161 $ 279 ($12,111)
Net cash used in investing activities (215) (8,877) (1,115) 0 (10,207)
Net cash used in financing activities (5,324) (201) 0 0 (5,525)
15
Pinnacle Entertainment, Inc.
Consolidating Condensed Financial Information
For the three months ended March 31, 2001 and 2000 and balance sheets as of
March 31, 2001 and December 31, 2000
(in thousands - unaudited)
(b)
(a) Wholly
Wholly Owned Consolidating Pinnacle
Pinnacle Owned Non- and Entertainment,
ntertainment, Guarantor Guarantor Eliminating Inc.
Inc. Subsidiaries Subsidiaries Entries Consolidated
------------- ------------ ------------ ------------- --------------
For the three- months ended March 31, 2000
Statement of Operations
- -----------------------
Revenues:
Gaming $ 0 $ 87,356 $39,855 $ 0 $127,211
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
--------- -------- ------- ---------- --------
25,658 118,755 41,775 (29,533) 156,655
--------- -------- ------- ---------- --------
Expenses:
Gaming 0 46,949 21,354 0 68,303
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) 95,908 31,347 369 109,624
--------- -------- ------- ---------- --------
Operating income (loss) 43,658 22,847 10,428 (29,902) 47,031
Interest expense (income), net 9,729 (1,311) 4,462 0 12,880
--------- -------- ------- ---------- --------
Income (loss) before 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)
As of December 31, 2000
Balance Sheet
- -------------
Current assets $ 146,941 $ 67,931 $ 9,985 $ 0 $224,857
Property, plant and equipment, net 23,969 567,714 2,035 0 593,718
Other non-current assets 24,309 70,927 5,693 41,971 142,900
Investment in subsidiaries 560,204 6,539 0 (566,743) 0
Inter-company 162,213 100,074 0 (262,287) 0
--------- -------- ------- ---------- --------
$ 917,636 $813,185 $17,713 ($787,059) $961,475
========= ======== ======= ========== ========
Current liabilities $ 43,115 $ 50,683 ($423) $ 0 $ 93,375
Notes payable, long term 494,729 2,433 0 0 497,162
Other non-current liabilities 18,615 (2,447) 5,800 (12,206) 9,762
Inter-company 0 256,490 5,797 (262,287) 0
Equity 361,177 506,026 6,539 (512,566) 361,176
--------- -------- ------- ---------- --------
$ 917,636 $813,185 $17,713 ($787,059) $961,475
========= ======== ======= ========== ========
(a) The following subsidiaries are treated as guarantors of both the 9.5% Notes
and 9.25% Notes for all periods presented: Turf Paradise, Inc. (through
June 13, 2000), Belterra Resorts LLC, Boomtown, Inc., Boomtown Hotel &
Casino, Inc., Bay View Yacht Club, Inc. (through August 8, 2000), Louisiana
- I Gaming, Louisiana Gaming Enterprises, Inc., Boomtown Hoosier, Inc., HP
Casino, Inc., HP Yakama, Inc., HP Consulting, Inc. , HP/Compton, Inc.,
Casino Magic Corp., Mardi Gras Casino Corp. (through August 8, 2000),
Biloxi Casino Corp., Bay St. Louis Casino Corp., Casino Magic Finance
Corp., Casino Magic American Corp., and Casino One Corporation. Crystal
Park Hotel and Casino Development Company, LLC and Mississippi - I Gaming
L.P. (through August 8, 2000). Jefferson Casino Corporation and Casino
Magic of Louisiana, Corp. were treated as wholly owned guarantors as of
September 30, 2000 upon the redemption of the Casino Magic 13% Notes in
August 2000 (see Note 10).
(b) Prior to the redemption of the Casino Magic 13% Notes on August 15, 2000,
(see Note 10), Jefferson Casino Corporation and Casino Magic of Louisiana,
Corp. were wholly owned non-guarantors of the 9.5% and 9.25% Notes. Upon
redemption of the Casino Magic 13% Notes, Jefferson Casino Corporation and
Casino Magic of Louisiana, Corp. became guarantors of the 9.5% and 9.25%
Notes (see note (a) above). Prior to October 1999, Casino Magic Neuquen
S.A. and its subsidiary Casino Magic Support Services were non-wholly owned
non-guarantors to the 9.5% and 9.25% Notes. 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%
and 9.25% Notes.
16
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 effect of future weather conditions and
other natural events; the performance of the Belterra Casino Resort, which has a
limited operating history and is in a new market for the Company; the failure to
sell the surplus land in Inglewood, California (see Note 7 to the Condensed
Notes to Consolidated Financial Statements); the failure to complete (on time or
otherwise) or successfully operate planned expansion and development projects,
including projects at Boomtown New Orleans and Casino Magic Bossier City (see
Note 4 to the Condensed Notes to Consolidated Financial Statements); 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, particularly at Boomtown New Orleans, Casino Magic Biloxi and
Casino Magic Bossier City; the failure to meet Pinnacle Entertainment, Inc.'s
debt service obligations; change in gaming legislation in Indiana; and other
adverse changes in the gaming markets in which Pinnacle Entertainment, Inc.
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, 2000.
Factors Affecting Future Operating Results
Belterra Casino Resort On October 27, 2000, the Company opened to the public
the Belterra Casino Resort located on 315 acres adjacent to the Ohio River in
Switzerland County, Indiana, which is approximately 45 miles southwest of
downtown Cincinnati, Ohio. The Belterra Casino Resort features a 15-story, 308-
room hotel, a cruising riverboat casino (the "Miss Belterra") with approximately
1,800 gaming positions, an 18-hole Tom Fazio-designed championship golf course
(expected to open in July 2001), six restaurants, a 1,500-seat entertainment
venue, a spa, retail areas and other amenities.
The Company owns a 97% interest in Belterra Casino Resort, with the remaining 3%
held by a non-voting local partner. On November 6, 2000, the Company entered
into an agreement with its local partner whereby the local partner has the right
to require the Company to purchase, for a purchase price determined in
accordance with the agreement, the local partner's entire ownership interest in
the Belterra Casino Resort at any time on or after January 1, 2001. The
agreement also provides that the Company has the option to require the local
partner to sell to the Company, for a purchase price determined in accordance
with the agreement, its local partner's entire ownership interest in the
Belterra Casino Resort at any time on or after January 1, 2004 or, in the event
that the state of Indiana prior to such time has enacted legislation authorizing
the conduct of full dockside gaming, the later of January 1, 2004 or the end of
the calendar quarter following the second anniversary of the effective date of
such legislation.
Legislation Regarding Dockside Gaming in Louisiana In March 2001, the governor
of Louisiana called a special session of the state legislature (the "2001
Special Session") to address new gaming legislation. In the 2001 Special
Session, a law was passed requiring riverboat casinos to remain dockside at all
times and increasing the gaming taxes paid to the state of Louisiana from 18.5%
to 21.5% of net gaming proceeds effective April 1, 2001 for the nine riverboats
in the southern region of the state, including the Company's Boomtown New
Orleans property. The gaming tax increase to 21.5% of net gaming proceeds will
be phased
17
in over an approximately two-year period for the riverboats operating in
parishes bordering the Red River, including the Company's Casino Magic Bossier
City property.
The Company believes this change in the law will benefit its Boomtown New
Orleans operations, as increased revenues are expected from casino patrons who
will no longer be required to arrange their plans to coincide with a cruising
schedule. The anticipated increase in the number of visitors to the property is
expected to generate higher revenues, which is expected to more than compensate
for the increase in gaming taxes paid. The Company has begun a renovation of
its dockside riverboat casino and land-based facility in response to such
legislation (see below).
The Company also believes, if the Company is awarded the license for the
proposed Lake Charles project, the new legislation would benefit the proposed
project (see below), as it would enable the Company to build a riverboat casino
that would remain dockside at all times and thus compete more effectively with
existing operators.
Finally, the Company believes the increased gaming taxes will initially have a
negative impact at Casino Magic Bossier City, as gaming was already being
conducted on a dockside riverboat casino prior to this new legislation.
However, the Company believes that a proposed expansion of the property,
including a new larger dockside riverboat and land based amenities (anticipated
to be completed in the fall of 2002), and the related additional revenue to be
derived from such enhanced operations, will help to offset such increased gaming
taxes (see below).
Boomtown New Orleans As discussed above, effective April 1, 2001, the Company's
Boomtown New Orleans riverboat casino is required to remain dockside at all
times, which the Company believes will benefit the performance of the property.
In response to the anticipated increase in casino customers, the Company has
begun the renovation of the third floor of its dockside riverboat casino,
including the addition of 325 slot machines (while still conforming to the state
of Louisiana's 30,000 square foot gaming limitation), and the renovation and
improvement of its land-based facility. The Company anticipates spending
between $9,000,000 to $10,000,000 in connection with the renovation of the
facility and purchase of gaming equipment, and anticipates completing such
project by the end of August 2001.
Casino Magic Bossier City In April 2001, in response to increased competition
in the Bossier City/ Shreveport gaming market and increased gaming taxes (see
above), the Board of Directors of the Company approved the expansion and
renovation of the Casino Magic Bossier City facility, including the replacement
of the existing dockside riverboat casino with a new, larger and more luxurious
dockside riverboat casino, the construction of a new 300-room hotel tower
adjacent to the new dockside riverboat casino and the renovation and upgrade of
other land-based amenities. The Company estimates the cost of this expansion
and renovation to be approximately $115,000,000. Construction is scheduled to
begin in the third quarter of 2001 and to be completed by the fall of 2002. The
Company anticipates that this expansion and renovation will allow the property
to compete more effectively against a newly-opened casino gaming facility
(opened in December 2000) and the newly-opened 500-room hotel tower of another
casino operator (opened in January 2001).
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. In July 2000, the Company was one of three groups that presented their
proposed projects to the Louisiana Gaming Control Board. The Company's
application is seeking the approval to construct and operate a dockside
riverboat casino, hotel and golf course resort complex in Lake Charles,
Louisiana (the Company amended the original application to reflect dockside
legislation recently enacted in Louisiana - see above). The Louisiana Gaming
Control Board has not awarded such license and there is no assurance such
license will be issued to the Company or to any other applicant. At the July
2000 meeting, the Louisiana Gaming Control Board indicated that another meeting
to address the applications for the license would be held at such time as the
Louisiana State Police shall have completed their suitability investigations of
the applicants. The Louisiana State Police is in the process of completing its
investigations, with a report to the Louisiana Gaming Control Board expected
after such completion.
18
In connection with the application, Pinnacle Entertainment 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 (all
of which have been exercised), at a cost of $62,500 per six-month renewal
option. The District has agreed to extend the option period for one additional
six-month term at a cost of $62,500 for that one additional period. These lease
option payments are expensed over the option periods. If the lease option were
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 Casino Resort and incorporating the benefits of dockside
gaming legislation recently enacted in Louisiana (see above). All costs
incurred by the Company related to obtaining this license have been expensed as
incurred.
Assets Held for Sale Assets held for sale of $12,160,000 and $12,164,000 as of
March 31, 2001 and December 31, 2000, respectively, consist of 97 acres of
surplus land in Inglewood, California. In April 2000, the Company announced it
had entered into an agreement with Casden Properties Inc. for the sale of the 97
acres for $63,050,000 in cash. On April 18, 2001, the Company announced that
Casden Properties Inc. had elected to terminate the agreement. The Company
continues to market the property to prospective buyers.
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 and Crystal Park Hotel and
Casino, are leased to, and operated by, an unrelated third party.
Results of Operations
Accounting for Customer "Cash-back" Loyalty Programs In January 2001, the
Emerging Issues Task Force ("EITF") reached consensus on Issue 3 addressed in
Issue No. 00-22 Accounting for "Points" and Certain Other Time-Based Sales
Incentive Offers, and Offers for Free Products or Services to Be Delivered in
the Future. This EITF requires that the cost of the cash back component of
the Company's customer loyalty programs be treated as a reduction in revenues.
The Company rewards customers with cash, based upon their level of play on
certain casino games (primarily slot machines). These costs were previously
recorded as a casino expense. The consensus reached on Issue 3 is effective
beginning in fiscal quarters ending after February 15, 2001 and was adopted by
the Company in the quarter ended March 31, 2001. In connection with the
adoption of Issue 3, the Company reclassified (i.e., reduced gaming revenue and
gaming expenses) the cash back component of its customer loyalty programs in the
amount of $4,889,000 related to the three months ended March 31, 2000 to be
consistent with the three months ended March 31, 2001.
Terminated Merger Agreement On April 17, 2000, the Company entered into a
definitive agreement with PH Casino Resorts ("PHCR"), a newly formed subsidiary
of Harveys Casino Resorts, and Pinnacle Acquisition Corporation ("Pinnacle Acq
Corp"), a newly formed subsidiary of PHCR, pursuant to which PHCR would have
acquired by merger (the "Merger") all of the outstanding capital stock of
Pinnacle Entertainment (the "Merger Agreement"). Consummation of the Merger was
subject to numerous conditions, including PHCR obtaining the necessary financing
for the transaction and regulatory approvals, as well as other conditions.
On January 23, 2001, the Company announced that it had been notified by PHCR
that PHCR did not intend to extend further the outside closing date (previously
extended to January 31, 2001) of the Merger. Since all of the conditions to
consummation of the Merger would not be met by such date, the Company, PHCR and
Pinnacle Acq Corp mutually agreed that the Merger Agreement would be terminated.
The Company does not expect to incur additional costs relating to the terminated
Merger Agreement.
19
Redemption of Casino Magic 13% Notes and Extraordinary Item On August 15, 2000,
the Company redeemed all $112,875,000 in aggregate principal amount of its then
outstanding Casino Magic 13% Notes at the redemption price of 106.5%. Upon
deposit of principal, premium and accrued interest for such redemption, Casino
Magic Bossier City satisfied all conditions required to discharge its
obligations under the indenture. In connection with the redemption, the Company
recorded an extraordinary loss, net of federal and state income taxes, of
$2,653,000. The extraordinary loss represents the payment of the redemption
premium and the write-off of deferred finance and premium costs, net of the
related federal and state income tax benefits (see Note 10 to the Condensed
Notes to Consolidated Financial Statements).
Assets Sold On August 8, 2000, the Company completed the sale of Casino Magic
Bay St. Louis and Boomtown Biloxi (the "Mississippi Casinos") and on June 13,
2000, the Company completed the sale of Turf Paradise (see Note 6 to the
Condensed Notes to Consolidate Financial Statements). The results of operations
of the Mississippi Casinos and Turf Paradise are included in the results of
operations only until such respective dates.
Future revenue, operating results and interest expense will be materially
different due to the sale of the Mississippi Casinos and Turf Paradise, the
redemption of the Casino Magic 13% Notes and the opening of the Belterra Casino
Resort.
Three months ended March 31, 2001 compared to the three months ended March 31,
------------------------------------------------------------------------------
2000
----
Total revenues for the three months ended March 31, 2001 decreased by
$22,648,000, or 14.5%, as compared to the three months ended March 31, 2000.
Contribution to revenues in the three months ended March 31, 2000 from the
Mississippi Casinos and Turf Paradise was $46,951,000. When excluding such
revenue for the three months ended March 31, 2000, total revenues in the three
months ended March 31, 2001 increased by $24,303,000, or 22.2%, when compared to
the three months ended March 31, 2000.
Gaming revenues decreased by $12,949,000, or 10.2%, including $34,256,000 due to
the timing of the sale of the Mississippi Casinos in August 2000. When
excluding the results of the Mississippi Casinos from the three-month results
ended March 31, 2000, gaming revenues increased by $21,307,000, or 22.9%.
Gaming revenues increased at Belterra Casino Resort by $23,123,000 and at
Boomtown New Orleans by $1,235,000, while gaming revenues declined at Casino
Magic Bossier City by $3,034,000. The increase in gaming revenues at Belterra
Casino Resort is due to the opening of the property in October 2000 and
therefore no results of operations in the three months ended March 31, 2000.
The increase in gaming revenues at Boomtown New Orleans is primarily attributed
to increased coin-in and resultant slot revenue in the three months ended March
31, 2001, compared to the prior year. The decrease in Casino Magic Bossier City
gaming revenue was due primarily to increased competition from the opening of a
new casino hotel in December 2000 and the opening of a new hotel tower at
another competitor in January 2001, as well as severe winter rainfall in late
February and early March, which flooded the first level of the property's multi-
level parking garage. The first level of the parking structure was not useable
for approximately 43 days during the first quarter of 2001. Food and beverage
revenues decreased by $888,000, or 10.8%, including $3,277,000 due to the timing
of the sale of the Mississippi Casinos and Turf Paradise. When excluding the
results of the sold operations from the three-month results ended March 31,
2000, food and beverage revenue increased $2,389,000, or 48.0%. A majority of
the increase, $2,046,000, is attributed to Belterra Casino Resort, which
increase is due to the opening of the property in October 2000. Hotel and
recreational vehicle park revenues increased by $310,000, or 11.0%, including
$521,000 due to the timing of the sale of Casino Magic Bay St. Louis in August
2000. When excluding the results of Casino Magic Bay St. Louis from the three-
month results ended March 31, 2000, hotel and recreational vehicle park revenues
increased $831,000, or 36.2%. A majority of the increase, $738,000, is
attributed to the opening of the Belterra Casino Resort in October 2000. Truck
stop and service station revenue increased by $186,000, or 4.6%, primarily due
to increased fuel prices at the Boomtown Reno truck stop and service station.
Other income decreased by $3,164,000, or 38.8%, including $2,754,000 due to the
timing of the sale of the Mississippi Casinos and Turf Paradise. When excluding
the results of the sold operations from the three-month results ended March 31,
2000, other income declined by
20
$410,000, or 7.6%. The decline in other revenue is due primarily to the
settlement of a 1998 hurricane business interruption claim of $800,000 received
by Casino Magic Biloxi during the three months ended March 31, 2000. Racing
revenues declined by $6,143,000, or 100.0%, entirely due to the sale of Turf
Paradise in June 2000.
Total expenses for the three months ended March 31, 2001 increased by
$17,238,000, or 15.7%, as compared to the three months ended March 31, 2000.
Included in the results of operations for the three months ended March 31, 2000
is a gain on the sale of land (see Note 6 to the Condensed Notes to Consolidated
Financial Statements) of $23,854,000, as well as expenses of the Mississippi
Casinos and Turf Paradise of $37,235,000. Excluding the land gain and the
results of operations from properties sold in 2000, total expenses for the three
months ended March 31, 2001 increased by $30,619,000, or 31.8%, as compared to
the three months ended March 31, 2000.
Gaming expenses decreased by $2,041,000, or 3.0%, including $18,458,000 due to
the timing of the sale of the Mississippi Casinos in August 2000. When
excluding the results of the Mississippi Casinos from the results of operations
for the three months ended March 31, 2000, gaming expenses increased by
$16,417,000, or 32.9%. Gaming expenses increased $12,203,000 at Belterra Casino
Resort, $2,408,000 at Casino Magic Bossier City, $914,000 at Casino Magic Biloxi
and $816,000 at Boomtown New Orleans. The increase in gaming expenses at
Belterra Casino Resort is due to the property opening in October 2000, and
therefore no results of operations in the three months ended March 31, 2000.
The increase in gaming expenses at Casino Magic Bossier City and Casino Magic
Biloxi is due primarily to the additional marketing costs associated with the
intense competition in each market. The increase in gaming expenses at Boomtown
New Orleans is consistent with the increased gaming revenues. Food and beverage
expenses increased by $316,000, or 3.4%, including $3,439,000 due to the timing
of the sale of the Mississippi Casinos and Turf Paradise in 2000. When
excluding the results of the sold operations from the results of operations for
the three months ended March 31, 2000, food and beverage expenses increased
$3,755,000, or 65.4%, the majority of which, $3,632,000, is due to the Belterra
Casino Resort, which opened in October 2000. Hotel and recreational vehicle
park expenses increased by $1,126,000, or 73.1%, including $285,000 due to the
timing of the sale of Casino Magic Bay St. Louis. When excluding the results of
Casino Magic Bay St. Louis from the results of operations for the three months
ended March 31, 2000, hotel and recreational vehicle park expenses increased by
$1,411,000, or 112.4%, the majority of which is attributed to Belterra Casino
Resort, which opened in October 2000. Truck stop and service station expenses at
Boomtown Reno increased by $254,000, or 6.7%, due primarily to increased fuel
costs. Racing expenses decreased by $2,658,000, or 100.0%, entirely due to the
sale of Turf Paradise in June 2000. General and administrative expenses
decreased by $1,741,000, or 5.7%, including $8,458,000 due to the timing of the
sale of the Mississippi Casinos and Turf Paradise. When excluding the results of
the sold operations from the results of operations for three months ended March
31, 2000, general and administrative expenses increased $6,717,000, or 30.2%, of
which, $7,273,000, is attributed to Belterra Casino Resort. Depreciation and
amortization decreased by $503,000, or 4.0%, primarily due to the sale of the
Mississippi Casinos and Turf Paradise in 2000, offset by the additional
depreciation expense from Belterra Casino Resort, which opened in October 2000.
Other operating expenses increased $801,000, or 33.9%, including $1,137,000 due
to the timing of the sale of the Mississippi Casinos and Turf Paradise in 2000.
When excluding the results of the sold operations from the results of operations
for the three months ended March 31, 2000, other operating expenses increased
$1,938,000, or 157.9%, including $1,122,000 related to the Belterra Casino
Resort. Pre-opening expenses decreased to $198,000 for the three months ended
March 31, 2001 from $1,743,000 for the same period in 2000. Ongoing pre-opening
costs in 2001 for the Belterra Casino Resort are due to the continuing
construction of the Tom Fazio-designed championship golf course, which is
expected to open in July 2001. The gain on disposition of assets of $23,854,000
in the first quarter of 2000 is due to the sale of 42 acres of surplus land in
March 2000 (see Note 6 to the Condensed Notes to Consolidated Financial
Statements). Terminated merger costs of $625,000 relate to the terminated merger
with PHCR - see Note 8 to the Condensed Notes to Consolidated Financial
Statements.
Interest income decreased by $1,341,000, or 42.1% primarily due to lower
investable funds during the three months ended March 31, 2001 compared to the
same period of 2000. Interest expense, net decreased by $3,762,000, or 23.4%,
due primarily to the redemption of the Casino Magic 13% Notes in August 2000
(see
21
Note 10 to the Condensed Notes to Consolidated Financial Statements). Due
to the pre-tax losses in the three months ended March 31, 2001, the Company
recorded an income tax benefit of $1,193,000, compared to an income tax expense
of $12,239,000 for the three months ended March 31, 2000 (which 2000 amount
includes $8,532,000 associated with the land sale in March 2000 - see Note 6 to
the Condensed Notes to Consolidated Financial Statements).
Liquidity, Capital Resources and Other Factors Influencing Future Results
At March 31, 2001, the Company had cash and cash equivalents, all of which had
original maturities of less than ninety days, of $145,025,000 compared to
$172,868,000 at December 31, 2000.
The Condensed Consolidated Statements of Cash Flows detailing changes in the
cash balances is on page 3.
Operating activities used net cash of $12,111,000 in the three months ended
March 31, 2001 compared with cash used in operating activities of $878,000 in
the first three months of 2000. This year-over-year change is largely due to
the payment of over $10,000,000 of accounts payable, primarily related to
construction and working capital payables at Belterra Casino Resort, offset by
the reduced amount of interest paid in the first quarter of 2001 compared to the
first quarter of 2000 (due to the redemption of the Casino Magic 13% Notes in
August 2000) and the receipt of over $4,000,000 of insurance proceeds related to
the Miss Belterra accident in July 2000.
Net cash used by investing activities of $10,207,000 in the three months ended
March 31, 2001 is primarily attributed to the addition of property, plant and
equipment of $10,082,000. The additions during the three months ended March 31,
2001 include continued construction of the Tom Fazio-championship golf course at
Belterra Casino Resort (which is scheduled to open in July 2001), construction
costs associated with the build out of the high-end Asian Room at Boomtown New
Orleans, initial payments for the purchase of a player tracking system at Casino
Magic Biloxi and the purchase of approximately 14 acres of leased land at
Crystal Park Casino. Net cash provided by investing activities of $105,669,000
in the three months ended March 31, 2000 includes 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
surplus land in March 2000 - see Note 6 to the Condensed Notes to Consolidated
Financial Statements), offset by the use of cash of $41,615,000 for the
additions of property, plant and equipment (the primary additions attributed to
the Belterra Casino Resort, which opened in October 2000).
The net cash used in financing activities of $5,525,000 in the three months
ended March 31, 2001 is due primarily to the payment of $5,344,000 for the
purchase of the Company's common stock (see Note 5 to the Condensed Notes to
Consolidated Financial Statements). The net cash used in financing activities
in the first quarter of 2000 of $338,000 reflects payments on notes payable of
$935,000, offset by proceeds from the exercise of common stock options of the
Company.
The Company believes that its available cash, cash equivalents, cash to be
generated by assets held for sale and cash flow from operations will be
sufficient to finance operations and capital requirements for the foreseeable
future, and in any event for at least the next twelve months. Although the
Company has substantial cash resources and unused bank credit facilities, the
Company is currently considering expansion and development projects at various
properties. 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 at other 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.
22
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
At March 31, 2001, the Company did not hold any investments in market-risk-
sensitive instruments of the type described in Item 305 of Regulation S-K.
Part II
Other Information
Item 1. Legal Proceedings
- -------------------------
Astoria Entertainment Litigation In November 1998, Astoria Entertainment, Inc.
- --------------------------------
filed a complaint in the United States District Court for the Eastern District
of Louisiana. Astoria, an unsuccessful applicant for a license to operate a
riverboat casino in Louisiana, attempted to assert a claim under the Racketeer
Influenced and Corrupt Organizations ("RICO") statutes, seeking damages
allegedly resulting from its failure to obtain a license. Astoria named several
companies and individuals as defendants, including Hollywood Park, Inc. (the
predecessor to Pinnacle Entertainment), Louisiana Gaming Enterprises, Inc.
("LGE"), and an employee of Boomtown, Inc. The Company believed the RICO claim
against it had no merit and, indeed, Astoria voluntarily dismissed its RICO
claim against Hollywood Park, LGE, and the Boomtown employee.
On March 1, 2001, Astoria amended its complaint. Astoria's amended complaint
added new legal claims, and named Boomtown, Inc. and LGE as defendants. Astoria
claims that the defendants (i) conspired to corrupt the process for awarding
licenses to operate riverboat casinos in Louisiana, (ii) succeeded in corrupting
the process, (iii) violated federal and Louisiana antitrust laws, and (iv)
violated the Louisiana Unfair Trade Practices Act. The amended complaint
asserts that Astoria would have obtained a license to operate a riverboat casino
in Louisiana, but for these alleged improper acts. While the Company cannot
predict the outcome of this action, the Company asserts that it has no liability
in this matter, and it intends to vigorously defend the action.
Actions by Greek Authorities For a discussion of the background of the Greek
- ----------------------------
matters, see the description of litigation under the heading "Actions by Greek
Authorities" in Part 1, Item 3. Legal Proceedings of the Company's Annual Report
on Form 10-K for the year ended December 31, 2000.
During the first quarter of 2001, the Greek taxing authorities appealed the
December 11, 2000 decision by the Administrative Court of Thessaloniki
overturning the assessment of the fine against PCC. No hearing date on such
appeal has been set.
On March 30, 2001, appeals on behalf of Marlin Torguson and Robert Callaway were
filed. The hearing before the three-member Court of Misdemeanors of
Thessaloniki has been set for January 15, 2002.
Purported Class Action Lawsuits For a discussion of the background of the
- -------------------------------
purported class action lawsuits relating to the Company's now terminated Merger
Agreement with PHCR and Pinnacle Acq Corp, see the description of the litigation
under the heading "Purported Class Action Lawsuits" in Part I, Item 3. Legal
Proceedings of the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
The parties have executed a definitive agreement to settle the purported
Hilliard class action litigation. The settlement is subject to court approval.
As part of the settlement, the Company has agreed to pay attorney's fees and
costs to the plaintiff's counsel, subject to court approval. As of March 31,
2001, the Company had incurred estimated costs of approximately $2,000,000 in
connection with the negotiation and settlement of this lawsuit, including
amounts that might be paid as fees and costs to plaintiff's counsel. In view of
the fact that the Merger Agreement has been terminated, the parties to the
litigation intend to file a stipulated dismissal of the case with prejudice.
This stipulated dismissal would incorporate the Company's agreement to pay
attorney's fees and costs to the plaintiff's counsel as provided in the
settlement agreement, though at a reduced level. The defendants' agreement to
the settlement/stipulated dismissal does not constitute, and should not be
construed as, an admission that the defendants have any liability to or acted
wrongfully in any way with respect to the plaintiff or any other person.
23
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a)
Exhibit
Number Description of Exhibit
- ---------- ----------------------
2.1 Letter Agreement dated January 22, 2001, among Pinnacle Entertainment, Inc., PH Casino Resorts,
Inc., and Pinnacle Acquisition Corporation, terminating the PHCR Merger Agreement, is hereby
incorporated by reference from Exhibit (d)(8) to Amendment No. 7 to the Schedule 13E-3 filed
January 25, 2001 by Pinnacle Entertainment, Inc., R.D. Hubbard, G. Michael Finnigan, Paul R.
Alanis, J. Michael Allen, Bruce C. Hinckley, PH Casino Resorts, Inc., Harveys Casino Resorts and
Colony HCR Voteco, LLC.
10.1 Agreement and Joint Escrow Instructions dated as of January 24, 2001 between Crystal Park Hotel and
Casino Development Company, LLC and The Community Redevelopment Agency of the City of Compton, is
hereby incorporated by reference to Exhibit 10.51 to the Company's Annual Report on Form 10-K filed
April 2, 2001.
11* Statement re Computation of Per Share Earnings
_____
* Filed herewith
(b) Reports on Form 8-K:
A Current Report on Form 8-K was filed January 16, 2001 to report the issuance of a press release
on January 12, 2001, in which the Company announced that PH Casino Resorts, Inc. had extended the
termination date of the proposed merger with the Company from January 15, 2001 to January 31, 2001.
A Current Report on Form 8-K was filed January 24, 2001 to report the issuance of a press release
on January 23, 2001, in which the Company announced that PH Casino Resorts, Inc. and Pinnacle
Acquisition Corporation had notified the Company that such entities did not intend to extend the
January 31, 2001 outside termination date, and accordingly, the Company, PH Casino Resorts, Inc.
and Pinnacle Acquisition Corporation had mutually agreed that the merger agreement and all related
transaction documents had been terminated.
24
Other Financial Information:
PINNACLE ENTERTAINMENT, INC.
Selected Financial Data by Property
(in thousands, except per share data - unaudited)
For the three months ended March 31,
---------------------------------------
2001 2000
------------ ------------
Revenues:
Belterra Casino Resort $26,195 $0
Boomtown Reno 19,112 18,521
Boomtown New Orleans 25,742 24,464
Casino Magic Biloxi 22,715 22,825
Casino Magic Bossier City 32,528 36,089
Casino Magic Argentina 5,193 5,686
Card clubs and other 2,522 2,118
--------------- --------------
134,007 109,703
Operations sold or disposed
Boomtown Biloxi 0 16,861
Casino Magic Bay St. Louis 0 23,148
Turf Paradise, Inc. 0 6,943
--------------- --------------
134,007 156,655
--------------- --------------
Expenses:
Belterra Casino Resort 25,812 0
Boomtown Reno 16,745 15,945
Boomtown New Orleans 18,336 17,665
Casino Magic Biloxi 18,284 16,742
Casino Magic Bossier City 27,457 25,517
Casino Magic Argentina 3,184 3,330
Card clubs and other 158 96
Pinnacle Entertainment Corporate 4,600 4,788
--------------- --------------
114,576 84,083
Operations sold or disposed
Boomtown Biloxi 0 13,745
Casino Magic Bay St. Louis 0 16,328
Turf Paradise, Inc. 0 4,363
--------------- --------------
114,576 118,519
--------------- --------------
Non-recuring income (expenses):
Gain on sale of assets 0 23,854
Pre-opening costs, Belterra Casino Resort (198) (1,743)
Terminated merger costs 0 (625)
--------------- --------------
(198) 21,486
--------------- --------------
Subtotal $19,233 $59,622
25
PINNACLE ENTERTAINMENT, INC.
Selected Financial Data by Property - Continued
(in thousands, except per share data - unaudited)
For the three months ended March 31,
--------------------------------------------
2001 2000
--------------- --------------
Subtotal from prior page $19,233 $59,622
Depreciation and amortization:
Belterra Casino Resort 2,990 0
Boomtown Reno 1,997 1,900
Boomtown New Orleans 1,413 1,501
Casino Magic Biloxi 1,665 1,852
Casino Magic Bossier City 2,122 2,094
Casino Magic Argentina 359 406
Card clubs and other 968 1,030
Pinnacle Entertainment Corporate 574 1,008
--------------- --------------
12,088 9,791
Operations sold or disposed
Boomtown Biloxi 0 899
Casino Magic Bay St. Louis 0 1,614
Turf Paradise, Inc. 0 287
--------------- --------------
12,088 12,591
--------------- --------------
Operating income 7,145 47,031
Interest income 1,848 3,189
Interest expense, net of capitalized interest (12,307) (16,069)
--------------- --------------
(Loss) income before income taxes (3,314) 34,151
Income tax benefit (expense) 1,193 (12,239)
--------------- --------------
Net (loss) income ($2,121) $21,912
=============== ==============
Net (loss) income per common share:
Net (loss) income - basic ($0.08) $0.83
Net (loss) income - diluted ($0.08) $0.80
Number of shares - basic 26,288 26,260
Number of shares - diluted 26,288 27,307
26
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/ Paul R. Alanis Dated: May 10, 2001
-------------------------------------
Paul R. Alanis
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Bruce C. Hinckley Dated: May 10, 2001
-------------------------------------
Bruce C. Hinckley
Senior Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
27