UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 30, 2001.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
________________________________ to __________________________
Commission File Number: 333-88829
Peninsula Gaming Company, LLC/Peninsula Gaming Corp.
(Exact name of registrant as specified in its charter)
Iowa 42-1483875
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3rd Street Ice Harbor, PO Box 1750, 52001-1750
Dubuque, Iowa (Zip Code)
(Address of principal executive offices)
(563) 583-7005
(Registrant's telephone number including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. Yes __X__ No _____
All of the common equity interests of Peninsula Gaming Company, LLC (The
"Company") are held by Peninsula Gaming Partners, LLC, and all of the common
stock of Peninsula Gaming Corp. is held by Peninsula Gaming Company, LLC.
PENINSULA GAMING COMPANY, LLC
INDEX TO FORM 10-Q
Part I - Financial Information
Item 1 - Financial Statements
Peninsula Gaming Company, LLC:
Balance Sheets (Unaudited) as of June 30, 2001 and December 31, 2000...................3
Statements of Operations (Unaudited) for the Three and Six Months
Ended June 30, 2001 and 2000.........................................................4
Statements of Cash Flows (Unaudited) for the Six Months
Ended June 30, 2001 and 2000.........................................................5
Notes to Financial Statements (Unaudited)..............................................6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................................8
Item 3 - Quantitative and Qualitative Disclosures About Market Risk......................12
Part II - Other Information ....................................................................13
Signatures ................................................................................15
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PENINSULA GAMING COMPANY, LLC
BALANCE SHEETS (UNAUDITED)
June 30, December 31,
2001 2000
------------ --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,117,282 $ 8,362,122
Accounts receivable, less allowance
for doubtful accounts
of $64,401 and $43,104, respectively 126,911 74,159
Inventory 107,129 113,583
Prepaid expenses 304,968 584,195
------------ --------------
Total current assets 10,656,290 9,134,059
------------ --------------
PROPERTY AND EQUIPMENT, NET 18,882,994 19,079,869
------------ --------------
OTHER ASSETS:
Deposits 29,572 84,973
Deferred financing costs,
net of amortization of
$1,418,905 and $1,029,474,
respectively 4,077,388 3,991,373
Goodwill and other intangible assets,
net of amortization of
$2,769,057 and $2,062,064,
respectively 53,790,423 54,497,416
------------ --------------
Total other assets 57,897,383 58,573,762
------------ --------------
TOTAL $87,436,667 $ 86,787,690
============ ==============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 218,677 $ 710,537
Accrued payroll and payroll taxes 1,094,377 999,659
Other accrued expenses 5,903,538 1,708,994
Current maturities of capital
lease obligations 113,552 113,552
------------ --------------
Total current liabilities 7,330,144 3,532,742
------------ --------------
LONG-TERM LIABILITIES:
Senior secured notes, net of discount 70,335,008 70,288,519
Capital lease obligations, net
of current maturities 362,229 362,229
------------ --------------
Total long-term liabilities 70,697,237 70,650,748
------------ --------------
Total liabilities 78,027,381 74,183,490
------------ --------------
COMMITMENTS AND CONTINGENCIES
PREFERRED MEMBERS' INTEREST, REDEEMABLE 4,000,000 7,000,000
MEMBERS' EQUITY:
Common members' interest 9,000,000 9,000,000
Accumulated deficit (3,590,714) (3,395,800)
------------ --------------
Total members' equity 5,409,286 5,604,200
----------- --------------
TOTAL $87,436,667 $86,787,690
=========== ==============
See notes to financial statements (unaudited).
3
PENINSULA GAMING COMPANY, LLC
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
------------------- ----------------- ----------------- ------------------
REVENUES:
Casino $ 12,010,185 $ 11,419,618 $ 23,170,371 $22,267,775
Food and beverage 653,974 667,188 1,261,507 1,298,296
Other 32,323 48,258 60,419 84,526
Less promotional allowances (698,638) (772,009) (1,257,858) (1,363,939)
------------------- ----------------- ----------------- ----------------
Total net revenues 11,997,844 11,363,055 23,234,439 22,286,658
------------------- ----------------- ----------------- ----------------
EXPENSES:
Casino 5,172,860 5,049,001 10,146,657 9,614,325
Food and beverage 726,614 738,694 1,407,045 1,434,792
Boat operations 579,715 591,765 1,133,886 1,143,466
Other 5,601 10,816 9,819 18,699
Selling, general and administrative 1,631,732 1,293,696 2,982,387 2,737,528
Depreciation and amortization 957,802 872,501 1,912,008 1,734,507
------------------- ----------------- ----------------- ----------------
Total expenses 9,074,324 8,556,473 17,591,802 16,683,317
------------------- ----------------- ----------------- ----------------
INCOME FROM OPERATIONS 2,923,520 2,806,582 5,642,637 5,603,341
------------------- ----------------- ----------------- ----------------
OTHER INCOME (EXPENSE):
Interest income 58,044 118,596 110,788 198,820
Interest expense (2,416,546) (2,372,853) (4,796,367) (4,754,408)
Gain (loss) on sale of assets (76,765) 0 (75,765) (6,387)
------------------- ----------------- ----------------- ----------------
Total other expense (2,435,267) (2,254,257) (4,761,344) (4,561,975)
------------------- ----------------- ----------------- ----------------
NET INCOME BEFORE PREFERRED MEMBER
DISTRIBUTIONS 488,253 552,325 881,293 1,041,366
LESS PREFERRED MEMBER DISTRIBUTIONS (95,680) (157,500) (199,649) (315,000)
------------------- ----------------- ----------------- ----------------
NET INCOME TO COMMON MEMBERS' INTEREST $ 392,573 $ 394,825 $ 681,644 $ 726,366
=================== ================= ================= ================
See notes to financial statements (unaudited).
4
PENINSULA GAMING COMPANY, LLC
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Six Months
Ended Ended
June 30, June 30,
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 681,644 $ 726,366
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Depreciation and amortization 1,912,008 1,734,507
Provision for doubtful accounts 77,966 59,546
Amortization of deferred financing
costs and bond discount 435,921 391,457
Loss on sale of assets 75,765 6,387
Changes in operating assets and liabilities:
Receivables (130,718) (83,145)
Inventory 6,455 (4,241)
Prepaid expenses and other assets 334,628 60,491
Accounts payable (491,859) 371,948
Accrued expenses 4,289,260 (1,470,894)
------------ ------------
Net cash provided by operating activities 7,191,070 1,792,422
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 27,133 0
Purchase of property and equipment (1,111,039) (1,143,587)
------------ ------------
Net cash used by investing activities (1,083,906) (1,143,587)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs (475,446) (181,007)
Preferred members' interest redeemed (3,000,000) 0
Member distributions (876,558) (950,838)
------------ ------------
Net cash used by financing activities (4,352,004) (1,131,845)
------------ ------------
NET INCREASE (DECREASE) IN CASH 1,755,160 (483,010)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,362,122 7,918,742
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $10,117,282 $ 7,435,732
=========== ============
See notes to financial statements (unaudited).
5
PENINSULA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Summary of Significant Accounting Policies
Basis of Presentation
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments, consisting only of normal recurring entries unless
otherwise disclosed, necessary to present fairly the financial information of
Peninsula Gaming Company, LLC (the "Company") for the interim periods presented
and have been prepared in accordance with accounting principles generally
accepted in the United States of America. The interim results reflected in the
financial statements are not necessarily indicative of results for the full year
or other periods.
The financial statements contained herein should be read in conjunction with the
audited financial statements and accompanying notes to the financial statements
included in the Company's Annual Report on Form 10-K for the period ended
December 31, 2000. Accordingly, footnote disclosure which would substantially
duplicate the disclosure in the audited financial statements has been omitted in
the accompanying unaudited financial statements.
2. Commitments and Contingencies
The Company is involved in various legal actions arising in the normal course of
business. In the opinion of management, such matters will not have a material
adverse effect on the financial position of the Company.
3. Line of Credit
On March 12, 2001, the Company entered into a Loan and Security Agreement (the
"Credit Agreement") with Foothill Capital Corporation providing for commitments
of up to $10.0 million which mature in 2005. The outstanding loans will bear
interest at a rate equal to (a) the LIBOR rate plus 3.00% with respect to LIBOR
rate loans and (b) the base rate plus 0.75% with respect to base rate loans,
provided that the outstanding obligations shall not at any time bear interest at
a rate per annum less than 8.50%. Indebtedness under the Credit Agreement is
secured by substantially all of the Company's assets (which assets also secure
the Company's obligations under its 12 1/4% Senior Secured Notes due 2006 (the
"Senior Secured Notes")). The Credit Agreement contains a number of restrictive
covenants and agreements similar to (and in certain cases more restrictive than)
those contained in the indenture governing the Senior Notes, including a minimum
earnings requirement of maintaining EBITDA of at least $10 million as of the end
of each fiscal quarter (calculated based upon the immediately preceding 12 month
period), and certain events of default customary for senior secured credit
facilities. For purposes of the Credit Agreement, EBITDA is defined as
consolidated net earnings (or loss), minus extraordinary gains, plus interest
expense, income taxes, and depreciation and amortization. At June 30, 2001, the
Company had no borrowings outstanding under the Credit Agreement.
4. New Accounting Pronouncements
During the year ended December 31, 2000, the Emerging Issues Task Force of the
Financial Accounting Standards Board issued EITF 00-22 "Accounting for `Points'
and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers
for Free Products or Services to Be Delivered in the Future" to be effective for
all financial statements issued after February 15, 2001. The Company adopted
EITF 00-22 during the six month period ended June 30, 2001. This EITF requires,
among other things, that the expected future costs associated with loyalty
programs and promotions that are earned by customers during the reporting period
are to be accrued in the same period with the related costs included as an
6
offset to revenues. Such costs were $376,119 and $463,106 for the three month
periods ended June 30, 2001 and 2000, respectively, and $695,846 and $788,282
for the six month periods ended June 30, 2001 and 2000, respectively. Costs for
the three and six month periods ended June 30, 2000 have been reclassified from
casino expense to promotional allowances in the Statements of Operations to
conform with the current year presentation. Adoption of EITF 00-22 had no effect
on net income to Common Members' Interest for the periods presented.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations (SFAS 141) and
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 addresses financial accounting and
reporting for business combinations and requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
Under SFAS 142, goodwill and certain other intangible assets will no longer be
amortized into income. SFAS 142 is effective for fiscal years beginning after
December 15, 2001. The Company is evaluating the impact of these standards and
has not yet determined the effect of adoption on its financial position and
results of operations.
5. Reclassifications
Certain information has been reclassified to conform with the current year's
presentation.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the combined financial statements and the related notes thereto appearing
elsewhere in this report. Some statements contained in Management's Discussion
and Analysis of Financial Condition and Results of Operations constitute
"forward-looking statements" within the meaning of the Litigation Reform Act,
which involve risks and uncertainties, including the risks and uncertainties
discussed below, as well as other risks set forth in our Annual Report on Form
10-K for the year ended December 31, 2000. Should these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, our future
performance and actual results of operations may differ materially from those
expected or intended.
Selected Financial Data
Statement of Operations Data Three Months Ended June 30, Six Months Ended June 30,
2001 2000 (1) 2001 2000 (1)
----- ---- ---- ----
Revenues:
Casino $ 12,010,185 $ 11,419,618 $ 23,170,371 $ 22,267,775
Food and beverage 653,974 667,188 1,261,507 1,298,296
Other 32,323 48,258 60,419 84,526
Less: Promotional Allowances (698,638) (772,009) (1,257,858) (1,363,939)
------------- ------------- ------------- -------------
Net Revenues 11,997,844 11,363,055 23,234,439 22,286,658
------------- ------------- ------------- -------------
Expenses:
Casino 5,172,860 5,049,001 10,146,657 9,614,325
Food and beverage 726,614 738,694 1,407,045 1,434,792
Boat operations 579,715 591,765 1,133,886 1,143,466
Other 5,601 10,816 9,819 18,699
Selling, general and administrative 1,631,732 1,293,696 2,982,387 2,737,528
Depreciation and amortization 957,802 872,501 1,912,008 1,734,507
----------- ------------ ------------ -------------
Total expenses 9,074,324 8,556,473 17,591,802 16,683,317
----------- ------------ ------------ -------------
Income from operations $ 2,923,520 $ 2,806,582 $ 5,642,637 $ 5,603,341
- -------------
(1) Certain information for 2000 has been reclassified to conform with the
presentation of the three and six month periods ended June 30, 2001.
8
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000
For the three months ended June 30, 2001 and 2000, Dubuque was a two-casino
market consisting of the Diamond Jo and the Greyhound Park. Casino gaming win in
the Dubuque market increased 4.4% to $21.9 million for the three months ended
June 30, 2001 from $20.9 million for the three months ended June 30, 2000. We
believe this increase was primarily due to targeted players club promotions and
a continued focus on maintenance of our slot mix as well as a continued focus by
operators at the Greyhound Park on maintenance of their slot mix during such
period. Admissions to the casinos in the Dubuque market decreased 3.2% to
502,065 for the three months ended June 30, 2001 from 518,874 for the three
months ended June 30, 2000. Our admissions for the three months ended June 30,
2001 decreased 7.3% to 252,708 from 272,753 for the three months ended June 30,
2000. We believe this decrease is primarily attributable to the Diamond Jo's
targeted use of marketing dollars directed primarily towards more profitable
market segments during the three months ended June 30, 2001 compared to the
three months ended June 30, 2000. For the three months ended June 30, 2001, our
share of the Dubuque market casino admissions decreased to 50.3% from 52.6% for
the three months ended June 30, 2000. Our share of the Dubuque market casino
gaming win increased to 55.0% for the three months ended June 30, 2001 from
54.5% for the three months ended June 30, 2000. This increase is attributed to a
10.2% increase in our slot revenues compared to only a 3.4% increase in slot
revenues at the Greyhound Park.
Net revenues increased 5.6% to $12.0 million for the three months ended
June 30, 2001 from $11.4 million for the three months ended June 30, 2000 due to
an increase in our slot revenue of 10.2%, or $943,000 for the three months ended
June 30, 2001 compared to the three months ended June 30, 2000. This increase
was a result of an increased marketing focus to attract new players club members
as well as on targeting players club promotions toward specific market segments.
This increase was offset by a decrease in table games revenue of $352,000. This
decrease was a direct result of a 1.1 percentage point decrease in our table
game hold percentage and the elimination of live poker games, which accounted
for approximately $105,000 in table game revenue during the three months ended
June 30, 2000. For the three months ended June 30, 2001, our win per admission
increased 13.5% to $47.53 from $41.87 for the three months ended June 30, 2000.
The number of gaming positions at June 30, 2001 was 868 compared to 875 at June
30, 2000. This decrease was due to the elimination of one black jack game during
such period. Consistent with an increase in net revenue, our win per gaming
position increased 10.5% to $152.05 for the three months ended June 30, 2001
from $137.59 for the three months ended June 30, 2000. Our casino revenues
increased 5.2% to $12.0 million for the three months ended June 30, 2001 from
$11.4 million for the three months ended June 30, 2000. This percentage increase
is significantly above the average among riverboat casinos in the State of Iowa
whose overall average casino revenues, based on revenues reported to the Iowa
Racing and Gaming Commission, decreased by 1.5% during the three months ended
June 30, 2001 compared to the three months ended June 30, 2000. Casino revenues
were derived 85.1% from slot machines and 14.9% from table games for the three
months ended June 30, 2001 compared to 81.3% from slot machines and 18.7% from
table games for the three months ended June 30, 2000. Net food and beverage and
other revenues remained substantially unchanged at $0.7 million for the three
months ended June 30, 2001 and 2000. Promotional allowances decreased 9.5% to
$0.7 million for the three months ended June 30, 2001 from $0.8 million for the
three months ended June 30, 2000.
Casino operating expenses increased 2.5% to $5.2 million for the three
months ended June 30, 2001 from $5.0 million for the three months ended June 30,
2000 due primarily to an increase in gaming taxes and an increase in casino and
players club promotions. Food and beverage expenses and boat operation expenses
were substantially unchanged for the three months ended June 30, 2001 and 2000.
Selling, general and administrative expenses increased 26.1% to $1.6 million for
the three months ended June 30, 2001 from $1.3 million for the three months
ended June 30, 2000 due primarily to an increase in professional fees of
$125,000, an increase in salary expense of $73,000 and an increase in marketing
and advertising of $61,000.
9
Depreciation and amortization expenses increased 9.8% to $1.0 million for
the three months ended June 30, 2001 from $0.9 million for the three months
ended June 30, 2000 due primarily to the construction of a new restaurant and
VIP room in the land based pavilion adjacent to the Diamond Jo during the first
quarter of 2001. Net interest expense increased slightly to $2.4 million for the
three months ended June 30, 2001 from $2.3 million for the three months ended
June 30, 2000.
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
For the six months ended June 30, 2001 and 2000, Dubuque was a two-casino
market consisting of the Diamond Jo and the Greyhound Park. Casino gaming win in
the Dubuque market increased 4.8% to $42.0 million for the six months ended June
30, 2001 from $40.1 million for the six months ended June 30, 2000. We believe
this increase was primarily due to targeted players club promotions and a
continued focus on maintenance of our slot mix and the slot mix at the Greyhound
Park. Admissions to the casinos in the Dubuque market decreased 4.1% to 929,211
for the six months ended June 30, 2001 from 968,791 for the six months ended
June 30, 2000. We believe this decrease is primarily attributable to unusually
bad weather during the first two months of 2001 compared to the same period in
2000, the Diamond Jo's targeted use of marketing dollars directed primarily
towards more profitable market segments and one less gaming day during the six
months ended June 30, 2001 compared to the six months ended June 30, 2000. For
the six months ended June 30, 2001, our share of the Dubuque market casino
admissions decreased to 51.8% from 53.7% for the six months ended June 30, 2000.
We believe this decrease is primarily attributable to our targeted use of
marketing dollars directed primarily towards more profitable market segments
during the six months ended June 30, 2001 compared to the six months ended June
30, 2000. Our share of the Dubuque market casino gaming win decreased to 55.1%
for the six months ended June 30, 2001 from 55.5% for the six months ended June
30, 2000. This decrease is attributed to a decrease in our table game revenue of
$914,000, resulting from a 2.3 percentage point decrease in our table game hold
percentage as well as the elimination of live poker games which accounted for
approximately $217,000 in table game revenue during the six months ended June
30, 2000. If our table game hold percentage during such period had remained
constant as compared to the prior year, our share of the Dubuque market casino
gaming win would have increased to 55.6% for the six months ended June 30, 2001.
Net revenues increased 4.2% to $23.3 million for the six months ended June
30, 2001 from $22.3 million for the six months ended June 30, 2000 due to an
increase in our slot revenue of 10.1%, or $1.8 million for the six months ended
June 30, 2001 compared to the six months ended June 30, 2000. This increase was
a result of an increased marketing focus to attract new players club members as
well as on targeting players club promotions toward specific market segments.
This increase was offset by a decrease in table games revenue of $0.9 million.
This decrease was a direct result of a 2.3 percentage point decrease in our
table game hold percentage and the elimination of live poker games which
accounted for approximately $217,000 in table game revenue during the six months
ended June 30, 2000. Our admissions for the six months ended June 30, 2001
decreased 7.6% to 481,271 from 520,659 for the six months ended June 30, 2000.
We believe this decrease is primarily attributable to unusually bad weather
during the first two months of 2001 compared to the same period in 2000, the
Diamond Jo's targeted use of marketing dollars directed primarily towards more
profitable market segments and one less gaming day during the six months ended
June 30, 2001 compared to the six months ended June 30, 2000. For the six months
ended June 30, 2001 our win per admission increased 12.6% to $48.14 from $42.77
for the six months ended June 30, 2000. The number of gaming positions at June
30, 2001 was 868 compared to 875 at June 30, 2000. This decrease was due to the
elimination of one black jack game. Consistent with an increase in net revenue,
our win per gaming position increased 12.2% to $147.48 for the six months ended
June 30, 2001 from $131.49 for the six months ended June 30, 2000. Our casino
revenues increased 4.1% to $23.2 million for the six months ended June 30, 2001
from $22.3 million for the six months ended June 30, 2000. This percentage
increase is significantly above the average among riverboat casinos in the State
of Iowa whose overall average casino revenues decreased by 2.9% during the six
months ended June 30, 2001 compared to the six months ended June 30, 2000 based
on revenues
10
reported to the Iowa Racing and Gaming Commission. Casino revenues were derived
85.2% from slot machines and 14.8% from table games for the six months ended
June 30, 2001 compared to 80.5% from slot machines and 19.5% from table games
for the six months ended June 30, 2000. Net food and beverage revenues, other
revenues and promotional allowances remained substantially unchanged for the six
months ended June 30, 2001 and 2000.
Casino operating expenses increased 5.5% to $10.1 million for the six
months ended June 30, 2001 from $9.6 million for the six months ended June 30,
2000. This increase was due primarily to an increase in casino and players club
promotions of approximately $300,000 and an increase of approximately $180,000
in gaming taxes due to increased gaming revenue. Food and beverage expenses and
boat operation expenses were substantially unchanged for the six months ended
June 30, 2001 and 2000. Selling, general and administrative expenses increased
to $3.0 million for the six months ended June 30, 2001 from $2.7 million for the
six months ended June 30, 2000 due to an increase in salary expense of $195,000
and an increase in marketing advertising and promotions of $95,000.
Depreciation and amortization expenses increased 10.2% to $1.9 million for
the six months ended June 30, 2001 from $1.7 million for the six months ended
June 30, 2000 due primarily to the construction of a new restaurant and VIP room
in the land based pavilion during the first quarter of 2001. Net interest
expense increased slightly to $4.7 million for the six months ended June 30,
2001 from $4.6 million for the six months ended June 30, 2000.
Liquidity and Capital Resources
Our cash balance increased $1.8 million during the six month period ended
June 30, 2001 to $10,117,282 from $8,362,122 at December 31, 2000.
Cash flows from operating activities of $7.2 million for the six month
period ended June 30, 2001 consisted of net income of $0.7 million increased by
non-cash charges of $2.5 million, principally depreciation and amortization, and
an increase in working capital of $4.0 million. The change in working capital is
primarily comprised of an increase in accrued expenses of $4.3 million, which is
principally due to an increase in accrued interest related to our Senior Notes.
Cash flows used for investing activities for the six month period ended
June 30, 2001 was $1.1 million. These funds were primarily used for capital
expenditures relating to the development of a new restaurant and VIP room in the
land based pavilion adjacent to the Diamond Jo and the purchase of replacement
slot machines.
Cash used for financing activities for the six month period ended June 30,
2001 of $4.4 million reflects the redemption of $3.0 million of preferred
members' interest in accordance with the terms of our operating agreement,
distributions to members of $0.9 million and deferred financing costs of $0.5
million related to the placement of our $10 million senior credit facility in
March 2001.
We believe that cash on hand and cash generated from operations will be
sufficient to satisfy our working capital and capital expenditure requirements,
repay borrowings under our senior credit facility, and satisfy our other debt
service requirements. However, we cannot assure you that this will be the case.
If cash on hand and cash generated from operations are insufficient to meet
these obligations, we may have to refinance our debt or sell some or all of our
assets to meet our obligations.
11
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks which are inherent in our financial
instruments which arise from transactions entered into in the normal course of
business. Market risk is the risk of loss from adverse changes in market prices
and interest rates. We do not currently utilize derivative financial instruments
to hedge market risk. We also do not hold or issue derivative financial
instruments for trading purposes.
We are exposed to interest rate risk due to changes in interest rates with
respect to our long-term variable interest rate debt borrowing under the Credit
Agreement. As of June 30, 2001, we had no borrowings under the Credit Agreement.
We have estimated our market risk exposure using sensitivity analysis. We have
defined our market risk exposure as the potential loss in future earnings and
cash flow with respect to interest rate exposure of our market risk sensitive
instruments assuming a hypothetical increase in market rates of interest of one
percentage point. Assuming we borrow the maximum amount allowed under the Credit
Agreement ($10.0 million), if market rates of interest on our variable rate debt
increased by one percentage point, the estimated market risk exposure under the
Credit Agreement would be approximately $0.1 million.
We are also exposed to fair value risk due to changes in interest rates
with respect to our long-term fixed interest rate debt borrowing. Our fixed rate
debt instruments are not generally affected by a change in the market rates of
interest, and therefore, such instruments generally do not have an impact on
future earnings. However, future earnings and cash flows may be impacted by
changes in interest rates related to indebtedness incurred to fund repayments as
such fixed rate debt matures. The following table contains information relating
to our fixed rate debt borrowings which are subject to interest rate risk
(dollars in millions):
Description Contract Terms Interest Rate Cost Fair Value
- ----------- -------------- ------------- ---- ----------
Senior Secured Notes Due July 1, 2006 12 1/4% fixed $71.0 $69.6*
* Represents fair value as of July 31, 2001 based on information provided by
an independent nationally recognized financial institution.
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to, and none of our property is the subject of, any
pending legal proceedings other than litigation arising in the normal course of
business. We do not believe that adverse determinations in any or all such
litigation would have a material adverse effect on our financial condition or
results of operations.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1A. Certificate of Formation of Peninsula Gaming Company, LLC
(incorporated by reference from Exhibit 3.1A to the
Company's Form 10-K for the year ended December 31, 2000,
file number 333-88829)
3.1B. Amendment to Certificate of Formation of Peninsula Gaming
Company, LLC (incorporated by reference from Exhibit 3.1B to
the Company's Form 10-K for the year ended December 31,
2000, file number 333-88829)
3.2. Operating Agreement of Peninsula Gaming Company, LLC
(incorporated by reference from Exhibit 3.2 to the Company's
Form 10-K for the year ended December 31, 2000, file number
333-88829)
3.3. Articles of Incorporation of Peninsula Gaming Corp
(incorporated by reference from Exhibit 3.3 to the Company's
Form 10-K for the year ended December 31, 2000, file number
333-88829)
3.4. Bylaws of Peninsula Gaming Corp (incorporated by reference
from Exhibit 3.4 to the Company's Form 10-K for the year
ended December 31, 2000, file number 333-88829).
3.5. Loan and Security Agreement, dated February 23, 2001, by and
among Peninsula Gaming Company, LLC and Foothill Capital
Corporation.
3.6. Amendment to Loan and Security Agreement, dated March 8,
2001, by and among Peninsula Gaming Company, LLC and
Foothill Capital Corporation.
13
3.7. Mortgage, Leasehold Mortgage, Assignment of Rents, Security
Agreement and Fixture Financing Statement, dated February
23, 2001, from Peninsula Gaming Company, LLC to Foothill
Capital Corporation, as lender.
3.8. Subordination Agreement, dated February 23, 2001, by
Peninsula Gaming Company, LLC and Firstar Bank, N.A.
(formerly, Firstar Bank of Minnesota, N.A.) in favor of
Foothill Capital Corporation.
3.9. Intercreditor Agreement, dated February 23, 2001, by and
among Firstar Bank, N.A. (formerly, Firstar Bank of
Minnesota, N.A.), as trustee, and Foothill Capital
Corporation, as lender.
(b) Reports on Form 8-K
None.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Dubuque, State of Iowa on August 14, 2001.
PENINSULA GAMING COMPANY
By: /s/ M. Brent Stevens
------------------------------------------------
M. Brent Stevens
Chief Executive Officer
By: /s/ George T. Papanier
------------------------------------------------
George T. Papanier
Chief Operating Officer
By: /s/ Natalie A. Schramm
------------------------------------------------
Natalie A. Schramm
Chief Financial Officer
PENINSULA GAMING CORP.
By: /s/ M. Brent Stevens
-------------------------------------------------
M. Brent Stevens
President and Treasurer
(principal financial officer)
15