UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 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 of incorporation or organization) (I.R.S. Employer Identification No.)
3rd Street Ice Harbor, PO Box 1750, Dubuque, Iowa 52001-1750
(Address of principal executive offices) (Zip Code)
(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 September 30, 2001 and December 31, 2000..................3
Statements of Operations (Unaudited) for the Three and Nine Months Ended
September 30, 2001 and 2000................................................................4
Statements of Cash Flows (Unaudited) for the Nine Months Ended September 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)
September 30, December 31,
2001 2000
------------------ ------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,576,084 $ 8,362,122
Accounts receivable, less allowance for doubtful accounts
of $64,909 and $43,104, respectively 79,712 74,159
Inventory 102,922 113,583
Prepaid expenses 420,066 584,195
------------------ ------------------
Total current assets 10,178,784 9,134,059
------------------ ------------------
PROPERTY AND EQUIPMENT, NET 18,539,656 19,079,869
------------------ ------------------
OTHER ASSETS:
Deposits 29,572 84,973
Development costs 370,482 0
Deferred financing costs, net of amortization
of $1,629,345 and $1,029,474, respectively 3,876,485 3,991,373
Goodwill and other intangible assets, net of amortization
of $3,122,555 and $2,062,064, respectively 53,436,926 54,497,416
------------------ ------------------
Total other assets 57,713,465 58,573,762
------------------ ------------------
TOTAL $ 86,431,905 $ 86,787,690
================== ==================
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 307,740 $ 710,537
Accrued payroll and payroll taxes 1,436,920 999,659
Other accrued expenses 3,754,398 1,708,994
Current maturities of capital lease obligations 113,552 113,552
------------------ ------------------
Total current liabilities 5,612,610 3,532,742
------------------ ------------------
LONG-TERM LIABILITIES:
Senior secured notes, net of discount 70,359,361 70,288,519
Capital lease obligations, net of current maturities 362,229 362,229
------------------ ------------------
Total long-term liabilities 70,721,590 70,650,748
------------------ ------------------
Total liabilities 76,334,200 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 (2,902,295) (3,395,800)
------------------ ------------------
Total members' equity 6,097,705 5,604,200
------------------ ------------------
TOTAL $ 86,431,905 $ 86,787,690
================== ==================
See notes to financial statements (unaudited).
-3-
PENINSULA GAMING COMPANY, LLC
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
------------------- ----------------- ----------------- ------------------
REVENUES:
Casino $ 12,802,047 $ 12,523,436 $ 35,972,418 $ 34,791,210
Food and beverage 780,523 729,118 2,042,030 2,027,414
Other 31,798 48,019 92,217 132,545
Less promotional allowances (611,618) (761,012) (1,869,477) (2,124,951)
------------------- ----------------- ----------------- ------------------
Total net revenues 13,002,750 12,539,561 36,237,188 34,826,218
------------------- ----------------- ----------------- ------------------
EXPENSES:
Casino 4,993,588 5,228,904 15,140,244 14,843,229
Food and beverage 731,714 741,716 2,138,760 2,176,508
Boat operations 567,177 614,962 1,701,064 1,758,428
Other 4,951 12,384 14,770 31,083
Selling, general and administrative 1,947,941 1,686,163 4,930,327 4,423,691
Depreciation and amortization 964,647 883,858 2,876,655 2,618,365
------------------- ----------------- ----------------- ------------------
Total expenses 9,210,018 9,167,987 26,801,820 25,851,304
------------------- ----------------- ----------------- ------------------
INCOME FROM OPERATIONS 3,792,732 3,371,574 9,435,368 8,974,914
------------------- ----------------- ----------------- ------------------
OTHER INCOME (EXPENSE):
Interest income 38,432 101,012 149,219 299,833
Interest expense (2,418,946) (2,375,941) (7,215,312) (7,130,349)
Loss on sale of assets (36,462) (39,878) (112,227) (46,265)
------------------- ----------------- ----------------- ------------------
Total other expense (2,416,976) (2,314,807) (7,178,320) (6,876,781)
------------------- ----------------- ----------------- ------------------
NET INCOME BEFORE PREFERRED MEMBER
DISTRIBUTIONS 1,375,756 1,056,767 2,257,048 2,098,133
LESS PREFERRED MEMBER DISTRIBUTIONS (93,263) (157,500) (292,911) (472,500)
------------------- ----------------- ----------------- ------------------
NET INCOME TO COMMON MEMBERS' INTEREST $ 1,282,493 $ 899,267 $ 1,964,137 $ 1,625,633
=================== ================= ================= ==================
See notes to financial statements (unaudited).
-4-
PENINSULA GAMING COMPANY, LLC
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Nine Months
Ended Ended
September 30, September 30,
2001 2000
--------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,964,137 $ 1,625,633
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation and amortization 2,876,655 2,618,365
Provision for doubtful accounts 114,673 88,817
Amortization of deferred financing costs and bond discount 670,713 593,024
Loss on sale of assets 112,227 46,265
Changes in operating assets and liabilities:
Receivables (120,226) (103,816)
Inventory 10,661 (3,866)
Prepaid expenses and other assets 219,530 (65,917)
Accounts payable (402,796) 170,101
Accrued expenses 2,482,664 1,232,984
--------------------- ---------------------
Net cash provided by operating activities 7,928,238 6,201,590
CASH FLOWS FROM INVESTING ACTIVITIES:
Development costs (370,482) 0
Proceeds from sale of property and equipment 51,378 23,332
Purchase of property and equipment (1,439,557) (1,948,986)
--------------------- ---------------------
Net cash used by investing activities (1,758,661) (1,925,654)
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs (484,984) (181,008)
Preferred members' interest redeemed (3,000,000) 0
Member distributions (1,470,631) (1,321,711)
--------------------- ---------------------
Net cash used by financing activities (4,955,615) (1,502,719)
--------------------- ---------------------
NET INCREASE IN CASH 1,213,962 2,773,217
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,362,122 7,918,742
--------------------- ---------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,576,084 $ 10,691,959
===================== =====================
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 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 Secured 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 September 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 nine month period ended September 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 offset to revenues. Such costs were $244,776 and $458,422 for the
-6-
three month periods ended September 30, 2001 and 2000, respectively, and
$940,622 and $1,246,704 for the nine month periods ended September 30, 2001 and
2000, respectively. Costs for the three and nine month periods ended September
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),
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142), and Statement of Financial Accounting Standards
No. 143, Accounting for Asset Retirement Obligations (SFAS 143). Additionally,
in August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). 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. SFAS 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 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. Development Costs
The Company has recorded development costs of $370,482 as of September 30, 2001
for development costs incurred by OED Acquisition, LLC ("OED"), a wholly owned
subsidiary of the Company. These costs are primarily related to legal costs and
design and construction costs of a new casino and contiguous racetrack facility
with pari-mutual wagering, slots and OTB parlors in Opelousas, Louisiana.
6. Reclassifications
Certain information has been reclassified to conform with the current year's
presentation.
7. Subsequent Event
On October 23, 2001, OED entered into an Assignment Agreement with Peninsula
Gaming Partners, LLC ("PGP"), an affiliate of the Company, which by its terms
assigned to OED the Purchase Agreement dated June 27, 2001 (the "Purchase
Agreement"), by and between PGP and a 50% owner in The Old Evangeline Downs,
L.C., a racetrack operator in Lafayette, Louisiana. OED paid $523,836 for the
assignment of the Purchase Agreement. The Purchase Agreement entitles OED to
acquire a 50% ownership in The Old Evangeline Downs, L.C. The transaction is
conditioned upon obtaining financing for the purchase price and development
costs associated with the project, as well as obtaining the appropriate
regulatory approvals. In July 2001, the Louisiana State Racing Commission
conditionally approved the sale of 50% of The Old Evangeline Downs racetrack.
The Company is currently in the process of obtaining financing for the new
facility. Under the provisions of the Purchase Agreement, the Company will
manage the existing racetrack and will design, construct, manage and operate a
new casino and contiguous racetrack facility with pari-mutuel wagering, slots
and OTB parlors in nearby Opelousas, Louisiana.
-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 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
Three Months Ended September 30, Nine Months Ended September 30,
2001 2000 (1) 2001 2000 (1)
---- ---- ---- ----
Revenues:
Casino $ 12,802,047 $ 12,523,436 $ 35,972,418 $ 34,791,210
Food and beverage 780,523 729,118 2,042,030 2,027,414
Other 31,798 48,019 92,217 132,545
Less: Promotional
Allowances (611,618) (761,012) (1,869,477) (2,124,951)
------------ ------------ ------------ ------------
Net Revenues 13,002,750 12,539,561 36,237,188 34,826,218
------------ ------------ ------------ ------------
Expenses:
Casino 4,993,588 5,228,904 15,140,244 14,843,229
Food and beverage 731,714 741,716 2,138,760 2,176,508
Boat operations 567,177 614,962 1,701,064 1,758,428
Other 4,951 12,384 14,770 31,083
Selling, general and
administrative 1,947,941 1,686,163 4,930,327 4,423,691
Depreciation and
amortization 964,647 883,858 2,876,655 2,618,365
------------ ------------ ------------ ------------
Total expenses 9,210,018 9,167,987 26,801,820 25,851,304
------------ ------------ ------------ ------------
Income from operations $ 3,792,732 $ 3,371,574 $ 9,435,368 $ 8,974,914
- --------------
(1) Certain information for 2000 has been reclassified to conform with the
presentation of the three and nine month periods ended September 30, 2001.
-8-
Three Months Ended September 30, 2001 Compared to Three Months Ended
September 30, 2000
For the three months ended September 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 3.5% to $23.2 million for the three
months ended September 30, 2001 from $22.4 million for the three months ended
September 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 2.1% to 555,967 for the three months ended September 30, 2001
from 568,010 for the three months ended September 30, 2000. Our admissions for
the three months ended September 30, 2001 decreased 7.6% to 280,890 from 304,094
for the three months ended September 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 September 30, 2001 compared to the three months ended September 30,
2000. For the three months ended September 30, 2001, our share of the Dubuque
market casino admissions decreased to 50.5% from 53.5% for the three months
ended September 30, 2000. Our share of the Dubuque market casino gaming win
decreased to 55.2% for the three months ended September 30, 2001 from 55.9% for
the three months ended September 30, 2000.
Net revenues increased 3.7% to $13.0 million for the three months ended
September 30, 2001 from $12.5 million for the three months ended September 30,
2000 due to an increase in our slot revenue of 5.0%, or $525,000, for the three
months ended September 30, 2001 compared to the three months ended September 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 $246,000. This decrease was a direct result of a 6.4%, or $615,000,
decrease in our table game drop and the elimination of live poker games, which
accounted for approximately $98,000 in table game revenue during the three
months ended September 30, 2000. For the three months ended September 30, 2001,
our win per admission increased 10.7% to $45.58 from $41.18 for the three months
ended September 30, 2000. Consistent with an increase in net revenue, our win
per gaming position increased 4.2% to $160.31 for the three months ended
September 30, 2001 from $153.84 for the three months ended September 30, 2000.
Our casino revenues increased 2.2% to $12.8 million for the three months ended
September 30, 2001 from $12.5 million for the three months ended September 30,
2000. Casino revenues were derived 85.6% from slot machines and 14.4% from table
games for the three months ended September 30, 2001 compared to 83.3% from slot
machines and 16.7% from table games for the three months ended September 30,
2000. Net food and beverage and other revenues remained substantially unchanged
at $0.8 million for the three months ended September 30, 2001 and 2000.
Promotional allowances decreased 19.6% to $0.6 million for the three months
ended September 30, 2001 from $0.8 million for the three months ended September
30, 2000 due to a decrease in our players club point expense.
Casino operating expenses decreased 4.5% to $5.0 million for the three
months ended September 30, 2001 from $5.2 million for the three months ended
September 30, 2000 due to a decrease in players club promotions of $0.3 million.
Food and beverage expenses and boat operation expenses were substantially
unchanged for the three months ended September 30, 2001 and 2000. Selling,
general and administrative and other expenses increased 15.5% to $1.9 million
for the three months ended September 30, 2001 from $1.7 million for the three
months ended September 30, 2000 due to an increase in marketing promotions and
advertising of $0.2 million.
Depreciation and amortization expenses increased 9.1% to $1.0 million for
the three months ended September 30, 2001 from $0.9 million for the three months
ended September 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 September 30, 2001 from $2.3 million for the three
months ended September 30, 2000.
-9-
Nine Months Ended September 30, 2001 Compared to Nine Months Ended
September 30, 2000
For the nine months ended September 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 $65.2 million for the nine
months ended September 30, 2001 from $62.5 million for the nine months ended
September 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 3.4% to 1,485,178 for the nine months ended September 30, 2001
from 1,536,801 for the nine months ended September 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 nine months ended September 30, 2001
compared to the nine months ended September 30, 2000. For the nine months ended
September 30, 2001, our share of the Dubuque market casino admissions decreased
to 51.3% from 53.7% for the nine months ended September 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 nine
months ended September 30, 2001 compared to the nine months ended September 30,
2000. Our share of the Dubuque market casino gaming win decreased to 55.2% for
the nine months ended September 30, 2001 from 55.7% for the nine months ended
September 30, 2000. This decrease is attributed to a decrease in our table game
revenue of $1,160,000, resulting from a 1.6 percentage point decrease in our
table game hold percentage as well as the elimination of live poker games which
accounted for approximately $315,000 in table game revenue during the nine
months ended September 30, 2000.
Net revenues increased 3.7% to $36.2 million for the nine months ended
September 30, 2001 from $34.8 million for the nine months ended September 30,
2000 due to an increase in our slot revenue of 8.3%, or $2.3 million for the
nine months ended September 30, 2001 compared to the nine months ended September
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 $1.2 million. This decrease was a direct result of a 1.6 percentage
point decrease in our table game hold percentage and the elimination of live
poker games which accounted for approximately $315,000 in table game revenue
during the nine months ended September 30, 2000. Our admissions for the nine
months ended September 30, 2001 decreased 7.6% to 762,161 from 824,753 for the
nine months ended September 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 nine months ended September 30, 2001 compared to the nine
months ended September 30, 2000. For the nine months ended September 30, 2001,
our win per admission increased 11.9% to $47.20 from $42.18 for the nine months
ended September 30, 2000. Consistent with an increase in net revenue, our win
per gaming position increased 9.4% to $151.81 for the nine months ended
September 30, 2001 from $138.74 for the nine months ended September 30, 2000.
Our casino revenues increased 3.4% to $36.0 million for the nine months ended
September 30, 2001 from $34.8 million for the nine months ended September 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 0.5% during the nine months ended September 30, 2001 compared to
the nine months ended September 30, 2000 based on revenues reported to the Iowa
Racing and Gaming Commission. Casino revenues were derived 85.3% from slot
machines and 14.7% from table games for the nine months ended September 30, 2001
compared to 81.5% from slot machines and 18.5% from table games for the nine
months ended September 30, 2000. Net food and beverage revenues, other revenues
and promotional allowances increased slightly to $0.3 million for the nine
months ended September 30, 2001 from less than $0.1 million for the nine months
ended September 30, 2000.
Casino operating expenses increased 2.0% to $15.1 million for the nine
months ended September 30, 2001 from $14.8 million for the nine months ended
September 30, 2000. This increase was due primarily to an increase in gaming
-10-
taxes of $236,000 due to increased gaming revenue. Food and beverage expenses,
boat operation expenses and other expenses were substantially unchanged for the
nine months ended September 30, 2001 and 2000. Selling, general and
administrative expenses increased to $4.9 million for the nine months ended
September 30, 2001 from $4.4 million for the nine months ended September 30,
2000 due to an increase in marketing promotions and advertising of $204,000,
an increase in salary expense of $154,000 and an increase in professional fees
of $67,000.
Depreciation and amortization expenses increased 9.9% to $2.9 million for
the nine months ended September 30, 2001 from $2.6 million for the nine months
ended September 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 $7.1 million for the nine months ended
September 30, 2001 from $6.8 million for the nine months ended September 30,
2000.
LIQUIDITY AND CAPITAL RESOURCES
Our cash balance increased $1.2 million during the nine month period ended
September 30, 2001 to $9,576,084 from $8,362,122 at December 31, 2000.
Cash flows from operating activities of $7.9 million for the nine month
period ended September 30, 2001 consisted of net income of $2.0 million
increased by non-cash charges of $3.8 million, principally depreciation and
amortization, and an increase in working capital of $2.2 million. The change in
working capital is primarily comprised of an increase in accrued expenses of
$2.5 million, which is principally due to an increase in accrued interest
related to our Senior Secured Notes.
Cash flows used for investing activities for the nine month period ended
September 30, 2001 was $1.8 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 as well as development costs associated with our wholly owned
subsidiary.
Cash used for financing activities for the nine month period ended
September 30, 2001 of $5.0 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 $1.5 million and deferred financing costs
of $0.5 million related to the placement of our Loan and Security Agreement
dated March 12, 2001 (the "Credit Agreement") with Foothill Capital Corporation
providing for commitments of up to $10 million which mature in 2005.
On October 23, 2001, OED Acquisition, LLC ("OED"), a wholly owned
subsidiary of the Company, entered into an Assignment Agreement with Peninsula
Gaming Partners, LLC ("PGP"), an affiliate of the Company, which by its terms
assigned to OED the Purchase Agreement dated June 27, 2001 (the "Purchase
Agreement"), by and between PGP and a 50% owner in The Old Evangeline Downs,
L.C., a racetrack operator in Lafayette, Louisiana (the "OED Transaction"). OED
paid $523,836 for the assignment of the Purchase Agreement. The Purchase
Agreement entitles OED to acquire a 50% ownership in The Old Evangeline Downs,
L.C. The transaction is conditioned upon obtaining financing for the purchase
price and development costs associated with the project, as well as obtaining
the appropriate regulatory approvals. In July 2001, the Louisiana State Racing
Commission conditionally approved the sale of 50% of The Old Evangeline Downs
racetrack. The Company is currently in the process of obtaining financing for
the new facility. Under the provisions of the Purchase Agreement, the Company
will manage the existing racetrack and will design, construct, manage and
operate a new casino and contiguous racetrack facility with pari-mutuel
wagering, slots and OTB parlors in nearby Opelousas, Louisiana.
We believe that cash on hand and cash generated from operations will be
sufficient to satisfy our working capital and capital expenditure requirements
(other than in connection with the OED Transaction), repay borrowings under the
Credit Agreement, and satisfy our other current 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.
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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 September 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 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 $68.2*
* Represents fair value as of November 14, 2001 based on information provided
by an independent nationally recognized financial institution.
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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.
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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 November 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)
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