<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000
Commission file number 0-106-619
Pinnacle Entertainment, Inc.
(Formerly Hollywood Park, Inc.)
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
95-3667491
(IRS Employer Identification No.)
330 North Brand Boulevard, Suite 1100, Glendale, California 91203
(Address of Principal Executive Offices) (Zip Code)
(818) 662-5900
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES [X ] NO [_]
The number of outstanding shares of the registrant's common stock, as of the
close of business on May 8, 2000: 26,303,652.
<PAGE>
PINNACLE ENTERTAINMENT, INC.
Table of Contents
Introduction to Quarterly Report on Form 10-Q/A.............................. 1
Part I
Item 1. Financial information
Consolidated Statements of Operations for the three months ended
March 31, 2000 and 1999........................................ 2
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999.............................................. 3
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 1999........................... 4
Condensed Notes to Consolidated Financial Statements.............. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements and Risk Factors....................... 19
Factors Affecting Future Operating Results........................ 19
Results of Operations............................................. 23
Liquidity, Capital Resources and Other Factors Influencing
Future Results.................................................... 25
Part II
Item 1. Legal Proceedings................................................... 27
Item 6. Exhibits and Reports on Form 8-K.................................... 27
2
<PAGE>
Introduction to Form 10-Q/A
In August 2000, Pinnacle Entertainment, Inc. (the "Company" or "Pinnacle
Entertainment") mailed its definitive proxy material for its 2000 annual
stockholders meeting (which proxy material includes a proposal to approve and
adopt the Agreement and Plan of Merger, dated as of April 17, 2000, as amended
by the letter agreement dated as of August 22, 2000 (as amended, the "Merger
Agreement"), by and among the Company, PH Casino Resorts, Inc. and Pinnacle
Acquisition Corporation). In connection with the preparation and revision of the
proxy statement, the Company added, or made modifications to, certain
information (specifically, the financial statements and the notes thereto and
management's discussion and analysis of financial condition and results of
operations) included in the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000 previously filed with the Securities and
Exchange Commission (the "SEC"). None of the additions or modifications altered
the financial condition or results of operations of the Company for the periods
in question. Consequently, the Company hereby amends its Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2000 as follows: (i) Items 1
and 2 of Part I are amended to add and/or modify certain information therein;
(ii) Item 1 of Part II is added to repeat information regarding purported class
action lawsuits against the Company and its directors which was included in the
Notes to Condensed Consolidated Financial Statements filed with the Company's
original Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2000; and (iii) Item 6 of Part II is amended to add Exhibit 10.1.
Updated information regarding recent developments, including information with
respect to the Merger Agreement and the condition therein related to the opening
of the Company's Belterra Casino Resort, is included in the Company's proxy
statement and other filings with the SEC and in press releases issued by the
Company.
1
<PAGE>
Part I Item 1. Financial Information
------------------------------------
Pinnacle Entertainment, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the three
months ended March 31,
-------------------------------------------
2000 1999
------------- -------------
(in thousands, except per share data - unaudited)
<S> <C> <C>
Revenues:
Gaming $133,153 $140,391
Racing 6,143 9,779
Food and beverage 8,251 9,671
Hotel and recreational vehicle park 2,814 2,668
Truck stop and service station 4,076 2,988
Other income 8,160 6,501
------------- -------------
162,597 171,998
------------- -------------
Expenses:
Gaming 74,245 77,378
Racing 2,658 5,355
Food and beverage 9,177 11,655
Hotel and recreational vehicle park 1,540 1,340
Truck stop and service station 3,764 2,758
General and administrative 30,713 35,146
Depreciation and amortization 12,591 13,367
Pre-opening costs, Belterra Casino Resort 1,743 707
Gain on disposition of assets, net (23,854) 0
Proposed merger costs 625 0
Other 2,364 2,454
------------- -------------
115,566 150,160
------------- -------------
Operating income 47,031 21,838
Interest expense, net 12,880 14,491
------------- -------------
Income before minority interests and income taxes 34,151 7,347
Minority interests 0 458
Income tax expense 12,239 2,756
------------- -------------
Net income $21,912 $4,133
============= =============
==============================================================================================================================
Net income per common share:
Net income - basic $0.83 $0.16
Net income - diluted $0.80 $0.16
Number of shares - basic 26,260 25,800
Number of shares - diluted 27,307 25,800
</TABLE>
__________
See accompanying condensed notes to consolidated financial statements.
2
<PAGE>
Pinnacle Entertainment, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------------- -----------------
(unaudited)
Assets (in thousands, except share data)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $227,815 $123,362
Short term investments 0 123,428
Receivables, net 16,278 17,132
Prepaid expenses and other assets 13,912 13,118
Assets held for sale 153,206 154,649
Current portion of notes receivable 5,785 5,785
----------------- -----------------
Total current assets 416,996 437,474
Notes receivable 8,632 8,912
Net property, plant and equipment 473,365 437,715
Goodwill, net of accumulated amortization of $8,727,000 and $7,927,000
at March 31, 2000 and December 31, 1999, respectively 86,681 87,481
Gaming licenses, net of accumulated amortization of $5,619,000 and $5,219,000
at March 31, 2000 and December 31, 1999, respectively 40,848 41,485
Debt issuance costs, net of accumulated amortization of $9,398,000 and $8,278,000
at March 31, 2000 and December 31, 1999, respectively 21,691 22,813
Other assets 10,659 9,528
----------------- -----------------
$1,058,872 $1,045,408
================= =================
---------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $21,122 $21,096
Accrued interest 9,594 26,080
Other accrued liabilities 35,595 36,796
Accrued compensation 16,962 16,073
Liabilities to be assumed by buyers of assets held for sale 9,593 9,866
Federal and state income taxes 37,615 28,315
Current portion of notes payable 6,527 6,782
----------------- -----------------
Total current liabilities 137,008 145,008
Notes payable, less current maturities 617,549 618,698
Deferred income taxes 826 826
Stockholders' Equity:
Capital stock --
Preferred - $1.00 par value, authorized 250,000 shares;
none issued and outstanding in 2000 and 1999 0 0
Common - $0.10 par value, authorized 40,000,000 shares;
26,282,862 and 26,234,699 shares issued and outstanding in 2000 and 1999 2,629 2,624
Capital in excess of par value 225,350 224,654
Retained earnings 75,510 53,598
----------------- -----------------
Total stockholders' equity 303,489 280,876
----------------- -----------------
$1,058,872 $1,045,408
================= =================
</TABLE>
____________
See accompanying condensed notes to consolidated financial statements.
3
<PAGE>
Pinnacle Entertainment, Inc.
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the three months ended March 31,
-----------------------------------------------
2000 1999
---------------- ---------------
(in thousands - unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $21,912 $4,133
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 12,591 13,367
Gain on disposition of assets (23,854) 0
Decrease in other receivables 613 2,499
Increase in prepaid expenses and other assets (1,880) (1,040)
Decrease in accrued interest (16,486) (5,540)
Decrease in other accrued liabilities (3,494) (1,945)
Increase in federal and state income taxes 9,300 0
All other, net 420 (2,624)
---------------- ---------------
Net cash (used in) provided by operating activities (878) 8,850
---------------- ---------------
Cash flows from investing activities:
Additions to property, plant and equipment (42,392) (11,281)
Receipts from sale of property, plant and equipment 24,353 37
Principal collected on notes receivable 280 254
Proceeds from sale of short term investments 123,428 0
---------------- ---------------
Net cash provided by (used in) investing activities 105,669 (10,990)
---------------- ---------------
Cash flows from financing activities:
Proceeds from secured Bank Credit Facility 0 17,000
Payment of secured Bank Credit Facility 0 (287,000)
Payment on notes payable (935) (2,006)
Proceeds from issuance of 9.25% Notes 0 350,000
Common stock options excercised 597 0
Increase in debt issuance costs 0 (15,309)
---------------- ---------------
Net cash (used in) provided by financing activities (338) 62,685
---------------- ---------------
Increase in cash and cash equivalents 104,453 60,545
Cash and cash equivalents at beginning of the period 123,362 44,234
---------------- ---------------
Cash and cash equivalents at the end of the period $227,815 $104,779
================ ===============
</TABLE>
____________
See accompanying condensed notes to consolidated financial statements.
4
<PAGE>
Pinnacle Entertainment, Inc.
Condensed Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Company Name Change In February 2000, a newly formed wholly owned subsidiary of
Hollywood Park, Inc. merged into Hollywood Park, Inc. for the sole purpose of
changing Hollywood Park, Inc.'s name to Pinnacle Entertainment, Inc. Pinnacle
Entertainment, Inc. (the "Company" or "Pinnacle Entertainment") is a diversified
gaming company that owns and operates eight casinos (four with hotels) in
Nevada, Mississippi, Louisiana and Argentina, two of which are subject to a
pending sales transaction (see Note 4). Pinnacle Entertainment receives lease
income from two card clubs, both in the Los Angeles metropolitan area; and owns
and operates a horse racing facility in Arizona, which is also subject to a
pending sale transaction (see Note 4).
General Pinnacle Entertainment owns and operates, through its Boomtown, Inc.
("Boomtown") subsidiary, land-based, dockside and riverboat gaming operations in
Verdi, Nevada ("Boomtown Reno"), Biloxi, Mississippi ("Boomtown Biloxi") (which
is subject to a pending sale transaction - see Note 4) and Harvey, Louisiana
("Boomtown New Orleans"), respectively. Pinnacle Entertainment also owns and
operates, through its Casino Magic Corp. ("Casino Magic") subsidiary, dockside
gaming casinos in the cities of Bay St. Louis and Biloxi, Mississippi ("Casino
Magic Bay St. Louis" and "Casino Magic Biloxi") (Casino Magic Bay St. Louis is
subject to a pending sale transaction - see Note 4); riverboat gaming operations
in Bossier City, Louisiana ("Casino Magic Bossier City"); and two land-based
casinos in Argentina ("Casino Magic Argentina"). In October 1999, the Company
purchased the 49% minority interest not owned by Pinnacle Entertainment in
Casino Magic Argentina (see Note 5). Pinnacle Entertainment receives lease
income from two card clubs - the Hollywood Park-Casino and Crystal Park Hotel
and Casino. Since September 1999, the Hollywood Park-Casino has been leased from
Churchill Downs California Company ("Churchill Downs"), a wholly owned
subsidiary of Churchill Downs Incorporated, and subleased to an unaffiliated
third party operator (see Note 3). Prior to September 1999, the Hollywood Park-
Casino was owned and operated by the Company. The Crystal Park Hotel and Casino
("Crystal Park") is owned by the Company and is leased to the same card club
operator that now leases and operates the Hollywood Park-Casino. In September
1999, the Company completed the disposition of the Hollywood Park Race Track in
Inglewood, California to Churchill Downs (see Note 3). The Company owns Turf
Paradise, Inc. ("Turf Paradise"), a horse racing facility in Phoenix, Arizona,
which is subject to a pending sale transaction (see Note 4). The Company began
construction in July 1999 on the Belterra Resort and Casino, a hotel and
riverboat casino resort in Switzerland County, Indiana, in which the Company
owns a 97% interest, with the remaining 3% held by a non-voting local partner
(see Note 6). In April 2000, the Company entered into a definitive agreement
with respect to the Proposed Merger whereby, if consummated, all the shares of
the Company would be acquired for cash (see Note 2).
The financial information included herein has been prepared in conformity with
generally accepted accounting principles as reflected in the Company's
consolidated Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission, for the year ended December 31, 1999. This Quarterly Report
on Form 10-Q does not include certain footnotes and financial presentations
normally presented annually and should be read in conjunction with the Company's
1999 Annual Report on Form 10-K.
The information furnished herein is unaudited; however, in the opinion of
management it reflects all normal and recurring adjustments necessary to present
a fair statement of the financial results for the interim periods. It should be
understood that accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The interim results of
operations are not indicative of the results for the full year, due to the
seasonality of the Company's racing business, the sale of significant operating
assets in 1999 and pending asset sales at March 31, 2000 which are expected to
close within the next twelve months.
5
<PAGE>
Principles of Consolidation The consolidated financial statements include the
accounts of Pinnacle Entertainment and its majority owned subsidiaries. All
significant inter-company accounts and transactions have been eliminated. The
Company's significant subsidiaries include Boomtown, Inc. (and its Boomtown
casinos), Casino Magic, Corp. (and its Casino Magic casinos), Turf Paradise,
Inc. and Belterra Casino Resort.
Gaming Licenses In 1994, Casino Magic acquired a twelve-year concession
agreement to operate the two Casino Magic Argentina casinos, and capitalized the
costs related to obtaining the concession agreement. The costs are being
amortized over the life of the concession agreement. In 1996, Casino Magic
acquired a Louisiana gaming license to conduct the gaming operations of Casino
Magic Bossier City. Casino Magic allocated a portion of the purchase price to
the gaming license and is amortizing the cost over twenty-five years.
Amortization of Debt Issuance Costs Debt issuance costs incurred in connection
with long-term debt and bank financing are capitalized and amortized to interest
expense during the period the debt or loan commitments are outstanding.
Amortization expense was $659,000 and $356,000 for the three months ended March
31, 2000 and 1999, respectively.
Goodwill Goodwill consists of the excess of the acquisition cost over the fair
value of net assets acquired in business combinations and is being amortized on
a straight-line basis over 40 years. Amortization expense was $803,000 and
$756,000 for the three months ended March 31, 2000 and 1999, respectively.
Racing Revenues and Expenses The Company recorded pari-mutuel revenues,
admissions, food and beverage and other racing income associated with racing on
a daily basis, except for prepaid admissions, which were recorded ratably over
the racing season. Expenses associated with racing revenues were charged against
income in those periods in which racing revenues were recognized. Other expenses
were recognized as they occurred throughout the year.
Gaming Revenue and Promotional Allowances Gaming revenues at the Boomtown and
Casino Magic properties consists of the difference between gaming wins and
losses, and at the Hollywood Park-Casino consisted of fees collected from
patrons on a per seat or per hand basis. Revenues in the accompanying statements
of operations exclude the retail value of food and beverage, hotel rooms and
other items provided to patrons on a complimentary basis. The estimated cost of
providing these promotional allowances (which is included in gaming expenses)
during the three months ended March 31, 2000 and 1999 was $11,506,000 and
$11,436,000, respectively.
Use of Estimates The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect (i) the reported amounts of assets
and liabilities, (ii) the disclosure of contingent assets and liabilities at the
date of consolidated financial statements, and (iii) the reported amounts of
revenues and expenses during the reporting period. The Company uses estimates in
evaluating the recoverability of property, plant and equipment, other long-term
assets, deferred tax assets and in determining litigation and other obligations.
Property, Plant and Equipment Additions to property, plant and equipment are
recorded at cost and projects in excess of $10,000,000 include interest on funds
borrowed to finance construction. Capitalized interest was $777,000 and
$711,000 for the three months ended March 31, 2000 and 1999, respectively.
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 after December 31,
1998. Statement of Position 98-5 required that start-up activities and
organization costs be expensed as incurred.
Earnings per Share Basic earnings per share are based on net income less
preferred stock dividend requirements divided
6
<PAGE>
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 1999 amounts
to be consistent with the year 2000 financial statement presentation.
Note 2 - Proposed Merger
On March 8, 2000, the Company announced it had received a proposal pursuant to
which an affiliate of Harveys Casino Resorts ("Harveys") would acquire all of
the outstanding shares of common stock of Pinnacle Entertainment. The Company's
Board of Directors formed a special committee (which committee excluded certain
management board members) (the "Special Committee") to evaluate and negotiate
the proposal. Harveys is an affiliate of Colony Capital, Inc., a private
investment firm.
On April 17, 2000, the Company entered into a definitive agreement with PH
Casino Resorts ("PHCR"), a newly formed subsidiary of Harveys, and Pinnacle
Acquisition Corporation ("Pinnacle Acq. Corp."), a newly formed subsidiary of
PHCR, pursuant to which PHCR would acquire by merger all of the outstanding
capital stock of Pinnacle Entertainment (the "PHCR Merger Agreement"). The
proposed merger received the unanimous approval of both the Special Committee
and the Board of Directors of the Company (the "Proposed Merger"). In the
Proposed Merger, Pinnacle Acq. Corp. would merge into Pinnacle Entertainment. In
addition, in connection with the Proposed Merger, Harveys (like the Company)
would become a wholly owned subsidiary of PHCR.
Upon closing of the Proposed Merger, PHCR will acquire all of the outstanding
stock of Pinnacle Entertainment for $24 per fully diluted share in cash, plus up
to an additional $1 per fully diluted share in cash, which amount is contingent
upon the sale of the Company's 97 acres of surplus land in Inglewood, California
for net after tax proceeds of at least $40,750,000 by December 31, 2001 (see
Note 4).
In the event the 97 acres are sold prior to December 31, 2001 for after tax
proceeds of less than $40,750,000 but more than $13,054,000, the $1 per fully
diluted share will be reduced proportionately. In the event the 97 acres are not
sold by December 31, 2001, or have been sold, but at a price less than or equal
to $13,054,000, then Pinnacle Entertainment stockholders would not be entitled
to any additional payment. PHCR's obligation to pay the contingent portion of
the merger consideration will be secured by an irrevocable letter of credit in
the maximum amount of the obligation. As described in Note 4, the Company has
signed an agreement to sell the 97 acres at a price which management believes
will entitle shareholders to the additional $1 payment per share. There can be
no assurances, however, that such sale of the 97 acres will be completed.
Consummation of the merger is subject to, among other things, (a) senior
management contributing $50,000,000 of Pinnacle Entertainment equity to PHCR and
maintaining an on-going role within PHCR; (b) regulatory approvals in the
various jurisdictions in which the Company and Harveys conduct gaming
operations; (c) approval by a majority of the Company's stockholders; (d)
completion of PHCR's financing for the transaction (which customary bank
commitment and high yield "highly confident" letters have been received by
PHCR); and (e) satisfaction of other conditions precedent, including completion
of the Company's pending casino and race track assets sales (see Note 4) and the
opening of the Belterra Casino Resort (currently under construction - see Note
6) substantially in accordance with its current budget not later than September
15, 2000. The Proposed Merger is expected to close in the fourth quarter of
2000.
As of March 31, 2000, the Company incurred professional fees of $625,000 in
connection with the Special Committee and Board of Directors' evaluation of the
Proposed Merger. Additional fees have been and will continue to be incurred
after March 31, 2000 relating to the Proposed Merger. In the event the Proposed
Merger is terminated, under certain circumstances a termination fee of
$25,000,000 may be payable by the Company to Pinnacle Acq. Corp., which
circumstances are defined in the PHCR Merger Agreement previously filed with the
Securities and Exchange Commission.
7
<PAGE>
Note 3 - Assets Sold
On March 24, 2000, the Company announced it had completed the sale of
approximately 42 acres of surplus land in Inglewood, California to Home Depot,
Inc. for $24,200,000 in cash. The 42 acres of surplus land was included in
"Assets held for sale" as of December 31, 1999. The after tax cash proceeds from
this sale is expected to be $15,300,000. The 42 acres of raw land did not
materially contribute to the historical results of operations.
On September 10, 1999, the Company completed the dispositions of the Hollywood
Park Rack Track and Hollywood Park-Casino to Churchill Downs for $117,000,000
cash and $23,000,000 cash, respectively. Churchill Downs acquired the race
track, 240 acres of related real estate and the Hollywood Park-Casino. The
Company then entered into a 10-year leaseback of the Hollywood Park-Casino at an
annual lease rate of $3,000,000 per annum, with a 10-year renewal option. The
Company then subleased the facility to a third party operator for a lease
payment of $6,000,000 per year. The sublease is for a one-year period.
The disposition of the Hollywood Park Race Track and related real estate was
accounted for as a sale and resulted in a pre-tax gain of $61,522,000. The
disposition of the Hollywood Park-Casino was accounted for as a financing
transaction and therefore not recognized as a sale for accounting purposes as
the Company subleased the Hollywood Park-Casino to a third-party operator.
During the third quarter of 1999, under the provisions of SFAS No. 121, the
Company determined that it would not be able to recover the net book value of
the Hollywood Park-Casino on an undiscounted cash flow basis. The Company
recorded an impairment write-down of the long-lived assets comprising the
Hollywood Park-Casino of $20,446,000 representing the difference between its net
book value of approximately $43,400,000 and estimated fair value. Fair value was
determined based on an independent appraisal. Due to competitive conditions in
the California casino market, sublease rentals were projected to decline over
the ten year lease term. Pursuant to accounting guidelines, the Company recorded
a long-term debt obligation of $23,000,000 for the Hollywood Park-Casino (see
Note 9). The Hollywood Park-Casino building will continue to be depreciated over
its estimated useful life. The estimated tax liability on the sales transactions
to Churchill Downs is approximately $22,000,000 and will be paid in the second
quarter 2000.
Due to the disposition of the Hollywood Park Race Track and Hollywood Park-
Casino in September 1999, there are no results of operations for the quarter
ended March 31, 2000 for these facilities (as discussed above, effective with
the disposition of the Hollywood Park-Casino, the Company receives only lease
income from the operator of the facility).
The condensed results of operations for the Hollywood Park Race Track and
Hollywood Park-Casino for the three months ended March 31, 1999 were:
For the three months ended March 31,
1999
------------
(in thousands -unaudited)
Revenues $ 19,490
Expenses 21,165
------------
Operating income (1,675)
Interest expense (a) 0
------------
Income before income taxes $ (1,675)
============
(a) No interest expense was specifically identified for these operations.
8
<PAGE>
Note 4 - Assets Held For Sale
Assets held for sale at March 31, 2000 and December 31, 1999 consisted of the
following, and excluded the related goodwill and deferred income taxes
associated with such assets:
<TABLE>
<CAPTION>
At March 31, 2000
-----------------
Net Property
Plant &
Equipment Other Total
----------- ----------- -----------
(in thousands - unaudited)
<S> <C> <C> <C>
Casino Magic Bay St. Louis & Boomtown Biloxi Casinos $ 114,483 $ 6,017 $ 120,500
Turf Paradise Race Track 10,720 4,284 15,004
Other (primarily undeveloped land in California) 17,702 0 17,702
----------- ----------- -----------
$ 142,905 $ 10,301 $ 153,206
=========== =========== ===========
<CAPTION>
At December 31, 1999
--------------------
Net Property
Plant &
Equipment Other Total
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Casino Magic Bay St. Louis & Boomtown Biloxi Casinos $ 115,731 $ 5,876 $ 121,607
Turf Paradise Race Track 10,873 4,359 15,232
Other (primarily undeveloped land in California) 17,810 0 17,810
----------- ----------- -----------
$ 144,414 $ 10,235 $ 154,649
=========== =========== ===========
</TABLE>
Sales transactions for these assets were pending or the properties were actively
being marketed as of March 31, 2000 and December 31, 1999. There are no
assurances these transactions will close. Until the sales transactions are
completed, the Company continues to operate the casinos and race track held for
sale. In addition, certain liabilities will be assumed by the buyers of these
assets. Such liabilities, consisting primarily of accrued liabilities and
accounts payable, have been classified as "Liabilities to be assumed by buyers
of assets held for sale" on the accompanying Consolidated Balance Sheets.
Goodwill net of amortization at March 31, 2000 and December 31, 1999 includes
approximately $13,245,000 and $13,331,000, respectively, related to the pending
casino and race track sales.
Casinos in Mississippi On December 10, 1999, the Company announced it had
entered into definitive agreements with subsidiaries of Penn National Gaming,
Inc. ("Penn National") to sell its Casino Magic Bay St. Louis, Mississippi, and
Boomtown Biloxi, Mississippi, casino operations for $195,000,000 in cash.
Subsidiaries of Penn National will purchase all of the operating assets and
certain liabilities and related operations of the Casino Magic Bay St. Louis and
Boomtown Biloxi properties, including the 590 acres of land at Casino Magic Bay
St. Louis and the leasehold rights at Boomtown Biloxi. The transactions are
subject to certain closing conditions, including, but not limited to, approval
by the Mississippi Gaming Commission (which approval Penn National received in
April 2000), and Penn National completing the necessary financing. The Company
estimates the transactions will close in the second quarter of 2000.
9
<PAGE>
Race Track in Arizona On February 28, 2000, the Company announced the signing of
a definitive agreement under which the Company will sell its Turf Paradise horse
racing facility located in Phoenix, Arizona to a private investor for
$53,000,000 in cash. The agreement includes the horse racing operations and all
275 acres at the Phoenix, Arizona property. The Company anticipates closing the
transaction in the second quarter of 2000.
Other On April 18, 2000, the Company announced it had entered into an agreement
with Casden Properties Inc. for the sale of the remaining 97 acres of surplus
land in Inglewood, California for $63,050,000 in cash. The sale of the 97 acres
is subject to a number of conditions, including the receipt by Casden Properties
Inc. of certain entitlements to develop the property. The sale is expected to
take six to twelve months to close and is expected to generate after tax net
cash proceeds in excess of $41,000,000.
The Company owns other land parcels in Missouri, which it is trying to sell.
Condensed results of operations for the Casino Magic Bay St. Louis and Boomtown
Biloxi casinos and the Turf Paradise horse racing facility for the three months
ended March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
2000 1999
-------- --------
(in thousands - unaudited)
<S> <C> <C>
Revenues (a) $ 48,438 $ 47,548
Expenses 38,722 37,770
-------- --------
Operating income 9,716 9,778
Interest expense, net 18 75
-------- --------
Income before income taxes $ 9,698 $ 9,703
======== ========
</TABLE>
(a) Year 2000 revenues Include proceeds from the settlement of a 1998
business interruption claim of approximately (a) $1,204,000.
Note 5 - Acquisitions
Casino Magic Argentina On October 8, 1999, the Company purchased the 49%
minority interest not owned by the Company in Casino Magic Argentina for
$16,500,000 in cash. The Casino Magic Argentina operations consist of two
casinos in the Province of Neuquen, Argentina. The Company operates the two
casinos under an exclusive concession contract with the Province that is
currently scheduled to expire in December 2006. The Company and the province are
in discussions to possibly extend such concession contract for an additional ten
years. The $12,300,000 purchase price in excess of the minority interest of
approximately $4,200,000 is being amortized over the extended life of the
concession contract beginning October 1999.
Note 6 - Expansion and Development
Belterra Casino Resort In July 1999, the Company broke ground on the Belterra
Casino Resort Casino and is continuing on schedule for an opening in August
2000. The project is located in Switzerland County, Indiana, which is
approximately 35 miles southwest of Cincinnati, Ohio and will be the gaming site
most readily accessible to major portions of northern and central Kentucky,
including the city of Lexington.
The Company plans to spend approximately $200,000,000 ($70,322,000 of which has
been spent as of March 31, 2000) in total costs (including land, pre-opening
expenses, organizational expenses and community grants) on the Belterra Casino
Resort, which will feature a 15-story, 308-room hotel, a cruising riverboat
casino with approximately 1,800 gaming positions, an 18-hole championship golf
course, a 1,500 seat entertainment facility, four restaurants, retail areas and
other amenities.
10
<PAGE>
Lake Charles In November 1999, the Company filed an application for the
fifteenth and final gaming license to be issued by the Louisiana Gaming Control
Board. The Company was one of five applicants for such license. The Company's
application is seeking the approval to operate a cruising riverboat casino,
hotel and golf course resort complex in Lake Charles, Louisiana. The Louisiana
Gaming Control Board has not awarded such license and there are no assurances
such license will be issued to the Company or any other applicant.
In connection with such submittal, Pinnacle Entertainment has entered into an
option agreement with the Lake Charles Harbor and Terminal District (the
"District") to lease 225 acres of unimproved land from the District upon which
such resort complex would be constructed. The initial lease option was for a
six-month period which ended in January 2000, with three six-month renewal
options (the first of which the Company has exercised), at a cost of $62,500 per
six-month option. If the lease option is exercised, the annual rental payment
would be $815,000, with a maximum annual increase of 5%. The term of the lease
would be for a total of up to 70 years, with an initial term of 10 years and six
consecutive renewal options of 10 years each. The lease would require the
Company to develop certain on- and off- site improvements at the location. If
awarded the license by the Louisiana Gaming Control Board, the Company
anticipates building a resort similar in design and scope to the Belterra Casino
Resort currently under construction in Indiana.
Note 7 - Short Term Investments
At March 31, 2000, the Company did not hold any short term investments. However,
included in "Cash and cash equivalents" on the Consolidated Balance Sheet at
March 31, 2000 is $166,240,000 of commercial paper and other cash equivalents
with original maturities of less than 90 days.
At December 31, 1999, short term held to maturity investments consisted of
investments in commercial paper of $123,428,000. The commercial paper consisted
of investment grade instruments issued by major corporations and financial
institutions that are highly liquid and have original maturities between three
months and one year. Commercial paper held as short term investments is carried
at amortized cost which approximates market value.
Interest income for the three months ended March 31, 2000 and 1999 was
$3,221,000 and $898,000, respectively.
Note 8 - Property, Plant and Equipment
Property, plant and equipment held at March 31, 2000 and December 31, 1999
consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 (a) 1999 (a)
----------------- -----------------
(unaudited)
(in thousands)
<S> <C> <C>
Land and land improvements $ 72,191 $ 71,052
Buildings 253,474 253,126
Equipment 136,558 134,701
Vessel and barges 66,107 65,580
Construction in progress 72,396 32,813
----------------- -----------------
600,726 557,272
Less accumulated depreciation 127,361 119,557
----------------- -----------------
$473,365 $437,715
================= =================
</TABLE>
(a) Excludes $214,631,000 of assets and $71,726,000 of accumulated
depreciation at March 31, 2000 and $213,992,000 of assets and $69,578,000
of accumulated depreciation at December 31, 1999, related to assets
classified as held for sale (see Note 4)
11
<PAGE>
Note 9 - Secured and Unsecured Notes Payable
Notes payable at March 31, 2000 and December 31, 1999 consisted of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------- ----------------
(unaudited)
(in thousands)
<S> <C> <C>
Unsecured 9.25% Notes $350,000 $350,000
Unsecured 9.5% Notes 125,000 125,000
Casino Magic 13% Notes (a) 119,346 119,814
Hollywood Park-Casino debt obligation 22,126 22,566
Other secured notes payable 5,284 5,785
Other unsecured notes payable 2,320 2,315
---------------- ----------------
624,076 625,480
Less current maturities 6,527 6,782
---------------- ----------------
$617,549 $618,698
================ ================
</TABLE>
(a) Includes a write up to fair market value (net of amortization), as of
the October 15, 1998 acquisition of Casino Magic, of $6,471,000 and
$6,939,000, as of March 31, 2000 and December 31, 1999, respectively, as
required under the purchase method of accounting for a business
combination.
Secured Notes Payable, Bank Credit Facility Under the terms of the 1998 bank
credit facility with a syndicate of banks, expiring in 2003 (the "Bank Credit
Facility"), the Company chose in May of 1999 to reduce the amount available
under the facility from $300,000,000 (with an option to increase to
$375,000,000), to $200,000,000 (with an option to increase to $300,000,000). The
Bank Credit Facility also provides for letters of credit up to $30,000,000 and
swing line loans of up to $10,000,000.
In February 1999, the Company repaid all amounts outstanding under the Bank
Credit Facility with proceeds from the issuance of the 9.25% Notes (see below).
Since February 1999, the Bank Credit Facility has remained unused and therefore,
at March 31, 2000, and December 31, 1999, there was no outstanding balance under
the Bank Credit Facility.
Interest rates on borrowings under the Bank Credit Facility are determined by
adding a margin, which is based upon the Company's debt to cash flow ratio (as
defined in the Bank Credit Facility), to either the LIBOR rate or Prime Rate (at
the Company's option). The Company also pays a quarterly commitment fee on the
unused balance of the Bank Credit Facility. The Bank Credit Facility allows for
interest rate swap agreements or other interest rate protection agreements, to a
maximum notional amount of $300,000,000. Presently, the Company does not use
such financial instruments.
Unsecured 9.25% and 9.5% Notes In February of 1999 the Company issued
$350,000,000 of 9.25% Senior Subordinated Notes due 2007 (the "9.25% Notes"),
the proceeds of which were used to pay the outstanding borrowings on the Bank
Credit Facility, fund current capital expenditures, and other general corporate
purposes.
In August of 1997 the Company issued $125,000,000 of 9.5% Senior Subordinated
Notes due 2007 (the "9.5% Notes"). On January 29, 1999, the Company received the
required number of consents to modify selected covenants associated with the
9.5% Notes. Among other things, the modifications lowered the required minimum
consolidated coverage ratio for debt assumption and increased the size of
allowed borrowings under the Bank Credit Facility. The Company paid a consent
fee of $50.00 per $1,000 principal amount of the 9.5% Notes, which, combined
with other transactional expenses, is being amortized over the remaining term of
the 9.5% Notes.
12
<PAGE>
The 9.25% and 9.5% Notes are redeemable, at the option of the Company, in whole
or in part, on the following dates, at the following premiums to face value:
9.25% Notes redeemable: 9.5% Notes redeemable:
------------------------------------ ------------------------------------
after February 14, at a premium of after July 31, at a premium of
------------------------------------ ------------------------------------
2003 104.625% 2002 104.750%
2004 103.083% 2003 102.375%
2005 101.542% 2004 101.188%
2006 100.000% 2005 100.000%
2007 maturity 2006 100.000%
2007 maturity
Both the 9.25% and 9.5% Notes are unsecured obligations of the Company,
guaranteed by all material restricted subsidiaries of the Company, as defined in
the indentures. The subsidiaries which do not guaranty the debt include certain
Casino Magic subsidiaries, principally Casino Magic of Louisiana, Corp. (Casino
Magic Bossier City) and the Casino Magic Argentina subsidiaries. The indentures
governing the 9.25% and 9.5% Notes, as well as the Bank Credit Facility, contain
certain covenants limiting the ability of the Company and its restricted
subsidiaries to incur additional indebtedness, issue preferred stock, pay
dividends or make certain distributions, repurchase equity interests or
subordinated indebtedness, create certain liens, enter into certain transactions
with affiliates, sell assets, issue or sell equity interests in its
subsidiaries, or enter into certain mergers and consolidations.
Casino Magic 13% Notes In August of 1996 Casino Magic of Louisiana, Corp.
(Casino Magic Bossier City) issued $115,000,000 of 13% First Mortgage Notes due
2003 (the "Casino Magic 13% Notes"), with contingent interest equal to 5% of
Casino Magic Bossier City's adjusted consolidated cash flow (as defined by the
indenture). The Casino Magic 13% Notes are secured by a first priority lien and
security interest in substantially all of the assets of Casino Magic Bossier
City. The Casino Magic 13% Notes are redeemable, at the option of the Company,
in whole or in part, on or after August 15, 2000, at a premium to face amount,
plus accrued interest, as follows: (a) August 15, 2000, at 106.5%; (b) August
15, 2001, at 104.332%; and (c) August 15, 2002 through maturity at 102.166%.
In December of 1998, the Company completed the post Casino Magic Merger change
of control purchase offer whereby $2,125,000 of principal amount of the Casino
Magic 13% Notes was tendered to the Company at a price of 101% of face value.
The indenture governing the Casino Magic 13% Notes contains certain covenants
limiting the subsidiaries that own Casino Magic Bossier City from engaging in
lines of business other than the current gaming operations at Bossier City and
incidental related activities, to borrow funds or otherwise become liable for
additional debt, to pay dividends, issue preferred stock, make investments and
certain types of payments, to grant liens on its property, enter into mergers or
consolidations, or to enter into certain specified transactions with affiliates.
Hollywood Park-Casino Debt Obligation In connection with the disposition of the
Hollywood Park-Casino to Churchill Downs (see Note 3), the Company recorded a
long-term lease finance obligation of $23,000,000. Annual lease payments to
Churchill Downs of $3,000,000 will be applied as principal and interest on the
finance debt. The debt is being amortized over 10 years (the initial lease term
with Churchill Downs).
13
<PAGE>
Note 10 - Litigation
Poulos Lawsuit A class action lawsuit was filed on April 26, 1994, in the United
States District Court, Middle District of Florida (the "Poulos Lawsuit"), naming
as defendants 41 manufacturers, distributors and casino operators of video poker
and electronic slot machines, including Casino Magic. The lawsuit alleges that
the defendants have engaged in a course of fraudulent and misleading conduct
intended to induce people to play such games based on false beliefs concerning
the operation of the gaming machines and the extent to which there is an
opportunity to win. The suit alleges violations of the Racketeer Influenced and
Corrupt Organization Act, as well as claims of common law fraud, unjust
enrichment and negligent misrepresentation, and seeks damages in excess of $6
billion. On May 10, 1994, a second class action lawsuit was filed in the United
States District Court, Middle District of Florida (the "Ahern Lawsuit"), naming
as defendants the same defendants who were named in the Poulos Lawsuit and
adding as defendants the owners of certain casino operations in Puerto Rico and
the Bahamas, who were not named as defendants in the Poulos Lawsuit. The claims
in the Ahern Lawsuit are identical to the claims in the Poulos Lawsuit. Because
of the similarity of parties and claims, the Poulos Lawsuit and Ahern Lawsuit
were consolidated into one case file in the United States District Court, Middle
District of Florida. On December 9, 1994 a motion by the defendants for change
of venue was granted, transferring the case to the United States District Court
for the District of Nevada, in Las Vegas. In an order dated April 17, 1996, the
court granted motions to dismiss filed by Casino Magic and other defendants and
dismissed the Complaint without prejudice. The plaintiffs then filed an amended
Complaint on May 31, 1996 seeking damages against Casino Magic and other
defendants in excess of $1 billion and punitive damages for violations of the
Racketeer Influenced and Corrupt Organizations Act and for state common law
claims for fraud, unjust enrichment and negligent misrepresentation. Casino
Magic and other defendants have moved to dismiss the amended Complaint. The
Company believes that the claims are without merit and does not expect that the
lawsuit will have a materially adverse effect on the financial condition or
results of operations of the Company.
Casino America Litigation On or about September 6, 1996, Casino America, Inc.
commenced litigation in the Chancery Court of Harrison County, Mississippi,
Second Judicial District, against Casino Magic, and James Edward Ernst, its then
Chief Executive Officer, seeking injunctive relief and unspecified compensatory
damages in an amount to be proven at trial as well as punitive damages. The
plaintiff claims, among other things, that the defendants (i) breached the terms
of an agreement they had with the plaintiff; (ii) tortiously interfered with
certain of the plaintiff's business relations; and (iii) breached covenants of
good faith and fair dealing they allegedly owed to the plaintiff. On or about
October 8, 1996, the defendants interposed an answer, denying the allegations
contained in the Complaint. On June 26, 1998, defendants filed a motion for
summary judgment. Thereafter, plaintiffs, in July of 1998, filed a motion to
reopen discovery. Both of these motions are pending. On November 30, 1999, the
matter was transferred to the First Judicial District Court for Harrison County,
Mississippi. No trial date has been set. While the Company cannot predict the
outcome of this action, it believes plaintiff's claims are without merit and
intends to vigorously defend this action.
Bus Litigation On May 9, 1999, a bus owned and operated by Custom Bus Charters,
Inc. was involved in an accident in New Orleans, Louisiana while en route to
Casino Magic in Bay St. Louis, Mississippi. To date, multiple deaths and
numerous injuries are attributed to this accident and the Company's
subsidiaries, Casino Magic Corp. and / or Mardi Gras Casino Corp., together with
several other defendants, have been named in thirty-eight (38) lawsuits, each
seeking unspecified damages due to the deaths and injuries sustained in this
accident. While the Company cannot predict the outcome of the litigation, the
Company believes Casino Magic is not liable for any damages arising from this
accident and the Company and its insurers intend to vigorously defend these
actions.
14
<PAGE>
Skrmetta Lawsuit A suit was filed on August 14, 1998 in the Circuit Court of
Harrison County, Mississippi by the ground lessor of property underlying
Boomtown Biloxi landbased improvements in Biloxi, Mississippi (the "Project").
The lawsuit alleges that the plaintiff agreed to exchange the first two years'
ground rentals for an equity position in the Project based upon defendants'
purported assurances that a hotel would be constructed as a component of the
Project. Plaintiff seeks recovery in excess of $4,000,000 plus punitive damages.
No substantive developments in the matter occurred prior to July 30, 1999 when
the court denied the defendants' motions to arbitrate, and to stay, the matter.
At trial of the matter in March 2000, the judge granted the Company's motion to
dismiss the case. On April 26, 2000, plaintiff appealed the court's dismissal to
the Mississippi Supreme Court.
Class Action Lawsuits On March 14, 2000, Harbor Finance Partners filed a class
action lawsuit in the Chancery Court of the State of Delaware against the
Company, and each of its directors, claiming that the defendants have breached
their fiduciary duty to the stockholders of the Company by agreeing to negotiate
exclusively with Harveys Casino Resorts, a majority owned company of Colony
Capital, Inc. (see Note 2). On March 21, 2000, a similar class action lawsuit
was filed by Leta Hilliard in the Superior Court of the State of California. The
lawsuits claim that the Company and its directors have failed to undertake an
appropriate process for evaluating the Company's worth and eliciting bids from
third parties, and that the price for the stock is inadequate. The Company
intends to vigorously defend these actions and believes that the plaintiffs'
claims are without merit.
Casino Magic Bay St. Louis Wrongful Death Litigation On February 18, 2000, three
Casino Magic Bay St. Louis patrons, after leaving the casino property, were
involved in a vehicular accident which resulted in the death of two of the
individuals and injury to the third. On April 13, 2000, a lawsuit was filed on
behalf of the injured individual and one of the deceased individuals against
Casino Magic Bay St. Louis seeking compensatory damages in the amount of
$2,000,000 and punitive damages in the amount of $10,000,000. The suit alleges,
among other things, that Casino Magic Bay St. Louis employees negligently served
alcoholic beverages to the three individuals and the acts and omissions of the
Casino Magic Bay St. Louis employees were the proximate cause of the accident.
While the Company cannot predict the outcome of this action, it believes that
the plaintiffs' claims are without merit and intends to vigorously defend this
action.
The Company is party to a number of other pending legal proceedings in the
ordinary course of business, though management does not expect that the outcome
of such proceedings, either individually or in the aggregate, will have a
material effect on the Company's financial condition or results of operations.
15
<PAGE>
Note 11 - Consolidating Condensed Financial Information
The Company's subsidiaries (excluding Casino Magic of Louisiana, Corp., Casino
Magic Argentina and certain non-material subsidiaries) have fully and
unconditionally guaranteed the payment of all obligations under the 9.25% Notes
and the 9.5% Notes. Separate financial statements and other disclosures
regarding the subsidiary guarantors are not included herein because management
has determined that such information is not material to investors. In lieu
thereof, the Company includes the following:
Pinnacle Entertainment, Inc.
Consolidating Condensed Financial Information
For the three months ended March 31, 2000 and 1999 and balance sheets as of
March 31, 2000 and December 31, 1999
(in thousands - unaudited)
<TABLE>
<CAPTION>
(b)
(a) Wholly
Wholly Owned Consolidating Pinnacle
Pinnacle Owned Non- and Entertainment,
Entertainment, Guarantor Guarantor Eliminating Inc.
Inc. Subsidiaries Subsidiaries Entries Consolidated
--- ------------ ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
As of and for the three
months ended
March 31, 2000
Balance Sheet
-------------
Current assets $ 199,255 $185,601 $ 32,140 $ 0 $ 416,996
Property, plant and equipment, net 42,839 342,043 88,483 0 473,365
Other non-current assets 27,501 41,181 43,736 56,093 168,511
Investment in subsidiaries 397,470 104,726 0 (502,196) 0
Inter-company 219,565 167,917 31,481 (418,963) 0
--------- -------- -------- ---------- ----------
$ 886,630 $841,468 $195,840 ($865,066) $1,058,872
========= ======== ======== ========== ==========
Current liabilities $ 73,318 $ 51,362 $ 12,328 $ 0 $ 137,008
Notes payable, long term 501,488 3,192 112,869 0 617,549
Other non-current liabilities (7,165) 83 20,114 (12,206) 826
Inter-company 15,500 378,025 25,440 (418,965) 0
Equity 303,489 408,806 25,089 (433,895) 303,489
--------- -------- -------- ---------- ----------
$ 886,630 $841,468 $195,840 ($865,066) $1,058,872
========= ======== ======== ========== ==========
Statement of Operations
-----------------------
Revenues:
Gaming $ 0 $ 90,557 $ 42,596 $ 0 $ 133,153
Racing 0 6,143 0 0 6,143
Food and beverage 0 7,242 1,009 0 8,251
Equity in subsidiaries 24,158 5,375 0 (29,533) 0
Other 1,500 12,639 911 0 15,050
--------- -------- -------- ---------- ----------
25,658 121,956 44,516 (29,533) 162,597
--------- -------- -------- ---------- ----------
Expenses:
Gaming 0 50,150 24,095 0 74,245
Racing 0 2,658 0 0 2,658
Food and beverage 0 8,130 1,047 0 9,177
Administrative and other 5,139 29,164 6,446 0 40,749
Gain on disposition of assets (23,854) 0 0 0 (23,854)
Depreciation and amortization 715 9,007 2,500 369 12,591
--------- -------- -------- ---------- ----------
(18,000) 99,109 34,088 369 115,566
--------- -------- -------- ---------- ----------
Operating income (loss) 43,658 22,847 10,428 (29,902) 47,031
Interest expense, net 9,729 (1,311) 4,462 0 12,880
--------- -------- -------- ---------- ----------
Income (loss) before minority interests and taxes 33,929 24,158 5,966 (29,902) 34,151
Income tax expense 11,648 0 591 0 12,239
--------- -------- -------- ---------- ----------
Net income (loss) $ 22,281 $ 24,158 $ 5,375 ($29,902) $ 21,912
========= ======== ======== ========== ==========
Statement of Cash Flows
-----------------------
Net cash provided by (used in) operating activities ($40,917) $ 35,230 $ 4,440 $ 369 ($878)
Net cash provided by (used in) investing activities 140,691 (34,556) (466) 0 105,669
Net cash provided by (used in) financing activities 597 (622) (313) 0 (338)
</TABLE>
16
<PAGE>
Pinnacle Entertainment, Inc.
Consolidating Condensed Financial Information
For the three months ended March 31, 2000 and 1999 and balance sheets as of
March 31, 2000 and December 31, 1999
(in thousands - unaudited)
<TABLE>
<CAPTION>
Hollywood
Park
Pinnacle Operating (b) (c)
Entertainment, Co. (a) Wholly Non Wholly
Inc. (Co-Obligor Wholly Owned Owned Consolidating Pinnacle
Guarantor 9.5% Notes/ Owned Non- Non- And Entertainment,
(Parent Guarantor Guarantor Guarantor Guarantor Eliminating Inc.
Obligor) 9.25% Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
------- ------------ ------------ ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
For the three months
ended March 31, 1999
Statement of Operations
-----------------------
Revenues:
Gaming $11,856 $ 0 $91,219 $32,398 $4,918 $ 0 $140,391
Racing 0 3,842 5,937 0 0 0 9,779
Food and beverage 1,226 0 7,457 648 340 0 9,671
Equity in subsidiaries 14,865 (138) 22,112 0 0 (36,839) 0
Other 1,294 915 9,073 806 69 0 12,157
------- -------- ------- ------- ------ --------- --------
29,241 4,619 135,798 33,852 5,327 (36,839) 171,998
------- -------- ------- ------- ------ --------- --------
Expenses:
Gaming 6,500 0 49,419 20,059 1,400 0 77,378
Racing 0 2,892 2,463 0 0 0 5,355
Food and beverage 2,429 0 8,188 736 302 0 11,655
Administrative and other 5,904 3,505 26,861 4,682 1,453 0 42,405
Depreciation and
amortization 1,121 1,030 8,584 1,889 372 371 13,367
------- -------- ------- ------- ------ --------- --------
15,954 7,427 95,515 27,366 3,527 371 150,160
------- -------- ------- ------- ------ --------- --------
Operating income (loss) 13,287 (2,808) 40,283 6,486 1,800 (37,210) 21,838
Interest expense 6,882 3,252 (231) 4,588 0 0 14,491
------- -------- ------- ------- ------ --------- --------
Income (loss) before
minority interests and
taxes 6,405 (6,060) 40,514 1,898 1,800 (37,210) 7,347
Minority interests 0 0 0 0 0 458 458
Income tax expense 2,243 0 10 0 503 0 2,756
------- -------- ------- ------- ------ --------- --------
Net income (loss) $ 4,162 ($6,060) $40,504 $ 1,898 $1,297 ($37,668) $ 4,133
======= ======== ======= ======= ====== ========= ========
Statement of Cash Flows
-----------------------
Net cash provided by
(used in) operating
activities ($15,507) $ 7,208 $ 5,857 $10,227 $680 $ 385 $ 8,850
Net cash provided by
(used in) investing
activities (486) (193) (9,253) (915) (143) 0 (10,990)
Net cash provided by
(used in) financing
activities 70,423 (5,726) 6,249 (8,261) 0 0 62,685
</TABLE>
17
<PAGE>
Pinnacle Entertainment, Inc.
Consolidating Condensed Financial Information
For the three months ended March 31, 2000 and 1999 and balance sheets as of
March 31, 2000 and December 31, 1999
(in thousands - unaudited)
<TABLE>
<CAPTION>
(b)
(a) Wholly
Wholly Owned Consolidating Pinnacle
Pinnacle Owned Non- and Entertainment,
Entertainment, Guarantor Guarantor Eliminating Inc.
Inc. Subsidiaries Subsidiaries Entries Consolidated
--- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C>
As of December 31,
1999
Balance Sheet
-------------
Current assets $220,216 $188,330 $28,928 $0 $437,474
Property, plant and equipment, net 36,671 311,165 89,879 0 437,715
Other non-current assets 28,369 40,788 44,599 56,463 170,219
Investment in subsidiaries 340,840 86,215 0 (427,055) 0
Inter-company 239,469 173,002 31,493 (443,964) 0
-------- -------- -------- ---------- ----------
$865,565 $799,500 $194,899 ($814,556) $1,045,408
======== ======== ======== ========== ==========
Current liabilities $75,933 $52,159 $16,916 $0 $145,008
Notes payable, long term 502,421 3,393 112,884 0 618,698
Other non-current liabilities (7,165) 83 20,114 (12,206) 826
Inter-company 13,500 406,437 24,031 (443,968) 0
Equity 280,876 337,428 20,954 (358,382) 280,876
-------- -------- -------- ---------- ----------
$865,565 $799,500 $194,899 ($814,556) $1,045,408
======== ======== ======== ========== ==========
</TABLE>
___________
(a) The following subsidiaries are treated as guarantors on both the 9.5% Notes
and 9.25% Notes for all periods presented: Turf Paradise, Inc., Hollywood
Park Food Services, Inc. (through September 10, 1999), Hollywood Park Fall
Operating Company (through September 10, 1999) and, with respect to the
9.25% Notes, Hollywood Park Operating Company (through September 10, 1999)
(it was a co-obligor on the 9.5% Notes through September 10, 1999). The
following subsidiaries were treated as guarantors for periods beginning on
June 30, 1997, when the Boomtown Merger was consummated: Boomtown, Inc.,
Boomtown Hotel & Casino, Inc., Bay View Yacht Club, Inc., Louisiana - I
Gaming, Louisiana Gaming Enterprises, Inc., and Boomtown Hoosier, Inc. The
following subsidiaries were treated as guarantors for periods beginning on
October 15, 1998, when the Casino Magic Merger was consummated: Casino
Magic Corp., Mardi Gras Casino Corp., Biloxi Casino Corp., Bay St. Louis
Casino Corp., Casino Magic Finance Corp., Casino Magic American Corp., and
Casino One Corporation. HP Casino, Inc., HP Yakama, Inc., and HP
Consulting, Inc., were treated as guarantors beginning in 1997 when these
subsidiaries began operations. HP/Compton, Inc. was treated as a guarantor
beginning in October 1996 when this subsidiary began operations. Crystal
Park Hotel and Casino Development Company, LLC and Mississippi - I Gaming
L.P. were treated as wholly owned guarantors for periods beginning in
January 1998 and October 1998, respectively, when the Company acquired the
outstanding minority interests therein and they became wholly owned
subsidiaries.
(b) The following wholly owned subsidiaries are not guarantors on either the
9.5% Notes or the 9.25% Notes and became subsidiaries of the Company on
October 15, 1998, when the Casino Magic Merger was consummated: Jefferson
Casino Corporation, Casino Magic of Louisiana, Corp., and Casino Magic
Management Services, Corp. In October 1999, Casino Magic Neuquen S.A. and
its subsidiary Casino Magic Support Services, became wholly owned
subsidiaries of the Company but remain non-guarantors of the 9.5% Notes and
9.25% Notes.
(c) The following non-wholly owned subsidiaries are not guarantors on either
the 9.5% notes or the 9.25% Notes and became subsidiaries of the Company on
October 15, 1998, when the Casino Magic Merger was consummated: Casino
Magic Neuquen S.A. and its subsidiary, Casino Magic Support Services S.A.
18
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
of Operations
-------------
The following discussion and analysis of financial condition, results of
operations, liquidity and capital resources should be read in conjunction with
the Company's interim Consolidated Financial Statements and the condensed notes
thereto.
Forward-Looking Statements and Risk Factors
Except for the historical information contained herein, the matters addressed in
this Quarterly Report on Form 10-Q may constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended. Such
forward-looking statements are subject to a variety of risks and uncertainties
that could cause actual results to differ materially from those anticipated by
the Company's management. Factors that may cause actual performance of the
Company to differ materially from that contemplated by such forward-looking
statements include, among others: the failure to complete the Proposed Merger
with an affiliate of Harveys Casino Resorts (discussed below); the failure to
complete pending asset sale transactions (discussed below); the failure to
complete or successfully operate planned expansion and development projects
(including the Belterra Resort and Casino); the failure to obtain adequate
financing to meet strategic goals; the failure to obtain or retain gaming
licenses or regulatory approvals; increased competition by casino operators who
have more resources and have built or are building competitive casino
properties; severe weather conditions; the failure to meet the Company's debt
service obligations; and other adverse changes in the gaming markets in which
the Company operates (particularly in the southeastern United States). The
Private Securities Litigation Reform Act of 1995 (the "Act") provides certain
"safe harbor" provisions for forward-looking statements. All forward-looking
statements made in this Quarterly Report on Form 10-Q are made pursuant to the
Act. For more information on the potential factors which could affect the
Company's financial results, please review the Company's filings with the
Securities and Exchange Commission, including the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
Factors Affecting Future Operating Results
Proposed Merger On March 8, 2000, the Company announced it had received a
proposal pursuant to which an affiliate of Harveys Casino Resorts ("Harveys")
would acquire all of the outstanding shares of common stock of Pinnacle
Entertainment. The Company's Board of Directors formed a special committee
(which committee excluded certain management board members) (the "Special
Committee") to evaluate and negotiate the proposal. Harveys is an affiliate of
Colony Capital, Inc., a private investment firm.
On April 17, 2000, the Company entered into a definitive agreement with PH
Casino Resorts ("PHCR"), a newly formed subsidiary of Harveys, and Pinnacle
Acquisition Corporation ("Pinnacle Acq. Corp."), a newly formed subsidiary of
PHCR, pursuant to which PHCR would acquire by merger all of the outstanding
capital stock of Pinnacle Entertainment (the "PHCR Merger Agreement"). The
proposed merger received the unanimous approval of both the Special Committee
and the Board of Directors of the Company (the "Proposed Merger"). In the
Proposed Merger, Pinnacle Acq. Corp. would merger into Pinnacle Entertainment.
In addition, in connection with the Proposed Merger, Harveys (like the Company)
would become a wholly owned subsidiary of PHCR.
Upon closing of the Proposed Merger, PHCR will acquire all of the outstanding
stock of Pinnacle Entertainment for $24 per fully diluted share in cash, plus up
to an additional $1 per fully diluted share in cash, which amount is contingent
upon the sale of the Company's 97 acres of surplus land in Inglewood, California
for net after tax proceeds of at least $40,750,000 by December 31, 2001 (see
Note 4 to the Condensed Notes to Consolidated Financial Statements).
19
<PAGE>
In the event the 97 acres are sold prior to December 31, 2001 for after tax
proceeds of less than $40,750,000 but more than $13,054,000, the $1 per fully
diluted share will be reduced proportionately. In the event the 97 acres are not
sold by December 31, 2001, or have been sold, but at a price less than or equal
to $13,054,000, then Pinnacle Entertainment stockholders would not be entitled
to any additional payment. PHCR's obligation to pay the contingent portion of
the merger consideration will be secured by an irrevocable letter of credit in
the maximum amount of the obligation. As described in Note 4 to the Condensed
Notes to Consolidated Financial Statements, the Company has signed an agreement
to sell 97 acres at a price which management believes will entitle shareholders
to the additional $1 payment per share. There can be no assurance, however, that
such sale of 97 acres will be completed.
Consummation of the merger is subject to, among other things, (a) senior
management contributing $50,000,000 of Pinnacle Entertainment equity to PHCR and
maintaining an on-going role within PHCR; (b) regulatory approvals in the
various jurisdictions in which the Company and Harveys conduct gaming
operations; (c) approval by a majority of the Company's stockholders; (d)
completion of PHCR's financing for the transaction (which customary bank
commitment and high yield "highly confident" letters have been received by
PHCR); and (e) satisfaction of other conditions precedent, including completion
of the Company's pending casino and race track assets sales (see Note 4 to the
Condensed Notes to Consolidated Financial Statements) and the opening of the
Belterra Casino Resort (currently under construction - see Note 6 to the
Condensed Notes to Consolidated Financial Statements) substantially in
accordance with its current budget not later than September 15, 2000. The
Proposed Merger is expected to close in the fourth quarter of 2000.
As of March 31, 2000, the Company incurred professional fees of $625,000 in
connection with the Special Committee and Board of Directors' evaluation of the
Proposed Merger. Additional fees have been and will continue to be incurred
after March 31, 2000 relating to the Proposed Merger. In the event the Proposed
Merger is terminated, under certain circumstances, a termination fee of
$25,000,000 may be payable by the Company to Pinnacle Acq. Corp., which
circumstances are defined in the PHCR Merger Agreement previously filed with the
Securities and Exchange Commission.
Land Sale On March 24, 2000, the Company announced it had completed the sale of
approximately 42 acres of surplus land in Inglewood, California to Home Depot,
Inc. for $24,200,000 in cash (see Note 3 to the Condensed Notes to Consolidated
Financial Statements). The 42 acres of surplus land was included in "Assets held
for sale" as of December 31, 1999. The after tax cash proceeds from this sale is
expected to be $15,300,000. The 42 acres of raw land did not materially
contribute to the historical results of operations.
Sales of Hollywood Park Race Track and Hollywood Park-Casino On September 10,
1999, the Company completed the dispositions of the Hollywood Park Rack Track
and Hollywood Park-Casino to Churchill Downs for $117,000,000 cash and
$23,000,000 cash, respectively (see Note 3 to the Condensed Notes to
Consolidated Financial Statements). Churchill Downs acquired the race track, 240
acres of related real estate and the Hollywood Park-Casino. The Company then
entered into a 10-year leaseback of the Hollywood Park-Casino at an annual lease
rate of $3,000,000 per annum, with a 10-year renewal option. The Company then
subleased the facility to a third party operator for a lease payment of
$6,000,000 per year. The sublease is for a one-year period.
The disposition of the Hollywood Park Race Track and related real estate was
accounted for as a sale and resulted in a pre-tax gain of $61,522,000. The
disposition of the Hollywood Park-Casino was accounted for as a financing
transaction and therefore not recognized as a sale for accounting purposes as
the Company subleased the Hollywood Park-Casino to a third-party operator.
During the third quarter of 1999, under the provisions of SFAS No. 121, the
Company determined that it would not be able to recover the net book value of
the Hollywood Park-Casino on an undiscounted cash flow basis. The Company
recorded an impairment write-down of the long-lived assets comprising the
Hollywood Park-Casino of $20,446,000 representing the difference between its net
book value of approximately $43,400,000 and estimated fair value. Fair value was
determined based on an independent appraisal. Due to competitive conditions in
the California casino market, sublease rentals were projected to decline over
the ten year lease term. Pursuant to accounting guidelines, the Company recorded
a long-term debt obligation of $23,000,000 for the Hollywood Park-Casino
20
<PAGE>
(see Note 9). The Hollywood Park-Casino building will continue to be depreciated
over its estimated useful life. The estimated tax liability on the sales
transactions to Churchill Downs is approximately $22,000,000 and will be paid in
the second quarter 2000.
Due to the disposition of the Hollywood Park Race Track and Hollywood Park-
Casino in September 1999, there are no results of operations for the quarter
ended March 31, 2000 for these facilities (as discussed above, effective with
the disposition of the Hollywood Park-Casino, the Company receives only lease
income from the operator of the facility).
The condensed results of operations for the Hollywood Park Race Track and
Hollywood Park-Casino for the three months ended March 31, 1999 were:
<TABLE>
<CAPTION>
For the three months ended March 31,
1999
------------
(in thousands - unaudited)
<S> <C>
Revenues $ 19,490
Expenses 21,165
------------
Operating income (1,675)
Interest expense (a) 0
------------
Income before income taxes $ (1,675)
============
</TABLE>
(a) No interest expense was specifically identified for these operations.
Pending Casino, Race Track and Land Sales Assets held for sale at March 31, 2000
and December 31, 1999 consisted of the following, and excluded the related
goodwill and deferred income taxes associated with such assets:
<TABLE>
<CAPTION>
At March 31, 2000
-----------------
Net Property
Plant &
Equipment Other Total
--------- --------- ---------
(in thousands - unaudited)
<S> <C> <C> <C>
Casino Magic Bay St. Louis and Boomtown Biloxi Casinos $ 114,483 $ 6,017 $ 120,500
Turf Paradise Race Track 10,720 4,284 15,004
Other (primarily undeveloped land in California) 17,702 0 17,702
--------- --------- ---------
$ 142,905 $ 10,301 $ 153,206
========= ========= =========
<CAPTION>
At December 31, 2000
--------------------
Net Property
Plant &
Equipment Other Total
--------- --------- ---------
(in thousands - unaudited)
<S> <C> <C> <C>
Casino Magic Bay St. Louis and Boomtown Biloxi Casinos $ 115,731 $ 5,876 $ 121,607
Turf Paradise Race Track 10,873 4,359 15,232
Other (primarily undeveloped land in California) 17,810 0 17,810
--------- --------- ---------
$ 144,414 $ 10,235 $ 154,649
========= ========= =========
</TABLE>
21
<PAGE>
Sales transactions for these assets were pending or the properties were actively
being marketed as of March 31, 2000 and December 31, 1999. There are no
assurances these transactions will close. Until the sales transactions are
completed, the Company continues to operate the casinos and race track held for
sale. In addition, certain liabilities will be assumed by the buyers of these
assets. Such liabilities, consisting primarily of accrued liabilities and
accounts payable, have been classified as "Liabilities to be assumed by buyers
of assets held for sale" on the accompanying Consolidated Balance Sheets.
Goodwill net of amortization at March 31, 2000 and December 31, 1999 includes
approximately $13,245,000 and $13,331,000, respectively, related to the pending
casino and race track sales.
Casinos in Mississippi On December 10, 1999, the Company announced it had
----------------------
entered into definitive agreements with subsidiaries of Penn National Gaming,
Inc. ("Penn National") to sell its Casino Magic Bay St. Louis, Mississippi, and
Boomtown Biloxi, Mississippi, casino operations for $195,000,000 in cash (see
Note 4 to the Condensed Notes to Consolidated Financial Statements).
Subsidiaries of Penn National will purchase all of the operating assets and
certain liabilities and related operations of the Casino Magic Bay St. Louis and
Boomtown Biloxi properties, including the 590 acres of land at Casino Magic Bay
St. Louis and the leasehold rights at Boomtown Biloxi. The transactions are
subject to certain closing conditions, including, but not limited to, approval
by the Mississippi Gaming Commission (which approval Penn National received in
April 2000), and Penn National completing the necessary financing. The Company
estimates the transactions will close in the second quarter of 2000.
Race Track in Arizona On February 28, 2000, the Company announced the signing of
---------------------
a definitive agreement under which the Company will sell its Turf Paradise horse
racing facility located in Phoenix, Arizona to a private investor for
$53,000,000 in cash (see Note 4 to the Condensed Notes to Consolidated Financial
Statements). The agreement includes the horse racing operations and all 275
acres at the Phoenix, Arizona property. The Company anticipates closing the
transaction in the second quarter of 2000.
Other On April 18, 2000, the Company announced it had entered into an agreement
-----
with Casden Properties Inc. for the sale of the remaining 97 acres of surplus
land in Inglewood, California for $63,050,000 in cash (see Note 4 to the
Condensed Notes to Consolidated Financial Statements). The sale of the 97 acres
is subject to a number of conditions, including the receipt by Casden Properties
Inc. of certain entitlements to develop the property. The sale is expected to
take six to twelve months to close and is expected to generate after tax net
cash proceeds in excess of $41,000,000.
The Company owns other land parcels in Missouri, which it is trying to sell.
Condensed results of operations for the Casino Magic Bay St. Louis and Boomtown
Biloxi casinos and the Turf Paradise horse racing facility for the three months
ended March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
2000 1999
-------- --------
(in thousands - unaudited)
<S> <C> <C>
Revenues (a) $ 48,438 $ 47,548
Expenses 38,722 37,770
---------- ----------
Operating income 9,716 9,778
Interest expense, net 18 75
---------- ----------
Income before income taxes $ 9,698 $ 9,703
========== ==========
</TABLE>
(a) Year 2000 revenue includes proceeds from the settlement of a 1998
business interruption claim of approximately (a) $1,204,000.
22
<PAGE>
Expansion & Development Belterra Casino Resort In July 1999, the Company broke
----------------------
ground on the Belterra Casino Resort and is continuing on schedule for an
opening in August 2000. The project is located in Switzerland County, Indiana,
which is approximately 35 miles southwest of Cincinnati, Ohio and will be the
gaming site most readily accessible to major portions of northern and central
Kentucky, including the city of Lexington.
The Company plans to spend approximately $200,000,000 ($70,322,000 of which has
been spent as of March 31, 2000) in total costs (including land, pre-opening
expenses, organizational expenses and community grants) on the Belterra Casino
Resort, which will feature a 15-story, 308-room hotel, a cruising riverboat
casino with approximately 1,800 gaming positions, an 18-hole championship golf
course, a 1,500 seat entertainment facility, four restaurants, retail areas and
other amenities.
Lake Charles In November 1999, the Company filed an application for the
------------
fifteenth and final gaming license to be issued by the Louisiana Gaming Control
Board. The Company was one of five applicants for such license. The Company's
application is seeking the approval to operate a cruising riverboat casino,
hotel and golf course resort complex in Lake Charles, Louisiana. The Louisiana
Gaming Control Board has not awarded such license and there are no assurances
such license will be issued to the Company or any other applicant.
In connection with such submittal, Pinnacle Entertainment has entered into an
option agreement with the Lake Charles Harbor and Terminal District (the
"District") to lease 225 acres of unimproved land from the District upon which
such resort complex would be constructed. The initial lease option was for a
six-month period ending January 2000, with three six-month renewal options (the
first of which the Company has exercised), at a cost of $62,500 per six-month
option. If the lease option is exercised, the annual rental payment would be
$815,000, with a maximum annual increase of 5%. The term of the lease would be
for a total of up to 70 years, with an initial term of 10 years and six
consecutive renewal options of 10 years each. The lease would require the
Company to develop certain on- and off- site improvements at the location. If
awarded the license by the Louisiana Gaming Control Board, the Company
anticipates building a resort similar in design and scope to the Belterra Casino
Resort currently under construction in Indiana.
California Card Clubs By California state law, a corporation may operate a
gambling enterprise in California only if every officer, director and
shareholder holds a state gambling license. Only 5% or greater shareholders of a
publicly traded racing association, however, must hold a state gambling license.
As a practical matter, therefore, public corporations that are not qualified
racing associations may not operate gambling enterprises in California. As a
result, the Hollywood Park-Casino, since September 10, 1999 (see Note 3 to the
Condensed Notes to Consolidated Financial Statements), and the Crystal Park
Hotel and Casino, are leased to, and operated by, an unrelated third party.
By law, a California card club may neither bank card games nor offer certain of
the casino games permitted in Nevada and other traditional gambling
jurisdictions, and thus does not participate in the wagers made or in the
outcome of any of the games played.
Year 2000 The Company has not experienced any disruption due to the Year 2000
issue. The Year 2000 issue exists because computer systems and applications were
historically designed to use two digit fields (rather than four) to designate a
year, which could result in miscalculations or system failures. The Company
cannot be assured there will not be Year 2000 issues in the future.
Results of Operations
On September 10, 1999, the Company completed the dispositions of the Hollywood
Park Race Track and Hollywood Park-Casino (see Note 3 to the Condensed Notes to
Consolidate Financial Statements). The results of operations of the Hollywood
Park Race Track and Hollywood Park-Casino are included in the results of
operations only until such date. Future revenue and operating results will be
materially reduced due to the sale of these assets, as well as by the future
sale of assets, which are classified as held for sale at March 31,
23
<PAGE>
2000 and December 31, 1999 on the Consolidated Balance Sheets (see Note 4 to the
Condensed Notes to Consolidated Financial Statements).
Three months ended March 31, 2000 compared to the three months ended March 31,
------------------------------------------------------------------------------
1999
----
Total revenues for the three months ended March 31, 2000 decreased by
$9,401,000, or 5.5%, as compared to the three months ended March 31, 1999.
Contribution to revenues in the three months ended March 31, 2000 from the
Hollywood Park Race Track and Hollywood Park-Casino was $1,500,000 (all from the
sublease arrangement for the Hollywood Park-Casino - see Note 3 to the Notes to
Condensed Consolidated Financial Statements) compared to $19,490,000 in the
three months ended March 31, 1999. When excluding such revenue for both periods,
total revenues in the three months ended March 31, 2000 increased by $8,589,000,
or 5.6%, when compared to March 31, 1999.
Gaming revenues decreased by $7,238,000, or 5.2%, including $11,856,000 due to
the timing of the disposition of the Hollywood Park-Casino in September 1999.
When excluding the Hollywood Park-Casino from the three month results ended
March 31, 1999, gaming revenues increased by $4,618,000, or 3.6%. Gaming
revenues increased at Boomtown Reno by $2,581,000 and at Casino Magic Bossier
City by $4,927,000, while gaming revenues declined at Boomtown New Orleans by
$704,000 and at Casino Magic Biloxi by $1,807,000. Boomtown Reno's record first
quarter gaming revenue was due primarily to a 22% increase in slot coin-in
(volume of slot play), a 20% increase in table game drop (volume of table game
play) and higher table game win percentage. The higher volume of casino activity
in Reno was the result of: a) completion of a 200 room hotel addition and
convention area in the first quarter of last year; b) significantly improved
occupancy at such expanded hotel facility; c) good weather with minimal snowfall
this year making the property more accessible; d) strong marketing programs;
and, e) changes since last year in the management team. The Casino Magic Bossier
City gaming revenue improvement was due primarily to an increase in the overall
Shreveport-Bossier City casino market, new marketing programs and management
changes that have occurred since the first quarter of 1999. The decline in
gaming revenues at the New Orleans and Biloxi locations reflect the adverse
impact of new competition in 1999 in each market. Racing revenues declined by
$3,636,000, or 37.2%, entirely due to the disposition of the Hollywood Park Race
Track in September 1999. Food and beverage revenues decreased by $1,420,000, or
14.7%, including $1,934,000 due to the dispositions of the Hollywood Park Race
Track and Hollywood Park-Casino in September 1999. When excluding the results of
these two locations from the 1999 results, food and beverage revenue increased
$514,000, or 6.6%. A majority of the increase is attributed to Boomtown Reno
(increase of $508,000), which resulted primarily from the increased occupancy of
the hotel, which rose from 52% in the first quarter of 1999 to 79% in the same
period in 2000. Hotel and recreational vehicle park revenues increased by
$146,000, or 5.5%, due primarily to increases at Boomtown Reno. Truck stop and
service station revenue increased by $1,088,000, or 36.4%, primarily due to
increased fuel prices at Boomtown Reno. Other income increased by $1,659,000, or
25.5%, which amount includes $800,000 received by Casino Magic Biloxi and
$1,204,000 received by Casino Magic Bay St. Louis for the settlement of a 1998
hurricane business interruption claim.
Total expenses for the three months ended March 31, 2000 decreased by
$34,594,000, or 23.0%, as compared to the three months ended March 31, 1999.
Included in the results of operations for the three months ended March 31, 2000,
is a gain on the sale of land (see Note 3 to the Condensed Notes to Consolidated
Financial Statements) of $23,854,000. Included in the results of operations for
the three months ended March 31, 1999, are expenses of $20,113,000 related to
the Hollywood Park Race Track and Hollywood Park-Casino. Excluding the land gain
from the year 2000 results of operations and the race track and casino expenses
from the 1999 results of operations, total expenses for the three months ended
March 31, 2000 increased by $9,373,000, or 7.2%, as compared to the three months
ended March 31, 1999.
Gaming expenses decreased by $3,133,000, or 4.0%, including $6,500,000 due to
the timing of the disposition of the Hollywood Park-Casino in September 1999.
Gaming expenses increased $2,546,000 at Casino Magic Bossier City, consistent
with increased gaming revenues. Racing expenses decreased by $2,697,000, or
50.4%, including $2,892,000 due to the disposition of the Hollywood Park Race
Track in
24
<PAGE>
September 1999. Food and beverage expenses decreased by $2,478,000, or 21.3%,
including $3,215,000 due to the timing of the dispositions of the Hollywood Park
Race Track and Hollywood Park-Casino in September 1999. Such expenses increased
$362,000 at Boomtown Reno, consistent with the overall increase in food and
beverage revenue at such property. Hotel and recreational vehicle park expenses
increased by $200,000, or 14.9%, primarily due to an increase at Casino Magic
Biloxi, attributable to higher marketing costs resulting from increased
competition in the market. Truck stop and service station expenses increased by
$1,006,000, or 36.5%, primarily due to increased fuel costs at Boomtown Reno.
General and administrative expenses decreased by $4,433,000, or 12.6%, including
a reduction in expenses of $5,812,000 due to the dispositions of the Hollywood
Park Race Track and Hollywood Park-Casino in September 1999. Depreciation and
amortization decreased by $776,000, or 5.8%, primarily due to the disposition of
the Hollywood Park Race Track assets in September 1999. Pre-opening costs for
the Belterra Resort and Casino increased $1,036,000, or 146.5%, which is
consistent with the overall development of the project under construction. The
gain on disposition of assets of $23,854,000 is due to the sale of 42 acres of
surplus land in March 2000 (see Note 3 to the Condensed Notes to Consolidated
Financial Statements). Proposed merger costs of $625,000 relate to the Proposed
Merger with PHCR - see Note 2 to the Condensed Notes to Consolidated Financial
Statements. Other expenses decreased by $90,000, or 3.7%, including a reduction
in other expenses of $604,000 due to the dispositions of the Hollywood Park Race
Track and Hollywood Park-Casino in September 1999, partially offset by increases
at Casino Magic Bay St. Louis of $226,000 and Casino Magic Biloxi of $149,000.
The increase at Casino Magic Bay St. Louis is primarily due to costs associated
with its golf course, while the increase at Casino Magic Biloxi is primarily due
to competitive pressures in the Biloxi gaming market. Net interest expense
decreased by $1,611,000, or 11.1%, primarily due to the interest income of
$3,221,000 generated from invested funds in the first quarter of 2000. Income
tax expense increased to $12,239,000, or $9,483,000, from $2,756,000, which
increase includes $8,532,000 associated with the land sale in March 2000 (see
Note 3 to the Condensed Notes to Consolidated Financial Statements).
Liquidity, Capital Resources and Other Factors Influencing Future Results
At March 31, 2000, the Company had cash and cash equivalents, all of which had
original maturities within ninety days, of $227,815,000 compared to $123,362,000
at December 31, 1999. At December 31, 1999, the Company had $123,428,000 of
short-term investments and had no such investments at March 31, 2000 (see Note 7
to the Notes to Condensed Consolidated Financial Statements).
The Condensed Consolidated Statements of Cash Flows detailing changes in the
cash balances is on page 3.
Operating activities used net cash of $878,000 in the three months ended March
31, 2000 compared with cash provided by operating activities of $8,850,000 in
the first three months of 1999. This year-over-year change is largely due to the
reduction of operating cash flow for the non-recurring gain on the sale of the
land to Home Depot Inc. (see Note 3 to the Notes to Condensed Consolidated
Financial Statements) and to the higher payment of accrued interest in the first
quarter of 2000 as compared to the first quarter of 1999 (the Company issued the
9.25% Notes in February 1999 - see Note 9 to the Condensed Notes to Consolidated
Financial Statements), offset by the increase in federal and state income taxes,
which increase is primarily due to the taxes associated with the land sale to
Home Depot, Inc.
Net cash provided by investing activities of $105,669,000 in the three months
ended March 31, 2000 include proceeds of $123,428,000 from the maturity of short
term investments and the receipt of $24,353,000 from the sale of property, plant
and equipment (such receipts primarily from the sale of 42 acres in March 2000 -
see Note 3 to the Condensed Notes to Consolidated Financial Statements), offset
by the use of cash of $42,392,000 for the additions of property, plant and
equipment (the primary additions attributed to the Belterra Resort and Casino -
see Note 6 to the Condensed Notes to Consolidated Financial Statements). During
the three months ended March 31, 1999, net cash used in investing activities was
primarily for the addition to property, plant and equipment of $11,281,000.
25
<PAGE>
The net cash used in financing activities in the first quarter of 2000 of
$338,000 reflects payments on notes payable of $935,000, partially offset by
proceeds from the exercise of common stock options of the Company. During the
three months ended March 31, 1999, net cash provided by financing activities of
$62,685,000 is primarily attributed to the net cash proceeds from the issuance
of the 9.25% Notes, offset by the pay down of the Bank Credit Facility. Since
February 1999, the Company has not borrowed any amounts under its bank credit
facility and in May 1999 the maximum amount of such bank credit facility was
reduced from $300,000,000 (with an option to increase to $375,000,000) to
$200,000,000 (with an option to increase to $300,000,000) (see Note 9 to the
Condensed Notes to Consolidated Financial Statements).
At March 31, 2000, the Company had signed definitive sales agreements to sell
assets for $248,000,000 cash, which transactions are expected to close in 2000.
This includes the sale of essentially all of the assets to operate the Casino
Magic Bay St. Louis and Boomtown Biloxi casinos in Mississippi and the Turf
Paradise horse racing facility in Arizona. In addition, in April 2000, the
Company signed an agreement to sell the remaining 97 acres of surplus land in
Inglewood, California, and is actively seeking buyers to purchase the unused
land in Missouri. See Note 4 to the Condensed Notes to Consolidated Financial
Statements for more information on these proposed transactions. The sales of
these assets are expected to generate gains; however, there is no assurance any
of these transactions will be consummated in 2000 or 2001.
The Company believes that its available cash, cash equivalents, short-term
investments, cash to be generated by assets held for sale and cash flow from
operations will be sufficient to finance operations and capital requirements 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, it has committed to utilize approximately $130,000,000 to complete
the Belterra project and pay approximately $22,000,000 in Federal and State
income taxes related to the sale of the Hollywood Park Race Track. In addition,
the Company may use a portion of these resources to i) reduce its outstanding
debt obligations prior to their scheduled maturities, ii) make significant
capital improvements to existing properties, and/or iii) develop or acquire
other casino properties or companies, including the proposed Lake Charles,
Louisiana project. To the extent cash is used for these purposes, the Company's
cash reserves will also be diminished and the Company may require additional
capital to finance any such activities. Additional capital may be generated
through internally generated cash flow, future borrowings (including amounts
available under the bank credit facility) and/or lease transactions. There can
be no assurance, however, that such capital will be available on terms
acceptable to the Company.
Should the Proposed Merger (see Note 2 to the Notes to Condensed Consolidated
Financial Statements and "Factors Affecting Future Operating Results" above) be
consummated, new shareholders, Board of Directors and management will operate
the business. Accordingly, the Liquidity and Capital Resources will likely
change, however, the Company believes that, regardless of the Proposed Merger,
Pinnacle Entertainment will have sufficient capital through internally generated
cash flow, access to unused bank credit facilities and / or other capital
sources to finance operations and capital requirements for the foreseeable
future, and in any event for at least the next twelve months.
26
<PAGE>
Part II
Other Information
Item 1. Legal Proceedings
-------------------------
Class Action Lawsuits On March 14, 2000, Harbor Finance Partners filed a class
action lawsuit in the Chancery Court of the State of Delaware against the
Company, and each of its directors, claiming that the defendants have breached
their fiduciary duty to the stockholders of the Company by agreeing to negotiate
exclusively with Harveys Casino Resorts, a majority owned subsidiary of Colony
Capital LLC (see Note 2 to the Condensed Notes to Consolidated Financial
Statements). On March 21, 2000, a similar class action lawsuit was filed by Leta
Hilliard in the Superior Court of the State of California. The lawsuits claim
that the Company and its directors have failed to undertake an appropriate
process for evaluating the Company's worth and eliciting bids from third
parties, and that the price for the stock is inadequate. The Company intends to
vigorously defend these actions and believes that the plaintiffs' claims are
without merit.
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------
(a) Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 Agreement and Plan of Merger, dated as of April 17, 2000, among
Pinnacle Entertainment, Inc., PH Casino Resorts, Inc., and Pinnacle
Acquisition Corp., is hereby incorporated by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K filed May 1, 2000.
10.1* Agreement of Purchase and Sale and Joint Escrow Instructions, dated as
of April 17, 2000, by and between Pinnacle Entertainment, Inc. and
Casden Properties Inc.
11** Statement re Computation of Per Share Earnings
27.1** Financial Data Schedule
______
* Filed herewith
** Filed with the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000, filed May 15, 2000.
(b) Reports on Form 8-K:
A Current Report on Form 8-K was filed on February 25, 2000, to report
the issuance of a press release on February 23, 2000, in which the
Company announced it had changed its corporate name to Pinnacle
Entertainment, Inc. from Hollywood Park, Inc., and that the Company
would begin trading under the stock symbol PNK on the New York Stock
Exchange on February 28, 2000.
A Current Report on Form 8-K was filed on March 6, 2000, to report the
issuance of a press release on February 28, 2000, in which the Company
announced it had signed a definitive agreement under which the Company
will sell the Turf Paradise horse racing facility to a private
investor.
A Current Report on Form 8-K was filed on March 8, 2000, to report the
issuance of a press release on March 8, 2000, in which the Company
announced it had received a proposal from an affiliate of Harveys
pursuant to which Harveys would acquire all of the outstanding shares
of common stock of the Company for cash.
27
<PAGE>
A Current Report on Form 8-K was filed on April 18, 2000, to report
the issuance of a press release on April 17, 2000, in which the
Company announced it had entered into a definitive agreement with
PHCR, a newly formed subsidiary of Harveys, pursuant to which PHCR
would acquire by merger all of the outstanding capital stock of the
Company.
A Current Report on Form 8-K was filed on May 1, 2000, to report that,
on April 17, 2000, the Company, PHCR, and Pinnacle Acq. Corp., a
wholly owned subsidiary of PHCR, entered into the Agreement and Plan
of Merger (the "Merger Agreement") pursuant to which Pinnacle Acq.
Corp. would merge with and into the Company and each share of the
Company's common stock would be converted into the right to receive
cash, as more fully described in the Merger Agreement.
28
<PAGE>
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/ Bruce C. Hinckley Dated: September 6, 2000
---------------------------------
Bruce C. Hinckley
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
29
<PAGE>
Pinnacle Entertainment, Inc.
Exhibit Index
Exhibit Description
------- -----------
2.1 Agreement and Plan of Merger, dated as of April 17, 2000, among Pinnacle
Entertainment, Inc., PH Casino Resorts, Inc., and Pinnacle Acquisition
Corp., is hereby incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed May 1, 2000.
10.1* Agreement of Purchase and Sale and Joint Escrow Instructions, dated as
of April 17, 2000, by and between Pinnacle Entertainment, Inc. and
Casden Properties Inc.
11** Statement re Computation of Per Share Earnings
27.1** Financial Data Schedule
_________
* Filed herewith
** Filed with the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000, filed May 15, 2000.
