<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 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 November 6, 2000: 26,416,489.
<PAGE>
PINNACLE ENTERTAINMENT, INC.
Table of Contents
Part I
<TABLE>
<CAPTION>
Item 1. Financial information
<S> <C> <C>
Consolidated Statements of Operations for the three and nine months ended
September 30, 2000 and 1999..........................................................1
Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999...............2
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999..........................................................3
Condensed Notes to Consolidated Financial Statements.....................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Risk Factors.............................................21
Factors Affecting Future Operating Results..............................................21
Results of Operations...................................................................27
Liquidity, Capital Resources and Other Factors Influencing Future Results...............31
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................32
Part II
Item 1. Litigation...................................................................................32
Item 4. Submission of Matters to a Vote of Security Holders..........................................34
Item 6. Exhibits and Reports on Form 8-K.............................................................35
Other Financial Information...........................................................................36
Signatures............................................................................................38
</TABLE>
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Pinnacle Entertainment, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
----------------------------- ---------------------------
2000 1999 2000 1999
----------------------------- ---------------------------
(in thousands, except per share data - unaudited)
<S> <C> <C> <C> <C>
Revenues:
Gaming $117,693 $147,468 $383,288 $432,773
Food and beverage 7,993 10,784 25,229 32,485
Hotel and recreational vehicle park 3,697 3,553 10,043 9,253
Truck stop and service station 6,960 5,717 16,343 13,251
Racing 0 11,218 9,452 49,959
Other income 5,712 5,915 20,321 18,461
----------- ----------- ----------- -----------
142,055 184,655 464,676 556,182
----------- ----------- ----------- -----------
Expenses:
Gaming 67,681 80,560 217,136 237,059
Food and beverage 7,958 12,472 26,978 38,235
Hotel and recreational vehicle park 1,240 1,629 4,344 4,495
Truck stop and service station 6,484 5,301 15,187 12,201
Racing 0 5,003 4,133 20,381
General and administrative 23,839 34,143 81,798 107,255
Depreciation and amortization 10,414 13,147 34,669 40,349
Pre-opening costs, Belterra Casino Resort 7,853 684 13,309 2,193
Gain on disposition of assets, net (59,941) (62,585) (119,382) (62,585)
Impairment write-down of Hollywood Park-Casino 0 20,446 0 20,446
Proposed merger costs 2,878 0 5,003 0
Other operating 2,330 3,609 8,383 10,886
----------- ----------- ----------- -----------
70,736 114,409 291,558 430,915
----------- ----------- ----------- -----------
Operating income 71,319 70,246 173,118 125,267
Interest expense, net 7,666 14,759 31,625 44,812
----------- ----------- ----------- -----------
Income before minority interests, income taxes and extraordinary item 63,653 55,487 141,493 80,455
Minority interests 0 550 0 1,687
Income tax expense 26,164 28,705 55,860 38,692
----------- ----------- ----------- -----------
Net income before extraordinary item 37,489 26,232 85,633 40,076
Extraordinary item, net of income tax 2,653 0 2,653 0
----------- ----------- ----------- -----------
Net income after extraordinary item $34,836 $26,232 $82,980 $40,076
=========== =========== =========== ===========
-----------------------------------------------------------------------------------------------------------------------------------
Net income per common share - basic
Net income before extraordinary item $1.42 $1.01 $3.25 $1.55
Extraordinary item, net of income tax (0.10) 0.00 (0.10) 0.00
----------- ----------- ----------- -----------
Net income per common share - basic $1.32 $1.01 $3.15 $1.55
=========== =========== =========== ===========
Net income per common share - diluted
Net income before extraordinary item $1.37 $0.98 $3.13 $1.54
Extraordinary item, net of income tax (0.10) 0.00 (0.10) 0.00
----------- ----------- ----------- -----------
Net income per common share - diluted $1.27 $0.98 $3.03 $1.54
=========== =========== =========== ===========
Number of shares - basic 26,356 26,045 26,306 25,906
Number of shares - diluted 27,458 26,860 27,369 26,092
</TABLE>
------------
See accompanying condensed notes to the consolidated financial statements.
1
<PAGE>
Pinnacle Entertainment, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- --------------
(unaudited)
Assets (in thousands, except share data)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $201,446 $123,362
Short term investments 0 123,428
Receivables, net 20,540 17,132
Prepaid expenses and other assets 18,409 13,118
Assets held for sale 12,168 154,649
Current portion of notes receivable 2,320 5,785
------------- -------------
Total current assets 254,883 437,474
Notes receivable 7,052 8,912
Net property, plant and equipment 584,772 437,715
Goodwill, net of amortization 71,976 87,481
Gaming licenses, net of amortization 39,573 41,485
Debt issuance costs, net of amortization 17,074 22,813
Other assets 10,358 9,528
------------- -------------
$985,688 $1,045,408
============= =============
-------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $24,033 $21,096
Accrued interest 6,851 26,080
Other accrued liabilities 38,573 36,796
Accrued compensation 15,473 16,073
Liabilities to be assumed by buyers of assets held for sale 0 9,866
Federal and state income taxes 32,618 28,315
Current portion of notes payable 3,383 6,782
------------- -------------
Total current liabilities 120,931 145,008
Notes payable, less current maturities 497,859 618,698
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;
26,401,005 and 26,234,699 shares issued and outstanding in 2000 and 1999 2,640 2,624
Capital in excess of par value 226,854 224,654
Retained earnings 136,578 53,598
------------- -------------
Total stockholders' equity 366,072 280,876
------------- -------------
$985,688 $1,045,408
============= =============
</TABLE>
See accompanying condensed notes to the consolidated financial statements.
2
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Pinnacle Entertainment, Inc.
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the nine months
ended September 30,
-----------------------------
2000 1999
------------- -------------
(in thousands - unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income after extraordinary item $82,980 $40,076
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 34,669 40,349
Gain on disposition of assets, net (119,382) (62,585)
Impairment write-down of Hollywood Park-Casino 0 20,446
(Decrease) increase in other receivables (3,550) 4,173
Increase in prepaid expenses and other assets (7,189) (7,969)
Increase (decrease) in accounts payable 2,937 (9,554)
Decrease in accrued interest (19,229) (5,969)
(Decrease) increase in other accrued liabilities (3,238) 5,050
Increase in federal and state income taxes 4,303 22,133
All other, net 1,576 6,468
------------- -------------
Net cash (used in) provided by operating activities (26,123) 52,618
------------- -------------
Cash flows from investing activites:
Additions to property, plant and equipment (166,425) (36,250)
Capitalized interest included in property, plant and equipment (6,607) (968)
Receipts from sale of property, plant and equipment 267,234 139,720
Principal collected on notes receivable 5,325 4,890
Proceeds from (use of) short term investments 123,428 (107,459)
------------- -------------
Net cash provided by (used in) investing activities 222,955 (67)
------------- -------------
Cash flows from financing activites:
Redemption of the Casino Magic 13% Notes (112,875) 0
Write-off of unamortized premium and debt costs
associated with the Casino Magic 13% Notes, net (3,340) 0
Payment on notes payable (4,439) (15,058)
Common stock options excercised 1,906 2,574
Proceeds from secured Bank Credit Facility 0 17,000
Payment of secured Bank Credit Facility 0 (287,000)
Proceeds from issuance of 9.25% Notes 0 350,000
Debt issuance costs incurred 0 (15,309)
------------- -------------
Net cash (used in) provided by financing activites (118,748) 52,207
------------- -------------
Increase in cash and cash equivalents 78,084 104,758
Cash and cash equivalents at beginning of the period 123,362 44,234
------------- -------------
Cash and cash equivalents at the end of the period $201,446 $148,992
============= =============
</TABLE>
See accompanying condensed notes to the consolidated financial statements.
3
<PAGE>
PINNACLE ENTERTAINMENT, INC.
Condensed Notes to Consolidated Financial Statements
September 30, 2000
Note 1 - Summary of Significant Accounting Policies
PROPOSED MERGER In April 2000, Pinnacle Entertainment, Inc. (the "Company" or
"Pinnacle Entertainment") entered into a definitive agreement with respect to a
Proposed Merger (defined below) whereby, if consummated, all the shares of the
Company would be acquired for cash (see Note 2). On October 10, 2000,
shareholders of the Company, by a vote of over 78% of shares outstanding,
approved the Proposed Merger between the Company and a subsidiary of PH Casino
Resorts. The Proposed Merger is expected to close in late 2000 or in the first
quarter of 2001.
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.
GENERAL Pinnacle Entertainment is a diversified gaming company that owns and
operates seven casinos (four with hotels) in Indiana, Nevada, Mississippi,
Louisiana and Argentina. Pinnacle Entertainment operates (effective with the
opening of the Belterra Casino Resort on October 27, 2000) the Belterra Casino
Resort, 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). The Company also owns and operates,
through its Boomtown, Inc. ("Boomtown") subsidiary, land-based and riverboat
gaming operations in Verdi, Nevada ("Boomtown Reno") and Harvey, Louisiana
("Boomtown New Orleans"), respectively. Pinnacle Entertainment also owns and
operates, through its Casino Magic Corp. ("Casino Magic") subsidiary, dockside
gaming operations in Biloxi, Mississippi ("Casino Magic Biloxi"); 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). 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.
Prior to August 8, 2000, the Company owned and operated dockside gaming
facilities in Biloxi, Mississippi ("Boomtown Biloxi") and Bay St. Louis,
Mississippi ("Casino Magic Bay St. Louis"). On August 8, 2000, the Company
completed the sale of these facilities to subsidiaries of Penn National Gaming,
Inc. (see Note 3). Prior to June 13, 2000, the Company owned and operated Turf
Paradise, Inc. ("Turf Paradise"), a horse racing facility in Phoenix, Arizona.
On June 13, 2000, the Company completed the sale of Turf Paradise to a company
owned by a private investor (see Note 3). Prior to September 1999, the Hollywood
Park-Casino was owned and operated by the Company. In September 1999, the
Company completed the disposition of the Hollywood Park Race Track in Inglewood,
California to Churchill Downs (see Note 3).
The financial information included herein has been prepared in conformity with
accounting principles generally accepted in the United States, 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.
4
<PAGE>
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 sale
of significant operating assets in 1999 and 2000, and the opening of the
Belterra Casino Resort in October 2000.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of Pinnacle Entertainment and its majority owned subsidiaries. All
significant inter-company accounts and transactions have been eliminated. The
Company's significant subsidiaries include Belterra Casino Resort, Boomtown,
Inc. (and its Boomtown casinos) and Casino Magic Corp. (and its Casino Magic
casinos).
GAMING LICENSES In 1994, Casino Magic acquired a twelve-year concession
agreement to operate the two Casino Magic Argentina casinos, and capitalized the
costs related to obtaining the concession agreement. Such 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.
Accumulated amortization as of September 30, 2000 and December 31, 1999 was
$6,420,000 and $5,219,000, respectively.
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.
Accumulated amortization as of September 30, 2000 and December 31, 1999 was
$8,048,000 and $8,278,000, respectively. During the nine months ended September
30, 2000, the Company wrote-off the debt issuance costs associated with the
Casino Magic 13% Notes in connection with the redemption of such notes (see Note
10).
Amortization expense was $824,000 and $659,000 for the three months ended
September 30, 2000 and 1999, respectively, and $2,143,000 and $1,789,000 for the
nine months ended September 30, 2000 and 1999, respectively.
GOODWILL Goodwill consists of the excess of the acquisition cost over the fair
value of the net assets acquired in business combinations and is being amortized
on a straight-line basis over 40 years. Accumulated amortization as of September
30, 2000 and December 31, 1999 was $10,304,000 and $7,927,000, respectively. In
August 2000, in connection with the sale of the two casinos in Mississippi (see
Note 3), the Company wrote-off approximately $13,128,000 of goodwill associated
with these properties.
Amortization expense was $771,000 and $741,000 for the three months ended
September 30, 2000 and 1999, respectively, and $2,378,000 and $2,254,000 for the
nine months ended September 30, 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 consist 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)
was $10,881,000 and $11,755,000 for the three months
5
<PAGE>
ended September 30, 2000 and 1999, respectively, and $34,192,000 and $33,981,000
for the nine months ended September 30, 2000 and 1999, respectively.
USE OF ESTIMATES The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States
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. Actual results could differ from these
estimates.
PROPERTY, PLANT AND EQUIPMENT Additions to property, plant and equipment are
recorded at cost and projects in excess of $10,000,000 include interest on funds
borrowed to finance construction. Capitalized interest was $3,665,000 and
$123,000 for the three months ended September 30, 2000 and 1999, respectively,
and $6,608,000 and $968,000 for the nine months ended September 30, 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 beginning after
December 15, 1998. Statement of Position 98-5 required that start-up activities
and organization costs be expensed as incurred. Pre-opening costs which are
reimbursable from insurance proceeds are recorded as a receivable (see Note 6).
RECENT ACCOUNTING PRONOUNCEMENTS Revenue Recognition In December 1999, Staff
Accounting Bulletin 101 Revenue Recognition in Financial Statements ("SAB 101"),
issued by the Securities and Exchange Commission ("SEC"), was issued and became
effective beginning for the fourth quarter of fiscal years beginning after
December 15, 1999. SAB 101 summarizes certain of the SEC staff's views in
applying accounting principles generally accepted in the United States to
revenue recognition in financial statements. In management's opinion,
implementation of SAB 101 will not have a material impact on the Company's
financial position and results of operations.
Derivative Instruments and Hedging Activities In June 1998, FASB Statement No.
133 Accounting for Derivative Instruments and Hedging Activities ("FASB 133")
was issued. FASB 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. In June 1999, FASB Statement No.
137 Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No 133 ("FASB 137") was issued. FASB 133,
as amended by FASB 137, is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company does not have any derivative or
hedging instruments as of September 30, 2000.
EARNINGS PER SHARE Basic earnings per share are based on net income divided by
the weighted average common shares outstanding during the period. Diluted
earnings per share assume exercise of in-the-money stock options outstanding at
the beginning of the year or date of the issuance, unless they are antidilutive.
RECLASSIFICATIONS Certain reclassifications have been made to the 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 the
management board members) (the "Special Committee") to evaluate and negotiate
the proposal. Harveys is an affiliate of Colony Capital, LLC, a private
investment firm.
6
<PAGE>
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 (with the management board members abstaining) of the
Company (the "Proposed Merger"). In the Proposed Merger, Pinnacle Acq Corp would
merge into Pinnacle Entertainment and Pinnacle Entertainment would become a
wholly owned subsidiary of PHCR. In addition, in connection with the Proposed
Merger, Harveys would also become a wholly owned subsidiary of PHCR.
On September 15, 2000, the Company, PHCR and Pinnacle Acq Corp executed an
amendment to the Merger Agreement. Such amendment, among other things, extended
the date on which Belterra Casino Resort must be substantially complete and open
to the public from September 15, 2000 to November 15, 2000 (which requirement
was met in October 2000 when the resort opened to the public); increased the
permitted costs associated with the Belterra Casino Resort, in the aggregate,
from $207,000,000 to $217,000,000; extended the outside closing date for the
sale of the surplus land in Inglewood, California from December 31, 2001 to
March 1, 2002; reduced the termination fee required to be paid by the Company,
under certain circumstances, from $25,000,000 to $20,000,000; added a provision
to permit Pinnacle Acq Corp, at its option, to extend the outside closing date
for the Proposed Merger; and eliminated the requirement that a letter of credit
be obtained to secure the surviving entity's obligation to pay any additional
payment in connection with the sale of the Inglewood land (as described below).
On October 10, 2000, holders of over 78% of the outstanding shares of the
Company approved the Proposed Merger.
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 March 1, 2002 (see Note
4).
In the event the 97 acres are sold prior to March 1, 2002 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
March 1, 2002, or have been sold, but at a price less than or equal to
$13,054,000, then Pinnacle Entertainment stockholders will not be entitled to
any additional payment. 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 fully diluted share. There can be
no assurances, however, that such sale of the 97 acres will be completed, or if
completed, that the sale price will exceed $13,054,000.
Consummation of the merger is subject to, among other things, (a) senior
management rolling over $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 (which was
obtained on October 10, 2000); (d) completion of PHCR's financing for the
transaction (for 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 asset
sales (which sales were completed on August 8, 2000 - see Note 3) and the
opening of the Belterra Casino Resort prior to November 15, 2000 (Belterra
Casino Resort opened on October 27, 2000 - see Note 6) at a cost not exceeding
$217,000,000. The Proposed Merger is expected to close in late 2000, or in the
first quarter of 2001.
As of September 30, 2000, the Company incurred estimated costs and expenses of
$5,003,000 in connection with the Proposed Merger, including approximately
$2,000,000 in connection with the negotiation and settlement of the Purported
Class Action Lawsuit (which settlement is subject to execution of a definitive
settlement agreement and court approval of that agreement; see Note 11),
estimated professional fees in connection with the Special Committee and Board
of Directors' evaluation of the Proposed Merger, estimated
7
<PAGE>
fees associated with the preparation and filing of the proxy material with the
Securities and Exchange Commission (the "SEC"), as well as other transactional
expenses. Additional costs have been and are expected to continue to be incurred
after September 30, 2000 relating to the Proposed Merger. In the event the
Proposed Merger is terminated, under certain circumstances, a termination fee of
$20,000,000 may be payable by the Company to Pinnacle Acq Corp, which
circumstances are defined in the PHCR Merger Agreement and related amendments
previously filed with the SEC.
Note 3 - Assets Sold
CASINO SALES On August 8, 2000, the Company completed the sale of two of its
casinos in Mississippi, Casino Magic Bay St. Louis and Boomtown Biloxi, to
subsidiaries of Penn National Gaming, Inc. ("Penn National") for $195,000,000 in
cash. Subsidiaries of Penn National purchased all of the operating assets and
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 property, plant and
equipment and related accumulated depreciation were included as "Assets held for
sale" as of December 31, 1999. Goodwill, net of accumulated amortization, of
$13,128,000 was written off in connection with the casino sales. The after tax
gain from this sale was approximately $35,538,000.
Condensed results of operations before income taxes for the Casino Magic Bay St.
Louis and Boomtown Biloxi casinos from July 1, 2000 to August 8, 2000 (the date
of the sale), from January 1, 2000 to August 8, 2000 and for the three and nine
months ended September 30, 1999 are as follows:
<TABLE>
<CAPTION>
For the 39 For the three For the 221 For the nIne
days ended months ended days ended months ended
August 8, September 30, August 8, September 30,
2000 1999 2000 1999
------------ ---------------- ------------- ---------------
(in thousands - unaudited)
<S> <C> <C> <C> <C>
Revenues (a) $ 16,397 $ 39,520 $ 97,203 $119,895
Expenses 13,865 33,109 79,952 99,509
---------- ---------- ---------- ----------
Operating income 2,532 6,411 17,251 20,386
Interest expense, net 8 (9) 90 53
---------- ---------- ---------- ----------
Income before income taxes $ 2,524 $ 6,420 $ 17,161 $ 20,333
========== ========== ========== ==========
</TABLE>
(a) Revenues for the 221 days ended August 8, 2000 include the settlement of a
1998 business proceeds from interruption claim of approximately$ 1,204,000.
TURF PARADISE SALE On June 13, 2000, the Company completed the sale of Turf
Paradise, including all 275 acres at the Phoenix, Arizona horse racing facility,
to a company owned by a private investor for $53,000,000 in cash. The property,
plant and equipment and related accumulated depreciation were included as
"Assets held for sale" as of December 31, 1999. The after tax gain from this
sale was approximately $21,262,000.
8
<PAGE>
Due to the sale of Turf Paradise in June 2000, there were no results of
operations for the three months ended September 30, 2000. The condensed results
of operations before income taxes for Turf Paradise from January 1, 2000 to June
13, 2000 (the date of sale) and for the three and nine months ended September
30, 1999 were:
<TABLE>
<CAPTION>
For the three For the nine
months ended For the 165 days months ended
September 30, ended June 13, September 30,
1999 2000 1999
--------------- ------------------ ---------------
(in thousands - unaudited)
<S> <C> <C> <C>
Revenues $ 1,414 $10,663 $11,699
Expenses 2,104 7,626 9,524
-------- --------- ---------
Operating income (690) 3,037 2,175
Interest income 0 49 0
-------- --------- ---------
Income (loss) before income taxes $ (690) $ 3,086 $ 2,175
======== ========= =========
</TABLE>
LAND SALE On March 24, 2000, the Company announced it had completed the sale of
approximately 42 acres of surplus land in Inglewood, California to Home Depot,
Inc. for $24,200,000 in cash. The 42 acres of surplus land were included in
"Assets held for sale" as of December 31, 1999. The after tax gain from this
sale was approximately $15,322,000.
DISPOSITIONS OF HOLLYWOOD PARK RACE TRACK AND HOLLYWOOD PARK-CASINO On September
10, 1999, the Company completed the dispositions of the Hollywood Park Race
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 initial term of the sublease was for a one-year period.
In September 2000, the Company renewed the sublease until the earlier of
December 31, 2001 or the expiration or early termination of the Company's lease
with Churchill Downs.
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 $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
10). 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 is being paid in 2000.
9
<PAGE>
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 three
and nine months ended September 30, 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 before income taxes for the Hollywood Park
Race Track and Hollywood Park-Casino from January 1, 1999 to September 10, 1999
were:
For the 72 For the 254
days ended days ended
September 10, September 10,
1999 1999
------------- -------------
(in thousands - unaudited)
Revenues $23,008 $86,235
Expenses 20,758 73,019
--------- ---------
Operating income 2,250 13,216
Interest expense (a) 0 0
--------- ---------
Income before income taxes $ 2,250 $13,216
========= =========
(a) No interest expense was specifically identified for these operations.
Note 4 - Assets Held For Sale
Assets held for sale of $12,168,000 at September 30, 2000 consist of 97 acres of
surplus land in Inglewood, California. On April 18, 2000, the Company announced
it had entered into an agreement with Casden Properties Inc. for the sale of the
97 acres for $63,050,000 in cash. 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. On July 31, 2000, the Company announced
Casden Properties had completed its due diligence phase of the transaction and
was moving forward with the entitlements necessary to complete the transaction.
The sale is expected to close in the first or second quarter of 2001 and is
expected to generate after tax net cash proceeds in excess of $41,000,000. No
assurances can be given that the sale of the Inglewood land will be completed on
such terms, or at all.
Assets held for sale of $154,649,000 at December 31, 1999 consisted of two
casinos in Mississippi (sold in August 2000), Turf Paradise Race Track in
Arizona (sold in June 2000) and other undeveloped parcels of land (some of which
were sold in March 2000). See Note 3 for details of assets sold in 2000.
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 $12,300,000 purchase price paid in October 1999 in
excess of the then minority interest is being amortized over the extended
concession agreement period, as described below. 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 extend such concession contract for an
additional ten years. In return for such extension, Casino Magic Argentina would
commit to invest, within 30 months of signing, $15,000,000 for the development
of a new casino facility and related amenities.
10
<PAGE>
Note 6 - Belterra Casino Resort
On October 27, 2000, the Company opened the Belterra Casino Resort located on
315 acres adjacent to the Ohio River in Switzerland County, Indiana, which is
approximately 45 miles southwest of downtown Cincinnati, Ohio. The Belterra
Casino Resort features a 15-story, 308-room hotel, a cruising riverboat casino
(the Miss Belterra) with approximately 1,800 gaming positions, an 18-hole Tom
Fazio-designed championship golf course (expected to open September 2001), five
restaurants, a 1,300-vehicle parking structure, retail areas and other
amenities. The facility also features a 1,500-seat entertainment venue and a
spa, both of which are expected to open in November 2000. The total cash
expended on the project, including amounts spent in prior years, as of September
30, 2000, was approximately $189,789,000 (including land, buildings, golf
course, furniture and fixtures, boat, organizational expenses, community grants
and pre-opening expenses, but excluding capitalized interest, pre-opening
expenses and boat repair expenses described below, which have been or are
expected to be reimbursed by insurance carriers). The Company expects the cost
of the project will not, and it is a condition to the Proposed Merger that such
cost does not, exceed $217,000,000.
On July 31, 2000, the Company's Miss Belterra riverboat casino was struck by a
barge on the Mississippi River near Caruthersville, Missouri en route to its
berthing site in Southern Indiana. There were no serious injuries to the persons
on the boat or barge. As a result of the accident, the expected August 2000
opening of the Belterra Casino Resort was delayed until late October 2000. The
Company expects that repair costs relating to the riverboat, as well as the
replacement of damaged or lost equipment, will be covered by insurance less a
$425,000 deductible (which was included in pre-opening expenses during the
quarter ended September 30, 2000). At September 30, 2000, the Company recorded
an insurance receivable of $2,890,000 primarily for replacement equipment
relating to the property damage claim.
The Company also maintains business interruption insurance applicable to the
incident, subject to a maximum per-day limitation and a deductible (which was
included in pre-opening expenses during the quarter ended September 30, 2000).
The Company anticipates that such insurance will cover a significant portion of
the additional pre-opening expenses and lost profits of the Belterra Casino
Resort between the date of the accident, July 31, 2000, and October 27, 2000.
The Company has not yet submitted a claim on its business interruption insurance
policy for the pre-opening costs and lost profits during this period and,
accordingly, the precise amount of any recovery on this aspect of the policy has
not yet been determined. At September 30, 2000, the Company recorded an
insurance receivable of $3,606,000 primarily for pre-opening costs incurred
between the scheduled opening date in August 2000 and September 30, 2000 for the
business interruption claim relating to the Miss Belterra accident. Management
believes the business interruption insurance receivable recorded at September
30, 2000 is collectible based on discussions with the insurance carrier and
could ultimately be greater than the amount recorded.
Note 7 - Development and Expansion
LAKE CHARLES In November 1999, the Company filed an application for the
fifteenth and final gaming license to be issued by the Louisiana Gaming Control
Board. In July 2000, the Company was one of three groups that presented their
proposed projects to the Louisiana Gaming Control Board. The Company's
application is seeking the approval to construct and operate a 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 to any
other applicant. At the July 2000 meeting, the Louisiana Gaming Control Board
indicated that another meeting to address the applications for the license would
be held at such time as the Louisiana State Police shall have completed their
suitability investigations of the applicants; however, the Louisiana Gaming
Control Board did not indicate when the next meeting would be convened.
11
<PAGE>
In connection with the application, Pinnacle Entertainment entered into an
option agreement with the Lake Charles Harbor and Terminal District (the
"District") to lease 225 acres of unimproved land from the District upon which
such resort complex would be constructed. The initial lease option was for a
six-month period ending January 2000, with three six-month renewal options (the
first two of which the Company has exercised), at a cost of $62,500 per
six-month option. If the lease option were exercised, the annual rental payment
would be $815,000, with a maximum annual increase of 5%. The term of the lease
would be for a total of up to 70 years, with an initial term of 10 years and six
consecutive renewal options of 10 years each. The lease would require the
Company to develop certain on- and off-site improvements at the location. If
awarded the license by the Louisiana Gaming Control Board, the Company
anticipates building a resort similar in design and scope to the Belterra Casino
Resort.
Note 8 - Short Term Investments
At September 30, 2000, the Company did not hold any short term investments.
However, included in "Cash and cash equivalents" on the Consolidated Balance
Sheet at September 30, 2000 are $159,072,000 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 netted against interest expense was $3,298,000 and $2,085,000
for the three months ended September 30, 2000 and 1999, respectively and
$9,663,000 and $3,398,000 for the nine months ended September 30, 2000 and 1999,
respectively.
Note 9 - Property, Plant and Equipment
Property, plant and equipment held at September 30, 2000 and December 31, 1999
consisted of the following:
September 30, December 31,
2000 (a) 1999 (a)
------------------ ----------------
(unaudited)
(in thousands)
Land and land improvements $76,274 $71,052
Buildings 254,213 253,126
Equipment 140,880 134,701
Vessel and barges 66,461 65,580
Construction in progress 189,069 32,813
----------- -----------
726,897 557,272
Less accumulated depreciation 142,125 119,557
----------- -----------
$584,772 $437,715
=========== ===========
(a) Excludes $12,168,000 of land at September 30, 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)
12
<PAGE>
Note 10 - Notes Payable and Extraordinary Item
Notes payable at September 30, 2000 and December 31, 1999 consisted of the
following:
September 30, December 31,
2000 1999
---------------- ----------------
(unaudited)
(in thousands)
Unsecured 9.25% Notes $350,000 $350,000
Unsecured 9.5% Notes 125,000 125,000
Casino Magic 13% Notes (a) 0 119,814
Hollywood Park-Casino debt obligation 21,203 22,566
Other secured notes payable 3,452 5,785
Other unsecured notes payable 1,587 2,315
----------- -----------
501,242 625,480
Less current maturities 3,383 6,782
----------- -----------
$497,859 $618,698
=========== ===========
(a) As of December 31, 1999, included a write up to fair market value (net
of amortization) of $6,939,000, as required under the purchase method of
accounting for a business combination. The remaining unamortized balance
was written-off upon redemption of the notes - see below.
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 September 30, 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, to fund capital expenditures, and for 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.
13
<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 premium-to-face values:
9.25% Notes redeemable: 9.5% Notes redeemable:
--------------------------------------- -------------------------------------
after February 14, at a premium of after July 31, at a premium of
--------------------------------------- -------------------------------------
2003 104.625% 2002 104.750%
2004 103.083% 2003 102.375%
2005 101.542% 2004 101.188%
2006 100.000% 2005 100.000%
2007 maturity 2006 100.000%
2007 maturity
Both the 9.25% and 9.5% Notes are unsecured obligations of the Company,
guaranteed by all material restricted subsidiaries of the Company, as defined in
the indentures governing the 9.25% and 9.5% Notes. The subsidiaries which do not
guarantee the debt include certain Casino Magic subsidiaries, principally the
Casino Magic Argentina subsidiaries. The indentures governing the 9.25% and 9.5%
Notes, as well as the 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.
REDEMPTION OF CASINO MAGIC 13% NOTES AND EXTRAORDINARY ITEM In August of 1996,
Casino Magic of Louisiana, Corp. (Casino Magic Bossier City) issued $115,000,000
of 13% First Mortgage Notes due 2003 (the "Casino Magic 13% Notes"), with
contingent interest equal to 5% of Casino Magic Bossier City's adjusted
consolidated cash flow (as defined by the indenture).
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.
On August 15, 2000, the Company redeemed all $112,875,000 of the outstanding
Casino Magic 13% Notes at the redemption price of 106.5%. Upon deposit of
$128,780,000 for principal, premium and accrued coupon and contingent interest
for such redemption, Casino Magic of Louisiana satisfied all conditions required
to discharge its obligations under the indenture. In connection with the
redemption, the Company recorded an extraordinary loss of $2,653,000, or $0.10
per basic and diluted share. The extraordinary loss represents the payment of
the redemption premium and the write-off of deferred finance and premium costs,
net of the related income tax benefit. Following the redemption, Casino Magic
Bossier City became a guarantor of the Bank Credit Facility, the 9.25% Notes and
the 9.5% Notes.
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).
Note 11 - Litigation
POULOS LAWSUIT A class action lawsuit was filed on April 26, 1994, in the United
States District Court, Middle District of Florida (the "Poulos Lawsuit"), naming
as defendants 41 manufacturers, distributors and casino operators of video poker
and electronic slot machines, including Casino Magic. The lawsuit alleges that
the defendants have engaged in a course of fraudulent and misleading conduct
intended to induce people to play such games based on false beliefs concerning
the operation of the gaming machines and the extent to
14
<PAGE>
which there is an opportunity to win. The suit alleges violations of the
Racketeer Influenced and Corrupt Organization Act ("RICO"), as well as claims of
common law fraud, unjust enrichment and negligent misrepresentation, and seeks
damages in excess of $6 billion. On May 10, 1994, a second class action lawsuit
was filed in the United States District Court, Middle District of Florida (the
"Ahern Lawsuit"), naming as defendants the same defendants who were named in the
Poulos Lawsuit and adding as defendants the owners of certain casino operations
in Puerto Rico and the Bahamas, who were not named as defendants in the Poulos
Lawsuit. The claims in the Ahern Lawsuit are identical to the claims in the
Poulos Lawsuit. Because of the similarity of parties and claims, the Poulos
Lawsuit and Ahern Lawsuit were consolidated into one case file (the
"Poulos/Ahern Lawsuit") in the United States District Court, Middle District of
Florida. On December 9, 1994 a motion by the defendants for change of venue was
granted, transferring the case to the United States District Court for the
District of Nevada, in Las Vegas. In an order dated April 17, 1996, the court
granted motions to dismiss filed by Casino Magic and other defendants and
dismissed the Complaint without prejudice. The plaintiffs then filed an amended
Complaint on May 31, 1996 seeking damages against Casino Magic and other
defendants in excess of $1 billion and punitive damages for violations of RICO
and for state common law claims for fraud, unjust enrichment and negligent
misrepresentation.
At a December 13, 1996 status conference, the Poulos/Ahern Lawsuit was
consolidated with two other class action lawsuits (one on behalf of a smaller,
more defined class of plaintiffs and one against additional defendants)
involving allegations substantially identical to those in the Poulos/Ahern
Lawsuit (collectively, the "Consolidated Lawsuits") and all pending motions in
the Consolidated Lawsuits were deemed withdrawn without prejudice. The
plaintiffs in the Consolidated Lawsuits filed a consolidated amended complaint
on February 14, 1997, which the defendants moved to dismiss. On December 19,
1997, the court granted the defendants' motion to dismiss certain allegations in
the RICO claim, but denied the motion as to the remainder of such claim; granted
the defendants' motion to strike certain parts of the consolidated amended
complaint; denied the defendants' remaining motions to dismiss and to stay or
abstain; and permitted the plaintiffs to substitute one of the class
representatives. On January 9, 1998, the plaintiffs filed a second consolidated
amended complaint containing claims nearly identical to those in the previously
dismissed complaints. The defendants answered, denying the substantive
allegations of the second consolidated amended complaint. On March 19, 1998, the
magistrate judge granted the defendants' motion to bifurcate discovery into
"class" and "merits" phases. "Class" discovery was completed on July 17, 1998.
The magistrate judge recommended denial of the plaintiffs' motion to compel
further discovery from the defendants, and the court affirmed in part. "Merits"
discovery is stayed until the court decides the motion for class certification
filed by the plaintiffs on March 18, 1998, which motion the defendants opposed.
The claims are not covered under the Company's insurance policies, however, 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. In the complaint, as amended, the plaintiff claims,
among other things, that the defendants (i) breached the terms of an agreement
they had with the plaintiff; (ii) tortiously interfered with certain of the
plaintiff's contracts and business relations; and (iii) breached covenants of
good faith and fair dealing they allegedly owed to the plaintiff, and seeks
compensatory damages in an amount to be proven at trial as well as punitive
damages. On or about October 8, 1996, the defendants interposed an answer,
denying the allegations contained in the Complaint. On June 26, 1998, defendants
filed a motion for summary judgment, as well as a motion for partial summary
judgment on damages issues. Thereafter, the plaintiff, in July of 1998, filed a
motion to reopen discovery. The court granted the plaintiff's motion, in part,
allowing the parties to conduct additional limited discovery. The motion for
summary judgment is pending. On November 30, 1999, the matter was transferred to
the Circuit Court for the Second Judicial District for Harrison County,
Mississippi. No trial date has been set. The Company's insurer has essentially
denied coverage of the claim against Mr. Ernst under the Company's directors and
officers insurance policy, but has reserved its right to review the matter as to
tortious interference at or following trial. The Company believes that the
insurer should not be permitted to deny coverage, although no assurances can be
given. The Company intends to vigorously defend this action.
BUS LITIGATION On May 9, 1999, a bus owned and operated by Custom Bus Charters,
Inc. was involved in an accident in New Orleans, Louisiana while en route to
Casino Magic in Bay St. Louis, Mississippi. To date, multiple deaths and
numerous injuries are attributed to this accident and the Company's
subsidiaries, Casino Magic Corp. and / or Mardi Gras Casino Corp., together with
several other defendants (including the State of Louisiana, the manufacturer of
the bus and the doctor who treated the driver of the bus and released him to
return to work), have been named in fifty-four (54) lawsuits, each seeking
unspecified damages due to the deaths and injuries sustained in this accident.
Most of the cases filed in the Louisiana state courts were removed and
consolidated with the cases which were filed and are pending in the United
States District Court for the Eastern District of Louisiana. Casino Magic has
denied liability in the cases. The federal district court entered a case
management/scheduling order which fixes pretrial scheduling deadlines but no
trial date has been set. The proceedings are in the early stages of discovery.
While the Company cannot predict the outcome of the litigation, the Company
believes Casino Magic is not liable for any damages arising from this accident
and the Company, together with its applicable insurers, which have reserved
their rights with respect to insurance coverage relating to this matter, intend
to vigorously defend these actions.
SKRMETTA LAWSUIT A suit was filed on August 14, 1998 in the Circuit Court of
Harrison County, Mississippi by the ground lessor of property underlying the
Boomtown Biloxi land based improvements in Biloxi, Mississippi (the "Project").
The lawsuit alleges that the plaintiff agreed to exchange the first two years'
ground rentals for an equity position in the Project based upon defendants'
purported assurances that a hotel would be constructed as a component of the
Project. Plaintiff seeks recovery in excess of $4,000,000 plus punitive damages.
At trial of the matter in March 2000, the judge granted the Company's motion to
dismiss the case. On April 26, 2000, plaintiff appealed the court's dismissal to
the Mississippi Supreme Court. The claim is not covered under the Company's
insurance policies, however, the Company does not expect that the lawsuit will
have a materially adverse effect on the financial condition or results of
operations of the Company.
PURPORTED CLASS ACTION LAWSUITS On March 14, 2000, Harbor Finance Partners filed
a purported class action lawsuit in the Chancery Court of the State of Delaware
against the Company and each of its directors,
15
<PAGE>
claiming that the defendants breached their fiduciary duty to the stockholders
of the Company by agreeing to negotiate exclusively with Harveys, an affiliate
of Colony Capital, LLC (see Note 2). On June 2, 2000, the action was dismissed
without prejudice.
On March 21, 2000, a similar purported class action lawsuit was filed by Leta
Hilliard in the Superior Court of the State of California. The lawsuit claims
that the Company and its directors failed to undertake an 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 this action and believes that the plaintiff's claims are without merit.
The parties in the Hilliard lawsuit filed a stipulation in which the plaintiff
agreed to file and serve a First Amended Complaint on or before September 15,
2000 and the defendants agreed to respond thereto within sixty days of such
filing. On September 15, 2000, an agreement in principle was reached with
respect to settlement of the purported Hilliard class action litigation. The
settlement is subject to the execution of a definitive settlement agreement and
court approval of that agreement. In the settlement, the Company agreed to make
specific amendments to the PHCR Merger Agreement (see Note 2) and also agreed to
pay attorney's fees and costs to the plaintiff's counsel, subject to court
approval. The other parties to the PHCR Merger Agreement have consented to the
settlement. The defendants' agreement to the settlement does not constitute, and
should not be construed as, an admission that the defendants have any liability
to or acted wrongfully in any way with respect to the plaintiff or any other
person.
CASINO MAGIC BAY ST. LOUIS WRONGFUL DEATH LITIGATION On February 17, 2000, three
Mardi Gras Casino Corp. (dba Casino Magic Bay St. Louis) patrons, after leaving
the casino property, were involved in a vehicular accident which resulted in the
death of two of the individuals and injury to the third. On April 13, 2000, a
lawsuit was filed on behalf of the injured individual and one of the deceased
individuals against Mardi Gras Casino Corp. seeking compensatory damages in the
amount of $2,000,000 and punitive damages, attorney fees, costs and expenses in
the amount of $10,000,000. The suit alleges, among other things, that Mardi Gras
Casino Corp. employees negligently served alcoholic beverages to the three
individuals and the acts and omissions of the employees were the proximate cause
of the accident. The Company has submitted a claim to its insurer under its
general liability insurance policy. The Company 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.
16
<PAGE>
Note 12 - Consolidating Condensed Financial Information
The Company's subsidiaries (excluding Casino Magic Argentina, and until August
15, 2000, Casino Magic of Louisiana, Corp (see Note 10), 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 and nine months ended September 30, 2000 and 1999 and balance
sheets as of September 30, 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>
Balance Sheet
-------------
As of September 30, 2000
Current assets $189,334 $57,266 $8,283 $0 $254,883
Property, plant and equipment, net 24,550 558,437 1,785 0 584,772
Other non-current assets 25,550 72,300 5,931 42,252 146,033
Investment in subsidiaries 522,921 6,749 0 (529,670) 0
Inter-company 160,436 98,336 0 (258,772) 0
------- ------ - --------- -
$922,791 $793,088 $15,999 ($746,190) $985,688
======== ======== ======= ========== ========
Current liabilities 68,588 51,045 1,298 $0 $120,931
Notes payable, long term 495,213 2,646 0 0 497,859
Other non-current liabilities (7,082) 16,762 3,352 (12,206) 826
Inter-company 0 254,172 4,600 (258,772) 0
Equity 366,072 468,463 6,749 (475,212) 366,072
------- ------- ----- --------- -------
$922,791 $793,088 $15,999 ($746,190) $985,688
======== ======== ======= ========== ========
Statement of Operations
-----------------------
For the nine months ended September 30, 2000 Revenues:
Gaming $0 $367,566 $15,722 $0 $383,288
Racing 9,452 0 0 0 9,452
Food and beverage 1,056 22,959 1,214 0 25,229
Equity in subsidiaries 59,841 4,208 0 (64,049) 0
Other 4,657 41,951 99 0 46,707
----- ------ -- - ------
75,006 436,684 17,035 (64,049) 464,676
------ ------- ------ -------- -------
Expenses:
Gaming 0 212,702 4,434 0 217,136
Racing 4,133 0 0 0 4,133
Food and beverage 892 25,027 1,059 0 26,978
Administrative and other 19,954 103,560 4,510 0 128,024
(Gain) loss on disposition of assets (119,718) 336 0 0 (119,382)
Depreciation and amortization 2,645 29,728 1,189 1,107 34,669
----- ------ ----- ----- ------
(92,094) 371,353 11,192 1,107 291,558
-------- ------- ------ ----- -------
Operating income (loss) 167,100 65,331 5,843 (65,156) 173,118
Interest expense (income), net 28,979 2,837 (191) 0 31,625
------ ----- ----- - ------
Income (loss) before minority interests,
taxes and extraordinary item 138,121 62,494 6,034 (65,156) 141,493
Minority interests 0 0 0 0 0
Income tax expense 54,034 0 1,826 0 55,860
------ - ----- - ------
Net income (loss) before
extraordinary item 84,087 62,494 4,208 (65,156) 85,633
Extraordinary item, net of taxes 0 2,653 0 0 2,653
- ----- - - -----
Net income (loss) after
extraordinary item $84,087 $59,841 $4,208 ($65,156) $82,980
======= ======= ====== ========= =======
</TABLE>
17
<PAGE>
Pinnacle Entertainment, Inc.
Consolidating Condensed Financial Information
For the three and nine months ended September 30, 2000 and 1999 and balance
sheets as of
September 30, 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
-------------- ------------ ------------ ------------- --------------
Statement of Operations
-----------------------
For the three months ended September 30, 2000
<S> <C> <C> <C> <C> <C>
Revenues:
Gaming $0 $112,191 $5,502 $0 $117,693
Racing 0 0 0 0 0
Food and beverage 0 7,550 443 0 7,993
Equity in subsidiaries 16,572 1,634 0 (18,206) 0
Other 1,500 14,833 36 0 16,369
------ -------- ------ ------- --------
18,072 136,208 5,981 (18,206) 142,055
------ -------- ------ ------- --------
Expenses:
Gaming 0 66,291 1,390 0 67,681
Racing 0 0 0 0 0
Food and beverage 0 7,602 356 0 7,958
Administrative and other 7,141 36,017 1,466 0 44,624
Gain on disposition of assets (59,941) 0 0 0 (59,941)
Depreciation and amortization 700 8,958 387 369 10,414
------ -------- ------ ------- --------
(52,100) 118,868 3,599 369 70,736
------ -------- ------ ------- --------
Operating income (loss) 70,172 17,340 2,382 (18,575) 71,319
Interest expense (income), net 9,612 (1,885) (61) 0 7,666
------ -------- ------ ------- --------
Income (loss) before minority interests,
taxes and extraordinary item 60,560 19,225 2,443 (18,575) 63,653
Minority interests 0 0 0 0 0
Income tax expense 25,355 0 809 0 26,164
------ -------- ------ ------- --------
Net income (loss) before
extraordinary item 35,205 19,225 1,634 (18,575) 37,489
Extraordinary item, net of taxes 0 2,653 0 0 2,653
------ -------- ------ ------- --------
Net income (loss) after
extraordinary item $35,205 $16,572 $1,634 ($18,575) $34,836
======= ======= ====== ========= =======
<CAPTION>
Statement of Cash Flows
-----------------------
For the nine months ended September 30, 2000
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities ($307,970) $278,247 $2,214 $1,386 ($26,123)
Net cash provided by (used in)
investing activities 403,557 (179,795) (807) 0 222,955
Net cash provided by (used in)
financing activities (6,194) (112,554) 0 0 (118,748)
</TABLE>
18
<PAGE>
Pinnacle Entertainment, Inc.
Consolidating Condensed Financial Information
For the three and nine months
ended September 30, 2000
and 1999 and balance
sheets as of September
30, 2000 and December 31,
1999
(in thousands - unaudited)
<TABLE>
<CAPTION>
(b) (b)
(a) Wholly Non Wholly
Wholly Owned Owned Consolidating Pinnacle
Pinnacle Owned Non- Non- And Entertainment,
Entertainment, Guarantor Guarantor Guarantor Eliminating Inc.
Inc. Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
-------------- ------------ ------------ ------------ ------------- --------------
Statement of Operations
-----------------------
For the three months ended September 30, 1999
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Gaming $9,384 $98,065 $34,484 $5,535 $0 $147,468
Racing 9,975 1,243 0 0 0 11,218
Food and beverage 2,288 7,408 703 385 0 10,784
Equity in subsidiaries 19,623 (8,030) 0 0 (11,593) 0
Other 1,361 12,904 877 43 0 15,185
------- ------- ------ ------ --------- -------
42,631 111,590 36,064 5,963 (11,593) 184,655
------- ------- ------ ------ --------- -------
Expenses:
Gaming 5,191 51,853 22,040 1,476 0 80,560
Racing 4,257 746 0 0 0 5,003
Food and beverage 3,128 8,195 810 339 0 12,472
Administrative and other 9,981 28,881 4,910 1,594 0 45,366
(Gain) on disposition of assets (63,274) 689 0 0 0 (62,585)
Impairment of assets 20,446 0 0 0 0 20,446
Depreciation and amortization 1,632 8,687 2,049 408 371 13,147
------- ------- ------ ------ --------- -------
(18,639) 99,051 29,809 3,817 371 114,409
------- ------- ------ ------ --------- -------
Operating income (loss) 61,270 12,539 6,255 2,146 (11,964) 70,246
Interest expense (income), net 10,434 (197) 4,572 (50) 0 14,759
------- ------- ------ ------ --------- -------
Income (loss) before minority
interests and taxes 50,836 12,736 1,683 2,196 (11,964) 55,487
Minority interests 0 550 0 0 0 550
Income tax expense 28,100 0 0 605 0 28,705
------- ------- ------ ------ --------- -------
Net income (loss) $22,736 $12,186 $1,683 $1,591 ($11,964) $26,232
======= ======= ====== ====== ========= =======
<CAPTION>
For the nine months ended September 30, 1999
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Gaming $33,638 $282,780 $100,603 $15,752 $0 $432,773
Racing 39,714 10,245 0 0 0 49,959
Food and beverage 8,073 21,350 1,992 1,070 0 32,485
Equity in subsidiaries 61,682 36,245 0 0 (97,927) 0
Other 5,161 33,225 2,460 119 0 40,965
------- ------- ------ ------ --------- -------
148,268 383,845 105,055 16,941 (97,927) 556,182
------- ------- ------ ------ --------- -------
Expenses:
Gaming 18,241 151,550 62,997 4,271 0 237,059
Racing 15,843 4,538 0 0 0 20,381
Food and beverage 11,060 23,851 2,305 1,019 0 38,235
Administrative and other 31,248 86,630 14,544 4,608 0 137,030
(Gain) on disposition of assets (63,274) 689 0 0 0 (62,585)
Impairment of assets 20,446 0 0 0 0 20,446
Depreciation and amortization 6,060 25,997 6,003 1,175 1,114 40,349
------- ------- ------ ------ --------- -------
39,624 293,255 85,849 11,073 1,114 430,915
------- ------- ------ ------ --------- -------
Operating income (loss) 108,644 90,590 19,206 5,868 (99,041) 125,267
Interest expense (income), net 31,740 (512) 13,701 (117) 0 44,812
------- ------- ------ ------ --------- -------
Income (loss) before minority
interests and taxes 76,904 91,102 5,505 5,985 (99,041) 80,455
Minority interests 0 1,687 0 0 0 1,687
Income tax expense 36,828 10 0 1,854 0 38,692
------- ------- ------ ------ --------- -------
Net income (loss) $40,076 $89,405 $5,505 $4,131 ($99,041) $40,076
======= ======= ====== ====== ========= =======
</TABLE>
19
<PAGE>
Pinnacle Entertainment, Inc.
Consolidating Condensed Financial Information
For the three and nine months ended September 30, 2000 and 1999 and balance
sheets as of September 30, 2000 and December 31, 1999
(in thousands - unaudited)
<TABLE>
<CAPTION>
(b) (b)
(a) Wholly Non Wholly
Wholly Owned Owned Consolidating Pinnacle
Pinnacle Owned Non- Non- And Entertainment,
Entertainment, Guarantor Guarantor Guarantor Eliminating Inc.
Inc. Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
-------------- ------------ ------------ ------------ ------------ -------------
Statement of Cash Flows
-----------------------
For the nine months ended September 30, 1999
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $4,001 $37,238 $9,051 $2,328 $0 $52,618
Net cash provided by (used in)
investing activities 18,767 (16,130) (2,256) (448) 0 (67)
Net cash provided by (used in)
financing activities 66,538 (14,068) (263) 0 0 52,207
<CAPTION>
(b)
(a) Wholly
Wholly Owned Consolidating Pinnacle
Pinnacle Owned Non- and Entertainment,
Entertainment, Guarantor Guarantor Eliminating Inc.
Inc. Subsidiaries Subsidiaries Entries Consolidated
-------------- ------------ ------------ ------------ --------------
Balance Sheet
As of December 31, 1999
<S> <C> <C> <C> <C> <C>
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. (through
June 13, 2000), 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) and Belterra Resorts LLC. 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. (through August 8, 2000), 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. (through August 8, 2000), 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. (through August 8, 2000) 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.
Jefferson Casino Corporation and Casino Magic of Louisiana, Corp. were
treated as wholly owned guarantors as of, and for the three and nine months
ended September 30, 2000 upon the redemption of the Casino Magic 13% Notes
in August 2000 (see Note 10).
(b) Prior to the redemption of the Casino Magic 13% Notes on August 15, 2000,
(see Note 10), Jefferson Casino Corporation and Casino Magic of Louisiana,
Corp. were wholly owned non-guarantors of the 9.5% and 9.25% Notes. Upon
redemption of the Casino Magic 13% Notes, Jefferson Casino Corporation and
Casino Magic of Louisiana, Corporation became guarantors to the 9.5% and
9.25% Notes (see note (a) above). Prior to October 1999, Casino Magic
Neuquen S.A. and its subsidiary Casino Magic Support Services were
non-wholly owned non-guarantors to the 9.5% and 9.25% Notes. In October
1999, Casino Magic Neuquen S.A. and its subsidiary Casino Magic Support
Services became wholly owned subsidiaries of the Company, but remain
non-guarantors of the 9.5% and 9.25% Notes.
20
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
of Operations
-------------
Forward-Looking Statements and Risk Factors
Except for the historical information contained herein, the matters addressed in
this Quarterly Report on Form 10-Q may constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended. Such
forward-looking statements are subject to a variety of risks and uncertainties
that could cause actual results to differ materially from those anticipated by
the Company's management. Factors that may cause the 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 a pending asset sale transaction (discussed below); the incurrence of
significant cost to complete or the failure to complete (on budget or otherwise)
or successfully to operate planned expansion and development projects (including
the Belterra Casino Resort discussed below); 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; the occurrence of 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 the management board members) (the "Special
Committee") to evaluate and negotiate the proposal. Harveys is an affiliate of
Colony Capital, LLC, 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 (with the management board members abstaining) of the
Company (the "Proposed Merger"). In the Proposed Merger, Pinnacle Acq Corp would
merge into Pinnacle Entertainment and Pinnacle Entertainment would become a
wholly owned subsidiary of PHCR. In addition, in connection with the Proposed
Merger, Harveys would also become a wholly owned subsidiary of PHCR.
On September 15, 2000, the Company, PHCR and Pinnacle Acq Corp executed an
amendment to the Merger Agreement. Such amendment, among other things, extended
the date on which Belterra Casino Resort must be substantially complete and open
to the public from September 15, 2000 to November 15, 2000 (which requirement
was met in October 2000 when the resort opened to the public); increased the
permitted costs associated with the Belterra Casino Resort, in the aggregate,
from $207,000,000 to $217,000,000; extended the outside closing date for the
sale of the surplus land in Inglewood, California from December 31, 2001 to
March 1, 2002; reduced the termination fee required to be paid by the Company,
under certain circumstances, from $25,000,000 to $20,000,000; added a provision
to permit Pinnacle Acq Corp, at its option, to extend the outside closing date
for the Proposed Merger; and eliminated the requirement that a
21
<PAGE>
letter of credit be obtained to secure the surviving entity's obligation to pay
any additional payment in connection with the sale of the Inglewood land (as
described below).
On October 10, 2000, holders of over 78% of the outstanding shares of the
Company approved the Proposed Merger.
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 March 1, 2002 (see Note 4
to the Condensed Notes to Consolidated Financial Statements).
In the event the 97 acres are sold prior to March 1, 2002 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
March 1, 2002, or have been sold, but at a price less than or equal to
$13,054,000, then Pinnacle Entertainment stockholders will not be entitled to
any additional payment. As described in Note 4 to the Condensed Notes to
Consolidated Financial Statements, 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 fully diluted share. There can be no assurances,
however, that such sale of the 97 acres will be completed, or if completed, that
the sales price will exceed $13,054,000.
Consummation of the merger is subject to, among other things, (a) senior
management rolling over $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 (which was
obtained on October 10, 2000); (d) completion of PHCR's financing for the
transaction (for 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 asset
sales (which sales were completed on August 8, 2000 - see Note 3 to the
Condensed Notes to Consolidated Financial Statements) and the opening of the
Belterra Casino Resort prior to November 15, 2000 (Belterra Casino Resort opened
on October 27, 2000 - see Note 6 to the Condensed Notes to Consolidated
Financial Statements) at a cost not exceeding $217,000,000. The Proposed Merger
is expected to close in late 2000, or in the first quarter 2001.
As of September 30, 2000, the Company incurred estimated costs and expenses of
$5,003,000 in connection with the Proposed Merger, including approximately
$2,000,000 in connection with the negotiation and settlement of the Purported
Class Action Lawsuit (which settlement is subject to execution of a definitive
settlement agreement and court approval of that agreement; see Note 11 to the
Condensed Notes to Consolidated Financial Statements), estimated professional
fees in connection with the Special Committee and Board of Directors' evaluation
of the Proposed Merger, estimated fees associated with the preparation and
filing of the proxy material with the Securities and Exchange Commission (the
"SEC"), as well as other transactional expenses. Additional costs have been and
are expected to continue to be incurred after September 30, 2000 relating to the
Proposed Merger. In the event the Proposed Merger is terminated, under certain
circumstances a termination fee of $20,000,000 may be payable by the Company to
Pinnacle Acq Corp, which circumstances are defined in the PHCR Merger Agreement
and related amendments previously filed with the SEC.
BELTERRA CASINO RESORT On October 27, 2000, the Company opened the Belterra
Casino Resort located on 315 acres adjacent to the Ohio River in Switzerland
County, Indiana, which is approximately 45 miles southwest of downtown
Cincinnati, Ohio. The Belterra Casino Resort features a 15-story, 308-room
hotel, a cruising riverboat casino (the Miss Belterra) with approximately 1,800
gaming positions, an 18-hole Tom Fazio-designed championship golf course
(expected to open September 2001), five restaurants, a 1,300-vehicle parking
structure, retail areas and other amenities. The facility also features a
1,500-seat entertainment venue and a spa, both of which are expected to open in
November 2000. The total cash expended on the project, including amounts spent
in prior years, as of September 30, 2000, was
22
<PAGE>
approximately $189,789,000 (including land, buildings, golf course, furniture
and fixtures, boat, organizational expenses, community grants and pre-opening
expenses, but excluding capitalized interest and pre-opening expenses and boat
repair expenses described below, which have been or are expected to be
reimbursed by insurance carriers). The Company expects the cost of the project
will not, and it is a condition to the Proposed Merger that such cost does not,
exceed $217,000,000.
On July 31, 2000, the Company's Miss Belterra riverboat casino was struck by a
barge on the Mississippi River near Caruthersville, Missouri en route to its
berthing site in Southern Indiana. There were no serious injuries to the persons
on the boat or barge. As a result of the accident, the expected August 2000
opening of the Belterra Casino Resort was delayed until late October 2000. The
Company expects that repair costs relating to the riverboat, as well as the
replacement of damaged or lost equipment, will be covered by insurance less a
$425,000 deductible (which was included in pre-opening expenses during the
quarter ended September 30, 2000). At September 30, 2000, the Company recorded
an insurance receivable of $2,890,000 primarily for replacement equipment
relating to the property damage claim.
The Company also maintains business interruption insurance applicable to the
incident, subject to a maximum per-day limitation and a deductible (which was
included in pre-opening expenses during the quarter ended September 30, 2000).
The Company anticipates that such insurance will cover a significant portion of
the additional pre-opening expenses and lost profits of the Belterra Casino
Resort between the date of the accident, July 31, 2000, and October 27, 2000.
The Company has not yet submitted a claim on its business interruption insurance
policy for the pre-opening costs and lost profits during this period and,
accordingly, the precise amount of any recovery on this aspect of the policy has
not yet been determined. At September 30, 2000, the Company recorded an
insurance receivable of $3,606,000 primarily for pre-opening costs incurred
between the scheduled opening date in August 2000 and September 30, 2000 for the
business interruption claim relating to the Miss Belterra accident. Management
believes the business interruption insurance receivable recorded at September
30, 2000 is collectible based on discussions with the insurance carrier and
could ultimately be greater than the amount recorded.
CASINO SALES On August 8, 2000, the Company completed the sale of two of its
casinos in Mississippi, Casino Magic Bay St. Louis and Boomtown Biloxi, to
subsidiaries of Penn National Gaming, Inc. ("Penn National") for $195,000,000 in
cash. Subsidiaries of Penn National purchased all of the operating assets and
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 after tax gain from
this sale was approximately $35,538,000.
23
<PAGE>
Condensed results of operations before income taxes for the Casino Magic Bay St.
Louis and Boomtown Biloxi casinos from July 1, 2000 to August 8, 2000 (the date
of sale), from January 1, 2000 to August 8, 2000 and for the three and nine
months ended September 30, 1999 are as follows:
<TABLE>
<CAPTION>
For the 39 For the three For the 221 For the nine
days ended months ended days ended months ended
August 8, September 30, August 8, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues (a) $ 16,397 $ 39,520 $ 97,203 $119,895
Expenses 13,865 33,109 79,952 99,509
----------- ----------- ----------- -----------
Operating income 2,532 6,411 17,251 20,386
Interest expense, net 8 (9) 90 53
----------- ----------- ----------- -----------
Income before income taxes $ 2,524 $ 6,420 $ 17,161 $ 20,333
=========== =========== =========== ===========
</TABLE>
(a) Revenues for the 221 days ended August 8, 2000 include proceeds from the
settlement of a 1998 business interruption claim of approximately
$1,204,000.
TURF PARADISE SALE On June 13, 2000, the Company completed the sale of Turf
Paradise, including all 275 acres at the Phoenix, Arizona horse racing facility,
to a company owned by a private investor for $53,000,000 in cash. The after tax
gain from this sale was approximately $21,262,000.
Due to the sale of Turf Paradise in June 2000, there were no results of
operations for the three months ended September 30, 2000. The condensed results
of operations before income taxes for Turf Paradise from January 1, 2000 to June
13, 2000 (the date of sale) and for the three and nine months ended September
30, 1999 were:
<TABLE>
<CAPTION>
For the three For the nine
months ended For the 165 days months ended
September 30, ended June 13, September 30,
1999 2000 1999
------------- ---------------- -------------
(in thousands - unaudited)
<S> <C> <C> <C>
Revenues $ 1,414 $10,663 $11,699
Expenses 2,104 7,626 9,524
------------- ------------ -------------
Operating income (690) 3,037 2,175
Interest income 0 49 0
------------- ------------ -------------
Income (loss) before income taxes $ (690) $ 3,086 $ 2,175
============= ============ =============
</TABLE>
LAND SALE On March 24, 2000, the Company announced it had completed the sale of
approximately 42 acres of surplus land in Inglewood, California to Home Depot,
Inc. for $24,200,000 in cash. The after tax gain from this sale was
approximately $15,322,000.
24
<PAGE>
DISPOSITIONS OF HOLLYWOOD PARK RACE TRACK AND HOLLYWOOD PARK-CASINO On September
10, 1999, the Company completed the dispositions of the Hollywood Park Race
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 initial term of the sublease was for a one-year period.
In September 2000, the Company renewed the sublease until the earlier of
December 31, 2001 or the expiration or early termination of the Company's lease
with Churchill Downs.
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 $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
10 to the Condensed Notes to Consolidated Financial Statements). The Hollywood
Park-Casino building will continue to be depreciated over its estimated useful
life. The estimated tax liability on the sales transactions to Churchill Downs
is approximately $22,000,000 and is being paid in 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 three
and nine months ended September 30, 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 before income taxes for the Hollywood Park
Race Track and Hollywood Park-Casino from January 1, 1999 to September 10, 1999
were:
For the 72 For the 254
days ended days ended
September 10, September 10,
1999 1999
------------- --------------
(in thousands - unaudited)
Revenues $ 23,008 $ 86,235
Expenses 20,758 73,019
-------------- --------------
Operating income 2,250 13,216
Interest expense (a) 0 0
-------------- --------------
Income before income taxes $ 2,250 $ 13,216
============== ==============
(a) No interest expense was specifically identified for these operations.
ASSETS HELD FOR SALE Assets held for sale of $12,168,000 at September 30, 2000
consist of 97 acres of surplus land in Inglewood, California. On April 18, 2000,
the Company announced it had entered into an agreement with Casden Properties
Inc. for the sale of the 97 acres for $63,050,000 in cash. 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. On July 31,
2000, the Company announced Casden Properties had completed its due diligence
phase of the transaction and was moving forward with the entitlements necessary
to complete the
25
<PAGE>
transaction. The sale is expected to close in the first or second quarter of
2001 and is expected to generate after tax net cash proceeds in excess of
$41,000,000. No assurances can be given that the sale of the Inglewood land will
be completed on such terms, or at all.
Assets held for sale of $154,649,000 at December 31, 1999 consisted of two
casinos in Mississippi (sold in August 2000), Turf Paradise Race Track in
Arizona (sold in June 2000) and other undeveloped parcels of land (some of which
were sold in March 2000). See Note 3 to the Condensed Notes to Consolidated
Financial Statements for details of assets sold in 2000.
LAKE CHARLES In November 1999, the Company filed an application for the
fifteenth and final gaming license to be issued by the Louisiana Gaming Control
Board. In July 2000, the Company was one of three groups that presented their
proposed projects to the Louisiana Gaming Control Board. The Company's
application is seeking the approval to construct and operate a 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 to any
other applicant. At the July 2000 meeting, the Louisiana Gaming Control Board
indicated that another meeting to address the applications for the license would
be held at such time as the Louisiana State Police shall have completed their
suitability investigations of the applicants; however, the Louisiana Gaming
Control Board did not indicate when the next meeting would be convened.
In connection with the application, Pinnacle Entertainment entered into an
option agreement with the Lake Charles Harbor and Terminal District (the
"District") to lease 225 acres of unimproved land from the District upon which
such resort complex would be constructed. The initial lease option was for a
six-month period ending January 2000, with three six-month renewal options (the
first two of which the Company has exercised), at a cost of $62,500 per
six-month option. If the lease option were exercised, the annual rental payment
would be $815,000, with a maximum annual increase of 5%. The term of the lease
would be for a total of up to 70 years, with an initial term of 10 years and six
consecutive renewal options of 10 years each. The lease would require the
Company to develop certain on- and off- site improvements at the location. If
awarded the license by the Louisiana Gaming Control Board, the Company
anticipates building a resort similar in design and scope to the Belterra Casino
Resort.
REDEMPTION OF CASINO MAGIC 13% NOTES AND EXTRAORDINARY ITEM On August 15, 2000,
the Company redeemed all $112,875,000 of the outstanding Casino Magic 13% Notes
at the redemption price of 106.5%. Upon deposit of principal, premium and
accrued interest for such redemption, Casino Magic of Louisiana satisfied all
conditions required to discharge its obligations under the indenture. In
connection with the redemption, the Company recorded an extraordinary loss of
$2,653,000. The extraordinary loss represents the payment of the redemption
premium and the write-off of deferred finance and premium costs, net of the
related income tax benefit (see Note 10 to the Condensed Notes to Consolidated
Financial Statements).
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.
26
<PAGE>
Results of Operations
On August 8, 2000, the Company completed the sale of Casino Magic Bay St. Louis
and Boomtown Biloxi (the "Mississippi Casinos"), on June 13, 2000, the Company
completed the sale of Turf Paradise, and 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).
In addition, on August 15, 2000, the Company redeemed the Casino Magic 13% Notes
and on October 27, 2000 opened the Belterra Casino Resort. The results of
operations of the Mississippi Casinos, Turf Paradise, Hollywood Park Race Track
and Hollywood Park-Casino are included in the results of operations only until
such dates. Future revenue, operating results and net interest expense will be
materially different due to the disposition and sale of these assets, the
redemption of the Casino Magic 13% Notes and the opening of the Belterra Casino
Resort.
Three months ended September 30, 2000 compared to the three months ended
------------------------------------------------------------------------
September 30, 1999
------------------
Total revenues for the three months ended September 30, 2000 decreased by
$42,600,000, or 23.1%, as compared to the three months ended September 30, 1999.
Contribution to revenues in the three months ended September 30, 2000 from the
Mississippi Casinos was $16,397,000. Contribution to revenues in the three
months ended September 30, 1999 from the Mississippi Casinos, Turf Paradise,
Hollywood Park Race Track and Hollywood Park-Casino was $63,942,000. When
excluding such revenues attributable to operations sold or disposed of for both
periods, total revenues in the three months ended September 30, 2000 increased
by $4,945,000, or 4.1%, when compared to the three months ended September 30,
1999.
Gaming revenues decreased by $29,775,000, or 20.2%, including a decrease of
$30,030,000 due to the timing of the various casino dispositions in 2000 and
1999. When excluding the results of the casino properties sold, gaming revenues
increased by $255,000, or less than 1.0%. Gaming revenues increased at Boomtown
Reno by $1,346,000 and at Casino Magic Bossier City by $2,145,000, while gaming
revenues declined at Boomtown New Orleans by $2,926,000. Boomtown Reno's
increased gaming revenue was primarily due to increased hotel occupancy and new
marketing programs, which translated into an increase in slot coin-in (volume of
slot play) and table game drop (volume of table game play). Casino Magic Bossier
City gaming revenue increased primarily due to upgrading the slot machine
product mix and a change to the overall marketing programs of the property,
which improved slot machine win per day (revenues earned by the casino) 21.1%
during the three months ended September 30, 2000 compared to the three months
ended September 30, 1999. The decline in gaming revenues at Boomtown New Orleans
(table game drop and slot machine win per day were down 13.4% and 14.4%,
respectively, for the three months ended September 30, 2000 compared to the
three months ended September 30, 1999) reflects the continued adverse impact of
the new land-based casino in downtown New Orleans, which casino commenced
operations in late October 30, 1999. Food and beverage revenues decreased by
$2,791,000, or 25.9%, including a decrease of $3,862,000 due to the timing of
the various casino and race track dispositions in 2000 and 1999. When excluding
the results of the casino and race track properties disposed of, food and
beverage revenues increased by $1,071,000, or 18.6%. Food and beverage revenues
increased at Boomtown Reno by $694,000 and at Casino Magic Biloxi by $442,000,
while food and beverage revenues decreased at Casino Magic Bossier City by
$164,000. The increase in food and beverage revenue at Boomtown Reno is
attributed to the improved hotel occupancy, as well as an upgrade of certain of
the food venues at the property. The increase in food and beverage revenue at
Casino Magic Biloxi is attributed to the opening of a remodeled venue, increased
volume at existing venues and moderate pricing increases. The decline in food
and beverage revenue at Casino Magic Bossier City is primarily due to the
overall change in marketing programs. Hotel and recreational vehicle park
revenues increased by $144,000, or 4.1%, including a decrease of $179,000 due to
the timing of the sale of Casino Magic Bay St. Louis. Hotel revenue increased by
$361,000 at Casino Magic Biloxi, while hotel revenue declined by $85,000 at
Casino Magic Bossier City. The increase in hotel revenue at Casino Magic Biloxi
is primarily due to increased hotel occupancy. The decrease in hotel revenue at
Casino Magic Bossier City is primarily due to decreased hotel occupancy in the
third quarter of 2000 versus the third quarter of 1999 and the overall marketing
program. Truck stop and service station revenue increased by $1,243,000, or
21.7%, primarily due to continued increased fuel prices at Boomtown Reno. Racing
revenues declined by
27
<PAGE>
$11,218,000, or 100.0%, entirely due to the disposition of Turf Paradise in June
2000 and the Hollywood Park Race Track in September 1999. Other income decreased
by $203,000, or 3.4%, including a decrease of $1,114,000 due to the timing of
the various casino and race track dispositions in 2000 and 1999. When excluding
the results of the casino and race track properties disposed of, other income
increased by $911,000, or 21.9%, primarily due to an increase in the percentage
of net revenues (as defined in the relevant agreements between the Company and
the Yakama Indian Nation) received from the Yakama Indian Nation.
Total expenses for the three months ended September 30, 2000 decreased by
$43,673,000, or 38.2%, as compared to the three months ended September 30, 1999.
Included in total expenses for the three months ended September 30, 2000, is a
gain on the sale assets of $59,941,000 (see Note 3 to the Condensed Notes to
Consolidated Financial Statements), as well as expenses of $13,865,000
associated with the operations of such assets sold. Included in total expenses
for the three months ended September 30, 1999, is a gain on the sale of assets
of $62,585,000, an impairment loss on the Hollywood Park-Casino of $20,446,000
and expenses of $55,156,000 associated with the operations of the properties
sold or disposed. When excluding such gains, impairment write-downs and other
expenses for both periods, total expenses for the three months ended September
30, 2000 increased by $15,420,000, or 15.2%, as compared to the three months
ended September 30, 1999.
Gaming expenses decreased by $12,879,000, or 16.0%, including $16,186,000 due to
the timing of the various casino dispositions in 2000 and 1999. When excluding
the gaming expenses attributed to such casino properties disposed of, gaming
expenses increased $3,307,000, or 5.9%. Gaming expenses increased at Boomtown
Reno by $736,000, consistent with increased gaming revenue, and at Casino Magic
Bossier City by $1,918,000, consistent with increased gaming revenue and
increased complimentary expenses. Gaming expenses increased $556,000 at Casino
Magic Biloxi, primarily due to increased competition in the Biloxi, Mississippi
gaming market. Food and beverage expenses decreased by $4,514,000, or 36.2%,
including $5,188,000 due to the timing of the various casino and race track
dispositions in 2000 and 1999. When excluding food and beverage expenses
attributable to such casino and race track properties disposed of, food and
beverage expenses increased $674,000, or 10.7%. At Boomtown Reno, food and
beverage expenses increased $268,000, consistent with the overall increase in
food and beverage revenue. At Boomtown New Orleans, food and beverage expenses
increased $147,000, consistent with cost to compete against the land-based
casino that opened in October 1999. At Casino Magic Biloxi, food and beverage
expenses increased $495,000, consistent with the increase in food and beverage
revenue and the overall cost to compete in the Biloxi, Mississippi market. At
Casino Magic Bossier City, food and beverage costs declined $253,000, consistent
with the lower food and beverage revenue. Hotel and recreational vehicle park
expenses decreased by $389,000, or 23.9%, including $90,000 due to the timing of
the sale of Casino Magic Bay St. Louis. Hotel expenses were lower at Casino
Magic Biloxi by $147,000, due to improved cost control measures taken in
response to increased competition in the market, and at Casino Magic Bossier
City by $163,000, consistent with the lower hotel revenue. Truck stop and
service station expenses increased by $1,183,000, or 22.3%, primarily due to
increased fuel costs at Boomtown Reno. Racing expenses decreased by $5,003,000,
or 100.0%, entirely due to the disposition of Turf Paradise in June 2000 and the
Hollywood Park Race Track in September 1999. General and administrative expenses
decreased by $10,304,000, or 30.2%, including a reduction in expenses of
$11,037,000 due to the timing of the various casino and race track dispositions
in 2000 and 1999. When excluding general and administrative expenses
attributable to such casino and race track properties disposed of in 2000 and
1999, general and administrative expenses were up only $733,000, or 3.6%.
Depreciation and amortization decreased by $2,733,000, or 20.8%, including
$2,649,000 due to the timing of the various casino and race track dispositions
in 2000 and 1999. When excluding such casino and race track properties from
depreciation and amortization expenses, depreciation and amortization decreased
by only $84,000, or less than 1%. Pre-opening costs for the Belterra Casino
Resort increased $7,169,000, from $684,000 to $7,853,000, primarily due to the
standard pre-opening costs incurred for a new gaming facility, including hiring
and training employees and marketing costs, and consistent with the opening of
the Belterra Casino Resort on October 27, 2000 (see Note 6 to the Condensed
Notes to Consolidated Financial Statements). The gain on disposition of assets
of $59,941,000 in the three months ended September 30, 2000 is primarily due to
the sale of the Mississippi Casinos in August 2000 (see Note 3 to the Condensed
Notes to Consolidated Financial Statements). The gain on disposition of assets
of
28
<PAGE>
$62,585,000 and impairment write-down of $20,446,000 in the three months ended
September 30, 1999 is primarily due to the disposition of the Hollywood Park
Race Track and Hollywood Park-Casino in September 1999. Proposed merger costs of
$2,878,000 relate to the Proposed Merger with PHCR, including the proposed
settlement of litigation related to the merger (see Note 2 to the Condensed
Notes to Consolidated Financial Statements). Other operating expenses decreased
by $1,279,000, or 35.4%, including a reduction in other operating expenses of
$1,132,000 due to the timing of the various casino and race track dispositions
in 2000 and 1999.
Net interest expense decreased by $7,093,000, or 48.1%, primarily due to the
interest income generated from invested funds in the third quarter of 2000
compared to the same period of 1999, capitalized interest of $3,665,000 in 2000
compared with $123,000 in 1999, and the redemption of the Casino Magic 13% Notes
in August 2000 (see Note 10 to the Condensed Notes to Consolidated Financial
Statements). Income tax expense for the three months ended September 30, 2000 of
$26,164,000 includes approximately $24,828,000 associated with the sale of the
Mississippi Casinos in August 2000, while income tax expense for the three
months ended September 30, 1999 of $28,705,000 includes approximately
$22,000,000 associated with the race track and casino dispositions in September
1999 (see Note 3 to the Condensed Notes to Consolidated Financial Statements).
The extraordinary loss of $2,653,000 for the three months ended September 30,
2000 relates to the redemption of the Casino Magic 13% Notes in August 2000 (see
Note 10 to the Condensed Notes to Consolidated Financial Statements).
Nine months ended September 30, 2000 compared to the nine months ended
----------------------------------------------------------------------
September 30, 1999
------------------
Total revenues for the nine months ended September 30, 2000 decreased by
$91,506,000, or 16.5%, as compared to the nine months ended September 30, 1999.
Contribution to revenues in the nine months ended September 30, 2000 from the
Mississippi Casinos and Turf Paradise was $107,868,000. Contribution to revenues
in the nine months ended September 30, 1999 from the Mississippi Casinos, Turf
Paradise, Hollywood Park Race Track and Hollywood Park-Casino was $217,829,000.
When excluding such revenues for both periods, total revenues in the nine months
ended September 30, 2000 increased by $18,455,000, or 5.5%, when compared to the
nine months ended September 30, 1999.
Gaming revenues decreased by $49,485,000, or 11.4%, including a decrease of
$54,891,000 due to the timing of the various casino dispositions in 2000 and
1999. When excluding the results of the casino properties sold, gaming revenues
increased by $5,406,000, or 1.8%. Gaming revenues increased at Boomtown Reno by
$5,877,000 and at Casino Magic Bossier City by $8,908,000, while gaming revenues
declined at Boomtown New Orleans by $5,943,000 and at Casino Magic Biloxi by
$3,406,000. Boomtown Reno's higher gaming revenue was primarily due to increased
hotel occupancy (occupancy was 89% in 2000 compared to 67% in 1999) and new
marketing programs, which translated into an increase in slot coin-in (volume of
slot play) and table game drop (volume of table game play), as well as better
than normal winter weather during the first quarter of 2000. Casino Magic
Bossier City gaming revenue improved primarily due to upgrading the slot machine
product mix and a change to the overall marketing programs of the property,
which improved slot machine win per day (revenues earned by the casino) 9.3% in
2000 compared to 1999. The decline in gaming revenues at the New Orleans and
Biloxi locations reflect new competition in October 1999 and March 1999,
respectively, in each of the markets. At Boomtown New Orleans, table game drop
and slot machine win per day were down 14.2% and 10.7%, respectively, in 2000
compared to 1999; while at Casino Magic Biloxi, table game drop and slot coin-in
were down 9.1% and 3.0%, respectively, in 2000 compared to 1999. Food and
beverage revenues decreased by $7,256,000, or 22.3%, including a decrease of
$9,900,000 due to the timing of the various casino and race track dispositions
in 2000 and 1999. When excluding the results of the casino and race track
properties disposed of, food and beverage revenues increased by $2,644,000, or
17.2%. Food and beverage revenues increased at Boomtown Reno by $1,892,000 and
Casino Magic Biloxi by $698,000, while food and beverage revenue decreased at
Casino Magic Bossier City by $244,000. The increase in food and beverage revenue
at Boomtown Reno is attributed to the improved hotel occupancy, as well as an
upgrade of certain of the food venues at the property. The increase in food and
beverage revenue at Casino Magic Biloxi is attributed to increased volume from
an additional venue and refurbishing an existing venue in May 2000 and some
pricing increases. The decline in food and beverage revenue at Casino Magic
29
<PAGE>
Bossier City is primarily due to the overall change in marketing programs. Hotel
and recreational vehicle park revenues increased by $790,000, or 8.5%, including
a decrease of $179,000 due to the timing of the sale of Casino Magic Bay St.
Louis. Hotel and recreational vehicle park revenue increased by $369,000 at
Boomtown Reno (consistent with improved hotel occupancy noted above) and by
$937,000 at Casino Magic Biloxi (hotel occupancy increased to 77% in 2000
compared to 71% in 1999), while such revenues decreased by $337,000 at Casino
Magic Bossier City. The decline in hotel revenue at Casino Magic Bossier City is
primarily due to the overall change in marketing programs. Truck stop and
service station revenue increased by $3,092,000, or 23.3%, primarily due to
continued increased fuel prices at Boomtown Reno. Racing revenues declined by
$40,505,000, or 81.1%, entirely due to the disposition of Turf Paradise in June
2000 and the Hollywood Park Race Track in September 1999. Other income increased
by $1,860,000, or 10.1%, including a decrease of $1,344,000 due to the timing of
the various casino and race track dispositions in 2000 and 1999. When excluding
the results of the casino and race track properties disposed of, other income
increased by $3,204,000, or 26.6%, primarily due to an increase in the
percentage of net revenues (as defined in the relavent agreements between the
Company and the Yakama Indian Nation) received from the Yakama Indian Nation, as
well as proceeds from the settlement of a 1998 business interruption insurance
claim.
Total expenses for the nine months ended September 30, 2000 decreased by
$139,357,000, or 32.3%, as compared to the nine months ended September 30, 1999.
Included in total expenses for the nine months ended September 30, 2000, is a
gain on the sale of assets of $119,382,000 (see Note 3 to the Condensed Notes to
Consolidated Financial Statements), as well as expenses of $87,582,000
associated with the operations of such assets sold. Included in total expenses
for the nine months ended September 30, 1999, is a gain on the disposition of
assets of $62,585,000, an impairment loss of $20,446,000 and expenses of
$178,491,000 associated with the operations of the properties sold or disposed.
When excluding such gains, impairment write-down and other expenses, total
expenses for the nine months ended September 30, 2000 increased by $28,795,000,
or 9.8%, as compared to the nine months ended September 30, 1999.
Gaming expenses decreased by $19,923,000, or 8.4%, including $29,025,000 due to
the timing of the various casino dispositions in 2000 and 1999. When excluding
the gaming expenses attributed to such casino properties disposed of, gaming
expenses increased $9,102,000, or 5.7%. Gaming expenses increased at Boomtown
Reno by $2,067,000 and at Casino Magic Bossier City by $6,751,000, consistent
with increased gaming revenues. Gaming expenses were relatively unchanged at
both Boomtown New Orleans and Casino Magic, consistent with the cost to compete
against the increased competition in the respective markets. Food and beverage
expenses decreased by $11,257,000, or 29.4%, including $13,116,000 due to the
timing of the various casino and race track dispositions in 2000 and 1999. When
excluding food and beverage expenses attributed to such casino and race track
properties disposed of, food and beverage expenses increased by $1,859,000, or
10.7%. At Boomtown Reno, food and beverage expenses increased $855,000,
consistent with the overall increase in food and beverage revenue. Food and
beverage expenses increased $180,000 and $1,168,000, at Boomtown New Orleans and
Casino Magic Biloxi, respectively, consistent with the increases in revenue and
overall cost to compete in the respective gaming markets. At Casino Magic
Bossier City, food and beverage costs declined $384,000, consistent with the
lower food and beverage revenue. Hotel and recreational vehicle park expenses
decreased by $151,000, or 3.4%, primarily due to reduced costs at Casino Magic
Bossier City, consistent with the lower hotel revenue. Truck stop and service
station expenses increased by $2,986,000, or 24.5%, primarily due to increased
fuel costs at Boomtown Reno. Racing expenses decreased by $16,246,000, or 79.7%,
entirely due to the disposition of Turf Paradise in June 2000 and the Hollywood
Park Race Track in September 1999. General and administrative expenses decreased
by $25,457,000, or 23.7%, including a reduction in expenses of $24,519,000 due
to the timing of the various casino and race track dispositions in 2000 and
1999. When excluding general and administrative expenses attributed to such
casino and race track dispositions in 2000 and 1999, general and administrative
expenses were down $938,000, or 1.5%. Depreciation and amortization decreased by
$5,680,000, or 14.1%, including $5,574,000 due to the timing of the various
casino and race track dispositions in 2000 and 1999. When excluding such casino
and race track properties from depreciation and amortization expenses,
depreciation and amortization decreased by $106,000, or less than 1%.
Pre-opening costs for the Belterra Casino Resort increased $11,116,000, from
$2,193,000 to $13,309,000, primarily due to the standard pre-opening costs
incurred for a new gaming facility, including hiring and training employees and
marketing costs, and
30
<PAGE>
consistent with the opening of the Belterra Casino Resort on October 27, 2000
(see Note 6 to the Condensed Notes to Consolidated Financial Statements). The
gain on disposition of assets of $119,382,000 is due to the sale of the
Mississippi Casinos in August 2000, the sale of Turf Paradise in June 2000 and
the sale of surplus land in March 2000 (see Note 3 to the Condensed Notes to
Consolidated Financial Statements). The gain on disposition of assets of
$62,585,000 and impairment write-down of $20,446,000 in the nine months ended
September 30, 1999 is primarily due to the disposition of the Hollywood Park
Race Track and Hollywood Park-Casino in September 1999 (see Note 3 to the
Condensed Notes to Consolidated Financial Statements). Proposed merger costs of
$5,003,000 relate to the Proposed Merger with PHCR including the proposed
settlement of litigation relating to the merger (see Note 2 to the Condensed
Notes to Consolidated Financial Statements). Other operating expenses decreased
by $2,503,000, or 23.0%, including a reduction in other operating expenses of
$2,418,000 due to the timing of the various casino and race track dispositions
in 2000 and 1999.
Net interest expense decreased by $13,187,000, or 29.4%, primarily due to the
interest income generated from higher invested funds in 2000 compared to 1999,
and capitalized interest of $6,607,000 in 2000 compared with $968,000 in 1999.
Income tax expense increased $17,168,000, or 44.4%, including income tax of
approximately $48,021,000 recorded in 2000 associated with asset dispositions,
compared to income tax of approximately $22,000,000 recorded in 1999 associated
with asset dispositions (see Note 3 to the Condensed Notes to Consolidated
Financial Statements). The extraordinary loss of $2,653,000 for the nine months
ended September 30, 2000 relates to the redemption of the Casino Magic 13% Notes
in August 2000 (see Note 10 to the Condensed Notes to Consolidated Financial
Statements).
Liquidity, Capital Resources and Other Factors Influencing Future Results
At September 30, 2000, the Company had cash and cash equivalents, all of which
had original maturities within ninety days, of $201,446,000 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 September
30, 2000 (see Note 8 to the Condensed Notes to Consolidated Financial
Statements).
Operating activities used net cash of $26,123,000 in the nine months ended
September 30, 2000 compared with cash provided by operating activities of
$52,618,000 in the first nine months of 1999. This year-over-year change is
largely due to i) a decrease in operating cash flows due to the disposition of
operating units in 1999 and 2000; ii) additional cash used for pre-opening costs
at Belterra Casino Resort ($13,309,000 in the nine months ended September 30,
2000 compared to only $2,193,000 in the same period of 1999); iii) an increase
in other receivables associated with the Miss Belterra property and business
interruption insurance receivables (see Note 6 to the Condensed Notes to
Consolidated Financial Statements); iv) additional cash interest paid in the
nine months ended September 30, 2000 compared to the nine months ended September
30, 1999 (as noted below, the Company issued the 9.5% Notes in February 1999),
as well as the full payout of all contingent interest associated with the Casino
Magic 13% Notes; and, v) the payment of federal and state income taxes in 2000
associated with asset dispositions in 1999 and asset sales in 2000.
Net cash provided by investing activities of $222,955,000 in the nine months
ended September 30, 2000 includes proceeds of $123,428,000 from the maturity of
short term investments and the receipt of $267,234,000 from the sale of
property, plant and equipment (see Note 3 to the Condensed Notes to Consolidated
Financial Statements), offset by the use of cash of $166,425,000 for the
additions of property, plant and equipment (the primary additions attributed to
the Belterra Casino Resort - see Note 6 to the Condensed Notes to Consolidated
Financial Statements). Net cash used in investing activities of $67,000 in the
nine months ended September 30, 1999 included $139,720,000 from the disposition
of the Hollywood Park Race Track and Hollywood Park-Casino in September 1999
(see Note 3 to the Condensed Notes to Consolidated Financial Statements) offset
by the use of cash of $36,250,000 for the addition to property, plant and
equipment and the purchase of short-term investments of $107,459,000.
The net cash used in financing activities in the nine months ended September 30,
2000 of $118,748,000 reflects the redemption of the Casino Magic Bossier City
Notes of $112,875,000 (see Note 10 to the Condensed
31
<PAGE>
Notes to Consolidated Financial Statements), the write-off of the unamortized
premium and debt costs associated with the Casino Magic 13% Notes of $3,340,000
and payments on notes payable of $4,439,000, partially offset by proceeds from
the exercise of common stock options of the Company. As a result of these
payments and the results of operations in 2000, the ratio of debt to equity
improved to 1.37 at September 30, 2000 from 2.23 at December 31, 1999. During
the nine months ended September 30, 1999, net cash provided by financing
activities of $52,207,000 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 10 to the Condensed Notes to Consolidated Financial Statements).
The Company believes that its available cash, cash equivalents, short-term
investments, cash to be generated by assets held for sale and cash flows 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. In
addition, the Company may use its cash 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 (see Note 7 to the Condensed Notes to Consolidated Financial
Statements). 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 Condensed Notes to Consolidated
Financial Statements and "Factors Affecting Future Operating Results" above) be
consummated, new shareholders, Board of Directors and management will operate
the business and there will be a new capital structure. Existing cash, new
borrowing and equity contributions will be utilized to consummate the merger.
Accordingly, the Liquidity and Capital Resources will change. However, the
Company believes that, regardless of whether the Proposed Merger and the
transactions in connection therewith are consummated, the Company will have
sufficient capital through internally generated cash flow, access to unused or
new 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
------------------------------------------------------------------
At September 30, 2000, the Company did not hold any investments in market risk
sensitive instruments of the type described in Item 305 of Regulation S-K.
Part II
Other Information
Item 1. Litigation
------------------
BUS LITIGATION On May 9, 1999, a bus owned and operated by Custom Bus Charters,
Inc. was involved in an accident in New Orleans, Louisiana while en route to
Casino Magic in Bay St. Louis, Mississippi. To date, multiple deaths and
numerous injuries are attributed to this accident and the Company's
subsidiaries, Casino Magic Corp. and/or Mardi Gras Casino Corp., together with
several other defendants (including the State of Louisiana, the manufacturer of
the bus and the doctor who treated the driver of the bus and released him to
return to work), have been named in fifty-four (54) lawsuits, each seeking
unspecified damages due to the deaths and injuries sustained in this accident.
Most of the cases filed in the Louisiana state courts were removed and
consolidated with the cases which were filed and are pending in the United
States District Court for the Eastern District of Louisiana. Casino Magic has
denied liability in the cases. The federal district court entered a case
management/scheduling order which fixes pretrial scheduling deadlines but no
trial date has been set. The proceedings are in the early stages of discovery.
While the Company cannot predict the outcome of the litigation, the Company
believes Casino Magic is not liable for any damages
32
<PAGE>
arising from this accident and the Company, together with its applicable
insurers, which have reserved their rights with respect to insurance coverage
relating to this matter, intend to vigorously defend these actions.
PURPORTED CLASS ACTION LAWSUITS On March 14, 2000, Harbor Finance Partners filed
a purported class action lawsuit in the Chancery Court of the State of Delaware
against the Company and each of its directors, claiming that the defendants
breached their fiduciary duty to the stockholders of the Company by agreeing to
negotiate exclusively with Harveys, an affiliate of Colony Capital, LLC (see
Note 2). On June 2, 2000, the action was dismissed without prejudice.
On March 21, 2000, a similar purported class action lawsuit was filed by Leta
Hilliard in the Superior Court of the State of California. The lawsuit claims
that the Company and its directors failed to undertake an 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 this action and believes that the plaintiff's claims are without merit.
The parties in the Hilliard lawsuit filed a stipulation in which the plaintiff
agreed to file and serve a First Amended Complaint on September 15, 2000 and the
defendants agreed to respond thereto within sixty days of such filing. On
September 15, 2000, an agreement in principle was reached with respect to
settlement of the purported Hilliard class action litigation. The settlement is
subject to the execution of a definitive settlement agreement and court approval
of that agreement. In the settlement, the Company agreed to make specific
amendments to the PHCR Merger Agreement (see Note 2) and also agreed to pay
attorney's fees and costs to the plaintiff's counsel, subject to court approval.
The other parties to the PHCR Merger Agreement have consented to the settlement.
The defendants' agreement to the settlement does not constitute, and should not
be construed as, an admission that the defendants have any liability to or acted
wrongfully in any way with respect to the plaintiff or any other person.
CASINO MAGIC BAY ST. LOUIS WRONGFUL DEATH LITIGATION On February 17, 2000, three
Mardi Gras Casino Corp. (dba Casino Magic Bay St. Louis) patrons, after leaving
the casino property, were involved in a vehicular accident which resulted in the
death of two of the individuals and injury to the third. On April 13, 2000, a
lawsuit was filed on behalf of the injured individual and one of the deceased
individuals against Mardi Gras Casino Corp. seeking compensatory damages in the
amount of $2,000,000 and punitive damages, attorney fees, costs and expenses in
the amount of $10,000,000. The suit alleges, among other things, that Mardi Gras
Casino Corp. employees negligently served alcoholic beverages to the three
individuals and the acts and omissions of the employees were the proximate cause
of the accident. The Company has submitted a claim to its insurer under its
general liability insurance policy. The Company intends to vigorously defend
this action.
ACTIONS BY GREEK AUTHORITIES In 1995, a Dutch subsidiary of Casino Magic
Corporation, Casino Magic Europe B.V. ("CME"), performed management services for
Porto Carras Casino, S.A. ("PCC"), a joint venture in which CME had a minority
interest. Effective December 31, 1995, CME, with the approval of PCC, assigned
its interests and obligations under the PCC management agreement to a Greek
subsidiary, Casino Magic Hellas S.A. ("Hellas"). Hellas issued
invoices to PCC for management fees which accrued during 1995, but had not been
billed by CME.
In September 1996, local Greek tax authorities in Thessaloniki assessed a
penalty of approximately $3,500,000 against Hellas, and an equal amount against
PCC arising out of the presentation and payment of the invoices. The
Thessaloniki tax authorities asserted that the Hellas invoices were fictitious,
representing an effort to reduce the taxable income of PCC. PCC and Hellas each
appealed their respective assessments. PCC's appeal is still pending. Hellas's
appeal was dismissed for technical procedural failures and has not been
reinstated.
The Company believes the assessments are subject to challenge. Under Greek law,
shareholders are not liable for the liabilities of a Greek company in which they
hold shares, even if the entity is later liquidated or dissolved, and
assessments such as these generally are treated as liabilities of the company.
Additionally, all of PCC's stock was sold to an unrelated company in December
1996, and the buyer assumed all of PCC's liabilities.
33
<PAGE>
Earlier this year, Greek authorities issued a warrant to appear at a September
29, 2000 criminal proceeding to Marlin Torguson (a member of the Company's Board
of Directors and Chief Executive Officer of Casino Magic since its inception)
and Robert Callaway (Associate General Counsel for the Company and, prior to its
acquisition by Pinnacle, Casino Magic's General Counsel). They were charged
under Greek law as being culpable criminally for corporate misconduct based
solely on their status as alleged executive board members of PCC. The Company is
advised that they are not, and have never been, managing (active) executive
directors of PCC. Accordingly, the Company believes that they were, therefore,
improperly named in the proceedings.
At the hearing, the judge denied the defendants' request for continuance, and
the defendants were convicted in abstentia. The defendants have a right of
appeal for a de novo trial under Greek law. The Company has been advised that
the resolution of the related civil penalties may sometimes resolve criminal
issues in Greece. The Company is actively working to resolve the civil and
criminal actions related to this matter.
Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
At an Annual Meeting of Stockholders, held September 19, 2000, the meeting was
adjourned until October 10, 2000. At the reconvened meeting on October 10, 2000,
the Company's stockholders approved the following:
Proposal One: Proposal to approve and adopt the agreement and plan of merger by
and between Pinnacle Entertainment, Inc., PH Casino Resorts, Inc. and Pinnacle
Acquisition Corporation, as amended.
Shares % of Shares Outstanding
------ -----------------------
For votes 20,721,466 78.66%
Against votes 104,929 0.40%
Abstain votes 89,136 0.34%
Broker non-votes 3,412,533 12.95%
Proposal Two: Proposal to elect nine (9) directors.
Nominee For votes Against votes
------- --------- -------------
R.D. Hubbard 21,970,561 2,357,503
Paul R. Alanis 24,141,374 186,690
Robert T. Manfuso 24,142,621 185,443
James L. Martineau 24,142,720 185,344
Gary G. Miller 24,142,649 185,415
Michael Ornest 24,142,706 185,358
Timothy J. Parrott 24,141,980 186,084
Lynn P. Reitnouer 24,141,680 186,384
Marlin Torguson 24,142,706 185,358
34
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------
(a) Exhibits:
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 Letter Agreement dated August 22, 2000, among Pinnacle Entertainment, Inc.,
PH Casino Resorts, Inc., and Pinnacle Acquisition Corp., is hereby
incorporated by reference to Annex A1 to the Company's Definitive Proxy
Statement filed August 23, 2000.
2.2 Second Amendment to Agreement and Plan of Merger, dated as of September 15,
2000, among Pinnacle Entertainment, Inc., PH Casino Resorts, Inc., and
Pinnacle Acquisition Corporation, is hereby incorporated by reference to
Annex A to the Company's Proxy Statement Supplement filed September 19,
2000.
2.3* First Amendment to Lease and Agreement by and between Pinnacle
Entertainment, Inc. and Century Gaming Management, Inc., dated September 6,
2000.
11* Statement re Computation of Per Share Earnings
27* Financial Data Schedule
-----
* Filed herewith
(b) Current Reports on Form 8-K:
A Current Report on Form 8-K was filed on August 8, 2000 to report an
accident involving the Company's Miss Belterra riverboat casino and the
effects thereof under the Merger Agreement.
A Current Report on Form 8-K was filed August 22, 2000 to report (i) the
disposition of certain assets, including Casino Magic Bay St. Louis and
Boomtown Biloxi, to Penn National Gaming, Inc., and (ii) the August 8,
2000, press release announcing the completion of the sales to Penn National
Gaming, Inc. The Company's unaudited pro forma consolidated balance sheet
as of June 30, 2000, unaudited pro forma consolidated statement of
operations for the year ended December 31, 1999 and unaudited pro forma
consolidated statement of operations for the six months ended June 30, 2000
were filed therewith.
A Current Report on Form 8-K was filed September 18, 2000 to report the
issuance of a press release on September 15, 2000, in which the Company
announced (i) it had reached an agreement in principle with respect to
settlement of the purported class action lawsuit, (ii) it had amended
certain provisions of the Merger Agreement, and (iii) it would adjourn the
September 19, 2000 annual meeting of stockholders until October 10, 2000.
A Current Report on Form 8-K was filed on October 13, 2000 to report the
issuance of a press release on October 10, 2000, in which the Company
announced that shareholders of the Company approved the proposed merger
with a subsidiary of PH Casino Resorts, Inc., a subsidiary of Harveys
Casino Resorts.
35
<PAGE>
Other Financial Information:
PINNACLE ENTERTAINMENT, INC.
Selected Financial Data by Property
(in thousands, except per share data - unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
---------------------------------------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Boomtown Reno $28,961 $25,558 $72,581 $61,056
Boomtown New Orleans 25,570 28,548 75,532 81,436
Casino Magic Biloxi 24,883 24,280 71,302 71,978
Casino Magic Bossier City 37,816 36,064 113,414 105,055
Casino Magic Argentina 5,981 5,963 17,035 16,941
Card clubs and other 2,447 300 6,944 1,189
Pinnacle Entertainment, Inc. - Corporate 0 0 0 698
------------ ------------ ------------ ------------
125,658 120,713 356,808 338,353
Operations sold or disposed
Boomtown Biloxi 7,253 16,722 41,213 51,415
Casino Magic Bay St. Louis 9,144 22,798 55,990 68,480
Turf Paradise, Inc. 0 1,414 10,665 11,699
Hollywood Park Race Track 0 11,412 0 45,624
Hollywood Park-Casino 0 11,596 0 40,611
------------ ------------ ------------ ------------
142,055 184,655 464,676 556,182
------------ ------------ ------------ ------------
Expenses:
Boomtown Reno 21,184 18,781 56,005 48,797
Boomtown New Orleans 19,166 19,301 55,213 55,041
Casino Magic Biloxi 19,632 17,894 56,000 53,501
Casino Magic Bossier City 28,929 27,760 85,027 79,846
Casino Magic Argentina 3,212 3,409 10,003 9,898
Card clubs and other 96 -87 293 608
Pinnacle Entertainment, Inc. - Corporate 4,280 3,990 13,428 15,512
------------ ------------ ------------ ------------
96,499 91,048 275,969 263,203
Operations sold or disposed
Boomtown Biloxi 5,387 13,533 32,988 41,304
Casino Magic Bay St. Louis 7,646 17,120 41,894 50,827
Turf Paradise, Inc. 0 1,812 7,108 8,635
Hollywood Park Race Track 0 9,118 0 32,345
Hollywood Park-Casino 0 10,086 0 34,198
------------ ------------ ------------ ------------
109,532 142,717 357,959 430,512
------------ ------------ ------------ ------------
Non-recuring income (expenses):
Gain (loss) on disposition of assets, net 59,941 62,585 119,382 62,585
Impairment write-down of Hollywood Park-Casino 0 (20,446) 0 (20,446)
Pre-opening costs, Belterra Resort and Casino (7,853) (684) (13,309) (2,193)
Proposed merger costs (2,878) 0 (5,003) 0
------------ ------------ ------------ ------------
49,210 41,455 101,070 39,946
------------ ------------ ------------ ------------
Subtotal $81,733 $83,393 $207,787 $165,616
</TABLE>
36
<PAGE>
PINNACLE ENTERTAINMENT, INC.
Selected Financial Data by Property - Continued
(in thousands, except per share data - unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
------------------------ -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Subtotal from prior page $81,733 $83,393 $207,787 $165,616
Depreciation and amortization:
Boomtown Reno 1,926 1,840 5,736 5,357
Boomtown New Orleans 1,523 1,465 4,445 4,324
Casino Magic Biloxi 1,673 1,766 5,367 5,252
Casino Magic Bossier City 2,109 2,049 6,313 6,003
Casino Magic Argentina 387 408 1,189 1,175
Card clubs and other 1,020 1,043 3,081 3,349
Pinnacle Entertainment, Inc. - Corporate 944 1,089 2,948 3,707
----------- ----------- ----------- -----------
9,582 9,660 29,079 29,167
Operations sold or disposed
Boomtown Biloxi 386 973 2,227 2,986
Casino Magic Bay St. Louis 446 1,483 2,843 4,392
Turf Paradise, Inc. 0 292 520 889
Hollywood Park Race Track 0 739 0 2,915
----------- ----------- ----------- -----------
10,414 13,147 34,669 40,349
----------- ----------- ----------- -----------
Operating income 71,319 70,246 173,118 125,267
Interest expense, net of interest income 7,666 14,759 31,625 44,812
----------- ----------- ----------- -----------
Income before minority interest, income taxes and extraordinary item 63,653 55,487 141,493 80,455
Minority interests - Casino Magic Argentina 0 550 0 1,687
Income tax expense 26,164 28,705 55,860 38,692
----------- ----------- ----------- -----------
Net income before extraordinary item 37,489 26,232 85,633 40,076
Extraordinary item, net of income tax 2,653 0 2,653 0
----------- ----------- ----------- -----------
Net income after extraordinary item $34,836 $26,232 $82,980 $40,076
=========== =========== =========== ===========
Net income per common share - basic
Net income before extraordinary item - basic $1.42 $1.01 $3.25 $1.55
Extraordinary item, net of income tax - basic (0.10) 0.00 (0.10) 0.00
----------- ----------- ----------- -----------
Net income after extraordinary item - basic $1.32 $1.01 $3.15 $1.55
=========== =========== =========== ===========
Net income per common share - diluted
Net income before extraordinary item - diluted $1.37 $0.98 $3.13 $1.54
Extraordinary item, net of income tax - diluted (0.10) 0.00 (0.10) 0.00
----------- ----------- ----------- -----------
Net income after extraordinary item - diluted $1.27 $0.98 $3.03 $1.54
=========== =========== =========== ===========
Number of shares - basic 26,356 26,045 26,306 25,906
Number of shares - diluted 27,458 26,860 27,369 26,092
</TABLE>
37
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PINNACLE ENTERTAINMENT, INC.
(Registrant)
By: /s/ Paul R. Alanis Dated: November 10, 2000
--------------------------------------
Paul R. Alanis
Chief Executive Officer and President
(Principal Executive Officer)
By: /s/ Bruce C. Hinckley Dated: November 10, 2000
--------------------------------------
Bruce C. Hinckley
Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
38
