<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 6, 1999
HARVEYS CASINO RESORTS
(Exact name of registrant as specified in its charter)
Nevada 1-12802 88-0066882
(State or other jurisdiction (Commission file number) (IRS Employer
of incorporation) Identification Number)
Highway 50 & Stateline Avenue
P. O. Box 128
Lake Tahoe, Nevada 89449
(Address of principal executive offices)
Registrant's telephone number, including area code: (775) 588-2411
Inapplicable
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition of Assets.
On October 20, 1999, Harveys Casino Resorts filed a Form 8-K describing the
acquisition of a greyhound racetrack and land-based casino in Council Bluffs,
Iowa from Iowa West Racing Association, Nonprofit Corporation, an Iowa
nonprofit corporation. At the time of the filing, the financial information
relative to Iowa West Racing Association's interim operation of the racetrack
and casino known as Bluffs Run Casino was not available. As a result, the pro
forma condensed consolidated financial information required by the Securities
Exchange Act of 1934 could not be prepared. The purpose of this Form 8-K/A is
to amend our initial filing with respect to the acquisition of Bluffs Run
Casino and provide the required financial statements and pro forma financial
information.
Item 7. Financial Statements and Exhibits.
See "Index to Financial Statements"
See "Exhibit Index"
<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 hereunto duly authorized.
HARVEYS CASINO RESORTS
(Registrant)
/s/ John J. McLaughlin
- ------------------------------------
John J. McLaughlin
Senior Vice President, Chief Financial
Officer and Treasurer
<PAGE>
EXHIBIT INDEX
Exhibit
NUMBER DESCRIPTION
- ------- -----------
10.1 Purchase and Sale Agreement and Joint Escrow Instructions dated August
31, 1999 by and between HBR Realty Company, Inc., a Nevada corporation
and Iowa West Racing Association, Nonprofit Corporation, an Iowa
nonprofit corporation (1)
23.1 Consent of Arthur Andersen, LLP (2)
-----------------------------------------------
(1) Incorporated herein by reference to Harveys Casino Resorts Current
Report on Form 8-K, filed September 3, 1999
(2) Filed herewith
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Iowa West Racing Association (an Iowa not-for-profit corporation)
Report of Arthur Andersen LLP, Independent Public Accountants ......................... F-2
Statements of Financial Position as of December 31, 1998 and 1997 ..................... F-3
Statements of Activities for the Years Ended December 31, 1998, 1997 and 1996 ......... F-4
Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 ......... F-5
Notes to Financial Statements ......................................................... F-6
Bluffs Run Casino(an operation of Iowa West Racing Association)
Statement of Financial Position as of October 5, 1999 (Unaudited) ..................... F-14
Statements of Activities for the Thirty-nine Week Periods Ended October 5, 1999
and October 3, 1998 (Unaudited) ..................................................... F-15
Statements of Cash Flows for the Thirty-nine Week Period Ended October 5, 1999
and October 3, 1998 (Unaudited) ..................................................... F-16
Notes to Financial Statements (Unaudited) ............................................. F-17
Harveys Casino Resorts
Pro Forma Condensed Consolidated Balance Sheet as of August 31, 1999 (Unaudited) ...... F-20
Pro Forma Condensed Consolidated Statement of Income for the Nine-Months Ended
August 31, 1999 (Unaudited) ......................................................... F-21
Pro Forma Condensed Consolidated Statement of Income for the Year Ended
November 30, 1998 (Unaudited) ....................................................... F-22
Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited) ............ F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Iowa West Racing Association:
We have audited the accompanying statements of financial position of Iowa
West Racing Association (an Iowa not-for-profit corporation) as of December
31, 1998 and 1997, and the related statements of activities and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Association's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Iowa West Racing Association
as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Omaha, Nebraska,
February 22, 1999
F-2
<PAGE>
IOWA WEST RACING ASSOCIATION
STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------------- -------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,773,354 $ 8,337,201
Restricted cash and cash equivalents 1,868,629 1,871,733
Investments 3,021,484 -
Other current assets 1,526,030 1,646,051
------------------- -------------------
12,189,497 11,854,985
------------------- -------------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and improvements 5,510,739 5,350,155
Racing, casino facility and leasehold
improvements 500,947 359,448
Equipment, furniture and fixtures 19,366,631 18,506,927
Construction work in process 34,655 293,756
------------------- -------------------
25,412,972 24,510,286
Less- Accumulated depreciation 13,496,073 9,799,358
------------------- -------------------
11,916,899 14,710,928
------------------- -------------------
PREPAID LICENSE FEES 8,148,164 5,492,924
------------------- -------------------
Total assets $ 32,254,560 $ 32,058,837
=================== ===================
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES:
License fees payable $ 23,757,993 $ 21,765,630
Accounts payable 2,049,830 3,599,206
Accrued expenses 3,481,523 3,555,833
Accrued property taxes 844,348 874,738
------------------- -------------------
30,133,694 29,795,407
------------------- -------------------
DEFERRED PAYABLE TO RELATED PARTY 700,000 700,000
COMMITMENTS AND CONTINGENCIES
NET ASSETS:
Unrestricted 1,420,866 1,563,430
------------------- -------------------
Total liabilities and net assets $ 32,254,560 $ 32,058,837
=================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
IOWA WEST RACING ASSOCIATION
STATEMENTS OF ACTIVITIES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- --------------------- --------------------
<S> <C> <C> <C>
REVENUES:
Casino revenue, net $ 108,539,933 $ 101,780,211 $ 117,313,586
Pari-mutuel revenue 7,231,933 7,948,884 7,419,169
Riverboat revenue 7,392,644 7,532,612 6,401,655
Concessions, food and beverage sales and other 9,272,026 8,699,351 9,640,367
-------------------- --------------------- --------------------
Total revenues 132,436,536 125,961,058 140,774,777
-------------------- --------------------- --------------------
EXPENSES:
Taxes to state and local governments 28,575,158 25,086,395 26,187,851
Management fees 14,259,731 16,019,939 24,111,439
Salaries, wages and benefits 24,728,925 24,055,306 22,857,092
Purchased services 12,575,973 10,826,229 11,139,244
Cost of concessions, food and beverage sales 6,165,687 5,919,364 6,017,595
Greyhound purses 8,567,296 7,528,303 9,134,308
General and administrative 4,422,402 4,521,822 3,858,607
Depreciation 3,716,738 3,341,412 4,160,373
Other 4,706,658 4,370,742 4,018,604
-------------------- --------------------- --------------------
Total operating expenses 107,718,568 101,669,512 111,485,113
-------------------- --------------------- --------------------
NET OPERATING ACTIVITY BEFORE LICENSE FEES
AND INCOME TAXES 24,717,968 24,291,546 29,289,664
-------------------- --------------------- --------------------
OTHER REVENUES (EXPENSES):
Grants, memberships and other (16,164) - 3,800
Interest income 113,151 79,310 644,624
-------------------- --------------------- --------------------
Total other revenues 96,987 79,310 648,424
-------------------- --------------------- --------------------
NET ACTIVITY BEFORE LICENSE FEES AND
INCOME TAXES 24,814,955 24,370,856 29,938,088
LICENSE FEES 24,957,519 24,551,362 30,082,538
-------------------- --------------------- --------------------
NET ACTIVITY BEFORE INCOME TAXES (142,564) (180,506) (144,450)
PROVISION FOR INCOME TAXES - - -
-------------------- --------------------- --------------------
NET ACTIVITY (142,564) (180,506) (144,450)
NET ASSETS, beginning of year 1,563,430 1,743,936 2,036,739
ASSIGNMENT OF WESTFAIR ASSOCIATION - - (196,599)
OTHER - - 48,246
-------------------- --------------------- --------------------
NET ASSETS, end of year $ 1,420,866 $ 1,563,430 $ 1,743,936
==================== ===================== ====================
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
IOWA WEST RACING ASSOCIATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net activity $ (142,564) $ (180,506) $ (144,450)
------------------ ------------------ ------------------
Adjustments to reconcile net activity to net cash
provided by (used in) operating activities-
Depreciation 3,716,738 3,185,971 4,160,373
Prepaid license fees (2,655,240) (1,693,239) (2,317,521)
Other - - 48,247
Changes in current assets and liabilities-
Restricted cash and cash equivalents 3,104 171,942 (271,610)
Other current assets 120,021 (344,402) (687,473)
License fees payable 1,992,363 2,297,208 (12,645,808)
Accounts payable (1,549,376) (1,837,044) 2,239,736
Accrued expenses (74,310) (1,129,015) 604,694
Accrued property taxes (30,390) 251,618 303,922
------------------ ------------------ ------------------
Total adjustments 1,522,910 903,039 (8,565,440)
------------------ ------------------ ------------------
Net cash provided by (used in) operating activities 1,380,346 722,533 (8,709,890)
------------------ ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (922,709) (2,353,522) (3,158,974)
Purchase of investments (3,021,484) - -
Sale of short-term investments - - 13,010,741
------------------ ------------------ ------------------
Net cash provided by (used in) investing activities (3,944,193) (2,353,522) 9,851,767
------------------ ------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit - 2,200,000 -
Repayment on line of credit - (2,200,000) -
------------------ ------------------ ------------------
Net cash provided by (used in) financing activities - - -
------------------ ------------------ ------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,563,847) (1,630,989) 1,141,877
CASH AND CASH EQUIVALENTS, beginning of year 8,337,201 9,968,190 8,826,313
------------------ ------------------ ------------------
CASH AND CASH EQUIVALENTS, end of year $ 5,773,354 $ 8,337,201 $ 9,968,190
================== ================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for
Interest $ - $ 9,236 $ -
Income taxes - - -
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
During 1996, Iowa West distributed its racing and casino facility with a net
book value of $16,757,002 to satisfy a portion of its license fee
payable.
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
IOWA WEST RACING ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
1. ORGANIZATION AND INCOME TAX STATUS:
ORGANIZATION
Iowa West Racing Association (Iowa West) is an Iowa not-for-profit corporation
subject to income taxes which was formed in March 1984, for the primary purpose
of obtaining a license to construct and operate a greyhound racing facility
(Bluffs Run) in Council Bluffs, Iowa. Iowa West obtained a racing license and
commenced greyhound racing in 1986.
During 1994, Iowa West received approval from the Iowa Legislature and the
citizens of Pottawattamie County to expand Bluffs Run activities to casino
operations, primarily slot machines. Iowa West obtained a casino license from
the Iowa State Racing and Gaming Commission (Commission) and began casino
operations in March 1995.
Iowa West operates under the direction of a board of directors (Iowa West
Board), with the day-to-day management of the affairs of Iowa West being the
responsibility of the Executive Director. The Iowa West Board members are
elected from the board of Iowa Wescorp Association (IWA), a nonprofit
organization pursuant to Section 501(c)(3) of the U.S. Internal Revenue Code
(IRC). All of the directors of Iowa West Foundation (IWF) and the majority of
the directors of Southwest Iowa Foundation, Inc. (SWIF), nonprofit organizations
pursuant to Section 501(c)(3) of the IRC, are also elected from the board of
IWA.
All Iowa West racing and casino activities fall under the jurisdiction of the
Commission. The Commission grants racing and casino licenses, approves the
greyhound racing season, approves all major contracts and monitors licensee
operations.
INCOME TAX STATUS
From its inception through December 31, 1994, Iowa West operated under an
exemption from federal income taxes as a nonprofit organization pursuant to
Section 501(c)(4) of the IRC.
In March 1995, Iowa West's operations changed significantly as it expanded into
casino activities. Net operating activity from pari-mutuel and casino activities
operated pursuant to Iowa statutes are considered earned income. As a result,
the Internal Revenue Service has determined that, effective January 1, 1995,
Iowa West is subject to federal and state income taxes.
F-6
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES:
USE OF MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
CASINO REVENUE
In accordance with casino industry practice, Iowa West recognizes as
casino revenue the net win from casino activities. Net win from slot
machine activity equals the total amount dropped from the slot machines,
less total slot machine fills and jackpot payments. Net win from keno
activity equals the total keno written less total keno payments.
PARI-MUTUEL REVENUE
Pari-mutuel commission revenues are derived from a legislated pari-mutuel
commission withheld from total dollars wagered (handle) on-track at
Bluffs Run. During 1998, 1997 and 1996, Iowa West also recognized revenue
from simulcasting its greyhound performances to outside racing facilities
and importing greyhound and horse performances from various outside
racing facilities.
RIVERBOAT REVENUE
As the not-for-profit sponsor of two excursion gambling boats, Iowa West
receives a royalty based upon boat attendance. The excursion gambling
boats commenced operations in January 1996.
TAXES TO STATE AND LOCAL GOVERNMENTS
WAGERING TAXES
Iowa West's casino operations are subject to wagering taxes paid to the
State of Iowa equal to 5 percent on the first $1 million of adjusted
gross receipts (casino net revenues), 10 percent on the next $2 million
of net win and 24 percent on any amount of net win over $3 million in
1998, 22 percent on any amount of net win over $3 million in 1997 and 20
percent on any amount of net win over $3 million in 1996. Beginning
January 1, 1999, the rate on any amount of net win over $3 million will
increase to 26 percent and shall
F-7
<PAGE>
increase by 2 percent each succeeding calendar year until the rate is 36
percent. Of the total wagering taxes paid, 0.5 percent is distributed to
the City of Council Bluffs, 0.5 percent is distributed to Pottawattamie
County and 0.3 percent is distributed to a gamblers assistance fund.
PARI-MUTUEL TAXES
Iowa West's on-track greyhound racing is subject to pari-mutuel taxes.
Three percent of handle is distributed to the State of Iowa, 0.5 percent
of handle is distributed to the City of Council Bluffs and 0.5 percent of
handle is distributed to Pottawattamie County.
ADMISSION FEES
Iowa West pays an admission fee to the State of Iowa for each patron
entering the Bluffs Run facility, with the amount of the fee set by the
Commission.
GREYHOUND PURSES
Iowa West pays purses to greyhound owners, which is the sum of: (a) 4 percent of
Bluffs Run on-track handle, (b) 1 percent of on-track and simulcast handle on
exotic bets on 3 dogs or more (which is paid to the Iowa Breeder Purse Program),
(c) purse paid on simulcasting handle as determined by contract, and (d) a
casino purse supplement. The casino purse supplement totaled approximately
$7,600,000 in 1998, $6,500,000 in 1997, and $4,000,000 in 1996. Iowa West had an
accrual of $530,000 at December 31, 1998, $450,000 at December 31, 1997, and
$4,000,000 at December 31, 1996, for future purse supplements, which were
transferred to an escrow account in January of the following year.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, Iowa West considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
RESTRICTED CASH AND CASH EQUIVALENTS
Due to the completion of the 1998, 1997 and 1996 greyhound racing seasons on or
after the last day of the year, Bluffs Run held a combination of cash and cash
equivalents totaling $926,228 at December 31, 1998, $975,533 at December 31,
1997, and $1,151,324 at December 31, 1996, related to pari-mutuel taxes which
were restricted for distribution to the taxing authorities.
In addition, Iowa West had a restricted cash account totaling $942,401 at
December 31, 1998, $896,201 at December 31, 1997, and $892,351 at December 31,
1996, which was required by the Commission to guarantee the payment of wagering
taxes.
F-8
<PAGE>
INVESTMENTS
Iowa West follows Statement of Financial Accounting Standards No. 124,
"Accounting for Certain Investments Held by Not-For-Profit Organizations," which
requires that investments in equity securities with readily determinable fair
values and all investments in debt securities be reported at fair value, with
gains and losses included in the statement of activities.
Short-term investments at December 31, 1998, consisted entirely of tax-exempt
municipal bonds.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation expense is
determined by the straight-line method using estimated useful lives of 7 to 12
years for the facility improvements and 3 to 7 years for equipment, furniture
and fixtures.
In September 1996, after receiving Commission approval, Iowa West distributed
the racing and casino facility (the Facility) with a net book value of
$16,757,002 to SWIF to satisfy a portion of its license fee payable. In
connection with the transfer of the Facility to SWIF, Iowa West entered into an
agreement with SWIF to lease back the Facility. The lease agreement commenced on
September 1, 1996, and has a term of ten years, with the right to renew the
lease for an additional two years. Under the lease agreement, Iowa West is
required to make an annual basic rental payment of $100,000 on the first day of
the rental year, plus ongoing rental payments every four weeks equal to 3.65
percent of Iowa West's net operating activity. During the term of the lease,
Iowa West is responsible for paying all taxes imposed on or levied against the
Facility or SWIF related to the Facility, is responsible for all repairs to the
Facility and is responsible for maintaining minimum levels of insurance coverage
related to the Facility.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform with the 1998 presentation.
3. MANAGEMENT AGREEMENTS:
In 1984, Iowa West entered into an agency agreement with AIM, Inc. (AIM) and
contracted services from AIM in connection with the financing, acquisition,
construction, equipping, personnel training, opening and management of Bluffs
Run (Management Agreement). From the date racing operations began in 1986
through December 31, 1993, AIM earned a management fee based upon a percentage
of total handle.
F-9
<PAGE>
During 1994, Iowa West and AIM entered into an Amended and Restated Management
Agreement. The scope of the Amended and Restated Management Agreement was
expanded to apply to all racing and casino operations that are permitted at or
in connection with Bluffs Run, including, without limitation, pari-mutuel
wagering on live and simulcast greyhound or horse racing, casino games, slot
machines and any and all other wagering opportunities. The Amended and Restated
Management Agreement does not apply to any arrangement Iowa West makes to
license excursion gambling boats or to develop and utilize any real estate owned
by Iowa West to be used for purposes for which a license is not required by the
Commission and which is not being used for purposes subject to the Amended and
Restated Management Agreement.
Under the Amended and Restated Management Agreement, Iowa West contracted
services from AIM in connection with the financing, acquisition, construction,
equipping, personnel training, opening and management of the new casino
operations. The Amended and Restated Management Agreement has been approved by
the Commission and has a term commencing January 1, 1994, and terminating on
December 31, 2006.
Commencing January 1, 1994, the management fee earned by AIM is based upon the
results of the racing and casino operations. The management fees earned by AIM
related to racing and casino operations totaled $14,259,731 in 1998, $16,019,939
in 1997 and $24,111,439 in 1996.
4. LICENSE FEES:
As a licensee under Iowa statutes, as amended, Iowa West is required to
distribute an amount equal to its taxable income to political subdivisions in
the State of Iowa or to entities located in Pottawattamie County, Iowa,
organized pursuant to Section 501(c)(3) of the IRC. Iowa West recognized license
fees expense of $24,957,519 in 1998, $24,706,803 in 1997 and $30,082,538 in
1996.
The license fees payable at December 31, 1997, of $21,765,630 was distributed
prior to September 15, 1998, and was funded by cash flows from operations. The
license fees payable at December 31, 1998, of $23,757,993 will be distributed
prior to September 15, 1999, and will be funded by any combination of cash flows
from operations and a bank loan.
The prepaid license fees reflected on the accompanying statements of financial
position are the result of timing differences in the recognition of expenses for
financial reporting and tax purposes, primarily depreciation expense. It is
management's opinion that it is more likely than not that the benefits related
to the prepaid license fee will be realized in the future.
5. PROVISION FOR INCOME TAXES:
As indicated in Note 4, Iowa West is required to distribute an amount equal to
its taxable income. As a result, the accompanying financial statements do not
reflect a provision for income taxes.
F-10
<PAGE>
6. EMPLOYEE BENEFIT PLAN:
Commencing January 1, 1996, Iowa West began to administer a 401(k) defined
contribution plan whereby eligible employees may voluntarily contribute up to 15
percent of their annual wages. Iowa West matches 50 percent of participant
contributions up to a maximum of 3 percent of the employees' gross pay. Iowa
West's contributions charged to expense were approximately $201,000 during 1998,
$197,000 during 1997 and $168,000 during 1996.
7. MANAGEMENT AGREEMENT AND RELATED-PARTY TRANSACTIONS:
MANAGEMENT AGREEMENT
In the ordinary course of business, Iowa West has reimbursed AIM for certain
expenses incurred in the operation of Bluffs Run. These expenses totaled
approximately $123,000 in 1998, $218,000 in 1997 and $375,000 in 1996.
PURCHASED GOODS AND SERVICES
In 1987, Bluffs Run became a member of an advertising cooperative and entered
into a contract for advertising services with the cooperative, Venture
Advertising, Inc. (Venture). Certain owners of AIM have financial interests in
Venture and in other race tracks which are members of Venture. The advertising
expense related to the Venture contract totaled approximately $2,246,000 in
1998, $1,783,000 in 1997 and $1,492,000 in 1996. The Iowa West Board believes
that the terms of the Venture contract are no less favorable to Iowa West than
the terms of Iowa West's other advertising contracts.
During 1998 and 1997, Iowa West recognized revenues and expenses from
simulcasting its greyhound performances to or importing greyhound performances
from an outside racing facility in which certain owners of AIM have financial
interests. The Iowa West Board believes that the terms of the simulcasting
agreement are no less favorable to Iowa West than the terms of Iowa West's other
simulcast agreements.
In the ordinary course of business, Iowa West obtains certain goods and/or
services from companies which are affiliated with Board members of Iowa West,
IWA, IWF and SWIF.
Iowa West has purchased a portion of its insurance coverage from a publicly
traded insurance company in which a Board member is an executive officer.
Total expenses associated with the insurance coverage totaled approximately
$840,000 in 1998, $1,421,000 in 1997 and $1,009,000 in 1996. In addition,
Iowa West has utilized the services of this insurance company to administer
a workers' compensation accident reduction program. Total expenses
associated with this program totaled approximately $83,000 in 1998 and
$145,000 in 1997. This relationship is consistent with Iowa West's open
bidding policies.
F-11
<PAGE>
During 1998, 1997 and 1996, Iowa West contracted for human resources
management and consulting services with a company in which a Board member
has an ownership interest. The expense associated with these services
totaled approximately $18,000 in 1998, $42,000 in 1997 and $50,000 in 1996.
After a competitive bidding process in 1996, Iowa West awarded a contract
to renovate the Bluffs Run facility to a construction company in which a
Board member has an ownership interest. During 1997 and 1996, approximately
$2,779,000 and $1,130,000, respectively, was paid to the construction
company, and approximately $148,000 was payable to the construction company
at December 31, 1997. During 1998, approximately $245,000 was paid to the
construction company. In the first quarter of 1998, this Board member's
term was completed. This Board member decided, after serving four
three-year terms, not to stand for re-election.
Iowa West obtains legal services from a law firm in which a Board member
has an ownership interest. The expenses associated with these services
totaled approximately $18,000 in 1998, $13,000 in 1997 and $2,000 in 1996.
Iowa West obtains financial services from area Iowa banks. Certain Board
members of Iowa West or its sister organizations serve on the Board of
Directors or are employed by certain of these banks. The Iowa West Board
believes that the terms of the banking services provided by these banks are
no less favorable to Iowa West than the terms of Iowa West's other banking
relationships.
IOWA WEST FOUNDATION
Iowa West distributed cash in the form of license fees to IWF totaling
approximately $25,620,000 in 1998, $24,012,000 in 1997 and $44,880,000 in 1996.
SOUTHWEST IOWA FOUNDATION
Commencing September 1, 1996, Iowa West is leasing from SWIF the racing and
casino facility (the Facility) where it conducts its operations. Lease expense
recognized by Iowa West related to this lease totaled $804,000 in 1998, $704,000
in 1997 and $337,000 in 1996.
8. COMMITMENTS AND CONTINGENCIES:
PURSE SUPPLEMENTS
Pursuant to the Iowa Code and directives of the Commission to mediate and
arbitrate with the Iowa Greyhound Association, Iowa West has agreed to pay purse
supplements in 1999 that would be equal to 7.25 percent of adjusted gross
receipts less wagering taxes from Iowa West casino operations or $5.5 million,
whichever is greater.
F-12
<PAGE>
MANAGEMENT TERMINATION FEE
Upon termination of the Amended and Restated Management Agreement, at any time
or for any reason, AIM will receive a management termination fee equal to
approximately 40-50 percent of the fair market value of all personal property
acquired by Iowa West during the term of the Amended and Restated Management
Agreement. At December 31, 1998, the net book value of the personal property
which management believes is subject to the management termination fee was
approximately $5,469,000, and the fair market value had not been determined.
Payment of the management termination fee, if any, will reduce license fees that
would otherwise be payable.
In addition, one-half of the initial cash requirements as of the date the casino
operations commenced was funded by and will be paid to AIM as a termination
payment. This amount is reflected as a deferred payable to related party in the
accompanying statements of financial position.
LITIGATION
Iowa West is involved in certain claims and pending litigation arising in the
normal course of business. Management believes the ultimate resolution of these
matters will not have a material adverse effect on the financial condition of
Iowa West.
9. WESTFAIR:
Prior to 1996, Iowa West had an operating agreement and a property/lease
agreement with the Westfair Association which owns and previously operated a
fair and fairgrounds in Pottawattamie County. The operating agreement provided
for Iowa West to pay the mortgage of the Westfair Association and to conduct
fair operations subject to certain conditions. The property/lease agreement
provided for the lease of the fairgrounds property at a nominal cost to Iowa
West.
Effective January 1, 1996, Westfair Association operations and all agreements
were assigned to IWA. As a result, net assets of $196,599 were transferred to
IWA at the beginning of 1996.
10. SUBSEQUENT EVENT (UNAUDITED):
Effective October 6, 1999, Iowa West sold the Bluffs Run facility to HBR
Realty Company, Inc. (HBR Realty), a Nevada corporation and a wholly-owned
subsidiary of Harveys Casino Resorts, for approximately $115 million, with an
additional payment of up to $50 million based upon the results of a required
referendum on the continuation of gaming at parimutuel race tracks to be
decided in 2002 by the voters of Pottawattamie County, Iowa. The purchase
occurred pursuant to a Purchase and Sale Agreement and Joint Escrow
Instructions dated August 31, 1999 (Purchase and Sale Agreement). Immediately
upon closing of the transaction, Iowa West leased back the Bluffs Run
facility from HBR Realty for an initial term of 25 years, pursuant to a Lease
by and between HBR Realty and Iowa West, dated October 5, 1999 (Lease
Agreement).
In addition, pursuant to a Management Agreement by and between Iowa West and
Harveys BR Management Company, Inc. (Harveys BR Management), a Nevada
corporation and wholly-owned subsidiary of Harveys Casino Resorts, dated
October 6, 1999 (Management Agreement), Harveys BR Management assumed
management of Bluffs Run. In a Termination Agreement dated June 15, 1999
(Termination Agreement), Iowa West and AIM agreed to terminate the Amended
and Restated Management Agreement in the event of the execution of the
Purchase and Sale Agreement, the Lease Agreement and the Management
Agreement. Iowa West agreed to pay AIM a management termination fee of $50
million, constituting payment in full of all current and future amounts owed
to AIM and of all amounts due, or that might become due to AIM for the
termination of the Amended and Restated Management Agreement and for any
past, current or future claim by AIM against Iowa West.
F-13
<PAGE>
Bluffs Run Casino
(an operation of Iowa West Racing Association)
Statement of Financial Position
<TABLE>
<CAPTION>
OCTOBER 5
1999
------------------
<S> <C>
ASSETS
Current assets:
Cash $ 8,038,098
Restricted cash 1,760,967
Other current assets 1,039,015
------------------
10,838,080
Property, plant and equipment, at cost:
Land and improvements 5,510,739
Racing, casino facility and leasehold improvements 580,778
Equipment, furniture and fixtures 20,603,443
Construction work in process 594,325
------------------
27,289,285
Less accumulated depreciation (16,696,760)
------------------
10,592,525
------------------
$21,430,605
==================
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable $ 1,256,203
Accrued expenses 5,645,461
Accrued property taxes 712,858
------------------
7,614,522
Deferred payable to related party 700,000
Net assets, unrestricted 13,116,083
------------------
Total liabilities and net assets $21,430,605
==================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-14
<PAGE>
Bluffs Run Casino
(an operation of Iowa West Racing Association)
Statements of Activities
<TABLE>
<CAPTION>
THIRTY-NINE WEEK THIRTY-NINE WEEK
PERIOD ENDED PERIOD ENDED
OCTOBER 5 OCTOBER 3
1999 1998
-------------------------------------
<S> <C> <C>
Revenues:
Casino revenues, net $87,661,972 $83,189,214
Pari-mutuel revenue 5,094,366 5,717,079
Concessions, food and beverage sales and other 6,737,247 7,143,015
-------------------------------------
Total revenues 99,493,585 96,049,308
Expenses:
Taxes to state and local governments 24,460,704 21,827,970
Management fees 10,821,658 11,032,581
Salaries, wages and benefits 19,202,664 18,691,384
Purchased services 10,895,002 9,479,956
Cost of concessions, food and beverage sales 4,555,123 4,714,457
Greyhound purses 5,064,146 6,518,730
General and administrative 2,935,096 2,770,803
Depreciation 3,228,532 3,044,085
Other 3,518,104 3,232,608
-------------------------------------
Total operating expenses 84,681,029 81,312,574
-------------------------------------
Net operating activity before license fees and income taxes 14,812,556 14,736,734
Other revenues (expenses):
Grants, memberships and other 30,709 (414)
Interest income 98,265 72,496
-------------------------------------
128,974 72,082
-------------------------------------
Net activity before license fees and income taxes 14,941,530 14,808,816
Payments to related party 15,120,000 16,500,000
-------------------------------------
Net activity before income taxes (178,470) (1,691,184)
Provision for income taxes - -
-------------------------------------
Net activity (178,470) (1,691,184)
Net assets at beginning of period 13,294,553 16,093,394
-------------------------------------
Net assets at end of period $13,116,083 $14,402,210
=====================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-15
<PAGE>
Bluffs Run Casino
(an operation of Iowa West Racing Association)
Statements of Cash Flows
<TABLE>
<CAPTION>
THIRTY-NINE WEEK THIRTY-NINE WEEK
PERIOD ENDED PERIOD ENDED
OCTOBER 5 OCTOBER 3
1999 1998
-------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net activity $ (178,470) $(1,691,184)
Adjustments to reconcile net activity to net cash provided by
operating activities:
Depreciation 3,228,532 3,044,085
Changes in current assets and liabilities:
Restricted cash and cash equivalents 107,662 50,086
Other current assets (139,832) 519,802
Accounts payable (629,740) 202,578
Accrued expenses 2,093,256 (180,980)
Accrued property taxes (131,490) (409,543)
-------------------------------------
Net cash provided by operating activities 4,349,918 1,534,844
INVESTING ACTIVITIES
Capital expenditures, net (1,914,702) (758,617)
-------------------------------------
Net cash used in investing activities (1,914,702) (758,617)
-------------------------------------
Net increase in cash and cash equivalents 2,435,216 776,227
Cash and cash equivalents at beginning of period 5,602,882 5,436,567
-------------------------------------
Cash and cash equivalents at end of period $8,038,098 $ 6,212,794
=====================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-16
<PAGE>
Bluffs Run Casino
(an operation of Iowa West Racing Association)
Notes to Financial Statements
October 5, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On October 6, 1999, HBR Realty Company, Inc., a Nevada corporation and a
wholly-owned subsidiary of Harvey's Casino Resorts, purchased the greyhound
racetrack and land-based casino in Council Bluffs, Iowa from Iowa West Racing
Association, Nonprofit Corporation, an Iowa nonprofit corporation. The
facilities were purchased pursuant to a Purchase and Sale Agreement and Joint
Escrow Instructions dated August 31, 1999 by and between HBR Realty Company
and Iowa West Racing Association.
The accompanying financial statements present the financial position and
results of activities for the purchased operations of Bluffs Run Casino (an
operation of Iowa West Racing Association). These statements are not intended
to be a complete financial presentation of Iowa West Racing Association.
The financial statements have been prepared without audit. Accordingly,
certain information and footnote disclosures that are normally included in
financial statements that are prepared in accordance with generally accepted
accounting principles are omitted.
All adjustments have been included, consisting only of normal recurring
adjustments, necessary for fair presentation of the financial position and
results of activities and cash flows of Bluffs Run Casino. The results of
activities for interim periods should not be considered indicative of results
for a full fiscal year. These financial statements should be read in
conjunction with the audited financial statements and notes thereto of Iowa
West Racing Association and the pro forma condensed consolidated financial
statements of Harvey's Casino Resorts as of August 31, 1999, found elsewhere
in this report.
LONG-LIVED ASSETS
The carrying amount and related amortization period of long-lived assets are
periodically reviewed. These reviews are conducted whenever current events or
changes in circumstances indicate that an adjustment to the carrying value or
estimated useful life may be necessary. The reviews consist of projection of
the undiscounted amount of cash flow expected over the remaining useful life
of the long-lived asset. If the review indicates the asset is impaired, the
carrying amount of the asset is written-down to its estimated fair value.
F-17
<PAGE>
Bluffs Run Casino
(an operation of Iowa West Racing Association)
Notes to Financial Statements (continued)
2. MANAGEMENT FEES AND PAYMENTS TO RELATED PARTY
According to the provisions of an Amended and Restated Management Agreement
between Iowa West Racing Association and AIM, Inc. (AIM), Iowa West Racing
Association has contracted services from AIM in connection with the
financing, acquisition, construction, equipping, personnel training, opening
and management of the casino operations. The Amended and Restated Management
Agreement has been approved by the Iowa State Racing and Gaming Commission.
The management fee earned by AIM is based upon the results of the racing and
casino operations. The remaining results of activities, after payment of the
management fee, is paid as fees to Iowa West Racing Association.
F-18
<PAGE>
HARVEYS CASINO RESORTS
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the following pro forma condensed consolidated financial statements, and
notes thereto, the words "Harveys", "we", "our" and "us" refer to Harveys
Casino Resorts, a Nevada corporation, and its wholly-owned subsidiaries,
unless the context requires otherwise.
The pro forma condensed consolidated financial statements of Harveys as of
August 31, 1999, for the nine months ended August 31, 1999 and the year ended
November 30, 1998 give effect to:
- Our October 6, 1999 purchase of the greyhound racetrack and
land-based casino in Council Bluffs, Iowa, known as Bluffs Run
Casino, from Iowa West Racing Association, Nonprofit
Corporation.
- Our immediate leaseback of the Bluffs Run Casino facilities to
Iowa West Racing Association for an initial term of 25 years.
- The immediate retention of Harveys BR Management Company,
Inc., a wholly-owned subsidiary of Harveys, by Iowa West
Racing Association to manage the operations of Bluffs Run
Casino.
- Our financing of the acquisition by borrowing $119 million
under an amended and restated credit facility with a group of
banks and the deferral of additional amounts due to Iowa West
Racing Association.
The pro forma condensed consolidated financial statements of Harveys for the
nine months ended August 31, 1999 and the year ended November 30, 1998 also
give effect to:
- The February 2, 1999 merger of Harveys Acquisition Corporation
with and into Harveys.
- The financing of the merger which consisted of the application
of (a) gross proceeds of $75.0 million from the issuance of
shares of Class A and Class B Common Stock, (b) gross proceeds
of $55.0 million from the issuance of 13.5% Series A and
Series B Preferred Stock, (c) borrowings of $145.0 million
under a new bank credit facility and (d) Harveys' available
cash.
Our pro forma condensed consolidated balance sheet gives effect to the Bluffs
Run Casino transactions as if they occurred on August 31, 1999. Our pro forma
condensed consolidated income statements give effect to the Bluffs Run Casino
transactions and the merger transactions as if they occurred on December 1,
1997.
F-19
<PAGE>
HARVEYS CASINO RESORTS
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF AUGUST 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
HARVEYS
CASINO HARVEYS CASINO
RESORTS ADJUSTMENTS RESORTS PRO FORMA
---------- ------------ ------------------
<S> <C> <C> <C>
Cash and cash equivalents $ 26,139 $ 8,278(c) $ 34,417
Restricted cash and cash equivalents 1,726(c) 1,726
Accounts and notes receivable 5,468 706(c) 6,174
Prepaid expenses 3,200 234(c) 3,434
Other current assets 3,677 256(c) 3,933
---------- ------------ ------------------
Total current assets 38,484 11,200 49,684
Property and equipment, net 407,489 28,443(c) 435,932
Deferred financing costs 6,714 2,260(a) 8,974
Goodwill 73,362 73,362
Intangible assets acquired - 100,127(c) 100,127
Other assets 11,825 7(c) 11,832
---------- ------------ ------------------
Total assets $537,874 $142,037 $ 679,911
========== ============ ==================
Accounts payable $ 6,817 $ 2,578(c) $ 9,395
Accrued expenses 29,443 7,021(c) 36,464
Current portion of deferred purchase price - 7,700(b) 7,700
---------- ------------ ------------------
Total current liabilities 36,260 17,299 53,559
Long-term debt 286,646 119,000(a) 405,646
Deferred purchase price - 5,738(b) 5,738
Deferred income taxes 53,993 53,993
Other liabilities 21,818 21,818
---------- ------------ ------------------
Total liabilities 398,717 142,037 540,754
---------- ------------ ------------------
Preferred Stock 59,436 59,436
---------- ------------------
Common Stock 40 40
Additional paid-in capital 74,960 74,960
Retained earnings 4,721 4,721
---------- ------------------
Total stockholders' equity 79,721 79,721
---------- ------------ ------------------
Total liabilities and stockholders' equity $537,874 $142,037 $ 679,911
========== ============ ==================
</TABLE>
F-20
<PAGE>
HARVEYS CASINO RESORTS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED AUGUST 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
(d) Adjustments Harveys
Harveys Bluffs for Bluffs Run Adjustments Casino
Casino Run Casino for 2/2/99 Resorts
Resorts Casino Acquisition Merger Pro Forma
---------- ---------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues
Casino $190,160 $ 87,662 $ $ $277,822
Track - 5,094 5,094
Lodging 28,242 - 28,242
Food and beverage 37,811 6,192 44,003
Other 6,084 546 6,630
Less: promotional allowances (20,641) (579) (21,220)
---------- ---------- ---------
Total net revenues 241,656 98,915 340,571
---------- ---------- ---------
Costs and expenses
Casino 90,340 35,340 125,680
Track - 8,849 8,849
Lodging 9,783 - 9,783
Food and beverage 22,714 9,627 32,341
Other operating 2,528 162 2,690
Selling, general and
administrative 58,979 16,074 (179)(h) 74,874
Depreciation and
amortization 18,028 3,229 4,683(e) 584 (i) 26,524
Business development costs 2,182 - 2,182
Consent fee and merger costs 19,879 - (19,879)(l) -
---------- ---------- -------------- ----------- ---------
Total costs and expenses 224,433 73,281 4,683 (19,474) 282,923
---------- ---------- -------------- ----------- ---------
Operating income 17,223 25,634 (4,683) 19,474 57,648
---------- ---------- -------------- ----------- ---------
Other income (expense)
Interest income 410 - (337)(k) 73
Interest expense (18,907) - (6,248)(f) (1,677)(j) (26,832)
Other 54 - 54
---------- ---------- -------------- ----------- ---------
Total other income
(expense) (18,443) - (6,248) (2,014) (26,705)
---------- ---------- -------------- ----------- ---------
Income (loss) before income
taxes and extraordinary items (1,220) 25,634 (10,931) 17,460
30,943
Income tax benefit (provision) (1,984) (8,972) 3,826(g) (5,163)(m) (12,293)
---------- ---------- -------------- ----------- ---------
Income (loss) before
extraordinary item $ (3,204) $ 16,662 $ (7,105) $ 12,297 $ 18,650
========== ========== ============== =========== =========
</TABLE>
F-21
<PAGE>
HARVEYS CASINO RESORTS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED NOVEMBER 30, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
(n) Adjustments Harveys
Harveys Bluffs for Bluffs Run Adjustments Casino
Casino Run Casino for 2/2/99 Resorts
Resorts Casino Acquisition Merger Pro Forma
---------- ---------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues
Casino $244,784 $108,540 $ $ $353,324
Track - 7,232 7,232
Lodging 34,273 - 34,273
Food and beverage 47,079 8,474 55,553
Other 7,111 530 7,641
Less: promotional allowances (23,738) (1,761) (25,499)
---------- ---------- ---------
Total net revenues 309,509 123,015 432,524
---------- ----------- ---------
Costs and expenses
Casino 115,837 44,800 160,637
Track - 10,644 10,644
Lodging 13,710 - 13,710
Food and beverage 30,142 12,489 42,631
Other operating 2,885 226 3,111
Selling, general and
administrative 78,987 19,554 (1,448)(r) 97,093
Depreciation and amortization 20,797 3,717 6,832 (o) 4,019 (s) 35,365
Business development costs 96 - 96
Merger costs 1,218 - (1,218)(v) -
---------- ---------- -------------- ----------- ---------
Total costs and expenses 263,672 91,430 6,832 1,353 363,287
---------- ---------- -------------- ----------- ---------
Operating income 45,837 31,585 (6,832) (1,353) 69,237
---------- ---------- -------------- ----------- ---------
Other income (expense)
Interest income 2,259 - (2,259)(u) -
Interest expense (17,836) - (9,210)(p) (12,851)(t) (39,897)
Other (141) - (141)
---------- ---------- -------------- ----------- ---------
Total other income
(expense) (15,718) - (9,210) (15,110) (40,038)
---------- ---------- -------------- ----------- ---------
Income (loss) before income
taxes 30,119 31,585 (16,042) (16,463) 29,199
Income tax benefit (provision) (11,417) (11,055) 5,615 (q) 5,550 (w) (11,307)
---------- ---------- -------------- ----------- ---------
Net income (loss) $18,702 $ 20,530 $ (10,427) $ (10,913) $ 17,892
========== ========== ============== =========== =========
</TABLE>
F-22
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On October 6, 1999, HBR Realty Company, Inc., a Nevada corporation and a
wholly-owned subsidiary of Harveys, purchased the greyhound racetrack and
land-based casino in Council Bluffs, Iowa from Iowa West Racing Association,
Nonprofit Corporation, an Iowa nonprofit corporation. We purchased the
facilities pursuant to a Purchase and Sale Agreement and Joint Escrow
Instructions dated August 31, 1999 by and between HBR Realty Company and Iowa
West Racing Association. We paid approximately $115 million in cash for the
property on October 6, 1999. Iowa West Racing Association is also entitled to
receive the first $5.0 million of cash flow from Bluffs Run Casino's
operations following the acquisition and $1.35 million of cash flow, payable
every six months in arrears, following the acquisition until the fifth
business day following the date that the results of a required referendum on
the continuation of gaming at pari-mutuel racetracks, to be decided in 2002
by the voters of Pottawattamie County, Iowa, are certified to the County
Auditor of Pottawattamie County. We may be required to pay additional
consideration up to $50 million pending the results of the referendum.
Immediately after closing of the transaction, Harveys leased the Bluffs Run
Casino facilities back to Iowa West Racing Association for an initial term of
25 years pursuant to a Lease by and between HBR Realty Company, Inc., a
Nevada corporation, as Landlord and Iowa West Racing Association, Nonprofit
Corporation, an Iowa nonprofit corporation as Tenant, dated October 5, 1999.
Additionally, Harveys BR Management Company, Inc., a Nevada corporation and a
wholly-owned subsidiary of Harveys, assumed management of Bluffs Run Casino
pursuant to a Management Agreement by and between Harveys BR Management
Company, Inc., a Nevada corporation, and Iowa West Racing Association, an
Iowa nonprofit corporation, dated October 6, 1999. Iowa West Racing
Association continues to hold the pari-mutuel and gaming licenses under Iowa
law. Harveys, through its wholly-owned subsidiaries, receives management fees
and lease income generally equal to the ongoing cash flow from the operations
of Bluffs Run Casino.
Harveys financed the acquisition through borrowings from a group of banks led
by Wells Fargo Bank, National Association. Harveys entered into a letter of
credit agreement to support $45 million of the $50 million in contingent
consideration.
On February 2, 1999, Harveys Acquisition Corporation merged with and into
Harveys. Harveys Acquisition Corporation was formed at the direction of
Colony Investors III, L. P., a Delaware limited partnership, solely for the
purpose of acquiring Harveys. Prior to the merger, Harveys was a publicly
held company. Following the merger, the capital stock of Harveys Acquisition
Corporation became the capital stock of Harveys. Consequently, Colony
Investors III now owns approximately 96% of the common equity interests in
Harveys. The remaining common equity interests are owned by Colony HCR Voteco
LLC, a Delaware limited liability company and by certain members of Harveys'
management. Colony HCR Voteco is an affiliate of Colony Investors III.
Harveys was the surviving corporation in the merger and we are continuing our
business operations as conducted prior to the merger.
F-23
<PAGE>
We accounted for the merger as a purchase. This required us to allocate the
purchase price paid in the merger to the individual assets acquired and
liabilities assumed based on their fair value at the time of the merger.
Our pro forma condensed consolidated financial statements include the
accounts of Harveys and its wholly-owned subsidiaries, and the results of the
operations of Bluffs Run Casino. We eliminated all significant intercompany
accounts and transactions.
These pro forma condensed consolidated financial statements should be read in
conjunction with the audited financial statements, and notes thereto,
appearing in our Annual Report on Form 10-K for the fiscal year ended
November 30, 1998 and the audited financial statements, and the notes
thereto, of Iowa West Racing Association found elsewhere in this report.
These pro forma condensed consolidated financial statements are not
necessarily indicative of the results that we would have reported had such
transactions actually occurred on the date specified, nor are they indicative
of our future results.
The pro forma adjustments are based upon available information and upon
certain assumptions that we believe are reasonable under the circumstances.
Our pro forma condensed consolidated balance sheet as of August 31, 1999
presents adjustments relative to our financing of the acquisition of Bluffs
Run Casino and the preliminary allocation of the purchase price to the assets
and liabilities acquired. We borrowed approximately $119.0 million under an
amended and restated credit facility to finance the approximately $115.0
million cash purchase price, transaction costs of approximately $1.6 million
and debt issuance costs of approximately $2.3 million. We also recorded
approximately $13.4 million of deferred payments due to Iowa West Racing
Association. Our preliminary allocation of the purchase price resulted in
recording approximately $100.1 million of intangible assets. The principal
intangible assets acquired were the right to operate Bluffs Run Casino under
the gaming license held by Iowa West Racing Association and the right to use
the gaming equipment owned by Iowa West Racing Association and located at
Bluffs Run Casino.
Our pro forma condensed consolidated income statement for the nine months
ended August 31, 1999 presents adjustments to include the results of what we
believe will be the continuing operations of Bluffs Run Casino under Harveys
management. We have excluded management fees paid to the previous manager,
payments to related parties and other non-operating revenue. We have included
the results of operations of Bluffs Run Casino for approximately nine months;
the period of January 1, 1999 (the beginning of Bluffs Run Casino's
accounting year) through October 5, 1999 (the day immediately prior to the
acquisition). Our pro forma condensed consolidated income statement for the
year ended November 30, 1998 presents adjustments to include the results of
what we believe will be the continuing operations of Bluffs Run Casino under
Harveys management. We have included the results of operations of Bluffs Run
Casino for the year ended December 31, 1998. Our pro forma condensed
consolidated income statements for the nine months ended August 31, 1999 and
for the year ended November 30, 1998 also present adjustments relative to
additional depreciation and amortization expense as a result of recording the
fair market value of property and
F-24
<PAGE>
equipment acquired and the value of intangible assets acquired, increases to
interest expense as the result of new borrowings to finance the purchase and
the related effect of the foregoing adjustments on our provision for income
taxes.
Our pro forma condensed consolidated statements of income for the nine months
ended August 31, 1999 and for the year ended November 30, 1998 also present
adjustments relative to contractual changes to certain compensation
arrangements pursuant to the merger, additional depreciation and amortization
expense as the result of the recognition of the fair market value of property
and equipment and the recognition of goodwill, changes to interest expense as
a result of the merger financing and the related effect of the foregoing
adjustments on the provision for income taxes. The changes in compensation
arrangements include: (a) the one-time payment of benefits due to three
senior executive officers of Harveys under a supplemental executive
retirement plan and the subsequent cessation of such officers' participation
in the plan, (b) the one-time payment of amounts due to senior executive
officers of Harveys under a long-term incentive plan and the subsequent
cancellation of such plan and (c) the granting to certain executive officers
of Harveys a number of shares of common stock equivalent in the aggregate to
3% of the common stock of Harveys outstanding upon the consummation of the
merger. The changes in interest expense include: (a) additional interest
expense on an amended and restated credit facility, (b) elimination of
interest expense on an existing credit facility, (c) amortization of deferred
financing costs associated with the amended and restated credit facility, (d)
elimination of amortization of deferred financing costs associated with the
existing credit facility, and (e) the reduction in interest expense due to
the amortization of premium recognized on the Harveys 10 5/8% Senior
Subordinated Notes, due 2006 as a result of applying purchase method
accounting. The pro forma condensed consolidated statements of income do not
include the one-time payments due as a result of the contemplated changes in
compensation agreements nor other one-time fees and expenses contemplated to
be paid in connection with the merger.
Adjustments to the Pro Forma Condensed Consolidated Balance Sheet as of
August 31, 1999
(a) To record additional borrowing of approximately $119.0 million and payment
of related debt issuance costs.
(b) To record deferred cash payments due to Iowa West Racing Association.
(c) To record the preliminary allocation of the purchase price to the assets
acquired and liabilities assumed. The preliminary allocation resulted in
the recording of approximately $100.1 million of intangible assets.
Adjustments to the Pro Forma Condensed Consolidated Income Statement for the
Nine Months Ended August 31, 1999
(d) Presents the results of operations for Bluffs Run Casino (an operation of
Iowa West Racing Association) for the period January 1, 1999 (the
beginning of Bluffs Run Casino's accounting year) through October 5, 1999
(the day immediately proceeding the acquisition).
F-25
<PAGE>
(e) To recognize additional depreciation and amortization expense of
approximately $4.7 million related to recording the fair market value of
property and equipment acquired and intangible assets acquired.
(f) To recognize additional interest expense of approximately $6.2 million
related to the additional borrowing to finance the acquisition of Bluffs
Run Casino.
(g) To recognize the effect of the foregoing adjustments on the provision for
income taxes.
(h) To eliminate expenses of approximately $116,000 related to certain
executives ceasing to participate in a supplemental executive
retirement plan. To eliminate expenses of approximately $63,000 related
to the elimination of board fees paid to board members.
(i) To recognize additional depreciation and amortization expense of
approximagely $584,000 related to the step-up in value of property and
equipment to reflect fair market value and the recognition of goodwill to
be amortized over 40 years.
(j) To recognize additional interest expense of approximately $1.7 million as
the net result of additional borrowing as part of the merger financing and
the reduction in interest expense related to the amortization of the
premium recorded on the Senior Subordinated Notes as a result of applying
purchase method accounting.
(k) To eliminate interest income of approximately $337,000 as a result of
using Harveys' available cash in the merger financing.
(l) To eliminate the one-time payments as a result of changes in compensation
agreements and one-time fees and expenses paid in connection with the
merger and merger financing.
(m) To recognize the effect of the foregoing adjustments (excluding the
adjustments which the Company believes will have no effect on income
taxes) on the provision for income taxes.
Adjustments to the Pro Forma Condensed Consolidated Income Statement for the
Year Ended November 30, 1998
(n) Presents the results of operations for Bluffs Run Casino (an operation of
Iowa West Racing Association) for the year ended December 31, 1998.
(o) To recognize additional depreciation and amortization expense of
approximately $6.8 million related to recording the fair market value of
property and equipment acquired and the recording of intangible assets
acquired.
(p) To recognize additional interest expense of approximately $9.2 million
related to the additional borrowing to finance the acquisition of Bluffs
Run Casino.
(q) To recognize the effect of the foregoing adjustments on the provision for
income taxes.
(r) To eliminate expenses of approximately $578,000 related to certain
executives ceasing to participate in a supplemental executive
retirement plan. To eliminate compensation of approximately $968,000
for amounts accrued and expensed related to a long-term incentive plan
than was canceled. To eliminate expenses of approximately $142,000
related to the amortization of the value of restricted stock granted to
Harveys' management. To recognize additional expense of approximately
$464,000 related to the vesting in Harveys' common stock awarded to
certain executives. To eliminate expenses of approximately $224,000
related to the elimination of board fees paid to board members.
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(s) To recognize additional depreciation and amortization expense of
approximately $4.0 million related to the step-up in value of property and
equipment to reflect fair market value and the recognition of goodwill to
be amortized over 40 years.
(t) To recognize additional interest expense of approximately $12.9 million
as the net result of additional borrowing as part of the merger
financing and the reduction in interest expense related to the
amortization of the premium recorded on the Senior Subordinated Notes
as a result of applying purchase method accounting.
(u) To eliminate interest income of approximately $2.3 million as a result of
using Harveys' available cash in the merger financing.
(v) To eliminate the one-time payments for fees and expenses paid in
connection with the merger.
(w) To recognize the effect of the foregoing adjustments (excluding the
adjustments which the Company believes will have no effect on income
taxes) on the provision for income taxes.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 22, 1999, related to Iowa West Racing Association included in
this 8-K/A filing. It should be noted that we have not audited any financial
statements of the Association subsequent to December 31, 1998, or performed any
audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
December 17, 1999
