<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________________
Commission file number 1-12802
HARVEYS CASINO RESORTS
----------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 88-0066882
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Highway 50 & Stateline Avenue
P.O. Box 128
Lake Tahoe, Nevada 89449
------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (775) 588-2411
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
The number of shares outstanding of the registrant's Class A Common Stock, $0.01
par value, was 40,091 and the number of shares outstanding of the registrant's
Class B Common Stock, $0.01 par value, was 4,008,692, each as of October 5,
2000.
1
<PAGE>
HARVEYS CASINO RESORTS
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
August 31, 2000 and November 30, 1999 3
Condensed Consolidated Statements of Operations for the Three
Months Ended August 31, 2000 and 1999, the Nine Months Ended
August 31, 2000, the Period of December 1, 1998 through
February 1, 1999 and the Period of February 2, 1999 (the date
of the Colony/Harveys merger) through August 31, 1999 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended August 31 2000, the Period of December 1, 1998
through February 1, 1999 and the Period of February 2, 1999
(the date of the Colony/Harveys merger) through August 31, 1999 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
</TABLE>
2
<PAGE>
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
August 31, November 30,
2000 1999
---------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 34,328 $ 32,496
Accounts and notes receivable, net 7,804 5,810
Prepaid expenses 3,445 2,228
Other current assets 6,493 6,846
-------- --------
Total current assets 52,070 47,380
Property and equipment (net of accumulated depreciation of
$38,809 and $18,872) 433,731 440,759
Cost in excess of net assets acquired 150,258 155,904
Other assets 21,268 29,876
-------- --------
Total assets $657,327 $673,919
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts and contracts payable $ 6,038 $ 9,752
Accrued expenses 38,948 34,468
-------- --------
Total current liabilities 44,986 44,220
Long-term debt, net of current portion 368,383 400,577
Deferred income taxes 58,091 58,091
Other liabilities 29,070 28,234
-------- --------
Total liabilities 500,530 531,122
-------- --------
Preferred stock, $.01 par value, 1,000,000 shares authorized; 10 Series A and
99,990 Series B 13 1/2% senior redeemable convertible cumulative shares
outstanding (liquidation value $55,000) 67,876 61,442
-------- --------
Stockholders' equity
Common stock, $.01 par value, 20,000,000 shares authorized; 4,048,783
shares issued at August 31, 2000, and 4,018,790 shares issued at
November 30, 1999 40 40
Additional paid-in capital 74,961 74,960
Retained earnings 13,920 6,355
-------- --------
Total stockholders' equity 88,921 81,355
-------- --------
Total liabilities, preferred stock and stockholders' equity $657,327 $673,919
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
February 2,
1999
Predecessor (date of
Company the Colony/
Three Months Nine Months December 1, Harveys merger)
Ended August 31, Ended 1998 to to
------------------------- August 31, February 1, August 31,
2000 1999 2000 1999 1999
--------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Casino $ 100,646 $ 68,301 $ 287,272 $ 41,454 $ 148,705
Racing 1,551 -- 4,683 -- --
Lodging 11,491 10,817 29,106 5,958 22,284
Food and beverage 16,774 14,130 45,671 8,108 29,703
Other 3,064 2,315 7,784 1,271 5,081
Less: Casino promotional allowances (8,547) (7,106) (22,974) (5,003) (15,638)
--------- --------- --------- --------- ---------
Total net revenues 124,979 88,457 351,542 51,788 190,135
--------- --------- --------- --------- ---------
Costs and expenses
Casino 47,131 32,091 136,687 21,146 73,193
Racing 3,104 -- 8,951 -- --
Lodging 3,534 3,480 9,906 1,997 7,785
Food and beverage 11,186 8,117 31,599 4,727 17,988
Other operating 1,513 873 3,326 592 1,960
Selling, general and administrative 24,761 19,036 72,709 13,428 41,795
Depreciation and amortization 9,676 6,518 28,063 3,553 14,476
Development project write-downs -- 33 1,314 130 2,052
Consent fee and Coloy/Harveys merger costs -- -- -- 19,879 --
Proposed merger costs 422 -- 422 -- --
--------- --------- --------- --------- ---------
Total costs and expenses 101,327 70,148 292,977 65,452 159,249
--------- --------- --------- --------- ---------
Operating income (loss) 23, 652 18,309 58,565 (13,664) 30,886
--------- --------- --------- --------- ---------
Other income (expense)
Interest income 38 28 135 338 73
Interest expense (9,509) (6,703) (28,597) (3,016) (15,891)
Other, net (124) 225 (287) 77 (23)
--------- --------- --------- --------- ---------
Total other income (expense) (9,595) (6,450) (28,749) (2,601) (15,841)
--------- --------- --------- --------- ---------
Income (loss) before income taxes,
extraordinary item and the cumulative
effect of an accounting change 14,057 11,859 29,816 (16,265) 15,045
Income tax benefit (provision) (5,978) (4,641) (12,675) 3,904 5,888
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item
and the cumulative effect of an
accounting change 8,079 7,218 17,141 (12,361) 9,157
Loss on early retirement of debt, net
of taxes -- -- -- (869) --
Cumulative effect of an accounting
change, net of taxes -- -- (3,142) -- --
--------- --------- --------- --------- ---------
Net income (loss) $ 8,079 $ 7,218 $ 13,999 $ (13,230) $ 9,157
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
February 2, 1999
Nine Months Predecessor Company (date of Colony
Ended December 1,1998 to /Harveys merger
August 31, 2000 February 1, 1999 to August 31, 1999
--------------- ------------------- ----------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 13,999 $(13,230) $ 9,157
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 28,063 3,553 14,476
Development project write-down 1,314 130 2,052
Amortization of deferred compensation 1,698 88 343
Loss on early retirement of debt, net of tax -- 869 --
Change in income taxes payable 4,665 (3,904) 5,295
Accrual of consent fee and Colony/Harveys
merger costs -- 19,823 --
Other, net (667) (2,478) (3,430)
-------- -------- --------
Net cash provided by operating activities 49,072 4,851 27,893
-------- -------- --------
Cash flows from investing activities
Capital expenditures (13,551) (3,830) (19,068)
Change in construction payables (2,149) (262) 1,913
Proceeds from sale of marketable securities -- 10,000 657
Proceeds from notes receivable -- -- 1,879
Other, net 152 (34) 192
-------- -------- --------
Net cash provided by (used in) investing
activities (15,548) 5,874 (14,427)
-------- -------- --------
Cash flows from financing activities
Net payments under revolving credit facility (31,424) -- (42,264)
Debt issuance and deferred financing costs (268) -- (2,957)
Payment of consent fee and Colony/Harveys
merger costs -- (56) (19,823)
Other, net -- (251) --
-------- -------- --------
Net cash used in financing activities (31,692) (307) (65,044)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 1,832 10,418 (51,578)
Cash and cash equivalents at beginning of period 32,496 67,299 77,717
-------- -------- ---------
Cash and cash equivalents at end of period $ 34,328 $ 77,717 $ 26,139
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the following footnotes, the words, "Company" and "Harveys" refer to Harveys
Casino Resorts, a Nevada corporation, and its wholly-owned subsidiaries unless
the context requires otherwise.
1. BASIS OF PRESENTATION AND CONSOLIDATION
Founded in 1944, Harveys has been engaged in the casino entertainment
industry for over 55 years. On February 2, 1999, Harveys Acquisition
Corporation merged with and into Harveys (the "Colony/Harveys merger").
Harveys was the surviving corporation in the merger and is continuing
business operations as conducted prior to the merger. Harveys Tahoe
Management Company, Inc., a wholly-owned subsidiary, owns and operates
Harveys Resort & Casino on the south shore of Lake Tahoe, Nevada. Harveys
Iowa Management Company, Inc., a wholly-owned subsidiary, is the owner
and operator of Harveys Casino Hotel, a riverboat casino, hotel and
convention center complex in Council Bluffs, Iowa. Harveys
C. C. Management Company, Inc., a wholly-owned subsidiary, owns and operates
Harveys Wagon Wheel Hotel/Casino in Central City, Colorado.
On October 6, 1999, HBR Realty Company, Inc., a wholly-owned subsidiary
of Harveys, purchased the net assets (excluding the gaming equipment) of
Bluffs Run Casino, the greyhound racetrack and casino in Council Bluffs,
Iowa. The facilities were purchased pursuant to a Purchase and Sale
Agreement and Joint Escrow Instructions dated as of August 31, 1999 by
and between HBR Realty Company and Iowa West Racing Association.
Immediately after closing of the transaction, the Bluffs Run Casino
facilities were leased back to Iowa West Racing Association for an
initial term of 25 years. At the same time, Iowa West Racing Association
retained Harveys BR Management Company, Inc., a wholly-owned subsidiary
of Harveys, to manage the operations of Bluffs Run Casino for a minimum
of 25 years. 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.
The Colony/Harveys merger was accounted for as a purchase. This required
an allocation of the purchase price to the individual assets acquired and
liabilities assumed based on their fair value at the time of the merger. As
a result, the consolidated financial statements for the periods after the
merger are presented on a different basis of accounting from those for the
periods before the merger and, therefore, are not directly comparable. The
accompanying condensed consolidated statements of operations and condensed
consolidated statements of cash flows for periods prior to the merger are
captioned as the predecessor company and are shown for informational
purposes.
6
<PAGE>
The October 6, 1999 acquisition of the net assets of Bluffs Run Casino was
accounted for as a purchase. Consequently, the net assets acquired are
included in the condensed consolidated balance sheet based on their fair
value as of the date of acquisition. The condensed consolidated statements
of operations include the revenues and expenses of Bluffs Run Casino for the
periods following the October 6, 1999 acquisition date.
The condensed consolidated financial statements include the accounts of
Harveys and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
The condensed consolidated balance sheet as of November 30, 1999 has been
prepared from the audited financial statements at that date. The
accompanying condensed consolidated financial statements at August 31, 2000
and 1999, have been prepared without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
Certain reclassifications have been made to prior periods to conform to the
current quarter presentation. These reclassifications had no effect on net
income (loss).
All adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of financial condition, results of operations and
cash flows have been included. Results of operations for interim periods
should not be considered to be indicative of results for the full fiscal
year. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report on Form 10- K for the year ended November 30, 1999.
2. PROPOSED MERGER
On April 17, 2000, PH Casino Resorts, a newly formed subsidiary of Harveys
Casino Resorts, entered into a definitive agreement with Pinnacle
Entertainment, Inc. (formerly Hollywood Park, Inc.) pursuant to which PH
Casino Resorts would acquire by merger all of the outstanding capital stock
of Pinnacle. Concurrently with entering into the Pinnacle merger agreement,
PH Casino Resorts entered into a merger agreement with Harveys to enable it
to own both Pinnacle and Harveys as subsidiaries. The Harveys merger
agreement provides that, upon the terms and conditions contained therein,
one of PH Casino Resorts' newly formed wholly owned subsidiaries will be
merged into Harveys with Harveys surviving as one of PH Casino Resorts'
wholly owned subsidiaries. The Harveys merger is subject to the
satisfaction or waiver of certain conditions, including, among others,
the satisfaction or waiver of all conditions to the closing of the
Pinnacle merger.
7
<PAGE>
Pinnacle is a gaming company that owns and operates six casinos in Nevada,
Mississippi, Louisiana and Argentina. Pinnacle also receives lease income
from two card club casinos in the Los Angeles area. Pinnacle is in the
process of constructing a casino resort in southern Indiana.
Upon closing of the merger, PH Casino Resorts will acquire all of the then
outstanding stock of Pinnacle for $24 in cash per fully diluted share.
Additional consideration of up to $1 in cash per fully diluted share may be
payable contingent upon the timing and net after tax proceeds of Pinnacle's
sale of 97 acres of surplus land in Inglewood, California. As a condition to
the proposed transaction, senior management of Pinnacle will contribute $50
million of Pinnacle shares and share equivalents to PH Casino Resorts and
will assume an ongoing role with PH Casino Resorts.
Consummation of the merger is subject to, among other things, regulatory
approvals in the various jurisdictions in which Pinnacle and Harveys conduct
gaming operations, completion of PH Casino Resorts' financing for the
transaction and satisfaction of other conditions precedent, including the
opening of Pinnacle's Indiana casino resort (currently under construction),
substantially in accordance with its current budget, not later than November
15, 2000.
3. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands) as of:
<TABLE>
<CAPTION>
August 31 2000 November 30, 1999
-------------- -----------------
<S> <C> <C>
10 5/8% Senior Subordinated Notes, due 2006 $ 150,000 $ 150,000
Unamortized premium on Senior Subordinated Notes 5,883 6,654
--------- ---------
155,883 156,654
Note payable to banks 212,500 243,923
--------- ----------
$ 368,383 $ 400,577
========= =========
</TABLE>
Senior Subordinated Notes - The indenture governing the senior subordinated
notes contains certain covenants that impose limitations on, among other
things: (i) the incurrence of additional indebtedness by the Company, (ii)
the payment of dividends, (iii) the repurchase of capital stock and the
making of certain other restricted payments and restricted investments (each
defined in the indenture), (iv) mergers, consolidations and sales of assets,
(v) the creation or incurrence of liens on the assets of the Company, and
(vi) transactions by the Company or any of its subsidiaries with affiliates
(as defined in the indenture). These limitations are subject to a number of
qualifications and exceptions as described in the indenture. The Company was
in compliance with these covenants at August 31, 2000.
8
<PAGE>
The premium on the senior subordinated notes is being amortized as a
reduction of interest expense over the remaining term of the notes.
Note Payable to Banks - A second amended and restated credit facility, dated
as of October 5, 1999, provides a revolving loan facility, a swingline
facility that allows borrowing on same- day notice and a letter of credit
facility. The Company can borrow up to $10 million under the swingline
facility. The maximum available under the credit facility, including amounts
outstanding under the swingline facility and letters of credit exposure, was
originally $335 million. The maximum permitted principal balance reduces
quarterly, beginning August 31, 2000 and was $331.7 million on that date.
The credit facility matures and is fully due and payable on September 30,
2004.
At August 31, 2000, the Company had approximately $212.5 million in
outstanding borrowings and approximately $48.5 million in letters of credit
exposure.
Interest on outstanding borrowings accrues at a base rate plus an applicable
margin. The base rate is equal to the higher of the prime rate or the
federal funds rate plus one-half of one percent. The Company may, at its
option and under certain circumstances, elect to pay interest based on the
London Interbank Offered Rate ("LIBOR") plus an applicable margin. The
applicable margins are based on the ratio of total funded debt to earnings
before deductions for interest, taxes, depreciation and amortization
("EBITDA"). The applicable margins are determined quarterly and are subject
to change. At August 31, 2000 the applicable margin relative to the base
rate was 1.00% and the applicable margin relative to the LIBOR was 2.00%.
The Company entered into an interest rate cap agreement, effective March 1,
2000, to reduce the potential impact of increases in interest rates on
variable-rate debt. The notional amount of the interest rate cap agreement
was $48 million on March 1, 2000 and reduces quarterly over the 35 month
term of the agreement. The notional amount at August 31, 2000 was $39.0
million. The agreement entitles the Company to receive from counterparties,
on a monthly basis, the amount, if any, by which the Company's interest
payments on its floating LIBOR- based debt exceeds the amount that would
have been paid if the one-month LIBO rate was capped at 7.5%. The
combination of the interest rate cap agreement and the terms of the credit
facility result in the Company paying interest, on an amount of
variable-rate debt equal to the notional amount of the interest rate cap
agreement, at a variable rate (LIBOR plus 2.00%), not to exceed 9.5%.
The cost of acquiring the interest rate cap agreement is being amortized to
interest expense over the term of the agreement. The unamortized cost is
included in other assets in the condensed consolidated balance sheet.
Amounts receivable under the interest rate cap agreement are recorded as a
reduction of interest expense.
The amounts the banks lend under the credit facility are secured by
substantially all of the Company's assets including a pledge of the capital
stock of its subsidiaries.
9
<PAGE>
The credit facility contains a number of covenants that restrict the ability
of the Company to: (i) dispose of assets, (ii) incur additional
indebtedness, (iii) prepay any of the 10 5/8% senior subordinated notes,
(iv) pay dividends, (v) create liens on assets, (vi) make investments,
loans or advances, (vii) engage in mergers or consolidations, change the
Company's business, engage in certain transactions with affiliates, and
(viii) engage in certain corporate activities. The Company is required to
maintain specified financial ratios and net worth requirements, satisfy
specified financial tests, including interest coverage tests, and
maintain certain levels of annual capital expenditures. At August 31,
2000, the Company was in compliance with these covenants.
4. REDEEMABLE PREFERRED STOCK
At August 31, 2000, the Company had outstanding 10 shares of 13 1/2% Series
A Senior Redeemable Convertible Cumulative Preferred Stock and 99,990 shares
of 13 1/2% Series B Senior Redeemable Convertible Cumulative Preferred
Stock. The Series A Preferred Stock and Series B Preferred Stock each have a
liquidation value of $550 per share. Both series of preferred stock are
entitled to quarterly dividends at an annual rate of 13 1/2% of the
liquidation value. If dividends are not paid in cash when due, they cumulate
and compound at an annual rate of 13 1/2%. The Company must redeem all the
outstanding preferred stock on February 1, 2011, for cash, at the
liquidation value plus any accrued and unpaid dividends, and has the right
to redeem the preferred stock, at any time, at the liquidation value plus
any accrued and unpaid dividends. The Series A and Series B Preferred Stock
are convertible, at any time on or prior to February 1, 2002, into
corresponding shares of Class A and Class B Common Stock. The right of
conversion, as it relates to the Series A and Series B Preferred Stock, only
vests in, and is only exercisable by, the current holders of preferred stock
and their affiliates (as that term is defined in the certificate of
designation that governs the preferred stock). The conversion rate
of common stock per share of preferred stock, in each case, is subject to
customary antidilution adjustments. The conversion of the preferred stock
to common stock would require the approval of all applicable gaming
authorities. At the time of conversion, the Company would have the
option of satisfying any accrued and unpaid dividends due on the preferred
stock being converted by paying cash or issuing additional shares of the
corresponding Class A Common Stock or Class B Common Stock having a market
value equal to the amount of accrued dividends.
On October 3, 2000, the certificate of designation was amended to
establish the conversion rate with respect to the Series A Preferred Stock
at 2,844.6452 shares of common stock per share of preferred stock and
with respect to the Series B Preferred Stock at 28.44929681 shares of
common stock per share of preferred stock.
The certificate of designation contains covenants which: (i) limit the
ability to make restricted payments or investments, (ii) limit
consolidation, merger and the sale of assets, (iii) require the Company to
provide certain financial reports, and (iv) limit business activities. At
August 31, 2000, the Company was in compliance with these covenants.
The combined liquidation value of the Series A Preferred Stock and Series B
Preferred Stock at August 31, 2000 was $55 million. Additionally, on that
date, there were approximately $12.9 million of accrued and unpaid dividends
on the preferred stock.
10
<PAGE>
5. DEVELOPMENT PROJECT WRITE-DOWNS
In the second quarter of fiscal 2000, Harveys reviewed its business
development plans as they related to a proposed resort in Salisbury Beach,
Massachusetts. As a result of that review, the Company abandoned the project
and wrote off approximately $1.3 million of real estate options and
architectural designs. In the second quarter of fiscal 1999, the Company
wrote off approximately $2.0 million related to a proposed casino project in
Las Vegas which the Company chose not to pursue.
6. CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Effective December 1, 1999, the Company adopted Statement of Position
("SOP") 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5 was
issued by the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants and its provisions are effective
for fiscal years beginning after December 15, 1998. SOP 98-5 requires costs
of start-up activities (commonly referred to as preopening costs in the
gaming industry) to be expensed as incurred. The initial effect of adopting
SOP 98-5 is reported as the cumulative effect of a change in accounting
principle. As required, all capitalized preopening costs as of December 1,
1999 were written off. These costs included previously deferred organization
and licensing costs. The write-offs resulted in a charge of approximately
$3.1 million, net of an income tax benefit of approximately $1.4 million.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
In the following discussion, the words "Harveys," "Company," "we," "our," and
"us" refer to Harveys Casino Resorts, a Nevada corporation, and its wholly-owned
subsidiaries, unless the context requires otherwise.
On February 2, 1999, Harveys Acquisition Corporation (an affiliate of Colony
Capital, LLC) merged with and into Harveys (the "Colony/Harveys merger"). The
Company was the surviving corporation in the Colony/Harveys merger and we are
continuing our business operations as conducted prior to the Colony/Harveys
merger. We currently own and operate Harveys Resort & Casino ("Harveys Lake
Tahoe"), Harveys Casino Hotel ("Harveys Council Bluffs") and Harveys Wagon Wheel
("Harveys Colorado"). On October 6, 1999, we purchased the net assets
(excluding the gaming equipment) of, and commenced management of, Bluffs Run
Casino, a facility under license from Iowa West Racing Association. The
following table presents certain operating results for the Company's
properties. For comparative purposes, results for the first nine months of
fiscal 1999 have been presented on a combined nine-month basis by aggregating
the results for the period December 1, 1998 through February 1, 1999 with the
results for the period February 2, 1999 (the date of the Colony/Harveys
merger) through August 31, 1999. The acquisition of Bluffs Run Casino was
accounted for as a purchase and, consequently, the results of operations prior
to the October 6, 1999 acquisition date were not consolidated with those of
Harveys. The three-month and nine-month periods ended August 31, 2000 include
the full operations of Bluffs Run Casino for those periods while the comparable
three and nine-month periods of the prior year do not include any results from
Bluffs Run Casino, thus creating significant variances when comparing 2000's
financial results with those of 1999.
12
<PAGE>
Results of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
August 31, 2000 August 31,1999 August 31, 2000 August 31, 1999
------------------ -------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net Revenues
Harveys Lake Tahoe $ 45,201 $ 42,441 $ 114,328 $ 105,964
Harveys Council Bluffs 31,362 31,054 97,154 92,910
Bluffs Run Casino 34,989 -- 99,495 --
Harveys Colorado 13,427 14,962 40,565 43,049
--------- --------- --------- ---------
$ 124,979 $ 88,457 $ 351,542 $ 241,923
========= ========= ========= =========
Operating Income (Loss)
Harveys Lake Tahoe $ 13,179 $ 12,424 $ 25,409 $ 20,944
Harveys Council Bluffs 5,030 5,945 19,351 19,431
Bluffs Run Casino 7,991 -- 21,220 --
Harveys Colorado 935 2,741 4,160 7,635
Corporate and Development (3,061) (2,801) (11,153) (10,908)
Consent fee and Colony/Harveys
merger costs -- -- -- (19,879)
Proposed merger costs (422) -- (422) --
--------- --------- --------- ---------
$ 23,652 $ 18,309 $ 58,565 $ 17,223
========= ========= ========= =========
EBITDA (1)
Harveys Lake Tahoe $ 16,013 $ 15,013 $ 33,776 $ 28,226
Harveys Council Bluffs 7,610 8,147 26,257 25,555
Bluffs Run Casino 10,639 -- 29,168 --
Harveys Colorado 1,978 3,800 7,263 10,630
Corporate and Development (1,954) (1,996) (6,402) (6,668)
--------- --------- --------- ---------
$ 34,286 $ 24,964 $ 90,062 $ 57,743
========= ========= ========= =========
</TABLE>
Note to the operating results
(1) EBITDA (operating income plus depreciation and amortization and excluding
non-recurring items) should not be construed as an indicator of the
Company's operating performance, or as an alternative to cash flows from
operating activities as a measure of liquidity. We have presented EBITDA
solely as supplemental disclosure because we believe that it allows for a
more complete analysis of results of operations. Because companies do not
calculate EBITDA identically, the presentation of EBITDA herein is not
necessarily comparable to similarly entitled measures of other companies.
EBITDA is not intended to represent and should not be considered more
meaningful than, or an alternative to, measures of operating performance as
determined in accordance with generally accepted accounting principles.
13
<PAGE>
COMPARISON OF THE QUARTER ENDED AUGUST 31, 2000 TO THE QUARTER ENDED AUGUST 31,
1999
Our total net revenues for the third quarter of fiscal 2000 amounted to $125.0
million, an improvement of $36.5 million, or 41.3%, over our net revenues
recorded in the third quarter of fiscal 1999. Excluding the net revenue from
Bluffs Run Casino, our same-store net revenue improved by $1.5 million, or 1.7%.
Our net revenue at Harveys Lake Tahoe increased by $2.8 million, or 6.5% and at
Harveys Council Bluffs by $0.3 million, or 1.0%, while net revenue declined at
Harveys Colorado by $1.5 million, or 10.3 percent.
Our gaming revenues for the third quarter of fiscal 2000 amounted to $100.6
million, including $31.9 million from Bluffs Run Casino, an improvement of $32.3
million, or 47.4%, over the comparable quarter of the prior year. Our same-store
gaming revenue improved by $0.4 million, or 0.6 percent. Gaming revenue at
Harveys Lake Tahoe increased by $1.8 million and at Harveys Council Bluffs by
$0.2 million, while gaming revenues declined at Harveys Colorado by $1.5
million. Harveys Lake Tahoe's increase in gaming revenue was due primarily to an
increase in casino volume and an improved table game hold percentage. The higher
volume of casino activity at Harveys Lake Tahoe was the result of increased room
nights occupied, increased customer head counts and the result of benefiting
from the temporary construction disruption at a major competitor. Harveys
Council Bluffs' gaming revenue improvement was due primarily to increased slot
volume and win. Harveys Colorado's gaming revenue decline was primarily the
result of additional competition in nearby Black Hawk, Colorado. The addition of
Bluffs Run Casino contributed $1.6 million in racing revenue. Our lodging
revenue increased by $0.7 million, or 6.2 percent. The increase in lodging
revenue resulted from increased room nights occupied and improved revenue per
available room at Harveys Lake Tahoe. Our food and beverage revenues increased
by $2.6 million, or 18.7%, including $2.1 million from Bluffs Run Casino. Our
same-store food and beverage revenue improved by $0.6 million, or 4.1%, the
result of increased average checks in the restaurants at Harveys Lake Tahoe and
Harveys Council Bluffs. Other revenue increased by $0.7 million, including $0.2
million from Bluffs Run Casino. Our same-store other revenue improved by $0.5
million, or 21.9 percent.
Including $27.0 million from Bluffs Run Casino, our total expenses for the third
quarter of fiscal 2000 amounted to $101.3 million, an increase of $31.2 million,
or 44.4%, over the comparable quarter of the prior year. Our same-store expenses
increased by $4.2 million, or 6.0%, over the comparable quarter of the prior
year. Our total expenses at Harveys Lake Tahoe increased by $2.0 million, at
Harveys Council Bluffs by $1.2 million and at Harveys Colorado by $0.3 million,
while our total corporate expenses increased by $0.7 million.
Our gaming expenses increased by $15.0 million, or 46.9%, for the third quarter
of fiscal 2000 over the comparable quarter of the prior year. Excluding $13.1
million from Bluffs Run Casino, our same-store gaming expenses increased by $1.9
million, or 5.9 percent. Gaming expenses at Harveys Lake Tahoe increased by $0.5
million, the result of increased promotional expense, at Harveys Council Bluffs
by $0.9 million, the result of increased gaming taxes and promotional expenses,
and at Harveys Colorado by $0.5 million, the result of increases in payroll and
related costs (due to a more competitve labor market), gaming taxes and
promotional expenses. Our food and beverage expenses increased by
14
<PAGE>
$3.1 million, or 37.8%, for the third quarter of fiscal 2000 over the comparable
quarter of the prior year. Excluding $2.6 million from Bluffs Run Casino, our
same-store food and beverage expenses increased by $0.5 million, or 5.9% ,
primarily resulting from increased expenses at Harveys Lake Tahoe. Our selling,
general and administrative expenses increased by $5.7 million, or 30.1%, for the
third quarter of fiscal 2000 over the comparable quarter of the prior year.
Excluding $5.4 million from Bluffs Run Casino, our same-store selling, general
and administrative expenses remained relatively level with the prior year
period. Our depreciation and amortization expenses increased by $3.2 million, or
48.4%, for the third quarter of fiscal 2000 over the comparable quarter of the
prior year. The $3.2 million included an increase of approximately $2.1 million
in the amortization of costs in excess of net assets acquired in the
Colony/Harveys merger and in the acquisition of the net assets of Bluffs Run
Casino. The balance of the increase for the third quarter of fiscal 2000 was
primarily the result of the change in the accounting basis for property and
equipment brought on by the Colony/Harveys merger and additional depreciation
from Bluffs Run Casino. As a result of the Colony/Harveys merger financing and
the 100% financing of the acquisition of the net assets of Bluffs Run Casino,
our average long-term debt during the third quarter of fiscal 2000 was
substantially higher than during the comparable period of fiscal 1999.
Consequently, our interest expense, net of interest income, increased by $2.8
million to $9.5 million.
COMPARISON OF THE NINE MONTHS ENDED AUGUST 31, 2000 TO THE NINE MONTHS ENDED
AUGUST 31, 1999
Our total net revenues for the first nine months of fiscal 2000 amounted to
$351.5 million, including $99.5 million from Bluffs Run Casino, an improvement
of $109.6 million, or 45.3%, over our net revenues recorded in the same period
of fiscal 1999. Excluding the net revenue from Bluffs Run Casino, our same-store
net revenue improved by $10.1 million, or 4.2 percent. Our net revenue at
Harveys Lake Tahoe increased by $8.4 million, or 7.9%, and at Harveys Council
Bluffs by $4.2 million, or 4.6%, while net revenue declined at Harveys Colorado
by $2.5 million, or 5.8 percent.
Our gaming revenues for the first nine months of fiscal 2000 amounted to $287.3
million, including $90.4 million from Bluffs Run Casino, an improvement of $97.1
million, or 51.1%, over the same period of the prior year. Our same-store gaming
revenue improved by $6.7 million. Our gaming revenue at Harveys Lake Tahoe
increased by $5.4 million and at Harveys Council Bluffs by $3.8 million, while
gaming revenues declined at Harveys Colorado by $2.5 million. Harveys Lake
Tahoe's increase in gaming revenue was due primarily to an increase in casino
volume and an improved table game hold percentage. The higher volume of casino
activity at Harveys Lake Tahoe was the result of increased customer head counts
and the result of benefiting from the temporary construction disruption at a
major competitor. Harveys Council Bluffs' gaming revenue improvement was due
primarily to increased slot volume and win. Harveys Colorado's gaming revenue
decline was primarily the result of additional competition in nearby Black Hawk,
Colorado. The addition of Bluffs Run Casino contributed $4.7 million in racing
revenue. Our lodging revenue increased by $0.9 million, or 3.1 percent. The
increase in
15
<PAGE>
lodging revenue resulted primarily from improved revenue per available room at
Harveys Lake Tahoe. Our food and beverage revenues increased by $7.9 million, or
20.8%, including $5.8 million from Bluffs Run Casino. Our same-store food and
beverage revenue improved by $2.1 million, or 5.5 percent. Other revenue
increased by $1.4 million or 22.6%, including $0.5 million from Bluffs Run
Casino. Our same-store other revenue increased by $ 0.9 million, or 14.8
percent.
Our total expenses for the first nine months of fiscal year 2000 amounted to
$293.0 million which included $78.3 million from Bluffs Run Casino, $0.4 million
of costs related to the proposed Pinnacle merger and $1.3 million of business
project write-down. The first nine months of fiscal year 1999 included no costs
from Bluffs Run Casino, $19.9 million of Colony/Harveys merger costs and $2.2
million of business project write-downs. Excluding Bluffs Run Casino, merger
costs, and business project write-downs, comparable expenses in the first nine
months of fiscal 2000 amounted to $213.0 million compared to $202.6 million in
fiscal 1999. Our same-store expenses increased by $10.4 million or 5.1%, over
the same period of the prior year. Our total expenses at Harveys Lake Tahoe
increased by $3.9 million, at Harveys Council Bluffs by $4.3 million and at
Harveys Colorado by $1.0 million, while our total corporate expenses
increased by $1.2 million.
Our gaming expenses increased by $42.3 million, or 44.9%, for the first nine
months of fiscal 2000 over the same period of the prior year. Excluding $38.7
million from Bluffs Run Casino, our same-store gaming expenses increased by $3.6
million, or 3.9 percent. Gaming expenses at Harveys Lake Tahoe increased by $0.4
million, the result of increased gaming taxes and promotional expenses, at
Harveys Council Bluffs by $2.6 million, the result of increased gaming taxes and
promotional expenses and at Harveys Colorado by $0.6 million, primarily the
result of increases in payroll and related costs. Our food and beverage expenses
increased by $8.9 million, or 39.1%, for the first nine months of fiscal 2000
over the same period of the prior year. Excluding $7.5 million from Bluffs Run
Casino, our same-store food and beverage expenses increased by $1.4 million, or
6.0%, resulting from increased expenses at Harveys Lake Tahoe. Our selling,
general and administrative expenses increased by $17.5 million, or 31.7%, for
the first nine months of fiscal 2000 over the same period of the prior year.
Excluding $14.9 million from Bluffs Run Casino, our same-store selling, general
and administrative expenses increased by $2.6 million, or 4.6 percent. Our
depreciation and amortization expenses increased by $10.0 million, or 55.7%, for
the first nine months of fiscal 2000 over the same period of the prior year.
This increase included an increase of approximately $6.7 million of amortization
of costs in excess of net assets acquired in the Colony/Harveys merger and in
the acquisition of the net assets of Bluffs Run Casino. The balance of the
increase for the first nine months of fiscal 2000 was primarily the result of
the change in the accounting basis for property and equipment brought on by the
Colony/Harveys merger and additional depreciation from Bluffs Run Casino. As a
result of the Colony/Harveys merger financing and the 100% financing of the
acquisition of the net assets of Bluffs Run Casino, our average long-term debt
during the first nine months of fiscal 2000 was substantially higher than during
the comparable period of fiscal 1999. Consequently, our interest expense, net of
interest income, increased by $9.7 million to $28.5 million.
16
<PAGE>
Our results for the quarter and nine months ended August 31, 2000 were affected
by other factors, including a development project write-off in the second
quarter and the cumulative effect of a change in accounting principle.
In the second quarter of fiscal 2000, we reviewed our business development plans
as they related to a proposed resort in Salisbury Beach, Massachusetts. As a
result of that review, we abandoned the project and wrote off approximately $1.3
million of real estate options and architectural designs. In the second quarter
of fiscal 1999, we wrote off approximately $2.0 million related to a proposed
casino project in Las Vegas which we chose not to pursue.
Effective December 1, 1999, we adopted Statement of Position 98-5, Reporting on
the Costs of Start-Up Activities. The provisions of this accounting
pronouncement require costs of start-up activities (commonly referred to as
preopening costs in the gaming industry) to be expensed as incurred. The initial
effect upon adoption is reported as the cumulative effect of a change in
accounting principle. As required, we wrote off all capitalized preopening costs
as of December 1, 1999. These costs included previously deferred organization
and licensing costs. The write-off resulted in a charge of approximately $3.1
million, net of an income tax benefit of approximately $1.4 million.
Liquidity and Capital Resources
Our primary source of cash during the first nine months of fiscal 2000 was
approximately $49.1 million of cash flow from operations, compared to
approximately $32.7 million of aggregate cash flow from operations in the first
nine months of the prior fiscal year. We expended approximately $13.6 million on
capital improvements and replacements and paid approximately $2.2 million of
construction payables on our parking structure at Harveys Casino Hotel in
Council Bluffs. We were also able to reduce our outstanding indebtedness under
our credit facility by approximately $31.4 million.
Primarily as a result of the above, our cash and cash equivalents increased by
$1.8 million, from $32.5 million at November 30, 1999 to $34.3 million at August
31, 2000. Additionally, our outstanding debt decreased from $393.9 million at
the end of fiscal 1999 to $362.5 million at August 31, 2000, excluding the
unamortized premium on our senior subordinated notes. Our debt at August 31,
2000 consisted of $150 million of senior subordinated notes and $212.5 million
outstanding under our credit facility.
In addition to our debt, we were obligated at August 31, 2000 for an aggregate
of approximately $67.9 million on our outstanding Series A Preferred Stock and
Series B Preferred Stock and the unpaid dividends accrued thereon.
At August 31, 2000, we also had approximately $48.5 million of standby letters
of credit outstanding, including a $45.0 million irrevocable letter of credit to
support contingent
17
<PAGE>
consideration of up to $50.0 million which may be due as part of the
consideration paid for assets of Bluffs Run Casino. The contingent payment
depends on the results of a referendum to be decided by the voters of
Pottawattamie County, Iowa in November of 2002.
Our credit facility matures and is fully due and payable on September 30, 2004.
The permitted principal balance of the credit facility reduces on a quarterly
basis, beginning August 31, 2000. Given our outstanding balance at August 31,
2000 and our anticipated sources and uses of cash, we do not expect to be
subject to any mandatory principal payment requirements during the next twelve
months. Interest on borrowings outstanding under the credit facility are
payable, at our option, at either LIBOR or an alternative base rate, in each
case plus an applicable margin. In the future, the applicable margins may be
changed, based on the ratio of our total funded debt to EBITDA. The credit
facility contains a number of covenants that, among other things, subject to
applicable gaming approvals, restrict our ability to dispose of assets, incur
additional indebtedness, prepay any principal amount of our $150 million senior
subordinated notes, pay dividends, create liens on assets, make investments,
loans or advances, engage in mergers or consolidations, change the nature of our
business or engage in certain transactions with affiliates and otherwise
restrict certain corporate activities. In addition, under the credit facility,
we are required to maintain specified financial ratios and net worth
requirements, satisfy specified financial tests, including interest coverage
tests, and maintain certain levels of annual capital expenditures. The credit
facility contains events of default customary for facilities of this nature.
Our senior subordinated notes are governed by an indenture and are general
unsecured obligations of the Company, subordinated in right of payment to all
existing and future senior debt of the Company. Interest on the senior
subordinated notes is payable semi-annually on June 1 and December 1 of each
year. The senior subordinated notes mature on June 1, 2006. The senior
subordinated notes are redeemable at our option, in whole or in part, at any
time on or after June 1, 2001 at prices ranging from 105.313% of the principal
amount plus accrued and unpaid interest, to 100% of the principal amount plus
accrued and unpaid interest beginning June 1, 2004 and thereafter. The indenture
contains certain covenants that impose limitations on, among other things, the
incurrence of additional indebtedness, the payment of dividends, the repurchase
of capital stock and the making of certain other restricted payments and
restricted investments (as defined in the indenture), mergers, consolidations
and sales of assets by the Company, the creation or incurrence of liens on the
assets of the Company, and transactions by the Company or any of its
subsidiaries with affiliates (as defined in the indenture). These limitations
are subject to a number of qualifications and exceptions as described in the
indenture.
Our Series A Preferred Stock and Series B Preferred Stock are entitled to
quarterly dividends at an annual rate of 13 1/2% of the $550 per share
liquidation value. To the extent we do not pay the dividends in cash, dividends
will cumulate and compound quarterly at an annual rate of 13 1/2%. The Series A
Preferred Stock and Series B Preferred Stock are subject to mandatory redemption
on February 1, 2011 for cash at the liquidation value plus any accrued and
unpaid dividends. We have the right to redeem the Series A Preferred Stock and
the Series B Preferred Stock at any time for cash at the liquidation value plus
any accrued and unpaid dividends. The certificate of
18
<PAGE>
designation for the preferred stock contains covenants which limit restricted
payments or investments; limit consolidation, merger and the sale of assets;
mandate the provision of financial reports; and limit business activities.
Upon the receipt of all applicable gaming approvals the Series A Preferred
Stock and Series B Preferred Stock are convertible at any time on or before
February 1, 2002, to shares of the Class A Common and Class B Common,
respectively, subject to customary anti-dilution adjustments. The right of
conversion, as it relates to our Series A and Series B Preferred Stock, only
vests in, and is only exercisable by, the current holders of our preferred
stock and their affiliates (as that term is defined in the certificate of
designation). Any accrued and unpaid dividends at the time of a conversion
will be required to be paid in cash or, at our election, may be satisfied
with additional shares of the corresponding common stock having a fair market
value equal to the amount of accrued dividends.
On October 3, 2000, the certificate of designation was amended to establish
the conversion rate with respect to the Series A Preferred Stock at 2,844.6452
shares of common stock per share of preferred stock and with respect to the
Series B Preferred Stock at 28.44929681 shares of common stock per share of
preferred stock.
As of August 31, 2000, we were in compliance with the covenants under the credit
facility, the indenture and the certificate of designation.
At the end of the first nine months of fiscal 2000, we had approximately $70.6
million available to us under the bank credit facility, net of outstanding
letters of credit and subject to compliance with certain financial covenants. We
also had cash and cash equivalents of approximately $34.3 million.
We anticipate expending an additional $7.3 million for maintenance capital
expenditures and property improvements in fiscal 2000. We believe that our
existing cash and cash equivalents, cash flows from operations and our borrowing
capacity under the credit facility will be sufficient to meet the cash
requirements of our existing operations for at least the next twelve months,
including capital improvements and replacements at the operating properties and
debt service requirements. We currently believe that cash requirements of our
existing operations beyond the next twelve months will consist of debt service
requirements and capital improvements and replacements in the ordinary course,
which we expect to be met by then-existing cash, cash flows from operations and
borrowing capacity under the credit facility. Other than the proposed merger
discussed below and the $50 million contingent payment which may become due
after the vote on the referendum in Pottawattamie County, Iowa in November 2002,
we do not currently anticipate incurring material capital expenditures, balloon
or other extraordinary payments on long-term obligations or any other
extraordinary demands or commitments beyond the next twelve months. We do not
expect to pay cash dividends on the preferred stock prior to 2004 because of,
among other reasons, restrictions in the credit facility and the indenture on
the payment of cash dividends.
On April 17, 2000, our newly formed subsidiary, PH Casino Resorts, entered into
a definitive agreement with Pinnacle Entertainment, Inc. (formerly Hollywood
Park, Inc.) pursuant to which PH Casino Resorts would acquire by merger all of
the outstanding capital stock of Pinnacle for $24 in cash per fully diluted
share (or aggregate cash consideration of approximately $664.1 million).
Additional consideration of up to $1 in cash per fully diluted share may be
payable
19
<PAGE>
depending upon the timing and net after tax proceeds of Pinnacle's sale of 97
acres of surplus land in Inglewood, California.
Concurrent with the closing of the Pinnacle merger, a wholly owned subsidiary of
PH Casino Resorts will merge with and into Harveys with Harveys surviving as a
wholly owned subsidiary of PH Casino Resorts.
Consummation of the mergers are subject to, among other things, completion of
PH Casino Resorts' financing for the transaction. The Company currently
believes that the financing will be provided by some combination of: (i)
assumption of existing debt of Pinnacle, (ii) issuance of unsecured
subordinated debt, (iii) issuance of preferred stock, (iv) incurrence of
secured bank financing, (v) conversion of Harveys' redeemable preferred stock
into common equity, and (vi) equity contributions by key shareholders of
Pinnacle. However, we cannot make any assurances that financing will be
available at terms acceptable to the Company, if at all.
20
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates. Borrowings
outstanding under our credit facility are subject to variable interest rates.
The amount outstanding under our credit facility at August 31, 2000 was
approximately $212.5 million, subject to a weighted-average interest rate of
8.66%. Assuming an identical outstanding balance, a hypothetical immediate 100
basis point increase in interest rates would increase interest expense for the
next twelve months by approximately $2.1 million.
The Company entered into an interest rate cap agreement, effective March 1,
2000, to reduce the potential impact of increases in interest rates on
variable-rate debt. The notional amount of the interest rate cap agreement was
$48 million on March 1, 2000 and reduces quarterly over the 35 month term of the
agreement. The notional amount on August 31, 2000 was $39.0 million. The
agreement entitles the Company to receive from counterparties, on a monthly
basis, the amount, if any, by which the Company's interest payments on its
floating LIBOR-based debt exceeds the amount that would have been paid if the
one-month LIBO rate was capped at 7.5%. The combination of the interest rate cap
agreement and the terms of the credit facility result in the Company paying
interest, on an amount of variable-rate debt equal to the notional amount of the
interest rate cap agreement, at a variable rate (LIBOR plus 2.00%), not to
exceed 9.50%. We may use additional derivative financial instruments in the
future as a risk management tool. We do not use derivative financial instruments
for speculative or trading purposes.
The fair value of the Company's fixed rate long-term debt, consisting of our
$150 million of senior subordinated notes and approximately $5.9 million of
unamortized premium on the senior subordinated notes on August 31, 2000, and the
fair value of the Company's fixed rate preferred stock, are sensitive to
differences between market interest rates and rates at the time of issuance. A
hypothetical immediate 100 basis point increase in interest rates at August 31,
2000 would have decreased the fair value of our fixed rate long-term debt by
approximately $13.9 million. Conversely, a 100 basis point decrease in interest
rates would have increased the fair value of our outstanding long-term debt at
August 31, 2000 by approximately $16.9 million. A hypothetical immediate 100
basis point increase in interest rates would have decreased the fair value of
our fixed rate preferred stock by approximately $4.5 million at August 31, 2000.
Conversely, a 100 basis point decrease in interest rates would have increased
the fair value of our preferred stock by approximately $5.1 million.
21
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE 'SAFE HARBOR' PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
This document includes various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Sections 21E of the Securities Exchange Act of 1934, as amended, which
represent the Company's expectations or beliefs concerning future events.
Statements containing expressions such as "believes", "anticipates", or
"expects" used in the Company's press releases and periodic reports on Forms
10-K and 10-Q filed with the Securities and Exchange Commission are intended
to identify forward-looking statements. All forward-looking statements
involve risks and uncertainties. Although the Company believes its
expectations are based upon reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurances that
actual results will not materially differ from expected results. The Company
cautions that these and similar statements included in this report and in
previously filed periodic reports, including reports filed on Forms 10-K and
10-Q, are further qualified by important factors that could cause actual
results to differ materially from those in the forward-looking statements.
Such factors include, without limitation, the following: ability to complete
the proposed merger with Pinnacle Entertainment, Inc., including the receipt
of required regulatory approvals and necessary licenses; risks associated
with indebtedness, leverage, debt service and liquidity following the merger,
if it is completed; increased competition in existing markets or the opening
of new gaming jurisdictions; a decline in the public acceptance of gaming;
the limitation, conditioning or suspension of any of the Company's gaming
licenses; increases in or new taxes imposed on gaming revenues or gaming
devices; changes in gaming laws and regulations; passage of state or local
referendum measures that affect gaming activities in jurisdictions in which
we currently operate or plan to operate; a finding of unsuitability by
regulatory authorities with respect to the Company's officers, directors or
key employees; loss or retirement of key executives; significant increases in
fuel or transportation prices; adverse economic conditions in the company's
key markets; severe and unusual weather in the Company's key markets; adverse
results of significant litigation matters; loss of gaming facilities from
service; failure to complete, complete within budget or successfully
integrate and operate expansion and development projects; and failure to
obtain adequate financing to meet strategic goals. Readers are cautioned not
to place undue reliance on forward-looking statements, which speak only as of
the date thereof. The Company undertakes no obligation to publicly release
any revision to such forward-looking statements to reflect events or
circumstances after the date thereof.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable
Item 2. Changes in Securities.
Not Applicable
Item 3. Defaults Upon Senior Securities.
Effective October 3, 2000, the Certificate of Designation of the
Series A Preferred Stock and Series B Preferred Stock was amended to
provide that the conversion rate for the Series A Preferred Stock is
2,844.6452 shares of common stock for each share of preferred stock
and the conversion rate for the Series B Preferred Stock is
28.44929681 shares of common stock for each share of preferred
stock. The purpose of the amendment was to preserve, upon conversion
of the Series A Preferred Stock and Series B Preferred Stock, the
existing ratio of approximately one share of currently outstanding
Class A Common Stock for each 100 shares of currently outstanding
Class B Common Stock. A copy of the Certificate of Amendment to the
Certificate of Designation is filed as a exhibit hereto.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
See attached Exhibit Index
(b) Reports on Form 8-K
None
23
<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.
HARVEYS CASINO RESORTS
Registrant
Date: October 13, 2000 /s/ John McLaughlin
-----------------------------------------
John McLaughlin
Senior Vice President, Treasurer
and Chief Financial Officer
24
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- ----------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger dated as of April 17, 2000 by and
among PH Casino Resorts, Inc., Harveys Casino Resorts, and
Pinnacle Acquisition Corporation (7)
2.2 Agreement and Plan of Merger dated as of April 17, 2000 by and
among PH Casino Resorts, Inc., Harveys Casino Resorts and
Harveys Acquisition Corporation (7)
3.1 Amendments to Articles of Incorporation of Harveys Casino Resorts
as Surviving Constituent Entity (filed as Exhibit A to Articles
of Merger of Harveys Acquisition Corporation into Harveys Casino
Resorts). (4) (Articles of Incorporation are incorporated herein
by reference to Harveys Acquisition Corporations's Registration
Statement on Form 10 (File No. 0-25093), filed November 20,1998).
3.2 Eighth Amended and Restated Bylaws of the Registrant (5)
4.1 Form of Stock Certificate of the Registrant (5)
4.2 Indenture, dated as of May 15, 1996 ( the "Original Indenture"),
by and among the Registrant, Harveys Wagon Wheel Casino Limited
Liability Company, Harveys C. C. Management Company, Inc.,
Harveys Iowa Management Company, Inc. and Harveys L. V.
Management Company, Inc. ( the 'Guarantors') and IBJ Schroder
Bank & Trust Company as Trustee ( including form of Note) (1)
4.3 First Supplemental Indenture, dated as of June 5, 1996,
supplementing the Original Indenture (2)
4.4 Second Supplemental Indenture, dated as of May 22, 1997,
supplementing the Original Indenture (3)
4.5 Third Supplemental Indenture, dated as of December 24, 1998,
among the Registrant, Harveys Tahoe Management Company, Inc.,
Harveys C. C. Management Company, Inc., Harveys Iowa Management
Company, Inc., Harveys L. V. Management Company, Inc. and IBJ
Schroder Bank and Trust Company, supplementing the Original
Indenture (5)
4.6 Fourth Supplemental Indenture, dated as of December 24, 1998,
among the Registrant, Harveys Tahoe Management Company, Inc.,
Harveys C. C. Management Company, Inc., Harveys Iowa Management
Company, Inc., Harveys L. V. Management Company, Inc. and IBJ
Schroder Bank and Trust Company, supplementing the Original
Indenture (5)
4.7 Certificate of Designation of the 13 1/2% Series A Senior
Redeemable Convertible Cumulative Preferred Stock ($0.01 par
value per share) and the 13 1/2% Series B Redeemable Convertible
Cumulative Preferred Stock ($0.01 par value per share) of Harveys
Casino Resorts (4)
</TABLE>
25
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- ----------------------------------------------------------------
<S> <C>
4.8 Certificate of Amendment, dated as of February 7, 2000, to the
Certificate of Designation of the 13 1/2% Series A Senior
Redeemable Convertible Cumulative Preferred Stock ($0.01 par
value per share) and the 13 1/2% Series B Senior Redeemable
Convertible Cumulative Preferred Stock ($0.01 par value per
share) of Harveys Casino Resorts (6)
4.9 Certificate of Amendment, dated as of October 3, 2000, to the
Certificate of Designation of the 13 1/2% Series A Senior
Redeemable Convertible Cumulative Preferred Stock ($0.01 par
value per share) and the 13 1/2% Series B Senior Redeemable
Convertible Cumulative Preferred Stock ($0.01 par value per
share) of Harveys Casino Resorts (8)
10.1 Employment Agreement and Agreement and Covenant Not to Compete or
Use or Disclose Trade Secrets, each dated as of June 30, 2000 by
and between Gary Armentrout and Harveys Casino Resorts. (8)
10.2 Executive Retention Award dated as of May 15, 2000 by and between
the Registrant and Gary Armentrout. (8)
10.3 Executive Retention Award dated as of May 15, 2000 by and between
the Registrant and Edward Barraco. (8)
10.4 Executive Retention Award dated as of May 15, 2000 by and between
the Registrant and John R. Bellotti. (8)
10.5 Executive Retention Award dated as of May 15, 2000 by and between
the Registrant and Daniel J. Roy Jr. (8)
10.6 Executive Retention Award dated as of May 15, 2000 by and between
the Registrant and William Stephens. (8)
10.7 Executive Retention Award dated as of May 15, 2000 by and between
the Registrant and Verne Welch. (8)
10.8 Executive Retention Award dated as of August 3, 2000 by and
between the Registrant and James J. Rafferty. (8)
10.9 Employment Agreement, dated as of July 21, 2000 and Agreement and
Covenant Not to Compete or Use or Disclose Trade Secrets, dated
as of August 29, 2000, each by and between the Registrant and
James J. Rafferty. (8)
27 Financial Data Schedule (8)
</TABLE>
--------------------
(1) Incorporated herein by reference to Registration Statement No. 333-3576
(2) Incorporated herein by reference to Registrant's Current Report on Form 8-K
filed June 14, 1996
(3) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended August 31, 1997
(4) Incorporated herein by reference to Registrant's Current Report on Form 8-K
filed February 16, 1999
(5) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the period ended November 30, 1998
(6) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended February 29, 2000.
(7) Incorporated herein by reference to Registrant's Current Report on Form 8-K
filed April 27, 2000.
(8) Filed herewith
26
