SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 8, 2000
Penn National Gaming, Inc.
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2234473
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
825 Berkshire Blvd, Suite 200
Wyomissing, PA 19610
(Address of principal executive offices) (Zip code)
610-373-2400
(Registrant's telephone number including area code)
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The following financial
statements for Mardi Gras Casino Corp. and Mississippi-I-Gaming LP, as of
December 31, 1999 and 1998, are filed as part of this Current Report on Form
8-K:
Mardi Gras Casino Corp. Page
Report of Independent Certified Public Accountants 3
Combined financial statements
Balance sheets 4
Statements of operations 5
Statements of stockholder's equity 6
Statements of cash flows 7
Notes to combined financial statements 8-14
Mississippi-I-Gaming-LP
Report of Independent Certified Public Accountants 15
Combined financial statements
Balance sheets 16
Statements of operations 17
Statements of changes in partners' capital 18
Statements of cash flows 19
Notes to combined financial statements 20-24
The following unaudited financial statements for Mardi Gras Casino Corp. and
Mississippi-I-Gaming LP, as of June 30, 2000, are filed as part of this Current
Report on Form 8-K:
Mardi Gras Casino Corp.
Combined financial statements
Balance sheets 25-26
Statements of operations 27
Statements of cash flows 28
Notes to combined financial statements 29
Mississippi-I-Gaming-LP
Combined financial statements
Balance sheets 30
Statements of operations 31
Statements of cash flows 32-33
Notes to combined financial statements 34
2
<PAGE>
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
To the Board of Directors of
Mardi Gras Casino Corp.:
We have audited the accompanying balance sheets of Mardi Gras Casino Corp. (a
Mississippi corporation and a wholly-owned subsidiary of Pinnacle Entertainment,
Inc.) (the "Company") as of December 31, 1999 and 1998, and the related
statements of operations, changes in stockholder's equity and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our in accordance with auditing standards generally accepted in the
United States. 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 Mardi Gras Casino Corp. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
February 8, 2000
Robert W. Kimbro, being duly sworn deposes and says that he is a partner in the
firm of Arthur Andersen LLP and that he has signed the foregoing auditors'
report in that capacity.
/s/Robert W. Kimbro
Certified Public Accountant
Mississippi Certificate No. R-2676
3
<PAGE>
MARDI GRAS CASINO CORP.
Balance Sheets - December 31, 1999 and 1998
(in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1999 1998
Assets
Current assets:
Cash and cash equivalents $ 3,642 $ 4,287
Accounts receivable, net of allowance for doubtful 587 1,102
accounts of $217 in 1999 and $610 in 1998
Prepaid expenses and other current assets 572 597
Inventories 666 594
Deferred tax assets 285 556
------------------ ------------------
Total current assets 5,752 7,136
Property, plant and equipment, net 71,798 72,820
Investment in affiliate 932 932
Other assets 202 173
------------------ ------------------
$ 78,684 $ 81,061
================== ==================
Liabilities
and Stockholder's Equity
Current liabilities:
Accounts payable $ 1,497 $ 1,669
Accrued expenses 3,016 2,963
Accrued payroll and related benefits 2,829 2,894
Accrued progressive gaming liabilities 1,076 1,192
Notes payable 148 202
------------------ ------------------
Total current liabilities 8,566 8,920
Notes payable 49 196
Due to affiliates 59,409 71,643
Deferred tax liabilities 2,860 2,965
Commitments and contingencies - -
------------------ ------------------
Total noncurrent liabilities 62,318 74,804
Stockholder's equity:
Common stock ($0.01 par, 3,000 shares
issued and outstanding) - -
Additional paid-in capital 39,688 39,688
Dividends (32,807) (32,807)
Retained earnings (deficit) 919 (9,544)
------------------ ------------------
Total stockholder's equity (deficit) 7,800 (2,663)
------------------ ------------------
$ 78,684 $ 81,061
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
MARDI GRAS CASINO CORP.
Statements of Operations
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Revenues:
Gaming $ 80,349 $ 81,890 $ 81,103
Food and beverage 3,821 3,681 3,258
Hotel and recreational vehicle park 1,797 1,800 1,721
Golf 1,694 1,617 1,412
Other income 1,234 1,216 920
------------------------------------------------
88,895 90,204 88,414
------------------------------------------------
Expenses:
Gaming 47,446 48,174 47,268
Food and beverage 3,723 3,426 3,250
Hotel and recreational vehicle park 893 923 804
Golf 1,576 1,477 1,602
General and administrative 12,291 12,789 11,356
Other 1,043 1,143 989
Depreciation and amortization 5,949 6,354 6,657
------------------------------------------------
72,921 74,286 71,926
------------------------------------------------
Income from operations 15,974 15,918 16,488
Other (income) expense:
Interest expense, net of interest capitalized 31 6,247 7,648
Interest income (110) (38) (46)
(Gain) loss from disposal of assets (66) 1,872 3
Equity in losses of affiliate - 2,867 403
------------------------------------------------
(145) 10,948 8,008
------------------------------------------------
Income before income taxes 16,119 4,970 8,480
Income tax expense 5,656 1,922 3,217
------------------------------------------------
Net Income before Extraordinary Item $ 10,463 $ 3,048 $ 5,263
Extraordinary item - debt redemption costs associated with
early extinguishment of debt, net of tax - 2,116 -
------------------------------------------------
Net income $ 10,463 $ 932 $ 5,263
============== =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
MARDI GRAS CASINO CORP.
Statements of Changes in Stockholder's Equity
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Common Additional Retained
stock paid-in Dividends (deficit) earnings Total
capital
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1996 $ - $ 31,858 $ - $ (15,739) $ 16,119
Net income - - - 5,263 5,263
Capital contribution from
equity affiliate - 7,830 - - 7,830
Dividends declared - - (14,591) - (14,591)
----------- --------- -------------- ----------------- --------------
Balances, December 31, 1997 - 39,688 (14,591) (10,476) 14,621
Net income - - - 932 932
Dividends declared - - (18,216) - (18,216)
----------- --------- -------------- ----------------- --------------
Balances, December 31, 1998 - 39,688 (32,807) (9,544) (2,663)
Net income - - - 10,463 10,463
----------- --------- -------------- ----------------- --------------
Balances, December 31, 1999 $ - $ 39,688 $ (32,807) $ 919 $ 7,800
=========== ========= ============== ================= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
MARDI GRAS CASINO CORP.
Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,463 $ 932 $ 5,263
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,949 6,354 6,657
Loss (gain) on disposal of property and equipment (66) 1,872 3
Equity in losses of affiliate - 2,867 403
(Increase) decrease in accounts receivable 515 219 (394)
(Increase) decrease in prepaid expenses 25 386 (144)
Increase in inventories (72) (107) (60)
Increase (decrease) in deferred taxes, net 166 (554) (30)
Increase (decrease) in accounts payable (172) (673) (1,449)
Increase in accrued expenses 53 949 1,226
Increase (decrease) in accrued payroll and related benefits (65) 552 (970)
Increase (decrease) in accrued gaming liabilities (116) 278 (626)
Increase (decrease) in due to affiliates, net (12,234) 8,474 7,588
--------------- ---------------- ----------------
Net cash provided by operating activities 4,446 21,549 17,467
--------------- ---------------- ----------------
Cash flows from investing activities:
Proceeds from sale of property and equipment 137 142 7
Acquisitions of property and equipment (4,998) (2,372) (5,435)
(Increase) decrease in deposits and other long-term assets (29) 35 (10)
--------------- ---------------- ----------------
Net cash used in investing activities (4,890) (2,195) (5,438)
--------------- ---------------- ----------------
Cash flows from financing activities:
Dividends declared - (18,216) (14,591)
Principal payments on notes payable (201) (415) (304)
Additional debt incurred 358
--------------- ---------------- ----------------
Net cash used in financing activities (201) (18,631) (14,537)
--------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents (645) 723 (2,508)
Cash and cash equivalents, beginning of year 4,287 3,564 6,072
--------------- ---------------- ----------------
Cash and cash equivalents, end of year $ 3,642 $ 4,287 $ 3,564
=============== ================ ================
The accompanying notes are an integral part of these financial statements.
</TABLE>
7
<PAGE>
MARDI GRAS CASINO CORP.
Notes to Financial Statements
December 31, 1999
1. Summary of Significant Accounting Policies
General
Mardi Gras Casino Corp. (the "Company" or "Mardi Gras") is a
Mississippi Corporation and a wholly owned subsidiary of Casino Magic
Corp., which as a result of a merger on October 15, 1998 (the
"Merger") is a wholly owned subsidiary of Pinnacle Entertainment, Inc.
("Pinnacle Entertainment"), (formerly known as Hollywood Park, Inc.).
The Company operates Casino Magic Bay St. Louis in Bay St. Louis,
Mississippi.
Gaming revenues and promotional allowances
In accordance with common industry practice, casino revenues are the
net of gaming wins less losses. Revenues exclude the retail value of
complimentary rooms, food and beverage furnished gratuitously to
customers. The estimated cost of providing these promotional allowances
(which are included in gaming expenses) during the years ended December
31, 1999, 1998 and 1997, was $8,415,144, $9,005,589 and $9,132,420,
respectively.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, certificates of deposit and
short term investments with original maturities of 90 days or less.
Capitalized Interest
Interest expense of $206,497 was capitalized during the year ended
December 31, 1997. No capitalized interest was recorded during the
years ended December 31, 1999 and 1998.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using
the straight line method over estimated useful lives of 15 to 31.5
years for barges and buildings, the term of the leases for leasehold
improvements, and 5 to 7 years for furniture and equipment. Normal
repairs and maintenance are charged to expense as incurred.
Expenditures which materially extend the useful lives of capital assets
are capitalized.
Investments
The Company has a 50 percent investment in Casino Magic Finance Corp.
and accounts for its investment in this affiliate using the equity
method.
Fair Value of Financial Instruments
Due to the short-term maturity of financial instruments classified as
current assets and liabilities, the fair value approximates the
carrying value.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") 109, Accounting for Income Taxes, whereby
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
8
<PAGE>
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that included the enactment date.
Long-Lived Assets
The Company periodically reviews the propriety of the carrying amount
of long-lived assets and any related intangible assets as well as the
related amortization period to determine whether current events or
circumstances warrant adjustments to the carrying value and/or
estimates of useful lives. This evaluation consists of comparing asset
carrying values to the company's projection of the undiscounted cash
flows over the remaining lives of the assets, in accordance with
Statement of Financial Accounting Standards No. 121 Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be
Disposed Of ("SFAS No. 121"). Based on its review, the Company believes
that as of December 31, 1999, there were no significant impairments of
its long-lived assets or intangible assets.
Certain significant risks and uncertainties:
Gaming Regulation Licensing
The Company conducts gaming operations in the State of Mississippi that
depends on the continued licensability or qualification of the Company.
Such licensing and qualifications are reviewed periodically by the
Mississippi Gaming Commission.
Competition
The gaming industry is extremely competitive and the Company faces
competition from new developments in the United States, specifically in
Mississippi and Louisiana.
Severe Weather
The Mississippi Gulf Coast is subject to severe weather, including
hurricanes. Severe weather could cause damage to the Company's casino
facility. The Company maintains insurance against casualty losses
resulting from severe weather and against business interruption. Such
insurance may not adequately compensate the Company for loss of profits
resulting from severe weather.
Use of Estimates
Financial statements prepared in accordance with generally accepted
accounting principles require the use of management estimates,
including estimates used to evaluate the recoverability of property,
plant and equipment, to determine the fair value of financial
instruments, and to determine litigation related obligations. Actual
results could differ from estimates.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 balances
to be consistent with the 1999 financial statement presentation.
2. Supplemental Disclosure of Cash Flow Information
Cash paid for interest during the years ended December 31, 1999, 1998,
and 1997 was $3,789, $102,221 and $101,404, respectively.
9
<PAGE>
3. Property, Plant and Equipment
Property, plant and equipment as of December 31, 1999 and 1998
consisted of the following:
(in thousands)
December 31,
1999 1998
Land and improvements $ 37,888 $ 37,890
Buildings and improvements 25,119 24,894
Barges and improvements 11,685 11,631
Furniture and equipment 31,748 28,874
Construction in progress 1,456 764
------------------------------------
107,896 104,053
------------------------------------
Less accumulated depreciation (36,098) (31,233)
------------------------------------
$ 71,798 $ 72,820
=========== ===========
4. Notes Payable and Extraordinary Item
Notes payable as of December 31, 1999 and 1998 consisted of the
following:
(in thousands)
1999 1998
Secured note payable $ 61 $ 73
Capital lease obligations 136 325
------------------------------------
197 398
Less current maturities (148) (202)
------------------------------------
$ 49 $ 196
=========== ===========
The secured note is payable to an individual secured by a parcel of land.
The original balance of the note was $128,621, payable in ten annual
installments of $20,000, including interest at 11.5% through March 2003.
Maturities of the Company's long-term debt, including capital lease
obligations, as of December 31, 1999 are as follows:
(in thousands)
Year ended
December 31, 2000 $ 148
December 31, 2001 14
December 31, 2002 16
December 31, 2003 19
-----------------
$ 197
==========
10
<PAGE>
The carrying amounts and fair values of notes payable and current
maturities of long-term debt as of December 31, 1999 and 1998
approximate the carrying values.
On October 14, 1993, the 50% owned affiliate of the Company, Casino
Magic Finance Corp. ("Finance Corp."), sold $135,000,000 in aggregate
principal amount of 11-1/2% First Mortgage Notes due 2001 (the
"Finance Notes") and warrants to purchase 810,000 shares of Casino
Magic Corp. common stock. Finance Corp. is a special purpose finance
subsidiary formed specifically to issue the Finance Notes. The Finance
Notes were governed by an Indenture (the "Indenture") entered into on
the same date between Finance Corp., the Company and IBJ Schroder Bank
& Trust Company as the Trustee.
The Finance Notes were secured by a pledge of the stock of Finance
Corp., Mardi Gras Casino Corp. and Biloxi Casino Corp., an affiliate
of the Company, along with the accounts receivable, inventories,
property and equipment, property held for development and deposits of
the Company and Casino Magic-Biloxi.
In connection with the Merger, Pinnacle Entertainment elected to redeem
the Finance Notes for the redemption amount of 103.833% in accordance
with the Indenture. On October 15, 1998, Pinnacle Entertainment
deposited the amount required to redeem the Finance Notes with the
Trustee and the Trustee discharged the debt and released the collateral
on that date. Accordingly, the Company's proportionate share of
redemption costs of $2,116,213, net of related tax benefit, were
recorded in the period ended December 31, 1998 and are reflected as an
extraordinary item on the accompanying Statement of Operations. These
costs primarily include the redemption premium.
5. Income Taxes
The Company is included in the consolidated federal tax return of
Pinnacle Entertainment and allocated income tax expense as if it were a
separate taxpayer.
Provision (benefit) for income taxes for the years ended December 31,
1999, 1998 and 1997 are as follows (including a current tax benefit of
$1,139,499 associated with an extraordinary item in 1998):
(in thousands)
<TABLE>
<CAPTION>
Current Deferred Total
Year ended December 31, 1999:
<S> <C> <C> <C>
U.S. Federal $ 5,488 $ 166 $ 5,654
State 2 - 2
----------------- ----------------- -----------------
5,490 166 5,656
----------------- ----------------- -----------------
Year ended December 31, 1998:
U.S. Federal 2,091 (1,308) 783
State - - -
----------------- ----------------- -----------------
2,091 (1,308) 783
----------------- ----------------- -----------------
Year ended December 31, 1997:
U.S. Federal 3,247 (30) 3,217
State - - -
----------------- ----------------- -----------------
$ 3,247 $ (30) $ 3,217
========== ========== ==========
</TABLE>
11
<PAGE>
The following table reconciles the Company's income tax expense (based on its
effective tax rate) to the federal statutory tax rate of 35% (including a
current tax benefit of $1,139,499 associated with an extraordinary item in
1998):
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Income before income tax expense, at the
statutory rate $ 5,642 $ 600 $ 2,968
Expenses which were non-deductible for tax
purposes 12 183 129
State income taxes, net of federal tax benefits 2 - -
Other - - 120
-------------- --------------- --------------
Income tax expense $ 5,656 $ 783 $ 3,217
============== =============== ==============
</TABLE>
At December 31, 1999, and 1998, the tax effects of temporary differences that
gave rise to significant portions of the deferred tax assets and deferred tax
liabilities are presented below:
(in thousands)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current deferred tax assets:
Vacation and sick pay accrual $ 211 $ 224
Bad debt allowance 119 257
Reserve for medical claims - 277
Other 4 4
-------------------- --------------------
Current deferred tax assets 334 762
Current deferred tax liabilities:
Accrued bonus (49) (64)
Other - (142)
-------------------- --------------------
Net current deferred tax assets $ 285 $ 556
==================== ====================
</TABLE>
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Non-current deferred tax assets:
Net operating loss carry forwards $ 126 $ 126
Reserve for liability claims 80 80
Other 72 72
-------------------- --------------------
Non-current deferred tax assets 278 278
-------------------- --------------------
Non-current deferred tax Liabilities:
Depreciation (3,138) (3,243)
-------------------- --------------------
Net non-current deferred tax liabilities $ 2,860 $ 2,965
==================== ====================
</TABLE>
12
<PAGE>
6. Employee Benefits
Pinnacle Entertainment offers a 401(k) Investment Plan (the
"401(k) Plan") which is subject to the provisions of the Employee
Retirement Income Security Act of 1994. The 401(k) Plan is open to all
employees of the Partnership who have completed a minimum of 500 hours
of service. Employees may contribute up to 18% of pretax income
(subject to the legal limitation of $10,000 for 1999). The Partnership
offers discretionary matching, and for the years ended December 31,
1999, 1998 and 1997 matching contributions to the 401(k) Plan totaled
$257,732, $106,351 and $97,597, respectively.
7. Commitments and Contingencies
Debt Guarantees
On August 6, 1997, Pinnacle Entertainment issued $125,000,000 of Series
A 9.5% Senior Subordinated Notes due 2007 (the " 9.5% Notes"). In
February of 1999, Pinnacle Entertainment issued $350,000,000 of 9.25%
Senior Subordinating Notes due 2007 (the "9.25% Notes).
Both the 9.25% and 9.5% Notes are unsecured obligations of
Pinnacle Entertainment, Inc. guaranteed by all material restricted
subsidiaries of the Company, as defined in the indentures, including
the Mardi Gras Casino Corp. The indentures governing both the 9.25% and
9.5% Notes contain certain covenants limiting the ability of Pinnacle
Entertainment and its restricted subsidiaries to incur additional
indebtedness, issue preferred stock, pay dividends or make certain
distributions, repurchase equity interests or subordinated
indebtedness, create certain liens, enter into certain transactions
with affiliates, sell assets, issue or sell equity interests in its
subsidiaries, or enter into certain mergers and consolidations.
Bus Litigation
On May 9, 1999, a bus owned and operated by Custom Bus Charters, Inc.
was involved in an accident in New Orleans, Louisiana while en route to
the Company's Casino in Bay St. Louis, Mississippi. To date multiple
deaths and numerous injuries are attributed to this accident and Mardi
Gras, together with several other defendants, has been named in
thirty-eight (38) lawsuits, each seeking unspecified damages due to the
deaths and injuries sustained in this accident. While the Company
cannot predict the outcome of the litigation, the Company believes it
is not liable for any damages arising from this accident and the
Company and its insurers intend to vigorously defend these actions.
Mardi Gras is party to a number of other pending legal proceedings,
though management does not expect that the outcome of such proceedings,
either individually or in the aggregate, will have a material effect on
the Company's financial results.
13
<PAGE>
8. Lease Obligations
The following is a schedule of future minimum lease payments
for capital and operating leases (with initial or remaining terms in
excess of one year) as of December 31, 1999:
(in thousands)
Capital Operating
Leases Leases
2000 $ 141 $ 203
2001 - 177
2002 - 118
2003 - 101
----------------- ------------------
Total minimum lease payments 141 $ 599
Less amount representing ==================
Interest (9%) 6
-----------------
Present value of net minimum
capital lease payments $ 135
=================
Rent expense for the years ended December 31, 1999, 1998, and 1997 was
$189,508, $139,500 and $127,887, respectively.
9. Pending Sale
On December 10, 1999, Pinnacle Entertainment announced it had entered
into a definitive agreement with Penn National Gaming, Inc. ("Penn
National") to sell for cash Mardi Gras Casino Corp.'s casino operations
for $120 million. Penn National will purchase all of the property,
plant and equipment and will assume certain liabilities. The
transaction is subject to certain closing conditions, including
approval by the Mississippi Gaming Commission, the purchaser completing
the necessary financing, and termination of the Hart-Scott-Rodino
waiting period. Pinnacle Entertainment estimates the transaction will
close in the second quarter of 2000.
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
To the Board of Directors of Mississippi-I-Gaming LP:
We have audited the accompanying balance sheets of Mississippi-I-Gaming LP (the
"Partnership") as of December 31, 1999 and 1998, and the related statements of
operations, changes in stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our in accordance with auditing standards generally accepted in the
United States. 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 Mississippi-I-Gaming LP as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
February 8, 2000
Robert W. Kimbro, being duly sworn deposes and says that he is a partner in the
Firm of Arthur Andersen LLP and that he has signed the foregoing auditors'
report in that capacity.
/s/Robert W. Kimbro
Certified Public Accountant
Mississippi Certificate No. R-2676
15
<PAGE>
MISSISSIPPI-I GAMING, L.P.
Balance Sheets - December 31, 1999 and 1998
(in thousands)
Assets
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,974 $ 4,555
Receivables, net of allowance for doubtful accounts of
$59 and $73 969 139
Prepaid expenses and other current assets 1,414 1,874
Inventories 527 542
--------------- ---------------
Total current assets 5,884 7,110
Property, plant and equipment, net 43,934 44,442
Other assets 2,059 2,060
--------------- ---------------
$ 51,877 $ 53,612
=============== ===============
Liabilities and Partners' Capital
Current Liabilities:
Accounts payable $ 551 $ 636
Accrued compensation 1,225 968
Other accrued liabilities 4,445 4,230
Accrued interest payable, Boomtown, Inc. - 1,442
Current portion of notes payable, Boomtown, Inc. 36,259 44,971
Current portion of notes payable, other 1,250 1,254
--------------- ---------------
43,730 53,501
Notes Payable, other - 1,250
Commitments and Contingencies
Partner's Capital (Deficit):
General partner 453 37
Limited partners 7,694 (1,176)
--------------- ---------------
Total partners' capital (deficit) 8,147 (1,139)
--------------- ---------------
$ 51,877 $ 53,612
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
MISSISSIPPI-I GAMING, L.P.
Statements of Operations
For the Years Ended December 31, 1999, 1998, 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Revenues:
Gaming $ 58,191 $ 57,054 $ 52,022
Food and beverage 6,270 5,097 3,302
Other 3,365 2,933 2,862
--------------- --------------- ---------------
67,826 65,084 58,186
Costs and Expenses:
Gaming 29,366 29,598 28,391
Food and beverage 7,555 6,380 4,260
Administrative 15,954 16,088 15,012
Other 1,669 1,603 1,509
Depreciation and amortization 3,846 3,667 3,491
--------------- --------------- ---------------
58,390 57,336 52,663
--------------- --------------- ---------------
Income from Operations 9,436 7,748 5,523
Other (Income) Expense:
Interest Expense 150 4,319 5,354
--------------- --------------- ---------------
Net Income $ 9,286 $ 3,429 $ 169
=============== =============== ===============
Net Income Allocated to Partners:
General partner $ 416 $ 26 $ 9
Limited partners 8,870 3,403 160
--------------- --------------- ---------------
$ 9,286 $ 3,429 $ 169
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
MISSISSIPPI-I GAMING, L.P.
Statements of Changes in Partners' Capital (Deficit)
For the Years Ended December 31, 1999, 1998, 1997
(in thousands)
<TABLE>
<CAPTION>
Limited Partners Total
--------------------------- Partners'
General Boomtown, Capital
Partner Inc. Other (Deficit)
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances, December 31, 1996 $ - $ (3,991) $ (748) $ (4,739)
Capital contributions 2 - - 2
Net Income 9 135 25 169
--------------- --------------- --------------- ------------------
Balances, December 31, 1997 11 (3,856) (723) (4,568)
Transfer of partnership interest - (601) 601 -
Net income 26 3,281 122 3,429
--------------- --------------- --------------- ------------------
Balances, December 31, 1998 37 (1,176) - (1,139)
Net income 416 8,870 - 9,286
--------------- --------------- --------------- ------------------
Balances, December 31, 1999 $ 453 $ 7,694 $ - $ 8,147
=============== =============== =============== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
MISSISSIPPI-I GAMING, L.P.
Statements of Cash Flows
For the Years Ended December 31, 1999, 1998, 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 9,286 $ 3,429 $ 169
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,846 3,667 3,491
Loss on disposal of property and equipment 327 94 169
Decrease in other receivables, net (830) (26) (39)
Decrease (increase) in prepaid expenses
and other assets 475 (802) 103
Decrease in other assets 1 8 73
(Decrease) increase in accounts payable (85) (34) 59
Increase (decrease) in accrued compensation 257 45 (112)
Increase in accrued liabilities 215 980 191
(Decrease) increase in accrued interest payable,
Boomtown, Inc. (1,442) (3,547) 2,015
--------------- --------------- ---------------
Net cash provided by operating activities 12,050 3,814 6,119
--------------- --------------- ---------------
Cash Flows from Investing Activities:
Additions to property, plant and equipment (3,669) (2,980) (3,574)
Proceeds from sale of property and equipment 4 353 34
--------------- --------------- ---------------
Net cash used in investing activities (3,665) (2,627) (3,540)
--------------- --------------- ---------------
Cash Flows from Financing Activities:
(Payment of) proceeds from note payable,
Boomtown, Inc., net (8,712) 517 2,732
Payment of notes payable, other (1,254) (1,292) (4,505)
--------------- --------------- ---------------
Net cash used in financing activities (9,966) (775) (1,773)
--------------- --------------- ---------------
Increase (Decrease) in Cash and Cash
Equivalents (1,581) 412 806
Cash and Cash Equivalents, at the beginning of
the year 4,555 4,143 3,337
--------------- --------------- ---------------
Cash and Cash Equivalents, at the end of
the year $ 2,974 $ 4,555 $ 4,143
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
MISSISSIPPI-I GAMING, L.P.
Notes to Financial Statements
December 31, 1999
1. Summary of Significant Accounting Policies
General
Mississippi-I Gaming, L.P. ("the Partnership") is a Mississippi limited
partnership, which is owned and controlled by Pinnacle Entertainment,
Inc. ("Pinnacle Entertainment"), (formerly known as Hollywood Park,
Inc.), through its wholly owned subsidiaries, Boomtown, Inc.
("Boomtown") and Bayview Yacht Club, Inc., which own 95% and 5%,
respectively, of the Mississippi Partnership. On September 11, 1998,
Pinnacle Entertainment, through its Boomtown subsidiary, purchased for
$400,000 the 15% of the Partnership owned by Eric Skrmetta
("Skrmetta"). The Partnership owns and operates a casino ("Boomtown
Biloxi"), which opened in July 1994. Boomtown Biloxi occupies nineteen
acres in Biloxi, Mississippi.
Gaming Revenues and Promotional Allowances
In accordance with common industry practice, casino revenues are the
net of gaming wins less losses. Revenues exclude the retail value of
complimentary rooms, food and beverage furnished gratuitously to
customers. The estimated cost of providing these promotional allowances
(which are included in gaming expenses) during the years ended December
31, 1999, 1998 and 1997, was $4,186,000, $4,454,000 and $4,094,000,
respectively.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, certificates of deposit and
short term investments with original maturities of 90 days or less.
Property, Plant, and Equipment
Property, plant and equipment are stated at cost and depreciated using
the straight line method over estimated useful lives, ranging from
three to thirty-five years. Normal repairs and maintenance are charged
to expense as incurred. Expenditures which materially extend the useful
lives of capital assets are capitalized.
Fair Value of Financial Instruments
Due to the short-term maturity of financial instruments classified as
current assets and liabilities, the fair value approximates the
carrying value.
Income Taxes
The Partnership is not subject to state or federal income taxes. The
Partnership's income or loss is allocated to the partners and included
in their respective income tax returns.
20
<PAGE>
Long-Lived Assets
The Partnership periodically reviews the propriety of the carrying
amount of long-lived assets and any related intangible assets as well
as the related amortization period to determine whether current events
or circumstances warrant adjustments to the carrying value and/or
estimates of useful lives. This evaluation consists of comparing asset
carrying values to the Partnership's projection of the undiscounted
cash flows over the remaining lives of the assets, in accordance with
Statement of Financial Accounting Standards No. 121 Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be
Disposed Of ("SFAS No. 121"). Based on its review, Partnership
management believes that as of December 31, 1999, there were no
significant impairments of its long-lived assets or intangible assets.
Certain Significant Risks and Uncertainties:
Gaming Regulation Licensing
The Partnership conducts gaming operations in the State of Mississippi
that depends on the continued licensability or qualification of the
Partnership. Such licensing and qualifications are reviewed
periodically by the Mississippi Gaming Commission.
Competition
The gaming industry is extremely competitive and the Partnership faces
competition from new developments in the United States, specifically in
Mississippi and Louisiana.
Severe Weather
The Mississippi Gulf Coast is subject to severe weather, including
hurricanes. Severe weather could cause damage to the Company's casino
facility. The Partnership maintains insurance against casualty losses
resulting from severe weather and against business interruption. Such
insurance may not adequately compensate the Partnership for loss of
profits resulting from severe weather. On September 25, 1998, the
Company suspended operations due to Hurricane Georges, and the casino
remained closed until October 1, 1998. The Company received an
insurance settlement for $895,000 during 1999 for property damage and
business interruption.
Use of Estimates
Financial statements prepared in accordance with generally accepted
accounting principles require the use of management estimates,
including estimates used to evaluate the recoverability of property,
plant and equipment, to determine the fair value of financial
instruments, and to determine litigation related obligations. Actual
results could differ from estimates.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 balances
to be consistent with the 1999 financial statement presentation.
2. Supplemental Disclosure of Cash Flow Information
Cash paid for interest during the years ended December 31, 1999,
1998, and 1997 was $222,000, $280,000, and $3,339,000, respectively.
3. Other Long Term Assets
Other long term assets as of December 31, 1999 and 1998 included
$2,000,000 which is prepayment of the 99th year of the land lease with
Skrmetta.
21
<PAGE>
4. Property, Plant and Equipment
Property, plant and equipment as of December 31, 1999 and 1998
consisted of the following:
(in thousands)
December 31,
1999 1998
Land and land improvements $ 1,236 $ 1,236
Buildings and building improvements 41,417 41,449
Equipment 14,464 11,505
Construction in progress 326 389
------------- --------------
57,443 54,579
Less: Accumulated depreciation (13,509) (10,137)
-------------- --------------
$ 43,934 $ 44,442
============== ==============
5. Secured and Unsecured Notes Payable
Notes payable as of December 31, 1999 and 1998 consisted of the following:
(in thousands)
December 31,
1999 1998
Secured notes payable $ 1,250 $ 2,500
Capital lease obligations - 4
-------------- --------------
1,250 2,504
Less: current maturities (1,250) (1,254)
-------------- --------------
$ - $ 1,250
============== ==============
As of December 31, 1999 and 1998 the Partnership also had an
outstanding note payable to Boomtown in the amounts of $36,259,000 and
$44,971,000, respectively. These amounts primarily related to funds
invested by Boomtown for the initial construction of the property, and
the net of subsequent cash transfers to Boomtown from the Partnership,
and from Boomtown to the Partnership. Interest on the notes payable to
Boomtown was fixed at 11.5%. In September 1998, Boomtown, Inc.
discontinued charging interest to the Partnership.
On August 4, 1997, Pinnacle Entertainment executed an agreement on
behalf of the Partnership to purchase the barge that Boomtown Biloxi
sits upon and the associated building shell for $5,250,000. The
Partnership had been leasing these assets. In connection therewith, the
Partnership had made a down payment of $1,500,000 upon signing the
agreement, with the balance payable in three equal annual installments
of $1,250,000 with interest set at the prime rate as of the first day
of each quarter.
6. Employee Benefits
Pinnacle Entertainment offers a 401(k) Investment Plan (the "401(k)
Plan") which is subject to the provisions of the Employee Retirement
Income Security Act of 1994. The 401(k) Plan is open to all employees
22
<PAGE>
of the Partnership who have completed a minimum of 500 hours of
service. Employees may contribute up to 18% of pretax income (subject
to the legal limitation of $10,000 for 1999). The Partnership offers
discretionary matching, and for the years ended December 31, 1999, 1998
and 1997 matching contributions to the 401(k) Plan totaled $166,239,
$157,491 and $139,465, respectively.
7. Commitments and Contingencies
Debt Guarantees
On August 6 1997, Pinnacle Entertainment issued $125,000,000 of Series
A 9.5% Senior Subordinated Notes due 2007 (the "9.5% Notes"). In
February of 1999, Pinnacle Entertainment issued $350,000,000 of 9.25%
Senior Subordinating Notes due 2007.
(the "9.25% Notes)
Both the 9.25% and 9.5% Notes are unsecured obligations of Pinnacle
Entertainment, Inc. guaranteed by all material restricted subsidiaries
of the Company, as defined in the indentures, including the
Partnership. The indentures governing both the 9.25% and 9.5% Notes
contain certain covenants limiting the ability of Pinnacle
Entertainment and its restricted subsidiaries to incur additional
indebtedness, issue preferred stock, pay dividends or make certain
distributions, repurchase equity interests or subordinated
indebtedness, create certain liens, enter into certain transactions
with affiliates, sell assets, issue or sell equity interests in its
subsidiaries, or enter into certain mergers and consolidations.
Tidelands Lease
The Mississippi Partnership leases submerged tidelands at the Boomtown
Biloxi site from the State of Mississippi. The lease has a ten-year
term, (entered into in 1994) with a five-year option to renew. Lease
rent for each of the first three years of the lease was $525,000 and
$425,000 for the third and fourth years. During 1999, the Partnership
was notified of a rate increase for the sixth through tenth years. The
State of Mississippi has increased the rent to $476,00 based on the
Consumer Price Index ("CPI"). The Partnership remitted payment and was
subsequently notified by the State of Mississippi that the State has
exercised its option under the lease agreement to increase the rent
based on appraised value. The rent was then set by the State of
Mississippi at $620,000. The Partnership is currently contesting the
appraisal, but has accrued for the difference in the financial
statements presented herein.
8. Lease obligations and leasehold rights
The aggregate future minimum annual lease commitments as of
December 31, 1999, under operating leases having non-cancelable terms
in excess of one year is as follows:
(in thousands)
Year
2000 $ 1,148
2001 1,128
2002 1,111
2003 1,073
2004 567
Thereafter 33
---------------
Total $ 5,060
=========
Total rent expense for these long term lease obligations for the years
ended December 31, 1999, 1998, and 1997 was $986,126, $901,917 and
$929,338, respectively. In addition, the Partnership leases land from
Skrmetta for use by Boomtown Biloxi. The lease term is 99 years and is
cancelable upon one year's notice. The lease called for an initial
deposit by the Company of $2,000,000 and for annual base lease rent
payments of $2,000,000 and percentage rent equal to 5.0% of adjusted
gaming win (as defined in the lease) over $25,000,000.00. Skrmetta
agreed to provide the land, free of annual base rent, for two years in
23
<PAGE>
exchange for a 15% interest in the Company, which was subsequently
acquired by Boomtown (see Note 1). During the years ended December 31,
1999, 1998 and 1997 the Mississippi Partnership paid lease rent to
Skrmetta of $3,519,349, $3,116,131 and $2,961,359, respectively.
9. Pending Sale
On December 10, 1999, Pinnacle Entertainment announced it had entered
into a definitive agreement with Penn National Gaming, Inc. ("Penn
National") to sell for cash the Partnership's Boomtown Biloxi casino
operations for $75 million. Penn National will purchase all of the
property, plant and equipment and will assume certain liabilities. The
transaction is subject to certain closing conditions, including
approval by the Mississippi Gaming Commission, the purchaser completing
the necessary financing, and termination of the Hart-Scott Rodino
waiting period. Pinnacle Entertainment estimates the transaction will
close in the second quarter of 2000.
24
<PAGE>
MARDI GRAS CASINO CORP.
Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------------------------------------------------------------------------------------------------------
(in thousands)
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash $ 4,044 $ 3,642
Accounts receivable, net of allowance for doubtful
accounts of $259 in 2000 and $217 in 1999 965 587
Prepaid expenses and other current assets 968 572
Inventories 603 666
Deferred tax assets 285 285
------------------------------------------------------------------------------------------------------------
Total current assets 6,865 5,752
Property, plant and equipment, net 70,863 71,798
Investment in affiliate 932 932
Other assets 133 202
------------------------------------------------------------------------------------------------------------
Total assets $ 78,793 $ 78,684
------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
MARDI GRAS CASINO CORP.
Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------------------------------------------------------------------------------------------------------
(in thousands)
(unaudited)
<S> <C> <C>
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable $ 1,469 $ 1,497
Accrued expenses 2,338 3,016
Accrued payroll and related benefits 2,373 2,829
Accrued progressive gaming liabilities 961 1,076
Notes payable 53 148
------------------------------------------------------------------------------------------------------------
Total current liabilities 7,194 8,566
Notes payable 34 49
Due to affiliates 54,381 59,409
Deferred tax liabilities 2,860 2,860
------------------------------------------------------------------------------------------------------------
Total liabilities 64,469 70,884
Stockholder's equity
Common stock, $0.01 par
Issued and outstanding 3,000 shares -- --
Additional paid-in capital 39,688 39,688
Dividends (32,807) (32,807)
Retained earnings 7,443 919
------------------------------------------------------------------------------------------------------------
Total stockholder's equity 14,324 7,800
------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 78,793 $ 78,684
------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
26
<PAGE>
MARDI GRAS CASINO CORP.
Statements of Operations
<TABLE>
<CAPTION>
Six months ended June 30, 2000 1999
------------------------------------------------------------------------------------------------------------
(in thousands)
(unaudited)
<S> <C> <C>
Revenues
Gaming $ 40,958 $ 41,018
Food and beverage 1,917 2,017
Hotel and recreational vehicle park 1,053 1,053
Golf 1,174 1,010
Other income 1,743 557
------------------------------------------------------------------------------------------------------------
Total revenues 46,845 45,655
Expenses
Gaming 23,865 23,896
Food and beverage 1,953 1,913
Hotel and recreational vehicle park 586 489
Golf 830 822
General and administrative 6,376 6,065
Other 499 549
Depreciation and amortization 2,397 2,909
------------------------------------------------------------------------------------------------------------
Total expenses 36,506 36,643
------------------------------------------------------------------------------------------------------------
Income from operations 10,339 9,012
Other (income) expense
Interest expense 8 18
Interest income (2) (87)
(Gain) loss from disposal of assets 140 (27)
------------------------------------------------------------------------------------------------------------
Total other (income) expense 146 (96)
------------------------------------------------------------------------------------------------------------
Income before income taxes 10,193 9,018
Income tax expense 3,669 2,705
------------------------------------------------------------------------------------------------------------
Net income $ 6,524 $ 6,313
------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
MARDI GRAS CASINO CORP.
Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended June 30, 2000 1999
----------------------------------------------------------------------------------------------------------
(in thousands)
(unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 6,524 $ 6,403
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 2,397 2,909
Loss on disposal of property and equipment 140 --
Allowance for doubtful debts 42 29
Changes in assets and liabilities
(Increase) decrease in assets
Accounts receivable (420) 222
Prepaid expenses (396) (275)
Inventories 63 103
Other assets 69 (31)
Increase (decrease) in liabilities
Accounts payable (28) (46)
Accrued expenses (678) 2,627
Payroll and related benefits (456) 399
Accrued gaming liabilities (115) (241)
Due to affiliates, net (5,028) (4,994)
------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,114 7,105
------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sale of property and equipment 150 11
Acquisitions of property and equipment (1,751) (1,344)
------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (1,601) (1,333)
------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Principal payments on notes payable (111) (109)
------------------------------------------------------------------------------------------------------------
Net increase in cash 402 5,663
Cash at beginning of period 3,642 4,287
------------------------------------------------------------------------------------------------------------
Cash at end of period $ 4,044 $ 9,950
------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
MARDI GRAS CASINO CORP.
Notes to Financial Statements
(unaudited)
1. Basis of
Presentation
Mardi Gras Casino Corp. (the "Company" or "Mardi Gras") is a
Mississippi corporation and a wholly owned subsidiary of Casino
Magic Corp. which, as a result of a merger on October 15, 1998
(the "Merger"), is a wholly owned subsidiary of Pinnacle
Entertainment, Inc. ("Pinnacle Entertainment"), (formerly known
as Hollywood Park, Inc.) The Company operates Casino Magic Bay
The statements and related notes herein have St. Louis in Bay St.
Louis, Mississippi. been prepared 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 omitted
pursuant to such rules and regulations. The accompanying notes
should therefore be read in conjunction with the Partnership's
December 31, 1999 annual financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) have been made which are necessary to
present fairly the financial position of the Company as of June
30, 2000 and the results of its operations for the six month
periods ended June 30, 2000 and 1999. The results of operations
experienced for the six month period ended June 30, 2000 are not
necessarily indicative of the results to be experienced for the
fiscal year ended December 31, 2000.
2. Pending Sale
On December 10, 1999, Pinnacle Entertainment entered into two
definitive agreements to sell all of the operating assets of the
Casino Magic hotel, casino, golf resort, recreational vehicle
(RV) park and marina in Bay St. Louis, Mississippi and the
Boomtown Biloxi casino in Biloxi, Mississippi to Penn National
Gaming, Inc. for an aggregate of $195 million. These agreements
are contingent upon each other. In addition to acquiring all of
the operating assets and related operations of the Casino Magic
Bay St. Louis and Boomtown Biloxi properties, Penn National has
entered into a licensing agreement to use Boomtown and Casino
Magic names and marks at the properties acquired. The transaction
was subject to certain closing conditions including the approval
of the Mississippi Gaming Commission, financing and expiration of
the applicable Hart-Scott-Rodino waiting period. The acquisitions
were completed on August 8, 2000. Use of Estimates
Financial statements prepared in accordance with generally
accepted accounting principles require the use of management
estimates, including estimates used to evaluate the
recoverability of property, plant and equipment, to determine the
fair value of financial instruments, and to determine litigation
related obligations. Actual results could differ from estimates.
29
<PAGE>
MISSISSIPPI-I-GAMING, LP
Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------------------------------------------------------------------------------------------------
(in thousands)
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash $ 3,242 $ 2,974
Receivables, net of allowance for doubtful accounts of
$55 and $59 189 969
Prepaid expenses and other current assets 1,740 1,414
Inventories 481 527
------------------------------------------------------------------------------------------------------------
Total current assets 5,652 5,884
Property, plant and equipment, net 43,792 43,934
Other assets 2,034 2,059
------------------------------------------------------------------------------------------------------------
Total assets $ 51,478 $ 51,877
------------------------------------------------------------------------------------------------------------
Liabilities and Partners' Capital
Current liabilities
Accounts payable and accrued expenses $ 1,351 $ 1,776
Other accrued liabilities 3,829 4,445
Current maturities of notes payable, Boomtown, Inc. 33,711 36,259
Notes payable, other -- 1,250
------------------------------------------------------------------------------------------------------------
Total liabilities 38,891 43,730
Partners' capital
General partner 674 453
Limited partners 11,913 7,694
------------------------------------------------------------------------------------------------------------
Total partners' capital 12,587 8,147
------------------------------------------------------------------------------------------------------------
Total liabilities and partners' capital $ 51,478 $ 51,877
------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
30
<PAGE>
MISSISSIPPI-I-GAMING, LP
Statements of Operations
<TABLE>
<CAPTION>
Six months ended June 30, 2000 1999
-----------------------------------------------------------------------------------------------------------
(in thousands)
(unaudited)
<S> <C> <C>
Revenues
Gaming $ 29,493 $ 30,041
Food and beverage 3,113 3,223
Other 1,354 1,429
-----------------------------------------------------------------------------------------------------------
Total revenues 33,960 34,693
Costs and expenses
Gaming 9,693 9,746
Food and beverage 3,832 3,836
Administrative 13,336 13,362
Other 740 827
Depreciation and amortization 1,841 2,013
-----------------------------------------------------------------------------------------------------------
Total costs and expenses 29,442 29,784
-----------------------------------------------------------------------------------------------------------
Income from operations 4,518 4,909
Other (income) expense, interest 77 104
-----------------------------------------------------------------------------------------------------------
Net income 4,441 4,805
-----------------------------------------------------------------------------------------------------------
Net income allocated to partners
General partner 142 154
Limited partners 4,299 4,651
-----------------------------------------------------------------------------------------------------------
Total net income allocated to partners $ 4,441 $ 4,805
-----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
MISSISSIPPI-I-GAMING, LP
Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended June 30, 2000 1999
-----------------------------------------------------------------------------------------------------------
(in thousands)
(unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 4,441 $ 4,805
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 1,703 2,013
Loss on disposal of property and equipment 13 249
Changes in assets and liabilities
(Increase) decrease in assets
Other receivables, net 784 107
Prepaid expenses (326) (317)
Other assets 46 (6)
Inventory 25 95
Increase (decrease) in liabilities
Accounts payable and accrued expenses (429) (271)
Accrued compensation (253) 426
Accrued liabilities (616) 20
------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,388 7,119
------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Additions to property, plant and equipment (1,586) (1,912)
Proceeds from sale of property and equipment 12 3
------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (1,574) (1,909)
------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
32
<PAGE>
MISSISSIPPI-I-GAMING, LP
Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended June 30, 2000 1999
-----------------------------------------------------------------------------------------------------------
(in thousands)
(unaudited)
<S> <C> <C>
Cash flows from financing activities
Payment of note payable, Boomtown, Inc., net $ (2,548) $ (3,539)
Payment of notes payable, other (1,250) (4)
------------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (3,798) (3,543)
------------------------------------------------------------------------------------------------------------
Increase in cash 16 1,667
Cash at beginning of period 2,974 4,555
------------------------------------------------------------------------------------------------------------
Cash at end of period $ 2,990 $ 6,222
------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MISSISSIPPI-I-GAMING, LP
Notes to Financial Statements
(unaudited)
<PAGE>
1. Basis of
Presentation
Mississippi-I-Gaming, L.P. (the "Partnership") is a Mississippi
limited partnership, which is owned and controlled by Pinnacle
Entertainment, Inc. ("Pinnacle Entertainment"), (formerly known
as Hollywood Park, Inc.), through its wholly owned subsidiaries,
Boomtown, Inc. ("Boomtown") and Bayview Yacht Club, Inc., which
own 95% and 5%, respectively, of the Mississippi Partnership. The
Partnership owns and operates a casino ("Boomtown Biloxi"), which
opened in July 1994. Boomtown Biloxi occupies nineteen acres in
Biloxi, Mississippi.
The statements and related notes herein have been prepared
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 omitted pursuant to such rules and
regulations. The accompanying notes should therefore be read in
conjunction with the Partnership's December 31, 1999 annual
financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) have been made which are necessary to
present fairly the financial position of the Partnership as of
June 30, 2000 and the results of its operations for the six month
periods ended June 30, 2000 and 1999. The results of operations
experienced for the six month period ended June 30, 2000 are not
necessarily indicative of the results to be experienced for the
fiscal year ended December 31, 2000.
2. Pending Sale
On December 10, 1999, Pinnacle Entertainment entered into two
definitive agreements to sell all of the operating assets of the
Casino Magic hotel, casino, golf resort, recreational vehicle
(RV) park and marina in Bay St. Louis, Mississippi and the
Boomtown Biloxi casino in Biloxi, Mississippi to Penn National
Gaming, Inc. for an aggregate of $195 million. These agreements
are contingent upon each other. In addition to acquiring all of
the operating assets and related operations of the Casino Magic
Bay St. Louis and Boomtown Biloxi properties, Penn National has
entered into a licensing agreement to use Boomtown and Casino
Magic names and marks at the properties acquired. The transaction
was subject to certain closing conditions including the approval
of the Mississippi Gaming Commission, financing and expiration of
the applicable Hart-Scott-Rodino waiting period. The acquisitions
were completed on August 8, 2000.
Use of Estimates
Financial statements prepared in accordance with generally
accepted accounting principles require the use of management
estimates, including estimates used to evaluate the
recoverability of property, plant and equipment, to determine the
fair value of financial instruments, and to determine litigation
related obligations. Actual results could differ from estimates.
34
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION. The following unaudited pro forma
consolidated financial information is filed as part of this Current Report
on Form 8-K:
Page No.
Unaudited Pro Forma Consolidated Financial Information 36
Unaudited Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1999 37-38
Unaudited Pro Forma Consolidated Statement of Operations
for the six months ended June 30, 2000 39-40
Notes to Unaudited Pro Forma Consolidated Statement of Operations 41
Unaudited Pro Forma Consolidated Balance Sheet as of June 30,2000 42-44
Notes to Unaudited Pro Forma Consolidated Balance Sheets 45-46
35
<PAGE>
Unaudited Pro Forma Consolidated Financial Statements
On August 8, 2000, Penn National Gaming, Inc. and subsidiaries ("Penn National"
or the "Company") purchased substantially all of the assets (the "Acquisitions")
of the Casino Magic hotel, casino, golf resort, recreational vehicle park and
marina in Bay St. Louis, Mississippi ("Casino Magic") and the Boomtown Biloxi
casino in Biloxi, Mississippi ("Boomtown Biloxi") from certain subsidiaries of
Pinnacle Entertainment, Inc. The acquisition of Casino Magic and Boomtown Biloxi
were consummated by BSL, Inc. and BTN, Inc., respectively, each of which is a
wholly owned subsidiary of Penn National. The Casino Magic Acquisition was
accomplished pursuant to the terms of an Asset Purchase Agreement, dated as of
December 9, 1999, as amended, by and among BSL, Inc. and Casino Magic Corp. The
Boomtown Biloxi acquisition was accomplished pursuant to the terms of an Asset
Purchase Agreement, dated as of December 9, 1999, as amended, by and among BTN,
Inc. and Boomtown, Inc. The terms of each of the Purchase Agreements were the
result of arm's length negotiations among the parties. The aggregate
consideration paid by Penn National for the acquisitions was $196,260,000 cash,
which was funded by Penn National's concurrent execution of a new $350 million
credit facility on August 8, 2000.
The proceeds of the credit facility were used to finance the above acquisition,
to repay its existing indebtedness and for working capital. The credit facility
provides for a $75 million revolving credit facility maturing on August 8, 2005,
a $75 million Tranche A term loan maturing on August 8, 2005 and a $200 million
Tranche B term loan maturing on August 8, 2006.
At Penn National's option, the revolving credit facility and the Tranche A term
loan may bear interest at (1) the highest of 1/2 of 1% in excess of the federal
funds effective rate or the rate that the bank group announces from time to time
as its prime lending rate plus an applicable margin of up to 2.25% or (2) a
rate tied to a eurodollar rate plus an applicable margin up to 3.25%. At the
Company's option, the Tranche B term loan may bear interest at (1) the highest
of 1/2 of 1% in excess of the federal funds effective rate or the rate that the
bank group announces from time to time as its prime lending rate plus an
applicable margin of up to 3.25% or (2) a rate tied to a eurodollar rate plus an
applicable margin up to 4.00%.
In addition to acquiring all of the operating assets and related operations of
the Casino Magic and Boomtown Biloxi properties, Penn National has entered into
a licensing agreement to use the Boomtown Biloxi and Casino Magic names and
marks at the acquired properties.
The accompanying unaudited pro forma consolidated statement of operations for
the year ended December 31, 1999 and for the six months ended June 30, 2000 were
prepared giving effect to the acquisition of Casino Magic and Boomtown Biloxi
and the refinancing of the Company's long-term debt as if both events occurred
on January 1, 1999.
The accompanying unaudited pro forma consolidated balance sheet has been
prepared as if the above mentioned transactions occurred on June 30, 2000.
This unaudited pro forma consolidated financial information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if Casino Magic and
Boomtown Biloxi had been acquired as of January 1, 1999, or if the assumption of
the new credit facility, repayment of Penn National's indebtedness, or the
tender premium paid to the holders of the 10.625% senior subordinated notes had
been completed in an earlier period, nor is it necessarily indicative of future
operating results or financial position.
The unaudited pro forma consolidated financial statements are based on, and
should be read in conjunction with, the historical consolidated financial
statements and the related notes thereto of Penn National, Casino Magic and
Boomtown Biloxi for the twelve months ended December 31, 1999 and for the six
months ended June 30, 2000, respectively.
36
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Consolidated Statement of Operations
Year ended December 31, 1999
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands) Pro Forma Adjustments
-----------------------------------
Pro
Penn Boomtown Forma
National Biloxi Refinancing as Adjusted
Gaming, Inc. and of for
and Boomtown Casino Casino Magic Long-Term Mississippi
Subsidiaries Biloxi Magic Acquisition Debt Acquisition
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Gaming $ 55,744 $ 58,191 $ 80,349 $ -- $ -- $ 194,284
Racing 101,240 -- -- -- -- 101,240
Food and beverage 12,117 6,270 3,821 -- -- 22,208
Other 1,259 2,471 4,650 -- -- 8,380
Earnings from unconsolidated
affiliates 1,098 -- -- -- -- 1,098
-----------------------------------------------------------------------------------------------------------------------------------
171,458 66,932 88,820 -- -- 327,210
-----------------------------------------------------------------------------------------------------------------------------------
Expenses
Gaming 38,284 29,366 47,446 -- -- 115,096
Racing 80,513 -- -- -- -- 80,513
Food and beverage 11,031 7,555 3,723 -- -- 22,309
General and administrative 11,424 15,954 12,291 -- -- 39,669
Nonrecurring expenses 3,285 -- -- -- -- 3,285
Other 425 1,669 3,512 -- -- 5,606
Depreciation and amortization 8,679 3,846 5,949 (495)(a) -- 17,979
-----------------------------------------------------------------------------------------------------------------------------------
153,641 58,390 72,921 (495) -- 284,457
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
<TABLE>
<CAPTION>
Year ended December 31, 1999
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands) Pro Forma Adjustments
------------------------------
Pro
Penn Boomtown Forma
National Biloxi Refinancing as Adjusted
Gaming, Inc. and of for
and Boomtown Casino Casino Magic Long-Term Mississippi
Subsidiaries Biloxi Magic Acquisition Debt Acquisition
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income from operations $ 17,817 $ 8,542 $ 15,899 $ 495 $ -- $ 42,753
Interest income 1,368 -- 110 -- -- 1,478
Interest expense (8,667) (150) (31) -- (23,207)(b) (32,055)
Other income (expenses), net (8) 894 141 -- -- 1,027
----------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 10,510 9,286 16,119 495 (23,207) 13,203
Income tax expense 3,777 -- 5,656 198(c) (4,350)(c) 5,281
----------------------------------------------------------------------------------------------------------------------------------
Net income $ 6,733 $ 9,286 $ 10,463 $ 297 $ (18,857) $ 7,922
----------------------------------------------------------------------------------------------------------------------------------
Per common share
Net income-basic $ 0.45 $ 0.53
Net income-diluted $ 0.44 $ 0.52
Weighted average number of shares
outstanding-basic 14,837 14,837
Weighted average number of shares
outstanding-diluted 15,196 15,196
</TABLE>
38
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
<TABLE>
<CAPTION>
Six months ended June 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands) Pro Forma Adjustments
------------------------------------
Pro
Penn Boomtown Forma
National Biloxi Refinancing as Adjusted
Gaming, Inc. and of for
and Boomtown Casino Casino Magic Long-Term Mississippi
Subsidiaries Biloxi Magic Acquisition Debt Acquisition
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Gaming $ 49,019 $ 29,493 $ 40,958 $ -- $ -- $ 119,470
Racing 53,801 -- -- -- -- 53,801
Food and beverage 11,426 3,113 1,917 -- -- 16,456
Other -- 1,354 3,970 -- -- 5,324
Earnings from unconsolidated
affiliates 1,429 -- -- -- -- 1,429
-----------------------------------------------------------------------------------------------------------------------------------
115,675 33,960 46,845 -- -- 196,480
-----------------------------------------------------------------------------------------------------------------------------------
Expenses
Gaming 19,320 9,693 23,865 -- -- 52,878
Racing 33,142 -- -- -- -- 33,142
Food and beverage 6,565 3,832 1,953 -- -- 12,350
General and administrative 24,190 13,336 6,376 -- -- 43,902
Other 8,564 740 1,915 -- -- 11,219
Depreciation and amortization 4,368 1,841 2,397 635 (a) -- 9,241
-----------------------------------------------------------------------------------------------------------------------------------
Total expenses 96,149 29,442 36,506 635 -- 162,732
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
<TABLE>
<CAPTION>
Six months ended June 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands) Pro Forma Adjustments
-----------------------------
Pro
Penn Boomtown Forma
National Biloxi Refinancing as Adjusted
Gaming, Inc. and of for
and Boomtown Casino Casino Magic Long-Term Mississippi
Subsidiaries Biloxi Magic Acquisition Debt Acquisition
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income from operations $ 19,526 $ 4,518 $ 10,339 $ (635) $ -- $ 33,748
Interest income 881 -- 2 -- -- 883
Interest expense (4,816) (77) (8) -- (11,175)(b) (16,076)
Gain(loss) from disposal of assets -- -- (140) -- -- (140)
Other (expenses), net (154) -- -- -- -- (154)
-----------------------------------------------------------------------------------------------------------------------------------
Income before income tax
expense 15,437 4,441 10,193 (635) (11,175) 18,261
Income tax expense 5,591 -- 3,669 (254)(c) (1,702)(c) 7,304
-----------------------------------------------------------------------------------------------------------------------------------
Net income $ 9,846 $ 4,441 $ 6,524 $ (381) $ (9,473) $ 10,957
-----------------------------------------------------------------------------------------------------------------------------------
Per common share
Net income-basic $ 0.66 $ 0.73
Net income-diluted $ 0.64 $ 0.71
Weighted average number of shares
outstanding-basic 14,918 14,918
Weighted average number of shares
outstanding-diluted 15,338 15,338
</TABLE>
40
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statements of Operations
The following pro forma adjustments have been made to the unaudited pro forma
consolidated statements of operations:
(a) Adjustments to reflect:
<TABLE>
<CAPTION>
Year ended Six months
December 31, ended June 30,
1999 2000
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net (decrease) in expense resulting from the
depreciation of $139.4 million of property assets using
lives ranging from 5 to 39 years $ (1,969) $ (230)
Amortization of goodwill of $56.8 million using a
useful life of 40 years 1,420 710
Net increase in expense resulting from the
amortization of $9.5 million in deferred financing costs
over the six-year term of the Notes Payable 54 255
-------------------------------------
$ (495) $ 635
=====================================
</TABLE>
(b) Adjustments to interest expense:
<TABLE>
<CAPTION>
Year ended Six months
December 31, ended June 30,
1999 2000
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Increase) in interest expense resulting from the
refinancing of all debt obligations and debt incurred for
the acquisition of Boomtown Biloxi and Casino Magic $ (23,470) $ (11,252)
Decrease in interest expense on debt of Boomtown
Biloxi not assumed with the acquisition 263 77
-------------------------------------
$ (23,207) $ (11,175)
=====================================
</TABLE>
(c) To reflect net income tax expense associated with the pro forma
adjustments. The pro forma income tax expense for the six months ended June
30, 2000 does not include a $5.1 million benefit related to the
deductibility of the payment of the $8.5 million bond tender premium and
the write-off of $4.6 million of deferred financing costs. See Note (E) of
the Pro Forma Consolidated Balance Sheet fo radditional information.
41
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands) Pro Forma Adjustments
---------------------------------
Pro
Penn Boomtown Forma
National Biloxi Refinancing as Adjusted
Gaming, Inc. and of for
and Boomtown Casino Casino Magic Long-Term Mississippi
Subsidiaries Biloxi Magic Acquisition Debt Acquisition
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 13,831 $ 3,242 $ 4,044 $ (194,183)(a) $ 197,042(c) $ 23,976
Accounts receivable 5,011 189 965 -- -- 6,165
Prepaid expenses and other current assets 2,748 1,740 968 -- 5,050(e) 10,506
Inventories -- 481 603 -- -- 1,084
Deferred income taxes 594 -- 285 (285)(d) -- 594
-----------------------------------------------------------------------------------------------------------------------------------
Total current assets 22,184 5,652 6,865 (194,468) 202,092 42,325
-----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 130,667 43,792 70,863 24,767(a) -- 270,089
-----------------------------------------------------------------------------------------------------------------------------------
Other assets
Investments and advances to unconsolidated
affiliate 13,517 -- -- -- -- 13,517
Investment in affiliate -- -- 932 -- -- 932
Cash in escrow 5,000 -- -- (5,000)(a) -- --
Excess of cost over fair value of net assets
acquired, net 27,123 -- -- 56,838 (a) -- 83,961
Deferred financing costs 4,569 -- -- -- 4,931(b) 9,500
Miscellaneous 1,306 2,034 133 -- -- 3,473
-----------------------------------------------------------------------------------------------------------------------------------
Total other assets 51,515 2,034 1,065 51,838 4,931 111,383
-----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 204,366 $ 51,478 $ 78,793 $ (117,863) $ 207,023 $ 423,797
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands) Pro Forma Adjustments
------------------------------
Pro
Penn Boomtown Forma
National Biloxi Refinancing as Adjusted
Gaming, Inc. and of for
and Boomtown Casino Casino Magic Long-Term Mississippi
Subsidiaries Biloxi Magic Acquisition Debt Acquisition
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current liabilities
Current maturities of long-term debt and
capital lease obligations $ 5,160 $ -- $ -- $ -- $ 4,500 (b) $ 9,660
Accounts payable 6,664 1,351 1,469 -- -- 9,484
Purses due horsemen 2,451 -- -- -- -- 2,451
Uncashed pari-mutuel tickets 809 -- -- -- -- 809
Accrued expenses 1,814 3,829 2,338 -- (1,100)(c) 6,881
Accrued interest 323 -- -- -- -- 323
Accrued salaries and wages 1,310 -- 2,373 -- -- 3,683
Accrued progressive gaming
liabilities -- -- 961 -- -- 961
Customer deposits 1,121 -- -- -- -- 1,121
Taxes, other than income taxes 1,568 -- -- -- -- 1,568
Income taxes 2,640 -- -- -- -- 2,640
Current maturities of notes
payable, Boomtown Biloxi, Inc. -- 33,711 -- (33,711)(d) -- --
Current maturities of notes
payable, other -- -- 53 -- -- 53
-----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 23,860 38,891 7,194 (33,711) 3,400 39,634
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30, 2000
----------------------------------------------------------------------------------------------------------------------------------
(in thousands) Pro Forma Adjustments
---------------------------
Pro
Penn Boomtown Forma
National Biloxi Refinancing as Adjusted
Gaming, Inc. and of for
and Boomtown Casino asino Magic Long-Term Mississippi
Subsidiaries Biloxi Magic Acquisition Debt Acquisition
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term liabilities
Long-term debt and capital lease obligations,
net $ 90,883 $ -- $ -- $ -- $ 20,617 (c) $ 111,500
Term loan -- -- -- -- 191,000 (c) 191,000
Notes payable -- -- 34 -- -- 34
Due to affiliates -- -- 54,381 (54,381)(d) -- --
Deferred income taxes 12,906 -- 2,860 (2,860)(d) -- 12,906
-----------------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 103,789 -- 57,275 (57,241) 211,617 315,440
-----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Partners' capital -- 12,587 -- (12,587)(d) -- --
Preferred stock -- -- -- -- -- --
Common stock 154 -- -- -- -- 154
Treasury stock (2,379) -- -- -- -- (2,379)
Additional paid-in capital 39,125 -- 39,688 (39,688)(d) -- 39,125
Dividends -- -- (32,807) 32,807 (d) -- --
Retained earnings 39,817 -- 7,443 (7,443)(d) (7,994) (b) 31,823
(c)
(d)
(e)
-----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 76,717 12,587 14,324 (26,911) (7,994 ) 68,723
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 204,366 $ 51,478 $ 78,793 $ (117,863) $ 207,023 $ 423,797
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
Notes to Unaudited Pro Forma Consolidated Balance Sheet
The acquisition of Boomtown Biloxi and Casino Magic was accounted for under the
purchase method of accounting for a business combination. The unaudited pro
forma consolidated balance sheet is presented as if the following had taken
place as of June 30, 2000: (1) the acquisition of Boomtown Biloxi; (2) the
acquisition of Casino Magic; (3) the issuance of the Notes Payable and
refinancing of current debt obligations; and (4) the consent fee paid to holders
of the 10.625% Senior Subordinated Notes in the consent solicitation.
Pro Forma Adjustments - The following pro forma adjustments have been made to
the unaudited pro forma consolidated balance sheet:
<TABLE>
<CAPTION>
(a) Pro forma purchase price allocation:
<S> <C>
Pro forma purchase price (including acquisition expenses of $1,260) $ 196,260
Cash and other current assets not assumed with the acquisition 2,923
------------------
199,183
Cash in escrow (5,000)
------------------
Cash paid at settlement $ 194,183
==================
Pro forma purchase price allocation:
Property, plant and equipment $ 139,422
Goodwill 56,838
------------------
$ 196,260
==================
Reconciliation of property, plant and equipment at cost
to fair value:
Boomtown Biloxi $ 43,792
Casino Magic 70,863
------------------
Total cost 114,655
To adjust to fair value 24,767
------------------
Total property, plant and equipment, at fair value $ 139,422
==================
(b) Total costs incurred for new financing $ 9,500
Write-off of deferred financing costs (4,569)
------------------
$ 4,931
==================
</TABLE>
The financing costs will be amortized over a six-year period using the
straight-line method.
45
<PAGE>
Notes to Unaudited Pro Forma Consolidated Balance Sheet
(c) Proceeds from debt $ 312,000
Repayment of existing debt, long-term (90,883)
Repayment of existing debt, current maturities (5,000)
Bond premium and accrued interest (9,575)
Deferred financing costs (9,500)
------------------
Net cash received $ 197,042
==================
(d) To eliminate Casino Magic's and Boomtown Biloxi's equity accounts and other
liabilities which were not assumed.
All operating assets, net of certain liabilities,
were recorded at historical cost at the acquisition date,
which approximates their market value.
Certain reclassifications have been made to both the
Boomtown Biloxi and Casino Magic historical consolidated
balance sheets to conform to the pro forma consolidated
balance sheet presentation.
(e) To record the current income tax benefit associated with the $8.5 million
bond tender premium paid to holders of the 10.625% senior subordinated
notes and the write-off of approximately $4.6 million of deferred financing
costs associated with repayment of Penn National's indebtedness and
cancellation of related credit facilities.
46
<PAGE>
(c) Exhibits
Exhibit No. Description
2.1
Asset Purchase Agreement dated as of December 9, 1999 between
BSL, Inc. and Casino Magic Corp. (Exhibit 99.2) (1) (Incorporated
by reference to the Company's Form 8-K, dated August 8, 2000)
2.2
First Amendment to Asset Purchase Agreement dated as of December
17, 1999 between BSL, Inc. and Casino Magic Corp. (Exhibit 99.5)
(1) (Incorporated by reference to the Company's Form 8-K, dated
August 8, 2000)
2.3
Second Amendment to Asset Purchase Agreement dated as of August
1, 2000 between BSL, Inc. and Casino Magic Corp. (Incorporated by
reference to the Company's Form 8-K, dated August 8, 2000)
2.4
Asset Purchase Agreement dated as of December 9, 1999 between
BTN, Inc. and Boomtown Inc. (Exhibit 99.6) (1) (Incorporated by
reference to the Company's Form 8-K, dated August 8, 2000)
2.5
First Amendment to Asset Purchase Agreement dated as of December
17, 1999 between BTN, Inc. and Boomtown Inc. (Exhibit 99.9) (1)
(Incorporated by reference to the Company's Form 8-K, dated
August 8, 2000)
2.6
Second Amendment to Asset Purchase Agreement dated as of August
1, 2000 between BTN, Inc. and Boomtown Inc. (Incorporated by
reference to the Company's Form 8-K, dated August 8, 2000)
10.1
Credit Agreement among Penn National Gaming, Inc., as Borrower,
the Several Lenders from time to time parties hereto, Lehman
Brothers Inc., as Lead Arranger and Book-Running Manager, CIBC
World Markets Corp., as Co-Lead Arranger and Co-Book Running
Manager, Lehman Commercial Paper Inc., as Syndication Agent,
Canadian Imperial Bank of Commerce, as Administrative Agent, and
The CIT Group/Equipment Financing, Inc., First Union National
Bank and Wells Fargo Bank, N.A., as Documentation Agents, dated
as of August 8, 2000. (Incorporated by reference to the Company's
Form 8-K, dated August 8, 2000)
99.1
Press Release dated August 8, 2000 (Incorporated by reference to
the Company's Form 8-K, dated August 8, 2000)
47
<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.
Penn National Gaming, Inc.
October 20, 2000 By:_/s/Robert S. Ippolito_________________
Date Robert S. Ippolito, Chief Financial Officer
48
