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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2002.
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: 333-88829
PENINSULA GAMING COMPANY, LLC/PENINSULA GAMING CORP.
(Exact name of registrant as specified in its charter)
IOWA 42-1483875
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
3rd STREET ICE HARBOR, P.O. BOX 1750, DUBUQUE, IOWA 52001-1750
(Address of principal executive offices) (Zip code)
(563) 583-7005
(Registrant's telephone number including area code)
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 last 90 days. Yes [X] No []
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes [] No [X]
All of the common equity interests of Peninsula Gaming Company, LLC
(the "Company") are held by Peninsula Gaming Partners, LLC, and all of the
common stock of Peninsula Gaming Corp. is held by Peninsula Gaming Company, LLC.
PENINSULA GAMING COMPANY, LLC
INDEX TO FORM 10-Q
Part I - Financial Information
Item 1 - Financial Statements
Peninsula Gaming Company, LLC:
Condensed Consolidated Balance Sheets as of September 30, 2002
(Unaudited) and December 31, 2001.......................................................3
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine
Months Ended September 30, 2002 and 2001 ..................................................4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months Ended September 30, 2002 and 2001...............................................5
Notes to Condensed Consolidated Financial Statements (Unaudited)...........................6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................16
Item 3 - Quantitative and Qualitative Disclosures About Market Risk...............................25
Item 4 - Controls and Procedures .................................................................25
Part II - Other Information
Item 1 - Legal Proceedings ....................................................................26
Item 2 - Changes in Securities and Use of Proceeds ............................................26
Item 3 - Defaults Upon Senior Securities......................................................26
Item 4 - Submission of Matters to a Vote of Security Holders ..................................26
Item 5 - Other Information ....................................................................26
Item 6 - Exhibits and Reports on Form 8-K .....................................................27
Signatures................................................................................................28
Certification of Chief Executive Officer .................................................................29
Certification by Chief Financial Officer .................................................................30
Certification by President and Treasurer .................................................................31
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PENINSULA GAMING COMPANY, LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2002
(UNAUDITED) 2001
------------------ --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,454,616 $ 7,523,652
Restricted cash 3,020
Accounts receivable, less allowance for doubtful accounts
of $50,001 and $56,917, respectively 800,490 105,480
Inventory 128,474 97,677
Prepaid expenses 421,896 307,064
------------- ------------
Total current assets 10,808,496 8,033,873
------------- ------------
PROPERTY AND EQUIPMENT, NET 17,904,408 17,930,643
------------- ------------
RACINO PROJECT DEVELOPMENT COSTS 5,545,207 246,753
------------- ------------
OTHER ASSETS:
Deferred financing costs, net of amortization
of $2,347,650 and $1,844,783, respectively 4,542,344 3,687,698
Goodwill 83,839,717 53,083,429
Business acquisition and licensing costs 1,355,750
Deposits 110,988 35,405
------------- ------------
Total other assets 88,493,049 58,162,282
------------- ------------
TOTAL $ 122,751,160 $ 84,373,551
============= ============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,059,710 $ 335,416
Purse settlement payable 112,664
Accrued payroll and payroll taxes 1,315,898 1,280,177
Other accrued expenses 5,429,002 2,234,922
Current maturity - capital lease obligations 113,552 113,552
Current maturity - line of credit 600,000
Term loan payable 8,450,000
Notes payable 11,825,000
------------- ------------
Total current liabilities 29,905,826 3,964,067
------------- ------------
LONG-TERM LIABILITIES:
Senior secured notes, net of discount 70,464,707 70,384,482
Line of credit 11,400,000
Capital lease obligations 362,229 362,229
------------- ------------
Total long-term liabilities 82,226,936 70,746,711
------------- ------------
Total liabilities 112,132,762 74,710,778
COMMITMENTS AND CONTINGENCIES
PREFERRED MEMBERS' INTEREST, REDEEMABLE 4,000,000 4,000,000
MEMBERS' EQUITY 6,618,398 5,662,773
------------- ------------
TOTAL $ 122,751,160 $ 84,373,551
============= ============
See notes to condensed consolidated financial statements (unaudited).
-3-
PENINSULA GAMING COMPANY, LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
---------------- --------------- --------------- ---------------
REVENUES:
Casino $ 12,762,874 $ 12,802,047 $ 36,291,517 $ 35,972,418
Racing 3,191,913 8,104,750
Food and beverage 1,155,560 780,523 3,050,119 2,042,030
Other 34,513 31,798 90,444 92,217
Less promotional allowances (707,514) (611,618) (1,939,388) (1,869,477)
--------------- -------------- -------------- -------------
Total net revenues 16,437,346 13,002,750 45,597,442 36,237,188
--------------- -------------- -------------- -------------
EXPENSES:
Casino 5,065,022 4,993,588 15,315,316 15,140,244
Racing 2,546,436 6,283,735
Food and beverage 1,053,541 731,714 2,881,622 2,138,760
Boat operations 588,865 567,177 1,740,137 1,701,064
Other 7,521 4,951 22,799 14,770
Selling, general and administrative 2,081,157 1,947,941 5,953,694 4,930,327
Referendum 136,681 136,681
Depreciation and amortization 756,990 964,647 2,190,432 2,876,655
--------------- -------------- -------------- -------------
Total expenses 12,236,213 9,210,018 34,524,416 26,801,820
--------------- -------------- -------------- -------------
INCOME FROM OPERATIONS 4,201,133 3,792,732 11,073,026 9,435,368
--------------- -------------- -------------- -------------
OTHER INCOME (EXPENSE):
Interest income 6,706 38,432 37,776 149,219
Interest expense (including amortization
of deferred financing costs and bond
discount of $372,564 and $225,255
for the three months ended
September 30, 2002 and 2001,
respectively, and $928,079
and $670,713 for the nine months ended
September 30, 2002 and 2001,
respectively) (3,049,134) (2,418,946) (8,580,758) (7,215,312)
Loss on sale of assets (36,462) (112,227)
--------------- -------------- ------------- -------------
Total other expense (3,042,428) (2,416,976) (8,542,982) (7,178,320)
--------------- -------------- ------------- -------------
NET INCOME BEFORE PREFERRED MEMBER
DISTRIBUTIONS
AND MINORITY INTEREST 1,158,705 1,375,756 2,530,044 2,257,048
LESS PREFERRED MEMBER DISTRIBUTIONS (93,263) (93,263) (279,788) (292,911)
LESS MINORITY INTEREST (96,744) (292,888)
--------------- -------------- ------------- -------------
NET INCOME TO COMMON MEMBERS' INTEREST $ 968,698 $ 1,282,493 $ 1,957,368 $ 1,964,137
=============== ============== ============= =============
See notes to condensed consolidated financial statements (unaudited).
-4-
PENINSULA GAMING COMPANY, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS
NINE MONTHS ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
----------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,957,368 $ 1,964,137
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 2,190,432 2,876,655
Provision for doubtful accounts 98,332 114,673
Amortization of deferred financing costs and bond
discount 928,079 670,713
Loss on sale of assets 112,227
Minority interest share of income 292,888
Changes in operating assets and liabilities:
Restricted cash 1,477,001
Receivables (575,648) (120,226)
Inventory 15,227 10,661
Prepaid expenses and other assets (58,191) 219,530
Accounts payable (436,480) (402,796)
Accrued expenses 2,567,598 2,482,664
------------- -------------
Net cash flows from operating activities 8,456,606 7,928,238
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition and licensing costs (1,045,887) (370,482)
Acquisition of business, net of cash acquired (29,275,862)
Racino Project development costs (4,750,352)
Proceeds from sale of property and equipment 51,378
Purchase of property and equipment (1,005,919) (1,439,557)
------------- -------------
Net cash flows from investing activities (36,078,020) (1,758,661)
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred members' interest redeemed (3,000,000)
Deferred financing costs (1,702,500) (484,984)
Member distributions (1,001,743) (1,470,631)
Principal payments on long-term debt to related party (18,379)
Proceeds from notes payable 11,825,000
Proceeds from term loan 8,450,000
Proceeds from line of credit 12,000,000
------------- -------------
Net cash flows from financing activities 29,552,378 (4,955,615)
------------- -------------
NET INCREASE IN CASH 1,930,964 1,213,962
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,523,652 8,362,122
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,454,616 $ 9,576,084
============= =============
See notes to condensed consolidated financial statements (unaudited).
-5-
PENINSULA GAMING COMPANY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Organization and Basis of Presentation
Peninsula Gaming Company, LLC (the "Company" or "PGC") is wholly owned by
Peninsula Gaming Partners, LLC, a Delaware limited liability company ("PGP") and
our sole managing member. The Company is a Delaware limited liability company
formed on January 26, 1999 for the purpose of purchasing assets comprised of the
Diamond Jo Casino and related real property. Peninsula Gaming Corp. is a wholly
owned subsidiary of the Company, has no assets or operations and was formed
solely to facilitate the offering of our 12 1/4% Senior Secured Notes due 2006
(the "Notes") in certain jurisdictions. OED Acquisition, LLC ("OEDA") is a
wholly owned subsidiary of PGC formed on July 9, 2001 to facilitate the purchase
of a 50% membership interest in The Old Evangeline Downs, L.C. ("OED"), a
Louisiana limited liability company that currently operates a racetrack that
provides both live horse racing and off-track betting in and around Lafayette,
LA. On August 30, 2002, OEDA consummated the purchase of the remaining 50%
membership interest in OED. The financial position of OED as of September 30,
2002 and the results of its operations and its cash flows for the period
February 15, 2002 (date of acquisition) to September 30, 2002 have been
consolidated into the Company's consolidated financial statements. During the
period February 15, 2002 to August 30, 2002, the Company had substantive control
of OED. All significant intercompany transactions have been eliminated.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting only of normal recurring entries
unless otherwise disclosed, necessary to present fairly the financial
information of the Company for the interim periods presented and have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The interim results reflected in the financial
statements are not necessarily indicative of results for the full year or other
periods.
The financial statements contained herein should be read in conjunction with the
audited financial statements and accompanying notes to the financial statements
included in the Company's Annual Report on Form 10-K for the period ended
December 31, 2001. Accordingly, footnote disclosure which would substantially
duplicate the disclosure in the audited financial statements has been omitted in
the accompanying unaudited financial statements.
2. Acquisition of OED
On February 15, 2002, OEDA consummated its acquisition of: (i) 50% of the
membership interests (the "BIM3 Interests") of OED from BIM3 Investments, a
Louisiana partnership ("BIM3"); and (ii) BIM3's one-half (1/2) interest in two
promissory notes issued by OED in the aggregate principal amount of $10,909,244
(the "OED Notes"), for an aggregate purchase price of $15,000,000 in cash. The
remaining 50% of the membership interests in OED were owned by William E.
Trotter, II Family L.L.C., a Louisiana limited liability company. The
acquisition was made pursuant to a purchase agreement dated June 27, 2001 by and
among the Company's parent, PGP, OED and BIM3 (as amended, the "Moody Purchase
Agreement"). Pursuant to the terms of the Moody Purchase Agreement, PGP paid a
cash deposit of $500,000 which was applied against the purchase price when the
acquisition was consummated. The Moody Purchase Agreement was assigned to OEDA
by PGP on October 23, 2001 for a purchase price of $523,836 which was paid by
OEDA in cash.
-6-
The source of funds for the transaction described above was $3,000,000 of cash
on-hand and $12,000,000 of borrowings under the Company's credit agreement with
Foothill Capital Corporation. During the first quarter of 2002, the Company
amended its credit facility to increase the available funds to $12,500,000 and
obtained consents under the indenture governing its Notes to consummate the
acquisition. On March 7, 2002, the Company paid consent fees totaling $887,500
to holders of the Notes related to the above transaction.
In October 2002, the Company further amended its credit facility which requires
the Company to begin making principal payments on the amount advanced of $50,000
per month beginning in October 2002 and continuing through February 2005. In
addition, the maximum available funds under the facility shall be reduced by the
total amount of the principal repayments.
On June 25, 2002, PGP entered into an agreement with William E. Trotter, II
("WET2") and William E. Trotter, II Family LLC, a Louisiana limited liability
company ("WET2LLC") to acquire (i) the 50% interest in the OED Notes owned by
WET2, and (ii) the 50% membership interest in OED, owned by WET2LLC (the
"Trotter Purchase"). On August 30, 2002, OEDA completed the Trotter Purchase for
a purchase price of $15,546,000 plus a contingent fee of one half of one percent
(.5%) of the net slot revenues from the date of opening of a new casino, located
in St. Landry Parish, until the date that is ten years after the opening of the
casino to the public.
The source of funds for the Trotter Purchase described above was $8,450,000 of
borrowings under OED's loan and security agreement with Foothill Capital
Corporation entered into on August 30, 2002 and maturing on the earlier of (a)
June 30, 2003 or (b) the date on which OED consummates its financing of the
Racino Project (the "Term Loan") and proceeds from a $7,325,000 note payable to
WET2LLC (the "WET2LLC Note") due June 30, 2003. The WET2LLC Note was issued by
PGP.
The Term Loan contains, among other things, covenants, representations and
warranties and events of default customary for loans of this type, including,
but not limited to, certain requirements relating to the financing, construction
and development of the Racino Project and a minimum EBITDA maintenance covenant.
The obligations under the Term Loan are secured by substantially all of the
assets of OED and guaranteed by PGP. The Term Loan is not guaranteed by the
Company and is not secured by any assets or property of the Company.
-7-
During the period February 15, 2002 through September 30, 2002, OED paid
principal of $18,379 and interest of $297,536 to WET2 related to WET2's 50%
interest in the OED Notes.
The Company accounted for its acquisition as a purchase in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets". The
purchase price has been allocated to the underlying assets and liabilities based
on their estimated fair values at the date of acquisition. To the extent the
purchase price exceeded the fair value of the net identifiable assets acquired,
such excess has been recorded as goodwill. As of September 30, 2002, the Company
recorded goodwill of approximately $30.8 million related to the acquisition. The
Company has not completed its evaluation of the intangible assets acquired in
the OED acquisition. This evaluation may result in adjustments to the purchase
price allocation. Under the provisions of SFAS 142, goodwill and other
intangible assets with indefinite lives arising from the acquisition will not be
amortized but will be reviewed at least annually for impairment and written down
and charged to income when its recorded value exceeds its estimated fair value.
The results of operations of OED are included in the condensed consolidated
financial statements from the date of acquisition through September 30, 2002.
The Company will manage the existing racetrack and, subject to receipt of
required gaming approvals, is planning to design, construct, manage and operate
a new casino and contiguous racetrack facility with pari-mutuel wagering, slots
and OTB parlors in St. Landry Parish, Louisiana (the "Racino Project").
The cost to construct and develop the Racino Project is estimated at $90
million. The Company is currently investigating financing alternatives for the
financing of construction and development costs including, but not limited to, a
private placement of debt securities. The Racino Project is expected to include
at least 1,525 slot machines, dirt and turf racetracks and several dining
options. The Racino Project is one of only three racetracks in the State of
Louisiana currently authorized to conduct casino operations. The successful
completion of the Racino Project is subject to factors beyond the control of
OED. The extent and timing of the development and construction of the Racino
Project will depend on available cash flow or the ability to obtain financing.
There can be no assurance that sufficient cash flow or necessary financing will
be available on satisfactory terms to OED. In addition, the Company and OED will
be subject to comprehensive and stringent government regulations. The Company
and OED and their respective officers, directors, members, significant
shareholders and employees will be subject to the Louisiana Gaming Control Board
and the Louisiana Gaming Commission and will need to submit to a regulatory
review process prior to mandatory licensing. There can be no assurance that all
necessary licenses will be issued, or issued on a timely basis. For the
foregoing reasons, there can be no assurance that the Racino Project will be
completed, or completed in a timely manner.
The following unaudited consolidated pro forma information presents a summary of
the consolidated results of operations of the Company for the nine months ended
September 30, 2002 and 2001 as if the acquisition of 100% of OED had occurred
January 1, 2001.
-8-
Consolidated Pro Forma Information (Unaudited)
(in thousands)
2002 2001
-------- --------
Net revenues $ 46,967 $ 46,980
Income from operations 11,324 11,206
Net income to common interests 1,782 1,281
The consolidated pro forma adjustments included in the consolidated pro forma
information above represents interest on borrowings of $12.0 million under PGC's
credit facility with Foothill Capital Corp., interest on borrowings of
$8,450,000 under OED's Loan and Security Agreement with Foothill Capital Corp.
and interest on the proceeds received from notes payable issued to WET2 and
WET2LLC of $11,825,000, all proceeds of which were used to finance the purchase
of OED and land located in St. Landry Parish, the elimination of interest
expense associated with the debt under the old debt structure, and the
elimination of amortization of goodwill related to OED. The pro forma results do
not purport to be indicative of results that would have occurred had the
acquisition been in effect for the periods presented, nor do they purport to be
indicative of the results that will be obtained in the future.
3. Summary of Significant Accounting Policies and Recent Accounting
Pronouncements
RESTRICTED CASH - Restricted cash represents amounts for purses to be paid
during the live meet racing season at OED. Additionally, restricted cash
includes entrance fees for a special futurity race during the current racing
season, plus any interest earnings. These funds will be used to pay the purse
for the race. A separate interest bearing bank account is required for these
funds.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost and
capitalized lease assets are recorded at their fair market value at the
inception of the lease. Major renewals and improvements are capitalized, while
maintenance and repairs are expensed as incurred. Depreciation and amortization
are computed on a straight-line basis over the following estimated useful lives:
Land improvements 20-40 years
Building and leasehold improvements* 9-40 years
Riverboat and improvements 5-20 years
Furniture, fixtures and equipment 3-12 years
Computer equipment 3-5 years
Vehicles 5 years
* The Company currently leases the land on which the OED building and
leasehold improvements are located. The ground lease annual rental is $0
per year and the lease term expires on the earlier of December 31, 2004 or
the first day the Company opens a new racetrack facility for business in
St. Landry Parish, Louisiana. In the event a financing to fund the Racino
Project is not consummated prior to December 15, 2003, OED may extend the
term of the lease to December 31, 2005 (the "First Renewal Option"), and
if the First Renewal Option is exercised, OED may further extend the term
of the lease to December 31, 2006 (the "Second Renewal Option"). OED must
give written notice to the lessor of its exercise of the First Renewal
Option and the Second Renewal Option by December 31, 2003 and December 31,
2004, respectively. Rent associated with the First Renewal Option and the
Second Renewal Option will be $75,000 per month, due on the first of each
month. The remaining net book value of the Company's leasehold
improvements at The Old Evangeline Downs racetrack as of September 30,
2002 is being amortized over the period in which management estimates that
the facility will be used by OED. If an event occurs that should cause OED
management to change its estimate, the amortization period will be
adjusted accordingly on a go-forward basis.
-9-
RACINO PROJECT DEVELOPMENT COSTS - Included in Racino Project development costs
as of September 30, 2002 are land and land acquisition costs associated with the
Racino Project of approximately $5.1 million and architecture fees associated
with the design and development of the Racino Project of approximately $0.4
million as of September 30, 2002 and $0.2 million as of December 31, 2001.
BUSINESS ACQUISITION AND LICENSING COSTS - At December 31, 2001, the Company
recorded approximately $1.4 million on its balance sheet for directly related
legal and other incremental costs associated with the acquisition of OED and
obtaining the relevant gaming licenses to conduct gaming operations associated
with the Racino Project in Louisiana. These costs, including related costs
incurred during the nine months ended September 30, 2002, are included as a cost
of the acquisition and will be evaluated under SFAS 141 and SFAS 142. As of
September 30, 2002, the Company has not completed its evaluation of the
intangible assets acquired in the OED acquisition.
REVENUE RECOGNITION - In accordance with common industry practice, our casino
revenues are the net of gaming wins and losses. Racing revenues include our
share of pari-mutuel wagering on live races after payment of amounts returned as
winning wagers, and our share of wagering from import and export simulcasting as
well as our share of wagering from our off-track betting parlors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Included in selling, general and
administrative expenses for the three and nine months ended September 30, 2002
are consulting and lobbying expenses of $30,000 and $87,500, respectively,
related to the proposed Racino Project. In addition, during the nine months
ended September 30, 2002, the Company incurred selling, general and
administrative expenses totaling $55,000 related to a governmental relations
services agreement with respect to gaming issues and developments in Wisconsin
which might affect the Company and its gaming operations in Iowa. The Company
does not plan to incur any significant additional expenses in this regard.
REFERENDUM EXPENSES - In accordance with Iowa law, a referendum must be held
every eight years in each of the counties where gambling games are conducted and
the proposition to continue to allow gambling games in such counties must be
approved by a majority of the county electorate voting on the proposition. Such
a referendum took place on November 5, 2002. During the three months ended
September 30, 2002, the Company incurred various advertising and promotional
expenses totaling $136,681 to promote the approval of continued gaming in
Dubuque County. The measure was approved on November 5, 2002 with 79% of the
electorate voting on the proposition favoring continued gaming on riverboats in
Dubuque County. Total expenses related to the referendum are expected to be
approximately $750,000. As the Company will not be required to be a part of
another referendum until 2010, such referendum related costs are not expected to
be incurred in the future until that time.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to conform
with current year presentation.
SFAS 142 "GOODWILL AND OTHER INTANGIBLE ASSETS" - SFAS 142 provides that
goodwill and certain indefinite lived intangible assets will no longer be
amortized but will be reviewed at least annually for impairment and written down
and charged to income when their recorded value exceeds their estimated fair
value. During the first quarter of 2002, the Company performed a transitional
impairment test on goodwill in accordance with SFAS 142 and determined the
estimated fair value of the Company exceeded its carrying value. Based on that
review, management determined that there was no impairment of goodwill. Goodwill
amortization during the three and nine months ended September 30, 2001 was
$353,497 and $1,060,490, respectively. Assuming the non-amortization provisions
of these standards had
-10-
been adopted at the beginning of 2001, the Company's adjusted net income for the
three and nine months ended September 30, 2001 would have been $1,635,990 and
$3,024,627, respectively.
RECENTLY ISSUED ACCOUNTING STANDARDS - In July 2002, the FASB issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities". This
statement addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies the previous guidance on the subject.
This statement requires, among other things, that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. The provisions for this statement are effective for exit or disposal
activities that are initiated after December 31, 2002.
MINORITY INTEREST - Minority interest on the Condensed Consolidated Statement of
Operations represents the 50% portion of net income from OED allocated to
WET2LLC, who owned the remaining 50% interest in OED during the period February
15, 2002 through August 30, 2002.
4. Property and equipment at September 30, 2002 and December 31, 2001 are
summarized as follows:
September 30, December 31,
2002 2001
------------ ------------
Land $ 1,110,000 $ 800,000
Buildings and leasehold improvements 8,358,426 6,565,735
Riverboat and improvements 8,281,001 8,261,693
Furniture, fixtures and equipment 7,112,988 5,512,717
Computer equipment 737,957 617,538
Vehicles 130,753 65,032
Equipment held under capital lease
obligations 704,527 704,527
------------ ------------
Subtotal 26,435,652 22,527,242
Accumulated depreciation (8,531,244) (4,596,599)
------------ ------------
Property and equipment, net $17,904,408 $17,930,643
============ ============
5. Debt
The Company's debt consists of the following:
September 30, December 31,
2002 2002
------------- ------------
12 1/4% Senior Secured Notes due July 15, 2006, net
of discount of $535,293 and $615,518,
respectively. $70,464,707 $70,384,482
-11-
Line of Credit with Foothill Capital Corp., interest
rate at greater of LIBOR + 3% or Prime + .75%,
however, at no time shall the interest rate be lower
that 8.5%, principal payments of $50,000 due
monthly beginning October 2002 through February
2005, maturing March 12, 2005. 12,000,000
Term loan with Foothill Capital Corp., interest at
Prime + 3.75%, however, at no time shall the
interest rate be lower that 7.5% (current rate of
8.5%), maturing the earlier of (a) June 30, 2003 or
(b) the date on which OED consummates its financing
of the Racino Project. 8,450,000
Note payable to WET2LLC, guaranteed by PGP,
interest rate of 7% until January 31, 2003,
thereafter 8% until February 28, 2003, thereafter
9% until March 31, 2003, thereafter the greater of
12% or the fixed rate applicable to any debt
issued to finance the Racino Project, maturing on
June 30, 2003. 7,325,000
Note payable to WET2LLC, interest rate of 7% until
March 31, 2003, thereafter the greater of 12% or
the fixed rate applicable to any debt issued to
finance the Racino Project, maturing on June 30,
2003. 4,500,000
--------------- ------------
Total debt 102,739,707 70,384,482
Less current portion (20,875,000)
--------------- ------------
Total long term debt $81,864,707 $70,384,482
=============== ============
6. Capital Lease Obligations
On September 6, 2002, the Company entered into a purchase and license agreement
(the "CDS Agreement") with Casino Data Systems ("CDS"). The CDS Agreement
contains various requirements including upgrades to Diamond Jo's current slot
information system, installation of the CDS slot information system as part of
the Racino Project and equipment purchases. If and when such requirements are
met, CDS agrees to waive any claimed liability or responsibility of PGC for
payment of the outstanding capital lease liability of $475,781. The Company has
not met all of the requirements included in the CDS Agreement as of September
30, 2002.
7. Operating Leases
GROUND LEASE - LAFAYETTE - The Company currently leases the land on which the
OED racetrack is located. The ground lease annual rental is $0 per year and the
lease term expires on the earlier of December 31, 2004 or the first day the
Company opens a new racetrack facility for business in St. Landry Parish,
Louisiana. In the event a financing to fund the Racino Project is not
consummated prior to December 15, 2003, OED may extend the term of the lease to
December 31, 2005 (the "First Renewal Option"), and if the First Renewal Option
is exercised, OED may further extend the term of the lease to December 31, 2006
(the "Second Renewal Option"). OED must give written notice to the lessor of its
exercise of the First Renewal Option and the Second Renewal Option
-12-
by December 31, 2003 and December 31, 2004, respectively. Rent associated with
the First Renewal Option and the Second Renewal Option will be $75,000 per month
due on the first of each month.
NEW IBERIA - The Company is under a month-to-month contract for $5,000 per month
to lease the New Iberia off-track betting parlor. The lease requires payment of
property taxes, maintenance and insurance on the property. During the three
months ended September 30, 2002 and the period February 15, 2002 (date of
acquisition) to September 30, 2002, the Company paid $15,000 and $37,321,
respectively, in rent for the New Iberia off-track betting parlor.
PARI-MUTUEL PROCESSING EQUIPMENT - OED entered into a five-year lease agreement
commencing on February 15, 2001 for computerized pari-mutuel central processing
equipment, terminals and certain associated equipment at OED. Additionally, the
lease agreement provides the Company with pari-mutuel services whereby the
leased equipment automatically registers and totals the amounts wagered on the
races held at the race track or simulcast to it and to its respective off-track
wagering parlors, and displays the win pool odds, payoffs, and other pertinent
horse racing information needed to operate live meet horse racing and off-track
betting. The Company pays 0.43% of the handle for the services provided during
both live meet racing days and off-track betting racing days. The charges are
subject to a minimum of $1,950 per live meet race day and $1,150 per off-track
betting race day. Additionally, if a race day is not completed, the Company must
pay 50% of the minimum if less than four races are declared official and 100% of
the minimum if four or more races are declared official. In a typical year, the
Company has 82 live meet racing days and 228 off-track betting days. The Company
paid $118,171 and $290,295 during the three months ended September 30, 2002 and
the period February 15, 2002 (date of acquisition) to September 30, 2002,
respectively, related to the pari-mutuel processing equipment lease.
The total minimum rental payments for the lease mentioned in the preceding
paragraph assuming the Company has 82 live meet racing days and 228 off-track
betting days for each of the years ended December 31 are summarized as follows:
2002 $ 105,525
2003 422,100
2004 422,100
2005 422,100
-----------
$ 1,371,825
===========
OTHER - OED has operating leases for various pieces of equipment under
non-cancelable agreements, which expire in various years through 2006. Total
other rent expense for the three months ended September 30, 2002 and the period
February 15, 2002 (date of acquisition) to September 30, 2002 was $8,837 and
$19,330, respectively. The total minimum rental payments for these leases for
the years ended December 31 are summarized as follows:
2002 $ 1,679
2003 2,887
2004 864
2005 864
2006 360
----------
$ 6,654
==========
-13-
8. Contingencies
The Horseman Benevolent Protection Association ("HBPA") has filed a lawsuit
against all licensed racetracks in the State of Louisiana. The lawsuit alleges
that HBPA is not receiving the appropriate share of net revenues from video
poker devices located at licensed tracks. First Statewide Racing Co., Inc., an
affiliate of The Old Evangeline Downs, L.C., was the holder of the video poker
license at the time the lawsuit was filed and is the named defendant.
HBPA claims that the revenue split from video poker wagering should be
calculated before the tracks deduct the franchise tax owed to the State of
Louisiana. It is the Company's position that this claim is contrary to the state
statutes and to the interpretation applied by the Louisiana State Police Gaming
Division in determining net revenues to be shared. However, should HBPA prevail
in this lawsuit, each track named in the suit could be facing a judgment of
several million dollars plus interest.
On March 12, 2001, the 19th Judicial District Court entered a judgment in favor
of the HBPA against certain licensed racetracks in the State of Louisiana,
including the Company. The judgment granted HBPA's motion for summary judgment
as to liability only. The Company's liability was not determined at the time of
the grant of summary judgment, but the final judgment could be, based on
discussions with legal counsel, in the $3 million to $5 million range. The
Company appealed the verdict and the First Circuit Court of Appeal of Louisiana
reversed the judgment of the District Court on June 21, 2002. The HBPA
subsequently applied for writs to the Louisiana Supreme Court, which were
recently granted. The court will now review the case. Although the outcome of
litigation is inherently uncertain, management, after consultation with legal
counsel, believes the reversal of the District Court verdict will be upheld.
On June 21, 2002, PGP filed a complaint with the United States District Court in
the Western District of Louisiana (the "Trotter Complaint") alleging breach of
contract by WET2LLC for failing to honor its previous agreement to, among other
things, enter into a management services agreement with the Company for the
management of the existing OED racetrack and the development and management of
the Racino Project. However, in connection with the consummation of the Trotter
Purchase (as discussed in Note 2 above), the Trotter Complaint was dismissed.
Notwithstanding the above mentioned HBPA lawsuit, we are not a party to, and
none of our property is the subject of, any other pending legal proceedings
other than litigation arising in the normal course of business. We do not
believe that adverse determinations in any or all such other litigation
(excluding the HBPA lawsuit) would have a material adverse effect on our
financial condition, results of operations or cash flows.
9. Segment Information
Pursuant to the provisions of SFAS 131 "Disclosures About Segments of an
Enterprise and Related Information", the Company has determined that, in
connection with the acquisition of OED, the Company currently operates two
reportable segments: (1) Iowa operations, which comprise the Diamond Jo
riverboat casino in Dubuque, IA; and (2) Louisiana operations, which comprise
the racetrack and OTB's operated by OED in Lafayette, LA.
The accounting policies for each segment are the same as those described in the
"Summary of Significant Accounting Policies" in the notes to the financial
statements included in the Company's Annual Report on Form 10-K for the period
ended December 31, 2001 and in the "Summary of Significant Accounting Policies
and Recent Accounting Pronouncements" above. The Company and the gaming industry
use earnings before interest, taxes, depreciation and amortization ("EBITDA") as
a means to evaluate performance. EBITDA should not be considered as an
alternative to, or more meaningful than, net income (as determined in accordance
with accounting principles generally accepted in the United States of America)
or as a measure of the Company's limitations.
-14-
The table below presents information about reported segments (in thousands):
Net Revenues Net Revenues
Three Months Ended September 30, Nine months ended September 30,
2002 2001 2002 2001
---- ---- ---- ----
Diamond Jo (1) $ 12,832 $ 13,003 $ 36,547 $ 36,237
OED (2) 3,605 9,050
--------- --------- --------- ---------
Total $ 16,437 $ 13,003 $ 45,597 $ 36,237
EBITDA (3) EBITDA (3)
Three Months Ended September 30, Nine months ended September 30,
2002 2001 2002 2001
---- ---- ---- ----
Diamond Jo (1) $ 4,663 $ 4,757 $ 12,121 $ 12,312
OED (2) 432 1,279
--------- --------- --------- ---------
Total EBITDA 5,095 4,757 13,400 12,312
Referendum expense (137) (137)
Depreciation and amortization (757) (965) (2,190) (2,877)
Interest expense, net (3,042) (2,381) (8,543) (7,066)
Loss on sale of assets (36) (112)
Preferred member distributions (93) (93) (280) (293)
Minority interests (97) (293)
--------- --------- ---------- ----------
Net income to common members' interest $ 969 $ 1,282 $ 1,957 $ 1,964
Total Assets
September 30, December 31,
2002 2001
------------- ------------
Diamond Jo $ 99,678 $ 84,374
OED 40,486
Adjustments (4) (17,413)
---------- ---------
Total $ 122,751 $ 84,374
(1) Reflects results of operations excluding referendum expenses for
the three and nine months ended September 30, 2002 and 2001.
(2) Reflects results of operations of OED for the three months ended
September 30, 2002 and the period February 15, 2002 (date of
acquisition) to September 30, 2002.
(3) EBITDA is defined as income from operations plus depreciation and
amortization and referendum related expenses (see Note 3 for
discussion on referendum expense).
(4) Reflects the elimination of intercompany balances such as the
investment in subsidiary and related members equity and
intercompany receivables / payables.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO
APPEARING ELSEWHERE IN THIS REPORT. SOME STATEMENTS CONTAINED IN MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE LITIGATION
REFORM ACT, WHICH INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THE RISKS AND
UNCERTAINTIES DISCUSSED BELOW, AS WELL AS OTHER RISKS SET FORTH IN OUR ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001. SHOULD THESE RISKS OR
UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, OUR
FUTURE PERFORMANCE AND ACTUAL RESULTS OF OPERATIONS MAY DIFFER MATERIALLY FROM
THOSE EXPECTED OR INTENDED.
CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements are prepared in accordance with
accounting principals generally accepted in the United States that require
management to make significant estimates and assumptions about the effects of
matters that are uncertain. Significant estimates incorporated into our
condensed consolidated financial statements include the estimated useful lives
for depreciable and amortizable assets, estimated cash flows in assessing the
recoverability of long-lived assets and litigation, claims and assessments.
Actual results could differ from those estimates. The Company believes that the
foregoing estimates are the more critical judgment areas in the application of
its accounting policies that currently affect its financial condition and
results of operations.
RESULTS OF OPERATIONS
The results of operations of the Company discussed below include the combined
results of operations of the Diamond Jo casino in Dubuque, Iowa for the three
and nine months ended September 30, 2002 and 2001 and the results of operations
of OED in Lafayette, Louisiana for the three months ended September 30, 2002 and
the period February 15, 2002 (date of acquisition) through September 30, 2002.
STATEMENT OF OPERATIONS DATA
DIAMOND JO OED
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002
---- ---- ----
REVENUES:
Casino $12,762,874 $12,802,047
Racing $3,191,913
Food and beverage 742,517 780,523 413,043
Other 34,513 31,798
Less promotional
allowances (707,514) (611,618)
------------ ------------ ----------
Net revenues 12,832,390 13,002,750 3,604,956
------------ ------------ ----------
EXPENSES:
Casino 5,065,022 4,993,588
Racing 2,546,436
Food and beverage 742,093 731,714 311,448
Boat operations 588,865 567,177
-16-
Other 7,521 4,951
Selling, general and
administrative 1,765,630 1,947,941 315,527
Referendum 136,681
Depreciation and
amortization 700,619 964,647 56,371
------------ ------------ ----------
Total expenses 9,006,431 9,210,018 3,229,782
------------ ------------ ----------
Income from
operations $ 3,825,959 $ 3,792,732 $ 375,174
============ ============ ==========
DIAMOND JO OED
NINE MONTHS ENDED PERIOD FEBRUARY 15,
SEPTEMBER 30, 2002 TO SEPTEMBER 30,
2002 2001 2002
---- ---- ----
REVENUES:
Casino $ 36,291,517 $ 35,972,418
Racing $ 8,104,750
Food and beverage 2,104,919 2,042,030 945,200
Other 90,444 92,217
Less promotional
allowances (1,939,388) (1,869,477)
------------- -------------- -----------
Net revenues 36,547,492 36,237,188 9,049,950
------------ ------------- -----------
EXPENSES:
Casino 15,315,316 15,140,244
Racing 6,283,735
Food and beverage 2,095,591 2,138,760 786,031
Boat operations 1,740,137 1,701,064
Other 22,799 14,770
Selling, general and
administrative 5,252,513 4,930,327 701,181
Referendum 136,681
Depreciation and
amortization 2,065,774 2,876,655 124,658
------------- ------------- -----------
Total expenses 26,628,811 26,801,820 7,895,605
------------ ------------- -----------
Income from
operations $ 9,918,681 $ 9,435,368 $ 1,154,345
============= ============= ===========
-17-
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2001
Net revenues increased 26.4% to $16.4 million for the three months ended
September 30, 2002 from $13.0 million for the three months ended September 30,
2001 due to net revenues from OED of $3.6 million and an increase in the Diamond
Jo's slot revenue of 2.0%, or $223,000 for the three months ended September 30,
2002 compared to the three months ended September 30, 2001. This increase in
slot revenues was a result of an increased marketing focus on the addition of
new players club members as well as on targeting players club promotions towards
more profitable market segments. This increase in slot revenues was offset by a
decrease in table games revenue at the Diamond Jo of $262,000 resulting from an
11.4% decrease in table game drop and a 0.6% decrease in our hold percentage.
Casino gaming win in the Dubuque market increased 1.3% to $23.5 million for the
three months ended September 30, 2002 from $23.2 million for the three months
ended September 30, 2001. We believe this increase was primarily due to targeted
players club promotions and a continued focus on maintenance of our slot mix as
well as a continued focus by operators at the Greyhound Park on maintenance of
their slot mix during such period. Our share of the Dubuque market casino gaming
win decreased slightly to 54.3% for the three months ended September 30, 2002
from 55.2% for the three months ended September 30, 2001. This decrease is
attributed to a decrease in our table game revenue as discussed above. Our
casino revenues remained constant at $12.8 million for the three months ended
September 30, 2002 and 2001. Casino revenues were derived 87.6% from slot
machines and 12.4% from table games for the three months ended September 30,
2002 compared to 85.6% from slot machines and 14.4% from table games for the
three months ended September 30, 2001. The number of gaming positions at the
Diamond Jo at September 30, 2002 was 848 compared to 868 at September 30, 2001.
This decrease was due to the elimination of seven blackjack tables, one craps
table and one Caribbean stud table during the first quarter of 2002 offset by
the addition of 24 slot machines in April 2002 and an additional 24 slot
machines in August 2002. These changes were done to continue to improve the
gaming experience for our customers while maintaining our marketing focus on
more profitable segments of our business. Consistent with an increase in casino
revenue, our casino win per gaming position per day at the Diamond Jo increased
2.2% to $163.90 for the three months ended September 30, 2002 from $160.31 for
the three months ended September 30, 2001. Admissions to the casinos in the
Dubuque market decreased slightly to 553,798 for the three months ended
September 30, 2002 from 555,967 for the three months ended September 30, 2001.
For the three months ended September 30, 2002, our share of the Dubuque market
casino admissions decreased to 49.5% from 50.5% for the three months ended
September 30, 2001. We believe this decrease is primarily attributable to our
targeted use of marketing dollars towards more profitable market segments during
2002 compared to 2001. Our admissions at the Diamond Jo for the three months
ended September 30, 2002 decreased slightly to 273,870 for the three months
ended September 30, 2002 from 280,890 for the three months ended September 30,
2001. For the three months ended September 30, 2002 our casino win per admission
at the Diamond Jo increased 2.2% to $46.60 from $45.58 for the three months
ended September 30, 2001.
Racing revenues of $3.2 million related solely to revenues at OED for the three
months ended September 30, 2002. Net food and beverage revenues, other revenues
and promotional allowances increased to $0.5 million for the three months ended
September 30, 2002 from $0.2 million for the three months ended September 30,
2001 due to food and beverage revenues at OED.
-18-
Casino operating expenses at the Diamond Jo increased slightly to $5.1 million
for the three months ended September 30, 2002 from $5.0 million for the three
months ended September 30, 2001. Racing expenses at OED were $2.5 million for
the three months ended September 30, 2002. Food and beverage expenses increased
to $1.1 million for the three months ended September 30, 2002 from $0.7 million
for the three months ended September 30, 2001 due primarily to food and beverage
expenses from OED of $0.3 million. Boat operation expenses and other expenses
were substantially unchanged for the three months ended September 30, 2002 and
2001. Selling, general and administrative expenses increased to $2.1 million for
the three months ended September 30, 2002 from $1.9 million for the three months
ended September 30, 2001 due primarily to selling, general and administrative
expenses from OED of $0.3 million. In accordance with Iowa law, a referendum
must be held every eight years in each of the counties where gambling games are
conducted and the proposition to continue to allow gambling games in such
counties must be approved by a majority of the county electorate voting on the
proposition. Such a referendum took place on November 5, 2002. As such, during
the three months ended September 30, 2002, the Company incurred various
advertising and promotional expenses totaling $136,681 to promote the approval
of continued gaming in Dubuque County. The measure was approved on November 5,
2002 with 79% of the electorate voting on the proposition favoring continued
gaming on riverboats in Dubuque County. Total expenses related to the referendum
are expected to be approximately $750,000. As the Company will not be required
to be a part of another referendum until 2010, such referendum related costs are
not expected to be incurred in the future until that time.
Depreciation and amortization expenses decreased 21.5% to $0.8 million for the
three months ended September 30, 2002 from $1.0 million for the three months
ended September 30, 2001. This decrease is due to adoption of SFAS 142, which
provides that goodwill and certain indefinite lived intangible assets will no
longer be amortized but will be reviewed at least annually for impairment and
written down and charged to income when their recorded value exceeds their
estimated fair value. During the first quarter of 2002, the Company evaluated
the estimated fair value of the Company in accordance with SFAS 142 and
determined the estimated fair value exceeded the carrying value of the Company.
As a result, no impairment of goodwill has been recorded during the three months
ended September 30, 2002. Goodwill amortization during the three months ended
September 30, 2001 was approximately $353,000. Net interest expense increased
27.8% to $3.0 million for the three months ended September 30, 2002 from $2.4
million for the three months ended September 30, 2001. This increase is due to
an increase in interest expense associated with our senior credit facility with
Foothill Capital Corporation providing for commitments of up to $12.5 million
which mature in 2005, $12.0 million of which was drawn down by the Company on
February 15, 2002 to consummate an investment in OED and net interest expense at
OED.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30,2001
Net revenues increased 25.8% to $45.6 million for the nine months ended
September 30, 2002 from $36.2 million for the nine months ended September 30,
2001 due to net revenues from OED of $9.0 million and an increase in the Diamond
Jo's slot revenue of 3.9%, or $1.2 million for the nine months ended September
30, 2002 compared to the nine months ended September 30, 2001. This increase in
slot revenues was a result of an increased marketing focus on the addition of
new players club members as well as on targeting players club promotions towards
more profitable market segments. This increase in slot revenues was offset by a
decrease in table games revenue at the Diamond Jo of $0.9 million. This decrease
was a direct result of a 1.5 percentage point decrease in our table game hold
percentage and an 9.6% decrease in table game drop.
Casino gaming win in the Dubuque market increased 2.3% to $66.7 million for the
nine months ended September 30, 2002 from $65.2 million for the nine months
ended September 30, 2001. We believe this increase was primarily due to targeted
players club promotions and a continued focus on maintenance of our slot mix as
well as a continued focus by operators at the Greyhound Park on maintenance of
their slot mix during such period. Our share of the Dubuque market casino gaming
win decreased slightly to 54.4% for the nine months ended September 30, 2002
from 55.2% for the nine months ended September
-19-
30, 2001. This decrease is attributed to a decrease in our table game revenue as
discussed above. However, our share of the Dubuque market slot win remained
constant at 51.2% for the nine months ended September 30, 2002 compared to the
nine months ended September 30, 2001. Our casino revenues increased 0.9% to
$36.3 million for the nine months ended September 30, 2002 from $36.0 million
for the nine months ended September 30, 2001. This increase is due to an
increase in slot revenue offset by a decrease in table game revenues as
discussed above. Casino revenues were derived 87.8% from slot machines and 12.2%
from table games for the nine months ended September 30, 2002 compared to 85.3%
from slot machines and 14.7% from table games for the nine months ended
September 30, 2001. Consistent with an increase in casino revenue, our casino
win per gaming position per day at the Diamond Jo increased 4.1% to $158.02 for
the nine months ended September 30, 2002 from $151.81 for the nine months ended
September 30, 2001. Admissions to the casinos in the Dubuque market increased
slightly to 1,497,926 for the nine months ended September 30, 2002 from
1,485,178 for the nine months ended September 30, 2001. For the nine months
ended September 30, 2002, our share of the Dubuque market casino admissions
decreased to 50.1% from 51.3% for the nine months ended September 30, 2001. We
believe this decrease is primarily attributable to our targeted use of marketing
dollars directed primarily towards more profitable market segments during 2002
compared to 2001. Our admissions at the Diamond Jo for the nine months ended
September 30, 2002 decreased slightly to 749,764 for the nine months ended
September 30, 2002 from 762,161 for the nine months ended September 30, 2001.
For the nine months ended September 30, 2002 our casino win per admission at the
Diamond Jo increased 2.5% to $48.40 from $47.20 for the nine months ended
September 30, 2001.
Racing revenues of $8.1 million related solely to revenues at OED for the period
February 15, 2002 (date of acquisition) to September 30, 2002. Net food and
beverage revenues, other revenues and promotional allowances increased to $1.2
million for the nine months ended September 30, 2002 from $0.3 million for the
nine months ended September 30, 2001 due to food and beverage revenues at OED.
Casino operating expenses at the Diamond Jo increased slightly to $15.3 million
for the three months ended September 30, 2002 from $15.1 million for the three
months ended September 30, 2001 due mainly to an increase in gaming taxes paid
as a result of an increase in gaming revenues and an increase in the state
admission fee imposed by the State of Iowa. Racing expenses at OED were $6.3
million for the period February 15, 2002 (date of acquisition) to September 30,
2002. Food and beverage expenses increased to $2.9 million for the nine months
ended September 30, 2002 from $2.1 million for the nine months ended September
30, 2001 due primarily to food and beverage expenses from OED of $0.8 million.
Boat operation expenses and other expenses were substantially unchanged for the
nine months ended September 30, 2002 and 2001. Selling, general and
administrative expenses increased to $6.0 million for the nine months ended
September 30, 2002 from $4.9 million for the nine months ended September 30,
2001. This increase in such expenses resulted from selling, general and
administrative expenses at OED of $701,000, an increase in legal expenses of
$286,000 (resulting from a credit of $230,000 in legal expense during the
corresponding period of the prior year) and an increase in consulting and
various lobbying expenses of $92,000. During the nine months ended September 30,
2002, the Company incurred various advertising and promotional expenses totaling
$136,681 to promote the approval of continued gaming on riverboats in Dubuque
County as discussed above.
-20-
Depreciation and amortization expenses decreased 23.9% to $2.2 million for the
nine months ended September 30, 2002 from $2.9 million for the nine months ended
September 30, 2001. This decrease is due to adoption of SFAS 142 which provides
that goodwill and certain indefinite lived intangible assets will no longer be
amortized but will be reviewed at least annually for impairment and written down
and charged to income when their recorded value exceeds their estimated fair
value. Goodwill amortization during the nine months ended September 30, 2001 was
approximately $1.1 million. Net interest expense increased 20.9% to $8.5 million
for the nine months ended September 30, 2002 from $7.1 million for the nine
months ended September 30, 2001. This increase is due to an increase in interest
expense associated with our senior credit facility with Foothill Capital
Corporation providing for commitments of up to $12.5 million which mature in
2005, $12.0 million of which was drawn down by the Company on February 15, 2002
to consummate an investment in OED and net interest expense at OED.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS 142 "GOODWILL AND OTHER INTANGIBLE ASSETS" - SFAS 142 provides that
goodwill and certain indefinite lived intangible assets will no longer be
amortized but will be reviewed at least annually for impairment and written down
and charged to income when their recorded value exceeds their estimated fair
value. During the first quarter of 2002, the Company performed a transitional
impairment test on goodwill in accordance with SFAS 142 and determined the
estimated fair value of the Company exceeded its carrying value. Based on that
review, management determined that there was no impairment of goodwill. Goodwill
amortization during the three and nine months ended September 30, 2001 was
$353,497 and $1,060,490, respectively. Assuming the non-amortization provisions
of these standards had been adopted at the beginning of 2001, the Company's
adjusted net income for the three and nine months ended September 30, 2001 would
have been $1,322,195 and $3,017,858, respectively.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies the previous guidance on the subject. This statement requires, among
other things, that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. The provisions for this
statement are effective for exit or disposal activities that are initiated after
December 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING, INVESTING AND FINANCING ACTIVITIES
Our cash balance increased $2.0 million during the nine month period ended
September 30, 2002 to $9.5 million from $7.5 million at December 31, 2001.
Cash flows from operating activities of $8.5 million for the nine month period
ended September 30, 2002 consisted of net income of $2.0 million increased by
non-cash charges of $3.5 million, principally depreciation and amortization, and
an increase in working capital of $3.0 million. The change in working capital is
primarily comprised of an increase in accrued expenses of $2.6 million, which is
principally due to an increase in accrued interest related to our 12 1/4% Senior
Secured Notes due 2006 (the "Senior Secured Notes").
Cash flows used in investing activities for the nine month period ended
September 30, 2002 was $36.1 million including $29.3 million for the purchase of
OED (net of cash acquired), $4.8 million for the purchase of land at St. Landry
Parish (the future site of the Racino Project) and architecture fees associated
with the Racino Project and approximately $1.0 million in development costs
related to the OED acquisition and license costs. In addition, cash outflows of
approximately $1.0 million were used
-21-
for capital expenditures mainly related to the purchase of replacement slot
machines in an effort to improve the gaming experience of our patrons.
Cash flows from financing activities for the nine month period ended September
30, 2002 of $29.6 million reflects the proceeds of a $12.0 million borrowing
under PGC's $12.5 million credit agreement with Foothill Capital Corporation,
proceeds of an $8.5 million borrowing under OED's loan and security agreement
with Foothill Capital Corporation, proceeds from the issuance of a $7.3 million
note payable to WET2LLC and proceeds from the issuance of a $4.5 million note
payable by OED to WET2. These proceeds were offset by deferred financing costs
paid of $1.7 million, including consent fees totaling $887,500 paid to holders
of our Senior Secured Notes related to our investment in OED and $700,000 paid
to Foothill Capital Corporation related to the OED loan and security agreement,
and member distributions of $1.0 million.
CONTRACTUAL OBLIGATIONS AND CONTINGENT LIABILITIES AND COMMITMENTS
The Company's future contractual obligations related to long-term debt, capital
leases and operating leases at September 30, 2002 were as follows (in millions
of dollars):
PAYMENTS DUE BY PERIOD
--------------------------------------------
LESS THAN
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS
----- ------- --------- ---------
Long-Term Debt $103.3 $20.9 $11.4 $71.0
Capital Lease Obligations 0.5 0.1 0.4 -
Operating Leases 1.4 0.4 0.8 0.2
------ ------ ----- -----
Total $105.2 $21.4 $12.6 $71.2
====== ====== ===== =====
RACINO PROJECT
On February 15, 2002, OEDA consummated its acquisition of: (i) 50% of the
membership interests (the "BIM3 Interests") of OED from BIM3 Investments, a
Louisiana partnership ("BIM3"); and (ii) BIM3's one-half (1/2) interest in two
promissory notes issued by OED in the aggregate principal amount of $10,909,244
(the "OED Notes"), for an aggregate purchase price of $15,000,000 in cash. The
remaining 50% of the membership interests in OED were owned by William E.
Trotter, II Family L.L.C., a Louisiana limited liability company. The
acquisition was made pursuant to a purchase agreement dated June 27, 2001 by and
among the Company's parent, PGP, OED and BIM3 (as amended, the "Moody Purchase
Agreement"). Pursuant to the terms of the Moody Purchase Agreement, PGP paid a
cash deposit of $500,000 which was applied against the purchase price when the
acquisition was consummated. The Moody Purchase Agreement was assigned to OEDA
by PGP on October 23, 2001 for a purchase price of $523,836 which was paid by
OEDA in cash.
The source of funds for the transaction described above was $3,000,000 of cash
on-hand and $12,000,000 of borrowings under the Company's credit agreement with
Foothill Capital Corporation. During the first quarter of 2002, the Company
amended its credit facility to increase the available funds to $12,500,000 and
obtained consents under the indenture governing its Notes to consummate the
acquisition. On March 7, 2002, the Company paid consent fees totaling $887,500
to holders of the Notes related to the above transaction.
-22-
In October 2002, the Company further amended its credit facility which requires
the Company to begin making principal payments on the amount advanced of $50,000
per month beginning in October 2002 and continuing through February 2005. In
addition, the maximum available funds under the facility shall be reduced by the
total amount of the principal repayments.
On June 25, 2002, PGP entered into an agreement with William E. Trotter, II
("WET2") and William E. Trotter, II Family LLC, a Louisiana limited liability
company ("WET2LLC") to acquire (i) the 50% interest in the OED Notes owned by
WET2, and (ii) the 50% membership interest in OED, owned by WET2LLC (the
"Trotter Purchase"). On August 30, 2002, OEDA completed the Trotter Purchase for
a purchase price of $15,546,000 (actual purchase price of $15,325,000 plus the
reimbursement to WET2 of certain expenses related to the transaction of
$221,000), plus a contingent fee of one half of one percent (.5%) of the net
slot revenues from the date of opening of a new casino, located in St. Landry
Parish, until the date that is ten years after the opening of the casino to the
public.
The source of funds for the Trotter Purchase described above was $8,450,000 of
borrowings under OED's loan and security agreement with Foothill Capital
Corporation entered into on August 30, 2002 and maturing on the earlier of (a)
June 30, 2003 or (b) the date on which OED consummates its financing of the
Racino Project (the "Term Loan") and proceeds from a $7,325,000 note payable to
WET2LLC (the "WET2LLC Note") due June 30, 2003. The WET2LLC Note was issued by
PGP.
The Term Loan contains, among other things, covenants, representations and
warranties and events of default customary for loans of this type, including,
but not limited to, certain requirements relating to the financing, construction
and development of the Racino Project and a minimum EBITDA maintenance covenant.
The obligations under the Term Loan are secured by substantially all of the
assets of OED and guaranteed by PGP. The Term Loan is not guaranteed by the
Company and is not secured by any assets or property of the Company.
-23-
During the period February 15, 2002 through September 30, 2002, OED paid
principal of $18,379 and interest of $297,536 to WET2 related to WET2's 50%
interest in the OED Notes.
The Company accounted for its acquisition as a purchase in accordance with SFAS
No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible
Assets". The purchase price has been allocated to the underlying assets and
liabilities based on their estimated fair values at the date of acquisition. To
the extent the purchase price exceeded the fair value of the net identifiable
assets acquired, such excess has been recorded as goodwill. As of September 30,
2002, the Company recorded goodwill of approximately $30.8 million related to
the acquisition. The Company has not completed its evaluation of the intangible
assets acquired in the OED acquisition. This evaluation may result in
adjustments to the purchase price allocation. Under the provisions of SFAS 142,
goodwill and other intangible assets with indefinite lives arising from the
acquisition will not be amortized but will be reviewed at least annually for
impairment and written down and charged to income when its recorded value
exceeds its estimated fair value. The results of operations of OED are included
in the condensed consolidated financial statements from the date of acquisition
through September 30, 2002.
The Company will manage the existing racetrack and, subject to receipt of
required gaming approvals, is planning to design, construct, manage and operate
a new casino and contiguous racetrack facility with pari-mutuel wagering, slots
and OTB parlors in St. Landry Parish, Louisiana (the "Racino Project").
The cost to construct and develop the Racino Project is estimated at $90
million. The Company is currently investigating financing alternatives for the
financing of construction and development costs including, but not limited to, a
private placement of debt securities. The Racino Project is expected to include
at least 1,525 slot machines, dirt and turf racetracks and several dining
options. The Racino Project is one of only three racetracks in the State of
Louisiana currently authorized to conduct casino operations. The successful
completion of the Racino Project is subject to factors beyond the control of
OED. The extent and timing of the development and construction of the Racino
Project will depend on available cash flow or the ability to obtain financing.
There can be no assurance that sufficient cash flow or necessary financing will
be available on satisfactory terms to OED. In addition, the Company and OED will
be subject to comprehensive and stringent government regulations. The Company
and OED and their respective officers, directors, members, significant
shareholders and employees will be subject to the Louisiana Gaming Control Board
and the Louisiana Gaming Commission and will need to submit to a regulatory
review process prior to mandatory licensing. There can be no assurance that all
necessary licenses will be issued, or issued on a timely basis. For the
foregoing reasons, there can no assurance that the Racino Project will be
completed, or completed in a timely manner.
We believe that cash on hand and cash generated from operations will be
sufficient to satisfy our working capital and capital expenditure requirements
(other than the Racino Project), repay borrowings under our senior credit
facility, and satisfy our other debt service requirements. However, we cannot
assure you that this will be the case. If cash on hand and cash generated from
operations are insufficient to meet these obligations, we may have to refinance
our debt or sell some or all of our assets to meet our obligations.
-24-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks which are inherent in our financial
instruments which arise from transactions entered into in the normal course of
business. Market risk is the risk of loss from adverse changes in market prices
and interest rates. We do not currently utilize derivative financial instruments
to hedge market risk. We also do not hold or issue derivative financial
instruments for trading purposes.
We are exposed to interest rate risk due to changes in interest rates with
respect to our long-term variable interest rate debt borrowing under our senior
credit facility. As of September 30, 2002, we had $12.0 million in borrowings
under the senior credit facility. We have estimated our market risk exposure
using sensitivity analysis. We have defined our market risk exposure as the
potential loss in future earnings and cash flow with respect to interest rate
exposure of our market risk sensitive instruments assuming a hypothetical
increase in market rates of interest of one percentage point. Assuming we borrow
the maximum amount allowed under the senior credit facility ($12.5 million), if
market rates of interest on our variable rate debt increased by one percentage
point, the estimated market risk exposure under the senior credit facility would
be approximately $0.1 million.
We are also exposed to fair value risk due to changes in interest rates with
respect to our long-term fixed interest rate debt borrowing. Our fixed rate debt
instruments are not generally affected by a change in the market rates of
interest, and therefore, such instruments generally do not have an impact on
future earnings. However, future earnings and cash flows may be impacted by
changes in interest rates related to indebtedness incurred to fund repayments as
such fixed rate debt matures. The following table contains information relating
to our fixed rate debt borrowings which are subject to interest rate risk
(dollars in millions):
DESCRIPTION CONTRACT TERMS INTEREST RATE COST FAIR VALUE
- ----------- -------------- ------------- ---- ----------
Senior Secured Notes Due July 1, 2006 12 1/4% fixed $71.0 $71.0*
* Represents fair value as of November 13, 2002 based on information provided by
the Company's investment banking firm.
ITEM 4. CONTROLS AND PROCEDURES
The Company's principal executive officer and principal financial officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within
ninety days prior to the filing date of this report, have concluded that, as of
such date, the Company's disclosure controls and procedures were effective to
ensure that material information relating to the Company would be made known to
them by others within the Company on a timely basis. In addition, there were no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies or material weaknesses.
-25-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Horseman Benevolent Protection Association ("HBPA") has filed a lawsuit
against all licensed racetracks in the State of Louisiana. The lawsuit alleges
that HBPA is not receiving the appropriate share of net revenues from video
poker devices located at licensed tracks. First Statewide Racing Co., Inc., an
affiliate of The Old Evangeline Downs, L.C., was the holder of the video poker
license at the time the lawsuit was filed and is the named defendant.
HBPA claims that the revenue split from video poker wagering should be
calculated before the tracks deduct the franchise tax owed to the State of
Louisiana. It is the Company's position that this claim is contrary to the state
statutes and to the interpretation applied by the Louisiana State Police Gaming
Division in determining net revenues to be shared. However, should HBPA prevail
in this lawsuit, each track named in the suit could be facing a judgment of
several million dollars plus interest.
On March 12, 2001, the 19th Judicial District Court entered a judgment in favor
of the HBPA against certain licensed racetracks in the State of Louisiana,
including the Company. The judgment granted HBPA's motion for summary judgment
as to liability only. The Company's liability was not determined at the time of
the grant of summary judgment, but the final judgment could be, based on
discussions with legal counsel, in the $3 million to $5 million range. The
Company appealed the verdict and the First Circuit Court of Appeal of Louisiana
reversed the judgment of the District Court on June 21, 2002. The HBPA
subsequently applied for writs to the Louisiana Supreme Court, which were
recently granted. The court will now review the case. Although the outcome of
litigation is inherently uncertain, management, after consultation with legal
counsel, believes the reversal of the District Court verdict will be upheld.
On June 21, 2002, PGP filed a complaint with the United States District Court in
the Western District of Louisiana (the "Trotter Complaint") alleging breach of
contract by WET2LLC for failing to honor its previous agreement to, among other
things, enter into a management services agreement with the Company for the
management of the existing OED racetrack and the development and management of
the Racino Project. However, in connection with the consummation of the Trotter
Purchase (as discussed above), the Trotter Complaint was dismissed.
Notwithstanding the above mentioned HBPA lawsuit, we are not a party to, and
none of our property is the subject of, any other pending legal proceedings
other than litigation arising in the normal course of business. We do not
believe that adverse determinations in any or all such other litigation
(excluding the HBPA lawsuit) would have a material adverse effect on our
financial condition, results of operations or cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-26-
ITEM 5. OTHER INFORMATION
Since the Company does not have securities registered under Section 12
of the Securities Exchange Act of 1934 and is not required to file
periodic reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company is not an "issuer" as defined in the
Sarbanes-Oxley Act of 2002, and therefore the Company is not filing the
written certification statement pursuant to Section 906 of such Act.
The Company files periodic reports with the Securities and Exchange
Commission because it is required to do so by the terms of the
indenture governing its notes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Amendment Number One to Loan and Security Agreement,
dated February 15, 2002, by and between Foothill
Capital Corporation and Peninsula Gaming Company, LLC.
10.2 Amendment Number Two to Loan and Security Agreement,
dated October 16, 2002, by and between Foothill
Capital Corporation and Peninsula Gaming Company, LLC.
10.3 Agreement of Sale, dated August 30, 2002, by and among
Peninsula Gaming Partners LLC, OED Acquisition, LLC,
William E. Trotter II and William E. Trotter II
Family, LLC.
(b) REPORTS ON FORM 8-K
(i) Form 8-K filed March 4, 2002, regarding purchase of
The Old Evangeline Downs, L.C.
(ii) Form 8-K/A filed May 1, 2002 amending the
registrant's report on Form 8-K for the event
dated February 15, 2002, as filed on March 4,
2002, to include the historical financial
statements and pro forma financial information
required by Item 7(a) and (b).
-27-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Dubuque, State of
Iowa on November 14, 2002.
PENINSULA GAMING COMPANY, LLC
By: /s/ M. Brent Stevens
------------------------
M. Brent Stevens
Chief Executive Officer
By: /s/ George T. Papanier
------------------------
George T. Papanier
Chief Operating Officer
By: /s/ Natalie A. Schramm
------------------------
Natalie A. Schramm
Chief Financial Officer
PENINSULA GAMING CORP.
By: /s/ M. Brent Stevens
------------------------
M. Brent Stevens
President and Treasurer
(principal financial officer)
-28-
CERTIFICATION
I, M. Brent Stevens, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peninsula Gaming
Company, LLC;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ M. Brent Stevens
----------------------------
M. Brent Stevens
Chief Executive Officer
-29-
CERTIFICATION
I, Natalie A. Schramm, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peninsula Gaming
Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact necessary to make the statements
made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002 By: /s/ Natalie A. Schramm
---------------------------------
Natalie A. Schramm
Chief Financial Officer
-30-
CERTIFICATION
I, M. Brent Stevens, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peninsula Gaming
Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 day prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a. all significant deficiencies in the design operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 By: /s/ M. Brent Stevens
---------------------------------
M. Brent Stevens
President and Treasurer
(principal financial officer)
-31-