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 March 31, 2005
Commission file number 001-13641
PINNACLE ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 95-3667491 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification No.) |
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
(Address of Principal Executive Offices) (Zip Code)
(702) 784-7777
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x NO ¨
The number of outstanding shares of the registrant’s common stock, as of the close of business on May 6, 2005: 40,510,905.
PINNACLE ENTERTAINMENT, INC.
| PART I | ||||
| Item 1. |
||||
| 1 | ||||
|
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2005 and |
2 | |||
| 3 | ||||
| Notes to Unaudited Condensed Consolidated Financial Statements |
4 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 | ||
| 22 | ||||
| 25 | ||||
| 28 | ||||
| 29 | ||||
| 29 | ||||
| 29 | ||||
| 30 | ||||
| 30 | ||||
| 31 | ||||
| Item 3. |
31 | |||
| Item 4. |
32 | |||
| PART II | ||||
| Item 1. |
33 | |||
| Item 5. |
33 | |||
| Item 6. |
34 | |||
| 35 | ||||
| ITEM 1. | FINANCIAL STATEMENTS |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the three months ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| (in thousands, except per share data, unaudited) |
||||||||
| Revenues: |
||||||||
| Gaming |
$ | 119,579 | $ | 114,991 | ||||
| Food and beverage |
7,244 | 7,495 | ||||||
| Truck stop and service station |
4,980 | 4,581 | ||||||
| Hotel and recreational vehicle park |
3,574 | 3,299 | ||||||
| Other operating income |
4,434 | 3,991 | ||||||
| 139,811 | 134,357 | |||||||
| Expenses and Other Costs (Benefits): |
||||||||
| Gaming |
69,973 | 66,677 | ||||||
| Food and beverage |
6,856 | 7,098 | ||||||
| Truck stop and service station |
4,687 | 4,283 | ||||||
| Hotel and recreational vehicle park |
1,680 | 1,760 | ||||||
| General and administrative |
27,906 | 28,972 | ||||||
| Depreciation and amortization |
12,703 | 11,705 | ||||||
| Other operating expenses |
1,655 | 1,725 | ||||||
| Pre-opening and development costs |
6,600 | 2,197 | ||||||
| Gain on asset sales, net of other items |
0 | (13,181 | ) | |||||
| 132,060 | 111,236 | |||||||
| Operating income |
7,751 | 23,121 | ||||||
| Interest income |
1,196 | 867 | ||||||
| Interest expense, net of capitalized interest |
(10,662 | ) | (13,571 | ) | ||||
| Loss on early extinguishment of debt |
(1,447 | ) | (8,254 | ) | ||||
| Income (loss) before income tax (expense) benefit |
(3,162 | ) | 2,163 | |||||
| Income tax (expense) benefit |
931 | (730 | ) | |||||
| Net income (loss) |
$ | (2,231 | ) | $ | 1,433 | |||
| Net income (loss) per common share—basic |
$ | (0.06 | ) | $ | 0.05 | |||
| Net income (loss) per common share—diluted |
$ | (0.06 | ) | $ | 0.04 | |||
| Number of shares—basic |
40,502 | 31,417 | ||||||
| Number of shares—diluted |
40,502 | 32,762 | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements
1
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2005 |
December 31, 2004 |
|||||||
| (in thousands, unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents (exclusive of restricted cash below) |
$ | 199,182 | $ | 202,374 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $1,334 and $1,557 |
10,495 | 11,501 | ||||||
| Inventories |
4,912 | 5,128 | ||||||
| Prepaid expenses and other assets |
14,602 | 14,542 | ||||||
| Income tax receivable |
4,742 | 4,742 | ||||||
| Deferred income taxes |
3,023 | 3,023 | ||||||
| Total current assets |
236,956 | 241,310 | ||||||
| Restricted cash |
5,972 | 85,414 | ||||||
| Property and equipment, net |
869,516 | 813,987 | ||||||
| Goodwill |
26,656 | 26,656 | ||||||
| Gaming licenses, net |
21,418 | 21,482 | ||||||
| Debt issuance costs, net |
17,657 | 18,867 | ||||||
| Other assets |
1,038 | 1,052 | ||||||
| $ | 1,179,213 | $ | 1,208,768 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: |
||||||||
| Accounts payable |
$ | 23,202 | $ | 45,952 | ||||
| Accrued interest |
7,329 | 12,554 | ||||||
| Accrued compensation |
24,227 | 24,504 | ||||||
| Other accrued liabilities |
46,578 | 49,312 | ||||||
| Current portion of notes payable |
2,581 | 2,517 | ||||||
| Total current liabilities |
103,917 | 134,839 | ||||||
| Notes payable, less current maturities |
641,336 | 637,971 | ||||||
| Deferred income taxes |
20,768 | 20,768 | ||||||
| Commitments and contingencies (Note 5) |
||||||||
| Stockholders’ Equity: |
||||||||
| Preferred stock |
0 | 0 | ||||||
| Common—$0.10 par value, 40,505,605 and 40,501,605 shares outstanding, net of treasury shares |
4,252 | 4,251 | ||||||
| Capital in excess of par value |
428,103 | 428,042 | ||||||
| Retained earnings |
10,847 | 13,078 | ||||||
| Accumulated other comprehensive (loss) |
(9,920 | ) | (10,091 | ) | ||||
| Treasury stock, at cost |
(20,090 | ) | (20,090 | ) | ||||
| Total stockholders’ equity |
413,192 | 415,190 | ||||||
| $ | 1,179,213 | $ | 1,208,768 | |||||
See accompanying notes to the unaudited condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the three months ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| (in thousands, unaudited) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | (2,231 | ) | $ | 1,433 | |||
| Depreciation and amortization |
12,703 | 11,705 | ||||||
| Amortization of debt issuance costs |
810 | 740 | ||||||
| Loss on early extinguishment of debt |
1,447 | 8,254 | ||||||
| Gain on sale of assets, net of other items |
0 | (13,181 | ) | |||||
| Changes in working capital: |
||||||||
| Accounts receivables, net |
1,006 | 3 | ||||||
| Prepaid expenses and other assets |
107 | (98 | ) | |||||
| Accounts payable |
(2,336 | ) | (1,204 | ) | ||||
| Other accrued liabilities |
(3,011 | ) | (372 | ) | ||||
| Accrued interest |
(5,225 | ) | (6,812 | ) | ||||
| All other, net |
318 | 113 | ||||||
| Net cash provided by operating activities |
3,588 | 581 | ||||||
| Cash flows from investing activities: |
||||||||
| Decrease (increase) in restricted cash |
79,442 | (51,306 | ) | |||||
| Additions to property and equipment |
(88,596 | ) | (37,863 | ) | ||||
| Dispositions of property and equipment |
54 | 21,476 | ||||||
| Net cash used in investing activities |
(9,100 | ) | (67,693 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from senior subordinated notes |
0 | 198,564 | ||||||
| Proceeds from credit facility |
69,000 | 0 | ||||||
| Payment of senior subordinated notes |
(65,000 | ) | (188,000 | ) | ||||
| Payment of other secured and unsecured notes payable |
(593 | ) | (561 | ) | ||||
| Debt issuance costs |
(1,002 | ) | (9,864 | ) | ||||
| Common stock offering |
0 | 120,400 | ||||||
| Other financing activities, net |
(59 | ) | 795 | |||||
| Net cash provided by financing activities |
2,346 | 121,334 | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
(26 | ) | (42 | ) | ||||
| Increase (decrease) in cash and cash equivalents |
(3,192 | ) | 54,180 | |||||
| Cash and cash equivalents at the beginning of the period |
202,374 | 100,107 | ||||||
| Cash and cash equivalents at the end of the period |
$ | 199,182 | $ | 154,287 | ||||
| Cash, cash equivalents and restricted cash at the end of the period |
$ | 205,154 | $ | 334,522 | ||||
| Supplemental Cash Flow Information: |
||||||||
| Cash paid during the period for: |
||||||||
| Interest |
$ | 17,716 | $ | 19,809 | ||||
| Income taxes, net |
$ | 738 | $ | 173 | ||||
| Non-cash currency translation rate adjustment |
$ | (32 | ) | $ | (74 | ) | ||
See accompanying notes to the unaudited condensed consolidated financial statements
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1—Summary of Significant Accounting Policies
General Pinnacle Entertainment, Inc. (the “Company” or “Pinnacle Entertainment”) owns and operates gaming entertainment facilities in numerous gaming markets. These include five properties in the United States, located in southeastern Indiana (“Belterra Casino Resort”); Reno, Nevada (“Boomtown Reno”); Bossier City and New Orleans, Louisiana (“Boomtown Bossier City” and “Boomtown New Orleans”, respectively); and Biloxi, Mississippi (“Casino Magic Biloxi”). The Company is also building L’Auberge du Lac, a major casino resort in Lake Charles, Louisiana (“L’Auberge”). In addition, the Company is developing a major casino in downtown St. Louis, Missouri (“St. Louis City”) and a major casino in south St. Louis County, Missouri (“St. Louis County”). Internationally, the Company is building a replacement casino for the largest of the three casinos it operates in Argentina (“Casino Magic Argentina”), and has signed a letter of intent to operate a casino adjoining the Four Seasons Resort Great Exuma at Emerald Bay in the Bahamas (“Great Exuma”). The Company also receives lease income from two card clubs in Southern California.
Basis of Presentation The accompanying interim condensed consolidated financial statements include the accounts of Pinnacle Entertainment, Inc. and its subsidiaries and have been prepared by the Company’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the interim condensed consolidated financial statements presented herein reflect all adjustments of a normal and recurring nature which are considered necessary for a fair presentation of the results for the interim periods presented and all inter-company accounts and transactions have been eliminated. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.
Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and (iii) the reported amounts of revenues and expenses during the reporting period. Estimates used by the Company include, among other things, (i) the evaluation of the non-impairment of property, equipment and other long-term assets, (ii) the evaluation of the future realization of deferred tax assets, and (iii) the adequacy of reserves associated with asset sales, and determining litigation reserves and other obligations. Actual results could differ from those estimates.
Revenue Recognition Revenues in the accompanying statements of operations exclude the retail value of hotel rooms, food and beverage and other items provided to patrons on a complimentary basis. Complimentary revenues which have been excluded from the accompanying condensed consolidated statements of operations are $13,514,000 and $11,716,000 for the three months ended March 31, 2005 and 2004, respectively. The estimated cost of providing these promotional allowances (which is included in gaming expenses) was $11,226,000 and $10,481,000 for the three months ended March 31, 2005 and 2004, respectively.
Advertising Costs Advertising costs were $3,833,000 and $2,980,000 for the three months ended March 31, 2005 and 2004, respectively, and were included in gaming expenses on the accompanying condensed consolidated statements of operations.
4
PINNACLE ENTERTAINMENT, INC.