SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): APRIL 27, 2001
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PENN NATIONAL GAMING, INC.
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(Exact Name of Registrant Specified in Charter)
PENNSYLVANIA 0-24206 23-2234473
-------------------- ---------------- -------------------
(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification No.)
Incorporation)
825 Berkshire Boulevard
Wyomissing, PA 19610
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (610) 373-2400
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NOT APPLICABLE
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 2. ACQUISITION OF ASSETS
(a) On April 27, 2001 (the "Closing Date"), the Registrant completed
its previously announced acquisitions of (i) CRC Holdings, Inc. ("CRC") from
the shareholders of CRC and (ii) the minority interest in Louisiana Casino
Cruises, Inc. not owned by CRC from Dan S. Meadows, Thomas L. Meehan and
Jerry L. Bayles (together, the "Acquisition"). The Acquisition was
accomplished pursuant to the terms of Agreement and Plan of Merger among CRC
Holdings, Inc., Penn National Gaming, Inc., Casino Holdings, Inc. and certain
shareholders of CRC Holdings, Inc., dated as of July 31, 2000 (the "Merger
Agreement"), and a Stock Purchase Agreement by and among Penn National
Gaming, Inc., Dan S. Meadows, Thomas L. Meehan and Jerry L. Bayles, dated as
of July 31, 2000 (the "Stock Purchase Agreement"). Under the Merger
Agreement, CRC merged with Casino Holdings, Inc., a wholly-owned subsidiary
of the Registrant (the "Merger"). The terms of each of the agreements were
the result of arm's length negotiations among the parties. The aggregate
consideration paid by the Registrant for the Acquisition was approximately
$181.3 million, including the repayment of existing debt at CRC or its
subsidiaries. The purchase price of the Acquisition was funded by the
proceeds of the Registrant's offering of senior subordinated notes, which was
completed in March 2001.
(b) The assets acquired pursuant to the Merger and Acquisition consist
primarily of the Casino Rouge riverboat gaming facility in Baton Rouge,
Louisiana, and a management contract for Casino Rama, a gaming facility located
in Orillia, Canada. The Registrant intends to continue the use of such assets in
the casino business.
The Registrant issued a press release announcing the completion of the
Acquisition, which release is filed herewith as Exhibit 99.1 and is incorporated
herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The following financial
statements are filed as part of this Current Report on Form 8-K:
(i) CRC Holdings, Inc. - Gaming Division Financial Statements -
November 30, 2000
o Report of Independent Certified Public Accountants
o Balance Sheets - November 30, 1999 and 2000
o Statements of Operations - Years ended November 30,
1998, 1999 and 2000
o Statements of Changes in Stockholders' Equity - Years
ended November 30, 1998, 1999 and 2000
o Statements of Cash Flows - Years ended November 30,
1998, 1999 and 2000
o Notes to Financial Statements
(ii) CRC Holdings, Inc. - Gaming Division Financial Statements -
February 28, 2001
o Balance Sheets - November 30, 2000 and February 28, 2001
(unaudited)
o Statements of Operations - Three Month Periods Ended
February 29, 2000 (unaudited) and February 28, 2001
(unaudited)
o Statement of Changes in Stockholders' Equity - Three
Month Period Ended February 28, 2001 (unaudited)
o Statements of Cash Flows - Three Month Periods Ended
February 28, 2000 (unaudited) and February 28, 2001
(unaudited)
o Notes to Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION. The following unaudited pro forma
consolidated financial information is filed as part of this Current Report on
Form 8-K:
-- Unaudited Pro Forma Consolidated Statement of Operations for the
year ended December 31, 2000;
-- Unaudited Pro Forma Consolidated Statement of Operations for the
three months ended March
31, 2001;
-- Notes to Unaudited Pro Forma Consolidated Statement of
Operations;
-- Unaudited Pro Forma Consolidated Balance Sheet as of March 31,
2001; and
-- Notes to Unaudited Pro Forma Consolidated Balance Sheet.
(c) EXHIBITS.
EXHIBIT NO. DESCRIPTION OF DOCUMENT
2.1 + Agreement and Plan of Merger among CRC
Holdings, Inc., Penn National Gaming, Inc., Casino
Holdings, Inc. and certain shareholders of CRC Holdings,
Inc. dated as of July 31, 2000.
2.2 + Stock Purchase Agreement by and among Penn National
Gaming, Inc., Dan S. Meadows, Thomas L. Meehan and Jerry
S. Bayles, dated as of July 31, 2000.
99.1 ++ Press Release dated April 30, 2000.
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+ Previously filed as an exhibit to the Registrant's Current Report
on Form 8-K filed August 8, 2000 and incorporated herein by
reference.
++ Previously filed as an exhibit to the Registrant's Current Report
on Form 8-K filed May 7, 2001 and incorporated herein by
reference.
CRC HOLDINGS, INC. - GAMING DIVISION
FINANCIAL STATEMENTS
NOVEMBER 30, 2000
CONTENTS
-------------------------------------
Report of Independent Certified Public Accountants
Balance Sheets - November 30, 1999 and 2000
Statements of Operations -
Years ended November 30, 1998, 1999 and 2000
Statements of Changes in Stockholders' Equity - Years ended November 30, 1998,
1999 and 2000
Statements of Cash Flows -
Years ended November 30, 1998, 1999 and 2000
Notes to Financial Statements
Report of Independent Certified Public Accountants
To the Board of Directors and
Stockholders of CRC Holdings, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of CRC Holdings, Inc. - Gaming
Division (the "Company") at November 30, 1999 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
November 30, 2000 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Miami, Florida
February 2, 2001
CRC HOLDINGS, INC. - GAMING DIVISION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
November 30,
------------
1999 2000
---- ----
ASSETS
Current Assets
Cash and cash equivalents $ 22,395 $ 27,395
Trade accounts receivable, net of allowance
for doubtful accounts of $274 and $357 at 1999
and 2000, respectively 9,552 9,100
Receivables 7,754 5,937
Deferred income tax 1,595 976
Other current assets 2,471 1,278
--------- ---------
Total current assets 43,767 44,686
Property and equipment, net 42,742 43,049
Receivables, net 5,938 --
Goodwill, net 3,367 3,366
Other assets 4,286 2,946
--------- ---------
Total Assets $ 100,100 $ 94,047
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,137 $ 2,314
Due to affiliates and officers 164 163
Accrued expenses 16,922 17,054
Deferred compensation plan liability -- 1,123
Current portion of long-term debt 6,333 5,949
--------- ---------
Total current liabilities 25,556 26,603
Deferred compensation plan liability 1,826 --
Long-term debt 58,958 53,000
Deferred income tax 4,044 4,974
Other liabilities 87 157
--------- ---------
Total liabilities 90,471 84,734
--------- ---------
Commitments and contingencies (Note 10)
Minority interest 51 1,690
Stockholders' Equity
Common stock $.005 par value; 20,000 shares authorized;
10,742 shares issued and outstanding 54 54
Additional paid-in capital 10,335 1,434
(Accumulated deficit) retained earnings (804) 6,186
Cumulative translation adjustment (7) (51)
--------- ---------
Total stockholders' equity 9,578 7,623
--------- ---------
Total liabilities and stockholders' equity $ 100,100 $ 94,047
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
Year Ended
November 30,
-----------------------------------
1998 1999 2000
---- ---- ----
Revenues
Casino $ 68,845 $ 82,250 $ 89,564
Food and beverage 6,174 7,465 7,736
Management service fees 14,800 15,790 13,218
Less: promotional allowances (4,174) (5,057) (5,746)
--------- --------- ---------
Net revenues 85,645 100,448 104,772
--------- --------- ---------
Operating Expenses
Casino 33,302 38,439 41,991
Food and beverage 1,539 1,659 1,150
Management service and operating costs 28,850 30,323 33,298
Depreciation and amortization 5,004 5,628 5,000
--------- --------- ---------
Total operating expenses 68,695 76,049 81,439
--------- --------- ---------
Income from operations before equity in
net losses of affiliates 16,950 24,399 23,333
Equity in net losses of affiliates (174) -- --
--------- --------- ---------
Income from operations 16,776 24,399 23,333
--------- --------- ---------
Other Income (Expense)
Interest income 2,249 2,200 1,695
Interest expense (8,896) (8,478) (7,213)
Foreign currency gains (losses) 1,418 157 (111)
Common and redeemable preferred stock
dividends of subsidiary (1,094) (1,253) --
Other income (expense) 254 (505) (525)
--------- --------- ---------
Total other income (expense) (6,069) (7,879) (6,154)
--------- --------- ---------
Income before provision for income taxes,
minority interest and extraordinary loss 10,707 16,520 17,179
Provision for income taxes 719 7,191 7,105
--------- --------- ---------
Income before minority interest and
extraordinary loss 9,988 9,329 10,074
Minority interest (108) 221 3,084
--------- --------- ---------
Income before extraordinary loss 10,096 9,108 6,990
Extraordinary loss from early
extinguishment of debt,
net of income tax benefit of $1,106
in 1999 -- (1,731) --
--------- --------- ---------
Net income $ 10,096 $ 7,377 $ 6,990
========= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, 1998, 1999 AND 2000
(IN THOUSANDS)
Retained
Common Stock Additional Earnings Cumulative Total
Paid-In (Accumulated Translation Stockholders'
SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT EQUITY
------ ------ ------- -------- ---------- ------
Balance, November 30, 1997 10,621 $ 53 $ 18,498 $(18,277) $ 26 $ 300
Additional common shares issued 121 1 (1) -- -- --
Net change in hospitality division
intercompany account -- -- (362) -- -- (362)
Net income -- -- -- 10,096 -- 10,096
Other comprehensive income:
Foreign currency translation adjustment -- -- -- -- (64) (64)
--------
Comprehensive income -- -- -- -- -- 10,032
------ ------ -------- ---------- -------- --------
Balance, November 30, 1998 10,742 54 18,135 (8,181) (38) 9,970
------ ------ -------- ---------- -------- --------
Net change in hospitality division
intercompany account -- -- (7,800) -- -- (7,800)
Net income -- -- -- 7,377 -- 7,377
Other comprehensive income:
Foreign currency translation adjustment -- -- -- -- 31 31
--------
Comprehensive income -- -- -- -- -- 7,408
------- ------ -------- ----------- --------- --------
Balance, November 30, 1999 10,742 54 10,335 (804) (7) 9,578
------- ------ -------- ----------- --------- --------
Net change in hospitality division
intercompany account -- -- (8,901) -- -- (8,901)
Net income -- -- -- 6,990 -- 6,990
Other comprehensive income:
Foreign currency translation adjustment -- -- -- -- (44) (44)
--------
Comprehensive income -- -- -- -- -- 6,946
------- ------ -------- ----------- --------- --------
Balance, November 30, 2000 10,742 $ 54 $ 1,434 $ 6,186 $ (51) $ 7,623
======= ====== ========= ========= ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended
November 30,
----------------------------------------------
1998 1999 2000
---- ---- ----
Cash flows from operating activities:
Net income $ 10,096 $ 7,377 $ 6,990
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss on early extinguishment of debt, net -- 1,731 --
Provision (recovery) for losses on
receivables and equity investments, net 745 (446) 116
Depreciation and amortization 5,004 5,628 5,000
Amortization of deferred charges 1,560 778 528
Undistributed equity in net losses of affiliates 174 -- --
Foreign currency (gains) losses (1,418) (157) 111
Deferred income taxes (975) 1,161 1,590
Minority interest (108) 221 3,084
Other (3) (59) --
Change in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable (146) (1,053) 255
Other assets 205 403 1,297
Increase (decrease) in:
Accounts payable 400 (932) 177
Accrued expenses (4,705) 6,394 784
Deferred compensation plan liability 321 88 (703)
Other liabilities 1,367 661 478
-------- -------- --------
Net cash provided by operating activities 12,517 21,795 19,707
-------- -------- --------
Cash flows from investing activities:
Receipts from project loans and advances 3,438 6,250 7,754
Purchases of property and equipment (5,373) (5,328)
Decrease in restricted cash 4,824 -- --
Investments in and advances to affiliates (578) -- --
Sale of property and equipment 42 -- --
Project loans and advances (760) (943) --
-------- -------- --------
Net cash flows provided (used) by investing activities 1,593 (1,036) 2,426
-------- -------- --------
Cash flows from financing activities:
(Increase) decrease in due from affiliates (834) (278) (388)
Borrowings 50,000 55,000 --
Payments of debt and other deferred charges (55,175) (56,736) (6,301)
Payments of redeemable preferred and accrued dividends of subsidiary (1,760) -- --
Purchase of common stock and common stock warrants of subsidiary -- (4,073) (174)
Payments of common stock dividends of subsidiary -- (174) (1,369)
Net change in hospitality division intercompany account (362) (7,678) (8,901)
-------- -------- --------
Net cash flows used by financing activities (8,131) (13,939) (17,133)
-------- -------- --------
Net increase in cash and cash equivalents 5,979 6,820 5,000
Cash and cash equivalents at beginning of year 9,596 15,575 22,395
-------- -------- --------
Cash and cash equivalents at end of year $ 15,575 $ 22,395 $ 27,395
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 9,700 $ 4,798 $ 7,045
Cash paid during the year for income taxes $ 415 $ 1,880 $ 4,137
Cash received during the year for income taxes $ 36 $ 12 $ --
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
CRC Holdings, Inc. ("CRC"), d/b/a Carnival Resorts & Casinos, owns, operates
and develops casino properties (for purposes hereof, the "CRC Gaming
Division" or the "Company") and develops and manages hotel and resort
properties. The CRC Gaming Division consists principally of an approximate
60% interest in Louisiana Casino Cruises, Inc. ("LCCI"), which owns the
Casino Rouge, a riverboat casino based in Baton Rouge, Louisiana, and through
a wholly-owned subsidiary, CHC Casinos Canada Limited ("CHC Canada"), the
operations of Casino Rama located north of Toronto, Canada, on behalf of the
Chippewas of Rama First Nation and the Ontario Lottery and Gaming
Corporation. These financial statements depict the financial condition and
results of operations of the CRC Gaming Division as of and for the periods
presented.
Pursuant to the Agreement and Plan of Merger among CRC, Penn National Gaming,
Inc. ("Penn"), Casino Holdings, Inc. ("Casino Holdings"), a wholly-owned
subsidiary of Penn, and certain stockholders of CRC, dated July 31, 2000 (the
"Merger Agreement"), subject to appropriate approvals and certain conditions
including financing, CRC has agreed to (i) distribute its hospitality division
and certain other assets and liabilities to the stockholders of CRC, (ii)
distribute its net after-tax income, as defined, less certain adjustments for
the period from the date of the Merger Agreement through the closing date of the
Merger Agreement to the stockholders of CRC, and (iii) immediately subsequent to
the distributions, merge the CRC Gaming Division with and into Casino Holdings.
In addition, pursuant to a Stock Purchase Agreement among certain minority
stockholders of a 40% interest in LCCI (the "LCCI Minority Stockholders") and
Penn dated July 31, 2000 (the "Stock Purchase Agreement"), the LCCI Minority
Stockholders, subject to closing of the Merger Agreement, appropriate approvals
and certain conditions, have agreed to sell their 40% interest in LCCI to Penn.
The Merger Agreement and Stock Purchase Agreement provide the foregoing
transactions shall be consummated on or before October 31, 2001 although there
can be no assurance to that effect.
Pursuant to an Agreement and Plan of Merger with CHC International, Inc.
("CHC"), Wyndham International, Inc. ("Wyndham"), and Patriot American
Hospitality, Inc., on June 30, 1998, CHC (i) contributed its gaming and
hospitality development business to CRC, (ii) distributed all of the common
stock of CRC to the stockholders of CHC pro rata based on their ownership in
CHC, and (iii) merged with and into Wyndham subsequent to the pro rata
distribution (collectively the "Patriot Merger").
The financial statements have been prepared as if the Company has operated as an
independent, stand alone entity for all periods presented. Such financial
statements have been prepared using the historical basis of accounting and
include all of the assets, liabilities, revenues and expenses previously
included in CRC's and CHC's consolidated financial statements prior to the
transactions contemplated by the Merger Agreement, the Stock Purchase Agreement
and the Patriot Merger, except for all the assets, liabilities (including
contingent liabilities), revenues and expenses of the
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
hospitality division of CRC and CHC and their respective subsidiaries.
Consequently, these financial statements include certain balances and
allocations for assets and liabilities and corresponding income and expense
items related to the Company that were previously included in CRC's and CHC's
consolidated financial statements. In accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 55, these financial statements exclude
certain corporate expenses incurred by CRC and CHC on the hospitality division's
behalf. All significant intercompany balances and transactions within the CRC
Gaming Division have been eliminated. Investments in less than majority-owned
gaming businesses, in which a significant equity ownership interest is held, are
accounted for on the equity method.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. Significant
accounting policies are summarized below.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Casino Revenue represents the net win from gaming activities which is the
difference between gaming wins and losses. Casino revenues are net of accruals
for anticipated pay-outs of progressive jackpots. The estimated direct costs of
providing promotional allowances for food and beverage and other items have been
classified as casino operating expenses and totaled $2,793, $3,104 and $3,250
for the years ended November 30, 1998, 1999 and 2000, respectively. Revenues
from food and beverage sales are recognized at the time the related service is
performed. Revenues from management service fees for management of casinos are
based upon contracted terms and are recognized when the services are performed,
and include management service fees from affiliates of $144, for the year ended
November 30, 1998.
REIMBURSED OPERATING EXPENSES
The Company is fully reimbursed by Casino Rama for salaries and related costs
for casino personnel employed by the Company in accordance with management
contract terms and the administration of services consisting primarily of sales,
marketing and reservations. These costs amounted to $66,399, $67,921 and $72,388
for the years ended November 30, 1998, 1999 and 2000, respectively. All such
costs and related reimbursements have been netted in the statements of
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
operations, with reimbursable amounts and accrued salaries and related costs
reflected as trade accounts receivable and accrued expenses, respectively, in
the balance sheets.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign operations are generally
translated into United States dollars at year-end exchange rates, and revenues
and expenses are generally translated at average exchange rates for the year.
Comprehensive income resulting from translation adjustments are reflected within
stockholders' equity. Transaction gains and losses that arise from exchange rate
fluctuations on transactions denominated in a currency other than the functional
currency are included in the results of operations, as incurred.
STOCK BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock Based Compensation" which establishes a fair value
based method of accounting for stock based compensation plans, the effect of
which can either be disclosed or recorded. The Company has chosen to retain its
intrinsic value method of accounting for stock based compensation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term investments with original purchase
maturities of 90 days or less.
TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are from properties under management and casino
customers. The Company provides an allowance for doubtful accounts based on a
periodic review of outstanding receivables and an evaluation of aggregate
collectibility.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided on a straight-line basis over the estimated useful lives of the assets
or the expected term of the land lease (including renewals), whichever is
shorter:
Vessel 18 years
Building 30 years
Furniture, fixtures and other equipment 4 - 10 years
Gaming equipment 5 - 15 years
Expenditures for repairs and maintenance are charged to expense as incurred.
Expenditures for major renewals and betterments, which significantly extend the
useful lives of existing equipment, are capitalized and depreciated.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Leasehold improvements and equipment held under capital leases are amortized
over the lesser of useful life or lease term.
IMPAIRMENT OF LONG-LIVED ASSETS
When events or circumstances indicate that the carrying amount of long-lived
assets to be held and used might not be recoverable, the expected future
undiscounted cash flows from the assets is estimated and compared with the
carrying amount of the assets. If the sum of the estimated undiscounted cash
flows is less than the carrying amount of the assets, an impairment loss is
recorded. The impairment loss is measured by comparing the fair value of the
assets with their carrying amount. Long-lived assets that are held for disposal
are reported at the lower of the assets' carrying amount or fair value less
costs related to the assets' disposition.
OTHER ASSETS
Costs incurred in connection with the Company's financing arrangements are
recorded as deferred charges and are amortized over the terms of the debt
issuances. All costs incurred which relate to obtaining regulatory approval of
the Baton Rouge riverboat facility are recorded as deferred charges and are
amortized over the license period. Deferred licensing charges and debt issuance
costs are included in other current assets and other assets.
GOODWILL
Goodwill is associated with the acquisition of LCCI and is amortized on a
straight-line basis over 30 years, with accumulated amortization of $594 and
$693 as of November 30, 1999 and 2000, respectively, and amortization expense of
$99 in each of the three years ended November 30, 2000.
INCOME TAXES
Income taxes are provided based on the liability method of accounting pursuant
to SFAS No. 109, "Accounting for Income Taxes." Deferred income taxes are
recorded to reflect tax consequences on future years' differences between tax
bases of assets and liabilities and their financial reporting amounts at each
year-end, reflecting the combination of LCCI and CHC Canada as separate tax
filers and as if the Company and its other subsidiaries were a stand alone
taxpayer.
CONCENTRATION OF CREDIT RISK
The Company has a receivable from Casino Rama, Inc. pursuant to an agreement to
develop and operate Casino Rama. To monitor the credit risk with respect to the
receivable from Casino Rama, Inc., the Company periodically reviews the
financial condition of Casino Rama, Inc. through its management of Casino Rama.
Management currently believes the credit risk related to this receivable is
minimal.
FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by the
Company using
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
available market and effective interest rate information for such instruments.
The carrying amounts of such financial instruments approximate their fair value
except for LCCI's 11% senior secured notes which fair value approximated $56,585
at November 30, 2000.
COMMON SHARE DATA
On June 30, 1998, CRC's common stock was adjusted pursuant to a 10,621-for-1
stock split where each share of CRC's common stock, $.01 par value per share was
converted into 10,621 shares of CRC's common stock, $.005 par value per share.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
is, as amended, effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company has evaluated the impact of SFAS No. 133 and
believes it has no effect on its financial statements.
The Company is reviewing SEC Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements". This Company is required to adopt SAB No.
101 for the year ending November 30, 2001 and does not expect the effect of the
pronouncement on its financial condition and results of operations to be
material.
RECLASSIFICATIONS
Certain amounts in the financial statements have been reclassified to conform to
the current period presentation.
NOTE 2 - RECEIVABLES
Receivables consist of the following at November 30,:
1999 2000
---- ----
Receivable from Casino Rama, Inc. - Canadian prime plus
1% (effective rate of interest of 7.74% and 8.43% as of
November 30, 1999 and 2000, respectively), principal of
$625 payable quarterly, plus interest for as long as
there are amounts outstanding under the Casino Rama,
Inc. credit agreements and principal of $1,563 payable
quarterly, plus interest once there are no longer any
amounts outstanding under the Casino Rama, Inc. credit
agreements $12,188 $ 5,937
Receivable from the Kalispel Tribe - prime plus 2%
(effective interest rate of 9.38% as of November 30,
1999). 1,504 --
Other receivables 139 139
Allowance for doubtful receivables (139) (139)
------- -------
13,692 5,937
Current portion (7,754) (5,937)
------- -------
Noncurrent portion $ 5,938 $ --
======= =======
NOTE 3 - PROPERTY AND EQUIPMENT
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Property and equipment consist of the following at November 30,:
1999 2000
---- ----
Land $ 1,385 $ 1,403
--------- ---------
Vessel 17,138 17,463
Building 19,840 20,588
Furniture, fixtures and other equipment 13,988 15,168
Gaming equipment 11,282 12,345
Leasehold improvements 204 126
Equipment under capital leases 262 251
--------- ---------
64,099 67,344
Accumulated depreciation and amortization (21,629) (25,024)
Construction in progress 272 729
--------- ---------
Property and equipment, net $ 42,742 $ 43,049
========= =========
Capitalized interest included in property and equipment is $1,628 as of November
30, 1999 and 2000. Unamortized capitalized interest is $1,099 and $1,025 as of
November 30, 1999 and 2000, respectively. Depreciation expense is $4,789, $5,434
and $4,828 for the years ended November 30, 1998, 1999 and 2000, respectively,
including net losses on disposals of fixed assets of $125, $69 and $314 for the
years ended November 30, 1998, 1999 and 2000, respectively.
NOTE 4 - LEASES
LCCI has an operating lease agreement for property on which LCCI constructed the
riverboat facility and parking facility. The initial lease term is 10 years
beginning January 1994. The terms of the lease include payment of minimum
monthly rent equal to the greater of $33 or 1.25% of LCCI's gross cash revenue.
In addition, LCCI prepaid rent of approximately $1,756 in connection with the
lessor's acquisition of an additional parcel of land. The prepaid rent is being
amortized over the initial lease term and the remaining unamortized portion was
$717 and $541 as of November 30, 1999 and 2000, respectively. LCCI has the
option to purchase the entire site on or after 15 years for the then appraised
value of the original parcel, excluding improvements. LCCI also leases a total
of approximately 45,700 square feet for general warehouse, office and employee
parking. The term of the lease is one year beginning September 2000 for $8 per
month. The lease grants LCCI a right of first refusal to purchase the property.
The Company also leases office and warehouse space under operating lease
agreements.
The following is a schedule of future minimum lease payments, for all operating
leases with non-cancellable terms in excess of one year at November 30, 2000:
Year ending November 30, 2001 $ 697
Year ending November 30, 2002 697
Year ending November 30, 2003 697
Year ending November 30, 2004 157
Thereafter --
------
Total minimum lease payments $2,248
======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Rental expense amounted to $1,636, $1,899 and $1,764 for the years ended
November 30, 1998, 1999 and 2000, respectively. Rental expense for the years
ended November 30, 1998, 1999 and 2000 includes $509, $698 and $769,
respectively, of contingent rental payments in excess of the monthly minimum
rent with respect to LCCI's land lease for riverboat and parking facilities.
NOTE 5 - EMPLOYEE BENEFITS PLANS
CRC maintains non-qualified defined contribution deferred compensation plans
(the "Deferred Compensation Plan") which cover most management employees.
Benefits accumulate by participants based on a percentage of their annual
compensation and generally vest 20% per year. The Deferred Compensation Plan's
costs, net of forfeitures, included in the statements of operations for the
years ended November 30, 1998, 1999 and 2000 were approximately $576, $631 and
$809, respectively. The earnings rate for the Deferred Compensation Plan
unfunded benefit liability is 7% for the years ended November 30, 1998, 1999 and
2000.
Deferred Compensation Plan benefits funded by the Company are taxable to the
participants and the Company advances the participants amounts equal to the
income and payroll taxes on the funded benefits. Interest accrues at 6% per
annum on these advances. The amounts of such advances were $251 and $574 as of
November 30, 1999 and 2000, respectively, and will be repaid from pledged death
benefit proceeds of participants' life insurance policies.
CRC also maintains defined contribution plans under Section 401(k) of the
Internal Revenue Code for all qualified employees (the "401(k) Plans").
Contributions to the 401(k) Plans by the Company are based on the participants'
contributions. For the years ended November 30 1998, 1999 and 2000, the Company
contributed $147, $207, and $185 respectively. The Company paid certain expenses
associated with administration of the 401(k) Plans.
NOTE 6 - INCOME TAXES
The Company's provision for income taxes attributable to continuing operations
is comprised of the following for the years ended November 30,:
1998 1999 2000
---- ---- ----
CURRENT
Federal $ 271 $4,703 $4,017
State 4 459 904
Foreign 108 78 70
------ ------ ------
Total current tax expense 383 5,240 4,991
DEFERRED
Deferred tax expense 336 1,951 2,114
------ ------ ------
Total provision for income taxes $ 719 $7,191 $7,105
====== ====== ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
The difference between the taxes provided for continuing operations at the U.S.
federal statutory rate and the Company's actual tax provision is reconciled
below for the years ended November 30,:
1998 1999 2000
---- ---- ----
Taxes provided at statutory rate $ 3,677 $ 5,542 $ 5,841
Release of valuation allowance (4,243) -- --
State tax expense, net of federal tax benefit 393 592 624
Foreign tax expense 158 26 11
Dividends of subsidiary 372 426 --
Other 362 605 629
------- ------- -------
Total provision for income taxes $ 719 $ 7,191 $ 7,105
======= ======= =======
The approximate effect of the Company's temporary differences and carryforwards
that give rise to deferred tax balances at November 30, were as follows:
1999 2000
---- ----
Deferred compensation plan liability $ -- $ 394
Allowance for doubtful accounts receivable - other -- 98
Alternative minimum tax credit carryforward 851 --
Other, net 744 484
------- -------
Current deferred tax asset $ 1,595 $ 976
======= =======
Foreign currency gain $ (686) $ (320)
Other, net 255 294
------- -------
Current deferred tax liability $ (431) $ (26)
======= =======
1999 2000
---- ----
Deferred compensation plan liability $ 686 $ --
Deferred prepayment penalty 206 --
Other, net 98 20
------- -------
Noncurrent deferred tax asset $ 990 $ 20
======= =======
Depreciation $(4,359) $(4,611)
Alternative minimum tax credit carryforward 295 --
Other, net 20 (363)
------- -------
Noncurrent deferred tax liability $(4,044) $(4,974)
======= =======
NOTE 7 - LONG-TERM DEBT
Long-term debt is comprised of the following as of November 30,:
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
2000 1999
---- ----
11% senior secured notes - interest payable
semi-annually June 1, and December 1, with balance due
December 1, 2005 $ 53,000 $53,000
Variable-rate term loan - (effective interest rate of
9.59% and 11.05% at November 30, 1999 and 2000,
respectively) - interest payable at the option of CHC
Canada, in one, two, three or six month installments
and principal payable in a quarterly installment of
$241 on April 30, 1999, quarterly installments of
$1,563 commencing July 31, 1999 through July 31, 2001,
with balance due October 31, 2001 12,187 5,937
Capital lease obligations 104 12
-------- --------
Total debt 65,291 58,949
Current portion (6,333) (5,949)
-------- --------
Total long-term debt $ 58,958 $ 53,000
======== ========
Aggregate principal payments for the long-term debt, including capital lease
obligations, are as follows at November 30, 2000:
Year ending November 30, 2001 $ 5,949
Year ending November 30, 2002 --
Year ending November 30, 2003 --
Year ending November 30, 2004 --
Year ending November 30, 2005 --
Thereafter 53,000
--------
Total $ 58,949
========
Variable-rate senior secured increasing rate notes - on November 25, 1998, LCCI
issued $50,000 of variable rate senior secured increasing rate notes due
December 1, 2001 ("the 1998 Notes") in a private placement offering to refinance
the $51,000, 11 1/2% first mortgage notes issued in December 1993 in connection
with the development of the Casino Rouge.
11% senior secured notes - on January 27, 1999, LCCI issued $55,000 of 11%
senior secured notes due December 1, 2005, (the "1999 Notes") in a private
placement offering with interest due semi-annually beginning June 1, 1999. The
proceeds were used to defease and redeem the 1998 Notes. After December 1, 2002,
LCCI may, at its option, redeem all or some of the 1999 Notes at a premium that
will decrease over time from 105.5% in 2002 to 100% in 2004 of their face
amount, plus interest. The redemption of the 1998 Notes resulted in LCCI
incurring a net extraordinary loss of $1,731 during the year ended November 30,
1999 and the nine months ended August 31, 1999. The 1999 Notes were exchanged in
May 1999 for Notes registered under the Securities Act of 1933. The registered
1999 Notes are freely transferable by holders thereof and are substantially
identical in all material respects to the privately placed 1999 Notes for which
they were exchanged. The registered 1999 Notes are collateralized by
substantially all of LCCI's assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Variable-rate secured term loan - in December 1998, CHC Canada amended the
variable-rate secured loan denominating the outstanding balance in U.S. dollars
and amending the repayment schedule. The amended loan bears interest at varying
rates approximating LIBOR plus 4% per annum. The loan is collateralized by
substantially all of CHC Canada's assets.
CRC has a variable rate line of credit with a commercial bank collateralized by
assets of certain shareholders of CRC. As of November 30, 2000, no amount was
available under the variable rate line of credit.
The 1999 Notes are collateralized by substantially all of LCCI's assets, other
than certain identified excluded assets. The indenture to the 1999 Notes
includes certain covenants which limit the ability of LCCI and its restricted
subsidiaries, (as defined) subject to certain exceptions, to: (i) incur
additional indebtedness; (ii) pay dividends or other distributions, repurchase
capital stock or other equity interest or subordinated indebtedness; (iii) enter
into certain transactions with affiliates; (iv) create certain liens or sell
certain assets; and (v) enter into certain mergers and consolidations. The
Company's other financing agreements also contain certain financial covenants.
NOTE 8 - REDEEMABLE PREFERRED STOCK AND COMMON STOCK WARRANTS OF SUBSIDIARY
LCCI has authorized 50,000 shares of preferred stock, of which 11,000 shares of
12% cumulative redeemable preferred stock was issued and outstanding at November
30, 1997, at a carrying value of $1,628 including accrued non-cash dividends.
The preferred stock and accrued dividends were redeemed by LCCI on November 30,
1998 for $1,760.
LCCI's debt offering in December 1993 included 153,000 detachable warrants with
put rights whereby LCCI had an obligation to purchase the 153,000 warrants, at
the value of LCCI's common stock as of December 1, 1998, as determined by two
independent investment banking firms. At November 30, 1998, the warrants were
classified as redeemable equity due to the put right feature and accreted to the
amount at which LCCI expected to repurchase these warrants. Holders of 14,100
warrants elected to convert to an equivalent number of LCCI common shares, while
holders of 138,900 warrants elected to have LCCI purchase the warrants. On March
1, 1999, LCCI received valuations from two investment banking firms. Based on
the average of the values determined by the investment banking firms, LCCI paid
on March 8, 1999, $3,749 to holders of 138,900 warrants who exercised their put
rights. On September 21, 1999, at a previous warrantholder's request, LCCI
purchased 12,000 LCCI common shares for $324, the price originally offered for
the warrants.
NOTE 9 - MINORITY INTEREST
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
The Company owns an approximate 60% interest in LCCI. The Company's financial
statements include 100% of the assets, liabilities and operations of LCCI. The
effects of the minority interest have been reflected in the accompanying balance
sheets and statements of operations. During the years ended November 30, 1998,
1999 and 2000, LCCI paid cash dividends to holders of its common stock and
common stock warrants totaling $1,996, $3,498 and $3,398 respectively. As LCCI's
accumulated losses and dividends had previously eliminated the minority
interest, $962 and $1,253 of LCCI common stock dividends paid to minority common
stockholders and to the common stock warrantholders were charged to operations
during the years ended November 30, 1998 and 1999, respectively. During the year
ended November 30, 2000, LCCI paid cash dividends to the minority holders of its
common stock of $1,369. On December 6, 2000, LCCI paid a cash dividend to the
minority holders of its common stock of $355.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of its business, the Company is involved in legal
proceedings resulting from incidents taking place at casinos it manages, or in
which it has an ownership interest. The Company maintains comprehensive
liability insurance and also requires casino owners to maintain adequate
insurance coverage. In the opinion of management, the ultimate outcome of all
such matters should not have a material adverse effect on the financial position
of the Company, but, if decided adversely to the Company, could have a material
adverse effect upon the Company's operating results during the period in which
the litigation is resolved.
LCCI's original five-year gaming license was up for renewal in July 1999. On
June 15, 1999, LCCI received a conditional license approval from the Louisiana
Gaming Control Board (the "Louisiana Board") until completion of their
investigation. On or about July 25, 2000, the Division of the Louisiana Attorney
General's Office (the "Division") submitted a Report on Conditional License
Renewal of LCCI, in which the Division and the Louisiana State Police outlined
three conditions on the license renewal of LCCI. The first condition involved
LCCI minority shareholder Jerry Bayles. The Division recommended that in order
to renew the license of LCCI, that Mr. Bayles have no more direct day to day
involvement in the management or operations of Casino Rouge than he currently
maintained. The second condition related to CRC officer Robert Sturges. The
division suggested in the report that LCCI's license also be conditioned upon
the status quo relating to Mr. Sturges' day to day management and operation of
Casino Rouge. Finally, the report addressed, among other things, Capital Lake
Properties, Inc. ("CLP"), the landlord of the leased property where Casino Rouge
is located, which currently receives rent based upon 1.25% of gross cash
revenue, as defined. The Division's report contained a proposed condition on the
license renewal of LCCI, that CLP submit itself to a suitability investigation.
The report has not been formally acted upon by the Louisiana Board. Attorneys
for the Louisiana Board have indicated that the Louisiana Board will decide the
issue of renewal of LCCI's license, and any potential conditions, along with the
decision to allow the transfer of LCCI's common stock to Penn. On or about
November 29, 2000, LCCI filed suit against CLP for declaratory judgement in the
19th Judicial District Court of Louisiana seeking a determination whether CLP,
as a matter of law, must submit to a suitability investigation and what, if any
obligations CLP has under the lease agreement, to submit to suitability. It is
expected that the litigation will, when complete, decide whether the Louisiana
Board
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
will condition LCCI's license on the suitability of CLP. It is not expected
that the conditions relating to the day to day involvement of Mr. Bayles or
Mr. Sturges will be challenged by LCCI.
In connection with LCCI's renewal application, each of LCCI's officers,
directors, managers, principal shareholders, including the Company and its
officers and directors and key gaming employees, will be subject to strict
scrutiny and full suitability investigations and approval by the Louisiana
Board. The factors the Louisiana Board has stated it will consider, among
others, in order to renew LCCI's license, include LCCI's compliance with all the
requirements of the Louisiana Riverboat Economic Development and Gaming Control
Act, the approval of various systems and procedures, the demonstration of good
character (including an examination of criminal and civil records) and methods
of business practice. It is not possible to predict when the Louisiana Board
will complete its investigation, and no time line frame such completion has been
given.
Gaming licenses in Ontario are issued for four-year terms. CHC Canada's original
gaming license is up for renewal in July 2000. CHC Canada has filed its renewal
application and paid its annual renewal fee and its license is deemed to
continue to July 2001 pending completion of the relicensing investigation. CHC
Canada and its officers, directors, managers, principal shareholders, including
the Company and its officers and directors and key gaming employees, will be
subject to strict scrutiny and full suitability investigations and approval by
the Ontario Alcohol and Gaming Commission in connection with CHC Canada's
renewal application.
LCCI and CHC Canada believe they will be successful in receiving renewals of the
licenses, but no assurance can be given as to whether or when the licenses will
be renewed, or extent of any restrictions that may be imposed as conditions
thereof. The loss, suspension or failure to obtain renewals of the licenses
subject to burdensome conditions, would have a material adverse effect on the
Company.
Pursuant to the agreement to manage the Casino Rama complex, dated March 18,
1996, as amended (the "Agreement"), CHC Canada will receive during the first
three years from the opening date, July 31, 1996, a management fee, subject to
certain limitations, of 2.75% of gross revenues plus 5.0% of net operating
margin (as such terms are defined in the Agreement) and, subsequent to year
three, an operator's fee of 2.0% of gross revenues plus 5.0% of net operating
margin. The term of the Agreement, which is 15 years from the opening date,
consisting of an original 10 year term and a five year renewal, requires CHC
Canada to loan Casino Rama, Inc. $25,000 (see Note 2) and, under certain
circumstances additional amounts to fund Casino Rama operating deficits, if any.
The performance and obligations of CHC Canada under the Agreement are guaranteed
by CRC.
In November 1993, LCCI was involved in a dispute regarding consulting services.
Although a formal demand had not been made to LCCI, management believed the
dispute could lead to litigation and accrued $1,700 for the estimated cost of
resolution. LCCI settled litigation related to this dispute in May 1998.
Pursuant to the settlement, each party entered into mutual general releases and
neither party admitted any liability in connection with the settlement. As a
result of the settlement, LCCI has recognized a net reduction of $400 in
management services and operating costs for the year ended November 30, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 11 - STOCKHOLDERS' EQUITY
CRC has an Employee Stock Option Plan (the "Plan") which provides for the grant
to employees of both incentive stock options (within the meaning of Section 422
of the Internal Revenue Code) and nonstatutory stock options to eligible
employees (including officers and directors) and non-employee directors. A total
of 1,700,000 shares of common stock have been reserved for issuance under the
Plan. In conjunction with the Patriot Merger, CHC's options were cancelled and
CRC granted new options which retained the term and vesting attributes of the
CHC options.
The table below summarizes the status of the CRC's Plan as of November 30, 1998,
1999 and 2000 and changes for the years then ended as follows:
1998 1999 2000
---------------------------- ---------------------------- -------------------------
SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE
------- --------- -------------- ---------- ---------------- -------------------------
Outstanding at beginning of year -- $ -- 1,387,071 $ 2.36 1,372,421 $ 2.35
Granted 1,387,071 2.36 -- -- -- --
Exercised -- (14,150) 3.43 -- --
Forfeited -- (500) 3.43 (10,616) 3.43
--------- ---------
Outstanding at end of year 1,387,071 2.36 1,372,421 2.35 1,361,805 2.34
========= ========= =========
Options excercisable at year-end 933,315 2.16 1,203,439 2.20 1,255,211 2.25
Weighted-average fair value of
options granted during the year $ 2.08 $ -- $ --
The following table summarizes information about options outstanding at November
30, 2000:
OPTIONS OUTSTANDING OPTIONS EXCERCISABLE
------------------------------------------------- -----------------------------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXCERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ------------ --------------
$1.93 988,052 4.0 years $1.93 988,052 $1.93
$3.43 373,753 5.7 3.43 267,159 3.43
--------- ---------
1,361,805 4.5 2.34 1,255,211 2.25
========= =========
All options issued were granted at fair market value on the original date of
grant, generally have a term of 10 years, and generally become exercisable with
respect to 20% of the covered shares commencing one year after grant, and are
generally exercisable with respect to an additional 20% of the covered shares
after each additional year until fully exercisable.
The fair value of each option grant was estimated on the date of the grant using
the minimum value method with the following assumptions: risk-free interest rate
of 7.5%, no dividend yield, expected lives of 10 years and no volatility.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
The Company applies Accounting Principles Board No. 25 and related
interpretations in accounting for the Plan. Accordingly, no compensation cost
has been recognized. Had compensation cost for the Company's Plan been
determined based on the fair value at the grant dates for awards under the Plan
consistent with the method of SFAS No. 123, the Company's pro forma net income
would have been $9,519, $6,805 and $6,869 for the years ended November 30, 1998,
1999 and 2000, respectively.
On June 30, 1998, CRC settled a liability assumed as part of the Patriot Merger
by issuing to an executive officer 121,289 shares of CRC common stock. The stock
grant vested immediately.
NOTE 12 - RELATED PARTY TRANSACTIONS
CRC and Carnival Corporation entered into a trademark license agreement
providing for the Company's use of the "Carnival" trademark so that the Company
may conduct business as "Carnival Resorts and Casinos." Fees due under the
agreement are the greater of $100 or 1% of the Company's revenues, as defined.
The trademark license fees for the years ended November 30, 1998, 1999 and 2000
were $518, $649 and $679 respectively.
The Company provides accounting services, at cost, to certain entities owned and
controlled by certain of its officers. The entities are obligated to reimburse
the Company for such services provided. The cost of such services were $154, $46
and $85 for the years ended November 30, 1998, 1999 and 2000, respectively, and
the balance due the Company was $200 and $285 as of November 30, 1999 and 2000,
respectively.
****************************
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
FINANCIAL STATEMENTS
FEBRUARY 28, 2001
CONTENTS
Balance Sheets - November 30, 2000 and February 28, 2001 (unaudited)
Statements of Operations - Three Month Periods Ended February 29, 2000
(unaudited) and February 28, 2001 (unaudited)
Statement of Changes in Stockholders' Equity - Three Month Period Ended
February 28, 2001 (unaudited)
Statements of Cash Flows - Three Month Periods Ended February 28, 2000
(unaudited) and February 28, 2001 (unaudited)
Notes to Financial Statements
CRC HOLDINGS, INC. - GAMING DIVISION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOVEMBER 30, FEBRUARY 28,
2000 2001
---- ----
ASSETS (unaudited)
------
Current Assets
Cash and cash equivalents $ 27,395 $ 26,134
Trade accounts receivable, net of allowances for doubtful accounts
of $357 and $390 at 2000 and 2001, respectively 9,100 6,143
Receivables 5,937 4,375
Deferred income tax 976 730
Other current assets 1,278 1,725
---------- ----------
Total current assets 44,686 39,107
Property and equipment, net 43,049 43,860
Goodwill, net 3,366 3,341
Other assets 2,946 2,622
---------- ----------
Total Assets $ 94,047 $ 88,930
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,314 $ 4,117
Due to affiliates and officers 163 172
Accrued expenses 17,054 10,155
Deferred compensation plan liability 1,123 218
Current portion of long-term debt 5,949 4,376
---------- ----------
Total current liabilities 26,603 19,038
Long-term debt 53,000 53,000
Deferred income tax 4,974 5,052
Other liabilities 157 143
---------- ----------
Total liabilities 84,734 77,233
---------- ----------
Commitments and contingencies (Note 4)
Minority interest 1,690 2,417
Stockholders' Equity
Common stock, $.005 par value; 20,000 shares
authorized; 10,742 shares issued and outstanding 54 54
Additional paid-in capital 1,434 821
Retained earnings 6,186 8,452
Cumulative translation adjustment (51) (47)
---------- ----------
Total stockholders' equity 7,623 9,280
---------- ----------
Total liabilities and stockholders' equity $ 94,047 $ 88,930
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
FEBRUARY 28/29
2000 2001
---- ----
Revenues
Casino $ 22,871 $ 24,284
Food and beverage 2,102 1,756
Management service fees 3,419 2,371
Less: promotional allowances (1,569) (1,328)
--------- ----------
Net revenues 26,823 27,083
Operating Expenses
Casino 10,241 11,156
Food and beverage 339 253
Management service and operating costs 8,432 7,105
Depreciation and amortization 1,478 1,221
--------- ----------
Total operating expenses 20,490 19,735
--------- ----------
Income from operations 6,333 7,348
Other Income (Expenses)
Interest income 422 370
Interest expense (1,876) (1,670)
Foreign currency losses (48) (48)
Other expense -- (268)
--------- ----------
Total other (expense) (1,502) (1,616)
--------- ----------
Income before provision for income taxes
and minority interest 4,831 5,732
Provision for income taxes 1,958 2,384
--------- ----------
Income before minority interest 2,873 3,348
Minority interest 815 1,082
--------- ----------
Net income $ 2,058 $ 2,266
========= ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED FEBRUARY 28, 2001
(IN THOUSANDS)
(UNAUDITED)
Common Stock Additional Cumulative Total
---------------- Paid-In Retained Translation Stockholders'
Shares Amount Capital Earnings Adjustment Equity
------ ------ ------- -------- ---------- ------
Balance, November 30, 2000 10,742 $ 54 $ 1,434 $ 6,186 $ (51) $ 7,623
Net change in
hospitality division
intercompany account -- -- (613) -- -- (613)
Net income -- -- -- 2,266 -- 2,266
Other comprehensive income:
Foreign currency translation adjustment -- -- -- -- 4 4
-------
Comprehensive income 2,270
------- ------- ------- ------- ------- -------
BALANCE, FEBRUARY 28, 2001 10,742 $ 54 $ 821 $ 8,452 $ (47) $ 9,280
======= ======= ======= ======= ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
FEBRUARY 28/29,
2000 2001
---- ----
Cash flows from operating activities:
Net income $ 2,058 $ 2,266
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts 30 32
Depreciation and amortization 1,478 1,221
Amortization of deferred charges 145 110
Foreign currency losses 48 48
Deferred income taxes 160 256
Operating costs (Note 1) -- (623)
Minority interest 815 1,082
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 2,500 2,894
Other assets 521 (468)
Increase (decrease) in:
Accounts payable 856 1,803
Accrued expenses (6,355) (6,857)
Deferred compensation plan liability 74 18
Other liabilities (89) 22
-------- --------
Net cash provided by operating activities 2,241 1,804
-------- --------
Cash flows from investing activities:
Receipts from project loans and advances 3,067 1,562
Capital expenditures (1,555) (2,006)
-------- --------
Net cash flows provided (used) by investing activities 1,512 (444)
-------- --------
Cash flows from financing activities:
Decrease in due to affiliates (47) (83)
Payments of debt and other deferred charges (1,587) (1,570)
Common stock dividends of subsidiary (214) (355)
Net change in hospitality division intercompany account (2,855) (613)
-------- --------
Net cash flows used by financing activities (4,703) (2,621)
-------- --------
Net decrease in cash and cash equivalents (950) (1,261)
Cash and cash equivalents at beginning of period 22,395 27,395
-------- --------
Cash and cash equivalents at end of period $ 21,445 $ 26,134
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 3,525 $ 3,281
Cash paid during the period for income taxes $ 30 $ 10
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
CRC Holdings, Inc. ("CRC"), d/b/a Carnival Resorts & Casinos, owns, operates and
develops casino properties (for purposes hereof, the "CRC Gaming Division" or
the "Company") and develops and manages hotel and resort properties. The CRC
Gaming Division consists principally of an approximate 60% interest in Louisiana
Casino Cruises, Inc. ("LCCI"), which owns the Casino Rouge, a riverboat casino
based in Baton Rouge, Louisiana, and through a wholly owned subsidiary, CHC
Casinos Canada Limited ("CHC Canada"), the operations of Casino Rama located
north of Toronto, Canada, on behalf of the Chippewas of Rama First Nation and
the Ontario Lottery and Gaming Corporation. These financial statements depict
the financial condition and results of operations of the CRC Gaming Division as
of and for the periods presented.
Pursuant to the Agreement and Plan of Merger among CRC, Penn National Gaming,
Inc. ("Penn"), Casino Holdings, Inc. ("Casino Holdings"), a wholly-owned
subsidiary of Penn and certain shareholders of CRC, dated July 31, 2000 (the
"Merger Agreement"), subject to appropriate approvals and certain conditions
including financing, CRC has agreed to (i) distribute its hospitality division
and certain other assets and liabilities to the stockholders of CRC, (ii)
distribute its net after-tax income, as defined, less certain adjustments for
the period from the date of the Merger Agreement through the closing date of the
Merger Agreement to the stockholders of CRC, and (iii) immediately subsequent to
the distributions, merge the CRC Gaming Division with and into Casino Holdings.
In addition, pursuant to a Stock Purchase Agreement among certain minority
stockholders of a 40% interest in LCCI (the "LCCI Minority Stockholders") and
Penn dated July 31, 2000 (the "Stock Purchase Agreement"), the LCCI Minority
Stockholders, subject to closing of the Merger Agreement, appropriate approvals
and certain conditions, have agreed to sell their 40% interest in LCCI to Penn.
The Merger Agreement and Stock Purchase Agreement provide the foregoing
transactions shall be consummated on or before October 31, 2001 although there
can be no assurance to that effect. Financing and regulatory approvals from the
Louisiana Gaming Control Board (the "Board") and the Alcohol and Gaming
Commission of Ontario have been obtained while consent from the Chippewas of
Rama First Nation has been withheld. CRC and Penn are pursuing all options
available to obtain this consent although there can be no assurances that this
consent will be obtained (Note 6).
The financial statements have been prepared as if the Company has operated as an
independent, stand alone entity for all periods presented. Such financial
statements have been prepared using the historical basis of accounting and
include all of the assets, liabilities, revenues and expenses previously
included in CRC's consolidated financial statements prior to the transaction
contemplated by the Merger Agreement and the Stock Purchase Agreement, except
for all the assets, liabilities (including contingent liabilities), revenues and
expenses of the hospitality division of CRC and its respective subsidiaries.
Consequently, these financial statements include certain balances and
allocations for assets and liabilities and corresponding income and expense
items related to the Company that were previously included in CRC's consolidated
financial statements. In accordance with Securities and Exchange
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
Commission Staff Accounting Bulletin No. 55, these financial statements exclude
certain corporate expenses incurred by CRC on the hospitality division's behalf.
All significant intercompany balances and transactions within the CRC Gaming
Division have been eliminated. Investments in less than majority-owned gaming
businesses, in which a significant equity ownership interest is held, are
accounted for on the equity method.
INTERIM UNAUDITED INFORMATION
The accompanying financial statements as of February 28, 2001 and for the
three month periods ended February 29, 2000 and February 28, 2001 are
unaudited and do not include all information and footnotes necessary for the
presentation of financial position, results of operations and cash flows in
conformity with accounting principals generally accepted in the United States
of America. However, in the opinion of management, all adjustments
(consisting of normal recurring accruals) have been included to present
fairly, in all material respects, the financial position of the Company as of
February 28, 2001, and the results of its operations and its cash flows for
the three month periods ended February 29, 2000 and February 28, 2001.
Operating results for the three month periods ended February 29, 2000 and
February 28, 2001 are not necessarily indicative of the results that may be
expected for a full year.
PROMOTIONAL ALLOWANCES
The estimated direct costs of providing promotional allowances for food and
beverage and other items have been classified as casino operating expenses and
totaled $885 and $810 for the three month periods ended February 29, 2000, and
February 28, 2001, respectively.
MANAGEMENT SERVICE AND OPERATING COSTS
During the three month period ended February 28, 2001, the Company and
certain officers renegotiated the deferred compensation arrangements,
resulting in a $923 reduction in the Company's deferred compensation
obligations. In addition, $300 in receivables from certain officers relating
to accounting services performed by the Company on certain officers' behalf
were forgiven. These amounts have been recorded as adjustments to management
service and operating costs.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS"), No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and is, as amended, effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company's
adoption of SFAS No. 133 in the quarter ended February 28, 2001 had no effect
on its financial condition, results of operations or cash flows.
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
NOTE 2 - LONG TERM DEBT
Pursuant to the indenture, dated as of January 27, 1999, between LCCI and U.S.
Bank Trust National Association, as Trustee (the "1999 Indenture"), LCCI issued
in a private placement, $55,000 of its 11% Senior Secured Notes (the "1999
Notes"), due December 1, 2005, in an offering under Rule 144A under the
Securities act of 1933, with interest due semi-annually beginning June 1, 1999.
LCCI exchanged the privately issued 1999 Notes in May 1999 for $55,000 in
aggregate principal of new, publicly tradable 1999 Notes. The new 1999 Notes are
identical in all material respects to the privately issued 1999 Notes, other
than certain provisions relating to registration rights and related liquidated
damages. LCCI used the proceeds to redeem $50,000 of LCCI's Senior Secured
Increasing Rate Notes, due December 1, 2001, and for general corporate purposes.
On May 28, 1999, LCCI repurchased $2,000 of the 1999 Notes at a cost of $2, 010
plus accrued interest. On March 5, 2001, LCCI cancelled the repurchased 1999
Notes.
The 1999 Notes are collaterialized by substantially all of LCCI's assets, other
than certain identified excluded assets. The 1999 Indenture includes certain
convenants which limit the ability of LCCI and its restricted subsidiaries, (as
defined in the 1999 Indenture) subject to certain exceptions, to: (i) incur
additional indebtedness; (ii) pay dividends or other distributions, repurchase
capital stock or other equity interest or subordinated indebtedness; (iii) enter
into certain transactions with affiliates; (iv) create certain liens or sell
certain assets; and (v) enter into certain mergers and consolidations.
Under the terms of the 1999 Indenture, after December 1, 2001, LCCI may, at its
option, redeem all or some of the 1999 Notes at a premium that will decrease
over time from 105.5% to 100% of their face amount, plus accrued but unpaid
interest. Prior to December 1, 2001, if LCCI publicly offers certain equity
securities LCCI may, at its option apply certain of the net proceeds from those
transactions to the redemption of up to one-third of the principal amount of the
notes at 111% of their face amount, plus interest. If LCCI goes through a change
in control (which for these purposes would include the proposed transactions
involving CRC, LCCI and Penn), it must give holders of the notes the opportunity
to sell their notes to LCCI at 101% of their face amount, plus interest.
On February 20, 2001, Penn commenced a cash tender offer to purchase all of the
1999 Notes, and a related consent solicitation to eliminate certain restrictive
convenants and related provisions in the 1999 Indenture pursuant to which the
1999 Notes were issues. On March 6, 2001, Penn announced that all of the
holders of the 1999 Notes had tendered Notes and delivered consents in
connection with Penn's tender offer and consent solicitation. The tender offer
and the effectiveness of the related amendments to the indenture are conditioned
upon, among other things, consummation of Penn of its acquisition of CRC and
LCCI. The principal purpose of the tender offer is to permit Penn to acquire all
of the outstanding 1999 Notes in connection with Penn's acquisition of CRC and
LCCI.
The total consideration payable pursuant to the tender offer and consent
solicitation will be calculated using a fixed spread of 50 basis points over the
bid side yield on the 5 5/8% U.S. Treasury Note due November 30, 2002, on the
second business day immediately preceding the expiration date which has been
extended to April 27, 2001. The total consideration includes a consent fee of
$30 per $1,000 principal amount of the 1999 Notes. Under the terms of the tender
offer and consent solicitation, holders may not deliver consents without also
tendering their 1999 Notes (Note 6).
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
NOTE 3 - GAMING TAX INCREASE
On March 22, 2001, the Louisiana Legislature passed a riverboat gaming tax
increase. The increase raised the riverboat gaming tax beginning April 1, 2001,
on the nine riverboat casinos in southern Louisiana from 18.5% to 21.5%. In
return, these riverboats are no longer required to cruise when weather and water
conditions allow for safe cruising. For the five riverboat casinos in northern
Louisiana, the riverboat gaming tax increase is being phased in over a 25-month
period. Effective April 1, 2001, their riverboat gaming tax rate is 19.5%,
followed by an annual increase of 1% on April 1, 2002 and 2003. These boats are
currently allowed to remain dockside due to low water levels at their locations.
NOTE 4 - MINORITY INTEREST
The Company owns an approximate 60% interest in LCCI. The Company's financial
statements include 100% of the assets, liabilities and operations of LCCI. The
effects of the minority interest have been reflected in the accompanying balance
sheets and statements of operations. During the three-month periods ended
February 29, 2000 and February 28, 2001, LCCI paid a cash dividend to the
minority holders of its common stock of $214 and $355, respectively. On March 5,
2001, LCCI paid a cash dividend to the minority holders of its common stock of
$521.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of its business, the Company is involved in legal
proceedings including but not limited to proceedings resulting from incidents
taking place at casinos it manages, or in which it has an ownership interest.
The Company maintains comprehensive liability insurance and also requires
casino owners to maintain adequate insurance coverage. In the opinion of
management, the ultimate outcome of all such matters should not have a
material adverse effect on the financial position of the Company, but, if
decided adversely to the Company, could have a material adverse effect upon
the Company's operating results during the period in which the litigation is
resolved.
LCCI's original five-year gaming license for the Casino Rouge was up for renewal
in July 1999. On June 15, 1999, LCCI received conditional license approval from
the Board until the completion of their investigation. On March 29, 2001, the
Board approved relicensing of LCCI through July 18, 2005, with two conditions.
The first condition relates to CRC Gaming Division officer Robert Sturges. The
Board stipulated that Mr. Sturges shall not participate in the day-to-day
management and operation of LCCI until the Board has a hearing as to whether
this condition can be rescinded. LCCI has advised the Board that it will abide
by the results of the hearing. The second condition relates to Capitol Lake
Properties, Inc. ("CLP"), the landlord of the leased property where Casino Rouge
is located. The Board stipulated that the Company shall use good faith efforts
to require CLP to comply with all suitability requirements of the Board and the
Division of the Louisiana Attorney General's Office. Additionally, the Board
required that if a final judgement by a Louisiana court determines that it would
not be a default under LCCI's lease with CLP, LCCI shall deposit rental payments
and other sums due CLP into escrow or the registry of the court until further
order of the court or the Board. CLP, which previously objected to submitting to
a suitability investigation by the Board, caused LCCI, on or about November
CRC HOLDINGS, INC. - GAMING DIVISION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
29, 2000, to file suit in the 19th Judicial District Court of Louisiana
against CLP. In its action, LCCI seeks a declaratory judgment that CLP must,
as a matter of law, submit to a suitability investigation by the Board, and a
declaration of what, if any, obligations CLP has under its lease with LCCI to
submit to such a suitability investigation. LCCI intends to prosecute the
action vigorously, but it is not possible to determine the outcome of the
litigation at this time.
Gaming licenses in Ontario are issued for four-year terms. CHC Canada's
original gaming license is up for renewal in July 2000. CHC Canada has filed
its renewal application and paid its annual renewal fee and its license is
deemed to continue to July 2001 pending completion of the re-licensing
investigation. CHC Canada and its officers, directors, managers, principal
shareholders, including the Company and its officers and directors and key
gaming employees, will be subject to strict scrutiny and full suitability
investigations and approval by the Ontario Alcohol and Gaming Commission in
connection with CHC Canada's renewal application.
CHC Canada believes it will be successful in receiving renewal of its
license, but no assurance can be given as to whether or when the license will
be renewed, or extent of any restrictions that may be imposed as conditions
thereof. The loss, suspension or failure to obtain renewal of the license
subject to burdensome conditions, would have a material adverse effect on the
Company.
NOTE 6 - SUBSEQUENT EVENTS
On April 24, 2001, consent of the Chippewas of Rama First Nation for Penn's
acquisition of CRC was obtained. On April 27, 2001, Penn completed its
acquisition of CRC pursuant to the Merger Agreement and repaid the 1999 Notes.
****************************
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On April 27, 2001, Penn National Gaming, Inc. (the "Company" or "PNGI")
completed its acquisitions of: (i) CRC Holdings, Inc. and (ii) the minority
interest in Louisiana Casino Cruises, Inc. ("LCCI") not owned by CRC
(together, "CRC"). The transactions were accounted for as purchases. As a
result, the net assets of CRC were recorded at their fair value with the
excess of the purchase price over the fair value of the net assets acquired
allocated to goodwill. The total purchase price for the acquisitions was
approximately $181.3 million, including the repayment of certain existing
debt at CRC and its subsidiaries. The purchase price of the acquisitions was
funded by the proceeds of the Company's offering of $200 million of its
senior subordinated notes, which was completed in March 2001.
The following unaudited pro forma consolidated statement of operations for the
year ended December 31, 2000 has been prepared giving effect to the acquisition
of CRC, the acquisition of the net assets of the Casino Magic Bay St. Louis and
Boomtown Biloxi casinos (together, the "Mississippi Properties"), the offering
of the Company's $200 million senior subordinated notes and the tender offer to
purchase all of the LCCI 11% senior secured notes as if they occurred on January
1, 2000.
The following unaudited pro forma consolidated statement of operations for the
three months ended March 31, 2001 has been prepared giving effect to the
acquisition of CRC, the offering of the Company's $200 million senior
subordinated notes and the tender offer of the LCCI 11% senior secured notes as
if they occurred on January 1, 2001.
The following unaudited pro forma consolidated balance sheet has been prepared
as if the acquisition of CRC and the tender offer of the LCCI 11% senior secured
notes occurred on March 31, 2001.
The unaudited pro forma consolidated financial information should be read in
conjunction with the notes hereto and the following:
o The Company's historical consolidated financial statements and notes
thereto for the year ended December 31, 2000 included in the Company's
Annual Report on Form 10-K.
o The Company's historical consolidated financial statements and notes
thereto for the three months ended March 31, 2001 included in the Company's
Quarterly Report on Form 10-Q.
o The historical financial statements and notes thereto of CRC Holdings,
Inc.-Gaming Division included elsewhere in this Form 8-K.
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PNGI and Mississippi CRC Holdings CRC Pro Forma
Subsidiaries Mississippi Pro Forma Inc. - Gaming Pro Forma as Adjusted
as reported Properties Adjustments Division Adjustments for
(1) (2) (3) (4a) (5) Acquisitions
------------------------------------------------------------------------------------------------------------------------------------
REVENUES
Gaming $ 159,589 $ 84,840 $ -- $ 89,564 $ -- $ 333,993
Racing 113,230 -- -- -- -- 113,230
Management service fees -- -- -- 13,218 -- 13,218
Other 21,304 12,362 -- 1,990 -- 35,656
--------------------------------------------------------------------------------------
TOTAL REVENUES 294,123 97,202 -- 104,772 -- 496,097
--------------------------------------------------------------------------------------
OPERATING EXPENSES
Gaming 94,087 47,516 -- 41,991 -- 183,594
Racing 77,063 -- -- -- -- 77,063
Other operating expenses 18,776 9,961 -- 1,150 -- 29,887
General and administrative 44,716 17,104 -- 33,298 (2,477) (a) 92,641
Depreciation and amortization 13,594 5,070 1,078 (a) 5,000 6,898 (b) 31,640
--------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 248,236 79,651 1,078 81,439 4,421 414,825
--------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 45,887 17,551 (1,078) 23,333 (4,421) 81,272
OTHER INCOME (EXPENSES)
Interest income 1,875 3 -- 1,695 -- 3,573
Interest expense (19,089) (93) (8,898) (b) (7,213) (15,037) (c) (50,330)
Foreign currency (losses) -- -- -- (111) -- (111)
Other income (expense), net 39 (301) -- (525) 534 (f) (253)
--------------------------------------------------------------------------------------
TOTAL OTHER (EXPENSES), net (17,175) (391) (8,898) (6,154) (14,503) (47,121)
--------------------------------------------------------------------------------------
INCOME BEFORE TAXES AND MINORITY 28,712 17,160 (9,976) 17,179 (18,924) 34,151
INTEREST INCOME TAX EXPENSE (BENEFIT) 10,137 3,946 2,793 (c) 7,105 (10,370) (d) 13,611
--------------------------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST 18,575 13,214 (12,769) 10,074 (8,554) 20,540
MINORITY INTEREST -- -- -- 3,084 (3,084) (e) --
--------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS $ 18,575 $ 13,214 $ (12,769) $ 6,990 $ (5,470) $ 20,540
======================================================================================
INCOME PER COMMON SHARE FROM CONTINUING
OPERATIONS
Basic $1.24 $1.37
Diluted 1.20 1.33
========= ========
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic 14,968 14,968
Diluted 15,443 15,443
========= =========
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PNGI and CRC Holdings CRC Pro Forma
Subsidiaries Inc. - Gaming Pro Forma as Adjusted
as reported Division Adjustments for CRC
(1) (4b) (5) Acquisition
-------------------------------------------------------------------------------------------------
REVENUES
Gaming $ 70,609 $ 24,284 -- $ 94,893
Racing 27,123 -- -- 27,123
Management service fees -- 2,371 -- 2,371
Other 8,497 428 -- 8,925
----------------------------------------------------------
TOTAL REVENUES 106,229 27,083 -- 133,312
----------------------------------------------------------
OPERATING EXPENSES
Gaming 39,069 11,156 -- 50,225
Racing 18,474 -- -- 18,474
Other operating expenses 7,228 253 -- 7,481
General and administrative 19,145 7,105 (350) (a) 25,900
Depreciation and amortization 6,935 1,221 1,756 (b) 9,912
----------------------------------------------------------
TOTAL OPERATING EXPENSES 90,851 19,735 1,406 111,992
----------------------------------------------------------
INCOME FROM OPERATIONS 15,378 7,348 (1,406) 21,320
OTHER INCOME (EXPENSES)
Interest income 1,006 370 -- 1,376
Interest expense (8,598) (1,670) (1,788) (c) (12,056)
Foreign currency (losses) -- (48) -- (48)
Other income (expense), net (559) (268) 268 (f) (559)
----------------------------------------------------------
TOTAL OTHER (EXPENSES), net (8,151) (1,616) (1,520) (11,287)
----------------------------------------------------------
INCOME BEFORE TAXES AND
MINORITY INTEREST 7,227 5,732 (2,926) 10,033
INCOME TAX EXPENSE (BENEFIT) 2,611 2,384 (1,024) (d) 3,971
----------------------------------------------------------
INCOME BEFORE MINORITY
INTEREST 4,616 3,348 (1,902) 6,062
MINORITY INTEREST -- 1,082 (1,082) (e) --
----------------------------------------------------------
INCOME FROM CONTINUING
OPERATIONS $ 4,616 $ 2,266 $ (820) $ 6,062
==========================================================
INCOME PER COMMON SHARE FROM
CONTINUING OPERATIONS
Basic $.31 $.40
Diluted .30 .39
========== ==========
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING
Basic 15,044 15,044
Diluted 15,524 15,524
========== ==========
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
The following notes describe the column headings in the pro forma consolidated
statements of operations and the pro forma adjustments that have been made to
these statements:
(1) (a) Reflects the audited consolidated historical statement of operations
of PNGI for the year ended December 31, 2000.
(b) Reflects the unaudited consolidated historical statement of
operations of PNGI for the three months ended March 31, 2001.
(2) Represents the combined historical statements of operations for the
Mississippi Properties for the period from January 1, 2000 through August
7, 2000. The Company acquired the Mississippi Properties on August 8, 2000
and accounted for the acquisitions by the purchase method of accounting.
As a result, the operating results of the combined statements for the
period August 8, 2000 through December 31, 2000 are included in the
operating results of the Company.
(3) (a) Reflects the following pro forma adjustments to the operating
results as a result of the acquisition of the Mississippi
properties:
Year ended
December 31,
2000
--------------
Net (decrease) in expense resulting from the depreciation of
$139,400 of property using lives ranging from 5 to 39 years $ (243)
Amortization of goodwill of $56,800 using a life of 40 years 856
Net increase in expense resulting from the amortization of
$10,200 in deferred financing costs over the six-year term
of the notes payable under the Company's $350,000 senior
secured credit facility 465
-------
$1,078
=======
(b) Net increase in interest expense resulting from the $350,000 senior
secured credit facility entered into in August 2000. The proceeds of
the credit facility were used to finance the Mississippi
acquisitions and to pay off other long-term debt.
(c) Reflects the income tax adjustments associated with the pro forma
adjustments described above and pro forma entry necessary to adjust
for Boomtown Biloxi becoming a consolidated tax payor with PNGI upon
consummation of the Mississippi acquisition.
(4) (a) Reflects the audited historical results of operations of CRC
Holdings, Inc. - Gaming Division for the year ended November 30,
2000.
(b) Reflects the unaudited historical results of operations of CRC
Holdings, Inc. - Gaming Division for the three months ended
February 28, 2001.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
(CONTINUED)
(5) Reflects pro forma adjustments relating to the CRC acquisition as follows:
(a) Adjustments to reflect the following eliminations:
Three
Year months
ended ended
December 31, March 31,
2000 2001
----------------------------------
Management fees $ (599) $ (178)
Royalty fees (678) (172)
Management bonus (1,000) --
Other charges (200) --
--------------------------------
$ (2,477) $ (350)
================================
(b) Adjustments to reflect the acquisition of CRC:
Three
Year months
ended ended
December 31, March 31,
2000 2001
----------------------------------
Net (decrease) in expense resulting from
the depreciation of $97,000 of property
using lives ranging from 5 to 39 years $ (150) $ (9)
Amortization of goodwill of $82,100 using
a life of 40 years, net of historical
amortization related to $3,300 of
existing goodwill of CRC 1,953 491
Amortization of the fair value of a
management contract of $43,000
over its 10 1/2-year term 4,095 1,024
Increase in expense resulting from the
amortization of $7,000 in deferred
financing costs related to the issuance
of the senior subordinated notes to
be amortized over the 7-year term of the
notes. 1,000 250
--------------------------------
$ 6,898 $ 1,756
================================
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
(CONTINUED)
(c) Reflects the net increase in interest expense resulting from the
Company's offering of $200,000 of senior subordinated notes, the
proceeds of which were used to fund the acquisition of CRC and
repayment of existing debt of LCCI.
(d) Adjustment to reflect the income tax effect associated with the pro
forma adjustments other than in (e) below and to adjust for LCCI
becoming a consolidated tax payor with CRC/PNGI upon consummation
of the CRC acquisition.
(e) Adjustment to reflect elimination of minority interest in LCCI.
(f) Adjustment to reflect elimination of legal fees and other expenses
paid by CRC in connection with the acquisition.
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2001
(IN THOUSANDS)
PNGI and CRC Holdings CRC Pro Forma
Subsidiaries Inc. - Gaming Pro Forma as Adjusted
as reported Division Adjustments for CRC
(1) (2) (3) Acquisition
------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 29,045 $ 26,134 $ (15,000) (d) $ 40,179
Accounts receivable 9,874 6,143 -- 16,017
Prepaid expenses 6,020 -- (832) (a)(e) 5,188
Deferred income taxes -- 730 -- 730
Prepaid income taxes 442 -- -- 442
Other current assets -- 6,100 -- 6,100
------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 45,381 39,107 (15,832) 68,656
PROPERTY, PLANT AND EQUIPMENT, NET 285,706 43,860 53,140 (e) 382,706
OTHER ASSETS
Investments and advances to
unconsolidated affiliate 14,577 -- -- 14,577
Cash in escrow 199,483 -- (199,483) (a)(c) --
Intangible assets 77,653 3,341 121,771 (e) 202,765
Deferred financing costs 15,328 782 (782) (f) 15,328
Miscellaneous 3,660 1,840 (1,470) (g) 4,030
------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 310,701 5,963 (79,964) 236,700
------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 641,788 $ 88,930 $ (42,656) $ 688,062
------------------------------------------------------------------------------------------------
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2001
(IN THOUSANDS)
PNGI and CRC Holdings CRC Pro Forma
Subsidiaries Inc. - Gaming Pro Forma as Adjusted
as reported Division Adjustments for CRC
(1) (2) (3) Acquisition
------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Current maturities of
long-term debt $ 12,327 $ 4,376 $ (4,376) (c) $ 12,327
Accounts payable 11,160 4,117 -- 15,277
Due to affiliates -- 172 (172) (g) --
Purses due horsemen 3,412 -- -- 3,412
Uncashed pari-mutuel tickets 1,693 -- -- 1,693
Accrued expenses 16,746 10,155 8,054 (b)(e) 34,955
Deferred pension plan liability -- 218 -- 218
Customer deposits 922 -- -- 922
Taxes, other than income taxes 2,881 -- -- 2,881
-----------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 49,141 19,038 3,506 71,685
------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt, net of
current maturities 496,597 53,000 (70,361) (d) 479,236
Deferred income taxes 14,530 5,052 36,868 (e)(h) 56,450
Other liabilities -- 143 -- 143
------------------------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES 511,127 58,195 (33,493) 535,829
------------------------------------------------------------------------------------------------
MINORITY INTEREST -- 2,417 (2,417) (g) --
STOCKHOLDERS' EQUITY
Common stock 155 54 (54) (g) 155
Treasury stock (2,379) -- -- (2,379)
Additional paid-in capital 39,593 821 (821) (g) 39,593
Retained earnings 46,579 8,452 (9,424) (b)(g) 45,607
Other comprehensive income (2,428) (47) 47 (g) (2,428)
------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 81,520 9,280 (10,252) 80,548
------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 641,788 $ 88,930 $ (42,656) $ 688,062
------------------------------------------------------------------------------------------------
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET
(AMOUNTS IN THOUSANDS)
The following notes describe the column headings in the unaudited pro forma
consolidated balance sheet and the pro forma adjustments that have been made to
the unaudited pro forma consolidated balance sheet:
(1) Reflects the historical unaudited consolidated balance sheet of PNGI as of
March 31, 2001.
(2) Reflects the unaudited balance sheet of CRC Holdings, Inc. - Gaming
Division as of February 28, 2001.
(3) Reflects pro forma adjustments of the CRC acquisitions as follows:
(a) CRC purchase price, net of cash in escrow of $5,183 $ 123,117
Acquisition fees and other charges 1,242
-----------
Cash paid at settlement to acquire CRC $ 124,359
===========
(b) LCCI 11% senior secured notes $ 53,000
Tender premium 7,786
Interest expense through settlement date 2,418
-----------
Cash paid at settlement to complete tender offer $ 63,204
===========
Total interest accrued at February 28, 2001 amounted to $1,446. Interest
expense charged to operations from the period March 1, 2001 through the
date of settlement amounted to $972.
(c) Cash paid at settlement was as follows:
Acquisition of CRC $ 124,359
Tender offer on LCCI 11% senior secured notes 63,204
Payment of other debt of CRC 4,376
-----------
Total cash paid 191,939
Total cash in escrow (194,300)
-----------
Net decrease in borrowings under senior secured credit facility $ (2,361)
===========
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET
(AMOUNTS IN THOUSANDS)
(CONTINUED)
(d) The pro forma activity for long-term debt is as follows:
Senior CRC
Secured Senior
Credit Subordinated Secured
Facility Notes Notes Total
------------------------------------------------------------------------------------------
As reported $ 308,924 $ 200,000 $ -- $ 508,924
Acquisition of CRC -- -- 53,000 53,000
Payment of LCCI notes -- -- (53,000) (53,000)
Net decrease in borrowings (2,361) -- -- (2,361)
Debt payments using CRC cash (15,000) -- -- (15,000)
------------------------------------------------
Total pro forma debt $ 291,563 $ 200,000 $ -- $ 491,563
================================================
(e) Pro forma purchase price allocation:
CRC acquisition consideration $ 128,300
Tender offer premium on LCCI 11% senior secured notes 7,786
Accrued liabilities in connection with acquisitions 9,500
Acquisition fees and costs 2,074
---------
Pro forma purchase price $ 147,660
=========
Pro forma purchase price allocation:
Property, plant and equipment $ 97,000
Management contract 43,000
Net operating liabilities (37,584)
Goodwill 82,112
Deferred income tax liability (36,868)
---------
$ 147,660
=========
Property, plant and equipment - adjusted to fair value as follows:
Property, plant and equipment acquired at cost $ 43,860
Adjustment to increase property, plant and equipment to
fair value 53,140
---------
Property, plant and equipment at fair value $ 97,000
=========
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET
(AMOUNTS IN THOUSANDS)
(CONTINUED)
Certain operating assets, net of certain liabilities, were recorded at
historical cost at the acquisition date, which approximates their market value.
Intangible assets recorded in connection with CRC acquisition:
Goodwill $ 82,112
Management contract 43,000
---------
Total intangible assets recorded in connection with acquisition 125,112
Less: Elimination of goodwill related to CRC (3,341)
---------
Net increase to intangible assets $ 121,771
=========
The goodwill will be amortized over a 40-year period. The management contract
will be amortized over the life of the contract, which is 10.5 years.
(f) To write off deferred financing costs related to repayment of the LCCI 11%
senior secured notes.
(g) To eliminate CRC's amount due to/from affiliate, minority interest and
equity accounts.
(h) To record deferred tax liability attributable to the difference between
the tax and accounting basis of the management contract and property,
plant, and equipment acquired from CRC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PENN NATIONAL GAMING, INC.
(Registrant)
By /s/ Robert S. Ippolito
------------------------------------
Robert S. Ippolito
Chief Financial Officer
Dated: June 8, 2001
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
2.1 + Agreement and Plan of Merger among CRC Holdings, Inc., Penn National
Gaming, Inc., Casino Holdings, Inc. and certain shareholders of CRC
Holdings, Inc. dated as of July 31, 2000.
2.2 + Stock Purchase Agreement by and among Penn National Gaming, Inc.,
Dan S. Meadows, Thomas L. Meehan and Jerry S. Bayles, dated as of
July 31, 2000.
99.1 ++ Press Release dated April 30, 2000.
------------
+ Previously filed as an exhibit to the Registrant's Current Report on Form
8-K filed August 8, 2000 and incorporated herein by reference.
++ Previously filed as an exhibit to the Registrant's Current Report on Form
8-K filed May 7, 2001 and incorporated herein by reference