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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from ____________ to ____________
Commission File Number 333-88829
Peninsula Gaming Company, LLC / Peninsula Gaming Corp.
(Exact name of registrant as specified in its charter)
Delaware 42-1483875
(State of incorporation) (I.R.S. Employer Identification No.)
3rd Street Ice Harbor, PO Box 1750, Dubuque, Iowa 52004-1683
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 583-7005
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [_] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
All of the common equity interests of Peninsula Gaming Company, LLC (the
"Company") are held by Peninsula Gaming Partners, LLC, and all of the common
stock of Peninsula Gaming Corp. is held by Peninsula Gaming Company, LLC.
TABLE OF CONTENTS
PART I ...................................................................2
ITEM 1. BUSINESS...........................................................2
ITEM 2. PROPERTIES.........................................................8
ITEM 3. LEGAL PROCEEDINGS..................................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.................9
PART II ...................................................................10
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS......................................10
ITEM 6. SELECTED FINANCIAL DATA............................................11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..............................13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK................................................18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..............................18
PART III ...................................................................19
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.....................19
ITEM 11. EXECUTIVE COMPENSATION.............................................20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT...................................................22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................23
PART IV ...................................................................26
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K........................................ .....26
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PART I
ITEM 1. BUSINESS
DESCRIPTION OF THE BUSINESS
The Diamond Jo
We own and operate the Diamond Jo riverboat casino, one of only two
licensed gaming operations in Dubuque, Iowa. We are organized in Delaware as a
limited liability company and commenced operations upon our acquisition of the
Diamond Jo riverboat casino on July 15, 1999.
The Diamond Jo is a three-story, approximately 51,900 square foot riverboat
casino, replicating a classic 19th century paddlewheel. The riverboat has the
capacity for 1,390 patrons, features a spacious two-story atrium, and offers 650
slot machines and 29 table games in approximately 17,800 square feet of gaming
space. Adjacent to the Diamond Jo is a two-story, approximately 33,000 square
foot dockside pavilion, featuring our 142-seat Lighthouse Grill restaurant, our
recently renovated 180-seat High Steaks restaurant, our recently constructed
25-seat Club Wild players lounge, our gift shop, and our 205-seat Harbor View
Room, a full service banquet facility. Approximately 1,000 convenient parking
spaces are available to our patrons, including valet parking. The Diamond Jo is
open seven days a week and functions primarily as a dockside riverboat with
continuous boarding. The Diamond Jo is required by Iowa law to cruise at least
100 times per year, for a minimum of two hours per cruise, which we satisfy by
conducting a two-hour cruise at 7:30 a.m. on weekdays during the spring and
summer months.
The Diamond Jo operates from, and the dockside pavilion is located in,
Dubuque's Ice Harbor, a waterfront development on the Mississippi River in
downtown Dubuque. The Diamond Jo is centrally located in the Ice Harbor in
downtown Dubuque and is accessible from each of the major highways in the area.
On average, more than 30,000 vehicles pass our site per day. We share our
dockside pavilion with the Spirit of Dubuque dinner-boat and the Iowa Welcome
Center, featuring a museum, historical exhibits, shops, and an observation deck.
The Mississippi River Museum is located within a five-minute walk from our site.
Several cruise ships that operate on the Mississippi River, such as the Delta
Queen and the Mississippi Queen, stop at the Ice Harbor regularly during the
summer months. We believe that the Diamond Jo is among the principal
entertainment venues for residents in and around Dubuque.
Casino Operations
We regularly adjust our overall game mix to appeal to our target market,
based on, among other factors, the coin-in, hold percentage, location and age of
our various slot machines. Approximately 75% of the Diamond Jo's gaming
positions are slot machines. The 650 slot machines, all of which have bill
validators, include denominations of $0.05 to $25.00, with more than 97% of the
machines $1.00 or lower in denomination. At any one time, approximately 20% to
25% of our slot machines are video poker, video keno, and other electronic games
of skill. Since January 1996, the casino has replaced or installed conversion
packages on approximately 540 slot machines. Conversion packages are
installations of new glass, reels and, on occasion, other coinhandling equipment
to slot machines to update or replace the game and its appearance without
replacing the entire machine. The authorization in Iowa of wide area
progressives, networks of slot machines throughout several casinos resulting in
higher jackpots, has allowed us to further improve our product mix with the
introduction of 8 linked slot machines. The 29 table games offered by the
Diamond Jo include three craps, two roulette, 19 blackjack, two Caribbean Stud,
two Let-It-Ride, and one three card poker, all primarily with low betting
limits.
Business Strategy
The Diamond Jo is the leading gaming facility in our market, having
captured over half of Dubuque's casino gaming revenues since 1995, the casino's
first full year of operations. We attribute our success to our competitive
position and our unique local gaming operations, offering the most gaming
positions and the only table games, video poker and video keno within 60 miles
of Dubuque.
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We have developed marketing and promotional strategies designed to attract
new customers and reward frequent gaming customers. The Company, in July 2000,
began a marketing campaign to define the Diamond Jo as a fun and entertaining
casino venue. Our new tag line, "Where the River Runs Wild" appears in all our
advertising, including billboard, print, radio, and television throughout the
Dubuque area, as well as in our promotional offerings. In addition to our tag
line, we have established core-marketing programs utilizing the "River Runs
Wild" theme and have included this theme in naming our players' club and VIP
lounge. We intend to use our new theme in creating core marketing programs which
will allow us to continue to attract new customers as well as maintain loyalty
within our existing customer base.
We also believe in aggressively using the information in our customer
database obtained through our electronic player tracking system to focus our
marketing efforts on our most valued customers to help increase revenues from
our existing customer base. With the help of this system, we can identify
customers' habits, such as the day of the week, time of the day and dollar
denominations our players' club members prefer to play. We can also store
pertinent information for each member, including birthdays, favorite sports and
music preferences. These customer preferences allow us to better define our
members and give us the ability to improve our marketing efforts by tailoring
our promotions and direct mail offers.
Growth Strategy
We anticipate continued growth through a combination of targeted marketing
initiatives, enhanced by our electronic player tracking system, and continued
physical enhancements to our property. During 2000, we completely remodeled all
three decks of the casino. This remodeling project creates a more open feel for
the customer, which we have found to enhance the overall experience of our
guests. In February 2001, we remodeled our Diamond Jo Saloon into High Steaks, a
restaurant/sports bar and created a "VIP" area located in the portside facility
named Club Wild for our players' club members. Additionally, we expanded the
square footage and seating capacity of our Lighthouse Grill restaurant located
within the portside building. These enhancements to our portside facility will
provide us with additional amenities to offer to our high-end customers.
In addition, we anticipate continued growth through locally funded
development programs, including the redevelopment project in Dubuque's Ice
Harbor, where the Diamond Jo is located, known as the America's River project.
The America's River project is a 90-acre site planned for the Dubuque riverfront
that features a Mississippi River Discovery Center, education and conference
center, a river walk and accompanying amenities, and a riverfront hotel and
indoor water park. This redevelopment project is designed to enhance the
attractiveness of the Ice Harbor as a community center and tourist destination.
Competition
General. Riverboat gaming licenses in the State of Iowa are granted to
not-for-profit "qualified sponsoring organizations" which may operate the
riverboats themselves or may enter into agreements with other parties to operate
the riverboats. The granting of new licenses requires regulatory approval, which
includes, among other things, satisfactory feasibility studies. The Dubuque
Racing Association is the not-for-profit organization that holds the Diamond
Jo's qualified sponsoring organization gaming license and has contracted with us
to operate the Diamond Jo.
In 1998, the Iowa Racing and Gaming Commission adopted a rule that limits
the number of riverboat gaming licenses in Iowa to ten, subject to limited
exceptions, including licenses issued to purchasers of existing licensed
facilities and licenses issued to replace an existing facility if its license is
surrendered, not renewed, or revoked and prohibits the transfer of a license
outside the county in which the riverboat operated on May 1, 1998. There are
currently ten licensed riverboat gaming facilities operating in Iowa. The rule
also prohibits existing licensees from increasing the number of table games or
slot machines at their gaming facilities without prior gaming commission
approval.
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The Dubuque gaming market borders other neighboring gaming markets. These
neighboring markets include:
(1) Elgin and Aurora, Illinois to the east;
(2) Marquette, Iowa and Native American gaming in Wisconsin and
Minnesota to the north;
(3) Des Moines, Iowa and Native American gaming in Tama, Iowa to
the west; and
(4) Clinton, Iowa and the Quad Cities (Bettendorf and Davenport,
Iowa and Moline and Rock Island,
Illinois) to the south.
We believe that the Diamond Jo competes only indirectly with gaming
facilities in these neighboring markets.
Dubuque. The Diamond Jo's principal competition is the only other licensed
gaming facility in Dubuque: the Dubuque Greyhound Park. The Dubuque Greyhound
Park, which opened its casino in 1995, is located three miles north of the
Diamond Jo and offers 600 slot machines and live greyhound racing from May
through October of each year with simulcasts from other greyhound tracks. The
Dubuque Greyhound Park also offers, on a limited basis, simulcasts of horse
races. The Dubuque Greyhound Park is owned and operated by the Dubuque Racing
Association. As a not-for-profit organization, the Dubuque Racing Association
distributes a percentage of its cash flow to the City of Dubuque and local
charities. The Dubuque Racing Association operating agreement allows us to
restrict the number of slot machines at the Dubuque Greyhound Park to 600 if we
do not increase the number of slot machines at the Diamond Jo to more than 650.
In addition, subject to limited conditions, the Dubuque Racing Association
operating agreement allows us to require that the weighted average theoretical
slot payback percentage at the Dubuque Greyhound Park not exceed ours by more
than 0.5%. We have elected to apply both of these restrictions to the Dubuque
Greyhound Park. Under Iowa law, table games, video poker, video keno and other
electronic games of skill are not permitted at the Dubuque Greyhound Park.
Legislation was enacted in 1999 in Illinois to provide for dockside gaming
in Illinois, which dockside gaming is limited to ten licenses, nine of which are
currently active. We believe that additional competitors are effectively
precluded from entering our market due to constraints imposed by existing laws
on the availability of gaming licenses.
Employees
We maintain a staff of approximately 475 to 500 full-time equivalent
employees, depending upon the time of the year. None of our employees are
covered by a collective bargaining agreement. We have not experienced any labor
problems resulting in a work stoppage, and believe we maintain good relations
with our employees.
Regulatory Matters
General. We are subject to regulation by the State of Iowa and, to a lesser
extent, by federal law. We are subject to regulations that apply specifically to
the gaming industry and casinos, in addition to regulations applicable to
businesses generally. Legislative or administrative changes in applicable legal
requirements, including legislation to prohibit casino gaming, have been
proposed in the past. It is possible that the applicable requirements to operate
an Iowa gaming facility will become more stringent and burdensome, and that
taxes, fees and expenses may increase. It is also possible that the number of
authorized gaming licenses in Iowa may increase, which would intensify the
competition that we face. Our failure to comply with detailed regulatory
requirements may be grounds for the suspension or revocation of one or more of
our licenses which would have a material adverse effect on us.
Iowa Riverboat Gaming Regulation. Our operations are subject to Chapter 99F
of the Iowa Code and the regulations promulgated under that Chapter and the
licensing and regulatory control of the gaming commission.
Under Iowa law, the legal age for gaming is 21, and wagering on a "gambling
game" is legal when conducted by a licensee on an "excursion gambling boat." An
"excursion gambling boat" is a self-propelled excursion boat, and a "gambling
game" is any game of chance authorized by the gaming commission. While dockside
casino gaming is currently authorized by the gaming commission, a licensed
excursion gambling boat is required to conduct at least one two-hour excursion
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cruise each day for at least 100 days during the excursion season to operate
during the off-season. The excursion season is from April 1st through October
31st of each calendar year. The excursions conducted by the Diamond Jo during
the 2000 cruising season satisfied the requirements of Iowa law for the conduct
of off-season operations.
The legislation permitting riverboat gaming in Iowa authorizes the granting
of licenses to "qualified sponsoring organizations." A "qualified sponsoring
organization" is defined as a nonprofit corporation organized under Iowa law,
whether or not exempt from federal taxation, or a person or association that can
show to the satisfaction of the gaming commission that the person or association
is eligible for exemption from federal income taxation under ss.ss. 501(c)(3),
(4), (5), (6), (7), (8), (10) or (19) of the Internal Revenue Code. Such
nonprofit corporation may operate the riverboat itself, or it may enter into an
agreement with another boat operator to operate the riverboat on its behalf. A
boat operator must be approved and licensed by the gaming commission. The
Dubuque Racing Association, a not-for-profit corporation organized for the
purpose of operating a pari-mutuel greyhound racing facility in Dubuque, Iowa,
first received a riverboat gaming license in 1990 and has served as the
"qualified sponsoring organization" of the Diamond Jo since March 18, 1993. The
Dubuque Racing Association subsequently entered into the Dubuque Racing
Association operating agreement with Greater Dubuque Riverboat Entertainment
Company, the previous owner and operator of the Diamond Jo, authorizing Greater
Dubuque Riverboat Entertainment Company to operate riverboat gaming operations
in Dubuque. The Dubuque Racing Association operating agreement was approved by
the gaming commission on March 18, 1993. The term of the Dubuque Racing
Association operating agreement expires on December 31, 2008. We assumed the
rights and obligations of Greater Dubuque Riverboat Entertainment Company under
the Dubuque Racing Association operating agreement.
Under Iowa law, a license to conduct gaming may be issued in a county only
if the county electorate has approved the gaming. The electorate of Dubuque
County, Iowa, which includes the City of Dubuque, approved gaming on May 17,
1994 by referendum, including gaming conducted by the Diamond Jo. Approximately
80% of the votes cast approved gaming at that time. However, the 2002 referendum
must be held at the general election in 2002, and a reauthorization referendum
must be held each eight years afterward. Each referendum requires the vote of a
majority of the votes cast. If any reauthorization referendum is defeated, Iowa
law provides that any previously issued gaming license will remain valid and
subject to renewal for a total of nine years from the date of original issuance
of the license, subject to earlier nonrenewal or revocation under Iowa law and
regulations applicable to all licenses.
Proposals to amend or supplement Iowa's gaming statutes are frequently
introduced in the Iowa state legislature. In addition, the state legislature
sometimes considers proposals to amend or repeal Iowa law and regulations, which
could effectively prohibit riverboat gaming in the State of Iowa, limit the
expansion of existing operations or otherwise affect our operations. Although we
do not believe that a prohibition of riverboat gaming in Iowa is likely, we can
give no assurance that changes in Iowa gaming laws will not occur or that the
changes will not have a material adverse effect on our business.
The gaming commission adopted in 1998 a rule that prohibits licensees,
including the Diamond Jo, from increasing the number of gaming tables and gaming
machines without gaming commission approval. This approval is based on several
factors, including whether the increase will:
(1) positively impact the community in which the licensee operates,
(2) result in permanent improvements and land-based developments, and
(3) have a detrimental impact on the financial viability of other
licensees operating in the same market.
As a result of this rule, we may be unable to increase the number of gaming
positions on the Diamond Jo.
Substantially all of the Diamond Jo's material transactions are subject to
review and approval by the gaming commission. All contracts or business
arrangements, verbal or written, with any related party or in which the term
exceeds three years or the total value of the contract exceeds $50,000 must be
submitted in advance to the gaming commission for approval. Additionally,
contracts negotiated between the Diamond Jo and a related party must be
accompanied by economic and qualitative justification.
-5-
We must submit detailed financial, operating and other reports to the
gaming commission. We must file monthly gaming reports indicating adjusted gross
receipts received from gambling games and the total number and amount of money
received from admissions. Additionally, we must file annual financial statements
covering all financial activities related to our operations for each fiscal
year. We must also keep detailed records regarding our equity structure and
owners.
Iowa has a graduated wagering tax on riverboat gambling equal to five
percent of the first one million dollars of adjusted gross receipts, ten percent
on the next two million dollars of adjusted gross receipts and twenty percent on
adjusted gross receipts of more than three million dollars. In addition, Iowa
riverboats share equally in costs of the gaming commission and related entities
to administer gaming in Iowa. For the fiscal year ended December 31, 2000, our
share of such expenses was approximately $378,000. Further, the Diamond Jo pays
to the City of Dubuque a fee equal to $.50 per passenger.
If the gaming commission decides that a gaming law or regulation has been
violated, the gaming commission has the power to assess fines, revoke or suspend
licenses or to take any other action as may be reasonable or appropriate to
enforce the gaming rules and regulations. In addition, renewal is subject to,
among other things, continued satisfaction of suitability requirements.
Regulatory Requirements Applicable to Owners of the Securities and Others.
We are required to notify the gaming commission as to the identity of, and may
be required to submit background information regarding, each director, corporate
officer and owner, partner, joint venture, trustee or any other person who has a
beneficial interest of five percent or more, direct or indirect, in Peninsula
Gaming Company. The gaming commission may also request that we provide them with
a list of persons holding beneficial ownership interests in Peninsula Gaming
Company of less than five percent. For purposes of these rules, "beneficial
interest" includes all direct and indirect forms of ownership or control, voting
power or investment power held through any contract, lien, lease, partnership,
stockholding, syndication, joint venture, understanding, relationship, present
or reversionary right, title or interest, or otherwise. The gaming commission
may determine that holders of the notes, Peninsula Gaming Company's common
membership interests and preferred membership interests, and Peninsula Gaming
Partners' common membership interests and convertible preferred membership
interests have a "beneficial interest" in us. The gaming commission may limit,
make conditional, suspend or revoke the license of a licensee in which a
director, corporate officer or holder of a beneficial interest in the person
includes or involves any person or entity which is found to be ineligible as a
result of want of character, moral fitness, financial responsibility, or
professional qualifications or due to failure to meet other criteria employed by
the gaming commission.
If any gaming authority, including the gaming commission, requires any
person, including a record or beneficial owner of the securities, to be
licensed, qualified or found suitable, the person must apply for a license,
qualification or finding of suitability within the time period specified by the
gaming authority. The person would be required to pay all costs of obtaining the
license, qualification or finding of suitability. If a record or beneficial
owner of any of the notes or any membership interest of Peninsula Gaming
Partners or Peninsula Gaming Company is required to be licensed, qualified or
found suitable and is not licensed, qualified or found suitable by the gaming
authority within the applicable time period, these notes or membership interests
will be subject to regulatory redemption procedures. Notes to be redeemed under
a required regulatory redemption are redeemable by us, in whole or in part, at
any time upon not less than 20 business days nor more than 60 days notice, or
such earlier date as may be ordered by any governmental authority.
As of the date of this report, the gaming commission has not required the
security holders to apply for a finding of suitability to own the securities.
However, the gaming commission could require a holder of the securities to
submit an application in the future.
Federal Regulation of Slot Machines. We are required to make annual filings
with the U.S. Attorney General in connection with the sale, distribution or
operation of slot machines. We are currently in compliance with such filing
requirements.
-6-
Potential Changes in Tax and Regulatory Requirements. In the past, federal
and state legislators and officials have proposed changes in tax law, or in the
administration of the laws, affecting the gaming industry. The gaming commission
and the Iowa legislature sometimes consider limitations on the expansion of
gaming in Iowa and other changes in gaming laws and regulations. Proposals at
the national level have included a federal gaming tax and limitations on the
federal income tax deductibility of the cost of furnishing complimentary
promotional items to customers, as well as various measures which would require
withholding on amounts won by customers or on negotiated discounts provided to
customers on amounts owed to gaming companies. It is not possible to determine
with certainty the likelihood of possible changes in tax or other laws or in the
administration of the laws. The changes, if adopted, could have a material
adverse effect on our financial results.
The United States Congress created a national commission, the National
Gaming Impact Study Commission, which generally has the duty to conduct a
comprehensive legal and factual study of gambling in the United States and
existing federal, state and local policies and practices with respect to the
legalization or prohibition of gambling activities, to formulate and propose
changes in the policies and practices and to recommend legislation and
administrative actions for such changes. The national commission issued its
report to President Clinton, Congress, state governors and Native American
tribal leaders on June 18, 1999. Any of the recommendations made by the national
commission could result in the enactment of new laws and/or the adoption of new
regulations which could have an adverse impact on the gaming industry. While we
are unable at this time to determine the ultimate disposition of any of the
recommendations that the national commission made, management does not believe
that any of the recommendations, if enacted, would be reasonably expected to
have a material adverse effect on our gaming operations.
Liquor Regulations. The sale of alcoholic beverages by us is or will be
subject to the licensing, control and regulation by the liquor agencies, which
include the City of Dubuque and the Alcoholic Beverage Division of the Iowa
Department of Commerce. The applicable liquor laws allow the sale of liquor
during legal hours which are Monday through Saturday from 6 a.m. to 2 a.m. the
next day and Sunday from 8 a.m. to 2 a.m. on Monday. Subject to few exceptions,
all persons who have a financial interest in us, by ownership, loan or
otherwise, must be disclosed in an application filed with, and are subject to
investigation by, the liquor agencies. Persons who have a direct or indirect
interest in any Iowa liquor license, other than hotel or restaurant liquor
licenses, may be prohibited from purchasing or holding the notes. All licenses
are subject to annual renewal, are revocable and are not transferable. The
liquor agencies have the full power to limit, condition, suspend or revoke any
license or to place a liquor licensee on probation with or without conditions.
Any disciplinary action could, and revocation would, have a material adverse
effect upon the operations of our business. Many of our owners, officers and
managers must be investigated by the liquor agencies in connection with our
liquor permits. Changes in licensed positions must be approved by the liquor
agencies.
United States Coast Guard. The Diamond Jo is also regulated by the United
States Coast Guard, whose regulations affect boat design and stipulate on-board
facilities, equipment and personnel, including requirements that each vessel be
operated by a minimum complement of licensed personnel, in addition to
restricting the number of persons who can be aboard the boat at any one time.
Our riverboat must hold, and currently possesses, a Certificate of Inspection
and a Certificate of Documentation from the United States Coast Guard. Loss of
the Certificate of Inspection would preclude our use of the Diamond Jo as an
operating riverboat. In addition, the riverboat is subject to United States
Coast Guard regulations requiring periodic hull inspections. The United States
Coast Guard, upon our request, allowed us to conduct an underwater hull
inspection instead of the traditional out of water dry dock inspection. We
completed the underwater inspection in November 2000. The underwater hull
inspection did not result in any loss of services of the riverboat. We will be
required to perform another hull inspection within 30 months from the date of
the completion of the underwater hull inspection. At that time, we may again
seek approval from the Coast Guard for an underwater hull inspection in order to
avoid any loss of services of the riverboat.
All of our marine employees employed on United States Coast Guard regulated
vessels, even those who have nothing to do with the actual operation of the
vessel, such as dealers, cocktail hostesses and security personnel, may be
subject to maritime law at certain times of the year, which, among other things,
exempts those employees from state limits on workers' compensation awards. We
maintain workers' compensation insurance in compliance with applicable Iowa law.
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The Shipping Act of 1916; The Merchant Marine Act of 1936. The Shipping Act
of 1916, and the Merchant Marine Act of 1936, and applicable regulations contain
provisions which would prevent persons who are not citizens of the United States
from holding in the aggregate more than 25% of our outstanding membership
interests, directly or indirectly. Peninsula Gaming Company's and Peninsula
Gaming Partners' respective operating agreements contain prohibitions against
any purchase or transfer of Peninsula Gaming Company's or Peninsula Gaming
Partners' respective membership interests to any person or entity if, following
the purchase or transfer, more than 25% of Peninsula Gaming Company's membership
interests are owned, directly or indirectly, by persons who are not citizens of
the United States. Any such purchase or transfer in violation of Peninsula
Gaming Company's or Peninsula Gaming Partners' respective operating agreements
is null and void, and Peninsula Gaming Company and Peninsula Gaming Partners
will not recognize the purchaser, transferee or purported beneficial owner as a
direct or indirect holder of an interest in Peninsula Gaming Company or
Peninsula Gaming Partners, respectively, for any purpose. To the extent required
by maritime laws, the managing member, managers and the officers of Peninsula
Gaming Partners and Peninsula Gaming Company must be citizens of the United
States.
Other Regulations. We are subject to federal, state and local environmental
and safety and health laws, regulations and ordinances that apply to non-gaming
businesses generally, such as the Clean Air Act, Federal Water Pollution Control
Act, Occupational Safety and Health Act, Resource Conservation Recovery Act, Oil
Pollution Act and Comprehensive Environmental Response, Compensation and
Liability Act, each as amended. We have not incurred, and do not expect to
incur, material expenditures with respect to these laws. There can be no
assurances, however, that we will not incur material liability under these laws
in the future.
General
We are wholly-owned by Peninsula Gaming Partners, LLC, a Delaware limited
liability company and our sole managing member. Peninsula Gaming Corp. is our
only subsidiary, has no assets or operations and was formed solely to facilitate
the offering of our 12 1/4% Senior Secured Notes due 2006 in certain
jurisdictions. Unless otherwise specified herein, references to "us," "our,"
"we" or the "Company" shall mean Peninsula Gaming Company, LLC.
Our address is 3rd Street Ice Harbor, PO Box 1750, Dubuque, Iowa
52004-1683, and our telephone number is (319) 583-7005.
Recent Developments
On March 12, 2001, we entered into a secured working capital facility with
Foothill Capital Corporation providing for commitments of up to $10.0 million.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for further information about this facility.
ITEM 2. PROPERTIES
The properties we acquired upon consummation of the acquisition of the
Diamond Jo are located within the historic Ice Harbor district on the west bank
of the Mississippi River in Dubuque, Iowa. These properties consist of several
parcels of real property previously owned by Harbor Community Investment. We own
a fee interest in the dockside pavilion, consisting of approximately 33,000
square feet, surface parking lots within close proximity to the dockside
pavilion, and the walkway connecting the dockside pavilion to the ramp, which
leads to where the Diamond Jo is moored.
The Diamond Jo and its dockside facility are currently pledged as
collateral with respect to the 12 1/4% Senior Secured Notes due 2006, issued on
July 15, 1999 by the Company and Peninsula Gaming Corp. in the original face
amount of $71 million.
In addition to the properties we purchased, we currently lease property
used as a patio located between the dockside pavilion and the Diamond Jo, a ramp
connecting the dockside pavilion to the Diamond Jo, and property used as surface
parking consisting of approximately 445 parking spaces that are in close
proximity to the Diamond Jo.
-8-
These leased properties are currently owned by the City of Dubuque and
leased to the Dubuque Racing Association, which in turn subleases these
properties to us. The sublease requires us to pay one dollar per year as rent.
In connection with the acquisition of the Diamond Jo, we acquired Greater
Dubuque Riverboat Entertainment Company's interests in this sublease. The terms
of the Dubuque Racing Association lease with the City of Dubuque and our
sublease with the Dubuque Racing Association have each been extended through
December 31, 2008.
The Dubuque Racing Association is also party to a parking agreement by and
among the City of Dubuque, Greater Dubuque Riverboat Entertainment Company and
other parties, which governs the use of the parking spaces we currently sublease
from the Dubuque Racing Association. This parking agreement gives our patrons
the non-exclusive right to use the approximately 445 parking spaces currently
subleased from the Dubuque Racing Association. The agreement also gives our
patrons and employees the non-exclusive right to use approximately 335
additional parking spaces that are owned by the City of Dubuque and are located
in close proximity to the Diamond Jo. In exchange for these parking rights and
the extension of the sublease with the Dubuque Racing Association, we are
required, under some circumstances, to share costs of maintaining the subleased
parking lots.
The gaming commission approved our application for a license to operate a
gaming riverboat on May 20, 1999, effective upon the transfer of the Diamond Jo
to us. As a condition to the grant of our gaming license, we were required by
the gaming commission to spend up to a maximum of $11.5 million to develop and
construct a hotel contiguous to the Diamond Jo and to commence construction of
the hotel by December 2000. At the April 20, 2000 gaming commission meeting,
this condition was removed and our license was renewed with no future obligation
to construct a hotel.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to, and none of our property is the subject of, any
pending legal proceedings other than litigation arising in the normal course of
business. We do not believe that adverse determinations in any or all such
litigation would have a material adverse effect on our financial condition or
results of operations. We did not assume liability for any litigation involving
the Diamond Jo or any of the related real property in our acquisition of the
Diamond Jo from Greater Dubuque Riverboat Entertainment Company and of the real
property from Harbor Community Investment.
The footnotes to the historical financial statements included herein
contain references to expenses associated with Greater Dubuque Riverboat
Entertainment Company ownership litigation. We are not a party to this
litigation, and, under the terms of our acquisition agreements, we have not
assumed any liabilities in connection with this litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-9-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for any of the Company's
common equity securities.
As of March 21, 2001, there was one holder of record of the common equity
of the Company, and the Company was the sole shareholder of Peninsula Gaming
Corp. The Company paid approximately $286,170 for the year ended December 31,
1999 and approximately $1,917,551 for the year ended December 31, 2000 to
Peninsula Gaming Partners, the Company's parent and sole member, primarily in
respect of (i) certain consulting and financial advisory services relating to
the business operations of the Company, (ii) board fees and expenses paid to the
members of the board of managers of Peninsula Gaming Partners, and (iii) tax,
accounting, legal and administrative costs and expenses of Peninsula Gaming
Partners relating to the business operations of the Company.
-10-
ITEM 6. SELECTED FINANCIAL DATA
The following table represents selected financial data of the Company or
its predecessor companies, Greater Dubuque Riverboat Entertainment Company and
Harbor Community Investment, L.C., for the five years ended December 31, 2000.
The selected historical financial data for the five years ended December
31, 2000 are derived from audited financial statements of the Company or its
predecessor combined companies. The three years ended December 31, 2000 have
been audited by Deloitte & Touche LLP, independent auditors, and are included in
this form 10-K. The Company acquired the operations of the predecessor companies
on July 15, 1999. The selected financial data set forth below should be read in
conjunction with, and is qualified in its entirety by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Company's and the predecessor companies' financial
statements and the related notes included elsewhere in this document.
As set forth in the table below, the amount of non-recurring expenses
consists of non-recurring charges related to sale of business and litigation
involving the prior owners of the Diamond Jo and Greater Dubuque Riverboat
Entertainment Company as well as organizational costs and severance expenses
incurred by the Company. For purposes of determining the ratio of earnings to
fixed charges, earnings are defined as income before income taxes plus fixed
charges. Fixed charges include interest expense on all indebtedness and
amortization of bond issuance costs and bond discount. The Company's ratio of
earnings to fixed charges for the period from July 15, 1999, the date of
inception, to December 31, 1999 would have been 1.1x if the start-up and
organizational costs expensed during this period were excluded.
Peninsula Gaming Peninsula Gaming
Predecessor Companies Company Pro Forma Company
----------------------------------------------- ---------------------------------------------------
Period from Period from
January 1, July 15,
1999 to 1999 to
July 14, December 31,
1996 1997 1998 1999 1999 1999 2000
---------------------------------------------- ---------------------------------------------------
(Dollars in thousands)
Statement of
Operations Data
Revenues:
Casino $ 40,267 $ 40,572 $ 44,167 $ 23,764 $ 21,153 $ 44,917 $ 45,519
Food and Beverage 2,619 2,449 2,469 1,408 1,235 2,643 2,664
Other 329 406 290 121 122 243 169
Less: Promotional
allowances (963) (806) (1,076) (565) (551) (1,116) (1,116)
----------------------------------------------- ---------------------------------------------------
Net Revenues 42,252 42,621 45,850 24,728 21,959 46,687 47,236
Expenses:
Casino 16,430 16,706 17,819 9,797 8,730 18,527 20,109
Food and Beverage 2,586 2,196 2,299 1,408 1,248 2,656 2,659
Boat operations 1,997 2,005 2,056 1,055 936 1,991 2,099
Other 64 65 54 21 16 37 37
Selling, general and
administrative 9,573 6,947 7,515 4,122 4,206 8,328 7,691
Depreciation and
amortization 2,026 1,826 1,895 1,157 1,541 2,698 3,571
Non-recurring expenses 58 170 928 1,871 3,134 5,005 0
----------------------------------------------- ---------------------------------------------------
Total expenses 32,734 29,915 32,566 19,431 19,811 39,242 36,166
Income From Operations 9,518 12,706 13,284 5,297 2,148 7,445 11,070
Other income (expense)
Interest income 81 222 142 76 155 231 434
Interest expense (1,813) (1,772) (1,142) (331) (4,383) (4,714) (9,507)
Loss on sale of assets (6,878) (88) (74) (98) (68) (166) (122)
----------------------------------------------- ---------------------------------------------------
Total other expense (8,610) (1,638) (1,074) (353) (4,296) (4,649) (9,195)
Preferred member
distributions 0 0 0 0 (289) (289) (630)
----------------------------------------------- ---------------------------------------------------
Net income (loss) to
common interests $ 908 $ 11,068 $ 12,210 $ 4,944 $ (2,437) $ 2,507 $ 1,245
=============================================== ===================================================
-11-
Peninsula Gaming Peninsula Gaming
Predecessor Companies Company Pro Forma Company
----------------------------------------------- ---------------------------------------------------
Period from Period from
January 1, July 15,
1999 to 1999 to
July 14, December 31,
1996 1997 1998 1999 1999 1999 2000
---------------------------------------------- ---------------------------------------------------
(Dollars in thousands)
Ratio of earnings to
fixed charges 1.5x 6.5x 10.8x 13.5x .5x 1.1x
Other Data
Cash flows from
operating activities $ 10,140 $ 12,522 $ 14,638 $ 6,134 $ 2,475 $ 4,951
Cash flows from
investing activities (18,162) 4,196 (1,793) 80 (68,611) (2,409)
Cash flows from
financing activities 10,249 (15,114) (12,806) (8,277) 74,055 (2,099)
Distributions to
common members 1,380 6,583 7,027 5,258 286 1,918
At December 31,
----------------------------------- -------- -------
Balance Sheet Data: 1996 1997 1998 1999 2000
----------------------------------- -------- -------
Current assets $ 6,661 $ 6,255 $ 6,767 $ 8,765 $ 9,134
Total assets 3,340 28,915 29,252 88,175 86,788
Current liabilities 8,325 6,829 8,133 4,370 3,533
Total debt 23,132 15,100 9,822 70,680 70,764
Preferred member
interest,
redeemable 0 0 0 7,000 7,000
Total members' equity 7,528 11,513 16,697 6,277 5,604
-12-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with,
and is qualified in its entirety by, our "Selected Financial Data" and the
financial statements and the related notes thereto appearing elsewhere in this
report. Some statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include the words "may," "will," "estimate,"
"intend," "continue," "believe," "expect," or "anticipate" and other similar
words. These forward-looking statements generally relate to plans and objectives
for future operations and are based upon management's reasonable estimates of
future results or trends. Although we believe that the plans and objectives
reflected in or suggested by such forward-looking statements are reasonable,
such plans or objectives may not be achieved. Actual results may differ from
projected results due, but not limited, to unforeseen developments, including
developments relating to the following:
o the availability and adequacy of our cash flow to satisfy our
obligations, including payment of the notes and additional funds
required to support capital improvements and development,
o economic, competitive, demographic, business and other conditions in
our local and regional markets, including competition in the Dubuque
gaming market,
o changes or developments in the laws, regulations or taxes in the
gaming industry, including riverboat gaming and liquor regulation
under Iowa law,
o actions taken or omitted to be taken by third parties, including
customers, suppliers, competitors, members and shareholders, as well
as legislative, regulatory, judicial and other governmental
authorities,
o changes in business strategy, capital improvements, development plans,
including those due to environmental remediation concerns, or changes
in personnel or their compensation, including federal, state and local
minimum wage requirements,
o the loss of any license or permit, including the failure to obtain an
unconditional renewal of a required gaming license on a timely basis,
o the termination of our operating agreement with the Dubuque Racing
Association, Ltd. or the failure of the Dubuque Racing Association,
Ltd. to continue as our "qualified sponsoring organization,"
o the loss of our riverboat casino or land-based facilities due to
casualty, weather, mechanical failure or any extended or extraordinary
maintenance or inspection that may be required, and
o other factors discussed in our other filings with the Securities and
Exchange Commission.
You should read this annual report completely and with the understanding
that actual future results may be materially different from what we expect.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
The results of operations for the twelve months ended December 31, 2000
represent our results of operations for the entire twelve months. The results of
operations for the twelve months ended December 31, 1999 discussed below include
our results of operations for the five and a half months ended December 31, 1999
and the combined results of operations for the six and a half months ended July
14, 1999 for the predecessor companies. As a result of the substantially
different capital structure of our company in comparison to that of the
predecessor companies, and of the applications of purchase accounting in
connection with the acquisition, our results of operations may not be entirely
-13-
comparable to the results of operations of the predecessor companies. In order
to allow for the transfer of ownership of the Diamond Jo in accordance with the
gaming commission guidelines, the Diamond Jo was closed for 30 business hours on
July 14 and 15, 1999.
For the years ended December 31, 2000 and 1999, Dubuque was a two-casino
market consisting of the Diamond Jo and the Greyhound Park. Casino gaming win in
the Dubuque market increased 3.3% to $81.3 million for the year ended December
31, 2000 from $78.7 million for the year ended December 31, 1999. We believe
this increase was primarily due to increased player's club promotions and a
change in our slot mix and the slot mix at the Greyhound Park. Admissions to
casinos in the Dubuque market decreased 2.2% to 1,960,915 for the year ended
December 31, 2000 from 2,005,452 for the year ended December 31, 1999. This
decrease was primarily due to a record snowfall level of 35.8 inches during the
month of December 2000. As a result of this snowfall, total admissions in
December 2000 decreased by 32,745 patrons compared to December 1999. For the
year ended December 31, 2000, our share of the Dubuque market casino gaming win
decreased to 56.0% from 57.1% and casino admissions decreased to 53.9% from
55.2%, in each case, for the year ended December 31, 1999. We believe our market
share decrease in casino gaming win was primarily due to the higher Greyhound
Park slot win percentage of 6.47% for the year ended December 31, 2000 compared
to our slot win percentage of 6.22% for the same year (in contrast to our and
Greyhound Park's slot win percentages of 6.28% and 6.30%, respectively, for the
year ended December 31, 1999).
Net revenues increased 1.1% to $47.2 million for the year ended December
31, 2000 from $46.7 million for the year ended December 31, 1999 due primarily
to increased communication with our player's club members through direct mail
campaigns and a continued review and change in our game mix. Our admissions for
the year ended December 31, 2000 decreased 4.5% to 1,057,386 from 1,106,829 for
the year ended December 31, 1999 partially as a result of the aforementioned
inclement weather during December 2000. Admissions for the month of December
2000 decreased by 21,954 from December 1999. In addition, we incurred a decrease
in bus and banquet passengers of 23,879 for the year ended December 31, 2000
compared to the year ended December 31, 1999 due to our change in marketing
strategy. For the year ended December 31, 2000, our win per admission increased
6.1% to $43.05 from $40.58 for the year ended December 31, 1999. Consistent with
an increase in net revenues, our win per gaming position increased 5.9% to
$137.68 for the year ended December 31, 2000 from $130.03 for the year ended
December 31, 1999. Our casino revenues also increased 1.3% to $45.5 million for
the year ended December 31, 2000 from $44.9 million for the year ended December
31, 1999. Casino revenues were derived 81.9% from slot machines and 18.1% from
table games for the year ended December 31, 2000 compared to 81.1% from slot
machines and 18.9% from table games, respectively, for the year ended December
31, 1999. The increase in casino revenues was due primarily to an increase in
slot revenues of 2.3% to $37.3 million for the year ended December 31, 2000 from
$36.4 million for the year ended December 31, 1999. The increase in slot
revenues was offset by a decrease in table game revenues of 3.5% to $8.2 million
for the year ended December 31, 2000 from $8.5 million for the year ended
December 31, 1999. Food and beverage revenues, other revenues and promotional
allowances remained substantially unchanged at $1.8 million for the years ended
December 31, 2000 and 1999. Promotional allowances represent the estimated value
of goods and services provided free of charge to casino patrons under our
various marketing programs.
Casino operating expenses increased 8.5% to $20.1 million or 42.6% of
casino revenues for the year ended December 31, 2000 from $18.5 million or 41.3%
of casino revenues for the year ended December 31, 1999. This increase of $1.6
million was due primarily to an increase in casino and players club promotions
of approximately $891,000, an increase in player points expense of approximately
$667,000 due to triple point promotions and an increase of $334,000 in gaming
taxes due to increased revenue. This was partially offset by a reduction in
rental expense of $196,000 related to vendor participation leases for slot
machines. Food and beverage expenses remained substantially unchanged at $2.7
million for the years ended December 31, 2000 and 1999. Boat operations expenses
remained substantially unchanged at $2.1 million for the year ended December 31,
2000 compared to $2.0 million for the year ended December 31, 1999. Selling,
general and administrative expenses decreased 7.7% to $7.7 million for the year
ended December 31, 2000 from $8.3 million for the year ended December 31, 1999,
primarily due to the 1999 expenses relating to nonrecurring litigation and
severance pay of approximately $0.5 million involving the separation and release
agreement of the former Chief Operating Officer of Peninsula Gaming and a
decrease in marketing and group promotions of approximately $0.4 million. This
was partially offset by an increase in head tax paid to the Dubuque Racing
Association of approximately $405,000. This tax commenced on April 1, 2000 per
our agreement with the Dubuque Racing Association and continues thereafter. We
are required to pay the sum of $.50 for each patron admitted on the boat, which,
-14-
based on our estimate of annual attendees for the year ended December 31, 2001,
would approximate $500,000 annually. Included in the year ended December 31,
1999 operating expenses were non-recurring expenses of $5.5 million related to
the sale of the business, litigation involving the prior owners of the Diamond
Jo and severance payments described above.
Depreciation and amortization expense increased 32.3% to $3.6 million for
the year ended December 31, 2000 from $2.7 million for the year ended December
31, 1999. This increase was due primarily to the amortization of $1.4 million
for the $56.6 million of goodwill recorded in connection with the July 1999
acquisition for the year ended December 31, 2000 compared to $.6 million for the
year ended December 31, 1999 arising out of goodwill of $56.6 million recorded
in connection with the July 1999 acquisition. Net interest expense was $9.1
million for the year ended December 31, 2000 and $4.3 million for the year ended
December 31, 1999. The increase in interest expense was due to the inclusion of
twelve months of interest for the year ended December 31, 2000 relating to the
issuance of our 12 1/4% Senior Secured Notes due 2006, as compared to the
inclusion of five and a half months of interest for the year ended December 31,
1999. Loss on disposal of assets was $0.1 million for the year ended December
31, 2000 and $0.2 million for the year ended December 31, 1999. These losses
were attributable primarily to the replacement and upgrade of slot machines and
the remodeling of our portside facility.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
The results of operations for the twelve months ended December 31, 1999
discussed below include our results of operations for the five and a half months
ended December 31, 1999 and the combined results of operations for the six and a
half months ended July 14, 1999 for the predecessor companies. The results of
operations for the twelve months ended December 31, 1998 discussed below are the
results of operations for the predecessor companies. As a result of the
substantially different capital structure of our company in comparison to that
of the predecessor companies, and of the applications of purchase accounting in
connection with the acquisition, our results of operations may not be entirely
comparable to the results of operations of the predecessor companies. In order
to allow for the transfer of ownership of the Diamond Jo in accordance with the
gaming commission guidelines, the Diamond Jo was closed for 30 business hours on
July 14 and 15.
For the years ended December 31, 1999 and 1998, Dubuque was a two-casino
market consisting of the Diamond Jo and the Greyhound Park. Casino gaming win in
the Dubuque market increased 7.0% to $78.7 million for the year ended December
31, 1999 from $73.5 million for the year ended December 31, 1998. We believe
this increase was primarily due to an increase in the number of slot machines at
the Greyhound Park, an increase in popular nickel machines at the Greyhound Park
from 78 to 119 and changes in our game mix. Admissions to casinos in the Dubuque
market decreased .5% to 2,005,452 for the year ended December 31, 1999 from
2,015,017 for the year ended December 31, 1998. For the year ended December 31,
1999, our share of the Dubuque market casino gaming win decreased to 57.1% from
60.0% and casino admissions decreased to 55.2% from 56.7%, in each case, for the
year ended December 31, 1998. We believe our market share decrease was primarily
due to the Greyhound Park reconfiguring its floor plan and increasing the number
of its slot machines from 545 to 600 in September 1998. At 600 machines, the
Dubuque Greyhound Park has met the limit defined within the Dubuque Racing
Association, Ltd. operating agreement between us and the Dubuque Racing
Association. The Dubuque Racing Association operating agreement expires by its
terms on December 31, 2008.
Net revenues increased 1.8% to $46.7 million for the year ended December
31, 1999 from $45.8 million for the year ended December 31, 1998 due primarily
to improved marketing efforts, better tracking of, and communication with our
VIP players through our electronic player tracking system and a continued review
and change in our game mix. Our admissions for the year ended December 31, 1999
decreased 3.1% to 1,106,829 patrons from 1,142,008 for the year ended December
31, 1998, primarily as a result of unusually inclement weather during January
1999, closing of the casino for 30 hours during transfer of ownership, and the
change of slot machine mix at the Dubuque Greyhound Park. For the year ended
December 31, 1999, our win per admission increased 4.9% to $40.58 from $38.67
for the year ended December 31, 1998. Consistent with an increase in net
revenues, win per gaming position increased 2.0% to $130.03 for the year ended
December 31, 1999 from $127.51 for the year ended December 31, 1998. Our casino
revenues also increased 1.7% to $44.9 million for the year ended December 31,
1999 from $44.2 million for the year ended December 31, 1998. Casino revenues
were derived 81.1% from slot machines and 18.9% from table games for the year
ended December 31, 1999 compared to 80.9% from slot machines and 19.1% from
table games for the year ended December 31, 1998. The increase in casino
revenues was due primarily to an increase in slot revenues of 2.0% to $36.4
-15-
million for the year ended December 31, 1999 from $35.7 million for the year
ended December 31, 1998. We believe that the increases in slot revenues, casino
revenues, win per admission, and win per gaming position were due primarily to
the same reasons net revenues increased for the year ended December 31, 1999
over the corresponding period of the prior year. Food and beverage revenues and
other revenues increased 4.6% to $2.9 million for the year ended December 31,
1999 compared to $2.8 million for the year ended December 31, 1998, primarily
due to an increase in complimentary food and beverage sales. Promotional
allowances increased by 3.7% to $1.1 million for the year ended December 31,
1999 compared to $1.08 million for the year ended December 31, 1998 due to an
increase in complimentary food and beverage provided to our Diamond Club
members. Promotional allowances represent the estimated value of goods and
services provided free of charge to casino patrons under our various marketing
programs.
Casino operating expenses increased 4.0% to $18.5 million or 41.3% of
casino revenues for the year ended December 31, 1999 from $17.8 million or 40.3%
of casino revenues for the year ended December 31, 1998. This increase of $0.7
million was due primarily to increased rental expense related to vendor
participation slot machines of approximately $0.6 million. Food and beverage
expenses increased approximately $.4 million or 15.6% to $2.7 million for the
year ended December 31, 1999 from $2.3 million for the year ended December 31,
1998. We believe this increase was due to an increase in food cost due to
increased patronage at our bars and restaurants, an increase in food product
quality and an increase in payroll expenses of approximately $0.1 million.
Selling, general and administrative expenses increased 10.8% to $8.3 million for
the year ended December 31, 1999 from $7.5 million for the year ended December
31, 1998, primarily due to an increase in nonrecurring litigation and severance
pay of $.5 million involving the separation and release agreement of the former
Chief Operating Officer of Peninsula Gaming, an increase in marketing promotions
of approximately $.2 million as well as an increase in insurance costs of
approximately $.1 million. Included in the year ended December 31, 1999 and 1998
operating expenses were non-recurring expenses of $5.5 million and $.9 million,
respectively, related to the sale of the business, litigation involving the
prior owners of the Diamond Jo and Greater Dubuque Riverboat and the severance
pay discussed above.
Depreciation and amortization expense increased 42.4% to $2.7 million for
the year ended December 31, 1999 from $1.9 million for the year ended December
31, 1998. This increase was due primarily to the amortization of $.6 million for
the $56.6 million of goodwill recorded in connection with the July 1999
acquisition. Net interest expense was $4.5 million for the year ended December
31, 1999 and $1.0 million for the year ended December 31, 1998. The increase of
interest expense was due to the issuance of $71 million senior secured notes at
12.25% interest rate related to the acquisition in July of 1999. Loss on
disposal of assets was $0.2 million for the year ended December 31, 1999 and
$0.1 million for the year ended December 31, 1998. These losses were
attributable primarily to the replacement and upgrade of slot machines.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, we had outstanding long term debt of approximately
$71 million and total member's equity of approximately $5.6 million.
Financing Activities
On July 15, 1999, we completed a private placement of $71 million aggregate
principal amount of Series A 12 1/4% Senior Secured Notes due 2006 in a
transaction exempt from the registration requirements of the Securities Act of
1933, as amended, pursuant to Rule 144A promulgated thereunder. On March 15,
2000, we consummated a registered exchange offer, pursuant to which all of our
issued and outstanding Series A 12 1/4% Senior Secured Notes due 2006 were
exchanged for our Series B 12 1/4% Senior Secured Notes due 2006.
The 12 1/4% Senior Secured Notes are secured by all of our current and
future tangible and intangible assets (with the exception of certain excluded
assets). The notes, which mature on July 1, 2006, are redeemable at our option,
in whole or in part at any time or from time to time, on and after July 1,
2003 at certain specified redemption prices set forth in our indenture governing
these notes. The indenture governing the notes contains a number of restrictive
covenants and agreements, including covenants that limit our ability to,
among other things: (1) incur more debt; (2) pay dividends, redeem stock or
make other distributions; (3) issue stock of subsidiaries; (4) make investments;
-16-
(5) create liens; (6) enter into transactions with affiliates; (7) merge or
consolidate; and (8) transfer or sell assets. The events of default under the
indenture include provisions that are typical of senior debt financings. Upon
the occurrence and continuance of certain events of default, the trustee or the
holders of not less than 25% in aggregate principal amount of outstanding notes
may declare all unpaid principal and accrued interest on all of the notes to be
immediately due and payable. Upon the occurrence of a change of control (as
defined in the indenture), each holder of notes will have the right to require
us to purchase all or a portion of such holder's notes pursuant to the offer
described in the indenture at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
repurchase.
On July 15, 1999, the Company authorized and issued $9.0 million of common
membership units to Peninsula Gaming Partners. The combined proceeds from this
transaction and the issuance of the senior secured notes were used to complete
the purchase of certain assets comprising the Diamond Jo casino and related real
property.
On March 12, 2001, we entered into a secured working capital facility with
Foothill Capital Corporation providing for commitments of up to $10.0 million
which mature in 2005. The outstanding loans will bear interest at a rate equal
to (a) the LIBOR rate plus 3.00% with respect to LIBOR rate loans and (b) the
base rate plus 0.75% with respect to base rate loans, provided that the
outstanding obligations shall not at any time bear interest at a rate per annum
less than 8.50%. Interest on our borrowings under the senior credit facility is
payable (a) with respect to base rate loans, monthly in arrears and (b) with
respect to LIBOR rate loans, on the earliest to occur of (i) the last day of
each applicable interest period with respect to such LIBOR rate loan and (ii)
the first day of each month that such LIBOR rate loan is outstanding.
Indebtedness under the senior credit facility is secured by all of our assets
that also secure our obligations under the notes. The senior credit facility
contains a number of restrictive covenants and agreements similar to (and in
certain cases more restrictive than) those contained in the indenture governing
the notes, including a minimum earnings requirement, and certain events of
default customary for senior secured facilities of this type. At March 21, 2001,
we had no outstanding borrowings under our senior credit facility.
Operating, Investing and Financing Activities
Our level of indebtedness will have several important effects on our future
operations, including, but not limited to, the following: (1) a significant
portion of our cash flow from operations will be required to pay interest on our
indebtedness; (2) the financial covenants contained in certain of the agreements
governing our indebtedness will require us to meet certain financial tests and
may limit our ability to borrow additional funds or to dispose of assets; (3)
our ability to obtain additional financing in the future for working capital,
capital expenditures, or general corporate purposes may be impaired; and (4) our
ability to adapt to changes in the casino gaming industry and to economic
conditions in general could be limited.
We generated $5.0 million in cash flows from operations for the year ended
December 31, 2000. Net cash flows used for investing activities were $2.4
million, which related primarily to the renovation of our casino floor and the
acquisition of slot machines. Cash flows used from financing activities were
$2.1 million, including $1.9 million in member distributions and $.2 million in
bond issuance costs.
As a condition to the granting of our gaming license, we were required by
the gaming commission to spend up to a maximum of $11.5 million toward the
development and construction of a hotel contiguous to the Diamond Jo portside
facility. At the April 20, 2000 gaming commission meeting, this condition was
removed, and our license was renewed with no future obligation to construct a
hotel.
We believe that cash on hand and cash generated from operations will be
sufficient to satisfy our working capital requirements, maintenance and capital
expenditures and other cash obligations. However, we cannot assure you that this
will be the case. If cash on hand and cash generated from operations are
insufficient to meet these obligations, we may have to refinance our debt or
sell some or all of our assets to meet our obligations.
-17-
SEASONALITY AND INFLATION
Our business is subject to seasonal fluctuations in the Iowa gaming
business, which is typically weaker from November through February as a result
of adverse weather conditions, and typically stronger from March through
October. In general, our payroll and general and administrative expenses are
affected by inflation. Although inflation has not had a material effect on our
business to date, we could experience the effects of inflation in future
periods.
FORWARD-LOOKING STATEMENTS
Throughout this report, we make forward-looking statements. These
forward-looking statements generally relate to plans and objectives for future
operations and are based upon management's reasonable estimates of future
results or trends. Although we believe that the plans and objectives reflected
in or suggested by these forward-looking statements are reasonable, the plans or
objectives may not be achieved. You should read this report completely and with
the understanding that actual future results may be materially different from
what we expect. Unless otherwise required by law, we will not update
forward-looking statements even though our situation may change in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks which are inherent in the
Company's financial instruments which arise from transactions entered into in
the normal course of business. Although the Company currently utilizes no
derivative financial instruments and during the fiscal year ended December 31,
2000 had no variable rate debt which may expose the Company to significant
market risk, the Company is exposed to fair value risk due to changes in
interest rates with respect to its long-term fixed interest rate debt
borrowings. As our fixed rate debt matures, future earnings and cash flows may
be impacted by changes in interest rates related to debt incurred to fund
repayments under such fixed interest rate debt borrowings.
The following information relates to the Company's debt instruments subject
to interest rate risk at December 31, 2000 (dollars in millions):
Description Contract Terms Interest Rate Cost Fair Value
----------- -------------- ------------- ---- ----------
Senior Secured Notes Due July 1, 2006 12 1/4% fixed $71.0 $66.0*
* Represents estimated fair value of such debt instrument as of
March 28, 2001 based on information provided by Jefferies & Co., Inc.
We have no investments in market risk sensitive instruments issued by
others. The only securities owned by Peninsula Gaming Company are the shares of
common stock of its wholly-owned subsidiary, Peninsula Gaming Corp.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Audited financial statements and the notes thereto are combined in pages
F-1 through F-23.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-18-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
OFFICERS OF PENINSULA GAMING COMPANY, LLC, MANAGERS OF PENINSULA GAMING
PARTNERS, LLC AND OFFICERS AND DIRECTORS OF PENINSULA GAMING CORP.
Peninsula Gaming Partners, LLC is our parent and sole member. The following
table sets forth the names and ages of the executive officers of Peninsula
Gaming Company and of the managers and executive officers of Peninsula Gaming
Partners.
Name Age Position
---- --- --------
M. Brent Stevens........ 40 Manager of Peninsula Gaming Partners;
Director of Peninsula Gaming Corp.;
Chief Executive Officer of Peninsula
Gaming Partners and Peninsula Gaming
Company; President and Treasurer of
Peninsula Gaming Corp.
George T. Papanier...... 43 Chief Operating Officer of Peninsula
Gaming Company
Natalie A. Schramm...... 30 Chief Financial Officer and Assistant
General Manager of Peninsula Gaming
Company
Michael S. Luzich....... 46 Manager of Peninsula Gaming Partners;
Director of Peninsula Gaming Corp.;
Vice President of Corporate Development
and Secretary of Peninsula Gaming
Partners; Vice President and Secretary
of Peninsula Gaming Corp.; Secretary of
Peninsula Gaming Company
Terrance W. Oliver...... 51 Manager of Peninsula Gaming Partners
William L. Westerman.... 68 Manager of Peninsula Gaming Partners
Andrew R. Whittaker..... 38 Manager of Peninsula Gaming Partners
MANAGEMENT PROFILES
Following is a brief description of the business experience of each of the
executive officers of Peninsula Gaming Company and of the managers and executive
officers of Peninsula Gaming Partners listed in the preceding table.
M. Brent Stevens - Manager of Peninsula Gaming Partners; Chief Executive Officer
of Peninsula Gaming Partners and Peninsula Gaming Company; Director of Peninsula
Gaming Corp.; President and Treasurer of Peninsula Gaming Corp. Since 1990,
Mr. Stevens has been employed by Jefferies & Company, Inc., and presently is an
Executive Vice President in the Corporate Finance department. Mr. Stevens has
been a board member of American Restaurant Group, Inc. since 1999. Mr. Stevens
joined us in December 1998 and has held each of the positions listed above since
that date.
George T. Papanier - Chief Operating Officer of Peninsula Gaming Company. Mr.
Papanier has served as our chief operating officer since July 2000. Prior to
joining our company, Mr. Papanier was employed by Resorts Casino Hotel in
Atlantic City, New Jersey as Executive Vice President and Chief Operating
Officer from May 1997 to March 2000. Prior to that, Mr. Papanier served as
Senior Vice President and Chief Financial Officer for Sun International since
March 1997 and Senior Vice President of Finance and Chief Financial Officer of
Mohegan Sun Casino since October 1995. Mr. Papanier has been in the casino
industry for 20 years working for various casinos including Sands Hotel and
Casino, Golden Nugget Casino Hotel, Bally's Grand, Trump Plaza Hotel and Casino
and Hemmeter Enterprises.
-19-
Natalie A. Schramm - Chief Financial Officer and Assistant General Manager of
Peninsula Gaming Company. Ms. Schramm has served as our Chief Financial Officer
since July 15, 1999 and as our Assistant General Manager since April 1, 2000.
Ms. Schramm joined our predecessor, Greater Dubuque Riverboat Entertainment
Company, L.C., in November 1996 and was formerly employed by Aerie Hotels and
Resorts in Oak Brook, Illinois as Corporate Accounting Manager since 1992. She
was responsible for the corporate accounting functions of the Silver Eagle, the
Eagle Ridge Inn and Resorts, located in Galena, Illinois and the Essex Hotel,
located in Chicago, Illinois. She served as Internal Audit Manager for the
Silver Eagle and was a member of a development team that successfully pursued a
riverboat gaming license in Indiana.
Michael S. Luzich - Manager, Vice President of Corporate Development and
Secretary of Peninsula Gaming Partners; Director, Vice President and Secretary
of Peninsula Gaming Corp.; Secretary of Peninsula Gaming Company. Mr. Luzich is
the founder and President of the Cambridge Investment Group, L.L.C., an
investment and development company located in Las Vegas, Nevada. Prior to
October 1995, Mr. Luzich was a founding partner and director of Fitzgeralds New
York, Inc. and Fitzgeralds Arizona Management, Inc., which are development
companies responsible for the Turning Stone Casino near Syracuse, New York for
the Oneida Tribe and the Cliff Castle Casino near Sedona, Arizona for the
Yavapai-Apachi Tribe, respectively. Mr. Luzich joined us in December 1998.
Terrance W. Oliver - Manager of Peninsula Gaming Partners. Since 1993,
Mr. Oliver has served as a director of and consultant to Mikohn Gaming
Corporation, a gaming equipment manufacturer headquartered in Las Vegas. From
1988 until 1993, Mr. Oliver served as Chairman of the Board to the predecessor
company of Mikohn. From 1984 until 1996, Mr. Oliver was a founding shareholder,
board member and executive officer of Fitzgeralds Gaming Corporation. Mr. Oliver
retired as the Chief Operating Officer of Fitzgeralds Gaming Corporation in
1996. Mr. Oliver joined us in September 1999 as a manager of Peninsula Gaming
Partners.
William L. Westerman - Manager of Peninsula Gaming Partners. Since 1992,
Mr. Westerman has assumed the positions of Chairman of the Board, Chief
Executive Officer and President of Riviera Holdings Corporation, Chairman of the
Board, Chief Executive Officer and President of Riviera, Inc. and Chairman of
the Board and Chief Executive Officer of Riviera Operating Corporation. From
July 1, 1991 until his appointment as Chairman of the Board, Mr. Westerman
served as a consultant to Riviera, Inc. From 1973 until June 30, 1991,
Mr. Westerman held various positions with Cellu-Craft Inc. and Alusuisse
Flexible Packaging, manufacturers of flexible packaging used primarily for food
products, including serving as President and Chief Executive Officer of
Cellu-Craft Inc. and President of Alusuisse Flexible Packaging, a wholly-owned
subsidiary of Alusuisse, which purchased Cellu-Craft Inc. on June 30, 1989.
Mr. Westerman joined us in July, 1999 as a manager of Peninsula Gaming Partners.
Mr. Westerman resigned from the board of managers of Peninsula Gaming Partners
on December 31, 2000.
Andrew R. Whittaker - Manager of Peninsula Gaming Partners. Since 1990 Mr.
Whittaker has been employed by Jefferies & Company, Inc. and presently is an
executive vice president in the Corporate Finance department. Mr. Whittaker
joined us in July 1999 as a manager of Peninsula Gaming Partners.
ITEM 11. EXECUTIVE COMPENSATION
Subject to the approval of the holders of at least 85% of the voting common
membership interests of Peninsula Gaming Partners, Peninsula Gaming Partners'
board of managers may issue additional incentive based equity interests in
Peninsula Gaming Partners at no less than fair market value.
-20-
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and to each of our executive officers for
all services rendered since the date of consummation of the acquisition on July
15, 1999 through December 31, 2000.
Other All
Annual Long- Other
Compen- term Compen-
Name and Fiscal Salary Bonus sation Compen- sation
Principal Position Year ($) ($) ($) sation ($)
- ------------------ ------ ------ ----- ------- ------ -------
Annual Compensation
-------------------
M. Brent Stevens.......... 2000 -- -- -- -- --
Chief Executive Officer
1999 -- -- -- -- --
George T. Papanier........ 2000 109,203 -- 19,341(1) -- --
Chief Operating Officer
Natalie A. Schramm........ 2000 114,207 20,000 -- -- 4,480(2)
Chief Financial Officer
1999 36,490 25,000 -- -- --
James P. Rix.............. 2000 -- -- -- -- 360,315(3)
Formerly, Chief Operating
Officer 1999 91,346 -- -- -- --
- -----------
(1) Includes $6,200 in club membership fees, $4,250 in automobile allowances and
$8,891 for reimbursement of certain out-of-pocket relocation expenses.
Additionally, in connection with his relocation, the Company acquired Mr.
Papanier's current residence for which he pays all property taxes, utility
expenses and other out-of-pocket costs related to maintaining such residence,
excluding the fair market value equivalent of rental expense.
(2) Represents matching contributions made by the Company to the Company's
401(k) plan.
(3) In connection with Mr. Rix's resignation in November 1999, we entered into a
separation and release agreement pursuant to which, among other things, we
agreed to pay Mr. Rix $360,315.95 in full satisfaction of all amounts due to him
upon termination, which amount was paid to Mr. Rix in January 2000.
EMPLOYMENT AND CONSULTING AGREEMENTS
Natalie A. Schramm. Ms. Schramm has entered into an employment agreement with us
which has a term of three years commencing April 1, 2000. Under the terms of her
employment agreement, Ms. Schramm is entitled to an annual base salary of
$125,000 and an annual performance based bonus. Ms. Schramm is further entitled
to at least a 5% annual salary increase, the actual amount of the increase to be
determined by the board of managers of Peninsula Gaming Partners. Ms. Schramm
has agreed to restrictions which will limit her ability to compete with us for a
one-year period following her termination of employment.
-21-
Michael S. Luzich. Peninsula Gaming Partners has entered into a consulting
agreement with Mr. Luzich, under which Mr. Luzich, in consideration for
corporate development and consulting services to be rendered, is entitled to
receive compensation consisting of base salary and incentive payments in an
aggregate annual amount not to exceed $340,000. The consulting agreement has a
one year term and, subject to the occurrence of various termination events, is
renewable automatically for successive one year terms. Mr. Luzich is entitled to
reimbursement of reasonable business expenses as approved by the board of
managers of Peninsula Gaming Partners and incurred in connection with the
performance of his services.
COMPENSATION OF MANAGERS
All managers of Peninsula Gaming Partners receive an annual payment of
$25,000 (other than Mr. Stevens who receives $125,000) for their services as
managers on the board of managers of Peninsula Gaming Partners and are
reimbursed for their travel and related out-of-pocket expenses for attendance at
board of managers meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We have no standing Compensation Committees. All compensation decisions are
made by Peninsula Gaming Partners, our parent and sole manager. The managers of
Peninsula Gaming Partners each participate in the determination of executive
officer compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of Peninsula Gaming Company's outstanding common membership interests
are owned by Peninsula Gaming Partners, its parent and sole manager. All of
Peninsula Gaming Corp.'s outstanding common stock is owned by Peninsula Gaming
Company.
Greater Dubuque Riverboat Entertainment Company holds 100% of our issued
and outstanding preferred membership interests, which, subject to limited
exceptions, will have no voting rights, except as required by applicable law. On
July 15, 1999, Peninsula Gaming Partners issued 500,000 convertible preferred
membership interests; each of which is initially convertible into one Peninsula
Gaming Partners non-voting common membership interest, representing 33.33% of
the fully diluted common membership interests of Peninsula Gaming Partners on
such date. Peninsula Gaming Partners does not have outstanding any of its
non-voting common membership interests. See "Description of Peninsula Gaming
Company Membership Interests" and "Description of Peninsula Gaming Partners
Membership Interests" for more information about our different classes of
membership interests. Unless otherwise indicated, the address of each manager or
executive officer of Peninsula Gaming Partners is c/o Peninsula Gaming Company,
LLC, 3rd Street Ice Harbor, P.O. Box 1750, Dubuque, IA 52004-1683.
The table below sets forth information regarding the beneficial ownership
of the voting common membership interests of Peninsula Gaming Partners by
(a) each person or entity known by us to own beneficially 5% or more
of the common membership interests of Peninsula Gaming Partners,
(b) each manager and executive officer of Peninsula Gaming Partners and
(c) all managers and executive officers of Peninsula Gaming Partners
as a group.
The following information is helpful to an understanding of, and qualifies
the beneficial ownership data contained in, the table set forth below. Mr.
Stevens holds 248,333 Peninsula Gaming Partners common membership interests
directly and 413,333 Peninsula Gaming Partners common membership interests
indirectly through PGP Investors, LLC. Mr. Stevens is the sole managing member
of PGP Investors and exercises voting and investment power over the Peninsula
Gaming Partners common membership interests owned by PGP Investors. Mr. Stevens
does not own any membership interests in PGP Investors. Mr. Stevens and
Mr. Whittaker, managers of Peninsula Gaming Partners, are a managing director
and executive vice president, respectively, of Jefferies & Company, Inc.,
-22-
the initial purchaser in the offering of the old notes on July 15, 1999. In
addition, Jefferies & Company, Inc. and some of its affiliates, officers and
employees are members of PGP Investors, LLC. Mr. Whittaker holds an economic
interest in 20,000 Peninsula Gaming Partners common membership interests
indirectly through his membership in PGP Investors, but does not exercise voting
or investment power with respect to, and disclaims a beneficial ownership
interest in, these Peninsula Gaming Partners common membership interests. The
total holding of all managers and executive officers as a group includes the
413,333 Peninsula Gaming Partners common membership interests held by PGP
Investors, over which Mr. Stevens exercises voting and investment power.
Voting Common
Name and Address Membership Interests Percent of
of Beneficial Owner Beneficially Owned Class
- ------------------- -------------------- -----------
M. Brent Stevens....................... 248,333 24.84%
11100 Santa Monica, 10th Floor
Los Angeles, CA 90071
PGP Investors, LLC..................... 413,333 41.33%
11100 Santa Monica, 10th Floor
Los Angeles, CA 90071
Michael S. Luzich...................... 323,333 32.33%
Terrance Oliver........................ 15,000 1.50%
Andrew R. Whittaker.................... 20,000 2.00%
11100 Santa Monica, 10th Floor
Los Angeles, CA 90071
All managers and executive officers as
a group (6 persons)................. 1,000,000 100.00%
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH DUBUQUE RACING ASSOCIATION
The Dubuque Racing Association is a not-for-profit corporation organized
for the purpose of operating the Dubuque Greyhound Park, a pari-mutuel greyhound
racing facility in Dubuque, Iowa. On February 22, 1993, the Dubuque Racing
Association entered into the Dubuque Racing Association operating agreement
which authorizes us to operate riverboat gaming operations in Dubuque. The
Dubuque Racing Association operating agreement has since been amended several
times and expires by its terms on December 31, 2008.
Beginning April 1, 2000, we were required to make a $0.50 per admission
payment to the Dubuque Racing Association, without regard to our revenues or
profits. Payments made and accrued to the Dubuque Racing Association based on
2000 admissions were approximately $405,000. Based on 2000 admissions, we
anticipate this payment to be approximately $530,000 in 2001.
Under the Dubuque Racing Association operating agreement, subject to
limited conditions, we are also required to pay the Dubuque Racing Association,
for the right to operate the Diamond Jo, an amount equal to the excess of 32% of
the first $30 million of the combined gaming revenues of the Dubuque Racing
Association and the Diamond Jo, plus 8% of the next $12 million of these total
gaming revenues, plus, if there are no competing gaming operations in
neighboring counties of Illinois and Wisconsin, 8% of the next $4 million of
total gaming revenues, over the Dubuque Racing Association's gaming revenues
from the Dubuque Greyhound Park. Gaming revenues under this contract means
-23-
adjusted gross receipts less gaming taxes. This formula is subject to change if
the Dubuque Racing Association ceases to operate the Dubuque Greyhound Park or
if we operate a riverboat smaller than the current Diamond Jo. We are currently
not required to make any such payments to the Dubuque Racing Association because
the Dubuque Racing Association's revenues from the Dubuque Greyhound Park are
greater than the specified percentage of our total gaming revenues.
The Dubuque Racing Association operating agreement allows us to restrict
the number of slot machines at the Dubuque Greyhound Park to 600; provided, that
we do not increase the number of slot machines at the Diamond Jo to more than
650. In addition, we may require that the weighted average theoretical slot
payback percentage at the Dubuque Greyhound Park not exceed ours by more than
0.5% so long as the rates we set are reasonable and in good faith. Additionally,
we cannot require the Dubuque Racing Association to change rates on its machines
more than four times per contract year. We have elected to apply both of these
restrictions to the Dubuque Greyhound Park. These restrictions terminate on the
earlier of:
(1) our operation of a replacement riverboat that is not of equal or
greater size than the Diamond Jo or on which we operate fewer
total gaming positions than on the Diamond Jo, and
(2) March 31, 2002.
Without these restrictions, either we or the Dubuque Racing Association
may:
(a) increase the number of slot machines upon a determination by
the gaming commission, among other things, that the
additional slot machines would not have a detrimental impact
on the Dubuque Racing Association's or our financial
viability, as applicable, and
(b) increase the weighted average theoretical slot payback
percentage, either of which actions, if taken by the Dubuque
Racing Association, could result in increased competition
from the Dubuque Greyhound Park. Iowa law currently
prohibits pari-mutuels, such as the Dubuque Greyhound Park,
from operating table games, and we believe that table games
will not become permissible at racetracks in Iowa.
The above restrictions are subject to the express approval and regulatory
supervision of the gaming commission. Additionally, all of the restrictions
under the Dubuque Racing Association operating agreement will terminate if we or
any of our affiliates operate another gaming facility in Dubuque County or the
adjoining counties in Illinois or Wisconsin. Under the Dubuque Racing
Association operating agreement, we have the right to sell the Diamond Jo and
related facilities, subject to the approval of the gaming commission, as long as
the acquiror agrees to abide by the terms of the Dubuque Racing Association
operating agreement.
MANAGING MEMBER INDEMNIFICATION
Under our and Peninsula Gaming Partners' operating agreements, we and
Peninsula Gaming Partners have agreed, subject to few exceptions, to indemnify
and hold harmless our members, Peninsula Gaming Partners and Peninsula Gaming
Partners members, as the case may be, from liabilities incurred as a result of
their positions as our sole manager and as members of us or Peninsula Gaming
Partners, as the case may be.
EQUITY CONTRIBUTION
The common members of Peninsula Gaming Partners have made a capital
contribution of $6.0 million to Peninsula Gaming Partners in exchange for their
common membership interests. Peninsula Gaming Partners immediately contributed
this $6.0 million and the $3.0 million raised in the offering of the old notes
through the sale of Peninsula Gaming Partners' convertible preferred membership
interests to Peninsula Gaming Company, in exchange for common membership
interests in Peninsula Gaming Company. Peninsula Gaming Company used this
capital contribution from Peninsula Gaming Partners to finance in part the
acquisition of the Diamond Jo. Additionally, we issued $7.0 million face amount
of preferred membership interests to Greater Dubuque Riverboat Entertainment
Company in connection with the acquisition of the Diamond Jo. We redeemed $3.0
million of the preferred membership interests on January 19, 2001.
-24-
OPERATING AGREEMENT OF PENINSULA GAMING PARTNERS
Under Peninsula Gaming Partners' operating agreement, the management of
Peninsula Gaming Partners is vested in a board of managers composed of five
individuals, two of whom must be independent managers. At any time that M. Brent
Stevens, together with any entity controlled by Mr. Stevens, beneficially holds
at least 5% of the voting common membership interests of Peninsula Gaming
Partners, Mr. Stevens is entitled to designate three of Peninsula Gaming
Partners' managers, including one of the two independent managers. The two
independent managers shall serve as members of the independent committee. Under
Peninsula Gaming Partners' operating agreement, PGP Advisors, LLC, a Delaware
limited liability company, of which Mr. Stevens is the sole managing member, may
render financial advisory and consulting services to Peninsula Gaming Partners
and will be entitled to receive commercially reasonable fees for the services
consistent with industry practices. Subject to the terms of the indenture
governing the notes, these fees will be paid by us as distributions to Peninsula
Gaming Partners.
At any time that Michael Luzich, together with any entity controlled by Mr.
Luzich, beneficially holds at least 5% of the voting common membership interests
of Peninsula Gaming Partners, Mr. Luzich is entitled to designate two of
Peninsula Gaming Partners' managers, including the other independent manager.
Presently, Peninsula Gaming Partners' board of managers is composed of four
managers. If not appointed earlier, a fifth manager will be appointed at
Peninsula Gaming Partners' next annual meeting of managers. A manager may resign
at any time, and the member who designates a manager may remove or replace that
manager from the board of managers at any time.
OPERATING AGREEMENT OF PENINSULA GAMING COMPANY
Under the terms of Peninsula Gaming Company's operating agreement, if we
repay, redeem or refinance 90% or more of the notes on or prior to July 1, 2003,
particular members of management, including Messrs. Luzich and Stevens, will be
entitled to receive, at Mr. Stevens' discretion, an aggregate of $1.5 million,
payable by Peninsula Gaming Company.
MANAGEMENT CONSULTING SERVICES
During the past fiscal year, Riviera Gaming Management, of which Mr.
Westerman is an executive officer, assisted us on an interim basis with
transitional matters following the resignation of our former chief operating
officer. Pursuant to the terms of a consulting agreement with Peninsula Gaming
Partners and an employee sharing agreement with us, Riviera Gaming Management
was entitled to receive aggregate monthly compensation of $30,000, plus
reimbursement for out-of-pocket costs and expenses. During the past fiscal year,
Riviera Gaming Management earned fees and expenses of approximately $242,000.
Our engagement of Riviera Gaming Management terminated in July of 2000.
-25-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Financial Statements -- see Index to Financial Statements
appearing on page F-1.
(2) Exhibits:
Exhibit
Number Description
------- ------------
*3.1A Certificate of Formation of Peninsula Gaming Company, LLC
*3.1B Amendment to Certificate of Formation of Peninsula Gaming
Company, LLC
*3.2 Operating Agreement of Peninsula Gaming Company, LLC
*3.3 Articles of Incorporation of Peninsula Gaming Corp.
*3.4 By-laws of Peninsula Gaming Corp.
*4.1 Specimen Certificate of Common Stock
*4.2 Indenture, dated July 15, 1999, by and among Peninsula
Gaming Company, LLC, Peninsula Gaming Corp. and Firstar Bank
of Minnesota, N.A., as trustee
*4.5 Registration Rights Agreement, dated July 15, 1999, by and
among Peninsula Gaming Company, LLC, Peninsula Gaming Corp.
and Jefferies & Company, Inc.
*10.1A Asset Purchase Agreement, dated January 15, 1999, by and
among Greater Dubuque Riverboat Entertainment Company, L.C.
and AB Capital, L.L.C.
*10.1B Amendment to Asset Purchase Agreement, dated February 1,
1999, by and among Greater Dubuque Riverboat Entertainment
Company, L.C. and AB Capital, L.L.C.
*10.2A Real Property Purchase Agreement, dated January 15, 1999, by
and among Harbor Community Investment, L.C. and AB Capital,
L.L.C.
*10.2B First Amendment to Real Property Purchase Agreement, dated
July 15, 1999, by and among Harbor Community Investment,
L.C. and AB Capital, L.L.C.
*10.3 Assignment Agreement, dated July 1, 1999, by and among
Peninsula Gaming Partners, LLC (formerly AB Capital, LLC)
and Peninsula Gaming Company, LLC
*10.4 Employment Agreement, dated April 15, 1999, by and among
James P. Rix, AB Capital, L.L.C. and Peninsula Gaming
Company, LLC
*10.5 Employment Agreement, dated July 15, 1999, by and among
Natalie Schramm and AB Capital, L.L.C.
*10.6 Indemnification Agreement, dated June 7, 1999, by and among
James P. Rix, AB Capital, L.L.C. and Peninsula Gaming
Company, LLC
*10.7 Indemnification Agreement, dated June 7, 1999, by and among
Natalie Schramm and AB Capital, L.L.C. and Peninsula Gaming
Company, LLC
*10.8 Bill of Sale, dated July 15, 1999, by and among Greater
Dubuque Riverboat Entertainment Company, L.C. and Peninsula
Gaming Company, LLC
*10.9A Operating Agreement, dated February 22, 1993, by and among
Dubuque Racing Association, Ltd. and Greater Dubuque
Riverboat Entertainment Company, L.C.
*10.9B Amendment to Operating Agreement, dated February 22, 1993,
by and among Dubuque Racing Association, Ltd. and Greater
Dubuque Riverboat Entertainment Company, L.C.
*10.9C Amendment to Operating Agreement, dated March 4, 1993, by
and among Dubuque Racing Association, Ltd. and Greater
Dubuque Riverboat Entertainment Company, L.C.
*10.9D Third Amendment to Operating Agreement, dated March 11,
1993, by and among Dubuque Racing Association, Ltd. and
Greater Dubuque Riverboat Entertainment Company, L.C.
*10.9E Fourth Amendment to Operating Agreement, dated March 11,
1993, by and among Dubuque Racing Association, Ltd. and
Greater Dubuque Riverboat Entertainment Company, L.C.
*10.9F Fifth Amendment to Operating Agreement, dated April 9, 1993,
by and among Dubuque Racing Association, Ltd. and Greater
Dubuque Riverboat Entertainment Company, L.C.
*10.9G Sixth Amendment to Operating Agreement, dated November 29,
1993, by and among Dubuque Racing Association, Ltd. and
Greater Dubuque Riverboat Entertainment Company, L.C.
-26-
*10.9H Seventh Amendment to Operating Agreement, dated April 6,
1994, by and among Dubuque Racing Association, Ltd. and
Greater Dubuque Riverboat Entertainment Company, L.C.
*10.9I Eighth Amendment to Operating Agreement, dated April 29,
1994, by and among Dubuque Racing Association, Ltd. and
Greater Dubuque Riverboat Entertainment Company, L.C.
*10.9J Ninth Amendment to Operating Agreement, dated July 11, 1995,
by and among Dubuque Racing Association, Ltd. and Greater
Dubuque Riverboat Entertainment Company, L.C.
*10.9K Tenth Amendment to Operating Agreement, dated July 15, 1999,
by and among Dubuque Racing Association, Ltd. and Greater
Dubuque Riverboat Entertainment Company, L.C.
*10.10 Operating Agreement Assignment, dated July 15, 1999, by and
among Greater Dubuque Riverboat Entertainment Company, L.C.
and Peninsula Gaming Company, LLC
*10.11 First Preferred Ship Mortgage, dated July 15, 1999, by
Peninsula Gaming Company, LLC in favor of Firstar Bank of
Minnesota, N.A., as trustee
*10.12 Mortgage, Leasehold Mortgage, Assignment of Rents, Security
Agreement and Fixture Financing Statement dated July 15,
1999, by Peninsula Gaming Company, LLC in favor of Firstar
Bank of Minnesota, N.A., as trustee
*10.13 Ice Harbor Parking Agreement Assignment, dated July 15,
1999, by and among Greater Dubuque Riverboat Entertainment
Company, L.C. and Peninsula Gaming Company, LLC
*10.14 First Amendment to Sublease Agreement, dated July 15, 1999,
by and among Dubuque Racing Association, Ltd. and Greater
Dubuque Riverboat Entertainment Company, L.C.
*10.15 Sublease Assignment, dated July 15, 1999, by and among
Greater Dubuque Entertainment Company, L.C. and Peninsula
Gaming Company, LLC
*10.16 Iowa Racing and Gaming Commission Gaming License, dated July
15, 1999
*10.17 Assignment of Iowa IGT Declaration and Agreement of Trust,
dated July 15, 1999 by and among Greater Dubuque Riverboat
Entertainment Company, L.C. and Peninsula Gaming Company,
LLC
***10.18 Employee Sharing Agreement, dated as of March 1, 2000, by
and among Riviera Gaming Management, Inc., Jerome Grippe and
Peninsula Gaming Company, LLC.
12.1 Computation of ratio of earnings to fixed charges
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
**99.3 Form of Letter to Brokers, Dealers and other Nominees
**99.4 Form of Letter to clients
- -----------
* Previously filed as an exhibit to the registration statement on Form
S-4 (Registration Number 333-88829) of Peninsula Gaming Company, LLC
and Peninsula Gaming Corp. on October 12, 1999.
** Previously filed as an exhibit to Amendment No. 2 to registration
statement on Form S-4 (Registration Number 333-88829) of Peninsula
Gaming Company, LLC and Peninsula Gaming Corp. on December 13, 1999.
*** Previously filed as an exhibit to the Form 10-K (Registration Number
333-88829) of Peninsula Gaming Company, LLC and Peninsula Gaming Corp.
on March 30, 2000.
-27-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Dubuque, State of Iowa on March 29, 2001.
PENINSULA GAMING COMPANY, LLC
By: /s/ M. Brent Stevens
-----------------------------------
M. Brent Stevens
Chief Executive Officer
By: /s/ George T. Papanier
-----------------------------------
George T. Papanier
Chief Operating Officer
By: /s/ Natalie A. Schramm
-----------------------------------
Natalie A. Schramm
Chief Financial Officer
PENINSULA GAMING CORP.
By: /s/ M. Brent Stevens
-----------------------------------
M. Brent Stevens
President and Treasurer
By: /s/ Michael S. Luzich
-----------------------------------
Michael S. Luzich
Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
PENINSULA GAMING PARTNERS, LLC
Managing Member of Peninsula Gaming Company, LLC
Date: March 29, 2001 By: /s/ M. Brent Stevens
----------------------------------
M. Brent Stevens
Chief Executive Officer and Manager
Date: March 29, 2001 By: /s/ Michael S. Luzich
---------------------------------
Michael S. Luzich
Vice President, Secretary and Manager
Date: March 29, 2001 By: /s/ Terrance W. Oliver
----------------------------------
Terrance W. Oliver
Manager of Peninsula Gaming Partners
Date: March 29, 2001 By: /s/ Andrew R. Whittaker
---------------------------------
Andrew R. Whittaker
Manager of Peninsula Gaming Partners
-28-
Exhibit 12.1
Computation of Ratio of Earnings to Fixed Charges (amounts in thousands except
ratio information)
1/1/00 - 12/31/00
-----------------
Earnings:
Total Earnings $1,245
Fixed Charges:
Interest Charges 8,712
Preferred Member Distributions 630
Amortization of bond issuance costs and bond discount 795
-------
Total Fixed Charges 10,137
-------
Earnings as adjusted $11,382
-------
Ratio of earnings to fixed charges 1.1
=======
-29-
INDEX TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS OF PENINSULA GAMING COMPANY, LLC
Independent Auditors' Report F-2
Balance Sheets at December 31, 2000 and December 31, 1999 F-3
Statements of Operations for the Year Ended December 31, 2000 and the period July 15, 1999
(Date of Inception) to December 31, 1999 F-4
Statements of Changes in Members' Equity for the Year Ended December 31, 2000 and
the period July 15, 1999 (Date of Inception) to December 31, 1999 F-5
Statements of Cash Flows for the Year Ended December 31, 2000 and the period
July 15, 1999 (Date of Inception) to December 31, 1999 F-6
Notes to Financial Statements F-7
COMBINED FINANCIAL STATEMENTS OF GREATER DUBUQUE RIVERBOAT
ENTERTAINMENT COMPANY, L.C. AND HARBOR COMMUNITY INVESTMENT, L.C.
Independent Auditors' Report F-15
Combined Statements of Operations for the Period from January 1, 1999 through
July 14, 1999 and the Year Ended December 31, 1998 F-16
Combined Statements of Changes in Members' Equity for the Period from
January 1, 1999 through July 14, 1999 and the Year Ended December 31, 1998 F-17
Combined Statements of Cash Flows for the Period from January 1, 1999
through July 14, 1999 and the Year Ended December 31, 1998 F-18
Notes to the Combined Financial Statements F-19
F-1
INDEPENDENT AUDITORS' REPORT
To the Members of
Peninsula Gaming Company, LLC
Dubuque, Iowa
We have audited the accompanying balance sheets of Peninsula Gaming Company, LLC
(the "Company") as of December 31, 2000 and 1999, and the related statements of
operations, changes in members' equity, and cash flows for the year ended
December 31, 2000 and the period July 15, 1999 (date of inception) to December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Peninsula Gaming Company, LLC as of December
31, 2000 and 1999, and the results of its operations and its cash flows for the
year ended December 31, 2000 and the period July 15, 1999 (date of inception) to
December 31, 1999 in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
January 26, 2001
F-2
PENINSULA GAMING COMPANY, LLC
BALANCE SHEETS
DECEMBER 31, 2000 and 1999
- ---------------------------------------------------------------------------------------------------------------------------
2000 1999
--------------- ----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 4) $ 8,362,122 $ 7,918,742
Accounts receivable, less allowance of $43,104 and $55,367, respectively 74,159 115,616
Inventory 113,583 99,813
Prepaid expenses 584,195 630,754
----------- -----------
Total current assets 9,134,059 8,764,925
----------- -----------
PROPERTY AND EQUIPMENT, NET (Notes 3 and 4) 19,079,869 18,950,194
----------- -----------
OTHER ASSETS:
Bond issuance costs, net of accumulated amortization of $1,029,474 and $318,945,
respectively (Note 13) 3,991,373 4,520,894
Goodwill and other intangible assets, net of accumulated amortization of $2,062,064
and $648,077, respectively 54,497,416 55,911,404
Deposits 84,973 27,472
----------- -----------
Total other assets 58,573,762 60,459,770
----------- -----------
TOTAL $86,787,690 $88,174,889
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $710,537 $476,868
Accrued payroll and payroll taxes 999,659 1,131,771
Other accrued expenses 1,708,994 2,609,630
Current maturities of capital lease obligations (Note 5) 113,552 151,331
----------- -----------
Total current liabilities 3,532,742 4,369,600
----------- -----------
LONG-TERM LIABILITIES:
Senior secured notes, net of discount (Note 4) 70,288,519 70,203,780
Capital lease obligations, net of current maturities (Note 5) 362,229 324,450
----------- -----------
Total long-term liabilities 70,650,748 70,528,230
----------- -----------
Total liabilities 74,183,490 74,897,830
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
PREFERRED MEMBERS' INTEREST, REDEEMABLE (Note 10) 7,000,000 7,000,000
MEMBERS' EQUITY (Note 11):
Common members' interest 9,000,000 9,000,000
Accumulated deficit (3,395,800) (2,722,941)
----------- -----------
Total members' equity 5,604,200 6,277,059
----------- -----------
TOTAL $86,787,690 $88,174,889
=========== ===========
See notes to financial statements.
F-3
PENINSULA GAMING COMPANY, LLC
STATEMENTS OF OPERATIONS
THE YEAR ENDED DECEMBER 31, 2000 AND THE PERIOD
FROM JULY 15, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------------
Period from
July 15 (Date
of Inception)
through
December 31,
2000 1999
---------------- ----------------
REVENUES:
Casino $ 45,518,772 $ 21,152,879
Food and beverage 2,663,380 1,235,297
Other 169,446 122,012
Less promotional allowances (1,116,055) (550,816)
---------------- ----------------
Total net revenues 47,235,543 21,959,372
---------------- ----------------
EXPENSES:
Casino 20,108,742 8,729,651
Food and beverage 2,659,037 1,247,552
Boat operations 2,099,467 936,076
Other 36,826 16,365
Selling, general and administrative 7,690,666 4,206,073
Start-up and organization costs (Note 13) 0 3,134,095
Depreciation and amortization 3,571,220 1,541,516
---------------- ----------------
Total expenses 36,165,958 19,811,328
---------------- ----------------
INCOME FROM OPERATIONS 11,069,585 2,148,044
---------------- ----------------
OTHER INCOME (EXPENSE):
Interest income 434,283 154,737
Interest expense (9,506,969) (4,383,143)
Loss on sale of assets (122,207) (67,659)
---------------- ----------------
Total other expense (9,194,893) (4,296,065)
---------------- ----------------
NET INCOME (LOSS) BEFORE PREFERRED MEMBER DISTRIBUTIONS 1,874,692 (2,148,021)
LESS PREFERRED MEMBER DISTRIBUTIONS (630,000) (288,750)
---------------- ----------------
NET INCOME (LOSS) TO COMMON MEMBERS' INTEREST $ 1,244,692 $ (2,436,771)
================ ================
See notes to financial statements.
F-4
PENINSULA GAMING COMPANY, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
THE YEAR ENDED DECEMBER 31, 2000 AND THE PERIOD FROM JULY 15, 1999
(DATE OF INCEPTION) TO DECEMBER 31, 1999
- --------------------------------------------------------------------------------------------------------------------
COMMON TOTAL
MEMBERS' ACCUMULATED MEMBERS'
INTEREST DEFICIT EQUITY
---------- ----------- ---------
BALANCE, JULY 15, 1999 $ 9,000,000 $ 9,000,000
Net loss to common members' interest $ (2,436,771) (2,436,771)
Member distributions (286,170) (286,170)
--------------- ---------------- --------------
BALANCE, DECEMBER 31, 1999 9,000,000 (2,722,941) 6,277,059
Net income to common members' interest 1,244,692 1,244,692
Member distributions (1,917,551) (1,917,551)
--------------- --------------- --------------
BALANCE, DECEMBER 31, 2000 $ 9,000,000 $ (3,395,800) $ 5,604,200
=============== ================ ==============
See notes to financial statements.
F-5
PENINSULA GAMING COMPANY, LLC
STATEMENTS OF CASH FLOWS
THE YEAR ENDED DECEMBER 31, 2000 AND THE PERIOD
FROM JULY 15, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
- -------------------------------------------------------------------------------------------------------------------------------
Period from
July 15 (Date of
Inception)
through
December 31,
2000 1999
------------ -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,244,692 $ (2,436,771)
Adjustments to reconcile net income (loss) to net cash flows
provided by operating activities:
Depreciation and amortization 3,571,220 1,541,516
Provision for doubtful accounts 107,505 55,367
Amortization of bond issuance costs and bond discount 795,268 341,536
Loss on sale of assets 122,207 67,659
Changes in operating assets and liabilities:
Receivables (66,046) (147,305)
Inventory (13,770) (26,869)
Prepaid expenses and other assets (10,941) (581,928)
Accounts payable 233,668 466,889
Accrued expenses (1,032,749) 3,194,760
------------ -------------
Net cash provided by operating activities 4,951,054 2,474,854
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 23,331 54,900
Purchase of property and equipment (2,432,446) (666,192)
Acquisition, net of cash acquired 0 (68,000,000)
------------ -------------
Net cash used by investing activities (2,409,115) (68,611,292)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior secured notes 0 70,181,189
Bond issuance costs (181,008) (4,839,839)
Proceeds from issuance of common members' interest 0 9,000,000
Member distributions (1,917,551) (286,170)
------------ -------------
Net cash provided (used) by financing activities (2,098,559) 74,055,180
------------ -------------
NET INCREASE IN CASH 443,380 7,918,742
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 7,918,742 0
------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 8,362,122 $ 7,918,742
============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 8,697,500 $ 4,034,673
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Issuance of preferred members' interest, redeemable (Notes 1 and 10) $ 0 $ 7,000,000
See notes to financial statements.
F-6
PENINSULA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION, BUSINESS PURPOSE AND BASIS OF PRESENTATION
Peninsula Gaming Company, LLC (the "Company") is a wholly-owned subsidiary of
Peninsula Gaming Partners, LLC ("PGP"). The Company is a Delaware limited
liability company formed on January 26, 1999 for the purpose of purchasing
assets comprising the Diamond Jo Casino and related real property.
The common membership interests of the Company are wholly-owned by PGP. The
Company and PGP completed the sale of $71,000,000 of 12 1/4% Senior Secured
Notes due 2006 and $3,000,000 in convertible preferred membership interests,
respectively, during July 1999. Concurrently with the sale of the securities,
the Company received a $9.0 million capital contribution from PGP ($6.0 million
of which was contributed to the capital of PGP by common members of PGP and $3.0
million of which was contributed to the capital of PGP through the sale of
convertible preferred membership interests of PGP as previously described). The
proceeds for the above transactions were used to complete the purchase of
certain assets comprising the Diamond Jo casino and related real property. On
July 15, 1999, the Company acquired substantially all of the assets of Greater
Dubuque Riverboat Entertainment Company, L.C. ("GDREC") and Harbor Community
Investment, L.C. ("HCI") for $77,000,000. The purchase price was $70.0 million
cash ($68.0 million net of casino cash acquired of $2.0 million) and $7.0
million in redeemable preferred membership interests (see Note 10). For
financial statement purposes the acquisition was accounted for as a purchase
and, accordingly, included in the Company's results since the date of the
acquisition. The purchase price has been allocated to the assets purchased and
the liabilities assumed based upon the fair values on the date of the
acquisition, as follows (in thousands):
Property and equipment $ 19,300
Current assets, other than cash 78
Goodwill and other intangibles 56,559
----------
Total assets 75,937
Liabilities (937)
----------
Total Purchase Price $ 75,000
==========
The excess of the total acquisition costs over the fair market value of net
assets acquired has been recorded as goodwill and other intangible assets and
will be amortized on a straight-line basis over forty years.
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company, GDREC and HCI as if the
acquisition had occurred January 1, 1998.
Pro Forma Information (Unaudited)
(in thousands) 1999 1998
------- -------
Net revenues $46,687 $45,849
Income from operations 11,335 12,503
Net income to common interests 1,238 2,506
The pro forma results do not include charges of $3,134,095 incurred by the
Company in 1999 for start-up and organization costs. The pro forma results do
not purport to be indicative of results that would have occurred had the
acquisition been in effect for the periods presented, nor do they purport to be
indicative of the results that will be obtained in the future.
F-7
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration of Risks - The Company's management estimates that regular
customers are concentrated within 100 miles of the facility representing
approximately 95% of the Company's customer base at December 31, 2000. The
remaining 5% includes groups, tourists and highway travelers that live beyond
100 miles.
Cash and Cash Equivalents - The Company considers all cash on hand and in banks,
certificates of deposit and other highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
Allowance for Doubtful Accounts - The allowance for doubtful accounts is
maintained at a level considered adequate to provide for possible future losses.
The provision for doubtful accounts of $107,505 and $55,367 were recorded for
the year ended December 31, 2000 and the period July 15, 1999 (date of
inception) through December 31, 1999 respectively.
Inventories - Inventories consisting principally of food, beverage, retail
items, and operating supplies are stated at the lower of first-in, first-out
cost or market.
Property and Equipment - Property and equipment are recorded at cost and
capitalized lease assets are recorded at their fair market value at the
inception of the lease. Major renewals and improvements are capitalized, while
maintenance and repairs are expensed as incurred. Depreciation and amortization
are computed on a straight-line basis over the following estimated useful lives:
Land improvements 20-40 years
Building and portside improvements 9-40 years
Riverboat and improvements 5-20 years
Furniture, fixtures and equipment 3-10 years
Computer equipment 3-5 years
Vehicles 5 years
Bond Issuance Costs - Costs associated with the issuance of the bonds have been
deferred and are being amortized over the life of the bonds using the effective
interest method.
Goodwill and Other Intangible Assets - The excess of total acquisition costs
over the fair market value of net assets acquired is amortized using the
straight-line method over forty years. Management periodically assesses the
recoverability of goodwill and other intangible assets by comparing its carrying
value to the undiscounted cash flows expected to be generated by the acquired
operation during the anticipated period of benefit.
Long-Lived Assets - Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" requires, among other things, that an entity review its
long-lived assets and certain related intangibles for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be fully recoverable. Under the standard, if the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. The impairment is measured based on the fair
value of the asset.
Financial Instruments - The carrying amount for financial instruments included
among cash and cash equivalents, accounts receivable, accounts payable and
security deposits approximates their fair value based on the short maturity of
those instruments.
Income Taxes - The Company is a limited liability company. In lieu of corporate
income taxes, the members of a limited liability company are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes has been included in the financial
statements.
Casino Revenue - Casino revenue is the net win from gaming activities, which is
the difference between gaming wins and losses.
F-8
Promotional Allowances - Food, beverage, and other items furnished without
charge to customers are included in gross revenues at a value which approximates
retail and then deducted as promotional allowances to arrive at net revenues.
The cost of such complimentary services have been included as casino expenses on
the accompanying statements of operations. Such estimated costs of providing
complimentary services allocated from the food and beverage and other operating
departments to the casino department for the year ended December 31, 2000 were
$529,133 and $12,632 for food and beverage and other, respectively, and for the
period July 15, 1999 (date of inception) through December 31, 1999 were $294,553
and $13,481, respectively.
Advertising - The Company's policy is to expense all advertising costs as
incurred.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
Recent Accounting Pronouncements - In June 1998, the FASB issued a new
statement, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), effective for fiscal years beginning after June 15, 2000. SFAS 133
requires, among other things, that derivatives be recorded on the balance sheet
at fair value. Changes in the fair value of derivatives may, depending on
circumstances, be recognized in earnings or deferred as a component of members'
equity until a hedged transaction occurs. In June 1999, the FASB issued
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." Under the
new effective date, the Company currently expects to adopt FASB Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," in year
2001. The Company has evaluated the effect of adopting this Statement and has
determined that the effects of adoption will not be material to its results of
operation or its financial position.
In 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes the SEC staff's views on applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company has reviewed its revenue recognition policies and has determined that
they comply with the principles as set forth in SAB 101. Accordingly, the
adoption of SAB 101 will have no effect on the Company's financial position or
net income.
Reporting on the Costs of Start-up Activities - In April 1998, the American
Institute of Certified Public Accountants issued the Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities and organization costs be expensed as incurred
and was effective for the Company in 1999. The Company expensed $3,134,095 of
organizational costs relating to the acquisition during the period July 15, 1999
(date of inception) through December 31, 1999.
F-9
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31 are summarized as follows:
2000 1999
------------- --------------
Land $ 800,000 $ 800,000
Building and portside improvement 6,222,895 5,781,495
Riverboats and improvements 8,176,780 7,778,823
Furniture, fixtures and equipment 5,531,903 4,413,878
Computer equipment 387,532 198,111
Vehicles 72,181 72,181
Equipment held under capital lease
obligations 704,527 704,527
------------ ------------
Subtotal 21,895,818 19,749,015
Accumulated depreciation (2,815,949) (798,821)
------------ ------------
Property and equipment, net $19,079,869 $18,950,194
============ ============
4. SENIOR SECURED NOTES
Senior Secured Notes at December 31 are as follows:
2000 1999
------------ ------------
Senior Secured Notes $71,000,000 $71,000,000
Less: unamortized discount (711,481) (796,220)
------------ ------------
Senior Secured Notes, net $70,288,519 $70,203,780
============ ============
On July 15, 1999, the Company issued $71 million of Series A 12.25% Senior
Secured Notes due July 1, 2006. On March 15, 2000, the Company consummated a
registered exchange offer, pursuant to which all of the issued and outstanding
Series A Notes were exchanged for Series B 12.25% Senior Secured Notes (the
"Notes") due July 1, 2006. Interest on the Notes is payable semiannually on July
1 and January 1 of each year, commencing on January 1, 2000. The Notes are
collateralized by certain cash accounts and substantially all property and
equipment. The Notes contain various restrictive covenants, which, among others,
restrict the Company from paying certain dividends and making restricted
investments. The Company was in compliance with such covenants for the years
ended December 31, 2000 and 1999.
The carrying amount of the Notes approximates the estimated fair value based on
the credit, interest rate and the terms of the obligation.
The Notes are not redeemable at the Company's option prior to July 1, 2003.
Thereafter, the Notes may be redeemed at the option of the Company, in whole or
part, upon not less than 30 nor more than 60 day's notice, at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
F-10
accrued and unpaid interest thereon, if any, to the applicable date of
redemption, if redeemed during the 12-month period beginning on July 1 of the
years indicated below:
Year Percentage
---- ----------
2003 108.00%
2004 105.33
2005 102.67
Notwithstanding the foregoing, at any time or from time to time prior to July 1,
2002, the Company may redeem, at their option, up to 35% of the aggregate
principal amount of the Notes then outstanding at a redemption price of 112.25%
of the principal amount thereof, plus accrued and unpaid interest thereon, if
any, through the applicable date of redemption, with the net cash proceeds of
one or more equity offerings; provided, that such redemption shall occur within
60 days of the date of closing of such equity offering and at least 65% of the
aggregate principal amount of Notes issued on or after the issue date remains
outstanding immediately after giving effect to each such redemption. The
restrictions on the optional redemption contained in the Notes do not limit the
Company's right to separately make open market, privately negotiated or other
purchases of the Notes from time to time.
5. CAPITAL LEASE OBLIGATION
Capital lease obligations at December 31 are as follows:
2000 1999
Liability under capital leases, due in monthly installments of $21,536 --------- ---------
for 24 months and $1,006 for one month, including interest at a fixed
rate of 9%. Final payment is due 25 months after the initial payment
is made. Payments are anticipated to begin in July 2001 after final
acceptance of the system. The leases are collateralized by equipment
with a net book value of $499,040 and $639,869 at December 31, 2000
and 1999, respectively. $475,781 $475,781
Less current portion (113,552) (151,331)
--------- ---------
$362,229 $324,450
========= =========
Future minimum lease payments under capital lease for the years ended December 31 are as follows:
2001 $129,216
2002 258,432
2003 130,222
---------
Total minimum lease payments 517,870
Less amounts representing interest (42,089)
---------
Present value of future minimum lease payments 475,781
Less current portion (113,552)
---------
Long-term capital lease obligation $362,229
=========
6. EMPLOYEE BENEFIT PLAN
The Company started a qualified defined contribution plan under section 401(k)
of the Internal Revenue Code during December 1999. Under the plan, eligible
employees may elect to defer up to 15% of their salary, subject to Internal
Revenue Service limits. The Company may make a matching contribution to each
participant based upon a percentage set by the Company, prior to the end of each
plan year. Company matching contributions to the plan were $212,766 and $15,632
for the year ended December 31, 2000 and for the period July 15, 1999 (date of
inception) to December 31, 1999, respectively.
F-11
7. LEASING ARRANGEMENTS
The Company leases various equipment under noncancelable operating leases. The
leases require fixed monthly payments to be made ranging from $523 to $3,913 and
certain other gaming machines and tables require contingent monthly rental
payments based on usage of the equipment. The leases expire on various dates in
2001, 2002 and 2004. Rent expense for the year ended December 31, 2000 and the
period July 15, 1999 (date of inception) to December 31, 1999 were $873,949 and
$448,041, respectively.
The future minimum rental payments required under these leases for the years
ended December 31 are summarized as follows:
2001 $103,011
2002 27,061
2003 6,276
2004 523
--------
$136,871
========
8. UNINSURED CASH BALANCES
The Company maintains deposit accounts at a local bank. At December 31, 2000 and
1999 and various times during the periods then ended, the balance at the bank
exceeded the maximum amount insured by the FDIC. Management believes any credit
risk related to the uninsured balance is minimal.
9. OMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions arising in the normal course of
business. In the opinion of management, such matters will not have a material
effect upon the financial position of the Company.
10. PREFERRED MEMBERS' INTEREST--REDEEMABLE
On July 15, 1999, the Company authorized and issued $7.0 million of preferred
membership units. The holders of all of the Company's preferred membership
interests are entitled to receive, subject to certain restrictions contained in
the indenture governing the notes, out of funds legally available therefor,
cumulative preferred distributions payable semiannually at an annual rate of 9%
of the original face amount thereof. Distributions for the year ended December
31, 2000 and the period July 15, 1999 (date of inception) through December 31,
1999 were $630,000 and $288,750, respectively. Other than certain limited
consent rights and as required by law, holders of the Company's preferred
membership interests have no voting rights.
Subject to certain limitations contained in the indenture governing the notes,
to the extent not used for any indemnification obligations of the holders under
the acquisition agreements, the Company must redeem $3.0 million in original
face amount of its preferred membership interests on January 15, 2001 at a
redemption price of $3.0 million, plus any accrued and unpaid preferred
distributions through the date of redemption. Certain managers of PGP, who
collectively have the ability of control have guaranteed the Company's
obligation to redeem up to $3.0 million of such preferred membership interests,
plus any accrued and unpaid preferred distributions through the date of
redemption. The balance of preferred membership interests not required to be
redeemed by the Company on January 15, 2001 must be redeemed by the Company 90
days after the seventh anniversary of the closing date of the acquisition at a
redemption price of $4.0 million, plus any accrued and unpaid preferred
distributions through the date of redemption. The $3.0 million preferred
membership interests due January 15, 2001, were redeemed on January 19, 2001,
F-12
plus a portion of accrued and unpaid interest thereon of $170,000 (the balance
of which, in an amount equal to $145,000, has agreed to be paid by the Company
at such time that such payment is permitted to be made pursuant to the Company's
existing financing arrangements, but in no event later than January 15, 2003).
11. MEMBERS' EQUITY
On July 15, 1999, the Company authorized and issued $9.0 million of common
membership units. PGP, as the holder of all of the Company's issued and
outstanding common membership interests, is entitled to vote on all matters to
be voted on by holders of common membership interests of the Company and,
subject to certain limitations contained in the Company's operating agreement
and the indenture governing the notes, is entitled to dividends and other
distributions if, as and when declared by the Company's managers out of funds
legally available therefor.
12. DUBUQUE RACING ASSOCIATION, LTD. CONTRACT
Dubuque Racing Association, Ltd. (the "Association"), a qualified sponsoring
organization, presently holds a license to conduct gambling games under Chapter
99F and other Iowa statutes.
The Association owns Dubuque Greyhound park, a traditional greyhound race track
with 600 slot machines and amenities including a gift shop, restaurant and
clubhouse.
The Company entered into a contract (the "Operating Agreement") with the
Association relating to the operation of an excursion gambling riverboat for
excursion seasons through December 31, 2008, under gambling licenses held
jointly.
Under the terms of the Operating Agreement, subject to certain conditions, the
Association shall receive the greater of the Association's gaming revenues from
the greyhound park for the period, or a percentage of the total combined gaming
revenues of the Association's from the greyhound park and the Company as
follows:
o 32% of the first $30,000,000 of total combined gaming revenues, plus
o 8% of the total combined gaming revenues of $30,000,000, but less
than $42,000,000, plus
o 8% of total combined gaming revenues between $42,000,000 and
$46,000,000 during any period for which no excursion boat gambling
or land based gambling operation is carried on from a Wisconsin or
Illinois gambling operation in Grant County, Wisconsin, or Joe
Davies County, Illinois.
Gaming revenues under this contract means adjusted gross receipts, less gaming
taxes.
Gaming revenues for the twelve month period ended December 31, 2000 and 1999 for
the Association were $25,912,357 and $25,074,718 respectively, which are higher
than the previously described thresholds, therefore, no payments have been made
to the Association for the periods ended December 31, 2000 and 1999 under the
Operating Agreement.
Commencing April 1, 2000, and continuing thereafter, the Company has paid the
Association the sum of $.50 for each patron admitted on the boat, which, based
upon recent annual attendance, would approximate $500,000 annually. For the year
ended December 31, 2000 this amount equaled $405,000.
In the event the Company shall desire to sell or lease the excursion gambling
boat, its furnishings and gambling equipment and/or its interest in any ticket
sale facility or other buildings located in the Dubuque Ice Harbor used in
connection with the operation of an excursion gambling boat, to a third party
that does not agree to operate said asset subject to the terms and conditions of
the Operating Agreement, and obtains an acceptable offer from said third party
for the purchase or lease of the excursion gambling boat and its furnishings,
equipment, and/or its interest in said building, the Association shall have the
option to purchase or lease the excursion gambling boat, its furnishings, and/or
the Company's interest in the building or its lease of the same for the amount
of the acceptable offer made by a third party and upon the same terms and
conditions as set forth in a third party offer.
F-13
13. TRANSACTIONS WITH RELATED PARTIES
During the year ended December 31, 2000, expenses related to interim management
consulting services of approximately $37,500 were paid to an affiliate of a
board member of the Company following the resignation in the previous year of
the Company's former Chief Operating Officer. In addition, the Company paid
approximately $1,917,551 during such period to Peninsula Gaming Partners
primarily in respect of (i) certain consulting and financial advisory services
relating to the business operations of the Company, (ii) board fees and expenses
paid to the members of the board of managers of Peninsula Gaming Partners and
(iii) tax, accounting, legal and administrative costs and expenses of Peninsula
Gaming Partners relating to the business operations of the Company.
During the period ended December 31, 1999, in connection with the sale of the
Notes and the purchase of certain assets comprising the Diamond Jo Casino (Note
1), approximately $750,000 of expenses related to organizational and bond
issuance costs were reimbursed to various related parties for expenses incurred
on behalf of the Company. In addition, during such period, (i) consulting
expenses of $90,000 were paid to a unit holder for services related to the bond
issuance, (ii) underwriting expenses of $2,900,000 were paid to Jefferies &
Company, Inc., in which the Company's CEO is a managing director in the
Corporate Finance department, and were included in organizational costs and bond
issuance costs and (iii) the Company paid approximately $286,170 to Peninsula
Gaming Partners, LLC, the Company's parent and sole member, in connection with
certain consulting services provided to Peninsula Gaming Partners by Riviera
Gaming Management and Mr. Michael Luzich relating to the business operations of
the Company and with related organizational and administrative costs and
expenses of Peninsula Gaming Partners.
* * * * *
F-14
INDEPENDENT AUDITORS' REPORT
To the Members of
Greater Dubuque Riverboat Entertainment Company, L.C.
and Harbor Community Investment, L.C.
Dubuque, Iowa
We have audited the accompanying combined statements of income, changes in
members' equity, and cash flows of Greater Dubuque Riverboat Entertainment
Company, L.C. and Harbor Community Investment, L.C., both of which are under
common ownership and management, for the period from January 1, 1999 to July 14,
1999 and the year ended December 31, 1998. These financial statements are the
responsibility of the companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Greater Dubuque Riverboat Entertainment Company, L.C. and Harbor Community
Investment, L.C for the period from January 1, 1999 to July 14, 1999 and for the
year ended December 31, 1998 in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
February 25, 2000
F-15
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
COMBINED STATEMENTS OF OPERATIONS
PERIOD FROM JANUARY 1, 1999 THROUGH JULY 14, 1999
AND THE YEAR ENDED DECEMBER 31, 1998
PERIOD
FROM
JANUARY 1,
THROUGH
JULY 14,
1999 1998
-------------- ------------
REVENUES:
Casino $ 23,763,442 $ 44,166,688
Food and beverage 1,408,046 2,468,526
Other 121,360 290,388
Less - promotional allowances (565,208) (1,076,116)
-------------- --------------
Net revenues 24,727,640 45,849,486
-------------- --------------
EXPENSES:
Casino 9,797,175 17,819,022
Food and beverage 1,408,009 2,298,631
Boat operations 1,054,539 2,056,377
Other 20,713 53,643
Selling, general and administrative 4,121,942 7,515,115
Depreciation and amortization 1,156,822 1,894,763
Sale of business expenses (Note 7) 1,566,761 716,655
Ownership litigation (Note 5) 304,742 211,388
-------------- --------------
Total expenses 19,430,703 32,565,594
-------------- --------------
INCOME FROM OPERATIONS 5,296,937 13,283,892
-------------- --------------
OTHER INCOME (EXPENSE):
Interest income 76,119 141,967
Interest expense (331,101) (1,142,122)
Loss on sale of assets (97,750) (73,726)
-------------- --------------
Total other expense (352,732) (1,073,881)
-------------- --------------
NET INCOME $ 4,944,205 $ 12,210,011
============== ==============
F-16
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
PERIOD FROM JANUARY 1, 1999 THROUGH JULY 14, 1999
AND THE YEAR ENDED DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized Gain
on Investments
Available Retained Total Members'
Member Units Member Interest for Sale Earnings Equity
------------ --------------- --------------- ---------- --------------
BALANCE, JANUARY 1, 1998 112 $4,100,000 $ 7,412,962 $11,512,962
Net income 12,210,011 12,210,011
Member distributions (7,027,473) (7,027,473)
Unrealized gain on securities
available for sale $ 1,508 1,508
---------- ---------- --------- ----------- ------------
BALANCE, DECEMBER 31, 1998 112 4,100,000 1,508 12,595,500 16,697,008
Net income 4,944,205 4,944,205
Member distributions (5,258,468) (5,258,468)
Change in unrealized gain on
securities available for sale (1,508) (1,508)
---------- ---------- --------- ------------ ------------
BALANCE, JULY 14, 1999 112 $4,100,000 $ -- $12,281,237 $16,381,237
========== ========== ========= ============ ============
See notes to combined financial statements.
F-17
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
COMBINED STATEMENTS OF CASH FLOWS
PERIOD FROM JANUARY 1, 1999 THROUGH JULY 14, 1999 AND THE YEAR ENDED DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
PERIOD FROM
JANUARY 1,
THROUGH
JULY 14,
1999 1998
------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,944,205 $ 12,210,011
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,156,822 1,894,763
Loss on sale of assets 97,750 73,726
Changes in assets and liabilities:
Accounts receivable (72,927) 74,548
Inventory 7,298 (2,638)
Prepaid expenses 89,926 (36,193)
Other assets (7,483)
Accounts payable (408,484) 171,463
Accrued expenses 319,126 259,595
-------------- ---------------
Net cash provided by operating activities 6,133,716 14,637,792
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 35,455 107,510
Purchase of property and equipment (467,955) (1,392,968)
Proceeds from sale of available for sale securities 512,000
Purchase of securities available for sale (507,855)
-------------- ---------------
Net cash provided (used) by investing activities 79,500 (1,793,313)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term liabilities (3,018,921) (5,753,666)
Payments for debt refinancing costs (25,000)
Member distributions (5,258,468) (7,027,473)
-------------- ---------------
Net cash used by financing activities (8,277,389) (12,806,139)
-------------- ---------------
NET INCREASE (DECREASE) IN CASH (2,064,173) 38,340
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,820,717 5,782,377
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,756,544 $ 5,820,717
============== ===============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION - Cash paid during the $365,587 $1,148,868
year for interest
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Unrealized gain on sale of securities available for sale 1,508
Change in unrealized gain on securities available for sale 1,508
Capital lease obligation incurred to acquire equipment 475,780
See notes to combined financial statements.
F-18
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BUSINESS
Greater Dubuque Riverboat Entertainment Company, L.C. ("Greater Dubuque
Riverboat"), which is licensed by the Iowa Riverboat Gaming Commission ("IRGC"),
is an Iowa limited liability company with 52 members (who collectively own 112
units). Greater Dubuque Riverboat was organized and incorporated during May 1994
for the purpose of developing and holding the ownership interest in a riverboat
gaming operation located in Dubuque, Iowa (the "Diamond Jo Casino"). The same
members own Harbor Community Investment, L.C. ("Harbor Community") which was
formed April 8, 1996 to own and lease land and buildings in an area of Dubuque,
Iowa known as the Ice Harbor. The combined financial statements, therefore,
include the accounts and operations of Greater Dubuque Riverboat and Harbor
Community. These two entities are collectively referred to as the Company. All
material intercompany balances and transactions have been eliminated in
combination.
In January 1999, the membership of the Company approved an agreement to sell all
of the Company's operating assets used in connection with the gaming excursion
riverboat business to Peninsula Gaming Company, LLC for approximately
$77,000,000. The sale was completed in July 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration of Risks - The Company's management estimates that regular
customers are concentrated within 100 miles of the facility representing
approximately 95% of the Company's customer base. The remaining 5% includes
groups, tourists and highway travelers that live beyond 100 miles.
Cash and Cash Equivalents - The Company considers all cash on hand and in banks,
certificates of deposit and other highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
Investments Available for Sale - The Company accounts for its investments using
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"). This standard
requires that certain debt and equity securities be adjusted to market value at
the end of each accounting period. Unrealized market value gains and losses are
charged to earnings if the securities are traded for short-term profit.
Otherwise, such unrealized gains and losses are charged or credited to a
separate component of members' equity.
Gains and losses on the sale of available for sale securities are determined
using the specific identification method. The amortization of premiums and the
accretion of discounts are recognized in interest income using the interest
method over the period to maturity.
Accounts Receivable - Bad debts are charged to operations in the year in which
the account is determined uncollectible.
F-19
Property and Equipment - Property and equipment is carried at cost and
capitalized lease assets are stated at their fair value at the inception of the
lease. Major renewals are capitalized, while maintenance and repairs are
expensed when incurred. Depreciation and amortization are computed by the
straight-line method over the following estimated useful lives:
Land improvements 20-40 years
Building 40 years
Riverboat and improvements 18-20 years
Leasehold improvements 20-40 years
Furniture, fixtures and equipment 3-10 years
Computer equipment 5 years
Vehicles 5 years
Intangible Assets - Intangible assets subject to amortization include loan
commitment fees and organization costs. Loan commitment fees are being amortized
straight-line over the life of the related loan. Organization costs are being
amortized straight-line over a period of 60 months.
Long-Lived Assets - Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" requires, among other things, that an entity review its
long-lived assets and certain related intangibles for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be fully recoverable. Under the standard, if the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. The impairment is measured based on the estimated
fair value of the asset. The Company does not believe that any such events or
changes have occurred.
Financial Instruments - The carrying amount for financial instruments included
among cash and cash equivalents, accounts receivable, accounts payable and
security deposits approximates their fair value based on the short maturity of
those instruments. The carrying amount of notes payable approximates their
estimated fair value based on the credit, interest rate and terms of the
obligations.
Casino Revenue - Casino revenue is the net win from gaming activities, which is
the difference between gaming wins and losses.
Promotional Allowances - Food, beverage, and other items furnished without
charge to customers are included in gross revenues at a value which approximates
retail and then deducted as promotional allowances to arrive at net revenues.
The cost of such complimentary services have been included as casino expenses on
the accompanying statement of operations. Such estimated costs of providing
complimentary services allocated from the food and beverage and other operating
departments to the casino department are as follows:
Period from
January 1,
through
July 14, 1999 1998
-------------- --------
Food and beverage $286,835 $531,944
Other 8,411 14,264
Advertising - The Company's policy is to expense all advertising costs as
incurred.
F-20
Income Taxes - The Company is a limited liability company. In lieu of corporate
income taxes, the members of a limited liability company are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes has been included in the financial
statements.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles 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 revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Reclassifications - Certain information has been reclassified to conform with
the current year's presentation.
3. EMPLOYEE BENEFIT PLAN
The Company started a qualified defined contribution plan under section 401(k)
of the Internal Revenue Code during 1996. Under the plan, eligible employees may
elect to defer up to 15% of their salary, subject to Internal Revenue Service
limits. The Company may make a matching contribution to each participant based
upon a percentage set by the Company, prior to the end of each plan year.
Company matching contributions to the plan for the period from January 1, 1999
through July 14, 1999 were $127,535. Company matching contributions to the plan
were $240,459 for the year ended December 31, 1998.
4. LEASING ARRANGEMENTS
The Company leases various equipment under noncancelable operating leases. The
equipment leases require fixed monthly payments to be made ranging from $351 to
$4,155 and certain other gaming machines and tables require contingent monthly
rental payments based on usage of the equipment. The leases expire on various
dates in 1999 and 2000. Rent expense for the period from January 1, 1999 through
July 14, 1999 was $747,493, including contingent rentals of $613,673. Rent
expense was $403,148 for the year ended December 31, 1998, including contingent
rentals of $226,374.
The future minimum rental payments required under these leases during the years
ended December 31 are summarized as follows:
1999 $21,590
2000 5,478
2001 415
2002 415
2003 415
Thereafter 3,735
-------
$32,048
=======
5. COMMITMENTS AND CONTINGENCIES
A lawsuit has also been filed by one of the three original "active" unit-holders
(see Note 6) regarding a number of claims, some of which have been narrowed by
the court. The primary claim is in regards to quantum merit for the value of the
services rendered to the Company. The court has narrowed that claim to those
services rendered up to and including the licensure of the Company in the Spring
of 1993. An estimate of potential liability, if any, as a result of the lawsuit
was not possible as of the date of this report.
The Company has incurred various legal expenses relating to this lawsuit of
$304,742 for the period from January 1, 1999 through July 14, 1999. Legal
expenses related to this lawsuit for the year ended December 31, 1998 were
$211,388.
F-21
The Company is involved in various other legal actions arising in the normal
course of business. In the opinion of management, such matters will not have a
material effect upon the financial position of the Company.
6. MEMBERS EQUITY
Transfers of member interests are limited in that, in accordance with Greater
Dubuque Riverboat Entertainment Co., L.C.'s operating agreement, any sale,
exchange or transfer of a member's interest in the Company shall not be
effective unless the transaction is approved by:
1. The Manager, in writing, and
2. By a vote of the members holding a majority of the remaining units
and by a majority vote of the remaining members at a meeting of
the members.
This limitation does not include the granting of a security interest, pledge,
lien, or encumbrance against any membership interest.
The profits, losses, and distributions of the Company are allocated among the
members in proportion to each member's respective percentage of Units of
Ownership when compared with total Units of Ownership issued. An exception to
this is that there is an initial unequal division of distributions in that 95%
of distributions are paid to non-developer "passive" members, and 5% to
developer "active" members until such time as said non-developer members have
received an amount equal to their original purchase price for Units of Ownership
purchased, plus 10%. Thereafter, any and all distributions are to be
proportionate to Units owned.
7. SALE OF BUSINESS
During 1997, the Company's ownership made a decision to pursue the sale of
Greater Dubuque Riverboat and Harbor Community. The sales process has resulted
in the Company incurring various expenses related to a valuation of the
business, retaining the services of an investment banker, environmental and
market studies, legal and travel.
Sale of business expenses for the period from January 1, 1999 through July 14,
1999 were $1,566,761. Sale of business expenses were $716,655 for the year ended
December 31, 1998. See Note 1 regarding the sale of the business.
8. DUBUQUE RACING ASSOCIATION, LTD. CONTRACT
Dubuque Racing Association, Ltd. (the "Association"), a qualified sponsoring
organization, presently holds a license to conduct gambling games under Chapter
99F and other Iowa statutes.
The Association owns Dubuque Greyhound Park, a traditional greyhound race track
with 600 slot machines and amenities including a gift shop, restaurant and
clubhouse.
In February of 1993, the Company entered into a contract (the "Operating
Agreement") with the Association relating to the operation of an excursion
gambling riverboat for three excursion seasons commencing April 1, 1993, under
gambling licenses held jointly.
In July of 1995, the Operating Agreement with the Association was amended. The
provisions of the amendment are as follows:
1. The Company shall have the option to renew and extend the
Operating Agreement for three consecutive three year terms. The
option has been exercised and the Operating Agreement has been
extended to March 31, 2002.
F-22
2. Under the terms of the Operating Agreement, the Association shall
receive the greater of the Association's gaming revenues from the
greyhound park for the period, or a percentage of the total combined
gaming revenues of the Association's from the greyhound park and the
Greater Dubuque Riverboat Entertainment Company, L.C., as follows:
a. 32% of the first $30,000,000 of total combined gaming revenues,
plus
b. 8% of the total combined gaming revenues over $30,000,000, but
less than $42,000,000, plus
c. 8% of the total combined gaming revenues over $42,000,000, but
less than $46,000,000 during any period for which no excursion
boat gambling or land based gambling operation is carried on
from a Wisconsin or Illinois gambling operation in Grant
County, Wisconsin or Jo Daviess County, Illinois.
Gaming revenues under this contract means adjusted gross receipts less
gaming taxes.
Gaming revenues for the Association were $13,320,489 for the period
from January 1, 1999 through July 14, 1999 and $22,362,156 for the year
ended December 31, 1998, therefore payments made to the Association for
the period from January 1, 1999 through July 14, 1999 and the year
ended December 31, 1998 under the Operating Agreement were $0.
3. Commencing April 1, 2000, and continuing thereafter, the Company shall
additionally pay the Association the sum of $.50 for each patron
admitted on the boat, which, based upon recent annual attendance, would
approximate $500,000 annually.
4. In the event the Company shall desire to sell or lease the excursion
gambling boat, its furnishings and gambling equipment and/or its
interest in any ticket sale facility or other buildings located in the
Dubuque Ice Harbor used in connection with the operation of an
excursion gambling boat, to a third party that does not agree to
operation said asset subject to the terms and conditions of the
Operating Agreement, and obtains an acceptable offer from said third
party for the purchase or lease of the excursion gambling boat and its
furnishings, equipment, and/or its interest in said building, the
Association shall have the option to purchase or lease the excursion
gambling boat, its furnishings, equipment, and/or the Company's
interest in the building or its lease of the same for the amount of the
acceptable offer made by a third party and upon the same terms and
conditions as set forth in a third party offer.
* * * * *
F-23