Back to GetFilings.com
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, 2001
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: (563) 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 X No
--- ---
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. [ ]
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
ITEM 1. BUSINESS.....................................................2
ITEM 2. PROPERTIES...................................................9
ITEM 3. LEGAL PROCEEDINGS............................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS............................11
ITEM 6. SELECTED FINANCIAL DATA.....................................12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...........................................20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.....................21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT..............22
ITEM 11. EXECUTIVE COMPENSATION......................................23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT..........................................25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.....................................29
-1-
PART I
ITEM 1. BUSINESS
Description of the Business
General
We are wholly owned by Peninsula Gaming Partners, LLC, a Delaware limited
liability company ("PGP") and our sole managing member. Peninsula Gaming Corp.
is a wholly owned 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. OED Acquisition, LLC is a wholly owned subsidiary formed
on July 9, 2001 to facilitate the purchase of a 50% membership interest in The
Old Evangeline Downs, L.C., a Louisiana limited liability company that currently
owns and operates a horse track in Lafayette, LA. 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 (563) 583-7005.
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 24 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 1,100 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 Dubuque County
Historical Society, featuring a museum, historical exhibits, and an observation
deck. The Mississippi River Museum is located within a five-minute walk from our
site. We believe that the Diamond Jo is among the principal entertainment venues
for residents in and around Dubuque.
Recent Developments
On February 15, 2002, the Company's wholly-owned subsidiary, OED
Acquisition, LLC, a Delaware limited liability company ("OEDA"), consummated its
acquisition of: (i) 50% of the membership interests (the "BIM3 Interests") of
The Old Evangeline Downs, L.C., a Louisiana limited company ("OED") from BIM3
Investments, a Louisiana partnership ("BIM3"); and (ii) BIM3's one-half (1/2)
interest in two promissory notes in the aggregate principal amount of
$13,607,208 issued by OED, for an aggregate purchase price of $15,000,000 in
cash. The remaining 50% of the membership interests in OED will continue to be
owned by William E. Trotter, II Family L.L.C., a Louisiana limited liability
company. The acquisition was made pursuant to a purchase agreement dated June
27, 2001 by and among the Company's parent, PGP, OED and BIM3 (as amended, the
"Purchase Agreement"). Pursuant to the terms of the Purchase Agreement, PGP paid
a cash deposit of $500,000 which was
-2-
applied against the purchase price when the acquisition was consummated. The
Purchase Agreement was assigned to OEDA by PGP on October 23, 2001 for a
purchase price of $523,836 which was paid by OEDA in cash. The Company will
manage the existing racetrack and will design, construct, manage and operate a
new casino and contiguous racetrack facility with pari-mutuel wagering, slots
and OTB parlors in Opelousas, Louisiana.
Subject to receipt of required gaming approvals, OED intends to finance the
construction and development of an estimated $90 million racetrack and casino
project (the "Racino Project"). The Racino Project is expected to include up to
1,525 slot machines, dirt and turf thoroughbred racetracks and several dining
options. The Racino Project is one of only three racetracks in the state of
Louisiana currently authorized to conduct casino operations.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 17 in the "Notes to Financial Statements" for
further information about this transaction.
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 ranging from $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. We currently replace or install conversion
packages on approximately 10% of our slot machines each year. Conversion
packages are installations of new glass, reels and, on occasion, other coin
handling 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 and networks of slot machines throughout several casinos
resulting in higher jackpots has allowed us to further improve our product mix
with the introduction of 12 linked slot machines. The 24 table games offered by
the Diamond Jo include, 15 blackjack, two craps, two-three card poker, one
roulette, one progressive blackjack, one Caribbean Stud, one Caribbean Stud
Draw, and one Let-It-Ride, 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.
We have developed marketing and promotional strategies designed to attract
new customers and reward frequent gaming customers. Our 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 have used our theme to create
core-marketing programs which have allowed 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.
-3-
Growth Strategy
On February 15, 2002, the Company took a significant step in achieving its
goal of disciplined growth in selected markets through its acquisition of 50% of
The Old Evangeline Downs, L.C., a Louisiana limited liability company that owns
and operates a horse track in Lafayette, Louisiana. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 17 in
the "Notes to Financial Statements" for further information about this
transaction.
In the Dubuque market, 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 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.
Continued growth is also anticipated 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 an estimated $188,000,000 project on 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, conference center 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 a
not-for-profit "qualified sponsoring organization" and can be issued jointly to
a not-for-profit qualified sponsoring organization and a boat operator. 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 qualified sponsoring organization that, pursuant to
contract between the parties, holds the excursion riverboat gaming license
together with the Company as the boat operator.
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 gaming positions
at their gaming facilities without prior gaming commission approval.
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
-4-
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. These
restrictions terminate on March 31, 2002. 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 425 to 450 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
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 2001 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
-5-
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 non-renewal 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 positions 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.
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, 2001, our
share of such expenses was approximately $405,000. Further, the Diamond Jo pays
to the City of Dubuque a fee equal to $.50 per passenger.
-6-
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 PGP's 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 PGP 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.
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
-7-
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.
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 PGP's
respective operating agreements contain prohibitions against any purchase or
transfer of Peninsula Gaming Company's or PGP's 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 PGP's
respective operating agreements is null and void, and Peninsula Gaming Company
and PGP will not recognize the purchaser, transferee or purported beneficial
owner as a direct or indirect holder of an interest in Peninsula Gaming Company
or PGP, respectively, for any purpose. To the extent required by maritime laws,
the managing member, managers and the officers of PGP 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 of 1990
-8-
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.
ITEM 2. PROPERTIES
The gaming commission approved our application for a license to operate a
gaming riverboat on May 20, 1999, effective upon the acquisition of the Diamond
Jo. The properties we acquired upon consummation of the acquisition of the
Diamond Jo are located within the historic Ice Harbor 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, a surface parking lot 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 surface parking consisting of approximately 194 parking spaces that are
in close proximity to the Diamond Jo. This leased property is 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. 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. In exchange for 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 Company is also party to a parking agreement by and among the City of
Dubuque, the Dubuque Racing Association, the Dubuque County Historical Society
and the Spirit of Dubuque, which governs the use of additional parking spaces we
currently use. In addition to the leased parking lot discussed above, the
agreement also gives our patrons and employees the non-exclusive right to use
approximately 683 additional parking spaces that are owned by the City of
Dubuque and the Dubuque County Historical Society and are located in close
proximity to the Diamond Jo.
On February 15, 2002, the Company completed the purchase of a 50%
membership interest in The Old Evangeline Downs, L.C., a Louisiana limited
company that currently owns and operates a horse track in Lafayette, LA. See
"Business - Recent Developments", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 17 in the "Notes to
Financial Statements" for further information about this transaction.
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.
-9-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-10-
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 15, 2002, there was one holder of record of the common equity
of the Company, and the Company was the sole shareholder of Peninsula Gaming
Corp. and held a 100% membership interest in OED Acquisition, LLC. The Company
paid $1,760,908 in 2001 and $1,917,551 in 2000 to Peninsula Gaming Partners, LLC
("PGP"), 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 PGP, and (iii) tax, accounting, legal and
administrative costs and expenses of PGP relating to the business operations of
the Company.
-11-
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, 2001.
The selected historical financial data for the five years ended December
31, 2001 are derived from audited financial statements of the Company or its
predecessor combined companies. 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 during the period July 15, 1999, the date of inception,
to December 31, 1999. 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
deferred financing 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
Peninsula Gaming Gaming
Company Pro Forma Company Predecessor Companies
----------------------------------------------------------- --------------------------------------------
Period from Period from
July 15, 1999 to January 1, 1999 to
2001 2000 1999 December 31,1999 July 14, 1999 1998 1997
----------------------------------------------------------- --------------------------------------------
(Dollars in thousands)
Statement of
Operations Data
Revenues:
Casino $ 47,710 $ 45,519 $ 44,916 $ 21,153 $ 23,763 $ 44,167 $ 40,572
Food and beverage 2,745 2,663 2,643 1,235 1,408 2,469 2,449
Other 132 169 243 122 121 290 406
Less: Promotional
allowances (2,470) (2,599) (1,927) (1,017) (910) (1,802) (1,399)
--------------------------------------------------------------------------------------------------------
Net revenues 48,117 45,752 45,875 21,493 24,382 45,124 42,028
Expenses:
Casino 20,375 19,517 18,399 8,599 9,800 17,850 16,415
Food and beverage 2,857 2,856 2,808 1,328 1,480 2,460 2,269
Boat operations 2,259 2,242 2,100 991 1,109 2,176 2,054
Other 22 37 37 16 21 54 65
Selling, general and
administrative 6,681 6,459 7,383 3,736 3,647 6,477 6,523
Depreciation and
amortization 3,963 3,571 2,698 1,541 1,157 1,895 1,826
State of Wisconsin
government relations 147
Non-recurring expenses 5,005 3,134 1,871 928 170
--------------------------------------------------------------------------------------------------------
Total expenses 36,304 34,682 38,430 19,345 19,085 31,840 29,322
Income From Operations 11,813 11,070 7,445 2,148 5,297 13,284 12,706
Other income (expense)
Interest income 184 434 231 155 76 142 222
Interest expense (9,640) (9,507) (4,714) (4,383) (331) (1,142) (1,772)
Loss on sale of assets (152) (122) (166) (68) (98) (74) (88)
--------------------------------------------------------------------------------------------------------
Total other expense (9,608) (9,195) (4,649) (4,296) (353) (1,074) (1,638)
-12-
Peninsula Gaming Peninsula Gaming
Company Pro Forma Company Predecessor Companies
----------------------------------------------------------- --------------------------------------------
Period from Period from
July 15, 1999 to January 1, 1999 to
2001 2000 1999 December 31,1999 July 14, 1999 1998 1997
----------------------------------------------------------- --------------------------------------------
(Dollars in thousands)
Preferred member
distributions (386) (630) (289) (289)
---------------------------------------------------------- -------------------------------------------
Net income (loss) to
common interests $ 1,819 $ 1,245 $ (2,437) $ (2,437) $ 4,944 $ 12,210 $ 11,068
========================================================== ===========================================
Ratio of earnings to
fixed charges 1.2x 1.1x .5x 13.5x 10.8x 6.5x
Other Data
Cash flows from
operating activities $ 7,250 $ 4,951 $ 2,475 $ 6,134 $ 14,638 $ 12,522
Cash flows from
investing activities (2,816) (2,409) (68,611) 80 (1,793) 4,196
Cash flows from
financing activities (5,273) (2,099) 74,055 (8,277) (12,806) (15,114)
Distributions to
common members 1,761 1,918 286 5,258 7,027 6,583
------------------------ ------------------ --------------------------
Balance Sheet Data: 2001 2000 1999 1998 1997
------------------------ ------------------ --------------------------
Current assets $ 8,034 $ 9,134 $ 8,765 $ 6,767 $ 6,255
Total assets 84,374 86,788 88,175 29,252 28,915
Current liabilities 3,964 3,533 4,370 8,133 6,829
Total debt 70,860 70,764 70,680 9,822 15,100
Preferred member interest,
redeemable 4,000 7,000 7,000
Total members' equity 5,663 5,604 6,277 16,697 11,513
-13-
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,
o changes or developments in the laws, regulations or taxes in the
gaming industry,
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,
o our failure to obtain licensing approval by the Louisiana Gaming
Authority relating to our investment in The Old Evangeline Downs,
L.C.,
o our ability to obtain financing on commercially reasonable terms
to finance the Racino Project, and
o other factors discussed in our other filings with the Securities
and Exchange Commission.
-14-
2001 Compared to 2000
Dubuque was a two-casino market consisting of the Diamond Jo and the
Greyhound Park during 2001 and 2000. Casino gaming win in the Dubuque market
increased 6.1% to $86.3 million in 2001 from $81.3 million in 2000. We believe
this increase was primarily due to targeted players club promotions and a
continued focus on maintenance of our slot mix as well as a continued focus by
operators at the Greyhound Park on maintenance of their slot mix during such
period. Admissions to casinos in the Dubuque market decreased slightly to
1,946,326 in 2001 from 1,960,915 in 2000. We believe this decrease is primarily
attributable to the Diamond Jo's targeted use of marketing dollars directed
primarily towards more profitable market segments and one less gaming day during
2001 compared to 2000. During 2001, our share of the Dubuque market casino
admissions decreased to 51.7% from 53.9% in 2000. We believe this decrease is
primarily attributable to our targeted use of marketing dollars directed
primarily towards more profitable market segments during 2001 compared to 2000.
Our share of the Dubuque market casino gaming win decreased to 55.3% in 2001
from 56.0% in 2000. This decrease is attributed to a decrease in our table game
revenue of $1,343,000, resulting from a 9.2% decrease in our table game hold
percentage to 19.8% in 2001 from 21.8% in 2000, as well as the elimination of
live poker games which accounted for approximately $315,000 in table game
revenue during 2000.
Net revenues increased 5.2% to $48.1 million in 2001 from $45.8 million in
2000, primarily due to an increase in our slot revenue of 9.5%, or $3.5 million
in 2001 compared to 2000. This increase was a result of an increased marketing
focus to attract new players club members as well as targeting players club
promotions toward specific market segments. This increase was offset by a
decrease in table games revenue of $1.3 million. This decrease was a direct
result of a 2.0 percentage point decrease in our table game hold percentage and
the elimination of live poker games which accounted for approximately $315,000
in table game revenue during 2000. Our admissions during 2001 decreased 4.8% to
1,006,237 from 1,057,386 in 2000. We believe this decrease is primarily
attributable to our targeted use of marketing dollars directed primarily towards
more profitable market segments, the elimination of live poker and one less
gaming day during 2001 compared to 2000. During 2001, our win per admission per
day increased 10.1% to $47.41 from $43.05 in 2000. Consistent with an increase
in net revenue, our win per gaming position per day increased 9.4% to $150.59 in
2001 from $137.68 in 2000. Our casino revenues increased 4.8% to $47.7 million
in 2001 from $45.5 million in 2000. Based on revenues reported to the Iowa
Racing and Gaming Commission, this percentage increase is above the average
among riverboat casinos in the State of Iowa whose overall average casino
revenues increased only 3.0% during 2001 compared to 2000. Casino revenues were
derived 85.6% from slot machines and 14.4% from table games in 2001, compared to
81.9% from slot machines and 18.1% from table games in 2000. Net food and
beverage revenues, other revenues and promotional allowances increased slightly
to $0.4 million in 2001 from $0.2 million in 2000.
Casino operating expenses increased 4.4% to $20.4 million in 2001 from
$19.5 million in 2000. This increase was due primarily to an increase in gaming
taxes of $515,000 primarily due to increased gaming revenue and an increase in
slot lease expense of $458,000. Food and beverage expenses, boat operation
expenses and other expenses were substantially unchanged . Selling, general and
administrative expenses increased 3.4% to $6.7 million in 2001 from $6.5 million
in 2000 due primarily to an increase in marketing promotions and advertising of
$191,000. During 2001, the Company incurred expenses of $147,163 related to a
governmental relations services agreement with respect to gaming issues and
developments in the State of Wisconsin which might affect the Company and its
gaming operations. Additional expenses related to this agreement totaling
$55,000 are expected to be charged to operating expenses through the first half
of 2002 at which time the agreement for such governmental relations services
will expire. The Company does not plan to incur any additional expenses to
provide such governmental relations services relative to the State of Wisconsin
after the current agreement expires.
Depreciation and amortization expenses increased 11.0% to $4.0 million in
2001 from $3.6 million in 2000 due primarily to the construction of a new
restaurant and VIP room in the land based pavilion during the first quarter of
2001. Net interest expense increased 4.2% to $9.5 million in 2001 from $9.1
million in 2000 due primarily to a decrease in interest income of $250,000,
which is a direct result of a decrease in short-term interest rates in 2001
compared to 2000, and an increase in interest expense of $95,000 in amortization
of deferred financing costs related to the senior secured credit facility
entered into by the Company in March of 2001.
-15-
2000 Compared to 1999
The results of operations for 2000 represent our results of operations for
the entire twelve months. The results of operations for 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
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.
Dubuque was a two-casino market consisting of the Diamond Jo and the
Greyhound Park during 2000 and 1999. Casino gaming win in the Dubuque market
increased 3.3% to $81.3 million in 2000 from $78.7 million in 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 in 2000 from 2,005,452
in 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. During 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, compared to 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%
in 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, in 1999).
Net revenues decreased slightly to $45.8 million in 2000 from $45.9 million
in 1999. Our admissions in 2000 decreased 4.5% to 1,057,386 from 1,106,829 in
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 in 2000 compared to 1999 due to our change in marketing
strategy. During 2000, our win per admission per day increased 6.1% to $43.05
from $40.58 in 1999. Consistent with an increase in casino revenues, our win per
gaming position per day increased 5.9% to $137.68 in 2000 from $130.03 in 1999.
Our casino revenues also increased 1.3% to $45.5 million in 2000 from $44.9
million in 1999. Casino revenues were derived 81.9% from slot machines and 18.1%
from table games in 2000 compared to 81.1% from slot machines and 18.9% from
table games, respectively, in 1999. The increase in casino revenues was due
primarily to an increase in slot revenues of 2.3% to $37.3 million in 2000 from
$36.4 million in 1999. The increase in slot revenues was offset by a decrease in
table game revenues of 3.5% to $8.2 million in 2000, from $8.5 million in 1999.
Food and beverage revenues and other revenues decreased slightly to $2.8 million
in 2000 from $2.9 million in 1999. Promotional allowances increased to $2.6
million in 2000 from $1.9 million in 1999 due primarily to an increase in player
points expense of $671,000 due to triple point promotions.
Casino operating expenses increased 6.1% to $19.5 million or 42.9% of
casino revenues in 2000 from $18.4 million or 41.0% of casino revenues in 1999.
This increase of $1.1 million was due primarily to an increase in casino and
players club promotions of approximately $891,000 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 and boat operation expenses increased
slightly to $2.9 million and $2.2 million, respectively, in 2000 from $2.8 and
$2.1 million, respectively, in 1999. Selling, general and administrative
expenses decreased 12.5% to $6.5 million in 2000 from $7.4 million in 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.
Included in 1999 operating expenses were non-recurring expenses of $2.4 million
related to the sale of the business, litigation involving the prior owners of
the Diamond Jo and severance payments described above and $3.1 million of
start-up and organization costs.
Depreciation and amortization expense increased 32.3% to $3.6 million in
2000 from $2.7 million in 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 in 2000 compared to $.6 million in
1999 arising out of goodwill of $56.6 million recorded in connection with the
July 1999 acquisition. Net interest expense was $9.1 million in 2000 and
-16-
$4.5 million in 1999. The increase in interest expense was due to the inclusion
of twelve months of interest in 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 in 1999. Loss on disposal of assets was $0.1 million in 2000
and $0.2 million in 1999. These losses were attributable primarily to the
replacement and upgrade of slot machines and the remodeling of our portside
facility.
Liquidity and Capital Resources
At December 31, 2001, we had outstanding long-term debt of approximately
$71 million and total member's equity of approximately $5.7 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 (hereinafter
referred to as the "Notes").
The 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 the 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; (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 the 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 PGP. The combined proceeds from this transaction and the
issuance of the Notes were used to complete the purchase of certain assets
comprising the Diamond Jo casino and related real property.
On March 12, 2001, the Company entered into a Loan and Security Agreement
(the "Credit Agreement") with Foothill Capital Corporation providing for
commitments of up to $10 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%. Indebtedness under the Credit
Agreement is secured by substantially all of the Company's assets (which assets
also secure the Company's obligations under the Notes). The Credit Agreement
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 of maintaining EBITDA of at
least $10 million as of the end of each fiscal quarter (calculated based upon
the immediately preceding 12 month period), and certain events of default
customary for senior secured credit facilities. For purposes of the Credit
Agreement, EBITDA is defined as consolidated net earnings (or loss), minus
extraordinary gains, plus interest expense, income taxes, and depreciation and
amortization. At December 31, 2001, the Company had no borrowings outstanding
under the Credit Agreement. On February 15, 2002, the Company amended its credit
facility to increase aggregate commitments under its revolver to $12,500,000.
-17-
Acquisition of The Old Evangeline Downs, L.C.
On February 15, 2002, the Company's wholly-owned subsidiary, OED
Acquisition, LLC, a Delaware limited liability company ("OEDA"), consummated its
acquisition of: (i) 50% of the membership interests (the "BIM3 Interests") of
The Old Evangeline Downs, L.C., a Louisiana limited company ("OED") from BIM3
Investments, a Louisiana partnership ("BIM3"); and (ii) BIM3's one-half (1/2)
interest in two promissory notes in the aggregate principal amount of
$13,607,207.90 issued by OED, for an aggregate purchase price of $15,000,000 in
cash. The remaining 50% of the membership interests in OED will continue to be
owned by William E. Trotter, II Family L.L.C., a Louisiana limited liability
company. The acquisition was made pursuant to a purchase agreement dated June
27, 2001 by and among the Company's parent, PGP, OED and BIM3 (as amended, the
"Purchase Agreement"). Pursuant to the terms of the Purchase Agreement, PGP paid
a cash deposit whichwas applied against the purchase price when the acquisition
was consummated. The Purchase Agreement was assigned to OEDA by PGP on October
23, 2001 for a purchase price of $523,836 which was paid by OEDA in cash. The
Company will manage the existing racetrack and will design, construct, manage
and operate a new casino and contiguous racetrack facility with pari-mutuel
wagering, slots and OTB parlors in Opelousas, Louisiana.
The source of funds for the transactions described above was $3,000,000 of
cash on-hand and $12,000,000 of borrowings under the Company's Credit Agreement
with Foothill Capital Corporation. On February 15, 2002, the Company amended its
credit facility to increase aggregate commitments under its revolver to
$12,500,000 and obtained consents under the indenture governing its Notes to
consummate the OED transaction. On March 7, 2002, the Company paid consent fees
totaling $887,500 to holders of its Senior Secured Notes related to its
investment in OED.
Subject to receipt of required gaming approvals, OED intends to finance the
construction and development of an estimated $90 million racetrack and casino
project (the "Racino Project"). The Company is currently investigating financing
alternatives for the construction and development costs including, but not
limited to, a private placement transaction exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Rule 144A.
The Racino Project is expected to include up to 1,525 slot machines, dirt and
turf thoroughbred racetracks and several dining options. The Racino Project is
one of only three racetracks in the state of Louisiana currently authorized to
conduct casino operations. The successful completion of the Racino Project is
subject to factors beyond the control of OED. The extent and timing of the
development and construction of the Racino Project will depend on available cash
flow or the ability to obtain financing. There can be no assurance that
sufficient cash flow or necessary financing will be available on satisfactory
terms to OED. In addition, the Company and OED will be subject to comprehensive
and stringent government regulations. The Company and OED and their respective
officers, directors, members, significant shareholders and employees will be
subject to the Louisiana Gaming Authority and will need to submit to a
regulatory review process prior to mandatory licensing. There can be no
assurance that all necessary licenses will be issued, or issued on a timely
basis. For the foregoing reasons, there can no assurance that the Racino Project
will be completed, or completed in a timely manner. In 2002, the Company will
consolidate the operations of OED into the Company's consolidated financial
statements since it will have substantive control of OED.
Cash Flows from 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 $7.3 million in cash flows from operations in 2001, which
consisted of net income of $1.8 million increased by non-cash charges of $5.2
million, principally depreciation and amortization, and an increase in working
capital of $0.3 million.
-18-
Cash flows used for investing activities in 2001 was $2.8 million. These
funds were primarily used for (i) capital expenditures of $1.6 million relating
to the development of a new restaurant and VIP room in the land based pavilion
adjacent to the Diamond Jo, the purchase of replacement slot machines and other
capital expenditures and (ii) development costs of $1.2 million associated with
our investment in OED.
Cash used for financing activities in 2001 of $5.3 million reflects the
redemption of $3.0 million of preferred members' interest in accordance with the
terms of our operating agreement, distributions to members of $1.8 million and
deferred financing costs of $0.5 million related to the placement of our Credit
Agreement.
We believe that cash on hand and cash generated from operations will be
sufficient to satisfy our working capital and capital expenditure requirements
(other than in connection with the Racino Project), repay borrowings under the
Credit Agreement, and satisfy our other current debt service requirements.
However, we cannot assure you that this will be the case. If cash on hand and
cash generated from operations are insufficient to meet these obligations, we
may have to refinance our debt or sell some or all of our assets to meet our
obligations.
Contractual Commitments
The Company's only contractual commitments relate to our Notes (see Note 4
to the financial statements), our operating and capital leases (see Notes 6 and
8 to the financial statements) and our outstanding redeemable preferred members'
interest (see Note 12 to the financial statements).
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 more significant effects of inflation in
future periods.
Critical Accounting Policies
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.
Recent Accounting Pronouncements
During the year ended December 31, 2000, the Emerging Issues Task Force of
the Financial Accounting Standards Board ("FASB") issued EITF 00-22 "Accounting
for `Points' and Certain Other Time-Based or Volume-Based Sales Incentive
Offers, and Offers for Free Products or Services to Be Delivered in the Future"
to be effective for all financial statements issued after February 15, 2001. The
Company adopted EITF 00-22 during the first quarter of 2001. This EITF requires,
among other things, that the expected future costs associated with loyalty
programs and promotions that are earned by customers during the reporting period
are to be accrued in the same period with the related costs included as an
offset to revenues. Such costs were $1,208,096, $1,483,119 and $466,524 in 2001
and 2000 and the period July 15, 1999 (date of inception) through December 31,
1999, respectively. Costs in 2000 and the period July 15, 1999 (date of
inception) through December 31, 1999 have been reclassified from casino expense
to promotional allowances in the Statements of Operations to conform with the
current year presentation. Adoption of EITF 00-22 had no effect on net income to
Common Members' Interest for the periods presented.
In June 2001, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 141, Business Combinations ("SFAS 141") and SFAS No. 142, Goodwill
and Other Intangible Assets ("SFAS 142"). SFAS 141 addresses financial
accounting and reporting for business combinations and requires that the
purchase method of
-19-
accounting be used for all business combinations initiated after June 30, 2001.
In addition, SFAS 141 further clarifies the criteria to recognize intangible
assets separately from goodwill. SFAS 142 provides that goodwill and certain
indefinite lived intangible assets will no longer be amortized but will be
reviewed at least annually for impairment and written down and charged to income
when their recorded value exceeds their estimated fair value. Separate
intangible assets that do not have an indefinite life will continue to be
amortized over their useful lives. The Company expects to adopt both SFAS 141
and SFAS 142 effective January 1, 2002. Management does not expect the adoption
of these statements to have an effect on the Company's results of operations or
financial position other than goodwill which will no longer be amortized. The
Company estimates that 2001 adjusted net income would have been approximately
$3,233,468, assuming the non-amortization provisions of these standards had been
adopted at the beginning of 2001.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations ("SFAS 143"). SFAS 143 is effective beginning in 2003 and requires
recording of the fair value of liabilities associated with the retirement of
long-lived assets in the period in which they are incurred. Management does not
expect the adoption of SFAS 143 to have a material effect on the Company's
results of operations or financial position.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 provides new guidance on
the recognition of impairment losses on long-lived assets to be held and used or
to be disposed of and also broadens the definition of what constitutes a
discontinued operation and how the results of a discontinued operation are to be
measured and presented. SFAS 144 is effective beginning in 2003 and is not
expected to materially change the methods used by the Company to measure
impairment losses on long-lived assets.
In April 1998, the American Institute of Certified Public Accountants
issued 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.
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 2001 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 instrument subject
to interest rate risk at December 31, 2001 (dollars in millions):
-20-
Description Contract Terms Interest Rate Cost Fair Value
Senior Secured Notes Due July 1, 2006 12 1/4% fixed $71.0 $71.0*
* Represents estimated fair value of such debt instrument as of March
13, 2002 based on information provided by the Company's investment
banking firm.
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. and its
membership interests in its wholly owned subsidiary OED Acquisition, LLC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Audited financial statements and the notes thereto are combined in pages
F-1 through F-26.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-21-
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.............. 41 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............ 44 Chief Operating Officer of Peninsula Gaming Company
Natalie A. Schramm............ 31 Chief Financial Officer and Assistant General Manager
of Peninsula Gaming Company
Michael S. Luzich............. 47 Manager of Peninsula Gaming Partners; Director of
Peninsula Gaming Corp.; 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............ 52 Manager of Peninsula Gaming Partners
Andrew R. Whittaker........... 39 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 PGP listed in the preceding table.
M. Brent Stevens - 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. 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
-22-
including Sands Hotel and Casino, Golden Nugget Casino Hotel, Bally's Grand,
Trump Plaza Hotel and Casino and Hemmeter Enterprises.
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, 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.
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 PGP, PGP's board of managers may issue additional
incentive based equity interests in PGP at no less than fair market value.
-23-
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, 2001.
Other Annual All other
Name and Fiscal Salary Bonus Compensation Long-term Compensation
Principal Position Year ($) ($) ($) Compensation ($)
- ------------------ ---- --- --- --- ------------ ---
Annual Compensation
-------------------
M. Brent Stevens ........ 2001 -- -- -- -- --
Chief Executive Officer 2000 -- -- -- -- --
1999 -- -- -- -- --
George T. Papanier ...... 2001 $299,489 -- $ 13,150(1) -- $ 5,250(4)
Chief Operating Officer 2000 109,203 -- 19,341(2) -- --
Natalie A. Schramm ...... 2001 129,567 $ 19,328 4,200(3) -- 5,082(4)
Chief Financial Officer 2000 114,207 20,000 3,840(3) -- 4,480(4)
1999 36,490 25,000 -- -- --
James P. Rix ............ 2000 -- -- -- -- 360,316(5)
Formerly, Chief Operating 1999 91,346 -- -- -- --
Officer
- ------------------
(1) Includes $2,950 in club membership fees and $10,200 in automobile
allowances. In 2000, 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) 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.
(3) Represents club membership fees.
(4) Represents matching contributions made by the Company to the Company's
401(k) plan.
(5) 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 $360,316 in full satisfaction of all amounts due to him
upon termination, which amount was paid to Mr. Rix in January 2000.
-24-
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 PGP. 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.
Michael S. Luzich. PGP 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 PGP and incurred in connection with the performance of his services.
Compensation of Managers
All managers of PGP 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 PGP 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 PGP, our parent and sole manager. The managers of PGP 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 PGP, its parent and sole manager. All of Peninsula Gaming Corp.'s
outstanding common stock and all of the outstanding membership interests in OED
Acquisition, LLC are 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, PGP issued 500,000 convertible preferred membership interests,
each of which is initially convertible into one PGP non-voting common membership
interest, representing 33.33% of the fully diluted common membership interests
of PGP on such date. PGP 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 PGP 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 PGP by
(a) each person or entity known by us to own beneficially 5% or more of
the common membership interests of PGP,
(b) each manager and executive officer of PGP and
-25-
(c) all managers and executive officers of PGP 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 PGP common membership interests directly and 413,333 PGP
common membership interests indirectly through PGP Investors, LLC. Mr. Stevens
is the sole managing member of PGP Investors, LLC and exercises voting and
investment power over the PGP common membership interests owned by PGP
Investors, LLC. Mr. Stevens does not own any membership interests in PGP
Investors, LLC. Mr. Stevens and Mr. Whittaker, managers of PGP, are a managing
director and executive vice president, respectively, of Jefferies & Company,
Inc., 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 PGP common membership interests indirectly through his
membership in PGP Investors, LLC, but does not exercise voting or investment
power with respect to, and disclaims a beneficial ownership interest in, these
PGP common membership interests. The total holding of all managers and executive
officers as a group includes the 413,333 PGP common membership interests held by
PGP Investors, LLC, 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
-26-
Association based on 2001 and 2000 admissions were approximately $503,000 and
$405,000, respectively. Based on 2001 admissions, we anticipate this payment to
be approximately $500,000 in 2002.
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
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 gaming positions 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 acquirer agrees to abide by the terms of the Dubuque Racing Association
operating agreement.
Managing Member Indemnification
Under our and PGP's operating agreements, we and PGP have agreed, subject
to few exceptions, to indemnify and hold harmless our members, PGP and PGP
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 PGP, as the case may be.
-27-
Equity Contribution
The common members of PGP have made a capital contribution of $6.0 million
to PGP in exchange for their common membership interests. PGP immediately
contributed this $6.0 million and the $3.0 million raised in the offering of the
old notes through the sale of PGP' 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 PGP 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.
Operating Agreement of Peninsula Gaming Partners
Under PGP's operating agreement, the management of PGP 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 PGP, Mr. Stevens is entitled to designate three of PGP's managers,
including one of the two independent managers. The two independent managers
shall serve as members of the independent committee. Under PGP's 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 PGP 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 PGP.
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 PGP, Mr. Luzich is entitled to designate two of PGP's managers, including the
other independent manager.
Presently, PGP's board of managers is composed of four managers. If not
appointed earlier, a fifth manager will be appointed at PGP's 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.
-28-
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
***4.3 Supplemental Indenture, dated as of February 15, 2002, by and
among Peninsula Gaming Company, LLC, Peninsula Gaming Corp.,
the Subsidiary Guarantors named therein and U.S. Bank National
Association, 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.
-29-
Exhibit
Number Description
------ -----------
*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.
*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.
***10.19 Purchase Agreement, dated June 27, 2001, by and among
Peninsula Gaming Partners, LLC, a Delaware limited liability
company, The Old Evangeline Downs, L.C., a Louisiana limited
company and BIM3 Investments, a Louisiana partnership.
***10.20 First Amendment to Purchase Agreement, dated January 1,
2002, by and among BIM3 Investments, a Louisiana
partnership, The Old Evangeline Downs, L.C., a Louisiana
limited company and OED Acquisition, LLC, a Delaware limited
liability company.
12.1 Computation of ratio of earnings to fixed charges
- -----------
* 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 the Form 10-K (Registration Number
333-88829) of Peninsula Gaming Company, LLC and Peninsula Gaming Corp. on
March 30, 2000.
*** Previously filed as an exhibit to the Form 8-K of Peninsula Gaming Company,
LLC and Peninsula Gaming Corp. on March 4, 2002.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on March 4, 2002 announcing its
acquisition of 50% of The Old Evangeline Downs, L.C., which was completed
on February 15, 2002.
-30-
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, 2002.
PENINSULA GAMING COMPANY, LLC
By: /s/ M. Brent Stevens
-------------------------------------
M. Brent Stevens
Chief Executive Officer
By: /s/ George T. Papanier
-------------------------------------
George T. Papanier
Chief Operating Officer
By: /s/ Natalie A. Schramm
-------------------------------------
Natalie A. Schramm
Chief Financial Officer
PENINSULA GAMING CORP.
By: /s/ M. Brent Stevens
------------------------------------
M. Brent Stevens
President and Treasurer
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, 2002 By: /s/ M. Brent Stevens
------------------------------------
M. Brent Stevens
Chief Executive Officer and Manager
Date: March 29, 2002 By: /s/ Michael S. Luzich
------------------------------------
Michael S. Luzich
President, Secretary and Manager
Date: March 29, 2002 By: /s/ Terrance W. Oliver
------------------------------------
Terrance W. Oliver
Manager of Peninsula Gaming Partners
Date: March 29, 2002 By: /s/ Andrew R. Whittaker
------------------------------------
Andrew R. Whittaker
Manager of Peninsula Gaming Partners
-31-
Exhibit 12.1
Computation of Ratio of Earnings to Fixed Charges (amounts in thousands except
ratio information)
2001
----
Earnings:
Total Earnings $ 1,819
Fixed Charges:
Interest Charges 8,729
Preferred Member Distributions 386
Amortization of deferred financing costs and bond discount 911
-------
Total Fixed Charges 10,026
-------
Earnings as adjusted $11,845
-------
Ratio of earnings to fixed charges 1.2
=======
-32-
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS OF PENINSULA GAMING COMPANY, LLC
Independent Auditors' Report F-2
Balance Sheets at December 31, 2001 and December 31, 2000 F-3
Statements of Operations for the Years Ended December 31,
2001 and 2000 and the period July 15, 1999 (Date of
Inception) to December 31, 1999 F-4
Statements of Changes in Members' Equity for the Years Ended
December 31, 2001 and 2000 and the period July 15, 1999
(Date of Inception) to December 31, 1999 F-5
Statements of Cash Flows for the Years Ended December 31,
2001 and 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-17
Combined Statement of Operations for the Period from
January 1, 1999 through July 14, 1999 F-18
Combined Statement of Changes in Members' Equity for the
Period from January 1, 1999 through July 14, 1999 F-19
Combined Statement of Cash Flows for the Period from
January 1, 1999 through July 14, 1999 F-20
Notes to the Combined Financial Statements F-21
SCHEDULE II: VALUATION AND QUALYFING ACCOUNTS F-26
F-1
INDEPENDENT AUDITORS' REPORT
To the Members of
Peninsula Gaming Company, LLC
Dubuque, Iowa
We have audited the accompanying consolidated balance sheets of Peninsula Gaming
Company, LLC (the "Company") as of December 31, 2001 and 2000, and the related
consolidated statements of operations, changes in members' equity, and cash
flows for the years ended December 31, 2001 and 2000 and the period July 15,
1999 (date of inception) to December 31, 1999. Our audits also included the
financial statement schedule listed in the Index to the Financial Statements at
item F-26. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule 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, 2001 and 2000, and the results of its operations and its cash flows for the
years ended December 31, 2001 and 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. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
March 15, 2002
F-2
PENINSULA GAMING COMPANY, LLC
BALANCE SHEETS
DECEMBER 31, 2001 and 2000
- --------------------------------------------------------------------------------------------------------------------
2001 2000
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,523,652 $ 8,362,122
Accounts receivable, less allowance of $56,917 and $43,104, respectively 105,480 74,159
Inventory 97,677 113,583
Prepaid expenses 307,064 584,195
------------ ------------
Total current assets 8,033,873 9,134,059
------------ ------------
PROPERTY AND EQUIPMENT, NET 17,930,643 19,079,869
------------ ------------
OTHER ASSETS:
Deferred financing costs, net of accumulated amortization of $1,844,783 and 3,687,698 3,991,373
$1,029,474, respectively
Goodwill and other intangible assets, net of accumulated amortization of $3,476,051 53,083,429 54,497,416
and $2,062,064, respectively
Development costs 1,602,503
Deposits 35,405 84,973
------------ ------------
Total other assets 58,409,035 58,573,762
------------ ------------
TOTAL $ 84,373,551 $ 86,787,690
============ ============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 335,416 $ 710,537
Accrued payroll and payroll taxes 1,280,177 1,167,595
Other accrued expenses 2,234,922 1,541,058
Current maturities of capital lease obligations 113,552 113,552
------------ ------------
Total current liabilities 3,964,067 3,532,742
------------ ------------
LONG-TERM LIABILITIES:
Senior secured notes, net of discount 70,384,482 70,288,519
Capital lease obligations, net of current maturities 362,229 362,229
------------ ------------
Total long-term liabilities 70,746,711 70,650,748
------------ ------------
Total liabilities 74,710,778 74,183,490
------------ ------------
COMMITMENTS AND CONTINGENCIES
PREFERRED MEMBERS' INTEREST, REDEEMABLE 4,000,000 7,000,000
MEMBERS' EQUITY:
Common members' interest 9,000,000 9,000,000
Accumulated deficit (3,337,227) (3,395,800)
------------ ------------
Total members' equity 5,662,773 5,604,200
------------ ------------
TOTAL $ 84,373,551 $ 86,787,690
============ ============
See notes to financial statements.
F-3
PENINSULA GAMING COMPANY, LLC
STATEMENTS OF OPERATIONS
THE YEARS ENDED DECEMBER 31, 2001 AND 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,
2001 2000 1999
------------ ------------ ------------
REVENUES:
Casino $ 47,710,208 $ 45,518,772 $ 21,152,879
Food and beverage 2,745,333 2,663,380 1,235,297
Other 131,916 169,446 122,012
Less promotional allowances (2,470,310) (2,599,174) (1,017,340)
------------ ------------ ------------
Total net revenues 48,117,147 45,752,424 21,492,848
------------ ------------ ------------
EXPENSES:
Casino 20,375,265 19,517,455 8,598,755
Food and beverage 2,856,568 2,856,151 1,327,590
Boat operations 2,259,314 2,242,392 990,741
Other 21,801 36,826 16,365
Selling, general and administrative 6,680,581 6,458,795 3,735,742
Start-up and organization costs 3,134,095
Depreciation and amortization 3,963,350 3,571,220 1,541,516
State of Wisconsin government relations 147,163
------------ ------------ ------------
Total expenses 36,304,042 34,682,839 19,344,804
------------ ------------ ------------
INCOME FROM OPERATIONS 11,813,105 11,069,585 2,148,044
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 183,912 434,283 154,737
Interest expense (9,639,947) (9,506,969) (4,383,143)
Loss on sale of assets (151,415) (122,207) (67,659)
------------ ------------ ------------
Total other expense (9,607,450) (9,194,893) (4,296,065)
------------ ------------ ------------
NET INCOME (LOSS) BEFORE PREFERRED MEMBER DISTRIBUTIONS 2,205,655 1,874,692 (2,148,021)
LESS PREFERRED MEMBER DISTRIBUTIONS (386,174) (630,000) (288,750)
------------ ------------ ------------
NET INCOME (LOSS) TO COMMON MEMBERS' INTEREST $ 1,819,481 $ 1,244,692 $ (2,436,771)
============ ============ ============
F-4
See notes to financial statements.
PENINSULA GAMING COMPANY, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
THE YEARS ENDED DECEMBER 31, 2001 AND 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
Net income to common members' interest 1,819,481 1,819,481
Member distributions (1,760,908) (1,760,908)
----------- ----------- -----------
BALANCE, DECEMBER 31, 2001 $ 9,000,000 $(3,337,227) $ 5,662,773
=========== =========== ===========
See notes to financial statements.
F-5
PENINSULA GAMING COMPANY, LLC
STATEMENTS OF CASH FLOWS
THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND
THE PERIOD FROM JULY 15, 1999 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
Period from
July 15 (Date
of Inception)
through
December
2001 2000 31, 1999
------------ ------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,819,481 $ 1,244,692 $ (2,436,771)
Adjustments to reconcile net income (loss) to net cash flows
provided by operating activities:
Depreciation and amortization 3,963,350 3,571,220 1,541,516
Provision for doubtful accounts 152,158 107,505 55,367
Amortization of deferred financing costs and bond discount 911,272 795,268 341,536
Loss on sale of assets 151,415 122,207 67,659
Changes in operating assets and liabilities:
Receivables (183,479) (66,046) (147,305)
Inventory 15,906 (13,770) (26,869)
Prepaid expenses and other assets 326,699 (10,941) (581,928)
Accounts payable (375,121) 233,668 466,889
Accrued expenses 468,743 (1,032,749) 3,194,760
Net cash flows from operating activities 7,250,424 4,951,054 2,474,854
CASH FLOWS FROM INVESTING ACTIVITIES:
Development costs (1,264,800)
Proceeds from sale of property and equipment 51,378 23,331 54,900
Purchase of property and equipment (1,602,930) (2,432,446) (666,192)
Acquisition, net of cash required (68,000,000)
------------ ------------ ------------
Net cash flows from investing activities (2,816,352) (2,409,115) (68,611,292)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Senior Secured Notes 70,181,189
Preferred members' interest redeemed (3,000,000)
Deferred financing costs (511,634) (181,008) (4,839,839)
Proceeds from issuance of common members' interest 9,000,000
Member distributions (1,760,908) (1,917,551) (286,170)
------------ ------------ ------------
Net cash flows from financing activities (5,272,542) (2,098,559) 74,055,180
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (838,470) 443,380 7,918,742
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 8,362,122 7,918,742
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 7,523,652 $ 8,362,122 $ 7,918,742
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for interest $ 8,728,788 $ 8,697,500 $ 4,034,673
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITIES:
Issuance of preferred members' interest, redeemable $ 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 wholly owned by Peninsula
Gaming Partners, LLC, a Delaware limited liability company ("PGP") and our sole
managing member. The Company is a Delaware limited liability company formed on
January 26, 1999 for the purpose of purchasing assets comprising the Diamond Jo
Casino and related real property. Peninsula Gaming Corp. is a wholly owned
subsidiary of the Company, has no assets or operations and was formed solely to
facilitate the offering of our 12 1/4% Senior Secured Notes due 2006 in certain
jurisdictions. OED Acquisition, LLC ("OEDA") is a wholly owned subsidiary formed
on July 9, 2001 to facilitate the purchase of a 50% membership interest in The
Old Evangeline Downs, L.C., a Louisiana limited company that currently owns and
operates a horse track in Lafayette, LA (see Note 17). All significant
intercompany transactions have been eliminated.
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 12). For
financial reporting 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 are
being 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, 1999.
Pro Forma Information (Unaudited)
(in thousands)
1999
----
Net revenues $46,687
Income from operations 11,335
Net income to common interests 1,238
F-7
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 $152,158, $107,505 and $55,367 were
recorded in 2001 and 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
Deferred Financing Costs - Costs associated with the issuance of the Senior
Secured Notes (see Note 4) and the Line of Credit (see Note 5) have been
deferred and are being amortized over the life of the related
indenture/agreement 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.
Development Costs - In 2001, the Company recorded $1,602,503 as "Development
costs" on its balance sheet for directly related, incremental costs of the
acquisition of a 50% interest in The Old Evangeline Downs, L.C., a Louisiana
limited company that owns and operates a horse track in Lafayette, LA ("OED")
(see Note 17). These costs are comprised of $1,396,688 for legal and other
incremental costs directly related to the acquisition and $205,815 for
architecture and land development fees. Upon consummation of the acquisition,
the legal and other costs will be included as a cost of the acquisition of OED
using the purchase method of accounting under SFAS 141. The architecture and
land development costs will be included as a cost of putting the Racino facility
in a condition and location for use and will be depreciated over the Racino
facilities' estimated useful life. During 2001, the Company paid $1,264,800 for
Development costs associated with OED. Additionally, as of December 31, 2001,
the Company had $337,703 recorded in "Other accrued expenses" on its balance
sheet for costs recorded as Development costs that had not been paid as of
December 31, 2001.
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.
F-8
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.
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, 2001. The
remaining 5% includes groups, tourists and highway travelers that live beyond
100 miles.
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 statements of operations. Such estimated costs of providing
complimentary services allocated from the food and beverage and other operating
departments to the casino department were $568,098 and $8,977 for food and
beverage and other, respectively, in 2001, $529,133 and $12,632, respectively,
in 2000 and $294,553 and $13,481, respectively for the period July 15, 1999
(date of inception) through December 31, 1999.
Reclassifications - Certain prior year amounts have been reclassified to conform
with current year presentation.
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 - During the year ended December 31, 2000, the
Emerging Issues Task Force of the Financial Accounting Standards Board ("FASB")
issued EITF 00-22 "Accounting for `Points' and Certain Other Time-Based or
Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to
Be Delivered in the Future" to be effective for all financial statements issued
after February 15, 2001. The Company adopted EITF 00-22 during the first quarter
of 2001. This EITF requires, among other things, that the expected future costs
associated with loyalty programs and promotions that are earned by customers
during the reporting period are to be accrued in the same period with the
related costs included as an offset to revenues. Such costs were $1,208,096,
$1,483,119 and $466,524 in 2001 and 2000 and the period July 15, 1999 (date of
inception) through December 31, 1999, respectively. Costs in 2000 and the period
July 15, 1999 (date of inception) through December 31, 1999 have been
reclassified from casino expense to promotional allowances in the Statements of
Operations to conform with the current year presentation. Adoption of EITF 00-22
had no effect on net income to Common Members' Interest for the periods
presented.
In June 2001, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 141, Business Combinations ("SFAS 141") and SFAS No. 142, Goodwill
and Other Intangible Assets ("SFAS 142"). SFAS 141 addresses financial
accounting and reporting for business combinations and requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. In addition, SFAS 141 further clarifies the criteria to
recognize intangible assets separately from goodwill. SFAS 142 provides that
goodwill and certain indefinite lived intangible assets will no longer be
amortized but will be reviewed at least annually for impairment and written down
and charged to income when their recorded value exceeds their estimated fair
value. Separate intangible assets that do not have an indefinite life will
continue to be amortized over their useful lives. The Company expects to adopt
both SFAS 141 and SFAS 142 effective January 1, 2002. Management does not expect
the adoption of these statements to have an effect on the Company's results of
operations or financial position other than goodwill which will no longer be
amortized. The Company estimates that 2001 adjusted net income would have been
approximately $3,233,468, assuming the non-amortization provisions of these
standards had been adopted at the beginning of 2001.
F-9
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations ("SFAS 143"). SFAS 143 is effective beginning in 2003 and requires
recording of the fair value of liabilities associated with the retirement of
long-lived assets in the period in which they are incurred. Management does not
expect the adoption of SFAS 143 to have a material effect on the Company's
results of operations or financial position.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 provides new guidance on
the recognition of impairment losses on long-lived assets to be held and used or
to be disposed of and also broadens the definition of what constitutes a
discontinued operation and how the results of a discontinued operation are to be
measured and presented. SFAS 144 is effective beginning in 2003 and is not
expected to materially change the methods used by the Company to measure
impairment losses on long-lived assets.
In April 1998, the American Institute of Certified Public Accountants issued
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.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31 is summarized as follows:
2001 2000
------------ ------------
Land $ 800,000 $ 800,000
Building and portside improvement 6,565,735 6,222,895
Riverboats and improvements 8,261,693 8,176,780
Furniture, fixtures and equipment 5,512,717 5,531,903
Computer equipment 617,538 387,532
Vehicles 65,032 72,181
Equipment held under capital lease obligations 704,527 704,527
------------ ------------
Subtotal 22,527,242 21,895,818
Accumulated depreciation (4,596,599) (2,815,949)
------------ ------------
Property and equipment, net $ 17,930,643 $ 19,079,869
============ ============
4. SENIOR SECURED NOTES
Senior Secured Notes at December 31 are as follows:
2001 2000
------------- ------------
Senior Secured Notes $ 71,000,000 $ 71,000,000
Less: unamortized discount (615,518) (711,481)
------------ ------------
Senior Secured Notes, net $ 70,384,482 $ 70,288,519
============ ============
On July 15, 1999, the Company issued $71 million of Series A 12 1/4% 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 1/4% 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, 2001 and 2000.
F-10
The Company believes 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
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 its 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. LINE OF CREDIT
On March 12, 2001, the Company entered into a Loan and Security Agreement (the
"Credit Agreement") with Foothill Capital Corporation providing for commitments
of up to $10 million which mature in 2005. The outstanding loans 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%. Indebtedness under the Credit Agreement is secured by
substantially all of the Company's assets (which assets also secure the
Company's obligations under its Notes). The Credit Agreement 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 of maintaining EBITDA of at least $10
million as of the end of each fiscal quarter (calculated based upon the
immediately preceding 12 month period), and certain events of default customary
for senior secured credit facilities. For purposes of the Credit Agreement,
EBITDA is defined as consolidated net earnings (or loss), minus extraordinary
gains, plus interest expense, income taxes, and depreciation and amortization.
At December 31, 2001, the Company had no borrowings outstanding under the Credit
Agreement.
On February 15, 2002, the Company amended its credit facility to increase
aggregate commitments under its revolver to $12,500,000 (see Note 17). On March
7, 2002, the Company paid consent fees totaling $887,500 to holders of its
Senior Secured Notes related to its investment in OED.
F-11
6. CAPITAL LEASE OBLIGATION
Capital lease obligations at December 31 are as follows:
Liability under capital leases, due in monthly installments of $21,536 2001 2000
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
2002 after final acceptance of the system. The leases are
collateralized by equipment with a net book value of $271,523 and
$499,040 at December 31, 2001 and 2000, respectively. $ 475,781 $ 475,781
Less current portion (113,552) (113,552)
--------- ---------
$ 362,229 $ 362,229
Future minimum lease payments under capital lease for the years ended December
31 are as follows:
2002 $ 129,216
2003 258,432
2004 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
=========
7. 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 $227,596 and $212,766
in, 2001 and 2000, respectively, and $15,632 for the period July 15, 1999 (date
of inception) to December 31, 1999.
8. LEASING ARRANGEMENTS
The Company leases various equipment under noncancelable operating leases. The
leases require fixed monthly payments to be made ranging from $335 to $2,800 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
2002 and 2003. Rent expense in 2001 and 2000 and the period July 15, 1999 (date
of inception) to December 31, 1999 were $1,348,670, $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:
2002 $45,988
2003 2,060
-------
$48,048
F-12
9. STATE OF WISCONSIN GOVERNMENTAL RELATIONS
During 2001, the Company incurred expenses for a governmental relations services
agreement with respect to gaming issues and developments in Wisconsin which
might affect the Company and its gaming operations. Such expenses for 2001
totaled $147,163. Additional expenses related to this agreement totaling $55,000
are expected to be charged to operating expenses through the first half of 2002
at which time the agreement for such governmental relations services will
expire. The Company does not plan to incur any additional expenses to provide
such governmental relations services relative to the State of Wisconsin after
the current agreement expires.
10. UNINSURED CASH BALANCES
The Company maintains deposit accounts at a local bank. At December 31, 2001 and
2000 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.
11. COMMITMENTS 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 on the financial position of the Company.
12. 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.
The Company redeemed $3.0 million in original face amount of its preferred
membership interests on January 19, 2001 at a redemption price of $3.0 million,
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).The balance of preferred membership interests not redeemed by the Company
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.
13. 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.
14. 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
F-13
Park, a traditional greyhound racetrack 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 over $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.
The Association's gaming revenues from the greyhound park in 2001, 2000 and 1999
were $27,108,884, $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 in 2001, 2000 and 1999 under the Operating Agreement.
Commencing April 1, 2000, the Company had been obligated to pay and has paid the
Association the sum of $.50 for each patron admitted on the boat, which, based
upon recent annual attendance, approximates $500,000 annually. During 2001 and
2000, these payments approximated $503,000 and $405,000, respectively.
In the event the Company elects 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 these assets subject to the terms and conditions of the
Operating Agreement, and obtains an acceptable offer from such third party for
the purchase or lease thereof, the Association shall have the option to purchase
or lease these assets on the same terms as those offered by such third party.
15. TRANSACTIONS WITH RELATED PARTIES
During 2001, the Company paid approximately $1,760,908 to PGP 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 PGP and (iii) tax, accounting, legal and
administrative costs and expenses of PGP relating to the business operations of
the Company. Additionally, OEDA paid $523,826 to PGP for the assignment of a
purchase agreement to purchase OED (see Note 17).
During 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 PGP 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 PGP and (iii)
tax, accounting, legal and administrative costs and expenses of PGP relating to
the business operations of the Company.
During 1999, in connection with the sale of the Notes and the purchase of
certain assets comprising the Diamond Jo Casino (see 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 PGP, the Company's parent
and sole member, in
F-14
connection with certain consulting services provided to PGP 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
PGP.
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
2001 Quarters Ended
(Dollars in Thousands)
March 31 June 30 September 30 December 31
---------------- -------------- --------------- -----------------
Net revenues $ 11,257 $ 11,998 $ 13,003 $ 11,859
Income from Operations 2,719 2,924 3,793 2,377
Net income (loss) before 393 488 1,376 (51)
preferred member distributions
Net income (loss) $ 289 $ 393 $ 1,282 $ (145)
2000 Quarters Ended
(Dollars in Thousands)
Net revenues $ 10,958 $ 11,363 $ 12,540 $ 10,891
Income from Operations 2,797 2,807 3,372 2,094
Net income (loss) before 489 552 1,057 (223)
preferred member distributions
Net income (loss) $ 332 $ 395 $ 899 $ (381)
17. SUBSEQUENT EVENTS
On February 15, 2002, OEDA consummated its acquisition of: (i) 50% of the
membership interests (the "BIM3 Interests") of OED from BIM3 Investments, a
Louisiana partnership ("BIM3"); and (ii) BIM3's one-half (1/2) interest in two
promissory notes in the aggregate principal amount of $13,607,207.90 issued by
OED, for an aggregate purchase price of $15,000,000 in cash. The remaining 50%
of the membership interests in OED will continue to be owned by William E.
Trotter, II Family L.L.C., a Louisiana limited liability company. The
acquisition was made pursuant to a purchase agreement dated June 27, 2001 by and
among the Company's parent, PGP, OED and BIM3 (as amended, the "Purchase
Agreement"). Pursuant to the terms of the Purchase Agreement, PGP paid a cash
deposit of $500,000 which was applied against the purchase price when the
acquisition was
F-15
consummated. The Purchase Agreement was assigned to OEDA by PGP on October 23,
2001 for a purchase price of $523,836 which was paid by OEDA in cash. The
Company will manage the existing racetrack and will design, construct, manage
and operate a new casino and contiguous racetrack facility with pari-mutuel
wagering, slots and OTB parlors in Opelousas, Louisiana.
The source of funds for the transactions described above was $3,000,000 of cash
on-hand and $12,000,000 of borrowings under the Company's Credit Agreement with
Foothill Capital Corporation. The Company amended its credit facility to
increase the available funds to $12,500,000 and obtained consents under the
indenture governing its Notes to consummate the acquisition. On March 7, 2002,
the Company paid consent fees totaling $887,500 to holders of the Notes related
to the above transaction.
Subject to receipt of required gaming approvals, OED intends to finance the
construction and development of an estimated $90 million racetrack and casino
project (the "Racino Project"). The Company is currently investigating financing
alternatives for the construction and development costs including, but not
limited to, a private placement transaction exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Rule 144A.
The Racino Project is expected to include up to 1,525 slot machines, dirt and
turf thoroughbred racetracks and several dining options. The Racino Project is
one of only three racetracks in the state of Louisiana currently authorized to
conduct casino operations. The successful completion of the Racino Project is
subject to factors beyond the control of OED. The extent and timing of the
development and construction of the Racino Project will depend on available cash
flow or the ability to obtain financing. There can be no assurance that
sufficient cash flow or necessary financing will be available on satisfactory
terms to OED. In addition, the Company and OED will be subject to comprehensive
and stringent government regulations. The Company and OED and their respective
officers, directors, members, significant shareholders and employees will be
subject to the Louisiana Gaming Authority and will need to submit to a
regulatory review process prior to mandatory licensing. There can be no
assurance that all necessary licenses will be issued, or issued on a timely
basis. For the foregoing reasons, there can no assurance that the Racino Project
will be completed, or completed in a timely manner.
In 2002, the Company will consolidate the operations of OED into the Company's
consolidated financial statements since it will have substantive control of OED.
* * * * *
F-16
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 operations, 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. These financial statements are the responsibility of the companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides 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 in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
February 25, 2000
F-17
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
COMBINED STATEMENT OF OPERATIONS FOR THE
PERIOD FROM JANUARY 1, 1999 THROUGH JULY 14, 1999
PERIOD
FROM
JANUARY 1,
THROUGH
JULY 14,
1999
-------------
REVENUES:
Casino $ 23,763,442
Food and beverage 1,408,046
Other 121,360
Less - promotional allowances (910,477)
------------
Net revenues 24,382,371
------------
EXPENSES:
Casino 9,799,847
Food and beverage 1,480,072
Boat operations 1,109,575
Other 20,713
Selling, general and administrative 3,646,902
Depreciation and amortization 1,156,822
Sale of business expenses (Note 7) 1,566,761
Ownership litigation (Note 5) 304,742
------------
Total expenses 19,085,434
------------
INCOME FROM OPERATIONS 5,296,937
------------
OTHER INCOME (EXPENSE):
Interest income 76,119
Interest expense (331,101)
Loss on sale of assets (97,750)
------------
Total other expense (352,732)
------------
NET INCOME $ 4,944,205
============
See notes to combined financial statements.
F-18
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
COMBINED STATEMENT OF CHANGES IN MEMBERS' EQUITY
PERIOD FROM JANUARY 1, 1999 THROUGH JULY 14, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized Gain
on Investments
Available Retained Total Members'
Member Units Member Interest for Sale Earnings Equity
BALANCE, JANUARY 1, 1999 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-19
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
COMBINED STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1999 THROUGH JULY 14, 1999
- -------------------------------------------------------------------------------------
PERIOD FROM
JANUARY 1,
THROUGH
JULY 14,
1999
-----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,944,205
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,156,822
Loss on sale of assets 97,750
Changes in assets and liabilities:
Accounts receivable (72,927)
Inventory 7,298
Prepaid expenses 89,926
Accounts payable (408,484)
Accrued expenses 319,126
-----------
Net cash flows from operating activities 6,133,716
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 35,455
Purchase of property and equipment (467,955)
Proceeds from sale of available for sale securities 512,000
-----------
Net cash flows from investing activities 79,500
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term liabilities (3,018,921)
Member distributions (5,258,468)
-----------
Net cash flows from financing activities (8,277,389)
-----------
NET DECREASE IN CASH (2,064,173)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,820,717
-----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,756,544
===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION - Cash paid during the $ 365,587
year for interest
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES -Change
in unrealized gain on securities available for sale $ 1,508
See notes to combined financial statements.
F-20
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 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
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-21
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.
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.
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.
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 in 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
-------------
Food and beverage $286,835
Other 8,411
Advertising - The Company's policy is to expense all advertising costs as
incurred.
F-22
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
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.
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.
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 for gaming machines
and tables expired 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.
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
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.
F-23
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. 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 racetrack 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.
2. Under the terms of the Operating Agreement, the Association shall
receive the greater of the Association's gaming revenues from the
Dubuque Greyhound Park for the period, or a percentage of the total
combined gaming revenues of the Association's from the Dubuque
Greyhound Park and the Greater Dubuque Riverboat Entertainment
Company, L.C., as follows:
F-24
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 Davies County, Illinois.
Gaming revenues under this contract means adjusted gross receipts less
gaming taxes.
The Association's gaming revenues from the greyhound park were $13,320,489
for the period from January 1, 1999 through July 14, 1999, therefore
payments made to the Association for the period from January 1, 1999
through July 14, 1999 under the Operating Agreement were $0.
3. Commencing April 1, 2000, the Company has been obligated to pay and 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.
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-25
SCHEDULE II
PENINSULA GAMING COMPANY, LLC
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2001 and 2000 and the Period
July 15, 1999 (Date of Inception) to December 31,1999
(in thousands)
Balance at Charged to Balance at
Beginning Costs and End of
Description of Year Expenses Deductions (a) Year
- ----------- ------- -------- -------------- ----------
Year ended December 31, 2001:
Allowance for doubtful accounts ..... $ 43 $ 152 $(138) $ 57
Year ended December 31, 2000:
Allowance for doubtful accounts .... 55 108 (120) 43
Period July 15, 1999 (Date of
Inception) to December 31, 1999:
Allowance for doubtful accounts .... 0 55 -- 55
- -------------
(a) Amounts written off.
F-26