| USA. Pinnacle Entertainment strong Q2 results boosted by Louisiana post hurricane rebuilding |
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| Wednesday, 02 August 2006 | |
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Company news: Pinnacle Entertainment, Inc. (NYSE:PNK) today reported strong financial results for the second quarter and six months ended June 30, 2006. Revenues for the second quarter rose 51.0% to $228.8 million from $151.5 million a year earlier, and adjusted EBITDA(1) increased by 80.2% to $54.5 million from $30.2 million for the prior-year period, as operating results benefited from a full quarter of operations at L'Auberge du Lac, which opened in late May 2005, and continued strong results at Boomtown New Orleans. These results do not include business interruption insurance proceeds that the Company expects to receive due to lost profits from last year's hurricanes. On a GAAP ('Generally Accepted Accounting Principles') basis, the Company reported net income of $46.0 million, or $0.93 per share, versus the prior-year net loss of $4.2 million, or $0.10 per share. Both quarters include pre-opening and development costs and income from discontinued operations. Additionally, the 2006 second quarter included net proceeds of approximately $44.8 million related to the Company's terminated merger agreement with Aztar Corporation, as well as $1.2 million of pre-tax, non-cash charges related to stock option compensation. "We're pleased with our results for the second quarter, which were driven by continued strong results at Boomtown New Orleans and solid business levels at L'Auberge du Lac in Lake Charles, Louisiana," said Daniel R. Lee, Pinnacle's Chairman and Chief Executive Officer. "Since its opening in May 2005, L'Auberge has quickly become one of the leading casinos in the South. We intend to begin construction of a 250-guestroom expansion of L'Auberge du Lac in the third quarter and to begin construction in 2007 of a second casino hotel, named 'Sugarcane Bay,' adjacent to L'Auberge du Lac." Six-Month Results Revenues for the six months ended June 30, 2006 increased 73.4% to $463.0 million from $267.0 million for the 2005 period. Adjusted EBITDA rose 124% to $114.0 million from $50.8 million in the prior-year six-month period. The adjusted EBITDA margin increased to 24.6% in the period, compared to 19.0% for the first half of 2005. On a GAAP basis, net income for the first half of 2006 was $59.5 million, or $1.22 per diluted share, compared to a net loss of $6.4 million, or $0.16 per diluted share, for the six months ended June 30, 2005. The recent period's GAAP income includes merger termination proceeds, gain on sale of assets and non-cash charges related to stock option compensation. Both periods contained pre-opening and development costs. "We remain focused on profitable expansion, as well as improving operations at our existing properties," Mr. Lee continued. "In addition to opening our new Bahamian casino and continued construction on our casino developments in St. Louis, we agreed during the second quarter to acquire additional gaming assets in Louisiana. Our recently announced plans to build Sugarcane Bay as a $350 million sister property to L'Auberge in Lake Charles will extend our development pipeline beyond the completion of our St. Louis projects. We expect to open our new casinos in downtown St. Louis, St. Louis County and Lake Charles in the second half of 2007, 2008 and 2009, respectively." Boomtown New Orleans Boomtown New Orleans continues to benefit from the sizable rebuilding effort in the area and the closure of casinos along the Mississippi Gulf Coast following Hurricane Katrina. For the second quarter of 2006, revenues at Boomtown New Orleans grew by 82.0% to $52.0 million versus $28.6 million in last year's period. Adjusted EBITDA rose by 167% to $21.7 million from $8.1 million a year ago. Pinnacle expects operating results to moderate as competing casino facilities continue to reopen along the Mississippi Gulf Coast. The addition of 140 slot machines from a casino expansion at Boomtown New Orleans in late June now provides additional capacity during peak operating periods. Boomtown New Orleans currently offers approximately 1,700 slot machines and 40 table games. L'Auberge du Lac In the 2006 second quarter, revenues and adjusted EBITDA at L'Auberge were $77.6 million and $17.7 million, respectively. Revenues and adjusted EBITDA for the prior-year period were $29.4 million and $7.9 million, respectively, reflecting the property's opening in late May 2005 and only a partial quarter of operations. Belterra Casino Resort Revenues at Belterra Casino Resort were $42.9 million versus $42.6 million in the 2005 second quarter. Adjusted EBITDA of $10.3 million in the recent quarter declined slightly compared to $10.7 million in the prior-year period. Boomtown Bossier City Boomtown Bossier City continues to perform well. Revenues for the 2006 second quarter were $23.9 million compared to $23.5 million last year, while adjusted EBITDA grew to $6.1 million from $4.9 million in the prior-year period. Boomtown Reno Revenues were approximately flat at $22.5 million in the 2006 second quarter versus $22.7 million last year. Adjusted EBITDA was approximately $2.2 million versus $2.8 million in the prior year. International The International segment now includes the financial results for The Casino at Emerald Bay, Pinnacle's casino in the Bahamas that opened in May 2006, and Casino Magic Argentina, which currently consists of several relatively small casino operations. Revenues for the 2006 second quarter rose 40.9% to $6.6 million from $4.7 million in last year's quarter, due primarily to the July 2005 opening of a larger replacement casino in the city of Neuquen, Argentina and the May 2006 opening of The Casino at Emerald Bay. Adjusted EBITDA rose to $2.2 million compared to $2.1 million in the 2005 period. Other Items Biloxi Insurance Matters. On April 11, the Company filed a $346.5 million insurance claim for its losses associated with Hurricane Katrina at Casino Magic Biloxi. Such claim includes approximately $259 million for property damage, $80 million for business interruption (inclusive of approximately $37 million for lost profits) and approximately $7.6 million for emergency, mitigation and demolition expenses. To date, Pinnacle has received a total of $50 million in advances towards resolution of its insurance claim. The Company anticipates receiving additional insurance proceeds from time to time until ultimate resolution of the claim. The Company anticipates that resolution of its insurance claim may be protracted and will require significant negotiation and potentially litigation. Certain carriers have reserved their rights to assert, and one carrier has asserted, that the damage was subject to lower flood coverage limits. Our insurance provided for $400 million of coverage per occurrence for a weather catastrophe occurrence and at least $100 million of coverage on an annual basis for a flood occurrence. As of June 30, 2006, the Company recorded insurance receivables of $57.8 million for impairment charges for the book value of various assets at the Biloxi facility and $23.8 million for certain costs covered by insurance. The Company has insurance coverage for interruption of income at the property, but under GAAP will not book such income until the insurance claims are resolved. Net of the $50 million received through June 30, the cumulative insurance receivable on the books at quarter end was $31.6 million. Until the claim is resolved, and excluding any additional advances, the Company anticipates the insurance receivables will increase as it incurs continuing insured expenses. The Company's ultimate insurance claim and recovery amounts are based on replacement costs rather than book value and are unrelated to, computed differently from, and likely to be substantially larger than the impairment charges recorded. The Company's insurance policies permit a "replacement facility" to be built anywhere in the U.S. Management has designated the south St. Louis County site as a replacement facility given its recent decision to sell the Casino Magic Biloxi site. Management believes that each of the facilities in St. Louis (where in each case construction has begun) would qualify as a replacement facility under the terms of its insurance policies. The Company's insurers have conditionally agreed to permit the south St. Louis County site to serve as the replacement location. Recently, certain insurers added additional conditions to such approval that could materially reduce Pinnacle's recovery with respect to the claim. The Company does not believe these conditions are consistent with the terms of the insurance policies and is disputing the insurers' conditions. The Company intends to enforce its rights under the policies. Although the south St. Louis County project is expected to cost more than it would have to repair/rebuild Casino Magic Biloxi, recovery under the policies is nevertheless limited to the lesser of what would have been the cost to repair/rebuild Casino Magic Biloxi or the actual cost incurred in constructing the south St. Louis County site. New Orleans Insurance Matters. In the 2006 second quarter, the Company filed insurance claims of approximately $11 million for its business interruption and property losses associated with Hurricane Katrina at Boomtown New Orleans. A deductible of approximately $5 million would likely apply against this claim amount. Corporate Expenses. Corporate costs for the second quarter of 2006 were $6.3 million, excluding the corporate portion of the non-cash stock-based compensation charge of $1.0 million, compared to $6.2 million in the prior-year period. Pre-opening and Development Costs. During the quarter, the Company incurred pre-opening and development costs of $7.0 million, including $4.9 million for its St. Louis projects. The 2005 quarter included $17.4 million of such costs, primarily related to L'Auberge du Lac and St. Louis. Discontinued Operations. The Company completed the sale of the Crystal Park Casino card club in April and our leasehold interest and related receivables in the Hollywood Park Casino card club in July. The sale of the Crystal Park Casino resulted in a pre-tax book gain of approximately $10.7 million, which is reflected in discontinued operations for the 2006 second quarter. The sale of the Hollywood Park Casino assets resulted in a pre-tax book gain of approximately $17 million, which will be reflected in discontinued operations in the 2006 third quarter. Also included in discontinued operations are the results of Casino Magic Biloxi as the Company has decided to sell the Casino Magic Biloxi site. Merger Termination Proceeds. On March 13, 2006, Pinnacle entered into an agreement to acquire Aztar Corporation for $38 per share, subject to approval by Aztar's shareholders. Under the agreement, Aztar's board was permitted to evaluate and recommend to its shareholders any unsolicited, superior proposals from qualified entities in accordance with its fiduciary duties. Pinnacle had the right to match any such proposals. If Pinnacle chose to not match a superior proposal, Aztar could terminate its merger agreement with Pinnacle by paying a merger termination fee. During April and May, Aztar received several proposals that its board deemed to be superior to Pinnacle's. Pinnacle matched or exceeded several of these proposals. Ultimately, Pinnacle chose not to match a proposal to acquire Aztar for $54 per share. Aztar's board then terminated its merger agreement with Pinnacle and made a merger termination payment of $78 million. Pinnacle utilized the services of several investment banking and legal firms in pursuing its acquisition of Aztar. In payment for such services, and in particular for the commitment of more than $3.5 billion of capital that would have been needed to consummate the transaction, these firms were paid significant fees, some of which involved percentages of our break-up fees, subject to a cap. Net of such fees and expenses, the merger termination fee received by Pinnacle was approximately $44.8 million. Liquidity. In light of the Company's significant construction and development projects, the Company currently has a very liquid financial position. The Company had approximately $378 million in cash, cash equivalents and restricted cash at June 30, 2006. Of the Company's $750 million bank credit facility, approximately $484 million remains unutilized and available as of June 30, 2006. The Company also expects significant funds to be received from its insurance claims during future periods. These resources, plus possible additional borrowings, are expected to be used to fund the Company's various new projects, several expansions at existing facilities, as well as potential additional growth initiatives that the Company may choose to pursue. As of June 30, 2006, the Company achieved a 2:1 ratio of EBITDA to interest as defined in the Company's debt indentures, thereby significantly increasing the Company's overall financial flexibility. Community Contribution Pinnacle pays significant taxes in the communities in which it operates. During the first six months of 2006, Pinnacle paid or accrued $114.2 million in gaming taxes, $8.4 million in payroll taxes, $5.8 million in property taxes, and $2.8 million in sales taxes. Setting aside income taxes, Pinnacle paid or accrued $131.2 million for taxes to state and local authorities in the first six months of 2006. Conference Call Pinnacle will hold a conference call for investors today, August 1, 2006, at 11:00 a.m. EDT (8:00 a.m. PDT) to discuss its 2006 second quarter financial and operating results. Investors may listen to the call by dialing (888) 792-8395 or, for international callers, (706) 679-7241. Investors may also listen to the conference call live over the Internet at www.pnkinc.com. To listen to the live broadcast online, please go to the website at least 15 minutes before the call to register and download any needed audio software. |
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| Last Updated ( Wednesday, 02 August 2006 ) |
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