Pinnacle eyed as takeover
candidate with earnings increase

Nov 9, 2004 7:43 AM

As Wall Street analysts speculated last week as to what company would provide the next prized acquisition, Pinnacle Entertainment Inc. (PNK) reported its third strong quarterly results.

Thus with growing revenues and earnings Pinnacle, whose chairman and CEO is Dan Lee, former chief financial officer of the former Mirage Resorts Inc. when it was operated by its founder Steve Wynn, has placed itself into an attractive position as a potential acquisition.

One prominent gaming industry reporter recently wrote that he believed "that Wynn and the soon to be public LV Sands could play a role in the consolidation game eventually, possibly even with the reuniting of Dan Lee with Steve Wynn via a WYNN/PNK combination."

Pinnacle has riverboat operations in New Orleans and Bossier City in Louisiana, a riverboat in Mississippi and its flagship in Indiana. It also has projects under way in Lake Charles, La., and in St. Louis, Mo.

For the third quarter, revenues rose 4.8% to $146.5 million from $139.7 million a year earlier. Adjusted net income for the period that ended on Sept. 30 was $2.5 million or $0.07 per share compared to last year’s $357,000 or $0.01 per share.

Excitement in the industry was created by last week’s announcement that Penn National Gaming Inc. (PENN) would acquire Argosy Gaming (AGY) for $1.4 billion. Upon completion of the merger, Penn National will become the country’s third largest gaming company following Harrah’s Entertainment Inc. (HET), after its merger with Caesars Entertainment Inc. (CZR), and MGM MIRAGE Inc. (MGG) following the acquisition of Mandalay Resort Group (MBG).

Int. Game Technology

Once again, International Game Technology (IGT), the country’s largest developer and manufacturer of gaming machines, topped analysts’ estimates for earnings in its fourth fiscal quarter.

The company reported revenues of $621.7 million and earnings of $127.7 million or $0.35 per share while the average of analysts who follow the company was for revenues of $605 million and $0.33 per share.

For the fiscal year that ended on Sept. 30, IGT earned $488.7 million or $1.34 a share, about in line with analysts’ estimates.

Scientific Games

Crediting a recent acquisition and strong sales of instant lottery tickets, Scientific Games Corporation (SGMS) reported third quarter revenues of $179.3 million and net income of $21.5 million or $0.24 per share for the third fiscal quarter of 2004.

The revenues were 36% higher than the $132.1 million reported in the third quarter of 2003. Also, the earnings last year were $13.2 million or $0.15 per share.

The company noted that its acquisition of IGT OnLine Entertainment Systems was a "significant contributor" to the gains experienced in 2004.

During the period, the company reported that its Autotote division had extended its contracts with 12 casinos in Atlantic City and added new pari-mutuel customers that represented $6.2 million of annual revenue.

Lakes Entertainment

During the reporting quarter, Lakes Entertainment Inc. (LACO) spun off its poker subsidiary, World Poker Tour Enterprises Inc. (WPTE), but remained its majority shareholder with a 64% interest.

Because of its majority position, the company said, it was reporting consolidated results with WPTE.

For the quarter that ended on Oct. 3, the company had revenues of $3 million compared to $400,000 in the corresponding period a year earlier. Net loss for the quarter was $1.7 million or $0.08 per share. Last year, the loss was $1.3 million or $0.06 per share.

In addition to its WPTE holdings, LACO has development and management agreements with three Indian tribes. One is in Michigan and two are in California.

Magna Entertainment

Third quarter financial results for Magna Entertainment Corp. (MECA) were "disappointing," according to a company official.

Revenues for the period were $102 million, slightly less than a year earlier, while the net loss increased to $50 million from last year’s $15 million.

"Despite only a small decline in revenues," said Jim McAlpine, president and CEO, "our EBITDA (earnings before interest, taxes, depreciation and amortization) loss has been impacted by MEC continuing to incur significant costs ahead of revenues as we position ourselves to achieve our strategic objectives and by higher costs in the pursuit of alternative gaming opportunities and regulatory reform."

A major expense during the period was the company’s efforts to pass legislation in California, which failed, and in Florida, that passed. The Florida referendum deals with slots at racetracks and frontons and must be approved in November, 2005, by the residents of the counties involved.

Also, Oklahoma voters approved racetrack slots that could benefit the company’s Remington Park.

Churchill Downs

After factoring in an impairment charge for one of its racetracks, Churchill Downs Inc. (CHDN) reported a net loss of $0.29 per diluted share for the third quarter of 2004 that ended on Sept. 30.

Net revenues for the third quarter also declined when compared to a year earlier. In 2004, revenues for the period totaled $122.2 million. The previous year the revenues totaled $124 million.

CEO Tom Meeker explained that not only was it necessary to reduce the value of Ellis Park but the company also "spent aggressively in support of ballot initiatives in California and Florida" that, if successful, would have benefited the company. Florida was successful but California failed.

He said the company looked forward to 2005 when the recent acquisition of Fair Grounds Race Course in New Orleans will be included in the fiscal results., one of the country’s leading online wagering companies, made significant progress by reversing last year’s loss into a major gain in the third of quarter of 2004.

The company reported revenue of $17.2 million, an increase of $2.9 million over the previous year, and a pre-tax profit of $791,000 compared to a loss in the third quarter of 2003 of $617.853.

The improved operating result was credited to an increase in handle of $83.7 million, up more than $11 million from last year.