This excerpt taken from the PNK 8-K filed Feb 22, 2006.
Corporate Expenses. Corporate costs for the fourth quarter of 2005 were $6.4 million compared to $7.5 million in the prior-year period. For the year, corporate expenses totaled $23.5 million versus $22.6 million in 2004.
Pre-opening and Development Costs. During the quarter, the Company incurred $3.3 million of pre-opening and development costs associated primarily with its St. Louis projects, versus $4.0 million in the 2004 period primarily for LAuberge du Lac and, to a lesser extent, the St. Louis projects.
For the year, pre-opening and development costs were $29.6 million, compared to $14.4 million in 2004. This reflected the openings of the LAuberge du Lac facility and the Argentina facility in May and July 2005, respectively, and the ongoing development of the St. Louis projects.
Loss on Early Extinguishment of Debt. The Company refinanced its bank credit facility in December 2005, increasing its size and flexibility and reducing its pricing. Although the refinancing was structurally and economically positive for the Company, it resulted in a write-off of unamortized debt issuance costs related to the prior facility of $2.4 million in the period. The Company has had a series of such refinancings in recent years, as its credit position has improved and it has taken advantage of lower interest rates and positioned itself to fund construction of LAuberge, the St. Louis projects, and the three expansions of existing properties. As a result, there was also a loss on early extinguishment of debt in the fourth quarter of 2004 totaling $3.5 million. For the years 2005 and 2004, such debt extinguishment on refinancing charges were $3.8 million and $14.9 million, respectively.
Discontinued Operations. As noted, the Company is in the process of selling its California card clubs. California law effectively does not permit a public company to operate card clubs. Hence, the Company for many years had leased these card clubs to a third-party operator. In 2004, the Company helped sponsor a voter initiative that would have permitted card clubs to offer slot machines. The measure was heavily opposed by Native American tribal casinos in California, which funded an extensive media campaign, and the measure was defeated. The Company determined that the upside of ownership of such leased facilities was limited and that it would prefer to focus its resources on businesses that it can manage directly. Furthermore, because of the value of its California real estate positions, the Company believes it can obtain a relatively high price relative to the rental income generated by these facilities. Hence, as of December 31, the card clubs have been reclassified as a business held for sale and past results show it as discontinued operations. The Company hopes to close the sale of the card clubs during the first half of 2006.
Income Tax Expense/Benefit. During the 2005 fourth quarter, the Company recorded net federal income tax credits of approximately $1.6 million relating to wage continuation payments to workers displaced by Hurricanes Katrina and Rita, approximately $752,000 of which related to wages for Casino Magic Biloxi.
During the 2005 third quarter, the Company recorded a tax benefit of approximately $9.8 million associated with its Belterra operations. Belterra generated losses in its first periods after its opening in 2000. Such losses would ordinarily create a tax benefit to the income statement. The Company fully reserved for the income tax benefits for Indiana state income tax purposes as the realization of such benefits was deemed uncertain. Belterra has shown a remarkable turnaround in recent years, assisted by a guestroom addition completed in 2004. Meanwhile, Indiana courts have taken an unusual position that, under Indiana law, gaming taxes are not deductible in determining net income for Indiana state income taxes. Between the improvement in operations and the tax rulings, management now believes Belterra is likely to someday incur state income taxes and therefore utilize the benefits. As a result, the Company reversed approximately $9.8 million of valuation allowance for its Indiana state income tax Net Operating Loss carryforwards.