Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
or
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o |
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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: 001-13641
PINNACLE ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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95-3667491 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
8918 Spanish Ridge Avenue
Las Vegas, NV 89148
(Address of principal executive offices) (Zip Code)
(702) 541-7777
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 12 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 þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). YES
o NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). YES
o NO
þ
As of the close of business on August 5, 2010, the number of outstanding shares of the
registrants common stock was 61,061,597.
PINNACLE ENTERTAINMENT, INC.
TABLE OF CONTENTS
PART I
Item 1. Financial Statements
PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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For the three months |
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For the six months |
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ended June 30, |
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ended June 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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(in thousands, except per share data) |
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Revenues: |
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Gaming |
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$ |
236,098 |
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$ |
217,398 |
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$ |
466,864 |
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$ |
440,689 |
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Food and beverage |
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17,801 |
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15,559 |
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33,087 |
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29,415 |
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Lodging |
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10,233 |
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9,952 |
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18,631 |
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18,223 |
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Retail, entertainment and other |
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9,437 |
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9,399 |
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17,546 |
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17,215 |
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273,569 |
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252,308 |
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536,128 |
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505,542 |
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Expenses and other costs: |
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Gaming |
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135,558 |
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128,996 |
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265,391 |
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256,033 |
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Food and beverage |
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18,137 |
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14,847 |
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33,845 |
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28,761 |
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Lodging |
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5,848 |
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6,025 |
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11,046 |
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11,651 |
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Retail, entertainment and other |
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5,841 |
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5,495 |
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10,409 |
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9,749 |
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General and administrative |
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60,895 |
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55,450 |
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115,484 |
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109,608 |
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Depreciation and amortization |
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29,345 |
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24,834 |
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55,234 |
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49,566 |
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Pre-opening and development costs |
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2,086 |
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4,061 |
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10,970 |
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6,988 |
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Impairment of indefinite-lived intangible assets |
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11,500 |
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11,500 |
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Impairment of land and construction costs |
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18,391 |
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18,391 |
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Write-downs, reserves and recoveries, net |
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1,657 |
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304 |
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(4,378 |
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755 |
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289,258 |
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240,012 |
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527,892 |
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473,111 |
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Operating income (loss) |
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(15,689 |
) |
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12,296 |
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8,236 |
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32,431 |
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Interest expense, net of capitalized interest |
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(27,417 |
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(15,915 |
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(48,369 |
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(32,490 |
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Gain on sale of equity securities |
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12,914 |
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12,914 |
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Loss on early extinguishment of debt |
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(434 |
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(1,852 |
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Other non-operating income |
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132 |
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63 |
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159 |
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148 |
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Income (loss) from continuing operations before income taxes |
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(43,408 |
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9,358 |
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(41,826 |
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13,003 |
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Income tax (expense) benefit |
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1,844 |
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(382 |
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2,051 |
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(561 |
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Income (loss) from continuing operations |
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(41,564 |
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8,976 |
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(39,775 |
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12,442 |
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Income (loss) from discontinued operations, net of income taxes |
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(7,750 |
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(4,268 |
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27,204 |
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(6,803 |
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Net income (loss) |
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$ |
(49,314 |
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$ |
4,708 |
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$ |
(12,571 |
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$ |
5,639 |
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Net income (loss) per common sharebasic |
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Income (loss) from continuing operations |
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$ |
(0.68 |
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$ |
0.15 |
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$ |
(0.66 |
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$ |
0.20 |
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Income (loss) from discontinued operations, net of income taxes |
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(0.13 |
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(0.07 |
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0.45 |
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(0.11 |
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Net income (loss) per common sharebasic |
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$ |
(0.81 |
) |
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$ |
0.08 |
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$ |
(0.21 |
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$ |
0.09 |
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Net income (loss) per common sharediluted |
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Income (loss) from continuing operations |
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$ |
(0.68 |
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$ |
0.15 |
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$ |
(0.66 |
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$ |
0.20 |
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Income (loss) from discontinued operations, net of income taxes |
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(0.13 |
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(0.07 |
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0.45 |
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(0.11 |
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Net income (loss) per common sharediluted |
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$ |
(0.81 |
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$ |
0.08 |
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$ |
(0.21 |
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$ |
0.09 |
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Number of sharesbasic |
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60,718 |
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60,064 |
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60,414 |
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60,036 |
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Number of sharesdiluted |
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60,718 |
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60,851 |
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60,414 |
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61,331 |
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See accompanying notes to the unaudited Condensed Consolidated Financial Statements
3
PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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June 30, 2010 |
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December 31, 2009 |
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(Unaudited) |
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(in thousands, except share data) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
204,301 |
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$ |
123,431 |
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Accounts receivable, net of allowance for doubtful accounts of $10,318 and $12,556 |
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24,852 |
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13,756 |
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Inventories |
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8,018 |
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6,313 |
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Prepaid expenses and other assets |
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21,064 |
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15,412 |
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Assets of discontinued operations held for sale |
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65,792 |
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96,403 |
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Total current assets |
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324,027 |
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255,315 |
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Restricted cash |
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6,612 |
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7,149 |
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Land, buildings,
riverboats and equipment: (Note 1)
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271,020 |
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210,810 |
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Land and land improvements |
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271,020 |
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210,810 |
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Buildings, riverboats and improvements |
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1,285,252 |
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1,070,812 |
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Furniture, fixtures and equipment |
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467,382 |
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412,159 |
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Construction in progress |
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10,789 |
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304,353 |
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2,034,443 |
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1,998,134 |
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Less: accumulated depreciation |
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(546,419 |
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(498,159 |
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1,488,024 |
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1,499,975 |
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Assets held for sale |
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1,661 |
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Goodwill |
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16,742 |
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16,742 |
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Intangible assets, net (Note 1) |
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18,516 |
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30,017 |
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Other assets, net |
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73,102 |
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29,620 |
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Deferred taxes- non current |
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3,377 |
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3,377 |
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Total assets |
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$ |
1,930,400 |
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$ |
1,843,856 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
46,971 |
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$ |
71,987 |
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Accrued interest |
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22,659 |
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21,267 |
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Accrued compensation |
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40,263 |
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41,077 |
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Accrued taxes |
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21,560 |
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17,217 |
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Other accrued liabilities |
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55,060 |
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49,922 |
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Deferred income taxes |
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1,274 |
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1,274 |
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Current portion of long-term debt (Note 2) |
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92 |
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88 |
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Liabilities of discontinued operations held for sale |
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13,734 |
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36,754 |
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Total current liabilities |
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201,613 |
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239,586 |
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Long-term debt less current portion (Note 2) |
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1,176,032 |
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1,063,283 |
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Other long-term liabilities |
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42,252 |
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46,578 |
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Total liabilities |
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1,419,897 |
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1,349,447 |
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Commitments and contingencies (Note 7) |
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Stockholders Equity |
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Preferred stock$1.00 par value, 250,000 shares authorized, none issued or outstanding |
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Common stock$0.10 par value, 61,061,097 and 60,079,686 shares outstanding, net of treasury shares |
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6,307 |
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6,209 |
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Additional paid in capital |
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1,025,478 |
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1,014,233 |
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Retained deficit |
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(500,950 |
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(488,379 |
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Accumulated other comprehensive loss |
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(242 |
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(17,564 |
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Treasury stock, at cost, for both periods 2,008,986 of treasury shares |
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(20,090 |
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(20,090 |
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Total stockholders equity |
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510,503 |
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494,409 |
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$ |
1,930,400 |
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$ |
1,843,856 |
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See accompanying notes to the unaudited Condensed Consolidated Financial Statements
4
PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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For the six months |
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ended June 30, |
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2010 |
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2009 |
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(in thousands) |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
(12,571 |
) |
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$ |
5,639 |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
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56,950 |
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52,386 |
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Loss on disposal of assets |
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1,669 |
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|
345 |
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Impairment of indefinite-lived intangible assets |
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11,500 |
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Impairment of land and construction costs |
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18,391 |
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Impairment of buildings, riverboats, and equipment |
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3,435 |
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346 |
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Gain on sale of equity securities |
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(12,914 |
) |
Provision for bad debts |
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447 |
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1,410 |
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Amortization of debt issuance costs |
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3,552 |
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2,302 |
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Share-based compensation expense |
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3,523 |
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|
7,694 |
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Change in accrued taxes |
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5,282 |
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|
4,789 |
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Changes in operating assets and liabilities: |
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Receivables |
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304 |
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1,083 |
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Prepaid expenses and other |
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(7,976 |
) |
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(10,209 |
) |
Other long-term assets |
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|
(7,184 |
) |
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|
1,880 |
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Accounts payable |
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(14,334 |
) |
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|
(5,125 |
) |
Accrued compensation |
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|
222 |
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|
(770 |
) |
Accrued interest |
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|
1,392 |
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|
(40 |
) |
Other accrued liabilities |
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4,650 |
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|
(1,103 |
) |
Other long-term liabilities |
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(19,335 |
) |
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|
242 |
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Net cash provided by operating activities |
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49,917 |
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|
47,955 |
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Cash flows from investing activities: |
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|
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|
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Capital expenditures |
|
|
(93,417 |
) |
|
|
(84,193 |
) |
Change in restricted cash |
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|
790 |
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|
|
(235 |
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Proceeds from sale of equity securities |
|
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|
23,674 |
|
Proceeds from sale of property and equipment |
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|
13,595 |
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|
368 |
|
Baton Rouge escrow deposit |
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(25,000 |
) |
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Net proceeds from sale of discontinued operations |
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25,094 |
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Net cash used in investing activities |
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(78,938 |
) |
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|
(60,386 |
) |
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Cash flows from financing activities: |
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Borrowings under credit facility |
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165,379 |
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|
57,225 |
|
Repayments under credit facility |
|
|
(202,298 |
) |
|
|
(25,991 |
) |
Proceeds from issuance of 8.75% Notes |
|
|
350,000 |
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|
Repayment of 8.25% Notes |
|
|
(200,000 |
) |
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Payments on other secured and unsecured notes payable |
|
|
(9 |
) |
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|
(44 |
) |
Proceeds from common stock options exercised |
|
|
6,519 |
|
|
|
455 |
|
Proceeds from issuance of common stock |
|
|
1,166 |
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|
Debt issuance and other financing costs |
|
|
(15,005 |
) |
|
|
(605 |
) |
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Net cash provided by financing activities |
|
|
105,752 |
|
|
|
31,040 |
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(379 |
) |
|
|
(302 |
) |
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
76,352 |
|
|
|
18,307 |
|
Cash and cash equivalents at the beginning of the period |
|
|
129,576 |
|
|
|
115,712 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period |
|
$ |
205,928 |
|
|
$ |
134,019 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
|
$ |
43,455 |
|
|
$ |
30,500 |
|
Cash payments related to income taxes, net |
|
|
2,929 |
|
|
|
1,350 |
|
Increase (decrease) in construction related deposits and liabilities |
|
|
(15,608 |
) |
|
|
9,942 |
|
See accompanying notes to the unaudited Condensed Consolidated Financial Statements
5
PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1Summary of Significant Accounting Policies
Basis of Presentation and Organization Pinnacle Entertainment, Inc. (Pinnacle) is an
owner, operator and developer of casinos and related hospitality and entertainment facilities. We
operate casinos located in southeastern Indiana (Belterra Casino Resort); Lake Charles, New
Orleans and Bossier City, Louisiana (LAuberge du Lac, Boomtown New Orleans and Boomtown
Bossier City, respectively); Reno, Nevada (Boomtown Reno) and St. Louis, Missouri (River City
Casino and Lumière Place Casino and Hotels). We view each property as an operating segment, with
the exception of our properties located in St. Louis, Missouri, which are aggregated into the St.
Louis reporting segment. References in these footnotes to Pinnacle, the Company, we, our
or us refer to Pinnacle Entertainment, Inc. and its subsidiaries, except where stated or the
context otherwise indicates.
In the first quarter of 2010, we made the decision to sell our Argentina operations and our
Atlantic City entities. On June 30, 2010, we completed the sale of our Argentina operations. In
addition, on June 24, 2010, we closed our President Casino located in St. Louis, Missouri. We have
classified the related assets and liabilities for all of these operations as held for sale in our
unaudited Condensed Consolidated Balance Sheets and have included the results in discontinued
operations. For further information, see Note 6, Discontinued Operations.
We are also developing a casino-hotel in Baton Rouge, Louisiana, which is subject to various
regulatory approvals.
Principles of Consolidation The accompanying unaudited Condensed Consolidated Financial
Statements have been prepared in accordance with the instructions of the Securities and Exchange
Commission (SEC) to the Quarterly Report on Form 10-Q and, therefore, do not include all
information and notes necessary for complete financial statements in conformity with the
instructions for generally accepted accounting principles (GAAP) in the United States. The
results for the periods indicated are unaudited, but reflect all adjustments that management
considers necessary for a fair presentation of operating results. The unaudited Condensed
Consolidated Financial Statements include the accounts of Pinnacle Entertainment, Inc. and its
subsidiaries. All significant intercompany accounts and transactions have been eliminated in
consolidation.
The results of operations for interim periods are not indicative of a full year of operations.
These unaudited Condensed Consolidated Financial Statements and notes thereto should be read in
conjunction with the Consolidated Financial Statements and notes thereto included in our Annual
Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2009 and our Current
Report on Form 8-K filed on June 21, 2010, including Exhibit 99.1 which was filed to update the
historical financial statements included in the Companys Form 10-K to reflect its Casino Magic
Argentina operations and Atlantic City operations and related assets as held for sale for the year
ended December 31, 2009 and the results of those operations as discontinued operations for all
periods presented.
Use of Estimates The preparation of unaudited Condensed Consolidated Financial Statements
in conformity with accounting principles used in the United States requires management to make
estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the
disclosure of contingent assets and liabilities at the date of the consolidated financial
statements, and (iii) the reported amounts of revenues and expenses during the reporting period.
Estimates used by us include, among other things, the estimated useful lives for depreciable and
amortizable assets, the estimated allowance for doubtful accounts receivable, estimated income tax
provisions, the evaluation of the future realization of deferred tax assets, determining the
adequacy of reserves for self-insured liabilities and mychoice customer rewards programs, estimated
cash flows in assessing the recoverability of long-lived assets, asset impairments, goodwill and
intangible assets, contingencies and litigation, and estimates of the forfeiture rate and expected
life of share-based awards and stock price volatility when computing share-based compensation
expense. Actual results may differ from those estimates.
Fair Value Effective January 1, 2008, we adopted the authoritative guidance for fair value
measurements, which guidance provides companies the option to measure certain financial assets and
liabilities at fair value with
changes in fair value recognized in earnings each period. We have elected not to measure any
financial assets and liabilities at fair value that were not previously required to be measured at
fair value.
6
Fair value is defined in the authoritative guidance as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The guidance also establishes a framework for measuring fair value and
expands disclosures about fair value measurements. The fair value framework requires the
categorization of assets and liabilities into three levels based upon assumptions (inputs) used to
price the assets and liabilities. Level 1 provides the most reliable measure of fair value,
whereas Level 3 generally requires significant management judgment. The three levels are defined
as follows:
|
|
|
Level 1: Quoted market prices in active markets for identical assets or
liabilities. |
|
|
|
Level 2: Observable market-based inputs or unobservable inputs that are
corroborated by market data. |
|
|
|
Level 3: Unobservable inputs that are not corroborated by market data. |
We measure our liability for deferred compensation on a recurring basis. As of June 30, 2010,
the liability has a balance of $1.7 million and was valued using Level 1 inputs.
Land, Buildings, Riverboats and Equipment Land, buildings, riverboats and equipment are
stated at cost. Land includes land not currently being used in our operations, which totaled $45.3
million at both June 30, 2010 and December 31, 2009. We capitalize the costs of improvements that
extend the life of the asset. Construction in progress at June 30, 2010 relates primarily to our
Baton Rouge project. Interest expense is capitalized on internally constructed assets at our
overall weighted average cost of borrowing.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Depreciation expense |
|
$ |
29.3 |
|
|
$ |
24.8 |
|
|
$ |
55.2 |
|
|
$ |
49.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest |
|
$ |
|
|
|
$ |
2.7 |
|
|
$ |
3.5 |
|
|
$ |
4.9 |
|
In April 2010, we cancelled our planned $305 million Sugarcane Bay project in Lake Charles,
Louisiana and surrendered the related gaming license to the Louisiana Gaming Control Board. In
connection with this decision, we recorded an impairment charge of $18.4 million during the second
quarter of 2010, which includes all previously capitalized construction in progress and costs to
terminate the construction contract with the general contractor. We expect to incur additional
contract termination costs, which amounts are not determinable as of June 30, 2010, as we are still
negotiating these amounts.
Goodwill and Other Intangible Assets Goodwill and other indefinite-lived intangible assets
are subject to an annual assessment for impairment during the fourth quarter, or more frequently if
there are indications of possible impairment, by applying a fair-value-based test. There were no
impairments to goodwill during the three and six months ended June 30, 2010 and 2009, respectively.
As the result of the cancellation of our planned $305 million Sugarcane Bay project in Lake
Charles, Louisiana we surrendered the related gaming license to the Louisiana Gaming Control Board.
In connection with this decision, we fully impaired our gaming license by $11.5 million during the
second quarter of 2010, which amount comprises impairment of indefinite-lived intangible assets in
the unaudited Condensed Consolidated Statements of Operations.
7
Gaming Taxes We are subject to taxes based on gross gaming revenues in the jurisdictions in
which we operate, subject to applicable jurisdictional adjustments. These gaming taxes are an
assessment of our gaming revenues and are recorded as a gaming expense in the unaudited Condensed
Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Gaming taxes |
|
$ |
71.0 |
|
|
$ |
64.8 |
|
|
$ |
139.0 |
|
|
$ |
131.0 |
|
Pre-opening and Development Costs Pre-opening and development costs are expensed as
incurred, consistent with authoritative guidance. For the three and six months ended June 30, 2010
and 2009, they consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
River City (a) |
|
$ |
1.2 |
|
|
$ |
1.6 |
|
|
$ |
9.4 |
|
|
$ |
2.8 |
|
Baton Rouge |
|
|
0.2 |
|
|
|
1.6 |
|
|
|
0.4 |
|
|
|
2.7 |
|
Sugarcane Bay (b) |
|
|
0.6 |
|
|
|
0.6 |
|
|
|
1.1 |
|
|
|
1.2 |
|
Other |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-opening and development costs |
|
$ |
2.1 |
|
|
$ |
4.0 |
|
|
$ |
11.0 |
|
|
$ |
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Pre-opening expenses include $0.7 million for non-cash straight-lined rent
accruals under a lease agreement for the six months ended June 30, 2010, and there were
no rent accrual charges in the three months ended June 30, 2010, as River City opened
in March 2010. Non-cash straight-lined rent accruals were $1.0 million and $1.9
million for three and six months ended June 30, 2009, respectively. |
|
(b) |
|
Sugarcane Bay development expenses are costs associated with the process of
ending the project. |
Comprehensive Income Our comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(49.3 |
) |
|
$ |
4.7 |
|
|
$ |
(12.6 |
) |
|
$ |
5.6 |
|
Post-retirement plan benefit obligation,
net of income taxes (a) |
|
|
0.1 |
|
|
|
|
|
|
|
0.2 |
|
|
|
0.8 |
|
Foreign currency translation gain (loss) (b) |
|
|
17.4 |
|
|
|
(0.4 |
) |
|
|
17.1 |
|
|
|
(2.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(31.8 |
) |
|
$ |
4.3 |
|
|
$ |
4.7 |
|
|
$ |
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Included in the balance are benefit obligations related to both the
executive deferred compensation plan and directors health and medical plan. |
|
(b) |
|
On June 30, 2010, we completed the sale of our Argentina operations. |
Earnings per Share Diluted earnings per share assume exercise of in-the-money stock options
(those options with exercise prices at or below the weighted average market price for the periods
presented) outstanding at the beginning of the period or at the date of issuance. We calculate the
effect of dilutive securities using the treasury stock method. As of June 30, 2010 and 2009, our
share-based awards issued under our stock option plans consisted primarily of common stock option
grants.
8
Reclassification During the quarter, we reclassified $1.0 million from assets held for sale
as of December 31, 2009 to assets of discontinued operations held for sale, to conform to the
current year presentation. This reclassification had no effect on net income as previously
reported.
Recently Issued Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (the FASB) issued new
authoritative guidance regarding disclosures about fair value measurements. An entity is now
required to disclose separately the amounts of significant transfers in and out of Level 1 and 2
fair value measurements, and describe the reasons for the transfers and additional disclosure is
required regarding purchases, sales, issuances and settlements of Level 3 measurements. The
guidance is effective for interim and annual periods beginning after December 15, 2009, except for
the additional disclosure of Level 3 measurements, which is effective for fiscal years beginning
after December 15, 2010. The adoption of this guidance did not have, and is not expected to have,
a material effect on our unaudited Condensed Consolidated Financial Statements.
In April 2010,
the FASB issued authoritative accounting guidance for companies that generate
revenue from gaming activities that involve base jackpots, which requires
companies to accrue for a liability at the time the company has the obligation
to pay the jackpot and record such obligation as a reduction of gaming revenue
accordingly. The guidance is effective for interim and annual reporting periods
beginning on or after December 15, 2010. We are still assessing the impact
this guidance will have on our unaudited Condensed Consolidated Financial
Statements.
A variety of proposed or otherwise potential accounting standards are currently under review
and study by standard-setting organizations and certain regulatory agencies. Because of the
tentative and preliminary nature of such proposed standards, we have not yet determined the effect,
if any, that the implementation of any such proposed or revised standards would have on our
unaudited Condensed Consolidated Financial Statements.
Note 2Long-Term Debt
Long-term debt at June 30, 2010 and December 31, 2009 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Senior Secured Credit Facility |
|
$ |
|
|
|
$ |
36.9 |
|
8.625% Senior Notes due 2017 |
|
|
444.2 |
|
|
|
443.9 |
|
8.25% Senior Subordinated Notes due 2012 |
|
|
|
|
|
|
200.9 |
|
7.50% Senior Subordinated Notes due 2015 |
|
|
381.1 |
|
|
|
380.8 |
|
8.75% Senior Subordinated Notes due 2020 |
|
|
350.0 |
|
|
|
|
|
Other secured and unsecured notes payable |
|
|
0.8 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
1,176.1 |
|
|
|
1,063.4 |
|
Less current maturities |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,176.0 |
|
|
$ |
1,063.3 |
|
|
|
|
|
|
|
|
Senior Secured Credit Facility: On February 5, 2010, we entered into an amended and restated
credit agreement for a $375 million revolving credit facility (the Credit Facility), which
matures on March 31, 2014. As of June 30, 2010, we had no borrowings outstanding under the Credit
Facility, and had $9.6 million committed under letters of credit for various self-insurance
programs.
The Credit Facility has, among other things, restrictive financial covenants and capital
spending limits and other affirmative and negative covenants. In April 2010, we modified certain
covenants of our Credit Facility. Previously, there was a provision in the Credit Facility that we
could not spend more than $25 million in construction and development costs on the Baton Rouge
project after January 1, 2010 unless we had received at least $100 million in the aggregate from
permitted sales or other dispositions of assets (including receipt of insurance proceeds), cash tax
refunds, litigation settlements, and/or gross proceeds received by us from the issuance and sale of
non-debt capital, and/or dividends and distributions received from unrestricted subsidiaries net of
investments made after January 1, 2010 in such unrestricted subsidiaries that have not been charged
to an investment basket. In the modification to our Credit Facility, this amount was reduced from
$100 million in the aggregate to $40 million, and we have the funds available to meet this
requirement.
9
Loss on Early Extinguishment of Debt: During the six months ended June 30, 2010, we incurred
a loss on early extinguishment of debt of $1.9 million related to the write off of unamortized debt
issuance costs related to the modification of our Credit Facility and the early retirement of our
8.25% Senior Subordinated Notes due 2012 (the 8.25% Notes).
8.75% Senior Subordinated Notes due 2020: On May 6, 2010, we closed an offering of $350
million in aggregate principal amount of new 8.75% senior subordinated notes due 2020 (the 8.75%
Notes). The 8.75% Notes were issued in a private offering conducted pursuant to Rule 144A and
Regulation S under the Securities Act of 1933, as amended, at a price equal to par. Net of the
initial purchasers fees and various costs and expenses, net proceeds from the offering were
approximately $341.5 million. Using the net proceeds, we redeemed all of our then existing 8.25%
Notes, of which $200 million in aggregate principal amount was outstanding, and repaid $80 million
in revolving credit borrowings under the Credit Facility. The remaining net proceeds from the
offering are expected to be used for general corporate purposes, including the funding of our Baton
Rouge project.
Interest expense, net of capitalized interest was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Interest expense before capitalization of interest |
|
$ |
27.4 |
|
|
$ |
18.6 |
|
|
$ |
51.9 |
|
|
$ |
37.4 |
|
Less: capitalized interest |
|
|
|
|
|
|
(2.7 |
) |
|
|
(3.5 |
) |
|
|
(4.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net of capitalized interest |
|
$ |
27.4 |
|
|
$ |
15.9 |
|
|
$ |
48.4 |
|
|
$ |
32.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in interest expense before capitalized interest for the three and six months
ended June 30, 2010 from the same 2009 period was due to the replacement of less expensive revolver
borrowings with new, long-term notes. We believe the longer maturity, fixed interest rate and
less-restrictive covenants of the new long-term notes warranted the higher interest rate. The
decrease in capitalized interest was due to the opening of our River City project in March 2010.
We stopped capitalizing interest on our River City project upon its opening.
Note 3Income Taxes
Our effective income tax rate for continuing operations for the three and six months ended
June 30, 2010 was 4.3% and 4.9%, respectively, as compared to 4.1% and 4.3% for the same periods
last year. Our effective tax rates in 2010 differ from the statutory rate due to the effects of
permanent items, the recording of a valuation allowance against a portion of our deferred tax
assets generated in the current year, and the recording of a reserve for unrecognized tax benefits.
It is reasonably possible that the total amount of unrecognized tax benefits may decrease by
approximately $1.0 million to $3.0 million during the next twelve months.
Note 4Employee Benefit and Other Plans
Share-based Compensation: As of June 30, 2010, we had approximately 6.3 million share-based
awards issued, 263,500 of which are restricted stock awards and the rest of which are common stock
options, and approximately 2.2 million share-based awards available for grant.
Pursuant to authoritative guidance, we recorded share-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Share-based compensation expense |
|
$ |
2.1 |
|
|
$ |
5.3 |
|
|
$ |
3.5 |
|
|
$ |
7.5 |
|
10
Theoretical compensation costs not yet amortized related to stock options granted totaled
approximately $21.1 million and $19.4 million at June 30, 2010 and 2009, respectively, and the
weighted average period over which the costs are expected to be recognized is approximately three
years.
The aggregate amount of cash we received from the exercise of stock options was as follows.
The associated shares were newly issued common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Cash received from exercise of stock options |
|
$ |
6.5 |
|
|
$ |
0.1 |
|
|
$ |
6.5 |
|
|
$ |
0.5 |
|
The following table summarizes information related to our common stock options under our stock
option plans:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted Average |
|
|
|
Stock Options |
|
|
Exercise Price |
|
Options outstanding at January 1, 2010 |
|
|
6,342,007 |
|
|
$ |
14.56 |
|
Granted |
|
|
1,523,000 |
|
|
$ |
9.37 |
|
Exercised |
|
|
(846,411 |
) |
|
$ |
7.80 |
|
Cancelled, Forfeited |
|
|
(727,158 |
) |
|
$ |
18.65 |
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2010 |
|
|
6,291,438 |
|
|
$ |
13.74 |
|
|
|
|
|
|
|
|
|
Vested or expected to vest at a point in the future as of June 30, 2010 |
|
|
6,092,502 |
|
|
|
|
|
Options exercisable at June 30, 2010 |
|
|
3,951,013 |
|
|
$ |
14.79 |
|
Weighted-average value per granted option calculated using the
Black-Scholes option-pricing model for options granted during the six
months ended June 30, 2010 |
|
$ |
5.74 |
|
|
|
|
|
Note 5Write-downs, reserves and recoveries, net
Write-downs, reserves and recoveries, net consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Impairment of assets |
|
$ |
0.5 |
|
|
$ |
0.2 |
|
|
$ |
0.5 |
|
|
$ |
0.4 |
|
Loss on disposal of assets |
|
|
1.2 |
|
|
|
0.1 |
|
|
|
1.6 |
|
|
|
0.4 |
|
Legal settlement recoveries |
|
|
|
|
|
|
|
|
|
|
(6.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-downs, reserves and recoveries, net |
|
$ |
1.7 |
|
|
$ |
0.3 |
|
|
$ |
(4.4 |
) |
|
$ |
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets: In July 2006, we sold land to Cabelas Retail, Inc. for the
construction of a branded sporting goods store. Cabelas Retail, Inc. financed its retail store
construction and certain road access improvements that also benefited our Boomtown Reno property
through the issuance of sales tax increment bonds through local or state governmental authorities.
In April 2010, we purchased $5.3 million face amount of these bonds from Cabelas Retail, Inc. for
$5.0 million. During the quarter ended June 30, 2010, we recorded an impairment of $0.2 million
related to these bonds.
We impaired the fair value of leasehold improvements related to vacated office space by $0.3
million during the quarter ended June 30, 2010.
Loss on disposal of assets: During the six months ended June 30, 2010, we sold our corporate
jet, two seaplanes, a warehouse and slot equipment at our properties for a net loss of $1.6
million. During the six months ended June 30, 2009, we sold slot equipment for a loss of $0.4
million.
11
Legal settlement recoveries: In March 2010, we received a $6.5 million legal settlement
related to the recovery of legal fees.
Note 6Discontinued Operations
Discontinued operations as of June 30, 2010 consist of our former Casino Magic Argentina
operations, the Atlantic City operations, the former President Casino operations, former Casino
Magic Biloxi operations and former operations at The Casino at Emerald Bay in The Bahamas.
Casino Magic Argentina: On April 29, 2010, we entered into an agreement to sell our Argentina
operations. We had previously reflected the business as a discontinued operation and the related
assets and liabilities as held for sale. On June 30, 2010, we completed the sale of our Argentina
operations for approximately $40 million and recognized a loss on disposal of approximately $0.2
million, which amount has been included in income (loss) from discontinued operations, net of
income taxes, in the unaudited Condensed Consolidated Statements of Operations.
Atlantic City: In the first quarter of 2010, we made the decision to sell our Atlantic City
operations. We have reflected our Atlantic City entities as discontinued operations and the
related assets and liabilities as held for sale.
President Casino: On March 10, 2010, we reached a settlement agreement with the Missouri
Gaming Commission (MGC) to close the President Casino. The property closed on June 24, 2010, and
as such, is considered a discontinued operation. In connection with the closure, we expect to
incur costs associated with the removal and disposal of The Admiral Riverboat, on which the
President Casino resides. However, at this time the amount of costs to be incurred cannot be
reasonably estimated and no accrual has been booked as of June 30, 2010. In addition, as part of
our removal process, we are required to perform certain tests on all underground and above ground
storage tanks to ensure the area complies with environmental standards. We may incur additional
costs to remove or repair any tanks that fail such tests.
Casino Magic Biloxi: Casino Magic Biloxi closed after significant damage from Hurricane
Katrina in 2005. In February 2010, we settled all remaining insurance claims in exchange for a
final payment of approximately $23.4 million. We have received payments totaling approximately
$215 million from our insurers related to this asset. Prior insurance advances that exceeded the
book value of destroyed assets and certain insured expenses were recorded as a deferred gain of
$18.3 million. As a result of this final settlement, we recognized this deferred gain in February
2010 in addition to the gain associated with the proceeds.
The Casino at Emerald Bay: The Casino at Emerald Bay in The Bahamas was closed during the
first quarter of 2009. We are actively marketing one remaining asset associated with our former
Bahamas operation; however, events and circumstances beyond our control have extended the period to
complete the sale of this asset beyond a year. The operation continues to be classified as a
discontinued operation and the related assets of discontinued operations held for sale.
12
Revenue, expense and net income for entities and operations included in discontinued
operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Revenues |
|
$ |
13.5 |
|
|
$ |
13.9 |
|
|
$ |
28.5 |
|
|
$ |
29.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(3.9 |
) |
|
|
(2.0 |
) |
|
|
(9.7 |
) |
|
|
(3.7 |
) |
Non-operating income (loss) |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
41.5 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(4.1 |
) |
|
|
(2.2 |
) |
|
|
31.8 |
|
|
|
(3.9 |
) |
Income tax expense |
|
|
(3.7 |
) |
|
|
(2.1 |
) |
|
|
(4.6 |
) |
|
|
(2.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
(7.8 |
) |
|
$ |
(4.3 |
) |
|
$ |
27.2 |
|
|
$ |
(6.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets for entities and operations included in discontinued operations are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Assets: |
|
|
|
|
|
|
|
|
Land, buildings, riverboats and equipment, net |
|
$ |
38.4 |
|
|
$ |
57.4 |
|
Other assets, net |
|
|
27.4 |
|
|
|
39.0 |
|
|
|
|
|
|
|
|
|
|
$ |
65.8 |
|
|
$ |
96.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and other accrued liabilities |
|
$ |
13.4 |
|
|
$ |
17.4 |
|
Long term liabilities |
|
|
0.3 |
|
|
|
19.3 |
|
|
|
|
|
|
|
|
|
|
|
13.7 |
|
|
|
36.7 |
|
|
|
|
|
|
|
|
Net Assets |
|
$ |
52.1 |
|
|
$ |
59.7 |
|
|
|
|
|
|
|
|
Note 7Commitments and Contingencies
Redevelopment Agreement for Lumière Place: In connection with our Lumière Place project, we
have a redevelopment agreement which, among other things, commits us to oversee the investment of
$50.0 million in residential housing, retail or mixed-use developments in the City of St. Louis
within five years of the opening of the Lumière Place Casino and Hotels. Such investment can be
made with partners and partner contributions and project debt financing, all of which count toward
the $50.0 million investment commitment. We are also obligated to pay an annual fee of $1.0 million
to the City of St. Louis beginning after our River City project opens. The redevelopment agreement
also contains certain contingent payments in the event of certain defaults. If we and any
development partners collectively fail to invest $50.0 million in residential housing, retail, or
mixed-use developments within five years of the opening of the casino and hotel, we would be
obligated to pay an additional annual service fee of $1.0 million in Year Six, $2.0 million in
Years Seven and Eight, and $2.0 million annually thereafter, adjusted by the change in the consumer
price index.
Guaranteed Maximum Price Agreement for River City: On August 8, 2008, we entered into an
Agreement for Guaranteed Maximum Price Construction Services with a general contractor for the
construction of our River City project. Among other things, the Agreement establishes that the
contractor will complete the construction of the casino for a maximum price of approximately $149
million, plus approved change orders. River City opened on March 4, 2010. We agreed to pay the contractor
$152 million, of which approximately $10.0 million was outstanding as of June 30, 2010, which
amount was paid subsequent to quarter end.
13
Lease and Development Agreement for River City: In connection with our River City project, we
have a lease and development agreement with the St. Louis County Port Authority which, among other
things, commits us to lease 56 acres for 99 years (not including certain termination provisions).
We are required to invest a minimum of $375 million to: (a) construct a gaming and multi-use
facility, which opened on March 4, 2010; (b) perform environmental remediation on the site of the
project, which remediation has been completed; (c) contribute $5.1 million for the construction of
community and recreational facilities, which amount has been paid; (d) develop and construct a
hatch shell on the adjoining property within eighteen months of March 4, 2010; and (e) construct a
roadway into the project, which construction is complete. We are required to pay rent in the amount
of $2.5 million from May 1, 2009 to March 31, 2010, which amount has been paid. From April 1, 2010
through the expiration of the term of the lease and development agreement, we are required to pay
to St. Louis County as annual rent the greater of (a) $4.0 million, or (b) 2.5% of annual adjusted
gross receipts, as that term is defined in the lease and development agreement. We are also
required to invest at least an additional $75 million into a second phase that would include a
hotel with a minimum of 100 guestrooms and other amenities, to be mutually agreed upon by us and
St. Louis County. The second phase must be opened within three years of March 4, 2010. In each of
the five subsequent years that the second phase is not opened, the amount of liquidated damages
begins at $2.0 million for the first year and increases by $1.0 million each subsequent year:
hence, $3.0 million in Year Two, $4.0 million in Year Three, $5.0 million in Year Four and $6.0
million in Year Five. As a result, the maximum amount of such liquidated damages that we would have
to pay if the second phase is not completed is $20.0 million.
Self-Insurance: We self-insure various levels of general liability, workers compensation and
medical coverage. Insurance reserves include accruals for estimated settlements for known claims,
as well as accruals for estimates of claims not yet made, which are included in Accrued
compensation and Other accrued liabilities on the unaudited Condensed Consolidated Balance
Sheets.
Legal
Jebaco Litigation: On August 9, 2006, Jebaco, Inc. (Jebaco) filed suit in the U.S. District
Court for the Eastern District of Louisiana against Harrahs Operating Co., Inc., Harrahs Lake
Charles, LLC, Harrahs Star Partnership, Players LC, LLC, Players Riverboat Management, LLC,
Players Riverboat II, LLC, and Pinnacle Entertainment, Inc. The lawsuit arises out of an agreement
between Jebaco and Harrahs (as successor in interest to the various Players defendants) whereby
Harrahs was obligated to pay Jebaco a fee based on the number of patrons entering Harrahs two
Lake Charles, Louisiana riverboat casinos. In November 2006, we acquired the Harrahs Lake Charles
subsidiaries, including the two riverboats. The lawsuit filed by Jebaco asserts that Harrahs, in
ceasing gaming operations in Lake Charles and ceasing payments to Jebaco, breached its contractual
obligations to Jebaco and asserts damages of approximately $34.0 million. Jebaco also asserts that
our agreement with Harrahs violates state and federal antitrust laws. The lawsuit seeks antitrust
damages jointly and severally against both us and Harrahs and seeks a trebling of the $34.0
million in damages Jebaco alleges it has suffered. The defendants answered the complaint, denying
all claims and asserting that the lawsuit is barred, among other reasons, because of the approval
of our transaction with Harrahs by the Louisiana Gaming Control Board and the lack of antitrust
injury to Jebaco. In January 2007, all of the defendants moved to dismiss all of the claims of the
complaint, which motions were heard on July 18, 2007. The motions to dismiss were granted with
prejudice as to the federal antitrust claims and the state-law claims were dismissed without
prejudice. Judgment of dismissal was entered on March 5, 2008. Jebaco appealed the dismissal of the
federal antitrust claims to the U.S. Court of Appeals for the Fifth Circuit. Further, on March 13,
2008, Jebaco filed a new lawsuit against the same parties in the Louisiana district civil court for
Orleans Parish. This lawsuit seeks unspecified damages arising out of the same circumstances as the
federal lawsuit based on claims for breach of the duty of good faith, negligent breach of contract,
breach of contract, unfair trade practices, unjust enrichment, and subrogation to Harrahs
insurance proceeds. In May 2009, the Louisiana district civil court extended the stay of the state
case indefinitely pending the decision of the Fifth Circuit on Jebacos appeal. On October 30,
2009, the Fifth Circuit affirmed the district courts dismissal of the federal antitrust claims.
Jebaco has not yet indicated if it intends to appeal the Fifth Circuit decision. We moved for
dismissal of the state-court claims. On January 29, 2010, the state court judge dismissed Jebacos
complaint in its entirety. On April 16, 2010, Jebaco moved the district civil court for leave to
appeal the dismissal of its claims. On April 23, 2010, the district court granted Jebacos motion
for an order of appeal.
14
Madison House Litigation: On December 23, 2008, Madison House Group, L.P. (Madison House)
filed suit in Superior Court of New Jersey, Chancery Division, Atlantic County against the Company,
ACE Gaming, LLC
(ACE, a wholly owned subsidiary of the Company), and one other defendant. We acquired ACE as
part of our acquisition of the entities owning the former Sands Hotel & Casino (the Sands) in
Atlantic City, New Jersey in November 2006. The lawsuit arises out of a lease dated December 18,
2000 between Madison House as landlord and ACE as tenant for the Madison House hotel in Atlantic
City, New Jersey. The lawsuit alleges in part that ACE breached certain obligations under the
lease, including, among other things, failure to operate and maintain the hotel as required by the
lease, which was alleged to have resulted in substantial damages to the hotel. The lawsuit further
alleges that the Company, as the ultimate parent entity of ACE, should be jointly and severally
liable with ACE for the damages sought, and separately alleges independent actions against the
Company as described more fully in the lawsuit. The lawsuit seeks specific performance of ACEs
obligations under the lease, including restoration of the hotel, as well as unspecified
compensatory and exemplary damages, and attorneys fees, against the Company and ACE. ACE continues
to make its payment obligations under the lease, which expires in December 2012.
On March 17, 2010, Madison House moved to dismiss its Complaint and ACEs Counterclaim without
prejudice, which motion was heard on April 28, 2010. The Court ruled that it was granting the
motion to dismiss Madison Houses Complaint, without prejudice, but that it was denying the motion
to dismiss ACEs Counterclaim. The Court also ruled that the case would be moved from the Chancery
Division to the Law Division. While the Company cannot predict the outcome of this litigation, it
intends to pursue its Counterclaim vigorously.
Collective Bargaining Agreements: On May 17, 2006, we entered into a Memorandum of
Agreement (the MOA) with Unite HERE Local 74 (Union) commensurate with our obligations under a
development agreement with the City of St. Louis that, among other things, provided union access to
certain employees (bargaining unit employees) employed at our Lumière Place facility should the
Union manifest its intent to organize those employees. Additionally, the MOA provided that we would
recognize the Union as the exclusive bargaining representative of the bargaining unit employees if
a majority of the employees (verified by a neutral arbitrator) indicated their desire to be
represented by the Union by signing an authorization card.
On November 20, 2008, an arbitrator conducted a review of the authorization cards submitted by
the Union and determined that a majority of the bargaining unit employees had indicated their
desire to be represented by the Union. Consistent with the MOA, we recognized the Union as the
exclusive bargaining representative for the bargaining unit employees. We met with the Union three
times to negotiate a collective bargaining agreement; the last meeting was on February 18, 2009.
During March and April 2009, we received competing claims from three unions, each claiming to
be the exclusive collective bargaining representative of our St. Louis employees, including a claim
from one union that they were the successor to the Union. In response to the competing claims for
recognition, we withdrew recognition from the Union because of a lack of continuity of
representation. In May 2009, we notified the Union that the collective bargaining agreement for
HoteLumière was no longer in effect and that the collective bargaining agreement for the President
Casino was being terminated. In May 2009, one of the unions claiming to be the successor to the
Union filed unfair labor practice charges with the National Labor Relations Board (NLRB)
alleging, among other things, that we refused to bargain in good faith by refusing to engage in
collective bargaining negotiations, by refusing to negotiate over the discharge of employees, and
by withdrawing recognition and abrogating the terms and conditions of employment. The NLRB
dismissed the charge filed against HoteLumière.
In October 2009, the Union again changed its affiliation, and again requested recognition,
which was denied. In December 2009, the Union filed charges with the NLRB alleging that Lumière
Place and President Casino acted unlawfully when they refused to recognize and deal with the Union.
In January 2010, the NLRB issued a Complaint and Notice of Hearing against Lumière Place and
President Casino.
On April 13, 2010, following the resolution of the competing claims for recognition, Lumière
Place and President Casino agreed to settle the NLRB matters by, among other things, agreeing to
recognize the Union as the bargaining representative of bargaining units of Lumière Place and
President Casino employees, bargaining with the Union upon request, and recognizing the validity of
the collective bargaining agreement between President Casino and the Union. The settlement
agreements with the NLRB specifically provide that neither Lumière Place nor President Casino admit
to having violated the National Labor Relations Act. Pursuant to the settlement agreements, we
have commenced bargaining in good faith with the Union.
15
Indiana Tax Dispute: In 2008, the Indiana Department of Revenue (IDR) commenced an
income tax examination of the Companys Indiana income tax filings for the 2005 to 2007 period.
During June of 2009, the Company received an informal notification from the field agent for the IDR
challenging whether income and gain from certain asset sales, including the sale of the Hollywood
Park Racetrack in 1999, and other transactions outside of Indiana, such as the Aztar merger
termination fee in 2006, which we reported on our Indiana state tax returns for the years 2000
through 2007, resulted in business income subject to apportionment, and proposed a potential
assessment of approximately $11 million, excluding interest and penalties, of additional Indiana
income taxes. During the fourth quarter of 2009, the Company submitted additional information to
the IDR for consideration. On February 9, 2010, the Company received a revised proposed assessment
in the amount of $7.3 million, excluding interest and penalties of $2.3 million. On March 17,
2010, the Company timely filed a protest with the IDR requesting abatement of all tax, interest and
penalties.
Other: We are a party to a number of other pending legal proceedings. Management does not
expect that the outcome of such proceedings, either individually or in the aggregate, will have a
material effect on our financial position, cash flows or results of operations.
Note 8Consolidating Condensed Financial Information
Our subsidiaries (excluding a subsidiary with approximately $10.5 million in cash and cash
equivalents as of June 30, 2010; a subsidiary with approximately $66.3 million in cash and cash
equivalents as of June 30, 2010; and certain non-material subsidiaries) have fully and
unconditionally and jointly and severally guaranteed the payment of all obligations under the 7.50%
Notes, 8.625% Notes and 8.75% Notes, as well as our Credit Facility. Our Atlantic City entities do
not guarantee our Credit Facility. Separate financial statements and other disclosures regarding
the subsidiary guarantors are not included herein because management has determined that such
information is not material to investors. In lieu thereof, we include the following:
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100% Owned |
|
|
Consolidating |
|
|
Pinnacle |
|
|
|
Pinnacle |
|
|
100% Owned |
|
|
Non- |
|
|
and |
|
|
Entertainment, |
|
|
|
Entertainment, |
|
|
Guarantor |
|
|
Guarantor |
|
|
Eliminating |
|
|
Inc. |
|
|
|
Inc. |
|
|
Subsidiaries(a) |
|
|
Subsidiaries(b) |
|
|
Entries |
|
|
Consolidated |
|
|
|
(in millions) |
|
For the three months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
$ |
|
|
|
$ |
236.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
236.1 |
|
Food and beverage |
|
|
|
|
|
|
17.8 |
|
|
|
|
|
|
|
|
|
|
|
17.8 |
|
Other |
|
|
|
|
|
|
19.7 |
|
|
|
|
|
|
|
|
|
|
|
19.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
273.6 |
|
|
|
|
|
|
|
|
|
|
|
273.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
|
|
|
|
|
135.6 |
|
|
|
|
|
|
|
|
|
|
|
135.6 |
|
Food and beverage |
|
|
|
|
|
|
18.1 |
|
|
|
|
|
|
|
|
|
|
|
18.1 |
|
General and administrative and other |
|
|
12.1 |
|
|
|
62.6 |
|
|
|
|
|
|
|
|
|
|
|
74.7 |
|
Depreciation and amortization |
|
|
1.4 |
|
|
|
27.9 |
|
|
|
|
|
|
|
|
|
|
|
29.3 |
|
Write-downs, reserves and recoveries |
|
|
0.4 |
|
|
|
31.6 |
|
|
|
(0.4 |
) |
|
|
|
|
|
|
31.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.9 |
|
|
|
275.8 |
|
|
|
(0.4 |
) |
|
|
|
|
|
|
289.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(13.9 |
) |
|
|
(2.2 |
) |
|
|
0.4 |
|
|
|
|
|
|
|
(15.7 |
) |
Equity earnings of subsidiaries |
|
|
(14.1 |
) |
|
|
1.5 |
|
|
|
|
|
|
|
12.6 |
|
|
|
|
|
Interest expense and non-operating income, net |
|
|
(27.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27.3 |
) |
Loss on early extinguishment of debt |
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
inter-company activity and income taxes |
|
|
(55.7 |
) |
|
|
(0.7 |
) |
|
|
0.4 |
|
|
|
12.6 |
|
|
|
(43.4 |
) |
Management fee & inter-company interest |
|
|
4.6 |
|
|
|
(4.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(49.3 |
) |
|
|
(5.3 |
) |
|
|
0.4 |
|
|
|
12.6 |
|
|
|
(41.6 |
) |
Income (loss) from discontinued operations, net
of taxes |
|
|
|
|
|
|
(9.2 |
) |
|
|
1.5 |
|
|
|
|
|
|
|
(7.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(49.3 |
) |
|
$ |
(14.5 |
) |
|
$ |
1.9 |
|
|
$ |
12.6 |
|
|
$ |
(49.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
$ |
|
|
|
$ |
466.9 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
466.9 |
|
Food and beverage |
|
|
|
|
|
|
33.1 |
|
|
|
|
|
|
|
|
|
|
|
33.1 |
|
Other |
|
|
|
|
|
|
36.1 |
|
|
|
|
|
|
|
|
|
|
|
36.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
536.1 |
|
|
|
|
|
|
|
|
|
|
|
536.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
|
|
|
|
|
265.4 |
|
|
|
|
|
|
|
|
|
|
|
265.4 |
|
Food and beverage |
|
|
|
|
|
|
33.8 |
|
|
|
|
|
|
|
|
|
|
|
33.8 |
|
General and administrative and other |
|
|
22.0 |
|
|
|
126.6 |
|
|
|
(0.6 |
) |
|
|
|
|
|
|
148.0 |
|
Depreciation and amortization |
|
|
2.8 |
|
|
|
52.3 |
|
|
|
0.1 |
|
|
|
|
|
|
|
55.2 |
|
Write-downs, reserves and recoveries |
|
|
(6.1 |
) |
|
|
32.1 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
25.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.7 |
|
|
|
510.2 |
|
|
|
(1.0 |
) |
|
|
|
|
|
|
527.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(18.7 |
) |
|
|
25.9 |
|
|
|
1.0 |
|
|
|
|
|
|
|
8.2 |
|
Equity earnings of subsidiaries |
|
|
48.6 |
|
|
|
2.1 |
|
|
|
|
|
|
|
(50.7 |
) |
|
|
|
|
Interest (expense) and non-operating income, net |
|
|
(51.6 |
) |
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
(48.2 |
) |
Loss on early extinguishment of debt |
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
inter-company activity and income taxes |
|
|
(23.6 |
) |
|
|
31.4 |
|
|
|
1.0 |
|
|
|
(50.7 |
) |
|
|
(41.9 |
) |
Management fee & inter-company interest |
|
|
8.9 |
|
|
|
(8.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(12.6 |
) |
|
|
22.5 |
|
|
|
1.0 |
|
|
|
(50.7 |
) |
|
|
(39.8 |
) |
Income from discontinued operations, net of taxes |
|
|
|
|
|
|
25.1 |
|
|
|
2.1 |
|
|
|
|
|
|
|
27.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(12.6 |
) |
|
$ |
47.6 |
|
|
$ |
3.1 |
|
|
$ |
(50.7 |
) |
|
$ |
(12.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100% Owned |
|
|
Consolidating |
|
|
Pinnacle |
|
|
|
Pinnacle |
|
|
100% Owned |
|
|
Non- |
|
|
and |
|
|
Entertainment, |
|
|
|
Entertainment, |
|
|
Guarantor |
|
|
Guarantor |
|
|
Eliminating |
|
|
Inc. |
|
|
|
Inc. |
|
|
Subsidiaries(a) |
|
|
Subsidiaries(b) |
|
|
Entries |
|
|
Consolidated |
|
|
|
(in millions) |
|
For the three months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
$ |
|
|
|
$ |
217.4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
217.4 |
|
Food and beverage |
|
|
|
|
|
|
15.6 |
|
|
|
|
|
|
|
|
|
|
|
15.6 |
|
Other |
|
|
|
|
|
|
19.3 |
|
|
|
|
|
|
|
|
|
|
|
19.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252.3 |
|
|
|
|
|
|
|
|
|
|
|
252.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
|
|
|
|
|
129.0 |
|
|
|
|
|
|
|
|
|
|
|
129.0 |
|
Food and beverage |
|
|
|
|
|
|
14.8 |
|
|
|
|
|
|
|
|
|
|
|
14.8 |
|
General and administrative and other |
|
|
14.0 |
|
|
|
57.7 |
|
|
|
(0.6 |
) |
|
|
|
|
|
|
71.1 |
|
Depreciation and amortization |
|
|
1.4 |
|
|
|
23.1 |
|
|
|
0.3 |
|
|
|
|
|
|
|
24.8 |
|
Write-downs, reserves and recoveries |
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.4 |
|
|
|
224.9 |
|
|
|
(0.3 |
) |
|
|
|
|
|
|
240.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(15.4 |
) |
|
|
27.4 |
|
|
|
0.3 |
|
|
|
|
|
|
|
12.3 |
|
Equity earnings of subsidiaries |
|
|
29.4 |
|
|
|
(0.7 |
) |
|
|
|
|
|
|
(28.7 |
) |
|
|
|
|
Interest (expense) and non-operating income, net |
|
|
(18.6 |
) |
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
(15.9 |
) |
Gain on sale of equity securities |
|
|
6.0 |
|
|
|
|
|
|
|
6.9 |
|
|
|
|
|
|
|
12.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
inter-company activity and income taxes |
|
|
1.4 |
|
|
|
29.4 |
|
|
|
7.2 |
|
|
|
(28.7 |
) |
|
|
9.3 |
|
Management fee & inter-company interest |
|
|
3.6 |
|
|
|
(3.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
4.7 |
|
|
|
25.8 |
|
|
|
7.2 |
|
|
|
(28.7 |
) |
|
|
9.0 |
|
Income from discontinued operations, net of taxes |
|
|
|
|
|
|
(3.7 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4.7 |
|
|
$ |
22.1 |
|
|
$ |
6.6 |
|
|
$ |
(28.7 |
) |
|
$ |
4.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
$ |
|
|
|
$ |
440.7 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
440.7 |
|
Food and beverage |
|
|
|
|
|
|
29.4 |
|
|
|
|
|
|
|
|
|
|
|
29.4 |
|
Other |
|
|
0.1 |
|
|
|
35.4 |
|
|
|
|
|
|
|
|
|
|
|
35.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
505.5 |
|
|
|
|
|
|
|
|
|
|
|
505.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
|
|
|
|
|
256.0 |
|
|
|
|
|
|
|
|
|
|
|
256.0 |
|
Food and beverage |
|
|
|
|
|
|
28.8 |
|
|
|
|
|
|
|
|
|
|
|
28.8 |
|
General and administrative and other |
|
|
26.3 |
|
|
|
112.9 |
|
|
|
(1.2 |
) |
|
|
|
|
|
|
138.0 |
|
Depreciation and amortization |
|
|
2.7 |
|
|
|
46.3 |
|
|
|
0.6 |
|
|
|
|
|
|
|
49.6 |
|
Write-downs, reserves and recoveries |
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.0 |
|
|
|
444.70 |
|
|
|
(0.6 |
) |
|
|
|
|
|
|
473.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(28.9 |
) |
|
|
60.8 |
|
|
|
0.6 |
|
|
|
|
|
|
|
32.5 |
|
Equity earnings of subsidiaries |
|
|
59.7 |
|
|
|
0.7 |
|
|
|
|
|
|
|
(60.4 |
) |
|
|
|
|
Interest (expense) and non-operating income, net |
|
|
(37.3 |
) |
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
(32.4 |
) |
Gain on sale of equity securities |
|
|
6.0 |
|
|
|
|
|
|
|
6.9 |
|
|
|
|
|
|
|
12.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
inter-company activity and income taxes |
|
|
(0.5 |
) |
|
|
66.4 |
|
|
|
7.5 |
|
|
|
(60.4 |
) |
|
|
13.0 |
|
Management fee & inter-company interest |
|
|
6.7 |
|
|
|
(6.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
5.6 |
|
|
|
59.7 |
|
|
|
7.5 |
|
|
|
(60.4 |
) |
|
|
12.4 |
|
Income (loss) from discontinued operations, net of taxes |
|
|
|
|
|
|
(7.4 |
) |
|
|
0.6 |
|
|
|
|
|
|
|
(6.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
5.6 |
|
|
$ |
52.3 |
|
|
$ |
8.1 |
|
|
$ |
(60.4 |
) |
|
$ |
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100% Owned |
|
|
Consolidating |
|
|
Pinnacle |
|
|
|
Pinnacle |
|
|
100% Owned |
|
|
Non- |
|
|
and |
|
|
Entertainment, |
|
|
|
Entertainment, |
|
|
Guarantor |
|
|
Guarantor |
|
|
Eliminating |
|
|
Inc. |
|
|
|
Inc. |
|
|
Subsidiaries(a) |
|
|
Subsidiaries(b) |
|
|
Entries |
|
|
Consolidated |
|
|
|
(in millions) |
|
As of June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
49.6 |
|
|
$ |
131.7 |
|
|
$ |
77.0 |
|
|
$ |
|
|
|
$ |
258.3 |
|
Property and equipment, net |
|
|
15.8 |
|
|
|
1,471.8 |
|
|
|
0.5 |
|
|
|
|
|
|
|
1,488.1 |
|
Other non-current assets |
|
|
65.1 |
|
|
|
53.2 |
|
|
|
|
|
|
|
|
|
|
|
118.3 |
|
Investment in subsidiaries |
|
|
1,631.5 |
|
|
|
(0.6 |
) |
|
|
|
|
|
|
(1,630.9 |
) |
|
|
|
|
Assets of discontinued operations held for sale |
|
|
|
|
|
|
65.3 |
|
|
|
0.4 |
|
|
|
|
|
|
|
65.7 |
|
Inter-company |
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,763.2 |
|
|
$ |
1,721.4 |
|
|
$ |
77.9 |
|
|
$ |
(1,632.1 |
) |
|
$ |
1,930.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
49.0 |
|
|
|
138.8 |
|
|
|
|
|
|
|
|
|
|
|
187.8 |
|
Notes payable, long term |
|
|
1,175.3 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
1,176.1 |
|
Other non-current liabilities |
|
|
28.4 |
|
|
|
13.8 |
|
|
|
|
|
|
|
|
|
|
|
42.2 |
|
Liabilities of discontinued operations held for sale |
|
|
|
|
|
|
13.7 |
|
|
|
|
|
|
|
|
|
|
|
13.7 |
|
Inter-company |
|
|
|
|
|
|
|
|
|
|
1.2 |
|
|
|
(1.2 |
) |
|
|
|
|
Equity |
|
|
510.5 |
|
|
|
1,554.3 |
|
|
|
76.7 |
|
|
|
(1,630.9 |
) |
|
|
510.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,763.2 |
|
|
$ |
1,721.4 |
|
|
$ |
77.9 |
|
|
$ |
(1,632.1 |
) |
|
$ |
1,930.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
5.2 |
|
|
$ |
86.9 |
|
|
$ |
66.8 |
|
|
$ |
|
|
|
$ |
158.9 |
|
Property and equipment, net |
|
|
16.9 |
|
|
|
1,472.6 |
|
|
|
10.5 |
|
|
|
|
|
|
|
1,500.0 |
|
Other non-current assets |
|
|
50.6 |
|
|
|
39.1 |
|
|
|
(1.2 |
) |
|
|
|
|
|
|
88.5 |
|
Investment in subsidiaries |
|
|
1,576.5 |
|
|
|
23.3 |
|
|
|
|
|
|
|
(1,599.8 |
) |
|
|
|
|
Assets of discontinued operations held for sale |
|
|
|
|
|
|
67.8 |
|
|
|
28.6 |
|
|
|
|
|
|
|
96.4 |
|
Inter-company |
|
|
|
|
|
|
|
|
|
|
1.2 |
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,649.2 |
|
|
$ |
1,689.7 |
|
|
$ |
105.9 |
|
|
$ |
(1,601.0 |
) |
|
$ |
1,843.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
63.4 |
|
|
|
139.3 |
|
|
|
|
|
|
|
|
|
|
|
202.7 |
|
Notes payable, long term |
|
|
1,062.5 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
1,063.3 |
|
Other non-current liabilities |
|
|
28.9 |
|
|
|
17.7 |
|
|
|
|
|
|
|
|
|
|
|
46.6 |
|
Liabilities of discontinued operations held for sale |
|
|
|
|
|
|
32.4 |
|
|
|
4.4 |
|
|
|
|
|
|
|
36.8 |
|
Inter-company |
|
|
|
|
|
|
|
|
|
|
1.2 |
|
|
|
(1.2 |
) |
|
|
|
|
Equity |
|
|
494.4 |
|
|
|
1,499.5 |
|
|
|
100.3 |
|
|
|
(1,599.8 |
) |
|
|
494.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,649.2 |
|
|
$ |
1,689.7 |
|
|
$ |
105.9 |
|
|
$ |
(1,601.0 |
) |
|
$ |
1,843.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100% Owned |
|
|
Consolidating |
|
|
Pinnacle |
|
|
|
Pinnacle |
|
|
100% Owned |
|
|
Non- |
|
|
and |
|
|
Entertainment, |
|
|
|
Entertainment, |
|
|
Guarantor |
|
|
Guarantor |
|
|
Eliminating |
|
|
Inc. |
|
|
|
Inc. |
|
|
Subsidiaries(a) |
|
|
Subsidiaries(b) |
|
|
Entries |
|
|
Consolidated |
|
|
|
(in millions) |
|
For the six months ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
|
$ |
(59.4 |
) |
|
$ |
138.8 |
|
|
$ |
(29.5 |
) |
|
$ |
|
|
|
$ |
49.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and other |
|
|
(1.5 |
) |
|
|
(112.9 |
) |
|
|
35.5 |
|
|
|
|
|
|
|
(78.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities |
|
|
(1.5 |
) |
|
|
(112.9 |
) |
|
|
35.5 |
|
|
|
|
|
|
|
(78.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in notes payable and other |
|
|
105.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities |
|
|
105.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
|
|
|
|
|
(0.4 |
) |
|
|
|
|
|
|
(0.4 |
) |
Increase in cash and cash equivalents |
|
|
44.9 |
|
|
|
25.9 |
|
|
|
5.6 |
|
|
|
|
|
|
|
76.4 |
|
Cash and cash equivalents, beginning of period |
|
|
1.5 |
|
|
|
56.7 |
|
|
|
71.4 |
|
|
|
|
|
|
|
129.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
46.4 |
|
|
$ |
82.6 |
|
|
$ |
77.0 |
|
|
$ |
|
|
|
$ |
206.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
|
$ |
(40.0 |
) |
|
$ |
85.3 |
|
|
$ |
2.7 |
|
|
$ |
|
|
|
$ |
48.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure and other |
|
|
(2.6 |
) |
|
|
(81.2 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
(84.1 |
) |
Proceeds from sale of equity securities |
|
|
10.1 |
|
|
|
|
|
|
|
13.6 |
|
|
|
|
|
|
|
23.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities |
|
|
7.5 |
|
|
|
(81.2 |
) |
|
|
13.3 |
|
|
|
|
|
|
|
(60.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in notes payable |
|
|
31.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities |
|
|
31.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
(0.3 |
) |
Increase (decrease) in cash and cash equivalents |
|
|
(1.5 |
) |
|
|
4.1 |
|
|
|
15.7 |
|
|
|
|
|
|
|
18.3 |
|
Cash and cash equivalents, beginning of period |
|
|
6.7 |
|
|
|
51.0 |
|
|
|
58.0 |
|
|
|
|
|
|
|
115.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
5.2 |
|
|
$ |
55.1 |
|
|
$ |
73.7 |
|
|
$ |
|
|
|
$ |
134.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The following material subsidiaries are identified as guarantors of the 7.50% Notes, 8.625%
Notes and 8.75% Notes: Belterra Resort Indiana, LLC; Boomtown, LLC; PNK (RENO), LLC;
LouisianaI Gaming; PNK (LAKE CHARLES), L.L.C.; Casino Magic Corp.; Biloxi Casino Corp.; PNK
(BOSSIER CITY), Inc.; Casino One Corporation; PNK (ES), LLC; PNK (ST. LOUIS RE), LLC; AREP
Boardwalk Properties LLC; PNK (Baton Rouge) Partnership; PNK (River City), LLC, PNK (SCB),
L.L.C.; PNK Development 7, LLC; PNK Development 8, LLC; PNK Development 9, LLC; PNK
Development 13, LLC; President Riverboat Casino-Missouri, Inc.; and ACE Gaming, LLC. In
addition, certain other immaterial subsidiaries are also guarantors of the 7.50% Notes, 8.625%
Notes and 8.75% Notes. |
|
(b) |
|
PNK Development 11, LLC, which as of June 30, 2010 held approximately $66.3 million in cash
and cash equivalents, is our only material non-guarantor of the 7.50% Notes, 8.625% Notes and
8.75% Notes. Other non-guarantor subsidiaries include, but are not limited to, a subsidiary
with $10.5 million in cash and cash equivalents as of June 30, 2010. |
20
Note 9Segment Information
We use Adjusted EBITDA (as defined below) to compare operating results among our segments and
allocate resources. The following table highlights our Adjusted EBITDA and reconciles Adjusted
EBITDA to income (loss) from continuing operations for the three and six months ended June 30, 2010
and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LAuberge du Lac |
|
$ |
83.7 |
|
|
$ |
86.6 |
|
|
$ |
170.0 |
|
|
$ |
175.0 |
|
St. Louis (a) |
|
|
85.4 |
|
|
|
54.2 |
|
|
|
157.2 |
|
|
|
107.3 |
|
Boomtown New Orleans |
|
|
34.2 |
|
|
|
35.5 |
|
|
|
69.0 |
|
|
|
73.7 |
|
Belterra Casino Resort |
|
|
38.8 |
|
|
|
42.8 |
|
|
|
75.2 |
|
|
|
83.8 |
|
Boomtown Bossier City |
|
|
21.1 |
|
|
|
22.7 |
|
|
|
45.5 |
|
|
|
47.5 |
|
Boomtown Reno |
|
|
10.4 |
|
|
|
10.5 |
|
|
|
19.2 |
|
|
|
18.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
273.6 |
|
|
$ |
252.3 |
|
|
$ |
536.1 |
|
|
$ |
505.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LAuberge du Lac |
|
$ |
22.1 |
|
|
$ |
21.5 |
|
|
$ |
46.1 |
|
|
$ |
45.0 |
|
St. Louis (a) |
|
|
14.2 |
|
|
|
9.9 |
|
|
|
29.7 |
|
|
|
20.5 |
|
Boomtown New Orleans |
|
|
10.4 |
|
|
|
10.6 |
|
|
|
21.1 |
|
|
|
24.1 |
|
Belterra Casino Resort |
|
|
7.7 |
|
|
|
8.2 |
|
|
|
14.2 |
|
|
|
16.0 |
|
Boomtown Bossier City |
|
|
4.7 |
|
|
|
4.7 |
|
|
|
11.2 |
|
|
|
10.9 |
|
Boomtown Reno |
|
|
0.5 |
|
|
|
0.1 |
|
|
|
(0.5 |
) |
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59.6 |
|
|
|
55.0 |
|
|
|
121.8 |
|
|
|
115.3 |
|
Corporate expenses (c) |
|
|
(10.2 |
) |
|
|
(8.2 |
) |
|
|
(18.3 |
) |
|
|
(18.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49.4 |
|
|
|
46.8 |
|
|
|
103.5 |
|
|
|
97.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other benefits (costs): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(29.3 |
) |
|
|
(24.8 |
) |
|
|
(55.2 |
) |
|
|
(49.6 |
) |
Pre-opening and development costs |
|
|
(2.1 |
) |
|
|
(4.1 |
) |
|
|
(11.0 |
) |
|
|
(7.0 |
) |
Non-cash share-based compensation |
|
|
(2.1 |
) |
|
|
(5.3 |
) |
|
|
(3.5 |
) |
|
|
(7.5 |
) |
Impairment of indefinite-lived intangible assets |
|
|
(11.5 |
) |
|
|
|
|
|
|
(11.5 |
) |
|
|
|
|
Impairment of land and construction costs |
|
|
(18.4 |
) |
|
|
|
|
|
|
(18.4 |
) |
|
|
|
|
Write-downs, reserves and recoveries, net |
|
|
(1.7 |
) |
|
|
(0.3 |
) |
|
|
4.4 |
|
|
|
(0.8 |
) |
Interest expense, net of capitalized interest |
|
|
(27.4 |
) |
|
|
(15.9 |
) |
|
|
(48.4 |
) |
|
|
(32.5 |
) |
Gain on sale of equity securities |
|
|
|
|
|
|
12.9 |
|
|
|
|
|
|
|
12.9 |
|
Loss on early extinguishment of debt |
|
|
(0.4 |
) |
|
|
|
|
|
|
(1.9 |
) |
|
|
|
|
Other non-operating income |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.2 |
|
Income tax benefit (expense) |
|
|
1.8 |
|
|
|
(0.4 |
) |
|
|
2.1 |
|
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(41.6 |
) |
|
$ |
9.0 |
|
|
$ |
(39.8 |
) |
|
$ |
12.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
For the six months ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Capital expenditures: |
|
|
|
|
|
|
|
|
LAuberge du Lac |
|
$ |
7.5 |
|
|
$ |
2.8 |
|
St. Louis (a) |
|
|
58.8 |
|
|
|
63.2 |
|
Boomtown New Orleans |
|
|
1.4 |
|
|
|
2.6 |
|
Belterra Casino Resort |
|
|
3.0 |
|
|
|
3.5 |
|
Boomtown Bossier City |
|
|
2.8 |
|
|
|
1.0 |
|
Boomtown Reno |
|
|
0.2 |
|
|
|
1.4 |
|
Corporate and other, including properties under development(d) |
|
|
19.7 |
|
|
|
9.7 |
|
|
|
|
|
|
|
|
|
|
$ |
93.4 |
|
|
$ |
84.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Assets |
|
|
|
|
|
|
|
|
LAuberge du Lac |
|
$ |
317.5 |
|
|
$ |
331.0 |
|
St. Louis (a) |
|
|
836.8 |
|
|
|
806.7 |
|
Boomtown New Orleans |
|
|
68.3 |
|
|
|
74.3 |
|
Belterra Casino Resort |
|
|
190.0 |
|
|
|
193.6 |
|
Boomtown Bossier City |
|
|
91.3 |
|
|
|
92.1 |
|
Boomtown Reno |
|
|
42.5 |
|
|
|
41.9 |
|
Corporate and other, including new properties and discontinued operations |
|
|
384.0 |
|
|
|
304.3 |
|
|
|
|
|
|
|
|
|
|
$ |
1,930.4 |
|
|
$ |
1,843.9 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Our St. Louis segment consists of Lumière Place, which includes the Lumière Place Casino, the
Pinnacle-owned Four Seasons Hotel St. Louis and HoteLumière, and River City. |
|
(b) |
|
We define Adjusted EBITDA for each segment as earnings before interest income and expense,
income taxes, depreciation, amortization, pre-opening and development expenses, non-cash
share-based compensation, asset impairment costs, write-downs, reserves, recoveries, gain
(loss) on sale of certain assets, loss on early extinguishment of debt, loss on sale of
discontinued operations, and discontinued operations. We use Adjusted EBITDA to compare
operating results among our properties and between accounting periods. |
|
(c) |
|
Corporate expenses represent unallocated payroll, professional fees, travel expenses and
other general and administrative expenses not directly related to our casino and hotel
operations. |
|
(d) |
|
Includes capital expenditures for our various development projects not yet reflected as
operating segments, including the following: |
|
|
|
|
|
|
|
|
|
|
|
For the six months ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Sugarcane Bay |
|
$ |
10.5 |
|
|
$ |
6.4 |
|
Baton Rouge |
|
|
4.0 |
|
|
|
|
|
22
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition, results of operations, liquidity
and capital resources should be read in conjunction with, and is qualified in its entirety by, the
unaudited Condensed Consolidated Financial Statements and the notes thereto included in this
Quarterly Report on Form 10-Q, the Consolidated Financial Statements and notes thereto and
Managements Discussion and Analysis of Financial Condition and Results of Operations contained in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and our Current Report
on Form 8-K filed on June 21, 2010, including Exhibit 99.1 which was filed to update the historical
financial statements included in the Companys Form 10-K to reflect its Casino Magic Argentina
operations and Atlantic City operations and related assets as held for sale for the year ended
December 31, 2009 and the results of those operations as discontinued operations for all periods
presented.
EXECUTIVE OVERVIEW
Pinnacle Entertainment, Inc. is an owner, operator and developer of casinos and related
hospitality and entertainment facilities. We operate seven casinos, LAuberge du Lac in Lake
Charles, Louisiana; River City and Lumière Place in St. Louis, Missouri; Boomtown New Orleans in
New Orleans, Louisiana; Belterra Casino Resort in Vevay, Indiana; Boomtown Bossier City in Bossier
City, Louisiana; and Boomtown Reno in Reno, Nevada. Our River City Casino opened on March 4, 2010.
In April 2010, we cancelled our Sugarcane Bay project in Lake Charles, Louisiana. On June 24,
2010, we closed our President Casino facility, and on June 30, 2010, we completed the sale of our
Argentina operations for approximately $40 million.
In Louisiana, we continue to proceed with design and entitlement work for our Baton Rouge
project, which is subject to various regulatory approvals.
We operate casino properties, all of which include gaming, dining, retail and other amenities
and some of which include hotel operations. Our operating results are highly dependent on the
volume of customers at our properties, which in turn affects the price we can charge for our hotel
rooms and other amenities. While we do provide casino credit in several gaming jurisdictions, most
of our revenue is cash-based, with customers wagering with cash or paying for non-gaming services
with cash or credit cards. Our properties generate significant operating cash flow. Our industry
is capital intensive and we rely on the ability of our resorts to generate operating cash flow to
pay interest, repay debt and fund maintenance capital expenditures.
Our mission is to increase stockholder value. We intend to accomplish this through our
long-term strategy of providing our guests with their favorite games in attractive surroundings
with high quality guest service, maintaining and improving each of our existing properties and
building or acquiring new casinos or resorts that are expected to produce favorable returns above
our cost of capital. Hence, we continually focus on customer service; we are maintaining and
improving our existing properties with disciplined capital expenditures; we are developing a new,
high-quality gaming property in an attractive gaming market; and we may make strategic
acquisitions, either alone or with third parties, when and if available, on terms we believe are
reasonable.
23
RESULTS OF OPERATIONS
The following table highlights our results of operations for the three and six months ended
June 30, 2010 and 2009. As discussed in Note 8 to our unaudited Condensed Consolidated Financial
Statements, we report segment operating results based on revenues and Adjusted EBITDA. Such segment
reporting is on a consistent basis with how we measure our business and allocate resources
internally. See Note 8 to our unaudited Condensed Consolidated Financial Statements for more
information regarding our segment information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LAuberge du Lac |
|
$ |
83.7 |
|
|
$ |
86.6 |
|
|
$ |
170.0 |
|
|
$ |
175.0 |
|
St. Louis (a) |
|
|
85.4 |
|
|
|
54.2 |
|
|
|
157.2 |
|
|
|
107.3 |
|
Boomtown New Orleans |
|
|
34.2 |
|
|
|
35.5 |
|
|
|
69.0 |
|
|
|
73.7 |
|
Belterra Casino Resort |
|
|
38.8 |
|
|
|
42.8 |
|
|
|
75.2 |
|
|
|
83.8 |
|
Boomtown Bossier City |
|
|
21.1 |
|
|
|
22.7 |
|
|
|
45.5 |
|
|
|
47.5 |
|
Boomtown Reno |
|
|
10.4 |
|
|
|
10.5 |
|
|
|
19.2 |
|
|
|
18.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
273.6 |
|
|
$ |
252.3 |
|
|
$ |
536.1 |
|
|
$ |
505.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
(15.7 |
) |
|
$ |
12.3 |
|
|
$ |
8.2 |
|
|
$ |
32.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(41.6 |
) |
|
$ |
9.0 |
|
|
$ |
(39.8 |
) |
|
$ |
12.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA: (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LAuberge du Lac |
|
$ |
22.1 |
|
|
$ |
21.5 |
|
|
$ |
46.1 |
|
|
$ |
45.0 |
|
St. Louis (a) |
|
|
14.2 |
|
|
|
9.9 |
|
|
|
29.7 |
|
|
|
20.5 |
|
Boomtown New Orleans |
|
|
10.4 |
|
|
|
10.6 |
|
|
|
21.1 |
|
|
|
24.1 |
|
Belterra Casino Resort |
|
|
7.7 |
|
|
|
8.2 |
|
|
|
14.2 |
|
|
|
16.0 |
|
Boomtown Bossier City |
|
|
4.7 |
|
|
|
4.7 |
|
|
|
11.2 |
|
|
|
10.9 |
|
Boomtown Reno |
|
|
0.5 |
|
|
|
0.1 |
|
|
|
(0.5 |
) |
|
|
(1.2 |
) |
|
|
|
(a) |
|
Our St. Louis segment consists of Lumière Place and River City. |
|
(b) |
|
We define Adjusted EBITDA for each segment as earnings before interest income and expense,
income taxes, depreciation, amortization, pre-opening and development expenses, non-cash
share-based compensation, asset impairment costs, write-downs, reserves, recoveries, gain
(loss) on sale of certain assets, loss on early extinguishment of debt, loss on sale of
discontinued operations, and discontinued operations. |
24
Segment comparison of the three and six months ended June 30, 2010 and 2009
LAuberge du Lac
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
2010 vs. 2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 vs. 2009 |
|
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
Gaming revenues |
|
$ |
72.5 |
|
|
$ |
75.3 |
|
|
|
(3.7 |
)% |
|
$ |
149.6 |
|
|
$ |
153.7 |
|
|
|
(2.7 |
)% |
Total revenues |
|
|
83.7 |
|
|
|
86.6 |
|
|
|
(3.3 |
)% |
|
|
170.0 |
|
|
|
175.0 |
|
|
|
(2.9 |
)% |
Operating income |
|
|
15.0 |
|
|
|
14.4 |
|
|
|
4.2 |
% |
|
|
31.7 |
|
|
|
30.6 |
|
|
|
3.6 |
% |
Adjusted EBITDA |
|
|
22.1 |
|
|
|
21.5 |
|
|
|
2.8 |
% |
|
|
46.1 |
|
|
|
45.0 |
|
|
|
2.4 |
% |
LAuberge du Lac, our largest property, achieved increased Adjusted EBITDA for the three and
six months ended June 30, 2010 as compared to the prior year period despite a slight decline in
revenues. This reflects the initial benefits of a heightened focus on operating efficiencies.
St. Louis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
2010 vs. 2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 vs. 2009 |
|
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
Gaming revenues |
|
$ |
72.1 |
|
|
$ |
43.9 |
|
|
|
64.2 |
% |
|
$ |
133.0 |
|
|
$ |
88.6 |
|
|
|
50.1 |
% |
Total revenues |
|
|
85.4 |
|
|
|
54.2 |
|
|
|
57.6 |
% |
|
|
157.2 |
|
|
|
107.3 |
|
|
|
46.5 |
% |
Operating income (loss) |
|
|
(1.0 |
) |
|
|
1.3 |
|
|
|
(176.9 |
)% |
|
|
(4.1 |
) |
|
|
3.3 |
|
|
|
(224.2 |
)% |
Adjusted EBITDA |
|
|
14.2 |
|
|
|
9.9 |
|
|
|
43.4 |
% |
|
|
29.7 |
|
|
|
20.5 |
|
|
|
44.9 |
% |
The St. Louis segment includes River City and Lumière Place, which includes Lumière Place
Casino, the Pinnacle-owned Four Seasons Hotel St. Louis and HoteLumière. River City opened on
March 4, 2010 and has generated positive Adjusted EBITDA for the six months ended June 30, 2010.
Consistent with most property openings, River City experienced higher expenses than are expected in
the long-term. For the six months ended June 30, 2010, St. Louis revenues and Adjusted EBITDA
increased by approximately 47% and 45%, respectively, compared to the same period in prior year.
Boomtown New Orleans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
2010 vs. 2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 vs. 2009 |
|
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
Gaming revenues |
|
$ |
32.7 |
|
|
$ |
33.9 |
|
|
|
(3.5 |
)% |
|
$ |
66.1 |
|
|
$ |
70.5 |
|
|
|
(6.2 |
)% |
Total revenues |
|
|
34.2 |
|
|
|
35.5 |
|
|
|
(3.7 |
)% |
|
|
69.0 |
|
|
|
73.7 |
|
|
|
(6.4 |
)% |
Operating income |
|
|
8.5 |
|
|
|
8.8 |
|
|
|
(3.4 |
)% |
|
|
17.2 |
|
|
|
20.3 |
|
|
|
(15.3 |
)% |
Adjusted EBITDA |
|
|
10.4 |
|
|
|
10.6 |
|
|
|
(1.9 |
)% |
|
|
21.1 |
|
|
|
24.1 |
|
|
|
(12.4 |
)% |
Results during 2010 at Boomtown New Orleans reflect the heightened competition in the area,
principally from the Mississippi Gulf Coast, as well as economic conditions. As Hurricane Katrina
relief efforts have been lessened, the related spending, construction activity and discretionary
income have declined, which has dampened operating results throughout the region.
25
Belterra Casino Resort
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
2010 vs. 2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 vs. 2009 |
|
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
Gaming revenues |
|
$ |
33.3 |
|
|
$ |
36.7 |
|
|
|
(9.3 |
)% |
|
$ |
64.9 |
|
|
$ |
72.5 |
|
|
|
(10.5 |
)% |
Total revenues |
|
|
38.8 |
|
|
|
42.8 |
|
|
|
(9.3 |
)% |
|
|
75.2 |
|
|
|
83.8 |
|
|
|
(10.3 |
)% |
Operating income |
|
|
3.2 |
|
|
|
4.8 |
|
|
|
(33.3 |
)% |
|
|
6.3 |
|
|
|
9.2 |
|
|
|
(31.5 |
)% |
Adjusted EBITDA |
|
|
7.7 |
|
|
|
8.2 |
|
|
|
(6.1 |
)% |
|
|
14.2 |
|
|
|
16.0 |
|
|
|
(11.3 |
)% |
Results during 2010 at Belterra reflect soft general economic conditions and increased
competition in Belterras market area, as well as the negative impact of decreased customer traffic
due to record snowfall during the first quarter of 2010. During mid-2008, two racetrack casinos
opened in the Indianapolis metropolitan area, each of which operates approximately 2,000 slot
machines. One of these racetrack casinos replaced its temporary casino with a significantly nicer
permanent facility in March 2009, and another competitor replaced a smaller facility with a new,
larger casino in Lawrenceburg, Indiana in June 2009. Despite a decline in total revenues in the
second quarter of 2010 as compared to the prior year period, Belterra was able to improve Adjusted
EBIDTA as a percentage of revenues through operating efficiencies.
On November 3, 2009, Ohio voters passed a constitutional amendment which allows one casino to
be developed in each of Cincinnati, Columbus, Cleveland and Toledo. In the event a new casino is
developed in Cincinnati or Columbus, which is likely to take several years to develop and open, it
will likely provide additional competition to Belterra.
Boomtown Bossier City
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
2010 vs. 2009 |
|
|
2010 |
|
|
2009 |
|
|
2009 vs. 2008 |
|
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
Gaming revenues |
|
$ |
19.7 |
|
|
$ |
21.4 |
|
|
|
(7.9 |
)% |
|
$ |
42.7 |
|
|
$ |
44.7 |
|
|
|
(4.5 |
)% |
Total revenues |
|
|
21.1 |
|
|
|
22.7 |
|
|
|
(7.0 |
)% |
|
|
45.5 |
|
|
|
47.5 |
|
|
|
(4.2 |
)% |
Operating income |
|
|
3.0 |
|
|
|
3.0 |
|
|
|
|
|
|
|
8.0 |
|
|
|
7.6 |
|
|
|
5.3 |
% |
Adjusted EBITDA |
|
|
4.7 |
|
|
|
4.7 |
|
|
|
|
|
|
|
11.2 |
|
|
|
10.9 |
|
|
|
2.8 |
% |
Boomtown Bossier City improved Adjusted EBITDA for the six months ended June 30, 2010 despite
the competitive Bossier City/Shreveport gaming market through a refinement of the propertys
marketing efforts and certain cost-cutting measures. Boomtown Bossier City competes with four
dockside riverboat casino-hotels and a racetrack operation. In addition, the Bossier
City/Shreveport gaming market, which is approximately 188 miles east of Dallas/Fort Worth, competes
with Native American gaming in southern Oklahoma located approximately 60 miles north of
Dallas/Fort Worth.
Boomtown Reno
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
2010 vs. 2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 vs. 2009 |
|
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
Gaming revenues |
|
$ |
5.8 |
|
|
$ |
6.2 |
|
|
|
(6.5 |
)% |
|
$ |
10.6 |
|
|
$ |
10.6 |
|
|
|
|
|
Total revenues |
|
|
10.4 |
|
|
|
10.5 |
|
|
|
(1.0 |
)% |
|
|
19.2 |
|
|
|
18.2 |
|
|
|
5.5 |
% |
Operating loss |
|
|
(0.1 |
) |
|
|
(1.2 |
) |
|
|
(91.7 |
)% |
|
|
(1.8 |
) |
|
|
(3.7 |
) |
|
|
(51.4 |
)% |
Adjusted EBITDA (loss) |
|
|
0.5 |
|
|
|
0.1 |
|
|
|
400 |
% |
|
|
(0.5 |
) |
|
|
(1.2 |
) |
|
|
(58.3 |
)% |
26
Boomtown Reno reduced its Adjusted EBITDA loss for the six months ended June 30, 2010 despite
flat revenues as a result of heightened focus on operational efficiencies. The Reno market
continues to be adversely
affected by significant competition from the northern California Native American gaming
market, as well as soft economic conditions in both the Reno market and northern California.
Other factors affecting income from continuing operations
The following are a description of the other costs and benefits for the three and six months
ended June 30, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
2010 vs. 2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 vs. 2009 |
|
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
Other benefits (costs): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses |
|
$ |
(10.2 |
) |
|
$ |
(8.2 |
) |
|
|
24.4 |
% |
|
$ |
(18.3 |
) |
|
$ |
(18.0 |
) |
|
|
1.7 |
% |
Depreciation and amortization |
|
|
(29.3 |
) |
|
|
(24.8 |
) |
|
|
18.1 |
% |
|
|
(55.2 |
) |
|
|
(49.6 |
) |
|
|
11.3 |
% |
Pre-opening and development costs |
|
|
(2.1 |
) |
|
|
(4.1 |
) |
|
|
(48.8 |
)% |
|
|
(11.0 |
) |
|
|
(7.0 |
) |
|
|
57.1 |
% |
Non-cash share-based compensation |
|
|
(2.1 |
) |
|
|
(5.3 |
) |
|
|
(60.4 |
)% |
|
|
(3.5 |
) |
|
|
(7.5 |
) |
|
|
(53.3 |
)% |
Impairment of indefinite-lived
intangible assets |
|
|
(11.5 |
) |
|
|
|
|
|
NM |
|
|
|
(11.5 |
) |
|
|
|
|
|
NM |
|
Impairment of land and
construction costs |
|
|
(18.4 |
) |
|
|
|
|
|
NM |
|
|
|
(18.4 |
) |
|
|
|
|
|
NM |
|
Write-downs, reserves and
recoveries, net |
|
|
(1.7 |
) |
|
|
(0.3 |
) |
|
NM |
|
|
|
4.4 |
|
|
|
(0.8 |
) |
|
NM |
|
Other non-operating income |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
(50.0 |
)% |
Gain on sale of equity securities |
|
|
|
|
|
|
12.9 |
|
|
NM |
|
|
|
|
|
|
|
12.9 |
|
|
NM |
|
Loss on early extinguishment of
debt |
|
|
(0.4 |
) |
|
|
|
|
|
NM |
|
|
|
(1.9 |
) |
|
|
|
|
|
NM |
|
Interest expense, net of
capitalized interest |
|
|
(27.4 |
) |
|
|
(15.9 |
) |
|
|
72.3 |
% |
|
|
(48.4 |
) |
|
|
(32.5 |
) |
|
|
48.9 |
% |
Income tax benefit (expense) |
|
|
1.8 |
|
|
|
(0.4 |
) |
|
NM |
|
|
|
2.1 |
|
|
|
(0.6 |
) |
|
NM |
|
NM Not Meaningful
Corporate expenses represent unallocated payroll, professional service fees, rent, travel
expenses and other general and administrative expenses not directly incurred by our casino and
hotel operations. Such expenses increased during the second quarter of 2010 compared to the second
quarter of 2009 due to $1.5 million in additional severance expense and a $1.1 million one-time
charge related to vacating two offices during the second quarter of 2010 in connection with the
corporate office consolidation.
Depreciation and amortization expense increased during the three and six months ended June 30,
2010 due to the increase in fixed assets related to the opening of River City on March 4, 2010.
27
Pre-opening and Development Costs for the three and six months ended June 30, 2010 and 2009
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
River City (a) |
|
|
1.2 |
|
|
|
1.6 |
|
|
|
9.4 |
|
|
|
2.8 |
|
Baton Rouge |
|
|
0.2 |
|
|
|
1.6 |
|
|
|
0.4 |
|
|
|
2.7 |
|
Sugarcane Bay (b) |
|
|
0.6 |
|
|
|
0.6 |
|
|
|
1.1 |
|
|
|
1.2 |
|
Other |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-opening and development costs |
|
$ |
2.1 |
|
|
$ |
4.0 |
|
|
$ |
11.0 |
|
|
$ |
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Pre-opening expenses include $0.7 million for non-cash straight-lined rent
accruals under a lease agreement for the six months ended June 30, 2010, and there
were no rent accrual charges in the three months ended June 30, 2010, as River City
opened in March 2010. Non-cash straight-lined rent accruals were $1.0 million and
$1.9 million for three and six months ended June 30, 2009, respectively. |
|
(b) |
|
Sugarcane Bay development expenses are costs associated with the process of
ending the project. |
Non-cash Share-based Compensation Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Share-based compensation expense |
|
$ |
2.1 |
|
|
$ |
5.3 |
|
|
$ |
3.5 |
|
|
$ |
7.5 |
|
Non-cash share-based compensation expense relates to the theoretical value of options on the
date of issuance and is not related to actual stock price performance. The expense has decreased
due to the acceleration of and cancellation of options in connection with the resignation of our
former Chief Executive Officer during the fourth quarter of 2009, as well as the acceleration of
vesting of stock options held by our board members during the second quarter of 2009, resulting in
no on-going expense for these options.
Impairment of Indefinite-lived Intangible Assets As the result of the cancellation of our
planned $305 million Sugarcane Bay project in Lake Charles, Louisiana we surrendered the related
gaming license to the Louisiana Gaming Control Board. In connection with this decision, we fully
impaired our gaming license by $11.5 million during the second quarter of 2010, which amount
comprises impairment of indefinite-lived intangible assets in the unaudited Condensed Consolidated
Statements of Operations.
Impairment of Land and Construction Costs In April 2010, we cancelled our planned $305
million Sugarcane Bay project in Lake Charles, Louisiana and surrendered the related gaming license
to the Louisiana Gaming Control Board. In connection with this decision, we recorded an impairment
charge of $18.4 million during the second quarter of 2010, which includes all previously
capitalized construction in progress and costs to terminate the construction contract with the
general contractor. We expect to incur additional contract termination costs, which amounts are
not determinable as of June 30, 2010, as we are still negotiating these amounts.
28
Write-downs, reserves and recoveries, net consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Impairment of assets |
|
$ |
0.5 |
|
|
$ |
0.2 |
|
|
$ |
0.5 |
|
|
$ |
0.4 |
|
Loss on disposal of assets |
|
|
1.2 |
|
|
|
0.1 |
|
|
|
1.6 |
|
|
|
0.4 |
|
Legal settlement recoveries |
|
|
|
|
|
|
|
|
|
|
(6.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-downs, reserves and recoveries, net |
|
$ |
1.7 |
|
|
$ |
0.3 |
|
|
$ |
(4.4 |
) |
|
$ |
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets: Cabelas Retail, Inc. financed its retail store and certain road access
improvements that also benefited our Boomtown Reno property through the issuance of sales tax
increment bonds through local or state governmental authorities. In April 2010, purchased $5.3
million face amount of sales tax increment bonds from Cabelas Retail, Inc. for $5.0 million.
During the quarter ended June 30, 2010, we recorded an impairment of $0.2 million related to these
bonds.
We impaired the fair value of leasehold improvements related to vacated office space by $0.3
million during the quarter ended June 30, 2010.
Loss on disposal of assets: During the six months ended June 30, 2010, we sold our corporate
jet, two seaplanes, a warehouse and slot equipment at our properties for a net loss of $1.6
million. During the six months ended June 30, 2009, we sold slot equipment for a loss of $0.4
million.
Legal settlement recoveries: During March 2010, we received a $6.5 million legal settlement
related to the recovery of legal fees.
Interest expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Interest expense before capitalization of interest |
|
$ |
27.4 |
|
|
$ |
18.6 |
|
|
$ |
51.9 |
|
|
$ |
37.4 |
|
Less: capitalized interest |
|
|
|
|
|
|
(2.7 |
) |
|
|
(3.5 |
) |
|
|
(4.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net of capitalized interest |
|
$ |
27.4 |
|
|
$ |
15.9 |
|
|
$ |
48.4 |
|
|
$ |
32.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in interest expense before capitalized interest for the six months ended June 30,
2010 from the same 2009 period was due to increased debt levels as we replaced less expensive
revolver borrowings with new, long-term notes. We believe the longer maturity, fixed interest rate
and less-restrictive covenants of the new, long-term notes warranted the higher debt levels and
interest rate. The decrease in capitalized interest was due to a decrease in capitalized costs
attributable to our River City project. We stopped capitalizing interest on our River City project
upon opening.
Loss on early extinguishment of debt: During the six months ended June 30, 2010, we incurred
a loss on early extinguishment of debt of $1.9 million related to the write off of unamortized debt
issuance costs related to the modification of our Credit facility and the early retirement of our
8.25% Notes.
Income Tax Benefit (Expense) Our effective income tax rate for continuing operations for the
three and six months ended June 30, 2010 was 4.3% and 4.9%, respectively, as compared to 4.1% and
4.3% for the same periods last year. Our effective tax rates in 2010 differ from the statutory
rate due to the effects of permanent items, the recording of a valuation allowance against a
portion of our deferred tax assets generated in the current year, and the recording of a reserve
for unrecognized tax benefits. It is reasonably possible that the total amount of unrecognized tax
benefits may decrease by approximately $1.0 million to $3.0 million during the next twelve months.
29
Discontinued Operations Discontinued operations as of June 30, 2010 consist of our former
Casino Magic Argentina operations, the Atlantic City operations, the former President Casino
operations, former Casino Magic Biloxi operations and former operations at The Casino at Emerald
Bay in The Bahamas.
Casino Magic Argentina: On April 29, 2010, we entered into an agreement to sell our Argentina
operations. We had previously reflected the business as a discontinued operation and the related
assets and liabilities as held for sale. On June 30, 2010, we completed the sale of our Argentina
operations for approximately $40 million and recognized a loss on disposal of approximately $0.2
million, which amount has been included in income (loss) from discontinued operations, net of
income taxes, in the unaudited Condensed Consolidated Statements of Operations.
Atlantic City: In the first quarter of 2010, we made the decision to sell our Atlantic City
operations. We have reflected our Atlantic City entities as discontinued operations and the
related assets and liabilities as held for sale.
President Casino: On March 10, 2010, we reached a settlement agreement with the Missouri
Gaming Commission (MGC) to close the President Casino. The property closed on June 24, 2010, and
as such, is considered a discontinued operation. In connection with the closure, we expect to
incur costs associated with the removal and disposal of The Admiral Riverboat, on which the
President Casino resides. However, at this time the amount of costs to be incurred cannot be
reasonably estimated and no accrual has been booked as of June 30, 2010. In addition, as part of
our removal process, we are required to perform certain tests on all underground and above ground
storage tanks to ensure the area complies with environmental standards. We may incur additional
costs to remove or repair any tanks that fail such tests.
Casino Magic Biloxi: Casino Magic Biloxi closed after significant damage from Hurricane
Katrina in 2005. In February 2010, we settled all remaining insurance claims in exchange for a
final payment of approximately $23.4 million. We have received payments totaling approximately
$215 million from our insurers related to this asset. Prior insurance advances that exceeded the
book value of destroyed assets and certain insured expenses were recorded as a deferred gain of
$18.3 million. As a result of this final settlement, we recognized this deferred gain in February
2010 in addition to the gain associated with the proceeds.
The Casino at Emerald Bay: The Casino at Emerald Bay in The Bahamas was closed during the
first quarter of 2009. We are actively marketing one remaining asset associated with our former
Bahamas operation; however, events and circumstances beyond our control have extended the period to
complete the sale of this asset beyond a year. The operation continues to be classified as a
discontinued operation and the related assets of discontinued operations held for sale.
30
Revenue, expense and net income for entities and operations included in discontinued
operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Revenues |
|
$ |
13.5 |
|
|
$ |
13.9 |
|
|
$ |
28.5 |
|
|
$ |
29.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(3.9 |
) |
|
|
(2.0 |
) |
|
|
(9.7 |
) |
|
|
(3.7 |
) |
Non-operating income (loss) |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
41.5 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(4.1 |
) |
|
|
(2.2 |
) |
|
|
31.8 |
|
|
|
(3.9 |
) |
Income tax expense |
|
|
(3.7 |
) |
|
|
(2.1 |
) |
|
|
(4.6 |
) |
|
|
(2.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
(7.8 |
) |
|
$ |
(4.3 |
) |
|
$ |
27.2 |
|
|
$ |
(6.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for entities and operations included in discontinued operations are broken out as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Casino Magic Argentina |
|
$ |
1.8 |
|
|
$ |
1.3 |
|
|
$ |
3.4 |
|
|
$ |
3.4 |
|
Atlantic City |
|
|
(4.3 |
) |
|
|
(2.3 |
) |
|
|
(7.0 |
) |
|
|
(5.0 |
) |
President Casino |
|
|
(1.5 |
) |
|
|
(1.1 |
) |
|
|
(5.4 |
) |
|
|
(2.0 |
) |
The Casino at Emerald Bay in The Bahamas |
|
|
(0.0 |
) |
|
|
(0.0 |
) |
|
|
0.0 |
|
|
|
(0.1 |
) |
Casino Magic Biloxi |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
40.8 |
|
|
|
(0.2 |
) |
Income taxes |
|
|
(3.7 |
) |
|
|
(2.1 |
) |
|
|
(4.6 |
) |
|
|
(2.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
(7.8 |
) |
|
$ |
(4.3 |
) |
|
$ |
27.2 |
|
|
$ |
(6.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets for entities and operations included in discontinued operations are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
Assets: |
|
|
|
|
|
|
|
|
Land, buildings, riverboats and equipment, net |
|
$ |
38.4 |
|
|
$ |
57.4 |
|
Other assets, net |
|
|
27.4 |
|
|
|
39.0 |
|
|
|
|
|
|
|
|
|
|
$ |
65.8 |
|
|
$ |
96.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and other accrued liabilities |
|
$ |
13.4 |
|
|
$ |
17.4 |
|
Long term liabilities |
|
|
0.3 |
|
|
|
19.3 |
|
|
|
|
|
|
|
|
|
|
|
13.7 |
|
|
|
36.7 |
|
|
|
|
|
|
|
|
Net Assets |
|
$ |
52.1 |
|
|
$ |
59.7 |
|
|
|
|
|
|
|
|
31
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2010, we held $204 million of cash and cash equivalents. We estimate that
approximately $70 million is needed to fund our casino cages, slot machines and day-to-day
operating and corporate accounts. On February 5, 2010, we entered into a $375 million amended and
restated credit facility, which facility matures in March 2014 (the Credit Facility). As of June
30, 2010, we had no borrowings under the Credit Facility and had $9.6 million committed under
various letters of credit. We anticipate additional borrowings in the future to fund development
and expansion projects and other general corporate needs. On May 6, 2010, the Company closed an
offering of $350 million in aggregate principal amount of new 8.75% senior subordinated notes due
2020.
We generally produce significant positive cash flows from operations, though this is not
always reflected in our reported net income due to large non-cash charges such as depreciation.
However, our ongoing liquidity will depend on a number of factors, including available cash
resources, cash flow from operations, funding of construction of our development projects and our
compliance with covenants contained in the Credit Facility and bond indentures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended |
|
|
Percentage |
|
|
|
June 30, |
|
|
Increase/(Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
2010 vs. 2009 |
|
|
|
(in millions) |
|
|
|
|
Net cash provided by operating activities |
|
$ |
49.9 |
|
|
$ |
48.0 |
|
|
|
4.0 |
% |
Net cash used in investing activities |
|
$ |
(78.9 |
) |
|
$ |
(60.4 |
) |
|
|
30.6 |
% |
Net cash providing by financing activities |
|
$ |
105.8 |
|
|
$ |
31.0 |
|
|
|
241.3 |
% |
Operating Cash Flow
Our cash provided by operating activities in the six months ended June 30, 2010 as compared to
the prior year period increased slightly due to the positive impacts of insurance settlement
proceeds and a legal settlement recovery, offset by large payments of our liabilities.
Investing Cash Flow
Investing cash flows includes capital expenditures offset by the sale of property and
equipment. During the six months ended June 30, 2010, capital expenditures were offset by $13.6
million in proceeds from the sale of our corporate jet, two seaplanes, and gaming equipment. In
addition, we also received cash proceeds of $25.1 million due to the sale of our Argentina
operations. The remaining proceeds were received subsequent to June 30, 2010. Also, we deposited
$25 million into an escrow account pursuant to an agreement with the State of Louisiana and the
Louisiana Gaming Control Board with respect to the establishment, maintenance and operation of our
Baton Rouge project. The following is a summary of our capital expenditures for the six months
ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
For the six months ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in millions) |
|
River City |
|
$ |
57.0 |
|
|
$ |
60.7 |
|
Sugarcane Bay |
|
|
10.5 |
|
|
|
6.4 |
|
Belterra Casino Resort |
|
|
3.0 |
|
|
|
3.5 |
|
LAuberge du Lac |
|
|
7.5 |
|
|
|
2.8 |
|
Boomtown New Orleans |
|
|
1.4 |
|
|
|
2.6 |
|
Lumière Place Casino |
|
|
1.8 |
|
|
|
2.5 |
|
Boomtown Reno |
|
|
0.2 |
|
|
|
1.4 |
|
Atlantic City |
|
|
0.1 |
|
|
|
1.0 |
|
Boomtown Bossier City |
|
|
2.8 |
|
|
|
1.0 |
|
Other |
|
|
9.1 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
93.4 |
|
|
$ |
84.2 |
|
|
|
|
|
|
|
|
32
In April 2010, we cancelled our planned $305 million Sugarcane Bay project and surrendered the
related gaming license to the Louisiana Gaming Control Board. In connection with this decision, we
recorded impairment charges primarily related to construction costs and the gaming license of
approximately $29.9 million in the second quarter of 2010. We expect to incur additional contract
termination costs, which amounts are not determinable as of June 30, 2010, as we are still
negotiating these amounts.
Our intention is to use existing cash resources, expected cash flows from operations and funds
available under our Credit Facility to fund operations, maintain existing properties, make
necessary debt service payments and fund the development of our Baton Rouge project. In the event
that our future cash flows from operations do not match the levels we currently anticipate, whether
due to downturns in the economy or otherwise, we may need to raise funds through the capital
markets.
Our ability to borrow under our Credit Facility is contingent upon, among other things,
meeting customary financial and other covenants. If we are unable to borrow under our Credit
Facility, or if our operating results are adversely affected because of a reduction in consumer
spending, or for any other reason, this may affect our ability to maintain our existing properties
or complete Baton Rouge project unless we sell assets, enter into leasing arrangements, or take
other measures to find additional resources. There is no certainty that we will be able to do so on
terms that are favorable to the Company or at all.
In addition to the effect that the global financial crisis has already had on us, we may face
significant challenges if conditions in the economy and financial markets worsen. The credit crisis
has adversely affected overall consumer demand, which has had a negative effect on our revenues.
Furthermore, the effects of the recent disruption to the overall economy could adversely affect
consumer confidence and the willingness of consumers to spend money on leisure activities. Because
of the current economic environment, certain of our customers may curtail the frequency of their
visits to our casinos and may reduce the amounts they wager and spend during those visits below
what they would normally wager and spend in better economic times. All of these effects could have
a material adverse effect on our liquidity.
For further discussion of our projects and associated capital needs, see the section
Managements Discussion and Analysis of Financial Condition and Results of Operations-Liquidity
and Capital Resources within our Annual Report on Form 10-K for the fiscal year ended December 31,
2009 and within our Current Report on Form 8-K filed on June 21, 2010.
Financing Cash Flow
Credit Facility
On February 5, 2010, we amended and restated our Credit Facility, which reduced our revolving
credit facility from $531 million to $375 million. As of June 30, 2010, we had no outstanding
borrowings and had $9.6 million committed under various letters of credit under our Credit
Facility. The Credit Facility matures on March 31, 2014.
The Credit Facility permits us, in the future, to increase the commitments under the revolving
credit facility and to obtain term loan commitments, in each case from existing or new lenders that
are willing to commit to such an increase so long as we are in pro forma compliance with a
consolidated senior secured debt ratio and a consolidated total leverage ratio.
The proceeds of the Credit Facility may be used for general corporate purposes, including the
payment of certain expenditures associated with the construction and development of our Baton Rouge
project.
The Credit Facility does not have any debt repayment obligations prior to 2014. We are
obligated to make mandatory prepayments of indebtedness under the Credit Facility from the net
proceeds of certain debt offerings, certain asset sales and dispositions and certain casualty
events, subject in certain cases to our right to reinvest proceeds. In addition, we will be
required to prepay borrowings under the Credit Facility with a percentage of our excess cash flow
(as defined in the Credit Facility, and reduced for cash flow applied to permitted capital
spending). We do not believe such payments will be required in the foreseeable future. We
have the option to prepay all or any portion of the indebtedness under the Credit Facility at any
time without premium or penalty.
33
The interest rate margins for revolving credit loans under the Credit Facility depend on our
consolidated total leverage ratio, which in general is the ratio of consolidated total debt (less
excess cash, as defined in the Credit Facility) to annualized adjusted EBITDA. The Credit Facility
bears interest, at our option, at either a LIBOR rate plus a margin ranging from 3.00% to 4.75% or
at a base rate plus a margin ranging from 1.50% to 3.25%, in either case based on our consolidated
total leverage ratio. The undrawn revolver facility bears a commitment fee for unborrowed amounts
of 0.25% to 0.75% per annum based on our consolidated total leverage ratio.
The Credit Facility has, among other things, financial covenants, capital spending limits and
other affirmative and negative covenants, including a required minimum consolidated interest
coverage ratio, a maximum permitted consolidated total leverage ratio and a maximum permitted
consolidated senior secured leverage ratio. The Credit Facility also has certain covenants
regarding construction projects, including, among other requirements for the Baton Rouge project, a
requirement that an in-balance test be satisfied prior to the spending of $25 million after
January 1, 2010 for such project. Based on the recent issuance of our 8.75% Notes (defined below),
management believes it has sufficient project sources, including cash flow from operations, to
satisfy the in-balance test at this time, subject to submitting the required in-balance
certification. In addition, there is a provision in the Credit Facility that we cannot spend more
than $25 million on the Baton Rouge project after January 1, 2010 unless we have received at least
$40 million in the aggregate from various non-debt capital sources. The Company has the funds to
meet this requirement.
The obligations under the Credit Facility are secured by most of our assets and our domestic
restricted subsidiaries, including a pledge of the equity interests in our domestic subsidiaries
and, if and when formed or acquired, by a pledge of up to 66% of the then-outstanding equity
interests of our foreign restricted subsidiaries. Our obligations under the Credit Facility are
also guaranteed by our domestic restricted subsidiaries and are required to be guaranteed by our
foreign restricted subsidiaries, if and when such foreign restricted subsidiaries are formed or
acquired, unless such guarantee causes material adverse tax, foreign gaming or foreign law
consequences. The subsidiaries that own our Atlantic City site, a subsidiary that holds
approximately $10.5 million in cash and cash equivalents and a subsidiary that holds approximately
$66 million in cash and cash equivalents are currently unrestricted subsidiaries for purposes of
the Credit Facility.
Senior and Senior Subordinated Indebtedness
As of June 30, 2010, we had outstanding $450 million aggregate principal amount of 8.625%
senior notes due 2017 (8.625% Notes), $385 million aggregate principal amount of 7.50% senior
subordinated notes due 2015 (7.50% Notes) and $350 million aggregate principal amount of 8.75%
senior subordinated notes due 2020 (8.75% Notes).
On May 6, 2010, we closed the offering of the 8.75% Notes. The 8.75% Notes were issued in
a private offering conducted pursuant to Rule 144A and Regulation S under the Securities Act of
1933, as amended, at a price equal to par. Net of the initial purchasers fees and various costs
and expenses, net proceeds from the offering were approximately $341.5 million. Using the net
proceeds, we redeemed all of our then existing 8.25% senior subordinated notes due 2012, of which
$200 million in aggregate principal amount was outstanding, and repaid $80 million in revolving
credit borrowings under the Credit Facility. The remaining net proceeds from the offering are
expected to be used for general corporate purposes, including the funding of our Baton Rouge
project.
The 8.625% Notes are senior unsecured obligations and rank equally in right of payment with
all of our existing and future senior debt, including debt under our Credit Facility. The 8.625%
Notes are, however, effectively subordinated to our Credit Facility, which is secured by a first
priority lien, as well as any other secured debt which may be issued in the future. The 8.625%
Notes are guaranteed on a senior basis by certain of our current and future domestic restricted
subsidiaries. The 8.625% Notes rank senior to our existing 7.50% Notes and 8.75% Notes.
The 7.50% Notes and 8.75% Notes are unsecured senior subordinated obligations and rank
subordinate in right of payment to all of our and our subsidiary guarantors existing and future
indebtedness, except indebtedness that expressly provides that it ranks equal or subordinate in
right of payment to the 7.50% Notes and 8.75% Notes. The
7.50% Notes and 8.75% Notes are guaranteed on a senior subordinated basis by certain of our
current and future domestic restricted subsidiaries. The 7.50% Notes and the 8.75% Notes are
subordinated to our 8.625% Notes and to our Credit Facility.
34
Under the indenture governing the 8.625% Notes, among other debt baskets, we are permitted to
incur the greater of $750 million or 3.5x Consolidated EBITDA (as defined in the Indenture) in
senior indebtedness and secured indebtedness, which debt basket excludes the 8.625% Notes. Under
the indentures governing the 7.50% Notes and 8.75% Notes, we are permitted to incur the greater of
$1.5 billion or 2.5x Adjusted EBITDA (as defined in the indentures) in senior indebtedness. Under
these senior secured indebtedness baskets, we are permitted in certain circumstances to incur
senior unsecured indebtedness. In addition, the indentures governing the 8.625% Notes, the 7.50%
Notes and the 8.75% Notes include other debt incurrence baskets, including a permitted refinancing
basket and a general debt basket, the permitted size of the latter of which is the greater of $250
million or 5% of Consolidated Total Assets (as defined in the indentures). Under all three
indentures, we may also incur additional indebtedness if, after giving effect to the indebtedness
proposed to be incurred, our Consolidated Coverage Ratio (essentially, a ratio of adjusted EBITDA
to interest) for a trailing four-quarter period on a pro forma basis (as defined in our indentures)
would be at least 2.0 to 1.0. Our Consolidated Coverage Ratio under all three currently existing
indentures was below 2.0 to 1.0 as of June 30, 2010.
The 7.50% Notes, 8.625% Notes and 8.75% Notes become callable at a premium over their face
amount on June 15, 2011, August 1, 2013 and May 15, 2015, respectively. Such premiums decline
periodically as the notes progress towards their respective maturities. All of our notes are
redeemable prior to such times at a price that reflects a yield to the first call that is
equivalent to the applicable Treasury bond yield plus 0.5 percentage points.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The following material changes occurred during the quarterly period ended June 30, 2010, to
our contractual obligations and commitments as disclosed in our Annual Report on Form 10-K for the
year ended December 31, 2009. On April 28, 2010, we entered into the First Amendment to the Third
Amended and Restated Credit Agreement (the First Amendment), which amends the Companys Third
Amended and Restated Credit Agreement dated as of February 5, 2010 (the Credit Facility).
Pursuant to the terms of the First Amendment, the Company reduced the minimum amount of non-debt
capital that it must raise from $100 million to $40 million before spending more than $25 million
on its Baton Rouge project. In addition, the First Amendment permits the Company to dispose of its
assets for the Companys Sugarcane Bay project, which the Company has cancelled.
On May 6, 2010, we closed an offering of $350 million aggregate principal amount of 8.75%
senior subordinated notes due 2020. For more detailed descriptions of the First Amendment to the
Credit Facility, the issuance of 8.75% senior subordinated notes due 2020, see Note 2 to our
unaudited Condensed Consolidated Financial Statements.
On April 29, 2010, we entered into a Sale and Purchase Agreement with a consortium of
Argentine companies to sell the Companys Argentine businesses for a total purchase price of
approximately $40 million. On June 30, 2010, we completed the sale of the Companys Argentine
businesses.
CRITICAL ACCOUNTING POLICIES
A description of our critical accounting policies and estimates can be found in Item 7 of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2009. For a more extensive
discussion of our accounting policies, see Note 1, Summary of Significant Accounting Policies, in
the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2009. There were no newly identified significant changes in the second
quarter of 2010, nor were there any material changes to the critical accounting policies and
estimates discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009
and in our Current Report on Form 8-K filed on June 21, 2010.
35
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the Act) provides certain safe
harbor provisions for forward-looking statements. Except for the historical information contained
herein, the matters addressed in this Quarterly Report on Form 10-Q, as well as in other reports
filed with or furnished to the SEC or statements made by us, may constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. From time to time, we may provide
oral or written forward-looking statements in our other periodic reports on Form 10-K, Form 8-K,
press releases and other materials released to the public. All forward-looking statements made in
this Quarterly Report on Form 10-Q and any documents we incorporate by reference are made pursuant
to the Act. Words such as, but not limited to, believes, expects, anticipates, estimates,
intends, plans, could, may, will, should, and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements, which may include, without
limitation, expected results of operations, adequacy and sufficiency of resources to fund our
development projects, liquidity, the state of the credit markets, the state of the economy,
anticipated completion and opening schedules of the Companys Baton Rouge project, anticipated
results for the Baton Rouge project and continued results of the Companys River City casino,
expansion plans, construction schedules, cash needs, cash reserves, operating and capital expenses,
expense reductions, the sufficiency of insurance coverage, anticipated marketing costs at various
projects, the future outlook of Pinnacle and the gaming industry, our pending regulatory and legal
matters, are all subject to a variety of risks and uncertainties that could cause actual results to
differ materially from those anticipated by us. This can occur as a result of inaccurate
assumptions or as a consequence of known or unknown risks and uncertainties. Factors that may cause
our actual performance to differ materially from that contemplated by such forward-looking
statements include, among others:
|
|
|
our business may be sensitive to reductions in consumers discretionary spending
as a result of recent downturns in the economy; |
|
|
|
our present indebtedness and projected future borrowings could have adverse
consequences to us; future cash flows may not be sufficient to meet our obligations and
we might have difficulty obtaining additional financing; we may experience adverse
effects of interest-rate and exchange-rate fluctuations; |
|
|
|
insufficient or lower-than-expected results generated from our new developments
and any acquired properties may negatively affect the market for our securities; |
|
|
|
many factors could prevent us from completing our Baton Rouge project as planned,
including the escalation of construction or other costs beyond increments anticipated in
our construction budget; |
|
|
|
our operations are largely dependent on the skill and experience of our
management and key personnel. The loss of management and other key personnel could
significantly harm our business and we may not be able to effectively replace members of
management who have left the company; |
|
|
|
the gaming industry is very competitive and increased competition, including by
Native American gaming facilities and the recent expansion of gaming in Ohio, could
adversely affect our profitability; |
|
|
|
our industry is highly regulated, which makes us dependent on obtaining and
maintaining gaming licenses and subjects us to potentially significant fines and
penalties. Potential changes in the regulatory environment could harm our business; |
|
|
|
we may not meet the conditions for the maintenance of the license that we plan to
utilize for our Baton Rouge project; |
|
|
|
we operate in a highly taxed industry and may be subject to higher taxes in the
future; |
|
|
|
the global financial crisis and recession may have an effect on our business and
financial condition in ways that we currently cannot accurately predict; |
|
|
|
subsequent phases to certain of our existing projects and potential enhancements
at our properties may require us to raise additional capital; |
|
|
|
natural disasters have made it more challenging for us to obtain similar levels
of Weather Catastrophe Occurrence/Named Windstorm, Flood and Earthquake insurance
coverage for our properties compared to the levels before the 2005 hurricane; |
|
|
|
state legislatures from time to time consider legislation that could increase our
competition or taxes; and |
|
|
|
our results of operations and financial condition could be materially adversely
affected by the occurrence of natural disasters, such as hurricanes, or other
catastrophic events, including war and terrorism. |
36
For a further list and description of various risks, relevant factors and uncertainties that
could cause future results or events to differ materially from those expressed or implied in our
forward-looking statements, please see the Managements Discussion and Analysis of Financial
Condition and Results of Operations section contained in this Quarterly Report on Form 10-Q, as
well as the Risk Factors and Management Discussion and Analysis of Financial Condition and
Results of Operations sections contained in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2009 and our Current Report on Form 8-K filed on June 21, 2010 and review our
other filings (other than any portion of such filings that are furnished under applicable SEC Rules
rather than filed) with the SEC, which are hereby incorporated by reference into this Quarterly
Report on Form 10-Q. All forward-looking statements included in this Quarterly Report on Form 10-Q
are made only as of the date of this Form 10-Q. We undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
At times, we are exposed to market risk from adverse changes in interest rates with respect to
the short-term floating interest rate on borrowings under our Credit Facility. As of June 30, 2010,
we had $9.6 million committed under various letters of credit. As of June 30, 2010, if LIBOR rates
were to increase or decrease by one percentage point, our interest expense would not increase or
decrease, assuming constant debt levels. Under our Credit Facility, any borrowings outstanding
accrue interest at LIBOR plus a margin determined by our current consolidated leverage ratio, which
margin was 4.0% as of June 30, 2010.
The table below provides the principal cash flows and related weighted average interest rates
by contractual maturity dates for our debt obligations at June 30, 2010. At June 30, 2010, we did
not hold any material investments in market-risk-sensitive instruments of the type described in
Item 305 of Regulation S-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
Thereafter |
|
|
Total |
|
|
Fair Value |
|
|
|
(in thousands) |
|
7.50% Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
385,000 |
|
|
$ |
385,000 |
|
|
$ |
359,975 |
|
Fixed Rate |
|
|
7.50 |
% |
|
|
7.50 |
% |
|
|
7.50 |
% |
|
|
7.50 |
% |
|
|
7.50 |
% |
|
|
7.50 |
% |
|
|
7.50 |
% |
|
|
|
|
8.625% Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
450,000 |
|
|
$ |
450,000 |
|
|
$ |
457,875 |
|
Fixed Rate |
|
|
8.625 |
% |
|
|
8.625 |
% |
|
|
8.625 |
% |
|
|
8.625 |
% |
|
|
8.625 |
% |
|
|
8.625 |
% |
|
|
8.625 |
% |
|
|
|
|
8.75% Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
350,000 |
|
|
$ |
350,000 |
|
|
$ |
325,500 |
|
Fixed Rate |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
|
|
All Other |
|
$ |
45 |
|
|
$ |
95 |
|
|
$ |
102 |
|
|
$ |
110 |
|
|
$ |
118 |
|
|
$ |
325 |
|
|
$ |
795 |
|
|
$ |
795 |
|
Avg. Interest Rate |
|
|
7.33 |
% |
|
|
7.33 |
% |
|
|
7.33 |
% |
|
|
7.33 |
% |
|
|
7.33 |
% |
|
|
7.33 |
% |
|
|
7.33 |
% |
|
|
|
|
37
Item 4. Controls and Procedures
The Companys management, with the participation of the Chief Executive Officer (the CEO)
and the Chief Financial Officer (the CFO), evaluated the effectiveness of the Companys
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) as of June 30, 2010. Based on this evaluation, the Companys management, including the CEO and
the CFO, concluded that, as of June 30, 2010, the Companys disclosure controls and procedures were
effective, in that they provide a reasonable level of assurance that information required to be
disclosed by the Company in the reports filed or submitted by it under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the SECs rules
and forms. The Companys disclosure controls and procedures are designed to provide reasonable
assurance that information required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is accumulated and communicated to the Companys management,
including the CEO and the CFO, as appropriate, to allow timely decisions regarding required
disclosure.
Notwithstanding the foregoing, there can be no assurance that the Companys disclosure
controls and procedures will detect or uncover all failures of persons within the Company and its
consolidated subsidiaries to disclose material information otherwise required to be set forth in
the Companys periodic reports. There are inherent limitations to the effectiveness of any system
of disclosure controls and procedures, including the possibility of human error and the
circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure
controls and procedures can only provide reasonable, not absolute, assurance of achieving their
control objectives.
No change in the Companys internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30,
2010 that has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.
38
PART II
Item 1. Legal Proceedings
During the three months ended June 30, 2010, there were no material developments with
respect to the litigation described in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2009 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2010, under the heading Legal Proceedings and to which reference should be made.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in the Risk Factors
section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
39
Item 6. Exhibits
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
3.1 |
|
|
Restated Certificate of Incorporation of Pinnacle Entertainment, Inc., as amended, is
hereby incorporated by reference to Exhibit 3.3 to the Companys Current Report on Form
8-K filed on May 9, 2005. (SEC File No. 001-13641). |
|
|
|
|
|
|
3.2 |
|
|
Restated Bylaws of Pinnacle Entertainment, Inc., as amended, are hereby incorporated by
reference to Exhibit 3.2 to the Companys Current Report on Form 8-K filed on April 2,
2010. (SEC File No. 001-13641). |
|
|
|
|
|
|
4.1 |
|
|
Indenture dated as of May 6, 2010, governing the 8.75% Senior Subordinated Notes due
2020, by and among the Company, the guarantors identified therein and The Bank of New
York Mellon Trust Company, N.A. is hereby incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed on May 12, 2010. (SEC File No. 001-13641). |
|
|
|
|
|
|
4.2 |
|
|
Form of 8.75% Senior Subordinated Note due 2020 is
hereby incorporated by reference to Exhibit 4.2 to the Companys Current Report on Form
8-K filed on May 12, 2010. (SEC File No. 001-13641). |
|
|
|
|
|
|
4.3 |
|
|
Registration Rights Agreement, dated as of May 6, 2010, among the Company, the guarantors
identified therein and J.P. Morgan Securities Inc., Banc of America Securities LLC,
Barclays Capital Inc., Credit Agricole Securities (USA) Inc., Deutsche Bank Securities
Inc. and UBS Securities LLC as representatives of the several initial purchasers is
hereby incorporated by reference to Exhibit 4.3 to the Companys Current Report on Form
8-K filed on May 12, 2010. (SEC File No. 001-13641). |
|
|
|
|
|
|
10.1 |
|
|
Agreement for Guaranteed Maximum Price Construction Services, effective as of March 30,
2010, by and between PNK (Baton Rouge) Partnership and Manhattan Construction Company is
hereby incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed on April 5, 2010. (SEC File No. 001-13641). |
|
|
|
|
|
|
10.2 |
|
|
First Amendment to Amended and Restated Employment Agreement, dated as of April 15, 2010,
between Pinnacle Entertainment, Inc. and Alain Uboldi is hereby incorporated by reference
to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on April 19, 2010. (SEC
File No. 001-13641). |
|
|
|
|
|
|
10.3 |
|
|
Purchase Agreement, dated as of April 29, 2010, by and among Pinnacle Entertainment, Inc.
and J.P. Morgan Securities Inc., Banc of America Securities LLC, Barclays Capital Inc.,
Credit Agricole Securities (USA) Inc., Deutsche Bank Securities Inc. and UBS Securities
LLC, as representatives of the several Initial Purchasers named in Schedule 1 of the
Purchase Agreement is hereby incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on May 5, 2010. (SEC File No. 001-13641). |
|
|
|
|
|
|
10.4 |
|
|
First Amendment to Third Amended and Restated Credit Agreement, dated as of April 28,
2010, by and between Pinnacle Entertainment, Inc., Barclays Bank PLC, as the
administrative agent, and the Required Lenders is hereby incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K filed on April 29, 2010. (SEC
File No. 001-13641). |
|
|
|
|
|
|
10.5 |
|
|
Sale and Purchase Agreement, dated April 29, 2010, between Casino Magic Corp., Casino
Magic Management Services Corp., Casino Club S.A., Da Silvano S.A., Compañía Gerenciadora
de Inversiones S.A. and Correon S.A. is hereby incorporated by reference to Exhibit 2.1
to the Companys Current Report on Form 8-K filed on July 7, 2010. (SEC File No.
001-13641). |
|
|
|
|
|
|
10.6 |
|
|
Pinnacle Entertainment, Inc. 2005 Equity and Performance Incentive Plan, As Amended
is hereby incorporated by reference to Exhibit 10.1 to the Companys Current Report on
Form 8-K filed on May 17, 2010. (SEC File No. 001-13641). |
|
|
|
|
|
40
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
11 |
* |
|
Statement re: Computation of Earnings Per Share. |
|
|
|
|
|
|
31.1 |
* |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
|
|
|
|
|
|
31.2 |
* |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
|
|
|
|
|
|
32 |
** |
|
Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer. |
|
|
|
|
|
|
101 |
*** |
|
The following financial statements from Pinnacle Entertainment, Inc.s Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2010, formatted in XBRL (eXtensible Business
Reporting Language): |
|
|
|
|
|
|
|
|
|
(i) unaudited Condensed Consolidated Balance Sheets June 30, 2010 and December 31,
2009. |
|
|
|
|
|
|
|
|
|
(ii) unaudited Condensed Consolidated Statements of OperationsThree and Six Months Ended June
30, 2010 and 2009. |
|
|
|
|
|
|
|
|
|
(iii) unaudited Condensed Consolidated Statements of Cash Flows Six Months Ended June
30, 2010 and 2009. |
|
|
|
|
|
|
|
|
|
(iv) Notes to unaudited Condensed Consolidated Financial Statements June 30, 2010. |
|
|
|
* |
|
Filed herewith. |
|
** |
|
Furnished herewith. |
|
*** |
|
Pursuant to Rule 405(a)(2) of Regulation S-T, the Company will file an amendment to this Form
10-Q within 30 days, to furnish the XBRL interactive data files as Exhibit 101. |
|
|
|
Management contract or compensatory plan or arrangement. |
41
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Pinnacle
Entertainment, Inc.
(Registrant)
|
|
Date: August 9, 2010 |
By: |
/s/ Stephen H. Capp
|
|
|
|
Stephen H. Capp |
|
|
|
Executive Vice President and Chief Financial Officer
(Authorized Officer, Principal Financial Officer) |
|
42
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
3.1 |
|
|
Restated Certificate of Incorporation of Pinnacle Entertainment, Inc., as amended, is
hereby incorporated by reference to Exhibit 3.3 to the Companys Current Report on Form 8-K
filed on May 9, 2005. (SEC File No. 001-13641). |
|
|
|
|
|
|
3.2 |
|
|
Restated Bylaws of Pinnacle Entertainment, Inc., as amended, are hereby incorporated by
reference to Exhibit 3.2 to the Companys Current Report on Form 8-K filed on April 2,
2010. (SEC File No. 001-13641). |
|
|
|
|
|
|
4.1 |
|
|
Indenture dated as of May 6, 2010, governing the 8.75% Senior Subordinated Notes due 2020,
by and among the Company, the guarantors identified therein and The Bank of New York Mellon
Trust Company, N.A. is hereby incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K filed on May 12, 2010. (SEC File No. 001-13641). |
|
|
|
|
|
|
4.2 |
|
|
Form of 8.75% Senior Subordinated Note due 2020 is
hereby incorporated by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K
filed on May 12, 2010. (SEC File No. 001-13641). |
|
|
|
|
|
|
4.3 |
|
|
Registration Rights Agreement, dated as of May 6, 2010, among the Company, the guarantors
identified therein and J.P. Morgan Securities Inc., Banc of America Securities LLC,
Barclays Capital Inc., Credit Agricole Securities (USA) Inc., Deutsche Bank Securities Inc.
and UBS Securities LLC as representatives of the several initial purchasers is hereby
incorporated by reference to Exhibit 4.3 to the Companys Current Report on Form 8-K filed
on May 12, 2010. (SEC File No. 001-13641). |
|
|
|
|
|
|
10.1 |
|
|
Agreement for Guaranteed Maximum Price Construction Services, effective as of March 30,
2010, by and between PNK (Baton Rouge) Partnership and Manhattan Construction Company is
hereby incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed on April 5, 2010. (SEC File No. 001-13641). |
|
|
|
|
|
|
10.2 |
|
|
First Amendment to Amended and Restated Employment Agreement, dated as of April 15, 2010,
between Pinnacle Entertainment, Inc. and Alain Uboldi is hereby incorporated by reference
to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on April 19, 2010. (SEC
File No. 001-13641). |
|
|
|
|
|
|
10.3 |
|
|
Purchase Agreement, dated as of April 29, 2010, by and among Pinnacle Entertainment, Inc.
and J.P. Morgan Securities Inc., Banc of America Securities LLC, Barclays Capital Inc.,
Credit Agricole Securities (USA) Inc., Deutsche Bank Securities Inc. and UBS Securities
LLC, as representatives of the several Initial Purchasers named in Schedule 1 of the
Purchase Agreement is hereby incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on May 5, 2010. (SEC File No. 001-13641). |
|
|
|
|
|
|
10.4 |
|
|
First Amendment to Third Amended and Restated Credit Agreement, dated as of April 28, 2010,
by and between Pinnacle Entertainment, Inc., Barclays Bank PLC, as the administrative
agent, and the Required Lenders is hereby incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on April 29, 2010. (SEC File No. 001-13641). |
|
|
|
|
|
|
10.5 |
|
|
Sale and Purchase Agreement, dated April 29, 2010, between Casino Magic Corp., Casino Magic
Management Services Corp., Casino Club S.A., Da Silvano S.A., Compañía Gerenciadora de
Inversiones S.A. and Correon S.A. is hereby incorporated by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K filed on July 7, 2010. (SEC File No. 001-13641). |
|
|
|
|
|
|
10.6 |
|
|
Pinnacle Entertainment, Inc. 2005 Equity and Performance Incentive Plan, As Amended
is hereby incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed on May 17, 2010. (SEC File No. 001-13641). |
|
|
|
|
|
43
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
11 |
* |
|
Statement re: Computation of Earnings Per Share. |
|
|
|
|
|
|
31.1 |
* |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
|
|
|
|
|
|
31.2 |
* |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
|
|
|
|
|
|
32 |
** |
|
Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer. |
|
|
|
|
|
|
101 |
*** |
|
The following financial statements from Pinnacle Entertainment, Inc.s Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2010, formatted in XBRL (eXtensible Business
Reporting Language): |
|
|
|
|
|
|
|
|
|
(v) unaudited Condensed Consolidated Balance Sheets June 30, 2010 and December 31, 2009. |
|
|
|
|
|
|
|
|
|
(vi) unaudited Condensed Consolidated Statements of OperationsThree and Six Months Ended June 30,
2010 and 2009. |
|
|
|
|
|
|
|
|
|
(vii) unaudited Condensed Consolidated Statements of Cash Flows Six Months Ended June
30, 2010 and 2009. |
|
|
|
|
|
|
|
|
|
(viii) Notes to unaudited Condensed Consolidated Financial Statements June 30, 2010. |
|
|
|
* |
|
Filed herewith. |
|
** |
|
Furnished herewith. |
|
*** |
|
Pursuant to Rule 405(a)(2) of Regulation S-T, the Company will file an amendment to this Form
10-Q within 30 days, to furnish the XBRL interactive data files as Exhibit 101. |
|
|
|
Management contract or compensatory plan or arrangement. |
44