Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
or
|
|
|
o |
|
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)
|
|
|
Delaware
|
|
95-3667491 |
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.) |
3800 Howard Hughes Parkway
Las Vegas, NV 89169
(Address of principal executive offices) (Zip Code)
(702) 784-7777
(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 the 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.
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o (Do not check if a smaller reporting company)
|
|
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 3, 2009, the number of outstanding shares of the
registrants common stock was 60,064,681.
PINNACLE ENTERTAINMENT, INC.
TABLE OF CONTENTS
PART I
Item 1.
Financial Statements
PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the six months |
|
|
|
ended June 30, |
|
|
ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands, except per share data) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
$ |
229,698 |
|
|
$ |
229,765 |
|
|
$ |
467,193 |
|
|
$ |
457,967 |
|
Food and beverage |
|
|
16,624 |
|
|
|
16,500 |
|
|
|
31,487 |
|
|
|
30,242 |
|
Lodging |
|
|
10,060 |
|
|
|
9,229 |
|
|
|
18,457 |
|
|
|
15,358 |
|
Retail, entertainment and other |
|
|
9,869 |
|
|
|
10,824 |
|
|
|
18,074 |
|
|
|
19,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
266,251 |
|
|
|
266,318 |
|
|
|
535,211 |
|
|
|
522,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses and other costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
|
135,885 |
|
|
|
141,238 |
|
|
|
270,450 |
|
|
|
279,262 |
|
Food and beverage |
|
|
16,243 |
|
|
|
16,087 |
|
|
|
31,507 |
|
|
|
31,108 |
|
Lodging |
|
|
6,168 |
|
|
|
5,184 |
|
|
|
11,976 |
|
|
|
9,572 |
|
Retail, entertainment and other |
|
|
5,548 |
|
|
|
5,723 |
|
|
|
9,858 |
|
|
|
11,536 |
|
General and administrative |
|
|
58,881 |
|
|
|
62,834 |
|
|
|
116,817 |
|
|
|
122,525 |
|
Depreciation and amortization |
|
|
26,185 |
|
|
|
31,046 |
|
|
|
52,386 |
|
|
|
59,507 |
|
Pre-opening and development costs |
|
|
6,634 |
|
|
|
14,207 |
|
|
|
12,518 |
|
|
|
31,343 |
|
Write-downs, reserves and recoveries, net |
|
|
301 |
|
|
|
6,920 |
|
|
|
713 |
|
|
|
6,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
255,845 |
|
|
|
283,239 |
|
|
|
506,225 |
|
|
|
551,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
10,406 |
|
|
|
(16,921 |
) |
|
|
28,986 |
|
|
|
(28,752 |
) |
Other non-operating income |
|
|
103 |
|
|
|
484 |
|
|
|
236 |
|
|
|
1,623 |
|
Interest expense, net of capitalized interest |
|
|
(16,074 |
) |
|
|
(11,607 |
) |
|
|
(32,752 |
) |
|
|
(23,690 |
) |
Gain on sale of equity securities |
|
|
12,914 |
|
|
|
|
|
|
|
12,914 |
|
|
|
|
|
Impairment of investment in equity securities |
|
|
|
|
|
|
(22,636 |
) |
|
|
|
|
|
|
(22,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
7,349 |
|
|
|
(50,680 |
) |
|
|
9,384 |
|
|
|
(73,455 |
) |
Income tax (expense) benefit |
|
|
(2,400 |
) |
|
|
2,317 |
|
|
|
(3,208 |
) |
|
|
9,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
4,949 |
|
|
|
(48,363 |
) |
|
|
6,176 |
|
|
|
(64,122 |
) |
Income (loss) from discontinued operations, net of income taxes |
|
|
(241 |
) |
|
|
30,254 |
|
|
|
(537 |
) |
|
|
51,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,708 |
|
|
$ |
(18,109 |
) |
|
$ |
5,639 |
|
|
$ |
(13,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common sharebasic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.08 |
|
|
$ |
(0.81 |
) |
|
$ |
0.10 |
|
|
$ |
(1.07 |
) |
Income (loss) from discontinued operations, net of income taxes |
|
|
0.00 |
|
|
|
0.51 |
|
|
|
(0.01 |
) |
|
|
0.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common sharebasic |
|
$ |
0.08 |
|
|
$ |
(0.30 |
) |
|
$ |
0.09 |
|
|
$ |
(0.22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common sharediluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.08 |
|
|
$ |
(0.81 |
) |
|
$ |
0.10 |
|
|
$ |
(1.07 |
) |
Income (loss) from discontinued operations, net of income taxes |
|
|
0.00 |
|
|
|
0.51 |
|
|
|
(0.01 |
) |
|
|
0.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common sharediluted |
|
$ |
0.08 |
|
|
$ |
(0.30 |
) |
|
$ |
0.09 |
|
|
$ |
(0.22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of sharesbasic |
|
|
60,064 |
|
|
|
59,962 |
|
|
|
60,036 |
|
|
|
59,956 |
|
Number of sharesdiluted |
|
|
60,851 |
|
|
|
59,962 |
|
|
|
61,331 |
|
|
|
59,956 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
(Unaudited) |
|
|
|
|
|
|
(in thousands, except share data) |
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
134,019 |
|
|
$ |
115,712 |
|
Accounts receivable, net of allowance for doubtful accounts of
$12,289 and $11,848 |
|
|
22,073 |
|
|
|
26,348 |
|
Inventories |
|
|
5,955 |
|
|
|
6,425 |
|
Prepaid expenses and other assets |
|
|
28,945 |
|
|
|
18,845 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
190,992 |
|
|
|
167,330 |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
9,397 |
|
|
|
9,318 |
|
Land, buildings, riverboats and equipment: (Note 1) |
|
|
|
|
|
|
|
|
Land and land improvements |
|
|
415,840 |
|
|
|
407,169 |
|
Buildings, riverboats and improvements |
|
|
1,095,792 |
|
|
|
1,099,204 |
|
Furniture, fixtures and equipment |
|
|
446,574 |
|
|
|
436,887 |
|
Construction in progress |
|
|
199,060 |
|
|
|
127,407 |
|
|
|
|
|
|
|
|
|
|
|
2,157,266 |
|
|
|
2,070,667 |
|
Less: accumulated depreciation |
|
|
(488,526 |
) |
|
|
(440,630 |
) |
|
|
|
|
|
|
|
|
|
|
1,668,740 |
|
|
|
1,630,037 |
|
|
|
|
|
|
|
|
Assets held for sale |
|
|
2,762 |
|
|
|
2,687 |
|
Goodwill |
|
|
16,742 |
|
|
|
16,742 |
|
Intangible assets, net (Note 1) |
|
|
32,507 |
|
|
|
32,607 |
|
Other assets, net |
|
|
45,072 |
|
|
|
60,503 |
|
|
|
|
|
|
|
|
|
|
$ |
1,966,212 |
|
|
$ |
1,919,224 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
48,343 |
|
|
$ |
45,755 |
|
Accrued interest |
|
|
10,970 |
|
|
|
11,010 |
|
Accrued compensation |
|
|
39,772 |
|
|
|
41,574 |
|
Accrued taxes |
|
|
21,022 |
|
|
|
17,089 |
|
Other accrued liabilities |
|
|
54,817 |
|
|
|
55,060 |
|
Deferred income taxes |
|
|
2,032 |
|
|
|
4,029 |
|
Current portion of long-term debt (Note 2) |
|
|
93 |
|
|
|
89 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
177,049 |
|
|
|
174,606 |
|
|
|
|
|
|
|
|
Long-term debt less current portion (Note 2) |
|
|
974,608 |
|
|
|
943,243 |
|
Other long-term liabilities |
|
|
58,983 |
|
|
|
59,831 |
|
Deferred income taxes (Note 3) |
|
|
3,836 |
|
|
|
2,198 |
|
Commitments and contingencies (Note 6) |
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
Preferred stock$1.00 par value, 250,000 shares authorized, none
issued or outstanding |
|
|
|
|
|
|
|
|
Common stock$0.10 par value, 60,064,681 and 59,981,181 shares
outstanding, net of treasury shares |
|
|
6,207 |
|
|
|
6,199 |
|
Additional paid-in capital |
|
|
1,007,463 |
|
|
|
999,419 |
|
Accumulated deficit |
|
|
(224,438 |
) |
|
|
(230,077 |
) |
Accumulated other comprehensive loss |
|
|
(17,406 |
) |
|
|
(16,105 |
) |
Treasury stock, at cost, for both periods 2,008,986 of treasury shares |
|
|
(20,090 |
) |
|
|
(20,090 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
751,736 |
|
|
|
739,346 |
|
|
|
|
|
|
|
|
|
|
$ |
1,966,212 |
|
|
$ |
1,919,224 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the six months |
|
|
|
ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
5,639 |
|
|
$ |
(13,056 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
52,386 |
|
|
|
59,863 |
|
Loss on disposal of assets |
|
|
345 |
|
|
|
|
|
Impairment of buildings, riverboats and equipment |
|
|
346 |
|
|
|
5,979 |
|
Impairment of investment in equity securities |
|
|
|
|
|
|
22,636 |
|
Gain on sale of equity securities |
|
|
(12,914 |
) |
|
|
|
|
Provision for bad debts |
|
|
1,410 |
|
|
|
1,131 |
|
Amortization of debt issuance costs |
|
|
2,302 |
|
|
|
2,147 |
|
Share-based compensation expense |
|
|
7,694 |
|
|
|
4,766 |
|
Change in deferred income taxes |
|
|
4,789 |
|
|
|
27,343 |
|
Tax benefit from stock option exercises |
|
|
|
|
|
|
50 |
|
Excess tax benefit from stock equity plans |
|
|
|
|
|
|
(182 |
) |
Insurance advances in excess of net book value |
|
|
|
|
|
|
2,018 |
|
Change in long-term accounts, net |
|
|
|
|
|
|
(646 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables |
|
|
1,083 |
|
|
|
(3,879 |
) |
Prepaid expenses and other |
|
|
(10,209 |
) |
|
|
(8,395 |
) |
Other long-term assets |
|
|
1,880 |
|
|
|
|
|
Accounts payable |
|
|
(5,125 |
) |
|
|
(14,162 |
) |
Accrued compensation |
|
|
(770 |
) |
|
|
232 |
|
Accrued interest |
|
|
(40 |
) |
|
|
(109 |
) |
Other accrued liabilities |
|
|
(1,103 |
) |
|
|
20,518 |
|
Other long-term liabilities |
|
|
242 |
|
|
|
|
|
All other, net |
|
|
|
|
|
|
95 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
47,955 |
|
|
|
106,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(84,193 |
) |
|
|
(217,778 |
) |
Change in restricted cash |
|
|
(235 |
) |
|
|
(2,089 |
) |
Kansas City application deposit |
|
|
|
|
|
|
(25,000 |
) |
Proceeds from sale of equity securities |
|
|
23,674 |
|
|
|
|
|
Proceeds from sale of property and equipment |
|
|
368 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(60,386 |
) |
|
|
(244,867 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings under credit facility |
|
|
57,225 |
|
|
|
125,000 |
|
Repayments under credit facility |
|
|
(25,991 |
) |
|
|
(50,000 |
) |
Payments on other secured and unsecured notes payable |
|
|
(44 |
) |
|
|
(49 |
) |
Proceeds from common stock options exercised |
|
|
455 |
|
|
|
566 |
|
Excess tax benefits from stock equity plans |
|
|
|
|
|
|
182 |
|
Debt issuance and other financing costs |
|
|
(605 |
) |
|
|
(412 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
31,040 |
|
|
|
75,287 |
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(302 |
) |
|
|
1,067 |
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
18,307 |
|
|
|
(62,164 |
) |
Cash and cash equivalents at the beginning of the period |
|
|
115,712 |
|
|
|
191,124 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period |
|
$ |
134,019 |
|
|
$ |
128,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
|
$ |
30,500 |
|
|
$ |
36,912 |
|
Cash payments related to income taxes, net |
|
|
1,350 |
|
|
|
175 |
|
Increase (decrease) in construction related deposits and liabilities |
|
|
9,942 |
|
|
|
(28,027 |
) |
The accompanying notes are an integral part of these 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 a
developer, owner and operator of casinos and related hospitality and entertainment facilities. We
operate seven domestic 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
(Lumière Place Casino and President Casino). Internationally, we operate one significant casino
and several small casinos in Argentina (Casino Magic Argentina). We view each domestic property
as an operating segment and aggregate our Argentine casinos into the Casino Magic Argentina
reporting segment. References in this Quarterly Report on Form 10-Q to Pinnacle, the Company,
we, our or us refer to Pinnacle Entertainment, Inc. and its subsidiaries, except where the
context otherwise indicates.
In July 2008, we announced plans to sell or otherwise discontinue operations of The Casino at
Emerald Bay in the Bahamas and officially ceased operations on January 2, 2009. We have classified
the related assets as held for sale in our unaudited Condensed Consolidated Balance Sheets and have
included its results in discontinued operations in our unaudited Condensed Consolidated Statement
of Operations. Prior period amounts have been reclassified to reflect the current year presentation,
which reclassifications had no effect on net income as previously reported.
Within our construction and development pipeline, we have a number of projects at various
stages of development. In south St. Louis County, we are constructing a casino named River City,
which is expected to open in the spring of 2010. In Lake Charles, Louisiana, we are developing a
second casino resort to be called Sugarcane Bay. We are also developing a casino-hotel in Baton
Rouge, Louisiana. Each of these projects 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, 2008.
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 liability 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.
6
Fair Value Effective January 1, 2008, we adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value Measurements and SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilitiesincluding an amendment to FASB Statement No.
115. SFAS No. 157
defines fair value 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. It 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. |
SFAS No. 159 permits an entity to measure certain financial assets and financial liabilities
at fair value with changes in fair value recognized in earnings each period. During the six months
ended June 30, 2009, we elected not to use the fair-value option permitted under SFAS No. 159 for
any of our financial assets and financial liabilities that are not already recorded at fair value.
As of June 30, 2009, our assets and liabilities that are measured at fair value on a recurring
basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
(in millions) |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phantom stock units |
|
$ |
0.7 |
|
|
$ |
0.7 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
$ |
0.7 |
|
|
$ |
0.7 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, our assets and liabilities that are measured at fair value on a
recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
(in millions) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
$ |
10.8 |
|
|
$ |
10.8 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
10.8 |
|
|
$ |
10.8 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phantom stock units |
|
$ |
0.6 |
|
|
$ |
0.6 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
$ |
0.6 |
|
|
$ |
0.6 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities: We classify all equity securities that we hold as current
available-for-sale securities. At December 31, 2008, available-for-sale securities comprised 1.2
million shares of common stock in Ameristar Casinos, Inc., a competitor, with a fair value of $10.8
million. During the three months ended June 30, 2009, we sold such securities for cash proceeds of
$23.7 million and realized a gain of $12.9 million.
Land, Buildings, Riverboats and Equipment Land, buildings, riverboats and equipment are
stated at cost. We capitalize the costs of improvements that extend the life of the asset.
Construction in progress at June 30, 2009 and December 31, 2008 relates primarily to our River City
project. Depreciation expense for the three and six months ended June 30, 2009 was $26.2 million
and $52.3 million, respectively, and $31.0 million and $59.5 million for the three and six months
ended June 30, 2008, respectively. Interest expense is capitalized on internally constructed assets
at our overall weighted average cost of borrowing. Capitalized interest was $2.7 million and $4.9
million for the three and six months ended June 30, 2009, respectively, and $7.8 million and $14.8
million for the three and six months ended June 30, 2008, respectively.
Goodwill and Other Intangible Assets Pursuant to SFAS No. 142, 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 or
indefinite-lived intangible assets during the three or six months ended June 30, 2009 and 2008,
respectively.
7
Amortizing Intangible Assets Amortizing intangible assets consist of our concession
agreement in Argentina, which provides us with certain exclusive rights to operate casinos in major
cities of the Province of Neuquén. In June 2008, all of the 32 guestrooms of the hotel that
adjoins the principal casino in Neuquén were opened under the terms of our concession agreement.
Our exclusivity rights are to be extended from 2016 to 2021 with the completion of such luxury
hotel. We are awaiting formal government approval of such extension. The unamortized costs as of
June 30, 2009 and December 31, 2008 were $656,000 and $753,000, respectively.
Pre-opening and Development Costs Pre-opening and development costs are expensed as
incurred, consistent with the American Institute of Certified Public Accountants Statement of
Position (SOP) 98-5 Reporting on the Costs of Start-up Activities, and for the three and six
months ended June 30, 2009 and 2008 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Pre-opening and development costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlantic City (a) |
|
$ |
2.6 |
|
|
$ |
5.3 |
|
|
$ |
5.5 |
|
|
$ |
11.0 |
|
River City (b) |
|
|
1.6 |
|
|
|
1.6 |
|
|
|
2.8 |
|
|
|
2.6 |
|
Baton Rouge |
|
|
1.6 |
|
|
|
0.8 |
|
|
|
2.7 |
|
|
|
5.6 |
|
Sugarcane Bay |
|
|
0.6 |
|
|
|
1.0 |
|
|
|
1.2 |
|
|
|
1.5 |
|
Kansas City |
|
|
|
|
|
|
1.9 |
|
|
|
|
|
|
|
2.7 |
|
Lumière Place |
|
|
|
|
|
|
2.4 |
|
|
|
|
|
|
|
6.0 |
|
Missouri Proposition A Initiative |
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
1.2 |
|
Other |
|
|
0.2 |
|
|
|
0.6 |
|
|
|
0.3 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-opening and development costs |
|
$ |
6.6 |
|
|
$ |
14.2 |
|
|
$ |
12.5 |
|
|
$ |
31.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In late 2008, the Company decided to complete certain demolition projects, but to
otherwise suspend substantially all development activities in Atlantic City indefinitely.
The continuing pre-opening and development costs include property taxes and other costs
associated with ownership of the land. |
|
(b) |
|
Pre-opening costs at the River City project, expected to open in the spring of
2010, include among other items non-cash, straight-lined rent accruals under a lease
agreement of $1.0 million and $1.9 million for the three and six months ended June 30,
2009, respectively, and $1.4 million and $1.9 million for the three and six months ended
June 30, 2008, respectively. |
Comprehensive Income (Loss) Our comprehensive income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Net income (loss) |
|
$ |
4.7 |
|
|
$ |
(18.1 |
) |
|
$ |
5.6 |
|
|
$ |
(13.1 |
) |
Other comprehensive income (loss)
Foreign currency translation gain (loss) |
|
|
(0.4 |
) |
|
|
1.2 |
|
|
|
(2.1 |
) |
|
|
1.1 |
|
Post-retirement plan benefit
obligation, net of income taxes (a) |
|
|
|
|
|
|
(0.5 |
) |
|
|
0.8 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
4.3 |
|
|
$ |
(17.4 |
) |
|
$ |
4.3 |
|
|
$ |
(12.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Included in this balance are benefit obligations related to both the Executive
Deferred Compensation Plan and Directors Health and Medical Plan. |
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, 2009 and 2008, our
share-based awards issued under our stock option plans consisted primarily of common stock option
grants.
8
Recently Issued Accounting Pronouncements
FSP No. FAS 157-4 In April 2009, the FASB issued FASB Staff Position (FSP) No. FAS 157-4
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That are Not Orderly which provides
additional guidance for estimating fair value in accordance with SFAS No. 157 Fair Value
Measurements when the volume and level of activity for the asset or liability has significantly
decreased, as well as guidance on identifying circumstances that indicate a transaction is not
orderly. This statement was effective for interim and annual periods ending after June 15, 2009
and its adoption did not have an effect on our unaudited Condensed Consolidated Financial
Statements.
FSP No. FAS 107-1 and APB 28-1 In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1
Interim Disclosures about Fair Value of Financial Instruments which requires disclosures about
fair value of financial instruments for interim reporting periods of publicly traded companies as
well as in annual financial statements, as well as disclosures in summarized financial information
at interim reporting periods. This statement was effective for interim reporting periods ending
after June 15, 2009, and its adoption did not have a material effect on our unaudited Condensed
Consolidated Financial Statements.
FSP No. FAS 115-2 and FAS 124-2 In April 2009, the FASB issued FSP No. FAS 115-2 and FAS
124-2, Recognition and Presentation of Other-Than-Temporary Impairments which amends the
other-than-temporary impairment guidance for debt securities to make the guidance more operational
and to improve the presentation and disclosure of other-than-temporary impairments on debt and
equity securities in the financial statements. This statement was effective for interim and annual
reporting periods ending after June 15, 2009, and its adoption did not have an effect on our
unaudited Condensed Consolidated Financial Statements.
SFAS No. 165 In May 2009, the FASB issued SFAS No. 165 Subsequent Events which requires
disclosures regarding subsequent events for events or transactions that occur after the balance
sheet date but before the financial statements are issued, for public companies, and requires
disclosure of the date through which an entity has evaluated subsequent events. This statement was
effective for interim reporting periods ending after June 15, 2009, and its adoption did not have a
material effect on our unaudited Condensed Consolidated Financial Statements.
SFAS No. 168 In June 2009, the FASB issued SFAS No. 168 The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles which establishes the
FASB Accounting Standards Codification as the single source of authoritative non-governmental GAAP.
This statement is effective for interim and annual reporting periods ending after September 15,
2009, and we do not expect the adoption to have a material effect on our unaudited Condensed
Consolidated Financial Statements.
A variety of proposed or otherwise potential accounting standards are currently under 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 such proposed standards would have on our unaudited Condensed Consolidated
Financial Statements.
Note 2Long-Term Debt
Long-term debt as of June 30, 2009 and December 31, 2008 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Senior Secured Credit Facility |
|
$ |
183.0 |
|
|
$ |
151.8 |
|
Unsecured 8.25% Notes due 2012 |
|
|
276.5 |
|
|
|
276.7 |
|
Unsecured 8.75% Notes due 2013 |
|
|
133.8 |
|
|
|
133.7 |
|
Unsecured 7.50% Notes due 2015 |
|
|
380.5 |
|
|
|
380.2 |
|
Other secured and unsecured notes payable |
|
|
0.9 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
$ |
974.7 |
|
|
$ |
943.3 |
|
Less current maturities |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
$ |
974.6 |
|
|
$ |
943.2 |
|
|
|
|
|
|
|
|
9
Senior Secured Credit Facility: As of June 30, 2009, we had borrowed $183 million and had
letters of credit of $12.6 million under our $625 million revolving credit facility that matures in
December 2010 (the Credit Facility). As of June 30, 2009, the interest rate of the Credit
Facility is computed as either LIBOR plus a margin of 1.75% or prime plus a margin of 0.25% based
on our Consolidated Leverage Ratio as defined in the Credit Facility. The letters of credit bore
facility fees of 1.75% per annum during the three and six months ended June 30, 2009.
The Credit Facility has, among other things, restrictive financial covenants and capital
spending limits and other affirmative and negative covenants. As of June 30, 2009, we believe we
were in compliance with all of the financial covenants in our Credit Facility.
On July 21, 2009, we entered into a Fourth Amendment to the Credit Facility, and on July 27,
2009, we priced the offering of $450 million in
85/8% senior notes due 2017. For a description of
the Fourth Amendment to the Credit Facility and the planned issuance of the senior notes, please
see Note 9, Subsequent Events.
Fair Value of Financial Instruments: The estimated fair value of our long-term debt at June
30, 2009 was approximately $899 million, versus its book value of $975 million. At December 31,
2008, the estimated fair value of our long-term debt was approximately $651 million, versus its
book value of $943 million. The estimated fair value of our senior subordinated notes was based on
quoted market prices on or about June 30, 2009 and December 31, 2008 and the fair value of our
senior secured credit facility was based on estimated fair values of comparable debt instruments.
Interest expense: Interest expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Interest expense before capitalization of interest |
|
$ |
18.8 |
|
|
$ |
19.4 |
|
|
$ |
37.7 |
|
|
$ |
38.5 |
|
Less: capitalized interest |
|
|
(2.7 |
) |
|
|
(7.8 |
) |
|
|
(4.9 |
) |
|
|
(14.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net of capitalized interest |
|
$ |
16.1 |
|
|
$ |
11.6 |
|
|
$ |
32.8 |
|
|
$ |
23.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in interest expense was principally due to lower interest rates in the first half
of 2009 compared to the first half of 2008, partially offset by increased borrowings in 2009 versus
2008. The decrease in capitalized interest was principally due to the suspension of development
activities in Atlantic City, partially offset by an increase attributable to our River City
project.
Note 3Income Taxes
Our effective income tax rate for continuing operations for the three and six months ended
June 30, 2009, was 32.7% and 34.2%, respectively, as compared to (4.6)% and (12.7)% for the same
periods in 2008. Our effective tax rates in the 2009 periods were negatively affected by
non-deductible items such as Indiana state gaming revenue taxes, which are non-deductible on our
Indiana state income tax return, and foreign taxes of our Argentine subsidiary pursuant to a tax
amnesty program offered by the Argentine government. We determined that the certainty of the
amnesty program offset the potential economic value of eventually prevailing on certain disputed
tax positions. Additionally, during June of 2009, we received an informal notification from a
field agent for the Indiana Department of Revenue challenging whether income and gain from certain
asset sales and other transactions outside of Indiana, which we reported on our returns from the
2000 to 2007 years, resulted in business income subject to apportionment, and proposed a potential
assessment of approximately $11 million of additional Indiana income taxes. We are in the process
of evaluating those preliminary proposed adjustments to determine their factual accuracy and
technical merits. We adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, on January 1, 2007. While it is often difficult to predict the final
outcome or the timing of resolution of any particular uncertain tax position, management believes
that the reserves for income taxes reflect the most probable outcome as of June 30, 2009. We adjust
these reserves, as well as the related interest, in light of changing facts and circumstances. It
is possible that our unrecognized tax benefits could increase between $4 million and $6 million
during the next 12 months.
10
Note 4Employee Benefit and Other Plans
Share-based Compensation: As of June 30, 2009, we had approximately 7.0 million share-based
awards issued, 14,000 of which are restricted stock awards and the rest of which are common stock
options, with approximately 994,600 share-based awards available for grant.
Pursuant to SFAS No. 123R, Share-Based Payment, we recorded pre-tax compensation expense of
approximately $5.3 million and $7.6 million for the three and six months ended June 30, 2009,
respectively, and $3.1 million and $4.8 million for the three and six months ended June 30, 2008,
respectively. The expense has increased due to additional options granted to members of our Board
of Directors. These grants, along with all previously outstanding unvested stock option grants to
board members, became fully vested on May 5, 2009. Theoretical compensation costs not yet
amortized related to stock options granted totaled approximately $19.4 million and $26.3 million at
June 30, 2009 and 2008, 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 $9,000 and
$455,000 for the three and six months ended June 30, 2009, respectively, and $99,700 and $566,000
for the three and six months ended June 30, 2008, respectively. The associated shares were newly
issued common stock. Excess tax benefit resulting from the exercise of stock options was $181,842
for the six months ended June 30, 2008, and is reported as additional cash flows from financing
activities. There was no such benefit for the six months ended June 30, 2009.
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, 2009 |
|
|
7,378,540 |
|
|
$ |
14.73 |
|
Granted |
|
|
238,500 |
|
|
$ |
11.22 |
|
Exercised |
|
|
(76,500 |
) |
|
$ |
5.95 |
|
Cancelled, Forfeited |
|
|
(542,800 |
) |
|
$ |
12.50 |
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2009 |
|
|
6,997,740 |
|
|
$ |
14.88 |
|
|
|
|
|
|
|
|
|
Vested or expected to vest at a point in the future as of June 30, 2009 |
|
|
6,792,111 |
|
|
|
|
|
Options exercisable at June 30, 2009 |
|
|
4,578,565 |
|
|
$ |
13.57 |
|
Weighted-average value per granted option calculated using the
Black-Scholes option-pricing model for options granted during the six
months ended June 30, 2009 |
|
$ |
6.25 |
|
|
|
|
|
401(k) Plan: During the quarter ended June 30, 2009, management decided to reduce the scope
of a discretionary employee 401(k) matching program. Amounts accrued in relation to
this supplemental matching program were reversed during the current quarter.
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, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Impairment of assets (a) |
|
$ |
0.2 |
|
|
$ |
5.5 |
|
|
$ |
0.3 |
|
|
$ |
5.4 |
|
Customer loyalty program related expenses (b) |
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
1.4 |
|
Loss on disposal of assets |
|
|
0.1 |
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-downs, reserves and recoveries, net |
|
$ |
0.3 |
|
|
$ |
6.9 |
|
|
$ |
0.7 |
|
|
$ |
6.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
During the three and six months ended June 30, 2009, we incurred asset impairment
charges related to the value of obsolete gaming equipment in the normal course of
business. During the second quarter of 2008, we incurred impairment charges of $4.5
million related to two riverboats acquired in 2006, and approximately $1.0 million in
connection with certain obsolete gaming equipment. |
|
(b) |
|
During the second quarter of 2008, we expanded our mychoice rewards program at our
LAuberge du Lac and Belterra properties. In doing so, we disclosed to our customers
their reward account balance based on prior play. We had historically maintained such
records to facilitate the provision of complimentary goods and services, but had not
previously disclosed the point balances to customers at these facilities. This
disclosure resulted in a non-cash charge to establish a theoretical liability for such
amounts. |
11
Note 6Commitments and Contingencies
Guaranteed Maximum Price Agreement for Lumière Place: In the second quarter of 2007, we signed
a Guaranteed Maximum Price Agreement (the GMP Agreement) with a general contractor for our
Lumière Place project. Pursuant to the GMP Agreement, the contractor agreed to complete the
construction of the casino-hotel for a maximum price of approximately $345 million. The guaranteed
maximum price set by the GMP Agreement was a portion of the total budget of $507 million for the
Lumière Place project. The budget included items separate from those covered in the GMP Agreement,
such as pre-opening and development costs; furniture, fixtures and other equipment; gaming
equipment; consulting fees and information technology. As of June 30, 2009, we had paid
approximately $335 million of the approximate $345 million maximum price and on July 2, 2009, we
paid the contractor approximately $4.6 million in full satisfaction of the GMP Agreement.
Redevelopment Agreement: 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 casino and hotel. 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 our 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 a
Guaranteed Maximum Price Agreement (the Agreement) 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 and that
the project will be substantially complete by January 31, 2010. The guaranteed maximum price set
by the Agreement is a portion of the total budget of $357 million for the River City project. The
budget includes items separate from those covered in the Agreement, such as construction work prior
to entering into the Agreement, pre-opening and development costs; furniture, fixtures and other
equipment; gaming equipment; consulting fees and information technology. The $357 million budget
excludes capitalized interest of approximately $26.0 million, operating cash estimated to be
approximately $10 million and the non-cash accrual for rent during the construction period.
Lease and Development Agreement: 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) for annual
rent of the greater of $4.0 million or 2.5% of adjusted gross receipts (as defined in the lease and
development agreement). We are required to invest a minimum of $375 million to: (a) construct a
gaming and multi-use facility; (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; and (e) construct a roadway into the project, which construction is
complete. We are also required to pay certain fees, potentially aggregating $20 million, unless we
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, such amenities to be mutually agreed upon by us and
St. Louis County. The lease and development agreement provides that we must proceed with reasonable
diligence to complete the gaming facilities by May 1, 2009, subject to delays beyond our control,
including governmental approvals. We currently anticipate that the property will be completed in
the spring of 2010 due to several factors which were beyond our control, including delays in
receiving governmental approvals and delays caused by unfavorable weather conditions. The second
phase must be opened within three years from August 11, 2009, or we are required to pay fees over
five years beginning on the January 2
immediately following the expiration of three years. In each of the five subsequent years that
the second phase is not opened, the amount of fees 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 fees that we would have to pay if the second phase is not completed is $20.0
million.
12
Employment and Severance Agreements: We have entered into employment agreements with certain
employees, including our executive officers. The employment agreements require severance payments
in the case of certain triggering events, including a change in control. As of June 30, 2009, the
maximum aggregate amount that would be paid to this group of 36 employees if a triggering event
occurred on June 30, 2009 following a change in control, where applicable, is approximately $42.6
million.
In connection with Wade Hundleys resignation as President of the Company, we entered into a
separation agreement with him, dated as of June 5, 2008. Mr. Hundley is entitled to cash severance
payments equal to approximately $1.4 million, payable in various installments over an 18-month
period, of which approximately $275,000 remains to be paid as of June 30, 2009. Mr. Hundley is
also entitled to approximately $373,000 representing amounts he had previously elected to defer
plus earnings thereon, of which approximately $43,300 has been paid as of June 30, 2009. As
provided in the separation agreement, Mr. Hundley was entitled to exercise certain stock options
until June 5, 2009.
Deferred Bonus Plan: We have a deferred bonus plan in which a portion of an employees bonus
is deferred and paid in three equal annual installments contingent on the individual remaining
employed by us, except employees who retire at age 65 or later who will receive their scheduled
annual installments even if they are no longer employed by us. Payments are accelerated upon death,
disability or a change in control, regardless of the age of the employee. We are expensing the
deferred portion over the period of time leading up to the vesting date. As of June 30, 2009, the
deferred bonus commitment which would have to be paid commensurate with a change in control was
approximately $3.5 million, of which $2.9 million is included in the $42.6 million
change-in-control amount mentioned above.
Self-Insurance: We self-insure various levels of general liability, property, workers
compensation and medical coverage. Self-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
Insurance Litigation: In April 2006, we filed a $347 million insurance claim for our losses
related to our former Casino Magic Biloxi property caused by Hurricane Katrina. In August 2006, we
filed suit in the United States District Court for the District of Nevada against three of our
insurance carriers, Allianz Global Risks US Insurance Company, Arch Specialty Insurance Company and
RSUI Indemnity Company, related to such losses. Prior to the filing of that lawsuit, the various
insurers comprising the first $100 million of coverage paid their respective policy limits to us
for our Hurricane Katrina losses. On February 22, 2008, we settled with Arch Specialty Insurance
Company, which provided $50 million of coverage, in exchange for its agreement to pay us
approximately $36.8 million, which we received in March 2008. On May 9, 2008, we settled with
Allianz Global Risks US Insurance Company, in exchange for its agreement to pay us approximately
$48 million, which we received in June 2008. Allianz Global Risks US Insurance Company had
previously paid us $5 million, which brought Allianz Global Risks US Insurance Companys total
payment on the claim to $53 million. RSUI Indemnity Company provides $50 million of coverage at the
same layer and pari passu with the coverage provided by Arch Specialty Insurance Company and an
additional $150 million of coverage between $250 million and $400 million of total coverage. To
date, RSUI Indemnity Company has paid us approximately $2.0 million as a prepayment on the
undisputed amount of the claim. We continue to pursue our claims against RSUI Indemnity Company for
its respective share of our total hurricane-related damage and consequential loss in Biloxi. On
October 20, 2008, we filed a motion for partial summary judgment on certain outstanding legal
issues relating to the calculation of our business interruption loss for the claim. A hearing date
has not yet been set on that motion.
13
As of June 30, 2009, the insurers have not designated the $192 million of advances toward our
insurance claim as being specific to any particular part of the claim. Therefore, the advances have
offset the book value of the
destroyed assets and certain insured expenses. To the extent that the advances under the
policy, excluding settlements previously discussed, exceed such expenses and book value, the
difference (currently $18.4 million) is recorded as a deferred gain in Other long-term
liabilities on our unaudited Condensed Consolidated Balance Sheets.
Our ultimate insurance claim and recovery amounts are based on replacement costs rather than
book value and are unrelated to, computed differently from, and are substantially larger than the
asset write-offs. Management believes that the replacement cost of the assets that were destroyed
is substantially in excess of their book value. We are also insured for lost profits as a result of
the damage, but will not book such profits until the claim is resolved. The deferred gain
reflected on the unaudited Condensed Consolidated Balance Sheets primarily reflects the ongoing
dispute with the remaining insurance carrier.
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 has 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. While we
cannot predict the outcome of this litigation, management intends to vigorously defend itself
regarding this litigation.
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 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 others, 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 January 7, 2009, ACE petitioned the United States District Court for the District of New
Jersey for an order compelling arbitration. On February 18, 2009, the trial judge in the state
court action issued an order staying the arbitration, which we have appealed. No hearing date has
yet been set for our motion to compel in the federal court case or for oral argument in the appeal
of the state court order. Discovery in the lawsuit has commenced. On July 17, 2009, the state
trial judge denied Madison Houses motion for partial summary judgment on the issue of whether
ACEs non-operation of the hotel following the closure of the Sands constituted a breach of
the lease. While the Company cannot predict the outcome of this litigation, it intends to defend
the matter vigorously.
14
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 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, the union claiming to be the successor to 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 charges are
currently pending before the NLRB.
Indiana Tax Dispute: In 2008, the Indiana Department of Revenue 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 Indiana
Department of Revenue challenging whether income and gain from certain asset sales and other
transactions outside of Indiana that the Company reported on its 2000 to 2007 tax returns resulted
in business income subject to apportionment, and proposing a potential assessment of approximately
$11 million of additional Indiana income taxes. The Company is in the process of evaluating those
preliminary proposed adjustments to determine their factual accuracy and technical merits.
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.
15
Note 7Consolidating Condensed Financial Information
Our subsidiaries (excluding our Argentine subsidiary; a subsidiary that owns an aircraft; a
subsidiary with approximately $66.0 million in cash and cash equivalents as of June 30, 2009; and
certain non-material subsidiaries) have fully and unconditionally and jointly and severally
guaranteed the payment of all obligations under the 7.50% Notes, 8.25% Notes and 8.75% Notes, as
well as 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
|
|
|
$ |
222.0 |
|
|
$ |
7.7 |
|
|
$ |
|
|
|
$ |
229.7 |
|
Food and beverage |
|
|
|
|
|
|
15.9 |
|
|
|
0.8 |
|
|
|
|
|
|
|
16.7 |
|
Other |
|
|
|
|
|
|
19.8 |
|
|
|
0.1 |
|
|
|
|
|
|
|
19.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
257.7 |
|
|
|
8.6 |
|
|
|
|
|
|
|
266.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
|
|
|
|
|
132.9 |
|
|
|
3.0 |
|
|
|
|
|
|
|
135.9 |
|
Food and beverage |
|
|
|
|
|
|
15.2 |
|
|
|
1.1 |
|
|
|
|
|
|
|
16.3 |
|
General and administrative and other |
|
|
14.0 |
|
|
|
61.4 |
|
|
|
1.8 |
|
|
|
|
|
|
|
77.2 |
|
Depreciation and amortization |
|
|
1.4 |
|
|
|
23.8 |
|
|
|
1.0 |
|
|
|
|
|
|
|
26.2 |
|
Write-downs, reserves and recoveries, net |
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.4 |
|
|
|
233.6 |
|
|
|
6.9 |
|
|
|
|
|
|
|
255.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(15.4 |
) |
|
|
24.1 |
|
|
|
1.7 |
|
|
|
|
|
|
|
10.4 |
|
Equity earnings of subsidiaries |
|
|
29.7 |
|
|
|
(0.7 |
) |
|
|
|
|
|
|
(29.0 |
) |
|
|
|
|
Interest (expense) and non-operating income, net |
|
|
(12.6 |
) |
|
|
2.7 |
|
|
|
6.9 |
|
|
|
|
|
|
|
(3.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
inter-company activity and income taxes |
|
|
1.7 |
|
|
|
26.1 |
|
|
|
8.6 |
|
|
|
(29.0 |
) |
|
|
7.4 |
|
Management fee & inter-company interest |
|
|
3.6 |
|
|
|
(3.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
(0.3 |
) |
|
|
|
|
|
|
(2.1 |
) |
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
5.0 |
|
|
|
22.5 |
|
|
|
6.5 |
|
|
|
(29.0 |
) |
|
|
5.0 |
|
Income (loss) from discontinued operations, net
of taxes |
|
|
|
|
|
|
(0.4 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
5.0 |
|
|
$ |
22.1 |
|
|
$ |
6.6 |
|
|
$ |
(29.0 |
) |
|
$ |
4.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
$ |
|
|
|
$ |
450.9 |
|
|
$ |
16.3 |
|
|
$ |
|
|
|
$ |
467.2 |
|
Food and beverage |
|
|
|
|
|
|
29.9 |
|
|
|
1.6 |
|
|
|
|
|
|
|
31.5 |
|
Other |
|
|
0.1 |
|
|
|
36.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
36.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
517.0 |
|
|
|
18.1 |
|
|
|
|
|
|
|
535.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
|
|
|
|
|
264.4 |
|
|
|
6.0 |
|
|
|
|
|
|
|
270.4 |
|
Food and beverage |
|
|
|
|
|
|
29.3 |
|
|
|
2.2 |
|
|
|
|
|
|
|
31.5 |
|
General and administrative and other |
|
|
26.3 |
|
|
|
121.1 |
|
|
|
3.8 |
|
|
|
|
|
|
|
151.2 |
|
Depreciation and amortization |
|
|
2.7 |
|
|
|
47.7 |
|
|
|
2.0 |
|
|
|
|
|
|
|
52.4 |
|
Write-downs, reserves and recoveries, net |
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.0 |
|
|
|
463.2 |
|
|
|
14.0 |
|
|
|
|
|
|
|
506.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(28.9 |
) |
|
|
53.8 |
|
|
|
4.1 |
|
|
|
|
|
|
|
29.0 |
|
Equity earnings of subsidiaries |
|
|
59.9 |
|
|
|
0.7 |
|
|
|
|
|
|
|
(60.6 |
) |
|
|
|
|
Interest (expense) and non-operating income, net |
|
|
(31.4 |
) |
|
|
4.9 |
|
|
|
6.8 |
|
|
|
|
|
|
|
(19.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
inter-company activity and income taxes |
|
|
(0.4 |
) |
|
|
59.4 |
|
|
|
10.9 |
|
|
|
(60.6 |
) |
|
|
9.3 |
|
Management fee & inter-company interest |
|
|
6.7 |
|
|
|
(6.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
(0.5 |
) |
|
|
|
|
|
|
(2.7 |
) |
|
|
|
|
|
|
(3.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
5.8 |
|
|
|
52.7 |
|
|
|
8.2 |
|
|
|
(60.6 |
) |
|
|
6.1 |
|
Income (loss) from discontinued operations, net
of taxes |
|
|
|
|
|
|
(0.4 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
5.8 |
|
|
$ |
52.3 |
|
|
$ |
8.1 |
|
|
$ |
(60.6 |
) |
|
$ |
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
$ |
|
|
|
$ |
215.3 |
|
|
$ |
14.4 |
|
|
$ |
|
|
|
$ |
229.7 |
|
Food and beverage |
|
|
|
|
|
|
15.3 |
|
|
|
1.2 |
|
|
|
|
|
|
|
16.5 |
|
Other |
|
|
0.1 |
|
|
|
19.7 |
|
|
|
0.3 |
|
|
|
|
|
|
|
20.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
250.3 |
|
|
|
15.9 |
|
|
|
|
|
|
|
266.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
|
|
|
|
|
132.9 |
|
|
|
8.3 |
|
|
|
|
|
|
|
141.2 |
|
Food and beverage |
|
|
|
|
|
|
14.4 |
|
|
|
1.6 |
|
|
|
|
|
|
|
16.0 |
|
General and administrative and other |
|
|
17.7 |
|
|
|
65.9 |
|
|
|
4.4 |
|
|
|
|
|
|
|
88.0 |
|
Write-down reserve and recovery |
|
|
|
|
|
|
6.9 |
|
|
|
|
|
|
|
|
|
|
|
6.9 |
|
Depreciation and amortization |
|
|
0.8 |
|
|
|
27.1 |
|
|
|
3.2 |
|
|
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.5 |
|
|
|
247.2 |
|
|
|
17.5 |
|
|
|
|
|
|
|
283.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(18.4 |
) |
|
|
3.1 |
|
|
|
(1.6 |
) |
|
|
|
|
|
|
(16.9 |
) |
Equity in subsidiaries |
|
|
16.1 |
|
|
|
0.9 |
|
|
|
|
|
|
|
(17.0 |
) |
|
|
|
|
Interest (expense) and non-operating income, net |
|
|
(19.0 |
) |
|
|
7.4 |
|
|
|
0.4 |
|
|
|
|
|
|
|
(11.2 |
) |
Impairment of investment in equity securities |
|
|
(8.4 |
) |
|
|
|
|
|
|
(14.2 |
) |
|
|
|
|
|
|
(22.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
inter-company activity and income taxes |
|
|
(29.7 |
) |
|
|
11.4 |
|
|
|
(15.4 |
) |
|
|
(17.0 |
) |
|
|
(50.7 |
) |
Management fee & inter-company interest |
|
|
8.3 |
|
|
|
(8.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
3.3 |
|
|
|
|
|
|
|
(1.0 |
) |
|
|
|
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(18.1 |
) |
|
|
3.1 |
|
|
|
(16.4 |
) |
|
|
(17.0 |
) |
|
|
(48.4 |
) |
Income (loss) from discontinued operations, net
of taxes |
|
|
|
|
|
|
30.8 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
30.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(18.1 |
) |
|
$ |
33.9 |
|
|
$ |
(16.9 |
) |
|
$ |
(17.0 |
) |
|
$ |
(18.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
$ |
|
|
|
$ |
426.7 |
|
|
$ |
31.3 |
|
|
$ |
|
|
|
$ |
458.0 |
|
Food and beverage |
|
|
|
|
|
|
27.7 |
|
|
|
2.5 |
|
|
|
|
|
|
|
30.2 |
|
Other |
|
|
0.2 |
|
|
|
34.0 |
|
|
|
0.5 |
|
|
|
|
|
|
|
34.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
488.4 |
|
|
|
34.3 |
|
|
|
|
|
|
|
522.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
|
|
|
|
|
261.6 |
|
|
|
17.7 |
|
|
|
|
|
|
|
279.3 |
|
Food and beverage |
|
|
|
|
|
|
27.9 |
|
|
|
3.2 |
|
|
|
|
|
|
|
31.1 |
|
General and administrative and other |
|
|
30.8 |
|
|
|
135.6 |
|
|
|
8.5 |
|
|
|
|
|
|
|
174.9 |
|
Write-down reserve and recovery |
|
|
|
|
|
|
6.8 |
|
|
|
|
|
|
|
|
|
|
|
6.8 |
|
Depreciation and amortization |
|
|
1.7 |
|
|
|
51.8 |
|
|
|
6.1 |
|
|
|
|
|
|
|
59.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.5 |
|
|
|
483.7 |
|
|
|
35.5 |
|
|
|
|
|
|
|
551.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(32.3 |
) |
|
|
4.7 |
|
|
|
(1.2 |
) |
|
|
|
|
|
|
(28.8 |
) |
Equity in subsidiaries |
|
|
37.8 |
|
|
|
2.5 |
|
|
|
|
|
|
|
(40.3 |
) |
|
|
|
|
Interest (expense) and non-operating income, net |
|
|
(37.6 |
) |
|
|
14.5 |
|
|
|
1.1 |
|
|
|
|
|
|
|
(22.0 |
) |
Impairment of investment in equity securities |
|
|
(8.4 |
) |
|
|
|
|
|
|
(14.2 |
) |
|
|
|
|
|
|
(22.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
inter-company activity and income taxes |
|
|
(40.5 |
) |
|
|
21.7 |
|
|
|
(14.3 |
) |
|
|
(40.3 |
) |
|
|
(73.4 |
) |
Management fee & inter-company interest |
|
|
16.2 |
|
|
|
(16.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
11.2 |
|
|
|
|
|
|
|
(1.9 |
) |
|
|
|
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(13.1 |
) |
|
|
5.6 |
|
|
|
(16.3 |
) |
|
|
(40.3 |
) |
|
|
(64.1 |
) |
Income (loss) from discontinued operations, net
of taxes |
|
|
|
|
|
|
52.0 |
|
|
|
(1.0 |
) |
|
|
|
|
|
|
51.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(13.1 |
) |
|
$ |
57.6 |
|
|
$ |
(17.3 |
) |
|
$ |
(40.3 |
) |
|
$ |
(13.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
14.1 |
|
|
$ |
99.5 |
|
|
$ |
77.4 |
|
|
$ |
|
|
|
$ |
191.0 |
|
Property and equipment, net |
|
|
17.6 |
|
|
|
1,612.3 |
|
|
|
38.8 |
|
|
|
|
|
|
|
1,668.7 |
|
Other non-current assets |
|
|
40.6 |
|
|
|
67.3 |
|
|
|
1.7 |
|
|
|
(3.1 |
) |
|
|
106.5 |
|
Investment in subsidiaries |
|
|
1,713.9 |
|
|
|
21.5 |
|
|
|
|
|
|
|
(1,735.4 |
) |
|
|
|
|
Inter-company |
|
|
1.2 |
|
|
|
0.5 |
|
|
|
|
|
|
|
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,787.4 |
|
|
$ |
1,801.1 |
|
|
$ |
117.9 |
|
|
$ |
(1,740.2 |
) |
|
$ |
1,966.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
34.8 |
|
|
|
137.1 |
|
|
|
5.1 |
|
|
|
|
|
|
|
177.0 |
|
Notes payable, long term |
|
|
973.8 |
|
|
|
0.8 |
|
|
|
3.1 |
|
|
|
(3.1 |
) |
|
|
974.6 |
|
Other non-current liabilities |
|
|
27.1 |
|
|
|
35.9 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
62.9 |
|
Inter-company |
|
|
|
|
|
|
|
|
|
|
1.7 |
|
|
|
(1.7 |
) |
|
|
|
|
Equity |
|
|
751.7 |
|
|
|
1,627.3 |
|
|
|
108.1 |
|
|
|
(1,735.4 |
) |
|
|
751.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,787.4 |
|
|
$ |
1,801.1 |
|
|
$ |
117.9 |
|
|
$ |
(1,740.2 |
) |
|
$ |
1,966.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
17.9 |
|
|
$ |
85.3 |
|
|
$ |
64.1 |
|
|
$ |
|
|
|
$ |
167.3 |
|
Property and equipment, net |
|
|
18.3 |
|
|
|
1,565.0 |
|
|
|
46.7 |
|
|
|
|
|
|
|
1,630.0 |
|
Other non-current assets |
|
|
47.4 |
|
|
|
68.4 |
|
|
|
10.3 |
|
|
|
(4.2 |
) |
|
|
121.9 |
|
Investment in subsidiaries |
|
|
1,661.4 |
|
|
|
23.0 |
|
|
|
|
|
|
|
(1,684.4 |
) |
|
|
|
|
Inter-company |
|
|
1.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,746.2 |
|
|
$ |
1,741.9 |
|
|
$ |
121.1 |
|
|
$ |
(1,690.0 |
) |
|
$ |
1,919.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
38.6 |
|
|
|
129.4 |
|
|
|
6.5 |
|
|
|
0.1 |
|
|
|
174.6 |
|
Notes payable, long term |
|
|
942.4 |
|
|
|
0.8 |
|
|
|
4.3 |
|
|
|
(4.3 |
) |
|
|
943.2 |
|
Other non-current liabilities |
|
|
25.9 |
|
|
|
36.0 |
|
|
|
0.2 |
|
|
|
|
|
|
|
62.1 |
|
Inter-company |
|
|
|
|
|
|
|
|
|
|
1.4 |
|
|
|
(1.4 |
) |
|
|
|
|
Equity |
|
|
739.3 |
|
|
|
1,575.7 |
|
|
|
108.7 |
|
|
|
(1,684.4 |
) |
|
|
739.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,746.2 |
|
|
$ |
1,741.9 |
|
|
$ |
121.1 |
|
|
$ |
(1,690.0 |
) |
|
$ |
1,919.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used in) provided by operating activities |
|
$ |
(40.0 |
) |
|
$ |
85.3 |
|
|
$ |
2.7 |
|
|
$ |
|
|
|
$ |
48.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used in) provided by investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and other |
|
|
(2.6 |
) |
|
|
(81.2 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
(84.1 |
) |
Proceeds from sale of equity securities |
|
|
10.1 |
|
|
|
|
|
|
|
13.6 |
|
|
|
|
|
|
|
23.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used in) provided by investing activities |
|
|
7.5 |
|
|
|
(81.2 |
) |
|
|
13.3 |
|
|
|
|
|
|
|
(60.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in notes payable and other |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
|
|
|
|
|
For the six months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
|
$ |
(59.5 |
) |
|
$ |
169.4 |
|
|
$ |
(3.6 |
) |
|
$ |
|
|
|
$ |
106.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure and other |
|
|
(31.1 |
) |
|
|
(208.6 |
) |
|
|
(5.2 |
) |
|
|
|
|
|
|
(244.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities |
|
|
(31.1 |
) |
|
|
(208.6 |
) |
|
|
(5.2 |
) |
|
|
|
|
|
|
(244.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in notes payable |
|
|
75.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities |
|
|
75.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
|
|
|
|
|
1.1 |
|
|
|
|
|
|
|
1.1 |
|
Increase (decrease) in cash and cash equivalents |
|
|
(15.3 |
) |
|
|
(39.2 |
) |
|
|
(7.7 |
) |
|
|
|
|
|
|
(62.2 |
) |
Cash and cash equivalents, beginning of period |
|
|
15.3 |
|
|
|
106.0 |
|
|
|
69.8 |
|
|
|
|
|
|
|
191.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
|
|
|
$ |
66.8 |
|
|
$ |
62.1 |
|
|
$ |
|
|
|
$ |
128.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The following material subsidiaries are identified as guarantors of the 7.50% Notes, 8.25%
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 (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, 8.25% Notes and 8.75% Notes. |
|
(b) |
|
Casino Magic Neuquén SA and PNK Development 11, LLC are our only material non-guarantors of
the 7.50% Notes, 8.25% Notes and 8.75% Notes. Other non-guarantor subsidiaries include, but
are not limited to, the subsidiary that owns our corporate airplane. On July 15, 2009, Casino
Magic Neuquén SA became a restricted subsidiary under our bond indentures, but is not a
guarantor of the 7.50% Notes, 8.25% Notes and 8.75% Notes. |
Note 8Segment 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, 2009
and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LAuberge du Lac |
|
$ |
86.6 |
|
|
$ |
90.2 |
|
|
$ |
175.0 |
|
|
$ |
171.5 |
|
Boomtown New Orleans |
|
|
35.5 |
|
|
|
39.0 |
|
|
|
73.7 |
|
|
|
81.4 |
|
Lumière Place |
|
|
54.2 |
|
|
|
43.3 |
|
|
|
107.3 |
|
|
|
81.3 |
|
Belterra Casino Resort |
|
|
42.8 |
|
|
|
44.3 |
|
|
|
83.8 |
|
|
|
86.3 |
|
Boomtown Bossier City |
|
|
22.7 |
|
|
|
22.0 |
|
|
|
47.5 |
|
|
|
45.7 |
|
Casino Magic Argentina |
|
|
8.6 |
|
|
|
10.0 |
|
|
|
18.1 |
|
|
|
19.2 |
|
President Casino |
|
|
4.9 |
|
|
|
5.9 |
|
|
|
10.9 |
|
|
|
15.1 |
|
Boomtown Reno |
|
|
10.6 |
|
|
|
11.5 |
|
|
|
18.2 |
|
|
|
22.2 |
|
Other |
|
|
0.4 |
|
|
|
0.1 |
|
|
|
0.7 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
266.3 |
|
|
$ |
266.3 |
|
|
$ |
535.2 |
|
|
$ |
522.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Adjusted EBITDA (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LAuberge du Lac |
|
$ |
21.5 |
|
|
$ |
23.6 |
|
|
$ |
45.0 |
|
|
$ |
41.2 |
|
Boomtown New Orleans |
|
|
10.6 |
|
|
|
13.5 |
|
|
|
24.1 |
|
|
|
28.8 |
|
Lumière Place |
|
|
9.9 |
|
|
|
1.2 |
|
|
|
20.5 |
|
|
|
0.6 |
|
Belterra Casino Resort |
|
|
8.2 |
|
|
|
7.7 |
|
|
|
16.0 |
|
|
|
15.1 |
|
Boomtown Bossier City |
|
|
4.7 |
|
|
|
4.0 |
|
|
|
10.9 |
|
|
|
8.7 |
|
Casino Magic Argentina |
|
|
2.2 |
|
|
|
2.7 |
|
|
|
5.0 |
|
|
|
5.9 |
|
President Casino |
|
|
(0.4 |
) |
|
|
(1.5 |
) |
|
|
(0.6 |
) |
|
|
(1.8 |
) |
Boomtown Reno |
|
|
0.1 |
|
|
|
(1.3 |
) |
|
|
(1.2 |
) |
|
|
(3.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56.8 |
|
|
|
49.9 |
|
|
|
119.7 |
|
|
|
95.0 |
|
Corporate expenses (b) |
|
|
(7.9 |
) |
|
|
(11.6 |
) |
|
|
(17.4 |
) |
|
|
(21.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48.9 |
|
|
|
38.3 |
|
|
|
102.3 |
|
|
|
73.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other benefits (costs): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(26.2 |
) |
|
|
(31.0 |
) |
|
|
(52.4 |
) |
|
|
(59.5 |
) |
Pre-opening and development costs |
|
|
(6.6 |
) |
|
|
(14.2 |
) |
|
|
(12.5 |
) |
|
|
(31.3 |
) |
Non-cash share-based compensation |
|
|
(5.3 |
) |
|
|
(3.1 |
) |
|
|
(7.6 |
) |
|
|
(4.8 |
) |
Write-downs, reserves and recoveries, net |
|
|
(0.3 |
) |
|
|
(6.9 |
) |
|
|
(0.7 |
) |
|
|
(6.8 |
) |
Other non-operating income |
|
|
0.1 |
|
|
|
0.5 |
|
|
|
0.2 |
|
|
|
1.6 |
|
Interest expense, net of capitalized interest |
|
|
(16.1 |
) |
|
|
(11.6 |
) |
|
|
(32.8 |
) |
|
|
(23.7 |
) |
Gain on sale of equity securities |
|
|
12.9 |
|
|
|
|
|
|
|
12.9 |
|
|
|
|
|
Impairment of investment in equity securities |
|
|
|
|
|
|
(22.6 |
) |
|
|
|
|
|
|
(22.6 |
) |
Income tax (expense) benefit |
|
|
(2.4 |
) |
|
|
2.3 |
|
|
|
(3.2 |
) |
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
5.0 |
|
|
$ |
(48.3 |
) |
|
$ |
6.2 |
|
|
$ |
(64.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Capital expenditures: |
|
|
|
|
|
|
|
|
LAuberge du Lac |
|
$ |
2.8 |
|
|
$ |
20.8 |
|
Boomtown New Orleans |
|
|
2.6 |
|
|
|
2.4 |
|
Lumière Place |
|
|
2.5 |
|
|
|
72.6 |
|
Belterra Casino Resort |
|
|
3.5 |
|
|
|
1.6 |
|
Boomtown Bossier City |
|
|
1.0 |
|
|
|
1.8 |
|
Casino Magic Argentina |
|
|
0.2 |
|
|
|
5.1 |
|
President Casino |
|
|
0.1 |
|
|
|
0.3 |
|
Boomtown Reno |
|
|
1.4 |
|
|
|
4.0 |
|
Corporate and other, including properties under development(c) |
|
|
70.1 |
|
|
|
109.1 |
|
|
|
|
|
|
|
|
|
|
$ |
84.2 |
|
|
$ |
217.7 |
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Assets: |
|
|
|
|
|
|
|
|
LAuberge du Lac |
|
$ |
345.2 |
|
|
$ |
356.2 |
|
Boomtown New Orleans |
|
|
73.7 |
|
|
|
75.3 |
|
Lumière Place |
|
|
526.6 |
|
|
|
542.8 |
|
Belterra Casino Resort |
|
|
199.3 |
|
|
|
200.7 |
|
Boomtown Bossier City |
|
|
90.9 |
|
|
|
91.8 |
|
Casino Magic Argentina |
|
|
29.7 |
|
|
|
31.3 |
|
President Casino |
|
|
6.9 |
|
|
|
8.2 |
|
Boomtown Reno |
|
|
53.6 |
|
|
|
54.6 |
|
Corporate and other, including new properties |
|
|
640.3 |
|
|
|
558.3 |
|
|
|
|
|
|
|
|
|
|
$ |
1,966.2 |
|
|
$ |
1,919.2 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
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, gain (loss) on sale of equity security
investments and discontinued operations. We use Adjusted EBITDA to compare operating
results among our properties and between accounting periods. |
|
(b) |
|
Corporate expenses represent unallocated payroll, professional fees, travel expenses
and other general and administrative expenses not directly related to our casino and hotel
operations. |
|
(c) |
|
Includes capital expenditures for our various development projects not yet reflected as
operating segments, including $1.0 million for Atlantic City, $60.7 million for River City
and $6.4 million for Sugarcane Bay as of June 30, 2009. |
Note 9Subsequent Events
We have evaluated subsequent events from July 1, 2009 through August 4, 2009, which is the
issuance date of these unaudited Condensed Consolidated Financial Statements. Our review indicated
the following non-recognized subsequent events.
Secured Credit Facility: We entered into our current Credit Facility with various lenders on
December 14, 2005, which we have amended three times prior to July 21, 2009. As of June 30, 2009,
our Credit Facility provided for a total amount available for borrowing of $625 million.
On July 21, 2009, we entered into a fourth amendment to our Credit Facility (the Fourth
Amendment). The Fourth Amendment implemented the following changes to the Credit Facility, among
others:
|
|
|
The maximum permitted rolling four-quarter consolidated leverage ratio, as defined
in the agreement, for certain of our fiscal quarters was increased as follows: the
maximum permitted consolidated leverage ratio was increased to 6.50x for all fiscal
quarters ending in 2009, 6.75x for the fiscal quarter ending on March 31, 2010, 6.50x
for the fiscal quarter ending on June 30, 2010, and 6.00x for the fiscal quarter
ending on September 30, 2010, and, for all fiscal quarters ending thereafter, the
maximum permitted consolidated leverage ratio lowers to 5.00x. The original credit
agreement expected an earlier opening of River City and the consolidated leverage
ratio covenant was scheduled to tighten before the now anticipated opening of River
City in spring of 2010. |
|
|
|
The required minimum consolidated interest coverage ratio for each of our fiscal
quarters ending on and after December 31, 2009 through June 30, 2010 was decreased by
0.25 percentage points. |
|
|
|
The applicable margin for all revolving credit loans that mature prior to the
non-extending revolving credit termination date (as discussed below) was increased by
0.50 percentage points. |
21
|
|
|
We may from time to time: (a) request lenders, in their discretion, to convert
their existing revolving loan commitments or provide new commitments to a new tranche
of extending revolving loan commitments that mature on a date beyond the existing
maturity date of December 14, 2010 (the
non-extending revolving credit termination date) on such pricing terms (including the
applicable margin and any upfront fees and commitment fees) as may be agreed upon by us
and the lender(s) in an extending revolving credit commitment agreement, and/or (b)
request extending revolving loan commitments from new lenders, in each case without
increasing the total amount of loans that may be outstanding under the Credit Facility
beyond $625 million. Existing lenders are not required to extend the current maturity
of their commitments or to provide additional commitments. |
|
|
|
Each lenders commitment was reduced by 15.0%, so that the aggregate commitment
under the Credit Facility, as amended, is approximately $531 million. |
|
|
|
Each lender issuing a letter of credit or making a swing line loan may, if a
lender default exists, or if such lender determines in its reasonable discretion that
there may be a risk of one or more lenders becoming a defaulting lender, require
back-stops from us as a condition to issuing a letter of credit or making a swing
line loan, which back-stops may include requiring us to enter into cash collateral
arrangements to the extent of the participation of the defaulting lender(s) in the
letter of credit or swing line loan. |
|
|
|
Lehman Commercial Paper, Inc.s (LCPI) resignation as the administrative agent
under the credit agreement and Barclays Bank PLCs appointment to replace LCPI in
such capacity was executed and became effective as of July 24, 2009 pursuant to the
Amendment, Resignation, Waiver, Consent and Appointment Agreement by and among, LCPI,
Barclays Bank PLC and us (the Agency Transfer Agreement). Pursuant to the Agency
Transfer Agreement, we agreed to release LCPI from claims and damages under the
credit agreement and agreed not to institute action against LCPI under the credit
agreement, which release and agreement became effective as of such replacement date,
even though LCPIs commitment as a lender under the credit agreement will remain
formally in place. LCPI has not funded its commitment under the credit agreement
since it entered bankruptcy on October 5, 2008, and we have no effective remedy to
require LCPI to fund its commitment. Taking into consideration the 15.0% reduction in
commitments discussed above, LCPIs current commitment comprises $41.0 million of the
$531 million (of which they funded $10.0 million as of July 21, 2009). Pursuant to
the credit agreement, any reduction in the commitments of the lenders must be pro
rata in accordance with the commitment of each lender as a percentage of the lenders
aggregate commitments. Because LCPIs commitment remains formally in place and
because the release merely reflects the actual status of the LCPI commitment, we
believe that our release of LCPI does not constitute a non-pro rata reduction of the
revolver commitment that would be prohibited under the credit agreement. |
Senior Unsecured Notes: On July 27,
2009, we priced an offering of $450 million aggregate
principal amount of new 85/8% Senior Notes due 2017 (85/8% Senior Notes). The purchase agreement
relating to the offering provides that the 85/8% Senior Notes would be purchased at a price of
98.597% of principal amount to yield 8.875% to maturity. We offered
and expect to sell the 85/8% Senior
Notes to the initial purchasers in reliance on the exemption from registration provided by Section
4(2) of the Securities Act. It is expected that the initial purchasers will resell the 85/8% Senior
Notes to qualified institutional buyers pursuant to the exemption from registration provided by
Rule 144A under the Securities Act and outside the United States pursuant to the exemption from
registration provided by Regulation S of the Securities Act. We expect to close the offering on
August 10, 2009 subject to satisfaction of customary conditions, and expect to receive
approximately $434 million in net proceeds. Using the net proceeds, we intend to repurchase or
redeem all of our existing 8.75% senior subordinated notes due 2013 (8.75% Notes), of which $135
million in aggregate principal amount is outstanding; to repay approximately $206 million in
revolving credit borrowings under the Credit Facility; and to repurchase or redeem $75.0 million in
aggregate principal amount of our existing 8.25% senior subordinated notes due 2012 (8.25%
Notes). We expect to redraw revolver borrowings under the Credit Facility to fund our development
projects as construction proceeds. We also expect to use the remaining net proceeds from the
offering for general corporate purposes, including funding our development projects.
The 85/8% Senior Notes are expected to be senior unsecured obligations and are expected to rank
equally in right of payment with all of our existing and future senior debt, including debt under
our Credit Facility. The 85/8% Senior Notes are expected to be guaranteed on a senior basis by
certain of our current and future domestic restricted subsidiaries. The 85/8% Senior Notes are
expected to be effectively subordinated to any secured debt, including debt under our Credit
Facility. The 85/8% Senior Notes are expected to rank senior to our existing 7.50% senior
subordinated notes due 2015 (7.50% Notes) and our 8.25% Notes and any of our 8.75% Notes
which remain outstanding pending our tender offer for, and redemption of, such notes.
22
Following completion of the 85/8% Senior Note offering and the repurchase or redemption of all
of the 8.75% Notes and a portion of the 8.25% Notes, the 85/8% Senior Notes are expected to permit a
significant amount of secured indebtedness of the greater of $750 million or 3.5x Consolidated
EBITDA, as defined in the indentures. Under our most restrictive remaining indenture (the 8.25%
Notes), we are permitted to incur up to $475 million in secured indebtedness, which does not include
a $50 million general debt basket. Under the indenture governing our 7.50% Notes, such secured
indebtedness limit is $1.5 billion, which does not include a $250 million general debt basket.
Under all three indentures, we may also incur additional indebtedness if, at the time the
indebtedness is proposed to be incurred, our Consolidated Coverage Ratio for a trailing
four-quarter period on a pro forma basis (as defined in the indentures) would be at least 2 to 1.
Our Consolidated Coverage Ratio for the four fiscal quarters ended
June 30, 2009 was above 2 to 1 under each of our existing
indentures.
Tender Offer for 8.75% Notes: On July 27, 2009, we commenced a cash tender offer for all of
our outstanding 8.75% Notes. Consideration to be paid for validly tendered notes will be either
103.167% of par for notes tendered on or prior to the early tender date of August 7, 2009, or 100%
of par for notes tendered after the early tender date and on or prior to the expiration date of
August 24, 2009. The aggregate principal amount of 8.75% Notes currently outstanding is $135
million. We expect to fund the tender offer from the net proceeds of our 85/8% Senior Notes issuance.
The President Casino: The President Casino operates on a vessel known as the Admiral. The
hull of the Admiral was built in 1904. The certification of the hull by ABS Consulting (ABS)
expires on July 19, 2010, and the Admiral may not be used to carry passengers beyond that date
without replacement, dry-docking, or specific approval. On July 28, 2009 the Missouri Gaming
Commission (MGC) held a public hearing to discuss our plans to address the expiration of the ABS
certification in 2010. At such hearing we announced our plans, subject to MGC review and ABS and
other approvals, to replace the Admiral with a different vessel. Currently, we have not yet
submitted an official application for such vessel change, and hence the MGC has not yet acted on
such request. However, at this July 28, 2009 hearing, the Executive Director of the MGC (who is
not a Commissioner of the MGC), through counsel, made a recommendation that the MGC issue a ruling
to prohibit Pinnacle from repairing, replacing or moving the Admiral. The MGC deferred a decision
on this matter. In the event such a decision was to be made by the MGC, it could ultimately lead
to the loss of the gaming license for the President Casino if we were unable to otherwise obtain a
re-certification of the Admiral by July 19, 2010, and therefore we would expect to contest the
decision and pursue all possible legal remedies.
Tender Offer for 8.25% Notes: On July 29, 2009, we commenced a cash tender offer for $75.0
million in aggregate principal amount of our outstanding 8.25% Notes. Consideration to be paid for
validly tendered notes will be 102.063% of par for notes tendered on or prior to the expiration
date of August 11, 2009. The aggregate principal amount of 8.25% Notes currently outstanding is
$275 million. We expect to fund the tender offer from the net proceeds of our 85/8% Senior Notes
issuance.
23
|
|
|
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, and 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, 2008.
EXECUTIVE SUMMARY
Pinnacle Entertainment, Inc. is a developer, owner and operator of casinos and related
hospitality and entertainment facilities. We currently operate seven domestic casinos, including
LAuberge du Lac in Lake Charles, Louisiana; Boomtown New Orleans in New Orleans, Louisiana;
Belterra Casino Resort in Vevay, Indiana; Boomtown Bossier City in Bossier City, Louisiana; Lumière
Place in St. Louis, Missouri; President Casino in St. Louis, Missouri; and Boomtown Reno in Reno,
Nevada. Internationally, we operate one significant and several small casinos in Argentina. We
previously operated a small casino in the Bahamas, which we closed on January 2, 2009.
We have a number of projects at various stages of development. In south St. Louis County,
Missouri, we are building our River City casino, which we expect to open in the spring of 2010. In
Lake Charles, Louisiana, we have begun site work for our Sugarcane Bay casino-hotel adjacent to
LAuberge du Lac. In October 2008, the Louisiana Gaming Control Board (the LGCB) approved the
architectural plans for our planned casino-hotel in East Baton Rouge Parish, Louisiana. In April
2009, the LGCB granted us 150-day extensions for completing our Sugarcane Bay project and entering
into a construction contract for our Baton Rouge project. We also own well-located casino sites in
Atlantic City, New Jersey and in Central City, Colorado, which projects are on indefinite hold.
We operate casino properties, which include gaming, hotel, dining, retail and other amenities.
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 financing and
fund maintenance capital expenditures.
Our long-term strategy is to build or acquire new resorts that are expected to produce
favorable returns above our cost of capital; to maintain and improve our existing properties; and
to continue to build our systems and add locations to build a national gaming network. Hence, we
are developing new, high-quality gaming properties in attractive gaming markets; we are maintaining
and improving our existing properties with disciplined capital expenditures; we are developing a
customer-loyalty program designed to motivate customers to continue to patronize our casinos; and
we may make strategic acquisitions, either alone or with third parties, at terms we believe are
reasonable. We continue to make progress toward achieving our long-term strategy.
In July, we successfully amended our bank credit facility to, among other things, permit the
issuance of senior unsecured debt. On July 27, 2009, we priced a private offering of $450 million
in aggregate principal amount of 85/8% senior notes due 2017, which offering is expected to close on
August 10, 2009. In addition to using $434 million in net proceeds to repay our funded bank
borrowings of $206 million, we intend to use the remaining net proceeds to repurchase or redeem our
existing 8.75% senior subordinated notes due 2013 and $75.0 million of our existing 8.25%
senior subordinated notes due 2012, and for general corporate purposes, including funding our
development projects.
24
RESULTS OF OPERATIONS
The following table highlights our results of operations for the three and six months ended
June 30, 2009 and 2008. 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, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LAuberge du Lac |
|
$ |
86.6 |
|
|
$ |
90.2 |
|
|
$ |
175.0 |
|
|
$ |
171.5 |
|
Boomtown New Orleans |
|
|
35.5 |
|
|
|
39.0 |
|
|
|
73.7 |
|
|
|
81.4 |
|
Lumière Place |
|
|
54.2 |
|
|
|
43.3 |
|
|
|
107.3 |
|
|
|
81.3 |
|
Belterra Casino Resort |
|
|
42.8 |
|
|
|
44.3 |
|
|
|
83.8 |
|
|
|
86.3 |
|
Boomtown Bossier City |
|
|
22.7 |
|
|
|
22.0 |
|
|
|
47.5 |
|
|
|
45.7 |
|
Casino Magic Argentina |
|
|
8.6 |
|
|
|
10.0 |
|
|
|
18.1 |
|
|
|
19.2 |
|
President Casino |
|
|
4.9 |
|
|
|
5.9 |
|
|
|
10.9 |
|
|
|
15.1 |
|
Boomtown Reno |
|
|
10.6 |
|
|
|
11.5 |
|
|
|
18.2 |
|
|
|
22.2 |
|
Other |
|
|
0.4 |
|
|
|
0.1 |
|
|
|
0.7 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
266.3 |
|
|
$ |
266.3 |
|
|
$ |
535.2 |
|
|
$ |
522.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
10.4 |
|
|
$ |
(16.9 |
) |
|
$ |
29.0 |
|
|
$ |
(28.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
5.0 |
|
|
$ |
(48.3 |
) |
|
$ |
6.2 |
|
|
$ |
(64.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LAuberge du Lac |
|
$ |
21.5 |
|
|
$ |
23.6 |
|
|
$ |
45.0 |
|
|
$ |
41.2 |
|
Boomtown New Orleans |
|
|
10.6 |
|
|
|
13.5 |
|
|
|
24.1 |
|
|
|
28.8 |
|
Lumière Place |
|
|
9.9 |
|
|
|
1.2 |
|
|
|
20.5 |
|
|
|
0.6 |
|
Belterra Casino Resort |
|
|
8.2 |
|
|
|
7.7 |
|
|
|
16.0 |
|
|
|
15.1 |
|
Boomtown Bossier City |
|
|
4.7 |
|
|
|
4.0 |
|
|
|
10.9 |
|
|
|
8.7 |
|
Casino Magic Argentina |
|
|
2.2 |
|
|
|
2.7 |
|
|
|
5.0 |
|
|
|
5.9 |
|
President Casino |
|
|
(0.4 |
) |
|
|
(1.5 |
) |
|
|
(0.6 |
) |
|
|
(1.8 |
) |
Boomtown Reno |
|
|
0.1 |
|
|
|
(1.3 |
) |
|
|
(1.2 |
) |
|
|
(3.5 |
) |
|
|
|
(a) |
|
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, gain (loss) on sale of equity
investments and discontinued operations. |
Segment comparison of the three and six months ended June 30, 2009 and 2008
LAuberge du Lac
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
|
(in millions) |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Gaming revenues |
|
$ |
75.3 |
|
|
$ |
79.2 |
|
|
|
(4.9 |
)% |
|
$ |
153.7 |
|
|
$ |
151.4 |
|
|
|
1.5 |
% |
Total revenues |
|
|
86.6 |
|
|
|
90.2 |
|
|
|
(4.0 |
)% |
|
|
175.0 |
|
|
|
171.5 |
|
|
|
2.0 |
% |
Operating income |
|
|
14.4 |
|
|
|
12.7 |
|
|
|
13.4 |
% |
|
|
30.6 |
|
|
|
22.8 |
|
|
|
34.2 |
% |
Adjusted EBITDA |
|
|
21.5 |
|
|
|
23.6 |
|
|
|
(8.9 |
)% |
|
|
45.0 |
|
|
|
41.2 |
|
|
|
9.2 |
% |
LAuberge du Lac, our largest property, increased revenues and Adjusted EBITDA during the six
months ended June 30, 2009 compared to the prior-year period, reflecting improved utilization of
the guestroom and amenity
expansion which opened during the first quarter of 2008. The guestroom expansion increased
available rooms to 995 from 743. For the three months ended June 30, 2009, revenues and Adjusted
EBITDA decreased as the result of a decline in the propertys table game win percentage compared to
the prior-year quarter, as well as a decline in hotel occupancy from the prior-year quarter.
25
Boomtown New Orleans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
|
(in millions) |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Gaming revenues |
|
$ |
33.9 |
|
|
$ |
37.4 |
|
|
|
(9.4 |
)% |
|
$ |
70.5 |
|
|
$ |
78.2 |
|
|
|
(9.8 |
)% |
Total revenues |
|
|
35.5 |
|
|
|
39.0 |
|
|
|
(9.0 |
)% |
|
|
73.7 |
|
|
|
81.4 |
|
|
|
(9.5 |
)% |
Operating income |
|
|
8.8 |
|
|
|
11.4 |
|
|
|
(22.8 |
)% |
|
|
20.3 |
|
|
|
24.6 |
|
|
|
(17.5 |
)% |
Adjusted EBITDA |
|
|
10.6 |
|
|
|
13.5 |
|
|
|
(21.5 |
)% |
|
|
24.1 |
|
|
|
28.8 |
|
|
|
(16.3 |
)% |
Results during the three and six months ended June 30, 2009 at Boomtown New Orleans reflect
the November 2008 opening of an additional slot facility in the area, which houses approximately
600 slot machines, as well as levee construction along the primary access road to the property.
This levee construction resulted in the temporary loss of the propertys main entrance, which is
expected to reopen in August 2009. Casino admissions decreased 11% for the three months ended June
30, 2009 compared to the prior-year period, and 12% for the six months ended June 30, 2009 compared
to the prior-year period. To address this increased competition, Boomtown New Orleans has
increased marketing efforts to draw in local customers with events and promotions, resulting in
increased costs and reduced operating income and Adjusted EBITDA.
Lumière Place
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
|
(in millions) |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Gaming revenues |
|
$ |
43.9 |
|
|
$ |
34.7 |
|
|
|
26.5 |
% |
|
$ |
88.6 |
|
|
$ |
68.0 |
|
|
|
30.3 |
% |
Total revenues |
|
|
54.2 |
|
|
|
43.3 |
|
|
|
25.2 |
% |
|
|
107.3 |
|
|
|
81.3 |
|
|
|
32.0 |
% |
Operating income |
|
|
1.3 |
|
|
|
(10.3 |
) |
|
|
112.6 |
% |
|
|
3.3 |
|
|
|
(22.2 |
) |
|
|
114.9 |
% |
Adjusted EBITDA |
|
|
9.9 |
|
|
|
1.2 |
|
|
|
725.0 |
% |
|
|
20.5 |
|
|
|
0.6 |
|
|
|
3,316.7 |
% |
Lumière Place includes the Lumière Place Casino, which opened in late 2007, the Pinnacle-owned
Four Seasons Hotel St. Louis and HoteLumière, each of which opened in early 2008, and other
amenities, comprising the Lumière Place complex. Overall operational results at Lumière Place
continued to improve in the three and six months ended June 30, 2009 as it entered its second year
of operations, consistent with most new casino openings. In addition, the property now operates in
an unlimited gaming environment as Missouris gambling loss limit was repealed in November 2008.
Marketing and payroll costs declined during the three and six months ended June 30, 2009 compared
to the prior-year period due to the maturation of the property.
Belterra Casino Resort
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
|
(in millions) |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Gaming revenues |
|
$ |
36.7 |
|
|
$ |
37.6 |
|
|
|
(2.4 |
)% |
|
$ |
72.5 |
|
|
$ |
74.7 |
|
|
|
(2.9 |
)% |
Total revenues |
|
|
42.8 |
|
|
|
44.3 |
|
|
|
(3.4 |
)% |
|
|
83.8 |
|
|
|
86.3 |
|
|
|
(2.9 |
)% |
Operating income |
|
|
4.8 |
|
|
|
3.8 |
|
|
|
26.3 |
% |
|
|
9.2 |
|
|
|
7.7 |
|
|
|
19.5 |
% |
Adjusted EBITDA |
|
|
8.2 |
|
|
|
7.7 |
|
|
|
6.5 |
% |
|
|
16.0 |
|
|
|
15.1 |
|
|
|
6.0 |
% |
26
Belterra achieved an increase in Adjusted EBITDA during the three and six months ended June
30, 2009, despite a decrease in revenues during the same period, due to fine-tuning of the
propertys marketing efforts and recent cost-cutting measures. Decreases in revenue are the result
of additional competition in the area. During mid-2008, two racetrack casinos in the Indianapolis
metropolitan area opened, each of which operate approximately
2,000 slot machines. One of these facilities replaced its temporary casino with a permanent
facility in March 2009. Another riverboat competitor opened a
new, expanded casino in Lawrenceburg, Indiana in June 2009.
Boomtown Bossier City
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
|
(in millions) |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Gaming revenues |
|
$ |
21.4 |
|
|
$ |
20.6 |
|
|
|
3.9 |
% |
|
$ |
44.7 |
|
|
$ |
43.0 |
|
|
|
4.0 |
% |
Total revenues |
|
|
22.7 |
|
|
|
22.0 |
|
|
|
3.2 |
% |
|
|
47.5 |
|
|
|
45.7 |
|
|
|
3.9 |
% |
Operating income |
|
|
3.0 |
|
|
|
2.0 |
|
|
|
50.0 |
% |
|
|
7.6 |
|
|
|
4.9 |
|
|
|
55.1 |
% |
Adjusted EBITDA |
|
|
4.7 |
|
|
|
4.0 |
|
|
|
17.5 |
% |
|
|
10.9 |
|
|
|
8.7 |
|
|
|
25.3 |
% |
Boomtown Bossier City achieved increased revenues and Adjusted EBITDA despite the competitive
Bossier City/Shreveport gaming market and improved Adjusted EBITDA through a refinement of the
propertys marketing efforts and certain cost-cutting measures. Boomtown Bossier 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.
Casino Magic Argentina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
|
(in millions) |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Gaming revenues |
|
$ |
7.7 |
|
|
$ |
9.0 |
|
|
|
(14.4 |
)% |
|
$ |
16.3 |
|
|
$ |
17.5 |
|
|
|
(6.9 |
)% |
Total revenues |
|
|
8.6 |
|
|
|
10.0 |
|
|
|
(14.0 |
)% |
|
|
18.1 |
|
|
|
19.2 |
|
|
|
(5.7 |
)% |
Operating income |
|
|
1.4 |
|
|
|
1.8 |
|
|
|
(22.2 |
)% |
|
|
3.5 |
|
|
|
4.1 |
|
|
|
(14.6 |
)% |
Adjusted EBITDA |
|
|
2.2 |
|
|
|
2.7 |
|
|
|
(18.5 |
)% |
|
|
5.0 |
|
|
|
5.9 |
|
|
|
(15.3 |
)% |
Casino Magic Argentina includes a sizable casino-hotel facility in Neuquén, which includes
1,076 gaming positions, and several smaller casinos in other parts of the Province of Neuquén, with
an aggregate 361 gaming positions. Revenues have decreased due in part to a recent decline in the
value of the Argentine peso. The decrease in Adjusted EBITDA reflects the currency decline and
inflation of certain costs, principally payroll costs.
Under terms of our concession agreement with the Province of Neuquén, our exclusivity rights
in the Province of Neuquén are to be extended from 2016 to 2021 with the completion of a luxury
hotel. We opened such hotel in June 2008 and are awaiting the formal government approval of such
extension.
President Casino
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
|
(in millions) |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Gaming revenues |
|
$ |
4.6 |
|
|
$ |
5.4 |
|
|
|
(14.8 |
)% |
|
$ |
10.2 |
|
|
$ |
13.8 |
|
|
|
(26.1 |
)% |
Total revenues |
|
|
4.9 |
|
|
|
5.9 |
|
|
|
(16.9 |
)% |
|
|
10.9 |
|
|
|
15.1 |
|
|
|
(27.8 |
)% |
Operating income |
|
|
(1.1 |
) |
|
|
(3.5 |
) |
|
|
68.6 |
% |
|
|
(2.0 |
) |
|
|
(5.7 |
) |
|
|
64.9 |
% |
Adjusted EBITDA |
|
|
(0.4 |
) |
|
|
(1.5 |
) |
|
|
73.3 |
% |
|
|
(0.6 |
) |
|
|
(1.8 |
) |
|
|
66.7 |
% |
27
Due principally to competition from an expanded competing property across the river and the
neighboring Lumière Place, revenues for the three and six months ended June 30, 2009 have decreased
from the same period in the prior year. As a result, beginning in late 2008, we eliminated
mid-week table game operations at the President Casino and reduced operating hours for the entire
casino mid-week. These cost-cutting measures have resulted in a decreased Adjusted EBITDA loss for
the three and six months ended June 30, 2009. Operations at the President Casino were also
adversely affected in both periods due to temporary flood related closures. The President Casino
operates on a vessel known as the Admiral. The hull of the Admiral was built in 1904. The
certification of the hull
by ABS Consulting (ABS) expires on July 19, 2010, and the Admiral may not be used to carry
passengers beyond that date without replacement, dry-docking, or specific approval. On July 28,
2009 the Missouri Gaming Commission (MGC) held a public hearing to discuss our plans to address
the expiration of the ABS certification in 2010. At such hearing we announced our plans, subject
to MGC review and ABS and other approvals, to replace the Admiral with a different vessel.
Currently, we have not yet submitted an official application for such vessel change, and hence the
MGC has not yet acted on such request. However, at this July 28, 2009 hearing, the Executive
Director of the MGC (who is not a Commissioner of the MGC), through counsel, made a recommendation
that the MGC issue a ruling to prohibit Pinnacle from repairing, replacing or moving the Admiral.
The MGC deferred a decision on this matter. In the event such a decision was to be made by the
MGC, it could ultimately lead to the loss of the gaming license for the President Casino if we were
unable to otherwise obtain a re-certification of the Admiral by July 19, 2010 and therefore we
would expect to contest the decision and pursue all possible legal remedies.
Boomtown Reno
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
|
(in millions) |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Gaming revenues |
|
$ |
6.2 |
|
|
$ |
5.8 |
|
|
|
6.9 |
% |
|
$ |
10.6 |
|
|
$ |
11.4 |
|
|
|
(7.0 |
)% |
Total revenues |
|
|
10.6 |
|
|
|
11.5 |
|
|
|
(7.8 |
)% |
|
|
18.2 |
|
|
|
22.2 |
|
|
|
(18.0 |
)% |
Operating income |
|
|
(1.2 |
) |
|
|
(3.0 |
) |
|
|
60.0 |
% |
|
|
(3.7 |
) |
|
|
(6.9 |
) |
|
|
46.4 |
% |
Adjusted EBITDA |
|
|
0.1 |
|
|
|
(1.3 |
) |
|
|
107.7 |
% |
|
|
(1.2 |
) |
|
|
(3.5 |
) |
|
|
65.7 |
% |
Operating conditions at Boomtown Reno remain challenging due to the significant competition
from the northern California Native American gaming market, as well as poor economic conditions in
both the region and northern California. However, gaming revenues increased for the three months
ended June 30, 2009 over the prior-year period due in part to our renovation of the Boomtown Reno
casino and approximately two-thirds of the guestrooms over the past 18 months. In the second
quarter of 2008, operations were somewhat constrained by such refurbishment. During June 2009, a
restaurant was refurbished and replaced by a recognized franchised restaurant and a coffee venue
was upgraded. Improvements in operating income and Adjusted EBITDA results are due to recent
cost-cutting measures and a lessening of the construction disruptions. Employee headcount as of
June 30, 2009 has decreased 29% from June 30, 2008.
Other factors affecting income from continuing operations
The following are a description of the other costs and benefits for the three months ended
June 30, 2009 and 2008, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
For the three months |
|
|
Increase/ |
|
|
For the six months |
|
|
Increase/ |
|
|
|
ended June 30, |
|
|
(Decrease) |
|
|
ended June 30, |
|
|
(Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 vs. 2008 |
|
|
|
(in millions) |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Other benefits (costs): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses |
|
$ |
(7.9 |
) |
|
$ |
(11.6 |
) |
|
|
(31.9 |
)% |
|
$ |
(17.4 |
) |
|
$ |
(21.3 |
) |
|
|
(18.3 |
)% |
Depreciation and amortization |
|
|
(26.2 |
) |
|
|
(31.0 |
) |
|
|
(15.5 |
)% |
|
|
(52.4 |
) |
|
|
(59.5 |
) |
|
|
(12.0 |
)% |
Pre-opening and development costs |
|
|
(6.6 |
) |
|
|
(14.2 |
) |
|
|
(53.5 |
)% |
|
|
(12.5 |
) |
|
|
(31.3 |
) |
|
|
(60.1 |
)% |
Non-cash share-based compensation |
|
|
(5.3 |
) |
|
|
(3.1 |
) |
|
|
71.0 |
% |
|
|
(7.6 |
) |
|
|
(4.8 |
) |
|
|
58.3 |
% |
Write-downs, reserves and
recoveries, net |
|
|
(0.3 |
) |
|
|
(6.9 |
) |
|
|
(95.7 |
)% |
|
|
(0.7 |
) |
|
|
(6.8 |
) |
|
|
(89.7 |
)% |
Other non-operating income |
|
|
0.1 |
|
|
|
0.5 |
|
|
|
(80.0 |
)% |
|
|
0.2 |
|
|
|
1.6 |
|
|
|
(87.5 |
)% |
Gain on sale of equity securities |
|
|
12.9 |
|
|
|
|
|
|
|
100 |
% |
|
|
12.9 |
|
|
|
|
|
|
|
100 |
% |
Impairment of investment in
equity securities |
|
|
|
|
|
|
(22.6 |
) |
|
|
100 |
% |
|
|
|
|
|
|
(22.6 |
) |
|
|
100 |
% |
Interest expense, net of
capitalized interest |
|
|
(16.1 |
) |
|
|
(11.6 |
) |
|
|
38.8 |
% |
|
|
(32.8 |
) |
|
|
(23.7 |
) |
|
|
38.4 |
% |
Income tax benefit (expense) |
|
|
(2.4 |
) |
|
|
2.3 |
|
|
|
(204.3 |
)% |
|
|
(3.2 |
) |
|
|
9.3 |
|
|
|
(134.4 |
)% |
28
Corporate expenses represent unallocated payroll, professional fees, rent, travel expenses and
other general and administrative expenses not directly related to our casino and hotel operations.
Such expenses decreased in the three and six months ended June 30, 2009 due to the relocation of
some offices to lower-rent spaces, the decision to reduce the scope of an employee 401(k) matching
program and other smaller items. Additionally, the prior-year quarter included approximately $1.5
million of compensation expense related to the resignation of a corporate officer.
Depreciation and amortization expense decreased in the three and six months ended June 30,
2009 due to the decreased asset basis resulting from our 2008 fourth quarter impairment of certain
long-lived assets.
Pre-opening and Development Costs Pre-opening and development costs are expensed as incurred,
consistent with the American Institute of Certified Public Accountants Statement of Position
(SOP) 98-5 Reporting on the Costs of Start-up Activities, and for the three and six months
ended June 30, 2009 and 2008 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Pre-opening and development costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlantic City (a) |
|
$ |
2.6 |
|
|
$ |
5.3 |
|
|
$ |
5.5 |
|
|
$ |
11.0 |
|
River City (b) |
|
|
1.6 |
|
|
|
1.6 |
|
|
|
2.8 |
|
|
|
2.6 |
|
Baton Rouge |
|
|
1.6 |
|
|
|
0.8 |
|
|
|
2.7 |
|
|
|
5.6 |
|
Sugarcane Bay |
|
|
0.6 |
|
|
|
1.0 |
|
|
|
1.2 |
|
|
|
1.5 |
|
Kansas City |
|
|
|
|
|
|
1.9 |
|
|
|
|
|
|
|
2.7 |
|
Lumière Place |
|
|
|
|
|
|
2.4 |
|
|
|
|
|
|
|
6.0 |
|
Missouri Proposition A Initiative |
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
1.2 |
|
Other |
|
|
0.2 |
|
|
|
0.6 |
|
|
|
0.3 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-opening and development costs |
|
$ |
6.6 |
|
|
$ |
14.2 |
|
|
$ |
12.5 |
|
|
$ |
31.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In late 2008, the Company decided to complete certain demolition projects, but to
otherwise suspend substantially all development activities in Atlantic City indefinitely.
The continuing pre-opening and development costs include property taxes and other costs
associated with ownership of the land. |
|
(b) |
|
Pre-opening costs at the River City project, expected to open in the spring of
2010, include among other items non-cash, straight-lined rent accruals under a lease
agreement of $1.0 million and $1.9 million for the three and six months ended June 30,
2009, respectively, and $1.4 million and $1.9 million for the three and six months ended
June 30, 2008, respectively. |
Non-cash Share-based Compensation Expense was $5.3 million and $7.6 million for the three and
six months ended June 30, 2009, respectively, and $3.1 million and $4.8 million for the three and
six months ended June 30, 2008, respectively. Such 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 increased due to additional options granted to members of our Board of Directors.
These grants, along with all previously outstanding unvested stock option grants to board members,
became fully vested on May 5, 2009.
Write-downs, reserves and recoveries, net consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Impairment of assets (a) |
|
$ |
0.2 |
|
|
$ |
5.5 |
|
|
$ |
0.3 |
|
|
$ |
5.4 |
|
Customer loyalty program related expenses (b) |
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
1.4 |
|
Loss on disposal of assets |
|
|
0.1 |
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-downs, reserves and recoveries, net |
|
$ |
0.3 |
|
|
$ |
6.9 |
|
|
$ |
0.7 |
|
|
$ |
6.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
During the three and six months ended June 30, 2009, we incurred asset impairment
charges related to the value of obsolete gaming equipment in the normal course of
business. During the second quarter of
2008, we incurred impairment charges of $4.5 million related to two riverboats acquired in
2006, and approximately $1.0 million in connection with certain obsolete gaming equipment. |
|
(b) |
|
During the second quarter of 2008, we expanded our mychoice rewards program at our
LAuberge du Lac and Belterra properties. In doing so, we disclosed to our customers
their reward account balances based on prior play. We had historically maintained such
records to facilitate the provision of complimentary goods and services, but had not
previously disclosed the point balances to customers at these facilities. This
disclosure resulted in a non-cash charge to establish a theoretical liability for such
amounts. |
29
Other non-operating income consists primarily of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Interest income |
|
$ |
0.1 |
|
|
$ |
0.4 |
|
|
$ |
0.2 |
|
|
$ |
1.4 |
|
Dividend income |
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating income |
|
$ |
0.1 |
|
|
$ |
0.5 |
|
|
$ |
0.2 |
|
|
$ |
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income has decreased during the three and six months ended June 30, 2009 compared to
the three and six months ended June 30, 2008 primarily due to lower short-term interest rates in
the current period compared to the same period in 2008. The interest earned was also affected by
the conservative investment options we elect. Prior year dividend income relates to our shares
held in Ameristar Casinos, which suspended dividend payments after the third quarter of 2008. We
sold all shares held during the three months ended June 30, 2009.
Gain on sale of equity securities During the three months ended June 30, 2009, we sold all
1.2 million shares that we held in Ameristar Casinos for cash proceeds of $23.7 million and
realized a gain of $12.9 million. The shares were purchased with the intent of proposing a
combination of the two companies. However, with the changes in the financial markets, we
determined that such combination was no longer in the best interests of our shareholders. These
shares had previously been written down as disclosed in accordance with the Financial Accounting Standards
Boards Staff Position FAS Nos. 115-1 and 124-1, The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments.
Interest expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Interest expense before capitalization of interest |
|
$ |
18.8 |
|
|
$ |
19.4 |
|
|
$ |
37.7 |
|
|
$ |
38.5 |
|
Less: capitalized interest |
|
|
(2.7 |
) |
|
|
(7.8 |
) |
|
|
(4.9 |
) |
|
|
(14.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net of capitalized interest |
|
$ |
16.1 |
|
|
$ |
11.6 |
|
|
$ |
32.8 |
|
|
$ |
23.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in interest expense before capitalization was principally due to lower interest
rates in the first half of 2009 compared to the first half of 2008, partially offset by increased
borrowings in 2009 versus 2008. The decrease in capitalized interest was principally due to the
suspension of development activities in Atlantic City, partially offset by increases attributable
to our River City project.
30
Income Tax Benefit Our effective income tax rate for continuing operations for the three and
six months ended June 30, 2009, was 32.7% and 34.2%, respectively, as compared to (4.6)% and
(12.7)% for the same periods in 2008. Our effective tax rates in the 2009 periods were negatively
affected by non-deductible items such as Indiana state gaming revenue taxes, which are
non-deductible on our Indiana state income tax return, and foreign taxes of our Argentine
subsidiary pursuant to a tax amnesty program offered by the Argentine government. We determined
that the certainty of the amnesty program offset the potential economic value of eventually
prevailing on certain disputed tax positions. Additionally, during June of 2009, we received an
informal notification from a field agent for the Indiana Department of Revenue challenging whether
income and gain from certain asset sales and other
transactions outside of Indiana, which we reported on our returns from the 2000 to 2007 years,
resulted in business income subject to apportionment, and proposed a potential assessment of
approximately $11 million of additional Indiana income taxes. We are in the process of evaluating
those preliminary proposed adjustments to determine their factual accuracy and technical merits. We
adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes,
on January 1, 2007. While it is often difficult to predict the final outcome or the timing of
resolution of any particular uncertain tax position, management believes that the reserves for
income taxes reflect the most probable outcome as of June 30, 2009. We adjust these reserves, as
well as the related interest, in light of changing facts and circumstances. It is possible that
our unrecognized tax benefits could increase between $4 million and $6 million during the next 12
months.
Discontinued Operations consists of our former Casino Magic Biloxi operations and our
operations at The Casino at Emerald Bay in The Bahamas, which we closed on January 2, 2009. We
recorded a loss from discontinued operations of $0.2 million and $0.5 million, net of income taxes,
for the three and six months ended June 30, 2009, respectively, principally related to legal fees,
and income from discontinued operations of $30.3 million and $51.1 million, net of income taxes,
for the three and six months ended June 30, 2008, respectively, related to insurance proceeds
received.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2009, we maintained $134 million of cash and cash equivalents. We estimate
that approximately $70 million of such cash is needed to fund our casino cages, slot machines and
day-to-day operating and corporate accounts. This amount is expected to increase to approximately
$80 million with the opening of River City. The balance we held as reserve liquidity. As of June
30, 2009, we had borrowings of $183 million and outstanding letters of credit of $12.6 million
under a $625 million revolving credit facility that matures in December 2010 (the Credit
Facility).
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, and our compliance with covenants contained in the Credit
Facility and bond indentures.
Summary and Discussion of Certain Net Cash Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
Net cash provided by operating activities |
|
$ |
48.0 |
|
|
$ |
106.3 |
|
Net cash used in investing activities |
|
$ |
(60.4 |
) |
|
$ |
(244.9 |
) |
Net cash providing by financing activities |
|
$ |
31.0 |
|
|
$ |
75.3 |
|
Operating Cash Flow
Our cash provided by operating activities in the six months ended June 30, 2009 decreased from
the prior-year period due principally to the receipt of insurance settlement proceeds in the prior
year related to our former Casino Magic Biloxi property.
31
Investing Cash Flow
The following is a summary of our capital expenditures, by property or project, for the six
months ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
For the six months ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in millions) |
|
River City |
|
$ |
60.7 |
|
|
$ |
12.7 |
|
Sugarcane Bay |
|
|
6.4 |
|
|
|
8.3 |
|
Belterra Casino Resort |
|
|
3.5 |
|
|
|
1.6 |
|
LAuberge du Lac |
|
|
2.8 |
|
|
|
20.8 |
|
Boomtown New Orleans |
|
|
2.6 |
|
|
|
2.4 |
|
Lumière Place Casino |
|
|
2.5 |
|
|
|
72.6 |
|
Boomtown Reno |
|
|
1.4 |
|
|
|
4.0 |
|
Atlantic City |
|
|
1.0 |
|
|
|
83.5 |
|
Boomtown Bossier City |
|
|
1.0 |
|
|
|
1.8 |
|
Casino Magic Argentina |
|
|
0.2 |
|
|
|
5.1 |
|
Other |
|
|
2.1 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
84.2 |
|
|
$ |
217.7 |
|
|
|
|
|
|
|
|
As of June 30, 2009, we had cumulatively invested approximately $201.8 million in the
River City project, $33.2 million in the Sugarcane Bay project and $33.3 million in the Baton Rouge
project. These amounts include cash expenditures, land acquisitions, capitalized interest and
pre-opening costs.
In April 2009, the Louisiana Gaming Control Board (LGCB) granted 150-day extensions for
development of our Sugarcane Bay and Baton Rouge projects. The extensions, which were similar to
earlier extensions approved in February 2009, were granted based on the continued disruption in the
global capital markets. We continue to perform site preparation work at Sugarcane Bay, adjacent to
LAuberge du Lac in Lake Charles, and design and entitlement work for our project in Baton Rouge.
Sugarcane Bays completion deadline is now December 27, 2010. Under our tentative construction
timeline, Sugarcane Bay is not expected to be completed by that date, so we will need to seek an
additional extension from the LGCB. The deadline for entering into a construction contract for our
Baton Rouge project is now October 16, 2009. We indicated to the LGCB that we may need to seek
additional extensions. There is no certainty that such additional extensions will be granted.
Managements intention is to use existing cash resources, cash flows from operations, funds
available under the Credit Facility and funds from the pending senior notes private offering
(discussed below) to fund operations, maintain existing properties, make necessary debt service
payments and fund the development of some of our capital projects. Although the capital markets
have improved in recent months, they remain volatile and subject to change.
Our substantial funding needs in connection with our development projects will require us to
raise substantial additional capital from outside sources. On July 21, 2009, we amended our Credit
Facility to, among other things, adjust certain of the financial covenant ratios (see discussion
below). Our ability to borrow under our Credit Facility is contingent upon, among other things,
meeting customary covenants in such facility, including those recently amended. 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 complete
our projects unless we sell assets, enter into leasing facilities, 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.
On July 27, 2009, we entered into a purchase agreement with certain initial purchasers to
issue $450 million aggregate principal amount of new 85/8% senior unsecured notes due 2017 (85/8%
Senior Notes) at a purchase price of 98.597% of principal
amount. We offered and expect to sell the
85/8% Senior Notes to the initial purchasers in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act. It is expected that the initial purchasers will resell the
85/8% Senior Notes to qualified institutional buyers pursuant to the exemption from registration
provided by Rule 144A under the Securities Act and outside the United States pursuant to the
exemption from registration provided by Regulation S of the Securities Act. This offering is
expected to close on August 10, 2009 and is expected to result in approximately $434 million in net
proceeds. Using the net proceeds, we intend to
repurchase or redeem all of our existing 8.75% senior subordinated notes due 2013 (8.75%
Notes), of which $135 million in aggregate principal amount is outstanding; to repay approximately
$206 million in revolving credit borrowings under the Credit Facility; and repurchase or redeem $75.0 million in aggregate principal amount of our existing 8.25% senior subordinated notes due
2012 (8.25% Notes). We expect to redraw revolver borrowings under the Credit Facility to fund
our development projects as construction proceeds. We also expect to use the remaining net
proceeds from the offering for general corporate purposes, including funding our development
projects. The
85/8% Senior Notes will not be registered under the Securities Act of 1933, as
amended, or any state securities laws and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements.
32
In addition, even though our existing Credit Facility matures in December 2010, if we have not
made arrangements to extend the maturity of our Credit Facility, entered into a new Credit Facility
or arranged alternate refinancing by the filing of our annual report on Form 10-K for the 2009
year, generally accepted accounting principles would require that amounts outstanding under the
Credit Facility as of the 2009 year-end, which amounts may be substantial, be treated as a current
liability as of the 2009 year-end. After giving effect to the use of the net proceeds of the 85/8%
Senior Notes, we will have no outstanding borrowings under our Credit Facility and do not currently
expect to have a substantial amount of outstanding borrowings under our Credit Facility at the 2009
year-end. If, however, the outstanding borrowings under our Credit Facility at the 2009 year-end
were substantial, treating them as a current liability may lead to a
going concern or like qualification or exception from our auditors with respect to our 2009 audited
financial statements. Such a qualification would result in a default under our Credit Facility that
potentially could lead to an acceleration of our Credit Facility borrowings and then cross-defaults
under our indentures. We are discussing with certain of our lenders, among other things, an
extension of the maturity of our Credit Facility, but we cannot assure you that we will be able to
obtain any such extension, and if we are able to do so, the terms may be materially less favorable
than the existing Credit Facility. If we cannot make such arrangements with our existing lenders,
we may need to make other financing arrangements to obtain a longer maturity on our senior secured
debt, and such arrangements might be on unfavorable terms.
Although the capital markets have improved recently, as evidenced by our ability to price $450
million in aggregate principal amount of 85/8% Senior Notes, we cannot accurately predict our ability
to access the capital markets again in the future. The need for additional capital during periods
of difficult market conditions may force us to delay, reduce or cancel planned development and
expansion projects, sell assets or obtain such capital on potentially unfavorable terms.
Management intends to proceed with construction of its various projects only when it believes that
sufficient funding is available on terms favorable to the Company.
In addition to the effect that the global financial crisis has already had on us, we may face
significant challenges if conditions in the financial markets do not continue to improve, or if
they worsen. The credit crisis has adversely affected overall consumer demand, which could have 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 a detailed 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,
2008.
Financing Cash Flow
As of June 30, 2009, we had borrowings of $183 million and had outstanding letters of credit
of $12.6 million under our Credit Facility. On July 21, 2009, we amended the Credit Facility to,
among other things, adjust certain of the financial covenant ratios, permit the issuance of senior
unsecured debt, establish an extension revolver tranche, and reduce the facility to approximately
$531 million. As of August 4, 2009, we have drawn $206 million and $12.6 million was utilized for
various letters of credit under our Credit Facility. On August 10, 2009, we expect to close our
85/8% Senior Note offering and use a portion of the net proceeds to repay the entire amount
outstanding in revolving credit borrowings under the Credit Facility as of that date. We expect to
redraw revolver borrowings under the Credit Facility to fund our development projects as
construction proceeds.
33
As of June 30, 2009, for borrowings under the Credit Facility, the interest rate is computed
as either LIBOR plus a margin of 1.75% or prime plus a margin of 0.25% based on our Consolidated
Leverage Ratio as defined in the Credit Facility. As noted below, the applicable margin was
increased by 0.50 percentage points as of July 21, 2009. As of June 30, 2009, 1-month LIBOR was
0.30% and prime was 3.25%. The letters of credit bear facility fees of 1.75% per annum as of June
30, 2009, and was increased to 2.25% as of July 21, 2009. The Credit Facility also bears commitment
fees based on our Consolidated Leverage Ratio. Under the Credit Facility, at least 40% of our
total funded debt obligations must be subject to fixed interest rates or hedge agreements or other
interest rate protection agreements. As of June 30, 2009, approximately 81.1% of our debt was at
fixed versus floating interest rates.
The Credit Facility has, among other things, restrictive financial covenants and capital
spending limits and other affirmative and negative covenants. The Credit Facility provides for
permitted capital expenditures for our River City project, maintenance of our existing casinos and
hotels and various other new projects, all up to certain limits. In certain circumstances, our
Credit Facility permits those limits to be increased through asset sales or equity transactions.
We believe we were in compliance with all of the financial covenants in our Credit Facility as of
June 30, 2009 and at all other recent applicable measurement dates.
As noted above, on July 21, 2009, we amended our Credit Facility to, among other things,
adjust certain financial covenant ratios. In particular, we amended the rolling four quarter
maximum permitted consolidated leverage ratio (as defined in the Credit Facility) to not exceed
6.50x for the quarterly periods ended June 30, 2009 through December 31, 2009, not exceed 6.75x for
the quarterly period ended March 31, 2010, not exceed 6.50x for the quarterly period ended June 30,
2010, and not exceed 6.00x for the quarterly period ended September 30, 2010. Our consolidated
leverage ratio for the four quarters ended June 30, 2009 was 5.10x and we expect it to rise
slightly as River City nears completion, which is expected to occur in the spring of 2010. In
addition, the amendment to our Credit Facility lowered the required minimum consolidated interest
coverage ratio for each of our fiscal quarters ending on and after December 31, 2009 through June
30, 2010 by 0.25 percentage points. The amendment increased the applicable margin by 0.50
percentage points for all revolving credit loans that mature prior to December 14, 2010. Under the
amendment, we may from time to time request lenders, in their discretion, to convert their existing
revolving loan commitments to a new tranche of extending revolving loan commitments that mature on
a date beyond the existing maturity date of December 14, 2010 on such pricing terms in an extending
revolving credit commitment agreement, and/or request extending revolving loan commitments from new
lenders, in each case without increasing the total amount of loans that may be outstanding under
the Credit Agreement beyond $625 million. Existing lenders are not required to extend the current
maturity of their commitments or to provide additional commitments.
Under the amendment, Lehman Commercial Paper, Inc.s (LCPI) resignation as the
administrative agent under the Credit Facility and Barclays Bank PLCs appointment to replace LCPI
in such capacity has been executed and has become effective as of July 24, 2009. We released LCPI
from claims and damages under the Credit Facility and agreed not to institute action against LCPI
under the Credit Facility, which release and agreement became effective as of such replacement
date, but LCPIs commitment as a lender under the Credit Facility will remain formally in place.
LCPI has not funded its commitment under the Credit Facility since it entered bankruptcy on October
5, 2008, and we have no effective remedy to require LCPI to fund its commitment. Pursuant to the
Credit Facility, any reduction in the commitments of the lenders must be pro rata in accordance
with the commitment of each lender as a percentage of the lenders aggregate commitments. Because
LCPIs commitment remains formally in place and because the release merely reflects the actual
status of the LCPI commitment, we believe that our release of LCPI does not constitute a non-pro
rata reduction of the revolver commitment that would be prohibited under the Credit Facility. As
of August 4, 2009, the unfunded portion of LCPIs
commitment was approximately $31.0 million. The credit crisis
has affected other lenders under our Credit Facility, although none
have filed for bankruptcy and all, except for LCPI, have to date
continued to fund their obligations. For example, recently there have
been indications that one of our existing lenders under our Credit
Facility, CIT Group, Inc. (CIT), may file for bankruptcy.
CIT had committed to fund $24.0 million towards our Credit
Facility, as amended. If CIT files for bankruptcy, management
believes that it is unlikely that CIT will continue to provide its
proportionate share under the existing Credit Facility. The
unfunded commitment of CIT as of August 4, 2009 is
approximately $15.0 million.
As of June 30, 2009, in addition to our indebtedness under the Credit Facility, we had
outstanding $385 million aggregate principal amount of 7.50% senior subordinated notes due 2015
(the 7.50% Notes), $275 million aggregate principal amount of 8.25% Notes, $135 million aggregate
principal amount of 8.75% Notes and certain other debt.
34
Under the indentures governing the 7.50% Notes and 8.25% Notes, we are permitted to incur up
to $1.5 billion and $475 million in senior indebtedness, respectively, and, until the tender offer
and redemption of the 8.75% Notes
are completed, up to $350 million in senior indebtedness under the indenture governing the
8.75% Notes. In addition, the indentures include other debt incurrence baskets including a $50
million general debt basket under the 8.25% Notes and a $250 million general debt basket under the
7.50% Notes. Under the 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 each of the three indentures) would be at least 2:1. Our
Consolidated Coverage Ratio for the four fiscal quarters ended
June 30, 2009 was above 2:1 under each of our existing
indentures. Consequently, pursuant to
the indentures, we reclassified $200 million of revolver facility borrowings from the senior
indebtedness basket to a 2:1 Consolidated Coverage Ratio and, as a result, are permitted under the
indentures to incur substantial additional borrowings. As a result of the amendment to the Credit
Facility on July 21, 2009 and the pro-forma effect on results for our new 85/8% Senior Notes and
related transactions, our Consolidated Coverage Ratio under all three indentures is under 2:1. The
7.50% Notes, 8.25% Notes and 8.75% Notes become or became callable at a premium over their face
amount on June 15, 2011, March 15, 2008 and October 1, 2008, respectively. Such premiums decline
periodically as the bonds near their respective maturities. The 7.50% Notes are redeemable prior to
such time 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.
The 85/8% Senior Notes are expected to be senior unsecured obligations and rank equally in right
of payment with all of our existing and future senior debt, include debt under our Credit Facility.
The 85/8% Senior Notes are expected to be guaranteed on a senior basis by certain of our current and
future domestic restricted subsidiaries. The 85/8% Senior Notes are expected to be effectively
subordinated to any secured debt, including debt under our Credit Facility. The 85/8% Senior Notes
are expected to rank senior to our existing 7.50% senior subordinated notes due 2015 and our 8.25%
senior subordinated notes due 2012 and any of our 8.75% Notes which remain outstanding pending our
tender offer for, and redemption of, such notes.
On July 27, 2009, we commenced a cash tender offer to purchase the $135 million aggregate
principal amount of 8.75% Notes at an offer price of 103.167% of principal amount plus accrued and
unpaid interest using proceeds from the 85/8% Senior Note offering. We intend to redeem any
untendered 8.75% Notes on or after October 1, 2009 at a
redemption price of 102.917% of principal amount plus accrued and
unpaid interest. On July 29, 2009, we commenced a cash tender offer to purchase up to $75.0
million aggregate principal amount of 8.25% Notes at an offer price of 102.063% of principal amount
plus accrued and unpaid interest using proceeds from the 85/8% Senior Note offering. We intend to
redeem the remaining portion of the $75 million in aggregate principal amount of 8.25% Notes not
repurchased in such tender offer at a redemption price of 102.063% of
principal amount plus accrued and unpaid interest.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
During the quarterly period ended June 30, 2009, there were no material changes to our
contractual obligations and commitments as disclosed in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2008. On July 21, 2009, we entered into the Fourth Amendment to the
Credit Facility. On July 27, 2009, we priced $450 million aggregate principal amount of 85/8% senior
unsecured notes due 2017 and in connection with this offering, we entered into a purchase agreement
with certain initial purchasers to issue such notes at a purchase price of 98.597% of principal
amount. For more detailed descriptions of the Fourth Amendment to the Credit Facility and the
issuance of the senior unsecured notes, see Note 9 to our unaudited Condensed Consolidated
Financial Statements.
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, 2008. 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, 2008. There were no newly identified significant changes during the six
months ended June 30, 2009, 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,
2008.
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 10-Q, 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, statements regarding Pinnacles
future operating performance, future growth, anticipated milestones, completion and opening
schedules of various projects, expansion plans, construction schedules, cash needs, cash reserves,
adequacy of resources to fund development and expansion projects, liquidity, compliance with
required financial ratios, operating and capital expenses, financing options, including the state
of the credit markets, our ability to access the capital markets, our ability to retain
the gaming license for the President Casino in Missouri, expected receipts of insurance proceeds
including the amount of any such recovery and sufficiency of such coverage, the future outlook of
Pinnacle and the gaming industry, operating results and 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 substantial funding needs in connection with our development projects and
other capital-intensive projects will require us to raise substantial amounts of funding
from outside sources; |
|
|
|
we may not be able to renew or extend our Credit Facility or enter into a new
credit facility in todays difficult markets. In addition, our ability to renew or
extend our Credit Facility or to enter into a new credit facility may be impaired
further if current market conditions continue or worsen. If we are able to renew or
extend our Credit Facility, it may be on terms substantially less favorable than the
current Credit Facility. We may face similar risks with respect to our outstanding
bonds; |
|
|
|
our business may be sensitive to reductions in consumers discretionary spending
as a result of recent downturns in the economy; |
|
|
|
the global financial crisis and recession may have an effect on our business and
financial condition in ways that we currently cannot accurately predict; |
|
|
|
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 acquired properties may negatively affect the market for our securities; |
|
|
|
many factors could prevent us from completing our construction and development
projects as planned, including the escalation of construction costs beyond increments
anticipated in our construction budgets; |
|
|
|
the gaming industry is very competitive and increased competition, including by
Native American gaming facilities, could adversely affect our profitability; |
|
|
|
issues with respect to our insurance policies could affect our recovery of
further insurance proceeds associated with the 2005 hurricane damage and related
business interruption; |
|
|
|
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; |
|
|
|
we operate in a highly taxed industry and may be subject to higher taxes in the
future; |
|
|
|
we may not meet the conditions for the maintenance of the licenses that we plan
to utilize for our Sugarcane Bay and Baton Rouge projects; |
|
|
|
we may not obtain further extensions from the Louisiana
Gaming Control Board for our Sugarcane Bay and Baton Rouge projects; |
|
|
|
we could lose the right to open our River City project if we fail to meet the
conditions imposed by the Missouri Gaming Commission; |
|
|
|
we could lose our gaming license for the President Casino if the Missouri Gaming
Commission decides that we cannot move, refurbish or replace The Admiral; |
|
|
|
|
the loss of management and other key personnel could significantly harm our
business; |
|
|
|
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, 2008 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. At June 30, 2009,
our Credit Facility is comprised of a $625 million revolving credit facility that matures in 2010,
and there was $183 million outstanding under this revolving credit facility and $12.6 million
utilized under various letters of credit. As of June 30, 2009, our borrowings under our Credit
Facility accrued interest at LIBOR plus a margin determined by our current consolidated leverage
ratio, which margin was 1.75%. Pursuant to the Fourth Amendment to the Credit Agreement, our
borrowings under our Credit Facility accrue interest at LIBOR plus a margin determined by our
current consolidated leverage ratio, which margin is 2.25% as of July 21, 2009. As of June 30,
2009, if LIBOR rates were to increase or decrease by one percentage point, our interest expense
would increase or decrease by approximately $1.8 million per year, assuming constant debt levels.
We are also exposed to market risk from adverse changes in the exchange rate of the dollar to
the Argentine peso, which has fluctuated significantly in recent months due to the extremely
inflationary Argentine economy. The total assets of Casino Magic Argentina at June 30, 2009 were
$29.9 million, or approximately 1.5% of our consolidated assets.
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, 2009. At June 30, 2009, we did
not hold any material investments in market-risk-sensitive instruments of the type described in
Item 305 of Regulation S-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
Liabilities |
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
Thereafter |
|
|
Total |
|
|
Value |
|
|
|
(in thousands) |
|
Revolver Loan Facility(a) |
|
|
|
|
|
$ |
183,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
183,000 |
|
|
$ |
164,700 |
|
Rate |
|
|
2.07 |
% |
|
|
2.07 |
% |
|
|
2.07 |
% |
|
|
2.07 |
% |
|
|
2.07 |
% |
|
|
2.07 |
% |
|
|
2.07 |
% |
|
|
|
|
7.50% Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
385,000 |
|
|
$ |
385,000 |
|
|
$ |
325,806 |
|
Fixed rate |
|
|
7.50 |
% |
|
|
7.50 |
% |
|
|
7.50 |
% |
|
|
7.50 |
% |
|
|
7.50 |
% |
|
|
7.50 |
% |
|
|
7.50 |
% |
|
|
|
|
8.25% Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
275,000 |
|
|
|
|
|
|
|
|
|
|
$ |
275,000 |
|
|
$ |
272,594 |
|
Fixed rate |
|
|
8.25 |
% |
|
|
8.25 |
% |
|
|
8.25 |
% |
|
|
8.25 |
% |
|
|
8.25 |
% |
|
|
8.25 |
% |
|
|
8.25 |
% |
|
|
|
|
8.75% Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
135,000 |
|
|
|
|
|
|
$ |
135,000 |
|
|
$ |
135,169 |
|
Fixed rate |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
|
|
All Other |
|
$ |
46 |
|
|
$ |
97 |
|
|
$ |
98 |
|
|
$ |
102 |
|
|
$ |
110 |
|
|
$ |
443 |
|
|
$ |
896 |
|
|
$ |
896 |
|
Avg. Interest rate |
|
|
7.33 |
% |
|
|
7.33 |
% |
|
|
7.33 |
% |
|
|
7.25 |
% |
|
|
7.25 |
% |
|
|
7.25 |
% |
|
|
7.25 |
% |
|
|
|
|
|
|
|
(a) |
|
The revolving credit facility has a floating interest rate per annum based on our
Consolidated Leverage Ratio, as defined in the Credit Facility, which is LIBOR plus a margin
of 1.75%. |
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, 2009. Based on this evaluation, the Companys management, including the CEO and
the CFO, concluded that, as of June 30, 2009, 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,
2009 that has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.
PART II
|
|
|
Item 1. |
|
Legal Proceedings |
During the three months ended June 30, 2009, there were no material developments occurred with
respect to the litigation described in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2009, under the heading Legal Proceedings and which reference should be made.
The following is a material update to the litigation described in our Annual Report on Form
10-K for the fiscal year ended December 31, 2008 and our Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2009.
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 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 have met with
the Union three times to negotiate a collective bargaining agreement, the last meeting was held on
February 18, 2009.
38
During March and April 2009, we received competing claims from three unions, 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. Also, 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, the
union claiming to be the successor to 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 charges are currently pending before the NLRB.
Indiana Tax Dispute: In 2008, the Indiana Department of Revenue 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 Indiana
Department of Revenue challenging whether income and gain from certain asset sales and other
transactions outside of Indiana that the Company reported on its 2000 to 2007 tax returns resulted
in business income subject to apportionment, and proposing a potential assessment of approximately
$11 million of additional Indiana income taxes. The Company is in the process of evaluating those
preliminary proposed adjustments to determine their factual accuracy and technical merits.
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, 2008.
|
|
|
Item 4. |
|
Submission of Matters to a Vote of Security Holders |
At an Annual Meeting of Stockholders held on May 5, 2009, the following proposals were
presented for a vote of the Companys stockholders:
Proposal One: Election of Directors. The stockholders elected nine nominees to our Board of
Directors for a one-year term expiring at the 2010 Annual Meeting of Stockholders. The vote
tabulation for individual directors was as follows:
|
|
|
|
|
|
|
|
|
Nominee |
|
For Votes |
|
|
Withheld Votes |
|
Daniel R. Lee |
|
|
52,768,744 |
|
|
|
2,627,474 |
|
Stephen C. Comer |
|
|
54,616,031 |
|
|
|
780,187 |
|
John V. Giovenco |
|
|
39,407,152 |
|
|
|
15,989,066 |
|
Richard J. Goeglein |
|
|
39,577,945 |
|
|
|
15,818,273 |
|
Ellis Landau |
|
|
54,600,638 |
|
|
|
795,580 |
|
Bruce A. Leslie |
|
|
54,641,693 |
|
|
|
754,525 |
|
James L. Martineau |
|
|
39,598,582 |
|
|
|
15,797,636 |
|
Michael Ornest |
|
|
54,489,451 |
|
|
|
906,767 |
|
Lynn P. Reitnouer |
|
|
39,584,088 |
|
|
|
15,812,130 |
|
Proposal Two: Proposal to approve an amendment to the Companys 2005 Equity and Performance
Incentive Plan to permit a one-time value for value option exchange program. The stockholders did
not approve of the amendment to the Companys 2005 Equity and Performance Incentive Plan. The
vote tabulation for the amendment to the Companys 2005 Equity and Performance Incentive Plan was
as follows:
|
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
|
Broker Non-Votes |
12,046,208
|
|
35,300,130
|
|
92,266
|
|
7,957,614 |
39
|
|
|
|
|
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 December 15, 2008. (SEC File No. 001-13641). |
|
|
|
|
|
|
4.1 |
* |
|
Seventh Supplemental Indenture, dated as of July 16, 2009, governing the 8.25%
Senior Subordinated Notes due 2012, by and among Pinnacle Entertainment, Inc., the
guarantors identified therein and The Bank of New York Mellon Trust Company, N.A. |
|
|
|
|
|
|
4.2 |
* |
|
First Supplemental Indenture, dated as of July 16, 2009, governing the 7.50%
Senior Subordinated Notes due 2012, by and among Pinnacle Entertainment, Inc., the
guarantors identified therein and The Bank of New York Mellon Trust Company, N.A. |
|
|
|
|
|
|
10.1 |
|
|
Fourth Amendment to Second Amended and Restated Credit Agreement, dated as of July
21, 2009, by and between Pinnacle Entertainment, Inc., a Delaware corporation,
Lehman Commercial Paper Inc., 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 July 24, 2009. (SEC File No. 001-13641). |
|
|
|
|
|
|
10.2 |
* |
|
Amendment, Resignation, Waiver, Consent and Appointment Agreement, dated as of
July 24, 2009, by and between Pinnacle Entertainment, Inc., Lehman Commercial
Paper Inc. and Barclays Bank PLC. |
|
|
|
|
|
|
10.3 |
|
|
Purchase Agreement, dated as of July 27, 2009, by and among Pinnacle
Entertainment, Inc. and J.P. Morgan Securities Inc., Banc of America Securities
LLC, Barclays Capital Inc., Deutsche Bank Securities Inc., 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 July 31, 2009. (SEC File No. 001-13641). |
|
|
|
|
|
|
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. |
40
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 4, 2009 |
By: |
/s/ Stephen H. Capp
|
|
|
|
Stephen H. Capp |
|
|
|
Executive Vice President and
Chief Financial Officer
(Authorized Officer, Principal Financial Officer) |
|
41
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 December 15, 2008. (SEC File No. 001-13641). |
|
|
|
|
|
|
4.1 |
* |
|
Seventh Supplemental Indenture, dated as of July 16, 2009, governing the 8.25%
Senior Subordinated Notes due 2012, by and among Pinnacle Entertainment, Inc., the
guarantors identified therein and The Bank of New York Mellon Trust Company, N.A. |
|
|
|
|
|
|
4.2 |
* |
|
First Supplemental Indenture, dated as of July 16, 2009, governing the 7.50%
Senior Subordinated Notes due 2012, by and among Pinnacle Entertainment, Inc., the
guarantors identified therein and The Bank of New York Mellon Trust Company, N.A. |
|
|
|
|
|
|
10.1 |
|
|
Fourth Amendment to Second Amended and Restated Credit Agreement, dated as of July
21, 2009, by and between Pinnacle Entertainment, Inc., a Delaware corporation,
Lehman Commercial Paper Inc., 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 July 24, 2009. (SEC File No. 001-13641). |
|
|
|
|
|
|
10.2 |
* |
|
Amendment, Resignation, Waiver, Consent and Appointment Agreement, dated as of
July 24, 2009, by and between Pinnacle Entertainment, Inc., Lehman Commercial
Paper Inc. and Barclays Bank PLC. |
|
|
|
|
|
|
10.3 |
|
|
Purchase Agreement, dated as of July 27, 2009, by and among Pinnacle
Entertainment, Inc. and J.P. Morgan Securities Inc., Banc of America Securities
LLC, Barclays Capital Inc., Deutsche Bank Securities Inc., 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 July 31, 2009. (SEC File No. 001-13641). |
|
|
|
|
|
|
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. |
42