Annual Reports

 
Quarterly Reports

  • 10-Q (Aug 10, 2017)
  • 10-Q (May 11, 2017)
  • 10-Q (Nov 14, 2016)
  • 10-Q (Aug 11, 2016)
  • 10-Q (May 12, 2016)
  • 10-Q (Nov 9, 2015)

 
8-K

 
Other

Pinnacle Entertainment, Inc. 10-Q 2013
PNK 6.30.13 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________ 
FORM 10-Q
(Mark One)
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
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.)
8918 Spanish Ridge Avenue
Las Vegas, NV 89148
(Address of principal executive offices) (Zip Code)
(702) 541-7777
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x 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 x 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 x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x
As of the close of business on August 5, 2013, the number of outstanding shares of the registrant’s common stock was 58,623,418.



PINNACLE ENTERTAINMENT, INC.
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT




PART I
Item 1. Financial Statements
PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(amounts in thousands, except per share data)
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2013
 
2012
 
2013
 
2012
Revenues:
 
Gaming
$
271,870

 
$
255,936

 
$
549,054

 
$
515,598

Food and beverage
20,427

 
19,713

 
37,835

 
35,914

Lodging
10,786

 
11,050

 
18,760

 
19,572

Retail, entertainment and other
12,257

 
11,611

 
22,330

 
20,211

Total revenues
315,340

 
298,310

 
627,979

 
591,295

Expenses and other costs:
 
 
 
 
 
 
 
Gaming
155,383

 
143,089

 
311,592

 
285,928

Food and beverage
16,876

 
16,390

 
32,144

 
30,962

Lodging
5,270

 
5,389

 
10,160

 
9,754

Retail, entertainment and other
6,143

 
6,895

 
10,341

 
10,950

General and administrative
62,443

 
56,524

 
122,524

 
111,172

Depreciation and amortization
27,135

 
26,201

 
55,137

 
52,447

Pre-opening and development costs
17,208

 
4,212

 
24,769

 
6,970

Write-downs, reserves and recoveries, net
1,927

 
788

 
2,241

 
796

Total expenses and other costs
292,385

 
259,488

 
568,908

 
508,979

Operating income
22,955

 
38,822

 
59,071

 
82,316

Interest expense, net
(28,401
)
 
(22,485
)
 
(57,071
)
 
(44,403
)
Loss on early extinguishment of debt

 

 

 
(20,718
)
Loss from equity method investments

 
(1,244
)
 
(92,181
)
 
(2,839
)
Income (loss) from continuing operations before income taxes
(5,446
)
 
15,093

 
(90,181
)
 
14,356

Income tax (expense) benefit
251

 
(2,150
)
 
(360
)
 
(1,739
)
Income (loss) from continuing operations
(5,195
)
 
12,943

 
(90,541
)
 
12,617

Income (loss) from discontinued operations, net of income taxes
88

 
(985
)
 
43

 
(1,668
)
Net income (loss)
(5,107
)
 
11,958

 
(90,498
)
 
10,949

Net loss attributable to non-controlling interest
(25
)
 

 
(25
)
 

Net income (loss) attributable to Pinnacle Entertainment, Inc.
$
(5,082
)
 
$
11,958

 
$
(90,473
)
 
$
10,949

Net income (loss) per common share—basic
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.09
)
 
$
0.21

 
$
(1.55
)
 
$
0.20

Loss from discontinued operations, net of income taxes

 
(0.02
)
 

 
(0.03
)
Net income (loss) per common share—basic
$
(0.09
)
 
$
0.19

 
$
(1.55
)
 
$
0.17

Net income (loss) per common share—diluted
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.09
)
 
$
0.21

 
$
(1.55
)
 
$
0.20

Loss from discontinued operations, net of income taxes

 
(0.02
)
 

 
(0.03
)
Net income (loss) per common share—diluted
$
(0.09
)
 
$
0.19

 
$
(1.55
)
 
$
0.17

Number of shares—basic
58,523

 
62,536

 
58,431

 
62,365

Number of shares—diluted
58,523

 
62,901

 
58,431

 
62,739

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

3


PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(amounts in thousands)
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2013
 
2012
 
2013
 
2012
Net income (loss)
$
(5,107
)
 
$
11,958

 
$
(90,498
)
 
$
10,949

Post-retirement plan benefit obligation, net of income taxes

 
4

 

 
9

Comprehensive income (loss)
(5,107
)
 
11,962

 
(90,498
)
 
10,958

Comprehensive loss attributable to non-controlling interest
(25
)
 

 
(25
)
 

Comprehensive income (loss) attributable to Pinnacle Entertainment, Inc.
$
(5,082
)
 
$
11,962

 
$
(90,473
)
 
$
10,958

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.


4


PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
 
June 30,
2013
 
December 31,
2012
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
86,233

 
$
101,792

Accounts receivable, net of allowance for doubtful accounts of $7,971 and $7,526
20,895

 
21,560

Inventories
6,600

 
6,728

Held-to-maturity securities

 
4,428

Prepaid expenses and other assets
21,067

 
12,179

Assets of discontinued operations held for sale
38,609

 
38,609

Total current assets
173,404

 
185,296

Restricted cash
5,667

 
5,667

Land, buildings, vessels and equipment, net
1,735,256

 
1,695,978

Goodwill
58,476

 
55,157

Equity method investments
1,541

 
91,424

Intangible assets, net
24,674

 
20,833

Other assets, net
61,581

 
54,639

Total assets
$
2,060,599

 
$
2,108,994

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
36,731

 
$
33,234

Accrued interest
26,507

 
26,422

Accrued compensation
32,005

 
37,898

Accrued taxes
27,604

 
20,709

Other accrued liabilities
72,760

 
73,028

Deferred income taxes
3,012

 
3,210

Current portion of long-term debt
3,250

 
3,250

Total current liabilities
201,869

 
197,751

Long-term debt less current portion
1,456,232

 
1,437,251

Other long-term liabilities
22,825

 
23,382

Deferred income taxes
3,751

 
3,493

Total liabilities
1,684,677

 
1,661,877

Commitments and contingencies (Note 8)

 

Stockholders’ equity
 
 
 
Preferred stock—$1.00 par value, 250,000 shares authorized, none issued or outstanding

 

Common stock—$0.10 par value, 100,000,000 authorized, 58,623,418 and 58,206,813 shares outstanding, net of treasury shares
6,500

 
6,458

Additional paid in capital
1,061,662

 
1,053,919

Retained deficit
(632,652
)
 
(542,179
)
Accumulated other comprehensive income
9

 
9

Treasury stock, at cost, 6,374,882 of treasury shares for both periods
(71,090
)
 
(71,090
)
Total Pinnacle stockholders' equity
364,429

 
447,117

Non-controlling interest
11,493

 

Total stockholders' equity
375,922

 
447,117

Total liabilities and stockholders' equity
$
2,060,599

 
$
2,108,994


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

5


PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
(amounts in thousands)
 
 
Capital Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of Shares
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Treasury
Stock
 
Total Attributable to Parent
 
Non-Controlling Interest
 
Total
Stockholders'
Equity
Balance as of January 1, 2013
 
58,207

 
$
6,458

 
$
1,053,919

 
$
(542,179
)
 
$
9

 
$
(71,090
)
 
$
447,117

 
$

 
$
447,117

Net loss
 

 

 

 
(90,473
)
 

 

 
(90,473
)
 
(25
)
 
(90,498
)
Non-controlling interest
 

 

 

 

 

 

 

 
12,429

 
12,429

Distribution to minority owner
 

 

 

 

 

 

 

 
(911
)
 
(911
)
Share-based compensation
 

 

 
5,421

 

 

 

 
5,421

 

 
5,421

Common stock issuance and option exercises
 
391

 
39

 
2,122

 

 

 

 
2,161

 

 
2,161

Tax benefit from stock option exercises
 

 

 
14

 

 

 

 
14

 

 
14

Share issuance
 
25

 
3

 
186

 

 

 

 
189

 

 
189

Balance as of June 30, 2013
 
58,623

 
$
6,500

 
$
1,061,662

 
$
(632,652
)
 
$
9

 
$
(71,090
)
 
$
364,429

 
$
11,493

 
$
375,922


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.


6


PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
 
For the six months ended
June 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(90,498
)
 
$
10,949

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
55,137

 
52,479

Loss (gain) on disposal of assets
1,253

 
(144
)
Loss from equity method investments
92,181

 
2,839

Loss on early extinguishment of debt

 
20,718

Reserve on uncollectible loan receivable

 
2,000

Amortization of debt issuance costs and debt discounts
3,351

 
3,240

Share-based compensation expense
5,421

 
5,206

Changes in operating assets and liabilities:
 
 
 
Receivables, net
518

 
7,016

Prepaid expenses and other
(8,168
)
 
(6,428
)
Accounts payable, accrued expenses and other
17,360

 
10,117

Net cash provided by operating activities
76,555

 
107,992

Cash flows from investing activities:
 
 
 
Capital expenditures
(106,389
)
 
(156,914
)
Equity method investments, inclusive of capitalized interest
(2,298
)
 
(4,414
)
Purchase of held-to-maturity debt securities
(5,853
)
 
(20,062
)
Proceeds from matured investments
4,428

 

Proceeds from sale of property and equipment
298

 
3,712

Net proceeds from sale of discontinued operations

 
10,784

Purchase of intangible assets

 
(1,057
)
Proceeds from non-refundable deposit
2,550

 

Loans receivable, net
(4,586
)
 
(5,785
)
Refund of restricted cash

 
413

Net cash used in investing activities
(111,850
)
 
(173,323
)
Cash flows from financing activities:
 
 
 
Proceeds from Credit Facility
50,000

 
47,500

Repayments under Credit Facility
(30,000
)
 
(103,500
)
Proceeds from issuance of long-term debt

 
646,750

Repayment of long-term debt
(1,625
)
 
(389,875
)
Proceeds from common stock options exercised, net
2,288

 
631

Payments on other secured and unsecured notes payable

 
(653
)
Distribution to non-controlling interest minority owner
(911
)
 

Debt issuance and other financing costs
(16
)
 
(12,836
)
Net cash provided by financing activities
19,736

 
188,017

(Decrease) increase in cash and cash equivalents
(15,559
)
 
122,686

Cash and cash equivalents at the beginning of the period
101,792

 
80,294

Cash and cash equivalents at the end of the period
$
86,233

 
$
202,980

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid for interest, net of amounts capitalized
$
53,832

 
$
35,444

Cash payments related to income taxes, net
2,227

 
1,869

Increase (decrease) in construction-related deposits and liabilities
(16,047
)
 
20,849


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

7


PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1—Summary of Significant Accounting Policies

Basis of Presentation and Organization: Pinnacle Entertainment, Inc. (“Pinnacle”) is an owner, operator and developer of
casinos and related hospitality and entertainment facilities. We operate casinos located in Lake Charles, Baton Rouge, New Orleans and Bossier City, Louisiana (L’Auberge Lake Charles, L'Auberge Baton Rouge, Boomtown New Orleans and Boomtown Bossier City), St. Louis, Missouri (River City Casino and Lumière Place Casino and Hotels), and southeastern Indiana (Belterra Casino Resort). In addition, we own and operate a racetrack facility in Cincinnati, Ohio (River Downs), manage a racetrack facility in San Antonio, Texas (Retama Park Racetrack), and own and operate a live and televised poker tournament series (Heartland Poker Tour). We view each property as an operating segment, with the exception of our properties located in St. Louis, Missouri, which are aggregated into the “St. Louis” reporting segment and our racetrack related operations, which consist of River Downs and Retama Park Racetrack (which we manage). We also own a minority equity interest in Asian Coast Development (Canada), Ltd. ("ACDL"), a British Columbia corporation that is developing Vietnam's first integrated resort near Ho Chi Minh City. For further details, see Note 6, Investments and Acquisition Activities. References in these footnotes to “Pinnacle,” the “Company,” “we,” “our” or “us” refer to Pinnacle Entertainment, Inc. and its subsidiaries, except where stated or the context otherwise indicates.

In December 2012, we entered into a definitive agreement to acquire all of the outstanding common shares of Ameristar Casinos Inc. ("Ameristar") in an all cash transaction valued at $26.50 per share representing total consideration of $2.8 billion, including assumed debt (the "Merger"). Ameristar operates the following casinos: Ameristar Casino Resort Spa St. Charles; Ameristar Casino Hotel Kansas City; Ameristar Casino Hotel Council Bluffs; Ameristar Casino Resort Spa Black Hawk; Ameristar Casino Hotel Vicksburg; Ameristar Casino Hotel East Chicago; and Cactus Petes Resort Casino and The Horseshu Hotel and Casino in Jackpot, Nevada.

We are acquiring Ameristar pursuant to an Agreement and Plan of Merger, dated December 20, 2012, as amended (the “Merger Agreement”), between, Pinnacle, PNK Holdings, Inc., a direct wholly-owned subsidiary of Pinnacle (“Holdco”), PNK Development 32, Inc., an indirect wholly-owned subsidiary of Pinnacle (“Merger Sub”), and Ameristar.

On April 2, 2013, at the request and expense of Pinnacle, Ameristar successfully completed the solicitation of consents from holders of the $1.04 billion outstanding principal amount of Ameristar's 7.50% Senior Notes due 2021 (the “Ameristar Notes”) for waivers of and amendments to certain provisions of the indenture governing the Ameristar Notes. The holders of the Ameristar Notes are entitled to receive a consent fee of $19.00 for each $1,000 in principal amount of the Ameristar Notes for which consents were validly delivered and unrevoked on or prior to April 2, 2013. We paid 50% of the consent fee, or $9.8 million in early April and the remaining 50.0% will be payable, if at all, promptly following the consummation of the Merger. Following this consent solicitation, we now expect to complete the Ameristar merger using a simplified structure, whereby Ameristar will merge with Pinnacle in a series of steps with Pinnacle being the surviving entity.

On April 25, 2013, the stockholders of Ameristar approved the Merger Agreement at a special meeting of stockholders.

We estimate that the total amount of funds required to complete the Merger and pay related fees and expenses will be approximately $1.14 billion, not including the refinanced and assumed indebtedness. We intend to fund the cash required in connection with the Merger largely with debt financing. On August 5, 2013, PNK Finance Corp., our wholly-owned subsidiary, closed an offering of $850 million in aggregate principal amount of 6.375% senior notes due 2021. The proceeds of the offering are being held in escrow and will be released upon closing of the Merger. In addition, upon closing of the Merger, we anticipate entering into a new credit agreement which will provide for $1 billion in revolving credit facility and $1.6 billion in new term loans. The net proceeds from the offering of the 6.375% Notes, after deducting the initial purchasers' selling commissions and the estimated offering expenses payable of Pinnacle, are expected to be approximately $835 million. We intend to use the net proceeds from the offering, together with proceeds from an anticipated new credit facility, to finance the aggregate cash consideration for the Merger, pay related transaction fees and expenses, redeem our existing 8.625% senior notes due 2017 (the “8.625% Notes”) and provide working capital and funds for general corporate purposes after the Merger.

The Merger is expected to close in August 2013, subject to various conditions, including, among others the approval of the U.S. Federal Trade Commission ("FTC"). In May 2013, the FTC issued an administrative complaint regarding the Merger. In June 2013, we reached an agreement in principle with the Bureau of Competition staff of the FTC on proposed divestiture remedies to obtain anti-trust clearance for the Merger, which included a proposed sale of Lumiere Place Casino and Hotels and Ameristar's Lake Charles development project. In July 2013, we entered into a definitive agreement to sell the Ameristar Casino Lake Charles development project to GNLC Holdings, Inc. ("Golden Nugget"), subject to closing conditions and

8


regulatory approvals. Golden Nugget will pay total consideration equal to all cash expenditures on the development up until the date of closing, and the assumption of all outstanding payables related to the project at the time, less a $37 million credit. We anticipate a formal Consent Order detailing the terms and conditions of these proposed divestiture remedies and gaining anti-trust clearance to complete the Merger to be approved by the FTC in August 2013.

In January 2013, we closed on the acquisition of 75.5% of the equity of Pinnacle Retama Partners, LLC ("PRP"), the owner of the racing license for Retama Park Racetrack in San Antonio, Texas, and entered into a management contract with Retama Development Corporation ("RDC") to manage the day-to-day operations of Retama Park Racetrack. For further discussion, see Note 6, Investments and Acquisition Activities.

We have classified certain of our assets and liabilities as held for sale in our unaudited Condensed Consolidated Balance Sheets and include the related results of operations in discontinued operations. For further information, see Note 7, Discontinued Operations. Our unaudited Condensed Consolidated Statements of Cash Flows have not been adjusted for discontinued operations.

Principles of Consolidation: The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions of the Securities and Exchange Commission (the “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 in the United States (“GAAP”). 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. Investments in unconsolidated affiliates in which we have the ability to exercise significant influence are accounted for under the equity method. 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 year ended December 31, 2012.

Use of Estimates: The preparation of unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and (iii) the reported amounts of revenues and expenses during the reporting period. Estimates used by us include, among other things, the estimated useful lives for depreciable and amortizable assets, the estimated allowance for doubtful accounts receivable, estimated income tax provisions, the evaluation of the future realization of deferred tax assets, determining the adequacy of reserves for self-insured liabilities and our mychoice customer loyalty program, estimated cash flows in assessing the recoverability of long-lived assets, asset impairments, goodwill and intangible assets, contingencies and litigation, and estimates of the forfeiture rate and expected life of share-based awards and stock price volatility when computing share-based compensation expense. Actual results may differ from those estimates.

Fair Value: Fair value measurements affect our accounting and impairment assessments of our long-lived assets, investments in unconsolidated affiliates, assets acquired in an acquisition, goodwill, and other intangible assets. Fair value measurements also affect our accounting for certain financial assets and liabilities. Fair value is defined 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 and is measured according to a hierarchy that includes: "Level 1" inputs, such as quoted prices in an active market for identical assets or liabilities; "Level 2" inputs, which are observable inputs for similar assets; or "Level 3" inputs, which are unobservable inputs.


9


The following table presents a summary of fair value measurements by level for certain liabilities measured at fair value on a recurring basis in the unaudited Condensed Consolidated Balance Sheet:
 
 
 
Fair Value Measurements Using:
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
 
(in millions)
As of June 30, 2013
 
Liabilities:
 
 
 
 
 
 
 
Deferred compensation
$
0.8

 
$
0.8

 
$

 
$

As of December 31, 2012
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Deferred compensation
$
1.0

 
$
1.0

 
$

 
$


The following table presents a summary of fair value measurements by level for certain financial instruments not measured at fair value on a recurring basis in the unaudited Condensed Consolidated Balance Sheet for which it is practicable to estimate fair value:
 
 
 
 
 
Fair Value Measurements Using:
 
Total Carrying Value
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
As of June 30, 2013
(in millions)
Assets:
 
 
 
 
 
 
 
 
 
Held-to-maturity securities
$
14.8

 
$
30.1

 
$

 
$
26.7

 
$
3.4

Promissory notes
$
9.0

 
$
15.9

 
$

 
$
15.9

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt
$
1,459.5

 
$
1,523.0

 
$

 
$
1,523.0

 
$

As of December 31, 2012
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
Held-to-maturity securities
$
14.4

 
$
14.4

 
$

 
$
14.4

 
$

Promissory notes
$
4.0

 
$
4.0

 
$

 
$
4.0

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt
$
1,440.5

 
$
1,532.1

 
$

 
$
1,532.1

 
$


The estimated fair value for certain of our long-term held-to-maturity securities and our long-term promissory notes were based on Level 2 inputs using observable market data for comparable instruments in establishing prices.

The estimated fair value for certain of our long-term held-to-maturity securities were based on Level 3 inputs using a present value of future cash flow valuation technique that rely on management assumptions and qualitative observations. Key significant unobservable inputs in this technique include discount rate risk premiums and probability-weighted cash flow scenarios.

The estimated fair value of our long-term debt includes the fair value of our senior notes, senior subordinated notes and term loan using Level 2 inputs of observable market data on comparable debt instruments on or about June 30, 2013 and December 31, 2012.

Land, Buildings, Vessels and Equipment: Land, buildings, vessels and equipment are stated at cost. Land includes land not currently being used in our operations, which totaled $35.6 million at June 30, 2013. We capitalize the costs of improvements that extend the life of the asset. We expense maintenance and repair costs as incurred. Gains or losses on the dispositions of land, buildings, vessels and equipment are included in the determination of income.

Development costs directly associated with the acquisition, development and construction of a project are capitalized as a cost of the project, during the periods in which activities necessary to get the property ready for its intended use are in progress. The costs incurred for development projects are carried at cost. Interest costs associated with development projects are

10


capitalized as part of the cost of constructed asset. When no debt is incurred specifically for a project, interest is capitalized on amounts expended for the project using our weighted-average cost of borrowing. Capitalization of interest ceases when the project, or discernible portions of the project, is substantially complete. If substantially all of the construction activities of a project are suspended, capitalization of interest will cease until such activities are resumed. For further discussion, see Note 2, Long-term Debt.

The following table presents a summary of our land, buildings, vessels and equipment:
 
June 30,
2013
 
December 31,
2012
 
(in millions)
Land, buildings, vessels and equipment:
 

 
 

Land and land improvements
$
298.8

 
$
291.9

Buildings, vessels and improvements
1,561.5

 
1,539.3

Furniture, fixtures and equipment
536.2

 
528.0

Construction in progress
88.8

 
47.9

Land, buildings, vessels and equipment, gross
2,485.3

 
2,407.1

Less: accumulated depreciation
(750.0
)
 
(711.1
)
Land, buildings, vessels and equipment, net
$
1,735.3

 
$
1,696.0


Equity Method Investments: We apply equity method accounting for investments when we do not control the investee, but have the ability to exercise significant influence over its operating and finance policies. Equity method investments are recorded at cost, with the allocable portion of the investee's income or loss reported in earnings, and adjusted for capital contributions to and distributions from the investee. Distributions in excess of equity method earnings, if any, are recognized as a return of investment and recorded as investing cash flows in the Condensed Consolidated Statement of Cash Flows. We review our equity investments for impairment whenever events or changes in circumstances indicate that the carrying value of our investment may have experienced an other-than-temporary decline in value. If such conditions exist, we would compare the estimated fair value of the investment to its carrying value to determine if an impairment is indicated. In addition, we would determine if the impairment is other-than-temporary based on our assessment of all relevant factors, including consideration of our intent and ability to retain the investment. To estimate fair value, we would use a discounted cash flow analysis based on estimated future results of the investee and market indicators of terminal year capitalization rates.

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 intangible assets during the six months ended June 30, 2013 and 2012. During the six months ended June 30, 2013, we acquired $3.3 million of goodwill and a $5.0 million intangible asset related to our acquisition of PRP. For further discussion, see Note 6, Investments and Acquisition Activities.
The mychoice Customer Loyalty Program: Our customer loyalty program, mychoice, offers incentives to customers who gamble at our casinos. Customers earn points based on their level of play that may be redeemed for benefits such as cash back, shopping, dining, hotel stays, or free credit that can be replayed in the slot machines or at table games. The reward credit balance will be forfeited if the customer does not earn any reward credits over the prior six-month period. In addition, based on their level of play, customers can earn additional benefits without redeeming points, such as a car lease, among other items. We accrue a liability for the estimated cost of providing these benefits as the benefits are earned. Estimates and assumptions are made regarding cost of providing the benefits, breakage rates, and the mix of goods and services customers will choose. We use historical data to assist in the determination of estimated accruals. Changes in estimates or customer redemption habits could produce significantly different results. At June 30, 2013 and December 31, 2012, we had accrued $13.3 million and $11.5 million, respectively, for the estimated cost of providing these benefits. Such amounts are included in "Other accrued liabilities" in our unaudited Condensed Consolidated Balance Sheets.

Revenue Recognition. Gaming revenues consist of the net win from gaming activities, which is the difference between amounts wagered and amounts paid to winning patrons, with liabilities recognized for funds deposited by customers before gaming play occurs and for chips in the customers’ possession. Gaming revenues are reduced by the cash value of mychoice points and coin coupon offerings. Food and beverage, lodging, retail, entertainment, and other operating revenues are recognized as products are delivered or services are performed.


11


The retail value of food and beverage, lodging and other services furnished to guests on a complimentary basis is included in gross revenues and then deducted as promotional allowances. The estimated cost of providing such promotional allowances is primarily included in casino expenses. The amounts included in promotional allowances and the cost of providing such promotional allowances are as follows:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(in millions)
Food and beverage
$
19.8

 
$
16.2

 
$
38.7

 
$
32.2

Lodging
8.9

 
7.9

 
17.1

 
15.4

Other
3.3

 
2.5

 
6.3

 
4.7

Total promotional allowances
$
32.0

 
$
26.6

 
$
62.1

 
$
52.3

 
 
 
 
 
 
 
 
Promotional allowance costs included in gaming expense
$
23.0

 
$
19.5

 
$
46.3

 
$
38.5


Gaming Taxes: We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate, subject to applicable jurisdictional adjustments. These gaming taxes are an assessment on our gaming revenues and are recorded as a gaming expense in the unaudited Condensed Consolidated Statements of Operations.
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(in millions)
Gaming taxes
$
79.3

 
$
76.0

 
$
160.4

 
$
152.4

Pre-opening and Development Costs: Pre-opening and development costs are expensed as incurred. For the three and six months ended June 30, 2013 and 2012, respectively, they consist of the following:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(in millions)
Ameristar acquisition
$
16.6

 
$

 
$
23.3

 
$

Other
0.6

 
4.2

 
1.5

 
7.0

Total pre-opening and development costs
$
17.2

 
$
4.2

 
$
24.8

 
$
7.0


Earnings per Share: For the three and six months ended June 30, 2013, we recorded net losses from continuing operations. Accordingly, the potential dilution from the assumed exercise of stock options is anti-dilutive. As a result, basic earnings per share is equal to diluted earnings per share for such periods and options and securities that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share were 1.6 million and 1.4 million for the three and six months ended June 30, 2013, respectively.

Treasury stock: In July 2012, the Board of Directors authorized a share repurchase program of up to $100 million of shares of our Common Stock. The cost of the shares acquired is treated as a deduction from stockholders' equity. During the year ended December 31, 2012, we repurchased 4.4 million shares of common stock, and deducted $51.0 million from stockholders' equity. We suspended share repurchase activity late in 2012. The share repurchase authorization still remains in place.

Reclassifications: The unaudited Condensed Consolidated Financial Statements reflect certain reclassifications to prior year amounts to conform to classification in the current period. For the six months ended June 30, 2012, we reclassified $2.7 million in expenses included in "Food and beverage", "Lodging", "Retail, entertainment and other" and "General and administrative" in our unaudited Condensed Consolidated Statement of Operations to expenses included in "Gaming" in our unaudited Condensed Consolidated Statement of Operation as we believe these expenses are more closely associated with gaming activities. These reclassifications have no effect on previously reported operating income and net loss.


12


Recently Issued Accounting Pronouncements

In July 2012, the FASB issued new accounting guidance for testing indefinite-lived assets for impairment. The new guidance states that an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. The outcome of the assessment is used as a basis for determining whether it is necessary to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Accounting Standards Codification ("ASC") Topic 350. The new guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, but early adoption is permitted. We adopted this guidance during the fourth quarter of 2012 and it did not have a significant impact on our Consolidated Financial Statements.

In February 2013, the FASB issued new accounting guidance for the reporting of amounts reclassified out of accumulated other comprehensive income. The amendment requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account instead of directly to income or expense in the same reporting period. The new guidance is effective prospectively for reporting periods beginning after December 15, 2012, but early adoption is permitted. We adopted this guidance during the first quarter of 2013 and it did not have a material impact on our financial statements.

A variety of proposed or otherwise potential accounting standards are currently under review and study by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of any such proposed or revised standards would have on our unaudited Condensed Consolidated Financial Statements.

Note 2—Long-Term Debt
Long-term debt at June 30, 2013 and December 31, 2012 consists of the following:
 
June 30, 2013
 
December 31, 2012
 
(in millions)
Senior Secured Credit Facility
$
20.0

 
$

Term Loan
318.3

 
319.7

7.75% Senior Subordinated Notes due 2022
325.0

 
325.0

8.75% Senior Subordinated Notes due 2020
350.0

 
350.0

8.625% Senior Notes due 2017
446.2

 
445.8

 
1,459.5

 
1,440.5

Less current maturities
(3.3
)
 
(3.3
)
 
$
1,456.2

 
$
1,437.3

Senior Secured Credit Facility: In August 2011, we entered into the Fourth Amended and Restated Credit Agreement (the "Credit Facility") with a revolving credit commitment of $410 million, which matures in August 2016. As of June 30, 2013, we had $20 million outstanding under the revolving credit facility, and had $8.1 million committed under letters of credit. In addition, upon closing of the Merger with Ameristsar, we anticipate entering into a new credit agreement which will provide for $1 billion in revolving credit facility and $1.6 billion in new term loans.

Term Loan: On March 19, 2012, we entered into a $325 million Incremental Term Loan (the "Term Loan") under the Credit Facility. The Term Loan matures with all outstanding principal amounts due and payable March 19, 2019. The Term Loan requires payments of $3.25 million annually, payable in equal quarterly installments, with any remaining amount of the Term Loan required to be repaid in full on the maturity date. The Term Loan bears interest, at our option, at either a LIBOR rate plus a margin of 3.00% or at a base rate plus a margin of 1.50%. The LIBOR rate carries a floor of 1.00%.


13


7.75% Senior Subordinated Notes due 2022: On March 19, 2012, we issued $325 million in aggregate principal amount of 7.75% senior subordinated notes due 2022 (“7.75% Notes”). The 7.75% Notes were issued at par with interest payable on April 1st and October 1st of each year. Net of initial purchasers’ fees and various costs and expenses, proceeds from the offering were approximately $318 million.

8.75% Senior Subordinated Notes due 2020: In May 2010, we issued $350 million in aggregate principal amount of 8.75% senior subordinated notes due 2020 ("8.75% Notes"). The 8.75% Notes were issued at par with interest payable on May 15th and November 15th of each year. Net of the initial purchasers' fees and various costs and expenses, proceeds from the offering were approximately $341.5 million.

8.625% Senior Notes due 2017: In August 2009, we issued $450 million in aggregate principal amount of 8.625% senior unsecured notes due 2017 ("8.625% Notes"). The 8.625% Notes were issued at a price of 98.597% of par, to yield 8.875% to maturity, with interest payable on August 1st and February 1st of each year. Net of the original issue discount, initial purchasers' fees and various costs and expenses, proceeds from the offering were approximately $434 million.

Loss on early extinguishment of debt: During the six months ended June 30, 2012, we incurred a $20.7 million loss related to the early redemption of our then existing 7.50% senior subordinated notes due 2015. The loss included redemption premiums, write off of previously unamortized debt issuance costs and original issuance discount costs.
Interest expense, net of capitalized interest and interest income was as follows:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(in millions)
Interest expense
$
29.3

 
$
29.1

 
$
58.5

 
$
56.5

Interest income
(0.1
)
 
(0.2
)
 
(0.2
)
 
(0.3
)
Capitalized interest
(0.8
)
 
(6.4
)
 
(1.2
)
 
(11.8
)
Interest expense, net
$
28.4

 
$
22.5

 
$
57.1

 
$
44.4

       
Interest expense is capitalized on internally constructed assets at our overall weighted average cost of borrowing. Capitalized interest decreased in 2013 as compared to 2012 due to L'Auberge Casino and Hotel Baton Rouge construction prior to the September 2012 opening, and our investment in ACDL. During 2012, we capitalized interest on our investment in ACDL, as ACDL had not completed construction of phase one of the Ho Tram Strip beachfront complex of integrated resorts and residential developments in southern Vietnam. Construction of phase one of this development was substantially completed in the first quarter of 2013 and phase one of the integrated resort opened in July 2013.

Note 3—Income Taxes

Our effective income tax rate for continuing operations for the three and six months ended June 30, 2013 was 4.6%, or a benefit of $0.3 million, and 0.4%, or an expense of $0.4 million, as compared to an effective tax rate of 14.2%, or an expense of $2.2 million and 12.1%, or an expense of $1.7 million, for the corresponding prior-year periods. Our tax rate differs from the statutory rate of 35.0% due to the effects of permanent items, the recording of a valuation allowance adjustment against a portion of our deferred tax assets, and a reserve for unrecognized tax benefits. A substantial portion of our tax provision represents state taxes in the jurisdiction of Indiana and Louisiana where we have no valuation allowance. It is reasonably possible that the total amount of unrecognized tax benefits may increase by up to $4.0 million during the next twelve months.

We file income tax returns in federal and state jurisdictions and are no longer subject to federal income tax examinations for tax years prior to 2011 and state income tax examinations for tax years prior to 2000. In 2012, our federal tax return was examined by the Internal Revenue Service for tax years 2009 and 2010. The examination concluded in January 2013 with adjustments to certain timing items that had an immaterial impact on our 2012 income tax expense.


14


Note 4—Employee Benefit Plans
Share-based Compensation: As of June 30, 2013, we had approximately 6.2 million share-based awards outstanding, including common stock options, restricted stock units and performance stock units which are detailed below. In addition, we had approximately 3.4 million share-based awards available for grant. We recorded share-based compensation expense as follows:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(in millions)
Share-based compensation expense
$
3.5

 
$
3.2

 
$
5.3

 
$
5.3

         
Stock options: The following table summarizes information related to our common stock options:
 
Number of
Stock Options
 
Weighted Average
Exercise Price
Options outstanding at January 1, 2013
5,519,345

 
$
11.78

Granted
474,259

 
$
20.10

Exercised
(237,709
)
 
$
9.49

Canceled, Forfeited
(166,300
)
 
$
13.28

Options outstanding at June 30, 2013
5,589,595

 
$
12.54

Options exercisable at June 30, 2013
3,043,761

 
$
12.66

Expected to vest after June 30, 2013
1,903,333

 
$
12.52


The unamortized compensation costs not yet expensed related to stock options totaled approximately $14.8 million at June 30, 2013 and the weighted average period over which the costs are expected to be recognized is approximately two years. The aggregate amount of cash we received from the exercise of stock options was $2.3 million and $0.6 million for the six months ended June 30, 2013 and 2012, respectively. The associated shares were newly issued common stock. The following information is provided for our stock options:
 
For the six months ended
June 30,
 
2013
 
2012
Weighted-average grant date fair value
$
9.94

 
$
4.96

Restricted Stock Units: The following table summarizes information related to our restricted stock units:
 
Number of
Shares
 
Weighted Average
Grant Date Fair Value
Unvested shares at January 1, 2013
220,537

 
$
11.33

Granted
487,914

 
$
13.91

Vested
(110,511
)
 
$
15.72

Canceled, Forfeited
(30,832
)
 
$
9.63

Unvested shares at June 30, 2013
567,108

 
$
12.79


Unamortized compensation costs not yet expensed attributable to non-vested shares totaled approximately $6.3 million at June 30, 2013 and the weighted average period over which the costs are expected to be recognized is approximately two years.


15


Performance Stock Units: The following table summarizes information related to our performance stock units:
 
Number of
Shares
 
Weighted Average
Grant Date Fair Value
Unvested shares at January 1, 2013

 
$

Granted
122,776

 
$
25.14

Unvested shares at June 30, 2013
122,776

 
$
25.14


Note 5—Write-downs, reserves and recoveries, net

Write-downs, reserves and recoveries, net consist of the following:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(in millions)
Loss (gain) on disposal of assets
$
0.8

 
$
0.8

 
$
1.1

 
$
(1.2
)
Reserve on uncollectable loan receivable

 

 

 
2.0

Gain on collection of loan receivables

 

 
(0.2
)
 

Impairment of assets
1.1

 

 
1.3

 

Write-downs, reserves and recoveries, net
$
1.9

 
$
0.8

 
$
2.2

 
$
0.8

Loss (gain) on disposal of assets: We recorded a loss of $0.8 million and $1.1 million during the three and six months ended June 30, 2013, respectively, related to the disposal of slot and other equipment at our properties in the normal course of business. During the six months ended June 30, 2012, we recorded a net gain of $2.5 million related to settlement proceeds received from the U.S. Army Corps of Engineers related to the compensation for land commandeered and severance damages associated with construction of a floodwall and easement designation on our property in New Orleans, Louisiana. The gain was offset by losses on disposals of slot and other equipment and write-off of design fees in the normal course of business.
Reserve on uncollectable loan receivables: In January 2012, we made a $2.0 million loan to Federated Sports & Gaming, Inc. ("FSG"), and in February 2012, FSG filed for protection under Chapter 11 of the U.S. Bankruptcy Code. As a result of the filing, we determined it was appropriate to fully reserve for the loan receivable during the first quarter of 2012.
Gain on collection of loan receivables: During the first quarter of 2013, we recorded a net gain totaling $0.2 million related to collections on outstanding loan receivables over aggregate carrying values.
Impairment of assets: We own Sales Tax Anticipation Revenue ("STAR") bonds issued by Reno, Nevada, which were originally purchased in 2010. These bonds, in part, were issued to fund certain road access improvements that benefited our owned Boomtown Reno property. During the second quarter of 2013, we recorded an impairment charge totaling $1.1 million related to these STAR bonds. The fair value was calculated using discounted cash flows using Level 3 inputs, as there is not an active market for these bonds.

Note 6—Investments and Acquisition Activities

ACDL Investment: In August 2011, we invested in ACDL in exchange for a minority ownership interest, which was accounted for under the equity method. During the fourth quarter of 2012, we concluded that the carrying value of our investment in ACDL experienced a decline in value due to delays in receiving necessary approvals from the Vietnamese government for opening the casino as originally anticipated in the project scope, and funding issues thats resulted from the delays in approval. We recorded an impairment of approximately $25 million as of December 31, 2012. During the first quarter of 2013, MGM Hospitality International Holdings Limited ("MGM"), the anticipated manager of the casino operations, terminated their management agreement with ACDL for failure to meet certain milestones, including obtaining the necessary government approvals. During the first quarter of 2013, we concluded that the carrying value of our investment in ACDL experienced a further decline in value due to the management agreement termination, the uncertainty of project funding, and additional capital needs of ACDL. As a result, we recorded an impairment of approximately $92.2 million, impairing the remaining asset carrying value of our investment in ACDL. To estimate fair value, we used a discounted cash flow analysis based on estimated future results of ACDL and market indicators of terminal year capitalization rates. As of March 31, 2013,

16


we discontinued applying the equity method for our investment in ACDL and will not provide for additional losses until our share of future ACDL net income, if any, equals the share of ACDL net losses not recognized during the period the equity method was suspended. On July 26, 2013, the first integrated resort of the Ho Tram Strip project opened to the public.

Equity Method Investment: During the first quarter of 2012, we committed to invest $2.0 million in Farmworks, a land re-utilization project in downtown St. Louis. As of June 30, 2013, we have invested $1.5 million included in "Equity method investment" in our unaudited Condensed Consolidated Balance Sheet. This investment is accounted for under the equity method.

Retama Park Racetrack: In April 2012, we acquired certain bonds (the "RDC Bonds") and promissory notes (the "RDC Notes") issued by the Retama Development Corporation ("RDC") and a 50% interest in additional rights to operate and receive revenue from expanded gaming in the future (the "Gaming Enhancement Rights" and together with the RDC Bonds and RDC Notes, the "Acquired Property") for cash consideration of $7.8 million. On January 29, 2013, we acquired 75.5% of the equity of PRP through a contribution of a majority of the Acquired Property, cash funding of $16.7 million, and commitments to future capital funding up to $2.0 million annually over the next five years. Cash consideration in the transaction was used primarily to refinance existing RDC indebtedness and to provide RDC working capital.

The acquisition of 75.5% of the equity of PRP was accounted for as a business combination. The purchase price for the equity of PRP was allocated based upon estimated fair values of the assets, with the excess of the purchase price over the estimated fair value of the assets acquired recorded as goodwill. The provisional purchase price allocation includes goodwill of $3.3 million and other intangibles of $5.0 million. The allocation of fair value is preliminary and may be adjusted up to one year after the acquisition date.

As of June 30, 2013, we held $9.0 million in promissory notes issued by RDC, included in "Other Assets, net" in our unaudited Condensed Consolidated Balance Sheet, which have long-term contractual maturities and are collateralized by Retama Park Racetrack assets. The contractual terms of these promissory notes include interest payments due at maturity. Uncertainty exists as to RDC's ability to make these interest payments, therefore we have not recorded accrued interest on these promissory notes.

Heartland Poker Tour: In July 2012, we closed on an agreement to purchase substantially all of the assets of Federated Sports & Gaming, Inc. and Federated Heartland, Inc., owners of the Heartland Poker Tour and other related assets and intellectual property, for total consideration of $4.6 million. The purchase was accounted for as a business combination. The purchase price for the assets of Federated Sports & Gaming Inc. and Federated Heartland, Inc. was allocated based upon estimated fair values of the assets, with the excess of estimated fair value over the net book value of the assets acquired recorded as goodwill. The allocation of fair value was finalized during the fourth quarter of 2012.

Investments Securities: As of June 30, 2013, we held $3.4 million in STAR bonds, with long-term contractual maturities, issued through the City of Reno, Nevada, included in "Other Assets, net" in our unaudited Condensed Consolidated Balance Sheet. The STAR bonds are held at an amortized cost basis, which was reduced by an impairment charge taken during the second quarter of 2013 totaling $1.1 million.

As of June 30, 2013, we held, at amortized cost, $11.4 million in local government corporation bonds, with long-term contractual maturities, issued by RDC, a local government corporation of the City of Selma, Texas, included in "Other Assets, net" in our unaudited Condensed Consolidated Balance Sheet. It is not likely that we will be required to sell these investments prior to the recovery of the amortized cost.

Note 7—Discontinued Operations
Discontinued operations for June 30, 2013 consist primarily of land from our former Boomtown Reno operations and our Atlantic City operations. A disposal group classified as held for sale should be measured at the lower of its carrying value or the fair value less cost to sell. The fair value of the assets to be sold was determined using a market approach using Level 1 and 2 inputs, as defined in Note 1, Summary of Significant Accounting Policies.
Boomtown Reno: In June 2012, we closed the sale of the Boomtown Reno operations for total proceeds of approximately $12.9 million, resulting in a loss of $1.1 million. Actual net cash proceeds in the sale, at closing, totaled approximately $10.8 million, net of approximately $2.1 million in cash acquired by the casino-resort buyers in the sale. In March 2013, we agreed to a final working capital adjustment with the casino-resort buyer in which we received an additional $0.5 million in cash proceeds towards the sale. At closing, the casino-resort buyers were granted a one year option to purchase 100% of our membership interest in PNK (Reno), LLC, including 27 acres of additional land adjacent to Boomtown Reno, for incremental

17


consideration of $3.8 million, which amount exceeds the current book value of the land. During the second quarter of 2013, this option was extended into the third quarter of 2013. A dispute arose regarding the exercise of the option and on August 5, 2013, we filed suit in the Eight Judicial District Court, Clark County, against the option holder and its affiliates seeking specific performance requiring the option holder to close on the purchase and, in the alternative, damages. We intend to pursue our remedies vigorously. In addition, Pinnacle continues to hold approximately 783 acres of remaining excess land surrounding Boomtown Reno as a discontinued operation. Other than minimal costs associated with the remaining excess land, we expect no continuing costs from the Boomtown Reno operations.
Atlantic City: During the first quarter of 2013, we entered into an amended definitive agreement to sell our land holdings in Atlantic City, New Jersey for total consideration of approximately $30.6 million, subject to a financing contingency. In connection with the agreement to sell our land holdings, we received a non-refundable deposit from the buyer. The transaction is expected to close by the end of the third quarter of 2013.
Revenue, expense and net loss from discontinued operations are summarized as follows:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(in millions)
Revenues
$
0.7

 
$
9.6

 
$
0.9

 
$
18.1

Operating income (loss)
$
0.1

 
$
(1.1
)
 
$

 
$
(1.8
)
Income tax benefit

 
0.1

 

 
0.1

Income (loss) from discontinued operations, net of taxes
$
0.1

 
$
(1.0
)
 
$

 
$
(1.7
)
Net assets for entities and operations included in discontinued operations are summarized as follows:
 
June 30, 2013
 
December 31, 2012
 
(in millions)
Assets:
 
 
 
Land
$
36.6

 
$
36.6

Other assets, net
2.0

 
2.0

Total assets
$
38.6

 
$
38.6

Liabilities:
 
 
 
Total liabilities
$

 
$

Net assets
$
38.6

 
$
38.6



18


Note 8—Commitments and Contingencies

Guaranteed Maximum Price Agreement for L'Auberge Casino & Hotel Baton Rouge: In April 2010, we entered into an Agreement for Guaranteed Maximum Price Construction Services with a general contractor for the construction of L'Auberge Baton Rouge. In May 2011, we entered into an amendment to the agreement, which, among other things, provided that the contractor would complete the construction of the casino for the total guaranteed maximum price of approximately $249.0 million. In May 2013, we entered into a settlement agreement with the general contractor, which among other things increased the total guaranteed maximum price by approximately $9.0 million, including all undisputed change orders, for a total of $258.0 million.

Lease and Development Agreement for River City Casino: In connection with our River City Casino, 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 (subject to certain termination provisions). We have invested the minimum requirement of $375 million, pursuant to the lease and development agreement. From April 1, 2010 through the expiration of the term of the lease and development agreement, we are required to pay to St. Louis County as annual rent the greater of (a) $4.0 million, or (b) 2.5% of annual adjusted gross receipts, as that term is defined in the lease and development agreement. We are also required to invest an additional $75.0 million in the second phase of the project to construct: (a) a hotel with a minimum of 200 guestrooms, which we expect to open in the third quarter of 2013, (b) a meeting room/event space with at least 10,000 square feet, which was completed and opened in June 2013 and (c) a parking garage with a minimum of 1,600 parking spaces, which was completed and opened in November 2012. We are required to achieve substantial completion of the second phase by October 31, 2013. In the event that the second phase is not substantially completed by October 31, 2013, we are required to pay liquidated damages of $2.0 million beginning on November 1, 2013. In each subsequent year that the second phase is not opened, the amount of liquidated damages ($2 million) increases by $1.0 million, $3.0 million in 2014, $4.0 million in 2015, $5.0 million in 2016 and $6.0 million in 2017. As a result, the maximum amount of liquidated damages that we would have to pay if the second phase is not completed is $20.0 million. Our $82.0 million expansion project at River City, which is expected to be completed in the third quarter of 2013, is expected to fulfill this commitment without penalty.

Guaranteed Maximum Price Agreement for River Downs: In January 2013, we entered into an Agreement for Guaranteed Maximum Price Construction Services with a general contractor for the mobilization, demolition, site work and foundation work for River Downs. This agreement provides, among other things, that the general contractor will complete the initial work for a total guaranteed maximum price of approximately $20.1 million. In July 2013, we entered into an amendment to the agreement with the general contractor, which provides that the guaranteed date of completion for the River Downs project is May 1, 2014 and the total guaranteed maximum price for the construction of the River Downs project is approximately $119.6 million, which includes the $20.1 million described above.

Guaranteed Maximum Price Agreement for Boomtown New Orleans: In February 2013, we entered into an Agreement for Guaranteed Maximum Price Construction Services with a general contractor for the construction of a 150-guestroom hotel tower at our Boomtown New Orleans property for a total guaranteed maximum price of approximately $14.2 million.

Self-Insurance: We self-insure various levels of general liability and workers' compensation at all of our properties and medical coverage at most of our properties. Insurance reserves include accruals for estimated settlements for known claims, as well as accruals for estimates of claims not yet made. At June 30, 2013 and December 31, 2012, we had total self-insurance accruals of $17.4 million and $16.5 million, respectively, which are included in “Other accrued liabilities” in our unaudited Condensed Consolidated Balance Sheets.

Indiana Tax Dispute: In 2008, the Indiana Department of Revenue (the “IDR”) commenced an examination of our Indiana income tax filings for the years 2005, 2006, and 2007. In 2010, we received a proposed assessment in the amount of $7.3 million, excluding interest and penalties. We filed a protest requesting abatement of all taxes, interest and penalties and had two hearings with the IDR where we provided additional facts and support. At issue is whether income and gain from certain asset sales, including the sale of the Hollywood Park Racetrack in 1999, and other transactions outside of Indiana, such as the Aztar merger termination fee in 2006, which we reported on our Indiana state tax returns for the years 2000 through 2007, resulted in business income subject to apportionment. In April 2012, we received a supplemental letter of findings from the IDR that denied our protest on most counts. In the supplemental letter of findings, the IDR did not raise any new technical arguments or advance any new theory that would alter our judgment regarding the recognition or measurement of the unrecognized tax benefit related to this audit. We believe that our tax return position is sustainable on the merits. In June 2012, we filed a tax appeal petition with the Indiana tax court to set aside the final assessment. Accordingly, we continue to believe that we have adequately reserved for the potential outcome.


19


Ameristar Lawsuit: On December 24, 2012, a putative shareholder class action lawsuit related to our proposed acquisition of Ameristar Casinos, Inc. (“Ameristar”) was filed in Nevada District Court for Clark County (hereafter “Nevada District Court”), captioned Joseph Grob v. Ameristar Casinos, Inc., et al. (the “Grob action”).  The complaint names Ameristar and members of Ameristar's Board of Directors (the “Ameristar Defendants”); and Pinnacle Entertainment, Inc., PNK Holdings, Inc., and PNK Development 32, Inc. as defendants (the “Pinnacle Defendants”).  The complaint generally alleges that the Board of Directors of Ameristar, aided and abetted by Ameristar and the Pinnacle Defendants, breached their fiduciary duties owed to Ameristar's shareholders in connection with Pinnacle's proposed acquisition of Ameristar.  The action includes claims for, among other things, an injunction halting the proposed acquisition of Ameristar by Pinnacle, and an award of costs and expenses to the putative plaintiff stockholder, including attorneys' fees. Thereafter, other plaintiffs filed additional complaints in the same court making essentially the same allegations and seeking similar relief to the Grob action. On January 15, 2013, the Court issued an order consolidating the actions, and any subsequently filed actions, into a single, consolidated action.  On April 16, 2013, the Nevada District Court heard plaintiffs' motion for a preliminary injunction to require additional disclosure in Ameristar's proxy statement and denied plaintiffs' request. On August 5, 2013, the parties filed a stipulation and order for voluntary dismissal of action without prejudice.

FTC Litigation: On May 28, 2013, the U.S. Federal Trade Commission (the “FTC”) filed a civil administrative complaint alleging that the merger with Ameristar Casinos, Inc. would reduce competition and lead to higher prices and lower quality for customers in the St. Louis, Missouri and Lake Charles, Louisiana areas in violation of U.S. antitrust law. Since that time, the parties have made significant progress toward resolving the matter without the need for administrative litigation. On June 17, 2013, Pinnacle publicly announced that it had reached an agreement in principle with the Bureau of Competition Staff of the FTC (the “Bureau of Competition Staff”) that, subject to negotiation of a consent order, the FTC approval and gaming regulatory approvals, would permit the consummation of the Acquisition. Under the agreement in principle, we intend to sell Ameristar's casino hotel development project in Lake Charles, Louisiana, and Lumière Place Casino, HoteLumière and the Four Seasons Hotel in St. Louis, Missouri (collectively, the “Disposition Properties”), subject to FTC approval and gaming regulatory approvals.

We have negotiated a consent order with the Bureau of Competition Staff, which would permit Pinnacle to complete the merger subject to any divestitures and other terms and conditions specified in the consent order. The consent order must be approved by a vote of the FTC, which may accept or reject all or some of the terms and conditions. Prior to the sales of the Disposition Properties, we anticipate that the consent order terms will require that the Disposition Properties be operated by a third party separately from and independently of Pinnacle's other businesses in accordance with the conditions and restrictions set forth in the consent order. We anticipate that the consent order terms will provide that Pinnacle will continue to receive the economic benefits derived from the continuing operations of the Disposition Properties, pending the completion of the sales, but will not have control of the day-to-day operations of such properties. In addition, we anticipate that the consent order terms also will require Pinnacle to continue to fund development of Ameristar's Lake Charles development pending the sale of the property. Furthermore, if we fail to divest any of the Disposition Properties before the expiration of any deadlines that may be imposed by the FTC or does so in a manner or condition that does not comply with the consent order, in addition to potential civil penalties, the FTC may appoint a trustee to divest a different package of assets than the Disposition Properties in order to make the divestitures viable, competitive or more readily marketable. On August 5, 2013, the FTC ordered that the matter be withdrawn from adjudication to enable the FTC to consider the proposed consent order.

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.

20


Note 9—Consolidating Condensed Financial Information

Our subsidiaries (excluding subsidiaries with approximately $45.6 million in cash and other assets as of June 30, 2013, which includes a subsidiary that owns a minority equity interest in ACDL; a subsidiary that owns a majority interest in the licensee of Retama Park Racetrack; and certain non-material subsidiaries) have fully, unconditionally, jointly, and severally guaranteed the payment of all obligations under our senior and senior subordinated notes, as well as our Credit Facility. Our Atlantic City subsidiaries and the subsidiary that owns our equity interest in Retama Park Racetrack do not guarantee our Credit Facility. Separate financial statements and other disclosures regarding the subsidiary guarantors are not included herein because management has determined that such information is not material to investors. In lieu thereof, we include the following:

 
Pinnacle
Entertainment,
Inc.
 
Guarantor
Subsidiaries(a)
 
Non-
Guarantor
Subsidiaries(b)
 
Consolidating
and
Eliminating
Entries
 
Pinnacle
Entertainment,
Inc.
Consolidated
 
(in millions)
For the three months ended June 30, 2013
 
 
 
 
 
 
 
 
Statement of Operations
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
Gaming
$

 
$
271.9

 
$

 
$

 
$
271.9

Food and beverage

 
20.4

 

 

 
20.4

Lodging

 
10.8

 

 

 
10.8

Retail, entertainment and other

 
12.2

 

 

 
12.2

 

 
315.3

 

 

 
315.3

Expenses:
 
 
 
 
 
 
 
 
 
Gaming

 
155.4

 

 

 
155.4

Food and beverage

 
16.9

 

 

 
16.9

Lodging

 
5.3

 

 

 
5.3

Retail, entertainment and other

 
6.1

 

 

 
6.1

General and administrative and other
8.9

 
53.4

 
0.2

 

 
62.5

Pre-opening and development costs
16.6

 
0.4

 
0.2

 

 
17.2

Depreciation and amortization
1.0

 
26.1

 

 

 
27.1

Write-downs, reserves and recoveries, net
1.1

 
0.8

 

 

 
1.9

 
27.6

 
264.4

 
0.4

 

 
292.4

Operating income (loss)
(27.6
)
 
50.9

 
(0.4
)