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Pinnacle Entertainment, Inc. 10-Q 2015

Documents found in this filing:

  1. 10-Q
  2. Ex-11
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32
  6. Ex-32
PNK 6.30.15 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, 2015
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.)
3980 Howard Hughes Parkway
Las Vegas, NV 89169
(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, 2015, the number of outstanding shares of the registrant’s common stock was 60,707,435.



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,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Gaming
$
519,326

 
$
493,281

 
$
1,033,673

 
$
973,421

Food and beverage
31,430

 
30,356

 
63,460

 
57,969

Lodging
13,133

 
13,802

 
24,628

 
24,592

Retail, entertainment and other
18,071

 
17,751

 
33,038

 
31,977

Total revenues
581,960

 
555,190

 
1,154,799

 
1,087,959

Expenses and other costs:
 
 
 
 
 
 
 
Gaming
281,960

 
266,604

 
546,845

 
514,598

Food and beverage
28,984

 
28,199

 
58,151

 
52,911

Lodging
6,343

 
6,465

 
12,131

 
11,594

Retail, entertainment and other
8,150

 
6,688

 
13,240

 
11,264

General and administrative
107,086

 
112,148

 
209,376

 
212,415

Depreciation and amortization
61,875

 
58,773

 
129,706

 
117,084

Pre-opening, development and other costs
6,108

 
6,907

 
7,675

 
10,319

Write-downs, reserves and recoveries, net
247

 
2,579

 
3,391

 
3,224

Total expenses and other costs
500,753

 
488,363

 
980,515

 
933,409

Operating income
81,207

 
66,827

 
174,284

 
154,550

Interest expense, net
(59,995
)
 
(62,003
)
 
(121,078
)
 
(128,792
)
Loss on early extinguishment of debt

 
(8,234
)
 

 
(8,234
)
Loss from equity method investment

 

 
(83
)
 

Income (loss) from continuing operations before income taxes
21,212

 
(3,410
)
 
53,123

 
17,524

Income tax benefit (expense)
(5,419
)
 
1,093

 
(10,251
)
 
(1,097
)
Income (loss) from continuing operations
15,793

 
(2,317
)
 
42,872

 
16,427

Income from discontinued operations, net of income taxes
4,699

 
26

 
4,916

 
325

Net income (loss)
20,492

 
(2,291
)
 
47,788

 
16,752

Net loss attributable to non-controlling interest
(1,252
)
 
(32
)
 
(1,262
)
 
(36
)
Net income (loss) attributable to Pinnacle Entertainment, Inc.
$
21,744

 
$
(2,259
)
 
$
49,050

 
$
16,788

Net income (loss) per common share—basic
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.28

 
$
(0.04
)
 
$
0.73

 
$
0.28

Income from discontinued operations, net of income taxes
0.08

 

 
0.08

 

Net income (loss) per common share—basic
$
0.36

 
$
(0.04
)
 
$
0.81

 
$
0.28

Net income (loss) per common share—diluted
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.27

 
$
(0.04
)
 
$
0.70

 
$
0.27

Income from discontinued operations, net of income taxes
0.07

 

 
0.08

 

Net income (loss) per common share—diluted
$
0.34

 
$
(0.04
)
 
$
0.78

 
$
0.27

Number of shares—basic
60,976

 
59,593

 
60,808

 
59,429

Number of shares—diluted
63,355

 
59,593

 
62,973

 
61,328

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,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
20,492

 
$
(2,291
)
 
$
47,788

 
$
16,752

Comprehensive income (loss)
20,492

 
(2,291
)
 
47,788

 
16,752

Comprehensive loss attributable to non-controlling interest
(1,252
)
 
(32
)
 
(1,262
)
 
(36
)
Comprehensive income (loss) attributable to Pinnacle Entertainment, Inc.
$
21,744

 
$
(2,259
)
 
$
49,050

 
$
16,788

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,
2015
 
December 31,
2014
 
(Unaudited)
 
 
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
122,011

 
$
164,654

Accounts receivable, net of allowance for doubtful accounts of $6,124 and $4,963
33,995

 
28,424

Inventories
10,462

 
9,877

Income tax receivable, net

 
20,289

Prepaid expenses and other assets
32,351

 
27,102

Deferred income taxes
7,509

 
7,509

Assets held for sale and assets of discontinued operations
10,019

 
21,260

Total current assets
216,347

 
279,115

Restricted cash
5,667

 
5,667

Land, buildings, vessels and equipment, net
2,925,030

 
3,017,009

Goodwill
915,963

 
919,282

Intangible assets, net
516,410

 
529,269

Other assets, net
77,983

 
83,340

Total assets
$
4,657,400

 
$
4,833,682

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
32,573

 
$
57,632

Accrued interest
49,686

 
49,760

Accrued compensation
71,585

 
73,698

Accrued taxes
44,516

 
39,287

Other accrued liabilities
87,306

 
119,106

Current portion of long-term debt
11,006

 
11,006

Liabilities held for sale and liabilities of discontinued operations
98

 
413

Total current liabilities
296,770

 
350,902

Long-term debt less current portion
3,782,322

 
3,975,648

Other long-term liabilities
40,711

 
40,021

Deferred income taxes
185,569

 
177,729

Total liabilities
4,305,372

 
4,544,300

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, 60,657,435 and 59,979,853 shares issued and outstanding, net of treasury shares
6,703

 
6,635

Additional paid-in capital
1,111,298

 
1,096,508

Accumulated deficit
(705,156
)
 
(754,206
)
Accumulated other comprehensive income
132

 
132

Treasury stock, at cost, 6,374,882 of treasury shares for both periods
(71,090
)
 
(71,090
)
Total Pinnacle stockholders’ equity
341,887

 
277,979

Non-controlling interest
10,141

 
11,403

Total stockholders’ equity
352,028

 
289,382

Total liabilities and stockholders’ equity
$
4,657,400

 
$
4,833,682

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
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Treasury
Stock
 
Total Pinnacle Stockholders' Equity
 
Non-Controlling Interest
 
Total
Stockholders'
Equity
Balance as of January 1, 2015
 
59,980

 
$
6,635

 
$
1,096,508

 
$
(754,206
)
 
$
132

 
$
(71,090
)
 
$
277,979

 
$
11,403

 
$
289,382

Net income (loss)
 

 

 

 
49,050

 

 

 
49,050

 
(1,262
)
 
47,788

Share-based compensation
 

 

 
8,912

 

 

 

 
8,912

 

 
8,912

Common stock issuance and option exercises
 
677

 
68

 
6,512

 

 

 

 
6,580

 

 
6,580

Other
 

 

 
(634
)
 

 

 

 
(634
)
 

 
(634
)
Balance as of June 30, 2015
 
60,657

 
$
6,703

 
$
1,111,298

 
$
(705,156
)
 
$
132

 
$
(71,090
)
 
$
341,887

 
$
10,141

 
$
352,028


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,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
47,788

 
$
16,752

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
129,706

 
117,084

Loss (gain) on sales or disposals of assets
(12,003
)
 
308

Loss from equity method investment
83

 

Loss on early extinguishment of debt

 
8,234

Impairment of goodwill
3,319

 

Impairment of other indefinite-lived intangible asset
4,966

 

Impairment of land, buildings, vessels and equipment
2,903

 
4,708

Amortization of debt issuance costs and debt discounts/premiums
2,596

 
6,330

Share-based compensation expense
8,912

 
8,630

Change in income taxes
28,273

 
(162
)
Changes in operating assets and liabilities:
 
 
 
Receivables, net
(5,141
)
 
2,302

Prepaid expenses and other
(3,953
)
 
(20,237
)
Accounts payable, accrued expenses and other
(21,394
)
 
(9,635
)
Net cash provided by operating activities
186,055

 
134,314

Cash flows from investing activities:
 
 
 
Capital expenditures
(41,749
)
 
(149,746
)
Net proceeds from dispositions of discontinued operations and assets held for sale
25,066

 
252,329

Equity method investment, inclusive of capitalized interest

 
(25
)
Proceeds from sales of property and equipment
349

 
98

Purchase of intangible asset
(25,000
)
 
(25,000
)
Escrow refund

 
25,000

Loans receivable, net
(825
)
 
543

Restricted cash

 
5,925

Net cash provided by (used in) investing activities
(42,159
)
 
109,124

Cash flows from financing activities:
 
 
 
Proceeds from credit facility
73,100

 
194,300

Repayments under credit facility
(265,100
)
 
(473,309
)
Proceeds from common stock options exercised
6,517

 
4,060

Other financing activities
(1,056
)
 
(402
)
Net cash used in financing activities
(186,539
)
 
(275,351
)
Change in cash and cash equivalents
(42,643
)
 
(31,913
)
Cash and cash equivalents at the beginning of the period
164,654

 
198,575

Cash and cash equivalents at the end of the period
$
122,011

 
$
166,662

 
 
 
 
Supplemental Cash Flow Information:
 
 
 
Cash paid for interest, net of amounts capitalized
$
118,663

 
$
122,132

Cash refunds related to income taxes, net
(16,279
)
 
(2,108
)
Decrease in construction-related deposits and liabilities
(6,494
)
 
(9,521
)
Increase in accrued liabilities associated with recognized intangible asset

 
(25,000
)
Non-cash issuance of common stock
417

 
172


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. is an owner, operator and developer of casinos and related hospitality and entertainment facilities. 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.

We own and operate 15 gaming entertainment properties, located in Colorado, Indiana, Iowa, Louisiana, Mississippi, Missouri, Nevada, and Ohio. We also hold a majority interest in the racing license owner, and we are a party to a management contract, for Retama Park Racetrack located outside of San Antonio, Texas. In addition to these properties, we own and operate a live and televised poker tournament series under the trade name Heartland Poker Tour. We view each of our operating properties as an operating segment with the exception of our two properties in Jackpot, Nevada, which we view as one operating segment. For financial reporting purposes, we aggregate our operating segments into the following reportable segments:
Midwest segment, which includes:
Location
Ameristar Council Bluffs
Council Bluffs, Iowa
Ameristar East Chicago
East Chicago, Indiana
Ameristar Kansas City
Kansas City, Missouri
Ameristar St. Charles
St. Charles, Missouri
River City
St. Louis, Missouri
Belterra
Florence, Indiana
Belterra Park
Cincinnati, Ohio
 
 
South segment, which includes:
Location
Ameristar Vicksburg
Vicksburg, Mississippi
Boomtown Bossier City
Bossier City, Louisiana
Boomtown New Orleans
New Orleans, Louisiana
L'Auberge Baton Rouge
Baton Rouge, Louisiana
L'Auberge Lake Charles
Lake Charles, Louisiana
 
 
West segment, which includes:
Location
Ameristar Black Hawk
Black Hawk, Colorado
Cactus Petes and Horseshu
Jackpot, Nevada

The operating results of Lumière Place Casino, HoteLumière, the Four Seasons Hotel St. Louis, and related excess land parcels (collectively, the “Lumière Place Casino and Hotels”) and excess land associated with our former Boomtown Reno property have been classified as discontinued operations in our unaudited Condensed Consolidated Statements of Operations. In April 2014, we completed the sale of the ownership interests in the Lumière Place Casino and Hotels. We completed the sale of our excess land in Reno in April 2015. For further information, see Note 7, “Discontinued Operations and Assets Held for Sale.” Our unaudited Condensed Consolidated Statements of Cash Flows have not been adjusted for discontinued operations.

On July 20, 2015, we entered into a definitive agreement with Gaming and Leisure Properties, Inc. (“GLPI”), a real estate investment trust, whereby GLPI will acquire substantially all of our real estate assets in an all-stock transaction, excluding our Belterra Park property and excess land at certain locations. For more information regarding the GLPI transaction, see Note 11, “Subsequent Event.”

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 generally accepted accounting principles in the United States (“GAAP”). The results for the periods indicated are unaudited, but reflect all adjustments, which are of a normal recurring nature, 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 the common stock of unconsolidated affiliates in which we have the

8



ability to exercise significant influence are accounted for under the equity method. All 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, 2014.

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 customer loyalty programs, estimated cash flows in assessing the recoverability of long-lived assets, asset impairments, goodwill and intangible assets, contingencies and litigation, and estimates of the forfeiture rate and expected life of share-based awards and stock price volatility when computing share-based compensation expense. Actual results may differ from those estimates.

Fair Value. 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.

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 Sheets:
 
 
 
Fair Value Measurements Using:
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
 
(in millions)
As of June 30, 2015
 
Liabilities:
 
 
 
 
 
 
 
Deferred compensation
$
0.4

 
$
0.4

 
$

 
$

As of December 31, 2014
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Deferred compensation
$
0.6

 
$
0.6

 
$

 
$



9



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 Sheets for which it is practicable to estimate fair value:
 
 
 
 
 
Fair Value Measurements Using:
 
Total Carrying Amount
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
 
(in millions)
As of June 30, 2015
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
Held-to-maturity securities
$
14.5

 
$
15.0

 
$

 
$
11.8

 
$
3.2

Promissory notes
$
12.9

 
$
19.0

 
$

 
$
19.0

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt
$
3,793.3

 
$
3,931.0

 
$

 
$
3,931.0

 
$

As of December 31, 2014
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
Held-to-maturity securities
$
14.8

 
$
21.7

 
$

 
$
18.5

 
$
3.2

Promissory notes
$
12.0

 
$
16.8

 
$

 
$
16.8

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt
$
3,986.6

 
$
4,029.9

 
$

 
$
4,029.9

 
$


The estimated fair values 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 values 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 relies 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 values of our long-term debt, which includes the fair value of our senior notes, senior subordinated notes, senior secured credit facility and term loans, were based on Level 2 inputs of observable market data on comparable debt instruments on or about June 30, 2015 and December 31, 2014.

The fair values of our short-term financial instruments approximate the carrying amounts due to their short-term nature.

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 $35.0 million as of June 30, 2015. We capitalize the costs of improvements that extend the life of the asset. We expense repair and maintenance costs as incurred. Gains or losses on the disposition of land, buildings, vessels and equipment are included in the determination of income.

We review the carrying amounts of our land, buildings, vessels and equipment used in our operations whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from estimated future undiscounted cash flows expected to result from its use and eventual disposition. If the undiscounted cash flows exceed the carrying amount, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying amount, then an impairment charge is recorded based on the fair value of the asset.

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 capitalized as part of the cost of the 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 portion 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.”


10



The following table presents a summary of our land, buildings, vessels and equipment:
 
June 30,
2015
 
December 31,
2014
 
(in millions)
Land, buildings, vessels and equipment:
 

 
 

Land and land improvements
$
423.7

 
$
401.9

Buildings, vessels and improvements
2,668.4

 
2,677.8

Furniture, fixtures and equipment
778.5

 
721.9

Construction in progress
26.7

 
75.6

Land, buildings, vessels and equipment, gross
3,897.3

 
3,877.2

Less: accumulated depreciation
(972.3
)
 
(860.2
)
Land, buildings, vessels and equipment, net
$
2,925.0

 
$
3,017.0


On July 20, 2015, we entered into a definitive agreement with GLPI, whereby GLPI will acquire substantially all of our real estate assets in an all-stock transaction. For more information regarding the GLPI transaction, see Note 11, “Subsequent Event.”

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 unaudited Condensed Consolidated Statements of Cash Flows. We review our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of our investment may have experienced an other-than-temporary decline in value.

Goodwill and Other Intangible Assets. Goodwill consists of the excess of the acquisition cost over the fair value of the net assets acquired in business combinations. Indefinite-lived intangible assets include gaming licenses, trademarks, and a racing license. 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. Amortizing intangible assets include customer relationships and favorable leasehold interests. We review amortizing intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

During the second quarter of 2015, we determined that there was an indication of impairment on the assets of Pinnacle Retama Partners, LLC (“PRP”) due to the lack of legislative progress and on-going negative operating results at Retama Park Racetrack. As a result, we recognized non-cash impairments of the goodwill of PRP and the Retama Park Racetrack license of $3.3 million and $5.0 million, respectively, which fully impaired these intangible assets. The impairments were measured using probability-weighted discounted cash flow models, which utilized Level 3 inputs. These impairment charges are included in “Write-downs, reserves and recoveries, net” in our unaudited Condensed Consolidated Statements of Operations. See Note 5, “Write-downs, Reserves and Recoveries, Net,” and Note 6, “Investments and Acquisition Activities.”

There were no impairments to goodwill or other intangible assets recognized during the three months or six months ended June 30, 2014.

In April 2015, we made our final installment payment of $25.0 million for Belterra Park's video lottery terminal license, which we had accrued as of December 31, 2014 in “Other accrued liabilities” in our unaudited Condensed Consolidated Balance Sheets.

Customer Loyalty Programs. We offer incentives to our customers through our mychoice customer loyalty program. Under the mychoice customer loyalty program, customers earn points based on their level of play that may be redeemed for various benefits, such as cash back, dining, or hotel stays, among others. The reward credit balance under the plan will be forfeited if the customer does not earn or use 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. As of June 30, 2015 and December 31, 2014, we had accrued $27.3 million and $26.6

11



million, respectively, for the estimated cost of providing mychoice 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. Cash discounts and other cash incentives to customers related to gaming play are recorded as a reduction to gaming revenue. Food and beverage, lodging, retail, entertainment, and other operating revenues are recognized as products are delivered or services are performed. Advance deposits on lodging are recorded as accrued liabilities until services are provided to the customer.

The retail value of food and beverage, lodging and other services furnished to guests on a complimentary basis is included in revenues and then deducted as promotional allowances in calculating total revenues. The estimated cost of providing such promotional allowances is primarily included in gaming expenses. Complimentary revenues that have been excluded from the accompanying unaudited Condensed Consolidated Statements of Operations were as follows:

 
For the three months ended June 30,
 
For the six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Food and beverage
$
34.8

 
$
33.7

 
$
69.9

 
$
66.9

Lodging
16.0

 
15.1

 
31.1

 
31.1

Other
4.7

 
4.4

 
9.2

 
8.2

Total promotional allowances
$
55.5

 
$
53.2

 
$
110.2

 
$
106.2


The costs to provide such complimentary benefits were as follows:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Promotional allowance costs included in gaming expense
$
44.1

 
$
39.3

 
$
83.4

 
$
77.4


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 our unaudited Condensed Consolidated Statements of Operations. These taxes were as follows:

 
For the three months ended June 30,
 
For the six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Gaming taxes
$
148.4

 
$
141.5

 
$
293.1

 
$
274.3


12



Pre-opening, Development and Other Costs. Pre-opening, development and other costs consist of payroll costs to hire, employ and train the workforce prior to opening an operating facility; marketing campaigns prior to and in connection with the opening; legal and professional fees related to the project but not otherwise attributable to depreciable assets; lease payments; real estate taxes; acquisition costs; restructuring costs; and other costs prior to the opening of an operating facility. Pre-opening, development and other costs are expensed as incurred. Pre-opening, development and other costs consist of the following:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Ameristar acquisition (1)
$
0.2

 
$
2.0

 
$
0.6

 
$
2.4

Belterra Park (2)

 
4.7

 

 
7.4

Other (3)
5.9

 
0.2

 
7.1

 
0.5

Total pre-opening, development and other costs
$
6.1

 
$
6.9

 
$
7.7

 
$
10.3

(1)
Amounts principally comprised of legal and advisory expenses, severance charges and other costs and expenses related to the financing and integration of the acquisition of Ameristar Casinos, Inc. (“Ameristar”).
(2)
Belterra Park opened on May 1, 2014.
(3)
For the three and six months ended June 30, 2015, total includes $5.6 million and $6.3 million, respectively, of cost associated with the separation of our real estate assets from our operating assets.

Earnings Per Share. The computation of basic and diluted earnings per share (“EPS”) is based on net income (loss) attributable to Pinnacle Entertainment, Inc. divided by the basic weighted average number of common shares and diluted weighted average number of common shares, respectively. Diluted earnings per share reflect the addition of potentially dilutive securities, which include in-the-money stock options and restricted stocks units. A total of 0.1 million, 0.8 million, and 1.3 million out-of-the-money stock options were excluded from the calculation of diluted earnings per share for the three and six months ended June 30, 2015, and for the six months ended June 30, 2014, respectively, because including them would have been anti-dilutive.

For the three months ended June 30, 2014, we recorded a loss 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 the period. For the three months ended June 30, 2014, a total of 1.4 million out-of-the-money stock options that could potentially dilute basic earnings per share in the future were not included in the computation of diluted earnings per share.

Reclassifications. The unaudited Condensed Consolidated Financial Statements reflect certain reclassifications to prior year amounts to conform to classification in the current period. These reclassifications had no effect on the previously reported net income (loss) amounts.

Recently Issued Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update in connection with reporting discontinued operations and disclosures of disposals of components of entities. The accounting standards update changes the criteria for reporting discontinued operations. Under the amendment, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when any of the following occurs: (i) the component of an entity or group of components of an entity meets the criteria to be classified as held for sale; (ii) the component of an entity or group of components of an entity is disposed of by sale; and (iii) the component of an entity or group of components of an entity is disposed of other than by sale. This new guidance is effective prospectively for all disposals (or classifications as held for sale) of components of an entity and all business activities, on acquisition, that are classified as held for sale that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. We adopted this guidance during the first quarter of 2015 and it did not have a material impact on our unaudited Condensed Consolidated Financial Statements.

In May 2014, as part of its ongoing efforts to assist in the convergence of GAAP and International Financial Reporting Standards, the FASB issued a new standard related to revenue recognition. Under the new standard, recognition of revenue occurs when a customer obtains control of promised services or goods in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. In July 2015, the FASB approved

13



the deferral of this new standard to be effective for fiscal years beginning after December 15, 2017. We are currently evaluating the impact of adopting this accounting standard on our unaudited Condensed Consolidated Financial Statements.

In June 2014, the FASB issued an accounting standards update with respect to performance share awards. This accounting standards update requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period or periods for which the requisite service has already been rendered. The effective date for this update is for the annual and interim periods beginning after December 15, 2015. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on our unaudited Condensed Consolidated Financial Statements.

In April 2015, the FASB issued an accounting standards update which changes the presentation of debt issuance costs in financial statements. Under the new standard, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. The amortization of the costs is reported as interest expense. The new guidance should be applied on a retrospective basis, wherein the balance sheet of each individual period should be adjusted to reflect the period-specific effects of applying the new guidance. The effective date for this update is for the annual and interim periods beginning after December 15, 2015. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on our unaudited Condensed Consolidated Financial Statements.

A variety of proposed or otherwise potential accounting standards are currently under review and study by standard-setting organizations and certain regulatory agencies. Given 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.

14



Note 2—Long-Term Debt

Long-term debt consisted of the following:
 
June 30, 2015
 
Outstanding Principal
 
Unamortized (Discount) Premium
 
Long-Term Debt, Net
 
(in millions)
Senior Secured Credit Facility:
 
 
 
 
 
Revolving Credit Facility
$
475.1

 
$

 
$
475.1

Term B-2 Loans due 2020
721.7

 
(18.9
)
 
702.8

6.375% Senior Notes due 2021
850.0

 

 
850.0

7.50% Senior Notes due 2021
1,040.0

 
50.3

 
1,090.3

7.75% Senior Subordinated Notes due 2022
325.0

 

 
325.0

8.75% Senior Subordinated Notes due 2020
350.0

 

 
350.0

Other
0.1

 

 
0.1

Total debt including current maturities
3,761.9

 
31.4

 
3,793.3

Less current maturities
(11.0
)
 

 
(11.0
)
Total long-term debt
$
3,750.9

 
$
31.4

 
$
3,782.3


 
December 31, 2014
 
Outstanding Principal
 
Unamortized (Discount) Premium
 
Long-Term Debt, Net
 
(in millions)
Senior Secured Credit Facility:
 
 
 
 
 
Revolving Credit Facility
$
606.6

 
$

 
$
606.6

Term B-2 Loans due 2020
782.2

 
(21.1
)
 
761.1

6.375% Senior Notes due 2021
850.0

 

 
850.0

7.50% Senior Notes due 2021
1,040.0

 
53.8

 
1,093.8

7.75% Senior Subordinated Notes due 2022
325.0

 

 
325.0

8.75% Senior Subordinated Notes due 2020
350.0

 

 
350.0

Other
0.1

 

 
0.1

Total debt including current maturities
3,953.9

 
32.7

 
3,986.6

Less current maturities
(11.0
)
 

 
(11.0
)
Total long-term debt
$
3,942.9

 
$
32.7

 
$
3,975.6


Senior Secured Credit Facility: In August 2013, we entered into an Amended and Restated Credit Agreement (“Credit Facility”), which amended and restated our Fourth Amended and Restated Credit Agreement dated as of August 2, 2011, as amended. The Credit Facility consists of (i) $1.6 billion of term loans comprised of $500.0 million of Tranche B-1 term loans and $1.1 billion of Tranche B-2 term loans and (ii) a $1.0 billion revolving credit commitment. As of June 30, 2015, we had approximately $475.1 million drawn under the $1.0 billion revolving credit facility, approximately $721.7 million outstanding principal Tranche B-2 term loan debt, and approximately $12.0 million committed under various letters of credit under our Credit Facility. We fully repaid the outstanding principal balances of our Tranche B-1 term loans during 2014. The outstanding principal on the Tranche B-2 term loans has been discounted on issuance for the reduction in the proceeds received when the transaction was consummated.

6.375% Senior Notes due 2021: In August 2013, we issued $850.0 million in aggregate principal amount of 6.375% senior notes due 2021 (“6.375% Notes”) to fund the acquisition of Ameristar. The 6.375% Notes bear interest at a rate of 6.375% per year, payable semi-annually in arrears on February 1st and August 1st of each year. The 6.375% Notes mature on

15



August 1, 2021. Net of initial purchasers’ fees and various costs and expenses, proceeds from the offering were approximately $835.0 million.

7.50% Senior Notes due 2021: As part of the acquisition of Ameristar, we assumed $1.04 billion in aggregate principal amount of 7.50% Senior Notes due 2021 (“7.50% Notes”) that were originally issued by Ameristar. The 7.50% Notes bear interest at a rate of 7.50% per year, payable semi-annually in arrears on April 15th and October 15th of each year. The 7.50% Notes mature on April 15, 2021. The 7.50% Notes were recorded at fair value as part of the purchase price allocation with a premium of $72.8 million. In addition, a consent fee payment to the holders of the 7.50% Notes at acquisition was included as a discount component of the total carrying amount.

7.75% Senior Subordinated Notes due 2022: In March 2012, we issued $325.0 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. The 7.75% Notes mature on April 1, 2022. Net of initial purchasers’ fees and various costs and expenses, proceeds from the offering were approximately $318.3 million.

8.75% Senior Subordinated Notes due 2020: In May 2010, we issued $350.0 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. The 8.75% Notes mature on May 15, 2020. Net of the initial purchasers' fees and various costs and expenses, proceeds from the offering were approximately $341.5 million.

Financing in Connection with GLPI Transaction

In connection with the transactions contemplated by the Merger Agreement (as defined in Note 11, “Subsequent Event”), we have entered into a commitment letter, dated July 20, 2015, with certain lenders to provide the required debt financing. For more information regarding the GLPI transaction, see Note 11, “Subsequent Event.”
Interest expense, net, was as follows:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Interest expense
$
60.1

 
$
62.9

 
$
121.2

 
$
131.5

Interest income
(0.1
)
 
(0.1
)
 
(0.1
)
 
(0.2
)
Capitalized interest

 
(0.8
)
 

 
(2.5
)
Interest expense, net
$
60.0

 
$
62.0

 
$
121.1

 
$
128.8

       
Interest expense is capitalized on internally constructed assets at our overall weighted average cost of borrowing. During the six months ended June 30, 2014, we capitalized interest on our Belterra Park re-development project and our Boomtown New Orleans hotel.

Note 3—Income Taxes

Our effective tax rate for continuing operations for the three and six months ended June 30, 2015, was 25.5%, or an expense of $5.4 million, and 19.3% or an expense of $10.3 million, respectively, as compared to an effective tax rate of 32.1%, or a benefit of $1.1 million and 6.3% or an expense of $1.1 million, respectively, for the corresponding prior year periods. Our tax rate differs from the statutory rate of 35.0% due to the effects of permanent items, deferred tax expense on tax amortization of indefinite-lived intangible assets, state taxes, and a reserve for unrecognized tax benefits. Our state tax provision represents taxes in the jurisdictions of Indiana and Louisiana as well as the city jurisdictions in Missouri, where we have no valuation allowance.

Note 4—Employee Benefit Plans
Share-based Compensation: As of June 30, 2015, we had approximately 7.4 million share-based awards outstanding, including common stock options, restricted stock units, and performance stock units, which are detailed below. Our 2015 Equity and Performance Incentive Plan has approximately 0.5 million share-based awards available for grant as of June 30, 2015. We recorded share-based compensation expense as follows:

16



 
For the three months ended June 30,
 
For the six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Share-based compensation expense
$
4.8

 
$
5.5

 
$
8.9

 
$
8.7

         
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, 2015
5,568,628

 
$
15.17

Granted
169,090

 
$
26.51

Exercised
(389,351
)
 
$
17.36

Canceled or forfeited
(24,503
)
 
$
21.55

Options outstanding at June 30, 2015
5,323,864

 
$
15.34

Options exercisable at June 30, 2015
3,600,813

 
$
12.66

Expected to vest after June 30, 2015
1,318,444

 
$
21.12


The unamortized compensation costs not yet expensed related to stock options totaled approximately $13.5 million as of June 30, 2015. 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 $6.5 million and $4.1 million for the six months ended June 30, 2015, and 2014, 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,
 
2015
 
2014
Weighted-average grant date fair value
$
9.44

 
$
9.08

Restricted Stock Units: The following table summarizes information related to our restricted stock units:
 
Number of
Units
 
Weighted Average
Grant Date Fair Value
Non-vested at January 1, 2015
1,212,933

 
$
22.20

Granted
172,741

 
$
26.32

Vested
(141,470
)
 
$
20.60

Canceled or forfeited
(17,734
)
 
$
24.14

Non-vested at June 30, 2015
1,226,470

 
$
22.93


The unamortized compensation costs not yet expensed, related to non-vested restricted stock units, totaled approximately $23.8 million as of June 30, 2015. The weighted average period over which the costs are expected to be recognized is approximately two years.


17



Performance Stock Units: The following table summarizes information related to our performance stock units:
 
Number of
Units
 
Weighted Average
Grant Date Fair Value
Non-vested at January 1, 2015
520,322

 
$
23.64

Granted

 
$

Canceled or forfeited

 
$

Non-vested at June 30, 2015
520,322

 
$
23.64


Note 5—Write-downs, Reserves and Recoveries, Net

During the three and six months ended June 30, 2015, we recognized net losses of $0.3 million and $3.4 million, respectively. Items included in both the three and six months ended June 30, 2015 include the non-cash impairments of PRP's goodwill and the Retama Park Racetrack license of $3.3 million and $5.0 million, respectively, net losses related to disposals and impairments of slot and other equipment at our properties in the normal course of business, and a gain recognized on the disposition of land in Springfield, Massachusetts of $8.4 million. In addition to these items, the six months ended June 30, 2015 include a $2.6 million non-cash impairment of land in Central City, Colorado, which was recognized in the first quarter of 2015.

During the three and six months ended June 30, 2014, we recognized net losses of $2.6 million and $3.2 million, respectively. The losses related to a $2.9 million lease abandonment charge from the consolidation of our Las Vegas headquarters recognized during the second quarter of 2014, offset by gains during the three months ended June 30, 2014, and net losses related to disposals of slot and other equipment at our properties in the normal course of business during the six months ended June 30, 2014.

Note 6—Investments and Acquisition Activities

Equity Method Investment: We have invested in a land re-vitalization project in downtown St. Louis, which is accounted for under the equity method and included in “Other assets, net” in our unaudited Condensed Consolidated Balance Sheets. For the six months ended June 30, 2015, our proportional share of the investment's losses totaled $0.1 million. As of June 30, 2015, and December 31, 2014, the carrying amount of this investment was $1.7 million and $1.8 million, respectively.

Retama Park Racetrack: We hold 75.5% of the equity of PRP and consolidate the accounts of PRP in our unaudited Condensed Consolidated Financial Statements. During the second quarter of 2015, we determined that there was an indication of impairment on the assets of PRP due to the lack of legislative progress and on-going negative operating results at Retama Park Racetrack. As a result, we recorded non-cash impairments of the goodwill of PRP and the Retama Park Racetrack license of $3.3 million and $5.0 million, respectively, in the three months ended June 30, 2015.

As of June 30, 2015, PRP held $12.9 million in promissory notes issued by Retama Development Corporation (“RDC”), a local government corporation of the City of Selma, Texas, included in “Other assets, net” in our unaudited Condensed Consolidated Balance Sheets. The promissory notes 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. We have not recorded accrued interest on these promissory notes because uncertainty exists as to RDC's ability to make interest payments.

As of June 30, 2015, we held, at amortized cost, $11.3 million in local government corporation bonds, with long-term contractual maturities, issued by RDC, included in “Other assets, net” in our unaudited Condensed Consolidated Balance Sheets. We have both the intent and ability to hold these investments until the amortized cost is recovered.

Note 7—Discontinued Operations and Assets Held for Sale

Assets held for sale are measured at the lower of carrying amount or estimated fair value less cost to sell. The results of operations of a component or group of components that has either been disposed of or is classified as held for sale is included in discontinued operations when certain criteria are met. The fair value of the assets to be sold was determined using a market approach using Level 2 inputs, as defined in Note 1, “Summary of Significant Accounting Policies.”

Lumiére Place Casino and Hotels: In August 2013, we entered into an Equity Interest Purchase Agreement to sell the

18



ownership interests in certain of our subsidiaries, which own and operate the Lumiére Place Casino and Hotels. During 2014, we completed the sale of the ownership interests in these subsidiaries for net cash consideration of $250.3 million.

Boomtown Reno: In April 2015, we completed the sale of approximately 783 acres of land associated with our former Boomtown Reno operations, with a carrying amount of $8.3 million, for cash consideration of $13.1 million, resulting in a gain on disposition of $4.8 million, net of costs to sell.

Total discontinued operations: Revenues and income from discontinued operations, net of income taxes, are summarized as follows:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Revenues
$

 
$

 
$

 
$
41.0

Income (loss) before income taxes
5.1

 
(0.1
)
 
5.3

 
0.2

Income tax benefit (expense)
(0.4
)
 
0.1

 
(0.4
)
 
0.1

Income from discontinued operations, net of income taxes
$
4.7

 
$

 
$
4.9

 
$
0.3


Springfield, Massachusetts: In April 2015, we completed the sale of approximately forty acres of land in Springfield, Massachusetts, originally purchased by Ameristar for a possible future casino resort, with a carrying amount of $3.5 million, for cash consideration of $12.0 million, resulting in a gain on disposition of $8.4 million, net of costs to sell. This gain is included in “Write-downs, reserves and recoveries, net” in our unaudited Condensed Consolidated Statements of Operations.

Central City, Colorado: We own approximately two acres of land in Central City, Colorado, which is classified as held for sale. During the first quarter of 2015, we recorded a $2.6 million non-cash impairment charge, to reduce the carrying amount of the asset to its estimated fair value less cost to sell. This impairment charge is included in “Write-downs, reserves and recoveries, net” in our unaudited Condensed Consolidated Statements of Operations.
Net assets for entities and operations classified as held for sale are summarized as follows:
 
June 30,
2015
 
December 31,
2014
 
(in millions)
Assets:
 
 
 
Land, buildings, vessels and equipment, net
$
0.7

 
$
11.8

Other assets, net
9.3

 
9.4

Total assets
$
10.0

 
$
21.2

Liabilities:
 
 
 
Total liabilities
$
0.1

 
$
0.4

Net assets
$
9.9

 
$
20.8


Note 8—Commitments and Contingencies

Self-Insurance: We self-insure various levels of general liability, workers' compensation, 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. As of June 30, 2015 and December 31, 2014, we had total self-insurance accruals of $24.4 million, which are included in “Total current 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 gains 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

19



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. In August 2013, we filed a Motion for Partial Summary Judgment on the 1999 Hollywood Park sale. We asked the court to grant summary judgment in our favor based on the technical merit of Indiana tax law. In January 2014, oral arguments were held at the Indiana Tax Court regarding our motion for summary judgment. In June 2015, the Indiana Tax Court issued its decision on our motion for summary judgment, in which the court denied our motion for summary judgment and set the case for trial.

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 $46.6 million in cash and other assets as of June 30, 2015, that include a majority interest in the licensee of Retama Park Racetrack and certain other subsidiaries) have fully, unconditionally, jointly, and severally guaranteed the payment of all obligations under our senior and senior subordinated notes and 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.
 
100% Owned Guarantor
Subsidiaries(a)
 
Non-
Guarantor
Subsidiaries(b)
 
Consolidating
and
Eliminating
Entries
 
Pinnacle
Entertainment,
Inc.
Consolidated
 
(in millions)
Statements of Operations
 
 
 
 
 
 
 
 
 
For the three months ended June 30, 2015
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
Gaming
$

 
$
519.3

 
$

 
$

 
$
519.3

Food and beverage

 
31.5

 

 

 
31.5

Lodging

 
13.1

 

 

 
13.1

Retail, entertainment and other

 
18.1

 

 

 
18.1

 

 
582.0

 

 

 
582.0

Expenses:
 
 
 
 
 
 
 
 
 
Gaming

 
282.0

 

 

 
282.0

Food and beverage

 
29.0

 

 

 
29.0

Lodging

 
6.3

 

 

 
6.3

Retail, entertainment and other

 
8.1

 

 

 
8.1

General and administrative
23.5

 
83.5

 
0.1

 

 
107.1

Depreciation and amortization
2.0

 
59.9

 

 

 
61.9

Pre-opening, development and other costs
6.0

 
0.1

 

 

 
6.1

Write-downs, reserves and recoveries, net

 
(8.1
)
 
8.4

 

 
0.3

 
31.5

 
460.8

 
8.5

 

 
500.8

Operating income (loss)
(31.5
)
 
121.2

 
(8.5
)
 

 
81.2