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| PNK > SEC Filings for PNK > Form 10-Q on 4-Aug-2009 | All Recent SEC Filings |
4-Aug-2009
Quarterly Report
The following discussion and analysis of financial condition, results of
operations, liquidity and capital resources should be read in conjunction with,
and is qualified in its entirety by, the unaudited Condensed Consolidated
Financial Statements and the notes thereto included in this Quarterly Report on
Form 10-Q, and the Consolidated Financial Statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008.
EXECUTIVE SUMMARY
Pinnacle Entertainment, Inc. is a developer, owner and operator of casinos and
related hospitality and entertainment facilities. We currently operate seven
domestic casinos, including L'Auberge du Lac in Lake Charles, Louisiana;
Boomtown New Orleans in New Orleans, Louisiana; Belterra Casino Resort in Vevay,
Indiana; Boomtown Bossier City in Bossier City, Louisiana; Lumière Place in St.
Louis, Missouri; President Casino in St. Louis, Missouri; and Boomtown Reno in
Reno, Nevada. Internationally, we operate one significant and several small
casinos in Argentina. We previously operated a small casino in the Bahamas,
which we closed on January 2, 2009.
We have a number of projects at various stages of development. In south St.
Louis County, Missouri, we are building our River City casino, which we expect
to open in the spring of 2010. In Lake Charles, Louisiana, we have begun site
work for our Sugarcane Bay casino-hotel adjacent to L'Auberge du Lac. In
October 2008, the Louisiana Gaming Control Board (the "LGCB") approved the
architectural plans for our planned casino-hotel in East Baton Rouge Parish,
Louisiana. In April 2009, the LGCB granted us 150-day extensions for completing
our Sugarcane Bay project and entering into a construction contract for our
Baton Rouge project. We also own well-located casino sites in Atlantic City, New
Jersey and in Central City, Colorado, which projects are on indefinite hold.
We operate casino properties, which include gaming, hotel, dining, retail and
other amenities. Our operating results are highly dependent on the volume of
customers at our properties, which in turn affects the price we can charge for
our hotel rooms and other amenities. While we do provide casino credit in
several gaming jurisdictions, most of our revenue is cash-based with customers
wagering with cash or paying for non-gaming services with cash or credit cards.
Our properties generate significant operating cash flow. Our industry is capital
intensive and we rely on the ability of our resorts to generate operating cash
flow to pay interest, repay debt financing and fund maintenance capital
expenditures.
Our long-term strategy is to build or acquire new resorts that are expected to
produce favorable returns above our cost of capital; to maintain and improve our
existing properties; and to continue to build our systems and add locations to
build a national gaming network. Hence, we are developing new, high-quality
gaming properties in attractive gaming markets; we are maintaining and improving
our existing properties with disciplined capital expenditures; we are developing
a customer-loyalty program designed to motivate customers to continue to
patronize our casinos; and we may make strategic acquisitions, either alone or
with third parties, at terms we believe are reasonable. We continue to make
progress toward achieving our long-term strategy.
In July, we successfully amended our bank credit facility to, among other
things, permit the issuance of senior unsecured debt. On July 27, 2009, we
priced a private offering of $450 million in aggregate principal amount of 85/8%
senior notes due 2017, which offering is expected to close on August 10, 2009.
In addition to using $434 million in net proceeds to repay our funded bank
borrowings of $206 million, we intend to use the remaining net proceeds to
repurchase or redeem our existing 8.75% senior subordinated notes due 2013 and
$75.0 million of our existing 8.25% senior subordinated notes due 2012, and for
general corporate purposes, including funding our development projects.
RESULTS OF OPERATIONS
The following table highlights our results of operations for the three and six
months ended June 30, 2009 and 2008. As discussed in Note 8 to our unaudited
Condensed Consolidated Financial Statements, we report segment operating results
based on revenues and Adjusted EBITDA. Such segment reporting is on a consistent
basis with how we measure our business and allocate resources internally. See
Note 8 to our unaudited Condensed Consolidated Financial Statements for more
information regarding our segment information.
For the three months ended For the six months ended
June 30, June 30,
2009 2008 2009 2008
(in millions)
Revenues:
L'Auberge du Lac $ 86.6 $ 90.2 $ 175.0 $ 171.5
Boomtown New Orleans 35.5 39.0 73.7 81.4
Lumière Place 54.2 43.3 107.3 81.3
Belterra Casino Resort 42.8 44.3 83.8 86.3
Boomtown Bossier City 22.7 22.0 47.5 45.7
Casino Magic Argentina 8.6 10.0 18.1 19.2
President Casino 4.9 5.9 10.9 15.1
Boomtown Reno 10.6 11.5 18.2 22.2
Other 0.4 0.1 0.7 0.2
Total Revenue $ 266.3 $ 266.3 $ 535.2 $ 522.9
Operating income (loss) $ 10.4 $ (16.9 ) $ 29.0 $ (28.7 )
Income (loss) from continuing operations $ 5.0 $ (48.3 ) $ 6.2 $ (64.1 )
Adjusted EBITDA: (a)
L'Auberge du Lac $ 21.5 $ 23.6 $ 45.0 $ 41.2
Boomtown New Orleans 10.6 13.5 24.1 28.8
Lumière Place 9.9 1.2 20.5 0.6
Belterra Casino Resort 8.2 7.7 16.0 15.1
Boomtown Bossier City 4.7 4.0 10.9 8.7
Casino Magic Argentina 2.2 2.7 5.0 5.9
President Casino (0.4 ) (1.5 ) (0.6 ) (1.8 )
Boomtown Reno 0.1 (1.3 ) (1.2 ) (3.5 )
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(a) We define
Adjusted
EBITDA for
each segment
as earnings
before
interest
income and
expense,
income taxes,
depreciation,
amortization,
pre-opening
and
development
expenses,
non-cash
share-based
compensation,
asset
impairment
costs,
write-downs,
reserves,
recoveries,
gain
(loss) on
sale of
certain
assets, gain
(loss) on
sale of
equity
investments
and
discontinued
operations.
Segment comparison of the three and six months ended June 30, 2009 and 2008 L'Auberge du Lac
Percentage Percentage
For the three months Increase/ For the six months Increase/
ended June 30, (Decrease) ended June 30, (Decrease)
2009 2008 2009 vs. 2008 2009 2008 2009 vs. 2008
(in millions) (in millions)
Gaming revenues $ 75.3 $ 79.2 (4.9 )% $ 153.7 $ 151.4 1.5 %
Total revenues 86.6 90.2 (4.0 )% 175.0 171.5 2.0 %
Operating income 14.4 12.7 13.4 % 30.6 22.8 34.2 %
Adjusted EBITDA 21.5 23.6 (8.9 )% 45.0 41.2 9.2 %
|
L'Auberge du Lac, our largest property, increased revenues and Adjusted EBITDA during the six months ended June 30, 2009 compared to the prior-year period, reflecting improved utilization of the guestroom and amenity expansion which opened during the first quarter of 2008. The guestroom expansion increased available rooms to 995 from 743. For the three months ended June 30, 2009, revenues and Adjusted EBITDA decreased as the result of a decline in the property's table game win percentage compared to the prior-year quarter, as well as a decline in hotel occupancy from the prior-year quarter.
Boomtown New Orleans
Percentage Percentage
For the three months Increase/ For the six months Increase/
ended June 30, (Decrease) ended June 30, (Decrease)
2009 2008 2009 vs. 2008 2009 2008 2009 vs. 2008
(in millions) (in millions)
Gaming revenues $ 33.9 $ 37.4 (9.4 )% $ 70.5 $ 78.2 (9.8 )%
Total revenues 35.5 39.0 (9.0 )% 73.7 81.4 (9.5 )%
Operating income 8.8 11.4 (22.8 )% 20.3 24.6 (17.5 )%
Adjusted EBITDA 10.6 13.5 (21.5 )% 24.1 28.8 (16.3 )%
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Results during the three and six months ended June 30, 2009 at Boomtown New Orleans reflect the November 2008 opening of an additional slot facility in the area, which houses approximately 600 slot machines, as well as levee construction along the primary access road to the property. This levee construction resulted in the temporary loss of the property's main entrance, which is expected to reopen in August 2009. Casino admissions decreased 11% for the three months ended June 30, 2009 compared to the prior-year period, and 12% for the six months ended June 30, 2009 compared to the prior-year period. To address this increased competition, Boomtown New Orleans has increased marketing efforts to draw in local customers with events and promotions, resulting in increased costs and reduced operating income and Adjusted EBITDA. Lumière Place
Percentage Percentage
For the three months Increase/ For the six months Increase/
ended June 30, (Decrease) ended June 30, (Decrease)
2009 2008 2009 vs. 2008 2009 2008 2009 vs. 2008
(in millions) (in millions)
Gaming revenues $ 43.9 $ 34.7 26.5 % $ 88.6 $ 68.0 30.3 %
Total revenues 54.2 43.3 25.2 % 107.3 81.3 32.0 %
Operating income 1.3 (10.3 ) 112.6 % 3.3 (22.2 ) 114.9 %
Adjusted EBITDA 9.9 1.2 725.0 % 20.5 0.6 3,316.7 %
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Lumière Place includes the Lumière Place Casino, which opened in late 2007, the
Pinnacle-owned Four Seasons Hotel St. Louis and HoteLumière, each of which
opened in early 2008, and other amenities, comprising the Lumière Place complex.
Overall operational results at Lumière Place continued to improve in the three
and six months ended June 30, 2009 as it entered its second year of operations,
consistent with most new casino openings. In addition, the property now operates
in an unlimited gaming environment as Missouri's gambling loss limit was
repealed in November 2008. Marketing and payroll costs declined during the three
and six months ended June 30, 2009 compared to the prior-year period due to the
maturation of the property.
Belterra Casino Resort
Percentage Percentage
For the three months Increase/ For the six months Increase/
ended June 30, (Decrease) ended June 30, (Decrease)
2009 2008 2009 vs. 2008 2009 2008 2009 vs. 2008
(in millions) (in millions)
Gaming revenues $ 36.7 $ 37.6 (2.4 )% $ 72.5 $ 74.7 (2.9 )%
Total revenues 42.8 44.3 (3.4 )% 83.8 86.3 (2.9 )%
Operating income 4.8 3.8 26.3 % 9.2 7.7 19.5 %
Adjusted EBITDA 8.2 7.7 6.5 % 16.0 15.1 6.0 %
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Belterra achieved an increase in Adjusted EBITDA during the three and six months
ended June 30, 2009, despite a decrease in revenues during the same period, due
to fine-tuning of the property's marketing efforts and recent cost-cutting
measures. Decreases in revenue are the result of additional competition in the
area. During mid-2008, two racetrack casinos in the Indianapolis metropolitan
area opened, each of which operate approximately 2,000 slot machines. One of
these facilities replaced its temporary casino with a permanent facility in
March 2009. Another riverboat competitor opened a new, expanded casino in
Lawrenceburg, Indiana in June 2009.
Boomtown Bossier City
Percentage Percentage
For the three months Increase/ For the six months Increase/
ended June 30, (Decrease) ended June 30, (Decrease)
2009 2008 2009 vs. 2008 2009 2008 2009 vs. 2008
(in millions) (in millions)
Gaming revenues $ 21.4 $ 20.6 3.9 % $ 44.7 $ 43.0 4.0 %
Total revenues 22.7 22.0 3.2 % 47.5 45.7 3.9 %
Operating income 3.0 2.0 50.0 % 7.6 4.9 55.1 %
Adjusted EBITDA 4.7 4.0 17.5 % 10.9 8.7 25.3 %
|
Boomtown Bossier City achieved increased revenues and Adjusted EBITDA despite the competitive Bossier City/Shreveport gaming market and improved Adjusted EBITDA through a refinement of the property's marketing efforts and certain cost-cutting measures. Boomtown Bossier competes with four dockside riverboat casino-hotels and a racetrack operation. In addition, the Bossier City/Shreveport gaming market, which is approximately 188 miles east of Dallas/Fort Worth, competes with Native American gaming in southern Oklahoma located approximately 60 miles north of Dallas/Fort Worth. Casino Magic Argentina
Percentage Percentage
For the three months Increase/ For the six months Increase/
ended June 30, (Decrease) ended June 30, (Decrease)
2009 2008 2009 vs. 2008 2009 2008 2009 vs. 2008
(in millions) (in millions)
Gaming revenues $ 7.7 $ 9.0 (14.4 )% $ 16.3 $ 17.5 (6.9 )%
Total revenues 8.6 10.0 (14.0 )% 18.1 19.2 (5.7 )%
Operating income 1.4 1.8 (22.2 )% 3.5 4.1 (14.6 )%
Adjusted EBITDA 2.2 2.7 (18.5 )% 5.0 5.9 (15.3 )%
|
Casino Magic Argentina includes a sizable casino-hotel facility in Neuquén,
which includes 1,076 gaming positions, and several smaller casinos in other
parts of the Province of Neuquén, with an aggregate 361 gaming positions.
Revenues have decreased due in part to a recent decline in the value of the
Argentine peso. The decrease in Adjusted EBITDA reflects the currency decline
and inflation of certain costs, principally payroll costs.
Under terms of our concession agreement with the Province of Neuquén, our
exclusivity rights in the Province of Neuquén are to be extended from 2016 to
2021 with the completion of a luxury hotel. We opened such hotel in June 2008
and are awaiting the formal government approval of such extension.
President Casino
Percentage Percentage
For the three months Increase/ For the six months Increase/
ended June 30, (Decrease) ended June 30, (Decrease)
2009 2008 2009 vs. 2008 2009 2008 2009 vs. 2008
(in millions) (in millions)
Gaming revenues $ 4.6 $ 5.4 (14.8 )% $ 10.2 $ 13.8 (26.1 )%
Total revenues 4.9 5.9 (16.9 )% 10.9 15.1 (27.8 )%
Operating income (1.1 ) (3.5 ) 68.6 % (2.0 ) (5.7 ) 64.9 %
Adjusted EBITDA (0.4 ) (1.5 ) 73.3 % (0.6 ) (1.8 ) 66.7 %
|
Due principally to competition from an expanded competing property across the river and the neighboring Lumière Place, revenues for the three and six months ended June 30, 2009 have decreased from the same period in the prior year. As a result, beginning in late 2008, we eliminated mid-week table game operations at the President Casino and reduced operating hours for the entire casino mid-week. These cost-cutting measures have resulted in a decreased Adjusted EBITDA loss for the three and six months ended June 30, 2009. Operations at the President Casino were also adversely affected in both periods due to temporary flood related closures. The President Casino operates on a vessel known as the Admiral. The hull of the Admiral was built in 1904. The certification of the hull by ABS Consulting ("ABS") expires on July 19, 2010, and the Admiral may not be used to carry passengers beyond that date without replacement, dry-docking, or specific approval. On July 28, 2009 the Missouri Gaming Commission ("MGC") held a public hearing to discuss our plans to address the expiration of the ABS certification in 2010. At such hearing we announced our plans, subject to MGC review and ABS and other approvals, to replace the Admiral with a different vessel. Currently, we have not yet submitted an official application for such vessel change, and hence the MGC has not yet acted on such request. However, at this July 28, 2009 hearing, the Executive Director of the MGC (who is not a Commissioner of the MGC), through counsel, made a recommendation that the MGC issue a ruling to prohibit Pinnacle from repairing, replacing or moving the Admiral. The MGC deferred a decision on this matter. In the event such a decision was to be made by the MGC, it could ultimately lead to the loss of the gaming license for the President Casino if we were unable to otherwise obtain a re-certification of the Admiral by July 19, 2010 and therefore we would expect to contest the decision and pursue all possible legal remedies. Boomtown Reno
Percentage Percentage
For the three months Increase/ For the six months Increase/
ended June 30, (Decrease) ended June 30, (Decrease)
2009 2008 2009 vs. 2008 2009 2008 2009 vs. 2008
(in millions) (in millions)
Gaming revenues $ 6.2 $ 5.8 6.9 % $ 10.6 $ 11.4 (7.0 )%
Total revenues 10.6 11.5 (7.8 )% 18.2 22.2 (18.0 )%
Operating income (1.2 ) (3.0 ) 60.0 % (3.7 ) (6.9 ) 46.4 %
Adjusted EBITDA 0.1 (1.3 ) 107.7 % (1.2 ) (3.5 ) 65.7 %
|
Operating conditions at Boomtown Reno remain challenging due to the significant competition from the northern California Native American gaming market, as well as poor economic conditions in both the region and northern California. However, gaming revenues increased for the three months ended June 30, 2009 over the prior-year period due in part to our renovation of the Boomtown Reno casino and approximately two-thirds of the guestrooms over the past 18 months. In the second quarter of 2008, operations were somewhat constrained by such refurbishment. During June 2009, a restaurant was refurbished and replaced by a recognized franchised restaurant and a coffee venue was upgraded. Improvements in operating income and Adjusted EBITDA results are due to recent cost-cutting measures and a lessening of the construction disruptions. Employee headcount as of June 30, 2009 has decreased 29% from June 30, 2008. Other factors affecting income from continuing operations The following are a description of the other costs and benefits for the three months ended June 30, 2009 and 2008, respectively:
Percentage Percentage
For the three months Increase/ For the six months Increase/
ended June 30, (Decrease) ended June 30, (Decrease)
2009 2008 2009 vs. 2008 2009 2008 2009 vs. 2008
(in millions) (in millions)
Other benefits (costs):
Corporate expenses $ (7.9 ) $ (11.6 ) (31.9 )% $ (17.4 ) $ (21.3 ) (18.3 )%
Depreciation and
amortization (26.2 ) (31.0 ) (15.5 )% (52.4 ) (59.5 ) (12.0 )%
Pre-opening and
development costs (6.6 ) (14.2 ) (53.5 )% (12.5 ) (31.3 ) (60.1 )%
Non-cash share-based
compensation (5.3 ) (3.1 ) 71.0 % (7.6 ) (4.8 ) 58.3 %
Write-downs, reserves
and recoveries, net (0.3 ) (6.9 ) (95.7 )% (0.7 ) (6.8 ) (89.7 )%
Other non-operating
income 0.1 0.5 (80.0 )% 0.2 1.6 (87.5 )%
Gain on sale of equity
securities 12.9 - 100 % 12.9 - 100 %
Impairment of investment
in equity securities - (22.6 ) 100 % - (22.6 ) 100 %
Interest expense, net of
capitalized interest (16.1 ) (11.6 ) 38.8 % (32.8 ) (23.7 ) 38.4 %
Income tax benefit
(expense) (2.4 ) 2.3 (204.3 )% (3.2 ) 9.3 (134.4 )%
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Corporate expenses represent unallocated payroll, professional fees, rent,
travel expenses and other general and administrative expenses not directly
related to our casino and hotel operations. Such expenses decreased in the three
and six months ended June 30, 2009 due to the relocation of some offices to
lower-rent spaces, the decision to reduce the scope of an employee 401(k)
matching program and other smaller items. Additionally, the prior-year quarter
included approximately $1.5 million of compensation expense related to the
resignation of a corporate officer.
Depreciation and amortization expense decreased in the three and six months
ended June 30, 2009 due to the decreased asset basis resulting from our 2008
fourth quarter impairment of certain long-lived assets.
. . .
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