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| PNK > SEC Filings for PNK > Form 10-Q on 9-Nov-2012 | All Recent SEC Filings |
9-Nov-2012
Quarterly Report
Pinnacle Entertainment, Inc. is an owner, operator and developer of casinos and related hospitality and entertainment facilities. We operate L'Auberge Lake Charles in Lake Charles, Louisiana; River City Casino and Lumière Place in St. Louis, Missouri; Boomtown New Orleans in New Orleans, Louisiana; Belterra Casino Resort in Vevay, Indiana; and Boomtown Bossier City in Bossier City, Louisiana. We opened L'Auberge Baton Rouge in Baton Rouge, Louisiana on September 1, 2012. In addition, we own and operate a racetrack facility, River Downs, in Cincinnati, Ohio and a live and televised poker tournament series, Heartland Poker Tour. We also own a 26% stake in ACDL, a British Columbia corporation that is developing Vietnam's first integrated resort near Ho Chi Minh City. In June 2012, we closed the previously announced sale of our Boomtown Reno operations.
In April 2012, we entered into agreements to execute a series of transactions that would result in us acquiring 75.5% of the equity of Retama Partners, Ltd. ("RPL"), the owner of the racing license for Retama Park Racetrack. The acquisition of the equity of RPL is subject to the receipt of all applicable regulatory approvals and additional agreements with Retama Development Corporation, a local corporation organized and acting on behalf of the City of Selma as owner of Retama Park, with closing expected by the end of the first quarter of 2013.
We operate casino properties, all of which include gaming and dining facilities, and some of which include hotel, retail and other amenities. In addition, we operate one racetrack and a poker tour. 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 properties to generate operating cash flow to pay interest, repay debt costs and fund maintenance capital expenditures.
Our mission is to increase stockholder value. We seek to increase revenues through enhancing the guest experience by providing them with their favorite games, restaurants, hotel accommodations, entertainment and other amenities in attractive surroundings with high-quality guest service and guest rewards programs. We seek to improve margins by focusing on operational excellence and efficiency while meeting our guests' expectations of value. Our long-term strategy includes disciplined capital expenditures to improve and maintain our existing properties, while growing the number and quality of our facilities by pursuing gaming entertainment opportunities we can improve or develop. We intend to diversify our guest demographics and revenue sources by growing our portfolio of operating properties both domestic and foreign, while remaining gaming and entertainment centric. We intend to implement these strategies either alone or with third parties when we believe it benefits our stockholders to do so. In making decisions, we consider our stockholders, guests, team members and other constituents in the communities in which we operate.
For the three months ended
September 30, For the nine months ended September 30,
2012 2011 2012 2011
(in millions)
Revenues:
L'Auberge Lake Charles $ 99.5 $ 98.2 $ 297.3 $ 283.1
St. Louis (a) 98.5 98.4 299.2 288.5
Boomtown New Orleans 27.9 32.2 92.6 102.5
Belterra Casino Resort 41.6 42.1 120.3 117.4
Boomtown Bossier City 19.8 21.1 62.8 65.4
L'Auberge Baton Rouge 13.1 - 13.1 -
River Downs 3.5 3.9 9.9 8.5
Other 0.3 - 0.3 -
Total Revenue $ 304.2 $ 295.9 895.5 $ 865.4
Adjusted EBITDA (b):
L'Auberge Lake Charles $ 31.5 $ 29.7 $ 91.6 $ 79.5
St. Louis (a) 25.5 22.3 76.3 63.3
Boomtown New Orleans 7.7 10.3 28.7 34.2
Belterra Casino Resort 9.9 8.7 26.3 21.9
Boomtown Bossier City 4.3 4.6 14.8 14.6
L'Auberge Baton Rouge 1.5 - 1.5 -
River Downs (0.5 ) (0.7 ) (1.3 ) (1.7 )
Other (0.2 ) - (0.2 ) -
79.7 74.9 237.7 211.8
Corporate expenses (5.6 ) (6.2 ) (15.9 ) (22.0 )
Consolidated Adjusted EBITDA (b) 74.1 68.7 221.8 189.8
Other benefits (costs):
Depreciation and amortization (27.6 ) (25.8 ) (80.0 ) (77.9 )
Pre-opening and development costs (11.5 ) (2.5 ) (18.5 ) (7.2 )
Share-based compensation expense (1.7 ) (1.6 ) (7.0 ) (5.3 )
Write-downs, reserves and recoveries,
net (0.1 ) (1.3 ) (0.9 ) (7.9 )
Net interest expense, net of
capitalized interest (23.0 ) (24.0 ) (67.4 ) (75.7 )
Loss from equity method investment (1.4 ) (0.5 ) (4.2 ) (0.5 )
Loss on early extinguishment of debt - (0.2 ) (20.7 ) (0.2 )
Income tax expense (2.0 ) (1.0 ) (3.7 ) (2.6 )
Income from continuing operations $ 6.8 $ 11.8 $ 19.4 $ 12.5
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(a) Our St. Louis segment consists of Lumière Place (which includes the Lumière Place Casino, the Pinnacle-owned Four Seasons Hotel St. Louis and HoteLumière) and River City.
(b) We define Consolidated Adjusted EBITDA as earnings before 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, interest income and expense, income (loss)
from equity method investments, loss on early extinguishment of debt, loss on
sale of discontinued operations, discontinued operations and income taxes. We
define Adjusted EBITDA for each segment as earnings before 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, interest income and expense and income
taxes. We use Consolidated Adjusted EBITDA and Adjusted EBITDA for each
segment to compare operating results among our properties and between
accounting periods. Consolidated Adjusted EBITDA and Adjusted EBITDA have
economic substance because they are used by management as a performance
measure to analyze the performance of our business, and is especially
relevant in evaluating large, long-lived casino-hotel projects because it
provides a perspective on the current effects of operating decisions
separated from the substantial non-operational depreciation charges and
financing costs of such projects. We eliminate the results from discontinued
operations as they are discontinued. We also review pre-opening and
development expenses separately, as such expenses are also included in total
project costs when assessing budgets and project returns, and because such
costs relate to anticipated future revenues and income. We believe that
Consolidated Adjusted EBITDA and Adjusted EBITDA are useful measures for
investors because it is an indicator of the strength and performance of
ongoing business operations, including our ability to service debt and fund
capital expenditures, acquisitions and operations. These calculations are
commonly used as a basis for investors, analysts and credit rating agencies
to evaluate and compare operating performance and value of companies within
our industry. In addition, our credit agreement and bond indentures require
compliance with financial measures similar to Consolidated Adjusted EBITDA.
Consolidated Adjusted EBITDA should not be considered as an alternative to
operating income as an indicator of performance, as an alternative to cash
flows from operating activities as a measure of liquidity, or as an
alternative to any other measure provided in accordance with GAAP. Our
calculation of Consolidated Adjusted EBITDA may be different from the
calculation methods used by other companies and, therefore, comparability may
be limited.
Segment comparison of the three and nine months ended September 30, 2012 and 2011
L'Auberge Lake Charles
For the three months ended Percentage For the nine months ended Percentage
September 30, Increase/(Decrease) September 30, Increase/(Decrease)
2012 2011 2012 vs. 2011 2012 2011 2012 vs. 2011
(in millions)
Gaming revenues $ 85.6 $ 85.4 0.2 % $ 257.8 $ 248.3 3.8 %
Total revenues 99.5 98.2 1.3 % 297.3 283.1 5.0 %
Operating income 25.8 24.0 7.5 % 74.3 63.0 17.9 %
Adjusted EBITDA 31.5 29.7 6.1 % 91.6 79.5 15.2 %
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L'Auberge Lake Charles, our largest property, had an increase in revenues and Adjusted EBTIDA for the three and nine months ended September 30, 2012 as compared to the prior-year period, as a result of the a continued focus on the efficiency of the operation and utilization of assets, and due to a non-recurring charge related to the launch of our mychoice customer loyalty program in 2011. In addition, improvements made throughout the property have helped increase gaming revenues. Operating efficiencies have been achieved through consolidating tasks through a shared services arrangement across our Louisiana properties. Despite increases to revenues and Adjusted EBITDA for the three and nine months ended September 30, 2012, operating performance was negatively impacted by Hurricane Isaac.
St. Louis
Percentage
For the three months ended Percentage For the nine months ended Increase/
September 30, Increase/(Decrease) September 30, (Decrease)
2012 2011 2012 vs. 2011 2012 2011 2012 vs. 2011
(in millions)
Gaming revenues $ 84.6 $ 83.5 1.4 % $ 257.8 $ 247.8 4.0 %
Total revenues 98.5 98.4 0.1 % 299.2 288.5 3.7 %
Operating income 11.7 7.7 51.9 % 33.8 21.3 58.7 %
Adjusted EBITDA 25.5 22.3 14.3 % 76.3 63.3 20.5 %
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The St. Louis segment consists of River City and Lumière Place (which includes
the Lumière Place Casino, the Pinnacle-owned Four Seasons Hotel St. Louis and
HoteLumière). Revenues have remained consistent for the three months ended
September 30, 2012 as compared to the prior-year period, and have increased
during the nine months ended September 30, 2012 as compared to the 2011 period
due to the maturation of the River City property. The Adjusted EBITDA increase
reflects the benefits of a heightened focus on operating and marketing
efficiencies primarily realized through our shared services arrangement in this
market and due to a non-recurring charge related to the launch of our mychoice
customer loyalty program in 2011. Beginning in the first quarter of 2012, we
began accounting for medical claims through an enterprise-wide pooling of
medical and related expenses, and allocating such expenses to each operating
segment ratably based upon participant headcount. Previously, medical claims
were expensed directly to the operating segment in which the participant
resided. The use of medical claim pooling has no impact on Consolidated Adjusted
EBITDA, but has impacted individual operating segments. For the nine months
ended September 30, 2012, relative to using the prior medical expense allocation
methodology, the use of medical pooling had a negative impact of $2.2 million on
Adjusted EBITDA for St. Louis.
Boomtown New Orleans
Percentage
For the three months ended Percentage For the nine months ended Increase/
September 30, Increase/(Decrease) September 30, (Decrease)
2012 vs.
2012 2011 2012 vs. 2011 2012 2011 2011
(in millions)
Gaming revenues $ 26.8 $ 31.0 (13.5 )% $ 88.8 $ 98.7 (10.0 )%
Total revenues 27.9 32.2 (13.4 )% 92.6 102.5 (9.7 )%
Operating income 6.1 8.7 (29.9 )% 26.0 29.2 (11.0 )%
Adjusted EBITDA 7.7 10.3 (25.2 )% 28.7 34.2 (16.1 )%
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Boomtown New Orleans' revenue and Adjusted EBITDA decreased for the three and nine months ended September 30, 2012 as compared to the prior-year period. Boomtown New Orleans performance was negatively impacted by Hurricane Isaac, as well as general difficult market conditions and operating challenges. We are making select facility improvements to increase the property's competitiveness, which includes plans to build a 150-room hotel tower with a budget of $20 million and completion expected in late-2013 or early-2014. We also continue to refine marketing programs to drive additional profitable revenue.
Belterra Casino Resort
Percentage
For the three months ended Percentage For the nine months ended Increase/
September 30, Increase/(Decrease) September 30, (Decrease)
2012 2011 2012 vs. 2011 2012 2011 2012 vs. 2011
(in millions)
Gaming revenues $ 35.2 $ 35.2 - % $ 103.2 $ 99.9 3.3 %
Total revenues 41.6 42.1 (1.2 )% 120.3 117.4 2.5 %
Operating income 6.8 5.5 23.6 % 17.1 12.2 40.2 %
Adjusted EBITDA 9.9 8.7 13.8 % 26.3 21.9 20.1 %
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During the three and nine months ended September 30, 2012, revenues for Belterra have remained consistent from the prior-year period, while Adjusted EBITDA has increased primarily due to expense controls and a non-recurring charge related to the launch of our mychoice customer loyalty program in 2011. Due to the change in medical claims expense discussed above, the use of medical pooling had a favorable impact of $1.3 million on Adjusted EBITDA for Belterra for the nine months ended September 30, 2012.
Boomtown Bossier City
Percentage
For the three months ended Percentage For the nine months ended Increase/
September 30, Increase/(Decrease) September 30, (Decrease)
2012 2011 2012 vs. 2011 2012 2011 2012 vs. 2011
(in millions)
Gaming revenues $ 18.6 $ 19.5 (4.6 )% $ 58.9 $ 60.9 (3.3 )%
Total revenues 19.8 21.1 (6.2 )% 62.8 65.4 (4.0 )%
Operating income 2.8 3.1 (9.7 )% 10.2 10.0 2.0 %
Adjusted EBITDA 4.3 4.6 (6.5 )% 14.8 14.6 1.4 %
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Boomtown Bossier City's revenues and Adjusted EBITDA have declined for the three
months ending September 30, 2012 compared with the results in the prior period
while Adjusted EBITDA increased for the nine months ended September 30, 2012
compared with the results in the prior period. Boomtown Bossier City continues
to face a very competitive operating environment, but cost discipline has
permitted the property to maintain Adjusted EBITDA despite revenue challenges.
The Adjusted EBITDA is also reflective of a non-recurring charge related to the
launch of our mychoice customer loyalty program in 2011.
L'Auberge Baton Rouge
Percentage Percentage
For the three months ended September 30, Increase/(Decrease) For the nine months ended September 30, Increase/(Decrease)
2012 2011 2012 vs. 2011 2012 2011 2012 vs. 2011
(in millions)
Gaming revenues $ 11.5 $ - NM $ 11.5 $ - NM
Total revenues 13.1 - NM 13.1 - NM
Operating loss (15.3 ) - NM (15.3 ) - NM
Adjusted EBITDA 1.5 - NM 1.5 - NM
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We opened L'Auberge Baton Rouge on September 1, 2012. As such, the three and nine months ended September 30, 2012 include only one month of operations. The first month of operations are not necessarily indicative of future performance, as they include many one time pre-opening and development charges, and we expect operating efficiencies as the property matures, consistent with most property openings.
River Downs
Percentage Percentage
For the three months ended September 30, Increase/(Decrease) For the nine months ended September 30, Increase/(Decrease)
2012 2011 2012 vs. 2011 2012 2011 2012 vs. 2011
(in millions)
Gaming revenues $ - $ - NM $ - $ - NM
Total revenues 3.5 3.9 (10.3 )% 9.9 8.5 16.5 %
Operating loss (0.7 ) (0.9 ) (22.2 )% (2.0 ) (2.2 ) (9.1 )%
Adjusted EBITDA (loss) (0.5 ) (0.7 ) (28.6 )% (1.3 ) (1.7 ) (23.5 )%
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River Downs offers live thoroughbred horse racing from mid-April through Labor Day, as well as simulcast wagering throughout the year. Revenues increased during the nine months ended September 30, 2012 as compared to the prior-year period, despite declines during the third quarter. Adjusted EBITDA (loss) has decreased for the three and nine months ended September 30, 2012 as compared to 2011 due to improved cost efficiencies.
Other
Other results include results of our newly acquired Heartland Poker Tour, among
other items. In July 2012, we purchased the assets of Heartland Poker Tour for
total consideration of $4.6 million.
Other factors affecting income from continuing operations
The following is a description of the other costs and benefits affecting income
from continuing operations for the three and nine months ended September 30,
2012 and 2011, respectively:
Percentage
For the three months ended Percentage For the nine months ended Increase/
September 30, Increase/(Decrease) September 30, (Decrease)
2012 vs.
2012 2011 2012 vs. 2011 2012 2011 2011
(in millions)
Other costs:
Corporate expenses $ (5.6 ) $ (6.2 ) (9.7 )% $ (15.9 ) $ (22.0 ) (27.7 )%
Depreciation and
amortization (27.6 ) (25.8 ) 7.0 % (80.0 ) (77.9 ) 2.7 %
Pre-opening and development
costs (11.5 ) (2.5 ) 360.0 % (18.5 ) (7.2 ) 156.9 %
Share-based compensation
expense (1.7 ) (1.6 ) 6.3 % (7.0 ) (5.3 ) 32.1 %
Write-downs, reserves and
recoveries, net (0.1 ) (1.3 ) (92.3 )% (0.9 ) (7.9 ) (88.6 )%
Loss from equity method
investment (1.4 ) (0.5 ) 180.0 % (4.2 ) (0.5 ) 740.0 %
Loss on early extinguishment
of debt - (0.2 ) NM (20.7 ) (0.2 ) NM
Net interest expense, net of
capitalized interest (23.0 ) (24.0 ) (4.2 )% (67.4 ) (75.7 ) (11.0 )%
Income tax expense (2.0 ) (1.0 ) 100.0 % (3.7 ) (2.6 ) 42.3 %
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NM - Not Meaningful
Corporate expenses represent unallocated payroll and benefits, professional
fees, rent, travel expenses and other general and administrative expenses not
directly incurred by our casino and hotel operations. Efforts to eliminate
. . .
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