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| PNK > SEC Filings for PNK > Form 10-K on 1-Mar-2013 | All Recent SEC Filings |
1-Mar-2013
Annual 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, our audited Consolidated Financial Statements and the notes thereto, included in this Annual Report on Form 10-K, and other filings with the Securities and Exchange Commission.
Pinnacle Entertainment, Inc. ("Pinnacle") 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 minority interest in Asian Coastal Development (Canada) Ltd. ("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 December 2012, we entered into a definitive agreement to acquire all of the outstanding common shares of Ameristar Casinos Inc. ("Ameristar") in an all cash transaction valued at $26.50 per share representing total consideration of $2.8 billion, including assumed debt (the "Merger Agreement"). Ameristar owns and operates eight casino properties in seven markets. Ameristar's portfolio of casinos consists of the following: Ameristar Casino Resort Spa St. Charles (serving the St. Louis, Missouri metropolitan area); Ameristar Casino Hotel Kansas City (serving the Kansas City metropolitan area); Ameristar Casino Hotel Council Bluffs (serving the Omaha, Nebraska metropolitan area and southwestern Iowa); Ameristar Casino Resort Spa Black Hawk (serving the Denver, Colorado metropolitan area); Ameristar Casino Hotel Vicksburg (serving Jackson, Mississippi and Monroe, Louisiana); Ameristar Casino Hotel East Chicago (serving the Chicagoland area); and Cactus Petes Resort Casino and The Horseshu Hotel and Casino in Jackpot, Nevada (serving Idaho and the Pacific Northwest). Subject to the satisfaction or waiver of conditions in the Merger Agreement, we expect the Merger to close by the end of the third quarter of 2013.
In April 2012, we entered into agreements to execute a series of transactions that would result in us ultimately acquiring 75.5% of the equity of Retama Partners, Ltd. ("RPL"), the owner of the racing license for Retama Park Racetrack in San Antonio, Texas. In January 2013, we closed on the acquisition of 75.5% of the equity of Pinnacle Retama Partners, LLC ("PRPLLC"), which is a reorganized limited liability company formerly known as RPL, and entered into a management contract with Retama Development Corporation ("RDC") to manage the day-to-day operations of the Retama Park Racetrack.
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, develop, or acquire such as the potential acquisition of Ameristar. 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 year ended December 31,
2012 2011 2010
(in millions)
Revenues:
L'Auberge Lake Charles $ 383.9 $ 375.4 $ 342.0
St. Louis (a) 393.5 382.0 337.1
Boomtown New Orleans 122.1 133.6 139.1
Belterra Casino Resort 156.3 154.8 152.1
Boomtown Bossier City 81.0 85.0 87.9
L'Auberge Baton Rouge 47.9 - -
River Downs 11.7 10.3 -
Other 0.7 0.1 0.4
Total revenues $ 1,197.1 $ 1,141.2 $ 1,058.6
Operating income $ 127.2 $ 128.6 $ 52.2
Adjusted EBITDA (b):
L'Auberge Lake Charles $ 115.5 $ 103.9 $ 92.9
St. Louis (a) 98.7 86.5 62.3
Boomtown New Orleans 38.0 44.9 43.9
Belterra Casino Resort 32.0 28.6 30.0
Boomtown Bossier City 18.3 18.8 20.2
L'Auberge Baton Rouge 4.9 - -
River Downs (1.6 ) (2.2 ) -
Other (0.3 ) - -
305.5 280.5 249.3
Corporate expenses (20.4 ) (28.4 ) (35.7 )
Consolidated Adjusted EBITDA (b) $ 285.1 $ 252.1 $ 213.6
Other income (expense):
Depreciation and amortization $ (115.7 ) $ (103.9 ) $ (109.7 )
Pre-opening and development costs (21.6 ) (8.8 ) (13.6 )
Non-cash share-based compensation (8.7 ) (6.6 ) (6.1 )
Impairment of indefinite-lived intangible assets - - (11.5 )
Impairment of development costs - - (23.7 )
Write-downs, reserves and recoveries, net (11.8 ) (4.2 ) 3.3
Net interest expense, net of capitalized interest (93.7 ) (95.3 ) (102.9 )
Loss from equity method investment (30.8 ) (0.6 ) -
Loss on early extinguishment of debt (20.7 ) (0.2 ) (1.9 )
Income tax (expense) benefit (4.7 ) (2.3 ) 11.7
Income (loss) from continuing operations $ (22.6 ) $ 30.2 $ (40.8 )
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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 are useful measures because they are used by
management as a performance measure to analyze the performance of our
business, and are especially relevant in evaluating large, long-lived
casino-hotel projects because they provide 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 they are indicators 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.
Each segment's contribution to the operating results was as follows:
L'Auberge Lake Charles
For the year ended December 31, % Increase/(Decrease)
2012 2011 2010 2012 vs. 2011 2011 vs. 2010
(in millions)
Gaming revenues $ 333.6 $ 330.0 $ 301.4 1.1 % 9.5 %
Total revenues 383.9 375.4 342.0 2.3 % 9.8 %
Operating income 92.9 84.2 67.2 10.3 % 25.3 %
Adjusted EBITDA 115.5 103.9 92.9 11.2 % 11.8 %
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L'Auberge Lake Charles, our largest property, had an increase in revenues and Adjusted EBTIDA for the year ended December 31, 2012 as compared to the prior-year period, as a result of a continued focus on the efficiency of the operation and utilization of assets, and due to a non-recurring charge related to the re-launch of our mychoice customer loyalty program in April 2011. In addition, improvements made throughout the property have helped increase gaming revenues. Operating efficiencies have been achieved through consolidating tasks by leveraging shared services where appropriate to do so. Despite increases to revenues and Adjusted EBITDA for the year ended December 31, 2012, operating performance was negatively impacted by Hurricane Isaac, an extensive room remodeling program started during the fourth quarter of 2012, and challenging table game hold during the fourth quarter of 2012. We expect this phase of the remodel to continue in 2013, with a pause during the summer months of 2013.
The significant increase in revenues and Adjusted EBTIDA in 2011 as compared to the year ended December 31, 2010, was a result of the growth of the Lake Charles gaming market, the evolution of our marketing programs and a continued focus on the efficiency of the operation and proper utilization of assets. The re-launch of our mychoice customer loyalty program in April 2011 contributed to our strong results. Operating efficiencies were achieved through consolidating tasks by leveraging shared services where appropriate to do so.
St. Louis
For the year ended December 31, % Increase/(Decrease)
2012 2011 2010 2012 vs. 2011 2011 vs. 2010
(in millions)
Gaming revenues $ 339.0 $ 327.7 $ 285.9 3.4 % 14.6 %
Total revenues 393.5 382.0 337.1 3.0 % 13.3 %
Operating income 32.8 30.6 (2.1 ) 7.2 % NM
Adjusted EBITDA 98.7 86.5 62.3 14.1 % 38.8 %
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NM - Not Meaningful
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 increased during the year ended December 31, 2012 as compared to the prior-year 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 re-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 year ended December 31, 2012, relative to using the prior medical expense allocation methodology, the use of medical pooling had a negative impact of $3.3 million on Adjusted EBITDA for St. Louis. Despite increases to revenues and Adjusted EBITDA for the year ended December 31, 2012, operating performance was negatively impacted by construction disruption during 2012 from our River City expansion project. This $82 million expansion project includes a 1,600 space parking garage, a 200-guestroom hotel, and a multi-purpose event center. The covered parking structure was completed during the fourth quarter of 2012. The multi-purpose event center expected to open during the second quarter of 2013 and the hotel expected to open in the fall of 2013.
The increase in revenues in 2011, as compared to 2010, was due to the continued
ramp-up of River City, which opened in March 2010. The increase in Adjusted
EBITDA in 2011, as compared to 2010, was reflective of the benefits of a
heightened focus on operating efficiencies primarily realized through our shared
services arrangement in this market. In April 2011, we re-launched our mychoice
customer loyalty program, which had contributed to the strong results by
increasing customer spend and driving profitable revenue growth. A new Isle of
Capri casino opened in Cape Girardeau, Missouri in October 2012, and it is too
early to assess its impact.
Boomtown New Orleans
For the year ended December 31, % Increase/(Decrease)
2012 2011 2010 2012 vs. 2011 2011 vs. 2010
(in millions)
Gaming revenues $ 117.2 $ 128.5 $ 133.4 (8.8 )% (3.7 )%
Total revenues 122.1 133.6 139.1 (8.6 )% (4.0 )%
Operating income 33.7 38.2 36.3 (11.8 )% 5.2 %
Adjusted EBITDA 38.0 44.9 43.9 (15.4 )% 2.3 %
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Boomtown New Orleans revenue and Adjusted EBITDA decreased for the year ended December 31, 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 have made leadership changes at Boomtown New Orleans and 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 with completion expected in the first half of 2014. We also continue to refine marketing programs to drive additional profitable revenue.
Revenues and Adjusted EBITDA were negatively impacted during 2011 due to the property's closure for several days over Labor Day weekend due to Tropical Storm Lee and subsequent flooding disruption. In addition, the 2010 period was positively impacted by elevated local economic conditions created by an oil spill cleanup and recovery efforts in late 2010. Despite these changes, Boomtown New Orleans saw Adjusted EBITDA increase due to improved operational efficiencies.
Belterra Casino Resort
For the year ended December 31, % Increase/(Decrease)
2012 2011 2010 2012 vs. 2011 2011 vs. 2010
(in millions)
Gaming revenues $ 134.2 $ 132.1 $ 129.8 1.6 % 1.8 %
Total revenues 156.3 154.8 152.1 1.0 % 1.8 %
Operating income 19.8 15.7 15.6 26.1 % 0.6 %
Adjusted EBITDA 32.0 28.6 30.0 11.9 % (4.7 )%
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During 2012, revenues for Belterra have remained consistent with a slight increase 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 $1.6 million on Adjusted EBITDA for Belterra for the year ended December 31, 2012.
During 2011, revenues and Adjusted EBITDA were consistent with the prior-year period despite difficulties resulting from soft general economic conditions. Adjusted EBITDA for Belterra Casino was negatively impacted during 2011 by increased marketing and medical expenses.
Boomtown Bossier City
For the year ended December 31, % Increase/(Decrease)
2012 2011 2010 2012 vs. 2011 2011 vs. 2010
(in millions)
Gaming revenues $ 76.1 $ 79.3 $ 82.4 (4.0 )% (3.8 )%
Total revenues 81.0 85.0 87.9 (4.7 )% (3.3 )%
Operating income 12.3 12.8 13.8 (3.9 )% (7.2 )%
Adjusted EBITDA 18.3 18.8 20.2 (2.7 )% (6.9 )%
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Boomtown Bossier City's revenues and Adjusted EBITDA declined in 2012 compared with the results in the prior period. Boomtown Bossier City continues to face a very competitive operating environment. Revenue increases in this market have been difficult to achieve in recent years due to the state of competition and regional economic conditions. We have attempted to offset the additional competition through a refinement of the property's marketing efforts and certain cost-cutting measures related to non-value added processes that do not impact the guest experience. The Adjusted EBITDA is also reflective of a non-recurring charge related to the re-launch of our mychoice customer loyalty program in 2011. Boomtown Bossier City revenues and Adjusted EBITDA declined in 2011, as compared to 2010, due to the competitive operating environment.
L'Auberge Baton Rouge
For the year ended December 31, % Increase/(Decrease)
2012 2011 2010 2012 vs. 2011 2011 vs. 2010
(in millions)
Gaming revenues $ 42.4 $ - $ - NM NM
Total revenues 47.9 - - NM NM
Operating loss (18.9 ) - - NM NM
Adjusted EBITDA 4.9 - - NM NM
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NM - Not Meaningful
We opened L'Auberge Baton Rouge on September 1, 2012. Therefore, the year ended
December 31, 2012 results include only four months of operations. The initial
months 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
For the year ended December 31, % Increase/(Decrease)
2012 2011 2010 2012 vs. 2011 2011 vs. 2010
(in millions)
Gaming revenues $ - $ - $ - NM NM
Total revenues 11.7 10.3 - 13.6 % NM
Operating loss (7.4 ) (2.9 ) - 155.2 % NM
Adjusted EBITDA (loss) (1.6 ) (2.2 ) - (27.3 )% NM
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NM - Not Meaningful
River Downs offers live thoroughbred horse racing from mid-April through Labor
Day, as well as simulcast wagering
throughout the year. Revenues increased during 2012 as compared to the
prior-year period. Adjusted EBITDA (loss) has decreased for 2012 as compared to
2011 due to improved cost efficiencies. Operating loss has increased for 2012 as
compared to 2011 due to an acceleration of depreciation expense of $4.7 million
prior to the demolition of the existing grand stand and race book to make way
for a redeveloped gaming entertainment facility.
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 (loss) from continuing operations
For the year ended December 31, % Increase/(Decrease)
2012 2011 2010 2012 vs. 2011 2011 vs. 2010
(in millions)
Other benefits (costs):
Corporate expenses $ (20.4 ) $ (28.4 ) $ (35.7 ) (28.2 )% (20.4 )%
Depreciation and amortization
expense (115.7 ) (103.9 ) (109.7 ) 11.4 % (5.3 )%
Pre-opening and development
costs (21.6 ) (8.8 ) (13.6 ) 145.5 % (35.3 )%
Non-cash share-based
compensation (8.7 ) (6.6 ) (6.1 ) 31.8 % 8.2 %
Impairment of indefinite-lived
intangible assets - - (11.5 ) NM NM
Impairment of development costs - - (23.7 ) NM NM
Write-downs, reserves and
recoveries, net (11.8 ) (4.2 ) 3.3 181.0 % (227.3 )%
Net interest expense, net of
capitalized interest (93.7 ) (95.3 ) (102.9 ) (1.7 )% (7.4 )%
Loss from equity method
investment (30.8 ) (0.6 ) - NM NM
Loss on early extinguishment of
. . .
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