UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

PINNACLE ENTERTAINMENT, INC.

Delaware		95-3667491
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3800 Howard Hughes Parkway
Las Vegas, NV 89169
(Address of principal executive offices) (Zip Code)

(702) 784-7777
(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 the filing requirements for the past 90 days. YES þ 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 o 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 þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO þ

As of the close of business on August 3, 2009, the number of outstanding shares of the registrant’s common stock was 60,064,681.

 

 

PINNACLE ENTERTAINMENT, INC.
TABLE OF CONTENTS

PART I
Item 1. Financial Statements (Unaudited)			3
Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2009 and 2008			3
Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008			4
Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2009 and 2008			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Executive Summary			24
Results of Operations			25
Liquidity and Capital Resources			31
Contractual Obligations and Other Commitments			35
Critical Accounting Estimates			35
Forward-Looking Statements			36
Item 3. Quantitative and Qualitative Disclosures About Market Risk			37
Item 4. Controls and Procedures			38
PART II
Item 1. Legal Proceedings			38
Item 1A. Risk Factors			39
Item 4. Submission of Matters to a Vote of Security Holders			40
Item 6. Exhibits			41
Signature Page			42
Exhibit 4.1
Exhibit 4.2
Exhibit 10.2
Exhibit 11
Exhibit 31.1
Exhibit 31.2
Exhibit 32

PART I

Item 1.    Financial Statements

PINNACLE ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

		For the three months								For the six months
		ended June 30,								ended June 30,
		2009				2008				2009				2008
		(in thousands, except per share data)
Revenues:
Gaming		$	229,698			$	229,765			$	467,193			$	457,967
Food and beverage			16,624				16,500				31,487				30,242
Lodging			10,060				9,229				18,457				15,358
Retail, entertainment and other			9,869				10,824				18,074				19,336
			266,251				266,318				535,211				522,903
Expenses and other costs:
Gaming			135,885				141,238				270,450				279,262
Food and beverage			16,243				16,087				31,507				31,108
Lodging			6,168				5,184				11,976				9,572
Retail, entertainment and other			5,548				5,723				9,858				11,536
General and administrative			58,881				62,834				116,817				122,525
Depreciation and amortization			26,185				31,046				52,386				59,507
Pre-opening and development costs			6,634				14,207				12,518				31,343
Write-downs, reserves and recoveries, net			301				6,920				713				6,802
			255,845				283,239				506,225				551,655
Operating income (loss)			10,406				(16,921	)			28,986				(28,752	)
Other non-operating income			103				484				236				1,623
Interest expense, net of capitalized interest			(16,074	)			(11,607	)			(32,752	)			(23,690	)
Gain on sale of equity securities			12,914				—				12,914				—
Impairment of investment in equity securities			—				(22,636	)			—				(22,636	)
Income (loss) from continuing operations before income taxes			7,349				(50,680	)			9,384				(73,455	)
Income tax (expense) benefit			(2,400	)			2,317				(3,208	)			9,333
Income (loss) from continuing operations			4,949				(48,363	)			6,176				(64,122	)
Income (loss) from discontinued operations, net of income taxes			(241	)			30,254				(537	)			51,066
Net income (loss)		$	4,708			$	(18,109	)		$	5,639			$	(13,056	)
Net income (loss) per common share—basic
Income (loss) from continuing operations		$	0.08			$	(0.81	)		$	0.10			$	(1.07	)
Income (loss) from discontinued operations, net of income taxes			0.00				0.51				(0.01	)			0.85
Net income (loss) per common share—basic		$	0.08			$	(0.30	)		$	0.09			$	(0.22	)
Net income (loss) per common share—diluted
Income (loss) from continuing operations		$	0.08			$	(0.81	)		$	0.10			$	(1.07	)
Income (loss) from discontinued operations, net of income taxes			0.00				0.51				(0.01	)			0.85
Net income (loss) per common share—diluted		$	0.08			$	(0.30	)		$	0.09			$	(0.22	)
Number of shares—basic			60,064				59,962				60,036				59,956
Number of shares—diluted			60,851				59,962				61,331				59,956

The accompanying notes are an integral part of these condensed consolidated financial statements.

PINNACLE ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

		June 30, 2009				December 31, 2008
		(Unaudited)
		(in thousands, except share data)
ASSETS
Current Assets:
Cash and cash equivalents		$	134,019			$	115,712
Accounts receivable, net of allowance for doubtful accounts of $12,289 and $11,848			22,073				26,348
Inventories			5,955				6,425
Prepaid expenses and other assets			28,945				18,845
Total current assets			190,992				167,330
Restricted cash			9,397				9,318
Land, buildings, riverboats and equipment: (Note 1)
Land and land improvements			415,840				407,169
Buildings, riverboats and improvements			1,095,792				1,099,204
Furniture, fixtures and equipment			446,574				436,887
Construction in progress			199,060				127,407
			2,157,266				2,070,667
Less: accumulated depreciation			(488,526	)			(440,630	)
			1,668,740				1,630,037
Assets held for sale			2,762				2,687
Goodwill			16,742				16,742
Intangible assets, net (Note 1)			32,507				32,607
Other assets, net			45,072				60,503
		$	1,966,212			$	1,919,224
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	48,343			$	45,755
Accrued interest			10,970				11,010
Accrued compensation			39,772				41,574
Accrued taxes			21,022				17,089
Other accrued liabilities			54,817				55,060
Deferred income taxes			2,032				4,029
Current portion of long-term debt (Note 2)			93				89
Total current liabilities			177,049				174,606
Long-term debt less current portion (Note 2)			974,608				943,243
Other long-term liabilities			58,983				59,831
Deferred income taxes (Note 3)			3,836				2,198
Commitments and contingencies (Note 6)
Stockholders’ Equity
Preferred stock—$1.00 par value, 250,000 shares authorized, none issued or outstanding			—				—
Common stock—$0.10 par value, 60,064,681 and 59,981,181 shares outstanding, net of treasury shares			6,207				6,199
Additional paid-in capital			1,007,463				999,419
Accumulated deficit			(224,438	)			(230,077	)
Accumulated other comprehensive loss			(17,406	)			(16,105	)
Treasury stock, at cost, for both periods 2,008,986 of treasury shares			(20,090	)			(20,090	)
Total stockholders’ equity			751,736				739,346
		$	1,966,212			$	1,919,224

The accompanying notes are an integral part of these condensed consolidated financial statements.

PINNACLE ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

		For the six months
		ended June 30,
		2009				2008
		(in thousands)
Cash flows from operating activities:
Net income (loss)		$	5,639			$	(13,056	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			52,386				59,863
Loss on disposal of assets			345				—
Impairment of buildings, riverboats and equipment			346				5,979
Impairment of investment in equity securities			—				22,636
Gain on sale of equity securities			(12,914	)			—
Provision for bad debts			1,410				1,131
Amortization of debt issuance costs			2,302				2,147
Share-based compensation expense			7,694				4,766
Change in deferred income taxes			4,789				27,343
Tax benefit from stock option exercises			—				50
Excess tax benefit from stock equity plans			—				(182	)
Insurance advances in excess of net book value			—				2,018
Change in long-term accounts, net			—				(646	)
Changes in operating assets and liabilities:
Receivables			1,083				(3,879	)
Prepaid expenses and other			(10,209	)			(8,395	)
Other long-term assets			1,880				—
Accounts payable			(5,125	)			(14,162	)
Accrued compensation			(770	)			232
Accrued interest			(40	)			(109	)
Other accrued liabilities			(1,103	)			20,518
Other long-term liabilities			242				—
All other, net			—				95
Net cash provided by operating activities			47,955				106,349
Cash flows from investing activities:
Capital expenditures			(84,193	)			(217,778	)
Change in restricted cash			(235	)			(2,089	)
Kansas City application deposit			—				(25,000	)
Proceeds from sale of equity securities			23,674				—
Proceeds from sale of property and equipment			368				—
Net cash used in investing activities			(60,386	)			(244,867	)
Cash flows from financing activities:
Borrowings under credit facility			57,225				125,000
Repayments under credit facility			(25,991	)			(50,000	)
Payments on other secured and unsecured notes payable			(44	)			(49	)
Proceeds from common stock options exercised			455				566
Excess tax benefits from stock equity plans			—				182
Debt issuance and other financing costs			(605	)			(412	)
Net cash provided by financing activities			31,040				75,287
Effect of exchange rate changes on cash and cash equivalents			(302	)			1,067
Increase (decrease) in cash and cash equivalents			18,307				(62,164	)
Cash and cash equivalents at the beginning of the period			115,712				191,124
Cash and cash equivalents at the end of the period		$	134,019			$	128,960
Supplemental Cash Flow Information:
Cash paid for interest, net of amounts capitalized		$	30,500			$	36,912
Cash payments related to income taxes, net			1,350				175
Increase (decrease) in construction related deposits and liabilities			9,942				(28,027	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

PINNACLE ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1—Summary of Significant Accounting Policies

Basis of Presentation and Organization Pinnacle Entertainment, Inc. (“Pinnacle”) is a developer, owner and operator of casinos and related hospitality and entertainment facilities. We operate seven domestic casinos located in southeastern Indiana (“Belterra Casino Resort”); Lake Charles, New Orleans and Bossier City, Louisiana (“L’Auberge du Lac,” “Boomtown New Orleans” and “Boomtown Bossier City”, respectively); Reno, Nevada (“Boomtown Reno”) and St. Louis, Missouri (“Lumière Place Casino” and “President Casino”). Internationally, we operate one significant casino and several small casinos in Argentina (“Casino Magic Argentina”). We view each domestic property as an operating segment and aggregate our Argentine casinos into the “Casino Magic Argentina” reporting segment. References in this Quarterly Report on Form 10-Q to “Pinnacle,” the “Company,” “we,” “our” or “us” refer to Pinnacle Entertainment, Inc. and its subsidiaries, except where the context otherwise indicates.

In July 2008, we announced plans to sell or otherwise discontinue operations of The Casino at Emerald Bay in the Bahamas and officially ceased operations on January 2, 2009. We have classified the related assets as held for sale in our unaudited Condensed Consolidated Balance Sheets and have included its results in discontinued operations in our unaudited Condensed Consolidated Statement of Operations. Prior period amounts have been reclassified to reflect the current year presentation, which reclassifications had no effect on net income as previously reported.

Within our construction and development pipeline, we have a number of projects at various stages of development. In south St. Louis County, we are constructing a casino named River City, which is expected to open in the spring of 2010. In Lake Charles, Louisiana, we are developing a second casino resort to be called Sugarcane Bay. We are also developing a casino-hotel in Baton Rouge, Louisiana. Each of these projects is subject to various regulatory approvals.

Principles of Consolidation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions of the Securities and Exchange Commission (“SEC”) to the Quarterly Report on Form 10-Q and, therefore, do not include all information and notes necessary for complete financial statements in conformity with the instructions for generally accepted accounting principles (“GAAP”) in the United States. The results for the periods indicated are unaudited, but reflect all adjustments that management considers necessary for a fair presentation of operating results. The unaudited Condensed Consolidated Financial Statements include the accounts of Pinnacle Entertainment, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The results of operations for interim periods are not indicative of a full year of operations. These unaudited Condensed Consolidated Financial Statements and notes thereto should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2008.

Use of Estimates The preparation of unaudited Condensed Consolidated Financial Statements in conformity with accounting principles used in the United States 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 liability and mychoice customer rewards 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 Effective January 1, 2008, we adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” and SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment to FASB Statement No. 115.” SFAS No. 157 defines fair value 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. It also establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value framework requires the categorization of assets and liabilities into three levels based upon assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

•

Level 1: Quoted market prices in active markets for identical assets or liabilities.

•

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

•

Level 3: Unobservable inputs that are not corroborated by market data.

SFAS No. 159 permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period. During the six months ended June 30, 2009, we elected not to use the fair-value option permitted under SFAS No. 159 for any of our financial assets and financial liabilities that are not already recorded at fair value.

As of June 30, 2009, our assets and liabilities that are measured at fair value on a recurring basis are as follows:

		Balance				Level 1				Level 2				Level 3
		(in millions)
Liabilities:
Phantom stock units		$	0.7			$	0.7			$	—			$	—
Total liabilities at fair value		$	0.7			$	0.7			$	—			$	—

As of December 31, 2008, our assets and liabilities that are measured at fair value on a recurring basis are as follows:

		Balance				Level 1				Level 2				Level 3
		(in millions)
Assets:
Available-for-sale securities		$	10.8			$	10.8			$	—			$	—
Total assets at fair value		$	10.8			$	10.8			$	—			$	—
Liabilities:
Phantom stock units		$	0.6			$	0.6			$	—			$	—
Total liabilities at fair value		$	0.6			$	0.6			$	—			$	—

Available-for-Sale Securities: We classify all equity securities that we hold as current available-for-sale securities. At December 31, 2008, available-for-sale securities comprised 1.2 million shares of common stock in Ameristar Casinos, Inc., a competitor, with a fair value of $10.8 million. During the three months ended June 30, 2009, we sold such securities for cash proceeds of $23.7 million and realized a gain of $12.9 million.

Land, Buildings, Riverboats and Equipment Land, buildings, riverboats and equipment are stated at cost. We capitalize the costs of improvements that extend the life of the asset. Construction in progress at June 30, 2009 and December 31, 2008 relates primarily to our River City project. Depreciation expense for the three and six months ended June 30, 2009 was $26.2 million and $52.3 million, respectively, and $31.0 million and $59.5 million for the three and six months ended June 30, 2008, respectively. Interest expense is capitalized on internally constructed assets at our overall weighted average cost of borrowing. Capitalized interest was $2.7 million and $4.9 million for the three and six months ended June 30, 2009, respectively, and $7.8 million and $14.8 million for the three and six months ended June 30, 2008, respectively.

Goodwill and Other Intangible Assets Pursuant to SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and other indefinite-lived intangible assets are subject to an annual assessment for impairment during the fourth quarter, or more frequently if there are indications of possible impairment, by applying a fair-value-based test. There were no impairments to goodwill or indefinite-lived intangible assets during the three or six months ended June 30, 2009 and 2008, respectively.

Amortizing Intangible Assets Amortizing intangible assets consist of our concession agreement in Argentina, which provides us with certain exclusive rights to operate casinos in major cities of the Province of Neuquén. In June 2008, all of the 32 guestrooms of the hotel that adjoins the principal casino in Neuquén were opened under the terms of our concession agreement. Our exclusivity rights are to be extended from 2016 to 2021 with the completion of such luxury hotel. We are awaiting formal government approval of such extension. The unamortized costs as of June 30, 2009 and December 31, 2008 were $656,000 and $753,000, respectively.

Pre-opening and Development Costs Pre-opening and development costs are expensed as incurred, consistent with the American Institute of Certified Public Accountants Statement of Position (“SOP”) 98-5 “Reporting on the Costs of Start-up Activities”, and for the three and six months ended June 30, 2009 and 2008 consist of the following:

		For the three months ended								For the six months ended
		June 30,								June 30,
		2009				2008				2009				2008
		(in millions)
Pre-opening and development costs:
Atlantic City (a)		$	2.6			$	5.3			$	5.5			$	11.0
River City (b)			1.6				1.6				2.8				2.6
Baton Rouge			1.6				0.8				2.7				5.6
Sugarcane Bay			0.6				1.0				1.2				1.5
Kansas City			—				1.9				—				2.7
Lumière Place			—				2.4				—				6.0
Missouri Proposition A Initiative			—				0.6				—				1.2
Other			0.2				0.6				0.3				0.7
Total pre-opening and development costs		$	6.6			$	14.2			$	12.5			$	31.3

Comprehensive Income (Loss) Our comprehensive income (loss) is as follows:

		For the three months ended								For the six months ended
		June 30,								June 30,
		2009				2008				2009				2008
		(in millions)
Net income (loss)		$	4.7			$	(18.1	)		$	5.6			$	(13.1	)
Other comprehensive income (loss) Foreign currency translation gain (loss)			(0.4	)			1.2				(2.1	)			1.1
Post-retirement plan benefit obligation, net of income taxes (a)			—				(0.5	)			0.8				(0.5	)
Comprehensive income (loss)		$	4.3			$	(17.4	)		$	4.3			$	(12.5	)

Earnings per Share Diluted earnings per share assume exercise of in-the-money stock options (those options with exercise prices at or below the weighted average market price for the periods presented) outstanding at the beginning of the period or at the date of issuance. We calculate the effect of dilutive securities using the treasury stock method. As of June 30, 2009 and 2008, our share-based awards issued under our stock option plans consisted primarily of common stock option grants.

Recently Issued Accounting Pronouncements

FSP No. FAS 157-4 In April 2009, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-4 “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not Orderly” which provides additional guidance for estimating fair value in accordance with SFAS No. 157 “Fair Value Measurements” when the volume and level of activity for the asset or liability has significantly decreased, as well as guidance on identifying circumstances that indicate a transaction is not orderly. This statement was effective for interim and annual periods ending after June 15, 2009 and its adoption did not have an effect on our unaudited Condensed Consolidated Financial Statements.

FSP No. FAS 107-1 and APB 28-1 In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1 “Interim Disclosures about Fair Value of Financial Instruments” which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements, as well as disclosures in summarized financial information at interim reporting periods. This statement was effective for interim reporting periods ending after June 15, 2009, and its adoption did not have a material effect on our unaudited Condensed Consolidated Financial Statements.

FSP No. FAS 115-2 and FAS 124-2 In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” which amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This statement was effective for interim and annual reporting periods ending after June 15, 2009, and its adoption did not have an effect on our unaudited Condensed Consolidated Financial Statements.

SFAS No. 165 In May 2009, the FASB issued SFAS No. 165 “Subsequent Events” which requires disclosures regarding subsequent events for events or transactions that occur after the balance sheet date but before the financial statements are issued, for public companies, and requires disclosure of the date through which an entity has evaluated subsequent events. This statement was effective for interim reporting periods ending after June 15, 2009, and its adoption did not have a material effect on our unaudited Condensed Consolidated Financial Statements.

SFAS No. 168 In June 2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” which establishes the FASB Accounting Standards Codification as the single source of authoritative non-governmental GAAP. This statement is effective for interim and annual reporting periods ending after September 15, 2009, and we do not expect the adoption to have a material effect on our unaudited Condensed Consolidated Financial Statements.

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

Note 2—Long-Term Debt

Long-term debt as of June 30, 2009 and December 31, 2008 consists of the following:

		June 30,				December 31,
		2009				2008
		(in millions)
Senior Secured Credit Facility		$	183.0			$	151.8
Unsecured 8.25% Notes due 2012			276.5				276.7
Unsecured 8.75% Notes due 2013			133.8				133.7
Unsecured 7.50% Notes due 2015			380.5				380.2
Other secured and unsecured notes payable			0.9				0.9
		$	974.7			$	943.3
Less current maturities			(0.1	)			(0.1	)
		$	974.6			$	943.2

Senior Secured Credit Facility: As of June 30, 2009, we had borrowed $183 million and had letters of credit of $12.6 million under our $625 million revolving credit facility that matures in December 2010 (the “Credit Facility”). As of June 30, 2009, the interest rate of the Credit Facility is computed as either LIBOR plus a margin of 1.75% or prime plus a margin of 0.25% based on our “Consolidated Leverage Ratio” as defined in the Credit Facility. The letters of credit bore facility fees of 1.75% per annum during the three and six months ended June 30, 2009.

The Credit Facility has, among other things, restrictive financial covenants and capital spending limits and other affirmative and negative covenants. As of June 30, 2009, we believe we were in compliance with all of the financial covenants in our Credit Facility.

On July 21, 2009, we entered into a Fourth Amendment to the Credit Facility, and on July 27, 2009, we priced the offering of $450 million in 8⁵/₈% senior notes due 2017. For a description of the Fourth Amendment to the Credit Facility and the planned issuance of the senior notes, please see Note 9, Subsequent Events.

Fair Value of Financial Instruments: The estimated fair value of our long-term debt at June 30, 2009 was approximately $899 million, versus its book value of $975 million. At December 31, 2008, the estimated fair value of our long-term debt was approximately $651 million, versus its book value of $943 million. The estimated fair value of our senior subordinated notes was based on quoted market prices on or about June 30, 2009 and December 31, 2008 and the fair value of our senior secured credit facility was based on estimated fair values of comparable debt instruments.

Interest expense: Interest expense was as follows:

		For the three months ended								For the six months ended
		June 30,								June 30,
		2009				2008				2009				2008
		(in millions)
Interest expense before capitalization of interest		$	18.8			$	19.4			$	37.7			$	38.5
Less: capitalized interest			(2.7	)			(7.8	)			(4.9	)			(14.8	)
Total interest expense, net of capitalized interest		$	16.1			$	11.6			$	32.8			$	23.7

The decrease in interest expense was principally due to lower interest rates in the first half of 2009 compared to the first half of 2008, partially offset by increased borrowings in 2009 versus 2008. The decrease in capitalized interest was principally due to the suspension of development activities in Atlantic City, partially offset by an increase attributable to our River City project.

Note 3—Income Taxes

Our effective income tax rate for continuing operations for the three and six months ended June 30, 2009, was 32.7% and 34.2%, respectively, as compared to (4.6)% and (12.7)% for the same periods in 2008. Our effective tax rates in the 2009 periods were negatively affected by non-deductible items such as Indiana state gaming revenue taxes, which are non-deductible on our Indiana state income tax return, and foreign taxes of our Argentine subsidiary pursuant to a tax amnesty program offered by the Argentine government. We determined that the certainty of the amnesty program offset the potential economic value of eventually prevailing on certain disputed tax positions. Additionally, during June of 2009, we received an informal notification from a field agent for the Indiana Department of Revenue challenging whether income and gain from certain asset sales and other transactions outside of Indiana, which we reported on our returns from the 2000 to 2007 years, resulted in business income subject to apportionment, and proposed a potential assessment of approximately $11 million of additional Indiana income taxes. We are in the process of evaluating those preliminary proposed adjustments to determine their factual accuracy and technical merits. We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, on January 1, 2007. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, management believes that the reserves for income taxes reflect the most probable outcome as of June 30, 2009. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances. It is possible that our unrecognized tax benefits could increase between $4 million and $6 million during the next 12 months.

Note 4—Employee Benefit and Other Plans

Share-based Compensation: As of June 30, 2009, we had approximately 7.0 million share-based awards issued, 14,000 of which are restricted stock awards and the rest of which are common stock options, with approximately 994,600 share-based awards available for grant.

Pursuant to SFAS No. 123R, “Share-Based Payment,” we recorded pre-tax compensation expense of approximately $5.3 million and $7.6 million for the three and six months ended June 30, 2009, respectively, and $3.1 million and $4.8 million for the three and six months ended June 30, 2008, respectively. The expense has increased due to additional options granted to members of our Board of Directors. These grants, along with all previously outstanding unvested stock option grants to board members, became fully vested on May 5, 2009. Theoretical compensation costs not yet amortized related to stock options granted totaled approximately $19.4 million and $26.3 million at June 30, 2009 and 2008, respectively, and the weighted average period over which the costs are expected to be recognized is approximately three years.

The aggregate amount of cash we received from the exercise of stock options was $9,000 and $455,000 for the three and six months ended June 30, 2009, respectively, and $99,700 and $566,000 for the three and six months ended June 30, 2008, respectively. The associated shares were newly issued common stock. Excess tax benefit resulting from the exercise of stock options was $181,842 for the six months ended June 30, 2008, and is reported as additional cash flows from financing activities. There was no such benefit for the six months ended June 30, 2009.

The following table summarizes information related to our common stock options under our stock option plans:

		Number of				Weighted Average
		Stock Options				Exercise Price
Options outstanding at January 1, 2009			7,378,540			$	14.73
Granted			238,500			$	11.22
Exercised			(76,500	)		$	5.95
Cancelled, Forfeited			(542,800	)		$	12.50
Options outstanding at June 30, 2009			6,997,740			$	14.88
Vested or expected to vest at a point in the future as of June 30, 2009			6,792,111
Options exercisable at June 30, 2009			4,578,565			$	13.57
Weighted-average value per granted option calculated using the Black-Scholes option-pricing model for options granted during the six months ended June 30, 2009		$	6.25

401(k) Plan: During the quarter ended June 30, 2009, management decided to reduce the scope of a discretionary employee 401(k) matching program. Amounts accrued in relation to this supplemental matching program were reversed during the current quarter.

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

Write-downs, reserves and recoveries, net consist of the following:

		For the three months ended								For the six months ended
		June 30,								June 30,
		2009				2008				2009				2008
		(in millions)
Impairment of assets (a)		$	0.2			$	5.5			$	0.3			$	5.4
Customer loyalty program related expenses (b)			—				1.4				—				1.4
Loss on disposal of assets			0.1				—				0.4				—
Write-downs, reserves and recoveries, net		$	0.3			$	6.9			$	0.7			$	6.8

Note 6—Commitments and Contingencies

Guaranteed Maximum Price Agreement for Lumière Place: In the second quarter of 2007, we signed a Guaranteed Maximum Price Agreement (the “GMP Agreement”) with a general contractor for our Lumière Place project. Pursuant to the GMP Agreement, the contractor agreed to complete the construction of the casino-hotel for a maximum price of approximately $345 million. The guaranteed maximum price set by the GMP Agreement was a portion of the total budget of $507 million for the Lumière Place project. The budget included items separate from those covered in the GMP Agreement, such as pre-opening and development costs; furniture, fixtures and other equipment; gaming equipment; consulting fees and information technology. As of June 30, 2009, we had paid approximately $335 million of the approximate $345 million maximum price and on July 2, 2009, we paid the contractor approximately $4.6 million in full satisfaction of the GMP Agreement.

Redevelopment Agreement: In connection with our Lumière Place project, we have a redevelopment agreement which, among other things, commits us to oversee the investment of $50.0 million in residential housing, retail or mixed-use developments in the City of St. Louis within five years of the opening of the casino and hotel. Such investment can be made with partners and partner contributions and project debt financing, all of which count toward the $50.0 million investment commitment. We are also obligated to pay an annual fee of $1.0 million to the City of St. Louis beginning after our River City project opens. The redevelopment agreement also contains certain contingent payments in the event of certain defaults. If we and our development partners collectively fail to invest $50.0 million in residential housing, retail, or mixed-use developments within five years of the opening of the casino and hotel, we would be obligated to pay an additional annual service fee of $1.0 million in Year Six, $2.0 million in Years Seven and Eight, and $2.0 million annually thereafter, adjusted by the change in the consumer price index.

Guaranteed Maximum Price Agreement for River City: On August 8, 2008, we entered into a Guaranteed Maximum Price Agreement (the “Agreement”) with a general contractor for the construction of our River City project. Among other things, the Agreement establishes that the contractor will complete the construction of the casino for a maximum price of approximately $149 million and that the project will be substantially complete by January 31, 2010. The guaranteed maximum price set by the Agreement is a portion of the total budget of $357 million for the River City project. The budget includes items separate from those covered in the Agreement, such as construction work prior to entering into the Agreement, pre-opening and development costs; furniture, fixtures and other equipment; gaming equipment; consulting fees and information technology. The $357 million budget excludes capitalized interest of approximately $26.0 million, operating cash estimated to be approximately $10 million and the non-cash accrual for rent during the construction period.

Lease and Development Agreement: In connection with our River City project, we have a lease and development agreement with the St. Louis County Port Authority which, among other things, commits us to lease 56 acres for 99 years (not including certain termination provisions) for annual rent of the greater of $4.0 million or 2.5% of adjusted gross receipts (as defined in the lease and development agreement). We are required to invest a minimum of $375 million to: (a) construct a gaming and multi-use facility; (b) perform environmental remediation on the site of the project, which remediation has been completed; (c) contribute $5.1 million for the construction of community and recreational facilities, which amount has been paid; (d) develop and construct a hatch shell on the adjoining property; and (e) construct a roadway into the project, which construction is complete. We are also required to pay certain fees, potentially aggregating $20 million, unless we invest at least an additional $75 million into a second phase that would include a hotel with a minimum of 100 guestrooms and other amenities, such amenities to be mutually agreed upon by us and St. Louis County. The lease and development agreement provides that we must proceed with reasonable diligence to complete the gaming facilities by May 1, 2009, subject to delays beyond our control, including governmental approvals. We currently anticipate that the property will be completed in the spring of 2010 due to several factors which were beyond our control, including delays in receiving governmental approvals and delays caused by unfavorable weather conditions. The second phase must be opened within three years from August 11, 2009, or we are required to pay fees over five years beginning on the January 2 immediately following the expiration of three years. In each of the five subsequent years that the second phase is not opened, the amount of fees begins at $2.0 million for the first year and increases by $1.0 million each subsequent year: hence, $3.0 million in Year Two, $4.0 million in Year Three, $5.0 million in Year Four and $6.0 million in Year Five. As a result, the maximum amount of such fees that we would have to pay if the second phase is not completed is $20.0 million.

Employment and Severance Agreements: We have entered into employment agreements with certain employees, including our executive officers. The employment agreements require severance payments in the case of certain triggering events, including a change in control. As of June 30, 2009, the maximum aggregate amount that would be paid to this group of 36 employees if a triggering event occurred on June 30, 2009 following a change in control, where applicable, is approximately $42.6 million.

In connection with Wade Hundley’s resignation as President of the Company, we entered into a separation agreement with him, dated as of June 5, 2008. Mr. Hundley is entitled to cash severance payments equal to approximately $1.4 million, payable in various installments over an 18-month period, of which approximately $275,000 remains to be paid as of June 30, 2009. Mr. Hundley is also entitled to approximately $373,000 representing amounts he had previously elected to defer plus earnings thereon, of which approximately $43,300 has been paid as of June 30, 2009. As provided in the separation agreement, Mr. Hundley was entitled to exercise certain stock options until June 5, 2009.

Deferred Bonus Plan: We have a deferred bonus plan in which a portion of an employee’s bonus is deferred and paid in three equal annual installments contingent on the individual remaining employed by us, except employees who retire at age 65 or later who will receive their scheduled annual installments even if they are no longer employed by us. Payments are accelerated upon death, disability or a change in control, regardless of the age of the employee. We are expensing the deferred portion over the period of time leading up to the vesting date. As of June 30, 2009, the deferred bonus commitment which would have to be paid commensurate with a change in control was approximately $3.5 million, of which $2.9 million is included in the $42.6 million change-in-control amount mentioned above.

Self-Insurance: We self-insure various levels of general liability, property, workers’ compensation and medical coverage. Self-insurance reserves include accruals for estimated settlements for known claims, as well as accruals for estimates of claims not yet made, which are included in “Accrued compensation” and “Other accrued liabilities” on the unaudited Condensed Consolidated Balance Sheets.

Legal

Insurance Litigation: In April 2006, we filed a $347 million insurance claim for our losses related to our former Casino Magic Biloxi property caused by Hurricane Katrina. In August 2006, we filed suit in the United States District Court for the District of Nevada against three of our insurance carriers, Allianz Global Risks US Insurance Company, Arch Specialty Insurance Company and RSUI Indemnity Company, related to such losses. Prior to the filing of that lawsuit, the various insurers comprising the first $100 million of coverage paid their respective policy limits to us for our Hurricane Katrina losses. On February 22, 2008, we settled with Arch Specialty Insurance Company, which provided $50 million of coverage, in exchange for its agreement to pay us approximately $36.8 million, which we received in March 2008. On May 9, 2008, we settled with Allianz Global Risks US Insurance Company, in exchange for its agreement to pay us approximately $48 million, which we received in June 2008. Allianz Global Risks US Insurance Company had previously paid us $5 million, which brought Allianz Global Risks US Insurance Company’s total payment on the claim to $53 million. RSUI Indemnity Company provides $50 million of coverage at the same layer and pari passu with the coverage provided by Arch Specialty Insurance Company and an additional $150 million of coverage between $250 million and $400 million of total coverage. To date, RSUI Indemnity Company has paid us approximately $2.0 million as a prepayment on the undisputed amount of the claim. We continue to pursue our claims against RSUI Indemnity Company for its respective share of our total hurricane-related damage and consequential loss in Biloxi. On October 20, 2008, we filed a motion for partial summary judgment on certain outstanding legal issues relating to the calculation of our business interruption loss for the claim. A hearing date has not yet been set on that motion.

As of June 30, 2009, the insurers have not designated the $192 million of advances toward our insurance claim as being specific to any particular part of the claim. Therefore, the advances have offset the book value of the destroyed assets and certain insured expenses. To the extent that the advances under the policy, excluding settlements previously discussed, exceed such expenses and book value, the difference (currently $18.4 million) is recorded as a deferred gain in “Other long-term liabilities” on our unaudited Condensed Consolidated Balance Sheets.

Our ultimate insurance claim and recovery amounts are based on replacement costs rather than book value and are unrelated to, computed differently from, and are substantially larger than the asset write-offs. Management believes that the replacement cost of the assets that were destroyed is substantially in excess of their book value. We are also insured for lost profits as a result of the damage, but will not book such profits until the claim is resolved. The deferred gain reflected on the unaudited Condensed Consolidated Balance Sheets primarily reflects the ongoing dispute with the remaining insurance carrier.

Jebaco Litigation: On August 9, 2006, Jebaco, Inc. (“Jebaco”) filed suit in the U.S. District Court for the Eastern District of Louisiana against Harrah’s Operating Co., Inc., Harrah’s Lake Charles, LLC, Harrah’s Star Partnership, Players LC, LLC, Players Riverboat Management, LLC, Players Riverboat II, LLC, and Pinnacle Entertainment, Inc. The lawsuit arises out of an agreement between Jebaco and Harrah’s (as successor in interest to the various Players defendants) whereby Harrah’s was obligated to pay Jebaco a fee based on the number of patrons entering Harrah’s two Lake Charles, Louisiana riverboat casinos. In November 2006, we acquired the Harrah’s Lake Charles subsidiaries, including the two riverboats. The lawsuit filed by Jebaco asserts that Harrah’s, in ceasing gaming operations in Lake Charles and ceasing payments to Jebaco, breached its contractual obligations to Jebaco and asserts damages of approximately $34.0 million. Jebaco also asserts that our agreement with Harrah’s violates state and federal antitrust laws. The lawsuit seeks antitrust damages jointly and severally against both us and Harrah’s and seeks a trebling of the $34.0 million in damages Jebaco alleges it has suffered. The defendants answered the complaint, denying all claims and asserting that the lawsuit is barred, among other reasons, because of the approval of our transaction with Harrah’s by the Louisiana Gaming Control Board and the lack of antitrust injury to Jebaco. In January 2007, all of the defendants moved to dismiss all of the claims of the complaint, which motions were heard on July 18, 2007. The motions to dismiss were granted with prejudice as to the federal antitrust claims and the state-law claims were dismissed without prejudice. Judgment of dismissal was entered on March 5, 2008. Jebaco has appealed the dismissal of the federal antitrust claims to the U.S. Court of Appeals for the Fifth Circuit. Further, on March 13, 2008, Jebaco filed a new lawsuit against the same parties in the Louisiana district civil court for Orleans Parish. This lawsuit seeks unspecified damages arising out of the same circumstances as the federal lawsuit based on claims for breach of the duty of good faith, negligent breach of contract, breach of contract, unfair trade practices, unjust enrichment, and subrogation to Harrah’s insurance proceeds. In May 2009, the Louisiana district civil court extended the stay of the state case indefinitely pending the decision of the Fifth Circuit on Jebaco’s appeal. While we cannot predict the outcome of this litigation, management intends to vigorously defend itself regarding this litigation.

Madison House Litigation: On December 23, 2008, Madison House Group, L.P. (“Madison House”) filed suit in Superior Court of New Jersey, Chancery Division, Atlantic County against the Company, ACE Gaming, LLC (“ACE”, a wholly owned subsidiary of the Company), and one other defendant. We acquired ACE as part of our acquisition of the entities owning the Sands Hotel & Casino (the “Sands”) in Atlantic City, New Jersey in November 2006. The lawsuit arises out of a lease dated December 18, 2000 between Madison House as landlord and ACE as tenant for the Madison House hotel in Atlantic City, New Jersey. The lawsuit alleges in part that ACE breached certain obligations under the lease, including, among others, failure to operate and maintain the hotel as required by the lease, which was alleged to have resulted in substantial damages to the hotel. The lawsuit further alleges that the Company, as the ultimate parent entity of ACE, should be jointly and severally liable with ACE for the damages sought, and separately alleges independent actions against the Company as described more fully in the lawsuit. The lawsuit seeks specific performance of ACE’s obligations under the lease, including restoration of the hotel, as well as unspecified compensatory and exemplary damages, and attorneys’ fees, against the Company and ACE. ACE continues to make its payment obligations under the lease, which expires in December 2012.

On January 7, 2009, ACE petitioned the United States District Court for the District of New Jersey for an order compelling arbitration. On February 18, 2009, the trial judge in the state court action issued an order staying the arbitration, which we have appealed. No hearing date has yet been set for our motion to compel in the federal court case or for oral argument in the appeal of the state court order. Discovery in the lawsuit has commenced. On July 17, 2009, the state trial judge denied Madison House’s motion for partial summary judgment on the issue of whether ACE’s non-operation of the hotel following the closure of the Sands constituted a breach of the lease. While the Company cannot predict the outcome of this litigation, it intends to defend the matter vigorously.

Collective Bargaining Agreements: On May 17, 2006, we entered into a Memorandum of Agreement (the “MOA”) with Unite HERE Local 74 (“Union”) commensurate with our obligations under a development agreement with St. Louis that, among other things, provided union access to certain employees (“bargaining unit employees”) employed at our Lumière Place facility should the Union manifest its intent to organize those employees. Additionally, the MOA provided that we would recognize the Union as the exclusive bargaining representative of the bargaining unit employees if a majority of the employees (verified by a neutral arbitrator) indicated their desire to be represented by the Union by signing an authorization card.

On November 20, 2008, an arbitrator conducted a review of the authorization cards submitted by the Union and determined that a majority of the bargaining unit employees had indicated their desire to be represented by the Union. Consistent with the MOA, we recognized the Union as the exclusive bargaining representative for the bargaining unit employees. We met with the Union three times to negotiate a collective bargaining agreement, the last meeting was on February 18, 2009.

During March and April 2009, we received competing claims from three unions, each claiming to be the exclusive collective bargaining representative of our St. Louis employees, including a claim from one union that they were the successor to the Union. In response to the competing claims for recognition, we withdrew recognition from the Union because of a lack of continuity of representation. In May 2009, we notified the Union that the collective bargaining agreement for HoteLumière was no longer in effect and that the collective bargaining agreement for the President Casino was being terminated. In May 2009, the union claiming to be the successor to Union filed unfair labor practice charges with the National Labor Relations Board (“NLRB”) alleging, among other things, that we refused to bargain in good faith by refusing to engage in collective bargaining negotiations, by refusing to negotiate over the discharge of employees, and by withdrawing recognition and abrogating the terms and conditions of employment. The charges are currently pending before the NLRB.

Indiana Tax Dispute: In 2008, the Indiana Department of Revenue commenced an income tax examination of the Company’s Indiana income tax filings for the 2005 to 2007 period. During June of 2009, the Company received an informal notification from the field agent for the Indiana Department of Revenue challenging whether income and gain from certain asset sales and other transactions outside of Indiana that the Company reported on its 2000 to 2007 tax returns resulted in business income subject to apportionment, and proposing a potential assessment of approximately $11 million of additional Indiana income taxes. The Company is in the process of evaluating those preliminary proposed adjustments to determine their factual accuracy and technical merits.

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.

Note 7—Consolidating Condensed Financial Information

Our subsidiaries (excluding our Argentine subsidiary; a subsidiary that owns an aircraft; a subsidiary with approximately $66.0 million in cash and cash equivalents as of June 30, 2009; and certain non-material subsidiaries) have fully and unconditionally and jointly and severally guaranteed the payment of all obligations under the 7.50% Notes, 8.25% Notes and 8.75% Notes, as well as 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:

										100% Owned				Consolidating				Pinnacle
		Pinnacle				100% Owned				Non-				and				Entertainment,
		Entertainment,				Guarantor				Guarantor				Eliminating				Inc.
		Inc.				Subsidiaries(a)				Subsidiaries(b)				Entries				Consolidated
		(in millions)
For the three months ended June 30, 2009
Statement of Operations
Revenues:
Gaming		$	—			$	222.0			$	7.7			$	—			$	229.7
Food and beverage			—				15.9				0.8				—				16.7
Other			—				19.8				0.1				—				19.9
			—				257.7				8.6				—				266.3
Expenses:
Gaming			—				132.9				3.0				—				135.9
Food and beverage			—				15.2				1.1				—				16.3
General and administrative and other			14.0				61.4				1.8				—				77.2
Depreciation and amortization			1.4				23.8				1.0				—				26.2
Write-downs, reserves and recoveries, net			—				0.3				—				—				0.3
			15.4				233.6				6.9				—				255.9
Operating income (loss)			(15.4	)			24.1				1.7				—				10.4
Equity earnings of subsidiaries			29.7				(0.7	)			—				(29.0	)			—
Interest (expense) and non-operating income, net			(12.6	)			2.7				6.9				—				(3.0	)
Income (loss) from continuing operations before inter-company activity and income taxes			1.7				26.1				8.6				(29.0	)			7.4
Management fee & inter-company interest			3.6				(3.6	)			—				—				—
Income tax (expense) benefit			(0.3	)			—				(2.1	)			—				(2.4	)
Income (loss) from continuing operations			5.0				22.5				6.5				(29.0	)			5.0
Income (loss) from discontinued operations, net of taxes			—				(0.4	)			0.1				—				(0.3	)
Net income (loss)		$	5.0			$	22.1			$	6.6			$	(29.0	)		$	4.7
For the six months ended June 30, 2009
Statement of Operations
Revenues:
Gaming		$	—			$	450.9			$	16.3			$	—			$	467.2
Food and beverage			—				29.9				1.6				—				31.5
Other			0.1				36.2				0.2				—				36.5
			0.1				517.0				18.1				—				535.2
Expenses:
Gaming			—				264.4				6.0				—				270.4
Food and beverage			—				29.3				2.2				—				31.5
General and administrative and other			26.3				121.1				3.8				—				151.2
Depreciation and amortization			2.7				47.7				2.0				—				52.4
Write-downs, reserves and recoveries, net			—				0.7				—				—				0.7
			29.0				463.2				14.0				—				506.2
Operating income (loss)			(28.9	)			53.8				4.1				—				29.0
Equity earnings of subsidiaries			59.9				0.7				—				(60.6	)			—
Interest (expense) and non-operating income, net			(31.4	)			4.9				6.8				—				(19.7	)
Income (loss) from continuing operations before inter-company activity and income taxes			(0.4	)			59.4				10.9				(60.6	)			9.3
Management fee & inter-company interest			6.7				(6.7	)			—				—				—
Income tax (expense) benefit			(0.5	)			—				(2.7	)			—				(3.2	)
Income (loss) from continuing operations			5.8				52.7				8.2				(60.6	)			6.1
Income (loss) from discontinued operations, net of taxes			—				(0.4	)			(0.1	)			—				(0.5	)
Net income (loss)		$	5.8			$	52.3			$	8.1			$	(60.6	)		$	5.6

										100% Owned				Consolidating				Pinnacle
		Pinnacle				100% Owned				Non-				and				Entertainment,
		Entertainment,				Guarantor				Guarantor				Eliminating				Inc.
		Inc.				Subsidiaries(a)				Subsidiaries(b)				Entries				Consolidated
		(in millions)
For the three months ended June 30, 2008
Statement of Operations
Revenues:
Gaming		$	—			$	215.3			$	14.4			$	—			$	229.7
Food and beverage			—				15.3				1.2				—				16.5
Other			0.1				19.7				0.3				—				20.1
			0.1				250.3				15.9				—				266.3
Expenses:
Gaming			—				132.9				8.3				—				141.2
Food and beverage			—				14.4				1.6				—				16.0
General and administrative and other			17.7				65.9				4.4				—				88.0
Write-down reserve and recovery			—				6.9				—				—				6.9
Depreciation and amortization			0.8				27.1				3.2				—				31.1
			18.5				247.2				17.5				—				283.2
Operating income (loss)			(18.4	)			3.1				(1.6	)			—				(16.9	)
Equity in subsidiaries			16.1				0.9				—				(17.0	)			—
Interest (expense) and non-operating income, net			(19.0	)			7.4				0.4				—				(11.2	)
Impairment of investment in equity securities			(8.4	)			—				(14.2	)			—				(22.6	)
Income (loss) from continuing operations before inter-company activity and income taxes			(29.7	)			11.4				(15.4	)			(17.0	)			(50.7	)
Management fee & inter-company interest			8.3				(8.3	)			—				—				—
Income tax (expense) benefit			3.3				—				(1.0	)			—				2.3
Income (loss) from continuing operations			(18.1	)			3.1				(16.4	)			(17.0	)			(48.4	)
Income (loss) from discontinued operations, net of taxes			—				30.8				(0.5	)			—				30.3
Net income (loss)		$	(18.1	)		$	33.9			$	(16.9	)		$	(17.0	)		$	(18.1	)
For the six months ended June 30, 2008
Statement of Operations
Revenues:
Gaming		$	—			$	426.7			$	31.3			$	—			$	458.0
Food and beverage			—				27.7				2.5				—				30.2
Other			0.2				34.0				0.5				—				34.7
			0.2				488.4				34.3				—				522.9
Expenses:
Gaming			—				261.6				17.7				—				279.3
Food and beverage			—				27.9				3.2				—				31.1
General and administrative and other			30.8				135.6				8.5				—				174.9
Write-down reserve and recovery			—				6.8				—				—				6.8
Depreciation and amortization			1.7				51.8				6.1				—				59.6
			32.5				483.7				35.5				—				551.7
Operating income (loss)			(32.3	)			4.7				(1.2	)			—				(28.8	)
Equity in subsidiaries			37.8				2.5				—				(40.3	)			—
Interest (expense) and non-operating income, net			(37.6	)			14.5				1.1				—				(22.0	)
Impairment of investment in equity securities			(8.4	)			—				(14.2	)			—				(22.6	)
Income (loss) from continuing operations before inter-company activity and income taxes			(40.5	)			21.7				(14.3	)			(40.3	)			(73.4	)
Management fee & inter-company interest			16.2				(16.1	)			(0.1	)			—				—
Income tax (expense) benefit			11.2				—				(1.9	)			—				9.3
Income (loss) from continuing operations			(13.1	)			5.6				(16.3	)			(40.3	)			(64.1	)
Income (loss) from discontinued operations, net of taxes			—				52.0				(1.0	)			—				51.0
Net income (loss)		$	(13.1	)		$	57.6			$	(17.3	)		$	(40.3	)		$	(13.1	)

										100% Owned				Consolidating				Pinnacle
		Pinnacle				100% Owned				Non-				and				Entertainment,
		Entertainment,				Guarantor				Guarantor				Eliminating				Inc.
		Inc.				Subsidiaries(a)				Subsidiaries(b)				Entries				Consolidated
		(in millions)
As of June 30, 2009
Balance Sheet
Current assets		$	14.1			$	99.5			$	77.4			$	—			$	191.0
Property and equipment, net			17.6				1,612.3				38.8				—				1,668.7
Other non-current assets			40.6				67.3				1.7				(3.1	)			106.5
Investment in subsidiaries			1,713.9				21.5				—				(1,735.4	)			—
Inter-company			1.2				0.5				—				(1.7	)			—
		$	1,787.4			$	1,801.1			$	117.9			$	(1,740.2	)		$	1,966.2
Current liabilities			34.8				137.1				5.1				—				177.0
Notes payable, long term			973.8				0.8				3.1				(3.1	)			974.6
Other non-current liabilities			27.1				35.9				(0.1	)			—				62.9
Inter-company			—				—				1.7				(1.7	)			—
Equity			751.7				1,627.3				108.1				(1,735.4	)			751.7
		$	1,787.4			$	1,801.1			$	117.9			$	(1,740.2	)		$	1,966.2
As of December 31, 2008
Balance Sheet
Current assets		$	17.9			$	85.3			$	64.1			$	—			$	167.3
Property and equipment, net			18.3				1,565.0				46.7				—				1,630.0
Other non-current assets			47.4				68.4				10.3				(4.2	)			121.9
Investment in subsidiaries			1,661.4				23.0				—				(1,684.4	)			—
Inter-company			1.2				0.2				—				(1.4	)			—
		$	1,746.2			$	1,741.9			$	121.1			$	(1,690.0	)		$	1,919.2
Current liabilities			38.6				129.4				6.5				0.1				174.6
Notes payable, long term			942.4				0.8				4.3				(4.3	)			943.2
Other non-current liabilities			25.9				36.0				0.2				—				62.1
Inter-company			—				—				1.4				(1.4	)			—
Equity			739.3				1,575.7				108.7				(1,684.4	)			739.3
		$	1,746.2			$	1,741.9			$	121.1			$	(1,690.0	)		$	1,919.2