Pinnacle Entertainment Reports Strong Fourth Quarter and Full-Year 2010 Results

LAS VEGAS, Feb. 24, 2011 - Pinnacle Entertainment, Inc. (NYSE: PNK) today reported financial results for the fourth quarter and full year ended December 31, 2010, as summarized in the table below.  Fourth quarter revenues increased 18.5% to $274 million from $231 million in the fourth quarter of 2009.  Consolidated Adjusted EBITDA(1) for the 2010 fourth quarter increased 125.9% to $50.4 million, inclusive of $2.8 million in severance and relocation charges.  In the 2009 fourth quarter, Consolidated Adjusted EBITDA was $22.3 million, inclusive of $5.0 million of severance charges.  For the full year, revenues rose 11.2% to $1.1 billion in 2010 and Consolidated Adjusted EBITDA increased 33.3% to $214.1 million. The results include our River City Casino, which opened to the public on March 4, 2010.

                     Summary of Fourth Quarter and Full-Year Results


                               Three Months Ended             Year Ended
             ($ in thousands,
             except per share
                   data)          December 31,               December 31,
             --     -----               -----
                                  2010         2009        2010         2009
                                  ----         ----        ----         ----
    Net revenues              $274,028     $231,297  $1,098,380     $987,739
    -----              -     -  ---     -
    Consolidated Adjusted
     EBITDA (1)                $50,393      $22,310    $214,078     $160,573
                    -     -
    Consolidated Adjusted
     EBITDA margin (1)            18.4%         9.6%       19.5%        16.3%
             ----          ---        ----         ----
    Operating income (2)       $19,908     $(55,080)    $52,226     $(14,229)
    ------            -          -
    GAAP net loss (3)         $(10,081)   $(242,020)   $(23,419)   $(258,302)
    ---         -    --    -    --
    Diluted loss per
     share (3)                  $(0.16)      $(4.03)     $(0.38)      $(4.30)
    --            ------       ------      ------       ------
    Adjusted loss per
     share (4)                  $(0.01)      $(0.74)     $(0.20)      $(0.76)
    ---           ------       ------      ------       ------

      For a further description of Consolidated Adjusted EBITDA and
      Consolidated Adjusted EBITDA margin, please see the section
      entitled “Non-GAAP Financial Measures” and the reconciliations
  (1)  below.
      Operating income for the three and twelve months ended December 31,
      2010 includes total impairments, write-downs and reserves, net of
      any recoveries, of $(1.1) million and $29.5 million, respectively..
      Operating income for the three and twelve months ended December 31,
      2009 includes similar items totaling $44.1 million and $45.2
  (2)  million, respectively.
      GAAP net loss and diluted net loss per share in the 2010 fourth
      quarter and full-year periods include a loss of $8.7 million, or
      $0.14 per share, net of taxes, and income of $16.2 million, or
      $0.27 per share, net of taxes, respectively, from discontinued
      operations, as described below.  For the 2009 fourth quarter and
      full-year periods, the loss from discontinued operations, net of
      taxes, was $168.8 million, or $2.81 per share, and $178.0 million,
  (3)  or $2.96 per share, respectively.
      For a further description of Adjusted loss per share, please see the
      section entitled “Non-GAAP Financial Measures” and the
  (4)  reconciliations below.

Pinnacle Entertainment’s ongoing execution of operational excellence initiatives continues to drive improved financial results, including meaningful year-over-year Adjusted EBITDA increases for all of the Company’s segments in the fourth quarter of 2010.  The Company’s 2010 fourth quarter financial results also benefited from more efficient marketing activities relative to the prior-year period, particularly at its L’Auberge du Lac Casino Resort and Boomtown New Orleans properties.  In the fourth quarter, Adjusted EBITDA at L’Auberge du Lac increased 52.3% to $22.9 million on an 8.5% revenue improvement, while Adjusted EBITDA at Boomtown New Orleans more than doubled to $12.2 million on a 14.8% increase in revenues.  Also, Adjusted EBITDA for Belterra Casino Resort increased 92.0% to $6.3 million on relatively flat revenue.  The 56.1% and 47.5% year-over-year rise in revenue and Adjusted EBITDA, respectively, for the Company’s St. Louis segment reflects the March 2010 opening of River City Casino, which also drove an 8.9 percentage point increase in market share to 31.4% in the 2010 fourth quarter from 22.5% in the prior-year period.

Corporate expense in the 2010 fourth quarter was $10.2 million, inclusive of severance and relocation expenses totaling $2.8 million.  This figure compares to corporate expense of $14.2 million, inclusive of $5.0 million of severance and relocation costs, in the 2009 fourth quarter.  For the 2010 full-year period, corporate expense declined 13.6% to $35.7 million from $41.3 million in 2009, inclusive of $6.5 million and $5.7 million of severance and relocation costs in 2010 and 2009, respectively.  After adjusting both full-year periods for the severance and relocation costs, corporate expense as a percent of net revenues declined to 2.7% in 2010 from 3.6% in 2009.  The 100-basis point improvement highlights the Company’s progress in achieving higher levels of operating efficiency which is leading to improved operating leverage.

The Consolidated Adjusted EBITDA margin nearly doubled in the 2010 fourth quarter to 18.4%, compared to 9.6% in the prior-year period.  For the third consecutive quarter, Adjusted EBITDA margins(2) improved year-over-year in all of the markets where the Company operates except St. Louis, as River City continues in its first full year of operations.  The Adjusted EBITDA margin for L’Auberge du Lac improved to 27.0% in the 2010 fourth quarter from 19.2% in the prior-year period and the Adjusted EBITDA margin for Boomtown New Orleans rose to 34.1% from 18.2% in the year-ago quarter.

“Our momentum continued as we finished 2010, with fourth quarter results again highlighting the benefit of our focus on operational excellence,” said Anthony Sanfilippo, president and chief executive officer of Pinnacle Entertainment.  “Throughout 2010, Pinnacle developed and adopted a broad range of strategies, focused on further enhancing the best-in-market experiences that we provide to our guests.  At the same time, we undertook initiatives to leverage our development and management skills and solid balance sheet to pursue new opportunities to generate profitable revenue growth.  Going forward, we will maintain our organization-wide focus on best practices, while further positioning Pinnacle to benefit from any lasting rebound in the economy and consumer sentiment.”

Strategies to Drive Operational Excellence Continue in 2011

Mr. Sanfilippo continued, “It’s clear that the strong 2010 financial results, including substantial increases in Adjusted EBITDA and operating margins—both of which outpaced revenue growth—demonstrate significant progress toward our goal of driving improved returns from our property portfolio.  Notably, Pinnacle has further opportunities in 2011 to improve utilization of our personnel and systems to grow hotel yields, optimize our gaming floor layouts and game mixes, revise our approach to marketing and promotional activities, and effect additional corporate and property expense reductions.  Each of these factors contributed to our strong 2010 fourth quarter and full-year results and these areas remain priorities for improvement in 2011.

“Our revised operating approach in St. Louis following the March 2010 opening of River City is a great example of the focused strategies that are being implemented to optimize revenues, margins and cash flow at our properties..  Both River City and Lumiere Place offer guests distinctive attributes and amenities to address the gaming entertainment demand in their respective environments and our promotional activity is focused on highlighting their market-leading, yet differentiated, features.  In addition, the implementation of our St. Louis Shared Services structure in late 2010 is resulting in more efficient allocation of operating costs across the two properties and creating opportunities to drive revenue growth through coordinated marketing and player development efforts.  Our goal for St. Louis Shared Services is to drive consistent operating margin improvements and simultaneous market share gains.

“In Louisiana, we recently revised our operating approach by creating a Louisiana Shared Services structure to accomplish a similar goal as in St. Louis.  Geno Iafrate, Senior Vice President and General Manager of L’Auberge du Lac, now also oversees Boomtown New Orleans and Boomtown Bossier City, our two other operations in Louisiana.  Through a more coordinated approach to our businesses, we believe that we can simultaneously further operating excellence and increase guest and team member satisfaction for our properties in the state.

“At several of our properties, including our largest, L’Auberge du Lac, we are in the process of reconfiguring the layout of the gaming floor and refining the mix of gaming options.  These changes, as well as improved utilization of the strong hotel assets at several of our facilities, are intended to further increase guest satisfaction and loyalty.  Under the leadership of our team of accomplished general managers, we believe we have the right plan and the right personnel to drive further operating efficiencies.”

Implementing Revised Marketing and Branding Strategies in 2011

Mr. Sanfilippo added, “Our recently revised marketing and promotional strategies will be important tools in our efforts to continue driving revenue and operating margin improvements.  These efforts include new integrated marketing and branding initiatives which are being developed centrally, but executed locally, to ensure they are tailored to meet the unique needs of guests in each of our markets.  These re-branding efforts, which will begin this month in St. Louis, are expected to strengthen our brands and further differentiate our properties from competitors.  Beginning in April, we will relaunch mychoice, our guest loyalty program.  We also recently created a national casino marketing department, which focuses on marketing the unique experiences available at Pinnacle’s resort facilities to potential guests outside of our immediate markets.

“At the same time, we are refining our approach to database marketing by eliminating non-value-add spending and ensuring that the marketing offers that we deliver to our guests are relevant and appropriate.  We plan to have a standardized marketing approach fully deployed later in 2011, and our strategic approach to marketing and branding is expected to enhance our ability to drive profitable revenue across our portfolio.”

Balance Sheet and Cash Flow Provide Foundation to Execute on Growth Projects

“Our focus on operations is being complemented by a pipeline of growth projects, as we leverage our balance sheet strength, liquidity and significant free cash flow to address a range of return-focused opportunities,” said Steve Capp, executive vice president and chief financial officer of Pinnacle Entertainment.  “We ended 2010 with approximately $195 million in cash and cash equivalents and an undrawn $375 million credit facility.

“In Baton Rouge, progress continues on our new casino resort that will provide a significant quality advantage in the local and surrounding market.  This new, upscale southern Louisiana destination casino resort will feature a 206-guestroom hotel, covered parking garage, casino with 1,500 slot machines and 51 table games, and a multi-purpose event center and outdoor festival park.

“We are also actively reviewing and analyzing a range of diverse, return-focused opportunities to expand our presence through disciplined capital expenditures.  In this regard, our recent acquisition of River Downs Racetrack in southeast Cincinnati, Ohio enables Pinnacle to benefit if video lottery terminals (VLTs) become operational at Ohio’s racetracks and offers a terrific complement in the Cincinnati market to our Belterra property.  If VLTs become operational, we plan to move quickly to revitalize River Downs and create a new gaming and entertainment facility for the Cincinnati market.”

Mr. Sanfilippo concluded, “Pinnacle made tremendous progress in 2010 on focused priorities that drove substantial improvements in our financial results.  With further progress on these strategies and the continued development of our growth pipeline throughout 2011, our team members will be executing a dual-path approach to drive profitable revenue growth and expand and diversify our operations.  We believe this will result in continued long-term financial growth and enhanced value for our shareholders and other stakeholders.”

Additional Recent Developments

  — Last month, Pinnacle completed the acquisition of River Downs Racetrack
      in southeast Cincinnati, Ohio.  The $45 million transaction was funded
      with cash on hand and positions Pinnacle to benefit if VLTs at Ohio’s
      racetracks become operational.
  — Construction on the Company’s $357 million casino hotel project in Baton
      Rouge, Louisiana continues.  However, as a result of low Mississippi
      River water levels, management no longer expects the opening to occur in
      December 2011.  Dependent upon water levels, management is hopeful for
      the property’s opening in the first quarter of 2012.  As of December 31,
      2010, approximately $319 million of the $357 million construction budget
      (excluding land and capitalized interest) remains to be invested in the
      planned Baton Rouge facility.  Pinnacle also recently named the senior
      management team for its Baton Rouge project.  A complete project fact
      sheet and project webcam can be found at http://www.pnkinc.com under the “New
      Developments” section.

Liquidity

At December 31, 2010, the Company had approximately $195 million in cash and cash equivalents, an estimated $70 million of which is used in day-to-day operations.  As of the end of the 2010 fourth quarter, the Company’s $375 million credit facility remained undrawn and approximately $9.3 million of letters of credit were outstanding.  The Company expects to begin drawing on its credit facility as construction on its Baton Rouge project further ramps up.

Interest Expense

Gross interest expense before capitalized interest increased to $27.2 million in the 2010 fourth quarter from $24.1 million in the prior-year period, principally due to the May 2010 issuance of $350 million of 8.75% senior subordinated notes due 2020.  Capitalized interest in the 2010 fourth quarter, related to the Company’s Baton Rouge growth project, was $0.4 million. In the 2009 fourth quarter, capitalized interest of $5.0 million was related to River City.

For the full year, gross interest expense before capitalized interest was $107.1 million in 2010 and $84.1 million in 2009.  Capitalized interest was $4.0 million and $13.8 million in fiscal 2010 and fiscal 2009, respectively..

Discontinued Operations

Discontinued operations consist of the Company’s Atlantic City, New Jersey operations, which Pinnacle intends to sell; its former President Riverboat Casino in St. Louis, Missouri; its former Casino Magic Argentina operations; its former Casino Magic Biloxi, Mississippi operations; and its former Bahamian operations.  For the three months ended December 31, 2010, Pinnacle recorded a loss of $8.7 million, net of income taxes, related to its discontinued operations.  For the prior-year period, the loss from discontinued operations was $168.8 million.

Investor Conference Call

Pinnacle will hold a conference call for investors today, Thursday, February 24, 2011, at 11:00 a.m. ET (8:00 a.m. PT) to discuss its 2010 fourth quarter and twelve-month financial and operating results.  Investors may listen to the call by dialing (888) 792-8395 or, for international callers, (706) 679-7241.  The code to access the conference call is 42746142.  Investors may also listen to the conference call live over the Internet at http://www.pnkinc..com.

A replay of the conference call will be available shortly after the conclusion of the call through March 10, 2011 by dialing (800) 642-1687 or, for international callers, (706) 645-9291.  The code to access the replay is 42746142.  The conference call will also be available for replay at http://www.pnkinc.com.

SOURCE Pinnacle Entertainment, Inc.