Investments and Acquisition Activities

ACDL Equity Method Investments: In August 2011, through a wholly-owned subsidiary, we invested $95 million in ACDL in exchange for a minority ownership interest, which is accounted for under the equity method, and the right to manage a future resort to be built in Vietnam. Including this original investment and through various capital raising transactions since then, we have invested a total of approximately $111.8 million and currently hold a minority equity interest, assuming conversion of all preferred stock, exercise of all warrants and exercise of certain options. Entities affiliated with Harbinger Capital Partners are the majority shareholders of ACDL. Because the financial statements of ACDL are not available to incorporate with our financial statements in the applicable time period, we record our allocable share of income or loss on a one-quarter lag.

ACDL is the owner and developer of the Ho Tram Strip beachfront complex of destination integrated resorts and residential developments in southern Vietnam. The Ho Tram Strip project is located approximately 80 miles southeast of Ho Chi Minh City. The first phase of the Ho Tram Strip is to feature 541 luxury guestrooms and suites, a full spectrum of world-class restaurants and amenities, VIP accommodations, a conference center, golf course, and an entertainment area featuring 90 live table games and 500 electronic games. The second integrated resort of the Ho Tram Strip, for which we have secured a management agreement, will be jointly developed by ACDL and us, and owned by ACDL. We expect that the second integrated resort, which would be branded as a distinct premium resort, would be similar in project scope to the first phase of the first resort described above.

ACDL's wholly-owned Vietnamese subsidiary, Ho Tram Project Company Limited (“HTP”), is currently constructing and developing the series of resorts of the Ho Tram Strip, and the first phase of the project is substantially complete, except for the golf course. As a minority shareholder of ACDL, our ability to control the management, record keeping, operations and decision making of ACDL is limited. Since our initial investment, we invested an additional $16.8 million in ACDL as part of additional capital raises of approximately $66.5 million. In addition to these capital raises, ACDL completed an additional $30.0 million capital raise of debt and warrants in December 2012 with the majority shareholder. We did not participate in this capital raise, and our ownership was diluted, assuming the exercise of the warrants issued to the majority shareholder. We retain an option to purchase our pro-rata share of the $30 million capital raise from the majority shareholder, which would offset our dilution from that capital raise if exercised. In May 2013, ACDL received commitments from its majority shareholder to provide financing up to $30.0 million, subject to certain conditions. We did not participate in the first disbursement of this loan, and our ownership would be diluted, assuming the exercise of the warrants issued to the majority shareholder. We retain an option to purchase our pro-rata share of this loan from the majority shareholder, which would offset any potential dilution if exercised.

We have capitalized interest on our investment in ACDL because ACDL has not begun its principal operations. ACDL currently has activities in progress to commence these planned operations, and is using all funds to acquire assets for the future operations. Capitalized interest on this investment was $8.4 million and $3.4 million for the years ended December 31, 2012 and 2011, respectively. We ceased capitalizing interest on our investment in ACDL in January 2013 due to the cessation of construction of the first phase of the project.

Our cash investment in ACDL exceeds our proportional share of the net book value of ACDL. The excess value relates to the Investment Certificate and the potential future earnings of ACDL. The portion of this difference attributable to the fair value of the Investment Certificate will be amortized over the term of the Investment Certificate, or 50 years, which amortization will be included in our determination of income or loss from equity method investments. The portion of this difference attributable to equity method goodwill will not be amortized.

In August 2012, we entered into a stock option agreement with ACDL. Under the terms of the stock option agreement, we were granted an option to purchase common shares of ACDL at a predetermined exercise price. The option granted by ACDL was made to support certain administrative services we would render to ACDL under a yet-to-be negotiated services agreement. The option vests and becomes exercisable on a pro-rata daily basis over a 5-year term from the grant date. Portions of the option that are not vested and exercisable are subject to cancellation and termination provisions outlined within the stock option agreement. As of December 31, 2012, we recorded $0.3 million related to the vested portion of these options, included in "Other assets" and "Other accrued liabilities" in our Consolidated Balance Sheet.

In 2008, ACDL received an Investment Certificate from the Government of Vietnam for the development of the Ho Tram Strip, which outlined deadlines to complete phases of the development, and some of these deadlines were not met. The Investment Certificate allows for, among other things, large scale hotel complexes with a casino amenity in two of the resorts. HTP obtained an Official Letter from the Provincial Government extending the deadline for developing the Ho Tram Strip under the Investment Certificate. However, this Official Letter did not constitute an amendment to the Investment Certificate.

In October 2012, HTP's lenders, a consortium of Vietnamese banks, suspended funding under a $175 million credit facility at least in part due to lack of an amendment to the Investment Certificate. As of December 31, 2012, approximately $83.7 million was drawn under the HTP's credit facility. The remaining funds under this facility, together with additional funding from outside sources, is needed to complete and open the first phase of the first resort.

MGM Hospitality International Holdings Limited (“MGM”) was providing and agreed to provide pre-opening services and to manage the first integrated resort of the Ho Tram Strip under a management agreement, dated November 17, 2008, between MGM and HTP. On March 4, 2013, MGM provided notice that it was exercising its right to terminate the management agreement as a result of the failure to achieve certain pre-opening milestones before March 1, 2013, including receipt of the amendment to the Investment Certificate. The first integrated resort has been substantially completed and has been branded with the MGM brand. MGM and the MGM brand are highly regarded in Asia for gaming resorts and were important components of the project.

In April 2013, the anticipated amendment to the Investment Certificate was granted, which extends further the deadlines for completing the first phase of the first resort and the golf course. Among other things, the amendment confirms the project's entitlement to operate prized games upon completion and opening of the first phase of the first resort. The amended Investment Certificate provides that the full gaming entitlement of the first and second gaming resorts is subject to the completion of certain phases of the overall project by certain deadlines. If those deadlines are not met, the gaming entitlement could be significantly scaled back.

It is uncertain whether HTP's lenders will resume full funding to the project despite the fact that the amendment to the Investment Certificate was granted. The failure to receive the amendment to the Investment Certificate or to resolve other regulatory matters that delayed the opening of the first phase of the first resort beyond the first quarter of 2013, as originally expected, led, in part, to MGM's decision to terminate the management agreement. It is currently uncertain whether HTP will open the first resort under HTP management or with a third party contractor, or when such opening may occur. Additional costs will be incurred to rebrand the first resort given MGM's departure, which costs are unbudgeted.

During the fourth quarter of 2012, we concluded that the carrying value of our investment in ACDL experienced a decline in value, and we, therefore, recorded an impairment of approximately $25 million as of December 31, 2012. To estimate fair value, we used a discounted cash flow analysis based on estimated future results of ACDL and market indicators of terminal year capitalization rates. Since the beginning of March 2013, certain events have occurred with respect to our investment in ACDL, including, but not limited to, the termination of MGM's management agreement and the related issue of determining the manner in which the property will be opened and operated, further governmental and regulatory approvals needed for the project, the uncertainty of the lenders resuming full funding of the project, and additional capital needs of ACDL. The amendment to the Investment Certificate includes deadlines, which if not met, may result in a reduction of allowed gaming positions. As a result, we recorded an impairment of $92.2 million, impairing the remaining asset carrying value of our investment in ACDL during the first quarter of 2013. As of March 31, 2013, we discontinued applying the equity method for our investment in ACDL and will not provide for additional losses until our share of future ACDL net income, if any, equals the share of ACDL net losses not recognized during the period the equity method was suspended.

The condensed consolidated financial information presented below have been prepared in conformity with U.S. GAAP using accounting principles applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they come due. ACDL has not reached commercial operations as of the balance sheet date presented below. The financial information presented below does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of ACDL to commence commercial operations and continue as a going concern. Such adjustments could be material.

ACDL's Condensed Consolidated Statements of Operations and Comprehensive Loss are as follows:



	Twelve Months Ended September 30,
	2012			2011
	(in thousands)
Expense
General and administrative	$	9,181		$	7,957
Professional fees	5,498			2,654
Pre-opening expense	4,603			—
Interest expense	—			4,756
Other expenses	2,726			5,051
Net loss before income taxes	22,008			20,418
Deferred income tax (recovery) expense	(837		)	837
Net loss	$	21,171		$	21,255
Comprehensive loss	$	21,171		$	21,255

ACDL's Condensed Consolidated Balance Sheets are as follows:



	September 30,
	2012			2011
ASSETS	(in thousands)
Current assets
Cash and cash equivalents	$	70,786		$	83,560
Other current assets	8,167			7,183
	78,953			90,743
Property and equipment, net	248,810			88,375
Intangible assets, net	27,561			27,396
Other assets	16,234			7,157
Total assets	$	371,558		$	213,671

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses	$	61,690		$	19,132
Current portion of long-term debt	823			—
	62,513			19,132
Long-term debt	80,545			—
Other long-term liabilities	8			878
	80,553			878
Contingently redeemable shares	314,026			260,319
	457,092			280,329
Total shareholders' equity	(85,534		)	(66,658		)
Total liabilities and shareholders' equity	$	371,558		$	213,671

ACDL's Condensed Consolidated Statements of Cash Flows are as follows:



	Twelve Months Ended September 30,
	2012			2011
	(in thousands)
Net cash used in operating activities	$	(14,511	)	$	(9,997	)
Net cash used in investing activities	(125,445		)	(47,935		)
Net cash provided by financing activities	127,168			94,998
Effect of exchange rates on cash and cash equivalents	14			24
Net increase (decrease) in cash and cash equivalents	(12,774		)	37,090
Cash and cash equivalents, beginning of period	83,560			46,470
Cash and cash equivalents, end of period	$	70,786		$	83,560

Other Equity Method Investment: During 2012, we committed to invest $2.0 million in Farmworks, a land re-vitalization project in downtown St. Louis. We received credit for approximately $10.0 million towards our obligation to invest $50.0 million in St. Louis as a result of this transaction. This investment is accounted for under the equity method. As of December 31, 2012, we have invested $0.4 million, which is included in "Equity method investments" on our Consolidated Balance Sheets.

Retama Park Racetrack: On April 25, 2012, we entered into agreements to execute a series of transactions to acquire 75.5% of the equity of RPL, the owner of the racing license for Retama Park Racetrack. Under the terms of the agreements, we acquired certain bonds (the "RDC Bonds") and promissory notes (the "RDC Notes") issued by the Retama Development Corporation ("RDC") and a 50% interest in additional rights to operate and receive revenue from expanded gaming in the future (the "Gaming Enhancement Rights") (collectively, the "Acquired Property") for cash consideration of $7.8 million. We also have provided a bridge loans and a supplemental promissory note totaling $2.9 million to RDC, included in "Other assets" in our Consolidated Balance Sheet at December 31, 2012.

The cash consideration for the Acquired Property was allocated to the individual RDC Bonds, RDC Notes and Gaming Enhancement Rights based on their relative fair values, which required the estimation of individual fair values on the acquisition date using a discounted cash flow analysis. The RDC Bonds are debt securities classified as held-to-maturity investments as we have the positive intent and ability to hold these securities to maturity.

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. The Company paid cash consideration of $15 million along with a contribution of a portion of the Acquired Property. In addition, the Company entered into a management contract with RDC to manage the day-to-day operations of Retama Park. In conjunction with the closing of the acquisition, RDC repaid the bridge loans and supplemental promissory note, along with all associated accrued interest, at the time of closing, totaling $2.9 million.

Heartland Poker Tour: On July 2, 2012, we closed on an agreement to purchase substantially all of the assets of Federated Sports & Gaming, Inc. and Federated Heartland, Inc., owners of the Heartland Poker Tour and other related assets and intellectual property, for total consideration of $4.6 million. The purchase was accounted for as a business combination. The purchase price for the assets of Federated Sports & Gaming Inc. and Federated Heartland, Inc. was allocated based upon estimated fair values of the assets, with the excess of the purchase price over the estimated fair values of the assets acquired recorded as goodwill. The allocation of fair value was finalized during the fourth quarter of 2012.

Other Investments: We have short-term investments in corporate bonds classified as held-to-maturity investments, as we have the positive intent and ability to hold these securities to maturity. At December 31, 2012, we hold $4.4 million in corporate bonds and $4.5 million in sales tax increment bonds issued through the City of Reno, included in "Held-to-maturity securities" and "Other Assets, net" in our Consolidated Balance Sheet. It is not likely that we will be required to sell these investments prior to the recovery of the amortized cost.

Ameristar Acquisition: In December 2012, we entered into a definitive agreement to acquire all the outstanding shares of Ameristar for $26.50 per share in cash, representing a total enterprise value of $2.8 billion. On April 2, 2013, at the request and expense of Pinnacle, Ameristar successfully completed the solicitation of consents from holders of the $1.4 billion outstanding principal amount of Ameristar's 7.50% Senior Notes due 2021 (the “Ameristar Notes”) for waivers of and amendments to certain provisions of the indenture governing the Ameristar Notes. On April 25, 2013, the stockholders of Ameristar approved the Merger Agreement at a special meeting of stockholders. The acquisition is expected to close by the end of third quarter of 2013, subject to closing conditions and regulatory approvals. On May 29, 2013, the Federal Trade Commission (“FTC”) issued an administrative compliance regarding our acquisition of Ameristar alleging that the combination of the two companies will lessen competition in the St. Louis and Lake Charles areas. We expect the transaction to be completed in the time frame agreed upon with Ameristar in our definitive agreement.