UNITED
STATES
  SECURITIES
AND EXCHANGE COMMISSION
  WASHINGTON,
D.C. 20549
  
 FORM 10-Q
  x
              Quarterly
      Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934For
      the quarterly period ended September 30, 2009.oro
              Transition
      Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934
  For
the transition period from
                     
to
  Commission
File Number: 333-88829
  PENINSULA
      GAMING, LLC
              
              PENINSULA
      GAMING CORP.(Exact
      name of registrants
                as
      specified in their charter)
              
              (Exact
      name of registrants
                as
      specified in their charter)DELAWARE
              
              DELAWARE(State
      or other jurisdiction of
                incorporation
      or organization)
              
              (State
      or other jurisdiction of
                incorporation
      or organization)20-0800583
              
              25-1902805(I.R.S.
      Employer
                Identification
      No.)
              
              (I.R.S.
      Employer
                Identification
      No.)
 
 301
Bell Street
 Dubuque,
Iowa 52001
 (563)
690-4975
 (Address,
including zip code, and telephone number, including area code, of principal
executive offices)
  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 twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes o  No x
 
 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 o        Accelerated
Filer o        Non-Accelerated
Filer    x    Smaller
reporting company o
 
 Indicate
by check mark if the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o  No x
  All of
the common equity interests of Peninsula Gaming, LLC (the “Company”) are held by
Peninsula Gaming Partners, LLC. All of the common equity interests of Diamond
Jo, LLC, The Old Evangeline Downs, L.L.C., Diamond Jo Worth Holdings, LLC and
Peninsula Gaming Corp. are held by the Company. All of the common equity
interests of Diamond Jo Worth, LLC and Diamond Jo Worth Corp. are held by
Diamond Jo Worth Holdings, LLC.  All of the common equity interests of
AB Casino Acquisition, LLC are held by Diamond Jo, LLC.
  
 PENINSULA
GAMING, LLC
  INDEX
TO FORM 10-Q
  
 Part I - Financial
      Information
              PageItem 1 - Financial
      Statements
              3Peninsula Gaming, LLC:Condensed Consolidated
      Balance Sheets (Unaudited) as of September 30, 2009 and December 31,
      2008
              3Condensed Consolidated
      Statements of Operations (Unaudited) for the Three and Nine months ended
      September 30, 2009 and 2008
              4Condensed Consolidated
      Statement of Changes in Member's Deficit and Comprehensive  Loss
      (Unaudited) for the Nine months ended September 30,
      2009
              5Condensed Consolidated
      Statements of Cash Flows (Unaudited) for the Nine months ended September
      30, 2009 and 2008
              6Notes to Condensed
      Consolidated Financial Statements (Unaudited)
              7Item 2 - Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              18Item 3 - Quantitative and
      Qualitative Disclosures About Market Risk
              25Item 4 - Controls and
      Procedures
              25Part II - Other
      Information
              26Item 1 - Legal
      Proceedings
              26Item 1A – Risk
      Factors
              26Item 5 – Other
      Information
              27Item 6 -
      Exhibits
              29Signatures
              31
 
 
 
 2
  PARTI.
      FINANCIAL INFORMATION
 ITEM 1.
      FINANCIAL STATEMENTS
 PENINSULA
GAMING, LLC
 CONDENSEDCONSOLIDATED BALANCE SHEETS (UNAUDITED)
 (in
thousands)
 September
      30,
                2009
              
              
              December 31,
                2008ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              128,650
              
              
              $
              38,705Restricted
      cash—purse settlements
              
              
              5,305
              
              
              
              5,013Accounts
      receivable, net
              
              
              4,797
              
              
              
              5,038Receivables
      from affiliates
              
              
              95
              
              
              
              271Inventories
              
              
              1,326
              
              
              
              1,199Prepaid
      expenses and other assets
              
              
              2,238
              
              
              
              1,920Total
      current assets
              
              
              142,411
              
              
              
              52,146PROPERTY
      AND EQUIPMENT, NET
              
              
              252,601
              
              
              
              263,154OTHER
      ASSETS:Deferred
      financing costs, net of amortization of $3,356 and $14,021,
      respectively
              
              
              25,712
              
              
              
              19,174Goodwill
              
              
              53,083
              
              
              
              53,083Licenses
      and other intangibles
              
              
              39,849
              
              
              
              38,506Deposits
      and other assets
              
              
              12,962
              
              
              
              3,385Investment
      available for sale
              
              
              14,729
              
              
              
              7,828Total
      other assets
              
              
              146,335
              
              
              
              121,976TOTAL
              
              $
              541,347
              
              
              $
              437,276LIABILITIES
      AND MEMBER’S DEFICITCURRENT
      LIABILITIES:Accounts
      payable
              
              $
              3,983
              
              
              $
              4,608Construction
      payable
              
              
              1,678
              
              
              
              12,324Purse
      settlement payable
              
              
              6,771
              
              
              
              6,804Accrued
      payroll and payroll taxes
              
              
              5,953
              
              
              
              5,104Accrued
      interest
              
              
              8,215
              
              
              
              7,815Other
      accrued expenses
              
              
              12,240
              
              
              
              10,387Payable
      to affiliates
              
              
              3,250
              
              
              
              3,575Current
      maturities of long-term debt and leases
              
              
              3,199
              
              
              
              8,492Total
      current liabilities
              
              
              45,289
              
              
              
              59,109LONG-TERM
      LIABILITIES:8
      3/8% senior secured notes, net of discount
              
              
              234,599
              
              
              
              -10
      3/4% senior notes, net of discount
              
              
              297,158
              
              
              
              -8
      3/4% senior secured notes, net of discount
              
              
              -
              
              
              
              253,23711%
      senior secured notes, net of discount
              
              
              -
              
              
              
              111,25813%
      senior notes, net of discount
              
              
              -
              
              
              
              6,877Senior
      secured credit facilities
              
              
              -
              
              
              
              28,500Term
      loan
              
              
              5,572
              
              
              
              6,697Notes
      and leases payable, net of discount
              
              
              637
              
              
              
              1,229Obligation
      under Minimum Assessment Agreement
              
              
              18,482
              
              
              
              16,394Other
      liabilities
              
              
              960
              
              
              
              5,958Total
      long-term liabilities
              
              
              557,408
              
              
              
              430,150Total
      liabilities
              
              
              602,697
              
              
              
              489,259COMMITMENTS
      AND CONTINGENCIESTotal
      member’s deficit
              
              
              (61,350
              )
              
              
              (51,983
              )TOTAL
              
              $
              541,347
              
              
              $
              437,276
 
 See notes
to condensed consolidated financial statements (unaudited).
 
 3
 
 PENINSULA GAMING, LLC
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (in
thousands)
 
 Three Months
                Ended
                September
      30, 2009
              
              
              Three Months
                Ended
                September
      30, 2008
              
              
              Nine Months
                Ended
                September
      30, 2009
              
              
              Nine Months
                Ended
                September
      30, 2008REVENUES:Casino
              
              $
              63,915
              
              
              $
              56,551
              
              
              $
              193,569
              
              
              $
              171,634Racing
              
              
              4,832
              
              
              
              5,060
              
              
              
              13,685
              
              
              
              14,776Video
      poker
              
              
              1,190
              
              
              
              1,346
              
              
              
              4,170
              
              
              
              4,502Food
      and beverage
              
              
              5,586
              
              
              
              4,212
              
              
              
              17,580
              
              
              
              12,400Other
              
              
              2,965
              
              
              
              3,491
              
              
              
              8,023
              
              
              
              9,372Less
      promotional allowances
              
              
              (7,233
              )
              
              
              (5,301
              )
              
              
              (20,358
              )
              
              
              (15,375
              )Total
      net revenues
              
              
              71,255
              
              
              
              65,359
              
              
              
              216,669
              
              
              
              197,309EXPENSES:Casino
              
              
              25,790
              
              
              
              23,600
              
              
              
              79,739
              
              
              
              72,689Racing
              
              
              4,368
              
              
              
              4,439
              
              
              
              12,294
              
              
              
              12,601Video
      poker
              
              
              950
              
              
              
              996
              
              
              
              3,047
              
              
              
              3,325Food
      and beverage
              
              
              4,089
              
              
              
              3,330
              
              
              
              12,658
              
              
              
              9,660Other
              
              
              2,233
              
              
              
              2,424
              
              
              
              5,691
              
              
              
              5,927Selling,
      general and administrative
              
              
              8,902
              
              
              
              9,083
              
              
              
              33,370
              
              
              
              24,662Depreciation
      and amortization
              
              
              5,872
              
              
              
              4,867
              
              
              
              17,845
              
              
              
              14,797Pre-opening
      expense
              
              
              -
              
              
              
              78
              
              
              
              -
              
              
              
              205Development
      expense
              
              
              496
              
              
              
              96
              
              
              
              704
              
              
              
              (513
              )Affiliate
      management fees
              
              
              1,356
              
              
              
              1,383
              
              
              
              4,094
              
              
              
              4,220Loss
      on disposal of assets
              
              
              1,958
              
              
              
              81
              
              
              
              1,983
              
              
              
              304Total
      expenses
              
              
              56,014
              
              
              
              50,377
              
              
              
              171,425
              
              
              
              147,877INCOME
      FROM OPERATIONS
              
              
              15,241
              
              
              
              14,982
              
              
              
              45,244
              
              
              
              49,432OTHER
      INCOME (EXPENSE):Interest
      income
              
              
              498
              
              
              
              586
              
              
              
              1,505
              
              
              
              1,938Interest
      expense, net of amounts capitalized
              
              
              (13,437
              )
              
              
              (9,387)
              
              
              
              (35,621
              )
              
              
              (29,723
              )Loss
      on early retirement of debt
              
              
              (22,475
              )
              
              
              -
              
              
              
              (22,475
              )
              
              
              -Total
      other expense
              
              
              (35,414
              )
              
              
              (8,801
              )
              
              
              (56,591
              )
              
              
              (27,785
              )NET
      (LOSS) INCOME
              
              $
              (20,173
              )
              
              $
              6,181
              
              
              $
              (11,347
              )
              
              $
              21,647
 
 See notes
to condensed consolidated financial statements (unaudited).
 
 
 4
 
 
 PENINSULAGAMING, LLC
 CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN MEMBER’S DEFICIT
 AND
COMPREHENSIVE LOSS (UNAUDITED)
 (in
thousands)
 
 
 COMMON
                MEMBER’S
                INTEREST
              
              
              ACCUMULATED
                DEFICIT
              
              
              ACCUMULATED
      OTHER COMPREHENSIVE INCOME (LOSS)
              
              
              TOTAL
                MEMBER’S
                DEFICIT
              
              
              COMPREHENSIVE
      LOSSBALANCE,
      DECEMBER 31, 2008
              
              $
              9,000
              
              
              $
              (53,971
              )
              
              $
              (7,012
              )
              
              $
              (51,983
              )Net
      loss
              
              
              —
              
              
              
              (11,347
              )
              
              
              —
              
              
              
              (11,347
              )
              
              $
              (11,347
              )Unrealized
      gain on available for sale investment
              
              
              
              
              
              
              —
              
              
              
              6,773
              
              
              
              6,773
              
              
              
              6,773Member
      distributions
              
              
              —
              
              
              
              (4,793
              )
              
              
              —
              
              
              
              (4,793
              )
              
              
              —Comprehensive
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (4,574
              )BALANCE,
      SEPTEMBER 30, 2009
              
              $
              9,000
              
              
              $
              (70,111
              )
              
              $
              (239
              )
              
              $
              (61,350
              )
 
 
 See notes
to condensed consolidated financial statements (unaudited).
 
 
 
 5
 
 PENINSULAGAMING, LLC
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (in thousands)
 Nine Months
                Ended
                September 30, 2009
              
              
              Nine Months
                Ended
                September 30, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss) income
              
              $
              (11,347
              )
              
              $
              21,647Adjustments
      to reconcile net (loss) income to net cash flows from operating
      activities:Depreciation
      and amortization
              
              
              17,845
              
              
              
              14,797Non-cash
      interest
              
              
              3,944
              
              
              
              3,547Loss
      on early retirement of debt
              
              
              22,475
              
              
              
              —Non-cash
      equity based and other compensation
              
              
              (2,124
              )
              
              
              (5,630
              )Loss
      on disposal of assets
              
              
              1,983
              
              
              
              304Changes
      in operating assets and liabilities:Restricted
      cash — purse settlements
              
              
              (292
              )
              
              
              648Receivables
              
              
              (1,509
              )
              
              
              (730
              )Inventories
              
              
              (126
              )
              
              
              (55
              )Prepaid
      expenses and other assets
              
              
              1,778
              
              
              
              (976
              )Accounts
      payable
              
              
              (854
              )
              
              
              (898
              )Accrued
      expenses
              
              
              1,518
              
              
              
              6,134Payable
      to affiliates
              
              
              (149
              )
              
              
              (666
              )Net
      cash flows from operating activities
              
              
              33,142
              
              
              
              38,122CASH
      FLOWS FROM INVESTING ACTIVITIES:Increase
      in cash value of life insurance for premiums paid
              
              
              (328
              )
              
              
              (68
              )Business
      acquisition and licensing costs
              
              
              (1,361
              )
              
              
              (1,372
              )Deposit
      under purchase agreement
              
              
              (10,000
              )
              
              
              —Construction
      project development costs
              
              
              (16,648
              )
              
              
              (44,393
              )Purchase
      of property and equipment
              
              
              (6,438
              )
              
              
              (5,069
              )Proceeds
      from sale of property and equipment
              
              
              675
              
              
              
              -Net
      cash flows from investing activities
              
              
              (34,100
              )
              
              
              (50,902
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Deferred
      financing costs
              
              
              (15,117
              )
              
              
              (929
              )Payments
      on debt
              
              
              (392,347
              )
              
              
              (3,425
              )Proceeds
      from senior notes
              
              
              531,537
              
              
              
              —Proceeds
      from senior credit facilities
              
              
              29,700
              
              
              
              14,500Payments
      on senior credit facilities
              
              
              (60,200
              )
              
              
              (6,500
              )Proceeds
      from term loan
              
              
              —
              
              
              
              3,908Member
      distributions
              
              
              (2,670
              )
              
              
              (3,059
              )Net
      cash flows from financing activities
              
              
              90,903
              
              
              
              4,495NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              89,945
              
              
              
              (8,285
              )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
              
              
              38,705
              
              
              
              42,100CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
              
              $
              128,650
              
              
              $
              33,815SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Cash
      paid during the period for interest
              
              $
              33,393
              
              
              $
              19,541SUPPLEMENTAL
      SCHEDULE OF NON-CASH INVESTING AND FINANCING
    ACTIVITIES:Property
      and equipment acquired, but not paid
              
              $
              2,059
              
              
              $
              11,598Property
      and equipment acquired in exchange for obligation under Minimum Assessment
      Agreement
              
              
              1,989
              
              
              
              8,752Unrealized
      gain (loss) on available for sale investment
              
              
              6,773
              
              
              
              (2,299
              )Liability
      settled in exchange for property and equipment
              
              
              4,104
              
              
              
              —Property
      and equipment acquired in exchange for indebtedness
              
              
              —
              
              
              
              2,005
 
 See notes
to condensed consolidated financial statements (unaudited).
 
 6
 
 PENINSULA
GAMING, LLC
 
 NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 1. Organization and Basis of
      Presentation
 
 Peninsula
Gaming, LLC (“PGL” or the “Company”), a Delaware limited liability company, is a
casino entertainment holding company with gaming operations in local markets in
Iowa and Louisiana. As of September 30, 2009, PGL’s wholly owned operating
subsidiaries consisted of: (i) Diamond Jo, LLC, a Delaware limited
liability company (“DJL”), that owns and operates the Diamond Jo casino in
Dubuque, Iowa; (ii) The Old Evangeline Downs, L.L.C., a Louisiana limited
liability company (“EVD”), that owns and operates the Evangeline Downs Racetrack
and Casino, or racino, in St. Landry Parish, Louisiana and four off-track
betting (“OTB”) parlors in Louisiana; and (iii) Diamond Jo Worth, LLC, a
Delaware limited liability company (“DJW”), that owns and operates the Diamond
Jo casino in Worth County, Iowa. The Company is a wholly owned subsidiary of
Peninsula Gaming Partners, LLC (“PGP”), a Delaware limited liability
company.
 
 
 In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting only of normal
recurring entries unless otherwise disclosed, necessary to present fairly the
financial information of the Company and its subsidiaries for the interim
periods presented and have been prepared in accordance with accounting
principles generally accepted in the United States of America. The interim
results reflected in the financial statements are not necessarily indicative of
results expected for the full year or other periods.
 
 The
financial statements contained herein should be read in conjunction with the
audited financial statements and accompanying notes to the financial statements
included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008. Accordingly, footnote disclosure which would
substantially duplicate the disclosure in the audited financial statements has
been omitted in the accompanying unaudited financial statements.
 
 The
Company has evaluated, for adjustment to or disclosure in the financial
statements, all subsequent events that occurred up to the time of the Company’s
issuance of its financial statements on November 10, 2009.
 
 Recent
Developments
 
 On June
18, 2009, PGP and AB Casino Acquisition, LLC, a Delaware limited liability
company formed by PGL (“AB Acquisition”),, entered into a definitive purchase
agreement (the “Purchase Agreement”) with Columbia Properties New Orleans,
L.L.C. to purchase 100% of the outstanding limited liability company interests
of Belle of Orleans, L.L.C. dba Amelia Belle Casino (“ABC”) located in Amelia,
Louisiana.  In accordance with the terms of the Purchase Agreement, AB
Acquisition deposited $10.0 million in escrow as a deposit to be applied towards
the purchase price. On October 22, 2009, the transaction was consummated for
$104.0 million, plus $2.2 million in working capital, funded with cash on
hand.  The Company acquired ABC to further expand its gaming
operations.  Acquisition related costs, included in development
expense, were $0.5 million and $0.6 million for the three and nine months ended
September 30, 2009, respectively.
 
 2. Summary of Significant
      Accounting Policies
 
 Obligation Under
Minimum Assessment Agreement— On October 1, 2007, DJL entered into
the Amended and Restated Port of Dubuque Public Parking Facility Development
Agreement (“Development Agreement”) with the City of Dubuque, Iowa (“City”)
regarding, among other things, the design, development, construction and
financing of the public parking facility located adjacent to DJL’s new
land-based casino. The City issued $23.0 million principal amount of 7.5% Urban
Renewal Tax Increment Revenue Bonds, Taxable Series 2007 (“City Bonds”) to fund,
in part, the construction of the facility. Due to DJL’s expected use of the
public parking facility and its obligations under a Minimum Assessment Agreement
with the City, combined with the Company’s guarantee of DJL’s obligation under
the Minimum Assessment Agreement, DJL recorded an obligation to the City and an
asset to the extent proceeds from the City Bonds were used to construct the
parking facility.  As of September 30, 2009 and December 31, 2008,
approximately $19.4 million and $16.4 million, respectively, of proceeds from
the City Bonds had been used in connection with the construction of the parking
facility.  At September 30, 2009, approximately $0.9 million was
recorded as a current obligation of DJL on the Company’s balance
sheet.  Approximately $18.5 million and $16.4 million were recorded as
a long-term obligation of DJL on the Company’s balance sheet at September 30,
2009 and December 31, 2008, respectively. The obligation, along with
related interest costs, are expected to be paid off over the life of the City
Bonds through payments from DJL under the Minimum Assessment
Agreement.
 
 
 7
 
 
 Licenses—The
Company’s gaming licenses require renewals in the State of Iowa annually and
every five years in the State of Louisiana.  EVD’s horse racing
license requires renewal annually.  Renewal costs are expensed as
incurred.  The Company’s renewal experience is that renewals will be
granted except under extraordinary circumstances.
 
 Use of
Estimates—The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
(“GAAP”) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could
differ from those estimates. Significant estimates involve the intrinsic values
of equity based compensation, the fair value of the DJW investment in City
Bonds, the periodic review of the carrying value of assets for impairment, the
estimated useful lives for depreciable assets, and the estimated
liabilities for slot club awards and customer legal disputes.
 
 Recently Issued
Accounting Standards -In August 2009, the Financial Accounting Standards
Board (“FASB”) issued a standard on measuring the fair value of liabilities. The
standard becomes effective for the Company at the beginning of its 2009 fourth
quarter. The standard provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or more of the
following methods: (i) a valuation technique that uses a) the quoted price of
the identical liability when traded as an asset; or b) quoted prices for similar
liabilities or similar liabilities when traded as assets; and/or (ii) a
valuation technique that is consistent with the principles of an income or
market approach. The standard also clarifies that when estimating the fair value
of a liability, a reporting entity is not required to include inputs relating to
the existence of transfer restrictions on that liability. The adoption of this
standard is not expected to have a significant effect on the Company’s financial
statements.
 
 In June
2009, the FASB issued theCodification and the Hierarchy of Generally Accepted Accounting Principles
("GAAP")(“Codification”).   The purpose of the
Codification is to provide a single source of authoritative U.S.
GAAP.  The Codification was effective for the Company in the third
quarter of 2009.  As the Codification was not intended to change or
alter existing GAAP, the adoption of the Codification did not have a material
effect on the Company’s financial statements.
 
 In May
2009, the FASB issued a new standard related to subsequent events which
establishes the accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued.  The new standard was adopted in the second quarter of
2009.  The adoption of the new standard did not have a material effect
on the Company’s financial statements.
 
 In
April 2009, the FASB issued three standards intended to provide additional
application guidance and enhanced disclosures regarding fair value measurements
and impairments of securities. The Company adopted these standards
effective June 30, 2009. The adoption of these standards did not have a material
effect on the Company’s financial statements.
 
 In April
2008, the FASB issued a new standard that requires entities to disclose
information for recognized intangible assets that enable users of financial
statements to understand the extent to which expected future cash flows
associated with intangible assets are affected by the entity’s intent or ability
to renew or extend the arrangement associated with the intangible
asset.  The standard also amends the factors an entity should consider
in developing the renewal or extension assumptions used in determining the
useful life of recognized intangible assets.  The standard applies
prospectively to intangible assets acquired after the standard’s effective date,
but the disclosure requirements applies prospectively to all intangible assets
recognized as of, and after, the standard’s effective date.  The
standard was effective for fiscal years beginning after December 15, 2008, with
early adoption prohibited.  The Company adopted the new standard on
January 1, 2009 and the adoption did not have a material effect on the Company’s
financial statements.
 
 In March
2008, the FASB issued a new standard that requires, among other things, enhanced
disclosure about the volume and nature of derivative and hedging activities and
a tabular summary showing the fair value of derivative instruments included in
the balance sheet and statement of operations. The standard also requires
expanded disclosure of contingencies included in derivative instruments related
to credit-risk. The standard was effective for fiscal years and interim periods
beginning after November 15, 2008. The Company adopted the standard on January
1, 2009 and the adoption did not have a material effect on the Company’s
financial statements.  See Note 5 for further
information.
 
 In
February 2008, the FASB issued a new standard that delayed for one year the fair
value measurement requirements for non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis. Therefore, beginning on January
1, 2009, this standard applies prospectively to fair value measurements of
non-financial assets and non-financial liabilities. The Company adopted the new
standard on January 1, 2009 and the adoption did not have a material effect
on the Company’s financial statements.
 
 In
December 2007, the FASB issued a new standard that significantly changes the way
companies account for business combinations and will generally require more
assets acquired and liabilities assumed to be measured at their acquisition-date
fair value. Legal fees and other transaction-related costs are expensed as
incurred and are no longer included as a cost of acquiring the business. Also,
acquirers are to estimate the acquisition date fair value of any contingent
consideration and to recognize any subsequent changes in the fair value of
contingent consideration in earnings. In addition, restructuring costs the
acquirer expected, but was not obligated to incur, will be recognized separately
from the business acquisition. The standard applies to the Company prospectively
for business combinations occurring on or after January 1, 2009. The Company
expects the standard will have an impact on accounting for business
combinations, but the effect will be dependent upon any potential future
acquisition.
 
 8
 3. Property and Equipment
 
 Property
and equipment at September 30, 2009 and December 31, 2008 is summarized as
follows (in thousands):
 
 September
      30,
                2009
              
              
              December 31,
                2008Land
      and land improvements
              
              $
              18,519
              
              
              $
              18,118Buildings
      and improvements
              
              
              220,498
              
              
              
              201,421Furniture,
      fixtures and equipment
              
              
              83,862
              
              
              
              81,449Computer
      equipment
              
              
              11,223
              
              
              
              11,009Vehicles
              
              
              645
              
              
              
              404Construction
      in progress
              
              
              2,720
              
              
              
              26,582Subtotal
              
              
              337,467
              
              
              
              338,983Accumulated
      depreciation
              
              
              (84,866
              )
              
              
              (75,829
              )Property
      and equipment, net
              
              $
              252,601
              
              
              $
              263,154
 
 Depreciation
and amortization expense for the three months ended September 30, 2009 and 2008
was $5.9 million and $4.9 million, respectively.  Depreciation and
amortization expense for the nine months ended September 30, 2009 and 2008 was
$17.8 million and $14.8 million, respectively.
 
 The
Company capitalizes interest costs associated with debt incurred in connection
with significant construction projects. The amount capitalized during the three
and nine months ended September 30, 2008 was $1.1 million and $2.0 million,
respectively.  Capitalized interest during the three and nine months
ended September 30, 2009 was immaterial.
 
 In
connection with DJL’s casino development, DJL began accelerating depreciation on
long-lived assets with a net book value of approximately $4.5 million that were
either contributed to the Historical Society in January 2009 or were not
utilized at its new land-based casino and were disposed in January
2009.  Accelerated depreciation on these assets began during the
fourth quarter of 2006, and DJL continued to depreciate the remaining net book
value of those assets, less their estimated fair market value at the date of
contribution or estimated net realizable value, through the period that DJL
commenced operations at the new facility.  Depreciation expense for
the three and nine months ended September 30, 2008 increased by approximately
$0.3 million and $0.8 million, respectively, as a result of accelerated
depreciation on these assets.
 
 In April
2009, EVD entered into a ground lease (“Ground Lease”) with a third party to
design, develop, construct and operate a hotel adjacent to the racino on land
owned by EVD.  The hotel is expected to include at least 25 suites, five
meeting rooms and an indoor pool.  Under the terms of the Ground
Lease, EVD has agreed to lease the land on which the hotel will be located for a
lease fee of 2% of gross revenue of the hotel. The agreement also contains
a purchase option which allows EVD to purchase the hotel from the third party
operator.  The Ground Lease was conditioned upon the third party operator
obtaining financing for the project. To facilitate the financing of the
construction of the hotel by the third party operator, the Company intends to
sell for fair market value the land on which the hotel will be located to OED
Acquisition, LLC, an affiliate of the Company (“OEDA”). OEDA will then lease the
land to the third party operator on the same terms as those set forth in the
Ground Lease.  As of September 30, 2009, the Company determined that
it was probable that all conditions to financing the hotel project would be met
and that the third party operator will build the hotel.  During the
three months ended September 30, 2009, EVD expensed $1.5 million of capitalized
design and development costs and disposal costs related to a hotel project
design that will not be utilized by the third party operator as a loss on
disposal of assets.
 
 9
 4. Debt
 
 Long-term
debt consists of the following (in thousands):
 
 September
      30,
                2009
              
              
              December 31,
                20088
      3/8% senior secured notes due August 15, 2015, net of discount
      of $5,401, secured by substantially all the assets of the Company and its
      subsidiaries and the equity of the Company
              
              $
              234,599
              
              
              $
              -10
      3/4% senior unsecured notes due August 15, 2017, net of discount
      of $7,842
              
              
              297,158
              
              
              
              -8
      3/4% senior secured notes due April 15, 2012, net of discount of
      $1,763, secured by substantially all the assets of PGL, DJL and EVD and
      the equity of DJL and EVD
              
              
              -
              
              
              
              253,23711%
      senior secured notes of DJW due April 15, 2012, net of discount of
      $568, secured by substantially all the assets of DJW and the equity of
      DJW
              
              
              -
              
              
              
              111,25813%
      senior notes of EVD due March 1, 2010 with contingent interest, net
      of discount $33
              
              
              -
              
              
              
              6,877$65,000
      revolving line of credit under a loan and security agreement with Wells
      Fargo Foothill, Inc., interest rate at prime plus a margin of 2.5% with a
      floor of 6.0% (current rate of 6.0% at September 30, 2009), maturing
      January 15, 2012, secured by substantially all assets of the
      Company
              
              
              -
              
              
              
              28,500$5,000
      revolving line of credit under a loan and security agreement of DJW with a
      bank, interest rate at prime less a margin of 1.0% with a floor of 5.0%,
      maturing March 31, 2010, secured by substantially all the assets of
      DJW and guaranteed by the Company’s Chief Executive
      Officer
              
              
              -
              
              
              
              2,000Term
      loan under a loan and security agreement of PGL, DJL and EVD with American
      Trust & Savings Bank, interest rate 6.5%, due in installments through
      December 1, 2013, secured by certain assets of DJL
              
              
              7,060
              
              
              
              8,000Notes
      payable and capital lease obligations, net of discount of $30 and $170,
      respectively, interest rates at 6% - 8 3/4%, due 2009 –
      2011
              
              
              2,348
              
              
              
              6,418Total
      debt
              
              
              541,165
              
              
              
              416,290Less
      current portion
              
              
              (3,199
              )
              
              
              (8,492
              )Total
      long term debt
              
              $
              537,966
              
              
              $
              407,798
 
 
 On August
6, 2009, the Company and PGC, as co-issuers (collectively, the “Issuers”),
issued $240.0 million in aggregate principal amount of 8 3⁄8% Senior
Secured Notes due 2015 (the “PGL Secured Notes”) and $305.0 million in aggregate
principal amount of 10 3⁄4% Senior Unsecured Notes due 2017 (the “PGL
Unsecured Notes” and, together with the PGL Secured Notes, the “PGL Notes”). The
PGL Secured Notes and PGL Unsecured Notes were issued at a discount of $5.5
million and $7.9 million, respectively.  Interest on the PGL Notes is
due each August 15 and February 15, commencing February 15, 2010.
 
 The
Company used the net proceeds from the issuance of the PGL Notes and cash on
hand: (i) to redeem on September 5, 2009 all of the Company’s outstanding 8 3⁄4%
senior notes due 2012 (“Old Peninsula Notes”) in an approximate amount
(including call premium and accrued interest through but not including the
redemption date) of $271.3 million; (ii) to redeem on August 7, 2009 all of
DJW’s outstanding 11% senior notes due 2012 (“DJW Notes”) in an approximate
amount (including call premium and accrued interest through but not
including the redemption date) of $117.8 million; (iii) to redeem on September
5, 2009 all of EVD’s outstanding 13% senior notes due 2010 (“EVD Notes”) in an
approximate amount (including accrued interest and contingent
interest through but not including the redemption date) of $7.4 million;
(iv) to pay down outstanding advances under the Company’s $65.0 million senior
secured credit facility (“PGL Credit Facility”) of approximately $25.6 million;
(v) to pay related fees and expenses in connection with the foregoing
transactions of approximately $16.0 million; and (vi) to fund $96.2 million of
the remaining purchase price to acquire ABC.
 
 As a
result of the redemption of the Old Peninsula Notes, the DJW Notes and the EVD
Notes, the Company incurred a loss of $22.5 million in the third quarter of 2009
consisting of the write-off of deferred financing costs of $7.7 million, the
payment of call premiums of $11.5 million, net interest of $2.1 million incurred
during the irrevocable redemption period and the write-off of bond discount of
$2.0 million offset by the reduction in the liability related to DJW’s
derivative associated with the DJW Notes of $0.8 million.
 
 The PGL
Secured Notes and the PGL Unsecured Notes are guaranteed on a senior secured
basis and senior unsecured basis, respectively, by DJL, EVD, DJW and ABC
(collectively, the “Subsidiary Guarantors”).  In October 2009, upon the
consummation of the Amelia Belle purchase, ABC became a guarantor of the PGL
Notes. The PGL Secured Notes and the related guarantees are secured by a
security interest in the Company’s and the Subsidiary Guarantors’
respective existing and future assets (other than certain excluded assets)
and by a limited recourse pledge of 100% of the equity interests of PGL by
PGP. The security interest on the collateral that secures the PGL Secured
Notes and the related guarantees are subject to the prior liens of the PGL
Credit Facility. The PGL Unsecured Notes are effectively subordinated to
the PGL Credit Facility, the PGL Secured Notes and other secured indebtedness of
the Company and the Subsidiary Guarantors to the extent of the collateral
securing such indebtedness. PGL has no independent assets or operations and the
guarantees of the Subsidiary Guarantors are full and unconditional and joint and
several.
 
 10
 The
indentures governing the PGL Notes limits the Company’s ability to, among other
things, incur more debt, pay dividends or make other distributions to PGP,
redeem stock, make certain investments, create liens, enter into transactions
with affiliates, merge or consolidate, and transfer or sell assets.
 
 The PGL
Notes do not limit the Company’s ability to transfer assets between the Company
and the Subsidiary Guarantors.  Under the indentures governing the PGL
Notes, the Company is allowed, subject to certain conditions and limitations set
forth therein, to make payments and distributions to PGP, including in respect
of (i) certain consulting and financial advisory services related to PGP
development, (ii) board fees and actual out-of-pocket expenses incurred by
members of the board of managers of PGP, and (iii) tax, accounting, legal
and administrative costs and expenses of PGP. In addition, the Company may pay
dividends or make other distributions to PGP, in addition to the distributions
above, if the combined interest coverage ratio of the Company and the Subsidiary
Guarantors is not less than 2.0 to 1.0 for the immediately preceding four full
fiscal quarters and subject to certain aggregate net income and cash proceeds
received from the sale of equity interest limits.  After giving effect
to the Amended PGL Credit Facility as discussed in Note 10 below, all of the
Company’s net assets were restricted under the PGL Notes and the Amended PGL
Credit Facility, subject to certain exceptions, including a $23.7 million
availability under the general basket of the restricted payments covenant of the
PGL Notes.
  In
addition, the Company is permitted under the PGL Notes to incur additional
indebtedness if at the time of incurrence of such indebtedness the combined
interest coverage ratio of the Company and the Subsidiary Guarantors is not less
than 2.0 to 1.0 for the immediately preceding four full fiscal quarters,
determined on a pro forma basis as if such additional indebtedness had been
incurred and the proceeds thereof applied at the beginning of such
period.  Without limitation to the requirements of the immediately
preceding sentence, the Company is also permitted to incur additional secured
indebtedness if, at the time of incurrence of any such secured indebtedness, the
secured leverage ratio of the Company would not be greater than 2.0 to 1.0,
determined on a pro forma basis as if such additional secured indebtedness had
been incurred and the proceeds thereof applied at the beginning of such
period.
 
 On August
6, 2009, the Company and Wells Fargo Foothill, Inc. (“Wells Fargo”), as agent
under the PGL Credit Facility, entered into a consent and waiver under the PGL
Credit Facility which, among other things, consented to (i) the issuance of the
PGL Notes, (ii) the redemption of the Old Peninsula Notes, the DJW Notes and the
EVD Notes, (iii) the acquisition of ABC and (iv) the joinder of PGL, DJW and,
upon acquisition, ABC, as borrowers under the PGL Credit Facility. On October
29, 2009, the PGL Credit Facility was amended and restated by the parties
thereto. See Note 10 below for more information.
 
 In
connection with the issuance of the PGL Notes, DJW’s $5.0 million senior credit
facility was terminated and an outstanding letter of credit in an approximate
amount of $0.7 million was replaced with a letter of credit issued under the PGL
Credit Facility.
  Pursuant
to the indenture governing the DJW Notes, DJW was required to offer to buy back
a portion of the DJW Notes on a semi-annual basis at a premium of 7.5%,
beginning March 31, 2007, with 50% of Excess Cash Flow (as defined
therein).  DJW redeemed $1.8 million principal amount of DJW Notes,
plus applicable premium and accrued interest, in May 2009 based on the Excess
Cash Flow provision.
 
 As of
September 30, 2009, the Company had no outstanding advances under the PGL Credit
Facility. In addition, as of September 30, 2009, the Company had outstanding
letters of credit under the PGL Credit Facility of approximately $1.4 million
resulting in available borrowings thereunder of $63.6
million.
 
 As of
September 30, 2009, the Company was in compliance in all material respects with
the terms of the agreements governing its outstanding indebtedness.
 
 
 5. Fair Value Measurements
 
 Under
generally accepted accounting principles, certain assets and liabilities must be
measured at fair value. Fair value is 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 (an exit price). The Company has two
financial instruments that must be measured at fair value in the financial
statements: (i) an available for sale investment and (ii) a derivative. The
Company currently does not have non-financial assets and non-financial
liabilities that are required to be measured at fair value.
 
 GAAP
establishes a valuation hierarchy for disclosure of the inputs to valuation used
to measure fair value.  This hierarchy prioritizes these inputs into
three broad levels.  The three levels are as follows:
 
 Level
1-Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement
date;
 
 Level
2-Inputs include quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets or liabilities in markets
that are not active, inputs other than quoted prices that are observable for the
asset or liability (i.e., interest rates, yield curves, etc.), and inputs that
are derived principally from or corroborated by observable market data by
correlation or other means (market corroborated inputs); and
 
 11
 Level
3-Unobservable inputs that reflect the Company’s estimate about the assumptions
that market participants would use in pricing the asset or liability. The
Company develops these inputs based on the best information available, including
its own data.
 
 The
Company had no Level 1 or Level 2 financial instruments at September 30, 2009
and December 31, 2008. The Company had one Level 3 financial instrument at
September 30, 2009 and two Level 3 financial instruments at December 31,
2008.  In accordance with the fair value hierarchy described above,
the following table shows the fair value of the Company’s Level 3 financial
assets and liabilities that are required to be measured at fair value as of
September 30, 2009 and December 31, 2008, which are classified as “Investment
available for sale” and “Other long-term liabilities/Other accrued liabilities
(short-term portion)” (in thousands):
 
 Total
      Carrying Value at September 30, 2009
              
              
              Fair
      Value Measurements at September 30, 2009
              
              
              Total
      Carrying Value at December 31, 2008
              
              
              Fair
      Value Measurements at December 31, 2008Investment
      available for sale
              
              $
              14,729
              
              
              $
              14,729
              
              
              $
              7,828
              
              
              $
              7,828Derivative
      liability, not designated as a
                  hedging
      instrument
              
              
              -
              
              
              
              -
              
              
              
              (790
              )
              
              
              (790
              )
 
 The
following table summarizes the changes in fair value of the Company’s Level 3
assets and liabilities for the three months ended September 30, 2009 and 2008
(in thousands):
 Three
      Months Ended September 30,2009
              
              Three
      Months Ended September 30,2008Investment
                available
      for sale
              
              Derivativeliability,
      not designated as a hedging instrument
              
              Investment
                availablefor
      sale
              
              Derivativeliability,
                notdesignated
      as ahedging
                instrumentBalance
      at beginning of the reporting period
              
              $
              15,887
              
              
              $
              (826
              )
              
              $
              11,711
              
              
              $
              (1,125
              )Total
      gains (losses) (realized or unrealized):Included
      in earnings
              
              
              44
              
              
              
              826
              
              
              
              39
              
              
              
              109Included
      in other comprehensive income (loss)
              
              
              (1,202
              )
              
              
              -
              
              
              
              (1,446
              )
              
              
              -Transfers
      in or out of Level 3
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Purchases,
      sales, issuances and settlements
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Ending
      balance at September 30, 2009 and 2008
              
              $
              14,729
              
              
              $
              -
              
              
              $
              10,304
              
              
              $
              (1,016
              )Gains
      included in earnings attributable to the change
              Included
      in interest income
              
              
              
              Included
      in interest income
              
              Included
      in interest expensein
      unrealized gains or losses relating to
      assets/liabilitiesstill
      held at the reporting date
              
              $
              44
              
              
              
              
              
              
              $
              39
              
              
              $
              109
 
 
 12
 
 
 The
following table summarizes the changes in fair value of the Company’s Level 3
assets and liabilities for the nine months ended September 30, 2009 and 2008 (in
thousands):
 Nine
      months ended September 30, 2009
              
              Nine
      months ended September 30, 2008Investment
                available
                for
      sale
              
              Derivativeliability,
                not
      designated as a
                hedging
      instrument
              
              Investment
      available
                for
      sale
              
              Derivative liability,
      not designated as a hedging instrumentBalance
      at beginning of the year
              
              $
              7,828
              
              
              $
              (790
              )
              
              $
              12,491
              
              
              $
              (1,252
              )Total
      gains (losses) (realized or unrealized):Included
      in earnings
              
              
              128
              
              
              
              655
              
              
              
              112
              
              
              
              133Included
      in other comprehensive income (loss)
              
              
              6,773
              
              
              
              -
              
              
              
              (2,299
              )
              
              
              -Transfers
      in or out of Level 3
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Purchases,
      sales, issuances and settlements
              
              
              -
              
              
              
              135
              
              
              
              -
              
              
              
              103Ending
      balance at September 30, 2009 and 2008
              
              $
              14,729
              
              
              $
              -
              
              
              $
              10,304
              
              
              $
              (1,016
              )Gains
      included in earnings attributable to the change
              Included
      in interest income
              
              
              
              Included
      in interest income
              
              Included
      in
                  interest
      expensein
      unrealized gains or losses relating to
      assets/liabilitiesstill
      held at the reporting date
              
              $
              128
              
              
              
              
              
              
              $
              112
              
              
              $
              133
 
 Comprehensive
income (loss) for the three months ended September 30, 2009 and 2008 and the
nine months ended September 30, 2009 and 2008 was $(21.4) million, $4.7 million,
$(4.6) million and $19.3 million, respectively.
 
 DJW holds
an investment in a single municipal bond issuance that is classified as
available for sale and is recorded at fair value.  DJW is the only
holder of this instrument and there is no quoted market price for this
instrument.  The estimate of the fair value of such investment was
determined using a combination of current market rates and estimates of market
conditions for instruments with similar terms, maturities, and degrees of
risk.  Unrealized gains and losses on this instrument resulting from
changes in the fair value of the instrument are not charged to earnings, but
rather are recorded as other comprehensive income (loss) in the member’s deficit
section of the Company’s balance sheet.  The discount associated
with this investment is netted with the investment on the balance sheet and is
being accreted over the life of the investment using the effective interest
method. The accretion of such discount is included in interest income on the
statement of operations.
 
 Under the
indenture governing the DJW Notes, DJW was required to offer to buy back a
portion of the DJW Notes on a semi-annual basis with 50% of Excess Cash Flow (as
defined therein) at a premium of 7.5%. Such obligation was determined to be an
embedded derivative and was fair valued and separated from the DJW Notes at date
of issuance since it was not clearly and closely related to the DJW
Notes.  The fair value of the put option was determined to be the
present value of the estimated premium payments through the maturity date of the
DJW Notes. The fair value was calculated using estimated future cash flows
developed by the Company to estimate the portion of the DJW Notes that would be
subject to the contingent put option, yields of comparable financial
instruments, the remaining date to maturity of the DJW Notes and based on
historical experience that the holders of the notes will elect to be paid the
contingent put option. The fair value of the put option was revalued at the end
of each reporting period with a corresponding charge (benefit) to interest
expense. In connection with the redemption of the DJW Notes in August 2009, this
derivative was written off and included in loss on early retirement of
debt.
 
 
 6. Commitments and
      Contingencies
 
 Under the
Company’s and PGP’s operating agreements, the Company and PGP have agreed,
subject to a few exceptions, to indemnify and hold harmless PGP and PGP’s
members from liabilities incurred as a result of their positions as sole manager
of the Company and as members of PGP, respectively.
 
 In
October 2003, EVD filed a Petition for Declaratory Judgment in St. Landry
Parish, Louisiana, naming as opposing parties the St. Landry Parish School Board
and the City of Opelousas regarding the payment of sales and use tax by
EVD.   In July 2009, the sales and use tax dispute with St.
Landry Parish and the City of Opelousas was settled.  As a result of the
settlement, EVD recorded a credit to operating expenses, interest expense and
property and equipment of $0.3 million, $0.3 million and $0.1 million,
respectively, during the second quarter of 2009.
 
 
 13
 
 
 Neither
the Company nor its subsidiaries are parties to any pending legal proceedings
other than litigation arising in the normal course of
business.  Management does not believe that adverse determinations in
any or all such litigation would have a material adverse effect on the Company’s
financial condition, results of operations or cash flows.
 
 7. Related Party
Transactions
 
 During
the three months ended September 30, 2009 and 2008 and the nine months ended
September 30, 2009 and 2008, the Company paid distributions of $1.0 million,
$0.9 million, $2.7 million and $3.1 million, respectively, to PGP primarily for
(i) certain consulting and financial advisory services related to PGP’s
development expenses, (ii) board fees and actual out-of-pocket expenses
incurred by members of the board of managers of PGP and (iii) tax,
accounting, legal and administrative costs and expenses related to PGP. These
amounts were recorded as member distributions. In addition, during the second
quarter 2009, the Company made a $10.0 million cash member distribution to PGP,
which was subsequently re-contributed by PGP to the Company in July
2009.
 
 During
the three months ended September 30, 2009 and 2008 and the nine months ended
September 30, 2009 and 2008, the Company expensed $0.1 million, $0.1 million,
$0.3 million and $0.3 million, respectively, as affiliate management fees
related to other compensation and board fees payable to board members of PGP
representing services provided to PGL.
 
 In
accordance with a management services agreement between OED Acquisition LLC
(“OEDA”), a wholly owned subsidiary of PGP, and EVD, under which EVD pays to
OEDA a base management fee of 0.44% of net revenue (less net food and beverage
revenue) plus an incentive fee ranging from 3% to 5% based on earnings before
interest, taxes, depreciation, amortization and non-recurring charges, EVD
expensed $0.2 million, $0.2 million, $0.6 million and $0.7 million in affiliate
management fees payable to OEDA during the three months ended September 30, 2009
and 2008 and the nine months ended September 30, 2009 and 2008,
respectively.
 
 In
accordance with a management services agreement between DJW and PGP under which
DJW pays to PGP a base management fee of 1.75% of net revenue (less net food and
beverage revenue) plus an incentive fee ranging from 3% to 5% based on earnings
before interest, taxes, depreciation, amortization and non-recurring charges,
DJW expensed management fees of $0.7 million, $0.7 million, $1.9 million and
$1.9 million during the three months ended September 30, 2009 and 2008 and the
nine months ended September 30, 2009 and 2008, respectively.
 
 EVD and
PGP are parties to a consulting agreement with a board member of PGP. Under such
consulting agreement, the board member is entitled to a fee equal to 2.5% of
EVD’s and DJW’s earnings before interest, taxes, depreciation, amortization and
non-recurring charges during the preceding calendar year. In connection with
this agreement, (i) EVD expensed $0.2 million, $0.2 million, $0.7 million and
$0.7 million of affiliate management fees during the three months ended
September 30, 2009 and 2008 and the nine months ended September 30, 2009 and
2008, respectively, and (ii) DJW expensed $0.2 million, $0.2 million, $0.6
million and $0.6 million of affiliate management fees for the three months ended
September 30, 2009 and 2008 and the nine months ended September 30, 2009 and
2008, respectively.
 
 On a
quarterly basis, the Company estimates the fair value of all incentive units
granted under PGP’s equity based incentive compensation plans that have a put
option and compares that value to the value of such incentive units at the date
of grant. The value of the incentive units is primarily determined on a
discounted cash flow basis discounted for a minority interest.  Any
appreciation or depreciation in the value of the incentive units is expensed or
credited to an expense based on the percentage of the grant vested. The Company
recorded a credit to expense of $2.8 million and $2.4 million during the three
and nine months ended September 30, 2009, respectively, with respect to these
incentive units. The Company recorded a credit to expense of $1.0 million and
$5.9 million during the three months and the nine months ended September 30,
2008, respectively, with respect to these incentive units.
 
 In
November 2009, the put option granted as part of the incentive units was
removed.  The Company will value the incentive units based on their
estimated intrinsic value as of that date and the related appreciation or
depreciation in the value of the incentive units will be expensed or credited to
an expense at that time. Subsequently, any appreciation or depreciation in the
estimated intrinsic market value of the units will not be reflected in earnings
of the Company.
 
 8. Segment Information
 
 The
Company is organized around geographical areas and operates three reportable
segments: (1) Diamond Jo operations, which is comprised the Diamond Jo
casino operations in Dubuque, Iowa, (2) Diamond Jo Worth operations, which
is comprised of the Diamond Jo Worth casino operations in Worth County, Iowa,
and (3) Evangeline Downs operations, which is comprised of the casino,
racetrack and OTBs operated by EVD in Louisiana.
 
 The
accounting policies for each segment are the same as those described in Note 2
above and in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008. The Company evaluates performance and allocates
resources based upon, among other considerations, segment operating earnings (as
defined below).
 
 14
 The
tables below present information about reported segments as of and for the three
and nine months ended September 30, 2009 and 2008 (in thousands):
 
 Net Revenues
      From External Customers
                Three Months Ended
                September 30,
              
              
              Net Revenues
      From External Customers
                Nine
      Months Ended September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Diamond
      Jo Dubuque
              
              $
              18,288
              
              
              $
              10,968
              
              
              $
              55,953
              
              
              $
              31,059Diamond
      Jo Worth
              
              
              22,301
              
              
              
              22,800
              
              
              
              64,011
              
              
              
              65,018Evangeline
      Downs
              
              
              30,666
              
              
              
              31,591
              
              
              
              96,705
              
              
              
              101,232Total
              
              $
              71,255
              
              
              $
              65,359
              
              
              $
              216,669
              
              
              $
              197,309
 
 
 Segment Operating
                Earnings
                Three Months Ended
                September 30, (1)
              
              
              Segment Operating
                Earnings
                Nine
      Months Ended September 30, (1)2009
              
              
              2008
              
              
              2009
              
              
              2008Diamond
      Jo Dubuque
              
              $
              6,440
              
              
              $
              3,981
              
              
              $
              18,799
              
              
              $
              10,284Diamond
      Jo Worth
              
              
              9,289
              
              
              
              9,074
              
              
              
              25,850
              
              
              
              25,638Evangeline
      Downs
              
              
              7,706
              
              
              
              8,533
              
              
              
              27,294
              
              
              
              30,055Total
      Property Segment Operating Earnings (1)
              
              
              23,435
              
              
              
              21,588
              
              
              
              71,943
              
              
              
              65,977General
      corporate
              
              
              (1,343
              )
              
              
              (1,080
              )
              
              
              (4,485
              )
              
              
              (3,423
              )Total
      Segment Operating Earnings (1)
              
              
              22,092
              
              
              
              20,508
              
              
              
              67,458
              
              
              
              62,554General
      corporate:Non-cash
      equity based compensation
              
              
              2,831
              
              
              
              979
              
              
              
              2,412
              
              
              
              5,891Depreciation
      and amortization
              
              
              (26
              )
              
              
              (12
              )
              
              
              (82
              )
              
              
              (35
              )Affiliate
      management fees
              
              
              (95
              )
              
              
              (85
              )
              
              
              (289
              )
              
              
              (260
              )Interest
      expense, net
              
              
              (8,707
              )
              
              
              —
              
              
              
              (8,707
              )
              
              
              68AB
      Casino Acquisition:Development
      expense
              
              
              (490
              )
              
              
              —
              
              
              
              (563
              )
              
              
              —Diamond
      Jo Dubuque:Depreciation
      and amortization
              
              
              (2,245
              )
              
              
              (750
              )
              
              
              (6,616
              )
              
              
              (2,310
              )Pre-opening
      expense
              
              
              —
              
              
              
              (78
              )
              
              
              —
              
              
              
              (165
              )Development
      expense
              
              
              —
              
              
              
              (89
              )
              
              
              —
              
              
              
              552Loss
      on disposal of assets
              
              
              (36
              )
              
              
              (33
              )
              
              
              (35
              )
              
              
              (81
              )Interest
      expense, net
              
              
              (1,785
              )
              
              
              (1,897
              )
              
              
              (9,073
              )
              
              
              (6,726
              )Loss
      on early retirement of debt
              
              
              (6,552
              )
              
              
              —
              
              
              
              (6,552
              )
              
              
              —Diamond
      Jo Worth:Depreciation
      and amortization
              
              
              (1,694
              )
              
              
              (2,157
              )
              
              
              (5,729
              )
              
              
              (6,581
              )Pre-opening
      expense
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (32
              )Affiliate
      management fees
              
              
              (902
              )
              
              
              (884
              )
              
              
              (2,527
              )
              
              
              (2,538
              )Loss
      on disposal of assets
              
              
              (40
              )
              
              
              (16
              )
              
              
              (124
              )
              
              
              (64
              )Interest
      expense, net
              
              
              (868
              )
              
              
              (2,839
              )
              
              
              (6,806
              )
              
              
              (8,830
              )Loss
      on early retirement of debt
              
              
              (6,222
              )
              
              
              —
              
              
              
              (6,222
              )
              
              
              —Evangeline
      Downs:Depreciation
      and amortization
              
              
              (1,907
              )
              
              
              (1,948
              )
              
              
              (5,418
              )
              
              
              (5,871
              )Pre-opening
      expense
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (8
              )Development
      expense
              
              
              (6
              )
              
              
              (7
              )
              
              
              (141
              )
              
              
              (39
              )Affiliate
      management fees
              
              
              (359
              )
              
              
              (414
              )
              
              
              (1,278
              )
              
              
              (1,422
              )Loss
      on disposal of assets
              
              
              (1,882
              )
              
              
              (32
              )
              
              
              (1,824
              )
              
              
              (159
              )Interest
      expense, net
              
              
              (1,579
              )
              
              
              (4,065
              )
              
              
              (9,530
              )
              
              
              (12,297
              )Loss
      on early retirement of debt
              
              
              (9,701
              )
              
              
              —
              
              
              
              (9,701
              )
              
              
              —Net
      income (loss)
              
              $
              (20,173
              )
              
              $
              6,181
              
              
              $
              (11,347
              )
              
              $
              21,647
 
 (1)
              Segment
      operating earnings is defined as net income (loss) plus non-cash equity
      based compensation, depreciation and amortization, pre-opening expense,
      development expense, affiliate management fees, loss on disposal of
      assets, interest expense, net, and loss on early retirement of debt less
      gain on disposal of assets. Segment operating earnings for the three and
      nine months ended September 30, 2008 have been adjusted to exclude
      non-cash equity based compensation to conform with the presentation of the
      three and nine months ended September 30,
2009.
 
 15
 
 
 Total AssetsSeptember
      30,
                2009
              
              
              December 31,
                2008General
      corporate
              
              $
              114,223
              
              
              $
              969Diamond
      Jo Dubuque
              
              
              176,869
              
              
              
              192,999Diamond
      Jo Worth
              
              
              94,075
              
              
              
              97,017Evangeline
      Downs
              
              
              146,055
              
              
              
              146,291AB
      Casino Acquisition
              
              
              10,125
              
              
              
              -Total
              
              $
              541,347
              
              
              $
              437,276
 
 
 Cash Expenditures for Additions to
                Long-Lived AssetsNine
      months
                ended
                September
      30, 2009
              
              
              Nine
      months ended September 30, 2008General
      corporate
              
              $
              253
              
              
              $
              239Diamond
      Jo Dubuque
              
              
              15,570
              
              
              
              40,645Diamond
      Jo Worth
              
              
              3,108
              
              
              
              2,477Evangeline
      Downs
              
              
              5,516
              
              
              
              7,473Total
              
              $
              24,447
              
              
              $
              50,834
 
 
 9.             Fair
Value of Financial Instruments
 
 The fair
value of the Company’s financial instruments consisting of cash and cash
equivalents, restricted cash, receivables, and payables approximate their
recorded amounts due to the short term nature of the instruments. The fair value
and recorded amounts for the Company’s investment and debt instruments at
September 30, 2009 and December 31, 2008 are as follows (in
thousands):
 
 September
      30, 2009
              
              
              December 31, 2008Fair Value
              
              
              Recorded
                Amount
              
              
              Fair Value
              
              
              Recorded
                AmountInvestment
      available for sale
              
              $
              14,729
              
              
              $
              14,729
              
              
              $
              7,828
              
              
              $
              7,8288
      3/8% senior secured notes
              
              
              241,200
              
              
              
              234,599
              
              
              
              -
              
              
              
              -10
      3/4% senior unsecured notes
              
              
              306,525
              
              
              
              297,158
              
              
              
              -
              
              
              
              -8
      3/4% senior secured notes
              
              
              -
              
              
              
              -
              
              
              
              163,200
              
              
              
              253,23711%
      senior secured notes
              
              
              -
              
              
              
              -
              
              
              
              105,116
              
              
              
              111,25813%
      senior notes
              
              
              -
              
              
              
              -
              
              
              
              6,219
              
              
              
              6,877Senior
      secured credit facilities
              
              
              -
              
              
              
              -
              
              
              
              30,500
              
              
              
              30,500Term
      loan
              
              
              7,060
              
              
              
              7,060
              
              
              
              7,429
              
              
              
              8,000Notes
      payable, capital lease obligations and other financial
      instruments
              
              
              2,955
              
              
              
              2,925
              
              
              
              7,128
              
              
              
              6,958Derivative
      liability
              
              
              -
              
              
              
              -
              
              
              
              790
              
              
              
              790Obligation
      under Minimum Assessment Agreement
              
              
              19,132
              
              
              
              19,442
              
              
              
              8,648
              
              
              
              16,394
 
 Fair
value information is based on current market interest rates and estimates of
market conditions for instruments with similar terms, maturities, and degrees of
risk.
 
 
 16
 
 
 10.          Subsequent
Events
 
 On
October 22, 2009, the Company consummated its acquisition of ABC. Concurrently
with the closing, AB Acquisition merged with and into PGL, resulting in ABC
becoming a direct, wholly-owned subsidiary of PGL. After the consummation of the
acquisition, ABC became a guarantor of the PGL Notes.
 
 The
following table summarizes the actual historical combined net revenues and net
(loss) income of the Company and ABC for the three and nine months ended
September 30, 2009 and 2008 on a pro forma basis as if the acquisition had
occurred at the beginning of such period:
  Three Months
                Ended
                September
      30, 2009
              
              
              Three Months
                Ended
                September
      30, 2008
              
              
              Nine Months
                Ended
                September
      30, 2009
              
              
              Nine Months
                Ended
                September
      30, 2008Net
      revenues
              
              $
              82,913
              
              
              $
              77,773
              
              
              $
              255,736
              
              
              $
              236,499Net
      (loss) income
              
              
              (18,309
              )
              
              
              8,869
              
              
              
              (1,998
              )
              
              
              28,588
 
  The
allocation of the purchase price to the fair value of assets acquired and
liabilities assumed is incomplete because the acquisition was only recently
consummated and the Company has just began the valuation
process.  Therefore, all asset and liability related disclosures have
been omitted and the impact of any amortization on the expected step up in
historical asset values has been excluded from the pro forma net (loss) income
amounts disclosed above.  The Company expects a significant portion of the
purchase price will be allocated to intangible assets with an indefinite
life.
 
 On
October 29, 2009, PGL, DJL, EVD, ABC and DJW (the “Borrowers”) jointly entered
into an amended and restated loan and security agreement with Wells Fargo as the
arranger and agent (“Amended PGL Credit Facility”). The Amended PGL Credit
Facility consists of a revolving credit facility which permits the Borrowers to
request advances and letters of credit up to the lesser of the maximum revolver
amount of $58.5 million (less amounts outstanding under letters of credit) and a
specified borrowing base (the “Borrowing Base”). The Borrowing Base is the
lesser of the consolidated EBITDA (as defined in the Amended PGL Credit
Facility) of the Borrowers for the twelve months immediately preceding the
current month end multiplied by 150% and the consolidated EBITDA of the
Borrowers for the most recent quarterly period annualized multiplied by 150%.
The borrowings under the Amended PGL Credit Facility bear interest at a rate
equal to the Wells Fargo prime rate plus a margin of 2.5% with a floor of
6%.
 
 The
Borrowers are jointly and severally liable under the Amended PGL Credit Facility
and such borrowings are collateralized by substantially all of the assets of the
Borrowers.
 
 The
Amended PGL Credit Facility contains a number of restrictive covenants,
including covenants that limit the Borrowers’ ability to, among other things:
(1) incur more debt; (2) create liens; (3) enter into any merger, consolidation,
reorganization, or recapitalization, or reclassify its capital stock; (4)
dispose of certain assets; (5) guarantee the debt of others; (6) pay dividends
or make other distributions to PGP; (7) make investments; and (8) enter into
transactions with affiliates. The Amended PGL Credit Facility also contains
financial covenants, including minimum consolidated EBITDA requirements and
limitations on capital expenditures.
  On
November 6, 2009, the board of managers of PGP approved the PGP 2009 Profits
Interest Plan (the “Plan”).   On the
same day, PGP approved grants of profits interests to two of the Company's
executive officers under the Plan in the respective amounts of 46,434.36
and 11,608.59 (equal to the amounts of profits interests redeemed from each of
them, as described below, and representing approximately 3.6% and 0.9%,
respectively, of the future appreciation in value, if any, of PGP’s common
membership interests from the date of grant of such interests).  The
profits interests granted pursuant to such awards were fully vested at the time
of grant, and the value of the profits interests granted pursuant to such awards
is limited to the future appreciation in value, if any, of PGP’s common
membership interests from the date of grant of such profits
interests.
    
 
 
 
 
 
 17
 
 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 The
following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and the related notes thereto
appearing elsewhere in this report.
 
 Forward Looking
      Statements
 
 Some
statements contained in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” constitute “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include the words “may,” “estimate,” “intend,”
“continue,” “believe,” “expect,” or “anticipate” and other similar words. These
forward-looking statements generally relate to plans and objectives for future
operations and are based upon management’s reasonable estimates of future
results or trends. Although we believe that the plans and objectives reflected
in or suggested by such forward-looking statements are reasonable, such plans or
objectives may not be achieved. Actual results may differ from projected results
due to, but not limited to, unforeseen developments, including developments
relating to the following:
 
 ·
              the
      availability and adequacy of our cash flows to satisfy our obligations,
      including payment obligations under the PGL Notes and the PGL Credit
      Facility and additional funds required to support capital improvements and
      development;
 
 ·
              economic,
      competitive, demographic, business and other conditions in our local and
      regional markets;
 
 ·
              changes
      or developments in the laws, regulations or taxes in the gaming and horse
      racing industry;
 
 ·
              actions
      taken or omitted to be taken by third parties, including customers,
      suppliers, competitors, members and shareholders, as well as legislative,
      regulatory, judicial and other governmental
  authorities;
 
 ·
              changes
      in business strategy, capital improvements, development plans, including
      those due to environmental remediation concerns, or changes in personnel
      or their compensation, including federal, state and local minimum wage
      requirements;
 
 ·
              the
      loss of any license or permit, including the failure to obtain an
      unconditional renewal of a required gaming license on a timely
      basis;
 
 ·
              the
      loss of the ability of DJL or DJW to conduct their respective gaming
      operations in the event the electorates in Dubuque County and Worth
      County, respectively, do not vote to continue gaming in Dubuque County and
      Worth County, Iowa, respectively;
 
 ·
              the
      termination of our operating agreement with the Dubuque Racing Association
      (the “DRA”) and/or the Worth County Development Authority (“WCDA”) or the
      failure of the DRA and/or the WCDA to continue as our “qualified
      sponsoring organization;”
 
 ·
              the
      loss of our facilities due to casualty, weather, mechanical failure or any
      extended or extraordinary maintenance or inspection that may be
      required;
 
 ·
              changes
      in federal or state tax
obligations;
 
 ·
              potential
      exposure to environmental liabilities, changes or developments in the
      laws, regulations or taxes in the gaming or horse racing industry or a
      decline in the public acceptance of gaming or horse racing and other
      unforeseen difficulties associated with our
  operations;
 
 ·
              adverse
      circumstances, changes, developments or events relating to or resulting
      from our ownership and control of DJL, DJW, EVD and ABC;
    and
 
 ·
              other
      factors discussed in our other filings with the
  SEC.
 
 
 Overview
 
 We own
and operate (i) the Diamond Jo riverboat casino in Dubuque, Iowa with 987
slot machines and 18 table games and 5 poker tables, which commenced operations
at its new facility in December 2008, (ii) the Evangeline Downs racino in
Opelousas, Louisiana with 1,424 slot machines and a one-mile dirt and 7/8 mile
turf horse racetrack and four OTBs located throughout south central Louisiana
and (iii) the Diamond Jo Worth casino in Worth County, Iowa with 969 slot
machines, 22 table games and 7 poker tables.
 
 18
 
 Results of
      Operations
 
 Our
results of operations discussed below include the consolidated results of
operations of the Company, DJL, EVD and DJW for the three and nine months ended
September 30, 2009 and 2008.
 
 Statement
of Operations Data
 
 INCOME FROM OPERATIONS:
              
              Three Months Ended
                September
      30,(in thousands)
              
              2009
              
              
              2008General
      corporate
              
              $
              1,367
              
              
              $
              (198
              )Diamond
      Jo
              
              
              4,159
              
              
              
              3,031Evangeline
      Downs
              
              
              3,552
              
              
              
              6,132Diamond
      Jo Worth
              
              
              6,653
              
              
              
              6,017AB
      Casino Acquisition
              
              
              (490
              )
              
              
              -Income
      from operations
              
              $
              15,241
              
              
              $
              14,982
 
 Diamond Jo
                Three Months Ended
                September
      30,
              
              
              Evangeline Downs
                Three Months Ended
                September
      30,
              
              
              Diamond Jo Worth
                Three Months
                Ended September
      30,(in thousands)
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008REVENUES:Casino
              
              $
              18,186
              
              
              $
              11,350
              
              
              $
              25,009
              
              
              $
              24,363
              
              
              $
              20,720
              
              
              $
              20,838Racing
              
              
              
              
              
              
              
              
              
              
              4,832
              
              
              
              5,060Video
      poker
              
              
              
              
              
              
              
              
              
              
              1,190
              
              
              
              1,346Food
      and beverage
              
              
              1,866
              
              
              
              665
              
              
              
              2,639
              
              
              
              2,497
              
              
              
              1,081
              
              
              
              1,050Other
              
              
              549
              
              
              
              372
              
              
              
              283
              
              
              
              491
              
              
              
              2,133
              
              
              
              2,628Less
      promotional allowances
              
              
              (2,313
              )
              
              
              (1,419
              )
              
              
              (3,287
              )
              
              
              (2,166
              )
              
              
              (1,633
              )
              
              
              (1,716
              )Net
      revenues
              
              
              18,288
              
              
              
              10,968
              
              
              
              30,666
              
              
              
              31,591
              
              
              
              22,301
              
              
              
              22,800EXPENSES:Casino
              
              
              6,833
              
              
              
              4,571
              
              
              
              12,028
              
              
              
              11,870
              
              
              
              6,929
              
              
              
              7,159Racing
              
              
              
              
              
              
              
              
              
              
              4,368
              
              
              
              4,439Video
      poker
              
              
              
              
              
              
              
              
              
              
              950
              
              
              
              996Food
      and beverage
              
              
              1,410
              
              
              
              563
              
              
              
              1,857
              
              
              
              1,949
              
              
              
              822
              
              
              
              818Other
              
              
              305
              
              
              
              5
              
              
              
              71
              
              
              
              68
              
              
              
              1,857
              
              
              
              2,351Selling,
      general and administrative
              
              
              3,300
              
              
              
              1,848
              
              
              
              3,686
              
              
              
              3,736
              
              
              
              3,404
              
              
              
              3,398Depreciation
      and amortization
              
              
              2,245
              
              
              
              750
              
              
              
              1,907
              
              
              
              1,948
              
              
              
              1,694
              
              
              
              2,157Pre-opening
      expense
              
              
              
              
              
              
              78Development
      expense
              
              
              
              
              
              
              89
              
              
              
              6
              
              
              
              7Loss
      on disposal of assets
              
              
              36
              
              
              
              33
              
              
              
              1,882
              
              
              
              32
              
              
              
              40
              
              
              
              16Affiliate
      management fees
              
              
              
              
              
              
              
              
              
              
              359
              
              
              
              414
              
              
              
              902
              
              
              
              884Total
      expenses
              
              
              14,129
              
              
              
              7,937
              
              
              
              27,114
              
              
              
              25,459
              
              
              
              15,648
              
              
              
              16,783Income
      from operations
              
              $
              4,159
              
              
              $
              3,031
              
              
              $
              3,552
              
              
              $
              6,132
              
              
              $
              6,653
              
              
              $
              6,017
 
 Three
      months ended September 30, 2009 compared to three months ended September
      30, 2008
 
 DJL’s
casino revenues increased by $6.8 million, or 60%, to $18.2 million for the
three months ended September 30, 2009 from $11.4 million for the three months
ended September 30, 2008 due to the opening of its new land-based casino in
December 2008. DJL’s slot revenue increased to $16.8 million for the three
months ended September 30, 2009 from $10.4 million for the three months ended
September 30, 2008, and DJL’s table game revenue increased to $1.4 million for
the three months ended September 30, 2009 compared to $0.9 million for the three
months ended September 30, 2008.
 
 EVD’s
casino revenues increased $0.6 million to $25.0 million for the three months
ended September 30, 2009 from $24.4 million for the three months ended September
30, 2008 primarily as a result of the negative effects of hurricane Gustav that
forced us to close our facility for five days in the third quarter of 2008. In
addition to the actual days in which the casino was closed to the public, EVD
was negatively impacted before and after the hurricane hit as local residents
prepared for and dealt with the after effects of Gustav.  During the third
quarter 2009, EVD experienced a negative impact on revenues due to the downturn
in the oil and gas industries in southern Louisiana.
 
 
 19
 
 DJW’s
casino revenues decreased slightly to $20.7 million for the three months ended
September 30, 2009 from $20.8 million for the three months ended September 30,
2008.  DJW’s slot revenue decreased to $19.0 million for the three
months ended September 30, 2009 from $19.3 million for the three months ended
September 30, 2008, and DJW’s table game revenue increased $0.2 million to $1.7
million for the three months ended September 30, 2009 compared to $1.5 million
for the three months ended September 30, 2008.
 
 Promotional
allowances as a percentage of casino revenues increased to 11.3% for the three
months ended September 30, 2009 from 9.4% for the three months ended September
30, 2008, which is primarily due to an increase in promotional allowances at EVD
related to an increase in direct mail offers designed to stimulate increased
business.
 
 Casino
operating expenses increased $2.2 million to $25.8 million for the three months
ended September 30, 2009 from $23.6 million for the three months ended September
30, 2008 due primarily to a $2.3 million increase at DJL related to the
opening of its new land-based casino.  Casino operating expenses as a
percentage of casino revenues declined at DJL due to a more efficient
casino floor layout at DJL’s new land-based casino and certain fixed costs on a
larger casino revenue volume.
 
 Food and
beverage revenues increased $1.4 million during the three months ended September
30, 2009 compared to the three months ended September 30, 2008 due primarily to
a $1.2 million increase in food and beverage revenues at DJL related to the
opening of its new land-based casino.
 
 Other
revenues decreased $0.5 million during the three months ended September 30, 2009
compared to the three months ended September 30, 2008 due primarily to a
decrease in convenience store revenues at DJW resulting from lower fuel prices
over the third quarter of 2008.  Consistent with this decrease in
gasoline sales, DJW realized a decrease in other expenses.  In
addition, during the three months ended September 30, 2009, DJL had other
revenues of approximately $0.4 million related to the opening of its new 30-lane
bowling center and event center in December 2008.  DJL also incurred
approximately $0.3 million of other expenses related to these
amenities.  During the three months ended September 30, 2008, DJL
recorded approximately $0.3 million in other revenue associated with the DRA
contractual obligation under its operating agreement to pay DJL $0.33 for each
$1.00 reduction in DJL’s adjusted gross receipts.  The income
associated with the DRA agreement terminated in December 2008 upon the opening
of DJL’s new land-based casino.
 
 Selling,
general and administrative expenses decreased $0.2 million to $8.9 million for
the three months ended September 30, 2009 from $9.1 million for the three months
ended September 30, 2008. This decrease was primarily due to a $1.6 million
decrease in corporate selling, general and administrative expenses primarily due
to a $2.8 million credit to non-cash expense in the third quarter of 2009
associated with PGP incentive units previously granted to certain executive
officers of the Company compared to a $1.0 million credit in the third quarter
of 2008.  The value of the incentive units is adjusted each quarter to
their intrinsic value. The credit in 2009 was reflective of an increase in the
outstanding debt of the Company related to the issuance of the PGL Notes in
August 2009 and the credit in 2008 was reflective of the overall decline in
gaming industry values in 2008. In addition, DJL’s selling, general and
administrative expenses increased $1.5 million related to expenses associated
with operations directly related to costs associated with the operation of its
new, larger casino facility.  This increase at DJL includes approximately
$0.8 million related to DJL’s obligation under its operating agreement with the
DRA to pay the DRA 4.5% of its adjusted gross gaming receipts from the opening
date of DJL’s new land-based casino.
 
 Depreciation
and amortization expenses increased $1.0 million to $5.9 million for the three
months ended September 30, 2009 from $4.9 million for the three months ended
September 30, 2008 due to an increase of $1.5 million at DJL related to the
impact of the depreciation on the assets associated with DJL’s new land-based
casino.  This increase was partially offset by a decrease in
depreciation and amortization expenses at DJW of $0.5 million primarily related
to assets that have reached their expected useful lives after the first quarter
of 2009.
 
 Development
expense for the three months ended September 30, 2009 was $0.5 million and is
primarily related to costs associated with the acquisition of
ABC.
 
 Affiliate
management fees of $1.4 million for the three months ended September 30, 2009
and 2008 relate to management fees paid or accrued to related parties under
various management services and consulting agreements at EVD and
DJW.
 
 Included
in loss on disposal of assets at EVD during the three months ended September 30,
2009 is approximately $1.5 million of capitalized design and development costs
and disposal costs related to a hotel project design that will not be utilized
by the third party operator.  See Note 3 of the condensed consolidated
financial statements contained elsewhere in this quarterly report for further
information on the EVD hotel project.
 
 Other
expense, net of interest income and amounts capitalized, and including loss on
early retirement of debt, increased $26.6 million during the three months ended
September 30, 2009 over September 30, 2008 primarily due to the Company’s debt
refinancing activities discussed in Note 4 to the condensed consolidated
financial statements.   In addition, interest expense of
approximately $1.1 million was capitalized as part of the casino development and
other construction projects during the three months ended September 30, 2008 and
none was capitalized in 2009.
 
 20
 
 INCOME
      (LOSS) FROM OPERATIONS:
              
              Nine
      months ended
                September
      30,(in thousands)
              
              2009
              
              
              2008General
      corporate
              
              $
              (2,444
              )
              
              $
              2,173Diamond
      Jo
              
              
              12,148
              
              
              
              8,280Evangeline
      Downs
              
              
              18,633
              
              
              
              22,556Diamond
      Jo Worth
              
              
              17,470
              
              
              
              16,423AB
      Casino Acquisition
              
              
              (563
              )
              
              
              -Income
      from operations
              
              $
              45,244
              
              
              $
              49,432
 
 Diamond Jo
                Nine
      months Ended
                September
      30,
              
              
              Evangeline Downs
                Nine
      months Ended
                September
      30,
              
              
              Diamond Jo Worth
                Nine Months Ended September
      30,(in thousands)
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008REVENUES:Casino
              
              $
              54,971
              
              
              $
              31,498
              
              
              $
              78,252
              
              
              $
              79,925
              
              
              $
              60,346
              
              
              $
              60,211Racing
              
              
              
              
              
              
              
              
              
              
              13,685
              
              
              
              14,776Video
      poker
              
              
              
              
              
              
              
              
              
              
              4,170
              
              
              
              4,502Food
      and beverage
              
              
              6,075
              
              
              
              1,868
              
              
              
              8,189
              
              
              
              7,514
              
              
              
              3,316
              
              
              
              3,018Other
              
              
              1,813
              
              
              
              1,616
              
              
              
              1,049
              
              
              
              1,295
              
              
              
              5,161
              
              
              
              6,461Less
      promotional allowances
              
              
              (6,906
              )
              
              
              (3,923
              )
              
              
              (8,640
              )
              
              
              (6,780
              )
              
              
              (4,812
              )
              
              
              (4,672
              )Net
      revenues
              
              
              55,953
              
              
              
              31,059
              
              
              
              96,705
              
              
              
              101,232
              
              
              
              64,011
              
              
              
              65,018EXPENSES:Casino
              
              
              21,393
              
              
              
              13,603
              
              
              
              37,413
              
              
              
              37,922
              
              
              
              20,933
              
              
              
              21,164Racing
              
              
              
              
              
              
              
              
              
              
              12,294
              
              
              
              12,601Video
      poker
              
              
              
              
              
              
              
              
              
              
              3,047
              
              
              
              3,325Food
      and beverage
              
              
              4,534
              
              
              
              1,662
              
              
              
              5,530
              
              
              
              5,599
              
              
              
              2,594
              
              
              
              2,399Other
              
              
              1,034
              
              
              
              12
              
              
              
              215
              
              
              
              198
              
              
              
              4,442
              
              
              
              5,717Selling,
      general and administrative
              
              
              10,193
              
              
              
              5,498
              
              
              
              10,912
              
              
              
              11,532
              
              
              
              10,192
              
              
              
              10,100Depreciation
      and amortization
              
              
              6,616
              
              
              
              2,310
              
              
              
              5,418
              
              
              
              5,871
              
              
              
              5,729
              
              
              
              6,581Pre-opening
      expense
              
              
              
              
              
              
              165
              
              
              
              
              
              
              
              8
              
              
              
              
              
              
              
              32Development
      expense
              
              
              
              
              
              
              (552
              )
              
              
              141
              
              
              
              39Loss
      on disposal of assets
              
              
              35
              
              
              
              81
              
              
              
              1,824
              
              
              
              159
              
              
              
              124
              
              
              
              64Affiliate
      management fees
              
              
              
              
              
              
              
              
              
              
              1,278
              
              
              
              1,422
              
              
              
              2,527
              
              
              
              2,538Total
      expenses
              
              
              43,805
              
              
              
              22,779
              
              
              
              78,072
              
              
              
              78,676
              
              
              
              46,541
              
              
              
              48,595Income
      from operations
              
              $
              12,148
              
              
              $
              8,280
              
              
              $
              18,633
              
              
              $
              22,556
              
              
              $
              17,470
              
              
              $
              16,423
 
 Nine months
      ended September 30, 2009 compared to nine months ended September 30,
      2008
 
 DJL’s
casino revenues increased by $23.5 million, or 75%, to $55.0 million for the
nine months ended September 30, 2009 from $31.5 million for the nine months
ended September 30, 2008 due to the opening of its new land-based casino. DJL’s
slot revenue increased to $50.2 million for the nine months ended September 30,
2009 from $29.2 million for the nine months ended September 30, 2008 and DJL’s
table game revenue increased to $4.8 million for the nine months ended September
30, 2009 compared to $2.3 million for the nine months ended September 30,
2008.
 
 EVD’s
casino revenues declined to $78.3 million for the nine months ended September
30, 2009 from $79.9 million for the nine months ended September 30,
2008.  Management believes this decrease is primarily attributed to a
decline in discretionary spending as a direct result of the downturn in the oil
and gas industries in southern Louisiana during 2009 as well as disruptions on
the casino gaming floor as a result of EVD’s $3.7 million casino floor
renovation, which began at the end of 2008 and was completed in April
2009.  This renovation included, among other things, the purchase of
100 new slot machines, new slot signage and new carpeting as well as an overall
redesign of the casino floor layout to provide more space for
patrons.
 
 DJW’s
casino revenues increased $0.1 million to $60.3 million for the nine months
ended September 30, 2009 from $60.2 million for the nine months ended September
30, 2008.  DJW’s slot revenue was $55.4 million for the nine months
ended September 30, 2009 compared to $55.3 million for the nine months ended
September 30, 2008.  DJW’s table game revenue remained unchanged at
$4.9 million for the nine months ended September 30, 2009 and 2008.
 
 Promotional
allowances as a percentage of casino revenues increased to 10.5% for the nine
months ended September 30, 2009 from 9.0% for the nine months ended September
30, 2008, primarily due increases in promotional allowances at EVD including (i)
a $1.4 million increase in direct mail offers designed to stimulate increased
business and (ii) a $0.5 million increase in the dollar amount of beverage
complimentaries on the casino floor, which is due primarily to a price increase
on beverages as well as an increased focus on beverage service on the casino
floor.
 
 21
 Casino
operating expenses increased $7.0 million to $79.7 million for the nine months
ended September 30, 2009 from $72.7 million for the nine months ended September
30, 2008 due primarily to a $7.8 million increase at DJL related to the
opening of its new land-based casino.  Casino operating expenses as a
percentage of casino revenues declined at DJL due to a more efficient
casino floor layout at DJL’s new land-based casino and certain fixed costs on a
larger casino revenue volume.  The increase at DJL was partially
offset by a $0.5 million decrease in casino operating expenses at EVD primarily
due to a decrease in gaming taxes associated with the decrease in casino
revenues.
 
 Racing
revenues at EVD for the nine months ended September 30, 2009 decreased 7% to
$13.7 million compared to $14.8 million for the nine months ended September 30,
2008. The Company believes this decrease is consistent with an industry trend of
decreased wagering on horse racing throughout the United States.
 
 Food and
beverage revenues increased $5.2 million during the nine months ended September
30, 2009 compared to the nine months ended September 30, 2008 due primarily to a
$4.2 million increase in food and beverage revenues at DJL related to the
opening of its new land-based casino.  In addition, food and beverage
revenues at EVD increased 9%, or $0.7 million, due primarily to an increase in
pricing and an increase in the number of complimentary beverages served as
discussed above.
 
 Other
revenues decreased $1.3 million during the nine months ended September 30, 2009
compared to the nine months ended September 30, 2008 due primarily to a decrease
in convenience store revenues at DJW resulting from lower fuel prices over
2008.  Consistent with this decrease in gasoline sales, DJW realized a
decrease in other expenses.  In addition, during the nine months ended
September 30, 2009, DJL had other revenues of approximately $1.2 million related
to the opening of its new 30-lane bowling center and event center in December
2008.  DJL also incurred approximately $1.0 million of other expenses
related to these amenities.  During the nine months ended September
30, 2008, DJL recorded approximately $1.4 million in other revenue associated
with the DRA’s contractual obligation under its operating agreement to pay DJL
$0.33 for each $1.00 reduction in DJL’s adjusted gross receipts.  The
income associated with the DRA agreement terminated in December 2008 upon the
opening of DJL’s new land-based casino.
 
 Selling,
general and administrative expenses increased $8.7 million to $33.4 million for
the nine months ended September 30, 2009 from $24.7 million for the nine months
ended September 30, 2008.  This increase was primarily due to a $4.5
million increase in corporate selling, general and administrative expenses
largely resulting from a $5.9 million credit to non-cash expense for the nine
months ended September 30, 2008 compared to a $2.4 million credit for the nine
months ended September 30, 2009 associated with PGP incentive units previously
granted to certain executive officers of the Company and a $1.1 million increase
in salaries and other general corporate expenses.  The value of the
incentive units is adjusted each quarter to their intrinsic value. The credit in
2009 was reflective of an increase in the outstanding debt of the Company
related to the issuance of the PGL Notes in August 2009 and the credit in 2008
was reflective of the greater overall decline in gaming industry values in 2008.
In addition, DJL’s selling, general and administrative expenses increased $4.7
million related to expenses associated with operations directly related to costs
associated with the operation of its new, larger casino facility.  This
increase at DJL includes approximately $2.5 million related to DJL’s obligation
under its operating agreement with the DRA to pay the DRA 4.5% of its adjusted
gross gaming receipts from the opening date of DJL’s new land-based
casino.
 
 Depreciation
and amortization expenses increased $3.0 million to $17.8 million for the nine
months ended September 30, 2009 from $14.8 million for the nine months ended
September 30, 2008 due to an increase in depreciation  expense of $4.3
million at DJL related to the impact of the depreciation on the assets
associated with the DJL’s new land-based casino.  This increase was
partially offset by decreases in depreciation and amortization expenses at EVD
and DJW of $0.5 million and $0.9 million, respectively, primarily related to
assets that have reached their expected useful lives.
 
 Development
expense for the nine months ended September 30, 2009 was $0.7 million and is
primarily related to costs associated with the acquisition of
ABC.  Development expenses for the nine months ended September 30,
2008 was $(0.5) million.  In June 2008, DJL and the Historical Society
reached an amended agreement pursuant to which DJL would arrange for the sale
of its riverboat with the proceeds to be split evenly between DJL and the
Historical Society while the prior agreement required DJL to donate the
riverboat to the Historical Society.  Based on this amended agreement,
DJL reduced its outstanding obligation to the Historical Society by 50% of the
expected proceeds to be received upon the sale of the Diamond Jo vessel with a
corresponding credit to development expense on the Company’s statement of
operations.
 
 Affiliate
management fees of $4.1 million and $4.2 million for the nine months ended
September 30, 2009 and 2008, respectively, relate to management fees paid or
accrued to related parties under various management services and consulting
agreements at EVD and DJW.
 
 Included
in loss on disposal of assets at EVD during the nine months ended September 30,
2009 is approximately $1.5 million of capitalized design and development costs
and disposal costs related to a hotel project design that will not be utilized
by the third party operator.  See Note 3 of the condensed consolidated
financial statements contained elsewhere in this quarterly report for further
information on the EVD hotel project.
 
 22
 Other
expense, net of interest income and amounts capitalized, and including loss on
early retirement of debt, increased $28.8 million during the nine months ended
September 30, 2009 over September 30, 2008 primarily due to the Company’s debt
refinancing activities discussed in Note 4 to the condensed consolidated
financial statements.   In addition, interest expense of
approximately $2.0 million was capitalized as part of the casino development and
other construction projects during the nine months ended September 30, 2008 and
none was capitalized in 2009.
 
 Our
operations are subject to seasonal fluctuations. Our Iowa operations are
typically weaker from November through February as a result of adverse
weather conditions, and are typically stronger from March through October.
Our Louisiana horse racing operations are also subject to seasonal fluctuations.
Our horse racing operations are usually stronger during live racing season,
which generally runs from April through November.
 
 In
general, our payroll and general and administrative expenses are affected by
inflation. Although inflation has not had a material effect on our business to
date, we could experience more significant effects of inflation in future
periods.
 
 
 LIQUIDITY AND CAPITAL
RESOURCES
 
 Cash Flows from Operating,
      Investing and Financing
Activities
 
 Our cash
balance increased $90.0 million to $128.7 million at September 30, 2009 from
$38.7 million at December 31, 2008.
 
 Cash
flows from operating activities were $33.1 million during the nine months ended
September 30, 2009, a decrease of $5.0 million when compared to $38.1
million during the nine months ended September 30, 2008.  This
decrease is primarily attributed to the timing of interest payments as a result
of the Company’s refinancing in August 2009 offset by improved cash flow from
operations at DJL as a result of the opening of its new land-based casino in
December 2008 as well as collections received by DJL from the DRA of $2.5
million related to the DRA’s obligation under its operating agreement with
DJL.
 
 Cash
flows used in investing activities during the nine months ended September 30,
2009 was $34.1 million consisting primarily of (i) payments of $13.8
million for construction and other development costs associated with the DJL
casino development project, (ii) cash outflows of $2.8 million related to
construction projects at EVD, including the remodeling of the casino floor,
(iii) the payment of a $10.0 million deposit under the Purchase Agreement
related to the acquisition of ABC, (iv) cash outflows of $6.4 million primarily
related to the acquisition of slot machines and slot machine conversions and
general maintenance capital expenditures and (v) business acquisition and
licensing costs of $1.4 million primarily related to DJW’s license agreement
with the State of Iowa requiring a $1.0 million payment in May
2009.  To partially offset the cash flows used were proceeds from the
sale of property and equipment of $0.7 million received at DJL from the sale of
the Diamond Jo vessel and other obsolete assets which were not utilized at its
new land-based casino.
 
 Cash
flows from financing activities during the nine months ended September 30, 2009
of $90.9 million reflects the proceeds from the offering of the PGL Notes
in August 2009 of $531.5 million offset by (i) payments on debt, including
principal and call premiums related to the redemption of Old Peninsula Notes,
the DJW Notes and the EVD Notes of $392.3 million, (ii) net payments of
borrowings under the PGL Credit Facility and DJW Credit Facility of $30.5
million, (iii) payment of deferred financing costs related to the issuance of
the PGL Notes of $15.1 million and (iv)  member distributions of $2.7
million.
 
 As of
September 30, 2009, we had no outstanding advances under the revolver portion of
the PGL Credit Facility and outstanding letters of credit of approximately $1.4
million. The available borrowing amount under the PGL Credit Facility at
September 30, 2009, after reductions for amounts borrowed and letters of credit
outstanding, was $63.6 million.
 
 Financing Activities
 
 Our
financing activities will have several important effects on our future
operations and are described in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2008.  In August
2009, we made significant changes to our financing structure. See Note 4 of
the condensed consolidated financial statements contained elsewhere in this
quarterly report for further information on our financing
activities.
 
 In
addition, on October 29, 2009, the Company entered into the Amended PGL Credit
Facility.  See Note 10 of the condensed consolidated financial
statements contained elsewhere in this quarterly report for further information
on the Amended PGL Credit Facility.
 
 General
 
 In
addition to our cash on hand, we currently have the following sources of funds
for our business: (i) cash flows from operations, and (ii) available
borrowings under the PGL Credit Facility. The available borrowing amount at
September 30, 2009 after our refinancing and after reductions for letters of
credit outstanding under the PGL Credit Facility was $63.6 million.
 
 23
 On
October 22, 2009, the Company purchased ABC for a purchase price of $104.0
million plus $2.2 million in working capital.  The deposit paid in
June 2009 of $10.0 million was applied toward the purchase price and the
remaining balance was paid with cash on hand.  In addition, the
Company plans to spend an additional $8.0 million to remodel the existing Amelia
Belle riverboat, which will include a redesign of the casino floor, new slot
machines and a sports bar.
 
 Our other
capital expenditures for the next twelve months related to EVD’s planned
development of an event center and a new OTB located in St. Martinville Parish,
Louisiana are expected to be approximately $3.9 million and $2.4 million,
respectively.  Remaining capital expenditures for the Company for the next
twelve months, excluding amounts discussed above, are expected to be
approximately $7.6 million.
 
 The
Company’s debt maturities for the next twelve months are expected to be
approximately $3.2 million.  The Company’s member distributions to PGP for
the next twelve months are expected to be approximately $3.5 million. We plan to
finance these expected cash requirements with: (i) a portion of the available
cash on hand (excluding amounts needed for normal operations); (ii) cash
generated from operations; and (iii) if necessary, available borrowings under
the PGL Credit Facility.  There can be no assurances that such
projects will be completed in the estimated time frames or at the estimated
costs.
 
 Based
on our cash on hand, expected cash flows from operations and our available
sources of financing, we believe we will have adequate liquidity to satisfy our
current operating needs at each of our gaming properties and to service our
outstanding indebtedness for the next twelve months.
 
 Our level
of indebtedness will have several important effects on our future operations
including, but not limited to, the following: (i) a significant portion of
our cash flow from operations will be required to pay interest on our
indebtedness and the indebtedness of our subsidiaries; (ii) the financial
covenants contained in the agreements governing such indebtedness will require
us and/or our subsidiaries to meet certain financial tests and may limit our
respective abilities to borrow additional funds or to transfer funds to PGP or
dispose of assets; (iii) our ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired; and (iv) our ability to adapt to
changes in the gaming or horse racing industries which affect the markets in
which we operate could be limited.
 
 CONTRACTUAL
OBLIGATIONS
 
 A table of our contractual obligations as of December 31, 2008 was included
in Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2008.  See Note 4 of the condensed
consolidated financial statements contained elsewhere in this quarterly report
for information on changes to our long-term debt during the third quarter of
2009.  As a result of these transactions, and assuming such
transactions occurred on December 31, 2008, our contractual obligations for the
periods presented would have changed as follows: (i) increased by $15.7 million
for periods less than one year; (ii) increased by $26.1 million for the
period 2 – 3 years; (iii) decreased by $299.7 million for the period 4 – 5
years and (iv) increased by $696.5 million for the periods
thereafter.
 
 OFF-BALANCE
SHEET TRANSACTIONS
 
 Other
than as described in Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of our Annual Report on Form 10-K
for the fiscal year ended December 31, 2008, we do not maintain any
off-balance sheet transactions, arrangements, obligations or other relationships
with unconsolidated entities or others that are reasonably likely to have a
material current or future effect on our financial condition, cash flows,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources.
 
 
 CRITICAL
ACCOUNTING POLICIES
 
 The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. We periodically evaluate our policies and the
estimates and assumptions related to these policies.
 
 Understanding
our critical accounting policies and related risks is important in evaluating
our financial condition and results of operations. The critical accounting
policies used in preparation of the Company’s financial statements involve a
significant use of management judgment on matters that are inherently uncertain
and are described in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2008. If actual results
differ significantly from management’s estimates, there could be a material
effect on our financial condition, results of operations and cash flows.
Management regularly discusses the identification and development of these
critical accounting policies with the Audit Committee of the Board of Managers.
There have been no significant changes to our critical accounting policies
during the nine months ended September 30, 2009.
 
 24
 ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 We are
exposed to certain market risks which are inherent in our financial instruments
which arise from transactions entered into in the normal course of business.
Market risk is the risk of loss from adverse changes in market prices and
interest rates. We do not currently utilize derivative financial instruments to
hedge market risk. We also do not hold or issue derivative financial instruments
for trading purposes.
 
 We are
exposed to interest rate risk due to changes in interest rates with respect to
our long-term variable interest rate debt borrowing under the PGL Credit
Facility. As of September 30, 2009, the Company had no outstanding borrowings
under the PGL Credit Facility. We have estimated our market risk exposure
using sensitivity analysis. We have defined our market risk exposure as the
potential loss in future earnings and cash flows with respect to interest rate
exposure of our market risk sensitive instruments assuming a hypothetical
increase in market rates of interest of 100 basis points. Assuming we borrow the
maximum amount allowed under the PGL Credit Facility (currently an aggregate
amount of $58.5 million) and if market rates of interest on our variable rate
debt increase by 100 basis points, the estimated additional annual interest
expense would be approximately $0.6 million.
 
 We are
also exposed to fair value risk due to changes in interest rates with respect to
our long-term fixed interest rate available for sale investment and debt
borrowings. Our fixed rate available for sale investment is recorded at fair
value, and therefore, is directly impacted by changes in interest rates and
market risks. Our fixed rate debt instruments are not generally affected by a
change in the market rates of interest, and therefore, such changes generally do
not have an impact on future earnings. However, future earnings and cash flows
may be impacted by changes in interest rates related to indebtedness incurred to
fund repayments as such fixed rate debt matures. The following table contains
information relating to our fixed rate available for sale investment and debt
borrowings as of September 30, 2009 (dollars in thousands):
 
  Description
              
              Maturity
              
              Interest
                Rate
              
              Carrying
                Value
              
              Fair
                ValueAvailable
      for sale investment
              
              2011
      – 2037
              
              7
      1/2
              %
              $ 14,729
              
              $ 14,729
              (1)8
      3/8% senior secured notes
              
              Aug 15,
      2015
              
              8
      3/8
              %
              234,599
              
              241,200
              (2)10
      3/4% senior unsecured notes
              
              Aug
      15, 2017
              
              10
      3/4
              %
              297,158
              
              306,525
              (2)Senior
      credit facility
              
              January
      15, 2012
              
              6
              %(3)
              -
              
              -Term
      loan
              
              December
      1, 2013
              
              6
      1/2
              %
              7,060
              
              7,060
              (2)Notes
      payable, capital lease obligations and other financial
      instruments
              
              2009—2011
              
              6 %
      - 8 3/4
              %
              2,925
              
              2,955
              (2)Obligation
      under Minimum Assessment Agreement
              
              2011
      – 2037
              
              N/A
              
              19,442
              
              19,132
              (2)
 
 (1)           Our
available for sale investment is not traded.  Fair value is based on
considerable judgment using a combination of current market rates and estimates
of market conditions for similar instruments.  Due to the illiquid
nature of the investment, changes in market risks could have a significant
impact on the fair value.
 
 (2)           Represents
fair value as of September 30, 2009 based on current market interest rates and
estimates of market conditions for instruments with similar terms, maturities,
and degrees of risk.
 
 (3)           Such
borrowings are made under variable interest rates.  The interest rate
listed is as of September 30, 2009.
 
 ITEM 4. CONTROLS
AND PROCEDURES
 
 Disclosure Controls and
Procedures. We maintain disclosure controls and procedures (as defined
in Rule 13a-l 5(e) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) that are designed to ensure that information required to be
disclosed in our reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, including controls and procedures designed to ensure that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure. Management necessarily
applied its judgment in assessing the costs and benefits of such controls and
procedures, which, by their nature, can provide only reasonable assurance
regarding management’s disclosure control objectives. Under the supervision and
with the participation of our management, we evaluated the effectiveness of our
disclosure controls and procedures as of September 30, 2009. Based on that
evaluation, our Chief Executive Officer and our Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of
September 30, 2009.
 
 Changes in Internal Control Over
Financial Reporting.  There were no significant changes in our
internal control over financial reporting (as defined in Exchange Act Rule
13a-15(f)) that occurred during our third quarter that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
 
 25
 
 PARTII.
      OTHER INFORMATION
 
 ITEM 1.LEGAL
PROCEEDINGS
 
 Information
in response to this Item 1 is incorporated by reference to the information set
forth in Note 6 “Commitments and Contingencies” in the Notes to the condensed
consolidated financial statements in Part I of this Quarterly Report on
Form 10-Q.
 
 ITEM 1A.RISKFACTORS
 
 Competition
— We face intense competition in our gaming markets and increased competition
may have a material adverse effect on our business, financial condition and
results of operations.
 
 The
gaming industry is intensely competitive.  If our existing competitors
expand and/or upgrade their facilities or operate more efficiently than we do,
new gaming firms enter the markets in which we operate or our competitors
offer amenities that our casinos do not have, we could lose market share or our
gaming markets could become saturated and new opportunities for expanding our
business could become limited.  As a result, increased competition
could have a material adverse effect on our business, financial condition,
results of operations and cash flows.
 
 In
Dubuque, Iowa, we face competition primarily from the Mystique Casino (the
“Mystique”), a pari-mutuel greyhound racing
facility.   Mystique’s facility includes 959 slot machines, 18
table games and 4 poker tables. Mystique renovated its gaming facility in
April 2009.  The renovation includes a new restaurant, entertainment
facility and additional gaming space.  In addition, a group of private
investors opened a hotel adjacent to the Mystique in October
2005.  The Mystique is owned and operated by the Dubuque Racing
Association (the “DRA”).  Besides the Mystique, we also currently face
limited competition from other gaming facilities located approximately 60 to 120
miles from our operations.  In May 2005, the Iowa Racing and Gaming
Commission granted 4 new licenses (including ours in
Worth County).  The closest of these licensees to the Diamond Jo
is one located in Waterloo, Iowa, approximately 85 miles to the west of Dubuque,
which opened in June 2007.
 
 Our
primary competition at the Diamond Jo Worth casino is from the Native American
gaming operations in Minnesota, the closest being approximately 110 miles from
the Diamond Jo Worth casino.  In addition, a new casino in Emmetsburg,
Iowa, located approximately 90 miles from Diamond Jo Worth casino, commenced
operations in June 2006.  As noted above, a new casino located in
Waterloo, Iowa opened in June 2007 and is located approximately 120 miles from
our Diamond Jo Worth casino.
 
 In
Louisiana, the nearest competitor to Evangeline Downs is a Native American
casino located approximately 50 miles to the south of Lafayette, including
several miles off the highway in Baldwin, Louisiana.  We also face
competition from several other casinos and pari-mutuel gaming facilities located
50 to 100 miles from our racino, including Native American casinos in Kinder,
Louisiana, and riverboat casinos in Baton Rouge and Lake Charles,
Louisiana.  The nearest horse racetrack to our racino that is allowed
to have gaming operations is located in Vinton, Louisiana.  We also
face competition from truck stop video poker parlors and OTBs in the areas
surrounding Lafayette and Opelousas, Louisiana.
 
 Our
primary competition at Amelia Belle is is a Native American casino located
approximately 40 miles to the north of Amelia, including several miles off the
highway, in Baldwin, Louisiana.   We also face competition from
casinos in New Orleans, Louisiana.
 
 We could
also face additional competition if Louisiana or Iowa or any of the states
bordering Iowa or Louisiana (i) adopts laws authorizing new or additional gaming
or (ii) grants new licenses to licensees located in and around the markets in
which we operate.
 
 We also
compete to some extent with other forms of gaming on both a local and national
level, including state-sponsored lotteries, charitable gaming, on- and off-track
wagering, internet gaming, and other forms of entertainment, including motion
pictures, sporting events and other recreational activities.  It is
possible that these secondary competitors could reduce the number of visitors to
our facilities or the amount they are willing to wager, which could have a
material adverse effect on our ability to generate revenue or maintain our
profitability and cash flows.
 
 Increased
competition may require us to make substantial capital expenditures to maintain
and enhance the competitive positions of our properties, including updating slot
machines to reflect changing technology, refurbishing rooms and public service
areas periodically, replacing obsolete equipment on an ongoing basis and making
other expenditures to increase the attractiveness and add to the appeal of our
facilities.  Because we are highly leveraged, after satisfying our
obligations under our outstanding indebtedness, there can be no assurance that
we will have sufficient funds to undertake these expenditures or that we will be
able to obtain sufficient financing to fund such expenditures.  If we
are unable to make such expenditures, our competitive position could be
materially adversely affected.
 
 26
 Acquisitions
– The Company may not be able to successfully identify attractive acquisitions,
successfully integrate acquired operations or realize the intended benefits of
acquisitions.
 
 The
Company evaluates from time to time attractive acquisition opportunities
involving casino and other gaming operations.  This strategy is
subject to numerous risks, including:
 
 ·           an
inability to obtain sufficient financing to complete its
acquisitions;
 
 ·           an
inability to negotiate definitive acquisition agreements on satisfactory
terms;
 
 ·
              difficulty
      in integrating the operations, systems and management of acquired assets
      and absorbing the increased demands on its administrative, operational and
      financial resources;
 
 ·           the
diversion of its management’s attention from its other
responsibilities;
 
 ·           the
loss of key employees following completion of its acquisitions;
 
 ·           the
failure to realize the intended benefits of and/or synergies created by its
acquisitions;
 
 ·           its
being subject to unknown liabilities; and
 
 ·           the
need for a greater amount of capital, infrastructure or other spending than
anticipated.
 
 The
Company’s inability to effectively address these risks could force it to revise
its business plan, incur unanticipated expenses or forego additional
opportunities for expansion.
 
 
 ITEM 5.  OTHER
INFORMATION
  Peninsula Gaming Partners, LLC (“PGP”) has successfully completed the amendment
of certain employment agreements with Mr. Jonathan Swain, Chief Operating
Officer of the Company, and Ms. Natalie Schramm, the Chief Financial Officer of
the Company.  As further described below, in consideration for the
monetization of their vested and previously earned profits interests in PGP, the
Company was able to secure three-year extensions of their respective employment
agreements and significant limitations on their ability to require the Company
to repurchase such profits interests in the future.
 
 Accordingly, on November 6, 2009, the
board of managers (the “Board”) of PGP approved the PGP 2009 Profits Interest
Plan (“Plan”) to provide grants of profits interests, among other things, to
employees and consultants of PGP.  The terms and conditions of each
award under the Plan will be subject to the sole discretion of the
Board.  Profits interests to be awarded under the Plan are limited
only to the future appreciation in value of PGP’s common membership interests
from the date of grant.  The total number of profits interests that
may be awarded under the Plan is 130,692 (representing 10% of the future
appreciation in value, if any, of PGP’s common membership interests from the
date of grant of such interests).
 
 The Board has the exclusive right and
discretionary authority to administer the Plan in accordance with its terms,
including, among other things, to (i) determine the type and size of each award,
eligibility, the form and content of the award agreements, the extent of
forfeitures, the extent to which certain fundamental corporate changes have
occurred or performance goals and/or other terms and conditions applicable to
any awards have been attained or satisfied, (ii) waive any terms or conditions
relating to any award, interpret the Plan and the award agreements, and (iii)
take any other actions and make any other determinations or decisions that it
deems necessary or appropriate in connection with the Plan or the administration
or interpretation thereof.  Awards granted under the Plan may vest
based upon the occurrence of certain fundamental corporate changes and/or the
attainment of performance goals and satisfaction of any other terms or
conditions determined by the Board.  Unless otherwise provided by the
terms of the Plan, the relevant award agreement, or by the Board, a grantee’s
award that remains unvested at the time of his or her termination of employment
or other services with PGP will be forfeited.  In general, the Board
may, in its discretion, amend or terminate the Plan or any award agreement at
any time.  However, no such amendment or termination may materially
adversely affect the rights of a grantee with respect any previously granted
award without such grantee’s consent, unless such amendments are for the primary
purpose of complying with applicable laws.
 On November 6, 2009, PGP approved
grants of profits interests to each of Mr. Swain and Ms. Schramm under the Plan
in the respective amounts of 46,434.36 and 11,608.59 (equal to the amounts of
profits interests redeemed from each of them, as described below, and
representing approximately 3.6% and 0.9%, respectively, of the future
appreciation in value, if any, of PGP’s common membership interests from the
date of grant of such interests).  The profits interests granted
pursuant to such awards were fully vested at the time of grant, and the value of
the profits interests granted pursuant to such awards is limited to the future
appreciation in value, if any, of PGP’s common membership interests from the
date of grant of such profits interests.
 27
 In
connection with the grant of profits interests under the Plan described above,
the Board also approved the repurchase of certain previously granted and earned
profits interests from each of Mr. Swain and Ms. Schramm in the amounts of $4.6
million and $1.2 million, respectively.  The purchase price for the
profits interests repurchased was determined by the appreciation in value, on a
per unit basis, of PGP’s common membership interests from September 12, 2005
(the original date of grant of such profits interests) to November 6, 2009 (the
repurchase date of such profits interests).  The number of profits
interests repurchased by PGP was fully vested at the time of repurchase and
equivalent to the number of new profits interests awarded under the Plan to Mr.
Swain and Ms. Schramm on November 6, 2009.  The purchase price of the
profits interests repurchased by PGP were equivalent, on a per unit basis, to
the fair value of the common membership interests of PGP on the date of grant of
the profits interests awarded to Mr. Swain and Ms. Schramm under the
Plan.
 
 Each of
Mr. Swain and Ms. Schramm has entered into an agreement with the Company, dated
November 6, 2009, to amend their existing employment agreements to extend their
terms of employment to July 13, 2013, in the case of Mr. Swain, and June 30,
2013, in the case of Ms. Schramm, each with automatic renewals for successive
one-year terms unless earlier terminated by either of the parties to such
agreements.  Except in the case of a termination of employment upon
death, disability or a change of control or a termination by the Company without
“cause”, the amendments also eliminate any requirement of the Company to
purchase, at the request of such employees, their membership interests,
including in the event such employees are terminated for “cause” or voluntarily
terminate their employment prior to a change in control.  In addition
to each employee’s severance pay, the amendments also provide for the prompt
repurchase of any profits interests granted to such employee, whether vested or
unvested, upon such employee’s termination by the Company other than for “cause”
at the fair market value of such profits interests.  The amendments
also amend the definition of “change of control” and provide for the payment to
each employee of an amount equal to 24 months’ pay (based on then current annual
base salary and the average bonuses received in the two preceding calendar
years) upon the occurrence of a change of control.
  
 28
 
 
 ITEM 6. EXHIBITS
 
 (a)
              Exhibits
 
 Exhibit
                Number
              
              Description4.1†
              
              Indenture,
      governing the 8.375% Senior Secured Notes due 2015, dated as of
      August 6, 2009, by and among Peninsula Gaming, LLC and Peninsula
      Gaming Corp., the guarantors party thereto and U.S. Bank National
      Association, as trustee and collateral agent4.2†
              
              Indenture,
      governing the 10.750% Senior Unsecured Notes due 2017, dated as of
      August 6, 2009, by and among Peninsula Gaming, LLC and Peninsula
      Gaming Corp., the guarantors party thereto and U.S. Bank National
      Association, as trustee4.3†
              
              Registration
      Rights Agreement, dated as of August 6, 2009, by and among Peninsula
      Gaming, LLC and Peninsula Gaming Corp., as issuers, and Jefferies &
      Company, Inc., Wells Fargo Securities, LLC and Credit Suisse Securities
      (USA) LLC, as initial purchasers4.4†
              
              Intercreditor
      Agreement, dated as of August 6, 2009, between U.S. Bank National
      Association and Wells Fargo Foothill, Inc., and acknowledged and
      agreed to by Peninsula Gaming, LLC and Peninsula Gaming
    Corp.4.5†
              
              Pledge
      and Security Agreement, dated as of August 6, 2009, among AB Casino
      Acquisition, LLC, Diamond Jo, LLC, Diamond Jo Worth, LLC, Peninsula
      Gaming, LLC, Peninsula Gaming Corp., The Old Evangeline Downs L.L.C. and
      U.S. Bank National Association, as a collateral agent4.6†
              
              Trademark
      Security Agreement, dated as of August 6, 2009,  between The Old
      Evangeline Downs L.L.C. and U.S. Bank National Association, as a
      collateral agent4.7†
              
              Mortgage,
      Leasehold Mortgage, Assignment of Rents, Security Agreement and Fixture
      Financing Statement, dated as of August 6, 2009, from Diamond Jo Worth,
      LLC to U.S. Bank National Association, as a collateral
    agent4.8†
              
              Mortgage,
      Assignment of Rents, Security Agreement and Fixture Financing Statement,
      dated as of August 6, 2009, from Diamond Jo, LLC to U.S. Bank National
      Association, as a collateral agent4.9†
              
              Multiple
      Obligations Mortgage and Assignment of Leases and Rents, dated as of
      August 6, 2009, by The Old Evangeline Downs, L.L.C. in favor of U.S. Bank
      National Association, as a collateral agent10.1
              
              First
      Amendment To Purchase Agreement, dated as of October 22, 2009, by and
      among Columbia Properties New Orleans, L.L.C., as Seller, AB Casino
      Acquisition, LLC, as Buyer and Peninsula Gaming Partners, LLC –
      incorporated by reference to Exhibit 1.1 of Peninsula Gaming, LLC’s
      Current Report on Form 8-K filed October 23, 2009.10.2†
              
              Consent
      and Waiver, dated as of August 6, 2009, among Diamond Jo, LLC, The Old
      Evangeline Downs, L.L.C. and Wells Fargo Foothill, Inc.10.3†
              
              Trademark
      Security Agreement, dated as of August 6, 2009, between The Old Evangeline
      Downs L.L.C. and Wells Fargo Foothill, Inc.10.4†
              
              Mortgage,
      Leasehold Mortgage, Assignment of Rents, Security Agreement and Fixture
      Financing Statement, dated as of August 6, 2009, from Diamond Jo Worth,
      LLC to Wells Fargo Foothill, Inc.10.5†
              
              Amended
      and Restated Loan Agreement, dated October 29, 2009, by and among
      Peninsula Gaming, LLC, Diamond Jo, LLC, The Old Evangeline Downs, L.L.C.,
      Belle of Orleans, L.L.C. and Diamond Jo Worth, LLC, as borrowers, the
      lenders that are signatories thereto and Wells Fargo Foothill, Inc., as
      the arranger and agent for the lenders10.6†
              
              Amended
      and Restated Intercompany Subordination Agreement, dated October 29, 2009,
      by and among Peninsula Gaming, LLC, Diamond Jo, LLC, The Old Evangeline
      Downs, L.L.C., Belle of Orleans, L.L.C., Diamond Jo Worth, LLC, Peninsula
      Gaming Corp. and Wells Fargo Foothill, Inc.10.7†
              
              Amended
      and Restated Management Fees Subordination Agreement, dated October 29,
      2009, by and among The Old Evangeline Downs, L.L.C., Diamond Jo Worth,
      LLC, Diamond Jo, LLC, Peninsula Gaming Partners, LLC, OED Acquisition, LLC
      and Wells Fargo Foothill, Inc.
   
 
 29




10.8†
            
            First
      Preferred Ship Mortgage on the Whole of The Belle of Orleans, dated
      October 29, 2009, by Belle of Orleans, L.L.C. in favor of Wells Fargo
      Foothill, Inc.10.9†
            
            Modification
      of Mortgage, Leasehold Mortgage, Assignment of Rents, Security Agreement
      and Fixture Financing Statement, dated as of October 29, 2009, by Diamond
      Jo Worth, LLC and Wells Fargo Foothill, Inc.10.10†
            
            Fifth
      Amendment to Iowa Shore Mortgage, dated October 29, 2009, by Diamond Jo,
      LLC and Wells Fargo Foothill, Inc.10.11†
            
            Act
      of Fourth Amendment of Multiple Obligations Mortgage, dated October 29,
      2009, by The Old Evangeline Downs, L.L.C. and Wells Fargo Foothill,
      Inc.10.12†
            
            Trademark
      Security Agreement, dated as of October 29, 2009, by and among Peninsula
      Gaming, LLC, Diamond Jo, LLC, The Old Evangeline Downs, L.L.C., Diamond Jo
      Worth, LLC and Belle of Orleans, L.L.C. and accepted and acknowledged by
      Wells Fargo Foothill, Inc.31.1†
            
            Certification
      of M. Brent Stevens, Chief Executive Officer, pursuant to Section 302
      of the Sarbanes-Oxley Act of 2002 and Rule 15d-l4 of the Securities
      Exchange Act, as amended.31.2†
            
            Certification
      of Natalie A. Schramm, Chief Financial Officer, pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 15d-14 of
      the Securities Exchange Act, as amended. †
              Filed
      herewith.






30
 
 SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dubuque, State of Iowa on November 10,
2009.
 
 PENINSULA
      GAMING, LLCBy:
              /s/
      M. BRENT STEVENSM.
      Brent StevensChief
      Executive OfficerBy:
              /s/
      JONATHAN SWAINJonathan
      SwainChief
      Operating OfficerBy:
              /s/
      NATALIE A. SCHRAMMNatalie
      A. SchrammChief
      Financial OfficerPENINSULA
      GAMING CORP.By:
              /s/
      M. BRENT STEVENSM.
      Brent StevensChief
      Executive OfficerBy:
              /s/
      NATALIE A. SCHRAMMNatalie
      A. SchrammChief
      Financial Officer
 
 
 
 
 31