Peninsula Gaming 10-Q 2010 Q3 Quarterly report

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 1934
For the quarterly period ended September 30, 2010.
or
o	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 x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.:

Large Accelerated Filer 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, LLC, Belle of Orleans, L.L.C. and Peninsula Gaming Corp. are held by the Company.

PENINSULA GAMING, LLC

INDEX TO FORM 10-Q

	Page
Part I - Financial Information	3
Item 1 - Financial Statements	3
Peninsula Gaming, LLC:
Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2010 and December 31, 2009	3
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2010 and 2009	4
Condensed Consolidated Statement of Changes in Member's Deficit and Comprehensive Income (Unaudited) for the Nine Months Ended September 30, 2010	5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months ended September 30, 2010 and 2009	6
Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3 - Quantitative and Qualitative Disclosures About Market Risk	23
Item 4T - Controls and Procedures	23
Part II - Other Information	24
Item 1 - Legal Proceedings	24
Item 6 - Exhibits	24
Signatures	25

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PENINSULA GAMING, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)

	September 30, 2010			December 31, 2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	23,572		$	34,537
Restricted cash—purse settlements		4,870			4,400
Accounts receivable, net		3,361			3,147
Receivables from affiliates		40			40
Inventories		1,341			1,520
Prepaid expenses and other assets		5,247			3,600
Total current assets		38,431			47,244
PROPERTY AND EQUIPMENT, NET		277,126			287,229
OTHER ASSETS:
Deferred financing costs, net of amortization of $5,716 and $3,919, respectively		24,163			25,705
Goodwill		85,308			85,308
Licenses and other intangibles		78,369			78,237
Deposits and other assets		5,603			3,470
Investment available for sale		18,581			14,741
Total other assets		212,024			207,461
TOTAL	$	527,581		$	541,934
LIABILITIES AND MEMBER’S DEFICIT
CURRENT LIABILITIES:
Accounts payable	$	3,758		$	3,180
Construction payable		-			3,155
Purse settlement payable		6,255			6,070
Accrued payroll and payroll taxes		6,654			5,916
Accrued interest		6,901			21,455
Other accrued expenses		11,785			12,343
Payable to affiliates		719			290
Current maturities of long-term debt and leases		1,680			2,172
Total current liabilities		37,752			54,581
LONG-TERM LIABILITIES:
8 ⅜% senior secured notes, net of discount		235,339			234,778
10 ¾% senior notes, net of discount		297,820			297,317
Term loan		3,981			5,183
Notes and leases payable, net of discount		32			22
Obligation under Minimum Assessment Agreement		18,127			18,852
Other liabilities		961			976
Total long-term liabilities		556,260			557,128
Total liabilities		594,012			611,709
COMMITMENTS AND CONTINGENCIES (Note 6)
MEMBER’S DEFICIT:
Common member’s interest		9,000			9,000
Accumulated deficit		(78,855	)		(76,780	)
Note receivable from owner		-			(1,723	)
Accumulated other comprehensive income (loss)		3,424			(272	)
Total member’s deficit		(66,431	)		(69,775	)
TOTAL	$	527,581		$	541,934

See notes to condensed consolidated financial statements.

3

PENINSULA GAMING, LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands)

	Three Months Ended September 30, 2010			Three Months Ended September 30, 2009			Nine Months Ended September 30, 2010			Nine Months Ended September 30, 2009
REVENUES:
Casino	$	75,480		$	63,915		$	225,022		$	193,569
Racing		4,571			4,832			12,436			13,685
Video poker		1,089			1,190			3,370			4,170
Food and beverage		6,941			5,586			20,143			17,580
Other		3,540			2,965			9,333			8,023
Less promotional allowances		(9,673	)		(7,233	)		(27,890	)		(20,358	)
Total net revenues		81,948			71,255			242,414			216,669
EXPENSES:
Casino		30,304			25,790			91,969			79,739
Racing		4,223			4,368			11,435			12,294
Video poker		906			950			2,660			3,047
Food and beverage		4,555			4,089			13,022			12,658
Other		2,512			2,233			6,380			5,691
Selling, general and administrative		14,035			8,902			41,185			33,370
Depreciation and amortization		7,315			5,872			22,142			17,845
Pre-opening expense		8			-			33			-
Development expense		-			496			28			704
Affiliate management fees		1,535			1,356			4,493			4,094
Loss on disposal of assets		17			1,958			54			1,983
Total expenses		65,410			56,014			193,401			171,425
INCOME FROM OPERATIONS		16,538			15,241			49,013			45,244
OTHER INCOME (EXPENSE):
Interest income		680			498			1,672			1,505
Interest expense, net of amounts capitalized		(14,929	)		(13,437	)		(44,684	)		(35,621	)
Loss on early retirement of debt		-			(22,475	)		-			(22,475	)
Total other expense		(14,249	)		(35,414	)		(43,012	)		(56,591	)
NET INCOME (LOSS)	$	2,289		$	(20,173	)	$	6,001		$	(11,347	)

See notes to condensed consolidated financial statements.

4

PENINSULA GAMING, LLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN MEMBER’S DEFICIT

AND COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

	COMMON MEMBER’S INTEREST		ACCUMU-LATED DEFICIT			NOTE RECEIVABLE FROM OWNER			ACCUMU-LATED OTHER COMPRE-HENSIVE INCOME (LOSS)			TOTAL MEMBER’S  DEFICIT			COMPRE- HENSIVE INCOME
BALANCE, DECEMBER 31, 2009	$	9,000	$	(76,780	)	$	(1,723	)	$	(272	)	$	(69,775	)
Net income				6,001									6,001		$	6,001
Unrealized gain on available for sale security										3,696			3,696			3,696
Loan to owner							(10	)					(10	)		-
Repayment of loan by owner							1,733						1,733			-
Member distributions				(8,076	)								(8,076	)		-
Comprehensive income															$	9,697
BALANCE, SEPTEMBER 30, 2010	$	9,000	$	(78,855	)	$	-		$	3,424		$	(66,431	)

See notes to condensed consolidated financial statements.

5

PENINSULA GAMING, LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Nine Months Ended September 30, 2010		Nine Months Ended September 30, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	6,001	$	(11,347)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization		22,142		17,845
Non-cash interest		3,382		3,944
Loss on early retirement of debt		-		22,475
Non-cash equity based and other compensation		374		(2,124)
Loss on disposal of assets		54		1,983
Changes in operating assets and liabilities:
Restricted cash — purse settlements		(470)		(292)
Receivables		(1,095)		(1,509)
Inventories		179		(126)
Prepaid expenses and other assets		(371)		1,778
Accounts payable		773		(854)
Accrued expenses		(15,351)		1,518
Payable to affiliates		429		(149)
Net cash flows from operating activities		16,047		33,142
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in cash value of life insurance for premiums paid		(229)		(328)
Advances under note receivable to related party		(2,300)		-
Business acquisition and licensing costs		(329)		(1,361)
Deposit under purchase agreement		-		(10,000)
Construction project development costs		(8,265)		(16,648)
Purchase of property and equipment		(6,864)		(6,438)
Proceeds from sale of property and equipment		159		675
Net cash flows from investing activities		(17,828)		(34,100)
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs		(737)		(15,117)
Principal payments on debt		(1,720)		(392,347)
Proceeds from senior notes		-		531,537
Proceeds from senior credit facilities		16,000		29,700
Payments on senior credit facilities		(16,000)		(60,200)
Loan to owner		(10)		-
Proceeds from repayment of loan by owner		1,733		-
Member distributions		(8,450)		(2,670)
Net cash flows from financing activities		(9,184)		90,903
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(10,965)		89,945
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		34,537		38,705
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	23,572	$	128,650
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	55,170	$	33,393
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired, but not paid	$	91	$	2,059
Property and equipment acquired in exchange for obligation under Minimum Assessment Agreement		-		1,989
Unrealized gain on available for sale investment		3,696		6,773
Liability settled in exchange for property and equipment		-		4,104

See notes to condensed consolidated financial statements.

6

PENINSULA GAMING, LLC

NOTES TO 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. PGL’s wholly owned subsidiaries consist of: (i) Diamond Jo, LLC, a Delaware limited liability company (“DJL”), that owns and operates the Diamond Jo casino in Dubuque, Iowa; (ii) Diamond Jo Worth, LLC, a Delaware limited liability company (“DJW”), that owns and operates the Diamond Jo casino in Worth County, Iowa;  (iii) 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 five off-track betting (“OTB”) pa rlors in Louisiana; (iv) Belle of Orleans, L.L.C., a Louisiana limited liability company (“ABC”), that owns and operates the Amelia Belle Casino in Amelia, Louisiana; and (v) Peninsula Gaming Corp. (“PGC”), a Delaware corporation with no assets or operations. The Company is a wholly owned subsidiary of Peninsula Gaming Partners, LLC, a Delaware limited liability company (“PGP”).

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 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, 2009. Accordingly, footnote disclosure which would substantially duplicate the disclosure in the audited financial statements has been omitted in the accompanying unaudited financial statements.

2. Summary of Significant Accounting Policies

Goodwill and Licenses and Other Intangible Assets— There were no changes in the carrying amount of goodwill during the nine months ended September 30, 2010.   Licenses and other intangibles are summarized as follows (in thousands):

	September 30, 2010
	Gross Carrying Value		Accumulated Amortization		Net Book Value
Intangible assets with indefinite lives:
Gaming licenses	$	72,475	$	-	$	72,475
Tradename		2,454		-		2,454
Horse racing license		1,308		-		1,308
Intangible assets with finite lives:
Tradename		2,135		(196)		1,939
Customer relationships and customer list		242		(49)		193
Total	$	78,614	$	(245)	$	78,369

	December 31, 2009
	Gross Carrying Value		Accumulated Amortization		Net Book Value
Intangible assets with indefinite lives:
Gaming licenses	$	72,146	$	-	$	72,146
Tradename		2,454		-		2,454
Horse racing license		1,308		-		1,308
Intangible assets with finite lives:
Tradename		2,135		(36)		2,099
Customer relationships and customer list		242		(12)		230
Total	$	78,285	$	(48)	$	78,237

7

Amortization expense for intangible assets for the three and nine months ended September 30, 2010 was $0.1 million and $0.2 million, respectively.  There was no amortization expense for intangible assets for the three and nine months ended September 30, 2009.  Annual amortization expense for intangible assets is expected to be $0.3 million per year for 2010 and 2011 and $0.2 million per year for 2012 through 2014.

Note Receivable— In 2009 EVD made a $0.7 million investment in a third party venture (representing an ownership interest of approximately 13.5%) whose primary purpose is to design, develop and operate a hotel adjacent to EVD's casino.  In accordance with a loan agreement entered into in November 2009 with the third party developer of the hotel at EVD, EVD loaned the developer $2.3 million during the third quarter of 2010, the proceeds of which were used toward the development of the hotel.  Amounts advanced under the loan bear interest at a rate of 14.5% and shall be paid quarterly in arrears.  Principal payments on the loan are due quarterly beginning November 15, 2010 based on a twenty year amortization schedule. All outstanding pr incipal and interest is due on November 15, 2014.  This note receivable is recorded on the balance sheet at outstanding principal.  At September 30, 2010, $2.2 million of this note receivable is included in Deposits and other assets and $0.1 million is included in Prepaid expenses and other assets.

Use of Estimates— The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 DJW’s investment in $23.0 million in aggregate principal amount of 7.5% Urban Renewal Tax Increment Revenue Bonds, Taxable Series 2007 (“City Bonds”), the periodic re view of the carrying value of assets for impairment, the estimated useful lives for depreciable assets, and the estimated liabilities for slot club awards.

Recently Issued Accounting Standards— In April 2010, the Financial Accounting Standards Board (“FASB”) issued guidance regarding the accounting for casino base jackpot liabilities.  This guidance is effective for 2011.  The Company does not expect the adoption of this guidance to have a material impact on its financial statements.

In January 2010, the FASB revised its guidance regarding fair value measurement disclosures. The guidance requires new disclosure about transfers between the levels of the fair value hierarchy as well as expanded disclosure regarding activity within Level 3 of the fair value hierarchy. The Company adopted this guidance in the first quarter of 2010 with no impact to the Company’s financial statements.

3. Property and Equipment

Property and equipment at September 30, 2010 and December 31, 2009 is summarized as follows (in thousands):

	September 30, 2010		December 31, 2009
Land and land improvements	$	19,747	$	19,701
Buildings, riverboat and improvements		254,747		244,419
Furniture, fixtures and equipment		101,558		96,062
Computer equipment		13,226		12,004
Vehicles		782		677
Construction in progress		126		6,916
Subtotal		390,186		379,779
Accumulated depreciation		(113,060)		(92,550)
Property and equipment, net	$	277,126	$	287,229

Depreciation expense for the three months ended September 30, 2010 and 2009 was $7.2 million and $5.9 million, respectively.  Depreciation expense for the nine months ended September 30, 2010 and 2009 was $21.9 million and $17.8 million, respectively. 

4. Debt

Long-term debt consists of the following (in thousands):

	September 30, 2010		December 31, 2009
8 3/8% senior secured notes due August 15, 2015, net of discount of $4,661 and $5,222, respectively, secured by substantially all the assets of the Company and its subsidiaries and the equity of the Company	$	235,339	$	234,778
10 3/4% senior unsecured notes due August 15, 2017, net of discount of $7,180 and $7,683, respectively		297,820		297,317
Term loan under a loan and security agreement of PGL, DJL and EVD with American Trust & Savings Bank, interest rate at 6.5%, due in installments through December 1, 2013, secured by certain assets of DJL		5,571		6,697
Notes payable and capital lease obligations, net of discount of $0 and $16, respectively, interest rates at 6.4% - 14.4%, due 2010 – 2015		122		680
Total debt		538,852		539,472
Less current portion		(1,680)		(2,172)
Total long term debt	$	537,172	$	537,300

8

As of September 30, 2010, the Company had no outstanding advances under its $58.5 million senior secured credit facility (the “PGL Credit Facility”). In addition, as of September 30, 2010, the Company had outstanding letters of credit under the PGL Credit Facility of $1.7 million resulting in available borrowings thereunder of $56.8 million. 

As of September 30, 2010, the Company was in compliance with the terms of the agreements governing its outstanding indebtedness.

5. Fair Value Measurements

Under generally accepted accounting principles (“GAAP”), 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 had 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 on a recurring basis.

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

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, 2010 and December 31, 2009. The Company had one Level 3 financial instrument at September 30, 2010 and December 31, 2009.  

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 and an estimate from an independent source of what market participants would use in pricing the bonds.  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.  

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s Level 3 financial asset that is required to be measured at fair value as of September 30, 2010 and December 31, 2009, which is classified as “Investment available for sale” in the balance sheets (in thousands):

	Total Carrying Value at September 30, 2010		Fair Value Measurements at September 30, 2010		Total Carrying Value at December 31, 2009		Fair Value Measurements at December 31, 2009
Investment available for sale	$	18,581	$	18,581	$	14,741	$	14,741

9

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, 2010 and 2009 (in thousands):

	Three Months Ended September 30, 2010				Three Months Ended September 30, 2009
	Investment available for sale				Investment available for sale				Derivative liability, not designated as a hedging instrument
Balance at beginning of the reporting period		$	18,563			$	15,887			$	(826	)
Total gains (losses) (realized or unrealized):
Included in earnings			50				44				826
Included in other comprehensive income (loss)			(32	)			(1,202	)			-
Transfers in or out of Level 3			-				-				-
Purchases, sales, issuances and settlements			-				-				-
Ending balance at September 30, 2010 and 2009		$	18,581			$	14,729			$	-
Gains included in earnings attributable to the change	Included in interest income				Included in interest income
in unrealized gains or losses relating to assets
still held at the reporting date		$	50			$	44

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, 2010 and 2009 (in thousands):

	Nine Months Ended September 30, 2010			Nine Months Ended September 30, 2009
	Investment  available  for sale			Investment available for sale			Derivative liability, not designated as a hedging instrument
Balance at beginning of the year		$	14,741		$	7,828		$	(790	)
Total gains (losses) (realized or unrealized):
Included in earnings			144			128			655
Included in other comprehensive income (loss)			3,696			6,773			-
Transfers in or out of Level 3			-			-			-
Purchases, sales, issuances and settlements			-			-			135
Ending balance at September 30, 2010 and 2009		$	18,581		$	14,729		$	-
Gains included in earnings attributable to the change	Included in interest income			Included in  interest income
in unrealized gains or losses relating to assets
still held at the reporting date		$	144		$	128

10

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.

On November 5, 2009, the Louisiana Gaming Enforcement Section issued a Significant Action/Violation Report (“SAR”) alleging that the internal controls of the Amelia Belle Casino were violated. The issue was resolved in September 2010 and was settled for $16,500.

In November 2009, PGP paid $25,000 in consulting fees to Webster County Entertainment, LLC (“WCE”) in connection with a potential casino development opportunity.  Sometime after PGP's payment of such consulting fees, certain principals of WCE made contributions to the Iowa Governor’s re-election campaign.  In March 2010, the Company became aware that the Iowa Department of Criminal Investigation (“DCI”) was investigating whether the consulting fees paid by PGP to WCE violated Iowa's campaign finance laws prohibiting making political contributions in the name of another.  On October 11, 2010, a special prosecutor for the State of Iowa filed charges against  PGP, Brent Stevens, Chairman and Chief Executive Officer of PGP and the Company, and Jonathan Swain, Chief Opera ting Officer of PGP and the Company, charging each with misdemeanor violations of state campaign finance laws related to making a campaign contribution in the name of another and failing to disclose a campaign contribution. 

Based upon the Company's internal review and advice of outside legal counsel, the Company believes that neither it nor any of its employees has violated any laws.  Accordingly, the Company does not expect the outcome of such legal proceedings to have an adverse effect on its financial condition, results of operations or cash flows.

Except as set forth above, 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, 2010 and 2009 and the nine months ended September 30, 2010 and 2009, the Company distributed $4.9 million, $1.0 million, $6.7 million, and $2.7 million, respectively, to PGP primarily for (i) certain consulting and financial advisory services related to PGP development expenses, (ii) board fees and actual out-of-pocket expenses incurred by members of the board of managers of PGP in their capacity as board members and (iii) tax, accounting, licensure, legal and administrative costs and expenses related to PGP.  In September 2010, the Company made a $1.7 million cash distribution which was recorded as a member distribution to PGP, the proceeds of which were used by PGP to repay all of the outstanding principal and interest on a loan due to the Company.  Such loan was previously recorded as a note receivable within Total Member's Deficit.

During the three months ended September 30, 2010 and 2009 and the nine months ended September 30, 2010 and 2009, the Company expensed $0.1 million, $0.1 million, $0.4 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 (an affiliate) 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, $0.5 million, and $0.6 million in affiliate management fees payable to OEDA during the three months ended September 30, 2010 and 2009 and the nine months ended September 30, 2010 and 2009, 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, $2.0 million, and $1.9 million during the three months ended September 30, 2010 and 2009 and the nine months ended September 30, 2010 and 2009, respectively.

EVD and PGP are parties to a consulting agreement with a board member of PGP. Under the consulting agreement, EVD, DJW and ABC must each pay the board member a fee equal to 2.5% of EVD’s, DJW’s and ABC’s earnings before interest, taxes, depreciation, amortization and charges associated with the impairment of assets, development expenses, pre-opening expenses, management and consulting fees, corporate allocations, gains or losses on the disposal of assets and extraordinary gains or losses, in each case, applicable to such period.  EVD expensed $0.2 million, $0.2 million, $0.6 million, and $0.7 million of affiliate management fees during the three months ended September 30, 2010 and 2009 and the nine months ended September 30, 2010 and 2009, respectively, related to this agreement.   DJW expen sed $0.2 million, $0.2 million, $0.7 million, and $0.6 million of affiliate management fees during the three months ended September 30, 2010 and 2009 and the nine months ended September 30, 2010 and 2009, respectively, related to this agreement.  ABC expensed $0.1 million and $0.3 million during the three and nine months ended September 30, 2010, respectively, related to this agreement.

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Prior to November 2009, on a quarterly basis, the Company estimated the fair value of all incentive units granted under PGP’s equity based incentive compensation plans to executive officers of PGL that had a put option and compared that value to the value of such incentive units at the date of grant. Any appreciation in the value of the incentive units was expensed 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.  In November 2009, the put option granted as part of the incentive units was removed.  Subsequently, any appreciation or depreciation in the estimated intrinsic value of the units will not be reflected in earnings of the Comp any.  

8. Segment Information

The Company is organized around geographical areas and operates four reportable segments: (1) Diamond Jo operations, which comprise the Diamond Jo casino in Dubuque, Iowa, (2) Diamond Jo Worth operations, which comprise the Diamond Jo Worth casino operations in Northwood, Iowa, (3) Evangeline Downs operations, which comprise the casino, racetrack and OTBs operated by EVD in Louisiana, and (4) Amelia Belle operations, which comprise the Amelia Belle Casino in Amelia, 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, 2009. The Company evaluates performance and allocates resources based upon, among other considerations, segment operating earnings (as defined below).

The tables below present information about reported segments as of and for the periods ended (in thousands):

	Net Revenues From External Customers Three Months Ended  September 30,				Net Revenues From External Customers Nine Months Ended  September 30,
	2010		2009		2010		2009
Diamond Jo Dubuque	$	17,681	$	18,288	$	52,144	$	55,953
Diamond Jo Worth		22,792		22,301		66,158		64,011
Evangeline Downs		29,071		30,666		87,409		96,705
Amelia Belle		12,404		—		36,703		—
Total	$	81,948	$	71,255	$	242,414	$	216,669

	Segment Operating  Earnings Three Months Ended  September 30, (1)					Segment Operating  Earnings Nine Months Ended  September 30, (1)
	2010			2009		2010		2009
Diamond Jo Dubuque	$	6,226		$	6,440	$	17,966	$	18,799
Diamond Jo Worth		9,716			9,289		27,818		25,850
Evangeline Downs		7,320			7,706		23,335		27,294
Amelia Belle		3,916			—		11,679		—
Total Property Segment Operating Earnings (1)		27,178			23,435		80,798		71,943
General Corporate		(1,765	)		(1,343)		(5,035)		(4,485)
Total Segment Operating Earnings (1)		25,413			22,092		75,763		67,458
Non-cash equity based compensation		-			2,831		-		2,412
Depreciation and amortization		(7,315)			(5,872)		(22,142)		(17,845)
Pre-opening expense		(8)			-		(33)		-
Development expense		-			(496)		(28)		(704)
Affiliate management fees		(1,535)			(1,356)		(4,493)		(4,094)
Loss on disposal of assets		(17)			(1,958)		(54)		(1,983)
Interest expense, net		(14,249)			(12,939)		(43,012)		(34,116)
Loss on early retirement of debt		-			(22,475)		-		(22,475)
Net income (loss)	$	2,289		$	(20,173)	$	6,001	$	(11,347)

(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.

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	Interest Expense, net Three Months Ended September 30,						Interest Expense, net Nine Months Ended   September 30,
	2010			2009			2010			2009
General Corporate	$	(14,219	)	$	(8,707	)	$	(42,812	)	$	(8,707	)
Diamond Jo Dubuque		(574	)		(1,785	)		(1,724	)		(9,073	)
Diamond Jo Worth		492			(868	)		1,459			(6,806	)
Evangeline Downs		49			(1,579	)		57			(9,530	)
Amelia Belle		3			-			8			-
Total	$	(14,249	)	$	(12,939	)	$	(43,012	)	$	(34,116	)

	Depreciation and Amortization Three Months Ended September 30,				Depreciation and Amortization Nine Months Ended   September 30,
	2010		2009		2010		2009
General Corporate	$	55	$	26	$	117	$	82
Diamond Jo Dubuque		2,313		2,245		6,868		6,616
Diamond Jo Worth		1,433		1,694		4,719		5,729
Evangeline Downs		1,970		1,907		5,871		5,418
Amelia Belle		1,544		-		4,567		-
Total	$	7,315	$	5,872	$	22,142	$	17,845

	Total Assets
	September 30,  2010		December 31, 2009
General Corporate	$	18,388	$	26,673
Diamond Jo Dubuque		166,501		174,861
Diamond Jo Worth		81,836		82,692
Evangeline Downs		145,912		143,168
Amelia Belle		114,944		114,540
Total	$	527,581	$	541,934

	Cash Expenditures for  Additions to Long-Lived Assets
	Nine Months Ended September 30, 2010		Nine Months Ended September 30, 2009
General Corporate	$	579	$	253
Diamond Jo Dubuque		1,851		15,570
Diamond Jo Worth		1,529		3,108
Evangeline Downs		7,180		5,516
Amelia Belle		4,319		-
Total	$	15,458	$	24,447

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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 available for sale investment, note receivable and debt instruments at September 30, 2010 and December 31, 2009 are as follows (in thousands):

	September 30, 2010				December 31, 2009
	Fair Value		Recorded Amount		Fair Value		Recorded Amount
Available for sale investment	$	18,581	$	18,581	$	14,741	$	14,741
Note receivable		2,531		2,300		-		-
8 3/8% senior secured notes		252,000		235,339		241,200		234,778
10 3/4% senior unsecured notes		321,775		297,820		308,050		297,317
Term loan		5,571		5,571		6,697		6,697
Notes payable, capital lease obligations and other financial instruments		647		647		1,289		1,272
Obligation under Minimum Assessment Agreement		24,581		20,051		19,453		19,812

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. 

 10. Comprehensive Income (Loss)

Comprehensive income (loss) consists of the following (in thousands):

	Three Months Ended  September 30,								Nine Months Ended  September 30,
	2010				2009				2010			2009
Net income (loss)		$	2,289			$	(20,173	)		$	6,001		$	(11,347	)
Unrealized gain (loss) on available for sale security			(32	)			(1,202	)			3,696			6,773
Comprehensive income (loss)		$	2,257			$	(21,375	)		$	9,697		$	(4,574	)

 11. Subsequent Events

Under Iowa law, a license to conduct gaming may be issued in a county only if the county electorate has approved the gaming. A referendum must be held every eight years in each of the counties where gambling games are conducted and the proposition to continue to allow gambling games in such counties must be approved by a majority of the county electorate voting on the proposition. Such a referendum took place for DJL and DJW on November 2, 2010, with 81% and 86%, respectively, of the electorate voting on the proposition favoring continued gaming in Dubuque County and Worth County. The next referendum in both Dubuque County and Worth County is scheduled for November 2018.

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

We make forward-looking statements in this report. These forward-looking statements relate to our outlook or expectations for earnings, revenues, expenses, asset quality or other future financial or business performance, strategies or expectations, or the impact of legal, regulatory or supervisory matters on our business, results of operations or financial condition. Specifically, forward-looking statements may include:

· statements relating to our plans, intentions, expectations, objectives or goals;

· statements relating to our future economic performance, business prospects, revenue, income and financial condition, and any underlying assumptions relating to those statements; and

· statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions.

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These statements reflect our management’s judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. With respect to these forward-looking statements, our management has made assumptions regarding, among other things, economic trends, customer behaviors, the availability of financing and overall liquidity.

Future performance cannot be ensured.  Actual results may differ materially from those in the forward-looking statements. Some factors that could cause our actual results to differ include, but are not limited to:

· the availability and adequacy of our cash flows to satisfy our obligations, including payment obligations under the 8⅜% senior secured notes and 10 ¾% senior unsecured notes (collectively, 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 termination of our operating agreement with our “qualified sponsoring organizations,” the Dubuque Racing Association (“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 a new venture;

· 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.

You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this document. Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

OVERVIEW

Background

We own and operate four casinos located in Iowa and Louisiana.  Our corporate offices are located in Dubuque, Iowa.  Our properties consist of:

1.   Diamond Jo Dubuque operations, which comprise the Diamond Jo casino operations in Dubuque, Iowa and serving the eastern Iowa, northwest Illinois and southwest Wisconsin gaming markets;

2.   Diamond Jo Worth operations, which comprise the Diamond Jo casino operations in Northwood, Iowa serving north central Iowa and south central Minnesota;

3.   EVD operations, which comprise the casino, racetrack and OTB’s operated by EVD in Louisiana, serving the greater Lafayette, Louisiana area; and

4.   Amelia Belle operations, which comprise the Amelia Belle Casino in Amelia, Louisiana serving the southern Louisiana markets.

Our properties offer a variety of amenities including various food and beverage outlets and entertainment venues.

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Industry Environment

The gaming industry continues to feel the impact of the downturn in the economy.  The Dubuque market, consisting of DJL and the Mystique Casino, declined 3.9% and 3.6% during the three and nine months ended September 30, 2010 compared to the three and nine months ended September 30, 2009, respectively.  The southern Louisiana gaming market continues to see declines in gaming revenue.  As a result of the continued downturn in the oil and gas industry and its impact on discretionary spending, casino operations in the Baton Rouge, Lake Charles, and EVD gaming markets reported an average decline of 5% during the three months ended September 30, 2010 compared to the three months ended September 30, 2009 and an average decline of 7% during the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009.  Although revenues continued to decline in EVD’s market, we are encouraged by the fact that the percentage declines compared to the prior year are beginning to show improvements as first and second quarter declines were 10% and 7%, respectively, in that market.  While we believe the rest of 2010 will continue to be a difficult operating environment, we remain focused on our strategy of providing a great experience for our customers at each of our facilities and pursuing capital projects with attractive returns.

Operations

In February 2010, EVD opened its new event center to the public.  The 23,000 square foot facility can accommodate functions ranging from a small group meeting to a concert for 1,200 people.  In addition, during the first quarter of 2010, we completed our $7.5 million renovation at ABC which includes a remodel of the interior, including new carpet and remodeled restrooms, 260 new slot machines and themes, reconfiguration of the gaming floor, new slot signage, and a new surveillance system in addition to painting of the exterior of the boat. We believe this capital investment has and will continue to provide a more pleasant experience for our customers which will in turn provide for additional future visits to our property. 

              In June 2010, EVD opened its fifth off-track betting parlor which is located in St. Martinville, Louisiana which offers pari-mutuel wagering and food and beverage options.  In September 2010, EVD began offering video poker at this new OTB and currently has 66 video poker games.

              A third party developer and operator is currently constructing a 117-room hotel adjacent to EVD’s racino. The hotel will include 41 suites, two meeting rooms, an indoor pool, and is expected to open to the public in November 2010.  In addition, in May 2010 an independent third party developer and operator began construction on a new 60-room hotel in close proximity to our DJW casino.  The hotel is expected to be completed in the first quarter of 2011.

Results of Operations

Our results of operations below include the consolidated results of operations of the Company, DJL, EVD and DJW for the three and nine months ended September 30, 2010 and 2009 and the results of operations of ABC for the three and nine months ended September 30, 2010.

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Statement of Operations Data

	Three Months Ended September 30,
	2010				2009
	(Dollars in thousands)
Net Revenues:
Diamond Jo Dubuque	$	17,681		$		18,288
Diamond Jo Worth		22,792				22,301
Evangeline Downs		29,071				30,666
Amelia Belle (1)		12,404				-
Consolidated net revenues	$	81,948		$		71,255
Income from Operations:
Diamond Jo Dubuque	$	3,923		$		4,159
Diamond Jo Worth		7,336				6,653
Evangeline Downs		4,972				3,552
Amelia Belle (1)		2,258				-
General corporate (2)		(1,951	)			877
Consolidated income from operations	$	16,538		$		15,241
Income from Operations Margins:
Diamond Jo Dubuque		22.2%				22.7	%
Diamond Jo Worth		32.2%				29.8	%
Evangeline Downs		17.1%				11.6	%
Amelia Belle (1)		18.2%				-
Consolidated income from operations margin (2)		20.2%				21.4	%

_____________________________

(1)   We acquired Amelia Belle on October 22, 2009, and its operating results are included only from the acquisition date.

(2)            General corporate operating loss was impacted by a credit for non-cash equity based compensation of $2.8 million for the three months ended September 30, 2009. 

Three months ended September 30, 2010 compared to three months ended September 30, 2009

Consolidated net revenues on a same store basis decreased $1.7 million, or 2%, to $69.6 million for the three months ended September 30, 2010 from $71.3 million for the three months ended September 30, 2009.  Same store basis for quarter over quarter comparisons does not reflect operating results related to our acquisition of ABC.  While DJW reported a 2% increase in net revenues primarily due to a 2% increase in casino revenues, net revenues at DJL dropped 3% during the third quarter of 2010 compared to 2009.  While gaming revenue in DJL’s primary market did show a decline of 4%, DJL was able to increase its market share by 1% during the third quarter of 2010 over the third quarter of 2009.  EVD continued to be impacted by a decline in discretionary spending as a direct result in the downtur n in the oil and gas industry in southern Louisiana in the third quarter of 2010 compared to the third quarter of 2009.  As a result, EVD reported a 5% decline in net revenues, primarily due to casino revenues, during the three months ended September 30, 2010 compared to the three months ended September 30, 2009.  In addition, net revenue at ABC during the third quarter of 2010 was $12.4 million.

Casino revenues on a same store basis declined 3% to $62.2 million for the three months ended September 30, 2010 from $63.9 million for the three months ended September 30, 2009.  DJL’s casino revenues decreased $0.5 million quarter over quarter to $17.7 million for the three months ended September 30, 2010 from $18.2 million for the three months ended September 30, 2009 while DJW’s casino revenues increased $0.5 million to $21.2 million for the three months ended September 30, 2010 from $20.7 million for the three months ended September 30, 2009.  

EVD’s casino revenues declined 7% to $23.3 million for the three months ended September 30, 2010 from $25.0 million for the three months ended September 30, 2009, which management believes is due primarily to the downturn in the oil and gas industry in southern Louisiana as discussed above.

Casino revenues at ABC were $13.3 million for the three months ended September 30, 2010.

Casino operating expenses on a same store basis decreased 4% to $24.8 million for the three months ended September 30, 2010 from $25.8 million for the three months ended September 30, 2009 due primarily to a $0.6 million decrease in gaming taxes and purse supplements as a result of a decrease in casino revenues and a decrease in other operating casino expenses including a $0.3 million decrease in slot lease expense, resulting from management’s cost control initiatives.   Casino expenses at ABC for the three months ended September 30, 2010 were $5.5 million.

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Promotional allowances as a percentage of casino revenues on a same-store basis increased to 12.3% during the three months ended September 30, 2010 from 11.3% during the three months ended September 30, 2009.  Each of our properties saw an increase in promotional expense which was the result of an effort to drive additional customer visits in the current economic environment.  In addition, promotional allowances as a percentage of casino revenues at ABC were 15.2%.

Racing revenues at EVD for the three months ended September 30, 2010 decreased 4% to $4.6 million for the three months ended September 30, 2010 from $4.8 million for the three months ended September 30, 2009.  We believe this decrease is consistent with an industry trend of decreased wagering on horse racing throughout the United States.  Racing expenses declined generally due to the lower racing revenue volume.

Video poker revenues at EVD decreased 8% for the three months ended September 30, 2010 to $1.1 million compared to $1.2 million for the three months ended September 30, 2009 which we believe is due primarily to increased competition from truck stops offering video poker in the areas in which some of our OTBs operate.  We began operating video poker machines at our new St. Martinville OTB in September 2010 which offset the overall decline in revenues by $0.1 million.  Video poker expenses declined generally due to the lower video poker revenue volume.

Food and beverage revenues on a same store basis increased 5% to $5.9 million during the three months ended September 30, 2010 compared to $5.6 million during the three months ended September 30, 2009.  This increase is attributable to increases in food and beverage revenues at all properties due primarily to increases in comp food offers in an effort to drive additional customer visits.  In addition to increasing food and beverage revenues, we also improved food and beverage margins for the three months ended September 30, 2010 compared to the three months ended September 30, 2009 in part due to management’s cost control initiatives including adjusting hours of operations in the various food outlets.  Food and beverage revenues and expenses at ABC for the three months ended September 30, 2010 were $1. 0 million and $0.7 million, respectively.

Other revenues on a same store basis increased $0.5 million during the three months ended September 30, 2010 compared to the three months ended September 30, 2009 due primarily to an increase in convenience store revenues at DJW resulting from an increase in gallons of fuel sold and an increase in fuel prices over the third quarter of 2009.  Consistent with this increase in gasoline sales, DJW realized an increase in other expenses.  Other revenue at ABC for the three months ended September 30, 2010 was $0.1 million.

Selling, general and administrative expenses on a same store basis increased $2.8 million to $11.7 million for the three months ended September 30, 2010 from $8.9 million for the three months ended September 30, 2009.  The increase is due to a $2.8 million credit to non-cash expense in the third quarter of 2009 associated with the PGP incentive units granted to certain executive officers of the Company.   Selling, general and administrative expenses at ABC for the three months ended September 30, 2010 were $2.3 million.

Depreciation and amortization expense increased $1.4 million due primarily to depreciation and amortization expense at ABC of $1.5 million for the three months ended September 30, 2010.

Development expense for the three months ended September 30, 2009 was $0.5 million and primarily related to costs associated with the acquisition of ABC.

Affiliate management fees were $1.4 million on a same store basis for each of the three months ended September 30, 2010 and 2009 and relate to management fees paid or accrued to related parties under various management services and consulting agreements at EVD and DJW.  Affiliate management fees at ABC for the three months ended September 30, 2010 were $0.1 million.

Included in loss on disposal of assets 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 at EVD that were not utilized by the third party operator.  

Operating income margins at DJL remained substantially unchanged at 22.2% for the three months ended September 30, 2010 and 22.7% for the three months ended September 30, 2009.  Operating income margins at DJW increased to 32.2% for the three months ended September 30, 2010 from 29.8% for the three months ended September 30, 2009 due to (i) a $0.3 million decrease in depreciation expense as certain assets reached the end of their depreciable lives during the second quarter 2009 and (ii) a continued focus by the Company to maintain optimal labor levels and control operating costs.  EVD’s operating income margins also increased to 17.1% for the three months ended September 30, 2010 from 11.6% for the three months ended September 30, 2009 primarily due to the $1.5 million loss on disposal as discussed above. & #160;Operating income margin at ABC for the three months ended September 30, 2010 was 18.2%.

Interest expense, net of interest income, increased $1.3 million for the three months ended September 30, 2010 from the three months ended September 30, 2009 primarily due to the Company’s debt refinancing activities in 2009 including additional debt incurred to fund the acquisition of ABC.  In addition, during the three months ended September 30, 2009, the Company incurred a $22.5 million loss on early retirement of debt related to this refinancing.       

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Statement of Operations Data

	Nine Months Ended September 30,
	2010				2009
	(Dollars in thousands)
Net Revenues:
Diamond Jo Dubuque	$	52,144		$		55,953
Diamond Jo Worth		66,158				64,011
Evangeline Downs		87,409				96,705
Amelia Belle (1)		36,703				-
Consolidated net revenues	$	242,414		$		216,669
Income from Operations:
Diamond Jo Dubuque	$	11,106		$		12,148
Diamond Jo Worth		20,349				17,470
Evangeline Downs		16,308				18,633
Amelia Belle (1)		6,804				-
General corporate (2)		(5,554	)			(3,007)
Consolidated income from operations	$	49,013		$		45,244
Income from Operations Margins:
Diamond Jo Dubuque		21.3%				21.7	%
Diamond Jo Worth		30.8%				27.3	%
Evangeline Downs		18.7%				19.3	%
Amelia Belle (1)		18.5%				-
Consolidated income from operations margin (2)		20.2%				20.9	%

_____________________________

(1)   We acquired Amelia Belle on October 22, 2009, and its operating results are included only from the acquisition date.

(2)            General corporate operating loss was impacted by a credit for non-cash equity based compensation of $2.4 million for the nine months ended September 30, 2009.

Nine months ended September 30, 2010 compared to nine months ended September 30, 2009

Consolidated net revenues on a same store basis decreased $11.0 million, or 5%, to $205.7 million for the nine months ended September 30, 2010 from $216.7 million for the nine months ended September 30, 2009.  Same store basis for nine months ended September 30, 2010 over nine months ended September 30, 2009 comparisons does not reflect operating results related to our acquisition of ABC.  While DJW reported a 3% increase in net revenues primarily due to a 2.5% increase in casino revenues, net revenues at DJL decreased 7% during the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009.  This decrease is primarily due to (i) disruptions in business due to record amounts of snowfall in Dubuque, Iowa in January and February 2010, (ii) construction related disruptions at DJL& #8217;s closest competitor, Mystique Casino, during the first quarter of 2009 related to their casino remodel which was completed in April 2009 (iii) a stabilization of DJL’s market share in its primary gaming market following the opening of its new casino facility in December 2008 and (iv) an overall decline in gaming revenue in its primary gaming market.  EVD continued to be impacted by a decline in discretionary spending as a direct result in the downturn in the oil and gas industry in southern Louisiana in the first three quarters of 2010 compared to the first three quarters of 2009.  EVD reported a 10% decline in net revenues, primarily due to casino revenues, during the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 which is consistent with the declines in its closest competitor markets.  In addition, net revenue at ABC during the nine months ended September 30, 2010 was $36.7 million.

Casino revenues on a same store basis declined 4% to $185.7 million for the nine months ended September 30, 2010 from $193.6 million for the nine months ended September 30, 2009.  DJL’s casino revenues decreased by $2.8 million, or 5%, to $52.2 million for the nine months ended September 30, 2010 from $55.0 million for the nine months ended September 30, 2009 as a result of the negative weather impact, the construction at Mystique Casino in 2009, stabilization of DJL’s market share and overall decline in its primary gaming market as discussed above.  

DJW’s casino revenues increased $1.5 million to $61.8 million for the nine months ended September 30, 2010 from $60.3 million for the nine months ended September 30, 2009.  

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EVD’s casino revenues declined 8% to $71.7 million for the nine months ended September 30, 2010 from $78.3 million for the nine months ended September 30, 2009, which management believes is due primarily to the downturn in the oil and gas industry in southern Louisiana as discussed above.  

Casino revenues at ABC were $39.3 million for the nine months ended September 30, 2010.  The first two months of 2010 reflects the impact of disruptions on the casino floor during much of the quarter as a result of ABC’s $7.5 million casino renovation.

Casino operating expenses on a same store basis decreased 6% to $75.2 million for the nine months ended September 30, 2010 from $79.7 million for the nine months ended September 30, 2009 due primarily to a $2.6 million decrease in gaming taxes and horse purse supplements as a result of a decrease in casino revenues and a decrease in other operating casino expenses, including a $1.2 million decrease in slot lease expense, resulting from managements cost control initiatives.   Casino expenses at ABC for the nine months ended September 30, 2010 were $16.8 million.

Promotional allowances as a percentage of casino revenues on a same-store basis increased to 11.8% during the nine months ended September 30, 2010 from 10.5% during the nine months ended September 30, 2009.  Each of our properties saw an increase in promotional expense which was the result of an effort to drive additional customer visits in the current economic environment.  In addition, promotional allowances as a percentage of casino revenues at ABC were 15.3%.

Racing revenues at EVD for the nine months ended September 30, 2010 decreased 9% to $12.4 million for the nine months ended September 30, 2010 from $13.7 million for the nine months ended September 30, 2009.  We believe this decrease is consistent with an industry trend of decreased wagering on horse racing throughout the United States.  Racing expenses declined generally due to the lower racing revenue volume.

Video poker revenues at EVD decreased 19% for the nine months ended September 30, 2010 to $3.4 million compared to $4.2 million for the nine months ended September 30, 2009 which we believe is due primarily to the downturn in the economy in Louisiana as discussed above as well as increased competition from truck stops offering video poker in the areas in which some of our OTBs operate.  We began operating video poker machines at our new St. Martinville OTB in September 2010 which offset the overall decline in revenues by $0.1 million.  Video poker expenses declined generally due to the lower video poker revenue volume.

Food and beverage revenues on a same store basis decreased 3% to $17.0 million during the nine months ended September 30, 2010 compared to $17.6 million during the nine months ended September 30, 2009.  This decrease is attributable to declines in food and beverage revenues at DJL and EVD due to decreased customer visits and reductions in discretionary spending as a result of the current economic conditions. However, despite the decrease in revenues, we were able to improve food and beverage margins for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 by reducing food and beverage expenses by 11% on a same store basis.  These reductions were achieved through the implementation of management’s cost control initiatives including adjusting hours of operations in the vari ous food outlets.  Food and beverage revenues and expenses at ABC for the nine months ended September 30, 2010 were $3.1 million and $1.7 million, respectively.

Other revenues on a same store basis increased $1.0 million during the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 due to a $1.0 million increase in convenience store revenues at DJW resulting from an increase in gallons of fuel sold and an increase in fuel prices over the first three quarters of 2009.  Consistent with this increase in gasoline sales, DJW realized an increase in other expenses.  Other revenue at ABC for the nine months ended September 30, 2010 was $0.3 million.

Selling, general and administrative expenses on a same store basis increased 4% to $34.7 million for the nine months ended September 30, 2010 from $33.4 million for the nine months ended September 30, 2009.  The $1.3 million increase is primarily due to a $2.4 million credit to non-cash expense in the first nine months of 2009 associated with the PGP incentive units granted to certain executive officers of the Company.  The $2.4 million non-cash expense credit is offset by a $1.1 million expense reduction which is primarily a direct result of the implementation of management’s cost control initiatives. Selling, general and administrative expenses at ABC for the nine months ended September 30, 2010 were $6.5 million.

Depreciation and amortization expense increased $4.3 million due primarily to depreciation and amortization expense at ABC of $4.6 million for the nine months ended September 30, 2010.

Development expense for the nine months ended September 30, 2009 was $0.7 million and primarily related to costs associated with the acquisition of ABC.

Affiliate management fees were $4.2 million and $4.1 million on a same store basis for the nine months ended September 30, 2010 and 2009, respectively and relate to management fees paid or accrued to related parties under various management services and consulting agreements at EVD and DJW.  Affiliate management fees at ABC for the nine months ended September 30, 2010 were $0.3 million.

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Included in loss on disposal of assets 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 at EVD that were not utilized by the third party operator.

Operating income margins at DJL remained substantially unchanged at 21.3% for the nine months ended September 30, 2010 and 21.7% for the nine months ended September 30, 2009.  Operating income margins at DJW increased to 30.8% for the nine months ended September 30, 2010 from 27.3% for the nine months ended September 30, 2009 due to (i) a $1.0 million decrease in depreciation expense as certain assets reached the end of their depreciable lives during the second quarter 2009 and (ii) a continued focus by the Company to maintain optimal labor levels and control operating costs.  EVD’s operating income margins declined to 18.7% for the nine months ended September 30, 2010 from 19.3% for the nine months ended September 30, 2009 primarily due to (i) an 8% decrease in casino revenues as discussed above and (ii) the in creased promotional expenses as discussed above partially offset by the $1.5 million loss on disposal in 2009 as discussed above.  Operating income margin at ABC for the nine months ended September 30, 2010 was 18.5% and was negatively impacted by disruptions on the casino floor in the first quarter related to the remodel of the facility.

Interest expense, net of interest income, increased $8.9 million for the nine months ended September 30, 2010 from the nine months ended September 30, 2009 primarily due to the Company’s debt refinancing activities in 2009 including additional debt incurred to fund the acquisition of ABC.  In addition, during the nine months ended September 30, 2009, the Company incurred a $22.5 million loss on early retirement of debt related to this refinancing.       

 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 decreased $10.9 million to $23.6 million at September 30, 2010 from $34.5 million at December 31, 2009.

Cash flows from operating activities were $16.0 million during the nine months ended September 30, 2010, a decrease of $17.1 million when compared to $33.1 million during the nine months ended September 30, 2009.  This decrease is primarily attributed to the refinancing of our outstanding indebtedness in August 2009 and the timing of interest payments under the new senior notes.  As a result, the Company paid cash interest of $55.2 million during the nine months ended September 30, 2010 compared to $33.4 million during the nine months ended September 30, 2009.  This decrease was partially offset by operating cash flows from ABC as a result of the acquisition in October 2009.

Cash flows used in investing activities during the nine months ended September 30, 2010 was $17.8 million consisting primarily of (i) payments of $3.9 million related to the remodel at ABC and $4.4 million related to the completion of the event center and new OTB at EVD and (ii) outflows of $6.9 million primarily related to the acquisition of slot machines and slot machine conversions and general maintenance capital expenditures.  General maintenance capital expenditures are capital expenditures that relate to the replacement of or major renewals and improvements to our existing fixed assets.  Major renewals and improvements are capitalized, while maintenance and repairs are expensed as incurred.  Examples of general maintenance capital expenditures during the nine months ended September 30, 2010, excluding slot machines and slot machine conversions, include improvements to our existing owned and leased buildings, surveillance upgrades and improvements and the replacement of servers and other computer equipment.  In addition, in accordance with a loan agreement entered into in November 2009 with the third party developer of the hotel at EVD, EVD loaned the developer $2.3 million during the third quarter of 2010, the proceeds of which were used toward the development of the hotel.  Amounts advanced under the loan bear interest at a rate of 14.5% and shall be paid quarterly in arrears.  Principal payments on the loan are due quarterly beginning November 15, 2010 based on a twenty year amortization schedule. All outstanding principal and interest is due on November 15, 2014.

Cash flows used in financing activities during the nine months ended September 30, 2010 of $9.2 million reflects principal payments on debt of $1.7 million, member distributions of $8.5 million and payments of deferred financing costs of $0.7 million offset by proceeds of $1.7 million from repayment of a loan due from PGP.

As of September 30, 2010, the Company had no outstanding advances under the PGL Credit Facility. In addition, as of September 30, 2010, the Company had outstanding letters of credit under the PGL Credit Facility of approximately $1.7 million resulting in available borrowings thereunder of $56.8 million. 

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Financing Activities

 Our financing activities may 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, 2009.  There have been no significant changes to our financing activities during the nine months ended September 30, 2010.

        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. Contractual restrictions and other provisions contained in the agreements governing our consolidated indebtedness, including the PGL Credit Facility and the indentures governing the PGL Notes, limit or restrict our ability to use the funds available to us through, among other things, limitations on capital expenditures, investments, and distributions.

    As of September 30, 2010, capital expenditures for the next 12 months are expected to be approximately $7.0 million.

   The Company’s debt maturities for the next 12 months are expected to be approximately $1.7 million.  The Company’s member distributions to PGP for the next 12 months are expected to be approximately $3.5 million. 

We plan to finance the foregoing 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 12 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 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 o perate could be limited.

CONTRACTUAL OBLIGATIONS

A table of our contractual obligations as of December 31, 2009 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, 2009. There have been no significant changes to our contractual obligations during the nine months ended September 30, 2010. 

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, 2009, 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, 2009. 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 Co mmittee of the Board of Managers. There have been no significant changes to our critical accounting policies during the nine months ended September 30, 2010.

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 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 borrowings under the PGL Credit Facility. As of September 30, 2010, 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 at September 30, 2010) 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, note receivable 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 note receivable and 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 future 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, note receivab le and debt borrowings as of September 30, 2010 (dollars in thousands):

Description	Maturity	Interest Rate		Carrying Value	Fair Value
Available for sale investment	2011 - 2037	7.5	%	$   18,581	$    18,581	(1)
Note receivable	2010 - 2014	14.5	%	2,300	2,531	(2)
8 ⅜% senior secured notes	Aug 15, 2015	8.375	%	235,339	252,000	(2)
10 ¾% senior unsecured notes	Aug 15, 2017	10.75	%	297,820	321,775	(2)
Senior credit facility	January 15, 2014	6	% (3)	-	-
Term loan	December 1, 2013	6.5	%	5,571	5,571	(2)
Notes payable, capital lease obligations and other financial instruments	2010 - 2015	6.4% - 14.4	%	647	647	(2)
Obligation under Minimum Assessment Agreement	2011 - 2037	N	/A	20,051	24,581	(2)

 (1)           Our available for sale investment is not traded.  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 and an estimate from an independent source of what market participants would use in pricing the bonds.  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, 2010 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, 2010.

ITEM 4T. CONTROLS AND PROCEDURES

As required by Rule 13a-15(b) under the Securities Exchange Act, and in connection with the preparation of this quarterly report on Form 10-Q, our management, including the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer each concluded that the design and operation of the disclosure controls and procedures were effective as of  September 30, 2010, in providing assurance that information required to be disclosed in reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and in providing reasonab le assurance that the information is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission’s rules and forms.

During the nine months ended September 30, 2010, there have been no changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

        Information in response to this Item 1 is incorporated by reference to the disclosure regarding DCI’s investigation of, and charges related to, certain consulting fees paid by PGP to WCE 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. 

        Except as set forth in Note 6, 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.

ITEM 6. EXHIBITS

(a) Exhibits

Exhibit Number	Description
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.

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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 12, 2010.

PENINSULA GAMING, LLC
By:	/s/ M. BRENT STEVENS
	M. Brent Stevens
	Chief Executive Officer
By:	/s/ JONATHAN SWAIN
	Jonathan Swain
	Chief Operating Officer
By:	/s/ NATALIE A. SCHRAMM
	Natalie A. Schramm
	Chief Financial Officer
PENINSULA GAMING CORP.
By:	/s/ M. BRENT STEVENS
	M. Brent Stevens
	Chief Executive Officer
By:	/s/ NATALIE A. SCHRAMM
	Natalie A. Schramm
	Chief Financial Officer
THE OLD EVANGELINE DOWNS, L.L.C.
By:	/s/ M. BRENT STEVENS
	M. Brent Stevens
	Chief Executive Officer
By:	/s/ JONATHAN SWAIN
	Jonathan Swain
	Chief Operating Officer
By:	/s/ NATALIE A. SCHRAMM
	Natalie A. Schramm
	Chief Financial Officer
DIAMOND JO, LLC
By:	/s/ M. BRENT STEVENS
	M. Brent Stevens
	Chief Executive Officer
By:	/s/ JONATHAN SWAIN
	Jonathan Swain
	Chief Operating Officer
By:	/s/ NATALIE A. SCHRAMM
	Natalie A. Schramm
	Chief Financial Officer

25

DIAMOND JO WORTH, LLC
By:	/s/ M. BRENT STEVENS
	M. Brent Stevens
	Chief Executive Officer
By:	/s/ JONATHAN SWAIN
	Jonathan Swain
	Chief Operating Officer
By:	/s/ NATALIE A. SCHRAMM
	Natalie A. Schramm
	Chief Financial Officer

BELLE OF ORLEANS, L.L.C.
By:	/s/ M. BRENT STEVENS
	M. Brent Stevens
	Chief Executive Officer
By:	/s/ JONATHAN SWAIN
	Jonathan Swain
	Chief Operating Officer
By:	/s/ NATALIE A. SCHRAMM
	Natalie A. Schramm
	Chief Financial Officer

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