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EX-32.1 - EX-32.1 - MTR GAMING GROUP INCa2200895zex-32_1.htm
EX-10.3 - EX-10.3 - MTR GAMING GROUP INCa2200895zex-10_3.htm

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



FORM 10-Q


ý

 

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010

o

 

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

COMMISSION FILE NO.: 000-20508



GRAPHIC

(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction
of incorporation)
  84-1103135
(I.R.S. Employer
Identification Number)

STATE ROUTE 2 SOUTH, P.O. BOX 356, CHESTER, WEST VIRGINIA 26034
(Address of principal executive offices)

(304) 387-8000
(Registrant's telephone number, including area code)

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    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 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 ý   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

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

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

COMMON STOCK, $.00001 PAR VALUE
Class
27,475,260
Outstanding at November 9, 2010


Table of Contents

MTR GAMING GROUP, INC.
TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

  3

Item 1—Financial Statements

 
3

Consolidated Balance Sheets at September 30, 2010 and December 31, 2009

 
3

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009

 
4

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009

 
5

Notes to Consolidated Financial Statements

 
6

Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations

 
22

Item 3—Quantitative and Qualitative Disclosures about Market Risk

 
49

Item 4—Controls and Procedures

 
50

PART II—OTHER INFORMATION

 
51

Item 1—Legal Proceedings

 
51

Item 1A—Risk Factors

 
51

Item 2—Unregistered Sales of Equity Securities and Use of Proceeds

 
51

Item 3—Defaults upon Senior Securities

 
51

Item 4—Removed and Reserved

 
51

Item 5—Other Information

 
51

Item 6—Exhibits

 
52

SIGNATURE PAGE

 
53

EXHIBIT INDEX

 
54

2


Table of Contents


PART I
FINANCIAL INFORMATION

        

ITEM 1.    FINANCIAL STATEMENTS.

        


MTR GAMING GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 
  SEPTEMBER 30
2010
  DECEMBER 31
2009
 
 
  (unaudited)
   
 

ASSETS

             

Current assets:

             
 

Cash and cash equivalents

  $ 41,372   $ 44,755  
 

Restricted cash

    963     483  
 

Accounts receivable, net of allowance for doubtful accounts of $277 in 2010 and $458 in 2009

    3,486     2,641  
 

Inventories

    3,476     3,794  
 

Deferred financing costs

    4,105     3,606  
 

Prepaid income taxes

    182     8,663  
 

Deferred income taxes

    140     37  
 

Prepaid expenses and other current assets

    6,019     8,181  
           

Total current assets

    59,743     72,160  

Property and equipment, net

    319,351     332,351  

Goodwill

    494     494  

Other intangibles

    85,529     69,021  

Deferred financing costs, net of current portion

    9,141     10,616  

Deposits and other

    1,993     4,632  

Non-operating real property

    12,215     13,554  

Assets of discontinued operations

    185     185  
           

Total assets

  $ 488,651   $ 503,013  
           

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current liabilities:

             
 

Accounts payable

  $ 1,230   $ 2,150  
 

Accounts payable—gaming taxes and assessments

    4,631     7,030  
 

Accrued payroll and payroll taxes

    4,034     3,373  
 

Accrued interest

    11,308     14,247  
 

Other accrued liabilities

    10,190     11,641  
 

Construction project and equipment liabilities

    126     583  
 

Current portion of long-term debt and capital lease obligations

    1,249     6,618  
 

Liabilities of discontinued operations

    218     237  
           

Total current liabilities

    32,986     45,879  

Long-term debt and capital lease obligations, net of current portion

    376,505     375,885  

Deferred income taxes

    7,927     7,976  
           

Total liabilities

    417,418     429,740  
           

Stockholders' equity:

             
 

Common stock

         
 

Additional paid-in capital

    62,140     61,882  
 

Retained earnings

    9,176     11,475  
 

Accumulated other comprehensive loss

    (300 )   (300 )
           

Total stockholders' equity of MTR Gaming Group, Inc. 

    71,016     73,057  

Non-controlling interest of discontinued operations

    217     216  
           

Total stockholders' equity

    71,233     73,273  
           

Total liabilities and stockholders' equity

  $ 488,651   $ 503,013  
           

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

3


Table of Contents


MTR GAMING GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share amounts)

(unaudited)

 
  THREE MONTHS ENDED
SEPTEMBER 30
  NINE MONTHS ENDED
SEPTEMBER 30
 
 
  2010   2009   2010   2009  

Revenues:

                         
 

Gaming

  $ 104,937   $ 106,408   $ 296,528   $ 315,904  
 

Pari-mutuel commissions

    4,117     4,574     9,064     10,665  
 

Food, beverage and lodging

    9,722     9,181     25,209     25,284  
 

Other

    2,911     2,285     6,776     6,550  
                   

Total revenues

    121,687     122,448     337,577     358,403  
 

Less promotional allowances

    (2,540 )   (2,970 )   (7,449 )   (8,093 )
                   

Net revenues

    119,147     119,478     330,128     350,310  
                   

Operating expenses:

                         
 

Expenses of operating departments:

                         
   

Gaming

    65,854     66,078     185,461     197,459  
   

Pari-mutuel commissions

    3,862     4,160     9,150     10,280  
   

Food, beverage and lodging

    6,439     6,323     18,022     18,210  
   

Other

    1,692     1,698     4,823     4,894  
 

Marketing and promotions

    3,588     5,689     9,987     16,637  
 

General and administrative

    14,735     18,291     41,954     46,223  
 

Project opening costs

    267         1,365      
 

Depreciation

    7,206     7,443     21,571     22,031  
 

Impairment loss

    40         40      
 

(Gain) loss on sale or disposal of property

    (78 )   31     45     169  
                   

Total operating expenses

    103,605     109,713     292,418     315,903  
                   

Operating income

    15,542     9,765     37,710     34,407  

Other income (expense):

                         
 

Other

        (39 )       (39 )
 

Loss on debt modification and extinguishment

        (2,773 )       (2,773 )
 

Interest income

    10     9     22     448  
 

Interest expense

    (13,667 )   (11,849 )   (40,737 )   (31,729 )
                   

Income (loss) from continuing operations before income taxes

    1,885     (4,887 )   (3,005 )   314  

(Provision) benefit for income taxes

    (411 )   2,779     832     (3 )
                   

Income (loss) from continuing operations

    1,474     (2,108 )   (2,173 )   311  
                   

Discontinued operations:

                         
 

Income (loss) from discontinued operations before income taxes and non-controlling interest

    36     (292 )   (193 )   (2,294 )
 

(Provision) benefit for income taxes

    (12 )   2,983     68     3,664  
                   
 

Income (loss) from discontinued operations before non-controlling interest

    24     2,691     (125 )   1,370  
 

Non-controlling interest

        (6 )   (1 )    
                   

Income (loss) from discontinued operations

    24     2,685     (126 )   1,370  
                   

Net income (loss)

  $ 1,498   $ 577   $ (2,299 ) $ 1,681  
                   

Net income (loss) per share—basic:

                         
 

Income (loss) from continuing operations

  $ 0.05   $ (0.08 ) $ (0.08 ) $ 0.01  
 

Income (loss) from discontinued operations

        0.10         0.05  
                   
 

Net income (loss)

  $ 0.05   $ 0.02   $ (0.08 ) $ 0.06  
                   

Net income (loss) per share—diluted:

                         
 

Income (loss) from continuing operations

  $ 0.05   $ (0.08 ) $ (0.08 ) $ 0.01  
 

Income (loss) from discontinued operations

        0.10         0.05  
                   
 

Net income (loss)

  $ 0.05   $ 0.02   $ (0.08 ) $ 0.06  
                   

Weighted average number of shares outstanding:

                         
 

Basic

    27,587,760     27,475,260     27,513,558     27,475,260  
                   
 

Diluted

    27,793,982     27,475,260     27,513,558     27,475,260  
                   

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

4


Table of Contents


MTR GAMING GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

 
  NINE MONTHS ENDED
SEPTEMBER 30
 
 
  2010   2009  

Cash flows from operating activities:

             
 

Net (loss) income

  $ (2,299 ) $ 1,681  
 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

             
   

Depreciation

    21,571     22,031  
   

Amortization of deferred financing fees

    4,961     3,747  
   

Asset impairment

    40      
   

Loss on debt modification and extinguishment

        2,773  
   

Bad debt expense

    97     279  
   

Stock-based compensation expense

    600     85  
   

Deferred income taxes

    (451 )   (1,269 )
   

Decrease in long-term deferred compensation

        (20 )
   

Loss on the sale or disposal of property

    45     169  
   

Change in operating assets and liabilities:

             
     

Accounts receivable

    (942 )   2,515  
     

Prepaid income taxes

    8,481     5,357  
     

Other current assets

    2,480     10,995  
     

Accounts payable

    (3,319 )   (1,916 )
     

Accrued liabilities

    (4,229 )   (11,454 )
           
     

Net cash provided by continuing operating activities

    27,035     34,973  
     

Net cash used in discontinued operating activities

    (18 )   (296 )
           

Net cash provided by operating activities

    27,017     34,677  
           

Cash flows from investing activities:

             
 

(Increase) decrease in restricted cash

    (480 )   556  
 

Decrease in deposits and other

    2,599     73  
 

Proceeds from sale non-operating real property

    1,370      
 

Proceeds from sale of property and equipment

    308     182  
 

Reimbursement of capital expenditures from West Virginia Racing Commission

    4,611      
 

Capital expenditures

    (13,566 )   (10,667 )
 

Payment of Pennsylvania table games license

    (16,508 )    
           
 

Net cash used in continuing investing activities

    (21,666 )   (9,856 )
 

Net cash used in discontinued investing activities

         
           

Net cash used in investing activities

    (21,666 )   (9,856 )
           

Cash flows from financing activities:

             
 

Proceeds from credit facility

    10,000      
 

Proceeds from equipment financing

    679      
 

Payments on credit facility

    (10,000 )    
 

Principal payments on other long-term debt and capital lease obligations

    (7,303 )   (10,047 )
 

Financing cost paid

    (2,110 )   (13,411 )
 

Proceeds from issuance of Senior Secured Notes

        238,120  
 

Repurchase of Senior Unsecured Notes

        (130,650 )
 

Repayment of senior secured revolving credit facility

        (101,949 )
           
 

Net cash used in continuing financing activities

    (8,734 )   (17,937 )
 

Net cash used in discontinued financing activities

         
           

Net cash used in financing activities

    (8,734 )   (17,937 )
           

Net (decrease) increase in cash and cash equivalents

    (3,383 )   6,884  

Cash and cash equivalents, beginning of period

    44,755     29,011  
           

Cash and cash equivalents, end of period

  $ 41,372   $ 35,895  
           

Cash paid during the period for:

             

Interest paid

  $ 38,715   $ 24,221  
           

Income taxes refunded

  $ (8,930 ) $ (7,752 )
           

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

5


Table of Contents


MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1—BASIS OF PRESENTATION

        The accompanying unaudited consolidated financial statements of MTR Gaming Group, Inc. and Subsidiaries ("the Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included herein. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

        The consolidated balance sheet at December 31, 2009 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

        The Company, through our wholly-owned subsidiaries, owns and operates Mountaineer Casino, Racetrack & Resort in Chester, West Virginia; Presque Isle Downs & Casino in Erie, Pennsylvania; and Scioto Downs in Columbus, Ohio. Scioto Downs, through its subsidiary RacelineBet, Inc., also operates Racelinebet.com, a national account wagering service that offers online and telephone wagering on horse races as a marketing affiliate of AmericaTab LTD.

        Discontinued operations, as discussed in Note 4, include (i) MTR-Harness, Inc. and its interest in North Metro Harness Initiative, LLC; (ii) Jackson Racing, Inc. and its interest in Jackson Trotting Association, LLC; (iii) Binion's Gambling Hall & Hotel; and (iv) Ramada Inn and Speedway Casino.

        We have evaluated all subsequent events through the date the financial statements were issued. No material recognized or non-recognized subsequent events were identified.

        For further information, refer to our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009.

NOTE 2—RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

        In April 2010, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update No. 2010-16, Entertainment—Casinos (Topic 924): Accruals for Casino Jackpot Liabilities ("ASU 2010-16"). ASU 2010-16 codifies the consensus reached in Emerging Issues Task Force Issue No. 09-F, "Casino Base Jackpot Liabilities." ASU 2010-16 amends the FASB Accounting Standards Codification™ to clarify that an entity should not accrue jackpot liabilities, or portions thereof, before a jackpot is won if the entity can avoid paying the jackpot. Jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot. The guidance in this ASU applies to both base and progressive jackpots. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments should be applied by recording a cumulative-effect adjustment to opening retained earnings in the period of adoption. We are currently evaluating the requirements of ASU 2010-16 and have not yet determined the impact on our consolidated financial statements.

        In January 2010, Accounting Standards Update No. 2010-06, Improving Disclosures About Fair Value Measurements ("ASU 2010-06"), was issued as an amendment to ASC 820, Fair Value Measurements and Disclosures. ASU 2010-06 did not change any accounting requirements, but added new disclosures for

6


Table of Contents


MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 2—RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)


transfers between hierarchy levels and clarified existing disclosure requirements. The adoption of this accounting standard did not have a material impact on our consolidated financial statements.

NOTE 3—FAIR VALUE MEASUREMENTS

        ASC 820, Fair Value Measurements and Disclosures (formerly SFAS No. 157), provides guidance for measuring the fair value of assets and liabilities and requires expanded disclosures about fair value measurements. ASC 820 indicates that fair value should be determined based on the assumptions marketplace participants would use in pricing the asset or liability and provides additional guidelines to consider in determining the market-based measurement.

        ASC 820 requires fair value measurement be classified and disclosed in one of the following categories:

  Level 1:   Unadjusted quoted market prices for identical assets and liabilities.

 

Level 2:

 

Inputs other than Level 1 that are observable, either directly or indirectly, for the asset or liability through corroboration with market data for substantially the full term of the asset or liability.

 

Level 3:

 

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities (management's own assumptions about what market participants would use in pricing the asset or liability at the measurement date).

        The fair value of our cash equivalents approximates the carrying value at September 30, 2010 and December 31, 2009. The fair value was determined based on Level 1 inputs.

        Amounts that may be outstanding under our Credit Facility (see Note 8) approximate fair value based on the prevailing interest rates. There were no amounts outstanding at September 30, 2010, and there were no amounts outstanding on our Amended and Restated Credit Facility at December 31, 2009. The fair value of our $260 million 12.625% Senior Secured Notes was $271.3 million at September 30, 2010 and $249.6 million at December 31, 2009, compared to carrying values of $250.5 million and $248.6 million at September 30, 2010 and December 31, 2009, respectively. The fair value of our $125 million 9% Senior Subordinated Notes was $112.4 million at September 30, 2010 and $98.8 million at December 31, 2009, compared to a carrying value of $125 million at September 30, 2010 and December 31, 2009. The fair values of our 12.625% Senior Secured Notes and our 9% Senior Subordinated Notes were determined based on Level 2 inputs including quoted market prices and bond terms and conditions.

        Our Senior Secured Notes, Senior Subordinated Notes, and amounts outstanding under our other debt financing arrangements were stated at carrying value as long-term debt in our consolidated balance sheets as of September 30, 2010 and December 31, 2009.

7


Table of Contents


MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 4—DISCONTINUED OPERATIONS

North Metro Harness Initiative, LLC (d/b/a Running Aces Harness Park)

        Our wholly-owned subsidiary MTR-Harness, Inc. previously held a 50% interest in North Metro Harness Initiative, LLC (d/b/a Running Acres Harness Park) that operates a harness racetrack in Minneapolis, Minnesota. The racetrack was constructed with financing provided by Black Diamond Commercial Finance, LLC as agent (collectively "Black Diamond").

        On April 3, 2009, we received notification that Black Diamond, as a result of North Metro's default under the Black Diamond credit agreement, was pursuing legal action seeking (i) enforcement of our payment of our $1 million guarantee of North Metro's indebtedness and certain additional costs, and (ii) foreclosure of our subsidiary's pledged equity interest in North Metro. Pursuant to a settlement agreement with Black Diamond executed on May 27, 2009, we relinquished our interest in North Metro (the value of which we had already determined was impaired and written down to $0 during 2008) and paid $1 million to satisfy our obligations under the guarantee. Concurrently, MTR Gaming Group, Inc. entered into a Signal and Consulting Agreement with North Metro pursuant to which North Metro paid us $250,000 to provide consulting services with respect to its racing operations for a term of three years. On June 3, 2009, Black Diamond terminated the litigation with prejudice and we and Black Diamond executed mutual releases.

        The assets and liabilities of MTR-Harness, Inc. have been reflected as assets and liabilities of discontinued operations in our consolidated balance sheets as of September 30, 2010 and December 31, 2009, and the operating results and cash flows have been reflected as discontinued operations for the three and nine months ended September 30, 2010 and 2009.

        Summary operating results for the discontinued operations for the three and nine months ended September 30 were as follows:

 
  Three Months
Ended
September 30
  Nine Months
Ended
September 30
 
 
  2010   2009   2010   2009  
 
  (unaudited, in thousands)
 

Net revenues

  $   $   $   $  

Loss from discontinued operations before income taxes

        (57 )   (8 )   (1,272 )

Income (loss) from discontinued operations, net of income taxes

        2,843     (5 )   2,042  

        During the three months ended September 30, 2009, MTR-Harness, Inc. recorded an income tax benefit of approximately $2.9 million related to the realization of deferred tax assets associated with impairment losses that were recorded in 2008. See Note 7 for additional discussion.

Jackson Trotting Association, LLC (d/b/a Jackson Harness Raceway)

        Jackson Trotting Association, LLC, in which our wholly-owned subsidiary Jackson Racing, Inc. holds a 90% interest, operated Jackson Harness Raceway in Jackson, Michigan, and offered harness racing, simulcast wagering and casual dining. During 2008, we concluded that the Jackson Trotting intangible asset (value assigned to racing licenses) was impaired and, accordingly, recorded an impairment loss. On December 4, 2008, Jackson Trotting ceased the racing and simulcast wagering

8


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MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 4—DISCONTINUED OPERATIONS (Continued)


operations at Jackson Harness Raceway and surrendered its racing license to the Michigan Racing Commission.

        The assets and liabilities of Jackson Racing, Inc. and Jackson Trotting have been reflected as assets and liabilities of discontinued operations in our consolidated balance sheets as of September 30, 2010 and December 31, 2009, and the operating results and cash flows have been reflected as discontinued operations for the three and nine months ended September 30, 2010 and 2009.

        Summary operating results for the discontinued operations for the three and nine months ended September 30 were as follows:

 
  Three Months
Ended
September 30
  Nine Months
Ended
September 30
 
 
  2010   2009   2010   2009  
 
  (unaudited, in thousands)
 

Net revenues

  $   $   $   $  

(Loss) income from discontinued operations before income taxes and non-controlling interest

    (2 )   41     10     (130 )

(Loss) income from discontinued operations, net of non-controlling interest and income taxes

    (1 )   23     6     (86 )

Binion's Gambling Hall & Hotel

        On March 7, 2008, we sold 100% of the stock of our wholly-owned subsidiaries, Speakeasy Gaming of Fremont, Inc., which owned and operated Binion's Gambling Hall & Hotel, and Speakeasy Fremont Experience Operating Company in accordance with the terms of a Stock Purchase Agreement dated June 26, 2007 (as subsequently amended), executed between the Company and TLC Casino Enterprises, Inc. ("TLC"). In January 2009, we settled a post-closing purchase price adjustment in the amount of approximately $1.5 million, which we deposited into an escrow account that was utilized to pay a portion of land lease obligations guaranteed by the Company as discussed below. The balance of the escrow account was expended in July 2009.

        In connection with our original acquisition of Binion's on March 11, 2004, we provided limited guarantees on certain land leases. The guarantees expired in March 2010. TLC was obligated to use its reasonable best efforts to, among other things, pay the rent underlying the leases we guaranty on a timely basis, and to indemnify us in the event we were required to pay the land lease obligations pursuant to the guarantees.

        Since July 2009, TLC paid only a portion of total monthly rent with respect to one of the leases we guaranteed. Upon the demand of the landlord that we make monthly payments pursuant to our guarantee, we paid the amounts demanded (approximately $0.7 million in the aggregate through March 2010, including $0.2 million during the three months ended March 31, 2010), thus curing the events of default that existed. We have demanded reimbursement from TLC, and on August 5, 2009 commenced legal action for indemnification pursuant to the Stock Purchase Agreement. On October 27, 2009, we reached a settlement with TLC whereby TLC agreed to confess judgment as to amounts we paid and amounts that may be paid by us through the expiration of the guarantees, certain legal fees and interest

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MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 4—DISCONTINUED OPERATIONS (Continued)


at the rate of 10% on amounts actually paid by us with respect to the rental payments. We agreed to forbear from enforcing the judgment for two years, provided however that the forbearance will terminate under certain conditions, including if TLC fails to timely make any of the agreed payments or there is a change in control of TLC. During the forbearance period, TLC is also obligated to make payments in partial satisfaction of the judgment in the event TLC raises any capital through debt or equity. Through September 30, 2010, TLC has reimbursed us $25,000 for legal fees that we had incurred in connection with our collection efforts.

        Also in connection with our original acquisition of Binion's, we obtained title to the property and equipment subject to an increase in purchase price by $5.0 million if, at the termination of a Joint Operating License Agreement with HHLV Management Company, LLC, an affiliate of Harrah's Entertainment, Inc., certain operational milestones were achieved. Harrah's claimed it had met the milestones, however we disputed such claim. During the first quarter of 2009, the parties agreed in principle to settle the accounts due between the parties resulting in an adjustment to previously recorded amounts and a charge to discontinued operations of approximately $0.4 million. On June 11, 2009, we settled this dispute by finalizing the previous agreement in principle and paid HHLV Management Company approximately $0.7 million, which represented $1.75 million of purchase price adjustment less approximately $1.1 million for other amounts HHLV Management Company owed us.

        Binion's operating results and cash flows have been reflected as discontinued operations for the three and nine months ended September 30, 2010 and 2009.

        Summary operating results for the discontinued operations for the three and nine months ended September 30 were as follows:

 
  Three Months
Ended
September 30
  Nine Months
Ended
September 30
 
 
  2010   2009   2010   2009  
 
  (unaudited, in thousands)
 

Net revenues

  $   $   $   $  

Loss from discontinued operations before income taxes

    (19 )   (277 )   (252 )   (937 )

Loss from discontinued operations, net of income taxes

    (12 )   (181 )   (164 )   (616 )

Ramada Inn and Speedway Casino

        On June 3, 2008, our wholly-owned subsidiary, Speakeasy Gaming of Las Vegas, Inc., sold the gaming assets of the Ramada Inn and Speedway Casino to Lucky Lucy D, LLC in accordance with the terms of an Asset Purchase and Sale Agreement dated January 11, 2008. Pursuant to the terms of the agreement, Lucky Lucy paid $2.0 million in cash for the gaming assets and is obligated to pay an additional amount of up to $4.775 million subject to an earn-out provision based on the property's gross revenues over the four-year period that commenced January 11, 2008. In July 2009, Speakeasy Gaming of Las Vegas, Inc. assigned to the Company its right to any payment under the earn-out provision. Any proceeds that are received will be recorded as the amounts are realized.

        The assets and liabilities of Speedway have been reflected as assets and liabilities of discontinued operations in our consolidated balance sheets as of September 30, 2010 and December 31, 2009, and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 4—DISCONTINUED OPERATIONS (Continued)


the operating results and cash flows have been reflected as discontinued operations for the three and nine months ended September 30, 2010 and 2009.

        Summary operating results for the discontinued operations for the three and nine months ended September 30 were as follows:

 
  Three Months
Ended
September 30
  Nine Months
Ended
September 30
 
 
  2010   2009   2010   2009  
 
  (unaudited, in thousands)
 

Net revenues

  $   $   $   $  

Income from discontinued operations before income taxes

    57         57     44  

Income (loss) from discontinued operations, net of income taxes

    37     (1 )   37     29  

NOTE 5—PROPERTY AND EQUIPMENT

Dispositions

        In January 2010, we completed the sale of three acres associated with the 14.3 acre, off-track wagering facility in Erie, Pennsylvania for approximately $1.2 million, after closing costs. The transaction resulted in a gain on sale of approximately $76,000. At December 31, 2009, the acreage to be sold met the criteria for classification as held for sale as contemplated within ASC 360, Property, Plant & Equipment. The carrying value of this property was included in non-operating real properties in our consolidated balance sheet as of December 31, 2009.

        In February 2010, we completed the sale of certain parcels of non-operating real property land holdings in West Virginia for approximately $157,000, after closing costs, which approximated its carrying value. At December 31, 2009, the land parcels to be sold met the criteria for classification as held for sale as contemplated within ASC 360. The carrying value of these properties was included in non-operating real properties in our consolidated balance sheet as of December 31, 2009.

        In June 2010, we completed the sale of a certain parcel of a non-operating real property land holding in West Virginia for approximately $9,000, after closing costs. The transaction resulted in a loss on sale of approximately $40,000. The carrying value of this property was included in non-operating real properties in our consolidated balance sheet as of December 31, 2009.

        In February 2010, we agreed in principle to a listing agreement with a commercial real estate broker to actively market our non-operating real properties. Based upon the determination in 2009 of our intent to sell the properties and changes in market conditions, we performed an evaluation to determine that the properties were carried at the lower of carrying value or fair value, as determined by an independent appraisal, less cost to sell. As a result, the carrying values were adjusted and included in non-operating real properties in our consolidated balance sheet as of December 31, 2009. Other than the recently completed sales in 2010 as discussed above, the remaining properties do not meet the classification criteria established in ASC 360 and as such are not classified as held for sale at September 30, 2010 and December 31, 2009. These properties are included in non-operating real properties in our consolidated balance sheets at September 30, 2010 and December 31, 2009.

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MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 5—PROPERTY AND EQUIPMENT (Continued)

        During 2010, we sold various gaming and maintenance equipment. In the aggregate, the sales of such equipment resulted in a net gain of $78,000 during the three months ended September 30, 2010, and a net loss of $79,000 during the nine months ended September 30, 2010.

Other

        The West Virginia Racing Commission has provided reimbursement for capital expenditures aggregating $4.6 million, including $1.2 million related to capital expenditures that were incurred in prior years. These amounts have been applied against the applicable acquisition costs which resulted in corresponding adjustments to depreciation expense. Such adjustments did not have a material impact on our consolidated financial statements.

NOTE 6—EQUITY TRANSACTIONS AND EARNINGS PER SHARE

        We account for stock-based compensation in accordance with ASC 718 Compensation—Stock Compensation (formerly SFAS No. 123(R), Share-Based Payment). ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the consolidated statement of operations based on their fair values and that compensation expense be recognized for awards over the requisite service period of the award or to an employee's eligible retirement date, if earlier. This accounting standard also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow.

        On January 22, 2010, we amended certain of our stock incentive plans to provide for the grants of restricted stock units ("RSUs") and cash awards to key employees (including officers and directors) of or consultants to the Company, or its subsidiaries, as the Compensation Committee of the Company's Board of Directors may determine. Pursuant to the amended plans, on January 22, 2010, we granted a total of 520,000 RSUs with a fair value of $1.78 per unit, the NASDAQ Official Close Price per share of common stock on that date, and cash awards totaling $390,000 to certain key employees. Additionally, on May 17, 2010, we granted 50,000 RSUs with a fair value of $1.90 per unit, the NASDAQ Official Close Price per share of common stock on that date, and a cash award of $37,500 to a key employee; and on June 9, 2010, we granted a total of 75,000 RSUs with a fair value of $1.75 per unit, the NASDAQ Official Close Price per share of common stock on that date, to two key employees. The RSUs and cash awards will generally vest in three equal installments beginning on the first anniversary of the date of grant. Vesting will be accelerated upon consummation of a change of control of the Company (as defined), or upon other employee termination provisions (as defined).

        As a result of the termination of a key employee during the first quarter of 2010, and of the resignation of two key employees during the third quarter of 2010, nonvested RSUs of 50,000 and 300,000, respectively, were forfeited.

        On August 5, 2010, our stockholders approved the Company's 2010 Long-Term Incentive Plan (the "2010 Plan") which provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units and other equity and non-equity based awards to employees, officers and non-employee members of the Board. Pursuant to the 2010 Plan, on August 5, 2010 each of the Company's six non-employee directors were granted 30,000 RSUs with a fair value of $2.14 per unit,

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MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 6—EQUITY TRANSACTIONS AND EARNINGS PER SHARE (Continued)


the NASDAQ Official Close Price per share of common stock on that date. The grants of such RSUs were previously approved by the Board of Directors, pending the approval of the 2010 Plan by our stockholders. The RSUs vest immediately and will be delivered upon the date that is the earlier of termination of service on the Board of Directors or the consummation of a change of control of the Company.

        In addition, on November 4, 2010, the Compensation Committee of the Board of Directors approved the grant of 55,000 RSUs and a cash award of $52,250 to John W. Bittner, Jr., effective on November 8, 2010, the date of Mr. Bittner's appointment as Chief Financial Officer of the Company. The RSUs were granted with a fair value of $1.90 per unit, the NASDAQ Official Close Price per share of common stock on the effective date. The RSUs and cash award will generally vest in three equal installments beginning on the first anniversary of the date of grant. Vesting will be accelerated upon consummation of a change of control of the Company (as defined), or upon Mr. Bittner's termination of employment by the Company without cause or by Mr. Bittner with good reason.

        The restricted stock unit and stock option activity for the nine months ended September 30, 2010 was as follows:

 
  Restricted Stock Units  
 
  Number
of RSUs
  Weighted
Average
Grant Date
Fair Value
 

Nonvested December 31, 2009

      $  

Granted

    825,000     1.86  

Vested

    (180,000 )   2.14  

Forfeited

    (350,000 )   1.78  
           

Nonvested September 30, 2010

    295,000   $ 1.80  
           

 

 
  Stock Options  
 
  Number
of Shares
  Weighted
Average
Exercise
Price
 

Outstanding December 31, 2009

    1,209,500   $ 6.91  

Granted

         

Vested

         

Expired

    (470,000 )   2.50  

Forfeited

    (71,500 )   9.81  
           

Outstanding September 30, 2010

    668,000   $ 9.71  
           

Exercisable September 30, 2010

    668,000   $ 9.71  
           

        Total stock compensation expense recognized during the three and nine months ended September 30, 2010 was $371,000 ($241,000 net of tax) and $601,000 ($390,000 net of tax), including $20,000 and $65,000, respectively, related to stock options and $351,000 and $535,000, respectively,

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MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 6—EQUITY TRANSACTIONS AND EARNINGS PER SHARE (Continued)


related to RSUs. During the three and nine month periods of 2009, we recognized stock compensation expense of $42,000 ($27,000 net of tax) and $84,000 ($55,000 net of tax), respectively, for stock options. As of September 30, 2010, we had approximately $423,000 of unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-average period of approximately 2.41 years and no unrecognized compensation cost related to non-vested stock options.

        We utilize the treasury stock method in determining the dilutive effect of outstanding stock options and RSUs. Our basic earnings per share is computed as net income (loss) available to common stockholders divided by the weighted average number of common shares outstanding during the respective periods. Diluted earnings per share reflects the potential dilution that could occur from common shares issuable through stock options and RSUs utilizing the treasury stock method. Diluted earnings per share is calculated by using the weighted average number of common shares outstanding adjusted to include the potentially dilutive effect of these occurrences. The number of additional shares is calculated by assuming that restricted stock units were converted and outstanding stock options were exercised and that the proceeds from such activity were used to acquire shares of common stock at the average market price during the reporting period. For the three months ended September 30, 2010, nonvested RSUs of 206,222 were included in the computation of dilutive earnings per share. There were no nonvested RSUs outstanding for the three months ended September 30, 2009. Options to purchase 668,000 and 1,326,500 shares of common stock were outstanding for the three months ended September 30, 2010 and 2009, respectively, but were not included in the computation of dilutive earnings per share for the three months ended September 30, 2010 and 2009 because the effect would be antidilutive. For the nine months ended September 30, 2010 and 2009, options to purchase 938,750 and 1,309,500 shares of common stock, respectively, and nonvested RSUs of 470,000 and -0-, respectively, were outstanding, but were not included in the computation of dilutive earnings per share for the nine months ended September 30, 2010 and 2009 because the effect would be anti-dilutive.

        On August 5, 2010, our stockholders approved an amendment to the Company's Restated Certificate of Incorporation to increase the total number of shares of common stock which the Company will have authority to issue from 50,000,000 shares to 100,000,000 shares, par value $0.00001 per share.

NOTE 7—INCOME TAXES

        The effective income tax rate is reflective of permanent non-deductible expenses plus an additional state income tax provision (benefit), if any, associated with the operations of Presque Isle Downs & Casino. The effective income tax rate for continuing operations for the nine months ended September 30, 2010 was approximately 27.9%. The difference between the effective rate and the statutory rate is due to permanent items not deductible for income tax purposes.

        We recognize interest expense and penalties related to uncertain tax positions in income tax expense. During each of the three months ended September 30, 2010 and 2009, we recognized interest expense of approximately $6,000 and $4,000, respectively. During the nine months ended September 30, 2010 and 2009, we recognized interest expense of $18,000 and $11,000, respectively.

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MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 7—INCOME TAXES (Continued)

        The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $0.1 million. We do not expect a significant increase or decrease to the total amounts of unrecognized tax benefits within the next twelve months.

        During the nine months ended September 30, 2010, deferred tax assets of approximately $299,000 related to the expiration or forfeiture of stock options were reversed. The reversal is reflected in the consolidated balance sheet as of September 30, 2010 as a reduction of additional paid-in capital.

        For the three months ended September 30, 2009, the recorded income tax benefit for continuing operations reflects a $2.7 million adjustment to the effective income tax rate for the year-to-date period due to the impact of permanent non-deductible expenses relative to our pre-tax loss. Additionally, during the three months ended September 30, 2009, we obtained new information that caused us to reevaluate the recoverability of deferred tax assets aggregating approximately $2.9 million associated with certain impairment losses recorded in 2008. As a result, we determined that it was more likely than not that the deferred tax assets would be realized and a previously established valuation allowance of approximately $2.9 million was reversed. The effect of the reversal of the valuation allowance is included in discontinued operations. The benefit associated with the impairment losses was realized through a net operating loss carryback to a prior year.

        The Company and its subsidiaries file a consolidated federal income tax return and consolidated and separate income tax returns in various state jurisdictions. We are no longer subject to federal or state income tax examinations for years before 2004. We are currently under examination by the Internal Revenue Service for tax years ended December 31, 2007 and 2008. We do not expect the results of the audit to have a material impact on our consolidated financial statements.

NOTE 8—LONG-TERM DEBT

Senior Secured Notes

        On August 12, 2009, we completed the offering of $250 million in aggregate principal amount of 12.625% Senior Secured Notes due July 15, 2014, at an issue price of 95.248% of the principal amount of the Senior Secured Notes. The net proceeds of the sale of the Senior Secured Notes, together with cash on hand, were utilized to (i) repurchase all of our outstanding $130 million 9.75% Senior Unsecured Notes that were due April 1, 2010; (ii) repay $100.2 million outstanding under our existing senior secured revolving credit facility; and (iii) pay consent fees in connection with the solicitation of consents to certain amendments to the indenture governing the Senior Subordinated Notes.

        On October 13, 2009, we completed an additional offering of $10 million in aggregate principal amount of 12.625% Senior Secured Notes due July 15, 2014, at an issue price of 96.000% of the principal amount of the Senior Secured Notes. The additional notes form a part of the same series as our previously issued and outstanding Senior Secured Notes. The net proceeds of this offering were used for general corporate purposes.

        Our $260 million 12.625% Senior Secured Notes will mature on July 15, 2014, with interest payable semi-annually on January 15 and July 15 of each year. On or after July 15, 2011, we may redeem some or all of the Senior Secured Notes at any time at redemption prices that will decrease from 106.313% for redemptions after July 15, 2011 to 103.156% after July 15, 2012 to 100% after

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MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 8—LONG-TERM DEBT (Continued)


July 15, 2013. In addition, if we experience certain change of control events (as defined in the indenture governing the Senior Secured Notes), we must offer to repurchase the notes at 101% of their principal amount, plus accrued and unpaid interest. The Senior Secured Notes (and our Senior Subordinated Notes) are jointly and severally, fully and unconditionally guaranteed by each of our present subsidiaries consisting of Mountaineer Park, Inc., Presque Isle Downs, Inc. and Scioto Downs, Inc., as well as future subsidiaries other than our immaterial subsidiaries, our unrestricted subsidiaries (as defined in the indenture governing the Senior Secured Notes) and Speakeasy Gaming of Las Vegas, Inc., MTR-Harness, Inc. and Jackson Racing, Inc. The Senior Secured Notes and the subsidiary guarantees are secured on a second priority basis (subject to permitted prior liens including borrowings under the Credit Facility discussed below) by a security interest in substantially all of the assets (other than excluded assets, including capital stock of our subsidiaries, cash and deposit accounts, certain real property, gaming licenses and certain gaming equipment that cannot be pledged pursuant to applicable law) of the Company and the guarantors. The originally issued Senior Secured Notes were exchanged for equivalent registered securities on March 18, 2010.

Senior Subordinated Notes

        Our $125 million 9% Senior Subordinated Notes mature in their entirety on June 1, 2012. At any time on or after June 1, 2009, we may redeem all or a portion of the notes at a premium that will decrease over time (104.5% to 100%) as set forth in the agreement, plus accrued and unpaid interest.

        Commencing in the second quarter of 2008 and until the Senior Subordinated Notes are no longer outstanding, we are required to pay consent fees of $5.00 per $1,000 of principal to the holders of our Senior Subordinated Notes if we do not satisfy certain quarterly financial ratios. We have not met these ratios and therefore recorded additional expense of $625,000 during each of the three months ended September 30, 2010 and 2009 and $1,875,000 during each of the nine months ended September 30, 2010 and 2009.

Credit Agreement

        On March 18, 2010, the Company and Mountaineer Park, Inc., Presque Isle Downs, Inc. and Scioto Downs, Inc. (each a wholly-owned subsidiary of the Company) and Aladdin Credit Advisors, L.P., as administrative agent, entered into a Credit Agreement (the "Credit Agreement") which provides for a $20.0 million senior secured delayed-draw term loan credit facility (the "Credit Facility"), $10.0 million of which was drawn by the Company and subsequently repaid in September 2010. The Credit Agreement and related Credit Facility replaces our former Amended and Restated Credit Facility, which was undrawn, except for letters of credit aggregating $0.4 million, and would have matured on March 31, 2010. In connection with the termination of our former Amended and Restated Credit Facility, the outstanding letters of credit remained outstanding but were cash collateralized. The cash collateralized letters of credit are included in restricted cash in our consolidated balance sheet as of September 30, 2010. Financing costs of approximately $1.7 million were incurred in connection with the execution of the Credit Agreement.

        The Credit Facility matures on the third year anniversary of the closing date. The purpose of the Credit Facility is to finance (i) ongoing working capital and general corporate needs of the Company and its subsidiaries and (ii) capital expenditures, including the development of the Presque Isle Downs

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MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 8—LONG-TERM DEBT (Continued)


property for table gaming operations in Erie, Pennsylvania. Security for the Credit Facility includes substantially all of the real, personal and mixed property owned by the Company and its subsidiaries that are party to the Credit Agreement, including the capital stock of Mountaineer Park, Inc. and Scioto Downs, Inc., other than assets that may not be pledged pursuant to applicable gaming laws. Borrowings under the Credit Facility bear interest at a rate equal to LIBOR plus 7.00% per annum (with a LIBOR floor of 2.50% per annum) or based on the prime rate plus 6.00% per annum (with a prime rate floor of 3.50% per annum). The Credit Agreement contains customary covenants limiting, among other things, our ability and the ability of our subsidiaries (other than our unrestricted subsidiaries as defined) to pay dividends, redeem stock or make other distributions or restricted payments; incur additional indebtedness or issue preferred shares; make certain investments; create liens; consolidate or merge; sell or otherwise transfer or dispose of assets; enter into sale-leaseback transactions; enter into transactions with affiliates of the Company; use the proceeds of permitted sales of our assets; and change our line of business. These covenants are subject to a number of exceptions and qualifications as set forth in the Credit Agreement. We are also required to maintain a maximum leverage ratio ranging from 7.00:1.00 to 4.50:1.00 per quarter, a minimum interest coverage ratio ranging from 1.10:1.00 to 1.50:1.00 per quarter and a minimum consolidated EBITDA covenant ranging from $54.0 million to $65.0 million per annum. In addition, we are restricted from making capital expenditures in excess of (i) $32.0 million in 2010; (ii) $23.0 million in 2011 and 2012; and (iii) $5.6 million in the first quarter of 2013, plus 50% of the amount not previously expended in the immediately prior year. Measurement of compliance with the covenants commenced with the quarter ended June 30, 2010 and the Company remains in compliance as of September 30, 2010.

        A payment default or an acceleration of indebtedness in excess of $10 million, including as a result of an event of default under the Credit Facility, may give rise to an event of default under the indentures governing the Senior Secured Notes and the Senior Subordinated Notes which would entitle the holders of the notes to exercise the remedies provided in the indentures, subject to the restrictions set forth in the inter-creditor agreement between the Company, note holders and lenders participating in the Credit Facility.

        Obligations under the Credit Facility are guaranteed by each of our operating subsidiaries. Borrowings under the Credit Facility and the subsidiary guarantees are secured by substantially all of our assets and the assets of the subsidiary guarantors. Future subsidiaries will be required to enter into similar pledge agreements and guarantees.

        On September 24, 2010, we repaid the total amount of the $10.0 million outstanding under the Credit Agreement. In connection with the repayment, we executed Amendment No. 1 to the Credit Agreement (the "Amendment") to permit the re-borrowing of the $10.0 million that was repaid. In conjunction with the repayment and Amendment, we were required to pay a $100,000 prepayment fee and a $300,000 amendment fee. The cost of the amendment fee is included in deferred financing costs in the consolidated balance sheet at September 30, 2010, less amortization.

        The Amendment also provides that future borrowings must be made in minimum amounts of $5.0 million with integral multiples of $1.0 million in excess of that amount, and that prepayment premiums will be increased from 1% to 3% of the prepaid principal amount if prepayment occurs before the first anniversary of the Amendment. The Amendment did not change the maturity date of March 18, 2013.

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MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 8—LONG-TERM DEBT (Continued)

        Currently, our additional borrowing capacity under the Credit Facility, as amended, is limited to a total of $20 million, and the Credit Facility matures on March 18, 2013. The term loan commitment under the Credit Agreement was eliminated in the Amendment. Mandatory commitment or prepayment reductions shall result from net asset sale proceeds (as defined) and insurance/condemnation proceeds to the extent either such proceeds amounts are not reinvested in the business; proceeds from the issuance of equity securities other than capital stock issued pursuant to employee stock or stock option compensation plans or proceeds which shall be utilized in connection with the construction of a future gaming facility at Scioto Downs; issuance of debt other than permitted indebtedness; and 50% of consolidated excess cash flow (as defined) provided that such prepayment would not cause the aggregate amount of our cash and cash equivalents to be less than $25.0 million. Permitted indebtedness under the Credit Agreement includes furniture and equipment financing provided that the aggregate principal amounts of such indebtedness outstanding at any time shall not exceed $15.0 million; other unsecured indebtedness at any time not to exceed $5.0 million; and other indebtedness to finance the acquisition, development or construction of any future gaming property provided that (i) such indebtedness shall be unsecured and subordinated to the Credit Facility, (ii) no part of the principal or interest of such indebtedness is required to be paid prior to six months after the maturity date of the Credit Facility and (iii) upon the incurrence of such indebtedness and after giving pro forma effect thereto there shall be no default or event of default and that we shall be in pro forma compliance with the financial covenants.

Other Debt Financing Arrangements

        In 1999, Scioto Downs, Inc. entered into a term loan agreement that provides for monthly payments of principal and interest through September 2013. The term loan is collateralized by a first mortgage on Scioto Downs' real property facilities, as well as other personal property, and an assignment of the rents from lease arrangements. At September 30, 2010 and December 31, 2009, there was $1.0 million and $1.3 million, respectively, outstanding under the term loan.

        Throughout 2007 and 2008, both Presque Isle Downs and Mountaineer Casino executed various promissory notes and capital lease arrangements to finance the purchase of equipment including slot machines and surveillance equipment. During the nine months ended September 30, 2010, the promissory notes and capital lease arrangements were paid in full. Aggregate amounts due under these arrangements approximated $6.5 million at December 31, 2009. Property, plant and equipment subject to capital lease arrangements had a net book value of approximately $3.3 million at December 31, 2009.

        On December 31, 2009, both Presque Isle Downs and Mountaineer Casino purchased slot machines whereby the machine suppliers provided payment terms of two years with no interest. We recorded the long-term obligations net of imputed interest at 6.75%, or approximately $79,000. Aggregate amounts due under these agreements approximated $0.7 million and $1.1 million at September 30, 2010 and December 31, 2009, respectively.

        During the nine months ended September 30, 2010, we entered into equipment financing arrangements, whereby the slot machine suppliers provided payment terms of two years with no interest. We are required to make 24 monthly installments in the aggregate monthly amount of approximately $30,000 beginning in the first quarter of 2010. We recorded the long-term obligations in

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MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 8—LONG-TERM DEBT (Continued)


the aggregate amount of $0.7 million, which is net of imputed interest at 6.75%, or approximately $49,000. At September 30, 2010, the aggregate amounts due under the agreements approximated $0.5 million.

NOTE 9—COMMITMENTS AND CONTINGENCIES

Presque Isle Downs & Casino

        We commenced table gaming operations at Presque Isle Downs on July 8, 2010. Expenditures for the table games expansion at Presque Isle Downs will total approximately $23 million (which is net of a $3.5 million deposit returned to the Company by the Commonwealth of Pennsylvania) including capital expenditures of approximately $8 million, a licensing fee of $16.5 million and other costs including project-opening costs. Through September 30, 2010, expenditures included $7.6 million related to construction and equipment, $16.5 million for the licensing fee and $1.4 million in project-opening costs. The licensing fee is included in other intangibles in our consolidated balance sheet as of September 30, 2010.

Litigation

        On October 8, 2009, Edson R. Arneault, former Chairman, President and Chief Executive Officer of the Company, initiated a legal action which named as defendants the Company, certain of its affiliates and various other parties regarding a dispute under Mr. Arneault's deferred compensation and employment agreements. The complaint alleged, among other things, that we were required to continue to pay annual premiums on insurance policies under the deferred compensation and employment agreements between the Company and Mr. Arneault.

        Effective March 1, 2010, the Company and named defendants and Mr. Arneault entered into a Settlement Agreement and Release (the "Settlement Agreement"), pursuant to which we agreed to and paid on March 2, 2010, an aggregate of $1.6 million to Mr. Arneault to, among other things, (a) terminate the obligations of the parties under a consulting agreement between the Company and Mr. Arneault, other than an agreement by Mr. Arneault not to compete with the Company by owning, operating, joining, controlling, participating in, or being connected as an officer, director, employee, partner, stockholder, consultant or otherwise with any gaming business within 100 miles of any facility owned or leased by the Company, and a non-solicitation agreement by Mr. Arneault, (b) satisfy in full any obligations that the Company may have had under a deferred compensation agreement with Mr. Arneault (in his capacity as our former Chairman, President and Chief Executive Officer), and (c) resolve, compromise and settle any and all claims related to the action filed by Mr. Arneault against the Company, its affiliates and other named parties. The settlement in the aggregate amount of $1.6 million was included as a component of other accrued liabilities in our consolidated balance sheet as of December 31, 2009. In addition, pursuant to the terms of the Settlement Agreement, Mr. Arneault disclaimed all rights in the life insurance policies, and the proceeds and cash surrender value of such policies, that were designed to fund any deferred compensation obligations owed by the Company to Mr. Arneault. In conjunction with the settlement, we surrendered the life insurance policies and in April 2010 we received the cash surrender value of such policies in the aggregate amount of approximately $1.8 million.

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MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 9—COMMITMENTS AND CONTINGENCIES (Continued)

        We are a party to various lawsuits, which have arisen in the normal course of our business. The liability arising from unfavorable outcomes of those lawsuits is not expected to have a material impact on our consolidated financial condition or results of operations.

Employment Agreements

        On March 30, 2010, we entered into an amended and restated employment agreement with Robert F. Griffin, the Company's former President and Chief Executive Officer, for a term of three years. The agreement provided for an annual base salary of $577,500 and annual performance-based incentive compensation as determined by the Compensation Committee based on mutually agreed upon performance goals with a target amount of not less than 50% of Mr. Griffin's annual base compensation and a maximum annual amount of not less than 120% of Mr. Griffin's annual base compensation. The agreement also provided for the grant, in the first year, of 200,000 restricted stock units ("RSUs") and a cash retention award payable in the aggregate amount of $150,000. The agreement also included provisions for compensation in the event of termination for circumstances as defined in the agreement. On September 28, 2010, Mr. Griffin tendered his resignation as the Company's President and Chief Executive Officer and as a member of the Board of Directors of the Company. Based on the provisions in the employment agreement with Mr. Griffin, he is entitled to unpaid compensation of $0.1 million, which is included in other accrued liabilities in our consolidated balance sheet as of September 30, 2010. Additionally, Mr. Griffin is entitled to bonus compensation of approximately $0.3 million which is included in accrued payroll and payroll taxes in our consolidated balance sheet as of September 30, 2010.

        On September 29, 2010, David R. Hughes tendered his resignation as Corporate Executive Vice President and Chief Financial Officer of the Company and, pursuant to the terms of his employment agreement, terminated his employment for good reason based on the resignation of Robert F. Griffin as Chief Executive Officer. The Company had previously entered into an amended and restated employment agreement with Mr. Hughes as the Company's Corporate Executive Vice President and Chief Financial Officer on September 25, 2009. Based on the provisions in the employment agreement with Mr. Hughes, as amended, he is entitled to severance of $1.0 million, of which $0.6 million will be paid in monthly installments over one year, and is included in other accrued liabilities in our consolidated balance sheet as of September 30, 2010. Additionally, Mr. Hughes is entitled to bonus compensation of $0.3 million which is included in accrued payroll and payroll taxes in our consolidated balance sheet as of September 30, 2010.

        As a result of the resignations of Messrs. Griffin and Hughes, their nonvested RSUs of 200,000 and 100,000, respectively, were forfeited. Such forfeitures resulted in a reversal of $155,000 of previously recognized stock compensation expense.

        On November 5, 2010, we entered into an employment agreement with John W. Bittner, Jr. as the Company's Chief Financial Officer, effective November 8, 2010, for a term of two years, with automatic one-year extensions unless notice of non-renewal is timely furnished prior to the next applicable extension period. The agreement provides for an annual base salary of $350,000 (as adjusted from time to time with the approval of the Company's Compensation Committee) and participation in the Company's annual incentive plan as may be in effect from time to time, with a target bonus opportunity of 40% of his base salary (or such other amount as may be determined by the Company's

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MTR GAMING GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

NOTE 9—COMMITMENTS AND CONTINGENCIES (Continued)


Compensation Committee). Mr. Bittner is also entitled to participate in the Company's Long Term Incentive Program as may be in effect from time to time and is eligible to participate in the Company's employee benefit plans. The agreement provides that the Company will maintain, at the Company's cost, a term life insurance policy with a face value equal to Mr. Bittner's base salary. In addition, the agreement includes provisions for compensation in the event of termination for circumstances as defined in the agreement.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Statement Regarding Forward-Looking Information

        This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding our strategies, objectives and plans for future development or acquisitions of properties or operations, as well as expectations, future operating results and other information that is not historical information. When used in this report, the terms or phrases such as "anticipates", "believes", "projects", "plans", "intends", "expects", "estimates", "could", "would", "will likely continue", and variations of such words or similar expressions are intended to identify forward-looking statements. Although our expectations, beliefs and projections are expressed in good faith and with what we believe is a reasonable basis, there can be no assurance that these expectations, beliefs and projections will be realized.

        There are a number of risks and uncertainties that could cause our actual results to differ materially from those expressed in the forward-looking statements which are included elsewhere in this report. Such risks, uncertainties and other important factors include, but are not limited to:

    changes in, or failure to comply with, laws, regulations or the conditions of our West Virginia and Pennsylvania gaming licenses (or the failure to obtain renewals thereof), accounting standards or environmental laws (including adverse changes in the rates of taxation on gaming revenues) and delays in regulatory licensing processes;

    competitive and general economic conditions in our markets, including the impact of the Rivers Casino, which opened in August 2009 in downtown Pittsburgh, Pennsylvania, the impact of The Meadows Racetrack & Casino, which opened its permanent casino in April 2009 in Washington, Pennsylvania, the implementation of casino gaming in Cleveland and Columbus, Ohio which was approved on November 3, 2009 by referendum, and the implementation of table gaming in Pennsylvania which commenced on July 8, 2010 at our casino, Presque Isle Downs, and our competitors the Rivers Casino and The Meadows Racetrack & Casino;

    the enactment of future gaming legislation in the jurisdictions in which we operate our casinos or in competing jurisdictions, particularly the recent developments regarding gaming in Ohio and table games at casinos in Pennsylvania;

    the success and growth of table gaming at our West Virginia and Pennsylvania casinos;

    the success of non-taxable promotional credits (commonly referred to as "free play"), which was implemented September 1, 2009 at our West Virginia casino;

    construction factors relating to maintenance and expansion of operations;

    volatility and disruption of the capital and credit markets;

    dependence on our West Virginia and Pennsylvania casinos for the majority of our revenues and cash flows;

    dependence upon key personnel and the ability to attract new personnel;

    the ability to retain and attract customers;

    weather or road conditions limiting access to our properties;

    our substantial indebtedness;

    the ability to obtain additional financing, if and when needed, and the impact of leverage and debt service requirements;

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    certain covenants in our debt documents;

    the integration and performance of acquired businesses;

    the effect of war, terrorism, natural disasters and other catastrophic events;

    the effect of disruptions to our systems and infrastructure:

    general economic and market conditions; and

    the other factors as set forth in Part II Item 1A Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2009.

        Additional factors that could cause our actual performance to differ materially from that contemplated by such forward-looking statements are detailed in our Annual Report on Form 10-K for the year ended December 31, 2009, as well as other recent filings with the Securities and Exchange Commission. We do not intend to publicly update any forward-looking statements, except as may be required by law.

        The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes which are contained elsewhere in this report.

Overview

        We were incorporated in March 1988 in Delaware under the name "Secamur Corporation," a wholly-owned subsidiary of Buffalo Equities, Inc. In 1996, we were renamed MTR Gaming Group, Inc and since 1998, we have operated only in the racing, gaming and entertainment businesses.

        We own and operate Mountaineer Casino, Racetrack & Resort in Chester, West Virginia; Presque Isle Downs & Casino in Erie, Pennsylvania; and Scioto Downs in Columbus, Ohio. We consider these three properties, which are located in contiguous states, to be our core assets. Scioto Downs, through its subsidiary RacelineBet, Inc., also operates Racelinebet.com, a national account wagering service that offers online and telephone wagering on horse races as a marketing affiliate of AmericaTab LTD.

        Mountaineer currently operates approximately 2,800 slot machines, 24 poker tables and 47 casino table games, including blackjack, craps, roulette and other games, and offers live thoroughbred horse racing and on-site pari-mutuel wagering.

        Presque Isle Downs currently operates approximately 2,000 slot machines and live thoroughbred horse racing during the months of May through September with pari-mutuel wagering year-round. In addition, Presque Isle Downs commenced table gaming operations on July 8, 2010 with 48 casino table games.

        Scioto Downs conducts live harness horse racing with pari-mutuel wagering generally during the months of May through September.

        Through May 27, 2009, our wholly-owned subsidiary, MTR-Harness, Inc., owned a 50% interest in North Metro Harness Initiative, LLC, which operates Running Aces Harness Park in Anoka County, Minnesota. We relinquished our interest in North Metro to North Metro's lender pursuant to a settlement agreement with North Metro's lender executed on May 27, 2009. The assets, liabilities, operating results and cash flows of MTR-Harness, Inc. and its interest in North Metro are reflected as discontinued operations.

        Through our wholly-owned subsidiary, Jackson Racing, Inc., we own a 90% interest in Jackson Trotting Association LLC, which had operated Jackson Harness Raceway in Jackson, Michigan. On December 4, 2008, Jackson Trotting ceased the racing and simulcast wagering operations at Jackson Harness Raceway and surrendered its racing license to the Michigan Racing Commission. The assets,

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liabilities, operating results and cash flows of Jackson Racing, Inc. and its interest in Jackson Trotting are reflected as discontinued operations.

        Through March 7, 2008 and June 3, 2008, we owned and operated Binion's Gambling Hall & Hotel in Las Vegas, Nevada, and the Ramada Inn and Speedway Casino in North Las Vegas, Nevada, respectively. We sold Binion's on March 7, 2008, pursuant to a Stock Purchase Agreement executed between the Company and TLC Casino Enterprises, Inc., and on June 3, 2008, we completed the sale of the Speedway pursuant to the terms of an Asset Purchase and Sale Agreement executed between the Company and Lucky Lucy D, LLC. The assets, liabilities, operating results and cash flows of Binion's and Speedway are reflected as discontinued operations.

Results of Operations

        The following table sets forth a reconciliation of income (loss) from continuing operations, a generally accepted accounting principles ("GAAP") financial measure, to Adjusted EBITDA from continuing operations, a non-GAAP measure, and income (loss) from discontinued operations, a GAAP financial measure, to Adjusted EBITDA from discontinued operations, a non-GAAP measure, for each of the three and nine months ended September 30, 2010 and 2009.

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2010   2009   2010   2009  
 
  (unaudited, in thousands)
 

Continuing Operations:

                         

MTR Gaming Group, Inc. (consolidated)—continuing operations:

                         

Income (loss) from continuing operations

  $ 1,474   $ (2,108 ) $ (2,173 ) $ 311  

Interest expense, net of interest income

    13,657     11,840     40,715     31,281  

Provision (benefit) for income taxes

    411     (2,779 )   (832 )   3  

Depreciation

    7,206     7,443     21,571     22,031  

Impairment loss

    40         40      

(Gain) loss on the sale or disposal of property

    (78 )   31     45     169  

Loss on debt modification and extinguishment

        2,773         2,773  

Other

        39         39  
                   

Adjusted EBITDA from continuing operations

  $ 22,710   $ 17,239   $ 59,366   $ 56,607  
                   

Mountaineer Casino, Racetrack & Resort:

                         

Income from continuing operations

  $ 6,775   $ 14,314   $ 20,977   $ 20,410  

Interest expense, net of interest income

    32     1,056     133     5,522  

Provision (benefit) for income taxes

    3,235     (6,858 )   8,117     127  

Depreciation

    3,308     3,672     10,160     10,849  

(Gain) loss on the sale or disposal of property

    (78 )   30     52     123  

Loss on debt modification and extinguishment

        773         773  
                   

Adjusted EBITDA from continuing operations

  $ 13,272   $ 12,987   $ 39,439   $ 37,804  
                   

Presque Isle Downs & Casino:

                         

Income from continuing operations

  $ 6,462   $ 12,889   $ 13,729   $ 18,476  

Interest expense, net of interest income

    6     170     21     292  

Provision (benefit) for income taxes

    2,816     (6,287 )   5,313     115  

Depreciation

    3,685     3,561     10,778     10,560  

Gain on the sale or disposal of property

            (7 )    
                   

Adjusted EBITDA from continuing operations

  $ 12,969   $ 10,333   $ 29,834   $ 29,443  
                   

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  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2010   2009   2010   2009  
 
  (unaudited, in thousands)
 

Scioto Downs:

                         

Loss from continuing operations

  $ (218 ) $ (1,093 ) $ (1,133 ) $ (1,692 )

Interest expense, net of interest income

    17     22     54     70  

(Benefit) provision for income taxes

    (124 )   675     (438 )   (11 )

Depreciation

    200     203     600     608  

Other

        39         39  
                   

Adjusted EBITDA from continuing operations

  $ (125 ) $ (154 ) $ (917 ) $ (986 )
                   

Corporate:

                         

Loss from continuing operations

  $ (11,545 ) $ (28,218 ) $ (35,746 ) $ (36,883 )

Interest expense, net of interest income

    13,602     10,592     40,507     25,397  

(Benefit) provision for income taxes

    (5,516 )   9,691     (13,824 )   (228 )

Depreciation

    13     7     33     14  

Impairment loss

    40         40      

Loss on the sale or disposal of property

        1         46  

Loss on debt modification and extinguishment

        2,000         2,000  
                   

Adjusted EBITDA from continuing operations

  $ (3,406 ) $ (5,927 ) $ (8,990 ) $ (9,654 )
                   

Discontinued operations:

                         

MTR-Harness/Running Aces Harness Park:

                         

(Income) loss from discontinued operations

  $   $ 2,843   $ (5 ) $ 2,042  

Interest expense

        2     3     7  

Benefit for income taxes

        (2,900 )   (3 )   (3,314 )

Equity in loss of unconsolidated joint venture

                1,000  
                   

Adjusted EBITDA from discontinued operations

  $   $ (55 ) $ (5 ) $ (265 )
                   

Jackson Racing/Jackson Harness Raceway:

                         

(Loss) income from discontinued operations

  $ (1 ) $ 24   $ 6   $ (85 )

(Benefit) provision for income taxes, net of non-controlling interest

    (1 )   12     3     (44 )

Loss on the sale or disposal of property, net of non-controlling interest

        115         115  

Loss on impairment of Jackson Trotting Association, LLC

        176         176  

Other

        153         153  
                   

Adjusted EBITDA from discontinued operations

  $ (2 ) $ 480   $ 9   $ 315  
                   

Ramada Inn and Speedway Casino:

                         

Income (loss) from discontinued operations

  $ 37   $ (1 ) $ 37   $ 29  

Interest (income) expense, net

                (1 )

Provision for income taxes

    20     1     20     15  
                   

Adjusted EBITDA from discontinued operations

  $ 57   $   $ 57   $ 43  
                   

Binion's Gambling Hall & Hotel:

                         

Loss from discontinued operations

  $ (12 ) $ (181 ) $ (164 ) $ (616 )

Benefit for income taxes

    (7 )   (96 )   (88 )   (321 )
                   

Adjusted EBITDA from discontinued operations

  $ (19 ) $ (277 ) $ (252 ) $ (937 )
                   

        Adjusted EBITDA represents earnings (losses) before interest expense (income), income tax expense (benefit), depreciation and amortization, loss on debt modification and extinguishment, equity in loss of unconsolidated joint venture, (gain) loss on the sale or disposal of property and loss on asset impairment. Adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with GAAP, is unaudited and should not be considered an alternative to, or more meaningful than, net income (loss) or income (loss) from operations as an indicator of our operating performance, or cash flows from operating activities, as a measure of liquidity. Adjusted EBITDA has been presented as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry. Management of the Company uses Adjusted EBITDA as the primary

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measure of the Company's operating performance and as a component in evaluating the performance of operating personnel. Uses of cash flows that are not reflected in Adjusted EBITDA include capital expenditures, interest payments, income taxes and debt principal repayments, which can be significant. Moreover, other companies that provide EBITDA information may calculate EBITDA differently than we do. The definition of Adjusted EBITDA may not be the same as the definitions used in any of our debt agreements.

Three and Nine Months Ended September 30, 2010 Compared to Three and Nine Months Ended September 30, 2009

        The following tables set forth information concerning our results of operations by property for continuing operations.

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2010   2009   2010   2009  
 
  (unaudited, in thousands)
 

Net revenues—continuing operations:

                         
 

Mountaineer Casino, Racetrack & Resort

  $ 59,880   $ 68,882   $ 180,376   $ 207,716  
 

Presque Isle Downs & Casino

    57,722     49,173     146,957     139,985  
 

Scioto Downs

    1,525     1,402     2,678     2,579  
 

Corporate

    20     21     117     30  
                   

Consolidated net revenues

  $ 119,147   $ 119,478   $ 330,128   $ 350,310  
                   

 

 
  Three Months Ended September 30,   Nine Months Ended September 30,  
 
  2010   2009   2010   2009  
 
  (unaudited, in thousands)
 

Operating income (loss)—continuing operations:

                         
 

Mountaineer Casino, Racetrack & Resort

  $ 10,042   $ 9,286   $ 29,227   $ 26,832  
 

Presque Isle Downs & Casino(1)

    9,283     6,772     19,063     18,883  
 

Scioto Downs

    (324 )   (356 )   (1,516 )   (1,593 )
 

Corporate

    (3,459 )   (5,937 )   (9,064 )   (9,715 )
                   

Consolidated operating income

  $ 15,542   $ 9,765   $ 37,710   $ 34,407  
                   

(1)
Presque Isle Downs' operating income for the three and nine months ended September 30, 2010 includes project-opening costs of $0.3 million and $1.4 million, respectively, related to table gaming operations which commenced on July 8, 2010.

Mountaineer's Operating Results:

        During the three months ended September 30, 2010, Mountaineer's operating results were affected by competition, primarily from gaming operations in Pennsylvania, including the commencement of table gaming in July 2010, and general economic conditions. Net revenues decreased by $9.0 million, or 13.1%, compared to the three months ended September 30, 2009, which included a $9.4 million decrease in gaming revenues. Revenues earned from food, beverage and lodging operations decreased by $0.4 million, and revenues earned from other sources, including pari-mutuel commissions increased by $0.3 million. Promotional allowances decreased by $0.5 million. However, Mountaineer's overall operating margin increased to 16.8% in 2010 from 13.5% in 2009 due to Mountaineer's cost containment initiatives.

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        During the nine months ended September 30, 2010, Mountaineer's operating results were affected by competition, primarily from gaming operations in Pennsylvania, including the commencement of table gaming in July 2010, general economic conditions and by unusually severe weather conditions in February 2010. Net revenues decreased by $27.3 million, or 13.2%, compared to the nine-month period of 2009, primarily due to a $25.7 million decrease in gaming revenues. Revenues earned from pari-mutuel commissions decreased by $1.0 million and revenues earned from food, beverage and lodging operations decreased by $1.5 million. Promotional allowances decreased by $0.9 million. However, Mountaineer's overall operating margin increased to 16.2% in 2010 from 12.9% in 2009 due to Mountaineer's cost containment initiatives.

        Significant factors contributing to Mountaineer's 2010 operating results were:

    overall decreases in compensation and benefits of $1.7 million and $4.4 million during the three- and nine-month periods of 2010, respectively, as well as other cost savings programs; and

    decreases in marketing promotions and advertising costs of $2.4 million and $7.5 million during the three- and nine-month periods of 2010, respectively, primarily related to 2009 cash promotions that were eliminated as a result of the implementation of non-taxable promotional credits on September 1, 2009 as well as reductions in advertising.

        A discussion of Mountaineer's key operations follows.

        Gaming Operations.    Revenues from gaming operations during the three months ended September 30, 2010 decreased by $9.4 million, or 15.3%, to $52.0 million compared to the three months ended September 30, 2009; and gross profit decreased by $4.0 million, or 16.6%. The decline in the gross profit resulted primarily from the total gaming revenue decline. Revenues from slot operations decreased by $6.1 million to $43.9 million in 2010 compared to $50.0 million in 2009, and table gaming and poker revenue decreased by $3.3 million, generating revenues of $7.3 million and $0.8 million, respectively, in 2010 compared to $9.9 million and $1.5 million, respectively, in 2009.

        During the nine months ended September 30, 2010, revenues from gaming operations decreased by $25.7 million, or 13.8%, to $160.2 million compared to the same period of 2009; and gross profit decreased by $9.7 million, or 13.5%. The decrease in gaming revenues related primarily to slot operations, which decreased by $21.5 million to $128.8 million in 2010 compared to $150.3 million in 2009. Table gaming and poker revenue decreased by $4.2 million, generating revenues of $28.1 million and $3.2 million, respectively, in 2010 compared to $30.7 million and $4.9 million, respectively, in 2009.

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        The following tables set forth statistical information concerning Mountaineer's gaming operations.

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2010   2009   2010   2009  
 
  (unaudited)
 

Slots:

                         
 

Total gross wagers

  $ 538,763,000   $ 573,806,000   $ 1,630,367,000   $ 1,674,086,000  
 

Less winning patron payouts

    494,836,000     523,776,000     1,501,559,000     1,523,754,000  
                   
 

Gaming revenues (slot net win)

  $ 43,927,000   $ 50,030,000   $ 128,808,000   $ 150,332,000  
 

Average daily net win per slot machine

  $ 171   $ 192   $ 169   $ 184  
 

Hold percentage

    8.2 %   8.7 %   7.9 %   9.0 %
 

Average number of slot machines

    2,787     2,838     2,789     2,993  

Tables:

                         
 

Total table drop

  $ 43,702,000   $ 55,655,000   $ 153,042,000   $ 164,802,000  
 

Average daily net win per table

  $ 1,372   $ 1,631   $ 1,626   $ 1,914  
 

Hold percentage

    16.8 %   17.8 %   18.4 %   18.6 %
 

Average number of tables

    58     66     63     59  

Poker:

                         
 

Average daily poker rake per table

  $ 248   $ 411   $ 378   $ 448  
 

Average number of tables

    33     40     32     40  

        Management attributes the decrease in slot revenue for the nine month period ended September 30, 2010 to unusually severe weather conditions in February 2010 (as compared to 2009), general economic conditions and increased competitive pressures. On August 9, 2009, the Rivers Casino in downtown Pittsburgh, Pennsylvania, approximately a one-hour drive from Mountaineer, opened with 3,000 slot machines and various food, beverage and entertainment venues. Additionally, The Meadows Racetrack & Casino, a harness racetrack in Washington, Pennsylvania, which is approximately 40 miles southeast of Mountaineer, opened its permanent casino on April 15, 2009, with over 3,700 slot machines and various food and beverage outlets.

        Management attributes the decrease in table gaming and poker revenue primarily to the commencement of table games at Pennsylvania casinos on July 8, 2010 causing an increase in competitive pressures from the Rivers Casino in downtown Pittsburgh, Pennsylvania, The Meadows Racetrack & Casino in Washington, Pennsylvania, and to a lesser extent Presque Isle Downs. Management expects that these competitive pressures are likely to continue to negatively impact table gaming and poker revenue at Mountaineer into 2011.

        On September 1, 2009, Mountaineer began to offer its patrons the ability to play slot machines with promotional credits (commonly referred to as "free play"). Promotional credits are not subject to taxes and assessments. Management believes that free play allows Mountaineer to compete more effectively with gaming operations in Pennsylvania which already have free play. Mountaineer's ability to offer promotional credits is subject to revision and review at any time by the West Virginia Lottery Commission. Beginning in the fourth quarter of 2010, the maximum percentage of allowable promotional credits to be redeemed will increase from 2% to 21/2% of credits played during the preceding calendar year. In the event that this maximum is exceeded, Mountaineer may be assessed gaming taxes and assessments on the amount of the excess. In addition, the West Virginia Lottery Commission has the ability to discontinue promotional credits at its discretion.

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        To-date, we have converted 2,047 of our slot machines and the state's central monitoring system to accommodate free play. Capital expenditures related to the conversion of our slot machines to accommodate free play approximated $2.0 million. At this time, we do not intend to incur any additional costs to convert our remaining existing slot machines to accommodate free play. We believe the implementation of free play at Mountaineer will continue to enhance Mountaineer's competitive position by drawing new customers and driving increased play from our existing customers. During the three- and nine-month periods of 2010, our patrons redeemed promotional credits of $9.8 million and $31.5 million, respectively.

        In addition, on November 3, 2009, the voters of Ohio approved a proposal for a casino to be located in each of Cleveland, Cincinnati, Toledo, and Columbus. A casino in Cleveland will increase competition at Mountaineer commencing in approximately 2013, unless a temporary facility as currently being discussed opens earlier. We intend to be proactive in our efforts to mitigate the effects of such competition, which includes continuing to provide first-class customer service at all of our facilities and continuing to manage and reduce our costs.

        Gaming taxes and assessments as a percentage of slot revenues for each of the three-month periods in 2010 and 2009, was 55.4%. For poker and table gaming operations, the tax rate is 35% plus amortization of an annual licensing fee of $2.5 million. Gaming taxes and assessments decreased overall by $4.5 million to $27.8 million during the three-month period of 2010 compared to the same period of 2009 as a result of the decrease in gaming revenues. Additionally, gaming compensation and benefits decreased by $0.9 million during 2010 compared to 2009 principally as a result of cost containment efforts.

        During the nine-month periods in 2010 and 2009, gaming taxes and assessments as a percentage of slot revenues was 55.7% and 56.2%, respectively. Gaming taxes and assessments decreased overall by $14.4 million to $84.4 million during the nine-month period of 2010 compared to the same period of 2009 as a result of the decrease in gaming revenues. Additionally, gaming compensation and benefits decreased by $1.6 million during 2010 compared to 2009 principally as a result of cost containment efforts.

        Pari-mutuel Commissions.    Pari-mutuel commissions is a predetermined percentage of the total amount wagered (wagering handle), with a higher commission earned on a more exotic wager, such as a trifecta, than on a single horse wager, such as a win, place or show. In pari-mutuel wagering, patrons bet against each other rather than against the operator of the facility or with pre-set odds. The total wagering handle is comprised of the amounts wagered by each individual according to the wagering activity. The total amounts wagered form a pool of funds, from which winnings are paid based on odds determined solely by the wagering activity. The racetrack acts as a stakeholder for the wagering patrons and deducts a "take-out" or gross commission from the amounts wagered, from which the racetrack pays state and county taxes and racing purses. Mountaineer's pari-mutuel commission rates are fixed as a percentage of the total wagering handle or total amounts wagered.

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        Pari-mutuel commissions for Mountaineer, detailing gross handles less patron payouts and deductions, for the three and nine months ended September 30 were as follows:

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2010   2009   2010   2009  
 
  (unaudited, in thousands)
 

Import simulcast racing pari-mutuel handle

  $ 2,668   $ 3,257   $ 8,936   $ 10,537  

Live racing pari-mutuel handle

    2,184     2,539     4,584     5,904  

Less patrons' winning tickets

    (3,822 )   (4,575 )   (10,643 )   (12,982 )
                   

    1,030     1,221     2,877     3,459  

Revenues—export simulcast

    2,680     2,759     6,309     7,636  
                   

    3,710     3,980     9,186     11,095  

Less:

                         

State and county pari-mutuel tax

    (114 )   (117 )   (298 )   (327 )

Purses and Horsemen's Association

    (1,634 )   (1,755 )   (3,983 )   (4,851 )
                   

Revenues—pari-mutuel commissions

  $ 1,962   $ 2,108   $ 4,905   $ 5,917  
                   

        Overall, Mountaineer's pari-mutuel commissions decreased by 6.9% and 17.1% during the three- and nine-month periods of 2010, respectively, compared to the same periods during 2009 as a result of 21 fewer live racing days in 2010 compared to 2009. Beginning in 2010, Mountaineer ceased live racing during the winter months of January and February. As a result, Mountaineer expects to run live racing for 210 days during 2010 compared to 225 live racing days in 2009. The decrease in import simulcast handle, as well as export simulcast, is also due to a decline in on-track and off-track wagering, which is consistent with the national average decline in wagering and purses of 7.2% and 5.7%, respectively, during the first nine months of 2010 compared to 2009, as reported by Equibase Company.

        Live racing and import simulcast may continue to be impacted by the conversion of some live racing patrons to export simulcast patrons (whether through traditional off track wagering facilities or growth in the utilization of telephone and/or internet wagering) and increased competition from Pennsylvania's racetracks. Mountaineer currently simulcasts its live races to over 1,000 sites.

        Food, beverage and lodging operations.    Revenues from food, beverage and lodging operations during the three months ended September 30, 2010 were $5.6 million, which decreased by $0.4 million, or 6.3%, compared to the three months ended September 30, 2009; and gross profit from these operations increased by 1.8%. During the nine months ended September 30, 2010, revenues from food, beverage and lodging operations decreased by $1.5 million, or 8.5%, compared to the same period of 2009; and gross profit from these operations decreased by 0.8%.

        The decrease in revenues was reflective of the decline in patron traffic and a shift in marketing strategies designed to reduce food and beverage offers to patrons and increase free play programs. Additionally, the decrease in gross profit was due in part to a 2% increase in food costs as a percentage of revenues during 2010 compared to 2009.

        The average daily room rate ("ADR") for the Grande Hotel (exclusive of complimentary rooms provided to gaming patrons) decreased by 11.3% to $84.46 during the third quarter of 2010 from $95.25 during the same period of 2009. The ADR (inclusive of complimentary rooms) decreased to $59.80 from $64.87 during the same three-month periods, respectively. The average occupancy rate decreased slightly to 87.2% from 88.1% during the same periods, respectively. Year-to-date, the ADR (exclusive of complimentary rooms provided to gaming patrons) decreased 9.8% to $78.38 during the first nine months of 2010 from $86.91 during the same period of 2009. The ADR (inclusive of complimentary rooms) decreased to $54.45 from $64.21 during the same nine-month periods,

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respectively. However, the average occupancy rate increased to 85.7% from 80.7% during the same periods, respectively.

        The decrease in daily room rates and increase in occupancy primarily reflects a shift in marketing strategies to market the hotel to gaming patrons and grant complimentary rooms to such patrons.

        Other operations.    Other operating revenues were primarily derived from operations of the Spa, Fitness Center, retail outlets and golf course; from the sale of programs, admission fees, and lottery tickets; from check cashing and ATM services and from entertainment events. Mountaineer's earned revenues from other operations increased by $0.4 million during the three-month period of 2010 compared to the same period of 2009 and remained consistent during the nine-month period of 2010 as compared to the same period of 2009. Operating expenses decreased by $0.2 million and $0.6 million, respectively, during the three- and nine-month periods of 2010 as compared to the same periods of 2009.

Presque Isle Downs' Operating Results:

        During the three months ended September 30, 2010, Presque Isle Downs' net revenues increased by $8.5 million, or 17.4%, compared to the three months ended September 30, 2009, which included a $2.8 million increase in slot revenues, table gaming revenues of $5.1 million, and a $0.6 million increase in revenues earned from food and beverage operations. Presque Isle Downs' operating margin (exclusive of project-opening costs of $0.3 million) increased to 16.5% in 2010 from 13.8% in 2009.

        During the nine months ended September 30, 2010, Presque Isle Downs experienced an increase in net revenues compared to the same period in 2009, primarily attributable to the implementation of table gaming on July 8, 2010. Net revenues increased by $7.0 million, or 5.0%, due primarily to table gaming revenue of $5.1 million, an increase in slot revenues of $1.2 million, and an increase in revenues earned from food and beverage operations of $0.9 million. Revenues earned from all other sources remained consistent with the prior year period. Presque Isle Downs' operating margin (exclusive of project-opening costs of $1.4 million) increased to 13.9% in 2010 from 13.5% in 2009.

        Significant factors contributing to Presque Isle Downs' 2010 operating results were:

    commencement of table gaming on July 8, 2010 which resulted in table gaming revenues of $5.1 million for the third quarter of 2010;

    increases in slot revenues and food and beverage revenues of $2.8 million and $0.6 million during the third quarter of 2010 as compared to the same period of 2009;

    an increase in gross profit from food and beverage operations (as discussed below); offset by

    overall increases in compensation and benefits of $2.3 million and $2.7 million during the three- and nine-month periods of 2010;

    a regulatory assessment of $0.8 million relating to slot operations during the third quarter of 2010;

    increases in marketing promotions of $0.4 million and $1.0 million during the three- and nine-month periods of 2010;

    an increase in real estate taxes of $0.7 million during the nine-month period of 2010;

    severance costs of $0.3 million; and

    project-opening costs related to the implementation of table gaming operations on July 8, 2010 in the amounts of $0.3 million and $1.4 million during the three-and nine-month periods, respectively.

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        Gaming Operations.    Revenues from gaming operations during the three months ended September 30, 2010 increased by $7.9 million, or 17.7%, to $52.9 million compared to the three months ended September 30, 2009; and gross profit increased by $2.7 million, or 16.8%. The increase in revenues from gaming operations and gross profit during the three months ended September 30, 2010, as compared to the same period of 2009, is primarily due to the commencement of table gaming on July 8, 2010. During the nine months ended September 30, 2010, revenues from gaming operations increased by $6.3 million, or 4.9%, to $136.3 million compared to the same period of 2009; and gross profit increased by $2.3 million, or 5.0%.

        The following tables set forth statistical information concerning Presque Isle Downs' gaming operations.

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2010   2009   2010   2009  
 
  (unaudited)
 

Slots:

                         
 

Total gross wagers

  $ 634,090,000   $ 574,293,000   $ 1,758,658,000   $ 1,644,696,000  
 

Less winning patron payouts

    586,283,000     529,331,000     1,627,422,000     1,514,674,000  
                   
 

Gaming revenues (slot net win)

  $ 47,807,000   $ 44,962,000   $ 131,236,000   $ 130,022,000  
 

Average daily net win per slot machine

  $ 256   $ 244   $ 242   $ 238  
 

Hold percentage

    7.5 %   7.8 %   7.5 %   7.9 %
 

Average number of slot machines

    2,030     2,000     1,986     2,000  

Tables:

                         
 

Total table drop

  $ 31,002,000       $ 31,002,000      
 

Average daily net win per table

  $ 1,250       $ 1,250      
 

Hold percentage

    16.4 %       16.4 %    
 

Average number of tables

    48         48      

        Overall, the increase in revenues from gaming operations during three-month period of 2010 resulted in increased gaming taxes and assessments in the amount of $3.4 million to $30.7 million compared to the three-month period of 2009. Presque Isle Downs' gaming taxes and assessments as a percentage of slot revenues increased to 62.4% for the three-month period ended September 30, 2010 compared to 60.8% for the same period of 2009, primarily due to a regulatory assessment of $0.8 million. Upon commencement of slot operations in 2007, the Pennsylvania Gaming Control Board (the "PGCB") advised Presque Isle Downs that it would receive a one-time assessment of $0.8 million required of each slot machine licensee after commencement of gaming operations. The assessment was paid and represented a prepayment toward the total borrowings of the PGCB, Pennsylvania Department of Revenue and the Pennsylvania State Police (collectively "the borrowers"), required to fund the costs incurred as a result of gaming operations. Once all of Pennsylvania's fourteen slot machine licensees are operational, the Pennsylvania Department of Revenue would then assess all licensees, including Presque Isle Downs, their proportionate share of the total borrowings incurred by the borrowers, as a result of gaming operations. Based upon correspondence we received from the Pennsylvania Department of Revenue and discussions with the PGCB that additional assessments would be likely, the total prepayment by Presque Isle Downs of $0.8 million was recognized as a gaming assessment and charged to expense during the third quarter of 2010.

        Table gaming commenced at Presque Isle Downs on July 8, 2010. Gaming taxes and assessments as a percentage of table gaming revenue approximated 17.5% for the three month period ended September 30, 2010. Gaming compensation and benefits increased by $1.7 million during the third quarter primarily due to the implementation of table gaming.

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        During the nine-month periods in 2010 and 2009, gaming taxes and assessments as a percentage of slot revenues was 61.4% and 60.6%, respectively, while gaming taxes and assessments as a percentage of table gaming revenues were 17.5% for the nine months period in 2010. Gaming taxes and assessments increased overall by $2.6 million to $81.5 million during the nine-month period of 2010 compared to the same period of 2009 as a result of the implementation of table gaming, increase in slot revenues, and the regulatory assessment of $0.8 million. However, slot machine lease expenses decreased by $0.3 million, offset by table gaming equipment leases of $0.1 million. Overall, gaming compensation and benefits increased by $1.5 million during the first nine months of 2010. Gaming compensation and benefits relating to the implementation of table gaming were $1.7 million for the first nine months of 2010; offset by a decrease in gaming compensation and benefits for slot operations of $0.2 million as compared to the first nine months of 2009.

        On January 7, 2010, Pennsylvania amended its gaming law, permitting table games at Pennsylvania casinos; and on April 29, 2010, the Pennsylvania Gaming Control Board approved our petition to conduct table gaming at Presque Isle Downs. Therefore, we implemented table gaming operations with 48 casino table games at Presque Isle Downs on July 8, 2010. However, on November 3, 2009, the voters of Ohio approved a proposal for a casino to be located in each of Cleveland, Cincinnati, Toledo, and Columbus. A casino in Cleveland will increase competition at Presque Isle Downs commencing in approximately 2013, unless a temporary facility as currently being discussed opens earlier. We intend to be proactive in our efforts to mitigate the effects of such competition, which includes maximizing benefits of table gaming operations at Presque Isle Downs, continuing to provide first-class customer service at all of our facilities and continuing to manage and reduce our costs.

        Pari-mutuel Commissions.    Revenues from pari-mutuel commissions during the three months ended September 30, 2010 decreased by $0.2 million to $1.2 million compared to the three months ended September 30, 2009; and operating expenses decreased by $0.1 million to $1.5 million. During the nine months ended September 30, 2010, revenues from pari-mutuel commissions decreased by $0.3 million to $2.4 million compared to the same period of 2009; and operating expenses decreased by $0.3 million to $3.1 million. Live racing at Presque Isle Downs commenced on May 7, 2010 and ended on September 25, 2010.

        In May 2009, the horsemen granted Presque Isle Downs approval to simulcast its live racing signal to advance deposit wagering sites. Currently, Presque Isle Downs simulcasts its live races to over 650 sites.

        Food and beverage operations.    Revenues from food and beverage operations during the three months ended September 30, 2010 were $3.8 million, which increased by $0.6 million, or 19.6%, compared to the same period in 2009. Operating expenses increased by $0.2 million, primarily due to increases in food and beverage costs and salaries and benefits as a result of the increase in patron traffic and revenues. The gross profit from food and beverage operations was 28.4% for the three-month period in 2010 compared to 21.8% for the same period in 2009. During the nine months ended September 30, 2010, revenues from food and beverage operations were $9.0 million, which increased by $0.9 million, or 11.1%, compared to the same period in 2009. Operating expenses increased by 3.9% to $7.2 million during the first nine months of 2010 as compared to 2009 as a result of increased patron traffic. However, food and beverage costs and salaries and benefits as a percentage of food and beverage revenue decreased. As a result, the gross profit from food and beverage operations increased by 5.6% to 19.4% in 2010 compared to 13.8% in 2009.

Scioto Downs' Operating Results:

        During the three months and nine months ended September 30, 2010, the property's net revenues and operating loss remained consistent compared to the same period during 2009. In order to reduce expenses and operating losses, Scioto Downs and Beulah Park, the other racetrack in Columbus, Ohio, have an agreement, which was approved by the Ohio Racing Commission, whereby Scioto operates its

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simulcasting only during its live race meet (generally May through September); and during the remaining periods, Scioto Downs' simulcasting is closed and Beulah Park operates its simulcasting. Similarly, when Scioto is open for live racing and simulcasting, Beulah Park is closed. Live racing at Scioto Downs commenced on May 7, 2010 and ended on September 11, 2010.

        On July 13, 2009, the Governor of Ohio signed an executive order directing the Ohio Lottery to take action to implement, and the Ohio legislature approved a budget bill which included language to enable video lottery terminals at Ohio's seven commercial horse tracks, including Scioto Downs. However, on September 21, 2009, the Ohio Supreme Court issued an opinion finding that the video lottery provisions of the budget bill were subject to voter referendum. On June 28, 2010, a committee designated by the petitioners for the "Let Ohio Vote" referendum petition, that would have required voter approval for video lottery terminals at Ohio's racetracks, requested that the referendum petition be withdrawn from consideration in the November 2010 general election, or any subsequent election. The elimination of the referendum removes one of the obstacles to the Governor of Ohio's plan to add video lottery terminals at Ohio's seven commercial horse racetracks, including Scioto Downs. On July 19, 2010, the Ohio Lottery Commission voted to (i) establish preliminary new rules governing the operation of video lottery terminals; (ii) withdraw the previous rules; and (iii) pursue a declaratory judgment action from the courts relative to the Lottery Commission's ability to move forward with a plan to put video lottery terminals at the racetracks. On November 2, 2010, voters in Ohio elected a new Governor and a significant number of new members to the legislature. It is unclear, at this time, as to what the new administration's direction will be with respect to moving forward with video lottery terminals at the racetracks.

        On November 3, 2009, the voters of Ohio approved a proposal for a casino to be located in each of Cleveland, Cincinnati, Toledo, and Columbus. A casino in Columbus will increase competition at Scioto Downs commencing in approximately 2013. We intend to be proactive in our efforts to mitigate the effects of such competition, including continuing our efforts to introduce gaming at Scioto Downs as previously proposed, providing first-class customer service at all of our facilities, and continuing to manage and reduce our costs.

Corporate Operating Results:

        During the three months ended September 30, 2010, corporate general and administrative expenses were $3.4 million compared to $5.9 million during the same period of 2009. During the nine-month periods, corporate general and administrative expenses were $9.0 million in 2010 compared to $9.7 million in 2009. Significant factors contributing to the decrease in general and administrative expenses in 2010 were:

    decreases of $3.6 million and $3.5 million in costs associated with strategic costs related to lobbying and gaming efforts in Ohio during the three- and nine-month periods of 2010 as compared to 2009;

    the reversal of deferred compensation costs of $0.3 million during the first quarter of 2009 related to a former executive;

    decreases in legal, accounting, insurance, and legal settlements of $0.2 million and $0.3 million during the three- and nine-month periods of 2010 as compared to 2009; offset by

    increases in compensation and benefits of $0.1 million and $1.2 million during the three- and nine-month periods of 2010, respectively, related to changes in corporate staffing levels and an increase in incentive compensation of $0.3 million and $0.5 million for the same periods;

    increases in severance costs of $1.3 million during both the three- and nine-month periods of 2010, related to the resignations of executives during the third quarter; and

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    increases in consulting and other professional fees of $0.1 million and $0.3 million during the three- and nine-month periods of 2010, respectively.

Depreciation Expense:

        Depreciation expense decreased by $0.5 million and $1.0 million during the three- and nine-month periods of 2010, respectively, compared to 2009, primarily due to decreased depreciation for Mountaineer. Total depreciation expense was $7.2 million during the three months ended September 30, 2010 and $21.6 million during the nine months ended September 30, 2010.

(Gain) Loss on the Sale or Disposal of Property:

        During the nine months ended September 30, 2010, we incurred a net loss on the sale or disposal of various equipment and non-operating real properties in the aggregate of $45,000. Mountaineer and Presque Isle Downs incurred losses of $90,000 and $67,000, respectively, on the disposal of outdated slot machines, and Mountaineer sold maintenance equipment resulting in a gain of $78,000. During the first quarter of 2010, Mountaineer and Presque Isle Downs each sold parcels of non-operating real property resulting in an aggregate gain of $74,000; and in the second quarter of 2010, Mountaineer sold a parcel of non-operating real property which resulted in a loss of $40,000.

        During the nine months ended September 30, 2009, Mountaineer incurred a loss of $137,000 on the sale of a parcel of land holdings not directly associated with the operation of the property.

Interest:

        Interest expense, net of interest income, increased by $1.8 million to $13.7 million during the three months ended September 30, 2010, compared to the same period of 2009. During the nine-month periods, interest expense, net of interest income, increased by $9.4 million to $40.7 million in 2010 compared to 2009. The increase is primarily attributable to:

    incremental interest of $1.5 million and $7.9 million during the three- and nine-month periods of 2010, respectively, incurred on our $260 million 12.625% Senior Secured Notes which proceeds were used in March 2009 to payoff $100.9 million under our former credit facility and our $130 million 9.75% Senior Unsecured Notes;

    increased amortization of deferred financing fees in the amounts of $0.2 million and $1.2 million during the three- and nine-month periods of 2010 compared to 2009; and

    interest related to our Credit Facility of $0.3 million and $0.6 million during the three- and nine-month periods of 2010, including a prepayment fee of $0.1 million during the third quarter of 2010; offset by

    decreased interest of $0.2 million and $0.3 million during the three- and nine-month periods of 2010 as compared to 2009, related primarily to the repayment of promissory notes and capital lease obligations.

Income Taxes:

        Continuing Operations:    The income tax benefit during the nine months ended September 30, 2010 for continuing operations was computed based on an effective income tax rate of approximately 27.9% plus interest expense related to uncertain tax positions in income tax expense. During the same period of 2009, the income tax provision was computed based on an effective income tax rate of approximately 0.62% plus interest expense related to uncertain tax positions in income tax expense. The effective income tax rates for 2010 and 2009 are reflective of permanent non-deductible items for which we are not able to recognize a tax benefit, including a $2.7 million adjustment during the nine months ended September 20, 2009, related primarily to the lobbying efforts in Ohio.

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        Discontinued Operations:    The income tax benefit during the nine months ended September 30, 2010 and 2009 for discontinued operations was computed based on an effective income tax rate of 35.0% and 34.2%, respectively. During the three months ended September 30, 2009, we obtained new information that caused us to reevaluate the recoverability of deferred tax assets aggregating approximately $2.9 million associated with certain impairment losses recorded in 2008. As a result, we determined that it was more likely than not that the deferred tax assets would be realized and a previously established valuation allowance of approximately $2.9 million was reversed.

Discontinued Operations:

        North Metro (d/b/a Running Aces Harness Park) Operating Results:    Our wholly-owned subsidiary MTR-Harness, Inc. previously held a 50% interest in North Metro Harness Initiative, LLC (d/b/a Running Acres Harness Park) that operates a harness racetrack in Minneapolis, Minnesota. The racetrack was constructed with financing provided by Black Diamond Commercial Finance, LLC as agent (collectively "Black Diamond").

        On April 3, 2009, we received notification that Black Diamond, as a result of North Metro's default under the Black Diamond credit agreement, was pursuing legal action seeking (i) enforcement of our payment of the $1 million guarantee of North Metro's indebtedness and certain additional costs, and (ii) foreclosure of our subsidiary's pledged equity interest in North Metro. Pursuant to a settlement agreement with Black Diamond executed on May 27, 2009, we relinquished our interest in North Metro (the value of which we had already determined was impaired and written down to $0 during 2008) and paid $1 million to satisfy our obligations under the guarantee. Concurrently, MTR Gaming Group, Inc. entered into a Signal and Consulting Agreement with North Metro pursuant to which North Metro paid us $250,000 to provide consulting services with respect to its racing operations for a term of three years. On June 3, 2009, Black Diamond terminated the litigation with prejudice and we and Black Diamond executed mutual releases.

        During the three months ended September 30, 2010, we had no income or expenses related to the discontinued operations of North Metro. During the nine months ended September 30, 2010, we incurred pre-tax losses on discontinued operations of approximately $8,000. During the three and nine months ended September 30, 2009, we incurred pre-tax losses on discontinued operations of approximately $56,000 and $1.3 million, respectively. During the nine months ended September 30, 2009, we recorded equity losses in North Metro of approximately $1.0 million. In addition, we recorded an income tax benefit of approximately $2.9 million during the three months ended September 30, 2009, related to the realization of deferred tax assets associated with the impairment losses of $8.7 million that were recorded in 2008.

        Jackson Racing (d/b/a Jackson Harness Raceway):    Jackson Trotting Association, LLC, in which our wholly-owned subsidiary Jackson Racing, Inc. holds a 90% interest, operated Jackson Harness Raceway in Jackson, Michigan, and offered harness racing, simulcast wagering and casual dining. On December 4, 2008, Jackson Trotting ceased the racing and simulcast wagering operations at Jackson Harness Raceway and surrendered its racing license to the Michigan Racing Commission.

        During the three months ended September 30, 2010, we incurred a pre-tax loss on discontinued operations of approximately $2,000. During the nine months ended September 30, 2010, we earned pre-tax income on the discontinued operations, before the 10% non-controlling interest in Jackson Trotting not owned by us, of approximately $10,000.

        During the three months ended September 30, 2009, we earned pre-tax income on the discontinued operations, before the 10% non-controlling interest in Jackson Trotting not owned by us, of approximately $41,000. During the nine months ended September 30, 2009, we incurred pre-tax losses on the discontinued operations, before the 10% non-controlling interest in Jackson Trotting not owned by us, of approximately $0.1 million.

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        Ramada Inn and Speedway Casino:    On June 3, 2008, our wholly-owned subsidiary, Speakeasy Gaming of Las Vegas, Inc., sold the gaming assets of the Ramada Inn and Speedway Casino to Lucky Lucy D, LLC in accordance with the terms of an Asset Purchase and Sale Agreement dated January 11, 2008.

        We earned pre-tax income on the discontinued operations of Speedway of $57,000 during the three and nine months ended September 30, 2010. During the three months ended September 30, 2009, we had no income or expenses related to the discontinued operations of Speedway. During the nine months ended September 30, 2009, we earned pre-tax income on discontinued operations of approximately $44,000.

        Binion's Gambling Hall & Hotel:    On March 7, 2008, we sold 100% of the stock of our wholly-owned subsidiaries, Speakeasy Gaming of Fremont, Inc., which owned and operated Binion's Gambling Hall & Hotel, and Speakeasy Fremont Experience Operating Company in accordance with the terms of a Stock Purchase Agreement dated June 26, 2007 (as subsequently amended), executed between the Company and TLC Casino Enterprises, Inc. ("TLC").

        In connection with our original acquisition of Binion's on March 11, 2004, we provided limited guarantees on certain land leases. The guarantees expired in March 2010. TLC was obligated to use its reasonable best efforts to, among other things, pay the rent underlying the leases we guaranty on a timely basis, and to indemnify us in the event we were required to pay the land lease obligations pursuant to the guarantees. Since July 2009, TLC paid only a portion of total monthly rent with respect to one of the leases we guaranteed. Upon the demand of the landlord that we make monthly payments pursuant to our guarantee, we paid the amounts demanded (approximately $0.7 million in the aggregate through March 31, 2010, including $0.2 million during the three months ended March 31, 2010), thus curing the events of default that existed.

        Also in connection with our original acquisition of Binion's, we obtained title to the property and equipment subject to an increase in purchase price by $5.0 million if, at the termination of a Joint Operating License Agreement with HHLV Management Company, LLC, an affiliate of Harrah's Entertainment, Inc., certain operational milestones were achieved. Harrah's claimed it had met the milestones, however we disputed such claim. During the first quarter of 2009, the parties agreed in principle to settle the accounts due between the parties resulting in an adjustment to previously recorded amounts and a charge to discontinued operations of approximately $0.4 million. On June 11, 2009, we settled this dispute by finalizing the previous agreement in principle and paid HHLV Management Company approximately $0.7 million, which represented $1.75 million of purchase price adjustment less approximately $1.1 million for other amounts HHLV Management Company owed us. This settlement resulted in an adjustment to previously recorded amounts and a charge to discontinued operations of approximately $0.4 million.

        During the three and nine months ended September 30, 2010, we incurred pre-tax losses on discontinued operations of approximately $19,000 and $252,000, respectively. During the three and nine months ended September 30, 2009, we incurred pre-tax losses on discontinued operations of approximately $277,000 and $937,000, respectively.

Cash Flows

        Net cash provided by operating activities approximated $27.0 million during the nine months ended September 30, 2010, compared to $34.7 million during the same period of 2009. Current period non-cash expenses included $26.5 million of depreciation and amortization. In 2009, operating activities included depreciation and amortization of $25.8 million and $2.8 million in write-offs of deferred financing and other fees resulting from the modification and extinguishment of long-term debt. Included in cash flows from operating activities for 2010 was $18,000 used in discontinued operations compared to $0.3 million used in discontinued operations for 2009.

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        Net cash used in investing activities was $21.7 million during the nine months ended September 30, 2010, comprised primarily of the Pennsylvania table games license fee of $16.5 million, capital expenditures of $13.6 million offset by the reimbursement of capital expenditures from the West Virginia Racing Commission of $4.6 million and proceeds from the sale of property of $1.6 million. During the nine-month period of 2009, net cash used in investing activities was $9.9 million, comprised primarily of capital expenditures of $10.7 million.Net cash used in financing activities was $8.7 million during the nine months ended September 30, 2010, compared to $17.9 million used in financing activities during the nine-month period of 2009. Financing activities for 2010 included proceeds of $10.0 million from the credit agreement entered into on March 18, 2010, which was subsequently repaid on September 24, 2010, and proceeds of $0.7 million from equipment financing, offset by payment of financing-related costs of $2.1 million. Principal payments on long-term obligations aggregated $7.3 million during the nine months ended September 30, 2010. Financing activities for 2009 included net proceeds of $238.1 million from the issuance of our $250 million Senior Secured Notes, together with cash on hand, were utilized to repurchase our Senior Unsecured Notes for $130.1 million, repay amounts outstanding of $100.2 million under our senior secured revolving credit facility and pay various financing costs aggregating $13.4 million. Other principal payments on long-term obligations aggregated $11.7 million in 2009.

Inflation

        We do not believe that inflation has had a significant impact on our revenues, results of operations or cash flows.

Liquidity and Sources of Capital

        We had working capital of $26.8 million as of September 30, 2010, and our unrestricted cash balance amounted to $41.4 million. At September 30, 2010, the balances in bank accounts owned by Mountaineer's horsemen, but to which we contribute funds for racing purses, exceeded our purse payment obligations by $1.8 million. This amount is available for payment of future purse obligations at our discretion and in accordance with the terms of its agreement with the Horsemen's Benevolent & Protective Association (the "HBPA").

        On March 18, 2010, the Company and Mountaineer Park, Inc., Presque Isle Downs, Inc. and Scioto Downs, Inc. (each a wholly-owned subsidiary of the Company) and Aladdin Credit Advisors, L.P., as administrative agent, entered into a Credit Agreement (the "Credit Agreement") which provides for a $20.0 million senior secured delayed-draw term loan credit facility (the "Credit Facility"), $10.0 million of which was drawn by the Company and subsequently repaid in September 2010. The Credit Agreement and related Credit Facility replaces our former Amended and Restated Credit Facility, which was undrawn, except for letters of credit aggregating $0.4 million, and would have matured on March 31, 2010. In connection with the termination of our former Amended and Restated Credit Facility, the outstanding letters of credit remained outstanding but were cash collateralized.

        The Credit Facility matures on the third year anniversary of the closing date. The purpose of the Credit Facility is to finance (i) ongoing working capital and general corporate needs of the Company and its subsidiaries and (ii) capital expenditures, including the development of the Presque Isle Downs property for table gaming operations in Erie, Pennsylvania. Security for the Credit Facility includes substantially all of the real, personal and mixed property owned by the Company and its subsidiaries that are party to the Credit Agreement, including the capital stock of Mountaineer Park, Inc. and Scioto Downs, Inc., other than assets that may not be pledged pursuant to applicable gaming laws. Borrowings under the Credit Facility bear interest at a rate equal to LIBOR plus 7.00% per annum (with a LIBOR floor of 2.50% per annum) or based on the prime rate plus 6.00% per annum (with a prime rate floor of 3.50% per annum). The Credit Agreement contains customary covenants limiting, among other things, our ability and the ability of our subsidiaries (other than our unrestricted

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subsidiaries as defined) to pay dividends, redeem stock or make other distributions or restricted payments; incur additional indebtedness or issue preferred shares; make certain investments; create liens; consolidate or merge; sell or otherwise transfer or dispose of assets; enter into sale-leaseback transactions; enter into transactions with affiliates of the Company; use the proceeds of permitted sales of our assets; and change our line of business. These covenants are subject to a number of exceptions and qualifications as set forth in the Credit Agreement. We are also required to maintain a maximum leverage ratio ranging from 7.00:1.00 to 4.50:1.00 per quarter, a minimum interest coverage ratio ranging from 1.10:1.00 to 1.50:1.00 per quarter and a minimum consolidated EBITDA covenant ranging from $54.0 million to $65.0 million per annum. In addition, we are restricted from making capital expenditures in excess of (i) $32.0 million in 2010; (ii) $23.0 million in 2011 and 2012; and (iii) $5.6 million in the first quarter of 2013, plus 50% of the amount not previously expended in the immediately prior year. Measurement of compliance with the covenants commenced with the quarter ended June 30, 2010 and the Company remains in compliance as of September 30, 2010.

        A payment default or an acceleration of indebtedness in excess of $10 million, including as a result of an event of default under the Credit Facility, may give rise to an event of default under the indentures governing the Senior Secured Notes and the Senior Subordinated Notes which would entitle the holders of the notes to exercise the remedies provided in the indentures, subject to the restrictions set forth in the inter-creditor agreement between the Company, note holders and lenders participating in the Credit Facility.

        Obligations under the Credit Facility are guaranteed by each of our operating subsidiaries. Borrowings under the Credit Facility and the subsidiary guarantees are secured by substantially all of our assets and the assets of the subsidiary guarantors. Future subsidiaries will be required to enter into similar pledge agreements and guarantees.

        On September 24, 2010, we repaid the total amount of the $10.0 million outstanding under the Credit Agreement. In connection with the repayment, we executed Amendment No. 1 to the Credit Agreement (the "Amendment") to permit the re-borrowing of the $10.0 million that was repaid. In conjunction with the repayment and Amendment, we were required to pay a $100,000 prepayment fee and a $300,000 amendment fee. The cost of the amendment fee is included in deferred financing costs in the consolidated balance sheet at September 30, 2010, less amortization.

        The Amendment also provides that future borrowings must be made in minimum amounts of $5.0 million with integral multiples of $1.0 million in excess of that amount, and that prepayment premiums will be increased from 1% to 3% of the prepaid principal amount if prepayment occurs before the first anniversary of the Amendment. The Amendment did not change the maturity date of March 18, 2013.

        Currently, our additional borrowing capacity under the Credit Facility, as amended, is limited to a total of $20 million, and the Credit Facility matures on March 18, 2013. The term loan commitment under the Credit Agreement was eliminated in the Amendment. Mandatory commitment or prepayment reductions shall result from net asset sale proceeds (as defined) and insurance/condemnation proceeds to the extent either such proceeds amounts are not reinvested in the business; proceeds from the issuance of equity securities other than capital stock issued pursuant to employee stock or stock option compensation plans or proceeds which shall be utilized in connection with the construction of a future gaming facility at Scioto Downs; issuance of debt other than permitted indebtedness; and 50% of consolidated excess cash flow (as defined) provided that such prepayment would not cause the aggregate amount of our cash and cash equivalents to be less than $25.0 million. Permitted indebtedness under the Credit Agreement includes furniture and equipment financing provided that the aggregate principal amounts of such indebtedness outstanding at any time shall not exceed $15.0 million; other unsecured indebtedness at any time not to exceed $5.0 million; and other indebtedness to finance the acquisition, development or construction of any future gaming property

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provided that (i) such indebtedness shall be unsecured and subordinated to the Credit Facility, (ii) no part of the principal or interest of such indebtedness is required to be paid prior to six months after the maturity date of the Credit Facility and (iii) upon the incurrence of such indebtedness and after giving pro forma effect thereto there shall be no default or event of default and that we shall be in pro forma compliance with the financial covenants.

        Our $260 million 12.625% Senior Secured Notes, issued during 2009, will mature on July 15, 2014, with interest payable semi-annually on January 15 and July 15 of each year. On or after July 15, 2011, we may redeem some or all of the Senior Secured Notes at any time at redemption prices that will decrease from 106.313% for redemptions after July 15, 2011 to 103.156% after July 15, 2012 to 100% after July 15, 2013. In addition, if we experience certain change of control events (as defined in the indenture governing the Senior Secured Notes), we must offer to repurchase the notes at 101% of their principal amount, plus accrued and unpaid interest. The Senior Secured Notes (and our Senior Subordinated Notes) are jointly and severally, fully and unconditionally guaranteed by each of our present subsidiaries consisting of Mountaineer Park, Inc., Presque Isle Downs, Inc. and Scioto Downs, Inc., as well as future subsidiaries, other than our immaterial subsidiaries, our unrestricted subsidiaries (as defined in the indenture governing the Senior Secured Notes) and Speakeasy Gaming of Las Vegas, Inc., MTR-Harness, Inc. and Jackson Racing, Inc. The Senior Secured Notes and the subsidiary guarantees are secured on a second priority basis (subject to permitted prior liens including borrowings under the Credit Facility discussed above) by a security interest in substantially all of the assets (other than excluded assets, including capital stock of our subsidiaries, cash and deposit accounts, certain real property, gaming licenses and certain gaming equipment that cannot be pledged pursuant to applicable law) of the Company and the guarantors. The originally issued Senior Secured Notes were exchanged for equivalent registered securities on March 18, 2010.

        The indentures governing the Senior Secured Notes and Senior Subordinated Notes permit equipment financing for existing gaming facilities outstanding at any one time of up to the greater of $20 million or 4.5% of consolidated tangible assets (as defined) of the Company. The indentures also permit (i) financing under credit agreements of up to $20 million and (ii) equipment financing for gaming equipment to be installed in future gaming facilities or for additional gaming operations as a result of the approval of additional permitted gaming activities by applicable gaming authorities. However, additional borrowings, including amounts permitted under the indentures, are limited by the terms of the Credit Agreement. In order to borrow amounts in excess of the amended permitted debt basket under the indentures governing the Senior Secured Notes and Senior Subordinated Notes (subject to limitations under our Credit Facility), we must either satisfy the debt incurrence tests provided by the indentures or obtain the prior consents of the holders of at least a majority in aggregate principal amount of those notes that are not owned by the Company or any of its affiliates. While the indentures for the Senior Secured Notes and the Senior Subordinated Notes, as amended, will allow us to incur indebtedness to fund development of future gaming operations, like slot gaming at Scioto Downs, the indentures governing those notes require us to obtain equity financing in the amount of 40% and 50%, respectively, of the total financed costs in excess of the permitted indebtedness.

        At September 30, 2010, there were no borrowings outstanding under the Credit Facility. Cash collateralized letters of credit for approximately $0.4 million remain outstanding. At December 31, 2009, there were no borrowings outstanding under our former Amended and Restated Credit Facility, except for letters of credit for approximately $0.6 million.

        During the nine months ended September 30, 2010, we purchased 50 slot machines at an aggregate $0.7 million utilizing two-year vendor repayment terms with no interest.

        At September 30, 2010, we had total debt in aggregate principal amount of $377.8 million (exclusive of discounts), $252.8 million in aggregate principal amount which is secured. Our substantial

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debt could have significant effects on our business. See "Part I, Item 1A. Risk Factors—Risks Related to Our Capital Structure" which is included in our Annual Report on Form 10-K for the year ended December 31, 2009.

        Commencing in the second quarter of 2008 and until the Senior Subordinated Notes are no longer outstanding, we are required to pay consent fees of $5.00 per $1,000 of principal to the holders of our Senior Subordinated Notes if we do not satisfy certain quarterly financial ratios. We have not met these ratios and therefore recorded additional expense of $625,000 and $1,875,000 for the three and nine months ended September 30, 2010. We also anticipate that we will have to pay these fees for the remaining portion of 2010 depending upon the level of our outstanding debt.

        During 2010, Mountaineer completed the sale of certain non-operating real property holdings including 194 acres of land for $166,000, after closing costs, which resulted in a loss of approximately $40,000.

        In August 2010, Mountaineer sold maintenance equipment for approximately $146,000 which resulted in a gain on sale of approximately $78,000.

        In January 2010, Presque Isle Downs sold three acres of non-operating real property land holdings associated with the 14.3 acre, off-track wagering facility which was purchased in July 2007. The net proceeds on the sale were approximately $1.2 million, after closing costs, which resulted in a gain on the sale in the amount of $76,000.

        In June 2010, we received federal income tax refunds of approximately $8.9 million resulting from the carryback of 2009 net operating losses to prior periods.

        The following contractual cash obligations have been updated from those which were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009 (see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Sources of Capital" which is included in our Annual Report on Form 10-K for the year ended December 31, 2009).

 
  Total   Less than 1 year   1-3 years   3-5 years   More than 5 years  
 
  (in millions)
 

Contractual cash obligations:

                               

Long-term debt(1)

  $ 387.2   $ 1.3   $ 125.9   $ 260.0   $  

Employment agreements(2)

    4.0     3.0     1.0          
                       

Total

  $ 391.2   $ 4.3   $ 126.9   $ 260.0   $  
                       

(1)
These amounts, exclusive of the interest component, are included on our consolidated balance sheets. See Note 7 to our consolidated financial statements in our Annual Report of Form 10-K for the year ended December 31, 2009 for additional information about our debt and related matters.

(2)
Includes base salaries and guaranteed payments but not incentive amounts that cannot be calculated.

Capital Expenditures:

        During the nine months ended September 30, 2010, additions to property and equipment and other capital projects for continuing operations aggregated $13.6 million. Expenditures included approximately $3.4 million related to environmental control facilities, specifically Concentrated Animal Feeding Operations ("CAFO"), $0.7 million related to new slot machines at Mountaineer, $7.6 million

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and $1.0 million related to the table gaming expansion and new slot machines, respectively, at Presque Isle Downs, and $0.8 in other equipment and renovations.

        We anticipate spending up to a total of approximately $9.0 million during 2010 on capital expenditures, exclusive of amounts related to table gaming expansion in Pennsylvania. Capital expenditures for 2010 will include approximately $3.8 million for CAFO associated with our horseracing facilities in West Virginia. It is anticipated that these expenditures will be reimbursed from funds provided by the West Virginia Racing Commission. Through September 30, 2010, we have been reimbursed approximately $3.4 million of our 2010 CAFO expenditures. Such reimbursement has been accounted for as a reduction of the cost of CAFO expenditures. In addition, we also received approximately $1.2 million from the West Virginia Racing Commission for reimbursement of capital expenditures that were incurred in prior years. These amounts have also been reflected as a reduction of the applicable acquisition costs which resulted in corresponding adjustments to depreciation expense. Such adjustments did not have a material impact on our consolidated financial statements. Future reimbursements from the West Virginia Racing Commission are subject to the availability of racing funds.

        Expenditures for the table games expansion at Presque Isle Downs will total approximately $23 million (which is net of a $3.5 million deposit returned to the Company by the Commonwealth of Pennsylvania) including capital expenditures of approximately $8 million, a licensing fee of $16.5 million and other costs including project-opening costs. Through September 30, 2010, expenditures included $7.6 million related to construction and equipment, $16.5 million for the licensing fee and $1.4 million in project-opening costs.

Commitments and Contingencies:

        On July 13, 2009, the Governor of Ohio signed an executive order directing the Ohio Lottery to take action to implement, and the Ohio legislature approved a budget bill which included language to enable video lottery terminals at Ohio's seven commercial horse racetracks, including Scioto Downs. However, on September 21, 2009, the Ohio Supreme Court issued an opinion finding that the video lottery provisions of the budget bill were subject to voter referendum. On June 28, 2010, a committee designated by the petitioners for the "Let Ohio Vote" referendum petition, that would have required voter approval for video lottery terminals at Ohio's racetracks, requested that the referendum petition be withdrawn from consideration in the November 2010 general election, or any subsequent election. The elimination of the referendum removes one of the obstacles to the Governor of Ohio's plan to add video lottery terminals at Ohio's seven commercial horse racetracks, including Scioto Downs. On July 19, 2010, the Ohio Lottery Commission voted to (i) establish preliminary new rules governing the operation of video lottery terminals; (ii) withdraw the previous rules; and (iii) pursue a declaratory judgment action from the courts relative to the Lottery Commission's ability to move forward with a plan to put video lottery terminals at the racetracks. On November 2, 2010, voters in Ohio elected a new Governor and a significant number of new members to the legislature. It is unclear, at this time, as to what the new administration's direction will be with respect to moving forward with video lottery terminals at the racetracks.

        The 2009 Ohio legislation enabling video lottery was also subject to a lawsuit filed on September 3, 2009 asserting that expanded gaming activities at racetracks violates the Ohio constitution and requires voter approval. The lawsuit alleges that slot machines are not lottery games that were approved by Ohio voters in authorizing the lottery and that the allocation of profits between the state of Ohio and racetracks violates Ohio constitutional provisions earmarking lottery proceeds for education. The Ohio legislation enabling video lottery was also subject to a lawsuit filed on September 14, 2009 asserting, in addition to the assertions in the prior lawsuit, that the legislation is unconstitutional, because, among other things, it violates the Ohio constitution's requirements that no bill shall contain more than one subject, that every bill shall be considered by each House on three different days, that the state's credit

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not be used in aid of any individual, association or corporation, and that all proceeds generated by the lottery be used to support education in the state. These lawsuits were dismissed in October 2009. Each of these lawsuits may be refiled.

        On November 3, 2009, the voters of Ohio approved a proposal for a casino to be located in each of Cleveland, Cincinnati, Toledo, and Columbus. A casino in Cleveland will increase competition at both Mountaineer Casino and Presque Isle Downs commencing in approximately 2013 unless a temporary facility as currently being discussed opens earlier. A casino in Columbus will increase competition at Scioto Downs. We intend to be proactive in our efforts to mitigate the effects of such competition, including continuing our efforts to introduce gaming at Scioto Downs as previously proposed, maximizing benefits of table gaming operations at Presque Isle Downs, continuing to provide first-class customer service at all of our facilities, and continuing to manage and reduce our costs.

        Even if gaming is permitted at Scioto Downs following the resolution of any litigation and the Governor of Ohio's ability to move forward with the plan, the passage of the referendum permitting casino gaming in Ohio may materially adversely affect our ability to obtain financing to pay the license fees and otherwise make necessary investments at Scioto Downs to permit gaming and comply with the conditions to licensing. Additionally, tax rates on the revenue from such casinos could be substantially lower than the tax rates that may be imposed by the Governor of Ohio on video lottery at the racetracks, resulting in a competitive advantage for the casinos. Such new competition may have a material adverse effect on our business, financial condition and results of operations. See "Part I, Item 1A, Risk Factors—Risks Related to Our Business—We face significant competition from other gaming and racing facilities, and increased competition could have a material adverse effect on us; recent passage of a referendum authorizing four casinos in Ohio will create significant new competition" which is included in our Annual Report filed on Form 10-K for the year ended December 31, 2009. We intend to lobby for lower licensing fees and taxes in light of the anticipated competition from casinos authorized by the November 3, 2009 referendum, but we cannot assure you that we will be successful. We believe that approval of slot gaming or video lottery at Ohio racetracks will positively impact our business prospects and financial condition because we expect that slot gaming or video lottery at Scioto Downs will, if approved, increase our revenues and operating margins at that property. If slot gaming and video lottery are permitted at Ohio racetracks, we expect to expand and construct a slot machine casino at Scioto Downs and purchase or lease the necessary video lottery terminals, which will require additional debt and equity financing that may not be available or on terms that are acceptable to us. See "Part I, Item 1A, Risk Factors—Risks Related to Our Capital Structure—The indenture governing the Senior Secured and Senior Subordinated Notes and our other debt agreements contain covenants that significantly restrict our operations" and "—Risks Related to Our Business—The future of slot gaming and video lottery at Scioto Downs is uncertain" both of which are included in our Annual Report filed on Form 10-K for the year ended December 31, 2009.

        In addition, the conditions applicable to slot gaming at Ohio racetracks are expected to require, if approved, the payment of a license fee, an investment in the gaming facilities including the purchase or lease of the video lottery terminals and a requirement that the State of Ohio retain a yet undetermined portion of the revenues from video lottery terminals. The previous regulations, until withdrawn by the Ohio Lottery Commission on July 19, 2010, would have required the payment of a $65.0 million license fee, an investment of $80.0 million in the gaming facilities over a five year period and that the State of Ohio retain 50% of the revenues from video lottery terminals. We may also be required to share a portion of our revenues with horse owners and trainers at Scioto Downs. Until such time as new regulations are proposed and acted upon, it is unclear as to the impact of such new conditions on gaming operations at the racetracks. Accordingly, even if slot gaming is approved at Scioto Downs, we cannot assure you that the revenues generated from slot gaming at Scioto Downs will yield an adequate return on our investment or that we will be able to operate slot gaming at Scioto Downs profitably because of the significant investment required and the retention of revenues by the State of Ohio.

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Finally, we will require additional financing to, among other things, pay required license fees and fund the expansion and improvement of the Scioto Downs facilities to comply with licensing requirements and accommodate casino gaming.

        We have agreed in principle to contract terms to engage a commercial real estate broker, and correspondingly reviewed our non-operating real property land holdings to determine which properties should be considered for sale. Properties that are to be disposed of or considered held for sale were reviewed to determine if impairment in value was indicated based upon fair value estimates as determined by independent appraisal. Impairment is measured based on a comparison of the carrying value of the property to its fair value less costs of disposal. As discussed in Note 4 to our consolidated financial statements included in our Annual Report filed on Form 10-K for the year ended December 31, 2009, an impairment loss was recorded at December 31, 2009.

        In connection with our original acquisition of Binion's on March 11, 2004, we provided limited guarantees, on certain land leases. The guarantees expired in March 2010. Since July 2009, TLC Casino Enterprises, Inc. ("TLC"), who acquired Binion's from us on March 7, 2008, paid only a portion of total monthly rent with respect to one of the leases we guaranteed. Upon the demand of the landlord that we make monthly payments pursuant to our guarantee, we paid the amounts demanded (approximately $705,000 in the aggregate through March 2010), thus curing the events of default that existed. We have demanded reimbursement from TLC, and on August 5, 2009 commenced legal action for indemnification pursuant to the Stock Purchase Agreement. On October 27, 2009, we reached a settlement with TLC whereby TLC agreed to confess judgment as to amounts we paid and amounts that may be paid by us through the expiration of the guarantees, certain legal fees and interest at the rate of 10% on amounts actually paid by us with respect to the rental payments. We agreed to forbear from enforcing the judgment for two years, provided however that the forbearance will terminate under certain conditions, including if TLC fails to timely make any of the agreed payments or there is a change in control of TLC. During the forbearance period, TLC is also obligated to make payments in partial satisfaction of the judgment in the event TLC raises any capital through debt or equity. Through September 30, 2010, TLC has reimbursed us $25,000 for legal fees that we had incurred in connection with our collection efforts.

        Upon commencement of slot operations at Presque Isle Downs, Presque Isle Downs was required to make deposits in the aggregate amount of $5.0 million to establish accounts with the Commonwealth of Pennsylvania. In January 2010, in conjunction with the table games legislation, the Commonwealth of Pennsylvania returned $3.5 million of the deposit to us. Additionally upon commencement of slot operations, the Pennsylvania Gaming Control Board (the "PGCB") advised Presque Isle Downs that it would receive a one-time assessment of $0.8 million required of each slot machine licensee after commencement of gaming operations. The assessment was paid and represented a prepayment toward the total borrowings of the PGCB, Pennsylvania Department of Revenue and the Pennsylvania State Police (collectively "the borrowers"), required to fund the costs incurred as a result of gaming operations. Once all of Pennsylvania's fourteen slot machine licensees are operational, the Pennsylvania Department of Revenue would then assess all licensees, including Presque Isle Downs, their proportionate share of the total borrowings incurred by the borrowers, as a result of gaming operations. Based upon correspondence we received from the Pennsylvania Department of Revenue and discussions with the PGCB that additional assessments would be likely, the total prepayment by Presque Isle Downs of $0.8 million was recognized as a gaming assessment and charged to expense during the third quarter of 2010.

        In October 2004, we acquired 229 acres of real property, known as the International Paper site, as an alternative site to build Presque Isle Downs. In October 2005, we sold all but approximately 24 acres of this site for $4.0 million to the Greater Erie Industrial Development Corporation, a private, not-for-profit entity that is managed by the municipality (the "GEIDC"). Although the sales agreement was subject to, among other things, our affirmative release (by International Paper Company and the

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Pennsylvania Department of Environmental Protection (the "PaDEP") from our obligations under the consent order (as discussed below), we waived this closing condition.

        In connection with our acquisition of the International Paper site, we entered into a consent order and decree (the "Consent Order") with the PaDEP and International Paper insulating the company from liability for certain pre-existing contamination, subject to compliance with the Consent Order, which included a proposed environmental remediation plan for the site, which was tied specifically to the use of the property as a racetrack. The proposed environmental remediation plan in the Consent Order was based upon a "baseline environmental report" and management estimated that such remediation would be subsumed within the cost of developing the property as a racetrack. The racetrack was never developed. The GEIDC assumed primary responsibility for the remediation obligations under the Consent Order relating to the property they acquired (approximately 205 acres). The GEIDC has agreed to indemnify us for the breach of its obligations under the Consent Order. However, we have been advised by the PaDEP that we have not been released from liability and responsibility under the Consent Order. The GEIDC has begun the necessary remediation activities. A revised estimate of the remaining remediation costs cannot be determined at this time. We also purchased an Environmental Risk Insurance Policy in the amount of $10 million expiring in 2014 with respect to the property.

        The GEIDC has claimed that Presque Isle Downs is obligated to supply approximately 50,500 cubic yards of "clean fill dirt" for the parcel of land of the International Paper site that was previously sold to the GEIDC. Presque Isle Downs has taken the position that it has no such obligation because (i) any such requirement contained in the sales agreement was merged into the deed delivered at the time of the sale; and (ii) the GEIDC had expressly waived this requirement.

        We are faced with certain contingencies involving litigation and environmental remediation and compliance. These commitments and contingencies are discussed in greater detail in "Part I, Item 3. Legal Proceedings" and Note 8 to our consolidated financial statements, both of which are included in our Annual Report on Form 10-K for the year ended December 31, 2009. In addition, new competition may have a material adverse effect on our revenues, and could have a similar adverse effect on our liquidity. See "Part I, Item 1A. Risk Factors—Risks Related to Our Business" which is included in our Annual Report on Form 10-K for the year ended December 31, 2009.

        Our level of indebtedness and our working capital present other risks to investors, including the possibility that we may be unable to generate cash sufficient to pay the principal of and interest on our indebtedness when due; and that we may not be able to meet tests and covenants of such debt agreements and achieve satisfactory resolution of such non-compliance with the lenders. In such an event, the holders of our indebtedness may be able to declare all indebtedness owing to them to be due and payable immediately, and proceed against any collateral securing such indebtedness. These actions could limit our ability to borrow additional funds and would likely have a material adverse effect on our business and results of operations. Debt rating downgrades do not impact the terms of borrowings under our Credit Agreement, the Senior Secured Notes or the Senior Subordinated Notes. However, a debt rating downgrade could impact the terms of and our ability to refinance existing debt or to obtain new financing, particularly in light of the downturn in the national and worldwide economies and the current state of the credit markets. Additionally, changes in the regulatory environment or restriction on or prohibition of our gaming or racing operations, whether arising out of legislation or litigation, could have a material adverse effect on our liquidity. See "Part I, Item 1A. Risk Factors—Risks Related to Our Business" which is in our Annual Report on Form 10-K for the year ended December 31, 2009.

        We believe that our cash balances on hand, cash flow from operations, extended payment terms from gaming equipment vendors, availability under permitted equipment financing and availability under the Credit Facility, and any proceeds from the sale of non-core assets will be sufficient to fund

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our liquidity needs, including any capital required to fund maturing debt obligations, any other contemplated capital expenditures and short-term funding requirements for the next twelve months, with the exception of amounts required for the licensing and construction of a video lottery facility at Scioto Downs if permitted by law. We cannot assure you that estimates of our liquidity needs are accurate or that new business developments or other unforeseen events will not occur, resulting in the need to raise additional funds and increased difficulties with respect to our ability to raise such funds. See "Part I, Item 1A. Risk Factors—Risks Related to Our Business and—Risks Related to Our Capital Structure," both of which are included in our Annual Report on Form 10-K for the year ended December 31, 2009.

        We will require additional financing to pay required license fees and fund the expansion and improvement of the Scioto Downs facilities to comply with licensing requirements and accommodate video lottery gaming if it is ultimately successful. The indenture governing our Senior Secured Notes, the indenture governing our Senior Subordinated Notes and our Credit Agreement limit our ability to incur additional indebtedness and pay the required license fees. As such, we would be required to seek the consent of the lenders under our Credit Agreement, to incur the indebtedness necessary to fund our cash needs in connection with commencing slot gaming at Scioto Downs and to sell equity securities without repaying amounts outstanding under the Credit Facility. We cannot assure you that such lenders would grant the necessary consents. While the indentures for the Senior Secured Notes and the Senior Subordinated Notes, as amended, will allow us to incur indebtedness to fund development of future gaming operations, like slot gaming at Scioto Downs, the indentures governing those notes require us to obtain equity financing in the amount of 40% and 50%, respectively, of the total financed costs in excess of the permitted indebtedness. We cannot assure you that the necessary debt or equity financing will be available or on terms that are acceptable to us.

        If we are unable to generate sufficient cash flow in the future, we may be unable to fund our operations or satisfy our debt obligations. Further, if we are unable to raise additional capital, we may be unable to make timely payments toward license fees and other required expenditures if video gaming at Ohio racetracks is permitted, which could have a material adverse effect on our liquidity position, business, financial condition and results of operations.

        On August 5, 2010, our stockholders approved an amendment to the Company's Restated Certificate of Incorporation to increase the total number of shares of common stock which the Company will have authority to issue from 50,000,000 shares to 100,000,000 shares, par value $0.00001 per share. On August 5, 2010, the stockholders did not approve the proposal to amend the Company's Restated Certificate of Incorporation to authorize the issuance of 10,000,000 shares of preferred stock. Accordingly, the amendment which is included as Appendix A to our Proxy Statement filed with the Securities and Exchange Commission on June 25, 2010, was revised prior to filing with the Delaware Secretary of State.

Employment Agreements:

        On March 30, 2010, we entered into an amended and restated employment agreement with Robert F. Griffin, the Company's former President and Chief Executive Officer, for a term of three years. The agreement provided for an annual base salary of $577,500 and annual performance-based incentive compensation as determined by the Compensation Committee based on mutually agreed upon performance goals with a target amount of not less than 50% of Mr. Griffin's annual base compensation and a maximum annual amount of not less than 120% of Mr. Griffin's annual base compensation. The agreement also provided for the grant, in the first year, of 200,000 restricted stock units ("RSUs") and a cash retention award payable in the aggregate amount of $150,000. The agreement also included provisions for compensation in the event of termination for circumstances as defined in the agreement. On September 28, 2010, Mr. Griffin tendered his resignation as the Company's President and Chief Executive Officer and as a member of the Board of Directors of the

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Company. Based on the provisions in the employment agreement with Mr. Griffin, he is entitled to unpaid compensation of $0.1 million and bonus compensation of approximately $0.3 million.

        On September 29, 2010, David R. Hughes tendered his resignation as Corporate Executive Vice President and Chief Financial Officer of the Company and, pursuant to the terms of his employment agreement, terminated his employment for good reason based on the resignation of Robert F. Griffin as Chief Executive Officer. The Company had previously entered into an amended and restated employment agreement with Mr. Hughes as the Company's Corporate Executive Vice President and Chief Financial Officer on September 25, 2009. Based on the provisions in the employment agreement with Mr. Hughes, he is entitled to severance and bonus compensation of $1.3 million, of which $0.6 million will be paid in monthly installments over one year.

        As a result of the resignations of Messrs. Griffin and Hughes, their nonvested RSUs of 200,000 and 100,000, respectively, were forfeited.

        On November 5, 2010, we entered into an employment agreement with John W. Bittner, Jr. as the Company's Chief Financial Officer, effective November 8, 2010, for a term of two years, with automatic one-year extensions unless notice of non-renewal is timely furnished prior to the next applicable extension period. The agreement provides for an annual base salary of $350,000 (as adjusted from time to time with the approval of the Company's Compensation Committee) and participation in the Company's annual incentive plan as may be in effect from time to time, with a target bonus opportunity of 40% of his base salary (or such other amount as may be determined by the Company's Compensation Committee). Mr. Bittner is also entitled to participate in the Company's Long Term Incentive Program as may be in effect from time to time and is eligible to participate in the Company's employee benefit plans. The agreement provides that the Company will maintain, at the Company's cost, a term life insurance policy with a face value equal to Mr. Bittner's base salary.

        In the event of termination of the employment agreement by either party for any reason, Mr. Bittner will receive (i) earned but unpaid base salary and accrued and unused vacation pay, (ii) reimbursement for reasonable business expenses then outstanding, (iii) any bonus earned and approved to be paid with respect to completed fiscal periods that precede the date of termination but have not yet been paid, and (iv) all payments, rights and benefits due as of the date of termination under the terms of the Company's employee and fringe benefit plans and programs in which Mr. Bittner participated (the benefits in the foregoing clauses (i) - (iv), the "Accrued Rights").

        In the event of termination of the employment agreement by the Company without "cause" (as defined in the Employment Agreement) or by Mr. Bittner with "good reason" (as defined in the Employment Agreement), (a) Mr. Bittner will receive, in addition to the Accrued Rights, (i) continued payment of his base salary for twelve (12) months following the date of termination (the "Severance Period"), (ii) a bonus amount, which shall be paid in a lump sum within thirty (30) days of approval by the Compensation Committee, based on the achievement of the applicable performance criteria for the year in which termination occurred, adjusted on a pro rata basis to the number of days Mr. Bittner was employed in such year, provided he was employed for at least six (6) months during such year and (iii) continued medical coverage under the Company's group health plan for the Severance Period (the benefits in the foregoing clauses (i) - (iii), the "Severance Payments") and (b) all of Mr. Bittner's then-outstanding and otherwise unvested restricted stock units shall immediately vest upon such termination and be paid out in accordance with the terms of thereof. The Severance Payments and such accelerated vesting of the restricted stock units are subject to Mr. Bittner's execution of a general release of claims against the Company.

        In the event of a termination of the Employment Agreement by the Company for "cause" or by Mr. Bittner without "good reason", or in the event of termination of the Employment Agreement by reason of death or disability, Mr. Bittner will receive the Accrued Rights but will not be entitled to the

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Severance Benefits. In addition, in the event of his death, Mr. Bittner's estate or beneficiaries will be entitled to receive the proceeds of the life insurance policy specified above.

        In the event that Mr. Bittner's employment terminates upon expiration of the Employment Agreement (including any renewal thereof) by reason of the Company's provision of a non-renewal notice, then Executive will receive the Accrued Rights and the Severance Payments.

        If a "change in control" (as defined in the Employment Agreement) occurs during the term of the Employment Agreement and, prior to the first anniversary of the date of consummation of such change in control, Mr. Bittner's employment is terminated by the Company without "cause" or by Mr. Bittner with "good reason", then Mr. Bittner will receive the Accrued Rights and the Severance Payments, provided that the Severance Period shall be deemed to be eighteen (18) months.

        Mr. Bittner has agreed to certain restrictive covenants (including and noncompetition and nonsolicitation) for specified periods following his termination of employment, depending upon the circumstances surrounding the termination of employment.

        In connection with the appointment of Mr. Bittner to the position of Chief Financial Officer of the Company, Mr. Bittner's prior employment agreement with the Company relating to his service as Executive Vice President of Finance and Accounting was superseded by the terms of the new employment agreement. No termination payments or other penalties were incurred by the Company in connection with the entry into the new employment agreement.

        On June 9, 2010, we approved an amendment to the employment agreement of Robert Norton, the Chief Operating Officer of the Company. Pursuant to the amendment, Mr. Norton will receive a severance payment equal to 24 times his monthly base salary in the event of a termination of the employment of Mr. Norton by the Company without cause within one year of a change of control of the Company.

Outstanding Options and Restricted Stock Units:

        On January 22, 2010, we amended certain of our stock incentive plans to provide for the grants of restricted stock units ("RSUs") and cash awards to key employees (including officers and directors) of, or consultants to, the Company, or its subsidiaries, as the Compensation Committee of the Company's Board of Directors may determine. Pursuant to the amended plans, on January 22, 2010, we granted a total of 520,000 RSUs with a fair value of $1.78 per unit, the NASDAQ Official Close Price per share of common stock on that date, and cash awards totaling $390,000 to certain key employees. Additionally, on May 17, 2010, we granted 50,000 RSUs with a fair value of $1.90 per unit, the NASDAQ Official Close Price per share of common stock on that date, and a cash award of $37,500 to a key employee; and on June 9, 2010, we granted a total of 75,000 RSUs with a fair value of $1.75 per unit, the NASDAQ Official Close Price per share of common stock on that date, to two key employees. The RSUs and cash awards will generally vest in three equal installments beginning on the first anniversary of the date of grant. Vesting will be accelerated upon consummation of a change of control of the Company (as defined), or upon other employee termination provisions (as defined).

        As a result of the termination of a key employee during the first quarter of 2010, and of the resignation of two key employees during the third quarter of 2010, nonvested RSUs of 50,000 and 300,000, respectively, were forfeited.

        On August 5, 2010, our stockholders approved the Company's 2010 Long-Term Incentive Plan (the "2010 Plan") which provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units and other equity and non-equity based awards to employees, officers and non-employee members of the Board. Pursuant to the 2010 Plan, on August 5, 2010 each of the Company's six non-employee directors were granted 30,000 RSUs with a fair value of $2.14 per unit, the NASDAQ Official Close Price per share of common stock on that date. The grants of such RSUs were previously approved by the Board of Directors, pending the approval of the 2010 Plan by our stockholders. The RSUs vest immediately and will be delivered upon the date that is the earlier of termination of service on the Board of Directors or the consummation of a change of control of the Company.

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        In addition, on November 4, 2010, the Compensation Committee of the Board of Directors approved the grant of 55,000 RSUs and a cash award of $52,250 to John W. Bittner, Jr., effective on November 8, 2010, the date of Mr. Bittner's appointment as Chief Financial Officer of the Company. The RSUs were granted with a fair value of $1.90 per unit, the NASDAQ Official Close Price per share of common stock on the effective date. The RSUs and cash award will generally vest in three equal installments beginning on the first anniversary of the date of grant. Vesting will be accelerated upon consummation of a change of control of the Company (as defined), or upon Mr. Bittner's termination of employment by the Company without cause or by Mr. Bittner with good reason.

        As of November 9, 2010, there were outstanding 530,000 RSUs and options to purchase 668,000 shares of our common stock. If all such stock options were exercised, we would receive proceeds of approximately $6.5 million. We utilize the treasury stock method in determining the dilutive effect of outstanding stock options and RSUs. Our basic earnings per share is computed as net income (loss) available to common stockholders divided by the weighted average number of common shares outstanding during the respective period. Diluted earnings per share reflects the potential dilution that could occur from common shares issuable through stock options and RSUs utilizing the treasury stock method. Diluted earnings per share is calculated by using the weighted average number of common shares outstanding adjusted to include the potentially dilutive effect of these occurrences.

Critical Accounting Policies

        Our critical accounting policies disclosures are included in our Annual Report on Form 10-K for the year ended December 31, 2009. Management believes that there have been no material changes since December 31, 2009. We have not substantively changed the application of our policies and there have been no material changes in assumptions or estimation techniques used as compared to prior periods.

Recent Accounting Pronouncements

        In April 2010, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update No. 2010-16, Entertainment—Casinos (Topic 924): Accruals for Casino Jackpot Liabilities ("ASU 2010-16"). ASU 2010-16 codifies the consensus reached in Emerging Issues Task Force Issue No. 09-F, "Casino Base Jackpot Liabilities." ASU 2010-16 amends the FASB Accounting Standards Codification™ to clarify that an entity should not accrue jackpot liabilities, or portions thereof, before a jackpot is won if the entity can avoid paying the jackpot. Jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot. The guidance in this ASU applies to both base and progressive jackpots. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments should be applied by recording a cumulative-effect adjustment to opening retained earnings in the period of adoption. We are currently evaluating the requirements of ASU 2010-16 and have not yet determined the impact on our consolidated financial statements.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

        We are exposed to changes in interest rates primarily from our variable rate long-term debt arrangements. However, with the issuance of the fixed rate Senior Secured Notes in August and October 2009 and Senior Subordinated Notes in May 2006, our exposure to interest rate changes will be limited to amounts which may be outstanding under our Credit Facility. (See Liquidity and Sources of Capital included elsewhere within this report and "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Sources of Capital" which is included in our Annual Report on Form 10-K for the year ended December 31, 2009).

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        Depending upon the amounts outstanding under our Credit Facility, a hypothetical 100 basis point (1%) change in interest rates would result in an annual interest expense change of up to approximately $200,000.

        At September 30, 2010, the fair value of our Credit Facility and other long-term debt approximates the carrying value, except for our $260 million Senior Secured Notes and $125 million Senior Subordinated Notes for which the fair value was determined based upon level 2 inputs (as defined by ASC 820, Fair Value Measurements and Disclosures) including quoted market prices and bond terms and conditions. The aggregate fair value of the Senior Secured Notes and Senior Subordinated Notes was $383.7 million at September 30, 2010.

ITEM 4.    CONTROLS AND PROCEDURES.

(a)
Evaluation of Disclosure Controls and Procedures

        We have established and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports that we file under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, evaluated and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission ("SEC"), and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

        In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

        Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Form 10-Q Quarterly Report (the "Evaluation Date"). They have concluded that our disclosure controls and procedures are effective to ensure that the information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized, evaluated and reported within the time periods specified in SEC rules and forms.

(b)
Changes in Internal Controls

        There were no significant changes in our internal control over financial reporting identified in connection with the above evaluation that occurred during the period covered by this Form 10-Q Quarterly Report 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.

        We are a party to various lawsuits, which have arisen in the normal course of our business. The liability arising from unfavorable outcomes of those lawsuits is not expected to have a material impact on our consolidated financial position or results of operations. Legal matters are discussed in greater detail in "Part I, Item 3. Legal Proceedings" and Note 8 to our Consolidated Financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009.

ITEM 1A.    RISK FACTORS.

        A description of our risk factors can be found in "Part I, Item 1A. Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2009. There were no material changes to those risk factors during the nine months ended September 30, 2010.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

        Not applicable.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES.

        Not Applicable.

ITEM 4.    REMOVED AND RESERVED.

        

ITEM 5.    OTHER INFORMATION.

        Not Applicable.

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ITEM 6.    EXHIBITS.

Exhibits   Item Title
  10.1   Amendment to Credit Agreement, dated September 23, 2010, by and among the Registrant, Mountaineer Park, Inc., Presque Isle Downs, Inc. and Scioto Downs, Inc. (each a wholly-owned subsidiary of the Registrant), Aladdin Credit Advisors, L.P., as administrative agent), and Aladdin Credit Partners I, L.P., Aladdin Credit Intermediate Fund LLC and MC Credit Products DIP SMA, L.P., as lenders (incorporated by reference to our Current Report on Form 8-K filed on September 24, 2010.

 

10.2

 

Employment Agreement, dated as of November 5, 2010, by and between MTR Gaming Group, Inc. and John W. Bittner, Jr. (incorporated by reference to our Current Report on Form 8-K filed on November 9, 2010).

 

10.3

 

Form of Restricted Stock Unit and Cash Award Agreement (2010 Long Term Incentive Plan) (filed herewith).

 

31.1

 

Certification of Steven M. Billick pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

31.2

 

Certification of John W. Bittner, Jr. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

32.1

 

Certification of Steven M. Billick pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

32.2

 

Certification of John W. Bittner, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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SIGNATURES

        Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: November 9, 2010   MTR GAMING GROUP, INC.

 

 

By:

 

/s/ STEVEN M. BILLICK

Steven M. Billick
CHAIRMAN OF THE BOARD OF DIRECTORS AND INTERIM CHIEF EXECUTIVE OFFICER

 

 

By:

 

/s/ JOHN W. BITTNER, JR.

John W. Bittner, Jr.
CHIEF FINANCIAL OFFICER

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Exhibit Index

Exhibits   Item Title
  10.1   Amendment to Credit Agreement, dated September 23, 2010, by and among the Registrant, Mountaineer Park, Inc., Presque Isle Downs, Inc. and Scioto Downs, Inc. (each a wholly-owned subsidiary of the Registrant), Aladdin Credit Advisors, L.P., as administrative agent), and Aladdin Credit Partners I, L.P., Aladdin Credit Intermediate Fund LLC and MC Credit Products DIP SMA, L.P., as lenders (incorporated by reference to our Current Report on Form 8-K filed on September 24, 2010.

 

10.2

 

Employment Agreement, dated as of November 5, 2010, by and between MTR Gaming Group, Inc. and John W. Bittner, Jr. (incorporated by reference to our Current Report on Form 8-K filed on November 9, 2010).

 

10.3

 

Form of Restricted Stock Unit and Cash Award Agreement (2010 Long Term Incentive Plan) (filed herewith).

 

31.1

 

Certification of Steven M. Billick pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

31.2

 

Certification of John W. Bittner, Jr. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

32.1

 

Certification of Steven M. Billick pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

32.2

 

Certification of John W. Bittner, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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