Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies

Commitments and Contingencies

9.  Commitments and Contingencies

Litigation

The Company is subject to various legal and administrative proceedings relating to personal injuries, employment matters, commercial transactions and other matters arising in the normal course of business. The Company does not believe that the final outcome of these matters will have a material adverse effect on the Company’s consolidated financial position or results of operations. In addition, the Company maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings. However, such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact the Company’s consolidated financial condition or results of operations. Further, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters.

The following proceedings could result in costs, settlements, damages, or rulings that materially impact the Company’s consolidated financial condition or operating results.The Company believes that it has meritorious defenses, claims and/or counter-claims, and intends to vigorously defend itself or pursue its claims.

Gaming licenses in Iowa are typically issued jointly to a gaming operator and a local charitable organization known as a Qualified Sponsoring Organization (“QSO”). The agreement between the Company’s gaming operator subsidiary in Iowa, Belle of Sioux City, L.P. (the “Belle”) and its QSO, Missouri River Historical Development, Inc. (“MRHD”), was set to expire in early July 2012, but was extended through the August 23, 2012 Iowa Racing and Gaming Commission (“IRGC”) meeting.  On July 12, when presented with an extension of our QSO/operating agreement for our Sioux City facility through March 2015, the IRGC failed to approve the extension and urged a shorter extension.  The IRGC also announced at the same meeting the schedule for requests for proposals for a new land based Woodbury County casino.  Applications and financing proposals will be due by November 15, 2012 and the IRGC is expected to award that license to a gaming operator and a QSO by April 18, 2013.  On July 6, 2012, the Belle filed a lawsuit against the IRGC, challenging the gaming regulators ruling to open up the gaming license to bidding for the land based casino on a variety of legal claims.  Further, the Belle’s ability to continue its operations may also be impacted by its ability to renew or extend its existing docking lease, which expires in January 2013, or to locate a suitable site to construct a land-based facility. Our Argosy Casino Sioux City facility has goodwill and other intangible assets of $92.8 million, along with property and equipment, net of $10.9 million at June 30, 2012. Additionally, this facility had net revenues and income from operations of $29.8 million and $9.6 million, respectively, for the six months ended June 30, 2012, which represented 2.1% and 3.5% of the Company’s consolidated results.  Any disruptions in Argosy Casino Sioux City’s operations related to the items described above could result in a significant non-cash impairment charge in future periods as well as the loss of future earnings associated from this property.

On September 11, 2008, the Board of County Commissioners of Cherokee County, Kansas (the “County”) filed suit against Kansas Penn Gaming, LLC (“KPG,” a wholly-owned subsidiary of Penn created to pursue a development project in Cherokee County, Kansas) and the Company in the District Court of Shawnee County, Kansas. The petition alleges that KPG breached its pre-development agreement with the County when KPG withdrew its application to manage a lottery gaming facility in Cherokee County and currently seeks in excess of $50 million in damages. In connection with their petition, the County obtained an ex-parte order attaching the $25 million privilege fee (which is included in current assets) paid to the Kansas Lottery Commission in conjunction with the gaming application for the Cherokee County zone. The defendants have filed motions to dissolve and reduce the attachment. Those motions were denied. Following discovery, both parties have filed dispositive motions and the motions were argued on April 20, 2012.