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Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

(Mark One)

 

 

x

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

 

 

for the quarterly period ended March 31, 2010

 

Or

 

 

o

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

 

for the transition period from                to                .

 

Commission file number 000-53831

 


 

TROPICANA ENTERTAINMENT INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

27-0540158

(State or other jurisdiction
of incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

3930 Howard Hughes Parkway, 4th Floor, Las Vegas, Nevada 89169

(Address of principal executive offices, Zip Code)

 

Registrant’s telephone number, including area code: 702-589-3900

 

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 x   No o

 

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

 

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

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes x  No o

 

As of April 30, 2010, there were 26,012,769 shares outstanding of the registrant’s common stock.

 

 

 




Table of Contents

 

PART I

ITEM 1.  FINANCIAL STATEMENTS

 

TROPICANA ENTERTAINMENT INC.

CONDENSED BALANCE SHEETS

(amounts in thousands)

 

 

 

Successor

 

 

Predecessors

 

 

 

Tropicana
Entertainment
Inc.
March 31,
2010

 

 

Tropicana
Entertainment
Holdings,
LLC

 

Columbia
Properties
Vicksburg,
LLC

 

JMBS
Casino,
LLC

 

 

 

(unaudited)

 

 

December 31, 2009

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

157,828

 

 

$

50,904

 

$

2,372

 

$

3,844

 

Restricted cash

 

18,876

 

 

2,772

 

 

 

Receivables, net

 

33,702

 

 

14,514

 

31

 

22

 

Due from affiliates

 

 

 

4,790

 

139

 

579

 

Inventories

 

3,708

 

 

1,749

 

 

 

Prepaid expenses and other assets

 

16,047

 

 

9,017

 

244

 

231

 

Total current assets

 

230,161

 

 

83,746

 

2,786

 

4,676

 

Property and equipment, net

 

457,825

 

 

423,650

 

10,558

 

16,229

 

Beneficial interest in Trust

 

 

 

200,000

 

 

 

Goodwill

 

30,386

 

 

16,802

 

590

 

8,432

 

Intangible assets, net

 

90,161

 

 

73,888

 

320

 

20

 

Investments

 

31,229

 

 

 

 

 

Receivable from affiliate

 

 

 

 

9,798

 

10,976

 

Reserve related to receivable from affiliate

 

 

 

 

(7,478

)

(5,451

)

Other assets, net

 

24,870

 

 

20,126

 

157

 

87

 

Total assets

 

$

864,632

 

 

$

818,212

 

$

16,731

 

$

34,969

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY/MEMBERS’ DEFICIT

 

 

 

 

 

 

 

 

Current liabilities not subject to compromise:

 

 

 

 

 

 

 

 

 

 

Current portion of debt

 

$

1,663

 

 

$

65,669

 

$

 

$

 

Accounts payable

 

59,058

 

 

24,639

 

577

 

450

 

Due to affiliates

 

 

 

2,897

 

2,601

 

767

 

Accrued expenses and other current liabilities

 

63,540

 

 

30,175

 

2,145

 

1,277

 

Notes payable to affiliate guarantors

 

 

 

7,000

 

 

 

Total current liabilities not subject to compromise

 

124,261

 

 

130,380

 

5,323

 

2,494

 

Long-term debt

 

100,922

 

 

 

 

 

Other long-term liabilities

 

1,912

 

 

31,891

 

1,950

 

 

Deferred tax liabilities

 

63,935

 

 

29,980

 

 

 

Total liabilities not subject to compromise

 

291,030

 

 

192,251

 

7,273

 

2,494

 

Liabilities subject to compromise

 

 

 

2,449,900

 

3,455

 

1,434

 

Liabilities subject to compromise - guarantee of affiliate debt

 

 

 

 

2,289,249

 

2,289,249

 

Total liabilities

 

291,030

 

 

2,642,151

 

2,299,977

 

2,293,177

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity/Members’ deficit:

 

 

 

 

 

 

 

 

 

 

Predecessors members’ deficit

 

 

 

(1,842,035

)

(2,283,246

)

(2,258,208

)

Tropicana Entertainment Inc. preferred stock at $0.01 par value; 10,000,000 shares authorized, no shares issued

 

 

 

 

 

 

Tropicana Entertainment Inc. common stock at $0.01 par value; 100,000,000 shares authorized, 25,966,307 shares issued and outstanding at March 31, 2010

 

259

 

 

 

 

 

Additional paid-in capital

 

523,781

 

 

 

 

 

Retained earnings

 

48,271

 

 

 

 

 

Tropicana Entertainment Inc. shareholders’ equity

 

572,311

 

 

 

 

 

Noncontrolling interest

 

1,291

 

 

18,096

 

 

 

Total shareholders’ equity/members’ deficit

 

573,602

 

 

(1,823,939

)

(2,283,246

)

(2,258,208

)

Total liabilities and shareholders’ equity/members’ deficit

 

$

864,632

 

 

$

818,212

 

$

16,731

 

$

34,969

 

 

The accompanying notes are an integral part of these condensed financial statements.

 

2



Table of Contents

 

TROPICANA ENTERTAINMENT INC.

CONDENSED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

(unaudited)

 

 

 

Successor

 

 

Predecessors

 

 

 

Tropicana

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Entertainment

 

 

Tropicana

 

Columbia

 

 

 

Tropicana

 

Columbia

 

 

 

 

 

Inc.

 

 

Entertainment

 

Properties

 

JMBS

 

Entertainment

 

Properties

 

JMBS

 

 

 

Period from

 

 

Holdings,

 

Vicksburg,

 

Casino,

 

Holdings,

 

Vicksburg,

 

Casino,

 

 

 

March 8, 2010

 

 

LLC

 

LLC

 

LLC

 

LLC

 

LLC

 

LLC

 

 

 

through

 

 

Period from January 1, 2010 through

 

Three Months ended

 

 

 

March 31, 2010

 

 

March 7, 2010

 

March 31, 2009

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

40,137

 

 

$

55,416

 

$

1,189

 

$

3,498

 

$

86,038

 

$

3,910

 

$

5,325

 

Room

 

7,025

 

 

7,101

 

86

 

45

 

11,127

 

256

 

67

 

Food and beverage

 

6,242

 

 

9,306

 

75

 

78

 

16,475

 

392

 

111

 

Other

 

1,774

 

 

1,559

 

16

 

30

 

2,673

 

79

 

59

 

Gross revenues

 

55,178

 

 

73,382

 

1,366

 

3,651

 

116,313

 

4,637

 

5,562

 

Less promotional allowances

 

(10,263

)

 

(8,863

)

(95

)

(99

)

(17,230

)

(276

)

(661

)

Net revenues

 

44,915

 

 

64,519

 

1,271

 

3,552

 

99,083

 

4,361

 

4,901

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

18,301

 

 

22,559

 

622

 

1,087

 

36,171

 

1,937

 

1,788

 

Room

 

1,820

 

 

2,819

 

62

 

24

 

4,827

 

293

 

59

 

Food and beverage

 

2,614

 

 

5,373

 

81

 

13

 

10,039

 

200

 

5

 

Other

 

642

 

 

1,081

 

7

 

 

1,482

 

16

 

 

Marketing, advertising and promotions

 

4,265

 

 

2,199

 

78

 

72

 

3,410

 

253

 

249

 

General and administrative

 

7,110

 

 

14,327

 

673

 

764

 

21,025

 

1,258

 

1,057

 

Maintenance and utilities

 

5,458

 

 

5,628

 

248

 

227

 

6,478

 

379

 

364

 

Depreciation and amortization

 

3,057

 

 

6,112

 

374

 

432

 

9,954

 

620

 

588

 

Total operating costs and expenses

 

43,267

 

 

60,098

 

2,145

 

2,619

 

93,386

 

4,956

 

4,110

 

Operating income (loss)

 

1,648

 

 

4,421

 

(874

)

933

 

5,697

 

(595

)

791

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(2,150

)

 

(2,005

)

 

(2

)

(3,469

)

(5

)

 

Interest income

 

46

 

 

11

 

40

 

103

 

 

59

 

76

 

Gain on bargain purchase

 

48,579

 

 

 

 

 

 

 

 

Loss related to guarantee of affiliate debt

 

 

 

 

 

 

 

(7,510

)

(7,510

)

Total other income (expense)

 

46,475

 

 

(1,994

)

40

 

101

 

(3,469

)

(7,456

)

(7,434

)

Income (loss) from continuing operations before reorganization items and income taxes

 

48,123

 

 

2,427

 

(834

)

1,034

 

2,228

 

(8,051

)

(6,643

)

Reorganization items, net

 

 

 

2,093,098

 

2,286,748

 

2,266,609

 

(11,278

)

(10

)

(11

)

Income (loss) from continuing operations before income taxes

 

48,123

 

 

2,095,525

 

2,285,914

 

2,267,643

 

(9,050

)

(8,061

)

(6,654

)

Income tax benefit (expense)

 

151

 

 

26,654

 

 

 

(1,694

)

 

 

Income (loss) from continuing operations, including noncontrolling interest

 

48,274

 

 

2,122,179

 

2,285,914

 

2,267,643

 

(10,744

)

(8,061

)

(6,654

)

Loss from discontinued operations, net

 

 

 

 

 

 

(7,667

)

 

 

Net income (loss), including noncontrolling interest

 

48,274

 

 

2,122,179

 

2,285,914

 

2,267,643

 

(18,411

)

(8,061

)

(6,654

)

Less net (income) loss attributable to noncontrolling interests

 

(3

)

 

845

 

 

 

(1,119

)

 

 

Net income (loss)

 

$

48,271

 

 

$

2,123,024

 

$

2,285,914

 

$

2,267,643

 

$

(19,530

)

$

(8,061

)

$

(6,654

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

1.83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

25,483

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

26,313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed financial statements.

 

3



Table of Contents

 

TROPICANA ENTERTAINMENT INC.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY/MEMBERS’ EQUITY (DEFICIT)

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Predecessors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Columbia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tropicana

 

 

 

 

 

Properties

 

JMBS

 

 

 

Successor

 

 

 

 

 

 

Entertainment

 

 

 

 

 

Vicksburg,

 

Casino,

 

 

 

Tropicana Entertainment Inc.

 

 

 

 

 

 

Holdings, LLC

 

 

 

Total

 

LLC

 

LLC

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Total

 

 

Members’

 

 

 

Members’

 

Members’

 

Members’

 

 

 

Common

 

Paid-in

 

Retained

 

Shareholders’

 

Noncontrolling

 

Shareholders’

 

 

Equity

 

Noncontrolling

 

Equity

 

Equity

 

Equity

 

 

 

Stock

 

Capital

 

Earnings

 

Equity

 

Interest

 

Equity

 

 

(Deficit)

 

Interest

 

(Deficit)

 

(Deficit)

 

(Deficit)

 

Balances, January 1, 2010 (Predecessors)

 

$

 

$

 

$

 

$

 

$

 

$

 

 

$

(1,842,035

)

$

18,096

 

$

(1,823,939

)

$

(2,283,246

)

$

(2,258,208

)

Net income (loss)

 

 

 

 

 

 

 

 

2,123,024

 

(845

)

2,122,179

 

2,285,914

 

2,267,643

 

Balances, March 7, 2010 (Predecessors) (unaudited)

 

 

 

 

 

 

 

 

280,989

 

17,251

 

298,240

 

2,668

 

9,435

 

Elimination of Predecessors equity

 

 

 

 

 

 

 

 

(280,989

)

(17,251

)

(298,240

)

(2,668

)

(9,435

)

Issuance of 12,098,053 shares of common stock and 3,750,000 Ordinary Warrants upon emergence from Chapter 11

 

121

 

304,446

 

 

304,567

 

1,288

 

305,855

 

 

 

 

 

 

 

Issuance of 1,312,500 Penny Warrants in connection with Exit Facility

 

 

19,464

 

 

19,464

 

 

19,464

 

 

 

 

 

 

 

Balances, March 7, 2010 (Successor) (unaudited)

 

121

 

323,910

 

 

324,031

 

1,288

 

325,319

 

 

 

 

 

 

 

Issuance of 12,901,947 shares of common stock in connection with Tropicana AC acquisition

 

129

 

199,871

 

 

200,000

 

 

200,000

 

 

 

 

 

 

 

Issuance of 966,307 shares of common stock for Penny Warrants exercised

 

9

 

 

 

9

 

 

9

 

 

 

 

 

 

 

Net income

 

 

 

48,271

 

48,271

 

3

 

48,274

 

 

 

 

 

 

 

Balances, March 31, 2010 (Successor) (unadudited)

 

$

259

 

$

523,781

 

$

48,271

 

$

572,311

 

$

1,291

 

$

573,602

 

 

$

 

$

 

$

 

$

 

$

 

 

The accompanying notes are an integral part of these condensed financial statements.

 

4



Table of Contents

 

TROPICANA ENTERTAINMENT INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Successor

 

 

Predecessors

 

 

 

Tropicana

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Entertainment

 

 

Tropicana

 

Columbia

 

 

 

Tropicana

 

Columbia

 

 

 

 

 

Inc.

 

 

Entertainment

 

Properties

 

JMBS

 

Entertainment

 

Properties

 

JMBS

 

 

 

Period from

 

 

Holdings,

 

Vicksburg,

 

Casino,

 

Holdings,

 

Vicksburg,

 

Casino,

 

 

 

March 8, 2010

 

 

LLC

 

LLC

 

LLC

 

LLC

 

LLC

 

LLC

 

 

 

through

 

 

Period from January 1, 2010 through

 

Three Months ended

 

 

 

March 31, 2010

 

 

March 7, 2010

 

March 31, 2009

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss), including noncontrolling interest

 

$

48,274

 

 

$

2,122,179

 

$

2,285,914

 

$

2,267,643

 

$

(18,411

)

$

(8,061

)

$

(6,654

)

Adjustments to reconcile net income (loss), including noncontrolling interest, to net cash provided by (used in) operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on bargain purchase

 

(48,579

)

 

 

 

 

 

 

 

Non-cash reorganization items and fresh start reporting adjustments

 

 

 

(2,098,064

)

(2,286,754

)

(2,266,614

)

 

 

 

Depreciation and amortization (including discontinued operations)

 

3,057

 

 

6,112

 

374

 

432

 

12,030

 

620

 

588

 

Amortization of debt discount and debt issuance costs

 

837

 

 

137

 

 

 

1,013

 

 

 

Deferred income tax

 

 

 

(30,838

)

 

 

350

 

 

 

Loss related to guarantee of affiliate debt

 

 

 

 

 

 

 

7,510

 

7,510

 

Changes in current assets and current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivables, net

 

(2,105

)

 

2,942

 

8

 

(79

)

2,046

 

54

 

(2

)

Inventories, prepaids and other assets

 

(1,320

)

 

1,698

 

34

 

47

 

2,469

 

85

 

(136

)

Accrued interest

 

(1

)

 

(239

)

 

 

(9,719

)

 

 

Accounts payable, accrued expenses and other liabilities

 

4,492

 

 

(1,994

)

(479

)

(432

)

(5,591

)

(590

)

(169

)

Due from affiliates

 

 

 

(672

)

934

 

3

 

119

 

(267

)

(11

)

Other

 

(308

)

 

662

 

(25

)

 

(4,737

)

(60

)

 

Net cash provided by (used in) operating activities

 

4,347

 

 

1,923

 

6

 

1,000

 

(20,431

)

(709

)

1,126

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions of property and equipment

 

(349

)

 

(1,057

)

 

(11

)

(2,223

)

(44

)

(7

)

Other

 

155

 

 

 

3

 

 

 

 

 

Net cash (used in) provided by investing activities

 

(194

)

 

(1,057

)

3

 

(11

)

(2,223

)

(44

)

(7

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of debt

 

 

 

120,900

 

 

 

7,510

 

 

 

Repayments of debt

 

(46

)

 

(65,311

)

 

 

(899

)

 

 

Restricted cash

 

 

 

(16,075

)

 

 

2,977

 

 

 

Payment of financing costs

 

 

 

(1,500

)

 

 

(750

)

 

 

Proceeds from exercise of Penny Warrants

 

9

 

 

 

 

 

 

 

 

Net cash (used in) provided by financing activities

 

(37

)

 

38,014

 

 

 

8,838

 

 

 

Net increase (decrease) in cash and cash equivalents

 

4,116

 

 

38,880

 

9

 

989

 

(13,816

)

(753

)

1,119

 

Increase in cash and cash equivalents related to Tropicana AC acquisition

 

56,714

 

 

 

 

 

 

 

 

Decrease in cash and cash equivalents related to assets held for sale

 

 

 

 

 

 

3,520

 

 

 

Cash and cash equivalents, beginning of period

 

96,998

 

 

50,904

 

2,372

 

3,844

 

76,869

 

4,303

 

3,322

 

Cash and cash equivalents, end of period

 

$

157,828

 

 

$

89,784

 

$

2,381

 

$

4,833

 

$

66,573

 

$

3,550

 

$

4,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosure (including discontinued operations):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,313

 

 

$

1,964

 

$

 

$

5

 

$

15,600

 

$

5

 

$

 

Cash paid for reorganization items

 

 

 

4,465

 

6

 

7

 

12,434

 

 

 

Cash received related to reorganization items

 

 

 

1

 

 

 

103

 

 

 

Cash paid for income taxes

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock and Ordinary Warrants issued in exchange for discharge of liabilities subject to compromise

 

 

 

305,855

 

 

 

 

 

 

Common stock issued in connection with acquisition of Tropicana AC

 

200,000

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed financial statements.

 

5



Table of Contents

 

TROPICANA ENTERTAINMENT INC.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

NOTE 1—ORGANIZATION AND BACKGROUND

 

Organization

 

Tropicana Entertainment Inc. (“TEI”) is a Delaware corporation that was formed on May 11, 2009 to acquire certain assets of Tropicana Entertainment Holdings, LLC (“TEH”), and certain of its subsidiaries pursuant to their plan of reorganization under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). The Company also acquired Columbia Properties Vicksburg, LLC (“CP Vicksburg”), JMBS Casino, LLC (“JMBS Casino”) and CP Laughlin Realty (“Realty”, collectively with CP Vicksburg and JMBS Casino, the “Affiliate Guarantors”), all of whom were part of the same plan of reorganization (the “Plan”) as TEH (collectively, the “Predecessors”). Except where the context suggests otherwise, the terms “we,” “us,” “our,” and “the Company” refer to TEI and its subsidiaries.

 

In addition, the Company acquired certain assets of Adamar of New Jersey, Inc. (“Adamar”), an unconsolidated subsidiary of TEH, pursuant to an amended and restated asset purchase agreement, including the Tropicana Casino and Resort, Atlantic City (“Tropicana AC”).  The results of operations of Tropicana AC are not presented for the Predecessor Period (as defined below). The results of operations of Tropicana AC are included in the Successor Period (as defined below).

 

The reorganization of the Predecessors and the acquisition of Tropicana AC (together, the “Restructuring Transactions”) were consummated and became effective on March 8, 2010 (the “Effective Date”), at which time, the Company acquired Adamar and several of the Predecessors’ gaming properties and related assets. Prior to March 8, 2010, the Company conducted no business, other than in connection with the reorganization of the Predecessors and the acquisition of Tropicana AC, and had no material assets or liabilities.

 

The Company views each property as an operating segment which we aggregate by region in order to present our four reportable segments: (i) East, (ii) Central, (iii) West and (iv) South. The operations of the Company after March 8, 2010, by region include the following:

 

·                  East - Tropicana AC located in Atlantic City, New Jersey;

 

·                  Central - Casino Aztar Evansville (“Casino Aztar”) located in Evansville, Indiana;

 

·                  West - Tropicana Express Hotel and Casino (“Tropicana Express”) located in Laughlin, Nevada; River Palms Hotel and Casino (“River Palms”) located in Laughlin, Nevada; and MontBleu Casino Resort & Spa (“MontBleu”) located in Lake Tahoe, Nevada; and

 

·                  South - Belle of Baton Rouge (“Belle of Baton Rouge”) located in Baton Rouge, Louisiana; Bayou Caddy’s Jubilee Casino (“Jubilee”) located in Greenville, Mississippi; Lighthouse Point Casino (“Lighthouse Point”) located in Greenville, Mississippi, in which we have a 79% ownership interest and an 83.9375% economic interest in Greenville Riverboat, LLC (“Greenville Riverboat”), which owns and operates Lighthouse Point; and Horizon Vicksburg Casino (“Horizon Vicksburg”) located in Vicksburg, Mississippi.

 

Background

 

The following details the events leading up to the acquisition of the Predecessors and Tropicana AC by the Company.

 

In December 2006, TEH issued $960 million of 9 5/8% Senior Subordinated Notes (the “Notes”) and in January 2007, entered into a Senior Credit Facility (the “Credit Facility”) comprised of a $1.53 billion senior secured term loan and a $90 million senior secured revolving credit facility.  The Notes and Credit Facility were guaranteed by certain of TEH’s subsidiaries as well as by the Affiliate Guarantors.

 

On December 12, 2007, the New Jersey Casino Control Commission (the “NJ Commission”) denied TEH a permanent license to operate Tropicana AC (the “New Jersey License Denial”) and declared operative the interim casino

 

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Table of Contents

 

authorization trust (the “ICA Trust”).  A trustee (“Trustee”) was assigned under the ICA Trust to assume management responsibility of Tropicana AC until it could be sold to a third party which was in the control of the Trustee.  Under New Jersey law, TEH was entitled to the lower of the value of the property as of the date the ICA Trust became operative or its original cost to acquire Tropicana AC upon the eventual sale of the property.  As a result of the New Jersey License Denial and the actions taken by the NJ Commission, TEH determined that Tropicana AC should not be consolidated subsequent to December 12, 2007.  This determination was based on the provisions in accordance with accounting guidance for consolidation of all majority owned subsidiaries, whereby the government imposed restrictions on TEH’s continued management and control of Tropicana AC that were so severe that they cast significant doubt on TEH’s ability to control the subsidiary.  Consequently, TEH accounted for its beneficial interest in the ICA Trust under the cost method which was then adjusted to fair value in accordance with accounting guidance for investments in debt and equity securities.

 

The New Jersey License Denial caused an immediate default under the Credit Facility and the subsequent transfer of assets of Tropicana AC to a Trustee caused a default under the Notes.  In addition, TEH’s operating results were under significant financial pressure given the depressed state of the gaming industry which was exacerbated by TEH’s subsequent loss of control and cash flows from Tropicana AC.  These events ultimately culminated in the Predecessors filing voluntary petitions for relief under Chapter 11 of the Bankruptcy Code (the “Chapter 11 Cases”) in order to preserve their assets and the value of the estates on May 5, 2008 (the “Petition Date”).  Adamar was not a party to the Predecessors’ bankruptcy.

 

At a meeting of the NJ Commission conducted on February 18, 2009, the steering committee of the lenders under the Credit Facility advised the NJ Commission that the lenders under the Credit Facility were willing to make a credit bid of $200.0 million (the “Credit Bid”) to acquire Tropicana AC.  Thereby, lenders under the Credit Facility would offer to exchange a portion of the Credit Facility for ownership of Tropicana AC resulting in the asset purchase agreement.  By November 2009, all necessary approvals for the Company to acquire Tropicana AC in exchange for the Credit Bid were received.

 

Pursuant to the Plan, on the Effective Date, a series of restructuring transactions were consummated through which the Company acquired the Predecessors in exchange for (i) the issuance of 12,098,053 shares of the Company’s common stock, $0.01 par value per share (“Common Stock”), and warrants to purchase an additional 3,750,000 shares of Common Stock (the “Ordinary Warrants”) in accordance with the Plan, (ii) the entering into new debt in accordance with the Plan, which included the issuance to certain lenders of warrants to purchase an additional 1,312,500 shares of our Common Stock at $0.01 per share (the “Penny Warrants”) and (iii) the application of fresh-start reporting.  Additionally, on the Effective Date, certain subsidiaries of the Company acquired Tropicana AC and the lenders under the Credit Facility each received their pro rata share of 12,901,947 shares of the Company’s Common Stock in exchange for their Credit Bid.

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying condensed financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain disclosures required by generally accepted accounting principles are omitted or condensed in these condensed financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) that are necessary to present fairly the Company’s and the Predecessors’ financial position, results of operations and cash flows for the interim periods have been made. The interim results reflected in these financial statements are not necessarily indicative of results to be expected for the full fiscal year. The accompanying condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

 

As of the Effective Date, the Company adopted the “fresh start” provisions in accordance with accounting guidance on reorganizations, which require that all assets and liabilities be recorded at their reorganization values and fair values, respectively, as of such Effective Date. Certain of these values differed materially from the values recorded on the Predecessors’ balance sheets as of December 31, 2009. In addition, the Company’s accounting practices and policies may not be the same as that of the Predecessors. For all of these reasons, our condensed financial statements for periods subsequent to the Effective Date are not comparable with the Predecessors’ prior periods.

 

References in this Quarterly Report on Form 10-Q to “Successor” refers to the Company on or after March 8, 2010.  References to “Predecessors” refer to the Predecessors prior to March 8, 2010. The accompanying condensed statements of operations, shareholders’ equity/members’ deficit and cash flows for the three months ended March 31, 2010 are presented for two periods: January 1, 2010 through March 7, 2010 (the “Predecessor Period”) and March 8, 2010 through March 31,

 

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Table of Contents

 

2010 (the “Successor Period”). The Predecessor Period reflects the historical accounting basis in the Predecessors assets and liabilities, while the Successor Period reflects assets and liabilities at fair value by allocating the Company’s enterprise value to its assets and liabilities pursuant to accounting guidance related to business combinations.

 

For the periods prior to the Effective Date, the accompanying condensed financial statements of the Predecessors have been prepared in accordance with accounting guidance for financial reporting by entities in reorganization under the bankruptcy code. Accordingly, all pre-petition liabilities subject to compromise have been segregated in the accompanying condensed balance sheets as of December 31, 2009 and are classified as liabilities subject to compromise at the estimated amounts of allowable claims. Liabilities not subject to compromise are separately classified as current and non-current. Reorganization items include the expenses, realized gains and losses, and provisions for losses resulting from the reorganization under the Bankruptcy Code, and are reported separately as reorganization items in the accompanying condensed statements of operations. Cash received and payments for reorganization items are disclosed separately in the accompanying condensed statements of cash flows.

 

Principles of Consolidation

 

The accompanying condensed financial statements include the Company and its majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

 

Noncontrolling interest in the condensed financial statements of the Company represents the noncontrolling equity ownership of Greenville Riverboat, as of March 31, 2010 and for the Successor Period.  The noncontrolling interest of Greenville Riverboat is allocated in accordance with the terms of the Greenville Riverboat operating agreement which is based upon an assumed liquidation of Lighthouse Point as of the end of the reporting periods.

 

The accompanying condensed financial statements for TEH include TEH, its majority-owned subsidiaries and Realty.  Noncontrolling interest in the condensed financial statements of TEH represents the noncontrolling equity interest ownership of Greenville Riverboat and Realty as of December 31, 2009 and for the Predecessor Period and the quarter ended March 31, 2009.  The noncontrolling equity ownership of Realty represents 100% of the earnings of Realty prior to the Effective Date.  In accordance with accounting guidance related to the consolidation of variable interest entities, the consolidated financial statements of TEH include Realty, a variable interest entity of which TEH was the primary beneficiary and was required to be consolidated.  Upon the Effective Date, Realty became a subsidiary of the Company.  In addition, Greenville Riverboat was not a debtor in the Predecessors Chapter 11 Cases as it did not guarantee TEH’s pre-petition debt.

 

Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates incorporated in our condensed financial statements include the estimated useful lives for depreciable and amortizable assets, the estimated allowance for doubtful accounts receivable, the estimated valuation allowance for deferred tax assets, certain tax liabilities, estimated cash flows in assessing the impairment of long-lived assets, intangible assets, enterprise allocations made in connection with fresh-start reporting, fair values of acquired assets and liabilities, self-insured liability reserves, customer loyalty program reserves, contingencies, litigation, claims, assessments and loss contingencies. Actual results could differ from these estimates.

 

Business Combinations

 

The Company accounts for business combinations in accordance with guidance related to business combinations using the purchase method of accounting for business combinations, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair value, and the identification and recognition of intangible assets separately from goodwill.  Additionally, the guidance requires, among other things, the buyer to: (1) expense acquisition-related costs; (2) recognize assets or liabilities assumed arising from contractual contingencies at the acquisition date using acquisition-date fair values; (3) recognize goodwill as the excess of the consideration transferred plus the fair value of any noncontrolling interest over the acquisition-date fair value of net assets acquired; (4) recognize at the acquisition date any contingent consideration using acquisition-date fair values (i.e., fair value earn-outs in the initial accounting for the acquisition); and (5) eliminate the recognition of liabilities for restructuring costs expected to be incurred as a result of the business combination.  In addition, if the buyer determines that some or all of its previously booked deferred

 

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Table of Contents

 

tax valuation allowance is no longer needed as a result of the business combination, the guidance requires that the reduction or elimination of the valuation allowance be accounted as a reduction of income tax expense.

 

The results for the Successor Period include a gain on bargain purchase of $48.6 million which was recorded in connection with the Tropicana AC acquisition (Note 4).  In accordance with accounting guidance related to business combinations, any excess of fair value of acquired net assets over the acquisition consideration results in a bargain purchase and any resulting gain on bargain purchase must be recognized in earnings on the acquisition date.  The gain on bargain purchase is disclosed separately in the Company’s condensed statement of operations for the Successor Period.

 

Fresh Start Reporting

 

The adoption of fresh start reporting results in a new reporting entity. Under fresh-start reporting, all assets and liabilities are recorded at their estimated fair values and the predecessor’s accumulated deficit is eliminated. In adopting fresh-start reporting, the Company is required to determine its enterprise value, which represents the fair value of the entity before considering its interest bearing debt.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash, cash on hand in the casino cages, certificates of deposit, money market funds and other highly liquid investments with original maturities of three months or less.

 

Restricted Cash

 

Restricted cash at March 31, 2010 consists primarily of funds invested in approved money market funds.  These funds were restricted by the Bankruptcy Court in connection with the reorganization of the Predecessors for the purpose of satisfying liabilities related to professional services incurred as part of the Chapter 11 Cases. As of December 31, 2009, restricted cash consists of cash reserves related to TEH’s insurance policies in which the third party administrator was the beneficiary.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalent accounts maintained in financial institutions and accounts receivable. Bank accounts are insured by the Federal Deposit Insurance Corporation up to $250,000 or with the Securities Investor Protection Corporation up to $500,000. Concentration of credit risk, with respect to casino receivables, is limited through the Company’s credit evaluation process. The Company issues markers to approved casino customers following credit checks and investigations of credit worthiness.

 

Receivables

 

Receivables consist primarily of casino, hotel and other receivables, net of an allowance for doubtful accounts. Receivables are typically non-interest bearing and are initially recorded at cost. Accounts are written off when management deems the account to be uncollectible. An estimated allowance for doubtful accounts is maintained to reduce the Company’s receivables to their expected realization, which approximates fair value. The allowance is estimated based on specific review of customer accounts as well as historical collection experience and current economic and business conditions. Recoveries of accounts previously written off are recorded when received.

 

Inventories

 

Inventories consist primarily of food and beverage, retail merchandise and operating supplies and are stated at the lower of cost or market. Cost is determined using the first-in, first-out method.

 

CRDA Investment

 

The Casino Reinvestment Development Authority (“CRDA”) deposits are carried at cost less a valuation allowance because they have to be used to purchase CRDA bonds that carry below market interest rates unless an alternative investment is approved. The valuation allowance is established by a charge to the Statement of Operations as part of general and administrative expense at the time the obligation is incurred to make the deposit unless there is an agreement with the CRDA for a return of the deposit at full face value. If the CRDA deposits are used to purchase CRDA bonds, the valuation allowance is transferred to the bonds as a discount, which is amortized to interest income using the interest method. If the CRDA deposits are used to make other investments, the valuation allowance is transferred to those investments and remains a valuation allowance. The CRDA bonds are classified as held-to-maturity securities and are carried at amortized cost less a valuation allowance.

 

Property and Equipment

 

Property and equipment under fresh start reporting and business combination guidance is stated at fair value as of the Effective Date and acquisition date, respectively. Property and equipment acquired subsequent to the Effective Date and the acquisition date are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, or for capital leases and leasehold improvements, over the shorter of the asset’s useful life or the term of the lease. Gains or losses on disposals of assets are recognized as incurred. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are expensed as incurred.

 

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Table of Contents

 

We must make estimates and assumptions when accounting for capital expenditures. Whether an expenditure is considered a maintenance expense or a capital asset is a matter of judgment. In contrast to normal repair and maintenance costs that are expensed when incurred, items we classify as maintenance capital are expenditures necessary to keep our existing properties at their current levels and are typically replacement items due to the normal wear and tear of our properties and equipment as a result of use and age. Our depreciation expense is highly dependent on the assumptions we make about our assets’ estimated useful lives. We determine the estimated useful lives based on our experience with similar assets, engineering studies and our estimate of the usage of the asset. Whenever events or circumstances occur that change the estimated useful life of an asset, we account for the change prospectively.

 

Long-Lived Assets

 

We evaluate our property and equipment and other long-lived assets for impairment in accordance with accounting guidance related to impairment or disposal of long-lived assets. For assets to be held for sale, we recognize the asset to be sold at the lower of carrying value or fair value less costs to sell. Fair value for assets held for sale is generally estimated based on comparable asset sales, solicited offers or a discounted cash flow model. For long-lived assets to be held and used, we review for impairment whenever indicators of impairment exist. If an indicator of impairment exists, we compare the estimated undiscounted future cash flows of the asset to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows are less than the carrying value, then impairment is measured based on estimated fair value compared to carrying value, with fair value typically based on a discounted cash flow model.

 

Goodwill and Intangible Assets

 

Goodwill represents the excess of purchase price over fair value of assets acquired and liabilities assumed in business combinations.  In accordance with accounting guidance related to goodwill and other intangible assets, we test for impairment of goodwill and indefinite-lived intangible assets annually in the fourth quarter of each year and in certain situations between those annual dates.

 

Goodwill for relevant reporting units is tested for impairment using a discounted cash flow model based on the estimated future results of the Company’s reporting units, discounted using the Company’s weighted-average cost of capital and market indicators of terminal year capitalization rates.  The implied fair value of a reporting unit’s goodwill is compared to the carrying value of that goodwill.  The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to its assets and liabilities and the amount remaining, if any, is the implied fair value of goodwill.  If the implied fair value of the goodwill is less than its carrying value, then it is written down to its implied fair value.

 

Indefinite-lived intangible assets are not subject to compromise but are tested for impairment using a discounted cash flow approach. Intangible assets with a definite life are amortized over their useful life which is the period over which the asset is expected to contribute directly or indirectly to future cash flows. Management periodically assesses the amortization period of intangible assets with definite lives based upon estimated future cash flows from related operations.

 

Inherent in the reviews of the carrying amounts of goodwill and intangible assets are various estimates. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from our estimates. If our ongoing estimates of future cash flows are not met, we may have to record additional impairment charges in future accounting periods. Our estimates of cash flows are based on the current regulatory, political and economic climates, recent operating information and budgets of the various properties where we conduct operations. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events affecting various forms of travel and access to our properties.

 

Debt Issuance Costs

 

Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense over the expected terms of the related debt agreements and are included in other assets, net, on our condensed balance sheets.

 

Self-Insurance Reserves

 

We are self-insured up to certain stop loss amounts for employee health coverage, workers’ compensation and general liability cost. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of estimates for claims incurred but not yet reported as provided by a third party. In estimating these accruals, we

 

10



Table of Contents

 

consider historical loss experience and make judgments about the expected levels of costs per claim. We believe our estimates of future liability are reasonable based upon our methodology; however, changes in health care costs, accident frequency and severity and other factors could materially affect the estimate for these liabilities. The Company continually monitors changes in claim type and incident and evaluates the insurance accrual, making necessary adjustments based on the evaluation of these qualitative data points.

 

Fair Value of Financial Instruments

 

The carrying values of our cash and cash equivalents, restricted cash, receivables and accounts payable approximate fair value because of the short term maturities of these instruments.  The carrying values of investments, which include deposits and bonds, approximate fair value as items are presented net of a valuation allowance and in the case of the bonds, net of an unamortized discount.

 

The Predecessors debt instruments incurred prior to the Petition Date were stayed and subject to compromise as further discussed in Note 3.  As such, the Predecessors believed that it was impracticable to determine the fair value of those pre-petition debt instruments.  TEH believed that the carrying value of the DIP Credit Facility (as defined below) at December 31, 2009, approximated fair value as the instrument was due within the current period and bore a variable interest rate that would adjust to the market rate.  TEH also believed that while it was in bankruptcy, the credit risk of TEH did not change significantly and therefore would not have a material impact on the fair value of the DIP Credit Facility.

 

Customer Loyalty Program

 

The Company provides certain customer loyalty programs (the “Programs”) at its casinos, which allow customers to redeem points earned from their gaming activity for cash, food, beverage, rooms or merchandise. Under the Programs, customers are able to accumulate points that may be redeemed in the future, subject to certain limitations and the terms of the Programs. The Company records a liability for the estimated cost of the outstanding points under the Programs that it believes will ultimately be redeemed. The estimated cost of the outstanding points under the Programs is calculated based on estimates and assumptions regarding marginal costs of the goods and services, redemption rates and the mix of goods and services for which the points are expected to be redeemed. For points that may be redeemed for cash, the Company accrues this cost, after consideration of estimated redemption rates, as it is earned, which is included in promotional allowances. For points that may only be redeemed for goods or services but cannot be redeemed for cash, the Company estimates the cost and accrues for this expense as the points are earned from gaming play, which is recorded as casino operating costs and expense.

 

Revenue Recognition and Promotional Allowances

 

Casino revenue represents the difference between wins and losses from gaming activities. Room, food and beverage and other operating revenues are recognized at the time the goods or services are provided. The majority of our casino revenue is counted in the form of cash and chips and, therefore, is not subject to any significant or complex estimation. The retail value of rooms, food and beverage and other services provided to customers on a complimentary basis is included in gross revenues and then deducted as promotional allowances. The estimated departmental costs and expenses of providing these promotional allowances, for continuing operations, are included in casino operating costs and expenses and consist of the following (in thousands, unaudited):

 

 

 

Successor

 

 

Predecessors

 

 

 

 

 

 

TEH

 

CP
Vicksburg

 

JMBS Casino

 

TEH

 

CP Vicksburg

 

JMBS Casino

 

 

 

Period
March 8,
2010 through
March 31,
2010

 

 

Period
January 1, 2010 through
March 7, 2010

 

Three Months Ended
March 31, 2009

 

Room

 

$

1,566

 

 

$

1,340

 

$

22

 

$

24

 

$

2,895

 

$

59

 

$

19

 

Food and beverage

 

2,826

 

 

3,004

 

122

 

92

 

4,473

 

357

 

130

 

Other

 

98

 

 

162

 

5

 

 

209

 

2

 

 

Total

 

$

4,490

 

 

$

4,506

 

$

149

 

$

116

 

$

7,577

 

$

418

 

$

149

 

 

Gaming Taxes

 

We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate, subject to applicable jurisdictional adjustments. These gaming taxes are an assessment on our gaming revenues and are included in

 

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Table of Contents

 

casino operating costs and expenses on our condensed statements of operations. Gaming taxes included in continuing operations totaled $4.8 million for the Successor Period.  Gaming taxes included in continuing operations for TEH totaled $9.2 million and $15.7 million for the Predecessor Period and the quarter ended March 31, 2009, respectively.  Gaming taxes for CP Vicksburg totaled $0.1 million and $0.4 million for the Predecessor Period and the quarter ended March 31, 2009, respectively.  Gaming taxes for JMBS Casino totaled $0.6 million for both the Predecessor Period and the quarter ended March 31, 2009, respectively.

 

Advertising

 

We expense advertising costs as incurred or the first time the advertising takes place. Advertising expense, included in continuing operations, which is generally included in marketing, advertising and promotions on our condensed statements of operations was $0.5 million for the Successor Period.  Advertising expense for TEH was $0.8 million and $1.5 million for the Predecessor Period and the quarter ended March 31, 2009, respectively.  Advertising expense for CP Vicksburg was $40,000 and $206,000 for the Predecessor Period and the quarter ended March 31, 2009, respectively.  Advertising expense for JMBS Casino was $31,000 and $81,000 for the Predecessor Period and the quarter ended March 31, 2009, respectively.

 

Income Taxes

 

We account for income taxes under accounting guidance for income taxes, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the accounting guidance, the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that included the enactment date. Future tax benefits are recognized to the extent that realization of those benefits is considered more likely than not and a valuation allowance is established for deferred tax assets which do not meet this threshold.

 

Recently Issued Accounting Standards

 

In April 2010, accounting guidance was updated regarding the accounting for casino base jackpot liabilities.  The guidance clarifies that an entity should not accrue jackpot liabilities (or portion thereof) before a jackpot is won if the entity can avoid paying the jackpot but should be accrued and charged to revenue when an entity has the obligation to pay the jackpot.  The guidance applies to both base and progressive jackpots.  The effect of the guidance should be recorded as a cumulative-effect adjustment to opening retained earnings in the period of adoption.  The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.  In accordance with accounting guidance related to fresh start reporting, the Company adopted the updated guidance on the Effective Date and the adoption did not have a material impact on the Company’s condensed financial statements.

 

In January 2010, new accounting guidance was updated regarding fair value measurements and disclosures.  The guidance clarifies and extends the disclosure requirements about recurring and nonrecurring fair value measurements. The Company adopted the new accounting guidance in the first quarter of 2010 and the adoption did not have a material impact on the Company’s condensed financial statements.

 

In June 2009, new accounting standards were issued regarding the consolidation of variable interest entities. These new accounting standards address the effects of elimination of the qualifying special-purpose entity concept from previous standards. These new accounting standards amend previous guidance in determining whether an enterprise has a controlling financial interest in a variable interest entity. This determination identifies the primary beneficiary of a variable interest entity as the enterprise that has both the power to direct the activities of a variable interest entity that most significantly impacts the entity’s economic performance and the ability to absorb losses or the right to receive benefits of the entity that could potentially be significant to the variable interest entity. The Company adopted the new accounting standards on January 1, 2010. The adoption of these new accounting standards did not have a material effect on the Company’s condensed financial statements.

 

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A variety of proposed or otherwise potential accounting standards are currently under consideration by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our condensed financial statements.

 

NOTE 3—FRESH START REPORTING

 

Plan of Reorganization

 

Pursuant to the Plan, on the Effective Date, a series of restructuring transactions were consummated through which the Company acquired the Predecessors in exchange for (a) the issuance of shares of its Common Stock and warrants to purchase additional shares of its Common Stock and (b) the assumption of certain liabilities of the Predecessors incurred after the Petition Date to the extent not paid on or prior to the Effective Date other than income tax liabilities.

 

The Plan also provided for, among other things:

 

·                  the termination of $1.3 billion of indebtedness under the Credit Facility;

 

·                  the cancellation of the Notes in the amount of $960.0 million;

 

·                  the cancellation of approximately $165.5 million of other pre-petition indebtedness;

 

·                  payment in full of the DIP Credit Facility in the amount of $65.2 million and related interest;

 

·                  reinstatement, payment in full, or satisfaction in full by return of collateral of all Allowed Claims (as defined in the Plan) in the amount of $21.5 million; and

 

·                  the entering into a credit facility (the “Exit Facility”), which consists of (i) a $130 million senior secured term loan credit facility issued at a discount of 7% (the “Term Loan Facility”) and (ii) a $20 million senior secured revolving credit facility (the “Revolving Facility”) by the Company on December 29, 2009, funding of the Term Loan Facility on the Effective Date, and the issuance of the Penny Warrants to the Exit Facility lenders.

 

Fresh Start Consolidated Balance Sheet

 

In accordance with accounting guidance related to financial reporting by entities in reorganization under the bankruptcy code, the Company adopted fresh-start reporting upon the Effective Date. The Company was required to apply the provisions of fresh-start reporting to its financial statements because (i) the reorganization value of the assets on the emerging entity immediately before the date of confirmation was less than the total of all post-petition liabilities and allowed claims and (ii) the holders of the existing voting shares of the Predecessors common stock immediately before confirmation (i.e., the holders of shares of the common stock of the Predecessors that were issued and outstanding prior to the commencement of the Chapter 11 Cases) received less than 50 percent of the voting shares of the emerging entity. Under the accounting guidance, fresh-start reporting is required on the date on which the plan of reorganization is confirmed by the Bankruptcy Court, but further provides that fresh-start reporting should not be applied until all material conditions to the Plan are satisfied. All material conditions to the Plan were satisfied as of March 8, 2010, the Effective Date.

 

Fresh-start reporting generally requires resetting the historical net book value of assets and liabilities to fair value by allocating the entity’s enterprise value as set forth in the Plan to its assets and liabilities pursuant to accounting guidance related to business combinations as of the Effective Date.  As set forth in the disclosure statement, relating to the Plan, as confirmed by the Bankruptcy Court on May 5, 2009, the enterprise value of the Predecessors was estimated to be in the range of $350 million to $425 million. The Predecessors’ enterprise value was estimated using various valuation methods, including (i) a comparison of the Predecessors and their projected performance to the market values of comparable companies, and (ii) a calculation of the present value of the future cash flows of the Predecessors based on financial projections.

 

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The enterprise value using the discounted cash flow method, a form of the income approach, was determined using financial projections for the period 2009 through 2013. Annual growth rates for years 2010, 2011, 2012 and 2013 were projected at 2.8%, (2.7)%, (2.1)% and 0.5%, respectively, which resulted in a four year compounded annual growth rate of (0.4)%. These financial projections were provided in the Plan and included anticipated changes associated with the Company’s reorganization plans, general market conditions, including market segment variations, as well as other factors. The marginal tax rate was assumed to be 40% and includes federal, state and local taxes. The discount rate applied was in the range of 15% to 17% which was calculated using a weighted average cost of capital analysis based on comparable statistics of the Company’s peer group. The present value of all cash flows after 2013 were calculated using terminal values which were calculated by applying exit multiples ranging from 4.5x to 5.5x to the 2013 financial projections which was then discounted in the range of 15% to 17%. The basis for the exit multiples ranging from 4.5x to 5.5x was comparable company EBITDA multiples of the Company’s peer group.

 

Based upon a reevaluation of relevant factors used in determining the range of enterprise value and updated expected future cash flow projections, the Company concluded that $387.6 million should be used for fresh start reporting purposes, as it most closely approximated fair value.  This amount was adjusted for cash in excess of normal working requirements.  After deducting the fair value of debt, this resulted in a post-emergence equity value of $324.0 million calculated as follows (in thousands, unaudited):

 

Enterprise value

 

$

387,626

 

Less: debt at fair value

 

(101,436

)

Plus: excess cash

 

37,841

 

Post-emergence equity value (common stock of $293.1 million and warrants of $30.9 million)

 

$

324,031

 

 

In accordance with fresh start reporting, the Company’s enterprise value has been allocated to existing assets using the measurement guidance provided in accounting guidance related to business combinations.  In addition, liabilities, other than deferred taxes, have been recorded at the present value of amounts estimated to be paid.  Finally, the Predecessors accumulated deficit has been eliminated, and the Company’s new debt and equity have been recorded in accordance with the Plan.  Deferred taxes have been determined in accordance with accounting guidance related to income taxes.

 

Estimates of fair value represent the Company’s best estimates, which are based on industry data and trends and by reference to relevant market rates and transactions, and discounted cash flow valuation methods, among other factors. The determination of the fair value of assets and liabilities is subject to significant estimation and assumptions and there can be no assurance that the estimates, assumptions and values reflected in the valuations will be realized and actual results could vary materially. In accordance with accounting guidance for business combinations, the preliminary allocation is subject to additional adjustments within one year from the Effective Date as improved information on asset and liability valuations becomes available.

 

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The implementation of the Plan and the effects of the consummation of the transactions contemplated therein, which included the settlement of various liabilities, repayment of Predecessors’ indebtedness, elimination of affiliate activity amongst the Predecessors, incurrence of new indebtedness and the adoption of fresh-start reporting in the Company’s condensed balance sheet as of March 7, 2010 are as follows (in thousands, unaudited):

 

 

 

Predecessors

 

 

 

 

 

Successor

 

 

 

T EH

 

CP Vicksburg

 

JMBS Casino

 

Effects of

 

Fresh Start

 

March 7,

 

 

 

 

 

March 7, 2010

 

 

 

the Plan (a)

 

Adustments (i)

 

2010

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

51,950

 

$

2,381

 

$

4,833

 

$

37,841

(b)

$

(7

)

$

96,998

 

Restricted cash

 

2,801

 

 

 

16,075

(b)

 

18,876

 

Receivables, net

 

14,441

 

23

 

101

 

(2,869

)(c)

5,322

(m)

17,018

 

Due from affiliates

 

6,436

 

121

 

629

 

(6,771

)(d)

 

415

 

Inventories

 

1,533

 

37

 

30

 

 

 

1,600

 

Prepaid expenses and other assets

 

7,534

 

173

 

155

 

 

 

7,862

 

Total current assets

 

84,695

 

2,735

 

5,748

 

44,276

 

5,315

 

142,769

 

Property and equipment, net

 

418,622

 

10,183

 

15,808

 

 

(173,314

)(j)

271,299

 

Beneficial interest in Trust

 

200,000

 

 

 

(200,000

)(g)

 

 

Goodwill

 

16,802

 

590

 

8,432

 

 

4,562

(k)

30,386

 

Intangible assets, net

 

73,806

 

318

 

20

 

 

9,599

(l)

83,743

 

Receivable from affiliate

 

 

9,838

 

11,076

 

(20,914

)(d)

 

 

Reserve related to receivable from affiliate

 

 

(7,478

)

(5,451

)

12,929

(d)

 

 

Other assets, net

 

19,495

 

157

 

87

 

1,500

(b)

(91

)

21,148

 

Total assets

 

$

813,420

 

$

16,343

 

$

35,720

 

$

(162,209

)

$

(153,929

)

$

549,345

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ DEFICIT/SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities not subject to compromise:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of debt

 

$

65,588

 

$

 

$

 

$

(63,919

)(b)

$

 

$

1,669

 

Accounts payable

 

16,643

 

282

 

81

 

(750

)

2

 

16,258

 

Due to affiliates

 

2,203

 

3,557

 

921

 

(6,681

)(d)

 

 

Accrued expenses and other current liabilities

 

37,985

 

1,961

 

1,215

 

18,148

 

14,343

(m)

73,652

 

Note payable to affiliate guarantors

 

7,000

 

 

 

(7,000

)(d)

 

 

Total current liabilities not subject to compromise

 

129,419

 

5,800

 

2,217

 

(60,202

)

14,345