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 June 30, 2013

 

OR

 

¨ 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: 000-52975

 

American Casino & Entertainment Properties LLC

(Exact name of registrant as specified in its charter)

 

Delaware		20-0573058
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
2000 Las Vegas Boulevard South
Las Vegas, NV		89104
(Address of principal executive offices)		(Zip code)

 

(702) 380-7777

(Registrant's telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

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 ¨

 

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 x No ¨

 

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 ¨	Accelerated filer ¨
Non-accelerated filer x (Do not check if a smaller reporting company)	Smaller reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

 

 

TABLE OF CONTENTS

 

			Page
Part I		Financial Information
	Item 1.	Unaudited Condensed Consolidated Financial Statements	1
		Condensed Consolidated Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012	1
		Condensed Consolidated Statements of Operations (unaudited) for the Three months ended June 30, 2013 and June 30, 2012	2
		Condensed Consolidated Statements of Operations (unaudited) for the Six months ended June 30, 2013 and June 30, 2012	3
		Condensed Consolidated Statements of Cash Flows (unaudited) for the Six months ended June 30, 2013 and June 30, 2012	4
		Condensed Consolidated Statement of Members’ Equity (unaudited) for the Six months ended June 30, 2013	5
		Notes to Condensed Consolidated Financial Statements (unaudited)	6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
	Item 4.	Controls and Procedures	19
Part II		Other Information	21
	Item 6.	Exhibits	23

 

 

PART I-FINANCIAL INFORMATION

 

Item 1. Unaudited Condensed Consolidated Financial Statements.

 

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		As of				As of
		June 30, 2013				December 31, 2012
		(Unaudited)
		(In thousands)
Assets
Current Assets:
Cash and cash equivalents		$	72,746			$	63,169
Investments-restricted			211				211
Accounts receivable, net			4,302				3,519
Accounts receivable, net - related party			87				102
Other current assets			11,295				11,701
Total Current Assets			88,641				78,702
Property and equipment, net			1,087,438				1,097,638
Debt issuance costs, net			1,212				1,232
Intangible and other assets, net			15,632				15,967
Total Assets		$	1,192,923			$	1,193,539
Liabilities and Members' Equity
Current Liabilities:
Accounts payable		$	6,300			$	4,979
Accrued expenses			15,119				16,959
Accounts payable and accrued expenses - related party			1				6
Accrued payroll and related expenses			11,677				11,415
Current portion of capital lease obligations			311				304
Total Current Liabilities			33,408				33,663
Long-Term Liabilities:
Long-term debt, net of unamortized discount			331,870				329,196
Capital lease obligations, less current portion			1,166				1,324
Total Long-Term Liabilities			333,036				330,520
Total Liabilities			366,444				364,183
Commitments and Contingencies
Members' Equity:
Members' Equity			826,479				829,356
Total Members' Equity			826,479				829,356
Total Liabilities and Members' Equity		$	1,192,923			$	1,193,539

 

See notes to condensed consolidated financial statements.

 

 

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

		Three months ended June 30,
		2013				2012
		(Unaudited)
		(In thousands)
Revenues:
Casino		$	50,764			$	50,106
Hotel			17,881				17,792
Food and beverage			17,773				17,585
Tower, retail, entertainment and other			8,543				8,416
Gross revenues			94,961				93,899
Less promotional allowances			6,543				6,195
Net revenues			88,418				87,704
Costs And Expenses:
Casino			16,097				16,279
Hotel			8,467				9,132
Food and beverage			13,523				13,342
Other operating expenses			2,930				2,926
Selling, general and administrative			28,132				28,543
Depreciation and amortization			7,958				8,279
Loss on disposal of assets			28				35
Management fee - related party			250				250
Total costs and expenses			77,385				78,786
Income From Operations			11,033				8,918
Other Expense:
Loss on debt redemption			-				(1,112	)
Interest expense			(10,936	)			(10,599	)
Total other expense			(10,936	)			(11,711	)
Net Income (Loss)		$	97			$	(2,793	)

 

See notes to condensed consolidated financial statements.

 

 

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

		Six months ended June 30,
		2013				2012
		(Unaudited)
		(In thousands)
Revenues:
Casino		$	104,509			$	104,109
Hotel			32,605				33,395
Food and beverage			34,863				34,093
Tower, retail, entertainment and other			16,108				16,076
Gross revenues			188,085				187,673
Less promotional allowances			13,317				12,820
Net revenues			174,768				174,853
Costs And Expenses:
Casino			32,800				33,073
Hotel			16,353				17,333
Food and beverage			26,669				25,709
Other operating expenses			5,631				5,743
Selling, general and administrative			57,593				56,968
Depreciation and amortization			16,254				16,931
Pre-opening costs			114				-
Gain on disposal of assets			(3	)			(7	)
Management fee - related party			500				500
Total costs and expenses			155,911				156,250
Income From Operations			18,857				18,603
Other Expense:
Loss on debt redemption			-				(1,112	)
Interest expense			(21,734	)			(21,650	)
Total other expense			(21,734	)			(22,762	)
Net Loss		$	(2,877	)		$	(4,159	)

 

See notes to condensed consolidated financial statements.

 

 

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Six months ended June 30,
		2013				2012
		(Unaudited)
		(In thousands)
Cash Flows From Operating Activities:
Net loss		$	(2,877	)		$	(4,159	)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization			16,254				16,931
Amortization of debt issuance and debt discount costs			3,070				2,800
Loss on debt redemption			-				1,112
Gain on disposal of assets			(3	)			(7	)
Changes in operating assets and liabilities:
Accounts receivable, net			(783	)			158
Other assets			437				6
Accounts payable and accrued expenses			(266	)			1,085
Related party activity, net			10				131
Net Cash Provided by Operating Activities			15,842				18,057
Cash Flows From Investing Activities:
Acquisition of property and equipment			(5,846	)			(9,753	)
Proceeds from sale of property and equipment			108				65
Net Cash Used in Investing Activities			(5,738	)			(9,688	)
Cash Flows From Financing Activities:
Deferred financing costs			(376	)			(764	)
Payments on note payable			-				(19,125	)
Payments on capital lease obligation			(151	)			(143	)
Net Cash Used in Financing Activities			(527	)			(20,032	)
Net increase (decrease) in cash and cash equivalents			9,577				(11,663	)
Cash and cash equivalents - beginning of period			63,169				74,201
Cash and cash equivalents - end of period		$	72,746			$	62,538
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest, net of amounts capitalized		$	18,560			$	18,931
Supplemental Disclosures of Non-Cash Items:
Accrued capital expenditures		$	9			$	485

 

See notes to condensed consolidated financial statements.

 

 

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENT OF MEMBERS’ EQUITY

(Unaudited)

(In thousands)

 

		Class A Equity				Class B Equity				Total Equity
Balances at December 31, 2012		$	-			$	829,356			$	829,356
Net loss			-				(2,877	)			(2,877	)
Balances at June 30, 2013		$	-			$	826,479			$	826,479

 

See notes to condensed consolidated financial statements.

 

 

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

NOTES TO Condensed CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1. The Company

 

American Casino & Entertainment Properties LLC, or ACEP, was formed in Delaware on December 29, 2003. As used in this Quarterly Report on Form 10-Q, the terms “ACEP”, “company”, “we”, “our”, “ours”, and “us” refer to American Casino & Entertainment Properties LLC and its subsidiaries, unless the context suggests otherwise. ACEP owns and operates the Stratosphere Casino Hotel & Tower, or the Stratosphere, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder in Las Vegas, Nevada, and the Aquarius Casino Resort, or the Aquarius, in Laughlin, Nevada.

 

On April 22, 2007, American Entertainment Properties Corp., or AEP, our former direct parent, entered into a Membership Interest Purchase Agreement, or the Agreement, with W2007/ACEP Holdings, LLC, or Holdings, an affiliate of Whitehall Street Real Estate Funds, or Whitehall, a series of real estate investment funds affiliated with Goldman, Sachs & Co., to sell all of our issued and outstanding membership interests to Holdings, for approximately $1.3 billion. Pursuant to the Assignment and Assumption Agreement, dated December 4, 2007, between Holdings and W2007/ACEP Managers Voteco, LLC, or Voteco, Holdings assigned all of its rights, obligations and interests under the Agreement to Voteco. Voteco’s acquisition of ACEP, or the Acquisition, closed at a purchase price of $1.2 billion on February 20, 2008.

 

On February 23, 2010, ACEP and ACEP Finance Corp., or ACEP Finance and, together with ACEP, the Issuers, completed an exchange offer registered with the Securities and Exchange Commission, or SEC, in which the Issuers issued approximately $374.9 million aggregate principal amount of their 11% Senior Secured Notes due 2014, or SEC-Registered Notes, in exchange for $374.9 million of their outstanding, 11% Senior Secured Notes due 2014, or the Unregistered Notes, issued in a transaction pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, or the Securities Act. The SEC-Registered Notes have substantially identical terms to the Unregistered Notes, except that the SEC-Registered Notes were issued in a transaction registered under the Securities Act. The SEC-Registered Notes and the Unregistered Notes are collectively referred to herein as the 11% Senior Secured Notes.

 

Note 2. Basis of Presentation

 

The accompanying condensed consolidated financial statements included herein have been prepared by ACEP, without audit, in accordance with the accounting policies described in our 2012 audited consolidated financial statements and pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments (consisting only of those of a normal recurring nature), which are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results to be expected for any future interim period or for the entire fiscal year.

 

These condensed consolidated financial statements should be read in conjunction with the notes to the 2012 consolidated audited financial statements presented in our annual report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 21, 2013 (SEC File No. 000-52975). Our reports are available electronically by visiting the SEC website at http://www.sec.gov. You may also visit the investor relations section of the American Casino & Entertainment Properties LLC website at http://www.acepllc.com.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of ACEP and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

 

 

Note 3. Related Party Transactions

 

On February 20, 2008, we entered into a consulting agreement with Highgate Hotels, L.P., or Highgate, pursuant to which Highgate provides asset management consulting services to us. Highgate owns a less than 5% membership interest in Holdings. The agreement was amended to reduce fees payable thereunder on June 25, 2009 and Highgate converted amounts due them from ACEP to contributed capital in Holdings. The consulting agreement expired on June 20, 2013. Highgate was entitled to receive a $1.5 million per year base consulting fee for the periods through February 20, 2011 and a $1.0 million per year consulting fee for the periods after February 20, 2011, additional consulting fees up to $500,000 per year for periods after February 20, 2011 based on EBITDA results at the properties and development fees at 4% of the aggregate costs of any agreed upon development projects. We incurred Highgate fees of approximately $250,000 for both the three months ended June 30, 2013 and June 30, 2012. We incurred Highgate fees of approximately $500,000 for both the six months ended June 30, 2013 and June 30, 2012. As of June 30, 2013 and December 31, 2012, there were no amounts due to Highgate.

 

On June 16, 2008, we entered into an agreement with Travel Tripper LLC, or TTL, to utilize their technology for online hotel reservations. TTL is owned by an affiliate of Goldman Sachs (9%), an affiliate of Highgate (9%) and an employee of Highgate (40%). From June 16, 2008 to July 31, 2010, TTL was paid 4% of room revenues booked utilizing its system. As of August 1, 2010, the fee paid to TTL was reduced to 2%. As of December 4, 2012, we no longer use Travel Tripper LLC’s services. We expensed fees of approximately $0 and $50,000 for the three months ended June 30, 2013 and June 30, 2012, respectively. We expensed fees of approximately $8,000 and $101,000 for the six months ended June 30, 2013 and June 30, 2012, respectively. As of June 30, 2013 and December 31, 2012, we owed TTL approximately $0 and $5,000, respectively.

 

Archon Group, LP, or Archon, formerly an affiliate of Goldman Sachs, provides various services to us such as environmental services and insurance brokers. Effective December 31, 2012, Archon became a division within Goldman Sachs. We expensed fees of approximately $17,000 and $34,000 for the three months ended June 30, 2013 and June 30, 2012, respectively. We expensed fees of approximately $22,000 and $53,000 for the six months ended June 30, 2013 and June 30, 2012, respectively. In addition, we provided construction management services to Archon for hotels managed by them. We recorded revenues of approximately $133,000 and $193,000 for the three months and six months ended June 30, 2013, respectively compared to approximately $223,000 for both the three and six months ended June 30, 2012. As of June 30, 2013 and December 31, 2012, we owed Archon $0. As of June 30, 2013 and December 31, 2012, Archon owed us approximately $87,000 and $102,000, respectively.

 

On October 3, 2008, we entered into a participation agreement with Nor1, Inc., or Nor1, to utilize their technology to help sell perishable suite and room inventories. Nor1 gives the guest who books on-line the opportunity to book a non-guaranteed suite or upgraded rooms at a discounted rate if such is available at check-in. If the suite or upgraded room is awarded, Nor1 is paid 25% of the upgrade fee. Goldman Sachs owns less than 5% of Nor1. We expensed fees of approximately $8,000 and $14,000 for the three months ended June 30, 2013 and June 30, 2012, respectively. We expensed fees of approximately $14,000 and $24,000 for the six months ended June 30, 2013 and June 30, 2012, respectively. As of June 30, 2013 and December 31, 2012, we owed Nor1 approximately $1,000.

 

We follow a related party transaction approval policy for reviewing related person transactions. These procedures are intended to ensure that transactions with related persons are fair to us and in our best interests. If a proposed transaction appears to or does involve a related person, the transaction is presented to our audit committee for review. The audit committee is authorized to retain and pay such independent advisors as it deems necessary to properly evaluate the proposed transaction, including, without limitation, outside legal counsel and financial advisors to determine the fair value of the transaction.

 

Note 4. Intangible Assets

 

Pursuant to authoritative guidance, indefinite-lived intangible assets are subject to an annual assessment for impairment during the fourth quarter, or more frequently if there are indications of possible impairment, by applying a fair-value-based test.

 

 

Our finite-lived acquired intangible assets include our player loyalty plan and a non-compete agreement. Our indefinite-lived acquired intangible assets include trade names. Acquired assets are recorded at fair value on the date of acquisition and finite-lived assets are amortized over the estimated period to be benefited.

 

As of June 30, 2013 and December 31, 2012, we had the following intangible assets.

 

				(in thousands)
				June 30, 2013												December 31, 2012
				Gross								Net				Gross								Net
		Asset		Carrying				Accumulated				Carrying				Carrying				Accumulated				Carrying
Amortizing intangible assets:		Life		Amount				Amortization				Amount				Amount				Amortization				Amount
Player Loyalty Plan		5 Years		$	7,450			$	(7,450	)			-			$	7,450			$	(7,201	)		$	249
Non-Compete Agreement		38 Months			1,045				(1,045	)			-				1,045				(990	)			55
				$	8,495			$	(8,495	)		$	-			$	8,495			$	(8,191	)		$	304
Non-amortizing intangible assets:
Trade Name												$	15,507											$	15,507
												$	15,507											$	15,811

 

Note 5. Debt

 

Long-term debt and capital lease obligations consist of the following:

 

		As of				As of
		June 30, 2013				December 31, 2012
		(In thousands)
11% Senior Secured Notes due June 15, 2014		$	337,500			$	337,500
Unamortized discount			(5,630	)			(8,304	)
Capital lease obligations			1,477				1,628
Total long-term debt and capital lease obligations			333,347				330,824
Current portion of capital lease obligations			(311	)			(304	)
Total long-term debt and capital lease obligations, net		$	333,036			$	330,520

 

11% Senior Secured Notes

 

On August 14, 2009, we issued the 11% Senior Secured Notes pursuant to the Indenture. The 11% Senior Secured Notes mature on June 15, 2014 and bear interest at a rate of 11% per annum. Interest is computed on the basis of a 360-day year composed of twelve 30-day months and is payable semi-annually on June 15 and December 15 of each year, beginning on December 15, 2009. The obligations are jointly, severally and unconditionally guaranteed by all of the subsidiaries of ACEP other than ACEP Finance and will be so guaranteed by any future domestic subsidiaries of ACEP, subject to certain exceptions. The 11% Senior Secured Notes are collateralized by substantially all fee and leasehold real property comprising the Stratosphere, the Aquarius, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder.

 

On February 23, 2010, the Issuers completed an exchange offer registered with the SEC in which the Issuers issued approximately $374.9 million aggregate principal amount of their SEC-Registered Notes in exchange for $374.9 million of their Unregistered Notes. The SEC-Registered Notes have substantially identical terms to the Unregistered Notes, except that the SEC-Registered Notes were issued in a transaction registered under the Securities Act.

 

On May 31, 2011, the Issuers completed a redemption of five percent (5%) of aggregate principal amount of the 11% Senior Secured Notes pursuant to paragraph 5(b) of the 11% Senior Secured Notes and the redemption provisions of the Indenture (Section 3.07(b)). The redemption price for the 11% Senior Secured Notes was 102% of the principal amount of the 11% Senior Secured Notes redeemed, or $19.1 million, plus accrued interest to the redemption date of approximately $951,000. Interest on the 11% Senior Secured Notes called for redemption ceased to accrue on and after the redemption date. As a result of the redemption, a loss of $1.4 million was recognized. The loss is comprised of the redemption premium of $375,000 and a proportionate write-off of debt issuance and debt discount costs of $1.0 million.

 

 

On April 30, 2012, the Issuers completed a redemption of five percent (5%) of aggregate principal amount of the 11% Senior Secured Notes pursuant to paragraph 5(b) of the 11% Senior Secured Notes and the redemption provisions of the Indenture (Section 3.07(b)). The redemption price for the 11% Senior Secured Notes was 102% of the principal amount of the 11% Senior Secured Notes redeemed, or $19.1 million, plus accrued interest to the redemption date of approximately $773,000. Interest on the 11% Senior Secured Notes called for redemption ceased to accrue on and after the redemption date. As a result of the redemption, a loss of $1.1 million was recognized. The loss is comprised of the redemption premium of $375,000 and a proportionate write-off of debt issuance and debt discount costs of $737,000.

 

In accordance with positions established by the SEC, separate financial information with respect to the parent, co-issuer, guarantor subsidiaries and non-guarantor subsidiaries is not required as the parent and co-issuer have no independent assets or operations, the guarantees are full and unconditional and joint and several, and the total assets, stockholders’ equity, revenues, income from operations before income taxes and cash flows from operating activities of the non-guarantor subsidiaries is less than 3% of ACEP’s consolidated amounts.

 

The fair value of our debt is estimated based on market prices for the same or similar issues. The estimated fair value of the 11% Senior Secured Notes was approximately $339.2 million as of June 30, 2013.

 

On or after June 15, 2013, the Issuers could redeem the 11% Senior Secured Notes at par value, or 100% of the principal amount, plus accrued and unpaid interest to the applicable call date. On July 3, 2013, the Issuers called for redemption all of the remaining outstanding 11% Senior Secured Notes that were not accepted for purchase on July 3, 2013 in connection with their previously announced tender offer, in accordance with the redemption provisions of the Indenture. The redemption date for the remaining outstanding 11% Senior Secured Notes was August 2, 2013. The redemption price for the remaining outstanding 11% Senior Secured Notes was 100% of the principal amount of the 11% Senior Secured Notes redeemed, plus accrued but unpaid interest to the redemption date.

 

On July 3, 2013, the Company also exercised its right to satisfy and discharge the Indenture. As a result of the satisfaction and discharge of the Indenture, the Company, ACEP Finance Corp. and the guarantors of the Notes have been released from their remaining obligations under the Indenture and the 11% Senior Secured Notes.

 

We expect to recognize a loss of approximately $7.8 million during the period of the three months ended September 30, 2013 in connection with the redemption of the outstanding 11% Senior Secured Notes.

  

First Lien Facilities and Second Lien Term Loans

 

On July 3, 2013, the Company and certain of its subsidiaries (the “Guarantors”) entered into a First Lien Credit and Guaranty Agreement, or First Lien Credit Agreement, with the First Lien Lenders, Deutsche Bank AG New York Branch, or DBNY, as administrative agent, collateral agent and documentation agent, and Goldman Sachs Lending Partners LLC, or Goldman Sachs, and Deutsche Bank Securities Inc., or DBSI, as joint lead arrangers, joint bookrunners and co-syndication agents. Pursuant to the terms of the First Lien Credit Agreement, the First Lien Lenders provided the Company with senior secured loan facilities in an aggregate principal amount of $230 million consisting of $215 million of senior secured term loans, or First Lien Term Loans, and $15 million of senior secured revolving credit facility, or Revolving Facility (the Revolving Facility together with the First Lien Term Loans, the “First Lien Facilities”). The maturity date of the First Lien Term Loans is the earliest to occur of (i) July 3, 2019 and (ii) the acceleration of the First Lien Term Loans, and the maturity date of the Revolving Facility is the earliest to occur of (i) July 3, 2018 and (ii) the acceleration of the Revolving Facilities.

 

 

In addition, on July 3, 2013, the Company and the Guarantors entered into a Second Lien Credit and Guaranty Agreement, or Second Lien Credit Agreement, together with the First Lien Credit Agreement, the Credit Agreements, with the Second Lien Lenders, DBNY, as administrative agent, collateral agent and documentation agent, and Goldman Sachs and DBSI, as joint lead arrangers, joint bookrunners and co-syndication agents. Pursuant to the terms of the Second Lien Credit Agreement, the Second Lien Lenders provided the Company with secured second lien term loans in the aggregate principal amount of $120 million the Second Lien Term Loans.

 

The Credit Agreements include a number of covenants that place restrictions on how we may operate our business, including, among others (i) restrictions on incurring other indebtedness; (ii) leverage and financial maintenance covenants; and (iii) restrictions on acquisitions, significant asset disposals or making fundamental changes to our business.

 

The proceeds of the First Lien Facilities and Second Lien Term Loans were used together with cash on hand to purchase the outstanding 11% Senior Secured Notes that were tendered in connection with the Issuer’s previously announced tender offer. The remaining proceeds were used to redeem the remaining outstanding 11% Senior Secured Notes.

 

 Note 6. Legal Proceedings

 

We are, from time to time, a party to various legal proceedings arising out of our businesses. We believe, however, there are no proceedings pending or threatened against us, which, if determined adversely, would have a material adverse effect upon our financial condition, results of operations or liquidity.

 

Note 7. Subsequent Events

 

As discussed in Note 5, on July 3, 2013 we entered into a $230 million First Lien Credit Agreement consisting of $215 million of First Lien Term Loans and a $15 million Revolving Facility and $120 million of Second Lien Term Loans. The proceeds of which were used to repay our 11% Senior Secured Notes.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

With the exception of historical facts, the matters discussed in this quarterly report on Form 10-Q are forward looking statements. Forward-looking statements may relate to, among other things, future actions, future performance generally, business development activities, future capital expenditures, strategies, the outcome of contingencies such as legal proceedings, future financial results, financing sources and availability and the effects of regulation and competition. When we use the words “believe”, “intend”, “expect”, “may”, “will”, “should”, “anticipate”, “could”, “estimate”, “plan”, “predict”, “project”, or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements.

 

These forward-looking statements are based on the current plans and expectations of our management and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. These factors include, but are not limited to: the size of our indebtedness, our indebtedness' effect on our business, the adverse effect of government regulation and other matters affecting the gaming industry, increased operating costs of our properties, increased competition in the gaming industry, adverse effects of economic downturns and terrorism, our failure to make necessary capital expenditures, increased costs associated with our growth strategy, the loss of key personnel, risks associated with geographical market concentration, our failure to satisfy our working capital needs from operations or our indebtedness, our inability to raise additional money, our dependence on water, energy and technology services, adverse effects of increasing energy costs, and the availability of and costs associated with potential sources of financing.

 

You should also read, among other things, the risks and uncertainties described in the section entitled Risk Factors in Item 1A of our annual report on Form 10-K, filed with the SEC on March 21, 2013 (SEC File No. 000-52975).

 

We warn you that forward-looking statements are only predictions. Actual events or results may differ as a result of risks that we face. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update them.

 

The following discussion contains management’s discussion and analysis of financial condition and results of operations. Management’s discussion and analysis should be read in conjunction with “Item 1. Financial Statements” of this quarterly report on Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operations presented in our annual report on Form 10-K for the year ended December 31, 2012.

 

Overview

 

We own and operate four gaming and entertainment properties in Clark County, Nevada. The four properties are the Stratosphere Casino Hotel & Tower, or the Stratosphere, which is located on the Las Vegas Strip and caters to visitors to Las Vegas, two off-Strip casinos, Arizona Charlie's Decatur and Arizona Charlie's Boulder, which cater primarily to residents of Las Vegas and the surrounding communities, and the Aquarius Casino Resort, in Laughlin, Nevada, or the Aquarius, which caters to visitors to Laughlin. The Stratosphere is one of the most recognized landmarks in Las Vegas, our two Arizona Charlie’s properties are well-known casinos in their respective marketplaces and the Aquarius has the largest hotel in Laughlin. Each of our properties offers customers a value-oriented experience by providing competitive odds in our casinos, quality rooms in our hotels, award-winning dining facilities and, at the Stratosphere and Aquarius, an offering of competitive value-oriented entertainment attractions. We believe the value we offer our customers, together with a strong focus on customer service, will enable us to continue to attract customers to our properties.

 

Our operating results are greatly dependent on the volume of customers at our properties, which in turn affects the price we can charge for our non-gaming amenities. A substantial portion of our operating income is generated from our gaming operations, more specifically, slot play (including video poker). Approximately 53.5% of our gross revenue for the three months ended June 30, 2013 was generated from our gaming operations. Hotel and food and beverage sales generated similar percentages of our gross revenue during the three months ended June 30, 2013, with hotel sales representing 18.8% and food and beverage sales representing 18.7%. The majority of our revenue is cash based through customers wagering with cash or paying for non-gaming amenities with cash or credit card. Because our business is capital intensive, we rely heavily on the ability of our properties to generate operating cash flow to repay debt financing, fund maintenance capital expenditures and provide excess cash for future development.

 

 

Las Vegas is one of the largest entertainment markets in the country. Las Vegas hotel occupancy rates are among the highest of any major market in the United States. We believe that the Las Vegas gaming market has two distinct sub-segments: the tourist market, which tends to be concentrated on the Las Vegas Strip and Downtown Las Vegas, and the local market, which includes the surrounding Las Vegas area.

 

We use certain key measurements to evaluate operating revenue. Casino revenue measurements include “table games drop” and “slot coin-in,” which are measures of the total amounts wagered by patrons. “Win” or “hold percentage” represents the percentage of table games drop or slot coin-in that is retained by the casino and recorded as casino revenue. Hotel revenue measurements include hotel occupancy rate, which is the average percentage of available hotel rooms occupied during a period, and average daily room rate, which is the average price of occupied rooms per day. Food and beverage revenue measurements include number of covers, which is the number of guests served, and the average check amount per guest.

 

 

Results of Operations

 

Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

 

The following table sets forth the results of our operations for the periods indicated.

 

		Three months ended June 30,
		2013				2012
		(in millions)
Income Statement Data:
Revenues:
Casino		$	50.7			$	50.1
Hotel			17.9				17.8
Food and beverage			17.8				17.6
Tower, retail, entertainment and other			8.5				8.4
Gross revenues			94.9				93.9
Less promotional allowances			6.5				6.2
Net revenues			88.4				87.7
Costs and expenses:
Casino			16.1				16.3
Hotel			8.5				9.1
Food and beverage			13.5				13.3
Other operating expenses			2.9				2.9
Selling, general and administrative			28.4				28.9
Depreciation and amortization			8.0				8.3
Total costs and expenses			77.4				78.8
Income from operations		$	11.0			$	8.9
EBITDA Reconciliation:
Net income (loss)		$	0.1			$	(2.8	)
Interest expense			10.9				10.6
Depreciation and amortization			8.0				8.3
EBITDA		$	19.0			$	16.1

 

We believe that our presentation of EBITDA is an important supplemental measure of our operating performance to investors. EBITDA is a commonly used measure of performance in our industry which we believe, when considered with measures calculated in accordance with United States Generally Accepted Accounting Principles (GAAP), gives investors a more complete understanding of operating results before the impact of investing and financing transactions and income taxes and facilitates comparisons between us and our competitors. Although EBITDA is a non-GAAP measure, we believe this measure will be used by investors in their assessment of our operating performance and the valuation of our company.

 

Our consolidated gross revenues increased 1.1% to $94.9 million for the three months ended June 30, 2013 from $93.9 million for the three months ended June 30, 2012. Our consolidated income from operations and EBITDA increased 23.6% and 18.0% to $11.0 million and $19.0 million for the three months ended June 30, 2013 compared to $8.9 million and $16.1 million for the three months ended June 30, 2012, respectively. The increase in our gross revenues, income from operations and EBITDA are due primarily to increased revenues for our gaming and hotel divisions caused by higher slot coin-in and hold percentages for the casino, and for the hotel, higher average daily room rates. Revenues increased for all properties except the Stratosphere due to lower casino revenues and hotel occupancy.

 

 

For the three months ended June 30, 2013 and 2012, certain expenses had an impact on income from operations and EBITDA. ACEP Interactive, our licensed internet gaming subsidiary, spent approximately $195,000 during the second quarter to operate acePLAYPoker.com, which became operational in February 2013. In addition, EBITDA for the three months ended June 30, 2012 was negatively impacted by a $1.1 million charge for the early redemption of debt related to the voluntary redemption of 5% of the aggregate principal amount of our 11% Senior Secured Notes, of which approximately $737,000 was non-cash.

 

Casino

 

Casino revenues consist of revenues from slot machines, table games, poker, race and sports book, bingo and keno. Casino revenues increased 1.2% to $50.7 million for the three months ended June 30, 2013, compared to $50.1 million for the three months ended June 30, 2012. Our slot revenues increased 0.9% while table revenues were unchanged. Slot revenues increased due to a 0.2% increase in coin-in and 0.1 percentage point increase in hold compared to the three months ended June 30, 2012. For the three months ended June 30, 2013, slot machine revenues were 85.4% of casino revenues, and table game revenues were 11.4% of casino revenues, compared to 85.8% and 11.6% of casino revenues, respectively, for the three months ended June 30, 2012. Other casino revenues, consisting of race and sports book, poker, bingo and keno, increased 23.1% for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. Increased bingo revenues were partially offset by decreased race and sports book and keno revenues. Bingo revenues increased 383.3% due to a 6.2 percentage point increase in hold percentage and a 1.5% increase in patrons. Race and sports book revenues decreased 3.8% compared to the three months ended June 30, 2012 due to a combination of a 12.8% decrease in handle and a 1.1 percentage point increase in hold percentage, Keno revenues decreased 34.8% for the three months ended June 30, 2013 compared to the three months ended June 30, 2012 as our keno offerings were discontinued at the Aquarius in January. Casino operating expenses decreased 1.2% to $16.1 million for the three months ended June 30, 2013, compared to $16.3 million for the three months ended June 30, 2012. The decrease in expenses was due primarily to lower labor costs and slot participation expenses. Participation expenses consist of fees paid to game owners for the use of their games. Our casino operating margin was 68.2% for the three months ended June 30, 2013, compared to 67.5% for the three months ended June 30, 2012.

 

Hotel

 

Hotel revenues increased 0.6% to $17.9 million for the three months ended June 30, 2013 from $17.8 million for the three months ended June 30, 2012.  Overall room occupancy fell to 68.5% for the three months ended June 30, 2013 compared to 73.0% for the three months ended June 30, 2012 and the average daily room rate increased 3.2% for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  Average daily room rates increased at all properties. Occupancy at the Stratosphere declined to 82.6% for the three months ended June 30, 2013 compared to 91.7% for the three months ended June 30, 2012. The loss of a tour operator contract was responsible for the decline in occupancy at the Stratosphere as rooms sold in the tour and travel segment declined 65.6% compared to the three months ended June 30, 2012. Our hotel expenses decreased 6.6% to $8.5 million for the three months ended June 30, 2013, compared to $9.1 million for the three months ended June 30, 2012 due primarily to lower payroll and supplies expense. Due to the decrease in expenses, our hotel operating margin increased to 52.5% for the three months ended June 30, 2013 as compared to 48.9% for the three months ended June 30, 2012.

 

Food & Beverage

 

Food and beverage revenues increased 1.1% to $17.8 million for the three months ended June 30, 2013, compared to $17.6 million for the three months ended June 30, 2012.  Revenues increased at all of our properties except the Aquarius. The decline in revenues at the Aquarius was primarily due to changes to our coffee venue. Our Starbucks franchise ended on March 1, 2013 and was replaced with a temporary coffee venue with limited service. A permanent replacement is expected to open in mid-August. Overall, food covers and beverage covers decreased 3.7% and 0.8%, respectively, for the three months ended June 30, 2013, compared to the three months ended June 30, 2012.  Average revenue per cover for the three months ended June 30, 2013 increased 5.0% compared to the three months ended June 30, 2012. Our food and beverage expenses increased 1.5% to $13.5 million for the three months ended June 30, 2013 compared to $13.3 million for the three months ended June 30, 2012 due to higher labor costs and food and beverage cost of goods. Due to the increase in expenses, our food and beverage operating margin decreased slightly to 24.2% for the three months ended June 30, 2013 as compared to 24.4% for the three months ended June 30, 2012.

 

 

Tower, Retail, Entertainment and Other

 

Tower, retail, entertainment and other revenues increased 1.2% to $8.5 million for the three months ended June 30, 2013, compared to $8.4 million for the three months ended June 30, 2012. Tower revenues increased 2.5% for the three months ended June 30, 2013, compared to the three months ended June 30, 2012. Tower guests declined 7.9% while revenue per guest increased 11.3% compared to the three months ended June 30, 2012. Tower guest count for the three months ended June 30, 2013 was impacted by lower hotel occupancy. Entertainment revenue declined 23.6% for the three months ended June 30, 2013, compared to the three months ended June 30, 2012. The primary cause for the decline in revenues was lower average ticket prices for Pin Up for the three months ended June 30, 2013 compared to the Bite show for the three months ended June 30, 2012. Pin Up debuted at the Stratosphere on March 2, 2013, replacing the Bite show which closed on October 31, 2012. Retail revenue decreased 5.8% for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. Other operating income increased 1.6% for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. The increase in revenue was primarily due to higher communications commission revenues. Other operating expenses were $2.9 million for both the three months ended June 30, 2013 and June 30, 2012. Reductions in entertainer fees and labor costs were offset by increased repair and maintenance expenses.

 

Promotional Allowances

 

Promotional allowances are comprised of the retail value of goods and services provided to casino patrons under various marketing programs. As a percentage of casino revenues, promotional allowances increased to 12.8% for the three months ended June 30, 2013 from 12.4% for the three months ended June 30, 2012. This increase was primarily due to increased food and beverage promotions.

 

Selling, General and Administrative (‘‘SG&A’’)

 

Selling, general and administrative expenses are primarily comprised of payroll, marketing, advertising, utilities and other administrative expenses. These expenses decreased 1.7% to $28.4 million, or 29.9% of gross revenues, for the three months ended June 30, 2013, compared to $28.9 million, or 30.8% of gross revenues for the three months ended June 30, 2012. This decrease was primarily due to lower repair and maintenance, advertising and sales tax expenses. Repair and maintenance expenses for the three months ended June 30, 2012 included approximately $420,000 for a plumbing and drain repair project at Arizona Charlie’s Decatur and sales tax expenses included approximately $248,000 for an audit assessment related to a Nevada Division of Taxation audit. Additionally, we expensed approximately $195,000 related to our interactive gaming initiative during the three months ended June 30, 2013.

 

Interest Expense

 

Interest expense increased 2.8% to $10.9 million for the three months ended June 30, 2013, compared to $10.6 million for the three months ended June 30, 2012. The increase was due primarily to a decrease in capitalized interest. For the three months ended June 30, 2013, approximately $40,000 in interest was capitalized compared to approximately $290,000 for the three months ended June 30, 2012.

 

Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

 

The following table sets forth the results of our operations for the periods indicated.

 

 

		Six months ended June 30,
		2013				2012
		(in millions)
Income Statement Data:
Revenues:
Casino		$	104.5			$	104.1
Hotel			32.6				33.4
Food and beverage			34.9				34.1
Tower, retail, entertainment and other			16.1				16.1
Gross revenues			188.1				187.7
Less promotional allowances			13.3				12.8
Net revenues			174.8				174.9
Costs and expenses:
Casino			32.8				33.1
Hotel			16.4				17.3
Food and beverage			26.7				25.7
Other operating expenses			5.6				5.7
Selling, general and administrative			58.1				57.6
Pre-opening costs			0.1				-
Depreciation and amortization			16.3				16.9
Total costs and expenses			156.0				156.3
Income from operations		$	18.8			$	18.6
EBITDA Reconciliation:
Net loss		$	(2.9	)		$	(4.2	)
Interest expense			21.7				21.7
Depreciation and amortization			16.3				16.9
EBITDA		$	35.1			$	34.4

 

Our consolidated gross revenues increased 0.2% to $188.1 million for the six months ended June 30, 2013 from $187.7 million for the six months ended June 30, 2012. Our consolidated income from operations and EBITDA increased 1.1% and 2.0% to $18.8 million and $35.1 million for the six months ended June 30, 2013 compared to $18.6 million and $34.4 million for the six months ended June 30, 2012, respectively. The increases in our gross revenues and income from operations are due primarily to revenue growth for our gaming and food and beverage divisions caused by higher slot coin-in and table games hold percentage for the casino, and for food and beverage, higher average revenue per cover. Income from operations for the six months ended June 30, 2013 was positively impacted by a 3.6% decrease in depreciation and amortization expenses to $16.3 million from $16.9 million for the six months ended June 30, 2013, compared to the six months ended June 30, 2012, respectively. EBITDA for the six months ended June 30, 2012 were negatively impacted by a $1.1 million charge for the early redemption of debt related to the voluntary redemption of 5% of the aggregate principal amount of our 11% Senior Secured Notes, of which approximately $737,000 was non-cash.

 

Casino

 

Casino revenues consist of revenues from slot machines, table games, poker, race and sports book, bingo and keno. Casino revenues increased 0.4% to $104.5 million for the six months ended June 30, 2013, compared to $104.1 million for the six months ended June 30, 2012. Our slot and table revenues increased 0.8% and decreased 2.5%, respectively. Slot revenues increased due to a 0.2% increase in coin-in and a 0.1 percentage point increase slot hold while table revenues decreased due to a 5.0% decline in table games drop while hold increased 0.5 percentage points compared to the six months ended June 30, 2012. The decline in table games drop was attributable to the Stratosphere and Arizona Charlie’s properties. For the six months ended June 30, 2013, slot machine revenues were 85.6% of casino revenues, and table game revenues were 11.3% of casino revenues, compared to 85.2% and 11.6% of casino revenues, respectively, for the six months ended June 30, 2012. Other casino revenues, consisting of race and sports book, poker, bingo and keno, were unchanged for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. Higher bingo revenues were offset by lower race and sports book and keno revenues. Bingo revenues increased 83.0% due to a 3.6 percentage point increase in hold. Race and sports book revenues declined 11.3% compared to the six months ended June 30, 2012 due to a combination of a 4.5% decrease in handle and a 0.8 percentage point decrease in hold. Keno revenues decreased 62.6% compared to the six months ended June 30, 2012 as our keno offerings were discontinued at the Aquarius in January. Casino operating expenses decreased 0.9% to $32.8 million for the six months ended June 30, 2013, compared to $33.1 million for the six months ended June 30, 2012. The decrease in expenses was due primarily to lower labor costs, revenue taxes and slot participation expenses. Participation expenses consist of fees paid to game owners for the use of their games. As a result, our casino operating margin was 68.6% for the six months ended June 30, 2013, compared to 68.2% for the six months ended June 30, 2012.

 

 

Hotel

 

Hotel revenues decreased 2.4% to $32.6 million for the six months ended June 30, 2013 from $33.4 million for the six months ended June 30, 2012.  Overall room occupancy decreased to 66.3% for the six months ended June 30, 2013 compared to 69.5% for the six months ended June 30, 2012 and the average daily room rate increased 0.7% for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. The decline in overall room occupancy was due largely to declines at the Stratosphere, which fell to 80.1% for the six months ended June 30, 2013, compared to 86.9% for the six months ended June 30, 2012. The loss of a tour operator contract was responsible for the decline in occupancy at the Stratosphere as rooms sold in the tour and travel segment declined 67.1% compared to the six months ended June 30, 2012. Our hotel operating expenses decreased 5.2% to $16.4 million for the six months ended June 30, 2013, compared to $17.3 million for the six months ended June 30, 2012. The decrease in hotel expenses was due primarily to lower labor costs and supplies expenses. Due to the decrease in expenses, our hotel operating margin increased to 49.7% for the six months ended June 30, 2013 as compared to 48.2% for the six months ended June 30, 2012.

 

Food & Beverage

 

Food and beverage revenues increased 2.3% to $34.9 million for the six months ended June 30, 2013, compared to $34.1 million for the six months ended June 30, 2012.  Food and beverage revenues increased for all properties except Arizona Charlie’s Boulder. Revenues at the Aquarius for the six months ended June 30, 2012 were negatively impacted by closures of certain of our food venues and bars to replace plumbing, equipment and fixtures during the three months ended March 31, 2012. Overall, food covers and beverage covers decreased 3.3% and 1.6%, respectively, for the six months ended June 30, 2013, compared to the six months ended June 30, 2012.  Average revenue per cover for the six months ended June 30, 2013 increased 5.8% compared to the six months ended June 30, 2012. Our food and beverage expenses increased 3.9% to $26.7 million for the six months ended June 30, 2013 compared to $25.7 million the six months ended June 30, 2012. The increase in our food and beverage expenses was due primarily to higher labor costs and a 0.4 percentage point increase in our cost of goods sold. Due to the increase in expenses, our food and beverage operating margin decreased to 23.5% for the six months ended June 30, 2013 as compared to 24.6% for the six months ended June 30, 2012.

 

Tower, Retail, Entertainment and Other

 

Tower, retail, entertainment and other revenues were $16.1 million for both the six months ended June 30, 2013 and 2012. Tower revenues increased 2.0% for the six months ended June 30, 2013, compared to the six months ended June 30, 2012. Tower guests declined 6.4% while revenue per guest increased 9.1% for the six months ended June 30, 2013 compared to the three months ended June 30, 2012. Entertainment revenue declined 34.2% for the six months ended June 30, 2013, compared to the six months ended June 30, 2012, due primarily to fewer performances and lower average ticket prices. The Bite show at the Stratosphere closed on October 31, 2012 and its replacement, Pin Up, debuted on March 2, 2013. Retail revenue increased 0.9% for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. Other operating income increased 5.9% for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. The increase in revenue was primarily due to higher communications commission revenues. Other operating expenses decreased 1.8% to $5.6 million for the six months ended June 30, 2013 compared to $5.7 million for the six months ended June 30, 2012. This decrease was primarily due to a reduction in entertainer fees.

 

 

Promotional Allowances

 

Promotional allowances are comprised of the retail value of goods and services provided to casino patrons under various marketing programs. As a percentage of casino revenues, promotional allowances increased to 12.7% for the six months ended June 30, 2013 from 12.3% for the six months ended June 30, 2012. This increase was primarily due to increased food, beverage and room promotions.

 

Pre-opening Expenses

 

We incurred $114,000 in pre-opening costs for the six months ended June 30, 2013 compared to none for the six months ended June 30, 2012. Pre-opening costs for the six months ended June 30, 2013 consisted primarily of equipment, labor costs and supplies for Pin Up, a burlesque show at the Stratosphere. Pin Up opened to the public on March 2, 2013.

 

Selling, General and Administrative (‘‘SG&A’’)

 

Selling, general and administrative expenses are primarily comprised of payroll, marketing, advertising, utilities and other administrative expenses. These expenses increased 0.9% to $58.1 million, or 30.9% of gross revenues, for the six months ended June 30, 2013, compared to $57.6 million, or 30.7% of gross revenues for the six months ended June 30, 2012. This increase was primarily due to higher repair and maintenance and maintenance contract expenses, partially offset by reduced advertising and utilities expenses. Repair and maintenance expenses for the six months ended June 30, 2013 include approximately $1.0 million for Aquarius repair projects. In addition, we expensed approximately $434,000 related to our interactive gaming initiative during the six months ended June 30, 2013.

 

Interest Expense

 

Interest expense was $21.7 million for both the six months ended June 30, 2013 and 2012.

 

Financial Condition

 

Liquidity and Capital Resources

 

The following liquidity and capital resources discussion contains certain forward-looking statements with respect to our business, financial condition, results of operations, dispositions, acquisitions, renovation projects and our subsidiaries, which involve risks and uncertainties that cannot be predicted or quantified, and consequently, actual results may differ materially from those expressed or implied herein. Such risks and uncertainties include, but are not limited to, financial market risks, the ability to maintain existing management, competition within the gaming industry, the cyclical nature of the hotel business and gaming business, economic conditions, regulatory matters and litigation and other risks described in our filings with the SEC. In addition, renovation projects entail significant risks, including shortages of materials or skilled labor, unforeseen regulatory problems, work stoppages, weather interference, floods, unanticipated cost increases, and disruption to business. The anticipated costs and construction periods are based on budgets, conceptual design documents and construction schedule estimates. There can be no assurance that the budgeted costs or construction period will be met. All forward-looking statements are based on our current expectations and projections about future events.

 

As of June 30, 2013 we had $72.7 million in cash and cash equivalents compared to $62.5 million on June 30, 2012. Net cash provided by operating activities was $15.9 million for the six months ended June 30, 2013 compared to $18.1 million for the six months ended June 30, 2012. The decrease in cash flow from operations was driven primarily by changes in working capital related to accounts receivable and accrued expenses and a slight decline in net revenues.

 

 

During the six months ended June 30, 2013, our total capital expenditures were $5.9 million (including approximately $9,000 in non-cash items), of which approximately $1.4 million was spent on slot machine replacements and conversions, $1.4 million on replacement building controls at the Stratosphere and Aquarius, $800,000 for renovations to our rooms, public areas and food and beverage venues and $2.3 million on our facilities and operations. For the six months ended June 30, 2012, our total capital expenditures were $10.2 million (including approximately $485,000 in non-cash items), of which approximately $1.2 million was spent on slot machine replacements and conversions, $1.3 million on a replacement fire safety system at the Stratosphere, $1.7 million for renovations to our hotel rooms, public areas and food and beverage venues, $1.0 million on information technology and $5.0 million on our facilities and operations.

 

Our primary cash requirements for the next twelve months are expected to include (i) expenses associated with ongoing day-to-day operations, (ii) interest payments on indebtedness, (iii) payments for design and development costs of future projects, and (iv) regular maintenance and other capital expenditures. We currently anticipate that we will spend approximately $18.2 million on regular maintenance and renovation capital projects during 2013, which will be evaluated throughout the year.

 

On July 3, 2013, we entered into a $230 million First Lien Credit Agreement consisting of $215 million of First Lien Term Loans and a $15 million Revolving Facility and $120 million of Second Lien Term Loans. The proceeds from these transactions were used to repay the 11% Senior Secured Notes.

 

 

We believe our cash flow from operations and our cash balances will be sufficient to fund our operations, interest payments and capital expenditures for the next 12 months. However, our ability to fund our operations, make payments on our debt and fund planned capital expenditures will depend on our ability to generate cash in the future. This is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control as well as the factors described in the section entitled Risk Factors in Item 1A of our annual report on Form 10-K, filed with the SEC on March 21, 2013 (SEC File No.).

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary risk exposure relates to interest rate risk. All of our long-term debt is subject to fixed rates of interest at 11% and does not mature until June 15, 2014.

 

The fair value of our debt is estimated based on the quoted market prices for the same or similar issues. ACEP issued the Unregistered Notes on August 14, 2009. The estimated fair value of the 11% Senior Secured Notes was approximately $339.2 million as of June 30, 2013.

 

For the six months ended June 30, 2013, we incurred approximately $21.7 million in interest expense.

 

We do not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure.

 

Item 4. Controls and Procedures

 

Our principal executive officer and principal financial officer, based on their evaluation of our disclosure controls and procedures (as such terms are defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q, have concluded that our disclosure controls and procedures are effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

 

There were no changes in our internal control over financial reporting that occurred during the first six months of 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

 

PART II-OTHER INFORMATION

 

You should also read, among other things, the risks and uncertainties described in the section entitled Risk Factors in Item 1A of our annual report on Form 10-K, filed with the SEC on March 21, 2013 (SEC File No.). There were no material changes to those risk factors during the three months ended June 30, 2013.

 

Item 6. Exhibits

 

The list of exhibits required by Item 601 of Regulation S-K and filed as part of this report is set forth in the exhibits index.

 

 

SIGNATURES

 

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

 

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC

 

	By:	/s/ EDWARD W. MARTIN, III
		Edward W. Martin, III
		Authorized Officer, Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)
	Date:	August 13, 2013

 

 

EXHIBITS INDEX

 

EXHIBIT NO.	DESCRIPTION
31.1	Certification of Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*	The following information from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012 (audited); (ii) Unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2013 and 2012; (iii) Unaudited Condensed Consolidated Statements of Operations for the six months ended June 30, 2013 and 2012; (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012; (v) Unaudited Condensed Consolidated Statement of Members’ Equity for the six months ended June 30, 2013; and (vi) Notes to the Unaudited Condensed Consolidated Financial Statements.

 

*Pursuant to rule 406T of Regulation S-T, the XBRL related information in this exhibit is furnished and not filed or a part of a registration statement or prospectus for the purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for the purposes of Section 18 of the Securities Exchange of 1934, as amended, and otherwise is not subject to liability under these sections.