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EXCEL - IDEA: XBRL DOCUMENT - Affinity GamingFinancial_Report.xls
EX-32 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - Affinity Gamingex3231mar15.htm
EX-31.2 - CFO CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - Affinity Gamingex31231mar15.htm
EX-10.3 - EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN AFFINITY GAMING AND WALTER BOGUMIL - Affinity Gamingex10331mar15.htm
EX-31.1 - CEO CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - Affinity Gamingex31131mar15.htm


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549  
 
FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2015
Commission File Number 000-54085  
 
Affinity Gaming
 
 
Nevada
 
02-0815199
 
 
State of Incorporation
 
IRS Employer Identification Number
 
3755 Breakthrough Way, Suite 300
Las Vegas, Nevada 89135
(Address, including zip code, of principal executive offices)
702-341-2400
(Registrant's telephone number, including area code)
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    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
þ
 
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  þ

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  þ    No  ¬

No established public trading market for our common stock currently exists. As of May 12, 2015, 20,315,586 of the registrant's shares of common stock were outstanding.




 



TABLE OF CONTENTS






CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the U.S. federal securities laws.  You can identify forward-looking statements by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “projects,” “may,” “will” or “should,” or the negative or other variation of these or similar words, or by discussions of strategy or risks and uncertainties, and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements we make regarding:

the Z Capital proposal and the Special Committee of the Board of Directors;

our expectations regarding the effects of our promotional campaigns and marketing program on reducing costs and increasing game play:

estimated and projected costs, capital expenditures and expense savings;

the adequacy of cash flows from operations, available cash and available amounts under our credit facility to meet future liquidity needs; and

our continued viability, our operations and results of operations.
 
We base these and other forward-looking statements on our current expectations and assumptions regarding our business, the economy and other future conditions; however, our actual results may differ materially from those contemplated by the forward-looking statements.  We caution you, therefore, that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance.  Forward-looking statements, which by their nature relate to the future, are subject to inherent uncertainties, risks and changes in circumstances which we cannot easily predict. Important factors that could cause actual results to differ materially and adversely from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions, as well as the following:

our debt service requirements may adversely affect our operations and ability to compete;

our ability to generate cash to service our substantial indebtedness depends on many factors that we cannot control;

the impact of restrictions under, and results of noncompliance with, the terms of our credit agreement;

inherent construction project risks may hinder expansion and renovation projects;

rising gasoline prices;

intense competition;

extensive regulation from gaming and other government authorities;

changes to applicable gaming and tax laws;

severe weather conditions and other natural disasters that affect visitation to our casinos;

environmental contamination and remediation costs;

pending and potential litigation;

reductions in spending as a result of economic downturns and other factors;

changes in income tax, payroll tax and health care benefits laws;

additional gaming licenses being granted in or adjacent to jurisdictions where we operate;




breaches of our information systems resulting in loss or compromise of customer data;

changes in the smoking law; and

other factors as described in “Part I. Item 1A. — Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 30, 2015, as amended (“2014 Form 10-K”).

Any forward-looking statement made by us in this report speaks only as of the date of this report.  Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.  We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.




PART I - FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS





AFFINITY GAMING
Condensed Consolidated Balance Sheets
(in thousands)


 
March 31, 2015
 
December 31, 2014
 
(Unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
150,157

 
$
135,175

Restricted cash
608

 
608

Accounts receivable, net of reserve of $128 and $159, respectively
3,363

 
3,516

Income tax receivable
76

 
171

Prepaid expense
9,332

 
10,134

Inventory
2,431

 
2,666

Total current assets
165,967

 
152,270

Property and equipment, net
255,592

 
261,111

Other assets, net
5,592

 
5,738

Intangibles, net
125,917

 
126,543

Goodwill
68,516

 
68,516

Total assets
$
621,584

 
$
614,178

LIABILITIES AND OWNERS’ EQUITY
 
 
 
Accounts payable
$
11,355

 
$
12,902

Accrued interest
6,854

 
2,353

Accrued expense
23,157

 
22,510

Deferred income taxes
1,733

 
1,438

Other current liabilities
30

 
30

Total current liabilities
43,129

 
39,233

Long-term debt
375,266

 
374,701

Other liabilities
1,760

 
1,708

Deferred income taxes
19,152

 
16,081

Total liabilities
439,307

 
431,723

 
 
 
 
Commitments and contingencies (Note 11)


 


 
 
 
 
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued or outstanding

 

Common stock, $0.001 par value; 200,000,000 shares authorized; 20,315,586 and 20,300,464 shares issued and outstanding for 2015 and 2014, respectively
20

 
20

Additional paid-in-capital
207,401

 
207,339

Accumulated deficit
(25,144
)
 
(24,904
)
Total owners’ equity
182,277

 
182,455

Total liabilities and owners’ equity
$
621,584

 
$
614,178

See notes to consolidated financial statements


AFFINITY GAMING
Unaudited Condensed Consolidated Statements of Operations
(in thousands)

 
Quarter Ended March 31,
 
2015
 
2014
REVENUE
 
 
 
Casino
$
75,497

 
$
75,954

Food and beverage
11,961

 
12,518

Lodging
7,032

 
6,907

Fuel and retail
12,576

 
13,519

Other
2,895

 
3,689

Total revenue
109,961

 
112,587

Promotional allowances
(12,725
)
 
(16,017
)
Net revenue
97,236

 
96,570

EXPENSE
 
 
 
Casino
29,881

 
31,273

Food and beverage
11,827

 
11,861

Lodging
3,909

 
4,392

Fuel and retail
9,264

 
10,888

Other
1,530

 
2,155

General and administrative
18,828

 
19,129

Depreciation and amortization
7,163

 
7,066

Corporate
3,937

 
2,937

Write downs, reserves and recoveries
135

 
23

Total expense
86,474

 
89,724

Operating income
10,762

 
6,846

Other expense
 
 
 
Interest expense, net
(7,605
)
 
(6,777
)
Total other expense, net
(7,605
)
 
(6,777
)
Income before income tax
3,157

 
69

Provision for income taxes
(3,397
)
 
(22
)
Net income (loss)
$
(240
)
 
$
47

 
 
 
 
See notes to consolidated financial statements


AFFINITY GAMING
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

 
Quarter Ended March 31,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(240
)
 
$
47

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
7,163

 
7,066

Amortization of debt costs and discounts
720

 
247

Gain on sale of property and equipment
5

 

Share-based compensation
162

 
47

Deferred income taxes
3,366

 
23

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
153

 
(230
)
Prepaid expense
801

 
736

Inventory
235

 
553

Other assets
(1
)
 
26

Accounts payable
562

 
(152
)
Accrued interest
4,501

 
4,500

Accrued expense
647

 
658

Income tax payable/receivable
95

 
59

Other liabilities
(8
)
 
(20
)
Net cash provided by operating activities
18,161

 
13,560

Cash flows from investing activities:
 
 
 
Proceeds from sale of property and equipment
1

 

Purchases of property and equipment
(3,125
)
 
(3,557
)
Net cash used in investing activities
(3,124
)
 
(3,557
)
Cash flows from financing activities:
 
 
 
Payment on long-term debt
(8
)
 
(548
)
Repurchases of vested share-based awards
(47
)
 

Net cash used in financing activities
(55
)
 
(548
)
Net increase in cash and cash equivalents
14,982

 
9,455

Cash and cash equivalents:
 
 
 
Beginning of period
135,175

 
140,857

End of period
$
150,157

 
$
150,312

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid during the period for interest
$
2,431

 
$
2,076

Supplemental schedule of non-cash investing and financing activities:
 
 
 
Purchase of property and equipment financed through accounts payable
$
316

 
$
307

Acquisition of property and equipment under capital lease

 
82

See notes to consolidated financial statements.


AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements




NOTE 1. ORGANIZATION, CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS

Organization and Business

Affinity Gaming (together with its subsidiaries, “Affinity” or “we”) is a Nevada corporation, headquartered in Las Vegas, which owns and operates 11 casinos, five of which are located in Nevada, three in Colorado, two in Missouri and one in Iowa. We also provided consulting services to Hotspur Casinos Nevada, Inc. (“Hotspur”), the operator of the Rampart Casino at the JW Marriott Resort in Las Vegas.  Under the terms of the consulting agreement, which terminated on April 1, 2015, Hotspur previously paid us a fixed annual fee in monthly installments. In addition to the monthly installments, we were entitled to an incentive fee in any year in which EBITDA (as defined in the consulting agreement) equals or exceed the threshold EBITDA for that year.


Consolidation

We include all of our subsidiaries in our consolidated financial statements, eliminating all significant intercompany balances and transactions during consolidation.


Basis of Presentation

We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"). While preparing our financial statements, we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenue and expense during the reporting period. Accordingly, actual results could differ from those estimates. Reported amounts that require us to make extensive use of estimates include the fair values of assets and liabilities related to depreciation and amortization, the estimated allowance for doubtful accounts receivable and the estimated cash flows we use in assessing the recoverability of long-lived assets, as well as the estimated fair values of certain assets related to write downs and impairments, contingencies and litigation, and claims and assessments.

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of March 31, 2015, with the audited Consolidated Balance Sheet amounts as of December 31, 2014 presented for comparative purposes, and the related unaudited Condensed Consolidated Statements of Operations and Statements of Cash Flows in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP, though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.

Our results of operations and our cash flows as of the end of the interim periods reported herein do not necessarily indicate the results we may experience for the remainder of the year or for any other future period.

Management believes our unaudited condensed consolidated interim financial statements include all the normal recurring adjustments necessary to fairly present our unaudited Condensed Consolidated Balance Sheet as of March 31, 2015, our unaudited Condensed Consolidated Statements of Operations and our unaudited Condensed Consolidated Statements of Cash Flows for all periods presented. You should read our unaudited consolidated interim financial statements and footnotes in conjunction with our consolidated financial statements and footnotes included within our 2014 Form 10-K.





NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Changes to Significant Accounting Policies

We recognize deferred tax assets and liabilities, which result from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, using enacted tax rates expected to apply to taxable income in the years in which we expect those temporary differences to be recovered or settled. Any effect on deferred tax assets or liabilities resulting from a change in enacted tax rates is included in income during the period that includes the enactment date.

We reduce the carrying amounts of deferred tax assets by a valuation allowance if we determine that, more likely than not, we will be unable to realize such assets. Such assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, our forecasts of future profitability, the duration of statutory carryforward periods, and our experience with the utilization of operating loss and tax credit carryforwards before expiration.

Excluding the above clarification regarding our income tax accounting policy, we have made no material changes to our significant accounting policies as reported in our 2014 Form 10-K.

 
Recently Issued Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board modified the Accounting Standards Codification by issuing Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40). The amendments in ASU 2014-15 place responsibility on management to determine whether substantial doubt exists regarding the entity’s ability to continue as a going concern. The amendments state that for each annual and interim reporting period, management should evaluate whether conditions or events, considered in the aggregate, raise doubt about the entity’s ability to continue as a going concern for one year after the financial statements are issued. If management determines that substantial doubt exists regarding the entity’s ability to continue as a going concern, the amendments require disclosure of the conditions or events that led to such determination, management’s evaluation of the significance of such conditions or events, and management’s plans to mitigate such conditions or events, including whether the plans alleviated substantial doubt. The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The amendments in ASU 2014-15 will not have a material effect on our financial condition, results of operations, cash flows or the reporting thereof.

In May 2014, the Financial Accounting Standards Board modified the Accounting Standards Codification by issuing ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2014-09 stipulate that an entity should recognize revenue in an amount which reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to customers, and they provide a five-step process to assist entities with achieving that core principle. The ASU also specifies the accounting for some costs to obtain or fulfill a contract with a customer. With regard to disclosures, ASU 2014-09 states that entities should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, and it requires qualitative and quantitative disclosures concerning contracts with customers, significant judgments and changes therein, and assets recognized from the costs incurred to obtain or fulfill a contract. For us, the amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods therein, and they permit either retrospective application to all prior periods or retrospective application with the cumulative effect of application recognized on the initial application date. We are currently evaluating what effect(s), the ASU will have.

We have reviewed all other recently issued accounting pronouncements and, other than those we have disclosed above or in previous filings with the SEC, we do not believe any of such pronouncements will have a material effect on our operations.


NOTE 3. RESTRICTED CASH

Restricted cash balances at March 31, 2015 and at December 31, 2014 include cash or certificates of deposit required for gaming activity in certain jurisdictions in which we operate, and for self-insured retention obligations under some of our workers compensation insurance policies.



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands, except estimated lives):
 
Estimated Life
(Years)
 
March 31,
2015
 
December 31, 2014
Building and improvements
7 - 40
 
$
184,428

 
$
183,457

Gaming equipment
3 - 10
 
66,568

 
64,826

Furniture, fixtures, and equipment
3 - 10
 
45,673

 
45,302

Leasehold improvements
7
 
196

 
196

Land
 
39,493

 
39,493

Barge
30
 
15,019

 
15,019

Construction-in-progress
 
 
1,689

 
3,815

Total property and equipment
 
 
353,066

 
352,108

Less accumulated depreciation
 
 
(97,474
)
 
(90,997
)
Total property and equipment, net
 
 
$
255,592

 
$
261,111



NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS

We determine the fair value of the indefinite-lived intangible assets other than goodwill using the discounted cash flow method, a form of the income approach.  In determining the fair values, we make significant assumptions relating to variables based on past experiences and judgments about future performance.  These variables include, but are not limited to: (1) the forecast earnings growth rate of each market, (2) risk-adjusted discount rate, and (3) expected growth rates in perpetuity to estimated terminal values.
 
The following table summarizes intangible assets by category (in thousands):
 
March 31, 2015
 
December 31, 2014
 
Gross Amount
 
Accumulated
Amortization
 
Net Amount
 
Gross Amount
 
Accumulated
Amortization
 
Net Amount
Finite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
Customer loyalty programs
$
12,164

 
$
(7,082
)
 
$
5,082

 
$
12,164

 
$
(6,581
)
 
$
5,583

Trademarks
2,982

 
(2,024
)
 
958

 
2,982

 
(1,899
)
 
1,083

 
$
15,146

 
$
(9,106
)
 
$
6,040

 
$
15,146

 
$
(8,480
)
 
$
6,666

Indefinite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
Gaming license rights
$
110,646

 
 
 
$
110,646

 
$
110,646

 

 
$
110,646

Local tradenames
9,231

 
 
 
9,231

 
9,231

 

 
9,231

 
$
119,877

 

 
$
119,877

 
$
119,877

 

 
$
119,877

Total intangible assets
$
135,023

 

 
$
125,917

 
$
135,023

 

 
$
126,543




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements




The following table summarizes the changes in goodwill by reportable segment during the quarter ended March 31, 2015:
 
Nevada
 
Midwest
 
Colorado
 
Total
Balance at December 31, 2014
$
33,665

 
$
14,622

 
$
20,229

 
$
68,516

Impairment of goodwill

 

 

 

Balance at March 31, 2015
$
33,665

 
$
14,622

 
$
20,229

 
$
68,516



We amortize definite-lived intangible assets ratably over their expected lives which, for customer loyalty programs, approximate seven years and, for trademarks, approximate 3.75 years. Overall, we are amortizing definite-lived intangible assets over a weighted-average expected life of approximately 6.5 years.

We obtain gaming license rights when we acquire gaming entities that operate in gaming jurisdictions where competition is limited, such as states where the law only allows a certain number of operators.  We do not currently amortize gaming license rights and local tradenames because we have determined they have an indefinite useful life.


NOTE 6. OTHER ASSETS

Other assets consist of the following (in thousands):
 
March 31, 2015
 
December 31, 2014
Capitalized debt issuance cost, net
$
1,934

 
$
2,081

Long-term deposits
3,173

 
3,172

Other assets
485

 
485

Total
$
5,592

 
$
5,738

 
 
 
 


NOTE 7. ACCRUED EXPENSE

Accrued expense consists of the following (in thousands):
 
March 31, 2015
 
December 31, 2014
Progressive jackpot liabilities
$
3,267

 
$
3,271

Accrued payroll and related
7,368

 
6,712

Slot club point liability
3,377

 
3,353

Litigation reserve
3,100

 
3,100

Other accrued expense
6,045

 
6,074

Total
$
23,157

 
$
22,510





AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



NOTE 8. LONG-TERM DEBT

The following table presents long-term debt balances (in thousands):
 
March 31, 2015
 
December 31, 2014
9% Senior Unsecured Notes due 2018
$
200,000

 
$
200,000

Unamortized debt issuance cost, net
(2,798
)
 
(2,986
)
Unamortized discount
(1,075
)
 
(1,148
)
9% Senior Unsecured Notes due 2018, net
196,127

 
195,866

Term loan due 2017
182,745

 
182,745

Unamortized debt issuance cost, net
(3,621
)
 
(3,933
)
Term loan due 2017, net
179,124

 
178,812

Total debt, including current portion
375,251

 
374,678

Plus: long-term portion of capital leases
15

 
23

Total long-term debt
$
375,266

 
$
374,701

 
 
 
 


On May 9, 2012, we repaid all of the $342.1 million debt then outstanding under the senior secured loans under our credit agreement dated December 31, 2010 (the “Old Credit Facility”).  We obtained the funds used to repay the Old Credit Facility by (i) issuing $200.0 million of 9.00% senior unsecured notes due 2018 (the “2018 Notes”), and (ii) borrowing under our new Credit Agreement, dated May 9, 2012, which provides for a $200.0 million term loan (the “Initial Term Loan”) due in 2017, the entirety of which the lenders disbursed to us on the closing date of the Credit Agreement, and a $35.0 million revolving credit facility (the “Revolving Credit Facility” and, together with the Initial Term Loan, the “New Credit Facility”) which remained undrawn on the closing date of the Credit Agreement. Approximately $38.6 million of cash from the issuance of the 2018 Notes and our borrowings under the New Credit Facility remained after we paid related transaction expense and repaid our Old Credit Facility.

On December 13, 2013, we completed the first amendment to the Credit Agreement. The first amendment made several changes to the Credit Agreement (see Exhibit 10.46 to our 2013 Form 10-K), including changes to interest rates. With our completion of the second amendment, described below, the first amendment’s changes regarding interest rates were superseded.

On July 22, 2014, we completed the second amendment to the Credit Agreement (the “Second Amended Credit Agreement”) governing our New Credit Facility. We incur and pay interest on the Initial Term Loan under the Second Amended Credit Agreement at an uncommitted floating rate of LIBOR plus 4.00%, subject to a LIBOR floor of 1.25%.  The Second Amended Credit Agreement also requires us to pay commitment fees related to the Revolving Credit Facility equal to an annualized rate of 0.50% on undrawn amounts when the Total Net Leverage Ratio is greater than 3.50 to 1.00, or equal to an annualized rate of 0.375% on undrawn amounts when the Total Net Leverage Ratio is less than or equal to 3.50 to 1.00.  The New Credit Facility provides an accordion feature which allows us to seek additional borrowings of up to $80.0 million subject to certain customary terms and conditions, including pro forma compliance with a maximum leverage ratio, as defined in the Second Amended Credit Agreement.

Unamortized debt issuance cost, which we are amortizing over the life of the 2018 Notes and the Initial Term Loan, totaled $8.4 million at March 31, 2015, inclusive of both the amount we report in Other assets and the amount we report as an offset to the related debt.

Under the Second Amended Credit Agreement, we must make a mandatory repayment of amounts outstanding under the Initial Term Loan in an amount equal to the net cash proceeds from any asset sale within five business days after receipt of such proceeds.  However, we do not have to make such mandatory prepayment if (i) no event of default or specified default (each as defined in the Second Amended Credit Agreement) then exists and (ii) such net cash proceeds are used to purchase assets (other than working capital) used or useful in the business (x) within 548 days following receipt of the net cash proceeds or (y) if a legally binding commitment to purchase assets is entered into within such 548 day period, within 180 days after the end of such


AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



548 day period.  In the case of non-core asset sales (as defined in the Second Amended Credit Agreement), any resulting net cash proceeds must be deposited into an account subject to an account control agreement.

Under the Second Amended Credit Agreement, a change of control would occur in certain circumstances, including (i) when any person or group acquires 50% or more on a fully diluted basis of our voting equity interests, other than any person or group who, together with their respective affiliates, beneficially owned or controlled as of July 22, 2014 at least 20% or more on a fully diluted basis of our voting equity interests, or (ii) when there is a change in the majority of continuing directors, but excluding (x) the entry into or performance of the Settlement Agreement (as described in our Current Report on Form 8-K, filed on July 28, 2014), or (y) the formation of a “group” among all or some of the parties to the Settlement Agreement or their affiliates in connection with the performance of the Settlement Agreement or any other agreement in existence on July 14, 2014. A continuing director, as defined in the Second Amended Credit Agreement, is a director on the date of borrowing, a director nominated by a majority of directors which existed on the date of borrowing, and any directors appointed in accordance with the Settlement Agreement or by any Stockholder (as defined in the Settlement Agreement) party to the Settlement Agreement.  A change of control would constitute an event of default under the Second Amended Credit Agreement and permit the acceleration by the lenders of all outstanding borrowings thereunder.

The Second Amended Credit Agreement contains customary covenants including, but not limited to, a maximum total net leverage ratio, a maximum secured leverage ratio, a minimum interest coverage ratio and maximum total annual capital expenditures.  Additionally, the Initial Term Loan is subject to mandatory annual prepayments based on generation of excess cash flow (as defined), equal to 50% of excess cash flow when the Total Net Leverage Ratio is greater than 4.00 to 1.00, equal to 25% of excess cash flow when the Total Net Leverage Ratio is greater than 3.00 to 1.00, but less than or equal to 4.00 to 1.00, and equal to zero when the Total Net Leverage Ratio is less than or equal to 3.00 to 1.00.  At March 31, 2015, the First Lien Senior Secured Net Leverage Ratio was 2.40 to 1.00, and the Interest Expense Coverage Ratio was 2.10 to 1.00. As of March 31, 2015, we remained in compliance with all debt covenants.
 
We issued the 2018 Notes pursuant to an indenture dated May 9, 2012 ("2018 Notes Indenture"). Under the 2018 Notes Indenture, we may choose to redeem some or all of the 2018 Notes at any time prior to May 15, 2015, upon providing notice to holders of the 2018 Notes, at a price equal to 100% of the principal amount of the 2018 Notes redeemed plus a “make-whole” premium as of the applicable redemption date, plus accrued interest.  Additionally, at any time prior to May 15, 2015, upon providing notice to holders of the 2018 Notes, Affinity Gaming and Affinity Gaming Finance Corp. (collectively, the “Issuers”) may choose to redeem up to 35% of the 2018 Notes with the net cash proceeds from one or more equity offerings at a redemption price equal to 109% of the principal amount of the 2018 Notes to be redeemed, plus accrued and unpaid interest to the redemption date, as long as at least 65% of the aggregate principal amount of the 2018 Notes originally issued remains outstanding immediately after giving effect to any such redemption and the redemption occurs not more than 180 days after the date of the closing of the equity offering.  On and after May 15, 2015, the Issuers are entitled to redeem all or a portion of the 2018 Notes upon providing not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid interest, if any, to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on May 15 of the years set forth in the table below.
Year
 
Percentage
2015
 
104.50
%
2016
 
102.25
%
2017 and thereafter
 
100.00
%
 

All of our current and future domestic subsidiaries that guarantee the New Credit Facility also fully and unconditionally guarantee the Issuers' payment obligations under the 2018 Notes on a senior unsecured basis.
 
The terms of the 2018 Notes Indenture, among other things, limit our ability to incur additional debt, issue preferred stock, pay dividends or make other restricted payments, make certain investments, create liens, allow restrictions on the ability of restricted subsidiaries to pay dividends or make other payments, sell assets, merge or consolidate with other entities, and enter into transactions with affiliates.
 


AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



If we experience certain kinds of changes in control, the Issuers must make an offer to purchase the 2018 Notes at a price equal to 101% of the aggregate principal amount of the 2018 Notes plus accrued and unpaid interest, if any, to but excluding the date of repurchase. A change of control, as defined in the 2018 Notes Indenture (as amended on July 25, 2014), occurs when we become aware of (i) any person or group becoming the beneficial owner of more than 50% of the total voting power of our voting stock, or (ii) the sale or other disposition of all or substantially all of our assets, but excluding (i) the entry into or performance of the Settlement Agreement or (ii) the formation of a group among all or some of the parties to the Settlement Agreement or their affiliates in connection with the performance of the Settlement Agreement or any other agreement in existence as of July 24, 2014. In addition, the Issuers, under certain circumstances, must make an offer to repurchase 2018 Notes with the proceeds of certain asset sales that they do not use to purchase new assets or otherwise apply in accordance with the terms of the 2018 Notes Indenture.

The 2018 Notes Indenture further provides that if any gaming authority requires a holder of the 2018 Notes to be licensed, qualified or found suitable under any applicable gaming law and such holder fails to apply for, or is denied, such license, qualification or not found suitable, the Issuers have the right, at their option, to (i) require such holder to dispose of its 2018 Notes or (ii) redeem such 2018 Notes at the applicable redemption price specified in the 2018 Notes Indenture. The Issuers will not be required to pay or reimburse any holder of the 2018 Notes who is required to apply for such license, qualification or finding of suitability.

We based the estimated fair value of the 2018 Notes and the New Credit Facility on Level 2 inputs using quoted prices in inactive markets and observable market data for similar, but not identical, instruments. The following table presents the carrying values and estimated fair values of our long-term debt at March 31, 2015 (in thousands):
 
Carrying Value
 
Estimated Fair
Value
9% Senior Unsecured Notes due 2018
$
196,127

 
$
186,321

Term loan due 2017
179,124

 
177,781

Total
$
375,251

 
$
364,102



NOTE 9. INCOME TAXES

We evaluated our deferred tax assets to determine if any portion of those assets would not be realized in a future period. Based on our analysis of all available evidence, which included consideration of our consolidated pre-tax losses in the 2013 and 2012 fiscal years as well as other data, we concluded that it is more likely than not that we will be unable to realize all of our net deferred tax assets and, as a result, we recorded a valuation allowance of $13.6 million during the quarter ended June 30, 2014. We had not previously recorded a valuation allowance related to any of our net deferred tax assets. Establishing the valuation allowance caused our effective income tax rates for the quarter ended March 31, 2015 to vary significantly from the federal statutory rate and from our effective income tax rates for the same period in 2014. For the quarters ended March 31, 2015 and 2014, we recorded income tax provisions of $3.4 million and $22,000, respectively.

We have analyzed our filing positions in each jurisdiction where we are required to file income tax returns. We believe our income tax filing positions and deductions will be sustained on audit and we do not anticipate any adjustments which will result in a material change to our financial position.

We filed income tax returns in the United States federal jurisdiction and in several state jurisdictions. No jurisdiction is currently examining our tax filings for any tax years.

NOTE 10. SHARE-BASED COMPENSATION

We designed our share-based compensation arrangements to advance our long-term interests; for example, by allowing us to attract employees and directors, to retain them and by aligning their interests with those of our stockholders. The amount, frequency, and terms of share-based awards may vary based on competitive practices, our operating results, government regulations and availability under our equity incentive plans. Depending upon the form of the share-based award, new shares of our common stock may be issued upon grant, option exercise or vesting of the award.



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



The Affinity Gaming Amended and Restated 2011 Long-Term Incentive Plan (“LTIP”), which the Compensation Committee of our Board of Directors approved, allows us to issue up to 2,000,000 shares of common stock, subject to stock options, or as restricted stock, to employees, officers, directors and consultants. Awards vest upon the passage of time, the attainment of performance criteria, or both. Stock options awarded under the LTIP expire five years from the grant date. Awards granted to management generally vest ratably over three years from the date of the grant, and those granted to directors generally vest in two equal tranches, the first upon issuance and the second during January of the calendar year following the year of grant. Holders of restricted stock may vote their shares and receive their proportionate share of any dividends. Restricted stock remains subject to the terms and conditions contained in the applicable award agreement and our LTIP until the recipient vests in the award.


The following table summarizes the activity related to our outstanding and non-vested stock options and restricted stock for the period ended March 31, 2015:
 
Stock Options
 
Restricted Stock
 
Outstanding
 
Non-Vested
 
Non-Vested
 
Shares
 
Weighted Average Exercise Price Per Share
 
Shares
 
Weighted Average Fair Value Per Share
 
Shares
 
Weighted Average Fair Value Per Share
December 31, 2014
177,497

 
$
10.99

 
109,315

 
$
3.31

 
70,061

 
$
11.54

Granted
212,500

 
9.75

 
212,500

 
3.98

 
20,000

 
9.75

Vested

 

 
(18,382
)
 
2.95

 
(39,821
)
 
11.28

Forfeited
(18,383
)
 
11.61

 
(18,383
)
 
2.95

 

 

March 31, 2015
371,614

 
$
10.25

 
285,050

 
$
3.76

 
50,240

 
$
11.04



As of March 31, 2015, awards representing 687,200 shares or potential shares of our common stock remained outstanding; therefore, awards representing 1,312,800 shares or potential shares of our common stock remained available for issuance under our Amended 2011 Long-Term Incentive Plan.

We account for stock option awards as liabilities. As of March 31, 2015, we have reported a $1.1 million share-based compensation liability in the Other liabilities line item.


NOTE 11. COMMITMENTS AND CONTINGENCIES

Data Security Event

In late October 2013, Affinity was contacted by law enforcement regarding fraudulent credit and debit card charges which may have been linked to a data security breach in Affinity’s information technology system. We immediately initiated a thorough investigation, supported by an independent professional forensic investigative firm, to determine the nature and scope of the compromise. In December 2013, we issued a press release advising that our payment processing system had become infected by malware, which resulted in a compromise of credit card and debit card information belonging to individuals who used their cards at restaurants, hotels and gift shops at our facilities between March 14 and October 16, 2013. As of November 14, 2013, our forensics expert advised us that our credit card processing systems were free of functioning malware. We encouraged our patrons to protect against possible identity theft or other financial loss by reviewing account statements for potential fraudulent activity during the period of exposure. In April 2014, we again learned that an unauthorized intrusion and installation of malware compromising the credit card processing environment had occurred. We then hired a different professional forensics investigation firm to conduct a thorough investigation of the more recently discovered event, and the security of our information technology environment as it relates to both incidents. As a result of the investigation, we have reason to believe that credit card and debit card information from individuals who used their cards at restaurants, hotels and gift shops at our properties between December 7, 2013 and April 28, 2014, may have been compromised. In May 2014, we issued


AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



another press release and encouraged our patrons to protect against possible identity theft or other financial loss by reviewing account statements for potential fraudulent activity during the period of exposure.

Affinity carries insurance coverage of $5.0 million for liability resulting from network security events. As of March 31, 2015, we have incurred $1.2 million in expense, including deductibles, for the security breaches. We do not expect to incur additional material expenses that are not covered by insurance, However, we cannot estimate the total amount which we will ultimately incur and be reimbursed by insurance carriers because, although our investigation has concluded, we have not received all of the assessments and evaluations from the credit card processors and issuing banks seeking to recover the cost of replacement cards and a portion of fraudulent charges, nor have we received any third-party claims as of this date. Various states attorneys general also continue to investigate the incidents.


Litigation
  
In March 2012, the Clarke County Development Corp. (“CCDC”), the local non-profit Iowa licensee for which we manage the Lakeside Hotel & Casino (“Lakeside”) in Osceola, Iowa, filed an action in Iowa state court against Affinity and Lakeside, seeking a declaratory judgment that the management contract between CCDC and Lakeside is non-assignable. We removed the case to federal court and contested CCDC's position even though we had no plans to assign the agreement. CCDC also named Lakeside, Affinity and the Iowa Racing & Gaming Commission (“IRGC”)  in a separate petition in Iowa state court seeking judicial review of the IRGC's ruling, in November 2010, which approved the Predecessor's creditors to become the owners of Affinity Gaming, LLC, and thereby the indirect owners of Lakeside, prior to our emergence from bankruptcy and notwithstanding CCDC’s objection that an assignment of the management agreement had occurred which required its consent.  On July 29, 2013, just two weeks before the hearing on judicial review, CCDC filed a voluntary dismissal without prejudice of the petition for judicial review.  On July 30, 2013, CCDC filed a motion to dismiss the federal court action without prejudice, which was granted.  CCDC’s dismissal of the state court petition and the federal court action was based upon its filing in Iowa state court on August 5, 2013 of a third lawsuit in which it seeks to enforce a settlement agreement it alleges was reached with us during a non-binding mediation held in June 2013.  On April 21, 2015, following discovery in the matter, the Court granted summary judgment in favor of the Company and against CCDC, entering judgment for the Company. CCDC has 30 days after entry of the judgment against it in which to file a notice of appeal.

In March 2013, shareholder Z Capital Partners, L.L.C. and certain of its affiliates (collectively “Z Capital”), individually as well as derivatively on behalf of Affinity Gaming, filed a complaint (the “Complaint”) against us as a nominal party and our directors as defendants in the District Court, Clark County, Nevada (the “District Court”). In July 2014, representatives of Z Capital, shareholder SPH Manager, LLC (“SPH Manager”) and certain other large shareholders reached an agreement with us to settle and dismiss with prejudice the Complaint (see our Current Report on Form 8-K, filed on July 28, 2014, for more information).

In November 2013, Chartwell Advisory Group, Ltd. (“Chartwell”), a professional services firm that facilitated filing refund requests with the Nevada Tax Commission for sales and use tax paid by certain casinos on the cost of complimentary meals for periods beginning in 2004, has filed a lawsuit against numerous Nevada casino operators, including one of our subsidiaries, alleging that it is owed a percentage of the tax casinos did not have to pay as a result of the 2012 regulation and related settlement agreement. Our subsidiary had entered into an agreement with this firm prior to the bankruptcy whereby Chartwell would receive a percentage of any refund we received from the state of sales tax previously paid by our subsidiary. Although Chartwell asserts that we owe them approximately $0.3 million, we do not believe any amounts are due to Chartwell and accordingly, we have not recorded an accrual. We intend to vigorously defend the lawsuit and our subsidiary has recently filed a motion to dismiss the claims against it, which motion is pending.

We are party to certain other claims, legal actions and complaints arising in the ordinary course of business or asserted by way of defense or counterclaim in actions we filed. We believe that our defenses are substantial in each of these matters and that we can successfully defend our legal position without material adverse effect on our consolidated financial statements.




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



Environmental Remediation

During the excavation phase at the site of our new travel center at Whiskey Pete’s Hotel & Casino in Primm, Nevada, in September 2011, we encountered several contaminated sites on the property which required soil remediation and groundwater testing. Much of the contamination resulted from underground fuel storage tanks related to a gas station operated more than 30 years ago, as well as from abandoned underground fuel lines. We also began testing at the direction of the Nevada Division of Environmental Protection (the “NDEP”) to determine the extent to which the contamination has affected the groundwater, and we have agreed to continue monitoring the groundwater for a period of at least three years.

For the three months ended March 31, 2015, we incurred approximately $0.1 million on remediation work at the Whiskey Pete’s site. From the beginning of construction through March 31, 2015, we have incurred a total of approximately $3.9 million on remediation work and received $1.6 million from our insurer. We have an insurance policy which provides coverage for environmental remediation costs of up to $5.0 million.

Although we believe that incurring additional cost related to the testing and ongoing monitoring of groundwater for contamination is probable, we cannot reasonably estimate an amount to accrue at this time because the NDEP has not told us what additional work, if any, it will require us to perform. Additionally, we believe some or all of the ongoing monitoring costs will be reimbursed by insurance as part of our initial claim. We also intend to pursue a claim for partial recovery against the environmental consultant that managed the initial remediation. The ultimate cost to us will depend on the extent of contamination found, if any, as a result of our ongoing testing, the amount of remediation we are required to perform, and the amount we are reimbursed. As we complete our ongoing monitoring obligation, we intend to analyze any cost incurred, and we will expense or capitalize it as necessary.


Asset Retirement Obligation

During the quarter ended December 31, 2014, we re-estimated the asset retirement obligation associated with a lease for real property at our Primm, Nevada location. The lease expires on June 30, 2043 and has a 25 year extension period which, for purposes of the asset retirement obligation, we assume will be exercised extending the term through June 30, 2068. First, we estimated the costs required to return the leased land to its original state using current cost data. We then used the current cost amount to estimate the cost we would incur at the end of the lease, assuming an inflation rate of 2.4%. Finally, we used a 6.7% discount rate to estimate the liability as of the current date. As a result of our re-estimation, we reduced the asset retirement obligation, as well as the fixed asset to which the obligation is associated, in the amount noted in the table below.

The following table reconciles the value of the asset retirement obligation for the periods presented.
 
March 31, 2015
 
December 31, 2014
Balance at beginning of period
$
501

 
$
773

Adjustment due to re-estimate

 
(319
)
Accretion expense
8

 
47

Balance at end of period
$
509

 
$
501

 
 
 
 




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



NOTE 12. SEGMENT INFORMATION

The following table presents the components of net revenue by segment (in thousands):
 
Quarter Ended March 31,
 
2015
 
2014
Gross revenue
 
 
 
Nevada
$
65,123

 
$
67,888

Midwest
33,376

 
33,079

Colorado
11,462

 
11,620

Total gross revenue
109,961

 
112,587

Promotional allowances
 
 
 
Nevada
(8,788
)
 
(10,819
)
Midwest
(2,538
)
 
(3,217
)
Colorado
(1,399
)
 
(1,981
)
Total promotional allowances
(12,725
)
 
(16,017
)
Net revenue
 
 
 
Nevada
56,335

 
57,069

Midwest
30,838

 
29,862

Colorado
10,063

 
9,639

Total net revenue
$
97,236

 
$
96,570



We use earnings before interest expense; income tax; depreciation and amortization; share-based compensation expense; pre-opening costs; write offs, reserves and recoveries; loss on extinguishment or modification of debt; loss on impairment of assets; gains or losses on the disposition of assets; and restructuring and reorganization costs ("Adjusted EBITDA") as a measure of profit and loss to manage the operational performance of our segments.

The following table presents Adjusted EBITDA by segment and by corporate and other (in thousands):
 
Quarter Ended March 31,
 
2015
 
2014
Adjusted EBITDA
 
 
 
Nevada
$
10,522

 
$
7,356

Midwest
9,569

 
8,256

Colorado
1,906

 
1,260

Corporate and other
(3,775
)
 
(2,890
)
Total Adjusted EBITDA
$
18,222

 
$
13,982





AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



The following tables reconcile Adjusted EBITDA to operating income (in thousands):
 
Quarter Ended March 31, 2015
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Write Downs, Reserves and Recoveries
 
Operating Income
Nevada
$
10,522

 
$
(3,688
)
 
$

 
$
(77
)
 
$
6,757

Midwest
9,569

 
(1,895
)
 

 

 
7,674

Colorado
1,906

 
(1,269
)
 

 
(58
)
 
579

Corporate and other
(3,775
)
 
(311
)
 
(162
)
 

 
(4,248
)
Total operations
$
18,222

 
$
(7,163
)
 
$
(162
)
 
$
(135
)
 
$
10,762


 
Quarter Ended March 31, 2014
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Write Downs, Reserves and Recoveries
 
Operating Income
Nevada
$
7,356

 
$
(3,664
)
 
$

 
$
(23
)
 
$
3,669

Midwest
8,256

 
(1,820
)
 

 

 
6,436

Colorado
1,260

 
(1,290
)
 

 

 
(30
)
Corporate and other
(2,890
)
 
(292
)
 
(47
)
 

 
(3,229
)
Total operations
$
13,982

 
$
(7,066
)
 
$
(47
)
 
$
(23
)
 
$
6,846


 
 

The following table presents total assets by reportable segment (in thousands):
 
March 31, 2015
 
December 31, 2014
Total assets by reportable segment
 
 
 
Nevada
$
226,427

 
$
226,897

Midwest
208,873

 
209,897

Colorado
78,971

 
78,766

Reportable segment total assets
514,271

 
515,560

Corporate and other
107,313

 
98,618

Total assets
$
621,584

 
$
614,178



Total assets in the Corporate and other line consist primarily of cash at the corporate entity.



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



The following table presents capital expenditures by reportable segment (in thousands):
 
Quarter Ended March 31,
 
2015
 
2014
Capital expenditures by reportable segment
 
 
 
Nevada
$
408

 
$
33

Midwest
484

 
665

Colorado
80

 
149

Reportable segment capital expenditures
972

 
847

Corporate
120

 
22

Total capital expenditures
$
1,092

 
$
869



NOTE 13. CONDENSED CONSOLIDATED GUARANTOR DATA

All of our current and future domestic subsidiaries which guarantee the New Credit Facility also fully and unconditionally guarantee our payment obligations under the 2018 Notes on a senior unsecured basis (see Note 8 for more information regarding our debt). All of the guarantees are joint and several, and all of the guarantor subsidiaries are wholly-owned by us.

We prepared and are presenting the condensed consolidating financial statements in this footnote using the same accounting policies which we used to prepare the financial information located elsewhere in our condensed consolidated financial statements and related footnotes. Although Affinity Gaming Finance Corp. (“AG Finance”) is a co-issuer of the 2018 Notes, we present our indebtedness as an obligation of Affinity Gaming only. AG Finance reflects no activity during any period presented, and we did not have any non-guarantor subsidiaries during any period presented.



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



Affinity Gaming and Subsidiaries
Unaudited Condensed Consolidating Balance Sheet
March 31, 2015
(000s)

 
Affinity Gaming
(Co-Issuer)
 
AG Finance
(Co-Issuer)
 
Guarantor
Subsidiaries
 
Eliminating
Entries
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
98,604

 
$

 
$
51,553

 
$

 
$
150,157

Restricted cash
469

 

 
139

 

 
608

Accounts receivable, net
461

 

 
2,902

 

 
3,363

Income tax receivable
76

 

 

 

 
76

Prepaid expense
927

 

 
8,405

 

 
9,332

Inventory

 

 
2,431

 

 
2,431

Deferred income taxes

 

 

 

 

Total current assets
100,537

 

 
65,430

 

 
165,967

Property and equipment, net
2,703

 

 
252,889

 

 
255,592

Intercompany receivables

 

 
85,782

 
(85,782
)
 

Investment in subsidiaries
547,981

 

 

 
(547,981
)
 

Other assets, net
4,074

 

 
1,518

 

 
5,592

Intangibles

 

 
125,917

 

 
125,917

Goodwill

 

 
68,516

 

 
68,516

Total assets
$
655,295

 
$

 
$
600,052

 
$
(633,763
)
 
$
621,584

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND OWNERS’ EQUITY
 
 
 
 
 
 
 
 
 
Accounts payable
$
2,163

 
$

 
$
9,192

 
$

 
$
11,355

Intercompany payables
85,782

 

 

 
(85,782
)
 

Accrued interest
6,854

 

 

 

 
6,854

Accrued expense
857

 

 
22,300

 

 
23,157

Deferred income taxes
123

 
 
 
1,610

 

 
1,733

Other current liabilities

 

 
30

 

 
30

Total current liabilities
95,779

 

 
33,132

 
(85,782
)
 
43,129

Long-term debt, less current portion
375,251

 

 
15

 

 
375,266

Other liabilities
1,250

 

 
510

 

 
1,760

Deferred income taxes
738

 

 
18,414

 

 
19,152

Total liabilities
473,018

 

 
52,071

 
(85,782
)
 
439,307

 
 
 
 
 
 
 
 
 
 
Common stock
20

 

 

 

 
20

Other equity
182,257

 

 
547,981

 
(547,981
)
 
182,257

Total owners’ equity
182,277

 

 
547,981

 
(547,981
)
 
182,277

Total liabilities and owners’ equity
$
655,295

 
$

 
$
600,052

 
$
(633,763
)
 
$
621,584



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



Affinity Gaming and Subsidiaries
Condensed Consolidating Balance Sheet
December 31, 2014
(000s)

 
Affinity Gaming
(Co-Issuer)
 
AG Finance
(Co-Issuer)
 
Guarantor
Subsidiaries
 
Eliminating
Entries
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
88,737

 
$

 
$
46,438

 
$

 
$
135,175

Restricted cash
469

 

 
139

 

 
608

Accounts receivable, net
916

 

 
2,600

 

 
3,516

Income tax receivable
171

 

 

 

 
171

Prepaid expense
1,086

 

 
9,048

 

 
10,134

Inventory

 

 
2,666

 

 
2,666

Total current assets
91,379

 

 
60,891

 

 
152,270

Property and equipment, net
3,016

 

 
258,095

 

 
261,111

Intercompany receivables

 

 
82,764

 
(82,764
)
 

Investment in subsidiaries
548,541

 

 

 
(548,541
)
 

Other assets, net
4,223

 

 
1,515

 

 
5,738

Intangibles

 

 
126,543

 

 
126,543

Goodwill

 

 
68,516

 

 
68,516

Total assets
$
647,159

 
$

 
$
598,324

 
$
(631,305
)
 
$
614,178

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND OWNERS’ EQUITY
 
 
 
 
 
 
 
 
 
Accounts payable
$
1,737

 
$

 
$
11,165

 
$

 
$
12,902

Intercompany payables
82,764

 

 

 
(82,764
)
 

Accrued interest
2,353

 

 

 

 
2,353

Accrued expense
1,152

 

 
21,358

 

 
22,510

Deferred income taxes
108

 

 
1,330

 

 
1,438

Other current liabilities

 

 
30

 

 
30

Total current liabilities
88,114

 

 
33,883

 
(82,764
)
 
39,233

Long-term debt, less current portion
374,678

 

 
23

 

 
374,701

Other liabilities
1,207

 

 
501

 

 
1,708

Deferred income taxes
705

 

 
15,376

 

 
16,081

Total liabilities
464,704

 

 
49,783

 
(82,764
)
 
431,723

 
 
 
 
 
 
 
 
 
 
Common stock
20

 

 

 

 
20

Other equity
182,435

 

 
548,541

 
(548,541
)
 
182,435

Total owners’ equity
182,455

 

 
548,541

 
(548,541
)
 
182,455

Total liabilities and owners’ equity
$
647,159

 
$

 
$
598,324

 
$
(631,305
)
 
$
614,178




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



Affinity Gaming and Subsidiaries
Unaudited Condensed Consolidating Statement of Operations
Quarter ended March 31, 2015
(000s)

 
Affinity Gaming
(Co-Issuer)
 
AG Finance
(Co-Issuer)
 
Guarantor
Subsidiaries
 
Eliminating
Entries
 
Total
REVENUE
 
 
 
 
 
 
 
 
 
Casino
$

 
$

 
$
75,497

 
$

 
$
75,497

Food and beverage

 

 
11,961

 

 
11,961

Lodging

 

 
7,032

 

 
7,032

Fuel and retail

 

 
12,576

 

 
12,576

Other

 

 
2,895

 

 
2,895

Total revenue

 

 
109,961

 

 
109,961

Promotional allowances

 

 
(12,725
)
 

 
(12,725
)
Net revenue

 

 
97,236

 

 
97,236

EXPENSE
 
 
 
 
 
 
 
 
 
Casino

 

 
29,881

 

 
29,881

Food and beverage

 

 
11,827

 

 
11,827

Lodging

 

 
3,909

 

 
3,909

Fuel and retail

 

 
9,264

 

 
9,264

Other

 

 
1,530

 

 
1,530

General and administrative

 

 
18,828

 

 
18,828

Depreciation and amortization
311

 

 
6,852

 

 
7,163

Corporate
3,937

 

 

 

 
3,937

Write downs, reserves and recoveries

 

 
135

 

 
135

Total expense
4,248

 

 
82,226

 

 
86,474

Operating income (loss)
(4,248
)
 

 
15,010

 

 
10,762

Other income (expense)
 
 
 
 
 
 
 
 
 
Interest expense, net
(7,605
)
 

 

 

 
(7,605
)
Intercompany interest income
7,648

 

 

 
(7,648
)
 

Intercompany interest expense

 

 
(7,648
)
 
7,648

 

Income from equity investments in subsidiaries
(560
)
 

 

 
560

 

Total other expense, net
(517
)
 

 
(7,648
)
 
560

 
(7,605
)
Income (loss) before income tax
(4,765
)
 

 
7,362

 
560

 
3,157

Benefit from (provision for) income taxes
4,525

 

 
(7,922
)
 

 
(3,397
)
Net income (loss)
$
(240
)
 
$

 
$
(560
)
 
$
560

 
$
(240
)



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



Affinity Gaming and Subsidiaries
Unaudited Condensed Consolidating Statement of Operations
Quarter ended March 31, 2014
(000s)
 
Affinity Gaming
(Co-Issuer)
 
AG Finance
(Co-Issuer)
 
Guarantor
Subsidiaries
 
Eliminating
Entries
 
Total
REVENUE
 
 
 
 
 
 
 
 
 
Casino
$

 
$

 
$
75,954

 
$

 
$
75,954

Food and beverage

 

 
12,518

 

 
12,518

Lodging

 

 
6,907

 

 
6,907

Fuel and retail

 

 
13,519

 

 
13,519

Other

 

 
3,689

 

 
3,689

Total revenue

 

 
112,587

 

 
112,587

Promotional allowances

 

 
(16,017
)
 

 
(16,017
)
Net revenue

 

 
96,570

 

 
96,570

EXPENSE
 
 
 
 
 
 
 
 
 
Casino

 

 
31,273

 

 
31,273

Food and beverage

 

 
11,861

 

 
11,861

Lodging

 

 
4,392

 

 
4,392

Fuel and retail

 

 
10,888

 

 
10,888

Other

 

 
2,155

 

 
2,155

General and administrative

 

 
19,129

 

 
19,129

Depreciation and amortization
292

 

 
6,774

 

 
7,066

Corporate
2,937

 

 

 

 
2,937

Write downs, reserves and recoveries

 

 
23

 

 
23

Total expense
3,229

 

 
86,495

 

 
89,724

Operating income (loss)
(3,229
)
 

 
10,075

 

 
6,846

Other income (expense)
 
 
 
 
 
 
 
 
 
Interest expense, net
(6,777
)
 

 

 

 
(6,777
)
Intercompany interest income
6,820

 

 

 
(6,820
)
 

Intercompany interest expense

 

 
(6,820
)
 
6,820

 

Income from equity investments in subsidiaries
2,217

 

 

 
(2,217
)