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EX-31.1 - EXHIBIT 31.1 - Affinity Gamingex31130sep15.htm
EX-32 - EXHIBIT 32 - Affinity Gamingex3230sep15.htm
EX-31.2 - EXHIBIT 31.2 - Affinity Gamingex31230sep15.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 September 30, 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 November 10, 2015, there were 20,377,247 shares of the registrant's common stock 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 Special Committee of the Board of Directors;

our expectations regarding the effects of our promotional campaigns and marketing program on reducing costs and improving operating margins;

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, which may adversely affect our operations and ability to compete;

our ability to generate cash to service our substantial indebtedness, which 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, which 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 laws; 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)


 
September 30, 2015
 
December 31, 2014
 
(Unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
167,251

 
$
135,175

Restricted cash
608

 
608

Accounts receivable, net of reserve of $114 and $159, respectively
2,317

 
3,516

Income tax receivable
16

 
171

Prepaid expense
7,376

 
10,134

Inventory
2,769

 
2,666

Total current assets
180,337

 
152,270

Property and equipment, net
250,606

 
261,111

Other assets, net
5,056

 
5,738

Intangibles, net
124,667

 
126,543

Goodwill
68,516

 
68,516

Total assets
$
629,182

 
$
614,178

LIABILITIES AND OWNERS’ EQUITY
 
 
 
Accounts payable
$
12,571

 
$
12,902

Accrued interest
6,827

 
2,353

Accrued expense
23,816

 
22,510

Deferred income taxes
1,441

 
1,438

Current maturities of long-term debt
13,171

 

Other current liabilities
30

 
30

Total current liabilities
57,856

 
39,233

Long-term debt
363,271

 
374,701

Other liabilities
1,895

 
1,708

Deferred income taxes
20,443

 
16,081

Total liabilities
443,465

 
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; 20,377,247 and 20,300,464 shares issued and outstanding for 2015 and 2014, respectively
20

 
20

Additional paid-in-capital
208,048

 
207,339

Accumulated deficit
(22,351
)
 
(24,904
)
Total owners’ equity
185,717

 
182,455

Total liabilities and owners’ equity
$
629,182

 
$
614,178

See notes to consolidated financial statements


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

 
Quarter Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
REVENUE
 
 
 
 
 
 
 
Casino
$
74,414

 
$
74,364

 
$
225,016

 
$
224,223

Food and beverage
12,179

 
12,118

 
36,222

 
37,413

Lodging
6,672

 
6,345

 
20,894

 
20,008

Fuel and retail
16,904

 
16,461

 
45,156

 
45,766

Other
3,770

 
3,852

 
9,933

 
11,321

Total revenue
113,939

 
113,140

 
337,221

 
338,731

Promotional allowances
(11,989
)
 
(13,909
)
 
(36,782
)
 
(45,062
)
Net revenue
101,950

 
99,231

 
300,439

 
293,669

EXPENSE
 
 
 
 
 
 
 
Casino
29,271

 
30,383

 
88,961

 
92,219

Food and beverage
12,022

 
12,213

 
35,649

 
36,379

Lodging
4,345

 
4,083

 
12,451

 
12,464

Fuel and retail
12,601

 
13,183

 
33,540

 
36,662

Other
1,961

 
2,021

 
5,329

 
6,157

General and administrative
20,652

 
21,310

 
58,970

 
60,241

Depreciation and amortization
7,251

 
7,163

 
21,619

 
21,338

Corporate
4,763

 
3,626

 
14,058

 
10,620

Write downs, reserves and recoveries
37

 
39

 
(32
)
 
(410
)
Total expense
92,903

 
94,021

 
270,545

 
275,670

Operating income
9,047

 
5,210

 
29,894

 
17,999

Other expense
 
 
 
 
 
 
 
Interest expense, net
(7,692
)
 
(8,344
)
 
(22,950
)
 
(22,128
)
Loss on extinguishment (or modification) of debt

 
(240
)
 

 
(240
)
Total other expense, net
(7,692
)
 
(8,584
)
 
(22,950
)
 
(22,368
)
Income (loss) before income tax
1,355

 
(3,374
)
 
6,944

 
(4,369
)
Benefit (provision) for income taxes
641

 
(311
)
 
(4,391
)
 
(13,636
)
Net income (loss)
$
1,996

 
$
(3,685
)
 
$
2,553

 
$
(18,005
)
 
 
 
 
 
 
 
 
See notes to consolidated financial statements


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

 
Nine Months Ended September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income (loss)
$
2,553

 
$
(18,005
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
21,619

 
21,338

Amortization of debt costs and discounts
2,216

 
1,492

Gain on sale of property and equipment
(9
)
 
(4
)
Unamortized loan fees related to extinguishment (or modification) of debt

 
240

Share-based compensation
975

 
225

Deferred income taxes
4,365

 
13,530

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
1,199

 
285

Prepaid expense
2,757

 
1,575

Inventory
(103
)
 
190

Other assets
231

 
531

Accounts payable
1,608

 
(1,348
)
Accrued interest
4,474

 
4,359

Accrued expense
1,306

 
656

Income tax receivable
155

 
166

Other liabilities
(32
)
 
(86
)
Net cash provided by operating activities
43,314

 
25,144

Cash flows from investing activities:
 
 
 
Restricted cash

 
(331
)
Proceeds from sale of property and equipment
16

 
361

Purchases of property and equipment
(11,160
)
 
(10,367
)
Net cash used in investing activities
(11,144
)
 
(10,337
)
Cash flows from financing activities:
 
 
 
Payment on long-term debt
(23
)
 
(8,711
)
Loan origination fees

 
(2,890
)
Repurchases of vested share-based awards
(71
)
 

Net cash used in financing activities
(94
)
 
(11,601
)
Net increase in cash and cash equivalents
32,076

 
3,206

Cash and cash equivalents:
 
 
 
Beginning of period
135,175

 
140,857

End of period
$
167,251

 
$
144,063

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid during the period for interest
$
16,402

 
$
16,414

Supplemental schedule of non-cash investing and financing activities:
 
 
 
Purchase of property and equipment financed through accounts payable
$
641

 
$
1,205

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 until the expiration of the related consulting agreement on April 1, 2015. Hotspur previously paid us a fixed annual fee in monthly installments.


Consolidation

We include all of our subsidiaries in our consolidated financial statements, eliminating all 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 estimates used when computing share-based compensation expense, 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 September 30, 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 September 30, 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.




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



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 April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 changes the presentation of debt issuance costs in financial statements. Under ASU 2015-03, debt issuance costs will be presented in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. In August 2015, the FASB issued an accounting standards update which clarifies that the guidance issued in ASU 2015-03 does not apply to line-of-credit arrangements.  According to the additional guidance, line-of-credit arrangements will continue to present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the arrangement. ASU 2015-03 is effective for the annual and interim periods beginning after December 15, 2015. Early application is permitted. This ASU will not have a material effect on our financial condition, results of operations, cash flows or the reporting thereof.

In August 2014, the FASB modified the Accounting Standards Codification by issuing 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 FASB 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. The amendments in ASU 2014-09, have been deferred for one year and are effective for annual reporting periods beginning after December 15, 2017, 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 ASU 2014-09 will have.



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



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.


Correction of Immaterial Error and Reclassifications

During the third quarter of 2015, the Company identified that immaterial amounts of promotional items provided to its patrons including cash back awards to casino customers were improperly recorded as either casino expenses, general and administrative expenses or promotional allowances rather than being recorded as an offset to casino revenue. In accordance with ASC Topic 605-50, Revenue Recognition, cash incentives should be recorded as an offset to revenues. The following table compares previously reported net revenues and operating expenses to as adjusted amounts, reflecting the reclassification of immaterial promotional amounts in conformity with generally accepted accounting principles (in thousands):
 
 
Quarter Ended September 30, 2014
 
Nine Months Ended September 30, 2014
 
 
Previously Reported
 
Correction
 
As Adjusted
 
Previously Reported
 
Correction
 
As Adjusted
Net Revenue
 
$
99,462

 
$
(231
)
 
$
99,231

 
$
295,653

 
$
(1,984
)
 
$
293,669

Operating Expenses
 
$
94,252

 
$
(231
)
 
$
94,021

 
$
277,654

 
$
(1,984
)
 
$
275,670


There was no impact on previously reported operating income, net income (loss) or cash flows of the Company.

The Company has evaluated the change in presentation on prior period financial statements taking into account the requirements of the Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. In accordance with the relevant guidance, we evaluated the materiality of the error from a qualitative and quantitative perspective and concluded that correcting the error did not have a material impact on any individual prior period financial statement or affect the trend of financial results. As provided by SAB No. 108, the portion of the immaterial error and reclassification that impacts previously reported net revenues and operating expenses in the quarterly periods for the six months ended June 30, 2015, and the annual and quarterly periods for the years ended December 31, 2014 and 2013 will not require the previously filed annual reports on Form 10-K or quarterly reports on Form 10-Q to be amended and the correction is permitted to be made the next time we file our prior period financial statements.

NOTE 3. RESTRICTED CASH

Restricted cash balances at September 30, 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, NET
Property and equipment, net consist of the following (in thousands, except estimated lives):
 
Estimated Life
(Years)
 
September 30,
2015
 
December 31, 2014
Building and improvements
7 - 40
 
$
184,751

 
$
183,457

Gaming equipment
3 - 10
 
70,523

 
64,826

Furniture, fixtures, and equipment
3 - 10
 
46,673

 
45,302

Leasehold improvements
7
 
196

 
196

Land
 
39,493

 
39,493

Barge
30
 
15,019

 
15,019

Construction-in-progress
 
 
4,485

 
3,815

Total property and equipment
 
 
361,140

 
352,108

Less accumulated depreciation
 
 
(110,534
)
 
(90,997
)
Total property and equipment, net
 
 
$
250,606

 
$
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):
 
September 30, 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

 
$
(8,082
)
 
$
4,082

 
$
12,164

 
$
(6,581
)
 
$
5,583

Trademarks
2,982

 
(2,274
)
 
708

 
2,982

 
(1,899
)
 
1,083

 
15,146

 
$
(10,356
)
 
4,790

 
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

 

 
$
124,667

 
$
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 nine months ended September 30, 2015:
 
Nevada
 
Midwest
 
Colorado
 
Total
Balance at December 31, 2014
$
33,665

 
$
14,622

 
$
20,229

 
$
68,516

Impairment of goodwill

 

 

 

Balance at September 30, 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, NET

Other assets, net consist of the following (in thousands):
 
September 30, 2015
 
December 31, 2014
Capitalized debt issuance cost, net
$
1,628

 
$
2,081

Long-term deposits
3,142

 
3,172

Other assets
286

 
485

Total
$
5,056

 
$
5,738

 
 
 
 


NOTE 7. ACCRUED EXPENSE

Accrued expense consists of the following (in thousands):
 
September 30, 2015
 
December 31, 2014
Progressive jackpot liabilities
$
3,254

 
$
3,271

Accrued payroll and related
7,707

 
6,712

Slot club point liability
3,239

 
3,353

Litigation reserve
3,100

 
3,100

Other accrued expense
6,516

 
6,074

Total
$
23,816

 
$
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):
 
September 30, 2015
 
December 31, 2014
9% Senior Unsecured Notes due 2018
$
200,000

 
$
200,000

Unamortized debt issuance cost, net
(2,406
)
 
(2,986
)
Unamortized discount
(925
)
 
(1,148
)
9% Senior Unsecured Notes due 2018, net
196,669

 
195,866

Term loan due 2017
182,745

 
182,745

Unamortized debt issuance cost, net
(2,972
)
 
(3,933
)
Term loan due 2017, net
179,773

 
178,812

Total debt, including current maturities
376,442

 
374,678

Less: current maturities of long-term debt
(13,171
)
 

Plus: capital leases

 
23

Total long-term debt
$
363,271

 
$
374,701

 
 
 
 

The current maturities of long-term debt at September 30, 2015, includes estimated mandatory excess cash flow payments on the Initial Term Loan.

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 new 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 largely 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 $7.0 million at September 30, 2015, inclusive of both the amount we report in Other assets, net and the amount we report as an offset to the related debt.



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



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 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 September 30, 2015, the First Lien Senior Secured Net Leverage Ratio was 2.14 to 1.00, and the Interest Expense Coverage Ratio was 2.39 to 1.00. As of September 30, 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, 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 September 30, 2015 (in thousands):
 
Carrying Value
 
Estimated Fair
Value
9% Senior Unsecured Notes due 2018
$
196,669

 
$
195,686

Term loan due 2017
179,773

 
179,324

Total
$
376,442

 
$
375,010



NOTE 9. INCOME TAXES

We continually evaluate 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 and the nine months ended September 30, 2014 to vary significantly from the federal statutory rate and from our effective income tax rates for the same periods in 2015. As a result, the benefit for income taxes was $0.6 million for the quarter ended September 30, 2015 and the provision for income taxes was $0.3 million for the quarter ended September 30, 2014. The provision for income taxes was $4.4 million and $13.6 million for the nine months ended September 30, 2015 and 2014, respectively. The provision for income taxes was primarily due to amortization of indefinite-lived intangibles.

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,


AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



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.

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 stock options and non-vested restricted stock for the period ended September 30, 2015:
 
Stock Options
 
Restricted Stock
 
Outstanding
 
Non-Vested
 
Shares
 
Weighted Average Exercise Price Per Share
 
Shares
 
Weighted Average Fair Value Per Share
December 31, 2014
177,497

 
$
10.99

 
70,061

 
$
11.54

Granted
212,500

 
9.75

 
84,101

 
9.75

Vested

 

 
(71,872
)
 
10.79

Forfeited
(18,383
)
 
11.61

 

 

Expired
(41,009
)
 
10.36

 

 

September 30, 2015
330,605

 
$
10.24

 
82,290

 
$
10.54



As of September 30, 2015, awards representing 722,490 shares or potential shares of our common stock remained outstanding; therefore, awards representing 1,277,510 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 September 30, 2015, we have reported a $1.2 million share-based compensation liability in the Other liabilities line item.


NOTE 11. COMMITMENTS AND CONTINGENCIES

Data Security Events

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 investigation 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, 2013 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


AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



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 that investigation, we have reason to believe 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 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.

We carry insurance coverage of $5.0 million for liability resulting from network security events. As of September 30, 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 monetary 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. In addition, several state attorneys general are investigating the data breach events, including how they occurred, their consequences and our responses. We are cooperating in the governmental investigation, and could be subject to fines or other obligations. We have not concluded that a loss from the investigation is probable, however, and therefore have not recorded an accrual for governmental investigation or regulatory action. We will continue to evaluate information as it becomes known and will record an estimate for loss at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable. We intend to pursue a claim against the firm that conducted the initial forensic investigation for recovery of the costs and assessments we incurred as a result of the April 2014 incident.


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, since removed to federal court in Iowa, 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 appealed the grant of summary judgment to the 8th Circuit U.S. Court of Appeals, and oral argument on the appeal was heard November 5, 2015. We do not know when a decision on the appeal will be rendered.

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, 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 a 2012 state tax 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. Discovery in the case has just begun.


AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements




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.


Environmental Remediation

During excavation 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 nine months ended September 30, 2015, we incurred approximately $0.1 million on remediation work at the Whiskey Pete’s site. From the beginning of construction through September 30, 2015, we have incurred a total of approximately $3.9 million on remediation work and received $1.9 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 filed suit in Nevada state district court 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. The litigation against the environmental consultant is in the discovery phase. As we complete our ongoing monitoring obligation, we intend to analyze any cost incurred, and we will expense or capitalize it as necessary.



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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Gross revenue
 
 
 
 
 
 
 
Nevada
$
69,467

 
$
67,204

 
$
203,221

 
$
202,802

Midwest
33,390

 
34,472

 
101,128

 
101,803

Colorado
11,082

 
11,464

 
32,872

 
34,126

Total gross revenue
113,939

 
113,140

 
337,221

 
338,731

Promotional allowances
 
 
 
 
 
 
 
Nevada
(8,013
)
 
(9,279
)
 
(25,179
)
 
(30,356
)
Midwest
(2,817
)
 
(3,397
)
 
(7,984
)
 
(10,076
)
Colorado
(1,159
)
 
(1,233
)
 
(3,619
)
 
(4,630
)
Total promotional allowances
(11,989
)
 
(13,909
)
 
(36,782
)
 
(45,062
)
Net revenue
 
 
 
 
 
 
 
Nevada
61,454

 
57,925

 
178,042

 
172,446

Midwest
30,573

 
31,075

 
93,144

 
91,727

Colorado
9,923

 
10,231

 
29,253

 
29,496

Total net revenue
$
101,950

 
$
99,231

 
$
300,439

 
$
293,669



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.

Adjusted EBITDA is a measure which does not conform to generally accepted accounting principles in the United States (“GAAP”). You should not consider this information as an alternative to any measure of performance as promulgated under GAAP, such as operating income and net income. Our calculation of Adjusted EBITDA may be different from the calculations used by other companies; therefore, comparability may be limited. We have included a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, which in our case is operating income from operations.

The following table presents Adjusted EBITDA by segment and by corporate and other (in thousands):
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Adjusted EBITDA
 
 
 
 
 
 
 
Nevada
$
10,153

 
$
5,527

 
$
31,590

 
$
19,466

Midwest
9,321

 
8,954

 
29,450

 
26,110

Colorado
1,624

 
1,557

 
4,499

 
3,971

Corporate and other
(4,455
)
 
(3,520
)
 
(13,083
)
 
(10,395
)
Total Adjusted EBITDA
$
16,643

 
$
12,518

 
$
52,456

 
$
39,152





AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



The following tables reconcile Adjusted EBITDA to operating income (in thousands):
 
Quarter Ended September 30, 2015
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Write Downs, Reserves and Recoveries
 
Operating Income
Nevada
$
10,153

 
$
(3,722
)
 
$

 
$
(37
)
 
$
6,394

Midwest
9,321

 
(1,919
)
 

 

 
7,402

Colorado
1,624

 
(1,314
)
 

 

 
310

Corporate and other
(4,455
)
 
(296
)
 
(308
)
 

 
(5,059
)
Total operations
$
16,643

 
$
(7,251
)
 
$
(308
)
 
$
(37
)
 
$
9,047


 
Quarter Ended September 30, 2014
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Write Downs, Reserves and Recoveries
 
Operating Income
Nevada
$
5,527

 
$
(3,656
)
 
$

 
$
(39
)
 
$
1,832

Midwest
8,954

 
(1,913
)
 

 

 
7,041

Colorado
1,557

 
(1,288
)
 

 

 
269

Corporate and other
(3,520
)
 
(306
)
 
(106
)
 

 
(3,932
)
Total operations
$
12,518

 
$
(7,163
)
 
$
(106
)
 
$
(39
)
 
$
5,210


 
Nine Months Ended September 30, 2015
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Write Downs, Reserves and Recoveries
 
Operating Income
Nevada
$
31,590

 
$
(11,108
)
 
$

 
$
83

 
$
20,565

Midwest
29,450

 
(5,712
)
 

 

 
23,738

Colorado
4,499

 
(3,880
)
 

 
(58
)
 
561

Corporate and other
(13,083
)
 
(919
)
 
(975
)
 
7

 
(14,970
)
Total operations
$
52,456

 
$
(21,619
)
 
$
(975
)
 
$
32

 
$
29,894



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



 
Nine Months Ended September 30, 2014
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Write Downs, Reserves and Recoveries
 
Operating Income
Nevada
$
19,466

 
$
(10,964
)
 
$

 
$
410

 
$
8,912

Midwest
26,110

 
(5,621
)
 

 

 
20,489

Colorado
3,971

 
(3,857
)
 

 

 
114

Corporate and other
(10,395
)
 
(896
)
 
(225
)
 

 
(11,516
)
Total operations
$
39,152

 
$
(21,338
)
 
$
(225
)
 
$
410

 
$
17,999


The following table presents total assets by reportable segment (in thousands):
 
September 30, 2015
 
December 31, 2014
Total assets by reportable segment
 
 
 
Nevada
$
222,829

 
$
226,897

Midwest
205,456

 
209,897

Colorado
78,169

 
78,766

Reportable segment total assets
506,454

 
515,560

Corporate and other
122,728

 
98,618

Total assets
$
629,182

 
$
614,178



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

The following table presents additions to property and equipment by reportable segment (in thousands):
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Additions to property and equipment by reportable segment
 
 
 
 
 
 
 
Nevada
$
1,970

 
$
2,433

 
$
3,468

 
$
3,666

Midwest
686

 
1,338

 
2,310

 
2,894

Colorado
529

 
385

 
1,613

 
1,021

Reportable segment additions
3,185

 
4,156

 
7,391

 
7,581

Corporate
1,490

 
311

 
1,936

 
591

Total additions to property and equipment
$
4,675

 
$
4,467

 
$
9,327

 
$
8,172




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



The following table presents cash paid for capital expenditures by reportable segment (in thousands):
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Cash paid for capital expenditures by reportable segment
 
 
 
 
 
 
 
Nevada
$
1,808

 
$
1,613

 
$
4,807

 
$
4,976

Midwest
643

 
1,207

 
2,472

 
3,558

Colorado
535

 
530

 
1,826

 
1,260

Reportable segment capital expenditures
2,986

 
3,350

 
9,105

 
9,794

Corporate
1,456

 
303

 
2,055

 
573

Total cash paid for capital expenditures
$
4,442

 
$
3,653

 
$
11,160

 
$
10,367



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 unaudited condensed consolidated interim 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
September 30, 2015
(000s)

 
Affinity Gaming
(Co-Issuer)
 
AG Finance
(Co-Issuer)
 
Guarantor
Subsidiaries
 
Eliminating
Entries
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
113,737

 
$

 
$
53,514

 
$

 
$
167,251

Restricted cash
469

 

 
139

 

 
608

Accounts receivable, net
191

 

 
2,126

 

 
2,317

Income tax receivable
16

 

 

 

 
16

Prepaid expense
971

 

 
6,405

 

 
7,376

Inventory

 

 
2,769

 

 
2,769

Total current assets
115,384

 

 
64,953

 

 
180,337

Property and equipment, net
3,575

 

 
247,031

 

 
250,606

Intercompany receivables

 

 
104,374

 
(104,374
)
 

Investment in subsidiaries
556,551

 

 

 
(556,551
)
 

Other assets, net
3,771

 

 
1,285

 

 
5,056

Intangibles

 

 
124,667

 

 
124,667

Goodwill

 

 
68,516

 

 
68,516

Total assets
$
679,281

 
$

 
$
610,826

 
$
(660,925
)
 
$
629,182

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND OWNERS’ EQUITY
 
 
 
 
 
 
 
 
 
Accounts payable
$
2,256

 
$

 
$
10,315

 
$

 
$
12,571

Intercompany payables
104,374

 

 

 
(104,374
)
 

Accrued interest
6,827

 

 

 

 
6,827

Accrued expense
1,704

 

 
22,112

 

 
23,816

Deferred income taxes
46

 
 
 
1,395

 

 
1,441

Current maturities of long-term debt
13,171

 

 

 

 
13,171

Other current liabilities

 

 
30

 

 
30

Total current liabilities
128,378

 

 
33,852

 
(104,374
)
 
57,856

Long-term debt
363,271

 

 

 

 
363,271

Other liabilities
1,369

 

 
526

 

 
1,895

Deferred income taxes
546

 

 
19,897

 

 
20,443

Total liabilities
493,564

 

 
54,275

 
(104,374
)
 
443,465

 
 
 
 
 
 
 
 
 
 
Common stock
20

 

 

 

 
20

Other equity
185,697

 

 
556,551

 
(556,551
)
 
185,697

Total owners’ equity
185,717

 

 
556,551

 
(556,551
)
 
185,717

Total liabilities and owners’ equity
$
679,281

 
$

 
$
610,826

 
$
(660,925
)
 
$
629,182



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
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 September 30, 2015
(000s)

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

 
$

 
$
74,414

 
$

 
$
74,414

Food and beverage

 

 
12,179

 

 
12,179

Lodging

 

 
6,672

 

 
6,672

Fuel and retail

 

 
16,904

 

 
16,904

Other

 

 
3,770

 

 
3,770

Total revenue

 

 
113,939