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EX-23 - EXHIBIT 23 - Affinity Gamingex23.htm
EX-14.1 - EXHIBIT 14.1 - Affinity Gamingex141.htm
EX-99.1 - EXHIBIT 99.1 - Affinity Gamingex991.htm
EX-10.35 - EXHIBIT 10.35 - Affinity Gamingex1035.htm
EX-32 - EXHIBIT 32 - Affinity Gamingex322015.htm
EX-31.1 - EXHIBIT 31.1 - Affinity Gamingex3112015.htm
EX-31.2 - EXHIBIT 31.2 - Affinity Gamingex3122015.htm
EX-10.34 - EXHIBIT 10.34 - Affinity Gamingex1034.htm


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

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 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
 
702-341-2400
 
 
Address, including zip code, of principal executive offices
 
Registrant's telephone number, including area code
 
 
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ
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 Website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨
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
As of June 30, 2015, the aggregate market value of voting and non-voting common equity held by non-affiliates of Affinity Gaming could not be calculated as no established public trading market for our equity exists.

Applicable only to registrants involved in bankruptcy proceedings during the preceding five years
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 March 15, 2016, 20,377,247 shares of our common stock were outstanding.
Documents Incorporated By Reference
Information required by Part III of this Annual Report on Form 10-K is incorporated by reference to portions of our definitive proxy statement for our 2016 annual meeting of stockholders which we will file with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2015.
 



TABLE OF CONTENTS

PART I
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
PART II
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
PART III
 
 
Item 10.
Item 11.
Item 12
Item 13.
Item 14.
 
 
 
PART IV
 
 
Item 15.
 
 
 
 
 




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:

our ability to attract and retain customers;

our expectation that customers will continue to face economic uncertainty and that their discretionary spending will remain at reduced levels in the near term;

expectations regarding the operation of slot machines and table games at our casino properties;

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

our anticipation that growth will come from the improvement and expansion of our existing properties or through strategic acquisitions;

our ability to stabilize or improve cash flows from our properties by employing capital;

implementation of business initiatives, including mobile gaming, our player loyalty club and “A-Play” card;

implementation and results of key cost controls and expense savings programs, including player loyalty club points refinements, and minimum balances for redemptions;

competition, including our casinos’ competitive advantages, the threat of new market entrants in our existing locations, increases in popularity of internet gambling, the potential issuance of additional gaming licenses in Midwest Markets and potential introduction of video lottery terminals in Colorado;

potential imposition by state and local licensing authorities of limits, conditions or suspension of gambling or liquor licenses for violations of laws or regulations;

the potential need to make additional expenditures to remain in, or to achieve, compliance with environmental laws;

the impact of new laws or regulations, or material differences in interpretations by courts or governmental authorities;

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 and notes indenture;

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 “Risk Factors” of this Annual Report on Form 10-K for the year ended December 31, 2015 (“2015 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

ITEM 1.
BUSINESS.

OUR COMPANY

We are a Nevada corporation, headquartered in Las Vegas, which owns and operates 11 casinos in four states—five in Nevada, three in Colorado, two in Missouri and one in Iowa. In addition to our diverse, multi-jurisdictional casino operations, we provided consulting services to the operator of the Rampart Casino at the JW Marriott Resort in Las Vegas until that consulting arrangement expired on April 1, 2015.

On December 20, 2012, we converted Affinity Gaming, LLC from a Nevada limited liability company into a Nevada corporation (the “Conversion”), and for purposes of Rule 12g-3(a), we are the successor issuer to Affinity Gaming, LLC. In relation to our emergence from Chapter 11 bankruptcy proceedings on December 31, 2010 we use the term “Successor” to refer to Affinity Gaming and the term “Predecessor” to refer to Herbst Gaming, Inc. and its subsidiaries. Each of these transactions is described further in our previous filings with the U.S. Securities and Exchange Commission.


OUR BUSINESS STRATEGY

We focus on providing an enticing entertainment option for value-oriented, high frequency customers. We also cater to drive-in tourist patrons whom we can entice to repeat their visits. Generating customer satisfaction and loyalty is critical to maintaining these high frequency patrons.

Local patrons typically are gaming customers who seek convenient locations that offer affordable dining and a pleasant atmosphere. Proximity and value initially attracts a customer to our casino properties. We seek to provide attentive customer service in a friendly, casual atmosphere with a clean, safe environment offering a wide selection of gaming options including slot machines and table games.

We anticipate that our growth will come from the improvement and expansion of our existing properties and through strategic acquisitions. Our key focus remains on increasing the operating margins of our existing properties through a combination of stringent expense management and competitive market-based pricing. We continuously review the operating performance of each of our properties to assess the feasibility of enhancing their performance through targeted marketing campaigns designed to competitively reward our repeat customers, and expense management programs. We also assess growth opportunities through capital investments in our properties. In doing so, we analyze the anticipated relative costs and benefits of the project or capital expenditure under consideration against the availability of cash flows generated through operations and available debt financing along, with competitive and other relevant factors.





OUR PROPERTIES

Casino Operations

The majority of our casino properties focus on local customers, with an emphasis on slot machine play. The following table summarizes our casino operations as of December 31, 2015:
Property
 
Location
 
Year Built1
 
Acres
 
Gaming Square Feet
 
Slots
 
Table Games
 
Hotel Rooms
 
Parking Spaces
 
Nevada
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Primm Valley
 
Primm
 
1990
 
63

 
38,000

 
754

 
26

 
626

 
1,100

 
Buffalo Bill’s
 
Primm
 
1994
 
61

 
62,000

 
856

 
28

 
1,243

 
2,960

 
Whiskey Pete’s
 
Primm
 
1977
 
80

 
36,000

 
551

 
10

 
779

 
1,897

 
Silver Sevens
 
Las Vegas
 
2006
 
12

 
25,000

 
817

 
8

 
327

 
885

 
Rail City
 
Sparks
 
2007
 
8

 
24,000

 
852

 
5

 

 
541

 
Total Nevada
 
 
 
 
 
224

 
185,000

 
3,830

 
77

 
2,975

 
7,383

 
Midwest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
St Jo Frontier
 
St. Joseph, MO
 
2005
 
48

 
13,000

 
509

 
10

 

 
636

 
Mark Twain2
 
LaGrange, MO
 
2001
 
21

 
18,000

 
636

 
13

 

 
591

 
Lakeside 2
 
Osceola, IA
 
2005
 
214

 
36,000

 
905

 
12

 
150

 
1,298

 
Total Midwest
 
 
 
 
 
283

 
67,000

 
2,050

 
35

 
150

 
2,525

 
Colorado
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Black Hawk Casinos
 
Black Hawk, CO
 
3 
 
4

 
36,400

 
1,049

 
19

 

 
717

 
Total
 
 
 
 
 
511

 
288,400

 
6,929

 
131

 
3,125

 
10,625

 

(1)    This column presents the year the property was built or most recently remodeled.
(2)    Mark Twain and Lakeside also have 8 and 47 RV spaces, respectively.
(3)    Golden Mardi Gras Casino, Golden Gulch Casino and Golden Gate Casino were built or remodeled in 2000, 2003 and 1992, respectively.


Nevada Casinos

Primm Casinos

Affinity Gaming owns the improvements and leases the real estate on which Primm Valley Resort & Casino (“Primm Valley”), Buffalo Bill’s Resort & Casino (“Buffalo Bill’s”) and Whiskey Pete’s Hotel & Casino (“Whiskey Pete’s” and together with Primm Valley and Buffalo Bill’s, the “Primm Casinos”) are located in Primm, Nevada. Primm is on the Nevada-California state line along Interstate 15, the major interstate route between Los Angeles and Las Vegas. The Primm Casinos collectively own and manage three gas station/convenience stores, which include two Starbucks Coffee outlets and other nationally-known quick-serve restaurants, as well as one California Lottery store. Two 18-hole, Tom Fazio-designed golf courses with a full-service restaurant and club house, leased and managed by a third-party, are located nearby.

Primm Valley. Primm Valley offers a race and sports book operated by a third party and 21,000 square feet of convention space. Primm Valley has a full-service coffee shop operated by a third party, an Original House of Pancakes, a buffet and the GP Steakhouse. The resort has a swimming pool and a 13,000 square foot full-service spa. Primm Valley is connected to the “Fashion Outlets of Las Vegas,” a retail complex owned by a third party which houses over 100 designer outlet stores,



including a Williams Sonoma Outlet store, Coach, Tommy Bahama, and Banana Republic factory outlet stores. A Chevron gas station and convenience store and a Texaco gas station are also located on site.

Buffalo Bill’s. Buffalo Bill’s offers a race and sports book operated by a third party, a Denny’s operated by a third party, a buffet and a Mexican restaurant. The western-themed property also has extensive entertainment amenities, including the 6,800 seat “Star of the Desert” arena, which features a variety of entertainment throughout the year. Buffalo Bill’s has a roller coaster, as well as water park log rides, a pool, a movie theater and a midway-style arcade.

Whiskey Pete’s. Whiskey Pete’s offers two full-service bars, a travel center branded with Flying J diesel fuel and Chevron gasoline, a full-service coffee shop operated by a third party, a weekend buffet, a McDonald’s restaurant, an International House of Pancakes, an 8,000 square foot special events and concert venue with 650 seats, and a swimming pool.

Silver Sevens

Silver Sevens Hotel & Casino in Las Vegas, Nevada (“Silver Sevens”), has a race and sports book operated by a third party, a 195-seat bingo facility, a buffet and a 24-hour café. Silver Sevens is conveniently located approximately one mile east of the Las Vegas Strip, which we believe appeals to locals who wish to avoid the congestion of the Strip. Silver Sevens’ favorable location also has made it popular with Strip casino employees. Although not a tourist destination due to the limited number of rooms, the property receives some tourist traffic through the casino due to its proximity to the airport, the Las Vegas Strip, the University of Nevada - Las Vegas and the Las Vegas Convention Center.

Rail City

Rail City Casino in Sparks, Nevada (“Rail City”) has live keno, a sports book operated by a third party, a 24-hour family-style restaurant, a buffet and an ale house and brew pub.


Midwest Casinos

St Jo

The St Jo Frontier Casino (“St Jo”), a riverboat casino located in a man-made basin adjacent to the Missouri River in St. Joseph, Missouri, offers a coffee-shop-style restaurant/buffet and lounge, as well as an additional bar and snack bar in the casino and 2,400 total square feet of conference and meeting space. The casino and its amenities have a locally-popular western theme based on St. Joseph’s heritage as the founding location and headquarters of the Pony Express. St Jo owns 48 acres of land, 30 acres of which are undeveloped.

Mark Twain

Mark Twain Casino (“Mark Twain”), a riverboat casino located in a man-made basin adjacent to the Mississippi River in LaGrange, Missouri, offers a coffee shop style restaurant/bar and an additional bar in the casino. The casino has a locally popular theme based on Mark Twain, who grew up in and wrote about nearby Hannibal, Missouri.

Lakeside

Lakeside Casino Resort (“Lakeside”), a riverboat casino located on West Lake in Osceola, Iowa, 40 miles southwest of Des Moines, offers 10,000 square feet of conference and meeting facilities that may also be used for concerts, a fitness center, an outdoor concert/entertainment venue, an indoor pool and exercise room, and a gift shop. In addition, Lakeside has a coffee-shop-style restaurant/buffet and lounge located in the main lobby, two bars located in the casino, a convenience store and a Pilot truck stop and gas station located adjacent to the casino. Lakeside owns approximately 119 acres of land, of which 50 acres are undeveloped. Lakeside also leases approximately 95 acres surrounding West Lake from the City of Osceola, Iowa and its water works board.





Black Hawk Casinos

The Golden Mardi Gras Casino, Golden Gates Casino and Golden Gulch Casino together, the (“Black Hawk Casinos”) are located in close proximity to one another along a half-mile strip of casino and casino-hotel properties in the historic mining town of Black Hawk, Colorado. The Black Hawk Casinos collectively offer three restaurants, four bars, a Dunkin’ Donuts kiosk and one of the only parking garages in the market, offering 693 spaces. The casinos are well-positioned within the market with their large parking garage located in the center of the main gaming district at a key intersection between other properties.

COMPETITION

Nevada Market

Our properties in Primm compete for value-oriented customers with casinos in the Las Vegas market and outside of the Las Vegas market in places like Henderson, Jean, Laughlin and Mesquite, Nevada. The Primm casinos also compete with Native American properties in Southern California, which have become an increasingly attractive alternative for California customers seeking Las Vegas style casinos. Our Primm casinos rely heavily upon the number of customers they can draw from Interstate 15, which stretches between Las Vegas, Nevada and Los Angeles, California. We compete with other gaming companies as well as other hospitality companies which provide accommodations and amenities for leisure and business travelers. In many cases, our competitors have greater name recognition and financial resources to reinvest in their properties; they offer similar restaurant, entertainment and other amenities and they target the same demographic group we target. The proximity of Native American casinos to our Primm properties, including the threat of new market entrants in areas such as Barstow, California, could significantly impact our business.

Silver Sevens primarily competes for local gaming customers with other locals-oriented casino/hotels in Las Vegas. We believe Silver Sevens also competes with the smaller, value-oriented Strip hotel/casino properties. Silver Sevens competes on the basis of convenience of location, a more personalized approach to customer service, casino promotions, and the availability, comfort and value of restaurants and hotel rooms.

Rail City operates in the Reno/Sparks market, and competes for local gaming customers with other locals-oriented casinos and casino/hotels. The Reno/Sparks market is characterized by intense competition among casinos. Many of our direct competitors in the Reno market have greater facility and amenity offerings than we do.


Midwest Market

Each of Lakeside, Mark Twain and St Jo competes for local gaming customers with other casinos in their respective markets.

Lakeside is located along Interstate 35, approximately 45 miles southwest of Des Moines, Iowa. Its primary competitors are the Prairie Meadows Casino, the Riverside Casino and Golf Resort, and the Meskwaki Bingo Casino Hotel. The Prairie Meadows Casino is located in the Altoona/Des Moines market approximately 60 miles from Lakeside, and approximately 10 miles northeast of Des Moines. Riverside Casino and Golf Resort is located in Riverside, Iowa, approximately 175 miles from Osceola. The Meskwaki Bingo Casino Hotel is located in Tama, Iowa and is approximately 110 miles from Lakeside. In August 2015, a new casino and hotel opened in Jefferson, Iowa, approximately 70 miles northwest of Des Moines.

Mark Twain, in LaGrange, Missouri, is the only casino in northeast Missouri and is approximately 15 miles from Quincy, Illinois and approximately 25 miles from Hannibal, Missouri. The closest casino to Mark Twain is the Catfish Bend Casino, located in Burlington, Iowa, which is approximately 75 miles from LaGrange. Local customers also frequent the the St. Louis, Missouri casinos in addition to our facility. Illinois has approved the addition of video lottery terminals (“VLTs”) in bars throughout the state. The expansion of VLTs in Illinois has adversely affected the results of operations at Mark Twain.

St Jo is approximately 50 miles north of Kansas City, Missouri. St Jo primarily targets residents of St. Joseph, Missouri and is the only casino in St. Joseph. However, St Jo competes indirectly with five casinos in and around Kansas City. To a lesser



extent, St Jo also competes with several Native American casinos, the closest of which is approximately 45 miles from St. Joseph.

Certain states have recently legalized, and other states are considering legalizing, casino gaming in certain areas. In addition, states such as Illinois and Kansas have awarded additional gaming licenses or are considering expanding permitted gaming. The award of one or more additional licenses in Iowa or in other locations close to Lakeside, Mark Twain or St Jo would be expected to adversely affect our results of operations and financial condition.


Colorado Market

Our Black Hawk casinos compete with approximately 25 other gaming operations located in the Black Hawk/Central City gaming market. The Black Hawk/Central City gaming market is insulated from other casino gaming markets, with no casinos within 50 miles. In the past, proposals have been made for the development of Native American, racetrack and video lottery terminal casinos throughout the state. Neither the state’s electorate nor the state’s legislature has adopted any of these proposals; however, their proponents persist in their efforts, and we anticipate the challenges created by them to continue. Any form of additional gaming authorized in the Denver metropolitan area would adversely affect the Black Hawk Casinos.


INTELLECTUAL PROPERTY

While our business as a whole is not substantially dependent on any one mark or combination of marks or other intellectual property, we seek to establish and maintain our proprietary rights in our business operations through the use of intellectual property laws. We file applications for and obtain trademarks and service marks in the United States. We also seek to maintain our trade secrets and confidential information by nondisclosure policies and through the use of appropriate confidentiality agreements.

We own or have applied for, among others, the following registered trademarks and respective design logos: “Affinity Gaming,” “A-Play,” “A-Play Connect,” “Silver Sevens,” “Buffalo Bill's Resort & Casino,” “Desperado,” “Primm Center,” “Primm Valley Casino Resorts,” “Primm Valley Lotto Store,” “Primm Valley Resort & Casino,” “Star of the Desert Arena,” “Whiskey Pete's,” “Whiskey Pete's Hotel Casino,” “Rail City,” “Rail City Ale House,” “Golden Mardi Gras Casino,” “Golden Gates Casino,” and “Golden Gulch Casino.”

We consider all of these marks, and the associated name recognition, to be valuable to our business, and we are not aware of any third party claims against the use or registration of our trademarks at this time.


SEASONALITY

Our casinos in Northern Nevada, the Midwest and Colorado experience extreme weather conditions that interrupt our operations. Additionally, our casinos in Missouri are subject to flooding depending on the water levels of the Missouri and Mississippi Rivers. If there is a prolonged disruption at any of our properties or if there are a disproportionate number of weekends affected by extreme weather, our results of operations and financial condition could be materially adversely affected.


ENVIRONMENTAL LAWS

In 2011, during the excavation phase at the site of our Whiskey Pete’s travel center, we encountered several contaminated underground sites on the property which required soil remediation and groundwater testing. Much of the contamination resulted from underground fuel storage tanks which served a gas station operated more than 35 years ago, as well as from abandoned underground fuel lines. We also began testing at the direction of the Nevada Division of Environmental Protection 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 two more years.




Through December 31, 2015, we have incurred approximately $4.0 million on remediation work at the Whiskey Pete’s site. We have an insurance policy which provides coverage for environmental remediation costs of up to $5.0 million. We received $1.0 million from our insurer in 2013, $0.6 million in 2014 and $0.3 million in 2015. Additionally, we may be required to make additional expenditures to remain in, or to achieve, compliance with environmental laws in the future and such expenditures may be material.


GOVERNMENTAL REGULATION

The gaming industry is highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. Each of our casinos is subject to extensive regulation under the laws, rules and regulations of the state and local jurisdiction where it is located. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, employees and persons with financial interests in the gaming operations. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions. A more detailed description of the regulations we are subject to is included in Exhibit 99.1 to this annual report, which is incorporated herein by reference.

Our businesses are subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, tobacco, environmental matters, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results.


COMPETITIVE STRENGTHS

Diversified Asset Portfolio

As previously noted, our casino operations consist of 11 casinos, five of which are located in Nevada, three in Colorado, two in Missouri and one in Iowa. As of December 31, 2015, our casinos offered 6,929 slot machines and 131 table games in four states.


Stabilized Portfolio

We worked hard to manage our portfolio through the recent economic downturn, expending great effort to improve efficiency and increase profitability in markets which have experienced stagnant to decreasing total revenue. We have also focused on making modest investments in capital projects intended to stabilize or improve the cash flow from our properties.


MARGIN-ENHANCEMENT PROGRAMS

Marketing

Reduce mail program size to reduce cost and focus offers on higher net worth customers
Direct reinvestments into the player loyalty club have been re-evaluated to focus promotional spend to enhance profitability
Market based pricing on food, beverage and fuel
Implementation of yield management on our hotel portfolio

Payroll and Related

Full-time employees and related payroll expense are closely monitored across the enterprise to minimize operating expenses and maximize operating margins




Key Cost Controls

Player loyalty club point refinements to redemption periods, minimum balance for redemptions
Cost of sales reduction
Energy efficiency projects implemented across the portfolio to reduce energy costs
Outsourced restaurants to strategically-branded third parties
Payroll efficiencies


HIGH-LEVEL BUSINESS STRATEGY

During 2012 and 2013, our management team divested of non-core operations and invested in the strengths of the organization. The divestitures of six smaller Nevada casinos and slot route during that period freed up capital and management time to focus on the efficient operation of core assets and profitable growth opportunities including the Black Hawk Casinos acquired in 2012. Management is committed to selectively seeking development and expansion opportunities, including entering into new markets, investing in existing operations where it sees opportunities to promote growth, and leveraging its established platform to grow revenue through management and consulting contracts. We will continue to evaluate opportunities to further diversify our portfolio, maximize profits from existing operations, incorporate business intelligence, efficiently allocate capital and strategically hire skilled and experienced individuals for key positions.

REFINANCING TRANSACTIONS

On May 9, 2012, we (i) issued $200.0 million of 9.00% senior unsecured notes due 2018 (the “2018 Notes”), and (ii) borrowed under our new Credit Agreement, dated May 9, 2012 (the “Credit Agreement”), 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 all of our previously outstanding credit facility.

On December 13, 2013, we completed the first amendment to the Credit Agreement (the “First Amendment”), which among other things, changed the interest rates for the Initial Term Loan.

On July 22, 2014, we completed an amendment and waiver (the “Second Amendment”) to the Credit Agreement. The Second Amendment increased the applicable LIBOR rate floor for the Initial Term Loan from 1.00% to 1.25% and increased the applicable margin from 3.25% to 4.00% in the case of Eurodollar term loans and from 2.25% to 3.00% in the case of base rate term loans.


CORPORATE INFORMATION

Affinity Gaming is a Nevada corporation. Our principal executive offices are located at 3755 Breakthrough Way, Suite 300, Las Vegas, NV 89135 and our telephone number at that address is (702) 341‑2400. Our website is located at http://www.affinitygaming.com.





ITEM 1A.
RISK FACTORS

RISKS RELATED TO OUR INDEBTEDNESS

We have a substantial amount of indebtedness, which could have a material adverse effect on our financial condition and our ability to obtain financing in the future and to react to changes in our business.

We have a substantial amount of debt, which requires significant principal and interest payments. As of December 31, 2015, we had $382.7 million of debt outstanding, excluding unamortized debt issuance costs and issue discount and including $200 million outstanding under the 2018 Notes and $182.7 million of secured debt outstanding under our Initial Term Loan.

Our significant amount of debt could have important consequences. For example, it could:

make it more difficult for us to satisfy our obligations with respect to the instruments governing our then outstanding indebtedness;

increase our vulnerability to adverse economic and general industry conditions, including interest rate fluctuations, because a portion of our borrowings, including those under our New Credit Facility, are and will continue to be at variable rates of interest;

require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, which would reduce the availability of our cash flow from operations to fund working capital, capital expenditures, strategic acquisitions or other general corporate purposes;

limit our flexibility in planning for, or reacting to, competitive pressures and changes in the business and industry in which we operate;

place us at a disadvantage compared to competitors that may have proportionately less debt;

limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants in our debt agreements; and

increase our cost of borrowing.


We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations, or that these actions would be permitted under the terms of our existing or future debt agreements. In the absence of such cash flows and capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our debt instruments restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds which we could realize from them, and any proceeds may not be adequate to meet any debt service obligations then due.

If we cannot make scheduled payments on our debt, we will be in default and, as a result:




our debt holders could declare all outstanding principal and interest to be due and payable;

the lenders under our New Credit Facility could terminate their commitments to loan us money and foreclose against the assets securing their borrowings; and

we could be forced into bankruptcy or liquidation.


The agreements and instruments governing our debt contain restrictions and limitations that impose significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.

The New Credit Facility and the indenture governing the 2018 Notes impose significant operating and financial restrictions on us. These restrictions limit our ability, among other things, to:

pay dividends or make certain redemptions, repurchases or distributions (other than customary tax distributions) or make certain other restricted payments or investments;

incur or guarantee additional indebtedness or issue certain preferred stock, disqualified stock or create subordinated indebtedness that is not subordinated to the Notes or the guarantees;

create liens;

transfer and sell assets;

merge, consolidate, or sell, transfer or otherwise dispose of all or substantially all of our assets;

enter into certain transactions with affiliates;

make certain investments; and

create restrictions on dividends or other payments by our restricted subsidiaries.


In addition, the New Credit Facility contains certain financial covenants, including a minimum interest coverage ratio covenant, a first lien secured net leverage ratio covenant, a maximum capital expenditures covenant and a total secured leverage ratio covenant.

As a result of these covenants and restrictions, we are limited in how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The restrictions caused by such covenants could also place us at a competitive disadvantage to less leveraged competitors. The terms of any future indebtedness we may incur could include more restrictive covenants. Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under other agreements containing cross default provisions.  A default, if not cured or waived, would permit lenders to accelerate the maturity of the indebtedness under these agreements, terminate any funding commitments to extend future credit, require us to apply all available cash to repay the borrowings, and/or foreclose upon any collateral securing such indebtedness, including pledges of equity interests of entities owning our casino properties, which could result in the lenders owning, and controlling, the equity of certain of our casino properties. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations. We would, therefore, be required to seek alternative sources of funding, which may not be available on commercially reasonable terms, terms as favorable as our current agreements or at all, or face bankruptcy. If we are unable to refinance our indebtedness or find alternative means of financing our operations, we may be required to curtail our operations or take other actions that are inconsistent with our current business practices or strategy. We cannot assure you that we will be



able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.

Despite our substantial indebtedness, we may still be able to incur significantly more debt, which could intensify the risks described above.

Although the terms of the agreements governing our indebtedness contain restrictions on our ability to incur additional indebtedness, these restrictions are subject to a number of important qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. The terms of the indenture governing the 2018 Notes do not fully prohibit us or our subsidiaries from incurring such additional indebtedness. In addition, the indenture governing the 2018 Notes allows us to issue additional notes under the indenture and will allow us to incur certain other secured indebtedness. Our New Credit Facility allows us to (i) increase the aggregate amount of term loans and/or revolving loans by an amount not to exceed $80 million in the aggregate, (ii) incur capital lease obligations and purchase money indebtedness for fixed or capital assets in an aggregate amount not to exceed $50 million (with such indebtedness being secured by the assets leased or acquired), and (iii) incur other indebtedness in an amount not to exceed $5 million, of which only $1 million may be secured by a lien on our property or assets. If new debt is added to our current debt levels, the related risks that we and our subsidiaries now face could intensify.

The state of the financial markets may impact our ability to obtain sufficient financing and credit in the future.

In addition to earnings and cash flows from operations, we may rely on borrowed money to finance our business, which may be constrained if we are unable to borrow additional capital or refinance existing borrowings on reasonable terms. Over the past several years, financial markets and banking systems experienced disruption which had a dramatic impact on the availability and cost of capital and credit. The United States and other governments have enacted legislation and taken other actions to help alleviate these conditions, although there is no assurance that such steps will have the effect of easing the conditions in credit and capital markets over the long term. Therefore, we have no assurance that such steps will facilitate us being able to obtain financing or access the capital markets for future debt or refinancing opportunities in a timely manner, or on acceptable terms, or at all. If we are unable to borrow funds, we may be unable to make the capital expenditures necessary for us to compete with other casino operators or take advantage of new business opportunities. As a result, the lack of such funding could have a material adverse effect on our business, results of operations and financial condition and our ability to service our indebtedness.


RISKS RELATED TO INVESTING IN OUR EQUITY

There is not currently, and may not be, a viable public market for our common stock.

No established public trading market currently exists for our common stock, and aside from the Registration Rights Agreement described below, we have no plans, proposals, arrangements or understandings with any person with regard to developing such a market for our common stock.

On February 7, 2012, we entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with SPH Investment, LLC (“SPH”), in connection with the Conversion. Pursuant to the Registration Rights Agreement, among other things, we granted SPH and its transferees certain demand and piggyback registration rights relating to the resale of equity securities held by SPH and the right to demand the listing of any such securities on the NADSAQ Stock Market or the New York Stock Exchange within 365 days after receipt of the applicable listing demand notice. On October 1, 2012, we received a listing demand notice from SPH pursuant to section 4.2 of the Registration Rights Agreement requiring us to use our reasonable best efforts to consummate the listing of our equity securities on the NASDAQ Stock Market. However, given that our common stock is held of record, or beneficially, in the hands of a limited number of holders, we have not applied to list our common stock listed on the NASDAQ Stock Market or any other national securities exchange, and do not plan on doing so unless and until we can reasonably anticipate having an application approved.




Issuance of equity interests to our executive officers and directors will dilute our equity holders.

The Compensation Committee of our Board approved the Affinity Gaming Amended and Restated 2011 Long-Term Incentive Plan (the “2011 LTIP”). We grant awards of stock options, restricted common stock, or both, under the 2011 LTIP as incentive to employees, officers, directors and consultants. The issuance of restricted common stock shares or of common stock shares underlying exercised options will dilute the percentage ownership of any holders of our common stock shares. At December 31, 2015, 377,247 shares of restricted common stock shares and options to purchase 330,605 shares of our common stock shares remain outstanding under the 2011 LTIP and awards with respect to 1,292,148 shares remained available for future issuance.


RISKS RELATED TO OUR BUSINESS

The failure to maintain a regular schedule of capital improvements, whether that includes expansion or renovation projects, could put us at a competitive disadvantage, and our expansion and renovation projects may face significant risks inherent in construction projects.

Our casino and casino/hotel properties have an ongoing need for renovations and other capital improvements, including the occasional replacement of components of the building, furniture, fixtures and equipment, to remain competitive. Applicable laws and regulations may also require us to make capital expenditures.

Renovations and other capital improvements of the casino properties usually reduce cash flow while work is underway, and may require large capital expenditures. We may not be able to fund such projects solely from cash provided from operating activities; therefore, we may have to rely upon the availability of debt or equity financing for project funding. Project funding will be limited if we cannot obtain satisfactory debt or equity financing, which will depend upon market conditions, among other factors. We cannot provide assurance that we will be able to obtain debt or equity financing for project funding on favorable terms.

Further, any development projects we may undertake will be subject to many risks inherent in the expansion or renovation of an existing enterprise or construction of a new enterprise, including unanticipated design, construction, regulatory, environmental and operating problems and lack of demand for our projects. The occurrence of any of development and construction risks could increase the total costs of our construction projects or delay or prevent the construction or opening or otherwise affect the design and features of our construction projects, which could materially adversely affect our plan of operations, financial condition and ability to satisfy our debt obligations.

In addition, actual costs and construction periods for any of our projects can differ significantly from initial expectations. Our initial project costs and construction periods are based upon estimates, conceptual design documents and construction schedule estimates prepared at inception of the project in consultation with architects and contractors. Many of these costs can increase over time as the project is built to completion. We can provide no assurance that any project will be completed on time, if at all, or within established budgets, or that any project will result in increased earnings to us. Significant delays, cost overruns, or failures of our projects to achieve market acceptance could have a material adverse effect on our business, financial condition and results of operations.

Although we design our projects to minimize disruption of our existing business operations, expansion and renovation projects require, from time to time, all or portions of affected existing operations to be closed or disrupted. Any significant disruption in operations of a property could have a significant adverse effect on our business, financial condition and results of operations.

We have significant deferred capital at our Primm casinos and other factors may create deferred capital expenditure needs which we may not be able to fully address. Addressing deferred capital needs may adversely affect our ability to complete renovations and other capital improvements at our casino and casino/hotel properties. Our failure to maintain a regular schedule of capital improvements, whether the failure is caused by lack of financing or by other factors, may put us at a competitive disadvantage which would have an adverse effect on our results of operations.




Our operations, and the gaming industry as a whole, are particularly sensitive to reductions in consumer spending as a result of downturns in the economy and other factors.

The gaming industry as a whole is highly sensitive to consumers' disposable incomes, and a general decline in economic conditions, including businesses downsizing their workforces for various reasons, and the increased cost of health insurance as a result of the Patient Protection and Affordable Care Act may lead to our potential customers having less discretionary income with which to wager. Many of our customers have also experienced the impact of high unemployment rates and reduced housing values as a result of the Great Recession. These developments lead to a reduction in revenue and materially adversely affected the operating results of our properties. Recently, we are seeing improving economies in our local and regional markets. In addition, further reductions in discretionary spending could significantly harm our operations and we may not be able to lower our costs rapidly enough, or at all, to offset additional declines in revenue.

We face intense competition from other gaming operations and Internet gaming, and may experience a loss of market share.

The gaming industry is highly competitive. We compete for gaming customers with other locals-oriented casino-hotels, other casinos located in the vicinity of these properties, as well as competition from new forms of gaming which exist or may be legalized in the future, including Internet gaming. Our casino operations face competitors that include land-based casinos, dockside casinos, riverboat casinos, casinos located on Native American reservations, and racing and pari-mutuel operations.

Southern California provides the largest number of customers for the Primm Casinos, including a large number of customers who drive to Las Vegas from the San Bernardino and Barstow areas. The expansion of Native American casinos in California, Oregon and Washington impacted casino revenue in Nevada in general, and further expansion may have a significant impact on the markets in which the Rail City and our Primm casinos operate.

If our competitors operate more successfully, if their existing properties are enhanced or expanded, or if additional competitors are established in and around the locations in which we conduct business, we may lose market share. In particular, the expansion of casino gaming in or near any geographic area from which we attract or expect to attract a significant number of our customers could have a material adverse effect on our business, financial condition and results of operations.

Some Native American casinos have a lower minimum age requirement for gambling, which may increase their market share at the expense of our market share.

Some Native American casinos in Southern California and Iowa allow customers at least 18 years old to gamble, whereas our gambling establishments require our customers to be at least 21 years old. This could lead to a reduced market for us as those Native American casinos would have an earlier opportunity to create loyal customers. If our competitors are able to retain these customers after they turn 21, thereby causing them to continue gambling at those establishments rather than try our establishments, we may experience reduced market share.

Any increase in the price of gasoline may have an adverse impact on the results of our operations.

Most of our customers drive themselves to our properties; therefore, an increase in gasoline prices may adversely affect our customers’ discretionary income and, ultimately, our revenue. In recent years, gasoline prices have increased at times, and we cannot assure you that gasoline prices will hold steady or decline.

We may be subject to litigation which, if adversely determined, could expose us to significant liabilities, damage our reputation and result in substantial losses.

During the ordinary course of operating our businesses, we will occasionally be subject to litigation claims and legal disputes. Without limitation, such claims and legal disputes may include contract, lease, employment and regulatory claims, as well as claims made by visitors to our properties. Certain litigation claims may not be covered entirely or at all by our insurance policies, or our insurance carriers may seek to deny coverage. In addition, litigation claims can be expensive to defend and may divert our attention from the operations of our businesses. Further, litigation involving visitors to our properties, even if without merit, can attract adverse media attention.




We evaluate all litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves and/or disclose the relevant litigation claims or legal proceedings, as appropriate. Our assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. We caution you that actual outcomes or losses may differ materially from those envisioned by its current assessments and estimates. As a result, litigation can have a material adverse effect on our businesses and, because we cannot predict the outcome of any action, it is possible that adverse judgments or settlements could significantly reduce our earnings or result in losses.

Acquisitions, new venture investments and divestitures may not be successful.

As part of our strategy, we may seek to increase growth through strategic acquisitions and any such acquisition may be significant. Not only is the identification of good acquisition candidates difficult and competitive, but these transactions also involve numerous risks, including the inability to:

successfully integrate acquired companies, properties, systems or personnel into our existing business;

minimize any potential interruption to our ongoing business;

successfully enter markets in which we may have limited or no prior experience;

achieve expected synergies and obtain the desired financial or strategic benefits from acquisitions;

retain key relationships with employees, customers, partners and suppliers of acquired companies; and

maintain uniform standards, controls, procedures and policies throughout acquired companies.


Companies, businesses or operations acquired or joint ventures created may not be profitable, may not achieve revenue levels and profitability which justify the investments made or they may carry other risks associated with such transactions.

Future acquisitions could result in the incurrence of indebtedness, the assumption of contingent liabilities, material expense related to certain intangible assets and increased operating expense, which could adversely affect our results of operations and financial condition. In addition, to the extent that the economic benefits associated with any of our acquisitions diminish in the future, we may be required to record additional write downs of goodwill, intangible assets or other assets associated with such acquisitions, which could adversely affect our operating results.

We may also decide to divest certain assets, businesses or brands which do not meet our strategic objectives or growth targets, such as with the sale of our slot route, two Pahrump, Nevada casinos and our Searchlight, Nevada casino in February 2012 and the sale of the Sands Regency, Gold Ranch Casino and Dayton Casino in January 2013. With respect to any divestiture, we may encounter difficulty finding potential acquirers or other divestiture options on favorable terms. Any divestiture could affect our profitability, either as a result of the gains or losses on such sale of a business or brand, the loss of the operating income resulting from such sale or the costs or liabilities which are not assumed by the acquirer which may negatively impact profitability subsequent to any divestiture. We may also be required to recognize impairment charges as the result of a divesture.

Any potential future acquisitions, new ventures or divestitures may divert the attention of management and may divert resources from matters which are core or critical to the business.

Several provisions of Nevada corporate law, our articles of incorporation, and our bylaws could discourage, delay or prevent a merger or acquisition, even in situations that may be viewed as desirable by our shareholders.

The Nevada Revised Statutes, our articles of incorporation and our bylaws contain provisions which may make the acquisition of the Company more difficult without the approval of our board of directors. These provisions include (i)



authorizing our Board of Directors to issue “blank check” preferred stock having superior rights without shareholder approval, (ii) advance notice requirements for shareholder proposals and nominations, (iii) limitations on the ability of shareholders to amend, alter or repeal our bylaws, (iv) prohibiting us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder unless certain requirements are met, and (v) requiring disinterested stockholder approval for certain “controlling interest” acquisitions.

Our operations may be adversely impacted by increases in energy prices or utility availability.

The casino properties use significant amounts of electricity, natural gas and water. Although no utility shortages have been experienced, any such occurrences or other events which cause energy price increases in the geographic areas in which we operate could result in a decline in the disposable incomes of potential customers and a corresponding decrease in visitation and spending at our casino operations along with increased operational costs for usage, which could negatively impact revenue.

A write-off of all or a part of our identifiable intangible assets or goodwill would hurt our operating results and reduce our net worth.

Under generally accepted accounting principles, we review our identifiable intangible assets, including goodwill, for impairment at least annually or when events or changes in circumstances indicate their carrying value may not be recoverable. Factors which may be considered a change in circumstances, indicating that the carrying value of our goodwill or other identifiable intangible assets may not be recoverable, include a sustained decline in the value of shares of our common stock, reduced future cash flow estimates, a disposal of a portion of our business and slower growth rates in our industry. We may be required to record a significant non-cash impairment charge in our financial statements during the period in which any impairment of our goodwill or other identifiable intangible assets is determined, negatively impacting our results of operations and stockholders’ equity. During the fourth quarter of 2015, we recognized an impairment of goodwill totaling $20.2 million primarily due to reduced cash flow projections at our Black Hawk Casinos.

As of December 31, 2015, we had $124.0 million of total identifiable intangible assets, as well as $48.3 million of goodwill, which represented approximately 8% of our total assets. We amortize definite-lived intangible assets such as customer loyalty programs based on estimated useful lives. We do not amortize indefinite-lived intangible assets, such as gaming license rights in jurisdictions where a limited number of licenses are issued. As of December 31, 2015, definite-lived intangible assets totaled $4.2 million and indefinite-lived intangible assets totaled $119.9 million.

Because valuation methodologies used in impairment testing include forecast information and assumptions about future performance, the likelihood and severity of impairment charges increases during periods of market volatility, such as the one which recently occurred as a result of the general weakening of the global economy. If we are unable to retain our existing customers, or if average customer spending or customer traffic decreases, we may incur future impairment charges. In the event we identify an impairment of indefinite lived intangible assets or goodwill, we would record a charge to earnings. Although it would not affect our cash flow, a write-off in future periods of all or a part of our intangible assets could adversely affect our business, financial condition and results of operations.

We depend upon our key employees and certain members of our management.

Our success is substantially dependent upon the efforts and skills of our senior executives: Michael Silberling, our Chief Executive Officer, joined us in August 2014 and Walter Bogumil, our Senior Vice President, Chief Financial Officer and Treasurer, joined us in March 2015. In addition, in February 2015, our Senior Vice President, General Counsel and Secretary, Marc H. Rubinstein, transitioned from an employment to a consultant relationship. In February 2016, we appointed Jeffrey Solomon as Senior Vice President and Chief Operating Officer. The loss of the services rendered by any of these senior executives could adversely affect our operations. In addition, we compete with other potential employers for employees, and we may not succeed in hiring and retaining the executives and other employees that we need. A failure to hire quality employees could have a material adverse effect on our business, financial condition and results of operations.




If we are unable to protect the security of confidential customer information, including credit card data, we could be exposed to data loss, litigation and liability and our reputation could be significantly harmed.

We rely on information technology and other systems to maintain and transmit personal customer information, credit card transactions, mailing lists and reservations information. In connection with credit card sales, we transmit confidential credit card information using tokenization technology and the encrypted information is stored in our systems. Third parties may have the opportunity, technology or know-how to breach the security of this customer information, and our security measures may not effectively prohibit others from obtaining improper access to this information. If a person is able to circumvent our security measures, he or she could destroy or steal valuable information or disrupt our operations. Any security breach could expose us to risks of data loss, regulatory sanctions, litigation and liability and could seriously disrupt our operations, and any resulting negative publicity could significantly harm our reputation. We maintain an insurance policy which provides $5.0 million of coverage, subject to a $250,000 deductible, for information system breaches; however, we cannot provide absolute assurance that the coverage will be sufficient to cover all claims arising from a breach of our systems, including any assessments imposed by the payment card industry.

In late 2013, we learned 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. In April 2014, we learned that another 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 related 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. We have 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.

As of December 31, 2015, we have incurred $1.2 million in expense, including insurance deductibles, for the two 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 the 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. Several states attorneys general also continue to investigate the incidents.

We face extensive regulation from gaming and other government authorities.

Licensing requirements. As owners and operators of gaming facilities, we are subject to extensive state and local regulations in Nevada, Iowa and Missouri and Colorado. Certain approvals from gaming authorities must be obtained before we can take certain actions with respect to our properties in these jurisdictions. In addition, the Nevada Gaming Commission, the Iowa Racing and Gaming Commission, the Missouri Gaming Commission and the Colorado Limited Gaming Control Commission require us and our subsidiaries to obtain gaming licenses, and require our officers, key employees and business entity affiliates to demonstrate suitability to hold gaming licenses. State and local gaming authorities may limit, condition, suspend or revoke a license for any cause deemed reasonable by the respective licensing agency. They may also levy substantial fines against us or our subsidiaries or the entities or individuals involved in violating any gaming laws or regulations. The violation of any such state and local regulations could have a material adverse effect on our business, financial condition and results of operations.

Restrictions on capital raising. Any future public offering of debt or equity securities by us will require review of and approval by the Nevada Gaming Commission, the Iowa Racing and Gaming Commission, the Missouri Gaming Commission and the Colorado Limited Gaming Control Commission. The Missouri Gaming Commission also requires notice of the intended incurrence of any private debt exceeding $1 million and reserves the right to elect to have prior review and approval.

Restrictions on change of control transaction. Changes in the control of Affinity Gaming through merger, consolidation, equity or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby that person



obtains control, may not occur without the approval of the Nevada Gaming Commission, the Iowa Racing and Gaming Commission, the Missouri Gaming Commission and the Colorado Limited Gaming Control Commission. The Nevada Gaming Commission, the Iowa Racing and Gaming Commission, the Missouri Gaming Commission and the Colorado Limited Gaming Control Commission may also require the equity holders, officers, directors and other persons having a material relationship or involvement with the entity acquiring control to be investigated and licensed as part of the approval process relating to the transaction. These requirements to be found suitable to hold our voting securities may discourage or delay trading of our securities and, in particular, change of control transactions.

Taxation. We expect to pay substantial taxes and fees in connection with our operations as a gaming company. From time to time, federal, state and local legislators and other government officials have proposed and adopted changes in tax laws, or in the administration of those laws affecting the gaming industry. It is not possible to determine the likelihood of changes in tax laws or in the administration of those laws. If adopted, changes to applicable tax laws could have a material adverse effect on our business, financial condition and results of operations. Due to the continued pressures on the state legislatures to address shortfalls in their budgets associated with the current economic situation, there may be more support to look to increased taxation which could affect all of our gaming properties directly, or indirectly by taxing our customers. Any increase in taxes would have a material adverse effect on our business, financial condition and results of operations.

Potential changes in legislation and regulation of our operations. From time to time, legislators and special interest groups have proposed legislation that would expand, restrict or prevent gaming operations in the jurisdictions in which we operate, among other changes to laws, regulations and procedures applicable to us. Any such change to the regulatory environment or the adoption of new federal, state or local government legislation could have a material adverse effect on our business. For example, although not permitted at casino locations in Colorado, smoking is currently permitted at casino locations in Nevada, Missouri, and Iowa, and from time to time, bills which would restrict or ban smoking in casinos are introduced in state legislatures and in city/town councils. New anti-smoking laws, if adopted, could have a material adverse effect on our business, financial condition and results of operations. In addition, global climate change issues have received an increased focus on the federal and state government levels, which could potentially lead to additional environmental rules and regulations that result in increased costs to motor vehicle drivers, which may result in fewer drive-in tourists, adversely impacting our operations and financial condition. The ultimate impact on our business of any new regulation would be dependent upon the specific rules adopted, and we cannot predict the effects of any such regulation at this time.

Compliance with other laws. We are subject to a variety of other rules and regulations, including zoning, environmental, construction and land-use laws, regulations and permits that govern the serving of alcoholic beverages and the smoking of tobacco products. Any changes to these laws could have a material adverse effect on our business, financial condition and results of operations.

State gaming laws and regulations may require holders of our debt or equity securities to undergo a suitability investigation, which may result in redemption of their securities.

Many jurisdictions require any person who acquires beneficial ownership of debt or equity securities of a casino gaming company to apply for qualification or a finding of suitability. Generally, any person who fails or refuses to apply for a finding of suitability or a license within the prescribed period after being advised by gaming authorities that it is required to do so may be denied a license or found unsuitable or unqualified, as applicable. Any holder of securities that is found unsuitable or unqualified or denied a license, and who holds, directly or indirectly, any beneficial ownership of a gaming entity’s securities beyond such period of time as may be prescribed by the applicable gaming authorities may be guilty of a criminal offense. Furthermore, a gaming entity may be subject to disciplinary action if such gaming entity, after receiving notice that a person is unsuitable to be a holder of securities or to have any other relationship with such gaming entity or any of its subsidiaries:

pays that person any dividend or interest upon the securities;

allows that person to exercise, directly or indirectly, any voting ownership right conferred through securities held by that person;

pays remuneration in any form to that person for services rendered or otherwise; or




fails to pursue all lawful efforts to require such unsuitable person to relinquish the securities including, if necessary, the immediate purchase of such securities for the lesser of fair value at the time of repurchase or fair value at the time of acquisition by the unsuitable holder.

In the event that disqualified holders fail to divest themselves of such securities, gaming authorities have the power to revoke or suspend the casino license or licenses related to the regulated entity that issued the securities. In addition, the Articles of Incorporation of Affinity Gaming provide that we may redeem our stock from an Unsuitable Person (as such term is defined in the Articles of Incorporation).

Compliance with environmental laws and other government regulations could impose material costs.

We are subject to numerous environmental laws and regulations that impose various environmental controls on our business operations, including, among other things, the discharge of pollutants into the air and water and the investigation and remediation of soil and groundwater affected by hazardous substances. Such laws and regulations may otherwise relate to various health and safety matters that impose burdens upon our operations. These laws and regulations govern actions that may have adverse environmental effects and also require compliance with certain practices when handling and disposing of hazardous wastes. These laws and regulations also impose strict, retroactive and joint and several liability for the costs of, and damages resulting from, cleaning up current sites, past spills, disposals and other releases of hazardous substances. Additionally, as an owner or operator, and the supplier of water to the Primm properties and adjacent outlet mall, we could also be held responsible to a governmental entity or third parties for property damage, personal injury and investigation and cleanup costs incurred by them in connection with any contamination.

For example, in 2011, during excavation at the site of our second travel center in Primm, Nevada, we encountered several contaminated underground sites 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 35 years ago, as well as from abandoned underground fuel lines. We also began testing at the direction of the Nevada Division of Environmental Protection 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 two more years. Through December 31, 2015, we have incurred approximately $4.0 million on remediation work at the Whiskey Pete’s site. We have an insurance policy which provides coverage for environmental remediation costs of up to $5.0 million. We received $1.0 million from our insurer in 2013, $0.6 million in 2014, and $0.3 million in 2015. We may be required to make additional expenditures to remain in, or to achieve, compliance with environmental laws in the future and such expenditures may be material.

We cannot assure you that we have been or will be in compliance with environmental and health and safety laws at all times. If we violate these laws, we could be fined, criminally charged or otherwise sanctioned by regulators. We may be required to incur further costs to comply with current or future environmental and safety laws and regulations. In addition, in the event of accidental contamination or injury from these materials, we could be held liable for any damages that result and any such liability could exceed our resources. We believe that our expenditures related to environmental matters have not had, and are not currently expected to have, a material adverse effect on our business, financial condition or results of operations. However, the environmental laws under which we operate are complicated and often increasingly more stringent, and may be applied retroactively. Accordingly, we may be required to make additional expenditures to remain in, or to achieve, compliance with environmental laws in the future and such additional expenditures may have a material adverse effect on our business, financial condition or results of operations.

Adverse winter weather conditions in Colorado, the Midwest, the Sierra Nevada Mountains and Reno-Lake Tahoe area have had, and could in the future have, a material adverse effect on our results of operations and financial condition.

Adverse winter weather conditions, particularly snowfall, can deter customers of Rail City, the Midwest casinos and Colorado casinos from traveling or make it difficult for them to frequent our facilities. For example, we experienced severe weather conditions in the winter of 2013, which negatively impacted visitation and results of operations. If these locations were to experience prolonged adverse winter weather conditions, the results of operations and financial condition of these casinos could also be materially adversely affected, thereby adversely affecting our overall results of operations and financial condition.




Riverboats and dockside facilities are subject to additional risks that may adversely affect their operations.

We own and operate riverboat and dockside casino facilities, which are subject to risks in addition to those associated with land-based casinos, including loss of service due to casualty, extended or extraordinary maintenance, flood or other severe weather. Reduced patronage and the loss of a dockside or riverboat casino from service for any period of time could adversely affect our results of operations. We have experienced road closures related to flooding that have restricted access to our dockside facilities and riverboats at intermittent periods.


ITEM 1B.
UNRESOLVED STAFF COMMENTS

None.


ITEM 2.
PROPERTIES

Our principal properties consist of the following:

NEVADA

Corporate Office

We lease our corporate office space. The seven-year lease commenced on May 1, 2012, and includes the option to renew the lease for two additional 5-year terms.

Buffalo Bill's, Whiskey Pete's and Primm Valley

We lease approximately 180 acres of land on which Buffalo Bill's, Whiskey Pete's and Primm Valley are located in Primm, Nevada. The lease ends on June 30, 2043, with an option to renew the lease for one additional 25-year term. An independent third party leases and manages two 18-hole Tom Fazio golf courses with a full-service restaurant and club house near our properties. Another third party leases and manages a retail outlet mall adjacent to the Primm Valley Resort. Additionally, we own approximately 16 acres of land adjacent to the leased parcels.

Silver Sevens

We own the 12-acre site in Las Vegas on which Silver Sevens is located.

Rail City

We own the land and building on which Rail City is located in Sparks, Nevada. The Rail City Casino sits on approximately 8 acres.

MIDWEST

St Jo

We own a total of 48 acres of land in St. Joseph, Missouri. We also own the building and improvements on the developed portion of this land where certain facilities of St Jo are located.

Mark Twain

We own a total of approximately 18 acres of land in LaGrange, Missouri. We also own the building and improvements on the developed portion of this land where certain facilities of Mark Twain are located. We also lease a very small parcel of land adjacent to the property from the city of LaGrange.




Lakeside

We own a total of approximately 119 acres of land in Osceola, Iowa, which includes the land on which certain facilities of Lakeside are located, including the hotel, convention facilities, and RV park. We lease the use of West Lake and an additional 95 acres of land surrounding West Lake from the City of Osceola, Iowa and its water works board. The lease expires on May 19, 2019, and we have an option to extend for six additional successive terms of five years each. We lease 11 acres of the land we own adjacent to our facility, to Pilot for operation of a Pilot branded truck stop and gas station.

COLORADO

Black Hawk Casinos

We own a total of approximately 4 acres in Black Hawk, Colorado on which the Golden Mardi Gras Casino, Golden Gates Casino and Golden Gulch Casino, all in close proximity to one another, operate and on which a parking structure and surface parking lot are located.



ITEM 3.
LEGAL PROCEEDINGS

For a brief description of material pending legal proceedings, refer to Note 13 to the accompanying consolidated financial statements.
 
We are party to other ordinary and routine litigation incidental to our business. We do not expect the outcome of any pending litigation to have a material adverse effect on our consolidated financial position or results of operations.


ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.


PART II

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

Our outstanding common stock is privately held. No established public trading market exists for our common stock, and, aside from the Registration Rights Agreement (described in “Risk Factors”), we have no plans, proposals, arrangements or understandings with any person with regard to developing such a market for our common stock.

At December 31, 2015, 330,605 shares of our common stock were subject to options related to our share-based compensation plan. Each option is convertible into one share of our common stock upon exercise, and the holder could sell each such share of common stock pursuant to Rule 144 of the Securities Act of 1933.


HOLDERS OF COMMON STOCK

We had 58 holders of record of our common stock as of March 15, 2016.





DIVIDENDS

We have never declared or paid dividends or distributions on our common equity. We currently intend to retain all available funds and any future consolidated earnings to fund our operations and the development and growth of our business; therefore, we do not anticipate paying any cash dividends.

Restrictions imposed by our debt instruments significantly restrict us from making dividends or distributions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.”





SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS AS OF DECEMBER 31, 2015
The following table presents certain information as of December 31, 2015 regarding the Affinity Gaming Amended and Restated 2011 Long Term Incentive Plan (“2011 LTIP”). Our shareholders authorized our Board to design a plan under which the Board can issue equity awards collectively representing as many as 2,000,000 shares of our common stock to our officers, directors, employees and consultants. The Board approved such a plan, our 2011 LTIP, in March 2011, as amended in November 2014. As of December 31, 2015, the Board had only issued stock options and restricted stock shares under our 2011 LTIP.
Plan category
 
Restricted Stock Shares Awarded and Outstanding
 
Number of Common Stock Shares to be Issued upon Exercise of Outstanding Options
 
Weighted Average Exercise Price of Outstanding Options
 
Number of Securities Remaining Available for Future Issuance under 2011 LTIP
Approved by security holders
 
377,247

 
330,605

 
$
10.24

 
1,292,148

Not approved by security holders
 

 

 
$

 



As of December 31, 2015, 63,610 options and 294,957 restricted stock shares had vested.


ISSUER SALES OF EQUITY SECURITIES

During 2015, we did not conduct any unregistered sales of our equity securities, nor did we have any repurchase plan or program under which shares may yet be purchased.


ISSUER PURCHASES OF EQUITY SECURITIES

We neither purchased any shares of our common stock during the fourth quarter nor have we made any plans or established any programs to purchase any shares of our common stock.

ITEM 6.
SELECTED FINANCIAL DATA

The following tables set forth a summary of our selected consolidated historical financial data from continuing operations as of and for the periods presented (in thousands). We derived the summary consolidated historical balance sheet data as of December 31, 2015 and 2014, and the summary historical consolidated data for results of operations for the years ended December 31, 2015, 2014 and 2013, from our audited consolidated financial statements included elsewhere in this 2015 Form 10-K. We derived the summary consolidated historical balance sheet data as of December 31, 2012, and 2011, and the summary historical consolidated data for results of operations for our year ended December 31, 2012 and 2011, from audited consolidated financial statements not included in this 2015 Form 10-K.

We adjusted certain amounts in the prior years’ financial information from the amounts originally reported in the respective Forms 10-K to account for discontinued operations and to account for the reclassification of cash incentives to conform to the 2015 presentation.




You should read this information together with the information included under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our historical consolidated financial statements and related notes included elsewhere in this 2015 Form 10-K. For a discussion of matters affecting comparability of our results, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview.

 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
Net revenue
$
393,300

 
$
385,902

 
$
389,774

 
$
402,376

 
$
377,867

Income (loss) from continuing operations
$
(13,096
)
 
$
(23,677
)
 
$
(991
)
 
$
4,634

 
$
7,872



 
December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
Cash and cash equivalents
$
157,779

 
$
135,175

 
$
140,857

 
$
126,873

 
$
45,956

Total assets
603,734

 
614,178

 
637,944

 
651,922

 
603,740

Total debt 1
377,057

 
374,701

 
383,999

 
396,716

 
348,400

Owners’ equity
$
170,259

 
$
182,455

 
$
204,519

 
$
207,130

 
$
206,235


1 Net of original issue discount and unamortized debt issuance costs incurred with lenders.





ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Headquartered in Las Vegas, Nevada, Affinity Gaming (together with its subsidiaries, “Affinity” or “we” ) is a diversified, multi-jurisdictional Nevada corporation which operates casinos through wholly-owned subsidiaries in Nevada, Missouri, Iowa and Colorado. Casino operations as of December 31, 2015 included the following wholly-owned casinos (by segment):

Nevada
 
 
 
 
Primm Valley Casino, Resort & Spa
 
Primm, NV
 
(“Primm Valley”)
Buffalo Bill’s Resort & Casino
 
Primm, NV
 
(“Buffalo Bill’s”)
Whiskey Pete’s Hotel & Casino
 
Primm, NV
 
(“Whiskey Pete’s”)
Silver Sevens Hotel & Casino
 
Las Vegas, NV
 
(“Silver Sevens”)
Rail City Casino
 
Sparks, NV
 
(“Rail City”)
 
 
 
 
 
Midwest
 
 
 
 
St Jo Frontier Casino
 
St. Joseph, MO
 
(“St Jo”)
Mark Twain Casino
 
La Grange, MO
 
(“Mark Twain”)
Lakeside Hotel & Casino
 
Osceola, IA
 
(“Lakeside”)
 
 
 
 
 
Colorado
 
 
 
 
Golden Mardi Gras Casino
 
Black Hawk, CO
 
(“Golden Mardi Gras”)
Golden Gulch Casino
 
Black Hawk, CO
 
(“Golden Gulch”)
Golden Gate Casino
 
Black Hawk, CO
 
(“Golden Gate”)


As of December 31, 2015, casino operations collectively offered approximately 288,400 square feet of gaming space with approximately 6,929 slot machines and 131 table games, while lodging operations offered approximately 3,125 hotel rooms.

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 our consulting agreement with Hotspur on April 1, 2015. Hotspur previously paid us a fixed annual fee in monthly installments.


Seasonality
 
Our casinos in Northern Nevada, the Midwest and Colorado experience extreme weather conditions which occasionally interrupt our operations. Additionally, our casinos in Missouri are subject to flooding depending on the water levels of the Missouri and Mississippi Rivers. Snow and other adverse weather resulted in a significant number of days with lost or reduced business at our Midwest and Colorado properties during the winter of 2013-2014. If there is a prolonged disruption at any of our properties or if there are a disproportionate number of weekends affected by extreme weather, our results of operations and financial condition could be materially adversely affected.





Outlook

Recent improvement in consumer confidence, employment data and other macroeconomic indicators are viewed as positive for regional gaming operations. However, potential changes to federal and state tax rates, payroll taxes, the cost of health care, and other uncertainty related to ongoing political deadlock on fiscal issues are expected to continue to affect our business. Many of our customers continue to face uncertainty, and we expect that discretionary spending will remain at reduced levels over the near term. However, we believe that our strategy of offering value-oriented, friendly, convenient locations with consistent marketing programs and service supports our business growth efforts. Perceived value, customer satisfaction and loyalty are critical to our success.

Should the economic recovery continue, we believe we are well-positioned to capitalize on high repeat patronage from our local and drive-in tourist gaming markets. Our business strategy focuses on attracting and fostering repeat business from our local gaming patrons. Local gaming patrons are typically sophisticated gaming customers who seek convenient locations, high payouts and a pleasant atmosphere. We believe our continued commitment to providing a value-oriented, quality casino entertainment experience for our customers will allow us to gain market share and improve profitability.


Matters Affecting Comparability of Results

Significant factors or events have had a material impact on our results of operations for the periods discussed below and affect the comparability of our results of operations from period to period.

Debt and Interest Expense. On December 13, 2013, we completed the First Amendment to the Credit Agreement, which, among other things, reduced the interest rate applicable to our Initial Term Loan, which as of June 30, 2014 was 1.25% less than prior to the First Amendment.

On July 22, 2014, we completed the Second Amendment to the Credit Agreement. In addition to other changes, the Second Amendment increased the interest rate applicable to our Initial Term Loan, which as of September 30, 2014 was 1% more than that specified in the First Amendment, and 0.25% less than that specified prior to the First Amendment. The Second Amendment also adjusted the financial covenants by changing a maximum Total Net Leverage Ratio of 6.5x through June 30, 2014 (calculated using total leverage, net of $25 million cash) to a maximum First Lien Net Leverage Ratio of 3.75x through March 31, 2016 (calculated using outstanding first lien senior secured debt, net of $40 million cash) and by lowering the minimum required interest coverage ratio from 2.0x through December 31, 2014 and 2.15x thereafter to a constant minimum ratio of 1.5x.

Discontinued Operations. On February 1, 2013, we completed the sale to Truckee Gaming, LLC (“Truckee Gaming”) of the Sands Regency Casino Hotel in Reno, Nevada, the Gold Ranch Casino & RV Resort in Verdi, Nevada, and the Dayton Depot Casino in Dayton, Nevada (“Truckee Disposition”). The results of operations of each of the properties sold is presented in discontinued operations for the years presented. Results of operations for the properties sold were previously reported in the Nevada Segment results.


Key Performance Indicators

We assess a variety of financial and operational performance indicators to manage our business, but the key performance indicators which we use include gross gaming revenue, promotional allowances and marketing expense, net revenue and controllable operating costs.

Key volume indicators such as slot machine win per unit per day, table games win per unit per day, and promotional allowances as a percentage of gross gaming revenue are analyzed in connection with our casino operations.  In addition to the volume indicators, we also analyze the number of patron trips and the amount of money spent per patron trip. The industry uses the term “average daily rate” (“ADR”) to define the average amount of hotel revenue per occupied room per day, and the term “occupancy percentage” to define the total percentage of rooms occupied (i.e., the number of rooms occupied divided by the total number of rooms available). We use ADR and occupancy percentage to analyze the performance of our hotel operations.



Fuel and retail operations include revenue from gas stations and convenience stores which we own and operate.  Management measures the performance of fuel operations based on gallons sold and profit margin per gallon.

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 each geographical region in which we operate, and to discuss our results with the investment community.

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 continuing operations.


RESULTS OF OPERATIONS

Reportable Segment Results

The following tables present financial information by reportable segment and by corporate and other (in thousands):

 
Year Ended December 31,
 
2015
 
2014
 
2013
Net revenue
 
 
 
 
 
Nevada
$
233,202

 
$
226,523

 
$
230,651

Midwest
122,527

 
121,374

 
121,990

Colorado
37,571

 
38,005

 
37,133

Total net revenue
$
393,300

 
$
385,902

 
$
389,774

 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
Nevada
$
40,249

 
$
26,182

 
$
28,609

Midwest
38,738

 
34,130

 
37,041

Colorado
5,279

 
4,593

 
8,322

Corporate and other
(18,681
)
 
(14,359
)
 
(11,064
)
Total Adjusted EBITDA
$
65,585

 
$
50,546

 
$
62,908






The following tables reconcile Adjusted EBITDA to operating income (in thousands):
 
Year Ended December 31, 2015
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Goodwill and Other Impairments
 
Write Downs, Reserves and Recoveries
 
Operating Income from Continuing Operations
Nevada
$
40,249

 
$
(14,883
)
 
$

 

 
$
12

 
$
25,378

Midwest
38,738

 
(7,682
)
 

 

 

 
31,056

Colorado
5,279

 
(5,264
)
 

 
(20,229
)
 
(58
)
 
(20,272
)
Corporate and other
(18,681
)
 
(1,199
)
 
(1,206
)
 

 
(255
)
 
(21,341
)
Continuing operations
$
65,585

 
$
(29,028
)
 
$
(1,206
)
 
(20,229
)
 
$
(301
)
 
$
14,821


 
Year Ended December 31, 2014
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Write Downs, Reserves and Recoveries
 
Operating Income from Continuing Operations
Nevada
$
26,182

 
$
(14,650
)
 
$

 
$
448

 
$
11,980

Midwest
34,130

 
(7,582
)
 

 

 
26,548

Colorado
4,593

 
(5,124
)
 

 

 
(531
)
Corporate and other
(14,359
)
 
(1,223
)
 
(455
)
 
(24
)
 
(16,061
)
Continuing operations
$
50,546

 
$
(28,579
)
 
$
(455
)
 
$
424

 
$
21,936


 
Year Ended December 31, 2013
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Write Downs, Reserves and Recoveries
 
Loss on Impairment of Assets
 
Operating Income from Continuing Operations
Nevada
$
28,609

 
$
(14,729
)
 
$

 
$
(3,125
)
 
$
(165
)
 
$
10,590

Midwest
37,041

 
(7,023
)
 

 
(3,100
)
 

 
26,918

Colorado
8,322

 
(5,058
)
 

 

 

 
3,264

Corporate and other
(11,064
)
 
(999
)
 
(1,169
)
 
1,459

 

 
(11,773
)
Continuing operations
$
62,908

 
$
(27,809
)
 
$
(1,169
)
 
$
(4,766
)
 
$
(165
)
 
$
28,999



Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Overall. We recorded net revenue from continuing operations of $393.3 million during 2015, compared to net revenue from continuing operations of $385.9 million during 2014, an increase of $7.4 million, or 1.9%. Adjusted EBITDA was $65.6 million during 2015, compared to $50.5 million during 2014, an increase of $15.0 million, or 29.8%. Adjusted EBITDA,



excluding corporate expense, increased $19.4 million, or 29.8%. These increases were primarily due to our continuing efforts to analyze the effectiveness of our promotional campaigns and refine our marketing programs, which have had the effect of reducing costs and driving more profitable play on the gaming floor.

Nevada. Nevada operations include our three Primm casinos, Silver Sevens and Rail City. In addition to casino, lodging and food and beverage operations, our results from Primm include the operation of three gas station/convenience stores and a California lottery outlet.  Nevada operations accounted for approximately 60% of our gross revenue from continuing operations during each of the years ended December 31, 2015 and 2014.

In our Nevada segment, net revenue increased $6.7 million, or 2.9% during 2015. Casino revenue increased $2.4 million, or 1.7%. Excluding complimentary revenue, food and beverage revenue increased $1.5 million and lodging revenue increased $3.1 million. We continue to focus our promotional campaigns to convert complimentary customers to cash customers. Fuel and retail revenue decreased $0.3 million, or 0.6%, due to reduced fuel prices during 2015.

Nevada Adjusted EBITDA increased $14.1 million, or 53.7% when compared to 2014. The Adjusted EBITDA contribution from casino operations increased $12.6 million, or 27.3%, coupled with an increase in the Adjusted EBITDA contribution from fuel and retail operations of $3.2 million, or 26.8%. The 2015 operating results were primarily impacted by our efforts to reduce promotional campaigns and refine marketing programs. With fuel price decreases in 2015 compared to 2014 we implemented better price yielding models.

Midwest. Midwest operations include St Jo and Mark Twain in Missouri, and Lakeside in Iowa. Midwest operations accounted for approximately 30% of our gross revenue from continuing operations during each of the years ended December 31, 2015 and 2014.

Net revenue from our Midwest segment increased $1.2 million, or 0.9%. Adjusted EBITDA from our Midwest segment increased $4.6 million, or 13.5%. These increases primarily resulted from more focused marketing campaigns which drove more profitable play on the gaming floor offset by a new competitor in the Des Moines market impacting Lakeside and Illinois VLTs impacting Mark Twain. We are encouraged by our Midwest properties’ performance and we anticipate maintaining the improved operating margins in the Midwest as we continue to analyze and refine our marketing programs.

Colorado. Colorado operations include the Golden Mardi Gras, the Golden Gates and the Golden Gulch casinos in Black Hawk. Colorado operations accounted for approximately 10% of our gross revenue from continuing operations during each of the years ended December 31, 2015 and 2014.

Net revenue from our Colorado segment decreased $0.4 million, or 1.1%, primarily due to lower gaming volumes in 2015 as a result of eliminating an unprofitable marketing campaign implemented in 2014 and the property enhancements made by a nearby competitor. Colorado Adjusted EBITDA increased $0.7 million, or 14.9%, driven primarily by an increase of $1.8 million, or 15.0%, in the Adjusted EBITDA contribution from casino operations, the result of more focused marketing campaigns targeting more profitable players during 2015.


Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Overall. We recorded net revenue from continuing operations of $385.9 million, compared to net revenue from continuing operations of $389.8 million during 2013, a decrease of $3.9 million, or 1.0%. Adjusted EBITDA was $50.5 million, compared to $62.9 million during 2013, a decrease of $12.4 million, or 19.7%. Adjusted EBITDA, excluding corporate expense, increased $9.1 million, or 12.3%.

Nevada. Nevada operations accounted for approximately 60% of our gross revenue from continuing operations during each of the years ended December 31, 2014 and 2013.

In our Nevada segment, net revenue decreased $4.1 million, or 1.8%, primarily as a result of a decline in gross casino revenue and an increase in promotional allowances offered to casino patrons. Nevada Adjusted EBITDA declined $2.4 million, or 8.5% when compared to the prior year. The Adjusted EBITDA contribution from casino operations decreased $5.6 million,



or 10.8%, offset primarily by an increase in the Adjusted EBITDA contribution from fuel and retail operations of $2.2 million, or 22.5%. 2014 operating results were most significantly impacted by declines in revenue and increased marketing expenses seen in the first half of the year. During the latter half of the year, we analyzed the effectiveness of our promotional campaigns and refined marketing programs, resulting in fourth quarter improvement in year-over-year performance which offset some of the declines seen earlier in the year.

Midwest. Midwest operations accounted for approximately 30% of our gross revenue from continuing operations during each of the years ended December 31, 2014 and 2013.

Net revenue from our Midwest segment decreased $0.6 million, or 0.5%. Adjusted EBITDA from our Midwest segment decreased $2.9 million, or 7.9%. Results in the Midwest were primarily impacted by severe winter weather seen in the first quarter of 2014 and the constrained discretionary spending of our customers. We were encouraged by our Midwest properties’ performance as gross gaming revenue outperformed the markets in which we operate in each jurisdiction. Reducing marketing and other operating expenses lead to an increase in both Adjusted EBITDA and the Adjusted EBITDA operating margin during the fourth quarter of 2014, reversing the trends seen in the first three quarters of the year.

Colorado. Colorado operations accounted for approximately 10% of our gross revenue from continuing operations during each of the years ended December 31, 2014 and 2013.

Net revenue from our Colorado segment increased $0.9 million, or 2.3%, primarily due to aggressive promotional offers and free slot play initiatives which increased visitation to the newly renovated properties. Colorado Adjusted EBITDA decreased $3.7 million, or 44.8%. The declines in Colorado Adjusted EBITDA were mainly driven by an increase in operating expenses, including increased marketing expenses, as the property completed its first full year of operations post acquisition and renovation impact. Operating results were negatively impacted as marketing expenses, including promotional free play, were increased to re-attract and retain patrons that had not visited the property during the nearly two year period since the properties were acquired.






Revenue and Expense by Category

The following table presents detail of our consolidated continuing operations gross revenue and expense by category (in thousands):
 
Year Ended December 31,
 
Percent Change
 
2015
 
2014
 
2013
 
Current Year
 
Prior Year
Total revenue
 
 
 
 
 
 
 
 
 
Casino
$
295,046

 
$
294,998

 
$
299,216

 
 %
 
(1.4
)%
Food and beverage
47,536

 
49,029

 
45,494

 
(3.0
)%
 
7.8
 %
Lodging
26,664

 
26,302

 
26,166

 
1.4
 %
 
0.5
 %
Fuel and retail
58,471

 
58,893

 
59,011

 
(0.7
)%
 
(0.2
)%
Other
13,412

 
14,482

 
13,775

 
(7.4
)%
 
5.1
 %
Total revenue
441,129

 
443,704

 
443,662

 
(0.6
)%
 
 %
Promotional allowances
(47,829
)
 
(57,802
)
 
(53,888
)
 
(17.3
)%
 
7.3
 %
Net revenue
$
393,300

 
$
385,902

 
$
389,774

 
1.9
 %
 
(1.0
)%
 
 
 
 
 
 
 
 
 
 
Departmental cost and expense
 
 
 
 
 
 
 
 
 
Casino
$
116,416

 
$
122,404

 
$
118,945

 
(4.9
)%
 
2.9
 %
Food and beverage
47,188

 
48,137

 
45,375

 
(2.0
)%
 
6.1
 %
Lodging
16,425

 
16,281

 
17,551

 
0.9
 %
 
(7.2
)%
Fuel and retail
43,285

 
46,825

 
49,094

 
(7.6
)%
 
(4.6
)%
Other
7,147

 
7,921

 
7,704

 
(9.8
)%
 
2.8
 %
General and administrative
78,573

 
79,429

 
77,133

 
(1.1
)%
 
3.0
 %
Depreciation and amortization
29,028

 
28,579

 
27,809

 
1.6
 %
 
2.8
 %
Corporate
19,887

 
14,814

 
12,233

 
34.2
 %
 
21.1
 %
Goodwill and other impairments
20,229

 

 
165

 
 %
 
(100.0
)%
Write downs, reserves and recoveries
301

 
(424
)
 
4,766

 
(171.0
)%
 
(108.9
)%
Departmental cost and expense
$
378,479

 
$
363,966

 
$
360,775

 
4.0
 %
 
0.9
 %
 
 
 
 
 
 
 
 
 
 
Departmental Adjusted EBITDA Margins
 
 
 
 
 
 
 
 
 
Gaming
60.5
%
 
58.5
%
 
60.2
%
 
 
 
 
Food and beverage
0.7
%
 
1.8
%
 
0.3
%
 
 
 
 
Lodging
38.4
%
 
38.1
%
 
32.9
%
 
 
 
 
Fuel and retail
26.0
%
 
20.5
%
 
16.8
%
 
 
 
 
Other
46.7
%
 
45.3
%
 
44.1
%
 
 
 
 





Gross Revenue. Generally, the industry defines gaming revenue as gaming wins less gaming losses.  We derive the majority of our gaming revenue, which we report in the Casino line item, from slot machines. Casino revenue also includes table game revenue and bingo, keno and poker revenue, where offered. Our gross revenue also includes:

food and beverage revenue, which we earn from sales in restaurants and outlets we own and operate at our casinos and from room service sales;

lodging revenue, which we earn from rooms we provide to customers;

fuel and retail revenue, which we earn from sales of fuel, food and beverage items at franchised food outlets, lottery tickets and other retail items at facilities we own at the Primm Casinos, and at facilities we own and lease to third-parties at the Primm Casinos and Lakeside; and

other revenue, which we earn from sources such as consulting agreements, leasing agreements, entertainment services, and cash services at our casino properties.

We recognize revenue at the time we provide the product, room or service to the guest or the third-party.

Promotional allowances consist primarily of food, beverage, lodging and entertainment furnished gratuitously to customers, as well as incentives earned in our guest reward program such as cash rewards or complimentary goods and services. We include the retail value of items or services furnished gratuitously to customers in the respective revenue classifications, then we deduct the total amount of promotional allowances from total revenue. The cost of complimentary items or services is recorded as a casino expense.


Cost and Expense. We aggregate our direct costs and expense, including selling, general and administrative expense for each of our operations, and include them in the expense of our reportable segments, as discussed in “Reportable Segment Results.”

Corporate expense represents unallocated payroll, professional fees and other expense which we do not directly attribute to our reportable segments, as well as share-based compensation. We present corporate expense net of management fees or expense charged to our properties and cash fees earned under our consulting agreement with the operator of the Rampart Casino at the JW Marriott Resort in Las Vegas, from which we collected $0.5 million, $2.0 million and $2.0 million in management fees during the years ended December 31, 2015, 2014 and 2013, respectively. The consulting agreement with the Rampart Casino expired on April 1, 2015.


Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Corporate expense, excluding share-based compensation, increased by $4.3 million, or 30.1%, primarily as a result of increased payroll and benefits expense in the current period, as well as the expiration of our consulting agreement with the Rampart Casino on April 1, 2015. These items were partially offset by a decrease in expenses we incurred as part of activities that we do not consider part regular operations. During 2015, such activities included evaluating acquisition proposals from Z Capital Partners, L.L.C. as well as other strategic alternatives and initiatives, and searching for a new Chief Financial Officer. During 2014, such activities included evaluating strategic initiatives, searching for a new CEO, reconstituting our Board of Directors, remediating the recent data breach, and incurring lobbying expenses in connection with the casino industry’s opposition to the Colorado racing initiative. We are permitted to add back such non-recurring expense to EBITDA, as defined in the Second Amended Credit Agreement, when determining compliance with our debt covenants. We incurred $3.0 million of non-recurring expense during 2015, compared to non-recurring expense of $4.1 million during the prior year. Excluding the non-recurring expense items and share-based compensation, we incurred $15.7 million and $10.3 million of corporate expense during the years ended December 31, 2015 and 2014, respectively.




Depreciation and amortization expense increased $0.4 million or 1.6% when compared to prior year primarily due to asset additions.

The non-cash goodwill impairment of $20.2 million was recognized during the fourth quarter of 2015 primarily due to revised estimates of cash flow projections at our Black Hawk reporting unit.

Net interest expense attributable to continuing operations increased $0.8 million, or 2.8%, primarily as a result of costs associated with the second amendment to the New Credit Facility and the modification of the indenture governing the 2018 Notes, which occurred in July 2014.

In 2015, the line item write-downs, reserves and recoveries include $0.3 million of expenses related to our Predecessors. In 2014, the line item write-downs, reserves and recoveries included the net effect of our receipt of $0.4 million from our insurers related to our environmental remediation work at Primm (as described in Note 11).

Our income tax benefit for the year ended December 31, 2015 and our income tax provision for the year ended December 31, 2014, were $2.7 million and $15.5 million, respectively. During 2014, we evaluated our deferred tax assets and 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, recorded a valuation allowance of $13.6 million. Establishing the valuation allowance caused our effective income tax rates for 2015 and 2014 to vary significantly from the federal statutory rate. The benefit in 2015 was primarily due to the impairment of indefinite-lived intangibles for financial reporting purposes. The provision in 2014 was primarily due to the establishment of the valuation allowance.


Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Corporate expense, excluding share-based compensation, increased by $3.3 million, or 29.8%, primarily as a result of unusual expense we incurred as part of activities that we do not consider part of regular operations. During 2014, such activities included evaluating strategic initiatives, searching for a new CEO, reconstituting our Board of Directors, remediating the recent data breach, and incurring lobbying expenses in connection with the casino industry’s opposition to the Colorado racing initiative. We are permitted to add back such unusual expense to EBITDA, as defined in the Second Amended Credit Agreement, when determining compliance with our debt covenants. We incurred $4.1 million of unusual expense, compared to unusual expense of $1.1 million during the prior year. Excluding the unusual expense items and share-based compensation, we incurred $10.3 million and $9.9 million of corporate expense during the years ended December 31, 2014 and 2013, respectively.

Depreciation and amortization expense increased $0.8 million or 2.8% when compared to prior year primarily due to asset additions, which include the completion of the Primm travel center and Colorado renovations.

Net interest expense attributable to continuing operations decreased $0.6 million, or 2.0%, primarily as a result of the reduced interest rate on our New Credit Facility. Previously capitalized fees were expensed to the debt modification line in connection with the second amendment to the New Credit Facility and the modification of the indenture governing the 2018 Notes which occurred in July 2014. In connection with the modifications to the New Credit Facility and the indenture governing the 2018 Notes, we incurred consent fees totaling $0.9 million, and expensed third party and other fees of $0.8 million and $2.0 million, respectively.

In 2013, the line item write-downs, reserves and recoveries included an accrual of $3.1 million for our estimated exposure in relation to settlement of the CCDC litigation (as described in Note 11), the write off of $2.7 million of previously-capitalized environmental remediation costs, and the reversal of the remaining $1.5 million we had accrued for IRS-imposed taxes, penalties and interest originating from the bankruptcy estate. In 2014, the same line item reflects the net effect of our receipt of $0.4 million from our insurers related to our environmental remediation work at Primm (as described in Note 11).
 
During 2014, we evaluated our deferred tax assets and 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, recorded a valuation allowance of $18.0 million. Establishing the valuation allowance caused our effective income tax rate for 2014 to vary significantly from the federal statutory rate and from our effective income tax rate for 2013 and 2012. Our income tax provision for the year ended December 31, 2014 and income



tax benefit for the year ended December 31, 2013 were approximately $15.5 million and $0.5 million, respectively. The provision in 2014 was primarily due to the establishment of the valuation allowance. Income tax receivable as of December 31, 2014 consists primarily of estimated tax payments which we expect to be refunded.



LIQUIDITY AND CAPITAL RESOURCES
 
Overview
 
We rely on cash flows from operations as our primary source of liquidity.  The New Credit Facility permits us to incur limited indebtedness for trade payables and capital leases in the ordinary course of business and provides an accordion feature, whereby we may borrow up to an additional $80.0 million subject to certain terms and conditions, including compliance with a maximum leverage ratio (as defined in the Second Amended Credit Agreement).  We cannot assure you that, if required, we will be able to obtain the necessary approval for additional borrowing under 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 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 net leverage ratio is less than or equal to 3.50 to 1.00.  Unamortized loan fees, which we are amortizing over the life of the 2018 Notes and the Initial Term Loan, totaled $6.3 million at December 31, 2015, inclusive of both the amount we report in Other assets and the amount we report as an offset to the related debt. As of December 31, 2015, we remained in compliance with all covenants specified in the Second Amended Credit Agreement.

As more fully described in Note 8 to our financial statements, the Second Amended Credit Agreement requires us to make a mandatory repayment of amounts outstanding under certain circumstances. The agreement also requires that we deposit proceeds from the sale of non-core assets into an account subject to an account control agreement.

The New Credit Facility and the 2018 Notes contain various covenants which limit our ability to take certain actions including, among other things, our ability to:

incur additional debt;

issue preferred stock;

pay dividends or make other restricted payments;

make 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.


Our primary cash needs for the next twelve months of operation include interest payments on our debt and capital expenditures. Our capital expenditure needs include maintenance capital and capital for the acquisition of slot machines and other equipment required to keep our facilities competitive. The Second Amended Credit Agreement potentially requires an annual principal prepayment based on excess cash flow (as defined in such agreement) calculated at the end of each calendar year.  For the year ended December 31, 2015, we will be required to make an excess cash flow repayment of $11.4 million in



April 2016. The most significant components of our working capital are cash, prepaid expense, accounts payable and accrued expense. Our liquidity position benefits from the fact that we generally collect cash from transactions with customers the same day or, in the case of credit or debit card transactions, within a few days of the related transaction.
 
A variety of factors, many of which are outside of our control, affect our cash flow; those factors include litigation, regulatory issues, competition, financial markets and other general business conditions.  We believe that we will have sufficient liquidity through available cash, which was $157.8 million as of December 31, 2015, trade credit and cash flow to fund our cash requirements and maintenance capital expenditures for at least the next twelve months.  However, we cannot assure you that we will generate sufficient income and cash flow to meet all of our liquidity requirements.
 

Cash Flows from Operating Activities
 
Operating activities provided $40.0 million in cash through December 31, 2015, compared to $22.8 million provided through December 31, 2014. The increase in cash provided by operating activities was driven by the increase in net income and payment timing related to the elements of working capital. Net income during 2014 included income tax expense related to the deferred tax asset valuation allowance, which has no net effect on cash flow.


Cash Flows from Investing Activities
 
Investing activities used $17.3 million of cash through December 31, 2015, compared to using $16.9 million through December 31, 2014.  Net cash used in investing activities is primarily comprised of capital expenditures, which were $17.3 million and $17.2 million during the years ended December 31, 2015 and 2014, respectively.


Cash Flows from Financing Activities
 
Financing activities used $0.1 million and $11.6 million of cash during the years ended December 31, 2015 and 2014, respectively, which primarily represented repayments of long-term debt. The prior period also included approximately $2.9 million of fees paid in connection with the second amendment to the New Credit Facility and the consent obtained under the 2018 Notes.
 

Off-Balance Sheet Arrangements
 
We currently have no material off-balance sheet arrangements.

 
Critical Accounting Policies
 
Management’s discussion and analysis of our results of operations and liquidity and capital resources is based upon our financial statements. We prepare our financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). Certain of our accounting policies require that we apply significant judgment in determining the estimates and assumptions for calculating estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. We use, in part, our historical experience, terms of existing contracts, observance of trends in the gaming industry and information obtained from independent valuation experts or other outside sources to make our judgments. We cannot assure you that our actual results will conform to our estimates. We regularly evaluate these estimates and assumptions, particularly in areas we consider to be critical accounting estimates, where changes in estimates and assumptions could have a material impact on our results of operations, financial position and, generally to a lesser extent, cash flows.

Senior management and the Audit Committee of the Board of Directors have reviewed the disclosures included herein about our critical accounting estimates, and have reviewed the processes to determine those estimates.





Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the period. Estimates incorporated into our consolidated financial statements include the estimated useful lives for depreciable and amortizable assets, the estimated cash flows we use in assessing the recoverability of long-lived assets, as well as contingencies and litigation reserves, reserves for claims and assessments, and the estimated fair values we use to test certain assets for impairment. Actual results could differ from those estimates.


Long-Lived Assets

When events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable, we evaluate long-lived assets for potential impairment, basing our testing method upon whether the assets are held for sale or held for use. For assets classified as held for sale, we recognize the asset at the lower of carrying value or fair market value less costs of disposal, as estimated based on comparable asset sales, offers received, or a discounted cash flow model. For assets held and used, we estimate the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying value of the asset, we recognize an impairment loss for the difference between the carrying value of the asset and its fair value.

We must make several estimates, assumptions and decisions when testing long-lived assets for impairment. First, management must determine the usage of the asset. Because we must test assets at the lowest level for which identifiable cash flows exist, some assets must be grouped, and management has some discretion when choosing how to group assets. Also, we must estimate future cash flows which, by their nature, are subjective and could lead to actual results that differ materially from our estimates.

On a quarterly basis, we review our major long-lived assets to determine if events have occurred or circumstances exist that indicate a potential impairment. Potential factors which could trigger an impairment include poor performance compared to historical or projected operating results, negative industry or economic factors, or significant changes to our operating environment. We estimate future cash flows using our internal budgets. When appropriate, we discount future cash flows using a weighted-average cost of capital which we develop using a standard capital asset pricing model based on an industry peer group.


Goodwill and Intangible Assets

In the fourth quarter of each year, we test goodwill and other indefinite-lived intangible assets for impairment. We also conduct tests between our annual tests if events occur or circumstances change which would, more likely than not, indicate a reduction in the fair values of the indefinite-lived intangible assets below their carrying values. When testing for impairment, we may choose to evaluate qualitative factors first to determine whether events and circumstances indicate that, more likely than not, an indefinite-lived intangible asset is impaired. If, after evaluating the totality of events and circumstances and their potential effect on significant inputs to the fair value determination, we determine that, more likely than not, an indefinite-lived intangible asset is impaired, we then quantitatively test for impairment.

Indefinite-lived intangible assets consist primarily of license rights, which we test for impairment using a discounted cash flow approach, and trademarks, which we test for impairment using the relief-from-royalty method. Goodwill represents the excess of purchase price over fair market value of net assets acquired in business combinations. We test goodwill for relevant reporting units for impairment using a discounted cash flow analysis based on our budgeted future results which are discounted using a weighted average cost of capital. The weighted average cost of capital is developed using a standard capital asset pricing model, based on guideline companies in our industry and market indicators of terminal year capitalization rates.




We make several estimates when evaluating indefinite-lived intangible assets for impairment. In particular, future cash flow estimates are, by their nature, subjective and actual results may differ materially from our estimates. In addition, the determination of capitalization rates and the discount rates used in the impairment tests are highly judgmental and dependent in large part on expectations of future market conditions.


Accounting for Share-Based Compensation

We grant share-based awards to employees and non-employees in exchange for services; we have neither made share-based payments in exchange for goods nor do we currently have plans to do so. For share-based payments to employees and non-employees, we recognize compensation expense over the vesting period during which the employee or non-employee provides services in exchange for the award and, in the case of share-based payments to non-employees, we recognize a prepaid asset representing the portion of total estimated compensation expense for which the non-employee has not yet provided services.

To measure compensation expense related to stock options awarded, we use information available as of the reporting date to estimate the fair value of awards. We estimate the fair value of stock options using the Black-Scholes-Merton option pricing model, which requires estimates for expected volatility, expected dividends, the risk-free interest rate and the expected term of the share-based award. To measure compensation expense related to restricted stock shares awarded to employees, we use an estimate of the fair market value of our common stock on the grant date, while we use an estimate of the fair market value of our common stock on the reporting date for awards granted to non-employees. We include an estimate of the number of awards which we expect will be forfeited, and we update that number based on actual forfeitures.

During the fourth quarter of 2013, we changed our accounting for stock options from classifying them as equity instruments to classifying them as liabilities.


Contractual Obligations

The following table presents our contractual obligations as of December 31, 2015 (in thousands):

 
 
Payments Due In:
 
 
Less Than One Year
 
One to Three Years
 
Three to Five Years
 
After Five Years
 
Total
Long-term debt
 
$
11,383

 
$
371,362

 
$

 
$

 
$
382,745

Interest payments on long-term debt
 
27,431

 
32,686

 
 
 

 
60,117

Operating leases
 
7,785

 
15,166

 
13,861

 
151,200

 
188,012

Purchase obligations
 
6,605

 
1,255

 
243

 

 
8,103

Total contractual obligations
 
$
53,204

 
$
420,469

 
$
14,104

 
$
151,200

 
$
638,977

 

Recently Issued Accounting Pronouncements
 
Please refer to Note 2 in the Notes to Consolidated Financial Statements included elsewhere in this report for a discussion regarding recently issued accounting pronouncements which may affect us.





ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We are exposed to market risk, primarily related to interest rate exposure of our debt obligations that bear interest based on floating rates. None of our cash or cash equivalents as of December 31, 2015 are subject to market risk based on changes in interest rates. We are exposed to market risk due to floating or variable interest rates on our indebtedness under the New Credit Facility.  Both the Initial Term Loan and the Revolving Credit Facility bear interest at an uncommitted floating rate of LIBOR plus 4.00%, subject to a LIBOR floor of 1.25%.  At December 31, 2015, the principal amount of the related borrowings under our New Credit Facility was $182.7 million. A hypothetical 1.0% increase in LIBOR (or base rate) above the current floor would result in an approximately $1.8 million annual increase in interest expense.
 
The carrying values of our cash, trade receivables, and trade payables approximate their fair value primarily because of the short maturities of these instruments. We estimate the fair value of our long-term debt based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. Based on the borrowing rates currently available to us for debt with similar terms and average maturities, we estimated the fair value of current debt outstanding at approximately $376.1 million as of December 31, 2015.


ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

We have included the required financial statements and schedules in this 2015 Form 10-K beginning on page F-1.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.






ITEM 9A.
CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that the information we must disclose in reports we file or submit under the Securities Exchange Act of 1934, as amended (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. We designed our disclosure controls with the objective of ensuring we accumulate and communicate this information to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under Exchange Act, as of the end of the period covered by this report. Based on our evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.


Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Internal control over financial reporting includes those policies and procedures that: (a) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) in Internal Control - Integrated Framework. Based on our assessment, our management believes that as of December 31, 2015, our internal control over our financial reporting is effective.


Changes in Internal Control over Financial Reporting

We made no change in our internal control over financial reporting during the fiscal quarter ended December 31, 2015 which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





Limitations on Controls

Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process which involves human diligence and compliance, and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting may also be circumvented by collusion or improper management override. The inherent limitations pose a risk that internal control over financial reporting may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the risk that the degree of compliance with the policies or procedures may deteriorate. Because inherent limitations are known features of the financial reporting process, it is possible to design the process with safeguards which reduce, though not eliminate, the risk posed by inherent limitations.

ITEM 9B.
OTHER INFORMATION

None.




PART III

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is set forth under the captions “Proposal One-Election of Directors,” “Corporate Governance,” “Executive Officers” and “Beneficial Ownership Reporting Compliance” in our definitive proxy statement to be filed in connection with our 2016 annual stockholders’ meeting (“2016 Proxy Statement”) and is incorporated herein by reference.


ITEM 11.
EXECUTIVE COMPENSATION

The information required by this item is set forth under the captions “Director Compensation,” “Compensation Discussion and Analysis” and “Compensation Committee Report” in our 2016 Proxy Statement and is incorporated herein by reference.


ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is set forth under the captions “Securities Authorized for Issuance Under Compensation Plans” and “Security Ownership” in our 2016 Proxy Statement and is incorporated herein by reference.


ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this item is set forth under the captions “Certain Relationships and Related Parties” and “Director Independence” in our 2016 Proxy Statement and is incorporated herein by reference.


ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is set forth under the caption “Principal Accountant Fees and Services” in our 2016 Proxy Statement and is incorporated herein by reference.






PART IV

ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this 2015 Form 10-K:

Consolidated Financial Statements

In Part II, Item 8, we have included our consolidated financial statements, the notes thereto and the report of the Independent Registered Public Accounting Firm.

Financial Statement Schedules

We have omitted schedules required by applicable SEC accounting regulations because they are either not required under the related instructions, are inapplicable, or we present the required information in the financial statements or notes thereto.

Exhibits

We hereby file as part of this 2015 Form 10-K the exhibits listed on the attached Exhibit Index. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington D.C. 20549, at prescribed rates, or on the SEC website at www.sec.gov.


EXHIBIT INDEX

Exhibit Number
 
Description
2.1
 
Asset and Equity Purchase Agreement, dated as of September 20, 2011, by and between Affinity Gaming (formerly Affinity Gaming, LLC) and Golden Gaming, Inc. (incorporated by reference from Exhibit 2.1 to Affinity Gaming’s Quarterly Report on Form 10-Q (File No. 000-54085) dated November 14, 2011)
2.2
 
First Amendment and Waiver to Asset and Equity Purchase Agreement, dated as of November 17, 2011, by and between Affinity Gaming (formerly Affinity Gaming, LLC) and Golden Gaming, Inc. (incorporated by reference from Exhibit 2.2 to Affinity Gaming’s Annual Report on Form 10-K (File No. 000-54085) dated March 30, 2012)
2.3
 
Asset Purchase Agreement, dated as of September 20, 2011, by and between Affinity Gaming (formerly Affinity Gaming, LLC) and Golden Mardi Gras, Inc. (incorporated by reference from Exhibit 2.2 to Affinity Gaming’s Quarterly Report on Form 10-Q (File No. 000-54085) dated November 14, 2011)
2.4
 
First Amendment and Waiver to Asset Purchase Agreement, dated as of November 17, 2011, by and between Affinity Gaming (formerly Affinity Gaming, LLC) and Golden Mardi Gras, Inc. (incorporated by reference from Exhibit 2.4 to Affinity Gaming’s Annual Report on Form 10-K (File No. 000-54085) dated March 30, 2012)
2.5
 
Second Amendment to Asset Purchase Agreement, dated as of February 29, 2012, by and between Affinity Gaming (formerly Affinity Gaming, LLC) and Golden Mardi Gras, Inc. (incorporated by reference from Exhibit 2.5 to Affinity Gaming’s Annual Report on Form 10-K (File No. 000-54085) dated March 30, 2012)
3.1
 
Articles of Incorporation of Affinity Gaming and the Addendum thereto (incorporated by reference from Exhibit 3.1 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated December 20, 2012)
3.2
 
Amended and Restated Bylaws of Affinity Gaming (incorporated by reference from Exhibit 3.1 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated March 29, 2013)



Exhibit Number
 
Description
3.3
 
Certificate of Designation of Series A Preferred Stock of Affinity Gaming, as filed with the Secretary of State of the State of Nevada on December 21, 2012 (incorporated by reference from Exhibit 3.1 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated December 21, 2012)
3.4
 
Certificate of Withdrawal of Series A Preferred Stock of Affinity Gaming, as filed with the Secretary of State of the State of Nevada on August 15, 2014 (incorporated by reference from Exhibit 3.3 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated August 13, 2014)
4.1
 
Registration Rights Agreement, dated February 7, 2012, by and among Affinity Gaming (formerly Affinity Gaming, LLC) and SPH Investment, LLC (incorporated by reference from Exhibit 10.1 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated February 13, 2012).
4.2
 
Registration Rights Agreement, dated May 9, 2012, among Affinity Gaming (formerly Affinity Gaming,
LLC), Affinity Gaming Finance Corp., the guarantors party thereto and Deutsche Bank Securities Inc.,
acting on behalf of itself and as representative of the several initial purchasers party thereto (incorporated by reference from Exhibit 4.2 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated May 10, 2012)
4.3
 
Indenture, dated May 9, 2012, relating to Affinity Gaming and Affinity Gaming Finance Corp.’s 9% Senior Notes due 2018, by and among Affinity Gaming (formerly Affinity Gaming, LLC), Affinity Gaming Finance Corp., the guarantors party thereto, U.S. Bank, National Association, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, registrar, transfer agent and authenticating agent (incorporated by reference from Exhibit 4.1 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated May 10, 2012)
4.4
 
Form of 9% Senior Note due 2018 (included in Exhibit 4.3)
4.5
 
Supplemental Indenture, dated July 25, 2014, by and between Affinity Gaming, Affinity Gaming Finance Corp., the guarantors party thereto, U.S.
10.1
 
Credit Agreement, dated May 9, 2012, among Affinity Gaming (formerly Affinity Gaming, LLC), as borrower, Deutsche Bank Trust Company Americas, as administrative agent and as collateral agent, the other agents party thereto and the lenders party thereto (incorporated by reference from Exhibit 10.1 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated May 10, 2012)
10.2
 
Amended and Restated Ground Lease Agreement, dated as of July 1, 1993, by and between Primm South Real Estate Company and The Primadonna Corporation (incorporated by reference from Exhibit 10.2 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated January 3, 2011)
10.3
 
First Amendment to the Amended and Restated Ground Lease Agreement and Consent and Waiver, dated as of August 25, 1997, by and between Primm South Real Estate Company and The Primadonna Corporation (incorporated by reference from Exhibit 10.3 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated January 3, 2011)
10.4
 
Second Amendment to the Amended and Restated Ground Lease Agreement, dated as of July 1, 2002, by and between Primm South Real Estate Company and The Primadonna Company, LLC (incorporated by reference from Exhibit 10.4 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated January 3, 2011)
10.5
 
Third Amendment to the Amended and Restated Ground Lease Agreement, dated as of September 14, 2004, by and between Primm South Real Estate Company and The Primadonna Company, LLC (incorporated by reference from Exhibit 10.5 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated January 3, 2011)
10.6
 
Fourth Amendment to the Amended and Restated Ground Lease Agreement, dated as of September 14, 2004, by and between Primm South Real Estate Company and The Primadonna Company, LLC LLC (incorporated by reference from Exhibit 10.8 to Affinity Gaming’s Annual Report on Form 10-K (File No. 000-54085) dated March 27, 2015)
10.7
 
Gold Ranch Casino Lease, dated as of December 27, 2001, by and between Last Chance, Inc., Prospector Gaming Enterprises, Inc. and Target Investments, L.L.C. (incorporated by reference from Exhibit 10.15 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated January 3, 2011)



Exhibit Number
 
Description
10.8
 
Option to Purchase the Gold Ranch Casino Property and Improvements, The Leach Field Property, the Frontage Parcel, the California Lottery Station and the California Lottery Property, and the Right of First Refusal, dated as of December 27, 2001, by and among Prospector Gaming Enterprises, Inc., Target Investments, L. L. C. and Last Chance, Inc. (incorporated by reference from Exhibit 10.16 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated January 3, 2011)
10.9
 
Form of Indemnification Agreement for Directors and Executive Officers (incorporated by reference from Exhibit 10.18 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated January 3, 2011) †
10.10
 
Letter Agreement regarding offer of employment, dated as of January 12, 2011, from Affinity Gaming, LLC to, and acknowledged by, Donna Lehmann (incorporated by reference from Exhibit 10.2 to Affinity Gaming, LLC’s Current Report on Form 8-K (File No. 000-54085) dated January 12, 2011) †
10.11
 
Letter Agreement regarding offer of employment, dated as of February 4, 2011, from Affinity Gaming (formerly Affinity Gaming, LLC) to, and acknowledged by, Marc H. Rubinstein (incorporated by reference from Exhibit 10.23 to Affinity Gaming’s Annual Report on Form 10-K (File No. 000-54085) dated March 31, 2011) †
10.12
 
Executive Severance Agreement, dated as of January 11, 2011, between Affinity Gaming (formerly Affinity Gaming, LLC) and Donna Lehmann (incorporated by reference from Exhibit 10.4 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated January 12, 2011) †
10.13
 
Executive Severance Agreement, dated as of February 4, 2011, between Affinity Gaming (formerly Affinity Gaming, LLC) and Marc H. Rubinstein (incorporated by reference from Exhibit 10.26 to Affinity Gaming’s Annual Report on Form 10-K (File No. 000-54085) dated March 31, 2011) †
10.14
 
Duty of Loyalty Agreement, dated as of January 11, 2011, between Affinity Gaming (formerly Affinity Gaming, LLC) and Donna Lehmann (incorporated by reference from Exhibit 10.6 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated January 12, 2011) †
10.15
 
Duty of Loyalty Agreement, dated as of February 4, 2011, between Affinity Gaming (formerly Affinity Gaming, LLC) and Marc H. Rubinstein (incorporated by reference from Exhibit 10.29 to Affinity Gaming’s Annual Report on Form 10-K (File No. 000-54085) dated March 31, 2011) †
10.16
 
Amendment to Letter Agreement regarding offer of employment, dated as of May 6, 2011, from Affinity Gaming (formerly Affinity Gaming, LLC) to, and acknowledged by, Donna Lehmann (incorporated by reference from Exhibit 10.4 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated May 9, 2011) †
10.17
 
Amendment to Letter Agreement regarding offer of employment, dated as of December 27, 2012, from Affinity Gaming (formerly Affinity Gaming, LLC) to, and acknowledged by, Donna Lehmann † (incorporated by reference from Exhibit 10.37 to Affinity Gaming 's Annual Report on Form 10-K (File No. 000-54085) dated April 1, 2013)
10.18
 
Amendment to Executive Severance Agreement, dated as of December 27, 2012, from Affinity Gaming (formerly Affinity Gaming, LLC) to, and acknowledged by, Donna Lehmann † (incorporated by reference from Exhibit 10.38 to Affinity Gaming 's Annual Report on Form 10-K (File No. 000-54085) dated April 1, 2013)
10.19
 
Amendment to Duty of Loyalty Agreement, dated as of December 27, 2012, from Affinity Gaming (formerly Affinity Gaming, LLC) to, and acknowledged by, Donna Lehmann † (incorporated by reference from Exhibit 10.39 to Affinity Gaming 's Annual Report on Form 10-K (File No. 000-54085) dated April 1, 2013)
10.20
 
Asset Purchase Agreement, dated September 7, 2012, by and among The Sands Regent, LLC, Truckee Gaming, LLC, Affinity Gaming (formerly Affinity Gaming, LLC), Dayton Gaming, LLC and California Prospectors, Ltd. (incorporated by reference from Exhibit 10.1 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated September 10, 2012)
10.21
 
Consulting Agreement, dated as of May 1, 2011, by and between Affinity Gaming (formerly Herbst Gaming, LLC) and Hotspur Casinos Nevada, Inc. (incorporated by reference from Exhibit 10.5 to Affinity Gaming's Quarterly Report on Form 10-Q (File No. 000-54085) dated August 12, 2011)



Exhibit Number
 
Description
10.22
 
Herbst Gaming, LLC 2011 Long-Term Incentive Plan (incorporated by reference from Exhibit 10.30 to Affinity Gaming's Annual Report on Form 10-K (File No. 000-54085) dated March 31, 2011) †
10.23
 
Affinity Gaming 2011 Long-Term Incentive Plan, as amended and restated † (incorporated by reference from Exhibit 10.41 to Affinity Gaming 's Current Report on Form 8-K (File No. 000-54085) dated November 4, 2014)
10.24
 
Amendment to Letter Agreement regarding offer of employment, dated March 20, 2013, from Affinity Gaming to, and acknowledged by, Marc H. Rubinstein (incorporated by reference from Exhibit 10.1 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated March 25, 2013)†
10.25
 
First Amendment, dated December 13, 2013, to the Credit Agreement, dated May 9, 2012, among Affinity Gaming (formerly Affinity Gaming, LLC), as borrower, Deutsche Bank Trust Company Americas, as administrative agent and as collateral agent, the other agents party thereto and the lenders party thereto (incorporated by reference from Exhibit 10.46 to Affinity Gaming’s Annual Report on Form 10-K (File No. 000-54085) dated March 28, 2014)
10.26
 
Amendment, dated as of February 25, 2014, to Letter Agreement regarding offer of employment, the Executive Severance Agreement, and the Duty of Loyalty agreement, from Affinity Gaming (formerly Affinity Gaming, LLC) to, and acknowledged by, Donna Lehmann (incorporated by reference from Exhibit 10.48 to Affinity Gaming’s Annual Report on Form 10-K (File No. 000-54085) dated March 28, 2014) †
10.27
 
Amendment, dated as of February 25, 2014, to Letter Agreement regarding offer of employment, the Executive Severance Agreement, and the Duty of Loyalty agreement, from Affinity Gaming (formerly Affinity Gaming, LLC) to, and acknowledged by, Marc H. Rubinstein (incorporated by reference from Exhibit 10.49 to Affinity Gaming’s Annual Report on Form 10-K (File No. 000-54085) dated March 28, 2014) †
10.28
 
Settlement Agreement, dated July 28, 2014, by and between Affinity Gaming, Z Capital Partners, L.L.C. and the other parties thereto (incorporated by reference from Exhibit 10.1 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated July 22, 2014)
10.29
 
Second Amendment and Waiver to Credit Agreement, dated July 22, 2014, by and between Affinity Gaming, Deutsche Bank Trust Company Americas and the other parties thereto (incorporated by reference from Exhibit 10.2 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated July 22, 2014)
10.30
 
Executive Employment Agreement, dated August 25, 2014, by and between Affinity Gaming and Michael Silberling (incorporated by reference from Exhibit 10.2 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated August 26, 2014) †
10.31
 
Confidential Agreement to Amend Employment Agreements, dated February 17, 2015 between Affinity Gaming and Donna Lehmann (incorporated by reference from Exhibit 10.1 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated February 20, 2015).†
10.32
 
Retention Agreement, dated February 17, 2015 between Affinity Gaming and Marc H. Rubinstein P.C. (incorporated by reference from Exhibit 10.2 to Affinity Gaming’s Current Report on Form 8-K (File No. 000-54085) dated February 20, 2015).†
10.33
 
Confidential Employment Agreement, effective as of March 19, 2015, between Affinity Gaming and Walter Bogumil (incorporated by reference from Exhibit 10.3 to Affinity Gaming’s Quarterly Report on Form 10-Q (File No. 000-54085) dated May 12, 2015).†
10.34
 
Change in Control Agreement, effective as of October 5, 2015, between Affinity Gaming and Michael Silberling.*†‡
10.35
 
Change in Control Agreement, effective as of October 5, 2015, between Affinity Gaming and Walter Bogumil.*†‡
14.1
 
Affinity Gaming Code of Business Conduct and Ethics. *



Exhibit Number
 
Description
14.2
 
Affinity Gaming (formerly Affinity Gaming, LLC) Code of Ethics for Senior Financial Officers. (incorporated by reference from Exhibit 14.2 to Affinity Gaming 's Annual Report on Form 10-K (File No. 000-54085) dated March 31, 2011)
21.1
 
List of subsidiaries (incorporated by reference from Exhibit 21.1 to Affinity Gaming 's Annual Report on Form 10-K (File No. 000-54085) dated April 1, 2013)
23
 
Consent of Ernst & Young LLP *
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 *
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 *
32
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 *
99.1
 
Description of Governmental Regulations *
99.2
 
Audit Committee Charter (incorporated by reference from Exhibit 99.1 to Affinity Gaming’s Annual Report on Form 10-K (File No. 000-54085) dated March 27, 2015)
99.3
 
Compensation Committee Charter (incorporated by reference from Exhibit 99.2 to Affinity Gaming’s Annual Report on Form 10-K (File No. 000-54085) dated March 27, 2015)
99.4
 
Governance and Nominating Committee Charter (incorporated by reference from Exhibit 99.3 to Affinity Gaming’s Annual Report on Form 10-K (File No. 000-54085) dated March 27, 2015)
101.INS
 
XBRL Instance Document**
101.SCH
 
XBRL Taxonomy Extension Schema Document**
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document**
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document**
*
Filed herewith.

**
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Indicates a Management Contract or Compensation Plan or Arrangement.

Confidential treatment has been requested as to certain portions of this exhibit, which portions have been omitted and submitted separately with the Securities and Exchange Commission.





SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
 
 
AFFINITY GAMING
 
 
 
 
(Registrant)
 
 
 
 
 
Date:
March 23, 2016
By:
 
/s/ Michael Silberling
 
 
 
 
Michael Silberling
 
 
 
 
Chief Executive Officer
 
 
 
 
(principal executive officer)


POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Marc H. Rubinstein and Michael Silberling and each of them as his or her lawful attorney-in-fact with power of substitution and resubstitution to sign in his or her name, place and stead, in any and all capacities, to do any and all things and execute and all instruments that such attorney-in-fact may deem necessary or advisable under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the Securities and Exchange Commission in connection with this report and any and all amendments hereto, as fully for all intents and purposes as he might or could do in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.





Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Name
 
Title
 
Date
 
 
 
 
 
/s/ Michael Silberling
 
CEO
(principal executive officer)
 
March 23, 2016
Michael Silberling
 
 
 
 
 
 
 
 
 
 
 
 
/s/ Walter Bogumil
 
SVP, CFO and Treasurer
(principal financial and accounting officer)
 
March 23, 2016
Walter Bogumil
 
 
 
 
 
 
 
 
 
 
 
 
/s/ David Reganato
 
Director, Chairman
 
March 23, 2016
David Reganato
 
 
 
 
 
 
 
 
 
 
 
 
/s/ James A. Cacioppo
 
Director
 
March 23, 2016
James Cacioppo
 
 
 
 
 
 
 
 
 
 
 
 
/s/ Matthew A. Doheny
 
Director
 
March 23, 2016
Matthew A. Doheny
 
 
 
 
 
 
 
 
 
 
 
 
/s/ Andrei Scrivens
 
Director
 
March 23, 2016
Andrei Scrivens
 
 
 
 
 
 
 
 
 
 
 
 
/s/ Eric V. Tanjeloff
 
Director
 
March 23, 2016
Eric V. Tanjeloff
 
 
 
 
 
 
 
 
 
 
 
 
/s/ James J. Zenni, Jr.
 
Director
 
March 23, 2016
James J. Zenni, Jr.
 
 




FINANCIAL STATEMENTS






Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Affinity Gaming
We have audited the accompanying consolidated balance sheets of Affinity Gaming and its subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, owners’ equity, and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Affinity Gaming and its subsidiaries as of December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.



/s/ Ernst & Young LLP
Las Vegas, Nevada
March 23, 2016
 




AFFINITY GAMING
Consolidated Balance Sheets
(in thousands)


 
December 31,
 
2015
 
2014
ASSETS
 
 
 
Cash and cash equivalents
$
157,779

 
$
135,175

Restricted cash
608

 
608

Accounts receivable, net of reserve of $147 and $159, respectively
3,217

 
3,516

Income tax receivable
16

 
171

Prepaid expense
10,079

 
10,134

Inventory
2,798

 
2,666

Total current assets
174,497

 
152,270

Property and equipment, net
251,908

 
261,111

Other assets, net
5,000

 
5,738

Intangibles, net
124,042

 
126,543

Goodwill
48,287

 
68,516

Total assets
$
603,734

 
$
614,178

LIABILITIES AND OWNERS’ EQUITY
 
 
 
Accounts payable
$
13,220

 
$
12,902

Accrued interest
2,327

 
2,353

Accrued expense
24,158

 
22,510

Deferred income taxes
1,663

 
1,438

Current maturities of long-term debt
11,383

 

Other current liabilities
23

 
30

Total current liabilities
52,774

 
39,233

Long-term debt, less current portion
365,674

 
374,701

Other liabilities
1,932

 
1,708

Deferred income taxes
13,095

 
16,081

Total liabilities
433,475

 
431,723

 
 
 
 
Commitments and contingencies (Note 13)


 


 
 
 
 
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
208,239

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