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EX-10.1 - EXHIBIT 10.1 - Affinity Gamingex101.htm
EX-31.2 - EXHIBIT 31.2 - Affinity Gamingex312-2016xq1.htm
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EX-31.1 - EXHIBIT 31.1 - Affinity Gamingex311-2016xq1.htm


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

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2016
Commission File Number 000-54085  
 
Affinity Gaming
 
 
Nevada
 
02-0815199
 
 
State of Incorporation
 
IRS Employer Identification Number
 
3755 Breakthrough Way, Suite 300
Las Vegas, Nevada 89135
(Address, including zip code, of principal executive offices)
702-341-2400
(Registrant's telephone number, including area code)
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

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

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

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

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

No established public trading market for our common stock currently exists. As of May 10, 2016, there were 20,462,329 shares of the registrant's common stock outstanding.




 



TABLE OF CONTENTS






CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

our expectations regarding the effects of our promotional campaigns and marketing programs on reducing costs and improving operating margins;
estimated and projected costs, capital expenditures and expense savings;
the adequacy of cash flows from operations, available cash and available amounts under our credit facility to meet future liquidity needs; and
our continued viability, our operations and results of operations.

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

our debt service requirements, which may adversely affect our operations and ability to compete;
our ability to generate cash to service our substantial indebtedness, which depends on many factors that we cannot control;
the impact of restrictions under, and results of noncompliance with, the terms of our credit agreement and notes indenture;
intense competition;
extensive regulation from gaming and other government authorities;
changes to applicable gaming and tax laws;
severe weather conditions and other natural disasters that affect visitation to our casinos;
environmental contamination and remediation costs;
pending and potential litigation;
reductions in spending as a result of economic downturns and other factors;
changes in income tax, payroll tax and health care benefits laws;
additional gaming licenses being granted in or adjacent to jurisdictions where we operate;
breaches of our information systems resulting in loss or compromise of customer data;
changes in the smoking laws; and
other factors as described in “Part I. Item 1A. — Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 23, 2016 (“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 - FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS





AFFINITY GAMING
Condensed Consolidated Balance Sheets
(in thousands)


 
March 31, 2016
 
December 31, 2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
169,012

 
$
157,779

Restricted cash
608

 
608

Accounts receivable, net of reserve of $157 and $147, respectively
2,635

 
3,217

Income tax receivable
16

 
16

Prepaid expense
9,559

 
10,079

Inventory
2,740

 
2,798

Total current assets
184,570

 
174,497

Property and equipment, net
247,348

 
251,908

Other assets, net
3,500

 
3,530

Intangibles, net
123,416

 
124,042

Goodwill
48,287

 
48,287

Total assets
$
607,121

 
$
602,264

LIABILITIES AND OWNERS’ EQUITY
 
 
 
Accounts payable
$
8,705

 
$
13,220

Accrued interest
6,854

 
2,327

Accrued expense
23,200

 
24,158

Current maturities of long-term debt
11,494

 
11,383

Other current liabilities
15

 
23

Total current liabilities
50,268

 
51,111

Long-term debt, less current portion
364,878

 
364,204

Other liabilities
1,835

 
1,932

Deferred income taxes
16,374

 
14,758

Total liabilities
433,355

 
432,005

 
 
 
 
Commitments and contingencies (Note 11)


 


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

 

Common stock, $0.001 par value; 200,000,000 shares authorized; 20,462,329 and 20,377,247 shares issued and outstanding for 2016 and 2015, respectively
20

 
20

Additional paid-in-capital
208,635

 
208,239

Accumulated deficit
(34,889
)
 
(38,000
)
Total owners’ equity
173,766

 
170,259

Total liabilities and owners’ equity
$
607,121

 
$
602,264

See notes to condensed consolidated financial statements


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

 
Quarter Ended March 31,
 
2016
 
2015
REVENUE
 
 
 
Casino
$
71,883

 
$
75,097

Food and beverage
10,824

 
11,961

Lodging
6,398

 
7,032

Fuel and retail
12,140

 
12,576

Other
3,314

 
2,895

Total revenue
104,559

 
109,561

Promotional allowances
(8,809
)
 
(12,583
)
Net revenue
95,750

 
96,978

EXPENSE
 
 
 
Casino
27,381

 
29,734

Food and beverage
10,792

 
11,827

Lodging
4,348

 
3,909

Fuel and retail
8,297

 
9,264

Other
1,507

 
1,530

General and administrative
18,713

 
18,717

Depreciation and amortization
7,384

 
7,163

Corporate
4,884

 
3,937

Write downs, reserves and recoveries
52

 
135

Total expense
83,358

 
86,216

Operating income
12,392

 
10,762

Other expense
 
 
 
Interest expense, net
(7,665
)
 
(7,605
)
Total other expense, net
(7,665
)
 
(7,605
)
Income before income tax
4,727

 
3,157

Provision for income taxes
(1,616
)
 
(3,397
)
Net income (loss)
$
3,111

 
$
(240
)
 
 
 
 
See notes to condensed consolidated financial statements


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

 
Three Months Ended March 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
3,111

 
$
(240
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
7,384

 
7,163

Amortization of debt costs and discounts
784

 
720

(Gain) loss on sale of property and equipment
(5
)
 
5

Share-based compensation
374

 
162

Deferred income taxes
1,616

 
3,366

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
582

 
153

Prepaid expense
520

 
801

Inventory
58

 
235

Other assets
68

 
(1
)
Accounts payable
(2,271
)
 
562

Accrued interest
4,527

 
4,501

Accrued expense
(958
)
 
647

Income tax receivable

 
95

Other liabilities
(11
)
 
(8
)
Net cash provided by operating activities
15,779

 
18,161

Cash flows from investing activities:
 
 
 
Proceeds from sale of property and equipment
17

 
1

Purchases of property and equipment
(4,482
)
 
(3,125
)
Net cash used in investing activities
(4,465
)
 
(3,124
)
Cash flows from financing activities:
 
 
 
Payment on long-term debt
(8
)
 
(8
)
Repurchases of vested share-based awards
(73
)
 
(47
)
Net cash used in financing activities
(81
)
 
(55
)
Net increase in cash and cash equivalents
11,233

 
14,982

Cash and cash equivalents:
 
 
 
Beginning of period
157,779

 
135,175

End of period
$
169,012

 
$
150,157

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid during the period for interest
$
2,432

 
$
2,431

Supplemental schedule of non-cash investing and financing activities:
 
 
 
Purchase of property and equipment financed through accounts payable
$
311

 
$
316

See notes to condensed consolidated financial statements.



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements




NOTE 1. ORGANIZATION, CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS

Organization and Business

Affinity Gaming (together with its subsidiaries, “Affinity” or “we”) is a Nevada corporation, headquartered in Las Vegas, which owns and operates 11 casinos, five of which are located in Nevada, three in Colorado, two in Missouri and one in Iowa. We also provided consulting services to Hotspur Casinos Nevada, Inc. (“Hotspur”), the operator of the Rampart Casino at the JW Marriott Resort in Las Vegas until the expiration of the related consulting agreement on April 1, 2015. Hotspur previously paid us a fixed annual fee in monthly installments.

Consolidation

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

Basis of Presentation

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

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of March 31, 2016, with the audited Consolidated Balance Sheet amounts as of December 31, 2015 presented for comparative purposes, and the related unaudited Condensed Consolidated Statements of Operations and Statements of Cash Flows in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP, though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.

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

Management believes our unaudited condensed consolidated interim financial statements include all the normal recurring adjustments necessary to fairly present our unaudited Condensed Consolidated Balance Sheet as of March 31, 2016, our unaudited Condensed Consolidated Statements of Operations and our unaudited Condensed Consolidated Statements of Cash Flows for all periods presented. You should read our unaudited condensed consolidated interim financial statements and footnotes in conjunction with our consolidated financial statements and footnotes included within our 2015 Form 10-K.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We have made no material changes to our significant accounting policies as reported in our 2015 Form 10-K.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases, that changes the accounting for leases and requires expanded disclosures about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Lessor accounting will remain largely unchanged,



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. Lessees and lessors are required to apply a modified retrospective transition approach for leases existing at the beginning of the earliest comparative period presented in the adoption-period financial statements. Any leases that expire before the initial application date will not require any accounting adjustment. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018, and early application is permitted. We are currently evaluating the impact this guidance will have on its financial condition, results of operations, cash flows or the reporting thereof.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2014-09 stipulate that an entity should recognize revenue in an amount which reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to customers, and they provide a five-step process to assist entities with achieving that core principle. The ASU also specifies the accounting for some costs to obtain or fulfill a contract with a customer. With regard to disclosures, ASU 2014-09 states that entities should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, and it requires qualitative and quantitative disclosures concerning contracts with customers, significant judgments and changes therein, and assets recognized from the costs incurred to obtain or fulfill a contract. The amendments in ASU 2014-09, have been deferred for one year and are effective for annual reporting periods beginning after December 15, 2017, including interim periods therein, and they permit either retrospective application to all prior periods or retrospective application with the cumulative effect of application recognized on the initial application date. Early adoption is permitted for annual and interim periods beginning after December 31, 2016. We are currently evaluating the impact this guidance will have on its financial condition, results of operations, cash flows or the reporting thereof.

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

Reclassifications

The unaudited condensed consolidated financial statements and related notes reflect certain reclassifications to prior year amounts in order to conform with current year presentation. The reclassifications have no effect on previously reported net income.

In November 2015, the FASB issued an accounting standards update which changes the presentation of deferred taxes in classified balance sheets. The new guidance requires classification of all deferred tax assets and liabilities as well as applicable valuation allowances as non-current. The effective date for this guidance is for financial statements issued for annual and interim periods beginning after December 15, 2016. Early application is permitted. The guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. We have applied the guidance in the accompanying condensed consolidated financial statements with retrospective application for the Consolidated Balance Sheet at December 31, 2015. The effect of the accounting change in the prior year resulted in current deferred income taxes of $1.7 million, previously presented separately in current liabilities, to be added to $13.1 million in long-term deferred income taxes, for a revised $14.8 million in long-term deferred income taxes at December 31, 2015.

NOTE 3. RESTRICTED CASH

Restricted cash balances at March 31, 2016 and December 31, 2015 include cash or certificates of deposit required for gaming activity in certain jurisdictions in which we operate, and for self-insured retention obligations under some of our workers compensation insurance policies.




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



NOTE 4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following (in thousands, except estimated lives):
 
Estimated Life
(Years)
 
March 31,
2016
 
December 31, 2015
Building and improvements
7 - 40
 
$
186,123

 
$
185,875

Gaming equipment
3 - 10
 
77,462

 
75,527

Furniture, fixtures, and equipment
3 - 10
 
50,511

 
49,571

Leasehold improvements
7
 
196

 
196

Land
 
39,513

 
39,513

Barge
30
 
15,019

 
15,019

Construction-in-progress
 
 
1,992

 
3,185

Total property and equipment
 
 
370,816

 
368,886

Less accumulated depreciation
 
 
(123,468
)
 
(116,978
)
Total property and equipment, net
 
 
$
247,348

 
$
251,908


NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS

We determine the fair value of the indefinite-lived intangible assets other than goodwill using the discounted cash flow method, a form of the income approach.  In determining the fair values, we make significant assumptions relating to variables based on past experiences and judgments about future performance.  These variables include, but are not limited to: (1) the forecast earnings growth rate of each market, (2) risk-adjusted discount rate, and (3) expected growth rates in perpetuity to estimated terminal values.
 
The following table summarizes intangible assets by category (in thousands):
 
March 31, 2016
 
December 31, 2015
 
Gross Amount
 
Accumulated
Amortization
 
Net Amount
 
Gross Amount
 
Accumulated
Amortization
 
Net Amount
Finite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
Customer loyalty programs
$
12,164

 
$
(9,083
)
 
$
3,081

 
$
12,164

 
$
(8,583
)
 
$
3,581

Trademarks
2,982

 
(2,524
)
 
458

 
2,982

 
(2,398
)
 
584

 
15,146

 
$
(11,607
)
 
3,539

 
15,146

 
$
(10,981
)
 
4,165

Indefinite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
Gaming license rights
110,646

 
 
 
110,646

 
110,646

 

 
110,646

Local tradenames
9,231

 
 
 
9,231

 
9,231

 

 
9,231

 
119,877

 

 
119,877

 
119,877

 

 
119,877

Total intangible assets
$
135,023

 

 
$
123,416

 
$
135,023

 

 
$
124,042





AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



The following table summarizes the changes in goodwill by reportable segment during the three months ended March 31, 2016:
 
Nevada
 
Midwest
 
Total
Balance at December 31, 2015
$
33,665

 
$
14,622

 
$
48,287

Impairment of goodwill

 

 

Balance at March 31, 2016
$
33,665

 
$
14,622

 
$
48,287


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

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

NOTE 6. OTHER ASSETS, NET

Other assets, net consist of the following (in thousands):
 
March 31, 2016
 
December 31, 2015
Long-term deposits
$
2,920

 
$
2,919

Other assets
580

 
611

Total
$
3,500

 
$
3,530

 
 
 
 

NOTE 7. ACCRUED EXPENSE

Accrued expense consists of the following (in thousands):
 
March 31, 2016
 
December 31, 2015
Progressive jackpot liabilities
$
3,013

 
$
2,984

Accrued payroll and related
6,509

 
7,441

Slot club point liability
3,301

 
3,213

Litigation reserve
3,100

 
3,100

Other accrued expense
7,277

 
7,420

Total
$
23,200

 
$
24,158





AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



NOTE 8. LONG-TERM DEBT

The following table presents long-term debt balances (in thousands):
 
March 31, 2016
 
December 31, 2015
9% Senior Unsecured Notes due 2018
$
200,000

 
$
200,000

Unamortized debt issuance cost, net
(2,741
)
 
(3,028
)
Unamortized discount
(767
)
 
(847
)
9% Senior Unsecured Notes due 2018, net
196,492

 
196,125

Term loan due 2017
182,745

 
182,745

Unamortized debt issuance cost, net
(2,865
)
 
(3,283
)
Term loan due 2017, net
179,880

 
179,462

Total debt, including current maturities
376,372

 
375,587

Less: current maturities of long-term debt
(11,494
)
 
(11,383
)
Total long-term debt
$
364,878

 
$
364,204

 
 
 
 

The current maturities of long-term debt at March 31, 2016, includes the mandatory excess cash flow payment as calculated for the year ended December 31, 2015 on the Initial Term Loan. The actual payment required by the lenders was $2.9 million, which was paid in April 2016.

On May 9, 2012, we repaid all of the $342.1 million debt then outstanding under the senior secured loans under our credit agreement dated December 31, 2010 (the “Old Credit Facility”).  We obtained the funds used to repay the Old Credit Facility by (i) issuing $200.0 million of 9.00% senior unsecured notes due 2018 (the “2018 Notes”), and (ii) borrowing under our new Credit Agreement, dated May 9, 2012 (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.

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

Unamortized debt issuance cost, which we are amortizing over the life of the 2018 Notes and the Initial Term Loan, totaled $5.6 million at March 31, 2016. In April 2015, the FASB issued guidance that debt issuance costs should be presented in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Under the new guidance, effective for annual and interim periods beginning after December 15, 2015, we have reclassified $1.5 million in unamortized debt issuance costs previously presented in other assets to be deducted from the long-term debt balances at December 31, 2015.

The Second Amended Credit Agreement contains customary covenants including, but not limited to, a maximum total net leverage ratio, a maximum secured leverage ratio, a minimum interest coverage ratio and maximum total annual capital expenditures. Additionally, the Initial Term Loan is subject to mandatory annual prepayments based on generation of excess cash flow (as defined), equal to 50% of excess cash flow when the Total Net Leverage Ratio is greater than 4.00 to 1.00, equal



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



to 25% of excess cash flow when the Total Net Leverage Ratio is greater than 3.00 to 1.00, but less than or equal to 4.00 to 1.00, and equal to zero when the Total Net Leverage Ratio is less than or equal to 3.00 to 1.00. At March 31, 2016, the First Lien Senior Secured Net Leverage Ratio was 2.03 to 1.00, and the Interest Expense Coverage Ratio was 2.52 to 1.00. As of March 31, 2016, we remained in compliance with all debt covenants.

We issued the 2018 Notes pursuant to an indenture dated May 9, 2012 (“2018 Notes Indenture”). Under the 2018 Notes Indenture, the Issuers are entitled to redeem all or a portion of the 2018 Notes upon providing not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid interest, if any, to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on May 15 of the years set forth in the table below.
Year
 
Percentage
2015
 
104.50
%
2016
 
102.25
%
2017 and thereafter
 
100.00
%

We based the estimated fair value of the 2018 Notes and the New Credit Facility on Level 2 inputs using quoted prices in inactive markets and observable market data for similar, but not identical, instruments. The following table presents the carrying values and estimated fair values of our long-term debt at March 31, 2016 (in thousands):
 
Carrying Value
 
Estimated Fair
Value
9% Senior Unsecured Notes due 2018
$
196,492

 
$
200,422

Term loan due 2017
179,880

 
180,564

Total
$
376,372

 
$
380,986


NOTE 9. INCOME TAXES

We continually evaluate our deferred tax assets to determine if any portion of those assets would not be realized in a future period. Based on our analysis of all available evidence, which included consideration of our cumulative consolidated pre-tax losses as well as other data, we concluded that it is more likely than not that we will be unable to realize all of our net deferred tax assets and, as a result, we recorded a valuation allowance of $13.6 million in 2014. For the quarters ended March 31, 2016 and 2015, our effective income tax rates varied from the federal statutory rate primarily due to the amortization of indefinite-lived intangibles. We recorded a provision for income taxes of $1.6 million and $3.4 million, for the quarters ended March 31, 2016 and 2015, respectively.

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

We filed income tax returns in the United States federal jurisdiction and in several state jurisdictions. Our 2014 United States federal return is currently under examination. No adjustments have been proposed as of March 31, 2016.

NOTE 10. SHARE-BASED COMPENSATION

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

The Affinity Gaming Amended and Restated 2011 Long-Term Incentive Plan (“LTIP”), which the Compensation Committee of our Board of Directors approved, allows us to issue up to 2,000,000 shares of common stock, subject to stock options, or as restricted stock, to employees, officers, directors and consultants. Awards vest upon the passage of time, the



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



attainment of performance criteria, or both. Stock options awarded under the LTIP expire five years from the grant date. Awards granted to management generally vest ratably over three years from the date of the grant and those granted to directors generally vest in two equal tranches, the first upon issuance and the second during January of the calendar year following the year of grant. Holders of restricted stock may vote their shares and receive their proportionate share of any dividends. Restricted stock remains subject to the terms and conditions contained in the applicable award agreement and our LTIP until the recipient vests in the award.

The following table summarizes the activity related to our outstanding stock options and non-vested restricted stock for the period ended March 31, 2016:
 
Stock Options
 
Restricted Stock
 
Outstanding
 
Non-Vested
 
Shares
 
Weighted Average Exercise Price Per Share
 
Shares
 
Weighted Average Fair Value Per Share
December 31, 2015
330,605

 
$
10.24

 
82,290

 
$
10.54

Granted
272,500

 
12.00

 
85,082

 
12.00

Vested

 

 
(81,660
)
 
10.96

Forfeited
(36,364
)
 
10.00

 

 

March 31, 2016
566,741

 
$
11.10

 
85,712

 
$
11.59



As of March 31, 2016, awards representing 1,029,070 shares or potential shares of our common stock remained outstanding; therefore, awards representing 970,930 shares or potential shares of our common stock remained available for issuance under our Amended 2011 Long-Term Incentive Plan.

We account for stock option awards as liabilities as a result of our past practice of settling stock options for cash. As of March 31, 2016, we have reported a $1.2 million share-based compensation liability in the Other liabilities line item.

NOTE 11. COMMITMENTS AND CONTINGENCIES

Data Security Events

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



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



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

We carry insurance coverage of $5.0 million for liability resulting from network security events. As of March 31, 2016, we have incurred $1.2 million in expense, including deductibles, for the security breaches. We do not expect to incur additional material expenses that are not covered by insurance. However, we cannot estimate the total amount which we will ultimately incur and be reimbursed by insurance carriers because, although the independent forensic investigation has concluded, we have not received all of the monetary assessments and evaluations from the credit card processors and issuing banks seeking to recover the cost of replacement cards and a portion of fraudulent charges, nor have we received any third-party claims as of this date. In addition, several state attorneys general are investigating the data breach events, including how they occurred, their consequences and our responses. We are cooperating in the governmental investigation, and could be subject to fines or other obligations. We have not concluded that a loss from the governmental investigation is probable, however, and therefore have not recorded an accrual for governmental investigation or regulatory action. We will continue to evaluate information as it becomes known and will record an estimate for loss at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable. We have commenced a lawsuit in federal court in Nevada against the firm that conducted the initial forensic investigation for recovery of the costs and assessments we incurred as a result of the April 2014 data breach discovery.

Litigation
 
In March 2012, the Clarke County Development Corp. (“CCDC”), the local non-profit Iowa licensee for which we manage the Lakeside Hotel & Casino (“Lakeside”) in Osceola, Iowa, filed an action in Iowa state court against Affinity and Lakeside, seeking a declaratory judgment that the management contract between CCDC and Lakeside is non-assignable. We removed the case to federal court and contested CCDC's position even though we had no plans to assign the agreement. CCDC also named Lakeside, Affinity and the Iowa Racing & Gaming Commission (“IRGC”) in a separate petition in Iowa state court seeking judicial review of the IRGC's ruling, in November 2010, which approved our predecessor's creditors to become the owners of Affinity Gaming, LLC, and thereby the indirect owners of Lakeside, prior to our emergence from bankruptcy and notwithstanding CCDC’s objection that an assignment of the management agreement had occurred which required its consent. On July 29, 2013, just two weeks before the hearing on judicial review, CCDC filed a voluntary dismissal without prejudice of the petition for judicial review.  On July 30, 2013, CCDC filed a motion to dismiss the federal court action without prejudice, which was granted.  CCDC’s dismissal of the state court petition and the federal court action was based upon its filing in Iowa state court on August 5, 2013 of a third lawsuit, since removed to federal court in Iowa, in which it seeks to enforce a settlement agreement it alleges was reached with us during a non-binding mediation held in June 2013.  On April 21, 2015, following discovery in the new lawsuit, the Court granted summary judgment in favor of the Company and against CCDC, entering judgment for the Company. CCDC appealed the grant of summary judgment to the 8th Circuit U.S. Court of Appeals, and oral argument on the appeal was heard November 5, 2015. We do not know when a decision on the appeal will be rendered.

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

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




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



Environmental Remediation

In 2011, during excavation at the site of our travel center at Whiskey Pete’s Hotel and Casino (“Whiskey Pete’s”) 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 (the “NDEP”) to determine the extent to which the contamination has affected the groundwater, and we have agreed to continue monitoring the groundwater for a period of at least two more years.

For the three months ended March 31, 2016 and 2015, we incurred $33 thousand and $0.1 million and in costs 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. From the beginning of construction through March 31, 2016, we have incurred a total of approximately $4.0 million in costs on remediation work and received $1.9 million from our insurer. Insurance proceeds were received in 2015 and prior years.

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




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



NOTE 12. SEGMENT INFORMATION

The following table presents the components of net revenue by segment (in thousands):
 
Quarter Ended March 31,
 
2016
 
2015
Gross revenue
 
 
 
Nevada
$
61,781

 
$
65,050

Midwest
33,121

 
33,265

Colorado
9,657

 
11,246

Total gross revenue
104,559

 
109,561

Promotional allowances
 
 
 
Nevada
(5,896
)
 
(8,788
)
Midwest
(2,014
)
 
(2,538
)
Colorado
(899
)
 
(1,257
)
Total promotional allowances
(8,809
)
 
(12,583
)
Net revenue
 
 
 
Nevada
55,885

 
56,262

Midwest
31,107

 
30,727

Colorado
8,758

 
9,989

Total net revenue
$
95,750

 
$
96,978



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

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




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



The following table presents Adjusted EBITDA by segment and by corporate and other (in thousands):
 
Quarter Ended March 31,
 
2016
 
2015
Adjusted EBITDA
 
 
 
Nevada
$
12,894

 
$
10,522

Midwest
10,674

 
9,569

Colorado
1,144

 
1,906

Corporate and other
(4,510
)
 
(3,775
)
Total Adjusted EBITDA
$
20,202

 
$
18,222



The following tables reconcile Adjusted EBITDA to operating income (in thousands):
 
Quarter Ended March 31, 2016
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Write Downs, Reserves and Recoveries
 
Operating Income
Nevada
$
12,894

 
$
(3,651
)
 
$

 
$
(35
)
 
$
9,208

Midwest
10,674

 
(2,030
)
 

 
7

 
8,651

Colorado
1,144

 
(1,458
)
 

 

 
(314
)
Corporate and other
(4,510
)
 
(245
)
 
(374
)
 
(24
)
 
(5,153
)
Total operations
$
20,202

 
$
(7,384
)
 
$
(374
)
 
$
(52
)
 
$
12,392


 
Quarter Ended March 31, 2015
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Write Downs, Reserves and Recoveries
 
Operating Income
Nevada
$
10,522

 
$
(3,688
)
 
$

 
$
(77
)
 
$
6,757

Midwest
9,569

 
(1,895
)
 

 

 
7,674

Colorado
1,906

 
(1,269
)
 

 
(58
)
 
579

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

 
(4,248
)
Total operations
$
18,222

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


 
 




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



The following table presents total assets by reportable segment (in thousands):
 
March 31, 2016
 
December 31, 2015
Total assets by reportable segment
 
 
 
Nevada
$
225,652

 
$
224,731

Midwest
206,411

 
207,414

Colorado
56,856

 
57,242

Reportable segment total assets
488,919

 
489,387

Corporate and other
118,202

 
112,877

Total assets
$
607,121

 
$
602,264


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

The following table presents additions to property and equipment by reportable segment (in thousands):
 
Quarter Ended March 31,
 
2016
 
2015
Cash paid for capital expenditures by reportable segment
 
 
 
Nevada
$
2,475

 
$
2,145

Midwest
754

 
444

Colorado
407

 
248

Reportable segment additions
3,636

 
2,837

Corporate
846

 
288

Total cash paid for capital expenditures
$
4,482

 
$
3,125


NOTE 13. CONDENSED CONSOLIDATED GUARANTOR DATA

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

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




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



Affinity Gaming
Unaudited Condensed Consolidating Balance Sheet
March 31, 2016
(in thousands)

 
Affinity Gaming
(Co-Issuer)
 
AG Finance
(Co-Issuer)
 
Guarantor
Subsidiaries
 
Eliminating
Entries
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
112,944

 
$

 
$
56,068

 
$

 
$
169,012

Restricted cash
469

 

 
139

 

 
608

Accounts receivable, net
162

 

 
2,473

 

 
2,635

Income tax receivable
16

 

 

 

 
16

Prepaid expense
1,164

 

 
8,395

 

 
9,559

Inventory

 

 
2,740

 

 
2,740

Total current assets
114,755

 

 
69,815

 

 
184,570

Property and equipment, net
1,474

 

 
245,874

 

 
247,348

Intercompany receivables

 

 
115,601

 
(115,601
)
 

Investment in subsidiaries
558,229

 

 

 
(558,229
)
 

Other assets, net
1,973

 

 
1,527

 

 
3,500

Intangibles, net

 

 
123,416

 

 
123,416

Goodwill

 

 
48,287

 

 
48,287

Total assets
$
676,431

 
$

 
$
604,520

 
$
(673,830
)
 
$
607,121

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND OWNERS’ EQUITY
 
 
 
 
 
 
 
 
 
Accounts payable
$
1,562

 
$

 
$
7,143

 
$

 
$
8,705

Intercompany payables
115,601

 

 

 
(115,601
)
 

Accrued interest
6,854

 

 

 

 
6,854

Accrued expense
754

 

 
22,446

 

 
23,200

Current maturities of long-term debt
11,494

 

 

 

 
11,494

Other current liabilities

 

 
15

 

 
15

Total current liabilities
136,265

 

 
29,604

 
(115,601
)
 
50,268

Long-term debt, less current portion
364,878

 

 

 

 
364,878

Other liabilities
1,290

 

 
545

 

 
1,835

Deferred income taxes
232

 

 
16,142

 

 
16,374

Total liabilities
502,665

 

 
46,291

 
(115,601
)
 
433,355

 
 
 
 
 
 
 
 
 
 
Common stock
20

 

 

 

 
20

Other equity
173,746

 

 
558,229

 
(558,229
)
 
173,746

Total owners’ equity
173,766

 

 
558,229

 
(558,229
)
 
173,766

Total liabilities and owners’ equity
$
676,431

 
$

 
$
604,520

 
$
(673,830
)
 
$
607,121




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



Affinity Gaming
Condensed Consolidating Balance Sheet
December 31, 2015
(in thousands)

 
Affinity Gaming
(Co-Issuer)
 
AG Finance
(Co-Issuer)
 
Guarantor
Subsidiaries
 
Eliminating
Entries
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
106,384

 
$

 
$
51,395

 
$

 
$
157,779

Restricted cash
469

 

 
139

 

 
608

Accounts receivable, net
220

 

 
2,997

 

 
3,217

Income tax receivable
16

 

 

 

 
16

Prepaid expense
1,813

 

 
8,266

 

 
10,079

Inventory

 

 
2,798

 

 
2,798

Total current assets
108,902

 

 
65,595

 

 
174,497

Property and equipment, net
2,002

 

 
249,906

 

 
251,908

Intercompany receivables

 

 
110,150

 
(110,150
)
 

Investment in subsidiaries
551,953

 

 

 
(551,953
)
 

Other assets, net
1,974

 

 
1,556

 

 
3,530

Intangibles, net

 

 
124,042

 

 
124,042

Goodwill

 

 
48,287

 

 
48,287

Total assets
$
664,831

 
$

 
$
599,536

 
$
(662,103
)
 
$
602,264

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND OWNERS’ EQUITY
 
 
 
 
 
 
 
 
 
Accounts payable
$
3,483

 
$

 
$
9,737

 
$

 
$
13,220

Intercompany payables
110,150

 

 

 
(110,150
)
 

Accrued interest
2,327

 

 

 

 
2,327

Accrued expense
1,455

 

 
22,703

 

 
24,158

Current maturities of long-term debt
11,383

 

 

 

 
11,383

Other current liabilities

 

 
23

 

 
23

Total current liabilities
128,798

 

 
32,463

 
(110,150
)
 
51,111

Long-term debt, less current portion
364,204

 

 

 

 
364,204

Other liabilities
1,397

 

 
535

 

 
1,932

Deferred income taxes
173

 

 
14,585

 

 
14,758

Total liabilities
494,572

 

 
47,583

 
(110,150
)
 
432,005

 
 
 
 
 
 
 
 
 
 
Common stock
20

 

 

 

 
20

Other equity
170,239

 

 
551,953

 
(551,953
)
 
170,239

Total owners’ equity
170,259

 

 
551,953

 
(551,953
)
 
170,259

Total liabilities and owners’ equity
$
664,831

 
$

 
$
599,536

 
$
(662,103
)
 
$
602,264





AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



Affinity Gaming
Unaudited Condensed Consolidating Statement of Operations
Quarter ended March 31, 2016
(in thousands)

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

 
$

 
$
71,883

 
$

 
$
71,883

Food and beverage

 

 
10,824

 

 
10,824

Lodging

 

 
6,398

 

 
6,398

Fuel and retail

 

 
12,140

 

 
12,140

Other

 

 
3,314

 

 
3,314

Total revenue

 

 
104,559

 

 
104,559

Promotional allowances

 

 
(8,809
)
 

 
(8,809
)
Net revenue

 

 
95,750

 

 
95,750

EXPENSE
 
 
 
 
 
 
 
 
 
Casino

 

 
27,381

 

 
27,381

Food and beverage

 

 
10,792

 

 
10,792

Lodging

 

 
4,348

 

 
4,348

Fuel and retail

 

 
8,297

 

 
8,297

Other

 

 
1,507

 

 
1,507

General and administrative

 

 
18,713

 

 
18,713

Depreciation and amortization
245

 

 
7,139

 

 
7,384

Corporate
4,884

 

 

 

 
4,884

Write downs, reserves and recoveries
24

 

 
28

 

 
52

Total expense
5,153

 

 
78,205

 

 
83,358

Operating income (loss)
(5,153
)
 

 
17,545

 

 
12,392

Other income (expense)
 
 
 
 
 
 
 
 
 
Interest expense, net
(7,665
)
 

 

 

 
(7,665
)
Intercompany interest income
7,738

 

 

 
(7,738
)
 

Intercompany interest expense

 

 
(7,738
)
 
7,738

 

Income from equity investments in subsidiaries
6,276

 

 

 
(6,276
)
 

Total other expense, net
6,349

 

 
(7,738
)
 
(6,276
)
 
(7,665
)
Income (loss) before income tax
1,196

 

 
9,807

 
(6,276
)
 
4,727

Benefit (provision) for income taxes
1,915

 

 
(3,531
)
 

 
(1,616
)
Net income (loss)
$
3,111

 
$

 
$
6,276

 
$
(6,276
)
 
$
3,111





AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



Affinity Gaming
Unaudited Condensed Consolidating Statement of Operations
Quarter ended March 31, 2015
(in thousands)
 
Affinity Gaming
(Co-Issuer)
 
AG Finance
(Co-Issuer)
 
Guarantor
Subsidiaries
 
Eliminating
Entries
 
Total
REVENUE
 
 
 
 
 
 
 
 
 
Casino
$

 
$

 
$
75,097

 
$

 
$
75,097

Food and beverage

 

 
11,961

 

 
11,961

Lodging

 

 
7,032

 

 
7,032

Fuel and retail

 

 
12,576

 

 
12,576

Other

 

 
2,895

 

 
2,895

Total revenue

 

 
109,561

 

 
109,561

Promotional allowances

 

 
(12,583
)
 

 
(12,583
)
Net revenue

 

 
96,978

 

 
96,978

EXPENSE
 
 
 
 
 
 
 
 
 
Casino

 

 
29,734

 

 
29,734

Food and beverage

 

 
11,827

 

 
11,827

Lodging

 

 
3,909

 

 
3,909

Fuel and retail

 

 
9,264

 

 
9,264

Other

 

 
1,530

 

 
1,530

General and administrative

 

 
18,717

 

 
18,717

Depreciation and amortization
311

 

 
6,852

 

 
7,163

Corporate
3,937

 

 

 

 
3,937

Write downs, reserves and recoveries

 

 
135

 

 
135

Total expense
4,248

 

 
81,968

 

 
86,216

Operating income (loss)
(4,248
)
 

 
15,010

 

 
10,762

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

 

 

 
(7,605
)
Intercompany interest income
7,648

 

 

 
(7,648
)
 

Intercompany interest expense

 

 
(7,648
)
 
7,648

 

Income from equity investments in subsidiaries
(560
)
 

 

 
560

 

Total other income (expense), net
(517
)
 

 
(7,648
)
 
560

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

 
7,362

 
560

 
3,157

Benefit (provision) for income taxes
4,525

 

 
(7,922
)
 

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

 
$
(560
)
 
$
560

 
$
(240
)








AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



Affinity Gaming
Unaudited Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2016
(in thousands)

 
Affinity Gaming
(Co-Issuer)
 
AG Finance
(Co-Issuer)
 
Guarantor
Subsidiaries
 
Total
Net cash (used in) provided by operating activities
$
(5,965
)
 
$

 
$
21,744

 
$
15,779

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

 

 
17

 
17

Purchases of property and equipment
(846
)
 

 
(3,636
)
 
(4,482
)
Net cash used in investing activities
$
(846
)
 
$

 
$
(3,619
)
 
$
(4,465
)
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Change in intercompany accounts
13,444