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EX-32 - EXHIBIT 32 - Affinity Gamingex32-2016xq2.htm
EX-31.2 - EXHIBIT 31.2 - Affinity Gamingex312-2016xq2.htm
EX-31.1 - EXHIBIT 31.1 - Affinity Gamingex311-2016xq2.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 June 30, 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 August 8, 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:

the Z Capital proposal and the Special Committee of the Board of Directors;
our expectations regarding the effects of our promotional campaigns and marketing programs on driving revenue, 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)


 
June 30,
2016
 
December 31, 2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
74,678

 
$
157,779

Restricted cash
95,553

 
608

Accounts receivable, net of reserve of $117 and $147, respectively
2,603

 
3,217

Income tax receivable
24

 
16

Prepaid expense
8,682

 
10,079

Inventory
2,832

 
2,798

Total current assets
184,372

 
174,497

Property and equipment, net
245,153

 
251,908

Other assets, net
3,971

 
3,530

Intangibles, net
122,791

 
124,042

Goodwill
48,287

 
48,287

Total assets
$
604,574

 
$
602,264

LIABILITIES AND OWNERS’ EQUITY
 
 
 
Accounts payable
$
9,391

 
$
13,220

Accrued interest
2,365

 
2,327

Accrued expense
22,082

 
24,158

Current maturities of long-term debt

 
11,383

Other current liabilities
8

 
23

Total current liabilities
33,846

 
51,111

Long-term debt, less current portion
374,261

 
364,204

Other liabilities
1,984

 
1,932

Deferred income taxes
18,764

 
14,758

Total liabilities
428,855

 
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
208,805

 
208,239

Accumulated deficit
(33,106
)
 
(38,000
)
Total owners’ equity
175,719

 
170,259

Total liabilities and owners’ equity
$
604,574

 
$
602,264

See notes to condensed consolidated financial statements


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

 
Quarter Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
REVENUE
 
 
 
 
 
 
 
Casino
$
69,448

 
$
75,505

 
$
141,331

 
$
150,602

Food and beverage
10,384

 
12,082

 
21,208

 
24,043

Lodging
6,031

 
7,190

 
12,429

 
14,222

Fuel and retail
13,390

 
15,676

 
25,530

 
28,252

Other
3,608

 
3,268

 
6,922

 
6,163

Total revenue
102,861

 
113,721

 
207,420

 
223,282

Promotional allowances
(8,203
)
 
(12,210
)
 
(17,012
)
 
(24,793
)
Net revenue
94,658

 
101,511

 
190,408

 
198,489

EXPENSE
 
 
 
 
 
 
 
Casino
26,181

 
29,956

 
53,562

 
59,690

Food and beverage
10,378

 
11,800

 
21,170

 
23,627

Lodging
4,205

 
4,197

 
8,553

 
8,106

Fuel and retail
9,106

 
11,675

 
17,403

 
20,939

Other
1,956

 
1,838

 
3,463

 
3,368

General and administrative
18,850

 
19,601

 
37,563

 
38,318

Depreciation and amortization
7,312

 
7,205

 
14,696

 
14,368

Corporate
4,932

 
5,358

 
9,816

 
9,295

Write downs, reserves and recoveries
(91
)
 
(204
)
 
(39
)
 
(69
)
Total expense
82,829

 
91,426

 
166,187

 
177,642

Operating income
11,829

 
10,085

 
24,221

 
20,847

Other expense
 
 
 
 
 
 
 
Interest expense, net
(7,656
)
 
(7,653
)
 
(15,321
)
 
(15,258
)
Total other expense, net
(7,656
)
 
(7,653
)
 
(15,321
)
 
(15,258
)
Income before income tax
4,173

 
2,432

 
8,900

 
5,589

Provision for income taxes
(2,390
)
 
(1,635
)
 
(4,006
)
 
(5,032
)
Net income
$
1,783

 
$
797

 
$
4,894

 
$
557

 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements


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

 
Six Months Ended June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
4,894

 
$
557

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
14,696

 
14,368

Amortization of debt costs and discounts
1,587

 
1,459

Loss (gain) on sale of property and equipment
9

 
(1
)
Share-based compensation
700

 
667

Deferred income taxes
4,006

 
5,001

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
614

 
506

Prepaid expense
1,397

 
1,484

Inventory
(34
)
 
(75
)
Other assets
114

 
100

Accounts payable
(1,967
)
 
836

Accrued interest
38

 
(26
)
Accrued expense
(2,076
)
 
(511
)
Income tax receivable
(8
)
 
116

Other liabilities
(27
)
 
(20
)
Net cash provided by operating activities
23,943

 
24,461

Cash flows from investing activities:
 
 
 
Proceeds from sale of property and equipment
18

 
8

Purchases of property and equipment
(8,601
)
 
(6,718
)
Net cash used in investing activities
(8,583
)
 
(6,710
)
Cash flows from financing activities:
 
 
 
Restricted cash
(94,945
)
 

Payment on capital lease
(15
)
 
(16
)
Payment on long-term debt
(2,913
)
 

Loan origination fees
(515
)
 

Repurchases of vested share-based awards
(73
)
 
(47
)
Net cash used in financing activities
(98,461
)
 
(63
)
Net (decrease) increase in cash and cash equivalents
(83,101
)
 
17,688

Cash and cash equivalents:
 
 
 
Beginning of period
157,779

 
135,175

End of period
$
74,678

 
$
152,863

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid during the period for interest
$
13,851

 
$
13,916

Supplemental schedule of non-cash investing and financing activities:
 
 
 
Purchase of property and equipment financed through accounts payable
$
706

 
$
402

Non-cash loan origination fees
6

 

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 June 30, 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 June 30, 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 June 30, 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. In addition, restricted cash includes $94.9 million held at June 30, 2016 in contemplation of the refinancing of our outstanding debt, which was completed on July 1, 2016.




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)
 
June 30,
2016
 
December 31, 2015
Building and improvements
7 - 40
 
$
187,106

 
$
185,875

Gaming equipment
3 - 10
 
78,671

 
75,527

Furniture, fixtures, and equipment
3 - 10
 
51,475

 
49,571

Leasehold improvements
7
 
196

 
196

Land
 
39,513

 
39,513

Barge
30
 
15,019

 
15,019

Construction-in-progress
 
 
3,027

 
3,185

Total property and equipment
 
 
375,007

 
368,886

Less accumulated depreciation
 
 
(129,854
)
 
(116,978
)
Total property and equipment, net
 
 
$
245,153

 
$
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):
 
June 30, 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

 
$
(9,583
)
 
$
2,581

 
$
12,164

 
$
(8,583
)
 
$
3,581

Trademarks
2,982

 
(2,649
)
 
333

 
2,982

 
(2,398
)
 
584

 
15,146

 
$
(12,232
)
 
2,914

 
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

 

 
$
122,791

 
$
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 six months ended June 30, 2016:
 
Nevada
 
Midwest
 
Total
Balance at December 31, 2015
$
33,665

 
$
14,622

 
$
48,287

Impairment of goodwill

 

 

Balance at June 30, 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):
 
June 30,
2016
 
December 31, 2015
Long-term deposits
$
2,924

 
$
2,919

Other assets
1,047

 
611

Total
$
3,971

 
$
3,530

 
 
 
 

NOTE 7. ACCRUED EXPENSE

Accrued expense consists of the following (in thousands):
 
June 30,
2016
 
December 31, 2015
Progressive jackpot liabilities
$
3,093

 
$
2,984

Accrued payroll and related
7,198

 
7,441

Slot club point liability
2,993

 
3,213

Litigation reserve
3,100

 
3,100

Other accrued expense
5,698

 
7,420

Total
$
22,082

 
$
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):
 
June 30,
2016
 
December 31, 2015
9% Senior Unsecured Notes due 2018
$
200,000

 
$
200,000

Unamortized debt issuance cost, net
(2,448
)
 
(3,028
)
Unamortized discount
(684
)
 
(847
)
9% Senior Unsecured Notes due 2018, net
196,868

 
196,125

Term loan due 2017
179,832

 
182,745

Unamortized debt issuance cost, net
(2,439
)
 
(3,283
)
Term loan due 2017, net
177,393

 
179,462

Total debt, including current maturities
374,261

 
375,587

Less: current maturities of long-term debt

 
(11,383
)
Total long-term debt
$
374,261

 
$
364,204

 
 
 
 

The current maturities of long-term debt at December 31, 2015, includes the mandatory excess cash flow payment as calculated for the year ended December 31, 2015 on the 2012 Term Loan (defined below). The actual payment required by the lenders was $2.9 million, which was paid in April 2016.

On May 9, 2012, we issued $200.0 million of 9.00% senior unsecured notes due 2018 (the “2018 Notes”), and entered into a Credit Agreement, dated May 9, 2012 (the “2012 Credit Agreement”), which provided for a $200.0 million term loan (the “2012 Term Loan”) due in 2017, the entirety of which the lenders disbursed to us on the closing date of the 2012 Credit Agreement, and a $35.0 million revolving credit facility (the “2012 Revolving Credit Facility” and, together with the 2012 Term Loan, the “2012 Credit Facility”) which remained undrawn as of June 30, 2016. Proceeds from the 2012 Term Loan and the 2018 Notes were used to repay debt then outstanding.

On July 22, 2014, we completed the second amendment to the 2012 Credit Agreement (the “Second Amended Credit Agreement”) governing our 2012 Credit Facility. We incur and pay interest on the 2012 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 2012 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 2012 Term Loan, totaled $4.9 million at June 30, 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 2012 Term Loan is subject to mandatory annual prepayments based on generation of excess cash flow (as defined), equal to 50% of excess cash flow when the Total Net Leverage Ratio is greater than 4.00 to 1.00, equal to 25% of excess cash flow when the Total Net Leverage Ratio is greater than 3.00 to 1.00, but less than or equal to 4.00 to 1.00,



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



and equal to zero when the Total Net Leverage Ratio is less than or equal to 3.00 to 1.00. At June 30, 2016, the First Lien Senior Secured Net Leverage Ratio was 1.95 to 1.00, and the Interest Expense Coverage Ratio was 2.57 to 1.00. As of June 30, 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 2012 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 June 30, 2016 (in thousands):
 
Carrying Value
 
Estimated Fair
Value
9% Senior Unsecured Notes due 2018
$
196,868

 
$
201,298

Term loan due 2017
177,393

 
177,180

Total
$
374,261

 
$
378,478


Subsequent to the quarter end, on July 1, 2016, we entered into a Credit Agreement (the “2016 Credit Agreement”) which provides for a $300.0 million term loan facility (the “2016 Term Loan”) and a $75 million revolving credit facility (the “2016 Revolving Credit Facility” and, together with the 2016 Term Loan, the “2016 Credit Facility”), which remained undrawn on the closing date of the 2016 Credit Agreement. The 2016 Term Loan will be payable in quarterly installments, commencing on September 30, 2016, in an amount equal to 0.25% of the 2016 Term Loan until the maturity date, July 1, 2023, upon which date the remaining balance will come due. Amounts outstanding under the 2016 Revolving Credit Facility will be due and payable on July 1, 2021. The interest rate under the 2016 Term Loan is at a floating rate not less than 5.0%. We used the proceeds of the 2016 Term Loan together with $94.9 million in cash from our balance sheet to repay all amounts outstanding under the 2012 Term Loan and redeem the 2018 Notes. The Company is currently determining the impact of this third quarter refinancing on its results of operations.


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 full valuation allowance against its net deferred tax assets in 2014. For the quarters ended June 30, 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 $2.4 million and $1.6 million for the quarters ended June 30, 2016 and 2015, respectively. For the six months ended June 30, 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 $4.0 million and $5.0 million for the six months ended June 30, 2016 and 2015, respectively.




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



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 June 30, 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 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 June 30, 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

 

 

June 30, 2016
566,741

 
$
11.10

 
85,712

 
$
11.59



As of June 30, 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 June 30, 2016 and December 31, 2015, we have reported $1.3 million and $1.2 million, respectively, of share-based compensation liability in Other liabilities on the condensed consolidated balance sheet.




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



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 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 June 30, 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 District Court for the Southern District of Iowa granted summary judgment in favor of the Company and against CCDC. CCDC appealed the grant of summary judgment to the 8th Circuit U.S. Court of Appeals, and on



AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



June 24, 2016, the Court of Appeals reversed the District Court’s decision and remanded the case for trial. A trial date has not yet been set.

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. We settled this matter in May 2016 for $0.2 million.

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

Environmental Remediation

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 six months ended June 30, 2016 and 2015, we incurred $43 thousand and $0.1 million, respectively, 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 June 30, 2016, we have incurred $4.0 million in costs on remediation work and received $2.0 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 June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Gross revenue
 
 
 
 
 
 
 
Nevada
$
61,119

 
$
68,704

 
$
122,900

 
$
133,754

Midwest
32,189

 
34,473

 
65,310

 
67,738

Colorado
9,553

 
10,544

 
19,210

 
21,790

Total gross revenue
102,861

 
113,721

 
207,420

 
223,282

Promotional allowances
 
 
 
 
 
 
 
Nevada
(5,786
)
 
(8,378
)
 
(11,682
)
 
(17,166
)
Midwest
(1,744
)
 
(2,629
)
 
(3,758
)
 
(5,167
)
Colorado
(673
)
 
(1,203
)
 
(1,572
)
 
(2,460
)
Total promotional allowances
(8,203
)
 
(12,210
)
 
(17,012
)
 
(24,793
)
Net revenue
 
 
 
 
 
 
 
Nevada
55,333

 
60,326

 
111,218

 
116,588

Midwest
30,445

 
31,844

 
61,552

 
62,571

Colorado
8,880

 
9,341

 
17,638

 
19,330

Total net revenue
$
94,658

 
$
101,511

 
$
190,408

 
$
198,489



We use earnings before interest expense, net; income tax; depreciation and amortization; share-based compensation; 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 June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Adjusted EBITDA
 
 
 
 
 
 
 
Nevada
$
12,120

 
$
10,915

 
$
25,014

 
$
21,437

Midwest
10,388

 
10,560

 
21,062

 
20,129

Colorado
1,474

 
969

 
2,618

 
2,875

Corporate and other
(4,606
)
 
(4,853
)
 
(9,116
)
 
(8,628
)
Total Adjusted EBITDA
$
19,376

 
$
17,591

 
$
39,578

 
$
35,813



The following tables reconcile Adjusted EBITDA to operating income (in thousands):
 
Quarter Ended June 30, 2016
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Write Downs, Reserves and Recoveries
 
Operating Income
Nevada
$
12,120

 
$
(3,649
)
 
$

 
$
105

 
$
8,576

Midwest
10,388

 
(2,012
)
 

 
(14
)
 
8,362

Colorado
1,474

 
(1,421
)
 

 

 
53

Corporate and other
(4,606
)
 
(230
)
 
(326
)
 


 
(5,162
)
Total operations
$
19,376

 
$
(7,312
)
 
$
(326
)
 
$
91

 
$
11,829


 
Quarter Ended June 30, 2015
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Write Downs, Reserves and Recoveries
 
Operating Income
Nevada
$
10,915

 
$
(3,698
)
 
$

 
$
197

 
$
7,414

Midwest
10,560

 
(1,898
)
 

 

 
8,662

Colorado
969

 
(1,297
)
 

 

 
(328
)
Corporate and other
(4,853
)
 
(312
)
 
(505
)
 
7

 
(5,663
)
Total operations
$
17,591

 
$
(7,205
)
 
$
(505
)
 
$
204

 
$
10,085





AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



 
Six Months Ended June 30, 2016
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Write Downs, Reserves and Recoveries
 
Operating Income
Nevada
$
25,014

 
$
(7,300
)
 
$

 
$
70

 
$
17,784

Midwest
21,062

 
(4,042
)
 

 
(7
)
 
17,013

Colorado
2,618

 
(2,879
)
 

 

 
(261
)
Corporate and other
(9,116
)
 
(475
)
 
(700
)
 
(24
)
 
(10,315
)
Total operations
$
39,578

 
$
(14,696
)
 
$
(700
)
 
$
39

 
$
24,221


 
Six Months Ended June 30, 2015
 
Adjusted EBITDA
 
Depreciation and Amortization
 
Share-Based Compensation
 
Write Downs, Reserves and Recoveries
 
Operating Income
Nevada
$
21,437

 
$
(7,386
)
 
$

 
$
120

 
$
14,171

Midwest
20,129

 
(3,793
)
 

 

 
16,336

Colorado
2,875

 
(2,566
)
 

 
(58
)
 
251

Corporate and other
(8,628
)
 
(623
)
 
(667
)
 
7

 
(9,911
)
Total operations
$
35,813

 
$
(14,368
)
 
$
(667
)
 
$
69

 
$
20,847


The following table presents total assets by reportable segment (in thousands):
 
June 30, 2016
 
December 31, 2015
Total assets by reportable segment
 
 
 
Nevada
$
218,749

 
$
224,731

Midwest
203,691

 
207,414

Colorado
55,812

 
57,242

Reportable segment total assets
478,252

 
489,387

Corporate and other
126,322

 
112,877

Total assets
$
604,574

 
$
602,264


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




AFFINITY GAMING
Notes to Unaudited Condensed Consolidated Financial Statements



The following table presents additions to property and equipment by reportable segment (in thousands):
 
Quarter Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Cash paid for capital expenditures by reportable segment
 
 
 
 
 
 
 
Nevada
$
2,748

 
$
854

 
$
5,223

 
$
2,999

Midwest
1,178

 
1,385

 
1,932

 
1,829

Colorado
178

 
1,043

 
585

 
1,291

Reportable segment additions
4,104

 
3,282

 
7,740

 
6,119

Corporate
15

 
311

 
861

 
599

Total cash paid for capital expenditures
$
4,119

 
$
3,593

 
$
8,601

 
$
6,718


NOTE 13. CONDENSED CONSOLIDATED GUARANTOR DATA

All of our current and future domestic subsidiaries which guarantee the 2012 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
June 30, 2016
(in thousands)

 
Affinity Gaming
(Co-Issuer)
 
AG Finance
(Co-Issuer)
 
Guarantor
Subsidiaries
 
Eliminating
Entries
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
25,906

 
$

 
$
48,772

 
$

 
$
74,678

Restricted cash
95,414

 

 
139

 

 
95,553

Accounts receivable, net
206

 

 
2,397

 

 
2,603

Income tax receivable
24

 

 

 

 
24

Prepaid expense
1,012

 

 
7,670

 

 
8,682

Inventory

 

 
2,832

 

 
2,832

Total current assets
122,562

 

 
61,810

 

 
184,372

Property and equipment, net
1,262

 

 
243,891

 

 
245,153

Intercompany receivables

 

 
133,862

 
(133,862
)
 

Investment in subsidiaries
564,158

 

 

 
(564,158
)
 

Other assets, net
2,498

 

 
1,473

 

 
3,971

Intangibles, net

 

 
122,791

 

 
122,791

Goodwill

 

 
48,287

 

 
48,287

Total assets
$
690,480

 
$

 
$
612,114

 
$
(698,020
)
 
$
604,574

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND OWNERS’ EQUITY
 
 
 
 
 
 
 
 
 
Accounts payable
$
1,162

 
$

 
$
8,229

 
$

 
$
9,391

Intercompany payables
133,862

 

 

 
(133,862
)
 

Accrued interest
2,365

 

 

 

 
2,365

Accrued expense
1,253

 

 
20,829

 

 
22,082

Other current liabilities

 

 
8

 

 
8

Total current liabilities
138,642

 

 
29,066

 
(133,862
)
 
33,846

Long-term debt, less current portion
374,261

 

 

 

 
374,261

Other liabilities
1,431

 

 
553

 

 
1,984

Deferred income taxes
427

 

 
18,337

 

 
18,764

Total liabilities
514,761

 

 
47,956

 
(133,862
)
 
428,855

 
 
 
 
 
 
 
 
 
 
Common stock
20

 

 

 

 
20

Other equity
175,699

 

 
564,158

 
(564,158
)
 
175,699

Total owners’ equity
175,719

 

 
564,158

 
(564,158
)
 
175,719

Total liabilities and owners’ equity
$
690,480

 
$

 
$
612,114

 
$
(698,020
)
 
$
604,574




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 June 30, 2016
(in thousands)

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

 
$

 
$
69,448

 
$

 
$
69,448

Food and beverage

 

 
10,384

 

 
10,384

Lodging

 

 
6,031

 

 
6,031

Fuel and retail

 

 
13,390

 

 
13,390

Other

 

 
3,608

 

 
3,608

Total revenue

 

 
102,861

 

 
102,861

Promotional allowances

 

 
(8,203
)
 

 
(8,203
)
Net revenue

 

 
94,658

 

 
94,658

EXPENSE
 
 
 
 
 
 
 
 
 
Casino

 

 
26,181

 

 
26,181

Food and beverage

 

 
10,378

 

 
10,378

Lodging

 

 
4,205

 

 
4,205

Fuel and retail

 

 
9,106

 

 
9,106

Other

 

 
1,956

 

 
1,956

General and administrative

 

 
18,850

 

 
18,850

Depreciation and amortization
230

 

 
7,082

 

 
7,312

Corporate
4,932

 

 

 

 
4,932

Write downs, reserves and recoveries

 

 
(91
)
 

 
(91
)
Total expense
5,162

 

 
77,667

 

 
82,829

Operating income (loss)
(5,162
)
 

 
16,991

 

 
11,829

Other income (expense)
 
 
 
 
 
 
 
 
 
Interest expense, net
(7,656
)
 

 

 

 
(7,656
)
Intercompany interest income
7,727

 

 

 
(7,727
)
 

Intercompany interest expense

 

 
(7,727
)
 
7,727

 

Income from equity investments in subsidiaries
5,929

 

 

 
(5,929
)
 

Total other income (expense), net
6,000

 

 
(7,727
)
 
(5,929
)
 
(7,656
)
Income (loss) before income tax
838

 

 
9,264

 
(5,929
)
 
4,173

Benefit (provision) for income taxes
945

 

 
(3,335
)
 

 
(2,390
)
Net income (loss)
$
1,783