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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended September 30, 2016
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from                          to                          .
Commission file number 000-53831
 
TROPICANA ENTERTAINMENT INC.
(Exact name of registrant as specified in its charter)
Delaware
 
27-0540158
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
8345 W. Sunset Road, Las Vegas, Nevada 89113
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: 702-589-3900
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 x No o
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
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 x
 
 
 
Non-accelerated filer o
(Do not check if a smaller reporting company)
 
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 o No x
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 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 x No o
As of October 31, 2016, there were 25,981,776 shares outstanding of the registrant's common stock, $.01 par value per share.
 



TABLE OF CONTENTS




PART I—FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
TROPICANA ENTERTAINMENT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share data)

 
September 30, 2016
 
December 31, 2015
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
273,588

 
$
217,300

Restricted cash
13,050

 
14,045

Receivables, net
21,406

 
22,068

Inventories
7,255

 
6,726

Prepaid expenses and other assets
13,333

 
11,893

Total current assets
328,632

 
272,032

Property and equipment, net
759,652

 
760,820

Goodwill
15,857

 
15,857

Intangible assets, net
73,992

 
74,295

Investments
17,026

 
26,323

Deferred tax assets
141,218

 
141,218

Long-term prepaid rent and other assets
25,485

 
18,804

Total assets
$
1,361,862

 
$
1,309,349

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
3,000

 
$
3,000

Accounts payable
35,591

 
33,568

Accrued expenses and other current liabilities
100,549

 
77,836

Total current liabilities
139,140

 
114,404

Long-term debt, net
284,449

 
285,946

Other long-term liabilities
5,794

 
6,207

Total liabilities
429,383

 
406,557

 
 
 
 
Commitments and contingencies

 

 
 
 
 
Shareholders' equity:
 
 
 
Tropicana Entertainment Inc. preferred stock at $0.01 par value; 10,000,000 shares authorized, no shares issued

 

Tropicana Entertainment Inc. common stock at $0.01 par value; 100,000,000 shares authorized, 25,981,776 and 26,312,500 shares issued and outstanding at September 30, 2016 and December 31, 2015 respectively
260

 
263

Additional paid-in capital
594,745

 
600,359

Retained earnings
337,474

 
302,170

Total shareholders' equity
932,479

 
902,792

Total liabilities and shareholders' equity
$
1,361,862

 
$
1,309,349


The accompanying notes are an integral part of these condensed consolidated financial statements.

2



TROPICANA ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
(unaudited)

 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 

 
 

 
 

 
 

Casino
$
176,960

 
$
168,977

 
$
504,026

 
$
485,419

Room
39,701

 
37,238

 
100,292

 
93,675

Food and beverage
28,902

 
28,860

 
82,358

 
80,783

Other
9,619

 
7,646

 
25,286

 
21,719

Gross revenues
255,182

 
242,721

 
711,962

 
681,596

Less promotional allowances
(24,159
)
 
(23,773
)
 
(68,247
)
 
(66,275
)
Net revenues
231,023

 
218,948

 
643,715

 
615,321

Operating costs and expenses:
 

 
 

 
 

 
 

Casino
73,245

 
71,168

 
214,976

 
208,458

Room
13,344

 
12,662

 
34,621

 
33,215

Food and beverage
13,647

 
14,244

 
40,153

 
40,924

Other
5,363

 
5,389

 
14,691

 
14,244

Marketing, advertising and promotions
17,206

 
16,160

 
50,325

 
45,811

General and administrative
38,642

 
32,359

 
120,992

 
107,430

Maintenance and utilities
18,865

 
19,114

 
53,258

 
53,959

Depreciation and amortization
16,507

 
16,736

 
49,743

 
46,245

Impairment charges, other write-downs and recoveries
347

 
19

 
444

 
876

Total operating costs and expenses
197,166

 
187,851

 
579,203

 
551,162

Operating income
33,857

 
31,097

 
64,512

 
64,159

 
 
 
 
 
 
 
 
Other income (expense):
 

 
 

 
 

 
 

Interest expense
(3,122
)
 
(3,211
)
 
(9,571
)
 
(9,139
)
Interest income
156

 
133

 
507

 
443

Predecessor claim settlement
3,100

 

 
3,100

 

Total other income (expense)
134

 
(3,078
)
 
(5,964
)
 
(8,696
)
Income before income taxes
33,991

 
28,019

 
58,548

 
55,463

Income tax expense
(13,396
)
 
(11,428
)
 
(23,244
)
 
(22,683
)
Net income
$
20,595

 
$
16,591

 
$
35,304

 
$
32,780

 
 
 
 
 
 
 
 
Basic and diluted income per common share:
 

 
 

 
 

 
 

Net income
$
0.79

 
$
0.63

 
$
1.35

 
$
1.25

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 

 
 

 
 

 
 

Basic and diluted
26,064

 
26,313

 
26,132

 
26,313


The accompanying notes are an integral part of these condensed consolidated financial statements.

3



TROPICANA ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Nine months ended September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
35,304

 
$
32,780

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
49,743

 
46,245

Amortization of debt discount and debt issuance costs
752

 
757

Change in investment reserves
6,419

 
(1,989
)
Restricted cash funded
(1,452
)
 

Impairment charges
12

 
153

Loss on disposition of asset
432

 
723

Changes in operating assets and liabilities:
 
 
 
Receivables, net
662

 
3,912

Inventories, prepaids and other assets
(1,969
)
 
2,932

Accrued interest
(43
)
 
(71
)
Accounts payable, accrued expenses and other liabilities
22,237

 
11,092

Other noncurrent assets and liabilities, net
(5,129
)
 
576

Net cash provided by operating activities
106,968

 
97,110

Cash flows from investing activities:
 
 
 
Additions of property and equipment
(49,071
)
 
(77,432
)
Restricted cash funded
(5,114
)
 

Approved CRDA Project Funds received
3,035

 
9,872

Proceeds from sale of investment
798

 

Other
(22
)
 
(1,607
)
Net cash used in investing activities
(50,374
)
 
(69,167
)
Cash flows from financing activities:
 
 
 
Payments on debt
(2,250
)
 
(2,250
)
Repurchase of TEI common stock
(5,617
)
 

Restricted cash released
7,561

 
1,696

Net cash used in financing activities
(306
)
 
(554
)
Net increase in cash and cash equivalents
56,288

 
27,389

Cash and cash equivalents, beginning of period
217,300

 
195,735

Cash and cash equivalents, end of period
$
273,588

 
$
223,124

 
 
 
 
Supplemental cash flow disclosure:
 
 
 
Cash paid for interest, net of interest capitalized
$
8,867

 
$
8,454

Cash paid for income taxes
8,324

 
13,249

Supplemental disclosure of non-cash items:
 
 
 
Capital expenditures included in accrued expenses and other current liabilities
5,326

 
3,641


The accompanying notes are an integral part of these condensed consolidated financial statements.

4



TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1—ORGANIZATION AND BACKGROUND
Organization
Tropicana Entertainment Inc. (the "Company," "TEI," "we," "us," or "our"), a Delaware corporation, is an owner and operator of regional casino and entertainment properties located in the United States and one casino resort development located on the island of Aruba.
The Company's United States properties include two casinos in Nevada and one casino in each of Indiana, Louisiana, Mississippi, Missouri and New Jersey. In addition, the Company owns a property in Aruba. The Company views each property as an operating segment which it aggregates by region in order to present its reportable segments: (i) East, (ii) Central, (iii) West and (iv) South and other. The current operations of the Company, by region, include the following:
East—Tropicana Casino and Resort, Atlantic City ("Tropicana AC") located in Atlantic City, New Jersey;
Central—Tropicana Evansville ("Tropicana Evansville") located in Evansville, Indiana; and Lumière Place Casino, HoteLumière, the Four Seasons Hotel St. Louis (collectively, "Lumière Place") located in Saint Louis, Missouri;
West—Tropicana Laughlin Hotel and Casino ("Tropicana Laughlin") located in Laughlin, Nevada; and MontBleu Casino Resort & Spa ("MontBleu") located in South Lake Tahoe, Nevada; and
South and other—Belle of Baton Rouge Casino and Hotel ("Belle of Baton Rouge") located in Baton Rouge, Louisiana; Trop Casino Greenville ("Tropicana Greenville") located in Greenville, Mississippi; and Tropicana Aruba Resort & Casino ("Tropicana Aruba") located in Palm Beach, Aruba.

The Company, through its wholly-owned subsidiary, TEI Management Services LLC, also manages the Trump Taj Mahal Casino Hotel ("Taj Mahal") in Atlantic City (which discontinued its operation as a casino hotel on October 10, 2016), and, through an agreement with its wholly-owned subsidiary, TropWorld Games LLC, operates an online social gaming site. The operating results of all other subsidiaries of the Company are reported under the heading of "Corporate" as they have been determined to not meet the aggregation criteria as separately reportable segments.
Background
The Company was formed on May 11, 2009 to acquire certain assets of Tropicana Entertainment Holdings, LLC ("TEH"), and certain of its subsidiaries pursuant to their plan of reorganization under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"). The Company also acquired Columbia Properties Vicksburg ("CP Vicksburg"), JMBS Casino, LLC ("JMBS Casino") and CP Laughlin Realty, LLC ("CP Laughlin Realty"), all of which were part of the same plan of reorganization (the "Plan") as TEH (collectively, the "Predecessors"). In addition, the Company acquired certain assets of Adamar of New Jersey, Inc. ("Adamar"), an unconsolidated subsidiary of TEH, pursuant to an amended and restated asset purchase agreement, including Tropicana AC. The reorganization of the Predecessors and the acquisition of Tropicana AC (together, the "Restructuring Transactions") were consummated and became effective on March 8, 2010 (the "Effective Date"), at which time the Company acquired Adamar and several of the Predecessors' gaming properties and related assets. Adamar was not a party to the Predecessors' bankruptcy. Prior to March 8, 2010, the Company conducted no business, other than in connection with the reorganization of the Predecessors and the acquisition of Tropicana AC, and had no material assets or liabilities.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain disclosures required by generally accepted accounting principles in the United States ("GAAP") are omitted or condensed in these condensed consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) that are necessary to present fairly the Company's financial position, results of operations and cash flows for the interim periods have been made. The interim results reflected in these condensed consolidated financial statements are not necessarily indicative of results to be expected for the full fiscal year. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, from which the accompanying condensed consolidated balance sheet information as of that date was derived.

5


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

Principles of Consolidation
The accompanying condensed consolidated financial statements include the Company and its majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates incorporated in the Company's financial statements include the estimated useful lives for depreciable and amortizable assets, the estimated allowance for doubtful accounts receivable, the estimated valuation allowance for deferred tax assets, certain tax liabilities, estimated cash flows in assessing the impairment of long-lived assets, intangible assets, Casino Reinvestment Development Authority (the "CRDA") investments, self-insured liability reserves, customer loyalty program reserves, contingencies, litigation, claims, assessments and loss contingencies. Actual results could differ from these estimates.
Restricted Cash
Restricted cash consists primarily of cash held in separate bank accounts designated for specific purposes. At December 31, 2015, $7.6 million was restricted by the United States Bankruptcy Court for the District of Delaware ("Bankruptcy Court") in connection with the reorganization of the Predecessors for the purpose of satisfying liabilities related to professional services incurred in connection with the Restructuring Transactions; this restricted cash was released to the Company in March 2016 upon order of the Bankruptcy Court when it was determined that all professional services had been paid in full. In addition, as of September 30, 2016 and December 31, 2015, $6.5 million was restricted to collateralize letters of credit. Also at September 30, 2016, $5.1 million was held in a separate bank account to be used for purchases of replacement furniture, fixtures and equipment at the Four Seasons Hotel St. Louis, as required by contract. In addition, at September 30, 2016, $1.2 million was held as restricted cash as required by the Nevada Gaming Control Board's bankroll requirements for MontBleu and $0.3 million was held as restricted cash as required by the Missouri Gaming Commission for estimated gaming tax liabilities.
Fair Value of Financial Instruments
As defined under GAAP, fair value is the price that would be received to sell an asset or paid to transfer a liability between market participants in the principal market or in the most advantageous market when no principal market exists. Adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to estimate fair value. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized in a current or future market exchange. See Note 3 - Fair Value for further detail related to the fair value of financial instruments.
Revenue Recognition and Promotional Allowances
Casino revenue represents the difference between wins and losses from gaming activities. Room, food and beverage and other operating revenues are recognized at the time the goods or services are provided. The Company collects taxes from customers at the point of sale on transactions subject to sales and other taxes. Revenues are recorded net of any taxes collected. The majority of the Company's casino revenue is counted in the form of cash and chips and, therefore, is not subject to any significant or complex estimation. The retail value of rooms, food and beverage and other services provided to customers on a complimentary basis is included in gross revenues and then deducted as promotional allowances. Promotional allowances also include incentives earned in our slot bonus program such as cash and the estimated retail value of goods and services (such as complimentary rooms and food and beverages). We reward customers, through the use of bonus programs, with points based on amounts wagered that can be redeemed for a specified period of time, principally for complimentary play, and to a lesser extent for goods or services, depending upon the property.

6


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

The amounts included in promotional allowances consist of the following (in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Room
$
9,808

 
$
9,353

 
$
27,600

 
$
26,056

Food and beverage
12,420

 
12,436

 
35,054

 
34,416

Other
1,931

 
1,984

 
5,593

 
5,803

Total
$
24,159

 
$
23,773

 
$
68,247

 
$
66,275

The estimated departmental costs and expenses of providing these promotional allowances are included in casino operating costs and expenses and consist of the following (in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Room
$
4,387

 
$
4,454

 
$
14,558

 
$
13,996

Food and beverage
10,542

 
10,834

 
30,365

 
30,144

Other
704

 
603

 
2,180

 
1,776

Total
$
15,633

 
$
15,891

 
$
47,103

 
$
45,916

Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that included the enactment date. Future tax benefits are recognized to the extent that realization of those benefits is considered more likely than not, and a valuation allowance is established for deferred tax assets which do not meet this threshold.
Adoption of New Accounting Pronouncement
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, requiring entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of the debt liability. This new guidance is similar to existing presentation requirements for debt discounts and aligns with the presentation of debt issuance costs under International Financial Reporting Standards ("IFRS"). The new guidance does not affect entities’ recognition and measurement of debt issuance costs. Previously, entities were required to present debt issuance costs as deferred charges in the asset section of the statement of financial position. The guidance in the ASU is effective for all entities in fiscal years beginning after December 15, 2015. Public business entities must apply the guidance in interim periods within the fiscal year of adoption, while all other entities must apply the guidance in interim periods within fiscal years beginning after December 15, 2016. All entities must apply the guidance retrospectively and provide the required disclosures for a change in accounting principle in the period of adoption. Early adoption is permitted.
The Company adopted this ASU during the three months ended March 31, 2016. The Company has reclassified debt issuance costs from other assets, net to a reduction in long-term debt, net on the Company's condensed consolidated balance sheets. As of September 30, 2016 and December 31, 2015, the amount of debt issuance costs included as a reduction to long-term debt totaled $2.7 million and $3.3 million, respectively.
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This ASU was amended by ASU No. 2015-14, issued in August 2015, which deferred the original effective date by one year; the effective date

7


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017, using one of two retrospective application methods. In addition, the FASB issued other amendments during 2016 to FASB ASC Topic 606, Revenue from Contracts with Customers, that include implementation guidance to principal versus agent considerations, guidance to identifying performance obligations and licensing guidance and other narrow scope improvements. Early adoption is permitted only as of the annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company anticipates it will adopt this ASU on January 1, 2018 using the modified retrospective method. The Company continues to evaluate the impact the adoption of ASU No. 2014-09 will have on the Company's financial position and results of operations.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which amends FASB ASU Topic 330, Inventory. This ASU requires entities to measure inventory at the lower of cost or net realizable value and eliminates the option that currently exists for measuring inventory at market value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This ASU should be applied prospectively with earlier application permitted as of the beginning of an interim period or annual reporting period. The Company does not anticipate the adoption of this ASU to have a material impact on the Company's financial position or results of operations.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes FASB ASC Topic 840, Leases. This ASU requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. In addition, among other changes to the accounting for leases, this ASU retains the distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous guidance. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The amendments in this ASU should be applied using a modified retrospective approach. Early application is permitted. The Company is currently evaluating the impact of this guidance on the Company's financial position or results of operations.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), which seeks to reduce the diversity currently in practice by providing guidance on the presentation of eight specific cash flow issues in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact of this guidance on the Company's statement of cash flows.
A variety of proposed or otherwise potential accounting standards are currently under consideration by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our condensed consolidated financial statements.
Reclassifications
The unaudited condensed consolidated financial statements 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.
NOTE 3—FAIR VALUE
The carrying values of the Company's cash and cash equivalents, restricted cash, receivables and accounts payable approximate fair value because of the short term maturities of these instruments. A financial asset or liability classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

8


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

Level 3 - Unobservable inputs reflect the Company's judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. The Company develops these inputs based on the best information available, including its own data.
The following table presents a summary of fair value measurements by level for certain assets measured at fair value on a recurring basis included in the accompanying condensed consolidated balance sheets at September 30, 2016 and December 31, 2015 (in thousands):
 
Input Levels for Fair Value Measurements
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
September 30, 2016
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
CRDA deposits, net
$

 
$

 
$
8,728

 
$
8,728

 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
CRDA deposits, net
$

 
$

 
$
16,405

 
$
16,405

Funds on deposit with the CRDA are held in an interest bearing account by the CRDA. Interest is earned at the stated rate that approximates two-thirds of the current market rate for similar assets. The Company records charges to expense to reflect the lower return on investment and records the deposits at fair value. The fair value of the CRDA deposits, classified in the fair value hierarchy as Level 3, are estimated using valuation allowances calculated based on market rates for similar assets and other information received from the CRDA. See Note 7 - Investments for more detail related to the CRDA deposits.
The following table summarizes the changes in fair value of the Company's Level 3 CRDA deposits (in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Beginning Balance
$
9,896

 
$
28,078

 
$
16,405

 
$
24,384

Realized or unrealized gains/(losses)
(337
)
 
523

 
(6,057
)
 
2,634

Additional CRDA deposits
337

 
1,229

 
2,243

 
3,289

CRDA Project Funds received
(1,168
)
 
(9,872
)
 
(3,035
)
 
(9,872
)
Purchases of CRDA investments

 
(724
)
 
(828
)
 
(1,201
)
Ending Balance
$
8,728

 
$
19,234

 
$
8,728

 
$
19,234

Realized or unrealized gains/(losses) related to the Level 3 investments held at the end of the reporting period are included in general and administrative expense during the three and nine months ended September 30, 2016 and 2015. There were no transfers between fair value levels during the periods ended September 30, 2016 and 2015.
Long-term Debt
The Company's long-term debt is carried at amortized cost in the accompanying consolidated balance sheets. The fair value of the Company's long-term debt is a Level 2 fair value measurement and has been estimated based upon quoted market prices for similar issues. The estimated fair value of long-term debt as of September 30, 2016 and December 31, 2015 is approximately $292.8 million and $287.4 million, respectively.
CRDA Bonds
The Company's CRDA bonds are classified as held-to-maturity since the Company has the ability and intent to hold these bonds to maturity and under the CRDA, the Company is not permitted to do otherwise. The CRDA bonds are initially recorded at a discount to approximate fair value. After the initial determination of fair value, the Company will analyze the CRDA bonds quarterly for recoverability based on management's historical collection experience and other information received from the CRDA. If indications exist that the CRDA bond is impaired, additional valuation allowances will be recorded. The fair value of the Company's CRDA bonds are considered a Level 3 fair value measurement. The CRDA bonds carrying value as of

9


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

September 30, 2016 and December 31, 2015 net of the unamortized discount and valuation allowance is $8.3 million and $8.4 million, respectively, which approximates fair value. See Note 7 - Investments for more detail related to the CRDA bonds.
NOTE 4—RECEIVABLES
Receivables consist of the following (in thousands):
 
September 30, 2016
 
December 31, 2015
Casino
$
11,622

 
$
14,573

Hotel
5,607

 
5,330

Other
12,649

 
12,574

Receivables, gross
29,878

 
32,477

Allowance for doubtful accounts
(8,472
)
 
(10,409
)
Receivables, net
$
21,406

 
$
22,068

NOTE 5—PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
 
Estimated
life
(years)
 
September 30, 2016
 
December 31, 2015
Land
 
$
116,597

 
$
116,190

Buildings and improvements
10 - 40
 
629,626

 
605,582

Furniture, fixtures and equipment
3 - 7
 
249,000

 
228,548

Riverboats and barges
5 - 15
 
18,145

 
17,429

Construction in progress
 
26,996

 
24,900

Property and equipment, gross
 
 
1,040,364

 
992,649

Accumulated depreciation
 
 
(280,712
)
 
(231,829
)
Property and equipment, net
 
 
$
759,652

 
$
760,820

NOTE 6—GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of purchase price over fair value of assets acquired and liabilities assumed in business combinations or under fresh-start reporting. Goodwill and other indefinite-life intangible assets are subject to an annual assessment for impairment during the fourth quarter, or more frequently if there are indications of possible impairment, by applying a fair-value-based test. In accordance with accounting guidance related to goodwill and other intangible assets, the Company tests for impairment of goodwill and indefinite-lived intangible assets annually in the fourth quarter of each year and in certain situations between those annual dates. See Note 2 - Summary of Significant Accounting Policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 for more detail related to the goodwill impairment analysis.
The carrying amounts of Goodwill by segment are as follows (in thousands):
 
September 30, 2016
 
December 31, 2015
 
Gross
Carrying
Amount
 
Accumulated
Impairment
 
Net
Carrying
Value
 
Gross
Carrying
Amount
 
Accumulated
Impairment
 
Net
Carrying
Value
Central
$
14,224

 
$

 
$
14,224

 
$
14,224

 
$

 
$
14,224

South and other
1,731

 
(1,731
)
 

 
1,731

 
(1,731
)
 

Corporate
10,704

 
(9,071
)
 
1,633

 
10,704

 
(9,071
)
 
1,633

Total
$
26,659

 
$
(10,802
)
 
$
15,857

 
$
26,659

 
$
(10,802
)
 
$
15,857


10


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

Intangible assets consist of the following (in thousands):
 
 
Estimated
life
(years)
 
September 30, 2016
 
December 31, 2015
Trade name
 
Indefinite
 
$
25,500

 
$
25,500

Gaming licenses
 
Indefinite
 
37,387

 
37,387

Customer lists
 
3
 
160

 
160

Favorable lease
 
5 - 42
 
13,260

 
13,260

Total intangible assets
 
 
 
76,307

 
76,307

Less accumulated amortization:
 
 
 
 
 
 
Customer lists
 
 
 
(133
)
 
(93
)
Favorable lease
 
 
 
(2,182
)
 
(1,919
)
Total accumulated amortization
 
 
 
(2,315
)
 
(2,012
)
Intangible assets, net
 
 
 
$
73,992

 
$
74,295

Upon the adoption of fresh-start reporting, the Company recognized an indefinite life trade name related to the "Tropicana" trade name and indefinite life gaming licenses related to entities that are located in gaming jurisdictions where competition is limited to a specified number of licensed gaming operators. At both September 30, 2016 and December 31, 2015 the indefinite life gaming licenses consists of $28.7 million and $8.7 million related to Tropicana Evansville and Lumière Place, respectively.
Customer lists represent the value associated with customers enrolled in our customer loyalty programs and are amortized on a straight-line basis over three years. Amortization expense related to customer lists, which was amortized to depreciation and amortization expense, for each of the three and nine months ended September 30, 2016 and 2015 was less than $0.1 million. Estimated annual amortization related to the Lumière Place customer list is anticipated to be $0.1 million in 2016 and less than $0.1 million in 2017.
Favorable lease arrangements were valued upon adoption of fresh-start reporting and are being amortized to rental expense on a straight-line basis over the remaining useful life of the respective leased facility. In connection with the Tropicana AC acquisition, the Company also recognized intangible assets relating to favorable lease arrangements which are being amortized to tenant income on a straight-line basis over the terms of the various leases. Additionally, in connection with the acquisition of Tropicana Aruba, the Company recognized intangible assets relating to a favorable land lease arrangement which is amortized to rental expense on a straight-line basis over the remaining term of the land lease. Amortization expense related to favorable lease arrangements, which is amortized to rental expense or tenant income, as applicable, for the three months ended September 30, 2016 and 2015 was $0.1 million and $0.2 million, respectively. Amortization expense related to favorable lease arrangements for the nine months ended September 30, 2016 and 2015 was $0.3 million and $0.5 million, respectively.
NOTE 7—INVESTMENTS
CRDA
The New Jersey Casino Control Act provides, among other things, for an assessment of licensees equal to 1.25% of gross gaming revenues and 2.5% of Internet gaming gross revenues in lieu of an investment alternative tax equal to 2.5% of gross gaming revenues and 5% on Internet gaming gross revenues. The Company may satisfy this investment obligation by investing in qualified eligible direct investments, by making qualified contributions or by depositing funds with the CRDA. Funds deposited with the CRDA may be used to purchase bonds designated by the CRDA or, under certain circumstances, may be donated to the CRDA in exchange for credits against future CRDA investment obligations. The carrying value of the total investments at September 30, 2016 and December 31, 2015 approximates their fair value.

11


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

CRDA investments consist of the following (in thousands):
 
September 30, 2016
 
December 31, 2015
Investment in bonds—CRDA
$
16,418

 
$
16,551

Less unamortized discount
(4,235
)
 
(4,271
)
Less valuation allowance
(3,885
)
 
(3,862
)
Deposits—CRDA
19,563

 
21,183

Less valuation allowance
(10,835
)
 
(4,778
)
Direct investment—CRDA
1,872

 
1,352

Less valuation allowance
(1,872
)
 
(1,352
)
Total CRDA investments
$
17,026

 
$
24,823

The CRDA bonds have various contractual maturities that range from 2 to 40 years. Actual maturities may differ from contractual maturities because of prepayment rights. The Company treats CRDA bonds as held-to-maturity since the Company has the ability and the intent to hold these bonds to maturity and under the CRDA, the Company is not permitted to do otherwise. As such, the CRDA bonds are initially recorded at a discount to approximate fair value.
After the initial determination of fair value, the Company analyzes the CRDA bonds for recoverability on a quarterly basis based on management's historical collection experience and other information received from the CRDA. If indications exist that the CRDA bond is impaired, additional valuation allowances are recorded.
Funds on deposit with the CRDA are held in an interest bearing account by the CRDA. Interest is earned at the stated rate that approximates two-thirds of the current market rate for similar assets. The Company records charges to expense to reflect the lower return on investment and records the deposit at fair value on the date the deposit obligation arises. During the three months ended September 30, 2016 and 2015, the Company included a charge of $0.3 million and a reduction of $0.2 million, respectively, to general and administrative expenses on the accompanying condensed consolidated statements of income, representing the changes in these investment reserves. During the nine months ended September 30, 2016 and 2015 the Company recorded a charge of $1.2 million and a reduction of $2.0 million, respectively, to general and administrative expenses on the accompanying condensed consolidated statements of income, representing the changes in these investment reserves.
As a result of the NJ PILOT Law, which was enacted in May 2016 (see further discussion in Note 13, Commitments and Contingencies, NJ PILOT Law), the portion of investment alternative tax payments made by casino operators which are deposited with the CRDA and which have not been pledged for the payment of bonds issued by the CRDA will be allocated to the State of New Jersey for purposes of paying debt service on bonds previously issued by Atlantic City. That portion of the deposits which will be allocated to the State of New Jersey are no longer recorded as an investment with a corresponding valuation allowance, but are charged directly to general and administrative expenses. During the three and nine months ended September 30, 2016, the Company recorded charges of $1.0 million and $1.3 million, respectively, to general and administrative expenses on the accompanying condensed consolidated statements of income, representing that portion of investment alternative tax payments that will be allocated to the State of New Jersey under the NJ PILOT Law.
The Company was approved to use up to $18.8 million of CRDA deposits ("Approved CRDA Project Funds") for certain capital expenditures relating to Tropicana AC. Approximately $15.2 million of the Approved CRDA Project Funds were reimbursed to Tropicana AC during the year ended December 31, 2015, of which approximately $14.2 million was from Tropicana AC's CRDA deposits. An additional $3.0 million of Approved CRDA Project Funds were reimbursed to Tropicana AC during the nine months ended September 30, 2016.
On April 19, 2016 the CRDA approved an application by the Company to increase the scope of the approved Tropicana AC project to include additional project elements and amend the CRDA grant agreement related to the Tropicana AC project to permit (i) an $8 million increase in the CRDA fund reservation and corresponding increase in the Approved CRDA Project Funds from $18.8 million to $26.8 million, and (ii) a rescheduled substantial completion date for the Tropicana AC project to not later than June 30, 2017. In exchange for the approval, the Company agreed to donate the balance of its CRDA deposits in the amount of approximately $7.1 million to the CRDA pursuant to NJSA 5:12-177. The Company recorded $5.4 million of expense in April 2016 to fully reserve the funds that will be donated to the CRDA per this agreement.
Ruby Seven Studios, Inc.
In March 2015, the Company, through its wholly-owned subsidiary, TropWorld Games LLC ("TWG") entered into an agreement with Ruby Seven Studios, Inc. ("Ruby Seven") to develop an online social gaming site. In accordance with that

12


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

agreement, in July 2015, TEI R7, a wholly-owned subsidiary of the Company, exercised an option to acquire 1,827,932 shares of Ruby Seven's Series A-1 Preferred Stock for $1.5 million, representing approximately 13.7% of the equity ownership of Ruby Seven. The investment in Ruby Seven is presented at cost on the accompanying condensed consolidated balance sheets as of December 31, 2015.
Ruby Seven entered into a merger agreement with a third party pursuant to which Ruby Seven merged into the third party in a transaction that closed on February 29, 2016. TEI R7 approved the agreement.   As a result of the merger transaction, all of Ruby Seven’s outstanding shares (including the shares held by TEI R7) were canceled and the Ruby Seven shareholders received merger consideration in exchange for their shares.  At closing, TEI R7 received cash in the approximate amount of $0.8 million, plus an earn-out consideration over three years following the closing, with a minimum earn-out of approximately $0.7 million, which is included in long-term assets on the accompanying condensed consolidated balance sheets as of September 30, 2016
NOTE 8—LONG-TERM PREPAID RENT AND OTHER ASSETS
Other assets consist of the following (in thousands):
 
September 30, 2016
 
December 31, 2015
Tropicana Evansville prepaid rent
$
13,354

 
$
12,500

Deposits
4,187

 
3,431

Other
7,944

 
2,873

Other assets
$
25,485

 
$
18,804

NOTE 9—ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (in thousands):
 
September 30, 2016
 
December 31, 2015
Accrued payroll and benefits
$
36,651

 
$
35,131

Accrued gaming and related
15,553

 
15,620

Accrued taxes
30,006

 
11,327

Other accrued expenses and current liabilities
18,339

 
15,758

Total accrued expenses and other current liabilities
$
100,549

 
$
77,836

NOTE 10—DEBT
Debt consists of the following (in thousands):
 
September 30, 2016
 
December 31, 2015
New Term Loan Facility, due 2020, interest at 4.0% at September 30, 2016 and December 31, 2015, net of unamortized discount of $0.9 million and $1.0 million at September 30, 2016 and December 31, 2015, respectively and debt issuance costs of $2.7 million and $3.3 million at September 30, 2016 and December 31, 2015, respectively
$
287,449

 
$
288,946

Less current portion of debt
(3,000
)
 
(3,000
)
Total long-term debt, net
$
284,449

 
$
285,946

New Credit Facilities
On November 27, 2013, the Company entered into (i) a senior secured first lien term loan facility in an aggregate principal amount of $300 million, issued at a discount of 0.5% (the “New Term Loan Facility”) and (ii) a senior secured first lien revolving credit facility in an aggregate principal amount of $15 million (the “Revolving Facility” and, together with the New Term Loan Facility, the “New Credit Facilities”). Commencing on December 31, 2013, the New Term Loan Facility is amortized in equal quarterly installments of $750,000, with any remaining balance payable on the final maturity date of the New Term Loan Facility, which is November 27, 2020. Amounts under the Revolving Facility are available to be borrowed and re-borrowed until its termination on November 27, 2018.


13


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

Approximately $172.4 million of the net proceeds from the New Credit Facilities were used to repay in full the principal amounts outstanding under the Company's existing credit facilities which consisted of a $175 million senior secured first lien term loan facility and $15 million cash collateralized letter of credit facility (the "Credit Facilities"). The Credit Facilities were terminated effective as of November 27, 2013. A portion of the proceeds from the New Credit Facilities was used to finance the Company's acquisition of Lumière Place in April 2014.

The New Term Loan Facility accrues interest, at the Company's option, at a per annum rate equal to either (i) the LIBO Rate (as defined in the Credit Agreement) (subject to a 1.00% floor) plus an applicable margin equal to 3.00%, or (ii) the alternate base rate (as defined in the Credit Agreement) (subject to a 2.00% floor) plus an applicable margin equal to 2.00%; such that in either case, the applicable interest rate shall not be less than 4.0%. The Revolving Facility accrues interest, at the Company's option, at a per annum rate equal to either (i) the LIBO Rate plus an applicable margin ranging from 2.00% (if the total net leverage ratio is less than 2.50:1.00) to 2.50% (if the total net leverage ratio is greater than or equal to 3.00:1.00); or (ii) the alternate base rate plus an applicable margin ranging from 1.00% (if the total net leverage ratio is less than 2.50:1.00) to 1.50% (if the total net leverage ratio is greater than or equal to 3.00:1.00). The interest rate increases by 2.00% following certain defaults. As of September 30, 2016, the interest rate on the New Term Loan Facility was 4.0% and no amounts were outstanding under the Revolving Facility.

The New Credit Facilities are guaranteed by all of the Company's domestic subsidiaries, subject to limited exceptions, and additional subsidiaries may be required to provide guarantees, subject to limited exceptions. The New Credit Facilities are secured by a first lien on substantially all assets of the Company and the domestic subsidiaries that are guarantors, with certain limited exceptions. Subsidiaries that become guarantors will be required, with certain limited exceptions, to provide first liens and security interests in substantially all their assets to secure the New Credit Facilities.

At the election of the Company and subject to certain conditions, including a maximum senior secured net leverage ratio of 3.25:1.00, the amount available under the New Credit Facilities may be increased, which increased amount may be comprised of additional term loans and revolving loans.

The New Term Loan Facility may be prepaid at the option of the Company at any time without penalty (other than customary LIBO Rate breakage fees). The Company is required to make mandatory payments of the New Credit Facilities with (i) net cash proceeds of certain asset sales (subject to reinvestment rights), (ii) net cash proceeds from certain issuances of debt and equity (with certain exceptions), (iii) up to 50% of annual excess cash flow (as low as 0% if the Company's total leverage ratio is below 2.75:1.00), and (iv) certain casualty proceeds and condemnation awards (subject to reinvestment rights).

Key covenants binding the Company and its subsidiaries include (i) limitations on indebtedness, liens, investments, acquisitions, asset sales, dividends and other restricted payments, and affiliate and extraordinary transactions, and (ii) if, as of the last day of any fiscal quarter, the amount of outstanding revolving loans exceed 35% of the permitted borrowing under the Revolving Facility, compliance with a maximum senior secured net leverage ratio test of 3.25:1.00. Key default provisions include (i) failure to repay principal, interest, fees and other amounts owing under the facility, (ii) cross default to certain other indebtedness, (iii) the rendering of certain judgments against the Company or its subsidiaries, (iv) failure of security documents to create valid liens on property securing the New Credit Facilities and to perfect such liens, (v) revocation of casino, gambling, or gaming licenses, (vi) the Company's or its material subsidiaries' bankruptcy or insolvency; and (vii) the occurrence of a Change of Control (as defined in the Credit Agreement). Many defaults are also subject to cure periods prior to such default giving rise to the right of the lenders to accelerate the loans and to exercise remedies. The Company was in compliance with the covenants of the New Term Loan Facility at September 30, 2016.

NOTE 11—IMPAIRMENT CHARGES, OTHER WRITE DOWNS AND RECOVERIES
Impairment charges, other write-downs and recoveries consist of the following (in thousands):

14


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Impairment of intangibles
$

 
$

 
$

 
$
26

Loss on disposal of assets
347

 
19

 
444

 
850

Total impairment charges, other write-downs and recoveries
$
347

 
$
19

 
$
444

 
$
876

NOTE 12—RELATED PARTY TRANSACTIONS
Insight Portfolio Group LLC
Effective January 1, 2013, the Company acquired a minority equity interest in Insight Portfolio Group LLC (“Insight Portfolio Group”) and agreed to pay a portion of Insight Portfolio Group's operating expenses. In addition to the minority equity interest held by the Company, a number of other entities with which Mr. Icahn has a relationship also acquired equity interests in Insight Portfolio Group and also agreed to pay certain of Insight Portfolio Group's operating expenses. The Company may purchase a variety of goods and services as a member of the buying group at prices and on terms that the Company believes are more favorable than those which would be achieved on a stand-alone basis. Commencing in the second quarter of 2016, an officer of the Company also serves on the Board of Directors of Insight Portfolio Group. During each of the three months ended September 30, 2016 and 2015, the Company paid $0.1 million to Insight Portfolio Group. During each of the nine months ended September 30, 2016 and 2015, the Company paid $0.2 million and $0.3 million, respectively, to Insight Portfolio Group.
Trump Taj Mahal Associates, LLC
On March 1, 2016, TEI Management Services LLC, a wholly owned subsidiary of the Company, entered into a management agreement with Trump Taj Mahal Associates, LLC (“TTMA”) and IEH Investments LLC (“IEH Investments”) pursuant to which TEI Management Services LLC manages the Taj Mahal, owned by TTMA, and provides consulting services relating to the former Plaza Hotel and Casino in Atlantic City, New Jersey, owned by Trump Plaza Associates LLC (“Plaza Associates”). The management agreement, which commenced upon receipt of required New Jersey regulatory approvals on April 13, 2016, is effective for an initial five year term with an option to renew for an additional five year term. TTMA, IEH Investments and Plaza Associates are indirect wholly owned subsidiaries of Icahn Enterprises, which is indirectly controlled by Mr. Icahn. For the three and nine months ended September 30, 2016, the Company has recorded $1.3 million and $2.3 million, respectively, of management fee income as a result of this agreement, which is included in other revenue in the accompanying condensed consolidated statements of income.
On October 10, 2016, the Taj Mahal discontinued its operation as a casino hotel in Atlantic City. TEI Management Services LLC will continue to provide management services to TTMA. Under a lease agreement with TTMA, Tropicana AC will lease 250 slot machines commencing after the closing of the Taj Mahal. Under a separate database license agreement, commencing October 1, 2016, the Company is licensing the Taj Mahal customer database from Trump Entertainment Resorts, Inc.
NOTE 13—COMMITMENTS AND CONTINGENCIES
Leases
MontBleu Lease
The Company has a lease agreement with respect to the land and building which MontBleu operates, through December 31, 2028. Under the terms of the lease, rent is $333,333 per month, plus 10% of annual gross revenues in excess of $50 million through December 31, 2011. After December 31, 2011, rent is equal to the greater of (i) $333,333 per month as increased by the same percentage that the consumer price index has increased from 2009 thereafter, plus 10% of annual gross revenues in excess of a Breakpoint as defined in the terms of the lease agreement, or (ii) 10% of annual gross revenues. In connection with fresh-start reporting, the Company recognized an unfavorable lease liability of $9.6 million related to this lease that is amortized on a straight-line basis to rental expense over the remaining term of the lease. As of September 30, 2016 and December 31, 2015, the unfavorable lease liability balance was $6.3 million and $6.7 million, respectively, of which

15


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

$5.8 million and $6.1 million, respectively, is included in other long-term liabilities on the accompanying condensed consolidated balance sheets.
In October 2014, Columbia Properties Tahoe, LLC (“CPT”), the Company’s subsidiary that owns MontBleu, entered into a lease amendment with Edgewood Companies (“Landlord”) pursuant to which CPT agreed to expend $24.0 million during the next 18 months on a capital renovation project in exchange for certain lease modifications including future capital expenditure requirements and a Landlord acknowledgment that upon completion of the capital renovation project the property will satisfy the “first class” facility requirements of the lease. As of December 31, 2015, the Company had completed the $24 million capital renovation project.
Tropicana Evansville Land Lease
The Company leases from the City of Evansville, Indiana approximately ten acres of the approximately 20 acres on which Tropicana Evansville is situated. On January 6, 2016 the Company and the City of Evansville entered into a Sixth Amendment to the Lease Agreement (the "Sixth Amendment"), which amendment was approved by the Indiana Gaming Commission on February 24, 2016 along with the Company's application to move its casino operations from its current dockside gaming vessel to a future developed landside gaming facility. Under the Sixth Amendment, in exchange for the Company's commitment to expend $50 million to develop a landside gaming facility (the "Tropicana Development Project") along with a pre-payment of lease rent in the amount of $25 million (the "Rental Pre-Payments"), the City of Evansville has granted the Company a $20 million redevelopment credit (the "Redevelopment Credit"). The Rental Pre-Payments are to be made in two payments of $12.5 million each. The Company has made the first $12.5 million Rental Pre-Payment, and the second $12.5 million Rental Pre-Payment is due upon the opening of the Tropicana Development Project to the public. Both the Rental Pre-Payments and the Redevelopment Credits will be applied against future rent in equal monthly amounts over a period of one hundred and twenty (120) months commencing upon the opening of the Tropicana Development Project to the public. Under the terms of the lease, as amended by the Sixth Amendment, the Company may extend the lease term through November 30, 2055 by exercising renewal options. The current term commenced December 1, 2015 and expires November 30, 2027 under the terms of the Sixth Amendment. Thereafter, the Company may extend the lease for a three (3) year term through November 30, 2030, followed by five (5) five-year renewal options through November 30, 2055. Under the terms of the Sixth Amendment, in the event the Company decides not to exercise its renewal option(s) and continues to conduct gaming operations in the City of Evansville, the lease may not be terminated and will continue through November 30, 2055, unless the Company and the City of Evansville enter into a replacement agreement that includes payments to the City of Evansville in the amount equal to rent payments under the lease. Under the terms of the lease, as amended by the Sixth Amendment, the Company is required to pay a percentage of the adjusted gross receipts ("AGR") for the year in rent with a minimum annual rent of no less than $2.0 million. The percentage rent shall be equal to 2% of the AGR up to $25 million, plus 4% of the AGR in excess of $25 million up to $50 million, plus 6% of the AGR in excess of $50 million up to $75 million, plus 8% of the AGR in excess of $75 million up to $100 million and plus 10% of the AGR in excess of $100 million.
Belle of Baton Rouge Lease
Belle of Baton Rouge leases certain land and buildings under separate leases, with annual payments of $0.2 million. In addition, Belle of Baton Rouge leases a parking lot with annual base rent of approximately $0.4 million, plus 0.94% of annual adjusted gross revenue in excess of $45 million but not to exceed $80 million through August 2017.
Tropicana Greenville Lease
Tropicana Greenville leases approximately four acres of land on which the entry and parking facilities of the casino are situated. Tropicana Greenville is required to pay an amount equal to 2% of its monthly gross gaming revenues in rent, with a minimum monthly payment of $75,000. In addition, in any given year in which annual gross gaming revenues exceed $36.6 million, Tropicana Greenville is required to pay 8% of the excess amount as rent pursuant to the terms of the lease. The current lease expires in 2019 with options to extend its term through 2044.
In October 2013, Tropicana Greenville entered into an additional lease agreement with the City of Greenville, Mississippi, for a parcel of land adjacent to Tropicana Greenville upon which the Company constructed a parking lot in conjunction with its plan to expand the Tropicana Greenville casino. The initial term of the lease expires in August 2020, and the Company has several options to extend the lease for a total term of up to twenty-five years. Initial annual rent is $0.4 million with rent adjustments in option periods based upon the Consumer Price Index.

16


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

Tropicana Aruba Land Lease
The Company assumed a land lease in August 2010 for approximately 14 acres of land on which Tropicana Aruba is situated through July 30, 2051. Under the terms of the land lease, the annual rent is $93,000.
Other Commitments and Contingencies
2011 New Jersey Tourism District Law
In February 2011, New Jersey enacted legislation (the "Tourism District Law") that delegated redevelopment authority and creation of a master plan to the CRDA and allowed the CRDA the ability to enter into a five year public private partnership with the casinos in Atlantic City that have formed the Atlantic City Alliance ("ACA") to jointly market the city. The law obligated the Atlantic City casinos either through the ACA or, if not a member of the ACA, through individual assessments, to provide funding for marketing under the Tourism District Law in the aggregate amount of $30.0 million annually through 2016. Each Atlantic City casino's proportionate share of the assessment is based on the gross revenue generated in the preceding fiscal year. In 2015 the Company paid approximately $3.6 million to the ACA for its proportionate share of the assessment, which amount has been held by the ACA pending the anticipated enactment of the Casino Property Tax Stabilization Act (the "NJ PILOT Law", described below). In 2016, the Company has estimated and is accruing its portion of this ACA industry obligation at approximately 12.2%, or $3.7 million.
New Jersey Gross Casino Revenue Tax and Casino Investment Alternative Tax
Under New Jersey law, the New Jersey Casino Control Commission imposes an annual tax of 8% on gross casino revenue and, commencing with the operation of Internet gaming, an annual tax of 15% on Internet gaming gross revenue. In addition, under New Jersey law, casino license holders or Internet gaming permit holders (as applicable) are currently required to invest an additional 1.25% of gross casino revenue and 2.5% of Internet gaming gross revenue ("Casino Investment Alternative Tax", or "IAT") for the purchase of bonds to be issued by the CRDA or to make other approved investments equal to those amounts; and, in the event the investment requirement is not met, the casino license holder or Internet gaming permit holder (as applicable) is subject to a tax of 2.5% on gross casino revenue and 5% on Internet gaming gross revenue. As mandated by New Jersey law, the interest rate of the CRDA bonds purchased by the licensee is two-thirds of the average market rate for bonds available for purchase and published by a national bond index at the time of the CRDA bond issuance. As more fully described below, commencing on May 27, 2016, the effective date of the NJ PILOT Law, future IAT that have not been pledged for the payment of bonds issued by the CRDA, or any bonds issued to refund such bonds, will be allocated to the City of Atlantic City for the purposes of paying debt service on bonds issued by the City of Atlantic City.
NJ PILOT LAW
On May 27, 2016, New Jersey enacted the Casino Property Tax Stabilization Act (the "NJ PILOT Law") which will exempt Atlantic City casino gaming properties from ad valorem property taxation in exchange for an agreement to make annual payment in lieu of tax payments ("PILOT Payments") to the City of Atlantic City, make certain changes to the NJ Tourism District Law and redirect certain IAT payments to assist in the stabilization of Atlantic City finances. Under the PILOT Law, commencing in 2017 and for a period of ten (10) years, Atlantic City casino gaming properties will be required to pay a prorated share of PILOT Payments totaling $120 million based on a formula that accounts for gaming revenues, the number of hotel rooms and the square footage of each casino gaming property. Commencing in 2018 and each year thereafter, the $120 million base year aggregate payment may either increase to as high as $165 million (based upon industry gross gaming revenue ("GGR") of between $3.0 billion and $3.4 billion) or decrease to a low of $90 million (based upon industry GGR less than $1.8 billion) and further taking into account certain non-GGR revenue streams, with the base year $120 million industry GGR set at between $2.2 billion and $2.6 billion. In years in which the industry PILOT Payments do not increase based upon an increase in GGR above the base year or other bracketed amounts, PILOT Payments will increase 2%.
The NJ PILOT Law also provides for the abolishment of the ACA effective as of January 1, 2015 and redirection of the $30 million in ACA funds paid by the casinos for 2015 and accrued in 2016 under the Tourism District Law to the State of New Jersey for Atlantic City fiscal relief and further payments of $15 million in 2017, $10 million in 2018 and $5 million for each year between 2019 and 2023 to Atlantic City upon review of and approval or disapproval (as the case may be) of a financial plan submitted by Atlantic City, setting forth specific actions to be taken to improve its financial condition.
In addition, the NJ PILOT Law also provides for IAT payments made by the casino operators since the effective date of the NJ PILOT Law, which were previously deposited with the CRDA and which have not been pledged for the payment of bonds issued by the CRDA , or any bonds issued to refund such bonds, to be allocated to the State of New Jersey for purposes of paying debt service on bonds previously issued by Atlantic City.

17


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

Wimar and CSC Administrative Expense Claims
On March 31, 2009, Wimar Tahoe Corporation ("Wimar") and Columbia Sussex Corporation ("CSC") filed separate proceedings with the Bankruptcy Court related to administrative expense claims against the Predecessors. On August 4, 2010, Wimar and CSC separately filed motions for summary judgment seeking payment on account of these claims from the Company totaling approximately $5.4 million, which was recorded as a liability upon emergence from bankruptcy and is included in accounts payable in our accompanying condensed consolidated balance sheets as of September 30, 2016 and December 31, 2015. In its objection to Wimar and CSC's motions for summary judgment, the Company disputed the administrative expense and/or priority status of certain amounts claimed and also contended that any payment to CSC or Wimar should await the resolution of the adversary proceeding instituted by Lightsway Litigation Services, LLC, as Trustee of the Tropicana Litigation Trust established by the bankruptcy reorganization plan, against CSC and Wimar.
In October 2015, the Bankruptcy Court issued an opinion order and entered an order (1) denying Wimar's and CSC's Motions for Summary Judgment seeking allowance and payment of administrative expense claims, and (2) granting, in part, CSC's Motion for Summary Judgment to allow priority status under Bankruptcy Code Section 507(a)(5) for certain contributions made to employee benefit plans and denying, in part, CSC's request in the motion for payment of the priority claims. The Company and Tropicana Las Vegas have filed a joint motion with the Bankruptcy Court seeking clarification of certain aspects of the Bankruptcy Court's opinion and order, which motion is pending. The Company continues to dispute any payment obligation to Wimar or CSC.
UNITE HERE
On June 30, 2016, a tentative agreement was reached between UNITE HERE Local 54 and Tropicana AC on a new collective bargaining agreement to extend through February 29, 2020. The terms of the new collective bargaining agreement were ratified by UNITE HERE Local 54 membership on July 14, 2016, and the agreement is pending finalization by the parties.
Litigation in General
The Company is a party to various litigation that arises in the ordinary course of business. In the opinion of management, all pending legal matters are either adequately covered by insurance or, if not insured, will not have a material adverse effect on the financial position or the results of operations of the Company.
NOTE 14—STOCKHOLDERS' EQUITY
Common Stock
The Company is authorized to issue up to 100 million shares of its common stock, $0.01 par value per share ("Common Stock"), of which 25,981,776 and 26,312,500 shares were issued and outstanding as of September 30, 2016 and December 31, 2015, respectively. Each holder of Common Stock is entitled to one vote for each share held of record on each matter submitted to a vote of stockholders. The holders of Common Stock have no cumulative voting rights, preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the Common Stock. Subject to any preferences that may be granted to the holders of the Company's preferred stock, each holder of Common Stock is entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefore, as well as any distributions to the stockholders and, in the event of the Company's liquidation, dissolution or winding up is entitled to share ratably in all the Company's assets remaining after payment of liabilities.
Stock Repurchase Program
On July 31, 2015, our Board of Directors authorized the repurchase of up to $50 million of our outstanding stock with no set expiration date. The Stock Repurchase Program will end upon the earlier of the date on which the plan is terminated by the Board of Directors or when all authorized repurchases are completed. The timing and amount of stock repurchases will be determined based upon our evaluation of market conditions and other factors. The Stock Repurchase Program may be suspended, modified or discontinued at any time and we have no obligation to repurchase any amount of our common stock under the Stock Repurchase Program.
During March 2016, we repurchased 221,578 shares of our stock under the Stock Repurchase Program. Under the same Stock Repurchase Program the Company repurchased 29,146 and 80,000 shares in August 2016 and September 2016,

18


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

respectively. In all instances, the repurchased shares were subsequently retired. As of the date of this report, there have not been any subsequent repurchases of stock under the Stock Repurchase Program.
Preferred Stock
The Company is authorized to issue up to 10 million shares of preferred stock, $0.01 par value per share, of which none were issued as of September 30, 2016 and December 31, 2015. The Board of Directors, without further action by the holders of Common Stock, may issue shares of preferred stock in one or more series and may fix or alter the rights, preferences, privileges and restrictions, including the voting rights, redemption provisions (including sinking fund provisions), dividend rights, dividend rates, liquidation rates, liquidation preferences, conversion rights and the description and number of shares constituting any wholly unissued series of preferred stock. Except as described above, the Board of Directors, without further stockholder approval, may issue shares of preferred stock with rights that could adversely affect the rights of the holders of Common Stock. The issuance of shares of preferred stock under certain circumstances could have the effect of delaying or preventing a change of control of TEI or other corporate action.
Significant Ownership
At September 30, 2016, Mr. Icahn indirectly controlled approximately 68.75% of the voting power of the Company's Common Stock and, by virtue of such stock ownership, is able to control or exert substantial influence over the Company, including the election of directors. The existence of a significant stockholder may have the effect of making it difficult for, or may discourage or delay, a third party from seeking to acquire a majority of the Company's outstanding Common Stock. Mr. Icahn's interests may not always be consistent with the Company's interests or with the interests of the Company's other stockholders. Mr. Icahn and entities controlled by him may also pursue acquisitions or business opportunities that may or may not be complementary to the Company's business. To the extent that conflicts of interest may arise between the Company and Mr. Icahn and his affiliates, those conflicts may be resolved in a manner adverse to the Company or its other shareholders.
NOTE 15—BASIC AND DILUTED NET INCOME PER SHARE
The Company computes net income per share in accordance with accounting guidance that requires presentation of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net income for the period by the weighted average number of shares outstanding during the period. Diluted EPS is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period, increased by potentially dilutive common shares that were outstanding during the period. Potentially dilutive common shares include warrants. Diluted EPS excludes all potential dilutive shares if their effect is anti-dilutive.
NOTE 16—INCOME TAXES
Effective Tax Rate
The Company's effective income tax rates for the three months ended September 30, 2016 and 2015 were 39.4% and 40.8%, respectively. The Company's effective income tax rates for the nine months ended September 30, 2016 and 2015 were 39.7% and 40.9%, respectively. The difference between the federal statutory rate of 35% and the Company's effective tax rates for the three and nine months ended September 30, 2016 and 2015 was primarily due to disallowed foreign losses, state income taxes (net of federal benefit), and other permanent differences. Looking forward, our effective income tax rate may fluctuate due to changes in tax legislation, changes in our estimates of federal tax credits, changes in our assessment of uncertainties as valued under accounting guidance for uncertainty in income taxes, as well as accumulated interest and penalties.

19


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

NOTE 17—SEGMENT INFORMATION
The Company views each property as an operating segment which we aggregate by region in order to present our reportable segments: (i) East, (ii) Central, (iii) West, (iv) and South and other. The Company uses operating income to compare operating results among its segments and allocate resources.

The following table highlights by segment our net revenues and operating income, and reconciles operating income to income before income taxes for the three months ended September 30, 2016 and 2015 (in thousands, unaudited):
 
Three months ended September 30,
 
2016
 
2015
Net revenues:
 
 
 
East
$
104,040

 
$
96,256

Central
71,371

 
72,594

West
30,650

 
27,817

South and other
23,712

 
22,281

Corporate
1,250

 

Total net revenues
$
231,023

 
$
218,948

Operating income (loss):
 
 
 
East
$
20,228

 
$
21,193

Central
10,464

 
10,026

West
5,495

 
3,708

South and other
672

 
394

Corporate
(3,002
)
 
(4,224
)
Total operating income
$
33,857

 
$
31,097

Reconciliation of operating income to income before income taxes:
 
 
 
Operating income
$
33,857

 
$
31,097

Interest expense
(3,122
)
 
(3,211
)
Interest income
156

 
133

Predecessor claim settlement
3,100

 

Income before income taxes
$
33,991

 
$
28,019



20


TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

The following table highlights by segment our net revenues and operating income, and reconciles operating income to income before income taxes for the nine months ended September 30, 2016 and 2015 (in thousands, unaudited):
 
Nine months ended September 30,
 
2016
 
2015
Net revenues:
 
 
 
East
$
260,712

 
$
247,046

Central
221,359

 
216,406

West
84,976

 
79,461

South and other
74,335

 
72,408

Corporate
2,333

 

Total net revenues
$
643,715

 
$
615,321

Operating income (loss):
 
 
 
East
$
19,630

 
$
29,114

Central
37,933

 
31,776

West
12,016

 
9,171

South and other
6,297

 
6,489

Corporate
(11,364
)
 
(12,391
)
Total operating income
$
64,512

 
$
64,159

Reconciliation of operating income to income before income taxes:
 
 
 
Operating income
$
64,512

 
$
64,159

Interest expense
(9,571
)
 
(9,139
)
Interest income
507

 
443

Predecessor claim settlement
3,100

 

Income before income taxes
$
58,548

 
$
55,463


Assets by segment:
September 30, 2016
 
December 31, 2015
East
$
586,763

 
$
550,622

Central
400,845

 
397,309

West
130,131

 
136,508

South and other
125,703

 
125,776

Corporate
118,420

 
99,134

Total assets
$
1,361,862

 
$
1,309,349


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (Exchange Act). These statements involve known and unknown risks, uncertainties and other factors, which may cause our or our industry's actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some situations, you may be able to identify forward-looking statements by terms such as "may," "will," "might," "expect," "plan," "believe," "anticipate," "intend," "should," "could," "would," "estimate," "project," "continue," "pursue," or the negative thereof or comparable terminology, and may include (without limitation) information regarding our expectations, hopes or intentions regarding the future, including, but not limited to, statements regarding our operating or other strategic plans, our management of the Taj Mahal, our competition (including online gaming), financing, revenues, or tax benefits; our beliefs regarding the sufficiency of our existing cash and credit sources, including our New Credit Facilities (as defined herein) and cash flows from operating activities to meet our projected expenditures (including operating and maintenance capital expenditures) and costs associated with certain of our projects, our required capital expenditures

21



pursuant to agreements we are party to such as the landside construction project at Tropicana Evansville, and our anticipated capital expenditures, including our use of our CRDA project funds, estimated asset and liability values, risk of counterparty nonperformance and our legal strategies and the potential effect of pending legal claims on our business and financial condition, and any financial or other information included herein based upon or otherwise incorporating judgments or estimates based upon future performance or events. Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in each such statement. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different manner or extent or at a different time than we have described. All forward-looking statements are qualified in their entirety by reference to the areas of risk and uncertainty described elsewhere in this Quarterly Report on Form 10-Q as well as those discussed under "Item 1A—Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015. Forward-looking statements represent our estimates and assumptions only as of the date of this report. We operate in a continually changing business environment and new risks emerge from time to time. Except as may be required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We are an owner and operator of regional casino and entertainment properties located in the United States and one casino resort development located on the island of Aruba. Our United States properties include two casinos in Nevada and one casino in each of Indiana, Louisiana, Mississippi, Missouri and New Jersey. We primarily cater to local and regional guests to provide a fun and exciting gaming environment with high quality and high value lodging, dining, retail and entertainment amenities. Our properties offer a broad array of gaming options specifically tailored for our patrons in each market. As of September 30, 2016, our properties collectively included approximately 392,000 square feet of gaming space with approximately 7,900 slot machines, approximately 300 table games and approximately 5,500 hotel rooms.
We view each property as an operating segment which we aggregate by region in order to present our reportable segments: (i) East, (ii) Central, (iii) West and (iv) South and other. As of September 30, 2016, our operations by region include the following:
East—Tropicana Casino and Resort, Atlantic City ("Tropicana AC") located in Atlantic City, New Jersey;
Central— Tropicana Evansville ("Tropicana Evansville") located in Evansville, Indiana; and Lumière Place Casino, HoteLumière, the Four Seasons Hotel St. Louis (collectively, "Lumière Place") located in Saint Louis, Missouri;
West—Tropicana Laughlin Hotel and Casino ("Tropicana Laughlin") located in Laughlin, Nevada; and MontBleu Casino Resort & Spa ("MontBleu") located in South Lake Tahoe, Nevada; and
South and other—Belle of Baton Rouge Casino and Hotel ("Belle of Baton Rouge") located in Baton Rouge, Louisiana; Trop Casino Greenville ("Tropicana Greenville") located in Greenville, Mississippi; and Tropicana Aruba Resort and Casino ("Tropicana Aruba") located in Palm Beach, Aruba.

The Company, through its wholly-owned subsidiary, TEI Management Services LLC, also manages the Trump Taj Mahal Casino Hotel ("Taj Mahal") in Atlantic City (which discontinued its operation as a casino hotel on October 10, 2016), and, through an agreement with its wholly-owned subsidiary, TropWorld Games LLC, operates an online social gaming site. The operating results of all other subsidiaries of the Company are reported under the heading of "Corporate" as they have been determined to not meet the aggregation criteria as separately reportable segments.
We are a Delaware corporation formed on May 11, 2009 to acquire certain assets of Tropicana Entertainment Holdings, LLC ("TEH"), and certain of its subsidiaries, pursuant to their plan of reorganization (the "Plan") under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"). We also acquired Columbia Properties Vicksburg (which we sold in March 2011), JMBS Casino, LLC ("JMBS Casino") and CP Laughlin Realty, LLC (which we sold in July 2014), all of which (collectively, the “Predecessors”) were part of the Plan.
In addition, we acquired certain assets of Adamar of New Jersey, Inc. ("Adamar"), an unconsolidated subsidiary of TEH, pursuant to an amended and restated asset purchase agreement, including Tropicana AC. The reorganization of the Predecessors and the acquisition of Tropicana AC (together, the "Restructuring Transactions") were consummated and became effective on March 8, 2010 (the "Effective Date"), at which time we acquired Adamar and several of the Predecessors' gaming properties and related assets. Adamar was not a party to the Predecessors' bankruptcy. Prior to the Effective Date, we conducted no business, other than in connection with the reorganization of the Predecessors and the acquisition of Tropicana AC, and had no material assets or liabilities.
Except where the context suggests otherwise, the terms "we," "us," "our," and "the Company" refer to Tropicana Entertainment Inc. and its subsidiaries.

22



Results of Operations
Our financial results are highly dependent upon the number of customers that we attract to our facilities and the amounts those customers spend per visit. Additionally, our operating results may be affected by, among other things, overall economic conditions affecting the discretionary spending of our customers, competitive factors, gaming tax increases and other regulatory changes, the opening or acquisition of new gaming operations, our ability to reinvest in our properties, potential future exposure for liabilities of the Predecessors that we assumed, and general public sentiment regarding travel. We may experience significant fluctuations in our quarterly operating results due to seasonality and other factors. Historically, our operating results are the strongest in the third quarter and the weakest in the fourth quarter. In addition, weather and long-weekend holidays affect our operating results.
Casino revenues are one of our main performance indicators and account for a significant portion of our net revenues. Casino revenues represent the difference between wins and losses from gaming activities such as slot machines and table games. Key volume indicators include table games volumes and slot volumes, which refer to amounts wagered by our customers. Win or hold percentage represents the percentage of the amounts wagered by the customer that is won by the casino, which is not fully controllable by us, and recorded as casino revenue. Most of our revenues are cash-based, through customers wagering with cash or chips or paying for non-gaming services with cash or credit cards, and therefore are not subject to any significant or complex estimation. As a result, fluctuations in net revenues have a direct impact on cash flows from operating activities. Other performance indicators include hotel occupancy, which is a volume indicator for hotels, and the average daily rate, which is a price indicator for the amount customers paid for hotel rooms.
The following significant factors and trends should be considered in analyzing our operating performance:
Atlantic City Market. Although competitive pressures in Atlantic City have stabilized somewhat with the closure of four casino properties in 2014 and the closure of the Taj Mahal on October 10, 2016, competition from the regional markets continues to adversely affect the Atlantic City market. In addition, a voter referendum in November 2016 to authorize up to two casinos in northern New Jersey, if approved, could have a material adverse impact on the Atlantic City market over the longer term. Further, continuing uncertainty about the City of Atlantic City's ability to fund ongoing operating costs and maintain existing operations may affect the Atlantic City casino market and Tropicana AC in the coming months. Based on market data, the Atlantic City market experienced period over period increases in gross casino win (including internet gaming revenue) of 0.2% and 1.6% for the three and nine months ended September 30, 2016, respectively, as compared to the same periods of 2015. However, excluding internet gaming revenue, the Atlantic City gaming market posted declines for the three and nine months ended September 30, 2016 as compared to the same periods of 2015.
Table games hold percentages. Casino revenues can vary because of table games hold percentages and differences in the odds for different table games. A variety of factors may impact table games hold, including variances in the amount of high end play. For the three and nine months ended September 30, 2016, the Company's total table games hold of 19.2% and 18.8%, respectively, reflected increases of 3.6 and 2.3 percentage points compared to the prior year, which contributed to increased table game revenues. This hold percentage is not necessarily indicative of results that can be expected for future periods.
Debt and Interest Expense.  In November 2013, we entered into the credit facilities (the "New Credit Facilities"), which consist of (i) a senior secured first lien term loan facility in an aggregate principal amount of $300 million issued at a discount of 0.5% (the "New Term Loan Facility") and (ii) a senior secured first lien revolving credit facility in an aggregate principal amount of $15 million (the "Revolving Facility"). Commencing on December 31, 2013, the New Term Loan Facility requires quarterly principal payments of $750,000 through September 2020 with the remaining outstanding amounts due on November 27, 2020, the maturity date. The obligations under the New Term Loan Facility accrue interest at a floating rate which was 4.00% as of September 30, 2016. A portion of the net proceeds from the New Term Loan Facility was used to repay in full the amounts outstanding under the existing Term Loan Facility which totaled approximately $172.4 million in repaid principal, accrued and unpaid interest.
Our interest expense was $9.6 million and $9.1 million for the nine months ended September 30, 2016 and 2015, respectively, which includes amortization of the related debt discounts and debt issuance costs of $0.8 million for each of the nine months ended September 30, 2016 and 2015, offset by approximately $0.1 million and $0.6 million of capitalized interest in the nine months ended September 30, 2016 and 2015, respectively.
Predecessor related gain settlement. In July 2016, the Bankruptcy Court approved a settlement agreement related to the Predecessors, which resulted in the Company receiving a payment of $3.1 million related to certain professional fees previously paid by the Company. This amount was recognized as a one time gain on the Company's condensed consolidated statements of income for the three and nine months ended September 30, 2016.  

23



Cost Efficiencies.  As a result of economic conditions, we continue to focus on areas where we may institute efficiency initiatives which may result in cost savings. In the past, these cost saving initiatives have included decreased payroll and benefits expense related to our company-sponsored health insurance plans.
Three months ended September 30, 2016 compared to three months ended September 30, 2015
The following table sets forth certain information concerning our results of operations (dollars in thousands):
 
 
Three months ended September 30,
 
 
2016
 
2015
Net revenues:
 
 
 
 
East
 
$
104,040

 
$
96,256

Central
 
71,371

 
72,594

West
 
30,650

 
27,817

South and other
 
23,712

 
22,281

Corporate
 
1,250

 

Total net revenues
 
$
231,023

 
$
218,948

Operating income (loss):
 
 
 
 
East
 
$
20,228

 
$
21,193

Central
 
10,464

 
10,026

West
 
5,495

 
3,708

South and other
 
672

 
394

Corporate
 
(3,002
)
 
(4,224
)
Total operating income
 
$
33,857

 
$
31,097

Operating income margin(a):
 
 
 
 
East
 
19.4
%
 
22.0
%
Central
 
14.7
%
 
13.8
%
West
 
17.9
%
 
13.3
%
South and other
 
2.8
%
 
1.8
%
Total operating income margin
 
14.7
%
 
14.2
%
(a)Operating income margin is operating income as a percentage of net revenues.
The following table presents detail of our net revenues (in thousands):
 
 
Three months ended September 30,
 
 
2016
 
2015
Revenues:
 
 
 
 
Casino
 
$
176,960

 
$
168,977

Room
 
39,701

 
37,238

Food and beverage
 
28,902

 
28,860

Other
 
9,619

 
7,646

Gross revenues
 
255,182

 
242,721

Less promotional allowances
 
(24,159
)
 
(23,773
)
Net revenues
 
$
231,023

 
$
218,948


Net Revenues
In the East region, net revenues were $104.0 million for the three months ended September 30, 2016, an increase of $7.8 million, or 8.1%, when compared to the three months ended September 30, 2015. Tropicana AC's net revenues comprise approximately 45% and 44% of the Company's total net revenues for the three months ended September 30, 2016 and 2015, respectively. Tropicana AC's gross casino win for the three months ended September 30, 2016 increased 9.3% over the three months ended September 30, 2015. Comparatively, there was a 1.6% decline in gaming revenues (excluding internet gaming revenue) in the total Atlantic City market, as reported, for the third quarter of 2016 in comparison to the same period of 2015. Gaming volumes at Tropicana AC reflected increases during the third quarter of 2016 compared to the comparable prior year period, including a 6.2% increase in table drop and a 5.0% increase in slot handle. In addition, the table hold for the three

24



months ended September 30, 2016 was 17.8%, compared to 13.6% in the same period of 2015; when combined with the increased volume, this resulted in a 39.0% increase in table games revenue at Tropicana AC for the third quarter of 2016 as compared to the same period of 2015. In addition, Tropicana AC's slot revenues increased 3.2% during the third quarter of 2016 over the third quarter of 2015, and internet gaming revenues in the third quarter of 2016 increased 17.8% over the same period of 2015. Tropicana AC completed a capital improvement project during the second quarter of 2016, which included renovation of hotel rooms in its Havana Tower, a new high end slot area on the casino floor, a new hair salon and a new promotional area for its TropAdvantage player's club. The hotel occupancy and average daily room rate was 90% and $108, respectively, for the three months ended September 30, 2016, compared to 91% and $103, respectively, for the three months ended September 30, 2015.
In the Central region, net revenues were $71.4 million for the three months ended September 30, 2016, a decrease of $1.2 million from the three months ended September 30, 2015. Table games revenues at Lumière Place for the three months ended September 30, 2016 increased 35.4% over the prior year period, primarily due to a favorable table games hold of 22.1% in the third quarter of 2016 compared to 16.7% in the third quarter of 2015, combined with a 2.3% increase in table volume during the period. However, slot volumes at Lumière Place declined 11.2% in the third quarter of 2016 from the prior year period, which, though Lumière Place experienced a slightly higher slot hold, resulted in a 9.3% decline in slot revenue during the third quarter of 2016 as compared with the same period of the prior year. Gaming volumes at Lumière Place were impacted by a room renovation project and casino floor reconfiguration which commenced during the third quarter of 2016, which resulted in approximately half of the Hotel Lumière rooms being taken temporarily out of service. Casino revenues at Tropicana Evansville increased 2.9% during the three months ended September 30, 2016 as compared to the prior year period, resulting from a 4.0% increase in slot revenues, partially offset by a 4.3% decrease in table games revenue during the period. The increased slot revenues in Evansville primarily resulted from higher slot volumes, as slot handle increased 3.4% over the prior year period. The occupancy rate for the three months ended September 30, 2016 in the Central Region was 85%, compared to 81% in the third quarter of 2015, while the average daily room rate was $152 for the three months ended September 30, 2016, compared to $139 for the three months ended September 30, 2015. The room renovation project at Lumière Place impacted hotel revenues during the quarter, which declined 7.1% from the third quarter of 2015.
In the West region, net revenues were $30.7 million for the three months ended September 30, 2016, an increase of $2.8 million, or 10.2%, compared to the three months ended September 30, 2015. Increases in gaming revenues at both Tropicana Laughlin and MontBleu were driven by higher gaming volumes, with a 6.1% increase in slot handle in the region during the third quarter of 2016 over the same period of 2015 and a 6.4% increase in table games drop during the period. In addition, the table games hold in the West region increased during the quarter, to 20.3% from 16.2% from the prior year quarter. The improvement in volumes at MontBleu is attributable in part to property renovations that were completed in late 2015. In addition, the gaming markets for both properties in the West region have reported revenue growth over 2015, which may be attributable to generally lower gas prices prompting increased tourism travel in this region; the most recently available data for the two months ended August 31, 2016 shows a 23.0% increase in gaming win in the South Lake Tahoe market, as well as a 1.3% increase in gaming win in the Laughlin market. In addition to improvements in gaming revenue, hotel, food and beverage and other non-gaming revenues in the West region increased 13.3% for the third quarter of 2016 compared to the same period of 2015. The average daily room rate for the West region was $59 for the three months ended September 30, 2016, compared to $58 for the comparable prior year period. The occupancy rate in the West region was 67% for the three months ended September 30, 2016, as compared to 58% occupancy for the three months ended September 30, 2015.
In the South and other region, net revenues were $23.7 million for the three months ended September 30, 2016, an increase of $1.4 million, or 6.4%, compared to the three months ended September 30, 2015. Casino revenues for the South and other region increased 1.2% in the three months ended September 30, 2016, compared to the prior year period. At Tropicana Greenville, casino revenues increased 2.2% for the three months ended September 30, 2016 compared to the prior year period, driven primarily by a 6.2% increase in slot handle and a 3.2% increase in table games drop. In Baton Rouge, revenues in July and August were negatively impacted by civil unrest resulting from a police shooting and subsequent retaliatory shooting of police officers, and further impacted by flooding rains which impacted over 40,000 residents of the area. However, the subsequent influx of federal aid workers and building contractors into the area in response to the flooding positively impacted gaming and non-gaming revenues in late August and September. Although table game drop at the Belle of Baton Rouge declined 12.6% in the third quarter of 2016 compared to the same period of 2015, slot handle increased by 1.1% during the period. Tropicana Aruba's casino volume increased during the three months ended September 30, 2016 compared to the three months ended September 30, 2015 as a result of aggressive marketing efforts during the quarter, reflected in a $2.4 million, or 80.0% increase in slot handle and a 32.2% increase in table games drop during the period. During the third quarter of 2016, Tropicana Aruba recorded $0.7 million of time share sales, compared to less than $0.1 million of sales in the same period of 2015, when time share sales commenced. The occupancy rate at our properties in the South and other region was 87% for the three months ended September 30, 2016 compared to 71% for the same period of 2015. The average daily room rate for the South and other region was $69 and $70 for the three months ended September 30, 2016 and 2015, respectively.

25



Net revenues for Tropicana Entertainment Corporate division represents the management fee earned as a result of our management of the Taj Mahal.
Operating Income
In the East region, Tropicana AC reported an operating income for the three months ended September 30, 2016 of $20.2 million, a $1.0 million decrease compared to $21.2 million of operating income in the three months ended September 30, 2015. The decline in operating results in the East region was due to higher operating expenses associated with the increase in business volumes, including increases in payroll costs, gaming taxes and advertising and promotional costs, as well as a $1.5 million increase in expense associated with the reserve for the CRDA deposits over the prior year period, and a $2.9 million increase in real estate tax expense over the prior year as a result of a $5.4 million decrease in the third quarter of 2015 resulting from a lower than expected tax increase.
In the Central region, the operating income for the three months ended September 30, 2016 was $10.5 million, a $0.4 million increase over the three months ended September 30, 2015. Although revenues in the Central region reflected a decline for the third quarter of 2016 as compared to the third quarter of 2015, reductions in operating expenses, combined with a $1.6 million decrease in depreciation expense, primarily at Lumière Place as assets have been fully depreciated, more than offset the decline in revenue for the period.
In the West region, the operating income for the three months ended September 30, 2016 was $5.5 million, a $1.8 million increase compared to the three months ended September 30, 2015. The increase is mainly attributable to the improvement in revenues as previously discussed, partially offset by increased depreciation expense as a result of the completion of the capital improvement project at MontBleu and other operating expense increases as a result of the increased revenues and business volumes.
In the South and other region, operating income for the three months ended September 30, 2016 was $0.7 million, an increase of $0.3 million over the operating income for the three months ended September 30, 2015. Although net revenue in the region increased $1.4 million over the third quarter of 2015, increased costs associated with accounting for time share sales at Tropicana Aruba, combined with a bad debt reserve of $0.7 million at that property for furniture and equipment that was ordered but never delivered, contributed to lowering the increase in operating results in this region.
The Corporate operating loss, which includes the results of all other subsidiaries of the Company, was $3.0 million for the three months ended September 30, 2016, reflecting improvement over the three months ended September 30, 2015 primarily due to the recognition $1.3 million of revenue during the third quarter of 2016 related to the TEI Management Services LLC agreement to manage the Taj Mahal Casino Hotel.
Interest Expense
Interest expense for the three months ended September 30, 2016 and 2015 was $3.1 million and $3.2 million, respectively. The interest expense on our New Term Loan Facility accrues at a floating rate, which was 4.0% per annum as of September 30, 2016. Cash paid for interest, net of interest capitalized, was $2.9 million for each of the three months ended September 30, 2016 and 2015.
Income Taxes
Income tax expense was $13.4 million and $11.4 million, respectively, for the three months ended September 30, 2016 and 2015 and our effective income tax rate was 39.4% and 40.8%, respectively. The difference between the federal statutory rate of 35% and the effective tax rate for the three months ended September 30, 2016 and 2015 was primarily due to disallowed foreign losses, state income taxes (net of federal benefit), and other permanent differences.
Predecessor Claim Settlement
In July 2016, the Bankruptcy Court approved a settlement agreement related to the Predecessors, which resulted in the Company receiving a payment of $3.1 million related to certain professional fees previously paid by the Company. This amount was recognized as a one time gain for the three months ended September 30, 2016.  

26



Nine months ended September 30, 2016 compared to nine months ended September 30, 2015
The following table sets forth certain information concerning our results of operations (dollars in thousands):
 
 
Nine months ended September 30,
 
 
2016
 
2015
Net revenues:
 
 
 
 
East
 
$
260,712

 
$
247,046

Central
 
221,359

 
216,406

West
 
84,976

 
79,461

South and other
 
74,335

 
72,408

Corporate
 
2,333

 

Total net revenues
 
$
643,715

 
$
615,321

Operating income (loss):
 
 
 
 
East
 
$
19,630

 
$
29,114

Central
 
37,933

 
31,776

West
 
12,016

 
9,171

South and other
 
6,297

 
6,489

Corporate
 
(11,364
)
 
(12,391
)
Total operating income
 
$
64,512

 
$
64,159

Operating income margin(a):
 
 
 
 
East
 
7.5
%
 
11.8
%
Central
 
17.1
%
 
14.7
%
West
 
14.1
%
 
11.5
%
South and other
 
8.5
%
 
9.0
%
Total operating income margin
 
10.0
%
 
10.4
%
(a)Operating income margin is operating income as a percentage of net revenues.

The following table presents detail of our net revenues (in thousands):
 
 
Nine months ended September 30,
 
 
2016
 
2015
Revenues:
 
 
 
 
Casino
 
$
504,026

 
$
485,419

Room
 
100,292

 
93,675

Food and beverage
 
82,358

 
80,783

Other
 
25,286

 
21,719

Gross revenues
 
711,962

 
681,596

Less promotional allowances
 
(68,247
)
 
(66,275
)
Net revenues
 
$
643,715

 
$
615,321

Net Revenues
In the East region, net revenues were $260.7 million for the nine months ended September 30, 2016, an increase of $13.7 million, or 5.5%, when compared to the nine months ended September 30, 2015. Based on published market data, the Atlantic City market experienced a year-over-year decline in gross casino win (excluding internet gaming win) of 0.2% in the nine months ended September 30, 2016. At Tropicana AC, total gross casino win increased 5.9% during the nine months ended September 30, 2016 over the same period of 2015. The increase at Tropicana AC was driven by a 4.1% increase in slot handle, combined with a 6.0% increase in table game drop and a 1.8 percentage point increase in table game hold, to 16.7% in the first nine months of 2016 compared to 14.9% in the same period of 2015. As a result of the combined increase in table games drop and hold, table games revenue increased 19.0% for the year to date period ended September 30, 2016 compared to the same period of 2015. Internet gaming revenue also increased 18.4% in the first nine months of 2016 compared to the first nine months of 2015. Tropicana AC completed a renovation project during the second quarter of 2016, which included renovation of hotel rooms in its Havana Tower, a new high end slot area on the casino floor, a new hair salon and a new promotional area. The average daily room rate was $93 and $92 for the nine months ended September 30, 2016 and 2015, respectively. The occupancy rate increased to 82% for the nine months ended September 30, 2016 compared to 81% for the nine months ended September 30, 2015. Other non-gaming revenues, including food and beverage, entertainment and retail, all posted increases in

27



the nine months ended September 30, 2016 over the same period of the prior year due to increased customer volumes throughout the property, due in part to another major renovation project that was completed in mid-2015, which included hotel room and casino floor renovations, boardwalk facade renovations and the opening of a new fitness center.
In the Central region, net revenues were $221.4 million for the nine months ended September 30, 2016, an increase of $5.0 million, as compared to the nine months ended September 30, 2015. Net revenues in 2016 were boosted early in the year with mild winter weather and low gas prices contributing to strong customer visitation levels. At Tropicana Evansville, casino revenues increased 7.4% for the first nine months of 2016 over the same period of 2015, due in part to increases in marketing reinvestment strategies aimed at increasing customer volumes. Slot handle at Tropicana Evansville for the first nine months of 2016 increased 4.9% over the same period of the prior year, while table games drop also increased during the period, by 8.6% over the comparable prior year period. In addition, the table games hold at Tropicana Evansville increased to 23.6% in the first nine months of 2016, compared to 21.1% in the same period of 2015, contributing to the 21.3% increase in table games revenue during the period. At Lumière Place, aggressive marketing efforts in the first nine months of 2016 aimed at increasing customer volumes contributed to a 4.5% increase in table games drop over the first nine months of 2015; when combined with more favorable table games hold percentages, this resulted in a 21.6% increase in table game revenues. However, a decrease in slot revenues at Lumière Place during the same period partially offset the higher table games revenue, and factoring in higher promotional and free play costs, total net casino revenues for the nine months ended September 30, 2016 increased a slight 0.3% over the same period of 2015. The occupancy rate in the Central region for the nine months ended September 30, 2016 was 80%, compared to 79% in the nine months ended September 30, 2015. The average daily room rate in the region was $140 and $135 for the nine months ended September 30, 2016 and 2015, respectively.
In the West region, net revenues were $85.0 million for the nine months ended September 30, 2016, an increase of $5.5 million, compared to the nine months ended September 30, 2015. The increase was driven by improved results at MontBleu, where a hotel guest room and public area renovation project was completed in late 2015. At MontBleu, total casino revenues for the first nine months of 2016 increased 11.0% over the same period of 2015, driven by a 5.2% increase in table volume combined with a 4.8 percentage point increase in table hold, which resulted in a 36.5% increase in table games revenue. In addition, slot revenue at MontBleu increased 5.4% over the first nine months of 2015, and hotel revenue increased $2.4 million as a result of the completion of the room renovation project; total net revenue at MontBleu increased 14.3% in the first nine months of 2016 compared to the same period of 2015. At Tropicana Laughlin, table games revenue for the first nine months of 2016 increased 23.0% over the prior year period as a result of an 8.2% increase in table games drop combined with a 2.6 percentage point increase in table games hold. Slot revenues at Tropicana Laughlin declined a slight 0.2% in the first nine months of 2016 compared to the same period of 2015 due to a 1.5% decrease in slot volumes. However, the improvement in table games revenue, combined with increases in hotel and food and beverage revenues, offset the decline in slot revenues, and as a result, total net revenues at Tropicana Laughlin increased 2.8% for the nine months ended September 30, 2016 compared to the same period of the prior year. The average daily room rate for the West region was $55 for the nine months ended September 30, 2016 compared to $50 for the nine months ended September 30, 2015. The occupancy rate for the nine months ended September 30, 2016 and 2015 at our properties in the West region was 60% and 59%, respectively.
In the South and other region, net revenues were $74.3 million for the nine months ended September 30, 2016, a $1.9 million increase over the nine months ended September 30, 2015. Increases in casino volumes at Tropicana Greenville and Tropicana Aruba were offset by declines in casino volumes at the Belle of Baton Rouge, where the local economy has been impacted by lower oil and gas prices, and further impacted by civil unrest and flooding in the first part of the third quarter of 2016. An increase in the table games hold percentage in the South and other region, to 18.4% in the first nine months of 2016, compared to 17.1% in the same period of 2015, partially offset the decline in table games volume, resulting in a 5.4% decline in table games revenue for the year to date period ended September 30, 2016 in the region. Non-gaming revenues at Tropicana Aruba also increased, driven primarily by $2.3 million in time share sales in the first nine months of 2016. The hotel occupancy rate at our properties in the South and other region was 78% and 71% for the nine months ended September 30, 2016 and 2015, respectively, while the average daily room rate for the South and other region was $76 and $78 for the nine months ended September 30, 2016 and 2015, respectively.
Net revenues for Tropicana Entertainment Corporate division of $2.3 million represents the management fee earned as a result of our management of the Taj Mahal.
Operating Income
In the East region, although net revenues increased 5.5% for the first nine months of 2016 over the same period of 2015, increased expenses resulted in an operating income for the nine months ended September 30, 2016 of $19.6 million, compared to operating income of $29.1 million for the first nine months of 2015. The increase in expenses for the nine months ended September 30, 2016 from the prior year period was primarily the result of an $9.7 million increase in expenses associated with the reserves for CRDA deposits over the prior year period, as well as higher payroll costs, gaming taxes and advertising and

28



promotional expenses associated with the increased casino volumes, and a $4.8 million increase in depreciation expense resulting from the capital improvements projects that were completed in mid-2015 and early 2016.
In the Central region, the operating income for the nine months ended September 30, 2016 was $37.9 million, a $6.2 million improvement over the nine months ended September 30, 2015, driven primarily by the increase in net revenues at both Tropicana Evansville and Lumière Place, as previously discussed. In addition, depreciation expense in the Central region for the first nine months of 2016 declined $3.3 million from the same period of 2015, partially offset by increases in gaming taxes and marketing and promotional expenses during the period, associated with the increased casino volumes.
In the West region, the operating income for the nine months ended September 30, 2016 was $12.0 million, a $2.8 million increase compared to the nine months ended September 30, 2015. The improvement in operating income in the West region was driven by the increase in net revenues, as discussed previously, partially offset by $1.6 million increase in depreciation expense resulting from the completion of the capital improvements at MontBleu in 2015.
In the South and other region, operating income for the nine months ended September 30, 2016 was $6.3 million, a $0.2 million decrease compared to the nine months ended September 30, 2015. Although net revenues in this region increased by 2.7% over the prior year period, increased costs associated with accounting for time share sales at Tropicana Aruba, combined with a bad debt reserve of $0.7 million at that property for furniture and equipment that was ordered but never delivered, contributed to the decrease in operating results in this region.
The Corporate operating loss, which includes the results of all other subsidiaries of the Company, was $11.4 million for the nine months ended September 30, 2016, compared to an operating loss of $12.4 million for the nine months ended September 30, 2015, primarily due to the recognition of $2.3 million of income resulting from the TEI Management Services LLC agreement to manage the Trump Taj Mahal Casino Hotel.
Interest Expense
Interest expense for the nine months ended September 30, 2016 and 2015 was $9.6 million and $9.1 million, respectively. The interest expense for the nine months ended September 30, 2016 increased compared to the prior year period primarily due to a higher amount of interest capitalized in 2015 related to ongoing construction projects. Interest on our New Term Loan Facility accrues at a floating rate, which was 4.0% per annum as of September 30, 2016. Cash paid for interest, net of interest capitalized, was $8.9 million and $8.5 million for the nine months ended September 30, 2016 and 2015, respectively, reflecting a variance related to the higher capitalization of interest in 2015. Interest expense also includes approximately $0.8 million of amortization of debt issuance costs and discounts for each of the nine months ended September 30, 2016 and 2015, respectively.
Income Taxes
Income tax expense was $23.2 million and $22.7 million for the nine months ended September 30, 2016 and 2015, respectively, and the Company's effective income tax rates were 39.7% and 40.9%, respectively. The difference between the federal statutory rate of 35% and the effective tax rates for the nine months ended September 30, 2016 and September 30, 2015 was primarily due to disallowed foreign losses, state income taxes (net of federal benefit), and other permanent differences.
Predecessor Claim Settlement
In July 2016, the Bankruptcy Court approved a settlement agreement related to the Predecessors, which resulted in the Company receiving a payment of $3.1 million related to certain professional fees previously paid by the Company. This amount was recognized as a one time gain for the nine months ended September 30, 2016.  
Liquidity and Capital Resources
Our cash flows are and will continue to be affected by a variety of factors, many of which are outside of our control, including regulatory restrictions, competition, financial markets and other general business conditions. We believe that we will have sufficient liquidity through available cash, credit facilities and cash flow from our properties to fund our cash requirements and capital expenditures for our normal operating activities for at least twelve months. However, we cannot provide assurance that we will generate sufficient income and liquidity to meet all of our liquidity requirements and other obligations as our results for future periods are subject to numerous uncertainties that may result in liquidity problems that could affect our ability to meet our obligations while attempting to meet competitive pressures or adverse economic conditions. In addition, we continually evaluate our financing needs and we may refinance all or a portion of our indebtedness on or before maturity. Liquidity may be impacted if additional stock repurchases are made under the stock repurchase program noted below (the "Stock Repurchase Program").

29



Part of our overall strategy includes consideration of expansion opportunities in new gaming jurisdictions, underserved markets and acquisition and other strategic opportunities that may arise periodically. We may require additional funds in order to execute on such strategic growth, and we may incur additional debt or issue additional equity to finance any such transactions. We cannot assure that we will be able to incur such debt or issue any such additional equity on acceptable terms or at all.
Our material cash requirements for our existing properties for 2016 are expected to include (i) principal and interest payments related to our New Term Loan Facility of $3.0 million and $11.9 million, respectively, (ii) maintenance capital expenditures expected to be approximately $62 million, (iii) growth capital expenditures expected to be approximately $28 million, (iv) expenditures related to the Company's $50 million commitment to develop a landside gaming facility at Tropicana Evansville, estimated to be approximately $25 million in 2016, and (iv) minimum lease payments under our operating leases of approximately $9.9 million. Except for the commitment to spend $50 million of capital renovation at Tropicana Evansville required by the Sixth Amendment, the majority of our planned capital expenditures are discretionary and we may decide to spend more or less than the amounts described above.
The following table summarizes our cash flows (in thousands):
 
 
Nine months ended September 30,
  
 
2016
 
2015
Cash Flow Information:
 
 

 
 

Net cash provided by operating activities
 
$
106,968

 
$
97,110

Net cash used in investing activities
 
(50,374
)
 
(69,167
)
Net cash used by financing activities
 
(306
)
 
(554
)
Net increase (decrease) in cash and cash equivalents
 
$
56,288

 
$
27,389

During the nine months ended September 30, 2016, our operating activities provided $107.0 million in cash. Cash paid for interest, net of interest capitalized, was $8.9 million and $8.5 million for the nine months ended September 30, 2016 and 2015, respectively. This variance primarily relates to the capitalization of interest in 2015. Net cash provided by operating activities for the nine months ended September 30, 2016 improved over the prior year period primarily due to improved cash from operations after the elimination of non-cash expenses such as depreciation, amortization and changes in investment reserves.
During the nine months ended September 30, 2016, our investing activities used $50.4 million in cash. Net cash used in investing activities primarily consisted of $49.1 million for capital expenditures and $5.1 million of restricted cash, partially offset by $3.0 million of Approved CRDA Project Fund reimbursements received and proceeds from the cancellation of the Ruby Seven preferred stock. Net cash used in investing activities during the nine months ended September 30, 2015 consisted primarily of $77.4 million for capital expenditures, partially offset by $9.9 million of Approved CRDA Project Fund reimbursements received. Capital expenditures relate to expenditures necessary to keep our existing properties at their current levels and are typically replacement items due to the normal wear and tear of our properties and equipment as a result of use and age.
During the nine months ended September 30, 2016, our financing activities used $0.3 million in cash. Net cash used by financing activities for the nine months ended September 30, 2016 primarily consisted of the buy back of the Company's common stock under the Stock Repurchase Program, as further described below, and principal payments on the New Term Loan Facility, offset by the proceeds of $7.6 million previously classified as restricted cash for certain bankruptcy-related professional fee liabilities. Net cash used by financing activities for the nine months ended September 30, 2015 primarily consisted of principal payments on the New Term Loan Facility offset by proceeds previously classified as restricted cash.
New Credit Facilities
On November 27, 2013, we entered into (i) a senior secured first lien term loan facility in an aggregate principal amount of $300 million, issued at a discount of 0.5% (the “New Term Loan Facility”) and (ii) a senior secured first lien revolving credit facility in an aggregate principal amount of $15 million (the “Revolving Facility” and, together with the New Term Loan Facility, the “New Credit Facilities”). Commencing on December 31, 2013, the New Term Loan Facility is amortized in equal quarterly installments of $750,000, with any remaining balance payable on the final maturity date of the New Term Loan Facility, which is November 27, 2020. Amounts under the Revolving Facility are available to be borrowed and re-borrowed until its termination on November 27, 2018.

Approximately $172.4 million of the net proceeds from the New Credit Facilities were used to repay in full the principal amounts outstanding under our then existing Credit Facilities. The Credit Facilities were terminated effective as of

30



November 27, 2013. A portion of the proceeds from the New Credit Facilities was used to finance our acquisition of Lumière Place in April 2014.

The New Term Loan Facility accrues interest, at our option, at a per annum rate equal to either (i) the LIBO Rate (as defined in the Credit Agreement) (subject to a 1.00% floor) plus an applicable margin equal to 3.00%, or (ii) the alternate base rate (as defined in the Credit Agreement) (subject to a 2.00% floor) plus an applicable margin equal to 2.00%; such that in either case, the applicable interest rate shall not be less than 4.0%. The Revolving Facility accrues interest, at our option, at a per annum rate equal to either (i) the LIBO Rate plus an applicable margin ranging from 2.00% (if the total net leverage ratio is less than 2.50:1.00) to 2.50% (if the total net leverage ratio is greater than or equal to 3.00:1.00); or (ii) the alternate base rate plus an applicable margin ranging from 1.00% (if the total net leverage ratio is less than 2.50:1.00) to 1.50% (if the total net leverage ratio is greater than or equal to 3.00:1.00). The interest rate increases by 2.00% following certain defaults. As of September 30, 2016, the interest rate on the New Term Loan Facility was 4.0% and no amounts were outstanding under the Revolving Facility.

At our election and subject to certain conditions, including a maximum senior secured net leverage ratio of 3.25:1.00, the amount available under the New Credit Facilities may be increased, which increased amount may be comprised of additional term loans and revolving loans.

The New Term Loan Facility may be prepaid at our option at any time without penalty (other than customary LIBO Rate breakage fees). We are required to make mandatory payments of the New Credit Facilities with (i) net cash proceeds of certain asset sales (subject to reinvestment rights), (ii) net cash proceeds from certain issuances of debt and equity (with certain exceptions), (iii) up to 50% of annual excess cash flow (as low as 0% if our total leverage ratio is below 2.75:1.00), and (iv) certain casualty proceeds and condemnation awards (subject to reinvestment rights).

Our interest expense for the nine months ended September 30, 2016 and 2015 was $9.6 million and $9.1 million, respectively, which includes $0.8 million of amortization of the related debt discounts and debt issuance costs for each of the nine months ended September 30, 2016 and 2015.

Stock Repurchase Program

On July 31, 2015 our Board of Directors authorized the repurchase of up to $50 million of our outstanding common stock with no set expiration date. The Stock Repurchase Program will end upon the earlier of the date on which the plan is terminated by the Board of Directors or when all authorized repurchases are completed. The timing and amount of stock repurchases, if any, will be determined based upon our evaluation of market conditions and other factors. The Stock Repurchase Program may be suspended, modified or discontinued at any time and we have no obligation to repurchase any amount of our common stock under the Stock Repurchase Program.

During March 2016, we repurchased 221,578 shares of our stock under the Stock Repurchase Program. During the third quarter of 2016, an additional 109,146 shares of our stock were repurchased under the Stock Repurchase Program. The repurchased shares were subsequently retired. As of the date of this report, there have not been any subsequent repurchases of stock under the Stock Repurchase Program.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Critical Accounting Policies
There have been no material changes to our critical accounting policies during the nine months ended September 30, 2016 compared to those reported in our Annual Report on Form 10-K for the year ended December 31, 2015.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our New Term Loan Facility that bears interest based on floating rates. Based on our borrowings as of September 30, 2016,

31



assuming a 1% increase over the 4.0% minimum interest rate specified in our New Term Loan Facility, our annual interest cost would increase by approximately $2.9 million.
ITEM 4.    CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Our Chief Executive Officer (principal executive officer) and Executive Vice President, Chief Financial Officer (principal financial officer) have concluded that the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are effective as of September 30, 2016. This conclusion is based on an evaluation conducted under the supervision and with the participation of our management, including the principal executive officer and principal financial officer. Disclosure controls and procedures include, without limitation, controls and procedures which ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
Changes in Internal Control Over Financial Reporting
During the quarter ended September 30, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS.
For a description of our previously reported legal proceedings, refer to "Item 3-Legal Proceedings" in our Annual Report on Form 10-K for the year ended December 31, 2015. There have been no material developments with respect to the legal proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2015, except as discussed in Note 13 - Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements.
ITEM 1A.    RISK FACTORS.
"Item 1A.—Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2015 includes a discussion of our risk factors. There have been no material changes to our risk factors during the nine months ended September 30, 2016 as compared to those risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2015. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
ITEM 2. PURCHASE OF EQUITY SECURITIES BY ISSUER AND AFFILIATED PURCHASERS
This table provides information with respect to purchases by the Company of shares of its Common Stock on the open market as part of the Stock Repurchase Program during the quarter ended September 30, 2016:
Period
Number of Shares Repurchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs (1)
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan (in thousands)
July 1, 2016 through July 31, 2016
 
 
 
$
46,455

August 1, 2016 through August 31, 2016
29,146
 
$18.50
 
29,146
 
$
45,915

September 1, 2016 through September 30, 2016
80,000
 
$19.15
 
80,000
 
$
44,383


(1) On July 31, 2015 our Board of Directors authorized the repurchase of up to $50 million of our outstanding common stock with no set expiration date. The Stock Repurchase Program will end upon the earlier of the date on which the plan is terminated by the Board of Directors or when all authorized repurchases are completed.

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ITEM 6.    EXHIBITS.
(a) Exhibits
Exhibit
Number
 
Exhibit Description
2.1

 
 
First Amended Joint Plan of Reorganization of Tropicana Entertainment, LLC and Certain of its Debtor Affiliates Under Chapter 11 of the Bankruptcy Code. (Incorporated by reference to the Company's Amendment No. 1 to Form 10 dated December 21, 2009)
 
 
 
 
2.2

 
 
Amended and Restated Purchase Agreement, dated as of November 20, 2009, among Adamar of New Jersey, Inc., Manchester Mall, Inc., the Honorable Gary S. Stein, Tropicana Entertainment, LLC, Ramada New Jersey Holdings Corporation, Atlantic-Deauville, Inc., Adamar Garage Corporation, Ramada New Jersey, Inc., Credit Suisse, Tropicana Entertainment Inc., Tropicana Atlantic City Corp., and Tropicana AC Sub Corp. (Schedules omitted pursuant to Item 601(b)(2) of Regulation S-K; the Registrant will furnish supplementally a copy of the omitted schedules to the Commission upon request.) (Incorporated by reference to the Company's Amendment No. 1 to Form 10 dated December 21, 2009)
 
 
 
 
3.1

 
 
Amended and Restated Certificate of Incorporation of Tropicana Entertainment Inc. (Incorporated by reference to the Company's Current Report on Form 8-K dated March 11, 2010)
 
 
 
 
3.2

 
 
Second Amended and Restated Bylaws of Tropicana Entertainment Inc. (Incorporated by reference to the Company's Current Report on Form 8-K dated January 7, 2011)
 
 
 
 
4.1

 
 
Specimen Certificate for shares of Common Stock, par value $0.01 per share, of the Registrant. (Incorporated by reference to the Company's Post-Effective Amendment No. 1 to Form 10 dated January 25, 2010)
 
 
 
 
4.2

 
 
Form of Stock Purchase Warrant issued to general unsecured creditors of the Predecessors. (Incorporated by reference to the Company's Amendment No. 1 to Form 10 dated December 21, 2009)
 
 
 
 
4.3

 
 
Form of Stock Purchase Warrant issued to lenders under the Exit Facility. (Incorporated by reference to the Company's Current Report on Form 8-K dated March 11, 2010)
 
 
 
 
31.1*

 
 
Certification by Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
31.2*

 
 
Certification by Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
32**

 
 
Certification by Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
 
101.IN*

 
 
XBRL Instance Document
101.SCH*

 
 
XBRL Taxonomy Extension Schema Document
101.CAL*

 
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*

 
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*

 
 
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*

 
 
XBRL Taxonomy Extension Definition
 
 
 
 
*

Filed herewith
 
 
**

This exhibit is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
 
 

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
TROPICANA ENTERTAINMENT INC.
 
 
 
 
 
 
Date:
November 1, 2016
 
By:
 
/s/ THERESA GLEBOCKI
 
 
 
Name:
 
Theresa Glebocki
 
 
 
Title:
 
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)


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