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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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for the quarterly period ended
September 30, 2014
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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for the transition period from to .
Commission file number 000-53831
TROPICANA ENTERTAINMENT INC.
(Exact name of registrant as specified in its charter)
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Delaware
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27-0540158
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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8345 W. Sunset Road, Las Vegas, Nevada 89113
(Address of principal executive offices, Zip Code)
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Registrant's telephone number, including area code:
702-589-3900
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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.
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Large accelerated filer
o
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Accelerated filer
x
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
o
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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
November 3, 2014
, there were 26,312,500 shares outstanding of the registrant's common stock, $.01 par value per share.
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TROPICANA ENTERTAINMENT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share data)
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September 30, 2014
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December 31, 2013
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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183,971
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$
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356,755
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Restricted cash
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15,867
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30,856
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Receivables, net
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31,026
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28,786
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Inventories
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7,386
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4,435
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Prepaid expenses and other assets
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14,422
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11,243
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Assets held for sale
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—
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9,249
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Total current assets
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252,672
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441,324
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Property and equipment, net
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724,255
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460,745
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Goodwill
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15,857
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24,928
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Intangible assets, net
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75,256
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67,014
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Investments
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32,433
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33,640
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Other assets, net
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11,469
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15,970
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Total assets
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$
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1,111,942
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$
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1,043,621
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
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Current portion of long-term debt
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$
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3,000
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$
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3,000
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Liabilities related to assets held for sale
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—
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1,648
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Accounts payable
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51,381
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38,865
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Accrued expenses and other current liabilities
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81,480
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64,355
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Total current liabilities
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135,861
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107,868
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Long-term debt, net
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292,686
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294,771
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Other long-term liabilities
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6,894
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7,198
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Deferred tax liabilities
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19,659
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19,659
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Total liabilities
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455,100
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429,496
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Commitments and contingencies
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Shareholders' equity:
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Tropicana Entertainment Inc. preferred stock at $0.01 par value; 10,000,000 shares authorized, no shares issued
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—
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—
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Tropicana Entertainment Inc. common stock at $0.01 par value; 100,000,000 shares authorized, 26,312,500 shares issued and outstanding at September 30, 2014 and December 31, 2013
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263
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263
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Additional paid-in capital
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600,359
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600,359
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Retained earnings
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56,220
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13,503
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Total shareholders' equity
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656,842
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614,125
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Total liabilities and shareholders' equity
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$
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1,111,942
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$
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1,043,621
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The accompanying notes are an integral part of these condensed consolidated financial statements.
TROPICANA ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
(unaudited)
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Three months ended September 30,
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Nine months ended September 30,
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2014
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2013
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2014
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2013
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Revenues:
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Casino
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$
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167,283
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$
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112,003
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$
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443,351
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$
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340,020
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Room
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37,299
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27,661
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87,818
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68,689
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Food and beverage
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30,034
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20,669
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76,773
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58,494
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Other
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7,626
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6,186
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19,430
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16,324
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Gross revenues
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242,242
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166,519
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627,372
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483,527
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Less promotional allowances
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(25,143
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)
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(17,772
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(68,142
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(52,668
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)
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Net revenues
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217,099
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148,747
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559,230
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430,859
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Operating costs and expenses:
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Casino
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74,455
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51,248
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200,609
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150,055
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Room
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12,769
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9,778
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31,033
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24,967
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Food and beverage
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14,468
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10,331
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36,604
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28,801
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Other
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4,693
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4,446
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12,602
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11,772
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Marketing, advertising and promotions
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15,663
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10,113
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42,522
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29,543
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General and administrative
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39,626
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24,890
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106,101
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75,487
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Maintenance and utilities
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18,914
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15,425
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52,266
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42,761
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Depreciation and amortization
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13,752
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8,831
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36,225
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25,429
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Impairment charges, other write-downs and recoveries
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961
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(198
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)
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4,229
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500
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Property tax settlement
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—
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—
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(31,725
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)
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—
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Total operating costs and expenses
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195,301
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134,864
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490,466
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389,315
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Operating income
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21,798
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13,883
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68,764
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41,544
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Other income (expense):
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Interest expense
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(3,203
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)
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(3,636
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(9,564
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)
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(10,816
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Interest income
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132
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190
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1,749
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593
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Total other expense
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(3,071
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(3,446
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(7,815
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(10,223
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)
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Income from continuing operations before income taxes
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18,727
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10,437
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60,949
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31,321
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Income tax expense
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(6,655
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)
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(1,308
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)
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(19,940
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)
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(3,073
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)
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Income from continuing operations
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12,072
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9,129
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41,009
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28,248
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Income (loss) from discontinued operations, net
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1,605
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(783
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)
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1,708
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(1,567
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)
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Net income
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$
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13,677
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$
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8,346
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$
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42,717
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$
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26,681
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Basic and diluted income per common share:
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Income from continuing operations
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$
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0.46
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$
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0.35
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$
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1.56
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$
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1.07
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Income (loss) from discontinued operations, net
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0.06
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(0.03
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)
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0.06
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(0.06
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)
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Net income
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$
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0.52
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$
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0.32
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$
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1.62
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$
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1.01
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Weighted-average common shares outstanding:
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Basic and diluted
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26,313
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26,313
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26,313
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26,313
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The accompanying notes are an integral part of these condensed consolidated financial statements.
TROPICANA ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Nine months ended September 30,
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2014
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2013
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Cash flows from operating activities:
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Net income
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$
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42,717
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$
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26,681
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Adjustments to reconcile net income to net cash provided by operating activities:
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Gain on insurance recoveries
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(5,843
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)
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—
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Insurance proceeds from business interruption
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1,250
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—
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Loss on sale of discontinued operations
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233
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—
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Impairment of discontinued operations
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—
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1,454
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Depreciation and amortization (including discontinued operations)
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36,225
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25,546
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Amortization of debt discount and debt issuance costs
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768
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961
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Impairment charges
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9,071
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439
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Loss on disposition of asset (including discontinued operations)
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1,001
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61
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Changes in current assets and current liabilities:
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Receivables, net
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(6,658
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)
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352
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Inventories, prepaids and other assets
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(2,269
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)
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(732
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)
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Accounts payable, accrued expenses and other liabilities
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20,082
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(133
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)
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Other
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4,390
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2,129
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Net cash provided by operating activities
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100,967
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56,758
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Cash flows from investing activities:
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Additions of property and equipment
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(52,020
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)
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(42,989
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)
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Restricted cash for acquisition
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—
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(15,002
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)
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Insurance proceeds
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5,200
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|
700
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Proceeds from sale of discontinued operations
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6,750
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—
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Lumière Place acquisition, net of $11,015 cash acquired
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(237,317
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)
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—
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Other
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3,768
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4,092
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Net cash used in investing activities
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(273,619
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)
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(53,199
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)
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Cash flows from financing activities:
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Payments on debt
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(2,250
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)
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(1,402
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)
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Restricted cash
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(20
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)
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(20
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)
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Net cash used in financing activities
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(2,270
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)
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(1,422
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)
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Net increase (decrease) in cash and cash equivalents
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(174,922
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)
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2,137
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(Increase) decrease in cash and cash equivalents related to assets held for sale
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2,138
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(132
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)
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Cash and cash equivalents, beginning of period
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356,755
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240,381
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Cash and cash equivalents, end of period
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$
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183,971
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$
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242,386
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Supplemental cash flow disclosure (including discontinued operations):
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Cash paid for interest, net of interest capitalized
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$
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8,838
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$
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9,425
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Cash paid for income taxes
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16,396
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2,848
|
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Supplemental disclosure of non-cash items:
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Capital expenditures included in accrued expenses and other current liabilities
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4,570
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1,699
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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. In April 2014, the Company acquired Lumière Place Casino, HoteLumière, the Four Seasons Hotel St. Louis and related excess land parcels in St. Louis, Missouri (collectively, "Lumière Place") for a cash purchase price of approximately
$261.3 million
, which includes an adjustment for working capital as of the acquisition date (see Note 3 -
Lumière Place Acquisition
).
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:
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•
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East
—Tropicana Casino and Resort, Atlantic City ("Tropicana AC") located in Atlantic City, New Jersey;
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•
|
Central
—Tropicana Evansville ("Tropicana Evansville") located in Evansville, Indiana; and Lumière Place located in Saint Louis, Missouri;
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•
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West
—Tropicana Laughlin Hotel and Casino ("Tropicana Laughlin") located in Laughlin, Nevada; and MontBleu Casino Resort & Spa ("MontBleu") located in Lake Tahoe, Nevada; and
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|
•
|
South and other
—Belle of Baton Rouge ("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 Noord, Aruba.
|
In addition, through June 30, 2014, the Company owned River Palms Hotel and Casino ("River Palms") located in Laughlin, Nevada, which is presented as discontinued operations in the accompanying condensed consolidated statements of income for all periods presented while the assets and liabilities are presented as held for sale in the accompanying condensed consolidated balance sheet as of December 31, 2013. On July 1, 2014, the Company sold River Palms to Nevada Restaurant Services, Inc. and its affiliate, Laughlin Hotel, LLC (see Note 16 -
Discontinued Operations
for further discussion).
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 financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended
TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
December 31, 2013
, from which the accompanying condensed consolidated balance sheet information as of that date was derived.
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 consisted primarily of funds invested in money market funds. At
September 30, 2014
and
December 31, 2013
,
$9.7 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, and
$6.2 million
was restricted to collateralize letters of credit. In addition, at
December 31, 2013
,
$15.0 million
was held in escrow in connection with the agreement to purchase Lumière Place. The acquisition was consummated on April 1, 2014 (see Note 3 -
Lumière Place Acquisition
).
Fair Value of Financial Instruments
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. The carrying values of investments, which include deposits and bonds, approximate fair value as items are presented net of a valuation allowance and in the case of the bonds, net of an unamortized discount.
The fair value of our long-term debt is based on the quoted market prices for similar issues. The estimated fair value of our long-term debt as of
September 30, 2014
is approximately
$290.5 million
.
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, complimentary play, 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.
The amounts included in promotional allowances consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Room
|
$
|
9,521
|
|
|
$
|
7,007
|
|
|
$
|
25,611
|
|
|
$
|
19,754
|
|
Food and beverage
|
13,413
|
|
|
9,464
|
|
|
35,449
|
|
|
27,031
|
|
Other
|
2,209
|
|
|
1,301
|
|
|
7,082
|
|
|
5,883
|
|
Total
|
$
|
25,143
|
|
|
$
|
17,772
|
|
|
$
|
68,142
|
|
|
$
|
52,668
|
|
TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
The estimated departmental costs and expenses of providing these promotional allowances, for continuing operations, 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,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Room
|
$
|
4,551
|
|
|
$
|
3,586
|
|
|
$
|
13,816
|
|
|
$
|
11,140
|
|
Food and beverage
|
12,143
|
|
|
9,209
|
|
|
32,362
|
|
|
25,390
|
|
Other
|
967
|
|
|
703
|
|
|
2,401
|
|
|
1,495
|
|
Total
|
$
|
17,661
|
|
|
$
|
13,498
|
|
|
$
|
48,579
|
|
|
$
|
38,025
|
|
Recently Issued Accounting Standards
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-15,
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern
, an amendment to FASB Accounting Standards Codification ("ASC") Topic 205,
Presentation of Financial Statements
. This update provides guidance on management's responsibility in evaluating whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. This ASU is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on its financial statement disclosures.
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. The standard will be effective for the first interim period within fiscal years beginning after December 15, 2016, using one of two retrospective application methods. The Company is evaluating the impacts, if any, the adoption of ASU No. 2014-09 will have on the Company's financial position or results of operations.
In April 2014, the FASB issued ASU No. 2014-08,
Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
, which changes the criteria for reporting discontinued operations. Under the amendment a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when any of the following occurs: (i) the component of an entity or group of components of an entity meets the criteria to be classified as held for sale; (ii) the component of an entity or group of components of an entity is disposed of by sale; and (iii) the component of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff). This new guidance is effective prospectively for all disposals (or classifications as held for sale) of components of an entity and all business activities, on acquisition, that are classified as held for sale that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years.
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—LUMIÈRE PLACE ACQUISITION
Overview
As discussed in Note 1 -
Organization and Background,
on April 1, 2014, the Company completed its previously announced acquisition of all of the outstanding stock of Casino One Corporation (the “Target”) and all of the outstanding membership interests of PNK (ES), LLC (“ES”), PNK (ST. LOUIS RE), LLC (“RE”), and PNK (STLH), LLC (“STLH” and
TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
together with ES, RE and the Target, the “Companies”), pursuant to the terms of an Equity Interest Purchase Agreement (the “Purchase Agreement”), dated as of August 16, 2013, by and among Tropicana St. Louis LLC (the “Buyer”), a wholly owned subsidiary of the Company, and Pinnacle Entertainment, Inc. (“Pinnacle”), Casino Magic, LLC (“Casino Magic” and together with Pinnacle, the “Sellers”) and the Companies. Upon consummation of the acquisition, the Buyer acquired the Lumière Place Casino, HoteLumière, the Four Seasons Hotel St. Louis and related excess land parcels in St. Louis, Missouri.
Consideration Transferred
The cash purchase price was approximately
$261.3 million
, which includes an adjustment for working capital as of the acquisition date. The Company funded the net purchase price using cash, which included proceeds from the New Credit Facilities issuance on November 27, 2013. Acquisition-related costs included in the accompanying condensed consolidated statements of income for the three and
nine
months ended
September 30, 2014
was
$0.2 million
and
$1.3 million
, respectively.
Allocation of Purchase Price
The Company is required to allocate the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values. The determination of the fair values of the acquired assets and assumed liabilities requires significant judgment. The fair value of Lumière Place's assets acquired and liabilities assumed utilized for purchase price allocation are considered preliminary as we continue to finalize the valuation in accordance with the Purchase Agreement.
The preliminary purchase price allocation was as follows (in thousands):
|
|
|
|
|
|
Fair Value
|
Current assets
|
$
|
15,931
|
|
Property and equipment
|
249,097
|
|
Intangible assets
|
8,848
|
|
Other assets
|
657
|
|
Total assets
|
274,533
|
|
Total liabilities
|
(13,227
|
)
|
Total purchase price
|
$
|
261,306
|
|
The fair value of the intangible assets as of the acquisition date is primarily associated with the casino's gaming license which is not subject to amortization (see Note 6 -
Goodwill and Intangible Assets
).
Condensed Consolidated Statements of Income for the period from April 1, 2014 through September 30, 2014
The results of operations for Lumière Place have been included in the Company's financial statements since the acquisition date. The amounts of revenue and earnings of Lumière Place included in the Company's condensed consolidated statements of income for the three and
nine
months ended
September 30, 2014
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2014
|
|
Period from
April 1 to September 30, 2014
|
Net revenues
|
$
|
42,911
|
|
|
$
|
85,702
|
|
Net loss
|
(1,295
|
)
|
|
(5,163
|
)
|
TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
Supplemental Unaudited Pro Forma Information
The following unaudited pro forma information reflects the consolidated results of operations of the Company as though the acquisition had taken place at the beginning of the respective periods presented. The unaudited pro forma information has been presented for illustrative purposes only and is not indicative of the consolidated results of operations that would have been achieved or the future consolidated results of operations of the Company. The unaudited pro forma information is as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2013
|
|
2014
|
|
2013
|
Net Revenues
|
$
|
192,619
|
|
|
$
|
600,225
|
|
|
$
|
568,830
|
|
Net Income
|
12,336
|
|
|
43,176
|
|
|
40,420
|
|
Basic and diluted net income per common share
|
$
|
0.47
|
|
|
$
|
1.64
|
|
|
$
|
1.54
|
|
The pro forma results include adjustments to general and administrative expense to exclude the Company's non-recurring transaction costs related to the acquisition and to interest expense due to lower interest rates on the New Credit Facilities issued to refinance the Company's existing debt and fund a portion of the purchase price. Lastly, the pro forma results include adjustments to depreciation and amortization expense, based on the fair values of the property and equipment and definite life intangible assets acquired.
NOTE 4—RECEIVABLES
Receivables consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2014
|
|
December 31, 2013
|
Casino
|
$
|
16,253
|
|
|
$
|
18,000
|
|
Hotel
|
7,033
|
|
|
4,539
|
|
Predecessors' administrative tax claim
|
2,181
|
|
|
10,478
|
|
Income tax receivable
|
2,929
|
|
|
1,266
|
|
Other
|
13,830
|
|
|
6,308
|
|
Receivables, gross
|
42,226
|
|
|
40,591
|
|
Allowance for doubtful accounts
|
(11,200
|
)
|
|
(11,805
|
)
|
Receivables, net
|
$
|
31,026
|
|
|
$
|
28,786
|
|
The Predecessors' administrative tax claim amounts represent tax refund claims filed related to our Predecessors. The timing of any collections on these claims is uncertain and is pending litigation. In September 2014, the Company partially settled certain Predecessors' administrative tax claims resulting in an adjustment to receivables of
$8.3 million
(see Note 13 -
Commitments and Contingencies
for further discussion).
TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
NOTE 5—PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
life
(years)
|
|
September 30, 2014
|
|
December 31, 2013
|
Land
|
—
|
|
$
|
114,136
|
|
|
$
|
89,724
|
|
Buildings and improvements
|
10 - 40
|
|
533,306
|
|
|
335,050
|
|
Furniture, fixtures and equipment
|
3 - 7
|
|
174,044
|
|
|
130,174
|
|
Riverboats and barges
|
5 - 15
|
|
18,605
|
|
|
18,990
|
|
Construction in progress
|
—
|
|
43,243
|
|
|
12,708
|
|
Property and equipment, gross
|
|
|
883,334
|
|
|
586,646
|
|
Accumulated depreciation
|
|
|
(159,079
|
)
|
|
(125,901
|
)
|
Property and equipment, net
|
|
|
$
|
724,255
|
|
|
$
|
460,745
|
|
The increase in property and equipment from December 31, 2013 to September 30, 2014 is primarily attributed to the acquisition of Lumière Place on April 1, 2014 (see Note 3 -
Lumière Place Acquisition
).
NOTE 6—GOODWILL AND INTANGIBLE ASSETS
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.
Changes in the carrying amount of Goodwill by segment are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
|
|
South and other
|
|
Corporate
|
|
Total
|
Balance as of January 1, 2014
|
|
|
|
|
|
|
|
Gross carrying value
|
$
|
14,224
|
|
|
$
|
1,731
|
|
|
$
|
10,704
|
|
|
$
|
26,659
|
|
Accumulated impairment losses
|
—
|
|
|
(1,731
|
)
|
|
—
|
|
|
(1,731
|
)
|
Net carrying value
|
14,224
|
|
|
—
|
|
|
10,704
|
|
|
24,928
|
|
|
|
|
|
|
|
|
|
Impairment losses
|
—
|
|
|
—
|
|
|
(9,071
|
)
|
|
(9,071
|
)
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2014
|
|
|
|
|
|
|
|
Gross carrying value
|
14,224
|
|
|
1,731
|
|
|
10,704
|
|
|
26,659
|
|
Accumulated impairment losses
|
—
|
|
|
(1,731
|
)
|
|
(9,071
|
)
|
|
(10,802
|
)
|
Net carrying value
|
$
|
14,224
|
|
|
$
|
—
|
|
|
$
|
1,633
|
|
|
$
|
15,857
|
|
During the first quarter of 2014, the Company determined there was an indication of impairment related to goodwill recorded at its Corporate segment which is tested at the Tropicana AC reporting unit level. The Company recognized a
$9.1 million
impairment of goodwill in the accompanying condensed consolidated statement of income for the
nine
months ended
September 30, 2014
, due to Tropicana AC's carrying value exceeding its fair value.
TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
Intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
life
(years)
|
|
September 30, 2014
|
|
December 31, 2013
|
Trade name
|
|
Indefinite
|
|
$
|
25,500
|
|
|
$
|
25,500
|
|
Gaming licenses
|
|
Indefinite
|
|
37,387
|
|
|
28,700
|
|
Customer lists
|
|
3
|
|
3,021
|
|
|
2,861
|
|
Favorable lease
|
|
5 - 42
|
|
15,645
|
|
|
15,645
|
|
Total intangible assets
|
|
|
|
81,553
|
|
|
72,706
|
|
Less accumulated amortization:
|
|
|
|
|
|
|
Customer lists
|
|
|
|
(2,887
|
)
|
|
(2,861
|
)
|
Favorable lease
|
|
|
|
(3,410
|
)
|
|
(2,831
|
)
|
Total accumulated amortization
|
|
|
|
(6,297
|
)
|
|
(5,692
|
)
|
Intangible assets, net
|
|
|
|
$
|
75,256
|
|
|
$
|
67,014
|
|
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. In April 2014, indefinite life gaming licenses increased related to the acquisition of Lumière Place (see Note 3 -
Lumière Place Acquisition
). At
September 30, 2014
the indefinite life gaming licenses consists of
$28.7 million
and
$8.7 million
related to Tropicana Evansville and Lumière Place, respectively. At
December 31, 2013
, the indefinite life gaming licenses of
$28.7 million
is related to Tropicana Evansville.
The gaming license associated with Lumière Place is valued based on the Greenfield method, which is the function of the cost to build a new casino operation, build-out period, projected cash flows attributed to the business once operational and a discount rate. The projected cash flows assumed a revenue growth rate of
2.0%
and a effective tax rate of
38.1%
. The discount rate assumed was
12.0%
, based on the weighted average cost of capital plus a premium to reflect the risk of construction costs and timing.
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
. The customer lists valued upon adoption of fresh-start reporting and in connection with the Tropicana AC acquisition were fully amortized as of February 2013. In April 2014, customer lists increased related to the acquisition of Lumière Place (see Note 3 -
Lumière Place Acquisition
). Amortization expense related to customer lists, which was amortized to depreciation and amortization expense, for the three and
nine
months ended
September 30, 2014
was less than
$0.1 million
. The amortization expense related to the
nine
months ended
September 30, 2013
was
$0.2 million
. There was no amortization expense recorded for the three months ended
September 30, 2013
. Estimated annual amortization related to the Lumière Place customer list is anticipated to be
$0.1 million
in 2015 and 2016 and less than
$0.1 million
in 2017.
The customer list associated with Lumière Place is valued based on a market approach which considers the price that would be negotiated between a hypothetical buyer and seller. The price was calculated by using market rates for leased customer lists and multiplying it by a value multiple to convert the lease rates into purchase rates.
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, 2014
and
2013
, was
$0.2 million
. Amortization expense for the
nine
months ended
September 30, 2014
and
2013
was
$0.6 million
.
NOTE 7—INVESTMENTS
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
TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
donated to the CRDA in exchange for credits against future CRDA investment obligations. The carrying value of the total investments at
September 30, 2014
and
December 31, 2013
approximates their fair value.
Investments consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2014
|
|
December 31, 2013
|
Investment in bonds—CRDA
|
$
|
16,435
|
|
|
$
|
16,542
|
|
Less unamortized discount
|
(4,362
|
)
|
|
(4,417
|
)
|
Less valuation allowance
|
(3,482
|
)
|
|
(3,463
|
)
|
Deposits—CRDA
|
31,710
|
|
|
29,538
|
|
Less valuation allowance
|
(7,868
|
)
|
|
(7,201
|
)
|
Direct investment—CRDA
|
1,002
|
|
|
4,022
|
|
Less valuation allowance
|
(1,002
|
)
|
|
(1,381
|
)
|
Total investments
|
$
|
32,433
|
|
|
$
|
33,640
|
|
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 will analyze 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 will be 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, 2014
and
2013
, the Company charged
$0.4 million
to general and administrative expenses on the accompanying condensed consolidated statements of income. During the
nine
months ended
September 30, 2014
and
2013
, the Company charged
$1.2 million
and
$0.4 million
, respectively, to general and administrative expenses on the accompanying condensed consolidated statements of income.
NOTE 8—OTHER ASSETS
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2014
|
|
December 31, 2013
|
Debt issuance costs
|
$
|
4,006
|
|
|
$
|
4,304
|
|
Tropicana Evansville prepaid rent
|
450
|
|
|
2,475
|
|
Deposits
|
4,032
|
|
|
4,812
|
|
Other
|
2,981
|
|
|
4,379
|
|
Other assets
|
$
|
11,469
|
|
|
$
|
15,970
|
|
NOTE 9—ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2014
|
|
December 31, 2013
|
Accrued payroll and benefits
|
$
|
30,705
|
|
|
$
|
24,697
|
|
Accrued gaming and related
|
15,273
|
|
|
10,564
|
|
Accrued taxes
|
19,096
|
|
|
9,587
|
|
Predecessors' administrative tax claim
|
1,495
|
|
|
9,792
|
|
Other accrued expenses and current liabilities
|
14,911
|
|
|
9,715
|
|
Total accrued expenses and other current liabilities
|
$
|
81,480
|
|
|
$
|
64,355
|
|
The Predecessors' administrative tax claim amounts represent certain tax liabilities related to our Predecessors. The Company is in the process of determining the timing and amount of the Predecessors' claims to be settled. In September 2014,
TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
the Company partially settled certain Predecessors' administrative tax claims resulting in an adjustment to accrued expenses and other current liabilities of
$8.3 million
(see Note 13 -
Commitments and Contingencies
for further discussion).
NOTE 10—DEBT
Debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2014
|
|
December 31, 2013
|
New Term Loan Facility, due 2020, interest at 4.0% at September 30, 2014 and December 31, 2013, net of unamortized discount of $1.3 million and $1.5 million at September 30, 2014 and December 31, 2013, respectively
|
$
|
295,686
|
|
|
$
|
297,771
|
|
Less current portion of debt
|
(3,000
|
)
|
|
(3,000
|
)
|
Total long-term debt, net
|
$
|
292,686
|
|
|
$
|
294,771
|
|
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 will amortize in equal quarterly installments in an amount 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 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.
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, 2014
, 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 where gaming approval is being sought, 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).
TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
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, 2014
.
NOTE 11—IMPAIRMENT CHARGES, OTHER WRITE DOWNS AND RECOVERIES
Impairment charges, other write-downs and recoveries, included in continuing operations, consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Impairment of barge
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
439
|
|
Gain on insurance recoveries
|
(35
|
)
|
|
—
|
|
|
(5,843
|
)
|
|
—
|
|
Impairment of goodwill (Note 6)
|
—
|
|
|
—
|
|
|
9,071
|
|
|
—
|
|
(Gain) loss on disposal of assets
|
996
|
|
|
(198
|
)
|
|
1,001
|
|
|
61
|
|
Total impairment charges, other write-downs and recoveries
|
$
|
961
|
|
|
$
|
(198
|
)
|
|
$
|
4,229
|
|
|
$
|
500
|
|
Jubilee Barge Impairment and Insurance Recovery
In January 2013, the Jubilee barge was damaged as a result of a high-wind storm. Due to the damage sustained the Company initially recorded a
$0.4 million
write-down of fixed assets which was included in the accompanying condensed consolidated statement of income for the
nine
months ended
September 30, 2013
. The Company filed claims with its insurance carriers and received
$0.7 million
in insurance proceeds as of December 31, 2013. In January 2014, the Company settled the filed claims for
$5.9 million
and received the remaining
$5.2 million
in insurance proceeds related to the claims during the first quarter of 2014. As a result of the settlement, a gain of
$4.6 million
, net of expenses and write-downs, was included in the accompanying condensed consolidated statements of income for the
nine
months ended
September 30, 2014
.
Superstorm Sandy Insurance Recovery
In October 2012, Superstorm Sandy forced a city-mandated closure of all casinos in Atlantic City for approximately five days. As a result, the Company filed a claim with the insurance carriers relating to the business interruption caused by Superstorm Sandy. The Company received a cash settlement of
$1.3 million
during the second quarter of 2014 which was recorded as a gain in the accompanying condensed consolidated statements of income for the three and
nine
months ended
September 30, 2014
.
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. During the three months ended
September 30, 2014
and
2013
, the Company paid
$0.1 million
to Insight Portfolio Group. During the
nine
months ended
September 30, 2014
and
2013
, the Company paid
$0.3 million
to Insight Portfolio Group.
TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
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 will be amortized on a straight-line basis to rental expense over the remaining term of the lease. As of
September 30, 2014
and
December 31, 2013
, the unfavorable lease liability balance was
$7.3 million
and
$7.7 million
, respectively, of which
$6.8 million
and
$7.2 million
, respectively, is included in other long-term liabilities on the accompanying 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.
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. Under the terms of the lease, the Company may extend the lease term through November 30, 2040 by exercising up to
seven
five
-year renewal options. In March 2010, the Company amended the Tropicana Evansville land lease and exercised its
second
of its
seven
renewal options which extends the lease term through November 2015. Under the terms of the lease renewal, effective December 1, 2010, 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
12%
of the AGR in excess of
$100 million
. In accordance with the lease renewal, during 2010 the Company paid a total of
$13.5 million
for the prepayment of rent to the City of Evansville for the period between January 2011 and December 2015.
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 2015.
Tropicana Greenville Lease
Tropicana Greenville leases approximately
four
acres of land on which the docking, 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.
Jubilee Lease
The Company had a lease agreement with the City of Greenville, Mississippi, for the moorage, docking and berthing of Jubilee. The lease with the City of Greenville required annual rental payments of
$0.4 million
was due to expire in August 2020 and provided the Company with the option of
two
five
-year renewals. In October 2013 the Company and the City of Greenville
TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
entered into an agreement to and subsequently terminated the Jubilee Lease upon execution of the new Tropicana Greenville lease noted above.
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 Legislation
On February 1, 2011, New Jersey enacted legislation (the "Tourism District Bill") that delegates 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 legislation obligates the Atlantic City casinos either through the ACA or, if not a member of the ACA, through individual assessments, to provide funding for the Tourism District Bill in the aggregate amount of
$30.0 million
annually through
2016. Each Atlantic City casino's proportionate share of the assessment will be based on the gross revenue generated in the preceding fiscal year. The Company estimates its portions of these industry obligations to be approximately
8.0%
for 2014.
New Jersey CRDA
Under current 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. Pursuant to New Jersey law, casino license holders or Internet gaming permit holders (as applicable) are required to invest an additional
1.25%
of gross casino revenue and
2.5%
of Internet gaming gross revenue 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 will be
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.
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 sheet as of
September 30, 2014
and
December 31, 2013
. In its objection to Wimar and CSC's motions for summary judgment, the Company disputes the administrative expense and/or priority status of certain amounts claimed and also contends 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 in the voluntary petitions for relief under Chapter 11 of the Bankruptcy Code, against CSC and Wimar. On June 24, 2011, the Company, CSC, and Wimar, along with certain other parties, participated in mediation concerning Wimar and CSC's claims, but the mediation terminated without resolution of the claims. Oral arguments on the summary judgment motions were conducted on September 27, 2011 and November 22, 2011, the parties are awaiting the Court's decision regarding these motions.
Aztar v. Marsh
Aztar Corporation ("Aztar") filed a broker malpractice and breach of contract action in the Superior Court of New Jersey, Atlantic County, Law Division (the “Court”) on August 12, 2010, against Marsh & McLennan Companies, Marsh, Inc., Marsh USA, Inc. and various fictitious Marsh entities (together, the "Marsh Defendants"). The claim seeks
$100 million
or more in compensatory damages against the Marsh Defendants, Aztar's risk management and insurance brokers at the time of a 2002 expansion of Tropicana AC by Aztar, including, but not limited to, lost profits, expenses arising from the interruption of operations, attorneys' fees, loss of the use of the insurance proceeds at issue, and litigation expenses resulting from the Marsh Defendants' failure to secure for Aztar business interruption and property damage coverage covering losses sustained by Aztar from the collapse of a parking garage that occurred at Tropicana AC on October 30, 2003.
TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
The Marsh Defendants filed an answer on October 20, 2010 denying the material allegations of the complaint and subsequently filed a Motion to Dismiss for Forum Non Conveniens in December 2010, which motion was denied by the Court on April 12, 2011. On August 18, 2011 the Marsh Defendants filed a Motion for Summary Judgment arguing that the Court should apply the Arizona Statue of Limitations to the action. Aztar filed an objection to the Marsh Defendants' motion on September 23, 2011 arguing, inter alia, that the New Jersey Statute of Limitations applies to the action. The Marsh Defendants filed its Reply on October 3, 2011. The motion was argued in January 2012. In April 2012, the Court granted the Marsh Defendants' Motion for Summary Judgment dismissing Aztar's complaint with prejudice. Aztar subsequently filed a Motion for Reconsideration with the Court, which was denied. In September 2012, Aztar filed an appeal of the Court's decision to dismiss the case with the Superior Court of New Jersey, Appellate Division. In September 2013, the Superior Court of New Jersey, Appellate Division denied Aztar’s appeal substantially for the reasons set forth in the Court’s decision. Aztar filed a Petition for Certification to the New Jersey Supreme Court, which petition was denied by the New Jersey Supreme Court in February 2014, thereby concluding the litigation.
Tropicana AC Tax Appeal Settlement
In January 2013, we settled outstanding real estate tax appeals involving our Tropicana AC property with the City of Atlantic City. The settlement involves the tax years 2008 through 2012 and also covers negotiated real estate assessments for 2013 and 2014. Under the terms of the settlement, Tropicana AC was to receive a
$49.5 million
refund in the form of credits against annual real estate tax bills beginning in 2013 and ending in 2017. The credits were to be front-loaded in 2013 and 2014 so that after the credits were applied, Tropicana paid
$1.8 million
in taxes in 2013. The Company utilized
$16.0 million
of credits as a reduction to operating expenses in the year ended December 31, 2013. In addition, the Company expensed
$4.1 million
in professional fees related to this settlement in the year ended December 31, 2013. In January 2014, the Company received
$31.7 million
in cash as payment to satisfy future credits which amount is included in the line item called Property tax settlement in the accompanying condensed consolidated statement of income for the
nine
months ended
September 30, 2014
.
UNITE HERE
In September 2011, the collective bargaining agreement between Tropicana AC and UNITE HERE Local 54 expired and Tropicana AC continued to voluntarily contribute to the UNITE HERE National Retirement Fund Rehabilitation Plan (the "NRF") after the September 2011 expiration date through February 25, 2012 (at which time Tropicana AC declared an impasse in the collective bargaining negotiations and ceased contributions to the NRF). UNITE HERE subsequently filed a charge with the National Labor Relations Board (the "NLRB") alleging that Tropicana AC's declarations of an impasse violated the National Labor Relations Act. Tropicana AC contested this charge. In addition, in January 2012 the NRF's legal counsel sent a letter to Tropicana AC asserting that any withdrawal from the NRF would not be entitled to the NRF's "Free Look Rule" and would trigger a withdrawal liability and in November 2013 Tropicana AC was advised by UNITE HERE that the NRF had estimated Tropicana AC’s withdrawal liability from the NRF to be approximately
$4 million
. In May 2014 Tropicana AC and UNITE HERE Local 54 entered into a new collective bargaining agreement as well as a settlement agreement pursuant to which, among other things, the NLRB charge and related charges filed by both parties were withdrawn. In addition, Tropicana AC entered into a settlement agreement with the NRF pursuant to which Tropicana AC paid approximately
$4 million
to the NRF in settlement of all outstanding withdrawal liability claims.
In July 2014, Tropicana AC and UNITE HERE each provided notice to the other of their respective intentions to renegotiate their existing collective bargaining agreement due to expire on September 14, 2014. Subsequently, UNITE HERE requested that Tropicana AC extend the collective bargaining agreement for an additional six months, which request was rejected by Tropicana AC. The collective bargaining agreement expired on September 14, 2014. Tropicana AC has requested that UNITE HERE provide Tropicana AC with detailed information related to the UNITE HERE Health Fund, which information is essential for Tropicana AC to prepare for negotiation of a new collective bargaining agreement. UNITE HERE has yet to provide Tropicana AC with any of the requested information.
Indiana Gross Income Tax Appeals and Assessments
In September 2014 we settled gross income tax litigation pending with the State of Indiana related to our Predecessors, Aztar Missouri Gaming Corporation ("AMO") and Aztar Indiana Gaming Corporation and its successor, Aztar Indiana Gaming, LLC (collectively, "AIN") pursuant to which we paid the State of Indiana a settlement in the amount of
$0.6 million
and withdrew gross income tax refund claims related to AIN and AMO for the tax years 2004 through 2008 in exchange for a dismissal of tax assessments against AIN for the tax year 2008, and an exchange of mutual releases between the parties related to Indiana gross income tax assessments and refund claims for the tax years 2004 through 2008. As a result, the Company recorded adjustments to both its Predecessors' administrative tax claim receivable and accrual in the amount of
$8.3 million
(see Note 4 -
Receivables
and Note 9 -
Accrued Expenses and Other Liabilities
).
TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
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
26,312,500
shares were issued and outstanding as of
September 30, 2014
. 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.
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, 2014
. 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.
Warrants
In accordance with the Plan, holders of the Predecessors'
$960 million
of 9
5/8
% Senior Subordinated Notes and general unsecured claims received warrants to purchase
3,750,000
shares of Common Stock ("Ordinary Warrants"). The Ordinary Warrants have a
four year, six month
term and an exercise price of
$52.44
per share. The Company evaluated the Ordinary Warrants under current accounting pronouncements and determined they were properly classified as equity on the accompanying condensed consolidated balance sheet. The Company valued the Ordinary Warrants using the Black-Scholes option valuation model assuming a life of
4.5 years
, a volatility factor of
61%
and a risk free interest rate of
2.36%
. The resulting value of
$11.5 million
was recorded as a reorganization item of the Predecessors statements of operations. As of September 30, 2014, the term on the Ordinary Warrants have expired and the value of the warrants are included in additional paid in capital.
Significant Ownership
At
September 30, 2014
, Mr. Icahn indirectly controlled approximately
67.9%
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.
Excluded from the calculation of diluted EPS for the three and
nine
months ended
September 30, 2013
, are the Ordinary Warrants to purchase
3,750,000
shares of our common stock as they were anti-dilutive. The Ordinary Warrants expired during the third quarter of 2014.
NOTE 16—DISCONTINUED OPERATIONS
As discussed in Note 1 -
Organization and Background
, in April 2013, the Company entered into an agreement to sell substantially all of the assets and certain liabilities of River Palms. In accordance with accounting guidance for assets held for sale, the results of operations for River Palms are presented as discontinued operations in the accompanying condensed consolidated statements of income while its assets and liabilities are presented as held for sale in the accompanying balance sheet as of December 31, 2013. The cash flows of the discontinued operations are included with the cash flows of continuing operations in the accompanying condensed consolidated statements of cash flows. In October 2013, the Company notified the buyers that it had elected to terminate the agreement to sell River Palms, pursuant to the terms of the agreement.
The Company continued to actively market the property and on July 1, 2014, sold River Palms to Nevada Restaurant Services, Inc. and its affiliate, Laughlin Hotel, LLC. Pursuant to the terms of the asset purchase agreement substantially all of the assets associated with the operation of River Palms were sold for approximately
$6.8 million
in cash and the assumption of certain liabilities. Concurrently with the sale, the Company leased back River Palms for a period of up to 90 days, subject to an additional 30 day extension, and further subject to early termination rights. The Company terminated the lease and discontinued its operation of River Palms in September 2014. The sale resulted in a loss of
$0.2 million
which is included in the income from discontinued operations for the three and
nine
months ended
September 30, 2014
.
The assets and liabilities of River Palms are presented as held for sale as follows (in thousands, unaudited):
|
|
|
|
|
|
December 31, 2013
|
Cash
|
$
|
2,138
|
|
Receivables, net
|
245
|
|
Property and equipment, net
|
6,147
|
|
Other assets
|
719
|
|
Total assets held for sale
|
$
|
9,249
|
|
|
|
Accounts payable
|
$
|
411
|
|
Accrued expenses and other liabilities
|
1,237
|
|
Total liabilities related to assets held for sale
|
$
|
1,648
|
|
Operating results of discontinued operations are summarized as follows (in thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Net revenues
|
$
|
2,799
|
|
|
$
|
4,421
|
|
|
$
|
11,929
|
|
|
$
|
14,013
|
|
Operating costs and expenses
|
(3,898
|
)
|
|
(5,135
|
)
|
|
(12,917
|
)
|
|
(14,427
|
)
|
Impairment of discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,454
|
)
|
Loss from operations
|
(1,099
|
)
|
|
(714
|
)
|
|
(988
|
)
|
|
(1,868
|
)
|
Loss from sale of discontinued operations
|
(233
|
)
|
|
—
|
|
|
(233
|
)
|
|
—
|
|
Income tax benefit (expense)
|
2,937
|
|
|
(69
|
)
|
|
2,929
|
|
|
301
|
|
Income (loss) from discontinued operations, net
|
$
|
1,605
|
|
|
$
|
(783
|
)
|
|
$
|
1,708
|
|
|
$
|
(1,567
|
)
|
Preliminary Loss Related to Sale
The Company compared its carrying value of River Palms to the estimated sale price in the asset purchase agreement signed in April 2013, less estimated costs to complete the sale, and recorded a preliminary loss on the sale of River Palms of
$1.5 million
which is included in the loss from discontinued operations for the
nine
months ended
September 30, 2013
.
NOTE 17—INCOME TAXES
Effective Tax Rate
The Company's effective income tax rate from continuing operations for the three months ended
September 30, 2014
and
2013
was
35.5%
and
12.5%
, respectively. The difference between the federal statutory rate of
35%
and the Company's effective tax rate for the three months ended
September 30, 2014
was primarily due to the utilization of the Company's deferred tax assets offset by disallowed foreign losses, state income taxes (net of federal benefit), and other permanent differences. The difference between the federal statutory rate of
35%
and the Company's effective tax rate for the three months ended
September 30, 2013
was primarily due to the utilization of the Company's deferred tax assets and employment credits offset by 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.
The Company's effective income tax rate from continuing operations for the
nine
months ended
September 30, 2014
and
2013
was
32.7%
and
9.8%
, respectively. The difference between the federal statutory rate of
35%
and the Company's effective tax rate for the
nine
months ended
September 30, 2014
was primarily due to the utilization of the Company's deferred tax assets offset by disallowed foreign losses, the goodwill impairment, state income taxes (net of federal benefit), and other permanent differences. The difference between the federal statutory rate of
35%
and the Company's effective tax rate for the
nine
months ended
September 30, 2013
was primarily due to the disallowed foreign losses, state income taxes (net of federal benefit), employment credits, and the change in the valuation allowance. 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.
Valuation Allowance
The Company previously disclosed the details of its deferred tax assets, including the amount of its tax loss carryforwards, the expiration dates thereof and the valuation allowance related to its deferred tax assets in the Company's Annual Report on Form 10-K. In assessing the recoverability of the deferred tax assets, management regularly considers whether some portion or all of the deferred tax assets will not be realized based on the recognition threshold and measurement of a tax position in accordance with FASB ASC Topic 740,
Income Taxes
. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income (exclusive of reversing temporary differences) and tax planning strategies in making this assessment. At December 31, 2013, the Company's net deferred tax assets included approximately
$211.1 million
of deferred tax assets which were fully offset by a valuation allowance at such date.
In accordance with FASB ASC Topic 740,
Income Taxes
, based upon the level of historical book and tax operating losses, the Company continues to maintain a deferred tax valuation allowance against its deferred tax assets through September 30, 2014. The Company, however, has experienced improved earnings trends and has had cumulative net book income for 2012 and 2013. The nine-month period ended September 30, 2014 has continued with positive earnings. Additionally, current market conditions in Atlantic City, New Jersey, a location in which the Company derives a significant portion of its revenues, have been volatile, but the Company has currently been able to meet its income projections. If such earnings trends in this volatile market continue, and current expectations for future taxable income are met, the Company is likely to release the valuation allowance on all or a significant portion of its net deferred tax assets in the near term, perhaps as early as the fourth quarter of 2014.
TROPICANA ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
NOTE 18—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 from continuing operations before income taxes for the quarters ended
September 30, 2014
and
2013
(in thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
2014
|
|
2013
|
Net revenues:
|
|
|
|
East
|
$
|
92,705
|
|
|
$
|
69,808
|
|
Central
|
74,441
|
|
|
29,748
|
|
West
|
28,530
|
|
|
27,872
|
|
South and other
|
21,423
|
|
|
21,319
|
|
Corporate
|
—
|
|
|
—
|
|
Total net revenues
|
$
|
217,099
|
|
|
$
|
148,747
|
|
Operating income (loss):
|
|
|
|
East
|
$
|
13,440
|
|
|
$
|
8,034
|
|
Central
|
8,471
|
|
|
6,304
|
|
West
|
4,606
|
|
|
3,126
|
|
South and other
|
(493
|
)
|
|
52
|
|
Corporate
|
(4,226
|
)
|
|
(3,633
|
)
|
Total operating income
|
$
|
21,798
|
|
|
$
|
13,883
|
|
Reconciliation of operating income to income from continuing operations before income taxes:
|
|
|
|
Operating income
|
$
|
21,798
|
|
|
$
|
13,883
|
|
Interest expense
|
(3,203
|
)
|
|
(3,636
|
)
|
Interest income
|
132
|
|
|
190
|
|
Income from continuing operations before income taxes
|
$
|
18,727
|
|
|
$
|
10,437
|
|
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 from continuing operations before income taxes for the
nine
months ended
September 30, 2014
and
2013
(in thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
2014
|
|
2013
|
Net revenues:
|
|
|
|
East
|
$
|
233,542
|
|
|
$
|
192,506
|
|
Central
|
177,711
|
|
|
91,194
|
|
West
|
78,636
|
|
|
78,530
|
|
South and other
|
69,341
|
|
|
68,629
|
|
Corporate
|
—
|
|
|
—
|
|
Total net revenues
|
$
|
559,230
|
|
|
$
|
430,859
|
|
Operating income:
|
|
|
|
East
|
$
|
48,647
|
|
|
$
|
15,299
|
|
Central
|
21,803
|
|
|
21,624
|
|
West
|
11,305
|
|
|
10,126
|
|
South and other
|
9,510
|
|
|
3,708
|
|
Corporate
|
(22,501
|
)
|
|
(9,213
|
)
|
Total operating income
|
$
|
68,764
|
|
|
$
|
41,544
|
|
Reconciliation of operating income to income from continuing operations before income taxes:
|
|
|
|
Operating income
|
$
|
68,764
|
|
|
$
|
41,544
|
|
Interest expense
|
(9,564
|
)
|
|
(10,816
|
)
|
Interest income
|
1,749
|
|
|
593
|
|
Income from continuing operations before income taxes
|
$
|
60,949
|
|
|
$
|
31,321
|
|
|
|
|
|
|
|
|
|
|
Assets by segment:
|
September 30, 2014
|
|
December 31, 2013
|
East
|
$
|
325,530
|
|
|
$
|
368,317
|
|
Central
|
421,763
|
|
|
151,139
|
|
West
|
113,723
|
|
|
111,786
|
|
South and other
|
127,398
|
|
|
119,142
|
|
Corporate
|
123,528
|
|
|
283,988
|
|
Assets held for sale
|
—
|
|
|
9,249
|
|
Total assets
|
$
|
1,111,942
|
|
|
$
|
1,043,621
|
|
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 such statements by words such as "may," "will," "might," "expect," "believe," "anticipate," "intend," "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, including our acquisition of Lumière Place and our disposition of River Palms, 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 over the next twelve months, our required capital expenditures pursuant to agreements we are party to 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, 2013
. 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. As of April 1, 2014, we acquired an additional casino resort in Missouri. 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, 2014
, our properties collectively included approximately 389,000 square feet of gaming space with 7,800 slot machines, 270 table games and 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, 2014
, 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 ("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;
|
|
|
•
|
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 Noord, Aruba.
|
In addition, through June 30, 2014, the Company owned River Palms Hotel and Casino ("River Palms") located in Laughlin, Nevada, which is presented as discontinued operations in the accompanying condensed consolidated statements of income for all periods presented while the assets and liabilities are presented as held for sale in the accompanying condensed consolidated balance sheet as of December 31, 2013. On July 1, 2014, the Company sold River Palms to Nevada Restaurant Services, Inc. and its affiliate, Laughlin Hotel, LLC.
Further, on April 1, 2014, we acquired Lumière Place Casino, HoteLumière, the Four Seasons Hotel St. Louis and related excess land parcels in St. Louis, Missouri (collectively, "Lumière Place").
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 ("CP Laughlin Realty"), 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.
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, our limited operating history, 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:
|
|
•
|
Lumière Place.
In August 2013, we entered into an agreement to purchase Lumière Place and on April 1, 2014 the acquisition was completed for a cash purchase price of
$261.3 million
, which includes an adjustment for working capital as of the acquisition date. We continue to finalize the purchase price allocation in accordance with the purchase agreement.
|
|
|
•
|
Tropicana AC.
In addition to its traditional guests, one of Tropicana AC's marketing strategies in the prior year period was to target high end table games players to counter the increased competition from Pennsylvania and other surrounding markets. Casino revenues can vary because of table games hold percentage and differences in the odds for different table games. High end play may lead to greater fluctuations in our table games hold percentage and, as a result, we may experience greater revenue fluctuation between reporting periods due to this marketing strategy. For the three months ended
September 30, 2014
, the table game hold percentage increased 8.4 percentage points compared to the same period in the prior year. For the
nine
months ended
September 30, 2014
, the table game hold percentage increased 3.1 percentage points compared to the same period in the prior year. This hold percentage is not necessarily indicative of results that can be expected for future periods.
|
|
|
•
|
General Economic Conditions.
Current economic conditions continue to adversely impact us and the gaming industry as a whole. We believe our guests have reduced their discretionary spending as a result of uncertainty and instability relating to employment and the investment and housing markets. While general economic conditions have modestly improved, we cannot assure that they will continue to improve or will not worsen in the future.
|
|
|
•
|
Cost Efficiencies.
As a result of economic conditions, we continue to focus on efficiency initiatives. These cost saving initiatives include decreased payroll and benefits expense related to our company-sponsored health insurance plans.
|
|
|
•
|
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, 2014
. 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. We used a portion of the proceeds from the New Term Loan Facility to repay in full the amounts outstanding under the credit facilities we entered into in March 2012 (the "Credit Facilities").
|
The Credit Facilities, which consisted of (i) a senior secured first lien term loan facility in an aggregate principal amount of $175 million issued at a discount of 2% (the "Term Loan Facility") and (ii) a cash collateralized letter of credit facility in a maximum aggregate amount of $15 million (the "Letter of Credit Facility"). Commencing on June 30, 2012, the Term Loan Facility required quarterly principal payments of $437,500 through December 2017 with the remaining outstanding amounts due on March 16, 2018, the maturity date. The obligations under the Term Loan Facility accrued interest at a floating rate which was 7.5% as of
September 30, 2013
. A portion of the net proceeds from the Term Loan Facility was used to repay in full approximately $107.7 million in repaid principal, accrued and unpaid interest and the applicable prepayment penalty under the exit facility, which consisted of a $130 million senior secured term loan credit facility and a $20 million senior secured revolving credit facility (the "Exit Facility"). An entity affiliated with Carl C. Icahn, the chairman of our Board of Directors and, through Icahn Enterprises, our principal beneficial stockholder, was a lender under the Exit Facility and held more than 50% of the loans extended under the Exit Facility.
Our interest expense was $
3.2 million
and $
3.6 million
for the three months ended
September 30, 2014
and
2013
, respectively, which includes amortization of the related debt discounts and debt issuance costs of $
0.3 million
for the three months ended
September 30, 2014
and
2013
and capitalized interest of $0.1 million for the three months ended
September 30, 2014
. Our interest expense was $
9.6 million
and $
10.8 million
for the
nine
months ended
September 30, 2014
and
2013
, respectively, which includes amortization of the related debt discounts and debt issuance costs of $
0.8 million
and $
1.0 million
for the
nine
months ended
September 30, 2014
and
2013
, respectively.
|
|
•
|
Atlantic City Market.
In October 2012, Superstorm Sandy forced a city-mandated closure of all casinos in Atlantic City for approximately five days. Although Tropicana AC did not incur any significant property damage, the severity of the property damage to a large portion of the Atlantic City feeder markets including New Jersey, New York and Pennsylvania resulted in long term business interruption that continued into 2013 and materially affected operating results. In addition to Superstorm Sandy, competitive pressure in Atlantic City and the regional market continue to adversely affect Tropicana AC. Based on market data, the Atlantic City market experienced period over period declines in casino revenue of 9.3% and 7.5% for the three and
nine
months ended
September 30, 2014
, respectively. In January 2014, the Atlantic Club Casino, one of our competitors, ceased operations and Tropicana AC purchased various gaming equipment and the casino's patron database for $9.1 million. Tropicana AC has experienced increased slot customer volumes during the three and
nine
months ended
September 30, 2014
due, in part, to the closure of this competitor and the purchase of their patron database. In the third quarter of 2014, three additional competitors ceased operations in Atlantic City.
|
|
|
•
|
River Palms.
On July 1, 2014, we sold substantially all of the assets constituting River Palms to Nevada Restaurant Services, Inc. and its affiliate, Laughlin Hotel, LLC, for approximately
$6.8 million
in cash and the assumption of certain liabilities. Concurrently with the sale, we leased back River Palms. We terminated the lease and discontinued operations at River Palms in September 2014. Due to the sale of River Palms and the termination of its operations in September 2014, the results of operations for River Palms are presented as discontinued operations while its assets and liabilities are presented as held for sale as of December 31, 2013. In addition, River Palms is not included in management's discussion and analysis of financial condition and results of operations.
|
|
|
•
|
Insurance Recoveries.
In January 2013 the Jubilee barge was damaged as a result of a high-wind storm. Due to the damage sustained we initially recorded a $0.4 million write-down of fixed assets which was included in the accompanying condensed consolidated statement of income for the
nine
months ended
September 30, 2013
. We filed claims with our insurance carriers and received $0.7 million in insurance proceeds as of December 31, 2013. In January 2014, the Company settled the filed claims for $5.9 million and received the remaining $5.2 million in insurance proceeds related to the claims. As a result of the settlement, a gain of $4.6 million was included in the accompanying condensed consolidated statement of income for the
nine
months ended
September 30, 2014
.
|
Our 2013 results were adversely affected due to the business interruption encountered as a result of Superstorm Sandy. We filed a claim with our insurance carriers relating to business interruption as a result of Superstorm Sandy and received a cash settlement of $1.3 million during the second quarter of 2014.
|
|
•
|
Internet Gaming.
In November 2013, pursuant to approvals from the New Jersey Division of Gaming Enforcement, Tropicana AC commenced continuous, 24-hour Internet gaming on its online gaming site,
TropicanaCasino.com
. Tropicana Atlantic City Online showcases a variety of slot game options and classic casino table games. Players have the opportunity to participate in community jackpots and to be rewarded with both on-property and online incentives and have the chance to participate in a variety of promotions. All participants must be 21 or older and physically located in New Jersey to play. The 2013 New Jersey legislation to authorize various forms of intrastate internet gaming has a 10 year sunset provision.
|
|
|
•
|
Tropicana Aruba.
We opened a temporary casino at Tropicana Aruba in December 2011 and we are considering development of a permanent casino. However, our development plans have not been finalized and we may decide not to proceed.
|
Three months ended
September 30, 2014
compared to three months ended
September 30, 2013
The following table sets forth certain information concerning our results of operations (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
2014
|
|
2013
|
Net revenues:
|
|
|
|
|
East
|
|
$
|
92,705
|
|
|
$
|
69,808
|
|
Central
|
|
74,441
|
|
|
29,748
|
|
West
|
|
28,530
|
|
|
27,872
|
|
South and other
|
|
21,423
|
|
|
21,319
|
|
Corporate
|
|
—
|
|
|
—
|
|
Total net revenues
|
|
$
|
217,099
|
|
|
$
|
148,747
|
|
Operating income:
|
|
|
|
|
East
|
|
$
|
13,440
|
|
|
$
|
8,034
|
|
Central
|
|
8,471
|
|
|
6,304
|
|
West
|
|
4,606
|
|
|
3,126
|
|
South and other
|
|
(493
|
)
|
|
52
|
|
Corporate
|
|
(4,226
|
)
|
|
(3,633
|
)
|
Total operating income
|
|
$
|
21,798
|
|
|
$
|
13,883
|
|
Operating income margin(a):
|
|
|
|
|
East
|
|
14.5
|
%
|
|
11.5
|
%
|
Central
|
|
11.4
|
%
|
|
21.2
|
%
|
West
|
|
16.1
|
%
|
|
11.2
|
%
|
South and other
|
|
(2.3
|
)%
|
|
0.2
|
%
|
Total operating income margin
|
|
10.0
|
%
|
|
9.3
|
%
|
(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,
|
|
|
2014
|
|
2013
|
Revenues:
|
|
|
|
|
Casino
|
|
$
|
167,283
|
|
|
$
|
112,003
|
|
Room
|
|
37,299
|
|
|
27,661
|
|
Food and beverage
|
|
30,034
|
|
|
20,669
|
|
Other
|
|
7,626
|
|
|
6,186
|
|
Gross revenues
|
|
242,242
|
|
|
166,519
|
|
Less promotional allowances
|
|
(25,143
|
)
|
|
(17,772
|
)
|
Net revenues
|
|
$
|
217,099
|
|
|
$
|
148,747
|
|
Net Revenues
In the East region, net revenues were
$92.7 million
for the three months ended
September 30, 2014
,
an increase
of
$22.9 million
, or
32.8%
, when compared to the three months ended
September 30, 2013
. Tropicana AC's net revenues increased from the prior year period primarily due to a $21.0 million increase in casino revenues as a result of the increased customer volumes due, in part, to the closure of one of our competitors in Atlantic City in January 2014 and a increase in Internet gaming revenue. In the third quarter of 2014, three additional competitors ceased operations in Atlantic City. Based on market data, the Atlantic City market experienced year over year declines in casino revenue of 9.3% in the three months ended
September 30, 2014
. Tropicana AC casino revenues increased due to $3.9 million in Internet gaming which commenced in November 2013, coupled with 18.8% higher slot volumes partially offset by 12.0% lower table game volumes, including lower volumes of high-end play for the three months ended
September 30, 2014
. The average daily room rate increased to $100 for the three months ended
September 30, 2014
from $97 for the three months ended
September 30, 2013
. The occupancy rate for the three months ended
September 30, 2014
at Tropicana AC was 92%, up from 86% for the three months ended
September 30, 2013
.
In the Central region, net revenues were
$74.4 million
for the three months ended
September 30, 2014
,
an increase
of
$44.7 million
from the three months ended
September 30, 2013
. In April 2014, the Company completed its acquisition of Lumière Place which contributed $42.9 million in net revenues for the three months ended
September 30, 2014
. Casino revenues at Tropicana Evansville increased compared to the prior year period primarily due to a 6.6% increase in slot volumes and a 5.4% increase in table games volumes. The occupancy rate for the three months ended
September 30, 2014
in the Central Region was 80%, an increase from 75% in the three months ended
September 30, 2013
. The increased occupancy reflects higher complimentary rooms being provided to our guests at Tropicana Evansville and the acquisition of Lumière Place. The average daily room rate in the Central Region increased to $188 for the three months ended
September 30, 2014
, compared to $90 for the three months ended
September 30, 2013
. Room rates increased in three months ended
September 30, 2014
due to the acquisition of Lumiére Place.
In the West region, net revenues were
$28.5 million
for the three months ended
September 30, 2014
,
an increase
of
$0.7 million
, or
2.4%
, compared to the three months ended
September 30, 2013
. The increase was primarily driven by increases in casino and hotel revenues. Casino revenues in the West region increased due to a 11.9% increase in slot volumes and a 0.8% increase in table games volumes, partially offset by an increase in promotional slot play which is recorded as a reduction in revenues. At Tropicana Laughlin, net revenues increased $1.2 million for the three months ended
September 30, 2014
primarily due to increased marketing incentives given to our casino patrons. At MontBleu, net revenues decreased $0.6 million due to decreased customer visitation related to fewer entertainment offerings in the three months ended
September 30, 2014
. Despite the decreased food and beverage and entertainment revenues, MontBleu's casino revenues for the three months ended
September 30, 2014
were up from the comparable period and their average daily room rate increased 11% from the three months ended
September 30, 2013
. At the end of March 2014 a competitor in the South Lake Tahoe market temporarily closed for renovations. We currently anticipate that this competitor will reopen in early 2015. The average daily room rate for the West region was $58 for the three months ended
September 30, 2014
, an increase from $55 for the three months ended
September 30, 2013
. The occupancy rate in the West region was 62% for the three months ended
September 30, 2014
an increase from 59% for the three months ended
September 30, 2013
.
In the South and other region, net revenues were
$21.4 million
for the three months ended
September 30, 2014
,
an increase
of
$0.1 million
, or
0.5%
, compared to the three months ended
September 30, 2013
. Casino revenues for the South and other region decreased $0.1 million offset by a $0.3 million increase in hotel revenues and a $0.1 million increase in promotional allowances for the three months ended
September 30, 2014
compared to the three months ended
September 30, 2013
. Net revenues at the Belle of Baton Rouge were relatively flat for the three months ended
September 30, 2014
, compared to the three months ended
September 30, 2013
, primarily due to an increase in promotional slot play which is recorded as a reduction in revenues, partially offset by a 9.7% increase in slot volumes and 3.3% increase in table games volumes. Tropicana Greenville's net revenues were relatively flat for the three months ended
September 30, 2014
compared to the three months ended
September 30, 2013
, primarily due to a 6.0% higher slot volumes offset by 7.3% lower table games volumes. Increased hotel occupancy at Tropicana Aruba contributed an increase of $0.1 million in net revenues during the three months ended
September 30, 2014
compared to the three months ended
September 30, 2013
. The occupancy rate at our properties in the South and other region was 74% and 73% for the three months ended
September 30, 2014
and
2013
, respectively. The average daily room rate for the South and other region was $73 and $61 for the three months ended
September 30, 2014
and
2013
, respectively.
Operating Income
In the East region, the operating
income
for the three months ended
September 30, 2014
was
$13.4 million
, a
$5.4 million
increase
compared to the three months ended
September 30, 2013
. The operating
income
in the East region was higher than the prior year primarily due to the net revenue increases discussed above offset by increased payroll and operating costs. The current period includes increased costs related to Internet gaming which commenced in November 2013 as well as an increase in real estate taxes due to the favorable effects in the prior period related to a real estate tax settlement. Under the terms of the original real estate tax settlement in January 2013, Tropicana AC applied $4.0 million of credits to the 2013 real estate tax bills during the three months ended
September 30, 2013
. In the first quarter of 2014, the real estate tax settlement was fully satisfied when Tropicana AC received a one-time cash payment.
In the Central region, the operating
income
for the three months ended
September 30, 2014
was
$8.5 million
, a
$2.2 million
increase
compared to the three months ended
September 30, 2013
. In April 2014, we completed the acquisition of Lumière Place which contributed $1.1 million in operating income for the three months ended
September 30, 2014
. In addition, the
increase
in operating income is related to the net revenue increases at Tropicana Evansville discussed above, partially offset by increased gaming taxes and rental expense at Tropicana Evansville during the three months ended
September 30, 2014
.
In the West region, the operating
income
for the three months ended
September 30, 2014
was
$4.6 million
, a
$1.5 million
increase
compared to the three months ended
September 30, 2013
. The
increase
is mainly attributable to the increased revenues discussed above, as well as decreased employee benefits costs during the three months ended
September 30, 2014
. In addition, at MontBleu, operating costs were lower during the current period related to lower customer visitation and fewer entertainment offerings.
In the South and other region operating
loss
for the three months ended
September 30, 2014
was
$0.5 million
, a
$0.5 million
decrease
compared to the three months ended
September 30, 2013
. This
decrease
is primarily due to pre-opening expenses at our Tropicana Greenville property related to its expansion that opened in October 2014. Tropicana Greenville’s expansion includes hundreds of new gaming options, a VIP Lounge, a casual dining restaurant, a live entertainment stage and covered casino parking. In addition, the South and other region recorded increased taxes and promotional spending during the three months ended
September 30, 2014
.
Corporate expenses were
$4.2 million
for the three months ended
September 30, 2014
, a
$0.6 million
increase
from the three months ended
September 30, 2013
, driven primarily by an unfavorable tax settlement related to certain of our Predecessor entities during the current quarter.
Interest Expense
Interest expense for the three months ended
September 30, 2014
and
2013
was $
3.2 million
and $
3.6 million
, respectively. The interest expense for the three months ended
September 30, 2014
decreased compared to the prior year period primarily due to our New Term Loan Facility which was funded in November 2013 and accrues interest at a floating rate, which was 4.0% per annum as of
September 30, 2014
. Cash paid for interest, net of interest capitalized, decreased to
$2.9 million
from
$3.0 million
for the three months ended
September 30, 2014
and
2013
, respectively, related to the lower interest rate under the New Term Loan Facility and the capitalization of interest in 2014. Under our previous Term Loan Facility, interest accrued at a floating rate of 7.5% per annum for the three months ended
September 30, 2013
.
Income Taxes
Income tax expense from continuing operations was $
6.7 million
for the three months ended
September 30, 2014
and our effective income tax rate was
35.5%
. The difference between the federal statutory rate of 35% and the effective tax rate for the three months ended
September 30, 2014
was primarily due to the utilization of the Company's deferred tax assets offset by disallowed foreign losses, state income taxes (net of federal benefit), and other permanent differences. For the three months ended
September 30, 2013
, the income tax expense from continuing operations was
$1.3 million
and our effective tax rate was
12.5%
. The difference between the federal statutory rate of 35% and the effective tax rate for the three months ended
September 30, 2013
, was primarily due to the utilization of the Company's deferred tax assets and employment credits offset by disallowed foreign losses, state income taxes (net of federal benefit), and other permanent differences.
Nine months ended
September 30, 2014
compared to
nine
months ended
September 30, 2013
The following table sets forth certain information concerning our results of operations (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
2014
|
|
2013
|
Net revenues:
|
|
|
|
|
East
|
|
$
|
233,542
|
|
|
$
|
192,506
|
|
Central
|
|
177,711
|
|
|
91,194
|
|
West
|
|
78,636
|
|
|
78,530
|
|
South and other
|
|
69,341
|
|
|
68,629
|
|
Corporate
|
|
—
|
|
|
—
|
|
Total net revenues
|
|
$
|
559,230
|
|
|
$
|
430,859
|
|
Operating income (loss):
|
|
|
|
|
East
|
|
$
|
48,647
|
|
|
$
|
15,299
|
|
Central
|
|
21,803
|
|
|
21,624
|
|
West
|
|
11,305
|
|
|
10,126
|
|
South and other
|
|
9,510
|
|
|
3,708
|
|
Corporate
|
|
(22,501
|
)
|
|
(9,213
|
)
|
Total operating income
|
|
$
|
68,764
|
|
|
$
|
41,544
|
|
Operating income margin(a):
|
|
|
|
|
East
|
|
20.8
|
%
|
|
7.9
|
%
|
Central
|
|
12.3
|
%
|
|
23.7
|
%
|
West
|
|
14.4
|
%
|
|
12.9
|
%
|
South and other
|
|
13.7
|
%
|
|
5.4
|
%
|
Total operating income margin
|
|
12.3
|
%
|
|
9.6
|
%
|
(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,
|
|
|
2014
|
|
2013
|
Revenues:
|
|
|
|
|
Casino
|
|
$
|
443,351
|
|
|
$
|
340,020
|
|
Room
|
|
87,818
|
|
|
68,689
|
|
Food and beverage
|
|
76,773
|
|
|
58,494
|
|
Other
|
|
19,430
|
|
|
16,324
|
|
Gross revenues
|
|
627,372
|
|
|
483,527
|
|
Less promotional allowances
|
|
(68,142
|
)
|
|
(52,668
|
)
|
Net revenues
|
|
$
|
559,230
|
|
|
$
|
430,859
|
|
Net Revenues
In the East region, net revenues were
$233.5 million
for the
nine
months ended
September 30, 2014
,
an increase
of
$41.0 million
, or
21.3%
, when compared to the
nine
months ended
September 30, 2013
. Net revenue increases for Tropicana AC are primarily due to a $38.4 million increase in casino revenues and a $2.3 million increase in room revenues as a result of the increased customer volumes due, in part, to the closure of one of our competitors in Atlantic City in January 2014. In the third quarter of 2014, three additional competitors ceased operations in Atlantic City. Based on market data, the Atlantic City market experienced year over year declines in casino revenue of 7.5% in the
nine
months ended
September 30, 2014
. Tropicana AC casino revenues increased primarily due to $10.2 million in Internet gaming which commenced in November 2013, coupled with 17.4% higher slot volumes partially offset by 16.0% lower table game volumes, including lower volumes of high-end play for the
nine
months ended
September 30, 2014
. Net revenues for our hotel also increased due to higher occupancy rates in the
nine
months ended
September 30, 2014
. The average daily room rate was $89 and $88 for the
nine
months ended
September 30, 2014
and
2013
, respectively. The occupancy rate increased to 78% for the
nine
months ended
September 30, 2014
compared to 74% for the
nine
months ended
September 30, 2013
.
In the Central region, net revenues were
$177.7 million
for the
nine
months ended
September 30, 2014
,
an increase
of
$86.5 million
, compared to the
nine
months ended
September 30, 2013
. In April 2014, the Company completed its acquisition of Lumière Place which contributed $85.7 million in net revenues for the
nine
months ended
September 30, 2014
. Unfavorable weather conditions early in the first quarter impacted Tropicana Evansville during the
nine
months ended
September 30, 2014
. Casino revenues at Tropicana Evansville increased $1.0 million compared to the prior year period primarily due to a 1.0% increase in slot volumes and increased promotional slot play and other incentives given to our customers, as well as a 9.6% increase in table games volumes. The occupancy rate for the
nine
months ended
September 30, 2014
in the Central region was 77%, an increase from 68% in the
nine
months ended
September 30, 2013
. The increased occupancy rate reflects higher customer visitation due to more complimentary rooms being provided to our guests at Tropicana Evansville in the current period compared to the prior year period and the acquisition of Lumière Place. The average daily room rate in the Central region was $172 for the
nine
months ended
September 30, 2014
, compared to $93 for the
nine
months ended
September 30, 2013
. Room rates increased in the
nine
months ended
September 30, 2014
due to the acquisition of Lumière Place.
In the West region, net revenues were
$78.6 million
for the
nine
months ended
September 30, 2014
,
an increase
of
$0.1 million
, or
0.1%
, compared to the
nine
months ended
September 30, 2013
. The
increase
was primarily driven by increases in casino revenues, partially offset by increased promotional allowances. Casino revenues in the West region increased due to a 6.2% increase in slot volumes partially offset by a 0.3% decrease in table games volumes and an increase in promotional slot play, which is recorded as a reduction in revenues. Net revenues at Tropicana Laughlin increased $1.4 million for the
nine
months ended
September 30, 2014
compared to the same period in the prior year primarily due to increased marketing incentives given to our casino patrons. At MontBleu, net revenues decreased $1.3 million due to decreased customer visitation related to fewer entertainment offerings as well as increased promotional allowances for the
nine
months ended
September 30, 2014
compared to the prior year period. The average daily room rate for the West region was $51 and $50 for the
nine
months ended
September 30, 2014
and
September 30, 2013
, respectively. The occupancy rate for the
nine
months ended
September 30, 2014
and
2013
at our properties in the West region was 58% and 55%, respectively.
In the South and other region, net revenues were
$69.3 million
for the
nine
months ended
September 30, 2014
,
an increase
of
$0.7 million
, or
1.0%
, compared to the
nine
months ended
September 30, 2013
. Casino revenues for the South and other region decreased $2.4 million, partially offset by a $2.3 million decrease in promotional allowances for the
nine
months ended
September 30, 2014
compared to the
nine
months ended
September 30, 2013
. Net revenues at the Belle of Baton Rouge increased
$0.9 million
for the
nine
months ended
September 30, 2014
, primarily due to decreased complimentary items provided to our guests, a 3.7% increase in slot volumes, and a 12.9% increase in table games volumes, partially offset by a 2.1 percentage point decline in the table game hold percentage. The increased gaming volumes at the Belle of Baton Rouge were offset by an increase in promotional slot play which is recorded as a reduction in revenues. Tropicana Greenville's net revenues decreased $0.5 million due to 0.1% higher slot volumes offset by 29.1% lower table games volumes. Increased hotel occupancy at Tropicana Aruba contributed to an increase of $0.3 million in net revenues during the
nine
months ended
September 30, 2014
. The occupancy rate at our properties in the South and other region was 71% and 70% for the
nine
months ended
September 30, 2014
and
2013
, respectively. The average daily room rate for the South and other region was $79 and $71 for the
nine
months ended
September 30, 2014
and
2013
, respectively.
Operating Income
In the East region, the operating
income
for the
nine
months ended
September 30, 2014
was
$48.6 million
, compared to an operating
income
of
$15.3 million
for the
nine
months ended
September 30, 2013
. The operating
income
in the East region was favorable compared to the prior year primarily due to the increase in net revenues discussed above and a favorable real estate tax settlement which resulted in a $31.7 million one-time cash payment received at Tropicana AC during the
nine
months ended
September 30, 2014
. This refund was partially offset by an increase in real estate taxes due to and increase in the real estate tax assessed in the current period and the favorable effects in the prior period related to the original real estate tax settlement. Under the terms of the original settlement in January 2013, Tropicana AC applied $12.0 million of credits to the 2013 real estate tax bills during the
nine
months ended
September 30, 2013
and expensed $4.1 million in professional fees related to this settlement in the
nine
months ended
September 30, 2013
. In the
nine
months ended
September 30, 2014
, Tropicana AC also recorded higher payroll and benefits expense as well as increased costs related to Internet gaming which commenced in November 2013.
In the Central region, the operating
income
for the
nine
months ended
September 30, 2014
was
$21.8 million
, a
$0.2 million
increase
compared to the
nine
months ended
September 30, 2013
. In April 2014, we completed the acquisition of Lumière Place which contributed a $0.1 million operating income for the
nine
months ended
September 30, 2014
. The additional
increase
in operating income is related to the increase in net revenues at Tropicana Evansville discussed above, and increased promotional costs during the
nine
months ended
September 30, 2014
.
In the West region, the operating
income
for the
nine
months ended
September 30, 2014
was
$11.3 million
, a
$1.2 million
increase
compared to the
nine
months ended
September 30, 2013
. The
increase
in operating income is mainly attributable to the
increased net revenues discussed above, as well as decreased payroll benefits costs and operating expenses consistent with our focus on cost-saving initiatives during the
nine
months ended
September 30, 2014
. Additionally, the West region properties realized a $0.3 million increase in depreciation and amortization expense related to new capital projects placed in service after the comparable period in the prior year.
In the South and other region operating
income
for the
nine
months ended
September 30, 2014
was
$9.5 million
, a
$5.8 million
increase
compared to the
nine
months ended
September 30, 2013
. This
increase
is primarily due to a gain on insurance recoveries of $4.6 million, net of expenses and write-downs, in the
nine
months ended
September 30, 2014
. The
increase
from the prior year also relates to the net revenue increases discussed above, as well as decreased payroll costs and decreased operating expenses consistent with lower customer volumes at Tropicana Greenville and reduced advertising and promotional costs at Belle of Baton Rouge during the
nine
months ended
September 30, 2014
. Tropicana Greenville opened its new gaming operations expansion in October 2014, which includes hundreds of new gaming options, a VIP Lounge, a casual dining restaurant, a live entertainment stage and covered casino parking
Corporate expenses were
$22.5 million
for the
nine
months ended
September 30, 2014
, a
$13.3 million
increase
from the
nine
months ended
September 30, 2013
, driven primarily by a $9.1 million goodwill impairment recognized during the
nine
months ended
September 30, 2014
due to Tropicana AC's carrying value exceeding its fair value. In addition, we recorded a $3.3 million increase in professional fees during the
nine
months ended
September 30, 2014
, including fees associated with our acquisition of Lumière Place which was announced in August 2013 and completed in April 2014.
Interest Expense
Interest expense for the
nine
months ended
September 30, 2014
and
2013
was
$9.6 million
and
$10.8 million
, respectively. The interest expense for the
nine
months ended
September 30, 2014
decreased compared to the prior year period primarily due to our New Term Loan Facility which was funded in November 2013 and accrues interest at a floating rate, which was 4.0% per annum as of
September 30, 2014
. Cash paid for interest, net of interest capitalized, decreased to $
8.8 million
from $
9.4 million
for the
nine
months ended
September 30, 2014
and
2013
, respectively, related to the lower interest rate and payment timing under the New Term Loan Facility and the capitalization of interest in 2014. Under our previous Term Loan Facility, interest accrued at a floating rate of 7.5% per annum for the
nine
months ended
September 30, 2013
. Interest expense also includes approximately
$0.8 million
and
$1.0 million
of amortization of debt issuance costs and discounts for the
nine
months ended
September 30, 2014
and
2013
, respectively. Unamortized debt issuance costs and discounts related to the previous Term Loan Facility were written off in November 2013 in connection with the repayment of that debt.
Income Taxes
Income tax expense from continuing operations was
$19.9 million
for the
nine
months ended
September 30, 2014
and our effective income tax rate was
32.7%
. The difference between the federal statutory rate of 35% and the effective tax rate for the
nine
months ended
September 30, 2014
was primarily due to the utilization of our deferred tax assets offset by disallowed foreign losses, the goodwill impairment, state income taxes (net of federal benefit), and other permanent differences. For the
nine
months ended
September 30, 2013
, the income tax expense from continuing operations was
$3.1 million
and our effective tax rate was
9.8%
. The difference between the federal statutory rate of 35% and the effective tax rate for the
nine
months ended
September 30, 2013
, was primarily due to the disallowed foreign losses, state income taxes (net of federal benefit), employment credits, and the change in the valuation allowance.
We previously disclosed the details of our deferred tax assets, including the amount of its tax loss carryforwards, the expiration dates thereof and the valuation allowance related to our deferred tax assets in our Annual Report on Form 10-K. In assessing the recoverability of its deferred tax assets, management regularly considers whether some portion or all of the deferred tax assets will not be realized based on the recognition threshold and measurement of a tax position in accordance with FASB ASC Topic 740,
Income Taxes
. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income (exclusive of reversing temporary differences) and tax planning strategies in making this assessment. At December 31, 2013, our net deferred tax assets included approximately $211.1 million of deferred tax assets that were fully offset by a valuation allowance at such date.
In accordance with FASB ASC Topic 740,
Income Taxes
, based upon the level of historical book and tax operating losses, we continue to maintain a deferred tax valuation allowance against our deferred tax assets through September 30, 2014. We, however, have experienced improved earnings trends and have had cumulative net book income for 2012 and 2013. The nine-month period ended September 30, 2014 has continued with positive earnings. Additionally, current market conditions in Atlantic City, New Jersey, a location in which we derive a significant portion of our revenues, has been volatile, but we have currently been able to meet our income projections. If such earnings trends in this volatile market continue, and current expectations for
future taxable income are met, it is likely we will release the valuation allowance on all or a significant portion of our net deferred tax assets in the near term, perhaps as early as the fourth quarter of 2014.
Discontinued Operations
During 2013, we entered into an agreement to sell River Palms and subsequently notified the buyers that we had elected to terminate the agreement to sell River Palms, effective immediately, pursuant to the terms of the agreement. We continued to actively market the property and on July 1, 2014, entered into and closed an asset purchase agreement with Laughlin Hotel, LLC and Nevada Restaurant Services, Inc. Pursuant to the terms of the asset purchase agreement substantially all of the assets associated with the operation of River Palms were sold for
$6.8 million
in cash and the assumption of certain liabilities. Concurrently with the execution and closing of the asset purchase agreement, we leased back River Palms. We terminated the lease and discontinued operations at River Palms in September 2014. Accordingly, the results of operations of River Palms are presented as discontinued operations in the accompanying condensed consolidated statements of income for all periods presented.
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. In November 2013, we repaid the then outstanding Term Loan Facility with a portion of the proceeds from the New Term Loan Facility as discussed below. 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.
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 you that we will be able to incur such debt or issue any such additional equity on acceptable terms or at all. In April 2014, we completed our purchase of Lumière Place for a cash purchase price of
$261.3 million
, which includes an adjustment for working capital as of the acquisition date. We used a portion of the proceeds from the New Term Loan Facility.
In addition to our acquisition of Lumière Place, our material cash requirements for our existing properties for
2014
are expected to include (i) principal and interest payments related to our New Term Loan Facility of $3.0 million and $12.1 million, respectively, (ii) maintenance capital expenditures expected to be between $40 million and $50 million, (iii) growth capital expenditures expected to be approximately $20 million, a portion of which will be reimbursed in 2015 through Approved CRDA Project Funds (defined below), and (iv) minimum lease payments under our operating leases of approximately $6.5 million. Except for the $24 million MontBleu capital renovation project (see Note 13 -
Commitments and Contingencies
in the Notes to the Condensed Consolidated Financial Statements), the majority of our planned capital expenditures are discretionary and we may decide to spend more or less than the amounts described above. We have been approved to use $18.8 million of our CRDA deposits ("Approved CRDA Project Funds") for certain capital expenditures relating to Tropicana AC. In addition we have been approved for approximately $4.8 million in grants through the New Jersey Economic Development Authority, ERG Grant Program ("ERG Grants") and plan to spend an additional $16.2 million toward capital improvements at Tropicana AC.
The following table summarizes our cash flows, which includes cash flows generated from discontinued operations within operating and investing activities (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
2014
|
|
2013
|
Cash Flow Information:
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
100,967
|
|
|
$
|
56,758
|
|
Net cash used in investing activities
|
|
(273,619
|
)
|
|
(53,199
|
)
|
Net cash used in financing activities
|
|
(2,270
|
)
|
|
(1,422
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(174,922
|
)
|
|
$
|
2,137
|
|
During the
nine
months ended
September 30, 2014
, our operating activities provided
$101.0 million
in cash. Cash paid for interest, net of interest capitalized, was $
8.8 million
and $
9.4 million
for the
nine
months ended
September 30, 2014
and
2013
, respectively. This decrease primarily relates to decreased interest rates under our New Term Loan Facility and the capitalization of interest in 2014. Net cash provided by operating activities for the
nine
months ended
September 30, 2014
includes the increased operating results compared to prior year as well as a
$9.1 million
impairment of goodwill. Operating cash provided by (used in) discontinued operations was $(1.7) million for the
nine
months ended
September 30, 2014
and $2.7 million for the
nine
months ended
September 30, 2013
.
During the
nine
months ended
September 30, 2014
, our investing activities used
$273.6 million
in cash. Net cash used in investing activities primarily consisted of
$237.3 million
related to the Lumière Place acquisition, net of cash acquired, $
52.0 million
for capital expenditures, offset by
$5.2 million
in insurance proceeds and $2.5 million in sales and luxury tax rebates included in other investing activities in the
nine
months ended
September 30, 2014
. Net cash used in investing activities consists of
$43.0 million
for capital expenditures and a $15.0 million restricted cash deposit held in escrow in connection with the proposed acquisition of Lumiére Place, offset by $2.6 million in sales and luxury tax rebates included in other investing activities in the
nine
months ended
September 30, 2013
. 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. Investing cash used in discontinued operations for capital expenditures was $0.4 million for the
nine
months ended
September 30, 2014
and $2.5 million for the
nine
months ended
September 30, 2013
.
During the
nine
months ended
September 30, 2014
, our financing activities used
$2.3 million
in cash. Net cash used in financing activities for the
nine
months ended
September 30, 2014
primarily consisted of payments on the New Term Loan Facility. Net cash provided by financing activities for the
nine
months ended
September 30, 2013
consisted of the payments on the then outstanding Term Loan Facility.
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 will amortize in equal quarterly installments in an amount 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 existing 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 our previously announced acquisition of Lumière Place. This acquisition was completed 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, 2014
, 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, 2014
and
2013
was
$9.6 million
and
$10.8 million
, respectively, which includes
$0.8 million
and
$1.0 million
, respectively, of amortization of the related debt discounts and debt issuance costs for the
nine
months ended
September 30, 2014
and
2013
.
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, 2014
compared to those reported in our Annual Report on Form 10-K for the year ended
December 31, 2013
.
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, 2014
, 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 $3.0 million.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Our Chief Executive Officer (principal executive officer) and Executive Vice President, Chief Financial Officer and Treasurer (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, 2014
. 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, 2014
, 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.
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, 2013
. 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, 2013
, 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, 2013
includes a discussion of our risk factors. There have been no material changes to those risk factors described in our Annual Report on Form 10-K for the year ended
December 31, 2013
, except as noted below. The risks described in our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q 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.
Our acquisition of Lumière Place exposes us to additional risks.
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. This strategy exposes us to certain risks,
including those included in “Item 1A.-Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2013 ("2013 Annual Report"). Our acquisition, integration, ownership and operation of Lumière Place-which we acquired on April 1, 2014 and which comprises Lumière Place Casino, HoteLumière, the Four Seasons Hotel St. Louis and related excess land parcels in St. Louis, Missouri-is subject to the risks included in our 2013 Annual Report, as well as other risks attendant to operating gaming and hotel properties in a new geographic market, including regulatory risks. Our failure to realize the expected benefits of acquiring Lumière Place, whether because we do not achieve anticipated cost efficiencies or synergies, we are not successful at integrating the business with the rest of our operations, or otherwise, could materially adversely affect our business, financial condition and results of operations.
ITEM 6. EXHIBITS.
(a)
Exhibits
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Exhibit
Number
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Exhibit Description
|
2.1
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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)
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2.2
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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)
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3.1
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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)
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3.2
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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)
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4.1
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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)
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4.2
|
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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)
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4.3
|
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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)
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10.1*
|
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|
|
Fourth Amendment to Lease Agreement dated October 1, 2014 by and between the Edgewood Companies, a Nevada corporation formerly known as Park Cattle Co., as Landlord, and Columbia Properties Tahoe, LLC, a Nevada limited liability company, as Tenant.
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31.1*
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|
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
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31.2*
|
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|
|
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
|
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32**
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|
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
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101.IN*
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XBRL Instance Document
|
101.SCH*
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XBRL Taxonomy Extension Schema Document
|
101.CAL*
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|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.LAB*
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XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE*
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|
XBRL Taxonomy Extension Presentation Linkbase Document
|
101.DEF*
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XBRL Taxonomy Extension Definition
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*
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Filed herewith
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**
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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.
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TROPICANA ENTERTAINMENT INC.
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Date:
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November 4, 2014
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By:
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/s/ LANCE J. MILLAGE
|
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Name:
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Lance J. Millage
|
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Title:
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Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
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MontBleu Lease
AMENDMENT NO. 4
THIS MONTBLEU LEASE AMENDMENT NO. 4 is made effective this 1st day of October, 2014 (the “
Effective Date
”), by and between the Edgewood Companies, a Nevada corporation formerly known as Park Cattle Co., (“
Edgewood
”), as Landlord, and Columbia Properties Tahoe, LLC, a Nevada limited liability company (“
CPT
”), as Tenant. Edgewood, as Landlord, and CPT, as Tenant, are sometimes referred to individually as a “
Party
” and collectively as the “
Parties
”. Terms not otherwise defined herein shall have the meanings ascribed to them in the Original Lease, as amended by the Amended and Restated Amendment and the MontBleu Lease Amendment No. 3 (as each such term is defined below).
W I T N E S S E T H
WHEREAS, Edgewood, as Landlord, and Desert Palace, Inc., as Tenant entered into that certain Amended and Restated Net Lease Agreement, dated January 1, 2000 (the “
Original Lease
”), involving the Douglas County, Nevada, real property described in the Original Lease.
WHEREAS, Desert Palace, Inc. assigned all of its right, title, benefits, privileges, estate and interest in, to and under the Original Lease to CPT pursuant to an Assignment and Assumption of Lease dated June 10, 2005.
WHEREAS, Edgewood and CPT entered into that certain MontBleu Lease Amendment effective April 2, 2008 (the “
Original Amendment
”), which Original Amendment was amended and restated in its entirety by the MontBleu Lease Amendment No. 2, effective June 12, 2009 (the “
Amended and Restated Amendment”)
.
WHEREAS, Edgewood and CPT subsequently modified the Amended and Restated Amendment by the MontBleu Lease Amendment No. 3 effective May 10, 2010 (the “
MontBleu Lease Amendment No. 3
”).
WHEREAS, Section V of the Amended and Restated Amendment (adding a sentence to the end of Section 6.1 of the Original Lease) requires Tenant to ensure the Premises are in first class condition and repair by December 31, 2015.
WHEREAS, Section VI of the Amended and Restated Amendment (adding four new sections to Article VI of the Original Lease) of the Amended and Restated Amendment requires Tenant to make certain capital expenditures at the Premises on an annual basis.
WHEREAS, CPT has agreed to complete certain Tenant Improvements (as defined below) to the Premises by December 31, 2015, but in any event no later than March 31, 2016 (the “
Date of Completion
”) in exchange for certain lease amendments and Edgewood’s acknowledgement and agreement that upon completion of the Tenant Improvements the Premises will be deemed to be in first class condition as required by the Amended and Restated Amendment as of the Date of Completion.
WHEREAS, Edgewood and CPT have agreed to make certain modifications to Sections V and VI of the Amended and Restated Amendment, in addition to other sections of the Original Lease related to Sections V and VI, to define the scope of the improvements which CPT has agreed to make in order to obtain Edgewood’s acknowledgement that the first class condition and repair requirements set forth in Section V of the Amended and Restated Amendment have been met as of the Date of Completion, and to provide CPT
with greater flexibility in meeting annual capital expenditure requirements.
NOW THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, effective on the Effective Date, the Parties hereto agree to amend and restate Article VI of the Original Lease, Sections V and VI of the Amended and Restated Amendment, and Article VII and Section 26.10 of the Original Lease, and agree to amend Section 22.1 of the Original Lease as follows:
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I.
|
The Parties agree that from and after the Effective Date, the terms set forth in the Original Lease, as amended by the Amended and Restated Amendment, the MontBleu Lease Amendment No.3, and this MontBleu Lease Amendment No. 4 (collectively, the “
Lease
”) contain all of the terms and conditions for the lease of the Premises by Landlord to Tenant.
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II.
Article VI of the Original Lease and Sections V and VI of the Amended and Restated Amendment are restated in their entirety to read as follows:
Section 6.1
At all times during the term of this Lease, the Tenant shall, at its sole cost, maintain the Premises and the furniture, furnishings and equipment thereon in first class condition and maintain the entire Premises in a manner which complies in all material respects with all laws and regulations of all governmental authorities having jurisdiction over the Premises. The Tenant shall not at any time during the term of this Lease permit waste of the Premises or allow the Premises or the buildings included in the Premises to depreciate in value by reason of any neglect of the Tenant. At such time as any furniture, furnishings, equipment and other personal property included in the Premises must be replaced, the Tenant shall, at its sole costs, replace items to the extent replacement of such items is necessary in connection with the operation of the resort hotel, casino and related facilities (the “
Enterprise
”).
Section 6.2
The Landlord and Tenant acknowledge that as of the Effective Date the Premises are not in a first class condition and repair as required by Section 6.1 above, and, further, that Tenant is obligated to ensure the Premises are in first class condition and repair no later than the Date of Completion. Tenant has provided Landlord with certain renderings and a budget pursuant to which it proposes to remodel and make improvements and repairs to the Premises between the Effective Date and the Date of Completion (the “
Tenant Improvements
”) captioned MontBleu Property Renovation which is attached as Schedule 1 and fully incorporated herein by reference. In addition, Tenant has provided and/or agrees to provide other information as follows:
(a)
Tenant has provided Landlord with a Material and FF&E Schedule, Images, Specifications, and Floor Plans, including the Bergman Walls & Associates’ final construction drawings, reduced versions of which are attached to Schedule 2 (the “
Detail for the Guest Related Areas
”) for the elevator lobbies, rotunda, corridors, guest rooms, guest bathrooms, and vending areas (collectively, the “
Guest Related Areas
”) on which it proposes to spend approximately $16,000,000 (the “
Budget for the Guest Related Areas
”).
(b)
Tenant has provided Landlord an FF&E Schedule, Images, Specifications, and Floor Plans, including the Bergman Walls & Associates’ final construction drawings, reduced versions of which are attached to Schedule 2 (the “
Detail for the Public Areas
”) for the Casino, Ballroom, Conference/Convention Center, Meeting Rooms, and Meeting Rooms Registration area (collectively, the “
Public Areas
”) on which it
proposes to spend approximately $1,200,000 comprised of approximately $500,000 for the Conference/Convention Center, Meeting Rooms, and Meeting Rooms Registration and approximately $700,000 for the Casino (the “
Budgets for the Public Areas
”).
(c)
Tenant has provided Landlord with a scope of work and a budget detailing an expenditure of a minimum of $5,900,000 for the Sports Book and Sports Bar remodel, the Showroom and Box Office remodel, the Site and Grounds refurbishment, the installation of a building maintenance scheduling program, Exterior refresh, the Porte Cochere refresh, and the Lobby/Check In area refurbishment (collectively, the “
Additional Public Areas
”) comprised of estimates of approximately $1,151,000 for the Site and Grounds refurbishment, approximately $100,000 for the installation of a building maintenance scheduling program, approximately $1,207,000 for the Exterior refresh, approximately $731,000 for the Porte Cochere refresh, approximately $737,000 for the Lobby/Check In area refurbishment, approximately $1,072,000 for the Sports Book and Sports Bar remodel, and approximately $941,000 for the Showroom and Box Office remodel (the “
Scope of Work and Budgets for the Additional Public Areas
”). The Scope of Work and Budgets for the Additional Public Areas do not include an FF&E Schedule, Images, Specifications, and Floor Plans for the Additional Public Areas, and Tenant agrees to provide Landlord information and documentation similar to what it provided to Landlord for the Guest Related Areas and Public Areas no later than sixty (60) days prior to the scheduled commencement of work on the Additional Public Areas (the “
Detail for the Additional Public Areas
”).
(d)
Tenant has provided Landlord with a scope of work and a budget for renovations to the Marquee Sign (the “
Marquee Sign
”) pursuant to which it proposes to spend approximately $750,000, but subject to local jurisdictional approval for a new LED display, will spend approximately $1,000,000 (the “
Scope of Work and
Budget for the Marquee Sign
”). Tenant has further provided Landlord preliminary images and remodel concepts for the Marquee Sign (the “
Preliminary Detail for the Marquee Sign
”). Tenant agrees to provide Landlord its final construction documents similar to what it provided to Landlord for the Guest Related Areas and Public Areas no later than sixty (60) days prior to the scheduled commencement of work on the Marquee Sign (the “
Final Detail for the Marquee Sign
”).
The Detail for the Guest Related Areas and the Detail for the Public Areas are attached to this MontBleu Lease Amendment No. 4 as Schedule 2 and fully incorporated herein by reference. The MontBleu Remodel Budget encompassing the Budget for the Guest Related Areas and the Budgets for the Public Areas is attached to this MontBleu Lease Amendment No. 4 as Schedule 3 and fully incorporated herein by reference. The Scope of Work and Budget for the Additional Public Areas and the Scope of Work and Budget for the Marquee Sign are attached to this MontBleu Lease Amendment as Schedule 4 and fully incorporated herein by reference. The Preliminary Detail for the Marquee Sign is attached to this MontBleu Lease Amendment as Schedule 5 and fully incorporated herein by reference. Collectively, the budgets set forth in Schedules 3 and 4 will be referred to as the “
Project Budgets
”.
Section 6.3
Landlord has reviewed and consented to the Detail for the Guest Related Areas and the Detail for the Public Areas; however, Landlord’s consent to the
Detail for the Additional Public Areas and the Final Detail for the Marquee Sign, shall be required prior to Tenant’s commencement of work on the Additional Public Areas and the Marquee Sign. Landlord’s consent shall not be unreasonably withheld or delayed, and, with regard to the Additional Public Areas shall be granted as long as the Detail for the Additional Public Areas is consistent with the quality and standards set forth in the Detail for the Public Areas. With regard to the Marquee Sign, Landlord’s consent shall be granted so long as the Final Detail for the Marquee Sign is consistent with the quality and standards set forth in the Preliminary Detail for the Marquee Sign.
Section 6.4
Subject to Landlord’s consent as required by Section 6.3, Tenant agrees to proceed with reasonable diligence to complete, at its expense, the Tenant Improvements in accordance with and as described in Schedules 1, 2, 3, 4, and 5 attached hereto. The Tenant Improvements shall be the sole responsibility of Tenant in accordance with the provisions of this Lease.
Section 6.5
Prior to March 31, 2016, Landlord hereby agrees to not give Tenant a notice of default (or otherwise declare a default) under the Lease (including under Section 5.1 of the Original Lease or Section 6.1 above) due to the Premises not being in first class condition and repair, provided that Tenant has commenced work on and is proceeding with diligence to complete the Tenant Improvements and reasonably contemplates timely completing the Tenant Improvements by March 31, 2016, and provided Tenant is otherwise performing all of its obligations to keep the Premises in good repair and otherwise complies with such other obligations to repair and maintain the Premises under Sections 6.1, 6.2, and 6.7, including those Routine Maintenance Items identified on Schedule 6 attached hereto and fully incorporated herein by reference.
Section 6.6
Landlord acknowledges that if Tenant (1) timely completes the Tenant Improvements in accordance with the Detail for the Guest Related Areas, the Detail for the Public Areas, the Detail for the Additional Public Areas, and the Detail for the Marquee Sign and (2) expends the amounts set forth in the Project Budgets directly on each area as set forth therein without any material variance, the Tenant Improvements will bring the Premises into first class condition and repair as of the Date of Completion. It is understood and agreed that the Project Budgets are approximate amounts and that the actual expenditures for each area may vary depending upon contract pricing, but it is further understood and agreed that such Project Budgets may not vary downward by more than 15% without Landlord’s consent, which consent will not be unreasonably withheld or delayed, and, additionally, that the cumulative expenditures for all of the Tenant Improvements, exclusive of the Owner Provided Items, must, in any event, meet or exceed $24,000,000.
Section 6.7.
Beginning in Lease Year 2014, and continuing thereafter during the term of the Lease, Tenant must spend annually or reserve the percentages of annual Gross Revenues (as defined in Section 2.10) set forth in this Section 6.7 (the “
CapEx Requirement
”) to be used in connection with the Premises, with the percentages set forth in subsections (b) - (d) to be spent on or reserved for real property capital expenditures at the Premises, including, without limitation, the replacement and upgrade of electrical, plumbing, mechanical, fire safety, and other building systems that have reached or are imminently close to reaching the end of their useful lives, and the renovation of guest rooms and other facilities, so as to maintain the Premises
(including the front of the house, the back of the house, and the parking areas) at all times in a condition that is both first class and competitive with other hotel-casinos at Stateline, Nevada, and also in compliance with all laws and regulations of all governmental authorities having jurisdiction over the Premises.
For Lease Year 2014 and continuing thereafter during the term of the Lease, Tenant’s CapEx Requirement shall be as follows:
(a)
Tenant’s expenditures in 2014 necessary to satisfy the shortfall on its CapEx Requirement for Lease Year 2013 and to address those real property capital expenditures on the Premises identified in its Detailed Annual Budget for Lease Year 2014 which are not included in the Tenant Improvements, and its completion of the Tenant Improvements in accordance with the requirements of Section 6.6. shall satisfy the CapEx Requirement for the 2014 and 2015 Lease Years.
(b)
For each Lease Year between January 1, 2016 and December 31, 2018, Tenant shall be required to spend annually or reserve, in order to spend as set forth in Section 6.8 below, two and 50/100ths percent (2.5%) of annual Gross Revenues on its CapEx Requirement, with at least fifty percent (50%) of the CapEx Requirement being spent on real property capital expenditures at the Premises.
(c)
For each Lease Year after the 2018 Lease Year, Tenant shall be required to spend annually or reserve, in order to spend as set forth in Section 6.8 below, five percent (5%) of annual Gross Revenues on its CapEx Requirement, with at least fifty percent (50%) of the CapEx Requirement being spent on real property capital expenditures at the Premises.
(d)
For each Lease Year after the 2018 Lease Year, Tenant may spend annually or reserve up to fifty percent (50%) of the CapEx Requirement on gaming systems, equipment and other furniture, trade fixtures and equipment used at the Premises (even if not capital in nature) (collectively “
Other Property
”).
The CapEx Requirement described in this Section shall be a minimum, not a maximum. The expenditure of the minimum amount shall not create any presumption of compliance with Section 6.1 or other applicable provisions of the Lease. Expenditures made for furniture, furnishings and equipment that do not become a part of the real property under Nevada law, and for gaming equipment, shall not be considered real property capital expenditures.
Section 6.8
In lieu of annual expenditures, Tenant may maintain a reserve for its CapEx Requirement in the amounts set forth in Section 6.7 above (the “
Reserve
”). The amount of any Reserve shall be determined by the Detailed Annual Budget required by Section 6.10 below, and the Reserve shall be accrued in equal quarterly installments in the amount by which the Detailed Annual Budget exceeds actual real property capital expenditures and capital expenditures on Other Property in any given quarter. No later than 60 days after the end of each Lease Year, Tenant shall true up the Reserve by calculating the amount by which the CapEx Requirement for the preceding Lease Year exceeded actual real property capital expenditures and capital expenditures on Other Property in the preceding Lease Year and accruing the Reserve on its balance sheet in such amount. Tenant shall be obligated to fully and entirely
spend the Reserve in a sequential three year period with the first three-year sequential period beginning on January 1, 2016. By way of illustration, if Tenant reserves $6,000,000 in the aggregate for its CapEx Requirement in Lease Years 2019, 2020, and 2021, Tenant, on or before December 31, 2021, must fully and entirely spend that $6,000,000 on real property capital expenditures at the Premises and/or on Other Property to the extent allowed under Section 6.7 hereof. After the 2015 Lease Year, if Tenant spends more than fifty percent (50%) of the CapEx Requirement on Other Property in any Lease Year or in any sequential three year period, the amount spent in excess of the threshold for Other Property may be carried forward and applied towards Tenant’s CapEx Requirement with respect to Other Property in subsequent Lease Years. At the termination of the Lease, Tenant shall pay any and all remaining balance in the Reserve to Landlord.
Section 6.9
Tenant acknowledges that the Reserve is for the benefit of the Premises, and, further, that it is important that the Reserve be held in such a manner as to ensure that the Reserve will be invested in the Premises. Provided there is no default under the terms of the Lease, Tenant may hold and account for the Reserve in whatever manner it determines appropriate. However, in the event of any default under the terms of the Lease or in the event of a sale of the Premises as to which Landlord has the right but does not exercise its right of first refusal under Section 10.1 of the Lease or in the event of an assignment of the Lease which is not a Permitted Transfer under Section 10.4 of the Lease, and upon 10 calendar days’ written notice from Landlord, Tenant shall pay and deliver to Landlord (by way of wire transfer or bank cashier’s check) the amount of the Reserve required to be held by Tenant, and Landlord shall hold such amount(s) as security for the full and faithful performance of Tenant’s CapEx Requirement (the “
Reserve Deposit
”). The Parties agree that the any amount paid to Landlord pursuant to this Section 6.9 is not an advance rent deposit or an advance payment of any other kind, nor a measure of Landlord’s damages upon Tenant’s default. Landlord shall segregate any monies received from Tenant pursuant to this Section 6.9 from its general funds, although Landlord shall not be required to pay any interest thereon. Landlord may in its sole discretion (but shall not be required) to use the Reserve Deposit or any portion thereof to cure any failure by Tenant to meet any of its CapEx Requirement. Provided that any event of default has been cured and is not continuing, Landlord, if it is holding a Reserve Deposit, shall disburse to Tenant from the Reserve Deposit such amounts as Tenant has actually spent to meet its CapEx Requirement in any sequential three-year period.
Section 6.10
In order to assist Landlord in determining compliance with the requirements of Article VI of the Lease, Tenant shall prepare, keep, and provide the following information to Landlord:
(a) Subject to the provisions of Article XXI of the Original Lease concerning confidentiality, beginning with Lease Year 2016, at least thirty (30) days prior to the beginning of each Lease Year, Tenant shall create and provide a detailed annual budget to Landlord that sets forth, on an itemized basis, Tenant’s plans for real property capital expenditures on the Premises and expenditures on furniture, furnishings and equipment for the Premises (the “
Detailed Annual Budget
”).
(b) Tenant shall separately keep for the Enterprise, accounting records sufficient to furnish all of the information necessary to compute annual Gross Revenues and to
determine the amount and nature of the real property capital and other expenditures made. Such accounting records shall include detailed information concerning the nature of each expenditure, the date of the expenditure, and to whom payment was made. All accounting records required to be kept shall be available for inspection and copying by Landlord or its authorized agents, attorneys or accountants, at any reasonable time, and shall be made available at the Premises or at such other location as Landlord and Tenant may mutually agree, and Tenant shall allow and facilitate the duplication of such documents by Landlord.
(c) Not less than one hundred twenty (120) days after the end of each Lease Year, the Tenant will provide Landlord with a statement of the annual Gross Revenues of the Enterprise as defined in Section 2.10 for such Lease Year, and a statement of amounts spent and reserved pursuant to the requirements of Article VI, reported upon and certified by independent certified public accountants, who may be the auditors for the Tenant, and a computation approved in writing by those independent certified public accountants, showing that the provisions of Article VI have been satisfied for the prior Lease Year. Landlord may, upon notice given to Tenant, object to such statement and give notice to Tenant under
Section 11.1(b)
that Tenant has failed to comply with the requirements of this Article VI.
(d)
Tenant shall gather and provide to Landlord within forty-five (45) days of Landlord’s written request, any and all documents (both paper and electronic) in its possession, custody or control relating to any past, present or future renovations, Alterations (as defined in Article VII), repairs and/or improvements to the Premises, including without limitation, plans, drawings, requests for proposals, estimates, contracts, change orders, spreadsheets, accounting reports, correspondence, progress reports, and permits. Tenant’s obligation to gather and provide records shall encompass any records in the possession of its affiliates and agents. All such documents shall be produced at the Premises or at such other location as Landlord and Tenant may mutually agree, and Tenant shall allow and facilitate the duplication of such documents by Landlord.
(e)
Tenant shall provide to Landlord on an ongoing basis, and in any event within forty-five (45) days of a written request by Landlord: any and all test and/or inspection reports obtained or received by Tenant or its affiliates, agents or attorneys with respect to the condition of the Premises, including, without limitation, any tests for the presence of asbestos or mold, and any tests regarding environmental conditions at the Premises. All such documents, whether in paper or electronic form, shall be produced at the Premises or at such other location as Landlord and Tenant may mutually agree, and Tenant shall allow and facilitate the duplication of such documents by Landlord.
(f)
Beginning with Lease Year 2019, within thirty (30) days after the end of each calendar quarter, Tenant shall provide a detailed report to Landlord that compares, on an itemized basis, actual expenses for such real property capital expenditures and expenditures on furniture, furnishings and equipment against budgeted expenses, and which provides detailed explanations for any substantial deviation from the original budget.
Section 6.11
Any delay in or failure of performance of Tenant to complete the Tenant Improvements on or before the Date of Completion shall not constitute an event default
to the extent that such delay or failure is caused by: acts of God or the public enemy; expropriation or confiscation of facilities; compliance with any order or request of any governmental authority; acts of war, rebellion or sabotage or damage resulting there from; embargoes or other import or export restrictions; fires, floods, explosions, accidents, or breakdowns; riot; civil disturbance; strikes or other concerted acts of workers, whether direct or indirect; or any other causes whether or not of the same class or kind as those specifically named which are not within the control of the Tenant and which, by the exercise of reasonable diligence, Tenant would be unable to prevent or provide against.
III.
Article VII of the Original Lease is restated in its entirety to read as follows:
Section 7.1
Landlord’s prior written consent, which will not be unreasonably withheld, will be required for those alterations to the Premises which involve:
(a) The structural soundness or fundamental purpose of the existing hotel/casino building on the Premises;
(b) Demolition of existing hotel casino buildings on the Premises except for the removal or deletion of portions to facilitate alterations otherwise permitted hereunder;
(c) Construction of permanent, substantial and free-standing new buildings on the Premises;
(d) Governmental conditions, requirements or land use changes which affect or may affect the Premises beyond the original term of the Lease or beyond any renewal term for which the option has been exercised; or
(e) Any of the actions by Tenant referred to in Section 5.2 of the Lease.
For purposes of this Article VII,
“Alterations”
shall include construction of new improvements, modifications to, or replacement of existing improvements or any substantial parts thereof, demolition of existing improvements or substantial parts thereof.
Section 7.2
Except as provided in Sections 6.3 and 7.1, Tenant may undertake Alterations on the Premises without Landlord’s prior written consent.
Section 7.3
Tenant shall be responsible for designing, constructing, and installing at its sole cost and expense all Alterations on and in the Premises and will complete the Alterations with diligence in a good and workman like manner and in accordance with all applicable laws, ordinances and regulations. All plans and specifications for Alterations requiring Landlord’s approval under Section 7.1 (the “
Tenant's Plans
”), including the proposed scope of work, space plans, design plans, and architectural, mechanical and electrical drawings, shall be prepared by a licensed architect or engineer. All of Tenant’s Plans shall be (a) consistent with the design and construction of the Premises; and (b) sufficient to secure all required approvals from governmental authorities. Landlord shall approve or disapprove any of Tenant’s Plans as promptly as is reasonably possible, but in no event later than ten (10) business days after receipt of the Tenant’s Plans and such other information as is reasonably required for Landlord to make a reasonable decision with respect to the same. If Landlord disapproves any
Tenant's Plans, Landlord shall notify Tenant thereof and of any revisions that Landlord reasonably requires in order to obtain Landlord's approval.
Section 7.4
Tenant shall first obtain all required licenses and permits relating to Alterations on the Premises and shall contract directly with a licensed contractor for the construction and installation of any and all Alterations.
Section 7.5
All subcontractors, laborers, materialmen, and suppliers used by Tenant (such subcontractors, laborers, materialmen, and suppliers, and the Contractor are hereinafter collectively referred to as “
Tenant's Agents
”) shall carry worker's compensation insurance covering all of their respective employees, and shall also carry public liability insurance, including property damage, all with limits, in form and with companies as are required to be carried by Tenant as set forth in Sections 9.2 and 9.4 of the Original Lease. Tenant shall carry “Builder's All Risk” insurance in an amount reasonably requested by Landlord based upon the nature and scope of the Alterations, it being understood and agreed that the Alterations shall be insured by Tenant pursuant to Section 9.1 of the Original Lease immediately upon completion thereof. Such insurance shall be in amounts and shall include such extended coverage endorsements as may be reasonably requested by Landlord based upon the nature and scope of the Alterations, including, but not limited to, the requirement that all of Tenant's Agents shall carry excess liability and Products and Completed Operation Coverage insurance, each in amounts not less than $500,000 per incident, $1,000,000 in aggregate, and in form and with companies as are required to be carried by Tenant as set forth in Section 9.4 of the Original Lease.
Section 7.6
Certificates for all insurance carried pursuant to Article VII of the Lease shall be delivered to Landlord before the commencement of construction of the Alterations and before the Contractor's equipment is moved onto the site, and Tenant shall maintain all of the foregoing insurance coverage in force until the Alterations are fully completed and accepted by Landlord. All such policies of insurance must contain a provision that the company writing said policy will give Landlord thirty (30) days' prior written notice of any cancellation or lapse of the effective date or any reduction in the amounts of such insurance.
Section 7.7
In the event that the Alterations are damaged by any cause during the course of the construction thereof, Tenant shall, at its own cost and expense and within forty-five (45) days of such damage, undertake the repair and restoration of the Alterations in accordance with the provisions of the Lease. Landlord and Tenant will cooperate in efforts to recover any insurance proceeds which may become due as the result of such damage.
Section 7.8
Tenant shall obtain and maintain any Products and Completed Operation Coverage insurance required by Landlord for ten (10) years following completion of the work for which such insurance is required by Landlord.
Section 7.9
All policies required by the Lease shall insure Landlord and Tenant, as their interests may appear, as well as Contractor and Tenant's Agents. All insurance, except Workers' Compensation, maintained by Tenant's Agents shall preclude subrogation claims by the insurer against anyone insured thereunder. Such insurance shall provide that it is primary insurance as respects the Landlord and that any other
insurance maintained by Landlord is excess and noncontributing with the insurance required hereunder. The requirements for the foregoing insurance shall not derogate from the provisions for indemnification of Landlord by Tenant under Article XVI of the Original Lease.
Section 7.10
For any Alterations that Tenant undertakes that will require Tenant to spend in the aggregate at least $1,000,000, Tenant shall separately keep records related to the Alterations sufficient to furnish all of the information necessary to determine the amount and nature of the Alterations, including detailed information concerning the nature of each expenditure, the date of the expenditure, and to whom payment was made. All such records required to be kept shall be available for inspection and copying by Landlord or its authorized agents, attorneys or accountants, at any reasonable time upon prior notice to Tenant, and shall be made available at the Premises or at such other location as Landlord and Tenant may mutually agree, and Tenant shall allow and facilitate the duplication of such documents by Landlord.
Section 7.11
Landlord shall be given reasonable access, upon no less than two calendar days’ written notice, to enter upon the Premises and inspect any Alterations being made by Tenant.
Section 7.12
The Tenant will pay all costs of Alterations permitted under this Article during the term of this Lease, and except as otherwise provided, will be entitled to all salvage in connection with demolition or replacement (including replacing of furniture, furnishings and equipment) during the term of this Lease. Tenant shall timely notify Landlord of all demolition of portions of the Premises owned by Landlord.
Section 7.13
The Tenant will pay for all Alterations in time to prevent the imposition of any workman’s or materialman’s lien upon the Premises or, if a workman’s or materialman’s lien is imposed upon the Premises because of a claim which the Tenant is contesting, within sixty (60) days of the filing of such lien the Tenant will take such measures as provided by law to cause the discharge of the lien, including obtaining a bond therefor.
IV. Section 26.10 of the Original Lease is restated in its entirety as follows:
Section 26.10
All notices and other communications required or permitted to be given by the Landlord or the Tenant to the other or to the holder of a Leasehold Mortgage or a Permitted Fee Mortgage must be in writing and will be deemed given on the day when delivered in person or on the third business day after the day on which mailed from within the United States of America by certified or registered, return receipt requested, postage prepaid, mail, or the next business day if mailed via an express overnight mail. All notices and other communications required or permitted to be given by the Landlord or the Tenant shall be addressed as follows:
If to the Landlord:
Edgewood Companies
P. O. Box 2249
Lake Tahoe, Nevada 89449
Attn: President and CEO
and to:
Gordon H. DePaoli, Esq.
Woodburn & Wedge
6100 Neil Road, Suite 500
P. O. Box 2311
Reno, Nevada 89505
If to the Tenant:
Columbia Properties Tahoe, LLC
c/o Tropicana Entertainment Inc.
8345 W. Sunset Road, Suite 200
Las Vegas, Nevada 89113
Attn: Chief Financial Officer
and to:
Columbia Properties Tahoe, LLC
c/o Tropicana Entertainment Inc.
Brighton and the Boardwalk
Atlantic City, New Jersey 08401
Attn: General Counsel
And to:
Brownstein Hyatt Farber Schreck, LLP.
100 North City Parkway
Suite 1600
Las Vegas, Nevada 89106-4614
Attn: Angela Otto, Esq.
or to such other address as the Landlord or the Tenant may from time to time designate in a written notice to the other. All notices to the holder of a Leasehold Mortgage or a Permitted Fee Mortgage shall be addressed to the holder at the address given to the Landlord by the Tenant or by the holder of the mortgage.
V.
Section 22.1 of the Original Lease is amended to refer to Section 7.13 instead of Section 7.6 of the Lease.
VI.
Except as expressly modified herein, the Original Lease, the Amended and Restated Amendment, and the MontBleu Lease Amendment No. 3 shall remain in full force and effect and the Parties shall be bound by all of the terms and conditions thereof and hereof.
VII.
In the case of any conflict between the provisions of the Original Lease, the Amended and Restated Amendment, the MontBleu Lease Amendment No. 3, or this MontBleu Lease Amendment No. 4, the provisions of this MontBleu Lease Amendment No. 4 shall govern and control.
VIII.
This MontBleu Lease Amendment No. 4 may be entered into in more than one counterpart, each of which shall be deemed an original when executed, and which together shall constitute but one and the same MontBleu Lease Amendment No. 4. Each Party may rely on facsimile and PDF signature pages as if such facsimile and PDF pages were originals.
SIGNATURES ON FOLLOWING PAGE
Landlord and Tenant have duly executed this MontBleu Lease Amendment No. 4 as of the Effective Date.
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LANDLORD:
Edgewood Companies, a Nevada corporation
By: /s/ Charles W. Scharer
Name: Charles W. Scharer
Its: President & Chief Executive Officer
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TENANT:
Columbia Properties Tahoe, LLC, a Nevada limited liability company
By: /s/ Lance J. Millage
Name: Lance J. Millage
Its: Chief Financial Officer
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SCHEDULE 1
MONTBLEU PROPERTY RENOVATION
(Attached hereto)
SCHEDULE 2
MATERIAL AND FF&E SCHEDULE, IMAGES, SPECIFICATIONS AND FLOOR PLANS FOR THE GUEST RELATED AREAS AND THE PUBLIC AREAS
(Attached hereto)
SCHEDULE 3
MONTBLEU REMODEL BUDGET
(Attached hereto)
SCHEDULE 4
SCOPE OF WORK & BUDGETS FOR THE ADDITIONAL PUBLIC AREAS AND THE MARQUEE SIGN
(Attached hereto)
SCHEDULE 5
PRELIMINARY DETAIL FOR THE MARQUEE SIGN
(attached hereto)
SCHEDULE 6
ROUTINE MAINTENANCE ITEMS
(attached hereto)