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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2013
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-54480
ALST CASINO HOLDCO, LLC
(Exact name of registrant as specified in its charter)
Delaware | 45-2487922 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
7300 Aliante Parkway, North Las Vegas, NV | 89084 | |
(Address of principal executive offices) | (Zip Code) |
(702) 692-7777
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 ¨
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 ¨
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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of May 14, 2013, there were 432,213 units outstanding of the registrant’s common units.
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ALST CASINO HOLDCO, LLC
PART I—FINANCIAL INFORMATION | ||||||
ITEM 1. | 2 | |||||
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 10 | ||||
ITEM 3. | 18 | |||||
ITEM 4. | 18 | |||||
PART II—OTHER INFORMATION | ||||||
ITEM 1. | 18 | |||||
ITEM 1A. | 18 | |||||
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | 18 | ||||
ITEM 3. | 18 | |||||
ITEM 4. | 19 | |||||
ITEM 5. | 19 | |||||
ITEM 6. | 19 | |||||
20 |
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ALST CASINO HOLDCO, LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, 2013 | December 31, 2012 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 10,137 | $ | 11,276 | ||||
Restricted cash | 304 | 304 | ||||||
Receivables, net | 1,591 | 1,131 | ||||||
Inventories | 503 | 457 | ||||||
Prepaid gaming taxes | 1,060 | 1,201 | ||||||
Prepaid expenses and other current assets | 1,154 | 1,186 | ||||||
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Total current assets | 14,749 | 15,555 | ||||||
Property and equipment, net | 65,732 | 66,595 | ||||||
Intangible assets, net | 2,354 | 2,398 | ||||||
Other assets, net | 6,388 | 6,380 | ||||||
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Total assets | $ | 89,223 | $ | 90,928 | ||||
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LIABILITIES AND MEMBERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 974 | $ | 966 | ||||
Accounts payable | 1,897 | 3,420 | ||||||
Accrued payroll and related | 1,094 | 1,538 | ||||||
Accrued gaming and related | 1,357 | 1,446 | ||||||
Accrued expenses and other current liabilities | 934 | 689 | ||||||
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Total current liabilities | 6,256 | 8,059 | ||||||
Long-term debt, less current portion | 45,881 | 45,141 | ||||||
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Total liabilities | 52,137 | 53,200 | ||||||
Members’ equity: | ||||||||
Members’ capital | 37,254 | 37,254 | ||||||
Additional paid-in-capital | 25 | 25 | ||||||
(Accumulated deficit) retained earnings | (193 | ) | 449 | |||||
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Total members’ equity | 37,086 | 37,728 | ||||||
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Total liabilities and members’ equity | $ | 89,223 | $ | 90,928 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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ALST CASINO HOLDCO, LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
Three Months Ended | ||||||||
March 31, 2013 | March 31, 2012 | |||||||
Revenues: | ||||||||
Casino | $ | 12,087 | $ | 14,535 | ||||
Food and beverage | 3,131 | 3,471 | ||||||
Room | 1,421 | 1,692 | ||||||
Other | 755 | 663 | ||||||
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Gross revenues | 17,394 | 20,361 | ||||||
Promotional allowances | (1,200 | ) | (1,424 | ) | ||||
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Net revenues | 16,194 | 18,937 | ||||||
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Operating costs and expenses: | ||||||||
Casino | 5,804 | 6,214 | ||||||
Food and beverage | 2,731 | 2,518 | ||||||
Room | 574 | 558 | ||||||
Other | 55 | 146 | ||||||
Selling, general and administrative | 5,525 | 6,061 | ||||||
Depreciation and amortization | 1,082 | 783 | ||||||
Management fees | — | 482 | ||||||
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Total operating costs and expenses | 15,771 | 16,762 | ||||||
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Operating income | 423 | 2,175 | ||||||
Interest expense, net | (1,065 | ) | (992 | ) | ||||
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Net (loss) income | $ | (642 | ) | $ | 1,183 | |||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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ALST CASINO HOLDCO, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Three Months Ended | ||||||||
March 31, 2013 | March 31, 2012 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) income | $ | (642 | ) | $ | 1,183 | |||
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Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | 1,082 | 783 | ||||||
Amortization of debt discount and debt issuance costs | (242 | ) | (198 | ) | ||||
Accrued interest - paid in kind | 1,245 | 1,140 | ||||||
Share-based compensation | — | 4 | ||||||
Changes in operating assets and liabilities: | ||||||||
Restricted cash | 857 | |||||||
Receivables, net | (460 | ) | 121 | |||||
Inventories and prepaid expenses | 127 | 173 | ||||||
Accounts payable | (1,523 | ) | (12 | ) | ||||
Accrued payroll and other current liabilities | (288 | ) | (1,621 | ) | ||||
Other, net | (8 | ) | — | |||||
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Total adjustments | (67 | ) | 1,247 | |||||
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Net cash (used in) provided by operating activities | (709 | ) | 2,430 | |||||
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Cash flows from investing activities: | ||||||||
Capital expenditures | (175 | ) | (102 | ) | ||||
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Net cash used in investing activities | (175 | ) | (102 | ) | ||||
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Cash flows from financing activities: | ||||||||
Principal payments on debt | (255 | ) | (249 | ) | ||||
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Net cash used in financing activities | (255 | ) | (249 | ) | ||||
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Net (decrease) increase in cash and cash equivalents | (1,139 | ) | 2,079 | |||||
Cash and cash equivalents, beginning of period | 11,276 | 9,583 | ||||||
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Cash and cash equivalents, end of period | $ | 10,137 | $ | 11,662 | ||||
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Supplemental cash flow disclosure: | ||||||||
Cash paid for interest | $ | 43 | $ | 50 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ALST CASINO HOLDCO, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Organization
ALST Casino Holdco, LLC (the “Company,” “we,” “us” or “our”), a Delaware limited liability company, was formed on May 11, 2011. We were formed to acquire substantially all of the equity interests of Aliante Gaming, LLC (“Aliante Gaming”) pursuant to its joint plan of reorganization under Chapter 11 of Title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”). The reorganization was completed on November 1, 2011 (the “Effective Date”), resulting in Aliante Gaming, the owner and operator of Aliante Casino and Hotel, previously Aliante Station Casino + Hotel located in North Las Vegas, Nevada (the “Casino”), becoming our wholly owned subsidiary.
Prior to the Effective Date, Aliante Gaming was a wholly owned subsidiary of Aliante Holding, LLC (“Aliante Holding”), which was a 50/50 joint venture partnership between Aliante Station, LLC (“Aliante Station”), a wholly owned subsidiary of Station Casinos, Inc. (“Old Station”) and G.C. Aliante, LLC, an affiliate of the Greenspun Corporation.
Background
On April 12, 2011 (the “Petition Date”), Aliante Gaming, together with Aliante Holding and Aliante Station, filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code (the “Chapter 11 Case”), in the United States Bankruptcy Court for the District of Nevada, Northern Division (the “Bankruptcy Court”) to preserve their assets and the value of their estates. Aliante Gaming experienced lower than expected operating results as a result of macroeconomic conditions, including a downturn in the Las Vegas area and low consumer confidence levels. As a result, Aliante Gaming failed to (i) remain in compliance with certain financial maintenance covenants set forth in its $430.0 million credit facility (the “Previous Facility”) and (ii) make scheduled principal or interest payments under the Previous Facility since April 2009.
The Chapter 11 Case was jointly administered with certain subsidiaries of Old Station and Green Valley Ranch Gaming, LLC under the lead case In re Station Casinos, Inc., et. al. originally filed on July 28, 2009 (Jointly Administered Case No. 09-52477). Old Station emerged from Chapter 11 on June 17, 2011 as Station Casinos LLC (“New Station,” and collectively with Old Station, “Station”).
On May 20, 2011, Aliante Gaming, along with Aliante Holding, Aliante Station and certain other affiliates of Old Station, filed with the Bankruptcy Court, an amended joint plan of reorganization (the “Plan”) resulting from negotiations with its lenders (the “Lenders”) under the Previous Facility and its International Swaps and Derivatives Association master agreement (the “Swap Agreement”). Under the Plan, Aliante Gaming and the Lenders agreed to enter into a series of restructuring transactions pursuant to which the Lenders received new equity of, and issued new debt to, Aliante Gaming, as reorganized, as of the Effective Date.
On the Effective Date, (i) 100% of the equity interests in Aliante Gaming previously held by Aliante Holding was canceled and ceased to be outstanding, (ii) each Lender received, on account, and in full satisfaction, of its claims against Aliante Gaming arising under the Previous Facility and the Swap Agreement, its pro rata share of (a) 100% of the equity interests in Aliante Gaming (the “New Aliante Equity”), which was contributed to the Company in exchange for 432,003 units of our issued and outstanding membership interests (“Common Units”) and (b) 100% of $45.0 million in aggregate principal amount of senior secured term loans of Aliante Gaming (the “Senior Secured Loans”) under a new senior secured credit facility (the “Senior Secured Credit Facility”), (iii) the Previous Facility and the Swap Agreement were canceled (clauses (i), (ii) and (iii) referred to herein as the “Restructuring Transactions”) and (iv) each creditor holding an unsecured claim was paid in full. Prior to the Effective Date, we conducted no operations and had no material assets or liabilities.
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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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results of the Company’s and Aliante Gaming’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 December 31, 2012.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the Company and its wholly owned subsidiary, Aliante Gaming. All material intercompany transactions are eliminated in consolidation.
Fair Value of Financial Instruments
The estimated fair value of the Company’s financial instruments has been determined by the Company using available market information and valuation methodologies. However, considerable judgment is required to develop the estimates of fair value; thus, the estimates provided herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
The carrying amounts of cash, receivables, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments.
Related Party Transactions
On the Effective Date, the Company and Aliante Gaming entered into the Senior Secured Credit Facility with the Lenders, which own 100% of the Company’s Common Units. In addition, pursuant to the amended and restated operating agreement (the “Operating Agreement”) the Lenders have the right to designate up to four individuals to serve on the Company’s Board of Managers. The members of the Board of Managers that are designated by the Lenders could be deemed to have a material direct or indirect interest in the Senior Secured Credit Agreement by virtue of their relationship with the Lenders.
Income Taxes
We are a limited liability company disregarded as an entity separate from its owners for income tax purposes and as such, are a pass-through entity and not liable for income tax in the jurisdiction in which we operate. As a result, no provision for income taxes has been made in the accompanying condensed financial statements.
Recently Issued Accounting Standards
In December 2011, the Financial Accounting Standards Board(“FASB”) issued amendments to enhance disclosures about offsetting and related arrangements. This information will enable the users of the financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial and derivative instruments. These amendments are effective for annual reporting periods, and interim periods within those years, beginning on
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or after January 1, 2013. The disclosures required by these amendments should be provided retrospectively for all comparative periods presented. Management does not believe that these amendments will have a material impact on the financial statements.
A variety of proposed or otherwise potential accounting standards are currently under study 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 financial statements.
Note 3. Receivables
Receivables, net consist of the following (in thousands):
March 31, 2013 | December 31, 2012 | |||||||
(unaudited) | ||||||||
Casino | $ | 102 | $ | 25 | ||||
Hotel | 286 | 197 | ||||||
Other | 1,271 | 967 | ||||||
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1,659 | 1,189 | |||||||
Allowance for doubtful accounts | (68 | ) | (58 | ) | ||||
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Receivables, net | $ | 1,591 | $ | 1,131 | ||||
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Note 4. Property and Equipment
Property and equipment, net consists of the following (amounts in thousands):
Estimated Life (years) | March 31, 2013 | December 31, 2012 | ||||||||
(unaudited) | ||||||||||
Land | — | $ | 6,200 | $ | 6,200 | |||||
Buildings and improvements | 10-45 | 52,676 | 52,676 | |||||||
Furniture, fixtures and equipment | 3-7 | 11,067 | 11,067 | |||||||
Construction in progress | 235 | 59 | ||||||||
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70,178 | 70,002 | |||||||||
Accumulated depreciation and amortization | (4,446 | ) | (3,407 | ) | ||||||
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Property and equipment, net | $ | 65,732 | $ | 66,595 | ||||||
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Note 5. Intangible Assets
Intangible assets, net consist of the following (amounts in thousands):
Estimated Life | March 31, 2013 | December 31, 2012 | ||||||||
(unaudited) | ||||||||||
Trademark | 15 | $ | 1,200 | $ | 1,200 | |||||
Customer relationships | 15 | 1,400 | 1,400 | |||||||
Reservation backlog | 1 | 30 | 30 | |||||||
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Total intangible assets | 2,630 | 2,630 | ||||||||
Less accumulated amortization: | ||||||||||
Trademark | (114 | ) | (93 | ) | ||||||
Customer relationships | (132 | ) | (109 | ) | ||||||
Reservation backlog | (30 | ) | (30 | ) | ||||||
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Total accumulated amortization | (276 | ) | (232 | ) | ||||||
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Intangible assets, net | $ | 2,354 | $ | 2,398 | ||||||
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Upon adoption of fresh-start reporting, we recognized $2.6 million in definite life intangible assets of which $1.2 million was related to a license to use “ALIANTE” in connection with the Casino, $1.4 million related to the value associated with our rated casino guests and $30,000 related to reservation backlog. Intangible assets are being amortized on a straight-line basis over the estimated useful life. The aggregate amortization expense for those assets that are amortized under the provisions of ASC Topic 350 was approximately $44,000 and $51,000 for the three months ended March 31, 2013 and March 31, 2012, respectively.
Note 6. Long-term Debt
Long-term debt consists of the following (in thousands):
March 31, 2013 | December 31, 2012 | |||||||
(unaudited) | ||||||||
Senior Secured Credit Facility, interest payable quarterly (paid in kind at 10%), principal due November 1, 2018, net of unamortized discount at March 31, 2013 and December 31, 2012 of $8.4 million and $8.2 million, respectively (related party) | $ | 43,349 | $ | 42,345 | ||||
Equipment financing, payable in 72 monthly installments including interest at a fixed rate of 2.5% | 2,647 | 2,870 | ||||||
Special Improvement District assessment, payable in 32 semi-annual installments including interest at a fixed rate of 5.8% | 859 | 892 | ||||||
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Long-term debt | 46,855 | 46,107 | ||||||
Less current portion of long-term debt | (974 | ) | (966 | ) | ||||
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Long-term debt, net | $ | 45,881 | $ | 45,141 | ||||
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Senior Secured Credit Facility
On November 1, 2011, the Company and Aliante Gaming entered into the Senior Secured Credit Facility, which provided for $45.0 million in principal amount of Senior Secured Loans, which were deemed made on the same date without any funding being provided. The Senior Secured Credit Facility represented an already outstanding obligation of Aliante Gaming as of November 1, 2011. Through November 1, 2014, the Senior Secured Loans bear interest at a rate to be elected by Aliante Gaming, such rate being either (i) 10% per annum, which interest will be added to the principal amount of the Senior Secured Loans quarterly in arrears and subsequently treated as principal of the Senior Secured Loans, or (ii) 6% per annum, which interest will be payable in cash quarterly in arrears. Following November 1, 2014, the Senior Secured Loans will bear interest at the rate of 6% per annum, which interest will be payable in cash quarterly in arrears. The outstanding principal amount of the Senior Secured Loans and all accrued and unpaid interest thereon will be payable on the maturity date, which shall be the earlier of November 1, 2018 or the acceleration of the Senior Secured Loans in accordance with the terms of the Senior Secured Credit Facility. The Senior Secured Loans may be prepaid in certain minimum amounts without the payment of any prepayment premium or fee. Aliante Gaming has not elected the cash interest payment option, resulting in $51.7 million and $50.5 million in principal outstanding under the Senior Secured Credit Facility as of March 31, 2013 and December 31, 2012, respectively. There is currently no availability for borrowings under the Senior Secured Credit Facility.
The Senior Secured Credit Facility is guaranteed by the Company and by each domestic wholly owned subsidiary of Aliante Gaming and is secured by a first-priority (a) pledge of 100% of the Company’s equity interest in Aliante Gaming, (b) pledge of 100% of the equity interests in Aliante Gaming’s domestic subsidiaries (if any) and 65% of the equity interests of Aliante Gaming’s “first-tier” foreign subsidiaries (if any) and (c) security interest in substantially all of Aliante Gaming’s tangible and intangible assets, as well as those of each subsidiary guarantor (if any), in each case, other than any assets that may not be pledged pursuant to applicable gaming laws and subject to customary exceptions. The Senior Secured Credit Facility includes various covenants and mandatory prepayments which are customary for similar types of financings and does not contain any financial maintenance covenants.
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Equipment Financing
During 2008, Aliante Gaming entered into an equipment financing arrangement which terminates in November 2014 and is accounted for as a capital lease. The agreement calls for monthly payments of approximately $80,000 with a residual payment of $1.1 million to be paid in November 2014.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Background
The following discussion and analysis of our results of operations and financial condition for the three months ending March 31, 2013 and March 31, 2012 should be read in conjunction with our audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012.
ALST Casino Holdco, LLC (the “Company,” “we,” “us” or “our”), a Delaware limited liability company, was formed on May 11, 2011. We were formed to acquire substantially all of the equity interests of Aliante Gaming, LLC (“Aliante Gaming”) pursuant to its joint plan of reorganization under Chapter 11 of Title 11 of the United States Bankruptcy Code. The reorganization was completed on November 1, 2011 (the “Effective Date”), resulting in Aliante Gaming, the owner and operator of Aliante Casino and Hotel, previously Aliante Station Casino + Hotel located in North Las Vegas, Nevada (the “Casino”), becoming our wholly owned subsidiary. The casino is a full-service casino and hotel offering high quality accommodations, gaming, dining, entertainment, retail and other resort amenities. Prior to November 1, 2011, we conducted no operations and had no material assets or liabilities.
On November 1, 2011, the Company and Aliante Gaming entered into a senior secured credit facility (the “Senior Secured Credit Facility”) with the holders (the “Lenders”) of our membership interests (the “Common Units”), also referred to as “Members”. The Lenders own 100% of our Common Units. The Senior Secured Credit Facility is further described under “—Liquidity and Capital Resources”.
Overview
Our operating results are greatly dependent on the level of gaming revenue generated at the Casino. Gaming revenue is generally defined as gaming wins less gaming losses. A substantial portion of our operating income is generated from our gaming operations, primarily from slot play. We use our non-gaming revenue departments to drive customer traffic to the Casino. The majority of our revenue is cash-based, and as a result, fluctuations in our revenues have a direct impact on our cash flows from operations. Additionally, our business is capital intensive, and we rely heavily on the ability of the Casino to generate operating cash flow to repay debt financing and fund maintenance capital expenditures.
Promotional allowances consist primarily of complimentary food and beverages furnished to customers. Upon redemption, the retail value of such services is included in the respective revenue classifications and is then deducted as promotional allowances. We calculate income from operations as net revenues less total operating costs and expenses. Income from operations represents only those amounts that relate to operations and excludes interest income, interest expense and other non-operating income and expenses.
We consider various performance measures in assessing financial condition and results of operations including fluctuations in revenues, expenses and margins as compared to prior periods and internal plans. Additionally, we measure changes in selling, general and administrative expenses as a percent of net revenues, which indicate management’s ability to control costs. We also evaluate our profitability based upon Adjusted EBITDAM (see “—Results of Operations” for additional information), which represents earnings before interest, taxes, depreciation and amortization, management fees, restructuring and other charges and other non-recurring items, as applicable. The measures listed above are not a comprehensive list of all factors considered by us in assessing our financial condition and operating performance, and we may consider other individual measures as required by trends and discrete events arising in a specific period, but these are the key indicators.
We are organized as a limited liability company and are not subject to federal income taxes. Accordingly, a provision for income taxes is not included in our condensed financial statements.
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Management Agreement
On November 1, 2011, the Company entered into a management agreement (the “Management Agreement”) with Station Casinos, LLC (“New Station”) pursuant to which New Station agreed to manage the Casino and to provide certain transition services should the Management Agreement be terminated. Under the terms of the Management Agreement, we were obligated to pay New Station (i) a monthly base management fee equal to 1% of the gross revenues from the Casino, (ii) an annual incentive management fee payable quarterly equal to 7.5% of positive earnings before interest, taxes, depreciation and amortization (“EBITDA”) up to and including $7.5 million and 10% of EBITDA in excess of $7.5 million, and (iii) subject to certain limitations, reimbursement of certain expenses including shared services expenses. Effective November 14, 2011, the Company and New Station agreed to terminate the Management Agreement. Pursuant to the transition services sections of the Management Agreement, New Station continued to operate and manage the Casino until October 31, 2012. Effective November 1, 2012, Aliante Gaming assumed management of the Casino and established its own internal management to oversee the operations of the Casino.
Presentation
On November 1, 2011, we adopted fresh-start reporting in accordance with Accounting Standards Codification Topic 852Reorganizations, which resulted in a new reporting entity for accounting purposes. Accordingly, the carrying values of Aliante Gaming’s assets and liabilities were adjusted to their estimated fair values as of the November 1, 2011. As a result, the historical financial results of Aliante Gaming are not indicative of our current financial condition or our results of operations following November 1, 2011. In addition, our future results of operations will be subject to significant business, economic and competitive uncertainties and contingencies, some of which are beyond our control.
Results of Operations
The following table highlights the results of operations and reconciles Adjusted EBITDAM to net (loss) income for the three months ended March 31, 2013 as compared to the prior year period (in thousands, except percentages):
Three Months Ended | ||||||||||||
March 31, 2013 | March 31, 2012 | Percent Change | ||||||||||
Net revenues | $ | 16,194 | $ | 18,937 | (14.6 | )% | ||||||
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Adjusted EBITDAM (a) | $ | 1,505 | $ | 3,440 | (56.3 | )% | ||||||
Less: | ||||||||||||
Depreciation and amortization | 1,082 | 783 | 38.2 | % | ||||||||
Management fees | — | 482 | n/m | |||||||||
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Operating income | 423 | 2,175 | ||||||||||
Interest expense, net | (1,065 | ) | (992 | ) | (7.4 | )% | ||||||
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Net income (loss) | $ | (642 | ) | $ | 1,183 | |||||||
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n/m = not meaningful
(a) | EBITDA, earnings before interest, taxes, depreciation and amortization, is a widely used measure of operating performance in the gaming industry. We have traditionally adjusted EBITDA when evaluating the Casino’s operating performance because we believe that the inclusion or exclusion of certain non-cash recurring, non-recurring items and management fees is necessary to present the most accurate measure of the Casino’s operating results and as a means to assess results period over period. We refer to the financial measure that adjusts for these items as Adjusted EBITDAM. We believe, when considered with measures calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), Adjusted EBITDAM is a useful financial performance measurement for assessing the Casino’s operating performance |
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and is used by management in making financial and operational decisions. In this regard, Adjusted EBITDAM is a key metric used by us in our budgeting process, when calculating returns on investment of existing and proposed projects and in the evaluation of incentive compensation related to property management. Adjusted EBITDAM consists of net income (loss) plus interest, taxes, depreciation and amortization, management fees and other non-recurring items, as applicable. We believe that while items excluded from Adjusted EBITDAM may be recurring in nature and should not be disregarded in evaluation of the Casino’s operating performance, it is useful to exclude such items when analyzing current results and trends compared to other periods because these items can vary significantly depending on specific underlying transactions, the ability of management to control such items or events and may not be comparable between the periods being presented. Also, we believe excluded items may not relate specifically to the Casino’s operating trends or be indicative of future results. For example, lease terminations will be significantly different in periods when we terminate a lease agreement and it is not expected to be comparable period over period, nor is the amount expected to follow any particular trend from period-to-period. In addition, management fees, while recurring in nature, are based on the operating results of the Casino and as such, the amount of management fees will vary in each period and are not considered Casino operating expenses. Therefore, we use Adjusted EBITDAM as the primary measure of the Casino’s operating performance. We believe that our Members use Adjusted EBITDAM as an appropriate financial measure in determining the value of their investment. To evaluate Adjusted EBITDAM and the trends it depicts, the components should be considered. The impact of interest, taxes, depreciation and amortization, management fees, and other non-recurring items, as applicable, each of which can significantly affect our results of operations and liquidity, should be considered in evaluating our operating performance, and cannot be determined from Adjusted EBITDAM. Adjusted EBITDAM is used in addition to, and in conjunction with, GAAP measures and should not be considered as an alternative to net income (loss), or any other GAAP operating performance measure. To compensate for the inherent limitations of the disclosure of Adjusted EBITDAM, we provide relevant disclosure of our depreciation and amortization, interest and other items in our reconciliations to GAAP financial measures and condensed financial statements, all of which should be considered when evaluating our performance. In addition, it should be noted that not all gaming companies that report Adjusted EBITDAM or adjustments to such measures, may calculate Adjusted EBITDAM, or such adjustments, in the same manner as us, and therefore, our measure of Adjusted EBITDAM may not be comparable to similarly titled measures used by other gaming companies. |
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The following table highlights the various sources of revenues and expenses for the three months ended March 31, 2013 as compared to the prior year period (in thousands, except percentages):
Three Months Ended | ||||||||||||
March 31, 2013 | March 31, 2012 | Percent Change | ||||||||||
Casino revenues | $ | 12,087 | $ | 14,535 | (16.8 | )% | ||||||
Casino expenses | 5,804 | 6,214 | (6.6 | )% | ||||||||
Margin | 52.0 | % | 57.2 | % | ||||||||
Food and beverage revenues | $ | 3,131 | $ | 3,471 | (9.8 | )% | ||||||
Food and beverage expenses | 2,731 | 2,518 | 8.5 | % | ||||||||
Margin | 12.8 | % | 27.5 | % | ||||||||
Room revenues | $ | 1,421 | $ | 1,692 | (16.0 | )% | ||||||
Room expenses | 574 | 558 | 2.9 | % | ||||||||
Margin | 59.6 | % | 67.0 | % | ||||||||
Other revenues | $ | 755 | $ | 663 | 13.9 | % | ||||||
Other expenses | 55 | 146 | (62.3 | )% | ||||||||
Selling, general and administrative expenses | $ | 5,525 | $ | 6,061 | (8.8 | )% | ||||||
Percent of net revenues | 34.1 | % | 32.0 | % |
Casino. Casino revenues decreased by $2.4 million, or 16.8% for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 primarily due to a 22.7% decrease in table games drop and a 9.7% decrease in slot handle. Both decreases are primarily a result of a decrease in gaming patron visitation. Casino expenses decreased 6.6% to $5.8 million for the three months ended March 31, 2013 as compared to $6.2 million for the three months ended March 31, 2012, primarily due to a decrease in expenses associated with decreases in table drop and slot handle. The casino operating margin declined to 52.0% for the three months ended March 31, 2013 as compared to 57.2% for the three months ended March 31, 2012 as a result of the decrease in casino revenues.
Food and Beverage. Food and beverage revenues declined 9.8% to $3.1 million for the three months ended March 31, 2013 as compared to $3.5 million for the prior year period, primarily as a result of a reduction in patron beverage consumption and a decrease in the average check for meals served. Food and beverage expenses increased $0.2 million or 8.5% primarily as a result of increased food costs. The food and beverage operating margin declined to 12.8% for the three months ended March 31, 2013 as compared to 27.5% for the three months ended March 31, 2012 as a result of a decrease in the number of patrons served, together with an increase in overall food costs.
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Room. The following table shows key information for hotel operations:
Three Months Ended | ||||||||||||
March 31, 2013 | March 31, 2012 | Percent Change | ||||||||||
Occupancy | 86 | % | 93 | % | ||||||||
Average daily rate | $ | 91 | $ | 89 | 2.2 | % | ||||||
Revenue per available room | $ | 78 | $ | 83 | 6.0 | % |
Room revenues decreased by 16% for the three month ended March 31, 2013 as compared to the prior year period. The decrease is primarily due to lower occupancy during non-peak periods. Room expenses were relatively flat for the three months ended March 31, 2013 as compared to the prior year period.
Other Revenues and Expenses. Other revenues primarily include income from leased outlets, the gift shop, and entertainment. Other revenues increased by 13.9% during the three month ended March 31, 2013 as compared to the same period in the prior year, primarily as a result of increased rents received from leased outlets. Other expenses decreased by 62.3% during the three month ended March 31, 2013 as compared to the same period in the prior year due to a reduction in fees paid to entertainment artists.
Selling, General and Administrative (“SG&A”).SG&A expenses decreased by 8.8% to $5.5 million for the three months ended March 31, 2013, compared to $6.1 million for the three months ended March 31, 2012. The decrease in SG&A expenses is primarily due to reduced property taxes and professional fees, and greater economy in administrative spending.
Depreciation and Amortization. Depreciation and amortization increased by $0.3 million for the three months ended March 31, 2013, compared to the three months ended March 31, 2012, primarily due to incremental depreciation associated with 2012 fixed asset additions acquired in support of our transition away from management by New Station.
Operating Income. As a result of the factors discussed above, operating income was $0.4 million for the three months ended March 31, 2013, compared to $2.2 million for the three months ended March 31, 2012.
Interest Expense.Interest expense, net for the three months ended March 31, 2013 and March 31, 2012 was $1.1 million and $1.0 million, respectively. Interest expense is primarily related to our Senior Secured Credit Facility which had $51.7 million in Senior Secured Loans outstanding as of March 31, 2013. The Senior Secured Loans bear interest at a rate to be elected by Aliante Gaming, such rate being either (i) 10% per annum, which interest will be added to the principal amount of the Senior Secured Loans quarterly in arrears and subsequently treated as principal of the Senior Secured Loans, or (ii) 6% per annum, which interest will be payable in cash quarterly in arrears. As of March 31, 2013, Aliante Gaming has not elected the cash interest payment option. Interest expense during the three months ended March 31, 2013 was offset by approximately $0.2 million related to an increase in the debt discount incurred in fresh-start reporting as a result of the application of the effective interest method.
Net Income(Loss).As a result of the factors discussed above, net loss was $0.6 million for the three months ended March 31, 2013, compared to a net income of $1.2 million for three months ended March 31, 2012.
Liquidity and Capital Resources
Our cash flows will be affected by a variety of factors, many of which are outside of our control, including recovery of the local gaming market, recovery of the housing market and community surrounding the Casino, competition and other general business conditions. We believe that our available cash and cash flows from our operations will provide sufficient liquidity to fund our cash requirements and capital expenditures for 2013,
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excluding the costs associated with the transition away from New Station. We will endeavor to fund capital expenditures for maintenance of the Casino through future improvements in operating results. However, we cannot assure that we will generate sufficient income and liquidity to meet all of our liquidity requirements and other obligations. Our results for future periods are subject to numerous uncertainties which may result in liquidity problems, and in turn affect our ability to meet our obligations while attempting to meet competitive pressures or adverse economic conditions.
Senior Secured Credit Facility
On November 1, 2011, the Company and Aliante Gaming entered into the Senior Secured Credit Facility, which provided for $45.0 million in principal amount of Senior Secured Loans, which were deemed made on the same date without any funding being provided. The Senior Secured Credit Facility represented an already outstanding obligation of Aliante Gaming as of November 1, 2011. Through November 1, 2014, the Senior Secured Loans bear interest at a rate to be elected by Aliante Gaming, such rate being either (i) 10% per annum, which interest will be added to the principal amount of the Senior Secured Loans quarterly in arrears and subsequently treated as principal of the Senior Secured Loans, or (ii) 6% per annum, which interest will be payable in cash quarterly in arrears. Following November 1, 2014, the Senior Secured Loans will bear interest at the rate of 6% per annum, which interest will be payable in cash quarterly in arrears. The outstanding principal amount of the Senior Secured Loans and all accrued and unpaid interest thereon will be payable on the maturity date, which shall be the earlier of November 1, 2018 or the acceleration of the Senior Secured Loans in accordance with the terms of the Senior Secured Credit Facility. The Senior Secured Loans may be prepaid in certain minimum amounts without the payment of any prepayment premium or fee. Aliante Gaming has not elected the cash interest payment option, resulting in $51.7 million in principal outstanding under the Senior Secured Credit Facility as of March 31, 2013. There is currently no availability for borrowings under the Senior Secured Credit Facility.
The Senior Secured Credit Facility is guaranteed by the Company and by each domestic wholly owned subsidiary of Aliante Gaming and is secured by a first-priority (a) pledge of 100% of the Company’s equity interest in Aliante Gaming, (b) pledge of 100% of the equity interests in Aliante Gaming’s domestic subsidiaries (if any) and 65% of the equity interests of Aliante Gaming’s “first-tier” foreign subsidiaries (if any) and (c) security interest in substantially all of Aliante Gaming’s tangible and intangible assets, as well as those of each subsidiary guarantor (if any), in each case, other than any assets that may not be pledged pursuant to applicable gaming laws and subject to customary exceptions. The Senior Secured Credit Facility includes various covenants and mandatory prepayments which are customary for similar types of financings and does not contain any financial maintenance covenants.
Year Ending December 31, 2013
Our primary cash requirements for the remainder of 2013, are expected to include approximately $5.6 million for capital expenditures and $0.8 million for principal and interest payments on indebtedness. We do not expect to make distributions to the Members for 2013. At March 31, 2013, we have no availability for borrowings under the Senior Secured Credit Facility and we had $10.1 million in cash and cash equivalents, approximately half of which is used on the casino floor with the other half reserved for other general purposes.
Our cash flow may be affected by a variety of factors, many of which are outside our control, including regulatory issues, competition, financial markets and other general business conditions. We cannot assure that we will possess sufficient income and liquidity to meet all of our liquidity requirements and other obligations. Although we believe that cash flows from operations will be adequate to meet our financial and operating obligations in 2013, our results for future periods are subject to numerous uncertainties. We may encounter liquidity problems, which could affect our ability to meet our obligations while attempting to meet competitive pressures or adverse economic conditions.
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Three months ended March 31, 2013 and 2012
The following table summarizes our historical cash flows (in thousands):
Three Months Ended | ||||||||
March 31, 2013 | March 31, 2012 | |||||||
Net cash (used in) provided by operating activities | $ | (709 | ) | $ | 2,430 | |||
Net cash used in investing activities | (175 | ) | (102 | ) | ||||
Net cash used in financing activities | (255 | ) | (249 | ) | ||||
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Net (decrease) increase in cash and cash equivalents | $ | (1,139 | ) | $ | 2,079 | |||
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For the three months ended March 31, 2013, net cash used in operating activities were $0.7 million as compared to $2.4 million of cash provided by operating activities for the three months ended March 31, 2012. The decrease in cash flows from operating activities is primarily the result of changes in net working capital and net income. For the three months ended March 31, 2013 and March 31, 2012, cash used in investing activities consisted of capital expenditures. Cash used in financing activities represents principal payments on debt for the three months ended March 31, 2013 and March 31, 2012. There were no distributions to the Members during the three months ended March 31, 2013 and March 31, 2012.
Off Balance Sheet Arrangements
As of March 31, 2013, we did not have any off-balance sheet arrangements that have had or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
As of March 31, 2013, there were no material changes to the contractual obligations previously reported under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2013.
Critical Accounting Policies
A description of our critical accounting policies can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on April 1, 2013.
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Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. Such statements contain words such as “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “may,” “will,” “might,” “should,” “could,” “would,” “seek,” “pursue,” and “anticipate” or the negative or other variation of these or similar words, or may include discussions of strategy or risks and uncertainties. Forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements concerning:
• | projections of future results of operations or financial condition; |
• | expectations regarding our business and results of operations; |
• | expenses and our ability to operate efficiently; |
• | expectations regarding trends that will affect our market and the gaming industry generally and the impact of those trends on our business and results of operations; |
• | our ability to comply with the covenants in the agreements governing our outstanding indebtedness; |
• | our ability to meet our projected debt service obligations, operating expenses and maintenance capital expenditures; |
• | expectations regarding the availability of capital resources; and |
• | the impact of regulation on our business and our ability to maintain necessary approvals for our property. |
Any forward-looking statement is based upon a number of estimates and assumptions that, while considered reasonable by us, is inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control, and are subject to change. Actual results of operations may vary materially from any forward-looking statement made herein. Forward-looking statements should not be regarded as a representation by us or any other person that the forward-looking statements will be achieved. Undue reliance should not be placed on any forward-looking statements. Some of the contingencies and uncertainties to which any forward-looking statement contained herein is subject include, but are not limited to, the following:
• | the economic downturn, and in particular the economic downturn in Las Vegas, Nevada, and its effect on consumer spending and our business; |
• | the effects of intense competition that exists in the gaming industry; |
• | the risk that new gaming licenses or gaming activities, such as internet gaming, are approved and result in additional competition; |
• | the risk that we are dependent on one property for all of our cash flow; |
• | the impact of extensive regulation from gaming and other government authorities on our ability to operate our business and the risk that regulatory authorities may revoke, suspend, condition or limit our gaming or other licenses, impose substantial fines or take other actions that adversely affect us; |
• | risks associated with changes to applicable gaming and tax laws could have a material adverse effect on our financial condition; and |
• | the impact of general business conditions, including competitive practices, changes in customer demand and the cyclical nature of the gaming and hospitality business generally, and general economic conditions on our business and results of operations. |
You should consider 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, 2012, filed with the SEC on April 1, 2013. 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of March 31, 2013, there were no material changes to the information previously reported under “Item 7A. Quantitative and Qualitative Disclosures About market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on April 1, 2013.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of its Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). You should note that the design of any system of control is based in part upon certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective and designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
During the quarter ended March 31, 2013, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to affect, our internal control over financial reporting.
The Company is currently a party to litigation arising in the ordinary course of business. As with all litigation, no assurance can be provided as to the outcome, and litigation inherently involves significant costs.
A description of our risk factors can be found in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on April 1, 2013. There have been no material changes in the risk factors described in such Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
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ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
None.
Exhibit | Description | |
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS* | XBRL Instance Document. | |
101.SCH* | XBRL Taxonomy Extension Schema. | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase. | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase. | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase. | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase. |
* | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
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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.
ALST CASINO HOLDCO, LLC, Registrant | ||||||||
Dated: May 15, 2013 | By: | /s/ SOOHYUNG KIM | ||||||
Name: | Soohyung Kim | |||||||
Title: | Manager, Chief Executive Officer and Secretary |
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