10-Q 1 d344753d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

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 June 30, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-88242

 

 

JACOBS ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   34-1959351
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
17301 West Colfax Ave., Suite 250,  
Golden, Colorado   80401
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code (303) 215-5200

 

 

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 the definitions 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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

Class

       Outstanding as of August 13, 2012    

Class A Common Stock, $.01 par value

   1,320 shares

Class B Common Stock, $.01 par value

   180 shares

 

 

 


Table of Contents

Jacobs Entertainment, Inc.

Index

June 30, 2012

 

PART I.

  FINANCIAL INFORMATION      3   

Item 1.

  Financial Statements:      3   
 

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011

     3   
 

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011

     4   
 

Unaudited Condensed Consolidated Statements of Stockholder’s Equity for the six months ended June 30, 2012 and 2011

     5   
 

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011

     6   
 

Notes to Unaudited Condensed Consolidated Financial Statements

     7   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      25   

Item 3.

  Quantitative and Qualitative Disclosures about Market Risk      39   

Item 4.

  Controls and Procedures      41   

PART II.

  OTHER INFORMATION      41   

Item 1.

  Legal Proceedings      41   

Item 1A.

  Risk Factors      41   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      41   

Item 3.

  Defaults Upon Senior Securities      41   

Item 4.

  Mine Safety Disclosures      41   

Item 5.

  Other Information      41   

Item 6.

  Exhibits      42   

SIGNATURES

     43   

EXHIBIT INDEX

     44   

 

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Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

JACOBS ENTERTAINMENT, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

 

     June 30,
2012
    December 31,
2011

(As adjusted,
see Note 7)
 

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 28,184      $ 25,397   

Restricted cash

     4,539        1,225   

Accounts receivable, net

     3,556        3,297   

Due from affiliates

     80        225   

Inventory

     3,728        3,994   

Other current assets

     4,429        2,934   
  

 

 

   

 

 

 

Total current assets

     44,516        37,072   
  

 

 

   

 

 

 

PROPERTY, PLANT AND EQUIPMENT:

    

Land and improvements

     67,783        67,638   

Building and improvements

     204,770        204,330   

Equipment, furniture and fixtures

     114,839        111,063   

Leasehold improvements

     2,933        3,232   

Construction in progress

     1,686        715   
  

 

 

   

 

 

 
     392,011        386,978   

Less accumulated depreciation

     (163,549     (156,056
  

 

 

   

 

 

 

Property, plant and equipment, net

     228,462        230,922   
  

 

 

   

 

 

 

OTHER NONCURRENT ASSETS:

    

Goodwill

     50,844        50,844   

Identifiable intangible assets, net

     8,691        8,675   

Debt issue costs, net

     2,595        2,826   

Investment in equity securities

     3,865        1,521   

Other assets

     2,641        2,025   
  

 

 

   

 

 

 

TOTAL

   $ 341,614      $ 333,885   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDER’S EQUITY

    

CURRENT LIABILITIES:

    

Accounts payable

   $ 8,699      $ 8,345   

Accrued expenses

     19,777        18,661   

Due to affiliates

     695        5,446   

Current portion of long-term debt and capital lease obligations

     579        13,306   
  

 

 

   

 

 

 

Total current liabilities

     29,750        45,758   

Long-term debt and capital lease obligations

     292,249        286,066   

Other noncurrent liabilities

     1,240        1,211   
  

 

 

   

 

 

 

Total liabilities

     323,239        333,035   
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 5)

    

STOCKHOLDER’S EQUITY:

    

Class A Common stock $.01 par value; 1,800 shares authorized, 1,320 shares issued and outstanding as of June 30, 2012 and December 31, 2011

     —          —     

Class B Common stock $.01 par value; 200 shares authorized, 180 shares issued and outstanding as of June 30, 2012 and December 31, 2011

     —          —     

Additional paid-in capital

     50,378        39,269   

Accumulated deficit

     (32,003     (38,419
  

 

 

   

 

 

 

Total stockholder’s equity

     18,375        850   
  

 

 

   

 

 

 

TOTAL

   $ 341,614      $ 333,885   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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JACOBS ENTERTAINMENT, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011
(As
adjusted,

see Note 7)
    2012     2011
(As
adjusted,

see Note 7)
 

REVENUES

        

Gaming:

        

Casino

   $ 36,501      $ 36,682      $ 73,338      $ 72,776   

Truck stop

     19,015        18,822        40,149        39,244   

Pari-mutuel

     7,780        7,779        14,525        14,161   

Food and beverage

     7,486        7,459        14,714        14,595   

Convenience store — fuel

     30,935        32,452        62,095        59,202   

Convenience store — other

     4,093        3,852        7,908        7,289   

Hotel

     1,137        1,040        1,987        1,792   

Other

     1,737        1,626        3,182        2,883   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     108,684        109,712        217,898        211,942   

Less: Promotional allowances

     (9,471     (9,399     (19,225     (18,692
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

     99,213        100,313        198,673        193,250   
  

 

 

   

 

 

   

 

 

   

 

 

 

COSTS AND EXPENSES

        

Gaming:

        

Casino

     12,503        12,579        25,160        25,041   

Truck stop

     11,039        11,191        22,652        22,953   

Pari-mutuel

     6,355        6,204        11,502        11,054   

Food and beverage

     3,791        3,859        7,202        7,255   

Convenience store — fuel

     29,029        30,435        59,131        56,097   

Convenience store — other

     5,228        5,094        10,531        9,633   

Hotel

     226        236        392        398   

Marketing, general and administrative

     17,513        16,535        34,953        32,706   

Unrealized loss (gain) on change in fair value of investment in equity securities

     130        (333     (2,344     (813

Impairment of long-lived assets

     —          10,065        —          10,065   

Depreciation and amortization

     4,798        5,704        9,913        11,378   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     90,612        101,569        179,092        185,767   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME (LOSS)

     8,601        (1,256     19,581        7,483   

Interest income

     —          5        11        17   

Interest expense

     (6,439     (6,910     (13,176     (14,087
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS)

     2,162        (8,161     6,416        (6,587

Net income of subsidiary attributable to the noncontrolling interest

     —          (9     —          (13
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO JACOBS ENTERTAINMENT, INC.

   $ 2,162      $ (8,170   $ 6,416      $ (6,600
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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JACOBS ENTERTAINMENT, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

(Dollars in Thousands)

 

     Common Stock                           
     Class A
Shares
     Class B
Shares
     Amount*      Additional
Paid-in
Capital
    Accumulated
Deficit
    Noncontrolling
Interest
    Total  

BALANCES, JANUARY 1, 2012
(As adjusted, see Note 7)

     1,320         180       $ —         $ 39,269      $ (38,419   $ —        $ 850   

Capital contributions

              18,210            18,210   

Distributions

              (7,101         (7,101

Net income

                6,416          6,416   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

BALANCES, JUNE 30, 2012

     1,320         180       $ —         $ 50,378      $ (32,003   $ —        $ 18,375   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     Common Stock                           
     Class A
Shares
     Class B
Shares
     Amount*      Additional
Paid-in
Capital
    Accumulated
Deficit
    Noncontrolling
Interest
    Total  

BALANCES, JANUARY 1, 2011
(As adjusted, see Note 7)

     1,320         180       $ —         $ 33,814      $ (29,837   $ 1,329      $ 5,306   

Capital contributions

              20,943            20,943   

Distributions

              (15,723         (15,723

Acquisition of noncontrolling interest

                  (623     (623

Net (loss) income (As adjusted, see Note 7)

                (6,600     13        (6,587
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

BALANCES, JUNE 30, 2011
(As adjusted, see Note 7)

     1,320         180       $ —         $ 39,034      $ (36,437   $ 719      $ 3,316   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

  

 

* The par value amount of the Jacobs Entertainment, Inc. 1,320 shares of Class A common stock and 180 shares of Class B common stock outstanding for the periods presented is less than $500 and is therefore presented as $0 due to rounding.

See notes to unaudited condensed consolidated financial statements.

 

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JACOBS ENTERTAINMENT, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

 

     Six Months Ended 
June 30,
 
     2012     2011
(As adjusted,
see Note 7)
 

OPERATING ACTIVITIES:

    

Net income (loss)

   $ 6,416      $ (6,587 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and amortization

     9,913        11,378   

Impairment of long-lived assets

     —          10,065   

Unrealized gain on change in fair value of investment in equity securities

     (2,344     (813

Loss (gain) on sale of equipment

     294        (7

Deferred financing cost amortization

     834        1,166   

Changes in operating assets and liabilities, net of acquisitions:

    

Restricted cash

     (3,314     (3,387

Accounts receivable, net

     (259     (1,193

Inventory

     266        (55

Other assets

     (2,111     (1,210

Accounts payable

     1,593        1,698   

Accrued expenses and other noncurrent liabilities

     1,172        2,150   

Due from/to affiliates

     (657     (401
  

 

 

   

 

 

 

Net cash provided by operating activities

     11,803        12,804   
  

 

 

   

 

 

 

INVESTING ACTIVITIES:

    

Additions to property, plant and equipment

     (8,205     (8,102

Proceeds from sale of equipment

     55        116   

Purchases of device rights

     (698     (1,259

Purchase of trademark

     (125     —     

Acquisition of noncontrolling interest

     —          (1,243
  

 

 

   

 

 

 

Net cash used in investing activities

     (8,973     (10,488
  

 

 

   

 

 

 

FINANCING ACTIVITIES:

    

Payments to obtain financing

     (603     —     

Proceeds from issuance of debt

     5,000        800   

Borrowings on revolving line of credit

     27,000        30,800   

Payments on long-term debt

     (12,439     (1,471

Payments on revolving line of credit

     (11,900     (14,300

Distributions to stockholder

     (7,101     (14,407
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (43     1,422   
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     2,787        3,738   

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     25,397        24,868   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 28,184      $ 28,606   
  

 

 

   

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

    

Cash paid for interest

   $ 12,627      $ 12,728   
  

 

 

   

 

 

 

Non-cash investing and financing activities:

    

Capital contributions related to liabilities paid by affiliate

   $ 18,210      $ 20,943   
  

 

 

   

 

 

 

Capital distributions related to assets retained by affiliate

   $ —        $ 1,316   
  

 

 

   

 

 

 

Non-cash additions to property

   $ 727      $ 488   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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JACOBS ENTERTAINMENT, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

 

1. BUSINESS AND ORGANIZATION

Jacobs Entertainment, Inc. (“JEI,” the “Company,” “us,” “our,” or “we”) was formed on April 17, 2001 to become a geographically diversified gaming and pari-mutuel wagering company with properties in Colorado, Nevada, Louisiana and Virginia. We are a wholly-owned subsidiary of Jacobs Investments, Inc. (“JII”) and a Qualified Subchapter S-Corporation Subsidiary under the Internal Revenue Code of 1986, as amended. Jeffrey P. Jacobs, our Chief Executive Officer (“CEO”), and his family trusts own 100% of JII’s outstanding Class A and Class B shares. Our CEO and his affiliates are referred to herein as “Jacobs.”

We currently own and operate five casinos through wholly-owned subsidiaries. Our casinos include The Lodge Casino at Black Hawk (“The Lodge”) and the Gilpin Hotel Casino (“Gilpin”), both in Black Hawk, Colorado, the Gold Dust West in Reno, Nevada (“Gold Dust West-Reno”), the Gold Dust West in Carson City, Nevada (“Gold Dust West-Carson City”) and the Gold Dust West in Elko, Nevada (“Gold Dust West-Elko”). JEI also owns and operates 22 video poker truck stops in Louisiana, which are collectively referred to as “truck stops.” We also receive a percentage of gaming revenue from an additional truck stop. Finally, JEI owns and operates a horse racing track with ten satellite wagering facilities in Virginia through a wholly-owned subsidiary, Colonial Holdings, Inc. (“Colonial”).

During 2012 and 2011, we completed several related party acquisitions which were accounted for as combinations of entities under common control. Accordingly, the accompanying unaudited condensed consolidated financial statements have been retroactively adjusted to include the operations of these businesses from January 1, 2011. See Note 7.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Condensed Consolidated Financial StatementsThe accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of our financial position as of June 30, 2012 and December 31, 2011, the results of our operations for the three and six months ended June 30, 2012 and 2011, and changes in stockholder’s equity and cash flows for the six months ended June 30, 2012 and 2011. All intercompany transactions and balances have been eliminated in consolidation. We have evaluated subsequent events through the date on which the financial statements are issued.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto in our Form 10-K report for the year ended December 31, 2011 filed with the U.S. Securities and Exchange Commission. Our significant accounting policies are discussed in detail in Note 2 to the financial statements contained in our Form 10-K report. The results of interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2012.

New Accounting Guidance In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), which provides amendments to FASB Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement. The objective of ASU 2011-04 is to create common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards (“IFRS”). The amendments clarify existing fair value measurement and disclosure requirements and make changes to particular principles or requirements for measuring or disclosing information about fair value measurements. ASU 2011-04 was effective for interim and annual periods beginning after December 15, 2011. We adopted this standard effective January 1, 2012, which did not have an impact on our unaudited condensed consolidated financial statements other than requiring additional disclosures.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income: Presentation of Comprehensive Income (“ASU 2011-05”), which provides amendments to FASB ASC Topic 220, Comprehensive Income. The objective of ASU 2011-05 is to require an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011 and is to be applied retrospectively. In December 2011,

 

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the FASB issued Accounting Standards Update No. 2011-12, Comprehensive Income: Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”), which defers the effective date of changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments in this update are effective at the same time as the amendments in ASU 2011-05. The adoption of this guidance will only impact our unaudited condensed consolidated financial statements if we have components of comprehensive income besides net income in the future. Therefore, no statement of comprehensive income has been included.

In December 2011, the FASB issued Accounting Standards Update No. 2011-11, Balance Sheet: Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). The objective of ASU 2011-11 is to require an entity to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. ASU 2011-11 is effective for interim and annual reporting periods beginning on or after January 1, 2013 and should be applied retrospectively. The adoption of this standard will not have an impact on our unaudited condensed consolidated financial statements.

 

3. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

We test goodwill for impairment as of September 30 each year or when circumstances indicate it is necessary. Testing compares the estimated fair values of our reporting units to the reporting units’ carrying value. We consider a variety of factors when estimating the fair value of our reporting units, including estimates about the future operating results of each reporting unit, multiples of EBITDA (earnings before interest, income taxes, depreciation and amortization), investment banker market analyses, and recent sales of comparable business units, if such information is available to us. A variety of estimates and judgments about the relevance and comparability of these factors to the reporting units are made. As of September 30, 2011, prior to our acquisition from a related party (see Note 7), we determined the carrying value of the goodwill at one of our video poker truck stops was impaired. Consequently, we recorded a goodwill impairment charge of $2,177 during the third quarter of 2011. There have been no circumstances subsequently to indicate any additional impairment testing is required. There has been no change in the carrying amount of goodwill during 2012.

During the second quarter of 2012, we purchased a trademark from a third party for $125. The trademark is an indefinite-lived intangible asset. We will test the trademark for impairment as of September 30 each year or when circumstances indicate it is necessary.

Identifiable intangible assets as of June 30, 2012 and December 31, 2011, consist of the following:

 

            June 30, 2012      December 31, 2011 (As adjusted, see Note 7)  
     Weighted
Average
Remaining
Life (in
years)
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
 

Amortizable intangible assets:

                    

Revenue rights

     39.50       $ 6,000       $ 1,260       $ 4,740       $ 6,000       $ 1,200       $ 4,800   

Device use rights

     2.65         12,597         9,111         3,486         12,573         9,081         3,492   

Restriction agreements

     4.30         850         510         340         850         467         383   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total amortizable intangible assets

        19,447         10,881         8,566         19,423         10,748         8,675   

Indefinite-lived intangible assets:

                    

Trademark

        125         —           125         —           —           —     
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

      $ 19,572       $ 10,881       $ 8,691       $ 19,423       $ 10,748       $ 8,675   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Aggregate amortization expense of identifiable intangible assets was $419 and $440 for the three months ended June 30, 2012 and 2011, respectively, and $807 and $851 for the six months ended June 30, 2012 and 2011, respectively.

Estimated amortization expense for the years ending December 31:

 

2012 (remaining 6 months)

   $ 826   

2013

     1,221   

2014

     977   

2015

     873   

2016

     468   

Thereafter

     4,201   
  

 

 

 

Total

   $ 8,566   
  

 

 

 

 

4. SEGMENTS

Our CEO is our chief operating decision maker. At June 30, 2012 and 2011, we had four segments representing the geographic regions of our operations. Each segment is managed separately because of the unique characteristics of its revenue stream and customer base. We have aggregated our operations into these four segments based on similarities in the nature of the properties’ businesses, customers and regulatory environment in which each property operates. The Colorado segment consists of The Lodge and Gilpin casinos. Our Nevada segment includes the Gold Dust West-Reno, Gold Dust West-Carson City and Gold Dust West-Elko casinos. The Louisiana operations consist of video poker truck stops, and the Virginia segment consists of Colonial’s pari-mutuel operations and satellite wagering facilities.

The accounting policies of the segments are the same as those described in Note 2 above and those included in our Form 10-K report for the year ended December 31, 2011. Corporate and other, which represents all other income and expenses, is also presented.

 

9


Table of Contents

As of and for the Three Months Ended June 30, 2012

 

     Colorado     Nevada     Louisiana     Virginia      Corporate
and Other
    Total  

Revenues:

             

Gaming

             

Casino

   $ 27,618      $ 8,883             $ 36,501   

Truck stop

       $ 19,015             19,015   

Pari-mutuel

         $ 7,780           7,780   

Food and beverage

     2,968        2,491        1,430        597           7,486   

Convenience store — fuel

         30,935             30,935   

Convenience store — other

         4,093             4,093   

Hotel

     497        640               1,137   

Other

     302        301        362        507       $ 265        1,737   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total revenues

     31,385        12,315        55,835        8,884         265        108,684   

Less: Promotional allowances

     (6,276     (1,582     (1,613          (9,471
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net revenues

   $ 25,109      $ 10,733      $ 54,222      $ 8,884       $ 265      $ 99,213   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

EBITDA(1)

   $ 8,793      $ 1,790      $ 6,065      $ 236       $ (3,485   $ 13,399   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Depreciation and amortization

   $ 1,620      $ 871      $ 1,428      $ 751       $ 128      $ 4,798   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Interest income

   $ —        $ —        $ —        $ —         $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Interest expense

   $ 2,158      $ 1,253      $ 1,358      $ 124       $ 1,546      $ 6,439   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income

              $ 2,162   
             

 

 

 

Balance Sheet Information as of June 30, 2012:

             

Goodwill

   $ 6,711      $ 8,836      $ 35,297      $ —         $ —        $ 50,844   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Identifiable intangible assets, net

   $ —        $ —        $ 8,566      $ —         $ 125      $ 8,691   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Property, plant and equipment, net

   $ 85,790      $ 24,754      $ 45,648      $ 60,589       $ 11,681      $ 228,462   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 107,691      $ 41,415      $ 103,737      $ 69,213       $ 19,558      $ 341,614   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Long-term debt

   $ 84,771      $ 61,040      $ 68,586      $ 4,827       $ 73,025      $ 292,249   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Capital expenditures

   $ 1,820      $ 969      $ 756      $ 511       $ 120      $ 4,176   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

10


Table of Contents

As of and for the Six Months Ended June 30, 2012

 

     Colorado     Nevada     Louisiana     Virginia      Corporate
and Other
    Total  

Revenues:

             

Gaming

             

Casino

   $ 55,327      $ 18,011             $ 73,338   

Truck stop

       $ 40,149             40,149   

Pari-mutuel

         $ 14,525           14,525   

Food and beverage

     5,982        4,880        2,981        871           14,714   

Convenience store — fuel

         62,095             62,095   

Convenience store — other

         7,908             7,908   

Hotel

     996        991               1,987   

Other

     581        622        765        687       $ 527        3,182   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total revenues

     62,886        24,504        113,898        16,083         527        217,898   

Less: Promotional allowances

     (12,803     (3,140     (3,282          (19,225
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net revenues

   $ 50,083      $ 21,364      $ 110,616      $ 16,083       $ 527      $ 198,673   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

EBITDA(1)

   $ 17,250      $ 3,647      $ 12,478      $ 727       $ (4,608   $ 29,494   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Depreciation and amortization

   $ 3,238      $ 1,911      $ 2,848      $ 1,665       $ 251      $ 9,913   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Interest income

   $ —        $ —        $ 8      $ 3       $ —        $ 11   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Interest expense

   $ 4,315      $ 2,533      $ 2,727      $ 256       $ 3,345      $ 13,176   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income

              $ 6,416   
             

 

 

 

Balance Sheet Information as of June 30, 2012:

             

Goodwill

   $ 6,711      $ 8,836      $ 35,297      $ —         $ —        $ 50,844   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Identifiable intangible assets, net

   $ —        $ —        $ 8,566      $ —         $ 125      $ 8,691   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Property, plant and equipment, net

   $ 85,790      $ 24,754      $ 45,648      $ 60,589       $ 11,681      $ 228,462   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 107,691      $ 41,415      $ 103,737      $ 69,213       $ 19,558      $ 341,614   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Long-term debt

   $ 84,771      $ 61,040      $ 68,586      $ 4,827       $ 73,025      $ 292,249   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Capital expenditures

   $ 2,886      $ 1,483      $ 1,711      $ 1,557       $ 568      $ 8,205   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

11


Table of Contents

As of and for the Three Months Ended June 30, 2011

(Balance Sheet Data as of December 31, 2011)

 

     Colorado     Nevada     Louisiana
(As
adjusted,

see Note 7)
    Virginia      Corporate
and Other

(As adjusted,
see Note 7)
    Total
(As
adjusted,

see Note 7)
 

Revenues:

             

Gaming

             

Casino

   $ 27,543      $ 9,139             $ 36,682   

Truck stop

       $ 18,822             18,822   

Pari-mutuel

         $ 7,779           7,779   

Food and beverage

     2,978        2,455        1,484        542           7,459   

Convenience store — fuel

         32,452             32,452   

Convenience store — other

         3,852             3,852   

Hotel

     470        570               1,040   

Other

     235        309        444        439       $ 199        1,626   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total revenues

     31,226        12,473        57,054        8,760         199        109,712   

Less: Promotional allowances

     (6,323     (1,528     (1,548          (9,399
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net revenues

   $ 24,903      $ 10,945      $ 55,506      $ 8,760       $ 199      $ 100,313   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

EBITDA(1)

   $ 8,382      $ (7,898   $ 5,793      $ 332       $ (2,161   $ 4,448   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Depreciation and amortization

   $ 1,677      $ 1,673      $ 1,572      $ 584       $ 198      $ 5,704   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Interest income

   $ —        $ —        $ 1      $ 4       $ —        $ 5   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Interest expense

   $ 2,158      $ 1,274      $ 1,488      $ 128       $ 1,862      $ 6,910   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net loss

              $ (8,161
             

 

 

 

Balance Sheet Information as of December 31, 2011:

             

Goodwill

   $ 6,711      $ 8,836      $ 35,297      $ —         $ —        $ 50,844   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Identifiable intangible assets, net

   $ —        $ —        $ 8,675      $ —         $ —        $ 8,675   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Property, plant and equipment, net

   $ 86,571      $ 25,194      $ 46,636      $ 60,773       $ 11,748      $ 230,922   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 108,238      $ 41,081      $ 103,304      $ 65,774       $ 15,488      $ 333,885   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Long-term debt

   $ 84,771      $ 61,086      $ 76,316      $ 4,844       $ 59,049      $ 286,066   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Capital expenditures

   $ 1,597      $ 461      $ 569      $ 631       $ 210      $ 3,468   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

12


Table of Contents

As of and for the Six Months Ended June 30, 2011

(Balance Sheet Data as of December 31, 2011)

 

     Colorado     Nevada     Louisiana
(As
adjusted,

see Note 7)
    Virginia      Corporate
and Other

(As adjusted,
see Note 7)
    Total
(As
adjusted,

see Note 7)
 

Revenues:

             

Gaming

             

Casino

   $ 54,601      $ 18,175             $ 72,776   

Truck stop

       $ 39,244             39,244   

Pari-mutuel

         $ 14,161           14,161   

Food and beverage

     5,955        4,781        3,032        827           14,595   

Convenience store — fuel

         59,202             59,202   

Convenience store — other

         7,289             7,289   

Hotel

     943        849               1,792   

Other

     453        615        847        649       $ 319        2,883   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total revenues

     61,952        24,420        109,614        15,637         319        211,942   

Less: Promotional allowances

     (12,553     (3,061     (3,078          (18,692
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net revenues

   $ 49,399      $ 21,359      $ 106,536      $ 15,637       $ 319      $ 193,250   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

EBITDA(1)

   $ 16,431      $ (6,211   $ 11,990      $ 862       $ (4,211   $ 18,861   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Depreciation and amortization

   $ 3,325      $ 3,364      $ 3,137      $ 1,151       $ 401      $ 11,378   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Interest income

   $ —        $ —        $ 5      $ 12       $ —        $ 17   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Interest expense

   $ 4,315      $ 2,548      $ 3,168      $ 257       $ 3,799      $ 14,087   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net loss

              $ (6,587
             

 

 

 

Balance Sheet Information as of December 31, 2011:

             

Goodwill

   $ 6,711      $ 8,836      $ 35,297      $ —         $ —        $ 50,844   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Identifiable intangible assets, net

   $ —        $ —        $ 8,675      $ —         $ —        $ 8,675   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Property, plant and equipment, net

   $ 86,571      $ 25,194      $ 46,636      $ 60,773       $ 11,748      $ 230,922   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 108,238      $ 41,081      $ 103,304      $ 65,774       $ 15,488      $ 333,885   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Long-term debt

   $ 84,771      $ 61,086      $ 76,316      $ 4,844       $ 59,049      $ 286,066   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Capital expenditures

   $ 3,414      $ 1,635      $ 1,043      $ 1,143       $ 867      $ 8,102   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) EBITDA (earnings before interest, income taxes, depreciation and amortization) is presented as supplemental information in the tables above as it is a key measure of operating performance used by our chief operating decision maker. EBITDA can be reconciled directly to our unaudited condensed consolidated net income (loss) by adding the amounts shown for depreciation, amortization, income taxes and interest to net income (loss). This information should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States of America, such as net income (loss), nor should it be considered as an indicator of our overall financial performance. Our calculation of EBITDA may be different from the calculation used by other companies and comparability may be limited. Management believes that presentation of a non-GAAP financial measure such as EBITDA is useful because it allows holders of our debt and management to evaluate and compare our operating results from continuing operations from period to period in a meaningful and consistent manner in addition to standard GAAP financial measures. Management internally evaluates the performance of our segments using EBITDA measures as do most analysts following the gaming industry. EBITDA is also a key component of certain financial covenants in our debt agreements.

 

5. COMMITMENTS AND CONTINGENCIES

Commitments

Colonial has an agreement with a totalisator company to provide totalisator equipment and services for pari-mutuel wagering at all of Colonial’s facilities and through Colonial’s EZ Horseplay account wagering platform. The agreement has fixed and variable cost elements and expires in February 2015. Colonial has two one year renewal options. Colonial also has an agreement with a company which provides the internet wagering interface, video streaming and other services which support Colonial’s EZ Horseplay account wagering platform. Fees payable under the agreement are primarily based upon a sliding scale of the amount annually wagered through EZ Horseplay. The agreement expires in February 2014. Total expense incurred for totalisator and account wagering support services under these agreements was $302 and $215 for the three months ended June 30, 2012 and 2011, respectively, and $598 and $358 for the six months ended June 30, 2012 and 2011, respectively.

The Interstate Horse Racing Act requires that we secure the consent of the Virginia Horsemen’s Benevolence and Protective Association (the “VaHBPA”) and the Virginia Harness Horse Association (“VHHA”) to export the simulcasting of races. These consents are usually contained in the agreement between each group and Colonial. We have an agreement with the VHHA that expires December 31, 2014 and an agreement with the VaHBPA that expires December 31, 2012.

JEI Distributing, LLC (“JEID”), a wholly-owned subsidiary of JEI, entered into fuel supply agreements with CITGO Petroleum Corporation (“CITGO”). The agreements provide for the purchase and sale of CITGO branded and unbranded gasoline and diesel fuel. On December 21, 2009, JEID and CITGO entered into a five-year Marketer Franchise Agreement (the “MFA”) which created a franchise relationship between JEID and CITGO and requires JEID to purchase at least 90% of certain listed monthly quantities of gasoline from CITGO in order to maintain the franchise and not be in violation of the MFA. Under the MFA, CITGO grants JEID the right to use CITGO’s applicable brand names, trademarks and other forms of CITGO’s identification, in connection with the resale by JEID of products acquired under CITGO’s brand names. Additionally, on December 21, 2009, JEID and CITGO entered into an Unbranded Rack Sales Agreement (the “RSA”). Although the initial term of the RSA is five years followed by annual renewals, the RSA provides that either party may terminate the RSA, without cause, upon providing thirty days written notice. The RSA requires JEID to purchase at least 90% of certain listed monthly quantities of fuel from CITGO in order to qualify for CITGO’s rack posting pricing in effect and not be in violation of the RSA. The Addendum to Unbranded Rack Sales Agreement between JEID and CITGO, also dated December 21, 2009, amends the pricing for unbranded fuel under the RSA. The amended pricing equals the sum of the base price and an adder fee that is dependent on the location of the terminal where the product is delivered.

 

13


Table of Contents

Operating Leases

Our operating leases include various land and building leases for certain properties in Nevada, Louisiana and Virginia, leases for office space in Colorado, Louisiana, Virginia and Florida, as well as leases for automobiles and other property and equipment at all locations, expiring at various dates. Total expense under these non-cancelable operating leases was $880 and $769 for the three months ended June 30, 2012 and 2011, respectively, and $1,679 and $1,499 for the six months ended June 30, 2012 and 2011, respectively.

Contingencies

We are involved in routine litigation arising in the ordinary course of our business pertaining to workers’ compensation claims, equal opportunity employment issues, or guest injury claims. All such claims are routinely turned over to our insurance providers. None of the claims is expected to have a material impact on our financial position, results of operations or cash flows. We believe these matters are covered by appropriate insurance policies.

In March 2008, the Nevada Supreme Court ruled that food and non-alcoholic beverages purchased for use in providing complimentary meals to customers and to employees were exempt from use tax. Recently, the Nevada Department of Taxation has asserted that gaming companies should pay sales tax on customer complimentary meals and employee meals on a prospective basis. This position stems from a recent Nevada Tax Commission decision which states that complimentary meals provided to customers are subject to sales tax at the retail value of the meal and employee meals are subject to sales tax at the cost of the meal. A petition for judicial review of the Nevada Tax Commission decision has been filed in Clark County District Court. We continue to evaluate the position asserted by the Nevada Department of Taxation. The resolution of this matter is not expected to have a material impact on our consolidated financial statements.

 

6. RELATED PARTY TRANSACTIONS

JIMCO Management Agreement

In order to assist us in our efforts to research, develop, perform due diligence on and possibly acquire new gaming opportunities, we have a consulting agreement with Jacobs Investments Management Co. Inc. (“JIMCO”), 82% of which is owned by Jeffrey P. Jacobs and the remaining 18% of which is owned in equal portions by two of his business associates. This agreement calls for payments of $1,250 per year payable in two equal installments of $625 on January 1st and July 1st plus 2.5% of budgeted development costs for projects undertaken by us, if certain debt covenant ratios are met. Total expenses incurred under this agreement with JIMCO were $312 and $312 for the three months ended June 30, 2012 and 2011, respectively, and $625 and $625 for the six months ended June 30, 2012 and 2011, respectively.

Jalou Device Owner, L.P.

Under Louisiana law, video poker machines must be owned by Louisiana residents. The video poker machines and the related repair parts inventory used in our video poker truck stops are owned by Jalou Device Owner, L.P. (“Device Owner”), of which Gameco Holdings, Inc. (“Gameco”), another wholly owned subsidiary of JII, owns 49% and is the general partner. Two Louisiana residents own the remaining 51% of Device Owner and are the limited partners. Our video poker truck stops pay 90 cents per operating video poker machine per day to Device Owner, plus reimbursement for Device Owner’s licensing costs. Total expense under these arrangements was $395 and $394 for the three months ended June 30, 2012 and 2011, respectively, and $791 and $788 for the six months ended June 30, 2012 and 2011, respectively.

Balances Due To/From Affiliates

Each of the above related party transactions results in either receivables from or payables to our affiliates. As of June 30, 2012 and December 31, 2011, these transactions resulted in net receivables from affiliates totaling $80 and $225, respectively. As of June 30, 2012 and December 31, 2011, these transactions resulted in net payables to affiliates totaling $695 and $5,446 respectively.

 

14


Table of Contents
7. RECENT ACQUISITION ACTIVITY

Acquisitions of Nautica Properties

During July 2006, we acquired from affiliated parties options to lease and options to purchase certain businesses and their related assets, including various parcels of land, buildings and related improvements, on the west bank of the Cuyahoga River in Cleveland, Ohio. We refer to these businesses and their related assets, covering an aggregate of approximately 624,000 square feet of land (14.4 acres) and a building comprised of 47,380 square feet of net rentable space, as the Nautica Properties.

Since January 2009, we have exercised all of our options on the Nautica Properties. During 2011, we acquired Nautica Phase 2, Sycamore & Main and Nautica Peninsula Land from related parties. On April 2, 2012, we acquired the remaining reserve terminal parking lot business from Nautica Peninsula Land. Our CEO controlled each of these businesses prior to acquisition. These acquisitions and their related business were accounted for as combinations of entities under common control. Therefore, the portion of each business acquired from related parties have been recorded at the historical cost bases in the assets and liabilities transferred and the portion of these businesses acquired from third parties have been recorded at fair value at the acquisition date using the acquisition method of accounting in accordance with FASB ASC Topic 805, Business Combinations (“ASC Topic 805”). A distribution was recorded on the acquisition date for the portion of the purchase price attributable to related parties. The net assets of the entity acquired have been retroactively accounted for in the accompanying unaudited condensed consolidated financial statements since January 1, 2011. The net assets attributable to the noncontrolling interest holders have been reflected as a separate component of equity.

If a casino is licensed on the Nautica Properties within seven years from the purchase dates described above, the purchase price of each property could increase based on independent appraisals of the land, improvements and other asset values. Any additional purchase price shall be equal to the fair market value of the property at the time that a license is issued to JEI in the State of Ohio for a casino less the purchase price previously paid. There is no maximum additional purchase price. We will continue to evaluate the fair value of this additional contingent purchase price at each balance sheet date throughout the term of the agreement. If applicable, any additional purchase price would be accounted for consistently with the original acquisition accounting, whereby the portion attributable to related parties would be accounted for as a combination of entities under common control and as a distribution, and the portion attributable to third parties would be accounted for using the acquisition method of accounting. At June 30, 2012, the fair value of the aggregate contingent purchase price was immaterial to the financial position of JEI, but could have a material impact in the future if a casino license is granted for the Nautica Properties.

The following table summarizes the net assets acquired and liabilities assumed as of the acquisition date for each acquired property considering both the portion acquired from related parties and the noncontrolling interest holders (as applicable):

 

     Nautica
Phase 2
     Sycamore &
Main
     Nautica
Peninsula Land
     Nautica
Peninsula Land
Reserve
Terminal
 

Date of acquisition

    

 

January 18,

2011

  

  

    

 

October 3,

2011

  

  

    

 

October 28,

2011

  

  

    

 

April 2,

2012

  

  

Property and equipment, net

   $ 1,305       $ 856       $ 995       $ 81   

Current liabilities assumed

     60         51         45         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net assets acquired

   $ 1,245       $ 805       $ 950       $ 81   
  

 

 

    

 

 

    

 

 

    

 

 

 

Purchase price

   $ 1,250       $ 1,100       $ 971       $ 229   

Distribution to related parties

   $ 7       $ 1,100       $ 107       $ 229   

Payment to noncontrolling interest holders

   $ 1,243       $ —         $ 864       $ —     

 

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Any change in the fair value of the net assets of Nautica Peninsula Land acquired from the noncontrolling interest holders during the purchase price allocation period (generally within one year of the acquisition date) may result in an allocation to goodwill. The allocation of the purchase price of Nautica Phase 2 paid to acquire the noncontrolling interest was final as of December 31, 2011.

The following schedule discloses the effects on JEI’s equity due to the change in ownership interest in Nautica Phase 2 discussed above:

 

     Six Months Ended June 30,  
     2012      2011  

Net income (loss) attributable to JEI

   $ 6,416       $ (6,600

Decrease in JEI’s equity for purchase of Nautica Phase 2 noncontrolling interest

     —           (623
  

 

 

    

 

 

 

Change from net income (loss) attributable to JEI and purchase of the noncontrolling interest

   $ 6,416       $ (7,223
  

 

 

    

 

 

 

Acquisitions of Video Poker Truck Stops

In 2012 and 2011, we have acquired four video poker truck stops in Louisiana, which were previously wholly owned by Gameco. We acquired Cash Magic Springhill, LLC (“Springhill”) and Cash Magic Vivian, LLC (“Vivian”) on January 31, 2011, Jalou Forest Gold, LLC (“Forest Gold”) on March 31, 2011 and Cash Magic Amite, LLC (“Amite”) on June 29, 2012. The acquisitions of these video poker truck stops have been accounted for as combinations of entities under common control. Therefore, the acquisitions have been recorded at the historical cost bases in the assets and liabilities transferred. A distribution, equal to the purchase price, was recorded on the acquisition date for each property, and the net assets of the entity acquired have been retroactively accounted for in the accompanying unaudited condensed consolidated financial statements since January 1, 2011.

The following table summarizes the net assets acquired and liabilities assumed as of the date of each acquisition:

 

     Springhill      Vivian      Forest Gold      Amite  

Date of acquisition

    
 
January 31,
2011
  
  
    
 
January 31,
2011
  
  
    
 
March 31,
2011
  
  
    
 
June 29,
2012
  
  

Current assets

   $ 495       $ 507       $ 419       $ 820   

Property and equipment, net

     2,309         2,555         2,056         2,132   

Goodwill

     1,376         —           880         2,116   

Identifiable intangible assets

     318         288         251         165   

Other assets

     27         12         —           11   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets acquired

     4,525         3,362         3,606         5,244   

Current liabilities assumed

     188         228         646         314   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net assets acquired

   $ 4,337       $ 3,134       $ 2,960       $ 4,930   
  

 

 

    

 

 

    

 

 

    

 

 

 

Purchase price

   $ 5,462       $ 4,913       $ 3,025       $ 5,872   

Distribution recorded

   $ 5,462       $ 4,913       $ 3,025       $ 5,872   

Effective net distribution (distribution less net assets acquired)

   $ 1,125       $ 1,779       $ 65       $ 942   

Black Hawk, Colorado

On February 24, 2012, we entered into a real estate contract with Dakota Blackhawk, LLC and Miner’s Mesa Development, LLC, both non-affiliated third parties, wherein we agreed to purchase approximately 45 acres of land located in the City of Black Hawk, Colorado (with approximately 1 acre within the casino gaming district) for an aggregate purchase price of $7,500. A deposit of $575 was paid during the first quarter of 2012. The transaction is subject to the completion of due diligence procedures and typical terms and conditions prior to closing, which is expected to occur on or before January 31, 2013.

 

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8. LONG-TERM DEBT

On June 16, 2006, we issued senior unsecured notes in the amount of $210,000 bearing interest at 9 3/4% due June 15, 2014 with interest only payments due each June 15 and December 15. We also have a $100,000 senior secured credit facility. On February 23, 2012, we entered into a second amendment and restatement agreement to our credit facility (the “Restated Credit Agreement”). The Restated Credit Agreement extended the maturity of $45,000 of our term loans and $37,000 of our revolving loan commitments to December 16, 2013, among other minor amendments. In addition, we increased our revolver capacity to $40,000. As required under the terms of the Restated Credit Agreement, we paid down $11,750 of term loans by the June 16, 2012 maturity date. Additionally, on June 29, 2012, in conjunction with the acquisition of Amite, we borrowed an additional $5,000 term loan under the Restated Credit Agreement, for an aggregate total of $50,000 of term loans. We also have the right to borrow an additional $7,000 of term loans under the Restated Credit Agreement if we choose, so long as the total indebtedness under the Restated Credit Agreement does not exceed $96,750. Borrowings under our senior secured credit facility bear interest at a rate equal to an applicable margin plus, at our option, either (a) a base rate determined by reference to the higher of (1) the prime rate, as defined, and (2) the federal funds rate plus  1/2 of 1% or (b) a LIBOR rate for the interest period relevant to such borrowing adjusted for certain costs.

As a result of the Restated Credit Agreement, our interest rate increased by 0.25% on the loans that mature on December 16, 2013. As such, the interest rate on the drawn revolving loan balance increased by 0.25%, the interest rate on the $11,750 of term loans that matured June 16, 2012 remained at 3% above LIBOR, and the $50,000 of term loans that mature December 16, 2013 have an interest rate of 3.25% above LIBOR. At June 30, 2012, the blended interest rate on our senior secured credit facility was approximately 3.59%. As of June 30, 2012, $10,000 was available on the revolving credit facility.

Our $210,000 of 9 3/4% senior unsecured notes rank equally in right of payment with all of our existing and future unsecured senior indebtedness and senior to any existing and future subordinated indebtedness. The notes are effectively subordinated to any secured indebtedness (including indebtedness under our senior secured credit facility) up to the value of the collateral securing such indebtedness. The notes are guaranteed by our current and future restricted subsidiaries that also guarantee our senior secured credit facility. We can redeem all or part of our outstanding senior unsecured notes aggregating $210,000 at 100.00% of the principal amount, plus accrued and unpaid interest.

There are many restrictions and covenants placed upon us under both our secured and unsecured indebtedness. We are required to maintain certain operating performance ratios, our covenants impose various restrictions on us as to the timing of redemptions of our notes, there are various change of control covenants, and there are many other restrictive and operational limitations on us that would be difficult or impossible for us to change. The occurrence of any one of these events and/or covenant violations to our debt agreements could have a material adverse effect on our business, financial condition, results of operations, prospects and ability to satisfy our obligations under our debt agreements. The failure to repay or maintain compliance with our covenants on any of our indebtedness would result in an event of default under both our senior credit facility and our note indenture. Annual distributions may be made to our owner in an aggregate amount not to exceed the greater of $1,000 or 50% of consolidated net income as defined in our credit agreement and indenture. At June 30, 2012, we were in compliance with our financial covenants.

 

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”), establishes a framework for measuring fair value and requires specific disclosures about fair value measurements. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance identifies market or observable inputs as the preferred sources of values, followed by assumptions based on hypothetical transactions in the absence of market inputs. The guidance establishes a hierarchy for grouping these assets and liabilities, based on the significance level of the following inputs:

 

   

Level 1 — inputs are unadjusted quoted prices for identical assets or liabilities in active markets.

 

   

Level 2 — inputs include quoted prices for identical assets or liabilities in markets that are not active and quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

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Level 3 — inputs are unobservable and considered significant to the fair value measurement.

A financial instrument’s categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Recurring Fair Value Measurements – Investment in Equity Securities

We own approximately three percent of the outstanding shares of MTR Gaming Group, Inc. (“MTR”), a publicly-traded gaming company. Our affiliates have also historically invested in MTR, which resulted in a combined ownership of approximately 18.3% of the outstanding common shares of MTR as of June 30, 2012 and thus making the affiliated group MTR’s largest shareholder.

We have elected the fair value option permitted by FASB ASC Topic 825, Financial Instruments (“ASC Topic 825”), and therefore, we recognize changes in the fair value of our investment in MTR as unrealized gains/losses in earnings based on its quoted market price. We recorded an unrealized loss (gain) on the change in the fair value of the investment totaling $130 and $(333) for the three months ended June 30, 2012 and 2011, respectively, and $(2,344) and $(813) for the six months ended June 30, 2012 and 2011, respectively.

The following table presents information about our assets measured at fair value on a recurring basis as of June 30, 2012, aggregated by the level in the fair value hierarchy within which those assets fall:

 

Assets Measured at Fair Value on a Recurring Basis at June 30, 2012

 
     Total Fair
Value
     Level 1      Level 2      Level 3  

Investment in equity securities

   $ 3,865       $ 3,865         —           —     

The following table presents information about our assets measured at fair value on a recurring basis as of December 31, 2011, aggregated by the level in the fair value hierarchy within which those assets fall:

 

Assets Measured at Fair Value on a Recurring Basis at December 31, 2011

 
     Total Fair
Value
     Level 1      Level 2      Level 3  

Investment in equity securities

   $ 1,521       $ 1,521         —           —     

Nonrecurring Fair Value Measurements – Property, Plant and Equipment and Goodwill

We apply the provisions of the fair value measurement standard to our nonrecurring, non-financial measurements including property, plant and equipment and goodwill impairments. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances. Property, plant and equipment is evaluated for impairment and reduced to fair value when there is an indication that the carrying costs exceed the sum of the undiscounted cash flows. Goodwill is evaluated for impairment and reduced to fair value when there is an indication that the carrying costs exceed the fair value. There was no property, plant and equipment or goodwill measured at fair value within the accompanying balance sheets at June 30, 2012.

During the second quarter 2011, we evaluated our ability to recover the recorded cost of Gold Dust West-Carson City. See Note 11. Based on this evaluation, we recorded an impairment of long-lived assets totaling $10,065 related to this property. We used Level 3 inputs and income valuation, market valuation, and cost valuation techniques to measure the fair value of the Gold Dust West-Carson City asset group as of June 30, 2011. We considered a variety of factors when estimating the fair value of the asset group, including estimates about the future operating results, appropriate discount rates, multiples of EBITDA (earnings before interest, income taxes, depreciation and amortization), investment banker market analyses, and recent sales of comparable assets. A variety of estimates and judgments about the relevance and comparability of this information to our assets were made. Additionally, as discussed in Note 7, the portions of property, plant and equipment of Nautica Phase 2 and Nautica Peninsula Land acquired from third parties have been recorded at fair value at their acquisition dates.

As discussed in Note 3, prior to the acquisition by JEI, we determined the carrying value of the goodwill at Amite was impaired. Consequently, Amite recorded a goodwill impairment charge of $2,177 during the year ended December 31, 2011.

The following table presents information about our non-financial assets measured at fair value on a nonrecurring basis during 2011, aggregated by the level in the fair value hierarchy within which those assets fall:

 

Assets Measured at Fair Value on a Nonrecurring Basis During 2011

 
     Total Fair
Value
     Level 1      Level 2      Level 3  

Property, plant and equipment

   $ 8,400         —           —         $ 8,400   

Goodwill

   $ 2,116         —           —         $ 2,116   

There was no change in fair value through December 31, 2011.

 

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Debt and Capital Lease Obligations

The following disclosure of estimated fair value of our debt and capital lease obligations has been determined using available market information and discounted cash flow analysis. However, considerable judgment is required to interpret market data in order to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Our $210,000 of 9  3/4% senior unsecured notes were valued using Level 2 inputs based on quoted market trading prices in a market that is not active.

Our variable rate senior secured credit facility was valued using Level 3 inputs based on a discounted cash flow analysis, using the prevailing market interest rates for debt of similar dollar amount, maturity and risk.

Our capital leases and other indebtedness were valued using Level 3 inputs based on a discounted cash flow analysis, using the prevailing market interest rates for debt of similar dollar amount, maturity and risk.

The estimated fair value of our debt and capital lease obligations as of June 30, 2012 and December 31, 2011 is as follows:

 

     June 30, 2012      December 31, 2011
(As adjusted, see Note 7)
 
     Carrying
Amount
     Estimated
Fair Value
     Carrying
Amount
     Estimated
Fair Value
 

Liabilities – Debt and capital lease obligations:

           

Senior unsecured notes

   $ 210,000       $ 197,400       $ 210,000       $ 194,775   

Senior secured credit facility

   $ 79,775       $ 79,663       $ 71,650       $ 71,524   

Capital leases and other indebtedness

   $ 3,053       $ 5,095       $ 17,722       $ 19,784   

Other Estimated Fair Value Disclosures

The estimated fair value of our other financial instruments, such as cash and cash equivalents, accounts receivable and accounts payable, have been determined to approximate carrying value based on the short-term nature of those financial instruments.

 

10. ACCRUED EXPENSES

Accrued expenses as of June 30, 2012 and December 31, 2011, include the following:

 

     June 30,
2012
     December 31,
2011

(As  adjusted,
see Note 7)
 

Payroll and related

   $ 5,633       $ 5,757   

Gaming taxes payable

     2,181         3,388   

Interest payable

     1,019         1,358   

Property taxes payable

     1,195         1,176   

Slot club liability

     1,366         1,210   

Progressive jackpot liability

     1,939         1,549   

Purses due horsemen

     2,780         375   

Other

     3,664         3,848   
  

 

 

    

 

 

 
   $ 19,777       $ 18,661   
  

 

 

    

 

 

 

 

11. IMPAIRMENT OF LONG-LIVED ASSETS

During the second quarter 2011, based on operating results, we were required, pursuant to FASB ASC Topic 360, Property, Plant and Equipment, to assess our ability to recover the recorded cost of the Gold Dust West-Carson City long-lived assets. We prepared a cash flow analysis based on management’s best estimate in an effort to assess the likelihood of recovering the cost of these assets. Based on these projections and the related underlying assumptions as well as our knowledge of the Carson City market, we believe that we will not be able to recover the carrying cost of these assets, and therefore, Gold Dust West-Carson City recorded an impairment of long-lived assets totaling $10,065 during the second quarter ended June 30, 2011. Future events such as actual performance versus projected performance, continued market decline, increased and/or changing competitive forces, or other unforeseen events could change our estimates and cause us to recognize an additional impairment in the carrying value of the Gold Dust West-Carson City long-lived assets in future periods. Such an impairment could be material to our financial position and results of operations.

 

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12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Our senior secured credit facility and unsecured senior notes are both guaranteed by our current and future restricted subsidiaries. Each subsidiary guarantor is 100% owned by the parent company, all guarantees are full and unconditional and joint and several, and all subsidiaries of JEI guarantee the securities.

The following information sets forth our Unaudited Condensed Consolidating Balance Sheets as of June 30, 2012 and December 31, 2011, the Unaudited Condensed Consolidating Statements of Operations for the three and six months ended June 30, 2012 and 2011, and the Unaudited Condensed Consolidating Statements of Cash Flows for the six months ended June 30, 2012 and 2011 as required by Rule 3-10 of Regulation S-X of the Securities Exchange Act of 1934, as amended. Investments in our subsidiaries are accounted for on the equity method. Accordingly, entries necessary to consolidate the Parent Company Issuer and our Subsidiary Guarantors are reflected in the eliminations column.

 

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JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF JUNE 30, 2012

 

     Parent
Company
Issuer
    Subsidiary
Guarantors
     Eliminations     Consolidated  

ASSETS

         

Current assets

   $ 1,391      $ 43,125         $ 44,516   

Property, plant and equipment, net

     795        227,667           228,462   

Net investment in and advances to subsidiaries

     86,163         $ (86,163     —     

Other long-term assets

     6,065        62,571           68,636   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 94,414      $ 333,363       $ (86,163   $ 341,614   
  

 

 

   

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

         

Current liabilities

   $ 2,986      $ 26,764         $ 29,750   

Long-term debt

     289,275        2,974           292,249   

Long-term debt (receivable from) payable to affiliate

     (216,250     216,250           —     

Other long-term liabilities

     28        1,212           1,240   

Stockholder’s equity

     18,375        86,163       $ (86,163     18,375   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 94,414      $ 333,363       $ (86,163   $ 341,614   
  

 

 

   

 

 

    

 

 

   

 

 

 

AS OF DECEMBER 31, 2011

(As adjusted, see Note 7)

 

     Parent
Company
Issuer
    Subsidiary
Guarantors
     Eliminations     Consolidated  

ASSETS

         

Current assets

   $ 511      $ 36,561         $ 37,072   

Property, plant and equipment, net

     868        230,054           230,922   

Net investment in and advances to subsidiaries

     71,242         $ (71,242     —     

Other long-term assets

     2,879        63,012           65,891   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 75,500      $ 329,627       $ (71,242   $ 333,885   
  

 

 

   

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

         

Current liabilities

   $ 15,584      $ 30,174         $ 45,758   

Long-term debt

     269,450        16,616           286,066   

Long-term debt (receivable from) payable to affiliate

     (210,407     210,407           —     

Other long-term liabilities

     23        1,188           1,211   

Stockholder’s equity

     850        71,242       $ (71,242     850   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 75,500      $ 329,627       $ (71,242   $ 333,885   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

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JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2012

 

     Parent
Company
Issuer
    Subsidiary
Guarantors
    Eliminations     Consolidated  

Net revenues

   $ —        $ 99,213      $ —        $ 99,213   

Costs and expenses

     (3,435     (87,177     —          (90,612

Interest expense, net

     (1,148     (5,291     —          (6,439

Equity in earnings of subsidiaries

     6,745          (6,745     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 2,162      $ 6,745      $ (6,745   $ 2,162   
  

 

 

   

 

 

   

 

 

   

 

 

 

FOR THE THREE MONTHS ENDED JUNE 30, 2011

(As adjusted, see Note 7)

 

     Parent
Company
Issuer
    Subsidiary
Guarantors
    Eliminations     Consolidated  

Net revenues

   $ —        $ 100,337      $ (24   $ 100,313   

Costs and expenses

     (2,261     (99,332     24        (101,569

Interest expense, net

     (1,456     (5,449     —          (6,905

Loss in earnings of subsidiaries

     (4,453       4,453        —     

Noncontrolling interest

     —          (9     —          (9
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to JEI

   $ (8,170   $ (4,453   $ 4,453      $ (8,170
  

 

 

   

 

 

   

 

 

   

 

 

 

FOR THE SIX MONTHS ENDED JUNE 30, 2012

 

     Parent
Company
Issuer
    Subsidiary
Guarantors
    Eliminations     Consolidated  

Net revenues

   $ —        $ 198,673      $ —        $ 198,673   

Costs and expenses

     (4,567     (174,525     —          (179,092

Interest expense, net

     (2,548     (10,617     —          (13,165

Equity in earnings of subsidiaries

     13,531          (13,531     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 6,416      $ 13,531      $ (13,531   $ 6,416   
  

 

 

   

 

 

   

 

 

   

 

 

 

FOR THE SIX MONTHS ENDED JUNE 30, 2011

(As adjusted, see Note 7)

 

     Parent
Company
Issuer
    Subsidiary
Guarantors
    Eliminations     Consolidated  

Net revenues

   $ —        $ 193,325      $ (75   $ 193,250   

Costs and expenses

     (4,347     (181,495     75        (185,767

Interest expense, net

     (2,974     (11,096     —          (14,070

Equity in earnings of subsidiaries

     721          (721     —     

Noncontrolling interest

     —          (13     —          (13
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to JEI

   $ (6,600   $ 721      $ (721   $ (6,600
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012

 

     Parent
Company
Issuer
    Subsidiary
Guarantors
    Consolidated  

Net cash provided by operating activities

   $ 11,561      $ 242      $ 11,803   
  

 

 

   

 

 

   

 

 

 

INVESTING ACTIVITIES:

      

Additions to property, plant and equipment

     (471     (7,734     (8,205

Proceeds from sale of equipment

     —          55        55   

Purchases of device rights

     —          (698     (698

Purchase of trademark

     (125     —          (125
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (596     (8,377     (8,973
  

 

 

   

 

 

   

 

 

 

FINANCING ACTIVITIES:

      

Payments to obtain financing

     (603     —          (603

Proceeds from issuance of debt

     5,000        —          5,000   

Proceeds from revolving line of credit

     27,000        —          27,000   

Payments on long-term debt

     (11,975     (464     (12,439

Payments on revolving line of credit

     (11,900     —          (11,900

Net advances to/from subsidiaries

     (10,813     10,813        —     

Distributions to stockholder

     (7,101     —          (7,101
  

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (10,392     10,349        (43
  

 

 

   

 

 

   

 

 

 

Net Increase in Cash and Cash Equivalents

     573        2,214        2,787   

Cash and Cash Equivalents — Beginning of Period

     281        25,116        25,397   
  

 

 

   

 

 

   

 

 

 

Cash and Cash Equivalents — End of Period

   $ 854      $ 27,330      $ 28,184   
  

 

 

   

 

 

   

 

 

 

 

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Table of Contents

FOR THE SIX MONTHS ENDED JUNE 30, 2011

(As adjusted, see Note 7)

 

     Parent
Company
Issuer
    Subsidiary
Guarantors
    Consolidated  

Net cash provided by operating activities

   $ 9,576      $ 3,228      $ 12,804   
  

 

 

   

 

 

   

 

 

 

INVESTING ACTIVITIES:

      

Additions to property, plant and equipment

     (407     (7,695     (8,102

Proceeds from sale of equipment

     —          116        116   

Purchases of device rights

     —          (1,259     (1,259

Acquisition of noncontrolling interest

     (1,243     —          (1,243
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (1,650     (8,838     (10,488
  

 

 

   

 

 

   

 

 

 

FINANCING ACTIVITIES:

      

Proceeds from issuance of debt

     —          800        800   

Proceeds from revolving line of credit

     30,800        —          30,800   

Payments on long-term debt

     (201     (1,270     (1,471

Payments on revolving line of credit

     (14,300     —          (14,300

Net advances to/from subsidiaries

     (9,613     9,613        —     

Distributions to stockholder

     (14,407     —          (14,407
  

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (7,721     9,143        1,422   
  

 

 

   

 

 

   

 

 

 

Net Increase in Cash and Cash Equivalents

     205        3,533        3,738   

Cash and Cash Equivalents — Beginning of Period

     196        24,672        24,868   
  

 

 

   

 

 

   

 

 

 

Cash and Cash Equivalents — End of Period

   $ 401      $ 28,205      $ 28,606   
  

 

 

   

 

 

   

 

 

 

 

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Table of Contents
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This section discusses the results of our operations for the three and six months ended June 30, 2012 and 2011. We recommend reading the following discussions and analyses in conjunction with our unaudited condensed consolidated financial statements, including the notes and other financial information contained in this Form 10-Q, as well as our audited consolidated financial statements as of December 31, 2011, included in our Form 10-K report filed with the Securities and Exchange Commission (“10-K Report”). Certain statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations constitute “forward-looking statements,” which statements involve risks and uncertainties. In this regard, see the section “Risk Factors” in Item 1A of our 10-K Report.

The historical information should not necessarily be taken as a reliable indicator of our future performance.

TABLE OF CONTENTS TO MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (MD&A)

 

Description of item

      

1. Significant transactions occurring during 2012

     25   

2. Overview and discussion of our operations

     26   

3. Comparison of our results of operations for the three months ended June 30, 2012 to the three months ended June 30, 2011

     28   

4. Comparison of our results of operations for the six months ended June 30, 2012 to the six months ended June 30, 2011

     30   

5. Segment information

     32   

6. Liquidity and capital resources

     36   

7. Critical accounting policies and estimates

     38   

1. Significant transactions occurring during 2012

Amendment to Credit Agreement

On February 23, 2012, we entered into a second amendment and restatement agreement to our credit facility (the “Restated Credit Agreement”). The Restated Credit Agreement extended the maturity of $45 million of our term loans and $37 million of our revolving loan commitments to December 16, 2013, among other minor amendments. In addition, we increased our revolver capacity to $40 million. As required under the terms of the Restated Credit Agreement, we paid down $11.75 million of term loans by the June 16, 2012 maturity date. Additionally, on June 29, 2012, in conjunction with the acquisition of Cash Magic Amite, LLC (“Amite”) as discussed in further detail below, we borrowed an additional $5 million term loan under the Restated Credit Agreement, for an aggregate total of $50 million of term loans. We also have the right to borrow an additional $7 million of term loans under the Restated Credit Agreement if we choose, so long as the total indebtedness under the Restated Credit Agreement does not exceed $96.75 million.

As a result of the Restated Credit Agreement, our interest rate increased by 0.25% on the loans that mature on December 16, 2013. As such, the interest rate on the drawn revolving loan balance increased by 0.25%, the interest rate on the $11.75 million of term loans that matured June 16, 2012 remained at 3% above LIBOR, and the $50 million of term loans that mature December 16, 2013 have an interest rate of 3.25% above LIBOR. See Note 8 of the unaudited condensed consolidated financial statements.

Black Hawk, Colorado

On February 24, 2012, we entered into a real estate contract with Dakota Blackhawk, LLC and Miner’s Mesa Development, LLC, both non-affiliated third parties, wherein we agreed to purchase approximately 45 acres of land located in the City of Black Hawk, Colorado (with approximately 1 acre within the casino gaming district) for an aggregate purchase price of $7.5 million. A deposit of $0.6 million was paid during the first quarter of 2012. The transaction is subject to the completion of due diligence procedures and typical terms and conditions prior to closing, which is expected to occur on or before January 31, 2013.

 

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Acquisitions

On April 2, 2012, we acquired the remaining reserve terminal parking lot business from Nautica Peninsula Land, a related party, for $0.2 million. Our Chief Executive Officer (“CEO”) controlled the business. Additionally, on June 29, 2012, we acquired a video poker truck stop in Louisiana, Cash Magic Amite, LLC (“Amite”) for $5.9 million, which was previously wholly owned by another Jacobs Investments, Inc. subsidiary, Gameco Holdings, Inc. (“Gameco”). These acquisitions were accounted for as combinations of entities under common control. Accordingly, the accompanying unaudited condensed consolidated financial statements have been retroactively adjusted to include the operations of these businesses from January 1, 2011. See Note 7 of the unaudited condensed consolidated financial statements.

2. Overview and discussion of our operations

Our CEO is our chief operating decision maker. As of June 30, 2012, we had four segments representing the geographic regions of our operations: Colorado, Nevada, Louisiana and Virginia. Each segment is managed separately because of the unique characteristics of its revenue stream and customer base. We have aggregated our operations into these four segments based on similarities in the nature of the properties’ businesses, customers and regulatory environment in which each property operates. The Colorado segment consists of The Lodge and Gilpin casinos. Our Nevada segment includes the Gold Dust West-Reno, Gold Dust West-Carson City and Gold Dust West-Elko casinos. The Louisiana operations consist of video poker truck stops, and the Virginia segment consists of Colonial’s pari-mutuel operations and satellite wagering facilities.

When we analyze and manage our segments, we focus on several measurements that we believe provide us with the necessary ratios and key performance indicators for us to determine how we are performing versus our competition and against our own internal goals and budgets. We confer monthly and discuss and analyze significant variances in an effort to identify trends and changes in our business. We focus on EBITDA (earnings before interest, income taxes, depreciation and amortization) as one of the primary measurements of reviewing and analyzing the operating results of each segment. While we recognize that EBITDA is not a generally accepted accounting principle (i.e. it is a non-GAAP financial measure), we nonetheless believe it is useful because it allows holders of our debt and management to evaluate and compare operating results from continuing operations from period to period in a meaningful and consistent manner in addition to standard GAAP financial measures. Additionally, most financial analysts following the gaming industry utilize EBITDA as a financial measurement, and when our debt holders (both secured and unsecured) inquire and discuss our operational performance with us, they consistently inquire about our EBITDA performance levels versus the prior year as well as our EBITDA margins versus our competitors. Finally, EBITDA is a key component of certain financial covenants contained in our debt agreements, among other things, and as such it is a critical ingredient that we must watch in order to ensure compliance with our bank credit agreement and our note indenture covenants, measure our historical operating performance, and determine our ability to achieve future growth and/or financing.

In addition to the above performance measurements, we pay particular attention to our monthly and annual cash flow. Our business is sensitive to shifts in volumes and levels of activity and we find it necessary to monitor our cash levels closely. Every six months (June 15 and December 15) we have a cash interest payment due on our $210 million senior unsecured notes amounting to $10.2 million. Additionally, we currently have $49.8 million of term loans outstanding on our senior secured credit facility with interest due at varying levels. As of June 30, 2012, $30 million was outstanding on the $40 million senior secured revolving credit facility we have with a bank group on which we can draw as needed in order to augment the cash flow we generate from operations. This is generally a function of the timing of generating cash from operations coupled with the amount of cash we need to run the business—i.e., our cash inventory. Presently, we estimate that we require approximately $15 million of cash inventory to operate our properties. See also Section 6, “Liquidity and Capital Resources.”

Colorado

Our Colorado operations consist of The Lodge Casino at Black Hawk (“The Lodge”) and the Gilpin Casino (“Gilpin”), both of which are located in Black Hawk, Colorado. The competitive aspects of the market in Black Hawk continue to be a significant factor in our operations. At June 30, 2012, there were approximately 8,350 slot machines in the city of Black Hawk. We had 1,360 slot machines in this market (981 at The Lodge and 379 at the Gilpin), which represented approximately 16% of the total slot machines in Black Hawk. Additionally, there were 199 table games in the city of Black Hawk. We had 40 table games in this market (34 at The Lodge and 6 at the Gilpin), which represented approximately 20% of the total table games in Black Hawk.

 

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Table of Contents

Nevada

Our Nevada operations consist of Gold Dust West-Reno, located in Reno, Nevada, which was acquired on January 5, 2001; Gold Dust West-Carson City, located in Carson City, Nevada, which was acquired on June 25, 2006; and Gold Dust West-Elko, located in Elko, Nevada, which we developed and opened on March 5, 2007. As in Colorado, our Nevada casinos operate in highly competitive markets. As a result of the added competition from Indian Gaming in California, many Northern Nevada casinos advertise themselves as “locals’ casinos.”

Louisiana

Our Louisiana operations consist of 22 video poker truck stops located in Louisiana and a share in the gaming revenues of an additional video poker truck stop. Each video poker truck stop features a convenience store, fueling operations, a restaurant and up to 50 video poker devices in the casino depending on the level of fuel sales and available space. At June 30, 2012, our video poker truck stops had a combined total of 1,148 video gaming devices.

The Louisiana video poker truck stops’ revenues are comprised of: (i) revenue from video poker gaming machines; (ii) sales of gasoline and diesel fuel; (iii) sales of groceries, trucker supplies and sundry items through their convenience stores; (iv) sales of food and beverages in their restaurants and bars; and (v) miscellaneous commissions on ATMs, pay phones and lottery sales.

All video poker activity is reported via a computer phone line directly to the Louisiana State Police. The Louisiana video poker truck stops’ revenues are dependent on meeting the minimum gallons of fuel sales requirements necessary to operate video poker gaming machines in Louisiana. The fuel sales requirements must be complied with on an annual basis (except for the first year of operations during which it must be complied with on a quarterly basis) and in the event of noncompliance, the Louisiana State Police will turn off a portion of the video poker machines until the minimum fuel sales requirements are met. Management of the Louisiana video poker truck stops believes that they will continue to meet the fuel sales requirements necessary to operate video poker machines in Louisiana at current levels, however, we can give no assurances in this regard.

The Louisiana video poker truck stop market caters primarily to local residents, whom we believe contribute to the vast majority of video poker gaming revenues. We believe that most of our video poker customers live within a 5-mile radius of our properties.

Virginia

Colonial’s revenues are comprised of: (i) pari-mutuel commissions from wagering on races broadcast from out-of-state racetracks to Colonial’s satellite wagering facilities and the track using import simulcasting; (ii) wagering at the track and Colonial’s satellite wagering facilities of its live races; (iii) commissions from advance deposit account wagering by telephone and over the internet; (iv) admission fees, program and racing form sales, and certain other ancillary deposit account activities; and (v) net income from food and beverage sales and concessions.

Colonial’s revenues are heavily dependent on the operations of its satellite wagering facilities. As of June 30, 2012, we operated ten satellite wagering facilities in Virginia. Revenues from the satellite wagering facilities help support live racing at the track. The amount of revenue Colonial earns from each wager depends on where the race is run. Revenues from import simulcasting of out-of-state races and from wagering at the track and at the satellite wagering facilities on races run at the track consist of the total amount wagered at Colonial’s facilities, less the amount paid as winning wagers. The percentage of each dollar wagered on horse races that must be returned to the public as winning wagers (typically about 79%) is legislated by the state in which a race takes place. Revenues from export simulcasting consist of amounts payable to Colonial by the out-of-state racetracks and their simulcast facilities with respect to wagering on races run at the track.

In February 2012, Colonial Downs received a license for a new satellite wagering facility. The facility is located in downtown Richmond and operates within an existing restaurant.

Since 2004, Colonial Downs has operated an internet account wagering platform in Virginia called EZ Horseplay. In early 2009, Colonial Downs developed a custom built account wagering support kiosk that allows a customer to remotely open a wagering account, fund the account with cash, take a cash withdrawal from their account and print a race track program. The first kiosks, along with a touchscreen version of the EZ Horseplay internet account wagering platform, were deployed in September 2009. As of June 30, 2012, we have deployed 82 kiosks in private clubs, bars and restaurants in Virginia.

 

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Table of Contents

3. Comparison of our results of operations for the three months ended June 30, 2012 to the three months ended June 30, 2011.

The following table summarizes our consolidated results of operations for the three months ended June 30, 2012 and 2011 (dollars in thousands):

 

     Three Months Ended
June  30,
             
     2012     2011
(As adjusted,
see Note 7 of
Financial
Statements)
    $ Change     % Variance  

REVENUES

        

Gaming:

        

Casino

   $ 36,501      $ 36,682      $ (181     -0.49

Truck stop

     19,015        18,822        193        1.03

Pari-mutuel

     7,780        7,779        1        0.01

Food and beverage

     7,486        7,459        27        0.36

Convenience store – fuel

     30,935        32,452        (1,517     -4.67

Other

     6,967        6,518        449        6.89

Less: Promotional allowances

     (9,471     (9,399     (72     0.77
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

     99,213        100,313        (1,100     -1.10
  

 

 

   

 

 

   

 

 

   

 

 

 

COSTS AND EXPENSES

        

Gaming:

        

Casino

     12,503        12,579        (76     -0.60

Truck stop

     11,039        11,191        (152     -1.36

Pari-mutuel

     6,355        6,204        151        2.43

Food and beverage

     3,791        3,859        (68     -1.76

Convenience store – fuel

     29,029        30,435        (1,406     -4.62

Other

     5,454        5,330        124        2.33

Marketing, general and administrative

     17,513        16,535        978        5.91

Unrealized loss (gain) on change in fair value of investment in equity securities

     130        (333     463        n/a   

Impairment of long-lived assets

     —          10,065        (10,065     -100.00

Depreciation and amortization

     4,798        5,704        (906     -15.88
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     90,612        101,569        (10,957     -10.79
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME (LOSS)

     8,601        (1,256     9,857        n/a   

Interest expense, net

     (6,439     (6,905     466        -6.75

Noncontrolling interest

     —          (9     9        -100.00
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO JEI

   $ 2,162      $ (8,170   $ 10,332        n/a   
  

 

 

   

 

 

   

 

 

   

 

 

 

All comparisons below begin with the second quarter 2012 results followed by the second quarter 2011 results.

Casino revenues decreased $0.2 million to $36.5 million from $36.7 million. The decrease in casino revenues is due to decreases at the Gilpin of $0.6 million or 11%, Gold Dust West-Reno of $0.1 million or 1% and Gold Dust West-Elko of $0.2 million or 6%, somewhat offset by an increase at The Lodge of $0.7 million or 3%. Revenues at the Gilpin decreased primarily due to a decrease in slot revenues. The increase in revenues at The Lodge was primarily due to increases in slot coin-in and table games.

Truck stop gaming revenues increased $0.2 million or 1% to $19.0 million from $18.8 million. The increase in revenues is consistent with the statewide truck stop video gaming revenue increase.

 

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Table of Contents

Pari-mutuel revenues remained unchanged at $7.8 million. A $0.3 million decrease in wagering revenues at the off track wagering facilities primarily due to a decrease in overall attendance compared to the prior year, was offset by a $0.3 million increase in account wagering revenues.

Food and beverage revenues increased less than $0.1 million to $7.5 million.

Convenience store-fuel revenues decreased $1.5 million or 5% to $30.9 million from $32.4 million. This resulted from the average selling price of fuel decreasing to $3.62 per gallon in 2012 from $3.73 per gallon in 2011, combined with a 2% decrease in volume.

Other revenues increased $0.4 million or 7% to $7.0 million from $6.5 million and were attributable to increases of $0.2 million in convenience store revenues at the truck stops, $0.1 million in hotel revenues at Gold Dust West-Carson City and $0.1 million in other revenues at all locations combined.

Promotional allowances increased $0.1 million or 1% to $9.5 million from $9.4 million, and is primarily attributable to increases in promotional allowances of $0.2 million at The Lodge and $0.1 million at the truck stops, somewhat offset by a decrease of $0.2 million at the Gilpin.

Casino expenses decreased $0.1 million or 1% to $12.5 million from $12.6 million. A decrease of $0.2 million at the Gilpin was somewhat offset by an increase of $0.1 million at The Lodge. These changes in casino expenses are consistent with the changes in casino revenues at these locations.

Truck stop gaming expenses decreased $0.2 million or 1% to $11.0 million from $11.2 million.

Pari-mutuel costs and expenses increased $0.2 million or 2% to $6.4 million from $6.2 million. The increase is attributable to increases of $0.2 million in account wagering costs and expenses and $0.2 million in thoroughbred racing costs, partially offset by a $0.2 million decrease in satellite wagering facilities costs and expenses.

Food and beverage costs and expenses decreased $0.1 million or 2% to $3.8 million from $3.9 million, and is primarily due to a decrease at the truck stops.

Convenience store-fuel expenses decreased $1.4 million or 5% to $29.0 million from $30.4 million. The decrease was primarily due to a decrease in the average cost of fuel to $3.40 per gallon in 2012 from $3.50 per gallon in 2011, combined with a decrease in volume as discussed in convenience store-fuel revenues above.

Other costs and expenses increased $0.1 million or 2% to $5.4 million from $5.3 million, and were primarily attributable to an increase in convenience store expenses at the truck stops corresponding to the increase in convenience store revenues.

Marketing, general and administrative expenses increased $1.0 million or 6% to $17.5 million from $16.5 million. This increase is primarily the result of increases of $0.8 million at corporate and $0.2 million at the Nautica Properties. The increase at corporate is primarily due to increases of $0.4 million in legal costs, $0.1 million in consulting costs and a $0.3 million write-off for the disposal of assets. The legal expenses are primarily due to the 2012 amendment and restatement agreement to our credit facility, a gaming license in Nevada and acquisition expenses.

We account for our investment in MTR Gaming Group, Inc. (“MTR”) under the fair value option, in accordance with the fair value option permitted by FASB ASC Topic 825, Financial Instruments (“ASC Topic 825”). A decrease in the stock price during the second quarter of 2012 resulted in an unrealized loss on the change in fair value of investment in equity securities totaling $0.1 million. During the second quarter of 2011, we recorded an unrealized gain on the change in fair value of investment in equity securities totaling $0.3 million.

 

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Table of Contents

At Gold Dust West-Carson City, we recorded an impairment of long-lived assets totaling $10.1 million during the second quarter of 2011. No comparable transaction occurred during the same period of 2012. See Note 11 of the unaudited condensed consolidated financial statements.

Depreciation and amortization expense decreased $0.9 million or 16% to $4.8 million from $5.7 million and is primarily due to a decrease of $0.5 million at Gold Dust West-Carson City due to the 2011 impairment of long-lived assets, combined with decreases of $0.4 million at Gold Dust West-Elko, $0.1 million at the truck stops and $0.1 million at corporate, somewhat offset by an increase of $0.2 million at Colonial.

Net interest expense decreased $0.5 million or 7% to $6.4 million from $6.9 million. The decrease is primarily attributable to a decrease in debt outstanding, somewhat offset by higher effective interest rates on our variable rate bank debt.

4. Comparison of our results of operations for the six months ended June 30, 2012 to the six months ended June 30, 2011.

The following table summarizes our consolidated results of operations for the six months ended June 30, 2012 and 2011 (dollars in thousands):

 

     Six Months Ended
June  30,
             
     2012     2011
(As adjusted,
see Note 7 of
Financial
Statements)
    $ Change     % Variance  

REVENUES

        

Gaming:

        

Casino

   $ 73,338      $ 72,776      $ 562        0.77

Truck stop

     40,149        39,244        905        2.31

Pari-mutuel

     14,525        14,161        364        2.57

Food and beverage

     14,714        14,595        119        0.82

Convenience store – fuel

     62,095        59,202        2,893        4.89

Other

     13,077        11,964        1,113        9.30

Less: Promotional allowances

     (19,225     (18,692     (533     2.85
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

     198,673        193,250        5,423        2.81
  

 

 

   

 

 

   

 

 

   

 

 

 

COSTS AND EXPENSES

        

Gaming:

        

Casino

     25,160        25,041        119        0.48

Truck stop

     22,652        22,953        (301     -1.31

Pari-mutuel

     11,502        11,054        448        4.05

Food and beverage

     7,202        7,255        (53     -0.73

Convenience store – fuel

     59,131        56,097        3,034        5.41

Other

     10,923        10,031        892        8.89

Marketing, general and administrative

     34,953        32,706        2,247        6.87

Unrealized gain on change in fair value of investment in equity securities

     (2,344     (813     (1,531     188.31

Impairment of long-lived assets

     —          10,065        (10,065     -100.00

Depreciation and amortization

     9,913        11,378        (1,465     -12.88
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     179,092        185,767        (6,675     -3.59
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     19,581        7,483        12,098        161.67

Interest expense, net

     (13,165     (14,070     905        -6.43

Noncontrolling interest

     —          (13     13        -100.00
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO JEI

   $ 6,416      $ (6,600   $ 13,016        n/a   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

All comparisons below begin with the year-to-date 2012 results followed by the year-to-date 2011 results.

Casino revenues increased $0.5 million or 1% to $73.3 million from $72.8 million. The increase in casino revenues is due to increases at The Lodge of $1.3 million or 3% and Gold Dust West-Reno of $0.1 million or 2%, somewhat offset by decreases at the Gilpin of $0.6 million or 5%, Gold Dust West-Carson City of $0.1 million or 3% and Gold Dust West-Elko of $0.2 million or 3%. Revenues at The Lodge increased primarily due to increases in slots and table games revenues. The decrease in revenues at the Gilpin was primarily due to decreases in slot coin-in resulting from shifts in the market to larger properties in Black Hawk, including The Lodge.

Truck stop video poker gaming revenues increased $0.9 million or 2% to $40.1 million from $39.2 million. The increase in revenues was consistent with the statewide truck stop video gaming revenue increase.

Pari-mutuel revenues increased $0.4 million or 3% to $14.5 million from $14.1 million. An increase in account wagering revenues of $0.9 million was somewhat offset by a $0.5 million decrease in wagering revenues at the off track wagering facilities primarily due to an overall decrease in attendance compared to the prior year.

Food and beverage revenues increased $0.1 million or 1% to $14.7 million from $14.6 million. This increase is primarily attributable to increases of $0.1 million at The Lodge and $0.1 million at Gold Dust West-Elko, somewhat offset by a decrease of $0.1 million at the Gilpin and a slight decrease at the truck stops.

Convenience store-fuel revenues increased $2.9 million or 5% to $62.1 million from $59.2 million. The increase was primarily due to an increase in the average selling price of fuel to $3.63 per gallon in 2012 from $3.54 per gallon in 2011, combined with a 2% increase in volume.

Other revenues increased $1.1 million or 9% to $13.1 million from $12.0 million and were primarily attributable to a $0.6 million increase in convenience store revenues at the truck stops, a $0.2 million increase in hotel and other revenues at The Lodge, a $0.1 million increase in hotel revenues at Gold Dust West-Carson City and a $0.2 million increase in revenues at the Nautica Properties primarily due to the opening of an aquarium in close proximity to our properties.

Promotional allowances increased $0.5 million or 3% to $19.2 million from $18.7 million. Promotional allowances increased by $0.3 million at The Lodge and $0.2 million at the truck stops.

Casino expenses increased $0.1 million to $25.2 million from $25.1 million primarily due to increases of $0.2 million at The Lodge and $0.2 million at the three Nevada casinos combined, offset by a decrease of $0.3 million at the Gilpin, which directly correspond to the changes in casino revenues.

Truck stop gaming expenses decreased $0.3 million or 1% to $22.7 million from $23.0 million, primarily attributable to a reduction in insurance and property taxes in our gaming operations.

Pari-mutuel costs and expenses increased $0.4 million or 4% to $11.5 million from $11.1 million. The increase is attributable to a $0.6 million increase in account wagering costs and expenses and a $0.3 million increase in operations, track, thoroughbred and standard bred expenses, partially offset by a $0.5 million decrease at the satellite wagering facilities.

Food and beverage costs and expenses decreased less than $0.1 million or 1% to $7.2 million from $7.3 million, and is primarily due to a decrease of $0.2 million at the truck stops, somewhat offset by an increase of $0.1 million at Gold Dust West-Elko.

Convenience store-fuel expenses increased $3.0 million or 5% to $59.1 million from $56.1 million. The increase was primarily due to an increase in the average cost of fuel to $3.46 per gallon in 2012 from $3.35 per gallon in 2011, combined with an increase in volume as discussed in convenience store-fuel revenues above.

Other costs and expenses increased $0.9 million or 9% to $10.9 million from $10.0 million, and were attributable to an increase in convenience store expenses at the video poker truck stops which correlates to the increase in convenience store revenues, combined with increases in labor costs, insurance and property taxes.

 

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Marketing, general and administrative expenses increased $2.3 million or 7% to $35.0 million from $32.7 million. This increase is primarily the result of increases of $1.9 million at corporate, $0.2 million at Colonial, $0.1 million at the truck stops, $0.2 million at The Lodge, $0.1 million at Gold Dust West-Reno and $0.2 million at the Nautica Properties, somewhat offset by decreases of $0.3 million at the Gilpin and $0.1 million at Gold Dust West-Carson City. The increase at corporate is primarily due to increases in consulting, legal and payroll expenses, combined with a $0.3 million write-off for the disposal of assets. The legal expenses are primarily due to the 2012 amendment and restatement agreement to our credit facility.

An increase in MTR’s stock price during the first six months of 2012 resulted in an unrealized gain on the change in fair value of investment in equity securities totaling $2.3 million compared to an unrealized gain totaling $0.8 million during the same period of 2011.

At Gold Dust West-Carson City, we recorded an impairment of long-lived assets totaling $10.1 million during 2011. No comparable transaction occurred during the same period of 2012. See Note 11 of the unaudited condensed consolidated financial statements.

Depreciation and amortization expense decreased $1.5 million or 13% to $9.9 million from $11.4 million and is primarily due to a decrease of $0.9 million at Gold Dust West-Carson City due to the 2011 impairment of long-lived assets, combined with decreases of $0.5 million at Gold Dust West-Elko, $0.1 million at the Gilpin, $0.3 million at the truck stops and $0.2 million at corporate, somewhat offset by an increase of $0.5 million at Colonial.

Net interest expense decreased by $0.9 million or 6% to $13.2 million from $14.1 million and is attributable to a decrease in debt outstanding, somewhat offset by higher effective interest rates on our variable rate bank debt.

5. Segment information

As discussed above, we have four segments representing the geographic regions of our operations: Colorado, Nevada, Louisiana and Virginia. Each segment is managed separately because of the unique characteristics of its revenue stream, regulatory environment and customer base.

The information presented is by each segment in which we have operations and also presents our EBITDA (earnings before interest, income taxes, depreciation and amortization) for each segment. We believe that the presentation of a non-GAAP financial measure such as EBITDA is useful because it allows holders of our debt and management to evaluate and compare our operating results from continuing operations from period to period in a meaningful and consistent manner in addition to standard GAAP financial measures. Management internally evaluates the performance of our segments using EBITDA measures as do most analysts following the gaming industry. EBITDA is an element of certain key financial covenants in our debt agreements and, as such, is a critical component that we closely watch in order to determine our ability to achieve future growth and to ensure we are in compliance with our debt agreements. We present EBITDA in the tables below to provide further discussion and analysis of our operating results. EBITDA can be reconciled directly to our consolidated net income (loss) by adding the amounts shown for depreciation and amortization, interest and income taxes to net income (loss). This information should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States of America, such as net income (loss), nor should it be considered as an indicator of our overall financial performance. Our calculation of EBITDA may be different from the calculation used by other companies and comparability may be limited.

 

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The following is a summary of the components of EBITDA for the three and six months ended June 30, 2012 and 2011 (dollars in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011
(As adjusted,
see Note 7 of
Financial
Statements)
    2012     2011
(As adjusted,
see Note 7 of
Financial
Statements)
 

NET REVENUES

        

Colorado:

        

The Lodge

   $ 20,823      $ 20,122      $ 41,441      $ 40,153   

Gilpin

     4,286        4,781        8,642        9,246   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Colorado

     25,109        24,903        50,083        49,399   
  

 

 

   

 

 

   

 

 

   

 

 

 

Nevada:

        

Gold Dust West-Reno

     4,391        4,452        9,122        8,992   

Gold Dust West-Carson City

     3,335        3,369        6,097        6,146   

Gold Dust West-Elko

     3,007        3,124        6,145        6,221   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Nevada

     10,733        10,945        21,364        21,359   
  

 

 

   

 

 

   

 

 

   

 

 

 

Louisiana

     54,222        55,506        110,616        106,536   

Virginia

     8,884        8,760        16,083        15,637   

Corporate and other

     265        199        527        319   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Net Revenues

     99,213        100,313        198,673        193,250   
  

 

 

   

 

 

   

 

 

   

 

 

 

COSTS AND EXPENSES

        

Colorado:

        

The Lodge

     13,193        13,025        26,483        26,066   

Gilpin

     3,123        3,496        6,350        6,902   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Colorado

     16,316        16,521        32,833        32,968   
  

 

 

   

 

 

   

 

 

   

 

 

 

Nevada:

        

Gold Dust West-Reno

     3,147        3,063        6,329        6,227   

Gold Dust West-Carson City (1)

     3,274        13,333        6,349        16,474   

Gold Dust West-Elko

     2,522        2,447        5,039        4,869   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Nevada

     8,943        18,843        17,717        27,570   
  

 

 

   

 

 

   

 

 

   

 

 

 

Louisiana

     48,157        49,713        98,138        94,546   

Virginia

     8,648        8,428        15,356        14,775   

Corporate overhead and other (2)(3)

     3,750        2,360        5,135        4,530   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Costs and Expenses

     85,814        95,865        169,179        174,389   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

        

Colorado:

        

The Lodge

     7,630        7,097        14,958        14,087   

Gilpin

     1,163        1,285        2,292        2,344   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Colorado

     8,793        8,382        17,250        16,431   
  

 

 

   

 

 

   

 

 

   

 

 

 

Nevada:

        

Gold Dust West-Reno

     1,244        1,389        2,793        2,765   

Gold Dust West-Carson City (1)

     61        (9,964     (252     (10,328

Gold Dust West-Elko

     485        677        1,106        1,352   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Nevada

     1,790        (7,898     3,647        (6,211
  

 

 

   

 

 

   

 

 

   

 

 

 

Louisiana

     6,065        5,793        12,478        11,990   

Virginia

     236        332        727        862   

Corporate overhead and other (2)(3)

     (3,485     (2,161     (4,608     (4,211
  

 

 

   

 

 

   

 

 

   

 

 

 

Total EBITDA

   $ 13,399      $ 4,448      $ 29,494      $ 18,861   
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes on page 36.

 

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General

See sections 3 and 4 above for comparisons of our results of operations for the three and six months ended June 30, 2012 to the three months and six months ended June 30, 2011, which provide explanations regarding the fluctuations in our revenues and costs and expenses by property and segment.

The Lodge

EBITDA at The Lodge increased $0.5 million or 8% for the three months ended June 30, 2012 compared to the same period of 2011 and increased $0.9 million or 6% for the six months ended June 30, 2012 compared to the same period of 2011. For the second quarter, we experienced increased revenues in all areas of the business. The most significant increase was in slot revenues. For the six months, total revenues increased by $1.3 million, primarily in slots and table games revenues. Labor costs were also higher as a result of the increase in revenues.

Gilpin

EBITDA at the Gilpin decreased $0.1 million or 9% for the three months ended June 30, 2012 compared to the same period of 2011 and decreased less than $0.1 million or 2% for the six months ended June 30, 2012 compared to the same period of 2011. Slots and food and beverage revenues decreased during the three and six months of 2012 compared to 2011, offset by reductions in gaming taxes, marketing, research, labor and utilities expenses.

Gold Dust West-Reno

EBITDA at Gold Dust West-Reno decreased $0.1 million or 10% for the three months ended June 30, 2012 compared to the same period of 2011 but increased by 1% for the six months ended June 30, 2012 compared to the same period of 2011. Consistent with the Reno market, slot revenues were lower during the quarter but exceeded 2011 year-to-date. Labor and repairs and maintenance costs were higher in 2012 than in 2011.

Gold Dust West-Carson City

EBITDA at Gold Dust West-Carson City increased by $10.0 million for the three months ended June 30, 2012 compared to the same period of 2011 and $10.1 million for the six months ended June 30, 2012 compared to the same period of 2011, and is primarily due to the 2011 impairment of long-lived assets totaling $10.1 million.

Gold Dust West-Elko

EBITDA at Gold Dust West-Elko decreased $0.2 million or 28% for the three months ended June 30, 2012 compared to the same period of 2011 and $0.2 million or 18% for the six months ended June 30, 2012 compared to the same period of 2011. Net revenues decreased $0.1 million for the second quarter and $0.1 million year to date, primarily due to a reduction in slot revenues while costs and expenses increased $0.1 million and $0.2 million, respectively, primarily due to increases in labor and slot participation expenses.

Louisiana

EBITDA at the Louisiana truck stops increased $0.3 million or 5% for the second quarter and increased $0.5 million or 4% for the six months ended June 30, 2012 compared to the same period of 2011. These increases were attributable to increases in video poker gaming revenues somewhat offset by a slight decrease in fuel gross profit, combined with increases in advertising, repairs and maintenance costs.

 

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Table of Contents

Virginia

EBITDA at our pari-mutuel operations in Virginia decreased $0.1 million or 29% for the three months ended June 30, 2012 compared to the same period of 2011 and decreased $0.1 million or 16% for the six months ended June 30, 2012 compared to the same period of 2011. The EBITDA decrease is primarily attributable to increased management, general and administrative costs.

Corporate Overhead and Other

The EBITDA loss at corporate increased by $1.3 million for the three months ended June 30, 2012 and by $0.4 million for the six months ended June 30, 2012 compared to the same periods of 2011. The increase at corporate is primarily due to changes in the stock price of our investment in MTR, increases in consulting, legal and payroll expenses, combined with a $0.3 million write-off for the disposal of assets. The legal expenses are primarily due to the February 2012 amendment and restatement agreement to our credit facility.

Reconciliation of EBITDA to Net Income (Loss)

The following table sets forth a reconciliation of our EBITDA, a non-GAAP financial measure, to our net income (loss), a GAAP financial measure (dollars in thousands):

 

Three months ended June 30, 2012

   EBITDA     Depreciation and
Amortization
     Interest
Expense, net
     Net
Income (Loss)
 

Colorado:

          

The Lodge

   $ 7,630      $ 1,227       $ 1,682       $ 4,721   

Gilpin

     1,163        393         476         294   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total Colorado

     8,793        1,620         2,158         5,015   
  

 

 

   

 

 

    

 

 

    

 

 

 

Nevada:

          

Gold Dust West-Reno

     1,244        394         654         196   

Gold Dust West-Carson City

     61        175         383         (497

Gold Dust West-Elko

     485        302         216         (33
  

 

 

   

 

 

    

 

 

    

 

 

 

Total Nevada

     1,790        871         1,253         (334
  

 

 

   

 

 

    

 

 

    

 

 

 

Louisiana

     6,065        1,428         1,358         3,279   

Virginia

     236        751         124         (639

Corporate overhead and other (1)

     (3,485     128         1,546         (5,159
  

 

 

   

 

 

    

 

 

    

 

 

 

TOTAL

   $ 13,399      $ 4,798       $ 6,439       $ 2,162