10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2016

Commission File Number 000-54085

Affinity Gaming

Nevada	02-0815199
State of Incorporation	IRS Employer Identification Number

3755 Breakthrough Way, Suite 300

Las Vegas, Nevada 89135

(Address, including zip code, of principal executive offices)

702-341-2400

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	þ	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  þ    No  ¨

No established public trading market for our common stock currently exists. As of November 7, 2016, there were 20,438,831 shares of the registrant's common stock outstanding.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative And Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
	Signatures

Table of Contents i

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the U.S. federal securities laws.  You can identify forward-looking statements by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “projects,” “may,” “will” or “should,” or the negative or other variation of these or similar words, or by discussions of strategy or risks and uncertainties, and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements we make regarding:

• the merger of Affinity Merger Sub, Inc. with and into Affinity Gaming pursuant to the Agreement and Plan of Merger, dated August 22, 2016, among Z Capital Affinity Owner, LLC, Affinity Merger Sub, Inc. and Affinity Gaming (the “Merger Agreement”), including the timing and completion thereof and plans by the purchaser parties for Affinity Gaming after the merger;

• our expectations regarding the effects of our promotional campaigns and marketing programs on driving revenue, reducing costs and improving operating margins;

• estimated and projected costs, capital expenditures and expense savings;

• the adequacy of cash flows from operations, available cash and available amounts under our credit facility to meet future liquidity needs; and

• our continued viability, our operations and results of operations.

We base these and other forward-looking statements on our current expectations and assumptions regarding our business, the economy and other future conditions; however, our actual results may differ materially from those contemplated by the forward-looking statements.  We caution you, therefore, that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance.  Forward-looking statements, which by their nature relate to the future, are subject to inherent uncertainties, risks and changes in circumstances which we cannot easily predict. Important factors that could cause actual results to differ materially and adversely from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions, as well as the following:

• risks arising from the diversion of management’s attention from our ongoing business operations due to the merger;

• potential adverse reactions or changes to business or employee relationships resulting from the announcement or completion of the merger;

• risks relating to the consummation of the merger, including the risk that the closing conditions set forth in the Merger Agreement will not be satisfied;

• difficulties associated with requests or directions from governmental authorities resulting from their review of the merger or the Merger Agreement;

• failure to obtain necessary financing for the merger;

• risks that Affinity’s stock price may decline significantly if the merger is not completed;

• the possibility that Affinity stockholders may exercise dissenters’ rights under Nevada law in connection with the merger, which would require Affinity to pay such stockholders cash for the fair value of their Affinity shares;

• our debt service requirements, which may adversely affect our operations and ability to compete;

• our ability to generate cash to service our substantial indebtedness, which depends on many factors that we cannot control;

• the impact of restrictions under, and results of noncompliance with, the terms of our credit agreement;

• intense competition;

• extensive regulation from gaming and other government authorities;

• changes to applicable gaming and tax laws;

• severe weather conditions and other natural disasters that affect visitation to our casinos;

• environmental contamination and remediation costs;

Table of Contents ii

• pending and potential litigation, including with respect to the merger;

• reductions in spending as a result of economic downturns and other factors;

• changes in income tax, payroll tax and health care benefits laws;

• additional gaming licenses being granted in or adjacent to jurisdictions where we operate;

• breaches of our information systems resulting in loss or compromise of customer data;

• changes in the smoking laws; and

• other factors as described in “Part I. Item 1A. — Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 23, 2016 (“2015 Form 10-K”).

Any forward-looking statement made by us in this report speaks only as of the date of this report.  Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.  We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

Table of Contents iii

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets	2
Unaudited Condensed Consolidated Statements of Operations	3
Unaudited Condensed Consolidated Statements of Cash Flows	4
Notes to Unaudited Condensed Consolidated Financial Statements	5

Table of Contents 1 Financial Statement Index

AFFINITY GAMING

Condensed Consolidated Balance Sheets

(in thousands)

	September 30, 2016			December 31, 2015
	(Unaudited)
ASSETS
Cash and cash equivalents	$	87,121		$	157,779
Restricted cash	608			608
Accounts receivable, net of reserve of $158 and $147, respectively	2,735			3,217
Income tax receivable	23			16
Prepaid expense	7,599			10,079
Inventory	2,328			2,798
Total current assets	100,414			174,497
Property and equipment, net	244,185			251,908
Other assets, net	9,844			3,530
Intangibles, net	122,166			124,042
Goodwill	48,287			48,287
Total assets	$	524,896		$	602,264
LIABILITIES AND OWNERS’ EQUITY
Accounts payable	$	12,170		$	13,220
Accrued interest	43			2,327
Accrued expense	24,157			24,158
Current maturities of long-term debt	3,000			11,383
Other current liabilities	—			23
Total current liabilities	39,370			51,111
Long-term debt, less current portion	291,378			364,204
Other liabilities	2,968			1,932
Deferred income taxes	16,821			14,758
Total liabilities	350,537			432,005
Commitments and contingencies (Note 11)
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued or outstanding	—			—
Common stock, $0.001 par value; 200,000,000 shares authorized; 20,438,831 and 20,377,247 shares issued and outstanding for 2016 and 2015, respectively	20			20
Additional paid-in-capital	208,798			208,239
Accumulated deficit	(34,459		)	(38,000		)
Total owners’ equity	174,359			170,259
Total liabilities and owners’ equity	$	524,896		$	602,264

See notes to condensed consolidated financial statements

Table of Contents 2 Financial Statement Index

AFFINITY GAMING

Unaudited Condensed Consolidated Statements of Operations

(in thousands)

	Quarter Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
REVENUE
Casino	$	70,252		$	74,414		$	211,583		$	225,016
Food and beverage	9,344			12,179			30,552			36,222
Lodging	6,302			6,672			18,731			20,894
Fuel and retail	14,347			16,904			39,877			45,156
Other	3,767			3,770			10,689			9,933
Total revenue	104,012			113,939			311,432			337,221
Promotional allowances	(7,584		)	(11,989		)	(24,596		)	(36,782		)
Net revenue	96,428			101,950			286,836			300,439
EXPENSE
Casino	26,000			29,271			79,562			88,961
Food and beverage	9,439			12,022			30,609			35,649
Lodging	4,462			4,345			13,015			12,451
Fuel and retail	9,696			12,601			27,099			33,540
Other	1,818			1,961			5,281			5,329
General and administrative	19,962			20,652			57,525			58,970
Depreciation and amortization	7,270			7,251			21,966			21,619
Corporate	8,562			4,763			18,378			14,058
Write downs, reserves and recoveries	109			37			70			(32		)
Total expense	87,318			92,903			253,505			270,545
Operating income	9,110			9,047			33,331			29,894
Other expense
Interest expense, net	(4,245		)	(7,692		)	(19,566		)	(22,950		)
Loss on extinguishment (or modification) of debt	(8,030		)	—			(8,030		)	—
Total other expense, net	(12,275		)	(7,692		)	(27,596		)	(22,950		)
Income (loss) before income tax	(3,165		)	1,355			5,735			6,944
Benefit (provision) for income taxes	1,943			641			(2,063		)	(4,391		)
Net (loss) income	$	(1,222	)	$	1,996		$	3,672		$	2,553

See notes to condensed consolidated financial statements

Table of Contents 3 Financial Statement Index

AFFINITY GAMING

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

	Nine Months Ended September 30,
	2016			2015
Cash flows from operating activities:
Net income	$	3,672		$	2,553
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	21,966			21,619
Amortization of debt costs and discounts	1,916			2,216
Loss (gain) on sale of property and equipment	98			(9		)
Unamortized loan fees related to extinguishment (or modification) of debt	3,530			—
Share-based compensation	1,924			975
Deferred income taxes	2,063			4,365
Changes in operating assets and liabilities:
Accounts receivable, net	482			1,199
Prepaid expense	2,480			2,757
Inventory	470			(103		)
Other assets	164			231
Accounts payable	(297		)	1,608
Accrued interest	(2,284		)	4,474
Accrued expense	(1		)	1,306
Income tax receivable	(7		)	155
Other liabilities	(43		)	(32		)
Net cash provided by operating activities	36,133			43,314
Cash flows from investing activities:
Proceeds from sale of property and equipment	22			16
Disposition of property and equipment	(40		)	—
Purchases of property and equipment	(14,503		)	(11,160		)
Net cash used in investing activities	(14,521		)	(11,144		)
Cash flows from financing activities:
Payment on capital lease	(23		)	(23		)
Payment on long-term debt	(383,495		)	—
Proceeds from long term debt	298,500			—
Loan origination fees	(6,808		)	—
Repurchases of common stock	(371		)	—
Repurchases of vested share-based awards	(73		)	(71		)
Net cash used in financing activities	(92,270		)	(94		)
Net (decrease) increase in cash and cash equivalents	(70,658		)	32,076
Cash and cash equivalents:
Beginning of period	157,779			135,175
End of period	$	87,121		$	167,251
Supplemental cash flow information:
Cash paid during the period for interest	$	20,103		$	16,402
Supplemental schedule of non-cash investing and financing activities:
Purchase of property and equipment financed through accounts payable	$	563		$	641
Non-cash disposition of assets	40			—
Non-cash loan origination fees	1,295			—

See notes to condensed consolidated financial statements.

Table of Contents 4 Financial Statement Index

AFFINITY GAMING

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1. ORGANIZATION, CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS

Organization and Business

Affinity Gaming (together with its subsidiaries, “Affinity” or “we”) is a Nevada corporation, headquartered in Las Vegas, which owns and operates 11 casinos, five of which are located in Nevada, three in Colorado, two in Missouri and one in Iowa. We also provided consulting services to Hotspur Casinos Nevada, Inc. (“Hotspur”), the operator of the Rampart Casino at the JW Marriott Resort in Las Vegas until the expiration of the related consulting agreement on April 1, 2015. Hotspur previously paid us a fixed annual fee in monthly installments.

On August 22, 2016, Affinity entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Z Capital Affinity Owner, LLC (“Z Capital Owner”), an affiliate of Z Capital Partners, L.L.C. (“Z Capital”), the beneficial owner of 41.1% of Affinity’s common stock, and Affinity Merger Sub, Inc., a wholly owned subsidiary of Z Capital Owner. Pursuant to the Merger Agreement, each share of Affinity common stock outstanding will represent the right to receive $17.35 in cash. The acquisition of Affinity’s common stock pursuant to the Merger Agreement (the “Acquisition”) is anticipated to be completed in the first quarter of 2017, subject to regulatory approvals and customary closing conditions.

Consolidation

We include all of our subsidiaries in our consolidated financial statements, eliminating all intercompany balances and transactions during consolidation.

Basis of Presentation

We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). While preparing our financial statements, we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenue and expense during the reporting period. Accordingly, actual results could differ from those estimates. Reported amounts that require us to make extensive use of estimates include the fair values of assets and liabilities related to depreciation and amortization, the estimates used when computing share-based compensation expense, the estimated allowance for doubtful accounts receivable and the estimated cash flows we use in assessing the recoverability of long-lived assets, as well as the estimated fair values of certain assets related to write downs and impairments, contingencies and litigation, and claims and assessments.

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of September 30, 2016, with the audited Consolidated Balance Sheet amounts as of December 31, 2015 presented for comparative purposes, and the related unaudited Condensed Consolidated Statements of Operations and Statements of Cash Flows in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP, though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.

Our results of operations and our cash flows as of the end of the interim periods reported herein do not necessarily indicate the results we may experience for the remainder of the year or for any other future period.

Management believes our unaudited condensed consolidated interim financial statements include all the normal recurring adjustments necessary to fairly present our unaudited Condensed Consolidated Balance Sheet as of September 30, 2016, our unaudited Condensed Consolidated Statements of Operations and our unaudited Condensed Consolidated Statements of Cash Flows for all periods presented. You should read our unaudited condensed consolidated interim financial statements and footnotes in conjunction with our consolidated financial statements and footnotes included within our 2015 Form 10-K.

Table of Contents 5 Financial Statement Index

AFFINITY GAMING

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We have made no material changes to our significant accounting policies as reported in our 2015 Form 10-K.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases, that changes the accounting for leases and requires expanded disclosures about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. Lessees and lessors are required to apply a modified retrospective transition approach for leases existing at the beginning of the earliest comparative period presented in the adoption-period financial statements. Any leases that expire before the initial application date will not require any accounting adjustment. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018, and early application is permitted. We are currently evaluating the impact this guidance will have on its financial condition, results of operations, cash flows or the reporting thereof.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2014-09 stipulate that an entity should recognize revenue in an amount which reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to customers, and they provide a five-step process to assist entities with achieving that core principle. The ASU also specifies the accounting for some costs to obtain or fulfill a contract with a customer. With regard to disclosures, ASU 2014-09 states that entities should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, and it requires qualitative and quantitative disclosures concerning contracts with customers, significant judgments and changes therein, and assets recognized from the costs incurred to obtain or fulfill a contract. The amendments in ASU 2014-09, have been deferred for one year and are effective for annual reporting periods beginning after December 15, 2017, including interim periods therein, and they permit either retrospective application to all prior periods or retrospective application with the cumulative effect of application recognized on the initial application date. Early adoption is permitted for annual and interim periods beginning after December 31, 2016. We are currently evaluating the impact this guidance will have on its financial condition, results of operations, cash flows or the reporting thereof.

We have reviewed all other recently issued accounting pronouncements and, other than those we have disclosed above or in previous filings with the SEC, we do not believe any of such pronouncements will have a material effect on our operations.

Reclassifications

In November 2015, the FASB issued an accounting standards update which changes the presentation of deferred taxes in classified balance sheets. The new guidance requires classification of all deferred tax assets and liabilities as well as applicable valuation allowances as non-current. The effective date for this guidance is for financial statements issued for annual and interim periods beginning after December 15, 2016. Early application is permitted. The guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. We have applied the guidance in the accompanying condensed consolidated financial statements with retrospective application for the Consolidated Balance Sheet at December 31, 2015. The effect of the accounting change in the prior year resulted in current deferred income taxes of $1.7 million, previously presented separately in current liabilities, to be added to $13.1 million in long-term deferred income taxes, for a revised $14.8 million in long-term deferred income taxes at December 31, 2015.

NOTE 3. RESTRICTED CASH

Restricted cash balances at September 30, 2016 and December 31, 2015 include cash or certificates of deposit required for gaming activity in certain jurisdictions in which we operate, and for self-insured retention obligations under some of our workers compensation insurance policies.

Table of Contents 6 Financial Statement Index

AFFINITY GAMING

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consist of the following (in thousands, except estimated lives):

	Estimated Life (Years)	September 30, 2016			December 31, 2015
Building and improvements	7 - 40	$	187,615		$	185,875
Gaming equipment	3 - 10	80,752			75,527
Furniture, fixtures, and equipment	3 - 10	52,133			49,571
Leasehold improvements	7	196			196
Land	—	39,513			39,513
Barge	30	15,137			15,019
Construction-in-progress		4,967			3,185
Total property and equipment		380,313			368,886
Less accumulated depreciation		(136,128		)	(116,978		)
Total property and equipment, net		$	244,185		$	251,908

NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS

We determine the fair value of the indefinite-lived intangible assets other than goodwill using the discounted cash flow method, a form of the income approach.  In determining the fair values, we make significant assumptions relating to variables based on past experiences and judgments about future performance.  These variables include, but are not limited to: (1) the forecast earnings growth rate of each market, (2) risk-adjusted discount rate, and (3) expected growth rates in perpetuity to estimated terminal values.

The following table summarizes intangible assets by category (in thousands):

	September 30, 2016							December 31, 2015
	Gross Amount		Accumulated Amortization			Net Amount		Gross Amount		Accumulated Amortization			Net Amount
Finite-lived intangible assets
Customer loyalty programs	$	12,164	$	(10,083	)	$	2,081	$	12,164	$	(8,583	)	$	3,581
Trademarks	2,982		(2,774		)	208		2,982		(2,398		)	584
	15,146		$	(12,857	)	2,289		15,146		$	(10,981	)	4,165
Indefinite-lived intangible assets
Gaming license rights	110,646					110,646		110,646					110,646
Local tradenames	9,231					9,231		9,231					9,231
	119,877					119,877		119,877					119,877
Total intangible assets	$	135,023				$	122,166	$	135,023				$	124,042

Table of Contents 7 Financial Statement Index

AFFINITY GAMING

Notes to Unaudited Condensed Consolidated Financial Statements

The following table summarizes the changes in goodwill by reportable segment during the nine months endedSeptember 30, 2016:

	Nevada		Midwest		Total
Balance at December 31, 2015	$	33,665	$	14,622	$	48,287
Impairment of goodwill	—		—		—
Balance at September 30, 2016	$	33,665	$	14,622	$	48,287

We amortize definite-lived intangible assets ratably over their expected lives which, for customer loyalty programs, approximate seven years and, for trademarks, approximate 3.75 years. Overall, we are amortizing definite-lived intangible assets over a weighted-average expected life of approximately 6.5 years.

We obtain gaming license rights when we acquire gaming entities that operate in gaming jurisdictions where competition is limited, such as states where the law only allows a certain number of operators.  We do not currently amortize gaming license rights and local tradenames because we have determined they have an indefinite useful life.

NOTE 6. OTHER ASSETS, NET

Other assets, net consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Prepaid loan fees, net	$	6,443	$	—
Long-term deposits	2,923		2,919
Other assets	478		611
Total	$	9,844	$	3,530

NOTE 7. ACCRUED EXPENSE

Accrued expense consists of the following (in thousands):

	September 30, 2016		December 31, 2015
Progressive jackpot liabilities	$	3,038	$	2,984
Accrued payroll and related	8,509		7,441
Slot club point liability	2,907		3,213
Litigation reserve	3,100		3,100
Other accrued expense	6,603		7,420
Total	$	24,157	$	24,158

Table of Contents 8 Financial Statement Index

AFFINITY GAMING

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 8. LONG-TERM DEBT

The following table presents long-term debt balances (in thousands):

	September 30, 2016			December 31, 2015
Term Loan due 2023	$	299,250		$	—
Unamortized debt discount and issuance cost, net	(4,872		)	—
Term loan due 2023, net	294,378			—
9% Senior Unsecured Notes due 2018	—			200,000
Unamortized debt issuance cost, net	—			(3,028		)
Unamortized discount	—			(847		)
9% Senior Unsecured Notes due 2018, net	—			196,125
Term loan due 2017	—			182,745
Unamortized debt issuance cost, net	—			(3,283		)
Term loan due 2017, net	—			179,462
Total debt, including current maturities	294,378			375,587
Less: current maturities of long-term debt	(3,000		)	(11,383		)
Total long-term debt	$	291,378		$	364,204

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

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

On July 22, 2014, we completed the second amendment to the 2012 Credit Agreement (the “Second Amended Credit Agreement”) governing our 2012 Credit Facility. Prior to the refinancing in July 2016, we incurred interest on the 2012 Term Loan under the Second Amended Credit Agreement at an uncommitted floating rate of LIBOR plus 4.00%, subject to a LIBOR floor of 1.25%. The Second Amended Credit Agreement also required us to pay commitment fees related to the Revolving Credit Facility equal to an annualized rate of 0.50% on undrawn amounts during 2016.

On July 1, 2016, we entered into a Credit Agreement (the “2016 Credit Agreement”) which provides for a $300.0 million term loan facility (the “2016 Term Loan”) and a $75 million revolving credit facility (the “2016 Revolving Credit Facility” and, together with the 2016 Term Loan, the “2016 Credit Facility”), which remained undrawn as of September 30, 2016. The 2016 Term Loan is payable in quarterly installments, commencing on September 30, 2016, in an amount equal to 0.25% of the 2016 Term Loan until the maturity date, July 1, 2023, upon which date the remaining balance will come due. Amounts outstanding under the 2016 Revolving Credit Facility will be due and payable on July 1, 2021. The interest rate under the 2016 Term Loan is at a floating rate not less than 5.0%. We used the proceeds of the 2016 Term Loan together with $94.9 million in cash to repay all amounts outstanding under the 2012 Term Loan and redeem the 2018 Notes. We also recognized a loss on the extinguishment of debt of $8.0 million which included a prepayment penalty on the 2018 Notes and the write-off of unamortized debt issuance costs and discounts during the quarter ended September 30, 2016.

Table of Contents 9 Financial Statement Index

AFFINITY GAMING

Notes to Unaudited Condensed Consolidated Financial Statements

On September 30, 2016, the 2016 Credit Agreement was amended by the First Amendment to Credit Agreement (the “2016 Amendment”) to, among other things, provide for additional term loans of $30.0 million (the “Additional Loans”) in connection with the Acquisition of the capital stock of the Company by affiliates of Z Capital. The additional loans will be fully funded substantially concurrently with the closing of the Acquisition on terms and conditions, including interest rates and maturity dates, identical to the 2016 Term Loan currently outstanding. The amendment also modifies the 2016 Credit Agreement (after giving effect to the 2016 Amendment, the “Amended 2016 Credit Agreement”) to reflect (i) the terms and conditions of the Additional Loans, (ii) the pendency and anticipated consummation of the Acquisition, and (iii) the anticipated entry into a Second Lien Term Loan Agreement. The effectiveness of the 2016 Amendment and of the Amended 2016 Credit Agreement are conditioned upon the closing of the Acquisition.

Unamortized debt issuance cost, which we are amortizing over the life of the 2016 Term Loan, totaled $4.9 million at September 30, 2016. In April 2015, the FASB issued guidance that debt issuance costs should be presented in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Under the new guidance, effective for annual and interim periods beginning after December 15, 2015, we have reclassified $1.5 million in unamortized debt issuance costs previously presented in other assets to be deducted from the long-term debt balances at December 31, 2015.

The 2016 Credit Agreement contains customary covenants including, but not limited to, a maximum total net leverage ratio and a maximum secured leverage ratio. Additionally, the 2016 Term Loan is subject to mandatory annual prepayments based on generation of excess cash flow (as defined), equal to 50% of excess cash flow when the Total Net Leverage Ratio is greater than 3.50 to 1.00, equal to 25% of excess cash flow when the Total Net Leverage Ratio is greater than 3.00 to 1.00, but less than or equal to 3.50 to 1.00, and equal to zero when the Total Net Leverage Ratio is less than or equal to 3.00 to 1.00. As of September 30, 2016, we remained in compliance with all debt covenants.

We based the estimated fair value of the 2016 Term Loan on Level 2 inputs using quoted prices in inactive markets and observable market data for similar, but not identical, instruments. The following table presents the carrying values and estimated fair values of our long-term debt at September 30, 2016 (in thousands):

	Carrying Value		Estimated Fair Value
Term Loan due 2023	$	294,378	$	295,497

NOTE 9. INCOME TAXES

We continually evaluate our deferred tax assets to determine if any portion of those assets would not be realized in a future period. Based on our analysis of all available evidence, which included consideration of our cumulative consolidated pre-tax losses as well as other data, we concluded that it is more likely than not that we will be unable to realize all of our net deferred tax assets and, as a result, we recorded a full valuation allowance against our net deferred tax assets in 2014. For the quarters ended September 30, 2016 and 2015, our effective income tax rates varied from the federal statutory rate primarily due to the amortization of indefinite-lived intangibles. We recorded a benefit for income taxes of $1.9 million and $0.6 million for the quarters ended September 30, 2016 and 2015, respectively. For the nine months endedSeptember 30, 2016 and 2015, our effective income tax rates varied from the federal statutory rate primarily due to the amortization of indefinite-lived intangibles. We recorded a provision for income taxes of $2.1 million and $4.4 million for the nine months endedSeptember 30, 2016 and 2015, respectively.

We have analyzed our filing positions in each jurisdiction where we are required to file income tax returns. We believe our income tax filing positions and deductions will be sustained on audit and we do not anticipate any adjustments which will result in a material change to our financial position.

We filed income tax returns in the United States federal jurisdiction and in several state jurisdictions. Our 2014 United States federal return is currently under examination. No adjustments have been proposed as of September 30, 2016.

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Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 10. SHARE-BASED COMPENSATION

We designed our share-based compensation arrangements to advance our long-term interests; for example, by allowing us to attract and retain employees and directors by aligning their interests with those of our stockholders. The amount, frequency, and terms of share-based awards may vary based on competitive practices, our operating results, government regulations and availability under our equity incentive plans. Depending upon the form of the share-based award, new shares of our common stock may be issued upon grant, option exercise or vesting of the award.

The Affinity Gaming Amended and Restated 2011 Long-Term Incentive Plan (“LTIP”), which the Compensation Committee of our Board of Directors approved, allows us to issue up to 2,000,000 shares of common stock, subject to stock options, or as restricted stock, to employees, officers, directors and consultants. Awards vest upon the passage of time, the attainment of performance criteria, or both. Stock options awarded under the LTIP expire five years from the grant date. Awards granted to management generally vest ratably over three years from the date of the grant and those granted to directors generally vest in two equal tranches, the first upon issuance and the second during January of the calendar year following the year of grant. Holders of restricted stock may vote their shares and receive their proportionate share of any dividends. Restricted stock remains subject to the terms and conditions contained in the applicable award agreement and our LTIP until the recipient vests in the award.

The following table summarizes the activity related to our outstanding stock options and non-vested restricted stock for the period ended September 30, 2016:

	Stock Options				Restricted Stock
	Outstanding				Non-Vested
	Shares		Weighted Average Exercise Price Per Share		Shares		Weighted Average Fair Value Per Share
December 31, 2015	330,605		$	10.24	82,290		$	10.54
Granted	272,500		12.00		85,082		12.00
Vested	—		—		(81,660	)	10.96
Forfeited	(36,364	)	10.00		—		—
September 30, 2016	566,741		$	11.10	85,712		$	11.59

As of September 30, 2016, awards representing 1,029,070 shares or potential shares of our common stock remained outstanding; therefore, awards representing 970,930 shares or potential shares of our common stock remained available for issuance under our Amended 2011 Long-Term Incentive Plan.

We account for stock option awards as liabilities as a result of our past practice of settling stock options for cash. As of September 30, 2016 and December 31, 2015, we have reported $2.3 million and $1.2 million, respectively, of share-based compensation liability in Other liabilities on the condensed consolidated balance sheets.

NOTE 11. COMMITMENTS AND CONTINGENCIES

Data Security Events

In October 2013, Affinity was contacted by law enforcement regarding fraudulent credit and debit card charges which may have been linked to a data security breach in Affinity’s information technology system. We immediately initiated a thorough

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Notes to Unaudited Condensed Consolidated Financial Statements

investigation, supported by an independent professional forensic investigation firm, to determine the nature and scope of the compromise. In December 2013, we issued a press release advising that our payment processing system had become infected by malware, which resulted in a compromise of credit card and debit card information belonging to individuals who used their cards at restaurants, hotels and gift shops at our facilities between March 14 and October 16, 2013. As of November 14, 2013, our forensics expert advised us that our credit card processing systems were free of functioning malware. We encouraged our patrons to protect against possible identity theft or other financial loss by reviewing account statements for potential fraudulent activity during the period of exposure. In April 2014, we again learned that an unauthorized intrusion and installation of malware compromising the credit card processing environment had occurred. We then hired a different professional forensics investigation firm to conduct a thorough investigation of the more recently discovered event, and the security of our information technology environment as it related to both incidents. As a result of the second investigation, we have reason to believe credit card and debit card information from individuals who used their cards at restaurants, hotels and gift shops at our properties between December 7, 2013 and April 28, 2014, also may have been compromised. In May 2014, we issued another press release and encouraged our patrons to protect against possible identity theft or other financial loss by reviewing account statements for potential fraudulent activity during the period of exposure.

We carry insurance coverage of $5.0 million for liability resulting from network security events. As of September 30, 2016, we have incurred $1.2 million in expense, including deductibles, for the security breaches. We do not expect to incur additional material expenses that are not covered by insurance. However, we cannot estimate the total amount which we will ultimately incur and be reimbursed by insurance carriers because, although the independent forensic investigation has concluded, we have not received all of the monetary assessments and evaluations from the credit card processors and issuing banks seeking to recover the cost of replacement cards and a portion of fraudulent charges, nor have we received any third-party claims as of this date.

In addition, a few state attorneys general have investigated the data breach events, including how they occurred, their consequences and our responses. We cooperated in the investigations, and in October 2016 entered into agreements with the attorneys general of Colorado, Iowa, Kansas and Missouri to pay them a total of $100,000 to partially reimburse them their investigative costs and not as an admission of any liability or wrongdoing on the part of the Company. We also agreed to e-mail our customers copies of the notices of data breach we had posted on our websites and published in numerous newspapers and on-line news outlets in 2013 and 2014, as well as to undertake, complete or certify the completion of certain previously undertaken data security measures.

Finally, we have commenced a lawsuit in federal court in Nevada against the firm that conducted the initial forensic investigation for recovery of the costs and assessments we incurred as a result of the April 2014 data breach discovery. That litigation is in the discovery phase.

Litigation

In March 2012, the Clarke County Development Corp. (“CCDC”), the local non-profit Iowa licensee for which we manage the Lakeside Hotel & Casino (“Lakeside”) in Osceola, Iowa, filed an action in Iowa state court against Affinity and Lakeside, seeking a declaratory judgment that the management contract between CCDC and Lakeside is non-assignable. We removed the case to federal court and contested CCDC's position even though we had no plans to assign the agreement. CCDC also named Lakeside, Affinity and the Iowa Racing & Gaming Commission (“IRGC”) in a separate petition in Iowa state court seeking judicial review of the IRGC's ruling, in November 2010, which approved our predecessor's creditors to become the owners of Affinity Gaming, LLC, and thereby the indirect owners of Lakeside, prior to our emergence from bankruptcy and notwithstanding CCDC’s objection that an assignment of the management agreement had occurred which required its consent. On July 29, 2013, just two weeks before the hearing on judicial review, CCDC filed a voluntary dismissal without prejudice of the petition for judicial review.  On July 30, 2013, CCDC filed a motion to dismiss the federal court action without prejudice, which was granted.  CCDC’s dismissal of the state court petition and the federal court action was based upon its filing in Iowa state court on August 5, 2013 of a third lawsuit, since removed to federal court in Iowa, in which it seeks to enforce a settlement agreement it alleges was reached with us during a non-binding mediation held in June 2013.  On April 21, 2015, following discovery in the new lawsuit, the District Court for the Southern District of Iowa granted summary judgment in favor of the Company and against CCDC. CCDC appealed the grant of summary judgment to the 8^th Circuit U.S. Court of Appeals, and on June 24, 2016, the Court of Appeals reversed the District Court’s decision and remanded the case for trial. A jury trial has been set for January 2017.

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Notes to Unaudited Condensed Consolidated Financial Statements

In November 2013, Chartwell Advisory Group, Ltd. (“Chartwell”), a professional services firm that facilitated filing refund requests with the Nevada Tax Commission for sales and use tax paid by certain casinos on the cost of complimentary meals for periods beginning in 2004, filed a lawsuit against numerous Nevada casino operators, including one of our subsidiaries, alleging that it is owed a percentage of the tax casinos did not have to pay as a result of a 2012 state tax regulation and related settlement agreement. Our subsidiary had entered into an agreement with this firm prior to the bankruptcy whereby Chartwell would receive a percentage of any refund we received from the state of sales tax previously paid by our subsidiary. We settled this matter in May 2016 for $0.2 million.

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

Environmental Remediation

In 2011, during excavation at the site of our travel center at Whiskey Pete’s Hotel and Casino (“Whiskey Pete’s”) in Primm, Nevada, we encountered several contaminated underground sites which required soil remediation and groundwater testing. Much of the contamination resulted from underground fuel storage tanks related to a gas station operated more than 35 years ago, as well as from abandoned underground fuel lines. We also began testing at the direction of the Nevada Division of Environmental Protection (the “NDEP”) to determine the extent to which the contamination has affected the groundwater, and we have agreed to continue monitoring the groundwater for a period of at least two more years.

For the nine months ended September 30, 2016 and 2015, we incurred $63 thousand and $0.2 million, respectively, in costs on remediation work at the Whiskey Pete’s site. We have an insurance policy which provides coverage for environmental remediation costs of up to $5.0 million. From the beginning of construction through September 30, 2016, we have incurred $4.0 million in costs on remediation work and received $2.0 million from our insurer. Insurance proceeds were received in 2015 and prior years.

Although we believe that incurring additional cost related to the testing and ongoing monitoring of groundwater for contamination is probable, we cannot reasonably estimate an amount to accrue at this time because the NDEP has not told us what additional work, if any, it will require us to perform. Additionally, we believe some or all of the ongoing monitoring costs will be reimbursed by insurance as part of our initial claim. We also filed suit in Nevada state district court for partial recovery against the environmental consultant that managed the initial remediation. The ultimate cost to us will depend on the extent of contamination found, if any, as a result of our ongoing testing, the amount of remediation we are required to perform, and the amount we are reimbursed. The litigation against the environmental consultant is in the discovery phase. As we complete our ongoing monitoring obligation, we intend to analyze any cost incurred, and we will expense or capitalize it as necessary.

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Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 12. SEGMENT INFORMATION

The following table presents the components of net revenue by segment (in thousands):

	Quarter Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Gross revenue
Nevada	$	61,891		$	69,467		$	184,791		$	203,221
Midwest	32,452			33,390			97,762			101,128
Colorado	9,669			11,082			28,879			32,872
Total gross revenue	104,012			113,939			311,432			337,221
Promotional allowances
Nevada	(5,386		)	(8,013		)	(17,068		)	(25,179		)
Midwest	(1,497		)	(2,817		)	(5,255		)	(7,984		)
Colorado	(701		)	(1,159		)	(2,273		)	(3,619		)
Total promotional allowances	(7,584		)	(11,989		)	(24,596		)	(36,782		)
Net revenue
Nevada	56,505			61,454			167,723			178,042
Midwest	30,955			30,573			92,507			93,144
Colorado	8,968			9,923			26,606			29,253
Total net revenue	$	96,428		$	101,950		$	286,836		$	300,439

We use earnings before interest expense, net; income tax; depreciation and amortization; share-based compensation; pre-opening costs; write offs, reserves and recoveries; loss on extinguishment or modification of debt; loss on impairment of assets; gains or losses on the disposition of assets; and restructuring and reorganization costs (“Adjusted EBITDA”) as a measure of profit and loss to manage the operational performance of our segments.

Adjusted EBITDA is a measure which does not conform to generally accepted accounting principles in the United States (“GAAP”). You should not consider this information as an alternative to any measure of performance as promulgated under GAAP, such as operating income and net income. Our calculation of Adjusted EBITDA may be different from the calculations used by other companies; therefore, comparability may be limited. We have included a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, which in our case is operating income.

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Notes to Unaudited Condensed Consolidated Financial Statements

The following table presents Adjusted EBITDA by segment and by corporate and other (in thousands):

	Quarter Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Adjusted EBITDA
Nevada	$	12,425		$	10,153		$	37,439		$	31,590
Midwest	10,893			9,321			31,955			29,450
Colorado	1,733			1,624			4,351			4,499
Corporate and other	(7,338		)	(4,455		)	(16,454		)	(13,083		)
Total Adjusted EBITDA	$	17,713		$	16,643		$	57,291		$	52,456

The following tables reconcile Adjusted EBITDA to operating income (in thousands):

	Quarter Ended September 30, 2016
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write Downs, Reserves and Recoveries			Operating Income
Nevada	$	12,425		$	(3,653	)	$	—		$	(113	)	$	8,659
Midwest	10,893			(2,020		)	—			—			8,873
Colorado	1,733			(1,364		)	—			4			373
Corporate and other	(7,338		)	(233		)	(1,224		)	—			(8,795		)
Total operations	$	17,713		$	(7,270	)	$	(1,224	)	$	(109	)	$	9,110

	Quarter Ended September 30, 2015
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write Downs, Reserves and Recoveries			Operating Income
Nevada	$	10,153		$	(3,722	)	$	—		$	(37	)	$	6,394
Midwest	9,321			(1,919		)	—			—			7,402
Colorado	1,624			(1,314		)	—			—			310
Corporate and other	(4,455		)	(296		)	(308		)	—			(5,059		)
Total operations	$	16,643		$	(7,251	)	$	(308	)	$	(37	)	$	9,047

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Notes to Unaudited Condensed Consolidated Financial Statements

	Nine Months Ended September 30, 2016
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write Downs, Reserves and Recoveries			Operating Income
Nevada	$	37,439		$	(10,953	)	$	—		$	(43	)	$	26,443
Midwest	31,955			(6,062		)	—			(7		)	25,886
Colorado	4,351			(4,243		)	—			4			112
Corporate and other	(16,454		)	(708		)	(1,924		)	(24		)	(19,110		)
Total operations	$	57,291		$	(21,966	)	$	(1,924	)	$	(70	)	$	33,331

	Nine Months Ended September 30, 2015
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write Downs, Reserves and Recoveries			Operating Income
Nevada	$	31,590		$	(11,108	)	$	—		$	83		$	20,565
Midwest	29,450			(5,712		)	—			—			23,738
Colorado	4,499			(3,880		)	—			(58		)	561
Corporate and other	(13,083		)	(919		)	(975		)	7			(14,970		)
Total operations	$	52,456		$	(21,619	)	$	(975	)	$	32		$	29,894

The following table presents total assets by reportable segment (in thousands):

	September 30, 2016		December 31, 2015
Total assets by reportable segment
Nevada	$	207,561	$	224,731
Midwest	201,958		207,414
Colorado	55,651		57,242
Reportable segment total assets	465,170		489,387
Corporate and other	59,726		112,877
Total assets	$	524,896	$	602,264

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

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Notes to Unaudited Condensed Consolidated Financial Statements

The following table presents additions to property and equipment by reportable segment (in thousands):

	Quarter Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Cash paid for capital expenditures by reportable segment
Nevada	$	4,579	$	1,808	$	9,802	$	4,807
Midwest	947		643		2,879		2,472
Colorado	285		535		870		1,826
Reportable segment additions	5,811		2,986		13,551		9,105
Corporate	91		1,456		952		2,055
Total cash paid for capital expenditures	$	5,902	$	4,442	$	14,503	$	11,160

NOTE 13. CONDENSED CONSOLIDATED GUARANTOR DATA

All of our current and future domestic subsidiaries fully and unconditionally guarantee our payment obligations under the 2016 Credit Facility (see Note 8 for more information regarding our debt). All of the guarantees are joint and several, and all of the guarantor subsidiaries are 100% owned by us.

We prepared and are presenting the condensed consolidating financial statements in this footnote using the same accounting policies which we used to prepare the financial information located elsewhere in our unaudited condensed consolidated interim financial statements and related footnotes. We did not have any non-guarantor subsidiaries during any period presented.

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Notes to Unaudited Condensed Consolidated Financial Statements

Affinity Gaming

Unaudited Condensed Consolidating Balance Sheet

September 30, 2016

(in thousands)

	Affinity Gaming (Issuer)		Guarantor Subsidiaries		Eliminating Entries			Total
ASSETS
Cash and cash equivalents	$	48,783	$	38,338	$	—		$	87,121
Restricted cash	469		139		—			608
Accounts receivable, net	161		2,574		—			2,735
Income tax receivable	23		—		—			23
Prepaid expense	779		6,820		—			7,599
Inventory	—		2,328		—			2,328
Total current assets	50,215		50,199		—			100,414
Property and equipment, net	1,091		243,094		—			244,185
Intercompany receivables	—		154,795		(154,795		)	—
Investment in subsidiaries	572,895		—		(572,895		)	—
Other assets, net	8,421		1,423		—			9,844
Intangibles, net	—		122,166		—			122,166
Goodwill	—		48,287		—			48,287
Total assets	$	632,622	$	619,964	$	(727,690	)	$	524,896
LIABILITIES AND OWNERS’ EQUITY
Accounts payable	$	4,372	$	7,798	$	—		$	12,170
Intercompany payables	154,795		—		(154,795		)	—
Accrued interest	43		—		—			43
Accrued expense	2,102		22,055		—			24,157
Current maturities of long-term debt	3,000		—		—			3,000
Total current liabilities	164,312		29,853		(154,795		)	39,370
Long-term debt, less current portion	291,378		—		—			291,378
Other liabilities	2,405		563		—			2,968
Deferred income taxes	168		16,653		—			16,821
Total liabilities	458,263		47,069		(154,795		)	350,537
Common stock	20		—		—			20
Other equity	174,339		572,895		(572,895		)	174,339
Total owners’ equity	174,359		572,895		(572,895		)	174,359
Total liabilities and owners’ equity	$	632,622	$	619,964	$	(727,690	)	$	524,896

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Notes to Unaudited Condensed Consolidated Financial Statements

Affinity Gaming

Condensed Consolidating Balance Sheet

December 31, 2015

(in thousands)

	Affinity Gaming (Issuer)		Guarantor Subsidiaries		Eliminating Entries			Total
ASSETS
Cash and cash equivalents	$	106,384	$	51,395	$	—		$	157,779
Restricted cash	469		139		—			608
Accounts receivable, net	220		2,997		—			3,217
Income tax receivable	16		—		—			16
Prepaid expense	1,813		8,266		—			10,079
Inventory	—		2,798		—			2,798
Total current assets	108,902		65,595		—			174,497
Property and equipment, net	2,002		249,906		—			251,908
Intercompany receivables	—		110,150		(110,150		)	—
Investment in subsidiaries	551,953		—		(551,953		)	—
Other assets, net	1,974		1,556		—			3,530
Intangibles, net	—		124,042		—			124,042
Goodwill	—		48,287		—			48,287
Total assets	$	664,831	$	599,536	$	(662,103	)	$	602,264
LIABILITIES AND OWNERS’ EQUITY
Accounts payable	$	3,483	$	9,737	$	—		$	13,220
Intercompany payables	110,150		—		(110,150		)	—
Accrued interest	2,327		—		—			2,327
Accrued expense	1,455		22,703		—			24,158
Current maturities of long-term debt	11,383		—		—			11,383
Other current liabilities	—		23		—			23
Total current liabilities	128,798		32,463		(110,150		)	51,111
Long-term debt, less current portion	364,204		—		—			364,204
Other liabilities	1,397		535		—			1,932
Deferred income taxes	173		14,585		—			14,758
Total liabilities	494,572		47,583		(110,150		)	432,005
Common stock	20		—		—			20
Other equity	170,239		551,953		(551,953		)	170,239
Total owners’ equity	170,259		551,953		(551,953		)	170,259
Total liabilities and owners’ equity	$	664,831	$	599,536	$	(662,103	)	$	602,264

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Notes to Unaudited Condensed Consolidated Financial Statements

Affinity Gaming

Unaudited Condensed Consolidating Statement of Operations

Quarter ended September 30, 2016

(in thousands)

	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Eliminating Entries			Total
REVENUE
Casino	$	—		$	70,252		$	—		$	70,252
Food and beverage	—			9,344			—			9,344
Lodging	—			6,302			—			6,302
Fuel and retail	—			14,347			—			14,347
Other	—			3,767			—			3,767
Total revenue	—			104,012			—			104,012
Promotional allowances	—			(7,584		)	—			(7,584		)
Net revenue	—			96,428			—			96,428
EXPENSE
Casino	—			26,000			—			26,000
Food and beverage	—			9,439			—			9,439
Lodging	—			4,462			—			4,462
Fuel and retail	—			9,696			—			9,696
Other	—			1,818			—			1,818
General and administrative	—			19,962			—			19,962
Depreciation and amortization	233			7,037			—			7,270
Corporate	8,562			—			—			8,562
Write downs, reserves and recoveries	—			109			—			109
Total expense	8,795			78,523			—			87,318
Operating income (loss)	(8,795		)	17,905			—			9,110
Other income (expense)
Interest expense, net	(4,245		)	—			—			(4,245		)
Intercompany interest income	4,254			—			(4,254		)	—
Intercompany interest expense	—			(4,254		)	4,254			—
Loss on extinguishment (or modification) of debt	(8,030		)	—			—			(8,030		)
Income from equity investments in subsidiaries	8,737			—			(8,737		)	—
Total other income (expense), net	716			(4,254		)	(8,737		)	(12,275		)
Income (loss) before income tax	(8,079		)	13,651			(8,737		)	(3,165		)
Benefit (provision) for income taxes	6,857			(4,914		)	—			1,943
Net income (loss)	$	(1,222	)	$	8,737		$	(8,737	)	$	(1,222	)

Table of Contents 20 Financial Statement Index

AFFINITY GAMING

Notes to Unaudited Condensed Consolidated Financial Statements

Affinity Gaming

Unaudited Condensed Consolidating Statement of Operations

Quarter ended September 30, 2015

(in thousands)

	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Eliminating Entries			Total
REVENUE
Casino	$	—		$	74,414		$	—		$	74,414
Food and beverage	—			12,179			—			12,179
Lodging	—			6,672			—			6,672
Fuel and retail	—			16,904			—			16,904
Other	—			3,770			—			3,770
Total revenue	—			113,939			—			113,939
Promotional allowances	—			(11,989		)	—			(11,989		)
Net revenue	—			101,950			—			101,950
EXPENSE
Casino	—			29,271			—			29,271
Food and beverage	—			12,022			—			12,022
Lodging	—			4,345			—			4,345
Fuel and retail	—			12,601			—			12,601
Other	—			1,961			—			1,961
General and administrative	—			20,652			—			20,652
Depreciation and amortization	296			6,955			—			7,251
Corporate	4,763			—			—			4,763
Write downs, reserves and recoveries	—			37			—			37
Total expense	5,059			87,844			—			92,903
Operating income (loss)	(5,059		)	14,106			—			9,047
Other income (expense)
Interest expense, net	(7,692		)	—			—			(7,692		)
Intercompany interest income	7,737			—			(7,737		)	—
Intercompany interest expense	—			(7,737		)	7,737			—
Income from equity investments in subsidiaries	6,474			—			(6,474		)	—
Total other income (expense), net	6,519			(7,737		)	(6,474		)	(7,692		)
Income (loss) before income tax	1,460			6,369			(6,474		)	1,355
Benefit for income taxes	536			105			—			641
Net income (loss)	$	1,996		$	6,474		$	(6,474	)	$	1,996

Table of Contents 21 Financial Statement Index

AFFINITY GAMING

Notes to Unaudited Condensed Consolidated Financial Statements

Affinity Gaming Unaudited Condensed Consolidating Statement of Operations Nine Months Ended September 30, 2016 (in thousands)
	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Eliminating Entries			Total
REVENUE
Casino	$	—		$	211,583		$	—		$	211,583
Food and beverage	—			30,552			—			30,552
Lodging	—			18,731			—			18,731
Fuel and retail	—			39,877			—			39,877
Other	—			10,689			—			10,689
Total revenue	—			311,432			—			311,432
Promotional allowances	—			(24,596		)	—			(24,596		)
Net revenue	—			286,836			—			286,836
EXPENSE
Casino	—			79,562			—			79,562
Food and beverage	—			30,609			—			30,609
Lodging	—			13,015			—			13,015
Fuel and retail	—			27,099			—			27,099
Other	—			5,281			—			5,281
General and administrative	—			57,525			—			57,525
Depreciation and amortization	708			21,258			—			21,966
Corporate	18,378			—			—			18,378
Write downs, reserves and recoveries	24			46			—			70
Total expense	19,110			234,395			—			253,505
Operating income (loss)	(19,110		)	52,441			—			33,331
Other income (expense)
Interest expense, net	(19,566		)	—			—			(19,566		)
Intercompany interest income	19,719			—			(19,719		)	—
Intercompany interest expense	—			(19,719		)	19,719			—
Loss on extinguishment (or modification) of debt	(8,030		)	—			—			(8,030		)
Income from equity investments in subsidiaries	20,942			—			(20,942		)	—
Total other income (expense), net	13,065			(19,719		)	(20,942		)	(27,596		)
Income (loss) before income tax	(6,045		)	32,722			(20,942		)	5,735
Benefit (provision) for income taxes	9,717			(11,780		)	—			(2,063		)
Net income (loss)	$	3,672		$	20,942		$	(20,942	)	$	3,672

Table of Contents 22 Financial Statement Index

AFFINITY GAMING

Notes to Unaudited Condensed Consolidated Financial Statements

Affinity Gaming Unaudited Condensed Consolidating Statement of Operations Nine Months Ended September 30, 2015 (in thousands)
	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Eliminating Entries			Total
REVENUE
Casino	$	—		$	225,016		$	—		$	225,016
Food and beverage	—			36,222			—			36,222
Lodging	—			20,894			—			20,894
Fuel and retail	—			45,156			—			45,156
Other	—			9,933			—			9,933
Total revenue	—			337,221			—			337,221
Promotional allowances	—			(36,782		)	—			(36,782		)
Net revenue	—			300,439			—			300,439
EXPENSE
Casino	—			88,961			—			88,961
Food and beverage	—			35,649			—			35,649
Lodging	—			12,451			—			12,451
Fuel and retail	—			33,540			—			33,540
Other	—			5,329			—			5,329
General and administrative	—			58,970			—			58,970
Depreciation and amortization	919			20,700			—			21,619
Corporate	14,058			—			—			14,058
Write downs, reserves and recoveries	(7		)	(25		)	—			(32		)
Total expense	14,970			255,575			—			270,545
Operating income (loss)	(14,970		)	44,864			—			29,894
Other income (expense)
Interest expense, net	(22,950		)	—			—			(22,950		)
Intercompany interest income	23,078			—			(23,078		)	—
Intercompany interest expense	—			(23,078		)	23,078			—
Income from equity investments in subsidiaries	8,010			—			(8,010		)	—
Total other income (expense), net	8,138			(23,078		)	(8,010		)	(22,950		)
Income (loss) before income tax	(6,832		)	21,786			(8,010		)	6,944
Benefit (provision) for income taxes	9,385			(13,776		)	—			(4,391		)
Net income (loss)	$	2,553		$	8,010		$	(8,010	)	$	2,553

Table of Contents 23 Financial Statement Index

AFFINITY GAMING

Notes to Unaudited Condensed Consolidated Financial Statements

Affinity Gaming

Unaudited Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2016

(in thousands)

	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Total
Net cash (used in) provided by operating activities	$	(29,053	)	$	65,186		$	36,133
Cash flows from investing activities:
Proceeds from sale of property and equipment	—			22			22
Payment on disposition of property and equipment	—			(40		)	(40		)
Purchases of property and equipment	(952		)	(13,551		)	(14,503		)
Net cash used in investing activities	$	(952	)	$	(13,569	)	$	(14,521	)
Cash flows from financing activities:
Change in intercompany accounts	64,651			(64,651		)	—
Payments on capital lease	—			(23		)	(23		)
Payments on long-term debt	(383,495		)	—			(383,495		)
Proceeds from long-term debt	298,500			—			298,500
Loan origination fees	(6,808		)	—			(6,808		)
Repurchases of common stock	(371		)	—			(371		)
Repurchases of vested share-based awards	(73		)	—			(73		)
Net cash used in financing activities	$	(27,596	)	$	(64,674	)	$	(92,270	)
Net decrease in cash and cash equivalents	(57,601		)	(13,057		)	(70,658		)
Cash and cash equivalents
Beginning of year	106,384			51,395			157,779
End of period	$	48,783		$	38,338		$	87,121

Table of Contents 24 Financial Statement Index

AFFINITY GAMING

Notes to Unaudited Condensed Consolidated Financial Statements

Affinity Gaming

Unaudited Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2015

(in thousands)

	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Total
Net cash (used in) provided by operating activities	$	(18,029	)	$	61,343		$	43,314
Cash flows from investing activities:
Proceeds from sale of property and equipment	11			5			16
Purchases of property and equipment	(2,055		)	(9,105		)	(11,160		)
Net cash used in investing activities	$	(2,044	)	$	(9,100	)	$	(11,144	)
Cash flows from financing activities:
Change in intercompany accounts	45,144			(45,144		)	—
Payments on capital lease	—			(23		)	(23		)
Repurchases of vested share-based awards	(71		)	—			(71		)
Net cash provided by (used in) financing activities	$	45,073		$	(45,167	)	$	(94	)
Net increase in cash and cash equivalents	25,000			7,076			32,076
Cash and cash equivalents
Beginning of year	88,737			46,438			135,175
End of period	$	113,737		$	53,514		$	167,251

Table of Contents 25 Financial Statement Index

AFFINITY GAMING

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 14. SUBSEQUENT EVENTS

On October 13, 2016, Michael Silberling, our Chief Executive Officer, Walter Bogumil, our Chief Financial Officer, and Jeffrey Solomon, our Chief Operating Officer, agreed that each of their outstanding equity awards will, immediately prior to the effective time of the Acquisition, be cancelled and exchanged for (a) security interests in Z Capital Affinity Holdings, L.L.C. (“Holdings”), the sole member and managing member of Z Capital Owner, and (b), in the case of Mr. Silberling, $1.9 million in cash provided by Holdings and, in the case of Mr. Bogumil, $52.1 thousand in cash provided by Holdings.

Table of Contents 26 Financial Statement Index

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Headquartered in Las Vegas, Nevada, Affinity Gaming (together with its subsidiaries, “Affinity” or “we”) is a diversified, multi-jurisdictional Nevada corporation which operates casinos through wholly-owned subsidiaries in Nevada, Missouri, Iowa and Colorado. Casino operations as of September 30, 2016 included the following wholly-owned casinos (by segment):

Nevada
Silver Sevens Hotel & Casino	Las Vegas, NV	(“Silver Sevens”)
Primm Valley Resort & Casino	Primm, NV	(“Primm Valley”)
Buffalo Bill’s Resort & Casino	Primm, NV	(“Buffalo Bill’s”)
Whiskey Pete’s Hotel & Casino	Primm, NV	(“Whiskey Pete’s”)
Rail City Casino	Sparks, NV	(“Rail City”)
(Collectively, Primm Valley, Buffalo Bill’s and Whiskey Pete’s are referred to as the “Primm Casinos.”)
Midwest
St Jo Frontier Casino	St. Joseph, MO	(“St Jo”)
Mark Twain Casino	La Grange, MO	(“Mark Twain”)
Lakeside Hotel & Casino	Osceola, IA	(“Lakeside”)
Colorado
Golden Mardi Gras Casino	Black Hawk, CO	(“Golden Mardi Gras”)
Golden Gulch Casino	Black Hawk, CO	(“Golden Gulch”)
Golden Gates Casino	Black Hawk, CO	(“Golden Gates”)
(Collectively, Golden Mardi Gras, Golden Gulch and Golden Gates are referred to as the “Black Hawk Casinos.”)

As of September 30, 2016, casino operations collectively offered approximately 288,400 square feet of gaming space with approximately 6,500 slot machines and 124 table games, while lodging operations collectively offered approximately 3,100 hotel rooms.

Prior to April 1, 2015 we also provided consulting services to Hotspur Casinos Nevada, Inc. (“Hotspur”), the operator of the Rampart Casino at the JW Marriott Resort in Las Vegas. Under the terms of the consulting agreement, which expired on April 1, 2015, Hotspur previously paid us a fixed annual fee in monthly installments.

Seasonality

Our casinos in Northern Nevada, the Midwest and Colorado occasionally experience extreme weather conditions which interrupt our operations. Additionally, our casinos in Missouri are subject to flooding depending on the water levels of the Missouri and Mississippi Rivers. Snow and other adverse weather resulted in a significant number of days with lost or reduced business at our Midwest and Colorado properties during the winter of 2014-2015. If there is a prolonged disruption at any of

Table of Contents 27

our properties or if there are a disproportionate number of weekends affected by extreme weather, our results of operations and financial condition could be materially adversely affected.

Matters Affecting Comparability of Results

Significant factors or events have had a material impact on our results of operations for the periods discussed below and affect the comparability of our results of operations from period to period.

Marketing programs. We continue to focus on our marketing programs and promotional spending to engage more profitable customers and control our marketing expenses.

Operational efficiencies. Operational efficiency initiatives have resulted in decreased costs including payroll and benefit costs.

Debt and Interest expense. On July 1, 2016, we entered into the 2016 Credit Agreement, which provides for a $300.0 million term loan with interest payable at a floating rate of not less than 5.0%. We used the proceeds of the 2016 Term Loan together with $94.9 million of cash from our balance sheet to repay the $179.9 million then outstanding under our prior term loan and redeem the $200.0 million of 9.00% senior unsecured noted due 2018. We also recognized a loss on the extinguishment of debt of $8.0 million during the three and nine months ended September 30, 2016, which included a prepayment penalty on the 2018 Notes and the write-off of unamortized debt issuance costs and discounts.

Key Performance Indicators

We assess a variety of financial and operational performance indicators to manage our business, but the key performance indicators which we use include gross gaming revenue, promotional allowances and marketing expense, net revenue and controllable operating costs.

Key volume indicators such as slot machine win per unit per day, table game win per unit per day, and promotional allowances as a percentage of gross gaming revenue are analyzed in connection with our casino operations. In addition to the volume indicators, we also analyze the number of patron trips and the amount of money spent per patron trip. The industry uses the term “average daily rate” (“ADR”) to define the average amount of hotel revenue per occupied room per day, and the term “occupancy percentage” to define the total percentage of rooms occupied (i.e., the number of rooms occupied divided by the total number of rooms available). We use ADR and occupancy percentage to analyze the performance of our hotel operations. Fuel and retail operations include revenue from gas stations and convenience stores which we own and operate. Management measures the performance of fuel operations based on gallons sold and profit margin per gallon.

We use earnings before interest expense, net; income tax; depreciation and amortization; share-based compensation expense; pre-opening costs; write offs, reserves and recoveries; loss on extinguishment or modification of debt; loss on impairment of assets; gains or losses on the disposition of assets; and restructuring and reorganization costs (“Adjusted EBITDA”) as a measure of profit and loss to manage the operational performance of each geographical region in which we operate, and to discuss our results with the investment community.

Adjusted EBITDA is a measure which does not conform to generally accepted accounting principles in the United States (“GAAP”). You should not consider this information as an alternative to any measure of performance as promulgated under GAAP, such as operating income and net income. Our calculation of Adjusted EBITDA may be different from the calculations used by other companies; therefore, comparability may be limited. We have included a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, which in our case is operating income from operations.

Pending Merger

On August 22, 2016, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Z Capital Affinity Owner, LLC (“Z Capital Owner”), an affiliate of Z Capital Partners, L.L.C. (“Z Capital”), the beneficial owner of 41.1% of Affinity’s common stock, and Affinity Merger Sub, Inc., a wholly owned subsidiary of Z Capital Owner. Pursuant to the Merger Agreement, each share of Affinity common stock outstanding will represent the right to receive $17.35 in cash. The acquisition

Table of Contents 28

of Affinity’s common stock pursuant to the Merger Agreement is anticipated to be completed in the first quarter of 2017, subject to regulatory approvals and customary closing conditions.

See Item 1A, “Risk Factors,” for additional risk and information related to the Merger Agreement and the transactions contemplated thereunder.

Table of Contents 29

RESULTS OF OPERATIONS

Reportable Segment Results

The following tables present financial information by reportable segment and by corporate and other (in thousands):

	Quarter Ended September 30,								Nine Months Ended September 30,
	2016			2015			Percent Change		2016			2015			Percent Change
Gross revenue
Nevada	$	61,891		$	69,467		(10.9	)%	$	184,791		$	203,221		(9.1	)%
Midwest	32,452			33,390			(2.8	)%	97,762			101,128			(3.3	)%
Colorado	9,669			11,082			(12.8	)%	28,879			32,872			(12.1	)%
Total gross revenue	104,012			113,939			(8.7	)%	311,432			337,221			(7.6	)%
Promotional allowances
Nevada	(5,386		)	(8,013		)	(32.8	)%	(17,068		)	(25,179		)	(32.2	)%
Midwest	(1,497		)	(2,817		)	(46.9	)%	(5,255		)	(7,984		)	(34.2	)%
Colorado	(701		)	(1,159		)	(39.5	)%	(2,273		)	(3,619		)	(37.2	)%
Total promotional allowances	(7,584		)	(11,989		)	(36.7	)%	(24,596		)	(36,782		)	(33.1	)%
Net revenue
Nevada	56,505			61,454			(8.1	)%	167,723			178,042			(5.8	)%
Midwest	30,955			30,573			1.2	%	92,507			93,144			(0.7	)%
Colorado	8,968			9,923			(9.6	)%	26,606			29,253			(9.0	)%
Total net revenue	$	96,428		$	101,950		(5.4	)%	$	286,836		$	300,439		(4.5	)%

	Quarter Ended September 30,								Nine Months Ended September 30,
	2016			2015			Percent Change		2016			2015			Percent Change
Adjusted EBITDA
Nevada	$	12,425		$	10,153		22.4	%	$	37,439		$	31,590		18.5	%
Midwest	10,893			9,321			16.9	%	31,955			29,450			8.5	%
Colorado	1,733			1,624			6.7	%	4,351			4,499			(3.3	)%
Corporate and other	(7,338		)	(4,455		)	64.7	%	(16,454		)	(13,083		)	25.8	%
Total Adjusted EBITDA	$	17,713		$	16,643		6.4	%	$	57,291		$	52,456		9.2	%

Table of Contents 30

The following tables reconcile Adjusted EBITDA to operating income (in thousands):

	Quarter Ended September 30, 2016
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write downs, Reserves and Recoveries			Operating Income
Nevada	$	12,425		$	(3,653	)	$	—		$	(113	)	$	8,659
Midwest	10,893			(2,020		)	—			—			8,873
Colorado	1,733			(1,364		)	—			4			373
Corporate and other	(7,338		)	(233		)	(1,224		)	—			(8,795		)
Total operations	$	17,713		$	(7,270	)	$	(1,224	)	$	(109	)	$	9,110

	Quarter Ended September 30, 2015
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write downs, Reserves and Recoveries			Operating Income
Nevada	$	10,153		$	(3,722	)	$	—		$	(37	)	$	6,394
Midwest	9,321			(1,919		)	—			—			7,402
Colorado	1,624			(1,314		)	—			—			310
Corporate and other	(4,455		)	(296		)	(308		)	—			(5,059		)
Total operations	$	16,643		$	(7,251	)	$	(308	)	$	(37	)	$	9,047

Quarter Ended September 30, 2016 Compared to Quarter Ended September 30, 2015

Overall. We recorded net revenue of $96.4 million during the quarter ended September 30, 2016, a decrease of $5.5 million, or 5.4%, compared to the same quarter in the prior year. Adjusted EBITDA during the third quarter was $17.7 million, an increase of $1.1 million, or 6.4%, compared to the same quarter of 2015. Adjusted EBITDA, excluding corporate expense, increased $4.0 million, or 18.7%. These changes were primarily due to our continuing efforts during 2016 to analyze the effectiveness of our promotional campaigns and refine our marketing programs and implementing volume-based labor scheduling, which have had the effect of reducing costs, decreasing gaming activity from less profitable customers and increasing more profitable play on the gaming floor. While we can provide no assurances, we believe this trend will continue through 2016.

Nevada. Nevada operations include Rail City, Silver Sevens and the Primm Casinos. In addition to casino, lodging and food and beverage operations, our results from the Primm Casinos include the operation of three gas station/convenience stores and a California lottery outlet.  Nevada operations accounted for 60% and 61% of our gross revenue during the quarters ended September 30, 2016 and 2015, respectively.

In our Nevada segment, net revenue decreased $4.9 million, or 8.1%. Casino revenue decreased $2.5 million, or 7.1%. Excluding complimentary revenue, lodging revenue increased $0.4 million. We continue to focus our promotional campaigns to convert complimentary customers to cash customers. Fuel and retail revenue decreased $2.4 million, or 14.6%, due to decreased fuel prices during the quarter ended September 30, 2016 and lower traffic volumes on Interstate 15 through Primm.

Nevada Adjusted EBITDA increased $2.3 million, or 22.4%. The Adjusted EBITDA contribution from casino operations increased $2.1 million, or 13.9%, primarily as a result of implementing volume-based labor scheduling as well as our ongoing

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efforts to reduce promotional campaigns and refine marketing programs in 2016 compared to 2015. We also reported an increase in the Adjusted EBITDA contribution from fuel and retail operations of $0.4 million, or 9.0%.

Midwest. Midwest operations include St Jo and Mark Twain in Missouri, and Lakeside in Iowa. Midwest operations accounted for 31% and 29% of our gross revenue during the quarters ended September 30, 2016 and 2015, respectively.

Net revenue from our Midwest segment increased $0.4 million, or 1.2%. Adjusted EBITDA from our Midwest segment increased $1.6 million, or 16.9%. We are encouraged by the increase in Adjusted EBITDA margin at our Midwest properties during the quarter and we anticipate the improved operating margins in the Midwest to continue through the remainder of 2016. Both the increases in net revenue and Adjusted EBITDA and the increases in Adjusted EBITDA margin are primarily due to our ongoing efforts to refine our marketing programs.

Colorado. Colorado operations include the Golden Gates, the Golden Gulch and the Golden Mardi Gras casinos in Black Hawk. Colorado operations accounted for 9% and 10% of our gross revenue during the quarters ended September 30, 2016 and 2015, respectively.

Net revenue from our Colorado segment decreased $1.0 million, or 9.6%. The decrease in net revenue was primarily the result of a $1.3 milliondecrease in casino revenue related to competitive pressures in the market. Colorado Adjusted EBITDA increased $0.1 million, or6.7%, driven primarily by a $0.4 million decrease in gaming tax expense due to lower revenues and normalized gaming tax expense recorded in the current quarter compared to the prior year period. In addition, Adjusted EBITDA has benefited from our efforts to improve operational efficiencies in payroll and other operating costs, as well as lower slot participation fees as we change the variety of games on our casino floor.

The following tables reconcile Adjusted EBITDA to operating income (in thousands):

	Nine Months Ended September 30, 2016
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write Downs, Reserves and Recoveries			Operating Income
Nevada	$	37,439		$	(10,953	)	$	—		$	(43	)	$	26,443
Midwest	31,955			(6,062		)	—			(7		)	25,886
Colorado	4,351			(4,243		)	—			4			112
Corporate and other	(16,454		)	(708		)	(1,924		)	(24		)	(19,110		)
Total operations	$	57,291		$	(21,966	)	$	(1,924	)	$	(70	)	$	33,331

	Nine Months Ended September 30, 2015
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write Downs, Reserves and Recoveries			Operating Income
Nevada	$	31,590		$	(11,108	)	$	—		$	83		$	20,565
Midwest	29,450			(5,712		)	—			—			23,738
Colorado	4,499			(3,880		)	—			(58		)	561
Corporate and other	(13,083		)	(919		)	(975		)	7			(14,970		)
Total operations	$	52,456		$	(21,619	)	$	(975	)	$	32		$	29,894

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Nine Months Ended September 30,2016 Compared to Nine Months Ended September 30,2015

Overall. We recorded net revenue from operations of $286.8 million during the nine months endedSeptember 30, 2016, compared to net revenue from operations of $300.4 million for the same period in the prior year, a decrease of $13.6 million, or 4.5%. Adjusted EBITDA was $57.3 million compared to $52.5 million during the same period of 2015, an increase of $4.8 million, or 9.2%. Adjusted EBITDA, excluding corporate expense, increased $8.2 million, or 12.5%. These increases were primarily due to our efforts to continue to analyze the effectiveness of our promotional campaigns and refine our marketing programs, which have had the effect of reducing costs and driving more profitable play on the gaming floor. While we can provide no assurances, we believe this trend will continue through the remainder of 2016.

Nevada. Nevada operations accounted for approximately 59% and 60% of our gross revenue from operations during the nine months endedSeptember 30, 2016 and 2015, respectively.

In our Nevada segment, net revenue decreased $10.3 million, or 5.8%. Casino revenue decreased $7.0 million, or 6.6%, while lodging revenue decreased $2.1 million, or 11.4%. Excluding complimentary revenue, lodging revenue from cash customers increased $1.4 million compared to the same period in the prior year. We continue to focus our promotional campaigns to convert complimentary customers to cash customers. Fuel and retail revenue decreased $4.9 million, or 11.1%, due to decreased fuel prices during the nine months endedSeptember 30, 2016 and lower traffic volumes on Interstate 15 through Primm.

Nevada Adjusted EBITDA increased $5.8 million, or 18.5%. The Adjusted EBITDA contribution from casino operations increased $6.4 million, or 14.6%, primarily as a result of implementing volume-based labor scheduling and optimizing our slot floor, as well as our ongoing effort to reduce promotional campaigns and refine marketing programs in 2016 compared to 2015. In addition, the Adjusted EBITDA contribution from fuel and retail operations increased $1.2 million, or 10.7%, primarily due to the decrease in the fuel costs during the nine months endedSeptember 30, 2016.

Midwest. Midwest operations accounted for approximately 31% and 30% of our gross revenue from operations during the nine months endedSeptember 30, 2016 and 2015, respectively.

Net revenue from our Midwest segment decreased $0.6 million, or 0.7%. Adjusted EBITDA from our Midwest segment increased $2.5 million, or 8.5%. The increased Adjusted EBITDA primarily resulted from more focused marketing campaigns and yielding the gaming floor, which drove more profitable play on the gaming floor. The Adjusted EBITDA also benefited from productivity improvements. We are encouraged by the increase in Adjusted EBITDA margin at our Midwest properties and we anticipate the improved operating margins in the Midwest to continue through the remainder of 2016 as we continue to analyze and refine our marketing campaigns.

Colorado. Colorado operations accounted for approximately 9% and 10% of our gross revenue from operations during the nine months endedSeptember 30, 2016 and 2015, respectively.

Net revenue from our Colorado segment decreased $2.6 million, or 9.0%. The decrease in net revenue was primarily related to lower gaming volumes in 2016 as a result of competitive pressures in the market. Colorado Adjusted EBITDA decreased $0.1 million, or 3.3%, driven primarily by a decrease of $0.4 million, or 3.5%, in the Adjusted EBITDA contribution from casino operations, partially offset by reduced costs as part of our continuing focus on implementing marketing campaigns to target more profitable players in 2016.

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Revenue and Expense by Category

The following table presents detail of our consolidated gross revenue and expense by category (in thousands):

	Quarter Ended September 30,								Nine Months Ended September 30,
	2016			2015			Percent Change		2016			2015			Percent Change
Total revenue
Casino	$	70,252		$	74,414		(5.6	)%	$	211,583		$	225,016		(6.0	)%
Food and beverage	9,344			12,179			(23.3	)%	30,552			36,222			(15.7	)%
Lodging	6,302			6,672			(5.5	)%	18,731			20,894			(10.4	)%
Fuel and retail	14,347			16,904			(15.1	)%	39,877			45,156			(11.7	)%
Other	3,767			3,770			(0.1	)%	10,689			9,933			7.6	%
Total revenue	104,012			113,939			(8.7	)%	311,432			337,221			(7.6	)%
Promotional allowances	(7,584		)	(11,989		)	(36.7	)%	(24,596		)	(36,782		)	(33.1	)%
Net revenue	$	96,428		$	101,950		(5.4	)%	$	286,836		$	300,439		(4.5	)%
Departmental cost and expense
Casino	$	26,000		$	29,271		(11.2	)%	$	79,562		$	88,961		(10.6	)%
Food and beverage	9,439			12,022			(21.5	)%	30,609			35,649			(14.1	)%
Lodging	4,462			4,345			2.7	%	13,015			12,451			4.5	%
Fuel and retail	9,696			12,601			(23.1	)%	27,099			33,540			(19.2	)%
Other	1,818			1,961			(7.3	)%	5,281			5,329			(0.9	)%
General and administrative	19,962			20,652			(3.3	)%	57,525			58,970			(2.5	)%
Depreciation and amortization	7,270			7,251			0.3	%	21,966			21,619			1.6	%
Corporate	8,562			4,763			79.8	%	18,378			14,058			30.7	%
Write downs, reserves and recoveries	109			37			194.6	%	70			(32		)	(318.8	)%
Departmental cost and expense	$	87,318		$	92,903		(6.0	)%	$	253,505		$	270,545		(6.3	)%
Departmental Adjusted EBITDA Margins
Gaming	63.0		%	60.7		%			62.4		%	60.5		%
Food and beverage	(1.0		)%	1.3		%			(0.2		)%	1.6		%
Lodging	29.2		%	34.9		%			30.5		%	40.4		%
Fuel and retail	32.4		%	25.5		%			32.0		%	25.7		%
Other	51.7		%	48.0		%			50.6		%	46.4		%

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Gross Revenue. Generally, the casino gaming industry defines gaming revenue as gaming wins less gaming losses.  We derive the majority of our gaming revenue, which we report in the Casino line item, from slot machines. Casino revenue also includes table game revenue and bingo, keno and poker revenue, where offered. Our gross revenue also includes:

• food and beverage revenue, which we earn from sales in restaurants and outlets we own and operate at our casinos and from room service sales;

• lodging revenue, which we earn from rooms we provide to customers;

• fuel and retail revenue, which we earn from sales of fuel, food and beverage items at franchised food outlets, lottery tickets and other retail items at facilities we own at the Primm Casinos, and at facilities we own and lease to third-parties at the Primm Casinos and Lakeside; and

• other revenue, which we earn from sources such as consulting agreements, leasing agreements, entertainment services, and ATMs at our casino properties.

We recognize revenue at the time we provide the product, room or service to the guest or the third-party.

Promotional allowances consist primarily of food, beverage, lodging and entertainment furnished gratuitously to customers, as well as incentives earned in our guest rewards program such as cash rewards or complimentary goods and services. We include the retail value of items or services furnished gratuitously to customers in the respective revenue classifications, then we deduct the total amount of promotional allowances from total revenue.

Cost and Expense. We aggregate our direct costs and expense, including selling, general and administrative expense for each of our operations, and include them in the expense of our reportable segments, as discussed in “Reportable Segment Results.”

Corporate expense represents unallocated payroll, professional fees and other expense which we do not directly attribute to our reportable segments, as well as share-based compensation. We present corporate expense net of management fees or expense charged to our properties and cash fees earned under our consulting agreement with Hotspur, the operator of the Rampart Casino at the JW Marriott Resort in Las Vegas, from which we collected $0.5 million in management fees during the nine months endedSeptember 30, 2015. The consulting agreement with Hotspur expired on April 1, 2015.

Quarter Ended September 30, 2016 Compared to Quarter Ended September 30, 2015

Corporate expense, excluding share-based compensation, increased by $2.9 million, or 64.7%, primarily as a result of increased payroll and benefits expense in the current quarter as well as increases in expenses we incurred as part of activities that we do not consider part of regular operations. We incurred $2.5 million of non-recurring expense during the quarter ended September 30, 2016, compared to $0.3 million in the same period of the prior year. During the third quarter of 2016, such activities included the Special Committee of our Board of Directors evaluating Z Capital’s proposed acquisition of the Company, as well as costs related to refinancing our debt. During the third quarter of 2015, such activities included the Special Committee of our Board of Directors evaluating third party proposals to acquire the Company, as well as other strategic initiatives. The 2016 Credit Agreement allows us to add back such non-recurring expense to arrive at EBITDA, as defined in the credit agreement, when calculating our debt covenants. Excluding the non-recurring expense items and share-based compensation, we incurred $4.9 million and $4.1 million of corporate expense during the quarters ended September 30, 2016 and 2015, respectively.

Net interest expense of $4.2 million for the quarter ended September 30, 2016, includes amortization of costs associated with the 2016 Credit Agreement. Net interest expense of $7.7 million for the quarter ended September 30, 2015, includes amortization of costs associated with the second amendment to the 2012 Credit Agreement and the modification of the indenture governing the 2018 Notes, which occurred in July 2014.

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The income tax benefit for the quarters ended September 30, 2016 and 2015, was $1.9 million and $0.6 million, respectively. Our effective income tax rate varied from the federal statutory rate for the quarters ended September 30, 2016 and 2015, primarily due to the amortization of indefinite-lived intangibles.

Nine Months EndedSeptember 30, 2016 Compared to Nine Months EndedSeptember 30, 2015

Corporate expense, excluding share-based compensation, increased by $3.4 million, or 25.8%, primarily as a result of increased payroll and benefits expense in the current period, as well as the decrease in management fee income due to the expiration of our consulting agreement with Hotspur on April 1, 2015. In addition we recorded increased expenses as part of activities that we do not consider part of regular operations. We incurred $3.6 million of non-recurring expense during the nine months endedSeptember 30, 2016, compared to $1.9 million in the same period of the prior year. During the nine months endedSeptember 30, 2016, such activities included the Special Committee of our Board of Directors evaluating Z Capital’s proposed acquisition of the Company and other strategic transactions, as well as costs related to refinancing our debt. During the same period in 2015, such activities included evaluating third party proposals to acquire the Company, as well as other strategic alternatives and strategic initiatives. The 2016 Credit Agreement allows us to add back such non-recurring expense to EBITDA, as defined in the credit agreement, when calculating our debt covenants. Excluding the non-recurring expense items and share-based compensation, we incurred $12.9 million and $11.2 million of corporate expense during the nine months endedSeptember 30, 2016 and 2015, respectively.

Net interest expense decreased $3.4 million, or 14.7%, as a result of refinancing our debt in July 2016.

The income tax provision for the nine months endedSeptember 30, 2016 and 2015, was $2.1 million and $4.4 million, respectively. Our effective income tax rates varied from the federal statutory rate for the nine months endedSeptember 30, 2016 and 2015, primarily due to the amortization of indefinite-lived intangibles.

LIQUIDITY AND CAPITAL RESOURCES

Overview

We rely on cash flows from operations as our primary source of liquidity. On July 1, 2016, we entered into the 2016 Credit Agreement, which provides for the 2016 Term Loan of $300.0 million and the 2016 Revolving Credit Facility of $75 million which remained undrawn on the closing date of the 2016 Credit Agreement. The 2016 Term Loan is payable in quarterly installments, commencing on September 30, 2016, in an amount equal to 0.25% of the 2016 Term Loan until the maturity date, July 1, 2023, upon which date the remaining balance will come due. Amounts outstanding under the 2016 Revolving Credit Facility mature on July 1, 2021. The interest rate under the 2016 Term Loan is at a floating rate not less than 5.0%. We used the proceeds of the 2016 Term Loan together with $94.9 million in cash from our balance sheet to repay all amounts outstanding under the 2012 Term Loan and redeem the 2018 Notes. We also recognized a loss on the extinguishment of debt of $8.0 million which included a prepayment penalty on the 2018 Notes and the write-off of a portion of unamortized debt issuance costs and discounts. Unamortized loan fees, which we will amortize over the life of the 2016 Term Loan, totaled $4.9 million at September 30, 2016, and are reported as an offset to the related debt. As of September 30, 2016, we remained in compliance with all covenants specified in the 2016 Credit Agreement.

The 2016 Credit Facility permits us to incur limited indebtedness for trade payables and capital leases in the ordinary course of business, and provides an accordion feature, whereby we may borrow additional amounts subject to certain terms and conditions under the 2016 Credit Agreement). We cannot assure you that, if required, we will be able to obtain the necessary approval for additional borrowing under our 2016 Credit Facility.

The 2016 Credit Agreement requires us to make a mandatory prepayment of amounts outstanding under certain circumstances.

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The 2016 Credit Facility also contains various covenants which limit our ability to take certain actions including, among other things, our ability to:

• incur additional debt;

• pay dividends or make other distributions or certain restricted payments;

• make certain investments;

• create liens;

• make certain dispositions; merge or consolidate with other entities; and

• enter into transactions with affiliates.

On September 30, 2016, the 2016 Credit Agreement was amended by the First Amendment to Credit Agreement (the “2016 Amendment”) to, among other things, provide for additional term loans of $30.0 million (the “Additional Loans”) in connection with the Acquisition of the capital stock of the Company by affiliates of Z Capital. The additional loans will be fully funded substantially concurrently with the closing of the Acquisition on terms and conditions, including interest rates and maturity dates, identical to the 2016 Term Loan currently outstanding. The amendment also modifies the 2016 Credit Agreement (after giving effect to the 2016 Amendment, the “Amended 2016 Credit Agreement”) to reflect (i) the terms and conditions of the Additional Loans, (ii) the pendency and anticipated consummation of the Acquisition, and (iii) the anticipated entry into a Second Lien Term Loan Agreement. The effectiveness of the 2016 Amendment and of the Amended 2016 Credit Agreement are conditioned upon the closing of the Acquisition.

Prior to our entry into the 2016 Credit Facility, we incurred and paid interest on the 2012 Term Loan under a Second Amended Credit Agreement at an uncommitted floating rate of LIBOR plus 4.00%, subject to a LIBOR floor of 1.25%.  The Second Amended Credit Agreement also required us to pay commitment fees related to the 2012 Revolving Credit Facility equal to an annualized rate of 0.50% on undrawn amounts when the net leverage ratio was greater than 3.50 to 1.00, or equal to an annualized rate of 0.375% on undrawn amounts when the net leverage ratio was less than or equal to 3.50 to 1.00. 

Our primary cash needs for the next twelve months of operation include quarterly interest and principal payments on our debt and capital expenditures. Our capital expenditure needs include maintenance capital and capital for the acquisition of slot machines and of other equipment required to keep our facilities competitive. The most significant components of our working capital are cash, prepaid expense, accounts payable and accrued expense. Our liquidity position benefits from the fact that we generally collect cash from transactions with customers the same day or, in the case of credit or debit card transactions, within a few days of the related transaction.

A variety of factors, many of which are outside of our control, affect our cash flow; those factors include litigation, regulatory issues, competition, financial markets, smoking bans (particularly in Missouri where the bans are determined by municipalities) and other general business conditions.  We believe that we will have sufficient liquidity through available cash, which as of September 30, 2016 was $87.1 million, trade credit and cash flow to fund our cash requirements and maintenance capital expenditures for at least the next twelve months.  However, we cannot assure you that we will generate sufficient income and cash flow to meet all of our liquidity requirements.

Cash Flows from Operating Activities

Operating activities provided $36.1 million through September 30, 2016, compared to $43.3 million provided through September 30, 2015. The decrease in cash provided by operating activities was driven by payment timing related to the elements of working capital.

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Cash Flows from Investing Activities

Investing activities used $14.5 million through September 30, 2016, compared to using $11.1 million through September 30, 2015.  Net cash used in investing activities through September 30, 2016 is primarily comprised of capital expenditures, which were $14.5 million and $11.2 million during the nine months ended September 30, 2016 and 2015, respectively.

Cash Flows from Financing Activities

Financing activities used $92.3 million and $0.1 million, respectively, during the nine months ended September 30, 2016 and 2015. Net cash used in financing activities through September 30, 2016 is primarily related to the refinancing of our existing debt that occurred on July 1, 2016. Financing activities also include repayments of long-term debt and repurchases of common stock and vested share based awards.

Off-Balance Sheet Arrangements

We currently have no material off-balance sheet arrangements.

Critical Accounting Policies

For a discussion of our critical accounting policies and the means by which we develop estimates therefrom, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K, filed with the SEC on March 23, 2016 (“2015 Form 10-K”), and as clarified in Note 2 to our financial statements in relation to our accounting for income taxes.

Recently Issued Accounting Pronouncements

Please refer to Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this report for a discussion regarding recently issued accounting pronouncements which may affect us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, primarily related to interest rate exposure of our debt obligations that bear interest based on floating rates. None of our cash or cash equivalents as of September 30, 2016 are subject to market risk based on changes in interest rates. We are exposed to market risk due to floating or variable interest rates on our indebtedness under the 2016 Term Loan.  The interest rate on the outstanding balance of the 2016 Term Loan is determined by, at the Company’s option, either: (i) the Eurodollar rate (not less than 1.00%) plus 4.00%, or (ii) an adjusted base rate (not less than 2.00%) plus 3.00%. The interest rate on the outstanding balance from time to time of the 2016 Revolving Credit Facility is determined by, at the Company’s option, either: (i) the Eurodollar rate plus 4.00%, or (ii) an adjusted base rate plus 3.00%; provided that for any period ending on or after the Company’s financial statements are delivered for the fiscal quarter ending September 30, 2016, the interest rate is determined by, at the Company’s option, either: (i) the Eurodollar rate plus a variable margin based upon the Company’s first lien leverage ratio, or (ii) an adjusted base rate plus a variable margin based upon the Company’s first lien leverage ratio. At September 30, 2016, the principal amount of the related borrowings under our 2016 Credit Facility was $299.3 million. A hypothetical 1.0% increase in LIBOR (or base rate) above the current floor would result in an approximately $3.0 million annual increase in interest expense.

The carrying values of our cash, trade receivables, and trade payables approximate their fair value primarily because of the short maturities of these instruments. We estimate the fair value of our long-term debt based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. Based on the borrowing rates currently available to us for debt with similar terms and average maturities, we estimated the fair value of outstanding debt to be $295.5 million as of September 30, 2016.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that the information we must disclose in reports we file or submit under the Securities Exchange Act of 1934, as amended (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. We designed our disclosure controls with the objective of ensuring we accumulate and communicate this information to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under Exchange Act, as of the end of the period covered by this report. Based on our evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

Changes in Internal Control over Financial Reporting

We made no change in our internal control over financial reporting during the fiscal quarter ended September 30, 2016, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of our previously reported legal proceedings, refer to “Part I.  Item 3. — Legal Proceedings” in our 2015 Form 10-K, as updated in Note 11 to the accompanying unaudited condensed consolidated financial statements.

We are party to other ordinary and routine litigation incidental to our business. We do not expect the outcome of any pending litigation to have a material adverse effect on our consolidated financial position or results of operations.

ITEM 1A. RISKFACTORS

Other than as described below, we have not identified any material changes to the risk factors described in our 2015 Form 10-K. Risks other than those in our 2015 Form 10-K may materially adversely affect our business, financial condition or future results, including risks and uncertainties not currently known to us or those that we currently believe are immaterial.

RISKS RELATED TO THE MERGER

The pendency of the Merger could have an adverse effect on our business.

On August 22, 2016, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Z Capital Affinity Owner, LLC (“Z Capital Owner”), an affiliate of Z Capital Partners, L.L.C. (“Z Capital”), the beneficial owner of 41.1% of our common stock, and Affinity Merger Sub, Inc. (“Merger Sub”), a wholly owned subsidiary of Z Capital Owner. Pursuant to the Merger Agreement, Merger Sub will merge with and into Affinity (the “Merger”) and Affinity will survive the Merger as a wholly-owned subsidiary of Z Capital Owner. Each share of our common stock outstanding immediately prior to the effective time of the Merger will be converted into the right to receive $17.35 in cash. The acquisition of Affinity’s common stock pursuant to the Merger Agreement is anticipated to be completed in the first quarter of 2017, subject to regulatory approvals and customary closing conditions.

The announcement and pendency of the Merger could cause disruptions in our business. For example, key personnel may depart due to perceived uncertainty regarding the effect of the Merger on their employment and the loss of such personnel could adversely affect our relationships with customers, vendors and other employees. Our efforts to satisfy the closing conditions of and to prepare for the completion of the Merger may place a significant burden on our internal resources and divert our management’s attention away from the operation of our business.

In addition, the Merger Agreement places certain restrictions on the conduct of our business that could delay or prevent us from pursuing attractive business opportunities and making other changes to our business prior to the consummation of the Merger. Further, the Merger Agreement limits our ability to pursue alternatives to the Merger.

We may fail to consummate the Merger, or the Merger may be delayed, which failure or delay could adversely affect our business.

Consummation of the Merger is subject to all gaming approvals necessary for the operation of our business being duly obtained and in full force and effect, which approvals may be withheld or delayed by government authorities. The Merger may be subject to litigation or adverse judgments. Furthermore, certain of our stockholders may exercise dissenters’ rights under Nevada law in connection with the Merger, the adjudication of which may delay the Merger’s closing. Any delay in completing or failure to complete the Merger could result in a significant decline in the price of our stock and, under certain conditions, we may be required to pay fees of up to $12.4 million to Z Capital Owner in connection with the termination of the Merger Agreement.

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RISKS RELATED TO OUR INDEBTEDNESS

We have a substantial amount of indebtedness, which could have a material adverse effect on our financial condition and our ability to obtain financing in the future and to react to changes in our business.

We have a substantial amount of debt, which requires significant principal and interest payments. As of September 30, 2016, we had $299.3 million of debt outstanding, excluding unamortized debt issuance costs and issue discount. On July 1, 2016, the full amount of the 2018 Notes and the 2012 Term Loan were repaid in connection with our entry into the 2016 Credit Agreement and draw down of $300.0 million under the 2016 Term Loan.

Our significant amount of debt could have important consequences. For example, it could:

• make it more difficult for us to satisfy our obligations with respect to the instruments governing our then outstanding indebtedness;

• increase our vulnerability to adverse economic and general industry conditions, including interest rate fluctuations, because a portion of our borrowings, including those under our 2016 Credit Facility, are and will continue to be at variable rates of interest;

• require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, which would reduce the availability of our cash flow from operations to fund working capital, capital expenditures, strategic acquisitions or other general corporate purposes;

• limit our flexibility in planning for, or reacting to, competitive pressures and changes in the business and industry in which we operate;

• place us at a disadvantage compared to competitors that may have proportionately less debt;

• limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants in our debt agreements; and

• increase our cost of borrowing.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations, or that these actions would be permitted under the terms of our existing or future debt agreements. In the absence of such cash flows and capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our debt instruments restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds which we could realize from them, and any proceeds may not be adequate to meet any debt service obligations then due.

If we cannot make scheduled payments on our debt, we will be in default and, as a result:

• our debt holders could declare all outstanding principal and interest to be due and payable;

• the lenders under our 2016 Credit Facility could terminate their commitments to loan us money and foreclose against the assets securing their borrowings; and

• we could be forced into bankruptcy or liquidation.

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The agreements and instruments governing our debt contain restrictions and limitations that impose significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.

The 2016 Credit Facility imposes significant operating and financial restrictions on us. These restrictions limit our ability, among other things, to:

• incur additional debt;

• pay dividends and make other distributions;

• make certain investments;

• make certain restricted payments;

• create liens;

• enter into transactions with affiliates;

• make certain dispositions; and

• merge or consolidate.

In addition, the 2016 Credit Facility contains certain financial covenants, including a first lien secured net leverage ratio covenant, a maximum capital expenditures covenant and a total secured leverage ratio covenant.

As a result of these covenants and restrictions, we are limited in how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The restrictions caused by such covenants could also place us at a competitive disadvantage to less leveraged competitors. The terms of any future indebtedness we may incur could include more restrictive covenants. Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under other agreements containing cross default provisions.  A default, if not cured or waived, would permit lenders to accelerate the maturity of the indebtedness under these agreements, terminate any funding commitments to extend future credit, require us to apply all available cash to repay the borrowings, and/or foreclose upon any collateral securing such indebtedness, including pledges of equity interests of entities owning our casino properties, which could result in the lenders owning, and controlling, the equity of certain of our casino properties. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations. We would, therefore, be required to seek alternative sources of funding, which may not be available on commercially reasonable terms, terms as favorable as our current agreements or at all, or face bankruptcy. If we are unable to refinance our indebtedness or find alternative means of financing our operations, we may be required to curtail our operations or take other actions that are inconsistent with our current business practices or strategy. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.

Despite our substantial indebtedness, we may still be able to incur significantly more debt, which could intensify the risks described above.

Although the terms of the agreements governing our indebtedness contain restrictions on our ability to incur additional indebtedness, these restrictions are subject to a number of important qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. Our 2016 Credit Facility allows us to (i) increase the aggregate amount of term loans and/or revolving loans by additional amounts subject to certain terms and conditions under the 2016 Credit Agreement, (ii) incur capital lease obligations and purchase money indebtedness for fixed or capital assets in an aggregate amount not to exceed the greater of $20 million or 26.66% of consolidated EBITDA (with such indebtedness being secured by the assets leased or acquired), and (iii) incur other indebtedness in an amount not to exceed the greater of $15 million or 20% of consolidated EBITDA.If new debt is added to our current debt levels, the related risks that we and our subsidiaries now face could intensify.

Table of Contents 42

The state of the financial markets may impact our ability to obtain sufficient financing and credit in the future.

In addition to earnings and cash flows from operations, we may rely on borrowed money to finance our business, which may be constrained if we are unable to borrow additional capital or refinance existing borrowings on reasonable terms. Over the past several years, financial markets and banking systems experienced disruption which had a dramatic impact on the availability and cost of capital and credit. The United States and other governments have enacted legislation and taken other actions to help alleviate these conditions, although there is no assurance that such steps will have the effect of easing the conditions in credit and capital markets over the long term. Therefore, we have no assurance that such steps will facilitate us being able to obtain financing or access the capital markets for future debt or refinancing opportunities in a timely manner, or on acceptable terms, or at all. If we are unable to borrow funds, we may be unable to make the capital expenditures necessary for us to compete with other casino operators or take advantage of new business opportunities. As a result, the lack of such funding could have a material adverse effect on our business, results of operations and financial condition and our ability to service our indebtedness.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

Table of Contents 43

ITEM 6. EXHIBITS

Exhibit Number	Description
2.1	Agreement and Plan of Merger, dated August 22, 2016, by and among Affinity Gaming, Z Capital Affinity Owner, LLC and Affinity Merger Sub, Inc. (incorporated herein by reference to Exhibit 10.1 to Affinity’s Current Report on Form 8-K, filed with the SEC on August 23, 2016).
10.1	Voting and Support Agreement, dated August 22, 2016, by and among Affinity Gaming, Z Capital Partners, L.L.C. and each affiliate of Z Capital Partners, L.L.C. that is the beneficial owner of Affinity Gaming common stock (incorporated herein by reference to Exhibit 10.2 to Affinity’s Current Report on Form 8-K, filed with the SEC on August 23, 2016).
10.2	Voting and Support Agreement, dated August 22, 2016, by and among Z Capital Affinity Owner, LLC, Affinity Merger Sub, Inc. and SPH Manager, LLC (incorporated herein by reference to Exhibit 10.3 to Affinity’s Current Report on Form 8-K, filed with the SEC on August 23, 2016).
10.3	Voting and Support Agreement, dated August 22, 2016, by and among Z Capital Affinity Owner, LLC, Affinity Merger Sub, Inc. and each affiliate of One East Capital Management LLC that is the beneficial owner of Affinity Gaming capital stock. (incorporated herein by reference to Exhibit 10.4 to Affinity’s Current Report on Form 8-K, filed with the SEC on August 23, 2016).
10.4	Acknowledgment and Joinder, dated August 22, 2016, by and between Z Capital Partners, L.L.C and Affinity Gaming. (incorporated herein by reference to Exhibit 10.5 to Affinity’s Current Report on Form 8-K, filed with the SEC on August 23, 2016).
10.5	Limited Guarantee, dated August 22, 2016, by and among Z Capital Partners II, L.P., Z Capital Partners II-A, L.P., Z Capital Partners II-B, L.P. and Affinity Gaming (incorporated herein by reference to Appendix C of Affinity’s Preliminary Proxy Statement on Schedule 14-A, filed with the SEC on October 13, 2016).
10.6	Credit Agreement, dated as of July 1, 2016, among Affinity Gaming, as Borrower, the several lenders and the issuing lenders from time to time parties thereto, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent and Collateral Agent, and Credit Suisse Securities (USA) LLC, Macquarie Capital (USA), Inc. and Fifth Third Bank, as Joint Bookrunners and Joint Lead Arrangers (incorporated herein by reference to Exhibit 10.1 to Affinity’s Current Report on Form 8-K, filed with the SEC on July 5, 2016).
10.7	First Amendment to Credit Agreement, dated as of September 30, 2016, among Affinity Gaming, the Subsidiary Guarantors and Credit Suisse AG, Cayman Islands Branch, as administrative agent and as collateral agent (incorporated herein by reference to Exhibit 10.1 to Affinity’s Current Report on Form 8-K, filed with the SEC on October 6, 2016).
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document†
101.SCH	XBRL Taxonomy Extension Schema Document†
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document†
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document†
101.LAB	XBRL Taxonomy Extension Label Linkbase Document†
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document†

† Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Table of Contents 44

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

		AFFINITY GAMING
Dated:	November 10, 2016	By:	/s/ Michael Silberling
		Name:	Michael Silberling
		Title:	Chief Executive Officer
Dated:	November 10, 2016	By:	/s/ Walter Bogumil
		Name:	Walter Bogumil
		Title:	Senior Vice President, Chief Financial Officer and Treasurer

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Silberling, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Affinity Gaming;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 10, 2016

By:	/s/ Michael Silberling
	Michael Silberling
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Walter Bogumil, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Affinity Gaming;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 10, 2016

By	/s/ Walter Bogumil
	Walter Bogumil
	Senior Vice President, Chief Financial Officer and Treasurer

EX-32

EXHIBIT 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

We; Michael Silberling, the registrant's principal executive officer, and Walter Bogumil, the registrant's principal financial officer; certify that:

1. the accompanying Quarterly Report on Form 10-Q for the period ended September 30, 2016 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Affinity Gaming at the dates and for the periods indicated.

A signed original of this written statement required by Section 906 has been provided to Affinity Gaming, which will retain it and furnish it to the Securities and Exchange Commission or its staff upon request.

The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.

Date: November 10, 2016

/s/ Michael Silberling

Michael Silberling

Chief Executive Officer

/s/ Walter Bogumil

Walter Bogumil

Senior Vice President, Chief Financial Officer and Treasurer

The foregoing certification is being furnished solely pursuant to the requirements of 18 U.S.C. § 1350 and is not being filed as a part of the Report or as a separate disclosure document.

XML

Document and Entity Information Document - shares	9 Months Ended
	Sep. 30, 2016	Nov. 07, 2016
DEI [Abstract]
Entity Registrant Name	Affinity Gaming
Entity Central Index Key	0001499268
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		20,438,831

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Current assets
Cash and cash equivalents	$ 87,121	$ 157,779
Restricted cash	608	608
Accounts receivable, net of reserve of $158 and $147, respectively	2,735	3,217
Income tax receivable	23	16
Prepaid expense	7,599	10,079
Inventory	2,328	2,798
Total current assets	100,414	174,497
Property and equipment, net	244,185	251,908
Other assets, net	9,844	3,530
Intangibles, net	122,166	124,042
Goodwill	48,287	48,287
Total assets	524,896	602,264
Current liabilities
Accounts payable	12,170	13,220
Accrued interest	43	2,327
Accrued expense	24,157	24,158
Current maturities of long-term debt	3,000	11,383
Other current liabilities	0	23
Total current liabilities	39,370	51,111
Long-term debt, less current portion	291,378	364,204
Other liabilities	2,968	1,932
Deferred income taxes	16,821	14,758
Total liabilities	350,537	432,005
Commitments and contingencies (Note 11)
Owners' equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued or outstanding	0	0
Common stock, $0.001 par value; 200,000,000 shares authorized; 20,438,831 and 20,377,247 shares issued and outstanding for 2016 and 2015, respectively	20	20
Additional paid-in-capital	208,798	208,239
Accumulated deficit	(34,459)	(38,000)
Total owners’ equity	174,359	170,259
Total liabilities and owners’ equity	$ 524,896	$ 602,264

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Accounts receivable reserve	$ 158	$ 147
Common stock, par value (usd per share)	$ 0.001	$ 0.001
Common stock, shares authorized (shares)	200,000,000	200,000,000
Common stock, shares issued (shares)	20,438,831	20,377,247
Common stock, shares outstanding (shares)	20,438,831	20,377,247
Preferred stock, par value (usd per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (shares)	10,000,000	10,000,000
Preferred stock, shares issued (shares)	0	0
Preferred stock, shares outstanding (shares)	0	0

XML

Unaudited Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
REVENUE
Casino	$ 70,252	$ 74,414	$ 211,583	$ 225,016
Food and beverage	9,344	12,179	30,552	36,222
Lodging	6,302	6,672	18,731	20,894
Fuel and retail	14,347	16,904	39,877	45,156
Other	3,767	3,770	10,689	9,933
Total revenue	104,012	113,939	311,432	337,221
Promotional allowances	(7,584)	(11,989)	(24,596)	(36,782)
Net revenue	96,428	101,950	286,836	300,439
EXPENSE
Casino	26,000	29,271	79,562	88,961
Food and beverage	9,439	12,022	30,609	35,649
Lodging	4,462	4,345	13,015	12,451
Fuel and retail	9,696	12,601	27,099	33,540
Other	1,818	1,961	5,281	5,329
General and administrative	19,962	20,652	57,525	58,970
Depreciation and amortization	7,270	7,251	21,966	21,619
Corporate	8,562	4,763	18,378	14,058
Write downs, reserves and recoveries	109	37	70	(32)
Total expense	87,318	92,903	253,505	270,545
Operating income	9,110	9,047	33,331	29,894
Other expense
Interest expense, net	(4,245)	(7,692)	(19,566)	(22,950)
Loss on extinguishment (or modification) of debt	(8,030)	0	(8,030)	0
Total other expense, net	(12,275)	(7,692)	(27,596)	(22,950)
Income (loss) before income tax	(3,165)	1,355	5,735	6,944
Benefit (provision) for income taxes	1,943	641	(2,063)	(4,391)
Net income (loss)	$ (1,222)	$ 1,996	$ 3,672	$ 2,553

XML

Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities:
Net income	$ 3,672	$ 2,553
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	21,966	21,619
Amortization of debt costs and discounts	1,916	2,216
Loss (gain) on sale of property and equipment	98	(9)
Unamortized loan fees related to extinguishment (or modification) of debt	(3,530)	0
Share-based compensation	1,924	975
Deferred income taxes	2,063	4,365
Changes in operating assets and liabilities:
Accounts receivable, net	482	1,199
Prepaid expense	2,480	2,757
Inventory	470	(103)
Other assets	164	231
Accounts payable	(297)	1,608
Accrued interest	(2,284)	4,474
Accrued expense	(1)	1,306
Income tax receivable	(7)	155
Disposition of property and equipment	(43)	(32)
Net cash provided by operating activities	36,133	43,314
Cash flows from investing activities:
Proceeds from sale of property and equipment	22	16
Disposition of property and equipment	(40)	0
Purchases of property and equipment	(14,503)	(11,160)
Net cash used in investing activities	(14,521)	(11,144)
Cash flows from financing activities:
Payment on capital lease	23	23
Payments on long-term debt	(383,495)	0
Proceeds from long term debt	298,500	0
Loan origination fees	(6,808)	0
Repurchases of common stock	(371)	0
Repurchases of vested share-based awards	(73)	(71)
Net cash used in financing activities	(92,270)	(94)
Net (decrease) increase in cash and cash equivalents	(70,658)	32,076
Cash and cash equivalents:
Beginning of period	157,779	135,175
End of period	87,121	167,251
Supplemental cash flow information:
Cash paid during the period for interest	20,103	16,402
Supplemental schedule of non-cash investing and financing activities:
Purchase of property and equipment financed through accounts payable	563	641
Non-cash disposition of assets	40	0
Non-cash loan origination fees	$ 1,295	$ 0

XML

Organization, Consolidation and Presentation of Financial Statements

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Consolidation and Presentation of Financial Statements

NOTE 1. ORGANIZATION, CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS

Organization and Business

Affinity Gaming (together with its subsidiaries, “Affinity” or “we”) is a Nevada corporation, headquartered in Las Vegas, which owns and operates 11 casinos, five of which are located in Nevada, three in Colorado, two in Missouri and one in Iowa. We also provided consulting services to Hotspur Casinos Nevada, Inc. (“Hotspur”), the operator of the Rampart Casino at the JW Marriott Resort in Las Vegas until the expiration of the related consulting agreement on April 1, 2015. Hotspur previously paid us a fixed annual fee in monthly installments.

On August 22, 2016, Affinity entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Z Capital Affinity Owner, LLC (“Z Capital Owner”), an affiliate of Z Capital Partners, L.L.C. (“Z Capital”), the beneficial owner of 41.1% of Affinity’s common stock, and Affinity Merger Sub, Inc., a wholly owned subsidiary of Z Capital Owner. Pursuant to the Merger Agreement, each share of Affinity common stock outstanding will represent the right to receive $17.35 in cash. The acquisition of Affinity’s common stock pursuant to the Merger Agreement (the “Acquisition”) is anticipated to be completed in the first quarter of 2017, subject to regulatory approvals and customary closing conditions.

Consolidation

We include all of our subsidiaries in our consolidated financial statements, eliminating all intercompany balances and transactions during consolidation.

Basis of Presentation

We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). While preparing our financial statements, we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenue and expense during the reporting period. Accordingly, actual results could differ from those estimates. Reported amounts that require us to make extensive use of estimates include the fair values of assets and liabilities related to depreciation and amortization, the estimates used when computing share-based compensation expense, the estimated allowance for doubtful accounts receivable and the estimated cash flows we use in assessing the recoverability of long-lived assets, as well as the estimated fair values of certain assets related to write downs and impairments, contingencies and litigation, and claims and assessments.

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of September 30, 2016, with the audited Consolidated Balance Sheet amounts as of December 31, 2015 presented for comparative purposes, and the related unaudited Condensed Consolidated Statements of Operations and Statements of Cash Flows in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP, though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.

Our results of operations and our cash flows as of the end of the interim periods reported herein do not necessarily indicate the results we may experience for the remainder of the year or for any other future period.

Management believes our unaudited condensed consolidated interim financial statements include all the normal recurring adjustments necessary to fairly present our unaudited Condensed Consolidated Balance Sheet as of September 30, 2016, our unaudited Condensed Consolidated Statements of Operations and our unaudited Condensed Consolidated Statements of Cash Flows for all periods presented. You should read our unaudited condensed consolidated interim financial statements and footnotes in conjunction with our consolidated financial statements and footnotes included within our 2015 Form 10-K.

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We have made no material changes to our significant accounting policies as reported in our 2015 Form 10-K.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases, that changes the accounting for leases and requires expanded disclosures about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. Lessees and lessors are required to apply a modified retrospective transition approach for leases existing at the beginning of the earliest comparative period presented in the adoption-period financial statements. Any leases that expire before the initial application date will not require any accounting adjustment. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018, and early application is permitted. We are currently evaluating the impact this guidance will have on its financial condition, results of operations, cash flows or the reporting thereof.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2014-09 stipulate that an entity should recognize revenue in an amount which reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to customers, and they provide a five-step process to assist entities with achieving that core principle. The ASU also specifies the accounting for some costs to obtain or fulfill a contract with a customer. With regard to disclosures, ASU 2014-09 states that entities should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, and it requires qualitative and quantitative disclosures concerning contracts with customers, significant judgments and changes therein, and assets recognized from the costs incurred to obtain or fulfill a contract. The amendments in ASU 2014-09, have been deferred for one year and are effective for annual reporting periods beginning after December 15, 2017, including interim periods therein, and they permit either retrospective application to all prior periods or retrospective application with the cumulative effect of application recognized on the initial application date. Early adoption is permitted for annual and interim periods beginning after December 31, 2016. We are currently evaluating the impact this guidance will have on its financial condition, results of operations, cash flows or the reporting thereof.

We have reviewed all other recently issued accounting pronouncements and, other than those we have disclosed above or in previous filings with the SEC, we do not believe any of such pronouncements will have a material effect on our operations.

Reclassifications

In November 2015, the FASB issued an accounting standards update which changes the presentation of deferred taxes in classified balance sheets. The new guidance requires classification of all deferred tax assets and liabilities as well as applicable valuation allowances as non-current. The effective date for this guidance is for financial statements issued for annual and interim periods beginning after December 15, 2016. Early application is permitted. The guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. We have applied the guidance in the accompanying condensed consolidated financial statements with retrospective application for the Consolidated Balance Sheet at December 31, 2015. The effect of the accounting change in the prior year resulted in current deferred income taxes of $1.7 million, previously presented separately in current liabilities, to be added to $13.1 million in long-term deferred income taxes, for a revised $14.8 million in long-term deferred income taxes at December 31, 2015.

XML

Restricted Cash

9 Months Ended

Sep. 30, 2016

Cash and Cash Equivalents [Abstract]

Restricted Cash

NOTE 3. RESTRICTED CASH

Restricted cash balances at September 30, 2016 and December 31, 2015 include cash or certificates of deposit required for gaming activity in certain jurisdictions in which we operate, and for self-insured retention obligations under some of our workers compensation insurance policies.

XML

Property and Equipment, Net

9 Months Ended

Sep. 30, 2016

Property, Plant and Equipment [Abstract]

Property and Equipment, Net

NOTE 4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consist of the following (in thousands, except estimated lives):

	Estimated Life (Years)	September 30, 2016			December 31, 2015
Building and improvements	7 - 40	$	187,615		$	185,875
Gaming equipment	3 - 10	80,752			75,527
Furniture, fixtures, and equipment	3 - 10	52,133			49,571
Leasehold improvements	7	196			196
Land	—	39,513			39,513
Barge	30	15,137			15,019
Construction-in-progress		4,967			3,185
Total property and equipment		380,313			368,886
Less accumulated depreciation		(136,128		)	(116,978		)
Total property and equipment, net		$	244,185		$	251,908

XML

Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS

We determine the fair value of the indefinite-lived intangible assets other than goodwill using the discounted cash flow method, a form of the income approach.  In determining the fair values, we make significant assumptions relating to variables based on past experiences and judgments about future performance.  These variables include, but are not limited to: (1) the forecast earnings growth rate of each market, (2) risk-adjusted discount rate, and (3) expected growth rates in perpetuity to estimated terminal values.

The following table summarizes intangible assets by category (in thousands):

	September 30, 2016							December 31, 2015
	Gross Amount		Accumulated Amortization			Net Amount		Gross Amount		Accumulated Amortization			Net Amount
Finite-lived intangible assets
Customer loyalty programs	$	12,164	$	(10,083	)	$	2,081	$	12,164	$	(8,583	)	$	3,581
Trademarks	2,982		(2,774		)	208		2,982		(2,398		)	584
	15,146		$	(12,857	)	2,289		15,146		$	(10,981	)	4,165
Indefinite-lived intangible assets
Gaming license rights	110,646					110,646		110,646					110,646
Local tradenames	9,231					9,231		9,231					9,231
	119,877					119,877		119,877					119,877
Total intangible assets	$	135,023				$	122,166	$	135,023				$	124,042

The following table summarizes the changes in goodwill by reportable segment during the nine months endedSeptember 30, 2016:

	Nevada		Midwest		Total
Balance at December 31, 2015	$	33,665	$	14,622	$	48,287
Impairment of goodwill	—		—		—
Balance at September 30, 2016	$	33,665	$	14,622	$	48,287

We amortize definite-lived intangible assets ratably over their expected lives which, for customer loyalty programs, approximate seven years and, for trademarks, approximate 3.75 years. Overall, we are amortizing definite-lived intangible assets over a weighted-average expected life of approximately 6.5 years.

We obtain gaming license rights when we acquire gaming entities that operate in gaming jurisdictions where competition is limited, such as states where the law only allows a certain number of operators.  We do not currently amortize gaming license rights and local tradenames because we have determined they have an indefinite useful life.

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Other Assets

9 Months Ended

Sep. 30, 2016

Other Assets [Abstract]

Other Assets

NOTE 6. OTHER ASSETS, NET

Other assets, net consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Prepaid loan fees, net	$	6,443	$	—
Long-term deposits	2,923		2,919
Other assets	478		611
Total	$	9,844	$	3,530

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Accrued Expense

9 Months Ended

Sep. 30, 2016

Accrued Liabilities, Current [Abstract]

Accrued Expense

NOTE 7. ACCRUED EXPENSE

Accrued expense consists of the following (in thousands):

	September 30, 2016		December 31, 2015
Progressive jackpot liabilities	$	3,038	$	2,984
Accrued payroll and related	8,509		7,441
Slot club point liability	2,907		3,213
Litigation reserve	3,100		3,100
Other accrued expense	6,603		7,420
Total	$	24,157	$	24,158

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Long-Term Debt

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Long-Term Debt

NOTE 8. LONG-TERM DEBT

The following table presents long-term debt balances (in thousands):

	September 30, 2016			December 31, 2015
Term Loan due 2023	$	299,250		$	—
Unamortized debt discount and issuance cost, net	(4,872		)	—
Term loan due 2023, net	294,378			—
9% Senior Unsecured Notes due 2018	—			200,000
Unamortized debt issuance cost, net	—			(3,028		)
Unamortized discount	—			(847		)
9% Senior Unsecured Notes due 2018, net	—			196,125
Term loan due 2017	—			182,745
Unamortized debt issuance cost, net	—			(3,283		)
Term loan due 2017, net	—			179,462
Total debt, including current maturities	294,378			375,587
Less: current maturities of long-term debt	(3,000		)	(11,383		)
Total long-term debt	$	291,378		$	364,204

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

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

On July 22, 2014, we completed the second amendment to the 2012 Credit Agreement (the “Second Amended Credit Agreement”) governing our 2012 Credit Facility. Prior to the refinancing in July 2016, we incurred interest on the 2012 Term Loan under the Second Amended Credit Agreement at an uncommitted floating rate of LIBOR plus 4.00%, subject to a LIBOR floor of 1.25%. The Second Amended Credit Agreement also required us to pay commitment fees related to the Revolving Credit Facility equal to an annualized rate of 0.50% on undrawn amounts during 2016.

On July 1, 2016, we entered into a Credit Agreement (the “2016 Credit Agreement”) which provides for a $300.0 million term loan facility (the “2016 Term Loan”) and a $75 million revolving credit facility (the “2016 Revolving Credit Facility” and, together with the 2016 Term Loan, the “2016 Credit Facility”), which remained undrawn as of September 30, 2016. The 2016 Term Loan is payable in quarterly installments, commencing on September 30, 2016, in an amount equal to 0.25% of the 2016 Term Loan until the maturity date, July 1, 2023, upon which date the remaining balance will come due. Amounts outstanding under the 2016 Revolving Credit Facility will be due and payable on July 1, 2021. The interest rate under the 2016 Term Loan is at a floating rate not less than 5.0%. We used the proceeds of the 2016 Term Loan together with $94.9 million in cash to repay all amounts outstanding under the 2012 Term Loan and redeem the 2018 Notes. We also recognized a loss on the extinguishment of debt of $8.0 million which included a prepayment penalty on the 2018 Notes and the write-off of unamortized debt issuance costs and discounts during the quarter ended September 30, 2016.

On September 30, 2016, the 2016 Credit Agreement was amended by the First Amendment to Credit Agreement (the “2016 Amendment”) to, among other things, provide for additional term loans of $30.0 million (the “Additional Loans”) in connection with the Acquisition of the capital stock of the Company by affiliates of Z Capital. The additional loans will be fully funded substantially concurrently with the closing of the Acquisition on terms and conditions, including interest rates and maturity dates, identical to the 2016 Term Loan currently outstanding. The amendment also modifies the 2016 Credit Agreement (after giving effect to the 2016 Amendment, the “Amended 2016 Credit Agreement”) to reflect (i) the terms and conditions of the Additional Loans, (ii) the pendency and anticipated consummation of the Acquisition, and (iii) the anticipated entry into a Second Lien Term Loan Agreement. The effectiveness of the 2016 Amendment and of the Amended 2016 Credit Agreement are conditioned upon the closing of the Acquisition.

Unamortized debt issuance cost, which we are amortizing over the life of the 2016 Term Loan, totaled $4.9 million at September 30, 2016. In April 2015, the FASB issued guidance that debt issuance costs should be presented in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Under the new guidance, effective for annual and interim periods beginning after December 15, 2015, we have reclassified $1.5 million in unamortized debt issuance costs previously presented in other assets to be deducted from the long-term debt balances at December 31, 2015.

The 2016 Credit Agreement contains customary covenants including, but not limited to, a maximum total net leverage ratio and a maximum secured leverage ratio. Additionally, the 2016 Term Loan is subject to mandatory annual prepayments based on generation of excess cash flow (as defined), equal to 50% of excess cash flow when the Total Net Leverage Ratio is greater than 3.50 to 1.00, equal to 25% of excess cash flow when the Total Net Leverage Ratio is greater than 3.00 to 1.00, but less than or equal to 3.50 to 1.00, and equal to zero when the Total Net Leverage Ratio is less than or equal to 3.00 to 1.00. As of September 30, 2016, we remained in compliance with all debt covenants.

We based the estimated fair value of the 2016 Term Loan on Level 2 inputs using quoted prices in inactive markets and observable market data for similar, but not identical, instruments. The following table presents the carrying values and estimated fair values of our long-term debt at September 30, 2016 (in thousands):

	Carrying Value		Estimated Fair Value
Term Loan due 2023	$	294,378	$	295,497

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Income Taxes

9 Months Ended

Sep. 30, 2016

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 9. INCOME TAXES

We continually evaluate our deferred tax assets to determine if any portion of those assets would not be realized in a future period. Based on our analysis of all available evidence, which included consideration of our cumulative consolidated pre-tax losses as well as other data, we concluded that it is more likely than not that we will be unable to realize all of our net deferred tax assets and, as a result, we recorded a full valuation allowance against our net deferred tax assets in 2014. For the quarters ended September 30, 2016 and 2015, our effective income tax rates varied from the federal statutory rate primarily due to the amortization of indefinite-lived intangibles. We recorded a benefit for income taxes of $1.9 million and $0.6 million for the quarters ended September 30, 2016 and 2015, respectively. For the nine months endedSeptember 30, 2016 and 2015, our effective income tax rates varied from the federal statutory rate primarily due to the amortization of indefinite-lived intangibles. We recorded a provision for income taxes of $2.1 million and $4.4 million for the nine months endedSeptember 30, 2016 and 2015, respectively.

We have analyzed our filing positions in each jurisdiction where we are required to file income tax returns. We believe our income tax filing positions and deductions will be sustained on audit and we do not anticipate any adjustments which will result in a material change to our financial position.

We filed income tax returns in the United States federal jurisdiction and in several state jurisdictions. Our 2014 United States federal return is currently under examination. No adjustments have been proposed as of September 30, 2016.

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Share-based Compensation

9 Months Ended

Sep. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-based compensation

NOTE 10. SHARE-BASED COMPENSATION

We designed our share-based compensation arrangements to advance our long-term interests; for example, by allowing us to attract and retain employees and directors by aligning their interests with those of our stockholders. The amount, frequency, and terms of share-based awards may vary based on competitive practices, our operating results, government regulations and availability under our equity incentive plans. Depending upon the form of the share-based award, new shares of our common stock may be issued upon grant, option exercise or vesting of the award.

The Affinity Gaming Amended and Restated 2011 Long-Term Incentive Plan (“LTIP”), which the Compensation Committee of our Board of Directors approved, allows us to issue up to 2,000,000 shares of common stock, subject to stock options, or as restricted stock, to employees, officers, directors and consultants. Awards vest upon the passage of time, the attainment of performance criteria, or both. Stock options awarded under the LTIP expire five years from the grant date. Awards granted to management generally vest ratably over three years from the date of the grant and those granted to directors generally vest in two equal tranches, the first upon issuance and the second during January of the calendar year following the year of grant. Holders of restricted stock may vote their shares and receive their proportionate share of any dividends. Restricted stock remains subject to the terms and conditions contained in the applicable award agreement and our LTIP until the recipient vests in the award.

The following table summarizes the activity related to our outstanding stock options and non-vested restricted stock for the period ended September 30, 2016:

	Stock Options				Restricted Stock
	Outstanding				Non-Vested
	Shares		Weighted Average Exercise Price Per Share		Shares		Weighted Average Fair Value Per Share
December 31, 2015	330,605		$	10.24	82,290		$	10.54
Granted	272,500		12.00		85,082		12.00
Vested	—		—		(81,660	)	10.96
Forfeited	(36,364	)	10.00		—		—
September 30, 2016	566,741		$	11.10	85,712		$	11.59

As of September 30, 2016, awards representing 1,029,070 shares or potential shares of our common stock remained outstanding; therefore, awards representing 970,930 shares or potential shares of our common stock remained available for issuance under our Amended 2011 Long-Term Incentive Plan.

We account for stock option awards as liabilities as a result of our past practice of settling stock options for cash. As of September 30, 2016 and December 31, 2015, we have reported $2.3 million and $1.2 million, respectively, of share-based compensation liability in Other liabilities on the condensed consolidated balance sheets.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

NOTE 11. COMMITMENTS AND CONTINGENCIES

Data Security Events

In October 2013, Affinity was contacted by law enforcement regarding fraudulent credit and debit card charges which may have been linked to a data security breach in Affinity’s information technology system. We immediately initiated a thorough investigation, supported by an independent professional forensic investigation firm, to determine the nature and scope of the compromise. In December 2013, we issued a press release advising that our payment processing system had become infected by malware, which resulted in a compromise of credit card and debit card information belonging to individuals who used their cards at restaurants, hotels and gift shops at our facilities between March 14 and October 16, 2013. As of November 14, 2013, our forensics expert advised us that our credit card processing systems were free of functioning malware. We encouraged our patrons to protect against possible identity theft or other financial loss by reviewing account statements for potential fraudulent activity during the period of exposure. In April 2014, we again learned that an unauthorized intrusion and installation of malware compromising the credit card processing environment had occurred. We then hired a different professional forensics investigation firm to conduct a thorough investigation of the more recently discovered event, and the security of our information technology environment as it related to both incidents. As a result of the second investigation, we have reason to believe credit card and debit card information from individuals who used their cards at restaurants, hotels and gift shops at our properties between December 7, 2013 and April 28, 2014, also may have been compromised. In May 2014, we issued another press release and encouraged our patrons to protect against possible identity theft or other financial loss by reviewing account statements for potential fraudulent activity during the period of exposure.

We carry insurance coverage of $5.0 million for liability resulting from network security events. As of September 30, 2016, we have incurred $1.2 million in expense, including deductibles, for the security breaches. We do not expect to incur additional material expenses that are not covered by insurance. However, we cannot estimate the total amount which we will ultimately incur and be reimbursed by insurance carriers because, although the independent forensic investigation has concluded, we have not received all of the monetary assessments and evaluations from the credit card processors and issuing banks seeking to recover the cost of replacement cards and a portion of fraudulent charges, nor have we received any third-party claims as of this date.

In addition, a few state attorneys general have investigated the data breach events, including how they occurred, their consequences and our responses. We cooperated in the investigations, and in October 2016 entered into agreements with the attorneys general of Colorado, Iowa, Kansas and Missouri to pay them a total of $100,000 to partially reimburse them their investigative costs and not as an admission of any liability or wrongdoing on the part of the Company. We also agreed to e-mail our customers copies of the notices of data breach we had posted on our websites and published in numerous newspapers and on-line news outlets in 2013 and 2014, as well as to undertake, complete or certify the completion of certain previously undertaken data security measures.

Finally, we have commenced a lawsuit in federal court in Nevada against the firm that conducted the initial forensic investigation for recovery of the costs and assessments we incurred as a result of the April 2014 data breach discovery. That litigation is in the discovery phase.

Litigation

In March 2012, the Clarke County Development Corp. (“CCDC”), the local non-profit Iowa licensee for which we manage the Lakeside Hotel & Casino (“Lakeside”) in Osceola, Iowa, filed an action in Iowa state court against Affinity and Lakeside, seeking a declaratory judgment that the management contract between CCDC and Lakeside is non-assignable. We removed the case to federal court and contested CCDC's position even though we had no plans to assign the agreement. CCDC also named Lakeside, Affinity and the Iowa Racing & Gaming Commission (“IRGC”) in a separate petition in Iowa state court seeking judicial review of the IRGC's ruling, in November 2010, which approved our predecessor's creditors to become the owners of Affinity Gaming, LLC, and thereby the indirect owners of Lakeside, prior to our emergence from bankruptcy and notwithstanding CCDC’s objection that an assignment of the management agreement had occurred which required its consent. On July 29, 2013, just two weeks before the hearing on judicial review, CCDC filed a voluntary dismissal without prejudice of the petition for judicial review.  On July 30, 2013, CCDC filed a motion to dismiss the federal court action without prejudice, which was granted.  CCDC’s dismissal of the state court petition and the federal court action was based upon its filing in Iowa state court on August 5, 2013 of a third lawsuit, since removed to federal court in Iowa, in which it seeks to enforce a settlement agreement it alleges was reached with us during a non-binding mediation held in June 2013.  On April 21, 2015, following discovery in the new lawsuit, the District Court for the Southern District of Iowa granted summary judgment in favor of the Company and against CCDC. CCDC appealed the grant of summary judgment to the 8^th Circuit U.S. Court of Appeals, and on June 24, 2016, the Court of Appeals reversed the District Court’s decision and remanded the case for trial. A jury trial has been set for January 2017.

In November 2013, Chartwell Advisory Group, Ltd. (“Chartwell”), a professional services firm that facilitated filing refund requests with the Nevada Tax Commission for sales and use tax paid by certain casinos on the cost of complimentary meals for periods beginning in 2004, filed a lawsuit against numerous Nevada casino operators, including one of our subsidiaries, alleging that it is owed a percentage of the tax casinos did not have to pay as a result of a 2012 state tax regulation and related settlement agreement. Our subsidiary had entered into an agreement with this firm prior to the bankruptcy whereby Chartwell would receive a percentage of any refund we received from the state of sales tax previously paid by our subsidiary. We settled this matter in May 2016 for $0.2 million.

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

Environmental Remediation

In 2011, during excavation at the site of our travel center at Whiskey Pete’s Hotel and Casino (“Whiskey Pete’s”) in Primm, Nevada, we encountered several contaminated underground sites which required soil remediation and groundwater testing. Much of the contamination resulted from underground fuel storage tanks related to a gas station operated more than 35 years ago, as well as from abandoned underground fuel lines. We also began testing at the direction of the Nevada Division of Environmental Protection (the “NDEP”) to determine the extent to which the contamination has affected the groundwater, and we have agreed to continue monitoring the groundwater for a period of at least two more years.

For the nine months ended September 30, 2016 and 2015, we incurred $63 thousand and $0.2 million, respectively, in costs on remediation work at the Whiskey Pete’s site. We have an insurance policy which provides coverage for environmental remediation costs of up to $5.0 million. From the beginning of construction through September 30, 2016, we have incurred $4.0 million in costs on remediation work and received $2.0 million from our insurer. Insurance proceeds were received in 2015 and prior years.

Although we believe that incurring additional cost related to the testing and ongoing monitoring of groundwater for contamination is probable, we cannot reasonably estimate an amount to accrue at this time because the NDEP has not told us what additional work, if any, it will require us to perform. Additionally, we believe some or all of the ongoing monitoring costs will be reimbursed by insurance as part of our initial claim. We also filed suit in Nevada state district court for partial recovery against the environmental consultant that managed the initial remediation. The ultimate cost to us will depend on the extent of contamination found, if any, as a result of our ongoing testing, the amount of remediation we are required to perform, and the amount we are reimbursed. The litigation against the environmental consultant is in the discovery phase. As we complete our ongoing monitoring obligation, we intend to analyze any cost incurred, and we will expense or capitalize it as necessary.

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Segment Information

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Segment Information

NOTE 12. SEGMENT INFORMATION

The following table presents the components of net revenue by segment (in thousands):

	Quarter Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Gross revenue
Nevada	$	61,891		$	69,467		$	184,791		$	203,221
Midwest	32,452			33,390			97,762			101,128
Colorado	9,669			11,082			28,879			32,872
Total gross revenue	104,012			113,939			311,432			337,221
Promotional allowances
Nevada	(5,386		)	(8,013		)	(17,068		)	(25,179		)
Midwest	(1,497		)	(2,817		)	(5,255		)	(7,984		)
Colorado	(701		)	(1,159		)	(2,273		)	(3,619		)
Total promotional allowances	(7,584		)	(11,989		)	(24,596		)	(36,782		)
Net revenue
Nevada	56,505			61,454			167,723			178,042
Midwest	30,955			30,573			92,507			93,144
Colorado	8,968			9,923			26,606			29,253
Total net revenue	$	96,428		$	101,950		$	286,836		$	300,439

We use earnings before interest expense, net; income tax; depreciation and amortization; share-based compensation; pre-opening costs; write offs, reserves and recoveries; loss on extinguishment or modification of debt; loss on impairment of assets; gains or losses on the disposition of assets; and restructuring and reorganization costs (“Adjusted EBITDA”) as a measure of profit and loss to manage the operational performance of our segments.

Adjusted EBITDA is a measure which does not conform to generally accepted accounting principles in the United States (“GAAP”). You should not consider this information as an alternative to any measure of performance as promulgated under GAAP, such as operating income and net income. Our calculation of Adjusted EBITDA may be different from the calculations used by other companies; therefore, comparability may be limited. We have included a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, which in our case is operating income.

The following table presents Adjusted EBITDA by segment and by corporate and other (in thousands):

	Quarter Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Adjusted EBITDA
Nevada	$	12,425		$	10,153		$	37,439		$	31,590
Midwest	10,893			9,321			31,955			29,450
Colorado	1,733			1,624			4,351			4,499
Corporate and other	(7,338		)	(4,455		)	(16,454		)	(13,083		)
Total Adjusted EBITDA	$	17,713		$	16,643		$	57,291		$	52,456

The following tables reconcile Adjusted EBITDA to operating income (in thousands):

	Quarter Ended September 30, 2016
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write Downs, Reserves and Recoveries			Operating Income
Nevada	$	12,425		$	(3,653	)	$	—		$	(113	)	$	8,659
Midwest	10,893			(2,020		)	—			—			8,873
Colorado	1,733			(1,364		)	—			4			373
Corporate and other	(7,338		)	(233		)	(1,224		)	—			(8,795		)
Total operations	$	17,713		$	(7,270	)	$	(1,224	)	$	(109	)	$	9,110

	Quarter Ended September 30, 2015
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write Downs, Reserves and Recoveries			Operating Income
Nevada	$	10,153		$	(3,722	)	$	—		$	(37	)	$	6,394
Midwest	9,321			(1,919		)	—			—			7,402
Colorado	1,624			(1,314		)	—			—			310
Corporate and other	(4,455		)	(296		)	(308		)	—			(5,059		)
Total operations	$	16,643		$	(7,251	)	$	(308	)	$	(37	)	$	9,047

	Nine Months Ended September 30, 2016
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write Downs, Reserves and Recoveries			Operating Income
Nevada	$	37,439		$	(10,953	)	$	—		$	(43	)	$	26,443
Midwest	31,955			(6,062		)	—			(7		)	25,886
Colorado	4,351			(4,243		)	—			4			112
Corporate and other	(16,454		)	(708		)	(1,924		)	(24		)	(19,110		)
Total operations	$	57,291		$	(21,966	)	$	(1,924	)	$	(70	)	$	33,331

	Nine Months Ended September 30, 2015
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write Downs, Reserves and Recoveries			Operating Income
Nevada	$	31,590		$	(11,108	)	$	—		$	83		$	20,565
Midwest	29,450			(5,712		)	—			—			23,738
Colorado	4,499			(3,880		)	—			(58		)	561
Corporate and other	(13,083		)	(919		)	(975		)	7			(14,970		)
Total operations	$	52,456		$	(21,619	)	$	(975	)	$	32		$	29,894

The following table presents total assets by reportable segment (in thousands):

	September 30, 2016		December 31, 2015
Total assets by reportable segment
Nevada	$	207,561	$	224,731
Midwest	201,958		207,414
Colorado	55,651		57,242
Reportable segment total assets	465,170		489,387
Corporate and other	59,726		112,877
Total assets	$	524,896	$	602,264

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

The following table presents additions to property and equipment by reportable segment (in thousands):

	Quarter Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Cash paid for capital expenditures by reportable segment
Nevada	$	4,579	$	1,808	$	9,802	$	4,807
Midwest	947		643		2,879		2,472
Colorado	285		535		870		1,826
Reportable segment additions	5,811		2,986		13,551		9,105
Corporate	91		1,456		952		2,055
Total cash paid for capital expenditures	$	5,902	$	4,442	$	14,503	$	11,160

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Condensed Consolidated Guarantor Data

9 Months Ended

Sep. 30, 2016

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Condensed Consolidated Guarantor Data

NOTE 13. CONDENSED CONSOLIDATED GUARANTOR DATA

All of our current and future domestic subsidiaries fully and unconditionally guarantee our payment obligations under the 2016 Credit Facility (see Note 8 for more information regarding our debt). All of the guarantees are joint and several, and all of the guarantor subsidiaries are 100% owned by us.

We prepared and are presenting the condensed consolidating financial statements in this footnote using the same accounting policies which we used to prepare the financial information located elsewhere in our unaudited condensed consolidated interim financial statements and related footnotes. We did not have any non-guarantor subsidiaries during any period presented.

Affinity Gaming

Unaudited Condensed Consolidating Balance Sheet

September 30, 2016

(in thousands)

	Affinity Gaming (Issuer)		Guarantor Subsidiaries		Eliminating Entries			Total
ASSETS
Cash and cash equivalents	$	48,783	$	38,338	$	—		$	87,121
Restricted cash	469		139		—			608
Accounts receivable, net	161		2,574		—			2,735
Income tax receivable	23		—		—			23
Prepaid expense	779		6,820		—			7,599
Inventory	—		2,328		—			2,328
Total current assets	50,215		50,199		—			100,414
Property and equipment, net	1,091		243,094		—			244,185
Intercompany receivables	—		154,795		(154,795		)	—
Investment in subsidiaries	572,895		—		(572,895		)	—
Other assets, net	8,421		1,423		—			9,844
Intangibles, net	—		122,166		—			122,166
Goodwill	—		48,287		—			48,287
Total assets	$	632,622	$	619,964	$	(727,690	)	$	524,896
LIABILITIES AND OWNERS’ EQUITY
Accounts payable	$	4,372	$	7,798	$	—		$	12,170
Intercompany payables	154,795		—		(154,795		)	—
Accrued interest	43		—		—			43
Accrued expense	2,102		22,055		—			24,157
Current maturities of long-term debt	3,000		—		—			3,000
Total current liabilities	164,312		29,853		(154,795		)	39,370
Long-term debt, less current portion	291,378		—		—			291,378
Other liabilities	2,405		563		—			2,968
Deferred income taxes	168		16,653		—			16,821
Total liabilities	458,263		47,069		(154,795		)	350,537
Common stock	20		—		—			20
Other equity	174,339		572,895		(572,895		)	174,339
Total owners’ equity	174,359		572,895		(572,895		)	174,359
Total liabilities and owners’ equity	$	632,622	$	619,964	$	(727,690	)	$	524,896

Affinity Gaming

Condensed Consolidating Balance Sheet

December 31, 2015

(in thousands)

	Affinity Gaming (Issuer)		Guarantor Subsidiaries		Eliminating Entries			Total
ASSETS
Cash and cash equivalents	$	106,384	$	51,395	$	—		$	157,779
Restricted cash	469		139		—			608
Accounts receivable, net	220		2,997		—			3,217
Income tax receivable	16		—		—			16
Prepaid expense	1,813		8,266		—			10,079
Inventory	—		2,798		—			2,798
Total current assets	108,902		65,595		—			174,497
Property and equipment, net	2,002		249,906		—			251,908
Intercompany receivables	—		110,150		(110,150		)	—
Investment in subsidiaries	551,953		—		(551,953		)	—
Other assets, net	1,974		1,556		—			3,530
Intangibles, net	—		124,042		—			124,042
Goodwill	—		48,287		—			48,287
Total assets	$	664,831	$	599,536	$	(662,103	)	$	602,264
LIABILITIES AND OWNERS’ EQUITY
Accounts payable	$	3,483	$	9,737	$	—		$	13,220
Intercompany payables	110,150		—		(110,150		)	—
Accrued interest	2,327		—		—			2,327
Accrued expense	1,455		22,703		—			24,158
Current maturities of long-term debt	11,383		—		—			11,383
Other current liabilities	—		23		—			23
Total current liabilities	128,798		32,463		(110,150		)	51,111
Long-term debt, less current portion	364,204		—		—			364,204
Other liabilities	1,397		535		—			1,932
Deferred income taxes	173		14,585		—			14,758
Total liabilities	494,572		47,583		(110,150		)	432,005
Common stock	20		—		—			20
Other equity	170,239		551,953		(551,953		)	170,239
Total owners’ equity	170,259		551,953		(551,953		)	170,259
Total liabilities and owners’ equity	$	664,831	$	599,536	$	(662,103	)	$	602,264

Affinity Gaming

Unaudited Condensed Consolidating Statement of Operations

Quarter ended September 30, 2016

(in thousands)

	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Eliminating Entries			Total
REVENUE
Casino	$	—		$	70,252		$	—		$	70,252
Food and beverage	—			9,344			—			9,344
Lodging	—			6,302			—			6,302
Fuel and retail	—			14,347			—			14,347
Other	—			3,767			—			3,767
Total revenue	—			104,012			—			104,012
Promotional allowances	—			(7,584		)	—			(7,584		)
Net revenue	—			96,428			—			96,428
EXPENSE
Casino	—			26,000			—			26,000
Food and beverage	—			9,439			—			9,439
Lodging	—			4,462			—			4,462
Fuel and retail	—			9,696			—			9,696
Other	—			1,818			—			1,818
General and administrative	—			19,962			—			19,962
Depreciation and amortization	233			7,037			—			7,270
Corporate	8,562			—			—			8,562
Write downs, reserves and recoveries	—			109			—			109
Total expense	8,795			78,523			—			87,318
Operating income (loss)	(8,795		)	17,905			—			9,110
Other income (expense)
Interest expense, net	(4,245		)	—			—			(4,245		)
Intercompany interest income	4,254			—			(4,254		)	—
Intercompany interest expense	—			(4,254		)	4,254			—
Loss on extinguishment (or modification) of debt	(8,030		)	—			—			(8,030		)
Income from equity investments in subsidiaries	8,737			—			(8,737		)	—
Total other income (expense), net	716			(4,254		)	(8,737		)	(12,275		)
Income (loss) before income tax	(8,079		)	13,651			(8,737		)	(3,165		)
Benefit (provision) for income taxes	6,857			(4,914		)	—			1,943
Net income (loss)	$	(1,222	)	$	8,737		$	(8,737	)	$	(1,222	)

Affinity Gaming

Unaudited Condensed Consolidating Statement of Operations

Quarter ended September 30, 2015

(in thousands)

	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Eliminating Entries			Total
REVENUE
Casino	$	—		$	74,414		$	—		$	74,414
Food and beverage	—			12,179			—			12,179
Lodging	—			6,672			—			6,672
Fuel and retail	—			16,904			—			16,904
Other	—			3,770			—			3,770
Total revenue	—			113,939			—			113,939
Promotional allowances	—			(11,989		)	—			(11,989		)
Net revenue	—			101,950			—			101,950
EXPENSE
Casino	—			29,271			—			29,271
Food and beverage	—			12,022			—			12,022
Lodging	—			4,345			—			4,345
Fuel and retail	—			12,601			—			12,601
Other	—			1,961			—			1,961
General and administrative	—			20,652			—			20,652
Depreciation and amortization	296			6,955			—			7,251
Corporate	4,763			—			—			4,763
Write downs, reserves and recoveries	—			37			—			37
Total expense	5,059			87,844			—			92,903
Operating income (loss)	(5,059		)	14,106			—			9,047
Other income (expense)
Interest expense, net	(7,692		)	—			—			(7,692		)
Intercompany interest income	7,737			—			(7,737		)	—
Intercompany interest expense	—			(7,737		)	7,737			—
Income from equity investments in subsidiaries	6,474			—			(6,474		)	—
Total other income (expense), net	6,519			(7,737		)	(6,474		)	(7,692		)
Income (loss) before income tax	1,460			6,369			(6,474		)	1,355
Benefit for income taxes	536			105			—			641
Net income (loss)	$	1,996		$	6,474		$	(6,474	)	$	1,996

Affinity Gaming Unaudited Condensed Consolidating Statement of Operations Nine Months Ended September 30, 2016 (in thousands)
	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Eliminating Entries			Total
REVENUE
Casino	$	—		$	211,583		$	—		$	211,583
Food and beverage	—			30,552			—			30,552
Lodging	—			18,731			—			18,731
Fuel and retail	—			39,877			—			39,877
Other	—			10,689			—			10,689
Total revenue	—			311,432			—			311,432
Promotional allowances	—			(24,596		)	—			(24,596		)
Net revenue	—			286,836			—			286,836
EXPENSE
Casino	—			79,562			—			79,562
Food and beverage	—			30,609			—			30,609
Lodging	—			13,015			—			13,015
Fuel and retail	—			27,099			—			27,099
Other	—			5,281			—			5,281
General and administrative	—			57,525			—			57,525
Depreciation and amortization	708			21,258			—			21,966
Corporate	18,378			—			—			18,378
Write downs, reserves and recoveries	24			46			—			70
Total expense	19,110			234,395			—			253,505
Operating income (loss)	(19,110		)	52,441			—			33,331
Other income (expense)
Interest expense, net	(19,566		)	—			—			(19,566		)
Intercompany interest income	19,719			—			(19,719		)	—
Intercompany interest expense	—			(19,719		)	19,719			—
Loss on extinguishment (or modification) of debt	(8,030		)	—			—			(8,030		)
Income from equity investments in subsidiaries	20,942			—			(20,942		)	—
Total other income (expense), net	13,065			(19,719		)	(20,942		)	(27,596		)
Income (loss) before income tax	(6,045		)	32,722			(20,942		)	5,735
Benefit (provision) for income taxes	9,717			(11,780		)	—			(2,063		)
Net income (loss)	$	3,672		$	20,942		$	(20,942	)	$	3,672

Affinity Gaming Unaudited Condensed Consolidating Statement of Operations Nine Months Ended September 30, 2015 (in thousands)
	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Eliminating Entries			Total
REVENUE
Casino	$	—		$	225,016		$	—		$	225,016
Food and beverage	—			36,222			—			36,222
Lodging	—			20,894			—			20,894
Fuel and retail	—			45,156			—			45,156
Other	—			9,933			—			9,933
Total revenue	—			337,221			—			337,221
Promotional allowances	—			(36,782		)	—			(36,782		)
Net revenue	—			300,439			—			300,439
EXPENSE
Casino	—			88,961			—			88,961
Food and beverage	—			35,649			—			35,649
Lodging	—			12,451			—			12,451
Fuel and retail	—			33,540			—			33,540
Other	—			5,329			—			5,329
General and administrative	—			58,970			—			58,970
Depreciation and amortization	919			20,700			—			21,619
Corporate	14,058			—			—			14,058
Write downs, reserves and recoveries	(7		)	(25		)	—			(32		)
Total expense	14,970			255,575			—			270,545
Operating income (loss)	(14,970		)	44,864			—			29,894
Other income (expense)
Interest expense, net	(22,950		)	—			—			(22,950		)
Intercompany interest income	23,078			—			(23,078		)	—
Intercompany interest expense	—			(23,078		)	23,078			—
Income from equity investments in subsidiaries	8,010			—			(8,010		)	—
Total other income (expense), net	8,138			(23,078		)	(8,010		)	(22,950		)
Income (loss) before income tax	(6,832		)	21,786			(8,010		)	6,944
Benefit (provision) for income taxes	9,385			(13,776		)	—			(4,391		)
Net income (loss)	$	2,553		$	8,010		$	(8,010	)	$	2,553

Affinity Gaming

Unaudited Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2016

(in thousands)

	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Total
Net cash (used in) provided by operating activities	$	(29,053	)	$	65,186		$	36,133
Cash flows from investing activities:
Proceeds from sale of property and equipment	—			22			22
Payment on disposition of property and equipment	—			(40		)	(40		)
Purchases of property and equipment	(952		)	(13,551		)	(14,503		)
Net cash used in investing activities	$	(952	)	$	(13,569	)	$	(14,521	)
Cash flows from financing activities:
Change in intercompany accounts	64,651			(64,651		)	—
Payments on capital lease	—			(23		)	(23		)
Payments on long-term debt	(383,495		)	—			(383,495		)
Proceeds from long-term debt	298,500			—			298,500
Loan origination fees	(6,808		)	—			(6,808		)
Repurchases of common stock	(371		)	—			(371		)
Repurchases of vested share-based awards	(73		)	—			(73		)
Net cash used in financing activities	$	(27,596	)	$	(64,674	)	$	(92,270	)
Net decrease in cash and cash equivalents	(57,601		)	(13,057		)	(70,658		)
Cash and cash equivalents
Beginning of year	106,384			51,395			157,779
End of period	$	48,783		$	38,338		$	87,121

Affinity Gaming

Unaudited Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2015

(in thousands)

	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Total
Net cash (used in) provided by operating activities	$	(18,029	)	$	61,343		$	43,314
Cash flows from investing activities:
Proceeds from sale of property and equipment	11			5			16
Purchases of property and equipment	(2,055		)	(9,105		)	(11,160		)
Net cash used in investing activities	$	(2,044	)	$	(9,100	)	$	(11,144	)
Cash flows from financing activities:
Change in intercompany accounts	45,144			(45,144		)	—
Payments on capital lease	—			(23		)	(23		)
Repurchases of vested share-based awards	(71		)	—			(71		)
Net cash provided by (used in) financing activities	$	45,073		$	(45,167	)	$	(94	)
Net increase in cash and cash equivalents	25,000			7,076			32,076
Cash and cash equivalents
Beginning of year	88,737			46,438			135,175
End of period	$	113,737		$	53,514		$	167,251

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Subsequent Events

9 Months Ended

Sep. 30, 2016

Subsequent Events [Abstract]

Subsequent Events

NOTE 14. SUBSEQUENT EVENTS

On October 13, 2016, Michael Silberling, our Chief Executive Officer, Walter Bogumil, our Chief Financial Officer, and Jeffrey Solomon, our Chief Operating Officer, agreed that each of their outstanding equity awards will, immediately prior to the effective time of the Acquisition, be cancelled and exchanged for (a) security interests in Z Capital Affinity Holdings, L.L.C. (“Holdings”), the sole member and managing member of Z Capital Owner, and (b), in the case of Mr. Silberling, $1.9 million in cash provided by Holdings and, in the case of Mr. Bogumil, $52.1 thousand in cash provided by Holdings.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Consolidation

Consolidation

We include all of our subsidiaries in our consolidated financial statements, eliminating all intercompany balances and transactions during consolidation.

Basis of Presentation

Basis of Presentation

We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). While preparing our financial statements, we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenue and expense during the reporting period. Accordingly, actual results could differ from those estimates. Reported amounts that require us to make extensive use of estimates include the fair values of assets and liabilities related to depreciation and amortization, the estimates used when computing share-based compensation expense, the estimated allowance for doubtful accounts receivable and the estimated cash flows we use in assessing the recoverability of long-lived assets, as well as the estimated fair values of certain assets related to write downs and impairments, contingencies and litigation, and claims and assessments.

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of September 30, 2016, with the audited Consolidated Balance Sheet amounts as of December 31, 2015 presented for comparative purposes, and the related unaudited Condensed Consolidated Statements of Operations and Statements of Cash Flows in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP, though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.

Our results of operations and our cash flows as of the end of the interim periods reported herein do not necessarily indicate the results we may experience for the remainder of the year or for any other future period.

Management believes our unaudited condensed consolidated interim financial statements include all the normal recurring adjustments necessary to fairly present our unaudited Condensed Consolidated Balance Sheet as of September 30, 2016, our unaudited Condensed Consolidated Statements of Operations and our unaudited Condensed Consolidated Statements of Cash Flows for all periods presented. You should read our unaudited condensed consolidated interim financial statements and footnotes in conjunction with our consolidated financial statements and footnotes included within our 2015 Form 10-K.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases, that changes the accounting for leases and requires expanded disclosures about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. Lessees and lessors are required to apply a modified retrospective transition approach for leases existing at the beginning of the earliest comparative period presented in the adoption-period financial statements. Any leases that expire before the initial application date will not require any accounting adjustment. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018, and early application is permitted. We are currently evaluating the impact this guidance will have on its financial condition, results of operations, cash flows or the reporting thereof.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2014-09 stipulate that an entity should recognize revenue in an amount which reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to customers, and they provide a five-step process to assist entities with achieving that core principle. The ASU also specifies the accounting for some costs to obtain or fulfill a contract with a customer. With regard to disclosures, ASU 2014-09 states that entities should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, and it requires qualitative and quantitative disclosures concerning contracts with customers, significant judgments and changes therein, and assets recognized from the costs incurred to obtain or fulfill a contract. The amendments in ASU 2014-09, have been deferred for one year and are effective for annual reporting periods beginning after December 15, 2017, including interim periods therein, and they permit either retrospective application to all prior periods or retrospective application with the cumulative effect of application recognized on the initial application date. Early adoption is permitted for annual and interim periods beginning after December 31, 2016. We are currently evaluating the impact this guidance will have on its financial condition, results of operations, cash flows or the reporting thereof.

We have reviewed all other recently issued accounting pronouncements and, other than those we have disclosed above or in previous filings with the SEC, we do not believe any of such pronouncements will have a material effect on our operations.

Reclassifications

In November 2015, the FASB issued an accounting standards update which changes the presentation of deferred taxes in classified balance sheets. The new guidance requires classification of all deferred tax assets and liabilities as well as applicable valuation allowances as non-current. The effective date for this guidance is for financial statements issued for annual and interim periods beginning after December 15, 2016. Early application is permitted. The guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. We have applied the guidance in the accompanying condensed consolidated financial statements with retrospective application for the Consolidated Balance Sheet at December 31, 2015. The effect of the accounting change in the prior year resulted in current deferred income taxes of $1.7 million, previously presented separately in current liabilities, to be added to $13.1 million in long-term deferred income taxes, for a revised $14.8 million in long-term deferred income taxes at December 31, 2015.

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Property and Equipment, Net (Tables)

9 Months Ended

Sep. 30, 2016

Property, Plant and Equipment [Abstract]

Schedule of property and equipment

Property and equipment, net consist of the following (in thousands, except estimated lives):

	Estimated Life (Years)	September 30, 2016			December 31, 2015
Building and improvements	7 - 40	$	187,615		$	185,875
Gaming equipment	3 - 10	80,752			75,527
Furniture, fixtures, and equipment	3 - 10	52,133			49,571
Leasehold improvements	7	196			196
Land	—	39,513			39,513
Barge	30	15,137			15,019
Construction-in-progress		4,967			3,185
Total property and equipment		380,313			368,886
Less accumulated depreciation		(136,128		)	(116,978		)
Total property and equipment, net		$	244,185		$	251,908

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of intangible assets

The following table summarizes intangible assets by category (in thousands):

	September 30, 2016							December 31, 2015
	Gross Amount		Accumulated Amortization			Net Amount		Gross Amount		Accumulated Amortization			Net Amount
Finite-lived intangible assets
Customer loyalty programs	$	12,164	$	(10,083	)	$	2,081	$	12,164	$	(8,583	)	$	3,581
Trademarks	2,982		(2,774		)	208		2,982		(2,398		)	584
	15,146		$	(12,857	)	2,289		15,146		$	(10,981	)	4,165
Indefinite-lived intangible assets
Gaming license rights	110,646					110,646		110,646					110,646
Local tradenames	9,231					9,231		9,231					9,231
	119,877					119,877		119,877					119,877
Total intangible assets	$	135,023				$	122,166	$	135,023				$	124,042

Schedule of goodwill by segment

The following table summarizes the changes in goodwill by reportable segment during the nine months endedSeptember 30, 2016:

	Nevada		Midwest		Total
Balance at December 31, 2015	$	33,665	$	14,622	$	48,287
Impairment of goodwill	—		—		—
Balance at September 30, 2016	$	33,665	$	14,622	$	48,287

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Other Assets (Tables)

9 Months Ended

Sep. 30, 2016

Other Assets [Abstract]

Other assets disclosure

Other assets, net consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Prepaid loan fees, net	$	6,443	$	—
Long-term deposits	2,923		2,919
Other assets	478		611
Total	$	9,844	$	3,530

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Accrued Expense (Tables)

9 Months Ended

Sep. 30, 2016

Accrued Liabilities, Current [Abstract]

Schedule of accrued expense

Accrued expense consists of the following (in thousands):

	September 30, 2016		December 31, 2015
Progressive jackpot liabilities	$	3,038	$	2,984
Accrued payroll and related	8,509		7,441
Slot club point liability	2,907		3,213
Litigation reserve	3,100		3,100
Other accrued expense	6,603		7,420
Total	$	24,157	$	24,158

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Long-Term Debt (Tables)

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Schedule of long-term debt balances

The following table presents long-term debt balances (in thousands):

	September 30, 2016			December 31, 2015
Term Loan due 2023	$	299,250		$	—
Unamortized debt discount and issuance cost, net	(4,872		)	—
Term loan due 2023, net	294,378			—
9% Senior Unsecured Notes due 2018	—			200,000
Unamortized debt issuance cost, net	—			(3,028		)
Unamortized discount	—			(847		)
9% Senior Unsecured Notes due 2018, net	—			196,125
Term loan due 2017	—			182,745
Unamortized debt issuance cost, net	—			(3,283		)
Term loan due 2017, net	—			179,462
Total debt, including current maturities	294,378			375,587
Less: current maturities of long-term debt	(3,000		)	(11,383		)
Total long-term debt	$	291,378		$	364,204

Schedule of carrying values and estimated fair values of debt instruments

The following table presents the carrying values and estimated fair values of our long-term debt at September 30, 2016 (in thousands):

	Carrying Value		Estimated Fair Value
Term Loan due 2023	$	294,378	$	295,497

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Share-based Compensation (Tables)

9 Months Ended

Sep. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of outstanding and non-vested options activity

The following table summarizes the activity related to our outstanding stock options and non-vested restricted stock for the period ended September 30, 2016:

	Stock Options				Restricted Stock
	Outstanding				Non-Vested
	Shares		Weighted Average Exercise Price Per Share		Shares		Weighted Average Fair Value Per Share
December 31, 2015	330,605		$	10.24	82,290		$	10.54
Granted	272,500		12.00		85,082		12.00
Vested	—		—		(81,660	)	10.96
Forfeited	(36,364	)	10.00		—		—
September 30, 2016	566,741		$	11.10	85,712		$	11.59

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Schedule of segment classification of properties

The following table presents Adjusted EBITDA by segment and by corporate and other (in thousands):

	Quarter Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Adjusted EBITDA
Nevada	$	12,425		$	10,153		$	37,439		$	31,590
Midwest	10,893			9,321			31,955			29,450
Colorado	1,733			1,624			4,351			4,499
Corporate and other	(7,338		)	(4,455		)	(16,454		)	(13,083		)
Total Adjusted EBITDA	$	17,713		$	16,643		$	57,291		$	52,456

The following table presents the components of net revenue by segment (in thousands):

	Quarter Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Gross revenue
Nevada	$	61,891		$	69,467		$	184,791		$	203,221
Midwest	32,452			33,390			97,762			101,128
Colorado	9,669			11,082			28,879			32,872
Total gross revenue	104,012			113,939			311,432			337,221
Promotional allowances
Nevada	(5,386		)	(8,013		)	(17,068		)	(25,179		)
Midwest	(1,497		)	(2,817		)	(5,255		)	(7,984		)
Colorado	(701		)	(1,159		)	(2,273		)	(3,619		)
Total promotional allowances	(7,584		)	(11,989		)	(24,596		)	(36,782		)
Net revenue
Nevada	56,505			61,454			167,723			178,042
Midwest	30,955			30,573			92,507			93,144
Colorado	8,968			9,923			26,606			29,253
Total net revenue	$	96,428		$	101,950		$	286,836		$	300,439

Schedule of reconciliation of Adjusted EBITDA to operating income

The following tables reconcile Adjusted EBITDA to operating income (in thousands):

	Quarter Ended September 30, 2016
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write Downs, Reserves and Recoveries			Operating Income
Nevada	$	12,425		$	(3,653	)	$	—		$	(113	)	$	8,659
Midwest	10,893			(2,020		)	—			—			8,873
Colorado	1,733			(1,364		)	—			4			373
Corporate and other	(7,338		)	(233		)	(1,224		)	—			(8,795		)
Total operations	$	17,713		$	(7,270	)	$	(1,224	)	$	(109	)	$	9,110

	Quarter Ended September 30, 2015
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write Downs, Reserves and Recoveries			Operating Income
Nevada	$	10,153		$	(3,722	)	$	—		$	(37	)	$	6,394
Midwest	9,321			(1,919		)	—			—			7,402
Colorado	1,624			(1,314		)	—			—			310
Corporate and other	(4,455		)	(296		)	(308		)	—			(5,059		)
Total operations	$	16,643		$	(7,251	)	$	(308	)	$	(37	)	$	9,047

	Nine Months Ended September 30, 2016
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write Downs, Reserves and Recoveries			Operating Income
Nevada	$	37,439		$	(10,953	)	$	—		$	(43	)	$	26,443
Midwest	31,955			(6,062		)	—			(7		)	25,886
Colorado	4,351			(4,243		)	—			4			112
Corporate and other	(16,454		)	(708		)	(1,924		)	(24		)	(19,110		)
Total operations	$	57,291		$	(21,966	)	$	(1,924	)	$	(70	)	$	33,331

	Nine Months Ended September 30, 2015
	Adjusted EBITDA			Depreciation and Amortization			Share-Based Compensation			Write Downs, Reserves and Recoveries			Operating Income
Nevada	$	31,590		$	(11,108	)	$	—		$	83		$	20,565
Midwest	29,450			(5,712		)	—			—			23,738
Colorado	4,499			(3,880		)	—			(58		)	561
Corporate and other	(13,083		)	(919		)	(975		)	7			(14,970		)
Total operations	$	52,456		$	(21,619	)	$	(975	)	$	32		$	29,894

Reconciliation of assets by reportable segment to consolidated

The following table presents total assets by reportable segment (in thousands):

	September 30, 2016		December 31, 2015
Total assets by reportable segment
Nevada	$	207,561	$	224,731
Midwest	201,958		207,414
Colorado	55,651		57,242
Reportable segment total assets	465,170		489,387
Corporate and other	59,726		112,877
Total assets	$	524,896	$	602,264

Reconciliation of capital expenditures by reportable segments to consolidated

The following table presents additions to property and equipment by reportable segment (in thousands):

	Quarter Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Cash paid for capital expenditures by reportable segment
Nevada	$	4,579	$	1,808	$	9,802	$	4,807
Midwest	947		643		2,879		2,472
Colorado	285		535		870		1,826
Reportable segment additions	5,811		2,986		13,551		9,105
Corporate	91		1,456		952		2,055
Total cash paid for capital expenditures	$	5,902	$	4,442	$	14,503	$	11,160

XML

Condensed Consolidated Guarantor Data (Tables)

9 Months Ended

Sep. 30, 2016

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Condensed Consolidating Balance Sheet

Affinity Gaming

Unaudited Condensed Consolidating Balance Sheet

September 30, 2016

(in thousands)

	Affinity Gaming (Issuer)		Guarantor Subsidiaries		Eliminating Entries			Total
ASSETS
Cash and cash equivalents	$	48,783	$	38,338	$	—		$	87,121
Restricted cash	469		139		—			608
Accounts receivable, net	161		2,574		—			2,735
Income tax receivable	23		—		—			23
Prepaid expense	779		6,820		—			7,599
Inventory	—		2,328		—			2,328
Total current assets	50,215		50,199		—			100,414
Property and equipment, net	1,091		243,094		—			244,185
Intercompany receivables	—		154,795		(154,795		)	—
Investment in subsidiaries	572,895		—		(572,895		)	—
Other assets, net	8,421		1,423		—			9,844
Intangibles, net	—		122,166		—			122,166
Goodwill	—		48,287		—			48,287
Total assets	$	632,622	$	619,964	$	(727,690	)	$	524,896
LIABILITIES AND OWNERS’ EQUITY
Accounts payable	$	4,372	$	7,798	$	—		$	12,170
Intercompany payables	154,795		—		(154,795		)	—
Accrued interest	43		—		—			43
Accrued expense	2,102		22,055		—			24,157
Current maturities of long-term debt	3,000		—		—			3,000
Total current liabilities	164,312		29,853		(154,795		)	39,370
Long-term debt, less current portion	291,378		—		—			291,378
Other liabilities	2,405		563		—			2,968
Deferred income taxes	168		16,653		—			16,821
Total liabilities	458,263		47,069		(154,795		)	350,537
Common stock	20		—		—			20
Other equity	174,339		572,895		(572,895		)	174,339
Total owners’ equity	174,359		572,895		(572,895		)	174,359
Total liabilities and owners’ equity	$	632,622	$	619,964	$	(727,690	)	$	524,896

Affinity Gaming

Condensed Consolidating Balance Sheet

December 31, 2015

(in thousands)

	Affinity Gaming (Issuer)		Guarantor Subsidiaries		Eliminating Entries			Total
ASSETS
Cash and cash equivalents	$	106,384	$	51,395	$	—		$	157,779
Restricted cash	469		139		—			608
Accounts receivable, net	220		2,997		—			3,217
Income tax receivable	16		—		—			16
Prepaid expense	1,813		8,266		—			10,079
Inventory	—		2,798		—			2,798
Total current assets	108,902		65,595		—			174,497
Property and equipment, net	2,002		249,906		—			251,908
Intercompany receivables	—		110,150		(110,150		)	—
Investment in subsidiaries	551,953		—		(551,953		)	—
Other assets, net	1,974		1,556		—			3,530
Intangibles, net	—		124,042		—			124,042
Goodwill	—		48,287		—			48,287
Total assets	$	664,831	$	599,536	$	(662,103	)	$	602,264
LIABILITIES AND OWNERS’ EQUITY
Accounts payable	$	3,483	$	9,737	$	—		$	13,220
Intercompany payables	110,150		—		(110,150		)	—
Accrued interest	2,327		—		—			2,327
Accrued expense	1,455		22,703		—			24,158
Current maturities of long-term debt	11,383		—		—			11,383
Other current liabilities	—		23		—			23
Total current liabilities	128,798		32,463		(110,150		)	51,111
Long-term debt, less current portion	364,204		—		—			364,204
Other liabilities	1,397		535		—			1,932
Deferred income taxes	173		14,585		—			14,758
Total liabilities	494,572		47,583		(110,150		)	432,005
Common stock	20		—		—			20
Other equity	170,239		551,953		(551,953		)	170,239
Total owners’ equity	170,259		551,953		(551,953		)	170,259
Total liabilities and owners’ equity	$	664,831	$	599,536	$	(662,103	)	$	602,264

Condensed Consolidating Statement of Operations

Affinity Gaming

Unaudited Condensed Consolidating Statement of Operations

Quarter ended September 30, 2016

(in thousands)

	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Eliminating Entries			Total
REVENUE
Casino	$	—		$	70,252		$	—		$	70,252
Food and beverage	—			9,344			—			9,344
Lodging	—			6,302			—			6,302
Fuel and retail	—			14,347			—			14,347
Other	—			3,767			—			3,767
Total revenue	—			104,012			—			104,012
Promotional allowances	—			(7,584		)	—			(7,584		)
Net revenue	—			96,428			—			96,428
EXPENSE
Casino	—			26,000			—			26,000
Food and beverage	—			9,439			—			9,439
Lodging	—			4,462			—			4,462
Fuel and retail	—			9,696			—			9,696
Other	—			1,818			—			1,818
General and administrative	—			19,962			—			19,962
Depreciation and amortization	233			7,037			—			7,270
Corporate	8,562			—			—			8,562
Write downs, reserves and recoveries	—			109			—			109
Total expense	8,795			78,523			—			87,318
Operating income (loss)	(8,795		)	17,905			—			9,110
Other income (expense)
Interest expense, net	(4,245		)	—			—			(4,245		)
Intercompany interest income	4,254			—			(4,254		)	—
Intercompany interest expense	—			(4,254		)	4,254			—
Loss on extinguishment (or modification) of debt	(8,030		)	—			—			(8,030		)
Income from equity investments in subsidiaries	8,737			—			(8,737		)	—
Total other income (expense), net	716			(4,254		)	(8,737		)	(12,275		)
Income (loss) before income tax	(8,079		)	13,651			(8,737		)	(3,165		)
Benefit (provision) for income taxes	6,857			(4,914		)	—			1,943
Net income (loss)	$	(1,222	)	$	8,737		$	(8,737	)	$	(1,222	)

Affinity Gaming

Unaudited Condensed Consolidating Statement of Operations

Quarter ended September 30, 2015

(in thousands)

	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Eliminating Entries			Total
REVENUE
Casino	$	—		$	74,414		$	—		$	74,414
Food and beverage	—			12,179			—			12,179
Lodging	—			6,672			—			6,672
Fuel and retail	—			16,904			—			16,904
Other	—			3,770			—			3,770
Total revenue	—			113,939			—			113,939
Promotional allowances	—			(11,989		)	—			(11,989		)
Net revenue	—			101,950			—			101,950
EXPENSE
Casino	—			29,271			—			29,271
Food and beverage	—			12,022			—			12,022
Lodging	—			4,345			—			4,345
Fuel and retail	—			12,601			—			12,601
Other	—			1,961			—			1,961
General and administrative	—			20,652			—			20,652
Depreciation and amortization	296			6,955			—			7,251
Corporate	4,763			—			—			4,763
Write downs, reserves and recoveries	—			37			—			37
Total expense	5,059			87,844			—			92,903
Operating income (loss)	(5,059		)	14,106			—			9,047
Other income (expense)
Interest expense, net	(7,692		)	—			—			(7,692		)
Intercompany interest income	7,737			—			(7,737		)	—
Intercompany interest expense	—			(7,737		)	7,737			—
Income from equity investments in subsidiaries	6,474			—			(6,474		)	—
Total other income (expense), net	6,519			(7,737		)	(6,474		)	(7,692		)
Income (loss) before income tax	1,460			6,369			(6,474		)	1,355
Benefit for income taxes	536			105			—			641
Net income (loss)	$	1,996		$	6,474		$	(6,474	)	$	1,996

Affinity Gaming Unaudited Condensed Consolidating Statement of Operations Nine Months Ended September 30, 2016 (in thousands)
	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Eliminating Entries			Total
REVENUE
Casino	$	—		$	211,583		$	—		$	211,583
Food and beverage	—			30,552			—			30,552
Lodging	—			18,731			—			18,731
Fuel and retail	—			39,877			—			39,877
Other	—			10,689			—			10,689
Total revenue	—			311,432			—			311,432
Promotional allowances	—			(24,596		)	—			(24,596		)
Net revenue	—			286,836			—			286,836
EXPENSE
Casino	—			79,562			—			79,562
Food and beverage	—			30,609			—			30,609
Lodging	—			13,015			—			13,015
Fuel and retail	—			27,099			—			27,099
Other	—			5,281			—			5,281
General and administrative	—			57,525			—			57,525
Depreciation and amortization	708			21,258			—			21,966
Corporate	18,378			—			—			18,378
Write downs, reserves and recoveries	24			46			—			70
Total expense	19,110			234,395			—			253,505
Operating income (loss)	(19,110		)	52,441			—			33,331
Other income (expense)
Interest expense, net	(19,566		)	—			—			(19,566		)
Intercompany interest income	19,719			—			(19,719		)	—
Intercompany interest expense	—			(19,719		)	19,719			—
Loss on extinguishment (or modification) of debt	(8,030		)	—			—			(8,030		)
Income from equity investments in subsidiaries	20,942			—			(20,942		)	—
Total other income (expense), net	13,065			(19,719		)	(20,942		)	(27,596		)
Income (loss) before income tax	(6,045		)	32,722			(20,942		)	5,735
Benefit (provision) for income taxes	9,717			(11,780		)	—			(2,063		)
Net income (loss)	$	3,672		$	20,942		$	(20,942	)	$	3,672

Affinity Gaming Unaudited Condensed Consolidating Statement of Operations Nine Months Ended September 30, 2015 (in thousands)
	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Eliminating Entries			Total
REVENUE
Casino	$	—		$	225,016		$	—		$	225,016
Food and beverage	—			36,222			—			36,222
Lodging	—			20,894			—			20,894
Fuel and retail	—			45,156			—			45,156
Other	—			9,933			—			9,933
Total revenue	—			337,221			—			337,221
Promotional allowances	—			(36,782		)	—			(36,782		)
Net revenue	—			300,439			—			300,439
EXPENSE
Casino	—			88,961			—			88,961
Food and beverage	—			35,649			—			35,649
Lodging	—			12,451			—			12,451
Fuel and retail	—			33,540			—			33,540
Other	—			5,329			—			5,329
General and administrative	—			58,970			—			58,970
Depreciation and amortization	919			20,700			—			21,619
Corporate	14,058			—			—			14,058
Write downs, reserves and recoveries	(7		)	(25		)	—			(32		)
Total expense	14,970			255,575			—			270,545
Operating income (loss)	(14,970		)	44,864			—			29,894
Other income (expense)
Interest expense, net	(22,950		)	—			—			(22,950		)
Intercompany interest income	23,078			—			(23,078		)	—
Intercompany interest expense	—			(23,078		)	23,078			—
Income from equity investments in subsidiaries	8,010			—			(8,010		)	—
Total other income (expense), net	8,138			(23,078		)	(8,010		)	(22,950		)
Income (loss) before income tax	(6,832		)	21,786			(8,010		)	6,944
Benefit (provision) for income taxes	9,385			(13,776		)	—			(4,391		)
Net income (loss)	$	2,553		$	8,010		$	(8,010	)	$	2,553

Condensed Consolidating Statement of Cash Flows

Affinity Gaming

Unaudited Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2016

(in thousands)

	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Total
Net cash (used in) provided by operating activities	$	(29,053	)	$	65,186		$	36,133
Cash flows from investing activities:
Proceeds from sale of property and equipment	—			22			22
Payment on disposition of property and equipment	—			(40		)	(40		)
Purchases of property and equipment	(952		)	(13,551		)	(14,503		)
Net cash used in investing activities	$	(952	)	$	(13,569	)	$	(14,521	)
Cash flows from financing activities:
Change in intercompany accounts	64,651			(64,651		)	—
Payments on capital lease	—			(23		)	(23		)
Payments on long-term debt	(383,495		)	—			(383,495		)
Proceeds from long-term debt	298,500			—			298,500
Loan origination fees	(6,808		)	—			(6,808		)
Repurchases of common stock	(371		)	—			(371		)
Repurchases of vested share-based awards	(73		)	—			(73		)
Net cash used in financing activities	$	(27,596	)	$	(64,674	)	$	(92,270	)
Net decrease in cash and cash equivalents	(57,601		)	(13,057		)	(70,658		)
Cash and cash equivalents
Beginning of year	106,384			51,395			157,779
End of period	$	48,783		$	38,338		$	87,121

Affinity Gaming

Unaudited Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2015

(in thousands)

	Affinity Gaming (Issuer)			Guarantor Subsidiaries			Total
Net cash (used in) provided by operating activities	$	(18,029	)	$	61,343		$	43,314
Cash flows from investing activities:
Proceeds from sale of property and equipment	11			5			16
Purchases of property and equipment	(2,055		)	(9,105		)	(11,160		)
Net cash used in investing activities	$	(2,044	)	$	(9,100	)	$	(11,144	)
Cash flows from financing activities:
Change in intercompany accounts	45,144			(45,144		)	—
Payments on capital lease	—			(23		)	(23		)
Repurchases of vested share-based awards	(71		)	—			(71		)
Net cash provided by (used in) financing activities	$	45,073		$	(45,167	)	$	(94	)
Net increase in cash and cash equivalents	25,000			7,076			32,076
Cash and cash equivalents
Beginning of year	88,737			46,438			135,175
End of period	$	113,737		$	53,514		$	167,251

XML

Organization, Consolidation and Presentation of Financial Statements (Details)	9 Months Ended
	Sep. 30, 2016 casino	Mar. 31, 2017 $ / shares
Organization, Consolidation and Presentation of Financial Statements [Line Items]
Number of casinos (casinos)	11
Z Capital Owner | Affinity Gaming
Business Acquisition [Line Items]
Percentage of common stock acquired	41.10%
Z Capital Owner | Affinity Gaming | Scenario, Forecast
Business Acquisition [Line Items]
Purchase price per share (usd per share) | $ / shares		$ 17.35
Nevada
Organization, Consolidation and Presentation of Financial Statements [Line Items]
Number of casinos (casinos)	5
Colorado
Organization, Consolidation and Presentation of Financial Statements [Line Items]
Number of casinos (casinos)	3
Missouri
Organization, Consolidation and Presentation of Financial Statements [Line Items]
Number of casinos (casinos)	2
Iowa
Organization, Consolidation and Presentation of Financial Statements [Line Items]
Number of casinos (casinos)	1

XML

Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Long-term deferred income taxes	$ 16,821	$ 14,758
Adjustments for New Accounting Principle, Early Adoption
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Current deferred income taxes		1,700
Long-term deferred income taxes		$ 13,100

XML

Property and Equipment, Net (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Property and equipment
Gross	$ 380,313	$ 368,886
Less accumulated depreciation	(136,128)	(116,978)
Total property and equipment, net	244,185	251,908
Building and improvements
Property and equipment
Gross	$ 187,615	185,875
Building and improvements | Minimum
Property and equipment
Estimated Life (Years)	7 years
Building and improvements | Maximum
Property and equipment
Estimated Life (Years)	40 years
Gaming equipment
Property and equipment
Gross	$ 80,752	75,527
Gaming equipment | Minimum
Property and equipment
Estimated Life (Years)	3 years
Gaming equipment | Maximum
Property and equipment
Estimated Life (Years)	10 years
Furniture, fixtures, and equipment
Property and equipment
Gross	$ 52,133	49,571
Furniture, fixtures, and equipment | Minimum
Property and equipment
Estimated Life (Years)	3 years
Furniture, fixtures, and equipment | Maximum
Property and equipment
Estimated Life (Years)	10 years
Leasehold improvements
Property and equipment
Estimated Life (Years)	7 years
Gross	$ 196	196
Land
Property and equipment
Gross	$ 39,513	39,513
Barge
Property and equipment
Estimated Life (Years)	30 years
Gross	$ 15,137	15,019
Construction-in-progress
Property and equipment
Gross	$ 4,967	$ 3,185

XML

Goodwill and Other Intangible Assets - Intangible Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Acquired Finite and Indefinite-lived Intangible Assets by Major Class [Line Items]
Finite-lived intangible assets, Gross carrying amount	$ 15,146	$ 15,146
Accumulated Amortization	(12,857)	(10,981)
Finite-Lived Intangible Assets, Net	2,289	4,165
Indefinite-lived intangible assets	119,877	119,877
Intangibles, Gross Carrying Amount	135,023	135,023
Intangibles, net	122,166	124,042
Gaming license rights
Acquired Finite and Indefinite-lived Intangible Assets by Major Class [Line Items]
Indefinite-lived intangible assets	110,646	110,646
Local tradenames
Acquired Finite and Indefinite-lived Intangible Assets by Major Class [Line Items]
Indefinite-lived intangible assets	9,231	9,231
Customer loyalty programs
Acquired Finite and Indefinite-lived Intangible Assets by Major Class [Line Items]
Finite-lived intangible assets, Gross carrying amount	12,164	12,164
Accumulated Amortization	(10,083)	(8,583)
Finite-Lived Intangible Assets, Net	2,081	3,581
Trademarks
Acquired Finite and Indefinite-lived Intangible Assets by Major Class [Line Items]
Finite-lived intangible assets, Gross carrying amount	2,982	2,982
Accumulated Amortization	(2,774)	(2,398)
Finite-Lived Intangible Assets, Net	$ 208	$ 584

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Goodwill and Other Intangible Assets - Summary of Goodwill (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)
Goodwill [Roll Forward]
Goodwill, beginning balance	$ 48,287
Impairment of goodwill	0
Goodwill, ending balance	48,287
Nevada
Goodwill [Roll Forward]
Goodwill, beginning balance	33,665
Impairment of goodwill	0
Goodwill, ending balance	33,665
Midwest
Goodwill [Roll Forward]
Goodwill, beginning balance	14,622
Impairment of goodwill	0
Goodwill, ending balance	$ 14,622

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Goodwill and Other Intangible Assets - Narrative (Details)	9 Months Ended
	Sep. 30, 2016
Weighted Average
Finite-Lived Intangible Assets [Line Items]
Intangible assets useful life	6 years 6 months
Customer loyalty programs
Finite-Lived Intangible Assets [Line Items]
Intangible assets useful life	7 years
Trademarks
Finite-Lived Intangible Assets [Line Items]
Intangible assets useful life	3 years 9 months

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Other Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Other Assets [Abstract]
Prepaid loan fees, net	$ 6,443	$ 0
Long-term deposits	2,923	2,919
Other assets	478	611
Total	$ 9,844	$ 3,530

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Accrued Expense (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Accrued Liabilities, Current [Abstract]
Progressive jackpot liabilities	$ 3,038	$ 2,984
Accrued payroll and related	8,509	7,441
Slot club point liability	2,907	3,213
Litigation reserve	3,100	3,100
Other accrued expense	6,603	7,420
Total	$ 24,157	$ 24,158

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Long-Term Debt - Summary of debt (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Debt Instrument [Line Items]
Total debt, including current maturities	$ 294,378	$ 375,587
Less: current maturities of long-term debt	(3,000)	(11,383)
Long-term debt, less current portion	291,378	364,204
Term Loan due 2023 | Term Loan Facility
Debt Instrument [Line Items]
Long-term debt, gross	299,250	0
Unamortized debt discount and issuance cost, net	(4,872)	0
Total debt, including current maturities	294,378	0
9% Senior Unsecured Notes due 2018 | Senior Notes
Debt Instrument [Line Items]
Long-term debt, gross	0	200,000
Unamortized debt issuance cost, net	0	(3,028)
Unamortized discount	0	(847)
Total debt, including current maturities	0	196,125
Term loan due 2017 | Senior Notes
Debt Instrument [Line Items]
Long-term debt, gross	0	182,745
Unamortized debt issuance cost, net	0	(3,283)
Total debt, including current maturities	$ 0	$ 179,462

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Long-Term Debt - Narrative (Details) - USD ($)			1 Months Ended	3 Months Ended		6 Months Ended	9 Months Ended
	Jul. 01, 2016	May 09, 2012	Apr. 30, 2016	Sep. 30, 2016	Sep. 30, 2015	Jun. 30, 2016	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Debt Instrument [Line Items]
Actual payment required by the lenders			$ 2,900,000
Payments on long-term debt	$ 94,900,000						$ 383,495,000	$ 0
Loss on extinguishment (or modification) of debt				$ (8,030,000)	$ 0		(8,030,000)	$ 0
Debt instrument unamortized loan fees				4,900,000			$ 4,900,000
Adjustments for New Accounting Pronouncement | Other Assets
Debt Instrument [Line Items]
Unamortized debt issuance costs									$ (1,500,000)
Adjustments for New Accounting Pronouncement | Long-term Debt
Debt Instrument [Line Items]
Unamortized debt issuance costs									$ 1,500,000
Revolving Credit Facility 2016 | Revolving Credit Facility
Debt Instrument [Line Items]
Borrowing capacity	75,000,000
Senior Notes | 9% Senior Unsecured Notes due 2018
Debt Instrument [Line Items]
Proceeds from issuance of debt		$ 200,000,000
Interest rate (percent)		9.00%
Senior Notes | Term loan due 2017
Debt Instrument [Line Items]
Proceeds from issuance of debt		$ 200,000,000
Senior Notes | Term loan due 2017 | LIBOR
Debt Instrument [Line Items]
Interest margin (percent)						4.00%
Senior Notes | Term loan due 2017 | Minimum
Debt Instrument [Line Items]
Interest rate (percent)						1.25%
Senior Notes | 2016 Term Loan | Total net leverage ratio greater than 3.50 to 1.00
Debt Instrument [Line Items]
Mandatory prepayments as a percentage of entity's excess cash flow							50.00%
Senior Notes | 2016 Term Loan | Total net leverage ratio greater than 3.50 to 1.00 | Minimum
Debt Instrument [Line Items]
Total net leverage ratio							3.5
Senior Notes | 2016 Term Loan | Total net leverage ratio greater than 3.00 to 1.00 but less than or equal to 3.50 to 1.00
Debt Instrument [Line Items]
Mandatory prepayments as a percentage of entity's excess cash flow							25.00%
Senior Notes | 2016 Term Loan | Total net leverage ratio greater than 3.00 to 1.00 but less than or equal to 3.50 to 1.00 | Maximum
Debt Instrument [Line Items]
Total net leverage ratio							3.50
Senior Notes | 2016 Term Loan | Total net leverage ratio greater than 3.00 to 1.00 but less than or equal to 3.50 to 1.00 | Minimum
Debt Instrument [Line Items]
Total net leverage ratio							3.00
Senior Notes | 2016 Term Loan | Total net leverage ratio less than or equal to 3.00 to 1.00
Debt Instrument [Line Items]
Mandatory prepayments as a percentage of entity's excess cash flow							0.00%
Revolving Credit Facility
Debt Instrument [Line Items]
Remaining borrowing capacity				35,000,000			$ 35,000,000
Unused capacity commitment fee percentage						0.50%
Term Loan Facility | 2016 Term Loan
Debt Instrument [Line Items]
Borrowing capacity	$ 300,000,000.0
Quarterly repayment (percent)	0.25%
Term Loan Facility | 2016 Term Loan | Minimum
Debt Instrument [Line Items]
Minimum floating rate (percent)	5.00%
Term Loan Facility | 2016 Term Loan | Carrying Value | Level 2
Debt Instrument [Line Items]
Long-term debt, fair value				294,378,000			294,378,000
Term Loan Facility | 2016 Term Loan | Estimated Fair Value | Level 2
Debt Instrument [Line Items]
Long-term debt, fair value				295,497,000			295,497,000
Term Loan Facility | Amended 2016 Credit Agreement
Debt Instrument [Line Items]
Borrowing capacity				$ 30,000,000.0			$ 30,000,000.0

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Income Taxes-Narrative (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Tax Disclosure [Abstract]
Benefit for income taxes	$ 1,943	$ 641	$ (2,063)	$ (4,391)

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Share-based Compensation (Details) - USD ($) $ / shares in Units, $ in Millions	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Equity-based compensation
Number of shares available for issuance	2,000,000
Outstanding and Non-Vested, Weighted Average Grant Date Fair Value Per Share (in dollars per share)
Common stock shares or potential shares outstanding (shares)	1,029,070
Shares available for future issuance (shares)	970,930
Share-based compensation liability	$ 2.3	$ 1.2
Stock Options
Outstanding, Shares
Balance at the beginning of the period (shares)	330,605
Granted (shares)	272,500
Vested (shares)	0
Forfeited (shares)	(36,364)
Balance at the end of the period (shares)	566,741
Outstanding, Weighted Average Exercise Price Per Share (in dollars per share)
Balance at the beginning of the period (usd per share)	$ 10.24
Granted (usd per share)	12.00
Vested (usd per share)	0.00
Forfeited (usd per share)	10.00
Balance at the end of the period (usd per share)	$ 11.10
Restricted Stock
Outstanding and Non-Vested, Shares
Balance at the beginning of the period (shares)	82,290
Granted (shares)	85,082
Vested (shares)	(81,660)
Forfeited (shares)	0
Balance at the end of the period (shares)	85,712
Outstanding and Non-Vested, Weighted Average Grant Date Fair Value Per Share (in dollars per share)
Balance at the beginning of the period (usd per share)	$ 10.54
Granted (usd per share)	12.00
Vested (usd per share)	10.96
Forfeited (usd per share)	0.00
Balance at the end of the period (usd per share)	$ 11.59

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Commitments and Contingencies (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2016	Oct. 31, 2016
Commitments and contingencies
Network liability coverage	$ 5.0
Expense related to network security breach	1.2
Chartwell Advisory Group, Ltd v Flamingo Gaming LLC
Commitments and contingencies
Estimate of possible loss	$ 0.2
Data security breach | Subsequent event
Commitments and contingencies
Partially reimbursement of expenses		$ 0.1

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Commitments and Contingencies Commitments and Contingencies - Environmental Remediation (Details) - USD ($) $ in Thousands	9 Months Ended		61 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016
Commitments and Contingencies Disclosure [Abstract]
Number of years ago that the gas station contaminated the soil	35 years
Environmental remediation expense	$ 63	$ 200	$ 4,000
Amount of coverage	$ 5,000
Insurance recoveries			$ 2,000

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Segment Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Segment Reporting Information, Revenue for Reportable Segment [Abstract]
Gross revenue	$ 104,012	$ 113,939	$ 311,432	$ 337,221
Promotional allowances	(7,584)	(11,989)	(24,596)	(36,782)
Net revenue	96,428	101,950	286,836	300,439
Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Abstract]
Adjusted EBITDA	17,713	16,643	57,291	52,456
Depreciation and Amortization	(7,270)	(7,251)	(21,966)	(21,619)
Share-Based Compensation	(1,224)	(308)	(1,924)	(975)
Write Downs, Reserves and Recoveries	(109)	(37)	(70)	32
Operating income	9,110	9,047	33,331	29,894
Total assets by reportable segment	524,896		524,896		$ 602,264
Cash paid for capital expenditures by reportable segment	5,902	4,442	14,503	11,160
Operating Segments
Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Abstract]
Total assets by reportable segment	465,170		465,170		489,387
Cash paid for capital expenditures by reportable segment	5,811	2,986	13,551	9,105
Nevada
Segment Reporting Information, Revenue for Reportable Segment [Abstract]
Gross revenue	61,891	69,467	184,791	203,221
Promotional allowances	(5,386)	(8,013)	(17,068)	(25,179)
Net revenue	56,505	61,454	167,723	178,042
Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Abstract]
Adjusted EBITDA	12,425	10,153	37,439	31,590
Depreciation and Amortization	(3,653)	(3,722)	(10,953)	(11,108)
Share-Based Compensation	0	0	0	0
Write Downs, Reserves and Recoveries	(113)	(37)	(43)	83
Operating income	8,659	6,394	26,443	20,565
Total assets by reportable segment	207,561		207,561		224,731
Cash paid for capital expenditures by reportable segment	4,579	1,808	9,802	4,807
Midwest
Segment Reporting Information, Revenue for Reportable Segment [Abstract]
Gross revenue	32,452	33,390	97,762	101,128
Promotional allowances	(1,497)	(2,817)	(5,255)	(7,984)
Net revenue	30,955	30,573	92,507	93,144
Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Abstract]
Adjusted EBITDA	10,893	9,321	31,955	29,450
Depreciation and Amortization	(2,020)	(1,919)	(6,062)	(5,712)
Share-Based Compensation	0	0	0	0
Write Downs, Reserves and Recoveries	0	0	(7)	0
Operating income	8,873	7,402	25,886	23,738
Total assets by reportable segment	201,958		201,958		207,414
Cash paid for capital expenditures by reportable segment	947	643	2,879	2,472
Colorado
Segment Reporting Information, Revenue for Reportable Segment [Abstract]
Gross revenue	9,669	11,082	28,879	32,872
Promotional allowances	(701)	(1,159)	(2,273)	(3,619)
Net revenue	8,968	9,923	26,606	29,253
Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Abstract]
Adjusted EBITDA	1,733	1,624	4,351	4,499
Depreciation and Amortization	(1,364)	(1,314)	(4,243)	(3,880)
Share-Based Compensation	0	0	0	0
Write Downs, Reserves and Recoveries	4	0	4	(58)
Operating income	373	310	112	561
Total assets by reportable segment	55,651		55,651		57,242
Cash paid for capital expenditures by reportable segment	285	535	870	1,826
Corporate and other
Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Abstract]
Adjusted EBITDA	(7,338)	(4,455)	(16,454)	(13,083)
Depreciation and Amortization	(233)	(296)	(708)	(919)
Share-Based Compensation	(1,224)	(308)	(1,924)	(975)
Write Downs, Reserves and Recoveries	0	0	(24)	7
Operating income	(8,795)	(5,059)	(19,110)	(14,970)
Total assets by reportable segment	59,726		59,726		$ 112,877
Cash paid for capital expenditures by reportable segment	$ 91	$ 1,456	$ 952	$ 2,055

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Condensed Consolidated Guarantor Data - Balance Sheet (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Dec. 31, 2014
Guarantor Obligations [Line Items]
Guarantor subsidiaries ownership (percentage)	100.00%
Current assets
Cash and cash equivalents	$ 87,121	$ 157,779	$ 167,251	$ 135,175
Restricted cash	608	608
Accounts receivable, net	2,735	3,217
Income tax receivable	23	16
Prepaid expense	7,599	10,079
Inventory	2,328	2,798
Total current assets	100,414	174,497
Property and equipment, net	244,185	251,908
Intercompany receivables	0	0
Investment in subsidiaries	0	0
Other assets, net	9,844	3,530
Intangibles, net	122,166	124,042
Goodwill	48,287	48,287
Total assets	524,896	602,264
LIABILITIES AND OWNERS’ EQUITY
Accounts payable	12,170	13,220
Intercompany payables	0	0
Accrued interest	43	2,327
Accrued expense	24,157	24,158
Current maturities of long-term debt	3,000	11,383
Other current liabilities	0	23
Total current liabilities	39,370	51,111
Long-term debt, less current portion	291,378	364,204
Other liabilities	2,968	1,932
Deferred income taxes	16,821	14,758
Total liabilities	350,537	432,005
Owners' equity
Common stock	20	20
Other equity	174,339	170,239
Total owners’ equity	174,359	170,259
Total liabilities and owners’ equity	524,896	602,264
Eliminating Entries
Current assets
Cash and cash equivalents	0	0
Restricted cash	0	0
Accounts receivable, net	0	0
Income tax receivable	0	0
Prepaid expense	0	0
Inventory	0	0
Total current assets	0	0
Property and equipment, net	0	0
Intercompany receivables	(154,795)	(110,150)
Investment in subsidiaries	(572,895)	(551,953)
Other assets, net	0	0
Intangibles, net	0	0
Goodwill	0	0
Total assets	(727,690)	(662,103)
LIABILITIES AND OWNERS’ EQUITY
Accounts payable	0	0
Intercompany payables	(154,795)	(110,150)
Accrued interest	0	0
Accrued expense	0	0
Current maturities of long-term debt	0	0
Other current liabilities		0
Total current liabilities	(154,795)	(110,150)
Long-term debt, less current portion	0	0
Other liabilities	0	0
Deferred income taxes	0	0
Total liabilities	(154,795)	(110,150)
Owners' equity
Common stock	0	0
Other equity	(572,895)	(551,953)
Total owners’ equity	(572,895)	(551,953)
Total liabilities and owners’ equity	(727,690)	(662,103)
Affinity Gaming (Issuer)
Current assets
Cash and cash equivalents	48,783	106,384	113,737	88,737
Restricted cash	469	469
Accounts receivable, net	161	220
Income tax receivable	23	16
Prepaid expense	779	1,813
Inventory	0	0
Total current assets	50,215	108,902
Property and equipment, net	1,091	2,002
Intercompany receivables	0	0
Investment in subsidiaries	572,895	551,953
Other assets, net	8,421	1,974
Intangibles, net	0	0
Goodwill	0	0
Total assets	632,622	664,831
LIABILITIES AND OWNERS’ EQUITY
Accounts payable	4,372	3,483
Intercompany payables	154,795	110,150
Accrued interest	43	2,327
Accrued expense	2,102	1,455
Current maturities of long-term debt	3,000	11,383
Other current liabilities		0
Total current liabilities	164,312	128,798
Long-term debt, less current portion	291,378	364,204
Other liabilities	2,405	1,397
Deferred income taxes	168	173
Total liabilities	458,263	494,572
Owners' equity
Common stock	20	20
Other equity	174,339	170,239
Total owners’ equity	174,359	170,259
Total liabilities and owners’ equity	632,622	664,831
Guarantor Subsidiaries
Current assets
Cash and cash equivalents	38,338	51,395	$ 53,514	$ 46,438
Restricted cash	139	139
Accounts receivable, net	2,574	2,997
Income tax receivable	0	0
Prepaid expense	6,820	8,266
Inventory	2,328	2,798
Total current assets	50,199	65,595
Property and equipment, net	243,094	249,906
Intercompany receivables	154,795	110,150
Investment in subsidiaries	0	0
Other assets, net	1,423	1,556
Intangibles, net	122,166	124,042
Goodwill	48,287	48,287
Total assets	619,964	599,536
LIABILITIES AND OWNERS’ EQUITY
Accounts payable	7,798	9,737
Intercompany payables	0	0
Accrued interest	0	0
Accrued expense	22,055	22,703
Current maturities of long-term debt	0	0
Other current liabilities		23
Total current liabilities	29,853	32,463
Long-term debt, less current portion	0	0
Other liabilities	563	535
Deferred income taxes	16,653	14,585
Total liabilities	47,069	47,583
Owners' equity
Common stock	0	0
Other equity	572,895	551,953
Total owners’ equity	572,895	551,953
Total liabilities and owners’ equity	$ 619,964	$ 599,536

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Condensed Consolidated Guarantor Data - Statement of Operations (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
REVENUE
Casino	$ 70,252	$ 74,414	$ 211,583	$ 225,016
Food and beverage	9,344	12,179	30,552	36,222
Lodging	6,302	6,672	18,731	20,894
Fuel and retail	14,347	16,904	39,877	45,156
Other	3,767	3,770	10,689	9,933
Total revenue	104,012	113,939	311,432	337,221
Promotional allowances	(7,584)	(11,989)	(24,596)	(36,782)
Net revenue	96,428	101,950	286,836	300,439
EXPENSE
Casino	26,000	29,271	79,562	88,961
Food and beverage	9,439	12,022	30,609	35,649
Lodging	4,462	4,345	13,015	12,451
Fuel and retail	9,696	12,601	27,099	33,540
Other	1,818	1,961	5,281	5,329
General and administrative	19,962	20,652	57,525	58,970
Depreciation and amortization	7,270	7,251	21,966	21,619
Corporate	8,562	4,763	18,378	14,058
Write downs, reserves and recoveries	109	37	70	(32)
Total expense	87,318	92,903	253,505	270,545
Operating income	9,110	9,047	33,331	29,894
Other income (expense)
Interest expense, net	(4,245)	(7,692)	(19,566)	(22,950)
Intercompany interest income	0	0	0	0
Intercompany interest expense	0	0	0	0
Loss on extinguishment (or modification) of debt	8,030	0	8,030	0
Income from equity investments in subsidiaries	0	0	0	0
Total other expense, net	(12,275)	(7,692)	(27,596)	(22,950)
Income (loss) before income tax	(3,165)	1,355	5,735	6,944
Benefit for income taxes	1,943	641	(2,063)	(4,391)
Net income (loss)	(1,222)	1,996	3,672	2,553
Eliminating Entries
REVENUE
Casino	0	0	0	0
Food and beverage	0	0	0	0
Lodging	0	0	0	0
Fuel and retail	0	0	0	0
Other	0	0	0	0
Total revenue	0	0	0	0
Promotional allowances	0	0	0	0
Net revenue	0	0	0	0
EXPENSE
Casino	0	0	0	0
Food and beverage	0	0	0	0
Lodging	0	0	0	0
Fuel and retail	0	0	0	0
Other	0	0	0	0
General and administrative	0	0	0	0
Depreciation and amortization	0	0	0	0
Corporate	0	0	0	0
Write downs, reserves and recoveries	0	0	0	0
Total expense	0	0	0	0
Operating income	0	0	0	0
Other income (expense)
Interest expense, net	0	0	0	0
Intercompany interest income	(4,254)	(7,737)	(19,719)	(23,078)
Intercompany interest expense	4,254	7,737	19,719	23,078
Loss on extinguishment (or modification) of debt	0		0
Income from equity investments in subsidiaries	(8,737)	(6,474)	(20,942)	(8,010)
Total other expense, net	(8,737)	(6,474)	(20,942)	(8,010)
Income (loss) before income tax	(8,737)	(6,474)	(20,942)	(8,010)
Benefit for income taxes	0	0	0	0
Net income (loss)	(8,737)	(6,474)	(20,942)	(8,010)
Affinity Gaming (Issuer)
REVENUE
Casino	0	0	0	0
Food and beverage	0	0	0	0
Lodging	0	0	0	0
Fuel and retail	0	0	0	0
Other	0	0	0	0
Total revenue	0	0	0	0
Promotional allowances	0	0	0	0
Net revenue	0	0	0	0
EXPENSE
Casino	0	0	0	0
Food and beverage	0	0	0	0
Lodging	0	0	0	0
Fuel and retail	0	0	0	0
Other	0	0	0	0
General and administrative	0	0	0	0
Depreciation and amortization	233	296	708	919
Corporate	8,562	4,763	18,378	14,058
Write downs, reserves and recoveries	0	0	24	(7)
Total expense	8,795	5,059	19,110	14,970
Operating income	(8,795)	(5,059)	(19,110)	(14,970)
Other income (expense)
Interest expense, net	(4,245)	(7,692)	(19,566)	(22,950)
Intercompany interest income	4,254	7,737	19,719	23,078
Intercompany interest expense	0	0	0	0
Loss on extinguishment (or modification) of debt	8,030		8,030
Income from equity investments in subsidiaries	8,737	6,474	20,942	8,010
Total other expense, net	716	6,519	13,065	8,138
Income (loss) before income tax	(8,079)	1,460	(6,045)	(6,832)
Benefit for income taxes	6,857	536	9,717	9,385
Net income (loss)	(1,222)	1,996	3,672	2,553
Guarantor Subsidiaries
REVENUE
Casino	70,252	74,414	211,583	225,016
Food and beverage	9,344	12,179	30,552	36,222
Lodging	6,302	6,672	18,731	20,894
Fuel and retail	14,347	16,904	39,877	45,156
Other	3,767	3,770	10,689	9,933
Total revenue	104,012	113,939	311,432	337,221
Promotional allowances	(7,584)	(11,989)	(24,596)	(36,782)
Net revenue	96,428	101,950	286,836	300,439
EXPENSE
Casino	26,000	29,271	79,562	88,961
Food and beverage	9,439	12,022	30,609	35,649
Lodging	4,462	4,345	13,015	12,451
Fuel and retail	9,696	12,601	27,099	33,540
Other	1,818	1,961	5,281	5,329
General and administrative	19,962	20,652	57,525	58,970
Depreciation and amortization	7,037	6,955	21,258	20,700
Corporate	0	0	0	0
Write downs, reserves and recoveries	109	37	46	(25)
Total expense	78,523	87,844	234,395	255,575
Operating income	17,905	14,106	52,441	44,864
Other income (expense)
Interest expense, net	0	0	0	0
Intercompany interest income	0	0	0	0
Intercompany interest expense	(4,254)	(7,737)	(19,719)	(23,078)
Loss on extinguishment (or modification) of debt	0		0
Income from equity investments in subsidiaries	0	0	0	0
Total other expense, net	(4,254)	(7,737)	(19,719)	(23,078)
Income (loss) before income tax	13,651	6,369	32,722	21,786
Benefit for income taxes	(4,914)	105	(11,780)	(13,776)
Net income (loss)	$ 8,737	$ 6,474	$ 20,942	$ 8,010

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Condensed Consolidated Guarantor Data - Cash Flows (Details) - USD ($) $ in Thousands		9 Months Ended
	Jul. 01, 2016	Sep. 30, 2016	Sep. 30, 2015
Guarantor Obligations [Line Items]
Net cash (used in) provided by operating activities		$ 36,133	$ 43,314
Cash flows from investing activities:
Proceeds from sale of property and equipment		22	16
Payment on disposition of property and equipment		40	0
Purchases of property and equipment		(14,503)	(11,160)
Net cash used in investing activities		(14,521)	(11,144)
Cash flows from financing activities:
Change in intercompany accounts		0	0
Payments on capital lease		(23)	(23)
Payments on long-term debt	$ (94,900)	(383,495)	0
Proceeds from long term debt		298,500	0
Loan origination fees		(6,808)	0
Repurchases of common stock		(371)	0
Repurchases of vested share-based awards		(73)	(71)
Net cash used in financing activities		(92,270)	(94)
Net (decrease) increase in cash and cash equivalents		(70,658)	32,076
Beginning of period		157,779	135,175
End of period		87,121	167,251
Affinity Gaming (Issuer)
Guarantor Obligations [Line Items]
Net cash (used in) provided by operating activities		(29,053)	(18,029)
Cash flows from investing activities:
Proceeds from sale of property and equipment		0	11
Payment on disposition of property and equipment		0
Purchases of property and equipment		(952)	(2,055)
Net cash used in investing activities		(952)	(2,044)
Cash flows from financing activities:
Change in intercompany accounts		64,651	45,144
Payments on capital lease		0	0
Payments on long-term debt		(383,495)
Proceeds from long term debt		298,500
Loan origination fees		(6,808)
Repurchases of common stock		(371)
Repurchases of vested share-based awards		(73)	(71)
Net cash used in financing activities		(27,596)	45,073
Net (decrease) increase in cash and cash equivalents		(57,601)	25,000
Beginning of period		106,384	88,737
End of period		48,783	113,737
Guarantor Subsidiaries
Guarantor Obligations [Line Items]
Net cash (used in) provided by operating activities		65,186	61,343
Cash flows from investing activities:
Proceeds from sale of property and equipment		22	5
Payment on disposition of property and equipment		40
Purchases of property and equipment		(13,551)	(9,105)
Net cash used in investing activities		(13,569)	(9,100)
Cash flows from financing activities:
Change in intercompany accounts		(64,651)	(45,144)
Payments on capital lease		(23)	(23)
Payments on long-term debt		0
Proceeds from long term debt		0
Loan origination fees		0
Repurchases of common stock		0
Repurchases of vested share-based awards		0	0
Net cash used in financing activities		(64,674)	(45,167)
Net (decrease) increase in cash and cash equivalents		(13,057)	7,076
Beginning of period		51,395	46,438
End of period		$ 38,338	$ 53,514

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Subsequent Events (Details) - Affinity Gaming - Z Capital Owner - Subsequent event	Oct. 13, 2016 USD ($)
Chief Executive Officer
Subsequent Event [Line Items]
Cash provided	$ 1,900,000
Chief Financial Officer
Subsequent Event [Line Items]
Cash provided	$ 52,100