Note 5. Investment in Unconsolidated Affiliates

Hotel Partnership. The Company holds a 42.1% variable interest in a partnership with other investors to develop a new 118-room Hampton Inn & Suites hotel to be developed at Scioto Downs. Pursuant to the terms of the partnership agreement, the Company contributed $1 million of cash and 2.4 acres of a leasehold immediately adjacent to the Brew Brothers microbrewery and restaurant at Scioto Downs. The partnership will be responsible for the construction of the hotel at an estimated cost of $15.0 million and other investor members have been identified to operate the hotel upon completion. The Company is not the primary beneficiary, and therefore, the entity is accounted for under the equity method of accounting. At December 31, 2015, the Company’s investment in the partnership was $1.3 million, classified as “Investment in and advances to unconsolidated affiliates” in the consolidated balance sheets, representing the Company’s maximum exposure to loss.

Silver Legacy Joint Venture. Effective March 1, 1994, ELLC and Galleon, (each a “Partner” and, together, the “Partners”), entered into the Silver Legacy Joint Venture pursuant to a joint venture agreement (the “Joint Venture Agreement”) to develop the Silver Legacy. The Silver Legacy consists of a casino and hotel located in Reno, Nevada, which began operations on July 28, 1995. Prior to the Acquisition Date, each partner owned a 50% interest in the Silver Legacy Joint Venture. Prior to the Merger Date, the Company owned a 48.1% interest in the Silver Legacy Joint Venture by means of its 96.2% ownership of ELLC, which owned a 50% interest in the Silver Legacy Joint Venture. The noncontrolling interest’s share of $103,000 in income was reflected in the accompanying consolidated statements of operations for the year ended December 31, 2014.

On the Acquisition Date, Resorts consummated the acquisition of the other 50% membership interest in the Silver Legacy Joint Venture owned by Galleon, Inc. pursuant to the Purchase Agreement and also exercised its right to acquire the 3.8% interest in ELLC held by certain affiliates of the Company. As a result of these transactions, ELLC became a wholly-owned subsidiary of ERI and Silver Legacy became an indirect wholly‑owned subsidiary of ERI. In conjunction with the Acquisition, we recorded a $35.6 million gain related to the valuation of our pre-acquisition investment in the Silver Legacy Joint Venture.

As consideration for the noncontrolling interest, the Company issued 373,135 shares of common stock. Subsequent to this action the Company owned 100% of ELLC. The Company valued the shares at the market price on the day the shares were issued to the noncontrolling interest holders. The value of the total consideration paid was $3.6 million.

In December 2014, Silver Legacy deposited $5.0 million of cash into a cash collateral account securing its obligations under its credit agreement, which reduced the credit support obligation of each of ELLC and Galleon to $2.5 million each and resulted in the return of $2.5 million of the $5.0 million of cash collateral that Resorts previously provided as credit support for Silver Legacy’s obligations under its credit agreement. In August 2015, the remaining credit support obligation was released upon Silver Legacy’s deposit of an additional $5.0 million. The collateral deposit was included as noncurrent restricted cash in the amounts of $2.5 million in the accompanying consolidated balance sheets at December 31, 2014.

On December 16, 2013, the Silver Legacy Joint Venture entered into a new senior secured term loan facility totaling $90.5 million (the “New Silver Legacy Credit Facility”) to refinance its indebtedness under its then existing senior secured term loan and Silver Legacy Second Lien Notes. The New Silver Legacy Credit Facility was scheduled to mature on November 16, 2017, which was the maturity date of the original Silver Legacy credit facility. In connection with the Circus Reno/Silver Legacy Purchase, all amounts outstanding under the Silver Legacy Credit Facility were paid in full and the cash collateral securing such obligations were released.

Equity in income related to the Silver Legacy Joint Venture for the 2015 period prior to the Acquisition Date and for the years ended December 31, 2014 and 2013 amounted to $3.5 million, $2.0 million and 2.3 million, respectively.

Summarized information for the Company’s investment in and advances to the Silver Legacy Joint Venture for 2015 prior to its acquisition by the Company and for the years ended December 31, 2014 and 2013 are as follows (in thousands):


	Period from, January 1, 2015 through November 23,		For the year ended December 31,
	2015		2014		2013
Beginning balance	$	14,009	$	13,081	$	(2,198)
Equity in income of unconsolidated affiliate		3,460		1,985		2,261
Gain on early extinguishment of debt of unconsolidated affiliate		—		—		11,980
Gain on termination of supplemental executive retirement plan of unconsolidated affiliate		—		715		—
Other comprehensive (loss) income-minimum pension liability adjustment of unconsolidated affiliate		—		(1,772)		1,772
Valuation of unconsolidated affiliate		35,582		—		—
Net acquisition of non controlling interest		3,449		—		—
Member’s distribution		—		—		(734)
Ending balance	$	56,500	$	14,009	$	13,081

Summarized balance sheet information for the Silver Legacy Joint Venture is as follows (in thousands):


	December 31,
	2014

Current assets	$	30,563
Property and equipment, net		190,592
Other assets, net		6,412
Total assets	$	227,567
Current liabilities	$	18,707
Long-term liabilities		89,322
Partners’ equity		119,538
Total liabilities and partners’ equity	$	227,567

Summarized results of operations for the Silver Legacy Joint Venture are as follows (in thousands):



	Period from, January 1, 2015 through November 23,		For the year ended December 31,
	2015		2014		2013
Net revenues	$	117,029	$	127,095	$	125,841
Operating expenses		(90,608)		(112,086)		(112,558)
Operating income		26,421		15,009		13,283
Other income (expense)		(19,226)		(9,607)		15,606
Reorganization items		—		—		(407)
Net income	$	7,195	$	5,402	$	28,482

Tamarack. Prior to the Merger, Resorts owned a 21.3% interest in Tamarack, which owned and operated Tamarack Junction, a small casino in south Reno, Nevada. Donald L. Carano (“Carano”), who was the presiding member of Resorts’ Board of Managers and the Chief Executive Officer of Resorts, owned a 26.3% interest in Tamarack. Four members of Tamarack, including Resorts and three unaffiliated third parties, managed the business and affairs of Tamarack Junction. At December 31, 2013, Resorts’ financial investment in Tamarack was $5.3 million. Resorts’ capital contribution to Tamarack represented its proportionate share of the total capital contributions of the members. Resorts’ investment in Tamarack was accounted for using the equity method of accounting. Equity in income related to Tamarack for the period prior to its disposition in 2014 and for the year ended December 31, 2013 of $0.7 million and $1.1 million, respectively, is included as a component of operating income.

On September 1, 2014, and as a condition to closing the Merger, Resorts distributed to HoldCo and HoldCo subsequently distributed to its members, including members of the Carano family, on a pro rata basis Resorts’ interest in Tamarack. No gain or loss was recognized in the accompanying unaudited consolidated financial statements as a result of such distribution because the distribution was in the amount of the book value of Tamarack. The distributed interests in Tamarack had a carrying amount of $5.5 million.

Summarized information for the Company’s equity in Tamarack for 2014 prior to its disposition and for the year ended December 31, 2013 is as follows (in thousands):


	Period from,
	January 1, 2014		For the year ended
	through		December 31,
	September 1, 2014		2013

Beginning balance	$	5,268	$	5,066
Member’s distribution		(509)		(892)
Equity in net income of unconsolidated affiliate		720		1,094
Distribution of investment		(5,479)		—
Ending balance	$	—	$	5,268

Summarized unaudited results of operations for Tamarack are as follows (in thousands):


	Period from, January 1, 2014		For the year ended
	through		December 31,
	September 1, 2014		2013
Net revenues	$	12,908	$	21,548
Operating expenses		(9,431)		(16,172)
Operating income		3,477		5,376
Other expense		(45)		(97)
Net income	$	3,432	$	5,279