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Investments and Acquisition Activities
3 Months Ended
Mar. 31, 2013
Equity Method Investments and Joint Ventures [Abstract]  
Investments and Acquisition Activities
Note 6—Investments and Acquisition Activities

ACDL Investment: In August 2011, through a wholly-owned subsidiary, we invested $95 million in ACDL in exchange for a minority ownership interest, which is accounted for under the equity method, and the right to manage a future resort to be built in Vietnam. Including this original investment and through various capital raising transactions since then, we have invested a total of approximately $111.8 million and currently hold approximately a 25% equity interest, assuming conversion of all preferred stock, exercise of all warrants and exercise of certain options. Entities affiliated with Harbinger Capital Partners are the majority shareholders of ACDL. Because the financial statements of ACDL are not available to incorporate with our financial statements in the applicable time period, we record our allocable share of income or loss on a one-quarter lag.

ACDL is the owner and developer of the Ho Tram Strip beachfront complex of destination integrated resorts and residential developments in southern Vietnam. The Ho Tram Strip project is located approximately 80 miles southeast of Ho Chi Minh City. The first phase of the Ho Tram Strip is to feature 541 luxury guestrooms and suites, a full spectrum of world-class restaurants and amenities, VIP accommodations, a conference center, golf course, and an entertainment area featuring 90 live table games and 500 electronic games. The second integrated resort of the Ho Tram Strip, for which we have secured a management agreement, will be jointly developed by ACDL and us, and owned by ACDL. We expect that the second integrated resort, which would be branded as a distinct premium resort, would be similar in project scope to the first phase of the first resort described above.

ACDL's wholly-owned Vietnamese subsidiary, Ho Tram Project Company Limited (“HTP”), is currently constructing and developing the series of resorts of the Ho Tram Strip, and the first phase of the project is substantially complete, except for the golf course. As a minority shareholder of ACDL, our ability to control the management, record keeping, operations and decision making of ACDL is limited. Since our initial investment, we invested an additional $16.8 million in ACDL as part of additional capital raises of approximately $66.5 million. In addition to this capital raise, ACDL completed an additional $30 million capital raise of debt and warrants in December 2012 with the majority shareholder. We did not participate in this capital raise, and our ownership was diluted. We retain an option to participate in our pro-rata share of the $30 million capital raise, which would offset our dilution from that capital raise if exercised.

In August 2012, we entered into a stock option agreement with ACDL. Under the terms of the stock option agreement, we were granted an option to purchase common shares of ACDL at a predetermined exercise price. The option granted by ACDL was made to support certain administrative services we would render to ACDL under a yet-to-be negotiated services agreement. The option vests and becomes exercisable on a pro-rata daily basis over a 5-year term from the grant date. Portions of the option that are not vested and exercisable are subject to cancellation and termination provisions outlined within the stock option agreement.

In 2008, ACDL received an Investment Certificate from the Government of Vietnam for the development of the Ho Tram Strip, which outlined deadlines to complete phases of the development, and some of these deadlines were not met. The Investment Certificate allows for, among other things, large scale hotel complexes with a casino amenity in the resort. HTP obtained an Official Letter from the Provincial Government extending the deadline for developing the Ho Tram Strip under the Investment Certificate. However, this Official Letter did not constitute an amendment to the Investment Certificate.

In October 2012, HTP's lenders, a consortium of Vietnamese banks, suspended funding under a $175 million credit facility at least in part due to lack of an amendment to the Investment Certificate. As of December 31, 2012, approximately $83.7 million was drawn under the HTP's credit facility. The remaining funds under this facility, together with additional funding from outside sources, is needed to complete and open the first phase of the first resort.

MGM Hospitality International Holdings Limited (“MGM”) was providing and agreed to provide pre-opening services and to manage the first integrated resort of the Ho Tram Strip under a management agreement, dated November 17, 2008, between MGM and HTP. On March 4, 2013, MGM provided notice that it was exercising its right to terminate the management agreement as a result of the failure to achieve certain pre-opening milestones before March 1, 2013, including receipt of the amendment to the Investment Certificate. The first integrated resort has been substantially completed and has been branded with the MGM brand. MGM and the MGM brand are highly regarded in Asia for gaming resorts and were important components of the project.

In April 2013, the anticipated amendment to the Investment Certificate was granted, which extends further the deadlines for completing the first phase of the first resort and the golf course. Among other things, the amendment confirms the project's entitlement to operate prized games upon completion and opening of the first phase of the first resort. The amended Investment Certificate provides that the full gaming entitlement of the first and second gaming resorts is subject to the completion of certain phases of the overall project by certain deadlines. If those deadlines are not met, the gaming entitlement could be significantly scaled back.

It is uncertain whether HTP's lenders will resume full funding to the project despite the fact that the amendment to the Investment Certificate was granted. The failure to receive the amendment to the Investment Certificate or to resolve other regulatory matters that delayed the opening of the first phase of the first resort beyond the first quarter of 2013, as originally expected, led, in part, to MGM's decision to terminate the management agreement. It is currently uncertain whether HTP will open the first resort under HTP management or with a third party contractor, or when such opening may occur. Additional costs will be incurred to rebrand the first resort given MGM's departure, which costs are unbudgeted.

During the fourth quarter of 2012, we concluded that the carrying value of our investment in ACDL experienced a decline in value, and we, therefore, recorded an impairment of approximately $25 million as of December 31, 2012. To estimate fair value, we used a discounted cash flow analysis based on estimated future results of ACDL and market indicators of terminal year capitalization rates. Since the beginning of March 2013, certain events have occurred with respect to our investment in ACDL, including, but not limited to, the termination of MGM's management agreement and the related issue of determining the manner in which the property will be opened and operated, further governmental and regulatory approvals needed for the project, the uncertainty of the lenders resuming full funding of the project, and additional capital needs of ACDL. The amendment to the Investment Certificate includes deadlines, which if not met, may result in a reduction of allowed gaming positions. As a result, we recorded an other-than-temporary impairment of approximately $92.2 million, impairing the remaining asset carrying value of our investment in ACDL. As of March 31, 2013, we discontinued applying the equity method for our investment in ACDL and will not provide for additional losses until our share of future ACDL net income, if any, equals the share of ACDL net losses not recognized during the period the equity method was suspended.

Equity Method Investment: During the first quarter of 2012, we committed to invest $2.0 million in Farmworks, a land re-utilization project in downtown St. Louis. As of March 31, 2013, we have invested $0.4 million included in "Equity method investment" in our unaudited Condensed Consolidated Balance Sheet. We received credit for approximately $10.0 million towards our obligation to invest $50.0 million in St. Louis as a result of this transaction. This investment is accounted for under the equity method.

Retama Park Racetrack: On April 25, 2012, we acquired certain bonds (the "RDC Bonds") and promissory notes (the "RDC Notes") issued by the Retama Development Corporation ("RDC") and a 50% interest in additional rights to operate and receive revenue from expanded gaming in the future (the "Gaming Enhancement Rights" and together with the RDC Bonds and RDC Notes, the "Acquired Property") for cash consideration of $7.8 million. On January 29, 2013, we acquired 75.5% of the equity of PRP through a contribution of a majority of the Acquired Property, cash consideration of $16.7 million, and commitments to future capital funding up to $2.0 million annually over the next five years. Cash consideration in the transaction was used primarily to refinance existing RDC indebtedness and to provide RDC working capital.

The acquisition of 75.5% of the equity of PRP was accounted for as a business combination. The purchase price for the equity of PRP was allocated based upon estimated fair values of the assets, with the excess of the purchase price over the estimated fair value of the assets acquired recorded as goodwill. The provisional purchase price allocation includes goodwill of $3.3 million and other intangibles of $5.0 million. The allocation of fair value is preliminary and may be adjusted up to one year after the acquisition date.

As of March 31, 2013, we held $9.0 million in promissory notes issued by RDC, included in "Other Assets, net" in our unaudited Condensed Consolidated Balance Sheet, which have long-term contractual maturities and are collateralized by Retama Park Racetrack assets. The contractual terms of these promissory notes include interest payments due at maturity. Uncertainty exists as to RDC's ability to make these interest payments, therefore we have not recorded accrued interest on these promissory notes.

Heartland Poker Tour: On July 2, 2012, we closed on an agreement to purchase substantially all of the assets of Federated Sports & Gaming, Inc. and Federated Heartland, Inc., owners of the Heartland Poker Tour and other related assets and intellectual property, for total consideration of $4.6 million. The purchase was accounted for as a business combination. The purchase price for the assets of Federated Sports & Gaming Inc. and Federated Heartland, Inc. was allocated based upon estimated fair values of the assets, with the excess of estimated fair value over the net book value of the assets acquired recorded as goodwill. The allocation of fair value was finalized during the fourth quarter of 2012.

Investments Securities: As of March 31, 2013, we held, at amortized cost, $4.5 million in sales tax increment bonds, with long-term contractual maturities, issued through the City of Reno, Nevada, and $11.4 million in local government corporation bonds, with long-term contractual maturities, issued by RDC, a local government corporation of the City of Selma, Texas, included in "Other Assets, net" in our unaudited Condensed Consolidated Balance Sheet. It is not likely that we will be required to sell these investments prior to the recovery of the amortized cost.