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TROPICANA ENTERTAINMENT : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)

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02/24/2017 | 11:12pm CET

Overview

We are an owner and operator of regional casino and entertainment properties
located in the United States and one hotel, timeshare and casino resort property
located on the island of Aruba. We also provide management services to the Taj
Mahal in Atlantic City, which is a related party to the Company, that was closed
in October 2016. Our United States properties include two casinos in Nevada and
one casino in each of Indiana, Louisiana, Mississippi, Missouri and New Jersey.
We primarily cater to local and regional guests to provide a fun and exciting
gaming environment with high quality and high value lodging, dining, retail and
entertainment amenities. Our properties offer a broad array of gaming options
specifically tailored for our patrons in each market. As of December 31, 2016,
our properties collectively included approximately 392,000 square feet of gaming
space with approximately 7,900 slot machines, 270 table games and 5,500 hotel
rooms.
We view each property as an operating segment which we aggregate by region in
order to present our reportable segments: (i) East, (ii) Central, (iii) West and
(iv) South. Our operations by region include the following:
• East-Tropicana AC located in Atlantic City, New Jersey;


• Central-Tropicana Evansville located in Evansville, Indiana; and Lumière

Place located in St. Louis, Missouri;

• West-Tropicana Laughlin located in Laughlin, Nevada; and MontBleu located

in South Lake Tahoe, Nevada; and

• South-Belle of Baton Rouge located in Baton Rouge, Louisiana; Tropicana

Greenville located in Greenville, Mississippi; and Tropicana Aruba located

       in Palm Beach, Aruba.



In addition, the Company, through our wholly-owned subsidiary, TropWorld Games
LLC, operates an online social gaming site. The operating results of all other
subsidiaries of the Company are reported under the heading of "Corporate and
other" as they have been determined to not meet the aggregation criteria as
separately reportable segments.

In addition, in July 2014 the Company sold and concurrently leased back River
Palms located in Laughlin, Nevada and by September 2014 had terminated the lease
and discontinued its operations at the property. River Palms is presented as
discontinued operations in the accompanying financial statements for 2014 and is
not included in management's discussion and analysis of financial condition and
results of operations.

Further, on April 1, 2014 we acquired Lumière Place Casino, HoteLumière, the
Four Seasons Hotel St. Louis and related land parcels in St. Louis, Missouri
(collectively, "Lumière Place").
We are a Delaware corporation formed on May 11, 2009 to acquire certain assets
of TEH and certain of its subsidiaries pursuant to the Plan. We also acquired CP
Vicksburg (which we sold in March 2011), JMBS Casino and CP Laughlin Realty, all
of which were part of the Plan. In addition, we acquired certain assets of
Adamar, an unconsolidated subsidiary of TEH, including Tropicana AC.
The Restructuring Transactions were consummated and became effective on the
Effective Date, March 8, 2010, at which time we acquired Tropicana AC and
several of the Predecessors' gaming properties and related assets. Prior to the
Effective Date, we conducted no business, other than in connection with the
reorganization of the Predecessors and the acquisition of Tropicana AC, and had
no material assets or liabilities.
Presentation
References in this Annual Report on Form 10-K to "Successor" refer to the
Company on or after March 8, 2010, after giving effect to (i) the issuance of
12,098,053 shares of common stock and Ordinary Warrants in accordance with the
Plan, (ii) the entry into our Exit Facility in accordance with the Plan, which
included the issuance of Penny Warrants, (iii) the application of fresh-start
reporting and (iv) the issuance of 12,901,947 shares of our common stock related
to the acquisition of Tropicana AC. References to "Predecessors" refer to the
Predecessors prior to March 8, 2010.
Results of Operations
Our financial results are highly dependent upon the number of customers that we
attract to our facilities and the amounts those customers spend per visit.
Additionally, our operating results may be affected by, among other things,
overall economic conditions affecting the discretionary spending of our
customers, competitive factors, gaming tax increases and other regulatory
changes, the opening or acquisition of new gaming operations, our ability to
reinvest in our properties, potential future exposure for liabilities of the
Predecessors that we assumed, our limited operating history, and general public
sentiment regarding travel. We may experience significant fluctuations in our
quarterly operating results due to seasonality and other factors. Historically,

                                       35
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our operating results are the strongest in the third quarter and the weakest in
the fourth quarter. In addition, weather and long-weekend holidays affect our
operating results.
Casino revenues are one of our main performance indicators and account for a
significant portion of our net revenues. Casino revenues represent the
difference between wins and losses from gaming activities such as slot machines
and table games. Key volume indicators include table game volumes (drop) and
slot volumes (handle), which refer to amounts wagered by our customers. Win or
hold percentage represents the percentage of the amounts wagered by the customer
that is won by the casino, which is not fully controllable by us, and recorded
as casino revenue. Most of our revenues are cash-based, through customers
wagering with cash or chips or paying for non-gaming services with cash or
credit cards, and therefore are not subject to any significant or complex
estimation. As a result, fluctuations in net revenues have a direct impact on
cash flows from operating activities. Other performance indicators include hotel
occupancy, which is a volume indicator for hotels, and the average daily rate,
which is a price indicator for the amount customers paid for hotel rooms.
The following significant factors and trends should be considered in analyzing
our operating performance:
•      Lumiére Place. In April 2014, we purchased Lumiére Place Casino,

HoteLumiére, the Four Seasons Hotel St. Louis and related excess land

parcels in St. Louis, Missouri (collectively, "Lumiére Place") for a cash

purchase price of $261.3 million, which includes an adjustment for working

       capital as of the acquisition date.


•      Table games hold percentages. Casino revenues can vary because of table
       games hold percentages and differences in the odds for different table
       games. A variety of factors may impact table games hold, including

variances in the amount of high end play. For the year ended December 31,

2016, the Company's total table games hold was 18.5%, compared to 16.8%

for the year ended December 31, 2015 and 17.6% for the year ended December

31, 2014.

• Atlantic City Market. Between January 2014 and October 2016, five Atlantic

City casino hotels closed as a result of regional competitive market

pressures and other factors. The Atlantic City gaming market experienced

significant revenue declines in 2014 and 2015 due, in part, to these

closures. For the years ended December 31, 2015 and 2014, Atlantic City

experienced year over year declines in gaming revenues (including internet

gaming) of 6.5% and 4.5%, respectively. In 2016, the Atlantic City gaming

market experienced year over year growth in casino revenue (including

revenue from internet gaming, which commenced in 2013) of 1.5%. Although

Tropicana AC has increased market share as a result, in part, of the

closings, the Atlantic City operating climate remains difficult. The seven

remaining casino hotels located in Atlantic City, including Tropicana AC,

       compete with each other on the basis of customer service, quality and
       extent of amenities and promotional offers. In addition, in November 2016
       the State of New Jersey commenced a takeover of certain Atlantic City
       local government operations under a law enacted in May 2016, which gives

the State the ability to direct certain financial and operational matters

on behalf of the city in an effort to stabilize and strengthen its

financial situation. The State's ability to stabilize Atlantic City's

finances and restructure its debt is an important step toward improving

the Atlantic City market.

• Debt and Interest Expense. In November 2013, we entered into the credit

facilities (the "Credit Facilities"), which consist of (i) a senior

secured first lien term loan facility in an aggregate principal amount of

$300 million issued at a discount of 0.5% (the "Term Loan Facility") and

(ii) a senior secured first lien revolving credit facility in an aggregate

principal amount of $15 million (the "Revolving Facility"). Commencing on

December 31, 2013, the Term Loan Facility requires quarterly principal

payments of $750,000 through September 2020 with the remaining outstanding

amounts due on November 27, 2020, the maturity date. The obligations under

the Term Loan Facility accrue interest at a floating rate which was 4.00%

annually as of December 31, 2016. A portion of the net proceeds from the

Term Loan Facility was used to repay in full the amounts outstanding under

the then-existing term loan facility which totaled approximately $172.4

million in principal, accrued and unpaid interest.

Our interest expense was $12.7 million, $12.3 million and $12.9 million for the years ended December 31, 2016, 2015 and 2014, respectively, which includes amortization of the related debt discount and debt issuance costs of $1.0 million, in each of the years ended December 31, 2016, 2015 and 2014. • Insurance and other recoveries. In 2016, we filed a property damage and

business interruption claim with our insurance carrier related to our

HoteLumière room renovation project that commenced in July. In December

2016 we received insurance proceeds of $1.0 million toward the claim,

which has been recorded as a gain in 2016. We expect to receive additional

insurance recoveries related to the claim once the project is completed.

In 2014, we settled the filed claims related to damages sustained on the Jubilee barge in 2013 for $5.9 million and received the balance of $5.2 million in insurance proceeds related to this claim, resulting in a gain of $4.4 million.

                                       36
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We filed a claim in 2013 with our insurance carriers relating to business
interruption at Tropicana AC as a result of Superstorm Sandy and received a cash
settlement of $1.3 million during 2014.
•      Impairment Losses.  In 2014, we determined there was an indication of

impairment related to goodwill tested at the Tropicana AC reporting unit

and recognized a $9.1 million goodwill impairment due to Tropicana AC's

goodwill carrying value exceeding its fair value.

• Predecessor related gain settlements. In July 2016, the Bankruptcy Court

approved a settlement agreement related to the Predecessors, which

resulted in the Company receiving a payment of $3.1 million related to

certain professional fees previously paid by the Company. This amount was

recognized as a one-time gain on the Company's consolidated statement of

income in 2016.



In 2014, we recorded one-time gains totaling $52.7 million related to the
settlement of certain claims related to the Predecessors in other income on our
consolidated statement of income for 2014. We also received in 2014 a
$31.7 million cash payment to satisfy a property tax settlement in Atlantic
City, which is recorded as a gain in property tax settlement in our consolidated
statement of income for 2014.
•      Deferred taxes. In 2014, we reduced the valuation allowance related to the

deferred tax assets by $188.2 million. The reduction reflects our

expectation that it is more likely than not that we will generate future

       taxable income to utilize this amount of net deferred tax assets. The
       benefit from this reduction was recorded as a tax benefit for 2014.

River Palms. On July 1, 2014, we sold substantially all of the assets

constituting River Palms to Nevada Restaurant Services, Inc. and its

affiliate, Laughlin Hotel, LLC, for approximately $6.8 million in cash and

       the assumption of certain liabilities. Concurrently with the sale, we
       leased back River Palms. We terminated the lease and discontinued
       operations at River Palms in September 2014. Due to the sale of River

Palms and the termination of its operations in September 2014, the results

of operations for River Palms are presented as discontinued operations. In

       addition, River Palms is not included in management's discussion and
       analysis of financial condition and results of operations.

• Cost Efficiencies. We continue to focus on efficiency initiatives, which

in the past have included centralizing purchasing functions to reduce

       costs and maximize our potential buying power, consolidating and
       streamlining certain back office operations and decreasing benefits
       expense relating to our company-sponsored plans.


Year ended December 31, 2016 compared to year ended December 31, 2015 The following table presents detail of our net revenues (in thousands):

                                       Year ended December 31,
                                         2016            2015
Revenues:
Casino                              $    666,047      $ 640,793
Room                                     129,124        121,666
Food and beverage                        107,455        107,174
Other                                     30,988         29,350
Management fee from related party          3,583              -
Gross revenues                           937,197        898,983
Less promotional allowances              (90,045 )      (87,506 )
Net revenues                        $    847,152      $ 811,477



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The following table sets forth certain information concerning our results of operations (dollars in thousands):

                                   Year ended December 31,
                                     2016            2015
Net revenues:
East                            $    344,124      $ 322,309
Central                              290,024        288,882
West                                 110,154        104,610
South                                 99,267         95,676
Corporate and other                    3,583              -
Total net revenues              $    847,152      $ 811,477
Operating income:
East                            $     21,308      $  30,932
Central                               48,136         42,529
West                                  13,373         11,405
South                                  8,602          7,801
Corporate and other                  (15,373 )      (16,443 )
Total operating income          $     76,046      $  76,224
Operating income margin(a):
East                                     6.2 %          9.6 %
Central                                 16.6 %         14.7 %
West                                    12.1 %         10.9 %
South                                    8.7 %          8.2 %
Total operating income margin            9.0 %          9.4 %

_______________________________________________________________________________

(a) Operating income margin is operating income as a percentage of net revenues.



Net Revenues
Five Atlantic City casino hotels have closed between January 2014 and October
2016 as a result of regional competitive market pressures and other factors,
including the Taj Mahal in October 2016. In 2016, the Atlantic City gaming
market experienced year over year growth in casino revenue (including revenue
from internet gaming) of 1.5%. At Tropicana AC, total gross gaming revenues
increased 9.0% in 2016 over 2015, including a 12.7% increase in internet gaming
revenues. The increased net revenues for Tropicana AC were primarily driven by
increased customer volumes, resulting in a 7.4% increase in slot volumes and a
5.2% increase in table game volumes, combined with a 1.6 point increase in the
table hold, from 14.8% in 2015 to 16.4% in 2016. The improvement in customer
volumes was driven by several factors, such as the renovation projects completed
in 2016 and mid-2015, which included hotel room renovations, a new high-end slot
area on the casino floor, a new Trop Advantage club promotional area and other
improvements. In addition, when the Taj Mahal closed in October 2016, Tropicana
AC entered into an agreement to license the Taj Mahal customer database, and is
able to market directly to customers who formerly visited the Taj Mahal. Hotel
revenues at Tropicana AC also increased due to higher occupancy rates and
average room rates in 2016. The average daily room rate increased to $90 from
$89 for the years ended December 31, 2016 and 2015, respectively. The occupancy
rate for the year ended December 31, 2016 was 81%, up from 79% for the prior
year period.
In the Central region, net revenues were $290.0 million in 2016, reflecting a
slight increase over 2015 net revenues of $288.9 million. Although slot volumes
in the region declined 1.1% in 2016 from 2015 levels, table volumes increased
3.3% year over year, and combined with a 2.0 point increase in the table hold,
from 19.4% in 2015 to 21.4% in 2016, resulted in a 13.8% increase in table
revenues year over year. Gaming revenues at Tropicana Evansville increased 3.7%
in 2016 over 2015, resulting from an increase in slot volumes of 3.5% and in
table game volumes of 7.5% over 2015, combined with a 1.4 point increase in the
table hold, from 21.3% in 2015 to 22.7% in 2016. The increases at Tropicana
Evansville offset a 1.9% decline in gaming revenue at Lumière Place for the year
ended December 31, 2016, where a hotel renovation project which commenced in
July 2016 significantly impacted business levels within the casino in the second
half of the year, offsetting improvements gained in the first half of the year
as a result of strategic marketing efforts aimed at increasing customer volumes.
The average daily room rate for the year ended December 31, 2016 in the Central
region was $140, compared to $134 for the year ended December 31, 2015. For the
year ended December 31, 2016, the occupancy rate, as calculated excluding the
rooms that were out of service due to the renovations at HoteLumière, was 80%,
compared to 78% occupancy for the year ended December 31, 2015; however, when
calculated based on the total rooms at HoteLumière, our occupancy rate in the
Central region was 73% for 2016.

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In the West region, net revenues were $110.2 million for the year ended
December 31, 2016, an increase of $5.5 million, or 5.3%, compared to the year
ended December 31, 2015. The increase was primarily driven by increases in
casino revenues within the region, which in turn were driven by a 1.4% increase
in slot volumes and a 4.0% increase in table games volume in 2016 over 2015. In
addition, the table hold in the West region of 21.0% in 2016 was 2.6 points
higher than the 18.4% hold in 2015. Casino revenues for the Laughlin and the
South Lake Tahoe markets, as reported for the year 2016, increased 1.2% and
5.2%, respectively, over the year 2015, with improvements in part attributable
to lower gas prices during the year prompting increased tourism travel in this
region. In addition, property renovations completed at MontBleu in late 2015
contributed to the improved casino results in 2016. Hotel and food and beverage
revenues in the West region also increased 14.3% and 4.7%, respectively, in 2016
over 2015, with increases attributable to the increased customer volumes through
the properties. The average daily room rate for the West region was $55 for the
year ended December 31, 2016 compared to $51 for the year ended December 31,
2015. The occupancy rate for the each of the years ended December 31, 2016 and
2015 at our properties in the West region was 56%.
In the South region, net revenues were $99.3 million for the year ended
December 31, 2016, an increase of $3.6 million, or 3.8%, compared to the year
ended December 31, 2015. Although gross gaming revenues (before the deductions
for free play redeemed by gaming customers) in the region increased 2.0% in 2016
over 2015, resulting from a 2.1% increase in slot volumes, slot free play
redeemed increased 9.4% in 2016 over 2015; as a result, total net casino
revenues were only slightly higher in 2016 over 2015. In the first half of 2016,
casino volumes at Belle of Baton Rouge were negatively impacted by declines in
the local economy which were driven by low oil and gas prices resulting in
layoffs in that industry which is a major employer in southern Louisiana. Casino
volumes were further impacted by civil unrest in Baton Rouge and damaging rain
and flooding in the area in the early third quarter of 2016; however, the
recovery efforts for the flooding, which resulted in an influx of federal aid
workers and building contractors into the area starting in late August 2016,
positively impacted gaming and non-gaming revenues for the remainder of the
year. Timeshare sales at the Tropicana Aruba property, which commenced in late
2015, were $3.3 million in 2016, compared to $0.4 million in 2015. The occupancy
rate at our properties in the South region was 78% and 70% for the years ended
December 31, 2016 and 2015, respectively. The average daily room rate for the
South region was $78 and $79 for the years ended December 31, 2016 and 2015,
respectively.
Net revenues for Corporate and other for the year ended December 31, 2016 of
$3.6 million represents the management fee earned as a result of our management
of the Taj Mahal, which is a related party of the Company.
Operating Income
In the East region, the operating income for the year ended December 31, 2016
was $21.3 million, a $9.6 million decrease compared to the year ended
December 31, 2015. Although net revenues in the East region increased $21.8
million in 2016 over 2015, expenses such as depreciation and CRDA reserves also
increased, offsetting the improvement in revenues. Depreciation expense at
Tropicana AC increased $5.9 million in 2016 over 2015, primarily due to the
renovation projects completed in those years. Also in 2016, total expense
associated with increases in CRDA reserves was $8.7 million, reflecting a $10.7
million increase as compared to a net reduction in expense in 2015 related to
changes in CRDA reserves of $2.0 million. In addition, variable operating
expenses such as gaming taxes, payroll costs and promotional and advertising
costs also increased for the year ended December 31, 2016 as compared to the
year ended December 31, 2015.
In the Central region, the operating income for the year ended December 31, 2016
was $48.1 million, a $5.6 million increase compared to the year ended
December 31, 2015. The improvement in operating income in the Central region in
2016 was due to the increase in net revenues, as previously discussed, combined
with lower depreciation expense in the region, principally at Lumière Place,
where most of the furniture, fixtures and equipment that were acquired with the
Lumière acquisition in 2014 was assigned a two year remaining life, and were
fully depreciated in early 2016. In addition, operating income for 2016 at
Lumière Place includes a $1.0 million gain on insurance proceeds for an
insurance payment received.
In the West region, the operating income for the year ended December 31, 2016
was $13.4 million, a $2.0 million increase compared to the year ended
December 31, 2015. Although net revenue in the West region improved by $5.5
million, as previously discussed, this increase was partially offset by higher
expenses, primarily a $2.8 million increase in depreciation expense resulting
from the renovation project that was completed at MontBleu in late 2015 and
other capital projects at Tropicana Laughlin that were completed in 2016.
In the South region operating income for the year ended December 31, 2016 was
$8.6 million, a $0.8 million increase compared to the year ended December 31,
2015. Although net revenues in this region increased $3.6 million in 2016 over
2015, increased expenses at Tropicana Aruba partially offset the improvement in
revenues. The increase in expenses included costs associated with accounting for
timeshare sales at Tropicana Aruba, as well as an increase in bad debt reserves
at the property of $0.7 million for a deposit for furniture that was ordered but
never received and $0.2 million for a receivable from a third party facilitator
of online reservations who sent out notifications in October 2016 that they were
ceasing operations and liquidating their assets.

                                       39
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The Corporate and other operating loss of $15.4 million for the year ended
December 31, 2016, was $1.1 million lower than the operating loss for the year
ended December 31, 2015, primarily due to management fee revenue earned as a
result of our management of the Taj Mahal, as previously discussed, offset
partially by higher expenses, principally higher incentive costs resulting from
the improved consolidated operating results for 2016, together with an accrual
for the long term incentive program that was adopted in 2016.
Interest Expense
Interest expense for the years ended December 31, 2016 and 2015 was
$12.7 million and $12.3 million, respectively. The interest expense for the year
ended December 31, 2016 increased compared to the year ended December 31, 2015
primarily due to higher capitalization of interest in 2015 related to ongoing
construction projects. The Term Loan Facility, which was funded in November
2013, accrues interest at a floating rate, which was 4.0% per annum at each of
December 31, 2016 and 2015. Cash paid for interest, net of amounts capitalized,
was $11.7 million and $11.5 million for the years ended December 31, 2016 and
2015, respectively. The increase in cash paid for interest was attributable to
the higher capitalization of interest in 2015, as discussed. Interest expense
also includes $1.0 million of amortization of debt issuance costs and discounts
for the each of the years ended December 31, 2016 and 2015.
Predecessor Claim Settlements
In July 2016, the Bankruptcy Court approved a settlement agreement related to
the Predecessors, which resulted in the Company receiving a payment of $3.1
million related to certain professional fees previously paid by the Company.
This amount was recognized as a one-time gain in 2016.
Income Taxes
Income tax expense was $23.7 million for the year ended December 31, 2016 and
our effective income tax rate was 35.2%. The difference between the federal
statutory rate of 35% and the effective tax rate for the year ended December 31,
2016 was primarily due to the disallowed foreign losses, state income taxes (net
of federal benefit), valuation allowances and other permanent differences. For
the year ended December 31, 2015, income tax expense was $27.1 million and our
effective tax rate was 42.0%. The difference between the federal statutory rate
of 35% and the effective tax rate for the year ended December 31, 2015 was
primarily due to the disallowed foreign losses, state income taxes (net of
federal benefit), and other permanent differences.
Year ended December 31, 2015 compared to year ended December 31, 2014
The following table presents detail of our net revenues (in thousands):
                                 Year ended December 31,
                                   2015            2014
Revenues:
Casino                        $    640,793      $ 592,467
Rooms                              121,666        113,890
Food and beverage                  107,174        103,319
Other                               29,350         26,594
Gross revenues                     898,983        836,270
Less promotional allowances        (87,506 )      (89,609 )
Net revenues                  $    811,477      $ 746,661



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The following table sets forth certain information concerning our results of operations by region (dollars in thousands):

                                   Year ended December 31,
                                     2015            2014
Net revenues:
East                            $    322,309      $ 303,079
Central                              288,882        247,784
West                                 104,610        103,147
South                                 95,676         92,651
Corporate and other                        -              -
Total net revenues              $    811,477      $ 746,661
Operating income:
East                            $     30,932      $  44,121
Central                               42,529         30,119
West                                  11,405         13,564
South                                  7,801         10,337
Corporate and other                  (16,443 )      (27,018 )
Total operating income          $     76,224      $  71,123
Operating income margin(a):
East                                     9.6 %         14.6 %
Central                                 14.7 %         12.2 %
West                                    10.9 %         13.2 %
South                                    8.2 %         11.2 %
Total operating income margin            9.4 %          9.5 %


__________________________________________________________________________

(a)  Operating income margin is operating income as a percentage of net
revenues.
Net Revenues
During 2014, four casino properties in the Atlantic City market ceased
operating. Based on reported data, the Atlantic City casino market experienced a
decline in casino revenue (including revenue from internet gaming, which
commenced in 2013) of 6.5% in the year ended December 31, 2015 from 2014, due in
part to these closures and the continued competitive pressures from the
competing gaming markets. At Tropicana AC, total net revenues were $322.3
million for the year ended December 31, 2015, an increase of $19.2 million, or
6.3%, compared to the year ended December 31, 2014. The increased net revenues
for Tropicana AC were primarily driven by a $15.2 million increase in casino
revenues, resulting from increased customer volumes due, in part, to the
competitor closings, but also attributable to other factors, including a $5.3
million increase in revenue from internet gaming. In addition to the increase in
internet gaming revenues, Tropicana AC casino revenues were positively impacted
by a 3.6% increase in slot volumes, a 7.7% increase in table games volumes and a
9.4% reduction in the amount of promotional slot play redeemed, partially offset
by a 1.1 percentage point decrease in the table hold percentage for the year
ended December 31, 2015 as compared to 2014. Hotel revenues at Tropicana AC also
increased due to higher occupancy rates and average room rates in the year ended
December 31, 2015. The average daily room rate increased to $89 from $87 for the
years ended December 31, 2015 and 2014, respectively. The occupancy rate for the
year ended December 31, 2015 was 79%, up from 77% for the prior year period. A
capital renovation project completed at Tropicana AC in 2015, which included
hotel room and casino floor renovations, boardwalk facade renovations and the
opening of a new fitness center contributed to the increased customer volumes
and revenues.
In the Central region, net revenues were $288.9 million for the year ended
December 31, 2015, an increase of $41.1 million, or 16.6%, compared to the year
ended December 31, 2014. The results for 2015 include a full year of operations
(compared to only nine months in 2014) from Lumière Place, which the Company
acquired in April 2014, which contributed to the majority of the increase. In
addition, net revenues at Tropicana Evansville improved in 2015 over the prior
year due to changes to our reinvestment strategy with targeted reductions to our
complimentary and free play programs in an effort to maximize casino
profitability, and to increase cash revenue in the hotel through the use of
online travel agencies. Casino revenues at Tropicana Evansville increased
slightly compared to the prior year period primarily due to a 3.4% increase in
table games volumes combined with an 8.4% reduction in promotional slot play
redeemed, despite a 1.8 percentage point decrease in the table games hold
percentage for the year ended December 31, 2015 compared to the prior year. The
occupancy rate for the year ended December 31, 2015 in the Central region was
78%, an increase over the 77% in the year ended December 31, 2014. The average
daily room rate in the Central region was $134 for the each of the years ended
December 31, 2015 and 2014.

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In the West region, net revenues were $104.6 million for the year ended
December 31, 2015, an increase of $1.5 million, or 1.4%, compared to the year
ended December 31, 2014. The increase was primarily driven by increases in
casino revenues at Tropicana Laughlin, partially offset by lower casino revenues
at MontBleu. Casino revenues at Tropicana Laughlin increased due to a 3.6%
increase in slot volumes and a 4.1% increase in table game volumes, partially
offset by a 6.4% increase in promotional slot play redeemed. Net revenues at
Tropicana Laughlin increased $4.9 million for the year ended December 31, 2015
compared to the prior year primarily due to the increase in casino revenues,
partially offset by marketing incentives given to our casino patrons which are
recorded as a reduction in revenues. At MontBleu, net revenues decreased
$3.4 million due to decreased customer visitation as a result of disruption from
a hotel room and public area renovation project that was completed in 2015, in
addition to increased competition from a nearby competing property that was
purchased in early 2014, later renovated and reopened as a "Hard Rock" branded
casino hotel in 2015. The average daily room rate for the West region was $51
for each of the years ended December 31, 2015 and 2014. The occupancy rate for
the each of the years ended December 31, 2015 and 2014 at our properties in the
West region was 56%.
In the South region, net revenues were $95.7 million for the year ended
December 31, 2015, an increase of $3.0 million, or 3.3%, compared to the year
ended December 31, 2014. Casino revenues for the South region increased
$2.4 million, driven by a 12.4% increase in casino revenue at Tropicana
Greenville, which completed its land-side gaming expansion in the fourth quarter
of 2014. Slot volumes at Tropicana Greenville increased 11.0%, combined with a
19.3% increase in table games drop, partially offset by a 1.3 percentage point
decline in the table games hold for the year ended December 31, 2015 as compared
to the prior year. Net revenues at the Belle of Baton Rouge decreased
$0.5 million for the year ended December 31, 2015, primarily due to a 4.2%
decrease in slot volumes and a 1.7% decrease in table games volumes, combined
with a 2.3 percentage point decline in the table games hold, offset by a
reduction in promotional slot play in 2015 as compared to 2014. Casino revenues
at Tropicana Aruba also increased in 2015 over 2014, primarily as a result of a
renovation project in the prior year, which resulted in the closure of the
casino from October 2014 through February 2015. Timeshare sales at the Tropicana
Aruba property commenced in late 2015, resulting in approximately $0.4 million
of timeshare sales for the year. However, hotel revenues in 2015 at Tropicana
Aruba were lower than in 2014, primarily due to decreased visitation from the
Venezuelan market, which has impacted the number of room nights generated from
that market. The occupancy rate at our properties in the South region was 70%
and 71% for the years ended December 31, 2015 and 2014, respectively. The
average daily room rate for the South region was $79 and $80 for the years ended
December 31, 2015 and 2014, respectively.
Operating Income
In the East region, the operating income for the year ended December 31, 2015
was $30.9 million, a $13.2 million decrease compared to the year ended
December 31, 2014. In 2014, we received a $31.7 million cash payment to satisfy
a property tax settlement in Atlantic City, which was recorded as a gain in
Property tax settlement during 2014. Absent this gain, operating income for the
year ended December 31, 2015 would have increased $18.5 million over the year
ended December 31, 2014.
In the Central region, the operating income for the year ended December 31, 2015
was $42.5 million, a $12.4 million increase compared to the year ended
December 31, 2014. The increase in operating income in the Central region in
2015 was due to the acquisition of Lumière Place in April 2014, combined with
the increase in net revenues at Tropicana Evansville discussed above, combined
with a decrease in operating expenses at Tropicana Evansville during the year
ended December 31, 2015.
In the West region, the operating income for the year ended December 31, 2015
was $11.4 million, a $2.2 million decrease compared to the year ended
December 31, 2014. Although operating income at Tropicana Laughlin improved by
$2.1 million, driven by the increase in net revenues as previously discussed,
this increase was offset by the reduction in net revenue at MontBleu caused by
the renovation disruption and increased competition, as discussed previously.
The decrease in net revenue at MontBleu was offset partially by lower operating
expenses during the year ended December 31, 2015 as compared to the prior year.
In the South region, operating income for the year ended December 31, 2015 was
$7.8 million, a $2.5 million decrease compared to the year ended December 31,
2014. This decrease is primarily due to a gain on insurance recoveries of $4.4
million, net of expenses and write-downs, in the year ended December 31, 2014.
Absent the gain on insurance recoveries, operating income in the South region
for the year ended December 31, 2015 would have increased $1.9 million over
2014, due to the increased net revenues at Tropicana Greenville, as previously
discussed, combined with an increase in operating income at the Belle of Baton
Rouge resulting from lower operating expenses which offset the decrease in net
revenue at the property; these improvements were offset by a decline in
operating income at Tropicana Aruba due to the decrease in revenues, combined
with an increase in operating expenses at the property.
Corporate expenses were $16.4 million for the year ended December 31, 2015, a
$10.6 million decrease from the year ended December 31, 2014. The difference
between years was driven primarily by a $9.1 million goodwill impairment

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recognized during the year ended December 31, 2014. The impairment related to
Tropicana AC's goodwill carrying value exceeding its fair value.
Interest Expense
Interest expense for the years ended December 31, 2015 and 2014 was $12.3
million and $12.9 million, respectively. The interest expense for the year ended
December 31, 2015 decreased compared to the year ended December 31, 2014
primarily due the decrease in the outstanding principal on the Term Loan
Facility combined with higher capitalization of interest in 2015 related to
ongoing construction projects. The Term Loan Facility, which was funded in
November 2013, accrues interest at a floating rate, which was 4.0% per annum at
each of December 31, 2015 and 2014. Cash paid for interest was $11.5 million and
$11.8 million for the years ended December 31, 2015 and 2014, respectively. The
decrease in cash paid for interest was attributable to the decrease in
outstanding principal on the Term Loan Facility. Interest expense also includes
$1.0 million of amortization of debt issuance costs and discounts for the each
of the years ended December 31, 2015 and 2014.
Predecessor Claim Settlements
During 2014, we recognized one-time gains totaling $52.7 million related to the
settlement of certain predecessor claims.
Income Taxes
Income tax expense was $27.1 million for the year ended December 31, 2015 and
our effective income tax rate was 42.0%. The difference between the federal
statutory rate of 35% and the effective tax rate for the year ended December 31,
2015 was primarily due to the disallowed foreign losses, state income taxes (net
of federal benefit) and other permanent differences. For the year ended
December 31, 2014, the income tax benefit was $140.0 million and our effective
tax rate was a benefit of 124.0%. The difference between the federal statutory
rate of 35% and the effective tax rate for the year ended December 31, 2014 was
primarily due to the release of the valuation allowance related to our net
deferred tax assets, utilization of the Company's deferred tax assets offset by
disallowed foreign losses, state income taxes (net of federal benefit), and
other permanent differences.
We recognized a deferred tax benefit in 2014, as compared to income tax expense
in 2015 primarily due to the reversal of $188.2 million of the valuation
allowance on deferred tax assets. The reduction in the valuation allowance is a
result of analyzing all positive and negative evidence associated with our
deferred tax assets, primarily as a result of the change in estimated future
earnings, and concluding that it is more likely than not that we will generate
future taxable income to utilize this portion of net deferred tax assets. The
benefit from this reduction in the valuation allowance was recorded as an income
tax benefit for 2014.
Discontinued Operations
On July 1, 2014, we entered into and closed an asset purchase agreement to sell
substantially all of the assets associated with the operation of River Palms for
$6.8 million in cash and the assumption of certain liabilities. Concurrently
with the execution and closing of the asset purchase agreement, we leased back
River Palms. We terminated the lease and discontinued operations at River Palms
in September 2014. The sale resulted in a loss of $0.2 million which is included
in the loss from discontinued operations for the year ended December 31, 2014.
The results of operations of River Palms are presented as discontinued
operations in the accompanying consolidated statements of income for the year
ended December 31, 2014.
Liquidity and Capital Resources
Our cash flows are and will continue to be affected by a variety of factors,
many of which are outside of our control, including regulatory restrictions,
competition, financial markets and other general business conditions. We believe
that we will have sufficient liquidity through anticipated borrowing
availability, available cash, trade credit and cash flow from our properties to
fund our cash requirements and capital expenditures for our expected operating
activities for at least twelve months. However, we cannot provide assurance that
we will generate sufficient income and liquidity to meet all of our liquidity
requirements and other obligations as our results for future periods are subject
to numerous uncertainties that may result in liquidity problems, which could
affect our ability to meet our obligations while attempting to meet competitive
pressures or adverse economic conditions. In addition, we continually evaluate
our financing needs and we may refinance all or a portion of our indebtedness on
or before maturity.
Part of our overall strategy includes consideration of expansion opportunities
in new gaming jurisdictions, underserved markets and acquisition and other
strategic opportunities that may arise periodically. We may require additional
funds in order to execute on such strategic growth, and may incur additional
debt or sell additional equity to finance any such transactions. We cannot
assure you that we will be able to incur such debt or sell any such additional
equity on acceptable terms or at all.

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Our material cash requirements for 2017 are expected to include (i) principal
and interest payments related to our Term Loan Facility of $3.0 million and
$11.8 million, respectively, (ii) capital maintenance expenditures expected to
be approximately $31 million, (iii) growth capital expenditures expected to be
approximately $22 million, (iv) expenditures related to the Company's $50
million commitment to develop a landside gaming facility at Tropicana
Evansville, estimated to be approximately $45 million in 2017, and (v) minimum
lease payments under our operating leases of $8.7 million. Except for the
commitment to spend $50 million of capital renovation at Tropicana Evansville
required by the Sixth Amendment, the majority of our planned capital
expenditures are discretionary and we may decide to spend more or less than the
amounts described above.
The following table summarizes our historical cash flows (in thousands):
                                               Year ended December 31,
                                                 2016            2015

Cash Flow Information: Net cash provided by operating activities $ 133,732 $ 103,605 Net cash used in investing activities

            (72,198 )      (80,840 )
Net cash used in financing activities            (38,809 )       (1,305 )

Net increase in cash and cash equivalents $ 22,725 $ 21,460



During the year ended December 31, 2016, our operating activities provided
$133.7 million in cash compared to $103.6 million in 2015. The improvement in
cash flow from operations over 2015 resulted from higher net income, combined
with the elimination of higher non-cash expenses such as depreciation and
changes in investment reserves. Cash paid for interest, net of amounts
capitalized, was $11.7 million for the year ended December 31, 2016 compared to
$11.5 million for the year ended December 31, 2015; this variance primarily
resulted from higher capitalization of interest in 2015.
Net cash used in investing activities in the year ended December 31, 2016
consisted primarily of $71.7 million used for capital expenditures and $5.9
million of restricted cash, partially offset by $3.0 million of proceeds from
Approved CRDA Project Funds, $1.0 million of insurance proceeds and proceeds
from the cancellation of Ruby Seven preferred stock. Net cash used in investing
activities in the year ended December 31, 2015 consisted primarily of $94.1
million used for capital expenditures partially offset by $15.2 million of
proceeds from Approved CRDA Project Funds. Capital expenditures primarily relate
to expenditures necessary to keep our existing properties at their current
levels and are typically replacement items due to the normal wear and tear of
our properties and equipment as a result of use and age.
Net cash used in financing activities in the year ended December 31, 2016
consisted primarily of $3.0 million repayments on the Term Loan Facility and
$42.8 million used for the buy back of TEI common stock under the Stock
Repurchase Program, as further described below, together with a $0.5 million
increase in restricted cash to collateralize letters of credit, offset by
proceeds of $7.6 million previously classified as restricted cash for certain
bankruptcy related professional fee liabilities. Net cash used in financing
activities in the years ended December 31, 2015 consisted primarily of
$3.0 million repayments on the Term Loan Facility, offset by proceeds of amounts
previously classified as restricted cash.
Credit Facilities
In November 2013, we entered into (i) a senior secured first lien term loan
facility in an aggregate principal amount of $300 million, issued at a discount
of 0.5% (the "Term Loan Facility") and (ii) a senior secured first lien
revolving credit facility in an aggregate principal amount of $15 million (the
"Revolving Facility" and, together with the Term Loan Facility, the "Credit
Facilities"). Commencing on December 31, 2013, the Term Loan Facility requires
quarterly principal payments of $750,000, with any remaining balance payable on
the final maturity date of the Term Loan Facility, which is November 27, 2020.
Amounts under the Revolving Facility are available to be borrowed and
re-borrowed until its termination on November 27, 2018.

A portion of the net proceeds from the Credit Facilities were used to repay in
full the principal amounts outstanding under the then existing credit facilities
along with accrued and unpaid interest. The then-existing credit facilities were
terminated effective as of November 27, 2013. A portion of the proceeds from the
Credit Facilities was also used to finance our previously announced acquisition
of Lumière Place, which was completed in April 2014.

The Term Loan Facility accrues interest, at our option, at a per annum rate
equal to either (i) the LIBO Rate (as defined in the Credit Agreement) (subject
to a 1.00% floor) plus an applicable margin equal to 3.00%, or (ii) the
alternate base rate (as defined in the Credit Agreement) (subject to a 2.00%
floor) plus an applicable margin equal to 2.00%; such that in either case, the
applicable interest rate shall not be less than 4.0%. The Revolving Facility
accrues interest, at our option, at a per annum rate equal to either (i) the
LIBO Rate plus an applicable margin ranging from 2.00% (if the total net
leverage ratio is less than

                                       44
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2.50:1.00) to 2.50% (if the total net leverage ratio is greater than or equal to
3.00:1.00); or (ii) the alternate base rate plus an applicable margin ranging
from 1.00% (if the total net leverage ratio is less than 2.50:1.00) to 1.50% (if
the total net leverage ratio is greater than or equal to 3.00:1.00). The
interest rate increases by 2.00% following certain defaults. As of December 31,
2016, the interest rate on the Term Loan Facility was 4.0% and no amounts were
outstanding under the Revolving Facility.

At our election and subject to certain conditions, including a maximum senior
secured net leverage ratio of 3.25:1.00, the amount available under the Credit
Facilities may be increased, which increased amount may be comprised of
additional term loans and revolving loans.

The Term Loan Facility may be prepaid at our option at any time without penalty
(other than customary LIBO Rate breakage fees). We are required to make
mandatory payments of the Credit Facilities with (i) net cash proceeds of
certain asset sales (subject to reinvestment rights), (ii) net cash proceeds
from certain issuances of debt and equity (with certain exceptions), (iii) up to
50% of annual excess cash flow (as low as 0% if our total leverage ratio is
below 2.75:1.00), and (iv) certain casualty proceeds and condemnation awards
(subject to reinvestment rights).

Our interest expense for the years ended December 31, 2016 and 2015 was
$12.7 million and $12.3 million, respectively, which includes $1.0 million of
amortization of the related debt discount and debt issuance costs for each of
the years ended December 31, 2016 and 2015. The increase in interest expense in
2016 compared to 2015 is primarily attributable to higher capitalization of
interest in 2015 related to ongoing construction projects.
Stock Repurchase Program
On July 31, 2015 our Board of Directors authorized the repurchase of up to $50
million of our outstanding stock with no set expiration date. On February 22,
2017, our Board of Directors authorized the repurchase of an additional $50
million of our outstanding common stock, for the repurchase of an aggregate
amount of up to $100 million of our outstanding common stock. The Stock
Repurchase Program will end upon the earlier of the date on which the plan is
terminated by the Board of Directors or when all authorized repurchases are
completed. The timing and amount of stock repurchases will be determined based
upon our evaluation of market conditions and other factors. The Stock Repurchase
Program may be suspended, modified or discontinued at any time and we have no
obligation to repurchase any amount of our common stock under the Stock
Repurchase Program.
As of December 31, 2016, we have repurchased 1,677,988 shares of our stock under
the Stock Repurchase Program. The repurchased shares were subsequently retired.
As of the date of this report, there have not been any subsequent repurchases of
stock under the Stock Repurchase Program.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Item 303
(a)(4)(ii) of SEC Regulation S-K.
Contractual Obligations
The following table summarizes our material future contractual obligations as of
December 31, 2016 (in thousands):
                                                            Payments Due By Period
                                 Less Than                                             More Than
                                  1 Year         1 To 3 Years       3 to 5 Years        5 Years         Total
Debt (a)                       $     3,000     $        6,000     $      281,250     $         -     $ 290,250
Estimated interest payment
on debt (b)                         11,725             23,084             10,306               -        45,115
Operating leases                     8,738             24,825             10,062          35,853        79,478
Purchase obligations (c)            64,962              2,577                160               -        67,699
Total                          $    88,425     $       56,486     $      301,778     $    35,853     $ 482,542

_______________________________________________________________________________

(a) The Term Loan Facility provides for a stated maturity date of November 2020.


(b)    Estimated interest payment on debt is based on principal amounts
       outstanding and the interest rate at December 31, 2016 and required
       principal payments through the maturity of the debt.


(c)    Includes commitments for capital expenditures related required under the

Sixth Amendment, related to the development of a landside gaming facility

       at Tropicana Evansville, as well as various contracts, including
       advertising, maintenance contracts and service agreements.



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Critical Accounting Policies
Management's discussion and analysis of our results of operations and liquidity
and capital resources is based on our financial statements. We prepare our
financial statements in conformity with accounting principles generally accepted
in the United States. Certain of our accounting policies require that we apply
significant judgment in determining the estimates and assumptions for
calculating estimates. By their nature, these judgments are subject to an
inherent degree of uncertainty. Our judgments are based in part on our
historical experience, terms of existing contracts, observance of trends in the
gaming industry and information obtained from independent valuation experts or
other outside sources. We cannot assure you that our actual results will conform
to our estimates. We regularly evaluate these estimates and assumptions,
particularly in areas we consider to be critical accounting estimates, where
changes in estimates and assumptions could have a material impact on our results
of operations, financial position and, generally to a lesser extent, cash flows.
We believe the following items are the critical accounting policies and more
significant estimates and assumptions used in the preparation of our financial
statements. These accounting policies conform to the accounting policies
contained in our financial statements contained elsewhere in this Annual Report
on Form 10-K.
Business Combinations
The Company accounts for business combinations in accordance with guidance
related to business combinations using the purchase method of accounting for
business combinations, which requires that the assets acquired and liabilities
assumed be recorded on the date of acquisition at their respective fair value
and the identification and recognition of intangible assets separately from
goodwill. Additionally, the guidance requires, among other things, the buyer to:
(1) expense acquisition-related costs; (2) recognize assets or liabilities
assumed arising from contractual contingencies on the acquisition date using
acquisition-date fair values; (3) recognize goodwill as the excess of the
consideration transferred plus the fair value of any noncontrolling interest
over the acquisition-date fair value of net assets acquired; (4) recognize on
the acquisition date any contingent consideration using acquisition-date fair
values (i.e., fair value earn-outs in the initial accounting for the
acquisition); and (5) eliminate the recognition of liabilities for restructuring
costs expected to be incurred as a result of the business combination. In
addition, if the buyer determines that some or all of its previously booked
deferred tax valuation allowance is no longer needed as a result of the business
combination, the guidance requires that the reduction or elimination of the
valuation allowance be accounted as a reduction of income tax expense.
Receivables
Receivables consist primarily of casino, hotel and other receivables, net of an
allowance for doubtful accounts. Receivables are typically non-interest bearing
and are initially recorded at cost. Accounts are written off when management
deems the account to be uncollectible. An estimated allowance for doubtful
accounts is maintained to reduce our receivables to their expected realization,
which approximates fair value. The allowance is estimated based on specific
reviews of customer accounts as well as historical collection experience and
current economic and business conditions. Recoveries of accounts previously
written off are recorded when received.
Property and Equipment
Property and equipment under fresh-start reporting and business combination
guidance is stated at fair value as of the Effective Date and acquisition date,
respectively. Property and equipment acquired subsequent to the Effective Date
and the acquisition date are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets or,
for capital leases and leasehold improvements, over the shorter of the asset's
useful life or the term of the lease. Gains or losses on disposals of assets are
recognized as incurred. Costs of major improvements are capitalized, while costs
of normal repairs and maintenance are expensed as incurred.
We must make estimates and assumptions when accounting for capital expenditures.
Whether an expenditure is considered a maintenance expense or a capital asset is
a matter of judgment. In contrast to normal repair and maintenance costs that
are expensed when incurred, items we classify as maintenance capital are
expenditures necessary to keep our existing properties at their current levels
and are typically replacement items due to the normal wear and tear of our
properties and equipment as a result of use and age. Our depreciation expense is
highly dependent on the assumptions we make about our assets' estimated useful
lives. We determine the estimated useful lives based on our experience with
similar assets, engineering studies and our estimate of the usage of the asset.
Whenever events or circumstances occur that change the estimated useful life of
an asset, we account for the change prospectively.
Long-Lived Assets
We evaluate our property and equipment and other long-lived assets for
impairment in accordance with accounting guidance related to impairment or
disposal of long-lived assets. For assets to be held for sale, we recognize the
asset to be sold

                                       46
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at the lower of carrying value or fair value less costs to sell. Fair value for
assets held for sale is generally estimated based on comparable asset sales,
solicited offers or a discounted cash flow model. For long-lived assets to be
held and used, we review for impairment whenever indicators of impairment exist.
If an indicator of impairment exists, we compare the estimated undiscounted
future cash flows of the asset to the carrying value of the asset. If the
undiscounted cash flows exceed the carrying value, no impairment is indicated.
If the undiscounted cash flows are less than the carrying value, then impairment
is measured based on estimated fair value compared to carrying value, with fair
value typically based on a discounted cash flow model.
Goodwill and Intangible Assets
Goodwill represents the excess of purchase price over fair value of assets
acquired and liabilities assumed in business combinations or under fresh-start
reporting. In accordance with accounting guidance related to goodwill and other
intangible assets, we test for impairment of goodwill and indefinite-lived
intangible assets at the reporting unit level in the fourth quarter of each year
and in certain situations between those annual dates if events occur or
circumstances change indicating potential impairment. We have the option to
begin with a qualitative assessment, commonly referred to as Step 0, to
determine whether it is more likely than not that the reporting units fair value
is less than its carrying value. This qualitative assessment may include, but is
not limited to, reviewing factors such as the general economic environment,
industry and market conditions, changes in key assumptions used since the most
recently performed valuation and overall financial performance of the reporting
units. If we determine the reporting units are not at risk of failing the
qualitative assessment, no further impairment testing is required.
Our annual impairment testing for goodwill is performed at the reporting unit
level and each of our casino properties is considered to be a reporting unit.
The annual quantitative goodwill impairment testing, if applicable, utilizes a
two-step process. In the first step, we compare the fair value of each reporting
unit with its carrying amount, including goodwill. The fair value of each
reporting unit is estimated using the expected present value of future cash
flows along with indications provided by the current valuation multiples of
comparable publicly traded companies. If the fair value of the reporting unit
exceeds its carrying amount, then goodwill of the reporting unit is not
considered impaired. If the carrying amount of the reporting unit exceeds its
fair value, then the goodwill of the reporting unit is considered impaired and
the Company proceeds to the second step of the goodwill impairment test to
quantify the amount of goodwill impairment, if any. In the second step, we
determine the implied fair value of the reporting unit's goodwill by allocating
the fair value of the reporting unit determined in step one to the assets and
liabilities of the reporting unit, as if the reporting unit had been acquired in
a business combination. If the carrying value of the reporting unit's goodwill
exceeds the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess.
Our indefinite-lived intangible assets, which include our "Tropicana" trade name
and certain gaming licenses, are not subject to amortization but are tested for
impairment annually. A qualitative assessment of indefinite-lived assets may be
performed to determine whether it is necessary to perform the quantitative
impairment test. The annual quantitative impairment test for indefinite-lived
intangible assets, if applicable, consists of a comparison of the fair value of
the intangible asset with its carrying amount. If the carrying amount of the
intangible asset exceeds its fair value, an impairment loss is recognized in an
amount equal to that excess. The fair value of the trade name is estimated using
the relief from royalty method, a form of both the income approach and the
market approach, which is a function of prospective revenue, the royalty rate
that would hypothetically be charged by a licensor of an asset to an unrelated
licensee, and a discount rate. The fair value of our indefinite-lived gaming
licenses are estimated using the Greenfield method of the discounted cash flow
approach which is the function of the cost to build a new casino operation, the
build out period, projected cash flows attributed to the casino once
operational, and a discount rate.
Our definite-lived intangible assets include customer lists and favorable lease
arrangements. Intangible assets with a definite life are amortized over their
useful life, which is the period over which the asset is expected to contribute
directly or indirectly to future cash flows. Management periodically assesses
the amortization period of intangible assets with definite lives based upon
estimated future cash flows from related operations.
We believe our prospective cash flow assumptions are reasonable. However, future
cash flow estimates are, by their nature, subjective and actual results may
differ materially from our estimates. If ongoing estimates of future cash flows
are not met, impairment charges may be recorded in future accounting periods.
Estimates of cash flows are based on the current regulatory, political and
economic climates, recent operating information and budgets of the various
properties where we conduct operations. These estimates could be negatively
impacted by changes in federal, state or local regulations, economic downturns,
or other events affecting various forms of travel and access to our properties.
CRDA Investment
The New Jersey Casino Reinvestment Development Authority ("CRDA") deposits made
by Tropicana AC are carried at fair value. The CRDA deposits are recorded at
fair value and used to purchase CRDA bonds that carry below market interest

                                       47
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rates unless an alternative investment is approved. An allowance is established,
unless there is an agreement with the CRDA for a return of the deposit at full
face value, by a charge to the statement of operations as part of general and
administrative expense. If the CRDA deposits are used to purchase CRDA bonds,
the allowance is transferred to the bonds as a discount, which is amortized to
interest income using the interest method. If the CRDA deposits are used to make
other investments, the allowance is transferred to those investments. The CRDA
bonds are classified as held-to-maturity securities and are carried at amortized
cost less any adjustments for other than temporary impairments.
As a result of the NJ PILOT Law, which was enacted in May 2016, the portion of
investment alternative tax payments made by casino operators which are deposited
with the CRDA and which have not been pledged for the payment of bonds issued by
the CRDA will be allocated to the State of New Jersey for purposes of paying
debt service on bonds previously issued by Atlantic City. That portion of the
deposits which will be allocated to the State of New Jersey are no longer
recorded as an investment with a corresponding allowance, but are charged
directly to general and administrative expenses.
Self-Insurance Reserves
We are self-insured up to certain stop loss amounts for employee health
coverage, workers' compensation and general liability claims. Insurance claims
and reserves include accruals of estimated settlements for known claims, as well
as accruals of estimates for claims incurred but not yet reported as estimated
by management with the assistance of a third party claims administrator. In
estimating these accruals, we consider historical loss experience and make
judgments about the expected levels of costs per claim. We believe our estimates
of future liability are reasonable based upon our methodology; however, changes
in health care costs, accident frequency and severity and other factors could
materially affect the estimate for these liabilities. The Company continually
monitors changes in claim type and incident and evaluates the insurance accrual,
making necessary adjustments based on the evaluation of these qualitative data
points.
Customer Loyalty Program
We provide certain customer loyalty programs (the "Programs") at our casinos,
which allow customers to redeem points earned from their gaming activity for
cash, food, beverage, rooms or merchandise. Under the Programs, customers are
able to accumulate points that may be redeemed in the future, subject to certain
limitations and the terms of the Programs. We record a liability for the
estimated cost of the outstanding points under the Programs that we believe will
ultimately be redeemed. The estimated cost of the outstanding points under the
Programs is calculated based on estimates and assumptions regarding marginal
costs of the goods and services, redemption rates and the mix of goods and
services for which the points are expected to be redeemed. For points that may
be redeemed for cash, we accrue this cost (after consideration of estimated
redemption rates) as they are earned from gaming play, which is included in
promotional allowances. For points that may only be redeemed for goods or
services but cannot be redeemed for cash, we estimate the cost and accrue for
this expense as the points are earned from gaming play, which is recorded as
casino operating costs and expenses.
Revenue Recognition and Promotional Allowances
Casino revenue represents the difference between wins and losses from gaming
activities, and is reported net of cash and free play incentives redeemed by
customers. Room, food and beverage and other operating revenues are recognized
at the time the goods or services are provided. The Company collects taxes from
customers at the point of sale on transactions subject to sales and other taxes.
Revenues are recorded net of any taxes collected. The majority of the Company's
casino revenue is counted in the form of cash and chips and, therefore, is not
subject to any significant or complex estimation. The retail value of rooms,
food and beverage and other services provided to customers on a complimentary
basis is included in gross revenues and then deducted as promotional allowances.
Promotional allowances also includes accruals for incentives earned in our
Programs for points that may be redeemed for free play or cash, as described
above.
Timeshare Sales
The Company accounts for sales of timeshare intervals at the Tropicana Aruba in
accordance with Accounting Standards Codification ("ASC") 978, Real Estate -
Time Sharing Activity. Sales of timeshare intervals, the majority of which are
sold under a credit arrangement, are recorded net of an estimated allowance for
bad debt. Costs associated with the timeshare units, including building and
renovation costs, furniture, fixtures and equipment, and other costs directly
attributable to the timeshare units are recorded as timeshare inventory. In
addition, revenue generated from the daily rental of the designated timeshare
units is recorded as a reduction of the timeshare inventory, as opposed to hotel
revenue. A cost of sales is calculated using the total timeshare inventory as a
percentage of the potential total timeshare interval sales, and a portion of the
inventory is recorded as cost of sales expense as each timeshare interval is
sold.

                                       48

--------------------------------------------------------------------------------


Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in income in the
period that included the enactment date. Future tax benefits are recognized to
the extent that realization of those benefits is considered more likely than
not, and a valuation allowance is established for deferred tax assets which do
not meet this threshold.

© Edgar Online, source Glimpses

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Anthony P. Rodio President, Chief Executive Officer & Director
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