1. business and industrial
2. company
3. annual report

THIS REPORT HAS NOT BEEN, NOR WILL IT BE, FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. THIS REPORT, AND THE INFORMATION CONTAINED
HEREIN, IS REQUIRED TO BE PROVIDED PURSUANT TO CONTRACTUAL
OBLIGATIONS OF PENINSULA GAMING, LLC AND PENINSULA GAMING CORP.
FORM 10-K
____________________________________________________
Annual report for the fiscal year ended December 31, 2014
____________________________________________________
(Exact name of registrant as specified in its charter)
____________________________________________________
Peninsula Gaming, LLC
Peninsula Gaming Corp.
(Exact name of registrants as
specified in their charter)
(Exact name of registrants as
specified in their charter)
Delaware
Delaware
(State or other jurisdiction of
incorporation or organization)
(State or other jurisdiction of
incorporation or organization)
20-0800583
25-1902805
(I.R.S. Employer
Identification No.)
(I.R.S. Employer
Identification No.)
600 Star Brewery Dr., Suite 110, Dubuque, Iowa 52001
(Address of principal executive offices) (Zip Code)
(563) 690-4975
(Registrant's telephone number, including area code)
All of the common equity interests of Peninsula Gaming, LLC (the "Company") are held by Boyd Acquisition II, LLC ("HoldCo"),
which is a wholly owned indirect subsidiary of Boyd Gaming Corporation ("Parent"). All of the common equity interests of
Diamond Jo, LLC, The Old Evangeline Downs, L.L.C., Diamond Jo Worth, LLC, Belle of Orleans, L.L.C., Kansas Star Casino,
LLC and Peninsula Gaming, Corp. ("PGC") are held by the Company.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for Parent's 2015 Annual Meeting of Stockholders to be filed pursuant to Regulation
14A within 120 days after the Parent's fiscal year end of December 31, 2014 are incorporated by reference into Part III of this
Form 10-K.
TABLE OF CONTENTS
Page
PART I
ITEM 1.
Business
3
ITEM 1A. Risk Factors
11
ITEM 1B. Unresolved Staff Comments
20
ITEM 2.
Properties
20
ITEM 3.
Legal Proceedings
21
ITEM 4.
Mine Safety Disclosures
21
PART II
ITEM 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
22
ITEM 6.
Selected Financial Data
23
ITEM 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
25
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
41
ITEM 8.
Financial Statements and Supplementary Data
43
ITEM 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
82
ITEM 9A. Controls and Procedures
82
ITEM 9B. Other Information
82
PART III
ITEM 10.
Directors, Executive Officers and Corporate Governance
83
ITEM 11.
Executive Compensation
83
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
83
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
83
ITEM 14.
Principal Accounting Fees and Services
84
PART IV
ITEM 15.
Exhibits, Financial Statement Schedules
85
SIGNATURES
89
PART I
ITEM 1.
Business
Overview
Peninsula Gaming, LLC is a Delaware limited liability company ("PGL", and together with its subsidiaries, the "Company," "we"
or "us") that was formed in 2004 as a holding company with no independent operations whose primary assets are its equity interests
in its wholly owned subsidiaries. PGL has five wholly owned gaming entertainment properties in Iowa, Kansas and Louisiana,
and owns Peninsula Gaming Corp. ("PGC"), a Delaware corporation with no assets or operations.
PGL is an indirect, wholly owned subsidiary of Boyd Gaming Corporation ("Boyd" or "Parent"). Boyd is a multi-jurisdictional
gaming company that has been operating for almost 40 years. Headquartered in Las Vegas, Boyd has 21 wholly owned gaming
entertainment properties in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, and Mississippi, and one non-controlling interest
in a limited liability company in New Jersey.
We prepare periodic and annual reports consistent with the disclosure requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") pursuant to the terms of our Indenture dated as of August 16, 2012 (the “Indenture”) for our $350.0
million aggregate principal amount of 8.375% senior notes due February 2018 (the “Notes”); however, as a wholly owned private
company, we do not file these reports with the Securities and Exchange Commission ("SEC").
For purposes of these reports, we provide financial information about each of our following five business operations and wholly
owned subsidiaries:
•
Diamond Jo, LLC, a Delaware limited liability company ("DJL" or "Diamond Jo Dubuque"), which owns and operates
the Diamond Jo casino in Dubuque, Iowa;
•
Diamond Jo Worth, LLC, a Delaware limited liability company ("DJW" or "Diamond Jo Worth"), which owns and operates
the Diamond Jo casino in Worth County, Iowa;
•
Kansas Star Casino, LLC, a Kansas limited liability company ("KSC" or "Kansas Star"), which owns the assets of the
Kansas Star Casino in Mulvane, Kansas (excluding lottery gaming equipment, which is owned by the State of Kansas)
and manages the lottery gaming operations on behalf of the State of Kansas;
•
Belle of Orleans, L.L.C., a Louisiana limited liability company ("ABC" or "Amelia Belle"), which owns and operates
the Amelia Belle Casino in Amelia, Louisiana; and
•
The Old Evangeline Downs, L.L.C., a Louisiana limited liability company ("EVD" or "Evangeline Downs"), which owns
and operates the Evangeline Downs Racetrack and Casino, or “racino”, in St. Landry Parish, Louisiana, and three offtrack betting parlors (“OTBs”) in Louisiana (a fourth OTB was closed in March 2015).
Our focus has been and will continue to remain on: (i) ensuring our existing operations are managed as efficiently as possible and
remain positioned for growth; and (ii) improving our capital structure and strengthening our balance sheet, including paying down
debt, and strengthening our operations.
Over the past several years, we have undertaken several programs aimed at reducing our cost structure in an effort to manage our
properties' operations under tightened revenue trends. We have established a more efficient business model that we believe is
helping us to realize improved results as consumer wealth and confidence begins to improve and the negative effects of global
economic issues and the recent recession continue to decline. We are strategically reinvesting in our non-gaming amenities,
including restaurants, in order to better capitalize on customer’s evolving spending behaviors. We continue to manage our cost
and expense structure to adjust to current business volumes and to generate strong and stable cash flows.
We continually work to position our Company for greater success by strengthening our existing operations and growing through
capital investment and other strategic initiatives. For instance, after opening our permanent casino in Mulvane, Kansas in December
2012, we constructed additional amenities at that property and opened our indoor rodeo and concert arena in June 2013 and our
event center on December 31, 2014.
We believe that the following factors have contributed to our success in the past and are central to our success in the future:
•
we emphasize slot revenues, the most consistently profitable segment of the gaming industry;
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•
we have comprehensive marketing and promotion programs;
•
our operations are geographically diversified within the United States;
•
we have the ability to expand certain existing properties; and
•
we benefit from Boyd's experienced management team.
2014 Developments
Significant developments affecting our business during the year ended December 31, 2014 include:
•
During 2014, we implemented the "B Connected" player loyalty program at EVD, ABC, and DJW. "B Connected" is
Boyd's nationwide branding initiative and loyalty program. Our players can use their "B Connected" cards to earn and
redeem points at nearly all of Boyd's wholly owned properties in Nevada, Illinois, Indiana, Iowa, Louisiana and
Mississippi. The "B Connected" club, among other benefits, extends the time period over which players may qualify for
promotions and increases the credits awarded to reel slot and table games players.
•
In August 2014, the final 150 hotel rooms opened at the hotel connected to KSC's property bringing the total room count
to 300 rooms. The hotel was constructed and is operated by an affiliate and we have a 56% non-controlling equity interest
in the hotel.
•
On December 31, 2014, the final phase of the Kansas Star development was completed, which includes an event center
for conventions, banquets and other events and an equestrian pavilion that includes a practice arena and covered stalls
("Phase 2").
Properties
As of December 31, 2014, we own or operate 211,830 square feet of casino space, containing 5,981 slot machines, and 115 table
games. We derive the majority of our gross revenues from our gaming operations, which generated approximately 89%, 90% and
91% of gross revenues for the years ended December 31, 2014, 2013 and 2012, respectively. Food and beverage gross revenues,
which generated 7%, 7% and 6% of gross revenues for the years ended December 31, 2014, 2013 and 2012, respectively, represent
our next most significant revenue source, followed by other revenues, which contributed 4%, 3% and 3% of gross revenues for
the years ended December 31, 2014, 2013 and 2012, respectively.
We view each operating property as an operating segment and aggregate all such operating segments into one reportable segment.
The following table sets forth certain information regarding our properties, as of December 31, 2014.
Year Opened or
Acquired
Casino Space
(Sq. ft.)
Slot Machines
Table Games
Iowa
DJL
DJW
Kansas
2008
2006
33,300
37,957
999
1,007
20
23
KSC
Louisiana
2011
71,854
1,814
53
EVD
ABC
Total
2003
2009
41,235
27,484
211,830
1,373
788
5,981
19
115
Our properties consist of three casinos, one racino and one riverboat casino that operate in three states: Iowa, Kansas and Louisiana.
Generally, these states allow casino gaming on a limited basis through the issuance of a limited number of gaming licenses. Our
properties generally compete directly with other casino facilities operating in their respective immediate and surrounding market
areas, as well as with gaming operations in surrounding jurisdictions.
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Diamond Jo Dubuque
Diamond Jo Dubuque is a land-based casino located in the Port of Dubuque, a waterfront development on the Mississippi River
in downtown Dubuque, Iowa. Diamond Jo Dubuque is a two-story, approximately 188,000 square foot property that includes 999
slot machines and 20 table games. Additional amenities include a 30-lane bowling center, a 33,000 square foot event center, and
two banquet rooms. The property also features five dining outlets, including the Kitchen Buffet, a 184-seat live action buffet,
Woodfire Grille, the casino's 133-seat high-end restaurant, Mojo's, a 124-seat sports bar, a deli and a snack shop, as well as three
full service bars.
Diamond Jo Worth
Diamond Jo Worth in Worth County is a land-based casino situated on a 36-acre site located in north-central Iowa in Northwood,
Iowa, near the Minnesota border and approximately 30 miles north of Mason City. The casino currently has 1,007 slot machines,
23 table games and 7 poker tables in operation, as well as a 5,200 square foot event center and several dining options, including
the Kitchen Buffet, a 190-seat buffet restaurant, and Woodfire Grille, a 114-seat high-end restaurant. DJW also operates a
convenience store and gas station at the site. There is a 100-room hotel and a 60-room hotel adjacent to the casino, both of which
are owned and operated by third parties. Under an agreement with the third party operator of the 100-room hotel, DJW has the
option to purchase the 100-room hotel from the third party operator.
Evangeline Downs
Evangeline Downs is a land-based racino located in Opelousas, Louisiana. The racino currently includes a casino with 1,373 slot
machines and approximately 23,000 square foot event center. The racino features a 275-seat Cajun buffet, 86-seat Gumbo bar, an
89-seat cafe and Blackberry's, an 80-seat fine dining restaurant. In the clubhouse, Silk's Fine Dining offers a varied menu and the
grandstand area contains a concession and bar. The racino includes a one-mile dirt track, a 7/8-mile turf track, and stables for 980
horses. The clubhouse, together with the grandstand and patio area, provides seating for up to 4,295 patrons. In addition, a third
party operates a 117-room hotel adjacent to the racino.
EVD currently operates three OTBs in Louisiana in each of Eunice, Henderson, and St. Martinville (a fourth OTB location was
closed in March 2015). Each of the OTBs offer simulcast pari-mutuel wagering and video poker. Under Louisiana's racing and
off-track betting laws, we have a right of prior approval with respect to any applicant seeking a permit to operate an OTB within
a 55-mile radius of the Evangeline Downs racetrack, which effectively gives us the exclusive right, at our option, to operate
additional OTBs within such a radius, provided that such OTB is not also within a 55-mile radius of another horse racetrack.
Amelia Belle
Amelia Belle is located in south-central Louisiana, and is a three-level riverboat with gaming located on the first two decks and
includes 788 slot machines and 19 table games. The third deck of the riverboat includes a 140-seat buffet and banquet room.
Kansas Star
Kansas Star serves as Lottery Gaming Facility Manager for the South Central Gaming Zone on behalf of the Kansas Lottery
pursuant to the Lottery Gaming Facility Management Contract that became effective on January 14, 2011 (the "Kansas Management
Contract"). Construction of the Kansas Star began in March 2011. In December 2011, construction of the 162,000 square foot
indoor arena was completed and on December 20, 2011, casino operations began, utilizing this space in the interim, while the
remaining casino facilities were being constructed. On December 12, 2012, we opened our permanent casino which included
additional gaming space and currently includes 1,814 slot machines, 53 table games, 13 poker tables, a 250-seat buffet, a 140-seat
steakhouse, and a number of other amenities including a deli, noodle bar, and a casino bar as well as a poker themed bar. We
completed the renovation of the 162,000 square foot arena in June 2013. The arena housed our interim casino operations during
much of 2012 and is now designed to host various events, including concerts, trade shows, and equestrian events. In December
2014, we completed the final phase of the Kansas Star development, which includes an event center for conventions, banquets
and other events and an equestrian pavilion that includes a practice arena and covered stalls. In addition, there is a 300 room hotel
adjacent to the casino (150 rooms opened in October 2012 and the final 150 rooms opened in August 2014). We hold 56% of the
equity interests in the hotel but have no voting interests or control in decisions or daily operations.
Competition
Our properties generally operate in highly competitive environments. We compete against other gaming companies as well as
other hospitality, entertainment and leisure companies. We face significant competition in each of the jurisdictions in which we
operate. Such competition may intensify in some of these jurisdictions if new gaming operations open in these markets or existing
competitors expand their operations. Our properties compete directly with other gaming properties in each state in which we
operate, as well as in adjacent states. We also compete for customers with other casino operators in other markets, including casinos
located on Native American reservations, and other forms of gaming, such as lotteries and internet gaming. Many of our competitors
are larger and have substantially greater name recognition and marketing and financial resources. In some instances, particularly
with Native American casinos, our competitors pay substantially lower taxes or no taxes at all. We believe that increased legalized
5
gaming in other states, particularly in areas close to our existing gaming properties and the development or expansion of Native
American gaming in or near the states in which we operate, could create additional competition for us and could adversely affect
our operations or future development projects.
Frequent Player Loyalty Programs
B Connected
During 2014, we implemented Boyd’s nationwide branding initiative and loyalty program at three of our properties, Diamond Jo
Worth, Evangeline Downs, and Amelia Belle. Our players can use their “B Connected” cards to earn and redeem points at nearly
all of Boyd’s wholly-owned properties in Nevada, Illinois, Indiana, Iowa, Louisiana and Mississippi. The “B Connected” club,
among other benefits, extends the time period over which players may qualify for promotions and increases the credits awarded
to reel slot and table games players.
As part of the “B Connected” player loyalty program, players have access to Boyd’s “B Connected Mobile” program. “B Connected
Mobile,” the first multi-property, loyalty program-based iPhone and Android application of its kind in the gaming industry, is a
personalized mobile application that delivers customized offers and information directly to a customer’s iPhone, iPad or Android
device. The application further expands the benefits of the “B Connected” program by providing real-time personalized information
on hotel, dining and gaming offers when a customer visits a Boyd property, instant access to event information, schedules and
special offers, and a search engine that allows customers to find Boyd Gaming casinos that have their favorite machines and
displays the games’ locations on a casino floor map, the ability to track “B Connected” point balances in real time, and the ability
to make immediate hotel or restaurant reservations. These tools allow our customers to receive the greatest value from their “B
Connected” membership, and ensure that our marketing is as effective as possible.
In addition, as part of the “B Connected” player loyalty program, players were introduced to “B Connected Social” which rewards
users for using “B Connected Online”, “B Connected Mobile”, or sharing offers and events on social networks. “B Connected
Social” is a dynamic network loyalty program that allows “B Connected” members to share offers with friends, connect to their
favorite social networks, check in online via certain social networks, as well as participate in a variety of online activities including
interfacing with “B Connected Online” or “B Connected Mobile”, participate in online contests, and register for alerts to deliver
targeted information specific to the “B Connected” member.
DJL and KSC each continues to sponsor its own player loyalty program to expand its brand awareness and leverage its strong
loyalty card program, predicated on efforts to use marketing and promotional programs to serve an important role: to retain existing
customers, maintain trip frequency and acquire new customers. DJL and KSC each offer their guests comprehensive, competitive
and targeted marketing and promotion programs. Each program, for example, offers players a hassle-free way of earning points
redeemable for slot play, food, beverage and retail items as well as comp dollars and other rewards and benefits based on game
play. In addition, each property strives to differentiate its casino with high-quality guest services to further enhance overall brand
and customer experience.
In the future we plan to extend the "B Connected" program to DJL and KSC, subject to the receipt of regulatory approvals. The
implementation of "B Connected" will replace the individual property programs described above and provide the players with a
multi-property player loyalty program.
Government Regulation
We are subject to extensive regulation under laws, rules and supervisory procedures primarily in the jurisdictions where our
facilities are located or docked. Some jurisdictions, including Iowa, Kansas, and Louisiana, empower their regulators to investigate
participation by licensees in gaming outside their jurisdiction and may require access to periodic reports respecting those gaming
activities. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions. A detailed description of
governmental gaming regulations to which we are subject has been filed as Exhibit 99.2 to our Parent's Annual Report on Form
10-K.
If additional gaming regulations are adopted in a jurisdiction in which we operate, such regulations could impose restrictions or
costs that could have a significant adverse effect on us. From time to time, various proposals have been introduced in the legislatures
of some of the jurisdictions in which we have existing or planned operations that, if enacted, could adversely affect the tax,
regulatory, operational or other aspects of the gaming industry and us. We do not know whether or not such legislation will be
enacted. The federal government has also previously considered a federal tax on casino revenues and may consider such a tax in
the future. In addition, gaming companies are currently subject to significant state and local taxes and fees in addition to normal
federal and state corporate income taxes, and such taxes and fees are subject to increase at any time. Any material increase in these
taxes or fees could adversely affect us.
6
Employees and Labor Relations
At December 31, 2014, we employed approximately 2,666 persons, none of whom were subject to collective bargaining agreements.
Corporate Information
We were organized as a limited liability company in Delaware in 2004. PGL's corporate offices are located at 600 Star Brewery
Dr., Suite 110, Dubuque, IA 52001. Our telephone number is (563) 690-4975.
Our Parent's principal executive offices are located at 3883 Howard Hughes Parkway, Ninth Floor, Las Vegas, NV 89169, and its
main telephone number is (702) 792-7200. Boyd's website is www.boydgaming.com.
Available Information
For periods after November 20, 2012, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and current reports
on Form 8-K, and amendments to these reports, are provided on Boyd's investor relationship website under “Peninsula Information”
at http://boydgaming.investorroom.com/. Certain documents listed as exhibits to this annual report on Form 10-K were previously
filed by Boyd with the SEC. Those filings are available on the SEC's website at http://www.sec.gov. A copy of any of the exhibits
included in this annual report on Form
that were not previously filed by Boyd with the SEC may be obtained by written
request to Boyd Gaming Corporation, 3883 Howard Hughes Parkway, Ninth Floor, Las Vegas, Nevada 89169, (702) 792-7200,
Attn: David Strow, Director of Corporate Communications. Boyd will provide reasonable quantities of electronic or paper copies
of filings free of charge upon request.
For periods prior to November 20, 2012, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and current reports
on Form 8-K, and amendments to these reports, filed by us with the SEC, are available on the SEC's website.
In addition, Boyd's Code of Business Conduct, Corporate Governance Guidelines, and charters of the Audit Committee,
Compensation and Stock Option Committee, and the Corporate Governance and Nominating Committee are available at
www.boydgaming.com.
Important Information Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Such statements contain words such as “may,” “will,” “might,” “expect,” “believe,” “anticipate,” "outlook," “could,”
“would,” “estimate,” “pursue,” "target," “project,” “intend,” “plan,” “seek,” “should,” “assume,” and “continue,” or the negative
thereof or comparable terminology, and may include statements regarding (all capitalized terms have the meaning ascribed to such
terms throughout this Annual Report on Form 10-K):
•
the factors that contribute to our ongoing success and our ability to be successful in the future;
•
our business model, areas of focus and strategy for driving business results;
•
competition, including expansion of gaming into additional markets including internet gaming, the impact of
competition on our operations, our ability to respond to such competition, and our expectations regarding
continued competition in the markets in which we compete;
•
our estimated effective income tax rates, estimated tax benefits, and merits of our tax positions;
•
the general effect, and expectation, of the national and global economy on our business, as well as the economies
where each of our properties are located;
•
our expenses;
•
indebtedness, including our ability to refinance or pay amounts outstanding under our Credit Facility and Notes
when they become due and our compliance with related covenants, and our expectation that we will need to
refinance all or a portion of our respective indebtedness at or before maturity;
•
our expectation regarding the trends that will affect the gaming industry over the next few years and the impact
of these trends on growth of the gaming industry, future development opportunities and merger and acquisition
activity in general;
•
our belief that consumer confidence will strengthen as the job market continues to recover and expand;
7
•
our expectations with respect to the valuation of tangible and intangible assets;
•
the type of covenants that will be included in any future debt instruments;
•
our expectations with respect to potential disruptions in the global capital markets, the effect of such disruptions
on consumer confidence and reduced levels of consumer spending and the impact of these trends on our financial
results;
•
our ability to meet our projected operating and maintenance capital expenditures and the costs associated with
our expansion, renovations and development of new projects;
•
our ability to make distributions to Boyd;
•
our commitment to finding opportunities to strengthen our balance sheet and to operate more efficiently;
•
our assumptions and expectations regarding our critical accounting estimates;
•
our expectations for capital improvement projects;
•
the impact of new accounting pronouncements on our consolidated financial statements;
•
that our Credit Facility and our cash flows from operating activities will be sufficient to meet our respective
projected operating and maintenance capital expenditures for the next twelve months;
•
our ability to fund any expansion projects using cash flows from operations and availability under the Credit
Facility;
•
our market risk exposure and efforts to minimize risk;
•
expansion, development, investment and renovation plans, including the scope of such plans, expected costs,
financing (including sources thereof and our expectation that long-term debt will substantially increase in
connection with such projects), timing and the ability to achieve market acceptance;
•
our belief that all pending litigation claims, if adversely decided, will not have a material adverse effect on our
business, financial position or results of operations;
•
that margin improvements will remain a driver of profit growth for us going-forward;
•
our belief that the risks to our business associated with the United States Coast Guard, ("USCG") inspection
should not change by reason of inspection by American Bureau of Shipping Consulting, ("ABSC");
•
development opportunities in existing or new jurisdictions and our ability to successfully take advantage of such
opportunities;
•
regulations, including anticipated taxes, tax credits or tax refunds expected, and the ability to receive and maintain
necessary approvals for our projects;
•
the outcome of various tax audits and assessments, including our appeals thereof, timing of resolution of such
audits, our estimates as to the amount of taxes that will ultimately be owed and the impact of these audits on
our consolidated financial statements;
•
our ability to utilize our net operating loss carryforwards and certain other tax attributes;
•
our expectations regarding Congress legalizing online gaming in the United States as well as the continued
expansion of online gaming as a result of the passage of new authorizing legislation in various states;
•
our asset impairment analyses and our intangible asset and goodwill impairment tests;
8
•
that operating results for previous periods are not necessarily indicative of future performance;
•
that estimates and assumptions made in the preparation of financial statements in conformity with U.S. GAAP
may differ from actual results;
•
our expectations regarding our cost containment efforts;
•
our belief that recently issued accounting pronouncements discussed in this Annual Report on Form 10-K will
not have a material impact on our financial statements;
•
our estimates as to the effect of any changes in our Consolidated EBITDA on our ability to remain in compliance
with certain Credit Facility covenants;
•
expectations, plans, beliefs, hopes or intentions regarding the future; and
•
assumptions underlying any of the foregoing statements.
Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed
in any such statement. Factors that could cause actual results to differ materially from such forward-looking statements include:
•
The effects of intense competition that exists in the gaming industry.
•
The prolonged effects from the recent economic downturn and its impact on consumer spending, as well as our
access to capital.
•
The fact that our expansion, development and renovation projects (including enhancements to improve property
performance) are subject to many risks inherent in expansion, development or construction of a new or existing
project, including:
•
design, construction, regulatory, environmental and operating problems and lack of demand for our
projects;
•
delays and significant cost increases, shortages of materials, shortages of skilled labor or work
stoppages;
•
poor performance or nonperformance of any of our partners or other third parties upon whom we are
relying in connection with any of our projects;
•
construction scheduling, engineering, environmental, permitting, construction or geological problems,
weather interference, floods, fires or other casualty losses;
•
failure by us, or our partners to obtain financing on acceptable terms, or at all; and
•
failure to obtain necessary government or other approvals on time, or at all.
•
The risk that the ABSC may not continue to allow in-place underwater inspections of our riverboat.
•
The risk that any of our projects may not be completed, if at all, on time or within established budgets, or that
any project will result in increased earnings to us.
•
The risk that significant delays, cost overruns, or failures of any of our projects to achieve market acceptance
could have a material adverse effect on our business, financial condition and results of operations.
•
The risk that our projects may not help us compete with new or increased competition in our markets.
•
The risk that new gaming licenses or jurisdictions become available (or offer different gaming regulations or
taxes) that results in increased competition to us.
9
•
The risk that the expansion of internet gaming in other jurisdictions could increase competition for our traditional
operations.
•
The risk associated with owning real property, including environmental regulation and uncertainties with respect
to environmental expenditures and liabilities.
•
The risk associated with challenges to legalized gaming in existing or current markets.
•
The risk that negative industry or economic trends, reduced estimates of future cash flows, disruptions to our
business, slower growth rates or lack of growth in our business, may result in significant write-downs or
impairments in future periods.
•
The risk that we may not receive gaming or other necessary licenses for new projects or that regulatory authorities
may revoke, suspend, condition or limit our gaming or other licenses, impose substantial fines and take other
adverse actions against any of our casino operations.
•
The risk that we may be unable to finance our expansion, development, investment and renovation projects,
including cost overruns on any particular project, as well as other capital expenditures through cash flow,
borrowings under our Credit Facility, and additional financings, which could jeopardize our expansion,
development, investment and renovation efforts.
•
The risk that we may be unable to refinance our outstanding indebtedness as it comes due, or that if we do
refinance, the terms are not favorable to us.
•
Risks associated with our ability to comply with the Consolidated Leverage and Interest Coverage ratios as
defined in our Credit Facility.
•
The effects of the extensive governmental gaming regulation and taxation policies that we are subject to, as well
as any changes in laws and regulations, including increased taxes, which could harm our business.
•
The effects of federal, state and local laws affecting our business such as the regulation of smoking, the regulation
of directors, officers, key employees and partners and regulations affecting business in general.
•
The effects of extreme weather conditions or natural disasters on our facilities and the geographic areas from
which we draw our customers, and our ability to recover insurance proceeds (if any).
•
The risks relating to mechanical failure and regulatory compliance at any of our facilities.
•
The risk that the instability in the financial condition of our lenders could have a negative impact on our Credit
Facility.
•
The effects of events adversely impacting the economy or the regions from which we draw a significant percentage
of our customers, including the effects of the recent economic recession, war, terrorist or similar activity or
disasters in, at, or around our properties.
•
The effects of energy price increases on our cost of operations and our revenues.
•
Financial community and rating agency perceptions of us, and the effect of economic, credit and capital market
conditions on the economy and the gaming industry.
•
The effect of the expansion of legalized gaming in the regions in which we operate.
•
The risk of failing to maintain the integrity of our information technology infrastructure and our business and
customer data.
•
Other risks affecting Boyd and our other affiliates, contained in Part 1, Item 1 Business - Important Information
Regarding Forward-Looking Statements in Boyd's Annual Report on Form 10-K for the fiscal year ended
December 31, 2014.
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Additional factors that could cause actual results to differ are discussed in Part I, Item 1A, Risk Factors of this Annual Report on
Form 10-K for the year ended December 31, 2014 and in other current and periodic reports provided from time to time. All forwardlooking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and
we assume no obligation to update any forward-looking statement.
ITEM 1A.
Risk Factors
In addition to the other information contained in this report on Form 10-K, the following Risk Factors should be considered
carefully in evaluating our business.
If any of the following risks actually occur, our business, financial condition and results of operations could be materially and
adversely affected. If this were to happen, the value of our senior notes, could decline significantly, and investors could lose all
or part of their investment.
This report is qualified in its entirety by these risk factors.
Risks Related to our Business
Our business is particularly sensitive to reductions in discretionary consumer spending as a result of downturns in the economy.
Consumer demand for entertainment and other amenities at casino properties, such as ours, is particularly sensitive to downturns
in the economy and the corresponding impact on discretionary spending on leisure activities. Changes in discretionary consumer
spending or consumer preferences brought about by factors such as perceived or actual general economic conditions, effects of
declines in consumer confidence in the economy, including the recent housing, employment and credit crisis, the impact of high
energy and food costs, the increased cost of travel, the potential for bank failures, decreased disposable consumer income and
wealth, or fears of war and future acts of terrorism could further reduce customer demand for the amenities that we offer, thus
imposing practical limits on pricing and negatively impacting our results of operations and financial condition.
For example, the recent housing crisis and economic slowdown in the United States resulted in a significant decline in the amount
of spending at our casino properties. While the economy has improved significantly since the end of the recent economic recession,
our business continues to experience lingering effects from changes in consumer spending habits due to the recession. We are
seeing improving economies in our local and regional markets. However, our customers are spending less per visit and differently
than prior to the recession, including focusing more on non-gaming amenities. We cannot say when, if ever, or to what extent,
customer behavior in our various markets will fully-revert to pre-recession behavior trends. If customers spend less per visit or
customers prefer non-gaming amenities of our competitors, and we are unable to increase total visitation, our business may be
adversely affected. Since our business model relies on consumer expenditures on entertainment, luxury and other discretionary
items, a slowing or stoppage of the economic recovery or a return to an economic downturn will further adversely affect our results
of operations and financial condition.
Intense competition exists in the gaming industry, and we expect competition to continue to intensify.
The gaming industry is highly competitive for both customers and employees, including those at the management level. We compete
with numerous casinos and hotel casinos of varying quality and size in market areas where our properties are located. We also
compete with other non-gaming resorts and vacation destinations, and with various other casino and other entertainment businesses,
including online gaming websites, and could compete with any new forms of gaming that may be legalized in the future. The
casino entertainment business is characterized by competitors that vary considerably in their size, quality of facilities, number of
operations, brand identities, marketing and growth strategies, financial strength and capabilities, level of amenities, management
talent and geographic diversity. In most markets, we compete directly with other casino facilities operating in the immediate and
surrounding market areas. In some markets, we face competition from nearby markets in addition to direct competition within our
market areas.
We expect that we will face increased competition from internet lotteries, sweepstakes, and other internet wagering gaming services,
which allow their customers to wager on a wide variety of sporting events and play Las Vegas-style casino games from home or
in non-casino settings. Such internet wagering services are often illegal under federal law but operate from overseas locations,
and are nevertheless sometimes accessible to domestic gamblers. Some states have recently passed legislation to permit online
gaming and several other states are currently considering legislation that would legalize internet gaming at the state level. Expansion
of internet gaming in other jurisdictions (both legal and illegal) could further compete with our traditional operations, which could
have an adverse impact on our business and result of operations.
With few new markets opening for development, competition in existing markets has intensified in recent years. We and our
competitors have invested in expanding existing facilities, developing new facilities, and acquiring established facilities in existing
markets. This expansion of existing casino entertainment properties, the increase in the number of properties and the aggressive
marketing strategies of many of our competitors have increased competition in many markets in which we compete, and this
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intense competition can be expected to continue. In addition, competition may intensify if our competitors commit additional
resources to aggressive pricing and promotional activities in order to attract customers.
Also, our business may be adversely impacted by the additional gaming and room capacity in states where we operate or intend
to operate. Several states are also considering enabling the development and operation of casinos or casino-like operations in their
jurisdictions.
The possible future expansion of gaming in Wisconsin, if approved, could impact the operating results of the Diamond Jo Dubuque.
Further, Kansas Star could, in the future, face competition from the Wichita Greyhound Park, located approximately 30 miles
away in Park City, Kansas. While gaming is not currently permitted in Sedgwick County, Kansas (the site of the Wichita Greyhound
Park), the Kansas Expanded Lottery Act permits the installation of slot machines at race tracks under certain conditions. If the
Kansas legislature authorized a new gaming referendum in Sedgwick County and such referendum was approved, and certain
other regulatory conditions were satisfied, the Wichita Greyhound Park could be permitted to install slot machines.
We also compete with legalized gaming from casinos located on Native American tribal lands. Expansion of Native American
gaming in areas located near our properties, or in areas in or near those from which we draw our customers, could have an adverse
effect on our operating results. Native American gaming facilities typically have a significant operating advantage over our
properties due to lower gaming fees or taxes, allowing those facilities to market more aggressively and to expand or update their
facilities at an accelerated rate. For example, Kansas Star may face additional competition in the Wichita, Kansas metropolitan
area. The Wyandotte Nation of Oklahoma previously filed an application with the U.S. Department of Interior to have certain land
located in Park City, Kansas (in the Wichita metro area) taken into trust by the U.S. Government and to permit gaming. In July
2014, the U.S. Department of Interior rejected the Wyandotte Nation's trust application for the Park City land. However, the
Wyandotte Nation has indicated it will seek to appeal this ruling. If an appeal were filed and ultimately successful, the Wyandotte
Nation would be permitted to open a Class II gaming facility, and upon successful negotiation of a compact with the State of
Kansas would be permitted to open a Class III gaming facility.
In addition, we also compete to some extent with other forms of gaming on both a local and national level, including state-sponsored
lotteries, charitable gaming, on-and off-track wagering, and other forms of entertainment, including motion pictures, sporting
events and other recreational activities. It is possible that these secondary competitors could reduce the number of visitors to our
facilities or the amount they are willing to wager, which could have a material adverse effect on our ability to generate revenue
or maintain our profitability and cash flows.
If our competitors operate more successfully than we do, if they attract customers away from us as a result of aggressive pricing
and promotion, if they are more successful than us in attracting and retaining employees, if their properties are enhanced or
expanded, if they operate in jurisdictions that give them operating advantages due to differences or changes in gaming regulations
or taxes, or if additional hotels and casinos are established in and around the locations in which we conduct business, we may lose
market share or the ability to attract or retain employees. In particular, the expansion of casino gaming in or near any geographic
area from which we attract or expect to attract a significant number of our customers could have a significant adverse effect on
our business, financial condition and results of operations.
In addition, increased competition may require us to make substantial capital expenditures to maintain and enhance the competitive
positions of our properties, including updating slot machines to reflect changing technology, refurbishing public service areas
periodically, replacing obsolete equipment on an ongoing basis and making other expenditures to increase the attractiveness and
add to the appeal of our facilities. Because we are highly leveraged, after satisfying our obligations under our outstanding
indebtedness, there can be no assurance that we will have sufficient funds to undertake these expenditures or that we will be able
to obtain sufficient financing to fund such expenditures. If we are unable to make such expenditures, our competitive position
could be materially adversely affected.
The recent global financial crisis and a prolonged economic recovery may have an effect on our business and financial condition,
as well as our access to capital, in ways that we currently cannot accurately predict.
The significant economic distress affecting financial institutions during the recent global financial crisis had far-reaching adverse
consequences across many industries, including the gaming industry. The crisis greatly restricted the availability of capital and
caused the cost of capital (if available) to be much higher than it has traditionally been. Although the financial markets have
recovered and availability of capital has increased, the financial markets remain volatile. There can be no assurance that we will
continue to have access to credit or capital markets at desirable times or at rates that we would consider acceptable, and the lack
of such funding could have a material adverse effect on our business, results of operations and financial condition, including our
ability to refinance our indebtedness, our flexibility to react to changing economic and business conditions and our ability or
willingness to fund new development projects.
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We are not able to predict the duration or strength of the current economic recovery, the resulting impact on the solvency or liquidity
of our lenders, or the possibility of a future recession. Prolonged slow growth or a downturn, or further worsening or broadening
of adverse conditions in worldwide and domestic economies could affect our lenders. If a large percentage of our lenders were to
file for bankruptcy or otherwise default on their obligations to us, we may not have the liquidity under our Credit Facility to fund
our current projects. There is no certainty that our lenders will continue to remain solvent or fund their respective obligations under
our Credit Facility. If we were otherwise required to renegotiate or replace our Credit Facility, there can be no assurance that we
would be able to secure terms that are as favorable to us, if at all.
We may incur impairments to goodwill, indefinite-lived intangible assets, or long-lived assets.
In accordance with the authoritative accounting guidance for goodwill and other intangible assets, we test our goodwill and
indefinite-lived intangible assets for impairment annually or if a triggering event occurs. We perform our annual impairment testing
for goodwill and indefinite-lived intangible assets as of October 1. The results of our annual scheduled impairment tests performed
in fourth quarter 2014 required us to record non-cash impairment charges of $0.3 million related to our ABC trademark and $1.4
million related to our ABC gaming license right. In addition, in accordance with the provisions of the authoritative accounting
guidance for the impairment or disposal of long-lived assets, we test long-lived assets for impairment if a triggering event occurs.
If our estimates of projected cash flows related to these assets are not achieved, we may be subject to future impairment charges,
which could have a material adverse impact on our consolidated financial statements.
Our expansion and development opportunities may face significant risks inherent in construction projects.
We regularly evaluate expansion, development, investment and renovation opportunities.
Any development projects we may undertake will be subject to many other risks inherent in the expansion or renovation of an
existing enterprise or construction of a new enterprise, including unanticipated design, construction, regulatory, environmental
and operating problems and lack of demand for our projects. Our current and future projects could also experience:
• changes to plans and specifications;
• delays and significant cost increases;
• shortages of materials;
• shortages of skilled labor or work stoppages for contractors and subcontractors;
• labor disputes or work stoppages;
• disputes with and defaults by contractors and subcontractors;
• health and safety incidents and site accidents;
• engineering problems, including defective plans and specifications;
• poor performance or nonperformance by any of our joint venture partners or other third parties on whom we place reliance;
• changes in laws and regulations, or in the interpretation and enforcement of laws and regulations, applicable to gaming
facilities, real estate development or construction projects;
• unforeseen construction scheduling, engineering, environmental, permitting, construction or geological problems;
• environmental issues, including the discovery of unknown environmental contamination;
• weather interference, floods, fires or other casualty losses;
• other unanticipated circumstances or cost increases; and
• failure to obtain necessary licenses, permits, entitlements or other governmental approvals.
The occurrence of any of these development and construction risks could increase the total costs of our construction projects, or
delay or prevent the construction or opening or otherwise affect the design and features of our construction projects, which could
materially adversely affect our plan of operations, financial condition and ability to satisfy our debt obligations.
In addition, actual costs and construction periods for any of our projects can differ significantly from initial expectations. Our
initial project costs and construction periods are based upon budgets, conceptual design documents and construction schedule
estimates prepared at inception of the project in consultation with architects and contractors. Many of these costs can increase
over time as the project is built to completion. We can provide no assurance that any project will be completed on time, if at all,
or within established budgets, or that any project will result in increased earnings to us. Significant delays, cost overruns, or failures
of our projects to achieve market acceptance could have a material adverse effect on our business, financial condition and results
of operations.
Although we design our projects to minimize disruption of our existing business operations, expansion and renovation projects
require, from time to time, all or portions of affected existing operations to be closed or disrupted. Any significant disruption in
operations of a property could have a significant adverse effect on our business, financial condition and results of operations.
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The failure to obtain necessary government approvals in a timely manner, or at all, can adversely impact our various expansion,
development, investment and renovation projects.
Certain permits, licenses and approvals necessary for some of our current or anticipated projects have not yet been obtained. The
scope of the approvals required for expansion, development, investment or renovation projects can be extensive and may include
gaming approvals, state and local land-use permits and building and zoning permits. Unexpected changes or concessions required
by local, state or federal regulatory authorities could involve significant additional costs and delay the scheduled openings of the
facilities. We may not obtain the necessary permits, licenses and approvals within the anticipated time frames, or at all.
Risks Related to the Regulation of our Industry
We are subject to extensive governmental regulation, as well as federal, state and local laws affecting business in general,
which may harm our business.
Our ownership, management and operation of gaming facilities are subject to extensive laws, regulations and ordinances which
are administered by the Iowa Racing and Gaming Commission, the Kansas Lottery Commission, the Kansas Racing and Gaming
Commission, the Louisiana State Gaming Control Board, the Louisiana State Racing Commission and various other federal, state
and local government entities and agencies. We are subject to regulations that apply specifically to the gaming industry and horse
racetracks and casinos, in addition to regulations applicable to businesses generally. A more detailed description of the governmental
gaming regulations to which we are subject has been filed as Exhibit 99.2 to our Parent's Annual Report on Form 10-K. If additional
gaming regulations are adopted in a jurisdiction in which we operate, such regulations could impose restrictions or costs that could
have a significant adverse effect on us. From time to time, various proposals are introduced in the legislatures of some of the
jurisdictions in which we have existing or planned operations that, if enacted, could adversely affect the tax, regulatory, operational
or other aspects of the gaming industry and our company.
To date, we have obtained all governmental licenses, findings of suitability, registrations, permits and approvals necessary for the
operation of our properties. However, we can give no assurance that any additional licenses, permits and approvals that may be
required will be given or that existing ones will be renewed or will not be revoked. Renewal is subject to, among other things,
continued satisfaction of suitability requirements. Any failure to renew or maintain our licenses or to receive new licenses when
necessary would have a material adverse effect on us.
Gambling
Legislative or administrative changes in applicable legal requirements, including legislation to prohibit casino gaming, have been
proposed in the past. For example, in 1996, the State of Louisiana adopted a statute in connection with which votes were held
locally where gaming operations were conducted and which, had the continuation of gaming been rejected by the voters, might
have resulted in the termination of operations at the end of their current license terms. During the 1996 local gaming referendums,
Lafayette Parish voted to disallow gaming in the Parish, whereas St. Landry Parish, the site of our racino, voted in favor of gaming.
All parishes where riverboat gaming operations are currently conducted voted to continue riverboat gaming, but there can be no
guarantee that similar referenda might not produce unfavorable results in the future. Proposals to amend or supplement the Louisiana
Riverboat Economic Development and Gaming Control Act and the Pari-Mutuel Act also are frequently introduced in the Louisiana
State legislature. In the 2001 session, a representative from Orleans Parish introduced a proposal to repeal the authority of horse
racetracks in St. Landry Parish (the site of Evangeline Downs) to conduct slot machine gaming at our horse racetrack and to repeal
the special taxing district created for such purpose. If adopted, this proposal would have effectively prohibited us from operating
the casino portion of our racino. In addition, the Louisiana legislature, from time to time, considers proposals to repeal the PariMutuel Act.
The legislation permitting gaming in Iowa authorizes the granting of licenses to “qualified sponsoring organizations.” Such
“qualified sponsoring organizations” may operate the gambling structure itself, subject to satisfying necessary licensing
requirements, or it may enter into an agreement with an operator to operate gambling on its behalf. An operator must be approved
and licensed by the Iowa Racing and Gaming Commission. The Dubuque Racing Association ("DRA"), a not-for-profit corporation
organized for the purpose of operating a pari-mutuel greyhound racing facility in Dubuque, Iowa, first received a riverboat gaming
license in 1990 and, pursuant to the Amended DRA Operating Agreement, has served as the “qualified sponsoring organization”
of the Diamond Jo Dubuque since March 18, 1993. The term of the Amended DRA Operating Agreement expires on December 31,
2018. The Worth County Development Authority ("WCDA"), pursuant to the Amended WCDA Operating Agreement, serves as
the “qualified sponsoring organization” of Diamond Jo Worth. The term of the Amended WCDA Operating Agreement expires
on March 31, 2025, and is subject to automatic ten-year renewal periods. If the Amended DRA Operating Agreement or Amended
WCDA Operating Agreement were to terminate, or if the DRA or WCDA were to otherwise discontinue acting as our “qualified
sponsoring organization” with respect to our operation of the Diamond Jo Dubuque or Diamond Jo Worth, respectively, and we
were unable to obtain approval from the Iowa Racing and Gaming Commission to partner with an alternative “qualified sponsoring
organization” as required by our gaming license, we would no longer be able to continue our Diamond Jo Dubuque or Diamond
Jo Worth operations, which would materially and adversely affect our business, results of operations and cash flows.
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Regulation of Smoking
Legislation in various forms to ban indoor tobacco smoking has recently been enacted or introduced in many states and local
jurisdictions, including the jurisdictions in which we operate. Kansas has attempted to pass legislation to regulate smoking in
casino and racetrack gaming floors during each of the past two years. The current restrictions limit the areas in which smoking in
the casinos is permitted in the jurisdictions in which we operate. If additional restrictions on smoking are enacted in such
jurisdictions, particularly if such restrictions ban tobacco smoking on the casino gaming floor, our business could be materially
and adversely affected.
Regulation of Directors, Officers, Key Employees and Partners
Our directors, officers, and key employees must meet approval standards of certain state regulatory authorities. If state regulatory
authorities were to find a person occupying any such position unsuitable, we would be required to sever our relationship with that
person. State regulatory agencies may conduct investigations into the conduct or associations of our directors, officers, and key
employees to ensure compliance with applicable standards.
Certain public and private issuances of securities and other transactions that we are party to also require the approval of some state
regulatory authorities.
Live Racing Regulations
Louisiana gaming regulations and our gaming license for the Evangeline Downs require that we, among other things, conduct a
minimum of 80 live racing days in a consecutive 20-week period each year of live horse race meetings at the horse racetrack. Live
racing days typically vary in number from year to year and are based on a number of factors, many of which are beyond our
control, including the number of suitable race horses and the occurrence of severe weather. If we fail to have the minimum number
of racing days, our gaming license with respect to the racino may be canceled, and the casino will be required to cease operations.
Any cessation of our operations at the Evangeline Downs would have a material adverse effect on our business, prospects, financial
condition, results of operations and cash flows.
Regulations Affecting Businesses in General
In addition to gaming regulations, we are also subject to various federal, state and local laws and regulations affecting businesses
in general. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages,
environmental matters, smoking, employees, currency transactions, taxation, zoning and building codes, and marketing and
advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations
could be enacted.
We are subject to extensive taxation policies, which may harm our business.
The federal government has, from time to time, considered a federal tax on casino revenues and may consider such a tax in the
future. If such an increase were to be enacted it could adversely affect our business, financial conditions, results of operations,
and cash flow. Our ability to incur additional indebtedness in the future to finance casino development projects could be materially
and adversely affected. In addition, gaming companies are currently subject to significant state and local taxes and fees, in addition
to normal federal and state corporate income taxes, and such taxes and fees are subject to increase at any time.
We are subject to significant taxes and fees relating to our gaming operations, which are subject to increase at any time. Currently,
in Iowa, we are taxed at an effective rate of approximately 21.5% of our adjusted gross receipts by the State of Iowa, we pay the
city of Dubuque a fee equal to $500,000 per year and we pay a fee equal to 4.5% and 5.76% of adjusted gross receipts to the DRA
and WCDA, respectively. In addition, all Iowa gaming licensees share equally in the costs of the Iowa Racing and Gaming
Commission and related entities to administer gaming in Iowa, which is currently approximately $0.9 million per year per facility.
Currently, EVD is taxed at an effective rate of approximately 36.5% of adjusted gross slot revenue and pay to the Louisiana State
Racing Commission a fee of $0.25 for each patron who enters its racino on live race days from the hours of 6:00 pm to midnight,
enters its racino during non-racing season from the hours of noon to midnight Thursday through Monday, or enters any one of its
off-track betting parlors. ABC's riverboat casino in Louisiana pays an annual state gaming tax rate of 21.5% of adjusted gross
receipts. Additionally, ABC has an agreement with the Parish of St. Mary to permit the berthing of the riverboat casino in Amelia,
Louisiana. That agreement provides for percentage fees based on the level of net gaming revenue as follows: the first $60 million,
2.5%; $60 to $96 million, 3.5%; and greater than $96 million, 5.0%. The annual minimum fee due under the agreement is $1.5
million. KSC, pursuant to its Management Contract with the State of Kansas pays total taxes of between 27% and 31% of gross
gaming revenue, based on achievement of the following revenue levels: 27% on gross gaming revenue up to $180 million, 29%
on amounts from $180 million to $220 million, and 31% on amounts above $220 million in gross gaming revenue. KSC is also
contractually obligated to pay its proportionate share of certain expenses incurred by the Kansas Lottery Commission and the
Kansas Racing and Gaming Commission, which are estimated to range from $3.0 million to $4.0 million on an annual basis.
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If there is any material increase in state and local taxes and fees, our business, financial condition and results of operations could
be adversely affected.
We own real property and are subject to extensive environmental regulation, which creates uncertainty regarding future
environmental expenditures and liabilities, and could affect our ability to develop, sell or rent our property or to borrow money
where such property is required to be used as collateral.
We are subject to various federal, state and local environmental laws, ordinances and regulations, including those governing
discharges to air and water, the generation, handling, management and disposal of petroleum products or hazardous substances
or wastes, and the health and safety of our employees. Permits may be required for our operations and these permits are subject
to renewal, modification and, in some cases, revocation. In addition, under environmental laws, ordinances or regulations, a current
or previous owner or operator of property may be liable for the costs of investigation and removal or remediation of some kinds
of hazardous substances or petroleum products on, under, or in its property, without regard to whether the owner or operator knew
of, or caused, the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were
legal at the time they occurred. Additionally, as an owner or operator, we could also be held responsible to a governmental entity
or third parties for property damage, personal injury and investigation and cleanup costs incurred by them in connection with any
contamination. The liability under those laws has been interpreted to be joint and several unless the harm is divisible and there is
a reasonable basis for allocation of the responsibility. The costs of investigation, remediation or removal of those substances may
be substantial, and the presence of those substances, or the failure to remediate a property properly, may impair our ability to use
our property.
The presence of, or failure to remediate properly, the substances may adversely affect the ability to sell or rent the property or to
borrow funds using the property as collateral. Additionally, the owner of a site may be subject to claims by third parties based on
damages and costs resulting from environmental contamination emanating from a site. As part of our business in Worth County,
Iowa, we operate a gas station, which includes a number of underground storage tanks containing petroleum products.
We have reviewed environmental assessments, in some cases including soil and groundwater testing, relating to our currently
owned and leased properties in Dubuque, Iowa, and other properties we may lease from the City of Dubuque or other parties. As
a result, we have become aware that there is contamination present on some of these properties apparently due to past industrial
activities. Furthermore, the location of the Kansas Star is the site of several non-operational oil wells, the remediation of which
has been addressed in connection with the construction of the development project. We have also reviewed environmental
assessments and are not aware of any environmental liabilities related to our properties at Evangeline Downs, Diamond Jo Worth
and Amelia Belle.
It is possible that future developments could lead to material costs of environmental compliance for us and that these costs could
have a material adverse effect on our business and financial condition, operating results and cash flows.
Risks Related to our Properties
We own facilities that are located in areas that experience extreme weather conditions.
Extreme weather conditions may interrupt our operations, damage our properties and reduce the number of customers who visit
our facilities in the affected areas.
For example, Amelia Belle was negatively impacted by the opening of the Morganza Spillway in May 2011, due to imminent
threat of severe flooding. In addition, certain of our properties have been forced to close due to hurricanes. Hurricane Gustav
forced the closure of Evangeline Downs for five days in 2008 and Amelia Belle was closed from August 2005 to May 2007 due
to Hurricane Katrina.
In addition to the risk of flooding and hurricanes, snowstorms and other adverse weather conditions may interrupt our operations,
damage our properties and reduce the number of customers who visit our facilities in an affected area. For example, during January
and February 2011 and again during the first quarter 2014 much of the country was impacted by unusually severe winter weather,
particularly in the Midwest. These storms made it very difficult for our customers to visit, and we believe such winter weather
had a material and adverse impact on the results of DJL and DJW during such times. If there is a prolonged disruption at any of
our properties due to natural disasters, terrorist attacks or other catastrophic events, our results of operations and financial condition
could be materially adversely affected.
To maintain our gaming license for our Evangeline Downs racino, we must conduct a minimum of 80 live racing days in a
consecutive 20-week period each year of live horse race meetings at the racetrack, and poor weather conditions may make it
difficult for us to comply with this requirement.
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While we maintain insurance coverage that may cover certain of the costs and loss of revenue that we incur as a result of some
extreme weather conditions, our coverage is subject to deductibles and limits on maximum benefits. There can be no assurance
that we will be able to fully collect, if at all, on any claims resulting from extreme weather conditions. If any of our properties are
damaged or if their operations are disrupted as a result of extreme weather in the future, or if extreme weather adversely impacts
general economic or other conditions in the areas in which our properties are located or from which they draw their patrons, our
business, financial condition and results of operations could be materially adversely affected.
Our insurance coverage may not be adequate to cover all possible losses that our properties could suffer. In addition, our
insurance costs may increase and we may not be able to obtain similar insurance coverage in the future.
Although we have “all risk” property insurance coverage for our operating properties, which covers damage caused by a casualty
loss (such as fire, natural disasters, acts of war, or terrorism), each policy has certain exclusions. In addition, our property insurance
coverage is in an amount that may be significantly less than the expected replacement cost of rebuilding the facilities if there was
a total loss. Our level of insurance coverage also may not be adequate to cover all losses in the event of a major casualty. In
addition, certain casualty events, such as labor strikes, nuclear events, acts of war, loss of income due to cancellation of room
reservations or conventions due to fear of terrorism, deterioration or corrosion, insect or animal damage and pollution, may not
be covered at all under our policies. Therefore, certain acts could expose us to substantial uninsured losses.
We also have “builder's risk” insurance coverage for our development and expansion projects. Builder's risk insurance provides
coverage for projects during their construction for damage caused by a casualty loss. In general, our builder's risk coverage is
subject to the same exclusions, risks and deficiencies as those described above for our all-risk property coverage. Our level of
builder's risk insurance coverage may not be adequate to cover all losses in the event of a major casualty.
We renew our insurance policies (other than our builder's risk insurance) on an annual basis. The cost of coverage may become
so high that we may need to further reduce our policy limits or agree to certain exclusions from our coverage.
Our debt instruments and other material agreements require us to meet certain standards related to insurance coverage. Failure to
satisfy these requirements could result in an event of default under these debt instruments or material agreements.
We draw a significant percentage of our customers from certain geographic regions. Events adversely impacting the economy
or these regions, including public health outbreaks and man-made or natural disasters, may adversely impact our business.
The strength and profitability of our business depends on consumer demand for hotel casino resorts in general and for the type of
amenities our properties offer. Changes in consumer preferences or discretionary consumer spending could harm our business.
The terrorist attacks of September 11, 2001, other terrorist activities in the United States and elsewhere, military conflicts in Iraq,
Afghanistan and elsewhere, outbreaks of infectious disease and pandemics, adverse weather conditions and natural disasters,
among other things, have had negative impacts on travel and leisure expenditures. In addition, other factors affecting travel and
discretionary consumer spending, including general economic conditions, disposable consumer income, fears of further economic
decline and reduced consumer confidence in the economy, may negatively impact our business. We cannot predict the extent to
which similar events and conditions may continue to affect us in the future. An extended period of reduced discretionary spending
and/or disruptions or declines in tourism could significantly harm our operations.
Furthermore, our facilities are subject to the risk that operations could be halted for a temporary or extended period of time, as a
result of casualty, flooding, forces of nature, adverse weather conditions, mechanical failure, or extended or extraordinary
maintenance, among other causes. If there is a prolonged disruption at any of our properties due to natural disasters, terrorist
attacks or other catastrophic events, our results of operations and financial condition could be materially adversely affected.
The outbreak of public health threats at any of our properties or in the areas in which they are located, or the perception that such
threats exist, including pandemic health threats, such as the avian influenza virus, SARS, Ebola or the H1N1 flu, among others,
could have a significant adverse effect on our business, financial condition and results of operations. Likewise, adverse economic
conditions that affect the global, national or regional economies in which we operate, whether resulting from war, terrorist activities
or other geopolitical conflict, weather, general or localized economic downturns or related events or other factors, could have a
significant adverse effect on our business, financial condition and results of operations.
Energy price increases may adversely affect our cost of operations and our revenues.
Our casino properties use significant amounts of electricity, natural gas and other forms of energy. While no shortages of energy
or fuel have been experienced to date, substantial increases in energy and fuel prices in the United States have, and may continue
to, negatively affect our results of operations. The extent of the impact is subject to the magnitude and duration of the energy and
fuel price increases, of which the impact could be material. In addition, energy and gasoline price increases could result in a decline
of disposable income of potential customers, an increase in the cost of travel and a corresponding decrease in visitation and spending
at our properties, which could have a significant adverse effect on our business, financial condition and results of operations.
17
Our facilities, including our riverboat, are subject to risks relating to mechanical failure and regulatory compliance.
Generally, all of our facilities are subject to the risk that operations could be halted for a temporary or extended period of time, as
the result of casualty, forces of nature, mechanical failure, or extended or extraordinary maintenance, among other causes. In
addition, our gaming operations, including those conducted on our ABC riverboat could be damaged or halted due to extreme
weather conditions.
As a general matter, riverboat gaming operations must comply with USCG requirements as to boat design, on-board facilities,
equipment, personnel and safety. Each riverboat must hold a Certificate of Inspection for stabilization and flotation, and may also
be subject to local zoning codes. The USCG requirements establish design standards, set limits on the operation of the vessels and
require individual licensing of all personnel involved with the operation of the vessels. Loss of a vessel's Certificate of Inspection
would preclude its use as a casino.
USCG regulations require a hull inspection for all riverboats at five-year intervals. Under certain circumstances, alternative hull
inspections may be approved. The USCG may require that such hull inspections be conducted at a dry-docking facility, and if so
required, the cost of travel to and from such docking facility, as well as the time required for inspections of the affected riverboats,
could be significant. To date, the USCG has allowed in-place underwater inspections of our riverboat twice every five years on
alternate two and three year schedules.
Louisiana, however, has adopted alternate inspection standards for riverboats in the state. The standards require inspection by the
ABSC. As such, the Amelia Belle is subject to inspection by ABSC, in lieu of USCG inspection. However, ABSC imposes essentially
the same design, personnel, safety, and hull inspection standards as the USCG. Therefore, the risks to our business associated with
USCG inspection should not change by reason of inspection by ABSC. Failure of a vessel to meet the applicable ABSC standards
would preclude its use as a casino.
USCG regulations also require us to prepare and follow certain security programs. In 2004, we implemented the American Gaming
Association's Alternative Security Program at our riverboat casino. The American Gaming Association's Alternative Security
Program is specifically designed to address maritime security requirements at riverboat casinos and their respective dockside
facilities. Only portions of those regulations will apply to ABC, as its riverboat is inspected by ABSC. Changes to these regulations
could adversely affect our business, financial condition and results of operations.
Failure to maintain the integrity of our information technology systems, protect our internal information, or comply with
applicable privacy and data security regulations could adversely affect us.
We rely extensively on our computer systems to process customer transactions, manage customer data, manage employee data
and communicate with third-party vendors and other third parties, and we may also access the internet to use our computer systems.
Our operations require that we collect and store customer data, including credit card numbers and other personal information, for
various business purposes, including marketing and promotional purposes. We also collect and store personal information about
our employees. Breaches of our security measures or information technology systems or the accidental loss, inadvertent disclosure
or unapproved dissemination of proprietary information or sensitive personal information or confidential data about us, or our
customers, or our employees including the potential loss or disclosure of such information as a result of hacking or other cyberattack, computer virus, fraudulent use by customers, employees or employees of third party vendors, trickery or other forms of
deception or unauthorized use, or due to system failure, could expose us, our customers, our employees or other individuals affected
to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our casinos or brand names
and reputations or otherwise harm our business. We rely on proprietary and commercially available systems, software, tools and
monitoring to provide security for processing, transmission and storage of customer information, such as payment card employee
information and other confidential or proprietary information. Our data security measures are reviewed and evaluated regularly,
however they might not protect us against increasingly sophisticated and aggressive threats. The cost and operational consequences
of implementing further data security measures could be significant.
Additionally, the collection of customer and employee personal information imposes various privacy compliance related obligations
on our business and increases the risks associated with a breach or failure of the integrity of our information technology systems. The
collection and use of personal information is governed by privacy laws and regulations enacted in the United States and other
jurisdictions around the world. Privacy regulations continue to evolve and on occasion may be inconsistent from one jurisdiction
to another. Compliance with applicable privacy laws and regulations may increase our operating costs and/or adversely impact
our ability to market our products, properties and services to our customers. In addition, non-compliance with applicable privacy
laws and regulations by us (or in some circumstances non-compliance by third party service providers engaged by us) may also
result in damage of reputation, result in vulnerabilities that could be exploited to breach our systems and/or subject us to fines,
payment of damages, lawsuits or restrictions on our use or transfer of personal information.
18
Risks Related to our Indebtedness
We have a significant amount of indebtedness.
If we pursue, or continue to pursue, any expansion, development, investment or renovation projects, we expect that our long-term
debt will substantially increase in connection with related capital expenditures. This indebtedness could have important
consequences, including:
•
•
•
•
•
•
difficulty in satisfying our obligations under our current indebtedness;
increasing our vulnerability to general adverse economic and industry conditions;
requiring us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness,
which would reduce the availability of our cash flows to fund working capital, capital expenditures, expansion
efforts and other general corporate purposes;
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
placing us at a disadvantage compared to our competitors that have less debt; and
limiting, along with the financial and other restrictive covenants in our indebtedness, among other things, our
ability to borrow additional funds.
Our debt instruments contain, and any future debt instruments likely will contain, a number of restrictive covenants that impose
significant operating and financial restrictions on us, including restrictions on our ability to, among other things:
•
•
•
•
•
•
•
•
incur additional debt, including providing guarantees or credit support;
incur liens securing indebtedness or other obligations;
make certain investments:
dispose of assets;
pay dividends or make distributions and make other restricted payments;
enter into sale and leaseback transactions;
engage in any new businesses; and
enter into transactions with our equity holders and our affiliates.
Failure to comply with these covenants could result in an event of default, which, if not cured or waived, could have a significant
adverse effect on our business, results of operations and financial condition.
We have a significant amount of indebtedness which contain restrictive covenants that impose significant operating and financial
restrictions, including limitations on dividends, distributions and certain other restricted payments, which could have a significant
adverse effect on our business, results of operations and financial condition.
Note 8, Long-Term Debt, included in the notes to our audited consolidated financial statements provided in Item 8 of this Annual
Report on Form 10-K, contains further disclosure regarding our current outstanding debt.
The increase in our consolidated leverage and debt service obligations as a result of the Merger, may adversely affect our
consolidated financial condition, results of operations and cash flows.
As a result of our merger with a subsidiary of Boyd, pursuant to which we became a wholly owned subsidiary of Boyd (the
"Merger"), we now have a greater amount of debt on a consolidated basis than we had maintained in the past. Our maintenance
of higher levels of indebtedness could have adverse consequences including impairing our ability to obtain additional financing
in the future.
Our ability to meet our expenses and debt obligations will depend on our future performance, which will be affected by financial,
business, economic, regulatory and other factors. Furthermore, our operations may not generate sufficient cash flows to enable us
to meet our expenses and service our debt. As a result, we may need to enter into new financing arrangements to obtain the necessary
funds. If we determine that it is necessary to seek additional funding for any reason, we may not be able to obtain such funding
or, if funding is available, obtain it on acceptable terms. If we fail to make a payment on our debt, we could be in default on such
debt, and this default could cause us to be in default on our other outstanding indebtedness.
The terms of our indebtedness limit payment of dividends (other than tax distributions), distributions and management fees from
PGL to Boyd and its subsidiaries.
19
To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors
beyond our control.
Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures and expansion efforts
will depend upon our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our control.
It is unlikely that our business will generate sufficient cash flows from operations, or that future borrowings will be available to
us under our Credit Facility in amounts sufficient to enable us to pay our indebtedness, as such indebtedness matures and to fund
our other liquidity needs. We believe that we will need to refinance all or a portion of our indebtedness, at or before maturity, and
cannot provide assurances that we will be able to refinance any of our indebtedness, including amounts borrowed under our Credit
Facility, on commercially reasonable terms, or at all. We may have to adopt one or more alternatives, such as reducing or delaying
planned expenses and capital expenditures, selling assets, restructuring debt, or obtaining additional equity or debt financing or
joint venture partners. These financing strategies may not be affected on satisfactory terms, if at all. In addition, certain states'
laws contain restrictions on the ability of companies engaged in the gaming business to undertake certain financing transactions.
Some restrictions may prevent us from obtaining necessary capital.
We and our subsidiaries may still be able to incur substantially more debt, which could further exacerbate the risks described
above.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indenture governing
our Notes will not fully prohibit us or our subsidiaries from doing so. Approximately $36.4 million was available for borrowing
under our Credit Facility as of December 31, 2014. All of those borrowings would be effectively senior to our Notes and the
guarantees of our subsidiary guarantors to the extent of the value of the collateral securing such borrowings. If new debt is added
to our, or our subsidiaries', current debt levels, the related risks that we or they now face could intensify.
If we are unable to finance our expansion, development, investment and renovation projects, as well as other capital
expenditures, through cash flow from operations, borrowings under our Credit Facility and additional financings, our
expansion, development, investment and renovation efforts will be jeopardized.
We intend to finance our current and future expansion, development, investment and renovation projects, as well as our other
capital expenditures, primarily with cash flow from operations, borrowings under our Credit Facility, and debt financings. If we
are unable to finance our current or future expansion, development, investment and renovation projects, or our other capital
expenditures, we will have to adopt one or more alternatives, such as reducing, delaying or abandoning planned expansion,
development, investment and renovation projects as well as other capital expenditures, selling assets, restructuring debt, obtaining
additional financing or joint venture partners, or modifying our Credit Facility. These sources of funds may not be sufficient to
finance our expansion, development, investment and renovation projects, and other financing may not be available on acceptable
terms, in a timely manner, or at all. In addition, our existing indebtedness contains certain restrictions on our ability to incur
additional indebtedness.
Recently, there were significant disruptions in the global capital markets that adversely impacted the ability of borrowers to access
capital. Although the financial markets have seen recent signs of recovery and increased availability of capital, the financial markets
are still fragile and remain volatile. We anticipate that funding for any of our expansion projects would come from cash flows
from operations and availability under our Credit Facility (to the extent that availability exists under our Credit Facility, as applicable,
after we meet our working capital needs).
If availability under our Credit Facility does not exist or we are otherwise unable to make sufficient borrowings thereunder, any
additional financing that is needed may not be available to us or, if available, may not be on terms favorable to us. As a result, if
we are unable to obtain adequate project financing in a timely manner, or at all, we may be forced to sell assets in order to raise
capital for projects, limit the scope of, or defer such projects, or cancel the projects altogether. In the event that capital markets
deteriorate and we are unable to access capital with more favorable terms, additional equity and/or credit support may be necessary
to obtain construction financing for the remaining cost of the project.
ITEM 1B.
None
Unresolved Staff Comments
ITEM 2.
Properties
Information relating to the location and general characteristics of our properties is provided in Part I, Item 1, Business - Properties,
and is incorporated herein by reference.
20
As of December 31, 2014, some of our casinos are located on leased property, including:
•
Diamond Jo Dubuque, located on 7 acres of owned land and leases approximately 2 acres of parking surfaces.
•
Diamond Jo Worth, located on 36 acres of owned land and 10 acres of leased land. Diamond Jo Worth also owns 268
acres of land and leases 30 acres of land in Emmons, Minnesota on which a nine-hole golf course and a nine-station
sporting clay course and hunting facility are located.
•
Evangeline Downs, located on 649 acres of owned land and leases the facilities that comprise the Henderson, Eunice and
St. Martinville OTBs.
In addition, PGL leases approximately 10,876 square feet of office space in Dubuque, Iowa.
ITEM 3.
Legal Proceedings
We are parties to various legal proceedings arising in the ordinary course of business. We believe that all pending claims, if
adversely decided, would not have a material adverse effect on our business, financial position or results of operations.
ITEM 4.
Not applicable
Mine Safety Disclosures
21
PART II
ITEM 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
There is no established public trading market for any of the Company's or PGC's common equity securities.
As of December 31, 2014, Boyd Acquisition II, LLC ("HoldCo "), an indirect wholly owned subsidiary of Boyd, was the only
holder of record of the common equity of the Company, and PGC is a wholly owned subsidiary of the Company. During the year
ended December 31, 2014, there were no distributions made. During the year ended December 31, 2013, the Company paid
distributions totaling $9.5 million to Boyd Acquisition, LLC, a direct wholly owned subsidiary of Boyd.
Significant restrictions exist on our ability to make member distributions. See Note 8 to the consolidated financial statements for
information on such restrictions.
22
ITEM 6.
Selected Financial Data
The selected consolidated financial data presented has been derived from our audited consolidated financial statements. This
information should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of
Operations and our audited Consolidated Financial Statements and accompanying notes thereto.
Successor
(In thousands)
Statement of Operations Data:
Net revenues
Operating income
Income (loss) before income taxes
Net income (loss)
Predecessor
Nov. 20,
2012
through
Dec. 31,
2012 (c)
Jan. 1,
2012
through
Nov. 19,
2012 (d)
2011 (e)
2010
56,925
$ 465,188
$ 332,330
$ 314,859
2014 (a)
2013 (b)
$ 493,851
$ 520,329
77,648
69,498
4,729
97,364
55,742
60,860
1,015
(14,677)
(5,225)
(43,210)
(10,301)
3,482
(13,409)
(25,173)
(5,225)
(43,210)
(10,301)
3,482
$
2014
Successor
2013
2012
Predecessor
2011
2010
$ 29,926
1,459,530
1,084,150
251,781
$ 31,175
1,511,607
1,143,903
263,725
$ 32,239
1,604,777
1,196,162
299,195
$ 68,151 $ 19,650
727,643
539,805
683,454
540,627
(88,663)
(71,869)
—
—
Balance Sheet Data:
Cash and cash equivalents
Total assets
Long-term debt, net of current maturities
Total member's equity (deficit)
Other Data:
Ratio of earnings to fixed charges (f)
1.0 x
—
—
1.1 x
(a) 2014 includes $1.7 million in pretax, noncash impairment charges to the ABC gaming license right and trademark; $1.5 million
in pretax loss on debt extinguishments and modifications; and $32.5 million in pretax amortization expense on finite lived intangible
assets identified as a result of the Merger.
(b) 2013 includes $3.2 million in pretax, noncash impairment charges to the respective trademarks of DJL, DJW, EVD, and ABC;
$1.6 million in pretax asset write-downs related to the Kansas Star development project; $3.3 million in pretax loss on debt
extinguishments and modifications; and $45.9 million in pretax amortization expense on finite lived intangible assets identified
as a result of the Merger.
(c) November 20, 2012 through December 31, 2012 includes $9.1 million in pretax amortization expense on finite lived intangible
assets identified as a result of the Merger. This period also includes a full period of results of Kansas Star, which opened December
20, 2011.
(d) January 1, 2012 through November 19, 2012 includes $29.3 million in Merger-related costs and $79.6 million in loss on debt
extinguishments and modifications resulting from the change in capital structure upon consummation of the Merger. This period
also includes a full period of results of KSC, which opened December 20, 2011.
(e) 2011 includes $10.9 million of incremental interest expense for additional debt issued to fund the development of Kansas Star
prior to having cash inflow from the underlying operations and $10.1 million in preopening expenses related to such development.
23
(f) For purposes of computing this ratio, “earnings” consist of income (loss) before income taxes and income (loss) from
unconsolidated affiliates, plus fixed charges (excluding capitalized interest). “Fixed charges” include interest whether expensed
or capitalized, amortization of debt expense, discount, or premium related to indebtedness (included in interest expense), and such
portion of rental expense that we deem to be a reasonable representation of the interest factor. Due primarily to Merger-related
costs for the period from January 1, 2012 through November 19, 2012 and certain non-cash charges deducted in the determination
of our earnings, the earnings were less than fixed charges by $13.9 million, $5.3 million, $45.3 million, and $12.5 million for the
year ended December 31, 2013, the period from November 20, 2012 through December 31, 2012, the period from January 1, 2012
through November 19, 2012 and the year ended December 31, 2011, respectively.
24
ITEM 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and the related notes thereto
and other financial information included in this Annual Report on Form 10-K. In addition to the historical information, certain
statements in this discussion are forward-looking statements based on current expectations that involve risks and uncertainties.
Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements.
EXECUTIVE OVERVIEW
Peninsula Gaming, LLC (the "Company," "PGL," "we" or "us") is a multi-jurisdictional gaming company that has been operating
for over 15 years.
We are a diversified operator of five wholly owned gaming entertainment properties operating in Iowa, Kansas and Louisiana.
We view each property as an operating segment, and for financial reporting purposes we aggregate our properties into one reportable
segment. These properties are:
Diamond Jo Dubuque ("DJL")
Diamond Jo Worth ("DJW")
Kansas Star Casino ("KSC")
Amelia Belle Casino ("ABC")
Evangeline Downs Racetrack and Casino ("EVD")
Dubuque, Iowa
Northwood, Iowa
Mulvane, Kansas
Amelia, Louisiana
Opelousas, Louisiana
EVD also operates three off-track betting parlors ("OTBs") in Louisiana (a fourth OTB closed in March 2015), and PGL also owns
Peninsula Gaming Corp. ("PGC"), a Delaware corporation with no assets or operations.
We operate gaming entertainment properties, all of which include dining and most of which also include retail and other amenities.
Our main business emphasis is on slot revenues, which are highly dependent upon the number and spending levels of customers
at our properties, which affects our operating results.
Our properties have historically generated significant operating cash flow, with the majority of our gaming revenue being cashbased and non-gaming services being paid by cash or credit card.
Our industry is capital intensive and we rely heavily on the ability of our properties to generate operating cash flow in order to
fund maintenance capital expenditures, provide excess cash for future development, repay debt financing and associated interest
costs, pay management fees, pay income taxes and make distributions.
Our focus has been and will continue to remain on: (i) ensuring our existing operations are managed as efficiently as possible,
and remain positioned for growth; and (ii) improving our capital structure and strengthening our balance sheet, including paying
down debt, and strengthening our operations.
Our Strategy
Our overriding strategy is to increase our enterprise value by pursuing strategic initiatives that improve and grow our business.
Strengthening our Balance Sheet
We are committed to finding opportunities to strengthen our balance sheet by increasing cash flow to reduce our debt.
Operating Efficiently
We are committed to operating efficiently, and endeavor to prevent unneeded expense in our business. The efficiencies of our
business model position us to capture a substantial portion of revenue gains, which directly improves the bottom line.
Maintaining our Brand
The ability of our employees to deliver great customer service helps distinguish our Company and our brands from those of our
competitors. Our employees are an important reason that our customers continue to choose our properties over the competition
in our markets.
25
Our Key Performance Indicators
We use several key performance measures to evaluate the gaming operations of our properties. These key performance measures
include the following:
•
•
•
Slot handle, which means the dollar amount wagered in slot machines, and table game drop, which means the
total amount of cash deposited in table game drop boxes. Slot handle and table game drop are measures of
volume and/or market share.
Slot win and table game hold, which mean the difference between customer wagers and customer winnings on
slot machines and table games, respectively. Slot win and table game hold percentages represent the relationship
between slot handle and table game drop to gaming wins and losses.
Racing handle means the total amount wagered on live racing at our EVD facility as well as amounts wagered
on simulcast races at our racino or one of our OTBs. Racing win is EVD's share of pari-mutuel wagering on
live races from commissions and breakage income and EVD's share of wagering from import and export
simulcasting.
RESULTS OF OPERATIONS
Overview
In accordance with accounting principles generally accepted in the United States of America (“GAAP”), we have separated our
historical financial results for the Successor period and the Predecessor period; however, we have also combined results for the
Successor and Predecessor periods for 2012 in the discussion of changes presented below because we believe that it enables a
meaningful presentation and comparison of results. As a result of the application of purchase accounting as of the Merger date,
financial information for the Successor periods and the Predecessor periods are presented on different bases and are, therefore,
not comparable for certain financial statement line items.
Successor
(In millions)
Net revenues
Operating income
Net loss
2014
$
493.9
77.6
(13.4)
2013
$
520.3
69.5
(25.2)
Nov. 20, 2012
through
Dec. 31, 2012
$
56.9
4.7
(5.2)
Predecessor
Jan. 1, 2012
through
Nov. 19, 2012
$
465.2
97.4
(43.2)
Combined
2012
$
522.1
102.1
(48.4)
Net Revenues
In 2014, net revenues decreased $26.4 million, or 5.1%, compared to 2013 due primarily to a $26.8 million, or 5.5%, combined
gaming revenue decline at our properties. We experienced soft market conditions and the continuing impact of a slow recovery
of consumer spending in each of our markets.
In 2013, net revenues decreased $1.8 million, or 0.3%, compared to 2012. Despite an increase in net revenues at KSC of $14.9
million, or 7.9%, from opening the permanent facility on December 12, 2012, net revenues at our Iowa and Louisiana properties
declined 3.2% to 6.8%. Iowa was negatively impacted by unusual late-season winter weather conditions, flooding and softness
in the casual gaming segment. Louisiana was negatively impacted by a slow recovery of consumer spending in each of our markets
and increased capacity.
Operating Income
In 2014, operating income increased $8.1 million, or 11.7%, compared to 2013. The increase is driven by a $13.4 million decrease
in intangible asset amortization as our customer relationships are amortized using an accelerated method and there was no
amortization in 2014 for the non-competition agreement that expired on November 20, 2013. Additionally, there was a $4.2 million
decrease in selling, general and administrative expenses at KSC due primarily to a favorable reduction in our 2014 property tax
assessed value. Operating income was negatively impacted by the 5.5% gaming revenue decline (as discussed above), net of a
corresponding decrease in both gaming taxes and related expenses.
In 2013, the $32.6 million operating income decline, compared to 2012, was driven by: (i) $36.6 million increase in amortization
of finite-lived intangible assets identified as a result of the Merger; (ii) $9.3 million increase in affiliate management fees due to
a new management agreement with Boyd Acquisition, LLC ("Boyd Acquisition") that replaced all previously existing related party
management and consulting agreements upon consummation of the Merger; (iii) $7.4 million increase in selling, general and
administrative expenses at KSC to support its new permanent facility, primarily property taxes; (iv) $3.2 million non-cash
impairment charge recorded on our trademarks; (v) $1.6 million in asset write-downs at KSC for demolition costs incurred during
26
the conversion of the interim gaming facility to the arena and the write-off of architectural fees for a Phase 2 design that was not
used; and (vi) $1.1 million increase in depreciation on long-lived assets as a result of the fair value and useful lives assigned to
such assets as of the Merger date. These expense increases in 2013 totaling $59.2 million were offset by $29.3 million of Mergerrelated expenses in 2012, which related primarily to change of control payments, the immediate vesting of certain incentive profit
units upon the change of control, transaction fees, and legal fees associated with the Merger.
Net Loss
In 2014, net loss decreased $11.8 million compared to 2013. The decrease in net loss is due primarily to the $8.1 million operating
income increase (as discussed above). Also contributing to the net loss decline are favorable changes to our $875.0 million senior
secured credit facility, as amended May 1, 2013 (the "Credit Facility"). As a result of the Credit Facility Amendment (the
"Amendment") the weighted average borrowing rate decreased 30 basis points in 2014 which contributed to a $6.2 million decrease
in interest expense when combined with a $59.6 million reduction in average outstanding borrowings in 2014. We also incurred
$2.0 million in fees in 2013 for this Amendment that were expensed in loss on debt extinguishments and modifications. Net loss
was negatively impacted in 2014 by a $3.9 million increase in our income tax provision over 2013.
In 2013, net loss decreased $23.2 million compared to 2012. The variations in net loss from 2012 to 2013 are due primarily to the
Merger, specifically the change in capital structure, identification of finite-lived intangible assets, and related charges associated
with the transaction. In 2012, we incurred $76.2 million in loss on debt extinguishments and modifications due to the retirement
of Predecessor debt and the related redemption and make-whole premiums, write-off of deferred financing costs and original issue
discounts, escrow interest, and other fees. 2013 was negatively impacted by a $32.6 million decrease in operating income (as
discussed above), $9.8 million increase in interest expense resulting from the change in capital structure and additional debt issued
upon consummation of the Merger, and $10.5 million in income tax expense. Since consummation of the Merger, we record our
share of income tax expense on a stand-alone basis of Boyd’s corporate income taxes as if we filed independent of Boyd.
Operating Revenues
We derive the majority of our gross revenues from our gaming operations, which generated approximately 89%, 90% and 91%
of gross revenues for 2014, 2013 and 2012, respectively. Food and beverage gross revenues represent our next most significant
revenue source, generating 7%, 7% and 6% of gross revenues for 2014, 2013 and 2012, respectively. Other revenues, which consist
primarily of convenience store revenues of DJW, commissions, and special event revenues, contributed 4%, 3% and 3% of gross
revenues for 2014, 2013 and 2012, respectively.
27
Successor
(In millions)
REVENUES
2014
Gaming
$
Food and beverage
Other
Gross revenues
Less promotional allowances
Net revenues
$
Nov. 20, 2012
through
Dec. 31, 2012
2013
457.9
37.8
17.9
513.6
19.7
493.9
$
484.8
39.2
17.9
541.9
21.6
520.3
$
$
217.3
25.4
12.5
$
226.9
26.5
12.7
$
255.2
$
266.1
$
Predecessor
Jan. 1, 2012
through
Nov. 19, 2012
53.4
4.0
1.7
59.1
2.2
56.9
$
$
24.6
2.9
1.1
$
28.6
$
Combined
2012
438.4
29.8
14.7
482.9
17.7
465.2
$
$
198.7
18.7
10.2
$
223.3
21.6
11.3
$
227.6
$
256.2
$
$
491.9
33.8
16.3
542.0
19.9
522.1
COSTS AND EXPENSES
Gaming
Food and beverage
Other
MARGINS
Gaming
Food and beverage
Other
52.5%
32.8%
29.9%
53.2%
32.5%
29.0%
54.0%
28.4%
35.4%
54.7%
37.1%
30.5%
54.6%
36.1%
31.0%
Gaming
Gaming revenues are comprised primarily of the net win from our slot machine operations and to a lesser extent from table games
win and racing and video poker revenues. Gaming revenues decreased by 5.5%, during 2014 compared to 2013 due to soft market
conditions that led to gaming revenue declines at each of our five operating properties. Our overall slot handle decreased 5.9%,
while slot hold remained relatively unchanged in 2014 compared to 2013. Gaming margins remained substantially unchanged at
52.5% and 53.2% for 2014 and 2013, respectively.
Gaming revenues decreased by $7.1 million, or 1.4%, in 2013 compared to 2012, due to a $16.5 million, or 5.4% overall decline
at the Iowa and Louisiana properties, offset by a $9.4 million increase in gaming revenues of KSC due to moving to the permanent
casino in December 2012. Our overall slot handle decreased 1.4% and was offset by a 3.1% increase in table drop. Racing revenues
declined 6.0% primarily due to an 8.5% decline in handle at our OTBs and a 0.2% decline in live racing handle. The decline in
gaming margins is driven by increased costs of KSC to support operations in the permanent facility.
Food and Beverage
Food and beverage revenues decreased by $1.4 million, or 3.6%, in 2014 compared to 2013, generally reflecting the soft market
conditions which also affected gaming revenues. Food and beverage margins remained substantially unchanged at 32.8% and
32.5% for 2014 and 2013, respectively.
Food and beverage revenues increased by $5.4 million, or 16.0%, in 2013 compared to 2012, due to a $5.7 million increase in
revenues of KSC as a result of expanded food and beverage amenities with the move to its permanent casino in December 2012.
Food and beverage related costs increased $4.9 million, or 22.5%, which was also driven by the expanded food and beverage
amenities at Kansas Star.
Other
Other revenues remained flat at $17.9 million in 2014. Margins increased to 29.9% in 2014 from 29.0% in 2013 due primarily to
KSC and its arena operations as we opened the 6,800-seat arena to the public in June 2013 and gained efficiencies in operations
in 2014.
28
Other revenues increased by $1.6 million in 2013 compared to 2012 due to a $1.6 million increase in revenues of KSC as a result
of opening its arena in June 2013. Other margins decreased 2.0% in 2013, which is also driven by the opening of the arena at
Kansas Star.
Other Operating Costs and Expenses
The following operating costs and expenses, as presented in our consolidated statements of comprehensive loss, are further discussed
below:
Successor
(In millions)
Selling, general and administrative
Maintenance and utilities
Depreciation and amortization
Corporate expense
Affiliate management fees
Preopening expense
Impairments of assets
Asset transaction costs, net
Other operating items, net
2014
$
Nov. 20, 2012
through
Dec. 31, 2012
2013
50.2
13.3
73.9
1.6
18.6
0.8
1.7
0.9
(0.2)
$
55.7
13.2
87.9
2.7
19.6
0.1
3.2
2.1
0.3
$
5.9
1.4
13.3
0.4
2.2
0.5
—
—
—
Predecessor
Jan. 1, 2012
through
Nov. 19, 2012
$
44.2
9.8
36.7
11.6
8.1
0.5
—
—
29.3
Combined
2012
$
50.0
11.2
50.1
11.9
10.3
1.1
—
—
29.3
Selling, General and Administrative
Selling, general and administrative expenses include marketing, technology, finance, compliance and risk, and security. These
costs, as a percentage of gross revenues, were 9.8%, 10.3%, and 9.2% for 2014, 2013, and 2012, respectively. The decrease in
2014 from 2013 is due to a $4.2 million decrease in expenses of KSC due primarily to a decrease in property tax expense resulting
from a favorable reduction in assessed value for 2014. The increase in 2013 from 2012 is due to an increase in expenses of KSC
of $7.4 million to support its new permanent facility, primarily from property taxes.
Maintenance and Utilities
Maintenance and utilities expenses, as a percentage of gross revenues were 2.6%, 2.4%, and 2.1% for 2014, 2013, and 2012,
respectively. Maintenance and utilities expenses were substantially unchanged during the years ended December 31, 2014 and
2013. Maintenance and utilities expenses increased in 2013 from 2012 due primarily to an increase in expenses of KSC to support
its new permanent facility.
Depreciation and Amortization
Depreciation and amortization expense, as a percentage of gross revenues, was 14.4%, 16.2%, and 9.2% during 2014, 2013, and
2012, respectively. The decrease in 2014 compared to 2013, is due primarily to a $10.6 million decrease in intangible asset
amortization related to our customer relationships as they are being amortized on an accelerated method over their approximate
useful life of five years and a $2.8 million decrease in intangible asset amortization related to a non-competition agreement, which
expired on November 20, 2013. The increase in 2013 compared to 2012, was primarily due to amortization of the intangible assets
identified as a result of the Merger that were determined to have finite lives. Amortization of these assets, which consist of customer
relationships and a non-competition agreement, until its expiration on November 20, 2013, was $45.9 million for 2013 and $9.1
million for 2012.
Corporate Expense
Corporate expense represents unallocated payroll, professional fees, rent and various other administrative expenses that are not
directly related to our casino operations. The levels of corporate expense, as a percentage of gross revenues, were 0.3%, 0.5%,
and 2.2% for 2014, 2013, and 2012, respectively. The decreases between the periods is driven by a decline in net corporate payroll
and related costs, primarily due to changes in the management structure following the Merger and additional corporate allocations
to our properties consistent with Successor practices.
Affiliate Management Fees
Affiliate management fees relate to management fees paid or accrued to related parties under various management and consulting
agreements. Affiliate management fees, as a percentage of gross revenues, were 3.6% during 2014 and 2013 and 1.9% during
2012. Affiliate management fees for 2014 and 2013 relate to the management agreement with Boyd Acquisition. The increase in
29
affiliate management fees in 2013 over 2012 is due to the change in agreements upon consummation of the Merger. Effective
November 20, 2012, all existing management and consulting agreements were terminated and a new management agreement with
Boyd Acquisition commenced.
Preopening Expense
We expense certain costs of start-up activities as incurred. Such costs include preopening expenses related to KSC development
and other significant capital project start-up costs.
Impairments of Assets
Impairments charges for 2014 included a $0.3 million and a $1.4 million charge for the impairment of our ABC trademark and
gaming license right, respectively.
During 2013, we recorded $3.2 million in impairment charges on our trademarks associated with all properties, excluding KSC.
There were no impairments in 2012.
Asset Transaction Costs, Net
Asset transaction costs, net represent gains or losses on the disposal of certain property and equipment in the ordinary course of
business. In 2013, KSC incurred a $1.6 million charge for the write-off of architectural fees for a Phase 2 design that was not used
and demolition costs incurred during the conversion of the interim gaming facility to the arena.
Other Operating Items, Net
Other operating items, net is generally comprised of miscellaneous non-recurring operating charges. In 2014 and 2013 such costs
were insignificant. In 2012 these charges represent amounts incurred in connection with the Merger.
Other Expense (Income)
Interest Expense, net
Successor
(In millions)
Interest expense, net
Average long-term debt balance
Weighted average interest rates
Mix of Debt (based on actual
balances at the end of the period)
Fixed rate debt
Variable rate debt
2014
$
2013
Nov. 20, 2012
through
Dec. 31, 2012
74.7
$
1,119.9
5.5%
80.7
$
1,179.5
5.8%
32.0%
68.0%
30.4%
69.6%
9.8
1,198.5
6.5%
29.1%
70.9%
Predecessor
Jan. 1, 2012
through
Nov. 19, 2012
$
60.9
$
682.7
9.6%
Combined
2012
70.8
742.0
9.2%
98.5%
1.5%
Interest expense, net of capitalized interest and interest income, decreased $6.0 million, or 7.4%, during 2014 compared to 2013,
due primarily to a 30 basis point reduction in our weighted average borrowing rate and a $59.6 million reduction in average longterm borrowings outstanding in 2014. On May 1, 2013, we entered into the Amendment which effectively reduced the interest
rate on the $825.0 million term loan facility (the "Term Loan") by 1.5% and was primarily responsible for the overall weighted
average borrowing rate decline. The $59.6 million reduction in average long-term borrowings in 2014 was due primarily to principal
reductions on the Term Loan, including $8.3 million of required quarterly amortization principal payments and $42.5 million in
optional prepayments in the last twelve months with cash flows from operations.
Interest expense, net of capitalized interest and interest income, increased $9.9 million, or 14.0%, in 2013 compared to 2012, due
to the increased interest costs associated with the additional debt issued upon consummation of the Merger, including the Credit
Facility and the $350.0 million aggregate principal amount of 8.375% senior notes due February 2018 (the "Notes"), despite a
reduction in our average borrowing rate.
Loss on Debt Extinguishments and Modifications
In 2014 and 2013, as a result of $42.5 million and $32.0 million, respectively, in optional prepayments under the Term Loan, we
incurred a $1.5 million and $1.3 million, respectively, non-cash loss for the write-off of deferred financing costs representing the
30
ratable reduction in borrowing capacity. In addition, in 2013, we incurred $2.0 million in debt modification fees related to the
Credit Facility Amendment that were expensed upon execution of the Amendment.
Upon consummation of the Merger, in accordance with the terms of the Merger, all outstanding borrowings, including borrowings
under a $50.0 million revolving line of credit ("PGL Credit Agreement"), $320.0 million 8.375% senior secured notes (the "PGL
Secured Notes") and $355.0 million 10.75% senior notes (the "PGL Unsecured Notes" and, together with the PGL Secured Notes,
the "PGL Notes") were repaid. Upon repayment of such amounts, the PGL Credit Agreement and the PGL Notes were terminated.
As a result of the pay down of all outstanding borrowings under the PGL Credit Agreement and the PGL Notes, we incurred a
$79.6 million loss in 2012 consisting of the write-off of deferred financing costs of $15.6 million, the payment of call premiums
of $55.7 million, interest costs of $5.4 million incurred during an irrevocable redemption period, the write-off of discounts of $2.7
million and fees of $0.2 million.
Losses from Equity Affiliates
KSC holds an equity interest in a third-party venture whose primary purpose is to operate the hotel adjacent to its casino. EVD
also held an equity interest in a third-party venture whose primary purpose was to operate the hotel adjacent to its casino. On
October 24, 2013, EVD sold its equity interest. EVD's and KSC's shares of the loss from operations related to these equity interests
are included in losses from equity affiliates in the consolidated statements of comprehensive loss with a corresponding adjustment
to other assets, net on the consolidated balance sheets.
Other Non-Operating Items
Other non-operating items, relates to a gain on the sale of EVD's equity interest in the hotel adjacent to its casino in 2013.
Income Taxes
Prior to the Merger, the Company was a limited liability company. In lieu of corporate income taxes, the members of a limited
liability company are taxed on their proportionate share of the Company’s taxable income. Therefore, no provision or liability for
income taxes was included in the financial statements of the Predecessor.
Upon consummation of the Merger, the Company became an indirect, wholly owned subsidiary of Boyd and its taxable income
or loss is included in Boyd's consolidated federal income tax return. For state income tax purposes, the Company's taxable income
or loss is included in the applicable state tax return filings of a corporate subsidiary of Boyd. Although the Company files its
federal income tax return on a consolidated basis or through inclusion in an affiliate return for state income tax purposes, the
amounts reflected in our consolidated financial statements are on a modified separate return approach as if we filed independent
of the consolidated group. Boyd allocates income tax expense or benefit to us and reimburses us to the extent the consolidated
group utilizes our tax attributes. Under this approach, tax expense or benefit is allocated to each member of the consolidated group
as if each group member were filing a separate tax return, with an adjustment to minimize inconsistencies. The offsetting entry
for our current tax expense or benefit is recorded as an intercompany payable or receivable. The effective tax rate for the year
ended December 31, 2014 and 2013, and the period from November 20, 2012 through December 31, 2012 was 1,421.6%, (71.5%),
and 0.0%, respectively. Our tax rate is impacted by adjustments that are largely independent of our operating results before
taxes. Our tax provision for the year ended December 31, 2014 was favorably impacted by impairment charges to indefinite lived
intangible assets, which resulted in a reduction in our recognized deferred tax liability on these assets. Our tax provision or benefit
for the years ended December 31, 2014 and 2013 was impacted by changes in the valuation allowance on our federal and state
income tax net operating losses and other deferred tax assets. Additionally, the tax provision or benefit for the years ended
December 31, 2014 and 2013 was adversely impacted by an accrual of non-cash tax expense in connection with the tax amortization
of indefinite-lived intangible assets. The deferred tax liabilities created by the tax amortization of these intangibles cannot be used
to offset corresponding increases in the net operating loss deferred tax assets in determining the valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
We operate with minimal or negative levels of working capital in order to minimize borrowings and related interest costs. At
December 31, 2014 and 2013, we had balances of cash and cash equivalents of $29.9 million and $31.2 million, respectively.
Despite such amounts of cash, we had working capital deficits of $22.9 million and $17.1 million at such respective dates.
Our existing Credit Facility generally provides all necessary funds for our day-to-day operations, interest, management fees, and
tax payments, as well as capital expenditures. On a daily basis, we evaluate our cash position and adjust the balance under our
Credit Facility as necessary, by either borrowing or paying down with excess cash. We also plan the timing and the amounts of
our capital expenditures. We believe that the borrowing capacity under our Credit Facility, subject to restrictive covenants, and
cash flows from operating activities will be sufficient to meet our projected operating and maintenance capital expenditures for
at least the next twelve months. The source of funds for the repayment of our debt is derived primarily from cash flows from
operations and availability under our Credit Facility, to the extent availability exists after we meet our respective working capital
needs, and subject to restrictive covenants.
31
We could also seek to secure additional working capital or repay our current debt maturities, in whole or in part, through incremental
bank financing and additional debt offerings. If availability does not exist under our Credit Facility, or we are not otherwise able
to draw funds on our Credit Facility, additional financing may not be available to us, and if available, may not be on terms favorable
to us.
Cash Flows Summary
Successor
(In millions)
Net cash provided by operating
activities
Year Ended
December
31, 2014
$
92.3
Cash flows from Investing Activities:
Capital expenditures
Other investing activities
Net cash used in investing activities
Year Ended
December 31,
2013
$
95.1
Predecessor
Period from
November 20,
2012 through
December 31,
2012
$
8.9
Period from
January 1,
2012 through
November 19,
2012
$
77.4
Combined
$
2012
86.3
(33.8)
—
(33.8)
(27.1)
3.4
(23.7)
(7.6)
1.8
(5.8)
(77.7)
(1.0)
(78.7)
(85.3)
0.8
(84.5)
317.4
354.7
18.1
20.5
38.6
(377.2)
—
—
—
—
—
—
(59.8)
(407.0)
—
—
(0.5)
(10.3)
—
(9.5)
(72.6)
(16.7)
—
—
(1.8)
—
—
—
(0.4)
(15.0)
4.3
(13.1)
(19.3)
—
(15.5)
—
(38.1)
(31.7)
4.3
(13.1)
(21.1)
—
(15.5)
—
(38.5)
(39.4) $
(36.7)
Cash flows from Financing
Activities:
Borrowings under bank credit
facility
Payments under bank credit facility
Borrowings under term loans
Payments under term loans
Payments under notes payable
Debt financing costs
Distributions to predecessor parent
Member distributions
Net cash used in financing activities
Increase (decrease) in cash and cash
equivalents
$
(1.2) $
(1.3) $
2.7
$
Cash Flows from Operating Activities
During 2014, 2013, the period from November 20, 2012 through December 31, 2012, and the period from January 1, 2012 through
November 19, 2012, we generated net operating cash flow of $92.3 million, $95.1 million, $8.9 million, and $77.4 million,
respectively.
Operating cash flows decreased $2.8 million in 2014 compared to 2013 due to soft market conditions that contributed to a decline
in gaming revenues in 2014. As the majority of our slot and table game revenues are in cash, increases or decreases in gaming
revenues will generally impact our operating cash flows positively or negatively. Slot and table game revenue declines, net of the
respective gaming taxes and qualified sponsoring organization fees paid on such revenues caused operating cash flows to decrease
$16.8 million in 2014. Operating cash flows were favorably impacted in 2014 by a decrease in cash interest paid of $6.6 million
due to a reduction in the weighted average interest rate and long-term debt outstanding (as discussed previously) and a decrease
in affiliate management fees paid of $4.3 million due to a change in payment timing.
Operating cash flows increased in 2013 by $8.8 million compared to the combined 2012 period. Affiliate management fees paid
increased $11.2 million in 2013 as a result of the new management agreement with Boyd Acquisition that replaced the previously
existing related party management and consulting agreements upon consummation of the Merger. In 2012, operating cash flows
were negatively impacted by $22.5 million in cash outflows for Merger-related charges.
32
Cash Flows from Investing Activities
Our industry is capital intensive and we use cash flows for investments in maintenance capital expenditures and future development
opportunities for our existing properties.
Capital Expenditures
Cash paid for maintenance capital expenditures was $19.5 million, $8.9 million, and $8.2 million in 2014, 2013, and the combined
comparable 2012 period, respectively. In 2014 we converted three properties to a new slot system which allowed for implementation
of the player loyalty program "B Connected," Boyd's nationwide player loyalty program. Cash paid for capital expenditures on
significant development projects for 2014, 2013, and the combined comparable 2012 period was $14.3 million, $18.2 million,
and $77.1 million, respectively. These amounts relate solely to the Kansas Star construction project, specifically Phase 2, which
opened in December 2014, conversion of the arena, which opened in June 2013, following its use as our interim gaming facility,
and construction of the permanent facility, which opened in December 2012.
Other Investing Activities
Included in cash flows from other investing activities for 2013 is $2.7 million in principal payments received under a loan agreement
with the developer of the hotel at EVD and $0.7 million related to the redemption of our 13.5% equity interest in the hotel. All
amounts outstanding under the note receivable were repaid in full in 2013.
Cash Flows from Financing Activities
We rely upon our financing cash flows to provide funding for repayments of obligations and ongoing operations.
In 2014, our net cash outflows for financing activities totaled $59.8 million as we used cash generated from our operations to
extinguish outstanding debt under the Credit Facility (including $42.5 million in optional prepayments).
In 2013, we used cash generated from operations to extinguish $52.3 million of outstanding debt under the Credit Facility (including
$32.0 million in optional prepayments), pay $10.2 million in debt financing costs incurred in conjunction with the Credit Facility
Amendment, and distribute $9.5 million to Boyd Acquisition, as allowed under our debt agreements.
The cash flows from financing activities for both periods in 2012 excludes those financing activities that occurred upon
consummation of the Merger, including the issuance of the $875.0 million Credit Facility and $350.0 million Notes and related
repayment of $10.5 million in outstanding advances under the PGL Credit Agreement, $320.0 million PGL Secured Notes, and
$355.0 million PGL Unsecured Notes.
During the period from November 20, 2012 through December 31, 2012 net cash outflows for financing activities were minimal
as net borrowings under the Credit Facility were used to repay slot machine financing for the Kansas Star development. During
the period from January 1, 2012 through November 19, 2012, we used cash from operations to extinguish outstanding debt including
$5.5 million in net borrowings under the PGL Credit Agreement, $8.8 million in net borrowings for furniture, fixtures and equipment
term loans for our casino developments, and $19.3 million for slot financing for the Kansas Star development.
In addition, during the period from January 1, 2012 through November 19, 2012, we distributed $15.5 million to Peninsula Gaming
Partners, LLC ("PGP"), our Predecessor owner.
Indebtedness
The balances of long-term debt as of December 31, 2014 and 2013, and the changes in those balances are as follows:
December 31,
(In millions)
2014
Credit facility
8.375% senior notes due 2018
Other
$
Less current maturities
Long-term debt, net
$
33
742.4
350.0
—
1,092.4
8.3
1,084.1
2013
$
$
802.2
350.0
—
1,152.2
8.3
1,143.9
$
Decrease
(59.8)
—
—
(59.8)
$
—
(59.8)
Credit Facility
PGL is the borrower under the credit agreement (as amended, restated, supplemented or otherwise modified from time to time,
the "Credit Agreement"), dated as of November 14, 2012, with the lenders party thereto and Bank of America, N.A., as administrative
agent, collateral agent, swing line lender, and letter of credit issuer.
The Credit Agreement provides for an $875.0 million senior secured credit facility, which consists of the Term Loan and a revolving
credit facility of $50.0 million (the “Revolving Credit Facility”). The Revolving Credit Facility consists of up to $15.0 million in
swing line loans ("Swing Loan") and a revolving credit facility ("Revolving Loan") of $50.0 million less Swing Loans outstanding
and any amounts allocated to letters of credit. The Term Loan was fully funded concurrently with the closing of the Merger. A
portion of the Revolving Credit Facility was funded concurrently with the closing of the Merger. The maturity date for obligations
under the Credit Facility is November 17, 2017.
On May 1, 2013, the Company entered into the Amendment. Among other things, the Amendment: (i) decreases the applicable
margin with respect to the Term Loan to 3.25% in the case of Eurodollar Rate Loans and 2.25% in the case of Base Rate Loans,
(ii) reduces the minimum Eurodollar Rate with respect to the Term Loan to 1.00% per annum, (iii) requires the Company to pay
a premium of 1.00% of the principal amount prepaid for full or partial repayments of Term Loans through the issuance of
indebtedness having a lower interest rate than described in clause (i) above during the period of six calendar months after the
effective date of the Amendment and requires payment of an amendment fee of 1.00% during such period payable to lenders who
consent to any such reduced interest rate, (iv) extends the deadline for delivery of year-end reports to 90 days after the end of each
fiscal year of the Company, (v) clarifies the definition of Consolidated Adjusted EBITDA with respect to management fees, and
(vi) allows quarterly amortization installments to be paid prior to the last day of the applicable quarter.
The interest rate on the outstanding balance from time to time of the Term Loan is based upon, at the Company's option, either:
(i) the Eurodollar rate plus 3.25%, or (ii) the base rate plus 2.25%. The interest rate on the outstanding balance from time to time
of the Revolving Credit Facility is based upon, at the Company's option, either: (i) the Eurodollar rate plus 4.00%, or (ii) the base
rate plus 3.00%. The base rate under the Credit Facility will be the highest of (x) Bank of America's publicly-announced prime
rate, (y) the federal funds rate plus 0.50%, or (z) the Eurodollar Rate plus 1.00%. The Credit Facility also establishes, with respect
to outstanding balances under the Term Loan, a minimum Eurodollar rate for any interest period of 1.00%. In addition, PGL will
incur a commitment fee on the unused portion of the Credit Facility at a per annum rate of 0.50%.
The blended interest rate for outstanding borrowings under our Credit Facility was 4.2% at both December 31, 2014 and 2013.
The Company's obligations under the Credit Facility, subject to certain exceptions, are guaranteed by PGL’s subsidiaries and are
secured by the capital stock and equity interests of PGL’s subsidiaries. In addition, subject to certain exceptions, PGL and each
of the guarantors granted the collateral agent first priority liens and security interests on substantially all of real and personal
property (other than gaming licenses and subject to certain other exceptions) of PGL and its subsidiaries as additional security for
the performance of the obligations under the Credit Facility. The obligations under the Revolving Credit Facility rank senior in
right of payment to the obligations under the Term Loan.
The Credit Facility requires that the Company prepay the loans with proceeds of any significant asset sale or event of loss. In
addition, the Credit Facility requires fixed quarterly amortization of principal equal to 0.25% of the original aggregate principal
amount of the Term Loan and requires that the Company use a portion of its annual excess cash flow to prepay the loans. The
Revolving Credit Facility can be terminated without premium or penalty, upon payment of the outstanding amounts owed with
respect thereto. The Term Loan can be prepaid without premium or penalty six calendar months after the effective date of the
Amendment.
Amounts Outstanding
The amounts outstanding under the Credit Facility are comprised of the following:
December 31,
(In millions)
2014
Term Loan
Revolving Loan
Swing Loan
Total outstanding borrowings under Credit Facility
$
$
34
2013
734.0
2.0
6.4
742.4
$
$
784.8
8.0
9.4
802.2
At December 31, 2014, approximately $742.4 million was outstanding under our Credit Facility. As the Company repays the
$825.0 million of initial borrowings under the Term Loan, including required quarterly amortization installments and voluntary
prepayments, it is not allowed to borrow additional funds under the Term Loan. As such, with $5.2 million allocated to support
various letters of credit, we have remaining contractual availability under our Credit Facility at December 31, 2014 of approximately
$36.4 million.
The Credit Facility contains customary affirmative and negative covenants (and is subject to customary exceptions) for financings
of its type. The Company is required to maintain (i) a maximum Consolidated Leverage Ratio (as defined in the Credit Agreement)
over each twelve month period ending on the last day of each fiscal quarter (discussed below in the notes to our consolidated
financial statements), (ii) a minimum consolidated Interest Coverage Ratio (as defined in the Credit Agreement) of 2.00 to 1.00
as of the end of each calendar quarter (discussed below in the notes to our consolidated financial statements), and (iii) a maximum
amount of capital expenditures for each fiscal year. Other covenants restrict our ability to among other things, incur additional
debt, pay dividends and make other distributions, create liens, enter into transactions with affiliates, and engage in unrelated
business activities.
Senior Notes
8.375% Senior Notes due February 2018
The Notes are fully and unconditionally guaranteed, on a joint and several basis, by each of the Company’s subsidiaries (other
than PGC) and PGL and PGC as the issuers have no significant independent assets or operations. The Notes contain certain
restrictive covenants that, subject to exceptions and qualifications, among other things, limit our ability and the ability of our
restricted subsidiaries (as defined in the Indenture) to incur additional indebtedness or liens, pay dividends or make distributions,
make certain investments, and sell or merge with other companies. Substantially all of the Company's net assets were restricted
from distribution under the Notes and the Credit Facility subject to specific amounts allowed for certain investments and other
restricted payments as well as payments under a management services agreement between the Company and Boyd Acquisition.
Upon the occurrence of a change of control (as defined by the Indenture), we will be required, unless certain conditions are met,
to offer to repurchase the Notes at a price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest,
if any, to, but not including, the date of purchase. If we sell assets or experience an event of loss, we will be required under certain
circumstances to offer to purchase the Notes.
Covenant Compliance
As of December 31, 2014, we believe that we are in compliance with the financial and other covenants of all our debt instruments.
Scheduled Maturities of Long-Term Debt
The scheduled maturities of long-term debt, as discussed above, are as follows:
(In millions)
For the year ending December 31,
2015
2016
2017
2018
Total outstanding principal of long-term debt
$
$
8.3
8.2
725.9
350.0
1,092.4
Loss on Debt Extinguishments and Modifications
During 2014 and 2013, we incurred non-cash charges of $1.5 million and $1.3 million, respectively, for deferred debt financing
costs written off, which represents the ratable reduction in borrowing capacity due to optional prepayments made during these
periods. In addition, in 2013, we incurred $2.0 million in other fees related to the Amendment.
Other Items Affecting Liquidity
We anticipate the ability to fund our capital requirements using cash flows from operations and availability under our Credit
Facility, to the extent availability exists after we meet our working capital needs for the next twelve months. Any additional
financing that is needed may not be available to us or, if available, may not be on terms favorable to us. The outcome of the
following specific matters, including our commitments and contingencies, may also affect our liquidity.
35
Commitments
Capital Spending and Development
We continually perform on-going refurbishment and maintenance at our facilities to maintain our standards of quality. Certain of
these maintenance costs are capitalized, if such improvement or refurbishment extends the life of the related asset, while other
maintenance costs that do not so qualify are expensed as incurred. Although we do not currently have any expansion projects, if
any opportunities arise, such projects may require significant capital commitments. The commitment of capital and the related
timing thereof are contingent upon, among other things, negotiation of final agreements and receipt of approvals from the appropriate
regulatory bodies. We must also comply with covenants and restrictions set forth in our debt agreements.
Our estimated total capital expenditures for 2015 are expected to be approximately $10.7 million, primarily comprised of various
maintenance capital projects across all our properties. We intend to fund such capital expenditures through our Credit Facility and
operating cash flows.
Note 10, Commitments and Contingencies, included in the notes to our audited consolidated financial statements provided in Item
8 of this Annual Report on Form 10-K, contains further disclosure regarding our commitments.
CONTRACTUAL OBLIGATIONS
The following summarizes our contractual obligations as of December 31, 2014:
(In millions)
CONTRACTUAL
COMMITMENTS:
Long Term Debt
Bank credit facility
8.375% senior notes
Other
Long-term debt
Total
$
Interest on Long-Term Debt(1)
Operating Leases
Purchase Obligations
Other Long-Term Contracts
TOTAL CONTRACTUAL
OBLIGATIONS
$
742.4
350.0
—
1,092.4
Year Ending December 31,
2016
2017
2018
2015
$
8.3
—
—
8.3
$
8.2
—
—
8.2
$
725.9
—
—
725.9
$
2019
—
350.0
—
350.0
$
—
—
—
—
Thereafter
$
—
—
—
—
181.0
60.7
60.4
56.3
3.6
—
—
2.1
0.9
0.8
0.3
0.1
—
—
97.2
10.2
7.5
5.9
5.9
5.9
61.8
0.5
0.1
0.1
0.1
—
—
0.2
1,373.2
$
80.2
$
77.0
$
788.5
$
359.6
$
5.9
$
62.0
_____________________
(1) Interest on variable rate debt is based on the actual interest rates on such debt as of December 31, 2014.
Off Balance Sheet Arrangements
Other than as disclosed above, we do not maintain any off-balance sheet transactions, arrangements, obligations or other
relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our
financial condition, cash flows, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Indemnification
We have entered into certain agreements that contain indemnification provisions, as well as indemnification agreements involving
certain of our executive officers and directors. These agreements provide indemnity insurance pursuant to which directors and
officers are indemnified or insured against liability or loss under certain circumstances, which may include liability or related loss
under the Securities Act and the Exchange Act. In addition, Boyd's Restated Articles of Incorporation and Restated Bylaws contain
provisions that provide for indemnification of our directors, officers, employees and other agents to the maximum extent permitted
by law.
36
Outstanding Letters of Credit
At December 31, 2014 we had outstanding letters of credit totaling $5.2 million.
Other Arrangements
We have not entered into any transactions with special purpose entities, nor have we engaged in any derivative transactions.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial
statements which have been prepared in accordance with GAAP. In accordance with GAAP, we are required to make estimates
and assumptions that affect the reported amounts included in our consolidated financial statements. We base our estimates on
historical experience and on various other assumptions that we believe to be reasonable under the circumstances. On an ongoing
basis, management reviews and refines those estimates, the following of which materially impact our consolidated financial
statements: the recoverability of long-lived assets; application of acquisition method of accounting; valuation of indefinite-lived
intangible assets and goodwill; valuation of our available for sale investment; and provisions for deferred tax assets, certain tax
liabilities and uncertain tax positions.
Judgments are based on information including, but not limited to, historical experience, industry trends, conventional practices,
expert opinions, terms of existing agreements and information from outside sources. Judgments are subject to an inherent degree
of uncertainty, and therefore actual results could differ from these estimates.
We believe the following critical accounting policies require a higher degree of judgment and complexity, the sensitivity of which
could result in a material impact on our consolidated financial statements.
Recoverability of Long-Lived Assets
Our long-lived assets were carried at $404.3 million at December 31, 2014, or 27.7% of our consolidated total assets. We evaluate
the carrying value of long-lived assets whenever events or changes in circumstances indicate that the carrying value of such assets
may not be recoverable. If triggering events are identified, we then compare the estimated undiscounted future cash flows of the
asset to the carrying value of the asset. The asset is not impaired if the undiscounted future cash flows exceed its carrying value.
If the carrying value exceeds the undiscounted future cash flows, then an impairment charge is recorded, typically measured using
a discounted cash flow model, which is based on the estimated future results of the relevant reporting unit discounted using our
weighted-average cost of capital and market indicators of terminal year free cash flow multiples.
A long-lived asset shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount
may not be recoverable. The following are examples of such events or changes in circumstances:
i. a significant decrease in the market price of a long-lived asset;
ii. a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical
condition;
iii. a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived
asset, including an adverse action or assessment by a regulator;
iv. an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction
of a long-lived asset;
v. a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection
or forecast that demonstrates continuing losses associated with the use of a long-lived asset; and/or
vi. a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly
before the end of its previously estimated useful life.
We reconsider changes in circumstances on a frequent basis, and if a triggering event related to potential impairment has occurred,
we solicit third party valuation expertise to assist in the valuation of our investment. There are three generally accepted approaches
available in developing an opinion of value: the cost, sales comparison and income approaches. We generally consider each of
these approaches in developing a recommendation of the fair value of the asset; however the reliability of each approach is
dependent upon the availability and comparability of the market data uncovered, as well as, the decision-making criteria used by
market participants when evaluating a property. We will bifurcate our investment and apply the most indicative approach to overall
fair valuation, or in some cases, a weighted analysis of any or all of these methods.
Developing an opinion of land value is typically accomplished using a sales comparison approach by analyzing recent sales
transactions of similar sites. Potential comparables are researched and the pertinent facts are confirmed with parties involved in
the transaction. This process fosters a general understanding of the potential comparable sales and facilitates the selection of the
37
most relevant comparables by the appraiser. Valuation is typically accomplished using a unit of comparison such as price per
square foot of land or potential building area. Adjustments are applied to the unit of comparison from an analysis of comparable
sales, and the adjusted unit of comparison is then used to derive a value for the property.
The cost approach is based on the premise that a prudent investor would pay no more for an asset of similar utility than its
replacement or reproduction cost. The cost to replace the asset would include the cost of constructing a similar asset of equivalent
utility at prices applicable at the time of the valuation date. To arrive at an estimate of the fair value using the cost approach, the
replacement cost new is determined and reduced for depreciation of the asset. Replacement cost new is defined as the current cost
of producing or constructing a similar new item having the nearest equivalent utility as the property being valued.
The income approach focuses on the income-producing capability of the asset. The underlying premise of this approach is that
the value of an asset can be measured by the present worth of the net economic benefit (cash receipts less cash outlays) to be
received over the life of the subject asset. The steps followed in applying this approach include estimating the expected beforetax cash flows attributable to the asset over its life and converting these before-tax cash flows to present value through capitalization
or discounting. The process uses a rate of return that accounts for both the time value of money and risk factors. There are two
common methods for converting net income into value, those methods are the direct capitalization and discounted cash flow
methods ("DCF"). Direct capitalization is a method used to convert an estimate of a single year's income expectancy into an
indication of value in one direct step by dividing the income estimate by an appropriate capitalization rate. Under the DCF method,
anticipated future cash flows and a reversionary value are discounted to an opinion of net present value at a specific internal rate
of return or a yield rate, because net operating income of the subject property is not fully stabilized.
Application of Acquisition Method of Accounting
In accordance with the acquisition method of accounting per Accounting Standards Codification (“ASC”) 805 Business
Combinations (“ASC 805”) guidance, we record assets acquired and liabilities assumed in acquisition transactions based on the
fair values as of the acquisition date. The determination of the fair values (and the related determination of estimated lives of
depreciable tangible and identifiable intangible assets) requires significant judgment. The fair values are determined primarily by
management, with assistance from third-party appraisals.
On November 20, 2012, we were acquired by Boyd from PGP for a net purchase price, after adjustment for working capital and
other items, of approximately $1.47 billion.
Valuation of Indefinite-Lived Intangible Assets
Gaming license rights represent the value of the license to conduct gaming in certain jurisdictions, which is subject to highly
extensive regulatory oversight, and significant costs to acquire a license or a limitation on the number of licenses available for
issuance with these certain jurisdictions. The value of gaming license rights of EVD, ABC, and KSC is determined using a multiperiod excess earnings method, which is a specific discounted cash flow model. The value is determined at an amount equal to
the present value of the incremental after-tax cash flows attributable only to future gaming revenue, discounted to present value
at a risk-adjusted rate of return. With respect to the application of this methodology, we used the following significant projections
and assumptions: gaming revenues; promotional allowances provided; gaming operating expenses; general and administrative
and corporate expenses and management fees; depreciation expenses; trademark expense; tax expense; contributory asset and
going concern charge; discount rate; terminal growth rate; and the present value of tax benefit. These projections are modeled for
a five year period. The value of the gaming license rights of DJL and DJW were valued using a cost approach, specifically the
cost to acquire a license. Based on legislation regarding gaming operations in the State of Iowa, a company awarded a new license
is obligated to pay an initial, non-refundable license fee, based on county population.
Trademarks are based on the value of our brand, which reflects the level of service and quality we provide and from which we
generate repeat business. Trademarks are valued using the relief-from-royalty method, which presumes that without ownership
of such trademarks, we would have to make a stream of payments to a brand or franchise owner in return for the right to use their
name. By virtue of this asset, we avoid any such payments and record the related intangible value of our ownership of the brand
name. We used the following significant projections and assumptions to determine value under the relief-from-royalty method:
revenue from gaming activities; royalty rate; general and administrative expenses; tax expense; terminal growth rate; discount
rate; and the present value of tax benefit. The projections underlying this discounted cash flow model were forecasted for five
years. Applying the selected pretax royalty rates to the applicable revenue base in each period yielded pretax income for each
property's trademarks. These pretax totals were tax effected utilizing the applicable tax rate to arrive at net, after-tax cash flows.
The net, after-tax flows were then discounted to present value utilizing an appropriate discount rate. The present value of the aftertax cash flows were then added to the present value of the amortization tax benefit (considering the 15-year amortization of
intangible assets pursuant to recent tax legislation) to arrive at the recommended fair values for the trademarks.
38
These indefinite-lived intangible assets are not subject to amortization, but are subject to an annual impairment test and between
annual test dates in certain circumstances. If the fair value of an indefinite-lived intangible asset is less than its carrying amount,
an impairment loss is recognized equal to the difference. Gaming license rights are tested for impairment using a discounted cash
flow approach. Trademarks are tested for impairment using the relief-from-royalty method. Our impairment test, performed as of
October 1, 2014, resulted in a $1.4 million impairment charge for our ABC gaming license right and $0.3 million impairment
charge for our ABC trademark.
We evaluate whether any triggering events or changes in circumstances had occurred subsequent to our annual impairment test
that would indicate an impairment condition may exist. This evaluation required significant judgment, including consideration of
whether there had been any significant adverse changes in legal factors or in our business climate, adverse action or assessment
by a regulator, unanticipated competition, loss of key personnel or likely sale or disposal of all or a significant portion of a reporting
unit. Based upon this evaluation, we concluded that there had not been any triggering events or changes in circumstances that
indicated an impairment condition existed as of December 31, 2014. If an event described above occurs, and results in a significant
impact to our revenue and profitability projections, or any significant assumption in our valuations methods is adversely impacted,
the impact could result in a material impairment charge in the future.
Valuation of Goodwill
The authoritative guidance related to goodwill impairment requires goodwill to be tested for impairment at the reporting unit level
at least annually using a two-step impairment test. Step One of the test is a screen used to identify whether or not goodwill
impairment may exist. In Step One, an entity compares the fair value of a reporting unit with its carrying amount. If a reporting
unit's carrying amount exceeds its fair value, goodwill impairment may exist. Step Two of the test must then be performed to
measure the amount of impairment, if any. In Step Two, an entity compares the implied fair value of goodwill with its carrying
amount. An impairment loss is measured by the excess of the carrying amount of goodwill over its implied fair value. The implied
fair value of goodwill should be determined in the same manner that goodwill is measured in a business combination; that is, an
entity must allocate the fair value of a reporting unit to the assets and liabilities of that unit (including any unrecognized intangible
assets) as if the reporting unit had been acquired in a business combination.
We solicit third party valuation expertise to assist in the performance of the Step One valuations of the goodwill of our reporting
units. We perform the test in the fourth quarter of our fiscal calendar year, using a weighting of two different approaches to
determine fair value: (i) the income approach and (ii) the market approach.
The income approach is based on a discounted cash flow method, which focuses on the expected cash flow of the subject company.
In applying this approach, the cash flow available for distribution is calculated for a finite period of years. Cash flow available
for distribution is defined, for purposes of this analysis, as the amount of cash that could be distributed as a dividend without
impairing the future profitability or operations of the subject company. The cash flow available for distribution and the terminal
value (the value of the subject company at the end of the estimation period) are then discounted to present value to derive an
indication of value of the business enterprise.
In the valuation of an asset, the income approach focuses on the income-producing capability of the subject asset. The underlying
premise of this approach is that the value of an asset can be measured by the present worth of the net economic benefit (cash
receipts less cash outlays) to be received over the life of the subject asset. The steps followed in applying this approach include
estimating the expected after-tax cash flows attributable to the asset over its life and converting these after-tax cash flows to present
value through “discounting.” The discounting process uses a rate of return which accounts for both the time value of money and
investment risk factors. Finally, the present value of the after-tax cash flows over the life of the asset is totaled to arrive at an
indication of the fair value of the asset.
The market approach is comprised of the guideline company method, which focuses on comparing the subject company to selected
reasonably similar, or “guideline”, publicly-traded companies. Under this method, valuation multiples are: (i) derived from the
operating data of selected guideline companies; (ii) evaluated and adjusted based on the strengths and weaknesses of the subject
company relative to the selected guideline companies; and (iii) applied to the operating data of the subject company to arrive at
an indication of value. In the valuation of an asset, the market approach measures value based on what typical purchasers in the
market have paid for assets which can be considered reasonably similar to those being valued. When the market approach is
utilized, data are collected on the prices paid for reasonably comparable assets. Adjustments are made to the similar assets to
compensate for differences between reasonably similar assets and the asset being valued. The application of the market approach
results in an estimate of the price reasonably expected to be realized from the sale of the subject asset.
The two methodologies were weighted 60.0% toward the income approach and 40.0% toward the market approach, to arrive at
an overall fair value. At October 1, 2014, the fair value of our reporting units exceeded their carrying value. At December 31,
2014, we evaluated whether any triggering events or changes in circumstances had occurred subsequent to our annual impairment
39
test that would indicate an impairment condition may exist. This evaluation required significant judgment, including consideration
of whether there had been any significant adverse changes in legal factors or in our business climate, adverse action or assessment
by a regulator, unanticipated competition, loss of key personnel or likely sale or disposal of all or a significant portion of a reporting
unit. Based upon this evaluation, we concluded that there had not been any triggering events or changes in circumstances that
indicated an impairment condition existed at December 31, 2014.
On a macro-economic level, we believe that over the next few years, several trends are expected to continue to adversely affect
the gaming industry. The most significant trends include (i) delayed development of new construction; (ii) increased bankruptcy
filings; and (iii) decreased consolidation. The impact of the weakening economy, credit crunch, and general outlook of the casino
resort industry is illustrated through the recent trend of abandoned casino projects. Bankruptcy has served as a deterrent to deals
because of the large decline in cash flow as well as significant increases in leverage. Debt to Earnings Before Interest, Taxes,
Depreciation, and Amortization ("EBITDA") ratios for public companies has nearly doubled overall in the past few years, indicating
that such a drastic increase shows the inability to service debt. Although we cannot control or influence the impact of these factors
from a fair valuation perspective, they could nonetheless have a material effect on the results of valuation, particularly the guideline
company method under the market approach, in the future.
Additionally, several of the assumptions underlying the discounted cash flow method under the income approach could pose a
high degree of sensitivity to the resulting fair value. These factors include, but are not limited to, the following: total revenue,
depreciation expense, depreciation overhang, tax expense and effective rates, debt-free net working capital, capital additions,
terminal year growth factor, discount rate and the capitalization rate. A change in any of these variables that cause our undiscounted
cash flows or terminal value or both to adversely and materially change could result in the failure of the Step One test, and a
resulting impairment of our goodwill in an amount up to its book value of $471.7 million.
The fair value of each reporting unit substantially exceeded its carrying value as of our annual impairment testing on October 1,
2014, except for DJW and ABC for which fair value exceeded carrying value by less than 5%. The goodwill balances were $227.4
million and $21.7 million, respectively, for these reporting units as of December 31, 2014.
Investment Valuation
The outstanding aggregate principal amount of our investment in 7.5% Urban Renewal Tax Increment Revenue Bonds, Taxable
Series 2007 of $21.7 million is classified as available for sale and recorded at fair value of $18.4 million at December 31, 2014.
Our available for sale investment is not traded. The estimate of the fair value of such investment was determined using a combination
of current market rates and estimates of market conditions for instruments with similar terms, maturities, and degrees of risk and
a discounted cash flows analysis as of December 31, 2014.
Provisions for Deferred Tax Assets, Certain Tax Liabilities and Uncertain Tax Positions
Income taxes are recorded under the asset and liability method, whereby deferred tax assets and liabilities are recognized based
on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carryforwards. We reduce the
carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence it is more likely than not that
such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed
periodically based on more-likely-than-not realization threshold. This assessment considers, among other matters, the nature,
frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward
periods, Boyd's experience with the usability of operating loss and tax credit carryforwards before expiration, and tax planning
alternatives.
The Company's income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities
in the locations where it operates. The Company assesses potentially unfavorable outcomes of such examinations based on
accounting standards for uncertain income taxes, which prescribe a minimum recognition threshold a tax position is required to
meet before being recognized in the financial statements.
We recognize the tax benefit from an uncertain tax position only when it is more likely than not, based on the technical merits of
the position, that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation.
The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that
has a greater than fifty percent likelihood of being realized upon ultimate resolution.
As appropriate, we will establish contingency reserves for material, known tax exposures. Such tax reserves reflect management's
judgment as to the resolution of the issues involved if subject to judicial review. While we believe such reserves will be adequate
to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a taxing authority will
be resolved at a financial cost that does not exceed its related reserve. With respect to these reserves, our income tax expense
40
would include (i) any changes in tax reserves arising from material changes during the period in the facts and circumstances (i.e.,
new information) surrounding a tax issue and (ii) any difference from our tax position as recorded in the financial statements and
the final resolution of a tax issue during the period. Given that the Company was a limited liability company prior to the
consummation of the Merger, the Company and Boyd are not liable for tax authority examinations or uncertain tax positions prior
to the date of the Merger.
We do not believe it is necessary to establish a reserve for uncertain tax benefits as of December 31, 2014.
Recently Issued Accounting Pronouncements
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated
financial statements, see Note 2, Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements, in
the notes to the consolidated financial statements.
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency
exchange rates and commodity prices. We do not hold any market risk sensitive instruments for trading purposes. Our primary
exposure to market risk is interest rate risk, specifically long-term U.S. treasury rates and the applicable spreads in the high-yield
investment market, short-term and long-term LIBOR rates, and short-term Eurodollar rates, and their potential impact on our longterm debt. We attempt to limit our exposure to interest rate risk by managing the mix of our long-term fixed-rate borrowings and
short-term borrowings under our bank credit facility. We do not currently utilize derivative financial instruments for trading or
speculative purposes.
Borrowings under our Credit Facility consist of the Term Loan and the Revolving Credit Facility, including Swing Loans and
Revolving Loans. The interest rate on the outstanding balance from time to time of the Revolving Loans and Swing Loans are
based upon, at the Company's option, either: (i) the Eurodollar rate plus 4.00%, or (ii) the base rate plus 3.00%. The base rate
under the Credit Facility is the highest of (x) Bank of America's publicly-announced prime rate, (y) the federal funds rate plus
0.50%, or (z) the Eurodollar rate for a one-month period plus 1.00%. In addition, PGL will incur a commitment fee on the unused
portion of the Credit Facility at a per annum rate of 0.50%. The interest rate on the outstanding balance of the Term Loan is based
upon, at the Company's option, either: (i) the Eurodollar rate plus 3.25%, or (ii) the base rate plus 2.25%. The Credit Facility also
establishes, with respect to outstanding balances under the Term Loan, a minimum Eurodollar rate for any interest period of 1.00%.
Table of Debt Maturities and Interest Rates
The following table provides information about our debt obligation financial instruments that are sensitive to changes in interest
rates. For our debt obligations, the table presents principal cash flows and related weighted-average interest rates by expected
maturity dates. The weighted-average variable rates are based upon prevailing interest rates.
The scheduled maturities of our long-term debt outstanding for the years ending December 31 are as follows:
Expected Maturity Date
Year Ending December 31,
(In thousands, except
percentages)
Long-term debt
(including current
portion):
Fixed-rate
Average interest rate
Variable-rate
Average interest rate
2015
2016
2017
2018
$
3
$
—
$
—
$ 350,000
$
8.4%
8.4%
8.4%
8.4%
$ 8,250
$ 8,250
$ 725,900
$
—
$
4.2%
4.2%
4.2%
—
2019
—
—
—
—
Thereafter
$
$
—
—
—
—
Total
Fair
Value
$ 350,003
$ 363,128
8.4%
$ 742,400
$ 754,364
4.2%
As of December 31, 2014, our long-term variable-rate borrowings represented approximately 68.0% of our total long-term debt.
Based on December 31, 2014 debt levels, a 100 basis point change in the Eurodollar rate or the base rate would cause the annual
interest costs on the Revolving Credit Facility to change by approximately $0.1 million and would cause the annual interest costs
on the Term Loan to increase by $1.2 million. There would be no decrease to interest costs on the Term Loan as the interest rate
at December 31, 2014 was at the floor. The impact of a 100 basis point increase in the Eurodollar rate or the base rate on the Term
Loan is lessened as the current Eurodollar rate at December 31, 2014 is below the established minimum 1.0% rate.
41
The following table provides other information about our long-term debt at December 31, 2014.
December 31, 2014
Outstanding
Face Amount
(In thousands)
Debt
Credit facility
8.375% senior notes due 2018
Other
Total long-term debt
$
$
742,400
350,000
3
1,092,403
Carrying
Value
$
$
742,400
350,000
3
1,092,403
Estimated
Fair Value
$
754,364
363,125
3
1,117,492
$
Fair Value
Hierarchy
Level 2
Level 2
Level 3
The estimated fair value of our Credit Facility is based on a relative value analysis performed on or about December 31, 2014.
The estimated fair value of our senior notes is based on quoted market prices as of December 31, 2014. Debt included in the
“Other” category is fixed-rate debt that is not traded and does not have an observable market input; therefore, we have estimated
its fair value based on current market interest rates and estimates of market conditions for instruments with similar terms, maturities
and degrees of risk.
The following table provides information about our financial instruments that are sensitive to changes in interest rates, excluding
debt obligations.
(In thousands, except percentages)
Assets
Maturity
Investment available for sale
2015 - 2037
Interest
Rate
7.5% $
Carrying
Value
18,357
Estimated
Fair Value
$
Fair Value
Hierarchy
18,357
Level 3
29,529
3,792
268
Level 3
Level 3
Level 3
Liabilities
Obligation under assessment arrangements
Contingent payments
Other financial instruments
2015 - 2037
2015 - 2022
2015 - 2017
5.4%
18.5%
8.6%
28,612
3,792
268
Our investment available for sale is fixed-rate, not traded, and does not have an observable market input; therefore, we have
estimated fair value using a combination of current market rates and estimates of market conditions for instruments with similar
terms, maturities, and degrees of risk as well as a discounted cash flows analysis. Our other financial instruments also are fixedrate, are not traded and do not have an observable market input; therefore, we have estimated fair value based on current market
interest rates and estimates of market conditions for instruments with similar terms, maturities and degrees of risk. We have
estimated the fair value of our obligation under assessment arrangements using a discounted cash flow approach, after giving
consideration to the changes in market rates of interest, creditworthiness of both parties, and credit spreads. Our contingent payments
liability represents the estimated fair value of the additional amounts owed in connection with KSC's obligation under an agreement
to pay a third party an amount equal to 1% of KSC’s monthly EBITDA for a period of 10 years commencing December 20, 2011.
The fair value of the contingent payments was estimated using a discounted cash flows approach.
42
ITEM 8.
Financial Statements and Supplementary Data
The following consolidated financial statements for the three years in the period ended December 31, 2014 are filed as part of this
Report:
Page No.
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 2014 and 2013 (Successor)
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor), and
the period from January 1, 2012 through November 19, 2012 (Predecessor)
Consolidated Statements of Changes in Member's Equity (Deficit) for the years ended December 31, 2014 (Successor)
and December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Consolidated Statements of Cash Flows for the years ended December 31, 2014 (Successor) and December 31, 2013
(Successor), the period from November 20, 2012 through December 31, 2012 (Successor), and the period from
January 1, 2012 through November 19, 2012 (Predecessor)
Notes to Consolidated Financial Statements
44
45
46
47
48
50
The accompanying audited consolidated financial statements of Peninsula Gaming, LLC (and together with its subsidiaries, the
"Company," "we" or "us") have been prepared in accordance with the instructions to Form 10-K and Article 10 of Regulation SX and include all information and footnote disclosures necessary for complete financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP").
43
INDEPENDENT AUDITORS' REPORT
To Peninsula Gaming, LLC:
We have audited the accompanying consolidated financial statements of Peninsula Gaming, LLC and its subsidiaries (the
"Company"), (an indirect wholly owned subsidiary of Boyd Gaming Corporation), which comprise the consolidated balance sheets
as of December 31, 2014 and 2013 (Successor), and the related consolidated statements of comprehensive loss, changes in member's
equity (deficit), and cash flows for the years ended December 31, 2014 (Successor) and December 31, 2013 (Successor), the period
from November 20, 2012 through December 31, 2012 (Successor), and the period from January 1, 2012 through November 19,
2012 (Predecessor), and the related notes to the consolidated financial statements.
MANAGEMENT'S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance
of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
AUDITORS' RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits
in accordance with auditing standards generally accepted in the United States of America and in accordance with the auditing
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement
of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OPINION
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Peninsula Gaming, LLC and its subsidiaries as of December 31, 2014 and 2013 (Successor), and the results of their operations
and their cash flows for the years ended December 31, 2014 (Successor) and December 31, 2013 (Successor), the period from
November 20, 2012 through December 31, 2012 (Successor), and the period from January 1, 2012 through November 19, 2012
(Predecessor) in accordance with accounting principles generally accepted in the United States of America.
EMPHASIS OF MATTER
As discussed in Note 1, on November 20, 2012, the Company became an indirect, wholly owned subsidiary of Boyd Gaming
Corporation. Our opinion is not modified with respect to this matter.
/s/ DELOITTE & TOUCHE LLP
Davenport, Iowa
March 19, 2015
44
PENINSULA GAMING, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Successor
December 31,
2014
2013
(In thousands)
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Debt financing costs, net
Other assets, net
Intangible assets, net
Goodwill
Investment available for sale
Total assets
LIABILITIES AND MEMBER’S EQUITY
Current liabilities
Current maturities of long-term debt and leases
Accounts payable
Accrued liabilities
Deferred tax liabilities
Payable to affiliates
Total current liabilities
Long-term debt, net of current maturities
Deferred tax liabilities
Obligation under assessment arrangements
Other liabilities
Commitments and contingencies (Note 10)
Member's equity
Common member’s interest
Accumulated deficit
Accumulated other comprehensive loss
Total member's equity
Total liabilities and member's equity
$
$
$
$
29,926
3,573
2,666
1,936
5,176
43,277
404,326
32,535
4,573
485,107
471,735
17,977
1,459,530
$
8,253
14,407
40,987
2,579
4,890
71,116
1,084,150
22,339
25,010
5,134
$
305,140
(53,307)
(52)
251,781
1,459,530 $
The accompanying notes are an integral part of these consolidated financial statements.
45
$
31,175
3,731
4,967
1,903
6,087
47,863
407,909
44,135
3,850
519,342
471,735
16,773
1,511,607
8,259
9,571
43,236
2,667
1,240
64,973
1,143,903
7,829
25,442
5,735
305,140
(39,898)
(1,517)
263,725
1,511,607
PENINSULA GAMING, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Successor
(In thousands)
REVENUES
Operating revenues:
Gaming
Food and beverage
Other
Gross revenues
Less promotional allowances
Net revenues
COST AND EXPENSES
Operating costs and expenses:
Gaming
Food and beverage
Other
Selling, general and administrative
Maintenance and utilities
Depreciation and amortization
Corporate expense
Affiliate management fees
Preopening expense
Impairments of assets
Asset transaction costs, net
Other operating items, net
Total operating costs and expenses
Operating income
Other expense (income):
Interest income
Interest expense, net of amounts capitalized
Loss on debt extinguishments and modifications
Losses from equity affiliates
Other non-operating items
Total other expense, net
Income (loss) before income taxes
Income tax expense
Net loss
Other comprehensive income (loss):
Unrealized gain (loss) on investment available for
sale, net of tax
Comprehensive loss
Year Ended
December 31,
2014
Year Ended
December 31,
2013
Period from
November 20,
2012 through
December 31,
2012
$
$
$
$
457,944
37,762
17,873
513,579
19,728
493,851
484,791
39,207
17,934
541,932
21,603
520,329
53,442
3,988
1,687
59,117
2,192
56,925
Predecessor
Period from
January 1,
2012 through
November 19,
2012
$
438,417
29,802
14,655
482,874
17,686
465,188
217,333
25,381
12,526
50,184
13,347
73,912
1,629
18,605
828
1,700
936
(178)
416,203
77,648
226,905
26,454
12,740
55,746
13,212
87,851
2,673
19,584
91
3,200
2,062
313
450,831
69,498
24,564
2,855
1,090
5,886
1,379
13,327
375
2,182
538
—
—
—
52,196
4,729
198,680
18,736
10,190
44,160
9,792
36,743
11,572
8,145
548
—
(9)
29,267
367,824
97,364
(1,874)
76,605
1,536
366
—
76,633
1,015
(14,424)
(13,409)
(2,126)
82,795
3,344
383
(221)
84,175
(14,677)
(10,496)
(25,173)
(247)
10,065
—
136
—
9,954
(5,225)
—
(5,225)
(1,994)
62,935
79,571
62
—
140,574
(43,210)
—
(43,210)
1,465
(11,944) $
(555)
(25,728) $
(962)
(6,187)
The accompanying notes are an integral part of these consolidated financial statements.
46
$
1,455
(41,755)
PENINSULA GAMING, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY (DEFICIT)
(In thousands)
Balances, January 1, 2012, Predecessor
Net loss
Unrealized gain on investment available for sale
Member contributions
Member distributions
Balances, November 19, 2012, Predecessor
(In thousands)
Beginning balance based on purchase agreement,
November 20, 2012, Successor
Common
Member's
Interest
$
$
9,000
—
—
—
—
9,000
Common
Member's
Interest
$
Net loss
Unrealized loss on investment available for sale, net of tax
Balances, December 31, 2012, Successor
Transfer to HoldCo (Note 3)
Final Merger purchase price adjustment (Note 3)
Net loss
Unrealized loss on investment available for sale, net of tax
Member distributions
Balances, December 31, 2013, Successor
Net loss
Unrealized gain on investment available for sale, net of tax
Balances, December 31, 2014, Successor
$
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
(101,881) $
$
(43,210)
$
Accumulated
Deficit
305,382 $
—
—
305,382
9,800
(10,042)
—
—
—
305,140
—
—
305,140
—
7,581
(15,510)
(153,020) $
— $
(5,225)
—
(5,225)
—
—
(25,173)
—
(53,307) $
— $
—
(962)
(962)
—
—
—
(555)
—
(1,517)
—
1,465
(52) $
The accompanying notes are an integral part of these consolidated financial statements.
47
$
Accumulated
Other
Comprehensive
Loss
—
(9,500)
(39,898)
(13,409)
$
4,218
—
1,455
—
—
5,673
Total
Member's
Deficit
(88,663)
$
(43,210)
1,455
7,581
(15,510)
(138,347)
Total
Member's
Equity
305,382
(5,225)
(962)
299,195
9,800
(10,042)
(25,173)
(555)
(9,500)
263,725
(13,409)
1,465
251,781
PENINSULA GAMING, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Successor
(In thousands)
Year Ended
December 31,
2014
Year Ended
December 31,
2013
Predecessor
Period from
November 20,
2012 through
December 31,
2012
Period from
January 1,
2012 through
November 19,
2012
Cash Flows from Operating Activities
Net loss
$
(13,409) $
(25,173) $
(5,225)
$
(43,210)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization
73,912
87,851
13,327
36,743
Amortization of debt financing costs
10,065
9,382
885
3,837
—
—
—
356
1,536
3,344
—
79,571
14,424
10,496
—
—
227
144
—
7,581
Non-cash asset write-downs
1,700
4,274
—
—
Other operating activities
1,156
391
100
(299)
(115)
(327)
897
2,301
429
369
—
—
—
Amortization of discounts on debt
Loss on debt extinguishments and modifications
Deferred income taxes
Non-cash equity and share-based compensation expense
Changes in operating assets and liabilities:
158
Restricted cash
Accounts receivable, net
Receivables from affiliates
117
Inventories
(33)
Prepaid expenses and other current assets
936
1,646
—
—
(3,360)
—
(275)
38
(207)
399
(1,939)
(1,515)
(308)
(380)
Other long-term tax assets, net
Other assets, net
(188)
(3,357)
Accounts payable and accrued liabilities
(1,463)
4,203
Other liabilities
(1,485)
(1,141)
—
Income taxes payable
2,526
Payables to affiliates
Net cash provided by operating activities
(17)
(299)
733
(1,831)
—
3,360
(467)
1,528
(1,172)
—
92,276
95,114
8,919
77,438
(33,756)
(27,094)
(7,606)
(77,692)
3,433
1,797
(1,022)
(23,661)
(5,809)
(78,714)
Cash Flows from Investing Activities
Capital expenditures
(10)
Other investing activities
(33,766)
Net cash used in investing activities
Cash Flows from Financing Activities
Borrowings under bank credit facility
Payments under bank credit facility
317,400
354,700
18,100
20,500
(377,150)
(406,950)
(16,700)
(15,000)
Borrowings under term loans
—
—
—
4,319
Payments under term loans
—
—
—
(13,088)
Payments under notes payable
(9)
Debt financing costs
—
Distributions to predecessor parent
—
Member distributions
—
(479)
—
(59,759)
(72,517)
Change in cash and cash equivalents
(1,249)
(1,064)
Cash and cash equivalents, end of period
31,175
$
29,926
48
31,175
—
—
(15,510)
—
—
(410)
(38,042)
2,700
32,239
$
(19,263)
—
(9,500)
Net cash used in financing activities
Cash and cash equivalents, beginning of period
(1,810)
(10,288)
(39,318)
29,539
$
32,239
68,151
$
28,833
PENINSULA GAMING, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Successor
(In thousands)
Supplemental Disclosure of Cash Flow
Information
Cash paid for interest, net of amounts capitalized
Supplemental Schedule of Non-cash Investing and
Financing Activities
Payables incurred for capital expenditures
Increase (decrease) in fair value of investment
available for sale
Long-term assets acquired in exchange for
obligation under assessment arrangements
Predecessor
Period from
January 1,
2012 through
November 19,
2012
Year Ended
December 31,
2014
Year Ended
December 31,
2013
Period from
November 20,
2012 through
December 31,
2012
$
63,496
$
70,143
$
5,332
$
63,913
$
7,487
$
2,615
$
6,532
$
10,884
(555)
(962)
1,455
516
344
—
4,485
—
9,800
—
—
—
10,042
—
—
—
423
—
—
—
—
—
854
—
—
—
608
1,465
Transfer of contingent obligation to HoldCo in
exchange for equity contribution (Note 3)
Decrease in equity contribution and goodwill for
final Merger purchase price adjustment (Note 3)
Increase in goodwill and contingent obligation for
final Merger purchase price adjustment (Note 3)
Property and equipment acquired in exchange for
indebtedness
Deferred financing costs incurred in exchange for
obligation under assessment arrangements
The accompanying notes are an integral part of these consolidated financial statements.
49
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
NOTE 1.
ORGANIZATION AND BASIS OF PRESENTATION
Organization
Peninsula Gaming, LLC, a Delaware limited liability company ("PGL", and together with its subsidiaries, the "Company," "we"
or "us"), is a casino entertainment holding company with gaming operations in local markets in Iowa, Kansas, and Louisiana.
PGL’s wholly owned subsidiaries consist of:
•
Diamond Jo, LLC, a Delaware limited liability company (“DJL” or "Diamond Jo Dubuque"), which owns and operates
the Diamond Jo casino in Dubuque, Iowa;
•
Diamond Jo Worth, LLC, a Delaware limited liability company (“DJW” or "Diamond Jo Worth"), which owns and operates
the Diamond Jo casino in Northwood, Iowa;
•
Kansas Star Casino, LLC, a Kansas limited liability company (“KSC” or "Kansas Star"), which owns the assets of the
Kansas Star Casino in Mulvane, Kansas (excluding lottery gaming equipment, which is owned by the State of Kansas)
and manages the lottery gaming operations on behalf of the State of Kansas;
•
The Old Evangeline Downs, L.L.C., a Louisiana limited liability company (“EVD” or "Evangeline Downs"), which owns
and operates the Evangeline Downs Racetrack and Casino, or racino, in Opelousas, Louisiana and four off-track betting
parlors ("OTBs") in Louisiana (one of which was closed in March 2015);
•
Belle of Orleans, L.L.C., a Louisiana limited liability company (“ABC” or "Amelia Belle"), which owns and operates
the Amelia Belle Casino in Amelia, Louisiana; and
•
Peninsula Gaming Corp., a Delaware corporation (“PGC”), with no assets or operations.
On November 20, 2012, the Company became an indirect, wholly owned subsidiary of Boyd Gaming Corporation ("Boyd") (the
"Merger") pursuant to an Agreement and Plan of Merger (the "Merger Agreement"). Boyd is headquartered in Las Vegas and has
been operating since 1975. Boyd is a diversified operator of 21 wholly owned gaming entertainment properties and has a 50%
non-controlling interest in another property. Boyd's common stock is traded on the New York Stock Exchange under the symbol
"BYD".
Prior to November 20, 2012, the Company was a wholly owned subsidiary of Peninsula Gaming Partners, LLC, a Delaware limited
liability company ("PGP").
Basis of Presentation
The consolidated financial statements include the accounts of PGL and its wholly owned subsidiaries: DJL, DJW, KSC, EVD,
ABC, and PGC.
Investments in unconsolidated affiliates, which do not meet the consolidation criteria of the authoritative accounting guidance for
voting interest, controlling interest or variable interest entities, are accounted for under the equity method.
All material intercompany accounts and transactions have been eliminated in consolidation.
We view each operating property as an operating segment and all operating segments have been aggregated into one reportable
segment.
Although PGL continued as the same legal entity after the acquisition by Boyd, the accompanying consolidated financial statements
as of December 31, 2014 and 2013 and for the years ended December 31, 2014 and 2013 and the period from November 20, 2012
through December 31, 2012 have been prepared on Boyd's ("Successor") basis of accounting and reflect adjustments resulting
from the application of the acquisition method as of November 20, 2012. The consolidated financial statements for the period from
January 1, 2012 through November 19, 2012 have been prepared on PGP's ("Predecessor") basis of accounting. Consequently, the
50
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
consolidated financial statements for the Successor and Predecessor periods are presented on different bases of accounting and
are not comparable.
NOTE 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with maturities of three months or less at their date of purchase, and
are on deposit with high credit quality financial institutions. Although these balances may at times exceed the federal insured
deposit limit, we believe such risk is mitigated by the quality of the institution holding such deposit. The carrying values of these
instruments approximate their fair values as such balances are generally available on demand.
Restricted Cash
Restricted cash consists of amounts restricted by regulation for racing purposes at EVD. These restricted cash balances are invested
in highly liquid instruments with a maturity of 90 days or less. These restricted cash balances are held by high credit quality
financial institutions. The carrying value of these instruments approximates their fair value due to their short maturities.
Accounts Receivable, net
Accounts receivable consist primarily of other receivables. Accounts receivable are typically non-interest bearing and are initially
recorded at cost. Accounts are written off when management deems the account to be uncollectible, based upon historical collection
experience, the age of the receivable and other relevant economic factors. An estimated allowance for doubtful accounts is
maintained to reduce our receivables to their carrying amount. As a result, the net carrying value approximates fair value.
Historically, the amount of the Company's bad debt expense has been immaterial.
Inventories
Inventories consist primarily of food and beverage and retail items and are stated at the lower of cost or market. Cost is determined
using the lower of first-in, first-out cost or market.
Property and Equipment, net
As a result of the application of purchase accounting, land, buildings and improvements, furniture and equipment, and our riverboat
were recorded at their estimated fair value and useful lives as of the Merger date. Additions to property and equipment are stated
at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or, for leasehold
improvements, over the shorter of the asset's useful life or term of the lease.
The estimated useful lives of our major components of property and equipment are:
Building and improvements
Riverboat
Furniture and equipment
2 through 40 years
3 through 30 years
1 through 12 years
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 charged to expense as incurred.
For an asset that is held for sale, we recognize the asset at the lower of carrying value or fair market value, less costs of disposal,
as estimated based on comparable asset sales, solicited offers, or a discounted cash flow model. For a long-lived asset to be held
and used, we review the asset for impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. We then compare the estimated undiscounted future cash flows of the asset to the carrying value of the asset.
The asset is not impaired if the undiscounted future cash flows exceed its carrying value. If the carrying value exceeds the
undiscounted future cash flows, then an impairment charge is recorded, typically measured using a discounted cash flow model,
which is based on the estimated future results of the relevant reporting unit discounted using our weighted-average cost of capital
and market indicators of terminal year free cash flow multiples. All resulting recognized impairment charges are recorded as
impairments of assets within operating expenses.
51
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Capitalized Interest
Interest costs associated with major construction projects are capitalized as part of the cost of the constructed assets. When no debt
is incurred specifically for a project, interest is capitalized on amounts expended for the project using our weighted-average cost
of borrowing. Capitalization of interest ceases when the project (or discernible portions of the project) is substantially complete.
If substantially all of the construction activities of a project are suspended, capitalization of interest will cease until such activities
are resumed. Interest capitalized was $0.2 million, $0.3 million, and $2.5 million for the year ended December 31, 2014, the period
from November 20, 2012 through December 31, 2012, and the period from January 1, 2012 through November 19, 2012,
respectively, and related to the development project at KSC. Activities or expenditures which qualified for interest capitalization
during the year ended December 31, 2013 were insignificant.
Debt Financing Costs
Debt financing costs, which include underwriting and other transaction costs paid to the initial purchasers or lenders, legal, and
other direct costs related to the issuance of our outstanding debt, are deferred and amortized to interest expense over the contractual
term of the underlying long-term debt using the effective interest method. In the event that our debt is modified, repurchased or
otherwise reduced prior to its original maturity date, we ratably reduce the unamortized debt financing costs and record a loss on
debt extinguishments and modifications.
Investment Available for Sale
DJW has an investment in $21.7 million aggregate principal amount of 7.5% Urban Renewal Tax Increment Revenue Bonds,
Taxable Series 2007 (“City Bonds”). This investment is classified as available for sale and is recorded at fair value. The fair value
at December 31, 2014 and 2013 was $18.4 million and $17.1 million, respectively. At December 31, 2014 and 2013, $0.4 million
and $0.3 million, respectively, is included in prepaid expenses and other current assets and $18.0 million and $16.8 million,
respectively, is included in investment available for sale on our consolidated balance sheets.
Future maturities of the City Bonds, excluding the discount, for the years ending December 31 are summarized as follows:
(In thousands)
For the year ending December 31,
2015
2016
2017
2018
2019
Thereafter
Total
$
$
380
410
440
475
510
19,535
21,750
Intangible Assets, net
Intangible assets include customer relationships, DJL, DJW, EVD and ABC's gaming licenses and KSC's Contract to Serve as
Lottery Gaming Facility Manager for the South Central Gaming Zone on behalf of the Kansas Lottery ("Kansas Management
Contract") (together with the gaming licenses, "gaming license rights") and trademarks.
Amortizing Intangible Assets
Customer relationships represent the value of repeat business associated with our customer loyalty programs. These intangible
assets are being amortized on an accelerated method over their approximate useful life of five years.
Indefinite-Lived Intangible Assets
Trademarks are based on the value of our brands, which reflect the level of service and quality we provide and from which we
generate repeat business. Gaming license rights represent the value of the license to conduct gaming in certain jurisdictions, which
is subject to highly extensive regulatory oversight, and significant costs to acquire a gaming license right or a limitation on the
number of gaming license rights available for issuance therein. These assets, considered indefinite-lived intangible assets, are not
52
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
subject to amortization, but instead are subject to an annual impairment test, performed on October 1, and between annual test
dates in certain circumstances. If the fair value of an indefinite-lived intangible asset is less than its carrying amount, an impairment
loss is recognized equal to the difference. Gaming license rights are tested for impairment using a discounted cash flow approach
and trademarks are tested for impairment using the relief-from-royalty method.
Goodwill
Goodwill is an asset representing the future economic benefits arising from other assets in a business combination that are not
individually identified and separately recognized. Goodwill is not subject to amortization, but it is subject to an annual impairment
test, performed on October 1, and between annual test dates in certain circumstances.
We evaluate goodwill using a weighted average allocation of both the income and market approach models. The income approach
is based upon a discounted cash flow method, whereas the market approach uses the guideline public company method. Specifically,
the income approach focuses on the expected cash flow of the subject reporting unit, considering the available cash flow for a
finite period of years. Available cash flow is defined as the amount of cash that could be distributed as a dividend without impairing
the future profitability or operations of the reporting unit. The underlying premise of the income approach is that the value of
goodwill can be measured by the present value of the net economic benefit to be received over the life of the reporting unit. The
market approach focuses on comparing the reporting unit to selected reasonably similar (or “guideline”) publicly-traded companies.
Under this method, valuation multiples are: (i) derived from the operating data of selected guideline companies; (ii) evaluated and
adjusted based on the strengths and weaknesses of our reporting unit relative to the selected guideline companies; and (iii) applied
to the operating data of our reporting unit to arrive at an indication of value. The application of the market approach results in an
estimate of the price reasonably expected to be realized from the sale of the subject reporting unit.
Favorable and Unfavorable Lease Rates
Favorable and unfavorable lease rates represent the rental rates for assumed land leases that are favorable and unfavorable,
respectively, to comparable market rates. As part of the Merger, the Company's favorable and unfavorable leases were fair valued.
Fair value is determined on a technique whereby the difference between the lease rate and the then current market rate for the
remaining contractual term is discounted to present value. The assumptions underlying this computation include the actual lease
rates, the expected remaining lease term, including renewal options, based on the existing lease; current rates of rent for leases on
comparable properties with similar terms obtained from market data and analysis; and an assumed discount rate. The resulting
difference between the lease rate and the then current market rate is recognized straight-line as rent expense for favorable lease
rates and rent revenue for unfavorable lease rates over the term of the underlying lease. The associated discount is accreted to
interest income for favorable leases and interest expense for unfavorable leases using the effective interest method over the term
of the underlying lease. Favorable leases are recorded in other assets, net and unfavorable leases are recorded in other liabilities
on the consolidated balance sheets. The estimates underlying the favorable and unfavorable lease rates cover a term of 28 to 99
years.
Slot Bonus Point Program
We have established promotional programs to encourage repeat business from frequent and active slot machine customers and
patrons. Members earn points based on gaming activity and such points can be redeemed for complimentary slot play, food and
beverage, and other free goods and services. We record bonus points redeemed for complimentary slot play as a reduction to
gaming revenue and bonus points redeemed for food and beverage and other free goods and services as promotional allowances.
The accruals are based on estimates and assumptions regarding the mix of complimentary slot play, food and beverage, and other
free goods and services that will be redeemed and the costs of providing those benefits. Historical data is used to assist in the
determination of the estimated accruals. The slot bonus point accrual is included in accrued liabilities on our consolidated balance
sheets.
Long-Term Debt
Long-term debt is reported at amortized cost. Any discount granted to the initial purchasers or lenders upon issuance of our debt
instruments is recorded as an adjustment to the face amount of our outstanding debt. The discount is accreted to interest expense
using the effective interest method over the term of the underlying debt.
53
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Income Taxes
Income taxes are recorded under the asset and liability method, whereby deferred tax assets and liabilities are recognized based
on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carryforwards. We reduce the
carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence it is more likely than not that
such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is continually
assessed based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature,
frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward
periods, Boyd's experience with the utilization of operating loss and tax credit carryforwards before expiration and tax planning
strategies.
Other Long-Term Tax Liabilities
The Company's income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities
in the locations where it operates. The Company assesses potentially unfavorable outcomes of such examinations based on
accounting standards for uncertain income taxes, which prescribe a minimum recognition threshold a tax position is required to
meet before being recognized in the financial statements.
Uncertain tax position accounting standards apply to all tax positions related to income taxes. These accounting standards utilize
a two-step approach for evaluating tax positions. Recognition occurs when the Company concludes that a tax position, based on
its technical merits, is more likely than not to be sustained upon examination. Measurement is only addressed if the position is
deemed to be more likely than not to be sustained. The tax benefit is measured as the largest amount of benefit that is more likely
than not to be realized upon settlement. Use of the term “more likely than not” indicates the likelihood of occurrence is greater
than 50%.
Tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period that they meet the “more
likely than not” standard. If it is subsequently determined that a previously recognized tax position no longer meets the “more
likely than not” standard, it is required that the tax position is derecognized. Accounting standards for uncertain tax positions
specifically prohibit the use of a valuation allowance as a substitute for derecognition of tax positions. As applicable, the Company
will recognize accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes.
Self-Insurance Reserves
Beginning July 1, 2013, we are self-insured up to certain stop loss amounts for workers' compensation costs. Reserves include
accruals of estimated settlements for known claims, as well as accruals of estimates for claims incurred but not yet reported. In
estimating these accruals, we consider historical loss experience and make judgments about the expected levels of costs per claim.
Management believes the 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. Self-insurance
reserves are included in accrued liabilities on our consolidated balance sheets.
Successor
Year Ended December 31,
2014
2013
(In thousands)
Beginning balance
Additions - charged to costs and expenses
Payments made
Ending balance
$
$
148 $
852
(589)
411
$
—
219
(71)
148
Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) and all other non-member's interest changes in equity, or other
comprehensive income (loss). The cumulative balance of other comprehensive income (loss) consists solely of fair value
adjustments, net of tax related to DJW's available for sale investment.
54
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Revenue Recognition
Gaming revenue represents the net win from gaming activities, which is the aggregate difference between gaming wins and losses.
The majority of our gaming revenue is counted in the form of cash and chips and therefore is not subject to any significant or
complex estimation procedures. Complimentary slot play and other cash incentives to customers related to gaming play are recorded
as a reduction of gross gaming revenues. Revenues exclude taxes.
Race revenue recognition criteria are met at the time the results of the event are official.
Food and beverage and other revenue recognition criteria are met at the time of service or point of sale, as applicable.
Promotional Allowances
The retail value of food and beverage and other services furnished to guests without charge is included in gross revenues and then
deducted as a promotional allowance. Promotional allowances also include goods and services (such as complimentary food and
beverages) earned in our slot bonus point program. We reward customers, through the use of bonus programs, with points based
on amounts wagered that can be redeemed for a specified period of time, principally for complimentary slot play and food and
beverage, and to a lesser extent for other goods or services, depending upon the property.
The amounts included in promotional allowances are as follows:
Successor
(In thousands)
Food and beverage
Other
Total promotional allowances
Year Ended
December 31,
2014
$
18,081
1,647
$
19,728
Year Ended
December 31,
2013
$
19,413
2,190
$
21,603
Period from
November 20,
2012 through
December 31,
2012
$
1,931
261
$
2,192
Predecessor
Period from
January 1,
2012 through
November 19,
2012
$
15,763
1,923
$
17,686
Period from
November 20,
2012 through
December 31,
2012
$
706
116
$
822
Predecessor
Period from
January 1,
2012 through
November 19,
2012
$
5,733
917
$
6,650
The estimated costs of providing such promotional allowances are as follows:
Successor
(In thousands)
Food and beverage
Other
Total cost of promotional allowances
Year Ended
December 31,
2014
$
6,713
1,508
$
8,221
Year Ended
December 31,
2013
$
7,367
1,382
$
8,749
Gaming Taxes
We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate. These gaming taxes are assessed
based on our gaming revenues and are recorded as a gaming expense in the consolidated statements of comprehensive loss. These
taxes totaled approximately $130.6 million, $138.3 million, $15.2 million, and $124.0 million for the years ended December 31,
2014 and 2013, the period from November 20, 2012 through December 31, 2012, and the period from January 1, 2012 through
November 19, 2012, respectively.
Advertising Expense
Direct advertising costs are expensed the first time such advertising appears. Advertising costs are included in selling, general and
administrative expenses on the consolidated statements of comprehensive loss and totaled $8.5 million, $9.8 million, $1.0 million,
55
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
and $8.3 million for the years ended December 31, 2014 and 2013, the period from November 20, 2012 through December 31,
2012, and the period from January 1, 2012 through November 19, 2012, respectively.
Corporate Expense
Corporate expense represents unallocated payroll, professional fees, and various other expenses at PGL that are not allocated to
our casino properties.
Preopening Expense
Certain costs of start-up activities are expensed as incurred. Preopening expense for the year ended December 31, 2013 and the
periods from November 20, 2012 through December 31, 2012 and January 1, 2012 through November 19, 2012 relate primarily
to KSC development including opening the KSC arena in June 2013 and opening the KSC permanent facility in December 2012,
respectively. Preopening expense for the year ended December 31, 2014 relates primarily to other significant capital project startup costs.
Other Operating Items, net
Other operating items, net of $29.3 million for the period from January 1, 2012 through November 19, 2012 represent amounts
incurred related to the Merger. Other operating items, net during the years ended December 31, 2014 and 2013 and the period from
November 20, 2012 through December 31, 2012 were insignificant.
Share-Based Compensation
Share-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized
as expense, net of estimated forfeitures, over the employee's requisite service period. Compensation costs related to Boyd stock
option awards to our employees are calculated based on the fair value of each major option grant on the date of the grant using
the Black-Scholes option pricing model, which requires the following assumptions: expected Boyd stock price volatility, risk-free
interest rates, expected option lives and dividend yields. We formed our assumptions using historical experience of Boyd and
observable market conditions.
Concentration of Credit Risk
Financial instruments that subject us to credit risk consist of cash equivalents.
Our policy is to limit the amount of credit exposure to any one financial institution, and place investments with financial institutions
evaluated as being creditworthy or in short-term money market funds which are exposed to minimal interest rate and credit risk.
We have bank deposits which may at times exceed federally-insured limits.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these estimates.
Recently Issued Accounting Pronouncements
Accounting Standards Update 2013-11 Income Taxes (Topic 740) Presentation of an Unrecognized Tax Benefit ("UTB") When a
Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("Update 2013-11")
In July 2013, the FASB issued Update 2013-11. The objective of Update 2013-11 is to provide guidance on financial statement
presentation of an UTB when a net operating loss ("NOL") carryforward, a similar tax loss, or a tax credit carryforward exists.
The Company is required to present an UTB in the financial statements as a reduction to a deferred tax asset for a NOL carryforward,
a similar tax loss, or a tax credit carryforward.
Update 2013-11 is effective for interim and annual periods beginning after December 15, 2013. The adoption of Update 2013-11
did not have a material impact on our consolidated financial statements.
56
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Accounting Standards Update 2014-09 Revenue from Contracts with Customers (Topic 606) ("Update 2014-09")
In May 2014, the FASB issued Update 2014-09. Update 2014-09 outlines a new, single comprehensive model for entities to use
in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance,
including industry-specific guidance. The pronouncement is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2016, and early adoption is not permitted. The impact of the adoption of Update 2014-09 to the
Company's consolidated financial position or results of operations is currently under evaluation.
Accounting Standards Update 2014-15 Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern
("Update 2014-15")
In August 2014, the FASB issued Update 2014-15, which provides guidance on determining when and how reporting entities must
disclose going-concern uncertainties in their financial statements. The pronouncement is effective for annual periods ending after
December 15, 2016, and interim periods thereafter, and early adoption is permitted. The impact of the adoption of Update 2014-15
to the Company's consolidated financial position or results of operations is currently under evaluation.
A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and
certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined
the effect, if any, that the implementation of such proposed standards would have on our consolidated financial statements.
NOTE 3.
MERGER
Overview
As discussed in Note 1, on November 20, 2012, 100% of the outstanding limited liability company interest in the Company was
acquired by Boyd, through its indirect wholly owned subsidiary, Boyd Acquisition Sub, LLC ("Merger Sub"). The final net purchase
price, after adjustment for working capital and other items, was approximately $1.47 billion.
Consideration Transferred
The fair value of the consideration transferred on the acquisition date, and as retrospectively adjusted, included the purchase price
of the net assets transferred and certain liabilities incurred on behalf of the sellers. Total consideration was finalized in the fourth
quarter of 2013 and was comprised of the following:
(In millions)
Cash paid
Note payable issued by Boyd to seller
Contingent consideration obligation
$
Purchase price
$
1,353.7
109.9
3.5
1,467.1
The fair value of the note payable issued by Boyd to seller and contingent consideration obligation was estimated by management
with the assistance of an independent third-party valuation firm as of the acquisition date.
Merger-Related Expenses
Merger-related costs were not included as part of the consideration transferred, but rather expensed as incurred. The Company
incurred and expensed merger-related costs of $29.3 million during the period from January 1, 2012 through November 19, 2012,
which relate primarily to change of control payments, the immediate vesting of certain incentive profits units upon the change of
control, transaction fees and legal fees. These acquisition expenses are reported in other operating items, net on our consolidated
statements of comprehensive loss during the period from January 1, 2012 through November 19, 2012.
Transfer of Contingent Obligation to HoldCo
The consideration transferred by Boyd to the sellers pursuant to the Merger Agreement included a contingent obligation which
requires Boyd Acquisition II, LLC (“HoldCo”), an indirect wholly owned subsidiary of Boyd, to make an additional payment to
PGP in 2016 if KSC's 2015 EBITDA, as defined in the Merger Agreement, exceeds $105.0 million. In the preliminary purchase
price allocation, the estimated fair value of this obligation was recorded as a liability of the Company. Given that HoldCo is the
obligor of this contingent liability, during second quarter 2013 the liability was transferred from the Company to HoldCo. The
57
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
assumption of this liability by HoldCo resulted in an additional capital contribution to the Company, based on the preliminary
purchase price allocation, in an amount equal to the value of the transferred liability of $9.8 million.
Final Purchase Price Allocation
The purchase price allocation was finalized in the fourth quarter of 2013 and resulted in a $10.0 million reduction in the net purchase
price as compared to the preliminary purchase price and a $0.4 million increase in fair value of a contingent obligation of EVD
through December 18, 2014. The purchase price reduction resulted in a reduction to the original capital contribution to the Company
and a corresponding decrease to goodwill in an amount equal to the purchase price reduction of $10.0 million and the adjustment
to the contingent obligation at EVD resulted in an increase to accrued liabilities and a corresponding increase to goodwill of $0.4
million.
The final purchase price allocation included goodwill of $471.7 million and $577.5 million of intangible assets. The identified
intangible assets were comprised of indefinite-lived assets not subject to amortization including trademarks of $50.8 million and
gaming license rights of $387.2 million and finite-lived assets including customer relationships of $136.3 million and a noncompetition agreement of $3.2 million.
Supplemental Unaudited Pro Forma Information
The following table summarizes the actual historical combined net revenues, operating income, and net loss of the Company for
the year ended December 31, 2012 on a pro forma basis as if the acquisition had occurred at the beginning of such period.
December 31,
2012
(In thousands) (unaudited)
Net revenues
Operating income
Net loss
$
$
$
522,113
85,103
(8,190)
The unaudited pro forma results include adjustments related to: (i) the effects on depreciation and amortization of adjustments to
the value of property and equipment and intangible assets resulting from acquisition method accounting, coupled with adjustments
to the useful lives of certain classes of assets to conform to Boyd's policies; (ii) the reversal of certain activity conducted with the
prior seller; (iii) the impact of the capitalization of the entity formed through the acquisition; (iv) the push-down of income taxes;
(v) the removal of direct incremental costs associated with the acquisition; and (vi) the reclassification of certain items to conform
to Boyd's consolidated presentation. The pro forma results also reflect adjustments to conform the historical results with Boyd's
accounting policies. However, the pro forma results do not include any anticipated synergies or other expected benefits of the
Merger. Accordingly, the unaudited pro forma financial information is not necessarily indicative of either future results of operations
or results that might have been achieved had the Merger been consummated at the earlier date presented herein.
NOTE 4.
PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
(In thousands)
Land
Buildings and improvements
Furniture and equipment
Riverboat
Construction in progress
Total property and equipment
Less accumulated depreciation
Property and equipment, net
$
$
58
Successor
December 31,
2014
2013
39,240 $
39,240
308,391
290,396
119,447
101,032
20,691
19,316
1,569
2,930
489,338
452,914
85,012
45,005
404,326 $
407,909
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Depreciation expense for the years ended December 31, 2014 and 2013, the period from November 20, 2012 through December
31, 2012, and the period from January 1, 2012 through November 19, 2012 was $41.4 million, $41.9 million, $4.3 million, and
$36.5 million, respectively.
Included in asset transaction costs, net in the consolidated statements of comprehensive loss for the year ended December 31,
2013, is $0.5 million in demolition costs incurred by KSC during the transition of the interim facility to the arena and a $1.1 million
non-cash charge for the write-off of architectural fees for a previous design that was not used for Phase 2 of the Kansas Star
development project. There were no impairments of long-lived assets during the year ended December 31, 2014, the period from
November 20, 2012 through December 31, 2012, and the period from January 1, 2012 through November 19, 2012.
NOTE 5.
INTANGIBLE ASSETS, NET
Intangible assets, net consist of the following:
Successor
December 31, 2014
(In thousands)
Amortizing intangibles:
Customer relationships
Weighted
Average
Life
Remaining
2.9 years
Gross
Carrying
Value
$
136,300
$
50,800
387,249
438,049
574,349
Cumulative
Amortization
Cumulative
Impairment
Losses
Intangible
Assets, Net
$
(84,342) $
—
$
51,958
$
—
—
—
(84,342) $
(3,500)
(1,400)
(4,900)
(4,900) $
47,300
385,849
433,149
485,107
Indefinite-lived intangible assets:
Trademarks
Gaming license rights
Indefinite
Indefinite
Balance, December 31, 2014
Successor
December 31, 2013
(In thousands)
Amortizing intangibles:
Customer relationships
Non-competition agreement
Weighted
Average
Life
Remaining
3.9 years
—
Gross
Carrying
Value
$
136,300
3,200
139,500
Cumulative
Amortization
$
Cumulative
Impairment
Losses
(51,807) $
(3,200)
(55,007)
—
—
—
Intangible
Assets, Net
$
84,493
—
84,493
Indefinite-lived intangible assets:
Trademarks
Gaming license rights
Balance, December 31, 2013
Indefinite
Indefinite
$
59
50,800
387,249
438,049
577,549
$
—
—
—
(55,007) $
(3,200)
—
(3,200)
(3,200) $
47,600
387,249
434,849
519,342
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Amortizing Intangible Assets
Customer Relationships
Customer relationships represent the value of repeat business associated with our customer loyalty programs. The value of customer
relationships is determined using a loss of income method, which is a specific discounted cash flow model. The value is determined
at an amount equal to the present value of the lost after-tax cash flows resulting from the loss of the customer loyalty program,
discounted to present value at a risk-adjusted rate of return. With respect to the application of this methodology, we used the
following significant projections and assumptions: net revenue; time frame required to reasonably re-establish existing customer
loyalty programs; operating expenses; tax expense; capital expenditures and depreciation; debt-free net working capital; discount
rate; and the present value of tax benefit.
Indefinite-Lived Intangible Assets
Trademarks
Trademarks are based on the value of our brands, which reflect the level of service and quality we provide and from which we
generate repeat business. Trademarks are valued using the relief-from-royalty method, which presumes that without ownership of
such trademark, we would have to make a stream of payments to a brand or franchise owner in return for the right to use their
name. By virtue of this asset, we avoid any such payments and record the related intangible value of our ownership of the Diamond
Jo Dubuque, Diamond Jo Worth, Evangeline Downs, Amelia Belle, and Kansas Star names. We used the following significant
projections and assumptions to determine value under the relief-from-royalty method: revenue from gaming activities; royalty
rate; general and administrative expenses; tax expense; terminal growth rate; discount rate; and the present value of tax benefit.
Gaming License Rights
Gaming license rights represent the value of the license to conduct gaming in certain jurisdictions, which is subject to highly
extensive regulatory oversight, and significant costs to acquire a gaming license right or a limitation on the number of gaming
license rights available for issuance therein. The value of gaming license rights at EVD, ABC and KSC is determined using a
multi-period excess earnings method, which is a specific discounted cash flow model. The value is determined at an amount equal
to the present value of the incremental after-tax cash flows attributable only to future gaming revenue, discounted to present value
at a risk-adjusted rate of return. With respect to the application of this methodology, we used the following significant projections
and assumptions: gaming revenues; promotional allowances provided; gaming operating expenses; general and administrative and
corporate expenses and management fees; depreciation expenses; trademark expense; tax expense; contributory asset and going
concern charge; discount rate; terminal growth rate; and the present value of tax benefit.
The value of the gaming license rights of DJL and DJW were valued using a cost approach, specifically the cost to acquire a license.
Based on legislation regarding gaming operations in the State of Iowa, a company awarded a new license is obligated to pay an
initial, non-refundable license fee, based on county population.
The trademarks and gaming license rights have indefinite lives as the Company has determined that there are no known legal,
regulatory, contractual, economic or other factors that would limit their useful lives and the Company intends to use the trademarks
and renew and operate the gaming license rights indefinitely. In addition, other key factors in the Company's assessment that these
gaming license rights have an indefinite life include: (i) the Company's gaming license rights renewal experience confirms
that renewals would not be withheld except under extraordinary circumstances; (ii) the renewals related to these gaming license
rights confirms the Company's belief that the renewal process could be completed without substantial cost and without material
modification of the licenses; (iii) the economic performance of the operations related to the gaming license rights support the
Company's intention of utilizing the gaming license rights indefinitely; (iv) the continued limitation of gaming license rights in
the States of Kansas and Louisiana limits competition in the jurisdictions where these gaming license rights are maintained; and
(v) in 2011, the Iowa legislature amended the law to remove the requirement for referendums to be conducted every eight years
if a proposition to operate gambling games is approved by a majority of the county electorate voting on the proposition in two
successive elections. Because DJL and DJW have had two successive referendums approving the proposition allowing for the
operation of gambling games, no further referendums approving a proposition to operate gambling games are required for DJL or
DJW.
The gaming license rights are subject to renewal every year in Iowa and every five years in Louisiana (ABC's license was renewed
in February 2015 and EVD's license was renewed in November 2012), the horse racing license every 10 years in Louisiana (next
60
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
renewal in April 2017) and the Kansas Management Contract is subject to renewal after 15 years from commencement of
operations (next renewal in December 2026). Renewal costs are expensed as incurred.
Activity for the years ended December 31, 2014 and 2013, the period from November 20, 2012 through December 31, 2012,
and the period from January 1, 2012 through November 19, 2012
The changes in intangible assets, net are set forth in the following tables:
Predecessor
(In thousands)
Balance, January 1, 2012
Tradename
(Finite)
Customer
Relationships
and Customer
Lists
$
$
Additions
Impairments
Amortization
Balance, November 19, 2012
$
1,673
—
—
(189)
1,484 $
Gaming
License
Rights
130
—
$ 101,148
399
—
(24)
—
—
$ 101,547
106
Horse
Racing
License
Tradename
(Indefinite)
$
2,454
—
—
—
2,454
$
$
$
1,308
—
—
—
1,308
Intangible
Assets, Net
$
106,713
399
—
(213)
$
106,899
Successor
(In thousands)
Balance, November 20, 2012
Customer
Relationships
$
Additions
Impairments
Amortization
Balance, December 31, 2012
Additions
Impairments
Amortization
Balance, December 31, 2013
Additions
Impairments
Amortization
Balance, December 31, 2014
$
136,300 $
—
—
(8,723)
127,577
—
—
(43,084)
84,493
—
—
(32,535)
51,958 $
NonCompetition
Agreement
Trademarks
3,200 $
—
—
(354)
2,846
—
—
(2,846)
—
—
—
—
—
61
$
Gaming
License Rights
50,800 $
—
—
—
50,800
—
(3,200)
Intangible
Assets, Net
—
47,600
—
(300)
387,200 $
49
—
—
387,249
—
—
—
387,249
—
(1,400)
—
47,300
—
385,849
$
$
577,500
49
—
(9,077)
568,472
—
(3,200)
(45,930)
519,342
—
(1,700)
(32,535)
485,107
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Future Amortization
Customer relationships are being amortized on an accelerated basis over an approximate remaining three-year period. Future
amortization is as follows:
Customer
Relationships
(In thousands)
For the year ending December 31,
2015
2016
2017
2018
2019
Total future amortization
$
$
25,652
14,870
11,436
—
—
51,958
Trademarks and gaming license rights are not subject to amortization, as we have determined that they have an indefinite useful
life; however, these assets are subject to an annual impairment test.
Impairment Considerations
Indefinite-lived intangible assets are not subject to amortization, but they are subject to an annual impairment test, performed as
of October 1 of each year, and between annual test dates in certain circumstances.
As a result of our annual impairment testing as of October 1, 2014, we recognized a non-cash impairment charge related to our
Amelia Belle gaming license right and trademark of $1.4 million and $0.3 million, respectively, which is included in impairments
of assets in the consolidated statement of comprehensive loss for the year ended December 31, 2014.
During the year ended December 31, 2013, we recognized a non-cash impairment charge of $3.2 million on our Diamond Jo
Dubuque, Diamond Jo Worth, Evangeline Downs, and Amelia Belle trademarks, which is included in impairments of assets in the
consolidated statement of comprehensive loss.
Each of the Company's identifiable intangible assets as of December 31, 2012 was valued separately when the Company was
purchased. Due to the timing of the Merger and the related valuation, no tests were performed during 2012 for the identified
intangible assets as there were no indicators of impairment.
NOTE 6.
GOODWILL
The changes in our goodwill are set forth in the following tables:
(In thousands)
Balance, January 1, 2012
Predecessor
$
Additions
Impairments
Balance, November 19, 2012
$
62
85,308
—
—
85,308
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
(In thousands)
Balance, November 20, 2012
Successor
$
481,353
—
—
481,353
—
—
(9,618)
Additions
Impairments
Balance, December 31, 2012
Additions
Impairments
Final Merger purchase price adjustments (Note 3)
Balance, December 31, 2013
471,735
—
—
Additions
Impairments
Balance, December 31, 2014
$
471,735
As of December 31, 2014, the Company has no accumulated impairment losses.
NOTE 7.
ACCRUED LIABILITIES
Accrued liabilities consist of the following:
Successor
December 31,
2014
2013
(In thousands)
Payroll and related expenses
Interest
Gaming liabilities
Purse settlement payables
Player loyalty program liabilities
Property taxes
Current obligation under assessment arrangements
Accrued liabilities
Total accrued liabilities
$
6,065
11,829
2,541
5,084
2,404
3,608
3,603
5,853
$
6,707
11,607
2,387
5,210
2,756
4,693
3,538
6,338
$
40,987
$
43,236
NOTE 8.
LONG-TERM DEBT
Long-term debt, net of current maturities consists of the following:
(In thousands)
Credit facility
8.375% senior notes due 2018
Other
Rates at
December 31,
2014
2013
4.25%
8.38%
various
Less current maturities
Long-term debt, net
Outstanding Principal
December 31,
2014
2013
4.25% $
8.38%
various
$
63
742,400
350,000
3
1,092,403
8,253
1,084,150
$
$
802,150
350,000
12
1,152,162
8,259
1,143,903
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Credit Facility
Agreement
PGL is the borrower under the credit agreement (as amended, restated, supplemented or otherwise modified from time to time,
the “Credit Agreement”), dated as of November 14, 2012, with the lenders party thereto and Bank of America, N.A., as administrative
agent, collateral agent, swing line lender, and letter of credit issuer.
The Credit Agreement provides for a $875.0 million senior secured credit facility (the “Credit Facility”), which consists of (a) a
term loan facility of $825.0 million (the “Term Loan”) and (b) a revolving credit facility of $50.0 million (the “Revolving Credit
Facility”). The Revolving Credit Facility consists of up to $15.0 million in swing line loans ("Swing Loan") and a revolving credit
facility ("Revolving Loan") of $50.0 million less Swing Loans outstanding and any amounts allocated to letters of credit. The
Term Loan was fully funded concurrently with the closing of the Merger. A portion of the Revolving Credit Facility was funded
concurrently with the closing of the Merger. The maturity date for obligations under the Credit Facility is November 17, 2017.
On May 1, 2013, the Company entered into the First Amendment to Credit Agreement (the “Amendment”). Among other things,
the Amendment: (i) decreases the applicable margin with respect to the Term Loan to 3.25% in the case of Eurodollar Rate Loans
and 2.25% in the case of Base Rate Loans, (ii) reduces the minimum Eurodollar Rate with respect to the Term Loan to 1.00% per
annum, (iii) requires the Company to pay a premium of 1.00% of the principal amount prepaid for full or partial repayments of
Term Loans through the issuance of indebtedness having a lower interest rate than described in clause (i) above during the period
of six calendar months after the effective date of the Amendment and requires payment of an amendment fee of 1.00% during such
period payable to lenders who consent to any such reduced interest rate, (iv) extends the deadline for delivery of year-end reports
to 90 days after the end of each fiscal year of the Company, (v) clarifies the definition of Consolidated Adjusted EBITDA with
respect to management fees, and (vi) allows quarterly amortization installments to be paid prior to the last day of the applicable
quarter.
Amounts Outstanding
The amounts outstanding under the Credit Facility are comprised of the following:
December 31,
(In thousands)
2014
Term Loan
Revolving Loan
Swing Loan
Total outstanding borrowings under Credit Facility
$
$
734,000
2,000
6,400
742,400
2013
$
$
784,750
8,000
9,400
802,150
Availability
At December 31, 2014, approximately $742.4 million was outstanding under our Credit Facility. As the Company repays the $825.0
million of initial borrowings under the Term Loan, including required quarterly amortization installments and voluntary
prepayments, it is not allowed to borrow additional funds under the Term Loan. As such, with $5.2 million allocated to support
various letters of credit, we have remaining contractual availability under our Credit Facility at December 31, 2014 of approximately
$36.4 million.
Interest and Fees
The interest rate on the outstanding balance from time to time of the Term Loan is based upon, at the Company's option, either:
(i) the Eurodollar rate plus 3.25%, or (ii) the base rate plus 2.25%. The interest rate on the outstanding balance from time to time
of the Revolving Credit Facility is based upon, at the Company's option, either: (i) the Eurodollar rate plus 4.00%, or (ii) the base
rate plus 3.00%. The base rate under the Credit Facility will be the highest of (x) Bank of America's publicly-announced prime
rate, (y) the federal funds rate plus 0.50%, or (z) the Eurodollar Rate plus 1.00%. The Credit Facility also establishes, with respect
to outstanding balances under the Term Loan, a minimum Eurodollar rate for any interest period of 1.00%. In addition, PGL will
incur a commitment fee on the unused portion of the Credit Facility at a per annum rate of 0.50%.
64
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
The blended interest rate for outstanding borrowings under our Credit Facility was 4.2% at both December 31, 2014 and 2013.
Guarantees and Collateral
The Company's obligations under the Credit Facility, subject to certain exceptions, are guaranteed by PGL’s subsidiaries and are
secured by the capital stock and equity interests of PGL’s subsidiaries. In addition, subject to certain exceptions, PGL and each of
the guarantors granted the collateral agent first priority liens and security interests on substantially all of real and personal property
(other than gaming licenses and subject to certain other exceptions) of PGL and its subsidiaries as additional security for the
performance of the obligations under the Credit Facility. The obligations under the Revolving Credit Facility rank senior in right
of payment to the obligations under the Term Loan.
Optional and Mandatory Prepayments
The Credit Facility requires that the Company prepay the loans with proceeds of any significant asset sale or event of loss. In
addition, the Credit Facility requires fixed quarterly amortization of principal equal to 0.25% of the original aggregate principal
amount of the Term Loan beginning March 31, 2013 and requires that the Company use a portion of its annual excess cash flow
to prepay the loans. The Revolving Credit Facility can be terminated without premium or penalty, upon payment of the outstanding
amounts owed with respect thereto. The Term Loan can be prepaid without premium or penalty six calendar months after the
effective date of the Amendment.
During the year ended December 31, 2014 and 2013, under the Term Loan the Company paid $8.3 million each year in mandatory
principal payments and $42.5 million and $32.0 million, respectively, in optional principal prepayments, which were not subject
to any prepayment premium. As of December 31, 2014, the Company has made all principal payments required under the annual
excess cash flow requirement that would be due in the first quarter of 2015.
Financial and Other Covenants
The Credit Facility contains customary affirmative and negative covenants (and is subject to customary exceptions) for financings
of its type. The Company is required to maintain (i) a maximum Consolidated Leverage Ratio (as defined in the Credit Agreement)
over each twelve month period ending on the last day of each fiscal quarter (discussed below), (ii) a minimum consolidated Interest
Coverage Ratio (as defined in the Credit Agreement) of 2.00 to 1.00 as of the end of each calendar quarter (discussed below), and
(iii) a maximum amount of capital expenditures for each fiscal year.
The minimum consolidated Interest Coverage Ratio is calculated as (a) twelve-month trailing Consolidated Adjusted EBITDA (as
defined in the Credit Agreement), to (b) consolidated interest expense.
The maximum permitted Consolidated Leverage Ratio is calculated as Consolidated Funded Indebtedness (as defined in the Credit
Agreement) less Excess Cash (as defined in the Credit Agreement) to twelve-month trailing Consolidated Adjusted EBITDA. The
following table provides the maximum Consolidated Leverage Ratio during the remaining term of the Credit Facility.
Maximum
Consolidated
Leverage Ratio
For the Trailing Four Quarters Ending
September 30, 2014 through December 31, 2014
March 31, 2015 through June 30, 2015
September 30, 2015 through December 31, 2015
March 31, 2016 through June 30, 2016
September 30, 2016 through December 31, 2016
March 31, 2017 through June 30, 2017
September 30, 2017 and thereafter
6.75 to 1.00
6.50 to 1.00
6.25 to 1.00
6.00 to 1.00
5.75 to 1.00
5.50 to 1.00
5.25 to 1.00
Capital expenditures should not be made by the Company or any of its Restricted Subsidiaries (as defined in the Credit Agreement)
(excluding (i) capital expenditures which adds to or improves any existing property and (ii) capital expenditures made prior to the
65
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
first anniversary of the Funding Date (as defined in the Credit Agreement) relating to integration and/or transition of business
systems) in an aggregate amount in excess of $20.0 million in any fiscal year; provided that no default has occurred and is continuing
or would result from such expenditure, any portion of such maximum amount, if not expended in the fiscal year for which it is
permitted, may be carried over for expenditure in the next following fiscal year.
Other covenants, among other things, limit our ability to do the following (in each case, subject to certain exceptions):
•
incur additional debt;
•
pay dividends and make other distributions;
•
make certain investments;
•
make certain restricted payments;
•
create liens;
•
enter into transactions with affiliates;
•
make certain dispositions;
•
merge or consolidate; and
•
engage in unrelated business activities.
In addition, the Credit Facility requires that the Company take certain actions, including maintaining adequate insurance, and that
PGL causes its subsidiaries to take certain actions.
Debt Financing Costs
In conjunction with the Credit Agreement, we incurred $33.8 million during the period from November 20, 2012 through December
31, 2012 and in conjunction with the Amendment, we incurred a 1% amendment fee of $8.2 million during the year ended
December 31, 2013, which have been deferred as debt financing costs and are being amortized over the remaining term of the
Credit Agreement using the effective interest method.
Senior Notes
8.375% Senior Notes due February 2018
Significant Terms
Upon consummation of the Merger, PGL and PGC assumed the obligations of $350.0 million aggregate principal amount of 8.375%
senior notes due February 2018 (the “Notes”) that were issued through a private placement and pursuant to an Indenture dated as
of August 16, 2012 (the "Indenture") with U.S. Bank National Association, as trustee (the "Trustee"). Upon consummation of the
Merger, PGL and PGC became the issuers under the Indenture (the "Issuers"). The Indenture provides that the Notes bear interest
at a rate of 8.375% per annum. Interest on the Notes is payable semi-annually in arrears on February 15 and August 15 of each
year. The Notes mature on February 15, 2018. Prior to consummation of the Merger, the Notes were not guaranteed. Upon
consummation of the Merger, the Notes are fully and unconditionally guaranteed, on a joint and several basis, by each of the
Company’s subsidiaries (other than PGC) and the Issuers have no significant independent assets or operations.
Subsequent to August 15, 2014, we may redeem all or a portion of the notes at redemption prices (expressed as percentages of the
principal amount) ranging from 104.188% in August 2015 to 100% in August 2016 and thereafter, plus accrued and unpaid interest.
In addition, upon the occurrence of a change of control (as defined in the Indenture), we will be required, unless certain conditions
are met, to offer to repurchase the Notes at a price equal to 101% of the principal amount of the Notes, plus accrued and unpaid
interest, if any, to, but not including, the date of purchase. If we sell assets or experience an event of loss, we will be required under
certain circumstances to offer to purchase the Notes.
The Notes contain certain restrictive covenants that, subject to exceptions and qualifications, among other things, limit our ability
and the ability of our restricted subsidiaries (as defined in the Indenture) to incur additional indebtedness or liens, pay dividends
or make distributions, make certain investments, and sell or merge with other companies. Substantially all of the Company's net
assets were restricted from distribution under the Notes and the Credit Facility subject to specific amounts allowed for certain
investments and other restricted payments as well as payments under a management services agreement between the Company
and Boyd Acquisition, LLC ("Boyd Acquisition").
Registration
The Notes have not been, and will not be, registered under the Securities Act of 1933, as amended.
66
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Debt Financing Costs
In conjunction with the issuance of the Notes, we incurred approximately $14.2 million in debt financing costs, which have been
deferred and are being amortized over the term of the Notes using the effective interest method.
Covenant Compliance
As of December 31, 2014, we believe that we were in compliance with the financial and other covenants of our debt instruments.
Scheduled Maturities of Long-Term Debt
The scheduled maturities of long-term debt, as discussed above, are as follows:
(In thousands)
For the year ending December 31,
2015
2016
2017
2018
Total outstanding principal of long-term debt
$
8,253
$
8,250
725,900
350,000
1,092,403
Loss on Debt Extinguishments and Modifications
During the years ended December 31, 2014 and 2013, we incurred non-cash charges of $1.5 million and $1.3 million, respectively,
for deferred debt financing costs written off, which represents the ratable reduction in borrowing capacity due to optional
prepayments made during these periods. In addition, during the year ended December 31, 2013, we incurred $2.0 million in other
fees related to the Amendment. These charges are all included in loss on debt extinguishments and modifications in the consolidated
statements of comprehensive loss.
Upon consummation of the Merger, in accordance with the terms of the Merger, all outstanding borrowings, including borrowings
under a $50.0 million revolving line of credit ("PGL Credit Agreement"), $320.0 million 8.375% senior secured notes (the "PGL
Secured Notes") and $355.0 million 10.75% senior notes (the "PGL Unsecured Notes" and, together with the PGL Secured Notes,
the "PGL Notes") were repaid. Funds to redeem the PGL Notes in full were placed in escrow and held by the trustee until the 30day irrevocable redemption period expired. Total debt retirements made in accordance with the Merger include: (i) pay down of
all outstanding advances under the PGL Credit Agreement in the amount (including accrued interest and fees through but not
including the redemption date) of $10.7 million; (ii) redemption of all of the PGL Secured Notes in the amount (including call
premium and accrued interest through but not including the redemption date) of $342.7 million; and (iii) redemption of all of the
PGL Unsecured Notes in the amount (including make whole premium and accrued interest through but not including the redemption
date) of $410.6 million. Upon repayment of such amounts, the PGL Credit Agreement and the PGL Notes were terminated.
As a result of the pay down of all outstanding advances under the PGL Credit Agreement and the redemptions under the PGL
Notes, the Company incurred a loss of $79.6 million in the fourth quarter of 2012 consisting of the write-off of deferred financing
costs of $15.6 million, the payment of call and make whole premiums of $55.7 million, interest costs of $5.4 million incurred
during the irrevocable redemption period, the write-off of discounts of $2.7 million and fees of $0.2 million. The expense is
recognized as a non-cash transaction on the Company's consolidated statement of cash flows for the period January 1, 2012 through
November 19, 2012.
NOTE 9.
INCOME TAXES
Deferred Tax Assets and Liabilities
The Company is a limited liability company. In lieu of corporate income taxes, the members of a limited liability company are
taxed on their proportionate share of the Company’s taxable income. Therefore, no provision or liability for income taxes has been
included in the financial statements of the Predecessor. Upon consummation of the Merger, which was treated as a taxable asset
acquisition for income tax purposes, the Company became a wholly owned subsidiary of Boyd and its taxable income or loss is
included in Boyd's consolidated federal income tax return. For state income tax purposes, the Company's taxable income or loss
67
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
is included in the applicable state tax return filings of a corporate subsidiary of Boyd. Although the Company files its federal
income tax return on a consolidated basis or through inclusion in an affiliate return for state income tax purposes, the amounts
reflected in our consolidated financial statements are on a modified separate return approach as if we filed independent of the
consolidated group.
Deferred tax assets and liabilities are provided to record the effects of temporary differences between the tax basis of an asset or
liability and its amount as reported in our consolidated balance sheet. These temporary differences result in taxable or deductible
amounts in future years.
Deferred tax assets and liabilities presented on the consolidated balance sheets are as follows:
December 31,
2014
2013
(In thousands)
Current deferred tax liability
Non-current deferred tax liability
Non-current deferred tax asset
Net deferred tax liability
$
2,579
$
22,339
—
24,918
$
2,667
$
7,829
—
10,496
The components comprising our deferred tax assets and liabilities are as follows:
December 31,
2014
2013
(In thousands)
Deferred tax assets
Federal net operating loss carryforwards
State net operating loss carryforwards
Fair value adjustment on investment
Other
Gross deferred tax assets
$
Valuation allowance
Deferred tax assets, net of valuation allowance
44,883 $
10,586
580
1,822
57,871
(35,948)
18,309
4,578
600
1,436
24,923
(21,038)
21,923
3,885
25,310
7,468
5,925
5,567
2,163
408
46,841
9,815
1,902
—
310
2,203
151
14,381
Deferred tax liabilities
Difference between book and tax basis of intangible assets
State tax liability, net of federal benefit
Deferred financing fees
Difference between book and tax basis of property
Prepaid services and supplies
Other
Gross deferred tax liabilities
Deferred tax liabilities, net
$
24,918
$
10,496
At December 31, 2014, we have a federal income tax net operating loss of approximately $128.2 million and unused federal tax
credits of approximately $0.5 million which may be carried forward or used until expiration beginning in 2032. We also have state
income tax net operating loss carryforwards of approximately $120.5 million, primarily in the states of Iowa, Kansas and Louisiana,
68
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
which may be used to reduce future state income taxes and will expire in various years ranging from 2022 to 2034, if not fully
utilized.
Valuation Allowance on Deferred Tax Assets
Management assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to
use the existing deferred tax assets. In evaluating our ability to recover deferred tax assets, we consider whether it is more likely
than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results
of recent operations. A significant piece of objective negative evidence evaluated was the lack of an earnings history under our
current capital structure.
As of December 31, 2014, we concluded that it was more likely than not that the benefit from our deferred tax assets would not
be realized. As a result of our analysis, a valuation allowance of $29.4 million has been recorded on our federal income tax net
operating loss carryforwards and other deferred tax assets. The amount of the deferred tax assets considered realizable, however,
could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective
evidence in the form of a positive cumulative earnings history is present. Additional weight may be given to subjective evidence
such as our projections for growth. A valuation allowance in the amount of $6.6 million has also been recorded on our state income
tax net operating losses, along with certain other state deferred tax assets, which are not presently expected to be realized.
Provision for Income Taxes
A summary of the provision for income tax expense is as follows:
Year Ended
December 31,
2014
(In thousands)
Current
Federal
State
Total current taxes
Deferred
$
Federal
State
Total deferred taxes
Total provision for income tax expense
$
—
—
—
11,361
3,063
14,424
14,424
Period from
November 20,
2012 through
December 31,
2012
Year Ended
December 31,
2013
$
$
—
—
—
8,219
2,277
10,496
10,496
$
$
—
—
—
—
—
—
—
Our tax provision for the year ended December 31, 2014 was favorably impacted by impairment charges to indefinite lived intangible
assets, which resulted in a reduction in our recognized deferred tax liability on these assets. Our tax provision or benefit for the
years ended December 31, 2014 and 2013 was impacted by changes in the valuation allowance on our federal and state income
tax net operating losses and other deferred tax assets. Additionally, the tax provision or benefit in 2014 and 2013 was adversely
impacted by an accrual of non-cash tax expense in connection with the tax amortization of indefinite lived intangible assets. The
deferred tax liabilities created by the tax amortization of these intangibles cannot be used to offset corresponding increases in the
net operating loss deferred tax assets in determining our valuation allowance.
Our tax benefit for the period from November 20, 2012 through December 31, 2012 was adversely impacted by a full valuation
allowance on our federal and state income tax net operating losses and other deferred tax assets. As such, the Company did not
record a tax provision or benefit for the current period.
69
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
The following table provides a reconciliation between the federal statutory rate and the effective income tax rate, expressed as a
percentage of income from operations before income taxes, for the years ended December 31, 2014 and 2013 and the period from
November 20, 2012 through December 31, 2012.
Year Ended
December 31,
2014
Tax at federal statutory rate
Valuation allowance for deferred tax assets
State income taxes, net of federal benefit
Tax exempt interest
Other, net
Effective tax rate
Year Ended
December 31,
2013
Period from
November 20,
2012 through
December 31,
2012
35.0 %
1,251.7 %
196.2 %
35.0 %
(100.9)%
(10.1)%
35.0 %
(43.5)%
8.7 %
(56.7)%
(4.6)%
1,421.6 %
4.4 %
0.1 %
(71.5)%
—%
(0.2)%
—%
Status of Examinations
We are not currently under examination for any federal income, state income or franchise tax matters. The expiration of the statute
of limitations related to our federal tax returns will expire over the period September 2016 through September 2018. As it relates
to our state returns, the statute of limitations will expire over the period October 2016 through March 2019.
Other Long-Term Tax Liabilities
The impact of an uncertain income tax position taken in our income tax return is recognized at the largest amount that is morelikely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position is not recognized if
it has less than a 50% likelihood of being sustained. The Company does not have a liability for uncertain tax positions as of
December 31, 2014 and 2013. We recognize accrued interest related to unrecognized tax benefits in our income tax provision.
During the years ended December 31, 2014 and 2013 and the period from November 20, 2012 through December 31, 2012, we
did not recognize any accrued interest or penalties in our income tax provision. We have no accrual for interest or penalties as of
December 31, 2014 and 2013, in our consolidated balance sheets.
NOTE 10.
COMMITMENTS AND CONTINGENCIES
Commitments
Capital Spending and Development
We continually perform on-going refurbishment and maintenance at our facilities to maintain our standards of quality. Certain of
these maintenance costs are capitalized, if such improvement or refurbishment extends the life of the related asset, while other
maintenance costs that do not so qualify are expensed as incurred. The commitment of capital and the related timing thereof are
contingent upon, among other things, negotiation of final agreements and receipt of approvals from the appropriate regulatory
bodies. We must also comply with covenants and restrictions set forth in our debt agreements.
Obligation Under Assessment Arrangements
Mulvane Development Agreement
On March 7, 2011, KSC entered into a Development Agreement with the City of Mulvane, Kansas (“Mulvane Development
Agreement”) related to the provision of water, sewer, and electrical utilities to the Kansas Star site. This agreement sets forth
certain parameters governing the use of public financing for the provision of such utilities, through the issuance of general obligation
bonds by the City of Mulvane, paid for through the imposition of a special tax assessment on the Kansas Star site payable over 15
years in an amount equal to the City of Mulvane's full obligations under the general obligation bonds.
As of December 31, 2014, all infrastructure improvements to the KSC site under the Mulvane Development Agreement are complete
and the City of Mulvane issued $19.7 million in general obligation bonds related to these infrastructure improvements, $18.8
million prior to the Merger and $0.9 million subsequent to the Merger. In connection with the Merger, the Company's obligation
70
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
under this agreement prior to the Merger was revalued to fair value as of the Merger date. As of December 31, 2014 and 2013,
under the Mulvane Development Agreement, KSC recorded $1.7 million and $1.6 million, respectively, which is included in
accrued liabilities on the consolidated balance sheets and $10.3 million, net of a $5.1 million discount, and $10.5 million, net of
a $5.7 million discount, respectively, which is recorded as a long-term obligation in obligation under assessment arrangements on
the consolidated balance sheets. Interest costs are expensed as incurred and the discount will be amortized to interest expense over
the term of the special tax assessment ending in 2028. KSC's special tax assessment related to these bonds is approximately $1.7
million annually. Payments under the special tax assessment are secured by irrevocable letters of credit of $5.0 million issued by
the Company in favor of the City of Mulvane, representing an amount equal to three times the annual special assessment tax
imposed on KSC.
DJL Minimum Assessment Agreement
In 2007, DJL entered into a Minimum Assessment Agreement with the City of Dubuque ("City"). Under the Minimum Assessment
Agreement, DJL and the City agreed to a minimum taxable value related to DJL’s new casino of $57.9 million. DJL has agreed to
pay property taxes to the City based on the actual taxable value of the casino, but not less than the minimum taxable value.
In connection with the construction of a public parking facility adjacent to DJL's casino, the City issued $23.0 million in City
Bonds, which were purchased by DJW and are recorded as an investment available for sale on the consolidated balance sheets.
Scheduled payments of principal and interest on the City Bonds will be funded through DJL’s payment obligations under the
Minimum Assessment Agreement. DJL is also obligated to pay any shortfall should property taxes be insufficient to fund the
principal and interest payments on the City Bonds. Any property tax payments required to be made by DJL that are in excess of
the Minimum Assessment Agreement obligation will be expensed as incurred. Total minimum payments by DJL under the Minimum
Assessment Agreement are approximately $1.9 million per year through 2036.
In connection with the Merger, DJL's obligation under the Minimum Assessment Agreement was revalued to fair value as of the
Merger date. As of December 31, 2014 and 2013, under the Minimum Assessment Agreement, DJL recorded $1.9 million at each
date, which was recorded in accrued liabilities on the consolidated balance sheets and $14.7 million, net of a $3.0 million discount,
and $14.9 million, net of a $3.1 million discount, respectively, which was recorded as a long-term obligation in obligation under
assessment arrangements on the consolidated balance sheets. Interest costs are expensed as incurred and the discount will be
amortized to interest expense over the life of the Minimum Assessment Agreement through 2037.
KSC's Development Agreement together with DJL's Minimum Assessment Agreement comprise the obligations under assessment
arrangements on the consolidated balance sheets. The Company’s future obligations under the assessment arrangements for the
years ending December 31 are summarized as follows:
KSC
DJL Minimum
Development
Assessment
Agreement
Agreement
$
1,687 $
1,916 $
1,682
1,916
1,685
1,916
1,686
1,916
1,665
1,916
12,419
31,616
20,824
41,196
(8,809)
(24,598)
(1,687)
(1,916)
$
10,328 $
14,682 $
(In thousands)
2015
2016
2017
2018
2019
Thereafter
Total
Less amounts representing interest
Less current portion (included in accrued liabilities)
Long-term obligation under assessment arrangements
71
Total
3,603
3,598
3,601
3,602
3,581
44,035
62,020
(33,407)
(3,603)
25,010
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Kansas Management Contract
On January 14, 2011, the Kansas Management Contract was approved by the Kansas Racing and Gaming Commission ("KRGC"),
contractually obligating KSC to open certain phases of the project by certain specified dates. All required development under the
Kansas Management Contract was completed as of December 31, 2014.
As part of the Kansas Management Contract, KSC committed to donate $1.5 million each year to support education in the local
area in which Kansas Star operates for the duration of the Kansas Management Contract. We have made all distributions under
this commitment as scheduled and such related expenses are recorded in selling, general and administrative expenses on the
consolidated statements of comprehensive loss.
Other Agreements
DJL Public Parking Facility Agreement
DJL has an agreement with the City for use of the public parking facility adjacent to DJL's casino and owned and operated by the
City (the "Parking Facility Agreement"). The Parking Facility Agreement calls for (i) the payment by the Company for the reasonable
and necessary actual operating costs incurred by the City for the operation, security, repair and maintenance of the public parking
facility; and (ii) the payment by the Company to the City of $65 per parking space in the public parking facility per year, subject
to annual increases based on any increase in the Consumer Price Index, which funds will be deposited into a special sinking fund
and used by the City for capital expenditures necessary to maintain the public parking facility. Operating costs of the parking
facility incurred by DJL are expensed as incurred. Deposits to the sinking fund are recorded as other assets. When the sinking fund
is used for capital improvements, such amounts are capitalized and amortized over their remaining useful life.
Iowa Qualified Sponsoring Organization Agreements
DJL and DJW are required to pay their respective qualified sponsoring organization, who hold a joint gaming license with DJL
and DJW, 4.50% and 5.76%, respectively, of the casino’s adjusted gross receipts on an ongoing basis. DJL expensed $2.8 million,
$3.0 million, $0.3 million, and $2.8 million during the years ended December 31, 2014 and 2013, the period from November 20,
2012 through December 31, 2012, and the period from January 1, 2012 through November 19, 2012, respectively, related to its
agreement. DJW expensed $4.8 million, $5.0 million, $0.5 million, and $4.7 million during the years ended December 31, 2014
and 2013, the period from November 20, 2012 through December 31, 2012, and the period from January 1, 2012 through November
19, 2012, respectively, related to its agreement. The DJL agreement expires on December 31, 2018. The DJW agreement was
amended during 2014 and expires on March 31, 2025, and is subject to automatic ten-year renewal periods.
ABC Riverboat Berthing Agreement
ABC has an agreement with the Parish of St. Mary to permit the berthing of its riverboat casino in Amelia, Louisiana. The agreement
expires in May 2017. The agreement provides for percentage fees based on the level of net gaming revenue as follows: first $60
million - 2.5%; $60 to $96 million - 3.5%; greater than $96 million - 5.0%. The annual minimum fee due under the agreement is
$1.5 million, which is due on the first day of June of each year. ABC expensed $1.5 million, $1.5 million, $0.2 million, and $1.3
million during the years ended December 31, 2014 and 2013, the period from November 20, 2012 through December 31, 2012,
and the period from January 1, 2012 through November 19, 2012, respectively.
Contingent Payments
In connection with the development of Kansas Star, KSC agreed to pay a former casino project developer and option holder 1%
of KSC’s EBITDA each month for a period of 10 years commencing December 20, 2011.
72
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Future Contractual Obligations
The Company's future contractual obligations related to purchase commitments at December 31, 2014, including $17.3 million
related to KSC's obligation to support education under the Kansas Management Contract, $2.4 million related to DJL's obligation
for capital expenditures under the Parking Facility Agreement over 40 years, and $3.0 million related to ABC's riverboat berthing
agreement and excluding DJW's and DJL's variable payments to their sponsoring organizations, are summarized as follows:
Total Contractual
Obligations
(In thousands)
For the Year Ending December 31,
2015
2016
2017
2018
2019
Thereafter
$
$
6,611
3,920
2,343
2,290
2,290
17,727
35,181
Leases
The Company leases both real estate and equipment used in our operations and classifies those leases as operating leases, for
accounting purposes. As of December 31, 2014, our operating leases expire on various dates from 2015 to 2020, with certain leases
containing extensions through 2040. In addition to the minimum rental commitments, certain of our operating leases provide for
contingent rentals based on a percentage of revenues in excess of specified amounts.
Rent expense for the years ended December 31, 2014 and 2013, the period from November 20, 2012 through December 31, 2012,
and the period from January 1, 2012 through November 19, 2012, was $9.4 million, $9.1 million, $0.9 million, and $6.8 million,
respectively, and is expensed as incurred.
Minimum rental payments and contingent rental payments are summarized as follows:
Successor
(In thousands)
Minimum rental payments
Contingent rental payments
Total rental payments
Year Ended
December 31,
2014
$
7,980
1,424
$
9,404
73
Year Ended
December 31,
2013
$
7,638
1,461
$
9,099
Predecessor
Period from
November 20,
2012 through
December 31,
2012
$
732
155
$
887
Period from
January 1,
2012 through
November 19,
2012
$
5,404
1,374
$
6,778
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Future Minimum Lease Payments
Future minimum lease payments (excluding contingent rental payments) required under noncancelable operating leases as of
December 31, 2014 are as follows:
(In thousands)
For the Year Ending December 31,
Total Lease Obligations
2015
2016
2017
2018
2019
Thereafter
$
$
914
841
338
51
34
3
2,181
Contingencies
Legal Matters
We are parties to various legal proceedings arising in the ordinary course of business. We believe that all pending claims, if adversely
decided, would not have a material adverse effect on our business, financial position or results of operations.
NOTE 11.
SHARE-BASED COMPENSATION
Boyd has one stock compensation plan in effect, the 2012 Stock Incentive Plan ("2012 Plan"), which includes options, restricted
stock units, performance stock units and career shares, and has been approved by Boyd's shareholders. Certain of our executive
management employees are eligible to receive share-based awards from Boyd. Boyd allocates expense based on participation in
the 2012 Plan by Company employees. Share-based compensation expense allocated to the Company was $0.2 million, $0.1
million, and an insignificant amount for the years ended December 31, 2014 and 2013 and the period from November 20, 2012
through December 31, 2012, respectively.
NOTE 12.
FAIR VALUE MEASUREMENTS
We have adopted the authoritative accounting guidance for fair value measurements, which does not determine or affect the
circumstances under which fair value measurements are used, but defines fair value, expands disclosure requirements around fair
value and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable
or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the
Company's market assumptions.
These inputs create the following fair value hierarchy:
Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets
that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable
in active markets.
Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers
are unobservable.
As required by the guidance for fair value measurements, financial assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value measurement. Thus, assets and liabilities categorized as Level 3 may
be measured at fair value using inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Management's assessment
of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and
liabilities and their placement within the fair value hierarchy levels.
74
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Balances Measured at Fair Value
The following tables show the fair values of certain of our financial instruments:
(In thousands)
Assets
Cash and cash equivalents
Restricted cash
Investment available for sale
Liabilities
Balance
$
29,926
3,573
18,357
Contingent payments
$
3,792
(In thousands)
Assets
Cash and cash equivalents
Restricted cash
Investment available for sale
Liabilities
Successor
December 31, 2014
Level 1
Level 2
Contingent payments
31,175
3,731
17,128
4,343
$
—
—
—
—
$
—
$
31,175
3,731
—
—
$
—
—
18,357
3,792
Successor
December 31, 2013
Level 1
Level 2
Balance
$
29,926
3,573
—
Level 3
Level 3
—
—
—
—
$
—
—
17,128
4,343
Cash and Restricted Cash
The fair value of our cash and cash equivalents and restricted cash, classified in the fair value hierarchy as Level 1, are based on
statements received from our banks at December 31, 2014 and 2013.
Investment Available for Sale
DJW has an investment in City Bonds of $21.7 million that is classified as available for sale. DJW is the only holder of this
instrument and there is no quoted market price for this instrument. As such, the fair value of this investment is classified as Level
3 in the fair value hierarchy. The estimate of the fair value of such investment was determined using a combination of current
market rates and estimates of market conditions for instruments with similar terms, maturities, and degrees of risk and a discounted
cash flows analysis as of December 31, 2014 and 2013. Unrealized gains and losses on this instrument resulting from changes in
the fair value of the instrument are not charged to earnings, but rather are recorded as other comprehensive income (loss) in the
member's equity section of the consolidated balance sheets. At December 31, 2014 and 2013, $0.4 million and $0.3 million,
respectively, of the carrying value of the investment available for sale is included as a current asset in prepaid expenses and other
current assets and at December 31, 2014 and 2013, $18.0 million and $16.8 million, respectively, is included in investment available
for sale on the consolidated balance sheets. The discount associated with this investment of $3.3 million and $3.5 million as of
December 31, 2014 and 2013, respectively, is netted with the investment available for sale on the consolidated balance sheets and
is being accreted over the life of the investment using the effective interest method. The accretion of such discount is included in
interest income on the consolidated statements of comprehensive loss.
Contingent Payments
In connection with the development of Kansas Star, KSC agreed to pay a former casino project developer and option holder 1%
of KSC’s EBITDA each month for a period of 10 years commencing December 20, 2011. The liability was initially recorded upon
consummation of the Merger, at the estimated fair value of the contingent payments using a discounted cash flows approach. At
December 31, 2014 and 2013, there was a current liability of $0.9 million related to this agreement which was recorded in accrued
75
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
liabilities on the consolidated balance sheets and a long-term obligation of $2.9 million and $3.4 million, respectively, which is
included in other liabilities on the consolidated balance sheets.
The following table summarizes the changes in fair value of the Company’s Level 3 assets and liabilities:
Successor
Period from November
20, 2012 through
December 31, 2014
December 31, 2013
December 31, 2012
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Merger
Merger
earnout
earnout
Investment
Investment
and
Investment
and
available Contingent available Contingent available Contingent
(In thousands)
for sale
payments
for sale
payments
for sale
payments
(4,343) $
Balance at beginning of reporting period $
17,128 $
17,907 $ (14,363) $
18,853 $ (14,304)
Total gains (losses) (realized or
unrealized):
(274)
(672)
(86)
Included in earnings
119
106
16
Included in other comprehensive
income (loss)
Transfers in or out of Level 3
Purchases, sales, issuances and
settlements:
Settlements
Transfer to HoldCo (Note 3)
Balance at end of reporting period
Gains (losses) included in earnings
attributable to the change in
unrealized gains (losses) relating to
assets and liabilities still held at the
reporting date:
Included in interest income
Included in interest expense, net of
amounts capitalized
Included in other operating items,
net
—
—
(555)
825
—
(3,792) $
(330)
$
(355)
—
18,357 $
$
119
—
1,465
—
$
—
$
(962)
—
—
—
—
—
—
17,128
$
892
9,800
(4,343) $
106
$
—
$
—
—
17,907
$
16
$
27
—
(14,363)
—
—
(734)
—
(767)
—
(86)
—
460
—
95
—
—
76
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Predecessor
Period from January 1,
2012 through
November 19, 2012
Investment available
for sale
(In thousands)
Balance at January 1, 2012
Total gains (realized or unrealized):
Included in earnings
Included in other comprehensive income (loss)
Transfers in or out of Level 3
Purchases, sales, issuances and settlements:
$
19,352
197
1,455
—
(305)
Settlements
Ending balance at November 19, 2012
$
20,699
Gains included in earnings attributable to the change in unrealized gains relating to assets still held
at the reporting date included in interest income
$
197
We are exposed to price valuation risk on our Level 3 financial instruments due to changes in the bond market, interest rates, the
stability of the overall market, and expected future operating results at KSC. We have estimated our Level 3 unobservable inputs
risk exposure using sensitivity analysis. We have defined our valuation risk exposure as the potential overstatement or
understatement of the investment available for sale with respect to changes in market conditions that may affect pricing assuming
a hypothetical change in the discount rate of 100 basis points. We have defined our valuation risk exposure as the potential
overstatement or understatement of the contingent payment liability with respect to changes in future EBITDA at KSC. Assuming
the discount rate was to increase or decrease by 100 basis points, the estimated impact on the Level 3 investment available for sale
would result in the fair value of the recorded investment available for sale asset and other comprehensive income (loss) to increase
or decrease by approximately $1.3 million at December 31, 2014. Assuming projected EBITDA at KSC was to increase or decrease
by 10% from current projections, the estimated impact on the Level 3 contingent payment liability would result in the fair value
of the recorded contingent payment liability and net income (loss) to decrease or increase by approximately $0.4 million at
December 31, 2014. The table below summarizes the significant unobservable inputs used in calculating fair value for our Level
3 assets and liabilities:
Valuation
Technique
Investment available for sale
Contingent payments
Discounted cash flow
Discounted cash flow
Unobservable
Input
Discount rate
Discount rate
Rate
9.8%
18.5%
The fair value of intangible assets, classified in the fair value hierarchy as Level 3, is utilized in performing its impairment analyses
(see Note 5, Intangible Assets).
77
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Balances Disclosed at Fair Value
The following tables provide the fair value measurement information about our obligation under assessment arrangements, longterm debt and other financial instruments:
Successor
December 31, 2014
(In thousands)
Liabilities
Obligation under assessment arrangements
Other financial instruments
Outstanding
Face Amount
Carrying
Value
Estimated
Fair Value
Fair Value
Hierarchy
$
36,749
300
$
28,612
268
$
29,529
268
Level 3
Level 3
$
742,400
350,000
3
1,092,403
$
742,400
350,000
3
1,092,403
$
754,364
363,125
3
1,117,492
Level 2
Level 2
Level 3
Debt
Credit facility
8.375% senior notes due 2018
Other
Total debt
$
$
$
Successor
December 31, 2013
(In thousands)
Liabilities
Obligation under assessment arrangements
Other financial instruments
Outstanding
Face Amount
Carrying
Value
Estimated
Fair Value
Fair Value
Hierarchy
$
37,783
400
$
28,980
343
$
28,055
343
Level 3
Level 3
$
802,150
350,000
12
1,152,162
$
802,150
350,000
12
1,152,162
$
814,941
380,625
12
1,195,578
Level 2
Level 2
Level 3
Debt
Credit facility
8.375% senior notes due 2018
Other
Total debt
$
$
$
The estimated fair value of the Credit Facility is based on a relative value analysis performed on or about December 31, 2014 and
2013. The estimated fair value of our senior notes is based on quoted market prices as of December 31, 2014 and 2013. Our other
financial instruments and debt included in the “Other” category are fixed-rate, are not traded and do not have an observable market
input; therefore, we have estimated fair value based on current market interest rates and estimates of market conditions for
instruments with similar terms, maturities and degrees of risk. We have estimated the fair value of our obligation under assessment
arrangements using a discounted cash flow approach, after giving consideration to the changes in market rates of interest,
creditworthiness of both parties, and credit spreads. The weighted average discount rate used in calculating the fair value of the
obligation under assessment arrangements was 9.7% and 10.7% as of December 31, 2014 and 2013, respectively.
There were no transfers between Level 1, Level 2 and Level 3 measurements during the years ended December 31, 2014 and 2013,
the period from November 20, 2012 through December 31, 2012 or the period from January 1, 2012 through November 19, 2012.
78
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
NOTE 13.
ASSET TRANSACTION COSTS, NET
Successor
(In thousands)
(Gain) loss on sale of assets
Asset write-downs
Total
Year Ended
December 31,
2014
Year Ended
December 31,
2013
$
$
936
—
936
$
$
476
1,586
2,062
Period from
November 20,
2012 through
December 31,
2012
$
—
—
$
—
Predecessor
Period from
January 1,
2012 through
November 19,
2012
(9)
$
$
—
(9)
(Gain) Loss on Sale of Assets
Represent amounts recognized in connection with the disposal of certain property and equipment in the ordinary course of business.
Asset Write-downs
For the year ended December 31, 2013, we recorded $1.6 million of asset write-downs at KSC including $0.5 million of demolition
costs incurred during the transition of the interim gaming facility to the arena and a $1.1 million non-cash charge for the write-off
of architectural fees for a Phase 2 design that was not used.
NOTE 14.
EMPLOYEE BENEFIT PLANS
Employee Benefit Plan (Successor)
Effective January 1, 2013, we have a retirement savings plan under Section 401(k) of the Internal Revenue Code. The plan allows
employees to defer up to the lesser of the Internal Revenue Code prescribed maximum amount or 100% of their income on a pretax basis through contributions to the plan. We expensed our voluntary contributions to the 401(k) profit-sharing plan and trusts
of $0.4 million and $0.3 million for the years ended December 31, 2014 and 2013, respectively.
Employee Benefit Plans (Predecessor)
We had retirement savings plans under Section 401(k) of the Internal Revenue Code. The plans allowed employees to defer up to
the lesser of the Internal Revenue Code prescribed maximum amount or 100% of their income on a pre-tax basis through
contributions to the plans. We expensed our voluntary contributions to the 401(k) plans of $0.5 million during the period from
January 1, 2012 through November 19, 2012. The plans terminated and all matching contributions vested immediately upon
consummation of the Merger.
We also had a non-qualified deferred compensation plan under the Predecessor. Under the plan, certain eligible key employees of
the Company could elect to defer a portion of their compensation. The Company makes a matching contribution to each participant
based upon a percentage set by the Company. Expense related to Company matching contributions was $0.8 million during the
period from January 1, 2012 through November 19, 2012. The plan terminated and all matching contributions vested immediately
upon consummation of the Merger.
79
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
NOTE 15.
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables present selected quarterly financial information for the years ended December 31, 2014 and 2013.
(In thousands)
Summary Operating Results:
Net revenues
Operating income
Net income (loss)
First
$
(In thousands)
Summary Operating Results:
Net revenues
Operating income
Net loss
122,273 $
20,924
(1,973)
First
$
133,913 $
22,650
(3,380)
Successor
Year Ended December 31, 2014
Second
Third
Fourth
127,754
21,205
1,190
$
123,578 $
18,820
(7,118)
120,246 $
16,699
(5,508)
Successor
Year Ended December 31, 2013
Second
Third
Fourth
135,781 $
19,888
(5,412)
130,722 $
17,751
(5,021)
119,913 $
9,209
(11,360)
Year
493,851
77,648
(13,409)
Year
520,329
69,498
(25,173)
NOTE 16.
RELATED PARTY TRANSACTIONS
Related Party Transactions (Successor)
Member Distributions
During the year ended December 31, 2013, the Company distributed $9.5 million, which was recorded as a member distribution.
There were no distributions for the year ended December 31, 2014 and the period from November 20, 2012 through December
31, 2012.
Boyd Percentage Ownership
William S. Boyd, the Executive Chairman of the Board of Directors of Boyd, together with his immediate family, beneficially
owned approximately 28% of Boyd's outstanding shares of common stock as of December 31, 2014. As such, the Boyd family
has the ability to significantly influence our affairs, including the election of members of Boyd's Board of Directors and, except
as otherwise provided by law, approving or disapproving other matters submitted to a vote of Boyd's stockholders, including a
merger, consolidation or sale of assets. For the years ended December 31, 2014 and 2013 and the period from November 20, 2012
through December 31, 2012, there were no related party transactions between the Company and the Boyd family.
Boyd Management Services Agreement
On November 20, 2012, PGL entered into a management services agreement with Boyd Acquisition, a direct wholly owned
subsidiary of Boyd, under which PGL pays to Boyd Acquisition a management fee equal to 2% of consolidated net revenue plus
5% of earnings before interest expense, taxes, depreciation, amortization, and other items as defined in the agreement. We expensed
management fees of $18.6 million, $19.6 million and $2.2 million during the years ended December 31, 2014 and 2013 and the
period from November 20, 2012 through December 31, 2012, respectively, related to this agreement.
Related Party Transactions (Predecessor)
PGP Member Distributions/Contributions
Until consummation of the Merger, PGP was the holder of all the Company's issued and outstanding common membership interests
and as such was entitled to vote on all matters to be voted on by holders of common member interests of the Company and receive
certain dividends and distributions subject to limitations in any Predecessor debt arrangements. During the period from January
1, 2012 through November 19, 2012, the Company distributed $6.5 million to PGP primarily for (i) certain consulting and financial
advisory services of PGP development expenses, (ii) board fees and actual out-of-pocket expenses incurred by members of the
board of managers of PGP in their capacity as board members and (iii) tax, accounting, licensure, legal and administrative costs
and expenses related to PGP. These amounts were recorded as member distributions.
80
PENINSULA GAMING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
as of December 31, 2014 and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
On November 19, 2012, certain previously granted profits interests to certain executive officers of the Company became fully
vested upon the change of control. As these awards were issued by PGP, the awards represent a PGP liability and not a liability of
the Company. The $6.8 million expense associated with these awards to the officers was recorded by the Company in other operating
items, net on the consolidated statements of comprehensive loss during the period from January 1, 2012 through November 19,
2012 with a corresponding credit to member contributions.
On March 30, 2012, June 29, 2012, and September 28, 2012, PGP repurchased certain previously granted and vested profit interests
from certain executive officers of the Company in the amount of $3.0 million for each repurchase date for total repurchases for
the period from January 1, 2012 through November 19, 2012 of $9.0 million. The repurchases were funded by a distribution from
PGL to PGP of $9.0 million during the period from January 1, 2012 through November 19, 2012.
Transactions with PGP Board Members
During the period from January 1, 2012 through November 19, 2012, the Company expensed $0.8 million as affiliate management
fees, related to other compensation and board fees payable to board members of PGP representing services provided to PGL.
EVD and PGP were parties to a consulting agreement with a board member of PGP. Under the consulting agreement, EVD, DJW,
ABC and KSC each paid the board member a fee equal to 2.5% of EVD’s, DJW’s, ABC’s and KSC’s earnings before interest,
taxes, depreciation, amortization and charges associated with the impairment of assets, development expenses, preopening expenses,
management and consulting fees, corporate allocations, gains or losses on the disposal of assets and extraordinary gains or losses,
in each case, applicable to such period. The Company expensed $4.0 million of affiliate management fees during the period from
January 1, 2012 through November 19, 2012 which are recorded as affiliate management fees in the consolidated statements of
comprehensive loss. This agreement terminated upon consummation of the Merger.
Management Services Agreements
In accordance with a management services agreement between OED Acquisition LLC (“OEDA”), formerly a wholly owned
subsidiary of PGP, and EVD, under which EVD paid to OEDA (an affiliate) a base management fee of 0.44% of net revenue (less
net food and beverage revenue) plus an incentive fee ranging from 0.75% to 1.25% based on earnings before interest, taxes,
depreciation, amortization and non-recurring charges, EVD expensed $0.6 million during the period from January 1, 2012 through
November 19, 2012. This agreement terminated upon consummation of the Merger.
In 2005, DJW entered into a management services agreement with PGP under which DJW paid to PGP a base management fee of
1.75% of net revenue (less net food and beverage revenue) plus an incentive fee ranging from 3% to 5% based on earnings before
interest, taxes, depreciation, amortization and non-recurring charges. DJW expensed management fees of $2.7 million during the
period from January 1, 2012 through November 19, 2012 related to this agreement. This agreement terminated upon consummation
of the Merger.
NOTE 17.
SUBSEQUENT EVENTS
In March 2015, EVD closed the Port Allen OTB. Expenses related to the closing of the OTB total less than $0.1 million. Net
revenues for Port Allen were $2.5 million, $2.6 million, $0.3 million, and $2.8 million for the years ended December 31, 2014
and 2013, the period from November 20, 2012 through December 31, 2012, and the period from January 1, 2012 through November
19, 2012, respectively. Net loss for Port Allen was less than $0.1 million for the year ended December 31, 2014 and net income
was $0.1 million, less than $0.1 million, and $0.3 million for the year ended December 31, 2013, the period from November 20,
2012 through December 31, 2012, and the period from January 1, 2012 through November 19, 2012, respectively.
Other than the Port Allen OTB closure as discussed above, no events have occurred after December 31, 2014 but before March 19,
2015, the date the consolidated financial statements were issued, that require consideration as adjustments to or disclosures in the
consolidated financial statements.
81
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There were no changes in or disagreements with accountants on accounting and financial disclosures during the two years in the
period ended December 31, 2014.
ITEM 9A.
Not applicable.
Controls and Procedures
ITEM 9B.
None
Other Information
82
PART III
ITEM 10.
Directors, Executive Officers and Corporate Governance
Information required by this item regarding the members of Boyd's board of directors and audit committee, including its audit
committee financial expert, is set forth under the captions Board Committees - Audit Committee, Director Nominees, and Section 16
(a) Beneficial Ownership Reporting Compliance in Boyd's Definitive Proxy Statement to be filed in connection with its 2015
Annual Meeting of Stockholders and is incorporated herein by reference.
We are managed by Boyd Gaming Corporation. The following table sets forth the non-director executive officers of Boyd Gaming
Corporation as of March 19, 2015:
Name
Brian A. Larson
Josh Hirsberg
Anthony D. McDuffie
Age
59
53
54
Position
Executive Vice President, Secretary and General Counsel
Senior Vice President, Chief Financial Officer, and Treasurer (Principal Financial Officer)
Vice President and Chief Accounting Officer (Principal Accounting Officer)
Brian A. Larson has served as Boyd's Executive Vice President and General Counsel since January 1, 2008, and as its Secretary
since February 2001. Mr. Larson became Boyd's Senior Vice President and General Counsel in January 1998. He became Associate
General Counsel in March 1993 and Vice President-Development in June 1993.
Josh Hirsberg has served as Boyd's Senior Vice President, Chief Financial Officer and Treasurer since January 1, 2008. Prior to
his position with Boyd, Mr. Hirsberg served as the Chief Financial Officer for EdgeStar Partners, a Las Vegas-based resort
development concern. He previously held several senior-level finance positions in the gaming industry, including Vice President
and Treasurer for Caesars Entertainment and Vice President, Strategic Planning and Investor Relations for Harrah's Entertainment.
Anthony D. McDuffie has served as Boyd's Vice President and Chief Accounting Officer since March 2013. Prior to being appointed
Vice President and Chief Accounting Officer, Mr. McDuffie, served as the Company's Director, Accounting Policy & Reporting,
since October 2012. Mr. McDuffie previously served as Vice President, Finance and Controller of Pinnacle Airlines Corp. from
October 2011 until September 2012. Prior to joining Pinnacle Airlines, Mr. McDuffie served as a financial accounting consultant
to businesses in the manufacturing, health care and emergency air ambulance industries from May 2009 until October 2011. Mr.
McDuffie served as Controller and Chief Accounting Officer of Caesars Entertainment Corporation from November 2001 to May
2009.
Code of Ethics. Boyd's Code of Business Conduct and Ethics (“Code of Ethics”), which applies to the directors, executive officers
and employees of Boyd as well as our executives and employees is posted online at www.boydgaming.com. Any waivers or
amendments to our Code of Ethics will be posted on Boyd's website.
ITEM 11.
Executive Compensation
The information required by this item is set forth under the captions Executive Officer and Director Compensation, Compensation
and Stock Option Committee Interlocks and Insider Participation, and Compensation and Stock Option Committee Report in
Boyd's Definitive Proxy Statement to be filed in connection with its 2015 Annual Meeting of Stockholders and is incorporated
herein by reference.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is set forth under the captions Ownership of Certain Beneficial Owners and Management
and Equity Compensation Plan Information in Boyd's Definitive Proxy Statement to be filed in connection with its 2015 Annual
Meeting of Stockholders and is incorporated herein by reference.
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item is set forth under the captions Transactions with Related Persons and Director Independence
in Boyd's Definitive Proxy Statement to be filed in connection with its 2015 Annual Meeting of Stockholders and is incorporated
herein by reference.
83
ITEM 14.
Principal Accounting Fees and Services
The aggregate fees billed by Deloitte & Touche LLP for the years ended December 31, 2014 and 2013 were as follows:
(In thousands)
Audit fees
Audit-related fees (1)
Total
2014
1,134
166
$
1,300
$
2013
815
50
$
865
$
_____________________
(1) Annual internal control procedures related to compliance with state gaming regulations, internal control procedures related
to financial reporting and quarterly casino revenue audits.
In accordance with our internal policies, all fees related to audit and permissible non-audit services rendered by our independent
registered public accounting firm are required to be pre-approved by Boyd's audit committee. In addition, all of the services
described above in this Item 14 for the years ended December 31, 2014 and 2013 have been approved by Boyd's audit committee,
as applicable.
84
PART IV
ITEM 15.
1.
Exhibits, Financial Statement Schedules
Financial Statements
Financial statements of the Company (including related notes to consolidated financial statements) filed as part of this
report are listed below:
Page No.
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 2014 and 2013 (Successor)
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2014 (Successor) and
December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor), and
the period from January 1, 2012 through November 19, 2012 (Predecessor)
Consolidated Statements of Changes in Member's Equity (Deficit) for the years ended December 31, 2014 (Successor)
and December 31, 2013 (Successor), the period from November 20, 2012 through December 31, 2012 (Successor),
and the period from January 1, 2012 through November 19, 2012 (Predecessor)
Consolidated Statements of Cash Flows for the years ended December 31, 2014 (Successor) and December 31, 2013
(Successor), the period from November 20, 2012 through December 31, 2012 (Successor), and the period from
January 1, 2012 through November 19, 2012 (Predecessor)
Notes to Consolidated Financial Statements
44
45
46
47
48
50
2.
Financial Statement Schedules
Schedules are omitted since they are not applicable, not required or the information required to be set forth therein is
included in Consolidated Financial Statements or Notes thereto included in this Report.
3.
Exhibit List
Exhibit
Number
Description of Exhibit
Method of Filing
2.1
Agreement and Plan of Merger, by and among Boyd Incorporated by reference to Exhibit 2.1 of Boyd Gaming
Gaming Corporation, Boyd Gaming Acquisition II, LLC, Corporation's Form 8-K filed May 23, 2012.
Boyd Gaming Acquisition Sub, LLC, Peninsula Gaming
Partners, LLC and Peninsula Gaming, LLC, dated May
16, 2012
3.1A
Certificate of Formation of Peninsula Gaming, LLC Incorporated by reference to Exhibit 3.3A of Peninsula
(formerly known as Peninsula Casinos, LLC), dated Gaming, LLC’s Form S-4 filed July 30, 2004.
February 27, 2004
3.1B
Certificate of Amendment to the Certificate of Formation
of Peninsula Gaming, LLC, dated March 9, 2004
Incorporated by reference to Exhibit 3.3B of Peninsula
Gaming, LLC’s Form S-4 filed July 30, 2004.
3.2
Amended and Restated Operating Agreement of
Peninsula Gaming, LLC, dated August 6, 2009
Incorporated by reference to Exhibit 3.2 of Peninsula
Gaming, LLC’s Form S-4 filed February 2, 2010.
3.3A
Certificate of Incorporation of Peninsula Gaming Corp. Incorporated herein by reference to Exhibit 3.4 of
(formerly known as The Old Evangeline Downs Capital Peninsula Gaming Corp.’s Form S-4 filed May 28, 2003.
Corp.), dated January 20, 2003
3.3B
Certificate of Amendment to the Certificate of
Incorporation of Peninsula Gaming Corp., dated June 17,
2004
Incorporated by reference to Exhibit 3.5B of Peninsula
Gaming, LLC’s Form S-4 filed July 30, 2004.
3.4
By-laws of Peninsula Gaming Corp.
Incorporated herein by reference to Exhibit 3.5 of The
Old Evangeline Downs Capital Corp.’s Form S-4 filed
May 28, 2003.
4.1
Specimen Certificate of Common Stock of Peninsula
Gaming Corp.
Incorporated by reference to Exhibit 4.1 of Peninsula
Gaming, LLC’s Form S-4 filed July 30, 2004.
85
4.2
Indenture governing the 8.375% Senior Notes due 2018, Incorporated by reference to Exhibit 99.2 of Boyd
dated as of August 16, 2012, by and among Peninsula Gaming Corporation's Form 8-K filed August 21, 2012.
Gaming, LLC, Peninsula Gaming Corp., the subsidiary
guarantors named therein and U.S. Bank National
Association, as trustee
4.3
Seller Merger Consideration Note from Boyd Acquisition Incorporated by reference to Boyd Gaming Corporation's
II, LLC to Peninsula Gaming Partners, dated November Form 8-K filed November 20, 2012.
2012
10.1A
Operating Agreement, dated February 22, 1993, by and Incorporated herein by reference to Exhibit 10.9A of
among Dubuque Racing Association, Ltd. and Greater Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
Dubuque Riverboat Entertainment Company, L.C
10.1B
Amendment to Operating Agreement, dated February 22, Incorporated herein by reference to Exhibit 10.9B of
1993, by and among Dubuque Racing Association, Ltd. Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
and Greater Dubuque Riverboat Entertainment
Company, L.C.
10.1C
Amendment to Operating Agreement, dated March 4, Incorporated herein by reference to Exhibit 10.9C of
1993, by and among Dubuque Racing Association, Ltd. Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
and Greater Dubuque Riverboat Entertainment
Company, L.C.
10.1D
Third Amendment to Operating Agreement, dated Incorporated herein by reference to Exhibit 10.9D of
March 11, 1993, by and among Dubuque Racing Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.
10.1E
Fourth Amendment to Operating Agreement, dated Incorporated herein by reference to Exhibit 10.9E of
March 11, 1993, by and among Dubuque Racing Diamond Jo, LLC’s Form S-4 filed October 12, 1999
Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.
10.1F
Fifth Amendment to Operating Agreement, dated April 9, Incorporated herein by reference to Exhibit 10.9F of
1993, by and among Dubuque Racing Association, Ltd. Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
and Greater Dubuque Riverboat Entertainment
Company, L.C.
10.1G
Sixth Amendment to Operating Agreement, dated Incorporated herein by reference to Exhibit 10.9G of
November 29, 1993, by and among Dubuque Racing Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.
10.1H
Seventh Amendment to Operating Agreement, dated Incorporated herein by reference to Exhibit 10.9H of
April 6, 1994, by and among Dubuque Racing Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.
10.1I
Eighth Amendment to Operating Agreement, dated Incorporated herein by reference to Exhibit 10.9I of
April 29, 1994, by and among Dubuque Racing Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.
10.1J
Ninth Amendment to Operating Agreement, dated Incorporated herein by reference to Exhibit 10.9J of
July 11, 1995, by and among Dubuque Racing Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.
10.1K
Tenth Amendment to Operating Agreement, dated Incorporated herein by reference to Exhibit 10.9K of
July 15, 1999, by and among Dubuque Racing Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.
10.1L
Operating Agreement Assignment, dated July 15, 1999, Incorporated herein by reference to Exhibit 10.10 of
by and among Greater Dubuque Riverboat Entertainment Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
Company, L.C. and Diamond Jo, LLC
10.1M
Eleventh Amendment to Operating Agreement, dated as Incorporated herein by reference to Exhibit 10.16 of
of May 31, 2005, by and between Dubuque Racing Peninsula Gaming, LLC’s Quarterly Report on Form 10Association, Ltd. And Diamond Jo, LLC
Q filed November 14, 2005.
86
10.2A
Amended and Restated Operator’s Agreement, dated Incorporated by reference to Exhibit 10.56 of Peninsula
November 5, 2004, by and among the Worth County Gaming, LLC’s Annual Report on Form 10-K filed April
Development Authority, an Iowa not-for-profit 2, 2007.
corporation, and Diamond Jo Worth, LLC
10.2B†
First Amendment to Amended and Restated Operator's Available upon request.
Agreement, dated October 7, 2014, by and among the
Worth County Development Authority, an Iowa not-forprofit corporation, and Diamond Jo Worth, LLC
10.3
Ice Harbor Parking Agreement Assignment dated Incorporated herein by reference to Exhibit 10.13 of
July 15, 1999, by and among Greater Dubuque Riverboat Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
Entertainment Company, L.C. and Diamond Jo, LLC
10.4
First Amendment to Sublease Agreement, dated July 15, Incorporated herein by reference to Exhibit 10.14 of
1999, by and among Dubuque Racing Association, Ltd. Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
and Greater Dubuque Riverboat Entertainment
Company, L.C.
10.5
Sublease Assignment, dated July 15, 1999, by and among Incorporated herein by reference to Exhibit 10.15 of
Greater Dubuque Entertainment Company, L.C. and Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
Diamond Jo, LLC
10.6
Iowa Racing and Gaming Commission Gaming License, Incorporated herein by reference to Exhibit 10.16 of
dated July 15, 1999
Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
10.7
Assignment of Iowa IGT Declaration and Agreement of Incorporated herein by reference to Exhibit 10.17 of
Trust, dated July 15, 1999, by and among Greater Diamond Jo, LLC’s Form S-4 filed October 12, 1999.
Dubuque Riverboat Entertainment Company, L.C. and
Diamond Jo, LLC
10.8
Offer to Purchase Real Estate, Acceptance and Lease, Incorporated herein by reference to Exhibit 10.1 of
dated September 27, 2006, between Diamond Jo, LLC Peninsula Gaming, LLC’s Quarterly Report on Form 10and Dubuque County Historical Society
Q filed November 14, 2006.
10.9
Closing Agreement, dated September 27, 2006, between Incorporated herein by reference to Exhibit 10.1 of
Diamond Jo, LLC and Dubuque County Historical Peninsula Gaming, LLC’s Quarterly Report on Form 10Society
Q filed November 14, 2006.
10.10
Real Estate Ground Lease, dated September 27, 2006,
between Diamond Jo, LLC and Dubuque County
Historical Society
10.11
Minimum Assessment Agreement, dated October 1, Incorporated by reference to Exhibit 10.63 of Peninsula
2007, among Diamond Jo, LLC, the City of Dubuque, Gaming, LLC’s Annual Report on Form 10-K filed March
Iowa and the City Assessor of the City of Dubuque, Iowa 28, 2008.
10.12
Bond Purchase Contract, dated October 1, 2007, among
Diamond Jo, LLC, the City of Dubuque, Iowa and Robert
W. Baird & Co
10.13
Amended and Restated Port of Dubuque Public Parking Incorporated by reference to Exhibit 10.65 of Peninsula
Facility Development Agreement, dated October 1, 2007, Gaming, LLC’s Annual Report on Form 10-K filed March
between the City of Dubuque, Iowa and Diamond Jo, LLC 28, 2008.
10.14
Lottery Gaming Facility Management Contract, dated
October 19, 2010
Incorporated herein by reference to Exhibit 10.2 of
Peninsula Gaming, LLC’s Current Report on Form 8-K
filed February 4, 2011.
10.15
Standard Form of Agreement Between Owner and
Construction Manager as Constructor dated March 23,
2011 between Kansas Star Casino, LLC and Conlon
Construction Co.
Incorporated by reference to Exhibit 10.1 of Peninsula
Gaming, LLC’s Form 10-Q filed May 16, 2011.
10.16
Standard form of Agreement Between Owner and
Construction Manager as Constructor dated August 1,
2011 between Kansas Star Casino, LLC and Conlon
Construction Co.
Incorporated by reference to Exhibit 10.1 of Peninsula
Gaming, LLC’s Form 10-Q filed August 15, 2011.
87
Incorporated herein by reference to Exhibit 10.1 of
Peninsula Gaming, LLC’s Quarterly Report on Form 10Q filed November 14, 2006.
Incorporated by reference to Exhibit 10.64 of Peninsula
Gaming, LLC’s Annual Report on Form 10-K filed March
28, 2008.
10.17A
Credit Agreement, dated as of November 14, 2012, Incorporated by reference to Exhibit 10.1 of Boyd
among Peninsula Gaming, LLC, as the Initial Borrower, Gaming Corporation's Form 8-K filed November 20,
Bank of America, N.A., as Administrative Agent, 2012.
Collateral Agent, Swing Line Lender and L/C Issue, and
the Other Lenders Party thereto
10.17B
First Amendment to Credit Agreement, dated May 1,
2013, among PGL, certain financial institutions and
Bank of America, N.A., as administrative agent for the
Lenders.
Incorporated by reference to Exhibit 10.1 of Boyd
Gaming Corporation's Form 8-K filed May 6, 2013.
10.18
Separation Agreement and Release, Dated September 19, Incorporated by reference to Exhibit 10.1 of Boyd
2014, by and between Paul J. Chakmak and Boyd Gaming Gaming Corporation's Quarterly Report on Form 10-Q
Corporation.
filed on November 7, 2014.
12.1†
Computation of ratio of earnings to fixed charges.
Available upon request.
21.1†
Subsidiaries of the Registrants.
Available upon request.
24
99.2
Power of Attorney (included in Part IV to this Annual Power of Attorney (included in Part IV to this Annual
Report on Form 10-K).
Report on Form 10-K).
Governmental Gaming Regulations
Incorporated by reference to Exhibit 99.2 of Boyd
Gaming Corporation's Annual Report on Form 10-K filed
February 27, 2015.
* Unless otherwise noted, exhibits have been previously filed and are incorporated by reference.
† Such exhibit has not been previously filed and is not provided with this document. A copy may be obtained by written request
to Boyd Gaming Corporation, 3883 Howard Hughes Parkway, Ninth Floor, Las Vegas, Nevada 89169, (702) 792-7200, Attn:
David Strow, Director of Corporate Communications.
88
SIGNATURES
Each of the Company and PGC has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized,
on March 19, 2015.
PENINSULA GAMING, LLC
PENINSULA GAMING, CORP.
By:
/s/ ANTHONY D. MCDUFFIE
Anthony D. McDuffie
Authorized Representative
89
This report has been signed by the following persons on behalf of each of the Company and PGC and in the capacities and on the
date indicated.
Signature
/s/ KEITH E. SMITH
Keith E. Smith
/s/ JOSH HIRSBERG
Josh Hirsberg
/s/ WILLIAM S. BOYD
Title
Chief Executive Officer and Manager of Peninsula Gaming, LLC
President and Director of Peninsula Gaming Corp.
Date
March 19, 2015
(Principal Executive Officer)
Chief Financial Officer, Senior Vice President and Treasurer of
Peninsula Gaming, LLC
Senior Vice President and Treasurer of Peninsula Gaming Corp.
March 19, 2015
(Principal Financial Officer)
Manager of Peninsula Gaming, LLC
Director of Peninsula Gaming Corp.
March 19, 2015
Manager of Peninsula Gaming, LLC
Director of Peninsula Gaming Corp.
March 19, 2015
Principal Accounting Officer of Peninsula Gaming, LLC and
Peninsula Gaming Corp.
March 19, 2015
William S. Boyd
/s/ MARIANNE BOYD JOHNSON
Marianne Boyd Johnson
/s/ ANTHONY D. MCDUFFIE
Anthony D. McDuffie
90