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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
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Dec. 31, 2014
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Principles of Consolidation and Accounting |
Principles of Consolidation and Accounting. The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Certain prior-period amounts in the consolidated statements of operations and balance sheets have been reclassified to conform to the current period presentation. These reclassifications had no effect on the previously reported income from operations or net loss.
Except when otherwise required by accounting principles generally accepted in the United States of America (U.S. GAAP), we measure all of our assets and liabilities on the historical cost basis of accounting.
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| Use of Estimates |
Use of Estimates. Certain of our accounting policies require that we apply significant judgment in defining the appropriate assumptions for calculating estimates that affect reported amounts and disclosures. By their nature, these judgments are subject to an inherent degree of uncertainty. Significant accounting estimates include valuation of goodwill and impairment of other long-lived assets, allocation of the purchase price associated with our acquisitions, collectability of receivables, the estimated useful lives assigned to our depreciable and amortizable assets, estimated cost of services furnished on a complimentary basis to customers and the estimated liability for unredeemed customer loyalty awards, and income taxes. Our estimates related to the valuation of goodwill and impairment of other long-lived assets could materially change during the next year.
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| Cash Equivalents |
Cash Equivalents. Cash equivalents include cash involved in operations and cash in excess of daily requirements that is invested in highly liquid, short-term investments with initial maturities of three months or less when purchased.
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| Fair Value of Financial Instruments |
Fair Value of Financial Instruments. Fair value measurements affect the Company’s accounting and impairment assessments of its long-lived assets, assets acquired and liabilities assumed in an acquisition, and goodwill and other intangible assets. Fair value measurements also affect the Company’s accounting for certain of its financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured according to a hierarchy that includes: Level 1 inputs, such as quoted prices in an active market; Level 2 inputs, which are observable inputs for similar assets; or Level 3 inputs, which are unobservable inputs. The carrying value of cash and equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of those instruments. The estimated fair values of our debt approximate the recorded values as of the balance sheet dates presented, based on Level 2 inputs as defined by U.S. GAAP consisting of interest rates offered to us for loans with similar maturities and risks. We used Level 3 inputs when assessing the fair value of intangible assets (See Note 5) and property and equipment.
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| Liquidity, Concentrations and Economic Risks and Uncertainties |
Liquidity, Concentrations and Economic Risks and Uncertainties. We are economically dependent upon relatively few investments in the gaming industry. The gaming industry in general, including the markets in which we operate, has not fully recovered from the most recent economic recession and, to varying degrees, the continuing economic weakness that has curtailed consumer spending, particularly for gaming and other recreational activities. Accordingly, future operations could be affected by adverse economic conditions and increased competition, particularly in those areas and their key feeder markets in neighboring states. The effects and duration of these conditions and related risks and uncertainties on our future operations and cash flows, including our access to capital or credit financing, cannot be estimated at this time, but may be significant.
The Company carries cash on deposit with financial institutions that may be in excess of federally-insured limits. However, the extent of any loss that might be incurred as a result of uninsured deposits in the event of a future failure of a bank or other financial institution, if any, is not subject to estimate at this time.
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| Receivables |
Receivables. Accounts receivable are uncollateralized and carried, net of an appropriate allowance, at their estimated collectible value based on customers’ past credit history and current financial condition and on current general economic conditions. Since credit is extended on a short-term basis, accounts receivables do not normally bear interest. The allowances for doubtful accounts are estimated by management for accounts that are believed to be partially or entirely uncollectible. Doubtful collection allowances are charged to operations. The majority of our casino accounts receivable consists primarily of returned checks and markers. We review our receivables’ aging and historical collection results to establish factors for estimating the amount of our receivables that will not be collected.
Bad debt expense for accounts receivable totaled $0.3 million and $0.04 million for the years ended December 31, 2014 and 2013 respectively.
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| Property and Equipment |
Property and Equipment. We define a fixed asset as a unit of property that: (a) has an economic useful life that extends beyond 12 months; and (b) was acquired or produced for a cost greater than $2,500 for a single asset, or greater than $5,000 for a group of assets, for a specific capital project. Fixed assets are capitalized and depreciated for book and tax purposes. Costs of normal repairs and maintenance and fixed assets acquired or produced for a cost less than $2,500, our minimum threshold amount for capitalization, are reflected as an expense in our financial statements.
Fixed assets are recorded at historical cost as of the date acquired (Note 3), and depreciated beginning on the date the fixed asset is placed in service. A fixed asset costing less than the threshold stated above is recorded as an expense for financial statement and tax purposes. A fixed asset with an economic useful life that is less than 12 months is expensed for financial statement and tax purposes, regardless of the acquisition or production cost. Certain events or changes in circumstances may indicate that the recoverability of the carrying amount of property, plant and equipment should be assessed, including, among others, a significant decrease in market value, a significant change in the business climate in a particular market, or a current period operating or cash flow loss combined with historical losses or projected future losses. When such events or changes in circumstances are present, we estimate the future cash flows expected to result from the use of the asset (or asset group) and its eventual disposition. These estimated future cash flows are consistent with those we use in our internal planning. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, we recognize an impairment loss. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value.
The interest cost associated with major development and construction projects is capitalized and included in the cost of the project. Interest expense is capitalized at the applicable weighted-average borrowing rates of interest and added to the project cost. Interest capitalization ceases once a project is substantially complete or no longer undergoing construction activities to prepare it for its intended use.
Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or the term of the capitalized lease, whichever is appropriate under the circumstances. Our capital lease asset and liabilities are initially measured at the beginning of the lease term at the present value of the minimum lease payments. We determine the estimated useful lives based on our experience with similar assets, estimated usage of the asset, and industry practice. Whenever events or circumstances occur which change the estimated useful life of an asset, we account for the change prospectively. Depreciation and amortization is provided over the following estimated useful lives:
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| Goodwill and Other Intangibles |
Goodwill and Other Intangibles. Goodwill represents the excess of the purchase price of the Silver Slipper Casino, Rising Star Casino Resort and Stockman’s Casino properties over the estimated fair value of their net assets. Our other indefinite-lived intangible assets include trademarks and certain license rights to conduct gaming in certain jurisdictions. Goodwill and indefinite-lived intangible assets are not amortized, but are periodically tested for impairment. We test our goodwill and indefinite-lived intangible assets for impairment annually or when a triggering event occurs and evaluate goodwill and indefinite-lived intangible assets using an income approach to value applying a typical discounted cash flows methodology. During the second quarter of 2014, such indicators existed and an impairment charge was recorded related to the goodwill and gaming license at Rising Star Casino. During 2013, we recorded a similar impairment charge for the goodwill at Stockman’s Casino. See Note 5.
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| Intangible Assets |
Intangible Assets. We estimated the fair value of the Rising Star Casino Resort gaming license using a derivation of the income approach to valuation. The other gaming license values are based on actual costs.
We also periodically review our indefinite-lived assets to determine whether events and circumstances continue to support an indefinite useful life. If it is determined that an indefinite-lived intangible asset has a finite useful life, then the asset is tested for impairment and is subsequently accounted for as a finite-lived intangible asset.
Our finite-lived intangible assets include customer loyalty programs, land leases, water rights and bank loan fee intangibles. Finite-lived intangible assets are amortized over the shorter of their contractual or economic lives. We periodically evaluate the remaining useful lives of these intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization. We also review our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.
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| Revenue Recognition and Promotional Allowances |
Revenue Recognition and Promotional Allowances. Our revenue recognition policies follow casino resort industry practices. Similarly, associated estimates include primarily the estimated cost of providing customers with complimentary services. Casino revenue is the aggregate net difference between gaming wins and losses, with liabilities recognized for accruals related to the anticipated payout of progressive jackpots, funds deposited by customers before gaming play occurs and for chips and tokens in the customers’ possession. Key performance indicators related to gaming revenue are slot coin-in and table game drop (volume indicators) and “win” or “hold” percentage.
Hotel, food and beverage, entertainment and other operating revenues are recognized as these services are performed. Advance deposits on rooms and advance ticket sales are recorded as deferred revenue until services are provided to the customer without regard to whether they are refundable. Sales and similar revenue-linked taxes collected from customers on behalf of, and submitted to, taxing authorities are also excluded from revenue and recorded as a current liability.
Net revenues are recognized net of certain sales incentives and, accordingly, cash incentives for gambling activity such as cash back and free play has been netted against gross revenues. The retail value of hotel accommodations, food and beverage items and entertainment provided to guests without charge is included in gross revenues and then deducted as promotional allowances to arrive at net revenues. The estimated costs of providing these promotional allowances are primarily included in casino operating expenses. The amounts in promotional allowances and the estimated cost of such promotional allowances are noted in the table below:
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| Advertising Costs |
Advertising Costs. Costs for advertising are expensed as incurred or the first time the advertising takes place and are included in selling, general and administrative expenses. Total advertising costs were $1.8 million and $2.7 million for the years ended December 31, 2014 and 2013, respectively.
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| Derivative Instruments - Interest Rate Cap Agreement |
Derivative Instruments – Interest Rate Cap Agreement. We adopted the accounting guidance for derivative instruments and hedging activities (ASC Topic 815, “Derivatives and Hedging”), as amended, to account for our interest rate cap. Our interest rate cap agreement is classified as a risk management instrument and management elected not to apply hedge accounting.
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| Customer Loyalty Programs |
Customer Loyalty Programs. We have customer loyalty programs at each of our properties – the Silver Slipper Casino Players Club, the Rising Star Rewards Club™, the Grand Lodge Players Advantage Club® and the Stockman’s Winner’s Club. Under these programs, customers earn points based on their volume of wagering that may be redeemed for various benefits, such as free play, cash back, complimentary dining, or hotel stays, among others, depending on each property’s specific offers. Unredeemed points are forfeited if the customer becomes and remains inactive for a specified period of time. At December 31, 2014 and 2013, our liability for the estimated cost to provide such benefits totaled $1.0 million and $1.2 million, respectively. Such amounts are included in “accrued player club points and progressive jackpots” in our consolidated balance sheets.
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| Project Development and Acquisition Costs |
Project Development and Acquisition Costs. Project development and acquisition costs consist of amounts expended on potential developments and their related costs to execute the acquisition. For the year ended December 31, 2014 these costs included amounts related to the terminated acquisition of Majestic Mississippi, LLC, as described in Note 10, including professional fees, licensing costs and travel expenses.
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| Share-based Compensation |
Share-based Compensation. We measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognize that cost over the service period. Share-based compensation expense from stock awards is included in general and administrative expense. Vesting is contingent upon certain conditions, including continuous service of the individual recipients. Unvested stock grants made in connection with our incentive compensation plan are viewed as a series of individual awards and the related share-based compensation expense is amortized into compensation expense on a straight-line basis as services are provided over the vesting period, and reported as a reduction of stockholders’ equity. We use the Black-Scholes valuation model to determine the estimated fair value for each option grant issued. The Black-Scholes-determined fair value, net of estimated forfeitures, is amortized as compensation cost on a straight line basis over the service period.
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| Legal Defense Costs |
Legal Defense Costs. We do not accrue for estimated future legal and related defense costs, if any, to be incurred in connection with outstanding or threatened litigation and other disputed matters. Instead, we record such costs as period costs when the related services are rendered.
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| Income Taxes |
Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are provided against deferred tax assets when it is deemed more likely than not that some portion or all of the deferred tax asset will not be realized within a reasonable time period.
Our income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities. Positions taken in tax returns are sometimes subject to uncertainty in the tax laws and may not ultimately be accepted by the IRS or other tax authorities. We assess our tax positions using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold, and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized. Additionally, we recognize accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
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| Earnings per Common Share |
Earnings per Common Share. Basic EPS is computed by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the additional dilution for all potentially-dilutive securities, including stock options and unvested restricted shares using the treasury stock method. For the year ended December 31, 2014, potentially dilutive stock options excluded from the earnings per share computation, as their effect would be anti-dilutive, totaled 943,834 shares.
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| Recently Issued Accounting Pronouncements |
Recently Issued Accounting Pronouncements
We have reviewed authoritative standards issued after December 31, 2014 and others not yet effective. As a result, we determined that the new standards are not likely to have any significant impact on our future financial statements.
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