COMMITMENTS AND CONTINGENCIES |
6 Months Ended | |||||||||||||||
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Jun. 30, 2015 | ||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||
| COMMITMENTS AND CONTINGENCIES |
COMMITMENTS AND CONTINGENCIES
Operating Leases
The nature of our operating leases is as follows:
Additionally, we have less significant operating leases for certain office and warehouse facilities, office equipment, signage and land.
Grand Lodge Casino Lease. In 2011, we entered into a lease with Hyatt Equities, L.L.C. to operate the Grand Lodge Casino (“Grand Lodge Lease”). The Grand Lodge Lease is secured by the Company’s interests under the lease and property as defined and is subordinate to the liens in the First and Second Lien Credit Facilities. Hyatt Equities, L.L.C. has an option to purchase our leasehold interest and related operating assets of the Grand Lodge Casino subject to assumption of applicable liabilities. The option price is an amount equal to the Grand Lodge Casino’s positive working capital, plus Grand Lodge Casino’s earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the twelve-month period preceding the acquisition or for such period of time remaining on the lease term, whichever is less, plus the fair market value of the Grand Lodge Casino’s personal property. The Grand Lodge Lease was amended in 2013 to extend the initial term to August 31, 2018, among certain other conforming changes.
Options to Purchase Silver Slipper Casino and Hotel Leased Land. In 2004, our subsidiary, Silver Slipper Casino Venture, LLC, entered into a land lease with Cure Land Company, LLC for approximately 31 acres of marshlands and a seven-acre parcel on which the Silver Slipper Casino and Hotel is situated. The lease includes base monthly payments of $77,500 plus 3% of gross gaming revenue in excess of $3.65 million, as defined. The land lease includes an exclusive option to purchase the leased land (“Purchase Option”) after February 26, 2019 through October 1, 2027, for $15.5 million plus a retained interest in Silver Slipper Casino and Hotel’s operations of 3% of net income, as defined, for ten years from the purchase date. In the event that Full House sells or transfers (i) substantially all of the assets of Silver Slipper Casino Venture, LLC, or (ii) its membership interests in Silver Slipper Casino Venture, LLC in its entirety, then the purchase price will increase to $17.1 million plus the retained interest for ten years mentioned above. In either case, we also have an option to purchase only a four-acre portion of the leased land for $2.0 million, which may be exercised at any time in conjunction with the development of a hotel and which accordingly reduces the purchase price of the remaining land by $2.0 million. The current term of the land lease is through April 30, 2058.
Silver Slipper Casino Hotel Construction
On August 26, 2013, the Silver Slipper Casino and Hotel entered into an agreement for the construction of a 129-room hotel adjoining the casino. We expect costs related to the construction of the hotel to be approximately $20 million, inclusive of capitalized interest. We intend to finance $10 million of the construction costs with proceeds from the term loan under the First Lien Credit Facility as described in Note 7. The remaining construction and related costs will be funded from available working capital. As of June 30, 2015, we had funded $8.7 million of hotel construction costs in cash, and anticipate funding an additional $1.3 million in cash to complete the project, including capitalized interest. The hotel began its phased opening in May 2015 and is expected to be completed during the third quarter of 2015.
Indiana Department of Revenue
During 2014, we received a proposed assessment of $1.6 million, including interest and penalties, from the Indiana Department of Revenue (“IDOR”) related to unpaid sales and use taxes for periods prior to 2013, which we protested. In April 2015, we withdrew our formal protest with the IDOR and accepted the IDOR’s revised audit findings and proposed assessment. The revised assessment totaled $237,000, including interest and penalties, which approximated our estimate and was remitted in April 2015.
Litigation
In 2013 and 2014, the Company spent approximately $1.6 million repairing defects to its parking garage at the Silver Slipper Casino and Hotel. The Company has hired outside legal counsel to pursue the reimbursement of such costs from the contractor and architect. The Company at this time cannot reasonably predict whether it will be successful in the matter.
Property Tax Assessments
The Company, through its wholly-owned subsidiary Gaming Entertainment (Indiana) LLC, has protested its real property tax assessments in Ohio County, Indiana for the tax years 2011 through 2014. The Company has continued to make all assessed property tax payments, but at this time cannot reasonably predict the outcome of the matter.
Legal Matters
We are party to a number of pending legal proceedings which occurred in the normal course of business. Management does not expect that the outcome of such proceedings, either individually or in the aggregate, will have a material effect on our financial position, cash flows or results of operations.
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