Full House Resorts, Inc. — 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013; comparisons are with fiscal 2012. This is an annual report, not a standalone fourth-quarter report.
Business context
Full House owns and operates Rising Star Casino Resort in Indiana, Silver Slipper Casino in Mississippi, and Stockman’s Casino in Nevada; leases and operates Grand Lodge Casino in Nevada; and manages gaming facilities for the Pueblo of Pojoaque in New Mexico. Following the sale of its FireKeepers management interest in 2012, revenue is primarily from owned operations.
Financial results and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Total revenue | $144.7 million | $128.8 million |
| Operating income | $3.0 million | $49.6 million |
| Income (loss) before tax | ($4.3 million) | $45.2 million |
| Net income attributable to Full House | ($4.0 million) | $27.8 million |
| Diluted/basic EPS | ($0.21) | $1.49 |
| Cash from operations | $12.3 million | ($4.3 million) |
| Cash and equivalents at year-end | $14.9 million | $20.6 million |
| Long-term debt | $57.5 million | $66.3 million |
- Revenue rose 12%, primarily because 2013 included a full year of Silver Slipper operations, acquired October 1, 2012. Casino revenue increased $18.9 million; management fees fell $5.5 million.
- Operating costs and expenses increased 15% to $137.8 million. Operating margin was approximately 2.0% in 2013 versus 38.5% in 2012; the prior-year result included a $41.2 million gain on the FireKeepers joint-venture sale, while 2013 included a $4.0 million Stockman’s goodwill impairment.
- Interest expense increased to $7.3 million from $2.7 million, reflecting acquisition-related borrowing. The 2013 tax benefit was $0.4 million; the company reported an approximately $2.0 million tax refund received in March 2014 for a net operating loss carryback.
- Investing activities used $6.5 million, including $6.2 million of property and equipment purchases. Financing activities used $11.5 million, including $11.3 million of debt repayment.
- At year-end, current assets were $23.8 million and current liabilities $11.9 million. Debt plus capital lease obligations totaled approximately $65.2 million. The credit facilities are secured by substantially all assets. The company reported compliance with financial covenants at year-end.
Material changes, outlook and risks
- Rising Star revenue declined $17.1 million, or 20%, amid new Ohio casino and racino competition and soft market growth. Indiana tax changes generated $1.0 million of 2013 savings; a further estimated $2.5 million annual relief may apply from July 2014 if specified revenue conditions are met.
- Silver Slipper contributed $51.6 million of 2013 revenue. Its planned 142-room hotel is budgeted at approximately $17.7 million, with completion expected in late 2014 or early 2015. Soil conditions slowed construction. The company expected to fund $5.2 million of remaining cash costs in 2014; a $10 million first-lien borrowing increase remained available for the project.
- The new 104-room Rising Star hotel opened in November 2013 under a 10-year capital lease. Recorded lease obligations were $7.7 million; rent payments of approximately $77,500 per month began January 2014.
- The First Lien Credit Agreement had $37.5 million outstanding at year-end, with a 4.75% rate then in effect and maturity extended to June 2016. The $20 million second-lien loan bears 13.25% interest and matures October 2016. A $5 million revolver and $10 million term-loan increase were reported available subject to agreement terms. The debt contains restrictive covenants and default provisions.
- The Pueblo of Pojoaque management agreement expires in September 2014; it generated $1.7 million in 2013 management income, and renewal is not assured. The Grand Lodge lease expires in August 2018, with an extension subject to mutual agreement.
- Management expressed confidence in available cash and financing for current plans, while cautioning that expansion depends on economic conditions, financing, approvals and project success. No formal earnings or revenue guidance is provided.
- In February 2014, Full House and Keeneland entered an exclusivity agreement regarding Kentucky instant racing and, if authorized, casino gaming, and a letter of intent concerning Thunder Ridge Raceway. Definitive agreements and regulatory approvals remain outstanding; court proceedings concerning instant racing were remanded for further determination.
- Key risks include intense regional competition, economic weakness and consumer spending, construction and financing risks, gaming-license and regulatory requirements, debt covenant compliance, and potential impairment if projected cash flows are not achieved. The company recorded a $4.0 million Stockman’s goodwill impairment after weaker results; Rising Star’s estimated fair value exceeded carrying value by only about 2.6% in its assessment.
- The auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective as of year-end; the company was not required to obtain an auditor opinion on internal control.
Most important facts for investors to verify
- Whether Rising Star stabilizes against continued Ohio competition and whether the expected Indiana tax relief is realized.
- Silver Slipper hotel construction progress, final cost, opening date and funding; confirm draw availability and terms for the additional credit.
- Debt service capacity, covenant headroom and the cost of the 13.25% second-lien debt as maturities approach in 2016.
- Renewal or replacement of the Pueblo management agreement after September 2014, and performance under the new Rising Star hotel lease.
- Progress and legal/regulatory outcomes for the Kentucky opportunities, which remained contingent at filing.
- Whether operating cash flow and goodwill valuations withstand competitive, economic and forecast changes.