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Caesars Entertainment, Inc. - Quarter Report: 2018 June (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period                 to                 

Commission File No. 001‑36629

ELDORADO RESORTS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

46‑3657681

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

100 West Liberty Street, Suite 1150, Reno, Nevada 89501

(Address and zip code of principal executive offices)

(775) 328‑0100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non‑accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares of the Registrant’s Common Stock, $0.00001 par value per share, outstanding as of August 3, 2018 was 77,337,667.

 

 

 

 


 

ELDORADO RESORTS, INC.

QUARTERLY REPORT FOR THE THREE AND SIX MONTHS ENDED

June 30, 2018

TABLE OF CONTENTS

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

2

Item 1.

FINANCIAL STATEMENTS

 

2

 

Consolidated Balance Sheets at June 30, 2018 (unaudited) and December 31, 2017

 

2

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)

 

3

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)

 

4

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (unaudited)

 

5

 

Condensed Notes to Unaudited Consolidated Financial Statements

 

6

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

33

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

50

Item 4.

CONTROLS AND PROCEDURES

 

51

PART II. OTHER INFORMATION

 

52

Item 1.

LEGAL PROCEEDINGS

 

52

Item 1A.

RISK FACTORS

 

52

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

55

Item 3.

DEFAULTS UPON SENIOR SECURITIES

 

55

Item 4.

MINE SAFETY DISCLOSURES

 

55

Item 5.

OTHER INFORMATION

 

55

Item 6.

EXHIBITS

 

56

SIGNATURES

 

57

 

1


 

PART I-FINANCIAL INFORMATION

Item 1.  Financial Statements.

ELDORADO RESORTS, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

 

(unaudited)

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

202,016

 

 

$

 

134,596

 

Restricted cash

 

 

 

4,683

 

 

 

 

3,267

 

Marketable securities

 

 

 

17,066

 

 

 

 

17,631

 

Accounts receivable, net

 

 

 

34,808

 

 

 

 

45,797

 

Due from affiliates

 

 

 

125

 

 

 

 

243

 

Inventories

 

 

 

14,847

 

 

 

 

16,870

 

Prepaid income taxes

 

 

 

187

 

 

 

 

4,805

 

Prepaid expenses and other

 

 

 

30,469

 

 

 

 

27,823

 

Assets held for sale

 

 

 

201,202

 

 

 

 

 

Total current assets

 

 

 

505,403

 

 

 

 

251,032

 

Property and equipment, net

 

 

 

1,400,088

 

 

 

 

1,502,817

 

Gaming licenses and other intangibles, net

 

 

 

915,936

 

 

 

 

996,816

 

Goodwill

 

 

 

719,254

 

 

 

 

747,106

 

Non-operating real property

 

 

 

14,030

 

 

 

 

18,069

 

Other assets, net

 

 

 

45,035

 

 

 

 

30,632

 

Total assets

 

$

 

3,599,746

 

 

$

 

3,546,472

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

486

 

 

$

 

615

 

Accounts payable

 

 

 

28,949

 

 

 

 

34,778

 

Due to affiliates

 

 

 

20

 

 

 

 

 

Accrued property, gaming and other taxes

 

 

 

35,133

 

 

 

 

43,212

 

Accrued payroll and related

 

 

 

50,936

 

 

 

 

53,330

 

Accrued interest

 

 

 

26,788

 

 

 

 

25,607

 

Income taxes payable

 

 

 

222

 

 

 

 

171

 

Accrued other liabilities

 

 

 

69,341

 

 

 

 

66,037

 

Liabilities related to assets held for sale

 

 

 

5,817

 

 

 

 

 

Total current liabilities

 

 

 

217,692

 

 

 

 

223,750

 

Long-term debt, less current portion

 

 

 

2,190,749

 

 

 

 

2,189,578

 

Deferred income taxes

 

 

 

176,607

 

 

 

 

162,967

 

Other long-term liabilities

 

 

 

17,975

 

 

 

 

28,579

 

Total liabilities

 

 

 

2,603,023

 

 

 

 

2,604,874

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

 

 

Common stock, 200,000,000 and 100,000,000 shares authorized, 77,326,124

  and 76,825,966 issued and outstanding, par value $0.00001 as of June 30, 2018

  and December 31, 2017, respectively

 

 

 

1

 

 

 

 

 

Paid-in capital

 

 

 

744,020

 

 

 

 

746,547

 

Retained earnings

 

 

 

252,623

 

 

 

 

194,972

 

Accumulated other comprehensive income

 

 

 

79

 

 

 

 

79

 

Total stockholders’ equity

 

 

 

996,723

 

 

 

 

941,598

 

Total liabilities and stockholders’ equity

 

$

 

3,599,746

 

 

$

 

3,546,472

 

 

The accompanying condensed notes are an integral part of these consolidated financial statements.

2


 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

 

343,675

 

 

$

 

275,593

 

 

$

 

683,133

 

 

$

 

417,147

 

Pari-mutuel commissions

 

 

 

5,045

 

 

 

 

4,112

 

 

 

 

9,115

 

 

 

 

4,748

 

Food and beverage

 

 

 

54,293

 

 

 

 

49,709

 

 

 

 

106,491

 

 

 

 

82,130

 

Hotel

 

 

 

38,926

 

 

 

 

34,278

 

 

 

 

69,667

 

 

 

 

53,583

 

Other

 

 

 

14,863

 

 

 

 

11,934

 

 

 

 

28,588

 

 

 

 

20,411

 

Net revenues

 

 

 

456,802

 

 

 

 

375,626

 

 

 

 

896,994

 

 

 

 

578,019

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

 

165,353

 

 

 

 

139,707

 

 

 

 

331,203

 

 

 

 

219,688

 

Pari-mutuel commissions

 

 

 

4,592

 

 

 

 

4,030

 

 

 

 

8,293

 

 

 

 

5,237

 

Food and beverage

 

 

 

44,770

 

 

 

 

42,803

 

 

 

 

89,546

 

 

 

 

68,821

 

Hotel

 

 

 

13,695

 

 

 

 

12,270

 

 

 

 

26,201

 

 

 

 

21,349

 

Other

 

 

 

8,310

 

 

 

 

6,901

 

 

 

 

15,715

 

 

 

 

13,070

 

Marketing and promotions

 

 

 

21,832

 

 

 

 

21,531

 

 

 

 

43,133

 

 

 

 

31,660

 

General and administrative

 

 

 

73,745

 

 

 

 

60,887

 

 

 

 

147,947

 

 

 

 

92,687

 

Corporate

 

 

 

12,232

 

 

 

 

7,442

 

 

 

 

23,801

 

 

 

 

14,016

 

Impairment charges

 

 

 

 

 

 

 

 

 

 

 

9,815

 

 

 

 

 

Depreciation and amortization

 

 

 

31,910

 

 

 

 

24,909

 

 

 

 

63,444

 

 

 

 

40,513

 

Total operating expenses

 

 

 

376,439

 

 

 

 

320,480

 

 

 

 

759,098

 

 

 

 

507,041

 

Gain (loss) on sale or disposal of property and equipment

 

 

 

423

 

 

 

 

(89

)

 

 

 

(283

)

 

 

 

(57

)

Transaction expenses

 

 

 

(3,404

)

 

 

 

(85,464

)

 

 

 

(5,952

)

 

 

 

(87,078

)

Equity in income (loss) of unconsolidated affiliates

 

 

 

32

 

 

 

 

(60

)

 

 

 

(53

)

 

 

 

(282

)

Operating income (loss)

 

 

 

77,414

 

 

 

 

(30,467

)

 

 

 

131,608

 

 

 

 

(16,439

)

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(31,405

)

 

 

 

(27,527

)

 

 

 

(62,494

)

 

 

 

(40,197

)

Loss on early retirement of debt, net

 

 

 

 

 

 

 

(27,317

)

 

 

 

(162

)

 

 

 

(27,317

)

Total other expense

 

 

 

(31,405

)

 

 

 

(54,844

)

 

 

 

(62,656

)

 

 

 

(67,514

)

Net income (loss) before income taxes

 

 

 

46,009

 

 

 

 

(85,311

)

 

 

 

68,952

 

 

 

 

(83,953

)

(Provision) benefit for income taxes

 

 

 

(9,213

)

 

 

 

39,121

 

 

 

 

(11,301

)

 

 

 

38,708

 

Net income (loss)

 

$

 

36,796

 

 

$

 

(46,190

)

 

$

 

57,651

 

 

$

 

(45,245

)

Net income (loss) per share of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

0.48

 

 

$

 

(0.68

)

 

$

 

0.74

 

 

$

 

(0.79

)

Diluted

 

$

 

0.47

 

 

$

 

(0.68

)

 

$

 

0.74

 

 

$

 

(0.79

)

Weighted average basic shares outstanding

 

 

 

77,458,584

 

 

 

 

67,453,095

 

 

 

 

77,406,447

 

 

 

 

57,405,834

 

Weighted average diluted shares outstanding

 

 

 

78,258,629

 

 

 

 

67,453,095

 

 

 

 

78,169,629

 

 

 

 

57,405,834

 

 

The accompanying condensed notes are an integral part of these consolidated financial statements.

3


 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income (loss)

 

$

 

36,796

 

 

$

 

(46,190

)

 

$

 

57,651

 

 

$

 

(45,245

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss), net of tax

 

$

 

36,796

 

 

$

 

(46,190

)

 

$

 

57,651

 

 

$

 

(45,245

)

 

The accompanying condensed notes are an integral part of these consolidated financial statements.

4


 

ELDORADO RESORTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

 

57,651

 

 

$

 

(45,245

)

Adjustments to reconcile net income (loss) to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

63,444

 

 

 

 

40,513

 

Amortization of deferred financing costs, discount and debt premium

 

 

 

2,533

 

 

 

 

3,034

 

Loss on early retirement of debt

 

 

 

162

 

 

 

 

27,317

 

Stock compensation expense

 

 

 

7,151

 

 

 

 

3,062

 

Impairment charges

 

 

 

9,815

 

 

 

 

 

Provision (benefit) for deferred income taxes

 

 

 

10,461

 

 

 

 

(38,072

)

Other

 

 

 

1,212

 

 

 

 

1,132

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Sale of trading securities

 

 

 

565

 

 

 

 

295

 

Accounts receivable

 

 

 

7,507

 

 

 

 

4,037

 

Inventory

 

 

 

198

 

 

 

 

(630

)

Prepaid expenses and other assets

 

 

 

(1,722

)

 

 

 

(4,415

)

Accounts payable and accrued liabilities

 

 

 

(10,473

)

 

 

 

12,015

 

Net cash provided by operating activities

 

 

 

148,504

 

 

 

 

3,043

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

 

(55,181

)

 

 

 

(29,824

)

Proceeds from sale of property and equipment

 

 

 

840

 

 

 

 

 

Net cash used in business combinations

 

 

 

 

 

 

 

(1,313,051

)

Escrow deposit

 

 

 

(15,000

)

 

 

 

 

Net cash used in investing activities

 

 

 

(69,341

)

 

 

 

(1,342,875

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of Term Loan

 

 

 

 

 

 

 

1,450,000

 

Proceeds from issuance of 6% Senior Notes

 

 

 

 

 

 

 

375,000

 

Borrowings under Revolving Credit Facility

 

 

 

 

 

 

 

189,953

 

Payments under Term Loan

 

 

 

 

 

 

 

(422,250

)

Payments under Revolving Credit Facility

 

 

 

 

 

 

 

(128,953

)

Debt issuance costs

 

 

 

(305

)

 

 

 

(44,992

)

Taxes paid related to net share settlement of equity awards

 

 

 

(9,677

)

 

 

 

(8,993

)

Proceeds from exercise of stock options

 

 

 

 

 

 

 

2,898

 

Payments on other long-term payables

 

 

 

(344

)

 

 

 

(210

)

Net cash (used in) provided by financing activities

 

 

 

(10,326

)

 

 

 

1,412,453

 

 

 

 

 

 

 

 

 

 

 

 

Increase in cash, cash equivalents and restricted cash

 

 

 

68,837

 

 

 

 

72,621

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

 

147,749

 

 

 

 

63,444

 

Cash, cash equivalents and restricted cash, end of period

 

$

 

216,586

 

 

$

 

136,065

 

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO

   AMOUNTS REPORTED WITHIN THE CONDENSED CONSOLIDATED BALANCE SHEETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

202,016

 

 

$

 

103,624

 

Restricted cash

 

 

 

4,683

 

 

 

 

22,566

 

Restricted cash included in other noncurrent assets

 

 

 

9,887

 

 

 

 

9,875

 

Total cash, cash equivalents and restricted cash

 

$

 

216,586

 

 

$

 

136,065

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

 

58,694

 

 

$

 

30,742

 

Income taxes (refunded) paid

 

 

 

(3,829

)

 

 

 

589

 

NON-CASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Net change in payables for capital expenditures

 

 

 

(5,018

)

 

 

 

(1,156

)

 

The accompanying condensed notes are an integral part of these consolidated financial statements.

5


 

ELDORADO RESORTS, INC.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Organization

The accompanying unaudited consolidated financial statements include the accounts of Eldorado Resorts, Inc. (“ERI” or the “Company”), a Nevada corporation formed in September 2013, and its consolidated subsidiaries. The Company acquired Mountaineer, Presque Isle Downs and Scioto Downs in September 2014 pursuant to a merger (the “MTR Merger”) with MTR Gaming Group, Inc. (“MTR Gaming”) and in November 2015 it acquired Circus Reno and the interests in the Silver Legacy that it did not own prior to such date (the “Reno Acquisition”).

On May 1, 2017 (the “Isle Acquisition Date”), the Company completed its acquisition of Isle of Capri Casinos, Inc. pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) dated as of September 19, 2016 with Isle of Capri Casinos, Inc. (“Isle” or “Isle of Capri”). As a result of the Isle Merger, Isle became a wholly-owned subsidiary of ERI.

ERI owns and operates the following properties:

 

Eldorado Resort Casino Reno (Eldorado Reno)A 814-room hotel, casino and entertainment facility connected via an enclosed skywalk to Silver Legacy and Circus Reno located in downtown Reno, Nevada that includes 1,128 slot machines and 36 table games;

 

Silver Legacy Resort Casino (Silver Legacy)A 1,685-room themed hotel and casino connected via an enclosed skywalk to Eldorado Reno and Circus Reno that includes 1,208 slot machines, 58 table games and a 13 table poker room;

 

Circus Circus Reno (Circus Reno)A 1,571-room hotel-casino and entertainment complex connected via an enclosed skywalk to Eldorado Reno and Silver Legacy that includes 706 slot machines and 24 table games;

 

Eldorado Resort Casino Shreveport (Eldorado Shreveport)A 403-room, all suite art deco-style hotel and tri-level riverboat dockside casino situated on the Red River in Shreveport, Louisiana that includes 1,388 slot machines, 52 table games and an eight table poker room;

 

Mountaineer Casino, Racetrack & Resort (Mountaineer)A 357-room hotel, casino, entertainment and live thoroughbred horse racing facility located on the Ohio River at the northern tip of West Virginias northwestern panhandle that includes 1,487 slot machines and 36 table games, including a 10 table poker room;

 

Presque Isle Downs & Casino (Presque Isle Downs)A casino and live thoroughbred horse racing facility with 1,596 slot machines, 32 table games and a seven table poker room located in Erie, Pennsylvania;

 

Eldorado Gaming Scioto Downs (Scioto Downs)A modern racino offering 2,237 video lottery terminals (“VLTs”), harness racing and a 118-room third party hotel connected to Scioto Downs located 15 minutes from downtown Columbus, Ohio;

 

Isle Casino HotelBlack Hawk (“Isle Black Hawk”)A land-based casino on an approximately 10-acre site in Black Hawk, Colorado that includes 1,005 slot machines, 30 table games, a nine table poker room and a 238-room hotel;

 

Lady Luck CasinoBlack Hawk (“Lady Luck Black Hawk”)A land-based casino across the intersection from Isle Casino Hotel in Black Hawk Colorado, that includes 472 slot machines, eleven table games and a 164-room hotel with a parking structure connecting Isle Casino Hotel-Black Hawk and Lady Luck Casino-Black Hawk;

 

Isle Casino Racing Pompano Park (“Pompano”)A casino and harness racing track on an approximately 223-acre owned site in Pompano Beach, Florida that includes 1,461 slot machines and a 45 table poker room. In April 2018, the Company announced the formation of a joint venture with the Cordish Companies to master plan and develop a mixed-use entertainment and hospitality destination expected to be located on unused land adjacent to the casino and racetrack;

 

Isle Casino Bettendorf (“Bettendorf”)A land-based single-level casino located off Interstate 74 in Bettendorf, Iowa that includes 974 slot machines and 20 table games with two hotel towers with 509 hotel rooms;

6


 

 

Isle Casino Waterloo (“Waterloo”)A single-level land-based casino in Waterloo, Iowa that includes 936 slot machines, 25 table games, and a 194-room hotel;

 

Isle of Capri Casino Hotel Lake Charles (“Lake Charles”)A gaming vessel on an approximately 19 acre site in Lake Charles, Louisiana, with 1,173 slot machines, 45 table games, including 13 poker tables, and two hotels offering 493 rooms;

 

Isle of Capri Casino Lula (“Lula”)Two dockside casinos in Lula, Mississippi with 871 slot machines and 19 table games, two on-site hotels with a total of 486 rooms and a 28-space RV Park;

 

Lady Luck Casino Vicksburg (“Vicksburg”)A dockside casino in Vicksburg, Mississippi that includes 603 slot machines, eight table games and a hotel with a total of 89 rooms;

 

Isle of Capri Casino Boonville (“Boonville”)A single-level dockside casino in Boonville, Missouri that includes 885 slot machines, 20 table games and a 140-room hotel;

 

Isle Casino Cape Girardeau (“Cape Girardeau”)A dockside casino and pavilion and entertainment center in Cape Girardeau, Missouri that includes 870 slot machines and 24 table games, including four poker tables;

 

Lady Luck Casino Caruthersville (“Caruthersville”)—A riverboat casino located along the Mississippi River in Caruthersville, Missouri that includes 512 slot machines and nine table games;

 

Isle of Capri Casino Kansas City (“Kansas City”)A dockside casino located close to downtown Kansas City, Missouri offering 969 slot machines and 13 table games; and

 

Lady Luck Casino Nemacolin (“Nemacolin”)A casino property located on the 2,000-acre Nemacolin Woodlands Resort in Western Pennsylvania that includes 600 slot machines and 27 table games.  

In addition, Scioto Downs, through its subsidiary RacelineBet, Inc., also operates Racelinebet.com, a national account wagering service that offers online and telephone wagering on horse races as a marketing affiliate of TwinSpires.com, an affiliate of Churchill Downs Incorporated.

Reclassifications

Certain reclassifications of prior year presentations have been made to conform to the current period presentation.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, all of which are normal and recurring, considered necessary for a fair presentation and have been included herein. The results of operations for these interim periods are not necessarily indicative of the operating results for other quarters, for the full year or any future period.

The financial information included for periods prior to our acquisition of Isle are those of ERI and its subsidiaries. The presentation of information herein for periods prior to our acquisition of Isle and after our acquisition of Isle are not fully comparable because the results of operations for Isle are not included for periods prior to our acquisition of Isle.

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Recently Issued Accounting Pronouncements – New Developments and Adoptions of New Accounting Standards

In May 2014 (amended January 2017), the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” (ASC Topic 606) which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and eliminates existing industry guidance, including revenue recognition guidance specific to the gaming industry. The core principle of the revenue model indicates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

7


 

We adopted this standard effective January 1, 2018, and elected to apply the full retrospective adoption method. The most significant impacts of the adoption are summarized below in Note 2.

In November 2016, ASU No. 2016-18 was issued related to the inclusion of restricted cash in the statement of cash flows. This new guidance requires that a statement of cash flows present the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalent. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017. The Company retrospectively adopted this guidance on December 31, 2017. Upon adoption, the Company included a reconciliation of Cash and cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total shown in the Consolidated Statements of Cash Flows. Adoptions of this guidance had no other impact on the Consolidated Financial Statements or disclosures.

Certain amounts have been retrospectively reclassified for the three and six months ended June 30, 2017 to conform to the current period presentation and reflect the change in the Company’s Consolidated Statements of Cash Flows required with the adoption of ASU No. 2016-15.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations – Clarifying the Definition of a Business.” This amendment is intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisition (or disposals) of assets or businesses. Amendments in this update provide a more robust framework to use in determining when a set of assets and activities is a business and to provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. The amendments are effective for interim and annual periods beginning after December 15, 2017, with early adoption allowed as follows: (1) transactions for which acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance and (2) transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. We adopted this accounting standard during the first quarter of 2018, which did not have an impact on our consolidated financial statements, and will result in future acquisitions which do not involve substantive processes being accounted for as asset acquisitions.

In February 2016, the FASB issued ASU No. 2016-02 which addresses the recognition and measurement of leases. Under the new guidance, for all leases (with the exception of short-term leases), at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Further, the new lease guidance simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and liabilities, which no longer provides a source for off balance sheet financing. The effective date for this update is for the annual and interim periods beginning after December 15, 2018 with early adoption permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements.

Currently, we do not have any material capital leases nor any material operating leases where we are the lessor. Our operating leases, primarily relating to certain ground leases and slot machines or VLTs, will be recorded on the balance sheet as an ROU asset with a corresponding lease liability, which will be amortized using the effective interest rate method as payments are made. The ROU asset will be depreciated on a straight-line basis and recognized as lease expense. The qualitative and quantitative effects of adoption of ASU 2016-02 are still being analyzed, and we are in the process of evaluating the full effect the new guidance will have on our consolidated financial statements.

Note 2. Revenue Recognition

The Company’s revenue contracts with customers consists primarily of casino wagers, pari-mutuel commissions, food and beverage transactions, hotel, retail and entertainment sales.

Casino Revenue and Pari-mutuel Commissions

The Company recognizes as casino revenue (transaction price) the net win from gaming activities, which is the difference between gaming wins and losses, not the total amount wagered. Progressive jackpots are accrued and charged to revenue at the time the obligation to pay the jackpot is established. Gaming revenues are recognized net of certain cash and free play incentives. Pari-mutuel commissions consist of commissions earned from thoroughbred and harness racing and importing of simulcast signals from other race tracks and are recognized at the time wagers are made. Such commissions are a designated portion of the wagering handle as determined by state racing commissions, and are shown net of the taxes assessed by state and local agencies, as well as purses and other contractual amounts paid to horsemen associations. The Company recognizes revenues from fees earned through the exporting of simulcast signals to other race tracks at the time wagers are made. Such fees are based upon a predetermined percentage of handle as contracted with the other race tracks.

8


 

Gaming wager contracts involve two performance obligations for those customers earning points under the Company’s loyalty program and a single performance obligation for customers who don’t participate in the program. The Company applies a practical expedient by accounting for its gaming contracts on a portfolio basis as such wagers have similar characteristics and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio to not differ materially from that which would result if applying the guidance to an individual wagering contract.

Loyalty Programs and Other Contract Obligations

The Company offers programs at its properties whereby our participating customers can accumulate points for wagering that can be redeemed for credits for free play on slot machines, lodging, food and beverage, merchandise and in limited situations, cash. The incentives earned by customers under these programs are based on previous revenue transactions and represent separate performance obligations. Points earned, less estimated breakage, are recorded as a reduction of casino revenues at the retail value of such benefits owed to the customer and recognized as departmental revenue based on where such points are redeemed, upon fulfillment of the performance obligation. The loyalty program liability represents a deferral of revenue until redemption occurs, which is typically less than one year.

For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with the loyalty points earned, the Company allocates an amount to the loyalty point contract liability based on the stand-alone selling price of the points earned, which is determined by the value of a point that can be redeemed for a non-gaming good or service. An amount is allocated to the gaming wager performance obligation using the residual approach as the stand-alone price for wagers is highly variable and no set established price exists for such wagers. The allocated revenue for gaming wagers is recognized when the wagers occur as all such wagers settle immediately. The loyalty point contract liability amount is deferred and recognized as revenue when the customer redeems the points for the non-gaming good or service at the time such goods or services are delivered to the customer.

The Company’s liability for its loyalty point performance obligations totaled $11.0 million and $11.8 million at June 30, 2018 and December 31, 2017, respectively, inclusive of liabilities associated with assets held for sale. Historically, the Company’s loyalty points earned and redeemed are substantially constant over time, which results in the loyalty point performance obligation balance remaining fairly consistent across our reporting periods.

Non-gaming Revenue

Hotel, food and beverage, and other operating revenues are recognized as services are performed. The transaction price for hotel, food and beverage contracts is the net amount collected from the customer for such goods and services. Hotel, food and beverage services have been determined to be separate, stand-alone performance obligations and the transaction price for such contracts is recorded as revenue as the good or service is transferred to the customer over the customer’s stay at the hotel or when the delivery is made for the food and beverage. Advance deposits for future hotel occupancy, convention space or food and beverage services contracts are recorded as deferred income until the revenue recognition criteria has been met.

The Company also provides goods and services that may include multiple performance obligations, such as for packages, for which revenues are allocated on a pro rata basis based on each service's stand-alone selling price.

Complimentaries

The Company offers discretionary coupons and other discretionary complimentaries to customers outside of the loyalty program. The retail value of complimentary food, beverage, hotel rooms and other services provided to customers, including loyalty point redemptions, is recognized in revenues when the goods or services are transferred to the customer. Complimentaries provided by third parties at the discretion and under the control of the Company is recorded as an expense when incurred. The Company’s revenues included complimentaries and loyalty point redemptions of $48.9 million and $43.2 million for the three months ended June 30, 2018 and 2017, respectively, and $96.1 million and $66.9 million for the six months ended June 30, 2018 and 2017, respectively.

9


 

Adoption of ASC Topic 606

The adoption of ASC Topic 606 on January 1, 2018 principally affected the presentation of promotional allowances and how the Company measured the liability associated with our customer loyalty programs. The presentation of gross revenues for complimentary goods and services provided to guests with a corresponding offsetting amount included in promotional allowances was eliminated. This adjustment in presentation of promotional allowances did not have an impact on the Company’s historically reported net operating revenues. The majority of such amounts previously included in promotional allowances now offset casino revenues based on an allocation of revenues to performance obligations using stand-alone selling price. Food, beverage, lodging and other services furnished to our guests on a complimentary basis are measured at the respective estimated standalone selling prices and included as revenues within food and beverage, lodging, and retail, entertainment and other, which generally resulted in a corresponding decrease in gaming revenues. The costs of providing such complimentary goods and services are included as expenses within food and beverage, lodging, and retail, entertainment and other.

Additionally, as a result of the adoption of the new standard, certain adjustments and other reclassifications to and between revenue categories and to and between expense categories were required; however, the amounts associated with such adjustments did not have a significant impact on the Company’s previously reported operating income or net income.  

Liabilities associated with our customer loyalty programs are no longer valued at cost; rather a deferred revenue model is used to account for the classification and timing of revenue to be recognized related to the redemption of loyalty program liabilities by our customers. Points earned under the Company’s loyalty programs are deemed to be separate performance obligations, and recorded as a reduction of casino revenues when earned at the retail value of such benefits owed to the customer and recognized as departmental revenue based on where such points are redeemed, upon fulfillment of the performance obligation.

The Company elected to adopt the full retrospective method to apply the new guidance to each prior reporting period presented as if it had been in effect since January 1, 2015, with a pre-tax cumulative effect adjustment to our retained earnings upon adoption of $4.7 million. Net of tax, the cumulative effect adjustment to our retained earnings upon adoption was $3.5 million. This was primarily related to our loyalty program point liability, which increased from an estimated incremental cost model to a deferred revenue model at retail value.

Adoption of the new standard did not have a significant impact on our previously reported net revenue, expenses, operating income, and net income. The impact of adoption of the new standard to previously reported selected financial statement information was as follows (in thousands):

 

 

 

Three Months Ended June 30, 2017

 

 

 

As Reported

 

 

ASC 606

Adjustments

 

 

Other

Reclassifications(1)

 

 

As Adjusted

 

Gross revenues

 

$

 

389,237

 

 

$

 

(31,215

)

 

$

 

17,604

 

 

$

 

375,626

 

Promotional allowances

 

 

 

(34,057

)

 

 

 

33,226

 

 

 

 

831

 

 

 

 

 

Net revenues

 

$

 

355,180

 

 

$

 

2,011

 

 

$

 

18,435

 

 

$

 

375,626

 

Operating (loss) income

 

$

 

(32,116

)

 

$

 

110

 

 

$

 

1,539

 

 

$

 

(30,467

)

Net (loss) income

 

$

 

(46,328

)

 

$

 

138

 

 

$

 

 

 

$

 

(46,190

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017

 

 

 

As Reported

 

 

ASC 606

Adjustments

 

 

Other

Reclassifications(1)

 

 

As Adjusted

 

Gross revenues

 

$

 

608,783

 

 

$

 

(48,235

)

 

$

 

17,471

 

 

$

 

578,019

 

Promotional allowances

 

 

 

(52,678

)

 

 

 

51,713

 

 

 

 

965

 

 

 

 

 

Net revenues

 

$

 

556,105

 

 

$

 

3,478

 

 

$

 

18,436

 

 

$

 

578,019

 

Operating (loss) income

 

$

 

(17,967

)

 

$

 

(11

)

 

$

 

1,539

 

 

$

 

(16,439

)

Net (loss) income

 

$

 

(45,307

)

 

$

 

62

 

 

$

 

 

 

$

 

(45,245

)

 

(1)

Other reclassifications are comprised of the reversal of our Lake Charles property from discontinued operations and other reclassifications to conform to current period presentations.

 

10


 

Additionally, adoption of the new standard resulted in a net loss per share adjustment from the as reported $0.69 per share to $0.68 per share for the three months ended June 30, 2017. There was no adjustment for the net loss per share for the six months ended June 30, 2017.

The Company’s consolidated statement of operations presents net revenue disaggregated by type or nature of the good or service (i.e., casino, pari-mutuel, food and beverage, hotel and other). A summary of net revenues disaggregated by type of revenue and reportable segment is presented below (amounts in thousands). Refer to Note 13 for a discussion of the Company’s reportable segments.

 

 

 

Three Months Ended June 30, 2018

 

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Corporate

and Other

 

 

Total

 

Casino

 

$

 

57,696

 

 

$

 

87,448

 

 

$

 

88,994

 

 

$

 

109,537

 

 

$

 

 

 

$

 

343,675

 

Pari-mutuel commissions

 

 

 

 

 

 

 

 

 

 

 

2,590

 

 

 

 

2,455

 

 

 

 

 

 

 

 

5,045

 

Food and beverage

 

 

 

25,812

 

 

 

 

6,744

 

 

 

 

12,583

 

 

 

 

9,154

 

 

 

 

 

 

 

 

54,293

 

Hotel

 

 

 

26,222

 

 

 

 

4,418

 

 

 

 

6,301

 

 

 

 

1,985

 

 

 

 

 

 

 

 

38,926

 

Other

 

 

 

8,150

 

 

 

 

1,997

 

 

 

 

1,774

 

 

 

 

2,830

 

 

 

 

112

 

 

 

 

14,863

 

Net revenues

 

$

 

117,880

 

 

$

 

100,607

 

 

$

 

112,242

 

 

$

 

125,961

 

 

$

 

112

 

 

$

 

456,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2017

 

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Corporate

and Other

 

 

Total

 

Casino

 

$

 

45,229

 

 

$

 

57,987

 

 

$

 

69,001

 

 

$

 

103,376

 

 

$

 

 

 

$

 

275,593

 

Pari-mutuel commissions

 

 

 

 

 

 

 

 

 

 

 

1,504

 

 

 

 

2,608

 

 

 

 

 

 

 

 

4,112

 

Food and beverage

 

 

 

25,002

 

 

 

 

5,035

 

 

 

 

10,828

 

 

 

 

8,844

 

 

 

 

 

 

 

 

49,709

 

Hotel

 

 

 

23,207

 

 

 

 

3,454

 

 

 

 

5,575

 

 

 

 

2,042

 

 

 

 

 

 

 

 

34,278

 

Other

 

 

 

6,314

 

 

 

 

1,165

 

 

 

 

1,551

 

 

 

 

2,768

 

 

 

 

136

 

 

 

 

11,934

 

Net revenues

 

$

 

99,752

 

 

$

 

67,641

 

 

$

 

88,459

 

 

$

 

119,638

 

 

$

 

136

 

 

$

 

375,626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Corporate

and Other

 

 

Total

 

Casino

 

$

 

107,430

 

 

$

 

175,807

 

 

$

 

186,503

 

 

$

 

213,393

 

 

$

 

 

 

$

 

683,133

 

Pari-mutuel commissions

 

 

 

 

 

 

 

 

 

 

 

5,999

 

 

 

 

3,116

 

 

 

 

 

 

 

 

9,115

 

Food and beverage

 

 

 

49,023

 

 

 

 

13,660

 

 

 

 

26,444

 

 

 

 

17,364

 

 

 

 

 

 

 

 

106,491

 

Hotel

 

 

 

45,652

 

 

 

 

8,056

 

 

 

 

12,292

 

 

 

 

3,667

 

 

 

 

 

 

 

 

69,667

 

Other

 

 

 

15,354

 

 

 

 

3,879

 

 

 

 

3,804

 

 

 

 

5,312

 

 

 

 

239

 

 

 

 

28,588

 

Net revenues

 

$

 

217,459

 

 

$

 

201,402

 

 

$

 

235,042

 

 

$

 

242,852

 

 

$

 

239

 

 

$

 

896,994

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017

 

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Corporate

and Other

 

 

Total

 

Casino

 

$

 

69,062

 

 

$

 

57,987

 

 

$

 

92,169

 

 

$

 

197,929

 

 

$

 

 

 

$

 

417,147

 

Pari-mutuel commissions

 

 

 

 

 

 

 

 

 

 

 

1,505

 

 

 

 

3,243

 

 

 

 

 

 

 

 

4,748

 

Food and beverage

 

 

 

44,494

 

 

 

 

5,035

 

 

 

 

16,561

 

 

 

 

16,040

 

 

 

 

 

 

 

 

82,130

 

Hotel

 

 

 

37,858

 

 

 

 

3,454

 

 

 

 

8,500

 

 

 

 

3,771

 

 

 

 

 

 

 

 

53,583

 

Other

 

 

 

11,826

 

 

 

 

1,165

 

 

 

 

2,284

 

 

 

 

4,943

 

 

 

 

193

 

 

 

 

20,411

 

Net revenues

 

$

 

163,240

 

 

$

 

67,641

 

 

$

 

121,019

 

 

$

 

225,926

 

 

$

 

193

 

 

$

 

578,019

 

 

11


 

Note 3. Isle Acquisition and Final Purchase Price Accounting

Final Purchase Price Accounting – Isle of Capri

On May 1, 2017, the Company completed its acquisition of Isle. As of March 31, 2018, the Company finalized its purchase price accounting related to the Isle Acquisition. The total purchase consideration in the Isle Acquisition was determined with reference to the fair value on the date of the Merger Agreement as follows:

 

Purchase consideration calculation (dollars in thousands, except shares and

   stock price)

 

Shares

 

 

Per share

 

 

 

 

Cash paid for outstanding Isle common stock (1)

 

 

 

 

 

 

 

 

 

 

 

$

 

552,050

 

Shares of ERI common stock issued for Isle common stock (2)

 

 

 

28,468,182

 

 

$

 

19.12

 

 

 

 

544,312

 

Cash paid by ERI to retire Isle's long-term debt (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

828,000

 

Shares of ERI common stock for Isle equity awards (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

10,383

 

Purchase consideration

 

 

 

 

 

 

 

 

 

 

 

$

 

1,934,745

 

 

(1)

The cash component of the consideration represents 58% of the aggregate consideration paid in the Isle Acquisition. The Merger Agreement provided that Isle stockholders could elect to exchange each share of Isle common stock for either $23.00 in cash or 1.638 shares of ERI common stock, subject to proration such that the outstanding shares of Isle common stock will be exchanged for aggregate consideration comprised of 58% cash and 42% ERI common stock. See discussion of Stock Consideration component in note (2) below.

(2)

The Stock Consideration component of the consideration represents 42% of the aggregate consideration paid in the Isle Acquisition. The Merger Agreement provided that 58% of the aggregate consideration would be paid by ERI in cash, as described in note (1) above. The remaining 42% of the aggregate consideration was paid in shares of ERI common stock. The total Stock Consideration and per share consideration above were based on the ERI stock price on April 28, 2017 (the last business day prior to Isle Acquisition Date) which was $19.12 per share.

(3)

In addition to the cash paid to retire the principal amounts outstanding of Isle’s long-term debt, ERI paid $26.6 million in premiums and interest.

(4)

This amount represents consideration paid for the replacement of Isle’s outstanding equity awards. As discussed in Note 1, Isle’s outstanding equity awards were replaced by ERI equity awards with similar terms. A portion of the fair value of ERI awards issued represents consideration transferred, while a portion represents compensation expense based on the vesting terms of the equity awards.

The following table summarizes the final purchase accounting of the purchase consideration to the identifiable assets acquired and liabilities assumed in the Isle Acquisition as of the Isle Acquisition Date, with the excess recorded as goodwill. The fair values were based on management’s analysis, including work performed by third-party valuation specialists. The following table summarizes our final purchase price accounting of the acquired assets and liabilities as of March 31, 2018 (dollars in thousands):

 

Current and other assets, net

 

$

 

135,925

 

Property and equipment

 

 

 

908,816

 

Goodwill

 

 

 

709,087

 

Intangible assets (i)

 

 

 

517,470

 

Other noncurrent assets

 

 

 

15,082

 

Total assets

 

 

 

2,286,380

 

Current liabilities

 

 

 

(144,306

)

Deferred income taxes (ii)

 

 

 

(189,952

)

Other noncurrent liabilities

 

 

 

(17,377

)

Total liabilities

 

 

 

(351,635

)

Net assets acquired

 

$

 

1,934,745

 

 

(i)

Intangible assets consist of gaming licenses, trade names, and player relationships.

(ii)

Deferred tax liabilities were derived based on fair value adjustments for property and equipment and identified intangibles.

12


 

During the three months ended March 31, 2018, the Company finalized its valuation procedures and adjusted the Isle of Capri preliminary purchase price accounting, as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2017, to their updated values. Except for other long-term liabilities related to Bettendorf and Nemacolin (see Note 8) and a corresponding goodwill adjustment totaling $6.1 million (net of tax), the finalization of our purchase price accounting resulted in minimal changes and refinements by management as of, and for the three months ended March 31, 2018.

Valuation methodologies under both a market and income approach used for the identifiable net assets acquired in the Isle Acquisition make use of Level 1 and Level 3 inputs including quoted prices in active markets and discounted cash flows.

Trade receivables and payables, inventory and other current and noncurrent assets and liabilities were valued at the existing carrying values as they represented the estimated fair value of those items at the Isle Acquisition Date.

The fair value of land was determined using the market approach, which arrives at an indication of value by comparing the site being valued to sites that have been recently acquired in arm’s-length transactions. The market data is then adjusted for any significant differences, to the extent known, between the identified comparable sites and the site being valued. Building and site improvements were valued using the cost approach using a direct cost model built on estimates of replacement cost. With respect to personal property components of the assets, personal property assets with an active and identifiable secondary market such as riverboats, gaming equipment, computer equipment and vehicles were valued using the market approach. Other personal property assets such as furniture, fixtures, computer software, and restaurant equipment were valued using the cost approach which is based on replacement or reproduction costs of the asset.

The cost approach is an estimation of fair value developed by computing the current cost of replacing a property and subtracting any depreciation resulting from one or more of the following factors: physical deterioration, functional obsolescence, and/or economic obsolescence. The income approach incorporates all tangible and intangible property and served as a ceiling for the fair values of the acquired assets of the ongoing business enterprise, while still taking into account the premise of highest and best use. In the instance where the business enterprise value developed via the income approach was exceeded by the initial fair values of the underlying assets, an adjustment to reflect economic obsolescence was made to the tangible assets on a pro rata basis to reflect the contributory value of each individual asset to the enterprise as a whole.

The fair value of the gaming licenses was determined using the excess earnings or replacement cost methodology based on the respective states’ legislation. The excess earnings methodology, which is an income approach methodology that allocates the projected cash flows of the business to the gaming license intangible assets less charges for the use of other identifiable assets of Isle including working capital, fixed assets and other intangible assets. This methodology was considered appropriate as the gaming licenses are the primary asset of Isle and the licenses are linked to each respective facility. Under the respective state’s gaming legislation, the property specific licenses can only be acquired if a theoretical buyer were to acquire each existing facility. The existing licenses could not be acquired and used for a different facility. The properties’ estimated future cash flows were the primary assumption in the respective valuations. Cash flow estimates included net gaming revenue, gaming operating expenses, general and administrative expenses, and tax expense. The replacement cost methodology is a cost approach methodology based on replacement or reproduction cost of the gaming license as an indicator of fair value. The acquired Isle properties currently have licenses in Pennsylvania, Iowa, Missouri, Mississippi, Florida and Colorado. The renewal of each state’s gaming license depends on a number of factors, including payment of certain fees and taxes, providing certain information to the state’s gaming regulator, and meeting certain inspection requirements. However, ERI’s historical experience has not indicated, nor does ERI expect, any limitations regarding its ability to continue to renew each license. No other competitive, contractual, or economic factor limits the useful lives of these assets. Accordingly, ERI has concluded that the useful lives of these licenses are indefinite.

Trademarks are valued using the relief from royalty method, which presumes that without ownership of such trademarks, ERI 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, ERI avoids any such payments and record the related intangible value of ERI’s ownership of the brand name. The primary assumptions in the valuation included revenue, pre-tax royalty rate, and tax expense.

Trade names were valued using the relief‑from‑royalty method. The loyalty program was valued using a comparative business valuation method. Management has assigned trade names an indefinite useful life after considering, among other things, the expected use of the asset, the expected useful life of other related asset or asset group, any legal, regulatory, or contractual provisions that may limit the useful life, ERI’s own historical experience in renewing similar arrangements, the effects of obsolescence, demand and other economic factors, and the maintenance expenditures required to obtain the expected cash flows. In that analysis, ERI determined that no legal, regulatory, contractual, competitive, economic or other factors limit the useful lives of these intangible assets.

13


 

Isle Operating Results and Transaction Expenses

For the six months ended June 30, 2018, Isle generated revenue of $454.8 million and net income of $66.7 million.

Transaction expenses attributed to the Isle Acquisition are reported on the accompanying statements of operations related to legal, accounting, financial advisory services, severance, stock awards and other costs and totaled $0.2 million and $1.1 million for the three and six months ended June 30, 2018, respectively, and $85.5 million and $87.1 million for the three and six months ended June 30, 2017, respectively.

Unaudited Pro Forma Information

The following unaudited pro forma information presents the results of operations of the Company for the three and six months ended June 30, 2017, as if the Isle Acquisition had occurred on January 1, 2017 (in thousands).

 

 

 

Three Months

Ended

 

 

 

Six Months

Ended

 

 

 

June 30, 2017

 

 

June 30, 2017

 

Net operating revenues

 

$

 

458,106

 

 

$

 

906,588

 

Net income (loss)

 

 

 

11,628

 

 

 

 

(15,176

)

 

These pro forma results do not necessarily represent the results of operations that would have been achieved if the acquisition had taken place on January 1, 2017, nor are they indicative of the results of operations for future periods. The pro forma amounts include the historical operating results of the Company and Isle prior to the Isle Acquisition with adjustments directly attributable to the Isle Acquisition.

 

 

Note 4. Assets Held for Sale

On February 28, 2018, the Company entered into definitive agreements to sell substantially all of the assets and liabilities of Presque Isle Downs and Vicksburg to Churchill Downs Incorporated (“CDI”). Under the terms of the agreements, CDI agreed to purchase Presque Isle Downs for cash consideration of approximately $178.9 million and Vicksburg for cash consideration of approximately $50.6 million, in each case subject to a customary working capital adjustment. In relation to the dispositions, an impairment charge was recorded related to Vicksburg during the six months ended June 30, 2018 (see Note 6).

The definitive agreements provided that the dispositions were subject to receipt of required regulatory approvals, termination of the waiting period under the Hart-Scott-Rodino Act and other customary closing conditions, including, in the case of Presque Isle Downs, the prior closing of the sale of Vicksburg or the entry into an agreement to acquire another asset of the Company. On May 7, 2018, the Company and CDI each received a Request for Additional Information and Documentary Materials, often referred to as a “Second Request,” from the Federal Trade Commission in connection with its review of the Vicksburg acquisition.

On July 6, 2018, in consideration of the time and expense needed to reply to the Second Request, the Company and CDI entered into a termination agreement and release, mutually agreeing to terminate the asset purchase agreement with respect to Vicksburg (the “Vicksburg Termination Agreement”). Concurrently with the termination of the Vicksburg agreement, the Company agreed to enter into an agreement pursuant to which CDI will acquire and assume the rights and obligations to operate Nemacolin. In connection with the Vicksburg Termination Agreement, CDI has agreed to pay the Company a $5.0 million termination fee, subject to the parties’ execution of a definitive agreement with respect to the Nemacolin transaction.

Both sales are expected to close in the fourth quarter of 2018, subject to satisfaction of closing conditions, including receipt of Pennsylvania regulatory approvals, termination of the waiting period under the Hart-Scott-Rodino Act and, in the case of Presque Isle Downs, the execution of the definitive agreement with respect to the Nemacolin transaction.

The dispositions of Vicksburg and Presque Isle Downs met the requirements for presentation as assets held for sale under generally accepted accounting principles as of June 30, 2018.

14


 

The assets and liabilities held for sale were as follows (in thousands):

 

 

 

June 30, 2018

 

 

 

Vicksburg

 

 

Presque Isle

Downs

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

 

100

 

 

$

 

2,529

 

 

$

 

2,629

 

Inventories

 

 

 

252

 

 

 

 

1,574

 

 

 

 

1,826

 

Prepaid expenses and other

 

 

 

275

 

 

 

 

992

 

 

 

 

1,267

 

Property and equipment, net

 

 

 

35,852

 

 

 

 

69,558

 

 

 

 

105,410

 

Goodwill

 

 

 

8,806

 

 

 

 

3,122

 

 

 

 

11,928

 

Other intangibles, net

 

 

 

2,720

 

 

 

 

75,422

 

 

 

 

78,142

 

Assets held for sale

 

$

 

48,005

 

 

$

 

153,197

 

 

$

 

201,202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

175

 

 

$

 

756

 

 

$

 

931

 

Accrued payroll and related

 

 

 

300

 

 

 

 

636

 

 

 

 

936

 

Accrued property and other taxes

 

 

 

 

 

 

 

78

 

 

 

 

78

 

Accrued other liabilities

 

 

 

379

 

 

 

 

3,493

 

 

 

 

3,872

 

Liabilities related to assets held for sale

 

$

 

854

 

 

$

 

4,963

 

 

$

 

5,817

 

 

Note 5. Stock-Based Compensation

Common Stock and Stock‑Based Awards

The Company has authorized common stock of 200,000,000 shares, par value $0.00001 per share. In June 2018 the Company amended its certificate of incorporation to increase the total number of authorized shares of common stock from 100,000,000 shares to 200,000,000 shares.

Total stock-based compensation expense in the accompanying consolidated statements of operations totaled $3.5 million and $1.3 million during the three months ended June 30, 2018 and 2017, respectively, and $7.2 million and $3.1 million during the six months ended June 30, 2018 and 2017, respectively.

A summary of the RSU and RSA activity for the six months ended June 30, 2018 is presented in the following table:

 

 

 

 

Restricted Stock Units

 

 

 

Restricted Stock Awards

 

 

 

 

Units

 

 

 

Weighted-

Average Grant

Date

Fair Value

 

 

 

Units

 

 

 

Weighted-

Average Grant

Date

Fair Value

 

 

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

 

 

 

(in millions)

 

Unvested outstanding as of December 31, 2017

 

 

 

1,579,499

 

 

$

 

12.25

 

 

 

 

10,809

 

 

$

 

19.13

 

Granted

 

 

 

316,431

 

 

 

 

32.91

 

 

 

 

 

 

 

 

 

Vested

 

 

 

(783,672

)

 

 

 

8.05

 

 

 

 

(10,809

)

 

 

 

19.13

 

Canceled

 

 

 

(9,885

)

 

 

 

19.13

 

 

 

 

 

 

 

 

 

Unvested outstanding as of June 30, 2018

 

 

 

1,102,373

 

 

$

 

21.11

 

 

 

 

 

 

$

 

 

 

A summary of the ERI Stock Option activity for the six months ended June 30, 2018 is presented in the following table:

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Exercise

 

 

 

Options

 

 

Price

 

Outstanding as of December 31, 2017

 

 

271,852

 

 

$

 

9.63

 

Expired

 

 

(15,776

)

 

 

 

10.89

 

Exercised

 

 

(103,120

)

 

 

 

9.09

 

Outstanding as of June 30, 2018

 

 

152,956

 

 

$

 

9.63

 

15


 

 

136,505 options were exercisable as of June 30, 2018.

Note 6. Other and Intangible Assets, net

Other and intangible assets, net, include the following amounts (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

 

 

 

2018

 

 

2017

 

 

 

Useful Life

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

Goodwill

 

$

 

719,254

 

 

$

 

747,106

 

 

 

Indefinite

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming licenses

 

$

 

801,774

 

 

$

 

877,174

 

 

 

Indefinite

Trade names

 

 

 

105,550

 

 

 

 

108,250

 

 

 

Indefinite

Trade names

 

 

 

5,100

 

 

 

 

6,700

 

 

 

1 - 3.5 years

Loyalty programs

 

 

 

20,193

 

 

 

 

21,820

 

 

 

1 - 3 years

Subtotal

 

 

 

932,617

 

 

 

 

1,013,944

 

 

 

 

Accumulated amortization trade names

 

 

 

(5,100

)

 

 

 

(6,290

)

 

 

 

Accumulated amortization loyalty programs

 

 

 

(11,581

)

 

 

 

(10,838

)

 

 

 

Total gaming licenses and other intangible assets

 

$

 

915,936

 

 

$

 

996,816

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating real property

 

$

 

14,030

 

 

$

 

18,069

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized debt issuance costs - Revolving

   Credit Facility

 

$

 

7,613

 

 

$

 

8,616

 

 

 

 

Restricted cash

 

 

 

9,887

 

 

 

 

9,886

 

 

 

 

Other

 

 

 

27,535

 

 

 

 

12,130

 

 

 

 

Total other assets, net

 

$

 

45,035

 

 

$

 

30,632

 

 

 

 

 

Goodwill represents the excess of the purchase prices of acquiring MTR Gaming and Isle over the fair market value of the net assets acquired. In conjunction with the classification of Vicksburg’s operations as assets held for sale (see Note 4) as a result of the announced sale to Churchill Downs Incorporated, an impairment charge totaling $9.8 million was recorded for the six months ended June 30, 2018 due to the carrying value exceeding the estimated net sales proceeds.

Gaming licenses represent intangible assets acquired from the purchase of a gaming entity located in a gaming jurisdiction where competition is limited, such as when only a limited number of gaming operators are allowed to operate in the jurisdiction. These gaming license rights are not subject to amortization as the Company has determined that they have an indefinite useful lives.

Amortization expense related to trade names and loyalty programs for the three months ended June 30, 2018 and 2017 totaled $1.2 million and $1.1 million, respectively, and $2.7 million and $1.6 million for the six months ended June 30, 2018 and 2017, respectively, which is included in depreciation and amortization expense in the consolidated statements of operations. Such amortization expense is expected to be $2.3 million for the remainder of 2018 and $4.7 million and $1.6 million for the years ended December 31, 2019 and 2020, respectively.

Note 7. Income Taxes

The SEC staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

16


 

Through the quarter ended June 30, 2018, the Company recognized no adjustments to the provisional amounts recorded at December 31, 2017. Additionally, the Company has not completed its accounting for all of the tax effects of the Tax Act that became effective January 1, 2018, but has recognized provisional amounts in its income tax provision. The Company is awaiting further guidance from U.S. federal and state regulatory bodies with regards to the final accounting and reporting of these items in the several jurisdictions where the Company file tax returns. In all cases, the Company will continue to make and refine its calculations as additional analysis is completed. Its estimates may also be affected as the Company gains a more thorough understanding of the tax law.

The Company estimates an annual effective income tax rate based on projected results for the year and applies this rate to income before taxes to calculate income tax expense. Any refinements made due to subsequent information that affects the estimated annual effective income tax rate are reflected as adjustments in the current period.

For the three and six months ended June 30, 2018, the Company’s tax expense was $9.2 million and $11.3 million, respectively, and for the three and six months ended June 30, 2017, the Company’s tax benefit was $39.1 million and $38.7 million. For the three and six months ended June 30, 2018, the difference between the effective rate and the statutory rate is attributed primarily to state and local income taxes less excess tax benefits associated with stock compensation. For the three and six months ended June 30, 2017, the difference between the effective rate and the statutory rate is attributed primarily to non-deductible transaction costs incurred and changes in the effective state tax rate associated with the Isle Acquisition. As of June 30, 2018 and 2017, there were no unrecognized tax benefits and the Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits within the next twelve months.

The Company and its subsidiaries file US federal income tax returns and various state and local income tax returns. The Company does not have tax sharing agreements with the other members within the consolidated ERI group. With few exceptions, the Company is no longer subject to US federal or state and local tax examinations by tax authorities for years before 2012.

The Company was notified by the Internal Revenue Service in October of 2016 that its federal tax return for the year ended December 31, 2014 had been selected for examination. In September 2017, the IRS informed the Company that they completed the examination of the tax return and made no changes.

 

Note 8. Long-Term Debt and Other Long-Term Liabilities

Long‑term debt consisted of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(unaudited)

 

 

 

 

 

 

Term Loan

 

$

 

956,750

 

 

$

 

956,750

 

Less: Unamortized discount and debt issuance costs

 

 

 

(17,487

)

 

 

 

(18,748

)

Net

 

 

 

939,263

 

 

 

 

938,002

 

6% Senior Notes

 

 

 

875,000

 

 

 

 

875,000

 

Plus: Unamortized debt premium

 

 

 

25,068

 

 

 

 

26,605

 

Less: Unamortized debt issuance costs

 

 

 

(19,580

)

 

 

 

(20,716

)

Net

 

 

 

880,488

 

 

 

 

880,889

 

7% Senior Notes

 

 

 

375,000

 

 

 

 

375,000

 

Less: Unamortized discount and debt issuance costs

 

 

 

(6,620

)

 

 

 

(7,146

)

Net

 

 

 

368,380

 

 

 

 

367,854

 

Capital leases

 

 

 

617

 

 

 

 

917

 

Long-term notes payable

 

 

 

2,487

 

 

 

 

2,531

 

Less: Current portion

 

 

 

(486

)

 

 

 

(615

)

Total long-term debt

 

$

 

2,190,749

 

 

$

 

2,189,578

 

 

 

Amortization of the debt issuance costs and the discount and premium associated with our indebtedness totaled $1.2 million and $2.5 million for the three and six months ended June 30, 2018, respectively. Amortization of the debt issuance costs and the discount and premium associated with our indebtedness totaled $2.2 million and $3.0 million for the three and six months ended June 30, 2017, respectively. Amortization of debt issuance costs is computed using the effective interest method and is included in interest expense.

17


 

 

Scheduled maturities of long‑term debt are $375.0 million in 2023, $956.8 million in 2024, and $875.0 million in 2025.

Term Loan and Revolving Credit Facility

In April 2017, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto dated as of April 17, 2017 (the “Credit Facility”), consisting of a $1.45 billion term loan facility (the “Term Loan Facility” or “Term Loan”) and a $300.0 million revolving credit facility (the “Revolving Credit Facility”). The Company’s obligations under the Revolving Credit Facility will mature on April 17, 2022. The Company’s obligations under the Term Loan Facility will mature on April 17, 2024. The Company was required to make quarterly principal payments in an amount equal to $3.6 million on the Term Loan Facility on the last day of each fiscal quarter beginning on June 30, 2017 but satisfied this requirement as a result of the principal prepayment of $444.5 million on September 13, 2017 in conjunction with the issuance of the additional 6% Senior Notes. In addition, the Company is required to make mandatory payments of amounts outstanding under the Credit Facility with the proceeds of certain casualty events, debt issuances, and asset sales and, depending on its consolidated total leverage ratio, the Company may be required to apply a portion of its excess cash flow to repay amounts outstanding under the Credit Facility.

As of June 30, 2018, the Company had $956.8 million outstanding on the Term Loan. There were no borrowings outstanding under the Revolving Credit Facility as of June 30, 2018. The Company had $290.9 million of available borrowing capacity, after consideration of $9.1 million in outstanding letters of credit, under its Revolving Credit Facility as of June 30, 2018.

The interest rate per annum applicable to loans under the Revolving Credit Facility are, at our option, either LIBOR plus a margin ranging from 1.75% to 2.50% or a base rate plus a margin ranging from 0.75% to 1.50%, which margin is based on our total leverage ratio. The interest rate per annum applicable to the loans under the Term Loan Facility is, at our option, either LIBOR plus 2.25%, or a base rate plus 1.25%; provided, however, that in no event will LIBOR be less than zero or the base rate be less than 1.00% over the term of the Term Loan Facility or the Revolving Credit Facility. Additionally, the Company pays a commitment fee on the unused portion of the Revolving Credit Facility in the amount of 0.50% per annum. At June 30, 2018, the weighted average interest rate on the Term Loan was 4.1% based upon the weighted average interest rate of borrowings outstanding during the six months ended June 30, 2018.

We have obtained commitments to increase our revolving credit facility from $300 million to $500 million effective substantially concurrently with the consummation of the Tropicana Acquisition and extend the maturity date of our revolving credit facility to the fifth anniversary of the effective date of such increase.

On June 6, 2018, the Company executed an amendment that modified certain covenants in the Credit Facility to allow for considerations related to the acquisition of Tropicana.

Senior Notes

6% Senior Notes

On March 29, 2017, Eagle II issued at par $375.0 million aggregate principal amount of 6.0% senior notes due 2025 (the “6% Senior Notes”) pursuant to an indenture, dated as of March 29, 2017 (the “6% Senior Notes Indenture”), between Eagle II and U.S. Bank, National Association, as Trustee. The 6% Senior Notes will mature on April 1, 2025, with interest payable semi-annually in arrears on April 1 and October 1, commencing October 1, 2017. In connection with the consummation of the Isle Acquisition on May 1, 2017, the Company assumed Eagle II’s obligations under the 6% Senior Notes and the 6% Senior Notes Indenture and certain of the Company’s subsidiaries (including Isle and certain of its subsidiaries) executed guarantees of the Company’s obligations under the 6% Senior Notes.

On September 13, 2017, the Company issued an additional $500.0 million principal amount of its 6% Senior Notes at an issue price equal to 105.5% of the principal amount of the 6% Senior Notes. The additional notes were issued pursuant to the 6% Senior Notes Indenture that governs the 6% Senior Notes. The Company used the proceeds of the offering to repay $78.0 million of outstanding borrowings under the previous revolving credit facility and used the remainder to repay $444.5 million outstanding borrowings under the previous term loan facility and related accrued interest.

 

18


 

7% Senior Notes

On July 23, 2015, the Company issued at par $375.0 million in aggregate principal amount of 7.0% senior notes due 2023 (“7% Senior Notes”) pursuant to the Indenture, dated as of July 23, 2015 (the “Indenture”), between the Company and U.S. Bank, National Association, as Trustee. The 7% Senior Notes will mature on August 1, 2023, with interest payable semi-annually in arrears on February 1 and August 1 of each year.

 

As of June 30, 2018 we were in compliance with all covenants under the Credit Facility, 6% Senior Notes, and 7% Senior Notes.

Other Long-Term Liabilities

In conjunction with the Isle Acquisition, the Company acquired the existing lease and management agreements at its Nemacolin location. Under the terms of the agreements, Nemacolin Woodland Resort (“Resort”) provided land, land improvements and a building for the casino property. The Company was deemed, for accounting purposes only, to be the owner of these assets provided by the Resort during the construction and casino operating periods due to the Company’s continuing involvement. Therefore, the transaction was accounted for using the direct financing method. As of June 30, 2018 and December 31, 2017, the Company recorded property and equipment, net of accumulated depreciation, of $4.1 million and $4.2 million, respectively, and a liability of $2.4 million and $4.5 million, respectively, in other long-term liabilities related to the agreement. The decrease in the liability was primarily due to the Company finalizing its purchase price accounting related to the Isle Acquisition as of March 31, 2018.

In conjunction with the Isle Acquisition, the Company acquired the existing lease and management agreements at its Bettendorf location. Under the terms of the agreements with the City of Bettendorf, Iowa, the Company leases, manages, and provides financial and operating support for the convention center (Quad-Cities Waterfront Convention Center). The Company was deemed, for accounting purposes only, to be the owner of the convention center due to the Company’s continuing involvement. Therefore, the transaction was accounted for using the direct financing method. As of June 30, 2018 and December 31, 2017, the Company recorded property and equipment, net of accumulated depreciation, of $12.0 million and $11.9 million, respectively, and a liability of $5.5 million and $12.5 million, respectively, in other long-term liabilities related to the agreement. The changes in property and equipment and in the liability were primarily due to the Company finalizing its purchase price accounting related to the Isle Acquisition as of March 31, 2018.  

 

Note 9. Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Accordingly, fair value is a market based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, there is a three‑tier fair value hierarchy, which prioritizes the inputs used in measuring fair values as follows:

 

Level 1 Inputs: Quoted market prices in active markets for identical assets or liabilities.

 

Level 2 Inputs: Observable market‑based inputs or unobservable inputs that are corroborated by market data.

 

Level 3 Inputs: Unobservable inputs that are not corroborated by market data.

Items Measured at Fair Value on a Recurring Basis: The following table sets forth the assets measured at fair value on a recurring basis, by input level, in the consolidated balance sheets at June 30, 2018 and December 31, 2017 (amounts in thousands):

 

 

 

June 30, 2018

 

Assets:

 

Level 1

 

 

Level 2

 

 

Total

 

Restricted cash and investments

 

$

 

10,753

 

 

$

 

3,817

 

 

$

 

14,570

 

Marketable securities

 

 

 

9,512

 

 

 

 

7,554

 

 

 

 

17,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

Assets:

 

Level 1

 

 

Level 2

 

 

Total

 

Restricted cash and investments

 

$

 

9,055

 

 

$

 

4,098

 

 

$

 

13,153

 

Marketable securities

 

 

 

7,906

 

 

 

 

9,725

 

 

 

 

17,631

 

19


 

The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practical to estimate fair value:

Cash and Cash Equivalents: Cash equivalents include investments in money market funds. Investments in this category can be redeemed immediately at the current net asset value per share. A money market fund is a mutual fund whose investments are primarily in short‑term debt securities designed to maximize current income with liquidity and capital preservation, usually maintaining per share net asset value at a constant amount, such as one dollar. Cash and cash equivalents also includes cash maintained for gaming operations. The carrying amounts approximate the fair value because of the short maturity of those instruments (Level 1).

Restricted Cash: Restricted cash includes cash reserved for unredeemed winning tickets from the Company’s racing operations, funds related to horsemen’s fines and certain simulcasting funds that are restricted to payments for improving horsemen’s facilities and racing purses, cash deposits that serve as collateral for letters of credit, surety bonds and short-term certificates of deposit that serve as collateral for certain bonding requirements. The estimated fair values of our restricted cash and investments are based upon quoted prices available in active markets (Level 1), or quoted prices for similar assets in active and inactive markets (Level 2), and represent the amounts we would expect to receive if we sold our restricted cash and investments. Restricted investments, included in Other Assets, net, relate to trading securities pledged as collateral by our captive insurance company.

Marketable Securities:  Marketable securities consist primarily of trading securities held the Company’s captive insurance subsidiary. The estimated fair values of the Company’s marketable securities are determined on an individual asset basis based upon quoted prices of identical assets available in active markets (Level 1), quoted prices of identical assets in inactive markets, or quoted prices for similar assets in active and inactive markets (Level 2), and represent the amounts we would expect to receive if we sold these marketable securities.

Long‑term Debt: The fair value of our long-term debt or other long-term obligations is estimated based on the quoted market price of the underlying debt issue (Level 1) or, when a quoted market price is not available, the discounted cash flow of future payments utilizing current rates available to us for the debt of similar remaining maturities (Level 2). Debt obligations with a short remaining maturity have a carrying amount that approximates fair value.

There were no transfers between Level 1 and Level 2 investments.

The estimated fair values of the Company’s financial instruments are as follows (amounts in thousands):

 

 

 

June 30, 2018

 

 

December 31, 2017

 

 

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7% Senior Notes

 

$

 

368,380

 

 

$

 

393,750

 

 

$

 

367,854

 

 

$

 

400,800

 

6% Senior Notes

 

 

 

880,488

 

 

 

 

868,438

 

 

 

 

880,889

 

 

 

 

914,375

 

Term Loan

 

 

 

939,263

 

 

 

 

956,750

 

 

 

 

938,002

 

 

 

 

956,750

 

Other long-term debt

 

 

 

2,487

 

 

 

 

2,487

 

 

 

 

2,531

 

 

 

 

2,531

 

Capital leases

 

 

 

617

 

 

 

 

617

 

 

 

 

917

 

 

 

 

917

 

 

 

20


 

Note 10. Earnings per Share

The following table illustrates the reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the three and six months ended June 30, 2018 and 2017 (dollars in thousands, except per share amounts):

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

 

2018

 

 

2017

 

 

 

(unaudited)

 

Net income (loss) available to common stockholders

 

$

 

36,796

 

 

$

 

(46,190

)

 

 

$

 

57,651

 

 

$

 

(45,245

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

 

77,458,584

 

 

 

 

67,453,095

 

 

 

 

 

77,406,447

 

 

 

 

57,405,834

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 

131,148

 

 

 

N/A

 

 

 

 

 

142,027

 

 

 

N/A

 

RSUs

 

 

 

668,897

 

 

 

N/A

 

 

 

 

 

621,155

 

 

 

N/A

 

Weighted average shares outstanding – diluted (1)

 

 

 

78,258,629

 

 

 

 

67,453,095

 

 

 

 

 

78,169,629

 

 

 

 

57,405,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share attributable to common

   stockholders – basic:

 

$

 

0.48

 

 

$

 

(0.68

)

 

 

$

 

0.74

 

 

$

 

(0.79

)

Net income (loss) per common share attributable to common

   stockholders – diluted:

 

$

 

0.47

 

 

$

 

(0.68

)

 

 

$

 

0.74

 

 

$

 

(0.79

)

 

 

(1)

Excluded from “Weighted average shares outstanding – diluted” are 78,435 and 64,617 stock options for the three and six months ended June 30, 2017, respectively, and 937,661 and 868,987 RSUs for the three and six months ended June 30, 2017, respectively.

 

Note 11. Commitments and Contingencies

Litigation.  The Company is a party to various lawsuits, which have arisen in the normal course of business. Estimated losses are accrued for these lawsuits and claims when the loss is probable and can be estimated. The current liability for the estimated losses associated with those lawsuits is not material to the consolidated financial condition and those estimated losses are not expected to have a material impact on the results of operations.

Agreements with Horsemen and Pari-mutuel Clerks.  The Federal Interstate Horse Racing Act and the state racing laws in West Virginia, Ohio and Pennsylvania require that, in order to simulcast races, we have written agreements with the horse owners and trainers at those racetracks. In addition, in order to operate slot machines in West Virginia, we are required to enter into written agreements regarding the proceeds of the slot machines (a “proceeds agreement”) with a representative of a majority of the horse owners and trainers and with a representative of a majority of the pari‑mutuel clerks. In Pennsylvania and Ohio, we must have an agreement with the representative of the horse owners. We have the requisite agreements in place with the horsemen at Mountaineer until December 31, 2018. With respect to the Mountaineer pari‑mutuel clerks, we have a labor agreement in force until November 30, 2018, which will automatically renew for an additional one-year period, and a proceeds agreement until April 14, 2019. We are required to have a proceeds agreement in effect on July 1 of each year with the horsemen and the pari‑mutuel clerks as a condition to renewal of our video lottery license for such year. If the requisite proceeds agreement is not in place as of July 1 of a particular year, Mountaineer’s application for renewal of its video lottery license could be denied, in which case Mountaineer would not be permitted to operate either its slot machines or table games. Scioto Downs has the requisite agreement in place with the OHHA until December 31, 2023, with automatic two-year renewals unless either party requests re‑negotiation pursuant to its terms. Presque Isle Downs has the requisite agreement in place with the Pennsylvania Horsemen’s Benevolent and Protective Association until May 1, 2021. With the exception of the respective Mountaineer, Presque Isle Downs and Scioto Downs horsemen’s agreements and the agreement between Mountaineer and the pari‑mutuel clerks’ union described above, each of the agreements referred to in this paragraph may be terminated upon written notice by either party.

21


 

Note 12. Related Affiliates

The Company has a lease agreement with C.S. &Y. Associates (“CS&Y”) which is an entity partially owned by Recreational Enterprises, Inc. (“REI”), which is owned by members of the Carano family, including Gary L. Carano, and various trusts of which members of the Carano family are beneficiaries. In addition, each of Gary L. Carano and Thomas R. Reeg serve as members of the board of directors of REI. The Company owns the entire parcel on which Eldorado Reno is located, except for approximately 30,000 square feet which is leased from CS&Y. For the three and six months ended June 30, 2018, the Company paid CS&Y $150,000 and $300,000, respectively. For the three and six months ended June 30, 2017, the Company paid CS&Y $90,000 and $215,000, respectively. No amounts were due to or due from CS&Y as of June 30, 2018 and December 31, 2017.

The Company holds a 42.1% variable interest in a partnership with other investors that developed a new 118-room Hampton Inn & Suites hotel at Scioto Downs that opened in March 2017. Pursuant to the terms of the partnership agreement, the Company contributed $1.0 million of cash and 2.4 acres of a leasehold immediately adjacent to The Brew Brothers microbrewery and restaurant at Scioto Downs. The partnership constructed the hotel at a cost of $16.0 million and other investor members operate the hotel. As of June 30, 2018, the Company’s receivable from the partnership totaled $125,000 and the Company’s payable to the partnership totaled $20,000. These amounts are reflected on the accompanying balance sheet under “due from affiliates” and “due to affiliates.”

The Company formed a joint venture in April 2018 with Cordish Companies (“Cordish”) to master plan and develop a mixed use entertainment and hospitality destination expected to be located on unused land adjacent to the casino and racetrack at our Pompano property. No amounts were due to or due from Cordish as of June 30, 2018.

22


 

Note 13. Segment Information

The following table sets forth, for the period indicated, certain operating data for our reportable segments. The executive decision maker of our Company reviews operating results, assesses performance and makes decisions on a “significant market” basis. Management views each of our casinos as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, and their management and reporting structure. Prior to the Isle Acquisition, the Company’s principal operating activities occurred in three geographic regions: Nevada, Louisiana and parts of the eastern United States. Following the Isle Acquisition, the Company’s principal operating activities expanded and now occur in four geographic regions and reportable segments based on the similar characteristics of the operating segments within the regions in which they operate. The previously reported segments, Nevada, Louisiana, and Eastern, are now included in the West, South, and East segments, respectively, which are summarized as follows, along with the Midwest segment.

 

Segment

 

Property

 

State

West

 

Eldorado Reno

 

Nevada

 

 

Silver Legacy

 

Nevada

 

 

Circus Reno

 

Nevada

 

 

Isle Black Hawk

 

Colorado

 

 

Lady Luck Black Hawk

 

Colorado

 

 

 

 

 

Midwest

 

Waterloo

 

Iowa

 

 

Bettendorf

 

Iowa

 

 

Boonville

 

Missouri

 

 

Cape Girardeau

 

Missouri

 

 

Caruthersville

 

Missouri

 

 

Kansas City

 

Missouri

 

 

 

 

 

South

 

Pompano

 

Florida

 

 

Eldorado Shreveport

 

Louisiana

 

 

Lake Charles

 

Louisiana

 

 

Lula

 

Mississippi

 

 

Vicksburg

 

Mississippi

 

 

 

 

 

East

 

Presque Isle Downs

 

Pennsylvania

 

 

Nemacolin

 

Pennsylvania

 

 

Scioto Downs

 

Ohio

 

 

Mountaineer

 

West Virginia

 

23


 

The following table sets forth, for the periods indicated, certain operating data for our four reportable segments. Amounts related to pre-acquisition periods (prior to May 1, 2017) conform to prior presentation as the additional operating segments associated with the Isle Acquisition are incremental to the previously disclosed reportable segments.

 

 

 

Three Months Ended

 

 

Six months ended

 

 

 

Ended June 30,

 

 

Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(in thousands, unaudited)

 

 

(in thousands, unaudited)

 

Revenues and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

$

 

117,880

 

 

$

 

99,752

 

 

$

 

217,459

 

 

$

 

163,240

 

Operating income

 

$

 

21,865

 

 

$

 

16,512

 

 

$

 

32,004

 

 

$

 

17,933

 

Midwest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

$

 

100,607

 

 

$

 

67,641

 

 

$

 

201,402

 

 

$

 

67,641

 

Operating income

 

$

 

27,411

 

 

$

 

15,412

 

 

$

 

54,087

 

 

$

 

15,412

 

South:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

$

 

112,242

 

 

$

 

88,459

 

 

$

 

235,042

 

 

$

 

121,019

 

Operating income

 

$

 

20,564

 

 

$

 

12,610

 

 

$

 

33,923

 

 

$

 

18,528

 

East:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

$

 

125,961

 

 

$

 

119,638

 

 

$

 

242,852

 

 

$

 

225,926

 

Operating income

 

$

 

24,397

 

 

$

 

18,228

 

 

$

 

43,528

 

 

$

 

33,196

 

Corporate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

$

 

112

 

 

$

 

136

 

 

$

 

239

 

 

$

 

193

 

Operating loss

 

$

 

(16,823

)

 

$

 

(93,229

)

 

$

 

(31,934

)

 

$

 

(101,508

)

Total Reportable Segments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenues

 

$

 

456,802

 

 

$

 

375,626

 

 

$

 

896,994

 

 

$

 

578,019

 

Operating income (loss)

 

$

 

77,414

 

 

$

 

(30,467

)

 

$

 

131,608

 

 

$

 

(16,439

)

Reconciliations to consolidated net income

   (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

 

77,414

 

 

$

 

(30,467

)

 

$

 

131,608

 

 

$

 

(16,439

)

Unallocated income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(31,405

)

 

 

 

(27,527

)

 

 

 

(62,494

)

 

 

 

(40,197

)

Loss on early retirement of debt, net

 

 

 

 

 

 

 

(27,317

)

 

 

 

(162

)

 

 

 

(27,317

)

(Provision) benefit for income taxes

 

 

 

(9,213

)

 

 

 

39,121

 

 

 

 

(11,301

)

 

 

 

38,708

 

Net income (loss)

 

$

 

36,796

 

 

$

 

(46,190

)

 

$

 

57,651

 

 

$

 

(45,245

)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

 

(in thousands, unaudited)

 

Capital Expenditures

 

 

 

 

 

 

 

 

 

 

West

 

$

 

29,080

 

 

$

 

18,632

 

Midwest

 

 

 

9,384

 

 

 

 

1,763

 

South

 

 

 

7,083

 

 

 

 

1,646

 

East

 

 

 

6,008

 

 

 

 

4,048

 

Corporate

 

 

 

3,626

 

 

 

 

3,735

 

Total

 

$

 

55,181

 

 

$

 

29,824

 

 

 

 

West

 

 

Midwest

 

 

South

 

 

East

 

 

Corporate,

Other &

Eliminations

 

 

Total

 

Balance sheet as of June 30, 2018 (unaudited)

(in thousands)

 

Total assets

 

$

 

1,300,315

 

 

$

 

1,215,157

 

 

$

 

814,364

 

 

$

 

1,209,463

 

 

$

 

(939,553

)

 

$

 

3,599,746

 

Goodwill

 

 

 

152,761

 

 

 

 

322,745

 

 

 

 

180,044

 

 

 

 

63,704

 

 

 

 

 

 

 

 

719,254

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet as of December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

 

1,278,062

 

 

$

 

1,188,758

 

 

$

 

804,318

 

 

$

 

1,185,806

 

 

$

 

(910,472

)

 

$

 

3,546,472

 

Goodwill

 

 

 

152,775

 

 

 

 

327,088

 

 

 

 

200,417

 

 

 

 

66,826

 

 

 

 

 

 

 

 

747,106

 

24


 

 

 

Note 14. Consolidating Condensed Financial Information

Certain of our wholly-owned subsidiaries have fully and unconditionally guaranteed on a joint and several basis, the payment of all obligations under our 7% Senior Notes, 6% Senior Notes and Credit Facility.

The following wholly-owned subsidiaries of the Company are guarantors, on a joint and several basis, under the 7% Senior Notes, 6% Senior Notes and Credit Facility: Isle of Capri Casinos LLC; Eldorado Holdco LLC; Eldorado Resorts LLC; Eldorado Shreveport 1 LLC; Eldorado Shreveport 2 LLC; Eldorado Casino Shreveport Joint Venture; MTR Gaming Group Inc.; Mountaineer Park Inc.; Presque Isle Downs Inc.; Scioto Downs Inc.; Eldorado Limited Liability Company; Circus and Eldorado Joint Venture, LLC; CC Reno LLC; CCR Newco LLC; Black Hawk Holdings, L.L.C.; IC Holdings Colorado, Inc.; CCSC/Blackhawk, Inc.; IOC-Black Hawk Distribution Company, LLC; IOC-Black Hawk County, Inc.; Isle of Capri Bettendorf, L.C.; PPI, Inc.; Pompano Park Holdings LLC; IOC-Lula, Inc.; IOC-Kansas City, Inc.; IOC-Boonville, Inc.; IOC-Caruthersville, LLC; IOC Cape Girardeau, LLC; IOC-Vicksburg, Inc.; IOC-Vicksburg, L.L.C.; Rainbow Casino-Vicksburg Partnership, L.P.; IOC Holdings L.L.C.; St. Charles Gaming Company, L.L.C.; Elgin Riverboat Resort-Riverboat Casino; Elgin Holdings I LLC; Elgin Holdings II LLC, PPI Development Holdings LLC; and PPI Development LLC.  Each of the subsidiaries’ guarantees is joint and several with the guarantees of the other subsidiaries.   

 

The consolidating condensed balance sheet as of June 30, 2018 is as follows:

 

Balance Sheet

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands, unaudited)

 

Current assets

 

$

 

100,202

 

 

$

 

378,207

 

 

$

 

26,994

 

 

$

 

 

 

$

 

505,403

 

Intercompany receivables

 

 

 

145,580

 

 

 

 

 

 

 

 

33,680

 

 

 

 

(179,260

)

 

 

 

 

Investments in subsidiaries

 

 

 

2,541,456

 

 

 

 

 

 

 

 

 

 

 

 

(2,541,456

)

 

 

 

 

Property and equipment, net

 

 

 

13,659

 

 

 

 

1,378,375

 

 

 

 

8,054

 

 

 

 

 

 

 

 

1,400,088

 

Other assets

 

 

 

49,707

 

 

 

 

1,655,020

 

 

 

 

22,847

 

 

 

 

(33,319

)

 

 

 

1,694,255

 

Total assets

 

$

 

2,850,604

 

 

$

 

3,411,602

 

 

$

 

91,575

 

 

$

 

(2,754,035

)

 

$

 

3,599,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

 

34,402

 

 

$

 

156,325

 

 

$

 

26,965

 

 

$

 

 

 

$

 

217,692

 

Intercompany payables

 

 

 

 

 

 

 

154,260

 

 

 

 

25,000

 

 

 

 

(179,260

)

 

 

 

 

Long-term debt, less current maturities

 

 

 

1,815,523

 

 

 

 

375,000

 

 

 

 

226

 

 

 

 

 

 

 

 

2,190,749

 

Deferred income tax liabilities

 

 

 

 

 

 

 

209,926

 

 

 

 

 

 

 

 

(33,319

)

 

 

 

176,607

 

Other accrued liabilities

 

 

 

4,035

 

 

 

 

11,160

 

 

 

 

2,780

 

 

 

 

 

 

 

 

17,975

 

Stockholders’ equity

 

 

 

996,644

 

 

 

 

2,504,931

 

 

 

 

36,604

 

 

 

 

(2,541,456

)

 

 

 

996,723

 

Total liabilities and stockholders’

   equity

 

$

 

2,850,604

 

 

$

 

3,411,602

 

 

$

 

91,575

 

 

$

 

(2,754,035

)

 

$

 

3,599,746

 

25


 

The consolidating condensed balance sheet as of December 31, 2017 is as follows:

 

Balance Sheet

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands)

 

Current assets

 

$

 

27,572

 

 

$

 

201,321

 

 

$

 

22,139

 

 

$

 

 

 

$

 

251,032

 

Intercompany receivables

 

 

 

274,148

 

 

 

 

 

 

 

 

34,492

 

 

 

 

(308,640

)

 

 

 

 

Investments in subsidiaries

 

 

 

2,437,287

 

 

 

 

 

 

 

 

 

 

 

 

(2,437,287

)

 

 

 

 

Property and equipment, net

 

 

 

12,042

 

 

 

 

1,483,473

 

 

 

 

7,302

 

 

 

 

 

 

 

 

1,502,817

 

Other assets

 

 

 

37,458

 

 

 

 

1,764,291

 

 

 

 

27,283

 

 

 

 

(36,409

)

 

 

 

1,792,623

 

Total assets

 

$

 

2,788,507

 

 

$

 

3,449,085

 

 

$

 

91,216

 

 

$

 

(2,782,336

)

 

$

 

3,546,472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

 

28,676

 

 

$

 

169,348

 

 

$

 

25,726

 

 

$

 

 

 

$

 

223,750

 

Intercompany payables

 

 

 

 

 

 

 

283,640

 

 

 

 

25,000

 

 

 

 

(308,640

)

 

 

 

 

Long-term debt, less current maturities

 

 

 

1,814,185

 

 

 

 

375,000

 

 

 

 

393

 

 

 

 

 

 

 

 

2,189,578

 

Deferred income tax liabilities

 

 

 

 

 

 

 

199,376

 

 

 

 

 

 

 

 

(36,409

)

 

 

 

162,967

 

Other accrued liabilities

 

 

 

4,127

 

 

 

 

19,624

 

 

 

 

4,828

 

 

 

 

 

 

 

 

28,579

 

Stockholders’ equity

 

 

 

941,519

 

 

 

 

2,402,097

 

 

 

 

35,269

 

 

 

 

(2,437,287

)

 

 

 

941,598

 

Total liabilities and stockholders’

   equity

 

$

 

2,788,507

 

 

$

 

3,449,085

 

 

$

 

91,216

 

 

$

 

(2,782,336

)

 

$

 

3,546,472

 

 

The consolidating condensed statement of operations for the three months ended June 30, 2018 is as follows:

 

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands, unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

$

 

 

 

$

 

340,960

 

 

$

 

7,760

 

 

$

 

 

 

$

 

348,720

 

Non-gaming

 

 

 

 

 

 

 

105,555

 

 

 

 

2,527

 

 

 

 

 

 

 

 

108,082

 

Net revenues

 

 

 

 

 

 

 

446,515

 

 

 

 

10,287

 

 

 

 

 

 

 

 

456,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

 

 

 

 

 

 

164,837

 

 

 

 

5,108

 

 

 

 

 

 

 

 

169,945

 

Non-gaming

 

 

 

 

 

 

 

66,092

 

 

 

 

683

 

 

 

 

 

 

 

 

66,775

 

Marketing and promotions

 

 

 

 

 

 

 

21,421

 

 

 

 

411

 

 

 

 

 

 

 

 

21,832

 

General and administrative

 

 

 

 

 

 

 

71,872

 

 

 

 

1,873

 

 

 

 

 

 

 

 

73,745

 

Corporate

 

 

 

11,259

 

 

 

 

335

 

 

 

 

638

 

 

 

 

 

 

 

 

12,232

 

Impairment charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fee

 

 

 

(7,030

)

 

 

 

7,030

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

950

 

 

 

 

30,798

 

 

 

 

162

 

 

 

 

 

 

 

 

31,910

 

Total operating expenses

 

 

 

5,179

 

 

 

 

362,385

 

 

 

 

8,875

 

 

 

 

 

 

 

 

376,439

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of asset or disposal of

   property and equipment

 

 

 

 

 

 

 

421

 

 

 

 

2

 

 

 

 

 

 

 

 

423

 

Transaction expenses

 

 

 

(3,335

)

 

 

 

(69

)

 

 

 

 

 

 

 

 

 

 

 

(3,404

)

Equity in income of unconsolidated

   affiliate

 

 

 

 

 

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

32

 

Operating (loss) income

 

 

 

(8,514

)

 

 

 

84,514

 

 

 

 

1,414

 

 

 

 

 

 

 

 

77,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(25,075

)

 

 

 

(5,919

)

 

 

 

(411

)

 

 

 

 

 

 

 

(31,405

)

Loss on early retirement of debt, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsidiary income (loss)

 

 

 

60,771

 

 

 

 

 

 

 

 

 

 

 

 

(60,771

)

 

 

 

 

Income (loss) before income

   taxes

 

 

 

27,182

 

 

 

 

78,595

 

 

 

 

1,003

 

 

 

 

(60,771

)

 

 

 

46,009

 

Income tax benefit (provision)

 

 

 

9,614

 

 

 

 

(18,438

)

 

 

 

(389

)

 

 

 

 

 

 

 

(9,213

)

Net income (loss)

 

$

 

36,796

 

 

$

 

60,157

 

 

$

 

614

 

 

$

 

(60,771

)

 

$

 

36,796

 

26


 

 

The consolidating condensed statement of operations for the three months ended June 30, 2017 is as follows:

 

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands, unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

$

 

 

 

$

 

274,023

 

 

$

 

5,682

 

 

$

 

 

 

$

 

279,705

 

Non-gaming

 

 

 

 

 

 

 

94,023

 

 

 

 

1,898

 

 

 

 

 

 

 

 

95,921

 

Net revenues

 

 

 

 

 

 

 

368,046

 

 

 

 

7,580

 

 

 

 

 

 

 

 

375,626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

 

 

 

 

 

 

139,891

 

 

 

 

3,846

 

 

 

 

 

 

 

 

143,737

 

Non-gaming

 

 

 

 

 

 

 

61,325

 

 

 

 

649

 

 

 

 

 

 

 

 

61,974

 

Marketing and promotions

 

 

 

 

 

 

 

20,893

 

 

 

 

638

 

 

 

 

 

 

 

 

21,531

 

General and administrative

 

 

 

 

 

 

 

59,637

 

 

 

 

1,250

 

 

 

 

 

 

 

 

60,887

 

Corporate

 

 

 

6,974

 

 

 

 

(328

)

 

 

 

796

 

 

 

 

 

 

 

 

7,442

 

Management fee

 

 

 

(6,974

)

 

 

 

6,774

 

 

 

 

200

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

183

 

 

 

 

24,637

 

 

 

 

89

 

 

 

 

 

 

 

 

24,909

 

Total operating expenses

 

 

 

183

 

 

 

 

312,829

 

 

 

 

7,468

 

 

 

 

 

 

 

 

320,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) gain on sale of asset or disposal of

   property and equipment

 

 

 

(21

)

 

 

 

(68

)

 

 

 

 

 

 

 

 

 

 

 

(89

)

Transaction expenses

 

 

 

(67,559

)

 

 

 

(17,905

)

 

 

 

 

 

 

 

 

 

 

 

(85,464

)

Equity in loss of unconsolidated

   affiliate

 

 

 

 

 

 

 

(60

)

 

 

 

 

 

 

 

 

 

 

 

(60

)

Operating (loss) income

 

 

 

(67,763

)

 

 

 

37,184

 

 

 

 

112

 

 

 

 

 

 

 

 

(30,467

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(20,905

)

 

 

 

(6,344

)

 

 

 

(278

)

 

 

 

 

 

 

 

(27,527

)

Loss on early retirement of debt, net

 

 

 

(27,317

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,317

)

Subsidiary income (loss)

 

 

 

16,401

 

 

 

 

 

 

 

 

 

 

 

 

(16,401

)

 

 

 

 

(Loss) income before income

   taxes

 

 

 

(99,584

)

 

 

 

30,840

 

 

 

 

(166

)

 

 

 

(16,401

)

 

 

 

(85,311

)

Income tax benefit (provision)

 

 

 

53,394

 

 

 

 

(14,364

)

 

 

 

91

 

 

 

 

 

 

 

 

39,121

 

Net (loss) income

 

$

 

(46,190

)

 

$

 

16,476

 

 

$

 

(75

)

 

$

 

(16,401

)

 

$

 

(46,190

)

 

27


 

The consolidating condensed statement of operations for the six months ended June 30, 2018 is as follows:

 

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands, unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

$

 

 

 

$

 

676,753

 

 

$

 

15,495

 

 

$

 

 

 

$

 

692,248

 

Non-gaming

 

 

 

 

 

 

 

199,578

 

 

 

 

5,168

 

 

 

 

 

 

 

 

204,746

 

Net revenues

 

 

 

 

 

 

 

876,331

 

 

 

 

20,663

 

 

 

 

 

 

 

 

896,994

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

 

 

 

 

 

 

329,140

 

 

 

 

10,356

 

 

 

 

 

 

 

 

339,496

 

Non-gaming

 

 

 

 

 

 

 

130,067

 

 

 

 

1,395

 

 

 

 

 

 

 

 

131,462

 

Marketing and promotions

 

 

 

 

 

 

 

42,256

 

 

 

 

877

 

 

 

 

 

 

 

 

43,133

 

General and administrative

 

 

 

 

 

 

 

144,299

 

 

 

 

3,648

 

 

 

 

 

 

 

 

147,947

 

Corporate

 

 

 

21,553

 

 

 

 

657

 

 

 

 

1,591

 

 

 

 

 

 

 

 

23,801

 

Impairment charges

 

 

 

 

 

 

 

9,815

 

 

 

 

 

 

 

 

 

 

 

 

9,815

 

Management fee

 

 

 

(12,167

)

 

 

 

12,167

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

1,723

 

 

 

 

61,398

 

 

 

 

323

 

 

 

 

 

 

 

 

63,444

 

Total operating expenses

 

 

 

11,109

 

 

 

 

729,799

 

 

 

 

18,190

 

 

 

 

 

 

 

 

759,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) gain on sale of asset or disposal of

   property and equipment

 

 

 

 

 

 

 

(285

)

 

 

 

2

 

 

 

 

 

 

 

 

(283

)

Transaction expenses

 

 

 

(5,453

)

 

 

 

(499

)

 

 

 

 

 

 

 

 

 

 

 

(5,952

)

Equity in loss of unconsolidated

   affiliate

 

 

 

 

 

 

 

(53

)

 

 

 

 

 

 

 

 

 

 

 

(53

)

Operating (loss) income

 

 

 

(16,562

)

 

 

 

145,695

 

 

 

 

2,475

 

 

 

 

 

 

 

 

131,608

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(49,345

)

 

 

 

(12,205

)

 

 

 

(944

)

 

 

 

 

 

 

 

(62,494

)

Loss on early retirement of debt, net

 

 

 

(162

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(162

)

Subsidiary income (loss)

 

 

 

104,076

 

 

 

 

 

 

 

 

 

 

 

 

(104,076

)

 

 

 

 

Income (loss) before income

   taxes

 

 

 

38,007

 

 

 

 

133,490

 

 

 

 

1,531

 

 

 

 

(104,076

)

 

 

 

68,952

 

Income tax benefit (provision)

 

 

 

19,644

 

 

 

 

(30,741

)

 

 

 

(204

)

 

 

 

 

 

 

 

(11,301

)

Net income (loss)

 

$

 

57,651

 

 

$

 

102,749

 

 

$

 

1,327

 

 

$

 

(104,076

)

 

$

 

57,651

 

 

28


 

The consolidating condensed statement of operations for the six months ended June 30, 2017 is as follows:

 

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands, unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

$

 

 

 

$

 

416,208

 

 

$

 

5,687

 

 

$

 

 

 

$

 

421,895

 

Non-gaming

 

 

 

 

 

 

 

154,168

 

 

 

 

1,956

 

 

 

 

 

 

 

 

156,124

 

Net revenues

 

 

 

 

 

 

 

570,376

 

 

 

 

7,643

 

 

 

 

 

 

 

 

578,019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and pari-mutuel

   commissions

 

 

 

 

 

 

 

221,079

 

 

 

 

3,846

 

 

 

 

 

 

 

 

224,925

 

Non-gaming

 

 

 

 

 

 

 

102,591

 

 

 

 

649

 

 

 

 

 

 

 

 

103,240

 

Marketing and promotions

 

 

 

 

 

 

 

31,018

 

 

 

 

642

 

 

 

 

 

 

 

 

31,660

 

General and administrative

 

 

 

 

 

 

 

91,437

 

 

 

 

1,250

 

 

 

 

 

 

 

 

92,687

 

Corporate

 

 

 

13,548

 

 

 

 

(328

)

 

 

 

796

 

 

 

 

 

 

 

 

14,016

 

Management fee

 

 

 

(13,548

)

 

 

 

13,348

 

 

 

 

200

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

332

 

 

 

 

40,092

 

 

 

 

89

 

 

 

 

 

 

 

 

40,513

 

Total operating expenses

 

 

 

332

 

 

 

 

499,237

 

 

 

 

7,472

 

 

 

 

 

 

 

 

507,041

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on sale of asset or disposal of

   property and equipment

 

 

 

(21

)

 

 

 

(36

)

 

 

 

 

 

 

 

 

 

 

 

(57

)

Transaction expenses

 

 

 

(69,173

)

 

 

 

(17,905

)

 

 

 

 

 

 

 

 

 

 

 

(87,078

)

Equity in loss of unconsolidated

   affiliate

 

 

 

 

 

 

 

(282

)

 

 

 

 

 

 

 

 

 

 

 

(282

)

Operating (loss) income

 

 

 

(69,526

)

 

 

 

52,916

 

 

 

 

171

 

 

 

 

 

 

 

 

(16,439

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

(26,994

)

 

 

 

(12,925

)

 

 

 

(278

)

 

 

 

 

 

 

 

(40,197

)

Loss on early retirement of debt, net

 

 

 

(27,317

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,317

)

Subsidiary income (loss)

 

 

 

25,656

 

 

 

 

 

 

 

 

 

 

 

 

(25,656

)

 

 

 

 

(Loss) income  before income

   taxes

 

 

 

(98,181

)

 

 

 

39,991

 

 

 

 

(107

)

 

 

 

(25,656

)

 

 

 

(83,953

)

Income tax benefit (provision)

 

 

 

52,936

 

 

 

 

(14,319

)

 

 

 

91

 

 

 

 

 

 

 

 

38,708

 

Net (loss) income

 

$

 

(45,245

)

 

$

 

25,672

 

 

$

 

(16

)

 

$

 

(25,656

)

 

$

 

(45,245

)

 

29


 

The consolidating condensed statement of cash flows for the six months ended June 30, 2018 is as follows:

 

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands, unaudited)

 

Net cash (used in) provided by

   operating activities

 

$

 

(34,171

)

 

$

 

179,830

 

 

$

 

2,845

 

 

$

 

 

 

$

 

148,504

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

 

(2,246

)

 

 

 

(51,862

)

 

 

 

(1,073

)

 

 

 

 

 

 

 

(55,181

)

Proceeds from sale of property and equipment

 

 

 

 

 

 

 

840

 

 

 

 

 

 

 

 

 

 

 

 

840

 

Deposit on acquisitions

 

 

 

(15,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,000

)

Net cash used in investing

  activities

 

 

 

(17,246

)

 

 

 

(51,022

)

 

 

 

(1,073

)

 

 

 

 

 

 

 

(69,341

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net proceeds from (payments to) related

  parties

 

 

 

128,564

 

 

 

 

(128,034

)

 

 

 

(530

)

 

 

 

 

 

 

 

 

Payments on other long-term payables

 

 

 

(44

)

 

 

 

(157

)

 

 

 

(143

)

 

 

 

 

 

 

 

(344

)

Debt issuance costs

 

 

 

(305

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(305

)

Taxes paid related to net share settlement

   of equity awards

 

 

 

(9,677

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,677

)

Net cash provided by (used in)

   financing activities

 

 

 

118,538

 

 

 

 

(128,191

)

 

 

 

(673

)

 

 

 

 

 

 

 

(10,326

)

Increase in cash, cash equivalents and

   restricted cash

 

 

 

67,121

 

 

 

 

617

 

 

 

 

1,099

 

 

 

 

 

 

 

 

68,837

 

Cash, cash equivalents and restricted

   cash, beginning of period

 

 

 

13,836

 

 

 

 

118,483

 

 

 

 

15,430

 

 

 

 

 

 

 

 

147,749

 

Cash, cash equivalents and restricted

   cash, end of period

 

$

 

80,957

 

 

$

 

119,100

 

 

$

 

16,529

 

 

$

 

 

 

$

 

216,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO AMOUNTS REPORTED WITHIN THE CONDENSED

   CONSOLIDATED BALANCE SHEETS:

 

Cash and cash equivalents

 

$

 

80,240

 

 

$

 

114,283

 

 

$

 

7,493

 

 

$

 

 

 

$

 

202,016

 

Restricted cash

 

 

 

717

 

 

 

 

3,817

 

 

 

 

149

 

 

 

 

 

 

 

 

4,683

 

Restricted cash included in other noncurrent

   assets

 

 

 

 

 

 

 

1,000

 

 

 

 

8,887

 

 

 

 

 

 

 

 

9,887

 

Total cash, cash equivalents and restricted

   cash

 

$

 

80,957

 

 

$

 

119,100

 

 

$

 

16,529

 

 

$

 

 

 

$

 

216,586

 

 

30


 

The consolidating condensed statement of cash flows for the six months ended June 30, 2017 is as follows:

 

 

 

Eldorado

Resorts, Inc.

(Parent Obligor)

 

 

Guarantor

Subsidiaries

 

 

Non-Guarantor

Subsidiaries

 

 

Consolidating

and Eliminating

Entries

 

 

Eldorado

Resorts, Inc.

Consolidated

 

 

 

(in thousands, unaudited)

 

Net cash (used in) provided by

   operating activities

 

$

 

(82,624

)

 

$

 

79,645

 

 

$

 

6,022

 

 

$

 

 

 

$

 

3,043

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

 

(3,273

)

 

 

 

(26,536

)

 

 

 

(15

)

 

 

 

 

 

 

 

(29,824

)

Net cash used in business combinations

 

 

 

(1,313,051

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,313,051

)

Net cash used in investing activities

 

 

 

(1,316,324

)

 

 

 

(26,536

)

 

 

 

(15

)

 

 

 

 

 

 

 

(1,342,875

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of Term Loan

 

 

 

1,450,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,450,000

 

Proceeds from issuance of 6% Senior Notes

 

 

 

375,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

375,000

 

Borrowings under Revolving Credit

   Facility

 

 

 

189,953

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

189,953

 

Payments under Term Loan

 

 

 

(422,250

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(422,250

)

Payments under Revolving Credit Facility

 

 

 

(128,953

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(128,953

)

Net (payments to) proceeds from related

   parties

 

 

 

(4,167

)

 

 

 

(3,283

)

 

 

 

7,450

 

 

 

 

 

 

 

 

 

Payments on other long-term payables

 

 

 

 

 

 

 

(169

)

 

 

 

(41

)

 

 

 

 

 

 

 

(210

)

Debt issuance costs

 

 

 

(44,992

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,992

)

Taxes paid related to net share settlement of

   equity awards

 

 

 

(8,993

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,993

)

Proceeds from exercise of stock options

 

 

 

2,898

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,898

 

Net cash provided by (used in)

   financing activities

 

 

 

1,408,496

 

 

 

 

(3,452

)

 

 

 

7,409

 

 

 

 

 

 

 

 

1,412,453

 

Increase in cash, cash equivalents and

   restricted cash

 

 

 

9,548

 

 

 

 

49,657

 

 

 

 

13,416

 

 

 

 

 

 

 

 

72,621

 

Cash, cash equivalents and restricted

   cash, beginning of period

 

 

 

1,410

 

 

 

 

61,702

 

 

 

 

332

 

 

 

 

 

 

 

 

63,444

 

Cash, cash equivalents and restricted

   cash, end of period

 

$

 

10,958

 

 

$

 

111,359

 

 

$

 

13,748

 

 

$

 

 

 

$

 

136,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO AMOUNTS REPORTED WITHIN THE CONDENSED

   CONSOLIDATED BALANCE SHEETS:

 

Cash and cash equivalents

 

$

 

10,280

 

 

$

 

88,439

 

 

$

 

4,905

 

 

$

 

 

 

$

 

103,624

 

Restricted cash

 

 

 

678

 

 

 

 

21,920

 

 

 

 

(32

)

 

 

 

 

 

 

 

22,566

 

Restricted cash included in other noncurrent

   assets

 

 

 

 

 

 

 

1,000

 

 

 

 

8,875

 

 

 

 

 

 

 

 

9,875

 

Total cash, cash equivalents and restricted

   cash

 

$

 

10,958

 

 

$

 

111,359

 

 

$

 

13,748

 

 

$

 

 

 

$

 

136,065

 

 

Note 15. Acquisitions

Grand Victoria Casino

On April 16, 2018, the Company announced that it entered into a definitive agreement to acquire the Grand Victoria Casino in Elgin, Illinois for $327.5 million in cash, subject to a customary working capital adjustment (the “Grand Victoria Acquisition”).

The transaction closed on August 7, 2018 and was funded using cash from our ongoing operations and borrowings under our revolving credit facility. The Company is in the preliminary phase of determining the fair value of the assets and liabilities assumed and as of the filing date cannot estimate the financial impact of the acquisition.

Transaction expenses attributed to the Grand Victoria Acquisition for the three and six months ended June 30, 2018 totaled $0.7 million and $1.3 million, respectively. As of June 30, 2018, $0.1 million of accrued costs and expenses related to the Grand Victoria are included in accrued other liabilities.

31


 

Tropicana Entertainment Inc.

Also on April 16, 2018, the Company announced that it entered into a definitive agreement to acquire Tropicana Entertainment Inc. (“Tropicana”) in a cash transaction valued at $1.85 billion. The definitive agreement provides that Gaming and Leisure Properties (“GLPI”) will pay $1.21 billion, excluding taxes and expenses, for substantially all of Tropicana’s real estate, will enter into a master lease with the Company for the acquired real estate, and the Company will fund the remaining $640 million of cash consideration payable in the acquisition (the “Tropicana Acquisition” and, together with the Elgin Acquisition, the “Acquisitions”). Pursuant to the transaction, GLPI is expected to acquire the real estate associated with the Tropicana property portfolio, except the MontBleu Casino Resort & Spa in South Lake Tahoe and the Tropicana Aruba Resort and Casino. Following the acquisition of the real estate portfolio by GLPI, the Company will enter into a triple net master lease for the acquired properties with an initial term of 15 years, with renewals of up to 20 years at the Company’s option. The initial annual rent under the terms of the lease is expected to be approximately $110 million. Tropicana intends to dispose of Tropicana Aruba Resort and Casino prior to closing.

The Company intends to fund the consideration of approximately $640 million payable by the Company in the Tropicana Acquisition and repay debt outstanding under Tropicana’s credit facility with cash generated from our current operations, proceeds from pending asset sales, Tropicana’s cash on hand, cash flow generated from Tropicana operations through closing and $600 million of committed debt financing. In addition, the Company has obtained commitments to increase its revolving credit facility from $300 million to $500 million effective substantially concurrently with the consummation of the Tropicana Acquisition and extend the maturity of the revolving credit facility to the fifth anniversary of the effective date of such increase.

The transaction is expected to close in the fourth quarter of 2018.

Transaction expenses attributed to the Tropicana Acquisition for the three and six months ended June 30, 2018 totaled $2.5 million and $3.5 million, respectively. As of June 30, 2018, $0.1 million of accrued costs and expenses related to the Tropicana Acquisition are included in accrued other liabilities.

32


 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion together with the financial statements, including the related notes and the other financial information, contained in this Quarterly Report on Form 10-Q.

Eldorado Resorts, Inc., a Nevada corporation, is referred to as the “Company,” “ERI,” or the “Registrant,” and together with its subsidiaries may also be referred to as “we,” “us” or “our.”

Overview

We are a geographically diversified gaming and hospitality company owning and operating 20 gaming facilities in 10 states. Our properties, which are located in Ohio, Louisiana, Nevada, Pennsylvania, West Virginia, Colorado, Florida, Iowa, Mississippi and Missouri, feature approximately 21,000 slot machines and video lottery terminals, approximately 600 table games and over 7,000 hotel rooms. Our primary source of revenue is generated by gaming operations and we utilize our hotels, restaurants, bars, entertainment, racing, retail shops and other services to attract customers to our properties.

We were founded in 1973 by the Carano Family with the opening of the Eldorado Hotel Casino in Reno, Nevada. In 1993, we partnered with MGM Resorts International on the Silver Legacy Resort Casino, the first mega-themed resort in Reno. In 2005, we acquired our first property outside of Reno when we acquired a casino in Shreveport, Louisiana, now known as Eldorado Shreveport. In September 2014, we merged with MTR Gaming Group, Inc. and acquired its three gaming and racing facilities in Ohio, Pennsylvania and West Virginia. The following year, in November 2015, we acquired Circus Circus Reno and the 50% membership interest in the Silver Legacy that was owned by MGM Resorts International. On May 1, 2017, we completed our most recent – and largest – acquisition to date when we acquired Isle of Capri Casinos, Inc. (“Isle” or “Isle of Capri”), adding another 13 gaming properties to our portfolio.

We own and operate the following properties:

 

Eldorado Resort Casino Reno (Eldorado Reno)A 814-room hotel, casino and entertainment facility connected via an enclosed skywalk to Silver Legacy and Circus Reno located in downtown Reno, Nevada that includes 1,128 slot machines and 36 table games;

 

Silver Legacy Resort Casino (Silver Legacy)A 1,685-room themed hotel and casino connected via an enclosed skywalk to Eldorado Reno and Circus Reno that includes 1,208 slot machines, 58 table games and a 13 table poker room;

 

Circus Circus Reno (Circus Reno)A 1,571-room hotel-casino and entertainment complex connected via an enclosed skywalk to Eldorado Reno and Silver Legacy that includes 706 slot machines and 24 table games;

 

Eldorado Resort Casino Shreveport (Eldorado Shreveport)A 403-room, all suite art deco-style hotel and tri-level riverboat dockside casino situated on the Red River in Shreveport, Louisiana that includes 1,388 slot machines, 52 table games and an eight table poker room;

 

Mountaineer Casino, Racetrack & Resort (Mountaineer)A 357-room hotel, casino, entertainment and live thoroughbred horse racing facility located on the Ohio River at the northern tip of West Virginias northwestern panhandle that includes 1,487 slot machines and 36 table games, including a 10 table poker room;

 

Presque Isle Downs & Casino (Presque Isle Downs)A casino and live thoroughbred horse racing facility with 1,596 slot machines, 32 table games and a seven table poker room located in Erie, Pennsylvania;

 

Eldorado Gaming Scioto Downs (Scioto Downs)A modern racino offering 2,237 video lottery terminals (“VLTs”), harness racing and a 118-room third party hotel connected to Scioto Downs located 15 minutes from downtown Columbus, Ohio;

 

Isle Casino HotelBlack Hawk (“Isle Black Hawk”)A land-based casino on an approximately 10-acre site in Black Hawk, Colorado that includes 1,005 slot machines, 30 table games, a nine table poker room and a 238-room hotel;

 

Lady Luck CasinoBlack Hawk (“Lady Luck Black Hawk”)A land-based casino across the intersection from Isle Casino Hotel in Black Hawk Colorado, that includes 472 slot machines, eleven table games and a 164-room hotel with a parking structure connecting Isle Casino Hotel-Black Hawk and Lady Luck Casino-Black Hawk;

33


 

 

Isle Casino Racing Pompano Park (“Pompano”)A casino and harness racing track on an approximately 223-acre owned site in Pompano Beach, Florida that includes 1,461 slot machines and a 45 table poker room. In April 2018, the Company announced the formation of a joint venture with the Cordish Companies to master plan and develop a mixed-use entertainment and hospitality destination expected to be located on unused land adjacent to the casino and racetrack;

 

Isle Casino Bettendorf (“Bettendorf”)A land-based single-level casino located off Interstate 74 in Bettendorf, Iowa that includes 974 slot machines and 20 table games with two hotel towers with 509 hotel rooms;

 

Isle Casino Waterloo (“Waterloo”)A single-level land-based casino in Waterloo, Iowa that includes 936 slot machines, 25 table games, and a 194-room hotel;

 

Isle of Capri Casino Hotel Lake Charles (“Lake Charles”)A gaming vessel on an approximately 19 acre site in Lake Charles, Louisiana, with 1,173 slot machines, 45 table games, including 13 poker tables, and two hotels offering 493 rooms;

 

Isle of Capri Casino Lula (“Lula”)Two dockside casinos in Lula, Mississippi with 871 slot machines and 19 table games, two on-site hotels with a total of 486 rooms and a 28-space RV Park;

 

Lady Luck Casino Vicksburg (“Vicksburg”)A dockside casino in Vicksburg, Mississippi that includes 603 slot machines, eight table games and a hotel with a total of 89 rooms;

 

Isle of Capri Casino Boonville (“Boonville”)A single-level dockside casino in Boonville, Missouri that includes 885 slot machines, 20 table games and a 140-room hotel;

 

Isle Casino Cape Girardeau (“Cape Girardeau”)A dockside casino and pavilion and entertainment center in Cape Girardeau, Missouri that includes 870 slot machines and 24 table games, including four poker tables;

 

Lady Luck Casino Caruthersville (“Caruthersville”)—A riverboat casino located along the Mississippi River in Caruthersville, Missouri that includes 512 slot machines and nine table games;

 

Isle of Capri Casino Kansas City (“Kansas City”)A dockside casino located close to downtown Kansas City, Missouri offering 969 slot machines and 13 table games; and

 

Lady Luck Casino Nemacolin (“Nemacolin”)A casino property located on the 2,000-acre Nemacolin Woodlands Resort in Western Pennsylvania that includes 600 slot machines and 27 table games.

In addition, Scioto Downs, through its subsidiary RacelineBet, Inc., also operates Racelinebet.com, a national account wagering service that offers online and telephone wagering on horse races as a marketing affiliate of TwinSpires.com, an affiliate of Churchill Downs Incorporated.

Acquisitions

On April 16, 2018, we announced that we entered into a definitive agreement to acquire the Grand Victoria Casino in Elgin, Illinois for $327.5 million in cash plus a customary working capital adjustment. The transaction closed on August 7, 2018 and was funded using cash from our ongoing operations and borrowings under our revolving credit facility.

Also on April 16, 2018, we announced that we entered into a definitive agreement to acquire Tropicana Entertainment Inc. in a cash transaction that is valued at $1.85 billion. The definitive agreement provides that Gaming and Leisure Properties will pay $1.21 billion, excluding taxes and expenses, for substantially all of Tropicana’s real estate and enter into a master lease with us for the acquired real estate and we will fund the remaining $640 million of cash consideration payable in the acquisition. Pursuant to the transaction, Gaming and Leisure Properties is expected to acquire the real estate associated with the Tropicana property portfolio, except the MontBleu Casino Resort & Spa in South Lake Tahoe and the Tropicana Aruba Resort and Casino. Following the acquisition of the real estate portfolio by Gaming and Leisure Properties, we will enter into a triple net master lease for the acquired properties with an initial term of 15 years, with renewals of up to 20 years at our option. The initial annual rent under the terms of the lease is expected to be approximately $110 million. Tropicana intends to dispose of Tropicana Aruba Resort and Casino prior to closing.

34


 

We intend to fund the consideration of approximately $640 million payable by us in the Tropicana transaction and repay debt outstanding under Tropicana’s credit facility with cash generated from our current operations, Tropicana’s cash on hand, cash flow generated from Tropicana operations through closing and $600 million of committed debt financing. In addition, the Company has obtained commitments to increase its revolving credit facility from $300 million to $500 million effective substantially concurrently with the consummation of the Tropicana Acquisition and extend the maturity of the revolving credit facility to the fifth anniversary of the effective date of such increase. The transaction is expected to close in the fourth quarter of 2018.

Dispositions

On February 28, 2018, we entered into definitive agreements to sell substantially all of the assets and liabilities of Presque Isle Downs and Vicksburg to Churchill Downs Incorporated (“CDI”). Under the terms of the agreements, CDI agreed to purchase Presque Isle Downs for cash consideration of approximately $178.9 million and Vicksburg for cash consideration of approximately $50.6 million, in each case subject to a customary working capital adjustment.

The definitive agreements provided that the transactions were subject to receipt of required regulatory approvals, termination of the waiting period under the Hart-Scott-Rodino Act and other customary closing conditions, including, in the case of Presque Isle Downs, the prior closing of the sale of Vicksburg or the entry into an agreement to acquire another asset of the Company. On May 7, 2018, the Company and CDI each received a Request for Additional Information and Documentary Materials, often referred to as a “Second Request,” from the Federal Trade Commission in connection with its review of the Vicksburg acquisition.

Following receipt of, and in consideration of the time and expense needed to reply to, the Second Request, pursuant to a Termination Agreement and Release, dated as of July 6, 2018 (the “Vicksburg Termination Agreement”), by and among CDI, ERI and a wholly owned subsidiary of ERI, the Company and CDI mutually agreed to terminate the asset purchase agreement with respect to the Vicksburg transaction. Concurrently with the termination of the Vicksburg agreement, we agreed to enter into an agreement pursuant to which CDI will acquire and assume our rights and obligations to operate Nemacolin. In connection with the Vicksburg Termination Agreement, CDI has agreed to pay the Company a $5.0 million termination fee, subject to the parties’ execution of a definitive agreement with respect to the Nemacolin transaction.

Both sales are expected to close in the fourth quarter of 2018, subject to satisfaction of closing conditions, including receipt of Pennsylvania regulatory approvals, termination of the waiting period under the Hart-Scott-Rodino Act and, in the case of Presque Isle Downs, the execution of the definitive agreement with respect to the Nemacolin transaction.

35


 

Reportable Segments

The following table sets forth, for the period indicated, certain operating data for our reportable segments. The executive decision maker of our Company reviews operating results, assesses performance and makes decisions on a “significant market” basis. Management views each of our casinos as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, and their management and reporting structure. Prior to the Isle Acquisition, the Company’s principal operating activities occurred in three geographic regions: Nevada, Louisiana and parts of the eastern United States. Following the Isle Acquisition, the Company’s principal operating activities expanded and now occur in four geographic regions and reportable segments based on the similar characteristics of the operating segments within the regions in which they operate. The previously reported segments, Nevada, Louisiana, and Eastern, are now included in the West, South, and East segments, respectively, which are summarized as follows, along with the Midwest segment.

 

Segment

 

Property

 

State

West

 

Eldorado Reno

 

Nevada

 

 

Silver Legacy

 

Nevada

 

 

Circus Reno

 

Nevada

 

 

Isle Black Hawk

 

Colorado

 

 

Lady Luck Black Hawk

 

Colorado

 

 

 

 

 

Midwest

 

Waterloo

 

Iowa

 

 

Bettendorf

 

Iowa

 

 

Boonville

 

Missouri

 

 

Cape Girardeau

 

Missouri

 

 

Caruthersville

 

Missouri

 

 

Kansas City

 

Missouri

 

 

 

 

 

South

 

Pompano

 

Florida

 

 

Eldorado Shreveport

 

Louisiana

 

 

Lake Charles

 

Louisiana

 

 

Lula

 

Mississippi

 

 

Vicksburg

 

Mississippi

 

 

 

 

 

East

 

Presque Isle Downs

 

Pennsylvania

 

 

Nemacolin

 

Pennsylvania

 

 

Scioto Downs

 

Ohio

 

 

Mountaineer

 

West Virginia

 

Presentation of Financial Information

The financial information included in this Item 2 for periods prior to our acquisition of Isle are those of ERI and its subsidiaries. The presentation of information herein for periods prior to our acquisition of Isle and after our acquisition of Isle are not fully comparable because the results of operations for Isle are not included for periods prior to our acquisition of Isle.

Key Performance Metrics

Our primary source of revenue is generated by our gaming operations, but we use our hotels, restaurants, bars, entertainment, retail shops, racing and other services to attract customers to our properties. Our operating results are highly dependent on the volume of customers visiting and staying at our properties. Key performance metrics include volume indicators such as table games drop and slot handle, which refer to amounts wagered by our customers. The amount of volume we retain, which is not fully controllable by us, is recognized as casino revenues and is referred to as our win or hold. In addition, hotel occupancy and price per room designated by average daily rate (“ADR”) are key indicators for our hotel business. Our calculation of ADR consists of the average price of occupied rooms per day including the impact of resort fees and complimentary rooms. Complimentary room rates are determined based on an analysis of retail or cash rates for each customer segment and each type of room product to estimate complimentary rates which are consistent with retail rates. Complimentary rates are reviewed at least annually and on an interim basis if there are significant changes in market conditions. Complimentary rooms are treated as occupied rooms in our calculation of hotel occupancy.

36


 

Significant Factors Impacting Financial Results

The following summary highlights the significant factors impacting our financial results for the three and six months ended June 30, 2018 and 2017.

 

Isle Acquisition Our results of operations for the three and six months ended June 30, 2018 include incremental revenues and expenses attributable to the 13 properties we acquired in our acquisition of Isle on May 1, 2017.

 

Transaction expenses related to our acquisition of Isle for legal, accounting, financial advisory services, severance, stock awards and other costs totaled $0.2 million and $1.1 million for the three and six months ended June 30, 2018, respectively, and $85.5 million and $87.1 million for the three and six months ended June 30, 2017, respectively.

 

Debt Refinancing –In connection with the Isle Acquisition, we completed a debt financing transaction comprised of: a senior secured credit facility in an aggregate principal amount of $1.75 billion with a term loan facility of $1.45 billion and revolving credit facility of $300.0 million and $375.0 million of senior unsecured notes. The proceeds of such borrowings were used to pay the cash portion of the consideration payable in the Isle Merger, refinance all of Isle’s existing credit facilities, redeem or otherwise repurchase all of Isle’s senior and senior subordinated notes, refinance our existing credit facility and pay transaction fees and expenses related to the foregoing. We recognized a loss totaling $0.7 million for the three and six months ended June 30, 2017 as a result of the debt refinancing transaction (See “Liquidity and Capital Resources” for more information related to the debt refinancing).

 

Acquisitions Transaction expenses related to our acquisition of Grand Victoria Casino and pending acquisition of Tropicana Entertainment Inc. totaled $0.7 million and $2.5 million, respectively, for the three months ended June 30, 2018, and $1.3 million and $3.5 million, respectively, for the six months ended June 30, 2018.

 

Pending Dispositions – The sales of Presque Isle Downs and Vicksburg met the requirements for presentation as assets held for sale under generally accepted accounting principles. However, they did not meet the requirements for presentation as discontinued operations and are included in income from continuing operations for the three and six months ended June 30, 2018. Based on the triggering event, we recorded an impairment charge for the six months ended June 30, 2018 totaling $9.8 million related to our Vicksburg property. Effective July 6, 2018, the sale of Vicksburg was terminated. Concurrently with the termination, we agreed to enter into an agreement to sell our rights and obligations to operate Nemacolin.

 

Lake Charles Terminated Sale On August 22, 2016, Isle entered into an agreement to sell its casino and hotel property in Lake Charles, Louisiana, for $134.5 million, subject to a customary purchase price adjustment, to an affiliate of Laguna Development Corporation, a Pueblo of Laguna-owned business based in Albuquerque, New Mexico. On November 21, 2017, we terminated the agreement. The closing of the transaction was subject to certain closing conditions, including obtaining certain gaming approvals, and was to occur on or before the termination date, which had been extended by the parties to November 20, 2017. The buyer did not obtain the required gaming approvals prior to the termination date, and pursuant to the terms of the agreement, and the $20.0 million deposit was forfeited upon termination of the agreement.

In previous periods, the operations of Lake Charles have been classified as discontinued operations and as an asset held for sale. As a result of the termination of the sale, Lake Charles is no longer classified as an asset held for sale and as discontinued operations, and is included in our results of operations for the three and six months ended June 30, 2018 and 2017.

 

Income Taxes – On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21% and has a positive impact on net income.

 

Severe Weather – Our West segment’s operations are subject to seasonal variation, with our lowest business volume generally occurring during the winter months. The northern Nevada region experienced record snowfall and severe weather conditions, including major snow storms during eleven of the fourteen weekends in the 2017 first quarter, making travel to Reno from northern California, our main feeder market, difficult or impossible due to road closures. As a result, there was a significant adverse effect on business levels, especially hotel occupancy and gaming volume, and our operating performance during the six months ended June 30, 2017.

Additionally, our operations were impacted system wide by challenging weather in January and February of 2018 as well as our Reno operations in March of 2018.

37


 

 

Execution of Cost Savings Program – We continue to achieve margin growth in 2018 through exercising financial discipline throughout the company without impacting the guest experience. In addition to cost savings relating to duplicative executive compensation, legal and accounting fees and other corporate expenses that have been eliminated as a result of our acquisitions, we have achieved savings in marketing and promotion, advertising, food and beverage and labor expense management as a result of operating efficiencies and purchasing power of the combined Eldorado organization.

 

Property Enhancement Capital Expenditures – Property enhancement initiatives and targeted investments that improve our guests’ experiences and elevate our properties’ overall competitiveness in their markets continued throughout 2017 and 2018. As part of the continuing evolution of the Reno tri-properties, we are building a new 21,000 square foot spa at Silver Legacy planned to open this fall. We have substantially renovated every room at Circus Reno and will start the first phase of 400 rooms at Silver Legacy and 42 high-end suites at Eldorado after the busy summer season. In Black Hawk we expect to renovate all 402 hotel rooms this winter. In addition, recently we announced a joint venture with the Cordish Companies for the development of a new world-class, mixed-use entertainment and hospitality destination anchored by our Isle Casino Racing Pompano Park.

A 118-room Hampton Inn Hotel at Scioto Downs developed by a third party opened in March 2017 and since opening has driven visitation and spend at the property.  

Results of Operations

The following table highlights the results of our operations (dollars in thousands):

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

 

Net revenues

 

$

 

456,802

 

 

$

 

375,626

 

 

 

21.6

 

%

 

 

$

 

896,994

 

 

$

 

578,019

 

 

 

55.2

 

%

 

Operating income (loss)

 

 

 

77,414

 

 

 

 

(30,467

)

 

 

354.1

 

%

 

 

 

 

131,608

 

 

 

 

(16,439

)

 

 

900.6

 

%

 

Net income (loss)

 

 

 

36,796

 

 

 

 

(46,190

)

 

 

179.7

 

%

 

 

 

 

57,651

 

 

 

 

(45,245

)

 

 

227.4

 

%

 

 

Operating Results.  For the three months ended June 30, 2018 compared to the same prior year period, Isle contributed incremental net revenues totaling $76.0 million for April 2018. For the six months ended June 30, 2018 compared to the same prior year period, Isle contributed $308.0 million of incremental net revenues from January 1, 2018 through April 30, 2018 (the comparative period preceding our acquisition of Isle on May 1, 2017). Including incremental Isle net revenues, net revenues increased 21.6% and 55.2%, respectively, for the three and six months ended June 30, 2018 compared to the same prior year periods. Incremental Isle net revenues in both periods consisted primarily of gaming revenues. Excluding incremental Isle net revenues, net revenues increased 1.4% and 1.9%, respectively, for the three and six months ended June 30, 2018 compared to the same prior year periods primarily due to growth in our West and East segments.

Operating income increased $107.9 million and $148.0 for the three and six months ended June 30, 2018 compared to the same prior year periods. In addition to the incremental operating income contributed by the acquired Isle properties, these increases over prior year were mainly due to the significant amount of Isle transaction expenses incurred during the three and six months ended June 30, 2017.

Net income increased $83.0 million and $102.9 million for the three and six months ended June 30, 2018, respectively, compared to the same prior year periods. These increases were due to the same factors impacting operating income combined with the loss on the early retirement of debt for the three and six months ended June 30, 2017 associated with our refinancing completed in May of 2017. These increases were partially offset by higher interest expense during the 2018 periods resulting from increased debt following our acquisition of Isle along with increases in our tax provision.

38


 

Net Revenues and Operating Income (Loss)

The following tables highlight our net revenues and operating income (loss) by reportable segment (dollars in thousands):

 

 

 

Net Revenues for the Three

Months Ended June 30,

 

 

Operating Income (Loss) for the

Three Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

West

 

$

 

117,880

 

 

$

 

99,752

 

 

$

 

21,865

 

 

$

 

16,512

 

Midwest

 

 

 

100,607

 

 

 

 

67,641

 

 

 

 

27,411

 

 

 

 

15,412

 

South

 

 

 

112,242

 

 

 

 

88,459

 

 

 

 

20,564

 

 

 

 

12,610

 

East

 

 

 

125,961

 

 

 

 

119,638

 

 

 

 

24,397

 

 

 

 

18,228

 

Corporate

 

 

 

112

 

 

 

 

136

 

 

 

 

(16,823

)

 

 

 

(93,229

)

Total

 

$

 

456,802

 

 

$

 

375,626

 

 

$

 

77,414

 

 

$

 

(30,467

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenues for the Six Months

Ended June 30,

 

 

Operating Income (Loss) for the

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

West

 

$

 

217,459

 

 

$

 

163,240

 

 

$

 

32,004

 

 

$

 

17,933

 

Midwest

 

 

 

201,402

 

 

 

 

67,641

 

 

 

 

54,087

 

 

 

 

15,412

 

South

 

 

 

235,042

 

 

 

 

121,019

 

 

 

 

33,923

 

 

 

 

18,528

 

East

 

 

 

242,852

 

 

 

 

225,926

 

 

 

 

43,528

 

 

 

 

33,196

 

Corporate

 

 

 

239

 

 

 

 

193

 

 

 

 

(31,934

)

 

 

 

(101,508

)

Total

 

$

 

896,994

 

 

$

 

578,019

 

 

$

 

131,608

 

 

$

 

(16,439

)

39


 

Three Months Ended June 30, 2018 Compared to the Three Months Ended June 30, 2017

Net revenues and operating expenses were as follows (dollars in thousands):

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

 

Percent

 

 

 

 

2018

 

 

2017

 

 

Variance

 

 

Change

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and Pari-Mutuel Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

57,696

 

 

$

 

45,229

 

 

$

 

12,467

 

 

 

27.6

 

%

Midwest

 

 

 

87,448

 

 

 

 

57,987

 

 

 

 

29,461

 

 

 

50.8

 

%

South

 

 

 

91,584

 

 

 

 

70,505

 

 

 

 

21,079

 

 

 

29.9

 

%

East

 

 

 

111,992

 

 

 

 

105,984

 

 

 

 

6,008

 

 

 

5.7

 

%

Total Gaming and Pari-Mutuel Commissions

 

 

 

348,720

 

 

 

 

279,705

 

 

 

 

69,015

 

 

 

24.7

 

%

Non-gaming:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

60,184

 

 

 

 

54,523

 

 

 

 

5,661

 

 

 

10.4

 

%

Midwest

 

 

 

13,159

 

 

 

 

9,654

 

 

 

 

3,505

 

 

 

36.3

 

%

South

 

 

 

20,658

 

 

 

 

17,954

 

 

 

 

2,704

 

 

 

15.1

 

%

East

 

 

 

13,969

 

 

 

 

13,654

 

 

 

 

315

 

 

 

2.3

 

%

Corporate

 

 

 

112

 

 

 

 

136

 

 

 

 

(24

)

 

 

(17.6

)

%

Total Non-gaming

 

 

 

108,082

 

 

 

 

95,921

 

 

 

 

12,161

 

 

 

12.7

 

%

Total Net Revenues

 

 

 

456,802

 

 

 

 

375,626

 

 

 

 

81,176

 

 

 

21.6

 

%

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and Pari-Mutuel Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

21,328

 

 

 

 

18,126

 

 

 

 

3,202

 

 

 

17.7

 

%

Midwest

 

 

 

35,531

 

 

 

 

24,252

 

 

 

 

11,279

 

 

 

46.5

 

%

South

 

 

 

43,631

 

 

 

 

35,423

 

 

 

 

8,208

 

 

 

23.2

 

%

East

 

 

 

69,455

 

 

 

 

65,936

 

 

 

 

3,519

 

 

 

5.3

 

%

Total Gaming and Pari-Mutuel Commissions

 

 

 

169,945

 

 

 

 

143,737

 

 

 

 

26,208

 

 

 

18.2

 

%

Non-gaming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

36,691

 

 

 

 

33,197

 

 

 

 

3,494

 

 

 

10.5

 

%

Midwest

 

 

 

7,802

 

 

 

 

6,779

 

 

 

 

1,023

 

 

 

15.1

 

%

South

 

 

 

13,485

 

 

 

 

12,893

 

 

 

 

592

 

 

 

4.6

 

%

East

 

 

 

8,797

 

 

 

 

9,105

 

 

 

 

(308

)

 

 

(3.4

)

%

Total Non-gaming

 

 

 

66,775

 

 

 

 

61,974

 

 

 

 

4,801

 

 

 

7.7

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing and promotions

 

 

 

21,832

 

 

 

 

21,531

 

 

 

 

301

 

 

 

1.4

 

%

General and administrative

 

 

 

73,745

 

 

 

 

60,887

 

 

 

 

12,858

 

 

 

21.1

 

%

Corporate

 

 

 

12,232

 

 

 

 

7,442

 

 

 

 

4,790

 

 

 

64.4

 

%

Depreciation and amortization

 

 

 

31,910

 

 

 

 

24,909

 

 

 

 

7,001

 

 

 

28.1

 

%

Total Operating Expenses

 

$

 

376,439

 

 

$

 

320,480

 

 

$

 

55,959

 

 

 

17.5

 

%

 

Gaming Revenues and Pari-Mutuel Commissions.  Isle contributed $64.8 million of incremental gaming revenues and pari-mutuel commissions for the three months ended June 30, 2018 resulting in an increase of 24.7% compared to the same prior year period.

 

Excluding incremental Isle gaming revenues and pari-mutuel commissions, gaming revenues and pari-mutuel commissions increased 1.5% for the three months ended June 30, 2018 compared to the same prior year period mainly due to higher gaming revenues in the West segment driven by a strong quarter and traffic generated by increased convention business.

Non-gaming Revenues.  Isle contributed $11.0 million of incremental non-gaming revenues for the three months ended June 30, 2018 resulting in an increase of 12.7% over the same prior year period.

40


 

Excluding incremental Isle non-gaming revenues, non-gaming revenues increased 1.2% for the three months ended June 30, 2018 compared to the same prior year period. Growth in the West segment’s non-gaming revenues principally due to higher hotel revenues associated with increased occupancy and room rates were partially offset by decreased non-gaming revenues in the Midwest and South segments.

Gaming Expenses and Pari-Mutuel Commissions.  Isle contributed $28.3 million of incremental gaming expenses and pari-mutuel commissions for the three months ended June 30, 2018 resulting in an increase of 18.2% in gaming expenses and pari-mutuel commissions over the same prior year period.

Excluding incremental Isle gaming expenses and pari-mutuel commissions, gaming expenses and pari-mutuel commissions decreased 1.5% for the three months ended June 30, 2018 compared to the same prior year period. Despite the increase in gaming revenues, gaming expenses declined in comparison to the same prior year period due to savings initiatives targeted at reducing variable expenses. Successful efforts to control costs and maximize departmental profit across all segments also drove the improved departmental profit margin during the three months ended June 30, 2018 compared to the same prior year period.

Non-gaming Expenses.  Isle contributed $7.2 million of incremental non-gaming expenses for the three months ended June 30, 2018 resulting in an increase of 7.7% over the same prior year period.

Excluding incremental Isle non-gaming expenses, non-gaming expenses decreased 3.9% for the three months ended June 30, 2018 compared to the same prior year period. Increased expenses associated with higher non-gaming revenues and hotel occupancy in the West segment were offset by lower non-gaming expenses in the Midwest and South segments. Additionally, the growth in room rates in the West segment contributed to improved non-gaming margins for the three months ended June 30, 2018 compared to the same prior year period.

Marketing and Promotions Expenses.  Isle contributed $3.6 million of incremental marketing and promotions expense in for the three months ended June 30, 2018 resulting in an increase of 1.4% over the same prior year period.  

Excluding incremental Isle marketing and promotions expenses, consolidated marketing and promotions expense decreased 15.3% for the three months ended June 30, 2018 compared to the same prior year period resulting from realized savings across all segments.

General and Administrative Expenses.  Isle contributed $13.6 million of general and administrative expense for the three months ended June 30, 2018 resulting in an increase of 21.1% over the same prior year period.  

Excluding incremental Isle general and administrative expenses, consolidated general and administrative expenses decreased 1.3% for the three months ended June 30, 2018 compared to the same prior year period mainly due to the centralization of certain corporate services provided to our properties.

Corporate Expenses.  For the three months ended June 30, 2018 compared to the same prior year period, corporate expenses increased primarily due to payroll and other expenses associated with additional corporate costs, including stock comp expense, driven by growth related to the Isle Acquisition.

Depreciation and Amortization Expense.  Isle contributed $5.9 million of depreciation expense for the three months ended June 30, 2018 resulting in an increase of 28.1% over the same prior year period.  

Excluding incremental Isle depreciation and amortization expense, depreciation and amortization expense increased 4.5% for the three months ended June 30, 2018 compared to the same prior year period.

41


 

Six Months Ended June 30, 2018 Compared to the Six Months Ended June 30, 2017

Net revenues and operating expenses were as follows (dollars in thousands):

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

 

Percent

 

 

 

 

2018

 

 

2017

 

 

Variance

 

 

Change

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and Pari-Mutuel Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

107,430

 

 

$

 

69,062

 

 

$

 

38,368

 

 

 

55.6

 

%

Midwest

 

 

 

175,807

 

 

 

 

57,987

 

 

 

 

117,820

 

 

 

203.2

 

%

South

 

 

 

192,502

 

 

 

 

93,674

 

 

 

 

98,828

 

 

 

105.5

 

%

East

 

 

 

216,509

 

 

 

 

201,172

 

 

 

 

15,337

 

 

 

7.6

 

%

Total Gaming and Pari-Mutuel Commissions

 

 

 

692,248

 

 

 

 

421,895

 

 

 

 

270,353

 

 

 

64.1

 

%

Non-gaming:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

110,029

 

 

 

 

94,178

 

 

 

 

15,851

 

 

 

16.8

 

%

Midwest

 

 

 

25,595

 

 

 

 

9,654

 

 

 

 

15,941

 

 

 

165.1

 

%

South

 

 

 

42,540

 

 

 

 

27,345

 

 

 

 

15,195

 

 

 

55.6

 

%

East

 

 

 

26,343

 

 

 

 

24,754

 

 

 

 

1,589

 

 

 

6.4

 

%

Corporate

 

 

 

239

 

 

 

 

193

 

 

 

 

46

 

 

 

23.8

 

%

Total Non-gaming

 

 

 

204,746

 

 

 

 

156,124

 

 

 

 

48,622

 

 

 

31.1

 

%

Total Net Revenues

 

 

 

896,994

 

 

 

 

578,019

 

 

 

 

318,975

 

 

 

55.2

 

%

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming and Pari-Mutuel Commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

41,726

 

 

 

 

28,439

 

 

 

 

13,287

 

 

 

46.7

 

%

Midwest

 

 

 

71,475

 

 

 

 

24,251

 

 

 

 

47,224

 

 

 

194.7

 

%

South

 

 

 

91,987

 

 

 

 

47,651

 

 

 

 

44,336

 

 

 

93.0

 

%

East

 

 

 

134,308

 

 

 

 

124,584

 

 

 

 

9,724

 

 

 

7.8

 

%

Total Gaming and Pari-Mutuel Commissions

 

 

 

339,496

 

 

 

 

224,925

 

 

 

 

114,571

 

 

 

50.9

 

%

Non-gaming

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

 

 

70,434

 

 

 

 

61,118

 

 

 

 

9,316

 

 

 

15.2

 

%

Midwest

 

 

 

15,955

 

 

 

 

6,779

 

 

 

 

9,176

 

 

 

135.4

 

%

South

 

 

 

28,042

 

 

 

 

18,510

 

 

 

 

9,532

 

 

 

51.5

 

%

East

 

 

 

17,031

 

 

 

 

16,833

 

 

 

 

198

 

 

 

1.2

 

%

Total Non-gaming

 

 

 

131,462

 

 

 

 

103,240

 

 

 

 

28,222

 

 

 

27.3

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing and promotions

 

 

 

43,133

 

 

 

 

31,660

 

 

 

 

11,473

 

 

 

36.2

 

%

General and administrative

 

 

 

147,947

 

 

 

 

92,687

 

 

 

 

55,260

 

 

 

59.6

 

%

Corporate

 

 

 

23,801

 

 

 

 

14,016

 

 

 

 

9,785

 

 

 

69.8

 

%

Impairment charges

 

 

 

9,815

 

 

 

 

 

 

 

 

9,815

 

 

 

100.0

 

%

Depreciation and amortization

 

 

 

63,444

 

 

 

 

40,513

 

 

 

 

22,931

 

 

 

56.6

 

%

Total Operating Expenses

 

$

 

759,098

 

 

$

 

507,041

 

 

$

 

252,057

 

 

 

49.7

 

%

 

Gaming Revenues and Pari-Mutuel Commissions.  Isle contributed $262.8 million of incremental gaming revenues and pari-mutuel commissions for the six months ended June 30, 2018 resulting in an increase of 64.1% compared to the same prior year period.

 

Excluding incremental Isle gaming revenues and pari-mutuel commissions, gaming revenues and pari-mutuel commissions increased 1.8% for the six months ended June 30, 2018 compared to the same prior year period mainly due to higher gaming revenues in the West segment driven by increased visitor traffic and milder weather in 2018.

Non-gaming Revenues.  Isle contributed $44.9 million of incremental non-gaming revenues for the six months ended June 30, 2018 resulting in an increase of 31.1% in non-gaming revenues compared to the same prior year period.

42


 

Excluding incremental Isle non-gaming revenues, non-gaming revenues increased 2.4% for the six months ended June 30, 2018 compared to the same prior year period mainly due to growth in the West segment’s hotel occupancy and room rates associated with increased visitor traffic and milder weather. Additionally, the West segment benefitted from the Reno properties’ capital improvements including renovated hotel rooms and new food, beverage and entertainment offerings.

Gaming Expenses and Pari-Mutuel Commissions. Isle contributed $116.1 million of incremental gaming expenses and pari-mutuel commissions for the six months ended June 30, 2018 resulting in an increase of 50.9% in gaming expenses and pari-mutuel commissions over the same prior year period.

Excluding incremental Isle gaming expenses and pari-mutuel commissions, gaming expenses and pari-mutuel commissions remained flat for the six months ended June 30, 2018 compared to the same prior year period despite the increase in gaming revenues due to savings initiatives targeted at reducing variable expenses along with continued synergies. Additionally, successful efforts to control costs and maximize departmental profit across all segments also drove the improved departmental profit margin during the three months ended June 30, 2018 compared to the same prior year period.

Non-gaming Expenses.  Isle contributed $30.5 million of incremental non-gaming expenses for the six months ended June 30, 2018 resulting in an increase of 27.3% compared to the same prior year period.

Excluding incremental Isle non-gaming expenses, non-gaming expenses decreased 2.2% for the six months ended June 30, 2018 compared to the same prior year period. Increased expenses associated with higher non-gaming hotel occupancy in the West segment were offset by lower non-gaming expenses in the South and East segments. Additionally, the growth in room rates in the West segment contributed to improved non-gaming margins for the six months ended June 30, 2018 compared to the same prior year period.

Marketing and Promotions Expenses.  Isle contributed $14.7 million of incremental marketing and promotions expense for the six months ended June 30, 2018 resulting in an increase of 36.2% compared to the same prior year period.

Excluding incremental Isle marketing and promotions expenses, consolidated marketing and promotions expense decreased 10.3% for the six months ended June 30, 2018 compared to the same prior year period due to strategic changes to eliminate unprofitable promotional events and decrease advertising spend.

General and Administrative Expenses.  Isle contributed $55.0 million of incremental general and administrative expense for the six months ended June 30, 2018 resulting in an increase of 59.6% compared to the same prior year period.  

Excluding incremental Isle general and administrative expenses, consolidated general and administrative expenses remained flat for the six months ended June 30, 2018 compared to the same prior year period. Increased expenses in the West and East segments were offset by decreased expenses in the Midwest and South segments.

Corporate Expenses.  For the six months ended June 30, 2018 compared to the same prior year period, corporate expenses increased primarily due to payroll and other expenses associated with additional corporate costs, including stock comp expense, driven by growth related to the Isle Acquisition.

Impairment Charges: Based on the pending disposition, we recorded an impairment charge for the six months ended June 30, 2018 totaling $9.8 million related to our Vicksburg property.

Depreciation and Amortization Expense.  Isle contributed $23.3 million of depreciation expense for the six months ended June 30, 2018 resulting in an increase of 56.6% compared to the same prior year period.  

Excluding incremental Isle depreciation and amortization expense, depreciation and amortization expense remained flat for the six months ended June 30, 2018 compared to the same prior year period.

43


 

Supplemental Unaudited Presentation of Consolidated Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA for the Three and Six Months Ended June 30, 2018 and 2017

Adjusted EBITDA (defined below), a non-GAAP financial measure, has been presented as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry and we believe that this non-GAAP supplemental information will be helpful in understanding the Company’s ongoing operating results. Management has historically used Adjusted EBITDA when evaluating operating performance because we believe that the inclusion or exclusion of certain recurring and non-recurring items is necessary to provide a full understanding of our core operating results and as a means to evaluate period-to-period results. Adjusted EBITDA represents operating income (loss) before depreciation and amortization, stock-based compensation, transaction expenses, severance expense, costs associated with the Presque Isle Downs, Vicksburg and Lake Charles sales, impairment charges, equity in income of unconsolidated affiliates, (gain) loss on the sale or disposal of property and equipment, and other non-cash regulatory gaming assessments. Adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with accounting principles generally accepted in the United States (“US GAAP”), is unaudited and should not be considered an alternative to, or more meaningful than, net income (loss) as an indicator of our operating performance. Uses of cash flows that are not reflected in Adjusted EBITDA include capital expenditures, interest payments, income taxes, debt principal repayments and certain regulatory gaming assessments, which can be significant. As a result, Adjusted EBITDA should not be considered as a measure of our liquidity. Other companies that provide EBITDA information may calculate EBITDA differently than we do. The definition of Adjusted EBITDA may not be the same as the definitions used in any of our debt agreements.

The following table summarizes our Adjusted EBITDA for our operating segments for the three and six months ended June 30, 2018 and 2017, in addition to reconciling Adjusted EBITDA to operating income (loss) in accordance with US GAAP (unaudited, in thousands):

 

 

 

Three Months Ended June 30, 2018

 

 

 

Operating

Income (Loss)

 

 

Depreciation and Amortization

 

 

Stock-Based Compensation

 

 

Transaction Expenses (3)

 

 

Other (4)

 

 

Adjusted

EBITDA

 

West

 

$

 

21,865

 

 

$

 

9,382

 

 

$

 

(95

)

 

$

 

 

 

$

 

606

 

 

$

 

31,758

 

Midwest

 

 

 

27,411

 

 

 

 

8,404

 

 

 

 

31

 

 

 

 

 

 

 

 

77

 

 

 

 

35,923

 

South

 

 

 

20,564

 

 

 

 

8,108

 

 

 

 

17

 

 

 

 

 

 

 

 

(287

)

 

 

 

28,402

 

East

 

 

 

24,397

 

 

 

 

4,717

 

 

 

 

3

 

 

 

 

 

 

 

 

246

 

 

 

 

29,363

 

Corporate and Other

 

 

 

(16,823

)

 

 

 

1,299

 

 

 

 

3,516

 

 

 

 

3,404

 

 

 

 

1,173

 

 

 

 

(7,431

)

Total

 

$

 

77,414

 

 

$

 

31,910

 

 

$

 

3,472

 

 

$

 

3,404

 

 

$

 

1,815

 

 

$

 

118,015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2017 (6)

 

 

 

Operating

Income (Loss)

 

 

Depreciation and Amortization

 

 

Stock-Based Compensation

 

 

Transaction Expenses (3)

 

 

Other (4)

 

 

Adjusted

EBITDA

 

Excluding Pre-Acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

16,512

 

 

$

 

6,571

 

 

$

 

52

 

 

$

 

 

 

$

 

64

 

 

$

 

23,199

 

Midwest

 

 

 

15,412

 

 

 

 

4,966

 

 

 

 

86

 

 

 

 

 

 

 

 

(6

)

 

 

 

20,458

 

South

 

 

 

12,610

 

 

 

 

4,662

 

 

 

 

64

 

 

 

 

 

 

 

 

1,130

 

 

 

 

18,466

 

East

 

 

 

18,228

 

 

 

 

8,273

 

 

 

 

4

 

 

 

 

 

 

 

 

53

 

 

 

 

26,558

 

Corporate and Other

 

 

 

(93,229

)

 

 

 

437

 

 

 

 

1,123

 

 

 

 

85,464

 

 

 

 

321

 

 

 

 

(5,884

)

Total Excluding Pre-Acquisition

 

$

 

(30,467

)

 

$

 

24,909

 

 

$

 

1,329

 

 

$

 

85,464

 

 

$

 

1,562

 

 

$

 

82,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-Acquisition (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

2,709

 

 

$

 

925

 

 

$

 

2

 

 

$

 

 

 

$

 

4

 

 

$

 

3,640

 

Midwest

 

 

 

10,637

 

 

 

 

2,001

 

 

 

 

14

 

 

 

 

 

 

 

 

34

 

 

 

 

12,686

 

South

 

 

 

5,739

 

 

 

 

1,441

 

 

 

 

9

 

 

 

 

 

 

 

 

110

 

 

 

 

7,299

 

East

 

 

 

(197

)

 

 

 

239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42

 

Corporate and Other

 

 

 

(2,550

)

 

 

 

96

 

 

 

 

461

 

 

 

 

286

 

 

 

 

(22

)

 

 

 

(1,729

)

Total Pre-Acquisition

 

$

 

16,338

 

 

$

 

4,702

 

 

$

 

486

 

 

$

 

286

 

 

$

 

126

 

 

$

 

21,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Including Pre-Acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

19,221

 

 

$

 

7,496

 

 

$

 

54

 

 

$

 

 

 

$

 

68

 

 

$

 

26,839

 

Midwest

 

 

 

26,049

 

 

 

 

6,967

 

 

 

 

100

 

 

 

 

 

 

 

 

28

 

 

 

 

33,144

 

South

 

 

 

18,349

 

 

 

 

6,103

 

 

 

 

73

 

 

 

 

 

 

 

 

1,240

 

 

 

 

25,765

 

East

 

 

 

18,031

 

 

 

 

8,512

 

 

 

 

4

 

 

 

 

 

 

 

 

53

 

 

 

 

26,600

 

Corporate and Other

 

 

 

(95,779

)

 

 

 

533

 

 

 

 

1,584

 

 

 

 

85,750

 

 

 

 

299

 

 

 

 

(7,613

)

Total Including Pre-Acquisition (2)

 

$

 

(14,129

)

 

$

 

29,611

 

 

$

 

1,815

 

 

$

 

85,750

 

 

$

 

1,688

 

 

$

 

104,735

 

44


 

 

 

 

Six Months Ended June 30, 2018

 

 

 

Operating

Income (Loss)

 

 

Depreciation and Amortization

 

 

Stock-Based Compensation

 

 

Transaction Expenses (3)

 

 

Other (4)

 

 

Adjusted

EBITDA

 

Excluding Pre-Acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

32,004

 

 

$

 

17,571

 

 

$

 

(32

)

 

$

 

 

 

$

 

639

 

 

$

 

50,182

 

Midwest

 

 

 

54,087

 

 

 

 

16,049

 

 

 

 

75

 

 

 

 

 

 

 

 

227

 

 

 

 

70,438

 

South

 

 

 

33,923

 

 

 

 

16,639

 

 

 

 

42

 

 

 

 

 

 

 

 

10,015

 

 

 

 

60,619

 

East

 

 

 

43,528

 

 

 

 

10,766

 

 

 

 

8

 

 

 

 

 

 

 

 

1,241

 

 

 

 

55,543

 

Corporate and Other

 

 

 

(31,934

)

 

 

 

2,419

 

 

 

 

7,058

 

 

 

 

5,952

 

 

 

 

1,282

 

 

 

 

(15,223

)

Total

 

$

 

131,608

 

 

$

 

63,444

 

 

$

 

7,151

 

 

$

 

5,952

 

 

$

 

13,404

 

 

$

 

221,559

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017 (6)

 

 

 

Operating

Income (Loss)

 

 

Depreciation and Amortization

 

 

Stock-Based Compensation

 

 

Transaction Expenses (3)

 

 

Other (4)

 

 

Adjusted

EBITDA

 

Excluding Pre-Acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

17,933

 

 

$

 

11,214

 

 

$

 

52

 

 

$

 

 

 

$

 

224

 

 

$

 

29,423

 

Midwest

 

 

 

15,412

 

 

 

 

4,966

 

 

 

 

86

 

 

 

 

 

 

 

 

(6

)

 

 

 

20,458

 

South

 

 

 

18,528

 

 

 

 

6,594

 

 

 

 

64

 

 

 

 

 

 

 

 

1,130

 

 

 

 

26,316

 

East

 

 

 

33,196

 

 

 

 

17,153

 

 

 

 

4

 

 

 

 

 

 

 

 

209

 

 

 

 

50,562

 

Corporate and Other

 

 

 

(101,508

)

 

 

 

586

 

 

 

 

2,856

 

 

 

 

87,078

 

 

 

 

310

 

 

 

 

(10,678

)

Total Excluding Pre-Acquisition

 

$

 

(16,439

)

 

$

 

40,513

 

 

$

 

3,062

 

 

$

 

87,078

 

 

$

 

1,867

 

 

$

 

116,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-Acquisition (5):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

9,525

 

 

$

 

3,694

 

 

$

 

8

 

 

$

 

 

 

$

 

4

 

 

$

 

13,231

 

Midwest

 

 

 

34,819

 

 

 

 

11,952

 

 

 

 

51

 

 

 

 

 

 

 

 

34

 

 

 

 

46,856

 

South

 

 

 

25,086

 

 

 

 

5,693

 

 

 

 

35

 

 

 

 

 

 

 

 

184

 

 

 

 

30,998

 

East

 

 

 

(1,072

)

 

 

 

952

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(120

)

Corporate and Other

 

 

 

(8,811

)

 

 

 

371

 

 

 

 

1,631

 

 

 

 

286

 

 

 

 

527

 

 

 

 

(5,996

)

Total Pre-Acquisition

 

$

 

59,547

 

 

$

 

22,662

 

 

$

 

1,725

 

 

$

 

286

 

 

$

 

749

 

 

$

 

84,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Including Pre-Acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

$

 

27,458

 

 

$

 

14,908

 

 

$

 

60

 

 

$

 

 

 

$

 

228

 

 

$

 

42,654

 

Midwest

 

 

 

50,231

 

 

 

 

16,918

 

 

 

 

137

 

 

 

 

 

 

 

 

28

 

 

 

 

67,314

 

South

 

 

 

43,614

 

 

 

 

12,287

 

 

 

 

99

 

 

 

 

 

 

 

 

1,314

 

 

 

 

57,314

 

East

 

 

 

32,124

 

 

 

 

18,105

 

 

 

 

4

 

 

 

 

 

 

 

 

209

 

 

 

 

50,442

 

Corporate and Other

 

 

 

(110,319

)

 

 

 

957

 

 

 

 

4,487

 

 

 

 

87,364

 

 

 

 

837

 

 

 

 

(16,674

)

Total Including Pre-Acquisition (2)

 

$

 

43,108

 

 

$

 

63,175

 

 

$

 

4,787

 

 

$

 

87,364

 

 

$

 

2,616

 

 

$

 

201,050

 

 

(1)

Figures are for Isle for April 2017. Such figures were prepared by the Company to reflect Isle’s unaudited consolidated historical operating revenues, operating income and Adjusted EBITDA for periods corresponding to the Company’s fiscal quarterly calendar. Such figures are based on the unaudited internal financial statements and have not been reviewed by the Company’s auditors and do not conform to GAAP.

 

(2)

Total figures for 2017 include combined results of operations for Isle and the Company for periods preceding the date that the Company acquired Isle. Such presentation does not conform with GAAP or the Securities and Exchange Commission rules for proforma presentation; however, we believe that the additional financial information will be helpful to investors in comparing current results with results of prior periods. This is non-GAAP data and should not be considered a substitute for data prepared in accordance with GAAP, but should be viewed in addition to the results of operations reported by the Company.

 

(3)

Transaction expenses represent costs related to the acquisition of Isle for the three and six months ended June 30, 2017 and costs primarily related to the acquisitions of Grand Victoria Casino and Tropicana Entertainment Inc. for the three and six months ended June 30, 2018.

 

45


 

(4)

Other is comprised of severance expense, (gain) loss on the sale or disposal of property and equipment, equity in income (loss) of unconsolidated affiliate and other non-cash regulatory gaming assessments for the three and six months ended June 30, 2018 and 2017. Also included are costs associated with the sales of Vicksburg and Presque Isle Downs for the three and six months ended June 30, 2018 and the failed sale of Lake Charles for the three and six months ended June 30, 2017. In conjunction with the announced sale of Vicksburg, an impairment charge totaling $9.8 million was recorded for the six months ended June 30, 2018.

 

(5)

Figures are for Isle for the four months ended April 30, 2017. Such figures were prepared by the Company to reflect Isle’s unaudited consolidated historical operating revenues, operating income and Adjusted EBITDA for periods corresponding to the Company’s fiscal quarterly calendar. Such figures are based on the unaudited internal financial statements and have not been reviewed by the Company’s auditors and do not conform to GAAP.

 

(6)

The prior period presentation has been adjusted for the adoption of Accounting Standards Codification (ASC) No. 606 “Revenue from Contracts with Customers” effective January 1, 2018 utilizing the full retrospective transition method. See Note 2 to our Condensed Notes to Unaudited Consolidated Financial Statements for additional information.

Liquidity and Capital Resources

We are a holding company and our only significant assets are ownership interests in our subsidiaries. Our ability to fund our obligations depends on the cash flow of our subsidiaries and the ability of our subsidiaries to distribute or otherwise make funds available to us.

Our primary sources of liquidity and capital resources have been existing cash, cash flow from operations, borrowings under our revolving credit facility and proceeds from the issuance of debt securities.

Our cash requirements can fluctuate significantly depending on our decisions with respect to business acquisitions or dispositions and strategic capital investments to maintain the quality of our properties. We expect that our primary capital requirements going forward will relate to the operation and maintenance of our properties, servicing our outstanding indebtedness and funding the recently announced acquisitions. During the remainder of 2018, we plan to spend $94.8 million on capital expenditures and $61.4 million to pay interest on our outstanding indebtedness. However, we expect that our capital requirements and interest on our outstanding debt will increase significantly following the consummation of the acquisition of Tropicana Entertainment and the Grand Victoria Casino and the related incurrence of debt and obligation to pay annual rent in an initial amount of approximately $110 million under the master lease with respect to certain of the Tropicana properties. We also expect that our capital expenditures will increase significantly following the acquisition of Tropicana Entertainment and the Grand Victoria Casino and the related increase in the number of properties in our portfolio.  We funded the $327.5 million of cash consideration for the acquisition of the Grand Victoria Casino using cash from ongoing operations and borrowings under our revolving credit facility and we intend to fund cash consideration of approximately $640 million payable by us in the Tropicana transaction and repay debt outstanding under Tropicana’s credit facility with cash generated from our current operations, Tropicana’s cash on hand, cash flow generated from Tropicana operations through closing and $600 million of committed debt financing. In addition, the Company has obtained commitments to increase its revolving credit facility from $300 million to $500 million effective substantially concurrently with the consummation of the Tropicana Acquisition and extend the maturity of the revolving credit facility to the fifth anniversary of the effective date of such increase. We expect that cash generated from operations will be sufficient to fund our operations and capital requirements, and service our outstanding indebtedness for the next twelve months.

At June 30, 2018, we had consolidated cash and cash equivalents of $202.0 million, excluding restricted cash. At June 30, 2017, we had consolidated cash and cash equivalents of $134.6 million, excluding restricted cash. This increase in cash was primarily due to cash generated from operations for the six months ended June 30, 2018.

Operating Cash Flow.  For the six months ended June 30, 2018, cash flows provided by operating activities totaled $148.5 million compared to $3.0 million for the same prior year period. The increase in operating cash was primarily due to cash generated from operations combined with changes in the balance sheet accounts in the normal course of business. Additionally, significant payments were made during the six months ended 2017 in conjunction with the acquisition of Isle.

46


 

Investing Cash Flow and Capital Expenditures.  Net cash flows used in investing activities totaled $69.3 million for the six months ended June 30, 2018 compared to $1,342.9 million for the same prior year period. Net cash flows used in investing activities in the six months ended June 30, 2018 were primarily due to $55.2 million in capital expenditures for various property enhancement and maintenance projects along with equipment purchases. Net cash flows used in investing activities for the six months ended June 30, 2017 consisted of $1,313.1 million related to funds used in the acquisition of Isle which closed on May 1, 2017, and $29.8 million in capital expenditures for various property enhancement and maintenance projects and equipment purchases.

Financing Cash Flow.  Net cash used for financing activities for the six months ended June 30, 2018 totaled $10.3 million compared to $1,412.5 million net cash provided by financing activities in the same prior year period. The cash used for financing activities for the six months ended June 30, 2018 was principally due to $9.7 million of net taxes paid related to the net share settlement of equity awards. During the six months ended June 30, 2017, cash provided by financing activities consisted primarily of $1,450.0 million and $375.0 million of proceeds from the issuance of the credit facility and 6% Senior Notes, respectively, partially offset by payments of $422.3 million on our credit facility in conjunction with our refinancing of debt in May of 2017.  

Debt Obligations

Term Loan and Revolving Credit Facility

In April 2017, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto dated as of April 17, 2017 (the “Credit Facility”), consisting of a $1.45 billion term loan facility (the “Term Loan Facility” or “Term Loan”) and a $300.0 million revolving credit facility (the “Revolving Credit Facility”). The Company’s obligations under the Revolving Credit Facility will mature on April 17, 2022. The Company’s obligations under the Term Loan Facility will mature on April 17, 2024. The Company was required to make quarterly principal payments in an amount equal to $3.6 million on the Term Loan Facility on the last day of each fiscal quarter beginning on June 30, 2017 but satisfied this requirement as a result of the principal prepayment of $444.5 million on September 13, 2017 in conjunction with the issuance of the additional 6% Senior Notes. In addition, the Company is required to make mandatory payments of amounts outstanding under the Credit Facility with the proceeds of certain casualty events, debt issuances, and asset sales and, depending on its consolidated total leverage ratio, the Company may be required to apply a portion of its excess cash flow to repay amounts outstanding under the Credit Facility.

As of June 30, 2018, the Company had $956.8 million outstanding on the Term Loan. There were no borrowings outstanding under the Revolving Credit Facility as of June 30, 2018. The Company had $290.9 million of available borrowing capacity, after consideration of $9.1 million in outstanding letters of credit, under its Revolving Credit Facility as of June 30, 2018.

The interest rate per annum applicable to loans under the Revolving Credit Facility are, at our option, either LIBOR plus a margin ranging from 1.75% to 2.50% or  a base rate plus a margin ranging from 0.75% to 1.50%, which margin is based on our total leverage ratio. The interest rate per annum applicable to the loans under the Term Loan Facility is, at our option, either LIBOR plus 2.25%, or a base rate plus 1.25%; provided, however, that in no event will LIBOR be less than zero or the base rate be less than 1.00% over the term of the Term Loan Facility or the Revolving Credit Facility. Additionally, the Company pays a commitment fee on the unused portion of the Revolving Credit Facility in the amount of 0.50% per annum. At June 30, 2018, the weighted average interest rate on the Term Loan was 4.1% based upon the weighted average interest rate of borrowings outstanding during the six months ended June 30, 2018.

Senior Notes

6% Senior Notes

On March 29, 2017, Eagle II issued at par $375.0 million aggregate principal amount of 6.0% senior notes due 2025 (the “6% Senior Notes”) pursuant to an indenture, dated as of March 29, 2017 (the “6% Senior Notes Indenture”), between Eagle II and U.S. Bank, National Association, as Trustee. The 6% Senior Notes will mature on April 1, 2025, with interest payable semi-annually in arrears on April 1 and October 1, commencing October 1, 2017. In connection with the consummation of the Isle Acquisition on May 1, 2017, the Company assumed Eagle II’s obligations under the 6% Senior Notes and the 6% Senior Notes Indenture and certain of the Company’s subsidiaries (including Isle and certain of its subsidiaries) executed guarantees of the Company’s obligations under the 6% Senior Notes.

47


 

On September 13, 2017, the Company issued an additional $500.0 million principal amount of its 6% Senior Notes at an issue price equal to 105.5% of the principal amount of the 6% Senior Notes. The additional notes were issued pursuant to the 6% Senior Notes Indenture that governs the 6% Senior Notes. The Company used the proceeds of the offering to repay $78.0 million of outstanding borrowings under the revolving credit facility and used the remainder to repay $444.5 million outstanding borrowings under the term loan facility and related accrued interest.

7% Senior Notes

On July 23, 2015, the Company issued at par $375.0 million in aggregate principal amount of 7.0% senior notes due 2023 (“7% Senior Notes”) pursuant to the Indenture, dated as of July 23, 2015 (the “Indenture”), between the Company and U.S. Bank, National Association, as Trustee. The 7% Senior Notes will mature on August 1, 2023, with interest payable semi-annually in arrears on February 1 and August 1 of each year.

As of June 30, 2018 we were in compliance with all covenants under the Credit Facility, 6% Senior Notes, and 7% Senior Notes.

Contractual Obligations

There have been no material changes for the six months ended June 30, 2018 to our contractual obligations as disclosed in our Annual Report on Form 10‑K for the year ended December 31, 2017.

Other Liquidity Matters

We are faced with certain contingencies involving litigation and environmental remediation and compliance. These commitments and contingencies are discussed in “Part II, Item 1. Legal Proceedings” and Note 10 to our unaudited consolidated financial statements, both of which are included elsewhere in this report. In addition, new competition may have a material adverse effect on our revenues, and could have a similar adverse effect on our liquidity. See “Part I, Item 1A. Risk Factors—Risks Related to Our Business” which is included in our Annual Report on Form 10-K for the year ended December 31, 2017 and “Part II, Item IA. Risk Factors” which is included in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.

Critical Accounting Policies

Our critical accounting policies disclosures are included in our Annual Report on Form 10‑K for the year ended December 31, 2017. Except as described in footnotes 2 and 3 to the accompanying condensed notes of these consolidated financial statements, we believe there have been no material changes since December 31, 2017. We have not substantively changed the application of our policies and there have been no material changes in assumptions or estimation techniques used as compared to prior periods.

Off‑Balance Sheet Arrangements

We are not party to any off‑balance sheet arrangements.

Cautionary Statement Regarding Forward‑Looking Information

This report includes “forward‑looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward‑looking statements include statements regarding our strategies, objectives and plans for future development or acquisitions of properties or operations, as well as expectations, future operating results and other information that is not historical information. When used in this report, the terms or phrases such as “anticipates,” “believes,” “projects,” “plans,” “intends,” “expects,” “might,” “may,” “estimates,” “could,” “should,” “would,” “will likely continue,” and variations of such words or similar expressions are intended to identify forward‑looking statements. Specifically, forward-looking statements may include, among others, statements concerning:

 

projections of future results of operations or financial condition;

 

expectations regarding our business and results of operations of our existing casino properties and prospects for future development;

48


 

 

expectations regarding trends that will affect our market and the gaming industry generally and the impact of those trends on our business and results of operations;

 

our ability to comply with the covenants in the agreements governing our outstanding indebtedness;

 

our ability to meet our projected debt service obligations, operating expenses, and maintenance capital expenditures;

 

expectations regarding availability of capital resources;

 

our ability to consummate the acquisition of Tropicana Entertainment and the disposition of Presque Isle Downs and Nemacolin on the timeline and terms described herein or at all;

 

our intention to pursue development opportunities, including the development of a mixed-use entertainment and hospitality destination expected to be located on unused land adjacent to the Pompano casino and racetrack, and additional acquisition;

 

our ability to ability to obtain financing for, and realize the anticipated benefits, of such development and acquisitions, including the acquisition of Tropicana Entertainment and the Grand Victoria Casino and the development of Pompano; and

 

the impact of regulation on our business and our ability to receive and maintain necessary approvals for our existing properties and future projects.

Any forward‑looking statements are based upon a number of estimates and assumptions that, while considered reasonable by us, is inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control, and are subject to change. Actual results of operations may vary materially from any forward‑looking statements made herein. Forward‑looking statements speak only as of the date they are made, and we assume no duty to update forward-looking statements. Forward-looking statements should not be regarded as a representation by us or any other person that the forward‑looking statements will be achieved. Undue reliance should not be placed on any forward‑looking statements. Some of the contingencies and uncertainties to which any forward‑looking statement contained herein is subject include, but are not limited to, the following:

 

our substantial indebtedness and significant financial commitments could adversely affect our results of operations and our ability to service such obligations;

 

restrictions and limitations in agreements governing our debt could significantly affect our ability to operate our business and our liquidity;

 

our facilities operate in very competitive environments and we face increasing competition;

 

the ability to identify suitable acquisition opportunities and realize growth and cost synergies from any future acquisitions;

 

our operations are particularly sensitive to reductions in discretionary consumer spending and are affected by changes in general economic and market conditions;

 

our gaming operations are highly regulated by governmental authorities and the cost of complying or the impact of failing to comply with such regulations;

 

changes in gaming taxes and fees in jurisdictions in which we operate;

 

risks relating to pending claims or future claims that may be brought against us;

 

changes in interest rates and capital and credit markets;

 

our ability to comply with certain covenants in our debt documents;

 

the effect of disruptions to our information technology and other systems and infrastructure;

 

construction factors relating to development, maintenance and expansion of operations;

 

our ability to attract and retain customers;

 

weather or road conditions limiting access to our properties;

 

the effect of war, terrorist activity, natural disasters and other catastrophic events;

 

the intense competition to attract and retain management and key employees in the gaming industry; and

49


 

 

the other factors set forth in Part I, Item 1A. “Risk Factors” included in our Annual Report on Form 10‑K for the year ended December 31, 2017.

In addition, the acquisition of Tropicana Entertainment and the Grand Victoria Casino, the dispositions of Presque Isle Downs and Nemacolin and the provisions of the related acquisition agreements create additional risks, uncertainties and other important factors, including but not limited to:

 

our ability to obtain required regulatory approvals (including, in the case of the dispositions, approval from gaming regulators and expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976) and satisfy or waive other closing conditions to consummate such transactions on a timely basis;

 

the possibility that the one or more of such transactions do not close on the terms described herein or that we are required to modify aspects of one or more of such transactions to obtain regulatory approval;

 

our ability to promptly and effectively implement our operating strategies at the acquired properties and integrate our business and the business of the acquired companies to realize the synergies contemplated by the proposed acquisition;

 

our ability to obtain debt financing on the terms expected, or at all

 

the possibility that the business of Tropicana or the Grand Victoria Casino may suffer as a result of the announcement of the acquisition;

 

the ability to retain key employees of the acquired companies;

 

the outcome of legal proceedings that may be instituted as a result of the proposed transactions; and

 

other risks and uncertainties described in Part II, Item 1A. “Risk Factors” contained herein and our reports on Form 10-K, Form 10-Q and Form 8-K filed with the Securities and Exchange Commission.

In light of these and other risks, uncertainties and assumptions, the forward‑looking events discussed in this report might not occur. These forward‑looking statements speak only as of the date on which this statement is made, even if subsequently made available on our website or otherwise, and we do not intend to update publicly any forward‑looking statement to reflect events or circumstances that occur after the date on which the statement is made, except as may be required by law.

You should also be aware that while we from time to time communicate with securities analysts, we do not disclose to them any material non‑public information, internal forecasts or other confidential business information. Therefore, you should not assume that we agree with any statement or report issued by any analyst, irrespective of the content of the statement or report. To the extent that reports issued by securities analysts contain projections, forecasts or opinions, those reports are not our responsibility and are not endorsed by us.

ITEM 3.

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 are exposed to changes in interest rates primarily from variable rate long‑term debt arrangements. At June 30, 2018, interest on borrowings under our Credit Facility was subject to fluctuation based on changes in short-term interest rates.

As of June 30, 2018, our long‑term variable‑rate borrowings totaled $956.8 million under the Term Loan and represented approximately 43% of our long‑term debt compared to 67% of our long‑term debt as of June 30, 2017. During the six months ended June 30, 2018, the weighted average interest rates on our variable and fixed rate debt were 4.1% and 6.3%, respectively.

The Company evaluates its exposure to market risk by monitoring interest rates in the marketplace and has, on occasion, utilized derivative financial instruments to help manage this risk. The Company does not utilize derivative financial instruments for trading purposes. There were no material quantitative changes in our market risk exposure, or how such risks are managed, for the three months ended June 30, 2018.

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ITEM 4.

CONTROLS AND PROCEDURES.

 

(a)

Evaluation of Disclosure Controls and Procedures

We have established and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports that we file under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, evaluated and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) as of the end of the period covered by this Quarterly Report on Form 10‑Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10‑Q are effective to ensure that the information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized, evaluated and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure

 

(b)

Changes in Internal Controls

There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10‑Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are a party to various lawsuits, which have arisen in the normal course of our business. Estimated losses are accrued for these lawsuits and claims when the loss is probable and can be estimated. The current liability for the estimated losses associated with those lawsuits is not material to our consolidated financial condition and those estimated losses are not expected to have a material impact on our results of operations.

Legal matters are discussed in greater detail in “Part I, Item 3. Legal Proceedings” and Note 15 to our Consolidated Financial statements included in our Annual Report on Form 10‑K for the year ended December 31, 2017.

ITEM 1A.

RISK FACTORS

A description of our risk factors can be found in “Part I, Item 1A. Risk Factors” included in our Annual Report on Form 10‑K for the year ended December 31, 2017. There have been no material changes to those risk factors during the three months ended June 30, 2018, except for the following additional risk factors related to certain acquisitions and dispositions.

Factors relating to the acquisitions and dispositions

Some of our casinos are located on leased property and we expect to enter into a master lease with respect to certain properties that we expect to acquire in the Tropicana Acquisition. If we default on one or more leases, the applicable lessors could terminate the affected leases and we could lose possession of the affected casino.  

We currently lease certain parcels of land on which several of our properties are located and we expect to enter into a master lease with respect to six of the properties that we will acquire in the Tropicana Acquisition (the “Master Lease”). As a ground lessee, we have the right to use the leased land; however, we do not hold fee ownership of the underlying land. Accordingly, with respect to the leased land, we will have no interest in the land or improvements thereon at the expiration of the ground leases. Moreover, since we do not completely control the land underlying the property, a landowner could take certain actions to disrupt our rights in the land leased under the long-term leases which are beyond our control.  If the entity owning any leased land chose to disrupt our use either permanently or for a significant period of time, then the value of our assets could be impaired and our business and operations could be adversely affected. Our leases provide that they may be terminated for a number of reasons, including failure to pay rent, taxes or other payment obligations or the breach of other covenants contained in the leases. In particular, the Master Lease is expected to require initial annual rent payments of $110 million and obligate us to make specified minimum capital expenditures with respect to the leased properties. If we were to default on any one or more of these leases, the applicable lessors could terminate the affected leases and we could lose possession of the affected land and any improvements on the land, including the hotels and casinos. A termination of our ground leases or the master lease could result in a default under our debt agreements and could have a material adverse effect on our business, financial condition and results of operations. Further, in the event that any lessor with respect to our leased properties, including properties that will be subject to the Master Lease, encounters financial, operational, regulatory or other challenges, there can be no assurance that such lessor will be able to comply with its obligations under the applicable lease.

The Master Lease is expected to be a triple-net lease. Accordingly, in addition to rent, we will be required to pay, among other things, the following: (1) all facility maintenance, (2) all insurance required in connection with the leased properties and the business conducted on the leased properties, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. We will be responsible for incurring the costs described in the preceding sentence notwithstanding the fact that many of the benefits received in exchange for such costs shall in part accrue to the lessor as the owner of the associated facilities. In addition, we expect that we will remain obligated for lease payments and other obligations under the Master Lease even if one or more of such leased facilities is unprofitable or if we decide to withdraw from those locations. We could incur special charges relating to the closing of such facilities including lease termination costs, impairment charges and other special charges that would reduce our net income and could have a material adverse effect on our business, financial condition and results of operations.

 

52


 

Delay or failure to complete the Tropicana Acquisition or dispositions would prevent the Company from realizing the anticipated benefits of the transactions.

Any delay in completing the Tropicana Acquisition or dispositions may reduce the synergies, use of proceeds and other benefits that we anticipate if we successfully complete the transactions within the expected timeframe and integrate our business and the business of Tropicana. In addition, the market price of our common stock may reflect various market assumptions as to whether and when the Tropicana Acquisition and dispositions will be completed. Consequently, the completion of, the failure to complete, or any delay in the completion of the Tropicana Acquisition or dispositions could result in significant changes in the market price of our common stock.

The acquisition of Tropicana and the sale of Presque Isle Downs are subject to the receipt of approvals and clearances that may impose conditions that could have an adverse effect on us or, if not obtained, could prevent completion of the transactions. We may be required to pay significant reverse termination fee if we are unable to obtain regulatory approvals for the Tropicana Acquisition.

Completion of each of the Tropicana Acquisition and dispositions is conditioned upon the receipt of certain governmental approvals, including, without limitation, gaming regulatory. There can be no assurance that these approvals will be obtained and that the other conditions to completing the acquisitions and dispositions will be satisfied in a timely fashion, or at all. In addition, the governmental authorities from which the regulatory approvals are required may impose conditions on the completion of the transactions or require changes to the terms of the agreements governing the transactions. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying or impeding consummation of the Acquisitions and dispositions or of imposing additional costs or limitations on us following completion of the transactions, any of which might have an adverse effect on us.  The waiting period under the Hart-Scott-Rodino Antitrust Improvement Acts of 1976, as amended, has been terminated with respect to the Tropicana Acquisition and the Presque Isle Downs disposition.  

In addition, if we fail to obtain required regulatory approvals for the Tropicana Acquisition, we may be required to pay a reverse termination fee of $92.5 million and could be liable for additional damages. Further, we have incurred and will continue to incur significant costs, such as legal, accounting, and similar costs, relating to the Tropicana Acquisition. We will be required to pay such costs whether or not the acquisition is consummated.

Our obligation to consummate the Tropicana Acquisition is not subject to a financing condition.

Our obligation to consummate the Tropicana Acquisition is not subject to a financing condition. As a result, if we are unable to obtain financing to pay the consideration for such transaction we may be subject to liability for a breach of the agreement governing the acquisition.

We intend to finance a portion of the cash consideration that we are required to pay in connection with the Tropicana Acquisition with debt financing expected to be obtained pursuant to a $600.0 million commitment provided by J.P. Morgan (the “Commitment Letter”). We expected to issue at least $600.0 million of senior unsecured notes to finance such portion of the cash consideration, but if the notes are not issued and sold on or prior to the date of the consummation of Tropicana, the Commitment Letter contemplates that the lenders thereunder will make available at least $600.0 million in senior unsecured bridge loans under a senior unsecured credit facility. As a result, if financing cannot be obtained and the Tropicana Acquisition is not completed, we may be required to pay Tropicana damages, including a reverse termination fee of $92.5 million, or we may be compelled to specifically perform our obligation to consummate the transaction.

The pending Tropicana Acquisition and dispositions may be disruptive to our business.

Whether or not the Tropicana Acquisition or dispositions are completed, the pendency of the transactions could cause disruptions in our business and the business of Tropicana, which could have an adverse effect on our businesses and financial results. These disruptions could include the following:

 

our current and prospective employees may experience uncertainty about their future roles with the combined company or consider other employment alternatives, which might adversely affect our ability to retain or attract key managers and other employees and the ability of Tropicana to retain employees that we consider key to our future combined operations;

 

 

current and prospective customers may anticipate changes in how they are served or the benefits offered our loyalty reward program and may, as a result, choose to discontinue their patronage; and

 

 

the attention of our management may be diverted from the operation of our business.

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Litigation challenging the Tropicana Acquisition could delay or prevent the completion of the transaction.

One of the conditions to the Tropicana Acquisition is that no temporary restraining order, preliminary or permanent injunction, or other judgment, order or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the merger will be in effect; nor will there be any law, statute, ordinance, rule, regulation, order, policy, guideline or agency requirement enacted, entered, promulgated, enforced or deemed applicable by any governmental entity that prohibits or makes illegal the consummation of the merger. While we are not aware of any lawsuit that has been filed seeking the enjoin the Tropicana Acquisition, there can be no assurance that such a claim will not be filed by seeking damages relating to, or otherwise challenging, the acquisition. If the plaintiffs in any such action secure injunctive or other relief prohibiting, delaying or otherwise adversely affecting our ability or Tropicana’s ability to consummate the Tropicana Acquisition, then such injunctive or other relief may prevent the merger from becoming effective within the expected time frame or at all. If consummation of the Tropicana Acquisition is prevented or delayed, it could result in substantial costs to us or Tropicana. In addition, we and Tropicana could incur significant costs in connection with such lawsuits, including costs associated with the indemnification of directors and officers.

The integration of our operations with Tropicana and the Grand Victoria following the acquisitions may present significant challenges and impair our ability to realize the anticipated benefits of the acquisitions in the anticipated time frame or at all.

Our ability to realize the anticipated benefits of the acquisitions will depend, to a large extent, on our ability to integrate the business of Tropicana and the Grand Victoria into our operations in the anticipated time frame or at all. We may face significant challenges in combining the operations of the acquired companies into our operations in a timely and efficient manner. The combination of independent businesses is a complex, costly and time-consuming process. As a result, we will be required to devote significant management attention and resources to integrating the business practices and operations of the acquired companies into our operations. The integration process may disrupt the business of the acquired properties and, if implemented ineffectively or inefficiently, could preclude realization of the full benefits that we expect. The failure to successfully integrate the acquired properties and to manage the challenges presented by the integration process successfully may result in an interruption of, or loss of momentum in, the combined business, which may have the effect of depressing the market price of our common stock following the closing of the transactions.

In addition, while we expect to realize cost synergies from combining the sales and general and administrative functions of the acquired businesses with ours, we will be required to incur costs, including severance and related expenses, to realize the anticipated cost savings. While we believe that the combined entity will benefit from cost synergies, we may be unable to realize all of the expected cost synergies within the time frame expected or at all. In addition, we may incur additional or unexpected costs in order to realize these cost synergies.

The Acquisitions may not be accretive and may cause dilution to our earnings per share, which may negatively affect the price of our common stock.

We currently anticipate that the acquisitions will be accretive to the earnings per share of the combined company in 2019. This expectation is based on preliminary estimates and assumes certain synergies expected to be realized by the combined company over a 12-month period following the completion of the acquisitions. Such estimates and assumptions could materially change due to additional transaction-related costs, delays in regulatory approvals, the failure to realize any or all of the benefits expected in the acquisitions or other factors beyond our control. All of these factors could delay, decrease or eliminate the expected accretive effect of the acquisitions and cause resulting dilution to our earnings per share or to the price of our common stock.

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We will have a substantial amount of debt outstanding following the Acquisitions and we may incur additional indebtedness.

We expect that we will have approximately $2.8 billion of debt and an additional $110 million of other annual obligations relating to the Master Lease following the completion of the acquisitions and dispositions. In addition, we expect that our borrowing capacity under our revolving credit facility will be increased from $300 million to $500 million effective at the time of the consummation of the Tropicana Acquisition and that we will have the ability to incur additional debt under the increased facility revolving credit facility. We incurred debt under our revolving credit facility to purchase Elgin and may be required to incur indebtedness in excess of the $600 million of committed financing to fund the consideration payable under the Tropicana Acquisition. In addition, we may incur debt to finance costs associated with the development of a mixed-use entertainment and hospitality destination expected to be located on unused land adjacent to the Pompano casino and racetrack. As a result of the increased levels of outstanding indebtedness following the acquisitions and rent payments under the Master Lease, future interest expense, rent and debt service obligations will be significantly higher than our historic interest expense and other obligations associated with financing.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5.

OTHER INFORMATION.

None.

 


55


 

ITEM 6.

EXHIBITS.

 

Exhibit

Number

 

Description of Exhibit

 

Method of Filing

 

 

 

 

 

     2.1

 

Agreement and Plan of Merger by and among Eldorado Resorts, Inc., Delta Merger Sub, Inc., GLP Capital, L.P. and Tropicana Entertainment Inc., dated as of April 15, 2018

 

Previously filed on Form 8-K filed on April 16, 2018.

 

 

 

 

 

     2.2

 

Interest Purchase Agreement by and among MGM Elgin Sub, Inc., Illinois RBG, L.L.C., Eldorado Resorts, Inc., Elgin Holdings I LLC, Elgin Holdings II LLC, Elgin Riverboat Resort-Riverboat Casino and MGM Resorts International, dated as of April 15, 2018

 

Previously filed on Form 8-K filed on April 16, 2018.

 

 

 

 

 

     3.1

 

Certificate of Amendment to Articles of Incorporation, dated June 28, 2018

 

Filed herewith.

 

 

 

 

 

     4.1

 

Fifth Supplemental Indenture, dated as of June 18, 2018, by and among Eldorado Resorts, Inc., the guarantors party thereto and U.S. Bank National Association, as Trustee, under the 2023 Notes Indenture

 

Filed herewith.

 

 

 

 

 

     4.2

 

Second Supplemental Indenture, dated as of June 18, 2018, by and among Eldorado Resorts, Inc., the guarantors party thereto and U.S. Bank National Association, as Trustee, under the 2025 Notes Indenture

 

Filed herewith.

 

 

 

 

 

     4.3

 

Sixth Supplemental Indenture, dated as of August 7, 2018, by and among Eldorado Resorts, Inc., the guarantors party thereto and U.S. Bank National Association, as Trustee, under the 2023 Notes Indenture

 

Filed herewith.

 

 

 

 

 

     4.4

 

Third Supplemental Indenture, dated as of August 7, 2018, by and among Eldorado Resorts, Inc., the guarantors party thereto and U.S. Bank National Association, as Trustee, under the 2025 Notes Indenture

 

Filed herewith.

 

 

 

 

 

   10.1

 

Amendment Agreement No. 2, dated June 6, 2018, by and between Eldorado Resorts, Inc. and JPMorgan Chase, N.A., as administrative agent in connection with the Credit Agreement, dated as of April 17, 2017

 

Filed herewith.

 

 

 

 

 

  31.1

 

Certification of Gary L. Carano pursuant to Rule 13a‑14a and Rule 15d‑14(a)

 

Filed herewith.

 

 

 

 

 

  31.2

 

Certification of Thomas R. Reeg pursuant to Rule 13a‑14a and Rule 15d‑14(a)

 

Filed herewith.

 

 

 

 

 

  32.1

 

Certification of Gary L. Carano in accordance with 18 U.S.C. Section 1350

 

Filed herewith.

 

 

 

 

 

  32.2

 

Certification of Thomas R. Reeg in accordance with 18 U.S.C. Section 1350

 

Filed herewith.

 

 

 

 

 

101.1

 

XBRL Instance Document

 

Filed herewith.

 

 

 

 

 

101.2

 

XBRL Taxonomy Extension Schema Document

 

Filed herewith.

 

 

 

 

 

101.3

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

Filed herewith.

 

 

 

 

 

101.4

 

XBRL Taxonomy Extension Definition Linkbase Document

 

Filed herewith.

 

 

 

 

 

101.5

 

XBRL Taxonomy Extension Label Linkbase Document

 

Filed herewith.

 

 

 

 

 

101.6

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

Filed herewith.

 

 

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

ELDORADO RESORTS, INC.

 

 

 

Date: August 7, 2018

 

/s/ Gary L. Carano

 

 

Gary L. Carano

 

 

Chief Executive Officer and Chairman of the Board

 

 

 

Date: August 7, 2018

 

/s/ Thomas R. Reeg

 

 

Thomas R. Reeg

 

 

President and Chief Financial Officer

 

 

(Principal Financial Officer)

 

57