13
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The following table summarizes the Company’s evaluation at SeptemberJune 30, 20172022 of each of the critical milestones necessary to complete the North Fork Project. |
| | | | |
| As of September 30, 2017 |
| Federally recognized as an Indian tribe by the Bureau of Indian Affairs (“BIA”) | Yes |
| Date of recognition | Federal recognition was terminated in 1966 and restored in 1983. |
| Tribe has possession of or access to usable land upon which the project is to be built | The DOI accepted approximately 305 acres of land for the project into trust for the benefit of the Mono in February 2013.
|
| Status of obtaining regulatory and governmental approvals: | |
| Tribal-state compact | A compact was negotiated and signed by the Governor of California and the Mono in August 2012. The California State Assembly and Senate passed Assembly Bill 277 (“AB 277”) which ratified the Compact in May 2013 and June 2013, respectively. Opponents of the North Fork Project qualified a referendum, “Proposition 48,” for a state-wide ballot challenging the legislature’s ratification of the Compact. In November 2014, Proposition 48 failed. The State took the position that the failure of Proposition 48 nullified the ratification of the Compact and, therefore, the Compact did not take effect under California law. In March 2015, the Mono filed suit against the State (see North Fork Rancheria of Mono Indians v. State of California)to obtain a compact with the State or procedures from the Secretary of the Interior under which Class III gaming may be conducted on the North Fork Site. In July 2016, the DOI issued Secretarial procedures (the “Secretarial Procedures”) pursuant to which the Mono may conduct Class III gaming on the North Fork Site. |
| Approval of gaming compact by DOI | The Compact was submitted to the DOI in July 2013. In October 2013, notice of the Compact taking effect was published in the Federal Register. The Secretarial Procedures supersede and replace the Compact. |
| Record of decision regarding environmental impact published by BIA | In November 2012, the record of decision for the Environmental Impact Statement for the North Fork Project was issued by the BIA. In December 2012, the Notice of Intent to take land into trust was published in the Federal Register. |
| BIA accepting usable land into trust on behalf of the tribe | The North Fork Site was accepted into trust in February 2013. |
| Approval of management agreement by NIGC | In December 2015, the Mono submitted thea Second Amended and Restated Management Agreement, and certain related documents, to the NIGC. In July 2016, the Mono received a deficiency letter from the NIGC seeking additional information concerning the Second Amended and Restated Management Agreement. In March 2018, the Mono submitted the Management Agreement and certain related documents to the NIGC. In June 2018, the Mono received a deficiency letter from the NIGC seeking additional information concerning the Management Agreement. In April 2021, the Mono received an issues letter from the NIGC identifying issues to be addressed prior to approval of the Management Agreement. Approval of the Management Agreement by the NIGC is expected to occur following the Mono’s response to the deficiencyissues letter. The Company believes the Management Agreement will be approved because the terms and conditions thereof are consistent with the provisions of the Indian Gaming Regulatory Act (“IGRA”). |
| Gaming licenses: | |
| Type | The North Fork Project will include the operation of Class II and Class III gaming, which are allowed pursuant to the terms of the Secretarial Procedures and IGRA, following approval of the Management Agreement by the NIGC. |
| Number of gaming devices allowed | The Secretarial Procedures allow for the operation of a maximum of 2,000 Class III slot machines at the facility during the first two years of operation and thereafter up to 2,500 Class III slot machines. There is no limit on the number of Class II gaming devices that the Mono can offer. |
| Agreements with local authorities | The Mono has entered into memoranda of understanding with the City of Madera, the County of Madera and the Madera Irrigation District under which the Mono agreed to pay one-time and recurring mitigation contributions, subject to certain contingencies. The memoranda of understanding with the City and County werehave all been amended in December 2016 to restructure the timing of certain payments due to delays in the development of the North Fork Project.
|
14
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Following is a discussion of the unresolved legal mattersmatter related to the North Fork Project.
Stand Up For California! v. Dept. of the Interior. In December 2012, Stand Up for California!, several individuals and the Ministerial Association of Madera (collectively, the “Stand Up” plaintiffs) filed a complaint in the United States District Court for the District of Columbia against the DOI, the BIA and the Secretary of Interior and Assistant Secretary of the Interior, in their official capacities, seeking to overturn the Secretary’s determination to take the North Fork Site into trust for the purposes of gaming (the “North Fork Determination”) and seeking declaratory and injunctive relief to prevent the United States from taking the North Fork Site into trust. The Mono filed a motion to intervene as a party to the lawsuit, which was granted. In January 2013, the Court denied the Stand Up plaintiffs’ Motion for Preliminary Injunction and the United States accepted the North Fork Site into trust for the benefit of the Mono in February 2013. The parties subsequently filed motions for summary judgment. In September 2016, the Court denied the Stand Up plaintiffs’ motions for summary judgment and granted the defendants’ and the Mono’s motions for summary judgment in part and dismissed the remainder of the Stand Up plaintiffs’ claims. The Stand Up plaintiffs appealed the district court’s decision to the United States Court of Appeals for the District of Columbia Circuit, which heard oral argument on the appeal on October 13, 2017.
Stand Up For California! v. Brown. In March 2013, Stand Up for California! and Barbara Leach, a local resident, filed a complaint for declaratory relief and petition for writ of mandate in California Superior Court for the County of Madera against California Governor Edmund G. Brown, Jr., alleging that Governor Brown violated the California constitutional separation-of-powers doctrine when he concurred in the North Fork Determination. The complaint sought to vacate and set aside the Governor’s concurrence. Plaintiffs’ complaint was subsequently amended to include a challenge to the constitutionality of AB 277. The Mono intervened as a defendant in the lawsuit. In March 2014, the court dismissed plaintiffs’ amended complaint, which dismissal was appealed by plaintiffs. In December 2016, an appellate court ruled in favor of the Stand Up plaintiffs concluding that Governor Brown exceeded his authority in concurring in the Secretary’s determination that gaming on the North Fork Site would be in the best interest of the Tribe and not detrimental to the surrounding community. The appellate court’s decision reversed the trial court’s previous ruling in favor of the Mono. The Mono and the State filed petitions in the Supreme Court of California seeking review of the appellate court’s decision. In March 2017, the Supreme Court of California granted the Mono and State’s petitions for review and deferred additional briefing or other action in this matter pending consideration and disposition of a similar issue in United Auburn Indian Community of Auburn Rancheria v. Brown. The United Auburn case is expected to be fully briefed in November 2017 after which a hearing will be scheduled.
Picayune Rancheria of Chukchansi Indians v. Brown. Brown. In March 2016, Picayune Rancheria of Chukchansi Indians (“Picayune”) filed a complaint for declaratory relief and petition for writ of mandate in California Superior Court for the County of Madera against Governor Edmund G. Brown, Jr., alleging that the referendum that invalidated the Compact also invalidated Governor Brown’s concurrence with the Secretary of the Interior’s determination that gaming on the North Fork Determination.Site would be in the best interest of the Mono and not detrimental to the surrounding community. The complaint seeks to vacate and set aside the Governor’s concurrence. In Julyconcurrence and was stayed from December 2016 to September 2021, when the court grantedSupreme Court of California denied the Mono’s application to intervene and the Mono filed a demurrer seeking to dismiss the case. In November 2016, the district court dismissed Picayune’s complaint, but the court subsequently vacated its ruling based on the December 2016, decision by the Fifth District CourtState of AppealCalifornia’s petition for review in Stand Up for California! v. Brown. In May 2017, the court stayed the case for six months by agreementAs a result of the partiesdenial, litigation of this matter has resumed and scheduled a status conference on November 13, 2017 to address howdispositive motions have been filed by Picayune, the case should proceed in lightState of California and the Mono.
5. Other Accrued Liabilities
Other accrued liabilities consisted of the California Supreme Court’s granting of the Mono and State’s petitions for reviewfollowing (amounts in Stand Up for California! v. Brown.thousands):
Picayune Rancheria of Chukchansi Indians v. United States Department of the Interior. In July 2016, Picayune filed a complaint in the United States District Court for the Eastern District of California for declaratory and injunctive relief against the DOI. The complaint sought a declaration that the North Fork Site did not come under one of the exceptions to the general prohibition against gaming on lands taken into trust after October 1988 set forth in IGRA and therefore was not eligible for gaming. It also sought a declaration that the North Fork Determination had expired because the legislature never ratified Governor Brown’s concurrence, and sought injunctive relief prohibiting the DOI from taking any action under IGRA concerning the North Fork Site. The Mono filed a motion to intervene in September 2016, which was subsequently granted. The Mono and federal defendants filed motions for summary judgment in March 2017. On August 8, 2017, Picayune filed a brief arguing that the court should stay the proceedings in light of the Fifth District Court's decision in Stand Up for California! v. Brown and the appeal pending in the California Supreme Court. On August 18, 2017, the court denied the Picayune’s motion to stay the proceedings and granted the summary judgment motions of the Mono and the federal defendants. Picayune has not filed a timely notice of appeal. | | | | | | | | | | | |
| | June 30,
2022 | | December 31, 2021 |
| Contract and customer-related liabilities: | | | |
| Rewards Program liability | $ | 12,108 | | | $ | 12,711 | |
| Advance deposits and future wagers | 12,239 | | | 15,897 | |
| Unpaid wagers, outstanding chips and other customer-related liabilities | 19,752 | | | 21,963 | |
| Other accrued liabilities: | | | |
| Accrued payroll and related | 36,531 | | | 30,019 | |
| Accrued gaming and related | 24,650 | | | 25,372 | |
| Construction payables and equipment purchase accruals | 33,498 | | | 15,437 | |
| Operating lease liabilities, current portion | 2,981 | | | 2,976 | |
| Other | 20,210 | | | 22,734 | |
| $ | 161,969 | | | $ | 147,109 | |
Stand Up for California! et. al. v. United States Department of the Interior. In November 2016, Stand Up for California! and other plaintiffs filed a complaint in the United States District Court for the Eastern District of California alleging that the DOI’s issuance of Secretarial Procedures for the Mono was subject to the National Environmental Policies Act and the Clean Air Act, and violate the Johnson Act. The complaint further alleges violations of the Freedom of Information Act and the Administrative Procedures Act. The DOI filed its answer to the complaint in February 2017 denying plaintiffs’ claims
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
and asserting certain affirmative defenses. A motion to intervene filed by the Mono was granted in March 2017. Plaintiffs subsequently filed a motion to stay the proceedings in May 2017. Briefing on the contested stay request concluded in July 2017 and briefing on cross-motions for summary judgment was concluded in September 2017.
4.6. Long-term Debt
Long-term debt consisted of the following indebtedness of Station LLC (amounts in thousands):
|
| | | | | | | |
| | September 30,
2017 | | December 31, 2016 |
| Term Loan B Facility, due June 8, 2023, interest at a margin above LIBOR or base rate (3.74% and 3.75% at September 30, 2017 and December 31, 2016, respectively), net of unamortized discount and deferred issuance costs of $55.4 million and $42.9 million at September 30, 2017 and December 31, 2016, respectively | $ | 1,777,919 |
| | $ | 1,449,591 |
|
| Term Loan A Facility, due June 8, 2022, interest at a margin above LIBOR or base rate (3.24% and 3.20% at September 30, 2017 and December 31, 2016, respectively), net of unamortized discount and deferred issuance costs of $5.6 million and $7.4 million at September 30, 2017 and December 31, 2016, respectively | 266,952 |
| | 211,978 |
|
| $781 million Revolving Credit Facility, due June 8, 2022, interest at a margin above LIBOR or base rate (3.44% weighted average at December 31, 2016) | — |
| | 120,000 |
|
| 5.00% Senior Notes, due October 1, 2025, net of deferred issuance costs of $6.4 million at September 30, 2017 | 543,604 |
| | — |
|
| 7.50% Senior Notes, due March 1, 2021, net of unamortized discount and deferred issuance costs of $4.0 million and $9.4 million at September 30, 2017 and December 31, 2016, respectively | 246,021 |
| | 490,568 |
|
| Restructured Land Loan, due June 17, 2017, interest at a margin above LIBOR or base rate (5.27% at December 31, 2016), net of unamortized discount of $0.6 million at December 31, 2016 | — |
| | 115,378 |
|
| Other long-term debt, weighted-average interest of 3.65% and 3.92% at September 30, 2017 and December 31, 2016, respectively, maturity dates ranging from 2027 to 2037 | 30,740 |
| | 34,786 |
|
| Total long-term debt | 2,865,236 |
| | 2,422,301 |
|
| Current portion of long-term debt | (277,990 | ) | | (46,063 | ) |
| Total long-term debt, net | $ | 2,587,246 |
| | $ | 2,376,238 |
|
| | | | | | | | | | | |
| June 30,
2022 | | December 31, 2021 |
| Term Loan B Facility due February 7, 2027, interest at a margin above LIBOR or base rate (3.92% and 2.50% at June 30, 2022 and December 31, 2021, respectively), net of unamortized discount and deferred issuance costs of $22.6 million and $24.9 million at June 30, 2022 and December 31, 2021, respectively | $ | 1,458,359 | | | $ | 1,463,731 | |
| Term Loan A Facility due February 7, 2025, interest at a margin above LIBOR or base rate (3.17% and 1.61% at June 30, 2022 and December 31, 2021, respectively), net of unamortized discount and deferred issuance costs of $1.3 million and $1.6 million at June 30, 2022 and December 31, 2021, respectively | 166,362 | | | 170,819 | |
| Revolving Credit Facility due February 7, 2025, interest at a margin above LIBOR or base rate | — | | | — | |
| 4.625% Senior Notes due December 1, 2031, net of unamortized deferred issuance costs of $5.7 million and $6.0 million at June 30, 2022 and December 31, 2021, respectively | 494,254 | | | 494,015 | |
| 4.50% Senior Notes due February 15, 2028, net of unamortized discount and deferred issuance costs of $6.2 million and $6.6 million at June 30, 2022 and December 31, 2021, respectively | 684,642 | | | 684,170 | |
| Other long-term debt, weighted-average interest of 3.82% at June 30, 2022 and December 31, 2021, net of unamortized discount and deferred issuance costs of $0.2 million and $0.3 million at June 30, 2022 and December 31, 2021, respectively | 40,251 | | | 40,789 | |
| Total long-term debt | 2,843,868 | | | 2,853,524 | |
| Current portion of long-term debt | (25,942) | | | (25,921) | |
| Total long-term debt, net | $ | 2,817,926 | | | $ | 2,827,603 | |
Credit Facility
In January 2017, Station LLC amended itsLLC’s credit facility to increase the existing Term Loan B Facility by $125.0 million and reduce the applicable margins for LIBOR and base rate loans by 50 basis points. Station LLC used the proceeds of the incremental Term Loan B Facility borrowings to repay outstanding borrowings under its Revolving Credit Facility and pay fees and costs incurred in connection with the transaction, including a repricing fee of $14.9 million, which represented 1.00% of the aggregate principal amountconsists of the Term Loan B Facility, outstanding prior to the $125.0 million increase in borrowings. Station LLC evaluatedTerm Loan A Facility and the transaction on a lender by lender basis in accordance withRevolving Credit Facility (collectively, the accounting guidance for debt modifications and extinguishments.“Credit Facility”). The majority of the transaction was accounted for as a debt modification and as a result, Station LLC capitalized $14.9 million in related fees and costs and recognized a $2.0 million loss on debt extinguishment and modification, which was primarily related to third-party fees it incurred in connection with the repricing.
In May 2017, Station LLC amended its credit facility to increase the Term Loan B Facility by an additional $250.0 million.bears interest at a rate per annum, at Station LLC applied the proceeds of the incremental borrowings under the Term Loan B Facility, together with cash on hand,LLC’s option, equal to pay for the redemption of $250.0 million of its 7.50% Senior Notes and to pay fees and costs incurred in connection with the transactions. Station LLC capitalized $3.8 million in fees and costs related to the $250.0 million in incremental borrowings. As a result of the January 2017 and May 2017 increases to the Term Loan B Facility, the required quarterly principal payments increased to $4.7 million. Depending on its consolidated total leverage ratio, Station LLC is required to apply a portion of its excess cash flow to repay amounts outstanding under the Term Loan B Facility, which reduces future quarterly principal payments.
Also in May 2017, Station LLC completed a series of amendments to its credit facility to increase the existingeither LIBOR plus 2.25% or base rate plus 1.25%. The Term Loan A Facility by $50.0 million and reduce the applicable margins for LIBOR and base rate loans under the Revolving Credit Facility and Term Loan A Facility. As amended, the Revolving Credit Facility and the Term Loan A Facility bear interest at a rate per annum, at Station LLC’s option, equal to either LIBOR plus an amount ranging from 1.75%1.50% to 2.00% or base rate plus
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
an amount ranging from 0.75% to 1.00%, depending on Station LLC’s consolidated leverage ratio. Prior to the amendments, the Revolving Credit Facility and the Term Loan A Facility bore interest at a rate per annum, at Station LLC’s option and subject to a leverage-based grid, of either LIBOR plus an amount ranging from 1.75% to 2.75% or base rate plus an amount ranging from 0.75%0.50% to 1.75%.0.75%, depending on Station LLC evaluated the transaction on a lender by lender basis in accordance with the accounting guidance for debt modifications and extinguishments and as a result, Station LLC capitalized $1.3 million in related fees and costs and recognized a $2.1 million loss on debt extinguishment and modification, which was primarily related to the write-off of unamortized debt discount related to the extinguished debt.
In September 2017, Station LLC amended its credit facility to, among other things, (a) extend the maturity date under each of the Term Loan A Facility and the Revolving Credit Facility by one year to June 8, 2022; (b) set the required quarterly principal payments on the Term Loan A to approximately $3.4 million, payable on the last day of each quarter beginning on December 31, 2017; (c) increase the outstanding amount of the Term A Facility to approximately $272.5 million; (d) increase the outstanding borrowing availability of the Revolving Credit Facility to $781.0 million and (e) modify the maximumLLC’s consolidated total leverage ratio requirements. Station LLC evaluated the transaction on a lender by lender basis in accordance with the accounting guidance for debt modifications and extinguishments and as a result, Station LLC capitalized $2.8 million in related fees and costs and recognized a $0.6 million loss on debt extinguishment and modification.
ratio. The credit facility governing Station LLC’s term loans and revolverCredit Facility contains a number of customary covenants, including the requirements that Station LLC maintain throughout the term of the credit facilityCredit Facility and measured as of the end of each quarter, a minimuman interest coverage ratio of not less than 2.50 to 1.00 and a maximum consolidated total leverage ratio, with step-downs over the term of the Credit Facility, ranging from 6.506.00 to 1.00 at SeptemberJune 30, 20172022 to 5.25 to 1.00 at December 31, 20202023 and thereafter. A breach of the financial ratio covenants shall only become an event of default under the Term Loan B Loan Facility if the lenders providingwithin the Term Loan A Facility and the Revolving Credit Facility take certain affirmative actions after the occurrence of a default of such financial ratio covenants. At September 30, 2017, Station LLC’s interest coverage ratio was 4.58 to 1.00 and its consolidated total leverage ratio was 5.00 to 1.00, both as defined inManagement believes the credit facility. The Company believes it was in compliance with all applicable covenants at SeptemberJune 30, 2017.2022.
Revolving Credit Facility Availability
At SeptemberJune 30, 2017,2022, Station LLC’s borrowing availability under itsthe Revolving Credit Facility, subject to continued compliance with the terms of its credit facility,the Credit Facility, was $747.0 million,$1.0 billion, which was net of $34.0$29.4 million in outstanding letters of credit and similar obligations.
Restructured Land Loan
In March 2017, Station LLC’s wholly owned subsidiary, CV Propco, LLC (“CV Propco”), as borrower, and Deutsche Bank AG Cayman Islands Branch (“Deutsche Bank”) and JPMorgan Chase Bank, N.A. (“JPMorgan”), as initial lenders, amended the $105 million Restructured Land Loan. Pursuant to the amendment, CV Propco paid $61.8 million in full settlement of the $72.6 million outstanding principal amount owed to Deutsche Bank under the Restructured Land Loan. In addition, the outstanding warrants held by Deutsche Bank and JPMorgan to purchase 60% of the interests of both CV Propco and NP Tropicana LLC were canceled. Prior to the cancellation, the warrants were accounted for as noncontrolling interests.
The Company accounted for the $61.8 million settlement as consideration paid to Deutsche Bank to (i) extinguish the debt and (ii) acquire the warrants held by Deutsche Bank. Accordingly, the Company attributed $57.3 million of the $61.8 million to extinguishment of the debt and $4.5 million to the acquisition of the warrants. The settlement resulted in a $14.9 million gain on debt extinguishment in June 2017, the date when all contingencies related to the settlement were satisfied. In June 2017, CV Propco repaid the remaining $43.3 million in outstanding principal under the Restructured Land Loan in full.
5.00% Senior Notes
In September 2017, Station LLC issued $550.0 million in aggregate principal amount of 5.00% Senior Notes due October 1, 2025 at par. Interest on the 5.00% Senior Notes will be paid every six months in arrears on April 1 and October 1, commencing April 1, 2018.
The 5.00% Senior Notes and the guarantees of such notes by certain of Station LLC’s subsidiaries are general senior unsecured obligations.
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
On or after October 1, 2020, Station LLC may redeem all or a portion of the 5.00% Senior Notes at the redemption prices (expressed as percentages of the principal amount) set forth below plus accrued and unpaid interest and additional interest to the applicable redemption date: |
| | |
| Years Beginning October 1, | Percentage |
| 2020 | 102.50 | % |
| 2021 | 101.25 | % |
| 2022 and thereafter | 100.00 | % |
The indenture governing the 5.00% Senior Notes requires Station LLC to offer to purchase the 5.00% Senior Notes at a purchase price in cash equal to 101.00% of the aggregate principal amount outstanding plus accrued and unpaid interest thereon if Station LLC experiences certain change of control events (as defined in the indenture). The indenture also requires Station LLC to make an offer to repurchase the 5.00% Senior Notes at a purchase price equal to 100.00% of the principal amount of the purchased notes if it has excess net proceeds (as defined in the indenture) from certain asset sales.
The indenture governing the 5.00% Senior Notes contains a number of customary covenants that, among other things and subject to certain exceptions, restrict the ability of Station LLC and its restricted subsidiaries to incur or guarantee additional indebtedness; issue disqualified stock or create subordinated indebtedness that is not subordinated to the 5.00% Senior Notes; create liens; engage in mergers, consolidations or asset dispositions; enter into certain transactions with affiliates; engage in lines of business other than its core business and related businesses; or make investments or pay distributions (other than customary tax distributions). These covenants are subject to a number of exceptions and qualifications as set forth in the indenture. The indenture governing the 5.00% Senior Notes also provides for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on such 5.00% Senior Notes to be declared due and payable.
7.50% Senior Notes
As noted above, in May 2017, Station LLC redeemed $250.0 million in aggregate principal amount of its 7.50% Senior Notes at a redemption price equal to 103.75% of the principal amount of such notes. Following the redemption, $250.0 million in aggregate principal amount of 7.50% Senior Notes remained outstanding. Station LLC recognized a $13.8 million loss on debt extinguishment related to the 7.50% Senior Notes redemption, primarily comprising the write-off of $4.4 million in unamortized debt discount and issuance costs related to the extinguished debt and the redemption premium of $9.4 million.
On October 9, 2017, (the “Redemption Date”), a portion of the proceeds of the sale of the 5.00% Senior Notes was applied to redeem the remaining $250.0 million in outstanding principal amount of the 7.50% Senior Notes at a redemption price equal to 103.75% of the principal amount of such notes. Upon issuance of the 5.00% Senior Notes, approximately $261.4 million, representing $250.0 million in outstanding principal, the $9.4 million redemption premium and accrued and unpaid interest through the Redemption Date, was irrevocably deposited in trust with the paying agent to fund the redemption of the 7.50% Senior Notes. Accordingly, at September 30, 2017, the $261.4 million in funds held in trust was classified as restricted cash and the entire outstanding principal balance under the 7.50% Senior Notes was included in current portion of long-term debt on the Condensed Consolidated Balance Sheet. On the Redemption Date, Station LLC recognized a $13.4 million loss on debt extinguishment comprising the write-off of $4.0 million in unamortized debt discount and issuance costs and the $9.4 million redemption premium.
5. Derivative Instruments
The Company’s objective in using derivative instruments is to manage its exposure to interest rate movements. To accomplish this objective, Station LLC uses interest rate swaps, including forward-starting swaps, as a primary part of its cash flow hedging strategy, which involves the receipt of variable-rate interest payments in exchange for fixed-rate payments without exchange of the underlying notional amount. The Company may elect not to apply hedge accounting to its derivative instruments; however, it does not use derivative financial instruments for trading or speculative purposes.
On June 30, 2017, the Company dedesignated the hedge accounting relationships of Station LLC’s 16 interest rate swaps that were previously designated as cash flow hedges of forecasted interest payments. The 16 interest rate swaps are with four different counterparties and have maturity dates that run concurrently. The interest rate swaps each have one-year terms that run consecutively which began in July 2016 and will end in July 2020 with predetermined fixed pay rates that increase with each new term to more closely align with the one-month LIBOR forward curve as of the trade date of the interest rate swaps. Station LLC paid a weighted-average fixed rate of 0.85% during the first one-year term that ended in July 2017, which increased to a weighted-average rate of approximately 1.11% during the second year term ending in July 2018 and will increase to 1.39%, and 1.69% in the third and fourth one-year terms, respectively.
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
In June 2017, Station LLC entered into eight additional interest rate swaps for which hedge accounting was not elected. These swaps are also intended to meet the Company’s objectives noted above and are not speculative. The eight interest rate swaps are with two different counterparties and have maturity dates that run concurrently. The interest rate swaps each have one-year terms that run consecutively which began July 2017 and will end in July 2021 with predetermined fixed pay rates that increase with each new term to more closely align with the one-month LIBOR forward curve as of the trade date of the interest rate swaps. Station LLC pays a weighted-average fixed rate of 1.32% during the first one-year term ending in July 2018, which will increase to a weighted-average rate of approximately 1.59%, 1.78% and 1.94% during the second, third and fourth one-year terms, respectively.
At September 30, 2017, Station LLC’s interest rate swaps effectively converted $1.6 billion of Station LLC’s variable interest rate debt (based on one-month LIBOR that is subject to a minimum of 0.75%) to a fixed rate of 3.68%.
The fair values of Station LLC’s interest rate swaps, exclusive of accrued interest, as well as their classification on the Condensed Consolidated Balance Sheets, are presented below (amounts in thousands): |
| | | | | | | |
| | September 30,
2017 | | December 31, 2016 |
| Interest Rate Swaps Designated in Cash Flow Hedging Relationships | | | |
| Prepaid expenses and other current assets | $ | — |
| | $ | 19 |
|
| Other assets, net | — |
| | 10,661 |
|
| Other accrued liabilities | — |
| | 8 |
|
| Interest Rate Swaps Not Designated in Cash Flow Hedging Relationships | | | |
| Prepaid expenses and other current assets | 2,788 |
| | — |
|
| Other assets, net | 8,586 |
| | — |
|
As a result of (i) the June 2017 dedesignation of Station LLC’s 16 interest rate swaps previously designated in cash flow hedging relationships and (ii) the Company’s election not to apply hedge accounting to its eight new interest rate swaps, the changes in fair value of all of Station LLC’s derivative instruments are reflected in Change in fair value of derivative instruments in the Condensed Consolidated Statements of Income in the period in which the change occurs. As such, interest expense for periods subsequent to the dedesignation does not reflect a fixed rate as it previously did under hedge accounting for that portion of the debt hedged. However, the economics are unchanged and the Company continues to meet its risk management objective and achieve fixed cash flows attributable to interest payments on the debt principal being hedged by its interest rate swaps.
Prior to dedesignation, Station LLC’s 16 interest rate swaps were designated as cash flow hedges of forecasted interest payments and as such, the gain or loss on the effective portion of changes in their fair values was recorded as a component of other comprehensive income (loss) until the interest payments being hedged were recorded as interest expense, at which time the amounts in accumulated other comprehensive income (loss) were reclassified as an adjustment to interest expense. The Company recognized the gain or loss on any ineffective portion of the derivatives’ change in fair value in the period in which the change occurred as a component of Change in fair value of derivative instruments in the Condensed Consolidated Statements of Income. At September 30, 2017, $7.8 million of cumulative deferred gains previously recognized in accumulated other comprehensive income are being amortized as a reduction of interest expense as the hedged interest payments continue to occur through July 2020 as a result of the June 2017 dedesignation.
At September 30, 2017, approximately $2.9 million of deferred net gains from Station LLC’s previously designated interest rate swaps is expected to be reclassified from accumulated other comprehensive income into earnings during the next twelve months due to the amortization of deferred gains from the interest rate swaps that were dedesignated on June 30, 2017.
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Information about pretax gains and losses on derivative financial instruments that were designated in cash flow hedging relationships and their location within the condensed consolidated financial statements is presented below (amounts in thousands): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives Designated in Cash Flow Hedging Relationships | | Amount of Loss on Derivatives Recognized in Other Comprehensive (Loss) Income (Effective Portion) | | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) | | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) | | Location of Gain (Loss) on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing) | | Amount of Gain (Loss) on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
| | Three Months Ended September 30, | | | Three Months Ended September 30, | | | Three Months Ended September 30, |
| | 2017 | | 2016 | | | 2017 | | 2016 | | | 2017 | | 2016 |
| Interest rate swaps | | $ | — |
| | $ | (219 | ) | | Interest expense, net | | $ | 624 |
| | $ | (1,732 | ) | | Change in fair value of derivative instruments | | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives Designated in Cash Flow Hedging Relationships | | Amount of Loss on Derivatives Recognized in Other Comprehensive (Loss) Income (Effective Portion) | | Location of Loss Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) | | Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) | | Location of Gain on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing) | | Amount of Gain on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
| | Nine Months Ended September 30, | | | Nine Months Ended September 30, | | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | | 2017 | | 2016 | | | 2017 | | 2016 |
| Interest rate swaps | | $ | (1,875 | ) | | $ | (7,346 | ) | | Interest expense, net | | $ | (1,897 | ) | | $ | (3,333 | ) | | Change in fair value of derivative instruments | | $ | 2 |
| | $ | 87 |
|
Information about pretax gains on derivative financial instruments that were not designated in hedge accounting relationships and their location within the Condensed Consolidated Statements of Income is presented below (amounts in thousands): |
| | | | | | | | | | | | | | | | | | |
| Derivatives Not Designated in Cash Flow Hedging Relationships | | Location of (Loss) Gain on Derivatives Recognized in Income | | Amount of (Loss) Gain on Derivatives Recognized in Income |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Interest rate swaps | | Change in fair value of derivative instruments | | $ | (310 | ) | | $ | — |
| | $ | 3,057 |
| | $ | — |
|
Station LLC has not posted any collateral related to the interest rate swap agreements; however, Station LLC’s obligations under the interest rate swap agreements are subject to the security and guarantee arrangements applicable to the credit facility. The interest rate swap agreements contain a cross-default provision under which Station LLC could be declared in default on its obligation under such agreements if certain conditions of default exist on the credit facility. At September 30, 2017, the termination value of Station LLC’s interest rate swaps, including accrued interest, was a net asset of $11.3 million.
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
6. Fair Value Measurements
Assets Measured at Fair Value on a Recurring Basis
Information about the Company’s financial assets and liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall, is presented below (amounts in thousands):
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurement at Reporting Date Using |
| | Balance at September 30, 2017 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Assets | | | | | | | |
| Interest rate swaps | $ | 11,374 |
| | $ | — |
| | $ | 11,374 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurement at Reporting Date Using |
| | Balance at December 31, 2016 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Assets | | | | | | | |
| Available-for-sale securities | $ | 248 |
| | $ | 248 |
| | $ | — |
| | $ | — |
|
| Interest rate swaps | 10,680 |
| | — |
| | 10,680 |
| | — |
|
| Liabilities | | | | | | | |
| Interest rate swaps | 8 |
| | — |
| | 8 |
| | — |
|
The fair values of Station LLC’s interest rate swaps were determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the interest rate swaps. This analysis reflects the contractual terms of the interest rate swaps, including the period to maturity, and uses observable market-based inputs, including forward interest rate curves. Station LLC incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the counterparty’s nonperformance risk in the fair value measurement.
Assets Measured at Fair Value on a Nonrecurring Basis
In September 2017, the Company recorded an asset impairment charge of $1.8 million to write down an approximately 31-acre parcel of land held for development in Las Vegas to its estimated fair value of $5.2 million as a result of entering into an agreement to sell a portion of the land at a price less than its carrying amount. At September 30, 2017, the land subject to the agreement was presented within assets held for sale in the Condensed Consolidated Balance Sheet. In addition, another parcel of undeveloped land in Las Vegas with a carrying amount at December 31, 2016 of $19.0 million that was presented within assets held for sale was reclassified to land held for development at September 30, 2017 because it was no longer probable that the sale would be completed within one year.
Fair Value of Long-term Debt
The estimated fair value of Station LLC’s long-term debt compared with its carrying amount is presented below (amounts in millions):
| | | | | | | | | | | |
| June 30,
2022 | | December 31, 2021 |
| Aggregate fair value | $ | 2,577 | | | $ | 2,887 | |
| Aggregate carrying amount | 2,844 | | | 2,854 | |
|
| | | | | | | |
| | September 30,
2017 | | December 31, 2016 |
| Aggregate fair value | $ | 2,944 |
| | $ | 2,521 |
|
| Aggregate carrying amount | 2,865 |
| | 2,422 |
|
Table of Contents
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The estimated fair value of Station LLC’s long-term debt is based on quoted market prices from various banks for similar instruments, which is considered a Level 2 input under the fair value measurement hierarchy.
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
7. Stockholders’ Equity (Deficit)
The changes in stockholders' equity and noncontrolling interest for the nine months ended September 30, 2017 were as follows (amounts in thousands): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Red Rock Resorts, Inc. Stockholders’ Equity | | | | |
| Common Stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income | Noncontrolling interest | Total stockholders’ equity |
| Class A | | Class B |
| Shares | | Amount | Shares | | Amount |
Balances,
December 31, 2016 | 65,893 |
| | $ | 659 |
| | 49,956 |
| | $ | 1 |
| | $ | 329,002 |
| | $ | 17,628 |
| | $ | 2,458 |
| | $ | 283,604 |
| | $ | 633,352 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 5,643 |
| | — |
| | 11,385 |
| | 17,028 |
|
| Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (51 | ) | | (37 | ) | | (88 | ) |
| Share-based compensation | — |
| | — |
| | — |
| | — |
| | 5,778 |
| | — |
| | — |
| | — |
| | 5,778 |
|
| Distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (32,288 | ) | | (32,288 | ) |
| Dividends | — |
| | — |
| | — |
| | — |
| | — |
| | (20,184 | ) | | — |
| | — |
| | (20,184 | ) |
| Issuance of restricted stock awards, net of forfeitures | 177 |
| | 2 |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
| | — |
| | — |
|
| Stock option exercises | 118 |
| | 1 |
| | — |
| | — |
| | 2,291 |
| | — |
| | — |
| | — |
| | 2,292 |
|
| Exchanges of noncontrolling interests for Class A common stock | 2,542 |
| | 25 |
| | (2,542 | ) | | — |
| | 13,888 |
| | — |
| | 218 |
| | (14,131 | ) | | — |
|
| Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interests for Class A common stock | — |
| | — |
| | — |
| | — |
| | (21,841 | ) | | — |
| | — |
| | — |
| | (21,841 | ) |
| Deferred tax assets resulting from exchanges of noncontrolling interests for Class A common stock | — |
| | — |
| | — |
| | — |
| | 7,704 |
| | — |
| | — |
| | — |
| | 7,704 |
|
| Repurchase of Class A common stock | (3 | ) | | — |
| | — |
| | — |
| | (74 | ) | | — |
| | — |
| | — |
| | (74 | ) |
| Acquisition of subsidiary noncontrolling interests | — |
| | — |
| | — |
| | — |
| | 2,850 |
| | — |
| | — |
| | (7,334 | ) | | (4,484 | ) |
| Rebalancing of ownership percentage between the Company and noncontrolling interests in Station Holdco | — |
| | — |
| | — |
| | — |
| | (3,964 | ) | | — |
| | (25 | ) | | 3,989 |
| | — |
|
Balances,
September 30, 2017 | 68,727 |
| | $ | 687 |
| | 47,414 |
| | $ | 1 |
| | $ | 335,632 |
| | $ | 3,087 |
| | $ | 2,600 |
| | $ | 245,188 |
| | $ | 587,195 |
|
| | | | | | | | | | | | | | | | | | |
At September 30, 2017, noncontrolling interest represented the 41% ownership interest in Station Holdco not held by Red Rock, as well as a 50% ownership interest in MPM.
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
On November 3, 2017, the Company announced that it would pay dividends of $6.9 million, or $0.10 per share of Class A common stock, to holders of record as of November 15, 2017 to be paid on November 30, 2017. Prior to the payment of the dividend, Station Holdco will pay a cash distribution to all LLC Unit holders, including the Company, of $0.10 per unit for a total distribution of approximately $11.6 million, of which $4.7 million will be paid to noncontrolling interest holders.
Changes in Accumulated Other Comprehensive Income
The following table presents changes in accumulated other comprehensive income, net of tax and noncontrolling interest, by component for the nine months ended September 30, 2017 (amounts in thousands): |
| | | | | | | | | | | | | | | |
| | Accumulated Other Comprehensive Income |
| | Unrealized Gain on Interest Rate Swaps | | Unrealized Gain on Available-for-sale Securities | | Unrecognized Pension Liability | | Total |
| Balances, December 31, 2016 | $ | 2,404 |
| | $ | 52 |
| | $ | 2 |
| | $ | 2,458 |
|
| Unrealized (loss) gain arising during the period (a) | (702 | ) | | 4 |
| | — |
| | (698 | ) |
| Amounts reclassified from accumulated other comprehensive income into income (b) | 703 |
| | (56 | ) | | — |
| | 647 |
|
| Net current-period other comprehensive income (loss) | 1 |
| | (52 | ) | | — |
| | (51 | ) |
| Exchanges of noncontrolling interests for Class A common stock | 218 |
| | — |
| | — |
| | 218 |
|
| Rebalancing of ownership percentage between the Company and noncontrolling interests in Station Holdco | (25 | ) | | — |
| | — |
| | (25 | ) |
| Balances, September 30, 2017 | $ | 2,598 |
| | $ | — |
| | $ | 2 |
| | $ | 2,600 |
|
| |
(a) | Net of $0.4 million tax benefit. |
| |
(b) | Net of $0.4 million tax expense. |
Net Income Attributable to Red Rock Resorts, Inc. and Transfers from (to) Noncontrolling Interests
The table below presents the effect on Red Rock Resorts, Inc. stockholders’ equity from net income and transfers from (to) noncontrolling interests (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Net income attributable to Red Rock Resorts, Inc. | $ | 15,748 | | | $ | 86,714 | | | $ | 64,094 | | | $ | 21,936 | |
| Transfers from (to) noncontrolling interests: | | | | | | | |
| Exchanges of noncontrolling interests | — | | | — | | | — | | | 598 | |
| Rebalancing of ownership percentage between the Company and noncontrolling interests in Station Holdco | 34,008 | | | (2,386) | | | 37,675 | | | (2,537) | |
| Net transfers from (to) noncontrolling interests | 34,008 | | | (2,386) | | | 37,675 | | | (1,939) | |
| Change from net income attributable to Red Rock Resorts, Inc. and net transfers from noncontrolling interests | $ | 49,756 | | | $ | 84,328 | | | $ | 101,769 | | | $ | 19,997 | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Net income attributable to Red Rock Resorts, Inc. | $ | 11,780 |
| | $ | 8,272 |
| | $ | 5,643 |
| | $ | 71,564 |
|
| Transfers from (to) noncontrolling interests: | | | | | | | |
| Allocation of equity to noncontrolling interests of Station Holdco in the reorganization transactions | — |
| | — |
| | — |
| | (362,908 | ) |
Exchanges of noncontrolling interests for Class A common stock | 2,731 |
| | — |
| | 14,131 |
| | — |
|
| Acquisition of subsidiary noncontrolling interests | — |
| | — |
| | 2,850 |
| | — |
|
| Rebalancing of ownership percentage between the Company and noncontrolling interests in Station Holdco | (1,064 | ) | | 451 |
| | (3,989 | ) | | 451 |
|
| Net transfers from (to) noncontrolling interests | 1,667 |
| | 451 |
| | 12,992 |
| | (362,457 | ) |
| Change from net income attributable to Red Rock Resorts, Inc. and net transfers from (to) noncontrolling interests | $ | 13,447 |
| | $ | 8,723 |
| | $ | 18,635 |
| | $ | (290,893 | ) |
| | | | | | | | |
During the three and six months ended June 30, 2022, the Company declared and paid cash dividends of $0.25 and $0.50 per share of Class A common stock, respectively. No dividends were paid during the three and six months ended June 30, 2021. On August 9, 2022, the Company announced that it would pay a dividend of $0.25 per share to Class A shareholders of record as of September 15, 2022 to be paid on September 30, 2022. Prior to the payment of the dividend, Station Holdco will make a cash distribution to all LLC Unit holders, including the Company, of $0.25 per LLC Unit, a portion of which will be paid to the other unit holders of Station Holdco.
21Equity Repurchase Program
As of September 2021, the Company’s board of directors had approved an equity repurchase program authorizing the repurchase of up to an aggregate of $300 million of its Class A common stock through December 31, 2022. During the three and six months ended June 30, 2022, the Company repurchased 3.0 million and 3.2 million shares, respectively, of its Class A common stock for an aggregate purchase price of $113.7 million and $122.5 million, respectively, and a weighted average price per share of $37.42 and $38.02, respectively, in open market transactions. At June 30, 2022, the remaining amount authorized for repurchases under the program was $31.9 million. On August 4, 2022, the Company’s board of directors authorized the repurchase of an additional $300.0 million of its Class A common stock through June 30, 2024, thereby increasing the remaining amount authorized for repurchases under the program to $331.9 million.
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
8. Share-based Compensation
The Company maintains an equity incentive plan which is designed to attract, retain and motivate employees and to align the interests of those individuals with the interests of the Company. A total of 11.623.6 million shares of Class A common stock are reserved for issuance under the plan, of which 5.0approximately 11.8 million shares were available for issuance at SeptemberJune 30, 2017.2022.
Table of Contents
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The following table presents information about the Company’s share-based compensation awards underawards:
| | | | | | | | | | | | | | | | | | | | | | | |
| Restricted Class A
Common Stock | | Stock Options |
| Shares | | Weighted-average grant date fair value | | Shares | | Weighted-average exercise price |
| Outstanding at January 1, 2022 | 392,386 | | | $ | 28.47 | | | 6,562,539 | | | $ | 25.67 | |
| Activity during the period: | | | | | | | |
| Granted | 214,413 | | | 47.33 | | | 1,121,407 | | | 47.34 | |
| Vested/exercised (a) | (152,052) | | | 28.54 | | | (197,889) | | | 24.24 | |
| Forfeited/expired | (4,013) | | | 28.20 | | | (52,504) | | | 25.28 | |
| Outstanding at June 30, 2022 | 450,734 | | | $ | 37.42 | | | 7,433,553 | | | $ | 28.97 | |
(a)Stock options exercised included 127,588 options that were not converted into shares due to net share settlements to cover the equity incentive plan:aggregate exercise price and employee withholding taxes. |
| | | | | | | | | | | | | |
| | Restricted Class A Common Stock | | Stock Options |
| | Shares | | Weighted-average grant date fair value | | Shares | | Weighted-average exercise price |
| Outstanding at January 1, 2017 | 222,487 |
| | $ | 15.70 |
| | 1,637,029 |
| | $ | 19.71 |
|
| Activity during the period: | | | | | | | |
| Granted | 285,097 |
| | 21.95 |
| | 3,519,627 |
| | 21.80 |
|
| Vested/exercised | (99,776 | ) | | 11.18 |
| | (117,548 | ) | | 19.50 |
|
| Forfeited | (107,830 | ) | | 20.83 |
| | (787,768 | ) | | 21.03 |
|
| Outstanding at September 30, 2017 | 299,978 |
| |
| | 4,251,340 |
| |
|
| | | | | | | | |
The Company recognized share-based compensation expense of $2.0$4.6 million and $5.7$8.1 million respectively, for the three and ninesix months ended SeptemberJune 30, 20172022, respectively, and $1.4$3.4 million and $5.7$6.1 million respectively, for the three and ninesix months ended SeptemberJune 30, 2016.2021, respectively. At SeptemberJune 30, 2017,2022, unrecognized share-based compensation cost was $26.2$49.6 million, which is expected to be recognized over a weighted-average period of 3.2 years.
9. Write-downs and Other Charges, Net
Write-downs and other charges, net include various charges to record net losses on asset disposals and non-routine transactions. For the three and nine months ended September 30, 2017, write-downs and other charges, net were $15.1 million and $25.0 million, respectively. These amounts included $13.2 million and $18.8 million, respectively, in fixed asset disposals for the same periods. There were fixed asset disposals of $11.5 million related to the reinvestment in Palms Casino Resort (“Palms”) during the three months ended September 30, 2017. In addition, write-downs and other charges, net for the nine months ended September 30, 2017 included $3.5 million in tenant lease termination expenses at Palms.
For the three and nine months ended September 30, 2016, write-downs and other charges, net were $1.4 million and $14.7 million, respectively. The Company incurred $9.0 million in IPO-related advisory, legal and other transaction-related costs that were not deferred as direct and incremental costs of the IPO, as well as costs related to the acquisition of Fertitta Entertainment completed during the second quarter of 2016. Also included in these amounts were $1.1 million and $2.4 million, respectively, in costs associated with various development and acquisition activities, including the acquisition of Palms completed during the fourth quarter of 2016.
10. Income Taxes
Red Rock is taxed as a corporation and pays corporate federal, state and local taxes on its income, allocated to itprimarily pass-through income from Station Holdco based upon Red Rock’s economic interest held in Station Holdco. Station Holdco is treated as a pass-through partnership for income tax reporting purposes. Station Holdco’s members, including the Company, are liable for federal, state and local income taxes based on their respective share of Station Holdco’s pass-through taxable income.
The Company’s tax provision or benefit from income taxes for interim periods is determined using an estimate of the Company’s annual effective tax ratesrate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates the estimate of the annual effective tax rate and makes necessary cumulative adjustments to the total tax provision or benefit. The current taxes are estimated for the period and the balance sheet is adjusted to reflect such taxes currently payable or receivable. The remaining tax provision or benefit is recorded as deferred taxes.
The Company’s effective tax rate for the three and ninesix months ended SeptemberJune 30, 2017 were 9.58%2022 was 19.9% and 6.74%14.3%, respectively, as compared to 12.53%0.4% and 9.68%, respectively,2.1% for the three and ninesix months ended SeptemberJune 30, 2016.2021, respectively. The Company’s effective tax rate is significantly less thanfor the three and six months ended June 30, 2022 differs from the 21% statutory rate primarily due to valuation allowances recorded against a portion of 35% primarilyits outside basis difference of its interest in Station Holdco and because its effective tax rate includes a rate benefit attributable to the fact that Station Holdco operates as a limited liability company, which is not subject to federal income tax. Accordingly, the Company is not liable for income taxestaxed on the portion of Station Holdco’s earningsincome attributable to noncontrolling interests. Station Holdco operates in Nevada, California and Michigan. Nevada does not impose a state income tax and the Company’s activities in California and Michigan are minimal; as a result, state income taxes do not have a significant impact on the Company’s effective rate. The effective tax rate for the nine months ended September 30, 2016 is also lower than statutory rates because income for the period prior to the IPO was not taxable to the Company as it did not yet hold an equity interest in Station Holdco.
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
As a result of the IPOCompany’s 2016 initial public offering (“IPO”) and certain reorganization transactions, the Company recorded a net deferred tax asset resulting from the outside basis difference of its interest in Station Holdco. The Company also recorded a deferred tax asset for its liability related to payments to be made pursuant to the tax receivable agreement (“TRA”) representing 85% of the tax savings the Company expects to receiverealize from the amortization deductions associated with the step upstep-up in the basis of depreciable assets under Section 754 of the Internal Revenue Code. This deferred tax asset will be recovered as cash payments are made to the TRA participants. In addition, the Company has recorded deferred tax receivable agreement participants.assets related to net operating losses.
The Company considers both positive and negative evidence when measuring the need for a valuation allowance. A valuation allowance is not required to the extent that, in management’s judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that the Company’s deferred tax assets will be realized. The Company determined that the deferred tax asset related to acquiring its interestthe LLC Units issued in Station Holdco through the newly issued LLC UnitsIPO and reorganization transactions is not expected to be realized unless the Company disposes of its investment in Station Holdco. Accordingly, as partAs such, the Company
Table of the reorganization transactions in May 2016, the Company recognizedContents
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
established a charge to equity to establish a $109.4 million valuation allowance against this portion of its deferred tax asset. The Company recognizes subsequent changes to the valuation allowance through the provision for income tax or other comprehensive income, as applicable, and at September 30, 2017 and December 31, 2016, the valuation allowance was $97.6 million and $103.7 million, respectively.applicable.
Tax Receivable Agreement
In connection with the IPO, the Company entered into a tax receivable agreementthe TRA with certain pre-IPO owners of Station Holdco.who held LLC Units prior to the IPO. In the event that such parties exchange any or all of their HoldcoLLC Units for Class A common stock or cash, at the tax receivable agreementelection of the Company, the TRA requires the Company to make payments to such holders for 85% of the tax benefits realized by the Company as a result of such exchange. The Company expects to realize these tax benefits based on current projections of taxable income. The annual tax benefits are computed by calculating the income taxes due, including such tax benefits, and the income taxes due without such benefits.
At SeptemberJune 30, 20172022 and December 31, 2016,2021, the Company'sCompany’s liability under the tax receivable agreementTRA was $280.1$27.2 million, and $258.5 million, respectively, of which $1.0$9.0 million was presented within current liabilities at December 31, 2016. Aspayable to entities related to Frank J. Fertitta III, the Company’s Chairman of the Board and Chief Executive Officer, and Lorenzo J. Fertitta, Vice Chairman of the Board and a resultvice president of exchangesthe Company. For the six months ended June 30, 2021, an exchange of approximately 0.5 million and 2.5 million LLC Units and Class B common shares for Class A common sharesresulted in an increase in the amount payable under the TRA liability of $0.6 million, which was recorded through stockholders’ equity. No LLC Units were exchanged during the three and ninesix months ended SeptemberJune 30, 2017, respectively,2022 or the three months ended June 30, 2021. The Company recognized increases inexpects to pay $6.7 million of the TRA liability of $4.6 million and $21.8 million, respectively.within the next twelve months.
The timing and amount of aggregate payments due under the tax receivable agreementTRA may vary based on a number of factors, including the amount and timing of the taxable income the Company generates each year and the tax rate then applicable. The payment obligations under the tax receivable agreementTRA are Red Rock’s obligations and are not obligations of Station Holdco or Station LLC. Payments are generally due within a specified period of time following the filing of the Company’s annual tax return and interest on such payments will accrue from the original due date (without extensions) of the income tax return until the date paid. Payments not made within the required period after the filing of the income tax return generally accrue interest at a rate of LIBOR plus 5.00%.
The tax receivable agreementTRA will remain in effect until all such tax benefits have been utilized or expired, unless the Company exercises its right to terminate the tax receivable agreement.TRA. The tax receivable agreementTRA will also terminate if the Company breaches its obligations under the tax receivable agreementTRA or upon certain mergers, asset sales or other forms of business combinations, or other changes of control. If the Company exercises its right to terminate the tax receivable agreement,TRA, or if the tax receivable agreementTRA is terminated early in accordance with its terms, Red Rock’sthe Company’s payment obligations would be accelerated based upon certain assumptions, including the assumption that the Company would have sufficient future taxable income to utilize such tax benefits.
11. Related Party Transactions
Prior to April 27, 2017,benefits, and may substantially exceed the actual benefits, if any, the Company leasedrealizes in respect of the land on which each of Boulder Station and Texas Station is located pursuant to long-term ground leases which provided for monthly payments of $222,933 through 2058 and $366,435 through 2060, respectively, subject to future increases. The Company leased this land from entities owned by the Frank J. Fertitta and Victoria K. Fertitta Revocable Family Trust (the “Related Party Lessor”). Frank J. Fertitta, Jr. and Victoria K. Fertitta are the parents of Frank J. Fertitta III, the Company’s Chairman and Chief Executive Officer, and Lorenzo J. Fertitta, the Company’s Vice Chairman. On April 27, 2017, the Company acquired the land (formerlytax attributes subject to the ground leases), including the residual interest in the gaming and hotel facilities and other real property improvements thereon (the “Gaming Facilities”), for aggregate consideration of $120.0 million. Concurrently with the land acquisition, the Company assumed a long-term ground lease with an unrelated third-party lessor for an adjacent parcel of land at Boulder Station that previously had been subleased from the Related Party Lessor. The assumed ground lease terminates in 2089 and provides for monthly rental payments of approximately $14,000, subject to annual increases of 3% to 6% based on a cost of living factor. During the nine months ended September 30, 2017, the Company recognized a charge of $100.3 million in related party lease termination costs, which was an amount equal to the difference between the aggregate consideration paid by the Company and the fair value of the net assets acquired, including the land and residual interests in the Gaming Facilities and the assumed lease obligation. The transactionTRA.
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
conveyed ownership of the land and interests (current and residual) in the Gaming Facilities to the Company, decreased rent expense over the maximum term of the leases by approximately $300 million (approximately $7.1 million annually), and generated a tax benefit of approximately $35 million to Red Rock and the other owners of Station Holdco.
Under the tax receivable agreement described in Note 10, the Company is required to make payments to certain pre-IPO owners of Station Holdco for 85% of the tax benefits realized by the Company as a result of certain transactions with the pre-IPO owners. At September 30, 2017 and December 31, 2016, $21.1 million and $21.6 million, respectively, of the Company’s liability under the tax receivable agreement was payable to entities related to Frank J. Fertitta III and Lorenzo J. Fertitta, and at September 30, 2017, $4.0 million was payable to current and former executives of the Company.
12.10. Earnings Per Share
Basic earnings or loss per share is calculated by dividing net income or loss attributable to Red Rock by the weighted averageweighted-average number of shares of Class A common stock outstanding during the period. The calculation of diluted earnings or loss per share gives effect to all potentially dilutive shares, including shares issuable pursuant to outstanding stock options and nonvested restricted shares of Class A common stock, based on the application of the treasury stock method, and outstanding Class B common stock that is exchangeable, along with an equal number of LLC Units, for Class A common stock, based on the application of the if-converted method. Dilutive shares included in the calculation of dilutivediluted earnings per share for the three and ninesix months ended SeptemberJune 30, 2017 represent2022 represented nonvested restricted shares of Class A common stock and outstanding stock options. For the three and six months ended June 30, 2021, dilutive shares included in the calculation of diluted earnings per share represented outstanding shares of Class B common stock, nonvested restricted shares of Class A common stock and outstanding stock options. All other potentially dilutive sharessecurities have been excluded from the calculation of diluted earnings per share because their inclusion would have been antidilutive.
Table of calculating earnings per share for the nine months ended September 30, 2016 the Company has retrospectively presented earnings per share as if the IPO had occurred at the beginning of the earliest period presented. Such retrospective presentation reflects approximately 10 million Class A shares outstanding, representing certain LLC Units that were exchanged for shares of Class A common stock in connection with the IPO. Accordingly, for the nine months ended September 30, 2016, the Company has applied a hypothetical allocation of net income to the Class A common stock, with the remainder of net income being allocated to noncontrolling interests. This hypothetical allocation of net income differs from the allocation of net income to Red Rock and noncontrolling interests presented in the Condensed Consolidated Statements of Operations, which assumes no noncontrolling interest in Station Holdco existed prior to the IPO.Contents
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
A reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share is presented below (amounts in thousands):
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2022 | | 2021 | | 2022 | | 2021 |
| Net income | $ | 22,308 |
| | $ | 33,444 |
| | $ | 17,028 |
| | $ | 114,675 |
| Net income | $ | 32,438 | | | $ | 143,350 | | | $ | 124,683 | | | $ | 36,787 | |
| Less: net income attributable to noncontrolling interests | 10,528 |
| | 25,172 |
| | 11,385 |
| | 99,786 |
| Less: net income attributable to noncontrolling interests | (16,690) | | | (56,636) | | | (60,589) | | | (14,851) | |
| Net income attributable to Red Rock, basic | $ | 11,780 |
| | $ | 8,272 |
| | $ | 5,643 |
| | $ | 14,889 |
| Net income attributable to Red Rock, basic | 15,748 | | | 86,714 | | | 64,094 | | | 21,936 | |
| | | | | | | | | |
| Net income attributable to Red Rock, basic | $ | 11,780 |
| | $ | 8,272 |
| | $ | 5,643 |
| | $ | 14,889 |
| |
| Effect of dilutive securities | 6,503 |
| | (39 | ) | | 2,969 |
| | (38 | ) | Effect of dilutive securities | 264 | | | 44,732 | | | 1,114 | | | 11,730 | |
| Net income attributable to Red Rock, diluted | $ | 18,283 |
| | $ | 8,233 |
| | $ | 8,612 |
| | $ | 14,851 |
| Net income attributable to Red Rock, diluted | $ | 16,012 | | | $ | 131,446 | | | $ | 65,208 | | | $ | 33,666 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Weighted average shares of Class A common stock outstanding, basic | 59,514 | | | 70,212 | | | 60,255 | | | 70,469 | |
| Effect of dilutive securities | 2,054 | | | 47,575 | | | 2,452 | | | 47,170 | |
| Weighted average shares of Class A common stock outstanding, diluted | 61,568 | | | 117,787 | | | 62,707 | | | 117,639 | |
| | | | | | | |
|
| | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Weighted average shares of Class A common stock outstanding, basic | 68,060 |
| | 41,137 |
| | 67,030 |
| | 27,070 |
|
| Effect of dilutive securities | 47,881 |
| | 151 |
| | 48,847 |
| | 104 |
|
| Weighted average shares of Class A common stock outstanding, diluted | 115,941 |
| | 41,288 |
| | 115,877 |
| | 27,174 |
|
| | | | | | | | |
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The calculation of diluted earnings per share of Class A common stock excluded the following potentially dilutive sharessecurities that were outstanding at June 30, 2022 and 2021, respectively, because their inclusion would have been antidilutive (amounts in thousands): |
| | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Shares issuable in exchange for Class B common stock and LLC Units | — |
| | 74,427 |
| | — |
| | 74,427 |
|
| Shares issuable upon exercise of stock options | 3,962 |
| | 1,715 |
| | 3,962 |
| | 1,134 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Shares of Class B common stock and LLC Units exchangeable for Class A common stock | 45,986 | | | — | | | 45,986 | | | — | |
| Stock options | 2,012 | | | 1,268 | | | 1,164 | | | 2,019 | |
| Unvested restricted shares of Class A common stock | 205 | | | — | | | 104 | | | — | |
Shares of Class B common stock are not entitled to share in the earnings of the Company and are not participating securities. Accordingly, earnings per share of Class B common stock under the two-class method has not been presented.
13.11. Commitments and Contingencies
The Company and its subsidiaries are defendants in various lawsuits relating to routine matters incidental to their business. No assurance can be provided as to the outcome of any legal matters and litigation inherently involves significant costs.risks. The Company does not believe there are any legal matters outstanding that would have a material impact on its financial condition or results of operations.
14.12. Segments
The Company views each of its Las Vegas casino properties and each of its Native American management arrangements as individual operating segments. The Company aggregates all of its Las Vegas operating segments into one1 reportable segment because all of its Las Vegas properties offer similar products, cater to the same customer base, have the same regulatory and tax structure, share the same marketing techniques, are directed by a centralized management structure and have similar economic characteristics. The Company also aggregates its Native American management arrangements into one1 reportable segment.
20
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The Company utilizes Adjusted EBITDA as its primary performance measure. The Company’s segment information and a reconciliation of net income to Adjusted EBITDA are presented below (amounts in thousands):.
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2022 | | 2021 | | 2022 | | 2021 |
| Net revenues | | | | | | | | Net revenues | | | | | | | |
| Las Vegas operations | $ | 369,493 |
| | $ | 318,253 |
| | $ | 1,127,223 |
| | $ | 972,587 |
| |
| Native American management | 29,478 |
| | 27,597 |
| | 90,126 |
| | 81,404 |
| |
| Las Vegas operations: | | Las Vegas operations: | |
| Casino | | Casino | $ | 280,636 | | | $ | 304,212 | | | $ | 560,407 | | | $ | 564,150 | |
| Food and beverage | | Food and beverage | 73,756 | | | 64,885 | | | 139,455 | | | 111,757 | |
| Room | | Room | 44,283 | | | 39,150 | | | 81,055 | | | 61,094 | |
| Other (a) | | Other (a) | 21,192 | | | 17,893 | | | 38,467 | | | 31,735 | |
| Management fees | | Management fees | 244 | | | 270 | | | 457 | | | 491 | |
| Las Vegas operations net revenues | | Las Vegas operations net revenues | 420,111 | | | 426,410 | | | 819,841 | | | 769,227 | |
| Native American management: | | Native American management: | |
| Management fees | | Management fees | — | | | — | | | — | | | 8,087 | |
| Reportable segment net revenues | 398,971 |
| | 345,850 |
| | 1,217,349 |
| | 1,053,991 |
| Reportable segment net revenues | 420,111 | | | 426,410 | | | 819,841 | | | 777,314 | |
| Corporate and other | 1,399 |
| | 1,290 |
| | 4,246 |
| | 3,882 |
| Corporate and other | 2,130 | | | 1,747 | | | 4,036 | | | 3,462 | |
| Net revenues | $ | 400,370 |
| | $ | 347,140 |
| | $ | 1,221,595 |
| | $ | 1,057,873 |
| Net revenues | $ | 422,241 | | | $ | 428,157 | | | $ | 823,877 | | | $ | 780,776 | |
| | | | | | | | | | | | | | | | |
| Net income | $ | 22,308 |
| | $ | 33,444 |
| | $ | 17,028 |
| | $ | 114,675 |
| Net income | $ | 32,438 | | | $ | 143,350 | | | $ | 124,683 | | | $ | 36,787 | |
| Adjustments | | | | | | | | Adjustments | |
| Preopening | 307 |
| | 10 |
| | 705 |
| | 731 |
| |
| Depreciation and amortization | 42,661 |
| | 36,240 |
| | 134,721 |
| | 114,103 |
| Depreciation and amortization | 33,097 | | | 36,160 | | | 66,522 | | | 90,415 | |
| Share-based compensation | 1,989 |
| | 1,413 |
| | 5,727 |
| | 5,714 |
| Share-based compensation | 4,632 | | | 3,373 | | | 8,137 | | | 6,114 | |
| Write-downs and other charges, net | 15,146 |
| | 1,379 |
| | 24,996 |
| | 14,713 |
| |
| Related party lease termination | 1,950 |
| | — |
| | 100,343 |
| | — |
| |
| Write-downs and other, net | | Write-downs and other, net | 2,045 | | | 1,435 | | | 12,225 | | | 1,695 | |
| Asset impairment | 1,829 |
| | — |
| | 1,829 |
| | — |
| Asset impairment | 78,992 | | | (1,956) | | | 78,992 | | | 167,777 | |
| Losses from assets held for sale | | Losses from assets held for sale | — | | | 1,441 | | | — | | | 1,441 | |
| Interest expense, net | 31,330 |
| | 35,275 |
| | 100,127 |
| | 104,421 |
| Interest expense, net | 28,748 | | | 25,614 | | | 55,422 | | | 52,881 | |
| Loss on extinguishment/modification of debt, net | 558 |
| | 186 |
| | 3,552 |
| | 7,270 |
| |
| Change in fair value of derivative instruments | 310 |
| | — |
| | (3,059 | ) | | (87 | ) | |
| Adjusted EBITDA attributable to MPM noncontrolling interest | (2,426 | ) | | (3,715 | ) | | (13,482 | ) | | (13,047 | ) | |
| Loss on extinguishment of debt | | Loss on extinguishment of debt | — | | | — | | | — | | | 8,140 | |
| Provision for income tax | 2,364 |
| | 4,790 |
| | 1,230 |
| | 12,292 |
| Provision for income tax | 8,070 | | | 581 | | | 20,789 | | | 798 | |
| Other | — |
| | — |
| | — |
| | (1,133 | ) | Other | 846 | | | 159 | | | 846 | | | 758 | |
| Adjusted EBITDA (a) | $ | 118,326 |
| | $ | 109,022 |
| | $ | 373,717 |
| | $ | 359,652 |
| |
| Adjusted EBITDA (b) | | Adjusted EBITDA (b) | $ | 188,868 | | | $ | 210,157 | | | $ | 367,616 | | | $ | 366,806 | |
| | | | | | | | | | | | | | | | |
| Adjusted EBITDA | | | | | | | | Adjusted EBITDA | |
| Las Vegas operations | $ | 101,779 |
| | $ | 94,322 |
| | $ | 327,056 |
| | $ | 317,959 |
| Las Vegas operations | $ | 203,929 | | | $ | 222,589 | | | $ | 398,533 | | | $ | 383,269 | |
| Native American management | 25,337 |
| | 21,624 |
| | 71,349 |
| | 62,152 |
| Native American management | (1,252) | | | — | | | (3,448) | | | 7,604 | |
| Reportable segment Adjusted EBITDA | 127,116 |
| | 115,946 |
| | 398,405 |
| | 380,111 |
| Reportable segment Adjusted EBITDA | 202,677 | | | 222,589 | | | 395,085 | | | 390,873 | |
| Corporate and other | (8,790 | ) | | (6,924 | ) | | (24,688 | ) | | (20,459 | ) | Corporate and other | (13,809) | | | (12,432) | | | (27,469) | | | (24,067) | |
| Adjusted EBITDA | $ | 118,326 |
| | $ | 109,022 |
| | $ | 373,717 |
| | $ | 359,652 |
| Adjusted EBITDA | $ | 188,868 | | | $ | 210,157 | | | $ | 367,616 | | | $ | 366,806 | |
| | | | | | | | | |
(a)Includes tenant lease revenue of $5.7 million and $10.1 million for the three and six months ended June 30, 2022, respectively, and $4.0 million and $6.7 million for the three and six months ended June 30, 2021, respectively. Revenue from tenant leases is accounted for under the lease accounting guidance and included in Other revenues in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income.
| |
(a) | Adjusted EBITDA includes net income plus preopening, depreciation and amortization, share-based compensation, write-downs and other charges, net, related party lease termination, asset impairment, interest expense, net, loss on extinguishment/modification of debt, net, change in fair value of derivative instruments and income taxes, and excludes Adjusted EBITDA attributable to the noncontrolling interests of MPM. |
(b)Adjusted EBITDA includes net income plus depreciation and amortization, share-based compensation, write-downs and other, net (including gains and losses on asset disposals, severance, preopening, business innovation and technology enhancements, contract termination costs and non-routine items), asset impairment, losses from assets held for sale, interest expense, net, loss on extinguishment of debt, provision for income tax and other.
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of ourthe financial condition and results of operations of Red Rock Resorts, Inc. (“we,” “our,” “us,” “Red Rock” or the “Company”) should be read in conjunction with our condensed consolidated financial statements and related notes (the “Condensed Consolidated Financial Statements”) included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2016.2021.
Overview
Red Rock Resorts, Inc. (“we,” “our,” “us,” “Red Rock” or the “Company”) was formed as a Delaware corporation in September 2015 to manage and own an indirect equity interest in and manage Station Casinos LLC (“Station LLC”). In May 2016, we completed an initial public offering (“IPO”) and used the proceeds to purchase newly issued, a Nevada limited liability company. Station LLC is a gaming, development and management company interestsestablished in 1976 that owns and operates six major gaming and entertainment facilities and ten smaller casino properties (three of which are 50% owned) in the Las Vegas regional market. In June 2022, we decided to permanently close our Texas Station, Holdco LLC (“Station Holdco,”Fiesta Henderson and such units,Fiesta Rancho properties, which have been closed since March 2020 as a result of the “LLC Units”),COVID-19 pandemic. The facilities at these properties are expected to be demolished to reposition the land for sale. We are currently constructing a new casino resort on our approximately 50-acre development site at the intersection of Durango Drive and outstanding LLC Units from existing membersInterstate 215 in the southwest Las Vegas valley, which is expected to open in the next 15 to 21 months. Through February 5, 2021, a subsidiary of Station Holdco. LLC also managed Graton Resort in northern California on behalf of a Native American tribe.
We own all of the outstanding voting interests in Station LLC and have an indirect economicequity interest in Station LLC through our ownership interestof limited liability company interests in Station Holdco LLC (“Station Holdco,” and such interests, “LLC Units”), which owns all of the economic interests in Station LLC. Station LLC is a gaming, development and management company that owns and operates ten major gaming and entertainment facilities and ten smaller casinos (three of which are 50% owned) in the Las Vegas regional market, including Palms Casino Resort (“Palms”) which it acquired in October 2016. In addition, Station LLC manages Graton Resort & Casino (“Graton Resort”) in Sonoma County, California and Gun Lake Casino (“Gun Lake”) in Allegan County, Michigan, both on behalf of Native American tribes.
At SeptemberJune 30, 2017,2022, we held approximately 59%57% of the economic interests in Station Holdco, as well as 100% of the voting interest in Station LLC and 100% of the voting power in Station Holdco, subject to certain limited exceptions, and werewe are designated as the sole managing member of both Station Holdco and Station LLC. We control and operate all of the business and affairs of Station Holdco and Station LLC, and conduct all of our operations through these entities. Our only material assets are our ownership interests in Station LLC and Station Holdco, other than tax-related assets and liabilities.
Our Condensed Consolidated Financial Statements reflect the consolidation of Station LLC and its consolidated subsidiaries, and Station Holdco. The financial position and results of operations attributable to LLC Units we do not own are reported separately as noncontrolling interest. Station Holdco is our predecessor for accounting purposes and accordingly, for all periods prior to May 2, 2016, the financial information presented herein represents the information of the predecessor.
Our principal source of revenue and operating income is gaming, and our non-gaming offerings include restaurants, hotels and other entertainment amenities. Approximately 80% to 85% of our casino revenue is generated from slot play. The majority of our revenue is cash-based and as a result, fluctuations in our revenues have a direct impact on our cash flows from operations. Because our business is capital intensive, we rely heavily on the ability of our properties to generate operating cash flow to repay debt financing and fund capital expenditures.
A significant portion of our business is dependent upon customers who live and/or work in the Las Vegas metropolitan area. TheIn June 2022, the unemployment rate in the Las Vegas economy, although severely impacted bymetropolitan area increased slightly to 5.7% from 5.0% in March 2022, but remains down from a high of 34% in April 2020. Statewide, the recession and housing crisis that spanned from 2008 to 2011, began to stabilize in 2012 and, based on population and employment growth, is once again one of the fastest growing economies in the United States. Based on a recent U.S. Census Bureau release, Nevada was second among all states in percentage growth of population from July 2015 to July 2016. In addition, based on preliminary data for September 2017 from the U.S. Bureau of Labor Statistics, Las Vegas experienced a 2.4% year-over-year increase in employment to 983,500 jobs. This resulted in an unemployment rate of 5.2% which has declined from 14.1%to 4.7% in July 2011. Businesses and consumersJune 2022, as compared to 30% in Las Vegas continue to increase their spending as evidenced by 49 consecutive months of year-over-year increases in taxable retail sales from July 2013 to July 2017. Home values have also improved significantly over the past several years withApril 2020. In June 2022, the median price of an existing single familysingle-family home in Las Vegas according to the Las Vegas Realtors® was $480,000, up approximately 135% at September 201721.5% as compared to January 2012, as reported by the Home Builders Research.
TheJune 2021. This continues a trend of significant year over year improvements in Las Vegas economy has shown improvementshome values since 2012. We cannot predict whether the recovery in employment, taxable salesunemployment and home prices, and we believe the stabilization of the local economy, positive trends in many ofhousing prices in the key economic indicators and future projects and infrastructure investments provide a foundation for future growth in our business. Although we experienced improved operating results over the past few years due, in part, to more favorable local economic conditions, we cannot be sure if, or how long, these favorable market conditions will persist or that theyLas Vegas area will continue, especially in light of uncertainty in the economic outlook stemming from rising inflation, higher interest rates and increased energy costs.
The COVID-19 pandemic and its related variants have had, and may continue to positivelyhave, a detrimental impact on the United States and Las Vegas economies. We have taken steps to mitigate these and potential future effects of COVID-19 and its related variants on our results of operations. through a combination of streamlining our business, optimizing our marketing initiatives, and reducing expenses.
Subsequent to the reopening of most of our properties in June 2020, we have seen favorable customer trends that continued in the second quarter of 2022, including strong and consistent visitation from our guests, including a younger demographic, strong spend per visit and a return of our core customers. These positive trends, in combination with business optimization and cost reduction measures implemented in the second quarter of 2020, continue to drive strong operating results in 2022. However, we cannot predict whether these trends will continue, nor can we predict the extent to which the impacts of
the COVID-19 pandemic and its related variants on the United States and Las Vegas economies may affect our business in the future.
Our Information about our results of operations is included herein and in the notes to our Condensed Consolidated Financial Statements.
Key Performance Indicators
We use certain key indicators to measure our performance.
Gaming revenue measures:
•Slot handle, and table game drop and race and sports write are measures of volume. Slot handle represents the dollar amount wagered in slot machines, and table game drop represents the total amount of cash and net markers issued that are deposited in table game drop boxes.
•Win represents the amount of wagers retained by us and recorded as casino revenue.us.
•Hold represents win as a percentage of slot handle or table game drop.
As our customers are primarily Las Vegas residents, our hold percentages are generally consistent from period to period. Fluctuations in our casino revenue are primarily due to the volume and spending levels of customers at our properties.
Food and beverage revenue measures:
•Average guest check is a measure of food sales volume and product offerings at our restaurants, and represents the average amount spent per customer visit.
•Number of guests served is an indicator of volume.
Room revenue measures:
•Occupancy is calculated by dividing total occupied rooms, including complimentary rooms, by total rooms available.
•Average daily rate (“ADR”) is calculated by dividing total room revenue, which includes the retail value of complimentary rooms, by total rooms occupied, including complimentary rooms.
•Revenue per available room is calculated by dividing total room revenue by total rooms available.
Results of Operations
Information about our results of operations is presented below (dollars(amounts in thousands):
| | | | Three Months Ended September 30, | | Percent change | | Nine Months Ended September 30, | | Percent change | | Three Months Ended June 30, | | Percent
change | | Six Months Ended June 30, | | Percent
change |
| | 2017 | | 2016 | | 2017 | | 2016 | | | 2022 | | 2021 | | 2022 | | 2021 | |
| Net revenues | $ | 400,370 |
| | $ | 347,140 |
| | 15.3 | % | | $ | 1,221,595 |
| | $ | 1,057,873 |
| | 15.5 | % | Net revenues | $ | 422,241 | | | $ | 428,157 | | | (1.4) | % | | $ | 823,877 | | | $ | 780,776 | | | 5.5 | % |
| Operating income | 56,463 |
| | 73,349 |
| | (23.0 | )% | | 117,636 |
| | 237,185 |
| | (50.4 | )% | Operating income | 68,244 | | | 168,516 | | | (59.5) | % | | 199,038 | | | 97,363 | | | 104.4 | % |
| | | | | | | | | | | | | |
| Casino revenues | 263,153 |
| | 232,584 |
| | 13.1 | % | | 784,521 |
| | 706,151 |
| | 11.1 | % | Casino revenues | 280,636 | | | 304,212 | | | (7.7) | % | | 560,407 | | | 564,150 | | | (0.7) | % |
| Casino expenses | 104,945 |
| | 90,088 |
| | 16.5 | % | | 309,769 |
| | 266,495 |
| | 16.2 | % | Casino expenses | 69,746 | | | 70,400 | | | (0.9) | % | | 138,612 | | | 133,516 | | | 3.8 | % |
| Margin | 60.1 | % | | 61.3 | % | |
|
| | 60.5 | % | | 62.3 | % | | | Margin | 75.1 | % | | 76.9 | % | | 75.3 | % | | 76.3 | % | |
| | | | | | | | | | | | | |
| Food and beverage revenues | 71,658 |
| | 63,551 |
| | 12.8 | % | | 227,076 |
| | 196,579 |
| | 15.5 | % | Food and beverage revenues | 73,756 | | | 64,885 | | | 13.7 | % | | 139,455 | | | 111,757 | | | 24.8 | % |
| Food and beverage expenses | 51,555 |
| | 44,888 |
| | 14.9 | % | | 161,660 |
| | 131,913 |
| | 22.6 | % | Food and beverage expenses | 57,839 | | | 48,879 | | | 18.3 | % | | 111,062 | | | 89,936 | | | 23.5 | % |
| Margin | 28.1 | % | | 29.4 | % | | | | 28.8 | % | | 32.9 | % | | | Margin | 21.6 | % | | 24.7 | % | | 20.4 | % | | 19.5 | % | |
| | | | | | | | | | | | | |
| Room revenues | 43,118 |
| | 32,192 |
| | 33.9 | % | | 137,523 |
| | 99,555 |
| | 38.1 | % | Room revenues | 44,283 | | | 39,150 | | | 13.1 | % | | 81,055 | | | 61,094 | | | 32.7 | % |
| Room expenses | 17,473 |
| | 12,036 |
| | 45.2 | % | | 55,779 |
| | 36,314 |
| | 53.6 | % | Room expenses | 13,293 | | | 14,650 | | | (9.3) | % | | 25,775 | | | 25,741 | | | 0.1 | % |
| Margin | 59.5 | % | | 62.6 | % | | | | 59.4 | % | | 63.5 | % | | | Margin | 70.0 | % | | 62.6 | % | | 68.2 | % | | 57.9 | % | |
| | | | | | | | | | | | | |
| Other revenues | 24,018 |
| | 17,463 |
| | 37.5 | % | | 70,537 |
| | 52,350 |
| | 34.7 | % | Other revenues | 23,322 | | | 19,640 | | | 18.7 | % | | 42,503 | | | 35,197 | | | 20.8 | % |
| Other expenses | 9,526 |
| | 6,411 |
| | 48.6 | % | | 26,438 |
| | 18,438 |
| | 43.4 | % | Other expenses | 8,792 | | | 5,983 | | | 46.9 | % | | 15,162 | | | 11,333 | | | 33.8 | % |
| | | | | | | | | | | | | |
| Management fee revenue | 29,602 |
| | 27,702 |
| | 6.9 | % | | 90,505 |
| | 81,806 |
| | 10.6 | % | Management fee revenue | 244 | | | 270 | | | n/m | | 457 | | | 8,578 | | | n/m |
| | | | | | | | | | | | | |
| Selling, general and administrative expenses | 98,515 |
| | 82,739 |
| | 19.1 | % | | 287,719 |
| | 237,981 |
| | 20.9 | % | Selling, general and administrative expenses | 90,193 | | | 84,090 | | | 7.3 | % | | 176,489 | | | 163,000 | | | 8.3 | % |
| Percent of net revenues | 24.6 | % | | 23.8 | % | | | | 23.6 | % | | 22.5 | % | | | Percent of net revenues | 21.4 | % | | 19.6 | % | | 21.4 | % | | 20.9 | % | |
| | | | | | | | | | | | | |
| Depreciation and amortization | 42,661 |
| | 36,240 |
| | 17.7 | % | | 134,721 |
| | 114,103 |
| | 18.1 | % | Depreciation and amortization | 33,097 | | | 36,160 | | | (8.5) | % | | 66,522 | | | 90,415 | | | (26.4) | % |
| Write-downs and other charges, net | 15,146 |
| | 1,379 |
| | n/m |
| | 24,996 |
| | 14,713 |
| | n/m |
| |
| Related party lease termination | 1,950 |
| | — |
| | n/m |
| | 100,343 |
| | — |
| | n/m |
| |
| Write-downs and other, net | | Write-downs and other, net | 2,045 | | | 1,435 | | | n/m | | 12,225 | | | 1,695 | | | n/m |
| Asset impairment | 1,829 |
| | — |
| | n/m |
| | 1,829 |
| | — |
| | n/m |
| Asset impairment | 78,992 | | | (1,956) | | | n/m | | 78,992 | | | 167,777 | | | n/m |
| Interest expense, net | 31,330 |
| | 35,275 |
| | (11.2 | )% | | 100,127 |
| | 104,421 |
| | (4.1 | )% | Interest expense, net | 28,748 | | | 25,614 | | | 12.2 | % | | 55,422 | | | 52,881 | | | 4.8 | % |
| Loss on extinguishment/modification of debt, net | 558 |
| | 186 |
| | n/m |
| | 3,552 |
| | 7,270 |
| | n/m |
| |
| Loss on extinguishment of debt | | Loss on extinguishment of debt | — | | | — | | | n/m | | — | | | 8,140 | | | n/m |
| Provision for income tax | 2,364 |
| | 4,790 |
| | n/m |
| | 1,230 |
| | 12,292 |
| | n/m |
| Provision for income tax | 8,070 | | | 581 | | | n/m | | 20,789 | | | 798 | | | n/m |
| Net income attributable to noncontrolling interests | 10,528 |
| | 25,172 |
| | n/m |
| | 11,385 |
| | 43,111 |
| | n/m |
| Net income attributable to noncontrolling interests | 16,690 | | | 56,636 | | | (70.5) | % | | 60,589 | | | 14,851 | | | 308.0 | % |
| Net income attributable to Red Rock | 11,780 |
| | 8,272 |
| | n/m |
| | 5,643 |
| | 71,564 |
| | n/m |
| Net income attributable to Red Rock | 15,748 | | | 86,714 | | | (81.8) | % | | 64,094 | | | 21,936 | | | 192.2 | % |
n/m = Not meaningful
We view each of our Las Vegas casino properties as an individual operating segments.segment. We aggregate all of our Las Vegas operating segments into one reportable segment because all of our Las Vegas properties offer similar products, cater to the same customer base, have the same regulatory and tax structure, share the same marketing techniques,programs, are directed by a centralized management structure and have similar economic characteristics. We also aggregate our Native American management
arrangements into one reportable segment. The results of operations for our Native American management segment are discussed in the section entitled “Management Fee Revenue” below and the results of operations of our Las Vegas operations are discussed in the remaining sections. For the three and nine months ended September 30, 2017, references to same-store basis represents resultssections below.
Net Revenues. Net revenues for the three and nine months ended SeptemberJune 30, 20172022 were $422.2 million, down 1.4% as compared to $428.2 million for the prior year period. For the six months ended June 30, 2022, net revenues were $823.9 million, an increase of 5.5% compared to $780.8 million for the prior year period.
For the three and six months ended June 30, 2022, we continued to deliver strong year-over-year revenue growth across our non-gaming offerings at our properties. For the three months ended June 30, 2022, our food and beverage, room and other revenue increased by 15.3%13.7%, 13.1% and 15.5%18.7%, respectively, as compared to the same quarter in 2021, and for the six months ended June 30, 2022, we achieved year over year growth of 24.8%, 32.7% and 20.8% for food and beverage, room and other revenues, respectively. Our casino revenues for the three and six months ended June 30, 2022 were $280.6 million and $560.4 million, respectively, as compared to $304.2 million and $564.2 million, respectively, for the prior year periods. Our casino revenues for the three months ended June 30, 2021 were the highest in our history and were the result of multiple factors, including the lifting of all state-mandated COVID-19 restrictions on June 1, 2021, additional government stimulus payments, and the return of consumer demand amid the continued rollout of the COVID-19 vaccination program. Net revenues for the six months ended June 30, 2021 included management fees from Graton Resort, which we ceased to manage on February 5, 2021.
Operating Income. For the three and six months ended June 30, 2022, our operating income was $68.2 million and $199.0 million, respectively. Our operating income for the current year periods was negatively impacted by asset impairment charges totaling $79.0 million recognized in June 2022 when we decided to permanently close and demolish our Texas Station, Fiesta Rancho and Fiesta Henderson properties, which have remained closed since the beginning of the COVID-19 pandemic in March 2020. Our core operations continue to deliver strong results with margins exceeding our pre-pandemic levels.
For the three and six months ended June 30, 2021, our operating income was $168.5 million and $97.4 million, respectively. For the six months ended June 30, 2021, operating income was negatively impacted by a $167.8 million asset impairment charge related to Palms Casino Resort (“Palms”), which was sold in December 2021. Additional information about factors impacting our operating income is discussed below.
Casino. As described at Net Revenues above, our casino revenues for the three and six months ended June 30, 2022 decreased by 7.7% and 0.7%, respectively, as compared to the same periods in the prior year. For the three months ended June 30, 2022, slot handle decreased by 5.7%, table games drop decreased by 2.2% and race and sports write increased by 7.3%. For the six months ended June 30, 2022, slot handle increased by 0.1%, table games drop increased by 6.6% and race and sports write increased by 20.1%. Casino expense decreased by 0.9% for the three months ended June 30, 2022 as compared to the prior year period. For the six months ended June 30, 2022, casino expense increased by 3.8% as compared to the prior year period, primarily due to higher employee-related costs.
Food and Beverage. Food and beverage includes revenue and expenses from our restaurants, bars and catering. For the three and six months ended June 30, 2022, food and beverage revenue increased by 13.7% and 24.8%, respectively, and food and beverage expense increased by 18.3% and 23.5%, respectively. The increases in food and beverage revenue were primarily due to an increase in catering and group business as well as higher food revenue at our restaurants. For the three and six months ended June 30, 2022, the number of restaurant guests served decreased by 10.4% and 2.4%, respectively, while the average guest check increased by 21.7% and 23.0%, respectively, as compared to the prior year periods. The increase in food and beverage expense for the three and six months ended June 30, 2022 was primarily due to higher employee-related costs associated with catering and group business, as well as higher costs of sales.
Room. Information about our hotel operations is presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Occupancy | 85.3 | % | | 82.0 | % | | 81.2 | % | | 71.1 | % |
| Average daily rate | $ | 183.77 | | | $ | 151.94 | | | $ | 176.32 | | | $ | 137.32 | |
| Revenue per available room | $ | 156.72 | | | $ | 124.55 | | | $ | 143.10 | | | $ | 97.65 | |
For the three and six months ended June 30, 2022, room revenue increased by $5.1 million and $20.0 million, respectively, as compared to the prior year periods, as domestic travel and demand continued to recover from the effects of the COVID-19 pandemic. For the three and six months ended June 30, 2022, our ADR increased by 20.9% and 28.4%, respectively, our revenue per available room improved by 25.8% and 46.5%, respectively, and our occupancy rate increased by 3.3 and 10.1 percentage points, respectively, all as compared to the prior year periods. Room expense decreased by $1.4 million for the three months ended June 30, 2022 and room expense was flat for the six months ended June 30, 2022, both as compared to the prior year periods.
Other. Other primarily represents revenues from tenant leases, retail outlets, bowling, spa, and entertainment, and their corresponding expenses. For the three and six months ended June 30, 2022, other revenues increased by 18.7% and 20.8%, respectively, primarily driven by spa, bowling and entertainment. Other expenses increased by 46.9% and 33.8%, respectively, as compared to the prior year periods, primarily due to the acquisition of Palms. Same-store net revenues forhigher employee-related costs.
Management Fee Revenue. For the three and ninesix months ended SeptemberJune 30, 2017,2022, management fees represented fees earned from the management of our joint ventures. For the six months ended June 30, 2021 management fees primarily represented fees earned from our agreement with a Native American tribe to manage Graton Resort, which are further discussed below, increased 4.4%we ceased to manage on February 5, 2021.
Selling, General and 3.9% as compared to the prior year periods, despite the negative impact related to construction disruption at Palace Station associated with the upgrade and expansion project that commenced during the fourth quarter of 2016.
Operating Income. Operating income was $56.5 million and $117.6 million forAdministrative (“SG&A”). For the three and ninesix months ended SeptemberJune 30, 2017, respectively. Operating income for the nine months ended September 30, 2017 was negatively impacted2022, SG&A expenses increased by a $100.3 million loss on a related party lease termination, which is discussed further below. Same-store operating income, excluding the loss from the related party lease termination, was $73.37.3% or $6.1 million and $232.58.3% or $13.5 million, for the three and nine months ended September 30, 2017, respectively. Operating income for the three and nine months ended September 30, 2016 was $73.3 million and $237.2 million, respectively. Components of operating income for the three and nine month comparative periods are discussed below.
Casino. Casino revenues increased by 13.1% and 11.1% for the three and nine months ended September 30, 2017, respectively, as compared to the prior year periods primarily due to the acquisition of Palms. Casino revenues on a same-store basis increased by 6.2% and 3.7% for the three and nine months ended September 30, 2017, respectively, as compared to the prior year periods. SlotThe increase in SG&A expenses was primarily due to higher legal and employee-related costs. As a percentage of net revenue, on a same-store basisSG&A expenses increased by 1.8% and 0.5% for the three and nine month periods primarily due to a 6.3% and 3.4% increase in slot handle,six months ended June 30, 2022, respectively, as compared to the prior year periods. Table games revenue on a same-store basis increased for
Depreciation and Amortization. For the three and ninesix months ended SeptemberJune 30, 2017 primarily due to an increase in drop of 7.6%2022, depreciation and 4.1%amortization expense decreased by 8.5% and 26.4%, respectively, as compared to the prior year periods. Race and sports revenue was higher on a same-store basis for the three and nine months ended September 30, 2017 due to increases in volume.
For the three and nine months ended SeptemberJune 30, 2017, casino expenses increased by 16.5% and 16.2%, respectively,2022, the decrease in depreciation expense was due to certain assets becoming fully depreciated. For the six months ended June 30, 2022, depreciation expense decreased as compared to the prior year periods primarilyperiod due to the acquisitioninclusion of depreciation expense for Palms as well asin the increase in same-store casinos revenues, gaming promotionsfirst quarter of 2021 prior to the property’s reclassification to assets held for sale.
Write-downs and employee expenses.
FoodOther, net. Write-downs and Beverage.other, net include gains and losses on asset disposals, severance, preopening, business innovation and technology enhancements, contract termination costs and non-routine items. For the three and ninesix months ended SeptemberJune 30, 2017, food2022, write-downs and beverage revenue increased by 12.8%other, net totaled $2.0 million and 15.5%, respectively, as compared to$12.2 million, respectively. For the prior year periods largely due to the acquisition of Palms. Food and beverage revenue on a same-store basis remained flat for the threesix months ended SeptemberJune 30, 20172022, write-downs and increased 0.7% for the nine months ended September 30, 2017, as compared to the prior year periods. The average guest check increased 7.6% and 4.4% on a same-store basis for the three and nine months ended September 30, 2017, respectively, as compared to the prior year periods and same-store covers decreased by 4.1% and 2.4%, respectively, as compared to the prior year periods. Food and beverage expenses increased by 14.9% and 22.6% for the three and nine months ended September 30, 2017, respectively, as compared to the prior year periods primarily due to the acquisition of Palms, as well as increasesother, net included $6.7 million in employee expenses and enhancements to our food and beverage product offerings and service levels.
Room. Information about our hotel operations is presented below: |
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Occupancy | 90.9 | % | | 94.4 | % | | 91.5 | % | | 94.3 | % |
| Average daily rate | $ | 94.30 |
| | $ | 83.13 |
| | $ | 95.97 |
| | $ | 85.72 |
|
| Revenue per available room | $ | 85.72 |
| | $ | 78.44 |
| | $ | 87.83 |
| | $ | 80.82 |
|
artist performance agreement termination costs associated with Palms. For the three and ninesix months ended SeptemberJune 30, 2017, room revenues increased by 33.9%2021, write-downs and 38.1%, respectively, primarily due to the acquisition of Palms. ADR increased by 13.4% and 12.0%, respectively, as compared to the prior year periods, partially offset by a 3.5 and 2.8 percentage point decrease, respectively, in occupancy rate. Room revenues on a same-store basis decreased 1.7% and increased 2.3% for three and nine months ended September 30, 2017, respectively, and same-store ADR increased 7.8% and 6.9%, respectively, as compared to the same prior year periods. During the three months ended September 30, 2017, approximately 400 hotel rooms at Palace Station were permanently removed from service as part of the ongoing upgrade and expansion project. Room expenses also increased for the three and nine months ended September 30,
2017 as compared to the prior year periods, primarily due to the acquisition of Palms, as well as increases in employee expenses.
Other. Other primarily represents revenues and their corresponding expenses from tenant leases, retail outlets, bowling, spas and entertainment. Other revenues increased by $6.6other, net totaled $1.4 million and $18.2$1.7 million, for the three and nine months ended September 30, 2017, respectively, as compared to the prior year periods, and other expenses increased $3.1 million and $8.0 million for the three and nine months ended September 30, 2017, respectively, as compared to the prior year periods, primarily due to the acquisition of Palms.respectively.
Management Fee Revenue. Management fee revenue primarily represents management and development fees earned from our management agreements with Graton Resort and Gun Lake. Management fee revenue increased 6.9% and 10.6% to $29.6 million and $90.5 million for the three and nine months ended September 30, 2017, respectively, as compared to $27.7 million and $81.8 million, respectively, for the prior year periods. The increase was due to higher slot and table games revenue as well as the opening of an expansion at Graton Resort, which included a 200-room hotel, convention space and other resort amenities, in the fourth quarter of 2016. In addition, a portion of the casino expansion at Gun Lake opened in May 2017, and the remaining expansion opened in September 2017. The Gun Lake management agreement expires in February 2018.
Selling, General and Administrative (“SG&A”)Asset Impairment. For the three and ninesix months ended SeptemberJune 30, 2017, SG&A expenses increased by $15.82022, we recorded asset impairment charges totaling $79.0 million to write off the carrying amounts of the facilities and $49.7 million or 19.1%certain related assets at our Texas Station, Fiesta Rancho and 20.9%, respectively, as comparedFiesta Henderson properties, which we decided to the prior year periods, primarily due to SG&A expense of Palms, as well as higher employee expensespermanently close and additional costs associated with being a public company. These increases were partially offset by decreased rent expense due to the related party lease termination discussed further below and decreased advertising and promotions expense as compared to the prior year periods.
Depreciation and Amortization.demolish in June 2022. For the three and ninesix months ended SeptemberJune 30, 2017, depreciation and amortization expense increased to $42.7 million and $134.7 million as compared to $36.2 million and $114.1 million for the prior year periods, respectively, primarily due to the acquisition of Palms, as well as accelerated depreciation related to the upgrade and expansion at Palace Station.
Write-downs and Other Charges, net. Write-downs and other charges, net include various charges to record net losses on asset disposals and non-routine transactions. For the three and nine months ended September 30, 2017, write-downs and other charges, net were $15.1 million and $25.0 million, respectively. These amounts included $13.2 million and $18.8 million, respectively, in losses on fixed asset disposals for the same periods. For the three months ended September 30, 2017, losses on fixed asset disposals included $11.5 million related to the reinvestment in Palms. In addition, write-downs and other charges for the nine months ended September 30, 2017 included $3.5 million in tenant lease termination expenses at Palms.
For the three and nine months ended September 30, 2016, write-downs and other charges, net were $1.4 million and $14.7 million, respectively. We incurred $9.0 million in IPO-related advisory, legal and other transaction-related costs that were not deferred as direct and incremental costs of the IPO, as well as costs related to the Fertitta Entertainment Acquisition completed during the second quarter of 2016. Also included in these amounts were $1.1 million and $2.4 million, respectively, in costs associated with various development and acquisition activities, including the acquisition of Palms completed during the fourth quarter of 2016.
Related Party Lease Termination. In April 2017, we purchased entities that own certain land on which Texas Station and Boulder Station are located for cash consideration of $120.0 million. The land was previously leased under long-term operating leases with a related party lessor. Concurrently with the land acquisition, we assumed a long-term ground lease with an unrelated third-party lessor for an adjacent parcel of land at Boulder Station that previously had been subleased from the related party lessor. The assumed ground lease terminates in 2089 and provides for monthly rental payments of approximately $14,000, subject to annual increases of 3% to 6% based on a cost of living factor. During the nine months ended September 30, 2017, we recognized a charge of $100.3 million in related party lease termination costs, which was an amount equal to the difference between the aggregate consideration paid and the fair value of the net assets acquired, including the land and residual interests and the assumed lease obligation. The transaction generated a tax benefit of approximately $35 million to Red Rock and the other owners of Station Holdco. Annual rent expense will decrease by approximately $7.1 million as a result of the land acquisition.
Asset Impairment. In September 2017,2021, we recorded an asset impairment charge of $1.8$167.8 million to write down an approximately 31-acre parcelreduce the carrying amount of land held for development in Las VegasPalms to its estimated fair value of $5.2 millionless cost to sell as a result of entering into ana purchase agreement to sell a portion of the landproperty at a price less than its carrying amount. At September 30, 2017, the land subject to the agreement is presented within assets held forThe sale was completed in the Condensed Consolidated Balance Sheet.December 2021.
Interest Expense, net. Interest expense, net decreasedincreased to $31.3$28.7 million and $100.1$55.4 million for the three and six months ended June 30, 2022, respectively, as compared to $25.6 million and $52.9 million, respectively, for the three and nine months ended September 30, 2017 as comparedsame periods in 2021. The increase in interest expense was primarily due to $35.3 million and $104.4 million, respectively,higher variable interest rates applicable to our credit facility for the priorcurrent year
periods. As a result of the credit facility repricings in January and May 2017, the redemption of $250.0 million in aggregate principal amount of the 7.50% Senior Notes in May 2017, and the repayment of the Restructured Land Loan in June 2017, the weighted averageWe expect interest rate on our outstanding debt decreased, which was offset by the impact of anrates may continue to increase in our outstanding indebtedness. In October 2017, we redeemed the remaining principal outstanding under the 7.50% Senior Notes using proceeds from the issuance of 5.00% Senior Notes in September 2017.response to macroeconomic conditions. Additional information about long-term debt activity is included in Note 46 to the Condensed Consolidated Financial Statements.
Loss on Extinguishment/ModificationExtinguishment of Debt, net. Debt. For the three and ninesix months ended SeptemberJune 30, 2017, we recorded $0.6 million and $3.6 million, respectively, in net loss on extinguishment/modification of debt. In September 2017, we completed the fourth amendment to the credit facility, resulting in a $0.6 million loss on extinguishment/modification of debt. During the nine months ended September 30, 2017,2021, we recognized a total loss on extinguishment/modification of debt$8.1 million as a result of $18.5 million, comprising $4.7 million related to credit facility amendments completed throughout the period and $13.8 million related to the partial redemption of the 7.50%5.00% Senior Notes. These losses were partially offset by a $14.9 million gain on debt extinguishment related to the Restructured Land Loan recognized in June 2017.
The October 2017 redemptionremaining principal amount of the remaining 7.50% Senior Notes resulted in an additional $13.4 million loss on debt extinguishment which will be recognizedthese notes was redeemed in the fourth quarter comprising the write-off of $4.0 million in unamortized debt discount and issuance costs and a redemption premium of $9.4 million.2021.
Provision for Income Tax. For the three and ninesix months ended SeptemberJune 30, 2016,2022, we recorded $0.2recognized a provision for income tax of $8.1 million and $7.3 million, respectively, in loss on extinguishment/modification of debt, primarily related to the refinancing of the prior credit facility in June 2016.
Provision for Income Tax. For the three and nine months ended September 30, 2017, we recognized an income tax provision of $2.4 million and $1.2$20.8 million, respectively. Station Holdco is treated as a partnership for income tax reporting purposes and Station Holdco’s members are liable for federal, state and local income taxes based on their share of Station Holdco’s taxable income. We are not liable for income tax on the noncontrolling interests’ share of Station Holdco’s taxable income or benefit from a taxable loss, and therefore our effective tax raterates of 9.58%19.9% and 6.74%14.3% for the three and ninesix months ended SeptemberJune 30, 2017,2022, respectively, was significantlywere less than the statutory rate. IncomeWe recognized income tax expense totaled $4.8of $0.6 million and $12.3$0.8 million respectively, for the three and ninesix months ended SeptemberJune 30, 2016.2021, respectively.
Net Income Attributable to Noncontrolling Interests. Net income attributable to noncontrolling interests for the three and ninesix months ended SeptemberJune 30, 2017 represented the portion of net income attributable to the approximately 41% ownership interest in Station Holdco not held by us, as well as the portion of MPM Enterprises, LLC’s (“MPM”) net income that was not attributable to us. Net income attributable to noncontrolling interests for the three2022 and nine months ended September 30, 20162021 represented the portion of net income attributable to the ownership interest in Station Holdco not held by us for the period from May 2, 2016 through September 30, 2016, as well as the portion of MPM’s net income that was not attributable to us.
Adjusted EBITDA
Adjusted EBITDA for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 for our two reportable segments and a reconciliation of net income to Adjusted EBITDA are presented below (amounts in thousands). The Las Vegas operations segment includes all of our Las Vegas area casino properties and the Native American management segment includes our Native American management arrangements.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Net revenues | | | | | | | |
| Las Vegas operations | $ | 420,111 | | | $ | 426,410 | | | $ | 819,841 | | | $ | 769,227 | |
| Native American management | — | | | — | | | — | | | 8,087 | |
| Reportable segment net revenues | 420,111 | | | 426,410 | | | 819,841 | | | 777,314 | |
| Corporate and other | 2,130 | | | 1,747 | | | 4,036 | | | 3,462 | |
| Net revenues | $ | 422,241 | | | $ | 428,157 | | | $ | 823,877 | | | $ | 780,776 | |
| | | | | | | |
| Net income | $ | 32,438 | | | $ | 143,350 | | | $ | 124,683 | | | $ | 36,787 | |
| Adjustments | | | | | | | |
| Depreciation and amortization | 33,097 | | | 36,160 | | | 66,522 | | | 90,415 | |
| Share-based compensation | 4,632 | | | 3,373 | | | 8,137 | | | 6,114 | |
| Write-downs and other, net | 2,045 | | | 1,435 | | | 12,225 | | | 1,695 | |
| Asset impairment | 78,992 | | | (1,956) | | | 78,992 | | | 167,777 | |
| Losses from assets held for sale | — | | | 1,441 | | | — | | | 1,441 | |
| Interest expense, net | 28,748 | | | 25,614 | | | 55,422 | | | 52,881 | |
| Loss on extinguishment of debt | — | | | — | | | — | | | 8,140 | |
| Provision for income tax | 8,070 | | | 581 | | | 20,789 | | | 798 | |
| Other | 846 | | | 159 | | | 846 | | | 758 | |
| Adjusted EBITDA | $ | 188,868 | | | $ | 210,157 | | | $ | 367,616 | | | $ | 366,806 | |
| | | | | | | |
| Adjusted EBITDA | | | | | | | |
| Las Vegas operations | $ | 203,929 | | | $ | 222,589 | | | $ | 398,533 | | | $ | 383,269 | |
| Native American management | (1,252) | | | — | | | (3,448) | | | 7,604 | |
| Corporate and other | (13,809) | | | (12,432) | | | (27,469) | | | (24,067) | |
| Adjusted EBITDA | $ | 188,868 | | | $ | 210,157 | | | $ | 367,616 | | | $ | 366,806 | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Net revenues | | | | | | | |
| Las Vegas operations | $ | 369,493 |
| | $ | 318,253 |
| | $ | 1,127,223 |
| | $ | 972,587 |
|
| Native American management | 29,478 |
| | 27,597 |
| | 90,126 |
| | 81,404 |
|
| Reportable segment net revenues | 398,971 |
| | 345,850 |
| | 1,217,349 |
| | 1,053,991 |
|
| Corporate and other | 1,399 |
| | 1,290 |
| | 4,246 |
| | 3,882 |
|
| Net revenues | $ | 400,370 |
| | $ | 347,140 |
| | $ | 1,221,595 |
| | $ | 1,057,873 |
|
| | | | | | | | |
| Net income | $ | 22,308 |
| | $ | 33,444 |
| | $ | 17,028 |
| | $ | 114,675 |
|
| Adjustments | | | | | | | |
| Preopening | 307 |
| | 10 |
| | 705 |
| | 731 |
|
| Depreciation and amortization | 42,661 |
| | 36,240 |
| | 134,721 |
| | 114,103 |
|
| Share-based compensation | 1,989 |
| | 1,413 |
| | 5,727 |
| | 5,714 |
|
| Write-downs and other charges, net | 15,146 |
| | 1,379 |
| | 24,996 |
| | 14,713 |
|
| Related party lease termination | 1,950 |
| | — |
| | 100,343 |
| | — |
|
| Asset impairment | 1,829 |
| | — |
| | 1,829 |
| | — |
|
| Interest expense, net | 31,330 |
| | 35,275 |
| | 100,127 |
| | 104,421 |
|
| Loss on extinguishment/modification of debt, net | 558 |
| | 186 |
| | 3,552 |
| | 7,270 |
|
| Change in fair value of derivative instruments | 310 |
| | — |
| | (3,059 | ) | | (87 | ) |
| Adjusted EBITDA attributable to MPM noncontrolling interest | (2,426 | ) | | (3,715 | ) | | (13,482 | ) | | (13,047 | ) |
| Provision for income tax | 2,364 |
| | 4,790 |
| | 1,230 |
| | 12,292 |
|
| Other | — |
| | — |
| | — |
| | (1,133 | ) |
| Adjusted EBITDA | $ | 118,326 |
| | $ | 109,022 |
| | $ | 373,717 |
| | $ | 359,652 |
|
| | | | | | | | |
| Adjusted EBITDA | | | | | | | |
| Las Vegas operations | $ | 101,779 |
| | $ | 94,322 |
| | $ | 327,056 |
| | $ | 317,959 |
|
| Native American management | 25,337 |
| | 21,624 |
| | 71,349 |
| | 62,152 |
|
| Reportable segment Adjusted EBITDA | 127,116 |
| | 115,946 |
| | 398,405 |
| | 380,111 |
|
| Corporate and other | (8,790 | ) | | (6,924 | ) | | (24,688 | ) | | (20,459 | ) |
| Adjusted EBITDA | $ | 118,326 |
| | $ | 109,022 |
| | $ | 373,717 |
| | $ | 359,652 |
|
| | | | | | | | |
The increaseyear-over-year changes in Adjusted EBITDA for the three and nine months ended September 30, 2017 as compared to the prior year periods iswere due to the factors described within Results of Operationsabove.
Adjusted EBITDA is a non-GAAP measure that is presented solely as a supplemental disclosure. We believe that Adjusted EBITDA is a widely used measure of operating performance in our industry and is a principal basis for valuation of gaming companies. We believe that in addition to net income, Adjusted EBITDA is a useful financial performance measurement for assessing our operating performance because it provides information about the performance of our ongoing core operations excluding non-cash expenses, financing costs, and other non-operational items.operations. Adjusted EBITDA includes net income plus preopening, depreciation and amortization, share-based compensation, write-downs and other, charges, net related
party lease(including gains and losses on asset disposals, severance, preopening, business innovation and technology enhancements, contract termination costs and non-routine items), asset impairment, losses from assets held for sale, interest expense, net, loss on extinguishment/modificationextinguishment of debt, net, change in fair value of derivative instrumentsprovision for income tax and income taxes, and excludes Adjusted EBITDA attributable to the noncontrolling interests of MPM.other.
To evaluate Adjusted EBITDA and the trends it depicts, the components should be considered. Each of these components can significantly affect our results of operations and should be considered in evaluating our operating performance, and the impact of these components cannot be determined from Adjusted EBITDA. Further, Adjusted EBITDA does not represent net income or cash flows from operating, investing or financing activities as defined by GAAP and should not be considered as an alternative to net income as an indicator of our operating performance. Additionally, Adjusted EBITDA does not consider capital expenditures and other investing activities and should not be considered as a measure of our liquidity. In addition, itIt should be noted that not all gaming companies that report EBITDA or adjustments to this measure may calculate EBITDA or
such adjustments in the same manner as we do, and therefore, our measure of Adjusted EBITDA may not be comparable to similarly titled measures used by other gaming companies.
Holding Company Financial Information
The indentureindentures governing the 5.00%4.50% Senior Notes containsand the 4.625% Senior Notes contain certain covenants that require Station LLC to furnish to the holders of the notes certain annual and quarterly financial information relating to Station LLC and its subsidiaries. The obligation to furnish such information may be satisfied by providing consolidated financial information of the Company along with additional disclosure explaining the differences between such information and the financial information of Station LLC and its subsidiaries on a standalone basis. The following financial information about the Company and its consolidated subsidiaries, exclusive of Station LLC and its subsidiaries (the “Holding Company”), is furnished to explain the differences between the financial information of the Holding Company and the financial information of Station LLC and its subsidiaries for the periods presented in this report. As discussed below, theThe primary differences between the financial information of the Holding Company and that of Station LLC relate to income taxes payable byof the Holding Company and the liability relating to the tax receivable agreement and additional SG&A expenses incurred by the Holding Company for professional costs relating to the tax receivable agreement and public company reporting.(“TRA”).
At SeptemberJune 30, 2017,2022, the difference between the balance sheet for Station LLC and its consolidated subsidiaries and the balance sheet for the Holding Company is that the Holding Company had cash of $12.7$2.6 million, anprepaid income tax receivable of $7.0$8.3 million and a net$88.4 million of deferred tax assetassets, net, all of $252.1 million thatwhich are solely assets of the Holding Company, offset byand liabilities that are solely the Holding Company’s, consisting of a $280.1$27.2 million liability under the tax receivable agreementTRA, of which $6.7 million is expected to be paid in the next twelve months, and $0.4$2.8 million of net currentother liabilities. At December 31, 2016,2021, the Holding Company had cash of $3.8$3.3 million, an income tax receivable$98.6 million of $7.7 million and a net deferred tax asset of $244.5assets, net, a $27.2 million offset by liabilities that are solely the Holding Company’s, consisting of a $258.5 millionnoncurrent liability under the tax receivable agreementTRA and $0.6$2.1 million of other net current liabilities.
For the three months ended September 30, 2017 and 2016, the difference between the statements of income for Station LLC and its consolidated subsidiaries and the statements of income for theThe Holding Company is that the Holding Company incurredrecognized net losses of $4.5$8.1 million and $6.5$20.8 million for the three and six months ended June 30, 2022, respectively, which included SG&A expenses of $1.9and $0.6 million and $1.7$0.8 million for the three and six months ended June 30, 2021, respectively, andrepresenting provision for income tax of $2.4 million and $4.8 million, respectively. For the nine months ended September 30, 2017 and 2016, the Holding Company incurred net losses of $7.7 million and $15.3 million, respectively, which primarily included SG&A expenses of $6.7 million and $3.0 million, respectively, and provision for income tax of $1.2 million and $12.3 million, respectively.taxes.
Liquidity and Capital Resources
The following liquidity and capital resources discussion contains certain forward-looking statements with respect to our business, financial condition, results of operations, dispositions, acquisitions, investments and subsidiaries, which involve risks and uncertainties that cannot be predicted or quantified, and consequently, actual results may differ materially from those expressed or implied herein. Such risks and uncertainties include, but are not limited to, the risks described in Item 1A—Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016.2021.
At SeptemberJune 30, 2017,2022, we had $222.4$256.3 million in cash and cash equivalents and ourequivalents. Station LLC maintains its borrowing availability under Station LLC’s Revolving Credit Facility,its revolving credit facility, subject to continued compliance with the terms of the credit facility,facility. At June 30, 2022, Station LLC’s borrowing availability was $747.0 million,$1.0 billion, which was net of $34.0$29.4 million in outstanding letters of credit and similar obligations.
Our primary capital requirements for the near term are expected to be related to the operation and maintenance of our properties, debt service payments and construction costs for Durango. Our anticipated uses of cash for the remainder of 20172022 include (i) approximately $275.0 million to $400.0 million for capital expenditures, including the development of Durango, (ii) required principal and interest payments on Station LLC’s indebtedness totaling approximately $4.0$13.0 million and $20.4$61.8 million, respectively, (ii)(iii) dividends to our Class A common stockholders, including approximately $82.0$14.6 million to $107.0 million for capital expenditures, which includes amounts related to the upgradebe paid in September 2022, and expansion project at Palace Station and reinvestment in Palms, and (iii)(iv) distributions to noncontrolling interest holders of Station Holdco, including “tax distributions” that may be made quarterly when required and dividendsin amounts that may vary from quarter to quarter. In addition, subsequent to June 30, 2022, we paid $172.4 million to purchase approximately 126 acres of development land in Las Vegas. Other payment obligations include salaries, wages and employee benefits, service contracts, property taxes, insurance and other obligations.
As of September 2021, our board of directors approved an equity repurchase program authorizing the repurchase of up to an aggregate of $300 million of our Class A
common stock through December 31, 2022. This authorization was increased to $600 million in August 2022. We are not obligated to repurchase any shares under the program. Subject to applicable laws and the provisions of any agreements restricting our ability to do so, repurchases may be made at our discretion from time to time through open market purchases, negotiated transactions or tender offers, depending on market conditions and other factors. During the six months ended June 30, 2022, we repurchased 3,222,402 shares of our Class A common stock in open market transactions at a weighted-average price of $38.02 per share. After giving effect to the increased authorization, we have $331.9 million of remaining repurchases authorized under the program. From time to time, we may also seek to repurchase our
common stockholders, including dividends of $6.9 million that we expect to pay on November 30, 2017. At September 30, 2017, we also had $264.4 million in restricted cash, which primarily was used to redeem the remaining $250.0 million in outstanding principal on Station LLC’s 7.50% Senior Notes, as well as pay a redemption premium of $9.4 million and $2.0 million in accrued interest on the 7.50% Senior Notes on October 9, 2017.
We are obligated to make payments under the tax receivable agreement, which is described in Note 10 to the Condensed Consolidated Financial Statements. At September 30, 2017,indebtedness. Any such obligations totaled $280.1 million, none of which is expected to be payable within the next twelve months. Although the amount of any payments that must be made under the tax receivable agreementpurchases may be significant, the timing of these payments will vary and will generally be limited to one payment per year. The amount of such payments is also limited to the extent we utilize the related deferred tax assets. The payments that we are required to make will generally reduce the amount of overall cash that might have otherwise been available to us, but we expect the cash tax savings we will realize from the utilization of the related deferred tax assets to fund the required payments.
We believe that cash flows from operations, available borrowings under Station LLC’s credit facility andfunded by existing cash balances or the incurrence of debt, including borrowings under our credit facility. The amount and timing of any repurchases will be adequatebased on business and market conditions, capital availability, compliance with debt covenants and other considerations.
We expect that cash on hand, cash generated from operations and borrowings available under the credit facility will be sufficient to satisfyfund our other anticipated uses ofoperations and capital requirements and service our outstanding indebtedness for the next twelve months. We regularly assess our projected capital requirements for capital expenditures, repayment of debt obligations, and payment of other general corporate and operational needs. In the long term, we expect that we will fund our capital requirements with a combination of cash generated from operations, borrowings under Station LLC’s Revolving Credit Facilitythe credit facility and the issuance of new debt or equity as market conditions may permit. However, our cash flow and ability to obtain debt or equity financing on terms that are satisfactory to us, or at all, may be affected by a variety of factors, many of which are outside of our control, including competition, general economic and business conditions and financial markets. As a result, we cannot provide any assurance that we will generate sufficient income and liquidity to meet all of our liquidity requirements or other obligations.
AFollowing is a summary of our cash flow information is presented below (amounts in thousands): | | | | Nine Months Ended September 30, | | Six Months Ended
June 30, |
| | 2017 | | 2016 | | 2022 | | 2021 |
| Net cash provided by (used in): | | | | Net cash provided by (used in): | | | |
| Operating activities | $ | 178,904 |
| | $ | 239,050 |
| Operating activities | $ | 277,660 | | | $ | 312,583 | |
| Investing activities | (199,376 | ) | | (409,496 | ) | Investing activities | (104,614) | | | (35,601) | |
| Financing activities | 109,123 |
| | 150,152 |
| Financing activities | (224,033) | | | (306,901) | |
Cash Flows from Operations
Our operating cash flows primarily consist of operating income or loss generated by our properties (excluding depreciation and other non-cash charges), interest paid and normal fluctuationschanges in working capital accounts such as inventories, prepaid expenses, receivables and payables. The majority of our revenue is generated from our slot machine and table game play, which is conducted mainlyprimarily on a cash basis. Our food and beverage, room and other revenues are also primarily cash-based. As a result, fluctuations in our revenues have a direct impact on our cash flow from operations.
For the ninesix months ended SeptemberJune 30, 2017,2022, net cash provided by operating activities was $178.9$277.7 million as compared to $239.1$312.6 million for the prior year period. OperatingCash flows from operating activities for the six months ended June 30, 2022 included $50.9 million in interest payments and $17.8 million cash flows were negatively impacted bypaid for income taxes, as compared to $51.2 million and $0.7 million, respectively, for the $100.3 million loss on related party lease termination and additional costs associated with being a public company. These negative impacts were partially offset byprior year period. Information about our operating results from Palms, which we acquired in October 2016, as well as improved operating results at our properties and our Native American managed properties as described under activities is presented within Results of Operations above.
Cash Flows from Investing Activities
For the ninesix months ended SeptemberJune 30, 2017,2022 and 2021, cash paid for capital expenditures were $168.0totaled $101.4 million which were primarilyand $20.1 million, respectively. Capital expenditures for the current year included amounts related to various renovation projects, including the upgrade and expansion project at Palace Station which commenced in October 2016 and reinvestment at Palms, as well as the purchase of slot machines and related gaming equipment. During the same period, we paid $23.4 million to a related party to purchase the land subject to the ground leases on which each of Boulder Station and Texas Station is located. During the nine months ended September 30, 2016, capital expenditures were $119.5 million, consisting primarily of various remodeling projects, slot machines and related gaming equipment, race and sports technology upgrades and information technology enhancements. In addition, during the same period, we collected $18.3 million of related party notes and we funded $314.2 million of the purchase price of the Palms prior to the October 1, 2016 acquisition date.Durango project.
Cash Flows from Financing Activities
During the ninesix months ended SeptemberJune 30, 2017,2022, we completed an aggregate $531.9paid $30.3 million upsizingin dividends to Class A common stockholders and repricing$54.9 million in cash distributions to the noncontrolling interest holders of Station LLC’s credit facility andHoldco. We also paid $23.3$122.5 million in related fees and costs. We alsoto repurchase 3.2 million shares of our Class A common stock pursuant to our equity repurchase program.
During the six months ended June 30, 2021, we redeemed $250.0 million in outstanding principal amount under the 7.50%of Station LLC’s 5.00% Senior Notes and paid a redemption premium of $9.4$6.3 million. In September
2017, we issued $550.0 million in aggregate principal amount of 5.00% Senior Notes and transferred approximately $259.4 million ofaddition, during the proceeds to a restricted account designated for the October 2017 redemption of the remaining outstanding principal under the 7.50% Senior Notes. We used the remaining proceeds primarily to pay $185.0 million then outstanding under the Revolving Credit Facility and fees and costs associated with the transaction. During the same period,six months ended June 30, 2021, we paid $105.1$37.8 million to fully settle the outstanding principal owed under the Restructured Land Loan and to acquire outstanding warrantsrepurchase 1.1 million shares of CV Propco and NP Tropicana. In addition, we paid $20.1 million in dividends toour Class A common shareholdersstock pursuant to our equity repurchase program and $32.3we paid cash tax distributions of $31.4 million in cash distributions, consisting of $21.7 million paid to the noncontrolling interest holders of Station Holdco and $10.6 million paid by MPM to its noncontrolling interest holders.Holdco.
During the nine months ended September 30, 2016, we received net proceeds from the IPO of approximately $532.0 million and used $112.5 million to purchase outstanding LLC Units from existing members of Station Holdco. In addition, Station LLC completed the purchase of Fertitta Entertainment, which included a deemed distribution of $389.1 million to Fertitta Entertainment’s equity holders. During the same period, Station LLC entered into a newRestrictive Covenants
The agreements governing our credit facility with an initial principal balance of $1.725 billion, the proceeds of which were used to repay the principal balance outstanding under its prior credit facility. For the nine months ended September 30, 2016, cash distributions totaled $114.7 million, consisting of $104.7 million paid to members of Station Holdco and $10.0 million paid by MPM to its noncontrolling interest holders. During the same period, we paid $6.0 million to the noncontrolling interest holders of MPM related to a note payable, and we paid $7.3 million to terminate an interest rate swap.
Credit Facility Amendments
In January 2017, we amended Station LLC’s credit facility to increase the existing Term Loan B Facility by $125.0 million and reduce the applicable margins for LIBOR and base rate loans by 50 basis points. We used the proceeds of the incremental Term Loan B Facility borrowings to repay outstanding borrowings under the Revolving Credit Facility and pay fees and costs incurred in connection with the transaction, including a repricing fee of $14.9 million, which represented 1.00% of the aggregate principal amount of the Term Loan B Facility outstanding prior to the $125.0 million increase in borrowings.
In May 2017, we amended Station LLC’s credit facility to increase the Term Loan B Facility by an additional $250.0 million. Station LLC applied the proceeds of the incremental borrowings under the Term Loan B Facility, together with cash on hand, to pay for the redemption of $250.0 million of its 7.50% Senior Notes and to pay fees and costs incurred in connection with the transactions. As a result of the January 2017 and May 2017 increases to the Term Loan B Facility, the required quarterly principal payments increased to $4.7 million. Depending on Station LLC’s consolidated leverage ratio, we are required to apply a portion of its excess cash flow to repay amounts outstanding under the Term Loan B Facility, which reduces future quarterly principal payments.
Also in May 2017, we completed a series of amendments to Station LLC’s credit facility to increase the existing Term Loan A Facility by $50.0 million and reduce the applicable margins for LIBOR and base rate loans under the Revolving Credit Facility and Term Loan A Facility. As amended, the Revolving Credit Facility and the Term Loan A Facility bear interest at a rate per annum, atindentures governing our option, equal to either LIBOR plus an amount ranging from 1.75% to 2.00% or base rate plus an amount ranging from 0.75% to 1.00%, dependingsenior notes impose significant operating and financial restrictions on Station LLC’s consolidated leverage ratio. Prior to the amendments, the Revolving Credit Facilityus, including certain limitations on our and the Term Loan A Facility bore interest at a rate per annum, at our option and subject to a leverage-based grid, of either LIBOR plus an amount ranging from 1.75% to 2.75% or base rate plus an amount ranging from 0.75% to 1.75%.
In September 2017, we amended Station LLC’s credit facilitysubsidiaries’ ability to, among other things, (a) extend the maturity date under eachobtain additional debt or equity financing due to applicable financial and restrictive covenants in our debt agreements. In addition, our credit agreement contains certain financial covenants, including maintenance of the Term Loan A Facility and the Revolving Credit Facility by one year to June 8, 2022; (b) set the required quarterly principal payments on the Term Loan A to approximately $3.4 million, payable on the last day of each quarter beginning on December 31, 2017; (c) increase the outstanding amount of the Term A Facility to approximately $272.5 million; (d) increase the outstanding borrowing availability of the Revolving Credit Facility to $781.0 million and (e) modify the maximum consolidated total leveragea minimum interest coverage ratio requirements as described in Note 4.
Restructured Land Loan
During the nine months ended September 30, 2017, we paid $105.1 million in full settlement of the outstanding principal owed under the Restructured Land Loan. Annual interest payments will decrease by approximately $3.6 million as a result of the repayment of the Restructured Land Loan.
5.00% Senior Notes
In September 2017, Station LLC issued $550.0 million in aggregate principal amount of 5.00% Senior Notes due October 1, 2025 at par pursuant to an indenture among Station LLC, the guarantors party thereto and Wells Fargo Bank, National Association, as Trustee. Interest on the 5.00% Senior Notes will be paid every six months in arrears on April 1 and October 1, commencing April 1, 2018. See Note 4 for further information on the 5.00% Senior Notes.
7.50% Senior Notes
As noted above, in May 2017 we redeemed $250.0 million in aggregate principal amount of Station LLC’s 7.50% Senior Notes (the “Partial Notes Redemption”) atand adherence to a redemption price equal to 103.75% ofmaximum total leverage ratio. During the principal amount of such notes. Following the Partial Notes Redemption, $250.0 million in aggregate principal amount of 7.50% Senior Notes remained outstanding. On October 9, 2017, we redeemed the remaining $250.0 million in outstanding principal amount under the 7.50% Senior Notes at a redemption price equal to 103.75% of the principal amount of such notes using proceeds from the issuance of the 5.00% Senior Notes. Upon issuance of the 5.00% Senior Notes, approximately $261.4 million, representing $250.0 million in outstanding principal, the $9.4 million redemption premium and accrued and unpaid interest through the redemption date, was irrevocably deposited in trust of the paying agent. Accordingly, at September 30, 2017, the $261.4 million in funds held in trust was classified as restricted cash.
Restrictive Covenants
As described above and in Note 4, during the threesix months ended SeptemberJune 30, 20172022, there were changes to certain covenants included in Station LLC’s credit facility. In addition, certain customary covenants govern the 5.00% Senior Notes, which are discussed further in Note 4. During the nine months ended September 30, 2017, there were no other changes made to the covenants included in the credit facility or the indentureindentures governing the 7.50% Senior Notessenior notes as described in Liquidity andFinancial Condition, Capital Resources and Liquidity in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016.2021. We believe that as of SeptemberJune 30, 2017,2022, Station LLC was in compliance with the covenants contained in the credit facility and the indentures governing the 7.50% Senior Notessenior notes.
As a result of these covenants and restrictions, we are limited in how we conduct our business and we may be unable to raise additional debt or equity financing to provide liquidity if changes in the 5.00% Senior Notes.economy, discretionary spending, consumer confidence or other external factors negatively affect our business. In addition, such covenants and restrictions may limit our ability to compete effectively or to take advantage of new business opportunities. Further, our ability to comply with covenants and restrictions contained in the agreements governing our indebtedness may be adversely affected by general economic conditions and industry conditions resulting from the COVID-19 pandemic.
Failure to satisfy the covenants contained in the credit agreements, indentures or other agreements governing our indebtedness would require us to seek waivers or amendments of such covenants. There can be no assurance that we would be able to obtain required waivers or amendments, as such matters depend, in part, on factors outside of our control. If we fail to satisfy our covenants and are unable to obtain such waivers or amendments, our creditors could exercise remedies under the applicable documents governing such indebtedness, including acceleration of such indebtedness.
Off-Balance Sheet Arrangements
WeAt June 30, 2022, we had no variable interests in unconsolidated entities that provide off-balance sheet financing, liquidity, market risk or credit risk support, or that engage in leasing, hedging or research and development arrangements with us, nor did we have not entered into any transactions with special purpose entities and our derivative arrangements are described in Note 5 to the Condensed Consolidated Financial Statements. We do not have any retained or contingent interestinterests in assets transferred to an unconsolidated entity. At SeptemberJune 30, 2017,2022, we had outstanding letters of credit and similar obligations totaling $34.0$29.4 million.
Contractual ObligationsInflation
DuringOur business is experiencing the nine months ended September 30, 2017, changes in our indebtedness, hedging activity, lease obligations and tax receivable agreement liability caused a material change to the contractual obligations previously reported in our Annual Report on Form 10-K for the year ended December 31, 2016. The impact of these changes is summarizedincreased inflationary pressure. Commodity prices have increased and become more volatile, and we are experiencing price inflation in ordinary goods and services such as food costs, supplies, energy costs and construction costs. In addition, we have been impacted by a shortage of qualified workers which places additional upward pressure on wages and benefit costs as we seek to attract and retain qualified workers. We attempt to minimize the table below (amounts in millions):impact of inflation on our business by implementing cost controls and adjusting prices.
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| | Less than 1 year | | 1-3 years | | 3-5 years | | Thereafter | | Total |
| Long-term debt (a) | $ | 282.0 |
| | $ | 118.8 |
| | $ | 265.4 |
| | $ | 2,270.4 |
| | $ | 2,936.6 |
|
| Interest on long-term debt and interest rate swaps (b) | 111.6 |
| | 225.4 |
| | 210.7 |
| | 128.8 |
| | 676.5 |
|
| Operating leases | 3.0 |
| | 6.1 |
| | 8.9 |
| | 212.7 |
| | 230.7 |
|
| Obligation under the tax receivable agreement | — |
| | 20.8 |
| | 17.8 |
| | 241.5 |
| | 280.1 |
|
| |
(a) | Includes scheduled principal payments and estimated excess cash flow payments on long-term debt outstanding at September 30, 2017, including $250.0 million in remaining principal on the 7.50% Senior Notes to be paid from restricted cash. |
| |
(b) | Includes contractual interest payments based on outstanding amounts and interest rates in effect at September 30, 2017 and projected net cash payments on our interest rate swaps. |
Native American Development
We have development and management agreements with the North Fork Rancheria of Mono Indians, a federally recognized Native American tribe located near Fresno, California, pursuant to which we will assist the tribe in developing, financing and operating a gaming and entertainment facility to be located on Highway 99 north of the city of Madera, California. See Note 34 to the Condensed Consolidated Financial Statements for information about this project.
Regulation and Taxes
We are subject to extensive regulation by Nevada gaming authorities as well as the National Indian Gaming Commission and the California Gambling Control Commission, the Federated Indians of Graton Rancheria Gaming Commission and the Gun Lake Tribal Gaming Commission. In addition, we will be subject to regulation, which may or may not be similar to that in Nevada, by any other jurisdiction in which we may conduct gaming activities in the future.
The gaming industry represents a significant source of tax revenue, particularly to the State of Nevada and its counties and municipalities. From time to time, various state and federal legislators and officials have proposed changes in tax law, or in the administration of such law, affecting the gaming industry. The Nevada legislature meets every two years for 120 days and when special sessions are called by the Governor. The most recent regularspecial legislative session ended in June 2017.on November 16, 2021. There are currently no specific legislative proposals to increase taxes on gaming revenue, but there are no assurances that an increase in taxes on gaming or other revenue will not be proposed and passed by the Nevada legislature in the future.
In January 2020, the Clark County Education Association (“CCEA”) filed a ballot initiative to increase the Nevada gaming tax by three percentage points, from 6.75 percent to 9.75 percent. CCEA subsequently withdrew the petition and no longer supports it; however, the Nevada Secretary of State has taken the position that a petition cannot be withdrawn from the ballot following signature qualification. CCEA initiated a legal challenge against the Secretary of State to compel the withdrawal of the initiative. CCEA prevailed at the district court level and at the Nevada Supreme Court. Accordingly, the initiative has been effectively withdrawn and will not appear on the ballot in the November 8, 2022, general election.
Description of Certain Indebtedness
A description of our indebtedness is included in Note 4 to the Condensed Consolidated Financial Statements and in Note 127 to the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.
Derivative2021 and Hedging Activities
A description of our derivative and hedging activities is included in Note 56 to the Condensed Consolidated Financial Statements. There were no material changes to the terms of our indebtedness during the six months ended June 30, 2022.
Critical Accounting Policies and Estimates
A description of our critical accounting policies and estimates is included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016.2021. There were no material changes to our critical accounting policies and estimates during the ninesix months ended SeptemberJune 30, 2017.2022.
Forward-looking Statements
The outbreak of COVID-19 resulted in the closure of all of our casino properties and all other casino properties located in Nevada from March 17, 2020 through June 3, 2020. We reopened the majority of our properties on June 4, 2020, but certain of our properties will remain closed permanently. Although restrictions on operations to implement social distancing and other health and safety protocols were progressively lifted through June 1, 2021, and a rule added in late July 2021 requiring all employees and guests to wear face coverings while indoors in public spaces was lifted on February 10, 2022, there is no guarantee that additional measures will not be re-implemented in the future. The outbreak of COVID-19 and measures to reduce its spread have caused, and may continue to cause, widespread unemployment and significant disruptions in the United States economy generally and the Las Vegas economy in particular, which could adversely impact our business.
When used in this report and elsewhere by management from time to time, the words “may”, “might”, “could”, “believes”, “anticipates”,“may,” “might,” “could,” “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements with respect to our financial condition, results of operations and our business including our expansions, development and acquisition projects, legal proceedings and employee matters. Certain important factors, including but not limited to, financial market risks, could cause our actual results to differ materially from those expressed in our forward-looking statements. Further information on potentialPotential factors which could affect our financial condition, results of operations and business including,include, without limitation, the impact of the COVID-19 pandemic, rising inflation, higher interest rates and increased energy costs on consumer demand and our ability to integrate the operations of Palmsbusiness, financial results and realize cost savings and other synergies related to the acquisition;liquidity; the impact of our substantial indebtedness; the effects of local and national economic, credit and capital market conditions on consumer spending and the economy in general, and on the gaming and hotel industries in particular; the effects of competition, including locations of competitors and operating and market competition; changes in laws, including increased tax rates, regulations or accounting standards, third-party relations and approvals, and decisions of courts, regulators and governmental bodies; risks associated with construction projects, including disruption of our operations, shortages of materials or labor, unexpected costs, unforeseen permitting or regulatory issues and weather; litigation outcomes and judicial actions, including gaming legislative action, referenda and taxation; acts of war or terrorist incidents, natural disasters or natural disasters;civil unrest; risks associated with the collection and retention of data about our customers, employees, suppliers and business partners; and other risks described in our filings with the Securities and Exchange Commission. All forward-looking statements are based on our current expectations and projections about future events. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date thereof. We undertake no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date hereof.
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.
Our primary exposure to market risk is interest rate risk associated with our long-term debt. We evaluate our exposure to market risk by monitoring interest rates in the marketplace. We attempt to limit our exposure to interest rate risk by managing the mix of our long-term and short-term borrowings and by using interest rate swaps to achieve fixed cash flows attributable to interest payments on our variable-rate debt. At September 30, 2017, $2.1 billion of the outstanding borrowings under our credit facility was based on variable rates, primarily LIBOR, plus applicable margins. See Note 4to the Condensed Consolidated Financial Statements for additional information about our long-term debt.
Following is information about future principal maturities, excluding original issue discounts, of our long-term debt and the related weighted-average contractual interest rates in effect at September 30, 2017 (dollars in millions):
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Expected maturities during the twelve months ending September 30, | | |
| | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total | | Fair value |
| Long-term debt: | | | | | | | | | | | | | | | |
| Fixed rate | $ | 252.4 |
| | $ | 2.5 |
| | $ | 2.6 |
| | $ | 2.7 |
| | $ | 2.9 |
| | $ | 567.7 |
| | $ | 830.8 |
| | $ | 840.1 |
|
| Weighted-average interest rate | 7.46 | % | | 3.60 | % | | 3.60 | % | | 3.60 | % | | 3.60 | % | | 4.96 | % | | | | |
| | | | | | | | | | | | | | | | |
| Variable rate (a) | $ | 29.6 |
| | $ | 35.8 |
| | $ | 77.9 |
| | $ | 23.0 |
| | $ | 236.8 |
| | $ | 1,702.7 |
| | $ | 2,105.8 |
| | $ | 2,103.6 |
|
| Weighted-average interest rate | 3.51 | % | | 3.55 | % | | 3.65 | % | | 3.45 | % | | 3.28 | % | | 3.74 | % | | | | |
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(a) | Based on variable interest rates and margins in effect at September 30, 2017. |
The weighted-average interest rates for variable-rate debt shown in the long-term debt table above were calculated using the rates in effect at September 30, 2017. We cannot predict the LIBOR or base rate interest rates that will be in effect in the future, and actual rates will vary. Based on our outstanding borrowings at September 30, 2017, an assumed 1% increase in variable interest rates would cause our annual interest cost to increase by approximately $5.2 million, after giving effect to our interest rate swaps.
We are exposed to interest rate risk related to our interest rate swap agreements which we use to hedge the interest payments on a portion of our variable-rate debt. Our interest rate swaps are matched with specific debt obligations and are not used for trading or speculative purposes. At September 30, 2017, our interest rate swaps effectively converted $1.6 billion of our variable interest rate debt (based on one-month LIBOR that is subject to a minimum of 0.75%) to a fixed rate of 3.68%.
On June 30, 2017, we dedesignated the hedge accounting relationships of our interest rate swaps that were previously designated as cash flow hedges of forecasted interest payments. Although we no longer apply hedge accounting to these interest rate swaps, they continue to meet our risk management objectives by achieving fixed cash flows attributable to interest payments on the debt principal being hedged. See Note 5 to the Condensed Consolidated Financial Statements for detailed information about our interest rate swaps.
Interest rate movements affect the fair value of our interest rate swaps. We determine the fair values of our interest rate swaps using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the instrument. This analysis reflects the contractual terms of the agreements, including the period to maturity, and uses observable market-based inputs, including forward interest rate curves. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurement. Fair value is subject to significant estimation and a high degree of variability between periods. As a result of our election to discontinue hedge accounting, changes in the fair values of the previously designated interest rate swaps are being recognized in our Consolidated Statements of Income in the period of change, which could result in earnings volatility.
We are exposed to credit risk should the counterparties fail to perform under the terms of the interest rate swap agreements; however, we seek to minimize our exposure to this risk by entering into interest rate swap agreements with highly rated counterparties, and we do not believe we were exposed to significant credit risk at September 30, 2017.
Following is information about the combined notional amount and weighted average interest rate by contractual maturity date for our interest rate swap agreements, as well as the fair value of the combined asset at September 30, 2017 (dollars in millions):
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| | Contractual maturities during the twelve months ending September 30, | | |
| | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total | | Fair value |
| Interest rate swaps: | | | | | | | | | | | | | | | |
| Notional amount | $ | 44.3 |
| | $ | 52.3 |
| | $ | 236.0 |
| | $ | 1,250.0 |
| | $ | — |
| | $ | — |
| | $ | 1,582.6 |
| | $ | 11.4 |
|
| Fixed interest rate payable (a) | 1.25 | % | | 1.53 | % | | 1.78 | % | | 1.94 | % | | — | % | | — | % | | | | |
| Variable interest rate receivable (b) | 1.24 | % | | 1.24 | % | | 1.24 | % | | 1.24 | % | | — | % | | — | % | | | | |
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(a) | Represents the weighted average fixed interest rate payable on our interest rate swaps. |
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(b) | Represents the variable receive rate in effect at September 30, 2017. |
There have been no other material changes in our market riskrisks from those disclosed in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2016.2021.
Item 4. Controls and Procedures
The Company’s management conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of SeptemberJune 30, 2017.2022. In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, the principal executive officer and principal financial officer concluded that, as of SeptemberJune 30, 2017,2022, the Company’s disclosure controls and procedures were effective, at the reasonable assurance level, and are
designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
The Company and its subsidiaries are defendants in various lawsuits relating to routine matters incidental to their business. No assurance can be provided as to the outcome of such matters and litigation inherently involves significant costs.risks.
Item 1A. Risk Factors
There have been no material changes in the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016.2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent SalesIssuer Purchases of UnregisteredEquity Securities
In August 2017, we issuedThe following table presents our Class A share purchases for the three months ended June 30, 2022. All of our Class A share repurchases during the periods presented were made in open market transactions pursuant to our publicly announced equity repurchase program. The Class A shares were retired upon repurchase. | | | | | | | | | | | | | | | | | | | | | | | |
| For the Month Ended | Total Number of Shares Purchased | | Average Price Paid per Share (1) | | Total Number of Shares Purchased as Part of a Publicly Announced Program (2) | | Approximate Dollar Value That May Yet Be Purchased Under the Program (2) |
| April 30, 2022 | — | | | $ | — | | | — | | | $ | 145,599,668 | |
| May 31, 2022 | 2,827,709 | | | 37.37 | | | 2,827,709 | | | 39,931,205 | |
| June 30, 2022 | 209,900 | | | 38.16 | | | 209,900 | | | 31,920,833 | |
| Totals | 3,037,609 | | | $ | 37.42 | | | 3,037,609 | | | |
(1) Excludes commissions.
(2) As of September 2021, our board of directors had approved an equity repurchase program authorizing the repurchase of up to an aggregate of 540,000 shares$300 million of our Class A common stock in exchange forthrough December 31, 2022. On August 4, 2022, our board of directors authorized the repurchase of an equivalent numberadditional $300 million of shares ofour Class BA common stock and LLC Units pursuantthrough June 30, 2024, thereby increasing the remaining amount authorized for repurchases under the program to the terms of the exchange agreement entered into in connection with our initial public offering. Such shares were issued in reliance on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933.$331.9 million.
Item 3. Defaults Upon Senior Securities—None.
Item 4. Mine Safety Disclosures—None.
Item 5. Other Information—None.
Item 6. Exhibits
No. 101—The following information from101.INS—XBRL Instance Document — the Company’s Quarterly Report on Form 10-Q forinstance document does not appear in the quarter ended September 30, 2017 formattedInteractive Data File because its XBRL tags are embedded within the Inline XBRL document.
No. 101.SCH—XBRL Taxonomy Extension Schema Document
No. 101.CAL—XBRL Taxonomy Extension Calculation Linkbase Document
No. 101.DEF—XBRL Taxonomy Extension Definition Linkbase Document
No. 101.LAB—XBRL Taxonomy Extension Label Linkbase Document
No. 101.PRE—XBRL Taxonomy Extension Presentation Linkbase Document
No. 104—Cover Page Interactive Data File (formatted as Inline XBRL and contained in eXtensible Business Reporting Language: (i) the Condensed Consolidated Balance Sheets at September 30, 2017 (unaudited) and December 31, 2016, (ii) the Unaudited Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016, (iii) the Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, (iv) the Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 and (v) the Notes to Unaudited Condensed Consolidated Financial Statements.
Exhibit 101)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | RED ROCK RESORTS, INC.,
Registrant |
| | |
| Date: | August 9, 2022 | RED ROCK RESORTS, INC.,
Registrant
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Date: | November 9, 2017 | /s/ STEPHEN L. COOTEY |
| | Stephen L. Cootey Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) |